I. THEORIES,
The right to vote for the
Multiple Choice. Choose the letter of the
best answer.
1. Financial statements must be
prepared at least
A. Annually
B. Quarterly
C. Semi-annually
D. Monthly
2. An entity shall classify an asset as
current when (choose the incorrect
one)
A. The entity expects to realize
the asset or intends to sell or
consume it within the
entity’s normal operating
cycle.
B. The entity holds the asset for
the purpose of trading.
C. The entity expects to realize
the asset within twelve
months after the reporting
period.
D. The asset is cash or a cash
equivalent that is restricted
to settle a liability for more
than twelve months after the
reporting period.
3. Which obligations are classified as
current liabilities even if they are
due to be settled for more than
twelve months from the end of the
reporting period?
A. Current portion of interest-
bearing liabilities
B. Bank overdrafts
C. Trade payables
D. Dividends payable
4. In presenting a statement of
financial position, an entity
A. Must make the current and
non-current presentation.
B. Must present assets and
liabilities in order of
liquidity.
C. Must choose either the
current and non-current or
the liquidity presentation,
meaning a free choice of
presentation.
D. Must make the current and
non-current presentation,
except when a presentation
based on liquidity provides
information that is reliable
and relevant.
5. A stock dividend declared by the
entity before year-end and
payable to the shareholders three
months after the end of reporting
period is classified as
A. A current liability
B. An equity account
C. A non-current liability
D. A current asset
6. Working capital is
A. The group assets which
enables the entity to operate
profitably.
B. Capital which has been
reinvested in the business.
C. Unappropriated retained
earnings.
D. Current assets less current
liabilities
7. The term “deficit” refers to
A. An excess of current assets
over current liabilities
B. An excess of current
liabilities over current assets
C. A debit balance in retained
earnings
D. A loss that is reported as a
prior period error
8. The method of presenting income
statement in which the expenses
are classified according to their
function, as part of cost of sales,
distribution costs, administrative
activities and other operating
activities.
A. Function of expense method
B. Nature of expense method
C. Account form
D. Report form
9. Consider the following
statements:
1st statement: Dividends paid
shall be recognized in the
statement of comprehensive
income.
2nd statement: A loss on disposal
of asset shall be recognized in the
statement of changes in equity.
Which is not true?
A. 1st statement
B. 2nd statement
C. Both statements
D. Neither of the two
statements
10. An entity shall present an
analysis of expenses using a
classification based on
A. The nature of expenses
B. The function of expenses
C. Either choices A or B,
whichever provides
information that is reliable
and more relevant.
D. Either choices A or B,
whichever the entity would
prefer to present.
11. For an entity that has only
ordinary shares outstanding, total
shareholders’ equity divided by
the number of shares outstanding
represents the
A. Return on equity
B. Stated value per share
C. Book value per share
D. Price/Earnings ratio
12. Which of the following
shareholder rights is most
commonly enhanced in an issue of
preference shares?
A.
board of directors
B. The right to maintain one’s
proportional interest in the
entity
C. The right to receive a full
cash dividend before
dividends are paid to other
classes of share capital
D. The right to vote on major
corporate issues
13. An entity has not declared or paid
dividends on its cumulative
preference shares in the last three
years. The dividends in arrears
shall be reported
A. In a note to the financial
statements
B. As a reduction in
shareholders’ equity
C. As a current liability
D. As a non-current liability
14. An entity acquired some of its own
ordinary shares at a price greater
than both their par value and
original issue price. The entity
uses the cost method of
accounting for treasury shares.
What is the impact of this
acquisition on total shareholders’
equity and book value per
ordinary share, respectively?
Total Book value
shareholders’ per
equity ordinary
share
A.Increase Increase
B.Increase Decrease
C.Decrease Increase
D.Decrease decrease
15. It is the amount which the
preference shareholders normally
receive upon liquidation of the
entity.
A. Liquidation value
B. Par value
C. Book value
D. Fair value
16. In the absence of liquidation
value, the preference shareholders
shall receive what amount in the
event of liquidation?
A. Liquidation value
B. Par value
C. Book value
D. Fair value
17. Preference as to dividends means
A. If dividends are declared, the
preference shareholders have
the right to receive dividends
first before ordinary
shareholders are paid a
dividend.
B. The preference shareholders
have the right to receive an
amount equal to par or
liquidation value of their
shareholdings in the events
of liquidation in addition to
cumulative dividends in
arrears.
 C. A and B C. To disclose separately non- price in cash and issuing a
D. Not A and B cash investing and financing mortgage note payable to the
activities seller for the balance, in a
18. When the right to receive D. To assess the ability of the statement of cash flows, what
dividend is forfeited in any one entity to pay dividends to amount is included in financing
year in which dividend is not stockholders activities for the transaction?
declared, the preference share is A. Cash payment
said to be 24. An entity shall report cash flows B. Acquisition price
A. Cumulative from operating activities using C. Zero
B. Non-cumulative A. Direct method D. Mortgage amount
C. Participating B. Indirect method
D. Non-participating C. Either A or B 32. An entity’s accounts receivable
D. Neither A nor B decreased during the year. in the
19. Earnings per share shall be entity’s statement of cash flows,
presented on the face of 25. An entity shall report cash flows the cash collected from customers
A. Statement of Financial arising from investing and would be
Position financing activities using A. Sales revenue plus accounts
B. Statement of Comprehensive A. Direct method receivable at the beginning
Income B. Indirect method of the year.
C. Statement of Changes in C. Either A or B B. Sales revenue plus the
Equity D. Neither A nor B decrease in accounts
D. Statement of Cash Flows receivable
26. These are the principal-revenue C. Sales revenue less the
20. Earnings per share shall be producing activities of the entity. decrease in accounts
computed on the basis of A. Operating activities receivable
A. Ordinary shares outstanding B. Investing activities D. The same as sales revenue
at the end of the year C. Financing activities
B. Ordinary shares outstanding D. Borrowing activities 33. In a statement of cash flows,
at the beginning of the year depreciation is treated as an
C. Ordinary shares outstanding 27. Bank borrowings are generally adjustment to reported net
at the middle of the year considered earnings because depreciation
D. Average ordinary shares A. Operating activities A. Is a direct source of cash
outstanding during the year B. Investing activities B. Reduces reported earnings
C. Financing activities but does not involve an
21. In computing basic earnings per D. Borrowing activities outflow of cash
share, the amount of preferred C. Reduces reported earnings
dividends on non-cumulative 28. Alternatively, which of the and involves an inflow of
preference shares shall be following is classified as an cash
A. Deducted from net income operating cash flow? D. Is an inflow of cash to a
whether declared or not A. Interest received reserve account for
B. Deducted from net income B. Interest paid replacement of assets
only when declared C. Dividends received
C. Added to net income only D. Dividends paid 34. Which of the following would be
when declared subtracted from net income when
D. Ignored 29. How should a gain from the sale using the indirect method to
of an equipment for cash be derive net cash flows from
22. In computing basic earnings per reported in a statement of cash operating activities?
share, the amount of the required flows using the indirect method? A. Decrease in accounts payable
preferred dividends on cumulative A. In investing activity as a B. Loss on sale of machine
preference shares shall be reduction of the cash inflow C. Decrease in accounts
A. Deducted from net income from the sale receivable
whether declared or not B. In investing activities as a D. Depreciation
B. Deducted from net income cash outflow
only when declared C. In operating activities as a 35. A cash dividend that is declared
C. Added to net income only deduction from income during an accounting period, to be
when declared D. In operating activities as an paid in the next accounting
D. Ignored addition to income period, is presented in the
statement of cash flows for the
23. The primary purpose of the 30. In a statement of cash flows using current period is
statement of cash flows is indirect approach for operating A. A use of cash from operating
A. To provide relevant activities, an increase in inventory activities
information about cash is presented as B. A non-cash transaction
receipts and cash payments A. Outflow of cash presented in a separate
of an entity during a period B. Inflow and outflow of cash schedule
B. To help investors, creditors C. Addition to net income C. A use of cash from financing
and other users to assess the D. Deduction from net income activities
entity’s ability to generate D. A use of cash from investing
positive future net cash flows 31. An entity acquired a building, activities
paying a portion of the purchase
36. Sale of land at a gain.
For numbers 36 – 50, Identify in which section (if any) of the statement of cash 37. Issuance of preference shares.
flows would each of the following items appear and indicate whether each item, 38. Short-term Bank loan.
would result to a positive (+) or negative (-) cash flow. If an activity is classified 39. Purchase of Marketable securities.
as operating, determine also if it would appear using direct or indirect method of 40. Loss on sale of building.
presenting cash flows from operating activities. 41. Increase in accounts payable.
42. Purchase of Machine and Equipment.
 43. Interest paid. 2,100,000; Inventories – P 1,600,000; Accounts payable – P 550,000; 12% notes
44. Payments to suppliers and employees. payable – P 800,000; Employees’ income taxes payable – P 6,500.
45. Long-term Bank loan.
46. Purchase of building using cash from a long-term bank loan. o The P 2,100,000 balance in accounts receivable represents the entire
47. Increase in prepaid insurance. amount owed to the company; of this amount, P 500,000 represents a
48. Cash dividends declared. long-term advance to its president. The remaining amount is from trade
49. Purchase of treasury shares. customers and 5% of that amount is estimated to be uncollectible.
50. Collections from customers.
o Inventories (taken by physical count) include P 200,000 of goods which is
II. PROBLEMS. not belonging to Sam. As of December 31, 2014, the goods are still in
Supply the answer. transit. Office suppliers on hand of P 50,000 are also included in the
balance.
PROBLEM 1:
Following selected account balances and supplemental information were taken from o The accounts payable balance includes a supplier’s invoice for P 95,000
the accounting records of Lava Hound Corporation as of December 31, 2014: received through facsimile message representing goods shipped FOB
destination and are still in transit at yearend.
Sales P 9,675,000
Mortgage note payable 1,300,000 o The 12% interest-bearing note is dated June 1, 2014 and matures May
Bank notes payable 300,000 31, 2015. Accrued interest on the note has not been recorded.
Accounts payable* 270,000
Share dividends payable 200,000 5. How much is the total current assets at December 31, 2014?
Withholding tax payable 120,000 6. How much is the total current liabilities at December 31, 2014?
*Solely arising from purchase of merchandise.
PROBLEM 5:
Supplemental information: Penny Company is preparing its December 31, 2014 statement of financial position.
o Mortgage note payable was refinanced on its due date, February 15, 2015 The following items may be reported as either current or non-current liability.
with a new 5-year mortgage note after paying P 300,000 cash on the
principal balance. There was no unpaid interest as of December 31, 2014. o On December 31, 2014, Penny declared a cash dividend of P 2.50 per
share to shareholders of record on December 31. The dividend is payable
o The bank notes payable are payable in semi-annual installments of P on January 15, 2015. Penny has issued 1 Million ordinary shares, of which
50,000 on February 1 and August 1 of each year. Unpaid interest for 2014 50,000 shares are held in the treasury.
of P 7,500 has not been taken up. This was paid on January 5, 2015.
o Also, on December 31, Penny declared a 10% bonus issue to
o The sales account included the 12% Value-Added Tax (VAT) shareholders of record on January 15, 2015. The dividends will be
corresponding to the sales for the month of December of P 2,688,000 distributed on January 31, 2015. Penny’s ordinary shares have a par and
(inclusive of VAT). This was remitted to the BIR on January 20, 2015. market value of P 10 and P 38, respectively.

o Total income tax due for 2014 amounted to 186,500. Quarterly
remittances to BIR during the year for income tax totaled P 105,000,
including payment of P 35,000 on income tax relating to the prior year.
The balance due as of December 31, 2014 has not been taken up in the
books.
1. Compute for the total current liabilities at December 31, 2014.
2. Compute for the total non-current liabilities at December 31, 2014.
PROBLEM 2:
Your review of the ledger of Hog Rider Company at December 31, 2014 reveals the
following:
o At December 31, bonds payable of P 10 million are outstanding. The
bonds pay 12% interest every September 30 and mature in installments of
P 2.5Million every September 30, beginning September 30, 2015.
o At December 31, 2013, customer advances were P 12 million. During
2014, Penny collected P 30 million of customer advances and advances
of P 25 million were earned.
o At December 31, 2014, retained earnings appropriated for future inventory
losses amounted to P 1.5 million.
7. How much of the foregoing is classified as current liabilities?

Amounts due from customers P 148,000 PROBLEM 6:

Land for future plant site 1,350,000 Hershey Company provided the following account balances for the preparation of the
Amounts due to suppliers 124,000 statement of cash flows for the current year:
Income taxes owed to BIR 16,000
Citibank – current account 98,000 January 1 December 31
Advances from customers 150,000 Accounts receivable 1,150,000 1,450,000
Accrued interest on notes payable 17,000 Allowance for bad debts 40,000 50,000
Sinking fund for bond retirement 30,000 Prepaid rent expense 620,000 410,000
Allowance for uncollectible accounts 12,000 Accounts payable 970,000 1,120,000
Inventories including office supplies of P 3,500 221,000
The net income for the year is P 7,500,000.
3. Determine the company’s working capital at December 31, 2014.
8. What is the net cash provided by operating activities?
PROBLEM 3:
EK Company was incorporated on July 1, 2014, with P 2 Million from the issuance of PROBLEM 7:
shares and borrowed funds of P 300,000. During the remainder of 2014, the Berkeley Company provided the following information for the current year:
company’s profit was P 100,000. On December 15, the company paid P 8,000 cash
dividends. No additional activities affected owner’s equity in 2014. At December 31, Accounts receivable, January 1, net of allowance of P 100,000 P 1,200,000
2014, the company’s liabilities had increased to P 376,000. Accounts receivable, December 31, net of allowance of P 1,600,000
300,000
4. What amount of total assets should be reported for 2014? Sales of the year – all on credit 8,000,000
Uncollectible accounts written off during the year 50,000
PROBLEM 4: Uncollectible accounts expense for the year 250,000
The following selected accounts and additional information are taken from Sam Cash expenses for the year 5,250,000
Corporation at December 31, 2014: Cash – P 150,000; Accounts receivable – P Net income for the year 2,500,000
 17. What is the net cash provided (used) by financing activities?
9. What is the net cash provided by operating activities?
PROBLEM 12:
PROBLEM 8: Chin Company provided the following statement of financial position on January 1,
Kris Company reported net income of P 3 Million for the current year. Changes 2013 and statement of cash flows for 2013:
occurred in certain accounts as follows:
Asset Liabilities and equity
Equipment P 250,000 increase Cash 3,200,000 Accounts 1,500,000
Accumulated depreciation 400,000 increase payable
Notes payable 300,000 increase Accounts receivable 3,000,000 Share capital 9,200,000
Building and equipment 12,000,000 Retained 4,800,000
 During the year, the entity sold equipment costing P 250,000, with a earnings
carrying value of P 130,000 for a gain of P 50,000. Accumulated depreciation (4,000,000)
 In December of the current year, the entity purchased equipment costing Patent 1,300,000
P 500,000 with P 200,000 cash and a 12% note payable for the 15,500,000 P 15,500,000
remainder.
Net income 4,000,000
10. What amount should be reported as net cash provided (used) by Increase in accounts receivable (1,300,000)
investing activities? Increase in accounts payable 600,000
11. What amount should be reported as net cash provided (used) by Depreciation 1,200,000
operating activities? Gain on sale of equipment (450,000)
Amortization of patent 150,000
PROBLEM 9: Net cash provided by operating activities 4,200,000
Code Company provided the following data for the current year:
Cash flows from investing activities
Purchase of real estate for cash* P 5,500,000 Sale of equipment 950,000
Sale of investment securities for cash 5,000,000 Purchase of land (2,000,000)
Dividend paid 6,000,000 Purchase of equipment (3,800,000)
Issuance of ordinary shares for cash 2,500,000 (4,850,000)
Purchase of machine for cash 1,250,000
Payment of bank loan 1,500,000 Cash flows from financing activities
Increase in customers’ deposit 200,000 Payment of cash dividend (1,200,000)
Issuance of bonds payable for cash 3,000,000 Issue of ordinary shares at par for cash 3,200,000
2,000,000
*cash was borrowed from bank.
Net increase in cash 1,350,000
12. What is the net cash provided by financing activities? Cash, 1/1/13 3,200,000
13. What is the net cash used in investing activities? Cash, 12/31/13 4,550,000

PROBLEM 10:
Colleen Company provided the following information: Total assets on December 31, 2013 amounted to P 22,100,000. The accumulated
depreciation of the equipment sold was P 1,100,000.
2013 2012
Retained earnings 3,000,000 2,500,000 Clue: Depreciation and Amortization are very much alike except that Depreciation
Dividends payable 1,200,000 1,800,000 pertains to PPE and the latter pertains to intangibles.
Net income 2,000,000 1,700,000 18. What is the cost of equipment sold?
19. What is the carrying amount of the building and equipment on
14. What amount was paid for dividends during the current year? December 31, 2013?
20. What is the balance of accounts payable on December 31, 2013?
PROBLEM 11: 21. What is the balance of retained earnings on December 31, 2013?
Jessy Company provided the following comparative statement: 22. What is the share capital on December 31, 2013?

2013 2012 PROBLEM 13:

Cash and cash equivalents P 5,600,000 P 7,400,000 The income statement of Hawaii Company is presented below:
Accounts receivable 3,000,000 3,500,000
Inventory 8,000,000 6,500,000 Hawaii Company
Prepaid expenses 400,000 600,000 Income Statement
Property, plant, and equipment 55,000,000 42,000,000 For the year ended December 31, 2012:
Accumulated depreciation (20,000,000) (16,000,000) Sales P 20,700,000
Accounts payable 6,000,000 9,500,000 Cost of goods sold:
Accrued expenses 1,500,000 500,000 Inventory, January 1 P 5,700,000
Short-term note payable – bank 2,000,000 5,000,000 Purchases 13,200,000
Long-term note payable – bank 10,000,000 - Goods available for sale 18,900,000
Ordinary share capital 30,000,000 30,000,000 Inventory, December 31 4,800,000 14,100,000
Retained earnings 2,500,000 (1,000,000) Gross income 6,600,000
Operating expenses:
Cash needed to purchase new equipment and to improve the working capital position Selling expenses 1,350,000
was raised by borrowing from bank with a long-term note. Equipment costing P Administrative expenses 2,100,000 3,450,000
2,000,000 and carrying amount of P 1,500,000 was sold for P 1,800,000. The entity Net income P 3,150,000
declared and paid cash dividend of P 3,000,000 in the current year. there were no
entries in the retained earnings account other than to record dividend and net income Additional information:
for the year.  Accounts receivable decreased by P 1,080,000 during the year.
 Prepaid expenses increased by P 510,000 during the year.
15. What is the net cash provided (used) by operating activities?  Accounts payable to suppliers of merchandise decreased by P 825,000
16. What is the net cash provided (used) by investing activities? during the year.
  Accrued expenses payable decreased by P 300,000 during the year. Jazz Company had the following capital structure during 2012 and 2013:
 Administrative expenses include depreciation of P 180,000.
Preference share capital, P 10, 4% cumulative, 25,000 shares issued and outstanding
23. What is the total amount of cash received from customers during the P 250,000
year? Ordinary share capital, P 5 par, 200,000 shares issued and outstanding
24. What is the total amount of cash paid to suppliers during the year? 1,000,000
25. What is the total amount of cash paid for operating expenses during
the year? The entity reported net income of P 500,000 for the year ended 2013. The entity paid
26. What is the net amount of cash provided by operating activities? no preferred dividends during 2012 and paid P 16,000 in preferred dividends during
2013.
PROBLEM 14:
The following is an equipment account and its related Accumulated depreciation 34. What amount should be reported as basic earnings per share?
account:
Equipment: PROBLEM 20:
Beginning balance – P 490,000 During 2013, Last Company had the following two classes of share capital issued and
Machine A – P 81,000 outstanding for the entire year:
Machine B – P 52,000
Machine C – P 250,000 Ordinary share capital, 200,000, P 10 par 2,000,000
Preference share capital, 2,000, P 100 par, 12% 200,000
Accumulated depreciation:
Beginning balance – P 290,000 The net income for 2013 was P 1,800,000 and the income tax rate was 30%.
Machine A – P 63,000
Machine B – P 46,000 35. In the computation of basic earnings per share, what is the amount
Depreciation Expense for the current year – P 120,000 to be used as earnings?
~~~~
Machine A was sold at a gain of P 9,000 while Machine B was sold for its scrap value Suggested Key Answers
of P 2,000. Machine C was acquired during the current year. I. THEORIES
1. A 26. A
27. Based on the foregoing, what amount shall be reported under 2. D 27. C
operating activities? 3. C 28. D
28. Based on the foregoing, what amount shall be reported under 4. D 29. C
investing activities? 5. B 30. D
6. D 31. C
PROBLEM 15: 7. C 32. B
On December 31, 2013, 324,000 ordinary shares were outstanding. The company 8. A 33. B
issued 26,000 shares on May 31, 2013, 15,000 shares on November 1, 2013, and 9. C 34. A
purchased 21,000 of its own shares on March 1, 2013. 10. C 35. B
11. C 36. Proceeds from sale of land - Investing (+) ; Gain on sale –
29. Compute the number of ordinary shares to be used in computing Operating (-), indirect
basic earnings per share. 12. C 37. Financing (+)
13. A 38. Financing (+)
PROBLEM 16: 14. C 39. Operating (-), Direct
At December 31, 2014 and 2013, Lafitte Corp. had 200,000 ordinary shares and 15. A 40. Operating (+), Indirect
20,000 of 5%, P 100 par value cumulative preference shares outstanding. No 16. B 41. Operating (+), Indirect
dividends were declared on either the preference or ordinary shares in 2013 or 2014. 17. A 42. Investing (-)
Profit for 2014 was P 1,000,000. 18. B 43. Operating (-), Direct
19. B 44. Operating (-), Direct
30. What is the basic earnings per share? 20. D 45. Financing (+)
21. B 46. Purchase of building – Investing (-); Decrease in cash
PROBLEM 17: from a long term bank loan – Financing (-)
Fender Company reported profit of P 770,000 for 2014. The company sold 15,000 22. A 47. Operating (-), Indirect
treasury shares acquired in a previous year on July 1 and 15,000 new shares on 23. A 48. Not a cash flow activity
November 1. At year-end, 180,000 shares were outstanding. The company had 24. C 49. Financing (-)
20,000 shares of P 100 par value 7% preference shares outstanding all year. the 25. A 50. Operating (+), Direct
company paid dividends to preference shareholders as stipulated.
II. PROBLEMS
31. What is the number of ordinary shares used to compute earnings per 1. P 2,202,000 19. P 10,100,000
share? 2. P 200,000 20. P 2,100,000
32. What is the basic earnings per share? 3. P 148,000 21. P 7,600,000
4. P 2,468,000 22. P 12,400,000
PROBLEM 18: 5. P 3,070,000 23. P 21,780,000
Lost Company is calculating earnings per share amounts for inclusion in its annual 6. P 1,317,500 24. P 14,025,000
report to shareholders. The company obtained the following information from the 7. P 22,175,000 25. P 4,080,000
controller’s office as well as shareholder services: 8. P 7,570,000 26. P 3,675,000
9. P 2,100,000 27. P 115,000
Net profit for 2014 – P 125,000 10. (P 20,000) 28. P (221,000)
Number of outstanding shares: 11. P 3,470,000 29. 304,167 shares
January 1 – March 31 15,000 12. P 3,500,000 30. P 4.50
April 1 – May 31 12,500 13. P 1,750,000 31. 160,000 shares
June 1 – December 31 17,000 14. P 2,100,000 32. P 3.94
15. P 7,400,000 33. 15,750 shares
33. What is the number of shares that the company shall use to calculate 16. (P 13,200,000) 34. P 2.45
its basic earnings per share for the year ended 2014? 17. P 4,000,000 35. P 1,800,000
18. P 1,600,000
PROBLEM 19: