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FINANCIAL ACCOUNTING AND REPORTING


1. Accounting policies are
a. Concepts that underlie the preparation and presentation of financial statements for external
users.
b. Attributes that make the information provided in financial statements useful to users.
c. Fundamental premises on which the accounting process is based
d. Specific principles, bases, conventions, rules and practices adopted by an enterprise in
preparing and presenting financial statements.
2. Changes in accounting policy are generally reported as
a. Adjustments to prior period statements
b. Extraordinary items
c. Adjustments to current period statements only.
d. Adjustments to current and prior period statements.
3. The summary of significant accounting policies shall describe
I. The measurement basis used in preparing the financial statements.
II. The accounting policies used that are relevant to an understanding of the financial
statements.
a. I only c. Both I or II
b. II only d. Neither I nor II
4. Which is incorrect concerning accounting changes?
a. The effect of a change in accounting estimate shall be treated currently and prospectively, if
necessary.
b. The effect of a change in the expected pattern of consumption of economic benefits of a
depreciable asset should be included in the determination of income or loss of the period of
change and future periods.
c. A change in accounting policy shall be accounted for retrospectively.
d. If it is difficult to distinguish between a change in accounting policy and a change in
accounting estimate, the change is treated as a change in accounting policy.
5. A change in accounting policy shall be made when
I. Required by a Standard or an interpretation of the Standard.
II. The change will result in more relevant or reliable information about financial position,
performance and cash flows.
a. I only c. Both I or II
b. II only d. Neither I nor II
6. This means, applying a new accounting policy to transactions, other events and conditions as
if that policy had always been applied.
a. Retrospective application c. Prospective application
b. Retrospective restatement d. Prospective restatement
7. Prior errors are omissions from and misstatements in the financial statements for one or more
periods arising from a failure or misuse of reliable information that
I. Was available when financial statements for those periods were authorized for issue.
II. Could reasonably be expected to have been obtained and taken into account in the
preparation and presentation of those financial statements.
a. I only c. Both I or II
b. II only d. Neither I nor II
8. Where financial statements for a single year are being presented, a prior period error
recognized in the current year ordinarily would
a. Be shown as an adjustment of the balance of retained earnings at the start of the current
year
b. Affect net income of the current year
c. Be shown as an extraordinary item on the current years income statement
d. Be included in the statement of recognized gains and losses
9. Accounting changes are often made and the monetary impact is reflected in the financial
statements even though in theory this may be a violation of the accounting concept of
a. Materiality c. Prudence
b. Consistency d. Objectivity

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10. When an entity changes an accounting policy voluntarily, it has to
a. Inform shareholders prior to taking the decision.
b. Account for it retrospectively
c. Treat the effect of the change as an extraordinary item
d. Treat it prospectively and adjust the effect of the change in the current period and future
periods.

11. Which of the following is not classified as an accounting change?


a. Change in the accounting policy
b. Change in accounting estimate
c. Error in the financial statements
d. All of these are classified as an accounting change

12. Which of the following is not treated as a change in accounting policy?


a. A change from average cost to FIFO for inventory
b. A change to a different method of depreciation
c. A change from full cost to successful effort in the extractive industry
d. A change from cost recovery to percentage of completion

13. An entity changes an accounting policy if

I. It is required by law.
II. The change will result in providing reliable and more relevant information about the entitys
financial position, financial performance and cash flows.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

14. How is a change in accounting policy reported?


I. A change in accounting policy required by PFRS shall be reported in accordance with the
transitional provisions therein.
II. If the PFRS contains no transitional provisions or if an accounting policy is changed
voluntarily, the change shall be reported retrospectively.
a. I only
b. II only
c. Either I or II
d. Neither I nor II

15. A change in measurement basis


a. Is not an accounting change
b. Is a change in accounting policy
c. Is a change in accounting estimate
d. Is a correction of an error

16. When it is difficult to distinguish a change in an accounting policy from a change in an


accounting estimate, the change is treated as
a. Change in accounting estimate with appropriate disclosure
b. Change in accounting policy
c. Correction of an error
d. Initial adoption of an accounting policy

17. An example of a correction of an error in previously issued financial statements is a change


a. From FIFO method of inventory valuation to average cost method.
b. In the service life of plant assets based on changes in the economic environment.
c. From cash basis of accounting to accrual basis of accounting.
d. In the tax assessment related to a prior period.

18. What is the treatment to a change in reporting entity?


a. Accounting change that should be reported prospectively
b. Accounting change that should be reported by restating the financial statements of all
periods presented.
c. A correction of an error
d. Neither an accounting change nor a correction of an error.

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19. Events after the end of the reporting period are events, favorable or unfavorable, that
a. Occur between the end of the reporting period and the date of the next annual financial
statements.
b. Occur between the end of the reporting period and the date of the next interim or annual
financial statements.
c. Occur between the end of the reporting period and the date when the financial statements
are authorized for issue.
d. Occur between the end of reporting period and the date of the next interim statements.
20. Adjusting events are those that
a. Provide evidence of conditions that existed at the end of the reporting period.
b. Are indicative of conditions that arose before the end of the reporting period.
c. Are indicative of conditions that arose after the end of the reporting period.
d. Provide for conditions that existed after the date the financial statements were issued.
21. Financial statements are said to be authorized for issue when
a. The financial statements are filed with the SEC.
b. The shareholders approve the financial statements at their annual meeting.
c. The management is required to submit the financial statements to a supervisory body made
up solely of nonexecutives and the supervisory body approves the financial statements.
d. The management reviews the financial statements and authorizes them for issue.
22. Which of the following statements about events after the end of reporting period is true?
I. A decline in value of investments would normally be classified as an adjusting event.
II. The settlement of a long-running case would normally be classified as a nonadjusting
event.
a. I only c. Both I and II
b. II only d. Neither I nor II
23. All of the following events after reporting period should be classified as nonadjusting, except
a. The entity announced the discontinuation of assembly operation
b. The entity entered into an agreement to purchase the leased building.
c. Destruction of a major production plant by fire
d. A mistake in the calculation of allowance for uncollectible accounts receivable
24. A party is related to an entity if the party, directly or indirectly through one or more
intermediaries
a. Controls, is controlled by or is under common control with the entity
b. Has an interest in the entity that gives it significant influence over the entity.
c. Has joint control over the entity.
d. All of these
25. Related parties include all of the following, except
a. Parent, subsidiary and fellow subsidiaries
b. Associate
c. Key management personnel and close family members of such individuals
d. Two venturers simply because they share joint control over a joint venture
26. Unrelated parties include all of the following, except
a. Two entities simply because they have a common director
b. Providers of finance simply by virtue of their normal dealing with an entity.
c. Customers with whom an entity transacts a significant volume of business, merely by virtue
of the resulting economic dependence
d. Postemployment benefit plan for the benefit of employees.
27. Which of the following would not be considered key management personnel compensation?
a. Short-term benefits
b. Share-based payments
c. Termination benefits
d. Reimbursement of out of pocket expenses

28. All of the following fall within the definition of an entitys related party, except
a. Joint venture in which the entity is a venturer
b. A postemployment benefit plan for the benefit of the employees of the entity
c. An executive director of the entity
d. The partner of a key manager is major supplier of the entity

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29. Which of the following is not a required minimum disclosure about related party transaction?
a. The amount of related party transaction.
b. The amount of the outstanding balance and the terms and conditions including guarantee.
c. The amount of similar transaction with unrelated parties to establish that comparable
related party transaction has been entered at arms length.
d. Provision for doubtful debt related to the outstanding balance
30. All of the following are related party transactions, except
a. Transferred inventory to a shareholder owning forty percent of the entitys ordinary shares.
b. Sold an entity car to the wife of the managing director.
c. Sold an asset to an associate
d. Took out a huge bank loan.
31. Hebert Company began operations on January 1, 2016 and uses the FIFO method of costing
inventory. Management is contemplating a change to the average method to be consistent
with Heberts parent company. The following information has been developed:

2016 2017
Ending inventory:
FIFO 1,500,000 2,000,000
Average 1,000,000 1,800,000
Income under FIFO 6,000,000 8,000,000

What will the 2017 income be after a change to the average method?
a. 8,700,000
b. 7,800,000
c. 8,300,000
d. 7,700,000

32. On January 1, 2014, Lyle Company purchased for P5,000,000 a machine with a useful life of
ten years with no residual. The machine was depreciated by the straight-line method of
depreciation. On January 1, 2017 the entity determined that the residual value of this
equipment at the end of its useful life is P500,000 and the total life of the asset from acquisition
was 15 years. What amount should be reported as depreciation for 2017?
a. 250,000
b. 500,000
c. 292,000
d. 200,000

33. On January 1, 2015, Wesley Company purchased for P6,000,000 a machine with a useful life
of 5 years and a residual value of P600,000. The machine was depreciated by the double
declining balance method and the accumulated depreciation of the machine was P3,840,000
on December 31, 2016. Wesley changed to the straight-line method on January 1, 2017 and
the residual value did not change. In its 2017 statement of financial position, what amount
should Wesley report as accumulated depreciation for this machine?
a. 4,360,000
b. 4,560,000
c. 4,704,000
d. 3,840,000

34. While preparing its financial statements for 2017, June Company discovered computational
errors in its 2016 and 2015 depreciation expense. These errors resulted in overstatement of
each years income by P25,000, net of income taxes. The following amounts were reported in
the previously issued financial statements:

2016 2015
Retained earnings, January 1 700,000 500,000
Net income 150,000 200,000
Retained earnings, December 31 850,000 700,000

Junes net income for the year 2017 is correctly reported at P500,000 and dividends of
P100,000 were declared. What is the balance of retained earnings on December 31, 2017?
a. 1,200,000
b. 1,250,000
c. 1,300,000
d. 1,225,000

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35. Rubio Company failed to accrue warranty costs of P200,000 in its December 31, 2017 financial
statements. In addition, a change from straight-line to accelerated depreciation made at the
beginning of 2018 resulted in a cumulative effect of P400,000. Both the P200,000 and the
P400,000 are before cumulative effect of taxes amounts. What amount before tax should
Rubio report as prior period error in the 2018 statement of retained earnings?
a. 200,000 c. 400,000
b. 600,000 d. 0

36. The audit of Atomic Company for the year ended December 31, 2017 was completed on March
1, 2018. The financial statements were signed by the managing director on March 15, 2018
and approved by the shareholders on March 31, 2018. The next events have occurred.

* On January 15, 2018, a customer owing P900,000 to Atomic filed for bankruptcy. The
financial statements include an allowance for doubtful debts pertaining to this customer of
P100,000

* Specialized equipment costing P525,000 purchased on September 1, 2017 was destroyed


by fire on December 15, 2017. Atomic Company has booked a receivable of P400,000
from the insurance company. After the insurance company completed its investigation on
February 1, 2018, it was discovered that the fire took place due to the negligence of the
machine operator. As a result, the insurers liability was zero on this claim.

* Atomic Companys issued capital comprised 100,000 equity shares with P100 par value.
The company issued additional 25,000 shares on March 1, 2018.

Atomic Company should report a net amount of adjusting events on December 31, 2017 at
a. 1,300,000
b. 1,200,000
c. 3,800,000
d. 3,700,000

37. Derek Construction Company has used the completed contract method of revenue recognition
since the inception of its operations in 2015. In 2017, management decided to adopt the
percentage of completion method. The following data, reporting income for the past three years
has been prepared by the company:

2015 2016 2017


Construction Revenue 20,000,000 50,000,000 58,000,000
Less: Cost of Construction 10,000,000 30,000,000 36,000,000
Income from operations 10,000,000 20,000,000 22,000,000
Gain on sale of investments 3,000,000 1,000,000
Interest expense 0 ( 1,000,000) ( 2,000,000)
Net income 13,000,000 19,000,000 21,000,000

An analysis of the accounting records disclosed the following income by contracts, earned in
the first three years of operations using percentage of completion:

2015 2016 2017


Contract 1 8,000,000
Contract 2 7,000,000 10,000,000
Contract 3 8,000,000 6,000,000 6,000,000
Contract 4 5,000,000 9,000,000
Contract 5 4,000,000

What should be the cumulative effect of the accounting change that should be reported in the
2018 statement of retained earnings? (Ignore income tax effect)
a. 11,000,000 c. 7,000,000
b. 10,000,000 d. 0

38. It is a component of an entity that that has been disposed of or is classified as held for sale.
a. Discontinued operation c. Noncurrent asset held for sale
b. Continued operation d. Disposal group held for sale

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39. Operations and cash flows that can be clearly distinguished, operationally and for financial
reporting purposes, from the rest of the entity
a. Cash-generating unit c. Discontinued operations
b. Component of the entity d. Disposal group

40. A NCA is classified as held for sale when the NCA is available for immediate sale and the
sale is highly probable. For the sale to be highly probable (choose the incorrect one)
a. Management is committed to a plan to sell the component.
b. An active program to locate a buyer is initiated.
c. The component is actively marketed for sale at a reasonable price in relation to its cost.
d. The sale is expected to qualify as a completed sale within one year from the date of
classification as held for sale

41. The results of a discontinued operation, net of tax shall be presented


a. As a single amount on the face of the income statement with no details disclosed in the
notes.
b. As a single amount on the face of the income statement with appropriate disclosure of the
details in the notes.
c. Side by side with continuing operations with details for revenues and expenses attributable
to the discontinued operation shown on the face of the income statement.
d. In the notes only.

42. Which of the following is correct?


a. Discontinued operations are shown as the last category after income from continuing
operations.
b. The discontinued operations section of the income statement consists only of the gain or
loss on disposal of the discontinued component net of the tax effect.
c. The discontinued operations section of the income statement consists only of the income
or loss from operating the discontinued component net of the tax effect.
d. The discontinued operations section of the income statement consists of the income or
loss from operating the discontinued component net of the tax effect as well as the gain or
loss on disposal of the discontinued component net of the tax effect.

43. An entity shall classify a noncurrent asset or disposal group as held for sale when
a. The carrying amount of the asset or disposal group will be recovered through a sale
transaction.
b. The carrying amount of the asset or disposal group will be recovered through continuing
use.
c. The noncurrent asset or disposal group is to be abandoned.
d. The noncurrent asset or disposal group is idle or retired from active use.

44. An entity shall measure a noncurrent asset or discontinued operation classified as held for sale
at
a. Carrying amount
b. Fair value less cost to sell
c. Lower of carrying amount and fair value less cost to sell.
d. Higher of carrying amount and fair value less cost to sell.
45. An entity shall recognize any subsequent increase in fair value less cost to sell of a noncurrent
asset or disposal group classified as held for sale as
a. Deferred gain as component of equity
b. Deferred gain as component of liability
c. Gain entirely to be included in profit or loss
d. Gain to be included in profit or loss but not in excess of the cumulative impairment loss
previously recognized.

46. PFRS 5 states that a noncurrent asset that is to be abandoned should not be classified as held
for sale. The reason for this is because
a. Its carrying amount will be recovered principally through continuing use.
b. It is difficult to value
c. It is unlikely that the noncurrent asset will be sold within 12 months.
d. It is unlikely that there will be an active market for the noncurrent asset.

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47.An entity classified a noncurrent asset accounted for under the cost model as held for sale at
the current year-end. The entity decided at the end of the following year not to sell the asset but
to continue to use it. The asset should be measured at the end of the following year at
a. The lower of carrying amount and recoverable amount
b. The higher of carrying amount and recoverable amount
c. The lower of carrying amount on the basis that it had never been classified as held for sale
and recoverable amount
d. The recoverable amount

48. Which of the following statements in relation to a discontinued operation is true?

I. When the discontinued criteria are met after the end of the reporting period, the operation
shall retrospectively be separately presented as a discontinued operation.
II. The net cash flows attributable to the operating, investing and financing activities of a
discontinued operation shall be separately presented.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

49. An operating segment is a component of an entity


a. That engages in business activities from which it may earn revenue and incur expenses,
including revenue and expenses relating to transactions with other components of the same
entity.
b. Whose results are regularly reviewed by the chief operating decision maker to make
decisions about resources to be allocated to the segment and assess its performance.
c. For which discrete information is available.
d. All of these

50. What is the function of the chief operating decision maker?


a. To allocate resources to the operating segments only.
b. To assess the performance of the operating segments only.
c. To provide information to financial statement users about operating segments.
d. To allocate resources and assess the performance of operating segments.

51. A significant industry segment is one, which meets any of the three criteria relating to revenue,
earnings and identifiable assets. Which of the following is the percentage used to measure
each of these criteria.
a. 15 percent c. 5 percent
b. 10 percent d. 1 percent
52. When is an operating segment reportable?
a. The segment external and internal revenue is 10% or more of the combined external and
internal revenue of all operating segments.
b. The segment profit or loss is 10% or more of the greater between the combined profit of all
profitable operating segments and the combined loss of all unprofitable operating
segments.
c. The assets of the segment are 10% or more of the total assets of all operating segments.
d. All of these

53. Which of the following is not used to determine whether a component of business is a
reportable segment.
a. Revenue c. Earnings
b. Owners equity d. Assets

54. Operating segments that do not meet any of the quantitative thresholds
a. Cannot be considered reportable.
b. May be considered reportable and separately disclosed if management believes that
information about the segment would be useful to the users of the financial statements.
c. May be considered reportable if the information is for internal use only.
d. May be considered reportable and separately disclosed if this is the practice within the
economic environment in which the entity operates.

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55. Which is true concerning the 75% overall size test for operating segments?
a. The total external and internal revenue of all reportable segments is 75% or more of the
entitys external revenue.
b. The total external revenue of all reportable segments is 75% or more of the entitys external
and internal revenue.
c. The total external revenue of all reportable segments is 75% or more of the entitys external
revenue.
d. The total internal revenue of all reportable segments is 75% or more of the entitys internal
revenue.

56. Revenue of a segment includes


a. Only sales to unaffiliated customers.
b. Sales to unaffiliated customers and intersegment sales.
c. Sales to unaffiliated customers and interest revenue.
d. Sales to unaffiliated customers and other revenue and gains.

57. What is the reasonable upper limit for the number of segment that an entity must disclose?
a. Two
b. Five
c. Six
d. Ten

58. Which of the following statements about major customer disclosure is true?
a. A major customer is defined as one providing revenue which amounts to 10% or more of
the combined external revenue of all operating segments.
b. The identities of major customers need not be disclosed.
c. The entity shall disclose the total amount of revenue from major customers and the identity
of the segment reporting the revenue.
d. All of these statements are true about major customer disclosure
59. Interim financial reports shall be published
a. Once a year at any time in that year.
b. Within a month of the half year-end.
c. On a quarterly basis.
d. Whenever the entity wishes.

60. Interim financial reports should include as a minimum


a. A complete set of financial statements.
b. A condensed set of financial statements and selected notes
c. A statement of financial position and income statement only.
d. A condensed statement of financial position, income statement and statement of cash flows
only.
61. An entity owns a number of farms that harvest produce seasonally. What is the disclosure
suggestion if the business is highly seasonal?
a. Additional notes should be written in the interim reports about the seasonal nature.
b. Disclosure of financial information for the latest and comparative 12-month period in
addition to the interim report.
c. Additional disclosure in the accounting policy note.
d. No additional disclosure.

62. For interim financial reporting, an expropriation gain occurring in the second quarter should be
a. Recognized ratably over the last three quarters
b. Recognized ratably over all four quarters with the first quarter being restated
c. Recognized in the second quarter
d. Disclosed by footnote in the second quarter

63. Interim financial reporting should be viewed primarily in which of the following ways?
a. As useful only if activity is spread evenly throughout the year.
b. As if the interim period were an annual accounting period.
c. As reporting under a comprehensive basis of accounting other than GAAP.
d. As reporting for an integral part of an annual period.

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64. Which of the following is not true regarding standards for interim reporting?
a. Declines in inventory value should be deferred to future interim periods.
b. Use of the gross margin method for computing cost of goods sold must be disclosed.
c. Costs and expenses not directly associated with interim revenue must be allocated to
interim periods on a reasonable basis.
d. Gains and losses that arise in an interim period should be recognized in the interim period
in which they arise if they would not normally be deferred at year-end.

65. How is the income tax expense for the third quarter interim period computed?
a. The annual rate multiplied by the third quarter pretax earnings.
b. The estimated tax for the first three quarters based on an annual rate, less a similar
estimate for the first two quarters.
c. The rate applicable during the third quarter multiplied by four times the third quarter pretax
earnings.
d. One-half of the difference between the total estimated annual income tax expense and the
income tax for the first two quarters.

66. Tangerine Company operates two restaurants, one in Boracay and one in Palawan. The
operations and cash flows of each of the two restaurants are clearly distinguishable. During
2017, Tangerine Company decided to close the restaurants in Palawan and sell the property. It
is probable that the disposal will be completed early next year. The revenues and expenses of
Tangerine Company for 2017 and for the preceding two years are as follows (in millions):

2017 2016 2015


Sales-Boracay 60,000 48,000 40,000
Cost of goods sold-Boracay 26,000 22,000 18,000
Other expenses-Boracay 14,000 13,000 12,000

Sales-Palawan 23,000 30,000 52,000


Cost of goods sold 14,000 19,000 20,000
Other expense-Palawan 17,000 16,000 15,000

The other expenses do not include income tax expense. During the later part of 2017,
Tangerine Company sold much of the kitchen equipment of the Palawan restaurant and
recognized a pretax gain of P15,000 on the disposal. The income tax rate is 30%. Tangerine
Company should report income or loss from discontinued operations for 2017 at what amount?
a. 8,000 loss
b. 7,000 gain
c. 5,600 loss
d. 4,900 gain

67. Dustin Company has three manufacturing divisions, each of which has been determined to be
a reportable segment. Common costs are appropriately allocated on the basis of each
divisions sales in relation to Dustins aggregate sales. In 2017, Division 1 had sales of
P10,000,000, which was 20% of Dustins total sales, and had traceable operating costs of
P6,000,000. In 2017, Dustin incurred operating costs of P1,500,000 that were not directly
traceable to any of the divisions. In addition, Dustin incurred interest expense of P500,000 in
2017. In reporting segment information, what amount should be shown as operating profit
Division 1 for 2017?
a. 4,000,000
b. 3,700,000
c. 3,600,000
d. 2,500,000
68. Apolonia Company has estimated that total depreciation expense for the year ended December
31, 2017 will amount to P500,000, and that the 2017 year-end bonuses to employees will total
P1,200,000. In Apolonias interim income statement for six months ended June 30, 2017, what
is the total amount of expense relating to these two items that should be reported?
a. 1,700,000
b. 1,100,000
c. 425,000
d. 850,000

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69. Celina Company provided the following information for the current year:
Segment Sales Traceable expenses

Aye 5,000,000 3,000,000


Bee 4,000,000 2,500,000
Cee 3,000,000 1,500,000
Additional expenses are P2,000,000 indirect expenses, P1,000,000 general corporate
expenses, P500,000 interest expense and P400,000 income tax expense. The interest
expense and income tax expense are regularly reviewed by the chief operating decision maker
as a measure of profit or loss. Appropriate common expenses are allocated to segments based
on the ratio of a segments sales to total sales. What is the profit of Segment Cee for the
current year?
a. 775,000
b. 525,000
c. 875,000
d. 900,000

70. An inventory loss from market decline of P900,000 occurred in April 2017. Angelica Company,
recorded this loss in April 2017 after its March 31, 2017, quarterly report was issued. P200,000
of this loss was recovered by the end of the year. How should this loss and subsequent gain
be reflected in the quarterly income statements of Angelica Company?

Three months ended (2017):


March 31 June 30 September 30 December 31
a. 0 (900,000) 0 0
b. 0 (300,000) (300,000) (300,000)
c. 0 (900,000) 0 200,000
d. (225,000) (225,000) (225,000) (225,000)

71. Kanye Corporation and its divisions are engaged solely in manufacturing. The following data
pertain to the industries in which operations were conducted for the year ended December 31,
2017:

Operating Profit (Loss)


Division A 30,000,000
B 10,000,000
C (8,000,000)
D (2,000,000)
E 5,000,000

In its 2017 financial statements, Kanye Corporation should disclose an operating segment if
operating profit or loss is at least
a. 1,000,000
b. 4,500,000
c. 3,500,000
d. 5,500,000

72. The following transactions for Angelina Enterprises occurred during the second quarter of
2017:

Sales amounted to P5,000,000 and related cost of goods sold was P3,000,000
Selling expenses for the given period was P250,000
Depreciation is usually recorded by Angelina at annual amount of P1,200,000.
Real property taxes for the year in the amount of P600,000 were paid on April 1,
2017.
An inventory loss arising from a temporary market decline of P400,000 had
occurred on June 30, 2017.

Ignoring income taxes, what is the net income for the second quarter ending June 30, 2017?
a. 1,150,000
b. 900,000
c. 1,300,000
d. 750,000

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73. Adelaide Company had the following transactions during the quarter ended March 31 2017:

Loss from hurricane 500,000


Payment of the fire insurance premium for the year 2017 400,000

What total amount of expenses should be included in the income statement for the quarter
ended March 31, 2017?
a. 900,000
b. 633,333
c. 600,000
d. 525,000

74. Salonika Company has historically reported bad debts expense of 5% of sales in each quarter.
For the current year, the company allowed the same procedure in the three quarters of the
year. However, in the fourth quarter, the company, in consultation with its auditor, determined
that bad debt expense for the year should be P4,500,000. Sales in each quarter of the year
were as follows: first quarter, P20,000,000; second quarter, P15,000,000; third quarter,
P25,000,00; fourth quarter, P40,000,000. How much bad debts expense should be recognized
for the fourth quarter?
a. 2,000,000
b. 1,500,000
c. 3,000,000
d. 4,000,000

75. Scudder Company adapted the following changes during 2014:


* Appropriately changed to the FIFO cost method from the weighted-average
cost method for financial statement and income tax purposes. The change will
result in a P700,000 decrease in the beginning inventory at January 1, 2014.
* Changed its method of accounting for bad debts from the direct write-off
method to the allowance method. The company's controller determined that an
allowance of P150,000 should be established on that date.
* Due to technological changes, depreciable assets will have lower residual
values than were originally expected. Analysis shows that depreciation in prior
years was understated by P500,000.
Ignoring income tax effect, what is the net adjustment to the 2014 beginning balance of
retained earnings of Scudder Company?
a. 850,000
b. 1,200,000
c. 1,350,000
d. 550,000

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Q4