DEPARTMENT OF ACCOUNTING EDUCATION

First Departmental Examination – ACCTG 6C

1st Term/1st Semester/ SY 2018-2019 (June 29, 2018)

Part I: Multiple Choice Theory

1. A complete set of financial statements includes all of the following components, except
a. Statement of financial position, statement of comprehensive income and statement of cash flows
b. Statement of changes in equity
c. Notes, comprising a summary of significant accounting policies and other explanatory information
d. Reports and statements such as environmental reports and value-added statements
2. An entity shall clearly identify each financial statement and display all of the following, except
a. Name of the reporting entity
b. Names of major shareholders of the entity
c. The presentation currency
d. Whether the financial statements cover the individual entity or a group of entities
3. The statement of financial position is useful for analyzing all of the following, except
a. Liquidity c. Profitability
b. Solvency d. Financial flexibility
4. In the Philippines, the common practice is to present in the statement of financial position
a. Current assets before noncurrent assets, current liabilities before noncurrent liabilities and equity
after liabilities
b. Noncurrent assets before current assets, noncurrent liabilities before current liabilities and equity
after liabilities
c. Current assets before noncurrent assets, noncurrent liabilities before current liabilities and equity
after liabilities
d. Noncurrent assets before current assets, current liabilities before noncurrent liabilities and equity
after liabilities
5. Which of the following is not a purpose of notes to financial statements?
a. To present information about the basis of preparation of the financial statements and the specific
accounting policies used
b. To disclose the information required by Philippine Financial Reporting Standards that is not
presented elsewhere in the financial statements
c. To provide additional information which is not presented in the financial statements but that is
necessary for a fair presentation
d. To provide information about the financial position, financial performance and cash flows of an entity
that is useful to a wide range of users in making economic decisions
6. Application of the standard of adequate disclosure
a. Is theoretically desirable but not practical because the cost of complete disclosure exceeds the benefit
b. Is violated when important financial information is buried in the notes to financial statements
c. Is demonstrated by the use of supplementary information presenting the effects of changing prices
d. Requires that the financial statements should be consistent and comparable
7. Which of the following most likely would be a related party transaction requiring disclosure?
a. The entity borrowed P1,000,000 from the Southwest Bank issuing a noninterest-bearing note
b. The entity borrowed P500,000 from Eastwest Bank with no scheduled terms for how or when funds
will be repaid
c. The entity borrowed P2,000,000 from Northwest Bank at a rate significantly above the prevailing
market rate
d. All of these are related party transactions
8. An entity’s financial statements for the year ended April 30 were approved by the finance director on July 7
and a public announcement of the profit for the year was made on July 10. The board of directors authorized
the financial statements for issue on July 15 and the financial statements were approved by the shareholders
on July 20. After what date should consideration no longer be given as to whether the financial statements on
April 30 need to reflect adjusting and nonadjusting events?
a. July 7 b. July 10 c. July 15 d. July 20
9. The term “comprehensive income”
a. Must be reported on the face of the income statement
b. Includes all changes in equity during a period except those resulting from investments by and
distributions to owners
c. Is the net change in owners’ equity for the period
d. Is synonymous with the term “net income”
10. Separate line items in an analysis of expenses by function include
a. Purchases, transport costs, employee benefits, depreciation, extraordinary items
b. Purchases, distribution expenses, administrative expenses, employee benefits, depreciation
c. Depreciation, purchases, employee benefits and advertising
d. Cost of goods sold, distribution expenses and administrative expenses
Part II: Multiple Choice Problem Solving
11. Cardo Company reported the following current assets at year-end:
Cash including sinking fund of P500,000 with trustee 1,500,000
Accounts receivable 2,500,000
Inventory, including P200,000 cost of goods in transit purchased FOB point of
destination 2,000,000
Advances to officers collectible currently 400,000
Dividend receivable 100,000
Total current assets 6,500,000
What total amount should be reported as current assets?
a. 5,400,000 b. 5,300,000 c. 5,800,000 d. 5,900,000
12. Daria Company reported the following accounts at year-end:
Inventory, including inventory expected in the ordinary course of 1,000,000
operations to be sold beyond 12 months amounting to P700,000
Accounts receivable 1,200,000
Prepaid insurance 100,000
Financial asset held for trading 200,000
Equity investment at fair value through other comprehensive 800,000
income
Cash 300,000
Deferred tax asset 150,000
What total amount should be reported as current assets at year-end?
a. 2,800,000 b. 2,550,000 c. 3,600,000 d. 2,100,000
13. Gar Company reported the following account balances on December 31, 2017:
Accounts payable 1,900,000
Bonds payable 3,400,000
Premiums on bonds payable 200,000
Deferred tax liability 400,000
Dividends payable 500,000
Income tax payable 900,000
Note payable, due January 31, 2018 600,000
On December 31, 2017, what total amount should be reported as current liabilities?
a. 7,100,000 b. 4,300,000 c. 3,900,000 d. 4,100,000
14. Jake Zyrus Company provided the following information on December 31, 2017:
 Accounts payable for goods and services purchased on open accounts amounted to P500,000 and accrued
expenses totaled P300,000 on December 31, 2017
 On December 15, 2017, the entity declared a cash dividend of P7 per share, payable on January 15, 2018, to
shareholders of record on December 31, 2017. The entity had 100,000 shares issued and outstanding
throughout 2017.
 On July 1, 2017, the entity issued P5,000,000, 8% bonds for P4,400,000 to yield 10%. The bonds mature on
June 30, 2022, and pay interest annually every June 30.
On December 31, 2017, the bonds were trading in the open market at 86 to yield 12%. The entity used the
effective interest method to amortize bond discount.
 The pretax financial income was P8,500,000 and taxable income was P6,000,000.
The difference is due to P1,000,000 permanent difference and P1,500,000 of taxable temporary difference
which is expected to reverse in 2018.
 The entity is subject to income tax rate of 30% and made estimated income tax payments during the year of
P1,000,000.
What total amount should be reported as current liabilities on December 31, 2017?
a. 3,500,000 b. 2,700,000 c. 2,300,000 d. 2,500,000
15. During 2018, Cardo Dalisay Company engaged in the following transactions:
Key management personnel compensation P 2,000,000
Sales to affiliated entities 3,000,000
Administrative employees compensation 1,000,000
Sales to subsidiary 1,500,000
Sale to the co-venturer 500,000
What total amount should be included as related party disclosures in Cardo’s 2018 financial statements?
a. 6,500,000 b. 6,000,000 c. 5,500,000 d. 5,000,000
16. La Luna Sangre Company reported the following remuneration and other payments made to the entity’s chief
executive officer during the current year:
Annual salary 2,000,000
Share options and other share-based payments 1,000,000
Contributions to retirement benefit plan 500,000
Reimbursement of travel expenses for business 1,200,000
trips
What total amount should be disclosed as “compensation” to key management personnel?
a. 3,500,000 b. 4,700,000 c. 3,000,000 d. 2,500,000
17. Wowowin Company prepared draft financial statements that showed the profit before tax for the year ended
December 31, 2017 at P9,000,000. The board of directors authorized the financial statements for issue on
March 20, 2018. A fire occurred at one of Wowowin’s sites on January 15, 2018 with resulting damage
amounting to P7,000,000, only P4,000,000 of which is covered by insurance. The repairs will take place and
 be paid for in April 2018. The P4,000,000 claim from the insurance entity will however be received on
February 14, 2018.
What amount should be reported as profit before tax in the financial statements?
a. 2,000,000 b. 9,000,000 c. 4,000,000 d. 6,000,000
18. Transformer Company carried a provision of P2,000,000 in the draft financial statements for the year ended
December 31, 2017 in relation to an unresolved court case.
On January 31, 2018, when the financial statements for the year ended December 31, 2017 had not yet been
authorized for issue, the case was settled and the court decided the final total damages to be paid by the
entity at P3,000,000.
What amount should be adjusted on December 31, 2017 in relation to this event?
a. 3,000,000 b. 2,000,000 c. 1,000,000 d. 0
19. Obit Company showed net income of P480,000 in its income statement for the current year. Selling expenses
were equal to 15% of sales and also 25% of cost of sales. All other expenses were 13% of sales. What was the
selling expense for the current year?
a. P600,000 b. P520,000 c. P1,600,000 d. P2,400,000
20. Mummy Company provided the following information for the current year:
Beginning 400,000
inventory
Freight in 300,000
Purchase returns 900,000
Ending inventory 500,000
Distribution costs 1,250,000
Sales discount 250,000
The cost of goods sold is six times the distribution costs.
What is the amount of gross purchases?
a. 6,500,000 b. 6,700,000 c. 8,000,000 d. 8,200,000

Part III: Problem Solving Required

Forever Company provided the following information for the year ended December 31, 2017:
Store Supplies 150,000 Interest Revenue 20,000
Sales Salaries 650,000 Gain on sale of equipment 15,000
Sales Returns and Allowances 150,000 Freight in 145,000
Sales 9,850,000 Income Tax 290,000
Retained Earnings, January 1 550,000 Doubtful Accounts 30,000
Purchases 5,600,000 Dividend Revenue 80,000
Purchase Discounts 45,000 Dividends Paid 450,000
Office Salaries 1,050,000 Depreciation – Store Equipment 75,000
Merchandise Inventory, January 1 1,100,000 Depreciation – Office 35,000
Merchandise Inventory, December 31 950,000 Depreciation – Delivery Truck 90,000
Loss on sale of trading securities 50,000 Delivery Expense 425,000
Loss on sale of machinery 250,000 Contribution 135,000

Required: Prepare an income statement with Supporting Notes using Functional Approach.

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