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Review 105-----------Day 9 b.

Internal as well as external year-end reports


c. Estimate of inventory destroyed by fire or other casualty
THEORY OF ACCOUNTS d. Rough test of the validity of an inventory cost determined under either periodic or
perpetual system.
1. The credit balance that arises when a net loss in a purchase commitment is recognized
should be 8. The gross profit method of inventory valuation is invalid when
a. Presented as a current liability a. A portion of the inventory is destroyed.
b. Subtracted from ending inventory b. There is substantial increase in inventory during the year.
c. Presented as an appropriation of retained earnings c. There is no beginning inventory because it is the first year of operation.
d. Presented in the income statement d. The gross profit percentage applicable to goods in the ending inventory is different
from the percentage applicable to goods sold during the period.
2. When using a perpetual inventory system
I. No purchases account is used. 9. A financial instrument is any contract that gives rise to
ll. A cost of goods sold account is used. a. A financial asset only
lll. Two entries are required to record a sale. b. A financial liability only
c. A financial asset of one entity and a financial liability of another entity only
a. I and II only b. II only c. II and III only d. I, II and III d. A financial asset of one entity and a financial liability or equity instrument of another
entity
3. Which one of the following inventory costing method lends itself most to manipulation of
reported net income among periods. 10. A financial asset is any asset that is (choose the incorrect one)
a. LIFO perpetual b. FIFO perpetual c. LIFO periodic d. FIFO periodic a. Cash
b. An equity instrument of another entity.
4. During periods of arising prices, when the FIFO inventory cost flow method is used, a c. Contractual right to receive cash or another financial asset from another entity.
perpetual inventory system would d. Contractual roght to exchange financial assets or financial liabilities with another
a. Not be permitted entity under conditions that potentially unfavorable to the entity.
b. Result in a higher ending inventory than a periodic system inventory system
c. Result in the same ending inventory as a periodic system 11. Financial assets include
d. Result in a lower ending inventory than a periodic inventory system a. Accounts payable c. Notes receivable
b. Inventories d. Prepaid expenses
5. Generally, which inventory costing method approximates most closely the current cost for
each of the following: 12. A financial liability is any liability that is a contractual obligation
Cost of goods sold Ending inventory I. To deliver cash or another financial asset to another entity.
a. LIFO FIFO II. To exchange financial assets or financial liabilities with another entity under conditions
b. LIFO LIFO that potentially unfavorable to the entity.
c. FIFO FIFO a. I only b. II only c. Both I and II d. Neither I nor II
d. FIFO LIFO
13. Equity security
6. To produce an inventory valuation which approximates the lower of average cost or a. Encompasses any instrument representing ownership shares and the right to acquire
market using the conservative retail inventory method, the computation of the ratio of cost to ownership shares.
retail should b. Is a security that represents a creditor relationship with the enterprise.
a. Include markups but not markdowns c. Include markups and markdowns c. Is the residual interest in the enterprise.
b. Ignore both markups and markdowns d. Include markdowns but not markups d. Includes redeemable preferred stock, treasury stock and convertible bonds.

7. The gross margin method of estimating ending inventory may be used for all of the 14. Available for sale securities are
following except a. Debt securities acquired with positive intent and ability of holding them until maturity.
a. Internal as well as external interim reports
b. Debt and equity securities acquired by an enterprise with the intent of selling them in b. P536,000 d. P1,619,000
the near term or very soon.
c. Debt securities that are purchased and held indefinitely and will be available to be sold
in response to liquidity needs. 2. Manapla Company computed a pretax financial income of P15,000,000 for the year ended
d. Financial assets with fixed or determinable payments that are not quoted in an active December 31, 2005. In preparing the tax return, the following differences are noted between
market. financial income and taxable income.

15. The following statements relate to investments in trading and available for sale securities. Nondeductible expense 2,000,000
Which is the incorrect statement? Nontaxable revenue 1,000,000
I. Realized and unrealized gains and losses on trading securities are recognized in Estimated warranty cost that was recognized as expense
income. in 2005 but deductible for tax purposes when paid 1,500,000
II. Realized and unrealized gains and losses on available for sale securities shall be Excess tax depreciation over financial depreciation 500,000
excluded from earnings and reported as a separate component of stockholders equity
a. I only b. II only c. Both I and II d. Neither I nor II What is the current tax expense for 2005 if the tax rate is 32%?
a. P5,120,000 c. P4,800,000
b. P5,440,000 d. P5,600,000
P1

1. The Plaridel Corporation was organized on January 3, 2005 with an authorized capital 3. Cadiz Company has the following financial statement elements for which the December 31,
stock of P5,000,000. At December 31, 2005 of the same year, the general ledger of said 2005 book value is different from the December 31, 2005 tax basis:
Company showed the following accounts and balances: Book value Tax basis Difference
Equipment 5,500,000 4,000,000 1,500,000
Accounts receivable P 200,000 Prepaid officers insurance policy 50,000 0 50,000
Merchandise inventory 250,000 Warranty liability 500,000 0 500,000
Land 1,200,000 Computer software cost 2,250,000 0 2,250,000
Building 1,600,000
Furniture and fixtures 400,000 The difference between the book value and tax basis of the equipment is due to
Accounts payable 420,000 accelerated depreciation for tax purposes. The insurance premium on the officers
Notes payable bank 500,000 insurance policy is paid on December 31 2005 and the amount is a nondeductible
Common stock 1,500,000 expense for tax purposes. The warranty liability is the estimated warranty cost that was
Additional paid capital 100,000 recognized as expense in 2005 but deductible for tax purposes when actually paid.
Sales 5,800,000
Expenses paid (excluding purchases) 725,000 In January 2005, Cadiz Company incurred P3,000,000 of computer software cost.
Considering the technical feasibility of the project, this cost was capitalized and amortized
Your review of the bank statement for December disclosed the following information: over 4 years for accounting purposes. However, the total amount was expensed in 2005
for tax purposes. The income tax rate is 32%.
Bank balance, December 31, 2005 P 524,500
Bank service charge 6,000 As a result of these differences, Cadiz Company shall report a deferred tax liability on
Deposits in transit 62,500 December 31, 2005 at
Total checks not returned by the bank 128,000 a. P1,200,000 c. P1,040,000
b. P1,216,000 d. P 480,000
Your review also revealed that the cash received of P62,500 on December 31, 2005 was
deposited on January 2, 2006. The companys mark up on sales is 40%. 4. Sagay Company provides the following tax effects of temporary differences at the end of
2005:
How much is the adjusted cash balance as of December 31, 2005? Deferred tax Related asset
a. P459,000 c. P39,000 asset (liability) classification
Accelerated depreciation (500,000) Noncurrent 8. What is the deferred tax liability on December 31, 2005?
Additional cost in inventory for tax purposes 200,000 Current a. P576,000 c. P672,000
(300,000) b. P480,000 d. P 0

A valuation allowance was not considered necessary. Sagay anticipates that P150,000 of 9. What is the 2005 total income tax expense?
the deferred tax liability will reverse in 2006. In its December 31, 2005 balance sheet, a. P2,624,000 c. P2,880,000
what amount should Sagay report as noncurrent deferred tax liability? b. P2,720,000 d. P2,784,000
a. P300,000 c. P150,000
b. P500,000 d. P200,000 10. What is the revaluation surplus on December 31, 2005?
a. P1,020,000 c. P1,224,000
b. P1,500,000 d. P 924,000
5. La Carlota Company is determining the amount of its pretax financial income for 2005 by
making adjustment to taxable income from the companys 2005 tax return. The tax return 11. Pampanga Companys December 31, 2005 balance sheet reported the following
indicates taxable income of P15,000,000 on which a tax liability of P4,800,000 has been current assets:
recognized. Following is a list of items that may be required to determine pretax financial
income from the amount of taxable income. Cash 3,000,000
Accounts receivable 5,200,000
Accelerated depreciation for income tax purposes was P2,000,000 and straight line financial Inventory 2,000,000
depreciation is P1,500,000. Prepaid expenses 700,000
Equipment used and held for resale 100,000
Insurance premium of P100,000 on the life of an officer with La Carlota Company as 11,000,000
beneficiary was not included as a deduction in the tax return.
An analysis of the accounts receivable disclosed that accounts receivable comprised
Interest on treasury bills was not included in the tax return. During the year, La Carlota the following:
received P2,500,000 on these investments.
Trade accounts receivable 4,000,000
What was La Carlota Companys pretax financial income? Allowance for doubtful accounts ( 300,000)
a. P15,500,000 c. P18,000,000 Selling price of Pampanga Companys unsold goods sent to XYZ
b. P17,400,000 d. P17,900,000 Company on consignment at 125% of cost and excluded
from Pampangas ending inventory 1,500,000

On January 1, 2001, Manapla Company acquired a building for P5,000,000. The building is 5,200,000
depreciated using straight line method based on a useful life of 10 years with no residual At December 31, 2005, the total current assets should be
value. On January 1, 2005, the building is revalued at a replacement cost of P8,000,000 with a. P10,600,000 c. P10,700,000
no change in useful life. The 2005 pretax accounting income before depreciation is b. P 9,800,000 d. P 9,900,000
P9,000,000. The income tax rate is 32% and there are no other temporary differences at the
beginning of 2005. 12. The trial balance of Arayat Company reflected the following liability account balances
on December 31, 2005:
6. What is the deferred tax liability arising from the revaluation on January 1, 2005?
a. P960,000 c. P384,000 Accounts payable 4,000,000
b. P576,000 d. P 0 Bonds payable, due 2006 8,000,000
Discount on bonds payable 1,000,000
7. What is the 2005 current tax expense? Deferred tax liability 1,500,000
a. P2,720,000 c. P2,624,000 Dividends payable 3,000,000
b. P2,880,000 d. P2,784,000 Income tax payable 500,000
Note payable, due 1/15/2007 2,500,000
Insurance 200,000
In its December 31, 2005 balance sheet, Arayat should report current liabilities at
a. P16,000,000 c. P17,000,000 The office space is used equally by the sales and accounting departments. What amount
b. P14,500,000 d. P16,500,000 should be classified as general and administrative expenses?
a. P8,200,000 c. P6,200,000
13. Candaba Company was incorporated on January 1, 2005, with proceeds from the issuance b. P5,200,000 d. P5,000,000
of P15,000,000 in common stock and borrowed funds of P5,000,000. During the first year of
operations, revenue from sales and consulting amounted to P20,000,000, and operating costs
and expenses totaled P12,000,000. On December 15, Candaba declared a P2,000,000 cash MAS
dividend payable to stockholders on January 15, 2006. No additional activities affected owners
equity in 2005. Candabas liabilities increased to P7,000,000 by December 31, 2005. On 1. A weakness of the internal rate of return method for screening investment projects is that
December 31, 2005 balance sheet, total assets should be reported at it:
a. P30,000,000 c. P22,000,000 A. does not consider the time value of money
b. P21,000,000 d. P28,000,000 B. implicitly assumes that the company is able to reinvest cash flows from the project at
the companys discount rate
14. Apalit Companys December 31, 2005 unadjusted current assets and stockholders equity are C. implicitly assumes that the company is able to reinvest cash flows from the project at
as follows: the internal rate of return
D. fails to consider the timing of cash flows
Cash 5,000,000
Trading securities (including P2,000,000 of Apalit Companys common stock) 2. The method of budgeting which adds one months budget to the end of the plan when
8,000,000 the current months budget is dropped from the plan refers to
Trade accounts receivable 10,000,000 A. Long-term budget C. Incremental budget
Inventory 7,000,000 B. Operations budget D. Continuous budget
Total current assets 30,000,000
3. To avoid waste and maximize efficiency when transferring products among divisions in a
Common stock 15,000,000 competitive economy, a large diversified corporation should base transfer prices on:
Additional paid in capital 3,000,000 A. Full cost C. variable costs
Retained earnings (including appropriated for contingencies of P3,000,000) 7,000,000 B. replacement cost D. market price
Total equity 25,000,000
4. MC Industries manufactures a product with the following costs per unit at the expected
The trading securities and inventory are reported at their costs which approximate production of 30,000 units:
Direct materials P 4
market values. In the 2005 statement of changes in equity, the total amount of equity at Direct labor 12
Variable manufacturing overhead 6
December 31, 2005 is Fixed manufacturing overhead 8
The company has the capacity to produce 40,000 units. The product regularly sells for
P40. A wholesaler has offered to pay P32 a unit for 2,000 units.
a. P25,000,000 c. P20,000,000 If the firm is at capacity and the special order is accepted, the effect on operating income
b. P23,000,000 d. P22,000,000 would be
A. a P20,000 increase C. a P4,000 increase
15. The following items were among those that were reported on Bulacan Companys income B. a P16,000 decrease D. P0
statement for the year ended December 31, 2005:
5. Using the information presented below, calculate the total overhead spending variance.
Legal and audit fees 2,000,000 Budgeted fixed overhead P10,000
Rent for office space 6,000,000 Standard variable overhead (2 DLH at P2 per DLH) P4 per unit
Interest on acceptances payable 1,000,000 Actual fixed overhead P10,300
Loss on abandoned data processing equipment 500,000
Actual variable overhead P19,500 Purchase cost per unit 11.00
Budgeted volume (5,000 units x 2 DLH) 10,000 DLH Sales commission, 10% of selling price 2.00
Actual direct labor hours (DLH) 9,500 Monthly fixed costs P80,000
Units produced 4,500 The firms salespersons would like to change their compensation from a 10 percent
A. P500 U C. P1,000 U
B. P800 U D. P1,300 U commission to a 5 percent commission plus P20,000 per month in salary. They now

6. Compared to other firms in the industry, a company that maintains a conservative working receive only commission.
capital policy will tend to have a
a. Greater percentage of short-term financing.
The change in compensation plan should change the monthly breakeven point by
b. Greater risk of needing to sell current assets to repay debt.
c. Higher ratio of current assets to fixed assets.
A. 1,071 Increase C. 1,538 Increase
d. Higher total asset turnover.
B. 1,071 Decrease D. 1,538 Decrease
7. A firm following an aggressive working capital strategy would
Questions 11 & 12 are based on the following information.
a. Hold substantial amount of fixed assets.
Information about Rose Company is as follows:
b. Minimize the amount of short-term borrowing.
c. Finance fluctuating assets with long-term financing. 2001 2002
d. Minimize the amount of funds held in very liquid assets. Output (units) 80,000 84,000
Selling price per unit P25 P25
8. Fidelity Company uses a flexible budget system and prepared the following information Input quantities:
for the year: Fidelity operated at 80 percent of capacity during the year, but applied Materials (pounds) 4,000 4,000
factory overhead based on the 90 percent capacity level. Assuming that actual factory Labor (hours) 3,200 3,250
overhead was equal to the budgeted amount of overhead, how much was the overhead Input prices:
volume variance for the year? Materials (per pound) P5.00 P5.50
Percent of Capacity 80 Percent 90 Percent Labor (per hour) P7.00 P7.50
Direct labor hours 24,000 27,000
Variable factory overhead P54,000 P60,750 11. What are the materials productivity, and labor productivity ratio for 2001?
Fixed factory overhead P81,000 P81,000 A. B. C. D.
Total factory overhead rate pre DLH P5.625 P5.25 Materials 20.00 100.00 25.00 20.00
Labor 25.00 95.45 24.00 24.00
A. P9,000 U C. P9,000 F
B. P15,750 U D. P15,750 F
12. By how much did profits change as a result of changes in productivity related to
9. BE&H Co. is considering dropping a product. Variable costs are $6.00 per unit. Fixed materials, and labor, respectively?
overhead costs, exclusive of depreciation, have been allocated at a rate of $3.50 per unit A. B. C. D.
and will continue whether or not production ceases. Depreciation on the equipment is Materials P(1,100) P1,100 P(625) P625
P20,000 a year. If production is stopped, the equipment can be sold for P18,000, if Labor P (825) P 825 P 625 P625
production continues, however, it will be useless at the end of 1 year and will have no
salvage value. The selling price is P10 a unit. Ignoring taxes, the minimum units to be
sold in the current year to break even on a cash flow basis is Questions 13 thru 15 are based on the following information.
A. 4,500 units C. 1,800 units At the beginning of the year, Joshua Corporation initiated a quality improvement program.
B. 5,000 units D. 36,000 units The program was successful in reducing scrap and rework costs. To help assess the impact
of the quality improvement program, the following data was collected for the current and
10. The following data relate to Homer Company which sells a single product: preceding year.
Unit selling price P 20.00 Preceding Year Current Year
Sales P1,000,000 P 1,000,000 Nov. 30 BARBIE purchased 4,000 shares of its own stock on the open market at P39
Recruiting 1,000 1,500 per share.
Packaging inspections 2,500 4,000 Dec. 15 BARBIE declared a 5% stock dividend for stockholders of record on January
Downtime 20,000 15,000 15,2011, to be issued on January 31,2011. BARBIE was having a liquidity
Reinspection 40,000 25,000 problem and could not afford a cash dividend at the time. BARBIEs common
Product inspection 5,000 10,000 stock was selling at P52 per share on December 15,2010.
Product liability 35,000 27,500 2011
June 20 BARBIE sold 1,000 shares of its own common stock that it had purchased on
13. As a result of quality improvements, profits have increased by November 30,2010, for P42,000
A. P32,500 C. P7,500 PREFERRED STOCK
B. P20,500 D. P5,00 BARBIE issued 100,000 shares of preferred stock at P44 per share on July 1,2009.
CASH DIVIDENDS
14. If quality costs had been reduced to 2.5 percent of sales in the current year, profits would BARBIE has followed a schedule of declaring cash dividends in December and June with
have increased by payment being made to shareholders of record in the following month. The cash dividends
which have been declared since inception of the company through June 30,2011, are shown
A. P177,000 C. P61,000 below:
B. P58,000 D. P25,000 Declaration Date Common Stock Preferred stock
12/15/09 P0.30 per share P1.00 per share
15. For the current year, the respective percentages based on sales of the different quality 06/15/10 P0.30 per share P1.00 per share
costs, respectively, are: 12/0510 ---- P1.00 per share
Prevention Appraisal Internal Failure External failure No cash dividends were declared during June 2011 due to the companys liquidity problems.
A. 0.15% 1.40% 2.50% 1.50% RETAINED EARNINGS
B. 0.15% 1.40% 4.00% 2.75% As of June 30, 2010, BARBIEs retained earnings account had a balance of P1,380,000. For
C. 0.65% 1.00% 1.50% 4.25% the fiscal year ending June 30, 2011, BARBIE reported net income of P80,000.
D. 0.65% 1.00% 2.50% 1.50% In March 2010, BARBIE received a term loan from Badingding National Bank. The bank
AP requires BARBIE to establish a sinking fund and restrict retained earnings for an amount
equal to the sinking fund deposit. The annual sinking fund payment of P100,000 is due on
BARBIE COMPANY was formed on July 1, 2008. It was authorized to issue 600,000 shares April 30 each year; the first payment was made on schedule on April 30,2011.
of P10 par value common stock and 200,000 shares of 8 percent P25 par value, cumulative Based on the foregoing and the result of your audit, answer the following:
and nonparticipating preferred stock. BARBIE COMPANY has a July 1- June 30 fiscal year.
The ff information relates to the shareholders equity accounts of BARBIE COMPANY: 1. Unappropriated retained earnings at June 30,2011 is
A. P788,000 B. P571,000 C. P217,000 D. P1,033,000
COMMON STOCK 2. Total number of common shares issued and outstanding at June 30, 2011 is
Prior to the 2010-2011 fiscal year, BARBIE COMPANY had 220,000 shares of outstanding A. P248,000 B. P251,000 C. P232,000 D. P235,000
common stock issued as follows: 3. Treasury stock at June 30,2011 is
1. 190,000 shares were issued for cash on July 1,2008, at P31 per share. A. P117,000 B. P30,000 C. P37,000 D. P156,000
2. On July 24,2008, 10,000 shares were exchanged for a plot of land which cost the 4. Total shareholders equity at June 30,2011 is
seller P140,000 in 2002 and had an estimated market value of P440,000 on July A. P13,117,000 C. P12,783,000
24,2008. B. P13,576,000 D. P13,000,000
3. 20,000 shares were issued on March 1,2010; the shares had been subscribed for
P42 per share on October 31, 2009.
During the 2010-2011 fiscal year, the ff transactions regarding common stock took place: At the beginning of year 1, Entity a grants share options to each of its 100 employees working
2010 in the sales department. The share options will vest at the end of year 3, provided that the
Oct. 1 Subscriptions were received for 4,000 shares at P46per share. Cash of employees will remain in the entitys employ, and provided that the volume of sales of a
P184,000 was received in full payment for 4,000shares and stock certificates particular product increases by at least an average of 5% per year. If the volume of sales of
were issued. the product increases by an average of between 5% and 10% per year, each employee will
receive 100 share options. If the volume of sales increases by an average of between 11% Scenario 2: the equity alternative
and 15% each year, each employee will receive 200 share options. If the volume of sales Based on the preceding information, answer the ff:
increases by an average of 16% or more, each employee will receive 300 share options.
On grant date, Entity A estimates that the share options have a fair value of P20 per option. 10. What is the total fair value of the equity component as a result of the share- based
Entity A also estimates that the volume of sales of the product will increase by an average of payment transaction with settlement alternatives?
bet 11% and 15% per year, and therefore expects that, for each employee who remains in A. P7,600 B. P10,000 C. P2,400 D. P0
service until the end of year 3, 200 share options will vest. The entity also estimates, on the 11. What is the compensation expense in year 1?
basis of a weighted average probability, that 20% of employees will leave before the end of A. P17,333 B. P19,866 C. P19,333 D. P23,334
year 3. 12. What is the compensation expense in year 2?
By the end of year 1, seven employees have left and the entity still expects that a total of 20 A. P19,866 B. P17,333 C. P21,867 D. P19,333
employees will leave by the end of year 3. Hence, the entity expects that 80 employees will 13. What is the compensation expense in year 3?
remain in service for the three-year period. Product sales have increased by 12% and the A. P23,334 B. P25,867 C. P19,333 D. P19,866
entity expects this rate of increase to continue over the next 2 years. 14. If the employee has chosen the cash alternative, the amount to be paid at the end of
By the end of year 2, a further 5 employees have left, bringing the total to 12 to date. The year 3 should be
entity now expects only 3 more employees will leave during year 3, and therefore expects a A. P55,000 B. P67,600 C. P52,000 D. P60,000
total of 85% employees will remain at the end of year 3. Product sales have increased by 15. If the employee has chosen the share alternative, the amount of share premium to be
20%, resulting in an average of 16% over the 2 years to date. The entity now expects that recognized is
sales will average 16 percent or more over the three-year period, and hence expects each A. P7,600 B. P55,600 C. P60,000 D. P67,200
sales employee to receive 300 share options at the end of year 3.
By the end of year 3, a further two employees have left. Hence, 14 employees left during the
three-year period, and 86 employees remain. The entitys sales have increased by an BLT
average of 16 % over the three years.
Based on the preceding info, answer the ff: 1 A was forced by B to sign a contract. C, a creditor of A wants to annul the contract. Is
5. What is the compensation expense for year 1? C allowed by law to do so?
A. P106,667 B. P53,333 C. P160,000 D. P172,000 a No, because a third person cannot assail a void contract.
6. What is the compensation expense for year 2? b Yes, because the contract is voidable and C is damaged.
A. P286,667 B. P180,000 C. P233,333 D. P168,000 c No, because a third person cannot assail a voidable contract.
7. What is the compensation expense for year 3? d Yes, a third person can annul a rescissible contract.
A. P114,667 B. P176,000 C. P282,667 D. P188,000 2 To defraud his creditors, A sold his real property to B. B now seeks to register the
8. What is the cumulative compensation expense for years 1, 2 and 3? sale. X, a creditor, seeks to prevent the registration on the ground that it is a
A. P320,000 B. P516,000 C. P344,000 D. P172,000 rescissible contract. Despite Xs objection, may the land be registered in Bs name?
9. At the end of year 2, the entity should report share options outstanding of? a No, because the contract is rescissible and therefore without effect.
B. P328,000 B. P266,667 C. P286,667 D. P340,000 b No, because the sale is voidable and after annulment is not binding.
c Yes, because the contract although voidable is valid and binding.
d Yes, because the contract although rescissible is valid, binding and enforceable
An entity grants to an employee the right to choose either 1,000 phantom shares (i.e., right to before rescission.
a cash payment equal to the value of 1,000 shares) or 1,200 shares with a par value of P10 3 A made a donation to B. later A contracted several debts. What A has left as assets
per share. The grant is conditional upon the completion of the 3 years service. If the are much less than his present liabilities. May the donation to B be rescinded?
employee chooses the share alternative, the shares must be held for 3 years after vesting a No, because the debts were incurred after the donation has been made.
date. b No, if A gave guaranty or security for his debts.
At grant date, the entitys share price is P50 per share. At the end of years 1, 2 and 3, the c Yes, because the donation is rescissible being in fraud of creditors.
share price is P52, P55, and P60 respectively. The entity does not expect to pay dividends in d Yes, because A has become insolvent after the donation.
the next 3 years. After taking into account the effects of the post-vesting transfer restrictions, 4 To defraud hi creditor, A sold his property to B (who is in good faith). Later, B sold the
the entity estimates that the grant date fair value of the share alternative is P48 per share. property to C, who is in bad faith. May the creditor rescind the sale?
At the end of the year 3, the employee chooses: a Yes, because the third person C, is in bad faith.
Scenario 1: the cash alternative b No, because the third person is in good faith.
c No, because the contract is voidable and not rescissible. January 15, she made a gift of P3,000,000 (real property) to her husband. She is
d Yes, because the contract is rescissible. insured for P1,000,000 designating her estate as beneficiary. The premium was paid
5 To defraud his creditor, A sold his house to X. When however the creditor wanted to from her exclusive property.
collect his credit, somebody lent A enough money. Is the sale rescissible?
a Yes, because it was entered into fraud of creditors. The last will and testament of Mrs. Kina Pos Sahangin reveals that her shares of
b No, because the creditor can collect the credit due to him. stock in Pure Joke Corporation shall be contributed to the local government of
c No, because the debtor has become in good faith when he was lent enough Tagaytay City for the maintenance of public park, and the balance shall be given to
money to pay his debts. her husband.
d Yes, because the debtor was in bad faith when he sold his house to X.
6 A orally sold to B a house at 16 Kiko St. Malate, Manila. In the written deed of sale, Mrs. Kina Pos Sahangins executor field and paid the follow tax returns:
both forgot the true number of the house and instead wrote on the contract, No.18
Kiko St. Malate, Manila The remedy shall be: Donors tax for gift to her husband P 204,000
a Annulment of a voidable contract because of mutual mistake. Estate Tax 34,840
b Reformation of instrument because of lack of meeting of minds.
c Reformation of instrument because of mutual error. The transfer tax still due for the estate tax of Mrs. Kina Pos Sahangin.
d Declaration of nullity of the contract because if the uncertainty of the intention as a. P116,160 b. P160,160 c. P356,160 d. 560,160
to the object.
7 A loan for P800.00 was orally contracted. May the lender receive the sum lent? Rates of Estate Tax.
a No, because the contract is unenforceable.
b No, because the contract must be in writing to be valid.
c Yes, because the debtor ratifies the loan.
d Yes, because the contract is enforceable. Over But Not Over The Tax Shall be Plus Of the Excess Over
8 When his father died but before the delivery of the property to him, a son sold his
share of the property inherited. Is the sale valid?
a No, because future inheritance cannot be sold.
b Yes, because future inheritance can be the object of the contract. P 200,000 Exempt
c Yes, because what has been sold is present inheritance.
d No, because the son was not the owner due to lack of delivery to him. P 200,000 500,000 0 5% P 200,000
9 A VAT-registered person is engaged in the sale of VAT taxable goods and at the
same time is also engaged in non-VAT business, in the same business 500,000 2,000,000 P 15,000 8% 500,000
establishment. During the quarter made sales of goods in the amount of P300,000
plus a value-added tax of P36,000. The sales of the non-VAT business amounted to 2,000,000 5,000,000 135,000 11% 2,000,000
P200,000 with a separate percentage tax of P6,000 for a total of P206,000. During
the same quarter, repairs on the building amounted to P50,000 plus value-added tax 5,000,000 10,000,000 465,000 15% 5,000,000
of P6,000. Supplies purchased for common use amounted to P10,000 plus P1,200
value-added tax. 10,000,000 And Over 1,215,000 20% 10,000,000

The creditable input tax is:


11 A race track bettor won on the following bets:
a. P28,800 b. P4,463 c. P7,200 d. P4,320 On forecast, a bet of P1,000 and dividend of P100 per P20-ticket
On ordinary , a bet of P500 and dividend of P1,000 per P50-ticket
On double, a bet of P200 and dividend of P200 per P20-ticket
10 Mrs. Kina Pos Sahangin, a Filipino, died November 1, 2008 survived by her husband. Total percentage tax due from the winnings was
At the date of death, she has P2,000,000 cash in bank and 100,000 shares holding of
Pure Joke Corporation with a sales value of P100 per share at the date of death. On
a. P682 b. P1,182 c. P1,280 P2
d. P1,530
The assets and equities of the Queen, Reed, and Stac Partnership at the end of its fiscal year
on October 31,2011 are as follows:
12 An invoice issued for the sale of VAT taxable goods shows the following: Assets
Total invoice amount 50,400 Cash P15,000
Receivables-net 20,000
Less: Trade discount of 5% 2,520 Inventory 40,000
Plant assets-net 70,000
Net 47,880 Loan to Reed 5,000
Total assets P150,000
If VAT taxpayer enjoys partial tax exemption of 40% including VAT and the amount is VAT Liabilities and Equity
inclusive, how much is the output tax? Liabilities P50,000
Loan from Stac 10,000
a. P3,628 b. P3,447 c. P3,240 d. P3,216 Queen, capital-30% 45,000
Reed, capital-50% 30,000
13 An alteration committed by a stranger to a negotiable instrument Stac, capital-20% 15,000
Total liab. & equity P150,000
is: The patners decide to liquidate the partnership. They estimate that the noncash assets, other
a. Policitacion than the loan to Reed, can be converted into P100,000 cash over the two-months period
b. Spoliation ending December 31,2011. Cash is to be distributed to the appropriate parties as it becomes
c. Option contract available during the liquidation process.
d. Material alteration 1. The partner most vulnerable to partnership losses on liquidation is:
14 Which of the following does not discharge a negotiable instrument? a.Queen c.Reed and Queen equally
a. Intentional cancellation of the instrument by the holder. b.Reed d.Stac
b. Payment by the party primarily liable to holder or his authorized 2. Using the same information, and P65,000 is available for first distribution, it should be paid
to:
representative. Priority creditors Queen Reed Stac
c. Payment by maker of a promissory note before maturity date. a. P60,000 P5,000 P0 P0
d. Voluntary surrender of the instrument by the holder to the b. 60,000 1,500 2500 1,000
maker without collecting. c. 50,000 5,000 0 10,000
15 Which is not correct? The acceptor by accepting a negotiable d. 50,000 12,000 0 3,000
The following data are provided by the Troubled Company:
instrument Assets at the book value P150,000
a. Admits the capacity of the payee to endorse. Assets at net realizable value 105,000
b. Admits the genuineness of the drawers signature. Liabilities at book value:
c. Admits the genuineness of the endorsers signature. Fully secured mortgage 60,000
d. Admits that he will pay it according to the tenor of his Unsecured accounts and notes payable 70,000
acceptance. Unrecorded liabilities:
Interest on bank notes 500
Estimated cost of administering estates 6,000
The court has appointed a trustee to liquidate the company:
1.The journal entry made by the trustee to record the assets and liabilities should include an
estate deficit of:
a.P31,500 c.P25,500
b. 31,000 d. 25,000
2.Using the same information above, the statement of affairs prepared by the trustee at this
time should include an estimated deficiency to unsecured creditors of: 6.. Using the same information above, the cost of installment sales in 2010:
a. P45,000 c.P31,500 a.29% b.41% c.59% d.cannot be determined
b. 39,000 d. 25,000
Anson and Baylon formed a joint venture. Their capital contributions, and profit and loss ratio 7.. Using the same information above, the collection in 2012 for 2011 sales:
are presented below: a.P10,400 b.P33,250 c.P43,700 d.48,600

Contributions Profit and 8.. Using the same information above, the realized gross profit on installment sales in 2010:
Cash Merchandise Loss ratio a.P9,728 b.P7,049 c.P4,800 d. zero
Anson P5,000 P8,000 50%
Baylon - 6,000 50% 9.. Using the same information above, the realized gross profit on installment sales in 2011:
A summary of the joint venture activities is presented below: a.P8,664 b.P9,348 c.P18,012 d.P22,400
Purchase of merchandise by Baylon P4,000
Expenses paid by Baylon: TM partnership begins its first year of operations with the following capital balances:
Mayors permit 400
Freight on merchandise contributed by Anson 300 Tray Capital P200,000
Delivery expenses of merchandise sold 200
May Capital P100,000
Sales (all of the merchandise contributed and purchased by Baylon
and one-half of those contributed by Anson)-Selling price 14,000
1. The balance of the joint venture account before profit or loss distribution is: According to the partnership agreement. All profits will be distributed as follows:
a. P4,900 b.P14,000 c.P14,000 d.none
a. Tan will be allowed a monthly salary of P20,000 with P10,000 assigned to May.
2. Using the same information above, the profit(loss) of the joint venture is: b. The partners will be allowed with interest equal to 10 percent of the capital balance as of
a. P(450) b.P750 c. P(750) d. P450 the first day of the year.
c. Tan will be allowed a bonus of 10 percent of the net profit after bonus.
3. Using the same information above, how much would Anson receive in the final settlement
assuming he took the unsold merchandise of cost? d. The remainder will be divided o the basis of the beginning capital for the first year and
a. P13,000 b. P12,625 c.P8,475 d.P8,515 equally for the second year.
e. Each partner is allowed to withdraw up to P10,000n a year.
Johnson Enterprises uses the cost recovery method for all installment sales:
Complete the following table: Assume that the net loss for the first year of operations is P15,000 with net income of
2010 2011 2012 P55,000 in the subsequent year. Assume further hat each partner withdraws the maximum
Installment sales P80,000 P95,000 P?
amount from the businesses each period.
Cost of installment sales ? 56,050 68,250
Gross profit percentage 38% ? 35%
Cash collections: 10. What is the balance of Tans capital account at the end of the second year?
2010 sales 25,600 46,400 5,600
2011 sales 22,800 ? a. P264,750
2012 sales 32,550 b. P284,750
Realized gross profit on installment sales ? ? 16,050 c. P180,000
d. P184,750
4.The installment sales in 2012:
a.P92,137.50 b.P105,000 c.P112,612.50 d.P195,000
11. Jaime Dizon, a partner in an accounting firm, decided to withdraw from the partnership.
5..Using the same information,the cost of installment sales in 2010: Dizons share of the partnership profits and losses was 20%. Upon withdrawing from the
a.zero b.P30,400 c.P47,619 d.P49,600 partnership, he was paid P74,000 in final settlement for his interest. The total of the partners
capital accounts before recognition of partnership goodwill prior to Dizons withdrawal was c. P14,250
P210,000. After his withdrawal, the remaining partners capital accounts, excluding their d. P10,000
share of goodwill, totalled P160,000. The implied goodwill of the firm was:
Al tan and Rey Lee formed a joint venture on January 1, 2008 to operate two stores to be
a. P120,000 managed by each venture. They agreed to contribute cash as follows:
b. P140,000
c. P160,000 Tan P30,000
d. P250,000 Lee P20,000

Profits and losses are to be divided in the capital ratio. All the venture transactions are for
cash, and the cash receipts and disbursements of the venture during the four-month period,
The accountant of Holy company under liquidated provided the following data: handled through the venturers bank accounts, are as follows:

Assets at book value P100,000


Assets at net realizable value 75,000
Liabilities at book value: Tan Lee
Fully secured mortgage payable 40,000 Cash receipts P78,920 P65,425
Unsecured accounts and notes payable 45,000 Cash disbursements 62,275 70,695
Unrecorded Liabilities:
Interest on bank notes 250 The remaining assets are sold for P60,000.
Administrative Expenses 4,000
14. What is the joint venture profit (loss) after selling the remaining non-cash assets?
A trustee is appointed tp liquidate the company.
a. P11,375
12. The entry made by the trustee to record the assets and liabilities should include estate b. P21,375
equity of: c. P(31,375)
d. 31,375
a. P14,250
b. P14,000 15. The P60,000 cash should be divided between the venturers as follows:
c. P10,250
d. P10,520 Tan Lee
a. P 16,180 P43,820
13. Using the data above, what is the estimated deficiency to unsecured creditors? b. P 21,905 P38,095
c. P 26,180 P33,820
a. P35,000 d. P48,095 P11,905
b. P31,000