POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

COLLEGE OF ACCOUNTANCY
STA. MESA, MANILA
FINANCIAL ACCOUNTING AND REPORTING
SPECIAL QUALIFYING EXAMINATION
March 31, 2011

Test 1 Multiple Choice theories- 30%

1. To
a.
b.
c.
d.

be reported s cash, the cash and cash equivalent must be

Unrestricted in use for current operations
Available for the purchase of property, plant and equipment
Set aside for the liquidation of long-term debt
Deposited in a bank

2. Which means that the check has been merely drawn and recorded but not given to the
payee on balance sheet date?
a. Undelivered check
b. Postdated check delivered
c. Stale check
d. Outstanding check
3. Accounts receivable should initially be recognized at
a. Face value
b. Present value
c. Maturity value
d. Net realizable value
4. Subsequent to initial recognition, accounts receivable should be carried at
a. Face value
b. Amortized cost
c. maturity value
d. present value
5. What is the method of accounting for inventory in which the cost of goods sold is recorded
each time a sale is made?
a. Periodic system
b. Perpetual system
c. Professional system
d. Accounting system
6. Theoretically, ash discounts permitted on purchased raw materials should be:
a. Added to other income whether taken or not
b. Added to other income, only if taken
c. Deducted from inventory, whether taken or not
d. Deducted from inventory, only if taken
7. Government grants shall be
a. Credited to equity
b. Credited to retained earnings
c. Recognized as income immediately

d. Recognized as income on systematic and rational basis over the periods necessary to
match them wit the related costs.
8. When funds are borrowed specifically for the purpose of obtaining a qualifying asset, the
capitalizable borrowing costs equal to:
a. Actual borrowing costs incurred during the period
b. Actual borrowing costs incurred during the period plus any investment income on the
temporary investment of the borrowing
c. Actual borrowing costs incurred during the period minus any investment income on the
temporary investment of the borrowing
d. Estimated borrowing cost during the period
9. In accordance with the PAS, which of the following methods of amortization is normally not
recommended for intangible assets?
a. Units of production
b. Declining balance
c. Effective interest method
d. Straight-line
10.Goodwill should properly appear on the financial statements of a company which:
a. Has purchased an entity
b. Consistently operates profitably
c. Consistently reports above-normal profits
d. Meets all of the conditions
11.The factors to consider in classifying investment in securities as short term are:
a. Ready marketability and type of investment
b. Ready marketability and management intentions
c. Type of investment only
d. Ready marketability only
12.A net unrealized loss on a companys available for sale equity securities should be
reflected in the current financial statements as
a. An extraordinary item shown as a direct reduction of retained earnings.
b. A current loss resulting from holding marketable equity securities.
c. A footnote or parenthetical disclosure.
d. A valuation allowance and included in the equity section of the statement of financial
position.
13.Temporary investment in bonds may be classified as
a. trading securities only
b. available for sale securities only
c. Trading Securities and Available for Sale Securities
d. Trading Securities, Available for Sale Securities and Held to Maturity Securities
14.When interest payment dates are February 1 and August 1 and a bond investment is sold
June 1, the cash received from the sale
a. Excludes accrued interest
b. Does not include the accrued interest
c. Includes accrued interest for four (4) months
d. Includes accrued interest for seven (7) months

15.Long-term cash funds include

a. Change fund
b. Dividend fund
c. Payroll fund
d. Sinking fund
16.Which of the following would not be reported as investment property?
a. Property owned by the entity and leased out one or more operating leases
b. Property held by the entity to be leased out under one or more operating leases.
c. Real estate held for an undetermined future use
d. Property owned by the entity and leased out to another entity under a finance lease
17.Probable future sacrifice of economic benefits arising from present obligations of a
particulr entity to transfer assets or provide services to other entities as a result of past
transactions or events defines
a. Revenues
b. Expenditures
c. Costs
d. Liabilities
18.Where there is a continuous range of possible outcomes, and each point in that range is as
likely as any other or in the absence of best estimate, the range to be used is the
a. Minimum
b. Maximum
c. Midpoint
d. Summation of minimum and maximum
19.The proceeds from a bond issued with detachable share purchase warrants should be
accounted for
a. Entirely as bonds payable
b. Entirely as equity
c. Partially as unearned revenue and partially as bonds payable
d. Partially as equity and partially as bonds payable
20.In theory, the proceeds from sale of a bond will equal to the
a. Face value of the bond
b. Present value of the principal amount due at the end of the life of the bond plus the
present value of the interest payments made during the life of the bond
c. Face value of the bond plus the present value of interest payments made during the life
of the bond
d. Fair value of the bond plus the interest payments made during the life of the bond
21.The primary purpose of quasi-reorganization is to give the entity the opportunity to
a. Obtain reef from creditors
b. Revalue understated assets to their fair value
c. . At retained earnings
d. Distribute the shares of a newly created subsidiary to its shareholder in exchange for
part of their shares in the corporation
22.If the fair value of the share options cannot be estimated reliably, then the amount of
compensation arising from the share options can be measured based on
a. Carrying amount of the related shares

b. Par value of options shares

c. Intrinsic value
d. Subscription price
23.In a lease that is recorded as sales-type lease by the lessor, interest revenue
a. Should be recognized in full as revenue at the leases inception
b. should be recognized over the period of the lease using the straight-line method
c. Should be recognized over the period of the lease using the interest method
d. Does not arise
24.The excess of the fair value of the leased property at the inception of the lease over its
cost or carrying amount should be classified by the lessor as
a. Unearned income from a sales-type lease
b. Unearned income from a direst financing lease
c. Manufacturers profit from sales-type lease
d. Manufacturers profit from direct financing lease
25.Interperiod tax allocation accounts for
a. All differences between tax regulation and PAS
b. Tax effects of specific income statement items in the same period
c. Permanent differences
d. Temporary differences
26.It is the amount of income tax paid or payable for the year as determined in applying the
provisions of the enacted tax law to the taxable income
a. Current tax expense
b. Deferred tax expense
c. Deferred tax benefit
d. Income tax expense
27.All forms of consideration given by an enterprise in exchange for services rendered by
employees
a. Employee benefits
b. Employee remuneration
c. Employers contribution
d. Employers share
28.If the actual return on plan assets is more than the expected return, the difference is
treated as an
a. Amortization of past service cost
b. Effect of curtailment or settlement
c. Actuarial gain
d. Actuarial loss
29.Biological assets are measured at
a. Cost
b. Lower of cost or net realizable value
c. Net realizable value
d. Fair less estimated point of sale cost
30.Changes in fair value of biological asset or an agricultural produce are
a. Ignored
b. Include in profit or loss of the current period

c. Include in equity
d. Included in retained earnings
Test II-Multiple Choice Problems- 70%
31.Hannah company provided the following data for the purpose of reconciling the Cash
balance per books
Balance per books
Outstanding checks (including certified checks of
P20,000)
Deposit in transit
December NSF checks (P10,000 had been redeposited
and cleared on 12/27)
Erroneous credit to Hannahs account, representing
proceeds of loan granted to another company
Proceeds of note collected by bank for Hannah, net of
service charge of P4,000

P 170,000
100,000
40,000
30,000
60,000
150,000

What is the cash in bank balance as reflected in the bank statement at December 31, 2010?
a. P280,000
b. P300,000
c. P360,000
d. P400,000
32.The following data pertains to Ahmie Company on December 31,2010:
Bank statement balance
P10,000,000
Checkbook balance
11,200,000
Deposit in transit
4,000,000
Outstanding checks, excluding check for P200,000
dated December 31, 2010 but undelivered to payee
1,000,000
In Ahmies December 31, 2010 statement of financial position, cash should be reported at:
a. P13,000,000
b. P13,200,000
c. P14,200,000
d. P14400,000
33.Puregold Company had the following account balances on December 31, 2010:
Cash in bank current account
P10,000,000
Cash in bank payroll account
2,000,000
Cash on hand
1,000,000
Cash in bank restricted account for building construction
expected to be disbursed in 2011
6,000,000
Time deposit, purchased Decmber 15, 2010 and due
March 15, 2011
4,000,000
The cash on hand includes a P400,000 check payable to Puregold dated January 15, 2011.
What shoud be reported as cash and cash equivalents on December 31, 2010?
a. P12,600,000
b. P16,600,000
c. P13,000,000
d. P17,400,000
34.On January 1, 2010, Phares Company had accounts receivable and allowance for bad
debts of P320,000 and P24,000 respectively. Sales (all on account during 2010 amount to
P3,500,000. Accounts of P14,000 were written off during the year analysis of Pharexs
accounts receivable at December 31, 2010. Revealed the following:
Age
0-60 days

Amount
P 240,000

Estimated
uncollectible
1%

61-120 days
Over 120 days

180,000
200,000

2%
6%

There were no other transactions affecting accounts receivable. How much is the cash
collected from customers during 2010?
a. P2,980,000
b. P3,286,000
c. P3.300,000
d.
P3,886,000
35.Using the information given in no. 34, what is the Pharex Companys bad debt expenses
for 2010?
a. P 28,000
b. P 20,000
c. P18,000
d. P8,000
36.Using the information given in no. 34, what is the net realizable value of accounts
receivable at December 31, 2010?
a. P582,000
b. P596,000
c. P602,000
d. P606,000
37.On December 31, 2009, a fire at Delia Companys only warehouse cause severe damage
to its entire inventory. Based on recent history, Delia has a gross profit of 40% on cost. The
following information is available from the records for the year ended December 31,2009:
Inventory at 1/01
P2,000,000
Net purchases
7,000,000
Net sales
9,100,000
A physical inventory disclosed usable damages goods which Delia estimates can be sold to
a jobber for P200,000. Using the gross profit method, the estimated cost of goods sold for
the year ended December 31, 2009 should be
a. P4,200,000
b. P5,460,000
c. P5,600,000
d.
P6,500,000
38.Using the information given in no. 37, assuming that Delia has a gross profit of 40% on
sales. What is the stiated cost of goods sold for the year ended December 31, 2009?
a. P4,200,000
b. P5,460,000
c. P5,600,000
d.
P6,500,000
39.The following balances were reported by Mercy Company:
January
December 31
Inventory
P1,000,000
P2,400,000
Accounts payable
1,500,000
2,500,000
Mercy paid suppliers P6,000,000 during the year 2009. What amount should Mercy report
as cost of goods sod for 2009?
a. P8,000,000
b. P7,000,000
c. P5,600,000
d.
P4,000,000
40.Patty Page has recently purchased a computer system for its office. The following
information were gathered in relation to the acquisition of the unit:
List price
P152,000
Trade discount and rebates
56,000
taken
Installation and assembly cost
3,200
Initial delivery and handling
6,400
cost

Purchase discount
2%
What is the acquisition cost of the equipment?
a. P94,080
b. P103,680
c. P105,680

d. P160,600

41.On august 1, 2010, Brenda Lee purchased a new machine on a deferred payment basis. A
down payment of P100,000 was made and 4 monthly installments of P250,000 each are to
be made beginning on August 1,2009. The terms of the agreement is not considered
normal. The cash equivalent price of the machine P950,000. Brenda incurred and paid
installation costs amounting to P30,000. How much should be capitalized as cost off the
machine?
a. P950,000
b. P980,000
c. P1,100,000
d. P1,130,000
42.Tom Jones purchased a machine under a deferred payment contract on December 31,
2010. Under the terms of the contract, tom Jones is required to make 8 annual payment of
P490,000 each beginning December 31, 2011. The applicable interest rate is 8%. What is
the purchase price of the machine?
a. P2,815834
b. P3,014,150
c. P3,920,000
d.
P4,862,165
43.On May 1,2009, Greek Company purchased a short-term P4,000,000 face value 9% debt
instruments for P3,720,000 excluding the accrued interest and classified it as a security.
Greek incurred and paid P20,000 transactions cost related to the acquisitions of the
instrument. The debt instruments mature on January 1, 2011, and ay interest semiannually on January 1 and July 1. On December 31, the fair market value of the
instruments is 97%. On February 2,2010, Greek Company sold the trading security for
P3,960,000. What amount should Greek Company sold the trading security for P3,960,000.
What amount should Greek Company initially measure its investment in trading securities?
a. P3,720,000
b. P3,740,000
c. P3,880,000
d.
P4,000,000
44.What amount should Greek Company report for short-term debt securities on December
31,2010?
a. P3,600,000
b. P3,720,000
c. P3,880,000
d.
P4,000,000
45.Assuming that short-term debt security is classified as available for sale securities, what
amount should Greek Company initially measure its investment.
a. P3,720,000
b. P3,740,000
c. P3,880,000
d.
P4,000,000
46.On October 1, 2010, Sarah Geronimo Inc has exchanged 2,000 shares of its P500 par value
ordinary shares held in treasury for a patent owned by Mark Company. The treasury shares
were acquired in 2006 at a cost of P800,000. At the time of exchange, ordinary share was
quoted at P550 pe share and the patent had a carrying value on Marks books of
P900,000. At what amount should Sarah record the patent?
a. P800,000
b. P900,000
c. P1,00,000
d. P1,100,000
47.Christina Bautista purchased a patent on January 1, 2007 for P428,400. The patent was
being amortized over its remaining legal life of 15 years expiring on January 1, 2022. Early
201, Christina determined that the economic benefits of the patent, would not last longer

than 10 years from the date of acquisition. What amount should be reported in the
balance sheet as patent, net of accumulated amortization at December 31, 2010?
a. P257,040
b. P293,760
c. P302,400
d. P314,160
48.The selling price of Automatic Centers units is P80,000 each. The buyers are provided
with a 2-year warranty that I expected to cost the company P2,000 per unit in the year of
sale and P6,000 per unit in the year of the following sale. The company sold 80 units in
2010 and 100 units in 2011. Actual payments for warranty claims were P80,000 and
P520,000 in 2010 and 2011, respectively. How much would be the warranty expense for
2010?
a. P200,000
b. P640,000
c. P680,000
d. P800,000
49.On December 31, 2010, an employee filed a P3,000,000 lawsuit against Cargo Company
for damages suffered when one of Cargos plants exploded on July 2, 2010. Cargos legal
counsel expects the company will lose the lawsuit and estimates the loss to be between
P500,000 and P1,000,000. The employee has offered to settle the lawsuit out of court for
P900,000, but cargo will not agree to the settlement. In its December 31, 2010 statement
of financial position, what amount should Cargo report as provision from lawsuit?
a. P500,000
b. P750,000
c. P1,000,000
d. P3,000,000
50.The balance of Amsterdam Corporations accounts payable account at December 31, 2010
was P1,350,000 before any necessary year-end adjustments relating to the following:
a. Goods were in transit to Amsterdam from a vendor on December 31, 2010. The
invoice cost ws P75,000. The goods were shipped FOB shipping point on December
29, 2010 and were received on January 2, 2011.
b. Goods shipped FOB destination on December 21, 2010 from a vendor to
Amsterdam, were received on January 6,2011. The invoice cost was P37,500.
c. On December 27, 2010, Amsterdam wrote and recorded checks totaling P60,000
which were mailed on January 10, 2010.
In Amsterdams December 31, 2010 statement of financial position, how much should be
the accounts payable?
a. P1,410,000
b. P1,425,000
c. P1,462,500
d.
P1,485,000
51.Ranch Company has the following information pertaining to its biological assets for the
year 2010:
A herd of 100, 2-year old animals was held at January 1, 2010. Ten animals aged 2.50
years were purchased on July 1, 2010 for P54,000, and ten animals were born on July 1,
2010. No animals were sold or disposed of during the period. Per unit fair value less
estimated point-of-sale cost were as follows:

2.0-year old animal at January 1,

2010
New born animal at July 1, 2010
2.5-year old animal at July 1, 2010
New born animal at December 31,
2010
0.5-year old animal at December 31,

P50,000
35,000
54,000
36,000
40,000

2010
2.0-year old animal at December 31,
2010
2.5-year old animal at December 31,
2010
3.0-year old animal at December 31,
2010

52,500
55,500
60,000

How much is the increase in fair value of the biological assets due to price change?
a. P-0b. P250,000
c. P255,000
d. P275,000
52.Using the information in no. 14, how much is the increase in fair value of the biological
assets due to physical change?
a. P750,000
b. P795,000
c. P1,100,000
d. P1,185,000
53.Using the information in no. 14, what is the fair value of the biological assets as of
December 31, 2010?
a. P5,540,000
b. P5,815,000
c. P7,000,000
d.
P7,350,000
54.The following information relates to the pension plan for the employees of Sarondo
Company:

Accumulated
benefit
obligation
Fair value of plan assets

01-01-09
P9,330,000
8,500,000

Settlement rate (for year)

Actuarial net(gains)/loss

-0-

12-31-09
12-31-10
P9,960,00 P13,340,000
0
10,400,00
11,480,000
0
11%
11%
(1,440,000 (1,600,000)
)
8%
7%

Expected rate of return (for

year)
Sarondo estimates that the average remaining service life is 16 years. Sarondos
contributions was P1,260,000 in 2010 and benefits paid were P940,000. What should be
the interest cost for 2010?
a. P896,000
b. P1,012,000
c. P1,095,600
d. P1,467,400
55.Using the information given in no. 54, how much shall be the actual return on plan assets
in 2010?
a. P680,000
b. P760,000
c. P980,000
d. P1,080,000
56.Using the information given in no. 54, how much shall be the additional gain in plans
assets in 2010?
a. P32,000
b. P65,600
c. P254,500
d. P357,600
57.Chari Corporation at the end of 2010, its first year of operations prepare a reconciliation
between pretax financial income and taxable as follows:
Pretax financial income
Estimated litigation expense

P800,000
2,000,00

Installment sales
Taxable income

0
(1,600,0
00)
P1,200,0
00

The estimated litigation expense of P2,000,000 will be deductible in 2011 when it is

expected to be paid. The gross profit from the installment sales will be realized in the
amount of P800,000 in each of the next two years. The estimated liability for litigation is
classified as non-current and the installment accounts receivable are classified ad
P800,000 and P800,000 noncurrent. The income tax rate is 32% for all years. How much
shall be recognized as deferred tax asset?
a. P640,000 current
c. P128,000
b. P640,000 noncurrent
d. P-058.Using the information given in no.57, how much shall be recognized as deferred tax
liability?
a. P128,000
b. P192,000
c. P256,000
d. P512,000
59.Using the information given in no. 57, how much shall be recognized as tax
expense/benefit?
a. P128,000 benefit
c. P192,000 benefit
b. P128,000 expense
d. P192,000 expense
60.On January 1, 2010, Mountain Dew Company granted 160,000 cash share appreciation
rights to the executives on condition that the executives remain in its employ for the next
three years. The entity estimates that the fair value of the stock appreciation rights at the
end of each year in which a liability exists s follows:
Year
2011
2012
2013

Fair value
P15
P18
P20

Compensation expense relating to the plan is to be recorded over a three-year period

beginning January 1, 2010. What amount of compensation expense should the company
recognize for the year ended December 31, 2010?
a. P480,000
b. P600,000
c. P800,000
d. P2,880,000
61.Using the information in no. 60, what amount of compensation expense should the company
recognize fo the year ended December 31, 2011?
a. P-0b. P800,000
c. P900,000
d. P1,120,000
62.Using the information in no. 60, assume that on December 31, 2012, executives exercised
80,000 SARs, what amount of compensation expense should the company recognize for the
year ended December 31, 2012?
a. P1,920,000
b. P1,280,000
c. P1,120,000
d. P800,000
63. During 2010, Corolla Company issued at 95, 1,000 of its 8%, P5,000 bonds due in 10 years.
One detachable stock purchase warrants entitling the holder to buy 20 shares of Corollas

ordinary shares was attached to each bond. Shortly after issuance, the amount, if any, of the
proceeds from the bond issuance should be recorded as part of Corollas shareholders
equity?
a. P-0b. P225,000
c. P250,000
d. P367,000
64. On January 1, 2010, Mercedes Company issued its 8%, 5-year convertible debt instrument
with a face amount of P6,000,000 for P5,900,000. Interest is payable every December 31, of
each year. The debt instrument is convertible into 50,000 ordinary shares with a par value of
P100. When the debt instruments were issued, the prevailing market rate of interest for
similar debt without conversion privilege is 10%. How much of the proceeds represents the
equity components?
a. P-0b. P100,000
c. P354,320
d. P454,800
65. Africa Corporation, a calendar year firm, is authorized to issue P2,000,000 of 10%, 20-year
bonds dated January 1, 2009, with interest payable on January 1 and July 1 of each year. If the
bonds were issued on April 1, 2009, the amount of accrued interest on the date of sale is:
a. P200,000
b. P100,000
c. P50,000
d. P25,000