NAQDOWN QUESTIONNAIRE

Easy

1. Under the acquisition method, if the fair values of identifiable net assets exceed the value implied
by the purchase price of the acquired company, the excess should be
a. accounted for as goodwill.
b. allocated to reduce current and long-lived assets.
c. allocated to reduce current assets and classify any remainder as an extraordinary gain.
d. allocated to reduce any previously recorded goodwill on the seller’s books and classify any
remainder as an ordinary gain.
2. When the acquisition price of an acquired firm is less than the fair value of the identifiable net
assets, all of the following are recorded at fair value except
a. Assumed liabilities.
b. Current assets.
c. Long-lived assets.
d. Each of the above is recorded at fair value
3. Parental Company and Sub Company were combined in an acquisition transaction. Parental was
able to acquire Sub at a bargain price. The sum of the fair values of identifiable assets acquired
less the fair value of liabilities assumed exceeded the cost to Parental. After eliminating
previously recorded goodwill, there was still some "negative goodwill." Proper accounting
treatment by Parental is to report the amount as
a. paid-in capital.
b. a deferred credit, which is amortized.
c. an ordinary gain.
d. an extraordinary gain
4. On February 5, Pryor Corporation paid $1,600,000 for all the issued and outstanding common
stock of Shaw, Inc., in a transaction properly accounted for as an acquisition. The book values
and fair values of Shaw's assets and liabilities on February 5 were as follows
Book Value Fair Value
Cash $ 160,000 $ 160,000
Receivables (net) 180,000 180,000
Inventory 315,000 300,000
Plant and equipment (net) 820,000 920,000
Liabilities (350,000) (350,000)
Net assets $1,125,000 $1,210,000
What is the amount of goodwill resulting from the business combination?
a. $-0-.
b. $475,000.
c. $85,000.
d. $390,000.
5. Fixed costs that cannot be reduced within a short period of time are
a. committed.
b. variable.
c. avoidable.
d. unnecessary.
6. P Company acquires all of the voting stock of S Company for $930,000 cash. The book values of
S Company’s assets are $800,000, but the fair values are $840,000 because land has a fair value
above its book value. Goodwill from the combination is computed as:
a. $130,000.
b. b. $90,000.
c. $40,000.
d. $0.
7. Which of the following is not a reason for a company to expand through a combination, rather
than by building new facilities?
 a. A combination might provide cost advantages.
b. A combination might provide fewer operating delays.
c. A combination might provide easier access to intangible assets.
d. A combination might provide an opportunity to invest in a company without having to take
responsibility for its financial results.
8. One who takes charge of the winding up to partnership affairs upon dissolution
a. Silent partner
b. General partner
c. Ostensible partner
d. Liquidating partner
9. The term “capital assets” includes
a. Stock in trade or other property included in the taxpayer’s inventory.
b. Real property not used in the trade or business of taxpayer.
c. Property primarily for sale to customers in the ordinary course of trade or business.
d. Property used in the trade or business of the taxpayer and subject to depreciation.
10. Property used in the trade or business of the taxpayer and subject to depreciation.One of the
following is not a major business internal revenue tax in the Tax Code.
a. Value-Added Tax
b. Excise Tax
c. Income Tax
d. Percentage Tax
11. Working papers which contain information relating primarily to the audit of a single period.
a. Current audit files
b. Permanent audit files
c. Financial reporting files
d. Correspondence files
12. Nice Company’s average cost is decreasing over a range of increased output. What is Nice
experiencing?
a. Economies of scale
b. Diminishing returns
c. Technological efficiency
d. Decreasing fixed charges
13. Which of the following is not a ground for the extinguishment of an obligation?
a. Remission
b. Death of either debtor or creditor
c. Merger
d. Compensation
14. According to FASB Statement 141R, which one of the following items may not be accounted for
as an intangible asset apart from goodwill?
a. A production backlog
b. A valuable employee workforce
c. Noncontractual customer relationships
d. Employment contracts
15. The audit working paper that reflects the major components of an amount reported in the
financial statements is the
a. Interbank transfer schedule
b. Carryforward schedule
c. Supporting schedule
d. Lead schedule

Average

1. Signal Co. manufactures a single product. For 2001, the company had sales of $90,000, variable
costs of $50,000, and fixed costs of $30,000. Signal expects its cost structure and sales price per
 unit to remain the same in 2002, however total sales are expected to jump by 20 percent. If the
2002 projections are realized, net income in 2002 should exceed net income in 2001 by
a. 100 percent.
b. 80 percent.
c. 20 percent.
d. 50 percent.
2. Story Manufacturing incurs annual fixed costs of $250,000 in producing and selling “Tales.”
Estimated unit sales for 2001 are 125,000. An after-tax income of $75,000 is desired by
management. The company projects its income tax rate at 40 percent. What is the maximum
amount that Story can expend for variable costs per unit and still meet its profit objective if the
sales price per unit is estimated at $6?
a. $3.37
b. $3.59
c. $3.00
d. $3.70
3. Management is considering replacing an existing sales commission compensation plan with fixed
salary plan. If the change is adopted, the company’s
a. break-even point must increase.
b. margin of safety must decrease.
c. operating leverage must increase.
d. profit must increase.
4. Pitch Co. paid $50,000 in fees to its accountants and lawyers in acquiring Slope Company. Pitch
will treat the $50,000 as
a. an expense for the current year.
b. a prior period adjustment to retained earnings.
c. additional cost to investment of Slope on the consolidated balance sheet.
d. a reduction in additional paid-in capital.
5. Pepper Company paid $2,500,000 for the net assets of Salt Corporation and Salt was then
dissolved. Salt had no liabilities. The fair values of Salt's assets were $3,750,000. Salt's only non-
current assets were land and buildings with book values of $100,000 and $520,000, respectively,
and fair values of $180,000 and $730,000, respectively. At what value will the buildings be
recorded by Pepper?
a. $730,000
b. $520,000
c. $210,000
d. $0
6. A competitive advantage is considered to be a sustained competitive advantage when the
a. advantage endures for a number of years.
b. firm is able to spread the advantage to all of its business units.
c. advantage is very large.
d. advantage was gained at a low cost.
e. managers who developed the advantage are still employed at the firm.
7. Following the accounting concept of a business combination, a business combination occurs
when a company acquires an equity interest in another entity and has
a. at least 20% ownership in the entity.
b. more than 50% ownership in the entity.
c. 100% ownership in the entity.
d. control over the entity, irrespective of the percentage owned.
8. A, B and C are partners in a partnership. C contributed his industry. After payments of the
partnership’s obligations, only P6,000 cash remains. No other assets. In the absence of terms to
the contrary, the share of C in the remaining assets is:
a. Equal to share of A
b. B. Equal to the share of B
c. C. P2,000
 d. Nothing
9. When cash or property worth P3,000 or more is contributed as capital. The Articles of Co-
Partnership shall be in a public instrument and be registered with the Securities and Exchange
commission. If the said requirements are not complied with:
a. It will render the partnership void.
b. It will not affect the liability of the partnership and the partners to third parties.
c. It will not give a legal personality to the partnership.
d. It will give the partnership a de-facto existence.
10. The nationality of a corporation is determined by the law of its domicile or place of principal
business. The test is known as:
a. The control theory
b. The full absorption theory
c. he incorporation theory
d. The management theory
11. The Commissioner or his authorized representative is empowered to suspend the business
operations and temporarily close the business establishment of any person for:
a. Failure to issue receipts or invoices of a VAT-registered entity.
b. Failure to file a VAT-return for VAT-registered person as required by the Tax Code.
c. Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct
taxable sales or receipts for the taxable quarter
d. All of the above
12. The sale in the immediately preceding number, in case the taxable year is 2018, is subject to:
a. 15% capital gains tax on the capital gain from sale of P40 per share (P50 selling price less
P10 cost).
b. 15% capital gains tax on the capital gain of P50 per share, arrived at by deducting the cost
(P10 per share) from the book value (P60 per share).
c. 15% capital gains tax on the capital gain from sale of P40 per share (P50 selling price less
P10 cost) plus donor’s tax on the excess of the fair market value of the shares over the
consideration.
d. The revised graduated income tax rates of 20% to 35% on the net taxable income from the
sale of the shares.
13. The revised graduated income tax rates of 20% to 35% on the net taxable income from the sale of
the One of the following inhabitants is not required to pay basic community tax
a. Engaged in business or occupation
b. Owns real property with aggregate assessment value of one thousand pesos (P1,000) or more
c. Required by law to file an income tax return
d. Diplomatic and consular representatives
14. Which statement is incorrect regarding audit evidence?
a. Audit evidence is all the information used by the auditor in arriving at the conclusions on
which the audit opinion is based.
b. Audit evidence includes the information contained in the accounting records underlying the
financial statements and other information.
c. Audit evidence is cumulative in nature.
d. Auditors are expected to address all information that may exist.
15. The minimum capital in money or property except when immovable property or real rights
thereto are contributed, that will require the contract of partnership to be in public instrument and
be registered with SEC.
a. P 5,000
b. P10,000
c. P 3,000
d. P30,000
16. Stratified audit sample means:
a. Randomly selected items for audit
b. Purposively selected items for audit
c. Items carefully selected from each group.
d. All of the above
 17. Which of the following is not true about opinion on financial statements?
a. The auditor should express an opinion on financial statements.
b. His opinion is no guarantee to future viability of business
c. He is responsible for detection and prevention of frauds and errors in financial statements
d. He should examine whether recognised accounting principle have been consistently
18. In reporting a company that is to be liquidated, assets are shown at
a. Book value
b. Historical cost
c. NRV
d. Present value using effective rate
19. A corporation officer or director cannot take advantage for their personal benefit a business
opportunity which the corporation is financially able to undertake
a. Doctrine of corporate fiction
b. Trust fund doctrine
c. Doctrine of corporate opportunity
d. Doctrine of limited capacity
20. Under PFRS 10, what factor/s should an investor consider in assessing whether it has de facto
control over an entity?
a. Voting patterns at future shareholders meetings
b. Size of the investor’s holding of voting rights relative to the size of dispersion of other vote
holders
c. Non-voting rights held by the investor or other vote holder
d. All of the above.

Hard

1. Alan is interested in entering the catfish farming business. He estimates if he enters this business,
his fixed costs would be $50,000 per year and his variable costs would equal 30 percent of sales.
If each catfish sells for $2, how many catfish would Alan need to sell to generate a profit that is
equal to 10 percent of sales?
a. 40,000
b. 41,667
c. 35,000
d. No level of sales can generate a 10 percent net return on sales.
2. A, B and C are partners each contributing P10,000. The firm’s indebtedness amounts to P90,000.
It was stipulated that A would be exempted from liability. Assuming that the capital of P30,000 is
still in the firm, which of the following is not correct?
a. The creditors may get the P30,000 and still collect each P20,000 from A, B and C.
b. A can recover P10,000 each from B and C should he (A) be required to pay the creditors.
c. A cannot recover his original capital of P10,000.
d. The creditors can recover P45,000 each from B and C.
3. A, B, C and D are partners. Their contributions are as follows: A, P50,000; B, P30,000; C,
P20,000; D, services. The partnership incurred obligations to third persons which the firm was
unable to pay. After exhausting the assets of the partnership, there still is unpaid balance of
P10,000 to E. Who are liable to E for the payment of the unpaid balance of P10,000 and how
much should each pay to E?
a. A P5,000; B P3,000; C P2,000; D nothing
b. A P2,500; B P2,500; C P2,500; D P2,500
c. A P4,000; B P3,000; C P2,000; D P1,000
d. A P4,000; B P4,000; C P2,000; D nothing
4. The use of an audit engagement letter is the best method of assuring the auditor will have which
of the following?
a. Auditor will obtain sufficient appropriate audit evidence.
b. Management representation letter
c. Access to all books, accounts and vouchers required for audit purpose
 d. Cooperation from other auditors
5. Which of the following statements is not true with regard to teeming and lading ?
a. It results in the deliberate misappropriation of cash receipts
b. It is associated with cash receipts
c. If same individual maintains cash receipts and cash payments teeming and lading is likely to
exist
d. To conceal the shortage, the defraud, usually, tries to keep bank and book amounts in daily
agreement so that a bank reconciliation will not detect the irregularity.
6. An auditor assesses control risk because it
a. affects the audit risk
b. affects the level of detection risk that auditor may accept
c. helps him to fix materiality level for each financial assertion
d. is directly related to inherent risk
7. Proceeds of life insurance includible in the taxable gross estate.
a. Insurance proceeds from SSS or GSIS;
b. Amount receivable by any beneficiary irrevocable, designated in the policy by the insured;
c. Amount receivable by any beneficiary designated in the insurance policy;
d. Proceeds of group insurance taken out by a company for employees.
8. A private educational institution which is offering tertiary education is registered with and
accredited by the CHED. Which of the following is exempt from tax? What kind of tax?
a. The importation of laboratory equipment – from customs duties
b. The school building being rented by the school – from real property tax
c. a portion of the school building being leased to a fastfood chain – from real property tax
d. the income from operation – from income tax
9. A non-resident alien donor cannot claim one of the following deductions from gross gift:
a. Encumbrance on a property donated which is assumed by done
b. Dowry
c. Gift to the national government for public purpose
d. A requirement by the donor to the donee, which would result in diminution of file property
donated
10. JC Corp, a domestic corporation had the following data for 2017 taxable year:
Sales P5,000,000
Cost of goods sold 2,000,000
General selling and administrative expenses 500,000
Interest income from Philippine bank deposit 100,000
Rental income (net of % withholding tax) 190,000
Dividend Income:
From domestic corporation 60,000
From foreign corporation 50,000
Capital gains from sale of domestic shares of stocks sold
Directly to buyer 75,000
Dividend declared and paid during the year 500,000
Retained earnings, 12/31/2016 1,000,000
Par value of outstanding shares, 12/31/2017 500,000
Appropriation for future plant expansion 800,000

The Improperly accumulated earnings tax assuming the taxable year as 2018:
a. P105,125 c. P212,875
b. P108,125 d. P213,625
11. Accounting records least likely include
a. The records of initial entries and supporting records.
b. The general and subsidiary ledgers.
c. Work sheets and spreadsheets supporting cost allocations.
d. Comparable data about competitors (benchmarking).
12. Other information that the auditor may use as audit evidence least likely includes
a. Minutes of meetings.
b. Confirmations from third parties.
 c. Information obtained by the auditor from such audit procedures as inquiry, observation, and
inspection.
d. Adjustments to the financial statements that are not reflected in formal journal entries.
13. Which of the following presumptions does not relate to the competence of audit evidence?
a. The more effective internal control, the more assurance it provides about the accounting data
and financial statements.
b. An auditor’s opinion, to be economically useful, is formed within a reasonable time and
based on evidence obtained at a reasonable cost.
c. Evidence obtained from independent sources outside the entity is more reliable than evidence
secured solely within the entity.
d. The independent auditor’s direct personal knowledge, obtained through observation and
inspection, is more persuasive than information obtained indirectly.
14. Assuming a low assessed level of control risk, which of the following audit procedures is least
likely to be performed?
a. Physical inspection of a sample of inventory.
b. Search for unrecorded cash receipts.
c. Obtaining of a client representation letter.
d. Confirmation of accounts receivable.
15. Audit working papers are indexed by means of reference numbers. The primary purpose of
indexing is to
a. Permit cross-referencing and simplify supervisory review.
b. Support the audit report.
c. Eliminate the need for follow-up reviews.
d. Determine that working papers adequately support findings, conclusions, and reports.
16. EU Corporation has preferred stock with a market value of P 107 per share, a face value of P 100
per share, underwriting costs of P 5 per share, and annual dividends of P 10. EU’s tax rate is 30%.
What is EU’s approximate cost of capital for preferred stock?
a. 6.9%
b. 9.3%
c. 9.8%
d. 10.5%
17. UN Company uses a predetermined factory overhead application rate based on direct labor cost.
UN’s budgeted factory overhead was P 300,000, based on a budgeted volume of 25,000 direct
labor hours, at a standard direct labor rate of P 6.00 per hour. Actual factory overhead amounted
to P 310,000, with actual direct labor cost of P 162,500. Factory overhead was:
a. P 12,500 over-applied
b. P 15,000 over-applied
c. P 12,500 under-applied
d. P 15,000 under-applied
18. For working capital management purposes, the difference between the cash balance per company
books and the cash balance per bank statement is called ______
a. Float
b. Lockbox system
c. Bank reconciliation
d. Compensating balance
19. Milan Company has average daily cash collections of P 3 million, based on a 360-day year. A
new system is estimated to reduce the average collection period by two days without affecting
sales. The new system’s annual cost is P 100,000 plus 0.01% of collections. Milan estimates that
it would earn 6% on additional funds. What is the estimated annual net benefit from the new
system?
a. P 152,000
b. P 180,000
c. P 260,000
d. P 360,000
 20. If a company’s cash conversion cycle increases, then the company
a. Becomes more profitable
b. Incurs more shortage or stockout costs
c. Increases its investment in working capital
d. Reduces its payable deferral period (age of payable)
21. Bath Company expects next year’s net income to be P 2 million. Bath’s current capital structure
is 30% debt, 30% preferred equity, and 40% common equity. Next year, Bath plans to issue debt
and common stock as needed to maintain 30:40 ratio, not issue more preferred stock. Interest
payments on Bath’s 10,000 4%, P 1,000 par value bonds are current. Bath can issue up to P 1
million more 4% bonds at face value. Bath’s marginal tax rate is 30%. There are no dividends in
arrears on Bath’s 10,000 shares 6%, P 1,000 par value cumulative preferred stock. Optimal
capital spending for next year is estimated at P 1.4 million.
Using a strict residual dividend policy, what is the approximate estimated common stock
dividend payout ratio for the next year?
a. 16%
b. 30%
c. 35%
d. 70%
22. A taxpayer received a Preliminary Assessment Notice (PAN). He disagrees with the findings or
deficiency of tax. What will he receive next?
a. Another PAN
b. Formal Letter of Demand (FLD) and Final Assessment Notice (FAN)
c. Warrant of distraint and levy
d. Notice of forfeiture of property
23. Which of the following financial statement analysis tool generally is MOST USEFUL in
analyzing companies of different sizes?
a. Comparative statements
b. Index or trend analysis
c. Liquidity and turnover ratios
d. Common-size financial statements
24. Rose obliges herself to give Jack 1 dozen of eggs on January 15, 2003. When the date arrived,
Rose failed to deliver despite repeated demands from Jack. Jack’s remedy is:
a. Compel Rose to deliver the eggs plus damages.
b. Compel Rose to pay the amount of the eggs.
c. Rescind the contract.
d. Ask a 3rd person to deliver the eggs to him but chargeable to Rose.
25. Debtor’s A, B, C and D are liable to creditors E, F, G and H in the amount of P200,000.
Assuming passive solidarity exists among A, B, C and D, how much can E and F collect from A?
a. P 50,000
b. P100,000
c. P150,000
d. P200,000

CLINCHER

1. The following, except one, are void or inexistent contracts. Which is it?
a. Those which are absolutely simulated or fictitious.
b. Those which are outside the commerce of man.
c. Those whose cause or object did not exist at the time of transaction.
d. Those which contemplate a possible service.
2. A, a person of legal age and an agent of X, sold 10 grams of shabu to B who is a minor of 16
years. The shabu was sold for P600 which is actually less than its actual market value of P1,000
 thereby incurring a loss of P400 on the part of X. Worse, the contract of sale was not reduced into
writing. What is the status of the contract?
a. The contract of sale is voidable because one party is a minor.
b. The contract is rescissible because of lesion.
c. The contract is unenforceable considering it was orally done.
d. The contract is void.
3. Emong, Jack and Bova are partners with Bova as managing partner. Carla is indebted to Bova in
the amount of P50,000 and P150,000 to the partnership. Both debts are due and demandable.
Carla paid Bova P20,000 and he issued his own receipt.
a. The whole P20,000 should be applied to indebtedness of Carla to Bova as he issue his receipt.
b. Equal sharing, 50% shall go to Bova and 50% to the partnership.
c. P5,000 should go to Bova and P15,000 should be for the partnership.
d. P6,666,666 should go to Bova and the balance to the partnership.
4. Which is correct about a B.O.D. member?
a. He is entitled to compensation as a matter of right.
b. He must be a citizen of the Philippines
c. He is disqualified to be one if convicted of the crime of murder before
d. He can be removed by votes representing 2/3 of the outstanding capital stocks in all cases
5. When will the average process costing method produce the same cost of goods manufactured as
the FIFO process costing method?
a. When materials are added 100% at the end of the process.
b. When materials are added 100% at the beginning of the process.
c. When the beg. WIP inventory and ending WIP are equal.
d. When there is no beg. WIP inventory.
6. Build Company recorded the following costs relating to the project of constructing a factory for a
client: project manager costs of 1,000, costs of 1,500 to destroy an existing old factory building,
costs of 500 to restore an old factory building, attributable insurance costs of 200, non-
reimbursable general administration costs of 200, selling costs of 150, and reimbursable
development costs of 200. Which of the following cost elements should not be included in the
contract costs according to IAS 11 Construction Contracts?
a. Costs relating to the destruction of an existing old factory building of 1,500 and restoration of
an old factory building of 500
b. Attributable insurance costs of 200 and general administration costs of 200
c. Costs relating to the destruction of an existing old factory building of 1,500, restoration of an
old factory building of 500, and general administration costs of 200
d. General administration costs of 200 and selling costs of 150
e. General administration costs of 200, selling costs of 150, and reimbursable development costs
of 200
7. HFR Ltd. has a 12% holding in the shares of ABC Ltd. In addition, HFR has, through one of its
subsidiaries, an option to buy 13% more shares in ABC. Although the exercise price is in the
money, HFR does not have the intention and the financial ability to exercise this option.
a. A subsidiary
b. An associate
c. A join arrangement
d. None of these categories
8. Rundall Co. makes payments for purchases 30% during the month of purchase and the remainder
the following month. April purchases are projected to be $160,000; May purchases will be
$240,000. Cash payments in May will be
a. $ 72,000.
b. $108,000.
c. $168,000.
d. $184,000.
9. Milagros Lines, a VAT-registered person, has the following gross receipts in February.
Bus 1 (carriage of goods, P18,000) 100,000
Bus 2 (carriage of goods, P13,500) 165,000
 Taxi 90,000
Jeepney 35,500
Cargo truck 45,000
Sea vessel 250,000

Additional Information:
 Salaries of drivers and conductor 125,000
 Cost of oil and gasoline 175,000
During the month, Bus 1 was bumped by another bus owned by Mandaon Lines and
paid Milagros Lines P120,000 for the damage.
The percentage tax due on Milagros Line in February is:
a. P10,770 c. P11,715
b. P14,370 d. nil

10. Howe has a FIFO EUP of 46,580 units. Beginning inventory of 6,500 units was 80% complete;
the ending inventory of 2,800 units was 60% complete. How many units were completed during
the period?

a. 39,700

b. 44,900

c. 46,200

d. 50,100