NATIONAL FEDERATION OF JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

Cagayan de Oro City

MOCK BOARD EXAMINATION
FINANCIAL ACCOUNTING THEORY
1. A primary objective of financial reporting is to: C
a. assist investors in analyzing the economy
b. assist suppliers in determining an appropriate discount to offer a particular company
c. assist investors in predicting prospective cash flows
d. assist banks to determine an appropriate interest rate for their commercial loans
2.

Which of the following is the incorrect statement? B

a. Theory can be defined as a coherent set of hypothetical, conceptual, and pragmatic principles forming a general
frame of reference for a field of inquiry
b. Accounting theory has developed primarily in response to government regulations
c. Concepts are components of theory
d. Accounting concepts are human-made

3.

Accounting concepts are not derived from: D

a. Inductive reasoning
b. experience

c. pragmatism

d. laws of nature

4.

The primary qualitative characteristics of accounting information include which of the following: C
a. Comparability (including consistency)
c. relevance
b. Understandability
d. materiality

5.

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

6.

Comparability is sometimes sacrificed for: D

a. Reliability
b. conservatism

c. objectivity

d. relevance

7.

A firm signs a major contract in December to construct custom machinery for a client. No work is begun the current year yet
the footnotes to the firms financial statements discuss the nature and peso amount of the contract. This is an example of B
a. Reliability
b. full disclosure
c. historical cost
d. conservatism

8.

Which of the following would most likely to be found in an adjusting entry? A

a. Prepaid expenses
c. Cash dividend paid
b. Accounts receivable
d. Cash dividend declared

9.

All the date of purchase of a service which is not immediately used up, the cost of such unused service is a(n): C
a. Revenue
b. liability
c. asset
d. expenses

10. Increase in equity (net assets) form peripheral or incidental transactions of an entity are called: D
a. Revenue
b. liability
c. comprehensive income
d. gains
11. Which on of the following is the secondary qualitative characteristic of accounting information? C
a. Continuity
c. Comparability (including consistency)
b. Relevance
d. Reliability
12. The going concern or continuity assumption is critical to financial accounting. The assumption B
a. Is always maintained for all firms for all years
b. Supports the use of historical cost valuation for assets rather than market values
c. Means that a corporation has a definite ending date
d. Requires that we immediately expense prepaid accounts because they do not represent a future cash inflow.
13. The objective of general-purpose financial statement is: C
a. To provide the market value of a firm at a point in time
b. To provide the total market value of its common stock
c. To provide information useful for decision making by investors and creditors
d. To require all companies to comply with GAAP
14. A company reports only its total account receivable balance in its balance sheet, as opposed to a complete listing of its
individual customer balances. This is an example of C
a. Consistency
b. materiality
c. cost/benefit
d. conservatism
15. The matching concept: B
a. Requires that a debit is matched or posted for every credit
b. Is the name applied to the process of associating expenses with revenues.
c. Treats all costs as being directly related to revenue generation
d. Treats all cost as expenses
16. Revenue is recognized when: C
a. It is collected in cash
b. Service is rendered

c. service is rendered and collection is probable

d. the contract is signed

17. Adjusting entries are needed because an entity. A

a. Uses the accrual basis accounting
b. Has earned revenue during the period by selling products from its central operations
c. Has expenses
d. Uses the cash basis of accounting rather than the accrual basis
18. Under which of the following will revenues and expenses most likely be reported in the period they are earned or incurred?
B
a. Cash basis accounting
c. A combination of accrual and cash
b. Accrual basis accounting
d. Single entry accounting
19. Which of the following is the incorrect basis for recognizing the expense indicated? D
a. Sales commissions expense on the basis of relationship with sales
b. Administrative salaries expense recognized as incurred
c. Depreciation expense on the basis of time
d. Cost of goods sold expense on a subjective or arbitrary basis
20. A corporation made the following entries:
1. Prepaid insurance
900
Cash
2. Wages payable
3,000
Cash
3. Depreciation expense
10,000
Accumulated depreciation
4. Inventory
4,000
Accounts payable

900
3,000
10,000
4,000

Which entry must have been made as a direct result of the matching principle? C
a. 1
b. 2
c. 3
d. 4
21. An understatement in reported net income may result from failure to record: D
a. Amortization of discount on bonds payable
c. A prepaid expenses
b. An accrued liability
d. Voucher system journal
22. Reversing entries are used: A
a. Primarily to simplify the bookkeeping during the next accounting period
b. To adjust the inventory account under a periodic inventory system
c. To close the income summary account
d. To establish appropriate contra accounts
23. Which of the following is not an example of a special journal? C
a. Merchandise sales on credit journal
d. Cash receipts journal
b. Merchandise purchases on credit journal
e. Voucher system journal
c. General journal
24. Which of the following best defines a control account? A
a. A summary account in the general ledger that is supported by detailed accounts in a subsidiary ledger
b. A listing of the balances in all accounts
c. An account which increases due to sale of goods or services during the normal operations of a business
d. A chronological listing of all transactions for a specific time period.
25. At the end of the reporting period, a company recorded two adjusting entries which included the following: (1 st entry)
accrued wages payable, P5,000 and (2nd entry) unearned revenue, P25,000. The company makes all appropriate reversing
entries. The reversing entry (entries) will include: B
a. Accrued wages only
c. Accrued wages, unearned revenue and retained earning
b. Accrued wages and unearned revenue
d. unearned revenue only
26. The premium on a three-year insurance policy expiring on December 31, year 3, was paid in total on January 1, year 1.
Assuming that the original payment was recorded as prepaid asset, how would each of the following be affected in year 3? B
Prepaid Asset
Expenses
a. Decrease
No change
b. Decrease
Increase
c. No change
Increase
d. No change
No change
27. Rent revenue collected one month in advance should be accounted for as: A
a. A current liability
c. A separate item in stockholders equity
b. An accrued liability
d. Revenue in the month collected
28. Which of the following is true about the operating cycle concept? B
a. It causes the distinction between current and non current items to depend on whether they will affect cash within
one year.
b. It permits some asset to be classified as current even though they are more than one year removed from becoming
cash.
c. It is becoming obsolete.
d. It affects the income statement but not the statement of cash flows.

29. Accounts receivable are reported at: D

a. Cost
b. current value
value

c. fair market value

d. net realizable

30. Equipment is sold at a loss. This means B

a. The selling company had a decrease in cash because of the sale
b. Depreciation was recognized at a rate slower than the decline in market value
c. Depreciation was recognized at a rate faster than the decline in market value
d. The equipment wore out faster than was anticipated
31. Retained earnings is a subcategory of: D
a. Contributed capital
b. Capital stock

c. Liabilities

d. Owners equity

32. The current asset section of a balance sheet includes: C

a. All deferred income taxes resulting from inter period income tax allocation
b. Goodwill arising in a business combination accounted for as a purchased
c. Rent receivable
d. A receivable from a customer not collectible for over one year
33. Long-term liabilities are distinguished from current liabilities on the basis of: B
a. Whether the liability is to be paid within the operating cycle or one year, whichever is longer.
b. Whether the liability is to be paid out of current assets within the operating cycle or one year, whichever is longer.
c. Whether the liability is to be paid within one year or less.
d. Whether the liability is to be paid within the operating cycle of the business, if it is less than one year.
34. During the current year, a corporation purchased a parcel of land located in Tarlac City. The company is not currently
operating in Tarlac. However, the management expects to be operating at that location with twenty years. If the company
does not buy the land now, it would be unable to find suitable land when needed later. The land should be classified on the
current balance sheet under the caption. D
a. Operational assets
c. Deferred charges
e. Current assets
b. Other assets
d. Investments
35. Which of the following should not be considered as a current asset in the balance sheet? A
a. The cash surrender value of a life insurance policy carried by a corporation, the beneficiary, on its president.
b. Marketable securities purchased with cash a short-term investments
c. Installment notes receivable due over 18 months in accordance with normal trade practice.
d. Prepaid taxes which cover assessments of the following operating cycle of the business.
36. Which of the following is not negative element under the operational assets, tangible classification? D
a. Accumulated depletion of mineral-bearing property
b. Accumulated depletion of paved parking lot
c. Accumulated depletion of buildings
d. Reserve for plant expansion
37. The party responsible for the financial statements of a company is the: D
a. Stockholders of the company
c. government
b. Independent
d. management of the company
38. Events that occur after the balance sheet date but prior to its issuance are called: C
a. Prior events
c. Subsequent events
b. Post-closing events
d. Currently
39. A change in an amortization rate, such as on a copyright, should be accounted for: C
a. Retroactively
c. Prospectively
b. By recording a prior period adjustments
d. Currently
40. Which of the following is not an example of a change on accounting estimate? E
a. Change in the estimated loss rate on receivables
b. Change in the residual value of natural resources subject to depletion
c. Change in expected warranty costs on goods sold under a warranty
d. Change in the expected recovery of a deferred charge
e. Change in the composition of inventory cost
41. Which of the following types of errors will not self correct in the net year? C
a. Accrued expenses not recognized at year-end
b. Accrued revenues (but not collected) not recognized at year-end
c. Depreciation expense overstated for the year
d. Prepaid expenses not recognized at year-end
e. Prepaid revenues (collected advance) not recognized at year-end.
42. Which of the following is a counterbalancing error? C
a. Understated depletion expense
c. Overstated depreciation expense
b. Bond premium under amortized
d. Prepaid expense adjusted incorrectly

43. The September 30, 2005, physical inventory of JTC appropriately included P3,800 of merchandise purchased on account
which was not recorded in purchases until October 2005. What effect will this error have on September 30, 2005, assets,
liabilities, retained earnings, and earnings for the year then ended respectively? D
a. Understate; no effect; overstate; overstated
b. No effect; overstate; understate; understate
c. No effect; understate; overstate; overstate
d. No effect; understate; understate; overstate
44. How is depreciation expense treated in the statement of cash flows and related disclosures (indirect method)? A
a. Added to net income
c. Placed into the investing section
b. Subtracted from net income
d. Does not appear because it is not a cash flow
45. How many of the following transactions would appear on the statement of cash flows or in its sub schedules? C
1. Sold and issued new shares of common stock, P30,000.
2. Purchased a new machine and paid for it in full by issuing companys own common stock.
3. Purchased land for cash, P20,000.
4. Sales revenue, P500,000.
a. One
b. Two
c. Three
d. Four
46. Del Co. prepares a four-column bank reconciliation. Check No. 859 was written for P5,670 on the books, but check was
written and cleared the bank for the correct, P6,570. The correct treatment on the reconciliation would be: C
a. On the bank side, deduct P900 from the payments and add P900 to ending balance
b. On the book side, deduct P900 from the payments and add P900 to ending balance
c. On the book side, add P900 to payments and deduct P900 to ending balance
d. On the bank side, add P900 to receipts and add P900 to ending balance.
47. Scotch Company, which has an adequate amount in its Allowance fro Doubtful Accounts, writes off and uncollectible an
account receivable from a bankrupt customer. This action will: A
a. Have no effect on total current assets.
c. Reduce net income for the period
b. Reduce total current assets
d. reduce the amount of owners equity
48. Which of the following items should not be included in the inventory at year end? D
a. Goods held but awaiting return to vendor due to wrong specifications
b. Goods returned by a customer
c. Goods out on consignment
d. Goods held on consignment for sale on commission
49. When a
a.
b.
c.
d.

periodic inventory system is used: A

Cost of goods sold is a residual amount
Ending inventory is transferred to expense and the beginning inventory is transferred to assets
Two entries must be made when goods are purchased
A purchases account is not used; all inventory purchased entries are debits to the inventory account

50. Which of the following statements is the correct statement? C

a. The best way to ascertain whether a marketable security is a short-term or a long-term investment is to check with
securities dealer.
b. For balance sheet classification, a security is classified as a short-term investment, if it is readily marketable
c. For balance sheet classification, a security is classified as a short-term investment based on the intended holding
period.
d. All investment in TS are reported at book value

PRACTICAL ACCOUNTING 1
The following is the year-end adjusted trial balance for a firm just completing its first year:
Dr.
Cash
Accounts receivable
Prepaid insurance
Supplies
Equipment
Accounts payable
Wages payable
Common stock
Service revenue
Expenses (several)
Total
51. The firm has total assets of: C
a. P7,500
b. P9,500

Cr.

P 100
400
200
150
8,000
P 800
400
5,300
3,000
650
P9,500
=====

P9,500
=====
c. P8,850

d. P9,900

52. When the firm prepares its balance sheet, it will report what amount of total owners equity? D

a.

P9,500

b. P7,500

c. P5,300

d. P7,650

53. Given a company with sales revenue of P100 (all amounts in 000s), beginning inventory of P30, net income of P10, ending
inventory of P30 and total expenses other than cost of goods sold of P40; the amount of net purchases shown on the income
statement would be (as part of cost of goods sold): A
a. P50
b. P60
c. P70
d. P80
e. P40
54. A company has the following amounts of its income statement (all amounts in 000s); sales revenue of P110, beginning
inventory of P26, net loss of P10, net purchases of P73 and total expenses other than cost of goods sold of P40. The amount
of ending inventory shown on the income statement would be: C
a. P33
b. P39
c. P19
d. P127
e. P22

55. A corporations accounting records provide the following information (in 000s):
Balance
s

Account
12/31/year1
12/31/year2
Current assets
P 240
P ?
Property, plant and equipment
1,600
1,500
Current liabilities
?
130
Long-term liabilities
580
?
All asset and liabilities of the firm are reported in the schedule shown above. Working capital of P92 remained unchanged
from year 1 to year 2. (Working capital is capital is current assets less current liabilities). Net income in year 2 was P88. No
dividends were declared during year 2 and there were no other changes in owners equity. Total long-term liabilities at the
end of year 2 would be: E
a. P568
b. P616
c. P480
d. P208
e. P392
56. A small corporation reported revenues of P30,000 using a cash basis accounting system. Total customer payments received
but not earned were P2,100. Services performed but not yet collected amounted to P3,400. Expenses incurred but not yet
paid totaled P600. Expenses paid but not yet incurred totaled P125. What total revenue amount should the company report
under the accrual system? C
a. P28,700
b. P31,300
c. P31,575
d. P30,825
57. A corporation had the following account balances on its December 31, year 1, post-closing trial balance (in 000s):
Common stock
P1,000
Preferred stock
600
Premium on preferred stock
160
Reserve for future plant expansion
200
Unappropriated retained earnings
100
Bond sinking fund
80
Additional information (in 000s):
During the year, a P50 cash dividend on preferred stock and a P50 cash dividend on common stock was declared.
At December 31, year 1, total stockholders equity is: C
a. P2,140
b. P2,060
c. P2,040
d. P1,940
58. A corporation was organized on January 1. At that time, 10,000 shares of common stock were sold and issued at P10,000 per
share each P20,000 of the proceeds were used to purchase equipment. The corporation has promised to pay P2.00 per share
in dividends during the year if income per share in dividends during the year if income exceeded P40,000. As it turned out,
income was P60,000. However, due to severe cash shortage, the corporation declared a scrip dividend rather than an
immediate cash dividend. If no other transaction occurred which would affect retained earnings, the corporation should
report on December 31, retained earnings of: C
a. P160,000
b. P40,000
c. P60,000
d. P20,000
59. On December 31, a corporation had a working capital (current) ratio of 2, and reported the following accounts.

Cash
Accounts receivable
Inventory
Prepaid insurance
Equipment (net)

Asset
s

P 4,000
13,000
6,600
1,000
24,000

Accounts Payable
Wages payable
Interest payable
Bonds payable
Retained earnings

Therefore, the balance in allowance for doubtful accounts was: A

a. P600
b. P300
c. P200

d. P0

60. A corporation reported the following information in its income statement:

Sales revenue (none on credit)
Cost of goods sold (paid in cash)
Gross margin on sales
Depreciation expense
Amortization expense

P 70,000
40,000
30,000
(4,000)
(1,000)

Equitie
s

P 2,000
6,000
14,000
14,000
2,600

Wage expense ( paid in cash)

Income before taxes
Income taxes (20%) (paid in cash)
Net income

(2,500)
22,500
(4,500)
P 18,000

The corporation should report the following amount on its statement of cash flows for net cash from operating activities: D
a. P 18,000
b. P 7,500
c. P 22,500
d. P 23,000
61. La Mesa Tables Co. uses a four-column bank reconciliation. The bank statement reports May payments of P13,150, including
service charges of P200. At the beginning of May, there were P900 of checks outstanding. At the end of May, there were
P1,200 of checks outstanding. Before recording the bank service charges, La Mesa Tables must have recorded May payments
of: A
a. P13,250
b. P12,650
c. P13,050
d. P13,650
62. Bruce Cycle Shop sells a bicycle to E. Nygma, a customer who uses Express Charge (a national credit card, but not issued by
a bank). In recording this sale, Bruce Cycle Shop should report: B
a. An account receivable from E. Nygma
c. An account receivable from Express Charge
b. A cash receipt
d. A small increase in the allowance for doubtful accounts.
63. Deo Company used the balance sheet approach in estimating uncollectible accounts expense. The company prepares an
adjusting entry to recognize this expense at the end of each month. During the month of July. The company wrote off a
P1,000 receivable and made no recoveries of previous write-offs. Following the adjusting entry for July, the credit balance in
the Allowance for Doubtful accounts was P2,500 larger than it was on July 1. What amount of uncollectible account expense
was recorded for July? D
a. P2,500
b. P1,000
c. P1,500
d. P3,500
64. A listing of the Emmanuel Companys inventory items at the end of 2005 totals P95,000. Included in this amount are the
following items:
Merchandise in transit as of 12/21/2005, purchased FOB shipping point...
Goods held by Emmanuel as consignee from Christopher.
Goods out on consignment, at cost plus 50% mark-up on cost...

P 6,800
5,000
6,000

What is the peso amount of Emmanuels 2005 ending inventory that should reported on the balance sheet? D
a. 83,100
b. 86,200
c. P87,900
d. P88,000
65. On January 2, 2005, RST bought 15 percent of OPQs common stock for P60,000. RST accounts for this investment by using
the cost method. OPQs net income fort he years ended December 31, 2005, and December 31, 2006, were P10,000 and
P50,000 respectively. During 2006, OPQ declared and paid a cash dividend of P120,000. No dividends were declared in 2005.
What is ending 2006 balance of the investment account? B
a. P69,000
b. P51,000
c. P60,000
d. 42,000
66. On January 2, 2005, Pastel bought 30 percent of the outstanding common stock of Bright for P258,000 cash. Paster accounts
for this investment by the equity method. At the date of acquisition of the stock. Brights net assets had a book and fair
value of P620,000. The excess of Pastels cost of investment over its share of Brights net assets has an estimated life of 40
years. Brights net income for the year ended December 31, 2005, was P180,000. During 2005, Bright declared and paid
cash dividends of P20,000. On December 31, 2005, Pastel should have carried its investment in Bright in the amount of : D
a. P234,000
b. P258,000
c. P304,200
d. P306,000
67. On January 1, 2005, ABZ purchased 100 shares (1 percent) of BC common stock, par P10 at P120 per share. ABZ uses the
cost method to account for the BC stock. Subsequent to purchase, the following transactions and events happened: June 1,
2005, received a 20 percent stock dividend on the BC stock; March 31, 2006, AB sold half of the BC shares at P108 per
share. At the date of the sale, ABZ should recognize a gain (loss) on the sale of the BC shares of: C
a. P600 loss
b. P220 gain
c. P480 gain
d. P880 gain
68. The inventory records of Teaser Company show the following purchases:
January
February
March

Units
15,000
20,000
12,500

Cost
190,000
240,000
165,000

The March 31 inventory using FIFO is valued at P285,000. What is the March 31 LIFO inventory? C
a. 225,000
b. 120,000
c. 280,500
d. 285,000

69. Mora Company has determined its December 31, 2005, inventory on a FIFO basis to be P4,000,000. Information pertaining to
that inventory follows:
Estimated selling price
Estimated cost of disposal
Normal profit margin
Current replacement cost

4,050,000
200,000
500,000
3,500,000

Mora records losses that result form applying the lower of cost or market rule. At December 31, 2005, what should be the net
carrying value of Moras inventory? B
a. 4,000,000
b. 3,850,000
c. 3,350,000
d. 3,500,000
70. On October 15, 2005, a fire destroyed all the stock of equipment of Modern Company in its rented stockroom. The records of
the firm showed the following information:
Inventory, January 1
500,000
Sales, January 1 October 15
3,840,000
Sales return and allowances
40,000
Purchases, January October 15
3,360,000
Purchase return and allowance
60,000
Cost of stock in display room, not destroyed
320,000
Summary of prior years sales:
2004
2003
2002
Sales
3,700,000
3,500,000
3,000,000
Gross Profit
1,295,000
1,050,000
750,000
How much is the estimated cost of merchandise lost in the fire on October 15, 2005? A
a. 1,400,000
b.1,720,000
c. 1,530,000
d. 1,210,000
71. Plain Company uses the FIFO retail inventory method. The following information pertains to the current accounting period.
Cost
Retail
Inventory January 1
1.200,000
1,800,000
Purchases
5,600,000
7,200,000
Freight in
400,000
Net mark up
1,400,000
Net mark down
600,000
Sales
7,600,000
What is the cost of goods sold for the year ended December 31, 2004? A
a. 5,550,000
b. 5,594,000
c. 5,682,000
d. 4,350,000
72. On January 2, 2004, ABC Company purchased 4,000 shares of RST stock at P100 per share. Brokerage fees amounted to
P12,000. A P5 dividend per share of RST stock had been declared on December 15, 2003, to be paid on March 31, 2004 to
stockholders of record on January 31, 2004. No other transactions occurred in 2004 affecting the investment in RST stock.
The balance of the investment on December 31, 2004 is A
a. 392,000
b. 400,000
c. 412,000
d. 380,000
73. On January 2, 2004 Jerry Company purchased as long-term investment 100,000 shares of Mall Companys common stock for
P40 per share. On December 31, 2004, the market price of malls stock was P35 per share reflecting a temporary decline in
market price. On December 28, 2005, Jerry sold 80,000 shares of Mall stock for P30 per share. For the year 2005, Jerry
should report a loss on disposal of long-term investment of C
a. 1,000,000
b. 900,000
c. 800,000
d. 400,000
74. On January 1, 2004 Mega Company acquired 10% of the outstanding voting stock of Pony Company. On January 2, 2005,
Mega gained the ability to exercise significant influence over financial and operating policies of Pony by acquiring 20% of
Ponys outstanding stock. The two purchases were made at prices proportionate to the value assigned to Ponys net asset,
which equaled their carrying amounts. For the years ended December 31, 2004 and 2005, Pony reported the following:
2004
2005
Dividends paid
2,000,000
3,000,000
Net Income
6,000,000
6,500,000
In the year 2005, what amounts should Mega report as current year investment income and as an adjustment to year 2004
income, respectively? C
a. 1,950,000 and 1,600,000
c. 1,950,000 and 400,000
b. 1,950,000 and 1,000,000
d. 1,050,000 and 400,000
PRACTICAL ACCOUNTING 2
75. Mess Company owns 20% of Dove Companys preferred stock and 50% of its common stock. Doves stock outstanding at
December 31, 2004 is as follows:
10% cumulative preferred stock
2,000,000
Common Stock
7,000,000
Dove reported net income of P5,000,000 for the year ended December 31, 2004. What amount should Mess record as
investment income for the year ended December 31, 2004? A
a. 2,400,000
b. 2,500,000
c. 2,600,000
d. 2,700,000
76. Gerry Company started operation on January 2, 2005, selling appliances both for cash and on installment basis. Data on the
installment sales of the company for the years ending December 31, 2005 and 2006 ware as follows:

Installment sales
Cost of installment sales
Cash collected on installment sales:
2005 installment contracts
2006 installment contracts

2005

2006

P 400,000
240,000

P 500,000
350,000

210,000

150,000
300,000

On January 5, 2006 an installment sale in 2005 was defaulted and the merchandise with an appraised value of P5,000 was
repossessed. Related installment receivable balance on January 5, 2006 was P8,000.
(1) The balance of Deferred Gross Profit on December 31, 2005, and (2) the gains (loss) on repossession in
2006. C
a. (1) P130,000; (2) P200
b. (1) P76,000; (2) P1,800
c. (1) P76,000; (2) P200
d. (1) P130,000; (2) (P200)
77. A refrigerator was sold for P32,000, which included a 40% markup on selling price. She made a down payment of 20% paid
four of the remaining sixteen equal payments and then defaulted on further payments. The refrigerator was repossessed at
which time the fair value was determined to be P13,600. The repossession resulted in the following (loss) gain: C
a. (P56.80)
c. P2,080.00
b. (P2,960,000)
d. (P2,080,000)
78. Jacky Store uses the installment method of accounting and it has the following data at year end: D
Gross Margin on cost
66 2/3%
Unrealized gross profit (unadjusted)
P192,000
Cash collections including down payments
360,000
The balance of installment at accounts receivable at the end of the year is
b. P480,000
c. P840,000
c. P840,000
d. P120,000
79. The following data relates to a flood control project of JC Constitution which was started in 2005 and completed in 2006:
Cost incurred to date
Estimated total cost at completion
As of June 30, 2005.
P 9,750,000
As of June 30, 2005
P19,500,000
As of June 30, 2006.
P15,750,000
As of June 30, 2006
P20,250,000
The project is a P22,500,000 fixed-price construction contract, and JC uses the percentage-of-completion method of revenue
accounting. On June 30, 2006, how much income would JC support on the project? A
a. P250,000
c. P300,000
b. P750,000
d. P900,000
80. During 2006, MIB Company started a construction job with a total contract price of P600,000. Any costs incurred are
expected to be recoverable. The job was completed on December 15, 2006. Additional date are as follows:
2005

2006

Actual costs incurred

P 225,000
P225,000
Estimated remaining costs
225,000
Billed to customer
240,000
360,000
Received from customer
225,000
375,000
Under the cost recovery method of construction accounting (alternative method to percentage of completion)
what amount should MIB recognize as gross profit for (1) 2005 and (2) 2006? B
a. (1) P-0-; (2)P-0c. (1)P75,000; (2)P120,000
b. (1) P-0-; (2) P120,000
d. (1)P120,000; (2)P120,000

81. On December 29, 2005, Macky signed a franchising agreement to operate as a franchisee of Lucky Burger. The franchising
agreement required the franchisee, to make an initial payment of P200,000 upon signing of the contract and three payments
each of P100,000 beginning one year from the agreement date and yearly thereafter. The franchisor agrees to make market
studies, find suitable location, train employees, and perform some other related services by next year. The initial payment is
refundable until substantial performance is affected. At the end of 2005, Lucky should report franchise fee revenue
of: A
a. P-0c. P125,000
b. P200,000
d. P950,000
82. At the beginning of the year, Aldo got the franchise of Mary, a known steak house of upscale patronage. The franchise
agreement required a P500,000 franchise fee payable P100,000 upon signing of the franchise and the balance in four annual
installments starting the end of the current year. At present value using 12% as discount rate, the four installments would
approximate P199, 650. The fees once paid are refundable. The franchise may be cancelled subject to the provisions of the
agreement. Should there be unpaid franchise fee attributed to the balance of main fee (P500, 000), the same would become
due and demandable upon cancellation. Further, the franchiser is entitled to a 5% fee on gross sales payable monthly within
the first ten days of the following month.
The Credit Bureau ruled Aldo as 3A credit rating. The balance of the franchise fee was guaranteed by commercial bank. The
first year of operation yielded gross sales of P9, 000,000. Maxys earned franchise fee for the first year amounted to
C
a. P550,000
c. P749,650
b. P450,000
d. P950,000
83. After examining the interoffice account of the Butuan Company with its suburban Branch and the similar account carried on
the latters books, the following discrepancies at the close of the business on December 31, 2005 were seen:
a. A charge for labor by the Home Office, P500 was recorded twice by the branch.
b. A charge of P895 was made by the Home Office for freight on merchandise, but the amount was recorded by the
Branch as P89.50.
c. A charge of P980 (furniture and fixture) on the Home Office books was taken up by the branch as P890.
d. A credit by the Home Office for P350 (merchandise allowances) was taken up by the Branch as P400.

e.

The Home Office charged the Branch P425 for interest on open account which the Branch failed to take up in full;
instead, the Branch sent to the Home Office a wrong adjusting memo, reducing the charge by P100 and set up a
liability for the net amount.
f.
The Home Office received P5,000, from the sale of truck which it erroneously credited to the Branch; the Branch did
not charge the Home Office therewith.
g. The Branch by mistake sent the Home Office a debit notes for P370 representing its proportion of a bill for repairs of
truck; the Home Office did not record it.
h. The Branch inadvertently received a copy of the Home Office entry dated January 19, 2006 correcting item (f) and
entered a credit in favor of the Home Office as of December 31, 2005.
At December 31, 2005, the unadjusted balance of the Branch current account on the books of the Home Office showed
P175,520. At the beginning of the year, the interoffice accounts were in balance. Compute the (1) unadjusted balance
of the Home Office account on branch books and (2) the adjusted balance of the reciprocal accounts of
December 31, 2005. B
a. (1) 184,279.50; (2) 186,000
c. (1) 150,520; (2) 184,279.50
b. (1) 184,279.50; (2) 180,520
d. (1) 180,520; (2) 180,020
84. The Work-in-Process account of the Iligan Company which uses a job order cost system follows:
Work-in-Process: Debit: April 1 balance
P25,000
Credit: Finished Goods P125,450
Direct Materials
50,000
Direct Labor
40,000
Overhead applied
30,000
Overhead is applied to production at a predetermined rate, based on direct labor cost. The work in process on June 30
represents the cost of Job No. 123, which has been charged with direct labor cost of P3,000 and Job No. 234, which has been
charged with applied overhead of P2,400. The cost of direct materials charged to Job No. 123 and Job No. 234
amounted to: A
a. P8,700
b. P4,500
c. P7,600
d. P4,200
85. The following information were taken from the accounting records of Manda Music Company for 2006:
Increase in raw materials inventory
P 45,000
Decrease in finished goods inventory
150,000
Raw materials purchases
1,290,000
Direct labor payroll
600,000
Factory Overhead
900,000
Freight out
135,000
The cost of raw materials used during the period amounted to: A
a. P1,245,000
b. P1,335,000
c. P1,290,000
d. P1,380,000

86. James has three stores and one service center. The percentage of services used in the current year are A, 25%; B, 40%; and
C, 35%. The expected long-term budgeted usages are stores, A, 30%; B, 30%; and C, 40%. The service center costs were
budgeted at P450,000 fixed and P550,000 variable. Actual fixed costs were P430,000 and actual variable costs were
P570,000. James allocated the budgeted variable costs of the central purchasing unit based on actual use of the units
service, and allocates budgeted fixed costs based on expected long-term use of the units service. Service costs allocated
to Stores B are: D
a. P135,000
b. P220,000
c. P300,000
d. P335,000
87. Ace Computer System offers two main services:
(1)
Time on a time-shares computer system; and
(2) Computer programs; Computer time is provided by the Operating Department (OD) and programs are written by
the Programming Department (PD). The percentage of each service by each departments for a typical period is
presented below:
User
OD
PD
Operating Department
40%
Programming department
30%
Sold to Customer
70%
60%
Total
100%
100%
=====
=====
In a typical period, the Operating Department spends P4,500 and the Programming department spends P2,500.
Under the stop-down method, what is the cost of the (1) computer time and the (2) computer program for
sale? B
a. (1) 4,500; (2) 2,500
c. (1) 1,350; (2) 5,650
b. (1) 3,150; (2) 3,850
d. (1) 2,700; (2) 4.300
88. Using the same data in No. 12, under the reciprocal method, what is the solution to the service cost allocation
problem? A
a. OD=4.500+.40PD; PD=2,500+.30OD
c. OD=2,500+.40PD; PD=4,500+.30OD
b. OD=4,500+.70PD; PD=2,500+.60OD
d. OD=2,500+.70PD; PD=4,500+.60OD
89. Earl Corporation manufactures a product that gives rise to a by-product X. The only costs associated with by-product X is
selling costs of P1 for each unit sold. This year, 1,000 units by-product X were sold at P4 each. If Earl records the net
realizable value of by-product as inventory, as it is produced, what will the per unit value be? B
a. P1
b. P3
c. P2
d. P4
90. Using the same information in No. 14, and Earl sold 1,000 units of its by-product. Assuming that 1,500 units were produced
for the year and that net realizable value is recorded as inventory. Earls net income will increase by: C
a. P6,000
b. P3,000
c. P4,500
d. P1,500

91. Using the same information in No. 14, Earl records its by-product inventory at net realizable value as it is produced this year,
what will be the profit recognized next year on a sale of 500 units? A
a. P0
b. P1,000
c. P500
d. P1,500
92. Rex Corporation has the following transactions that occurred during June 2006. This division uses JIT costing system.
(a) Raw materials were purchased at the cost of P97,000. All the materials purchased were requisitioned for
production.
(b) Direct labor costs of P77,000 were incurred. Actual factory overhead costs amounted to P225,000.
(c) Applied conversion costs totaled P300,000. This included P77,000 of direct labor. All units were completed.
Compute the June 30 balance in the Conversion Cost: C
a. P2,000 credit
b. P22,000 debit
c. P2,000 debit
d. P25,000 credit
93. Using the same information in No. 17, Compute the June 30 balance in the finished goods account: C
a. P398,000 credit b. P320,000 debit
c. P397,000 debit
d. P377,000 debit
94. UC Company presented the following cost data for the manufacture of 2,200 units of its only product during January, 2006;
Direct materials, P10; Direct labor P9; Factory overhead (including allowance of P0.50 for spoiled work), P9.
Final inspection of the job disclosed 200 spoiled units which were sold to an interested customer for P3,000. What would
be the unit cost of the remaining good units of the job if spoilage less is charged to (1) all production (2)
specific job A
a. (1) P28,00; (2) P28.75
c. (1) P26.50; (2) P28.75
b. (1) P28.00; (2) P28.00
d. (1) P26.50; (2) P27.50
95. Carlos Companys Wiring Department is the second stage of its production cycle. On June 30, 2006, Wiring Department
computed the flow of physical units completed for the month as follows:
Units completed:
From work in process, June 1, 2004
15,000 units
From March production
45,000 units
Materials are added at the beginning of the process. The 12,000 units of work in process at June 30, 2004 were 80%
completed as to conversion costs. The work in process at June 1, was 60% converted. Using FIFO, the equivalent units
for June, 2006 conversion costs were: B
a. 55,200 units
b. 60,600 units
c. 57,000 units
d. 63,600 units
96. In its first year of operations, Goods Companys sales were as follows:
Sales Basis
Mark-up Cost
Sales
Cash
25%
P250,000
Charge
33 1/3%
400,000
Installment
50%
600,000
The cost of goods sold for the year was P900,000. If collection on installment during the year amounted to P240,000, how
much was the total gross profit realized at the end of the year? D
a. P350,000
b. P80,000
c. P270,000
d. P230,000
97. Clark Company instituted a new process in June, 2006. During the period, 10,000 units were started in Dept. A. Of this units
started, 1,000 units were lost in the process; 7,000 units were transferred to Department B and 2,000 units remained work in
process at June 30, 2006. The units still in process were 100% complete as to materials and 50% complete as to conversion.
Materials costs of P27,000 and conversion. Materials costs of P27,000 and conversion costs of P40,000 were charged to
Department A in June, 2006. What were the total costs transferred to Department B? A
a. P36,000
b. P46,000
c. P33,600
d. P37,120
98. JC Company manufactures a single product and the raw materials passed through three different departments: Machining,
Assembly and finishing, in that order before completion.
On June 1, the inventories of Finishing Department and Finished Goods were:
Finishing Department
1,200 units, 2/3 completed, P4,200
Finished Goods
1,000 units at P3,000 units
During June, 2,000 units valued at P5,000 were transferred-in from the Assembly Department. Direct labor cost in Finishing
Department was P3,100 and the overhead cost applied to Finishing Department was P3,200.
The inventories on June 30 were:
Finishing Department
600 units, completed
Finished Goods
1,300 units
The processing cost per equivalent unit for June, 2006 A
a. P3.00
b. P1.50
c. P2.75
d. P3.50

Items 99 & 100. The following information are taken from the books of Clark Company and its branch.
The balances at December 31, 2005 follow:
Home Office

Branch

Sales
P400,000
Expenses
100,000
Shipment to branch
P200,000
Allowance for overvaluation
57,500
The branch acquired all of its merchandise from the home office. The home office ships the merchandise at 125% of cost.
The ending inventory of the branch is P40,000 at billed price.
99. The beginning inventory of the branch at billed price is B

a.

P30,000

b. P37,500

100.The true net income of the branch is B

a. P54,625
b. P102,000

c. P22,500

d. P32,500

c. P112,000

d. not given

-0- END OF THE EXAMINATION -0Good luck and God bless.