No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

ICARE BATCH 6 JOSHUA Final preboard FAR

For Numbers 1 to 4

On January 1, 2020 Sean Company established a sinking fund to retire bonds payable due in
2025. A bank was appointed as an independent trustee to manage the fund’s investment.
On December 31, 2023, the trustee held P4,000,000 cash and P1,500,000 of securities in
the sinking fund account. The cash amount of P4,000,000 represents P3,700,000 in annual
deposits to the fund and P300,000 of investment income earned on those deposits prior to
2023. Additional investments during 2023 were made amounting to 500,000. A bank
representative informed Sean that P100,000 of interest and dividends has been earned in
2023, however, this amount will be received in the first month of 2024. Also, the
representative informed Sean of administrative fees charged to the company’s account
amounting to 20,000.

On May 1, 2023, Sean Company classified noncurrent assets as held for sale that had a
carrying amount of P750,000. On this date, the assets can be expected to be sold for
P700,000. Reasonable and expected disposal cost to be incurred for sale was expected to
be P50,000. By December 31, 2023, the asset had not been sold but the sale is still
considered to be highly probable and management’s intention has not changed. On that
date, Sean’s managers estimated that because of recent changes for the demand of the
asset and favorable price movements, the assets were now expected to be selling at
P720,000 with the related disposal cost of 30,000. Depreciation from May 1, 2023 to
December 31, 2023 was computed at P50,000.

Sean Company reported income from continuing operations of 1,800,000, income from
discontinued operations of 500,000, income tax expense of 600,000. During 2023 the
following items were also recognized that were net of tax amounts: revaluation surplus of
700,000, unrealized gains on trading securities of 150,000 and unrealized losses on FVOCI
of 200,000. The only other transaction affecting equity during the year is the reissue of
treasury shares with a cost of 500,000 for 800,000.

1. How much should Sean’s sinking fund be included in the statement of financial position
among its noncurrent assets on December 31, 2023?
a. 5,880,000
b. 6,080,000
c. 6,100,000
d. 5,980,000

2. How much is the impairment loss on May 1, 2023?

a. 100,000
b. 50,000
c. 160,000
d. 40,000

3. How much should the gain from the increase in fair value less cost to sell be reported
in the 2023 statement of comprehensive income?
a. 50,000
b. 100,000
c. 40,000
d. 0

1|P a g e T SIY /AT ANG /JSaripada/JBugatan

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

4. What was the total increase in equity?

a. 3,600,000
b. 3,250,000
c. 3,100,000
d. 3,000,000

For Numbers 5 and 6

On December 31, 2023, the prepaid insurance account of Hunter Company showed a debit
balance of P250,000. The balance on December 31, 2022 was P400,000. During the year,
the entity paid insurance premium of P600,000 and immediately charged to insurance
expense. Hunter prepares reversing entries at the beginning of each year.

On April 1, 2024, before the issuance of its financial statements for 2023, Hunter Company
entered into a financing agreement with Metrobank and Trust Company, allowing Hunter
Company to borrow up to P10,000,000 at any time through 2024. Amounts borrowed under
the agreement bear interest at 2% above the bank's prime interest rate and mature two years
from the date of the loan. Hunter Company presently has a P5,000,000 notes payable with
Bank of The Philippine Islands maturing on July 1, 2024. The company intends to borrow
P8,000,000 under the agreement with Metrobank and liquidate the notes payable to BPI.
The agreement with Metrobank also requires Hunter to maintain a working capital level of at
least P15,000,000 and prohibits the payment of dividends to shareholders without prior
approval by Metrobank.

5. Which of the following items were included in the adjusting entry for the insurance
payments on December 31, 2023?
a. Debit to insurance expense for P750,000
b. Debit to insurance expense for P450,000
c. Debit to prepaid insurance for P250,000
d. Credit to prepaid insurance for P400,000

6. What is the total current liability of Hunter Company for the notes as of the December
31, 2023?
a. 8,000,000
b. 10,000,000
c. 5,000,000
d. 15,000,000

For Numbers 7 to 9
On July 1, 2023, Martin Company acquired from John Company both a patent and a non-
competition contract for a period of 5 years. The contract price for both assets amounted to
3,000,000 and Martin estimated that the patent had one-third the value of the non-
competition contract. The patent had a remaining legal life of 4 years while Martin estimated
its useful life to be 6 years.

Martin Company acquired a delivery truck for its on January 1, 2021 at a cost of P3,000,000
and depreciated it at 12.5% per annum, with a 500,000 residual value under the straight-line
method. On January 1, 2023, it was determined that the residual value decreased to 350,000
with no change in useful life.

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

On January 1, 2023, Martin Company borrowed P5,000,000 from a bank evidenced by a

10% interest bearing note due annually for 4 years. Martin will pay 1,577,354 every
December 31, beginning in the current year. The proceeds were received also on January
1, 2023.

7. How much is the total amortization of the intangible assets acquired?

a. 600,000
b. 650,000
c. 637,500
d. 575,000

8. What depreciation expense for the year ended December 31, 2023?
a. 253,125
b. 337,500
c. 296,875
d. 331,250

9. How much is 2024 interest expense?

a. 392,265
b. 500,000
c. 342,265
d. 372,465

For Numbers 10 and 11

Ruth Company recorded the following data pertaining to a raw material during March 2023.

Date Units Unit Units Units

Received Cost Issued On hand
3/1 Inventory P200 8,000
3/10 Purchase 12,000 P240 20,000
3/14 Issue 11,000 9,000
3/21 Purchase 3,500 P250 12,500
3/22 Purchase ? 500 12,000
return
3/30 Issue 5,000 7,000
3/31 Purchase 2,000 P300 9,000

Ruth Company is an entity that is listed on a recognized stock exchange. Ruth’s financial
statements for the year ended December 31, 2022 reported earnings per share of P120. On
April 1, 2023, Ruth made a 2 for 1 bonus issue.

10. How much is cost of sales for March under moving average?
a. 3,658,040
b. 3,616,500
c. 3,575,400
d. 2,213,500

11. What is the moving average cost per unit on March 31, 2023?
a. 246.55

3|P a g e T SIY /AT ANG /JSaripada/JBugatan

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

b. 245.94
c. 230.50
d. 245.75

12. What figure for the 2022 earnings per share will be shown as comparative information
in the financial statements for the year ended December 31, 2023?
a. 40
b. 30
c. 60
d. 90

For Numbers 13 to 16

Oris Company is an agricultural company and engaged in farming activities. During 2023,
Oris sold bearer plants used in business that were originally purchased at P650,000 for
P450,000. This resulted in a gain of P80,000. The balance in accumulated depreciation on
January 1, 2023 was P2,500,000, and the balance on December 31, 2023 was 2,800,000 on
December 31, 2023 attributed to bearer plants. There were no other disposal or acquisition
of bearer plants during 2023.

Oris Company has a herd of 200 three-year-old horses used in agricultural activity on
January 1, 2023. During 2023, 50 four-year-old horses were purchased on July 1, 2023 for
P160,000 each while 30 horses from the beginning of the year were sold on October 1, 2023.
There also 10 newborn horses on December 31, 2023. The fair values less cost to sell
regarding horses for 2023 is as follows:

Three – year old horse on January 1, 2023 125,000

Four – year old horse on July 1, 2023 160,000
Three and three quarters – year old horse on October 1, 140,000
2023
Three – year old horse on December 31, 2023 145,000
Four – year old horse on December 31, 2023 170,000
Four and a half – year old horse on December 31, 180,000
2023
Newborn horses on December 31, 2023 50,000

13. What was Oris Company’s depreciation expense for 2023?

a. 520,000
b. 580,000
c. 500,000
d. 420,000

14. What is the carrying amount of the biological assets on December 31, 2023 before
fair value adjustment?
a. 33,500,000
b. 29,250,000
c. 29,750,000
d. 33,000,000

4|P a g e T SIY /AT ANG /JSaripada/JBugatan

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

15. What is the carrying amount of the biological assets on December 31, 2023?
a. 38,400,000
b. 43,500,000
c. 37,900,000
d. 29,750,000

16. What is the total gain recognized on fair value for the biological assets?
a. 8,650,000
b. 9,150,000
c. 5,250,000
d. 4,900,000

For 17 and 18
Malone Company uses the retail method to estimate its inventory. Data relating to the
inventory on December 31, 2023 are:

Cost Retail
Inventory, January 1 2,000,000 4,500,000
Purchases 5,700,000 7,800,000
Departmental transfer out 200,000 300,000
Additional mark up 800,000
Markup cancellation 100,000
Markdown 250,000
Markdown cancellation 50,000
Sales 8,000,000
Estimated normal shoplifting losses 200,000
Estimated normal shrinkage is 5% 300,000
of sales

17.What is the ending average retail inventory?

a. 2,500,000
b. 2,250,000
c. 2,400,000
d. 2,100,000

18. What is the estimated cost of sales under FIFO retail?

a. 5,300,000
b. 4,750,000
c. 4,950,000
d. 5,100,000

For 19 to 21
Information relates to the defined benefit plan of Vigan Company for the year ended
December 31, 2023 is a follows:

 The projected benefit obligation has a beginning and ending balance of 9,000,000 and
10,300,000, respectively.

5|P a g e T SIY /AT ANG /JSaripada/JBugatan

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

 The fair value of plan assets has a beginning and ending balance of 10,500,000 and
12,100,000, respectively.
 The settlement discount rate and expected rate of return on plan assets are 10% and
12%, respectively.
 The actuary provided the following data for the year ended December 31, 2023:

Current and past service cost 1,800,000

Benefit payments to retirees 1,400,000
Contribution to the fund 2,100,000

On December 31, 2023, Vigan Company received two notes receivable from customers. The
1st one has a principal of 5,000,000 and due in four years. The second note has a principal
of 3,000,000 and is due in nine months. Both notes have an annual rate of 2%, with the full
amount payable at maturity. The market interest rate for similar notes on December 31, 2023,
was 8%. The PV of 1 at 8% due in nine months is .944, and the PV of 1 at 8% due in 4
periods is .735.

Lastly, Vigan Company is committed to close a factory in 6 months and shall terminate the
employment of all the remaining employees of the factory. Under the termination plan, an
employee leaving before closure of factory shall receive on termination date a cash payment
of P30,000. However, an employee that renders service until closure of the factory shall
receive P100,000. There are 200 employees at the factory. The entity expects 50 employees
to leave before closure.

19. How much is the actual return on plan assets?

a. 800,000
b. 1,200,000
c. 900,000
d. 1,260,000

20. What is the combined carrying amount of both notes receivable on December 31,
2023?
a. 6,675,000
b. 6,969,000
c. 7,044,420
d. 7,042,500

21. How much is the short-term employee benefits for all the employees in the factory of
Vigan?
a. 10,500,000
b. 15,000,000
c. 14,000,000
d. 7,500,000

For Numbers 22 to 24
Riley Company is determining the amount of its pretax financial income for 2023 by making
adjustment to taxable income from the company’s 2023 income tax return. The tax return
indicates taxable income of P3,000,000, on which a tax liability of P750,000 has been
recognized. Following are the items that may be required to determine pretax financial
income from the amount of taxable income:

6|P a g e T SIY /AT ANG /JSaripada/JBugatan

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

 Depreciation for income tax purposes was P900,000 and financial depreciation on
these assets is P600,000.
 Penalties and surcharges for nonpayment of certain income taxes were charge to
income during 2023 amounting to 500,000
 During the year, P800,000 was received as dividends from local companies registered
in the Philippine Stock Exchange.

On August 1, 2023, Riley Company entered a firm commitment to purchase raw materials
for manufacturing from United Company, an American firm on December 1, 2023 for
$300,000. The exchange rate in August is P53 = $1. To reduce the exchange rate risk that
could adversely affect the cost of inventories in Philippine Pesos, Riley pays P100,000 for a
call option contract. This contract gives Riley the option to purchase $300,000 at the
exchange rate on August 1, 2023. The December 1, 2023, exchange rate is P57 = $1. On
December 31, 2023, the exchange rate is P55.20 = $1.

During the year 2022, Riley Company was sued by a competitor for P3,000,000 for
infringement of a trademark. Based on the advice of the company’s legal counsel at the end
of 2022, Riley Company accrued the sum of P1,000,000 as a provision in its financial
statements for the year ended December 31, 2022. During 2023 while the court case was on
going, Riley agreed to settle the lawsuit out of court with the complainant for 1,200,000 and
wrote off the trademark from its books that had a carrying amount of 500,000.

22. What was Riley’s accounting profit?

a. 3,600,000
b. 3,300,000
c. 4,100,000
d. 3,200,000

23. What was the net amount settled for the call option?
a. 100,000 paid
b. 1,200,000 receipt
c. 1,100,000 receipt
d. 660,000 receipt

24. What is the net effect in profit or loss for the settlement of the lawsuit?
a. 1,800,000 gain
b. 700,000 loss
c. 500,000 loss
d. 1,200,000 loss

For Numbers 25 to 27

On June 1, 2023, Chichi Company needed cash to meet current operating needs. Chichi
factored some P3,000,000 of accounts receivable to Security Bank. The bank charged a
12.5% service fee and withheld 20% against the value of the receivables factored. Chichi
maintains an allowance for doubtful accounts of 5% of the receivables balance. Sales returns
against the factored receivables totaled P50,000.

Chichi Company sold one of its machines on December 31, 2023, to Achieve Company in
exchange for a noninterest bearing note requiring five annual payments of P2,000,000. The
machine had a carrying amount of P5,500,000 in Chichi’s books. The first payment was

7|P a g e T SIY /AT ANG /JSaripada/JBugatan

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

made on December 31, 2023. The market interest for similar notes was 8% and the relevant
present value factors are:

PV of 1 at 8% for 5 periods 0.681

PV of an ordinary annuity of 1 at 8% for 5 periods 3.993
PV of an annuity due of 1 at 8% for 5 periods 4.312

On October 1, 2023, Chichi Company entered a 6-month, P5,000,000 purchase commitment

for a supply of a special product. On December 31, 2023, the market value of this material
had fallen to P4,800,000. On April 1, 2024, when the actual purchase is made, the market
value of the inventory is P5,500,000.

25. How much is the loss from factoring?

a. 275,000
b. 225,000
c. 175,000
d. 375,000

26. What is the current portion of notes receivable on December 31, 2023?
a. 2,000,000
b. 1,361,120
c. 1,310,080
d. 1,470,080

27. What is the gain on purchase commitment to be recognized on April 1, 2024?

a. 500,000
b. 200,000
c. 0
d. 700,000

For numbers to 28 to 31
Kindle Company is in the business of leasing new sophisticated equipment. As a lessor,
Kindle initially expects a 12% return on its net investment with payments made in
advance. All leases are classified as direct financing leases. At the end of the lease
term, the equipment’s ownership reverts back to Kindle. On January 1, 2023, equipment
is leased with the following information:

Cost of equipment 6,125,000

Residual value guarantee 700,000
Useful life and lease term 8 years
Direct cost 176,400

After the initial direct cost, a return of 11% is expected. The present value of 1 at 11% for
8 periods is .434 and the present value of an annuity due at 11% for 8 periods is 5.712.

Kindle also declared on December 1, 2023, 10 brand new fleet of cars costing 500,000
each as property dividends to be distributed on February 1, 2024 to its shareholders. The
fair value less cost to distribute of the cars was determined to be 4,800,000, 4,500,000
and 4,000,000 on December 1, 2023, December 31, 2023 and February 1, 2024,
respectively

8|P a g e T SIY /AT ANG /JSaripada/JBugatan

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

28. What is the gross investment in the lease?

a. 9,100,000
b. 8,400,000
c. 6,125,000
d. 7,700,000

29. What is the financial revenue in 2023?

a. 609,000
b. 693,154
c. 735,000
d. 577,654

30. What is the total amount deducted from retained earnings in 2023?
a. 5,000,000
b. 4,800,000
c. 4,500,000
d. 4,000,000

31. What is the gain on distribution to be recognized on February 1, 2024?

a. 300,000
b. 1,000,000
c. 500,000
d. 800,000

For questions 32 and 33

Brandy Company provided following information on December 31, 2023:

Cash in bank per book 4,140,000

Cash in bank per bank statement 4,000,000
Deposit in transit 1,500,000
Outstanding checks, including certified check of P200,000 800,000
Note collected by bank for Brandy, including interest of P100,000 1,100,000
Service charge for December 20,000
DAIF checks of customers returned by bank 500,000
Error in recording a check in the book. The correct amount as paid
by the bank is P242,000 instead of P422,000 as recorded
in the book 100,000
Time deposit 900,000
Unrecorded customer checks, dated November 15, 2023 300,000
Treasury bills 600,000
Treasury notes 1,000,000
Deposit in another bank closed by BSP 250,000
Currency and coins on hand 100,000
Petty cash fund (all reimbursed) 20,000

9|P a g e T SIY /AT ANG /JSaripada/JBugatan

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

32. What is the total “cash” to be reported as current asset on December 31, 2023?
a. 5,320,000
b. 5,720,000
c. 4,820,000
d. 5,770,000

33. What is the total “cash equivalents” to be reported as current asset on December 31,
2023?
a. 1,500,000
b. 2,800,000
c. 1,800,000
d. 1,100,000

34. Lorraine Company is a medium-sized entity and incurred the following cost and other
relevant items for the year ended December 31, 2023:

Interest on construction loan on specific borrowing 300,000

Research cost 200,000
Development cost 600,000
Cost of ending inventory under FIFO 1,000,000
NRV of ending inventory 750,000
Transaction cost for investment in associate under the FV 50,000
Method
Cost of trademark acquired on January 1, 2023 500,000

How much total expense shall be recognized in 2023 from the forgoing transactions?
a. 250,000
b. 1,450,000
c. 950,000
d. 1,250,000

For questions 35 to 37
Cristiano Company entered into a P20,000,000 fixed price contract with DMCI, on March 1,
2023, for the construction of an office building. The building was completed and occupied
on December 31, 2024.

Construction was financed by borrowings with a total amount of P50,000,000 for general use
at the rate of 10%. Cristiano’s expenditures were incurred evenly during the 10 months in
2023 at a total amount of 12,000,000 and similarly, incurred the balance of 8,000,000, evenly
in 2024.

On December 31, 2024, Cristiano exchanged 40,000 shares of its P25 par value treasury
ordinary shares for a patent owned of a competitor. The treasury shares were acquired in
2023 for P1,200,000. On December 31, 2024, Cristiano's ordinary shares were quoted at
P45 per share, and the patent had a carrying value of P1,500,000 in the books of the
competitor.

10 | P a g e T SIY /AT ANG /JSaripada/JBugatan

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

35. What was the borrowing cost capitalized in 2023?

a. 600,000
b. 1,000,000
c. 500,000
d. 1,200,000

36. What was the borrowing cost capitalized in 2024?

a. 1,600,000
b. 400,000
c. 1,650,000
d. 2,050,000

37. What was the amount recorded as the cost of the patent?
a. 1,800,000
b. 1,500,000
c. 1,000,000
d. 1,200,000

For Numbers 38 to 40

The December 31, 2023, statement of financial position of Germany Company reports the
following:

Accounts receivable P2,500,000

Allowance for doubtful accounts 110,000
(DR.)

At the end of the year, Germany ages its accounts receivable and adjusts the balance in
allowance for doubtful accounts to correspond to the aging schedule. During 2023 Germany
completed the following transactions:

 Wrote off as uncollectible a total of P250,000 account receivables.

 Credit sales from January to December of P12,000,000.
 Recoveries of previously written off accounts receivable by year-end amounted to
P40,000.

Age of Accounts

Total balance 1-30 Days 31-90 91-180 Over 180

Days Days days
2,500,000 1,000,000 750,000 500,000 250,000

Estimated
percentage 5% 10% 20% 50%
uncollectible

On January 1, 2022, Germany Company leased a building to Roach Company under a 4 -

year operating lease. The lease payments are to be paid at the beginning of each month and
are scheduled at a monthly amount of 200,000 in 2022. Monthly rentals shall increase every
year at 10% of the previous year’s rent beginning 2023.

11 | P a g e T SIY /AT ANG /JSaripada/JBugatan

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

38. What is the allowance for doubtful accounts on December 31, 2023?
a. 450,000
b. 200,000
c. 350,000
d. 400,000

39. What is the year end adjustment to doubtful accounts expense?

a. 350,000
b. 240,000
c. 460,000
d. 670,000

40. How much is the rent receivable on December 31, 2023?

a. 384,600
b. 409,800
c. 529,200
d. 434,500

For numbers 41 and 44

Monique Company issued 10%, P5,000,000 face value, 5-year, convertible bonds for
P5,200,000 on January 1, 2023. Interest is paid semiannually on July 1 and December 31
of each year. The effective rate is 12%. On that date, the equity component recorded as
an increase in shareholders’ equity was P568,000. Each P1,000 face value bond can be
converted into 5 ordinary shares.

On January 1, 2024, Monique Company converted 5,000 of its 5% convertible bonds into
ordinary shares with a par value of P100 each. The market value of the bonds was
P5,500,000, and Monique’ ordinary shares was publicly trading at P150 per share.

On July 1, 2024, Monique Company 100,000 issued rights to shareholders to subscribe to a

total of 20,000 additional shares of its share capital. One right was issued for each share
owned. A shareholder could purchase one additional share for five rights plus P150 cash.
The rights will expire on September 30, 2024. On July 1, 2024, the market price of a share
with the right attached was P200, while the market price of the right alone was P15.

41. What is the 2023 interest expense?

a. 555,840
b. 463,200
c. 557,515
d. 500,000

42. What is the share premium from the conversion of the bonds payable?
a. 128,760
b. 155,242
c. 284,000
d. 142,000

43. What is the 2024 interest expense?

a. 281,138

12 | P a g e T SIY /AT ANG /JSaripada/JBugatan

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

b. 234,479
c. 250,000
d. 282,312

44. What was the effect on equity from the issuance of the rights on July 1, 2024?

a. 3,000,000
b. 1,500,000
c. 300,000
d. 0

For Numbers 45 to 47
On January 1, 2023, Sadie Company purchased amortized cost bonds with face value of
P4,000,000 and a five-year term for P3,647,000 and paid for direct transaction cost of
P50,120. The bonds are purchased to yield 10% interest. Sadie’s business model is to sell
financial assets and to collect contractual cashflows solely of principal and interest payments.
The nominal interest rate on the bonds is 8% payable annually every December 31. On
December 31, 2023, the market value of the bonds is 110. While the market value on
December 31, 2024, is 102.

Sadie’s main business is major household appliance service contracts for cash. The service
contracts are for a one-year, two-year, or three-year periods. Cash receipts from contracts
are credited to unearned service contract revenues. This account had a balance of
P3,000,000 on December 31, 2023, before year-end adjustments. The costs of service
contracts are charged as incurred to the service contract expense account, which had a
balance of P200,000 on December 31, 2023. Outstanding service contracts on December
31, 2023 are scheduled to expire as follows:

During 2024 During During 2026

2025
P800,000 P900,000 P450,000

45. What is unrealized gain in 2023?

a. 708,300
b. 653,170
c. 753,000
d. 658,180

46. What is the unrealized gain or loss recognized in the statement of comprehensive
income in 2024?
a. 339,130 gain
b. 369,170 loss
c. 278,485 gain
d. 374,685 loss

47. What is the gross service contract revenues in Sadie's 2023 statement of
comprehensive income?
a. 800,000
b. 900,000

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

c. 1,000,00
d. 850,000

For numbers 48 to 50
On January 1, 2023, Sandler Company sold equipment for 18,000,000 with a carrying amount
of 12,000,000 and an estimated remaining useful life of 12 years to Apatow Company. At the
same time, Sandler leased back the equipment for 5 years at 2,000,000 annually, payable at
the beginning of each year starting January 1, 2023. The leaseback does not contain a
purchase option and the equipment will revert back to Apatow at the end of the lease term.
Sandler guarantees the residual value at 500,000. Sandler incurred 50,000 of initial direct
cost.

Additional information regarding this sale and leaseback transaction is as follows:

Fair value 16,000,000

Implicit rate 12%
PV of 1 for 5 periods .567
PV of an annuity due 4.037

Late in 2023, Sandler Company transferred real estate and paid accrued interest pursuant
to a debt restructuring to a creditor in liquidation of the liability to the creditor with the following
information.

Carrying amount of the liability liquidated 5,000,000

Carrying amount of interest paid 800,000
Carrying amount of the real estate transferred 4,200,000
Fair value of the real estate transferred 4,500,000

48. What is the cost of the right of use asset?

a. 6,305,625
b. 4,805,625
c. 7,805,625
d. 4,768,125

49. What is the gain on the right of use transferred to be recognized?

a. 6,000,000
b. 1,398,125
c. 1,898,125
d. 2,398,125

50. What is the gain on the extinguishment of the debt?

a. 500,000
b. 1,600,000
c. 800,000
d. 1,300,000

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

For numbers 51 to 53
Norm Corporation transactions for the year ended December 31, 2023 included the
following:

a. Purchased real estate for P5,000,000 cash which was borrowed from a bank.
b. Sold FVOCI for P750,000 at a gain of P250,000.
c. Paid dividends of P600,000.
d. Issued 50,000 ordinary shares for P2,500,000.
e. Purchased machinery and equipment for P900,000 cash.
f. Paid P1,500,000 toward a bank loan.
g. Collected 2,000,000 in customer advances.
h. Reduced accounts receivable by P800,000.
i. Increased accounts payable P300,000.
j. Net income of P3,000,000.

51. What was Norm's net cash from operating activities?

a. 6,600,000
b. 5,850,000
c. 4,100,000
d. 3,850,000

52. What was Norm's net cash used in investing activities?

a. 5,150,000
b. 3,150,000
c. 5,900,000
d. 1,650,000

53. What was Norm's net cash provided by financing activities?

a. 1,000,000
b. 600,000
c. 6,000,000
d. 5,400,000

54.Under PFRS for SMEs, an exploration expenditure may be classified as tangible or

intangible asset and shall be initially measured using
a. Cost
b. Fair value
c. Revalued amount
d. Value in use

55. When preparing a statement of cash flows, a decrease in prepaid insurance during a
period would require which of the following adjustments in determining cash flows from
operating activities?
Indirect Method Direct Method
a. Increase Decrease
b. Decrease Increase
c. Increase Increase
d. Decrease Decrease

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

56. Which of the following represents the maximum amortization period mandated by current
generally accepted accounting principles for amortizable intangible asset
a. 10 years
b. 20 years
c. 40 years
d. No arbitrary cap on the useful life of amortizable intangible assets has been
established.

57. In recording the trade of one asset for another, which of the following accounts is usually
debited?
a. Accumulated Depreciation-Old Asset
b. Cash
c. Gain on Exchange of Asset
d. None of the above

58. Which of the following is accounted for under PAS 41

a. Sausages, cured hams
b. Processed fruit
c. Apples
d. Sugar

59. An issuer of bonds is required by its bond indenture agreement to use a sinking fund for
the retirement of the bonds. Cash was transferred to the sinking fund. The sinking fund
cash was then used to purchase investments. The sinking fund
a. Increases when the investments are purchased
b. Decreases when the investments are purchased
c. Increases when revenue is earned on the investments
d. Is not affected by revenue earned on the investments

60. When an entity reduces its interest in an investment in equity securities accounted for by
the equity method and changes into the fair value method. What is the initial
measurement of the investment for purposes of subsequent changes in market value?
a. Carrying amount at the date of change
b. Original cost
c. Market value at the date of change
d. Market value at the date of acquisition

61. The term "comprehensive income" means

a. Must be reported on the face of the income statement.
b. Includes all changes in equity during a period except those resulting from investments
by and distributions to owners.
c. Is the net change in owners' equity for the period.
d. Is synonymous with the term "net income."

62. Accounts receivable usually are factored

a. With recourse on a notification basis
b. Without recourse on a notification basis
c. With recourse on a nonnotification basis
d. Without recourse on a nonnotification basis

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

63. In relation to a set of 2023 financial statements, an event after the reporting period event
is one that
a. Occurs before the 2023 financial statements are issued.
b. Involves uncertainty as to possible gain or loss that will ultimately be resolved in
2024 or later.
c. Occurs after the 2023 financial statements are issued.
d. Requires an appropriate adjusting entry to be made as of the end of 2023.

64. An entity shall present a statement of changes in equity showing all of the following,
except
a. Profit or loss for the period
b. Each item of income or expense recognized directly in equity as required by the
standard
c. Retained earnings balance and changes therein
d. Changes in cash and cash equivalents during the period.

65. Which of the following generally is considered as a limitation of the statement of financial
position?
a. The statement of financial position reflects the current value of the entity.
b. The statement of financial position reflects the instability of the peso.
c. Statement of financial position formats and classifications do not vary to reflect
industry differences.
d. Due to measurement problems, some entity resources and obligations are not
reported on the statement of financial position.

66. An expense is recognized immediately in the income statement

I. When the expenditure produces no future economic benefits.
II. When the cost incurred ceases to qualify for recognition as an asset in the statement
of financial position.
a. I only
b. Both I and II
c. II only
d. Neither I nor II

67. In computing depreciation of a leased asset, the lessee should subtract

a. A guaranteed residual value and depreciate over the term of the lease.
b. An unguaranteed residual value and depreciate over the term of the lease.
c. A guaranteed residual value and depreciate over the life of the asset.
d. An unguaranteed residual value and depreciate over the life of the asset.

68. When an enterprise makes a bonus issue/stock split/stock dividend or a rights issue
a. The previous year’s EPS is not adjusted for the issue.
b. The previous year’s EPS is adjusted for the issue.
c. Only a note of the effect on the previous year’s EPS is made.
d. Only the diluted EPS for the previous year is adjusted.

69.The following statements pertain to recognition and measurement of an impairment loss.

Which statement is incorrect?

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

a. An impairment loss is the amount by which the carrying amount of an asset exceeds
its recoverable amount.
b. After the recognition of an impairment loss, depreciation of the asset for the future
periods should be equal to the revised carrying amount less its residual value
allocated on a systematic basis over its original life.
c. An impairment loss shall be recognized in profit or loss immediately.
d. If the recoverable amount of an asset is less than its carrying amount, the carrying
amount of the asset shall be reduced to its recoverable amount.

70.Using PFRS for SMEs, an exploration expenditure may be classified as tangible or

intangible asset and shall be subsequently measured using
a. Cost model only if tangible asset
b. Cost model or revaluation model if intangible asset
c. Cost model only if tangible or intangible asset
d. Cost model or revaluation model if tangible asset and cost model if intangible asset

end

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