1. ABC co. acquired 20,000 shares of DEF Co.

on March 1, 2019 for P2,000,000   and   acquired  

additional   30,000   shares   of   DEF   CO.  on October   31, 2019   at   P120   per   share.  On
February 14, 2020, ABC Co. received 20% share dividend. On June  1, 2020, DEF Co. declared
cash dividend of P5 per share to shareholders of record on June 15, 2020.  On June 6, 2020, ABC
Co. sold 30,000 shares at P125. How much is the gain on sale of investment assuming the FIFO
method is used?
Answer: 1,000,000

2. Plack Co. has the following transactions during the year 2020:
·       On February 14, Plack Co. purchased 5,000 ordinary shares of Ty Corp and 5,000 ordinary
shares of SABM Co.
·       On March 20, Ty Corp. issued a 2:1 stock split (split-up).
·       On April 30, Plack received a share dividend of 2,000 shares from Ty Corp. when the market
value per share was P35.
·       On December 15, Ty paid a cash dividend of P2 per share .
·       On December 31 , Plack Co. received 2,000 share of SABM Co. in lieu of cash dividend of
P10 per share. On this date, the SABM Company share has a quoted market price of P60 per
share.
 In its 2020 income statement, what amount should Plack report as dividend income?
Answer: 144,000

3. On July 1, 2020, Jamila Company purchased as a long-term investment P1,000,000 face value
8% bonds for P946,000 including accrued interest of P40,000. The bonds were purchased to
yield 10% interest. The bonds pay interest annually on December 31. The effective interest
method of amortization is used. What is the carrying amount of the investment in bonds on
December 31, 2020?

Answer: 911,300

4. Julie Trading has the following inventory transactions for the month of July 2016:
 
-     Beginning balance                     100 units          100 unit cost
-     Purchases                                       900 units          150 unit cost
-     Sale                                                  700 units
-     Purchases                                       500 units          250 unit cost
-     Ending balance                             800 units
 
What is the cost of ending inventory under the FIFO method, Weighted Average and Moving
Average?

Answer: P 170,000 , P 144,000 , P 168,500

5. Data regarding Stone Co's portfolio of equity securities accounted for as fair value through
other comprehensive income is as follows:

Aggregate cost as of 12/31/2020 (including transaction cost of P340,000

40,000)

Market value as of 12/31/2020 P296,000

Net realized gains during 2020 P60,000

At December 31, 2019, Stone Co. reported an unrealized loss of P3,000 to   reduce  
investments   to   market   value.   This   was   the   first   such adjustment made by Stone Co. on
these types of securities. In its 2020 statement of comprehensive income, what  amount  of
unrealized loss should Stone report

Answer: P 41,000

6. David Store uses the FIFO retail method of inventory valuation.  The following information is
available:
 

   At Cost At Retail

Beginning inventory P   P  

 12,000 30,000

Purchases 60,000 110,000

Net additional markups   10,000

Net markdowns   20,000

Sales (net of employee P 5,000   85,000

discounts)

Sales discounts to regular customers   1,000

 
Estimate the cost of ending inventory.

Answer: P 24,000

7. Under PFRS 9, the initial classification of investments in financial assets is generally based on
Answer: the entity's business model and the contractual cash flow characteristics of the
financial asset

8. An investor purchased a bond as investment at amortized cost on January 2. The investor’s

carrying value at the end of the first year would be highest if the bond was purchased at a
Answer: Premium and amortized by the effective interest method

9. Inventories are measured at

Answer: The lower of cost and net realizable value on an item by item basis

10. On January 2, 2020, Holy Company invested in a 4-year 10% bond with a face value of
P3,000,000 in which interest is to be paid every December 31. The bonds has an effective
interest rate of 8% and was acquired for P3,198,728. Holy Company has designated the debt
instrument as investment at fair value through OCI. Holy Company sold the bonds at the
prevailing rate of 12%.
What amount of gain or loss should Holy Company recognize on the sale of security?
Answer: 250,447

11. On January 1, 2020, Tarlac Company purchased bond with face amount of P2,000,000 for
P1,900,500 including transaction costs of P100,500. Tarlac’s business model for this investment
is to collect contractual cash flows which are interest and principal. Tarlac did not elect the fair
value option. The bonds mature on December 31, 2022 and pay interest of 8% annually every
December 31 with a 10% effective yield. On December 31, 2020, Tarlac changed the business
model for this investment to collecting contractual cash flows and selling the asset in the open
market. The bonds are quoted at 110 on January 1, 2021 and 120 on December 31, 2021. What
amount in OCI is recognized in the statement of changes in equity for 2021?
Answer: 436,395

12. The following items were included in Salem’s inventory account at December 31, 2016:
 
Merchandise out on consignment, at sales price,  
(including 40% markup on cost) P   280,000
Goods purchased, in transit, shipped FOB Seller  
(excluding P3,000 freight and P1,000 insurance) 180,000
Goods held on consignment by Salem 135,000
Imported inventory acquired on Dec. 15 US$  2,000  
(Exchange rates: Dec. 15 – US$50; Dec. 31 – 96,000
US$48)
Recoverable purchase taxes on imported goods 12,000
 
At what amount should Salem present its inventory at December 31, 2016?

Answer: 484,000

13. Julie Trading has the following inventory transactions for the month of July 2016:
 
-     Beginning balance                     100 units          100 unit cost
-     Purchases                                       900 units          150 unit cost
-     Sale                                                  700 units
-     Purchases                                       500 units          250 unit cost
-     Ending balance                             800 units
 
What is the cost of sales under the FIFO method, Weighted Average and Moving Average?

Answer: P 100,000 ; P 126,000 P 101,500

14. he following information is available for Kerr Company for 2017:

 
Freight-in P    60,000 Selling expenses 300,000
Purchase 150,000  Ending inventory520,000
returns
 
The cost of goods sold is equal to 300% of selling expenses. 
 
What is the cost of goods available for sale?
Answer: 1,420,000

15. Gains or losses on sale of Investment at FVOCI are recognized

Answer: In profit or loss when debt securities only

16. The following transactions relate to Harmony Company during 2017:

 
- Inventories, in-transit to Harmony, FOB Destination (includes packaging, P    100,000
shipping, handling costs of P 15,000 to be paid by Harmony)
- Inventories, in-transit to Harmony, FOB Shipping point (excludes freight 50,000
and handling charges paid by the supplier of P 5,000)
- Inventories, in-transit to Harmony, FOB Seller (includes insurance premium 20,000
of P 1,000)
- Inventories, in-transit to customer, FOB Buyer (includes freight of P 2,000) 40,000
- Goods out on consignment (excludes transportation cost to consignee of P 30,000
2,000)
- Inventories in the warehouse, fabricated to the order of a specific  
customer (includes cost of product design P 5,000)
50,000
 
Determine Harmony’s inventories.
Answer: P 145,000

17. The 10% bonds payable of Lucille Company had a net carrying amount of P570,000 on
December 31, 2020. The bonds, which had a face value of P600,000, were issued at a discount
to yield 12%. The amortization of the bond discount was recorded under the effective interest
method. Interest was paid on January 1 and July 1 of each year. On July 2, 2021, several years
before their maturity, Lucille retired the bonds at 102. The interest payment on July 1, 2021
was made as scheduled. What is the loss that Lucille should record on the early retirement of
the bonds on July 2, 2021?

Answer: 37,800

18. Bonds usually sell at a premium

Answer: When the stated rate of interest on the bonds is greater than the market rate of
interest

19. Which is false regarding the classification of financial assets:

Answer: Only equity securities can be classified as FVOCI
20. David, Inc. uses the retail method to estimate its monthly cost of goods sold and month-end
inventory. At August 31, the accounting records indicate the cost of goods available for
sale during the month totaled P 120,000. These goods had been priced for resale at P
300,000. Net sales in August totaled P 180,000.
 
The estimated inventory at August 31 is:
Answer: 48,000

21. Purchases and accounts payable of Smarts Inc. registered at P 3,000,000 and P 2,200,000,
respectively, on December 31, 2017, before recording the following items:
 
A.     Goods shipped to Smarts FOB Origin on December 22 were lost in transit.  The P 40,000
invoice was not recorded by Smarts.  Smarts filed on January 2018 P 40,000 claims against the
carrier.
 
B.     On December 27, Smarts was authorized to return goods billed at P 70,000 on December
3.  Smarts shipped the goods on December 28.  A P 70,000 credit memo was received and
recorded by Smarts on January 2018.
 
C.     On December 28, under FOB Destination, Smarts purchased goods invoiced at P 15,000. 
The goods were received on December 29.  Packaging and handling charges incurred by Smarts
amounted to P 2,500.
 
D.    Goods shipped to Smarts FOB Destination on December 22 and invoiced at P 50,000 were
received on January 2018.
 
What is the correct balance of accounts payable as of December 31, 2016?
Answer: 2,182,500

22. When the 2017 ending inventory is overstated, which is incorrect?

Select one:
 a. 2018 net income is understated

b. 2017 total assets is overstated

c. 2017 cost of goods sold is understated

d. 2017 net income is understated 

Answer: D

23. Pinatubo Inc. acquired 100,000 ordinary shares of Mayon Company at P120 per share. On
February 14, 2018, Pinatubo Inc. received 100,000 stock rights entitling it to buy one new share
at P90 for every two rights held. On February 14, 2018, the market value of each share is P130
while that of each right is not known. On   March   1,   2018,   all   the   stock   rights were
exercised. If share rights are accounted for separately, what is the total cost of the new
investment in ordinary shares acquired?
Answer: P 6,500,000

24. An entity purchased P5,000,000 of 8%, 5-year bonds on January 1, 2020 with interest
payable on June 30 and December 31. The bonds were purchased for P5,100,000 plus
transaction cost of P108,000 at an effective interest rate of 7%. The business model for this
investment is to collect contractual cash flows and sell the bonds in the open market. On
December 31, 2020, the bonds were quoted at 106.
What amount should be recognized in OCI in the statement of comprehensive income for
2020?
Answer: P 128,060

25. Starlord Co. sells musical instruments.  At December 31, 2017, the balance in Starlord’s
Inventory account was P 50,200, and the Allowance for Inventory Writedown had a balance of P
3,200.  The relevant inventory cost and market data at December 31, 2017, are summarized in
the schedule below:
           
  Replacement CostSales Net Realizable Normal Profit
value
Cost Price
Guitars P   8,900P   8,600 P   9,150P   8,700 P    640
Xylophone 9,400 9,200 9,300 8,500 744
s
Trumpets 12,500 13,500 12,900 11,100 1,161
Violins    19,400    11,400    20,500     19,700     2,050
Total P 50,200P 42,700 P 51,850P 48,000 P 4,595
 
            What is the proper balance in the Allowance for Inventory Write-down at December 31,
2017?
Answer: P 2,500

26. Before a devastating flood consumed the business of Harold Company, the following
records were available:
 
Gross sales P  400,000  Purchases (no beg. Inventory)P  500,000
Sales        10,000 Purchase discounts       40,000
discounts
Net sales P  390,000  Net purchases P  460,000
 
Harold sells all goods at a margin of 20%.  After the flood, the only goods salvaged by Harold
were goods that:
a.     Normally sell for P 14,000 but with net realizable value of P 12,000.
b.     Were undamaged and regularly sell for P 30,000.
How much is the estimated loss?
Answer: P 104,800

27. The Melon Company has partially-completed inventory located in its factory, to which the
following estimates relate:
 
Production costs incurred to dateP 2,900
Production costs to complete 2,000
Transport costs to customer 300
Future selling costs        400
Selling price 2,800
 
According to IAS 2 Inventories, what is the net realizable value of Melon's inventory?
Answer: P100

28. An entity returned merchandise purchased on account.  Under a perpetual

inventory system, the account credited to book the return is
Answer: Inventory

29. On January 2, 2020, Narvacan Company acquired 100,000 shares of ABC Company common
stock for a total consideration of P6,000,000. On October 1, 2020, Narvacan received from ABC
a preferred stock dividend of one share for every 10 common shares held. On this date, the
market price of ABC common is P75 per share and the ABC preferred, P50 per share. Narvacan
Company should report its investment in ABC Company preferred stock at
Answer: P 500,000

30. On June 1, 2017, Jockey, Inc. sold goods listed at P 10,000 granting trade discounts of 20%
and 10%.  Credit terms are 2/10, n/30, FOB Destination. Freight of P 800 was paid by the buyer
on June 2, when the goods were received. On June 3, Jockey, Inc. accepted goods
(originally listed at P 3,000) returned by the buyer. On June 4, additional goods
(originally billed at P 1,500) were returned. 
 
What amount is presented as net sales?
Answer: P 3,469.20