LEVEL 2 ONLINE QUIZ (ANSWERS)

1. How would you describe a fixed cost?

a. It may change in total where such change is unrelated to changes in production
b. It may change in total where such change is related to changes in production
c. It is constant per unit of change in production
d. It may change in total where such change depends on production within the relevant ranges

2. .In a job cost system, manufacturing overhead is

i. An indirect cost of jobs
ii. A necessary element in production
a. I only
b. II only
c. Both I and II
d. Neither I nor II

3. .A direct labor overtime premium should be charged to a specific job when the overtime is caused by the
a. Increased overall level of activity
b. Customer’s requirement for early completion of job
c. Management’s failure to include the job in the production schedule
d. Management’s requirement that the job be completed before the annual factory vacation closure

4. At the end of the last fiscal year, Hanks Company had the following account balance.

Over applied overhead 1,000

Cost of goods sold 980,000
Work-in-process inventory 38,000
Finished goods inventory 82,000
The most common treatment of the over applied overhead would be to
a. Prorate it between work-in-process inventory and finished goods inventory
b. Report it as miscellaneous operating revenue on the income statement.
c. Prorate it among work-in-process inventory, finished goods inventory and cost of goods sold.
d. Credit it to cost goods sold.
Solution: While the theoretically preferable treatment is to allocate over-applied overhead among cost of goods sold , work-in-
process, and finished goods inventory, the common practice is to credit cost of goods sold, thereby fully recognizing the over-
applied amount in the current period. Here, the amount involved is not significant and only cost of goods sold would normally be
adjusted.

5. Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows:

  T-shirts Sweatshirts
Production and sales volume 60,000 units 35,000 units
Selling price 16.00 29.00
Direct material 2.00 5.00
Direct labor 4.50 7.20
Manufacturing overhead 2.00 3.00
Gross profit 7.50 13.80
Selling and administrative 4.00 7.00
Operating profit 3.50 6.80
     

Tiger Prides managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost
information:

Activity Activity Cost Activity-cost driver

Supervision P100,920 Direct labor hours (DLH)
Inspection P124,000 Inspections
Activities demanded
T-Shirts Sweatshirts
0.75 DLH/unit 1.2 DLH/unit
45,000 DLHs 42,000 DLHs
60,000 inspections 17,500 inspections
 Under the revised ABC system, supervision costs allocated to Sweatshirts will be:
a. 100,920
b. 100,800
c. 48,720
d. None of these answers are correct.
Solution: P100,920 / (45,000 dlh + 42,000 dlh) = P1.16 per dlh x 42,000 dlh = P48,720

Use the following information for items 6-8

During 2017, P 361,920 of raw materials were purchased. Operating costs data and inventory account balances for 2017 follow:
Direct Labor P 99,085 Repairs and Maintenance (Factory Equipment) P 14,980
Plant Supervision 42,500 Selling and Administrative Expenses 76,480
Indirect Labor 126,750 Raw Materials Inventory, Beginning 26,490
Factory Insurance 8,100 Work-in-process Inventory, Beginning 101,640
Factory Utilities 29,220 Finished Goods Inventory, Beginning 148,290
Depreciation - Factory Building 46,200 Raw Materials Inventory, Ending 24,910
Depreciation - Factory Equipment 62,800 Work-in-process Inventory, Ending 100,400
Manufacturing Supplies 9,460 Finished Goods Inventory, Ending 141,100

6. The cost of factory overhead amounts to

a. P 363,500
b. P 340,010
c. P 297,510
d. P 416,490
Solution: 42,500+126,750+8,100+29,220+46,200+62,800+9,460+14,980= 340,010

7. The total manufacturing costs totalled to

a. P 773,375
b. P 760,085
c. P 802,595
d. P 879,075
Solution: 363,500+99,085+340,010= 802,595

8. The cost of goods sold amounted to

a. P 820,485
b. P 807,865
c. P 811,475
d. P 811,025
Solution:
Mat, beg 26,940
Purchases 361,920
CGAU 388,410
Mat, end (24,910)
DM 363,500
DL 99,085
FOH 340,010
MC 802,595
WiP, beg 101,640
CGPP 904,275
Wip, end (100,400)
CGM 803,835
FG, beg 148,290
CGAS 952,125
FG, end (141,100)
COGS 811,025

9. Which situation indicates a net loss on the income statement?

a. Total debits exceeds total credits
b. Total debits equal total credits
c. Total credits exceeds total debits
d. None of these

10. Failure to record adjusting entries at the end of the reporting period would affect the company’s
a. Income statement
b. Statement of Financial Position
c. Statement of Changes in Owner’s Equity
 d. All of these

11. All adjusting entries involves

a. An asset account and a liability account
b. An asset account and an equity account
c. An asset and a contra asset account
d. A balance sheet and an income statement account

12. Under the asset method of recording prepayment, the amount of adjustment at the end of the period represents the
a. Used portion of the prepaid expense
b. Unused portion of the prepaid expense
c. Earned portion of the prepaid expense
d. The unearned portion of the prepaid expense

13. Adjusting entries are made to ensure that:

a. Expenses are recognized in the period in which they are incurred
b. Revenues are recorded in the period in which they are earned
c. Balance sheet and income statement accounts have correct balances at the end of an accounting period
d. All of the above

14. The AXN Partnership is being dissolved. All liabilities have been paid and the remaining assets are being realized gradually.
The equity of the partners are as follows:

Partners’ Accounts Loans to (from) Partnership Profit and Loss Ratio

A P 24,000 6,000 3
X 36,000 -- 3
N 60,000 (10,000) 4

The second cash payment to any Partner(s) under a program of priorities shall be made thus:
a. To N, P 2,000
b. To X, P 6,000
c. To N, P 8,000
d. To X, P 6,000 & N, P 8,000
Solution:
INTEREST PAYMENTS
A X N A X N Total
Balances before
realization
Loans P 6,000 (P 10,000)
Capital 24,000 P 36,000 60,000
Total Interests P 30,000 P 36,000 P 50,000
Divided by: P & L Ratio 3/10 3/10 4/10
Loss Absorption Ability P 100,000 P 120,000 P 125,000
Priority I -- -- (5,000) P 2,000 P 2,000
P 100,000 P 120,000 P 120,000
Priority II -- (20,000) (20,000) P 6,000 8,000 14,000
P 100,000 P 100,000 P 100,000 P0 P 6,000 P 10,000 P 16,000

15. Gonzales Trade, Inc. has given you the following outstanding shares as of the current year:
 10,000 shares of 8% P 45 par preference shares
 100,000 shares of P 6 par ordinary shares

Two years’ preference dividend are in arrears. Gonzales Trade declared P 250,000 dividends. If the preference share is
cumulative and participating, how much dividend per share is given to ordinary shareholders?
a. P 2.14
b. P 1.42
c. P 1.01714
d. P 1.42857
Solution: rounded off to the nearest peso
Preference Shares Ordinary Shares
Dividends in Arrears P 72,000 (2*10,000*45*.08)
Dividends 36,000 (10,000*45*.08)
Participation P 48,000 (100,00*6*.08)
Balance for participation 40,286 (94,000*450,000/1,050,000) 53, 714 (94,000*600,000/1,050,000)
Total P 148,286 P 101,714
Dividend per share P 14.8286 P 1.01714
16. The Partnership life cycle, in order, is
a. Formation, Operation, Dissolution, Liquidation
b. Formation, Operation, Liquidation, Dissolution
c. Operation, Liquidation, Formation, Liquidation
d. Operation, Formation, Liquidation, Dissolution

17. Codilla Corporation has authorized shares of 200,000 with par value of P 250/share. As of the date of incorporation 50,000
shares were subscribed at P 275/share. How much should be reported to the Securities and Exchange Commission?
a. P 3,437,500
b. P 3,125,000
c. P 13,750,000
d. P 12,500,000
Solution: (200,000*25%*25%*)
18. Lilo and Stitch are partners with beginning capital balances of P 300,000 and P 200,000 respectively. They agreed to divide
profits as follows: 5% interest on their beginning capital, weekly salaries of P 800 and P 850 respectively, and the remainder
in the ratio of 3:5. net income for the year was P 100,000. what should be the share of Lilio and Stitch, respectively, in the
Income?
a. P 60,650 and P 60,950
b. P 50,120 and P 49,880
c. P 49,350 and P 44,050
d. P 52,550 and P 47,450
Solution:
Lilo Stitch Total
Interest P 15,000 (300,000*5%) P 10,000 (200,000*5%) P 25,000
Salaries 41,600 (800*52) 44,200 (850*52) 85,800
Excess (4,050) [10,800*3/8] (6,750) [10,800*5/8] (10,800)
Total 52,550 47,450 100,000

19. The following are the events affecting the capital balances of Benett, Wendell, and Gabriel from its formation on January 1,
2017 until the year- end of the same year:
Benett Wendell Gabriel
January 31 P 150,000 P 120,000 P 201,000
March 1 65,000
June 30 (10,000) (10,000) (20,000)
July 1 (35,000) 60,000
Sept 1 75,000 (25,000)
Oct 31 50,000
Nov 1 35,000 50,000

What is the average capital of Benett, Wendell, and Gabriel, respectively?

a. P 250,000; P 190,000; P 266,000
b. P 166,250; P 150,000; P 204,250
c. P 178,750; P 150,000; P 201,750
d. P 178,750; P 145,000; P266,000

20. The following information relates to Maxine Corp. For the year ended 30 June 2017.
Sales revenue P 450,000
Opening balance of trade receivables (net of allowance) 100,000
Closing balance of trade receivables (net of allowance) 132,500
Doubtful debts expense 5,000
Increase in allowance for doubtful debts 2,000

Bad debts are written off aginst the allowance for doubtful debts. What is the amount of cash collected from customers
during the year ended 30 June 2017?
a. P 412,500
b. P 418,500
c. P 481,500
d. P 487,500
Solution:
Accounts Receivable, opening P 100,000
Sales 450,000
Accounts Receivable, closing (132,500+2,000) (134,500)
Accounts written-off (5,000-2,000) (3,000)
Collection P 412,500
21. The following data pertaining to the cash transactions and bank account of Mandirigma Company for the month of May are
available to you:
Cash balance, per bank statement, 5/31 31,948
Bank service charge for May 109
Debit memo for the cost of printed checks delivered by the bank 125
Outstanding checks, May 31 6,728
Deposit of May 30 not recorded by bank until June 1 4,880
Proceeds from a customer’s promissory note, including interest of P 100 8,100
Proceeds of a bank loan of May 30, net of interest of P 300 5,700
Check No. 2772 issued to a supplier entered in the accounting records as P 2,100 but
deducted in the bank statement at an erroneous amount of 1,200
Stolen check lacking an authorized signature, deducted from Mandirigma’s account by
the bank in error 800
Customer’s check returned by the bank marked NSF; no entry has been made in the
accounting records to record the returned check 760

What is the cash balance per books at May 31?

a. P 17,194
b. P 18,994
c. P 30,000
d. P 42,806
Solution:
Cash balance per bank statement, 5/31 P 31,948
Bank service charge for May 109
Debit memo for the cost of printed checks delivered by the bank 125
Outstanding checks, 5/31 (6,728)
Deposit on May 30 not recorded by bank until May 1 4,880
Proceeds of a bank loan of May 30, net of interest of P 300 (5,700)
Proceeds from a customer’s promissory note, including interest of P 100 (8,100)
Check no. 2772 (2,100-1,200) (900)
Stolen check lacking an authorized signature 800
Custimer’s check returned by the bank marked NSF 760
Cash balance per book, 5/31 P 17,194

22. The following data have been accumulated for Grace Mfg. Inc.
Raw materials - beginning inventory (Jan. 1, 2017) 10,000 units @P 6.00
Purchases 8,500 units @P 7.00
11,000 units @P 7.50

Transferred 21,500 untis of raw materials to work in process.

Work in Process - beginning inventory (Jan. 1, 2017) 5,600 units @P 13.50
Direct labor P 250,000
Manufacturing overhead P 325,000
Work in Process - ending inventory (Mar. 31, 2017) 4,200 units @P 13.75

If Grace uses the FIFO method for valuing raw material inventories, compute for the cost of goods manufactured for the
quarter ended March 31, 2017.
a. P 699,150
b. P 717,000
c. P 734,850
d. P 746,850
Solution:

Raw materials, 1/1 (10,000*6) P 60,000

Purchases [(8,500*7) + (11,000*7.50)] 142,000
Raw Materials Available for Use 202,000
Raw Materials, 3/31 (8,000*7.5) (60,000)
Raw Materials Used 142,000
Direct Labor 250,000
Manufacturing Overhead 352,000
Total Manufacturing Cost 717,000
Work-in-Process, 1/1 (5,600*13.5) 75,600
Total Cost Placed in Process 792,600
Work-in-Process, 3/31 (4,200*13.75) (57,750)
Cost of Goods Manufactured P 734,850
23. Which of the following statements is(are) correct according to PAS 41 (Agriculture)?

Statement I: A biological asset shall be measured on initial recognition and at the end of each reporting period at its fair
value less cost to sell.

Statement II: Agricultural produce harvested from an entity’s biological asset shall be measured at the point of harvest and at
the end of each reporting period at its fair value less cost to sell.

a. I only b. II only c. Both I and II d. Neither I nor II

24. A piece of machinery has a marked price of P 550,000. It was purchased under the term, 15% 10%, and 5% discounts. The
cost of freight and installation after deducting the P 8,000 sales proceeds of the old machinery which was replaced is P
12,000.

The new machinery shall be recorded at a cost of

a. P 411,712 b. P 405,000 c. P 419,712 d. P 397,000
Solution:
Purchase price, net (550,000*.85*.9*.95) P 399,712
Freight cost (12,000 + 8,000) 20,000
Total cost P 419,712
Accounts Payable P 108,900
Advances to Employees 4,500
Unearned Rent Revenue 28,800
25. Which of the Estimated Liability Under Warrants 25,800 following statements regarding
depreciation is true, Cash Surrender Value of Officers’ Life Insurance 7,500 according to PAS 16, Property,
Plant and Bonds Payable 555,000 Equipment?
a. The total Discount on Bonds Payable 22,500 cost of an asset must eventually be
depreciated Trademarks 3,900
b. The annual depreciation charge should be
constant over the life of the asset
c. An asset must be depreciated from the date of its purchase to the date of sale
d. If the carrying amount of an asset is less than the residual value, depreciation is not charged

26. Riley Co. incurred the following costs during 2017:

Significant modification to the formulation of a chemical product P 160,000
Trouble-shooting in connection with breakdowns during commercial production 150,000
Cost of exploration of new formulas 200,000
Seasonal or other periodic design changes to existing products 185,000
Laboratory research aimed at discovery of new technology 225,000

In its income statement for the year ended December 31, 2017, Riley should report Research and Development expense of
a. P 585,000 b. P 735,000 c. P 770,000 d. P 920,000
Solution: Research and Development expense (160,000 + 200,000 + 225,000 = 585,000)

27. In accordance with PAS 36 Impairment of Assets, which one of the following statement is correct?
a. Investment properties carried at fair value must be tested annually for impairment
b. Goodwill must be tested for impairment only when there is an indication that it is impaired
c. Intangible assets with indefinite useful lives must be tested at least annually for impairment
d. Inventory must be tested for impairment only when there is an indication that it is impaired

28. Ravanzo Electronics Inc. reported the following items on its December 31, 2017, trial balance:
Accounts Payable P 108,900
Advances to Employees 4,500
Unearned Rent Revenue 28,800
Estimated Liability Under Warrants 25,800
Cash Surrender Value of Officers’ Life Insurance 7,500
Bonds Payable 555,000
Discount on Bonds Payable 22,500
Trademarks 3,900
 The amount the should be recorded on Ravanzo’s Statement of Financial Position as total liabilities is
a. P 696,000
b. P 700,500
c. P 703,500
d. P 741,000
Solution: 108,900 + 28,800 + 25,800 + 555,000 - 22,500 = 696,000

29. Galima Company acquired new manufacturing equipment on January 1, 2016, on installment basis. The deferred payment
contract provides for a downpayment of P 300,000 and an 8-year note for P 3,104,160. the note is to be paid in 8 equal
annual installment payments of P 388,020, including 10% interest. The payments are to be made on December 31 of each
year, beginning December 31, 2016. The equipment has a cash price equivalent of P 2,370,000. Galima’s financial year-end
is December 31. the amount of interest expense to be recognized in 2017 is
a. P 310,416
b. P 188,898
c. P 207,000
d. P 0
Solution:
Date Payment Interest (10%) Principal Carrying Amount
1/1/16 2,070,000
12/31/16 388,020 207,000 181,020 1,888,980
12/31/17 388,020 188,898 199,122 1,689,858

30. In accordance with the requirements of PAS 37 Provisions, Contingent Liabilities and Contingent Assets, where
measurement uncertainty exists, which one of the following methods is not an appropriate valuation for a provision based on
accounting standards?
a. The midpoint of a range of equally likely outcomes of expenditure
b. No provision should be recognized when measurement uncertainty exists
c. The minimum amount expected to represent a best estimate, where the other option is omission
d. The most likely amount expected to represent a best estimate, where there is a single obligation

31. Prior to the current financial year end, Chua Co has received a claim of P 100,000 from a supplier for providing poor quality
goods which have damaged the supplier’s plant and equipment. Chua Co’s lawyers have stated that there is a 20% chance
that Chua will successfully defend the claim.

Which of the following is the correct accounting treatment for the claim in the financial statements for the current year?
a. Chua should neither provide for nor disclose the claim
b. Chua should disclose a contingent liability of P 100,000
c. Chua should provide for the expected cost of the claim of P 100,000
d. Chua should provide for an expected cost of P 20,000

32. In 2017, Manlulu Limited was sued for P 1,000,000. Lawyers have advised that the obligating event has occurred, but that
the probablity of making a payout is 25%, which is deemed not certain. It is expected to take at least 3 years before the
lawsuit is finalized. Malulu uses an 8% discount rate. What amount would be recorded as a liability in 2017?
a. P 0
b. P 198,450
c. P 250,000
d. P 314,928
Solution: P 1,000,000*.25*.7938 = P 198,450

33. Pocholo Corp. has the following classes of shares outstanding at December 31, 2017:
 Ordinary share capital, P 100 par ---- P 360,000
 6% Preference hare capital, P 100 par, cumulative and participating ---- P 120,000

Dividends on preference shares are in arrears for 2015 and 2016.

If P 57,600 are to be distributed as dividends, the total dividends to be given on preference shareholders would be
a. P 32,400
b. P 30,000
c. P 26,400
d. P 25,200
Solution:
Preference Share Ordinary Share
Dividends in Arrears P 14,400
Basic Dividend - PS 7,200
Basic Dividend - OS P 21,600
Balance for Participation 3,600 10,800
Total P 25,200 P 32,400

34. Balances of the deferred tax accounts of Victorio Ltd were as follows:
12/31/16 12/31/17
Deferred tax liability P 3,200 P 2,000
Deferred tax asset 2,650 1,900

Income tax expense for the year ended December 31, 2017 was P 1,750. The current tax payable at December 31, 2017 is P
200 less than the current tax payable at the preceding year end. What was the amount of income tax paid during the year
ended December 31 2017?
a. P 1,100
b. P 1,500
c. P 2,000
d. P 2,200
Solution:
Income tax expense 1,550
Decrease in DTL (3,200 - 2,000) 1,200
Decrease in DTA (2,650 - 1,900) (750)
Current tax expense 2,000
Decrease in current tax expense 200
Income tax paid 2,200

35. A owes B P1,000. A, knowing that the debt has prescribed, nevertheless, still pays B. Can A recover what he voluntarily
paid?

First answer Yes, because B has no right to demand the payment effected by A.
Second Answer No, the payment extinguished the natural obligation.

a. Both answers are correct. c. Only the first is correct.

b. Both answers are wrong. d. Only the second is correct.

36. I – When what is to be delivered is a determinate thing, the creditor may compel the debtor to make the delivery and if the
debtor refuses, the creditor may ask that the obligation be complied with at the expense of the debtor.

II – The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they
may not have been mentioned.
a. True; true b. True; false c. False; true d. False; false

37. A owes B P10,000 to be paid after one year. As security A mortgages his car in favor of B. If before due date the car is lost
by fortuitous event:
a. A does not lose the benefit of the period because no one shall be liable for fortuitous event.
b. A does not lose the benefit of the period if he gives another security equally satisfactory.
c. A does not lose the benefit of the period because it was not stipulated.
d. A does not lose the benefit of the period because he is not in delay.

38. Contracts are effective and binding only between the parties, their assigns and their heirs. Three of the following
enumeration are exceptions as provided by law which does not belong to the exception?
a. Where there is stipulation in favor of a third party.
b. Where one of the parties to the contract dies and thereafter a suit is filed on the basis of the contact.
c. Where the obligations arising from contract are not transmissible by their nature.
d. Where the obligations arising from the contract are not transmissible by stipulation or by provision of law.

39. The proper remedy is annulment of contract and not reformation when:
a. Mistake, fraud, inequitable conduct, or accident has prevented a meeting of minds of the parties.
b. A mutual mistake of the parties causes the failure of the instrument to disclose their real agreement.
c. One party was mistaken and the other knew or believed that the instrument did not state their real agreement, but
concealed the fact from former.
d. Answer not given.

40. Mr. Gamboa owes Mr. Evangelista P100,000. Gamboa knows that on maturity date, he will not be able to pay Evangelista,
and in order to prevent attachment of his property by Evangelista, Gamboa, before maturity of his debt, executes a contract
pretending to sell to Mr. Santiago his property. Which of the following statements is correct?
a. The contract is not valid for lack of consideration
b. The contract is binding between Gamboa and Santiago
c. The contract being simulated and executed to defraud Evangelista is void
d. .Mr. Evangelista can seek rescission of the fictitious contract.