20TH REGIONAL MID YEAR CONVENTION

SGV ALL BOARD SUBJECTS CUP

Quiz Master’s Copy

FINAL ROUND

FAR 1
In accounting for borrowing costs, an entity shall disclose:

a. the amount of borrowing costs capitalized during the period

b. the capitalization rate used to determine the amount of borrowing costs eligible for capitalization
c. both a and b
d. nothing should be disclose

Answer: C
According to IAS 23 (Borrowing Costs)
Paragraph 26 An entity shall disclose:
(a) the amount of borrowing costs capitalized during the period; and
(b) the capitalization rate used to determine the amount of borrowing costs eligible for capitalization.

FAR 2

The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless: (Choose the best
answer)

a. there is a commitment by a third party to purchase the asset at the end of its useful life
b. there is an active market for the asset and residual value can be determined by reference to that
market
c. there is an active market for the asset and it is probable that such a market will exist at the end of
the asset's useful life.
d. statements a, b and c

Answer: D
According to IAS 28 (Intangible Assets)
Paragraph 100 -The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless:
(a) there is a commitment by a third party to purchase the asset at the end of its useful life; or
(b) there is an active market (as defined in IFRS 13) for the asset and:
(i) residual value can be determined by reference to that market; and
(ii) it is probable that such a market will exist at the end of the asset's useful life.

FAR 3
Juan Co. leased office premises to Pig, Inc. for a five year term beginning January 2, year 1. Under the terms of the
operating lease, rent for the first year is P8,000 and rent for years two through five is P12,500 per annum. However,
as an inducement to enter the lease, Juan granted Pig the first six months of the lease rent-free. In its December 31,
year 1 income statement, what amount should Juan report as rental income?

a. P12,000
b. P11,600
c. P10,800
d. P8,000
 Answer: C
Rental revenue on operating leases should be recognized on a straight-line basis unless another method more reasonably reflects
the pattern of use given by the lessor. When the pattern of cash flows under the lease agreement is other than straight-line, this
will result in the recording of rent receivable or unearned rent.
Juan’s total rent revenue [(1/2 ×P8,000) + (4 × P12,500) = P54,000] should be recognized on a straight-line basis over
the five-year lease term (P54,000 × 1/5 = P10,800).
Since cash collected in year 1 is only P4,000 (one-half of P8,000, since the first six months are rent-free), Juan would accrue
rent receivable and rental revenue of P6,800 (P10,800 – P4,000) at year-end to bring the rental revenue up to P10,800.

FAR 4
Which of the following is not a distinguishing characteristic of a derivative instrument?

a. Terms that require or permit net settlement.

b. Must be “highly effective” throughout its life.
c. No initial net investment.
d. One or more underlyings and notional amounts.

Answer: B
Derivative instruments contain
1. One or more underlyings and one or more notional amounts
2. No initial net investment or smaller net investment than required for contracts with an expected
similar response to market changes, and
3. Terms that require or permit net settlement, net settlement by means outside the contract, and
delivery of an asset that is substantially the same as net settlement.

FAR 5

The following data pertains to Ronalyn Co.’s investments in marketable equity securities:
Fair value
Cost 12/31/Y2 12/31/Y1
Trading P150,000 P155,000 P100,000
Available-for-sale 150,000 130,000 120,000
What amount should Ronalyn report as unrealized holding gain in its year 2 income statement, assuming
Ronalyn does not elect to use the fair value option to report its investments?

a. P50,000
b. P55,000
c. P60,000
d. P65,000

Answer: B
Debt and equity securities that are classified as trading securities are reported at fair value with unrealized gains and losses
included in earnings.
During year 2, Ronalyn had an unrealized holding gain of P55,000 (P155,000 – P100,000) on its trading securities.
The unrealized holding gain on available-for-sale securities (P130,000 – P120,000 = P10,000) is excluded from earnings
and reported as other comprehensive income.
AFAR 1
This is contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant
activities require the unanimous consent of the parties sharing control

a. Joint Arrangement
b. Joint Control
c. Joint Venture
d. B or C

Answer: B

PAS 28, paragraph 3, describes the following:

 A joint arrangement is an arrangement of which two or more parties have joint control.
 Joint control is the contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require the unanimous consent of the parties sharing control.
 A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement
have rights to the net assets of the arrangement.

AFAR 2
During 2016, Joel started work on a P3,000,000 fixed price construction contract. The accounting records disclosed
the following data for the year ended December 31, 2016:

Cost incurred P 930,000

Estimated cost to complete 2,170,000
Progress billings 1,100,000
Collections 700,000

How much loss should Joel have recognized in 2003?

a. Zero b. P30,000 c. P100,000 d. P230,000

Answer: C
Contract Price 3,000,000
Total Estimated Cost to Complete
(2,170,000 + 930,000) (3,100,000)
Loss to be recognized immediately (100,000)
AFAR 3
Agency PP prepares the following payroll fund for the month of June, 2016:

Salaries and wages P100,000

Additional compensation (ADCOM) 30,000
Personnel economic relief allowances (PERA) 20,000
Gross payroll P150,000
Less: Withholding tax P4,000
GSIS contribution 3,000
Pag-ibig contribution 2,000
Philhealth contribution 1,000 10,000
Net payroll P140,000

The net payroll is advanced to a Disbursing Officer.

 What is the entry to record the advances to the disbursing officer?

a. Cash – Disbursing Officer 140,000

Cash – Check disbursements 140,000

b. Cash – Disbursing Officer 140,000

Cash – National Treasury – MDS 140,000

c. Cash – Disbursing Officer 140,000

Cash – Local Currency – Local Bank 140,000

d. Cash – Disbursing Officer 140,000

Cash – Collecting Officer 140,000

ANSWER: B

The net payroll, P140,000 is advanced to the Disbursing Officer. Payments are made by the DO in cash to
the employees. See No. 6 for the explanation of the entry.

AFAR 4
HARLEY QUINN Hospital, a nonprofit affiliated with a religious group, reported the following information for the
year ended December 31, 2016:

 Gross patient service revenue at the hospital’s full established rates 980,000
 Bad debts expense 10,000
 Contractual adjustment with the third-party payors 115,000
 Allowance for discounts to hospital employees 15,000

On the hospital’s statement of operations for the year ended December 31, 2016, what amount should be
ssreported as net patient service revenue?

a. P840,000
b. P865,000
c. P850,000
d. P955,000

Answer: C
Health Care Organizations, provides that for contractual adjustments and discounts is recognized on the
accrual basis and deducted from gross patient service revenue to determine net patient revenue. Bad debts
expense is reported as an operating expense, not as a contra to gross patient service revenue.

Thus:
Gross patient service revenue 980,000
Contractual adjustments (115,000)
Allowance for discounts - employees (15,000)
Net Patient Service Revenue 850,000
AFAR 5
There are two broad approaches to the accounting for government grants: the capital approach, under which a grant
is recognized outside profit or loss, and the income approach, under which a grant is recognized in profit or loss
over one or more periods. Which argument supports the capital approach?

a. Because government grants are receipts from a source other than shareholders, they should not be
recognized directly in equity but should be recognized in profit or loss in appropriate periods.
b. It is inappropriate to recognize government grants in profit or loss, because they are not earned but
represent an incentive provided by government without related costs.
c. Government grants are rarely gratuitous. The entity earns them through compliance with their
conditions and meeting the envisaged obligations. They should therefore be recognized in profit or loss
over the periods in which the entity recognizes as expenses the related costs for which the grant is
intended to compensate.
d. Because income and other taxes are expenses, it is logical to deal also with government grants, which are
an extension of fiscal policies, in profit or loss.

Answer: B
According to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance:
Paragraph 13 There are two broad approaches to the accounting for government grants: the capital approach, under which a
grant is recognized outside profit or loss, and the income approach, under which a grant is recognized in profit or loss over one or
more periods.
Paragraph 14 Those in support of the capital approach argue as follows:
(a) Government grants are a financing device and should be dealt with as such in the statement of financial position rather
than be recognized in profit or loss to offset the items of expense that they finance. Because no repayment is expected, such grants
should be recognized outside profit or loss.
(b) It is inappropriate to recognize government grants in profit or loss, because they are not earned but represent an incentive provided
by government without related costs.

AUDITING 1
Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of
an entity’s internal control?

a. Incompatible duties.
b. Management override.
c. Mistakes in judgment.
d. Collusion among employees.

Answer: A
The requirement is to identify the reply that most likely would not be considered an inherent limitation of the potential
effectiveness of an entity’s internal control.
Answer (a) is correct because incompatible duties may generally be divided among individuals in such a manner as to control the
problem. Answers (b), (c), and (d) are all incorrect because management override, mistakes of judgment, and collusion among
employees are all inherent limitations of internal control.
AUDITING 2
Which of the following is most likely to be required in an audit performed in conformity with international auditing
standards?

a. Confirmation of accounts receivable.

b. Audit report modification for a change in accounting principles.
c. An opinion on internal control.
d. Audit report inclusion of the location in which the auditor practices

Answer: D
The requirement is to identify the most likely requirement in an audit performed in conformity with inter- national auditing
standards. Answer (d) is correct because audit reports based on international auditing standards must include the location in which
the auditor practices (i.e., the city and country). Answer (a) is incorrect because whether accounts receivable are confirmed is based on
the auditor’s consideration of the assessed risk of material misstatement and how the audit evidence will, from other planned audit
procedures, reduce that risk. Answer (b) is incorrect because audit report modification for a change in accounting principles is not
required under international auditing standards. Answer (c) is incorrect because an opinion on internal control is not required under
international auditing standards.

AUDITING 3
ABC Company purchased for cash on January 1, 2013, three machines which cost a total of
P1,800,000. Estimated selling prices of the machines were: Machine 1 P600,000; Machine 2 P750,000; and Machine
3 P900,000.

The machines were believed to have a useful life of 10 years without residual value. The company records
depreciation annually on a monthly basis. On January 1, 2016, Machine 1 was sold for P375,000 cash. The
proceeds were credited to the Machinery account.

On July 1, 2017, Machine 3 was traded in for a new machine (No. 4) which had a cash price of P750,000, Henri
paying P300,000 for the difference with the trade in value of the old machine. What should be the balance of
the Accumulated depreciation – Machinery on December 31, 2017 after adjustment of the books?

a. P805,500
b. P481,500
c. P337,500
d. P387,500

Solution: C
Assume that the trade has commercial substance (the exchanged assets were dissimilar), so record gain or loss, and the new
machinery should be recorded at its fair value. The asset given up should be written off.

Machine 2’s accumulated depreciation (750/2250 x 1,800,000 x 5/10) P300,000

Machine 4’s accumulated depreciation (750,000/10 x 6/12) 37,500
Total accumulated depreciation P337,500
AUDITING 4
On January 1, 2014, Melanie Mfg. Co. began construction of a building to be used as its office headquarters. The
building was completed on June 30, 2015.

Expenditures on the project were as follows:

January 3, 2014 P2,500,000

March 31, 2014 3,000,000
June 30, 2014 4,000,000
October 31, 2014 3,000,000
January 31, 2015 1,500,000
March 31, 2015 2,500,000
May 31, 2015 3,000,000

On January 3, 2014, the company obtained a P5 million construction loan with a 10% interest rate. The loan
was outstanding all of 2014 and 2015. The company’s other interest-bearing debts included a long-term note
of P25 million with an 8% interest rate, and a mortgage of P15 million on another building with an interest
rate of 6%. Both debts were outstanding during all of 2014 and 2015. The company’s fiscal year-end is
December 31.

What is the amount of capitalizable interest in 2014?

a. P3,400,000
b. P1,043,750
c. P668,100
d. P663, 125

Answer: D
Solution:
Actual borrowing cost:
Specific borrowing (P5 million x 10%) P500,000
General borrowings:
P25 million x 8% P2,000,000
P15 million x 6% 900,000 2,900,000
Total P3,400,000
Capitalization rate (P2,900,000/P40 million) 7.25%
Average expenditures – 2014 P7,250,000
Capitalizable interest – 2014:
Specific borrowing (P5 million x 10%) P500,000
General borrowings (P7,250,000 – P5,000,000 = P2,250,000 x 7.25%) 163,125
Total P663,125

AUDITING 5
ABC Company leased office premises to XYZ Company for a 5-year term starting January 2, 2014 Under the terms
of the lease, rent for the first year is P200,000 and rent for years 2 through 5 is P300,000 annually. As an inducement
to enter the lease, ABC Company waives the first six months of rental payments. XYZ Company likewise paid a
P70,000 security deposit of which 80% is refundable at the end of the lease term. Furthermore, contingent rent equal
to 2% of sales in excess of P12,000,000 shall be paid by XYZ Company. ABC Company incurred initial direct cost
of P40,000 while XYZ Company paid P30,000 in costs in relation to the lease. In 2015, XYZ Company reported sales
of P13,000,000.

Rental expense to be included in XYZ Company’s 2015 income statement is

a. P288,800
b. P268,800
c. P315,000
d. P302,200

Answer: A
Total rental payments for five years (P200,000/2) + (P300,000*4) P1,300,000
Divided by total years 5 years
Annual rental expense (fixed) 260,000
Contingent rent [(13M – 12M) * 2%] 20,000
Direct cost incurred (30,000 / 5) 6,000
Non-refundable portion of security deposit (70,000 * 20%) / 5 2,800
Total rental expense P288,800

TAXATION 1
These are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules,
regulations and precedents issued by the BIR and other agencies/offices.

Answer: Revenue Memorandum Circulars

Reference: BIR Website Directory

TAXATION 2
JKL Corporation assigned Mr. Angeles, one of its employees, in the Makati head office. The Company provided for
the residential house of the manager paying a monthly rental of PhP 34,000. In addition, one of the cars which was
acquired at a cost of PhP 1,228,629 was allowed as service vehicle of Mr. Angeles. Its book value during the year
amounted to PhP 545,100.

Compute for the deductible expense from the gross income of JKL Corporation.

ANSWER: PhP 684,680.74

House:
Grossed-up monetary value PhP 300,000
Tax Rate 32%
Fringe Benefit Tax PhP 96,000
Fringe Benefit Expense 408,000
Car:
Grossed-up monetary value PhP 180,680.74
Tax Rate 32%
Fringe Benefit Tax 57,817.84
Fringe Benefit Expense 122,862.90
Deductible expense PhP 684,680.74
TAXATION 3
A proprietary private educational institution has presented the following data for the year 2011:
Gross income, related activities P 5,000,000
Gross income, unrelated activities (including P 2,000,000 rent 7,000,000
from commercial spaces, gross of 5% withholding tax)
Expenses, related activities 2,000,000
Expenses, unrelated activities 3,000,000
Dividend from a domestic corporation 100,000

How much is the tax payable?

ANSWER: Php 2,000,000

Gross income, related activities P 5,000,000

Gross income, unrelated activities 7,000,000
Total P12,000,000
Less: Expenses, related activities ( P 2,000,000)
Expenses, unrelated activities ( 3,000,000) 5,000,000
Taxable net income P 7,000,000
Tax due (30%) P 2,100,000
Less: Withholding tax on rent 100,000
Tax payable P 2,000,000

TAXATION 4
In December 2015, Du30 was confined in Hospital QWERTY, a PHIC-accredited hospital. Du30, being a PHIC
member, accomplished PHIC Form and submitted the same to Hospital QWERTY. Upon settlement of his
hospital bills, he only paid an amount net of his PHIC benefits. Based on the hospital bills, the patient’s PHIC
benefits include the following:
Professional fees PhP 4,000
Facility fees 10,000
Total PhP 14,000

Moreover, the medical practitioner did not submit a sworn declaration of his gross income. How much will be paid
by PHIC to Hospital QWERTY?

ANSWER: PhP 13,200

Withholding on professional fees (PhP4,000 X 15%*) PhP 600

Withholding on facility fees (PhP10,000 X 2%) 200
Total PhP 800

The amount that PHIC must pay to Hospital X is PhP13,200 (PhP14,000 – 800)

Reference: RMC No. 38-2011

 Payments made to a medical practitioner shall be covered with EWT rates prescribed under Section 2.57.2 (A) of RR No. 2-
98, as amended, which is 10% or 15%, whichever is applicable, while for the facility fees paid to hospitals and clinics, the
EWT rate shall be 2% pursuant to Section 2.57.2 (N) of the same RR.
TAXATION 5
Roshane, resident citizen, was married under the absolute community to Michael. On August 20, 2015, she died of
cancer. The following are the data on properties and obligations:
Community properties:
Personal properties PhP 1,750,000
Real properties 1,400,000
Exclusive properties of Roshane
Personal properties 2,500,000
Family home 2,000,000
Casualty loss occurred November 2, 2015 350,000
Funeral Expenses 220,000
Unpaid taxes 12,500
Judicial expenses incurred until February 20, 2016 30,000
Casualty loss occurred March 5, 2016 130,000
Judicial expenses incurred after February 20, 2016 20,000
Medical Expenses 550,000

Compute for the net taxable and net distributable estate, respectively.
ANSWER: PhP 3,278,750, PhP 5,418,750
Exclusive Community Total
Personal properties PhP PhP
2,500,000 1,750,0000
Family home 2,000,000
Real properties 1,400,000
Gross estate PhP PhP PhP
4,500,000 3,150,000 7,650,000
Ordinary deductions:
Funeral expenses, limit 200,000
Judicial expenses 30,000
Unpaid taxes 12,500
Losses 350,000 (592,500)
Special deductions
Family home (1,000,000)
Standard deduction (1,000,000)
Medical expenses, limit (500,000)
Net estate PhP
4,557,500
Less: Share of the surviving spouse 1,278,750
(3,150,000-592,500)/2
Net taxable estate PhP
3,278,750
 Exclusive Community Total
Personal properties PhP PhP
2,500,000 1,750,0000
Family home 2,000,000
Real properties 1,400,000
Gross estate PhP PhP PhP 7,650,000
4,500,000 3,150,000
Ordinary deductions:
Funeral expenses, limit 200,000
Judicial expenses 50,000
Unpaid taxes 12,500
Medical expenses 550,000
Losses 480,000 (1,312,500)
Net estate PhP 6,337,500
Less: Share of the surviving spouse 918,750
(3,150,000-1,312,500)/2
Net distributable estate PhP 5,418,750

LAW 1
1. A, 17 years old, sold to B, of legal age, her necklace worth P20,000 for P15,000. Later, B sold the necklace
to C for P20,000. Which of the following statements is correct?
a. A has got a voidable title because at the time of sale, she is a minor
b. A can ask for recession of the sale to C because she suffered a lesion of more than ¼ of the value of
the property
c. If C is in bad faith, C becomes the owner of the necklace upon delivery to him but his title is
voidable
d. A can ask for the annulment of the sale to C because at the time of sale she is a minor

Answer: C. If C is in bad faith, C becomes the owner of the necklace upon delivery to him but his title
is voidable
Legal Basis: Article 1390. The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of
ratification. (n)
The title of B to the necklace is voidable since A is incapacitated to give consent. C can have legal title to as
such if he has no knowledge of the encumbrance in the title.

LAW 2
True or False:
I. In mutuum or loan, one of the parties delivers to another something not consumable so that the later may
use the same for certain time and return it
 II. Mutuum is essentially gratuitous
Answer: False, False
Legal Basis: Article 1933. By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which case the contract is
called a commodatum; or money or other consumable thing, upon the condition that the same amount of the
same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to
the borrower. (1740a)

LAW 3
If an agent enters into a contract in the name of a principal, exceeding the scope of the given authority, what is the
status of the contract between the agent and the principal?
Answer: Unenforceable
Legal Basis: Article 1898. If the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the principal. In this case, however, the agent is liable
if he undertook to secure the principal's ratification. (n)

LAW 4
Which of the following losses will not cause the dissolution of a partnership
a. Loss before delivery of a specific thing when the partner promised to contribute onlt its use and
enjoyment, reserving the ownership thereof
b. Loss before delivery of a specific thing which a partner had promised to contribute to the
partnership
c. Loss after delivery of a specific thing where the partner contributed only its use and enjoyment,
where such partner reserved the ownership thereof
d. Loss after its delivery to and acquisition of its ownership by the partnership from the partner who
contributed the same

Answer: D. Loss after its delivery to and acquisition of its ownership by the partnership from the
partner who contributed the same
Legal Basis: Pertains only to loss of a contributed thing in the partnership. Will not cause dissolution since the
object was already partnership property when it was lost.
LAW 5
On March 1, 2016, Marky obliged himself to give his only horse to Brandon if Brandon will pass the May 2016 CPA
Board Exam. If the CPA Boards was held on May 5,6, 11 and 12 and the results were released on May 13, 2016 and
Brandon passed and took his oath on June 29, 2016. The horse also gave birth to a foal on May 12, 2016. If Marky
delivered the horse and the foal on May 14, 2016, which of the following statement is not incorrect
a. Brandon acquired real right over the horse and foal
b. Marky can recover the foal but not the horse
c. Brandon can sell the horse and the foal
d. Marky can recover the horse but not the foal

Answer: B. Marky can recover the foal but not the horse
Legal Basis: Article 1187. The effects of a conditional obligation to give, once the condition has been fulfilled,
shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes
reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be
deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits
and interests received, unless from the nature and circumstances of the obligation it should be inferred that the
intention of the person constituting the same was different.
In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the
condition that has been complied with. (1120)
MAC 1
The following vendors have submitted their proposed terms for Mustafa Center Company which uses a 360-day
calendar year for business purposes:
Vendor A: 2/10, n/35
Vendor B: 1/15, n/25
Vendor C: 3/20, n/50

Calculate each vendor’s annual cost of trade credit. (Round off answers to two decimal %)

Answer: Vendor A – 29.38%

Vendor B – 36.36%
Vendor C – 37.11%

MAC 2
The sales manager at Ryan Company feels confident that if the credit policy at Ryan’s were changed, sales would
increase and consequently, the company would utilize excess capacity. The two credit proposals being
considered are as follows:

Proposal A Proposal B
Increase in sales $500,000 $600,000
Contribution margin 20% 20%
Bad debt percentage 5% 5%
Increase in operating profits P75,000 P90,000
Desired return on sales 15% 15%
 Currently, payment terms are net 30. The proposed payment terms for Proposal A and Proposal B are net 45
and net 90, respectively. An analysis to compare these two proposals for the change in credit policy would
include all of the following factors except the
a. V x /g
Cost of funds for Ryan.
b. Current bad debt experience.
c. Impact on the current customer base of extending terms to only certain customers.
d. Bank loan covenants on days’ sales outstanding.

Answer: (B) The requirement is to determine the factor that is not considered in determining whether to change credit
policy. Answer (b) is correct because the current bad debt experience is irrelevant to the decision. Management should
consider only those factors that change based upon the alternative selected. Answer (a) is incorrect because the cost
of funds is relevant to the decision. Answer (c) is incorrect because if there is any impact on the current customer
base, this factor should be considered. Answer (d) is incorrect because the impact on bank loan covenants is obviously
relevant.

MAC 3
Electronic Fund Transfer (EFT) is a service provided by financial institutions worldwide that is based on EDI
Technology. EFT transaction costs are lower than for manual systems because documents and human
intervention are eliminated from the transaction process. However, the EFT system has inherent and unique
risks, one of which is

a. unauthorized access and activity.

b. inadequate disaster recovery procedures.
c. insufficient online edit checks.
d. improper change control procedures.

Answer: A

MAC 4
If the coefficient of elasticity is zero, then the consumer demand for the product is said to be

a. perfectly inelastic.
b. perfectly elastic.
c. unit inelastic.
d. unit elastic.
Answer (A) is correct. When the coefficient of elasticity (percentage change in demand/change in price) is less than one, demand is
inelastic. When the coefficient is zero, the demand is perfectly inelastic.

MAC 5
If activity-based costing is implemented in an organization without any other changes being effected, total overhead
costs will

a. be reduced because of the elimination of non-value-added activities.

b. be reduced because organizational costs will not be assigned to products or services.
c. be increased because of the need for additional people to gather information on cost drivers and cost pools.
d. remain constant and simply be spread over products differently.

Answer: D