Review 105-----------Day 1
Future borrowing needs and how future profits and cash flows will be
THEORY OF ACCOUNTS
1. Which is incorrect concerning financial statements?
a. The objective of general purpose financial statements is to provide
information about the financial position, performance and cash flows of an
enterprise that is useful to a wide range of users in making economic
decisions.
b. Financial statements also show the results of management’s stewardship of
the resources entrusted to it.
c. The management of an enterprise has the primary responsibility for the
preparation and presentation of financial statements.
d. Financial statements are prepared and presented at least annually and are
directed toward the specific needs of a wide range of users.
2. The providers of risk capital (investors)
a. Are interested in information which enables them to assess the ability of the
enterprise to provide renumeration, retirement benefits and employment
opportunities.
b. Are interested in information that enables them to determine whether their
loans and the interest attaching to them will be paid when due.
c. Have an interest in information about the continuance of an enterprise
especially when they have a long-term involvement with or are dependent on
the enterprise.
d. Are concerned with the risk inherent in and return provided by their
investments and need information to help them determine whether they
should buy or sell the investments.
3. These users are interested in the allocation of resources and activities of
enterprises, and therefore require information to regulate the activities of
enterprises, determine taxation policies and as a basis for national income and
similar statistics.
a. Suppliers and trade creditors c. Public
b. Customers d. Governments and their
agencies
4. Information about economic resources controlled by the enterprise and its
capacity to modify these resources is useful in predicting the
a. Ability of the enterprise to meet its financial commitments in the near term.
b. Ability of the enterprise to meet its financial commitments over a longer term.
c.
distributed among interested users.
d. Ability of the enterprise to generate cash and cash equivalents in the future.
5. Information about the performance of an enterprise is required in order to assess
potential changes in the economic resources that it is likely to control in the
future. This information is primarily pictured in the
a. Cash flow statement c. Balance sheet
b. Statement of retained earnings d. Income statement
6. The accrual basis means that
1. The effects of transactions and other events are recognized when they occur
and not as cash or its equivalent is received or paid and they are recorded in
the accounting records and reported in the financial statements of the periods
to which they relate.
2. The financial statements are normally prepared on the assumption that an
enterprise will continue in operation for the foreseeable future.
3. Where parent and subsidiary relationship exists, consolidated statements for
the affiliates are prepared because the parent and the subsidiary are a “single
economic entity”.
4. The financial statements should be stated in terms of a common financial
denominator.
7. Qualitative characteristics
a. Are the attributes that make the information provided in financial statements
useful to users.
b. Are the generally accepted accounting principles.
c. Are the basic notions and fundamental premises on which the accounting
process is based.
d. Refer to the definition, recognition and measurement of the elements from
which financial statements are constructed.
8. What are the primary qualities of financial accounting information that pertain to
the content rather than to the presentation of financial information?
a. Relevance and reliability c. Relevance and comparability
b. Understandability and comparability d. Reliability and
understandability
9. Information has the quality of relevance when
a. It influences the economic decisions of users by helping them evaluate past,
present or future events or confirming or correcting their past evaluations.
 b. It is free from bias and error and can be depended upon by users to a. It may often be necessary to report before all aspects of a transaction or other
represent faithfully that which it either purports to represent or could event are known, thus impairing reliability.
reasonably be expected to represent. b. The benefits derived from the information should exceed the cost of providing
c. Users are assumed to have a reasonable knowledge of business and it.
economic activities and accounting and a willingness to study the information c. In achieving a balance between relevance and reliability, the overriding
with reasonable diligence. consideration is how best to satisfy the economic decision-making needs of
d. Users are informed of the accounting policies employed, any changes in users.
those policies and the effects of such changes. d. If there is undue delay in the reporting of information it may lose its relevance
and reliability.
10. Which statement is incorrect concerning reliability of information?
1. The information must be neutral, meaning free from bias. 14. A contingent liability is a
2. The information should reflect the economic substance of the transactions I. Possible obligation arising from past events that will be confirmed only by
rather than their mere legal form. the occurrence or nonoccurrence of one or more uncertain future events
3. The information must be complete within the bounds of materiality and cost. not wholly within the control of the enterprise.
4. Prudence is the inclusion of a degree of caution in the exercise of judgment II. Present obligation that arises from past events and it is not probable that
needed in making an estimate required under conditions of uncertainty, such an outflow of resources will be required to settle the obligation and the
that assets or income are overstated and liabilities or expenses are obligation can be measured reliably.
understated. a. I only b. II only c. Both I and II d. Neither
I nor II
11. Which is incorrect concerning the quality of relevance?
a. The relevance of information is affected by its nature and materiality. 15. A contingent liability is (choose the incorrect one)
b. The information must be relevant to the decision-making needs of the users a. Disclosed only c. Disclosed even if remote
in order to be useful. b. Either probable or measurable but not both d. d. Not recognized in the
c. Information about financial position and past performance is frequently used financial statements
as a basis for predicting future financial position and performance and other
matters such as dividend and wage payments, security price movements and
the ability of the enterprise to meet its commitments when they fall due.
d. The predictive and confirmatory roles of information are not interrelated.
P1
12. Which is incorrect concerning the qualitative characteristic of comparability?
a. Horizontal comparability is the quality of information that allows comparisons 1. On January 2, 2005, Currimao Company purchased 10% of Bacarra
within a single enterprise through time or from one accounting period to the Company’s outstanding common shares for P20,000,000. Currimao is the
next. largest single shareholder in Bacarra and Currimao’s officers are majority of
b. Dimensional comparability is the quality of information that allows Bacarra’s board of directors. Bacarra reported net income of P10,000,000
comparisons between two or more enterprises engaged in the same industry. and paid dividend of P4,000,000. In its December 31, 2005 balance sheet,
c. The need for comparability should not be confused with mere uniformity and what amount should Currimao report as investment in Bacarra Company?
should not be allowed to become an impediment to the introduction of
improved accounting standards. a. 20,000,000
d. It is appropriate for an enterprise to leave its accounting policies unchanged b. 21,000,000
when more relevant and reliable alternatives exist. c. 20,600,000
d. 21,400,000
13. Which is incorrect concerning the accounting constraints on relevant and reliable
information?
2. On July 1, 2005, Batac Company purchased 40% of the outstanding c. 55,000,000
common stock of Dumalneg Company for P50,000,000. On this date, d. 53,000,000
Dumalneg’s net assets were P100,000,000 which approximated their fair
values, except for land whose fair value exceeded its carrying amount by
P15,000,000. Any implied goodwill has a useful life of 5 years. Dumalneg’s 5. On January 1, 2004 Dingras Company acquired 10% of the outstanding
2005 net income was P25,000,000. The maximum amount which could be voting stock of Piddig Company. On January 1, 2005, Dingras gained the
included in Batac’s 2005 income before tax to reflect its “equity in earnings of ability to exercise significant influence over financial and operating control of
Dumalneg” is Piddig by acquiring 30% of Piddig’s outstanding stock. The two purchases
a. 9,200,000 were made at prices proportionate to the value assigned to Piddig’s net
b. 4,600,000 assets, which equaled their carrying amounts. For the years ended
c. 3,000,000 December 31, 2004 and 2005, Piddig reported the following:
d. 4,200,000
2004
2005 __
3. Culasi Company bought 20% of Bugasong Corporation’s common stock on Dividend paid 5,000,000
January 1, 2005 for P20,000,000. Carrying amount of Bugasong’s net assets 10,000,000
at purchase date totaled P60,000,000. Fair value and carrying amounts were Net income 8,000,000
the same for all items except for plant and inventory, for which fair values 15,000,000
exceed their carrying amounts by P15,000,000 and P5,000,000 respectively.
The plant has a 5-year life. All inventory was sold during 2005. Goodwill, if In 2005, what amounts should Dingras report as current year
any, has an indefinite life. During 2005, Bugasong reported net income of investment income and as an adjustment to 2004 income,
P40,000,000 and paid a P15,000,000 cash dividend. What amount should respectively?
Culasi report as investment income for 2005? a. 6,000,000 and 800,000
a. 6,200,000 b. 6,000,000 and 300,000
b. 6,400,000 c. 4,500,000 and 300,000
c. 3,000,000 d. 4,500,000 and 800,000
d. 7,600,000
6. Pagudpud Company owns 50% of Sarrat Company’s preferred stock and
4. Carasi Company purchased 15% of Badoc Company’s 500,000 30% of its common stock. Sarrat’s stock outstanding at December 31, 2005
outstanding shares of common stock on January 2, 2005, for P15,000,000. includes P20,000,000 of 10% cumulative preferred stock and P50,000,000 of
On December 31, 2005, Carasi purchased additional 125,000 shares of common stock. Sarrat reported net income of P10,000,000 for the year 2005.
Badoc for P35,000,000. There was no goodwill as a result during 2005. What amount should Pagudpud report as investment income for the year
Badoc reported earnings of P20,000,000 for 2005. What amount should 2005?
Carasi report in its December 31, 2005 balance sheet as investment in a. 3,000,000
Badoc Company? b. 2,400,000
a. 50,000,000 c. 3,400,000
b. 58,000,000 d. 4,400,000
7. The following data pertain to Antique Company’s investments in debt
securities: 10. On October 1, 2005 Bucay Company purchased 20,000 of the P1,000
face value 12% bonds of Manabo Company for P23,000,000 including
Market accrued interest of P600,000. The bonds which mature on January 1, 2012,
value pay interest semiannually on January 1 and July 1. Bucay used the straight
Cost 12/31/2005 12/31/2004line method of amortization and appropriately recorded the bonds as a long-
Trading 5,000,000 5,200,000 4,500,000term investment. On the December 31, 2006 balance sheet the bonds should
Available for sale 5,000,000 4,800,000 4,700,000be reported at
a. 22,304,000
What amount should Antique report as unrealized gain in its 2005 income b. 21,920,000
statement? c. 22,880,000
a. 700,000 d. 22,400,000
b. 200,000
c. 800,000 11. On April 1, 2005, Caluya Company purchased P5,000,000 face value 9%.
d. 100,000 Treasury notes for P4,962,500 including accrued interest of P112,500. The
notes mature on July 1, 2006 and pay interest semiannually. Caluya intends
to hold the notes to maturity. In its October 31, 2005 balance sheet, the
8. On October 1, 2005, Bangued Company acquired P20,000,000 face value carrying amount of this investment should be
12% bonds of Didigan Company at 110 plus accrued interest. The bonds a. 4,850,000
were dated July 1, 2004 and will mature on June 30, 2009. Interest is b. 4,920,000
payable June 30 and December 31. The commission to acquire the bonds c. 4,930,000
was P500,000. The total amount paid for the investment in bonds was d. 4,975,000
a. 23,100,000
b. 22,600,000 12. Luba Company purchased bonds at a discount of P5,000,000.
c. 22,500,000 Subsequently, Luba sold these bonds at a premium of P2,000,000. During
d. 21,900,000 the period that Luba held this investment, amortization of the discount
amounted to P1,500,000. What amount should Luba report as gain on the
sale of the bonds?
9. On July 1, 2005 Tagum Company purchased as a long-term investment in a. 2,000,000
Langiden Company’s 10-year 12% bonds, with face value of P20,000,000, for b. 5,500,000
P18,500,000. Interest is payable semiannually on June 30 and December 31. c. 3,500,000
The bonds mature on July 1, 2010. Tagum uses the straight line amortization d. 3,000,000
method. What is the amount of interest income that Tagum should report in
its 2005 income statement?
a. 1,350,000 13. On January 1, 2005, Bucloc Company acquired for P6,500,000 the entire
b. 1,200,000 P8,000,000 issue 12% serial bonds. Bonds of P2,000,000 mature at annual
c. 1,500,000 intervals beginning December 31, 2005. Interest is payable semiannually on
d. 1,050,000
June 30 and December 31. What is the interest income for 2005 using the assets acquired. However, the purchase price is greaterthan net book value of the
bond outstanding method of amortization? acquired company.
a. Acme's goodwill will decrease over time.
a. 1,560,000 b. Acme's amortization of intangible assets will increase over time.
b. 1,380,000 c. Depreciation expense will be greater than Coyote Company's
c. 780,000 expense.
d. 960,000 d. Coyote's loss on the sale of the assets will create a net loss

2. Balter Inc. acquired Jersey Company on January 1, 20X5. When the

14. On January 1, 2005, Lacub Company purchased P8,000,000 face value purchase occurred Jersey Company had the following information related
12% bonds at 120. Bonds are due on January 1, 2015 but can be redeemed to fixed assets:
Land $ 80,000
at earlier dates at premium values as follows:
Building 200,000
January 1, 2007 to December 31, 2010, at 110 Accumulated Depreciation (100,000)
January 1, 2011 to December 31, 2014, at 104 Equipment 100,000
Accumulated Depreciation (50,000)
What is the interest income for 2005 using the accelerated method of The building has a 10-year remaining useful life and the equipment has
amortization? a 5-year remaining useful life. The fair value of the assets on that
date were:
a. 1,360,000 Land $100,000
b. 960,000 Building 130,000
c. 560,000 Equipment 75,000
d. 800,000 What is the 20X5 depreciation expense Balter will record related to
purchasing Jersey Company?
a. $8,000
15. On July 1, 2005, Boloc Company purchased P2,000,000 of East b. $15,000
c. $28,000
Company’s 8% bonds due on July 1, 2015. Boloc expects to hold the bonds
d. $30,000
until maturity. The bonds pay interest semiannully on January 1 and July.
The bonds were purchased for P1,750,000 to yield 10%. In its 2005 income 3. ACME Co. paid $110,000 for the net assets of Comb Corp. At the time of
statement, Boloc should report interest income at the acquisition the following information was available related to
a. 175,000 Comb's balance sheet:
b. 160,000 Book Value Fair Value
c. 92,500 Current Assets $50,000 $ 50,000
d. 87,500 Building 80,000 100,000
Equipment 40,000 50,000
Liabilities 30,000 30,000
What is the amount recorded by ACME for the Building?
a. $40,000
P2 b. $60,000
c. $80,000
1. Acme Co. is preparing a pro-forma set of financial statements after d. $100,000
anacquisition of Coyote Co. The purchase price is less than the fairvalue of the
4. Which of the following business combination expenses would NOT qualify
as a direct acquisition expense for a purchase?
a. Fees for purchase audit
b. Outside legal fees
c. Stock issuance fees
d. All are direct acquisition expenses.
5. On April 1, 20X1, Paape Company paid $950,000 for all the issued and
outstanding stock of Simon Corporation in a transaction properly
recorded as a purchase. The recorded assets and liabilities of the Prime
Corporation on April 1, 20X1, follow:
Cash............................................. $ 80,000
Inventory........................................ 240,000
Property and equipment
(net of accumulated depreciation
of $320,000).................................. 480,000
Liabilities...................................... (180,000)
On April 1, 20X1, it was determined that the inventory of Paape had a
fair value of $190,000, and the property and equipment (net) had a fair
value of $560,000. What is the amount of goodwill resulting from the
business combination?
a. $0
b. $120,000
c. $300,000
d. $230,000
6. Paro Company purchased 80% of the voting common stock of Sabon Company
for $900,000. There are no liabilities. The following book and fair
values are available:
Book Value Fair Value
Current assets...................... $100,000 $200,000
Land and building................... 200,000 200,000
Machinery........................... 300,000 600,000
Goodwill............................ 100,000 ?
Using the parent company concept, the machinery will appear on the
consolidated balance sheet at __________.
a. $600,000
b. $540,000
c. $480,000
d. $300,000
7. When a company purchases another company that has existing goodwill andthe
transaction is accounted for as a stock acquisition, the goodwillshould be treated in
the following manner.
a. Goodwill on the books of an acquired company should be
disregarded.
b. Goodwill is recorded prior to recording fixed assets.
c. Goodwill is not recorded until all assets are stated at full fair
value.
d. Goodwill is treated consistent with other tangible assets.
8. Partners Thomas, Adams and Jones have capital balances of $24,000,
$45,000, and $90,000 respectively. They split profits in the ratio of
3:3:4, respectively. Under a predistribution plan, one of the partners
will get the following total amount in liquidation before any other
partners get anything:
a. $22,500
b. $30,000
c. $40,000
d. $75,000
9. Partner T is personally insolvent, owing $400,000. Personal assets will
only bring $150,000 when liquidated. At the same time, T has a credit
capital balance in the partnership of $85,000. The capital amounts of
the other partners total a (credit) balance of $200,000. Under the
doctrine of marshaling of assets, the personal creditors of T can
collect up to __________.
a. $150,000
b. $235,000
c. $400,000
d. $435,000
10. Assume that a partnership had assets with a book value of $240,000 anda
market value of $195,000, outside liabilities of $70,000, loans
payable to partner Able of $20,000, and capital balances for partners
Able, Baker, and Chapman of $70,000, $30,000, and $50,000. How would
the first $100,000 of available assets be distributed assuming profits
and losses are allocated equally?
a. $70,000 to outside liabilities, $20,000 to Able, and the balance
equally among the partners
b. $70,000 to outside liabilities and $30,000 to Able
c. $70,000 to outside liabilities, $25,000 to Able, and $5,000 to
Chapman
d. $40,000 to Able, $20,000 to Chapman, and the balance equally among a. debit Automobiles for $14,000.
the partners b. debit Expenditures for $14,000.
c. credit Automobiles for $6,000.
11. Assume that a partnership had assets with a book value of $240,000 and d. debit Expenditures for $20,000.
a market value of $195,000, outside liabilities of $70,000, loans
payable to partner Able of $20,000, and capital balances for partners
Able, Baker, and Chapman of $70,000, $30,000, and $50,000. If all
MAS
outside creditors and loans to partners had been paid, how would the
balance of the assets be distributed assuming that Chapman had already Use the following information for questions 1-3.
received assets with a value of $30,000 assuming profits and losses are
allocated equally? The following data is available for Computer Bytes Repair Shop for 2003:
a. Each of the partners would receive $25,000. Repair technician's wages $ 90,000
b. Each of the partners would receive $40,000.
Fringe benefits 20,000
c. Able: $70,000, Baker: $30,000, Chapman: $20,000
d. Able: $55,000, Baker: $15,000, Chapman: $5,000 Overhead 15,000
Total $125,000
12. Which one of the following equations will yield the unobligated balance The desired profit margin is $10 per labor hour. The material loading charge is 40%
in an expenditure subsidiary ledger account? Unobligated Balance = of invoice cost. It is estimated that 5,000 labor hours will be worked in 2003.
a. Appropriations - Expenditures total
b. Appropriations - Encumbrances balance
c. Appropriations - Expenditures total - Encumbrances balance 1. Computer Bytes’ labor charge in 2003 would be
d. Appropriations - Expenditures total + Encumbrances balance a. $25.
b. $28.
13. Which of the following accounts would not be found in the year-end c. $32.
General Fund balance sheet of a city? d. $35.
a. Cash 2. In January 2003, Computer Bytes repairs a computer that uses parts of $80. Its
b. Allowance for Uncollectible Taxes material loading charge on this repair would be
c. Land--Parks a. $32.
d. Fund Balance--Reserved for Encumbrances b. $48.
c. $80.
14. When recording the acquisition of a fixed asset in a city's General
Fixed Asset Account Group (GFAAG), the debit entry should be selected d. $112.
from one of the following accounts except
a. Land 3. In March 2003, Computer Bytes repairs a computer that takes two hours to
b. Expenditures repair and uses parts of $60. The bill for this computer repair would be
c. Machinery and Equipment a. $130.
d. Construction in Progress b. $140.
c. $148.
d. $154.
15.If the police department purchases a police car for $20,000 and trades
in the old car for $6,000 paying a net cash payment of $14,000, the
entry in the General Fund would 4. Zero-base budgeting requires managers to
 A justify expenditures that are increases over the prior period’s budgeted What are the estimated cash receipts from accounts receivable collections in
amount. May?
B. justify all expenditures, not just increases over last year’s amount. A. P142,000 C. P150,000
C. maintain a full-year budget intact at all times.
D. maintain a budget with zero increases over the prior period. B. P149,000 D. P157,000

Use the following information for questions 5-6.

8. Simple Corp. produces a single product. The following cost structure applied to
Downing Company produces a high resolution computer monitor. The following their first year of operations, 2000:
information is available for this product: Variable Costs per Annual Fixed
Fixed cost per unit $ 50 Unit Costs
Variable cost per unit 150
SG&A P2.00 P14,000
Total cost per unit 200
Desired ROI per unit 60 Production 4.00 P20,000
5. Downing Company's markup percentage would be Assume that during 2000 Simple Corp. manufactured 5,000 units and sold 3,800.
a. 120%. There was no beginning or ending work-in-process inventory. How much larger
b. 60%. or smaller would Simple Corp.’s income be if it uses absorption rather than
c. 40%. variable costing?
d. 30%.
A. The absorption costing income would be P6,000 larger
6. The target selling price for this monitor is B. The absorption costing income would be P6,000 smaller
a. $110. C. The absorption costing income would be P4,800 larger*
b. $200.
c. $210. D. The absorption costing income would be P4,000 smaller
d. $260.

7. The Mango Company is preparing its cash budget for the month of May. The 9. Which of the following is a difference between a static budget and a flexible
following information is available concerning its accounts payable: budget?
A. A flexible budget includes only variable costs; a static budget includes only
Estimated credit sales for May P200,000 fixed costs.
Actual credit sales for April 150,000 B. A flexible budget includes all costs, a static budget includes only fixed costs.
C. A flexible budget gives different allowances for different levels of activity, a
Estimated collections in May for credit sales in May 20% static budget does not.
Estimated collections in May for credit sales in April 70% D. There is no difference between the two.
Estimated collections in May for credit sales prior to April P12,000
Estimated write-offs in May for uncollectible credit sales 8.000 Questions 10 thru 12 are based on the following information.
Estimated provision for bad debts in May for credit sales in May7,000
The Lustre Company produces its only product, Kool Chewing Gum. The standard
overhead cost for one pack of the product follows: 15. Mr. S. Mart assumed the presidency of Riches Corp. He instituted new policies
Fixed overhead (1.50 hours at P18.00) P27.00
Variable overhead (1.50 hours at P10.00) 15.00 and with respect to credit policy, below is a summary of relevant information:
Total application rate P42.00
Lustre uses expected volume of 20,000 units. During the year, Lustre used 31,500 Old Credit Policy New Credit Policy
direct labor hours for the production of 20,000 units. Actual overhead costs were Sales P1,800,000 P1,980,000
P545,000 fixed and P308,700 variable. Average collection period 30 days 36 days
10. The amount of variable overhead spending variance is
A. P6,300 Favorable C. P6,300 Unfavorable
B. P 8,700 Favorable D. P8,700 Unfavorable
The company requires a rate of return of 10% and a variable cost ratio of 60%.
Using a 360-day year, the pre-tax cost of carrying the additional investment in
11. The total overhead controllable variance is
receivables under the new policy would be
A. P13,700 Favorable C. P13,700 Unfavorable
a. P4,800 b. P2,880 c. P3,000 d. P4,080
B. P 8,700 Favorable D. P 8, 700 Unfavorable
12. The overhead efficiency variance is
A. P22,500 Favorable C. P22,500 Unfavorable
AP
B. P15,000 Favorable D. P15,000 Unfavorable
Items 1 and 2 are based on the following:
CONCORD CO. purchased real property for P3,225,000 which included P67,500 for realty tax arrears
for prior years. A mortgage of P1,500,000 was assumed by CONCORD CO. on the purchase. Twenty
13. Express Co. is developing a silver mine at a cost of P5 million. There is a 20% percent of the purchase price should be allocated to the land and the balance to the building.
probability that silver worth P15 million can be sold. There is a 20% probability
that the silver will only be worth P500,000. What is the maximum Express would In order to make the building suitable for the use of CONCORD CO., remodeling costs had to be
incurred in the amount of P337,500. This however necessitated the demolition of a portion of the
be willing to spend to develop the mine? building, which resulted in recovery of salvage material sold for P11,250 cash.
A. P10,000,000 C. P3,100,000
Landscaping and parking lot cost the company a total of P120,000 while repairs in the main hall were
B. P 5,000,000 D. P0 P16,875.

14. The Liberal Sales Co. budgeted sales for the coming year are P30 million of 1. The cost of the land was:
a.P631,500 b.P645,000 c.P765,000 d.P945,000
which 80% are expected to be on credit. The company wants to change its credit 2. The cost of the building was:
terms from n/30 to 2/10, n/30. If the new credit terms are adopted, the company a.P2,467,500 b.P2,923,125 c.P2,906,250
d.P4,123,125
estimates that cash discounts would be taken on 40% of the credit sales and the
new uncollectible amount would be unchanged. The adoption of the new credit
terms would result in expected discount availed of in the coming year of 3. On June 30, 2007, COLT INC. had outstanding 10% P250,000 face amount 15 year bonds
maturing on June 30, 2017. Interest is paid on June 30 and December 31, and bond discount and
bond issue costs are amortized on these dates. The unamortized balances on June 30, 2007 of bond
a. P600,000 b. P288,000 c. P480,000 d. discount and bond issue costs were P13,750 and P5,000 respectively. COLT INC. reacquired all of
P192,000 these bonds at 96 on June 30, 2007 and retired them.
 11. Which of the following procedures is least likely to be performed before the balance sheet
Ignoring income taxes, compute for the gain or loss on bond retirement. date?
a. Loss of P3,750 b. Loss of P8,750 c. Gain of P1,250 d. Gain of P10,000 a. Observation of inventory count.
b. Testing of internal control over cash.
Items 4 to 6 are based on the following: c. Search for unrecorded liabilities.
You are conducting an audit of the MART CORPORATION for the year ended December 31, d. Confirmation of receivables.
2008. The internal control procedures surrounding cash transactions were not adequate.
12. An audit assistant found a purchase order for a regular supplier in the amount P 5,500 the
Jane Quipit, the bookkeeper-cashier handles cash receipts, maintains accounting records and
purchase order was date after receipt of goods. The purchasing agent had forgotten to issue the
prepares the monthly reconciliations of the bank account. She prepared the following
reconciliation at the end of the year: purchase order. Also, a disbursement of P450 for materials did not have receiving report. The
Balance per bank statement P 315,000 assistant wanted to select additional purchase orders for investigation but was unconcerned
Add : Deposit in transit P 157,725 about lack of receiving report. The audit director should.
Note collected by bank 13,500 171,225 a. Agree with the assistant because the amount of the purchase order exception was
Balance P 486,225 considerably larger than the receiving report exception
Less : Outstanding checks 222,075 b. Agree with the assistant because the cash disbursement clerk had been assured by
Balance per general ledger P 264,150 the receiving clerk that the failure to fill out a report didn’t happen very often.
In the process of your audit, you gathered the following: c. Disagree with the assistant because two problems have an equal risk of loss
a. At December 31, 2008, the bank statement and the general ledger showed balances associated with them
of P315,000 and P264,150 respectively.
d. Disagree with the assistant because the lack of a receiving report has a
greater risk of loss associated with it.
b. The cut off bank statement showed a bank charge on January 02, 2009 for P35,250
representing a correction of an erroneous bank credit. 13. When using confirmation to provide evidence about completeness assertion for account
payable, the appropriate population most likely is
c. Included in the list of outstanding checks were the following: a. Vendors with whom the entity has previously done business
1. A check payable to a supplier, dated December 29, 2008, in the b. Amounts recorded in the accounts payable subsidiary ledger
amount of P13,275, released on January 05, 2009. c. Payees of checks drawn in the month after the year end.
2. A check representing advance payment to a supplier in the amount of d. Invoices filed in the entity’s open invoice file.
P33,489, the date of which is January 04, 2009, and released in 14. Which of the following is a substantive test than an auditor is most likely to perform to verify
December 2008. the existence and valuation of recorded accounts payable?
a. Investigating the open purchase order file to ascertain that pre-numbered purchase
d. On December 31, 2008, the company received and recorded customer’s postdated orders are used and accounted for.
check amounting to P45,000.
b. Receiving the client’s mail, unopened, for a reasonable period of time after year end
to search for unrecorded vendor’s invoices
4. Compute the adjusted deposit in transit as of December 31, 2008.
a.P157,725 b.P112,725 c.P202,725 d.P112,500 c. Vouching selected entries in the accounts payable subsidiary ledger to
purchase orders and receiving reports.
5. Compute the adjusted outstanding checks as of December 31, 2008. d. Confirming accounts payable balances with know suppliers who have zero
a.P222,075 b.P235,350 c.P255,564 d.P175,311 balances.
15. Only one of the following four statements which compare confirmation of accounts payable
6. Compute the adjusted cash to be presented in the balance sheet as at Dec. 31, 2008. with suppliers and confirmation of accounts receiving with debtors is false. The false statements
a.P211,914 b.P225,414 c.P238,914 d.P279,414 is that
a. Confirmation of accounts receiving with debtors is a more widely accepted auditing
7. You are reviewing the notes payable and interest expense accounts of Cole Manufacturing procedure than us confirmation of accounts payable with suppliers
Co. as of December 31, 2007 and noted that the company regularly borrows from the bank in order
b. Statistical sampling techniques are more widely accepted in the confirmation
to finance working capital. The following schedule shows loans with 12% interest rate, with interest
of accounts payable than in the confirmation of accounts receivable ]
payable at maturity. All loans are repaid at its scheduled maturity date and interest expense is
7recorded when the loans are repaid. c. As compared with the confirmation of accounts receivable, the confirmation of
DATE OF LOAN AMOUNT MATURITY DATE TERM OF LOAN accounts payable will tend to emphasize accounts with zero balances at the balance
Nov. 01, 2006 P 500,000 Oct. 31, 2007 1 year sheet date.
Feb. 01, 2007 1,500,000 July 31, 2007 6 months d. It is less likely that the confirmation request sent to the supplier will show the
May 01, 2007 800,000 Jan. 31, 2008 9 months amount owed than that request sent to the debtor will show the amount date.

The client recorded interest expense of P150,000 for 2007. Compute for the correct amount of BLT
interest expense that should be reported in the 2007 income statement.
a. P204,000 b. P212,000 c. P222,000 d. P214,000
1. In order that a stipulation in favour of a third person would be valid and binding upon the
parties thereto the following are requisites, except:
a. There must be a stipulation in favour of a third person.
b. The contracting parties must have clearly and deliberately conferred a favor upon that
third person
c. The third person communicated his acceptance to the obligor before revocation
d. That there must be an existing agency between either of the contracting parties and
the third person
2. Statement no. 1: Dolo incidence entitles the person against whom it was employed the right
to seek the annulment of the contract.
Statement no. 2: A stipulation pour autrui is an exception to the rule relativity of contracts.
a. Both are true
b. Both are false
c. No. 1 is true, no. 2 is false
d. No. 1 is false, no. 2 is true
3. Example no. 1 – W, 16 years old, sold his house valued at P 1 M for only P500,000 or a lesion
by more than ¼ of the value of the said house.
Example no. 2 – S sold his house valued P 1 M for only P500,000 because of his poor
judgment on the true value thereof.
a. Both are voidable
b. No. 1 is rescissible, no. 2 is voidable
c. No. 2 is unenforceable
d. Both contracts are binding
4. S owns and oil painting. Being in need of money, S sold the painting to B for P1,000. After
the sale it was discovered that the painting was valuable and worth P5,000.
a. S may rescind the contract due to lesion or inadequacy of cause
b. S may annul the contract because of fraud
c. S may annul the contract in the ground of error
d. B is entitled to the benefit of the contract because it is valid and binding.
5. “A”, bachelor lawyer, raped W. Upon learning this, “F” the father of W, was able to force A
to marry W under pain of being sued and disbarred from the practice of his law profession
which statement is correct?
a. The marriage may annulled on the ground of force or violence
b. The marriage may be annulled on the ground of threat and intimidation
c. The defective marriage may, however, be ratified
d. There was no defect, the marriage was perfectly valid
6. No 1 - Within five (5) years from issuance of its certificate of incorporation,
the newly-formed corporation must formally organize and commence
business operations. Failure to do so within such period is a ground for
dissolution. No. 2 - Every member of the board of every corporation must
own at least one (1) share of stock standing in his name in the books of
the corporation.
a. Both statements are false.
b. Both statements are true.
c. The first statement is true; the second is false.
d. The second statement is true; the first is false.
7. A corporation was formed by fifteen (15) incorporators and its certificate of
incorporation was duly issued. A year after its attainment of juridical
personality, the stockholders, who are themselves the members of the
board adopted a resolution, providing for the following (i) That all of the
corporation’s issued stock of all classes, exclusive of treasury shares, shall
be held of record by not more than a specified number of persons, not
exceeding twenty (20); (ii) That all of the issued stock of the corporation
shall be subject to certain specified restrictions; and (iii) That the
corporation shall not list in any stock exchange or make any public offering
of any of its stocks of any class.
a. The corporation is a close corporation because the resolution
contains the elements of a close corporation;
b. The corporation is de facto because although it has a certificate of
incorporation, the provisions in the resolution should have been
contained n the articles.
c. The corporation is an open corporation. The corporation is a
corporation by estoppel because although it operates as a
corporation, it did not comply with certain legal requirements for
the establishment of a close corporation.
8. Which of the following is correct?
a. The secretary of a corporation must be a citizen of the Philippines
and a resident of the Philippines. He must be also a member of
the board.
b. The members of the board are liable whenever they vote for
unlawful acts.
c. If there are only ten (1) directors elected although the articles
of incorporation provide for fifteen (15) directors, the quorum
in a board meeting is eight (8).
d. A director may be removed by the vote of all the stockholders in
any meeting.
9. Which of the following acts could be ratified by a vote representing at least
2/3 of the outstanding capital stock?
 a. Acts of directors or trustees who are guilty of gross negligence or c. territoriality rule
bad faith in directing the affairs of the corporation; d. non-infringement of religious freedom in taxation
b. An attempt by a director to acquire or actual acquisition of any
interest adverse to that of the corporation in respect of any matter 15. one of the following is VAT exempt:
reposed upon him in confidence; a. importation of goods for home consumption
c. Acts of directors constituting an approval of patently unlawful acts; b. sales of drugs of a supermarket
d. Acquisition of a business opportunity which should belong to c. sublease of personal property
the corporation, thereby acquiring profits which should d. common carriers by land
belong to the corporation.

10. The pre-emptive right extends to the right to subscribe;

a. Only to new issues of shares arising out of an increase of the
capital stock.
b. Only to the issuance of previously unissued portions of the
outstanding capital stock.
c. To all issues of shares or dispositions of shares of any class;
d. To all issues or dispositions of shares of any class other than
redeemable or treasury shares.

11. Emong donated 100,000 cash to his daughter Baby on account of marriage,
he is entitled to a 10,000 deduction or exemption if he is a:

a. Non-resident alien
b. Resident Alien
c. Both resident and non-resident
d. a or b above

12. all are essential characteristics of a tax except:

a. payment of tax is mandatory
b. it is generally payable in money
c. it is generally unlimited in amount
d. it is proportionate in character.

13. Who is taxpayer in estate tax

a. the heirs or successors
b. the deceased person’s estate
c. he heir’s legal representatives
d. the executor or administrator of the state

14. Which is an inherent limitation?

a. Equality in taxation
b. uniformity in taxation