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EASY
AVERAGE
4. At year-end, Jhema Company reported cash and cash equivalents, which is comprised of the
following:
a. P5,000,000
b. P4,850,000
c. P7,000,000
d. P5,300,000
5. According to PAS 1, which of the following situations will require a submission of a third balance
sheet of a reporting entity as of the beginning of the earliest traceable accounting period.
I. An entity changes its method of valuation of inventory from FIFO to Weighted Average
method
II. When an entity makes a chage in a depreciation method has a material effect on current
and future years’ operations.
The bonds are convertible into ordinary shares in the ratio of 5 ordinary shares for each ₱1,000
bond. The income tax rate is 35%. What is the diluted earnings per share?
a. ₱133.90
b. ₱133.80
c. ₱132.90
d. ₱147.00
8. In which of the following instances in a commercial entity where there is a recognition of
revenue before sale?
a. A piglet is born.
b. Goods are sold in a “layaway sale”
c. Cash is received for future delivery of merchandise
d. A machinery is sold in an installment sale.
9. On January 1, 2018, Jiangsu Inc., issued ₱2,000,000 of 16% bonds at 102. Each ₱1,000 bonds
has one detachable warrant that allows the holder to purchase ten shares of ₱50 par value stock
at ₱70 per share. The bonds would have sold at 99 without warrants.
Assuming that all the warrants were exercised at a time when the market value of the stock is
₱100, how much is the total net effect on equity upon exercise of the warrants?
a. ₱1,350,000
b. ₱1,300,000
c. ₱1,400,000
d. ₱1,450,000
10. In September 2015, Hainan Corp. made a distribution of one right for each of its 120,000 shares
of outstanding ordinary share. Each right was exercisable for the purchase of 1/100 a share of
Hainan’s ₱50 variable rate preference share at an exercise price of ₱80 per share. On
March 22, 2017, none of the rights had been exercised, and Hainan redeemed them by paying
each stockholder ₱0.10 per right. As a result of the redemption, determine the decrease in
Hainan’s retained earnings.
a. ₱10,000
b. ₱10,500
c. ₱11,000
d. ₱12,000
DIFFICULT
1. On July 1, 2017, Shandong Project (a calendar year corporation) had capitalized cost of
₱3,600,000 for a new computer software product with an economic life of 3 years. Sales from
July 1 to December 31, 2017 amounted to ₱2,000,000. It is expected that sales of software
during its three-year economic life would total ₱10,000,000. The pattern of sales is established as
₱6,000,000 in the first year, ₱2,500,000 in the second year and ₱3,500,000 in the third year. On
December 31, 2017, the software had a fair value of ₱3,000,000 and cost to sell of ₱150,000. At
how much should the computer software be reported a December 31, 2017?
a. ₱2,880,000
b. ₱2,780,000
c. ₱2,850,000
d. ₱2,950,000
2. Sichuan Company had the following information:
If Guangdong will purchase the Sichuan Company on January 1, 2018, determine the purchase
price of Sichuan Company.
a. ₱2,915,200
b. ₱2,916,200
c. ₱2,915,250
d. ₱2,916,250
3. Which of the following is true about accounts payable?
I. Accounts payable should not be reported at their present value.
II. When accounts payable are recorded at the net amount, a purchase discount account will be
used.
III. When accounts payable are recorded at the gross amount, a purchase discount lost account
will be used.
a. Statement I
b. Statement II
c. Statement III
d. Both II and III are true.
4. Jaime Company included the following in inventory at year-end:
a. P1,360,000
b. P1,460,000
c. P1,470,000
d. P1,370,000
5. Which of the following statements regarding derivatives is not true?
a. The derivatives should be recognized as assets and liabilities.
b. The derivatives should be reported at fair value.
c. Gains and Losses resulting from speculation should be deferred.
d. Gains and Losses from fair value hedge are reported immediately.
6. Which of the following statements is true about development cost incurred by a dot-com
company?
a. Development Costs by a dot-com company will never be capitalized.
b. Development cost is always deferred and charged against future revenue.
c. Development cost can be recognized as an intangible asset in very restrictive situations,
in case of a dot-com company, only half of the amount that it incurred can be capitalized.
d. Development cost is recorded as a component of other comprehensive income even in
the case of a dot-com company.
7. On December 31, 2016, Beijing Company signed a 5-year non-cancellable lease agreement to
lease a storage building from China Company. The following information pertains to the lease
agreement:
The agreement requires rental payments of ₱500,000 beginning on December 31, 2014.
The building has an estimated economic life of 12 years, with guaranteed residual value
of ₱100,000. Beijing depreciates similar buildings on a straight-line method
At the termination of the lease, the building reverts to China Company
The lessor’s implicit rate is 12% which is known by Beijing Company.
How much is the depreciation expense for the year 2017? (Round to the nearest hundred)
a. P395,080
b. P395,200
c. P395,000
d. P395,100
8. An entity owned 100% of another entity’s preference shares and 20% of ordinary shares. The
investee’s share capital outstanding on December 31, 2017 included P5,000,000 of 10%
cumulative preference shares and P10,000,000 of ordinary shares.
The investee reported net income of P8,000,000 for 2017. No dividend was declared for both
preference and ordinary shares in 2017. What amount should be reported as investment
income for 2017?
a. 1,500,000
b. 1,550,000
c. 1,650,000
d. 1,700,000
9. An entity a major winery, begins construction of a new facility in Cavite. The following costs are
incurred in conjunction with the start-up activities of the new facility:
On the other hand, if the market price on July 1, 2018 is less than P50, the entity will pay the
difference to the bank.
The market price per kilo of the deluxe fish is P55 on December 31, 2017 and P52 on July 1,
2018. What is the derivative asset or liability on December 31, 2017?
a. P250,000 asset
b. P250,000 liability
c. P300,000 asset
d. P300,000 liability