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1. When equipment held under an operating lease is subleased by the original lessee, the original
lessee would account for the sublease as:

a. Operating lease b. Sales type lease c. Direct financing lease d. Finance lease
Answer: a

2. Rent received in advance by the lessor is an operating lease should be recognized as revenue:

a. When received b. At the lease inception

b. c. At the lease expiration d. In the period specified by the lease

Answer: d


20-1 The classification of a carried out

a. At the end of the lease term

b. After a “cooling off” period of one year.
c. At the inception of the lease
d. When the entity deems it to be necessary.
Answer: a

20 – 5 At the inception, the lease term is 50% of the economic life of the leased property but the
lease contains a bargain purchase option. The lease should be recorded as:

a. Neither asset nor liability b. Asset but not liability

b. Asset and liability d. Expense
Answer: c


6/3 – Lessors shall recognize asset held under a finance lease as a receivable at an amount equal

a. Gross investment in the lease b. Net investment in the lease

b. Gross rentals d. Residual value, whether guaranteed or unguaranteed.
Answer: d


These are incremental costs that are directly attributes to negotiating and arranging a lease:

a. Initial direct costs b. Transaction costs c. Costs of services d. Executory costs

Answer: a


4/1 It is an arrangement whereby one party sells a property to another party and then
immediately leases the property back from the new owner:

a. Sale b. Leaseback c. Sale and leaseback d. Operating lease

Answer: c

4/7 If the sale and leaseback transaction results in an operating lease and the sale price is above
fair value, the excess of the sale price over fair value is:

a. Deferred and amortized over the period for which the asset is expected to be used.
b. Recognized immediately in profit or loss.
c. Recognized in other comprehensive income.
d. Not recognized.
Answer: a


25/8 It is the amount of income tax payable in respect of the taxable profit:

a. Current tax expense b. Total income tax expense

b. Deferred tax expense d. Deferred tax benefit
Answer: a

28/3 A temporary difference which would result in a deferred tax liability is:

a. Interest revenue on municipal bonds.

b. Accrual of warranty expense
c. Excess of tax depreciation over accounting depreciation.
d. Subscription received in advance.
Answer: c


15/13 What is a “current services cost”?

Current service cost is the increase in the present value of the defined benefit obligation
resulting from employee service in the current period.

Otherwise stated, current service cost is the cost to an entity under a defined benefit plan for
service rendered by employees in the current year.

15/18 Explain “return on plan assets”

The components of return on plan assets include the following:

a. Interest, dividend and other income derived from the plan assets.
b. Realized and unrealized gains and losses on the plan assets.

Chapter 16 – POSTEMPLOYMENT BENEFITS – Multiple Choice

2/1 The components of defined benefit cost include all, except:

a. Service cost b. Net interest

b. c. Remeasurements d. Contribution to the plan
Answer: d

3/6 Financial actuarial assumptions include all of the following except:

a. Future salary b. future medical cost c. Tax payable by the plan

c. Claim rate under medical plan
Answer: d


15/1 What are compensated absences?

a. Unpaid time off b. A form of healthcare c. Payroll deductions d. Paid time off
Answer: d

15/2 Under what condition is an employee required to accrue a liability for sick pay?

a. Sick pay benefits can be reasonably estimated.

b. Sick pay benefits vest. .
c. Sick pay benefits equal 100% of the pay.
d. Sick pay benefits accumulate.

Answer: b


18/21Explain “convertible preference share”

Answer 18 – 21

A convertible preference share is one which gives the holder the right to exchange the holdings for other
securities of the issuing corporation.

A preference share may be converted into ordinary share or bond payable.

18/ 23 Explain the treatment of dividend paid to holders of redeemable preference shares.

Answer: 18 – 23 Dividend paid to holders of redeemable preference shares shall be accounted

for an interest expense as a component of finance cost.

Chapter 19 – SHAREHOLDERS’ EQUITY Multiple Choice

2.6 Gain and loss on retirement of treasury shares shall not be included in profit or loss. If the
retirement results in a in shall be credited to:

a. Share premium b. Retained earnings c. share capital d. Income

Answer: a

2.10. Deposits on subscriptions to a proposed increase in share capital shall be reported as:

a. Part of liabilities b. Part of shareholder’s equity

c. Memorandum only d. Part of retained earnings

Answer: b


23/2 When shareholders may elect to receive cash in lieu of stock dividend, the amount to be
charged to retained earnings is equal to:

a. Optional cash dividend b. Fair value of the shares

b. Par value of the shares d. Book value of the shares
Answer: a

25/3 A dividend which is a return to shareholders of a portion of their original investment is:

a. Liquidating dividend B. Patronage dividend

b. Liability dividend d. Participating dividend
Answer: a


13/5 What is the date on which the fair value of the equity instrument granted is measured?

a. Measurement date b. Grant date c. Exercise date d. End of reporting period

Answer: a

15/5 If the entity has the choice of settlement in a “cash and share alternative”, the entity shall
account for the instrument initially as:

a. Equity only b. Liability only c. Partly equity and partly liability

b. d. Either equity or liability but not both

Answer: d


8/1 Total shareholders’ equity dividend by the number of shares outstanding represents the:
a. Return on equity b. Stated value per share c. Book value per share
c. Answer
a. D. Price earnings ratio Answer: c

9/1 It is the amount which the preference shareholders would receive upon liquidation of
the entity.

a. Liquidation value b. Par value c. book value d. Fair value

Answer: a


9.7 In computing basic earnings per share, an entity would include which of the following?

A. Dividends on nonconvertible cumulative preference shares.

b. Dividends on ordinary shares

c. Interest on convertible bonds.

d. Number of nonconvertible cumulative preference shares.

Answer: a

10.2 Earnings per share shall be calculated before accounting for which of the following items?

a. Preference dividend for the period.

b. Ordinary dividend.

c. Taxation

d. Minority interest Answer: b


15.1 It is a financial; instrument that gives the holder the rights to purchase ordinary shares.

a. Warrant or option.

b. Debt or equity instrument convertible into ordinary share.

c. Employees plan that allows employees to receive ordinary shares as part of their


D. Contractual arrangement requiring issuances of ordinary shares upon the satisfaction

of certain conditions.

Answer: a

15.7 In computing diluted EPS, interest expense on convertible bond payable should be

a. Added back to net income at gross.

b. Added back to net income net of tax.

c. Deducted from net income net of tax.

d. Ignored

Answer: b

Chapter 20 – 18 On December 31, 2013, Pack Company canceled 5,000 shares of P 25 par value
held in treasury at an average cost of P 130 per share. Before recording the cancelation of the treasury
shares, the entity had the following balances:

` Share capital issued originally at P 30 per share P 625,000.00

Share premium 750,000.00
Retained earnings 900,000.00
Treasury shares, at cost 650,000.00

On December 31, 2013, what is the share capital outstanding?

a. 0 b. 250,000 c. 500,000 625,000

Answer: c

20.30 In 2012, Hyatt Company issued for P 110 per share, 15,000 convertible preference shares
of P 100 par value. One preference share may be converted into three ordinary shares of P 25 par value
at the option of the preference shareholder. On December 31, 2013, all of the preference shares were
converted into ordinary shares. The market value of the ordinary share at the conversion date was P 40.
What amount should be credited to ordinary share capital on December 31, 2013?

a. 1,125,000 b. 1,500,000 c. 1,650,000 d. 1,800,000

Answer: a


21.6 On November 1, 2013, Grande Company declared a property dividend of equipment

payable on March 1, 2014. The carrying amount of the equipment is P 3,000,000 and the fair value is P
2,500,000 on November 1, 2013.

1. What is the dividend payable on December 31, 2013?

a. 2,500,000 b. 2,200,000 c. 3,000,000`` d. 0

answer: b

2. What is the measurement of the equipment on December 31, 2013?

a. 2,500,000 b. 2,200,000 c. 3,000,000 d. 2,000,000

answer: b

3. What amount of loss on distribution of property dividend is recognized on March 1, 2014?

a. 300,000 b. 200,000 c. 500,000 d. 0

Answer: b

21.12 On January 1, 2013, Coleen Company had 220,000 P 5 ar value shares outstanding. On
June 1, the entity acquired 20,000 shares to be held in the treasury. On December 1, when the market
price of the share was P 20, the entity declared at 10% share dividend to be issued to shareholders of
record on December 16, 2013. What was the impact of the share dividend on retained earnings?

a. 100,000 decrease b. 400,000 decrease c. 440,000 decrease d. No effect

Answer: b


22.2 On January 1. 2013, Rama Company had 20,000 treasury shares of P 100 par value that had
been acquired in 2012 at P 120 per share. In December, 2013, the entity reissued 15,000 of these
treasury shares at P 150 per share. The cost method is used to record treasury transactions. On
December 31, 2013, what amount should be reported as are restriction of retained earnings as a result
of the treasury share transactions?
a. 2,400,000 b. 1,800,000 c. 600,000 d. 500,000

Answer: c

22.6 Brown Company provided the following shareholders’ equity on December 31, 2013.

Share capital, P 30 par, 100,000 shares authorized

And outstanding 3,000,000
Share premium 1,500,000
Retained earnings (deficit) (2,100,000)

On January 1, 2014, the entity put into effect a quasi-reorganization by reducing the par value of the
share to P 5 and eliminating the deficit against share premium. Immediately after the quasi-
reorganization, what amount should be reported as share premium?

a. 1,500,000 b. 1,900,000 c. 4,000,000 d. 600,000

Answer: b


23.5 On January 1, 2013, Greece Company granted an employee an option to buy 20,000 shares
for P 40 per share, the option exercisable for three years from January 1, 2015. Using a fair value option
pricing model, total compensation expense is determined to be P 240,000. The employee exercised the
option on September 1, 2015, and sold the 20,000 shares on December 1, 2015. The service period is for
two years beginning January 1, 2013. What amount should be recognized as compensation expense for
a. 240,000 b. 120,000 c. 160,000 d. 80,000

Answer: b

23.12 On January 1, 2013, Cuba company granted to a senior executive 10,000 share options
provided the executive remains in the entity’s employ until December 31, 2015. However, the share
options cannot be exercised unless the share price has increased from P 50 on January 1, 2013 to above
P 65 on December 31, 20115. If the share price is above P 65 on December 31, 2015, the share options
can be exercised at any time during the next 5 years. The entity applied a binomial option pricing model
and estimated that the fair value of the share options with this market condition on grand date is P 24
per option. What is the compensation expense for 2013? i

a. 240,000 b. 80,000 c. 48,000 d. 0

Answer: b


24.2 Elizabeth Company granted 100 share appreciation rights to each of the 1,000 employees
in January 2013. The entity estimated that 90% of the awards will vest on December 31, 2015. The fair
value of each

24.4 On January 1, 2013,. ABC Company offered the chief executive officer share appreciation rights
with the following terms:

Predetermined price P 100 per share

Number of shares 10,000 shares
Service period – 3 years 2013, 2014 and 20915
Exercise date December 31, 2015

The share appreciation rights are exercised on December 31, 2015. The quoted price of the ABC share is
P 118 on December 31, 2013, P 112 on December 31, 2014, and P 124 on December 31, 2015. What
amount should be recognized as compensation expense for 2015?

a. 160,000 b. 60,000 c. 80,000 d. 20,000

Answer: a

24.6 On January 1, 2013, Omega Company granted the chief executive officer (CEO) 50,000
share appreciation rights for past services. The rights are exercisable immediately and expire on
December 31, 2014. On exercise, the CEO is entitled to receive cash for the excess of the share market
price on exercise date over the market price on grant date. The CEO did not exercise any of the rights in
2013. The market price of the share was P 100 on January 1, 2013 and P 115 on December 31, 2013. The
CEO exercised the rights on December 31, 2014 when the market price was P 110. What amount should
be recognized as gain on reversal of share appreciation rights in 2014?

a. 750,000 b. 500,000 c. 250,000 d. 0

Answer: c


25.13 On December 31, 2013 and 2014, Carr Company had outstanding 40,000 6% cumulative
preference shares of p 100 par value and 200,000 ordinary shares of P 10 par value. On December 31,
2013, preference dividends in arrears amounted to p 120,000. Cash dividends declared in 2014 totaled P
440,000. What amount should be reported as dividend payable to preference and ordinary shares,
respectively in 2014?

a. 440,000 and 0 b. 360,000 and 80,000

b. 320,000 and 120,000 d. 240,000 and 200,00
Answer: b

25.17 Yodel company had 50,000 ordinary shares of P 100 par value and 25,0900 preference
shares of P 100 par value, 6% cumulative and participating. Dividends on the preference shares are two
years in arrears including the current year. What is the dividend payable to the ordinary shareholders?

a. 1,050,000 b. 1,200,000 c. 800,000 d. 550,000

Answer: c


26.7 Globe company had the following two classes of share capital issued and outstanding for
the entire year:

Ordinary share capital, 200,000 shares, P 10 par 2,000,000

Preference share capital, 2,000 shares, P 100 par,
12% convertible share for share into ordinary share 200,000

The net income forv2013 was P 1,800,000 and the income tax rate was 30%. In the computation
of basic earnings per share,. What is the amount to be used as earnings?

a. 1,824,000 b. 1,776,000 c. 1,224,000 d. 1,800,000

Answer: d

26.12 On January 1, 2013, Sabina Company had ordinary share capital outstanding of P 100 par
value, 200,000 shares or a total par value of P 20,000,000. On July 1, 2013, a bonus issue was made in
the ratio of one additional ordinary share for each original share. The net income for 2013 was P
12,000,000. What amount should be reported as basis earnings per share?

a. 30 b. 40 c. 20 d. 60
Answer: a


27.7 Aubrey Company had 600,000 shares outstanding on January 1, issued 120,000 shares on
September 1, and issued 90,000 shares on November 1. What is the weighing average number of shares
outstanding for the year?

a. 675,000 b. 750,000 c. 660,000 d. 810,000

Answer; a
27-9 Jet company provided the following information for the current year:

January 1 shares outstanding 200,000

` April 1 2for 1 share split 200,000
July 1 shares issued 100,000

What is the average number of shares.

a. 400,000 b. 450,000 c. 500,000 d. 540,000

Answer: b


28.2 Dunn Company had 200,000 ordinary shares of P 20 par value and 20,000 shares of P 100
par, 6% cumulative convertible preference share capital outstanding for the entire year ended
December 31, 2013. Each preference share is convertible into 5 ordinary shares. The net income for
2013 was P 840,000, what amount should be reported as diluted earnings per share?

a. 2.40 b. 2.80 c. 3.60 d. 4.20

Answer: b

28.7 On June 30, 2012, Lomond Company issued 20, P 10,000, 7% bonds at face value. Each
bond was convertible into 200 ordinary shares. On January 1, 2013, 10,000 ordinary shares were
outstanding. The bondholders converted all the bonds on July 1, 2013. The net income for 2013
was P 35,000. The tax rate is 30%. What amount should be reported as diluted earnings per

a. 2.50 b. 2.85 c. 2.92 d. 3.00

Answer: b