NOTRE DAME EDUCATIONAL ASSOCIATION

Purok San Jose, Brgy. New Isabela, Tacurong City

MOCK BOARD EXAMINATION

FINANCIAL ACCOUNTING AND REPORTING
S.Y. 2016-2017

INSTRUCTIONS: This examination is good for three (3) hours. Select the best answer for each
item. Mark only ONE answer for each item by shading the letter of your choice on the ANSWER
SHEET. STRICTLY NO ERASURES. Use Mongol Pencil No. 2 Only.

1. Accounting is a service activity and its function is to provide quantitative information, primarily
financial in nature, about economic entities, that is intended to be useful in making economic
decisions. This accounting definition is given by
A. Accounting Standards Council
B. AICPA Committee on Accounting Technology
C. American Accounting Association
D. Board of Accountancy

2. The Philippine Financial Reporting Standards collectively include

A. PFRS corresponding to IFRS
B. PAS corresponding to PAS
C. Philippine Interpretations corresponding to IFRIC and SIC Interpretations and
Interpretations developed by PIC
D. All of the above

3. Which of the following is NOT a purpose of the Conceptual Framework?

A. To provide definitions of key terms and fundamental concepts
B. To provide specific guidelines for resolving situations not covered by existing accounting
standards
C. To assist accountants and others in selecting among alternative accounting and reporting
methods
D. To assist the Financial Reporting Standards Council in the standard-setting process

4. Which of the following statements is INCORRECT?

A. The accounting function should be separated from the custodianship of assets.
B. Certain clerical personnel should be rotated among various jobs.
C. The responsibility for receiving merchandise and paying for it should usually be given to one
person.
D. An entity’s personnel should be given well-defined responsibilities.

5. A parent entity has a wholly-owned subsidiary. During the current year, the parent sold goods to
the subsidiary.

The subsidiary paid a part of this debt before the year-end and then encountered financial
difficulties. The subsidiary is not expected to be able to pay the remainder of the balance and
therefore it has been provided as uncollectible. Administration costs are incurred as a result of
the parent’s credit controllers chasing the debt.

Under the minimum disclosure requirements of PAS 24, which of the following is NOT required
to be disclosed in relation to this arrangement?
A. The administration costs of the credit control department incurred in chasing the debt
B. Details of any guarantees received in relation to the outstanding balance
C. The provision in relation to the debt being uncollectible
D. The amount of the transaction and outstanding balance

6. A general principle of disclosure is that material related party transaction shall be disclosed. The
auditor of an entity noted the following transactions entered into by the entity during the past
fiscal year

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 I. The entity borrowed P1,000,000 from Southwest Bank issuing a noninterest-bearing
note.
II. The entity borrowed P2,000,000 from Northwest Bank at a rate significantly above the
market rate prevailing at that time for such a borrowing.
III. The entity borrowed P500,000 from Eastwest Bank with no scheduled terms for how or
when funds will be repaid.

Assuming all of the transactions are material, which transactions most likely would be a related
party transaction requiring disclosure in the entity’s financial statements?
A. Only I C. Both I & II
B. Only III D. Both II & III

7. The following statements relate to analysis of expenses in the income statement based on either
the nature of expenses or their function within the entity. Which statement is INCORRECT?

I. An entity classifying expenses by function shall disclose additional information on the

nature of expenses including depreciation, amortization expense and employee benefit
cost.
II. PAS 1 requires the use of the cost of sales method because this presentation often
provides more relevant information to users than the nature of expense method.
A. I Only C. Both I and II
B. II Only D. Neither I nor II

8. A transaction that is material in amount, unusual in nature, and infrequent in occurrence, shall
be presented separately as
A. component of income from continuing operations, but not net of applicable income tax
B. component of income from continuing operations, net of applicable income tax
C. component of income from discontinued operation, net of applicable income tax
D. prior period error, net of applicable income tax

9. During 2011, Maribel Company was sued by a competitor for P5,000,000 for infringement of a
patent. Based on the advice of the entity’s legal counsel, Maribel Company accrued the sum of
P3,000,000 as a provision in its financial statements for the year ended December 31, 2011.

Subsequently, on March 15, 2012, the Supreme Court decided in favor of the party alleging
infringement of the patent and ordered the defendant to pay the aggrieved party a sum of
P3,500,000.

The financial statements were prepared by the entity’s management on February 15, 2012 and
approved by the board of directors on March 31, 2012.

What amount should be recognized as accrued liability on December 31, 2011?

A. 5,000,000 C. 3,000,000
B. 3,500,000 D. 1,500,000

10. Flying Y held fuel inventory at November 1 2011 amounting to P125,000 and there were
awaiting invoices for P17,000. During the year ended October 31, 2012, diesel fuel invoices of
P854,000 were paid, and a delivery worth P13,000 had yet to invoiced. At October 31, 2012,
diesel fuel inventory was valued at P98,000. The diesel fuel to be charged as an expense in the
profit or loss of the year ending October 31, 2012 is
A. P 851,000 C. P 885,000
B. P 877,000 D. P 911,000

11. The financial records of Fade, Inc., were destroyed by fire at the end of 2011. Fortunately, the
controller had kept certain statistical data related to the income statement as presented below:
o The beginning merchandise inventory was P92,000 and decreased by 20% during the
current year.
o Sales discounts amount of P17,000.
o 20,000 ordinary shares were outstanding for the entire year.
o Interest expense was P20,000.

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 o The income tax rate is 35%.
o Cost of goods sold amounts to P500,000.
o Administrative expenses are 20% of cost of goods sold but only 8% of gross sales.
o Four-fifths (4/5) of the operating expenses relate to sales activities.

How much is the net profit in the year 2011?

A. P 113,000 C. P 138,450
B. P 132,000 D. P 213,000

12. Pinya Company had the following items at December 31, 2011:
Accounts payable P 330,000
Unsecured notes, 9%, due July 1, 2012 800,000
Accrued expenses 210,000
Provision for litigation 2,700,000
Deferred income tax liability 150,000
Bonds payable, 5%, due March 31, 2012 6,000,000

The contingent liability is an accrual for probable losses on a P6,000,000 lawsuit filed against
Pinya Company. Pinya’s legal counsel expects the suit to be settled in 2013. The counsel has
estimated that Pinya will be liable for damages in the amount of P2,700,000.

The deferred income tax liability is not related to an asset for financial reporting and is expected
to reverse in 2013.

What is the amount of current liabilities that Pinya should report in its December 31, 2011
statement of financial position?
A. P 6,690,000 C. P 9,390,000
B. P 7,340,000 D. P 11,960,000

13. Pandan Company reported total assets of P1,050,000 and total liabilities of P680,000 in its
December 31, 2010 statement of financial position. The following transactions occurred during
2011:
o On August 1, Pandan Company issued an additional 5,000 ordinary shares at P25 per
share.
o The company paid dividends totaling P80,000.
o Net income during the year was P110,000.
o Reacquired treasury shares of 2,000 at P30; subsequently, reissued 1,000 for P39 per
share.
o No other changes occurred in Shareholders’ Equity during the year.

What is the balance of Pandan’s Shareholders’ Equity section in its December 31, 2011 statement
of financial position?
A. P 400,000 C. P 525,000
B. P 504,000 D. P 685,000

14. The draft financial statements of Clay Company, for the year ended December 31, 2011 are
currently under consideration by the directors. The net asset for the year is shown as
P3,500,000. Since December 31, 2011 the following events have occurred, but have not been
reflected in any way in the draft financial statements to the date.

Item 1 – A substantial quantity of slow-moving inventory was sold for P320,000. The inventory
had cost P600,000 and had been valued for the accounts at December 31, 2011 at its estimated
net realizable value of P400,000.
Item 2 – A trade receivable paid the amount owing of P130,000 in full. At December 31, 2011
there were doubts as to whether it would be paid, and a specific provision for the full amount
had been made in the accounts.
What is the adjusted amount of net asset should Clay Company report in its December 31, 2011
statement of financial position?
A. P 3,420,000 C. P 3,550,000

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 B. P 3,500,000 D. P 3,630,000

15. A compensating balance

A. must be included in cash and cash equivalent
B. which is legally restricted and related to a long-term loan is classified as current asset
C. which is legally restricted and related to a short-term loan is classified separately as current
asset
D. which is not legally restricted as to withdrawal is classified separately as current asset

16. If the balance shown on an entity’s bank statement is less than the correct cash balance and
neither the entity nor the bank has made any errors, there must be
A. deposits credited by the bank but not yet recorded by the entity
B. outstanding checks
C. deposits in transit
D. bank service charges not yet recorded by the entity.

17. If the cash balance shown on an entity’s accounting records is less than the correct cash balance
and neither the entity nor the bank has made any errors, there must be
A. deposits credited by the bank but not yet recorded by the entity
B. deposits in transit
C. outstanding checks
D. bank charges not yet recorded by the entity

18. On December 31, 2011, Agenda Company has the following information concerning its cash and
cash equivalents and some other items:
Coins and currency P50,000
Checks received from customers 600,000
Certificate of deposit, term: 12months 800,000
Petty cash fund 4,000
Postage stamps 600
Bank A, checking account balance 2,100,000
Post-dated check, customer 10,000
Money order from customer 15,000
Cash in savings account 100,000
Bank draft from customer 40,000
Utility deposit to gas company, refundable 5,000
Cash advance received from customer 8,000
NSF check, C. Company 20,000
Cash advance to company executive, collectible upon demand 200,000
Bank B, checking account, overdraft 20,000
IOUs from employees 12,000
What amount of cash and cash equivalents should Agenda Company report in its December 31,
2011 statement of financial position?
A. P 2,869,00 C. P 2,882,000
B. P 2,874,00 D. P 2,909,000

19. Penny Corporation’s checkbook balance on December 31, 2011 was P160,000. On the same date
Penny held the following items in its safe:

• A P5,000 check payable to Penny, dated January 2, 2012, was not included in the
December 31 checkbook balance.
• A P3,500 check payable to Penny which was deposited December 19 and included in the
December 31 checkbook balance, was returned by the bank on December 30 marked NSF.
The check was redeposited on January 2, 2012 and cleared on January 9.
• A P25,000 check payable to a supplier and drawn on Penny’s account was dated and
recorded on December 31, but was not mailed until January 19, 2012.
In its December 31, 2011 statement of financial position, how much should Penny report as
cash?
A. 156,600 C. 181,500
B. 161,500 D. 185,000
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20. The accounts receivable subsidiary ledger of Besao Corporation shows the following information
12/31 Invoice
Customer Account Balance Date Amount
Maybe, Inc. P 140,720 12/06 P 56,000
11/29 84,720
Perhaps Co. 83,680 9/2 48,000
8/20 35,680
Pwede Corp. 122,400 12/08 80,000
10/25 42,400
Perchance Co. 180,560 11/17 92,560
10/09 88,000
Possibly Co. 126,400 12/12 76,800
12/02 49,600
Luck, Inc. 69,600 09/12 69,600
723,360 723,360

The estimated bad debt rates below are based on the Corporation’s receivable collection
experience.
Age of accounts Rate
0-30 days 1%
31-60 days 1.5%
61-90 days 3%
91-120 days 10%
Over 120 days 50%
The Allowance for Doubtful Accounts had a credit balance of P14,000 on December 31, 2015,
before adjustment.

The adjusting journal entry to adjust the allowance for doubtful accounts as of December 31,
2015 will include a debit to doubtful accounts expense of
A. P 52,795 C. P 24,795
B. P 38,795 D. P 14,000

21. On January 1, 2008, Lallo Company purchased 15% of Vintar Company's ordinary shares for
P20,000,00 The following data concerning Vintar Company are available:
2008 2009
Net income P 6,000,000 P 7,000,000
Cash dividend paid None 15,000,000

In its income statement for the year ended December 31, 2009, how much should Lallo report as
income from this investment?
A. P 2,250,000 C. P 1,950,000
B. P 700,000 D. P 600,000

22. Pamplona Company owns 1,000,000 shares of Penablanca Company's 5,000,000 shares of P50
par 10% cumulative, nonparticipating preference shares and 500,000 ordinary shares (2%) of
Penablanca. During 2009 Penablanca declared and paid dividends of P40,000,000 on preference
shares. No dividends had been declared or paid during 2008. In addition, Pamplona received a
15% ordinary share dividends from Penablanca when the quoted market price of ordinary share
was P100. What amount should Pamplona report as dividend income in its 2009 income
statement?
A. P 15,500,000 C. P 8,000,000
B. P 20,000,000 D. P 10,000,000

23. On April 1, 2009, Saxe, Inc. purchased P2,000,000 face value, 9%, Treasury Notes for P1,985,000
including accrued interest of P45,000. The notes mature on July 1, 2010 and pay interest
semiannually on January 1 and July 1. Saxe uses the straight line method of amortization. The
notes were sold on December 1, 2009 for P2,065,000 including interest of P75,000. If the notes
are classified as held-to-maturity, the carrying amount of this investment in the company’s

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 October 31, 2009 balance sheet should be
A. P 1,985,000 C. P 1,976,000
B. P 1,968,000 D. P 1,964,000
24. On January 1, 2009, Alexander Corporation purchase P1,000,000 10°/o bonds for P927,880
(including broker's commission of P20,000). Alexander has the positive intention and ability to
hold the bonds to maturity. The bonds were purchased to yield 12%. Interest is payable annually
every December 31. The bonds mature on December 31, 2013. On December 31, 2009 the bonds
were selling at 99. How much is the carrying amount of the investment in bonds on December
31, 2009?
A. P 961,626 C. P 939,226
B. P 916,534 D. P 990,000

25. The cost of inventory is the sum of

A. costs of purchase and costs of conversion
B. direct costs, indirect costs and other costs
C. costs of purchase, costs of conversion and other costs incurred in bringing the inventory to
the present location and condition
D. costs of conversion and other costs incurred in bringing the inventory to the present location
and condition

26. The costs of inventory of a service provider include which of the following?
A. Labor and other costs of personnel directly engaged in providing the service
B. Compensation of supervisor directly engaged in providing the service
C. Attributable overhead incurred in providing the service
D. All of these

27. On December 31, 2003, a fire at Bernadette Company’s warehouse caused severe damage to its
entire inventory. Based on recent history, Bernadette has a gross profit of 25% on cost. The
records of Bernadette for the year ended December 31, 2003 showed beginning inventory of
P5,000,000, net purchases of P14,000,000 and net sales of P15,000,000. A physical inventory
disclosed usable damaged goods which can be sold to a jobber for P1,500,000. Using the gross
profit method, the estimated value of goods destroyed by the fire on December 31, 2003 is
A. 7,000,000 C. 7,750,000
B. 5,500,000 D. 6,250,000

28. A listing of the Emma Company's inventory items at the end of 2005 totals P950,000. Included in
this amount are the following items:
Merchandise in transit as of 12/12/2005, purchased FOB shipping point 68,000
Goods held by Emma as consignee, from Ronald 50,000
Goods out on consignment, at coat plus 50%
Markup on cost plus P1,000 delivery charge 61,000
What is the peso amount of Emma's 2005 ending Inventory that should be reported on the
balance sheet?
A. 831,000 C. 879,000
B. 862,000 D. 880,000
29. Eccentric Company provides engineering and operational support services to aircraft
manufacturers. Eccentric Company received a confirmed order from a well-known aircraft
manufacturer to develop new designs for ducting the air-conditioning of their aircraft. For this
project, Eccentric Company needed funds aggregating to P1,000,000. It was able to convince
venture capitalists and was able to obtain funding of P1,000,000. The following expenditures
were incurred by Eccentric Company is pursuance of its research and development project, in
chronological order:
January 2, 2010 Paid P175,000 toward salaries of the technicians (engineers and
consultants).
March 15, 2010 Incurred P250,000 toward cost of developing for revising the duct and
producing the test model.
July 15, 2010 Paid an additional P300,000 for revising the ducting process to ensure
that product could be introduced in the market.
Sept. 15, 2010 Developed, at a cost of P80,000, the first model (prototype) and tested it

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 with the air-conditioners to ensure its compatibility.
Oct. 31, 2010 A focus group of other engineering providers was invited to a conference
for introduction of this new product. Cost of the conference aggregated to
P50,000.
Dec. 15, 2010 The development phase was completed and a cash flow budget was
prepared. Net profit for the year 2010 was estimated to equal P900,000.
What total amount of costs Eccentric Company should recognize as expense during the research
stage?
A. P 725,000 C. P 805,000
B. P 775,000 D. P 855,000
30. The following transactions pertain to the general borrowings made during 2010 by Victory
Company in connection with construction of the company’s new warehouse:
Principal Borrowing Costs
8% bank loan P2,400,000 P192,000
6% short-loan note 1,600,000 96,000
8% long-term note 2,000,000 160,000
The construction started on January 1, 2010 and the warehouse was completed on December 31,
2010. Expenditures on the warehouse were as follows:
January 1 P400,000 September 30 P1,000,000
March 31 1,000,000 December 31 400,000
June 30 1,200,000
How much is the capitalizable borrowing cost of Victory Company?
A. None C. P 298,600
B. P 149,400 D. P 448,000

31. Altitude Company purchased a plot of land for P2,000,000 as a plant site. There was a small
building on the plot, conservatively appraised at P700,000 which the company will continue to
use with some modification and renovation.
The company constructed a new plant on the newly acquired land. Below are items that may be
included in the property, plant and equipment accounts.
Materials and supplies P 3,000,000
Excavation 100,000
Labor on construction 2,500,000
Cost remodeling office building 200,000
Legal cost of conveying land 10,000
Imputed interest on corporation own money used during construction 120,000
Cash discounts on materials purchased, not taken 60,000
Supervision by management 70,000
Compensation insurance premium for workers 20,000
Clerical and other expenses related to construction 30,000
Paving of streets and sidewalks 40,000
Plans and specifications 140,00
Payment for claim for injuries not covered by insurance 25,000
Legal cost of injury claim 15,000
Saving on construction 200,000
The land should be reported at
A. P 1,310,000 C. P 1,350,000
B. P 1,300,000 D. P 1,410,000
32. Cremation Company had a machinery costing P3,000,000 when purchased on January 2, 2005.
Estimated useful life of the asset was for 20 years with no salvage value at the end of its useful
life. Cremation uses the straight line method of depreciation. On January 2, 2010, Cremation is
evaluating the machinery for possible impairment. The machinery has a remaining useful life of
5 years and is expected to generate cash inflows and P500,000 per year. Cremation has
determined that the rate implicit in current market transaction for similar asset is 10%.
Available information as of January 2, 2010 also showed that the appropriate market price for
the same asset is P1,800,000. Estimated cost of disposal, P150,000.
What amount of impairment loss, if any, is to be recognized?
A. None C. P 450,000
B. P 355,000 D. P 600,000
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33. The following data are available from the books of Red Corporation:
Machinery Equipment
Cost of acquisition P 560,000 P140,000
Estimated salvage value 60,000 20,000
Date of acquisition January 1, 2007 July 1, 2007
Estimated life 10 years 5 years
On October 1, 2010, above machinery was sold for P400,000 while the equipment could no
longer be used on March 31, 2010 and the company received P50,000 from the insurers in full
settlement of the claim.
What is the amount of net gain or loss on the disposal of the above assets?
A. P 3,500 C. P 24,000
B. P 23,500 D. P 27,500

34. Lincoln Corporation has the following information as of January 1, 2011 on its Property, Plant
and Equipment account:
Accumulated
Historical Cost
Depreciation
Land P 25,000,000 -
Buildings & improvements 150,000,000 50,000,000
Machinery & equipment 200,000,000 18,750,000
There were no additions or disposals during 2011. Depreciation expense is computed on a
straight-line method over 20 years for buildings and improvements and 10 years for machinery
and equipment. On January 1, 2011, all of the company’s property, plant and equipment were
appraised as follows:
Fair Values
Land P 50,000,000
Buildings & improvements 225,000,000
Machinery & equipment 225,000,000
Lincoln booked the appraisal on December 31, 2011.
How much should Lincoln report as revaluation surplus in Property, Plant and Equipment under
the shareholders’ equity?
A. P 143,750,000 C. P 207,500,000
B. P 193,750,000 D. P 318,250,000

35. Super Value Company quarries marble at two locations and sells it to be used in construction of
buildings. The company provides for a depletion rate of 5%. The quarry is leased on a year-to-
year basis with the company paying a royalty of P0.05 per ton of marble quarried. Other data
relevant to the requirements are:
Estimated total reserves, tons P 60,000,000
Tons quarried through December 31, 2009 4,000,000
Tons quarried, 2010 1,600,000
Sales, 2010 1,200,000

How much would be the depletion for 2010 for financial reporting purposes?
A. None C. P 80,000
B. P 60,000 D. P 300,000

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36. Bush Company use the straight line method of depreciation for its property, plant and
equipment, which, stated at cost, consisted of the following:
December 31, 2010 December 31, 2009
Land P200,000 P200,000
Buildings 1,560,000 1,560,000
Machinery & Equipment 5,560,000 5,200,000
P7,320,000 P6,960,000
Less: Accum. Depreciation 3,200,000 2,960,000
Book value P4,120,000 P4,000,000

Bush’s depreciation expense for 2010 and 2009 were P440,000 and P400,000, respectively.

What amount should be debited to accumulated depreciation during 2010 due to property, plant
and equipment derecognition?
A. P 80,000 C. P 200,000
B. P 160,000 D. P 320,000

37. On July 1, 2007, Youth Corporation purchased photocopying machine at a cost of P300,000. This
machine was estimated to have a five-year life with no salvage value and was depreciated by the
straight-line method. On January 2, 2010, Youth determined that this machine could no longer
work efficiently, that its value had been permanently impaired, and that P90,000 could be
recovered over the remaining useful life of the machine.

In its December 31, 2010 statement of financial position, how much should Youth report as
carrying value of the machine?
A. P 45,000 C. P 90,000
B. P 50,000 D. P 150,000

38. On August 1, 2011, Flight Corporation purchased a new machine on a deferred payment basis. A
down-payment of P200,000 was made and 4 annual installments of P600,000 each are to be
made beginning on September 1, 2011. Terms of the contract are not normal in the industry
where the same types of assets are being traded. Due to an employee strike, Flight could not
install the machine immediately, thus, incurred P3,000 of storage costs. Cost of installation
(excluding the storage costs) amounted to P20,000. The cash price of the machine was
P2,300,000.

How much should be capitalized as cost of the machine?

A. P 2,300,000 C. P 2,323,000
B. P 2,320,000 D. P 2,600,000

39. During 2009, Dasmariñas Company installed production assembly line to manufacture furniture.
In 2009, Dasmariñas purchased a new machine and rearranged the assembly line to install this
machine. The rearrangement did not increase the estimated useful life of the assembly line but it
did result in significantly more efficient production. The following expenditures were incurred in
connection with this project:
Machine P 5,000,000
Labor to install new machine 400,000
Parts added in rearranging the assembly line to provide
future benefits 2,000,000
Labor and overhead to rearrange the assembly line 600,000

What amount of the above expenditures should be capitalized in 2009?

A. P 8,000,000 C. P 5,400,000
B. P 7,400,000 D. P 2,600,000

40. Which of the following typically would NOT be classified as a current liability?
A. Bonds payable maturing within one year
B. A guarantee of the indebtedness of another party
C. Nontrade notes payable
D. Rent revenue received in advance

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 Which of the following statements concerning dividends is UNTRUE?
A. Once declared, a cash dividend on common stock becomes a liability of the corporation.
B. Since a dividend is generally paid within a month or so, it usually is classified as current.
C. Preferred dividends in arrears should not be accrued as a liability.
D. Preferred dividend declared but not yet paid should be disclosed only in the footnote.

41. The data below are from the records of Almanor, Inc on December 31, 2007:
Accounts payable P 340,000
Cash balance, ABC Bank 620,000
Cash overdraft with XYZ Bank 40,000
Customers’ accounts with credit balances 12,500
Dividends in arrears on preferred stock 200,000
Employees’ income tax payable 50,000
Estimated warranty payable 25,000
Estimated premium claims outstanding 45,000
Income tax payable 200,000
Notes payable (issued in 2007 maturing in 20 semi-
annual installments beginning on April 1, 2008) 2,000,000
Salaries payable 650,000

The amount to be shown as total current liabilities on Almanor’s balance sheet at December 31,
2007 is
A. P 1,462,500 C. P 1,522,000
B. P 1,562,500 D. P 1,550,000

42. Anglin Corporation must determine the December 31, 2007, year-end accruals for advertising
and rent expenses. A P50,000 advertising bill was received January 10, 2008, comprising costs of
P37,500 for advertisements in December 2007 issues, and P12,500 for advertisements in
January 2008 issues of the newspaper.

A store lease, effective December 16, 2006, calls for fixed rent of P120,000 per month, payable
one month from the effective date and monthly thereafter. In addition, rent equal to 5% of net
sales over P30,000,000 per calendar year is payable on January 31 of the following year. Net
sales for 2007 were P55,000,000.

What is the total accrued liabilities that should be reported by Anglin Corporation on its
December 31, 2007 balance sheet?
A. P 1,322,500 C. P 1,597,500
B. P 1,360,000 D. P 1,347,500

43. Omega Company sells its products in expensive, reusable 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. Omega accounts for the containers not returned within the
time limit as being sold at the deposit amount. Information for 2007 is as follows:
Containers held by customers at December 31, 2006:
From deliveries in: 2005 85,000
2006 240,000 325,000

Containers delivered in 2007 430,000

Containers returned in 2007
From deliveries in: 2005 57,500
2006 140,000
2007 157,000 354,500

What is the total amount of Omega Company’s liability for returnable containers at December 31,
2007?
A. P 373,000 C. P 267,500
B. P 400,500 D. P 430,000

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44. Rusty Company sells office equipment service contracts agreeing to service equipment for a two-
year period. Cash receipts from contracts are credited to unearned service contract expense as
incurred. Revenue from service contracts is recognized as earned over the lives of the contracts.
Additional information for the year ended December 31, 2012, is as follows:

Unearned service contract revenue at January 1, 2012 P600,000

Cash receipts from service contracts sold 980,000
Service contract revenue recognized 860,000
Service contract expense 520,000

What amount should Rusty report as unearned service contract revenue at December 31, 2012?
A. P 460,000 C. P 490,000
B. P 480,000 D. P 720,000

45. Amy Corporation must determine the December 31, 2010, year-end accruals for advertising and
rent expenses. A P50,000 advertising bill was received January 10, 2011, comprising costs of
P37,500 for advertisements in December 2010 issues, and P12,500 for advertisements in
January 2011 issues of the newspaper.

A store lease, effective December 16, 2009, calls for fixed rent of P120,000 per month, payable
one month from the effective data and monthly thereafter, in addition, rent equal to 5% of net
sales over P6,000,000 per calendar year is payable on January 31 of the following year. Net sales
for 2010 were P7,500,000.

What is the total accrued liabilities that should be reported by Amy Corporation on its statement
of financial position as at December 31, 2010?
A. P 185,000 C. P 97,500
B. P 172,500 D. P 110,000

46. When preference shares are purchased and retired by the issuing corporation for less than the
original issue price, proper accounting for the retirement.
A. increases the amount if dividends available to ordinary shareholders.
B. increases the contributed capital of the ordinary shareholders.
C. increases reported income for the period.
D. increases the treasury shares held by the corporation.

47. When a corporation redeems all of its preference shares for more than the original issue price,
the excess paid above the original issue price should be
A. accounted for as loss on exchange in the income statement.
B. charged against additional paid in capital of ordinary shares.
C. charged to a discount on preference shares.
D. charged against retained earnings.

48. An ordinary shareholder DOES NOT possess which of the following?

A. The right to share in the earnings of the corporation when dividends are declared.
B. The right to vote in the election of the board of directors of the corporation.
C. The right to direct ownership of the corporate assets.
D. The right to share proportionately in corporate assets in case of liquidation if such assets
exceed the claims of creditors.

Mock Board Examination for Accountancy: Financial Accounting and Reporting Page 11
Use this information to answer items 50-51:

Oz Company reported the following amounts in the stockholders’ equity section of its December 31,
2006, balance sheet:
Preferred share, 10%, P10 par (100,000 shares
authorized, 20,000 shares issued) P 200,000
Ordinary share, P5 par (50,000 shares authorized,
10,000 shares issued) 50,000
Additional paid-in capital 96,000
Retained earnings 600,000
Total P 946,000

The following transactions occurred during 2007:

1. Paid the annual 2006 P1 per share dividend on preferred stock and P0.50 per share dividend
on ordinary share. These dividend had been declared on December 31, 2006.
2. Purchased 2,000 shares of its own outstanding ordinary share for P20 per share.
3. Reissued 700 treasury shares for equipment valued at P25,000.
4. Issued 5,000 shares of preferred share at P15 per share.
5. Declared a 10% stock dividend on the outstanding ordinary share when the stock is selling for
P12 per share.
6. Issued the stock dividend.
7. Declared the annual 2007 P1 per share dividend on preferred share and the P0.50 per share
dividend on ordinary share. These dividend are payable in 2008.
8. Appropriated retained earnings for plant expansion, P300,000.
9. Appropriated retained earnings for treasury stock.
The net income for 2007 was P470,000

49. Based on the above data, determine the correct balance of Preferred share on December 31,
2017.
A. P 250,000 C. P 275,000
B. P 200,000 D. P 1,000,000

50. What is the unappropriated retained earnings?

A. P 714,775 C. P 703,775
B. P 709,775 D. P 729,775

51. Stockholder’s equity for the Qatar Company on December 31 was as follows:
Preferred share, P20 par, 60,000 shares issued and outstanding P 1,200,000
Paid-in capital in excess of par – preferred stock 300,000
Ordinary share, P10 par, 300,000 shares issued and outstanding 3,000,000
Paid-in capital in excess of par-ordinary share 600,000
Retained earnings 2,500,000

Each share of preferred is convertible into 4 shares of common. On June 1, Qatar converted 4,000
of preferred shares into ordinary shares.

The entry to record the conversion into ordinary share on June 1 should include a debit to
A. Preferred share for P160,000 C. Retained earnings for P60,000
B. Ordinary share for P160,000 D. Retained earnings for P80,000

52. The stockholder’s equity section of Bahrain Corporation’s balance sheet as of December 31,
2006, is as follows:
Ordinary share (5 par, 250,000 shares authorized, 687,500
137,500 issued and outstanding)
Paid-in capital in excess of par 275,000
Total Paid-in capital 962,500
Unappropriated retained earnings 667,500
Appropriated retained earnings 250,000
Total retained earnings 917,500
Total stockholder’s equity 1,880,000

Mock Board Examination for Accountancy: Financial Accounting and Reporting Page 12
 Bahrain Corporation had the following stockholders’ equity transactions during 2007:
Jan 15 Completed the building renovation for which P250,000 of retained
earnings had been restricted. Paid the contractor P242,500, all of which
is capitalized.
Mar. 3 Issued 50,000 additional shares of the ordinary shares for P8 per share.
May 18 Declared a dividend of P1.50 per share to be paid on July 31, 2007, to
stockholders of record on June 30, 2007.
June 19 Approved additional building renovation to be funded internally. The
estimated cost of the project is P200,000, and retained earnings are to
be restricted for that amount.
July 31 Paid the dividend.
Nov. 12 Declared a property dividend to be paid on December 31, 2007, to
stockholders of record on November 30, 2007. The dividend is to
consist of 17,500 shares of Rude Corp. stock that are currently recorded
in Bahrain’s books at P9 per share.
Dec. 31 Reported P442,500 of net income on December 31, 2007, income
statement. In addition, the stock was distributed in satisfaction of the
property dividend.

The total stockholder’s equity at December 31, 2007 should be

A. P 2,233,750 C. P 2,083,750
B. P 2,283,750 D. P 2,371,250

53. The following information has been taken from the ledger accounts of China Corporation:
Total net income since incorporation P 3,200,000
Total cash dividends paid 150,000
Carrying value of the company’s investment in Yogi
Company declared as property dividend 600,000
Proceeds from sale of donated stock 150,500
Total value of stock dividends distributed 420,000
Gains on treasury stock transactions 375,000
Unamortized premium on bonds payable 413,200
Appropriated for contingencies 700,000

The current balance of unappropriated retained earnings is

A. P 2,030,000 C. P 1,330,000
B. P 3,200,000 D. P 1,930,000

54. Afghanistan Company has been paying regular quarterly dividends to its stockholders. The
following equity transactions are show in the company’s books:
Jan 1 P2 par value ordinary share; (1,600,000 shares outstanding; 3,000,000
shares authorized).
Feb. 15 Issued 100,000 new shares at P5.

Mar. 31 Paid quarterly dividends of P2,550,000.

May 13 P2,000,000 of P1,000 bonds were converted to ordinary share at the
rate of 100 shares of stock per P1,000 bond.
June 16 Issued an 11% stock dividend.
June 30 Paid quarterly dividends. The dividend per share is the same as that
paid in the first quarter

No other equity transactions occurred after June 30.

What is the total amount of dividends to be paid during the year 2007?
A. P 10,305,900 C. P 13,305,900
B. P 12,040,500 D. P 12,654,000

55. The following are Pakistan Company’s equity accounts at December 31, 2006:
Ordinary share, par value P10; authorized P 1,200,000
200,000 shares; issued and outstanding 120,000

Mock Board Examination for Accountancy: Financial Accounting and Reporting Page 13
 Additional paid-in capital 140,000
Retained earnings 720,000

Pakistan Company uses the cost method of accounting for treasury stock.
The following transactions occurred in 2007:
a. Acquired 2,000 shares of ordinary for P30,000.
b. Sold 1,200 treasury shares at P18 per share.
c. Retired the remaining treasury shares.

What is the additional paid-in capital balance on December 31, 2007?

A. P 136,000 C. P 143,600
B. P 140,400 D. P 139,600

56. An employer’s obligation relating to employees’ right to receive compensation for future
absences is attributable to employees' services already rendered. The payment of compensation
is probable, and the amount of compensation can be reasonably estimated. Employees'
compensation should be
A. accrued if the obligation relates to rights that vest or accumulate.
B. accrued if the obligation relates to rights that do not vest or accumulate.
C. expensed when paid.
D. disclosed but not accrued if the obligation relates to rights that vest or accumulate.

57. On July 1, 2011, Kendall Company leased office space for five years at P150,000 a month. On that
date, Kendall paid the lessor the following amounts:

Rent security deposit 350,000

First month’s rent 150,000
Last month’s rent 150,000
Nonrefundable reimbursement to lessor
for modifications to the leased premises 900,000
1,550,000

Kendall made timely rental payments from August 1 through December 1, 2011. What portion of
payments to the lessor should Kendall have recognized as deferred to years beyond 2011?
A. 1,400,000 C. 1,250,000
B. 1,310,000 D. 500,000

58. Jiggs started construction on a building on January 1, of the current year and completed
construction on December 31, of the same year. Jiggs had only two interest notes outstanding
during the year, and both of these notes were outstanding for all 12 months of the year. The
following information is available:
Average accumulated expenditures 2,500,000
Ending balance in construction progress before capitalization of interest 3,600,000
6 percent note incurred specifically for the project 1,500,000
9 percent long-term note 5,000,000

What is the cost of the building on December 31?

A. P 3,780,000 C. P 3,750,000
B. P 2,680,000 D. P 3,825,000

59. Weygandt Company has the following carrying amount of assets and liabilities on December 31,
2011:
Property 10,000,000
Plant and equipment 5,000,000
Inventory 4,000,000
Trade receivables 3,000,000
Trade payables 6,000,000
Cash 2,000,000
The value for tax purposes for property and for plant and equipment was P7,000,000 and

Mock Board Examination for Accountancy: Financial Accounting and Reporting Page 14
 P4,000,000 respectively. The entity has made a provision for inventory obsolescence of
P2,000,000 which is not allowable for tax purposes. Further, an impairment charge against trade
receivables of P1,000 has been made. This charge will not be allowed in the current year for tax
purposes. The tax rate is 30%.
What amount should be recognized as deferred tax expense for 2011?
A. 1,400,000 C. 350,000
B. 1,200,000 D. 300,000

60. The differences between the book basis and tax basis of the assets and liabilities of Chaka
Company at the end of 2011 are presented below.
Carrying amount Tax base
Installment accounts receivable 1,000,000 0
Litigation liability 200,000 0
It is expected that the litigation liability will be settled in 2012. The difference in accounts
receivable will result in taxable amounts of P600,000 in 2012 and P400,000 in 2013. Chaka has a
taxable income of P7,000,000 in 2011 and is expected to have taxable income in each of the
following two years. The income tax rate is 30%. This is the first year of operations of Chaka and
the operating cycle of the business is two years. What amounts should be reported respectively
as deferred tax expense, current tax expense and total income tax expense?
A. 240,000, 2,100,000, 2,340,000 C. 360,000, 2,100,000, 2,100,000
B. 300,000, 2,100,000, 2,340,000 D. 240,000, 2,100,000, 2,100,000

61. Rocket Company, organized on January 1, 2011, had pretax accounting income of P500,000 and
taxable income of P800,000 for the year ended December 31, 2011. The only temporary
difference is accrued product warranty costs that are expected to be paid as follows:
2012 100,000 2014 50,000
2013 50,000 2015 100,000
The entity has never had any net operating losses and does not expect any in the future. The
enacted income tax rates are 35% for 2011, 30% for 2012 through 2014, and 25% for 2015.
On December 31, 2011, what amount should be reported as deferred tax asset?
A. 105,000 C. 85,000
B. 70,000 D. 60,000

62. The audit of Agnes Company for the year ended December 31, 2011 was completed on March 1,
2012. The financial statements were signed by the managing director on March 15, 2012 and
approved by the shareholders on March 31, 2012. The next events have occurred.
• On January 15, 2012, a customer owing P900,000 to Agnes filed for bankruptcy. The
financial statements include an allowance for doubtful accounts pertaining to this
customer only of P100,000.
• Agnes Company’s issued share capital comprised 100,000 ordinary shares with P100 par
value. The entity issued additional 25,000 shares on March 1, 2012 at par value.
• Specialized equipment costing P525,000 purchased on September 1, 2011 was destroyed
by fire on December 15, 2011. Agnes Company has booked a receivable of P400,000 from
the insurance entity.
After the insurance entity completed its investigation on February 1, 2012, it was discovered
that the fire took place due to negligence of the machine operator. As a result, the insurer’s
liability was zero on this claim.
What should be reported as total amount of “adjusting events” on December 31, 2011?
A. 1,300,000 C. 3,800,000
B. 1,200,000 D. 3,700,000

63. Venice Company’s profit before tax for the six months ended June 30, 2011 was P5,000,000.
However, the business is seasonal and profit before tax for the six months ended December 31,
2011 is almost certain to be P9,000,000. Profit before tax equals taxable profit for this entity.
Venice operates in a country where income tax is at a rate of 30% if annual profit is below
P11,000,000 and a rate of 35% where annual profit exceeds P11,00,000. These tax rates apply to
the entire profit for the year. What should be the income tax expense in Venice’s interim financial
statements for the half year ended June 30, 2011?
A. 1,750,000 C. 1,500,000
Mock Board Examination for Accountancy: Financial Accounting and Reporting Page 15
 B. 2,100,000 D. 2,450,000

64. Which of the following arrangements is accounted for in accordance with the requirements of
Section 20 of PFRS for SMEs?
A. Licensing agreements for such items as motion picture films, video recordings, plays,
manuscripts, patents and copyrights.
B. Agreements that transfer the right to use assets even though substantial services by the
lessor may be called for in connection with the operation or maintenance of such assets.
C. Leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources.
D. Leases that could result in a loss to the lessor or the lessee as a result of contractual terms
that are unrelated to changes in the price of the leased asset, changes in foreign exchange
rates, or a default by one of the counterparties.

65. An entity operates a bed and breakfast from a building it owns. The entity also provides its
guests with other services including housekeeping, satellite television and broadband internet
access. The daily room rental is inclusive of these services. Furthermore, upon request, the entity
conducts tours of the surrounding area for its guests. Tour services are charged for separately.
The entity should account for the building as
A. property, plant and equipment C. inventory
B. investment property D. property

66. An entity operates an executive aviation service. The entity’s only item of property, plant and
equipment is an aircraft that it acquired for P10,400,000. The cost of the aircraft is attributed to
its significant parts as follows: the jet engine (60%), body (20%) and aviation equipment (10%)
and furniture and fittings (10%).

A condition of operating an aircraft is that it is inspected by the aviation authorities every three
years. An inspection costs P400,000. The jet had been inspected at the manufacturer’s expense
before delivery to the entity.

Aviation regulations require the jet engine to be replaced when it has flown 2,000,000 air miles.
Management intends fitting a new engine to the aircraft when it requires replacement so that the
aircraft can be used for approximately 10 years, at which time it intends to scrap the aircraft.

Management does not expect to replace the body of the aircraft or the aviation equipment.
However, management assesses the useful life of the furniture and fittings as five years at which
time they will be scrapped and replaced.

What is the cost of each of the significant parts of the aircraft that the entity must depreciate
separately?
A. P6,240,000 jet engine, P2,080,000 body, P1,040,000 aviation equipment and P1,040,000
furniture and fittings.
B. P10,400,000 jet aircraft.
C. P6,000,000 jet engine, P3,000,000 body and equipment, P1,000,000 furniture and fittings
and P400,000 aviation inspection.
D. None of the Above

67. An entity acquired a trademark for a leading consumer product. The trademark has a remaining
legal life of five years but is renewable every ten years at little cost. The acquiring entity intends
to renew the trademark continuously and evidence supports its ability to do so. An analysis of (i)
product life cycle studies, (ii) market, competitive and environmental trends, and (iii) brand
extension opportunities provides evidence that the trademarked product will generate net cash
inflows for the acquiring entity for an indefinite period. The useful life of the intangible asset is
A. five years—the initial period of the contractual rights.
B. presumed to be 10 years—if the entity is unable to make a reliable estimate of its finite useful
life.
C. 15 years—the initial period of the contractual rights plus a renewal period.
D. five years—the period of the contractual rights, but with no amortization charges, as it is
expected to generate cash flows for an indefinite period.

Mock Board Examination for Accountancy: Financial Accounting and Reporting Page 16
68. Collection of notes receivable of P50,000 plus interest of P500 was recorded as debit to cash of
P50,500 and notes receivable of P50,500. This error will
A. overstate the expenses by P500
B. understate the liability by P500
C. understate assets by P500 and understate revenue by P500
D. understate revenue by P500

69. A cash purchase of P5,200 was recorded as P2,500. The error had been discovered when
nominal accounts were already closed to income summary, but not yet closed to the capital
account. The correcting entry will require a
A. P2,700 debit to accounts receivable C. P2,700 credit to cash
B. P2,700 debit to purchases D. P2,700 credit to accounts payable

END OF EXAMINATION 

Mock Board Examination for Accountancy: Financial Accounting and Reporting Page 17