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Tuguegarao City
School of Accountancy, Business and Hospitality
ACCOUNTANCY DEPARTMENT
FINAL DRILL 2
Review in Financial Accounting and Reporting (FAR)
1st Semester, S.Y. 2019-2020
Instruction: The following items are multiple choice questions and straight problems. For MCQs, choose the letter of your
choice that best corresponds to the best answer. GODBLESS! #CPADream # KeepTheFaith
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14. Where should goods in transit that were recently purchased FOB destination be included?
A. Accounts payable
B. Equipment
C. Inventory
D. Not in the statement of financial position
15. Which if not a common disclosure for inventories?
A. Inventory composition C. Inventory cost method
51. What is the carrying amount of the biological asset on December 31, 2021?
A. 1,400,000 B. 1,310,000 C. 1,300,000 D. 1,490,000
52. What is the gain from change in fair value of biological asset that should be reported in the 2021 income statement?
A. 100,000 B. 800,000 C. 710,000 D. 10,000
Magpayo Company is engaged in raising dairy livestock. Information regarding its activities relating to the dairy livestock is as
follows:
Alteria Company produces milk for sale to local and national ice cream producers. The entity
began operations on January 1, 2020 by purchasing 650 milk cows for P8,000,000. The entity had the following information available
at year-end relating to the cows:
Acquisition cost, January 1, 2020 8,000,000
Change in fair value due to growth and price changes 2,500,000
Decrease in fair value due to harvest 250,000
Milk harvested during 2020 but not yet sold 400,000
54. What amount of gain on change in fair value should be recognized for biological asset in 2020?
A. 2,500,000 B. 2,250,000 C. 2,900,000 D. 2,650,000
55. What amount of gain on change in fair value should be reported for agricultural produce in 2020?
A. 2,250,000 B. 400,000 C. 150,000 D. 0
56. On August 1, 2020, Velasco Company purchased a new machine on a deferred payment basis. Down payment of P100,000
was made and 4 monthly installments of P250,000 each are to be made beginning on September 1, 2020. The cash equivalent
price of the machine was P950,000. The entity incurred and paid installation costs amounting to P30,000. What is the amount
to be capitalized as cost of the machine?
A. 950,000 B. 980,000 C. 1,100,000 D. 1,130,000
Gaerlan Company entered into a contract to acquire a new machine for its factory. The machine, which had a cash price of P2,000,000
was paid as follows:
Down payment 400,000
Note payable in 3 equal annual installments 1,200,000
20,000 ordinary shares with a par value of
P25 and fair value of P40 per share 800,000
2,400,000
57. Prior to the machine’s use, installation cost of P50,000 was incurred. The machine has an estimated residual value of
P100,000. What is the initial cost of the machine?
A. 2,000,000 B. 2,400,000 C. 2,050,000 D. 2,450,000
On December 31, 2020, Corpuz Company purchased a machine in exchange for a noninterest
bearing note requiring eight payments of P200,000. The first payment was made on December 31, 2020, and the others are due
annually on December 31. At date of issuance, the prevailing rate of interest for this type of note was 11%. Present value factors are as
follows:
Sevilla Company recently acquired two items of equipment. The transactions are described as follows:
Acquired a press at an invoice price of P3,000,000 subject to a 5% cash discount which was taken. Costs of freight and
insurance during shipment were P50,000 and installation cost amounted to P200,000.
Acquired a welding machine at an invoice price of P2,000,000 subject to a 10% cash discount which was not taken.
Additional welding supplies were acquired at a cost of P100,000.
59. What is the total increase in the equipment account as a result of the transactions?
A. 4,900,000 B. 5,000,000 C. 5,100,000 D. 5,200,000
60. On September 1, 2020 Vicente Company issued 100,000 treasury shares with P25 par value for a parcel of land to be held
for a future plant site. The treasury shares were acquired at a cost of P30 per share. The share had a fair market value of P40
on September 1, 2020. The entity received P50,000 from the sale of scrap when an existing structure on the site was razed.
What is the initial cost of the land?
A. 4,000,000 B. 3,950,000 C. 3,000,000 D. 2,500,000
Manalo Company exchanged a car from its inventory for a computer to be used as a long-term asset. The following information relates
to this exchange:
Carrying amount of the car 600,000
List selling price of the car 900,000
Fair value of the computer 860,000
Cash difference paid by Manalo 100,000
61. What amount of gain should be recognized on the exchange?
A. 260,000 B. 160,000 C. 200,000 D. 0
On January 1, 2020, Concepcion Company traded in an old machine for a newer model. Data relative to the old and new machines
follow:
Old machine
Original cost 800,000
Accumulated depreciation on January 1, 2020 600,000
Average published retail value 170,000
New machine
List price 1,000,000
Cash price without trade in 900,000
Cash paid with trade in 780,000
62. What amount should be recognized as cost of the new machine acquired in the exchange?
A. 900,000 B. 950,000 C. 980,000 D. 1,000,000
At the beginning of the current year, Villacarlos Company purchased a parcel of land as a factory
site for P3,200,000. An old building on the property was demolished and construction started on a new building that was completed at
the end of current year. Costs incurred on the construction project are as follows:
De Leon Company incurred the following costs during the current year:
Villamor Company acquired a new machinery. The following data are available:
List price of the machinery 1,400,000
Cash discount available but not taken on purchase 20,000
Freight paid on the new machinery 40,000
Cost of removing the old machinery 15,000
Installation cost of the new machinery 50,000
Testing cost before the machinery was put into regular operation
(including P10,000 in wages of the regular machinery operator) 30,000
Loss on premature retirement of the old machinery 5,000
Estimated cost of manufacturing similar machinery
in the entity’s own plant, including overhead 1,300,000
65. What amount should be capitalized as cost of the new machinery?
A. 1,500,000 B. 1,490,000 C. 1,515,000 D. 1,520,000
On December 31, 2020, Afable Company has an equipment with the following cost and accumulated depreciation:
Equipment 9,000,000
Accumulated depreciation 3,000,000
Due to obsolescence and physical damage, the equipment is found to be impaired. On December 31, 2020, the entity has determined
the following information related to the equipment:
Martin Company acquired equipment on January 1, 2019 for P5,000,000. The equipment had a
10-year useful life and no residual value. On December 31, 2020, the following information was obtained:
De Jesus Company has an equipment with carrying amount of P1,600,000 on December 31, 2020 after recording depreciation for
2020. The following information is available on December 31, 2020 relative to the equipment:
68. At what amount should the equipment be reported on December 31, 2020?
A. 1,600,000 B. 1,400,000 C. 1,300,000 D. 1,350,000
69. Trinidad Company reported an impairment loss of P2,000,000 in 2019. This loss was related to an item of property, plant and
equipment which was acquired on January 1, 2018 with cost of P10,000,000, useful life of 10 years and no residual value. On
December 31, 2019, the entity reported this asset at P6,000,000 which is the fair value on such date. On December 31, 2020,
the entity determined that the fair value of the impaired asset had increased to P7,500,000. The straight-line method is used in
recording depreciation. What amount of gain on reversal of impairment should be reported in the 2020 income statement?
A. 2,250,000 B. 1,750,000 C. 1,500,000 D. 0
70. Garces Company, a clothing manufacturer, purchased a sewing machine for P2,000,000 on July 1, 2017. The machine had a
10-year life, a P100,000 residual value, and was depreciated using the straight-line method. On January 1, 2020, a test for
impairment indicated that the undiscounted cash flows from the sewing machine are less than carrying amount. The
machine’s fair value on January 1, 2020 is P600,000. What is the loss on impairment?
A. 1,300,000 B. 950,000 C. 925,000 D. 830,000