QUAREV 3

SECTION CODE : 616 & 403

PRACTICE EXERCISES

1. It is the accounting standard setting body in the Philippines at the present time.
a. Accounting Standards Council
b. Auditing and Assurance Standards Council
c. Philippine Accounting Standards Board
d. Financial Reporting Standards Council

2. This is a complete, comprehensive and single document promulgated by IASB establishing the
concepts that underlie financial reporting.
a. Conceptual Framework for Financial Reporting
b. Conceptual Framework for Financial Statements
c. Conceptual Framework for Business Entities
d. Conceptual Framework

3. Financial accounting can be broadly defined as the area of accounting that prepares
a. General purpose financial statements to be used by parties internal to the entity.
b. Financial statements to be used by investors.
c. General purpose financial statements to be used by parties both internal and external to the
entity.
d. Financial statements to be used primarily by management.

4. Which of the following statements best describes the term "going concern"?
a. When current liabilities of an entity exceed current assets
b. The ability of the entity to continue in operation for the foreseeable future
c. The potential to contribute to the flow of cash and cash equivalents to the entity
d. The expenses exceed income

5. Which underlying assumption serves as the basis for preparing financial statements at regular
artificial points in time?
a. Accounting entity
b. Going concern
c. Accounting period
d. Stable monetary unit

6. Which of the following closing procedures is unique to a corporation?

a. Close each revenue account to the income summary account
b. Close each expense account to the income summary account
c. Close the income summary account to the retained earnings account
d. Close the owner's drawing account to the owner's capital account

7. What type of company would normally offer trade discounts to its customers?
a. Service companies c. Retailers
b. Wholesalers d. On-line retailers

8. Which of the following principles best describes the conceptual rationale for the method of
matching depreciation with revenue?

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 a. Associating cause and effect
b. Systematic and rational allocation
c. Immediate recognition
d. Partial recognition

9. The first step in the accounting cycle is to

a. Record transactions in a journal
b. Adjust the general ledger accounts
c. Post journal entries to general ledger accounts
d. Analyze transactions from source documents

10. Which of the following statements is correct?

I. Revision of the Conceptual Framework will not automatically lead to changes in Standards
that are inconsistent with the revised concepts.
II. The Conceptual Framework is not a Philippine Financial Reporting Standard.
III. Whenever there is a conflict between the Conceptual Framework and an accounting standard,
the requirements of the accounting standard will prevail.
A. I & III only
B. II & III only
C. I & II only
D. I, II & III

11. Freshmen Corporation has the following share capital transactions during 2024:
1) Issued 20,000 shares with par value of P12 per share for a total consideration of P 360,000.
2) Acquire ordinary share of 5,000 for P 20 and subsequently 4,000 were reissued for P 30.
How much is the total share premium arising from the share transactions above?
A. P 60,000
B. P320,000
C. P300,000
D. P160,000

12. When a corporation buys back its own shares of stock, how is the purchase of treasury shares
recorded?
A. Increase in equity by crediting the Treasury Shares account.
B. Decrease in equity by debiting the Treasury Shares account.
C. Increase in assets by debiting the Cash account
D. Decrease in liabilities by debiting Share Dividends Payable account.
13. Mimi loan P5 million to buy a car to be used as his personal service. This liability was not recorded
in the records of his business. What is the accounting rule applied on this situation?
A. Entity concept
B. Conservatism principle
C. Matching principle
D. Going-concern assumption

14. What will happen to the accounting equation if the company declare and pays dividends.
A. Increases assets and decreases liabilities
B. Increases liabilities and decreases equity
C. Decreases equity and decreases assets
D. Increases assets and increases equity.

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15. What will happen to the accounting equation if the company declare dividends only.
A. Increases assets and decreases liabilities
B. Increases liabilities and decreases equity
C. Decreases equity and decreases assets
D. Increases assets and increases equity.

16. . Assets and liabilities according to standard should not be offsetted unless,
A. Required by management
B. Permitted by PFRS
C. Permitted by Board of Accountancy
D. Required by Chief Financial Officer

17. Which of the following is not an example of cash flows from operating activities?
A. Cash receipts from the sale of goods and the rendering of services
B. Cash receipts and cash payments of an insurance entity for premiums and claims, annuities and
other policy benefits
C. Cash receipts and payments from contracts held for dealing or trading purposes
D. Cash receipts from issuance of ordinary shares

18. If shares are issued for non cash consideration, the 2nd priority of proceeds shall be measured by:
A. Fair value of the shares issued
B. Fair value of the noncash consideration received
C. Par value of the shares issued
D. Face value of the cash consideration received
19. If shares are issued for non cash consideration, the 1st priority of proceeds shall be measured by
the:
A. Fair value of the shares issued
B. Fair value of the noncash consideration received
C. Par value of the shares issued
D. Face value of the cash consideration received

20. Which accounting standard body in the Philippines that monitors the technical activities of the
IASB and invites comments on exposure drafts of proposed IFRS as these are issued by the IASB?
A. Auditing and Assurance Standards Council
B. Financial and Sustainability Reporting Standards Council
C. Financial Reporting Standards Council
D. Professional Regulatory Board of Accountancy.

21. If a company classifies a loan as a long-term liability in the statement of financial position, what
does it imply?
A. The loan will mature within the next 12 months.
B. The loan will mature after 12 months.
C. The company does not have to repay the loan.

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 D. The loan is considered a current liability.

22. In the context of the Revised Conceptual Framework, how should a company determine the
boundaries of its reporting entity?
A. Based on industry standards
B. Based on geographical location
C. Based on legal form and economic substance
D. Based on the size of the company
23. Fair presentation is achieved by the application of PFRS along with additional disclosures when
necessary. Which of the following statements regarding disclosure is correct?
A. Each PFRS gives specific disclosure requirements, additional disclosures are not required to be
given voluntarily by management.
B. Additional disclosures may be given so that management can present information in a way that
delivers the most positive message about an entity's financial position and performance.
C. Additional disclosure is only necessary when an entity departs from the requirements of an PFRS
because its application would be misleading and depart from the objectives if the Conceptual
Framework.
D. Information must be presented in a manner that provides relevant, reliable, comparable and
understandable information.

24. Treasury shares

A. Shares held as an investment by the treasurer of the corporation
B. Shares held as an investment of the corporation
C. Issued and outstanding shares
D. Issued but not outstanding shares

25. When collectability is reasonably assured, the excess of the subscription price over the stated
value of no par share capital subscribed should be recorded as
A. No par share capital
B. Share premium when the subscription is recorded
C. Share premium when the subscription is collected
D. Share premium when the shares are issued

26. What is the total number of shares that a corporation may issue under its charter?
A. Authorized shares
B. Issued shares
C. Unissued shares
D. Treasury shares

27. The following are included in the computation of Legal Capital, Except;
A. Preference Share Capital
B. Subscribed Preference Share Capital
C. Subscription Receivable
D. Ordinary Share Capital

28. Examples of Cash Flows from Operating Activities, EXCEPT,

A. Cash receipts from royalties, rental fees, commissions, and other revenue
B. Cash receipts from sales of property, plant, and equipment, intangibles and other long-term
assets.

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C. Cash payments for selling, administrative, and other expenses
D. Cash receipts and payments for securities held for dealing or trading purpose

29. Examples of Cash Flows from Investing Activities, EXCEPT,

A. Cash payments to acquire property, plant, and equipment, intangibles and other long-term
assets
B. Cash receipts from sales of property, plant, and equipment, intangibles and other long-term
assets.
C. Cash payments to acquire equity or debt instruments of other entities and interests in joint
ventures
D. Cash receipts from sale of goods and rendering of services

30. An entity shall report cash flows from operating activities using:
A. Direct method
B. Indirect method
C. Either direct method or indirect method
D. Neither direct method nor indirect method

PROBLEM I DIWATA balance sheet as of December 31, 2023 provided the following;

Cash, restricted for plant expansion 123,760

Petty Cash Fund 12,000
Cash in Bank - BPI Current Account No. 300123 120,000
Cash in Bank - BPI Current Account No. 214567, (overdraft) 20,000
Accounts Receivable, net of credit balance of 3,000 57,000
Foreign Currency 40,000
Certificate of deposit 23,000
Demand deposit 32,000
Cash in Bank - Landbank Current Account No. 3001 200,000
Cash in Bank - PNB Current Account No. 2145, (overdraft) 13,000
Bonds Payable, due in 2024 500,000
Notes payable - BPI, due on November 30, 2024 340,000
Mortgage payable - BDO due on December 31, 2026 450,000
Notes payable BPI, due on November 30, 2025 240,000
Cash Dividends Payable 48,000
Accrued Income 21,000
Office supplies 500
Inventory 10,500
Time Deposit, 3 months 9,000
Time Deposit, 8 months 18,000
Financial assets at Fair Value through Profit or Loss 55,000
Accumulated depreciation – Building 25,000
Investment in associates 222,000
Income tax payable 25,000
Accrued expenses 18,500
Accounts payable, net of debit balance of 15,000 196,000
Building 155,000
Stocks dividends payable 46,000
Equipment 237,000
Long term funds 87,000
Financial assets at Fair Value through OCI 215,000
Accumulated depreciation – Equipment 23,000
Interest payable 97,000

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Advances from customers 112,000
Utilities Payable 14,000
Land, used for administrative purpose 657,000
Deferred tax asset 24,000
Prepaid Advertising 8,000
Cash equivalents 2,000
Discounts on bonds payable 14,600
Investment in Subsidiaries 115,000
Investment in associates 134,000
Advances from affiliated Companies 181,000
Cash surrender value 11,900
Sinking Fund 15,100
Deferred tax liability, reversal next year 13,850
Patent 123,450
Land held for sale 345,900
Franchise 167,890
Vat payable 34,900

REQUIRED
1. Total current assets
2. Total noncurrent assets
3. Total current liabilities
4. Total noncurrent liabilities

PROBLEM II

The accounts from the Shareholders' Equity section of the balance sheet of OTLUM Company showed
the following at December 31, 2023:
Ordinary share capital, 200,000 shares, no par, P15 stated value 20,000,000
Preference share capital, 200,000 shares, 10% fixed rate, P50 par value 10,000,000
Share premium 6,650,000
Retained earnings 2,200,000

During 2024, OTLUM Company had the following chronological transactions:

a) Issued an additional 90,000 ordinary shares at P19 per share.
b) Purchased 100,000 ordinary shares at P17 per share.
c) Sold 60,000 treasury shares P20 per share.
d) Declared 20% bonus issue on ordinary share. The fair value of the shares declared was P22 per share.
e) Issued an additional 10,000 ordinary shares at P21 share.
f) Declared total cash dividends amounting to P300,000.
g) Close the P400,000 profit for the year.
h) Addition also, During Dec 10, 2024, the entity issued 50,000 preference shares at P60 per share. In
addition, on December 15, 2024, subscriptions for 20,000 preference shares were taken at a purchase
price of P100. These subscribed shares were paid for on January 15, 2025.

Determine the correct amount to be presented for December 31, 2024, statement of financial position:
5) Total Share Premium
6) Treasury Shares
7) Retained Earnings
8) Ordinary shares
9) Preference shares
10.) Legal Capital

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 11.) Contributed CapitaL
12. Outstanding ordinary shares
13.) Total Shareholders' Equity on December 31, 2024

PROBLEM III
Bara Company provided the following data at year-end:

Authorized share capital 5,000,000

Unissued share capital 2,000,000
Subscribed share capital 1,000,000
Subscription receivable 400,000
Share premium 500,000
Retained earnings unappropriated 600,000
Retained earnings appropriated 300,000
Revaluation surplus 200,000
Treasury shares, at cost 100,000

14. What is the total amount should be reported as shareholder’s equity?

PROBLEM IV
January 1, 2025 inventory, P450,000, December 31, 2023 inventory, P480,000, Purchases during the
year, P1,950,000, Purchase returns and allowances, 105,000, Purchase discounts, P25,000;
transportation in, P10,000, Sales during the year, P3,850,000, Sales discounts, P70,000, Sales returns,
P120,000, Selling expenses, P390,000, Administrative expenses, P285,000. Rent income- P165,000;
Dividend income, P150,000, Finance costs, P112,000; Income tax expense, P131,200, and Retained
earnings, January 1, 2023, P1,234,567
15. How much is the net income or profit for the year 2025?

PROBLEM V
In 2023, Otlum Co. issued 200,000 of its 500,000 authorized shares of P10 par value ordinary shares at
P35 per share. In January 2024, Otlum repurchased 28,000 shares at P25 per share is February 2024,
8,000 treasury shares are reissued at P40 per share. Assume these are the only share transactions the
company has ever had.
16. What is the amount of Share premium from treasury should be credited at the time of
reissuance?

PROBLEM VI
Purchase of financial asset at amortized cost 20,000
Proceeds from issuing bonds. 100,000
Purchases of inventory. 19,000
Purchases of treasury stock. 30,000
Dividends paid to preferred stockholders. 20,000
Proceeds from issuing preferred stock. 80,000
Proceeds from sale of equipment. 10,000
Cash received from customers. 180,000
Purchase of land by issuing bonds. P500,000
Payment of salaries of employees. 65,000
Payment of utilities. 40,000

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Loans made to affiliated corporation. 70,000
Purchase of patent for cash 12,000
Determine the following:
17. The net cash provided (used) by financing activities
18. The net cash provided (used) by investing activities
19. The net cash provided (used) by operating activities

PROBLEM VII
PARES reported net income of P350,000 for the year ended December 31, 2023. Included in net
income were depreciation expense of P34,000 and a gain on sale of equipment of P32,000 and a loss
on sale of equipment of P58,000, Unrealized loss on equity investment held for trading 10,000. Each
of the following accounts increased(decreased) during 2023:
Accounts receivable. 132,200
Inventory. (134,000)
Prepaid rent. 116,700
Available-for-sale securities/FA at Fair Value through OCI (141,000)
Financial Assets at Fair Value through Profit or Loss 167,000
Office supplies 115,000
Accounts payable. (15,000)
Accrued Expense 11,000
20. What is the amount of cash provided by operating activities

PROBLEM VIII
YOUR HONOR Company provided the following information for the current year:
Net income for the current year 550,000
Sales revenue 500,000
Cost of goods sold, except noncash expenses 250,000
Depreciation and amortization 50,000
Gain on sale of equipment 20,000
Unrealized loss on equity investment held for trading 10,000

January 1 December 31
Accounts receivable 22,000 15,000
Inventory 35,000 40,000
Accounts payable 75,000 52,000
Note payable - bank 2,500,000 3,000,000
Equity investment held for trading 60,000 50,000

21. Under the indirect method. what amount should be reported as net cash provided by
operating activities?

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PROBLEM IX
The DIWATA Corporation, provide you the following expense accounts:
Dividend income 300,000
Accounting and legal fees 12,000
Doubtful account expense 15,000
Advertising expense 23,000
Freight-out 45,000
Interest expense 27,000
Dividends declared 1,000,000
Loss on sale of long-term investments 58,000
Officers’ salaries 98,000
Rent for administrative office building 45,600
Rent for store building 8,000
Sales salaries and commissions 13,000
Depreciation expense - Delivery Truck 24,000

Other financial information:

Sales 4,500,000
Sales returns and allowances 30,000
Sales discounts 20,000
Inventory, December 31 350,000
Purchases 1,000,000
Purchase discounts 89,000
Freight-in 15,800
Commission income 500,000
Purchase returns 43,000
Loss from associate 14,000
Unrealized Loss on investment at Fair Value through Profit of Loss, net of tax 57,000
Gain on sale of equipment 120,000
Unrealized Loss - FVOCI, net of tax 90,000
Increase in Revaluation surplus, net of tax 140,000
Utilities expense 150,000

Additional information:
• Merchandise inventory, January 1, 2023, P550,000
• Income tax rate, 30%
• Utilities expense is allocated 60% office building, 40% store building.

The top management requested you to prepare a properly classified statement of comprehensive
income for the period ending December 31, 2023.
Required:
22.) How much of the expenses listed above should be included in DIWATA selling expenses for
2023?
23) How much of the expenses listed above should be included in DIWATA general and
administrative expenses for 2023?
24) How much is the Profit for the year ended December 31, 2023?

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25) How much is the Total Comprehensive Income for the year ended December 31, 2023?

PROBLEM 10
Sakuragi provided you with information for December 31, 2021

Additional Information.
a. 75% of the sales are made on credit. During the year Sakuragi granted customers sales
discount of 230,000 and received merchandise returned by the customers with a sales
price of 180,000.
b. There were 46,000 of account receivable written off during the year.
c. 1,700,000 of the purchases are made on cash. Also during the year, Sakuragi returned
merchandise to supplier amounted to 130,000 and availed purchased discount of
200,000.

Required.

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PROBLEM XII

VOV Company was incorporated on January 1, 2023, with the following transactions affecting
shareholders' equity:
January
1. The SEC approved VOV Company's authorized capitalization of 200,000 ordinary shares with a
P50 par value.
2. EEE subscribed 60% of the authorized capitalization at P80 per share.
3. EEE paid 70% of the subscription in January 2.
4. 18,000 ordinary shares were issued to BB for cash at P60 per share.
5. 5,000 ordinary shares were issued to AAA in payment of legal fees of P320,000 in connection with
organizing the corporation.
6. 6,000 ordinary shares were issued to JJJ for a machine which had a fair value P500,000.
7. The balance owing on the subscription described in January 2 and 3 was collected from Steve.
8. Issued an additional 2,000 ordinary shares at P17 per share.
9. Purchased 8,000 ordinary shares at P20 per share.
11. Sold 5,000 treasury shares P25 per share.
12. Appropriate retained earnings of the balance of treasury shares.
12. A 20% bonus issue were declared and distributed to shareholders. The current market price of
the share was P55.
13. Closed the net income of P6,120,000 to retained earnings.
14. The company declared and paid cash dividends of P12per share.

Requirement: Prepare journal entries to record the transactions using memorandum entry method.
Use the format below. (description is not required)

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