All Subj- Board Exam-picpa Ee

PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS Cagayan de Oro – Misamis Oriental Chapter MOCK BOARD EXAMINATION FINANCIAL ACCOUNTING THEORY 1. The IASB Framework recognizes that in a limited number of cases there may be a conflict between the Framework and an IFRS. B. a. In those cases where there is a conflict, the requirements of the IFRS do not prevail over those of the Framework. b. In those cases where there is a conflict, the requirements of the IFRS prevail over those of the Framework. c. In those cases where there is a conflict, the requirements of the local laws and regulations do not prevail over those of the Framework. d. In those cases where there is a conflict, the requirements of the local laws and regulations do not prevail over those of the Framework. 2.

An entity mentioned in IFRS for which there are users who rely on the financial statements as their major source of financial information about the entity. D. a. Sole Proprietorship b. Partnership c. Corporation d. Reporting Entity 3. The qualitative characteristics that describes that information has the quality that influences the economic decisions of users by helping them evaluate past, present or future events or confirming or correcting their past evaluations is B. a. Understandability b. Relevance c. Reliability d. Substance over form 4. The qualitative characteristics that describe that omission or misstatement of information could influence the economic decisions of users taken on the basis of the financial statements. It depends on the size of the item or error judged in the particular circumstance of its omission or misstatement. D. a. Relevance b. Reliability c. Substance over form d. Materiality 5. Which of the following underlying assumptions of financial statements? B. a. Prudence and conservatism b. Accrual basis and going concern c. Relevance and reliability d. Faithful presentation and substance over form 6. a. b. c. d. 7. a. b. c. d. 8. a. b. c. d. 9. a. b. c. d.

The constraints where benefits derived from information should exceed the cost of providing and it where the aim of financial statements is to achieve an appropriate balance among the qualitative characteristics, in order to meet the objective of financial statements are called.. B. Timeliness and true and fair view/fair presentation respectively Timeliness and balance between benefit and cost respectively Balance between benefit and cost and balance between qualitative characteristics respectively Balance between qualitative characteristics and true and fair view/fair presentation respectively As defined in the IFRS, an asset is B. a resource owned by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity a resource owned by the entity as a result of future events and from which future economics benefits are expected to flow to the entity a resource owned by the entity as a result of past events and from which past economic benefits are expected to flow to the entity. Assets and liabilities, and income and expenses, shall not be offset under the following conditions except one, C. it is required or permitted by an Interpretation it is required or permitted by a Standard even if not it is required or permitted by a Standard or an Interpretation. it is required or permitted by a Standard or an Interpretation Which of the following is not specifically a required disclosure under IFRS? B. whether the financial statements cover the individual entity or a group of entities; names of significant stakeholders of the entity the balance sheet date or the period covered by the financial statements, whichever is appropriate to that component of the financial statements The level of rounding used is presenting amounts in the financial statements.

10. Additional line items, headings and subtotals shall be presented on the face of the income statement when such presentation is relevant to an understanding of the entity’s financial performance except..C. a. profit or loss attributable to minority interest b. profit or loss attributable to equity holders of the parent c. extraordinary items d. none among the choice provided 11. a. b. c. d.

A primary objective of financial reporting is to: C. Assist investors in analyzing the economy. Assist suppliers in determining an appropriate discount to offer a particular company Assist investors in predicting prospective cash flows. Assist banks to determine an appropriate interest rate for their commercial loans

12. Accounting concepts are not derived from: D. a. inductive reasoning b. experience

c. pragmatism

d. laws of nature

13. If accounting information is timely and has predictive and feedback value. Then it can be characterized as: B. a. verifiable b. relevant c. reliable d. qualitative 14. Comparability is sometimes sacrificed for: D. a. reliability b. conservatism c. objectivity

d. relevance

15. Which of the following characteristics does the cost principle primarily support? C. a. predictive value b. conservatism d. verifiability d. timeliness AUDITING THEORY 16. Which of the following statements is incorrect? C. a. The auditor should plan and perform the audit with an attitude of professional skepticism recognizing that circumstances may exist, which cause the financial statements to be materially misstated. b. The objective of an audit financial statements are to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects in accordance with an identified financial reporting framework. c. The auditor should comply with the Code of Professional Ethics for CPA promulgated by PICPA and approved by the PRC. d. The auditor should conduct an audit in accordance with the Philippine Standards on Auditing. e. None of the above

1

17. Which statement is true? C. I. As provided by PSA 230, documentation means all working papers prepared by and for, or obtained and retained by the management of the company to be audited in connection with the performance of the audit. II. The form of the auditor’s report affects the form and content of working papers. a. I and II b. I only c. II only d. None 18. Which statement is false: A. a. In the case of recurring audits, working paper files should not be classified as permanent audit files. b. The auditor should prepare working papers, which are sufficiently complete and detailed to provide an overall understanding of the audit. c. Working papers are the property of the auditor. d. Although portions of or extracts from the working papers maybe made available to the entity at the discretion of the auditor, they are not substitute for the entity’s accounting records. 19. Which statements are true? D. I. If in the auditor’s judgment the noncompliance is believed to be intentional and material, the auditor should keep it only to himself. II. If the auditor concludes that noncompliance has a material effect on the financial statements, and has not been properly reflected in the financial statements, the auditor should not express a qualified nor an adverse opinion III. If permission from the client to discus its affairs with the proposed auditor are denied by the client, the fact should be disclosed to the proposed auditor. a. no statement is true b. I only c. II only d. II and III 20. The risk that some material misstatements of the financial statements resulting from noncompliance with laws and regulations will not be detected due to the following factors except: B. a. There are many laws and regulations, relating principally to the operation aspects of the entity that typically do not have a material effect on the financial statements and are not captured by the accounting and internal control systems. b. Much of the evidence obtained by the auditor are conclusive c. Noncompliance may involve conduct designed to conceal it, such as forgery, deliberate failure to record transactions, senior management override of controls or intentional misrepresentation being made to the auditor. d. The effectiveness of audit procedures is affected by the inherent limitations of the accounting and internal control systems ban by the use of testing. 21. Which of the following are true regarding the audit program: B. I. The auditor should develop and document the audit program describing the expected scope and conduct of the audit II. In preparing the audit program, the auditor would consider the specific assessments of inherent and control risks and the required level of assurance. III. The audit program serves as a set of instructions to assistants involved in the audit and as a means to control and record the proper execution of the work. IV. Its precise form and content will vary depending on the size of the entity, the complexity of the audit and the specific methodology and technology used by the auditor. a. I and II b. II and IV c. III and IV d. All of the above 22. Coordination, direction, supervision and review are among the matters to be considered by the auditor in developing the overall audit plan. These includes considering, D. a. possible change of emphasis on specific audit areas b. terms of the engagement and any statutory responsibilities c. the effect of new accounting or auditing pronouncements d. the involvement of experts 23. Would of the following factors ordinarily be considered in planning an audit engagement’s personnel requirements? A. Opportunities for on-the-job training Continuity periodic rotation of personnel a. Yes Yes b. Yes No c. No Yes d. No Yes 24. Which of the following is a provision is not a component of an entity’s internal control? A. a. Control risk b. Control activities c. Monitoring d. Control environment 25. Which of the following is a provision of the Foreign Corrupt Practices Act? D. a. It is a criminal offense for an auditor to fail to detect and report a bribe paid by an American business entity to a foreign official for the purpose of obtaining business b. The auditor’s detection of illegal acts committed by officials of the auditor’s publicly held client in conjunction with foreign officials should be reported to the Enforcement Division of the Securities and Exchange Commission. c. If the auditor of a publicly held company concludes that the effects on the official statements of a bribe given to a foreign official are not susceptible of reasonable estimation, the auditor’s report should be modified. d. Every publicly held company must devise, document, and maintain internal control sufficient to provide reasonable assurances that internal control objectives are met. 26. a. b. c. d.

Which of the following presumptions is correct about the reliability of evidential matter? D. Information obtained indirectly from outside sources is the most reliable evidential matter. To be reliable, evidential matter should be convincing rather than persuasive. Reliability of evidential matter refers to the amount of corroborative evidence obtained. Effective internal control provides more assurance about the reliability of evidential.

27. When assessing the tolerable rate, the auditor should consider that, while deviations from control procedures increase the risk of material misstatements, such deviations do not necessarily result in errors. This explains why A. a. A recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded. b. Deviations would result in errors in the accounting records only if the deviations and the errors occurred on different transactions. c. Deviations from pertinent control procedures at a given rate ordinarily would be expected to result in errors at higher rate. d. A recorded disbursement that is properly authorized may nevertheless be a transaction that contains a material error. 28. If the auditor is concerned that that a population may contain exceptions, the determination of a sample size sufficient to include at least one such exception is a characteristic of A. a. Discovery sampling c. Random sampling b. Variables sampling d. Dollar-unit sampling

2

29. What is an auditor’s evaluation of a statistical sample for attributes when a test of fifty documents results in three deviations if tolerable rate is 7% the expected population deviation rate is 5% and the allowance for sampling risk is 2%? D. a. Modify the planned assessed level of control risk because the tolerable rate plus the allowance for sampling risk exceeds the expected population deviation rate. b. Accept the sample results as support for the planned assessed level of control risk because sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate. c. Accept the sample results as support for the planned assessed level of control risk because the tolerable rate less the allowance for sampling risk equals the expected population deviation rate. d. Modify the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate. 30. a. b. c. d.

The existence of audit risk is recognized by the statement in the auditor’s standard report that the auditor A. Obtains reasonable assurance about whether the financial statements are free of material misstatement. Assesses the accounting principles used and also evaluates the overall financial statements presentation. Realizes some matters, either individually or in the aggregate, are important while other matters are not important. Is responsible for expressing an opinion on the financial statements, which are the responsibility of management.

MANAGEMENT SERVICES 31. A company obtained a short-term bank loan of P250,000 at an annual interest rate of 8%. As a condition of the loan, the company is required to maintain a compensating balance of P50,000 in its checking account. The company’s checking account earns interest at an annual rate of 3%. Ordinarily, the company maintains a balance of P25,000 in its checking account for transaction purposes. What is the effective interest rate of the loan? C. a. 8.00% b. 7.70% c. 8.55% d. 10.37% 32. A new product XYZ will be marketed for the first time by Loudex Co. during the next year. Although the Marketing Department estimates that 32,000 units could be sold at P75 per unit, the management has allocated only enough manufacturing capacity to produce a maximum of P25,000 units of the new products annually. The fixed costs associated with the new product are budgeted at P800,000 for the year which includes P100,000 for deprecation on the new manufacturing equipment. Each unit of product costing is presented below. The company is subject to a 32% income tax rate. Variable Cost Direct Material P1,4.00 Direct Labor 7.00 Manufacturing Overhead 8.00 Total Variable Manufacturing cost 29.00 Selling Expense 3.00 Total Variable Cost 32.00 The management has ruled that it will not allow the commercial production of the production of the product after the next fiscal year unless the after-tax profit is at least P150,000 during the first year. The unit selling price to achieve their required profit must be at least D. a. P70.00 b. P55.18 c. P83.00 d. P72.82 33. Wheels Cop employs 45 sales personnel to market its sedan cars. The average car sells for P790,000, and a 6% commission is paid to the sales person. It is considering changing the scheme to a commission arrangement that would pay each person a package of P45,000 plus a commission of 2% of the sales made by the person. The amount of total monthly car sales at which Wheels Corp. would be indifferent (answer may be rounded off) as to which plan to select is B. a. P45,000,000 b. P50,625,000 c. P33,750,000 d. P22,500,000 34. Darna & Co. has a debt ratio of 0.50, a total assets turnover of 0.25, and a profit margin of 10%. The president is unhappy with the current return on equity, and he thinks it could be doubled. This could be accomplished (1) by increasing the profit margin to 14% and (2) by increasing debt utilization. Total assets turnover will (2) not change. What new debt ration along with the 14% profit margin, is required to double the return on equity? C. a. 0.75 b. 0.70 c. 0.65 d. 0.55 Items 35 and 36 are based on the following: “What’s going on in that lab?” asked Derek Real chief administrator for Cotton wood Hospital as he studied the prior month’s report. “Every month the lab teeters between a profit and a loss. Are we going to have to increase our lab fees again?” “We can’t.” replied Luis Santos, the Controller. “We’re getting lots of complaints about the last increase, particularly from the insurance companies and governmental health units. They’re now paying only about 80% of what we bill. I’m beginning to think the problem is on the cost side.” To determine if lab cost are in line with other hospitals, Mr. Real has asked you to evaluate the costs for the past month. Mr. Santos has provided you with the following information: 1. Two basic types of test are performed in the lab – smears and blood test. During the past month 2,700 smears and 900 blood tests were performed in the lab. 2. Small glass plates are used in both types of test. During the past month, the hospital purchased 16,000 plates at a cost of P38,400. This cost is net of a 4% quantity discount. A total of 2,000 of these plates were still on hand unused at the end of the month; there were no plates on hand at the beginning of the month. 3. During past month, 1,800 hours of labor time were used in performing smears and blood test. The cost of this labor time was P18,450. 4. Variable overhead cost last month in the lab for utilities and supplies totaled P11,700. Cottonwood Hospital has never used standard costs. By searching industry, literature, however, you have determined the following nationwide averages for hospital labs. Plates: Three plates are required per lab test. These plates cost P2.50 each and are disposed of after the test is completed. Labor: Each smear should require 0.3 hours to complete, and each blood test should require 0.6 hours to complete. The average cost of this lab time is P12 per hour. Overhead: Overhead cost is based on direct labor-hours. The average rate of variable overhead is P6 per hour. Mr. Real would like a complete analysis of the cost of plates, labor and variable overhead in the lab for the last month so that he can determine if costs in the lab are indeed out of line. 35. The materials price variance for the plates purchased last month, and the materials quantity variance for the plates used last month are: C. a. P11,400 Unfavorable, P6,000 Unfavorable c. P1,600 Favorable; P8,000 Unfavorable b. P1,600 Favorable, P8,000 Favorable d. P1,600 Unfavorable; P8,000 Unfavorable 36. the labor rate variance and labor efficiency variance are D. a. P2,250 Unfavorable; P5,400 Favorable c. P2,250 Favorable; P5,400 Favorable b. P3,150 Unfavorable; P5,400 Unfavorable d. P3,150 Favorable; P5,400 Unfavorable

3

37. Tomas Company manufactures last-bonding glue in its Cagayan plant. The company normally produces and sells 40,000 gallons of the glue each month. This glue which is known as MJ-7 is used in the wood industry in the manufacture of plywood. The selling price of MJ-7 is P35 per gallon, variable expenses are P2 1 per gallon, fixed manufacturing overhead costs in the plant total P230,000 per month, and the fixed selling cost total P310,000 per month. Strikes in the mills that purchase the bulk of the Mj-7 glue have caused Tomas Company’s sales to temporarily drop to only 11,000 gallons per month. Tomas Company’s management estimates that the strikes will last for about two months, after which sales of MJ-7 should return to normal. Due to the current low level of sales, however, Tomas Company’s management is thinking about closing down the Cagayan plant during the two months that the strikes are on. If Tomas Company does close down the Cagayan plant, it is estimated that fixed manufacturing overhead costs can be reduced to P170,000 per month and that fixed selling costs can be reduced by 10%. Start-up costs at the end of the shutdown period would total P14,000 since Tomas Company uses JIT production methods, no inventories are on hand. At what level of sales in (gallons) for two-month period would Tomas Company be indifferent between closing the plant or keeping it open? C. a. 13,000 b. 6,000 c. 12,000 d. 8,500 38. Union company uses standard cost accounting system. The following overhead costs and production data are available for August, Standard fixed OH rate pr DLH Standard variable OH rate per DLH Budgeted Monthly DLHs Actual DLHs worked Standard DLHs allowed for actual production 39,000 Overall OH variance-favorable

P1 P4 40,000 39,500 P2,000

The total applied manufacturing overhead for August should be A. a. P195, 000 b. P197, 000 c. P197, 500

d. P199, 500

39. Down Co., has 3 divisions R, S and T. Division R’s income statement shows the following for the year ended December 31, 2006 Sales P1, 000, 000 Cost of goods sold (800, 000) Gross profit P 200, 000 Selling expenses P100, 000 Administrative expenses 250, 000 (350, 000) Net loss P (150, 000) Cost of goods sold is 75 percent variable and 25 percent fixed. Of the fixed costs, 60 percent are avoidable if the division is closed. All of the selling expenses relate to the division and would be eliminated if Division R were eliminated. Of the administrative expenses, 90 percent are applied from corporate costs. If Division R were eliminated, Down Co. income would B. a.. increase by P150, 000 b. decrease by P75, 000 c. decrease by P155, 000 d. decrease by P215, 000 40. Handy Combs Inc. makes and sells brushes and combs. It can sell all of either product it can make. The following data are pertinent each respective product: Brushes Combs Units of ouput per machine hour 8 20 Selling price per unit P12.00 P4.00 Product cost per unit Direct material P1.00 P1.20 Direct Labor 2.00 0.10 Variable overhead 0.50 0.05 Total fixed overhead is P380, 000 The company has 40, 000 machine hours available for production. What sales mix will minimize profits? A. a. 320, 000 brushes and 0 combs c. 160, 000 brushes and 600, 000 combs c. 0 brushes and 800, 00 combs d. 252, 630 brushes and 252, 630 combs 41. When using one of the discounted cash flow methods to evaluate the desirability of a capital budgeting project which of the following factors is generally not important? A. a. Method of financing the project consideration c. Impact of the project on income taxes to be paid b. Timing of cash flows relating to the project d. Amounts of cash flows relating to the project 42. In a discounted cash flow analysis, which of the following would not be consistent with adjusting a project’s cash flows to account for higher-then-normal risk? C. a. Increasing the expected among for cash outflows b. Increasing the discounting period for expected cash inflows c. Increasing the discount rate for cash outflows d. Decreasing the amount for expected cash inflows 43. The basis foe measuring the cost of capital derived from bonds and preferred stock respectively is the D. a. pre-tax rate of interest for bonds and stated annual dividend rate less the expected earnings per share for preferred stock b. Pre- tax of interest for bonds and stated annual dividend rate for preferred stock c. After – tax rate or interest for bonds and stated annual dividend rate less the expected earnings per share for preferred stock. d. After –tax rate of interest for bonds and stated annual dividend rate for preferred stock. 44. A basic tenet of variable costing is that period costs should be currently expensed. What is the rationale behind this procedure? D. a. Period costs are uncontrollable and should not be charged to a specific product. b. Period costs are generally immaterial in amount and the cost of assigning the amounts to specific products would outweigh the benefits. c. Allocation of period costs is arbitrary at best and could lead to erroneous decision by management d. Because period cost will occur whether production occurs it is improper to allocate these costs to production and defer a current cost of doing business. 45. As projected net income increases the A. a. degree of operating leverage declines c. Break-even point goes down b. margin of safety stays constant d. contribution margin ratio goes up BUSINESS LAW & TAXATION 46. Where a return was filed, as a general rule, the perspective period for assessment after the date the return was due or was filled, whichever is later, is within: A. a. Three years b. Two years c. 10 years d. Five years

4

47. The following are transactions and acquisitions exempt from transfer tax B. a. Transmission from the first heir or donee in favor of another beneficiary in accordance with the desire of the predecessor; b. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommisary c. The manager of usufruct in the owner of the naked title; d. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions. 48. Borazon, a citizen of the Philippines and resident of Bacolod City, died testate on May 10, 2009. Among his gross estate are properties inherited from his deceased father who died on April 4, 2006. What percentage of deduction will be used in computing the amount of vanishing deduction? D. a. 80% of the value taken as basis for vanishing deduction; b. 100% of the value taken as basis for vanishing deduction; c. 60% of the value taken as basis for vanishing deduction; d. 40% of the value taken as basis for vanishing deduction. 49. Which of the following statements is wrong? D. a. The gross estate of an non-resident citizen would include all properties regardless of location; b. The gross estate of a non-resident not citizen of the Philippines would include intangible properties in the Philippines; c. The gross estate of a resident, not citizen, of the Philippines would include all properties regardless of location; d. The gross estate of an non-resident citizen of the Philippines would include only properties in the Philippines. 50. One of the following statements is wrong: Books of accounts are required to be kept, as follows: D. a. Where quarterly gross sales, earnings, receipts or output do not exceed P50,000, as simplified set of bookkeeping records; b. Where the quarterly gross sales, earnings, receipts or output exceed P50,000 journal and ledger, or their equivalent; c. Where the gross quarterly sales, earnings or output exceed P150,000, the books shall be examined and audited by independent Certified Public Accountants; d. May be in language other that native, English or Spanish as long as it is in the language of the taxpayer. 51. a. b. c. d.

Which of the following contracts is enforceable even if not reduced in writing? C. Representation as to the credit of a third person. Agreement for the sale of immovable property Contract executed by one of the parties in a contract Lease of immovable period longer that one year.

52. I, entered into a contract of lease with X. T, the clerk of L, typed the document. Due to T’s negligence, the document made was that of sale instead of lease. D. a. The remedy is annulment c. Parties may go to court for interpretation b. Parties may enforce their right because it is enforceable d. None of the above. 53. D is indebted to C in the sum of P10,000. For the purpose of avoiding the claims of C, D donated all his properties worth the same amount to X. B. a. The contract is absolutely simulated c. The contract is merely voidable b. The contract is rescissible d. The contract is void. 54. What mode of extinguishing a contact of sale is affected when a person is subrogated upon the same term and condition stipulated in the contract in the place of one who acquires a thing by onerous title? E. a. Compensation d. Legal redemption b. Conventional redemption e. None of the above. c. Novation 55. A sold to B the former’s horse for P5,000. No date is date is fixed by the parties for the performance of their respective obligation. The obligation of A is C. a. To deliver the horse immediately as there is a perfected contract b. To deliver the horse within a reasonable time of two months form the contract date. c. To deliver the horse upon payment by B of P5,000. d. To rescind the contract as there is no time fixed for the delivery and payment. 56. A offered to sell his lot to B for P100,000. In his offer to sell it was stated that B is given 60 days to prepare the P100,000, and as soon as B is ready with the money, A will execute a deed of sale. Before the end of 60 days, A informed that the price of the lot was increased to P120,000. May B compel A to accept P100,000 offered previously by A and make him execute the deed of sale? B. a. Yes, because A is already estopped by his signed b. No, for B never signified his acceptance of A’s offer c. Yes, because there was actual meeting of minds of the parties d. Answer not any of the above. 57. P, the owner of the piece of residential land orally authorized A to sell the land for P500,000 with 5% commission. Today, A sold the land to C. One day later P sold the same land to D. Assuming that both buyers are in good faith, who is the lawful owner? D. a. C, being the first buyer c. D, because the sale made by A to C is only voidable b. C, because A was given authority to P d. D, because the sale between A and C is void. 58. If an agent contracts in the name of his principal, exceeding the scope of his authority, what would be the status and effect of the contract? A. a. Unenforceable b. Void c. Voidable d. Valid e. None of the above. 59. D1, D2 and D3 borrowed from C P300,000, and as a security, they mortgaged their undivided agricultural land to C. Subsequently, D1 paid C P100,000. Is the mortgage on D1’s share of the land extinguished? D. a. Yes, because the obligation of D1 on the debt is only P100,000. b. Yes, the obligation of the debtors is joints, D1 is answerable only for P100,000 c. No, because the obligation is solidary, payment in part shall not extinguish the obligation secured by the mortgage. d. No, because the mortgages are considered indivisible, payment in part shall not extinguish the mortgage. 60. a. b. c. d. e.

Effect of sale on the thing pledged if it is less than the principal obligation: C. Creditor amount recover the deficiency. Creditor can recover the deficiency Creditor cannot recover the deficiency even if there is stipulation Creditor can recover the deficiency if there is stipulation None of the above.

61. a. b. c. d.

Which of the following instruments is non-negotiable? A. “Pay to P or order P20,000 out of my cash in your possessions.” (Addressed to X, signed D) “Pay to P or order P20,000 and reimburse yourself of my cash in your possession.” (Addressed to X, Signed D) “I promise to Pay P or order, P20,000.” (Signed D) “Pay P or order P20,000.”(Addressed to A. Signed by D).

5

62. Every person negotiating an instrument by delivery or by qualified endorsement warrants the following. Which does not belong to the warranties? A. a. That at the time of his endorsement the instrument is valid and subsiding b. That the instrument is genuine and in all respect what it purports to be c. That he has good title to it and that all prior parties and capacity to contract d. That he has no knowledge of any fact which would impair the validity or the instrument or render it valueless. 63. Statement No. 1: Where to show displeasure over a bill of exchange addressed to him, the drawee destroys the same, under the law he is deemed to have accepted it. Statement No. 2: Where the drawer and the drawee are the same persons, the bill of exchange can be regarded as a promissory note. A. a. Both are true. c. No. 1 is true; No. 2 is false b. Both are false d. No. 1 is false; No. 2 is true 64. Statement No. 1: When the fulfillment of the suspensive or resolutory condition depends upon the sole will of the debtor, the conditional obligation shall be void. D. Statement No. 2: If the original obligation is subject to a suspensive or resolutory condition and the contract is novated the new obligations shall be under the same conditions unless otherwise stipulated. a. Both are true c. No. 1 is true; No. 2 is false b. Both are false d. No. 1 is false; No. 2 is true 65. Statement No. 1: “I will give you specific cars if you will not marry X this year (2005). If by the end of 2005, both parties are alive and no marriage has taken place, my obligation is extinguished.” Statement No. 2: “I will give you P10,000 if you cannot make a dead man alive. This is impossible condition obligation not demandable”. B. a. Both are true c. No. 1 is true; No. 2 is false b. Both are false d. No. 1 is false; No. 2 is true

PRACTICAL ACCOUNTING 1 66. An analysis of the records of a proprietor disclosed the changes for the year 2006 and the supplementary data listed below: Cash 450,000 increase Accounts receivable 300,000 decrease Merchandise inventory 200,000 increase Accounts payable 100,000 increase Prepaid expenses 20,000 increase Accrued expenses 40,000 increase Unearned rental income 30,000 decrease During 2006, the proprietor borrowed P500,000 in notes from the bank and paid off notes of P300,000 and interest of P50,000. Interest of P30,000 is accrued on December 31,2006. There was no accrued interest on note payable on December 31,2005. In 2006, the proprietor transferred trading securities to the business and these were sold for P500,000 to finance purchase of merchandise. The proprietor made withdrawals in 2006 of P100,000. What was the net loss for the year 2006? D.

a.

500,000

b. 100,000

c. 470,000

d. 370,000

67. Information pertaining Grace Company appears below: Balance per bank statement July 31 6,200,000 Balance per ledger, July 31 3,750,000 Deposit of July 30 not recorded by bank 1,400,000 Debit memo - service charges 50,000 Credit memo – collection of not by bank for Grace 1,500,000 Outstanding checks ? An analysis of the canceled checks returned with the bank statement reveals the following:  Check for purchase of supplies was drawn for P300,000 but was recorded as P200,000.  The management wrote a check for traveling expenses of P500,000 while out of town. The check was not recorded. What is the amount of outstanding checks on July 31? D. a. 4,600,000 b. 2,500,000 c. 2,800,000 d. 3,000,000 68. Dame Company owns 5,000 shares of the outstanding common stock of Bland Corporation, which has several hundred thousand shares publicly traded. These 5,000 shares were purchased by Dame in 2005 for P100 per share. On August 30, 2006, Bland distributed stock rights to Dame. Dame was entitled to buy one new share of Bland common stock for P90 cash and two of these rights. On August 30, 2006, each share of stock had a market value of P132 ex-right, and each right had a market value of P18. What cost should be recorded for each new share that Dame acquired by exercising the rights? B. a. 132 b. 114 c. 126 d. 90 69. Ryan Company sells major household appliance service contracts for cash. The service contracts are for a oneyear, two-year, or three-year period. Cash receipts from contracts are credited to unearned service contract revenue. This account had a balance of P720,000 at December 31, 2006 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of P180,000 at December 31, 2006. Outstanding service contracts at December 31, 2006 expires as follows: During 2007 150,000 During 2008 225,000 During 2009 100,000 What amount should be reported as unearned service contract revenue in Ryan’s December 31, 2006 balance sheet? B. a. 540,000 b. 475,000 c. 295,000 d. 245,000 70. On January 1, 2006, Ward Corporation issued it 9% bonds in face amount of P4,000,000, which mature on January 1, 2016. The bonds were issued for P3,756,000 to yield 10%, resulting in bond discount of P244,000. Ward uses the interest method of amortizing bond discount. Interest is payable annually on December 31. At December 2006, Ward’s unamortized bond discount should be A. a. 228,400 b. 208,000 c. 206,440 d. 204,000 71. On July 1, 2006, Alto Corporation declared a 1 for 5 reverse stock split, when the market value of stock was P100 per share. Prior to the split, alto had 10,000 shares of P10 par value common stock issued and outstanding. After the split, the par value of the stock is C. a. 10 b. 20 c. 50 d. 2 72. On December 31, 2006, XYZ Company showed stockholders equity of P4,000,000. During 2006, the stockholders equity was affected by:  An adjustment to retained earnings for overstatement of inventory on December 31, 2005 in the amount of P200,000.

6

 Declared dividend of P400,000 of which P300,000 was paid in 2006.  The corporation’s common stock was split five for one.  Net income for 2006 amounted to P700,000.  The common stock balance of P3,000,000 remained unchanged during 2006. What was the retained earnings balance on January 1, 2006? B. a. 1,000,000 b. 900,000 c. 800,000 d. 500,000 73. The following balances were reported by Easy Company on December 31, 2006 and 2005. 2006 2005 Accounts Payable 700,000 500,000 Notes Payable 800,000 300,000 On July 1, 2006, the company issued a one-year 12% note for a bank loan of P200,000. Total payments to suppliers in 2006 amounted to P2,200,000, after purchase discounts of P50,000. During 2006, the company returned merchandise costing P100,000. What is the amount of gross purchases for 2006 under accrual basis? B. a. 3,050,000 b. 2,850,000 c. 2,700,000 d. 900,000 74. The following information is shown in the accounting records of Haze Company for the year 2006: Balances as of January 1 Cash 620,000 Accounts Receivable 670,000 Merchandise inventory 860,000 Accounts payable 530,000 Balances as of December 31 Accounts receivable 900,000 Merchandise inventory 780,000 Accounts payable 480,000 The total sales and cost of goods sold were P7,980,000 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. Assume that there were no other pertinent transactions. The cash balance on December 31 would be B. a. 1,090,000 b. 1,500,000 c. 2,570,000 d. 3,050,000 75. Selected balance sheet data of Chariot Company are as follows: 12-31-2006 1-1-2005 Dividend payable 500,000 400,000 Common stock 5,000,000 2,000,000 Additional paid in capital 1,000,000 700,000 Retained earnings 1,500,000 1,000,000 Treasury stock 200,000 Cash dividends of P1,000,000 were declared in 2006. What is the net cash provided by financing activities for the year 2006? C. a. 3,300,000 b. 2,400,000 c. 2,200,000 d. 2,100,000 AUDITING PROBLEMS A. You are conducting an audit of the Cordial Company for the year ended December 31, 2006. The internal control procedures surrounding cash transactions were not adequate. Ethel Diaz, the bookkeeper-cashier, handles cash receipts, maintains accounting records, and prepares the monthly reconciliations of the bank account. The bookkeeper-cashier prepared the following reconciliation at the end of the year: Balance per bank statement P350,000 Add: Deposit in transit P175,250 Note collected by bank 15,000 190,250 Balance P540,250 Less: Outstanding checks 246,750 Balance per general ledger P293,500 In the process of your audit, you gathered the following: a. b. c.

d.

At December 31, 2006, the bank statement and the general ledger showed balances of P350,000 and P293,500. The cut-off bank statement showed a bank charge on January 2, 2007 for P30,000 representing a correction of an erroneous hand credit. Included in the list of the outstanding checks were the following:  A check payable to a supplier, dated December 29, 2006, in the amount of P14,750, released on January 5, 2007  A check representing advance payment to a supplier in the amount of P37,210, the date of which is January 4, 2007. On December 31, 2006, the company received and recorded customer’s postdated check amounting to P50,.000.

76. The adjusted deposit in transit as at December 31, 2006. B. a. P175,250 b. P125,250 c. P225,250 d. P125,000

e. None of these

77. The adjusted outstanding checks as at December 31, 2006: D. a. P298,710 b. P232,000 c. P209,540 d. P194,790

e. None of these

78. The adjusted cash to be presented in the balance sheet as at December 31, 2006: B. a. P235,460 b. P250,460 c. P265,460 d. P310,460 e. None of these 79. The cash shortage: A. a. P45,000 b. P58,040

c. P60,000

80. The net adjustment to the cash account: A. a. P43,040 b. P60,000 c. P58,040

d. P8,040 d. P45,000

e. None of these e. None of these

B. To substantiate the existence of the accounts receivable balances as at December 31, 2006 of Luce Company, you have decided to send confirmation requests to customers. Below is a summary of the confirmation replies together with the exceptions and audit findings. Gross profit on sales is 20%. The company is under the perpetual inventory method. Name of Balance Customer . Cruz

Frias

per Books

Comments from Customers

P50,000

P30,000 was returned on January 2, 2007. Correct balance is P20,000. Your CM representing price Adjustment dated December 29,

P10,000

7

Audit Findings Returned goods were received January 5, 2007. The CM was taken up by Luce in 2007

Lazo

P48,000

Sia

P37,500

Yao

P45,000

81. a. c. e.

2006 cancels this, You have overpriced us by P50. Correct price should be P100

The complaint is valid.

We received the goods only on January 5, 2007. Balance was offset by our December shipment of your raw Materials

Term is shipping point Shipped in 2006. Luce credited accounts payable for P45,000 to record record purchases. Yao is supplier.

If the necessary adjusting journal entry is made regarding the case of Mr. Cruz, the net income will: E. increase by P6,000 b. decrease by P30,000 decrease by P6,000 d. increase by P30,000 no effect

82. The effect on 2006 net income of Luce Company of its failure to record CM involving transaction with Mr. Frias; A. a. P10,000 over b. P10,000 under c. P2,000 over d. P2,000 under e. none of these. 83. The actual number of units sold to Mr. Lazo is: B. a. 960 b. 320 c. 480

d. 1,920

e. none of these.

84. The overstatement of receivable from Mr. Lazo is: D. a. P32,000 b. P 8,000 c. P24,000

d. P16,000

e. none of these.

85. The accounts receivable form Mr. Sia is: A. a. Correctly stated. B. P37,500 over. of these.

c. P37, 500 under.

d. P75 over.

e. none

PRACTICAL ACCOUNTING 2 86. Dante, Elli and Fanny are partners with capital credit balances as at June 30, 2007 of P300,000 and P200,000 respectively. Dante is allowed to withdraw and it is agreed that he is to take certain furniture items at the second value of P18,000, plus a promissory note for the balance of his interest. The furniture items are carried on the bocks as a fully depreciated, brand-new, however, they would cost P30,000. If profits and losses are shared equally the acquisition of furniture items by Dante would result in D. a. b.

Increase in capital of P6,000 for Dante, Elli and Fanny Decrease in capital of P9,000 for Elli and Fanny

c. Increase in capital of P9,000 for Elli and Fanny d. Decrease in capital of P12,000 for Dante

87. For Job Order 77, COC Company incurred the following cost is for the manufacture of 200 units of a novelty gadget: Original cost accumulation; Direct material: P13,200; Direct labor P16,000 and Factory overhead (150% of direct labor), P24,000. Direct cost of 10 reworked units; Direct materials, P2,000, Direct labor, P3,200. The rework cost was attributable to exacting specifications required by the job order and was charged to the specific order. The unit cost of Job Order 77 is D. a.

P266

b. P280

c. P292

d. P316

88. Utah Company manufactures costume jewelry and user JIT costing system. Transactions during June 2007 were as follows: a. Raw materials is P45,000 were purchase and requisitioned for production b. Direct labor cost P11,000 and Indirect labor costs amounted to P120,000 were incurred. c. Utilities cost totaled P15,000 and other actual factory overhead costs amounted to P85,000. d. Applied conversion cost totaled P221,000. This includes direct labor costs. All units were completed. Determine the June 30 balance in the cost of goods sold before adjustment has been made for over-applied or underapplied conversion cost. A. a. P266,000 b. P331,000 c. P246,000 d. 256,000 89. Philippine University, a nonprofit organization in Agusan province received P100,000 of pledges from donors on June 15, 2007. The donors did not place either time or use restriction on the amount pledged. The governing board estimated that 10% of the pledges would be uncollectible. During the remainder of 2007, cash received form the pledges amounted to P92,000. On February 15, 2007. What amount should the university credit to the account Contribution Revenues? B. a. P0 b. P100 c. P92,000 d. P50,000 90. Ace Co. uses a predetermined factory overhead application rate based on direct labor cost. For the year ended December 31, 2005. Nil’s budgeted factory overhead was P600,000, based on a budgeted volume of 50,000 direct labor hours, at a standard direct labor rate of P6.00 per hour. Actual factory overhead amounted to P620,000, with actual direct labor cost of P325,000. For 2002, over-applied factory overhead was C. a. P20,000 b. P25,000 c. P30,000 d. P50,000 91. Several years ago Parent Corporation acquired 80% of Subsidiary Company. Analysis of data relative to this purchase indicates that goodwill of P60,000 was acquired in this purchase. On October 1, 2005, Subsidiary sold to Parent a used car for P32,000 in cash. Subsidiary had originally paid P55,000 for the car. On the day of the sale, the car had a book value of P23,000. Parent estimated the remaining life of the car at 3 years. Parent’s net income from its own operations was P100,000 in 2005 and P120,000 in 2006. Subsidiary’s net income was P60,000 in 2005 and P75,000 is 2006. Consolidated net income 2006 are: D. a. P179,400 b. P195,000 c. P179,000 d. 182,400 92. On September 31, 2006, Parent Company paid P1,700,000 for all the issued/outstanding common stock of Sub Company. On the date, the total cost and the total fair value of Sub’s net assets P1,260,000 and P1,300,000 respectively in the Parent’s December 31, 2006, consolidated balance sheet, what is the amount of goodwill that should be reported as a result of this business combination? C. a. P380,000 b. P390,000 c. P400,000 d. P429,000 93. The total on the manufacturing work sheet before the inclusion of the ending inventories are as follows: Dr. Cr. Manufacturing P210,000 P 3,600 Cost of Good Sold 35,000 ---Income Statement 95,000 310,000 The ending inventories are: Materials, P38,000, Work in Process, P50,000 and Finished Goods, P25,000. How much must be the (1) cost goods manufactured, (2) cost of goods sold and (3) Net Income? A.

8

a. b.

(1) P118,400 (2) P128,400 (3) P 86,600 (1) P206,400 (2) P153,400 (3) P215,000

c. (1) P68,400 (2) P166,400 (3) P215,000 d. (2) P206,400 (2) P166,400 (3) P215,000

94. Golden Manufacturers provides you with the following data: Cost of Goods Sold P360,000 Raw materials used P150,000 Labor cost 100,000 Factory overhead 100,000 Ending inventory of work in process and beginning inventory of finished goods inventories are 50% and 83 1/3% of beginning Cost of Goods manufactured is: C. a. P340,000 b. P350,000 c. P380,000 d. P360,000 95. FSUU Company purchased automobile with cash down and signed a note, secured by the car for 48 monthly payments. When the company files for bankruptcy, the balance due on the automobile amount to P600,000. The car has a book value of P800,000 and a net realizable value of P400,000. The unsecured creditors of Cebu Company can expect to receive 80% of their claims. In the liquidation, the bank that holds the note on the car should receive. A. a. P560,000 b. P40,000 c. P500,000 d. P540,000 ECONOMICS 96. The local video store’s business increased by 12% after the movie theater raised its prices from P65 to P70. Thus, relative to movie theater admissions, videos are A. a. Substitute goods b. Superior goods. c. Complementary goods d. Public goods. 97. All of the following are complementary goods except A. a. Margarine and butter c. VCR’s and video cassettes b. Camera’s and rolls of film d. Razors and razor blades 98. a. b. c. d.

A decrease in the price of a complementary good will D. Shift the demand curve of the joint commodity to the left Increase the price paid for a substitute good Shift the supply curve of the joint commodity to the right Shift the demand curve of the joint commodity to the right

99. The movement along the demand curve from one price-quantity combination to another is called a(n) a. Change in demand c. Change in the quantity demanded b. Shift in the demand curve d. Increase in demand 100.If a group of consumers decide to boycott a particular product, the expected result would be B. a. An increase in the product price to make up lost revenue. b. A decrease in the demand for the product c. An increase in product supply because of increase availability d. That demand for the product would become completely inelastic.

9

C.