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REVIEW 105 – DAY 12 B.

C. Inelastic
MAS D. Perfectly Elastic

1. Which of the following costs should consider the tax shield effect in computing the 8. Under the high-low method, the unit variable cost closely resembles the math
costs of capital? concept of
A. Cost of debt A. Y-intercept
B. Cost of common stock B. X-intercept
C. Cost of preferred stock C. Slope of the line
D. Cost of retained earnings D. Independent variable

2. Which of the following is not considered in the cash conversion cycle? 9. Profit under variable costing fluctuates with
A. Receivable collection period A. Sales only
B. Debt repayment period B. Production only
C. Inventory conversion period C. Both sales and production
D. Payable deferral period D. Neither sales nor production

3. Cash flows from capital budgeting projects are assumed to be received 10. The path that has the highest slack time in the PERT network is
A. At the beginning of the year A. Critical path
B. Evenly during the year B. Longest path
C. At the end of the year C. Shortest path
D. At a certain point of the year D. Psychopath

4. In the absence of shutdown costs, 11. Sombrero Company manufactures a western-style hat that sells for 10 per unit. This
A. Shutdown point is higher than breakeven point is its sole product and it has projected the break-even point at 50,000 units in the coming
B. Shutdown point is equal to the breakeven point period. If fixed costs are projected at 100,000, what is the projected contribution margin ratio?
C. Shutdown point is lower than breakeven point
D. One cannot determine the relationship between shutdown point and a. 80 percent
breakeven point
b. 20 percent
5. The balanced scorecard approach does not require looking at performance from c. 40 percent
which of the following perspectives? d. 60 percent
A. Customer
B. Employees
C. Competitor 12. The following information pertains to Saturn Company’s cost-volume-profit
D. Internal business processes relationships:

6. Contribution margin ÷ profit after interests and preferred dividends = Break-even point in units sold 1,000
A. Degree of operation leverage Variable costs per unit 500
B. Degree of financial leverage Total fixed costs 150,000
C. Degree of total leverage
D. No meaningful amount How much will be contributed to profit before taxes by the 1,001st unit sold?
a. 650
7. If an increase in product price by 5% causes a decrease in quantity demanded by the b. 500
same percentage, then the demand for the product is said to be c. 150
A. Elastic d. 0
13. Ledbetter Company reported the following results from sales of 5,000 units of Product A Investment in stock, carried at equity 2,500,000 increase
for June: Premium on bonds payable 500,000 decrease
Accumulated depreciation, caused by major repair to equipment
Sales 200,000 1,000,000 decrease
Deferred tax liability 400,000 increase
Variable costs (120,000)
Fixed costs (60,000) In the 2005 cash flow statement, the cash provided by operating activities should be
Operating income 20,000 a. P7,400,000
Assume that Ledbetter increases the selling price of Product A by 10 percent in July. How b. P6,400,000
many units of Product A would have to be sold in July to generate an operating income of c. P9,400,000
20,000? d. P7,000,000
a. 4,000
2. During 2005, Sapa-Sapa has the following activities related to its financial operations:
b. 4,300
c. 4,545 Payment for the early retirement of long-term bonds payable (carrying amount
d. 5,000 of bonds payable P5,000,000) 5,500,000
Distribution in 2005 of cash dividend declared in 2004 3,000,000
14.. Knox Company uses 10,000 units of a part in its production process. The costs to Carrying amount of convertible preferred stock converted into common shares 2,000,000
make a part are: direct material,12; direct labor, 25; variable overhead, 13; and applied fixed Proceeds from sale of treasury stock (cost, P2,000,000) 2,500,000
overhead, 30. Knox has received a quote of $55 from a potential supplier for this part. If Knox
buys the part, 70 percent of the applied fixed overhead would continue. Knox Company In the 2005 cash flow statement, net cash used in financing activities should be
would be better off by a. P6,000,000
b. P3,000,000
a. 50,000 to manufacture the part. c. P8,500,000
b. 150,000 to buy the part. d. P6,500,000
c. 40,000 to buy the part.
d. 160,000 to manufacture the part.
3. The transactions of Lambunao Company for the year 2005 included the following:
15. Unique Company manufactures a single product. In the prior year, the company had
Cash borrowed from bank for purchase of land 6,000,000
sales of 90,000, variable costs of 50,000, and fixed costs of 30,000. Unique expects its cost Purchase of land for cash 6,000,000
structure and sales price per unit to remain the same in the current year, however total sales Sale of securities for cash 1,000,000
are expected to increase by 20 percent. If the current year projections are realized, net Dividend declared (of which P2,000,000 was paid during the year) 3,000,000
income should exceed the prior year’s net income by: Issuance of common stock for cash 7,000,000
Payment of bank loan including interest of P500,000 3,500,000
a. 100 percent. Increase in customers’ deposits 500,000
b. 80 percent.
c. 20 percent. The 2005 cash flow statement should report net cash provided by financing activities at
a. P8,000,000
d. 50 percent. b. P8,500,000
c. P7,500,000
P1 d. P7,000,000

1. Bingawan Company reported net income of P10,000,000 for 2005. Changes occurred in 4. Loboc Company had the following activities during 2005:
several balance sheet accounts during 2005 as follows:
a. P1,300,000 c. P1,650,000
* Acquired common stock of Marbel Company for P3,000,000. b. P 800,000 d. P1,050,000
* Sold an investment in Raya Company for P4,500,000 when the carrying amount was
* Acquired a P5,000,000 one-year certificate of deposit from a bank. During the year, 6. In 2005, a tsunami completely destroyed a building belonging to Parian Comapny. The
interest of P400,000 was received from the bank. cost of the building was P8,000,000 and had accumulated depreciation of P5,000,000 at the
* Collected dividends of P800,000 on stock investments. time of loss. Parian received a cash settlement from an insurance company and reported a
casualty loss of P500,000. In its 2005 cash flow statement, the net change reported in the
In the 2005 cash flow statement, net cash used in investing activities should be cash flows from investing activities should be
a. P3,500,000 a. P3,000,000 decrease
b. P3,900,000 b. P2,500,000 increase
c. P4,300,000 c. P3,500,000 increase
d. P4,700,000 d. P 500,000 decrease

5. The Abulug Manufacturing Company reviewed its year-end inventory and found the 7. Kiangan Company has provided the following 2005 current account balances:
following items:
 A packing case containing a product costing P100,000 was standing in the January 1 December 3
shipping room when the physical inventory was taken. It was not included in the Accounts receivable 1,500,000 2,800,000
inventory because it was marked “Hold for shipping instructions.” The Allowance for doubtful accounts 200,000 400,000
customer’s order was dated December 18, but the case was shipped and the Prepaid insurance 600,000 450,000
costumer billed on January 10, 2006. Accounts payable 900,000 1,200,000
 Merchandise costing P600,000 was received on December 28, 2005, and the
invoice was recorded. The invoice was in the hands of the purchasing agent; it Kiangan’s net income for 2005 was P8,000,000. Net cash provided by operating activities
was marked “On consignment”. should be
 Merchandise received on January 6, 2006, costing P700,000 was entered in a. P7,350,000
purchase register on January 7. The invoice showed shipment was made FOB b. P9,550,000
shipping point on December 31, 2005. Because it was not on hand during the c. P7,150,000
inventory count, it was not included. d. P8,650,000
 A special machine costing P200,000, fabricated to order for a particular
customer, was finished in the shipping room on December 30. The customer 8. The following data pertain to Encantadia Corporation on December 31, 2005:
was billed for P300,000 on that date and the machine was excluded from
inventory although it was shipped January 4, 2006. Metrobank current account no. 1 P1,000,000
 Merchandise costing P200,000 was received on January 6, 2006, and the related Metrobank current account no. 2 (100,000)
purchase invoice was recorded January 5. The invoice showed the shipment Payroll account 500,000
was made on December 29,2005, FOB destination. Foreign bank account – restricted (in equivalent pesos) 1,000,000
 Merchandise costing P150,000 was sold on an installment basis on December Postage stamps 1,000
15. The customer took possession of the goods on that date. The merchandise Employee’s post dated check 4,000
was included in inventory because Abulug still holds legal title. Historical IOU from controller’s sister 10,000
experience suggests that full payment on installment sale is received Credit memo from a vendor for a purchase return 20,000
approximately 99% of the time. Traveler’s check 50,000
 Goods costing P500,000 were sold and delivered on December 20. The goods Not-sufficient-funds check 15,000
were included in the inventory because the sale was accompanied by a purchase Money order 30,000
agreement requiring Abulug to buy back the inventory in February 2006. Petty cash fund (P4,000 in currency and expense receipts for P6,000)
How much of these items should be included in the inventory balance at December 31, Treasury bills, due 3/31/06 (purchased 12/01/05) 200,000
2005? Treasury bills, due 1/31/06 (purchased 1/1/05) 300,000
December NSF checks 150,000
Based on the above information, compute for the cash and cash equivalent that would be Proceeds of note collected by the bank for Sapiro,
reported on the December 31, 2005 balance sheet. net of service charge of P20,000 750,000
a. P1,784,000 c. P1,684,000 Erroneous bank debit to Sapiro’s account, representing
b. P1,484,000 d. P1,704,000 a withdrawal of Siparo Company 300,000

9. Gonzaga Company uses the weighted average method to determine the cost of its What was the cash balance per book on December 31, 2005?
inventory. Gonzaga recorded the following information pertaining to its inventory: a. P 900,000 c. P1,150,000
b. P1,500,000 d. P1,200,000
Units Units cost Total cost
Balance 1/1 160,000 60 9,600,000 12. The LIREO Corporation started its business on January 1, 2005. After considering the
Sold on 1/15 140,000 collections experience of other companies in the industry, LIREO Corporation established an
Purchased on 1/31 80,000 90 7,200,000 allowance for bad debts estimated to be 5% of credit sales. Outstanding receivables
recorded in the books of accounts on December 31, 2005 totaled P575,000, while the
What amount of inventory should Gonzaga report in its January 31, 2005 balance sheet? allowance for bad debts account had a credit balance of P62,500 after recording estimated
Perpetual Periodic doubtful account expense for December and after writing off P12,500 of uncollectible
a. P8,400,000 P7,000,000 accounts.
b. P7,000,000 P8,400,000
c. P8,400,000 P7,500,000 Further analysis of the company’s accounts showed that merchandise purchased in 2005
d. P7,000,000 P7,500,000 amounted to P2,250,000 and ending merchandise inventory was P375,000. Goods were
sold at 40% above cost.

10. Adamya Corporation’s checkbook balance on December 31, 2005 was P8,000,000. The 80% of total sales were on account. Total collections from customers, on the other hand,
same date Adamya held the following items in its safe: excluding proceeds from cash sales, amounted to P1,500,000.

A P150,000 check payable to Adamya, dated January 4, 2006, that was included in the The net realizable value of accounts receivable as of December 31, 2005 is
December 31, checkbook balance. a. P495,000 c. P512,500
b. P993,750 d. P875,000
A P200,000 check payable to Adamya, deposited on December 10 and recorded on the
same date, that was returned by the bank on December 22 marked “NSF”. The check Binalonan Company factored P5,000,000 of accounts receivable to ABC Company on July 1,
was redeposited December 27, 2005, and cleared December 30, 2005. No entry has 2005. Control was surrendered by Binalonan. ABC assessed a fee of 5% and retains a
been made by Adamya for the receipt and the redeposit. holdback equal to 20% of the accounts receivable. In addition ABC charged 12% computed
on a weighted average time to maturity of the receivables of 30 days.
A P500,000 check payable to a supplier and drawn on Adamya’s account, that was
dated and recorded December 31, 2005 but not mailed until January 10, 2006 13. Binalonan Company will receive and record cash of
a. P3,700,685 c. P3,750,000
In its December 31, 2005 balance sheet, Adamya should report cash at b. P3,700,000 d. P4,700,685
a. P8,700,000 c. P8,350,000
b. P8,550,000 d. P8,150,000 14. Assuming all receivables are collected, Binalonan Company’s cost of factoring the
receivables would be
11. Sapiro Company provided the following data for the purpose of reconciling the cash a. P250,000 c. P49,315
balance per book with the balance per bank statement on December 31, 2005: b. P299,315 d. P 0

Balance per bank statement 2,000,000

Outstanding checks (including certified checks of P100,000) 500,000 15. Hathoria Company began operations on January 1, 2004. On December 31, 2004,
Deposit in transit 200,000 Hathoria provided for uncollectible accounts based on 5% of annual credit sales. On January
1, 2005, Hathoria changed its method of determining its allowance for uncollectible accounts d. If payment for an investment property is deferred, its cost is the total payments during
by applying certain percentages to the accounts aging as follows: the credit period.

Days past invoice date Percent deemed to be 3. Investment property is initially measured at cost, including transaction costs. Such cost
uncollectible includes
0 – 30 5% a. Start-up costs c. Property transfer taxes
31 – 90 10% b. Abnormal waste d. Initial operating losses
91 -180 20%
Over 180 50% 4. Which statement is incorrect regarding measurement of investment property subsequent to
initial recognition using the fair value model?
In addition, Hathoria wrote off all accounts receivable that were over 1 year old. The a. Change to the cost method is permitted only if this results in a more appropriate
following additional information relates to the years ended December 31, 2005 and 2004: presentation.
b. Gains or losses arising from changes in the fair value of investment property must be
2005 2004 included in net profit or loss for the period in which it arises.
Credit sales 10,000,000 8,000,000 c. Fair value should reflect the actual market state and circumstances as of the balance
Collections (excluding collections on recovery) 8,500,000 6,000,000 sheet date.
Accounts written off 300,000 200,000 d. Where a property has previously been measured at fair value, it should cease to be
Recovery of accounts previously written off 80,000 50,000 measured at fair value, if comparable market transactions become less frequent or
market prices become less readily available.
Days past invoice date at December 31
0 to 30 1,800,000 800,000 5. Which of the following rules is incorrect regarding accounting for transfers (to or from
31 to 90 600,000 500,000 investment property) between categories?
91 to 180 400,000 400,000 a. For a transfer from investment property carried at fair value to owner-occupied
Over 180 200,000 100,000 property or inventories, the fair value at the change of use is the 'cost' of the property
under its new classification.
What is the provision for uncollectible accounts for the year ended December 31, 2005? b. For a transfer from owner-occupied property to investment property carried at fair
a. P250,000 c. P330,000 value, PAS 16 should be applied up to the date of reclassification. Any difference arising
b. P300,000 d. P380,000 between the carrying amount under PAS 16 at that date and the fair value should be
recognized in net profit or loss for the period.
TOA c. For a transfer from inventories to investment property at fair value, any difference
between the fair value at the date of transfer and it previous carrying amount should be
1. Which statement is correct concerning property leased to an affiliate? recognized in net profit or loss for the period.
I. From the perspective of the individual enterprise that owns it, the property leased to an d. When an entity completes construction/development of an investment property that will
affiliate is considered an investment property. be carried at fair value, any difference between the fair value at the date of transfer and
II. From the perspective of the affiliates as a group and for purposes of consolidated the previous carrying amount should be recognized in net profit or loss for the period.
financial statements, the property is treated as owner-occupied property.
a. Both I and II b. Neither I nor II c. I only d. 6. An item of property, plant and equipment should be recognized as an asset when
II only I. It is probable that future economic benefits associated with the asset will flow to the
2. Which statement is incorrect regarding the initial measurement of an investment property? II. The cost of the asset to the enterprise can be measured reliably.
a. The investment property should be measured initially at cost. a. Both I and II b. Neither I nor II c. I only d.
b. The cost of the purchased investment property includes its purchase price and any II only
directly attributable expenditure.
c. The cost of self-constructed investment property is its cost at the date the construction 7. Which is not an essential characteristic of property, plant and equipment?
or development is complete. a. The property, plant and equipment are subject to depreciation.
a. The property plant and equipment are tangible assets.
b. The property, plant and equipment are used in production or supply of goods and d. Amount of cash or cash equivalent paid or the fair value of other consideration given to
services, for rental and administrative purposes. acquire an asset at the time of its acquisition or construction.
c. The property, plant and equipment are expected to be used over a period of more d. Amount at which an asset is recognized in the balance sheet after deducting any
than one year. accumulated depreciation and accumulated impairment losses thereon.

8. Events after the balance sheet date are the events, both favorable and unfavorable, that 13. It is the amount for which an asset could be exchanged between knowledgeable, willing
occur between the balance sheet date and the date parties in an arm’s length transaction.
a. When the audit report is authorized for issue. a. Cost c. Realizable value
b. When financial statements are authorized for issue. b. Sales price d. Fair value
c. When financial statements are issued.
d. When the audit report is issued. 14. Which is incorrect concerning recognition of property, plant and equipment?
a. Most spare parts and servicing equipment are usually carried as inventory and
9. The following statements relate to cash. Which statement is true? recognized as an expense when consumed.
a. The term “cash equivalent” refers to demand credit instruments such as money order b. Major spare parts and stand-by equipment qualify as property, plant and equipment
and bank drafts. when the enterprise expects to use them during more than one period.
b. The purpose of establishing a petty cash fund is to keep enough cash on hand to cover c. If spare parts and servicing equipment can be used only in connection with an item of
all normal operating expenses for a period of time. property, plant and equipment, they are accounted for as property, plant and equipment
c. Restricted cash balance should be presented as noncurrent asset. and are depreciated over the useful life of the related asset.
d. Compensating balances required by a bank may be included in “cash and cash d. Property, plant and equipment acquired for safety and environmental reasons qualify
equivalent”. for recognition as assets.

10. Lapping is 15. The cost of an item of property, plant and equipment includes all of the following, except
a. Making the financial statements indicate a more favorable position by giving effect to a. Trade discount and rebates
transactions is a period other than that in which these actually occurred. b. Purchase price
b. Done to inflate the cash position or cover the theft of cash by depositing at the end of the c. Import duties and nonrefundable purchase taxes
accounting period a check drawing on one bank account in another bank account without d. Directly attributable costs of bringing the asset to working condition for its intended
making the necessary deduction in the balance of the first bank. use.
c. An irregularity that conceals cash shortages by a delay in recording cash collections,
retaining a customer's payment on credit sales and covering up the shortage with subsequent P2
cash receipts.
d. A kind of fraud committed by making entry of fictitious payments or failure to enter 1. An enterprise uses a branch accounting system in which it establishes separate
receipts. formal accounting systems for its home office operations and its branch office
operations. Which of the following statement is false?
11. If the cash balance in a company’s bank statement is less than the correct cash balance a. The home office account on the books of a branch office represents the equity
and neither the company nor the bank has made any errors, there must be interest of the home office in the net assets of the branch.
a. Outstanding checks b. The branch office account on the books of the home office represents the
b. Bank charges not yet recorded by the company equity interest of the branch office in the net assets of the home office.
c. Deposits in transit c. The home office and branch office accounts are reciprocal accounts that must be
d. Deposits credited by the bank but not yet recorded by the company eliminated in the preparation of the enterprise's financial statements that are
presented in accordance with GAAP.
d. Unrealized profit from internal transfers between tha home office and a branch
12. The depreciable amount of an item of property, plant and equipment is the must be eliminated in the preparation of the enterprise's financial statements that
a. Cost of the asset, or other amount substituted for cost in the financial statements, less are presented in accordance with GAAP.
its residual value.
c. Net amount which the enterprise expects to obtain for an asset at the end of its useful
life after deducting the expected costs of disposal. 2. On December 31, 2006, the Branch Current in the Home Office books shows a
balance of P50,000. The following facts are ascertained:
Merchandise billied at P12,500 is in transit on December 1 from the home office to
the branch. 3. The net adjustment in the home office books related to the Butuan Branch Current account
The branch collected a home office accounts receivable for P3,500. The branch did
not notify the home office of such collection. a. 75700 b. 65700 c. 86200 d. 94820

On December 30, the home office sent cash of P7,500 to the branch, but this was
charged to general expense: the branch has not received the cash as of December 4. The net adjustment in Butuan's books related to the Home Office account is:
a. 33335 b. 31450 c. 20950 d. 10450
5. Before the above discrepancies were given effect, the balance in the home office
Branch profit for December was recorded by the home office at P2,400 instead of
books of its Butuan Current account was debit balance of P165,920. The unadjusted
P2.040. balance in the Butuan Branch books of its Home Office Current account must be:
a. 92336 b. 98230 c. 104500 d. 111170
The branch returned supplies of P1,500 to the home office but the home office has
not yet recorded the receipt of the supplies. 6. The adjusted balance of the reciprocal accounts is:
a. 84807 b. 90220 c. 99200 d. 109120
Assume all other transactions have been property recorded. What is the unadjusted balance
of the Home Office Current account on the branch books on December 31, 2006?
The home office of Mang Do Co. ships goods to Iloilo branch billing the branch for the goods
a. 64140 b. 39140 c. 14000 d. 13000 at P45,000, excluding freight of P6,000. Upon receipt of the goods Iloilo branch was
instructed by the home office to transfer these goods to Cagayan de Oro branch. Iloilo branch
ships the goods paid P4,500 for the transfer. If the goods had been shipped by the home
office directly to Cagayan de Oro branch, the freight would have been P6,500.
The following were found in your examination of the interplant accounts between the
Home Office and the Butuan Branch: 7. What is the journal entry to record receipt of shipment in the books of Cagayan de
Transfer of fixed assets from Home Office amounting to p53,960 was not booked by Oro branch?
a. Shipment from home office 45,000
the branch.
Home office current 45,000
P10,000 covering marketing expense of another branch was charged by Home Office
b. Shipment from home office 45,000
to Butuan. Freight in 6,000
Butuan recorded a debit note on inventory transfers from Home Office of p75,000 Home office current 51,000
c. Shipment from home office 45,000
Home Office recorded cash transfer of P65,700 from Butuan Branch as coming from Freight in 6,500
Davao Branch.
Home office current 51,500
Butuan reversed a previous debit memo from Cagayan de Oro Branch amounting to
P10,500. Home Office decided that this charge is appropriately Davao Branch's cost d. Shipment from home office 45,000
Freight in 4,500
Butuan recorded a debit memo from Home Office of P4,650 as P4,560.
Home office current 49,500
8. What is the adjusting journal entry to be recorded by Iloilo9 branch? c. Shipment to Iloilo 45,000
a. Home office current 51,500 Excess freight on interbranch transfer of merchandise 6,000
Shipment from home office 45,000
Cagayan de Oro branch current 45,000
Freight in 6,000
Iloilo Branch current 51,000
b. Home office current 47,000
Shipment from home office 45,000 Shipment to Cagayan de Oro 45,000

Freight in 2,000 d. Cagayan de Oro branch current 51,000

Shipment to Iloilo 45,000
c. Home office current 55,500
Shipment from home office 45,000 Excess freight on interbranch transfer of merchandise 4,000

Freight in 6,000 Iloilo branch current 55,500

Cash 4,500 Shipment to Cagayan de Oro 45,000

d. Shipment from home office 45,000

Freight in 6,500

Home office current 51,000

10. Vivaldi & Co. has several branches located in key cities in the south namely, Cebu.
Mactan, Iloilo, Bacolod, Davao, and Cagayan de Oro. It authorizes transfers of cash
and inventories among branches. The head office ships goods (P10,000 cost) to
9. What is the adjusting entry to be recorded by home office? Cebu branch paying freight for P600. The home office authorizes the transfer of
a. Shipment to Iloilo 45,000 goods from Cebu branch to Davao branch where the latter is charged for the cost of
Excess freight on interbranch transfer of merchandise 2,000 the goods (P10,000) and frieght charge (P200) for the tranfer. If the shipment had
been made by the home office directly to the Davao branch, the freight charge would
Cagayan de Oro branch current 45,000 have been P900. The transfer resulted to difference in freight charge which should be
diposed of as follows:
Freight in 4,000 a. P100 savings.
b. P100 charge to Davao branch by Cebu branch.
Shipment to Cagayan de Oro c. P100 charge to Davao branch by head Office.
45,000 d. P100 to be equally charge among head office, Cebu branch and Davao branch.

Iloilo branch current

51,000 11. Gershwin Inc. opens a sales agency in Cebu City and a working fund of P20,000 is
established on imprest basis. The first payment from the fund is P3,000 for rent. The
b. Shipment to Iloilo 45,000 transactions should be recorded by the home office as follows:
Excess freight on interbranch transfer of merchandise 6,000 Debit Credit

Iloilo branch current 51,000 a. No entry

b. Rent P3,000
Cash P3,000
c. Cebu agency 3,000 Cash P 11,900
Working fund 3,000
National Home Co. Current P 90,000
d. Cebu agency 3,000
Cash 3,000 Shipments from National Home Co. 120,000

12. The following information pertains to shipments of merchandise from Home Office to Accounts receivable 62,500
Branch during 2009:
Home office's cost of merchandise P160,000 Expenses 8,100

Intracompany billlings 200,000 Sale 112,500

Sales by branch 250,000 Total P202,500 P202,500

Unsold merchandise at branch. 12/31.09 20,000

In the combined income statement of Home Office and branch for the year ended December December 31 inventory P 30,000
31, 2009, what amount of the above transactions should be included in sales?

a. 250,000 b. 230,000 c. 200,000 d. 180,000

14. The net profit of the branch was:
13. Which represents the proper journal entry for a periodic inventory system that should a. 22500 b. 14400 c. 21900 d. No answer
be made on the books of the branch when goods that cost the home ofice P100,000 15. In the home office books, the Branch Current account should be:
to manufacture are shipped to the branch at a price of P125,000? a. 134400 b. 90,000 c. 104400 d. No answer
a. Shipments from home office 100,000
Home office 100,000 AP

b. Shipments from home office 125,000 PROBLEM NO. 1.

Home office 125,000
On January 2, 2004, the Suns, Inc. issued P2,000,000 of 8% convertible bonds at par.
c. Shipments from home office 125,000 The bonds will mature on January 1, 2008 and interest is payable annually every January
Home office 100,000
1. The bond contract entitles the bondholders to receive 6 shares of P100 par value
Unrealized profit 25,000 common stock in exchange for each P1,000 bond. On the date of issue, the prevailing
market interest rate for similar debt without the conversion option is 10%.
d. Sipments from home office 100,000 On December 31, 2005, the holders of the bonds with total face value of P1,000,000
Unrealized profit 25,000 exercised their conversion privilege. In addition, the company reacquired at 110, bonds
with a face value of P500,000.
Home office 125,000
The balances in the capital accounts as of December 31, 2004 were:
The national Home Company ships and billls merchandise to its provincial branch at cost.
The branch carries its own accounts receivable and makes its own collections. The branch Common stock, P100 par, authorized 50,000 shares, issued
and outstanding, 30,000 shares P3,000,000
also pays its expenses. The transactions for 2009 are reflected in the branch trial balance
Premium on common stock 500,000
that follows:
Market value of the common stock and bonds were as follows:
Debit Credit
Date Bonds Common stock Deferred income taxes are provided in recognition of timing differences between
December 31, 2004 118 40 financial and income tax reporting of depreciation. For the year ended December 31,
December 31, 2005 110 42 2005, depreciation per tax return exceeded book depreciation by P312,500.
Ginebra’s effective income tax rate for 2004 was 32%.
On July 1, 2005, Ginebra issued for P1,774,000, P2,000,000 face amount of its 10%,
Based on the above and the result of your audit, answer the following: P1,000 bonds. The Bonds were issued to yield 12%. The bonds are dated July 1,
2004 and will mature on July 1, 2014. Interest is payable annually on July 1. Ginebra
1. How much of the proceeds from the issuance of convertible bonds should be allocated uses the interest method to amortize bond discount.
to equity? QUESTIONS:
a. P634,000 b. P126,816 c. P221,664 d. P0
2. How much is the carrying value of the bonds payable as of December 31, 2004? Based on the above and the result of your audit, determine the following:
a. P2,000,000 b. P1,389,400 c. P1,796,170 d. P1,900,502
3. How much is the interest expense for the year 2005? 6.Liability under finance lease as of December 31, 2005
a. P160,000 b. P138,940 c. P179,617 d. P190,050 a. P381,600 b. P390,200 c. P344,828 d. P330,000
4. The entry to record the conversion on December 31, 2005 will include a credit to APIC 7.Total noncurrent liabilities as of December 31, 2005
of a. P5,610,440 b. P5,770,640 c. P5,931,328 d. P5,725,268 .
a. P365,276 b. P400,000 c. P307,893 d. P0 8.Current portion of long-term liabilities as of December 31, 2005
5. How much is the loss on bond reacquisition on December 31, 2005? a. P1,445,372 b. P1,400,000 c. P1,500,000 d. P1,446,576
a. P50,000 b. P96,053 c. P67,362 d. P0 Accrued interest payable as of December 31, 2005
9.a. P484,440 b. P432,628 c. P532,628 d. P478,000
PROBLEM NO. 2. 10.Total interest expense for the year 2005
a. P652,440 b. P707,068 c. P712,640 d. P699,760
In connection with your audit of Ginebra Corporation’s financial statements for the year
2005, you noted the following liability account balances as of December 31, 2004: 11.The primary audit test to determine if accounts payable are valued properly is
a. Confirmation of accounts payable
Note payable, bank P 5,600,000 b. Vouching accounts payable to supporting documentation
Liability under finance lease 430,000 c. An analytical procedure
Deferred income taxes 700,000 d. Verification that accounts payable was reported as a current liability in the balance
Transactions during 2005 and other information relating to Ginebra’s liabilities were as
follows: 12.Which of the following procedures is least likely to be performed before the balance sheet
a. a. Observation of inventory
The principal amount of the note payable is P5,600,000 and bears interest at 12%. b. Testing of internal control over cash
The note is dated April 1, 2004 and is payable in four equal annual installments of c. Search for unrecorded liabilities
P1,400,000 beginning April 1, 2005. The first principal and interest payment was d. Confirmation of receivables
made on April 1, 2005.
13. An audit assistant found a purchase order for a regular supplier in the amount of P5,500.
b. The purchase order was dated after receipt of goods. The purchasing agent had
The capitalized lease is for a ten-year period beginning December 31, 2002. Equal forgotten to issue purchase order. Also a disbursement of P450 for materials did not have
annual payments of P100,000 are due on December 31 of each year, and the 14% a receiving report. The assistant wanted to select additional purchase orders for
interest rate implicit in the lease known by Ginebra. The present value at December investigation but was unconcerned about lack of receiving report. The audit director
31, 2004 of the seven remaining lease payments (due December 31, 2005 through should
December 31, 2011) discounted at 14% was P430,000.
a. Agree with the assistant because the amount of the purchase order exception was 3. Using the preceding number, the donation and acceptance should be in writing if the
considerably larger than the receiving report exception value of the property donated is:
b. Agree with the assistant because the cash disbursement clerk had been assured by
the receiving clerk that the failure to fill out a report didn’t happen very often. a. Less than P 5,000
c. Disagree with the assistant because two problems have an equal risk of loss b. P5,000 or less
associated with them. c. P5,000 or more
d. Disagree with the assistant because the lack of a receiving report has a greater risk d. More than 5000
of loss associated with it.
4. The donation of an immovable property shall be made
14.When using confirmation to provide evidence about completeness assertion for accounts
payable, the appropriate population most likely is a. In writing
a. Vendors with whom the entity has previously done business. b. In public instruments
b. Amounts recorded in the accounts payable subsidiary ledger. c. Either A or B
c. Payees of checks drawn in the month after the year end. d. Orally
d. Invoices filed in the entity’s open invoice file.
5. Using the preceding number, acceptance by the donee may be made:
15.Which of the following is a substantive test that an auditor is most likely to perform to
verify the existence and valuation of recorded accounts payable? a. In same deed of donation
a. Investigating the open purchase order file to ascertain that pre-numbered purchase b. In a separate document
orders are used and accounted for. c. Either A or B
b. Receiving the client’s mail, unopened, for a reasonable period of time after year end d. Neither A or B
to search for unrecorded vendor’s invoices.
c. Vouching selected entries in the accounts payable subsidiary ledger to purchase 6. If two or more animals are sold together, whether for lump sum or for a separate
orders and receiving reports. price for each of them, the redhibitory defect of one shall give rise to the redhibition of
d. Confirming accounts payable balances with known suppliers who have zero the others.
balances. There is no warranty against hidden defects f animals sold at fairs or at public
auctions or of livestock sold as condemned.
BLT a. Both are true
1. The donation of personal (movable) property may be made: b. Both are false
c. Only the first is true
I. Orally of the value is P5,000 or less requiring simultaneous delivery. d. Only the second is true
II. In Writing if the value is more than P 5,000
7. The ownership in the thing sold shall not pass to the purchaser until he has fully paid
a. Both I and II are correct the price.
b. Both I and II are incorrect If at the time the contract of sale is perfected, the thing which is the object of the
c. Only I is correct contract has been partially lost, the contact shall be without effect.
d. Only II is correct a. Both are true
b. Both are false
2. The donation of movable property may be made: c. Only the first is true
d. Only the second is true
a. Orally
b. Writing 8. Where the seller of the goods has a voidable title thereto, but his title has not been
c. Either A or B avoided at the time of the sale, a buyer ingood faith acquires a title the goods.
d. Neither A or B If the vendee has renounced the right to warranty in case of eviction, and eviction
should take place, the vendor shall only pay the value which the thing sold had at the
time of sale.
a. Both are true a. The President
b. Both are false b. BIR
c. Only the first is true c. CTA
d. Only the second is true d. a and b only
9. Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof
by installment.
In case of doubt, a contract purporting to be an equitable mortgage shall be 14. The BIR Commissioner is empowered to:
construed as a sale with a right to repurchase.
a. Both are true
b. Both are false a. Interpret tax laws and decide tax cases
c. Only the first is true b. Obtain information, summon and examine witnesses
d. Only the second is true c. Collect national internal revenue taxes
d. All of the above
10. The creditors of the vendor cannot make use of the right of redemptionagainst the 15. For tax purposes, income is synonymous to:
vendee, until they have exhausted the property of the vendor.
Sale is a real contract because delivery is necessary to transfer ownership to the
a. Both are true a. Capital
b. Both are false b. Receipts
c. Only the first is true c. Realized profit
d. Only the second is true d. None of the above

11. The following are subject to amusement taxes:

a. Gross receipts of carnivals

b. Gross receipts of cinemahouses
c. Professional basketball games
d. Gross receipts of circus

12. The following are considered taxes:

a. Toll
b. License
c. Penalty
d. None of the above

13. The power to tax may be delegated to: