Fundamentals of Accounting, Part 2

1. The following adjusting entries are not reverse at the beginning of the new
accounting period?
a. Accrued expenses
b. Accrued revenue
c. Prepaid expense recorded under the asset method
d. Unearned revenue recorded under the revenue method
2. The rent expense account on December 31 before adjustment is P2,900. At year
end, it was ascertained that P1,250 is unexpired. The amount of the required
adjustment on December 31 is:
a. P 2,900
b. P 1,250
c. P 1,650
d. P 4,150
3. Which of the following characteristics is a disadvantage?
a. Voluntary association
b. Ease of dissolution
c. Unlimited liability
d. Participation in partnership income
4. The partnership agreement is contained in the articles of partnership, an express
contract among the partners.
Such an agreement ordinarily does not include
a. The rights and duties of the partners
b. The allocation of income or loss among the partners
c. The provision for arbitration of disputes, dissolution, and liquidation
d. The limitation on a partner’s liability to creditors
5. On March 1, 2011, Espejo and Aquino formed a partnership. Espejo contributed
cash. Aquino, previously a sole proprietor, contributed property other than cash,
including land subject to a mortgage, which was assumed by the partnership.
Aquino’s capital account at March 1, 2011 should be recorded at
a. Book value of the property at March 1, 2011
b. Fair market value of the property at March 1, 2011
c. Book value of the property less the mortgage payable at March 1, 2011
d. Fair market value less the mortgage payable at March 1, 2011
6. Noynoy invested cash of P60,000; land of P200,000 with an appraised value of
P410,000; store furniture costing P40,000 less accumulated depreciation of
P10,000; mortgage note payable P15,000 plus accrued interest for a year at 18%. If
the mortgage note is to be assumed by the partnership, Noynoy, capital should be
credited for
a. P 485,000
b. P 545,000
c. P 482,300
d. P 515,000
7. A partner invested into a partnership a building with a P500,000 carrying value
and P800,000 fair market value. The related mortgage payable of P250,000 was
assumed by the partnership. As a result of the investment, the partner’s capital
account will be credited for
a. P800,000
b. P500,000
c. P550,000
d. P250,000
8. On March 1, 2011, Lorezco, Narvasa and Soria formed a partnership by
combining their separate business proprietorships. Lorezco contributed cash of
P120,000. Narvasa contributed property with a P70,000 carrying amount, a P80,000
original cost and P160,000 fair value. There is a mortgage liability of P60,000
assumed by the partnership. Soria contributed equipment with a P60,000 carrying
amount, a P150,000 original cost and P110,000 fair value. The partnership
agreement specifies that profits and losses are to be shared equally.
Which partner has the largest March 1, 2011, capital balance?
a. Lorezco
b. Narvasa
c. Soria
d. All capital account balances are equal
9. A and B are partners. Both contributed equal amount of assets but A will manage
the business. The best profit sharing ratio will be
a. Equally
b. Salary to A and B, remaining profit to be shared equally
c. 2:1
d. Salary to A, remaining profit to be shared equally
10. All of the following statements are true except
a. The industrial partner is not liable for losses
b. Profits or losses are divided equally among the partners unless the
partnership agreement specifies otherwise
c. Profits and losses are divided according to partners’ agreement
d. Losses shall be divided according to profit sharing ratio if there is no
agreement as to distribution of losses
11. Aris, Terry and Fely have the following profit and loss agreement.
• Partners Aris and Terry will receive salaries of P80,000 each.
• Partner Fely will get a bonus of 10% of profit after salaries and bonus
• Remaining profits are shared by Aris, Terry and Fely in the ratio of 3:4:3,
respectively.
The partnership had a profit of P182,000. How much should be allocated to Fely?
a. P54,600
b. P 8,000
c. P 8,140
d. P18,200
12. Virgie was credited with a salary of P72,000, interest of P20,000 on her capital
contribution. She was charged with P6,000 as her share in the negative balance on
a 1:2 ratio. The capital contributions are P100,000 for Virgie and P200,000 for Rose
with Virgie as managing partner.
How much was the profit or loss share of Rose?
a. P 90,000
b. P 12,000
c. P (12,000)
d. P 30,000
13. To meet the objective of providing information about financial position, financial
performance and cash flows of an entity, financial statements should provide
information about all of the following, except
a. Assets, liabilities and equity
b. Income and expenses, including gains and losses
c. Contributions by and distribution to owners in their capacity as owners
d. Nature of the entity’s business activities
14. An analysis of Burma Company’s liabilities disclosed the following:
Accounts payable, after deducting debit balance in suppliers’ accounts
amounting to P 100,000 P 4,000,000
Accrued expenses 1,500,000
Short-term notes payable 2,000,000
Stock dividends payable 1,000,000
How much should be presented as total current liabilities in the statement of
financial position?
a. P 8,500,000
b. P 8,600,000
c. P 7,500,000
d. P 7,600,000
15. A complete set of financial statements includes the following components,
except
a. Statement of financial position, statement of comprehensive income and
statement of cash flows
b. Statement of changes in equity
c. Notes, comprising a summary of significant accounting policies and other
explanatory information
d. Reports and statements such as environmental reports and value
added statements
16. Which of the following is included in a complete set of financial statements?
a. A statement by the board of directors of compliance with local legislation
b. A statement of changes in equity
c. Summarized statements of financial position for the last five years
d. Value added statement
17. It is the total of income less expenses, excluding the components of other
comprehensive income.
 a. Comprehensive income
b. Profit or loss
c. Accounting income
d. Economic income
18. The following information is provided by Romarie Company for the current year
Net sales 900,000
Sales returns and allowances 10,000
Cost of sales 540,000
Distribution cost 135,000
Administrative cost 100,000
Finance cost 20,000
The net income is
a. P 105,000
b. P 115,000
c. P 95,000
d. P 100,000
19. At the beginning of 2010, the capital balances of River and Rosario are P24,000
and P26,000, respectively. Rivera and Rosario share profits and losses in a 3:7
ratio. During 2010, the partnership experienced a P40,000 loss. Rivera withdrew
P10,000 from the partnership during the year and Rosario withdrew P18,000.
What will be the balance in Rivera’s capital on December 31, 2010?
a. P 3,600
b. P 2,000
c. P 12,000
d. P 26,000
20. Partner Aquino had a beginning capital balance of P35,000 and made additional
investment of P27,000 during the year. He also made a drawing of P 5,000 a month.
The post closing capital balance of Quinto is P 72,000.
What is the share in the partnership profit?
a. P 70,000
b. P 15,000
c. P 60,000
d. P 72,000
21. An entity shall classify an asset as current when (choose the incorrect one)
a. The entity expects to realize the asset or intends to sell or consume it within
the entity’s normal operating cycle
b. The entity holds the asset for the purpose of trading
c. The entity expects to realize the asset within twelve months after the
reporting period
d. The asset is cash or a cash equivalent that is restricted to settle a
liability for more than twelve months after the reporting period
22. East Company’s trial balance reflected the following account balances on
December 31, 2010.
 Accounts receivable 200,000
Accumulated depreciation 300,000
Cash and cash equivalents 150,000
Inventory 500,000
Equipment 1,000,000
Prepaid expense 20,000
Land 500,000
In the December 31, 2010 statement of financial position, what amount should be
reported as total current assets?
a. P 870,000
b. P 850,000
c. P 970,000
d. P 950,000
23. In a statement of cash flows using indirect approach for operating activities, an
increase in inventory is presented as
a. Outflow of cash
b. Inflow and outflow of cash
c. Addition to net income
d. Deduction from net income
24. Sun Company provided the following data for the preparation of the statement of
cash flows for the current year:
Increase in accounts receivable 300,000
Decrease in income tax payable 170,000
Depreciation 1,000,000
Net income 250,000
Gain on sale of equipment 440,000
Loss on sale of building 210,000
Using the indirect method, what amount should be reported as cash flow from
operating activities?
a. P 780,000
b. P 700,000
c. P 880,000
d. P 550,000
25. Which of the following will not result in dissolution of a partnership?
a. Admission of a new partner
b. Bankruptcy of a partner
c. Negative capital balance of a partner
d. Incapacity of a partner
26. Garcia invested P200,000 for a 1/3 interest in a partnership in which the other
partners have capital totaling P520,000 before admitting Garcia. After distribution of
the bonus, what is Garcia’s capital?
a. P 200,000
b. P 240,000
 c. P 173,340
d. P 106,660
27. When a partner withdraws from a partnership taking assets that represent more
than his capital balance,
a. No bonus results
b. The remaining partners receive a bonus
c. The withdrawing partner receives a bonus
d. The withdrawing partner owe the remaining partners the difference
28. B, a partner in the ABCD Partnership died. One of the partners with the consent
of the remaining partners, purchased B’s interest for P400,000. B’s capital after the
books were closed was P350,000. This will:
a. Not affect the partnership assets and the partners’ equity
b. Decrease the partners’ assets and the partners’ equity by P350,000
c. Decrease partners’ equity only by P350,000
d. Decrease partnership assets only by P350,000
29. RST Partnership is selling electronic equipment and supplies. Profits and losses
are shared 5:3:2. The books are kept on a calendar basis
After the business has been in operation for several years, Sonny died on
September 30. The wife of Sonny desired to sell Sonny’s interest to the partnership
for P370,000. After the books were closed, the partners’ capital accounts had credit
balances as follows:
Roy P 500,000
Sonny 300,000
Troy 200,000
The capital balance of Roy after the cash settlement to Sonny’s wife is
a. P 450,000
b. P 465,000
c. P 550,000
d. P 535,000
30. Which of the following would not be undertaken when a partnership decides to
incorporate?
a. Adjust the partnership’s assets to be transferred to the corporation
b. Convert the noncash assets into cash
c. Close the partnership books
d. Transfer the assets and liabilities to the corporation in exchange for shares
of stock
31. On December 31, 2010, ABC Partnership was dissolved. The fair market values
of its assets and liabilities are as follows:
Current assets P 1,600,000
Equipment 2,100,000
Liabilities 700,000
On January 2, 2011, ABC Partnership was incorporated, with 5,000 shares of P100
par value ordinary shares issued.
How much should be credited to share premium?
 a. P 3,200,000
b. P 2,500,000
c. P 2,300,000
d. P 2,000,000
32. In liquidation, the sale of the non-cash assets is called
a. Realization
b. Net proceeds
c. Gain from sale
d. Loss from sale
33. E, G, L and D share profits in the ratio of 2:1:1:1. The partnership cannot meet
its obligations to creditors and
dissolution is authorized on March 31, 2011. A balance sheet for the partnership on
this date shows balances
as follows:
Cash P 90,000 Liabilities P 265,000
Other assets 400,000 D, Loan 25,000
E, Capital 50,000
G, Capital 50,000
L, Capital 50,000
D, Capital 50,000
Total Assets P 490,000 Total Liabilities and Capital P 490,000
The personal status of partners on this date is determined to be as follows:
Partners Personal Assets Personal Liabilities
E P 250,000 P 150,000
G 100,000 150,000
L 150,000 125,000
D 200,000 250,000
Other assets of the partnership are sold and realized for P120,000. Additional
contribution by appropriate parties in meeting the claims of firm creditors were
made. The amount that will be paid to the personal creditors of D would be:
a. P 250,000
b. P 217,500
c. P 200,000
d. P 235,000
34. King, Queen and Prince are partners sharing profit and loss in the ratio of 1:1:2,
respectively. Their capital balances are P500,000 for King, P300,000 for Queen and
P200,000 for Prince. Liabilities amounted to P200,000. There is also a loan payable
to Prince, P50,000. The cash balance amounted to P300,000 and it increased to
P1,400,000 as a result of the sale of the non-cash assets.
How much is the available cash for distribution to the partners
a. P 1,400,000
b. P 1,200,000
c. P 1,150,000
d. P 250,000
35. If the proceeds from the sale is less than the book value of the non-cash assets
sold, the result will
a. Decrease the partnership assets but increase the partners’ equity
b. Increase the partnership assets but decrease the partners’ equity
c. Decrease both the partnership assets and the partners’ equity
d. Increase both the partnership assets and the partners’ equity
36. Annie, Emy and Mary are in the process of liquidating their partnership and their
account balances as of March 1, 2011 are as follows:
Debit Credit
Cash 15,000
Non-cash assets 35,000
Emy, Loan 7,000
Annie, capital 5,000
Emy, capital 17,500
Mary, capital 20,500
The profit and loss sharing ratio has been 4:3:3 between Annie, Emy and Mary,
respectively. If Annie has personal assets of P25,000 and personal liabilities of
P22,500 and that the partnership realized P12,500 from the sale of its non-cash
assets, Mary must receive
a. P 20,500
b. P 12,500
c. P 13,000
d. Not given
37. Which of the following is not correct with respect to an installment liquidation of a
partnership?
a. All remaining liquidation expenses are anticipated
b. All non-cash assets are assumed to be worthless
c. Distributions to partners are always made according to their profit
sharing percentages
d. Partners with the greatest ability to absorb losses and expenses are the first
to receive installment distributions
38. The partnership of Bravo, Aquino and Ico share profits and losses in the ratio of
5:3:2, respectively. The partners voted to dissolve the partnership when its assets,
liabilities and capital were as follows:
Assets Liabilities and Capital
Cash P 30,000 Liabilities P 50,000
Other assets 320,000 Bravo, Capital 80,000
Aquino, Capital 115,000
Ico, Capital 105,000
Total P 350,000 Total P 350,000
The partners agreed to liquidate the partnership by installment. The first sale of the
non cash assets having a book value of P150,000 realized P100,000. On the cash
available, priority is the payment of the liabilities and the balance is to be distributed
to the partners. How should the remaining cash be distributed?
 Bravo Aquino Ico
a. P 50,000 30,000 20,000
b. 40,000 24,000 16,000
c. 0 48,000 32,000
d. 0 31,000 49,000
39. A corporation has the following attributes except
a. An artificial being with a personality separate and apart from its
shareholders
b. It is created by mere agreement of the incorporators
c. Enjoys the right of succession
d. Has the powers, attributes and properties expressly authorized by law or
incident to its existence.
40. Which of the following statements is true?
a. The death of the shareholder dissolves the corporation
b. Shareholders have unlimited liability
c. Shareholders are not general agents of the business
d. Ownership shares cannot be easily transferred
41. The corporate powers shall cease and the corporation be deemed dissolved if a
corporation does not formally organized and commence the transactions of its
business within
a. One year from the date of its incorporation
b. Two years from the date of its incorporation
c. Three years from the date of its incorporation
d. Five years from the date of its incorporation
42. The shareholders or members mentioned in the Articles of Incorporation
originally forming and composing the corporation and who are signatories thereof
are called
a. Incorporators
b. Corporators
c. Promoters
d. Subscribers
43. The par value of ordinary shares is equal to
a. A designated peso amount per share established in the articles of
incorporation
b. The amount received by the corporation when the share was originally
issued
c. The amount at which the share is currently trading in an organized market
d. The book value of the ordinary shares
44. Trina Corporation was organized on January 1, 2011 with authorized capital of
P1,000,000 consisting of 100,000 shares of P10 par ordinary share. Subsequently,
incorporators subscribed for 25,000 shares at P12.
How much must be paid up upon subscription to comply with the requirement of the
SEC?
 a. P 300,000
b. P 250,000
c. P 62,500
d. P 75,000
45. Ten persons decided to organize a corporation. Which of the following situation
illustrates best the minimum requirement of the law to capital formation?
Authorized capital Subscribed capital Paid-in capital
a. P 200,000 P 40,000 P 10,000
b. P 200,000 P 50,000 P 10,000
c. P 200,000 P 50,000 P 12,500
d. P 200,000 P 60,000 P 12,000
46. The most powerful person in a corporation is the
a. President
b. Vice president
c. Chairman of the board
d. Incorporator
47. These represent the record of all business transactions which normally include
the journal and the ledger
a. Subscription book
b. Books of accounts
c. Stock certificate book
d. Stock and transfer book
48. The portion of the paid in capital representing amounts paid by shareholders in
excess of par is
a. Share premium
b. Ordinary shares
c. Preference shares
d. Legal capital
49. The share gives its owners certain advantage over ordinary shareholders
a. Convertible share
b. Callable share
c. Ordinary share
d. Preference share
50. Asley Company was organized on January 1, 2011 with authorized capital of
100,000 shares of P200 par value. During 2011 Asley had the following transactions
affecting shareholders’ equity:
January 12 issued 25,000 shares at P220 a share
March 20 issued 1,000 shares for legal services when the fair value was
P240 a share
August 25 issued 5,000 shares for a tract of land when the fair value was
P260 a share
What amount should Asley report for share premium at December 31, 2011?
a. P 540,000
b. P 500,000
 c. P 840,000
d. P 800,000
51. On March 1, 2011, Flor Corporation had the following shares issued and
outstanding:
• Ordinary shares, no-par, P10 stated value, 20,000 shares originally issued for P30
per share
• Preference shares, P10 par value, 6,000 shares originally issued for P50 per
share.
Flor’s March 1, 2011 statement of shareholders’ equity should report
Ordinary shares Preference shares Share premium
a. P 600,000 P 60,000 P 240,000
b. P 600,000 P 300,000 P 0
c. P 200,000 P 300,000 P 400,000
d. P 200,000 P 60,000 P 640,000
52. If shares are issued for services rendered, the shares shall be recorded at
a. Fair value of the shares issued
b. Fair value of services rendered
c. Par value of shares issued
d. Book value of shares issued
53. What is the entry to record issuance of share after all cash have been received
from a share subscription following the journal entry method?
a. Subscribed ordinary shares
Ordinary shares
b. Subscribed ordinary shares
Ordinary shares
Share premium
c. Subscribed ordinary shares
Unissued ordinary shares
d. Subscriptions receivable
Subscribed ordinary shares
Share premium
54. Winwin Corporation was authorized to issue P400,000 ordinary shares divided
into 4,000 shares with a par value of P100 per share. On July 13, 2011, the
company received subscriptions for 1,000 at par from various individuals. As at
September 25, 2011, 600 0f the subscribed shares have been fully paid and the
stock certificates issued correspondingly. The entry to record the issuance of stock
certificate for the 600 shares is
a. Subscription receivable 60,000
Subscribed ordinary shares 60,000
b. Cash 60,000
Subscription receivable 60,000
 c. Subscribed ordinary shares 60,000
Ordinary shares 60,000
d. Cash 60,000
Ordinary shares 60,000
55. Which statement is incorrect concerning treasury shares?
a. Treasury shares shall be recorded at cost irrespective of whether acquired
below or above par value
b. The total cost of treasury shares should be deducted from equity
c. Treasury share is a current asset
d. Gains or losses on sales of treasury shares shall not be credited or charged
to income
56. The following statements relate to retirement of treasury shares. Which
statement is incorrect?
a. If an enterprise’s share capital is retired the share capital account is
reduced by its par value and the number of shares issued is reduced by the
shares retired
b. The treasury shares account is credited at cost
c. If the retirement results in a gain (par value exceeds the cost), such
gain shall be credited to retained earnings
d. If the retirement results in a loss (cost exceeds par value) such loss shall be
debited to share premium from original issuance, share premium from treasury
shares and to retained earnings, accordingly.
57. In 2010, Ronald Corporation issued 5,000 shares of P10 par value ordinary
shares for P100 per share. In 2011, Ronald acquired 2,000 of its shares at P150 per
share and immediately canceled these 2,000 shares. In connection with the
retirement of these 2,000 shares, Ronald should debit
Share premium Retained earnings
a. 20,000 280,000
b. 100,000 180,000
c. 180,000 100,000
d. 280,000 0
58. Which of the following statements about donated capital is not true?
a. If the donation is in the form of shares of the corporation, the account share
premium or donated capital is credited at the time the shares are issued
b. Donated capital is shown as part of share premium
c. The receipt of the donated shares is recorded by means of a memorandum
entry
d. The donated asset increases the total assets and total shareholders’
equity by the book value of the asset received
59. The shareholders decide to donate to the entity an aggregate of 10,000 ordinary
shares of their stockholdings with par of P100. The entry to record the receipt of the
donated shares by the entity is
 a. Cash 1,000,000
Donated capital 1,000,000
b. Donated capital 1,000,000
Ordinary shares 1,000,000
c. Ordinary shares 1,000,000
Donated capital 1,000,000
d. Memo entry: “Received from shareholders as donation 10,000
ordinary shares with P100 par value.”
60. On December 31, 2010, Ethan Corporation received a donation of 2,000 shares
of its P50 par value ordinary shares from a shareholder. On that date, the share’s
market value was P350 per share. The stock was originally issued for P250 per
share. By what amount would this donation cause total shareholders’ equity to
decrease?
a. P 700,000
b. P 500,000
c. P 200,000
d. P 0
61. Which is incorrect concerning retained earnings?
a. Appropriated retained earnings shall be clearly distinguished from
unappropriated retained earnings
b. Dividend declaration reduce retained earnings
c. A deficit in retained is presented as an asset
d. The retained earnings account is credited with the corporation’s profit or
debited with the loss
62. A dividend which is a return to shareholders of a portion of their original
investment is
a. Cash dividend
b. Liquidating dividend
c. Property dividend
d. Share dividend
63. Which is correct concerning share splits?
a. The par or stated value per share is decreased
b. The number of authorized, issued and outstanding shares is increased
c. There is no change in the balances of the shareholders’ equity accounts
d. All of the above
64. The outstanding share capital of Lion Company at December 15, 2010,
consisted of the following:
* 30,000 shares of 10% cumulative preference share, par value P100 per share,
fully participating as to dividends. No dividends were in arrears in prior years.
* 200,000 shares of ordinary share par value P10 per share.
On December 31, 2010, Lion declared dividends of P1,000,000. What was the
amount of dividends payable to ordinary shareholders?
 a. P400,000
b. P600,000
c. P700,000
d. P200,000
65. At December 31, 2010 and 2011, Carrey Corporation had outstanding 40,000
shares of P100 par value 6% cumulative preference share and 200,000 shares of
P10 par value ordinary share. At December 31, 2010, dividends on arrears on the
preference share were P120,000. Cash dividends declared in 2011 totaled
P440,000. Of the P440,000, what amounts were payable on each class of share
capital?
Preference share Ordinary share
a. 440,000 0
b. 360,000 80,000
c. 320,000 120,000
d. 240,000 200,000
66. Which statement is correct concerning appropriations of retained earnings?
a. Appropriations reduce total retained earnings
b. The only proper way to eliminate an appropriation of retained earnings
after it has served its purpose is to revert to the unappropriated retained
earnings
c. An appropriation of retained earnings means that assets are segregated for
a specific purpose
d. When treasury share is purchased, retained earnings must be appropriated
equal to the par or stated value of the treasury share
67. Which of the following would result in an increase in the Retained Earnings
account?
a. Cash dividend declared
b. Share dividend declared
c. Loss for the period
d. Positive prior period adjustments
68. The balance of retained earnings of Gusting Company at the beginning of the
year was P650,000. During the year, Gusting earned revenues of P4,500,000 and
incurred expenses of P3,800,000, dividends 0f P500,000 were declared and paid,
and the balance of the cash account increased by P220,000. The company’s profit
and the year- end balance in the retained earnings account, respectively, are
Profit Retained Earnings
a. P 200,000 P 1,070,000
b. P 700,000 P 1,070,000
c. P 200,000 P 850,000
d. P 700,000 P 850,000
69. Kimex Corporation was organized on January 1, 2008 at which date it issued
100,000 shares at P10 par ordinary shares at P15 per share. During the period
January 1 to December 31, 2010, Kimex reported profit of P450,000 and paid cash
dividends of P230,000. On January 10, 2010, Kimex purchased 6,000 shares of its
ordinary shares at P12 per share. On December 31, 2010, Kimex sold 4,000
treasury shares at P8 per share and retired the remaining treasury shares. Kimex
uses the cost method of accounting for treasury shares.
What is the total shareholders’ equity at December 31, 2010?
a. P 1,720,000
b. P 1,704,000
c. P 1,680,000
d. P 1,688,000
70. Beauty Company has the following information in its equity accounts:
Number of shares Amount
Preference share capital, P500 par value 2,200 1,100,000
Treasury preference shares, at cost 100 110,000
Ordinary share capital without par value (at issue price) 3,000 600,000
Retained earnings 2,500,000
Due to the substantial amount of retained earnings, the company’s Board of
Directors resolved to pay a 100% stock dividend on all shares outstanding,
capitalizing amounts of retained earnings equal to the par value and the issue price
of the preference and ordinary shares outstanding, respectively, and thereafter to
pay a cash dividend of 10% on preference share and a cash dividend of P10 per
ordinary share.
What is the total shareholders’ equity of Beauty Company after effecting the above
transactions?
a. P 3,820,000
b. P 3,810,000
c. P 3,955,000
d. P 4,090,000
71. Which of the following statements is incorrect?
a. The book value per share of preference shares is the sum of its liquidation
value plus any current and dividends in arrears divided by the number of
preference shares outstanding
b. Cumulative preference shares entitle the holders to participate with
the holders of ordinary shares pro-rata in the remainder after the
ordinary shareholders have received their initial share
c. Ordinary shareholders’ equity is obtained by deducting from total
shareholders’ equity the preference shareholders’ equity
d. When only a single class of share is outstanding, the book value per share
is computed by dividing the total shareholders’ equity by the number of shares
outstanding
72. Baker Company had 5,000 shares of P500 par value ordinary share outstanding
and 500 shares of P1,000 par preference share outstanding. The current market
price of the ordinary stock is P1,200 per share and total shareholders’ equity
amounts to P3,600,000. The preference shareholders have a liquidation preference
of P1,400 per share and no dividends in arrears. The book value per share of
ordinary share is
a. P510
b. P520
c. P580
d. P818
73. Which of the following is not a merchandising business?
a. Wherelse Boutique
b. Mercury Drugstore
c. Nable Tailoring Shop
d. Guanzon Electronics Shop
74. Which of the following statements is not correct?
a. A manufacturing cost usually has three separate inventories namely raw
materials, work in process and finished goods
b. Prime cost consist of direct materials and direct labor
c. Conversion cost consist of direct labor and manufacturing overhead
d. Conversion cost plus the prime cost equals the total manufacturing
cost
75. This inventory is what the manufacturers sell to its merchandisers.
a. Finished goods inventory
b. Work in process inventory
c. Raw materials inventory
d. Factory supplies inventory
76. The purchase – raw materials account is debited when
a. Direct materials are ordered
b. Direct materials are bought
c. Direct materials are placed into production
d. Direct materials are returned to vendor
77. The following data were available fro Mike Company’s record on December 31,
2010:
Raw materials inventory, January 1 P 10,000
Purchases 85,000
Purchases returns and allowances 5,000
Freight out 2,000
Raw materials, December 31 15,000
Based on the above information, which of the following is correct?
a. The raw materials used is P73,000
b. The raw materials available for sale is P90,000
c. The raw materials available for use is P90,000
d. The raw materials used is P77,000
78. Which of the following statements is not correct?
a. Cost of goods manufactured is the same as total manufacturing cost
b. Cost of goods manufactured plus work in process, end equals total cost of
goods placed in process
 c. Total manufacturing cost plus the decrease in work in process equals the
cost of goods manufactured
d. Cost of goods manufactured plus the finished goods inventory, beginning
equals goods available for sale
79. Sheraton Company reported the following information for the current year:
Ending goods in process 1,000,000
Depreciation on factory building 320,000
Sales salaries 270,000
Beginning raw materials 400,000
Direct labor 1,980,000
Factory supervisor’s salary 560,000
Depreciation on headquarters building 210,000
Beginning goods in process 760,000
Ending raw materials 340,000
Indirect labor 360,000
Advertising 500,000
Purchases of raw materials 2,300,000
What is the cost of goods manufactured for the current year?
a. P 5,340,000
b. P 5,580,000
c. P 5,550,000
d. P 5,820,000
80. The following data were available from Mark Company’s record on December
31, 2010:
Finished goods inventory, January 1 1,000,000
Finished goods inventory, December 31 1,200,000
Cost of goods manufactured 5,000,000
Loss on sale of plant equipment 100,000
What is the cost of goods sold for the current year?
a. P 4,800,000
b. P 5,200,000
c. P 4,900,000
d. P 5,300,000
81. The following information was taken from Kay Company’s accounting records for
the current year:
Increase in goods in process inventory 500,000
Increase in raw materials inventory 150,000
Decrease in finished goods inventory 350,000
Raw materials purchased 4,300,000
Direct labor payroll 2,000,000
Factory overhead 3,000,000
Freight out 450,000
What is the cost of goods sold for the current year?
a. P 9,300,000
b. P 9,150,000
c. P 8,650,000
d. P 9,000,000
82. Which of the following statements concerning worksheet for a manufacturing
company is not correct?
a. The worksheet for a manufacturing company includes a pair of columns for
cost of goods manufactured
b. Beginning raw materials inventory and work in process are debited in the
manufacturing column while the related ending inventories are credited
c. The difference between the total debits and total credits of the cost of
goods manufactured columns is extended to the credit column of the
statement of recognized income and expense
d. Beginning finished goods inventory is extended to the debit side of the
statement of recognized income and expense columns
83. The Moondance marketing team is working so hard after learning that the sales
last year of Matasha, a competitor, was higher than Moondance Company’s sales.
What type of comparative analysis is this?
a. Intracompany basis
b. Industry averages
c. Intercompany basis
d. None of the above
84. This tool of financial statement analysis shows the increase or decrease in the
financial statement data this year over last year, expressed as either an amount or a
percentage.
a. Horizontal analysis
b. Vertical analysis
c. Ratio analysis
d. None of the above
85. Compares one indicator to another and gives significant insight into the
performance and relative importance of two indicators
a. Vertical analysis
b. Horizontal analysis
c. Ratio analysis
d. None of the above
86. Which of the following statements is true?
a. A net profit of P200,000 is always better than a net profit of P150,000
b. A company with a current asset of P100,000 is always more solvent than a
company with a current asset of only P50,000
c. A high ratio of owners’ equity to total liabilities is favorable to
creditors
d. All of the above
87. This measures the average time period between buying the inventory and
receiving cash proceeds from its sales.
a. Operating cycle
b. Average age of receivables or collection period
c. Average age of inventory
d. Inventory turnover
88. How many days must there be in the operating if the inventory turns over 10
times in a year and the receivable turns over 9 times? Use 360 days in one year.
a. 40
b. 36
c. 16
d. 76
89. A company has sales of P450,000 (70% are credit sales). The gross profit ratio
is 25%. The accounts receivable turnover is 12 times while the inventory turnover is
4 times.
How much is the average accounts receivable?
a. P26,250
b. P37,500
c. P84,375
d. None of the above
90. Selected information from the accounting records of Arian Company is as
follows:
Accounts receivable, December 31, 2009 900,000
Accounts receivable, December 31, 2010 1,000,000
Inventories at December 31, 2009 1,100,000
Inventories at December 31, 2010 1,200,000
Accounts receivable turnover 5 times
Inventory turnover 4 times
What was Ariane’s gross margin or gross profit for 2010?
a. P5,750,000
b. P3,800,000
c. P1,950,000
d. P150,000
91. Shows the relationship between profit and ordinary shareholders’ investment in
the company
a. Basic earnings per ordinary share
b. Return on total assets
c. Return on ordinary equity
d. None of the above
92. Which ratio is most helpful in appraising profitability?
a. Acid-test ratio
b. Debt ratio
c. Times interest earned
d. Return on assets
93. Parekoy Company has earnings per share of P5.20 and pays dividend of P3.12
and has a market price of P41.60 per share. The price-earnings ratio is
a. 8
b. 13.33
c. 21.33
d. 5.33
94. Mayden Company had 600,000 ordinary shares issued and outstanding at
December 31, 2009. During 2010, no additional ordinary shares were issued. On
January 1, 2010, Mayden issued 400,000 preference shares. During 2010, Mayden
declared and paid P200,000 cash dividend on the ordinary share and P110,000 on
the preference share. Net income for 2010 was P750,000.
What should be the basic earnings per share?
a. 0.73
b. 0.92
c. 1.07
d. 1.25
95. The following data are from the financial statements of Amihan, Inc.
December 31, 2009 December 31, 2010
Total assets 140,000 180,000
Total equity 112,000 144,000
Profit 18,000 20,000
Interest expense 4,250 5,750
The 2010 return on total assets ratio is
a. 13.91%
b. 16.09%
c. 11.25%
d. 12.5%
96. The ratio of earnings before interest and taxes to total interest expense is a
measure of
a. Liquidity
b. Solvency
c. Activity
d. Profitability
97. Solvency is of least interest to
a. Short-term creditors
b. Bondholders
c. Shareholders
d. Bank holding the company’s 10-year note
98. The following data pertain to Credence Corporation’s for the year ended
December 31, 2010:
Operating income P 800,000
Interest expense 100,000
Income tax expense 210,000
What was the times interest earned ratio?
a. 4.9 times
b. 7
c. 8
d. 11
99. The following data are from the financial statements of WOW, Inc.:
Profit P 256,000
Income tax rate 35%
Interest expense 64,000
Total liabilities 840,000
Total equity 560,000
The equity ratio of WOW is
a. 40%
b. 60%
c. 66.67%
d. 18.29%
100. As of the end of 2010, Ice Company had total assets of P375,000 and equity of
P206,250. For 2011, its budget for capital investment projects is P62,500. To
finance a portion of the capital budget, the company may borrow from a bank which
set a condition that the loan would be approved, provided that the 2011’s debt ratio
should be the same as the debt ratio in 2010.
How much debt should be incurred to satisfy the bank’s condition?
a. P28,125
b. P34,375
c. P51,138
d. P62,500