1. Crispin Santos started a retail merchandise business on January 1, 2017.

17. During the fiscal year ended December 31, 2017, he paid his
trade creditors P2,000,000 in cash and suffered a net loss of P350,000. Among his ledger account preclosing balances on December 31,
2017 were the following:
Accounts receivable 600,000
Accounts payable 750,000
Capital (total investment in cash) 2,000,000
Expenses (paid in cash) 100,000
Merchandise (unadjusted debit balance) 700,000
There were no withdrawals. All sales and purchases were on credit. The merchandise account is debited for purchases and credited
for sales.
The sales for 2017 amounted to
a. 2,750,000 b. 2,050,000 c. 2,650,000 d. 700,000

2. What was the cash balance on December 31, 2017?

a. 1,350,000 b. 2,000,000 c. 1,450,000 d. 3,450,000

3. What was the merchandise inventory on December 31, 2017?

a. 700,000 b. 450,000 c. 750,000 d. 0

4. After its first year of operations, Mercury Company had the following data on its operations. Manufacturing costs were distributed as
follows:
Cost of goods sold 4,320,000
Materials used 50%
Direct labor 30%
Manufacturing overhead 20%
Goods in process, December 31, were 10% of the total manufacturing cost. Finished goods remaining in stock were 20% of the total
cost of goods manufactured.
The direct labor cost was
a. 1,800,000 b. 2,400,000 c. 3,000,000 d. 5,400,000

5. Presented below are changes in all the account balances of Camadillo Company for the current year, except for retained earnings.
Increase
(Decrease)
Cash 790,000
Accounts receivable, net 240,000
Inventory 1,270,000
Investments (470,000)
Accounts payable (380,000)
Bonds payable 820,000
Share capital 1,250,000
Share premium 130,000
There were no entries in the retained earnings account except for net income and a dividend declaration of P190,000 which was paid
in the current year. What was the net income for the current year?
a. 1,200,000 b. 1,190,000 c. 200,000 d. 10,000

6. Vane Company’s trial balance of income statement accounts for 2017 included the following:
Debit Credit
Sales 5,750,000
Cost of sales 2,400,000
Administrative expenses 700,000
Loss on sale of equipment 100,000
Sales commissions 500,000
Interest revenue 250,000
Freight out 150,000
Loss on early retirement of long-term debt 200,000
Uncollectible accounts expense 150,000
4,200,000 6,000,000
Finished goods inventory
January 1 4,000,000
December 31 3,600,000
In Vane’s 2017 income statement, what amount should be reported as cost of goods manufactured?
a. 2,000,000 b. 2,150,000 c. 2,800,000 d. 2,950,000

7. An analysis of the records of Isla Company disclosed changes in account balances for 2017 and the supplementary data listed below.
Cash 480,000 decrease
Accounts receivable 300,000 increase
Merchandise inventory 3,100,000 increase
Accounts payable 420,000 increase

During the year, Isla borrowed P4,000,000 in notes from the bank and paid off notes of P3,000,000 and interest of P240,000. Interest of
P100,000 is accrued on December 31, 2017. There was no interest payable at the end of 2016. In 2017, Isla transferred certain trading
securities to the business and these were sold for P1,500,000 to finance purchase of merchandise. Isla made weekly withdrawals in 2017 of
P10,000.
What was the net income for 2017?
a. 1,520,000 b. 1,920,000 c. 1,400,000 d. 420,000

8. The following information for 2017 is provided by Bangladesh Company:

Sales 50,000,000
Cost of goods sold 30,000,000
Selling expenses 5,000,000
General and administrative expenses 4,000,000
Interest expense 2,000,000
Gain on early extinguishment of long-term debt 500,000
 Correction of inventory error, net of income tax – credit 1,000,000
Investment income – equity method 3,000,000
Gain on expropriation 2,000,000
Income tax expense 5,000,000
Dividends declared 2,500,000
What was the 2017 income from continuing operations?
a. 9,000,000 b. 8,000,000 c. 9,500,000 d. 7,000,000

9. Moon Corporation reports quarterly to its stockholders. Condensed financial information is presented. Selected information for the
year 2013 is shown below.
 Machinery repairs of P500,000 incurred in the first quarter are expected to benefit each quarter equally.
 Advertising costs are allocated among the remaining quarters of the annual period, including the quarter in which the costs
are incurred on the basis of historical pattern of sales: 20%, 30%, 15%, and 35% in the first through fourth quarters
respectively. Advertising expense amounted to P600,000 and was incurred in the second quarter.
How much of the expense should be reported for the second quarter?
a. 1,100,000 b. 325,000 c. 350,000 d. 600,000

10. Thorpe Company’s income statement for the year ended December 31, 2017 reported net income of P7,410,000. The auditor raised
questions about the following amounts that had been included in net income:
Unrealized loss on available for sale securities (540,000)
Gain on early retirement of bonds payable 2,200,000
Adjustment of profit of prior year for error in depreciation (net of tax effect)
(750,000)
Loss from fire (1,400,000)
The loss from fire was an infrequent but not an unusual occurrence in Thorpe’s line of business. Thorpe’s 2017 income statement
should report net income at
a. 6,500,000 b. 6,610,000 c. 8,160,000 d. 8,700,000

11. Kell Corporation’s P950,000 net income for the quarter ended September 30, 2013, included the following after tax items:
 A P600,000 expropriation gain, realized on April 30, 2013, was allocated equally to the second, third, and fourth quarters of
2013.
 A P160,000 cumulative-effect loss resulting from a change in inventory valuation method was recognized on August 1, 2013.
In addition, Kell paid P480,000 on February 1, 2013, for 2013 calendar-year property taxes. Of this amount, P120,000 was allocated to
the third quarter of 2013.
For the quarter ended September 30, 2013, Kell should report net income of
a. 910,000 b. 1,030,000 c. 1,110,000 d. 1,150,000

12. Pear Company’s income statement for the year ended December 31, 2017, as prepared by Pear’s controller, reported income before tax
of P5,000,000. The auditor questioned the following amounts that had been included in income before tax:
Equity in earnings of Cinn Company 1,600,000
Dividend received from Cinn 320,000
Adjusted of profit of prior year for arithmetical error in depreciation
1,400,000
Pear owns 40% of Cinn’s common stock. The 2017 income statement should report income before tax at
a. 3,400,000 b. 4,680,000 c. 4,800,000 d. 6,080,000

13. On March 15, 2013, Rex Company paid property taxes of P180,000 on its factory building for calendar year 2013. On April 1, 2013
Rex made P300,000 in unanticipated repairs to its plant equipment. The repairs will benefit operations for the remainder of the
calendar year.
What total amount of these expense should be included in Rex’s quarterly income statement for the three months ended June 30, 2013?
a. 75,000 b. 145,000 c. 195,000 d. 345,000

14. Midway Company had the following transactions during 2017.

 P1,200,000 pretax loss on foreign currency exchange due to a major unexpected devaluation by the
foreign government.
 P500,000 pretax loss from discontinued operations of a division.
 P800,000 pretax loss on equipment damaged by a tsunami. This was the first tsunami ever to strike in
Midway’s area. Midway also received P4,000,000 from its insurance company to replace a building,
with a carrying value of P3,300,000, that had been destroyed by the tsunami.
What amount of loss should Midway report in its 2017 income statement as part of continuing operations?
a. 100,000 b. 1,300,000 c. 4,100,000 d. 2,500,000

15. Taylor Company, a publicly owned corporation, assesses performance and makes operations decisions using the following information
for its reportable segments:
Total revenue 7,680,000
Total profit and loss 406,000

Included in the total profit and loss are intersegment profit of P61,000. In addition, Taylor has P5,000 of common costs for its
reportable segments that are not allocated in reports used internally.
For purposes of segment reporting, Taylor report segment profit of
a. 350,000 b. 345,000 c. 411,000 d. 406,000

16. Ocean Corporation’s comprehensive insurance policy allows its assets to be replaced at current value. The policy has a P250,000
deductible clause. One of Ocean’s waterfront warehouse was destroyed in a winter storm. Such storms occur approximately every
four years. Ocean incurred P100,000 of cost in dismantling the warehouse and plans to replace it. The following data relate to the
warehouse:
Current carrying amount 1,500,000
Replacement cost 5,500,000
What amount of gain should Ocean report as a component of income from continuing operations?
a. 5,150,000 b. 3,900,000 c. 3,650,000 d. 0
17. Clay Company has three lines of business, each of which was determined to be reportable segment. Clay Company sales aggregated
P7,500,00 in 2013, of which Segment No.1 contributed 40%. Traceable costs were P1,750,000 for Segment No.1 out of a total of
P5,000,000 for the company as a whole. For external reporting, Clay allocates common costs of P1,500,000 based on the ratio of a
segment’s income bofere common costs to the total income before common costs.
In its 2013 financial statements, how much should Clay report as operating profit for Segment No. 1?
a. 1,250,000 b. 1,000,000 c. 650,000 d. 500,000

18. XYZ Company has three segments, A, B and C. Segment C, the closing division, is deemed inconsistent with the long-term direction of
the enterprise. Management has decided to dispose of Segment C. On November 15, 2017, the board of directors of XYZ Company
voted to approve the disposal and an announcement was made. On that date the carrying amount of Segment C’s net assets was
P90,000,000 and the recoverable amount of the net assets was P70,000,000. Segment C’s revenue and expenses for 2017, respectively,
were P50,000,000 and P32,000,000, including an interest of P5,000,000 attributable to Segment C. There was no further impairment of
assets between November 15 and December 31, 2017.
Before income tax, how much is the 2017 income or loss from the discontinued segment?
a. 13,000,000 income b. 18,000,000 income c. 30,000,000 income d. 2,000,000 loss

19. Glory Company manufactures kerosene heaters for home use. The December 31 financial statements contained the following errors:
2012 2013
Ending inventory 200,000 under 300,000 over
Depreciation 50,000 under
An insurance premium of P150,000 was prepaid in 2012 to cover 2012, 2013 and 2014. The entire amount was charged to expense in
2012. On December 31, 2013, fully depreciated machinery was sold for P250,000 cash but the sale was not recorded until 2014. There
were no other errors during 2012 and 2013 and no corrections have been made for any of the errors.
Ignoring income tax, what is net effect of the errors on the retained earnings on December 31, 2013?
a. 300,000 overstated b. 250,000 understated c. 50,000 overstated d. 50,000 understated

20. On September 30, 2017, when the carrying amount of the net assets of a business segment was P70,000,000, XYZ Company signed a
legally binding contract to sell the business segment. The sale is expected to be completed by January 31, 2018 at a selling price of
expected to be completed by January 31, 2018 at a selling price of P60,000,000. In addition, prior to January 31, 2018, the sale
contract obliges XYZ Company to terminate the employment of certain employees of the business segment incurring an expected
termination cost of P2,000,000 to be paid on June 30, 2018. The segment’s revenue and expenses for 2017 were P40,000,000 and
P45,000,000 respectively.
Before income tax, how much will be reported as loss from the discontinued segment for 2017?
a. 17,000,000 b. 12,000,000 c. 15,000,000 d. 7,000,000

21. Victoria Company’s statements for 2011 and 2012 included errors as follows:
Year Ending inventory Depreciation
2011 200,000 understated 50,000 understated
2012 300,000 overstated 90,000 overstated
How much retained earnings should be retroactively adjusted at January 1, 2013?
a. 260,000 increase b. 260,000 decrease c. 410,000 decrease d. 210,000 decrease

22. Siasi Company is a diversified company with nationwide interest in commercial real estate development, banking, mining and food
distribution. The food distribution division was deemed to be inconsistent with the long-term direction of the company. On October 1,
2017 the board directors voted to approve the disposal of this division. The sale is expected to occur in August 2018. the food
distribution had the following revenue and expenses in 2017: January 1 to September 30, revenue of P35,000,000 and expenses of
P27,000,000; October 1 to December 31, revenue of P15,000,000 and expenses of P10,000,000. The carrying amount of the division’s
assets at December 31, 2017 was P56,000,000 and the recoverable amount was estimated to be P56,500,000. The sale contract requires
Siasi to terminate certain employees incurring an expected termination cost of P4,000,000 to be paid by December 15, 2018.
The income statement for the year ended December 31, 2017 will report income from discontinued operations at
a. 9,500,000 b. 6,175,000 c. 9,000,000 d. 5,850,000

23. During 2013, Paul Company discovered that the ending inventories reported on its financial statements were incorrect by the following
amounts:
2011 60,000 understated
2012 75,000 overstated
Paul uses the periodic inventory system to ascertain year-end quantities that are converted to peso amounts using the FIFO cost
method.
Prior to any adjustments for these errors and ignoring income tax, Paul’s retained earnings at January 1, 2013 would be
a. Correct b. 15,000 overstated c. 75,000 overstated d. 135,000 overstated

24. The following information pertains to Alena Company on December 31 of the current year:
Property, plant and equipment 35,000,000
Accounts receivable 20,000,000
Prepaid insurance 2,500,000
Short-term note payable 3,000,000
Cash 5,000,000
Bonds payable 40,000,000
Total assets 101,500,000
Land 20,000,000
Accounts payable 8,000,000
Allowance for doubtful accounts 1,000,000
Merchandise inventory 13,000,000
Available for sale securities – to be held indefinitely 7,000,000
Wages payable 2,000,000
Total liabilities 56,000,000
Premium on bonds payable 3,000,000
The December 31 working capital is
a. 46,500,000 b. 33,500,000 c. 26,500,000 d. 35,500,000

25. Conn Company reported a retained earnings balance of P4,000,000 at December 31, 2012. In August 2013, Conn determined that
insurance premiums of P900,000 for the three-year period beginning January 1, 2012, had been paid and fully expensed in 2012.
Assume Conn has a 35% income tax rate.
 What amount should Conn report as adjusted beginning retained earnings in its 2013 statement of retained earnings?
a. 3,400,000 b. 4,390,000 c. 4,600,000 d. 3,610,000

26. Mirr Company was incorporated on January 1, 2017, with proceeds from the issuance of P7,500,000 in stock and borrowed funds of
P1,100,000. During the first year of operation, revenues from sales and consulting amounted to P8,200,000, and operating costs and
expenses totaled P6,400,000. On December 15, Mirr declared a P300,000 dividend, payable to stockholders on January 15, 2014. No
additional activities affected owners’ equity in 2017. Mirr’s liabilities increased to P2,000,000 by December 31, 2017.
On Mirr’s December 31, 2017 balance sheet, total assets should be reported at
a. 11,000,000 b. 11,300,000 c. 10,100,000 d. 12,100,000

27. On December 31, 2013, Astor Company sold merchandise for P750,000 to Day Company. The terms of the sale were net 30, FOB
shipping point. The merchandise was shipped on December 31, 2013, and arrived at Day on January 5, 2014. Due to a clerical error,
the sale was not recorded until January 2014 and the merchandise sold at a 25% markup on cost was included in Astor’s inventory at
December 31, 2013.
As a result, Astor’s cost of goods sold for the year ended December 31, 2013 was
a. Understated by P750,000 b. Understated by P600,000 c. Understated by P150,000 d. Correctly stated

28. The following data pertains to Caticlan Company on December 31, 2017:
Cash, including sinking fund of P500,000 with trustee 2,000,000
Notes receivable (P200,000 pledged) 1,200,000
Accounts receivable – unassigned 3,000,000
Accounts receivable – assigned 800,000
Notes receivable discounted 700,000
Equity of assignee in accounts receivable assigned 500,000
Inventory, including P600,000 cost of goods in transit purchased FOB destination. The
goods were received on January 3, 2014
2,800,000
Allowance for doubtful accounts 100,000
How much current assets should be shown in the balance sheet on December 31, 2017?
a. 7,900,000 b. 8,000,000 c. 7,400,000 d. 7,700,000

29. In 2016, Complex Company had the following financial data:

Cash revenue 8,000,000
Cash expenses 4,000,000
Depreciation expense 2,000,000
Income before income tax 2,000,000
Income tax expense 500,000
Net income 1,500,000
At the beginning of 2017, the company purchased additional assets at a cost of P5,000,000 on cash basis. Each year these assets provide
additional cash revenue of P5,000,000 and incur cash expenses of P2,000,000. The assets have a 10-year life and the company uses the
straight line Depreciation for all assets. The existing assets produced the same cash revenue and incur the same expenses as in 2016.
Assume income tax is paid every April 15 of each year.
The net cash inflows from operating activities in 2017 should be
a. 7,000,000 b. 6,500,000 c. 3,000,000 d. 1,500,000

30. Brite Company had the following liabilities at December 31, 2017:
Account payable 550,000
Unsecured note, 8%, due July 1, 2018 4,000,000
Accrued expenses 350,000
Contingent liability 450,000
Deferred tax liability 250,000
Senior bonds, 7%, due March 31, 2018 5,000,000
The contingent liability is an accrual for possible loss on a P1,000,000 lawsuit filed against Brite. Brite’s legal councel expects the suit
to be settled in 2018 and has estimasted that Brite will be liable for damages in the amount of 450,000
The deferred tax liability is not related to an asset for financial reporting and is expected to reverse in 2018
What amount should Brite report in its December 31, 2017 balance sheet for current liabilities?
a. 10,350,000 b. 10,150,000 c. 9,900,000 d. 4,900,000

31. The cash balance of Darwin Company on January 1, 2017 was P8,000,000. During 2017, the changes in certain accounts were.
Accounts receivable 2,000,000 increase
Inventory 1,500,000 decrease
Accounts payable 3,000,000 decrease
Total sales and cost of goods sold were P30,000,000 and P20,000,000 respectively. All sales and purchases were made on credit Various
expenses of P5,000,000 were paid in cash. There were no other pertinent transactions.
What is the cash balance on December 31, 2017?
a. 13,000,000 b. 16,500,000 c. 10,500,000 d. 9,500,000

32. The following information about Manchester Company is available at December 31, 2017:
Employee income taxes withheld 900,000
Cash balance at first state Bank 2,500,000
Cash overdraft at Harbor Bank 1,300,000
Accounts receivable with credit balance 750,000
Estimated expenses of meeting warranties on merchandise previously sold 500,000

Estimated damages as a result of unsatisfactory performance on a contact 1,500,000

Accounts payable 3,000,000

Deferred serial bonds, issued at par and bearing interest at 12%, payable in
semiannual installments of P500,000 due April 1 and October 1 of each year, the last
 bond to be paid on October 1, 2016. Interest is also paid semiannually. 5,000,000

Stock dividend payable 2,000,000

The December 31, 2017 balance sheet should report current liabilities at
a. 8,100,000 b. 7,950,000 c. 9,100,000 d. 7,350,000

33. The transactions of Kollar Company for the year ended December 31, 2017 included the following:
Purchase of real estate for cash (cash was borrowed from bank 5,500,000
Sale of investment securities for cash 5,000,000
Dividend paid 6,000,000
Issuance of common stock for cash 2,500,000
Purchase of patent for cash 1,250,000
Payment of bank loan 1,500,000
Increase in customers’ deposit 200,000
Issuance of bonds payable for cash 3,000,000
Kollar’s net cash provided by financing activities was
a. 5,000,000 b. 3,500,000 c. 4,500,000 d. 5,500,000

34. Fay Company pays its outside salespersons fixed monthly salaries and commissions on net sales. Sales commissions are computed and
paid on a monthly basis (in the month following the month of sale), and the fixed salaries are treated as advances against commissions.
However, if the fixed salaries for salespersons exceed their sales commissions earned for a month, such excess is not charged back to
them. Pertinent data for the month of March 2017 for the three salespersons are as follows:
Fixed
Salesperson Salary Net sales Commission
A 10,000 200,000 4%
B 14,000 400,000 6%
C 18,000 600,000 6%
Total 42,000 1,200,000
What amount should Fay accrue for sales commissions payable at March 31, 2017?
a. 70,000 b. 68,000 c. 28,000 d. 26,000

35. Fara Company reported bonds payable of P4,700,000 at December 31, 2016 and P5,000,000 at December 31, 2017. During 2017, Fara
issued P2,000,000 of bonds payable in exchange for equipment. There was no amortization of premium or discount during the year.
What amount should Fara report in its 2017 cash flow statement for redemption of bonds payable?
a. 300,000 b. 1,700,000 c. 2,000,000 d. 2,300,000

36. Tara Company owns an office building and leases the offices under a variety of rental agreements involving rent paid in advance
monthly or annually. Not all tenants make timely payments of their rent. Tara’s balance sheet contained the following data:
2016 2017
Rentals receivable 960,000 1,240,000
Unearned rentals 3,200,000 2,400,000
During 2017, Tara received P8,000,000 cash from tenants.
What amount of rental revenue should Tara record for 2017?
a. 9,080,000 b. 8,520,000 c. 7,480,000 d. 6,920,000

37. Roe Company is preparing a cash flow statement for the year ended December 31, 2017. It has the following account balances:
12/31/2016 12/31/2017
Machinery 2,500,000 3,200,000
Accumulated depreciation 1,020,000 1,200,000
Loss on sale of machinery 40,000
During 2017, Roe sold for P260,000 a machine that cost P400,000, and purchased several items of machinery.
Depreciation on machinery for 2017 was
a. 180,000 b. 240,000 c. 280,000 d. 320,000

38. Marr Company reported rental revenue of P2,210,000 in its cash basis income tax return for the year ended November 30, 2017.
Additional information is as follows:
Rent receivable- November 30, 2017 1,060,000
Rent receivable-November 30, 2016 800,000
Uncollectible rent written off during the fiscal year 30,000
Under the accrual basis, Marr should report rental revenue of
a. 1,920,000 b. 1,980,000 c. 2,440,000 d. 2,500,000

39. On January 1, 2017, Denver Company entered into a 4-year licensing agreement with Akins Company allowing Akins to use Denver’s
cartoon characters on all the lunchboxes that Akins manufactures. Akins is required to pay Denver royalties equal to 10% of annual
sales. Akins guaranteed Denver a P1,200,000 minimum royalty over the life of the agreement and paid Denver the minimum amount
on January 1, 2017. For the ended December 31, 2017, Akins sales totaled P5,000,000.
What amount of royalty income should Denver report in 2017?
a. 300,000 b. 500,000 c. 800,000 d. 1,200,000

40. Eros Company kept its records on a cash basis. At the end of 2017, the accountant prepared the following cash basis income statement.
Revenue 1,910,000
Expenses 809,000
Net income 1,101,000
In preparing the income statement, the following amounts of accrued, prepaid and unearned items were
ignored at the end of 2016 and 2017:
2016 2017
Accrued revenue 91,000 73,000
Unearned revenue 66,000 108,000
Accrued expenses 49,000 65,000
Prepaid expenses 46,000 56,000
The net income on the accrual basis for 2017 should be
a. 1,035,000 b. 1,051,000 c. 1,201,000 d. 1,135,000

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