Review Day 1
Hedge of a net investment in a foreign operation
THEORY OF ACCOUNTS
1. The ASC framework (Choose the incorrect one)
a. Sets out the concepts that underlie the preparation and presentation
of financial statements for external users.
b. It is not a Statement of Financial Accounting Standards and hence
does not define standards for any particular measurement or
disclosure issue.
c. It is concerned with special-purpose reports, for example,
prospectuses and computations prepared for taxation purposes.
d. Applies to the financial statements of all commercial, industrial and
business reporting enterprises, whether in the public or private sector.
2. Accounting is
I. A service activity and its function is to provide quantitative
information, primarily financial in nature, about economic entities, that
are intended to be useful in making an economic decision.
II. The art of recording, classifying and summarizing in a significant
manner and in terms of money, transactions, and events which are in
part at least of a financial character and interpreting the results
thereof.
III. The process of identifying, measuring and communicating economic
information to permit informed judgment and decision by users of the
information.
a. I, II and III b. I only c. II only d. III only
3. Financial accounting
1. Is the examination of financial statements by an independent CPA for
the purpose of expressing an opinion as to the fairness of the financial
statements.
2. Focuses on the preparation and presentation of general purpose
reports known as financial statements.
3. Has no precise coverage but is used generally to refer to services to
clients on matters of accounting, finance, business policies,
organization procedures, product costs, distribution and many other
phases of business conduct and operations.
4. Is the preparation of annual income tax returns and determination of
tax consequences of certain proposed business venture.
4. Categories of hedges include
a. Fair value hedge
c. Cash flow hedge
b.
d. All of these
5. Characteristic(s) common to all joint ventures include
a. One or more venturers are bound by a contractual arrangement.
b. The contractual arrangement establishes joint control.
c. The use of proportionate consolidation.
d. Both a and b.
6. A party to a joint venture and has joint control over that joint venture
a. Venturer b. Investor c. Operator d. Manager
7. A method of accounting whereby a venturer’s share of each of the
assets, liabilities, income, and expenses of a jointly controlled entity
is combined line by line with similar items in the venturer’s financial
statements or reported as separate line items in the venturer’s
financial statements
a. Equity method c. Proportionate consolidation method
b. Cost method d. Combination method
8. This form of joint venture maintains own records and prepares and
presents financial statements in accordance with GAAP.
a. Jointly controlled operations c. Jointly controlled entities
b. Jointly controlled assets d. All of the above
9. This form of joint venture involves the use of assets and other
resources of the venturers rather than the establishment of a separate
entity
a. Jointly controlled operations c. Jointly controlled entities
b. Jointly controlled assets d. All of the above
10. Separate financial statements include financial statements
a. In which the investments are accounted for on the basis of the direct
equity interest.
b. In which the investments are accounted for on the basis of the
reported results and net assets of the investees.
c. In which proportionate consolidation is applied.
d. Of an entity that does not have a subsidiary, associate or venturer’s
interest in a jointly controlled entity.
11. Allowed accounting treatment for interests in a jointly controlled
entity includes
a. Proportionate consolidation c. Either a or b the company’s general ledger. An analysis of the account disclosed the
b. Equity method of accounting d. None of the above following:

12. Investment property excludes Trade creditors, credit balances P 1,363,000

a. Land held for long-term capital appreciation. Trade creditors, debit balances 63,000
b. Building leased out under an operating lease. Net P 1,300,000
c. Property held for future use for administrative purposes. Estimated warranty on products sold 100,000
Customer’s deposits 9,000
d. None of the above.
Due to officers and shareholders for advances 50,000
Goods received on consignment at a selling price
13. Investment property includes (offsetting debit made to Purchases) 41,000
a. Property being constructed or developed on behalf of third parties. P 1,500,000
b. Property that is being constructed or developed for use as an
investment property. A further analysis of the “Trade Creditors” debit balances indicates:
c. Property leased to another entity under a finance lease. Date Items Amount
Miscellaneous debit balances prior to 2007.
d. Property that is being redeveloped for continuing use as investment No information available due to loss
property. of records in a fire. P 3,000
03/03/07 Manila Co. –Merchandise returned for credit,
14. Which is not the purpose of the ASC framework? but the company is now out of business 8,000
a. To assist the ASC in developing accounting standards that represent 06/10/09 Cebu Corp. – Merchandise returned but Cebu
says “never received” 7,000
generally accepted accounting principles in the Philippines. 07/10/10 Jolo Distributors – Allowance granted on
b. To assist the ASC in its review and adoption of existing International defective merchandise after the invoice
Accounting Standards. was paid 5,000
c. To assist auditors in forming an opinion as to whether financial 10/10/10 Bulacan Co – Overpayment of invoice 12,000
12/05/10 Advance to Zambales Co. This company agrees
statements conform with Philippine GAAP. to supply certain articles on a cost –plus basis 24,000
d. To assist the Board of Accountancy in promulgating rules and 12/05/10 Goods returned for credit and adjustments on
regulations affecting the practice of accountancy in the Philippines. price after the invoices were paid; credit memos
from supplier not yet received 4,000
15. The ASC framework deals with (choose the incorrect one) 63,000
a. Objective of financial statements
b. Qualitative characteristics Your next step is to check the invoices in both the paid and the unpaid
c. Definition, recognition, and measurement of the basic elements of financial invoice files against ledger accounts. In this connection, you discover
statements an invoice from Atlas Co. of P45,000 dated December 12, 2010,
d. Generally accepted accounting principles marked “Duplicate”, which was entered in the Purchase Journal in
January 2011. Upon inquiry, you discover that the merchandise
AUDITING PROBLEMS covered by this invoice was received and sold, but the original invoice
In connection with the audit of the PAKYO COMPANY for the apparently has not been received.
year ended December 31, 2010, you are called upon to verify the In the bank reconciliation working papers, there is a notation that five
accounts payable transactions. You find that the company does not checks totaling P 63,000 were prepared and entered in the Cash
make use of a voucher register but enters all merchandise purchases in Disbursements Journal of December, but these checks were not
a Purchases Journal, from which posting are made to a subsidiary issued until January 10, 2011.
accounts payable ledger. The subsidiary ledger balance of P1,500,000 The inventory analysis summary discloses good in transit of P 6,000 at
as of December 31, 2010, agrees with the accounts payable balance in December 31, 2010, not taken up by the company under audit during
the year 2010. These goods are included in your adjusted inventory.

1. The Accounts payable – Trade balance at December 31, 2010, should
be
A. P 1,471,000 B. P 1,614,000
C. P 1,214,000 D. P 1,477,000
2. The net adjustment to Purchases should include a
A. Net debit of P 51,000 B. Net credit of P 41,000
C. Net debit of P 10,000 D. Net debit of P 73,000
3. The entry to adjust the Accounts payable account for those accounts
with debit balances should include a debit to
A. P 18,000 B. P 23,000
C. P 35,000 D. P 39,000
4. The entry to adjust the Accounts payable account for those accounts
with debit balances should include a debit to
A. Miscellaneous losses if P 23,000
B. Advances to suppliers of P 24,000
C. Suppliers to debit balances of P 18,000
D. Purchases of P 21,000
5. Auditor confirmation of accounts payable balances at the end of the
reporting period may be necessary because
A. There is likely to be other reliable external evidence to support
the balances
B. Correspondence with the audit clients attorney will reveal all legal
action by vendors for non-payment
C. This is a duplication of cutoff test
D. Accounts payable at the end of the reporting period may not be paid
before the audit is completed.
Mortgage notes payable – 12% 1,500,000
Bonds Payable 2,000,000
The following additional information pertains to these liabilities:
a. All trade notes payable are due within six months of the balance sheet
date.
b. Banknotes payable include two separate notes payable Allied Bank.
(1)A P300,000, 8% note issued March 1, 2008, payable on demand.
Interest is payable every six months.
(2)A 1-year, P500,000, 11 ½% note issued January 2, 2010. On
December 30, 2010 Mavericks negotiated a written agreement with
Allied Bank to replace the note with 2-year, P500,000, 10% note to
be iss7ued January 2, 2011. The interest was paid on December 31,
2010
c. The 10% mortgage note was issued on October 1, 2007. With a term
of 10 years. Terms of the note give the holder the right to demand
immediate payment of the company fails to make a monthly interest
payment within 10 days of the date the payment is due. As of
December 31, 2010, Mavericks is three months behind in paying its
required interest payment.
d. The 12% mortgage note was issued may 1, 2001, with a term of 20
years. The current principal amount due is P 1,500,000. Principal and
interest payable annually on April 30, A payment of P220,000 is due
April 30, 2011. The payment includes the interest of P 180,000.
e. The bonds payable is 10-year, 8% binds, issued June 30, 2001.
Interest is payable semi-annually every June 30 and December 31.
Based on the above and the result of your audit, answer the following:
6. Interest payable as of December 31, 2010 is
a. P155,000 b. 143,000 c. 203,000 d. 215,000

Problem 2 7.The portion of the Notes payable – bank to be reported under current
You were able to obtain the following from the accountant for Maverics liabilities as of December 31, 2010 is
Corp. Related to the company’s liability as of December 31, 2010. a. P 300,000 b. 500,000 c.800,000 d. 0

Accounts payable P 650,000 8. Total current liabilities as of December 31, 2010 is

Notes payable – trade 190,000 b. P 3,950,000 b. 4,138,000 c. 3,938,000 d. 3,998,000
Notes payable – bank 800,000
Wages and salaries payable 15,000 9. BTotal noncurrent liabilities as of December 31, 2010 is
Interest payable ? c. P1,760,000 b. 2,560,000 c. 3,960,000 d. 1,960,000
Mortgage notes payable – 10% 600,000
FEEL NA FEEL, INC. has been producing quality reusable adult diapers OTHER INFORMATION
for more than two decades. The company’s fiscal year runs from April 1. TRADE PAYABLES
1 to March 31. The following information relates to the obligations of Accounts payable for supplies, goods, and services purchased on open
Feel Na Feel as of March 31, 2010. account amount to P740,000 as March 31, 2010

BONDS PAYABLE 2. PAYROLL RELATED ITEMS

Merchandise, shipped FOB destination, 12.24.10; received 01.02.11
Feel Na Feel issued P10,000,000 of 10% bonds on July 1, 2008. The
prevailing market rate of interest for these bonds was 12% on the Accrued Salaries and wages P 300,000
date issue. The bonds will mature on July 1, 2018. Interest is paid Withholding taxes payable 94,000
semiannually on July 1 and January 1. Feel Na Feel uses the effective Other payroll deductions 10,000
interest rate method to amortize bond premium or discount
3. MISCELLANEOUS ACCRUALS
NOTES PAYABLE Other accruals not separately classified amount to P150,000 as of
March 31, 2010
Feel Na Feel has signed several long-term notes with financial
institutions. The maturities of these notes are given in the schedule 4. DIVIDENDS
below. The total unpaid interest for all of these notes amounts to On March 15, 2010, Feel Na Feel’s board of directors declared a cash
P600,000 on March 31, 2010 dividend of P0.20 per common share and a 10% common stock
dividend. Both dividends were to be distributed on April 12, 2010, to
Due Date Amount Due the common stockholders of record at the close of business on March
April 1, 2010 P 400,000 31, 2010. Data regarding Feel Na Feel common stock are as follows:
July 1, 2010 600,000 Per Value P 5.00 per share
October 1, 2010 300,000 Number of shares issued and outstanding 6,000,000 shares
April 1 2011 - March 31, 2012 300,000 Market Values of Common Stock:
April 1, 2012 – March 31, 2013 1,200.000 March 15, 2010 P 22.00 per share
April 1, 2013 – March 31, 2014 1,000,000 March 31, 2010 21.50 per share
April 1, 2014 – March 31, 2015 800,000 April 12, 2010 22.50 per share
April 1, 2015 – March 31, 2016 1,000,000
P 7,000,000 10. How much was received by Feel Na Feel from the bonds issued on
ESTIMATED WARRANTIES July 1, 2008?
Feel Na Feel has a one-year product warranty on some selected items a. P8,852,960 b. 10,000,000 c. 10,500,000 d. 10,647,040
in its product line. The estimated warranty liability on sales made
during the 2008-2009 fiscal year and still outstanding as of March 31, 11. On March 31, 2010, Feel Na Feel’s statements of financial position
2009, amounted to P180,000. The warranty cost on sales made from would report total current liabilities of
April 1, 2009, through March 31, 2010, is estimated as P520,000. The a. P5,286,000 b. 4,386,000 c. 5,336,000 d. 5,642,000
actual warranty cost incurred during the current 2009-2010 fiscal tear
is as follows: 12. On March 31, 201, Feel Na Feel’s statement of financial position
would report total noncurrent liabilities of
Warranty claims honored on 2008-2009 sales P 180,000 a. P14,389.350 b. 14,352,217 c. 14,370,783 d. 14,252,960
Warranty claims honored on 2009-2010 sales 178,000
Total warranty claims honored P 358,000 13 In Auditing accounts payable, auditor procedures most likely will
focus primarily on management assertion.
a. Existence c. Completeness
b. Presentation and disclosure d. Valuation and allocation 5. Unless the law or stipulation of the parties requires another standard
of care, every person obliged to give something is also obliges to
14. An auditor performs a test to determine whether all merchandise for take care of it with.
which the client was billed was received. The population for this test a. Extra-ordinary diligence
consists of all b. Diligence of a father of a good family
a. Merchandiser received c. Canceled checks c. Diligence of a good father of a family
b. Vendor’s invoices d. Receiving reports d. Good diligence of a father of a family

15. The primary audit test to determine if accounts payable are valued 6. Which of the following can be considered as a feature of a void
properly is contract?
a. Confirmation of accounts payable a. Subject to ratification
b. Vouching accounts payable to supporting documentation b. It exists
c. An analytical procedure c. Action or defense of nullity is subject to prescription
d. Verification that accounts payable was reported as a current liability d. Novation cannot apply
in the balance sheet.
7. D entered into a contract of mortgage with X, T, the clerk of L, typed
BUSINESS LAW AND TAXATION the document. Due to T’s negligence, the document made was that
of sale instead of a mortgage.
1. The following are the requisites of an obligation, except:
a. The remedy is annulment
a. Passive subject, debtor or obligor
b. Parties may go to court for interpretation
b. Active subject, creditor or oblige
c. Parties may enforce their right because it is enforceable
c. Efficient cause
d. Reformation of instrument is proper
d. Presentation
8. There persons bound by contracts, except:
2. Obligations may arise from any of the following, except: a. Third persons
a. Contracts b. Assigns
b. Quasi-contracts c. Heirs
c. Law d. Parties
d. Negligence
9. Liable for the loss of the subject matter by a fortuitous event.
3. It is the voluntary administration of the property of another without a. Creditor
his consent. b. Debtor
a. Negotiorum gestio c. Both creditor and debtor
b. Solutio indebiti d. None of them
c. Quasi-delict
d. Contract 10. S offers to sell his house to B for P100,000. B asks him if he would
4. It is a wrong committed without any pre-existing relations between accept P80,000. Which of the following is correct?
the parties. a. Because of ambiguity, both offers are terminated by operation of law.
a. Natural obligation b. B’s response is a counter-offer effectively terminating the P100,000
b. Quasi-delict offer and instigating an offer for P80,000.
c. Quasi-contract c. B’s response is a rejection of the P100,000 offer, and there is no offer
d. Culpa contractual for P80,000 because it is too indefinite to be an offer
d. B’s response is a mere inquiry, the P100,000 offer by S is still in Example 2 – S sold orally to B his land. After B paid S the price he wants
force. to register the land in his name but he needed a public instrument of
sale. In here, B may compel S to execute the needed public
11. Example no. 1: G, guardian of W, sold W’s house valued P50,000 instrument.
for P37,500 or a lesion by ¼ of the value. a. Both examples are false
Example no. 2: S sold his house valued P50,000 for only P10,000 b. Only the first is true
because S did not know the true value of the house. c. Only the second is true
a. Both contracts are rescissible. d. Both of the examples are true
b. Only no. 1 is rescissible
c. No. 2 is voidable because there is an error or mistake. MANAGEMENT ADVISORY SERVICES
d. Both contracts are valid and enforceable. 1. The following characterize management advisory services except
A. involve decision for the future
12. B Company bought out a competitor. C Corporation, with a B. broader in scope and varied in nature
stipulation that C Corporation should not thereafter engage in any C. utilize more junior staff than senior members of the firm
business in the Philippines unless consented to and approved by B D. relate to specific problems where expert help is required
Company.
a. The stipulation is defective but subject to ratification. 2. Total production costs for Carera, Inc. are budgeted at P230,000 for
b. The stipulation is valid because the parties are free to enter into any 50,000 units of budgeted output and P280,000 for 60,000 units of
stipulation, terms and conditions such as this one. budgeted output. Because of the need for additional facilities,
c. The stipulation is unenforceable as there was no showing that the budgeted fixed costs for 60,000 units are 25% more than budgeted
sale was done in writing. fixed costs for P50,000 units. How much is Carera’s budgeted variable
d. The stipulation is void because it is contrary to public policy. cost per unit of output?
A. P1.60 C. P3.00
13. Which of the following is not valid? B. P1.67 D. P5.00
a. Mutual promise to marry entered into orally
b. Sale of immovable property orally entered into. 3. Short-term creditors are usually most interested in assessing
c. One of the parties in a contract is incapable of giving consent a. solvency. b. liquidity.
d. Mortgagor of an immovable cannot alienate it without the c. marketability. d. profitability.
mortgagee’s consent.
4. Long-term creditors are usually most interested in evaluating
14. D forced C to execute a promissory note. a. liquidity. b. marketability.
a. Contract is resistible because the contract is fraudulent c. profitability. d. solvency.
b. The contract is void
c. C cannot demand payment from D because the contract is 5. Stockholders are most interested in evaluating:
unenforceable a. liquidity. b. solvency.
d. Contract remains valid c. profitability. d. marketability.
15. Example 1 – S sold to B in private instrument his land. Later, B 6. Madel Company manufactures a single electronic product called
wanted to have the sale registered, but registration requires a public Walastik. Walastik sells for P900 per unit. In 2000, the following
instrument: in here, B may compel S to execute the needed public variable costs were incurred to produce each Walastik device.
instrument. Direct labor P180
Direct materials 240
 Factory overhead 105 c. A reduction in net income by P38,350.
Selling costs 75 d. A reduction in net income by P35,400.
Total variable costs P600 Use the following information for questions 9-10.
Terry Corporation had a net income of $200,000 and paid dividends to
Madel is subject to a 40 percent income tax rate, and annual fixed costs common stockholders of $40,000 in 2002. The weighted average
are P6,600,000. Except for an operating loss incurred in the year of number of shares outstanding in 2002 was 50,000 shares. Terry
incorporation, the firm has been profitable over the last five years. Corporation's common stock is selling for $60 per share on the New
In 2001, a significant change in Madel’s production technology caused York Stock Exchange.
a 10% increase in annual fixed costs and a 20% unit cost increase in
the direct labor component as a result of higher-skilled direct labor. 9. Terry Corporation's price-earnings ratio is
However, this change permitted the replacement of a costly imported a. 3.8 times. b. 15 times.
component with a local component. The effect was to reduce unit c. 18.8 times. d. 6 times.
material costs by 25%. There has been no change in the Walastik
selling price. 10. Terry Corporation's payout ratio for 2002 is
The annual sales units required for Madel to breakeven are: a. $4 per share. b. 25%.
c. 20%. d. 12.5%.
A. B. C. D.
2000 22,000 22,000 14,00 14,000 11. Phranklin Pharms Inc. purchases merchandise from a company that
0 gives sales terms of 2/15, net 40. Phranklin Pharms has gross
2001 20,840 22,407 22,40 20,840 purchases of $800,000 per year. What is the maximum amount of
7
costly trade credit Phranklin could get, assuming they abide by the
7. Derby Co. uses a standard costing system in connection with the supplier’s credit terms? (Assume a 360-day year.)
manufacture of a line of T-shirts. Each unit of finished product contains a. $87,111.20 b. $32,666.70
2 yards of direct material. However, a 20 percent direct material c. $54,444.50 d. $52,266.67
spoilage calculated on input quantities occurs during the manufacturing
process. The cost of direct materials is P120 per yard. 12. Crest Co. has the opportunity to increase annual sales by P1 million
The standard direct material cost per unit of finished product is by selling to new riskier customers. It has been estimated that
A. P192 C. P288 uncollectible expenses would be 15% and collection costs 5%. The
B. P240 D. P300 manufacturing and selling costs are 70% of sales and corporate tax
is 35%. If it pursues this opportunity, the after-tax profit will
8. Wasting Resource Co. has annual credit sales of P4 million. Its a. Increase by P35,000. c. Increase by
average collection period is 40 days and bad debts are 5% of sales. The P65,000.
credit and collection manager is considering instituting a stricter b. Increase by P97,500. d. Remain the
collection policy, whereby bad debts would be reduced to 2% of total same.
sales, and the average collection period would fall to 30 days. However,
sales would also fall by an estimated P500,000 annually. Variable costs 13. A firm currently sells $500,000 annually with 3% bad debt losses.
are 60% of sales and the cost of carrying receivables is 12%. Assuming Two alternative policies are available. Policy A would increase sales by
a tax rate of 35% and 360 days a year, the incremental change in the $500,000, but bad debt losses on additional sales would be 8%. Policy
profitability of the company, if the stricter policy would be implemented, B would increase sales by an additional $120,000 over Policy A and bad
would be debt losses on the additional $120,000 of sales would be 15%. The
a. Zero as the positive and negative effects offset each other. average collection period will remain at 60 days (6 turns per year) no
b. A reduction in net income by P70,000. matter the decision made. The profit margin will be 20% of sales and no
other expenses will increase. Assume an opportunity cost of 20%. What
should the firm do? Differences between cost and market value are considered temporary.
A. Make no policy change. The income statement for 2005 should report an unrealized gain on
B. Change to only Policy A. these securities at
C. Change to Policy B (means also taking Policy A first). a. 1,500,000 b. 1,000,000
D. All policies lead to the same total firm profit, thus all policies are equal. c. 500,000 d. 0

14. The NPV and IRR methods give 3. Data regarding Lamut Company’s available for sale securities follow:
A. the same decision (accept or reject) for any single investment Cost Market
B. the same choice from among mutually exclusive investments December 31, 2004 10,000,000 8,500,000
C. different rankings of projects with unequal lives December 31, 2005 10,000,000 11,000,000
D. the same rankings of projects with different required investments
Differences between cost and market value are considered temporary.
15. What is the proper preparation sequencing of the following budgets? The 2005 statement of stockholders’ equity should report an
unrealized gain on these securities at
1. Budgeted Balance Sheet
a. 2,500,000
2. Sales Budget
b. 1,000,000
3. Selling and Administrative Budget
c. 1,500,000
4. Budgeted Income Statement
d. 0
a. 1, 2, 3, 4 b. 2, 3, 1, 4
c. 2, 3, 4, 1 d. 2, 4, 1, 3
4. Hungduan Company had acquired investments in available for sale
securities for P15,000,000 on January 1, 2004. On December 31,
P1 2005, Hungduan decided to reclassify the available for sale securities
as trading securities. The market value of the securities was
1. Mankayan Company uses the first-in, first-out retail method of P13,000,000 on December 31, 2004, and P12,000,000 on December
inventory valuation. The following information is available: 31, 2005. In its 2005 income statement, Hungduan should report
unrealized loss on the transfer of AFS securities at
Cost Retail a. 2,000,000 b. 3,000,000
Beginning inventory P 2,500,000 4,000,000 c. 1,000,000 d. 0
Purchases 13,500,000 16,000,000
Net markups 3,000,000 5. Hingyon Company had investments in marketable debt securities
Net markdowns 1,000,000 costing P10,000,000 which were acquired on January 1, 2004, and
Sales 15,000,000 classified as “available for sale”. On December 31, 2005, the
company decided to hold the investments to maturity and accordingly
What would be the estimated cost of the ending inventory? reclassified them as “held to maturity” on that date. The investments’
a. P7,000,000 c. P5,110,000 market value was P9,000,000 at December 31, 2004, and
b. P5,250,000 d. P4,750,000 P7,500,000 on December 31, 2005. What amount should Hingyon
Company report as unrealized loss on these securities in its 2005
2. Data regarding Kiangan Company’s trading securities follow: statement of stockholders’ equity?
Cost Market a. 2,500,000 b. 1,000,000
December 31, 2004 10,000,000 8,500,000 c. 1,500,000 d. 0
December 31, 2005 10,000,000 9,500,000
6. On December 31, 2004, Mayayao Company purchased trading
securities. Pertinent data on December 31, 2005 are as follows:
Security Cost Market value
X 4,000,000 3,500,000
Y 6,000,000 7,500,000
Z 8,000,000 6,000,000
On December 31, 2005, Mayayao reclassified its investment in security
Z from trading to available for sale. What amount of unrealized loss
on the transfer of trading securities should be shown in the 2004
income statement?
a. 2,000,000
b. 1,000,000
c. 3,000,000
d. 0 During 2005 Suyo declared and paid dividends of P40,000,000 on
7. Ilocos Company received dividends from its common stock
investments during the year 2005 as follows:
● A stock dividend of 20,000 shares from A Company when the market
price of A’s shares was P30 per share.
● A cash dividend of P2,000,000 from B Company in which Ilocos owns
a 20% interest.
● A cash dividend of P1,500,000 from C Company in which Ilocos owns
a 10% interest.
● 10,000 shares of common stock of D Company in lieu of cash
dividend of P20 per share. The market price of D Company’s shares
was P180. Ilocos holds originally 100,000 shares of D Company
common stock. Ilocos owns a 5% interest in D Company.
What amount of dividend revenue should Ilocos report in its 2005
income statement?
a. 3,300,000
b. 5,300,000
c. 3,500,000
d. 2,500,000
8. Data pertaining to dividends from Vigan Company’s common stock
investments for the year 2005 follow:
● On October 1, 2005, Vigan received P2,000,000 liquidating dividend
from X Company. Vigan owns a 5% interest in X Company.
● Vigan owns a 10% interest in Y Company which declared a
P30,000,000 cash dividend on November 15, 2005, to stockholders
of record on December 15, 2005, payable on January 15, 2006.
● On December 1, 2005, Vigan received from Z Company a dividend in
kind of one share of V Company common stock for every 5 Z
Company common shares held. Vigan holds 200,000 Z Company
shares which have a market price of P50 per share on December 1,
2005. The market price of V Company common is P30 per share.
What amount should Vigan report as dividend income in its 2005 income
statement?
a. 6,200,000 b. 4,200,000
c. 3,000,000 d. 5,000,000
9. Caoayan Company owns 1,000,000 shares of Suyo Company’s
5,000,000 shares of P50 par, 10% cumulative, nonparticipating
preferred stock and 500,000 shares (2%) of Suyo’s common stock.
preferred stock. No dividends had been declared or paid during 2004.
In addition, Caoayan received a 15% common stock dividend from
Suyo when the quoted market price of common stock was P100.
What amount should Caoayan report as dividend income in its 2005
income statement?
a. 15,500,000 b. 20,000,000
c. 10,000,000 d. 8,000,000
10. On January 2, 2005, Narvacan Company acquired 100,000 shares
of ABC Company common stock for a total consideration of
P6,000,000. On October 1, 2005, Narvacan received from ABC a
preferred stock dividend of one share for every 10 common shares
held. On this date, the market price of ABC common is P75 per share
and the ABC preferred, P50 per share. Narvacan Company should
report its investment in ABC Company preferred stock at
a. 500,000 b. 750,000
c. 375,000 d. 0
11. Candon Company owns 100,000 shares of the outstanding common
stock of Bantay Company which has several hundred thousand
shares publicly traded. These 100,000 shares were purchased in
2002 for P100 per share. On December 1, 2005, Bantay Company
distributed 100,000 rights to Candon. Candon was entitled to buy
one new share of Bantay common stock for P100 and five of these
rights. On December 1, 2005, each share of stock had a market value
of P135 ex-right and each right had market value of P15. On
December 31, 2005, Candon exercised all rights. What cost should
 be recorded for each new share that Candon acquired by exercising 2004 2005
the rights? Net income 6,000,000 7,000,000
a. 150 b. 100 Cash dividend paid None 15,000,000
c. 135 d. 15
In its income statement for the year ended December 31, 2005, how
12. Tagudin Company invested in stocks of Kaunlaran Company as much should Laoag report as income from this investment?
follows:
2003 50,000 shares at P80 4,000,000 a. 2,250,000 b. 1,950,000
2004 100,000 shares at P70 7,000,000 c. 700,000 d. 600,000

In 2005, Tagudin received 150,000 rights to purchase Kanluran stock at

P80 per share plus five rights. At issue date, rights had a market
value of P5 each and stock was selling at P95 ex-right. Tagudin used
the rights to purchase 22,000 additional shares of Kanluran stock and
allowed the remaining rights to lapse. The FIFO method is used in
determining the stock rights exercised. What is the cost of the new
investment?
a. 1,760,000 b. 2,170,000
c. 2,310,000 d. 2,100,000
13. Nagbukel Company issued rights to subscribe to its stock, the
ownership of 4 shares entitling the stockholders to subscribe for 1
share at P100. Sinait Company owns 200,000 shares of Nagbukel
Company with total cost of P15,000,000. The stock is quoted right-
on at 125. What is the theoretical value of the stock rights?
a. 1,000,000 b. 1,250,000
c. 1,500,000 d. 0 c. 20,400,000
15. In January 2005 Paoay Company acquired 25% of the outstanding
common stock of Bangui Company for P25,000,000. The book value
of the acquired shares was P21,000,000. The excess of cost over
book value was attributable to an identifiable intangible asset which
was undervalued on Bangui’s balance sheet and which had an
indefinite life. For the year ended December 31, 2005, Bangui
reported net income of P20,000,000 and paid cash dividends of
P6,000,000 on its common stock and thereafter issued 10% stock
dividend. What is the proper carrying value of investment in associate
at December 31, 2005?
a. 28,300,000 b. 28,500,000
d. 28,700,000

14. On January 1, 2004, Laoag Company purchased 15% of Vintar

Company’s common stock for P20,000,000. The following data
concerning Vintar Company are available:
P2
1. Which of the following observations concerning interfund transfers
is true?
A. They are expected to be repaid.
B. They are classified as fund revenues or expenditures.
C. The receiving fund recognizes these transfers as revenue.
D. These transfers are classified under "Other Financing Sources
or Uses."
2. Shue, a partner in the Financial Brokers Partnership, has a 30
percent share in partnership profits and losses. Shue's capital
account had a net decrease of 100,000 during 2008. During 2008,
Shue withdrew 240,000 as withdrawals and contributed equipment
valued at $50,000 to the partnership. What was the net income of
the Financial Brokers Partnership for 2008?
A. 633,334 B. 466,666
C. 300,000 D. 190,000
3. The JPB partnership reported net income of 160,000 for the year
ended December 31, 2008. According to the partnership
 agreement, partnership profits and losses are to be distributed as Subsidiary 1 for $60,000. Subsidiary 1 then sold the inventory at its
follows: cost of $60,000 to Subsidiary 2. Prior to December 31, 2008,
Subsidiary 2 sold $45,000 of inventory to a nonaffiliate for $67,000
and held $15,000 in inventory at December 31, 2008.

Based on the information given above, what amount should be

reported in the 2008 consolidated income statement as cost of
goods sold?
A. $36,000 B. $12,000
How should partnership net income for 2008 be allocated to J, P, C. $48,000 D. $45,000
and B? 7. Consolidated net income may include the parent's separate
operating income plus the parent's share of the subsidiary's
reported net income:
A. plus the unrealized profit on upstream intercompany sales of
inventory made during the current year.
B. plus the profit realized this year from upstream intercompany
sales of inventory made last year.
A. Option A B. Option B C. plus unrealized profit on downstream intercompany sales of
C. Option C D. Option D inventory made during the current year.
D. minus the parent's share of profit realized this year from
4. Refer to the above information. What is each partner's tax basis in upstream intercompany sales of inventory made last year.
the Jones and Smith partnership?
8. Xing Corporation owns 80 percent of the voting common shares of
Adams Corporation. Noncontrolling interest was assigned $24,000
of income in the 2009 consolidated income statement. What
amount of net income did Adams Corporation report for the year?
A. $150,000 B. $96,000
C. $120,000 D. $30,000
A. Option A B. Option B
C. Option C D. Option D 9. On January 1, 2008, Zeta Company acquired 85 percent of Theta
Company's common stock for $100,000 cash. The fair value of the
5. Windsor Corporation owns 75 percent of Elven Corporation's noncontrolling interest was determined to be 15 percent of the book
outstanding common stock. Elven, in turn, owns 15 percent of value of Theta at that date. What portion of the retained earnings
Windsor's outstanding common stock. What percent of the reported in the consolidated balance sheet prepared immediately
dividends paid by Windsor is reported as dividends declared in the after the business combination is assigned to the noncontrolling
consolidated retained earnings statement? interest?
A. None B. 100 percent A. Nil B. 15 %
C. 85 percent D. 75 percent C. 100 % D. Cannot be determined

6. Parent Corporation owns 90 percent of Subsidiary 1 Company's 10. On September 30, 2008, Wilfred Company sold inventory to
stock and 75 percent of Subsidiary 2 Company's stock. During Jackson Corporation, its Canadian subsidiary. The goods cost
2008, Parent sold inventory purchased in 2007 for $48,000 to Wilfred $30,000 and were sold to Jackson for $40,000, payable in
 Canadian dollars. The goods are still on hand at the end of the year
on December 31. The Canadian dollar (C$) is the functional
currency of the Canadian subsidiary. The exchange rates follow:
acquisition, Princeton held land with a book value of $150,000 and
a fair value of $300,000; Sheffield held land with a book value of
$100,000 and fair value of $500,000. Using the entity theory, at
what amount would land be reported in a consolidated balance
sheet prepared immediately after the combination?
A. $650,00 B. $500,000
C. $550,00 D. $375,000

Based on the preceding information, at what dollar amount is the
ending inventory shown in the trial balance of the consolidated
working paper?
A. $45,000 B. $50,000
C. $40,000 D. $35,000
11. Wakefield Company uses a perpetual inventory system. In
August, it sold 2,000 units from its LIFO-base inventory, which had
originally cost $35 per unit. The replacement cost is expected to be
$45 per unit. The company is planning to reduce its inventory and
expects to replace only 1,500 of these units by December 31, the
end of its fiscal year. The company replaced 1,500 units in
November at an actual cost of $50 per unit.
14. If Push Company owned 51 percent of the outstanding common
stock of Shove Company, which reporting method would be
appropriate?
A. Cost method
B. Consolidation
C. Equity method
D. Merger method
15. Goodwill under the parent theory:
A. exceeds goodwill under the proprietary theory.
B. exceeds goodwill under the entity theory.
C. is less than goodwill under the entity theory.
D. is less than goodwill under the proprietary theory.

Based on the preceding information, in the entry in August to record

the sale of the 2,000 units:
A. Cost of Goods Sold will be debited for $70,000.
B. Inventory will be credited for $85,000.
C. Excess of Replacement Cost over LIFO Cost of Inventory
Liquidation will be credited for $15,000.
D. Excess of Replacement Cost over LIFO Cost of Inventory
Liquidation will be credited for $67,000.

12. On December 31, 2009, Rudd Company acquired 80 percent of

the common stock of Wilton Company. At the time, Rudd held land
with a book value of $100,000 and a fair value of $260,000; Wilton
held land with a book value of $50,000 and fair value of $600,000.
Using the parent company theory, at what amount would land be
reported in a consolidated balance sheet prepared immediately
after the combination?
A. $550,00 B. $590,000
C. $700,00 D. $860,000

13. Princeton Company acquired 75 percent of the common stock of

Sheffield Corporation on December 31, 2009. On the date of