Junior Philippine Institute of Accountants

College of Business Administration

University of the East - Caloocan

Qualifying Exam Reviewer 2017

Financial Accounting and Reporting

I. Development of Accounting Profession

1. It is the body authorized by law to promulgate rules and regulations affecting the practice
of the accountancy professions in the Philippines.
a. Philippine Institute of Certified Public Accountants
b. Board of Accountancy
c. Securities and Exchange Commission
d. Professional Regulation Commission

b. Board of Accountancy

2. The international accounting standards are

a. Rules-based rather that principles based
b. Principle-based rather than rule based
c. Based on regulations, not concept
d. Focused on quantitative rules

b. Principle-based rather than rule based.

3. This accounting concept justifies the usage of accruals and deferrals.

a. Materiality c. Consistency
b. Cash basis of accounting d. Going concern

d. Going concern

4. An item cannot be recognized in the balance sheet or the income statement unless it
meets the two criteria of

Criterion 1 Criterion 2
a. Completeness Measurement reliability
b. Probable economic benefits Measurement reliability
c. Materiality Relevance to others
d. Neutrality Relevance to others

b. Probable economic benefits Measurement reliability

 5. The IASB Framework outlines two underlying assumptions of financial statements.
These are

Assumption 1 Assumption 2
a. Accrual basis of accounting Relevance and reliability
b. Cash basis of accounting Insolvency assumption
c. Accrual basis of accounting Going concern assumption
d. Cash basis of accounting Perpetual life concept

c. Accrual basis of accounting; going concern assumption

6. Which of the following statements concerning the Framework is incorrect?

a. Primary responsibility for the preparation and presentation of the financial
statements rests with the management.
b. The Framework provides that the transactions must be accounted for in
accordance with their legal form.
c. Financial statements must not exclude complex matters in order to achieve
understandability.
d. Where any conflict arises between the Framework and a PFRS, the requirement
of the PFRS prevails.

b. The Framework provides that the transactions must be accounted for in

accordance with their legal form.

7. In respect to information included in financial statements, the accounting concept of

prudence ensures that:
a. The financial statements report what they purport to report.
b. A degree of caution in the exercise of judgments about estimates is made.
c. An appropriate balance is achieved between the relevance and the reliability of
information that has been included.
d. Information is provided to users within the time period in which it is most likely to
bear on their decisions.

b. A degree of caution in the exercise of judgments about estimates is made.

II. Cash and Cash Equivalents

8. Information about the sources and uses of an enterprises cash and cash equivalents is
provided in the
a. Balance sheet c. Statement of changes in equity
b. Income statement d. Cash flow statement

d. Cash flow statement

9. The following data pertain to Sanghaya Corporation on December 31, 2016:

Current account at BPI P 3,000,000

Current account at PNB (50,000)
Payroll account 1,000,000
 Foreign bank account restricted (in peso) 750,000
Postage tamps 1,000
Employees post dated check 4,000
IOU from controllers sister 10,000
Credit memo from a vendor for a purchase return 20,000
Travelers check 50,000
Not-sufficient funds-check 15,000
Money order 30,000
Petty cash fund (4,000 in currency; expenses receipts for 6,000) 10,000
Treasury bills, due 3/31/17 (purchased 12/31/16) 300,000
Treasury bills, due 1/31/17 (purchased 1/1/16) 110,000
Based on the above information, compute for the cash and cash equivalent that would
be reported on the December 31, 2016 balance sheet.

a. P 4,334,000 c. P 4,404,000
b. P 4,384,000 d. P 4,409,000

Current account at BPI 3,000,000

Payroll account 1,000,000
Traveler's check 50,000
Money order 30,000
Petty cash fund (the amount in currency only) 4,000
Treasury bills, due 3/31/17 300,000
b. P 4,384,000

10. You noted the following composition of Hiyas Companys cash account as of
December 31, 2016

Demand deposit P 3,000,000

Time deposit - 30 days 2,000,000
NSF check of customer 40,000
Money market placement (due June 30, 2017) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 2,000,000
Petty cash fund 10,000
Customer check dated January 1, 2017 50,000
Customer check outstanding for 18 months 40,000
9,760,000

Additional information are as follows:

a) Check of P 100,000 in payment of accounts payable was recorded on December
31, 2016 but mailed to suppliers on January 7, 2017.
b) Check of P 300,000 dated January 15, 2017 in payment of accounts payable was
recorded and mailed on December 31, 2016.
c) The company uses the calendar year. The cash receipts journal was held open
until January 15, 2017, during which time P400,000 was collected and recorded
on December 31, 2011.
 The cash and cash equivalent to be shown on the December 31, 3016 balance sheet is

a. P 5,010,000
b. P 6,510,000
c. P 6,550,000
d. P 6,250,000

Demand deposit P 3,000,000

Time deposit 2,000,000
Petty cash fund 10,000
Undelivered check (payment to suppliers) 100,000
Post dated check (payment to suppliers) 300,000
Window dressing (400,000)
a. P 5,010,000

III. Bank Reconciliation and Proof of Cash

11. The journal entries for a bank reconciliation

a. May include a debit to accounts payable for an NSF check.
b. May include a credit to accounts receivable for an NSF check.
c. May include a debit to office expense for bank service charges.
d. Are taken from the balance per bank only.

c. May include a debit to office expense for bank service charges.

12. A proof of cash is a

a. Proof of companys liquid position.
b. Proof of the existence of a cash deposit in a bank.
c. Reconciliation of the cash receipts and payments during the previous period,
together with the beginning and ending balances of cash.
d. Reconciliation of the cash receipts and payments during the current period,
together with the beginning and ending balances of cash.

d. Reconciliation of the cash receipts and payments during the current

period, together with the beginning and ending balances of cash.

13. The bookkeeper of Sambisig Company recently prepared the following bank
reconciliation on December 31, 2016:

Balance per bank statement 20,000,000

Add: Deposit in transit 1,500,000
Checkbook and other bank charge 50,000
Error made by Sambisig in recording check 1005 (issued in 150,000
December)
Customer check marked DAIF 500,000 2,200,000
Total 22,200,000
Deduct: Outstanding checks 1,900,000
Note collected by bank (includes P 200,000 interest) 2,300,000 4,200,000
Balance per book 18,000,000

Sambisig has P 1,000,000 cash on hand on December 31, 2016. The amount to be
reported as cash on the balance sheet as of December 31, 2016 should be:
a. P 19,600,000 c. P 20,600,000
b. P 18,600,000 d. P 19,750,000

Balance per book 18,000,000

Checkbook and other bank charge (50,000)
Check marked as DAIF (500,000)
Notes collected 2,300,000
Cash on hand 1,000,000
Book error (150,000)
Adjusted cash balance c. 20,600,000

14. Reconciliation of Adliwa Corporations bank account at November 30, 2016 follows:

Balance per bank statement P 3,150,000

Deposit in transit 450,000
Checks outstanding (45,000)
Correct cash balance P 3,555,000

Balance per books P 3,558,000

Bank service charge (3,000)
Correct cash balance P 3,555,000

December data are as follows:

Bank Books
Checks recorded P3,450,000 P3,540,000
Deposits recorded 2,430,000 2,700,000
Collection by bank (P600,000 plus interest) 630,000 -
NSF check returned with December bank statement 15,000 -
Balances 2,745,000 2,715,000

The checks outstanding on December 31, 2016 amount to:

a. P45,000 c. P90,000
b. P135,000 d. None of the above
 Checks recorded by book (December) 3,540,000
Checks recorded by bank (December) (3,450,000)
Checks outstanding (November) 45,000
Checks outstanding on December 31 b. 135,000

IV. Receivables

15. Credit balances in accounts receivables should be classified as

a. Current liabilities c. Addition to current assets
b. Part of accounts payable d. Deduction from accounts receivable

b. Part of accounts payable

16. Hirayag Company provided the following transactions affecting accounts receivable
for the year 2016:

Sales (cash and credit) 5,900,000

Cash received from credit customers (took advantage of 4/10, n/30 3,024,000
discount feature)
Cash received from cash customers 2,100,000
Accounts receivable written off as worthless 50,000
Credit memorandum issued to credit customers for sales returns and 250,000
allowances
Cash refunds given to cash customers for sales returns and allowances 20,000
Recoveries on accounts receivable written off as uncollectible in prior 80,000
periods but not included in cash received from customers stated above

The balances on January 1, 2016 were as follows:

Accounts receivable 950,000

Allowance for doubtful accounts 100,000

The entity provided for uncollectible account losses by crediting allowance for doubtful
accounts in the amount of P70,000 for the current year.

What are the balances of accounts receivable and allowance for doubtful expense on
December 31, 2016?
a. 1,300,000; 200,000 c. 1,426,000, 300,000
b. 1,300,000, 130,000 d. 1,476,000, 200,000
 Accounts Receivable
Beg. bal 950,000
Credit sales *3,800,000 **3,150,000 Collections
50,000 Written off
250,000 Credit memo
a. 1,300,000

Allowance for D/A

100,000 Beg. bal.
Written off 50,000 70,000 D/A expense
Recovery of
80,000 A/R
a. 200,000

*Credit sales = Total sales cash sales

3,800,000 = 5,900,000 2,100,000
**Collection = Cash received + discount or cash received / 1 - discount rate
3,150,000 = 3,024,000/.96
Recovered accounts receivable are subsequently collected, hence it is not included
in computing for ending balance of accounts receuvable

V. Inventories

17. On December 31, 2016, a storm surge damaged the warehouse of Siuala Company.
The following pertains to the data recovered.

January 1 December 31
Inventory 1,500,000
Purchases 5,500,000
Cash sales 900,000
Collections of accounts receivable 8,400,000
Accounts receivable 700,000 1,100,000
Gross profit on sales 40%

What is the inventory loss from the storm surge?

a. 1,720,000
b. 2,260,000
c. 1,180,000
d. 2,700,000

Accounts Receivable Inventory

Beg bal 700,000 Beg bal. 1,500,000
Sales (squeeze) 8,800,000 Purchases 5,500,000
Collections 8,400,000 COGS* 5,820,000
Ending bal 1,100,000 c. 1,180,000
 * Cost of Goods Sold = Total sales x (1-Gross Profit on sales)
= (8,800,000+900,000) x (1-.40)
= 5,820,000

VI. Equity Investments

18. Fradejas Company acquired an equity financial instrument for P4,000,000 on June 15,
2016. The financial instrument is classified as financial asset at fair value through other
comprehensive income. Direct acquisition cost amounted to P700,000. On December
31, 2016, the fair value of the instrument was P5,500,000 and the transaction costs that
would be incurred on the sale of the investment are estimated at P640,000. What gain
should be recognized in profit or loss for the year ended December 31, 2016?
a. P900,000
b. P800,000
c. P0
d. P200,000

c. P0

19. Alipio Company provided the following data for 2016:

i. Received P500,000 cash dividend from William Company.
ii. Received P60,000 liquidating dividend from Trinidad Company. Alipio owns
5% interest in Trinidad.
iii. Gonzales Company declared P2,000,000 cash dividend from which Alipio
owns 2% interest in Gonzaless equity. Dividends are payable on the 15th of
January the following year.
What amount should Alipio report as dividend income for 2016?
a. P540,000
b. P100,000
c. P600,000
d. P40,000

a. P540,000
Cash dividend from William Company 500,000
Cash dividend from Gonzales Company (2,000,000*.02) 40,000
540,000

VII. Property, Plant and Equipment

20. The following costs qualify for recognition except

a. Cost of site of operation
b. Cost of opening a new facility
c. Cost of employee benefits of persons doing the installation
d. Professional fees
 c. Cost of employee benefits of persons doing the installation

21. The cost model means that the PPE are carried at cost less any accumulated
depreciation and any accumulated impairment loss.

The revaluation model means that the PPE are carried at the fair value at the date of
revaluation less any subsequent accumulated depreciation and subsequent
accumulated impairment loss
a. Both statements are false
b. Both statements are true
c. Only the first statement is true
d. Only the first statement is false.

b. Both statements are true

22. On January 1, 2016, Thor Company took out a loan of P12,000,000 in order to finance
specifically the renovation of a building. The loan carried annual interest at 10%. Work
on the building, started from January 1, was substantially completed on October 31 of
the same year. The load was repaid on December 31, 2016 and P150,000 investment
income was earned in the period to October 31 on the proceeds of the loan not yet
used for the renovation. Compute for the amount of borrowing cost to be included in
the cost of the building.
a. P1,050,000
b. P1,350,000
c. P1,200,000
d. P850,000

d. P850,000

Interest incurred (12,000,000 x ,10 x 10/12) 1,000,000

Interest income (150,000)
Capitalized borrowing cost 850,000

VIII. Statement of Financial Position

23. Coulson Company reported the following assets on December 31, 2016

Cash (includes P1,000,000 sinking fund and P400,000 4,000,000

postdated check))
Accounts Receivable 6,800,000
Inventory 4,500,000
Deferred Tax Asset 2,500,000
Noncurrent Asset Held for Sale 3,000,000
 The accounts receivable is comprised of the following amount
Customers debit balance, net of customers credit balance of 5,000,000
P200,000
Allowance for doubtful accounts (700,000)
Selling prince of unsold inventory sent out on consignment at 2,500,000
125% of cost and already included in the ending inventory at
cost
Accounts Receivable 6,800,000

On December 31, 2016, what amount should be reported as total current assets?
a. P15,000,000
b. P17,000,000
c. P17,500,000
d. P16,600,000

Cash (4,000,000-1,000,000-400,000) 2,600,000

Accounts Receivable (5,000,000+200,000-700,000+400,000) 4,900,000
Inventory 4,500,000
NCA held for sale 3,000,000
a. 15,000,000

IX. Statement of Comprehensive Income

24. Benedict Company provided the following data for the current year
Income from continuing operations 5,000,000
Income from discontinued operations 600,000
Unrealized gain on available for sale securities 900,000
Unrealized gain on futures contract designated as a cash flow 400,000
hedge
Actuarial loss during the year fully recognized in the other 300,000
comprehensive income
Foreign translation adjustment - debit 100,000
Revaluation surplus during the year 2,500,000

What is the comprehensive income for the current year?

a. P8,400,000
b. P9,000,000
c. P8,000,000
d. P8,200,000

Income from continuing operations 5,000,000

Income from discontinued operations 600,000
Unrealized gain on available for sale securities 900,000
Unrealized gain on futures contract 400,000
Actuarial loss (300,000)
Loss on foreign translation adjustment (100,000)
Revaluation surplus 2,500,000
b. 9,000,000
X. Statement of Cash Flows

25. Which of the following is not an objective of cash flow statements?

a. To provide information to enable assessment of the ability of the entity to
generate future cash flows.
b. To provide information to enable assessment of the ability of the entity to pay
dividends and meet financial obligations
c. To provide information to enable assessment of the ability of the entity to
generate long term profitability.
d. To provide information to enable assessment of the ability of the entity to finance
changes in the nature and scope of activities.

d. To provide information to enable assessment of the ability of the entity to

finance changes in the nature and scope of activities.

26. How would cash received from the sale of shares in another company be classified in a
cash flow statement?
a. Operating activities c. Financing activities
b. Investing activities d. None of the above

b. Investing activities

XI. Error Correction

27. Jackson Companys statement included errors as follows:

Year Ending Inventory Depreciation

2015 200,000 overstated 50,000 understated
2016 300,000 understated 100,000 overstated

How much should retained earnings be retroactively adjusted at January 1, 2017?

a. Deduct P250,000 c. Add P350,000
b. Add P250,000 d. Add P150,000

Effect on Net Income Adjustment to retained earnings

Understated depreciation on
Overstated Deduct 50,000
2015
Understated ending Understated (due to
Add 300,000
inventory on 2016 overstated COGS)
Overstated depreciation on
Understated Add 100,000
2016
c. Net adjustment: Add 350,000
 28. A change in accounting policy from one that is not generally acceptable to one that is
generally acceptable should be treated as
a. An error and corrected by prior-period adjustment.
b. A change in accounting policy and the cumulative effect included in the net
income.
c. A change in accounting policy and prior period financial statements are related to
profit or loss.
d. A change in accounting policy and adjustments are made prospectively.

a. An error and corrected by prior-period adjustment.

XII. Accrual Basis and Cash Basis

29. Accrual basis profit is more useful for

a. Predicting the performance of an entity for the succeeding reporting period.
b. Determining the amount of income tax payable to the government.
c. Determining the amount that will be paid as interest to creditors and dividends to
shareholders.
d. Predicting the long term performance of an entity.

a. Predicting the performance of an entity for the succeeding reporting period.

30. When converting from cash basis to accrual basis of accounting, which of the following
adjustments should be made to cash collections from customers to arrive at the accrual
bases of sales?
a. Add beginning accounts receivable
b. Subtract beginning accounts receivable
c. Subtract ending account receivable
d. Add ending accounts receivable

d. Add ending accounts receivable

31. Sy Company reported sales revenue of P2,300,000 in its income statement for the year
ended December 31, 2016. Additional information are as follows:
12/31/2015 12/31/2016
Accounts receivable 2,000,000 2,600,000
Allowance for uncollectible accounts 70,000 120,000
During the year. Sy wrote off uncollectible accounts totalling P30,000. Under cash basis
of accounting, Sy would have reported 2016 sales of
a. P1,670,000 b. P1,620,000
 c. P1,720,000 d. None of the above
Accounts Receivable
Beg. bal. 2,000,000
Sales 2,300,000
Write-off 30,000
Collections a. 1,670,000
Ending bal. 2,600,000

32. Ferrer Company kept its records on a cash basis. At the end of 2016, the accountant
prepared the following cash basis income statement:

Revenue 1,910,000
Expenses 809,000
Net income 1,101,000

In preparing the income statement, the following amounts of accrued, prepaid and
unearned items were ignored at the end of 2015 and 2016:

2015 2016
Accrued revenue 91,000 73,000
Unearned revenue 66,000 108,000
Accrued expenses 49,000 65,000
Prepaid expenses 46,000 56,000

The net income on the accrual basis for 2016 should be:
a. P1,167,000
b. P1,067,000
c. P1,035,000
d. P1,103,000

Unadjusted net income 1,101,000

Decrease in accrued revenue (18,000)
Increase in unearned revenue (42,000)
*Increase in accrued expense (16,000)
**Increase in prepaid expenses 10,000
Adjusted net income c. 1,035,000

* Expense Account 16,000

Accrued Expense (Liability) 16,000
Thus, an increase in a trade current liability account is a deduction from net income of
cash basis to arrive at accrual basis net income

**Prepaid Expense (Asset) 10,000

Expense Account 10,000
Thus, an increase in trade current asset account is an addition to net income of cash
basis to arrive at accrual basis net income
XIII. Bonds Payable

33. On January 1, 2016. Madrid Company issued 9% bonds in the face amount of
P4,000,000, which mature on January 2, 2025. The bonds were issued for P3,756,000
to yield 10% resulting in bond discount of P244,000. Using the effective interest method,
compute for the unamortized bond discount if the interest is payable annually on
December 31.
a. P259,600 c. P15,600
b. P228,400 d. P375,600

Date (A) (B)

(C) (D)
Nominal Effective
Discount Carrying Value
Interest Interest
Amortization (Previous D +
(4,000,000 x (D x .10)
(B-A) C)
.09)
1/1/16 3,756,000
12/31/16 360,000 375,600 15,600 3,771,600

Unamotized bond discount = Face amount carrying value

= 4,000,000 3,771,600
= 228,400 (B)

34. On January 1, 2016, Delos Santos Company issued 3 year bonds with face value of
P5,000,000 at 98. Additionally, the entity paid bond issue cost of P140,000. The nominal
rate is 10% and the effective rate is 12%. The interest is payable annually on December
31. The entity used the effective interest method in amortizing bond discount and issue
cost.

What is the carrying amount of bonds payable on December 31, 2016?

a. P4,831,200
b. P4,688,800
c. P4,760,000
d. P4,943,200

Issue price (5,000,000 x .98) 4,900,000

Bond issue cost (140,000)
Carrying value, 1/1/16 4,760,000

Date (A) (B) (C) (D)

Nominal Effective Discount Carrying Value
Interest Interest Amortization (Previous D +
(5,000,000 x .1) (D x .12) (B-A) C)
1/1/16 4,760.000
12/31/16 500,000 571,200 71,200 a. 4,831,200
XIV. Intangibles

35. Which of the following are the essential characteristics of an intangible asset?
a. Identifiability, controlled by the enterprise, expected future economic benefits and
indefinite useful life.
b. Identifiiability, controlled by the enterprise, and indefinite useful life.
c. Identifiability, owned by the enterprise, expected economic benefits and definite
useful life.
d. Identifiability, controlled by the enterprise and expected future economic benefits

d. Identifiability, controlled by the enterprise and expected future economic benefits

36. Which of the following are considered as research and development activity?
i. Laboratory research aimed at discovery of new knowledge
ii. Design, construction and testing of pre-production prototypes and models
iii. Routine design of tools, jigs, molds and dies.
iv. Conceptual formulation and design of product or process alternatives.
a. i, ii, iii and iv
b. ii, iii and iv only
c. i, ii and iv only
d. i and iv only.

c. i, ii and iv only

XV. Biological Asset

Ingat Yemen company has a herd of 10 2 year old animals on January 1, 2015. One
animal aged 2.5 years was purchased on July 1, 2015 for P108, and one animal was
born on July 1, 2015. No animals were sold or disposed of during the year. The fair
value less cost of disposal per unit is as follows:
2 year old animal on January 1 100
2.5 year old animal on July 1 108
New born animal on July 1 70
2 year old animal on December 31 105
2.5 year old animal on December 31 111
New born animal on December 31 72
3 year old animal on December 31 120
0.5 year old animal on December 31 80

37. What is the fair value of the biological assets on December 31?
a. 1,400 c. 1,440
b. 1,320 d. 1,360
Fair value of 3 y/o animals on December (11x120) 1,320
Fair value of 0.5 y/o animal on December (1 x 80) 80
a. 1,400

38. What is the gain from change in fair value due to price change?
a. 292 c. 237
b. 222 d. 55

10 2 year old animals [(105-100) x 10] 50

1 2.5 year old animal [(111-108) x 1] 3
1 newborn on July [(72-70) x 1] 2
d. 55

XVI. Property, Plant and Equipment (Revaluation)

39. Queen Tela Company owned an equipment costing P5,200,00 with original residual
value of P400,000. The life of the asset is 10 years and was depreciated using the
straight line method.

The equipment has a replacement cost of P8,000,000 with residual value of P200,000.
The age of the asset is 4 years.

The appraisal of the equipment showed a total revised useful life of 12 years and the
entity decided to carry the equipment at revalued amount.

Before income tax, what amount should be initially reported as revaluation surplus?
a. 6,680,000 c. 2,600,000
b. 1,680,000 d. 1,600,000

Cost Replacement Cost Appreciation

Equipment 5,200,000 8,000,000 2,800,000
Residual value (200,000) (200,000) -
Depreciable amount 5,000,000 7,800,000 2,800,000
Accumulated
depreciation
(4/10 x 4,800,000) 1,920,000
(4/10 x 7,800,000) 3,120,000 1,200,000
Balance 3,080,000 4,680,000 d. 1,600,000

XVII. Diluted Earnings Per Share

40. Bane Company had earnings per share of P120 for the current year, before taking any
dilutive securities into consideration. No conversion or exercise of dilutive securities took
place during the year. However, possible conversion of convertible preference shares
would have reduced earnings per share to P119. The effect of possible exercise of
ordinary share warrants would have reduced earnings per share by an additional P2.
What amount should be reported as diluted earnings per share?
a. 121 c. 117
b. 120 d. 119

Basic earnings per share 120

Effect of possible conversion of preference shares (1)
Effect of possible exercise of warrants (2)
Diluted earnings per share c. 117