Region X & CARAGA Cup

Theory of Accounts
Source: ReSA
Easy Category
1. The main difference between cash and accrual accounting is
a. Cash accounting attempts to measure economic income; accrual accounting attempts to measure
accounting income
b. Accrual accounting recognizes revenue in the period of sale; cash accounting recognizes revenue in
the period of collection
c. Accrual accounting is not based on generally accepted accounting principles
d. Cash accounting always leads to more reliable financial information about an entitys financial
position
2. hich of the following statements about the income statement and balance sheet is true!
a. The income statement tells the firms position at one point in time; the balance sheet represents the
events occurring between two points in time
b. Transactions that change the net worth of shareholders appear on the balance sheet
c. The income statement shows the assets and liabilities of a firm
d. The balance sheet shows the net worth of shareholders at one point in time
". #f financial information that is presented in a statement of financial position or statement of comprehensive income is misstated$
and it influences the economic decisions of users$ that information is described as
a. %eliable
b. &aterial
c. 'rudent
d. (aithful
). hen a company ships product to a customer based on (*+ destination$
a. The seller will pay the shipping charges and title will not be e,changed until goods are received by the
customer
b. The buyer will pay the shipping charges and title is e,changed at point of shipment
c. The seller will pay the shipping and title is e,changed at point of shipment
d. The buyer will pay the shipping and title is e,changed when the goods are received by the customer
-. The C'A.s role in performing audits is important to our society because
a. Auditors provide direct financial advice to potential investors
b. Auditors have the primary responsibility for the information contained in financial statements
c. Auditors issue reports on the accuracy of each financial transaction
d. An audit of financial statements helps investors and others to /now that they can rely on the
information presented in the financial statements
0. hen a company decides to switch from the double1declining balance depreciation method to the straight1line depreciation
method$ this change should be handled as a
a. Change in accounting principle
b. Change in accounting estimate
c. 'rior period ad2ustment
d. Correction of an error
3. #f an item of income is not material$ then the manner of presenting that information$ or whether or not it is disclosed
a. will have an impact on the economic decisions of users
b. should not affect the economic decisions of users
c. should not be included in the determination of profit or loss for the period
d. will be included directly in retained earnings
4. (or accounting purposes$ cash includes
a. 5otes receivable from employees
b. 6upplies
c. +alances on deposit in ban/s
d. A note received from a customer in settlement of an overdue account receivable
9. hich is the correct order of the steps in the accounting cycle during the accounting period!
a. Transaction analysis$ 2ournal entries$ trial balance
b. Transaction analysis$ posting to the ledger$ 2ournal entries
c. Transaction analysis$ posting to the ledger$ ad2usting the accounts
d. Transaction analysis$ 2ournal entries$ posting to the ledger
17. The nature of generally accepted accounting principles 89AA':
is important to large corporations because
a. a change in 9AA' will not li/ely affect the selling price of the company.s stoc/
b. a change in 9AA' will not li/ely affect the amount of bonuses paid to managers and employees
c. a change in 9AA' will not li/ely affect a corporation.s competitive position
d. change in 9AA' will li/ely affect a company.s financial statements
Average Category
1. hen goods are sold on credit$ revenue usually should be recognized at the date of
a. receipt of the sales order
b. passage of title from the seller to the buyer
c. receipt of the goods by the buyer
d. manufacture of the goods
2. The accounting e;uation must remain in balance
a. Throughout each step in the accounting cycle
b. *nly when 2ournal entries are recorded
c. *nly at the time the trial balance is prepared
d. *nly when formal financial statements are prepared
". 'resenting consolidated financial statements this year when statements of individual companies were presented last year is
a. A correction of an error
b. An accounting change that should be reported prospectively
c. An accounting change that should be reported by restating the financial statements of all prior periods
presented
d. not an accounting change
). <nder the installment method$ revenue is recognized when the customer
a. orders the merchandise
b. receives the merchandise
c. receives the bill
d. ma/es a cash payment
-. <nder the percentage1of1completion method$ revenue is recognized
a. when construction begins on the pro2ect
b. when the pro2ect is complete
c. throughout the pro2ect$ based upon the amount of wor/ completed each year
d. throughout the pro2ect$ based upon the amount of cash received from the customer
0. hich of the following post1balance1sheet events would generally re;uire disclosure$ but no ad2ustment of the financial
statements!
a. %etirement of the company president
b. 6ettlement of litigation when the event that gave rise to the litigation occurred prior to the balance
sheet date
c. =mployee stri/es
d. #ssue of a large amount of capital stoc/
3. hen a depositor receives a ban/ statement indicating a >56( chec/>$ the depositor should
a. credit the cash account for the amount of the chec/
b. record the amount as an e,pense of the current period
c. credit a special receivable for the amount of the chec/
d. debit sales revenue
4. hich of the following is an argument against using historical cost in accounting!
a. (air values are more relevant
b. ?istorical costs are based on an e,change transaction
c. ?istorical costs are reliable
d. (air values are sub2ective
@. Trade1offs between the characteristics that ma/e information useful may be necessary or beneficial. #ssuance of interim financial
statements is an e,ample of a trade1off between
a. %elevance and reliability.
b. %eliability and periodicity
c. Timeliness and materiality
d. <nderstandability and timeliness
17. <nrelated parties include all of the following$ except
a. Two entities that have a common director
b. 'roviders of finance in the course of their normal dealings with an entity by virtue only of those
dealings
c. =ntities for which the investments are accounted for by the e;uity method
d. A single customer or supplier with whom an entity transacts a significant volume of business merely
by virtue of the resulting economic dependence
Difficult Category
1. <nder 'A6 "3$ the appropriate accounting treatment for future operating losses is to
a. Aetermine a reasonable estimate of the cost and provide for the future liability
b. Aetermine the cost and charge it directly against retained earnings
c. 5ot recognize such items in the financial statements
d. &easure on the basis of estimated future cash flows
2. The difference between the accounting process and the accounting cycle is
a. The accounting process results in the preparation of financial statements$ whereas the accounting cycle
is concerned with recording business transactions
b. The accounting cycle represents the steps ta/en to accomplish the accounting process
c. The accounting process represents the steps ta/en to accomplish the accounting cycle
d. merely semantic$ because both concepts refer to the same thing
". A company ac;uires a subsidiary e,clusively with a view of selling it. The subsidiary meets the criteria to be classified as held
for sale. At the balance sheet date$ the subsidiary has not yet been sold. ?ow will the subsidiary be valued in the balance sheet at
the date of the first financial statements after ac;uisition!
a. At cost
b. At fair value less costs to sell
c. Cost or fair value less cost to sell$ whichever is lower
d. Cost or fair value less cost to sell$ whichever is higher
). A reversing entry should never be made for an ad2usting entry that
a. accrues unrecorded revenue
b. ad2usts e,pired costs from an asset account to an e,pense account
c. accrues unrecorded e,penses
d. ad2usts une,pired costs from an e,pense account to an asset account
-. hich is not an item of income statement presented under Bnature of e,pense method!
a. Aecrease in inventory
b. 6upplies e,pense
c. 5et purchases
d. Cost of sales
0. The accounting for cash discounts and trade discounts are
a. The same
b. 5ot the same
c. Always recorded net
d. Tied to the timing of cash collections on the account
3. <nreplenished petty cash vouchers at balance sheet date will re;uire ad2ustments to avoid
a. *verstatement of both asset and e,pense
b. <nderstatement of both asset and e,pense
c. <nderstatement of asset and overstatement of e,pense
d. *verstatement of asset and understatement of e,pense
4. hich of the following describes the proper treatment of a loss$ which is material$ unusual in nature$ and infre;uent in
occurrence!
a. %eport as part of continuing operations
b. %eport as part of discontinued operations
c. %eport as an e,traordinary item
d. %eport as a prior period item
@. To comply with the matching principle$ the cost of labor services of an employee who participates in the manufacturing of a
product normally should be charged to the income statement in the period in which the
a. or/ is performed
b. =mployee is paid
c. 'roduct is completed
d. 'roduct is sold
17. A change from (#(* to weighted average method of accounting for inventory is considered as a
a. Change in accounting estimate that is accounted for prospectively
b. Change in accounting policy that is accounted for retrospectively
c. Change in accounting policy that is accounted for prospectively
d. Correction of prior period error
Clincher Category
1. Credit terms of 2C17$ nC"7 indicate that a
a. Two percent discount for early payment is available if the invoice is paid before the tenth day of the
month following the month to of sale
b. Two percent discount for early payment is available within ten days of the date of sale
c. Ten percent discount for early payment is available if the invoice is paid within two days of the date of
the invoice
d. Two percent discount for early payment is available if the invoice is paid after the tenth day$ but
before the thirtieth day of the invoice date
2. The primary difference between revenues and gains is
a. 9ains are increases in net assets from peripheral activities while revenues are increases from ongoing
activities
b. generally accepted accounting principles ma/es no distinction between them since they both increase
income
c. %evenues cause increases in net assets as a result of peripheral activities and gains cause increases
through ongoing activities
d. +oth revenues and gains cause a decrease in net assets from ongoing and peripheral transactions
respectively
". #f you wanted to /now what accounting rules a company follows related to its inventory$ where would you loo/!
a. The statement of financial position
b. The statement of comprehensive income
c. The statement of changes in e;uity
d. The notes to the financial statements
). A deficiency in cash control that may conceal cash shortage by way of manipulating accounts receivable from customers.
a. indow dressing
b. Dapping
c. Eiting
d. Aefalcation
-. hich of the following is not a re;uired supplemental disclosure for the balance sheet!
a. Contingencies
b. (inancial forecasts
c. Accounting policies
d. Contractual situations
0. hich of the following is an e,ample of revenue or e,pense recognized in the current period.s income statement!
a. Cash received from a client before the lawyer represents them in court
b. #nventory purchased by a retail store
c. age costs owed to employees who wor/ed during the period.
d. Cash collected from an accounts receivable
3. hich of the following is considered cash!
a. Certificates of deposit 8CAs:
b. &oney mar/et chec/ing accounts
c. &oney mar/et savings certificates
d. 'ostdated chec/s
4. hat is the preferable presentation of accounts receivable from officers$ employees$ or affiliated companies on a balance sheet!
a. As offsets to capital
b. +y means of footnotes only
c. As assets but separately from other receivables
d. As trade notes and accounts receivable if they otherwise ;ualify as current assets
9. Changes in the fair value of biological assets should be recognized
a. #n profit or loss
b. #n other comprehensive income
c. #n the statement of cash flows
d. #n the statement of changes in e;uity
17. hy would a company sell receivables to another company!
a. To improve the ;uality of its credit granting process
b. To limit its legal liability
c. To accelerate access to amounts collected
d. To comply with customer agreements
Practical Accounting Problems 1
Source: ReSA
Easy Category
1. (or %e6A Company$ the following information is availableF
Cost of goods sold '@7$777
Aividend revenue )$777
#ncome ta, e,pense @$777
*perating e,penses "-$777
6ales 1-7$777
#n %e6As multiple1step income statement$ gross profit
a. should not be reported. c. should be reported at '07$777.
b. should be reported at '27$777. d. should be reported at '0)$777.
2. Dee Company reported the following information for 2717F
6ales revenue '-77$777
Cost of goods sold "-7$777
*perating e,penses --$777
<nrealized holding gain on available1for1sale securities 27$777
Cash dividends received on the securities 2$777
(or 2717$ Dee would report comprehensive income of
a. '113$777. c. '@3$777
b. '11-$777. d. '27$777.
". (or the year ended Aecember "1$ 2717$ 5(G'#A #nc. reported the followingF
5et income '07$777
'referred dividends declared 17$777
Common dividend declared 2$777
<nrealized holding loss$ net of ta, 1$777
%etained earnings$ beginning balance 47$777
Common stoc/ )7$777
Accumulated *ther Comprehensive #ncome$+eginning +alance -$777
hat would 5(G'#A report as the ending balance of %etained =arnings!
a. '1"@$777 c. '124$777
b. '1""$777 d. '123$777
). 5ierras$ #nc. factors '2$777$777 of its accounts receivables without recourse for a finance charge of -H. The finance company retains an
amount e;ual to 17H of the accounts receivable for possible ad2ustments. 5ierras estimates the fair value of the recourse liability at
'3-$777.
hat would be recorded as a gain 8loss: on the transfer of receivables!
a. Doss of ' 3-$777 c. Doss of '13-$777
b. loss of '177$777 d. Doss of '"3-$777
-. #f a petty cash fund is established in the amount of '2-7$ and contains '1-7 in cash and '@- in receipts for disbursements when it is
replenished$ the 2ournal entry to record replenishment should include credits to the following accounts
a. 'etty Cash$ '3-. c. Cash$ '@-; Cash *ver and 6hort$ '-
b. 'etty Cash$ '177. d. Cash$ '177.
0. #f the month1end ban/ statement shows a balance of '"0$777$ outstanding chec/s are '12$777$ a deposit of ')$777 was in transit at
month end$ and a chec/ for '-77 was erroneously charged by the ban/ against the account$ the correct balance in the ban/ account at
month end is
a. '23$-77. c. '27$-77.
b. '24$-77. d. ')"$-77.
3. #n preparing its ban/ reconciliation for the month of April 2717$
Dumanglas$ #nc. has available the following information.
+alance per ban/ statement$ )C"7C17 '"@$1)7
56( chec/ returned with )C"7C17 ban/ statement )-7
Aeposits in transit$ )C"7C17 -$777
*utstanding chec/s$ )C"7C17 -$277
+an/ service charges for April 27
hat should be the correct balance of cash at April "7$ 2717!
a. '"@$"37 c. '"4$)@7
b. '"4$@)7 d. '"4$)37
8. +elow is the information relative to an e,change of assets by 6tanton Company. The e,change lac/s commercial substance.
l! E"uipment
+oo/ Ialue (air Ialue Cash 'aid
Case # '3-$777 '4-$777 '1-$777
Case ## '-7$777 ')-$777 ' 3$777
hich of the following would be correct for 6tanton to record in Case ##!
%ecord =;uipment atF %ecord a gain of 8loss: ofF
a. '-3$777 '-$777
b. '-7$777 '2$777
c. '-2$777 '8-$777:
d. '-7$777 '82$777:
9. Iicente Co. had the following account balancesF
6ales '127$777
Cost of goods sold 07$777
6alary e,pense 17$777
Aepreciation e,pense 27$777
Aividend revenue )$777
<tilities e,pense 4$777
%ental revenue 27$777
#nterest e,pense 12$777
6ales returns 11$777
Advertising e,pense 1"$777
hat would Iicente report as total e,penses in a single1step income statement!
a. '123$777 c. '12"$777
b. '1")$777 d. '0"$777
10.An inventory loss from mar/et decline of '1$077$777 occurred in &ay 2711$ after its &arch "1$ 2711 ;uarterly report was issued. 5one
of this loss was recovered by the end of the year. ?ow should this loss be reflected in the company.s ;uarterly income statements!
Three &onths =nded
"C"1C11 0C"7C11 @C"7C11 12C"1C11
a. 171 171 171 '1$077$777
b. 171 ' -""$""" '-""$""" ' -""$"""
c. 171 '1$077$777 171 171
d. ')77$777 ' )77$777 ')77$777 ' )77$777
Average Category
1. *n Ganuary 1$ 2774$ 5eal Corporation ac;uired e;uipment at a cost of J-)7$777. 5eal adopted the sum1of1the1years1digits method of
depreciation for this e;uipment and had been recording depreciation over an estimated life of eight years$ with no residual value. At
the beginning of 2711$ a decision was made to change to the straight1line method of depreciation for this e;uipment. The depreciation
e,pense for 2711 would be
a. '24$12-. c. ' 03$-77.
b. ')-$777. d. '174$777.
2. +ell #nc. too/ a physical inventory at the end of the year and determined that '0-7$777 of goods were on hand. #n addition$ +ell$ #nc.
determined that '-7$777 of goods that were in transit that were shipped f.o.b. shipping were actually received two days after the
inventory count and that the company had '3-$777 of goods out on consignment. hat amount should +ell report as inventory at the
end of the year!
a. '0-7$777. c. '32-$777.
b. '377$777. d. '33-$777
". The following information was available from the inventory records of %eganit Company for GanuaryF
<nits <nit Cost Total Cost
+alance at Ganuary 1 "$777 '@.33 '2@$"17
'urchasesF
Ganuary 0 2$777 17."7 27$077
Ganuary 20 2$377 17.31 24$@13
6alesF
Ganuary 3 82$-77:
Ganuary "1 8)$777:
+alance at Ganuary "1 1$277
Assuming that %eganit does not maintain perpetual inventory records$ what should be the inventory at Ganuary "1$ using the weighted1
average inventory method$ rounded to the nearest peso!
a. '12$070. c. '12$"12.
b. '12$24). d. '12$)"2.
). *n &ay 1$ 2717$ 9oodman Company began construction of a building.
=,penditures of '127$777 were incurred monthly for - months beginning on &ay 1. The building was completed and ready for
occupancy on 6eptember 1$ 2717. (or the purpose of determining the amount of interest cost to be capitalized$ the average
accumulated e,penditures on the building during 2717 were
a. '177$777. c. ')47$777.
b. '127$777. d. '077$777.
-. Calvez Company purchased ')77$777 of 17H bonds of 6cott Co. on Ganuary 1$ 2711$ paying '"30$177. The bonds mature Ganuary 1$
2721; interest is payable each Guly 1 and Ganuary 1. The discount of '2"$@77 provides an effective yield of 11H. Calvez Company
uses the effective1interest method and plans to hold these bonds to maturity.
(or the year ended Aecember "1$ 2711$ Calvez Company should report interest revenue from the 6cott Co. bonds ofF
a. ')2$"@2. c. ')1$"04.
b. ')1$)7@. d. ')7$777.
0. *n its Aecember "1$ 2717 balance sheet$ Ae guzman Company appropriately reported a '17$777 debit balance in its 6ecurities (air
Ialue Ad2ustment 8Available1for16ale: account. There was no change during 2711 in the composition of Ae guzmans portfolio of
mar/etable e;uity securities held as available1for1sale securities. The following information pertains to that portfolioF
6ecurity Cost (air value at 12C"1C11
K '12-$777 '107$777
L 177$777 @-$777
M 13-$777 12-$777
')77$777 '"47$777
The amount of unrealized loss to appear as a component of comprehensive income for the year ending Aecember "1$ 2711 is
a. '"7$777. c. '17$777.
b. '27$777. d. 7.
3. The balance in &oon Co..s accounts payable account at Aecember "1$ 2717 was '377$777 before any necessary year1end ad2ustments
relating to the followingF
9oods were in transit to &oon from a vendor on Aecember "1$ 2717. The invoice cost was ')7$777. The goods were shipped
f.o.b. shipping point on Aecember 2@$ 2717 and were received on Ganuary )$ 2711.
9oods shipped f.o.b. destination on Aecember 21$ 2717 from a vendor to &oon were received on Ganuary 0$ 2711. The
invoice cost was '2-$777.
*n Aecember 23$ 2717$ &oon wrote and recorded chec/s to creditors totaling '"7$777 that were mailed on Ganuary 17$ 2711.
#n &oon.s Aecember "1$ 2717 balance sheet$ the accounts payable should be
a. '3"7$777. c. '30-$777.
b. '3)7$777. d. '337$777.
4. %ich Company had the following ban/ reconciliation at &arch "1$ 2774F
+alance per ban/ statement$ &arch "1$ 2774 ' )0$-77
AddF Aeposit in transit 17$"77
' -0$477
DessF *utstanding chec/s 12$077
+alance per boo/$ &arch "1$ 2774 ' ))$277
Aata per ban/ statement for the month of April$ 2774 followF
Aeposits ' -4$)77
Aisbursements )@$377
All reconciliation items at &arch "1$ 2774 cleared through the ban/ in April. *utstanding chec/s at April "7$ 2774 totaled '3$-77.
hat is the amount of cash disbursements per boo/ in April!
a. '))$077 c. '-)$477
b. ')@$377 d. '-3$277
@. Company N is a supplier of industrial products$ in 277@$ the company purchased a plot of land on the outs/irts of a ma2or city. The land
was originally ac;uired at a cost of '1-$777$777. The area has mainly low1cost public housing and very limited public transport facilities.
The national government has plans to develop the area as an industrial par/ in five years time and land is e,pected to greatly appreciate in
value if the government proceeds with the plan. Company Ns management has not decided what to do with the property. *n Aecember
"1$ 2717$ the property has a current fair value of '1-$)77$777. ?ow should the company classify the property in its Aecember "1$ 2717
statement of financial position!
a. as land at its historical cost of '1-$777$777
b. as land at its current fair value of '1-$)77$777
c. as investment property at its current fair value of '1-$)77$777
d. as inventory at the lower of cost of '1-$777$777 or current fair value of '1-$)77$777.
17.#n Ganuary$ 2770$ (indley Corporation purchased a patent for a new consumer product for '327$777. At the time of purchase$ the patent
was valid for fifteen years. Aue to the competitive nature of the product$ however$ the patent was estimated to have a useful life of
only ten years. Auring 2711 the product was permanently removed from the mar/et under governmental order because of a potential
health hazard present in the product. hat amount should (indley charge to e,pense during 2711$ assuming amortization is recorded
at the end of each year!
a. ')47$777. c. '32$777.
b. '"07$777. d. ')4$777.
Difficult Category
1. Auring the current fiscal year$ Geremiah Corp. signed a long1term noncancellable purchase commitment with its primary supplier.
Geremiah agreed to purchase '2.- million of raw materials during the ne,t fiscal year under this contract. At the end of the current
fiscal year$ the raw material to be purchased under this contract had a mar/et value of '2." million. hat is the 2ournal entry at the
end of the current fiscal year!
a. Aebit <nrealized Doss for '277$777 and credit =stimated Diability on 'urchase Commitment for '277$777.
b. Aebit =stimated liability on 'urchase Commitment for '277$777 and credit <nrealized 9ain for '277$777.
c. Aebit <nrealized Doss for '2$"77$777 and credit =stimated Diability on 'urchase Commitment for '2$"77$777.
d. 5o 2ournal entry is re;uired.
2. ?ardin Company received ')7$777 in cash and a used computer with a fair value of '127$777 from 'age Corporation for ?ardin
Company.s e,isting computer having a fair value of '107$777 and an undepreciated cost of '1-7$777 recorded on its boo/s. The
transaction has no commercial substance. ?ow much gain should ?ardin recognize on this e,change$ and at what amount should the
ac;uired computer be recorded$ respectively!
a. 7 and '117$777 c. '17$777 and '127$777
b.'30@ and '117$30@ d. ')7$777 and '1-7$777
". Creep Company purchased 177 beef cattle at an auction for '477$777 on Guly 1$ 2717. Transportation costs were '4$777. Creep
Company would have to incur the same transportation costs if it had sold its cattle in the auction. #n addition there would be a 2H
auctioneers fee on the mar/et price of the cattle payable by the seller. Creep Company also incurred ')$777 veterinary e,penses.
*n Aecember "1$ 2717$ the fair value of the cattle in the most relevant mar/et increases to '447$777. *n &ay 2$ 2711$ Creep
Company sold 14 cattle at auction for '107$777 and incurred transportation charges of '1$277.
*n Gune 1-$ 2711$ the fair value of the remaining cattle was '002$-07 but on the same day$ )2 cattle were slaughtered with total cost
of '""$077. The fair value of the carcasses on that day was '"40$)77 and the estimated transportation cost to sell the carcasses is
'"$"07. 5o other selling costs are e,pected.
*n Gune "7$ 2711$ the fair value of the remaining )7 cattle was '"-4$)77. The estimated transportation cost is '"$277.
hat amount should the biological asset be initially recognized on Guly 1$ 2717!
a. '330$777 c. '3@2$777
b. '34)$777 d. '477$777
). *n Ganuary 2$ 2773$ 'hone Company purchased 17$777 shares 817H: of the outstanding ordinary shares of 'al$ #nc. for '2- per
share. The purchase was appropriately recorded as a long1term investment and accounted for under the fair value method. The
mar/et price of the share was '2) per share on Aecember "1$ 277@. Auring 2717$ 'al e,perienced severe financial difficulties and
'hone disposed of its entire investment in 'al share for '17 per share on 5ovember @$ 2717. 'hones effective income ta, rate was
"2H for 2717.
#n its 2717 income statement$ how much should 'hone report as loss from disposal of the long1term investment!
a. '4)$777 c. '1)7$777
b. '@7$777 d. '1-7$777
-. *n 6eptember 1$ 2717$ Tender Company purchased "7H of the outstanding ordinary shares of Care Corporation for '"$777$777
when the boo/ value of net assets of Care Corporation was '@$777$777. The fair values of the assets are e;ual to their carrying
values e,cept for a land which was undervalued by '1$777$777. Care reported net earnings throughout the year in the amount of
'2$)77$777 and paid total dividends of '1$777$777. hat is the ma,imum amount of income Tender Company could include in its
2717 income statement as Oe;uity in Cares earningsP!
a. '273$-77 c. '2"3$-77
b. '2"-$777 d. '2)7$777
0. Company 6 owns$ hotel resort$ which includes a casino$ housed in a separate building that is part of the premises of the entire hotel
resort. #ts patrons would be largely limited to tourists and non1resident visitors only.
The owner operates the hotel and other facilities on the hotel resort$ with the e,ception of the casino$ which can be sold or leased out under
a finance lease. The casino will be leased to an independent operator. Company 6 has no further involvement in the casino. The casino
operator will not be prepared to operate it without the e,istence of the hotel and other facilities. *n Aecember "1$ 2717$ the following are
relevant information for the purpose of measuring the above assetsF
?otel '277$777$777
Casino -7$777$777
*ther facilities 1-7$777$777
hat amount of investment property should Company 6 report in its Aecember "1$ 2717 statement of financial condition!
a.' -7$777$777 c. '2-7$777$777
b.'1-7$777$777 d. ')77$777$777
0. *n Aecember "1$ 2774$ 5orth Co. is in financial difficulty and cannot pay a note due that day. #t is a '077$777 note with '07$777
accrued interest payable to 'iper$ #nc. 'iper agrees to accept from 5orth e;uipment that has a fair value of '2@7$777$ an original cost
of ')47$777$ and accumulated depreciation of '2"7$777. 'iper also forgives the accrued interest$ e,tends the maturity date to
Aecember "1$ 2711$ reduces the face amount of the note to '2-7$777$ and reduces the interest rate to 0H$ with interest payable at the
end of each year. 5orth should recognize a gain on the partial settlement and restructure of the debt of
a. '7. c. '--$777.
b. '1-$777. d. '3-$777.
3. (uller (ood Company distributes to consumers coupons which may be presented 8on or before a stated e,piration date: to grocers for
discounts on certain products of (uller. The grocers are reimbursed when they send the coupons to (uller. #n (uller.s e,perience$
-7H of such coupons are redeemed$ and generally one month elapses between the date a grocer receives a coupon from a consumer
and the date (uller receives it. Auring 2717 (uller issued two separate series of coupons as followsF
Consumer Amount Aisbursed
#ssued *n Total Ialue =,piration Aate as of 12C"1C17
1C1C17 '"3-$777 0C"7C17 '133$777
3C1C17 -)7$777 12C"1C17 22-$777
The only 2ournal entries to date recorded debits to coupon e,pense and credits to cash of '-"0$777. The Aecember "1$ 2717 balance
sheet should include a liability for unredeemed coupons of
a. '7. c. '@"$777.
b. ')-$777. d. '237$777.
4. &arcus Company plans to dispose of a group of its assets as held for sale. The assets form a disposal group$ and are measured as
followsF
Carrying Amount +efore
Classification as
?eld for 6ale
%emeasured Amount #mmediately
+efore Classification as
?eld for 6ale
9oodwill ' "$777$777 ' "$777$777
'roperty$ plant Q =;uipment
8 revalued amount: @$277$777 4$777$777
'roperty$ plant Q =;uipment
8historical amount: 11$277$777 11$277$777
#nventory )$477$777 )$)77$777
#nvestment in available for sale "$077$777 "$777$777
Total '"2$777$777 '2@$477$777
&arcus Company estimates that fair value less costs to sell of the disposal group amounts to '20$777$777.
#mmediately before classification as held for sale$ what amount of loss
should the company recognize!
a. 5one c. '2$277$777
b. '2$777$777 d. '"$477$777
@. *n Aecember "1$ 2717$ #rey Co. has J2$777$777 of short1term notes payable due on (ebruary 1)$ 2711. *n Ganuary 17$ 2711$ #rey
arranged a line of credit with County +an/ which allows #rey to borrow up to '1$-77$777 at one percent above the prime rate for
three years. *n (ebruary 2$ 2711$ #rey borrowed '1$277$777 from County +an/ and used '-77$777 additional cash to li;uidate
'1$377$777 of the short1term notes payable.
The amount of the short1term notes payable that should be reported as current liabilities on the Aecember "1$ 2717 balance sheet
which is issued on &arch -$ 2711 is
a. '7. c. '-77$777.
b. '"77$777. d. '477$777.
Clincher Category
1. At the close of its first year of operations$ Aecember "1$ 2717$ Ael &undo Company had accounts receivable of '-)7$777$ after
deducting the related allowance for doubtful accounts. Auring 2717$ the company had charges to bad debt e,pense of '@7$777 and
wrote off$ as uncollectible$ accounts receivable of ')7$777. hat should the company report on its balance sheet at Aecember "1$
2717$ as accounts receivable before the allowance for doubtful accounts!
a. '037$777 c. ')@7$777
b. '-@7$777 d. '))7$777
2. *n Ganuary 2$ 2711$ +etancor Company sold e;uipment with a carrying amount of ')47$777 in e,change for a '077$777 non1interest1
bearing note due Ganuary 2$ 271). There was no established e,change price for the e;uipment. The prevailing rate of interest for a
note of this type at Ganuary 2$ 2711 was 17H. The present value of 1 at 17H for three periods is 7.3-1". hat is the carrying value of
the note receivable as of Aecember "1$ 2711 statement of financial position!
a. ')-7$347 c. '-)-$)))
b. ')@-$4-4 d. '077$777
". =CC #nc. uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost 8retail:
were '0-$-77 8'@@$777:$ purchases during the current year at cost 8retail: were '-04$777 8'40-$077:$ freight1in on these purchases
totaled '20$-77$ sales during the current year totaled '411$777$ and net mar/ups were '0@$777. hat is the ending inventory value at
cost!
a. '222$077. c. '1)2$2)1.
b. '13)$"00. d. '1-2$"74.
). *n Ganuary 1$ 2711$ +ell Company purchased )$777 of '1$777 face value$ 17H bonds of 'epper Company for ')$237$077. The bonds
will mature on Ganuary 1$ 2712 pay interest semi1annually on Ganuary 1 and Guly 1. +onds effective interest rate is 4H. #n its
Aecember "1$ 2711 profit or loss$ how much should +ell Company report as interest income on the bonds!
a. '107$777 c. '137$42)
b. '10@$0-3 d. '")7$)41
-. +alcony Corporation ac;uires a coal mine at a cost of '-77$777. #ntangible development costs total '127$777. After e,traction has
occurred$ +alcony must restore the property 8estimated fair value of the obligation is '07$777:$ after which it can be sold for
'137$777. +alcony estimates that -$777 tons of coal can be e,tracted. #f @77 tons are e,tracted the first year$ which of the following
would be included in the 2ournal entry to record depletion!
a. Aebit to Accumulated Aepletion for '@1$477
b. Aebit to #nventory for '@1$477
c. Credit to #nventory for '@7$777
d. Credit to Accumulated Aepletion for '1-"$777
0. Auring 2717$ &iles Corporation disposed of 'ine Aivision$ a ma2or component of its business. &iles realized a gain of '1$277$777$
net of ta,es$ on the sale of 'ine.s assets. 'ine.s operating losses$ net of ta,es$ were '1$)77$777 in 2717. ?ow should these facts be
reported in &iles income statement for 2717!
Total Amount to be #ncluded in
#ncome from %esults of
Continuing *perations Aiscontinued *perations
a. '1$)77$777 loss '1$277$777 gain
b. 277$777 loss 7
c. 7 277$777 loss
d. 1$277$777 gain 1$)77$777 loss
3. *n Ganuary 1$ 2774$ +o/ Corporation ac;uired machinery at a cost of '2-7$777. +o/ adopted the double1declining balance method of
depreciation for this machinery and had been recording depreciation over an estimated useful life of ten years$ with no residual value.
At the beginning of 2711$ a decision was made to change to the straight1line method of depreciation for the machinery.
The depreciation e,pense for 2711 would be
a. '12$477. c. '2-$777.
b. '14$240. d. '"-$31).
4. %odriguez Corporation sells its product$ a rare metal$ in a controlled mar/et with a ;uoted price applicable to all ;uantities. The total
cost of -$777 pounds of the metal now held in inventory is '1-7$777. The total selling price is '"-7$777$ and estimated costs of
disposal are '-$777. At what amount should the inventory of -$777 pounds be reported in the balance sheet!
a. '1)-$777. c. '")-$777
b. '1-7$777. d. '"-7$777.
@. *n Aecember 1$ &iser Corporation e,changed 2$777 shares of its '2- par value common stoc/ held in treasury for a parcel of land to be
held for a future plant site. The treasury shares were ac;uired by &iser at a cost of ')7 per share$ and on the e,change date the
common shares of &iser had a fair mar/et value of '-7 per share. &iser received '0$777 for selling scrap when an e,isting building
on the property was removed from the site. +ased on these facts$ the land should be capitalized at
a. '3)$777. c. '@)$777.
b. '47$777. d. '177$777.
17. 6torm Corporation purchased a new machine on *ctober "1$ 2717. A '1$277 down payment was made and three monthly installments
of '"$077 each are to be made beginning on 5ovember "7$ 2717. The cash price would have been '11$077. 6torm paid no installation
charges under the monthly payment plan but a '277 installation charge would have been incurred with a cash purchase. The amount to be
capitalized as the cost of the machine on *ctober "1$ 2717 would be
a. '12$277. c. '11$477.
b. '12$777. d. '11$077.
Practical Accounting Problems #
Source: ReSA, CTDI, CRC-ACE, & NRC
Easy Category
1. Da/e Construction Company uses the percentage1of1completion method for long1term construction contracts. The company has a
pro2ect with a contract price of '3$777 on which '077 of gross profit has been recognized in prior years. #nformation for the current
year is as followsF
Total cost incurred through current year '-$777
=stimated costs remaining at end of current year 2$477
hat is the loss that Da/e should recognize in the current year!
A. '077 C. '1$)77
+. '477 A. 5o loss should be recognized.
2. =mmanuel Company transferred -$-77 units to (inished 9oods #nventory during 6eptember. *n 6eptember 1$ the company had "77
units on hand 8)7 percent complete as to both material and conversion costs:. *n 6eptember "7$ the company had 477 units 817
percent complete as to material and 27 percent complete as to conversion costs:. The number of units started in process during
6eptember wasF
A. -$277 C. 0$777
+. -$-77 A. 0$"77
". *n Aecember 12$ 2774$ <ni*il sold merchandise to Thai Company. "$777 +aht is due on (ebruary 17$ 277@. *n the same date <ni
*il paid ')$777 cash to ac;uire a 071day put option for "$777 +aht.
12C12C74 12C"1C74 2C17C7@
6pot rate 8mar/et price: '1) '1- '12
6tri/e price 8e,ercise price: '1) '1) '1)
(air value of put option ')$777 '-$777 '-$-77
?ow much is the net foreign e,change gain or loss on (ebruary 17$ 277@!
8Assume the option was not e,ercised on that date:
A. '@$777 loss +. '4$-77 loss C. '4$777 loss A. '17$777 loss
). +++ Computer 6tore started its operation in Ganuary 1$ 2774. Auring the year$ it had cash sales of '1$"3-$777 and installment sales of
' "$"77$777. +++ imposes a mar/ up on cost of 2-H for cash sales and -7H for installment sales. Auring 2774$ installment receivable
balance amounted to '1$"27$777. ?ow much is the realized gross profit for 2774!
A. '007$777 +. '@@7$777 C. '@"-$777 A. '1$177$777
-. *n 6eptember 14$ 2774$ *cean Aeep Co. ac;uired all the Titanic #nc.s
'2$777$777 identifiable assets and '-77$777 liabilities. +oo/ values of the Titanics assets and liabilities e;ual to their fair values
e,cept for the overvalued 'lant Q e;uipment. As a consideration$ *cean Aeep issued its own shares of stoc/ with a mar/et value of
'1$077$777. The merger resulted into '377$777 goodwill. Assuming *cean Aeep had '-$777$777 total assets prior the combination$
how much is the combined total assets!
A. '0$)77$777 +. '0$077$777 C. '3$177$777 A. '3$777$777
0. ED& Company has the following information for 6eptemberF
<nits started 177$777 <nits
+#' 80-H incomplete: 27$777 <nits
5ormal spoilage "$-77 <nits
Abnormal spoilage -$777 <nits
=#' 8"7H incomplete: 1)$-77 <nits
Transferred out @3$777 <nits
+eginning or/ in 'rocess CostsF
&aterial '1-$777
Conversion 17$777
All materials are added at the start of the production process. ED&
Company inspects goods at 3- percent completion as to conversion.
Assume that the costs per =<' for material and conversion are '2.-7 and
'".3-$ respectively. <sing (#(*$ what is the total cost assigned to the
transferred1out units 8rounded to the nearest peso:!
A. '-3"$-@) +. '-3"$@-) C. '---$777 A. '-)4$-@)
3. 6herilyn &anufacturing Company produce a product called 6e,y. The following information pertain to this product.
%e;uired hours per unit 2 hours
5umber of employees 2-
=stimated wee/ly wage per employee ')47
=mployee benefits 8related to wages: 2-H
ee/ly hour per employee "7 hours
=mployee benefits treated as direct manufacturing labor cost. hat is the standard direct labor cost per unit!
a. '27 b. ')7 c. '2) d. '10
4. Lear1%ound 9olf sells franchises for indoor golf driving ranges and putting greens. (or each franchise$ the company charges a non1
refundable initial franchise fee of ')77$777. The franchise agreement re;uires a down payment of '177$777$ with balance covered by
the issuance of a '"77$777$ 17H note$ payable by the franchisee at the end of - years. #nterest does not begin to accrue until the
franchise opens$ and first interest payment is re;uired 12 months after the franchise opens. The company only sells to ;ualified buyers
so the collectibility of the note is always reasonably assured. The services re;uired for the initial franchise fee are completed 0 months
after the agreement is signed. ?ow much franchise revenue earned must be recognized upon signing of the agreement by Lear1%ound!
a. ')77$777 b. '177$777 c. '240$230 d. '7
@. The 6T Company sells a franchise that re;uires an initial franchise fee of '-77$777. A '177$777 down payment is re;uired with the
balance payable in ) e;ual monthly installments of '177$777. All material services have been substantially performed by 6T
Company$ the refund period has e,pired$ and the collectibility of the note is reasonably assured. The interest rate for this type of loan
will be 12H. The franchise revenue earned during the period must beF
a. '177$777 b. '-77$777 c. ')@7$777 d. ')7"$3"-
17. 6hangri1Da %estaurant sells a franchise that re;uire an initial franchise fee of '377$777. A down payment of '277$777 cash is
re;uired$ with the balance covered by the issuance of '-77$777$ 17H note payable by the franchisee in five e;ual annual installments.
The franchisor accounts for this initial franchise fee depending on the surrounding circumstances related to the franchise agreement.
The franchisor has not substantially performed all material services$ the refund period has e,pired and the collectibility of the note is
reasonably assured. The franchise revenue amounted toF
A. ' 7 C. '-77$777
+. '277$777 A. '377$777
Average Category
1. Coaster manufactures and sells logging e;uipment. Aue to the nature of its business$ Coaster is unable to reliably predict bad debts.
Auring 2717$ Coaster sold e;uipment costing '2$)77$777 for '"$077$777. The terms of the sale were 27H down$ with e;ual payments
due ;uarterly over the ne,t " years. All payments for 2717 were made on schedule. %ound answers to two places.
Assuming that Coaster uses the installment method of accounting for its
installment sales$ what amount of realized gross profit will Coaster
report in its income statement for the year ended Aecember "1$ 2717!
A. '1$047$777 C. '-07$777
+. '1$127$777 A. '"0@$077

2. #n the %6T partnership$ %on.s capital is '47$777$ 6tella.s is '3-$777$ and Tiffany.s is '-7$777. They share income in a "F2F1 ratio$
respectively. Tiffany is retiring from the partnership. =ach of the following ;uestions is independent of the others.
%efer to the above information. Tiffany is paid '07$777$ and no goodwill
is recorded. #n the 2ournal entry to record Tiffany.s withdrawalF
A. Tiffany$ Capital will be credited for '07$777.
+. %on$ Capital will be debited for '-$777.
C. 6tella$ Capital will be debited for ')$777.
A. Cash will be debited for '07$777.
". The +roo/e Corporation has two branches$ +ranch ' and +ranch N. The home office shipped '47$777 in merchandise to +ranch ' and
prepaid the freight charges of '-77. A short time thereafter$ +ranch ' was instructed to ship this merchandise to +ranch N at a prepaid
freight cost of '377. (reight charges for this merchandise normally cost '477 when shipped from the home office directly to +ranch
N.
Compute the e,cess freight on transfers of merchandiseF
A. '377 C. '-77
+. '477 A. ')77
). =(9 Company has developed standard overhead costs based on a capacity of 147$777 machine hours as followsF
6tandard costs per unitF
Iariable portion 2 hours R '" S ' 0
(i,ed portion 2 hours R '- S 17
' 10
Auring 6eptember$ 4-$777 units were scheduled for production$ but only
47$777 units were actually produced. The following data relate to
6eptemberF

Actual machine hours used were 10-$777.
Actual overhead incurred totaled '1$"34$777 8'-14$777 variable plus
'407$777 fi,ed:.
All inventories are carried at standard cost. The variable overhead
efficiency variance for 6eptember was; The fi,ed overhead spending
variance for 6eptember was
A. '1-$777 < ; ')7$777 ( C. '"4$777 < ; ')7$777 (
+. '"4$777 ( ; '07$777 ( A. '2"$777 < ; '177$777 <
-. *n Ganuary 1$ 2774 & Co. ac;uired 37H of the outstanding common stoc/ of 5 Co. for '"22$-77 cash. The boo/ value of 5s net
assets at controlling interest is '14"$3-7. 5s only over or undervalued assets is machinery that has a boo/ value of '"@$777 and a
current value of '""$777. The machinery has a remaining useful life of four years. ?ow much is the minority interest to be reported
in the consolidated balance sheet on Ganuary 1$ 2774!
A. '-"$"2- +. '33$)77 C. '30$)2- A. '30$@-7
0. The +uo Company processes apples into pies$ spread and dressing. Auring the second ;uarter of 2774$ the 2oint cost of processing the
apples were '3-7$777. There was no beginning inventories for the ;uarter. 'roduction and sales value information for the ;uarter
were as followsF Assume the use of the estimated net realizable value method.
Product Items/Saes !aue at Separa"e #ina Seing $nits
unit Spit-o%% point Costs Price on &and
'ies 27$777 '1)Cunit '27Cunit '"-Cunit 3$777
6pread-7$777 '12Cunit '17Cunit '24Cunit 2)$777
Aressing 2-$777 ' @Cunit ' 4Cunit '27Cunit 17$777

Aetermine the T*TAD amount of cost of goods sold
A. '1$071$-77 +. '1$107$-77 C. '344$-77 A. '1$701$-77
3. Agency 66 issued a purchase order for the ac;uisition of office e;uipment costing '22-$777. The e;uipment was received with the
charge invoice and was paid by chec/ after withholding ta, of 17H. Agency 66 remitted the ta, withheld to +#% thru a government
depository ban/. hat is the entry of Agency 66 to record the payment!
A. Accounts 'ayable 22-$777
Aue to +#% 22$-77
Cash15ational Treasury1&A6 272$-77
+. *ffice =;uipment 22-$777
Cash15ational Treasury1&A6 22-$777
C. Accounts 'ayable 22-$777
Aue to +#% 22$-77
Cash1Aisbursing officer 272$-77
A. *ffice =;uipment 272$-77
Cash15ational Treasury1&A6 272$-77
8. AA and ++ formed a partnership in 2774 and made the following investments and withdrawals during the yearF
AA ''
In(estment )it&dra*a In(estments )it&dra*a
Ganuary1 '210$777 '2-2$777
Gune 1 '174$777 '102$777
August 1 23$777 -)$777
Aecember 1 41$777
The partnerships profits and loss agreement provides for a monthly salary of ')-$777 for each partner. AA is to receive a bonus of
2-H on net income after salaries and bonus. The partners are also to receive interest of -H on average capital balances. Any remainder are
to be allocated based on their ending capital balances. Assuming the income summary has a credit balance of '1$))7$777. Aetermine
which of the following is incorrect in the partnership operation.
A. AA is to receive a bonus of '32$777
+. ++ will receive '3$43- interest on average capital balance
C. ++ has a share of )7H in the '23"$"3- remainder or balance
A. AA$ Capital account will increase by '34"$@77
9. The ?ome *ffice in &a/ati shipped merchandise costing ')7$777 to &anila branch and paid for the freight charges of '"77. The
home office bills the branch at 12-H of cost. &anila branch was subse;uently instructed to transfer one1half of the merchandise to
Nuezon City branch wherein Nuezon City branch paid for '177 freight. #f the shipment was made directly from &a/ati to Nuezon
City$ the freight cost would have been '277. +y how much will &anila +ranch charge the ?ome *ffice account!
A. '2-$1-7 +. '2-$"77 C. '2-$0-7 A. '2-$2-7
17. The G'+ partnership reported net income of '107$777 for the year ended Aecember "1$ 2774. According to the partnership agreement$
partnership profits and losses are to be distributed as followsF
G ' +
6alaries ' -7$777 ' 07$777 ' "7$777
+onus on net income 17H -H 17H
%emainder 8if positive: 07H "7H 17H
%emainder 8if negative: "7H )7H "7H
?ow should partnership net income for 2774 be allocated to G$ '$ and +!
G ' +
A. '@0$777 ')4$777 '10$777
+. '-4$777 '0)$777 '"4$777
C. '07$777 '07$777 ')7$777
A. '00$777 '04$777 ')0$777
A. *ption A C. *ption C
+. *ption + A. *ption A
Difficult Category
1. 6elected balances from the Cebu Companys +ranch A and + are as followsF
#nventory$ Gan. 1$ 277@
#mprest +ranch (und
#nventory$ Aec. "1$ 277@
AC%eceivable$ Gan. 1$ 277@
&erchandise from ?ome *ffice
AC%eceivable$ Aec. "1$ 277@
Cash Collections
6ales
Cash =,pensesT
Branch A
'21$777
2$777
1@$777
--$777
01$777
37$777
4-$777
177$777
21$777
Branch B
'1@$777
1$-77
12$777
)"$-77
)3$777
-"$-77
37$777
47$777
1)$"77
All sales$ collections$ and e,penses are handled at the branch. All cash received from sales and collections are sent directly to the
?ome *ffice. =,penses are paid by the branch from the imprest fund and immediately reimbursed by the ?ome *ffice and credited to
the ?ome *ffice account. All e,penses paid by the branch are recorded in the boo/s of the branch.
Compute the balance of the ?ome *ffice account on Ganuary 1$ 277@.
+ranch A
+oo/s
+ranch +
+oo/s
A. '34$777 '03$777
+. 3-$777 0)$777
C. 0)$777 34$777
A. 34$777 0)$777
2.*n Ganuary 1$ 2717$ *rton Co. sold a used machine to Eing$ #nc. for '"-7$777. *n this date$ the machine had a depreciated cost of
'2)-$777. Eing paid '-7$777 cash on Ganuary 1$ 2717 and signed a '"77$777 note bearing interest at 17H. The note was payable in
three annual installments of '177$777 beginning Ganuary 1$ 2711. *rton appropriately accounted for the sale under the installment
method. Eing made a timely payment of the first installment on Ganuary 1$ 2711 of '1"7$777$ which included interest of '"7$777 to
date of payment. At Aecember "1$ 2711$ *rton has deferred gross profit ofF
A. '37$777. C. '07$777
+. '00$777. A. '-1$777
". 'artners Aennis and Dilly have decided to li;uidate their business. The following information is availableF
Cash '177$777 Accounts payable '177$777
#nventory 277$777 Aennis$ capital 127$777
UUUUUUUU Dily$ capital 47$777
Total '"77$777 Total '"77$777
Aennis and Dilly share profits and losses in a "F2 ratio. Auring the first month of li;uidation$ half the inventory is sold for '07$777$ and
'07$777 of the accounts payable is paid. Auring the second month$ the rest of the inventory is sold for ')-$777$ and the remaining
accounts payable are paid. Cash is distributed at the end of each month$ and the li;uidation is completed at the end of the second
month.
<sing a safe payments schedule$ how much cash will be distributed to Dilly at the end of the second month!
A. '23$777 C. '14$777
+. '"0$777 A. ' 7
). ynne #nc. charges an initial franchise fee of '@27$777$ with '277$777 paid when the agreement is signed and the balance in five
annual payments. The present value of the future payments$ discounted at 17H$ is '-)-$432. The franchisee has the option to purchase
'127$777 of e;uipment for '@0$777. ynne has substantially provided all initial services re;uired and collectibility of the payments is
reasonably assured. The amount of revenue from franchise fees is
A. '277$777 C. '3)-$432
+. '321$432 A. '@27$777
-. Da/e 'ower 6ports sells 2et s/is and other powered recreational e;uipment. Customers pay 1C" of the sales price of a 2et s/i when they
initially purchase the s/i$ and then pay another 1C" each year for the ne,t two years. +ecause Da/e has little information about
collectibility of these receivables$ they use the installment method for revenue recognition. #n 2774 Da/e began operations and sold 2et
s/is with a total price of '@77$777 that cost Da/e ')-7$777. Da/e collected '"77$777 in 2774$ '"77$777 in 277@$ and '"77$777 in
2717 associated with those sales. #n 277@ Da/e sold 2et s/is with a total price of '1$-77$777 that cost Da/e '@77$777. Da/e collected
'-77$777 in 277@$ ')77$777 in 2717$ and ')77$777 in 2711 associated with those sales. #n 2711 Da/e also repossessed '277$777 of 2et
s/is that were sold in 277@. Those 2et s/is had a fair value of '3-$777 at the time they were repossessed.
#n its Aecember "1$ 277@$ balance sheet$ Da/e would reportF
A. Aeferred gross profit of '377$777
+. Aeferred gross profit of '1$7-7$777.
C. #nstallment receivables 8net of deferred gross profit: of '3-7$777.
A. #nstallment receivables 8net of deferred gross profit: of '@77$777.
6. #ncluded in the accounting records of the home office and the only branch$ respectively$ of 6ocrates Company were the following
ledger accounts for Gune$ 277@F
#nvestment in 'lato +ranch
Aate =,planation Aebit
Credit +alance
277@
&ay "1 +alance -1$777 dr
Gune 0 6hipment of merchandise "7$-77 41$-77 dr
27 %eceipt of cash 11$-77 37$777 dr
20 Collection of branch trade account
receivable
@$777 01$777 dr
"7 6hipment of merchandise 2)$777 4-$777 dr
?ome *ffice
Aate =,planation Aebit
Credit +alance
277@
&ay "1 +alance -1$777 cr
Gune 4 %eceipt of merchandise "7$-77 41$-77 cr
14 'ayment of cash 11$-77 37$777 cr
23 Ac;uisition of office e;uipment 1)$-77 --$-77 cr
"7 'ayment of cash 22$777 ""$-77 cr
The reconciled amount of the reciprocal account isF
A. ')4$-77 C. '0"$777
+. '-3$-77 A. '37$-77
3. 6ummary ad2usted trial balances for the home office and branch of Tan/er Corporation at Aecember "1$ 277@ are as followsF
Debits
*ther assets
#nventories Gan.1$ 277@
+ranch
'urchases
6hipments from home office
=,penses
Aividends
Total debits
Cre!its
*ther liabilities
Capital stoc/
%etained earnings
?ome office
<nrealized profit in branch inventory
6ales
6hipments to branch
+ranch profit
Total credits
?ome *ffice
' -"7$777
-7$777
277$777
-77$777
127$777
177$777
'1$-77$777
' @7$777
-77$777
177$777
11
17$777
-"3$-77
277$777
UUUU02$-77
'1$-77$777
+ranch
'10-$777
)-$777
1
1
2)7$777
-7$777
UUUUUUUU
'-77$777
' 2-$777

13-$777
1

"77$777
UUUUUUUU
'-77$777
Aetermine the combined net income of the home office and the branchF
A. '272$-77 C. '2)3$-77
+. '277$777 A. '"37$777
4. +5C sells a new car for '-07$777. Cash down payment of '177$777 was received together with an old car with a trade1in value of
'47$777. Cost of the new car sold is '"22$477. #t is estimated that the reconditioning of the old car will cost ')7$777 and may be sold
at '1)7$777 which includes a "7H gross profit. +5C was able to collect -7H of the balance and the customer defaulted. The car was
repossessed and can still be sold at @7H of the uncollected balance after reconditioning cost of 27H. ?ow much is the gain or loss
from repossession!
a. '22$477 gain b. '23$247 gain c. '"1$71- gain d. '24$407 gain
@. Arlene Chemical Company manufactures two industrial chemical products in a 2oint process. #n &ay$ 17$777 gallons of input costing
'07$777 were processed at a cost of '1-7$777. The 2oint process resulted in 4$777 pounds of %esoline and 2$777 pounds of Erypto.
%esoline sells at '2- per pound and Erypto sells for '-7 per pound. &anagement generally processes each of these chemicals further
in separable processes to produce more refined chemical products. %esoline is processed separately at a cost of '- per pound. The
resulting product$ %eoslite$ sells for '"- per pound. Erypto is processed separately at a cost of '1- per pound. The resulting product$
Eryptite$ sells for '@- per pound. The 2oint cost share of product Eryptite using the net realizable value method must beF
a. '120$777 b. '4)$777 c. '1)7$777 d. '37$777
17. %odelia$ &eAn$ and Tracy share profits and losses from their partnership in the ratio of 27 percent$ "- percent$ and )- percent$
respectively. Capital and loan balances related to each partner are as followsF
Doan to 'artner Doan to 'artnership
(rom 'artnership from 'artner Capital
%odelia '177$777 '-77$777
&eAn '37$777 247$777
Tracy 277$777 2-7$777
#n addition to the loan to &eAn$ assets of the partnership include cash of '117$777$ inventory of '"07$777$ receivables of '207$777$
and plant and e;uipment of '317$777. 'artnership liabilities to nonpartners amount to '147$777. #f %odelia receives already ')-7$777$
how much Tracy receives at this point!
a. '147$777 b. '112$-77 c. '1$712$-77 d. '277$777
Clincher Category
1. &i/e and %oger formed a partnership on Ganuary 2$ 2770$ and agreed to share profits @7H and 17H$ respectively. &i/e contributed
'2-$777 and %oger contributed his e,pertise. There were no withdrawals during the year e,cept for the '1$777 monthly salary for
%oger as full1 time manager. #t was further agreed that -H interest be given based on the beginning capital and %oger is to receive
27H bonus calculated on income before deducting salaries$ interests$ and bonus.
The 2770 income statement showed revenues of '@0$)-7 and e,penses of ')@$377$ including partners salaries$ interest and bonus.
?ow much is the bonus!
a. '@$"-7 b. '1-$777 c. '12$777 d. '@$7"3.-7
2. Goc/ and Doc/$ partners to a firm$ share profits e;ually and each has a capital balance of '@77$777. &oc/ is to be admitted as a new
partner by a cash investment of '1$277$777 for a 1C" interest in both the firms assets and profits. &oc/ will be credited in full for the
amount he invested. The new capital of the firm will beF
a. '2$)77$777 b. '"$077$777 c. ')$277$777 d. '"$777$777
". Aon$ ?on$ and Gon$ who share profits in the ratio of )F1F-$ respectively$ have the following capital balances$ respectivelyF '-7$777;
'-7$777; and '1-7$777. *n this date the partnership has liabilities of ')7$777. The partners decided to li;uidate. #f Gon gets '43$-77
upon final li;uidation$ the realization loss isF
a. '11-$777 b. '1)7$777 c. '1)2$-77 d. '12-$777
). *n Aecember "1$ the branch account on the home office boo/s of the 6e,y Company shows a balance of '10$477. The following are
some of the transactions between the home office and the branchF
1. &erchandise billed at '1$2"7 was shipped by the home office to the branch on Aecember 24. The merchandise is in
transit and has not been recognized on the boo/s of the branch.
2. The branch collected a home office accounts receivable of '-$777 but failed to notify the home office of this collection.
". The home office was charged '1$247 when the branch returned merchandise to the home office on Aecember "1. The
merchandise is in transit.
). The home office recorded incorrectly the branch net income for 5ovember at '2$2-7. The branch reported net income of
'2$-27.
The corrected balance of the reciprocal accounts as of Aecember "1 wasF
a. '27$3@7 b. '17$337 c. '1"$""7 d. '1@$-07
5. -. The condensed balance sheets of Adult$ #nc. and 6ibling Co. are shown belowF
Adult 6ibling
Assets '"$12-$777 '43-$777
Diabilities 1$02-$777 2-7$777
Capital stoc/ 8par '177: 1$2-7$777 -77$777
%etained earnings 2-7$777 12-$777
The fair mar/et value of Adult and 6iblings assets were '"$-77$777 and '@-7$777$ respectively. Their liabilities are fairly valued.
Adult buys all of the issued and outstanding shares of 6ibling at '147 per share. #n the consolidated balance sheet$ the total assets are
a. ')$23-$777 b. ')$)-7$777 c. '"$3-7$777 d.'"$"3-$777
0. *n Ganuary 1$ 277-$ %oyal Corporation purchased 47H of 6ervant Corporations '17 par common stoc/ for '@3-$777. *n this date$
the carrying amount of 6ervants net assets was '1$777$777. The fair values of 6ervants identifiable assets and liabilities were the
same as their carrying amount e,cept for plant assets 8net:$ which were '177$777 in e,cess of the carrying amount. The plant assets
have a remaining useful life of - years from Ganuary 1$ 277-. (or the year ended Aecember "1$ 277-$ 6ervant had net income of
'1@7$777 and paid cash dividends totaling '12-$777. 9oodwill was found to be impaired by '2-$777.
#n the Aecember "1$ 277-$ consolidated balance sheet$ goodwill should be
reported at
a. '@7$2-7 b. '@-$777 c. '37$777 d. '13-$777
3. 5ational (ederation Company provides the following information for 2770F
*pening wor/ in process inventory '1-7$777
Closing raw materials inventory 07$777
*pening raw materials inventory 37$777
%aw materials available for use )17$777
#ndirect materials 17$777
Airect labor "77$777
(actory overhead 8inclusive of indirect materials: ""3$-77
Cost of goods manufactured @3-$777
?ow much is 5ationals ending wor/ in process inventory!
a. '"72$-77 b. '212$-77 c. '102$-77 d. '1-2$-77
4. The following selected information pertains to Total CompanyF
Airect materials '02-$777
#ndirect materials 12-$777
Airect labor 3-7$777
#ndirect labor 112$-77
(actory overhead 8not including indirect
materials and indirect labor: "3-$777
?ow much is the conversion costs!
a. '1$"3-$777 b. '1$"02$-77 c. '2$-77$777 d. '2$3"3$-77
@. 6t. Douis ?ospital received an unrestricted be;uest of '1-7$777 in 277). This be;uest should be recorded as
&emo entry only.
*ther operating revenue of '1-7$777.
5on1 operating revenue of '1-7$777.
A direct credit of '1-7$777 to the fund balance.
17. The statement affair for Izell Corporation shows that appro,imately '7.34
on the peso probably will be paid to unsecured creditors without
priority. The corporation owes +oy Company '2"$777 on a promissory note$
plus accrued interest of '@)7. #nventories with a current fair value of
'1@$277 collateralize the note payable. Compute the amount that +oy
should receive from Izell assuming that the actual payments to unsecured
creditors without priority consist of 34H of total claims. %ound all
amounts to the nearest peso.
a. '1@$277 b. '22$4@3 c. '""$@43 d. '-2$277
Au!iting Theory
Source: ReSA and CRC-ACE
Easy Category
1. $1 #nformation ris/ refers to the ris/ that the auditor may e,press an un;ualified opinion on the financial statements when in
fact the financial statements are materially misstated.
$# The biases and motives of the information provider may be a cause of information ris/.
$% The assumption underlying an audit of financial statements is that they will be used by different groups for similar purposes.
a. (alse$ false$ true c. (alse$ true$ false
b. (alse$ true$ true d. True$ false$ false
2. &aterial errors which occur in the accounting process may not be detected by the auditor in his e,amination of the firm is ;uite a big
ris/. #n order to minimize this ris/$ the auditor relies onF
a. Compliance tests. c. 6ubstantive tests.
b. #nternal controls. d. 6tatistical ris/ analysis.
". Auring the performance of ris/ assessment procedures$ Deslie$ C'A$ noted a change in accounting principle has been effected by the
client. #n this case$ Deslie should plan to evaluate the change to satisfy herself thatF
a. The newly adopted principle is a generally accepted accounting principle.
b. The method of accounting for the effects of the change is in conformity with generally accepted accounting principles.
c. &anagements 2ustification for the change is reasonable.
d. All of the answers.
4. Assertions are representations of management that are embodied in financial statement components. They can be either e,plicit or
implicit. hich of these assertions is not about (auation or aocation!
a. 5otes payables in the balance sheet include all such obligations of the entity.
b. Trade accounts receivables in the balance sheet are stated at net realizable value.
c. 'roperty is recorded at historical cost.
d. 'roperty cost is systematically allocated to appropriate accounting period.
-. %eports on agreed1upon procedures are restricted to the parties that have agreed to the procedures to be performed$ becauseF
a. #ndependence is re;uired when such engagements are performed.
b. The identity of fraudsters must be protected from further damage by e,posure to the public.
c. *ther parties who are unaware of the reasons for the procedures may misinterpret the results.
d. <sers of audited financial statements must form their own conclusions.
6. hich of the following is the best criterion for evaluating a staff auditors wor/ performance!
a. Nuantity of deficiency findings.
b. (ulfillment of re;uirements set forth in the audit.
c. or/ing papers appearance.
d. Ability to get along with clients.
3. <nder the 9lossary of Terms$ the term OassessP$ by convention$ is used only in relation toF
a. %is/ c. Audit engagements
b. &ateriality d. Audit procedures
8. hich of the following would most li/ely cause a C'A not to accept a new audit engagement!
a. a high level of client business ris/.
b. being approached by the client 2ust before the fiscal year end.
c. concluding that there was a high inherent ris/ of management fraud.
d. lac/ of ade;uate /nowledge of the clients business.
9. hen an auditor is assessing the auditability of a small business client$ the auditor should focus uponF
a. the integrity of management and the ade;uacy of the clients internal control systems.
b. whether the auditor has ade;uate resources to accomplish the audit.
c. the amount of ris/ the audit represents and the audit fee which can be collected.
d. whether the clients accounting personnel are well trained and professionally ;ualified.
10.According to the #%%$ how many representatives of the Nuality %eview Committee will be representatives of the accredited national
professional organization of C'As!
a. (ive members. c. 6i, members.
b. (our members. d. 6even members.
Average Category
1. hen performing analytical tests$ a C'A is least li/ely to compare the current years balances or ratios to e,pectations derived fromF
a. informed 2udgment c. industry data
b. budgetary data d. unaudited data
2. The term incoming auditor refers toF
#. The auditor of the financial statements of the current period$ where either the financial statements of the prior period have been
audited by another auditor 8i.e.$ successor auditor:
##. The auditor of the financial statements of the current period$ where the audit is an initial audit engagement.
a. # only c. +oth # and ##
b. ## only d. 5either # nor ##
3. hich of the following statements is incorrect!
a. A component is a division$ branch$ subsidiary$ 2oint venture$ associated company or other entity whose financial information
is included in financial statements audited by the principal auditor.
b. An error is an unintentional fraud in the financial statements$ while fraud is an intentional error by one or more individuals$
among management$ employees$ or third parties$ which results in a misrepresentation of financial statements.
c. An e,pert is a person or a firm possessing special s/ill$ /nowledge and e,perience in a particular field other than accounting
and auditing.
d. *ne procedure an auditor considers using is in;uiry$ which consists of see/ing information of /nowledgeable persons inside
or outside the entity.
). '6NC 5o. 1 re;uires complaints and allegations against the firm to be dealt with appropriately. Complaints and allegations may come
fromF
A + C A
(irm personnel Les 5o Les Les
Clients Les Les 5o Les
*ther third parties 5o Les 5o Les
5. A C'A must earn at least 07 credit units for three years$ with a minimum of 1- credit units earned per year. =,cess credit units$ if
any$ shall not be carried over to the ne,t three1year period e,ceptF
a. Credit units earned for authoring an article of national significance.
b. Credit units earned for serving as professorial chair.
c. Credit units earned for an invention of significance to the profession.
d. Credit units earned for doctoral or masteral degrees.
6. $1 The auditor cannot assume that an instance of fraud is an isolated occurrence.
$# #f the auditor believes that a misstatement is or may be the result of fraud$ but the effect of the misstatement is not material to
the
financial statements$ the auditor evaluates the implications$
especially those dealing with the organizational position of the
individual8s: involved.
a. True$ false c. True$ true
b. (alse$ true d. (alse$ false
3. 6inner$ C'A$ is planning the audit of Thinner 'rinters$ #nc. Thinner verbally asserts to 6inner that all the e,penses for the year have
been recorded in the accounts. Thinners representation in this regardF
a. #s sufficient evidence for 6inner to conclude that the completeness assertion is supported for the e,penses.
b. 6hould be disregarded because it is not in writing.
c. #s not considered a sufficient basis for 6aint to conclude that all e,penses have been recorded.
d. Can enable 6inner to minimize his wor/ on the assessment of control ris/ for the completeness of e,penses.
8. According to '6A "1-$ an e,ample of the matters that the auditor may consider to obtain an understanding of the nature of the entity
is conduct o% operations. Conduct of operations include the following$ e,ceptF
a. 6tages and methods of production
b. +usiness segments
c. Alliances$ 2oint ventures$ and outsourcing activities
d. Aetails of declining or e,panding operations
@. The following are e,amples of the type of information that may come to the auditors attention which might indicate that
noncompliance with laws or regulations has occurred. *ne of them is not. #dentify the e,ceptionF
a. &edia comment.
b. #ndustry is regulated by various government agencies.
c. <nusual payments in cash$ purchases in the form of cashiers chec/s payable to bearer or transfers to numbered ban/
accounts.
d. 'ayments without proper e,change control documentation.
10.The following statements relate to the 'hilippine #nstitute of Certified 'ublic Accountants 8'#C'A:. hich one is incorrect!
a. The national directors shall be apportioned according to sectors in the three geographic sectors based on the ratio of latest
available number of members in good standing from those areas.
b. There shall only be fifteen national directors$ unless there is a valid reason to have additional representation.
c. A director can only represent a sector in a region if heCshe has been a member in good standing in such sector in the region for
at least two years at the time of hisCher nomination.
d. #t shall have a full1time career =,ecutive Airector who shall implement the policies promulgated by the '#C'A +oard of
Airectors and shall have direct supervision over the '#C'A 6ecretariat.
Difficult Category
1. Conrad$ C'A$ is conducting the 277@ audit of &anlolo Co.$ which specializes in the manufacture of cellphone components. These
cellphones have #nternet and email capabilities and feature superior mobile technology. #n the performance of the audit$ the following$
e,cept one$ would be considered by Conrad as fraud ris/ factors. 6elect the e,ceptionF
a. &anagement does not engage in committing to analysts$ creditors and other third parties to achieving what appears to be
unduly aggressive or clearly unrealistic forecasts.
b. 5ew accounting$ statutory or regulatory re;uirements that could impair the financial stability or profitability of the entity.
c. A significant portion of managements compensation is represented by bonuses$ stoc/ options$ or other incentives$ the value
of which is contingent upon the entity achieving unduly aggressive targets for operating results$ financial position$ or cash
flow.
d. Adverse conse;uences on significant pending transactions 8such as a business combination or contract award: if poor
financial results are reported.
2. hich statement is incorrect!
a. A review involves the application of audit s/ills and techni;ues and the gathering of evidence.
b. A review comprises in;uiry$ confirmation$ and analytical procedures which are designed to review the reliability of an
assertion that is the responsibility of one party for use by another party.
c. #n a compilation engagement$ the accountant is engaged to use accounting e,pertise as opposed to auditing e,pertise.
d. 5o assurance is e,pressed in a compilation engagement$ but users of compiled information still derive some benefit$ because
the service has been performed with due professional s/ill and care.
". ?ow long will be the terms of the chairman$ the vice1chairman 8indicate length of term as vice1chair: and the members of the
'rofessional %egulatory +oard of Accountancy!
Chairman &ice'Chairman (embers
a. " years " years " years
b. 1 year 1 year " years
c. " years 1 year 1 year
d. " years 1 year " years
4. Are the folloing ris!s greater in C"# than in $anual s%ste$s&
A + C A
=rroneous data conversion Les Les Les Les
=rroneous source document preparation Les Les Les 5o
%epetition of errors 5o 5o Les Les
Concentration of data Les 5o Les Les
5. An auditor who has not been able to obtain sufficient appropriate evidence with respect to several material balances on a clients
opening balance sheet is most li/ely to issue which of the following opinions!
a. An adverse opinion
b. A disclaimer of opinion
c. An un;ualified opinion with an emphasis of matter paragraph
d. A ;ualified opinion due to departure from financial reporting standards.
6. ''' #nc. sells all of its products through its website. The company sells specialty tea$ mostly imported from China. &ost of its
customers are in 5orth America$ and the rest are in =urope. The companys website is attractive and receives hundreds of hits every
day$ including some from %ussia$ Africa$ and 6outh America. ''' has instituted a firewall to protect its website. hich of the
following is %ase concerning firewalls in a situation similar to '''s!
a. They can monitor the data traffic both into and out of the organizations networ/.
b. They can bloc/ certain /inds of data.
c. They can bloc/ all traffic from particular locations.
d. They are an effective alternative for other security measures such as digital certificates.
3. hich of the following statements is true!
a. #ncreasing control ris/ will increase detection ris/.
b. Aetection ris/ is inversely related to the amount of evidence re;uired.
c. #ncreasing inherent ris/ will increase detection ris/.
d. #nherent ris/ and control ris/ are inversely related to audit ris/.
4. An audit firm has a policy that all audits will be conducted such that the ris/ that they will fail to e,press an appropriate opinion when
the financial statements are materially misstated will be no greater than )H. #f the ris/ of a material misstatement occurring in the first
place is assessed at 7.-$ and the ris/ that the internal controls will fail to preventCdetect a material misstatement is assessed at 7.2$ how
should the firm ensure that their policy is followed!
a. Ad2ust audit ris/ to 7.) c. Ad2ust inherent ris/ to 7.)
b. Ad2ust detection ris/ to 7.) d Ad2ust control ris/ to 7.)
9. 'or all audits of financial state$ents conducted in accordance ith generall% acce(ted auditing
standards) the use of anal%tical (rocedures is re*uired to so$e e+tent
A + C A
As a ris/ assessment procedure in the planning phase Les Les Les 5o
As a substantive test procedure Les 5o 5o Les
#n the overall review of the financial statements Les Les 5o Les
17. <nder '6A 217$ the auditor should not agree to a clients re;uest to change the engagement to one which provides a lower level of
assurance where there is no reasonable 2ustification for doing so. hich of the following would not be considered a reasonable basis
for re;uesting a change in the engagement!
#. A change in the circumstances that affects the entitys re;uirements and the need for the service.
##. A misunderstanding as to the nature of an audit or related service.
###. A restriction on the scope of the engagement$ whether imposed by the
client or caused by circumstances.
a. # only b. ## only. c. ### only. d. # and ### only
Clincher Category
1. $1 A typical ob2ective of an operational audit is for the auditor to determine whether the financial statements fairly present
the entitys financial position$ results of operations and cash flows.
$# #n performing compliance audits$ a C'A issues a report on the degree of compliance with the criteria used for the engagement 8for
e,ample$ laws$ rules or regulations which have been set by the auditor:.
$% #ndependent auditors are e,pected by management to be e,perts who actively participate in management decision1ma/ing.
a. (alse$ false$ true c. (alse$ true$ false
b. True$ false$ false d. (alse$ false$ false
2. Those matters that arise from the audit of financial statements and$ in the opinion of the auditor$ are both important and relevant to
those charged with governance in overseeing the financial reporting and disclosure process.
a. (raud ris/ factors
b. Audit matters of governance interest
c. %is/ of material misstatement
d. &aterial wea/nesses in internal controls
3. A preliminary or entrance conference with the auditee is a useful step in avoiding misunderstandings. hich of the following items is
usually not covered in a preliminary conference!
a. 6pecial problems /nown to be relevant to the audit.
b. =,tent to which the independent auditor will need assistance and cooperation from the organizations personnel.
c. Condition of accounting records and other data sources which may affect the scope of the audit and difficulty of completion.
d. Audit program to be followed.
4. 'arties are considered to be reated ifF
a. #f a breach of covenants has occurred$ and if on or before balance sheet date$ one party has obtained a grace period of at least
twelve months after balance sheet date during which said party can rectify the breach$ and the other party has agreed not to
demand payment for the term of the grace period.
b. *ne party has the ability to control the other party and e,ercise significant influence over the other party in ma/ing financial
and operating decisions.
c. #f one party discounts a note receivable to another party and the discounting is without recourse.
d. #f a transaction is processed in an unusual manner due to errors in the accounting and internal control system.
-. hich of the following statements is incorrect!
a. An engagement ;uality control review ordinarily involves discussion with the engagement partner$ a review of the financial
statements or other sub2ect matter information and the report$ and$ in particular$ consideration of whether the report is
appropriate.
b. The e,tent of the review depends on the comple,ity of the engagement and the ris/ that the report might not be appropriate in
the circumstances.
c. The review reduces the responsibilities of the engagement partner.
d. An engagement ;uality control review may be conducted before the end of the engagement.
0. The main difference between inspection of audit engagements and engagement ;uality control reviews is theF
a. (irm that performs such procedures
b. &embers of the audit team that performed the inspected engagement
c. Timing of performance of such procedures
d. All of the answers.
3. An auditor has withdrawn from an audit engagement of a publicly1held company after finding irregularities which may materially
affect the financial statements. The auditor should set forth the reasons and findings in correspondence to the
a. 6ecurities and =,change Commission.
b. Clients legal counsel.
c. 6toc/ e,changes where the companys stoc/ is traded.
d. +oard of Airectors.
8. The following statements relate to %epublic Act 5o. @2@4. hich statement is correct!
a. The +oard of Accountancy has the authority to remove$ after due process$ any member of the 'rofessional %egulation
Commission for negligence$ incompetence or any other 2ust cause.
b. The functions of the +oard of Accountancy include the preparation of the contents of the C'A licensure e,amination and the
rating of e,amination papers.
c. After two years$ sub2ect to certain conditions$ the +oard of Accountancy must order the reinstatement of a C'A whose
certificate of registration has been revo/ed.
d. #nsanity is a ground for issuing a certificate of registration to a successful C'A candidate.
9. #n planning an audit$ the auditor should consider the presence of fraud ris/ factors relating to misstatements arising from 81: fraudulent
financial reporting and 82: misappropriation of assets. #n which of the following situations would the auditor most li/ely presume that
a high ris/ of defalcation e,ists!
a. A+C Company is a multinational company that does business in various countries in the Asia1'acific rim.
b. A=( Company does business with related parties.
c. 9?# Company has a cashier who also handles accounting and authorization functions.
d. &5* Company is in an industry where the rate of change is very slow.
10.Tomahaw/ Corp. orally engaged #ndian Q Co.$ C'As$ to audit its financial statements. Tomahaw/s management informed #ndian
that it suspected that the accounts receivable were materially overstated. Although the financial statements that #ndian audited did$ in
fact$ include a materially overstated accounts receivable balance$ #ndian issued a standard un;ualified report. #f Tomahaw/ sues
#ndian for negligence in failing to discover the overstatement$ #ndians best defense would be thatF
a. #ndian had signed no engagement letter.
b. #ndian performed the audit in accordance with '6As.
c. #ndian was not in privity of contract with Tomahaw/.
d. #ndian did not perform the audit rec/lessly or with an intent to deceive.
Au!iting Problems
Source: NRC, ReSA and CRC-ACE
Easy Category
1. The standard ban/ cash confirmation form re;uests all of the following e,cept
&aturity date of a direct liability
The principal amount paid on a direct liability
Aescription of collateral for a direct liability
The interest rate of a direct liability
2. The auditors count of the clients cash should be coordinated to coincide with the
a 6tudy of the system of internal controls with respect to cash
b Close of business on the balance sheet date
c Count of mar/etable securities
d Count of inventories
". hen scheduling the audit wor/ to be performed on an engagement$ the auditor should consider confirming accounts receivable
balances at an interim date if
a 6ubse;uent collections are to reviewed
b #nternal control over receivables is good
c 5egative confirmations are to be used
d There is a simultaneously e,amination of cash and accounts receivable
). The audit wor/ing paper often include a client prepared$ aged trial balance of accounts receivables as of the balance sheet date. This
aging is best used by the auditor to
a =valuate internal control over credit sales
b Test the accuracy of recorded charge sales
c Ierify the validity of the recorded receivables
d =stimate credit losses.
-. hich of the following is a standard internal accounting control for cash disbursements!
a Chec/s should be signed by the controller and at least one other employee of the company
b Chec/s should be se;uentially numbered and the numerical se;uence should be accounted for by the
person preparing ban/ reconciliation
c Chec/s and supporting documents should be mar/ed O'aidP immediately after the chec/ is returned with
the ban/ statement
d Chec/s should be sent directly to the payee by the employee who prepares documents that authorize chec/
preparation.
0. Lou completed your filed wor/ for 2774 on April 17$ 277@. +efore issuance of your audit report on April 2-$ 277@$ you were advised
that on April 1-$ 277@ a large receivable from a customer who is facing ban/ruptcy was written off as uncollectible. hat should you
do about this fact!
a. disclose the loss in the 2774 statements
b. ad2ust the 2774 financial statements
c. date your report April 17$ 277@
d. ta/e up the loss in the 277@ statements
3. #n establishing the e,istence and ownership of a long1term investment in the form of publicly traded shares$ an auditor should inspect
the securities or
a. Correspond with the investee company to verify the number of shares owned.
b. #nspect the audited financial statements of the investee company.
c. Confirm the number of shares owned that are held by an independent custodian.
d. Aetermine that the investment is carried at the lower of cost or mar/et.
4. hen an entity has few property and e;uipment transactions during the year$ the continuing auditor usually carriers out
a. A complete review of the related internal controls and performs tests of the controls of which the entity relies.
b. A complete review of the related internal controls and performs analytical review tests to verify current1year additions to
property and e;uipment.
c. A preliminary review of the related internal controls and performs a thorough e,amination of the balances at the beginning of
the year
d. A preliminary review of the related internal controls and performs e,tensive tests of current1year property and e;uipment
transactions.
@. The auditors count of the clients cash should be coordinated to coincide with the
a 6tudy of the system of internal controls with respect to cash
b Close of business on the balance sheet date
c Count of mar/etable securities
d Count of inventories
17. A form of receivable confirmation where the respondent is as/ed to reply
to the auditor only in the event of disagreement with the information
provided in the re;uest.
a. 'ositive e,ternal confirmation c. +lan/ confirmation
b. 5egative e,ternal confirmation d. 6tandard confirmation
Average Category
1. The records of 'ercy Company report the following data for April.
Cost %etail
#nventory )C71C7- ' "0$177 ' -7$777
'urchases ")0$)77 077$777
'urchases %eturns @$777 27$777
'urchase Aiscounts 3$777
6ales 89ross: 07-$777
6ales %eturns 27$777
=mployee Aiscounts -$777
(reight1in 2"$-77
(reight1out -7$777
Doss from +rea/age 2$-77
&ar/ups "4$777
&ar/up Cancellations 14$777
&ar/downs 24$-77
&ar/down Cancellations 4$-77
hat is the cost of sales to be reported using the average retail method!
a. '"00$340 b. '"07$-@3 c. '"01$71- d. '"--$37-
2. Aell Company sells its products in reusable$ e,pensive containers. The customer is charged a deposit for each container delivered and
receives a refund for each container returned within two years after the year of delivery. Aell accounts for the containers not returned
within the time limit as being retired by sale at the deposit amount. #nformation for 1@@" is as followsF
Containers held by customers at
Aecember "1$ 1@@2 from deliveries in
1@@1 ' -7$777
1992 1)-$77 '1@-$777
207$777
Containers delivered in 1@@"
Containers returned in 1@@" from deliveries inF
"7$777
4-$777
@-$777 217$777
hat amount should Aell report as a liability for returnable containers at
Aecember "1$ 1@@"!
a. '10-$777
b. '21-$777
c. '22-$777
d. '2)-$777
". Ducero Company pays a general managers bonus based on 17H of Duceros income after deducting the bonus but before deducting
income ta,es. (or the year ended Aecember "1$ 1@@"$ Duceros income was '117$777 before deducting the bonus and income ta,es.
Ducero estimated its income ta, e,pense at ')7$777 for 1@@". ?ow much bonus should Ducero pay the general for 1@@"!
a. '7
b. ' 3$777
c. '17$777
d. '11$777
). Audrey Company incurred the following costs during 277@F
Nuality control during commercial production$ including routine testing of products ' )07$777
Daboratory researched aimed at discovery of new /nowledge -)7$777
=ngineering follow1through in an early phase of commercial production
127$777
Adaptation of e,isting capability to a particular re;uirement or customers need as
part of continuing commercial activity 117$777
Trouble shooting in connection with brea/downs during commercial production 2"7$777
6earching for applications of new research finding 1-7$777
Compute the amount that will be classified and e,pensed as research and development.
a. ' 0@7$777 b. ' -)7$777 c. ' 1$1-7$777 d. ' 1$017$777
-. Lour audit of the debt securities held for trading purposes of AA' C*%'. disclosed the following entries during the fiscal year ended
Gune "7$ 277@F
Aate 'articulars Aebit Credit
5ov 71 Ac;uired 17 shares of '17$777 (ace value bonds at 172 plus accrued
interest '174$777
Gan 71 #nterest received '@$777
&ar "1 'roceeds from sale of '"7$777 par value bonds including accrued
interest. "1$777
The nominal rate for this bond is
a. 14H b. @H c. 4.""H d. 10.03H
0. *n *ctober 1$ 1@@"$ &ann Company purchased -77 of the '1$777 face value$ 4H bonds of oman$ #ncorporated$ for '-)7$777$
which includes accrued interest of '17$77. The bonds$ which mature on Ganuary 1$ 2777$ pay interest semiannually on Ganuary 1 and
Guly 1. Assuming that &ann uses the straight1line method of amortization and that the bonds are appropriately recorded as long1term
investment$ the bonds should be shown on &anns Aecember "1$ 1@@" balance sheet at
a. '-24$)77
b. '-24$477
c. '-"7$777
d. '-)7$777
3. #n Ganuary 1@@1$ Cameron Corporation established a sin/ing fund in connection with its issue of bonds due in 2771. A ban/ was
appointed as independent trustee of the fund. At Aecember "1$ 1@@"$ the trustee held '"0)$777 cash in the sin/ing fund account$
representing '"77$777 in annual deposits to the fund$ and '0)$777 of interest earned on those deposits. ?ow should the sin/ing fund
be reported in Camerons balance sheet at Aecember "1$ 1@@"!
a. 5o part of the sin/ing fund should appear in Camerons balance sheet.
b. '0)$777 should appear as a current asset.
c. '"0)$777 should appear as a current asset.
d. '"0)$777 should appear as a noncurrent asset.
4. The balance in %eed Companys accounts payable account at Aecember "1$ 1@@2 was '1$22-$777 before the following information
was consideredF
9oods shipped (*+ destination on Aecember 21$ 1@@2 from a vendor to %eed were lost in transit. The invoice cost of ')-$777
was not recorded by %eed. *n Aecember 24$1@@2$ %eed notified the vendor of the lost shipment.
9oods were in transit from a vendor to %eed on Aecember "1$ 1@@2. The invoice cost was '07$777$ and the goods were shipped
(*+ shipping point on Aecember 24$1@@2. %eed received the goods on Ganuary 0$ 1@@".

hat amount should %eed report as accounts payable in its Aecember "1$
1@@2 balance sheet!
a. '1$""7$777
b. '1$24-$777
c. '1$237$777
d. '1$22-$777
@. The Ac/ley Company e,changed 177 shares of +ur/e Company common stoc/$ which Ac/ley was holding as an investment$ for a
piece of e;uipment from the (lynn Company. The +ur/e Company common stoc/$ which had been purchased by Ac/ley for '"7 per
share$ had a ;uoted mar/et value of '") per share at the date of e,change. The piece of e;uipment had a recorded amount on (lynns
boo/s of '"$177. hat 2ournal entry should Ac/ley have made to record this e,change!
Aebit Credit
a. =;uipment "77
#nvestment in +ur/e
Co. common stoc/ "77
b. =;uipment )77
#nvestment in +ur/e
Co. common stoc/ "77
*ther income 177
c. =;uipment "$177
*ther e,pense 177
#nvestment in +ur/e
Co. common stoc/ "$777
d. =;uipment "$)77
#nvestment in +ur/e
Co. common stoc/ "$777
*ther income )77
17. &arshall Company prepared an aging of its accounts receivable at Aecember
"1$ 1@@" and determined that the net realizable value of the receivable
at that date is '-7$777. Additional information is available as followsF
Accounts receivable at Aecember "1$ 1@@2 ')4$777
Accounts receivable at Aecember "1$ 1@@" -)$777
Allowance for doubtful accounts at Aecember "1$ 1@@2
1 1 credit balance 0$777
Accounts written off as uncollectible during 1@@" -$777
&arshalls bad debt e,pense for the year ended Aecember "1$ 1@@" was
a. '"$777
b. ')$777
c. '-$777
d. '3$777
Difficult Category
1. ?ermiogne 9ranger Company 8?9C: issued 277$777 shares of common stoc/$ "7$777 shares of 4H '177 par cumulative$ convertible
preferred stoc/$ and '1$-77$777 of 17H convertible bonds on Aecember "1$ 2774. The preferred stoc/ is convertible into 07$777
shares of common stoc/. The bonds were issued to yield 12H and has a carrying value of '1$"@2$777 on Aecember "1$ 2774. =ach
'1$777 face value bond is convertible into 27 common shares
#n 277@$ ?9C reported net income before ta,es of '1$477$777. Ta, rate for the year is "2H. The basic earnings per share for 277@ is
a.').@2 b. '0.12 c.'3.47 d. '@.77
2. *n Ganuary 0$ 2717$ you were as/ed to prepare the financial statements of Gughead Company for the period ending Aecember "1$
277@. Gughead Company in its investment portfolio reported an #nvestment in debt securities 1 A(6 of '1$34"$31". (urther
e,amination revealed the followingF
The debt security was issued by Archie Andrews #ncorporated on Ganuary 1$ 2770$ having a face amount of
'2$777$777$ term of 01years and carries a @H interest rate.
The debt security was ac;uired by Gughead Company on Ganuary 1$ 2773 for '1$34"$31"
Gughead Company reported interest income of 147$777 in its 2773 and 2774 income statement which
corresponds to the actual amount received by the Gughead Company.
The prevailing rates at Aecember "1$ 2773 1 277@ were 17.3H$ 17.2-H and 11.)7H respectively
*n Ganuary "$ 2717$ )7H of the bonds were sold for '477$777
The correct amount of interest income in 2773 is
a. 107$-") b. 27"$")" c. 21)$7)0 d. 224$777
". *n Aecember "1$ 2774$ (=%5A5A* Company$ a financing institution lent '"$777$777 to T=*A*%* Corp. due 2 years after. The
loan is supported by an 4H note receivable. #nterest on the loan are collectible at the end of each year.
(ernando was able to collect interest as it became due at the end of 277@. Auring 2717$ however$ due to Teodoro Corporations
business deterioration and due to political instability and faltering global economy$ the company was not able to collect amounts due
at the end 2717. After reviewing all available evidence at Aecember "1$ 2717$ *uter Company determined that it was probable that
#nner would pay bac/ only '2$)77$777 collectible as followsF
Aecember "1$ 2711 '1$777$777
Aecember "1$ 2712 377$777
Aecember "1$ 271" -77$777
Aecember "1$ 271) 277$777
As of Aecember "1$ 2717$ the prevailing rate of interest for all debt instruments is 1)H.
hat is the correct carrying value of the loans receivable as of Aecember "1$ 2712!
a. 1$2"-$-7" c. 0")$")"
b. 377$777 d. 14-$7@1
). 'A59#D#5A5 Corp. reported the following amounts in the shareholders e;uity section of its Aecember "1$ 2774$ balance sheetF
'reference shares$ '17 par 8177$777 shares authorized$
)7$777 shares issued: ' )77$777
*rdinary shares$ '- par 8-7$777 shares authorized$
27$777 shares issued: 177$777
6hare premium 1@2$777
Accumulated profits 1$277$777
The following transactions occurred during 2774F
a. 'aid the annual 2774 '1 per share dividend on preference shares and '7.-7 per share dividend on *rdinary shares. These
dividends had been declared on Aecember "1$ 2773.
b. 'urchased )$777 shares of its own outstanding ordinary shares for '47$777.
c. %eissued 1$)77 treasury shares for e;uipment with a fair value at '-7$777.
d. #ssued 17$777 shares of preference shares at '1- per share.
e. Aeclared a 17H stoc/ dividend on the outstanding ordinary shares when the stoc/ is selling for '12 per share.
f. #ssued the share dividend.
g. Aeclared the annual 2774 '1 dividend on preference shares and the '7.-7 per share dividend on ordinary shares. These dividends
are payable in 277@.
h. Appropriated accumulated profits for +*A1approved planned plant e,pansion$ '077$777.
i. %egistered a net income for 2774 at '@)7$777.
Aetermine the ad2usted balance of the accumulated profits1unappropriated.
a. '2$7-@$777 c. '1$)31$3"7
b. '1$)73$--7 d. '1$)-@$--7
-. 'hilip Companys boo//eeper is not familiar with accrual accounting concepts. ?e determined net income for 277@ to be '3@$477. #n
your audit of the company you determine the followingF
1: Accrued$ but unpaid$ wages at the end of 277@ amounted to ')$-3- and have not been recorded.
2: #nsurance premiums paid in 277@ totaled '14$777$ only one1third of which relate to coverage of 277@. The other two1third
relates to coverage in future years. 8The complete amount was e,pensed when paid.:
": Accounts receivable of '-7$777$ which have been properly recorded$ are e,pected to result in losses from uncollectibility of
'"$777. 85o specific accounts have been written of as of the end of the year.
): Cash of '11$-77$ received in late 277@$ was recorded as revenue$ although the wor/ to be performed under the related contract
will ta/e place in 2774.
The ad2usted net income of 'hilip Company in 277@ isF
a. '32$32- b. ' 3-$32- c. ' 34$32- d. ' 41$32-
0. *n Aecember "1$ 277@$ '#C?AL Co. signs a 171year noncancellable lease agreement to lease a storage building from 'uno Corp.
The following information pertains to this lease agreementF
a. The agreement re;uires e;ual rental payments of '327$777 beginning on Aecember "1$ 277@.
b. The fair value of the building on Aecember "1$ 277@$ is ')$)77$777.
c. The building has an estimated economic life of 12 years. 'ichay depreciates similar buildings on the straight1line method.
d. The lease in nonrenewable. At the termination of the lease$ the building reverts to the lessor.
e. 'ichays incremental borrowing rate is 12H per year. The lessors implicit rate is not /nown by 'ichay.
f. The yearly rental payment includes '2)$37- of e,ecutor costs related to ta,es on the property.
hat amount should be included in the noncurrent liabilities section of 'ichays 6tatement of (inancial 'osition as of Aecember "1$
2711!
a. "$)-"$@3- c. 2$4-4$0)7
b. "$13"$1-3 d. 7
3. #n the course of your e,amination of the Aecember "1$ 2774$ financial statements of =6T%AAA #nc.$ you discovered certain errors
that had occurred during 2773 and 2774. 5o errors were corrected during 2773. The errors are summarized belowF
a. +eginning merchandise inventory in 2773 was understated by '2-@$277.
b. &erchandise costing '32$777 was sold for '127$777 to Games Corp. on Aecember 24$ 2773$ but t he sale was recorded in 2774.
The merchandise was shipped (*+ shipping point and was included in ending inventory. =6T%AAA uses the periodic inventory
system.
c. A two1year fire insurance policy was purchased on &ay 1$ 2773$ for '132$477. The whole amount was charged to 'repaid
#nsurance. 5o ad2usting entry was prepared in 2773 and 2774.
d. A one1year note receivable of '244$777 was held by =6T%AAA #nc. beginning *ctober 1$ 2773. 'ayment of the 17H note and
accrued interest was received upon maturity. 5o ad2usting entry was made on Aecember "1$ 2773.
e. =;uipment with a 17 year useful life was purchased on Ganuary 1$ 2773$ for '1$130$777. 5o depreciation e,pense was recorded
during 2773 or 2774. Assume that the e;uipment has no residual value and that =6T%AAA #nc. uses the straight1line method for
recording depreciation.
f. The company reported a '1$-77$777 net income in 2773 and a '1$3-7$777 net income in 2774.
+y how much is the Aecember "1$ 2774 retained earnings be overstatedCunderstated by!
a. "3@$277 c. 2@"$277
b. ""1$277 d. 27"$477
4. =nergen Company operates a wholesale oil products company. =nergen believes that an employee and a customer are conspiring to
steal gasoline. The employee records sales to this customer for less than the amount actually placed in the customers tan/ truc/. #n
order to confirm or refuse these suspicions. =nergen has collected the following data for the past 17 wor/ing days.
Nuantity Cost per
#tem 8gallons: unit 8gal.: Total Cost
#nventory$ 6eptember 1 227$777 ' 1.)- ' "1@$777
'urchases 1$-07$777 1.)- 2$202$777
9oods available for sale 1$347$777 '2$-41$777
=nergen had sales of '2$-12$777 during this 171day period. All sales were made at '1.07 per gallon. A physical inventory indicates
that there are 1@2$777 gallons of gasoline in inventory at the close of business on 6eptember 17.
?ow much inventory should be present at the end of the 171day period 8in
gallons:!
a. 217$777 b. 277$777 c. 1@2$777 d. 227$777
@. Dovely Companys Aecember "1 year1end financial statements contained the following errorsF
8*verstated :C<nderstated
2774 277@
Aepreciation e,pense 8' 27$777: ' 14$777
=nding #nventory 147$777 8 3-$777 :
%ent of '"7$777 was collected in advance in 2774 covering the years 2774$ 277@ and 2717. The company credited the whole amount
to rental income. An insurance premium of '2-$777 was paid in advance in 2774 covering the insurance premium of the companys
fi,ed assets for five years commencing in 2774. The company charged the whole amount to e,pense in 2774.
The net effect of the errors on the 2774 net incomeF
a. ' 277$777 under c. ' 277$777 over
b. ' 107$777 under d. ' 107$777 over
17. Lou were engaged to audit the accounts of &ACL Company. The following disbursements were made in relation to the construction
of its building which started Ganuary 1$ 277@ and was completed Aecember "1$ 277@.

Ganuary 1$ 17$777$777
&arch "1 -$777$777
Gune 1 0$777$777
August 1 "$777$777
Aecember "1 1$777$777
The client is not sure as to how it should treat the interest related to
the above construction. Assuming the building is a ;ualifying asset$
interest related to the construction should beF
a. capitalized as part of the cost of the building only
b. charged to e,pense
c. either a or b
d. neither a nor b
Clincher Category
1. The negative confirmation re;uests may be used in all of the following
conditions e,cept
a. A large number of small balances is involved.
b. A substantial number of errors are not e,pected.
c. The assessed level of inherent and control ris/ is high.
d. the acceptable level of detection ris/ is high.
ii. hich of the following internal control procedures most li/ely would deter
lapping of collections from customers!
a. #ndependent internal verification of dates of entry in the cash
receipts 2ournal with dates of daily cash summaries
b. Authorization of writeoffs of uncollectible accounts by a supervisor
independent of credit approval.
c. 6egregation of duties between receiving cash and posting the accounts
receivable ledger.
d. 6upervisory comparison of the daily cash summary with the sum of the
cash receipts 2ournal entries.
iii. *n Ganuary 1$ &acy obtained a loan for '27$777$777 at an interest rate of 17H specifically to finance the construction of its building.
'rior to disbursements$ the proceeds were temporarily invested and earned interest income of '177$777. Aetermine the amount of
interest that should be included as part of the cost of the building.
a. ' 2$777$777 b. '1$@@7$777 c. ' 1$@77$777 d. ' 177$777
iv. The following information is available for Coo/e Company for 1@@"F
5et sales '1$477$777
(reight1in )-$777
'urchases discounts 2-$777
=nding inventory 127$777
The gross margin is )7H of net sale. hat is the cost of goods available
for sale!
a. ' 4)7$777
b. ' @07$777
c. '1$277$777
d. '1$227$777
v. *rr Company had the following ban/ reconciliation at &arch "1$ 1@@"F
+alance per ban/ statement$ "C"1C@" ')0$-77
AddFAeposit in transit 17$"77
-0$477
DessF *utstanding chec/s 12$077
+alance per boo/s$ "C"1C@" '))$277
SSSSSSS
Aata per ban/ statement for the month of April 1@@" followF
Aeposits '-4$)77
Aisbursements )@$377
All reconciliation items at &arch "1$ 1@@"$ cleared through the ban/ in April. *utstanding chec/s at April "7$ 1@@" totaled
'3$-77. hat is the amount of cash disbursement per boo/s in April!
a. '))$077
b. ')@$377
c. '-)$477
d. '-3$277
vi. *n Ganuary 1$ 2773$ Debron Company purchased rights to a mine. The total purchase price was '07$777$777$ of which '27$777$777
was allocated to the land. =stimated mineral deposits made through a geological survey were -$777$777 tons. Debron e,pects to
e,tract and sell 177$777 tons per month. 6imultaneous with the purchase of the mine$ delivery e;uipment was ac;uired at a total cost
of '2-$777$777 with no residual value at the end of its estimated 17 year useful life. +ecause of the rugged terrain and heavy duty
wor/ to e conducted$ the delivery e;uipment will be of no use when all the mineral deposits are e,tracted.
?ow much is the depreciation of the e;uipment for 2773!
A. 2$-77$777 C. -$777$777
+. "$777$777 A. 0$777$777
vii. +ailey Corporation issues -$777 of its 17H$ '1$777 face value bonds on Ganuary 1$ 2773 at 117. #nterest on the bonds is paid annually
at Aecember "1 and matures on Aecember "1$ 2711. *ut1of1poc/et costs incurred by bailey for underwriting fees and printing of the
bond certificates totaled '"-7$777. The present value factors of 1 at @H and 4H are .0- and .04$ respectively$ and the present value
factors of an ordinary annuity of 1 for - periods at @H Q 4H are ".4@ Q ".@@$ respectively.
Assuming +ailey uses the effective interest method of amortization$ what is the interest e,pense for 2773!
A. )12$777 C. )3-$")-
+. )37$777 A. -77$777
viii. Eristel Company was organized on Gune "7$ 277). After 2 V years of profitable operations$ its shareholders section was as followsF
Contributed CapitalF
*rdinary 6hares$ '"7 par$ 077$777 shares authorized$
277$777 shares issued Q outstanding '0$777$777
6hare 'remium 0$777$777
Accumulated 'rofits )$-77$777
Total 6hareholders =;uity '10$-77$777
Auring 2773$ the following transactions affected shareholders e;uityF
Gan."1 %eac;uired 17$777 of ordinary shares at '"2
April 1 Aeclared a 2-H share dividends
April "7 Aeclared an '4 cash dividend
Gune 1 #ssued the share dividends and paid the cash dividend
Aug."1 6old all treasury shares at ')7 per share
Aec. "1 5et income for the year$ '1$777$777
hat is the total shareholders e;uity on Aecember "1$ 2773!
A. 1)$2--$777 C. 1-$047$777
,. 1)$0"-$777 A. 10$707$777
i,. The shareholders e;uity of ilson Company on Aecember "1$ 2773 consists of the followingF
'referrence shares$ 12H cumulative Q participating up to 10H$
'177 par$ 2-$777 shares issued '2$-77$777
*rdinary shares$ '-7 par$ 177$777 shares issued -$777$777
6hare premium W preference shares -77$777
6hare premium W ordinary shares 1$777$777
Accumulated profits 2$177$777
The preference dividends are in arrears for 2770 and 1773. The preference shares have a call price and li;uidation value of '127$
and '117$ respectively.
hat is the boo/ value per share of the ordinary shares on Aecember "1$
2773!
A. 3".-7 C. 3-.-7
,. 3).77 A. 30.-7
,. *n Ganuary 1$ 2773$ Dory Company ac;uired a building for '-$777$777. The
company made a down1payment of '-77$777 and signed a non1interest bearing
for the balance$ payable in " e;ual annual installments every Aecember "1
of each year. Assume the prevailing interest rate for a note of this
type is 12H. The present value of an ordinary annuity of 1 for " periods
is 2.7)14.?ow much is the interest e,pense to be reported for the year
2773!
A. -)7$777 C. "03$-2)
+. 077$777 A. 2)-$710
)usiness *a+ & Ta,ation
Source: ReSA and CRC-ACE
Easy Category
1. 6 reluctantly and against his good sense and 2udgment entered into a contract of sale of TI set with + for a price of ' 27$777.77. The
contract isF
a: %escissible c: <nenforceable
b- Ioidable d: Ialid
2. Statement IF The estate ta, accrues as of the death of the
decedent and the accrual of the ta, is distinct from
the obligation to pay the same.
Statement IIF =state ta,ation is governed by the statute in force
at the time the return is filed.
a. +oth # and ## are correct c. *nly # is correct
b. +oth # and ## are incorrect d. *nly ## is correct
3. hich of the following contracts of sale need not in writing!
a: sale of 177 /ilos of rice at 27 pesos per /ilo when there is partial delivery
b: sale where by its term cannot be performed within a year from ma/ing thereof
c: sale of land
d: sale at public auction
4. hich of the following statements is incorrect! A claim against an insolvent person$ which is not collectible in fullF
a. is included in the gross estate.
b. is not included in the ta,able net estate.
c. needs no preliminary filing of a case against the insolvent.
d. must be notarized if arising out of a debt instrument of the insolvent.
5. A sold and delivered a diamond ring to +. #t was agreed that + will fi, the price within 1- days. *n the 1-
th
day + te,t A and stated
the price at ' 27$777.77. #s the sale perfected!
a: 5o because at the time of the sale the price was not fi,ed
b:Les because the price was already /nown
c: Les because the price stated and fi,ed by the buyer was accepted by the seller.
d:5o because the price was left to the discretion of one of the parties only.
6. hat is the ta, base of the ta, on winnings of a person who wins in horse races!
a. Actual amount paid for every winning tic/et
b. Actual amount paid for every winning tic/et after deducting the cost of
the tic/et
c. 'rizes
d. 9ross receipts
7. + purchased the ?onda 6 2777 car of 6 for '1."& and to show his eagerness$ + handed to 6 the amount of ' )7$777.77 and it is
calledF
a: purchase money c: option money
b- earnest money d: consideration
8. *nce optionally registered as a IAT person$ the ta,payer shall be liable to output ta, and be entitled to input ta, credit beginning on
theF
a. first day of the month following the registration.
b. first day of the month following the close of the first ;uarter after
registration.
c. tenth day of the month following the registration.
d. twenty1fifth day following the close of the ;uarter.
9. A borrowed the car of + for one wee/. Gust a day after it was borrowed$ + agreed to sell the car to A and the latter paid the price of
the car. ?ow was the car delivered!
a: traditio longa manu
b: traditio brevio manu
c: traditio constitotum possesorium
d: actual delivery
10. hich of the following transactions by certain cooperatives duly
registered and in good standing with the Cooperative Aevelopment
Authority 8CAA: shall not be e,empt from IAT!
a. #mportation by non1agricultural$ non1electric and non1credit cooperatives of machineries and e;uipment$ including spare parts
thereof$ to be used by them
b. 9ross receipts from lending activities by credit or multi1purpose cooperatives
c. 6ales by non1agricultural$ non1electric and non1credit cooperatives
d. 5one of the choices
Average Category
1. #irst statement: Aonors ta, shall be levied$ assessed$ collected
and paid upon the transfer of property by any
person$ resident or non1resident$ as a gift.
Second statement: (or purposes of donors ta,$ a OstrangerP is a
person who is not a relative by consanguinity in
the collateral line within the fifth degree of
relationship.
e. True$ True c. True$ (alse
f. (alse$ (alse d. (alse$ True
+, Aida delivered to +eth 17$777 pieces of Cebu1fabricated shellcraft 2ewelry for the purpose of selling them at '1.77 each. *ut of the
proceeds of the e,pected sale$ +eth is to receive a 17H commission. After " days$ however$ +eth sold all of the items at '1.-7 each to
Celeste$ but on 071day credit. Aida compels +eth to pay
A. +eth cannot be compelled to pay at all.
+. +eth must pay '17$777 immediately.
C. +eth must pay '17$777 after collecting from Celeste.
A. +eth must pay '-$777 immediately and '17$777 after 071days.
-, >do ut facias> meansF
a. # give and you give c. # do and you give
b. # give and you do d. # do and you do
., hich of the following statements is incorrect!
a. A separate return shall be filed by each donor for each gift or donation made on different dates during the year reflecting therein any
previous net gifts made in the same calendar year.
b, *nly one return shall be filed for several gift or donations by a donor to the different donees on the same date.
c. hen a donors ta, return was filed and it was found out by the +#% to
have errors which gave rise to a deficiency donors ta,$ the donor
cannot be re;uired to pay the deficiency ta, because
he does not possess or own the property anymore.
d. The 9overnment is not legally bound by the agreement between the donor and the donee that the latter shall pay the donors ta,
instead of the former.
/, Case 5o. 1. 6onny sold his wards house worth '077$777 for only
'-77$777$ the contract is rescissible
Case 5o.2. 6onny$ 13 years old$ sold his house worth '1& for only
'377$777$ the contract is rescissible because he
suffered a lesion by more than one1fourth of the value of the
said house.
a. +oth statements are false. c. (irst false$ second true.
b. +oth statements are true. d. (irst true$ second false.
0,
*ver

+ut 5ot *ver The Ta, 6hall be


'lus *f the =,cess
*ver
' 177$777 =,empt
' 177$777 277$777 7 2H '177$777
277$777 -77$777 2$777 )H 277$777
-77$777 1$777$777 1)$777 0H -77$777
1$777$777 "$777$777 ))$777 4H 1$777$777
1st statementF #n all cases$ void donations are not sub2ect to
donors ta,.
2nd statementF =very donation between the spouses during the
marriage shall be void.
1, +oth statements are true
2, +oth statements are false
3, (irst statement is true while second statement is false
45, (irst statement is false while second statement is true
3. The redhibitory action based on the faults or defects of animals must be
brought within
a."7 days from delivery to the vendee
b.)7 days from delivery to the vendee
c.)- days from delivery to the vendee
d.0 months from delivery to the vendee
4. ithout actual e,portation$ the following shall be considered
constructively e,ported for purposes of IAT$ e,cept!
a. 6ales to bonded manufacturing warehouses of e,port1oriented
&anufacturers
b. 6ales to e,port processing zones
c. 6ales to registered e,port traders operating bonded trading warehouses
supplying raw materials in the manufacture of e,port products under
guidelines to be set by the +oard of #nvestment 8+*#: in consultation
with the +ureau of #nternal %evenue 8+#%: and +ureau of Customs 8+*C:
d. 6ales to diplomatic missions and other agencies andCor instrumentalities granted ta, immunities$ of locally manufactured$
assembled or repac/ed products and must have been paid for in foreign currency only.
@. The following e,cept one are non1negotiable instrumentsF
A. Certificate of stoc/ C. Certificate of Aeposit
+. 'ostal money orders A. Detter of credit
17. A domestic carrier by land is engaged in the transport of passengers. #t is not IAT1registered but its annual gross receipts e,ceed
'1$-77$777. To what business ta,es is it liable!
a. 12H value1added ta,; c. "H ta, on IAT1e,empt persons;
b. "H common carriers ta,; d. 5ot sub2ect to business ta,.
Difficult Category
1. 5ancy and Cory are partners. *n &arch -$ 277) when the total obligation of
the partnership was ')-7$777$ Dory was admitted as a new partner. At the time of Dory.s admission$ the partnership was indebted to
+eth for '-7$777 and 5iXo for ')77$777. After &arch -$ 277)$ the partnership borrowed from Dora '277$777 and ')7$777 from
Daarni. *n Aecember 0$ 277)$ the partnership became insolvent leaving an obligation totaling '0@7$777 and partnership assets
amounting in '"77$777. The creditors are going after the separate properties of the partners to satisfy their remaining claims. ?ow are
the creditors. claims satisfied!
A56=% 1F +eth and 5iXo can go after the separate properties of 5ancy and
Cory.
A56=% 2F Dora and Daarni can go after the separate properties of 5ancy$
Cory and Dory.
hich of the following is correct!
A. +oth answers are wrong.
+. +oth answers are correct.
C. Answer Y1 is wrong$ but answer Y2 is correct.
A. Answer Y1 is correct$ but answer Y2 is wrong.
2. ?older ? altered the amount of a negotiable note from '17$777 to '177$777
then negotiated the note to #. As a resultF
A. #f # is a holder in due course$ he can re;uire the ma/er to pay
'177$777
+. #f # is not a holder in due course$ he can re;uire the ma/er to pay the
sum of '177$777
C. # cannot re;uire the ma/er to pay because of the forgery whether or not he is a holder in due course
A. # is entitled to '17$777 if he is a holder in due course
". 6ylvia is the owner of various real estate properties in +aguio. These properties are for lease and yield rental income to 6ylvia. =very
year$ she pays value1added ta, to the +#%. The city government of +aguio enacts an ordinance imposing on her a lessor ta, in
accordance with the schedule of amounts related to her gross rental income from the same real properties.
(irst ;uestionF Aoes the local ordinance$ constitute$ in effect$ double
ta,ation!
AnswerF Les$ there is double ta,ation because there are two /inds of
ta,es levied on the same person for the same occupation or
business.
Aagupan City enacts an ordinance which imposes an occupation ta, upon owners of prawn farms. The validity of the ordinance is
being challenged on the ground that it constitutes double ta,ation because the prawn farm is already sub2ect to land ta,.
6econd ;uestionF #s the ordinance valid!
AnswerF Les$ because there are two different ta,es involved$ a ta, on occupation and a ta, on the land. ?ence$ there is no double
ta,ation.
a. Answer to 1st ;uestion is wrong$ answer to 2nd ;uestion is correct.
b. Answers to both ;uestions are correct.
c. Answers to both ;uestions are wrong.
d. Answer to 1st ;uestion is correct$ answer to 2nd ;uestion is wrong.
). ?aydee died on 5ovember 27$ 277@. 6ome of the properties she left are the following
&ar/et value
Assets &ode of
ac;uisition
Aate of ac;uisition Aate ac;uired Aeath of ?aydee
Dand Aonation 73C7"C277- '-77$777 '"-7$777
Car 'urchase 17C72C2774 477$777 @47$777
*ther informationF
The gross estate of the decedent amounts to '"$777$777.
The land was mortgaged for '-7$777 which was deducted in prior estate and ?aydee paid the same before she died.
The allowable deductions total '12-$777$ which includes medical e,penses of '"7$777. #t e,cludes be;uest to a charitable
institution in the amount of '-7$777.
The vanishing deduction isF
a. '-0$-77 b. '-3$177 c. '-3$-77 d. '-4$177
-. *n Ganuary 2$ 2770$ Tycoon leased his land to 'owers. The term of the contract$ which ;ualifies as an operating lease$ was fifteen 81-:
years$ and the rental fee was '"07$777 a year. The contract provided that 'owers$ the lessee$ would pay two years rent in advance and
one year deposit totaling '1$747$777 upon signing
the contract. The one year deposit would be forfeited in favor of the lessee in case of contract violation that would lead to termination.
The annual real estate ta, of '-7$777 would also be shouldered by the lessee.
The lessee would also construct a building which at the end of the term of the contract would be owned by Tycoon$ the lessor. The
building construction was completed on Ganuary 2$ 277@ at a cost of '0$777$777. The building had a useful life of 2- years.
?ow much was the total rent income of the lessor in the year 2770!
a. '337$777 b. 327$777 c. ')17$777 d. '"07$777
0. The following 277@ data of a married resident employee occupying managerial position who has four 8): ;ualified dependent children
are made availableF
6alary 8net of '1-7$777 withholding ta,$ '27$777 666
contribution and '2-$777 'ag1ibig contribution: '4)7$777
%ice subsidy 8'1$-77 , 12: 14$777
&onetized unused vacation leave credits 827 days: -7$777
Actual medical benefits 1-$777
Christmas gift 17$777
Daundry allowance 8'1$-77 , 12: 14$777
&anager of the year award$ gold watch valued at 07$777
?ow much is the total ta,1e,empt de minimis benefits!
a. Mero b. '0-$077 c. '1)0$777 d. '131$777
3. 9omez$ +urgos and Mamora 89*&+<%MA:$ is a general professional partnership engaged in assurance and management consultancy.
Aside from its assurance and management consultancy$ it is also engaged in the sale of agricultural products harvested from its farm in
6agada. The profit and loss ratio of partners 9omez$ +urgos and Mamora is )F)F2$ respectively. The following data are available for
the year 277@F
9ross professional fee from assurance and management consultancy '-$777$777
9ross sales$ agricultural products "$777$777
Cost of services on assurance and management consultancy 1$777$777
Cost of sales$ agricultural products -77$777
*perating e,penses$ assurance and management consultancy "77$777
*perating e,penses$ sales of agricultural products 277$777
?ow much is the ta, due and payable for the year!
a. '3"0$777 b. '3)3$-77 c. '0@7$777 d. 5one$ not sub2ect to ta,
4. Een/oy Corp. is a IAT1registered ta,payer. The following data pertain to its first ;uarter ended &arch "1$ 277@. 'urchases were all
from value1added suppliers.
*utput ta,es$ Ganuary ' ""7$777
#nput ta,es$ Ganuary 077$777
*utput ta,es$ (ebruary 437$777
#nput ta,es$ (ebruary "07$777
6ales$ total invoice price$ &arch 4$@07$777
'urchases$ total invoice cost$ &arch "$2)4$777
The value1added ta, payable for &arch 277@ isF
a. '1)1$777 b. '")2$777 c. '-17$777 d. '012$777
@. The following data are for &anels Company for the first ;uarter of 277@F
6ales up to &arch 1-$ total invoice value '""0$777
'urchases up to &arch 1-$ net of input ta,es 277$777
Additional informationF
*n &arch 10$ 277@$ &anels Company retired from its business and the inventory valued at '1@7$777 net of input ta,es was ta/en and
transferred to Lstilo Company. There is a deferred input ta,es from the last ;uarter last year of '"$-77.
?ow much is the total value added ta,es due and payable by &anels Company in its operations in the first ;uarter of 277@ and its
retirement from business!
a. '4$-77 b. '12$777 c. '")$477 d. '"1$"77
17. #n 277@$ Tycoon made the following giftsF
*n Gune 1$ 277@$ '1-7$777 to =nfant$ his son$ on account of his marriage celebrated on &ay 1$ 2770.
*n Guly 17$ 277@$ a parcel of land worth '147$777 to his father$ sub2ect to the condition that the father would assume the
mortgage indebtedness of Tycoon in the amount of ')7$777.
*n 6eptember "7$ 277@$ '1-7$777 dowry to his daughter Golina$ on account of her scheduled marriage on *ctober 2-$ 277@$ and
another wedding gift worth '27$777 on 5ovember 2"$ 277@.
?ow much is the total net gifts!
a. '-77$777 b. ')-7$777 c. ')"7$777 d. ')07$77
Clincher Category
1. hich of the following shall not be allowed presumptive input ta,!
a. 'ersons or firms engaged in the processing of sardines$ mac/erel and
mil/
b. 'ersons or firms engaged in the processing of canned fruits and
vegetables
c. 'ersons or firms manufacturing refined sugar$ coo/ing oil and
pac/ed noodle1based instant meals
d. 5one of the choices
2. 'elaez$ a citizen of the 'hilippines and resident of #loilo City$ died testate on &ay 17$ 277@. Among his gross estate are properties
inherited from his deceased father who died on April )$ 2770. hat percentage of deduction will be used in computing the amount of
vanishing deduction!
a. 47H of the value ta/en as basis for vanishing deduction.
b. 177H of the value ta/en as basis for vanishing deduction.
c. 07H of the value ta/en as basis for vanishing deduction.
d. )7H of the value ta/en as basis for vanishing deduction.
". %obin '. imported a car from the <6A for his personal use. Total landed
cost is '2-7$777 8about J-$@-2: including customs duties of '-7$777. IAT payable using 12H rate isF
a. ' "7$777. c. '17$777.
b. ' 2-$777. d. none.
). An e,ample of an aleatory contract is
A. 6ale +. Doan C. #nsurance A. 'artnership
-. #f a IAT1registered person issues a IAT invoice or IAT official receipt
for a IAT1e,empt transaction$ but fails to display prominently on the invoice or receipt the words OIAT1e,empt saleP$ the transaction
shallF
a. still be e,empt from value1added ta,.
b. become ta,able and the issuer shall be liable to pay IAT thereon.
c. be effectively sub2ect to zero percent.
d. be considered erroneous transaction and must be disregarded.
0. 6hares of stoc/ held as investment listed and sold through the local stoc/
e,change shall be sub2ect toF
a. V of 1H percentage ta, based on gross selling price or gross value in money.
b. 12H IAT based on gross income.
c. capital gains ta, of -H on first '177$777 capital gain; 17H on e,cess of '177$777.
d. )H; 2H; 1H percentage ta, based on gross selling price or gross value in money.
3. An alien employee of an offshore ban/ing unit has the following income for the current yearF
6alary received from the offshore ban/ing unit 8*+<: ' 17$777$777
?onoraria and allowances received from the *+< -$777$777
#nterest income from a domestic ban/
on his peso deposits -7$777
Capital gain from sale of shares in a
domestic corporation 177$777
?ow much is the ta, from his gross income in the 'hilippines!
a. '2$232$-77 c. '1$-77$777
b. '2$2-7$777 d. 5one of the choices
4. *n Ganuary 1-$ 277@$ Amerah gave a piece of land to her brother1in1law who is getting married on (ebruary 1)$ 277@. The assessed
value and zonal value of the land were '3-7$777 and '1$777$777$ respectively. The land had an unpaid mortgage of '277$777 which
was not assumed by the donee$ and an unpaid realty ta, of '17$777 which was assumed by the donee. The brother1in1law agreed to
pay the donors ta, on the donation. ?ow much is the donors ta, due!
a. '2@3$777 b. '2"3$777 c. '102$777 d. '222$777
@. hen does a buyer of a thing ac;uire real right to the fruits of the things bought!
A. (rom the time the fruits are delivered.
+. (rom the time the obligation to deliver the thing bought arises.
C. (rom the time the sale is perfected.
A. (rom the time the thing bought is delivered.
17. 'etra transferred to 'edro a parcel of land for the price of '277$777;
'1"7$777 to be paid in cash and for the difference$ he will convey his
car worth '37$777. hat /ind of contract is this!
a. Dease contract c. *bligation to sell
b. Contract of sale d. +arter
(anagement $ervices
Source: ReSA and CRC-ACE
Easy Category
1. hich of the following is not needed for determining the brea/1even point!
a. 6elling price
b. Iariable cost per unit
c. (i,ed cost
d. 6ales volume
2. A highly automated plant would generally have
a. &ore variable than fi,ed costs
b. &ore fi,ed than variable costs
c. All fi,ed costs
d. All variable costs
". A cost driver
a. causes fi,ed costs to rise because of production changes
b. has a direct cause1effect relationship to a cost
c. can predict the cost behavior of variable costs$ but not fi,ed costs
d. is an overhead cost that causes distribution costs to change in distinct increments with changes in
production volume
). Iariable costs are e,penditures that vary
a. Aue to seasonal mar/et factors
b. %andomly
c. ith inventory
d. hen output changes
-. ?olding everything else constant$ reducing the sales price per unit impliesF
a. A lower brea/1even point
b. An increase in the slope of the total revenue line
c. 5o effect on the brea/1even point
d. A higher brea/1even point
0. hich one of the following changes will cause demand curve for gasoline to shift to the left!
a. The price of cars increases
b. The price of cars decreases
c. The price of gasoline increases
d. The supply of gasoline decreases
3. hen a scarce resource 8e.g.$ limited hours or space: e,ists in an organization$ the criterion that should be used to determine
production is
a. 6elling price per unit
b. Contribution margin per unit
c. Total variable costs of production
d. Contribution margin per unit of scarce resource
4. A fundamental purpose of a database management system is to
a. 6tore all data for an organization in multiple files
b. %educe data redundancy
c. <se physical data organization concepts instead of logical data
d. Change the manner in which application programs access individual data elements
@. hich of the following statements is not an assumption of the operating
brea/1even model!
a. Constant selling price per unit
b. Aecreasing variable cost per unit
c. All costs can be classified as fi,ed or variable
d. A single product 8or constant mi, products: is being produced and sold
17. #n the conte,t of a feasibility study$ technical feasibility refers to
whether
a. A proposed system is attainable$ given the e,isting technology
b. The systems manager can coordinate and control the activities of the systems department
c. An ade;uate computer site e,ists for the proposed system
d. The proposed system will produce economic benefits e,ceeding its costs
Average Category
1. A company ma/es a single product that it sells for '10 per unit. (i,ed costs are '30$477 per month and the product has a
contribution margin ratio of )7H. #f the company.s actual sales are '22)$777$ its margin of safety isF
a '"2$777 b '@0$777 c '124$777 d '1@2$777
2. Calculate the after1ta, cost of preferred stoc/ for *hio Ialley 'ower Company$ which is planning to sell '177 million of '".2-
cumulative preferred stoc/ to the public at a price of '2- per share. (lotation costs are '1.77 per share. *hio Ialley has a marginal
income ta, rate of )7H.
a. 1".7H
b. 3.4H
c. 4.12H
d. 1".-)H
". Ardor Company.s net income last year was '-77$777. The company has 1-7$777 shares of common stoc/ and "7$777 shares of
preferred stoc/ outstanding. There was no change in the number of common or preferred shares outstanding during the year. The
company declared and paid dividends last year of '1.77 per share on the common stoc/ and '7.37 per share on the preferred stoc/.
The earnings per share of common stoc/ is closest toF
a. '"."" b. '".1@ c. '2."" d. '".)3
). =zzell Corporation distributes its service department overhead costs directly to producing departments without allocation to the
other service departments. #nformation for Ganuary is presented here.
&aintenance <tilities
*verhead costs incurred '14$377 '@$777
6ervice provided toF
&aintenance Aept. 17H
<tilities Aept. 27H
'roducing Aept. A )7H "7H
'roducing Aept. + )7H 07H
%efer to =zzell Corporation. The amount of <tilities Aepartment costs distributed to Aept. + for Ganuary should be 8rounded to the
nearest peso:
a. '"$077. b. ')$-77. c. '-$)77. d. '0$777.
-. #n the two following constraint e;uations$ K and L represent two products 8in units: produced by the (antastic 9oods
Corporation.
Constraint 1F "K Z -L [ )$277
Constraint 2F -K Z 2L \ "$777
%efer to (antastic 9oods Corporation. hat is the ma,imum number of units
of 'roduct K that can be produced!
a. )$277 b. "$777 c. 077 d. 1$)77
0. The &otor Aivision of =ngaging =ngine Corporation uses -$777 carburetors per month in its production of automotive engines. #t
presently buys all of the carburetors it needs from two outside suppliers at an average cost of '177. The Carburetor Aivision of
=ngaging =ngine Corporation manufactures the e,act type of carburetor that the &otor Aivision re;uires. The Carburetor Aivision is
presently operating at its capacity of 1-$777 units per month and sells all of its output to a foreign car manufacturer at '170 per unit.
#ts cost structure 8on 1-$777 units: isF
Iariable production costs '37
Iariable selling costs 17
All fi,ed costs 17
Assume that the Carburetor Aivision would not incur any variable selling costs on units that are transferred internally. hat is the
ma,imum of the transfer price range for a transfer between the two divisions!
a. '170 b. '177 c. '@7 d. '37
3. 6tephens &etals Company has a revolving credit agreement with its ban/ permitting it to borrow up to '2- million at an annual interest
rate of 12H. 6tephens is re;uired to maintain a 17H compensating balance on any funds borrowed under this agreement and to pay a
7.-H commitment fee on the unused portion of the credit line. The company maintains a '-77$777 balance at the ban/ that can be used
to meet the compensating balance re;uirement. Aetermine the annual financing cost of borrowing '27 million under this revolving
credit agreement.
a. 1"."H b. 1".-H c. 1".1H d. 12.7H
4. Consider the following linear programming problem and assume that non1
negativity constraints apply to the independent variablesF
&a, C& S '1)K Z '2"L
6ub2ect to
Constraint 1F )K Z -L [ "$277
Constraint 2F 2K Z 0L [ 2$)77
hich of the following are feasible solutions to the linear programming problem!
a. K S 077$ L S 2)7 b. K S 477$ L S 0)7 c. K S 7$ L S )77 d. K S 1$277$ L S 7
@. 'erry Company has " divisionsF %$ 6$ and T. Aivision %.s income statement shows the following for the year ended Aecember "1F
6ales '1$777$777
Cost of goods sold 8477$777:
9ross profit ' 277$777
6elling e,penses '177$777
Administrative e,penses 2-7$777 8"-7$777:
5et loss ' 81-7$777:
Cost of goods sold is 3- percent variable and 2- percent fi,ed. *f the fi,ed costs$ 07 percent are avoidable if the division is closed. All
of the selling e,penses relate to the division and would be eliminated if Aivision % were eliminated. *f the administrative e,penses$
@7 percent are applied from corporate costs. #f Aivision % were eliminated$ 'errys income would
a. increase by '1-7$777. c. decrease by '1--$777.
b. decrease by ' 3-$777. d. decrease by '21-$777.
17. est Company produces a part that has the following costs per unitF
Airect material ' 4
Airect labor "
Iariable overhead 1
(i,ed overhead -
Total '13
Mest Corporation can provide the part to est for '1@ per unit. est Company has determined that 07 percent of its fi,ed overhead
would continue if it purchased the part. ?owever$ if est no longer produces the part$ it can rent that portion of the plant facilities for
'07$777 per year. est Company currently produces 17$777 parts per year. hich alternative is preferable and by what margin!
a. &a/e1'27$777 c. +uy1'17$777
b. &a/e1'-7$777 d. +uy1')7$777
Difficult Category
1. The margin of safety in the (laherty Company is '2)$777. #f the company.s
sales are '127$777 and its variable e,penses are '47$777$ its fi,ed
e,penses must beF
a. '4$777 b. '"2$777 c. '2)$777 d. '10$777
2. ?olt Company.s variable e,penses are 37H of sales. At a '"77$777 sales level$ the degree of operating leverage is 17. #f sales increase
by '07$777$ the degree of operating leverage will beF
a.12 b.17 c. 0 d. )
". The following data are available for the 'helps Company for a recent monthF
'roduct A 'roduct + 'roduct C Total
6ales '1-7$777 '1"7$777 '@7$777 '"37$777
Iariable e,penses @1$777 17)$777 23$777 222$777
Contribution margin ' -@$777 ' 20$777 '0"$777 1)4$777
(i,ed e,penses --$777
5et operating income ' @"$777
The brea/1even sales for the month for the company areF
a '@1$003 b '27"$777 c '1)4$777 d '1"3$-77
). ?ermosilla Corporation is a single product firm with the following
selling price and cost structure for ne,t yearF
6elling price per unit ' 1.47
Contribution margin ratio )7H
Total fi,ed e,penses for the year '214$377
?ow many units will ?ermosilla have to sell ne,t year in order to
brea/1even!
a 121$-77 b 272$-77 c "7"$3-7 d -)0$3-7
-. &obile &achine or/s had the following data regarding monthly power costsF
&onth &achine hours 'ower cost
Gun "77 '047
Gul 077 327
Aug )77 0@-
6ept. 277 0)7
Assume that management e,pects -77 machine hours in *ctober. <sing the high1low method$ calculate *ctobers power cost using
machine hours as the basis for prediction.
a. '377 c. '317
b. '37- d. '1$"27
6. 'inpin Trainers provides a personalized training program that is popular with many companies. The number of programs offered over
the last five months$ and the costs of offering these programs are as followsF
'rograms *ffered Costs #ncurred
Gan -- '1-$)77
(eb )- 1)$7-7
&ar 07 14$777
April -7 1)$377
&ay 3- 1@$777
<sing the high1low method$ compute the variable cost per program and the total fi,ed cost per month.
a. '107and '0$027 c. '17- and '0$72-
b. '10- and '0$02- d. '137and '0$037
3. Aetermine the 8after1ta,: percentage cost of a '-7 million debt issue that
the &attingly Corporation is planning to place privately with a large
insurance company. Assume that the company has a )7H marginal ta, rate.
This long1term debt issue will yield 12H to the insurance company.
a. ).4H
b. 3.2H
c. 12.7H
d. none of the above
4. The Allegheny Ialley 'ower Company common stoc/ has a beta of 7.47. #f the current ris/1free rate is 0.-H and the e,pected
return on the stoc/ mar/et as a whole is 10H$ determine the cost of e;uity capital for the firm 8using the CA'&:.
a. 1).1H
b. 3.0H
c. 0.-H
d. none of the above
@. The following financial information is available on %awls &anufacturing CompanyF
Current per share mar/et price ' )4.77
Current 8t S 7: per share dividend ' ".-7
=,pected long1term growth rate -.7H
%awls can issue new common stoc/ to net the company ')) per share.
Aetermine the cost of internal e;uity capital using the dividend
capitalization model approach. 8Compute answer to the nearest 7.1H:.
a. 12."H
b. 1".)H
c. 1".7H
d. 12.3H
10.Calvez has annual sales of '32) million from its 077 retail stores.
Calvez can reduce its mail float by 2 days through the use of wire
transfers. The annual cost of the wire transfers is e,pected to be
'17-$017. #f Calvez.s cost of short1term funds is @.3- percent$ should
the change to wire transfers be made! Assume "0- days per year.
a. 5o$ loss of '2)3$")7 c. Les$ savings of ')3)$-42
b. Les$ savings of '241$14- d. 5o$ loss of '17-$017
Clincher Category
1. #llinois Aivision of the +oston Company has the following statistics for its most recent operationsF
Assets available for use 8&ar/et Ialue: '"$077$777
Assets available for use 8+oo/ Ialue: '2$777$777
#llinois Aivision.s return on investment 2-H
#llinois Aivision.s residual income 277$777
%eturn on investment 8entire +oston Company: 27H
%efer to +oston Company. Compute =IA assuming the cost of capital is 17H and the ta, rate is )7H.
a. ' @7$777 b. ' 1-7$777 c. '7 d. ' 807$777:
2. Calculate the annual financing cost of foregoing the cash discount if the credit terms are 1C17$ net )7.
a. 0.7 percent b. @.2 percent c. 12." percent d. 5one of the above
". %unners #n/$ #nc. had sales last year of '377$777 and "- percent of its sales are for cash$ with the remainder buying on terms of
net "7 days. #f the receivables conversion period is actually "4 days$ what is %unners #n/.s accounts receivable!
a. '32$433 b. '2-$-73 c. ')3$"37 d. none of the above
). 9amble Company has only 2-$777 hours of machine time each month to manufacture its two products. 'roduct K has a
contribution margin of '-7$ and 'roduct L has a contribution margin of '0). 'roduct K re;uires - hours of machine time$ and 'roduct
L re;uires 4 hours of machine time. #f 9amble Company wants to dedicate 47 percent of its machine time to the product that will
provide the most income$ the company will have a total contribution margin of
a. '2-7$777. b. '2)7$777. c. '217$777. d. '277$777.
-. #n 277@$ ?<5T6 Corporation manufactured 37$777 units of product A$
a new product. *nly 0-$777 units were sold during the year.
&anufacturing cost per unit was ' 27.77 variable and ' -7.77 fi,ed. hat
would be the effect on income if absorption costing is used instead of
variable costing!
a. #ncome is ' 2-7$777 lower
b. #ncome is ' 2-7$777 higher
c. #ncome is ' 177$777 lower
d. #ncome is ' 177$777 higher
0. A debit balance in the material usage variance indicates that the
a. Actual ;uantity used is higher than standard ;uantity allowed
b. Actual ;uantity used is lower than standard ;uantity allowed
c. Actual ;uantity purchased is higher than standard ;uantity
d. Actual ;uantity purchased is lower than standard ;uantity
3. Dast year$ '<%= Company had an income of ' @2$777 using absorption costing and an income of ' @4$077 using variable costing.
The fi,ed manufacturing overhead cost was ' -)$777 and production was 14$777 units$ then sales in units last year wereF
a. 2)$077
b. 27$277
c. 1-$477
d. 1-$777
4. 6imple regression analysis provides the means to evaluate a line of
regression which is fitted to a plot of data and represents
a. The way costs change in respect to the independent variable
b. The way costs change in respect to the dependent variable
c. The variability of e,pense of pesos of operation
@. +*5<6 Co. uses 17$777 units of a part in its production process. The costs to ma/e a part areF direct material$ ' 12; direct labor$
' 2-; variable overhead$ ' 1"; and applied fi,ed overhead$ ' "7. +*5<6 Co. has received a ;uote of ' -- from a potential supplier
for this part. #f +*5<6 Co. buys the part$ 37H of the applied fi,ed overhead would continue.
+*5<6 Co. would be better off by
a. ' -7$777 to manufacture the part
b. ' 107$777 to manufacture the part
c. ' )7$777 to buy the part
d. ' 1-7$777 to buy the part
17.#f a company desires to increase its safety margin$ it shouldF
a. #ncrease fi,ed costs
b. Aecrease the contribution margin
c. Aecrease selling prices$ assuming the price change will have no effect on demand
d. 6timulate sales volume