Junior Philippine Institute of Accountants Junior Philippine Institute of Accountants
College of Business Administration College of Business Administration
University of the East - Caloocan University of the East - Caloocan
Qualifying Exam Reviewer 2017 Qualifying Exam Reviewer 2017 Financial Accounting and Reporting Financial Accounting and Reporting
I.
I. Development Development of of Accounting Accounting ProfessionProfession 1.
1. It is the It is the body authorized by body authorized by law to promulgate rules law to promulgate rules and regulations affecting the and regulations affecting the practicepractice of the accountancy professions in the Philippines.
of the accountancy professions in the Philippines. a.
a. Philippine Philippine Institute Institute of of Certified Certified Public Public AccountantsAccountants b.
b. Board Board of of AccountancyAccountancy c.
c. Securities Securities and and Exchange Exchange CommissionCommission d.
d. Professional Professional Regulation Regulation CommissiCommissionon
b.
b. Board Board of of AccountancyAccountancy 2.
2. The The international accounting international accounting standards standards areare a.
a. Rules-based Rules-based rather rather that that principles principles basedbased b.
b. Principle-Principle-based based rather rather than than rule rule basedbased c.
c. Based Based on on regulations, regulations, not not conceptconcept d.
d. Focused Focused on on quantitative quantitative rulesrules
b.
b. Principle-bPrinciple-based ased rather rather than than rule rule based.based. 3.
3. This accounting This accounting concept justifies concept justifies the usage the usage of of accruals and accruals and deferrals.deferrals. a. Materiality
a. Materiality b.
b. Cash Cash basis basis of of accountingaccounting
c. Consistency c. Consistency d.
d. Going Going concernconcern d.
d. Going Going concernconcern 4.
4. An item An item cannot be recognized cannot be recognized in the balance in the balance sheet or sheet or the income statement unless itthe income statement unless it meets the two criteria of
meets the two criteria of Criterion
Criterion 1 1 Criterion Criterion 22 a.
a. Completeness Completeness Measurement reliabilitMeasurement reliabilityy b.
b. Probable Probable economic economic benefits benefits Measurement reliabilitMeasurement reliabilityy c.
c. MaterialitMateriality y Relevance Relevance to to othersothers d.
d. Neutrality Neutrality Relevance Relevance to to othersothers
b.
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 enterprise’s cash and cash equivalents is provided in the
a. Balance sheet b. Income statement
c. Statement of changes in equity 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)
Foreign bank account – restricted (in peso) 750,000
Postage tamps 1,000
Employee’s post dated check 4,000
IOU from controller’s sister 10,000
Credit memo from a vendor for a purchase return 20,000
Traveler’s 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 b. P 4,384,000
c. P 4,404,000 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 Company’s “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 company’s 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
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 b. P 18,600,000
c. P 20,600,000 d. P 19,750,000
14. Reconciliation of Adliwa Corporation’s b ank 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
b. P135,000
c. P90,000
d. None of the above
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)
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
b. Part of accounts payable
c. Addition to current assets
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 discount feature)
3,024,000
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 allowances
250,000 Cash refunds given to cash customers for sales returns and allowances 20,000 Recoveries on accounts receivable written off as uncollectible in prior
periods but not included in cash received from customers stated above
80,000
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 b. 1,300,000, 130,000
c. 1,426,000, 300,000 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
80,000
Recovery of 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
* 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 Gonzales’s equity. Dividends are payable on the 15 th 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
postdated check))
4,000,000
Accounts Receivable 6,800,000
Inventory 4,500,000
Deferred Tax Asset 2,500,000
The accounts receivable is comprised of the following amount Customers’ debit balance, net of customers’ credit balance of P200,000
5,000,000
Allowance for doubtful accounts (700,000)
Selling prince of unsold inventory sent out on consignment at 125% of cost and already included in the ending inventory at cost
2,500,000
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
hedge
400,000 Actuarial loss during the year fully recognized in the other
comprehensive income
300,000
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
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 b. Investing activities
c. Financing activities d. None of the above
b. Investing activities XI. Error Correction
27. Jackson Company’s 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
b. Add P250,000
c. Add P350,000 d. Add P150,000
Effect on Net Income Adjustment to retained earnings Understated depreciation on
2015 Overstated Deduct 50,000
Understated ending inventory on 2016
Understated (due to
overstated COGS) Add 300,000
Overstated depreciation on
2016 Understated Add 100,000
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
c. P1,720,000 d. None of the above
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
Beg. bal. Sales Write-off Collections Ending bal. Accounts Receivable 2,000,000 2,300,000 30,000 a. 1,670,000 2,600,000
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 b. P228,400 c. P15,600 d. P375,600 Date (A) Nominal Interest (4,000,000 x .09) (B) Effective Interest (D x .10) (C) Discount Amortization (B-A) (D) Carrying Value (Previous D + C) 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) Nominal Interest (5,000,000 x .1) (B) Effective Interest (D x .12) (C) Discount Amortization (B-A) (D) Carrying Value (Previous D + 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
b. 1,320
c. 1,440 d. 1,360
38. What is the gain from change in fair value due to price change? a. 292
b. 222
c. 237 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
b. 1,680,000
c. 2,600,000 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) (4/10 x 7,800,000) 1,920,000 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.
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
What amount should be reported as diluted earnings per share? a. 121
b. 120
c. 117 d. 119
Basic earnings per share 120
Effect of possible conversion of preference shares (1)
Effect of possible exercise of warrants (2)
