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1. In packages of the products, Nicko Company included coupons that may be presented at retail
stores to obtain discounts on other Nicko products. Retailers were reimbursed for the face
amount of coupons redeemed plus 10% of that amount for handling costs. The entity honored
requests for coupon redemption by retailers up to three months after the consumer expiration
date. The entity estimated that 70% of all coupons issued would ultimately be redeemed. The
consumer expiration date is December 31, 2013. The total face amount of coupons issued was
P600,000 and the total payments to retailers during 2013 amounted to P220,000. What amount
should be reported as liability for unredeemed coupons on December 31, 2013?
a. 308,000
b. 200,000
c. 242,000
d. 0
2. On April 1, 2013, Cindy Company began offering a new product for sale under a one-year
warranty. Of the 50,000 units in inventory on April 1, 2013, 30,000 had been sold by June 30,
2013. Based on experience with similar products, the entity estimated that the average
warranty cost per unit sold would be P80. Actual warranty costs incurred from April 1 through
June 30, 2013 amounted to P700,000. On June, 2013, what is the estimated liability?
a. 3,300,000
b. 1,600,000
c. 1,700,000
d. 900,000
3. Israel Company operates a retail grocery store that is required by law to collect refundable
deposit of P5 on soda cans. Information for the current year is as follows:
Liability for refundable deposit – January 1 150,000
Cans of soda sold 100,000
Soda cans returned 110,000
On February 1, the entity subleased space and received P25,000 deposits to be applied against
rent at the expiration of the lease in 5 years. In the December 31 statement of financial
position, what amount should be reported as current liability for deposit?
a. 125,000
b. 140,000
c. 100,000
d. 25,000
4. Kiara Company sells office equipment service contracts agreeing to service equipment for a two-
year period. Cash receipts from contracts are credited to unearned service contract revenue
and service contract costs are charged to service contract expense as incurred. Revenue from
service contracts is recognized as earned over the lives of the contracts. Additional information
for the year ended December 31,2013 is as follows:
Unearned service contract revenue January 1 1,200,000
Cash receipts from service contracts sold 2,000,000
Service contract revenue recognized 1,700,000
Service contract expense 1,000,000
What amount should be reported as unearned service contract revenue on December 31, 2013?
a. 1,500,000
b. 2,200,000
c. 1,000,000
d. 3,200,000
5. Bernadette Company requires advance payments with special orders for machinery constructed
to customer specifications. These advances are nonrefundable. Information for the current
year is as follows:
Advances from customers – January 1 2,400,000
Advances received with orders 3,700,000
Advances applied to orders shipped 3,200,000
Advances applicable to orders cancelled 600,000
What amount should be reported as current liability for advances from customers at year-end?
a. 2,900,000
b. 2,300,000
c. 500,000
d. 0
6. Reysie Company offers three payment plans on its twelve-month contracts. Information on the
three plans and the number of children enrolled in each plan for the September 1,2013 to
August 31,2014 contract year follows:
Initial payment per child Monthly fee per child Number of children
Plan A 50,000 - 15
Plan B 20,000 3,000 12
Plan C - 5,000 9
The entity received P990,000 of initial payments on September 1, 2013 and P324,000 of
monthly fees during the period September 1, 2013 to December 31, 2013. On December 31,
2013, what amount should be reported as deferred revenue?
a. 330,000
b. 438,000
c. 660,000
d. 990,000
7. After three profitable years, Andrea Company decided to offer a bonus to the branch manager
of 25% of income over P2,000,000 earned by the branch. The income for the branch was
P3,500,000 before tax and before bonus for the current year. The bonus is computed on income
in excess of P2,000,000 after deducting the bonus but before deducting tax. What is the bonus
for the current year?
a. 700,000
b. 400,000
c. 300,000
d. 375,000
8. Ervielyn Company a division of National Realty Company maintains escrow accounts and pays
real estate taxes for National’s mortgage customers. Escrow funds are kept in interest-bearing
accounts. Interest, less a 10% service fee, is credited to the mortgagee’s account and used to
reduce future escrow payments.
Escrow accounts liability – January 1 700,000
Escrow payments received during the year 1,580,000
Real estate taxes paid during the year 1,720,000
Interest on escrow funds 50,000
35. Byron Company issued 10,000 shares with P100 par to a lawyer as compensation for 1,000
hours of legal services performed. The lawyer usually bills P1,600 per hour for legal services.
On the date of issuance, the share was trading on a public exchange at P140. By what amount
should the share premium account increase as a result of the transaction?
a. 600,000
b. 400,000
c. 300,000
d. 0
36. On January 1, 2013, Sharmaine Company had 125,000 shares issued 25,000 shares of which
were held as treasury. During the current year, transactions were as follows:
January 1 through October 31 – 13,000 treasury shares were distributed to officers as part of
share compensation plan.
November 1 – A 3 for 1 share split took effect.
December 1 – The entity purchased 5,000 of its own shares to discourage an unfriendly
takeover. These shares were not retired.
On January 2, 2014, the entity put into effect a quasi- reorganization by reducing the par value
of the share to P5 and eliminating the deficit against share premium. Immediately after quasi-
reorganization, what amount should be reported as share premium?
a. 4,000,000
b. 1,500,000
c. 1,900,000
d. 400,000
40. Monica Company reported outstanding share capital on December31, 2013 consisting of 30,000.
5% P100 par value cumulative and fully participating preference shares, and 200,000 P10 par
value ordinary shares. Preference dividends were in arrears for 2012 and 2013. On December
31, 2013, the entity declared a dividend of P3,000,000. What was the amount of dividend
payable to ordinary shareholders?
a. 1,860,000
b. 1,140,000
c. 1,800,000
d. 1,200,000
41. Alex Company had the following capital structure during 2012 and 2013:
Preference share capital, P10 par, 4% cumulative, 250,000 shares 2,500,000
Ordinary share capital, P50 par, 200,000 shares 10,000,000
The entity reported net income of P5,000,000 for the year ended December 31, 2013. The
entity paid no preference dividends during 2012 and paid P160,000 in preference dividends
during 2013. What amount should be reported as basic earnings per share?
a. 24.20
b. 24.50
c. 24.00
d. 25.00
42. Joyce, a consultant, keeps accounting records on a cash basis. During 2013, the consultant
collected P2,000,000 in fees from clients. On December 31, 2012, the consultant had accounts
receivable of P400,000. On December 31, 2013, the consultant had accounts receivable of
P600,000 and unearned fees of P50,000. What was the service revenue for 2013 under accrual
basis?
a. 1,750,000
b. 1,800,000
c. 2,150,000
d. 2,250,000
43. Ganer Company paid salaried employees biweekly. Advances made to employees are paid back
by payroll deductions. The entity provided the following information about salaries:
December 31, 2012 December 31, 2013
Employee advances 24,000 36,000
Accrued salaries payable 40,000 ?
Salaries expense during the year 420,000
Salaries paid during the year (gross) 390,000
On December 31, 2013, what amount should be reported as accrued salaries payable?
a. 94,000
b. 82,000
c. 70,000
d. 30,000
44. Oliver Company reported rental revenue of P2,210,000 in the cash basis income tax return for
the year ended November 30, 2013. Additional information is as follows:
Rent Receivable – November 30, 2013 1,060,000
Rent Receivable – November 30, 2012 800,000
Uncollectible rent written off during the fiscal year 30,000
On December 31, 2013, what total amount should be reported as cash and cash equivalent?
a. 3,400,000
b. 2,000,000
c. 2,400,000
d. 3,200,000
46. Michael Company reported net income of P7,500,000 for the current year. The following
account balances are provided for the preparation of the statement of cash flows:
January 1 December 31
Accounts Receivable 1,150,000 1,450,000
Allowance for uncollectible accounts 40,000 50,000
Prepaid rent expense 620,000 410,000
Accounts Payable 970,000 1,120,000
During the year, the entity sold equipment costing P250,000 with accumulated depreciation of
P150,000 for gain of P50,000. In December of the current year, the entity purchased equipment
costing P500,000 with P200,000 cash and a 12% note payable of P300,000. What amount
should be reported as net cash provided by operating activities?
a. 3,400,000
b. 3,500,000
c. 3,550,000
d. 3,600,000
48. Roxette Company reported the following information in the year-end financial statements:
Capital expenditures 1,000,000
Capital lease payments 125,000
Income taxes paid 325,000
Dividends paid 200,000
Net interest payments 220,000
What total amount should be reported as supplemental disclosures in the statement of cash
flows prepared using the indirect method?
a. 545,000
b. 745,000
c. 1,125,000
d. 1,870,000
49. Erica Company purchased a machine for P1,150,000 on January 1, 2013, the entity’s first day of
operation. At the end of the year, the current cost of the machine was P1,250,000. The
machine has a five-year life with no residual value and is depreciated by the straight line
method. For the year ended December 31, 2013, what is the amount of depreciation expense
that should be reported in the current cost income statement?
a. 140,000
b. 230,000
c. 240,000
d. 250,000
50. On January 1, 2010, SME acquired a trademark for a line of products from a competitor for
P3,000,000. The SME expected to continue marketing the line of products using the trademark
indefinitely. An analysis of market provides evidence that the line of trademarked products may
generate net cash inflows for the acquiring entity for an indefinite period. Management is
unable to estimate the useful life of the trademark. In 2013, a competitor unexpectedly
revealed a technological breakthrough that is expected to result in a product, that when
launched by the competitor, will extinguish demand for SME’s patented product line. The
demand for SME’s patented product line is expected to remain strong until December 2015,
when the competitor is expected to launch the new product. On December 31, 2013, SME
assessed the recoverable amount of the trademark at P500,000. SME intended to continue
manufacturing the patented products until December 31, 2015. The financial year-end is
December 31. What amount of impairment loss should recognized in 2013 with respect to the
trademark?
a. 3,000,000
b. 2,500,000
c. 900,000
d. 0