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Sponsored by: Joaquin Cunanan & Co. and Center for Training and Development, Inc.


1. This will not qualify a widow to be a head of the family:

a. Natural child with present common-law husband, 10 years old.
b. Legitimate child by a former marriage, 20 years old.
c. Common law husband who is single, 40 years old
d. Widowed mother of her common law husband, 60 years old.

2. A agreed to pay his debt and in case of nonpayment, to render free service as a servant. Is
the obligation is valid?
a. No, the obligation to pay and to render service as a servant are contrary to law
and morale.
b. Yes, if the free services will be rendered in satisfaction of the debt and in case of
non-performance, the proper remedy is specific performance.
c. No, the nullity of the condition carries with it the nullity of the principal obligation.
d. Yes, in so far as the obligation to pay but not as regards the undertaking to
render domestic services for free.

3. A passenger in a taxi was hurt because of the drivers negligence. As a result

a. The passenger may bring a civil case of culpa contractual against the
driver and owner of the taxicab company.
b. The owner is not liable if he can prove that he exercise the due diligence
in the selection and supervision of the driver.
c. The passenger must prove the existence of the contract of carriage
and that there was a breach because he did not arrive at his destination
d. The passenger must prove that there was negligence on the part of the

4. The right of the creditor to exercise all the rights and bring all the action available to the
debtor except those which are inherent in his person
a. Accion subrogatoria
b. Accion pauliana
c. Accion reinvindicatoria
d. Accion quanti minoris

5. I - I will give you my car , but you should not marry Maria this year
II- I will give you my car but only after you can prove that by the end of this year, you
have not married Maria.
a. Both obligations are subject to resolutory conditions.
b. Both obligations are subject to suspensive conditions
c. Only the first obligation is subject to resolutory condition
d. Only the second obligation is subject to resolutory condition.

6. The contract must bind both contracting parties and its validity or compliance cannot
be left to the will of one of them. This is the principle of relativity of contracts.
Contracts are perfected by mere consent of the contracting parties. This is the
principle of obligatory force of contracts.
a. Both statements are false.
b. First is false, second is true.
c. First is true, second is false.
d. Both are true.

7. A owns a row of apartments which he rents out to tenants. On 4 April, 2000 he left for the
United States without appointing any administrator to manage his apartments. B, a niece of
A, concerned with the interest of her uncle, took it upon herself to manage the property. The
juridical relation between A and B is:
a. Quasi-contract
a. Contract
b. Innominate contract
c. Negotiorum gestio

8. If both principal and agent sold the land of the principal to two buyers, which of the latter
shall be owner?
a. First registrant in good faith.
b. First possessor in good faith.
c. Oldest title in good faith.
d. Prior date contract.

9. A obliges himself to pay X P100,000 in 30 days plus a penalty of P20,000 if A fails to pay the
obligation in due time. A failed to pay the obligation in 30 days. X can demand from A.
a. The principal of P100,000 plus P20,000 penalty
b. The principal of P100,000 plus P20,000 penalty, plus legal interest
c. The principal of P100,000 plus legal interest.
d. The principal of P100,000 plus P20,000 penalty, plus legal interest, plus

10. A obliges himself to pay X P100,000 in 30 days plus a penalty of P20,000 if A fails to pay the
obligation in due time. A failed to pay the obligation in 30 days. X can demand from A.

e. The principal of P100,000 plus P20,000 penalty

f. The principal of P100,000 plus P20,000 penalty, plus legal interest
g. The principal of P100,000 plus legal interest.
d. The principal of P100,000 plus P20,000 penalty, plus legal interest, plus

11. A and B are partners with A as the managing partner. C owes A P10,000.00 and the
partnership P30,000.00 which are now both due. A issued a receipt for the payment of C in the
amount of P10,000.00 in his own name. The payment shall be applied to:
a. This partnership credit totally.
b. The credit of A only since the receipt is in his name.
c. The payment shall be applied equally to both credits.
d. The payment shall be applied proportionately to both credits.

12. Which of the following is not a right of the unpaid seller?

a. A lien on the goods while in his possession.
b. Right of stoppage of goods in transit even if buyer is solvent.
c. Right to rescind the sale.
d. Right of resale.

13. In two separate documents signed by A, he obligated himself each to B and C, thus:
To B, my true love, I obligate myself to pay you my one and only car when I feel I like it.
To C, my true sweetheart, I obligate myself to pay you the P 1M I owe you when I feel I like
In which of the two obligations is A liable?
a. A is liable to B because of his written promise to give his car which is enforceable
when he likes to do so.
b. A is not liable to B because the obligation is void being one with a void potestative
c. A is liable to C because the obligation is one with a suspensive condition which is
d. A is liable to C because the obligation is one with a period which depends
upon the will of the debtor.

14. In contact to sell, the buyer becomes owner upon delivery of the thing sold.
In contract of sale, the buyer becomes owner upon payment of the price.
a. Both statements are true.
b. Both are false.
c. First statement is false, second is true.
d. Second is false, first is true.

15. A pledged his wristwatch to B pawnshop for a loan of P7,000 which he failed to pay. B sold
the watch at public auction for P4,000.

a. B pawnshop can recover the P3,000 deficiency from A.

b. B pawnshop cannot recover the deficiency from A unless there is stipulation to
the contrary.
c. It cannot recover the deficiency even if there is stipulation to the contrary.
d. It cannot recover the deficiency if there is stipulation disallowing recovery.

16. A sold to B a genuine bottle of Fundador brandy. However, upon delivery the former
substituted a fake, B now wants to annul the sale. Decide
a. The contract is void ab initio therefore it can be annulled.
b. The contract can be annulled since it is voidable due to fraud.
c. The contract cannot be annulled because it is only incidental fraud.
d. There is dolo incidente therefore it can be annulled.

17. A obtained a loan from B payable within a year. As security for its payment, A mortgaged his
uninsured house. Three months after the loan was given, As house was gutted by an accidental
fire. Thereupon, B demanded payment immediately from A, who refused to pay contending that
the loan was for a one-year period. Is As contention valid?
a. As contention is valid because the contract of loan is explicit that payment is
within one year and the creditor can only demand payment at the end of the year.
b. As contention is not valid because payment is within a year and therefore the
creditor B has the benefit of the period.
c. As contention is not valid because the security has been lost and therefore
the obligation is demandable at once.
d. Not valid because the creditor B as a rule has the benefit of the period in an

18. A has been leasing to B his building for a number of years and repeatedly assured the latter
that if he should decide to sell the same he will give the latter the right of first refusal. Oh June
30, 2000, A informed B that he was willing to sell the building for P 5M. The following day latter
sent a letter to the former offering to buy the building for P 4.5M. A did not reply. One week later,
B received a letter from C informing him that the building has been sold to him by A for P 5M and
that he will not renew the lease when it expires. B is now claiming damages from A and wants to
compel A to execute the absolute deed of sale in his favor. Decide.
a. A is liable for breach of promise to sell because B already sent a letter to
him offering to buy at P 4.5M to which he did not reply.
b. A is not liable for damages and cannot be compelled to execute the
absolute deed of sale because there was no sale perfected between them.
c. A is not liable for damages and cannot be compelled to execute the
absolute deed of sale.
d. A is liable for damages but he may not be compelled to execute the
absolute deed of sale because C is an innocent purchaser for value.

19. A offered to sell her car to B for P 1M. After inspecting the car, B offered to buy it for P .5M
which offer was accepted by A. The next day, A offered to deliver the car but B, being short of
funds, secured postponement of the delivery, promising to pay the price upon the arrival of the
Ship Joyce. The ship however never arrived because it sunk due to tsunami. Can A compel B
to pay the price and accept the car?
a. No, B cannot compelled to do so because the sale was conditional upon the
arrival of the ship which however did not arrive.
b. No, B cannot be compelled to do so because there was no perfected sale. B
made a counter-offer which in reality was a qualified acceptance
c. Yes, B can compelled to do so but since the ship did not arrive obligation to pay
was extinguished.
d. Yes, B may compelled to do so as there was already a perfected sale
although the payment of the price was subject to a period.

20. A was hired by B as its chief accountant to serve for two years per contract between the
parties. But after serving only for two months, he resigned to join C Corporation, which enticed
him to leaved B Corporation by offering more advantageous terms of employment. B sued A for
damages for breach of contract and C also for damages. Decide.
a. C is liable for breach of contract entered into between A and B.
b. C is not liable for damages because it was not a party to the contract of
employment between A and B.
c. C is liable for its act of inducing A to violate his contract with B
although it is not a party thereto.
d. C is liable to pay damages to B even if it were in good faith because A is
liable for breach of contract.

21. A issued B a check for P50, 000.00 as payment for a car. Without the knowledge of A, B
altered the amount to P150, 000.00 and deposited the said check with X bank which
forwarded the same to Y bank for payment. Y bank, without noticing the alteration, paid the
check, debiting the amount from the account of A. Which of the two banks shall suffer the
a. X bank, as indorser to Y bank, warrants the correctness of the amount.
b. Y bank, as acceptor bank shall be liable for the loss.
c. Both banks are jointly liable to A
d. X bank initially but with right of reimbursement from Y bank

22. If an agent acted within the scope of his authority but in his own name, the contract is:
a. Valid b. Voidable c. Void d. Unenforceable.
23. Which of the following contracts is unenforceable?
a. One of the contracting parties is incapable of giving consent.
b. Contract of lease of a car for two years orally entered into.
c. Oral contract of sale of land.
d. Mortgage contract in private instrument.

24. This is a mode of extinguishing an agency, except:

a. Death of the principal, but the agency is for the interest of the principal and
b. Accomplishment of the agency.
c. Upon withdrawal of the principal.
d. Insanity of principal or agent.

25. The difference between a chattel mortgage and a pledge is that in chattel mortgage:
a. The delivery of the personal property is necessary.
b. The registration of the contract with the Register of Deeds needed.
c. The excess over the amount due after foreclosure sale goes to debtor.
d. The debtor is not liable for the deficiency after foreclosure.



Sponsored by: Joaquin Cunanan & Co. and Center for Training and Development, Inc.


1. A domestic corporation was registered with the BIR in 2000. Its gross income in 2005 is
P2,000,000 and deductible expenses were P2,500,000. How much is the tax due and payable
for the year 2005?

a. P640,000 b. P160,000 c. P40,000 d. P0

2. This will not qualify a widow to be a head of the family:

a. Natural child with present common-law husband, 10 years old.
b. Legitimate child by a former marriage, 20 years old.
c. Common law husband who is single, 40 years old
d. Widowed mother of her common law husband, 60 years old.
3. One of the following is not allowed to claim presumptive input tax. Which one?
a. Processor of sardines.
b. Manufacturer of canned fruits.
c. Manufacturer of refined sugar.
d. Public works contractor with respect to government contracts only.

4. The Philippine Income Tax System maybe characterized under two general categories, namely:
1st; Gross income taxation; whereby a final income tax is imposed on the amount of
certain specified types of income, such as interest, royalty, dividends.
2nd; Net income taxation; whereby certain deductions are allowed and subtracted from the
gross income, and the tax is based on the resulting net income therefrom.
a. Both statements are wrong
b. Both statements are correct
c. 1st is correct, 2nd is wrong
d. 1st is wrong, 2nd is correct
5. 1st; Proprietary educational institutions are subject to a special tax rate of 10% on net income
within and without the Philippines, provided that the gross income from unrelated trade, business
or other activity does not exceed 50% of the total gross income from all sources.
2nd; Hospitals that are non-profit are subject to a special tax rate of 20% on net income within and
without the Philippines.
a. Both are correct
b. Both are wrong
c. 1st is correct, 2nd is wrong
d. 1st is wrong, 2nd is correct
6. A non-resident alien decedent can claim the following deductions:
Medical Standard Family Medical Standard Family
Expenses Deduction home expenses Deduction Home
a. Yes Yes Yes c. No No No
b. Yes No No d. No Yes Yes

7. A non-resident alien donor made a donation to his son who is getting married to a Filipina
residing in the Philippines. Which of the following statements is correct?
a. The gross gifts shall include all properties wherever situated.
b. The gross gifts shall include all properties in the Philippines without any
c. The donor can deduct all the items of deduction except dowry.
d. The donation shall be subject to 30% donors tax on the net gifts.

8. A person is engaged in the sale of goods. His sales during the year did not exceed P550,000
but he decided to register under the VAT system. He shall be subject to:
a. Value-added tax only. c. Both value-added tax and 3%
percentage tax.
b. 3% percentage tax only. d. Neither value-added tax nor 3%
percentage tax.

9. JR, VAT-registered public works contractor, has the following data for the first quarter of 2005
(net of VAT):
Contract price (Government contract) P10,000,000
Collection on contract price 7,000,000
Purchase of equipment 1,000,000
Payment of subcontractor 500,000
For VAT purposes, how much is the presumptive input tax?
a. P595,000 c. P150,000
b. P105,00 d. Zero, not entitled to
presumptive input tax

10. A VAT-registered taxpayer has the following transactions involving shares of stock:
Selling price, Sweety Pie Common held as investment
(listed and traded in the local stock exchange) P500,000
Cost, Sweety Pie Common 600,000
Selling price, Pinay Pie Common held as inventory 700,000
Cost, Pinay Pie Common 300,000
The taxes due on the above transactions:
Percentage Tax Value-added Tax Percentage Tax Value-added Tax
a. None P30,000 c. P2,500 P40,000
b. None 40,000 d. None None

11. Voltaire Corporation files its annual income tax return on April 10, 2002 for its income for the
year 2001. The tax due per return was P500,000. Upon investigation, the BIR found that the
tax due should have been P700,000 due to the taxpayers honest mistake in the
interpretation of tax laws. An assessment notice was sent after the corporation failed to
respond to a pre-assessment notice. The due date per assessment was April 15, 2003. How
much is the total amount due per assessment?
a. P200,000b. P240,000 c. P250,000 d. P290,000

12. Peaches Cannery is a value-added tax processor of seafoods. Data, value-added tax not
included, are:
Sales, canned sardines P440,000
Sales, canned squid 330,000
Sales, canned milkfish 396,000
Cost of fresh sardines purchased 200,000
Cost of squid purchased 150,000
Cost of milkfish purchased 180,000

Cost of templates converted to tincans is 8% of the selling price. Cost of agricultural products
used as ingredients, purchased from farmers, is 10% of cost of seafoods purchased. VAT
a. P106,477 b. P107,272 c. P108,700 d. P63,600

13. Data for Geraldine Jasa, a value-added taxpayer:

Sales, VAT business, value-added tax included P990,000
Sales, non-VAT business 100,000
Purchases of goods sold, VAT business, VAT not included 220,000
Purchases of goods sold, non-VAT business, VAT included 33,000
Purchase of depreciable asset, for VAT and non-VAT business, VAT included 110,000
Purchases of supplies, for VAT and non-VAT business, VAT included 2,200
Rental of properties, VAT and non-VAT business, from non-VAT registered person 22,000
VAT payable:
a. P57,000 b. P56,800 c. P58,820 d. P54,800

14. In 2005, Jose Pidal made the following gifts:

* On June 1, 2005, P150,000 to Udong, his son, on account of his marriage celebrated on
May 1, 2004.
* On July 10, 2005, a parcel of land worth P180,000 to his father, subject to the condition that
the father would assume the mortgage indebtedness of Jose in the amount of P40,000.
* On September 30, 2005, P150,000 dowry to his daughter Vicky Toh, on account of her
scheduled marriage on October 25, 2005, and another wedding gift worth P20,000 on
November 23, 2005.
How much is the total net gifts?
a. P500,000 b. P450,000 c. P430,000 d. P460,000

15. Real property with a cost of P300,000 and a fair market value at the time of death of
P1,000,000, but subject to a mortgage of P200,000:
a. Shall be in the taxable net estate at P800,000.
b. Shall be in the gross estate at the decedents equity of P800,000.
c. Shall be in the gross estate at P300,000.
d. Shall be in the gross estate at the owners equity of P100,000.

Date of tax erroneously paid June 10, 2003
Date of claim for refund was filed with BIR March 3, 2005
Date of BIR decision denying claim was received April 5, 2005
Last day to appeal to the Court of Tax Appeals is on:
a. June 8, 2005 b. June 10, 2005 c. March 3, 2006 d. May 5, 2005

17. For filing a false and fraudulent return, a surcharge is imposed. Which of the following is
a. 50% as administrative penalty c. 25% plus 50%
b. 50% as criminal penalty d. 25% as criminal penalty

18. Tax of fixed proportion of the value of the property with respect to which the tax is assessed
and requires the intervention of assessor or appraiser who estimates the value of such
property before the amount due from each taxpayer can be determined is known as:
a. Specific b. Advalorem c. Special or regulatory d. Answer not

Questions 19 and 20 are based on the following data:

Mahusay is a restaurateur. In a particular quarter (taxes not included) he had:
Cities of: Manila Makati Pasay Pasig
Sales of food P500,000 P750,000 P350,000 P650,000
Sales of alcoholic beverages 700,000 600,000 300,000
Purchases of processed food and of
alcoholic beverages 100,000 200,000 80,000 150,000
Purchases of raw agricultural and
Marine food products 80,000 130,000 60,000 170,000
The Manila establishment is inside an amusement park. The Pasay establishment is in a race
track owned by the City Jockey Club, and the Pasig establishment is in a nightclub operated by a
VAT-registered friend and to whom the taxpayer is paying a fixed amount of P22,000 a quarter.
The Makati establishment is in a night club operated by the taxpayer.

19. The value-added tax, if any

a. P78,000 b. P208,000 c. P205,000 d. P120,000

20. The percentage of tax, if any:

a. P261,000 b. P432,000 c. P603,000 d. P693,000

Items 21 through 25 are based on the following information:

Husband and wife, with five qualified dependent children, had the following data for 2005:
Salaries P 270,000
Thirteenth month pay 25,000
Premiums on health insurance paid 5,000
Sales 3,000,000
Dividend from domestic corporation 30,000
Dividend from resident corporation 20,000
Interest on Philippine currency bank deposit 150,000
Royalty from books 45,000
Royalty from patented invention 90,000
Capital gains on assets held for not more than 12 months:
On sale directly to buyer of shares of domestic corporation 150,000
On sale directly to buyer of bonds of domestic corporation 60,000
On sale thru to the Philippines Stock Exchange of shares of domestic corporation 100,000
On sale thru a real state broker of land in the Philippines (fair market value -
P4,200,000, selling price P4,500,000) 1,000,000
On sale of vacation house and lot in Hongkong 300,000
Cost of sales 1,470,000
Capital losses on asset held for more than 12 months:
On sale directly to buyer of land in Japan 375,000
On sale of family car 150,000
On sale directly to buyer of bonds of domestic corporation 37,500
Contributions to Churches 50,000
Business expenses 750,000

21. The income tax withheld on compensation income is:

a. P51,900 b. P47,000 c. P24,500 d. P22,500

22. The final tax on passive income is:

a. P30,000 b. P52,500 c. P55,500 d. P58,800

23. The capital gain tax on real property is:

a. P200,000 b. P180,000 c. P225,000 d. P270,000

24. The capital gain tax on shares of stock is:

a. P5,000 b. P7,500 c. P10,000 d. P15,000

25. The net capital gain (loss) at the end of the year is:
a. P180,000 b. P105,000 c. P78,750 d. (P202,500)



Sponsored by: Joaquin Cunanan & Co. and Center for Training and Development, Inc.


1. An organizations sales revenue is expected to be P72,600, a 10% increase over last year. For
the same period, total fixed costs of P22,000 are expected to be the same as last year. If the
number of units sold is expected to increase by 1,000, the marginal revenue per unit will be
a. P4.00
b. P6.60
c. P20.00
d. P46.00

1. A company had income of P50,000 using direct costing for a given period. Beginning and
ending inventories for that period were 13,000 units and 18,000 units, respectively. Ignoring
income taxes, if the fixed overhead application rate were P2.00 per unit, what would the
income be, using absorption costing?
e. P40,000
f. P50,000
g. P60,000
h. None of those given

3. MAGNA GEAR COMPANY produces a special gear used in automatic transmissions. Each
gear sells for P28, and the company sells approximately 500,000 gears each year. Unit cost data
for 2002 are presented as follows:
Variable Fixed
Direct materials P6.00
Direct labor 5.00
Manufacturing overhead 2.00 P7.00
Distribution expenses 4.00 3.00
Magna has received an offer from a foreign manufacturer to purchase 25,000 gears. Domestic
sales would be unaffected by this transaction. If the offer is accepted, variable distribution costs
will increase P1.50 per gear for insurance, shipping and import duties. The relevant unit cost to a
pricing decision on this offer is
a. P17.00 b. P14.50 c. P28.50 d. P18.50

4. REGOS CRAFT is evaluating the launching of a new product. If the product becomes
successful, the present value of future cash flows (excluding investments) is estimated at
P3,000,000. If the product is not successful, the present value of this cashflow is estimated
at P500,000. The required investment is P1,500,000. What are the probabilities that would
have to be assigned to the events successful and not successful to make Regos Craft
indifferent between the two actions invest and do not invest?
Success Failure
a. 40% 60%
b. 60% 40%
c. 70% 30%
d. 30% 70%

5. A company owns equipment that it used to manufacture important parts for its production
process. The company plans to sell the equipment for P10,000 and to select one of the following
1. acquire new equipment for P80,000;
2. purchase the important parts from an outside company at P4.00 per part.
The company should quantitatively analyze the alternatives by comparing the cost of
manufacturing the parts
a. plus P80,000 to the cost of buying the parts less P10,000.
b. to the cost of buying the parts less P10,000.
c. less P10,000 to the cost of buying the parts.
d. to the cost of buying the parts.

6. Golden, Inc., has been manufacturing 5,000 units of Part 143 which is used in the manufacture
of one of its products. At this level of production, the cost per unit of manufacturing Part 143 is as
Direct materials P 2.00
Direct labor 8.00
Variable overhead 4.00
Fixed overhead applied 6.00
Silver company has offered to sell Golden 5,000 units of Part 143 for P19 a unit. Golden has
determined that it could use the facilities currently used to manufacture Part 143 to
manufacture Product UNI and generate an operating profit of P4,000. Golden has only
determined tht two-thirds of the fixed overhead applied will continue even if Part 143 is
purchased from Silver. To determine whether to accept Silvers offer, the net relevant costs to
Golden are
a. P76,000 b. P80,000 c. P90,000 d. P95,000
7. The RICO COMPANY manufactures Part No. 14U for use in its production cycle, the cost per
unit for 20,000 units of Part No. 14U are as follows:
Direct materials P 6.00
Direct labor 30.00
Variable overhead 12.00
Fixed overhead applied 16.00
The Tracy Company has offered to sell 20,000 units of Part No. 14U to Rico for P60 per unit.
Rico will make the decision to buy the part from Tracy if there is a savings of P25,000 for
Rico. If Rico accepts Tracys offer, P9 per unit of the fixed overhead applied would be totally
eliminated. Furthermore, Rico has determined that the released facilities could be used to
save relevant costs in the manufacture of Part 240. In order to have a savings of P25,000,
the amount of relevant costs that would be saved by using the released facilities in the
manufacture of Part 240 would have to be
a. P80,000
b. P85,000
c. P125,000
d. P140,000
8. ARMINA COMPANY, a manufacturer of lamps, budgeted sales of 400,000 lamps at P20 per
unit for the year. Variable manufacturing costs were budgeted at P8 per unit, and fixed
manufacturing costs at P5 per unit. A special order offering to buy 40,000 lamps for P11.50
each was received by Armina in April. Armina has sufficient plant capacity to manufacture the
additional quantity of lamps, however, the production would have to be done by the present
work force on an overtime basis at an estimated additional cost of P1.50 per lamp. Armina
will not incur any selling expenses as a result of the special order. Armina Company would
have a unit relevant cost of
a. P8.00
b. P13.00
c. P9.50
d. P14.50
9. Lani Company is budgeting sales of 100,000 units of product R for the month of September.
Production of one unit of product R requires two units of material A and three units of material
B. Actual inventory units at September 1 and budgeted inventory units at September 30 are
as follows:
Actual Budgeted
Product R 20,000 10,000
Material A 25,000 18,000
Material B 22,000 24,000

How many units of material A is Lani planning to purchase during September?

a. 328,000
b. 302,000
c. 298,000
d. 272,000
10. Nice Companys sales budget shows the following projections for the year ending December
Quarter Units
First 60,000
Second 80,000
Third 45,000
Fourth 55,000
Total 240,000
Inventory at December 31, of the prior year was budgeted at 18,000 units. The quantity of
finished goods inventory at the end of each quarter is to equal 30% of the next quarters
budgeted sales of units. How much should the production budget show for units to be
produced during the first quarter?
a. 24,000
b. 48,000
c. 66,000
d. 72,000

11. F4 Corporation has estimated its activity for June. Selected data from these estimated
amounts are follows:
Sales P700,000
Gross profit (based on sales) 30%
Increase in trade accounts receivable
during the month 20,000
Change in accounts payable
during month P --- 0 ---
Increase in inventory during month P 10,000

Variable selling, general and administrative expense (SG&A) includes a charge for
uncollectible accounts of 1% of sales.
Total SG&A is P71,000/month plus 15% of sales.
Depreciation expense of P40,000/month is included in fixed SG&A.

On the basis of the above data, what are the estimated cash disbursements for SG&A in
P129,000b. P176,000
c. P490,000
d. P629,000

12. First Company, which has a standard cost system, had 500 units of raw material X in its
inventory at June 1, purchased in May for P1.20 per unit and carried at a standard cost of
P1.00. The following information pertains to raw material X for the month of June:
Actual number of units purchased 1,400
Actual direct material costs 1,500
Standard number of units allowed
for actual production 1,300
Standard cost per unit P1.00
Actual cost per unit P1.10

The unfavorable materials purchase price variance for raw material X for June was:
P0b. P130
c. P140
d.P15013.Second Corp. uses a standard cost system. Direct labor information for Product CER
for the month of October is as follows:
Actual rate per hour P6.00
Actual rate paid per hour P4.10
Standard hours allowed
for actual production 1,500
Labor efficiency variance unfav. P600
What are the actual hours worked?
a. 1,400
b. 1,402
c. 1,500
d. 1,600

Questions 14 through 18 are base on the following information:

RUBY-ROSE, a high-fashion womens dress manufacturer, is planning to market a new cocktail

dress for the coming season. Ruby-Rose supplies retailers in the Cubao and Makati areas.
Four yards of material are required to lay-out the dress pattern. Some material remains after
cutting which can be sold as remnants.
The left-over materials could also be used to manufacture a matching cape and handbag.
However, if the left-over materials is to be used for the cape and handbag, more care will be
required in the cutting which will increase the cutting costs.
The Company expects to sell 1,250 dresses if no matching cape and handbag are available.
Ruby-Rose market research reveals that dress sales will be 20% higher if a matching capes, and
handbag are available.
The market research indicates that the cape and/or handbag will not be sold individually but only
as accessories with the dress. The various combinations of dresses, capes and handbags are
expected to e sold by retailers are indicated below:

Percentage of Total
Complete sets of dress, cape 70%
and handbag
Dress and cape 6%
Dress and handbag 15%
Dress only 9%
The material used in the dress costs P12.50 a yard or P50 for each dress. The cost of cutting the
dress if the cape and handbag are not manufactured is estimated at P20 a dress, and the
resulting remnants can be sold for P5 for each dress cut-out. If the cape and handbag are to be
manufactured, the cutting costs will be increased by P9 per dress. There will be no salable
remnants if the capes and handbags are manufactured in the quantities estimated.
The selling prices and the costs to complete the three items once they are cut are:
Unit cost to complete
(Estimated cost of
Selling price Materials and cutting
per Unit operations)
Dress P200.00 P80.00
Cape 27.50 19.50
Handbag 9.50 6.50

14. How many dresses will be produced if the accessories are produce as well?
a. 1,250
b. 1,050
c. 1,500
d. 135

15. The unit incremental contribution margin for dresses is

a. P95
b. P120
c. P72
d. P125

16. What would be the total incremental contribution margin for the handbags?
a. P3,825
b. P3,150
c. P9,120
d. P10,200

17. What will be the total additional costs of material and cutting if the accessories are produced?
a. P31,000
b. P37,250
c. P32,250
d. P26,000

18. Assuming the accessories are produced, what will be the incremental profit?
a. P5,695
b. P6,250
c. P11,945
d. P16,945

19. Barr Co. has total debt of 420,000 pesos and shareholders' equity of 700,000 pesos. Barr is
seeking capital to fund an expansion. Barr is planning to issue an additional 300,000 pesos in
common stock and is negotiating with a bank to borrow additional funds. The bank requires a
debt-to-equity ratio of .75. What is the maximum additional amount Barr will be able to borrow?
a. P225,000 c. P525,000
b. P330,000 d. P750,000

20. The selected data below pertain to a company at December 31, 2005:

Quick Assets P208,000

Acid Test ratio 2.6 to 1
Current ratio 3.5 to 1
Net Sales for 2005 P1,800,000
Cost of Sales for 2005 P 990,000
Average total assets for 2005 P1,200,000

The company's current liabilities at December 31,2005 amount to

a. P59,429 c. P134,857
b. P80,000 d. P187,200




Sponsored by: Joaquin Cunanan & Co. and Center for Training and Development, Inc.


1. Nonfinancial disclosures include (choose the incorrect one)

a. Contingencies and commitments
b. Domicile and legal form of the enterprise, its country of incorporation and address of registered office.
c. Description of the nature of the enterprises operations or principal activities
d. Name of the parent enterprise and the ultimate parent enterprise of the group

2. WXY COMPANY leased a factory site for a period of fifteen years. The lease contract
provided, among others, a 10% increase in annual payments every five years. WXY classified
the lease as an operating lease. Which of the following would be the result on WXY
COMPANYS expenses in the sixth year compared to the fifth?
a. Rent and interest expense will both increase.
b. No increase in rent or interest expense.
c. Interest expense will increase and rent expense will not.
d. Rent expense will increase but not interest expense.

2. How does first-in, first-out method of process costing differ from weighted-average?
a. FIFO considers the stage of completion of beginning work in-process inventory in computing
equivalent units of production, but weighted-average does not.
b. FIFO does not consider the stage of completion of beginning work-in process inventory in computing
equivalent units of production, but weighted average does.
c. FIFO is applicable only to those companies using the first-in, first-out inventory pricing method, but the
weighted-average method may be used with any inventory pricing method.
d. FIFO allocates cost based on whole units, but the weighted-average method uses equivalent units.
4. The following statements relate to the standard of adequate disclosure. Which statement is
considered false?
a. In complying with the standard of adequate disclosure, accountants are guided by the doctrine that more
information is always better than less.
b. Financial accounting information that meets the qualitative characteristics of financial accounting also meet
the reporting standard of adequate disclosure.
c. Adequate disclosure is concerned not only with the kind of information contained in financial statements
but also with the manner in which that information is presented.
d. The disclosure standard calls for financial reporting of any financial facts significant enough to influence the
judgment of an informed reader of the statements.

5. Recording the payment (as distinguished from the declaration) of a cash dividend whose
declaration was already recorded will
a. Increase the current ratio but have no effect on working capital.
b. Decrease both the current ratio and working capital.
c. Increase both the current ratio and working capital.
d. Have no effect on the current ratio or earnings per share.

6. BLM, a single proprietor uses the cash basis of accounting for tax purposes. Compared with
the accrual basis of accounting, its use of the cash basis understates income during the
accounting period by the net decrease of
a. Both accounts receivable and accrued expenses.
b. Accrued expenses but not of accounts receivable.
c. Neither accounts receivable nor accrued expenses.
d. Accounts receivable but nor of accrued expenses.

7. A group of oil production companies jointly control and operate an oil pipeline. Each venturer
uses the pipeline to transport its own product in return for which it bears an agreed proportion of
the expenses of operating the pipeline. This joint venture is known as a
a. Jointly controlled operations b. Jointly controlled assets
c. Jointly controlled entities d. Joint and by-product costing

8. The following factors need not be considered in determining the useful life of an asset.
a. The expected usage of the asset by the enterprise
b. The expected physical wear and tear, which depends on operational factors and the care and maintenance
of the asset while idle
c. Legal or similar limits on the use of the asset
d. Acquisition costs and mode of acquiring the asset

9. The replacement cost of an item of inventory was greater than its historical costs at the end of
the year. The net realizable value of the said inventory was greater than the replacement costs.
The replacement cost, however, is greater than the net realizable value after normal profit margin
is deducted. Based on the circumstances surrounding the inventory item, what amount would be
use in presenting the item in the balance sheet
a. Historical cost c. Net realizable value
b. Replacement cost d. Net realizable value less normal profit margin

10. An item or property, plant and equipment which qualify for recognition as an asset should
initially be measured at its cost. The cost of an item of property, plant and equipment comprises
its purchase price, including import duties and non-refundable purchase taxes and any directly
attributable costs which may include the following costs, except
a. Cost of site preparation
b. Initial delivery, handling and installation costs
c. Removal costs of an old asset (machinery) which is to be replaced by a new and better asset
d. Professional fees such as for architects and engineers during the construction of the asset
11. Which of the following is an inventoriable cost?
Abnormal Spoilage Normal Spoilage Abnormal Spoilage Normal Spoilage
a. No No b. No Yes
c. Yes Yes d. Yes No

12. The computation of earnings per share in accordance with generally accepted accounting
principles may involve the consideration of securities deemed common stock equivalents.
Common stock equivalents are an example of
a. Form over substance b. Substance over form
c. Form over accounting principle d. Substance over accounting principle

13. When preparing a statement of changes in financial position using the cash basis for defining
funds, an increase in ending inventory over beginning inventory will result in an adjustment to
reported net earnings because
a. Funds were increased since inventory is a current asset
b. The net increase in inventory reduced cost of goods sold but represents an assumed use of cash.
c. Inventory is an expense deducted in computing earnings, but is not a use of funds
d. All changes in non-cash accounts must be disclosed under the all financial resources concept

14. The following statements relate to the nature of expense method. Choose the incorrect one.
a. Expenses are aggregated in the income statement according to their nature and are not reallocated among
various functions within the enterprise
b. The change in the finished goods and work in process during the period represents an adjustment to
production expenses to reflect the fact that either production has increased inventory levels or that sales in
excess of production have reduced inventory levels
c. An increase in finished goods and work in process during the period may be presented immediately
following revenue
d. Expenses are classified as part of cost of sales, distribution (selling) or administrative

15. Dividends to holders of equity instruments that are proposed or declared after balance sheet
date but before the financial statements were authorized for issue may present this is information
I. A liability on the face of the balance sheet
II. As a separate component of equity on the face of the balance sheet
III. In the notes to the financial statements
a. I and III only b. III only c. II and III only d. I, II and III

16. The following are examples of adjusting events after balance sheet date that requires an
enterprise to adjust the amounts recognized in its financial statements, except
a. Resolution of a court case which, because it confirms that an enterprise already had a present
obligation at the balance sheet date
b. The bankruptcy of a customer which occurs after the balance sheet date
c. The determination after the balance sheet date of the amount of profit sharing or bonus payments, if
the enterprise had a present legal or constructive obligation at the balance sheet date to make such
payments as a result of events before that date
d. Decline in the market value of investments between the balance sheet date and the date when
the financial statements are authorized for issue

17. The following are examples of cash flows arising from financing activities, except
a. Proceeds from issuing shares or other equity instruments
b. Payments to owners to acquire or redeem enterprises shares
c. Conversion of a debt to equity security
d. Payments by a lessee for the reduction of the outstanding liability relating to a finance lease
18. The following statements relate to the appropriate presentation of the statement of cash
flows, except
a. Cash flows arising from transactions in a foreign currency should be recorded in the
enterprises reporting currency by applying the exchange rate at the date the cash flow
statement is prepared
b. Unrealized gains and losses arising from changes in foreign currency exchange rates are not to be
considered as cash flows
c. The cash flows associate with extraordinary items should be classified as arising from operating,
investing or financing activities as appropriate and separately disclosed
d. Cash receipts and payments on behalf of customers when the cash flows reflect the activities of the
customer rather than those of the enterprise (rent collected on behalf of, and paid over to, the owners
of the properties) may be reported on a net basis

19. A company with a simple capital structure for purposes of computing earnings per share
would include which of the following in the computation of earnings per share?
a. Dividends on nonconvertible cumulative preferred stock.
b. Dividends on common stock.
c. Common stock equivalents.
d. Number of shares of nonconvertible cumulative preferred stock.

20. The retail inventory method would include which of the following in the calculation of the
goods available for sale at both cost and retail?
a. Freight-in b. Purchase returns.
c. Markups d. Markdowns.

21. The composite depreciation method

a.Is applied to a group of homogeneous assets.
b.Is an accelerated method of depreciation.
c.Does NOT recognize gain or loss on the retirement of single assets in the group.
d.Excludes salvage value from the base of the depreciation calculation.

22. What is the market rate of interest for a bond issue which sells for more than its par value?
a. Less than rate stated on bond b. Equal to rate stated on the bond
c. Higher than rate stated on the bond d. Independent of rate stated on the bond

23. For a company that has only common stock outstanding, total shareholders equity divided
by the number of shares outstanding represents the
a. Return on equity b. Stated value per share
c. Book value per share d. Price-earnings ratio.

24. When treasury stock which was purchased for more than the par value of the stock is
subsequently sold for more than the purchase price, additional paid-in capital from the sale of the
treasury stock is credited under which of the following methods?
Cost Method Par Value Method Cost Method Par Value Method
a. No No b. No Yes
c. Yes Yes d. Yes No

25. The granting by a company to its shareholders of the opportunity to buy additional shares of
stock within a specified future time at a specified price is an example of a
a. Dividend reinvestment plan b. Stock right
c. Stock dividend d. Stock option


Sponsored by: Joaquin Cunanan & Co. and Center for Training and Development, Inc.


1. In applying analytical procedures, the auditor discovered that gross profit as a percent of sales
declined sharply during the current year. A possible cause might be
a. The client has significant amounts of obsolete inventory carried at full cost.
b. A significant quantity of finished goods located in a distant warehouse was
inadvertently omitted from the ending inventory.
c. Recorded sales included goods that were shipped the following year.
d. Depreciation of office equipment was overstated.

2. A basic premise underlying analytical procedure is that

a. These procedures cannot replace tests of balances and transactions.
b. Statistical tests of financial information may lead to the discovery of material
misstatements in the
financial statements.
c. The study of financial ratios is an acceptable alternative to the investigation of
unusual fluctuations.
d. Plausible relationships among data may reasonably be expected to exist and
continue in the absence of known conditions to the contrary.

3. Having evaluated inherent risk and control risk, the auditor determines detection risk
a. As the complement of overall audit risk.
b. By performing substantive audit tests.
c. As a product of further study of the business and industry and application of analytical
d. At a level that equates the joint probability of inherent risk, control risk, and
detection risk with overall audit risk.
3. Which of the following is not a typical analytical review procedures
a. Study of relationships of financial information to relevant non-financial information
b. Comparison of financial information with similar financial information regarding
the industry in
which the entity operates.
c. comparison of recorded amount of disbursements with appropriate
d. comparison of recorded amounts of major disbursements with budgeted amounts

4. The form and content of the engagement letters may vary for each client, but they would
generally include reference to all of the following, except:
a. Objective and the scope of the audit of financial statements.
b. The fact that because of the inherent limitations of the audit, there is a risk that material
may remain undiscovered.
c. Form of the reports to be issued.
d. A statement that other consulting services may be made available upon request.

6. The least likely form of pronouncement of the ASPC on auditing standards, practices and
procedures is
a. Philippine Auditing Practice Statements (PAPs)
b. Philippine Standards on Auditing (PSAs)
c. Interpretations of PSA
d. Financial reporting framework
7. An auditor's report that refers to a departure from generally accepted accounting principles
includes the language, "In our opinion, with the foregoing explanation, the financial statements
referred to above present fairly ..." This is a(n)
a. Adverse opinion.
b. Qualified opinion.
c. Unqualified opinion with an explanatory paragraph.
d. Example of inappropriate reporting.

8. An audit assesses control risk because it

a. indicates where inherent risk may be the greatest
b. affects the level of detection risk the auditor may accept
c. determines whether sampling risk is sufficiently low
d. includes the aspects of non sampling risk that are controllable
9. On the basis of audit evidence gathered and evaluated, an auditor decides to increase the
assessed level of control risk that originally planned. To achieve an overall audit risk level that is
substantially the same as the planned audit risk level, the auditor would
a. Increase inherent risk c. Decrease substantive testing
b. Increase materiality levels d. Decrease detections risk

10. To determine the sample size for a test of controls, an auditor should consider the tolerable
occurrence rate, the allowable risk of assessing control risk too low, and the
a. Expected occurrence rate
b. Upper precision limit
c. Risk of incorrect acceptance
d. Risk of incorrect rejection
11. Compiled financial statement should be accompanied by a report stating all of the
following except
a. The accountant does not express an opinion or any other form of assurance on
b. A compilation has been performed
c. A compilation is limited to presenting in the form of financial statements information
that is the representation of management
d. A compilation consists principally of inquiries of company personnel and
analytical procedures applied to financial data

12. Which of the following procedures would most likely be included in a review engagement of a
nonpublic entity?
a. Preparing a bank transfer schedule
b. Inquiring about related-party transactions
c. Assessing the internal control system
d. Performing cutoff tests on sales and purchase transactions

13. The Philippine Standards on Auditing issued by ASPC

a. Apply to independent examination of financial statements of any entity when
such an examination is conducted for the purpose of expressing an opinion
b. Must not apply to other related activities of auditors.
c. Need to be applied on all audit related matters.
d. Require that in no circumstances would an auditor may judge it necessary to
depart from a PSA, even though such a departure may result to more effective
achievement of the objective of an audit.

14. The negative form of confirmation request is not preferable when

a Individual receivable balances are relatively large.
b Internal control surrounding accounts receivable is considered effective.
c There are a large number of small receivable balances.
d The CPA has no reason to believe the persons receiving them are unlikely to give
them consideration.

15. Identify the sample selection methods used following the same order:
1.1 Selecting items from the entire population with no intention to include or exclude
specific units.
1.2 Selecting items using a constant interval between selections, the first interval
having a random start
1.3 All items in the population or within each stratum have a known chance of
a Systematic, random, haphazard
b Haphazard, systematic, random
c Systematic, haphazard, random
d Random, systematic, haphazard
16. Which of the following is not a primary purpose of audit working papers?
a. To coordinate the examination.
b. To assist in preparation of the audit report.
c. To support the financial statements.
d. To provide evidence of the audit work performed.
17. Customers with substantial due balances have failed to reply after second requests
had been mailed to them directly. Which of the following audit procedures is most appropriate?
a. Examine shipping documents.
b. Review cash collections during the year being audited.
c. Intensify the study of internal controls for receivables.
d. Increase the balance in the accounts receivable allowance account.

18. Assessing control risk too low relates to

a. The efficiency of the audit
b. The effectiveness of the audit
c. The preliminary estimate of materiality
d. Tolerable error

19. Which of the following acts are considered errors?

I. Alteration of records or documents.
II. Misinterpretation of facts.
III. Misappropriation of assets.
IV. Recording of transactions without substance.
V. Clerical mistakes.
a. II and V only b. I and III only c. I, III, and IV only d. All of them

20. As the acceptable level of detection risk decreases, an auditor may change the
a. Timing of substantive tests by performing them at an interim date rather than at year end.
b. Nature of substantive tests from a less effective to a more effective procedure.
c. Timing of tests of controls by performing them at several dates rather than at one time.
d. Assessed level of inherent risk to a higher amount.

21. Which of the following statements is incorrect according to Section 7 of the Philippine
Accountancy Act of 2004 (RA 9298)?
a. The Chairman and the members of the Professional Regulatory Board of
Accountancy (PRBOA) shall hold office for a term of two (2) years.
b. No person who has served two(2) successive terms shall be eligible for
reappointment until the lapse of one(1) year.
c. Any vacancy occurring within the term of a member shall be filled up for the
unexpired portion of the term only.
d. Appointment to fill up an unexpired term is not to be considered as a complete

22. It comprises the overall attitude, awareness and actions of directors and management
regarding the internal control system and its importance in the entity.
a. Control procedures c. Control environment
b. Information system d. Audit system

23. An audit engagement letter least likely includes

a. A reference to the inherent limitation of an audit that some material misstatements
may remain undiscovered.
b. Identification of specific audit procedures that the auditor needs to undertake.
c. Description of any letters or reports that the auditor expects to submit to the client.
d. Arrangements concerning the involvement of internal auditors and other clients
24. If the auditor concludes that the fraud or error has a material effect on the financial statements
and has not been properly corrected in the financial statements, the
auditor should issue a:
a. unqualified opinion with explanatory paragraph.
b. Qualified or adverse opinion.
c. Qualified or disclaimer of opinion.
d. Adverse or disclaimer of opinion.

25. Adequate planning of the audit work helps the auditor of accomplishing the
following objectives, except:
a. Gathering of all corroborating audit evidence.
b. Ensuring that appropriate attention is devoted to important areas of the
c. Identifying potential problems.
d. The audit work is completed expeditiously.





Sponsored by: Joaquin Cunanan & Co. and Center for Training and Development, Inc.

Question 1-10. Presented below are unaudited balances of selected accounts of BIG Company
as at December 31, 2003. During the course of your audit of BIGs books you obtained additional
information affecting these accounts.
Unaudited balances as at
December 31, 2003
Selected accounts: Debit Credit
Cash P 500,000
Accounts receivable 1,300,000
Allowance for uncollectible accounts 8,000
Sales (net) P6,750,000
Accounts payable 600,000
Purchases (net) 4,350,000
Cars and trucks 1,200,000
Machinery and equipment 950,000
Acc. depreciation, machinery and equipment 95,000
Additional information:
1 On December 28, 2003, BIG recorded and wrote check payments to creditors
amounting to P300,000. A number of checks amounting to P150,000 were mailed on
January 3, 2004.
2 On December 29, 2003, BIG purchased and received goods amounting to
P100,000 terms 2/10, n/30. As a policy, BIG records purchases in accounts payable at net
amounts. This particular invoice was recorded and paid on January 3, 2004.
3 On December 26, 2003, a supplier authorized BIG to return goods shipped and
billed at P80,000 on December 3, 2003. The goods were returned on December 28, 2003.
The suppliers credit memo was received and recorded on January 5, 2004.
4 Goods amounting to P50,000 were invoiced for the account of City Store and
recorded on January 2, 2004 with terms of net 60 days, FOB shipping point. The goods
were shipped to City Store on December 30, 2003.
5 The bank returned on December 29, 2003 a customer check for P5,000 marked
No Sufficient Funds but no entry was made.
6 BIG estimates that allowance for uncollectible accounts should be one and one-
half percent (1-1/2%) of the accounts receivable balance as of the year end. No provision
has yet been made for 2003.
7 All the cars and trucks were acquired on May 1, 2003 at total cost of
P1,200,000. BIG estimates the useful life of the cars and trucks as five years and
depreciates these assets based on 150% of declining balance. As a policy, depreciation is
computed to the nearest month and rounded-off to the nearest peso. No depreciation has
been recorded for cars and trucks as at December 31, 2003.

1. Indicate the corrected/adjusted amount of Cash.

a. P495,000 b. P500,000 c. P645,000 d. P650,000

2. Indicate the corrected/adjusted amount of Accounts receivable.

a. P1,300,000 b. P1,350,000 c. P1,305,000 d. P1,355,000

3. Indicate the corrected/adjusted amount of Sales (net).

a. P6,850,000 b. P6,800,000 c. P6,700,000 d. P6,750,000

4. Indicate the corrected/adjusted amount of Purchases (net).

a. P4,350,000 b. P4,368,000 c. P4,448,000 d. P4,270,000

5. Indicate the corrected/adjusted amount of Accounts payable.

a. P768,000 b. P800,000 c. P898,000 d. P600,000

6. Indicate the corrected/adjusted amount of cars and trucks.

a. P840,000 b. P1,200,000 c. P960,000 d. P1,440,000

7. Indicate the corrected/adjusted amount of accumulated depreciation - cars and trucks.

a. P200,000 b. P360,000 c. P160,000 d. P240,000

8. Indicate the corrected/adjusted amount of machinery and equipment.

a. P950,000 b. P1,000,000 c. P1,016,000 d. P966,000

9. Indicate the corrected/adjusted amount of the 2003 uncollectible accounts expense.

a. P12,325 b. P20,325 c. P28,325 d. P36,325

10. Indicate the corrected/adjusted amount of the 2003 depreciation expense - machinery
and equipment.
a. P95,417 b. P95,550 c. P95,000 d. P95,500

Question 11-15. The Allen Company is a wholesale distributor of automotive replacement parts.
Initial amounts taken from Allens accounting records are as follows:
Net income for the year ended December 31, 2003
P 2,172,000
Inventory at December 31, 2003 (based on Physical count of goods in Allens
warehouse on December 31, 2003)
Net purchases in 2003
Net sales in 2003
Vendor Terms Amount

B Company 2% 10 days, net 30 P 265,000

C Company Net 30 210,000
D Company Net 30 300,000
E Company Net 30 225,000
F Company Net 30 -
G Company Net 30 -
Additional information is as follows:
1 Parts held on consignment from C to Allen, the consignee, amounting to
P155,000, were included in the physical count of goods in Allens warehouse on
December 31, 2003, and in accounts payable at December 31, 2003.
2 P22,000 of parts which were purchased from F and paid for in December 2003
were sold in the last week of December 2003 for P28,000. Allen appropriately
recorded the sale in December. The parts were included in the physical count of
goods in Allens warehouse on December 31, 2003, because the parts were on the
loading dock waiting to be picked up by customers.
3 Parts in transit on December 31, 2003, to customers, shipped F.O.B. shipping
point, on December 28, 2003, amounted to P34,000. The customers received the
parts on January 6, 2004. Sales of P40,000 to the customers for the parts were
recorded by Allen on January 2, 2004.
4 Retailers were holding P210,000 at cost (P250,000 at retail), of goods on
consignment from Allen, the consignor, at their stores on December 31, 2003.
5 Goods were in transit from G to Allen on December 31, 1997. The cost of the
goods was P25,000, and they were shipped F.O.B. shipping point on December 29,
6 A quarterly freight bill in the amount of P2,000 specifically relating to
merchandise purchases in December 2003, all of which was still in the inventory at
December 31, 2003, was received on January 3, 2004. The freight bill was not
included in either the inventory or in accounts payable at December 31, 2003.
7 All the purchases from B occurred during the last seven days of the year. These
items have been recorded in accounts payable and accounted for in the physical
inventory at cost before discount. Allens policy is to pay invoices in time to take
advantage of all cash discounts, adjust inventory accordingly, and record accounts
payable, net of cash discounts.

11. Adjusted inventory balance at the end of 2003.

a. P1,326,700 b. P1,306,700 c. P1,304,700 d. P1,310,000

12. Adjusted balance of accounts payable at December 31, 2003.

a. P888,700 b. P866,700 c. P1,021,700 d. P872,000

13. Adjusted net purchases in 2003.

a. P3,081,700 b. P3,087,000 c. P3,079,000 d. P3,103,000

14. Adjusted net sales in 2003.

a. P9,000,000 b. P9,040,000 c. P8,960,000 d. P9,018,000

15. Adjusted net income in 2003.

a. P2,400,000 b. P3,422,000 c. P2,425,000 d. P2,403,000





Sponsored by: Joaquin Cunanan & Co. and Center for Training and Development, Inc.


1. The Company maintains branches that market the products that it produces. Merchandise is
billed to the branches at manufacturing costs, with the branches paying freight charges from the
home office to the branch. On November 15, Branch No. 1 ships part of its stock to Branch No. 5
upon authorization by the home office. Originally, Branch No. 1 had been billed for this
merchandise at P160,000 and had paid freight charges of P35,000 on the shipment from the
home office. Branch No. 5 upon receiving the merchandise, pays freight charges of P25,000 on
the shipment form Branch No. 1. If the shipment had been made from the home office directly to
Branch No. 5, freight cost to Branch No. 5 would have been P40,000. As a result of the above
a. Home office will debit Branch No. 5 for P175,000.
b. Branch No. 1 will credit Branch No. 5 for P160,000.
c. Branch No. 5 will debit Branch No. 1 for P195,000.
d. Home office will credit Branch No. 1 for P220,000.

2. Berks Manufacturing Inc.s production process starts in the Compounding Department. The
following information for the month is provided:
Work in process inventory, beginning (50% complete) 40,000
Started during the month 240,000
Work in process inventory, ending (60% complete) 25,000

Direct materials are added in the beginning of the process in the Compounding Department.
Using the weighted average method, compute for the equivalent units of production (direct
materials and conversion) for the month.
a. 280,000 and 270,000 c. 270,000 and 280,000
b. 240,000 and 250,000 d. 255,000 and 255,000

3. The following information pertains to Melly Co.s Division for the month of April:
Number of units Cost of materials
Beginning work in process 15,000 P5,500

Started in April 40,000 18,000

Units completed 42,500
Ending work in process 12,500
All materials are added at the beginning of the process. Using the weighted-average method,
the cost per equivalent unit for materials is
a. P0.59 b. P0.55 c. P0.45 d. P0.43

4. A company produces plastic drinking cups and uses a process cost system. Cups go through
three departments- mixing, molding, and packing. During the month of June the following
information is known about the mixing department.
Work in process at June 1 10,000 units
An average complete
Units complete during June 140,000
Work in Process at June 30 20,000
WIP end: an average complete
Materials are added at two points in the process: Material A is added at the beginning of the
process and Material B at the midpoint of the mixing process. Conversion costs are incurred
uniformly throughout the mixing process. Under the FIFO costing flow, the equivalent units for
Material A, Material B, and conversion costs respectively for the month of June (assuming no
spoilage) would be:
a. 150,000; 130,000; and 137,500 c. 160,000; 130,000; and 135,000
b. 150,000; 140,000 and 135,000 d. 160,000; 140,000; and 137,500

5. Assume that process conversion costs are uniform but a number of materials are added at
different points in process. Material 1 is added at the beginning of the process. The transferred-in
costs are added at the 20% point in the process. Material 2 is added uniformly from the 50% to
70% points in the process. Material 3 is added at the 75% point in the process, and Material 4 is
added uniformly at the 90% to the 100 points in the process. The beginning work in process, was
10,000 units 60% complete, 60,000 units were added, and ending work in process was 20,000
units 95% complete. What was the Material 2 equivalent units for the month?
FIFO Weighted Average FIFO Weighted average
a. 65,000 70,000 c. 60,000 70,000
b. 63,000 67,000 d. 50,000 60,000

5. Bobby Company uses a job order cost system. The following debits (credits) appeared in
Bobbys work in process account for the month of April 2006:
April Description Amount
1 Balance P 4,000
30 Direct materials 24,000
30 Direct manufacturing labor 16,000
30 Factory overhead 12,800
30 To finished goods (48,000)

Bobby applies overhead to production at a predetermined rate of 80% of direct manufacturing

labor costs. Job No.5, the only job still in process on April 30, 2006 , has been charged with
direct manufacturing labor of P2,000. What was the amount of direct materials charged to Job
No. 5?
a. P3,000 b. P5,200 c. P8,800 d. P24,000

7. The following information pertain to the production process of Ximen Mfg. Co., for March 2008:
1. Opening inventory 4,000 units
Percentage Value
Materials All P 1,99
Labor 50% 1,074
Overhead 100% 50% 846
2. Put in process 20,000 units
Materials 12,00
Labor 9,984
Overhead 100% of labor cost
3. Units completed and transferred to storeroom-21,000 units
4. In process end 3,000 units (all materials, 60% labor and overhead)
The total cost of the work in process at the end is:
Average FIFO Average
a. P3,577 P3,500 c. P3,528 P3,477
b. P3,477 P3,528 d. P3,500 P3,577

8. Chiqui Inc. manufactures a product which goes through three consecutive processes.
Processes 1, Process 2 and Process 3. Data for the month of July, 2004 are as follows:
Process 1 Process 2 Process 3
Opening work in process P16,000 P26,000 P 4,000
Materials added 40,000 8,000 10,000
Conversion costs 20,000 20,000 32,000
Closing work in process 12,000 18,000 8,000
What was the value of the output transferred from Process 3 to the finished goods warehouse
for the month of September?
a. P138,000 b. P130,000 c. P126,000 d. P38,000

9. GIJOE Boat builders was recently awarded a P28,000,000 contract to construct a luxury liner
for Cococrunch Inc. GIJOE estimates it will take 42 months to complete the contract. The
company uses the cost-to-cost method to estimate profits.

The following information details the actual and estimated costs for the years 2002-2005:
2002 2003 2004 2005
Actual cost incurred current year P13,000,000 P6,600,000 P4,800,000 P3,400,000
Estimated cost to complete 13,600,000 7,800,000 3,800,000 -0-

How much revenue and gross profit are to be recognized in 2004 under the percentage of
completion method?
a. P4,197,200; P4,825,600; and P(628,400), respectively.
b. P24,225,600; P24,425,600; and P(200,000), respectively.
c. P20,028,400; P19,600,000; and P428,400, respectively.
d. P4,171,600; P4,800,000; and P(628,400), respectively.

10. Ketty Company which began operations on January 1, 2003, appropriately uses the
installment sales method of accounting. The following information is available for 2003:
Installment accounts receivable, December 31, 2003 P400,000
Deferred gross profit, December 31, 2003 (before
recognition of realized gross profit for 2003) 280,000
Gross profit sales 40%
For the year ended December 31, 2003, cash collections and realized gross profit on installment
sales should be:
Cash collections Realized gross profit Cash collections Realized gross profit
a. P300,000 P120,000 c. P200,000 P120,000
b. P300,000 160,000 d. P200,000 P160,000

11. Bop Videos Inc. sells video and VHS equipment on installments. Information relating to the
operations of 2004 to 2006 are shown below:
2006 2005 2004
Installment sales P2,062,500 P1,650,000 P1,100,000
Cost of installment sales 1,237,500 1,031,250 715,000
Installment receivable collected:
On 2006 sales 756,250
On 2005 sales 495,000 660,000
On 2004 sales 343,750 330,000 412,500
How much is the total realized gross profit in 2006?
a. P638,000 b. P598,125 c. P608,437.50 d. P558,250

12. Rodney Furniture sells furniture and electronic items. The majority of its business is on credit,
and the following information is available relating to sales transactions for 2002, 2003, and 2004.
2002 2003 2004
Installment sales (net of interests) P104,000 P116,000 P121,000
Gross profit percentage 38% 41% 39%
Cash collection on installment sales:
Principal 2002 57,200 29,160 15,000
Principal 2003 71,920 26,680
Principal 2004 76,230
Interest 2002 9,780 17,870 3,030
Interest 2003 6,610 18,142
Interest 2004 6,378
How much is the total deferred gross profit to be shown in the balance sheet of Rodneys
Furniture as of December 31, 2004?
a. P25,597.50 b. P29,729.70 c. P17,460.30 d. P25,590

13. Safety First Parachute Company uses a job order cost system and has two production
departments, T and P. Budgeted information for the year is as follows:
Department T Department P
Machine Hours 500 25,000
Direct Materials P400,000 P600,000
Direct labor 350,000 100,000
Factory overhead control 455,000 300,000
Both Department T and Department P apply factory overhead to production orders through
the use of predetermined factory overhead application rates, which are based upon the yearly
budget. Department T applies factory overhead on a direct labor cost basis while Department
P does so on a machine hours basis. Actual information relating to job 194 during the year
was as follows:
Department T Department P Total
Machine hours 150 2,500 2,650
Direct materials P18,000
Direct Labor P11,000 P4,500 P15,500
Factory overhead control P14,500 P24,600 P39,100
If Safety First Parachute Company contracted to sell Job 194 for P100,000, and if estimated
selling and administrative expenses are 5% of the selling price, what is the estimated profit on
job 194?
a. P17,200 b. P22,400 c. P28,600 d. P33,700

14. The South Tool Corporation manufactures specialized precision tools for the electronics
industry. It receives various job orders. For the month of April, it started work on two orders, East
and West. The total material costs for both orders was estimated at P80,000 of which 60%
applies to East and 40% to West. Direct labor hours were estimated at 700 for East and 400 for
West. The labor rate amounted to P18 per hour. Variable overhead varies at the rate of P10 per
hour. By the end of April, 75% of the required materials were issued to production amounted to
P90,000 . Also, the two orders were all 50% completed with respect to labor and overhead. Labor
hours for the month were charged at 360 to East and 180 to West. Variable overhead equated to
the hourly rate given. The total actual cost for East order for the month is:
a. P64,080 b. P65,800 c. P52,350 d. P67,600

15. S Inc. processes direct materials up to the split-off point, where products T and S are
produced and thereafter sold. For the moth just ended, the following information were made
Direct materials purchased 20,000 gallons*
Production - T 10,000 gallons
-S 9,000 gallons
Unit selling Price - T P1,500 per gallon
-S 1,000 per gallon
*20,000 gallons yield 19,000 gallons of good product and 1,000 gallons of shrinkage.
The cost of buying 20,000 gallons of direct materials and processing up to split-off point to
yield a total of 19,000 gallons of good products was P19,500,000. The beginning inventories
totaled 100 gallons for T and 50 gallons for S. ending inventory amounts reflected 600 gallons
of T and 1,050 gallons of S. Using the volume of production as the basis of allocating joint
costs, the assignable costs to the two products would be
a. T, P9,750,000 and S, P9,750,000 c. T, P10,028,571.43 and S, 9,471,428.57
b. T, P10,550,000 and S, P8,950,000 d. T, P10,263,157.89 and S, P9,236,842.11

16. It cost Products Corporation P1,400,000 to process a main material to produce three
#111, #214, #143. This joint cost is allocated to the product lines based on the relative market
value of the final products produced. Additional data are summarized below:
Units Produced Additional Processing Cost Unit Selling Price
#111 60,000 P960,000 P20
#214 20,000 168,0000 40
#143 20,000 520,000 100
The product line that will have the least per unit contribution to margin (after accounting for
share in joint and additional processing costs) is
a. #111 at (P3) b. #214 at P17.60 c. #111 at P13 d. #111 at (P10.48)

17. Ken Inc. produces chemicals Hope and Fate. The processing also yields a by-product,
Success, another chemical the joint costs of processing is reduced by the net realizable value of
Success. For the month, the joint costs were registered at P3,840,000. Below are additional data:
Product In Thousand Production Market Va
Hope 2,000 P3,000
Fate 3,000 2,000
Success* 1,000 420
*An additional P180,000 were spent to complete the processing of Success.
Assuming that the company uses the net realizable value method for allocating joint costs,
the allocated costs to Hope would amount to
a. P2,160,000 b. P1,800,000 c. P2,208,000 d. P2,207,000

Items 18-20 are based on the following data:

Pineburst Inc. acquired an 80% interest in Smallwood Company in January 1, 2003, for an
amount equal to book value. Smallwood sold land to Pineburst in 2003 at a profit of P5,000. The
land is held by the buying affiliate firm until 2005, when it is sold to an unaffiliated party for a profit
of P6,000. Smallwood reported net income for 2003, 2004, and 2005 of P30,000, P40,000, and
P50,000, respectively. Assume that the 2003 intercompany transfer of land was upstream from
Smallwood to Pinehurst.

18. The parents income from the subsidiary for 2003, 2004 and 2005 would be
a. 20,000; 32,000 and 44,000 c. 20,000; 28,000 and 44,000
b. 19,000; 32,000 and 45,000 d. 19,000; 27,000 and 45,000
19. The 2005 consolidated income statement would reflect a gain on sale of land in the amount of
a. 6,000 b. 5,000 c. 11,000 d. 1,000

20. The consolidation worksheet adjustment on December 31, 2004, concerning the
intercompany sale of land would include
a. A debit to gain on Sale of land 4, 000 c. A debit to retained earnings (1/1/04) for 4,000
b. A credit to gain on Sale of land for 6,000 d. A debit to investment in Smallwood for 4,000



Sponsored by: Joaquin Cunanan & Co. and Center for Training and Development, Inc.


1. Sandy, Inc. had the following bank reconciliation at March 31, 2005:
Balance per bank statement, 3/31/05 P37,200
Add: Deposit in transit 10,300
Less: Outstanding checks 12,600
Balance per books, 3/31/05 P34,900
Data per bank for the month of April 2005 follow:
Deposits P47,700
Disbursements 49,700

All reconciling items at March 31, 2005 cleared the bank in April. Outstanding checks at April
30, 2005 totaled P5,000. There were no deposits in transit at April 30, 2005. What is the cash
balance per books at April 30, 2005?
a. P30,200 b. P32,900 c. P35,200 d. P40,500

2. During the year, FX COMPANY made an entry to write off a P4,000 uncollectible account.
Before this entry was made, the balance in accounts receivable was P60,000 and the
balance in the allowance account was P4,500. The net realizable value of accounts
receivable after the write-off entry was
a. P60,000. b. P59,500 c. P51,500 d. P55,500

3. On June 1, 2005, ARMAGEDDON COMPANY sold merchandise with a list price of P15,000 to
AFFLECK COMPANY on account. ARMAGEDDON COMPANY allowed trade discounts of
30% and 20%. Credit terms were 2/15, n/40 and the sale was made f.o.b. shipping point.
ARMAGEDDON COMPANY prepaid P300 of delivery costs for AFFLECK COMPANY as an
accommodation. On June 12, 2001, ARMAGEDDON COMPANY received from AFFLECK
COMPANY a remittance in full payment amounting to
a. 8,232. b. 8,526. c. 8,532. d. 8,397

4. UNFORGIVEN COMPANY financed the purchase of a machine by making payments of

P6,000 at the end of each of five years. The appropriate rate of interest was 8%. The future
value of one for five periods at 8% is 1.46933. The future value of an ordinary annuity for five
periods at 8% is 5.8666. The present value of an ordinary annuity for five periods at 8% is
3.99271. What was the cost of the machine to UNFORGIVEN COMPANY?
a. P8,816 b. P23,956 c. P30,000 d. P35,200

5. SPACE COWBOYS owns a plot of land on which buried toxic wastes have been discovered.
Since it will require several years and a considerable sum of money before the property is
fully detoxified and capable of generating revenues, SPACE COWBOYS wishes to sell the
land now. It has located two potential buyers: SUTHERLAND COMPANY, who is willing to
pay P255,000 for the land now, and EASTWOOD COMPANY, who is willing to make 20
annual payments of P40,000 each, with the first payment to be made 5 years from today.
Assuming that the appropriate rate of interest is 9%, to whom should SPACECOWBOYS sell
the land?
Present value factor of an ordinary annuity of P1 at 9%
1 For 4 periods is 3.2397
2 For 20 periods is 9.1285
3 For 24 periods is 9.7066
The present value of the payments to be made by EASTWOOD COMPANY is
a. P255,000 b. P388,264 c. P365,140 d. P258,676

6. The following information is available for DEEP IMPACT COMPANYS first year of operations:
Payment for merchandise purchases P 300,000
Ending merchandise inventory 110,000
Accounts payable (balance at end of year) 60,000
Collections from customers 270,000
The balance in accounts payable relates only to merchandise purchases. All merchandise
items were marked to sell at 40% above cost. What should be the ending balance in
accounts receivable, assuming all accounts are deemed collectible?
a. P80,000 b. P146,667 c. P220,000 d. P313,333

7. On January 2, 2001, ITALIAN JOB COMPANY granted WAHLBERG, its president, 100,000
stock appreciation rights for past services. Those rights expire on January 2, 2011. On
exercise, LAARNI is entitled to receive cash for the excess of the stocks market price on the
exercise date over the market price on the grant date. WAHLBERG did not exercise any of
the rights during 2001. The market price of the stock was P50 on January 2, 2001 and P70
on December 31, 2001. As a result of the stock appreciation rights, ITALIAN JOB COMPANY
should recognize compensation expense for 2001 of
a. P2,000,000 b. P500,000 c. P200,000 d. P0

8. The financial statements of TEN THINGS I HATE ABOUT YOU for 2004 and 2005 contained
the following errors:
2004 2005
Ending inventory P5,000 overstated P8,000 understated
Insurance expense 2,400 understated 1,300 overstated
Assuming that none of the errors was detected or corrected, by what amount will 2005
income before taxes be overstated or understated?
a. 14,300 understated b. 11,900 understated c. 6,700 understated d. 6,700 overstated

9. REINDEER GAMES sold some machinery to DAREDEVIL COMPANY on January 1, 2005.

The cash selling price would have been P284,310. DAREDEVIL COMPANY entered into an
installment sales contract which required annual payments of P75,000, including interest at
10%, over five years. The first payment was due on December 31, 2005. What amount of
interest income should be included in REINDEER GAMES 2006 income statement?
a. P28,431 b. P20,931 c. P18,138 d. P37,500

10. Assume that the following data relative to GOODWILL HUNTING for 2005 is available.
Net income P 2,400,000
Transactions in Common Shares Change Cumulative
January 1, 2005, Beginning number 1,000,000
March 1, 2005, Purchase of treasury shares (60,000) 940,000
June 1, 2005, Stock split 940,000 1,880,000
November 1, 2005, Issuance of shares 120,000 2,000,000
8% Cumulative, convertible, preferred stock, sold at par convertible into 200,000 shares of
common (adjusted for split), P1,000,000
Stock options, exercisable at the option price of P25 per share. Average market price in
2005, P30 (market price and option price adjusted for split), 60,000 shares
Compute the basic and diluted EPS for 2005
a.P1.25 and 1.13 c.P1.25 and 1.09
b.P1.21 and 1.13 d.P1.21 and 1.09

11. LION KING COMPANY has the following capital structure at the beginning of the year:
6% Preferred stock, P50 par value, 20,000 shares authorized,
6,000 shares issued and outstanding
P 300,000
Common stock, P10 par value, 60,000 shares authorized,
40,000 shares issued and outstanding
Paid-in capital in excess of par
Total paid-in capital
Retained earnings
Total stockholders' equity
The following transactions which occurred consecutively
1 A total cash dividend of P90,000 was declared and
payable to stockholders of record. The preferred stock is participating to a maximum
of ten percent. Record dividends payable on common and preferred stock in
separate accounts.
2 A 10% common stock dividend was declared. The
average market value of the common stock is P16 a share.
3 Assume that net income for the year was P180,000
(record the closing entry) and the board of directors appropriated P80,000 of retained
earnings for plant expansion.
The stockholders' equity of LION KING COMPANY at the end of the year is
a. P1,176,000 b. P1,240,000 c. P1,060,000 d. P1,160,000

12. On May 1, 2001, PET SEMATARY COMPANY issued P500,000 of 7% bonds at 103, which
are due on April 30, 2011. Twenty detachable stock warrants entitling the holder to purchase
for P40 one share of PET SEMATARY COMPANYS common stock, P15 par value, were
attached to each P1,000 bond. The bonds without the warrants would sell at 96. On May 1,
2001, the fair value of PET SEMATARY COMPANYS common stock was P35 per share and
of the warrants was P2. On May 1, 2001, PET SEMATARY COMPANY should record the
bonds with a
a.Discount of P20,000. c.Discount of P5,600.
b.Discount of P5,000. d.Premium of P15,000.

13. The following information pertains to BLACK HAWK DOWN COMPANY

Preferred stock, cumulative: Par per share, P100; Liquidation value per share, P
Dividend rate 8%; Shares outstanding
Dividends in arrears none
Common stock: Par per share P10 Shares issued
Dividends paid per share P1.60 Market price per share
P 36.00
Additional paid-in capital, P200,000; Unappropriated retained earnings (after closing)
Retained earnings appropriated for contingencies P40,000;
Common treasury stock: Number of shares, 5,000; Total cost, P125,000; Net income;
Total stockholders equity is:
a. P1,350,000 b. P1,310,000 c. P1,610,000 d. P1,600,000

14. The following balances are in the ledger of LEGENDS OF THE FALL. at December 31, 2001.
Common stock, P50 par, 10,000 shares outstanding P500,000
Paid-in capital in excess of par 120,000
Retained earnings (deficit) (235,000)
The quasi-reorganization was approved. Par value is to be P30 a share, plant assets written
down P58,600, and inventory increased P4,200. The remaining additional paid-in capital
account after it has absorbed the deficit is
a. P0 b. P30,600 c. P22,200 d. P85,000

15. WAYNES WORLD COMPANY has 20,000 shares of P10 par value common stock and
10,000 shares of P10 par value, 6%, cumulative, participating preferred stock outstanding.
Dividends on the preferred stock are one year in arrears. Assuming that WAYNES WORLD
COMPANY wishes to distribute P54,000 as dividends, the common stockholders will receive
a. 12,000. b. 22,000 c. 32,000. d. 42,000

16. On January 1, 2001, GODZILLA COMPANY loaned P15,026 to KING KONG COMPANY. A
zero-interest-bearing note (face amount, P20,000) was exchanged solely for cash; no other
rights or privileges were exchanged. The note is to be repaid on December 31, 2003. The
prevailing rate of interest for a loan of this type is 10%. The present value of P20,000 at 10%
for three years is P15,026. What amount of interest income should GODZILLA COMPANY
recognize in 2001?
a. P1,503 b. P2,000 c. P6,000 d. P4,508

17. On January 1, 2001, TOMB RAIDER issued eight-year bonds with a face value of P500,000
and a stated interest rate of 6%, payable semi-annually on June 30 and December 31. The
bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6% 0.627
Present value of 1 for 8 periods at 8% 0.540
Present value of 1 for 16 periods at 3% 0.623
Present value of 1 for 16 periods at 4% 0.534
Present value of annuity for 8 periods at 6% 6.210
Present value of annuity for 8 periods at 8% 5.747
Present value of annuity for 16 periods at 3% 12.561
Present value of annuity for 16 periods at 4% 11.652
The issue price of the bonds is
a. P441,780. b. P442,410 c. P444,780. d. P499,800

18. On January 1, 2003, RAINMAN purchased a machine for P50,000. RAINMAN paid shipping
expenses of P500 as well as installation costs of P1,200. The machine was estimated to
have a useful life of ten years and an estimated salvage value oF P3,000. In January 2004
additions costing P3,600 were made to the machine in order to comply with pollution control
ordinances. These additions neither prolonged the life of the machine nor did they have any
salvage value. If RAINMAN records depreciation under the straight-line method, depreciation
expense for 2004 is
a. P4,870 b. P5,170 c. P5,270 d. P5,570

19. The following data were available from the records of Johnsons Department Store for the
year ended December 31, 2003:
At Cost At Retail
Merchandise inventory,
January 1, 2003 P 90,000 P 130,000
Purchases 330,000 460,000
Markups 10,000
Markdowns 40,000
Sales 480,000
Using the retail method, an estimate of the merchandise inventory at December 31, 2003,
valued at the lower of cost or market, would be
a. P56,000 b. P60,000 c. P80,000 d. P110,000

20. On July 1, 2004, THREE MUSKEETERS purchased factory equipment for P25,000. Salvage
value was estimated to be P1,000. The equipment will be depreciated over ten years using the
double-declining-balance method. Counting the year of acquisition as one-half year, THREE
MUSKEETERS should record depreciation expense for 2005 on this equipment of
a. P3,840 b. P4,500 c. P5,000 d. P4,800.