AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15
Write the letter of your choice before each number. No erasures allowed.
1. Inflation is ignored in accounting due to
a. objectivity
c. materiality
b. periodicity assumption
d. economic entity
In accounting, we have what we call postulates. Under Conceptual Framework
for Financial Reporting, it mentions only 1 assumption, namely GOING CONCERN.
Then implicit in accounting are the accounting entity, time period and monetary
unit. This periodicity concept is under the monetary unit assumption, specifically,
stability of the peso which means that the purchasing power of the peso is stable or
constant.

Allowance method
1. Establishing allowance
Doubtful accounts expense
AFDA
2. Writing off A/R
AFDA
xx
A/R
xx
3. Recovery of A/R
A/R
xx
AFDA

xx

4. Collection of A/R
Cash
xx
A/R

xx

xx
xx

VMBM,CPA

2. Which of the following is included in the normal journal entry to record the
collection of accounts receivable previously written off when using the
allowance method?
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable
b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts

3. Generally, biological assets should be measured using

a. historical cost
b. historical cost less accumulated depreciation
c. a fair value approach
d. net realizable value
4. Under the fair value option, an entity may
a. irrevocably designate a financial asset as measured at fair value through profit
or loss even if the amortized cost measurement is satisfied
b. irrevocably designate a financial asset as measured at fair value through other
comprehensive income
c. revocably designate a financial asset as measured at fair value through profit
or loss even if the amortized cost measurement is satisfied
d. designate all instruments as measured at fair value through profit or loss
5. Which of the following disclosures must be made when the fair value model is
used for investment property?
a. depreciation method
b. the amount of impairment loss recognized
c. useful life or depreciation rate
d. net gains or losses from fair value adjustments

AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15
6. A government grant that becomes repayable shall be accounted for as
a. change in accounting estimate
b. change in accounting policy
c. both change in accounting estimate and change in accounting policy
d. neither change in accounting estimate nor change in accounting policy
7. Which of the following research and development related costs should be
capitalized and depreciated over current and future periods?
a. Research and development general laboratory building which can be put to
alternative uses in the future
b. Inventory used for a specific research project
c. Administrative salaries allocated to research and development
d. Research findings purchased from another company to aid a particular
research project currently in process

PNR DER
On Jan 1 2014, 4,000,000 Face amount issued at 4,500,000 @ 10% effective rate,
12% nominal rate. Interest payment every end of the year. Amortized for 5 years.
If effective interest method
1st yr: 4,500,000 x 10%= 450,000
2nd yr: (4,500,000-30,000)10%= 420,000

VMBM,CPA

8. If bonds are issued initially at a premium and the effective-interest method of

amortization is used, interest expense in the earlier years will be
a. greater than if the straight-line method were used
b. greater than the amount of the interest payments
c. the same as if the straight-line method were used
d. less than if the straight-line method were used

If straight line method

1st yr: 500,000/5= 100,000
2nd yr: 100,000

9. Which of the following best describes the cash-basis method of accounting for
warranty costs?
a. Expensed based on estimate in year of sale
b. Expensed when liability is accrued
c. Expensed when warranty claims are certain
d. Expensed when incurred
10.A primary source of stockholders' equity is
a. income retained by the corporation
b. appropriated retained earnings
c. contributions by stockholders
d. both income retained by the corporation and contributions by stockholders
11.Esther Co. provided the following information about the composition of its
cash on Dec 31 2014:
Commercial savings account of P600,000 and a commercial checking account
balance of P900,000 are held at BPI (ADD BOTH)
Money market fund account held by Citibank that permits Esther to write
checks in this balance, P5,000,000 (CASH EQUIVALENT)
Travel advances of P180,000 for executive travel for the first quarter of next
year (employee to pay through salary deduction) (RECEIVABLE OF THE
COMPANY)
A separate cash fund in the amount of P1,500,000 is restricted for the
retirement of long term assets (RESTRICTED FUND, THUS NOT CLASSIFIED AS
CASH)
Petty cash fund, P10,000 (ADD)
Undeposited coins and currency, P35,000 (ADD)
2

AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15

12.Hope Companys inventory at December 31, 2011 was P7,500,000 based on

physical count priced at cost and before any necessary adjustment for the
following:
Merchandise costing P550,000, shipped Free Alongside from a vendor on
December 30, 2011, was received and recorded on January 10, 2012. (LIKE
FOB SHIPPING POINT- ADD)
Goods in the shipping area are excluded from inventory although shipment
was not made until January 4, 2012. The goods, billed to the customer Exship on December 30, 2011, had a cost of P600,000. (LIKE FOB
DESTINATION-ADD)
Included in the physical count were goods specifically segregated per sale
contract with a sale price of P1,800,000. The goods were sold at a gross
profit rate of 25% on sales. (IF SPECIFICALLY SEGREGATED/CUSTOMIZED,
GOOD AS SOLD-deduct)
Goods purchased from a vendor, FOB buyer, were shipped on December 30,
2011. The goods were received by the customer on January 3, 2012. The
goods had a cost of P240,000. (FOB BUYER- FOB DESTINATION-ignore)
What amount should Hope report as inventory on December 31, 2011?
a.7,300,000
b. 8,650,000
c. 6,940,000
6,700,000

VMBM,CPA

Company checks written (and deducted from the demand deposits amount)
but not scheduled to be mailed until Jan 2 next year, P270,000 (POST DATED
CHECK PAYABLE, ADD BACK)
Time deposit, P3,000,000 (CASH EQUIVALENT)
What is the correct cash Esther Co should report in its December 31 2014
statement of financial position?
a. 9,995,000
b. 6,815,000
c. 1,815,000
d. 9,815,000

d.

13.Jamie Company started construction on a building at the beginning of the

current year and completed construction at year end. The entity had only two
interest notes outstanding during the year and both of these notes were
outstanding during the year and both of these notes were outstanding for all
12 months of the year. The following information is available:
Average accumulated expenditures
P2,500,000
Ending balance in construction in progress before capitalization of
Interest
3,600,000
6% note incurred specifically for the project
1,500,000
9% long term note
5,000,000
What is the cost of the building?
a. 3,780,000
b. 2,680,000

c. 3,750,000

d. 3,825,000

AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15

What is the cost of the building?

a. 8,625,000
b. 8,525,000

c. 8,540,000

of a new home office

2,000,000 (LAND)
10,000 (LAND)
50,000 (LAND)
20,000 (LAND)
30,000 (LAND)
5,000 (LAND)
15,000 (LAND)
200,000 (BLDG)
8,000,000 (BLDG)
300,000 (BLDG)

10,000 (EXPENSE)
40,000 (BLDG IMP.)
55,000 (LAND IMP.)
5,000 (BLDG IMP.)

VMBM,CPA

14.The following expenditures related to the construction

for Facetious Company:
Cost of land, which included an old
apartment
building appraised at P200,000
Legal fees, including fee for title search
Payment of apartment building mortgage
and related
interest due at time of sale
Payment of delinquent property taxes
assumed
Cost of razing the apartment building
Proceeds from sales of salvaged materials
Grading and drainage on land site
Architect fee on new building
Payment of building contractor
Interest
cost
on
specific
borrowing
during
construction
Payment on medical bills of employees
accidentally
injured
while
inspecting
building
construction
Cost of paving the driveway and parking
lot
Cost of trees, shrubs and other landscaping
Cost of installing lights in parking lot
Premium for insurance of building during
construction
Cost of open house party to celebrate the opening of
building

25,000 (BLDG)
60,000 (EXPENSE)
d. 8,530,000

15.On December 31, 2011, before the books were closed, the management of
Fear Company made the following determination about its machinery. The
machinery was purchased on January 1, 2008 for P7,200,000. The machinery
has a useful life of 10 years with no residual value and was depreciated using
the straight line method. In 2011, a decision was made to change the
depreciation method from straight line to sum of the years digits method.
What is the depreciation of this machinery for 2011?
a. 1,260,000
b. 1,440,000
c. 916,360
d. 720,000
Depreciable amount as of Jan 1 2011, 5,040,000.
(7/28*5,040,000)=1,260,000
Life[(life+1)/2]
16.Radical Company acquired a mineral right for P30,000,000 in January 2012.
The mine has a recoverable ore estimated at 4,000,000 tons. After it has
extracted all the ore, the entity will be required by law to restore the land to
its original condition at a discounted amount of P2,000,000. The entity
believed that the property can be sold afterwards for P5,000,000.
Early in 2012, roads were constructed and other development costs were
incurred to aid in the extraction and transportation of the mined ore at a cost of
P6,000,000. In 2012, 200,000 tons of ore were mined and sold. On December 31,
2013 a new survey made by new mining engineer indicated that 5,000,000 tons
of ore were available for mining. In 2013, 225,000 tons of ore were extracted and
sold. What amount of depletion expense should be recognized for 2013?
a. 1,650,000
b. 1,350,000
c. 1,856,250
d. 1,410,000
4

AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15
Wasting asset:
D-devt cost
P6,000,000
E-exploration cost
A-acquisition cost
30,000,000
R-restoration cost (should be at Present Value)
2,000,000
Cost
38,000,000
Less: residual value
5,000,000
33,000,000/4,000,000*200,000
= 1,650,000 for 2012
Remaining Depletable amount, Dec 2013
31,350,000/(5,000,000200,000)= 6*225,000 = 1,350,000 for 2013

What is the journal entry to record depreciation for 2014?

a. Debit accumulated depreciation P1,000,000
b. Debit depreciation P1,250,000
c. Credit accumulated depreciation P750,000
d. Debit depreciation P1,000,000
18.Zenith Company purchased four convenience store buildings on January 1,
2007 for a total of P25,000,000. The buildings have been depreciated using
the straight line method with a 20-year useful life and 10% residual value.
On January 1, 2013, the entity has converted the buildings into a hotel and
restaurant. The entity estimated that the buildings have a remaining useful
life of 10 years, that their residual value will be zero, that net cash inflows
from the buildings will total P1,600,000 per year, and that the fair value less
cost of disposal of the four buildings totals P10,000,000. The appropriate
discount rate is 12%. The present value of an ordinary annuity of 1 at 12%
for 10 periods is 5.65.
What is the amount of impairment loss?
a. 3,375,000
b. 10,900,000
9,375,000

c. 10,335,000

VMBM,CPA

17.Seaside Company applied revaluation accounting to plant asset with carrying

amount of P4,000,000 on Jan 1 2013, useful life of 4 years, and no residual
value. Depreciation is calculated on the straight line basis. On Dec 31 2013,
independent appraisers determined that the asset has a fair value of
P3,750,000 (REVIEW REVALUATION)

d.

8,250,000
BV as of Dec 31 2012= 18,250,000 vs 10,000,000
(recoverable amount WIH- FV: 10M vs
9,040,000)
19.Dinkie Company incurred P1,600,000 of research and development costs to
develop a product for which a patent was granted on January 1, 2013. Legal
fees and other costs associated with registration of the patent totaled
P300,000. On March 31, 2013, Dinkie paid P450,000 for legal fees in a
successful defense of the patent.
What is the total amount that should be capitalized for the patent through
March 31, 2013?
a. 750,000
b. 300,000
c. 2,050,000
d.
2,350,000
20.Maribeth Company incurred research and development costs in the current
year as follows:
Equipment acquired for use in various research and development projects
975,000
-CAPITALIZED, depreciated

AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15

21.Maria Company had P600,000 convertible 8% bonds payable outstanding on

June 30,2013. Each P1,000 bonds was convertible into 10 ordinary shares of
P50 par value. On July 1,2013, the interest was paid to bondholders, and the
bonds were converted into ordinary shares, which had fair value of P75 per
share. The unamortized premium on these bonds was P12,000 at the date
conversion. No equity component was recognized when the bonds were
originally issued. As a result of bond conversion, what is the increase in share
premium?
a. 312,000
b. 306,000
c. 162,000
d. 12,000

Bonds payable
Premium on BP

600,000
12,000
Ord SC
SP-OS

VMBM,CPA

Depreciation on the above equipment

135,000
Materials used
200,000
Compensation costs of personnel
500,000
Outside consulting fees
150,000
Indirect costs appropriately allocated
250,000
What is research and development expense the current year?
a. 850,000
b. 1,085,000
c. 1,235,000
d. 1,825,000

300,000
312,000

22.On Jan 1, 2013 Solemn Company sold land to Glory Company. There was no
established market price for the land. Glory gave Solemn a P2,400,000
noninterest bearing note payable in three equal annual installments of
P800,000 with the first payment due Dec 31, 2013. The note has no ready
market. The prevailing rate of interest for a note of this type is 10%. The
present value of a P2,400,000 note payable in three equal annual
installments of P800,000 at a 10% rate of interest is P1,989,600. What is the
carrying amount of the note payable on December 31, 2013?
a. 1,989,600
b. 2,126,400
c. 2,400,000
d. 1,388,560
1,989,500*10%= 198,950
800,000-198,950=601,050 (principal)
1,989,500-601,050= 1,388,560
23.Bibi Company, lessor, leased an equipment under an operating lease. The
lease term is 5 years and the lease payments are made in advance in January
1 of each year as shown in the following schedule:
January 1, 2013
1,000,000
January 1, 2014
1,000,000
January 1, 2015
1,400,000
January 1, 2016
1,700,000
January 1, 2017
1,900,000
On December 31,2014, what amount should be recognized as rent
receivable?
a. 1,400,000
c. 400,000
b. 800,000
d. 0
7M/5*2=2,800,000-2,000,000= 800,000
6

AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15
24.On Jan 1, 2013, Day Company leased a new machine from Parr with the
following pertinent information:
Lease term
6 years
Annual rental payable at the end of each year
500,000
Useful life of machine
8
years
Implicit interest rate in lease
12%
Present value of an ordinary annuity of 1 for 6 periods at 12%
4.11
Present value of an annuity of 1 in advance for 6 periods at 12%
4.60
The lease is not renewable, and the machine reverts to Parr at the
termination of the lease. The cost of the machine on Parrs accounting
records is P3,755,000. Costs directly attributable in lease agreement were
incurred for P 50,000. At the beginning of the lease term, what amount
should be recorded as cost of the machine?
a. 2,055,000
b. 2,105,000
c. 3,755,000
d. 2,800,000

25.Samuel Company is a dealer in equipment. On Jan 1, 2014, an equipment was

leased to another entity with the following provisions:
Annual rental payable at end of each year
1,500,000
Lease term and useful life of machinery
5
years
Cost of equipment
4,000,000
Guaranteed residual value
500,000
Implicit interest rate
12%
PV of an ordinary annuity of 1 for 5 periods at 12%
3.60
PV of 1 for 5 periods at 12%
0.57
At the end of the lease term on Dec 31, 2018, the equipment will
revert to the lessor. On such date, the fair value of the asset is P350,000. The
perpetual inventory system is used. The lessor incurred initial direct cost of
P200,000 in finalizing the lease agreement.
What is the interest income to be recognized for 2014?
a. 960,000
b. 900,000
c. 648,000
d. 682,200

VMBM,CPA

500,000*4.11=2,055,000+50,000= 2,105,000

(1,500,000*3.60)+(500,000*0.57)=5,685,000*0.12=682,200
26.Raymart Company is in the business of leasing new sophisticated equipment.
The lessor expects a 12% return on its net investment. All leases are
classified as direct financing lease. At the end of the lease term, the
equipment will revert to the lessor. On Jan 1, 2014 an equipment is leased to
a lessee with the following information
Cost of equipment to the lessor
5,000,000
Residual value unguaranteed
600,000
Annual rental payable in advance
900,000
Initial direct cost incurred by the lessor
250,000
Useful life and lease term
8 years
Implicit interest rate
12%
First lease payment
Jan 1,
2014
What is the unearned interest income on Jan 1, 2014?
a. 2,550,000
c. 1,950,000
c. 3,150,000
d. 1,500,000

AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15
GI= (900,000*8)+600,000=7,800,000
NI= 5,000,000+250,000=5,250,000
UII=GI-NI= 2,550,000

The depreciation rates for accounting and taxation are 15% and 25%
respectively. The deposits are taxable when received and warranty costs are
deductible when paid. An allowance for doubtful debts of P250,000 has been
raised against accounts receivable for accounting purposes but such debts
are deductible only when written off as uncollectible. The tax rate is 30%.
What amount should be reported as deferred tax liability on December 31,
2013?
a. 120,000
b. 156,000
c. 81,000
d. 36,000
TLA
A/R
Motor vehicle
Warranty
Deposit

DAT
250,000

VMBM,CPA

27.Aloha Company provided the following information on December 31, 2013:

Carrying amount
Tax
base
Accounts receivable
1,500,000
1,750,000
Motor vehicle
1,650,000
1,250,000
Provision for warranty
120,000
0
Deposit received in advance
150,000
0

400,000
120,000
150,000

28.On January 1, 2014, Zea Company provided the following information in

connection with the defined benefit plan:
Fair value on plan assets
10M
Projected benefit obligation
(13M)
Prepaid/Accrued Benefit Cost
(3M)
Transactions affecting the plan for the current year are as follows:
Current service cost
2.5M
Past service cost-remaining vesting period of covered employees is 5 years
1M
Contribution to the plan
3.5M
Benefits paid to retirees
3M
Actual return on plan assets
1.5M
Decrease in projected benefit obligation due to change in actuarial
assumptions
400,000
Discount rate
10%
Expected return on plan assets
12%
What amount should be reported on December 31, 2014 as accrued or
prepaid benefit cost?
a. 3,300,000 accrued
b. 3,300,000 prepaid
c.
2,400,000
accrued
d. 2,400,00 prepaid
8

AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15
PBO,end= 13M(PBO,beg)+2.5M (CSC)+1M (PSC)-400,000 (Decrease)
+300,000 (net interest)- 3M (Benefits paid)=13,400,000
FVPA,end=10M(FVPA,beg)+3.5M (Contribution)-3M(benefits paid)
+1.5M(Actual return)- 1M(Interest income)=11,000,000
29.On April 1, 2011, Hyde Corp., a newly formed company had the following
stock issued and outstanding:
Common stock, no par, P1 stated value, 20,000 shares originally issued for
P30 per share.
Preferred stock, P10 par value, 6,000 shares originally issued for P50 per
share.
Paid-in

30.At December 31, 2010, Eagle Corp. reported P1,750,000 of appropriated

retained earnings for the construction of new office building, which was
completed in 2011 at a total cost of P1,500,000. In 2011, Eagle appropriated
P1,200,000 of retained earnings for the construction of a new plant. Also,
P2,000,000 of cash was restricted for the retirement of bonds due in 2012. In
its 2011 balance sheet, Eagle should report what amount of appropriated
retained earnings?
a.P1,200,000
b. P1,450,000
c. P2,950,000
d. P3,200,000

VMBM,CPA

Hydes April 1, 2011 statement of stockholders equity should report

Common stock
Preferred stock
Additional
Capital
a.
P 20,000
P 60,000
P820,000
b.
P 20,000
P300,000
P580,000
c.
P600,000
P300,000
P0
d.
P600,000
P 60,000
P240,000

31.Lion Companys petty cash fund is established in the amount of P2,500.

Upon examination of the records, the petty cash fund contains currency and
coins in the amount of P1,500 and receipts for disbursements of P950. When
the fund is replenished under the imprest system, the entry to record the
replenishment will include a credit to
a. Petty cash fund P750
b. Petty cash fund P1,000
c. Cash in bank P950 and cash short and over P50
d. Cash in bank P1,000
Expenses
950
Cash Short or over 50
Cash in Bank

1000

32.On January 1, 2011, Brood Company disposed its land having a carrying
amount P2,500,000. The buyer gave Brood a 5-year noninterest bearing note
requiring annual installments of P600,000. The first installment is due
January 1, 2012. The market rate for this type of note is 10%. The PV of 1,
10%, 5 periods is 0.62 and the PV of an ordinary annuity, 10%, 5 periods is
3.79. In the December 31, 2011 statement of financial position, what portion
of the note should be included in noncurrent assets?
a. 1,901,400
b. 2,400,000
c. 2,627,400
d.
2,501,400
600,000*3.79=2,274,000*.10=227,400
600,000-227,400=372,600
2,274,000-372,600=1,901,400
33.Tan Company reported the following current assets on December 31, 2014:
9

AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15

Accounts receivable
Inventory
Prepaid expenses
Deferred tax asset
Noncurrent asset classified as "held for sale"
Total current assets
Cash on hand, including customers' postdated check of P20,000 and
employee IOU of P10,000
Cash in bank per bank statement (outstanding checks on December 31,
2014, P70,000
Total cash
Customers' debit balances, net of customers' deposit of P50,000
Allowances for doubtful accounts
Selling price of goods invoiced to customers at 150% of cost on
December 29, 2014 but delivered on January 5, 2015 and excluded
from reported inventory

500,000
3,500,00
0
2,000,00
0
100,000
400,000
3,000,00
0
6,500,00
0
130,000
370,000
500,000
1,900,00
0
( 150,0
00)

750,000
1,000,00
Subscription receivable, collectible currently
0
3,500,00
0
34.On December 31, 2014, what amount should be reported as total current
assets?
a. 6,230,000
b. 5,830,000
c. 5,900,000
d.
5,800,000

VMBM,CPA

Cash

8,800,000
300,000(cash)+2,800,000(A/R)+2,500,000 (Inventory)+ 100,000(prepaid
exp)+3,000,000(NCA HFS)= 8,800,000
35.Benedict Company had the following bank reconciliation on June 30, 2011:
3,000,0
Balance per bank statement, June 30
00
400,00
Deposit transit
0
3,400,0
Total
00
900,00
Outstanding checks
0
2,500,0
Balance per book, June 30
00
The bank statement for the month of July showed the following:
Deposits (including P200,000 note collected for Benedict)
Disbursements (including P140,000 NSF check and P10,000 service
charge)

9,000,0
00
7,000,0
00

All reconciling items on June 30 cleared through the bank in July. The
outstanding checks totaled P600,000 and the deposit in transit amounted to
P1,000,000 on July 31. What is the cash balance per book on July 31?
10

AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15
a. 5,400,000
4,500,000

b. 5,350,000

c. 5,550,000

d.

3M(Bal per bank)+9M(depo)-7M(disbursements)+1M(DIT)-600K(OC)

+140K(NSF)+10K(SC)-200K(notes)=5,350,000

37.On December 1, 2010, Bamboo Company assigned specific accounts

receivable totaling P2,000,000 as collateral on a P1,500,000, 12% note from a
certain bank.
Bamboo Company will continue to collect the assigned
accounts receivable. In addition, to the interest on the note, the bank also
charged a 5% finance fee deducted in advance on the P1,500,000 value of
the note.
The December collections of assigned accounts receivable
amounted to P1,000,000 less cash discounts of P50,000. On December 31,
2010, Bamboo Company remitted the collections to the bank in payment for
the interest accrued on December 31, 2010 and the note payable.
How much cash was received from the assignment of accounts receivable on
December 1, 2010?
a. 2,000,000
b. 1,500,000
c. 1,425,000
d.
1,925,000

VMBM,CPA

36.Sandler Company has the following account balances at year-end:

Accounts receivable
P80,000
Allowance for doubtful accounts
4,800
Sales discounts
3,200
Sandler should report accounts receivable at a net realizable amount of
a.P72,000
b. P75,200
c. P76,800
d. P80,000

1,500,000*95%=1,425,000
38.Kimmy Company used the moving average method to determine the cost of
the inventory. During January of the current year, the entity recorded the
following information pertaining to its inventory:
Units
Unit Cost
Total Cost
Balance on Jan 1
40,000
50
2,000,000
Sold on Jan 17
35,000
Purchased on Jan 20,000
80
1,600,000
28
What amount of inventory should be reported on Jan 31?
a. 2,000,000
b. 1,850,000
c. 1,625,000
d. 1,500,000
35,000 sold*50=1,750,000-2,000,000+1,600,000=1,850,000
39.The records of Shoe Department Store report the following date for the month
of July 2011:
13,500,0
1,200,0
Sales
00
Mark down
00
200,00
Sales Allowance
250,000
Mark down cancelations
0
200,00
Sales returns
500,000
Freight on purchases
0
9,400,0
Employee discounts
200,000
Purchases at cost
00
480,00
Theft and other losses
300,000
Purchases returns at cost
0
Initial markup on
5,400,00
700,00
purchases
0
Purchase returns at sales price
0
880,00
Additional mark up
500,000
Beginning inventory at cost
0
Beginning inventory as sales
1,600,0
Mark up cancelations
200,000
price
00
11

AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15
Using the average retail inventory method, what is the estimated ending
inventory?
a.937,500
b. 1,000,000
c. 1,093,750
d.
1,125,000
At retail
1,600,000
14,800,000 (9.4M+5.4M)
(700,000)
300,000
(1,000,000)
15,000,000
15,000,000
13,500,000
1,500,000
2/3
1,000,000

40.Pillar Company acquired a 30% equity interest in an investee for P400,000 on

January 1, 2013. For the year ended December 31, 2013, the investee
earned profit of P80,000 and paid no dividend. For the year ended
December 31, 2014, the investee incurred loss of P32,000 and paid a
dividend of P10,000.
In the statement of financial position on December 31, 2014, what is the
carrying amount of the investment in associate?
a. 438,000

b. 411,400

Initial investment
Share in profit (80,000*30%)
Share in loss (32,000* 30%)
Dividend received
Carrying amount

c. 414,400

VMBM,CPA

At cost
Beg invty
880,000
Purchases
9,400,000
Purchases returns
(480,000)
Freight
200,000
Net markup
Net markdown
GAFS
10,000,000
Cost ratio=10M/15M= 2/3
GAFS @retail/SP
Less: Net sales (gross sales-SR
only+Employee discounts+ theft etc)
Ending invty @ SP
* Cost ratio
Ending invty @ cost

d. 400,000
400,000
24,000
(9,600)
(3,000)
411,400

41.On January 1, 2013, Gala Company purchased marketable equity securities to

be held as trading for P5,000,000. The entity also paid commission, taxes
and other transaction costs amounting to P200,000. The securities had a
market value of P5,500,000 on December 31, 2013. No securities were sold
during 2013. The transaction costs that would be incurred on the disposal of
the investment are estimated at P100,000.
What amount of unrealized gain or loss on these securities should be reported in
the 2013 income statement?
a.
500,000 unrealized gain
c. 400,000 unrealized gain
b.
500,000 unrealized loss
d. 400,000 unrealized loss
Any transaction costs incurred in Trading investments are considered
expensed OUTRIGHT.
Increase in Market Value from 5,000,000 to 5,500,000 as of Dec 2013,
so theres an unrealized gain of P500,000
42.On October 1, 2013, Yesterday Company purchased 4,000 of the P1,000 face
value, 10% bonds of Fell Company for P4,400,000 which includes accrued
interest of P100,000. The bonds, which mature on Jan 1, 2020, pay interest
semiannually on Jan 1 and July 1. Yesterday Company used the straight line

12

AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15
method of amortization and appropriately recorded the bonds as long term
investment. What is the carrying amount of the bonds on Dec 31 2013?
a. 4,284,000
b. 4,288,000
c. 4,300,000
d. 4,400,000

43.Bona Company and its subsidiaries own the following properties that are
accounted for in accordance with PAS 40
Land held by Bona for undetermined use
5,000,000(add)
A vacant building owned by Bona and to be leased out under
an operating lease
3,000,000(add)
Property held by a subsidiary of Bona, a real estate firm, in the
ordinary course of business
2,000,000
Property held by Bona for use in production
4,000,000
Building owned by a subsidiary of Bona and for which the
subsidiary provides security and maintenance
services to the lessees
1,500,000(add)
Land leased by Bona to a subsidiary under an operating lease
2,500,000
Property under construction for use as investment property
6,000,000(add)
Land held for future factory site
3,500,000
Machinery leased out by Bona to an unrelated party under an
Operating lease
1,000,000
What is the investment property that should be reported in the consolidated
statement of financial position of the parent and its subsidiaries?
a. 15,500,000
b. 12,000,000
c. 10,500,000
d. 9,500,000

VMBM,CPA

Accrued interest= 4,000,000*10%*3/12=100,000

Unamortized Premium on B/P= 300,000*72/75=288,000
Carrying amount of bonds=4,000,000+288,000

44.On Jan 1 2014m Charis Company adopted a plan to accumulate funds for a
new building to be erected beginning Jan 1 2018 at an estimated cost of
P20,000,000. The entity intends to make four equal annual deposits in a fund
beginning December 31 2014 that will earn interest at 12% compounded
annually. The future value of an ordinary annuity of 1 at 12% for 4 periods is
4.78, and the future value of an annuity of 1 in advance at 12% for 4 periods
is 5.35. what is the annual deposit to the fund?
a. 5,000,000
b. 4,184,100
c. 3,738,318
d. 3,149,606
20,000,000/4.78=4,184,100
45.On Jan 1 2014, Jane Company borrowed P5,000,000 from a bank at a variable
rate of interest for 2 years. Interest will be paid annually to the bank on Dec
31 and the principal is due on Dec 31 2015. Under the agreement, the market
rate of interest every Jan 1 resets the variable rate for that period and the
amount of interest to be paid on Dec 31. In conjunction with the loan, the
entity entered into a receive variable, pay fixed interest rate swap
agreement with another bank speculator as a cash flow hedge. The market
rates of interest are 10% on Jan 1, 2014 and 12% on Jan 1, 2015. The
underlying fixed interest rate is 10%. The PV of 1 at 10% for one period is
0.91 and the PV of 1 at 12% for one period is .89
What is the derivative asset or liability on December 31, 2014?
a. 91,000 asset
b. 91,000 liability c. 89,000 asset
89,000 liability

d.

10%<12%
13

AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15
2%*5,000,000*0.89=89,000asset
46.Sophia Company purchased equipment for P 14,100,000 on January 1, 2011.
Sophia received a government grant of P600,000 in respect of this asset.
Sophia treated the grant as a deduction from the cost of the asset. The
equipment has a useful life of 5 years and will use SYD in depreciating the
asset. On January 1, 2014, Sophia violated some conditions and fully repaid
the grant. What is the depreciation of the equipment to be recognized in
2014?
a. 1,800,000
b. 2,400,000
c. 2,200,000
d.
2,360,000

Depn that would have been recognized w/o govt grant:

5/15*14.1M=4,700,000
4/15*14.1M=3,760,000
3/15*14.1M=2,820,000
2/15*14.1M=1,880,000
Total depn in 2014=1,880,000+480,000=2,360,000
47.During 2011, Gargamel Company made the following expenditures relating to
plant, machinery and equipment:
Renovation of a group of machines at a cost of P500,000 to secure greater
efficiency in production over their remaining five-year useful life. The project
was completed on December 31, 2011.
Continuing, frequent and low cost repairs at a cost of P350,000.
A broken gear on a machine was replaced at a cost of P50,000.

VMBM,CPA

5/15*600,000=200,000
4/15*600k=160,000
3/15*600k=120,000
Cumulative additional depn that would have been recognized=480,000

What total amount should be charged to repairs and maintenance in 2011?

a. 350,000
b. 400,000
c. 850,000
d. 900,000
350,000+50,000=400,000 charged to expense
48.Alex Company provided the following shareholders equity on Dec 31 2013:
Cumulative preference share capital, P100 par 8%
500,000
Ordinary share capital, P100 par
1,100,000
Share premium
200,000
Retained earnings
260,000
Treasury ordinary shares- 1,000 at cost
(150,000)
Dividends on preference shares are in arrears for 2012 and 2013. What is the
book value of an ordinary share on Dec 31 2013?
a. 125
b. 133
c. 141
d. 191
Total SHE
1,910,000
Pref SHE
Pref SC
500,000
Pref div (2yrs)
80,000
(580,000)
Ord SHE
1,330,000
Divided by Shares outstanding
10,000__
(11,000-1,000 Treasury shares)
133

14

AIR DIAGNOSTIC EXAM

Cluster 1- Level 1
03.30.15
49.Gabby Company provided the following share transactions for the current
year:
Jan 1
Share outstanding
44,000
Feb 1
Issued for cash
56,000
May 1
Acquired treasury shares
25,000
Aug 1
25% stock dividend
Sept 1
Resold treasury shares
10,000
Nov 1
Issued 3 for 1 share split
What is the weighted average number of shares for EPS computation?
a. 103,750
b. 305,000
c. 307,500
d. 311,250
165,000
192,500
(62,500)
10,000
305,000

50.Yasmine Company showed the following information for 2013:

Income from continuing operations
3,765,000
Loss from discontinued operations
(550,000)
Net income
3,215,000
Retained earnings, beg
1,000,000
Dividends paid on 12% preference shares
(120,000)
Dividends paid on ordinary shares
(700,000)
Retained earnings, end
3,395,000

VMBM,CPA

44,000*3*1.25
56,000*3*11/12*1.25
25,000*3*8/12*1.25
10,000*4/12*3
Total

On Dec 31 2013, the entity had outstanding 140,000 ordinary shares and
10,000 preference shares with P100 par value. On April 1, 2013, the entity
issued 20,000 ordinary shares. What amount should be reported as basic
earnings per share?
a. 23.00
b. 27.00
c. 22.93
d. 23.03
140,000-20,000= 120,000
20k*9/12
15,000
135,000
Net income, 3,215,000-Pref dividends, 120,000= 3,095,000/135,000=22.93

END OF EXAM

15