1.

At 31 December 2016 the following require inclusion in a company's financial statements:

a. On 1 January 2016 the company made a loan of P12,000 to an employee, repayable on 1

January 2017, charging interest at 2% per year. On the due date she repaid the loan and paid
the whole of the interest due on the loan to that date.

b. The company paid an annual insurance premium pf P9,000 in 2016, covering the year ending
31 August2017.

c. In January 2017 the company received rent from a tenant of P4,000 covering the six months
to 31 December 2016.

For these items, what should be included as current assets in the company's statement of
financial position as at 31 December 2016?

a. P22,240

c. P18,240

b. P19,240

d. P15,240

2. Cleveland Corporation has the following transactions.

a. Cleveland sells P50,000 of goods to a customer, FOB shipping point on December 31, 2016.

b. Cleveland sells three pieces of equipment on a contract over a three year period. The sales
price of each piece of equipment is P100,000. Delivery of each piece of equipment on February
10 of each year. In 2016, the customer paid a P200, 000 down payment, and expects to

In 2016, the pay P50, 000 per year in 2017 and 2018. Collectability is reasonably assured.

c. On June 1, 2016 Cleveland signs a contract for P200,000 for goods to be sold on account.
Payment is to be made in two installments of P100,000 each on December 1, 2017 and 2018.
The goods are delivered on October 10, 2016. Collection is reasonably assured, and the goods
may not be returned.

d. Cleveland sells goods to a customer on July 1, 2016, for P500,000. If the customer does not
sell the goods to retail customers by December 31, 2017, the goods can be returned to
Cleveland. The customer sells the goods to retail customers on March 1, 2017.
The total revenue to be recognized in 2016 is

a. P550,000

b. P450,000

c. P350,000

d. P150,000

3. Toronto Corporation entered into a contract with a customer to supply and install a machine
on 1 January 2016 and to service the machine on 1 July 2016 and 1 January 2017. The cost of
the machine to the entity is P80,000. It is possible for a customer to purchase both the machine
and the maintenance services separately.

The customer is contractually obliged to pay the entity P200,000 on 1 January 2017.

The prevailing rate for one-year credit granted to trade customers in the industry is 5 per cent
per six-month period.

Experience has shown that the servicing of a machine of the model sold to the customer is
expected to cost the entity P15,000 to perform the first service and P25,000 to perform the
second service. Assume actual costs equal expected costs. When the entity provides machine
services to customers in a separate transaction teams a margin of 50 per cent on cost.

On 1 January 2016 the cash selling price of a machine of the model sold to the customer is
P125,964.

The total revenue to be recognized by the e year ended June 30, 2016 is

a. P125,964

b. P132,262

c. P154,762

d. P162,500

4. Changes in account balances of Boston Company for 20 except for retained earnings, are:

Increase (Decrease)
 Cash P5,000,000

Accounts receivable, net 3,500,000

Inventory 2,000,000

Investments ( 500,000)

Accounts payable (3,000,000)

Bonds payable 4,000,000

Share capital 6,000,000

Share premium 1,000,000

What should be the 2016 net income, assuming there were no entries in the retained earnings
account except for the net income and a dividend declaration of P2,000,000 which was paid in
the current year?

a. P9,000,000

b. P4,000,000

c. P2,000,000

d. P7,000,000

5. The accounting staff of ATLANTA Company submitted inventory list at December 31, 2016
which showed a total value of P5,000,000. The following information which may or may not be
relevant to the inventory value submitted are given below:

a. Excluded from the inventory were merchandise costing P80,000 because they were
transferred to the delivery department for packaging on December 28 to be shipped on January
2, 2017.

b. The bill of lading and their import documents on a merchandise were delivered by the bank
and the trust receipt accepted by the Company on December 26, 2016. Taxes and duties have
been paid on this shipment but the customs broker has not delivered the merchandise until
January 7, 2017. Delivered cost of shipment totaled P800,000. This shipment was not included
in the inventory on December 2016.
c. A review of the company's purchase orders shows a commitment to buy P100,00 worth of
merchandise. This was not included in the inventory because the goods were received on
January 3, 2017.

d. Suppliers' invoice for P30,000 worth of merchandise dated December 28, 2016 was received
thru the mails on December 20, 2016 although the goods arrived only January 4, 2017.
Shipment term is FOB, seller. This was included on December 31, 2016 inventory by the
company.

e. Goods valued at P20,000 were received on December 28, 2016 for approval by ATLANTA
Company. The inventory team included this merchandise in the list but did not place value on it.
On January 4, 2017, the company informed the supplier by long distance telephone of the
acceptance of the goods and the supplier's invoice was received on January 7, 2017.

f. On December 27, 2016, an order for P25,000 worth of merchandise was placed. This was
included in the yearend inventory although it was received only on January 5, 2017. Seller
shipped goods FOB, buyer.

g. The company performed net realizable value testing. The NRV was correctiy determined at
P5,880,000.

How much is the adjusted value of inventory on December 31, 2016?

a. P5,855,000

b. P5,055,000

c. P5,825,000

d. P5,880,000

6. On August 1, Miami Company recorded purchases of inventory of P80,000 and P100,000

under credit to under credit terms of 2/15, net 30. The payment due on the P80,000 remitted
on August 14. The payment due on the P100,000 purchase was remitted on August 29. Under
the net and the gross method, these purchases should be included at what respective net
amounts in the determination of cost of goods available for sale?

Net Method Gross Method

a. P178,400 P176,400
 b. P176,400 P180,000

c. P176,400 P178,400

d. P180,000 P176,400

7. On 1 January 2016, an entity accepted an order for 7,000 custom-made corporate gifts.

On 3 January 2016 the entity purchased raw materials to be consumed in the production
process for P550,000, including P50,000 refundable purchase taxes. The purchase price was
funded by raising a loan of P555,000 (including P5,000 loan-raising fees). The loan is secured by
the inventories.

During January 2016 the entity designed the corporate gifts for the customer. Design costs
included:

• Cost of external designer = 27,000

• Labor = P3,000

During February 2016, the entity's production team developed the manufacturing technique
and made further modifications necessary to bring the inventories to the conditions specified in
the agreement. The following costs were incurred in the testing phase:

• Material, net of P3,000 recovered from the sale or scrapped output = P21,000

• Labor = P11,000

 Depreciation of plant used to perform the modifications = P5,000

During February 2016 the entity incurred the following additional costs in manufacturing the
customized corporate gifts:

 Consumable stores = 255,000

 Labor = P65,000

 Depreciation of plant used to perform the modifications = P15,000

The customized corporate gifts were ready for sale on 1 March 2016. No abnormal wastage
occurred in the development and manufacture of the corporate gifts.
What is the cost of the inventory?

a. P682,000

b. P635,000

c. P632,000

d. P585,000

8. A company determined the following values for its inventory as of the end of its fiscal year:

Historical cost P100,000

Current replacement cost 70,000

Net realizable value 90,000

Net realizable value less a normal profit margin 85,000

Fair value 95,000

What amount should the company report as inventory on its statement of financial position?

a. P70,000

b. P85,000

c. P90,000

d. P95,000

9. The following information has been extracted from the records of Indiana Corporation about
one of its products.

Date No. of Units Unit Cost

Jan. 1 Beginning balance 1,600 P14.00

Jan. 6 Purchased 600 14.10

Feb. 5 Sold @ P24.00 per unit 2,000

Mar. 19 Purchased 2,200 14.70

Mar. 24 Purchase returns 160 14.70

Apr. 10 Sold @ P24.20 per unit 1,400

June 22 Purchased 16,800 15.00

July 31 Sold @ P26.50 per unit 3,600

Aug. 4 Sales returns @ P26.50 per unit 40

Sept. 4 Sold @ P27.00 per unit 7,000

Nov, 15 Purchased 1,000 16.00

Dec. 28 Sold @ P30.00 per unit 6,200

Compute for the cost of ending inventory under moving average method. (Round unit costs to
two decimal places.)

a. P28,247 c. P28,427

b. P28,050 d. P28,500

10. During 2016, Chicago Corp. decided to change from the FIFO method of inventory valuation
to the weighted-average method. Inventory balances under each method were as follows:

FIFO Weighted average

January 1, 2016 P71,000 77,000

December 31, 2016 : 79,000 83,000

If Chicago's income tax rate is 30%, in its 2016 statement of comprehensive income, what
amount should Chicago report as the cumulative effect of this accounting change?
a. P2,800 c. P4,200

b. P4,000 d. Nil

11. In reviewing an entity's draft financial statements for the year ended 31 December 2016,
management decided that market conditions were such that the provision for iventory
obsolescence at 31 December 2016 should be increase P30,000. If the same basis of calculating
inventory obsolescence had been applied at 31 December 2015, the provision would have been
P18,000 higher than the amount recognized in the statement of financial position. What
adjustments should be made to the draft profit for the n year ended 31 December 2016 and the
profit for the year ended 31 December 2015 presented as a comparative figure in the 2010
financial statements?

Draft profit for 2016 Profit for 2015

a. P30,000 decrease P18,000 decrease

b. P12,000 decrease P18,000 decrease

c. No change P30,000 decrease

d. P30,000 decrease No change

12. In November 2016, Detroit Company entered into a non-cancellable contract to purchase
inventory for P120,000 in March 2017. The value of the inventory was expected to be worth
P130,000 at the time of purchase. On December 31, 2016, the market value of the inventory
was P100,000. Which of the following items would be reported in the 2016 income statement?

a. P100,000 included in cost of goods sold

b. P20,000 gain on purchase commitments

c. P20,000 loss on purchase commitments

d. Nothing would be reported on the income statement

13. The physical inventory of Golden State Company as of December 26, 2016 totaled
P1,965,000. In trying to establish the December 31 inventory, the accountant noted the
following transactions from December 27 to December 31, 2016.

Sales (20% markup on cost) P 600,000

Credit memos issued:

For goods returned on:

December 15 27,000

December 20 35,000

December 29 36,000

For goods delivered to customers not in 9,500

accordance with specifications

Credit memos received:

For goods returned on:

December 10 17,000

December 26 23,000

December 28 8,000

Purchases:

Placed in stock 120,000

In transit, FOB shipping point 50,000

In transit, FOB destination 33,000

The inventory as of December 31, 2016 is

a. P1,675,800 b. P1,657,000

c. P1,663,000 d. P1,668,667
14. San Antonio Farming Corp. has a flock of sheep which were shorn shortly before the year
end. On October 16, 2015, the time of shearing, the fair value of the wool less costs to sell was
determined to be P15,000, and this value had risen to P16,500 by December 31, 2015 (reporting
date). The company estimates that it would incur P500 to transport the wool to the nearest
market.

On February 14, 2016, the wool was subsequently sold for P17,000 (after deducting costs to
sell). How much is the net profit recognized in 2016?

a. P2,000 c. P500

b. P2,500 d. P1,500

15. The following information relates to a machine constructed by Oklahoma Ltd.

Cost of material to construct machine, including P77,000

VAT of P 7,000

Labor costs to construct machine 43,000

Allocated overhead costs - electricity, factory 22,000

space etc.

Allocated interest costs of financing machine 10,000

Costs of installation 12,000

Insurance for the current year 2,000

Profit saved by self-construction 15,000

Safety inspection costs prior to use 4,000

Determine the amount at which the machine should be recorded.

a. P168,000 c. P153,000

b. P161.000 d. P146,000

16. The following expenditures were incurred by L.A. Enterprises Co. in 2016,

Purchase of land P3,900,000

Land survey 52,000

Fees for search of title for land 6,000

Building permit 35,000

Temporary quarters for construction crews 107,500

Excavating basement 100,000

Special assessment tax for street project 20,000

Damaged awarded for injuries sustained in 84,000

construction (no insurance was carried)

Costs of construction 29,000,000

Cost of paving parking lot adjoining building 400,000

Cost of shrubs, trees, and other landscaping 330,000

Determine the cost of the new building in accordance with PIC Q&A 2012-2.

a. P29,642,500 c. P29,242,500

b. P29,326,500 d. P29,135,000

17: Memphis Corp. is a large soft drink bottler that requires new bottling equipment. After
negotiating with several suppliers Memphis decided to accept a special offer from Gasol
Corporation. Gasol will deliver the equipment with a list price of P100,000 to Memphis on July
1, 2016 with the following payment terms:
  A deposit of P20,000 is due on June 1, 2016.

 Cash on delivery of P20,000 is due on July 1, 2016.

 Three addition payments are to be made annually from July 1, 2017 to July 1, 2019 of
P20,000.

 Gasol will waive its normal interest charge of 6% per year to facilitate the sale.

The equipment is expected to last 5 years, with a residual value of P20,000. Memphis has a
December 31 year end. What should be the depreciation expense for the year ended 31
December 2016?

a. P7,346 c. P 9,346

b. P8,570 d. P14,692

18. Dallas Company purchased a machine for P100,000 on January 1, 2013, with the following
additional items paid or incurred

Separation pay for laborer laid off upon

acquisition of new machine P1,200

Loss on sale of machine replaced 1,300

Transportation in 1,000

Installation cost 4,000

The new machine is estimated to have a useful life of 10 years and a residual value of P4,000.
On January 1, 2016, new parts which cost P12,600 were added to the machine so as to reduce
its fuel consumption, but with no change in its estimated life or residual value. The annual
depreciation charge on the machine for 2016 is

a. P12,150 c. P11,900

b. P12,000 d. P11,360
19. Utah Company takes a full year's depreciation expense in the year of an asset's acquisition,
and no depreciation expense in the year of disposition. Data relating to one of depreciable
assets at December 31, 2015, are as follows

Acquisition year 2013

Cost P110,000

Residual value 20,000

Accumulated depreciation 72,000

Estimated useful life 5 years

Using the same depreciation method as used in 2013, 2014 and 2015, how much depreciation
expense should Utah record in 2016 for this asset?

a, P12,000 c. P22,000

b. P18,000 d. P24,000

20. The following account balances relating to property, plant and equipment of Houston
Company appear on the books or December 31, 2015:

Land 6,000,000

Building 45,000,000

Accumulated depreciation 11,250,000

Plant, property and equipment have been carried at cost since their acquisition. The land was
acquired 15 years ago while the building was acquired on January 1, 2006. The straight line
method for depreciation is used. On January 1, 2016, the company revalued property plant and
equipment and on the came date, competent appraisers submitted the following:

Replacement cost

Land P 8,000,000

Building 60,000,000
What is the revaluation surplus on December 31, 2016?

a. P12,875,000 c. P53,000,000

b. P10,875,000 d. P13,250,000

Use the following information for the next two questions.

An entity has a nuclear power plant and a related decommissioning liability. The nuclear power
plant started operating on 1 January 2013. The plant has a useful life of 40 years. Its initial cost
was P120 million, this included an amount for decommissioning costs of P10 million, which
represented estimated cash flows payable in 40 years discounted at a risk adjusted rate of 5 per
cent. The entity's financial year ends on 31 December.

The entity adopts the revaluation model on 31 December 2015. A market-based discounted
cash flow valuation of P115 million is obtained at 31 December 2015. It includes an allowance of
P11.6 million for decommissioning costs, which represents no change to the original estimate,
after the unwinding of three years’ discount.

On 31 December 2016, the decommissioning liability (before any adjustment) is P12.2 million
and the discount rate has not changed. However, on that date, the entity estimates that, ,as a
result of technological advances, the present value of decommissioning liability has decreased
by P5 million.

The entity decides that a full valuation of the asset is needed at 31 December 2016, in order to
ensure that the carrying amount does not differ materially from fair value. The asset is now
valued at P107 million, which is net of an allowance of P7.2 million for the reduced
decommissioning obligation that should be recognized as a separate liability.

The entity does not transfer realized surplus directly to retained earnings.

21. The entity should report revaluation surplus as of 31 December 2015 at

a. P15.6 million c. P4 million

b. P13.25 million d. P1.65 million

22. The entity should report revaluation surplus as of 30 December 2016 at

a. P8.358 million c. P0.108 million

b. P11.622 million d. Nil

23. Portland Corporation incurred the following costs in 2016.

Acquisition of R&D equipment with a P600,000

useful life of 4 years in R&D projects

Start-up costs incurred when opening a 140,000

new plant

Advertising expense to introduce a new 700,000

product

Engineering costs incurred to advance a 400,000

product to full production stage

(economic viability not achieved)

What amount should Portland record as research & development expense in 2016?

a. P 550,000 c. P1,000,000

b. P 740,000 d. P1,140,000

24. On January 1, 2013, Sacramento Co. purchased a patent for P714,000. The patent is being
amortized over its remaining legal life of fifteen years from the date of purchase. During 2016,
Sacramento determined that the economic benefits of the patent would not last longer than
ten years from the date of acquisition. What amount should be reported in the statement of
financial position for the patent, net of accumulated amortization, at December 31, 2016?

a. P428,400 c. P504,000

b. P489,600 d. P523,600

25. The Denver Co. on May 31, 2016, acquired the rights to a coal mine containing an estimated
reserves of 1,000,000 tons of coal. The company estimated that 12.500 tons of coal would be
extracted and sold each month. Cost allocable to coal was P3,500,000.

Also on May 31, 2016, the company purchased an equipment to be used in the production,
costing P95,000 which has an estimated useful life of 10 years. The equipment was expected to
become obsolete after all the coal deposits had been extracted from the mine and only P5,000
selling price of the equipment could be expected. Production was in full blast since June 1,
2016.

What would be the depletion expense for the year ended December 31, 2016?

a. P525,000 c. P153,125

b. P262,500 d. P306,250

26. On January 1, 2015, New Orleans Company received a grant of P50 million from a foreign
government for the construction of a laboratory and research facility with an estimated cost of
260 million and useful life of 25 years. The facility was completed in early 2016. Company policy
is to treat the grant as a deduction from the cost of the asset. What should be the depreciation
expense in respect of this facility for the year ended 31 December 2016, assuming that
depreciation is calculated on a straight line basis?

a. Nil c. P2,000,000

b. P2,400,000 d. P 400,000

27. On January 1, 2016, Minnesota Corp. began construction of homes for those families that
were hit by the tsunami disaster and were homeless. The construction is expected to take 3.5
years. It is being financed by issuance of bonds for P7 million at 12% per annum. The bonds
were issued at the beginning of the construction. The bonds carry a 1.5% issuance cost. The
project is also financed by issuance of P3 million share capital with a 14% cost of capital. The
borrowing costs to be capitalized in 2016 is (Use straight line amortization method)

a. P870,000 c. P1,290,000

b. P840,000 d. P1, 260,000

28. The Phoenix Company accounts for non-current assets using revaluation model. On 30 June
2016 Phoenix classified a non-current asset as held for sale in accordance with PFRS5. At that
date the property's carrying amount was P300, 000 and the balance on the revaluation reserve
was P30, 000. Fair value was estimated at P280, 000 and the costs to sell at P20, 000. The value
in use is not determinable. The asset is still unsold at 31 December 2016. What amount should
be included in the entity's statement of profit or loss for the year ended 31 December 2016?

a. P40,000 c. P10,000

b. P20,000 d. Nil

29. The Charlotte Company's ledger showed a balance in its cash account at December 31, 2016
of P68,225 which was determined to consist of the following:

Petty cash fund P 360

Cash in Metro bank, per bank statement,

with a check for P600 still outstanding 33,675

Notes receivable in the possession of a collecting agency 2,500

Undeposited receipts, including a postdated 17,800

check for P 1,050 and a traveler's

check for P1,000

Bond sinking fund – cash 12,750

IOUs signed by employees 495

Paid vouchers, not yet recorded 645

Total P68,225

At what amount should "Cash on hand and in bank" be reported on Charlotte's statement of
financial position?

a. P50,185 c. P53,475

b. P62,935 d. P66,225

30. The following information is shown in the accounting records of Washington Company:

Balances as of January 1

Cash 620,000

Accounts receivable 670,000

Merchandise inventory 860,000

Account payable 530,000

Balances as of December 31

Accounts receivable 910,000

Merchandise inventory 780,000

Account payable 480,000

The total sales and cost of goods sold for the current year were 27,980,000 and P5,830,000,
respectively. All sales and all merchandise purchases were made on credit. Various expenses of
P1,070,000 were paid in cash. Deferred income tax liability increased by P75,000 during the
year. There were no other pertinent transactions. The cash balance on December 31 should be?
a. P1,080,000 c. P1,490,000

b. P2,560,000 d. P3,050,000
31. The August 31 bank statement of Orlando Inc, showed a balance of P113,500. Deducted in
arriving at this amount was à customer's NSF check for P2,400 that had been returned. Orlando
had received no prior notice concerning this check. In addition to the bank statement, other
records showed there were deposits in transit totaling P17,200 and that outstanding checks
totaled P10,800. What is the cash balance per books at August 31 (prior to adjustments)?

a. P121,800 c. P119,400

b. P115,400 d. P117,000

32. The following information is available for New York Company relative to 2016 operations:

Accounts receivable, January 1, 2016 P40,000

Accounts receivable collected during 2016 84,000

Cash sales during 2016 20,000

Inventory, January 1, 2016 48,000

Inventory, December 31, 2016 44,000

Purchases of inventory during 2016 80,000

Gross margin on sales 42,000

What is New York Company's accounts receivable balance at December 31, 2016?

a. P82,000 c. P 20,000

b. P62,000 d. P146,000

33. On April 28, 2016 Milwaukee Company sold merchandise with a list price of P5,000,000 to
Forbes. Milwaukee allowed trade discounts of 20% and 10%. Credit terms were 5/10, n/30. The
goods were shipped FOB destination, freight collect. Total freight charges paid by the Forbes
amounted to P50,000. On May 8, 2016, Milwaukee received from Forbes full remittance of

a. P3,370,000 c. P3,550,000
b. P3,420,000 d. P3,600,000

34. The unadjusted trial balance of Brooklyn Company as at December 31, 2016 showed
Accounts Receivable-trade with a balance of P693,000. Investigation revealed that it included
amounts due from officers - P75,000; claim pending against freight company - P9,000; and
refund on insurance policy - P4,500. According to the subsidiary ledger which have been
thoroughly checked and rechecked, the trade accounts receivable totaled P600,000 (composed
of current accounts - P375,000; two-month accounts - P120,000; and accounts three months or
more - P105,000). Responsible officials have acknowledged definite uncollectibility of three-
month accounts with balance totaling P22,500; they have expressed doubt with respect to an
additional P24,000 worth of accounts in the same category; and they consider all other
accounts collectible.

At what net realizable value should the Accounts Receivable- trade be carried in the statement
of financial position of the company as of December 31, 2016?

a. P553,500 c. P577,500

b. P582,000 d. P558,000

35. Based on its past collection experience, Philadelphia Company provides for bad debts at the
rate of 2 percent of net credit sales. On January 1, 2016, the allowance for doubtful accounts
credit balance was P10,000. During 2016, Philadelphia wrote off P18,000 of uncollectible
receivables and recovered P5,000 on accounts written off in prior years. If net credit sales for
2016 totaled P1,000,000, the doubtful accounts expense for 2016 should be

a. P17,000 c. P23,000

b. P20,000 d. P35,000

36. Cavs Co. had an accounts receivable balance of P800,000 at the end of its first year of
operations. These receivable balances were net of the related allowance for doubtful accounts.
During the first year of its operations, Cavs recorded charges to bad debt expense of P100,000
and wrote-off as uncollectible, accounts receivable of P30,000.

The accounts receivable before the allowance for doubtful accounts that should be shown on
the Cavs balance sheet at the end of its first year of operation is
a. P800,000 c. P870,000

b. P830,000 d. P930,000

37. Warriors Company's net accounts receivable were P400,000 at December 31, 2015 and
P440,000 at December 31, 2016. Net cash sales for 2016 were P260,000. The accounts
receivable turnover for 2016 was 7.0. What were Warriors' total net sales for 2016?

a. P1,820,000 c. P2,940,000

b. P3,200,000 d. P2,680,000

38. Raptors Corporation sold a machine on January 1, 2016. The cash price of the machine is
P1,000,000. The buyer signed a deferred payment contract that provides for a down payment of
P200,000 and an 8-year note bearing interest at 10%. The note is to be paid in 8 equal annual
payments inclusive of interest. The payments are made on December 31 of each year, beginning
December 31, 2016. In its December 31, 2016 statement of financial position, what amount
should Raptors report as note receivable?

a. P700,000 c. P730,000

b. P720,000 d. P780,000

39. On January 1, 2016, Spurs Co. equipment costing P380,000 with accumulated depreciation
of P160,000 on the date of sale. Spurs received as consideration for the sale, a P400,000
noninterest-bearing note, due January 1, 2017. There was no established exchange price for the
equipment and the note has no ready market. The prevailing rate of interest for a note of this
type at January 1, 2016 was 10% and 12% on December 31, 2014. In Spurs’ 2016 income
statement, how much should be included for interest income?

a. P40,000 c. P30,052

b. P48,000 d. P34,166

40. On December 31, 2014, a borrower signed a P1,000,000 note to Celtics Bank. The market
interest rate at that time was 12%. The stated interest rate on the note was 10%, payable
annually. The note matures in five years. Unfortunately, because of lower sales, the borrower’s
financial condition worsened. On December 31, 2016, Celtics Bank determined that it was
probable that the borrower would pay back only P600,000 of the principal at maturity. However,
it was also considered likely that interest would continue to be paid, based on the P1,000,000
loan. How much should be recognized as loan impairment loss in 2016?

a. P272,000 c. P284,720

b. P260,650 d. P524,900

41. On December 31, 2015, OKC Bank entered into a debt restructuring agreement with
Thunder Corp., which was experiencing financial difficulties. A note for P1,000,000 and one
year’s accrued interest was due on this date from Thunder. The note receivable from Thunder
was restructured as follows:

 Reduced the principal obligation to P700,000.

 Forgave the P120,000 of accrued interest for 2015.

 Extended the maturity date to December 31, 2018.

 Reduced the interest rate 8%.

Interest is payable annually on December 31, beginning 2016. In accordance with the
agreement, Thunder made payment to OKC Bank on December 31, 2016.

How much interest income should OKC Bank report for the year ended December 31, 2016?

a. P75,931 c. P56,000

b. P64,258 d. Nil

42. The Hawks Co. sells P40,000 of accounts receivable to a factor and receives 94% of the value
of the accounts less a 10% commission based on the gross amount of factored accounts
receivable. After the journal entry to record this factoring transaction is made, Hawks Co.’s total
assets will be:

a. reduced by P2,400 c. increased by P4,000

b. increased by P33,600 d. reduced by P4,000

43. On July 1, 2015, Clippers Corporation sold equipment for P1,000,000. Clippers accepted a
10% note receivable for the entire sales price. This note is payable in two equal installments of
P500,000 plus accrued interest on December 31, 2015 and December 31, 2016. On July 1, 2016,
Clippers discounted the note at a bank at an interest rate of 12%. Clippers’ proceeds from the
discounted note were

a. P484,000 c. P493,500

b. P503,500 d. P517,000

44. A P4,650 debit to utilities expense was incorrectly posted as a P465 debit. What is the effect
of this error on the trial balance and the utilities expense account?

a. The debit column of the trial balance would be P4,185 too low and utilities expense would be
understated by P4,185.

b. The debit column of the trial balance would be P4,185 too high and utilities expense would
be understated by P4,185.

c. The debit column of the trial balance would be P4,185 too low and utilities expense would be
overstated by P4,185.

The debit column of the trial balance would be P4,185 too high and utilities expense would be
overstated by P4,185.

45. Heat Inc.’s fiscal year ended on November 30, 2016. The balance in the prepaid insurance
account as of November 30, 2016, was P35,200 (before adjustment) and consisted of the
following policies:

Policy Date of Purchase Date of Expiration Balance in Account

A 7/1/2016 6/30/2917 P14,400

B 12/1/2014 11/30/2016 9,600

C 4/1/2015 3/31/2017 11,200

P35,200
The adjusting entry required on November 30, 2016, would include a debit to Insurance
Expense of

a. P24,000 c. P24,900

b. P11,200 d. P9,600

46. A company does not keep full accounting records. The following details relate to
transactions with credit customers and suppliers for the year ended December 31, 2016:

Trade receivables, 1/1/16 P130,000

Trade payables, 1/1/16 60,000

Cash received from customers 686,400

Cash paid to suppliers 302,800

Discounts allowed 1,400

Discounts received 2,960

Bad debts 4,160

Contra between payables and receivables ledger 2,000

Trade receivables, 12/31/16 181,000

Trade payables, 12/31/16 84,000

What figure should appear for purchases in the company’s statement of profit or loss for the
year ended December 31, 2016?

a. P329,760 c. P331,760

b. P330,200 d. P744,960

47. A company’s statement of profit or los for the year ended 31 December 2016 showed a net
profit of P83,600. It was later found that P18,000 paid for the purchase of a motor van had been
debited to the motor expenses account. It is the company’s policy to depreciate motor vans at
25% per year on the straight line basis, with a full year’s charge in the year of acquisition.
What would the net profit be after adjusting for this error?

a. P79,100 c. P101,600

b. P97,100 d. P106,100

Use the following information for the next two questions.

The accounts and balances shown below were gathered from Grizzlies Corporation’s trial
balance on December 31, 2016. All adjusting entries have been made.

Wages Payable P25,600

Cash 17,700

Mortgage Payable 151,600

Dividends Payable 14,000

Prepaid Rent 13,600

Inventory 81,800

Sinking Fund Assets 52,400

Short-term Investments 15,200

Premium on Bonds Payable 4,600

Stock Investment in Subsidiary 102,400

Taxes Payable 22,800

Accounts Payable 24,800

Accounts Receivable 36,600

48. The amount that should be reported as current assets on Grizzlies Corporation’s statement
of financial position is

a. P151,300 c. P164,900
b. P217,300 d. P267,300

49. The amount that should be reported as current liabilities on Grizzlies Corporation’s
statement of financial position is

a. P91,800 c. P87,200

b. P238,800 d. P73,200

50. The following account balances appear in the trial balance of Pacer’s Garment
manufacturing Company as of December 31, 2016:

Raw materials inventory, January 1, 2002 P115,000

Raw materials inventory, December 31 160,000

Direct Labor 180,000

Light and power 30,000

Freight in and handling 15,000

Factory supplies used 25,000

Insurance- factory 8,000

Goods in process inventory- January 1 140,000

Goods in process inventory- December 31 132,000

Fuel, oil, and lubricants 23,000

Taxes and licenses – factory 11,000

Repairs and maintenance- factory 7,000

Depreciation- plant and equipment 35,000

Depreciation- office equipment 9,000

 Finished goods inventory, January 1 137,000

Finished goods inventory, December 31 110,000

Sales 933,000

Selling expenses 105,000

Administrative expenses 50,000

Sales returns and allowances 7,000

Indirect labor 60,000

Interest expense 18,000

Purchases of raw materials 500,000

Purchases returns and allowances 10,000

SSS and Medicare premiums- factory 22,000

Retained earnings, January 1 135,000

Cost of goods sold was

a. P905,000 c. P869,000

b. P896,000 d. P874,000