1. Conn Co. reported a retained earnings balance of ₱400,000 at December 31, 20X8.

In August 20X9,
Conn determined that insurance premiums of ₱60,000 for the three-year period beginning January 1,
20X8, had been paid and fully expensed in 20X8. Conn has a 30% income tax rate. What amount
should Conn report as adjusted beginning retained earnings in its 20X9 statement of retained
earnings?
a. 420,000 b. 428,000 c. 440,000 d. 442,000

2. Foy Corp. failed to accrue warranty costs of ₱50,000 in its December 31, 20X4, financial
statements. In addition, a change from straight-line to accelerated depreciation made at the
beginning of 20X5 resulted in a cumulative effect of ₱30,000 on Foy's retained earnings. Both
the ₱50,000 and the ₱30,000 are net of related income taxes. What amount should Foy report
as prior period adjustment in 20X5?
a. 0 b. 30,000 c. 50,000 d. 80,000

3. Loeb Corp. frequently borrows from the bank in order to maintain sufficient operating cash.
The following loans were at a 12% interest rate, with interest payable at maturity. Loeb repaid
each loan on its scheduled maturity date.
Date of loan Amount Maturity date Term of loan
11/1/x1 ₱ 5,000 10/31/x2 1 Year
2/1/x2 15,000 7/31/x2 6 Months
5/1/x2 8,000 1/31/x3 9 Months

Loeb records interest expense when the loans are repaid. As a result, interest expense of ₱1,500 was
recorded in 20x2. If no correction is made, by what amount would 20x2 interest expense be
understated?
a. 540 b. 620 c. 640 d. 720

The next three items are based on the following:

Declaration, Inc., is a calendar year corporation. Its financial statements for the years 20x2 and 20x1
contained errors as follows:
20x2 20x1
Ending inventory ₱1,000 understated ₱3,000 overstated
Depreciation expense ₱800 understated ₱2,500 overstated

4. Assume that the proper correcting entries were made at December 31, 20x1. By how much
will 20x2 income before income taxes be overstated or understated?
a. ₱200 understated. c. ₱2,700 understated.
b. ₱500 overstated. d. ₱3,200 understated.

5. Assume that no correcting entries were made at December 31, 20x1. Ignoring income taxes,
by how much will retained earnings at December 31, 20x2, be overstated or understated?
a. ₱200 understated. c. ₱2,700 understated.
b. ₱500 overstated. d. ₱3,200 understated.

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 6. Assume that no correcting entries were made at December 31, 20x1, or December 31, 20x2,
and that no additional errors occurred in 20x3. Ignoring income taxes, by how much will
working capital at December 31, 20x3, be overstated or understated?
a. ₱0. c. ₱1,000 understated.
b. ₱1,000 overstated. d. ₱1,700 understated.

7. Bren Co.'s beginning inventory at January 1, 20x3, was understated by ₱26,000, and its
ending inventory was overstated by ₱52,000. As a result, Bren's cost of goods sold for 20x3
was
a. Understated by ₱26,000. c. Understated by ₱78,000.
b. Overstated by ₱26,000. d. Overstated by ₱78,000.

The next three items are based on the following:

The bookkeeper of Latsch Company, which has an accounting year ending December 31, made the
following errors:
 A ₱1,000 collection from a customer was received on December 29, 20x0, but not recorded until
the date of its deposit in the bank, January 4, 20x1.
 A supplier's ₱1,600 invoice for inventory items received in December 20x0 was not recorded until
January 20x1. (Inventories at December 31, 20x0 and 20x1, were stated correctly, based on physical
count.)
 Depreciation for 20x0 was understated by ₱900. In September 20x0, a ₱200 invoice for office
supplies was charged to the Utilities Expense account. Office supplies are expensed as purchased.
 December 31, 20x0, sales on account of ₱3,000 were recorded in January 20x1.

Assume that no other errors have occurred and that no correcting entries have been made. Ignore
income taxes.

8. Profit for 20x0 was

a. Understated by ₱500. c. Overstated by ₱2,500.
b. Understated by ₱2,100. d. Neither understated nor overstated.

9. Assume the same facts as above. Working capital at December 31, 20x0, was
a. Understated by ₱3,000. c. Understated by ₱1,400.
b. Understated by ₱500. d. Neither understated or overstated.

10. Assume the same facts as above. Total assets at December 31, 20x0, were
a. Overstated by ₱2,500. c. Understated by ₱2,500.
b. Overstated by ₱2,100. d. None of the above.

11.Which of the following statements is incorrect?

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 1. Related party transactions and outstanding balances with other entities in a group
are disclosed in an entity’s financial statements.
2. Intragroup related party transactions and outstanding balances are not eliminated in
the preparation of consolidated financial statements of the group.
3. Related party relationships are a normal feature of commerce and business.
4. A related party relationship could have an effect on the profit or loss and financial
position of an entity.
5. Knowledge of related party transactions, outstanding balances and relationships may
affect assessments of an entity’s operations by users of financial statements, including
assessments of the risks and opportunities facing the entity.

12.An entity’s ability to affect the financial and operating policies of an investee is through the
presence of
I. Control
II. Joint control
III. Significant influence
a. I only b. I or III c. Any of I, II, or III d. I, II and III

13.Which of the following statements is correct?

I. The profit or loss and financial position of an entity may be affected by a related party
relationship even if related party transactions do not occur.
II. The mere existence of the relationship may be sufficient to affect the transactions of the entity
with other parties.
a. True, true b. True, false c. False, false d. False, true

14.All of the parties enumerated are related to an entity , except

a. the entity is a subsidiary, an associate, or a venture in a joint venture.
b. the party is a member of the key management personnel of the entity or its parent.
c. the party is a close member of the family of an individual having control, significant
influence, or joint control over the entity or a member of the key management personnel of
the entity or its parent.
d. the party is a post-employment benefit plan for the benefit of employees of the entity, or of
any entity that is a related party of the entity.
e. two entities simply because they have a director or other member of key management
personnel in common

The next two items are based on the following:

The following relates to the transactions of MISCELLANY MIXTURE Company during 20x1:
Directors' and officers' remuneration 4,000,000
Post-employment benefits of officers 400,000
Fringe benefits in the form of housing assistance to directors
and officers 10,000,000
Share options granted to officers 600,000
Officers' expenses on travels, representation and
entertainment subject to liquidation and reimbursement 200,000
Loans to directors and officers 6,000,000
Sales to related entities 20,000,000

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 Requirements: Determine the amount of related party disclosures on MISCELLANY’s (15) separate
financial statements and (16) the group’s consolidated financial statements.

17.MISCREANT UNBELIEVING Co. is preparing its year-end financial statements and has
identified the following operating segments:
Segment
s Revenues Profit (loss) Assets

A 2,000,000 400,000 28,000,000

B 2,400,000 280,000 36,000,000

C 540,000 (140,000) 24,000,000

D 480,000 (1,400,000) 2,000,000

E 580,000 100,000 2,800,000

Totals 6,000,000 (760,000) 92,800,000

Requirement: Identify the reportable segments.

18.LIMPID CLEAR Company engages in five diversified operations namely, operations A, B, C, D,

and E. Information on these segments are shown below:

Segment
s Revenues Profit (loss) Assets
A 1,600 400 20,000

B 1,600 200 4,000

C 100 20 2,000

D 300 40 4,000
E 400 140 14,000

Totals 4,000 800 44,000

Additional information:
a. For internal reporting purposes, segments A and B are considered as one operating segment.
b. Segment E is considered as an operating segment for internal decision making purposes.
c. Segments C and D have similar economic characteristics and share a majority of the
aggregation criteria.

Requirement: Identify the reportable segments.

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 19.TACITURN SILENT Co. is preparing its year-end financial statements and has identified the
following operating segments:
Segment External Inter-segment Total
s revenues revenues revenues Profit Assets
A 2,400,000 1,200,000 3,600,000 1,400,000 24,000,000
B 800,000 200,000 1,000,000 800,000 14,000,000
C 500,000 - 500,000 200,000 2,000,000
D 400,000 400,000 160,000 1,600,000
E 300,000 300,000 140,000 1,400,000
F 200,000 200,000 100,000 1,000,000
Totals 4,600,000 1,400,000 6,000,000 2,800,000 44,000,000

Management believes that between segments C, D, E and F, segment C is most relevant to external
users of financial statements.
Requirement: Identify the reportable segments.

20.FIDELITY LOYALTY Co. has the following information on its operating segments.
Segment External Inter-segment Total
s revenues revenues revenues Profit Assets
A 2,400,000 1,200,000 3,600,000 1,400,000 24,000,000
B 800,000 200,000 1,000,000 800,000 14,000,000
C 500,000 - 500,000 200,000 2,000,000
D 400,000 - 400,000 160,000 1,600,000
E 300,000 - 300,000 140,000 1,400,000
F 200,000 - 200,000 100,000 1,000,000
Totals 4,600,000 1,400,000 6,000,000 2,800,000 44,000,000

Question: FIDELITY Co. shall provide disclosure for major customers if revenues from transactions
with a single external customer amount to how much?

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