D2

Review 105-----------Day 1 THEORY OF ACCOUNTS 1.

Which is incorrect concerning financial statements? a. The objective of general purpose financial statements is to provide information about the financial position, performance and cash flows of an enterprise that is useful to a wide range of users in making economic decisions. b. Financial statements also show the results of management’s stewardship of the resources entrusted to it. c. The management of an enterprise has the primary responsibility for the preparation and presentation of financial statements. d. Financial statements are prepared and presented at least annually and are directed toward the specific needs of a wide range of users.

2. The providers of risk capital (investors) a. Are interested in information which enables them to assess the ability of the enterprise to provide renumeration, retirement benefits and employment opportunities. b. Are interested in information that enables them to determine whether their loans and the interest attaching to them will be paid when due. c. Have an interest in information about the continuance of an enterprise especially when they have a long-term involvement with or are dependent on the enterprise. d. Are concerned with the risk inherent in and return provided by their investments and need information to help them determine whether they should buy or sell the investments. 3. These users are interested in the allocation of resources and activities of enterprises, and therefore require information to regulate the activities of enterprises, determine taxation policies and as a basis for national income and similar statistics. a. Suppliers and trade creditors c. Public b. Customers d. Governments and their agencies

4. Information about economic resources controlled by the enterprise and its capacity to modify these resources is useful in predicting the a. Ability of the enterprise to meet its financial commitments in the near term. b. Ability of the enterprise to meet its financial commitments over a longer term.

c. Future borrowing needs and how future profits and cash flows will be distributed among interested users. d. Ability of the enterprise to generate cash and cash equivalents in the future. 5. Information about the performance of an enterprise is required in order to assess potential changes in the economic resources that it is likely to control in the future. This information is primarily pictured in the a. Cash flow statement c. Balance sheet b. Statement of retained earnings d. Income statement 6. The accrual basis means that 1. The effects of transactions and other events are recognized when they occur and not as cash or its equivalent is received or paid and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. 2. The financial statements are normally prepared on the assumption that an enterprise will continue in operation for the foreseeable future. 3. Where parent and subsidiary relationship exists, consolidated statements for the affiliates are prepared because the parent and the subsidiary are a “single economic entity”. 4. The financial statements should be stated in terms of a common financial denominator. 7. Qualitative characteristics a. Are the attributes that make the information provided in financial statements useful to users. b. Are the generally accepted accounting principles. c. Are the basic notions and fundamental premises on which the accounting process is based. d. Refer to the definition, recognition and measurement of the elements from which financial statements are constructed. 8. What are the primary qualities of financial accounting information that pertain to the content rather than to the presentation of financial information? a. Relevance and reliability c. Relevance and comparability b. Understandability and comparability d. Reliability and understandability 9. Information has the quality of relevance when a. It influences the economic decisions of users by helping them evaluate past, present or future events or confirming or correcting their past evaluations.

b. It is free from bias and error and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent. c. Users are assumed to have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence. d. Users are informed of the accounting policies employed, any changes in those policies and the effects of such changes. 10. Which statement is incorrect concerning reliability of information? 1. The information must be neutral, meaning free from bias. 2. The information should reflect the economic substance of the transactions rather than their mere legal form. 3. The information must be complete within the bounds of materiality and cost. 4. Prudence is the inclusion of a degree of caution in the exercise of judgment needed in making an estimate required under conditions of uncertainty, such that assets or income are overstated and liabilities or expenses are understated. 11. Which is incorrect concerning the quality of relevance? a. The relevance of information is affected by its nature and materiality. b. The information must be relevant to the decision-making needs of the users in order to be useful. c. Information about financial position and past performance is frequently used as a basis for predicting future financial position and performance and other matters such as dividend and wage payments, security price movements and the ability of the enterprise to meet its commitments when they fall due. d. The predictive and confirmatory roles of information are not interrelated. 12. Which is incorrect concerning the qualitative characteristic of comparability? a. Horizontal comparability is the quality of information that allows comparisons within a single enterprise through time or from one accounting period to the next. b. Dimensional comparability is the quality of information that allows comparisons between two or more enterprises engaged in the same industry. c. The need for comparability should not be confused with mere uniformity and should not be allowed to become an impediment to the introduction of improved accounting standards. d. It is appropriate for an enterprise to leave its accounting policies unchanged when more relevant and reliable alternatives exist. 13. Which is incorrect concerning the accounting constraints on relevant and reliable information?

a. It may often be necessary to report before all aspects of a transaction or other event are known, thus impairing reliability. b. The benefits derived from the information should exceed the cost of providing it. c. In achieving a balance between relevance and reliability, the overriding consideration is how best to satisfy the economic decision-making needs of users. d. If there is undue delay in the reporting of information it may lose its relevance and reliability. 14. A contingent liability is a I. Possible obligation arising from past events that will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the enterprise. II. Present obligation that arises from past events and it is not probable that an outflow of resources will be required to settle the obligation and the obligation can be measured reliably. a. I only b. II only c. Both I and II d. Neither I nor II 15. A contingent liability is (choose the incorrect one) a. Disclosed only c. Disclosed even if remote b. Either probable or measurable but not both d. d. Not recognized in the financial statements

P1 1. On January 2, 2005, Currimao Company purchased 10% of Bacarra Company’s outstanding common shares for P20,000,000. Currimao is the largest single shareholder in Bacarra and Currimao’s officers are majority of Bacarra’s board of directors. Bacarra reported net income of P10,000,000 and paid dividend of P4,000,000. In its December 31, 2005 balance sheet, what amount should Currimao report as investment in Bacarra Company? a. 20,000,000 b. 21,000,000 c. 20,600,000 d. 21,400,000

2. On July 1, 2005, Batac Company purchased 40% of the outstanding common stock of Dumalneg Company for P50,000,000. On this date, Dumalneg’s net assets were P100,000,000 which approximated their fair values, except for land whose fair value exceeded its carrying amount by P15,000,000. Any implied goodwill has a useful life of 5 years. Dumalneg’s 2005 net income was P25,000,000. The maximum amount which could be included in Batac’s 2005 income before tax to reflect its “equity in earnings of Dumalneg” is a. 9,200,000 b. 4,600,000 c. 3,000,000 d. 4,200,000 3. Culasi Company bought 20% of Bugasong Corporation’s common stock on January 1, 2005 for P20,000,000. Carrying amount of Bugasong’s net assets at purchase date totaled P60,000,000. Fair value and carrying amounts were the same for all items except for plant and inventory, for which fair values exceed their carrying amounts by P15,000,000 and P5,000,000 respectively. The plant has a 5-year life. All inventory was sold during 2005. Goodwill, if any, has an indefinite life. During 2005, Bugasong reported net income of P40,000,000 and paid a P15,000,000 cash dividend. What amount should Culasi report as investment income for 2005? a. 6,200,000 b. 6,400,000 c. 3,000,000 d. 7,600,000 4. Carasi Company purchased 15% of Badoc Company’s 500,000 outstanding shares of common stock on January 2, 2005, for P15,000,000. On December 31, 2005, Carasi purchased additional 125,000 shares of Badoc for P35,000,000. There was no goodwill as a result during 2005. Badoc reported earnings of P20,000,000 for 2005. What amount should Carasi report in its December 31, 2005 balance sheet as investment in Badoc Company? a. 50,000,000 b. 58,000,000

c. 55,000,000 d. 53,000,000

5. On January 1, 2004 Dingras Company acquired 10% of the outstanding voting stock of Piddig Company. On January 1, 2005, Dingras gained the ability to exercise significant influence over financial and operating control of Piddig by acquiring 30% of Piddig’s outstanding stock. The two purchases were made at prices proportionate to the value assigned to Piddig’s net assets, which equaled their carrying amounts. For the years ended December 31, 2004 and 2005, Piddig reported the following:

Dividend paid 10,000,000 Net income 15,000,000

2004 2005 __ 5,000,000 8,000,000

In 2005, what amounts should Dingras report as current year investment income and as an adjustment to 2004 income, respectively? a. 6,000,000 and 800,000 b. 6,000,000 and 300,000 c. 4,500,000 and 300,000 d. 4,500,000 and 800,000 6. Pagudpud Company owns 50% of Sarrat Company’s preferred stock and 30% of its common stock. Sarrat’s stock outstanding at December 31, 2005 includes P20,000,000 of 10% cumulative preferred stock and P50,000,000 of common stock. Sarrat reported net income of P10,000,000 for the year 2005. What amount should Pagudpud report as investment income for the year 2005? a. 3,000,000 b. 2,400,000 c. 3,400,000 d. 4,400,000

7. The following data pertain to Antique Company’s investments in debt securities:

10. On October 1, 2005 Bucay Company purchased 20,000 of the P1,000 face value 12% bonds of Manabo Company for P23,000,000 including Market accrued interest of P600,000. The bonds which mature on January 1, 2012, value pay interest semiannually on January 1 and July 1. Bucay used the straight Cost 12/31/2005 12/31/2004 line method of amortization and appropriately recorded the bonds as a longTrading 5,000,000 5,200,000 4,500,000term investment. On the December 31, 2006 balance sheet the bonds should Available for sale 5,000,000 4,800,000 4,700,000be reported at a. 22,304,000 What amount should Antique report as unrealized gain in its 2005 income b. 21,920,000 statement? c. 22,880,000 a. 700,000 d. 22,400,000 b. 200,000 11. On April 1, 2005, Caluya Company purchased P5,000,000 face value 9%. c. 800,000 Treasury notes for P4,962,500 including accrued interest of P112,500. The d. 100,000 notes mature on July 1, 2006 and pay interest semiannually. Caluya intends to hold the notes to maturity. In its October 31, 2005 balance sheet, the carrying amount of this investment should be 8. On October 1, 2005, Bangued Company acquired P20,000,000 face value a. 4,850,000 12% bonds of Didigan Company at 110 plus accrued interest. The bonds b. 4,920,000 were dated July 1, 2004 and will mature on June 30, 2009. Interest is c. 4,930,000 payable June 30 and December 31. The commission to acquire the bonds d. 4,975,000 was P500,000. The total amount paid for the investment in bonds was a. 23,100,000 12. Luba Company purchased bonds at a discount of P5,000,000. b. 22,600,000 Subsequently, Luba sold these bonds at a premium of P2,000,000. During c. 22,500,000 the period that Luba held this investment, amortization of the discount d. 21,900,000 amounted to P1,500,000. What amount should Luba report as gain on the sale of the bonds? 9. On July 1, 2005 Tagum Company purchased as a long-term investment in a. 2,000,000 Langiden Company’s 10-year 12% bonds, with face value of P20,000,000, for b. 5,500,000 P18,500,000. Interest is payable semiannually on June 30 and December 31. c. 3,500,000 The bonds mature on July 1, 2010. Tagum uses the straight line amortization d. 3,000,000 method. What is the amount of interest income that Tagum should report in its 2005 income statement? a. 1,350,000 13. On January 1, 2005, Bucloc Company acquired for P6,500,000 the entire b. 1,200,000 P8,000,000 issue 12% serial bonds. Bonds of P2,000,000 mature at annual c. 1,500,000 intervals beginning December 31, 2005. Interest is payable semiannually on d. 1,050,000

June 30 and December 31. What is the interest income for 2005 using the bond outstanding method of amortization? a. 1,560,000 b. 1,380,000 c. 780,000 d. 960,000

14. On January 1, 2005, Lacub Company purchased P8,000,000 face value 12% bonds at 120. Bonds are due on January 1, 2015 but can be redeemed at earlier dates at premium values as follows: January 1, 2007 to December 31, 2010, at 110 January 1, 2011 to December 31, 2014, at 104 What is the interest income for 2005 using the accelerated method of amortization? a. 1,360,000 b. 960,000 c. 560,000 d. 800,000

15. On July 1, 2005, Boloc Company purchased P2,000,000 of East Company’s 8% bonds due on July 1, 2015. Boloc expects to hold the bonds until maturity. The bonds pay interest semiannully on January 1 and July. The bonds were purchased for P1,750,000 to yield 10%. In its 2005 income statement, Boloc should report interest income at a. 175,000 b. 160,000 c. 92,500 d. 87,500

P2 1. Acme Co. is preparing a pro-forma set of financial statements after anacquisition of Coyote Co. The purchase price is less than the fairvalue of the

assets acquired. However, the purchase price is greaterthan net book value of the acquired company. a. Acme's goodwill will decrease over time. b. Acme's amortization of intangible assets will increase over time. c. Depreciation expense will be greater than Coyote Company's expense. d. Coyote's loss on the sale of the assets will create a net loss 2. Balter Inc. acquired Jersey Company on January 1, 20X5. When the purchase occurred Jersey Company had the following information related to fixed assets: Land $ 80,000 Building 200,000 Accumulated Depreciation (100,000) Equipment 100,000 Accumulated Depreciation (50,000) The building has a 10-year remaining useful life and the equipment has a 5-year remaining useful life. The fair value of the assets on that date were: Land $100,000 Building 130,000 Equipment 75,000 What is the 20X5 depreciation expense Balter will record related to purchasing Jersey Company? a. $8,000 b. $15,000 c. $28,000 d. $30,000 3. ACME Co. paid $110,000 for the net assets of Comb Corp. At the time of the acquisition the following information was available related to Comb's balance sheet: Book Value Fair Value Current Assets $50,000 $ 50,000 Building 80,000 100,000 Equipment 40,000 50,000 Liabilities 30,000 30,000 What is the amount recorded by ACME for the Building? a. $40,000 b. $60,000 c. $80,000 d. $100,000

4. Which of the following business combination expenses would NOT qualify as a direct acquisition expense for a purchase? a. Fees for purchase audit b. Outside legal fees c. Stock issuance fees d. All are direct acquisition expenses.

5. On April 1, 20X1, Paape Company paid $950,000 for all the issued and outstanding stock of Simon Corporation in a transaction properly recorded as a purchase. The recorded assets and liabilities of the Prime Corporation on April 1, 20X1, follow: Cash............................................. $ 80,000 Inventory........................................ 240,000 Property and equipment (net of accumulated depreciation of $320,000).................................. 480,000 Liabilities...................................... (180,000) On April 1, 20X1, it was determined that the inventory of Paape had a fair value of $190,000, and the property and equipment (net) had a fair value of $560,000. What is the amount of goodwill resulting from the business combination? a. $0 b. $120,000 c. $300,000 d. $230,000 6. Paro Company purchased 80% of the voting common stock of Sabon Company for $900,000. There are no liabilities. The following book and fair values are available: Book Value Fair Value Current assets...................... $100,000 $200,000 Land and building................... 200,000 200,000 Machinery........................... 300,000 600,000 Goodwill............................ 100,000 ? Using the parent company concept, the machinery will appear on the consolidated balance sheet at __________. a. $600,000 b. $540,000 c. $480,000 d. $300,000

7. When a company purchases another company that has existing goodwill andthe transaction is accounted for as a stock acquisition, the goodwillshould be treated in the following manner. a. Goodwill on the books of an acquired company should be disregarded. b. Goodwill is recorded prior to recording fixed assets. c. Goodwill is not recorded until all assets are stated at full fair value. d. Goodwill is treated consistent with other tangible assets. 8. Partners Thomas, Adams and Jones have capital balances of $24,000, $45,000, and $90,000 respectively. They split profits in the ratio of 3:3:4, respectively. Under a predistribution plan, one of the partners will get the following total amount in liquidation before any other partners get anything: a. $22,500 b. $30,000 c. $40,000 d. $75,000 9. Partner T is personally insolvent, owing $400,000. Personal assets will only bring $150,000 when liquidated. At the same time, T has a credit capital balance in the partnership of $85,000. The capital amounts of the other partners total a (credit) balance of $200,000. Under the doctrine of marshaling of assets, the personal creditors of T can collect up to __________. a. $150,000 b. $235,000 c. $400,000 d. $435,000 10. Assume that a partnership had assets with a book value of $240,000 anda market value of $195,000, outside liabilities of $70,000, loans payable to partner Able of $20,000, and capital balances for partners Able, Baker, and Chapman of $70,000, $30,000, and $50,000. How would the first $100,000 of available assets be distributed assuming profits and losses are allocated equally? a. $70,000 to outside liabilities, $20,000 to Able, and the balance equally among the partners b. $70,000 to outside liabilities and $30,000 to Able c. $70,000 to outside liabilities, $25,000 to Able, and $5,000 to Chapman

d. $40,000 to Able, $20,000 to Chapman, and the balance equally among the partners 11. Assume that a partnership had assets with a book value of $240,000 and a market value of $195,000, outside liabilities of $70,000, loans payable to partner Able of $20,000, and capital balances for partners Able, Baker, and Chapman of $70,000, $30,000, and $50,000. If all outside creditors and loans to partners had been paid, how would the balance of the assets be distributed assuming that Chapman had already received assets with a value of $30,000 assuming profits and losses are allocated equally? a. Each of the partners would receive $25,000. b. Each of the partners would receive $40,000. c. Able: $70,000, Baker: $30,000, Chapman: $20,000 d. Able: $55,000, Baker: $15,000, Chapman: $5,000 12. Which one of the following equations will yield the unobligated balance in an expenditure subsidiary ledger account? Unobligated Balance = a. Appropriations - Expenditures total b. Appropriations - Encumbrances balance c. Appropriations - Expenditures total - Encumbrances balance d. Appropriations - Expenditures total + Encumbrances balance

a. debit Automobiles for $14,000. b. debit Expenditures for $14,000. c. credit Automobiles for $6,000. d. debit Expenditures for $20,000.

MAS Use the following information for questions 1-3. The following data is available for Computer Bytes Repair Shop for 2003: Repair technician's wages $ 90,000 Fringe benefits 20,000 Overhead 15,000 Total $125,000 The desired profit margin is $10 per labor hour. The material loading charge is 40% of invoice cost. It is estimated that 5,000 labor hours will be worked in 2003. 1.

13. Which of the following accounts would not be found in the year-end General Fund balance sheet of a city? a. Cash b. Allowance for Uncollectible Taxes c. Land--Parks d. Fund Balance--Reserved for Encumbrances

2.

14. When recording the acquisition of a fixed asset in a city's General Fixed Asset Account Group (GFAAG), the debit entry should be selected from one of the following accounts except a. Land b. Expenditures c. Machinery and Equipment d. Construction in Progress

3.

Computer Bytes’ labor charge in 2003 would be a. $25. b. $28. c. $32. d. $35. In January 2003, Computer Bytes repairs a computer that uses parts of $80. Its material loading charge on this repair would be a. $32. b. $48. c. $80. d. $112. In March 2003, Computer Bytes repairs a computer that takes two hours to repair and uses parts of $60. The bill for this computer repair would be a. $130. b. $140. c. $148. d. $154.

15.If the police department purchases a police car for $20,000 and trades in the old car for $6,000 paying a net cash payment of $14,000, the entry in the General Fund would

4. Zero-base budgeting requires managers to

A justify expenditures that are increases over the prior period’s budgeted amount. B. justify all expenditures, not just increases over last year’s amount. C. maintain a full-year budget intact at all times. D. maintain a budget with zero increases over the prior period. Use the following information for questions 5-6. Downing Company produces a high resolution computer monitor. The following information is available for this product: Fixed cost per unit $ 50 Variable cost per unit 150 Total cost per unit 200 Desired ROI per unit 60 5.

6.

What are the estimated cash receipts from accounts receivable collections in May? A. P142,000

C. P150,000

B. P149,000

D. P157,000

8. Simple Corp. produces a single product. The following cost structure applied to their first year of operations, 2000:

SG&A Production

Variable Costs per Unit

Annual Fixed Costs

P2.00

P14,000

4.00

P20,000

Downing Company's markup percentage would be a. 120%. b. 60%. c. 40%. d. 30%.

Assume that during 2000 Simple Corp. manufactured 5,000 units and sold 3,800. There was no beginning or ending work-in-process inventory. How much larger or smaller would Simple Corp.’s income be if it uses absorption rather than variable costing?

The target selling price for this monitor is a. $110. b. $200. c. $210. d. $260.

B. The absorption costing income would be P6,000 smaller

A. The absorption costing income would be P6,000 larger C. The absorption costing income would be P4,800 larger* D. The absorption costing income would be P4,000 smaller

7. The Mango Company is preparing its cash budget for the month of May. The following information is available concerning its accounts payable: Estimated credit sales for May Actual credit sales for April

P200,000 150,000

Estimated collections in May for credit sales in May

20%

Estimated collections in May for credit sales in April

70%

Estimated collections in May for credit sales prior to April Estimated write-offs in May for uncollectible credit sales

9. Which of the following is a difference between a static budget and a flexible budget? A. A flexible budget includes only variable costs; a static budget includes only fixed costs. B. A flexible budget includes all costs, a static budget includes only fixed costs. C. A flexible budget gives different allowances for different levels of activity, a static budget does not. D. There is no difference between the two.

P12,000 8.000

Estimated provision for bad debts in May for credit sales in May7,000

Questions 10 thru 12 are based on the following information.

The Lustre Company produces its only product, Kool Chewing Gum. The standard overhead cost for one pack of the product follows: Fixed overhead (1.50 hours at P18.00) P27.00 Variable overhead (1.50 hours at P10.00) 15.00 Total application rate P42.00 Lustre uses expected volume of 20,000 units. During the year, Lustre used 31,500 direct labor hours for the production of 20,000 units. Actual overhead costs were P545,000 fixed and P308,700 variable.

15. Mr. S. Mart assumed the presidency of Riches Corp. He instituted new policies and with respect to credit policy, below is a summary of relevant information:

Sales Average collection period

Old Credit Policy P1,800,000 30 days

New Credit Policy P1,980,000 36 days

10. The amount of variable overhead spending variance is A. P6,300 Favorable C. P6,300 Unfavorable B. P 8,700 Favorable

D. P8,700 Unfavorable The company requires a rate of return of 10% and a variable cost ratio of 60%. Using a 360-day year, the pre-tax cost of carrying the additional investment in receivables under the new policy would be a. P4,800 b. P2,880 c. P3,000 d. P4,080

11. The total overhead controllable variance is A. P13,700 Favorable C. P13,700 Unfavorable B. P 8,700 Favorable

D. P 8, 700 Unfavorable

12. The overhead efficiency variance is A. P22,500 Favorable B. P15,000 Favorable

C. P22,500 Unfavorable

AP

D. P15,000 Unfavorable

13. Express Co. is developing a silver mine at a cost of P5 million. There is a 20% probability that silver worth P15 million can be sold. There is a 20% probability that the silver will only be worth P500,000. What is the maximum Express would be willing to spend to develop the mine? A. P10,000,000 C. P3,100,000 B. P 5,000,000

D. P0

14. The Liberal Sales Co. budgeted sales for the coming year are P30 million of which 80% are expected to be on credit. The company wants to change its credit terms from n/30 to 2/10, n/30. If the new credit terms are adopted, the company estimates that cash discounts would be taken on 40% of the credit sales and the new uncollectible amount would be unchanged. The adoption of the new credit terms would result in expected discount availed of in the coming year of a. P600,000

b. P288,000 P192,000

c. P480,000

d.

Items 1 and 2 are based on the following: CONCORD CO. purchased real property for P3,225,000 which included P67,500 for realty tax arrears for prior years. A mortgage of P1,500,000 was assumed by CONCORD CO. on the purchase. Twenty percent of the purchase price should be allocated to the land and the balance to the building. In order to make the building suitable for the use of CONCORD CO., remodeling costs had to be incurred in the amount of P337,500. This however necessitated the demolition of a portion of the building, which resulted in recovery of salvage material sold for P11,250 cash. Landscaping and parking lot cost the company a total of P120,000 while repairs in the main hall were P16,875. 1. 2.

The cost of the land was: a.P631,500 b.P645,000 The cost of the building was: a.P2,467,500 b.P2,923,125 d.P4,123,125

c.P765,000

d.P945,000

c.P2,906,250

3. On June 30, 2007, COLT INC. had outstanding 10% P250,000 face amount 15 year bonds maturing on June 30, 2017. Interest is paid on June 30 and December 31, and bond discount and bond issue costs are amortized on these dates. The unamortized balances on June 30, 2007 of bond discount and bond issue costs were P13,750 and P5,000 respectively. COLT INC. reacquired all of these bonds at 96 on June 30, 2007 and retired them.

Ignoring income taxes, compute for the gain or loss on bond retirement. a. Loss of P3,750 b. Loss of P8,750 c. Gain of P1,250

11. Which of the following procedures is least likely to be performed before the balance sheet date? a. Observation of inventory count. b. Testing of internal control over cash. c. Search for unrecorded liabilities. d. Confirmation of receivables. 12. An audit assistant found a purchase order for a regular supplier in the amount P 5,500 the purchase order was date after receipt of goods. The purchasing agent had forgotten to issue the purchase order. Also, a disbursement of P450 for materials did not have receiving report. The assistant wanted to select additional purchase orders for investigation but was unconcerned about lack of receiving report. The audit director should. a. Agree with the assistant because the amount of the purchase order exception was considerably larger than the receiving report exception b. Agree with the assistant because the cash disbursement clerk had been assured by the receiving clerk that the failure to fill out a report didn’t happen very often. c. Disagree with the assistant because two problems have an equal risk of loss associated with them d. Disagree with the assistant because the lack of a receiving report has a greater risk of loss associated with it. 13. When using confirmation to provide evidence about completeness assertion for account payable, the appropriate population most likely is a. Vendors with whom the entity has previously done business b. Amounts recorded in the accounts payable subsidiary ledger c. Payees of checks drawn in the month after the year end. d. Invoices filed in the entity’s open invoice file. 14. Which of the following is a substantive test than an auditor is most likely to perform to verify the existence and valuation of recorded accounts payable? a. Investigating the open purchase order file to ascertain that pre-numbered purchase orders are used and accounted for. b. Receiving the client’s mail, unopened, for a reasonable period of time after year end to search for unrecorded vendor’s invoices c. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports. d. Confirming accounts payable balances with know suppliers who have zero balances. 15. Only one of the following four statements which compare confirmation of accounts payable with suppliers and confirmation of accounts receiving with debtors is false. The false statements is that a. Confirmation of accounts receiving with debtors is a more widely accepted auditing procedure than us confirmation of accounts payable with suppliers b. Statistical sampling techniques are more widely accepted in the confirmation of accounts payable than in the confirmation of accounts receivable ] c. As compared with the confirmation of accounts receivable, the confirmation of accounts payable will tend to emphasize accounts with zero balances at the balance sheet date. d. It is less likely that the confirmation request sent to the supplier will show the amount owed than that request sent to the debtor will show the amount date.

d. Gain of P10,000

Items 4 to 6 are based on the following: You are conducting an audit of the MART CORPORATION for the year ended December 31, 2008. The internal control procedures surrounding cash transactions were not adequate. Jane Quipit, the bookkeeper-cashier handles cash receipts, maintains accounting records and prepares the monthly reconciliations of the bank account. She prepared the following reconciliation at the end of the year: Balance per bank statement P 315,000 Add : Deposit in transit P 157,725 Note collected by bank 13,500 171,225 Balance P 486,225 Less : Outstanding checks 222,075 Balance per general ledger P 264,150 In the process of your audit, you gathered the following: a. At December 31, 2008, the bank statement and the general ledger showed balances of P315,000 and P264,150 respectively. b.

The cut off bank statement showed a bank charge on January 02, 2009 for P35,250 representing a correction of an erroneous bank credit.

c.

Included in the list of outstanding checks were the following: 1. A check payable to a supplier, dated December 29, 2008, in the amount of P13,275, released on January 05, 2009. 2. A check representing advance payment to a supplier in the amount of P33,489, the date of which is January 04, 2009, and released in December 2008.

d.

On December 31, 2008, the company received and recorded customer’s postdated check amounting to P45,000.

4.

Compute the adjusted deposit in transit as of December 31, 2008. a.P157,725 b.P112,725 c.P202,725

d.P112,500

5.

Compute the adjusted outstanding checks as of December 31, 2008. a.P222,075 b.P235,350 c.P255,564

d.P175,311

6.

Compute the adjusted cash to be presented in the balance sheet as at Dec. 31, 2008. a.P211,914 b.P225,414 c.P238,914 d.P279,414

7. You are reviewing the notes payable and interest expense accounts of Cole Manufacturing Co. as of December 31, 2007 and noted that the company regularly borrows from the bank in order to finance working capital. The following schedule shows loans with 12% interest rate, with interest payable at maturity. All loans are repaid at its scheduled maturity date and interest expense is 7recorded when the loans are repaid. DATE OF LOAN AMOUNT MATURITY DATE TERM OF LOAN Nov. 01, 2006 P 500,000 Oct. 31, 2007 1 year Feb. 01, 2007 1,500,000 July 31, 2007 6 months May 01, 2007 800,000 Jan. 31, 2008 9 months The client recorded interest expense of P150,000 for 2007. Compute for the correct amount of interest expense that should be reported in the 2007 income statement. a. P204,000 b. P212,000 c. P222,000 d. P214,000

BLT

1.

In order that a stipulation in favour of a third person would be valid and binding upon the parties thereto the following are requisites, except: a. There must be a stipulation in favour of a third person. b. The contracting parties must have clearly and deliberately conferred a favor upon that third person c. The third person communicated his acceptance to the obligor before revocation d. That there must be an existing agency between either of the contracting parties and the third person

2.

Statement no. 1: Dolo incidence entitles the person against whom it was employed the right to seek the annulment of the contract. Statement no. 2: A stipulation pour autrui is an exception to the rule relativity of contracts. a. Both are true b. Both are false c. No. 1 is true, no. 2 is false d. No. 1 is false, no. 2 is true

3.

Example no. 1 – W, 16 years old, sold his house valued at P 1 M for only P500,000 or a lesion by more than ¼ of the value of the said house. Example no. 2 – S sold his house valued P 1 M for only P500,000 because of his poor judgment on the true value thereof. a. Both are voidable b. No. 1 is rescissible, no. 2 is voidable c. No. 2 is unenforceable d. Both contracts are binding

4.

S owns and oil painting. Being in need of money, S sold the painting to B for P1,000. After the sale it was discovered that the painting was valuable and worth P5,000. a. S may rescind the contract due to lesion or inadequacy of cause b. S may annul the contract because of fraud c. S may annul the contract in the ground of error d. B is entitled to the benefit of the contract because it is valid and binding. “A”, bachelor lawyer, raped W. Upon learning this, “F” the father of W, was able to force A to marry W under pain of being sued and disbarred from the practice of his law profession which statement is correct? a. The marriage may annulled on the ground of force or violence b. The marriage may be annulled on the ground of threat and intimidation c. The defective marriage may, however, be ratified d. There was no defect, the marriage was perfectly valid

5.

6.

No 1 - Within five (5) years from issuance of its certificate of incorporation, the newly-formed corporation must formally organize and commence business operations. Failure to do so within such period is a ground for dissolution. No. 2 - Every member of the board of every corporation must

own at least one (1) share of stock standing in his name in the books of the corporation. a. Both statements are false. b. Both statements are true. c. The first statement is true; the second is false. d. The second statement is true; the first is false. 7.

A corporation was formed by fifteen (15) incorporators and its certificate of incorporation was duly issued. A year after its attainment of juridical personality, the stockholders, who are themselves the members of the board adopted a resolution, providing for the following (i) That all of the corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20); (ii) That all of the issued stock of the corporation shall be subject to certain specified restrictions; and (iii) That the corporation shall not list in any stock exchange or make any public offering of any of its stocks of any class. a. The corporation is a close corporation because the resolution contains the elements of a close corporation; b. The corporation is de facto because although it has a certificate of incorporation, the provisions in the resolution should have been contained n the articles. c. The corporation is an open corporation. The corporation is a corporation by estoppel because although it operates as a corporation, it did not comply with certain legal requirements for the establishment of a close corporation.

8.

Which of the following is correct? a. The secretary of a corporation must be a citizen of the Philippines and a resident of the Philippines. He must be also a member of the board. b. The members of the board are liable whenever they vote for unlawful acts. c. If there are only ten (1) directors elected although the articles of incorporation provide for fifteen (15) directors, the quorum in a board meeting is eight (8). d. A director may be removed by the vote of all the stockholders in any meeting.

9.

Which of the following acts could be ratified by a vote representing at least 2/3 of the outstanding capital stock?

a. Acts of directors or trustees who are guilty of gross negligence or bad faith in directing the affairs of the corporation; b. An attempt by a director to acquire or actual acquisition of any interest adverse to that of the corporation in respect of any matter reposed upon him in confidence; c. Acts of directors constituting an approval of patently unlawful acts; d. Acquisition of a business opportunity which should belong to the corporation, thereby acquiring profits which should belong to the corporation. 10.

The pre-emptive right extends to the right to subscribe; a. Only to new issues of shares arising out of an increase of the capital stock. b. Only to the issuance of previously unissued portions of the outstanding capital stock. c. To all issues of shares or dispositions of shares of any class; d. To all issues or dispositions of shares of any class other than redeemable or treasury shares.

11. Emong donated 100,000 cash to his daughter Baby on account of marriage, he is entitled to a 10,000 deduction or exemption if he is a: a. Non-resident alien b. Resident Alien c. Both resident and non-resident d. a or b above 12. all are essential characteristics of a tax except: a. payment of tax is mandatory b. it is generally payable in money c. it is generally unlimited in amount d. it is proportionate in character. 13. Who is taxpayer in estate tax a. the heirs or successors b. the deceased person’s estate c. he heir’s legal representatives d. the executor or administrator of the state 14. Which is an inherent limitation? a. Equality in taxation b. uniformity in taxation

c. territoriality rule d. non-infringement of religious freedom in taxation 15. one of the following is VAT exempt: a. importation of goods for home consumption b. sales of drugs of a supermarket c. sublease of personal property d. common carriers by land