COLLEGE OF ACCOUNTING EDUCTION

ACC 124 Review Session

1. Under the revised Conceptual Framework, which of the following are not among the enhancing qualitative
objectives of financial accounting?
A. Relevance D. Faithful representation G. Comparability
B. Neutrality E. Verifiability H. Freedom from error
C. Understandability F. Timeliness I. Completeness

a. A,B,D,C and H b. C,E,F and G c. C,D,E,I and F d. A,B,D,H and I

Fundamental Qualitative Information

- Relevance (predictive value, confirmatory value, or both)
- Faithful representation (complete, neutral and free from error)

Enhancing Qualitative information

- Understandability
- Comparability
- Verifiability
- Timeliness

2. These users are interested in information that enables them to determine whether amounts owing to them
will be paid when due
a. Banks b. Lenders & other creditors c. Borrowers d. Trade creditors

Primary users – Investors and Creditors

Secondary users/others – all, except investors and creditors

3. What is the objective of financial reporting as indicated in the Conceptual Framework?

a. To provide information that is useful to those making investing and credit decisions.
b. To provide information that is useful to management.
c. To provide information about those investing in the entity
d. All of the above.

4. Which of the following is not a basic assumption underlying the financial accounting structure?
a. Economic entity assumption.
b. Going concern assumption.
c. Periodicity assumption.
d. Historical cost assumption.

Measurement:
1. Historical Cost (Cost) – initial measurement; carrying amount if current values are not used.
2. Current Values – subsequent measurement
• Fair Value
• Value-in-Use (discounted cash flows for assets) and/or
Settlement Value (discounted cash flows for liabilities)
• Current Cost

Cash – cost
AR – current cost (NRV)
Inventory – current cost (LCNRV)
Investment at fair value – Fair value

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 Investment at amortized cost – value-in-use
PPE – cost

5. A change in accounting policy requires that the cumulative effect of the change for prior should be shown as
an adjustment to
a. Beginning retained earnings for the earliest period presented.
b. Net income for the period in which the change occurred.
c. Comprehensive income for the earliest period presented.
d. Shareholder’s equity for the period in which the change occurred.

Statement of Retained Earnings

RE – beg xxx,xxx
+/- Prior Period Adjustments xxx,xxx
+/- Cumulative Effect of Changes in Accounting Policy xxx,xxx
+ Net Income xxx,xxx
- Dividends (xx,xxx)
RE- end xxx,xxx

6. Which of the following options for displaying comprehensive income is preferred?

I. A continuation from net income at the bottom of the income statement.
II. A separate statement that begins with net income.
III. In the statement of changes in shareholders’ equity.
a. I only
b. II only
c. II and III only
d. I and II only

One Statement Approach

Sales xxx,xxx
Cost of Sales xxx,xxx
Gross Profit xxx,xxx
Other Revenue xxx,xxx
Total xxx,xxx
Operating Expenses
Gen./Admin xxx,xxx
Distribution/Selling xxx,xxx
Others xxx,xxx
Income from operation xxx,xxx
Finance Charge (xx,xxx)
Share of income from invest. in associates xxx,xxx
Income before tax xxx,xxx
Income Tax (xx,xxx)
Income from Continuing Operations xxx,xxx
+/- Income from Discontinuing operations, net of tax xxx,xxx
Net Income xxx,xxx
+/- Other Comprehensive Income xxx,xxx
Total Comprehensive Income xxx,xxx

Two Statement Approach

Statement of Profit or Loss

Sales xxx,xxx
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 Cost of Sales xxx,xxx
Gross Profit xxx,xxx
Other Revenue xxx,xxx
Total xxx,xxx
Operating Expenses
Gen./Admin xxx,xxx
Distribution/Selling xxx,xxx
Others xxx,xxx
Income from operation xxx,xxx
Finance Charge (xx,xxx)
Share of income from invest. in associates xxx,xxx
Income before tax xxx,xxx
Income Tax (xx,xxx)
Income from Continuing Operations xxx,xxx
+/- Income from Discontinuing operations, net of tax xxx,xxx
Total xxx,xxx
+/- Other Comprehensive Income xxx,xxx
Net Income xxx,xxx

Statement of Comprehensive Income

Net Income xxx,xxx
+/- Other Comprehensive Income xxx,xxx
Total Comprehensive Income xxx,xxx

7. Which of the following statements in relation to cash is true?

I. If material, deposits in foreign bank which are subject to foreign exchange restriction and is earning interest
should be classified separately as long-term investment with appropriate disclosure.
II. A Company’s own postdated check issued to the supplier will be restored to cash as of the reporting period.
a. I only b. II only c. Both I and II d. Neither I nor II

If the company’s PDC is not recognized as disbursement, then NO ADJUSTMENT necessary.

If the company’s PDC is recognized as disbursement, then revert the transaction to CASH.
Cash xxx,xxx
Accounts Payable xxx,xxx

8. The cash account of Acctg5 Corporation on December 31, 2022 has a balance of P127,600 and it consists of the
following:

Bills and coins on hand P 52,780

Petty cash including petty cash vouchers of P650 1,000
Balance in savings account with a bank closed by the BSP 36,000 other asset
Customer’s check dated January 15, 2014 8,000 staled check
Credit memo from suppliers for purchases returns 6,500
Postage stamps 120
Money order (always a certified checks same w/ traveler’s check) 800
IOU of an employee 400
Checking account balance in Bank of Philippine Island 22,000

The correct cash balance on December 31,2014 of Acctg5 Corporation is

a. P75,930 b. P75,130 c. P76,580 d. P76,330

Bills and coins 52,780

PCF (1,000 – 650) 350
Money order 800

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 Checking account 22,000
Total Cash 75,930

Cash in closed bank should be reported at its net realizable value.

Staled check adjustment:
Accounts Receivable xxx,xxx
Cash xxx,xxx

9. If the cash balance shown in a company’s accounting record is more than the correct cash balance and neither
the company nor the bank has made any errors, there must be
a. Outstanding checks
b. Deposits in transit
c. Bank charges not yet recorded by the company
d. Deposits credited by the bank but not yet recorded by the company.

Per book 1,000,000 Per Bank 900,000

10. On March 31, 2022, Mind Company received its bank statement. However, the closing balance of the account
was unreadable. Attempts to contact the bank did not secure the desired information. Thus, a bank
reconciliation is prepared from the following available information:

February 28 book balance P730,000

Note collected by bank 50,000
Interest earned on note 5,000
NSF check of customer (DAUD/DAIF) 65,000
Bank service charge on NSF check 1,000
Other bank service charges 1,500
Outstanding checks 101,000
Deposit of February 28 placed in night depository 42,500
Check issued by Mild company charged to Mind account 10,000

What was the cash balance per bank statement?

a. P717,500 b. P766,000 c. P669,000 d. P778,500

Book balance 730,000 Bank balance 766,000 ??

CM 50,000 OC (101,000)
CM 5,000 DIT 42,500
NSF (65,000) Error - Disb. over 10,000
DM ( 1,000)
DM ( 1,500) _______
Adjusted bal. 717,500 Adjusted bal. 717,500

Bal. per book - ledger ; Bal. per bank - bank

Bal. per bank - ledger balance ; Bal. per bank statement - bank balance
Ba. per name of the bank – ledger ; Bal. per name of the company - bank
_____PNB_____ ____ABC Company____

Cash in BDO (outstanding checks, P100,000) = P1,000,000

Cash from ABC Company (debit memo, P100,000) = P1,000,000

11. The following data are gathered for McQueen Company for the month of December 31, 2022.

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 Balance per book P2,500,000
Bank service charge for the month of December P 25,000
Customer’s check returned by bank marked NSF P 250,000
Customer’s note collected by bank
Face, P1,000,000; Interest P100,000;
Collection fee, P25,000 P1,075,000

What is the entry to record the customer’s note collected by bank?

a. Cash P1,125,000
Notes Receivable P1,000,000
Interest Income 100,000
Service Charge 25,000
b. Cash P1,125,000
Note Receivable P1,125,000
c. Cash P1,100,000
Note Receivable P1,100,000
d. Cash P1,075,000
Service Charge 25,000
Note Receivable P1,000,000
Interest Income 100,000

12. Trade receivables are classified as current assets when they are reasonably expected to be collected
a. Within one year.
b. Within the normal operating cycle.
c. Within one year or within the normal operating cycle whichever is longer.
d. Within one year or within the normal operating cycle whichever is shorter

For non-trade, one year only

13. The following data were taken from the records of Girlie Company for the year ended December 31, 2022:

Sales on account 2,880,000

Notes received to settle accounts 320,000
Provision for doubtful accounts 72,000
Accounts receivable determined to be worthless 16,000
Merchandise returned by customer 12,000
Collections received to settle accounts 1,960,000
Allowance for sales discount 36,000
Collections received in settlement of notes 120,000

What is the net realizable value of accounts receivable?

a. P 670,000 b. P 464,000 c. P 480,000 d. P 536,000

Accounts Receivable____________________
Beg. bal. Collection – NR 320,000
Credit Sales 2,880,000 Write-off 16,000
Return from cr. sales 12,000
Collection 1,960,000
Balance 572,000

Allowance for Doubtful Accounts

Write-off 16,000 Provision 72,000
Balance 56,000

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 Accounts Receivable 572,000
Allow. for DA ( 56,000)
Allow. for Sales discount ( 36,000)
NRV 480,000

Accounts Receivable xxx,xxx

Less: Allow. for DA xxx,xxx
Allow. for Returns xxx,xxx
Allow. for Sales discounts xxx,xxx
Allow. for freight charges xxx,xxx
NRV xxx,xxx

14. The following data are available on December 31, 2022 for James Company:

Sales 2,400,000
Accounts Receivable 600,000
Allowance for doubtful accounts, beg. 30,000
Accounts written off 39,000
Recovery of accounts previously written off 6,000

James Company estimates that 8% of accounts receivable prove uncollectible. What amount doubtful accounts
expense will be reported on December 31, 2022?
a. P48,000 b. P51,000 c. P18,000 d. 81,000

Allowance for Doubtful Accounts

Write-off 39,000 Beg. bal. 30,000
Recovery 6,000
Provision 51,000 ???
Ending bal. 48,000 8% x 600,000

Methods of computing doubtful accounts

a. Aging of Receivable
Category Amount % of Uncollectible Required Allowance
Current P1,000,000 2% 20,000
0-30 days 2,000,000 5% 100,000
31-and over 1,500,000 10% 150,000
270,000
b. % of AR
Total AR x % of Uncollectibility = Required Allowance
c. % of Sales (Gross or Net)
Sales x % of uncollectibility = Provision (Bad Debts Expense)

15. Statement I Accounts receivable – assigned is excluded in the determination of net realizable value. false
Statement II Equity of the assignor in assigned accounts is equal to assigned accounts receivable minus the
bank loan balance. true
a. Both statements are true c. Statement 1 is true while statement II is false
b. Both statements are false d. Statement 1 is false while statement II is true

In computing doubtful accounts, include AR and AR-assigned.

AR – assigned balance xxx,xxx

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 Less: Notes Payable balance xxx,xxx
Equity in assigned account xxx,xxx

AR – assigned 5,000,000
AR 5,000,000

Cash 2,900,000
Finance cost 100,000
Notes Payable 3,000,000

Cash 2,500,000
AR – assigned 2,500,000

Notes Payable 2,100,000

Finance cost 400,000
Cash 2,500,000

16. On January 1, 2022, Lozada Company received from a customer an 8-month, P6,000,000 note bearing an annual
interest rate of 10%. The principal and the interest are payable on September 1, 2022. To obtain cash quickly,
Lozada discounted the note with East-West Bank on March 1, 2022. The bank charged a discount rate of 12%.
What is the loss on note receivable discounting to be recognized by Lozada?
a. P 70,000 b. P 84,000 c. P 400,000 d. P 384,000

Proceeds = MV – discount
MV = Principal + Interest
Discount = MV x discount rate x discount time

MV = 6M + 400,000
Discount = 6,400,000 x 12% x 6/12 = 384,000
Proceeds = 6,016,000

Conditional Sale Secured Borrowing

Cash 6,016,000 Cash xxx,xxx
Loss on Discounting 84,000 Interest Expense xxx,xxx
NR – discounting 6,000,000 Liab. on NR discounting xxx,xxx
Interest income 100,000 Interest Income xxx,xxx
(6M x 10% x 2/12)

17. At the beginning of the current year, Myra company sold P17,400,000 in accounts receivable for cash of
P15,000,000. The factor withheld 10% of the cash proceeds to allow for possible customer returns and other
adjustments. An allowance for bad debts of P1,800,000 had previously been established by May company in
relation to these accounts. What was the loss on factoring recognized by May company?
a. 600,000 b. 2,100,000 c. 1,500,000 d. 2,400,000

Cash 13,500,000
Factor’s Holdback 1,500,000
Allow. for DA 1,800,000
Loss on factoring 600,000
Accounts Receivable 17,400,000

RECEIVABLE DISCOUNTING
Borrowing Sale/Factoring

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 Pledge Assignment Discounting With Recourse Without
Recourse
- Secured borrowing - conditional sale - outright sale
- Conditional sale - continuing basis - casual factoring
Cash AR assigned Cash Cash
Fin. Cost AR Allow. for DA Allow. for DA
NP Factor’s Holdback Loss on factoring
Cash Loss on factoring AR
Fin. Cost AR
NP

18. In relation to notes receivable, which among the statement is true?

Statement I Accounting for the interest in a noninterest bearing note receivable is an example of substance
over form. true
Statement II The interest on a noninterest bearing note is equal to face value over the present value. true
a. Both statements are true c. Statement 1 is true while statement II is false
b. Both statements are false d. Statement 1 is false while statement II is true

19. On December 31, 2022, Perry company sold used equipment and received a noninterest bearing note requiring
payment of P250,000 annually for ten years. The first payment is due December 31, 2023, and the prevailing
rate of interest for this type of note at date of issuance is 12%.

In the December 31, 2022 statement of financial position, what is the carrying amount of the note receivable?
a. 2,500,000 b. 1,087,500 c. 805,000 d. 1,412,500

Notes Receivable 2,500,000

Equipment
Discount on NR (Unearned Int. inc.)
Gain on sale

Notes Receivable (250,000 x 10) 2,500,000

PV of NR (250,000 x 5.6502 PV of ordinary annuity of P1 1,412,550
Imputed interest 1,087,450
(+) (-)
Int. Received Int. Income Amortization Payment Amortized Cost
1,412,550 12/31/22
0 169,506 169,506 250,000 1,332,056 12/31/23

If instalment payment is made in advance:

Notes Receivable 2,500,000
PV of annuity due (5.6502 x 1.12 = 6.3282 x 250,000) 1,582,050
(PV of ordinary annuity x 1.rate)
Imputed interest 917,950
(+) (-)
Int. Received Int. Income Amortization Payment Amortized Cost
1,582,050 12/31/22
250,000 1,332,050 12/31/22
0 159,846 159,846 250,000 1,241,896 12/31/23
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 PV of P1 = if payment is made at lump sum.
PV of ordinary annuity of P1 = if instalment payment and the first installment is made a year after.
PV of annuity due of P1 = if installment payment and the first installment is made in advance.

20. On January 1, 2022 Angel company sold equipment with a carrying amount of P2,400,000 in exchange for a
P3,000,000 noninterest bearing note due January 1, 2025. There was no established exchange price for the
equipment. The prevailing rate of interest for a note of this type of January 1, 2014 was 10%. The present
value of 1 at 10% for three periods is 0.75. In the income statement for 2022, what amount should be reported
as interest income?
a. 300,000 b. 250,000 c. 225,000 d. 45,000

Int. Received Int. Income Amortization Amortized Cost

2,250,000 1/1/2022
0 225,000 225,000 2,475,000 12/31/2022

Interest Received = Face value x nominal rate

Interest income = Amortized Cost x yield rate
Amortization = Int. Received – Int. Income

21. If the direct origination cost is less than the direct origination fee in the transaction of loan granted to a debtor
by the financing institution, the amortization will increase
a. Unearned interest income c. Interest expense
b. Interest income d. Loans receivable

Loans xxx,xxx 5,000,000

Direct origination fee (xx,xxx) ( 150,000)
Direct origination cost xxx,xxx 100,000
Proceeds xxx,xxx 4,950,000 discount

22. Jewel Company loaned P7,500,000 to a borrower on January 1, 2018. The terms of the loan were payment in
full on January 1, 2023, plus annual interest payment at 12%. The interest payment was made as scheduled on
January 1, 2019. However, due to financial setbacks, the borrower was unable to make its 2020 interest
payment. Davao Bank considers the loan impaired and projects the cash flows from the loan as of December
31, 2020. The bank has accrued the interest at December 31, 2019, but did not continue to accrued interest
for 2020 due to the impairment of the loan. The projected cash flows are:

Date of Cash Flow Amount Projected – as of 12.31.20

Dec. 31, 2021 500,000
Dec. 31, 2022 1,000,000
Dec. 31, 2023 2,000,000
Dec. 31, 2024 4,000,000

The yield rate on December 31, 2020 is 10%.

How much is the loan impairment loss to be recognized on December 31, 2020?
a. P 2,275,000 b. P 3,175,000 c. P 5,225,000 d. P 2,175,000

Recoverable Cost (PV of cash inflows*)

500,000 x 0.8929 = 446,450
1,000,000 x 0.7972 = 797,200
2,000,000 x 0.7118 = 1,423,600

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 4,000,000 x 0.6355 = 2,542,000 5,209,250
Carrying amount of the loans 7,500,000
Impairment loss (2,290,750)

*based on the yield at the original issuance of the loan.

Int. Receiv. Int. income Amortization Payment Amortized Cost

5,209,250 12/31/2020
0 625,110 625,110 500,000 5,334,360 12/31/2021
0 640,123 640,123 1,000,000 4,974,483 12/31/2022
0
0 0 12/31/2024

23. What are the two entries under a perpetual system to record a sale transaction?
a. One entry recognizes the sales revenue and the second entry recognizes the cost of goods sold.
b. One entry recognizes purchase of merchandise and the second entry recognizes sales revenue.
c. One entry recognizes cost of goods sold and the second entry reduces the balance of the inventory account.
d. One entry updates the subsidiary ledger and other updates the general ledger.

24. Eroll company’s inventory at December 31, 2024 was P5,000,000 based on physical count priced at cost and
before any necessary adjustment for the following:

• Merchandise costing P200,000, shipped FOB shipping point from a vendor on December 30, 2024 was
received and recorded on January 5, 2025.
• Goods in the shipping area were excluded from inventory although shipment was not made until January
4, 2025. The goods billed to the customer FOB shipping point on December 30, 2024, had a cost of
P800,000. The selling price is P1,000,000.

What amount should be reported as inventory on December 31, 2024?

a. P5,000,000 b. P 5,200,000 c. P 5,800,000 d. P 6,000,000

12/31/24 Inventory Purchases Sales

Unadjusted inventory 5,000,000
200,000 200,000
800,000 _______ (1,000,000)
Adjusted balance 6,000,000

Point of Sale/Purchase
In-transit inventory
- FOB shipping point; freight collect - upon shipment of goods
- FOB destination; freight prepaid - upon receipt of goods by the buyer
Goods segregated awaiting for pick-up
by the customer - considered as Sales/Purchases
Goods segregated awaiting for pick-up
by the carrier - NO Sales/Purchases
Goods with re-purchased agreement - NO Sales/Purchases (Inventory Financing)
(with buy-back agreement) Cash xxx,xxx
Notes Payable xxx,xxx
Goods with high-rates of return - Upon the return of goods
(with option to return) Exemption: If under Subsequent Events, recognized
sales as of end of reporting period.

Delivery FS Return
11/30/Y1 12/31/Y1 2/1/Y2
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 Adjustment as
12/31/Y1

Good with money-back guarantee - At the end of the guaranteed period

Exemption: If under Subsequent Events, recognized
sales as of end of reporting period.

Sale FS Return
12/15/Y1 12/31/Y1 1/14/Y2
Adjustment as
12/31/Y1

Installment sales - certainty of collection

Lay-away plan - full collection/payment of the account
Cash xxx,xxx
Adv. from customer xxx,xxx
Adv. from cust. xxx,xxx
Sales xxx,xxx
Custom-build item - upon completion of the items
(build based on customer’s specification)

Consignment - no sales unless the items are sold

- Held on consignment - NOT PART OF THE INVENTORY
- Out on consignment - INCLUDED IN THE INVENTORY UNLESS SOLD

CONSIGNOR CONSIGNEE
Shipment of goods Memo Memo

Sale of consigned Due from consignee 9,000 Cash 10,000

goods Commission Expense 1,000 Commission income 1,000
Sales 10,000 Due to consignor 9,000

25. Statement 1 When an entity uses First in, First out (FIFO) cost method during rising prices, it matches oldest
low-cost inventory with rising sales prices thus narrowing the gross profit margin. false
Statement 2 Weighted average differs from other methods in that no assumption is made about the sale of
specific unit. true
a. Both statements are true c. Statement 1 is true while statement II is false
b. Both statements are false d. Statement 1 is false while statement II is true

Cost* NRV (Selling price – cost to sell) LCNRV

Item 1 10,000 15,000 10,000
Item 2 20,000 18,000 18,000
Item 3 50,000 45,000 45,000
80,000 73,000

Difference = loss on market decline, P7,000

Loss on inventory writedown 7,000

Allow. on inventory writedown 7,000
(Inventory)

If there is a beg. allowance on inventory writedown, P10,000.

Allow. on inventory writedown 3,000

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 Gain on reversal of writedown 3,000

*Cost = FIFO or Average method (if the inventory is interchangeable)

specific identification (if inventory cannot be interchanged)

26. Pascual Company is a wholesaler of scented candles. The activity for item number X during June is presented
below:

Date Transaction Units Cost

June 01 Inventory balance 6,000 P 20.00
04 Purchases 9,000 24.00
12 Sales 10,800
19 Purchases 14,400 26.00
22 Sales 11,400
29 Purchases 4,800 27.00

Under the weighted average cost periodic inventory system, how much is the ending inventory of item X at
June 30?
a.278,400 b. 294,720 c. 302,400 d.316,800

Weighted average periodic

Inventory end in units = 12,000 x 24.56 = 294,720

6,000 x 20 = 120,000
9,000 x 24 = 216,000
14,400 x 26 = 374,400
4,800 x 27 = 129,600
= 840,000 / 34,200 = 24.56

FIFO: 4,800 x 27 = 129,600

7,200 x 26 = 187,200
= 316,800

Weighted Average Perpetual = moving average

6,000 20 120,000
15,000 22.40 336,000
(10,800) (241,920)
18,600 21.18 468,480
(11,400) (241,452)
12,000 29.72 356,628

Simple Average (NOT GAAP)

20 + 24 +26 + 27 / 4 = 24.25 x 12,000 units = 291,000 NOT ALLOWED

27. Larry Company uses the moving average cost method of valuing inventories. During August 2022, the following
inventory details were recorded.

Opening balance 3000 units valued at P20 each

August 5 purchase of 5000 units at P24 each
August 10 issue of 4000 units
August 18 purchase of 6000 units at P25 each
August 23 issue of 2500 units

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 The value of the month-end inventory for august 2022 was:
a. P172, 500 b. P180,000 c.P176, 500 d.P187,500

8,000 22.5 180,000

(4,000) (90,000)
10,000 24.0 240,000
(2,500) ( 60,000)
7,500 180,000

28. Which of the following statements is not valid about the gross profit method?
a. It may be used to estimate inventory for annual statements.
b. It may be used to estimate inventory for interim statements.
c. It is an acceptable accounting procedure.
d. It may be used by auditors.

Inventory Estimation
- Use: Interim report; in lieu of physical count
- Type: Gross Profit and Retail Inventory

29. On June 30, 2024, a fire at Sherlock Company’s only warehouse caused severe damage to its inventory. Based
on recent history, Sherlock has gross profit of 25% on sale. The following information is available from the
records for the six months ended June 30, 2024:

Inventory - January 1 4,000,000

Net purchases 18,000,000
Net sales 20,000,000

A physical inventory disclosed undamaged goods with selling price of P1,000,000. On June 30, 2024, unsold
goods on consignment with a selling price of P1,500,000 are in the hands of the consignee. What is the
estimated cost of inventory destroyed by fire?
a. 4,500,000 b. 4,000,000 c. 5,125,000 d. 7,000,000

TGAS xxx,xxx
Less: COS xxx,xxx
Est. Inventory xxx,xxx

Inventory – beg 4,000,000

Purchases 18,000,000
TGAS 22,000,000
COS (20M x 75%) 15,000,000
Estimated inventory 7,000,000
Undamaged goods 750,000 (1M x 75%)
Out on consignment 1,125,000 (1.5M x 75%)
Inventory loss 5,125,000

Reconstruction of Accounts:

Accounts Receivable
Beg. Bal xxx,xxx Collection xxx,xxx
Credit sales xxx,xxx Returns and disc.
Recovery xxx,xxx from cr. sales xxx,xxx
Write-off xxx,xxx

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 Coll. of recovery xxx,xxx
End. Bal. xxx,xxx

Accounts Payable
Payment xxx,xxx Beg. bal xxx,xxx
Ret/disc. xxx,xxx Purchases xxx,xxx
Ending bal. xxx,xxx

30. The retail inventory method would include which of the following in the calculation of the goods available for
sale at both cost and retail?
a. Freight in c. Markups
b. Departmental transfer-in d. Sales returns and allowances

Cost Retail
TGAS xxx,xxx xxx,xxx
Less: Sales (xx,xxx)
Employee discount (xx,xxx) (xxx,xxx)

31. Presented below is information related to Nation, Incorporated:

Cost Retail
Inventory, January 1, 2024 P 705,150 P1,170,000
Purchases 2,831,250 4,380,000
Purchase returns 180,000 240,000
Purchase discounts 54,000 0
Gross sales (after employee discounts) 4,756,000
Sales returns 292,500
Net markups 300,000
Net markdowns 75,000
Freight-in 0
Employee discounts granted 24,000
Loss from breakage 47,500

Assuming that Nation, Inc. uses the FIFO retail inventory method, how much would be the cost of its ending
inventory at December 31, 2024?
a. P631,400 b. P640,000 c. P650,000 d. P665,600

Cost Retail
Inventory 705,150 1,170,000
Purchases 2,831,250 4,380,000
Purchase Returns ( 180,000) ( 240,000)
Purchase discount ( 54,000)
Net Markup 300,000
Net Markdown ( 75,000)
TGAS – FIFO 2,597,250 4,365,000 59.50%
TGAS 3,302,400 5,535,000
Sales 4,756,000
Employee Disc. 24,000
Sales Returns ( 292,500) 4,487,500
Breakage 47,500
Estimated inventory 1,000,000
Est. Inventory at FIFO cost (1,024,000 x 59.5% 595,000

32. San Miguel Corporation has the following information pertaining to its biological assets for the year 2024:

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 A herd of 100, 2-year old animals was held at January 1, 2024. Ten animals aged 2.5 years were purchased on
July 1, 2024 for P5,400 and ten animals were born on July 1, 2024. No animals were sold or disposed of during
the period. Per unit fair values less estimated point-of-sale costs were as follows:

2.0 - year old animal at January 1, 2024 P5,000

Newborn animal at July 1, 2024 3,500
2.5 - year old animal at July 1, 2024 5,400
Newborn animal at December 31, 2024 3,600
0.5 - year old animal at December 31, 2024 4,000
2.0 - year old animal at December 31, 2024 5,250
2.5 - year old animal at December 31, 2024 5,550
3.0 - year old animal at December 31, 2024 6,000

What is the gain from change in fair value attributable to physical change?
a. P27,500 b. P83,500 c. P118,500 d.P146,000

Fair value as end of year xxx,xxx

Carrying amount xxx,xxx
Gain from change in fv xxx,xxx

The gain from change in fair value is attributable to the following:

a. Price change
b. Physical change

Fair Value Change: 100 x 6,000 = 600,000

10 x 6,000 = 60,000
10 x 4,000 = 40,000
= 700,000 Total fair value

Fair value 700,000

Carrying amount
100 x P5,000 = 500,000
10 x P5,400 = 54,000 554,000
Gain from change in fair value 146,000

Gain from change in fair value due to price change:

100 - 5,250 – 5,000 = 250 x 100 = 25,000
10 - 5,550 – 5,400 = 150 x 10 = 1,500
Newly born – 3,600 – 3,500 = 100 x 10 = 1,000
= 27,500

Gain from change in fair value due to physical change:

100 6,000 – 5,250 = 750 x 100 = 75,000
10 6,000 – 5,550 = 450 x 10 = 4,500
Newly born – 4,000 – 3,600 – 400 x 10 = 4,000
10 x 3,500 = 35,000
= 118,500

33. If the combined market value of trading securities at the end of the year is less than the market value of the
same portfolio of Trading securities at the beginning of the year, the difference should be accounted for by
a. Reporting an unrealized loss in security investments in the stockholders equity section of the balance sheet
b. Reporting an unrealized loss in security investments in the income statement
c. A debit to Investment in Trading Securities
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 d. A credit to Investment in Trading Securities

INVESTMENT
Equity Security Debt Security
(ownership is less than 20%)
TS at FMVPL at FMVOCI TS at FMVPL at FMVOCI Amortized Cost
Initial Measurement:
FMV FMV FMV + TC FMV FMV FMV + TC FMV + TC

Gain/Loss on Sale:
NDP xxx,xxx NDP xxx,xxx Same with equity Same with NDP xxx,xxx
CV xxx,xxx* CV xxx,xxx equity AC xxx,xxx
G/L xxx,xxx (P/L) G/L xxx,xxx (R/E) G/L xxx,xxx
(P/L)

*FMV latest FS/

Reported amount in FS

Subsequent Measurement:
FMV FMV FMV FMV FMV FMV Amortized Cost
(No amortization) (W/ amort) (W/
amortization)

Unrealized holding gain/loss

FMV- this year xxx,xxx FMV this year xx,xxx Same with equity FMV this year xx,xxx NO UH G/L
FMV – last year xxx,xxx Cost this year xx,xxx AC this year xx,xxx
Unrealized H G/L xxx,xxx UH G/L (OCI) xx,xxx UH G/L (OCI) xx,xxx

34. On January 1, 2023, Eunice Company purchased “trading” equity securities. The cost and market value on
December 31, 2023 were:
Cost Market – 12/31/23 Market – 12/31/24
Security A 1,000,000 1,200,000 1,500,000
Security B 2,000,000 1,500,000 1,400,000
Security C 3,000,000 3,100,000 3,300,000

On July 1, 2024, Eunice Company sold Security A for P1,800,000. What amount should be reported as gain on
sale of trading securities in the 2024 income statement?
a. 800,000 b. 600,000 c. 500,000 d. 400,000

Selling price 1,800,000

Carrying amount 1,200,000
Gain 600,000

Unrealized holding gain/loss as of 12/31/2024

FMV this year - 4,700,000 Trading Security 100,000
FMV last year - 4,600,000 Unrealized holding gain 100,000
Unrealized gain - 100,000

If FMVTOCI, unrealized holding gain/loss?

FMV this year - 4,700,000
Cost this year - 5,000,000
Unrealized loss - ( 300,000) reported to other comprehensive income
Unrealized loss – beg - 200,000

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 Adjustment - ( 100,000) cumulative loss = changes in equity

2023: FMV - 5,800,000

Cost - 6,000,000
UH Loss - ( 200,000)

Unrealized holding loss – OCI 100,000

Investment at FMVOCI 100,000

35. During 2022, the first year of operations, Globe Telecom, Inc. purchased the following equity securities:

Cost Market Value Market Value

December 31, 2022 December 31, 2023
Security One 2,200,000 1,400,000 900,000
Security Two 700,000 1,000,000 1,100,000
Security Three 1,600,000 1,500,000 1,600,000
Security Four 2,000,000 2,500,000 1,200,000

Security One and Security Two are held for trading and Security Three and Security Four are measured as at
fair value through other comprehensive income by election. During 2023, Socorro sold one-half of Security
One for P1,000,000 and one-half of Security Four for P1,300,000. In the statement of changes in equity for
2023, what amount should be included as cumulative unrealized gain as component of other comprehensive
income?
a. 200,000 b. 800,000 c. 1,200,000 d. 0

FMV this year Cost this year

Sec 3 1,600,000 1,600,000
Sec. 4 1,200,000 2,000,000
2,800,000 3,600,000

Unrealized holding loss (800,000) other comprehensive income

Unrealized holding gain - decreased (400,000)
Total (1,200,000) changes in equity

2022: FMV 4,000,000

Cost 3,600,000
Gain 400,000

Unrealized holding loss – OCI 800,000

Investment at FMVOCI 800,000
Unrealized holding gain – OCI 400,000
Investment at FMVOCI 400,000

36. When an investor uses the equity method to account for investment in ordinary shares, cash dividends received
by the investor from the investee shall be recorded as
a. Dividend income
b. A deduction from the investor’s share of the investee’s profits
c. A deduction from the investment account
d. A deduction from the shareholder’s equity account, dividends to shareholders

37. Ayala Land, Inc. purchased 100,000 shares of Ronald Company on January 15, 2022 representing 5% ownership
interest. Ayala Land, Inc. received a stock dividend of 20% on March 31, 2022 when the market price of the
share is P40. Ronald Company paid a cash dividend of P5 per share on December 15, 2022. In the income

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 statement for the year ended December 31, 2022, what amount should Ayala Land, Inc. report as dividend
income?
a. 300,000 b. 600,000 c. 1,400,000 d. 800,000

100,000 x 120% = 120,000 x P5 = P600,000

Dividend as Income (return ON investment)

1. Cash Dividend
2. Property Dividend
3. Shares Received in Lieu of Cash Dividend (property dividend)
4. Scrip dividend/Bond dividend

Others
1. Liquidating dividend (return OF investment)
Cash xxx,xxx
Investment xxx,xxx

2. Share dividend same as those held

Memo Entry

3. Share dividend different from those held

Investment – pref. shares xxx,xxx
Investment – ordinary shares xxx,xxx

4. Cash dividend in lieu of share dividend; “as if the share dividend is received but subsequently sold”
Cash xxx,xxx
Investment xxx,xxx
Gain on sale xxx,xxx

38. Bernadette Company owns 50,000 shares of another entity. These 50,000 shares were originally purchased for
P100 per share. On October 1, 2020, the investee distributed 50,000 rights to Bernadette. Bernadette was
entitled to buy one new share for P140 and five of these rights. On October 1, 2020, each share had a market
value of P150 and each right had market value of P10. On December 31, 2020, Bernadette exercised all rights.
The stock rights are accounted for separately and measured initially at fair value.

What total cost should be recorded for the new shares that Bernadette acquired by exercising the rights?
a. 1,400,000 b. 1,900,000 c. 1,650,000 d. 1,000,000

Investment in SR (50,000 x P10) 500,000

Investment 500,000

Investment 1,900,000
Cash (50,000/5 x P140) 1,400,000
Investment in SR 500,000

39. An investor uses the equity method to account for an investment in ordinary shares. After the date of
acquisition, the investment account of the investor would
a. Not be affected by its share of the earnings or losses of the investee.
b. Not be affected by its share of the earnings of the investee, but be decreased by its share of the losses of
the investee.
c. Be increased by its share of the earnings of the investee, and decreased by its share of the losses of the
investee.
d. Be increased by its share of the earnings of the investee, but not affected by its share of the losses of the
investee.

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40. In January 1, 2022 Lemar Company acquired 20% of AC the outstanding ordinary shares of an investee for
P8,000,000. The carrying amount of the acquired shares was P6,000,000. The excess of cost over carrying
amount was attributed to a depreciable asset which was undervalued in the investee's statement of financial
position and which had a remaining useful life of ten years. For the year ended December 31, 2022, the investee
reported net income of P1,800.000 and paid cash dividends of P400,000 and thereafter issued 5% stock
dividend. What is carrying amount of the investment on December 31, 2022?
a. P7,720,000 b. P7,800,000 c. P8,000,000 d. P8,080,000

Investment in Associate_____________
8,000,000 Amort 200,000
Share of income 360,000 Dividend 80,000
Ending balance 8,080,000

Cash paid 8,000,000

NAA 6,000,000
Excess 2,000,000

41. On January 1, 2020, Valerie Company purchased bonds with face value of P2,000,000 for P1,900,5000 including
transaction costs of P100,500 to be held as at FMTOCI. The bonds mature on December 31, 2022 and pay
interest of 8% annually every December 31 with a 10% effective yield. The bonds are quoted at 110 on
December 31, 2020 and at 120 on December 31, 2021.

What amount of unrealized gain on these bonds should be reported in the 2021 statement of comprehensive
income?
a. 269,450 b. 436,395 c. 166,945 d. 499,500

FMV – 12/31/2021 (120 x P2M) 2,400,000

Amortized Cost – 12/31/2021 1,963,605
Unrealized holding gain (cumulative) 436,395 to be reported to Other comprehensive income
Unrealized holding gain – beg. 269,450
Unrealized holding gain – adjustment 166,945 to be reported to changes in equity

Int. Receiv. Int. Income Amortization Amortized Cost

1,900,500 1/1/2020
160,000 190,050 30,050 1,930,550 12/31/2020
160,000 193,055 33,055 1,963,605 12/31/2021

2020: FMV (110 x P2M) 2,200,000

Amortized cost 1,930,550
Unrealized holding gain 269,450

42. On January 1, 2020, Jessa Company purchased serial bonds with face value P3,000,000 and stated 12% interest
payable annually every December 31. The bonds are to be held to maturity with a 10% effective yield. The
bonds mature at an annual installment of P1,000,000 every December 31. The rounded present value of 1 at
10% for:

One period 0.91

Two periods 0.83
Three periods 0.75

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 What is the purchase price of the serial bonds on January 1, 2020?
a. 3,106,800 b. 3,060,000 c. 3,045,000 d. 3,149,400

Issue price of the bonds:

PV of Principal: 1M x 2.49 = 2,490,000
PV of interest
360,000 x 0.91 = 327,600
240,000 x 0.83 = 199,200
120,000 x 0.75 = 90,000
= 3,106,800

ACC 111 Component

43. Mr. Banda, the owner of Davao Bus Liner withdrew P20,000 from his transportation business for his “personal
use”. His bookkeeper told him that this withdrawal should not be recorded in the book of the business because
this transaction is personal in nature and that as what he learned, only business transactions are to be recorded.

Statement 1 – The argument of the bookkeeper is correct because of the “business entity theory” which states
that the transaction of the business and the owner is distinct and separate from each other.

Statement 2 - The argument of the bookkeeper is wrong because the cash he withdrew is the cash from the
business, thus, must be recorded as Drawing in the business book.

a. Only Statement 1 is correct.

b. Only Statement 2 is correct.
c. Neither Statement 1 nor Statement 2 is correct.
d. Both Statement 1 and Statement 2 are correct.

44. Mrs. Gevera is a CPA. She is the Dean of the College of Accountancy. She has plenty of business clients of
which she serves during Saturdays and Sundays. Her Auditing Office is run by her staff during weekdays. Three
students in accounting are discussing and arguing as to what sector in the accountancy does she belongs.

Student 1 – She belongs to Education sector because she is teaching at the same time, a Dean.

Student 2 – She belongs to Commerce and Industry sector because she is an employee of the school.

Student 3 – She belongs to Public Practice sector because she has an Auditing office and does audit works but
at the same time she also belongs to Education sector because she is the Dean of the school.

a. Student 1 is correct.
b. Student 2 is correct.
c. Student 3 is correct.
d. All of them are correct.

45. On Dec. 26, 2022, Lopez hired three temporary staff to begin work immediately for some rush works. The
clerks were paid on Jan. 9, 2023. Disregarding amounts, what entry should be made on Dec. 31, 2022?
a. debit Salaries Expense and credit Salaries Payable
b. debit Salaries Expense and credit Cash
c. debit Salaries Payable and credit Cash
d. debit Salaries Payable and credit Salaries Expense

46. Reynante Rivera Company bought equipment on January 3, 2022 for P100,000. At the time of purchase, the
equipment was estimated to have a useful life of nine years and a trade-in value of P10,000 at the end of nine
years. Using the straight-line method, the amount of depreciation on Dec. 31, 2022 was?

20
 a. P11,110. b. P90,000. c. P12,220. d. P10,000.

47. A computer costing P 30,000 has an estimated life of 5 yrs. without scrap value. The computer was acquired on
March 31, 2022. How much is the depreciation of the asset at the end of Dec. 31, 2022?
a. P6,000 b. P5,000 c. P4,500 d. P5,500

48. An pays weekly salaries of P200,000 on Friday for a five-day week ending on that day. If the fiscal period ends
on Wednesday, the adjusting entry is
a. Debit Prepaid Salaries Expense, P120,000; salaries expense P120,000.
b. Debit Salaries Expense, P120,000; credit Salaries Payable, P120,000.
c. Debit Withdrawals, P120,000; credit Salaries Payable, P120,000.
d. Debit Salaries Payable, P120,000; credit Salaries Expense, P120,000.

49. Failure to record the entry for accrued salaries results in;
a. Salaries payable being overstated.
b. Profit being understated.
c. Salaries expense being understated.
d. Total assets being understated.

50. The balance in the Prepaid Insurance account before adjustment at the end of the year is P7,200, which
represents twelve months’ insurance that started on December 1. The adjusting entry required on December
31, is;
a. Debit Insurance Expense, P600; credit Prepaid Insurance, P600.
b. Debit Insurance Expense, P6,600; credit Prepaid Insurance, P6,600.
c. Debit Prepaid Insurance, P600; credit Insurance Expense, P600.
d. Debit Prepaid Insurance, P7,200; credit Insurance Expense, P7,200.

51. If an accountant fails to make an adjusting entry at the end of a fiscal period to record expired insurance, the
omission will cause;
a. Total assets to be understated.
b. Total expenses to be understated.
c. Total revenue to be understated.
d. Liabilities to be overstated.

52. Interest Expense shows a balance of P 3,500 at the end of 12.31.2022. It was determined that P 500 of the
amount is applicable in the next accounting period. From the data, how much of the amount has expired at
the end of 12.31.2022?
a. 3,000 b. 500 c. 4,000 d. 4,500

53. Based on the given data in no. 70, what is the adjusting entry on 12.31.2022?
Debit Credit
a. Interest Expense 500 Prepaid Interest 500
b. Prepaid Interest 3,000 Interest Expense 3,000
c. Prepaid Interest 500 Interest Expense 500
d. Interest Expense 3,000 Prepaid Interest 3,000

54. A business received cash of P30,000 in advance for revenue that will be earned later. The cash receipt entry
was debit cash and credit unearned revenues for P30,000. At the end of the period, P11,000 is still unearned.
The adjusting entry for this situation is:
a. debit unearned revenues and credit revenues for P 19,000
b. debit unearned revenues and credit revenues for P11,000.
c. debit revenues and credit unearned revenues for P 19,000
d. debit revenues and credit unearned revenues for P11,000.

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55. Which of the following is an example of deferral?
a. The accumulation of interest in a bank account.
b. the purchase of a company vehicle
c. Property taxes accrued but not yet paid
d. Legal fees already earned but not yet collected

56. Which of the following assets is not subject to depreciation?

a. art equipment
b. Store Fixtures
c. computers
d. Land

57. The carrying value of a depreciable asset equals;

a. the estimated cost to replace the asset
b. the original cost minus accumulated depreciation
c. the estimated amount for which the asset could be sold
d. the original cost minus depreciation expense for the current period

58. A company recorded office supplies in an asset account when the supplies were purchased. Failure to take an
inventory and make an adjusting entry will result in an;
a. understatement of assets
b. understatement of owner’s equity
c. overstatement of owner’s equity
d. understatement of liabilities

The following information pertains to Bautista Company:

a. The company’s Store Supplies account showed a beginning debit balance of P2,000 and supplies purchased of
P8,000; P3,000 of supplies were on hand at year-end.
b. Depreciation on building is at P50,000.
c. A one-year insurance policy was purchased for P20,000 and was debited to insurance expense Three months
have passed since the purchase.
d. Accrued interest on a note receivable amounted to P1,000.
e. The company received a P36,000 advance payment during the year on services still to be performed and credit
unearned service revenues. By the end of the year, one-fourth of the services had been performed.

59. The adjusting entry for Store Supplies would include a;

a. debit to Store Supplies Expense for P8,000 c. credit to Store Supplies Expense for P8,000
b. debit to Store Supplies Expense for P7,000 d. credit to Store Supplies for P3,000

60. The adjusting entry to record the accrued interest on the note would include a
a. debit to Interest Receivable for P1,000. c. credit to Interest Payable for P1,000.
b. Credit to Interest Expense for P1,000. d. Debit to Interest Expense for P1,000.

At the end of June 30, 2019, the following data were taken from the records of Tonet Matalino CPA. Profit of
P150,000 which is equal to 20% of the gross professional fees. The operating expenses is equal to 50% of
revenue and direct cost is 30% of the revenue.

61. How much is the amount of revenue?

a. P500,000 b. P600,000 c. P450,000 d. P750,000

62. The amount of operating expenses is :

a. P375,000 b. P250,000 c. P300,000 d.P225,000

63. The primary objective of reversing entries is to;

22
 a. correct errors
b. simplify the bookkeeping associated with accruals from the prior period
c. transfer the balance of the expense accounts to the owner’s capital account and set the accounts equal to
zero.
d. place the expenses for the current period in the proper accounts.

64. If a trial balance were to be prepared on the first day of the current year, and the account Salaries Expense had
a credit balance, you would know that;
a. the trial balance is a post-closing trial balance
b. the adjusting entries have been recorded
c. the trial balance is an adjusted trial balance
d. a reversing entry has been made

65. Reversing entries are;

a. Optional
b. made to record a change in corporate objectives
c. required by generally accepted accounting principles
d. made prior to preparing a post-closing trial balance.

66. The post-closing trial balance contains:

a. real accounts only
b. nominal accounts only
c. both real and nominal accounts
d. neither real nor nominal accounts

The adjusted trial balance of BB Gandang Hari is shown below. For simplicity cost of goods sold and operating
expenses are presented on its total amount.
adjusted trial balance

Cash 221,180

Accounts Receivable 428,000

MDSE Inventory 397,000

Supplies Inventory 14,000

Prepaid Insurance 46,000

Land 460,000

Building 1,750,000

Accumulated Depreciation-Bldg 359,000

Equipment 2,310,000

Accum. Deprn. Equipment 642,000

Accounts Payable 517,000

Salaries Payable 51,000

Mortgage payable 2,600,000

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 BB Gandang Hari capital 1,569,000

BB Gandang Hari drawing 400,000

Sales 1,332,000

sales returns and allowances 141,000

sales discounts 11,840

Cost of sales 664,980

Operating expenses 226,000

Totals 7,070,000 7,070,000

Beginning inventory amounted to P413,000, while ending inventory totaled P397,000.

BASED ON THE ABOVE DATA

67. Using the above data, the post-closing balance of the capital of BB Gandang Hari would be reflected at:
a. P1,569,000 b. P1,169,000 c. P 1,457,180 d. P1,857,180.

68. In the post-closing trial balance, sales of the company would reflect an amount of;
a. P1,332,000 b. P1,179,160 c. P-0- d. P514,180

69. Client Jay pays ABC Co. P10,000 in December 2020 for ABC to perform services for Jay in February 2021. ABC uses
the accrual basis of accounting. In December ABC will debit Cash for P10,000. What will be the other account
involved in the December 2020 accounting entry prepared by ABC (and what type of account is it)?
a. Accounts Receivable (Asset) c. Prepaid Expense (Asset)
b. Service Revenues (Revenue) d. Unearned Revenues (liability)

70. On December 15, 2020 ABC Co. hired Juanita Perez to begin working on January 2, 2021 at a monthly salary of
P14,000. ABC's balance sheet of December 31, 2020 will show a liability of;
a. P168,000 b. P14,000 c. No liability d. Deferred liability

---End of Examination---

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