Review 105-----------Day 8 a.

Current selling price less cost to complete and cost to sell

THEORY OF ACCOUNTS 8. Theoretically, freight and warehousing costs incurred in the transfer of consigned
goods from the consignor to the consignee should be considered
1. The cost of inventories in applying the valuation at lower of cost or net realizable value a. An expense by the consignor c. Inventoriable by the consignor
should be assigned by using b. An expense by the consignee d. Inventoriable by the consignee
a. FIFO only c. Average method only
b. LIFO only d. Either FIFO or average method 9. Goods on consignment should be included in the inventory of
a. The consignor but not the consignee c. Both the consignor and the
2. Reporting inventory at the LCM is a departure from the accounting principle of consignee
a. Historical cost b. Conservatism c. Consistency d. Full disclosure b. The consignee but not the consignor d. Neither the consignor nor the
consignee
3. Which statement is not valid in relation to the LCM rule for inventories?
I. Inventories are usually written down to net realizable value on an item by item basis. 10. All of the following costs should be charged against revenue in the period, except
II. It is appropriate to write down inventories based on a classification of inventory, for a. Manufacturing overhead costs for a product manufactured and sold in the same
example, finished goods or all inventories in a particular industry or geographical accounting period.
segment. b. Costs which will not benefit any future period.
a. I only b. II only c. Both I and II d. Neither I nor II c. Costs from idle manufacturing capacity resulting from an unexpected plant shutdown.
d. Costs of normal shrinkage and scrap incurred for the manufacture of a product in
4. The original cost of an inventory item is below both replacement cost and net realizable ending inventory.
value. The net realizable value less normal profit margin is below the original cost. Under
LCM method, the inventory item should be valued at 11. The use of a discounts lost account implies that the recorded cost of a purchased
a. Replacement cost inventory item is its
b. Net realizable value a. Invoice price
a. Net realizable value less normal profit margin b. Invoice price plus the purchase discount lost
b. Original cost c. Invoice price less the purchase discount taken
d. Invoice price less the purchase discount allowable whatever taken or not
5. When agricultural crops have been harvested or mineral ores have been extracted
and a sale is assured under a forward contract or government guarantee, such 12. The use of purchase discounts account implies that the recorded cost of a purchased
inventories are measured at inventory item is its
a. Net realizable value c. Standard cost a. Invoice price
b. Cost d. Relative sales price b. Invoice price plus any purchase discount lost
c. Invoice price less the purchase discount taken
6. The cost of inventories may not be recoverable under all of the following conditions, d. Invoice price less the purchase discount allowable whether taken or not
except
a. The estimated costs of completion or the estimated costs to be incurred to make the 13. Theoretically, cash discounts permitted on purchased raw materials should be
sale have increased. a. Added to other income, whether taken or not
b. The inventories have become wholly or partially obsolete. b. Added to other income, only if taken
c. The inventories are damaged c. Deducted from inventory, whether taken or not
d. The selling prices of the inventories have increased. d. Deducted from inventory, only if taken

7. Which of the following is not an acceptable basis for valuation of inventories in 14. When a portion of inventories has been pledged as security on a loan
published financial statements? a. The value of the portion pledged should be subtracted from the debt
a. Historical cost b. An equal amount of retained earnings should be appropriated
b. Standard cost c. The fact should be disclosed but the amount of current assets should not be affected
c. Prime cost
 d. The cost of the pledged inventory should be transferred from current to noncurrent The accrual method is used by Lucban to account for the warranty and premium costs for
asset financial reporting purposes. The balance in the accounts related to warranties and
premiums on January 1, 2005, were as shown below:
15. If a material amount of inventory has been ordered through a formal purchase
contract at balance sheet date for future delivery at firm prices Inventory of Premium AM/FM radio P39,950
a. This fact must be disclosed Estimated Premium Claims Outstanding 44,800
b. Disclosure is required only if prices have declined since the date of the order Estimated Liability from Warranties 136,000
c. Disclosure is required only if prices have since risen substantially.
d. An appropriation of retained earnings is necessary. Determine the amounts that will be shown on the 2005 financial statements for the following:

2. Warranty expense
P1 a. P164,000 c. P108,000
b. 80,000 d. P144,000
1. During 2004, Lucena Company introduced a new product carrying a two-year warranty
against defects. The estimated warranty costs related to peso sales are 5% within 12 months 3. Estimated liability from warranties
following sale and 10% in the second 12 months following sale. Sales and actual warranty a. P108,000 c. P136,000
expenditures for the years ended December 31, 2004 and 2005 are as follows: b. P164,000 d. P 80,000

Sales____ Actual expenditures 4. Premium expense

2004 20,000,000 1,500,000 a. P 75,600 c. P183,600
2005 25,000,000 3,000,000 b. P126,000 d. P108,000

5. Inventory of AM/FM radio

At December 31, 2005, Lucena would report estimated warranty liability of
a. P46,950 c. P77,350
a. 1,500,000
b. P39,950 d. P56,950
b. 2,250,000
c. 750,000
6. Estimated liability for premiums
d. 500,000
a. P75,600 c. P63,450
b. P36,400 d. P44,800
Lucban’s Music Emporium carries a wide variety of music promotion techniques - warranties
and premiums – to attract customers.

Musical instrument and sound equipment are sold in a one-year warranty for replacement of
7. Pitogo Company sells gift certificates redeemable only when merchandise is purchased.
parts and labor. The estimated warranty cost, based on past experience, is 2% of sales.
The certificates have an expiration date two years after issuance date. Upon redemption or
expiration, Pitogo recognizes the unearned revenue as realized. Data for 2005 are as follows:
The premium is offered on the recorded and sheet music. Customers receive a coupon for
each peso spent on recorded music or sheet music. Customers may exchange 200 coupons
Unearned revenue, 1/1/2005 1,000,000
and P20 for an AM/FM radio. Lucban pays P34 for each radio and estimates that 60% of the
coupons given to customers will be redeemed. Gift certificates sold 5,000,000
Gift certificates redeemed 4,000,000
Lucban’s total sales for 2005 were P7,200,000 - P5,400,000 from musical instrument and Expired gift certificates 500,000
sound reproduction equipment and P1,800,000 from recorded music and sheet music. Cost of goods sold 60%
Replacement parts and labor for warranty work totaled P164,000 during 2005. A total of
6,500 AM/FM radio used in the premium program were purchased during the year and there At December 31, 2005, Pitogo report unearned revenue of
were 1,200,000 coupons redeemed in 2005. a. 1,500,000
b. 1,000,000
c. 500,000
 d. 0 12. Sariaya Company sells office equipment service contracts agreeing to service equipment
for a two-year period. Cash receipts from contracts are credited to unearned service contract
revenue and service contract costs are charged to service contract expense as incurred.
8. On September 1, 2004, Pagbilao Company issued a note payable to National Bank in the Revenue from service contracts is recognized as earned over lives of the contracts.
amount of P10,000,000, bearing interest at 15%, and payable in five equal annual principal Information for the year 2005 is as follows:
payments of P2,000,000. On this date, the bank’s prime rate was 12%. The first payment for
interest and principal was made on September 1, 2005. At December 31, 2005, Pagbilao Unearned service contract revenue – 1/1/2005 3,000,000
should record accrued interest payable of Cash receipts from service contracts sold 5,000,000
a. 1,400,000 Service contract revenue recognized
b. 1,120,000 4,500,000
c. 400,000 Service contract expense 2,500,000
d. 320,000
What amount should Sariaya report as unearned service contract revenue at December
9. On December 31, 2005, Gumaca Company had a P15,000,000 note payable outstanding, 31, 2005?
due July 31, 2006. Gumaca borrowed the money to finance construction of a new plant. On a. 3,500,000 c. 2,000,000
March 1, 2006, the note was replaced by an 18-month note for the same amount. On March b. 1,000,000 d. 500,000
31, 2006, Gumaca issued its 2005 financial statements. What amount of the note payable
should Gumaca include in the current liabilities? 13. For the year ended December 31, 2005, Talisay Company reported pretax financial
a. 15,000,000 income of P9,500,000. Its taxable income was P9,000,000. The difference is due to
b. 12,000,000 accelerated depreciation for income tax purposes. The income tax rate is 32% and Talisay
c. 3,000,000 made estimated tax payment during 2005 of P1,000,000. What should Talisay report as
d. 0 current tax expense for 2005?
a. P2,880,000 c. P3,040,000
10. On November 5, 2005, a Calauag Company truck was in an accident with an auto driven b. P1,880,000 d. P2,040,000
by Macalelon. Calauag received notice on January 15, 2006, of a lawsuit for P4,000,000
damages for personal injuries suffered by Macalelon. Calauag’s counsel believes it is 14. The following information pertains to Bustos Company as of December 31, 2005:
probable that Macalelon will be awarded an estimated amount in the range between
P2,000,000 and P3,000,000, and no amount is a better estimate of potential liability than any Cash balance per general ledger P15,000,000
other amount. The accounting year ends on December 31, and the 2005 financial statements Cash balance per bank statement 14,550,000
were issued on March 31, 2006. What amount of provision should Calauag accrue at Checksoutstanding (including certified check of P100,000) 1,000,000
December 31, 2005? Bank service charge shown in December bank statement 50,000
a. 4,000,000 Error made by Bustos in recording a check that cleared the bank in
b. 3,000,000 December (check was drawn in December for P500,000
c. 2,000,000 but recorded at P700,000)
d. 2,500,000 200,000
Deposit in transit
11. During January 2005, Tagkawayan Company won a litigation award for P2,000,000 which 1,500,000
was tripled to P6,000,000 to include punitive damages. The defendant, who is financially
stable, has appealed only the P4,000,000 punitive damages. Tagkawayan was awarded At the December 31, 2005 balance sheet cash in bank should be
P1,000,000 in an unrelated suit it filed, which is being appealed by the defendant. Counsel is a. P15,150,000 c. P14,250,000
unable to estimate the outcome of the appeals. In its 2005 income statement, Tagkawayan b. P14,650,000 d. P14,550,000
should report what amount of pretax gain?
a. 6,000,000 c. 2,000,000
b. 4,000,000 d. 3,000,000 15. For the year ended December 31, 2005, Silay Company reported pretax financial income
of P12,000,000. Its taxable income was P14,000,000. The difference is due to rental
received in advance. Rental income is taxable when received. The income tax rate is 32%
and Silay made estimated tax payment of P1,000,000 in 2005. What amount should Silay 6. Starrs Company has current assets of $300,000 and current liabilities of $200,000. Starrs
report as 2005 total income tax expense? could increase its working capital by the
a. P2,840,000 c. P4,480,000 A. Prepayment of $50,000 of next year's rent.
b. P3,840,000 d. P3,480,000 B. Refinancing of $50,000 of short-term debt with long-term debt.
C. Purchase of $50,000 of temporary investments for cash.
D. Collection of $50,000 of accounts receivable.
MAS
7. Mars Company plans to issue some P100 preferred stock with an 11 percent dividend.
1. A company is designing a new regional distribution warehouse. To minimize delays in The stock is selling on the market for P97, and Mars must pay flotation costs of 5 percent
loading and unloading trucks, an adequate number of loading docks must be built. The of the market price. The company is under the 40 percent corporate tax rate.
most relevant technique to assist in determining the proper number docks is The cost of preferred stock for Mars Company is
A. Cost-volume-profit analysis C. PERT/CPM analysis A. 7.16 percent C. 11.34 percent
B. Linear programming D. Queuing theory B. 6.80 percent D. 11.94 percent

2. The Taurus Company’s last dividend was P3.00; its growth rate is 6 percent and the 8. ABC Corp. stock’s beta is .50. If the market return is 16%, and the risk-free rate is 6%,
stock now sells for P36. New stock can be sold to net the firm P32.40 per share. what is the required rate of return on ABC stock?
What is the Taurus Company’s cost of retained earnings? A. 11% C. 13%
B. 12% D. 14%
A. 14.83 percent C. 15.81 percent
9. Gear Inc., has a total annual cash requirement of P9,075,000 which are to be paid
B. 15.26 percent D. 9.69 percent
uniformly. Gear has the opportunity to invest the money of 24% per annum. The
company spends, on the average, P40 for every cash conversion to marketable
3. For 2003, Bee Company increased earnings before interest and taxes by 17%. During
securities.
the same period, net income after tax increased by 42%. The degree of financial
What is the optimal cash conversion size?
leverage that existed during 2003 is
A. 1.70 C. 2.47
B. 4.20 D. 5.90 A. P60,000 C. P55,000
B. P45,000 D. P72,500
4. The working capital financing policy that subjects the firm to the greatest risk of being
unable to meet the firm’s maturing obligations is the policy that finances 10. The gross profit of Rea Company for each of the years ended as indicated follow:
a. Fluctuating current assets with long-term debt.
b. Permanent current assets with long-term debt. 2001 2000
c. Permanent current assets with short-term debt. Sales P792,000 P800,000
d. Fluctuating current assets with short-term debt. Cost of goods sold 463,000 480,000
Gross profit P328,000 P320,000
Assuming that 2001 selling price was 10% lower, what would be the decrease in gross
5. Determining the appropriate level of working capital for a firm requires profit due to change in the selling price?
a. Evaluating the risks associated with various levels of fixed assets and the types of A. P8,000 C. P79,200
debt used to finance these assets. B. P72,000 D. P88,000
b. Changing the capital structure and dividend policy for the firm.
c. Maintaining short-term debt at the lowest possible level because it is ordinarily more
expensive than long term debt. Questions 11 thru 14 are based on the following information.
d. Offsetting the profitability of current assets and current liabilities against the In order to increase production capacity, Gunning Industries is considering replacing an
probability of technical insolvency. existing production machine with a new technologically improved machine effective January
e. Maintaining a high proportion of liquid assets to total assets in order to maximize the 1, 2002. The following information is being considered by Gunning Industries:
return on total investments.  The new machine would be purchased for P160,000 in cash. Shipping installation, and
testing would cost an additional P30,000.
 The new machine is expected to increase annual sales by 20,000 units at a sales price of annuity of P1 at 10% 1.000 2.100 3.310 4.641 6.105
P40 per unit. Incremental operating costs include P30 per unit in variable costs and total How much will the machine cost?
fixed costs of P40,000 per year.
 The investment in the new machine will require an immediate increase in working capital
of P35,000. This cash outflow will be recovered at the end or year 5. A. P32,220 C. P75,820
 Gunning uses straight-line depreciation for financial reporting and tax reporting purposes. B. P62,100 D. P122,100
 The new machine has an estimated useful life of 5 years and zero salvage value
 Gunning is subject to a 40% corporate income tax rate. 15. Which of the following would decrease the net present value of a project?
Gunning uses the net present value method to analyze investments and will employ the A. A decrease in the income tax rate
B. A decrease in the initial investment
following factors and rates: C. An increase in the useful life of the project
D. An increase in the discount rate
Period PV of 1 at 10% PV of an ordinary annuity of 1 at 10%
1 .909 .909
2 .826 1.736 AP
3 .751 2.487
4 .683 3.170 In your audit of National Inc.’s cash account as of December 31, 2007, you ascertained
5 .621 3.791 the following information:
The book keeper’s bank reconciliation on November 30,2007, is as follows:
Bank balance per bank statement, November 30 P24,298
11. Gunning Industries’ net cash outflow in a capital budgeting decision is
Add: Deposit in transit 3,648
A. P190,000 C. P204,525
Total P27,946
B. P195,000 D. P225,000
Less: Outstanding checks
No. 3408 P440
12. Gunning Industries’ discounted annual depreciation tax shield for the year 2002 is
3413 300
A. P13,817 C. P20,725
3414 6,820
B. P16,762 D. P22,800
3416 3,924
3417 800 12,284
13. The acquisition of the new production machine by Gunning will contribute a discounted Balance P15,662
net-of-tax contribution margin of Add: Bank service charge for Nov. 36*
Balance per books P15698
A. P242,624 C. P363,936
*Entered in check register in Dec.
B. P303,280 D. P454,920
The cash receipts journal shows a total receipts for December of P371,766. The check
register reflects total checks issued in December of P377,632. A collection of P5,912 was
14. Cause Company is planning to invest in a machine with a useful life of five years and no
recorded on company books on Dec. 31 was not deposited until Jan. 2,2008.
salvage value. The machine is expected to produce cash flow from operations, net of
The balance per bank statement at Dec. 31,2007 is P17,516. The statement shows total
income taxes, of P20,000 in each of the five years. Cause’s expected rate of return is
receipts of P373,502 and checks paid of P380,284.
10%. Information on present value and future amount factors is as follows:
Your examination revealed the following additional information:
1 2 3 4 5  Check no.3413 dated Nov. 24,2007, was entered in the Check Register as P300.
Present value of P1 at .909 .826 .751 .683 .621 Your examination of the paid returned with the December bank statement reveals
10% that the amount of the check is P30.
Present value of an  Check no. 3417 was mutilated and returned by the payee. A replacement
annuity of P1 at 10% .909 1.736 2.487 3.170 3.791 check(no.3453) was issued. Bothe checks were entered in the Check register but no
Future amount of P1 at 1.100 1.210 1.33 1.464 1.611 entry was made to cancel check no. 3417.
10%  The Dec. bank statement includes an erroneous bank charge of P480.
Future amount of an
  On Jan. 3, 2008, the bank informed your client that a Dec. bank charge of P423 was  Payment for land 3,000,000
omitted from the statement.  Payment for demolition of old building 210,000
 Your examination of the bank credit memo accompanying the Dec. bank statement  Proceeds from sale of material from
discloses that it represents proceeds from the note collection in Dec. for P4,000. old building 78,000
 The outstanding checks at Dec. 31,2007, are as follows:  Payment to architect 750,000
No. 3468 P440  Payment to City Hall for approval of
No.3417 800 building construction 50,000
No.3418 2,814  Payment for safety fence around
No.3419 5,788 construction site 56,000
1.What is the total book disbursements for the month of December?  Payment to construction contractor
a.377,668 b.377,710 c.377,632 d.377,596 For factory building 5,000,000
 Payment for external driveways, parking
2.What is the book balance at Dec. 31: Bays and safety lighting 730,000
a.9,832 b.9,868 c.9,754 d.9,796  Payment of interest on construction loan 400,000
 Payment for safety inspection on building 30,000
3.What is the total outstanding checks at Dec.31?
 Payment for equipment 570,000
a.8,602 b.9,072 c.9,042 d.9,842
 Payment of freight and insurance costs on
Delivery of equipment 48,000
4. What is the adjusted bank balance on Nov. 30?
a. 16,690 b.16,732 c.16,804 d.16,774  Payment of installation cost in equipment 60,000
 Payment for safety equipment surrounding
5. What is the adjusted book receipts for the month of Dec.? Equipment 140,000
a.375,724 b.371,766 c.371,238 d.375,766  Payment for removal of safety fence 20,000
 Payment for new fence surrounding the factory 150,000
6. What is the adjusted book disbursements for the month of Dec.?  Payment for advertisements in the newspaper
a.377,590 b.377,662 c.377,674 d.377,632 About the forthcoming factory and its
Benefits to the community 10,000
7. What is the adjusted book balance on Dec.31??  Payment for opening ceremony 70,000
a.14,824 b.14,866 c.14,908 d.14,782  Payments to adjust equipment to more
Efficient operating levels subsequent to initial
Operation 95,000
BATIK COMPANY commenced operations on January 1,2010. During the following year, the
company acquired a tract of land, demolished the building on the land and built a new factory. 8. The amount to be reported as expenses (excluding depreciation) on BATIK’S income
Equipment was acquired for the factory and, in September 2011, the plant was ready to statement is
commence the factory. The first items were ready for sale on September 25. A. P10,000 B.P81,250 C. P82,500 D. P80,000
During the period, the ff. cash inflows and outflows occurred: 9. What is the cost of the equipment?
 While searching for a suitable block of land, A. P818,000 B. P913,000 C. P773,000 D. P678,000
BATIK placed an option to buy with three 10. What is the cost of the land improvements?
real estate agents at a cost A. P936,000 B. P786,000 C. P730,000 D. P880,000
of P1,250 each. Payment of option fees P3,750 11. What is the cost of the building?
 Receipt of loan from bank 3,000,000 A. P6,306,000 C. P6,456,000
 Payment to settlement agent for title B. P6,230,000 D. P5,906,000
Search, stamp duties, and 12. What is the cost of the land?
Settlement fees 48,000 A. P3,381,250 C. P3,233,750
 Payment of delinquent property taxes B. P3,231,250 D. P3,309,250
assumed by BATIK COMPANY 50,000
BARBIE COMPANY was formed on July 1, 2008. It was authorized to issue 600,000 shares Based on the foregoing and the result of your audit, answer the following:
of P10 par value common stock and 200,000 shares of 8 percent P25 par value, cumulative 13. Preferred stock on June 30, 2011 is
and nonparticipating preferred stock. BARBIE COMPANY has a July 1- June 30 fiscal year. A, P0 B. P3,400,000 C. P2,500,000 D. P4,400,000
The ff information relates to the shareholders’ equity accounts of BARBIE COMPANY: 14. Common stock on June 30, 2011 is
COMMON STOCK A. P2,350,000 C. P2,510,000
Prior to the 2010-2011 fiscal year, BARBIE COMPANY had 220,000 shares of outstanding B. P2,230,000 D. P2,500,000
common stock issued as follows: 15. Total APIC-common at June 30,2011 is
1. 190,000 shares were issued for cash on July 1,2008, at P31 per share. A. P5,435,000 C. P4,970,000
2. On July 24,2008, 10,000 shares were exchanged for a plot of land which cost the B. P5,579,000 D. P5,693,000
seller P140,000 in 2002 and had an estimated market value of P440,000 on July
24,2008.
3. 20,000 shares were issued on March 1,2010; the shares had been subscribed for BLT
P42 per share on October 31, 2009.
During the 2010-2011 fiscal year, the ff transactions regarding common stock took place: 1. Which statement is wrong? If a taxpayer is unable to pay tax assessed on him.
2010 a. The Bureau of Internal Revenue may distraint his personal properties;
Oct. 1 Subscriptions were received for 4,000 shares at P46per share. Cash of b. The Bureau of Internal Revenue my levy on his real properties;
P184,000 was received in full payment for 4,000shares and stock certificates c. The Bureau of Internal Revenue may accept a turnover of items of the taxpayer’s
were issued. inventory as a mode of payment on the tax;
Nov. 30 BARBIE purchased 4,000 shares of its own stock on the open market at P39 d. All of the above are correct.
per share.
Dec. 15 BARBIE declared a 5% stock dividend for stockholders of record on January
15,2011, to be issued on January 31,2011. BARBIE was having a liquidity 2. Taxpayer sold capital assets as follows:
problem and could not afford a cash dividend at the time. BARBIE’s common
stock was selling at P52 per share on December 15,2010. Lot 11 Lot 22
2011 Selling Price P6,000,000 P10,000,000
June 20 BARBIE sold 1,000 shares of its own common stock that it had purchased on Cost 2,500,000 1,000,000
November 30,2010, for P42,000 Net Gain (loss) P3,500,000 P9,000,000
PREFERRED STOCK
BARBIE issued 100,000 shares of preferred stock at P44 per share on July 1,2009. Terms of sale:
CASH DIVIDENDS Down payment 1.15.2008 P 500,000 P 500,000
BARBIE has followed a schedule of declaring cash dividends in December and June with Paid on 6.15.2008 500,000 1,000,000
payment being made to shareholders of record in the following month. The cash dividends Paid on 9.15.2008 500,000 1,000,000
which have been declared since inception of the company through June 30,2011, are shown Installment due 1.15.2009 2,000,000 3,000,000
below: Installment due 5.15.2009 2,500,000 3,000,000
Declaration Date Common Stock Preferred stock Mortgage assumed by the buyer 1,500,000
12/15/09 P0.30 per share P1.00 per share
06/15/10 P0.30 per share P1.00 per share The final tax payable under the installment method for 2008 lot 22 is:
12/0510 ---- P1.00 per share a. P135,000 b. P150,000 c. P600,000 d. None of the
No cash dividends were declared during June 2011 due to the company’s liquidity problems. above
RETAINED EARNINGS
As of June 30, 2010, BARBIE’s retained earnings account had a balance of P1,380,000. For 3. Jose Pidal, widower, supporting a son, 33 years old, who is invalid, has the following
the fiscal year ending June 30, 2011, BARBIE reported net income of P80,000. transactions in 2008:
In March 2010, BARBIE received a term loan from Badingding National Bank. The bank Sales P1,200,000
requires BARBIE to establish a sinking fund and restrict retained earnings for an amount Cost of sales 550,000
equal to the sinking fund deposit. The annual sinking fund payment of P100,000 is due on Deductions:
April 30 each year; the first payment was made on schedule on April 30,2011. 1. Operating expenses 367,000
 2. Loss of Goods thru theft 50,000 6. M makes a note payable to bearer and delivers the same to P who endorses it to X in
3. Contributions: this manner: “Payable to X. (Sgd) P.”
To Quezon Province government for priority Later X, without indorsing the note delivers the same to Y. The note is subsequently
Activity in sports development 10,000
dishonored by M. May Y proceed against M for the note?
To St. Mark Cathedral 35,000
Other income a. No, because the special indorsement of P has made the note to be payable to
1. Rent of Apartment 30,000 order and must be endorsed to negotiate.
2. Capital gain from sale of family painting held for 2 years 80,000 b. Yes, because an instrument originally payable to bearer remains to be payable to
bearer despite special indorsement made thereon.
Jose Pidal will report a net income before personal exemptions of: c. Yes, because M, as maker, is absolutely liable to pay the instrument in the hands
a. P226,700 b. P262,700 c. P266,700 d. of any holder.
P302,700
d. No, because Y did not acquire title to the instrument due to the lack of proper
4. Jose Miguel Estrada, single, has the following transactions in 2008: indorsement.
Business gross income
P200,000 7. This is a personal defense:
Business expense 60,000 a. Absolute defense
Loss from gambling 10,000 b. Equitable defense
Other transactions: c. Real defense
a. Selling price, partnership interest
d. National Defense
100,000
b. Investment in partnership 2006
20,000 8. A note reads “I promise to pay B or order P1000, 30 days after B receives the
c. Gain on sale of capital asset held for 4 years proceeds of his loan from ABC bank.” Sgd. A. The instrument is:
10,000 a. Subject to a condition
d. Loss on sale of capital asset held for 8 months b. Payable at a determinable future time
12,000
c. Payable on demand
e. Loss on account of failure to exercise 2-month option to buy Property
2,000 d. Non- negotiable because the payment is indefinite
f. Liquidating dividend from Aquino Co.
150,000 9. A delivered to B the following instrument:
Cost of investment in Aquino Co. in 2006 “One month after date, I promise to pay to B P10000.” Sgd. A. B indorsed the note in
60,000 blank before maturity and delivered it to C for value. When due, A refused to pay and
Note: in 2007, Jose Miguel Estrada had a net income of P65,000 C sued B. Could C recover from B?
and a net capital loss of P92,000.
a. No, C could not sue B and hold him liable as an indorser because the instrument
Taxpayer’s net income before personal exemptions is:
a. P196,000 b. P141,000 c. P140,000 d. P151,000 is payable to a specified person.
b. No, the instrument is not negotiable because it is neither payable to order or to
5. What are the effects of indorsement after maturity? bearer.
First Answer: There is assignment and not negotiation. c. Yes, provided C to give notice of dishonor to B, otherwise B is discharged from
Second Answer: The holder cannot be deemed a holder in due course. liability.
a. True, true d. Yes, the endorsement will be considered as an assignment, hence B will be
b. True, false liable as an assignor of the instrument.
c. False, true
d. False, false 10. In a blank indorsement, the indorser renders himself:
 a. Primarily liable
b. Secondarily liable P2
c. Solidarily liable
d. Subsidiary liable Selected cost data concerning the past fiscal year’s operations of the Moscow Manufacturing
Co. Are presented below:
11. The following are functions of a negotiable instrument. Choose the exception:
Inventories
a. It increases credit circulation.
b. As substitute for money. Beginning Ending
c. As legal tender. Materials P 75,000 P 85,000
d. It increases purchasing power in circulation. Work in process 80,000 30,000
Finished goods 90,000 110,000
12. A makes a negotiable note to bearer and delivers it to B for safekeeping. The note is
negotiated by B to C. Can A refuse to pay C on the ground that the note was Materials used, P326,000. Total manufacturing costs charged to production during the year (
originally delivered to B for a special purpose only? including direct materials, direct labor, and factory overhead applied at the rate of 60% of
a. Yes, A can prove that he delivered the instrument to B only for a special purpose. direct labor cost), P 686,000. Cost of goods available for sale, P826,000. Selling and general
b. No, where the instrument is in the hands of any holder, a valid delivery thereof by expenses, P25,000.
all parties prior to him so as to make them liable to him is conclusively presumed.
c. Yes, because B negotiated the note without authority. 1. What is the amount of direct materials purchased during the year?
d. No, if C is a holder in due course. A. 360,000
B. 316,000
13. In the following instances, appraisal right may be exercised, except: C. 336,000
a. Investment of corporate funds in another business or purpose. D. 411,000
b. Extension of term
2. What is the direct labor cost charged to production during the year?
c. Appointment of an executive committee.
A. 216,000
d. Reduction of term.
B. 135,000
14. Which of the following cannot be a close corporation? C. 225,000
a. mining corporation D. 360,000
b. stock exchange 3. What is the cost of goods manufactured during the year?
c. educational institution A. 736,000
d. All of the above B. 716,000
C. 636,000
15. In the following instances, approval of the majority of the board and concurrence of D. 766,000
the stockholders representing 2/3 of the outstanding capital stock is necessary in the
4. What is the cost of goods sold during the year?
exercise of the powers except:
a. To deny pre-emptive right. A. 716,000
b. To adopt, amend or repeal the by-laws. B. 691,000
c. To increase or decrease capital stock. C. 801,000
d. To declare stock dividends. D. 736,000

Kimbeth manufacturing uses a process cost system to manufacture Dust Density Sensors for
the mining industry. The ff information pertains to operations for the month of May:
 Units 8. Using the FIFO method, the equivalent unit conversion cost for May is
A. 5.65
Beginning work in process inventory, May 1 16,000 B. 5.83
Started in production during May 100,000 C. 6.00
Completed production during May 92,000 D. 6.20
Ending work in process inventory, May 31 24,000 E. 6.63

The beginning inventory was 60% complete for materials and 20% complete for conversion 9. Using the FIFO method, the total cost of units in the ending work in process inventory at
costs. The ending inventory was 90% complete for materials and 40% complete for May is
conversion costs. A. 153, 168
B. 154,800
Costs pertaining to the month of May are as follows: C. 155,328
D. 156,960
 Beginning inventory costs are: materials, P54,560; direct labor, P20,320; and factory E. 158,880
overhead, P15,240.
 Cost incurred during May are: materials used, P468,000; direct labor, P182,880; and 10.. Using the weighted average method, the equivalent unit cost of materials for May is
factory overhead, P391,160. A. 4.12
B. 4.50
5. Using the First- In, First-Out (FIFO) method, the equivalent units of production (EUP) for C. 4.60
materials are D. 5.02
A. 97,600 units E. 5.68
B. 104,000 units
C. 108,000 units 11. Using the weighted average method, the equivalent unit cost for May is
D. 107,200 units A.5.65
E. 113,600 units B. 5.83
C. 6.00
6. Using the FIFO method, the equivalent units of production for conversion costs are D. 6.20
A. 85,600 units E. 6.63
B. 88,800 units
C. 95,200 units 12. Using the weighted average method, the total cost of the units in the ending work in
D. 98,400 units process inventory at May is
E. 101,600 units A. 99,360
B. 153,168
7. Using the FIFO method, the equivalent unit cost of materials for May is C. 154,800
A . 4.12 D. 155,328
B. 4.50 E. 156,960
C. 4.60
Major Corporation acquired Problem Company through an exchange of common shares. All
D. 4.80
of Problem’s assets and liabilities were immediately transferred to Major. Major’s common
E. 5.02 stock was trading at P20 per share at the time of exchange. Following selected information is
also available.
 Before Acquisition After acquisition
Par value of shares outstanding P200,000 P250,000
Additional paid in capital 350,000 550,000
13. Based on the proceeding information, what number of shares eas issued at the time of
the exchange?
a.P5,000 b.P10,000 c.P12,500 d.P17,500
14. Using the same information above, what is the par value of major’s common stock?
a.P10 b.P5 c.P4 d.P1
15. Using the same information above, what is the fair value of problem’s net assets, if
goodwill of P56,000 is recorded?
a.P194,000 b.244,000 c.P300,000 d.P306,000