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FINAL EXAM FAR

INTEG REVIEW MAY 2020 BATCH

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer
for each item by Shading the corresponding letter of your choice on the answer sheet provided. STRICTLY
NO ERASURES ALLOWED. Use Pencil No. 2 only.
1. Which of the following statements is(are) false?
I. Financial accounting is a social science that can be influenced by changes in
the legal, political, social and economic environment.
II. General purpose financial statements must be prepared by a certified public
accountant.
III. The stewardship ability of management can be inferred from the information
presented in the current set of general purpose financial statements per PAS
No. 1, Presentation of Financial Statements.
IV. Not all significant information useful to users can be displayed on the face of
the basic financial statements.
A. Statement I only C. Statements II and III
only
B. Statement II only D. I, II and IV only

2. Which of the following will meet the definition of a small and medium-sized entity?
A. J&J Foodhaus retails food. It is in the process of issuing securities in a
domestic stock exchange.
B. A large private unlisted commercial bank B
C. A small, private, unlisted manufacturer
D. A manufacturing company with total assets of P600 million and total
liabilities of P 200 million

3. If an entity uses the modified cash basis of accounting, the modifications from the
accrual basis should have substantial support which requires that
A. The modifications must be the same as those required by a regulatory body.
B. The modifications must be the same as GAAP and not illogical.
C. No modifications are allowed.
D. The financial statements have only minor modifications from GAAP.

4. Which of the following best describes the double-entry concept?

A. Only two accounts are affected by each recording of accountable event.
B. The debit – credit convention must be used.
C. For every increase in asset, there must be an increase in liability or revenue.
D. Events and transactions are analyzed and recorded using the principle of
duality and equality

5. Which of the following entities are required to apply the PFRS for SMEs in
Philippine financial reporting?
A. APC Enterprises with total assets of P 347M and total liabilities of P 284 M
B. ABE Insurance Company with total assets of P 340 M and total liabilities of P
195 M
C. ABC Noverlty Shoppe with total assets of P 30 M and total liabilities of P5 M
and submits financial statements to creditors, suppliers, and regulatory
bodies.
 FINAL EXAMS Page 2
D. Rural Bank of Capistrano, Tarlac, with total assets of P300M and total
liabilities of P120M

6. Which of the following statements is not a reason for preparing end-of-period

adjusting entries?
A. Some transaction extend beyond one accounting period.
B. They help to properly measure the period’s net income or net loss
C. Mixed accounts should be split into their real and nominal elements.
D. Errors discovered at the end of the period should be corrected in order to
generate more reliable financial reports

7. Which of the following statements about “other comprehensive income” section of

the Statement of Comprehensive income (SCI) is /are false?
I. The amount of revaluation surplus reported in the other comprehensive
income section of the SCI must be the same as the amount of revaluation
surplus ending balance in the general ledger
II. Foreign exchange gains and losses arising from purchase of property and
equipment should be reported under the other comprehensive income
section of the SCI
III. Unrealized gain or loss on change in value of Investment Property should
be presented in other comprehensive income section of the SCI
IV. Only the current year’s unrealized gain or loss on change in value of
Financial Assets through Equity should be shown under other
comprehensive income section of the Statement of Comprehensive
Income
A. I and II only C. I, II and III only
B. III and IV only D. I, II, III and I

8. Which of the following statements about the concept of measurement or valuation

in Accounting is (are) True?
I. Under current GAAP, as a general rule, the primary basis of
measurement of assets upon acquisition is historical cost.
II. There are some instances when assets are initially measured on the
basis of fair value
III. The final valuation of assets and liabilities in the balance sheet are a
mixture of costs and values
IV. Under no circumstances is price-level accounting acceptable as an
alternative measurement in accounting in present-day GAAP
A. I and II only C. I, II, and III only
B. I, II and IV only D. I, II, III and IV

9. The International Accounting Standards Board’s conceptual framework includes a

cost-benefit constraint. Which of the following best describes the cost-benefit
constraint?
a. Costs of providing financial information are not always evident or
measurable, but must be considered.
b. The benefits of the information must be greater than the costs of providing
it.
c. Financial information should be free from cost to users of the information.
d. All of the choices are correct.

10. Which of the following statements about measurement in accounting is (are)

true?
I. All assets must be initially recognized at historical cost, but the final
valuation can be a mixture of costs and other values.
II. Holding non-monetary items in a period of inflation will result in a
purchasing power gain or loss.
III. According to PAS 29. Hyper-inflationary Economy, only non-monetary
items are restated to current price – level amounts in the balance sheet
 FINAL EXAMS Page 3
using the national price index sourced from Central Bank of the
Philippines
A. Only I is true C. I and III are true
B. Only III is true D. All statements are true

11. The following statements relate to liabilities. Which statement is (are) true?
I. Liabilities may be measured by estimates of a definitive character when
the amount of the liability cannot be measured precisely
II. Long-term monetary liabilities should be stated in the balance sheet at
their present (discounted) values
III. Under current GAAP, there are instances when a decrease in liability is
matched with an increase in revenue.
A. I and II only B. II and III only C. I and III only D.
I, II and III

12. Which of the following statements about Equity is (are) correct?

I. Since equity is the excess of assets over liabilities, equity cannot be
measured separately from the other elements of the financial position.
II. Equity has no specific maturity date except upon liquidation.
III. Income-related transactions as well as transactions such as revaluation
surplus and unrealized holding gains and losses automatically
affect equity.
IV. Under rare or extraordinary circumstances, a gain or loss may be
recognized by an entity on transactions with its owner/s
A. I and II only C. I, II and III only
B. I and IV only D. I, II, III and IV

13. The Citi Company’s financial year end was October 31, 2015 Between the date
on which the financial statements for this year were completed and the date on
which they were due to be authorized for issue a number of events took place.
Which TWO of the following four events should be classified as non-adjusting
events requiring disclosure only?
[1] The Citi Company announced the discontinuation of an assembly
operation
[2] The Citi Company entered into an agreement to purchase the freehold of
its currently
leased office buildings
[3] The Citi Company received P 150,000 in respect of an insurance claim
measured in
the October 31 2015 financial statements at P 90,000.
[4] A mistake was discovered in the calculation of the allowance for
uncollectible trade receivables leading to it being understated by P
220,000 in the October 31, 2015 financial statements
A. (1) and (2) C. (3) and (4)
B. (1) and (3) D. (2) and (3)

14. An entity operates a chemical plant and has a published policy of making good
any damage caused to the environment. Which of the following would give rise to
a provision?
A. It is likely that a chemical spill which would result to pay penalty will occur
next year
B. A chemical spill from a chemical plant has caused harm to the surrounding
wildlife
C. Research suggests that there is a possibility that the entity’s action may
cause damage to surrounding wildlife
D. The government has a plan for a law requiring all environment damage to be
rectified

15. Under PAS 39, what is the principle for recognition of financial asset?
 FINAL EXAMS Page 4
A. A financial asset is recognized when it is probable that future economic
benefits will flow to the entity and the cost or value of the instrument can be
measured reliably.
B. A financial asset is recognized when the entity obtains control of the
instrument.
C. A financial asset is recognized when the entity becomes a party to the
contractual provisions of the instrument.
D. A financial asset is recognized when the entity obtains the risks and rewards
of ownership of the financial asset and has the ability to dispose the financial
asset.

16. In a sale-leaseback transaction where none of the four leasing criteria is

satisfied, which of the following statements is false?
A. The seller-lessee derecognizes the asset.
B. The purchaser-lessor records a gain.
C. The seller-lessee records the lease as an operating lease.
D. The purchaser-lessor recognizes an asset.

17. In accounting for a defined benefit plan

A. An appropriate funding pattern must be established to ensure that enough
money would be available at retirement to meet the benefits promised.
B. The employer’s responsibility is simply to make a contribution each year
based on the formula established in the plan.
C. The expense recognized each period is equal to the cash contribution.
D. The benefit liability is determined based upon current salary levels.

18. Which measure requires the use of future salaries in the computation of
pension obligation?
A. Vested benefit obligation C. Projected benefit obligation
B. Accumulated benefit obligation D. Restructured benefit obligation

19. Which feature of preference shares makes the security more like debt than an
equity instrument?
A. Participating C. Redeemable
B. Voting D. Noncumulative

**During 2016, Joyce Ann Company introduced a new product carrying a two-year
warranty against defects. The estimated warranty costs related to peso sales are
2% within 12 months following sale and 4% in the second l2 months following sale.
Sales are P6,000,000 for 2016 and P10,000,000 for 2017. Actual expenditures are
P90,000 for 2016 and P300,000 for 2017.
20. What is the warranty expense for 2017?
A. 300,000 C. 390,000
B. 600,000 D. 960,000

* Adrianne Jean Company offers three payment plans on twelve-month contracts.

Information on the three plans and the number of children enrolled in each plan
for the September 1, 2016 to August 31, 2017 contract year follows:
Initial payment per Monthly fee per Number of
child child children
Plan
A 50,000 - 15
Plan
B 20,000 3,000 12
Plan
C 5,000 9
The entity received P990,000 0 initial payments on September 1, 2016 and
P324,000 of monthly fees during the period September 1, 2016 to December
31, 2016.
 FINAL EXAMS Page 5
21. On December 31, 2015, what amount should be reported as deferred revenue
A. 330,000 C. 660,000
B. 438,000 D. 990,000
22. What is the revenue earned for 2016?
A. 324,000 C. 330,000
B. 984,000 D. 654,000

23. Melizza Angela Company decided to offer a bonus to the branch manager of
25% of income over P2,000,000 earned by the branch. The income for the branch
was P3,500,000 before tax and before bonus for the current year. The bonus is
computed on income in excess of P2,000,000 after deducting the bonus but before
deducting tax. What is the amount of bonus?
A. 700,000 C. 300,000
B. 400,000 D. 375,000

24. During 2016, Jucan Lucas Company experienced financial difficulties and is
likely to default on a P5,000,000, 15% three-year note payable to bank dated
January 1, 2014. On December 31, 2016, the bank agreed to settle the note and
unpaid interest of P750,000 for P4,000,000 cash payable on January 31, 2017.
What amount should be reported as gain from extinguishment of debt for 2016?
A. 1,750,000 C. 2.250,000
B. 1,000,000 D. 0

25. Cindy Company reported the following information on December 31, 2016:
11% registered debentures, callable in 2015 due in 700,00
2030 0
12% collateral trust bonds, 600,00
convertible beginning in 2020 due in 2025 0
10% subordinated debentures P30,000 300,00
maturing annually beginning in 2017 0
What is the total amount of term bonds?
A. 600,000 C. 1,000,000
B. 700,000 D. 1,300,000

26. Angelito Company provided the following share transaction for the current
year.
January 1 Shares outstanding 44,000
February 1 Issued for cash 56,000
Acquired treasury
May 1 shares 25,000
August 1 25% stock dividend
Resold treasury
September 1 shares 10,000
Issued 3 for 1 share
November 1 split

What is the weighted average number of shares for EPS computation?

A. 305,000 C. 103,750
B. 307,500 D. 311,250

27. Corral Company purchased a P2,000,000, 8%, five-year note that required five
equal annual year-end payments of P500,900. The note was discounted to yield
9%. At the date purchase, the entity recorded the note at the present value of
P1,948,500. The entity did not elect the fair value option. What is the total interest
revenue earned on this note?
A. 504,500 C. 800,000
B. 556,000 D. 900,000
 FINAL EXAMS Page 6
**Lorelyn Mae Company used the direct method to prepare the statement of cash
flows.
2017 2016
Cash 35,000 32,000
Accounts receivable 33,000 30,000
Inventory 31,000 47,000
Property, plant and equipment 100,000 95,000
Unamortized bond discount 4,500 5,000
Cost of goods sold 250,000 380,000
Selling expenses 414,000 172,000
General and administrative
expenses 137,000 151,300
Interest expense 4,300 2,600
Income tax expense 20,400 61,200
756,700 976,100

Allowance for doubtful accounts 1,300 1,100

Accumulated depreciation 16,500 15,000
Trade accounts payable 25,000 17,500
Income tax payable 21,000 27,100
Deferred tax liability 5,300 4,600
8% callable bonds payable 45,000 20,000
Share capital 50,000 40,000
Share premium 9,100 7,500
Retained earnings 44,700 64,600
Sales 538,800 778,700
756,700 976,100
The entity purchased P5,000 n equipment during 2017. The entity allocated one third
of the depreciation expense to selling expenses and the remainder to general and
administrative expenses. There was no writeoff of accounts receivable during 2017.
What account should be reported in the statement of cash flows for the following:
28. Cash collection from customers?
A. 514,800 C. 536,000
B. 541,600 D. 535,800
29. Cash paid for goods to be sold?
A. 258,500 C. 242,500
B. 257,500 D. 226,500
30. Cash paid for interest?
A. 4,000 C. 3,800
B. 4,300 D. 1,700
31. Cash paid for income taxes?
A. 25,800 C. 19,700
B. 20,400 D. 15,000

32. Donna Faye Rose Company reported that remuneration and other payments
made to the chief executive officer during the current year were:
Annual salary 2,000,000
Share options and other share-based payments 1,000,000
Contributions to retirement benefit plan 500,000
Reimbursement of travel expenses for business
trips 1,200,000
What total amount should be disclosed as “compensation” to key management
personnel?
A. 3,500,000 C. 3,000,000
B. 4,700,000 D. 2,500,000

33. An appropriate basis for recognizing an asset is when a particular enterprise

 FINAL EXAMS Page 7
A.Acquires the right to utilize and control access to the asset’s benefits
B.Acquires legal title to the asset
C.Obtains physical possession of the asset
D.Makes a cash disbursement for the asset
34. Marie Kamille Company had used the FIFO method of inventory valuation since
it began operations in 2013. The entity decided to change to the weighted average
method for determining inventory cost at the beginning of 2016. The tax rate is
30%. The following schedule shows year-end inventory balances under the FIFO
and average method.
Year FIFO Weighted average
2013 4,500,000 5,400,000
2014 7,800,000 7,100,000
2015 8,300,000 7,800,000
What amount should be reported in the statement of retained earnings for 2016 as
the cumulative effect of the change in accounting policy?
A. 350,000 decrease C. 350,000 increase
B. 210,000 decrease D. 210,000 increase

35. Basilio Company was incorporated on January 1, 2013. In preparing the

financial statements for the year ended December 31, 2015, the entity used the
following original cost and useful life for the property plant and equipment:

Original cost Useful life

Building 15,000,000 15 years
Machinery 10,500,000 10 years
Furniture 3,500,000 7 years
On January 1, 2016, the entity determined that the remaining useful life is 10
years for the building, 7 years for the machinery and 5 years for the furniture. The
entity used the straight line method of depreciation with no residual value. What is
the total depreciation for 2016?
A. 2,650,000 C. 2,550,000
B. 3,700,000 D. 3,500,000

36. Delos Santos Company used the retail inventory method to estimate inventory.
Cost Retail
Beginning inventory 700,000 1,000,000
4,100,00
Purchases 0 6,300,000
Net markups 700,000
Net markdowns 500,000
Sales 6,600,000
Estimated normal shoplifting
losses 200,000 Under the
conventional
retail method, what is the estimated cost of ending inventory?
A. 576,000 C. 420,000
B. 540,000 D. 448,000

37. On December 31, 2016, a storm surge damage the warehouse of Gumaro
Company. The entire inventory and many accounting records were completely
destroyed.
Inventory - January 1 1,500,000
Purchases during the current year 5,500,000
Cash sales during the current year 900,000
Collections of accounts receivable 8,400,000
Accounts receivable - December 31 1,100,000
Accounts receivable - January 1 700,000
Gross profit rate on sales 40%
 FINAL EXAMS Page 8
What is the inventory loss from storm surge?
A. 1,180,000 C. 2,700,000
B. 1,720,000 D. 2,260,000

38. Pardo Company had sales of P1,000,000 during December 2016. Experience
has shown that merchandise equaling 7% for sales will be returned within thirty
days and an additional 3% will be returned within ninety days. Retuned
merchandise is readily resalable in addition, merchandise equaling 15% of sales
will be exchanged for merchandise of equal or greater value. What amount should
be reported for net sales for the month of December 2016?
A. 900,000 C. 780,000
B. 850,000 D. 750,000
39. On December 31, 2016, Ravina Company appropriately reported a P100,000
unrealized loss. There was no change during 2017 in the composition of the
portfolio of marketable equity securities held as financial asset at fair value
through other comprehensive income.
Market value December 31,
Security Cost 2017
A 1,200,000 1,300,000
B 900,000 500,000
What C 1,600,000 1,500,000 amount of
loss on these securities should be included in the statement of comprehensive
income for the year ended December 31, 2017 as component of other
comprehensive income?
A. 400,000 C. 100,000
B. 300,000 D. 0

**Silao Company sold loans with P2,200 fair value and carrying amount of P2,000.
The entity obtained an option to purchase similar loans and assumed a recourse
obligation to repurchase loans. The fair values are quoted.
Cash proceeds 2,100
Interest rate swap 140
Call option 80
Recourse obligation (120)

40. What is the gain (loss) on the sale?

A. 320 B. 200 C. (100) D. 120

41. Tianchon Company incurred the following research and development costs
during the current year:
Equipment purchased for current and future
projects 100,000
Equipment purchased for current and future
projects 200,000
Research and development salaries of current
projects 400,000
Legal fees to obtain patent 50,000
Material and labor costs for prototype product 600,000
The equipment has a five-years useful life and is depreciated using the straight
line method. What amount should be recognized as research and development
expense for current year?
A. 1,220,000 C. 1,350,000
B. 1,000,000 D. 450,000

42. On December 31, 2016, Viray Company showed the following current assets:
Cash 500,000
2,500,00
Accounts receivable 0
Inventory 2,000,00
 FINAL EXAMS Page 9
0
Prepaid expenses 100,000
5,100,00
Total current assets 0
Cash on hand including customers postdated check of
P20,000 and employee IOU of
P10,000 130,000
Cash on bank per bank statement (outstanding checks on
December 31, 2016, P70,000) 370,000
Total cash 500,000
Customers' debit balances, net of customer deposit of 1,900,00
P50,000 0
(150,000
Allowance for doubtful accounts )
Sale price of goods invoiced to customers at 150% of cost
on December 29, 2016 but delivered on January 5, 2017
and excluded from reported inventory 750,000
2,500,00
Total accounts receivable 0
What is the adjusted cash balance?
A. 500,000 C. 430,000
B. 470,000 D. 400,000

43. Under the accrual basis, rental income of Italy Company for the calendar year
2017 is P600,000. Additional information regarding rental income are:
Unearned rental income, January 1, 2017 P100,000
Unearned rental income, December 31, 2017 150,000
Accrued rental income, January 1, 2017 60,000
Accrued rental income, December 31, 2017 80,000
Under the cash basis, how much rental income should be reported?
a. 490,000 b. 570,000 c. 630,000 d. 710,000

44. During 2014, Vanpelt Co. introduced a new line of machines that carry a three-
year warranty against manufacturer’s defects. Based on industry experience,
warranty costs are estimated at 2% sales in the year of sale 4% in the year after
sale, 6% in the second year after sale. Sales and actual warranty expenditures for
the first three-year period were as follows:
Sales Actual Warranty
Expenditures
2014 P 600,000 P 9,000
2015 1,500,000 45,000
2016 2,100,000 135,000
P4,200,000 P 189,000
What amount should Vanpelt report as a liability at December 31, 2016?
a. None b. P15,000
c. P204,000 d. P315,000

45. An entity reported the following shareholders’ equity at the beginning of the
current year:
Share capital, P10 par 5,000,000
Share premium 2,000,000
Retained earnings 1,500,000
During the current year, the entity had the following share transactions:
 Acquired 20,000 treasury shares for P1,000,000
 Sold 15,000 treasury shares at P60 per share
 Sold the remaining treasury shares at P45 per share
What amount should be reported as share premium at year-end?
A. 2,125,000 B. 2,150,000 C. 2,000,000 D. 1,975,000
FINAL EXAMS Page 10

End of examination