AIR DIAGNOSTIC EXAM

Cluster 1- Level 2 & 3

03.30.15
Write the letter of your choice before each number. No erasures allowed.
1. Inflation is ignored in accounting due to
a. objectivity
c. materiality
b. periodicity assumption
d. economic entity
2. Which of the following is included in the normal journal entry to record the
collection of accounts receivable previously written off when using the
allowance method?
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable
b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts

4. Under the fair value option, an entity may

a. irrevocably designate a financial asset as measured at fair value through profit
or loss even if the amortized cost measurement is satisfied
b. irrevocably designate a financial asset as measured at fair value through other
comprehensive income
c. revocably designate a financial asset as measured at fair value through profit
or loss even if the amortized cost measurement is satisfied
d. designate all instruments as measured at fair value through profit or loss

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3. Generally, biological assets should be measured using

a. historical cost
b. historical cost less accumulated depreciation
c. a fair value approach
d. net realizable value

5. Which of the following disclosures must be made when the fair value model is
used for investment property?
a. depreciation method
b. the amount of impairment loss recognized
c. useful life or depreciation rate
d. net gains or losses from fair value adjustments
6. A government grant that becomes repayable shall be accounted for as
a. change in accounting estimate
b. change in accounting policy
c. both change in accounting estimate and change in accounting policy
d. neither change in accounting estimate nor change in accounting policy
7. Which of the following research and development related costs should be
capitalized and depreciated over current and future periods?
a. Research and development general laboratory building which can be put to
alternative uses in the future
b. Inventory used for a specific research project
c. Administrative salaries allocated to research and development
d. Research findings purchased from another company to aid a particular
research project currently in process
8. If bonds are issued initially at a premium and the effective-interest method of
amortization is used, interest expense in the earlier years will be
a. greater than if the straight-line method were used
b. greater than the amount of the interest payments
c. the same as if the straight-line method were used
d. less than if the straight-line method were used
9. Which of the following best describes the cash-basis method of accounting for
warranty costs?
a. Expensed based on estimate in year of sale
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AIR DIAGNOSTIC EXAM

Cluster 1- Level 2 & 3
03.30.15
b. Expensed when liability is accrued
c. Expensed when warranty claims are certain
d. Expensed when incurred
10.An entity has public accountability under all of the following, except:

(REVIEW SME)

11.Esther Co. provided the following information about the composition of its
cash on Dec 31 2014:
Commercial savings account of P600,000 and a commercial checking account
balance of P900,000 are held at BPI
Money market fund account held by Citibank that permits Esther to write
checks in this balance, P5,000,000
Travel advances of P180,000 for executive travel for the first quarter of next
year (employee to pay through salary deduction)
A separate cash fund in the amount of P1,500,000 is restricted for the
retirement of long term assets
Petty cash fund, P10,000
Undeposited coins and currency, P35,000
Company checks written (and deducted from the demand deposits amount)
but not scheduled to be mailed until Jan 2 next year, P270,000
Time deposit, P3,000,000
What is the correct cash Esther Co should report in its December 31 2014
statement of financial position?
a. 9,995,000
b. 6,815,000
c. 1,815,000
d. 9,815,000

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a. its debt and equity instruments are traded in a public market

b. it is in the process of issuing debt and equity instruments for trading in a
public market
c. it holds assets in fiduciary capacity for a broad group of outsiders for
reasons incidental to a primary business
d. it holds assets in fiduciary capacity for as one of its primary businesses

12.Hope Companys inventory at December 31, 2011 was P7,500,000 based on

physical count priced at cost and before any necessary adjustment for the
following:
Merchandise costing P550,000, shipped Free Alongside from a vendor on
December 30, 2011, was received and recorded on January 10, 2012.
Goods in the shipping area are excluded from inventory although shipment
was not made until January 4, 2012. The goods, billed to the customer Exship on December 30, 2011, had a cost of P600,000.
Included in the physical count were goods specifically segregated per sale
contract with a sale price of P1,800,000. The goods were sold at a gross
profit rate of 25% on sales.
Goods purchased from a vendor, FOB buyer, were shipped on December 30,
2011. The goods were received by the customer on January 3, 2012. The
goods had a cost of P240,000.
What amount should Hope report as inventory on December 31, 2011?
a.7,300,000
b. 8,650,000
c. 6,940,000
6,700,000

d.

13.Jamie Company started construction on a building at the beginning of the

current year and completed construction at year end. The entity had only two
interest notes outstanding during the year and both of these notes were
outstandin during the year and both of these notes were outstanding for all
12 months of the year. The following information is available:
Average accumulated expenditures
P2,500,000
Ending balance in construction in progress before capitalization of
Interest
3,600,000
6% note incurred specifically for the project
1,500,000
2

AIR DIAGNOSTIC EXAM

Cluster 1- Level 2 & 3
03.30.15

What is the cost of the building?

a. 3,780,000
b. 2,680,000

5,000,000

c. 3,750,000

14.The following expenditures related to the construction

for Facetious Company:
Cost of land, which included an old
apartment
building appraised at P200,000
Legal fees, including fee for title search
Payment of apartment building mortgage
and related
interest due at time of sale
Payment of delinquent property taxes
assumed
Cost of razing the apartment building
Proceeds from sales of salvaged materials
Grading and drainage on land site
Architect fee on new building
Payment of building contractor
Interest
cost
on
specific
borrowing
during
construction
Payment on medical bills of employees
accidentally
injured
while
inspecting
building
construction
Cost of paving the driveway and parking
lot
Cost of trees, shrubs and other landscaping
Cost of installing lights in parking lot
Premium for insurance of building during
construction
Cost of open house party to celebrate the opening of
building
What is the cost of the building?
a. 8,625,000
b. 8,525,000

c. 8,540,000

d. 3,825,000
of a new home office

2,000,000
10,000
50,000
20,000
30,000
5,000
15,000
200,000
8,000,000
300,000

VMBM,CPA

9% long term note

10,000
40,000
55,000
5,000
25,000
60,000
d. 8,530,000

15.Radical Company acquired a mineral right for P30,000,000 in January 2012.

The mine has a recoverable ore estimated at 4,000,000 tons. After it has
extracted all the ore, the entity will be required by law to restore the land to
its original condition at a discounted amount of P2,000,000. The entity
believed that the property can be sold afterwards for P5,000,000.
Early in 2012, roads were constructed and other development costs were
incurred to aid in the extraction and transportation of the mined ore at a cost of
P6,000,000. In 2012, 200,000 tons of ore were mined and sold. On December 31,
2013 a new survey made by new mining engineer indicated that 5,000,000 tons
of ore were available for mining. In 2013, 225,000 tons of ore were extracted and
sold. What amount of depletion expense should be recognized for 2013?
a. 1,650,000
b. 1,350,000
c. 1,856,250
d. 1,410,000
16.Seaside Company applied revaluation accounting to plant asset with carrying
amount of P4,000,000 on Jan 1 2013, useful life of 4 years, and no residual
value. Depreciation is calculated on the straight line basis. On Dec 31 2013,
independent appraisers determined that the asset has a fair value of
P3,750,000
What is the journal entry to record depreciation for 2014?
a. Debit accumulated depreciation P1,000,000
3

AIR DIAGNOSTIC EXAM

Cluster 1- Level 2 & 3
03.30.15
b. Debit depreciation P1,250,000
c. Credit accumulated depreciation P750,000
d. Debit depreciation P1,000,000
17.Zenith Company purchased four convenience store buildings on January 1,
2007 for a total of P25,000,000. The buildings have been depreciated using
the straight line method with a 20-year useful life and 10% residual value.
On January 1, 2013, the entity has converted the buildings into a hotel and
restaurant. The entity estimated that the buildings have a remaining useful
life of 12 years, that their residual value will be zero, that net cash inflows
from the buildings will total P1,600,000 per year, and that the fair value less
cost of disposal of the four buildings totals P10,000,000. The appropriate
discount rate is 12%. The present value of an ordinary annuity of 1 at 12%
for 10 periods is 5.65.
c. 10,335,000

d.

18.Dinkie Company incurred P1,600,000 of research and development costs to

develop a product for which a patent was granted on January 1, 2013. Legal
fees and other costs associated with registration of the patent totaled
P300,000. On March 31, 2013, Dinkie paid P450,000 for legal fees in a
successful defense of the patent.
What is the total amount that should be capitalized for the patent through
March 31, 2013?
a. 750,000
b. 300,000
c. 2,050,000
d.
2,350,000

VMBM,CPA

What is the amount of impairment loss?

a. 3,375,000
b. 10,900,000
9,375,000

19.Maribeth Company incurred research and development costs in the current

year as follows:
Equipment acquired for use in various research and development projects
975,000
Depreciation on the above equipment
135,000
Materials used
200,000
Compensation costs of personnel
500,000
Outside consulting fees
150,000
Indirect costs appropriately allocated
250,000
What is research and development expense the current year?
a. 850,000
b. 1,085,000
c. 1,235,000
d. 1,825,000
20.Maria Company had P600,000 convertible 8% bonds payable outstanding on
June 30,2013. Each P1,000 bonds was convertible into 10 ordinary shares of
P50 par value. On July 1,2013, the interest was paid to bondholders, and the
bonds were converted into ordinary shares, which had fair value of P75 per
share. The unamortized premium on these bonds was P12,000 at the date
conversion. No equity component was recognized when the bonds were
originally issued. As a result of bond conversion, what is the increase in share
premium?
a. 312,000
b. 306,000
c. 162,000
d. 12,000
21.On Jan 1, 2013 Solemn Company sold land to Glory Company. There was no
established market price for the land. Glory gave Solemn a P2,400,000
noninterest bearing note payable in three equal annual installments of
P800,000 with the first payment due Dec 31, 2013. The note has no ready
market. The prevailing rate of interest for a note of this type is 10%. The
present value of a P2,400,000 note payable in three equal annual
4

AIR DIAGNOSTIC EXAM

Cluster 1- Level 2 & 3
03.30.15
installments of P800,000 at a 10% rate of interest is P1,989,600. What is the
carrying amount of the note payable on December 31, 2013?
a. 1,989,600
b. 2,126,400
c. 2,400,000
d. 1,388,560

On December 31,2014, what amount should be recognized as rent

receivable?
a. 1,400,000
c. 400,000
b. 800,000
d. 0
23.On Jan 1, 2013, Day Company leased a new machine from Parr with the
following pertinent information:
Lease term
6 years
Annual rental payable at the end of each year
500,000
Useful life of machine
8
years
Implicit interest rate in lease
12%
Present value of an ordinary annuity of 1 for 6 periods at 12%
4.11
Present value of an annuity of 1 in advance for 6 periods at 12%
4.60
The lease is not renewable, and the machine reverts to Parr at the
termination of the lease. The cost of the machine on Parrs accounting
records is P3,755,000. Costs directly attributable in lease agreement were
incurred for P 50,000. At the beginning of the lease term, what amount
should be recorded as cost of the machine?
a. 2,055,000
b. 2,105,000
c. 3,755,000
d. 2,800,000

VMBM,CPA

22.Bibi Company, lessor, leased an equipment under an operating lease. The

lease term is 5 years and the lease payments are made in advance in January
1 of each year as shown in the following schedule:
January 1, 2013
1,000,000
January 1, 2014
1,000,000
January 1, 2015
1,400,000
January 1, 2016
1,700,000
January 1, 2017
1,900,000

24.Samuel Company is a dealer in equipment. On Jan 1, 2014, an equipment was

leased to another entity with the following provisions:
Annual rental payable at end of each year
1,500,000
Lease term and useful life of machinery
5
years
Cost of equipment
4,000,000
Guaranteed residual value
500,000
Implicit interest rate
12%
PV of an ordinary annuity of 1 for 5 periods at 12%
3.60
PV of 1 for 5 periods at 12%
0.57
At the end of the lease term on Dec 31, 2018, the equipment will
revert to the lessor. On such date, the fair value of the asset is P350,000. The
perpetual inventory system is used. The lessor incurred initial direct cost of
P200,000 in finalizing the lease agreement.
What is the interest income to be recognized for 2014?
a. 960,000
b. 900,000
c. 648,000
d. 682,200
25.Raymart Company is in the business of leasing new sophisticated equipment.
The lessor expects a 12% return on its net investment. All leases are
classified as direct financing lease. At the end of the lease term, the
equipment will revert to the lessor. On Jan 1, 2014 an equipment is leased to
a lessee with the following information
Cost of equipment to the lessor
5,000,000
Residual value unguaranteed
600,000
5

AIR DIAGNOSTIC EXAM

Cluster 1- Level 2 & 3
03.30.15

8 years
12%
Jan 1,
d. 1,500,000

26.Aloha Company provided the following information on December 31, 2013:

Carrying amount
Tax
base
Accounts receivable
1,500,000
1,750,000
Motor vehicle
1,650,000
1,250,000
Provision for warranty
120,000
0
Deposit received in advance
150,000
0
The depreciation rates for accounting and taxation are 15% and 25%
respectively. The deposits are taxable when received and warranty costs are
deductible when paid. An allowance for doubtful debts of P250,000 has been
raised against accounts receivable for accounting purposes but such debts
are deductible only when written off as uncollectible. The tax rate is 30%.
What amount should be reported as deferred tax liability on December 31,
2013?
a. 120,000
b. 156,000
c. 81,000
d. 36,000

VMBM,CPA

Annual rental payable in advance

900,000
Initial direct cost incurred by the lessor
250,000
Useful life and lease term
Implicit interest rate
First lease payment
2014
What is the unearned interest income on Jan 1, 2014?
a. 2,550,000
c. 1,950,000
c. 3,150,000

27.On January 1, 2014, Zea Company provided the following information in

connection with the defined benefit plan:
Fair value on plan assets
10M
Projected benefit obligation
(13M)
Prepaid/Accrued Benefit Cost
(3M)
Transactions affecting the plan for the current year are as follows:
Current service cost
2.5M
Past service cost-remaining vesting period of covered employees is 5 years
1M
Contribution to the plan
3.5M
Benefits paid to retirees
3M
Actual return on plan assets
1.5M
Decrease in projected benefit obligation due to change in actuarial
assumptions
400,000
Discount rate
10%
Expected return on plan assets
12%
What amount should be reported on December 31, 2014 as accrued or
prepaid benefit cost?
a. 3,300,000 accrued
b. 3,300,000 prepaid
c.
2,400,000
accrued
d. 2,400,00 prepaid
6

AIR DIAGNOSTIC EXAM

Cluster 1- Level 2 & 3
03.30.15

29.Tan Company reported the following current assets on December 31, 2014:
Cash
500,000
3,500,00
Accounts receivable
0
2,000,00
Inventory
0
Prepaid expenses
100,000
Deferred tax asset
400,000
3,000,00
Noncurrent asset classified as "held for sale"
0
6,500,00
Total current assets
0
Cash on hand, including customers' postdated check of P20,000 and
employee IOU of P10,000
Cash in bank per bank statement (outstanding checks on December 31,
2014, P70,000
Total cash
Customers' debit balances, net of customers' deposit of P50,000
Allowances for doubtful accounts
Selling price of goods invoiced to customers at 150% of cost on
December 29, 2014 but delivered on January 5, 2015 and excluded
from reported inventory

130,000

VMBM,CPA

28.At December 31, 2010, Eagle Corp. reported P1,750,000 of appropriated

retained earnings for the construction of new office building, which was
completed in 2011 at a total cost of P1,500,000. In 2011, Eagle appropriated
P1,200,000 of retained earnings for the construction of a new plant. Also,
P2,000,000 of cash was restricted for the retirement of bonds due in 2012. In
its 2011 balance sheet, Eagle should report what amount of appropriated
retained earnings?
a.P1,200,000
b. P1,450,000
c. P2,950,000
d. P3,200,000

370,000
500,000
1,900,00
0
( 150,0
00)

750,000
1,000,00
Subscription receivable, collectible currently
0
3,500,00
0
30.On December 31, 2014, what amount should be reported as total current
assets?
a. 6,230,000
b. 5,830,000
c. 5,900,000
d.
5,800,000
31.Benedict Company had the following bank reconciliation on June 30, 2011:
3,000,0
Balance per bank statement, June 30
00
400,00
Deposit transit
0
3,400,0
Total
00
900,00
Outstanding checks
0
2,500,0
Balance per book, June 30
00
The bank statement for the month of July showed the following:
Deposits (including P200,000 note collected for Benedict)

9,000,0
7

AIR DIAGNOSTIC EXAM

Cluster 1- Level 2 & 3
03.30.15

Disbursements (including P140,000 NSF check and P10,000 service

charge)

00
7,000,0
00

32.On December 1, 2010, Bamboo Company assigned specific accounts

receivable totaling P2,000,000 as collateral on a P1,500,000, 12% note from a
certain bank.
Bamboo Company will continue to collect the assigned
accounts receivable. In addition, to the interest on the note, the bank also
charged a 5% finance fee deducted in advance on the P1,500,000 value of
the note.
The December collections of assigned accounts receivable
amounted to P1,000,000 less cash discounts of P50,000. On December 31,
2010, Bamboo Company remitted the collections to the bank in payment for
the interest accrued on December 31, 2010 and the note payable.
How much cash was received from the assignment of accounts receivable on
December 1, 2010?
a. 2,000,000
b. 1,500,000
c. 1,425,000
d.
1,925,000
33.Kimmy Company used the moving average method to determine the cost of
the inventory. During January of the current year, the entity recorded the
following information pertaining to its inventory:
Units
Unit Cost
Total Cost
Balance on Jan 1
40,000
50
2,000,000
Sold on Jan 17
35,000
Purchased on Jan 20,000
80
1,600,000
28
What amount of inventory should be reported on Jan 31?
a. 2,000,000
b. 1,850,000
c. 1,625,000
d. 1,500,000

VMBM,CPA

All reconciling items on June 30 cleared through the bank in July. The
outstanding checks totaled P600,000 and the deposit in transit amounted to
P1,000,000 on July 31. What is the cash balance per book on July 31?
a. 5,400,000
b. 5,350,000
c. 5,550,000
d.
4,500,000

34.The records of Shoe Department Store report the following date for the month
of July 2011:
13,500,00
0
250,000
500,000

Mark down
Mark down cancelations
Freight on purchases

Employee discounts
Theft and other losses
Initial markup on
purchases
Additional mark up

200,000
300,000

Purchases at cost
Purchases returns at cost

5,400,000
500,000

Purchase returns at sales price

Beginning inventory at cost

Mark up cancelations

200,000

Beginning inventory as sales price

Sales
Sales Allowance
Sales returns

1,200,00
0
200,000
200,000
9,400,00
0
480,000
700,000
880,000
1,600,00
0

Using the average retail inventory method, what is the estimated ending
inventory?
a.937,500
b. 1,000,000
c. 1,093,750
d.
1,125,000
35.Pillar Company acquired a 30% equity interest in an investee for P400,000 on
January 1, 2013. For the year ended December 31, 2013, the investee
earned profit of P80,000 and paid no dividend. For the year ended
December 31, 2014, the investee incurred loss of P32,000 and paid a
dividend of P10,000.

AIR DIAGNOSTIC EXAM

Cluster 1- Level 2 & 3
03.30.15
In the statement of financial position on December 31, 2014, what is the
carrying amount of the investment in associate?
a. 438,000
b. 411,400
c. 414,400
d. 400,000
36.On January 1, 2013, Gala Company purchased marketable equity securities to
be held as trading for P5,000,000. The entity also paid commission, taxes
and other transaction costs amounting to P200,000. The securities had a
market value of P5,500,000 on December 31, 2013. No securities were sold
during 2013. The transaction costs that would be incurred on the disposal of
the investment are estimated at P100,000.
What amount of unrealized gain or loss on these securities should be reported in
the 2013 income statement?
a.
500,000 unrealized gain
c. 400,000 unrealized gain
b.
500,000 unrealized loss
d. 400,000 unrealized loss

38.Bona Company and its subsidiaries own the following properties that are
accounted for in accordance with PAS 40
Land held by Bona for undetermined use
5,000,000
A vacant building owned by Bona and to be leased out under
an operating lease
3,000,000
Property held by a subsidiary of Bona, a real estate firm, in the
ordinary course of business
2,000,000
Property held by Bona for use in production
4,000,000
Building owned by a subsidiary of Bona and for which the
subsidiary provides security and maintenance
services to the lessees
1,500,000
Land leased by Bona to a subsidiary under an operating lease
2,500,000
Property under construction for use as investment property
6,000,000
Land held for future factory site
3,500,000
Machinery leased out by Bona to an unrelated party under an
Operating lease
1,000,000
What is the investment property that should be reported in the consolidated
statement of financial position of the parent and its subsidiaries?
a. 15,500,000
b. 12,000,000
c. 10,500,000
d. 9,500,000

VMBM,CPA

37.On October 1, 2013, Yesterday Company purchased 4,000 of the P1,000 face
value, 10% bonds of Fell Company for P4,400,000 which includes accrued
interest of P100,000. The bonds, which mature on Jan 1, 2020, pay interest
semiannually on Jan 1 and July 1. Yesterday Company used the straight line
method of amortization and appropriately recorded the bonds as long term
investment. What is the carrying amount of the bonds on Dec 31 2013?
a. 4,284,000
b. 4,288,000
c. 4,300,000
d. 4,400,000

39.On Jan 1 2014m Charis Company adopted a plan to accumulate funds for a
new building to be erected beginning Jan 1 2018 at an estimated cost of
P20,000,000. The entity intends to make four equal annual deposits in a fund
beginning December 31 2014 that will earn interest at 12% compounded
annually. The future value of an ordinary annuity of 1 at 12% for 4 periods is
4.78, and the future value of an annuity of 1 in advance at 12% for 4 periods
is 5.35. what is the annual deposit to the fund?
a. 5,000,000
b. 4,184,100
c. 3,738,318
d. 3,149,606
40.On Jan 1 2014, Jane Company borrowed P5,000,000 from a bank at a variable
rate of interest for 2 years. Interest will be paid annually to the bank on Dec
31 and the principal is due on Dec 31 2015. Under the agreement, the market
rate of interest every Jan 1 resets the variable rate for that period and the
amount of interest to be paid on Dec 31. In conjunction with the loan, the
entity entered into a receive variable, pay fixed interest rate swap
agreement with another bank speculator as a cash flow hedge. The market
9

AIR DIAGNOSTIC EXAM

Cluster 1- Level 2 & 3
03.30.15
rates of interest are 10% on Jan 1, 2014 and 12% on Jan 1, 2015. The
underlying fixed interest rate is 10%. The PV of 1 at 10% for one period is
0.91 and the PV of 1 at 12% for one period is .89
What is the derivative asset or liability on December 31, 2014?
a. 91,000 asset
b. 91,000 liability c. 89,000 asset
89,000 liability

d.

42.Brandy Company purchased equipment for P5,000,000 on January 1, 2013

with a useful life of 10 years and no residual value. On December 31, 2013,
the entity classified the asset as held for sale. The fair value of the
equipment on December 31, 2013 is P4,200,000 and the cost of disposal is
P50,000. On December 31, 2014, the fair value of the equipment is
P3,500,000 and the cost of disposal is P100,000. On December 31, 2014, the
entity believed that the criteria for classification as held for sale can no
longer be met. Accordingly, the entity decided not to sell the asset but to
continue to use it.

VMBM,CPA

41.Sophia Company purchased equipment for P 14,100,000 on January 1, 2011.

Sophia received a government grant of P600,000 in respect of this asset.
Sophia treated the grant as a deduction from the cost of the asset. The
equipment has a useful life of 5 years and will use SYD in depreciating the
asset. On January 1, 2014, Sophia violated some conditions and fully repaid
the grant. What is the depreciation of the equipment to be recognized in
2014?
a. 1,800,000
b. 2,400,000
c. 2,200,000
d.
2,360,000

What is the measurement of the equipment that ceases to be held for sale on
December 31, 2014?
a. 4,000,000
b. 3,400,000
c. 3,500,000
d.
4,150,00

NCA HFS measured at the lower of Carrying amount and FV

less cost of
Disposal
If it ceases to be held for sale, measured at carrying amount
had there been
no reclassification as NCA HFS, or FV
less cost of disposal
=CA, 4,000,000 vs FVLCD, 3,400,000
43.Spongebob Company reported revenue of P50,000,000, excluding
intersegment sales of P10,000,000, expenses of P47,000,000 and net income
of P3,000,000 for the current year. Expenses included payroll costs of
P15,000,000. The combined assets of all segments at year end totaled
P45,000,000.
What is the minimum amount of sales to a major customer?
a. 5,000,000
b. 4,000,000
c. 4,500,000
d. 6,000,000

Major customer- 10% or more of entitys external revenue

50M*10%=5M
44.Warrior Company provided the following information for the year 2011:
Purchased a building for P1,200,000. Paid P400,000 and signed a mortgage
with the seller for the remaining P800,000.
Executed a debt-equity swap and replaced a P600,000 loan by giving the
lender ordinary shares worth P600,000 on the date swap was executed.
Purchase land for P1,000,000. Paid P350,000 and gave ordinary shares worth
P650,000.
10

AIR DIAGNOSTIC EXAM

Cluster 1- Level 2 & 3
03.30.15

Borrowed P550,000 under a long-term loan agreement. Used the cash from
the loan proceeds as follows: P150,000 for purchase of additional inventory,
P300,000 to pay cash dividends and P100,000 to increase the cash balance.
What amount should be reported as net cash used in investing activities?
a. 1,200,000
b. 2,200,000
c. 400,000
d. 750,000

Purchase of bldg
Purchase of land
Total

400,000
350,000
750,000

12/31/13 (15*50,000)
750,000
12/31/14 (10*50,000 rights)
750,000

750,000

2013: Salaries

500,000

250,000

Acc

salaries

Payable

2014: Acc Salaries Payable 750,000

Cash
500,000

VMBM,CPA

45.On Jan 1 2013, SVJ Company granted the chief executive officer (CEO) 50,000
share appreciation rights for past services. The rights are exercisable
immediately and expire on Dec 31 2014. On exercise, the CEO is entitled to
receive cash for the excess of the share market price on exercise date over
the market price on grant date. The CEO did not exercise any of the rights in
2013. The market price of the share P100 on Jan 1, 2013 and P115 on Dec 31
2014 when the market price was P110. What amount should be recognized as
gain on reversal of share appreciation rights in 2014?
a. 0
b. 250,000
c. 500,000
d. 750,000

Gain on reversal
250,000
46.Cam Company reported the following balances for the current year:
December 31
January 1
Inventory
2,600,000
2,900,000
Accounts Payable 750,000
500,000
The entity paid suppliers P4,900,000 during the current year. Under the
accrual basis, what amount should be reported as cost of goods sold for the
current year?
a. 5,450,000
b. 4,950,000
c. 4,850,000
d. 4,350,000

750k+4.9M-500k=5,150,000(purchases)+2.9M2.6M=5,450,000
47.Shara Company reported that the financial statement contained the following
errors
December 31 2013
December 31 2014
Ending inventory
P950,000 overstated
P800,000 understated
Depreciation
P250,000 understated
An insurance premium of P600,000 was prepaid in 2013 covering the years
2013, 2014, and 2015. The entire amount was charged to expense in 2013.
No corrections have been made for any of the errors. Ignore income tax.
What is the total effect of the errors on retained earnings on December 31
2014?
a. understatement of P1,550,000
b. overstatement of P1,550,000
c. overstatement of P750,000
d. understatement of 750,000
Ending invty

2013
(950,000)

2014
950,000

Net effect

11

AIR DIAGNOSTIC EXAM

Cluster 1- Level 2 & 3
03.30.15
800,000
Depreciation
Insurance premium
Effect

(250,000)
400,000
(800,000)

(200,000)
1,550,000

750,000

48.Yza Company provided the following information during 2014:

Inventory Jan 1
1,650,000
Purchases
4,000,000
Inventory Dec 31
2,500,000
The relevant index numbers are 120 on Jan 1 2014, 280 on Dec 31 2014, and
the average inddex number for 2013 is 110. What is the cost of goods sold in
hyperinflationary income statement for 2014?
a. 3,150,000
b. 4,410,000
c. 6,300,000
d. 7,300,000
280/200*4M
280/110*1,650,000
280/200*2.5M

5.6M
4.2M
3.5M

49.Caroline Company provided the following events that occurred after Dec 31
2013:
1/15/2014 P3,000,000 of accounts receivable was written off due to the
bankruptcy of a major customer
2/14/2014 A shipping vessel of the entity with carrying amount of
P5,000,000 was completely lost at sea because of a hurricane
3/11/2014 A court case involving the entity as the defendant was settled
and the entity was obligated to pay the plaintiff P1,500,000. The
entity previously has not recognized a liability for the suit
because management deemed it possible that the entity would
lose the case
3/15/2014 One of the entitys factories with a carrying mount of P4,000,000
was completely razed by forest fire that erupted in its vicinity
The management completed the draft of the financial statements for 2013 on
Feb 10,2014. On March 20, 2014, the board of directors authorized the
financial statements for issue. The entity announced its profit and other
selected information on March 22, 2014. The financial statements were
approved by shareholders on April 2, 2014 and filed with the SEC the very
next day. What total amount should be reported as adjusting events on
December 31 2013?
a. 9,500,000
b. 8,500,000
c. 9,000,000
d. 4,500,000

VMBM,CPA

Purchases
Beg invty
Ending invty
4.2M+5.6M-3.5M=6.3M

Adjusting events that should be reported: Jan 15,2014 &

March 11, 2014
50.On Jan 1 2013, Yvonne Company granted share options to each of the 300
employees working in the sales department. The share options vest at the
end of a three-year period provided that the employees remain in the entitys
employ and provided the volume sales will increase by more than 10% per
year. The fair value of each share option on grant date is P30. If the sales
increase by more than 10%, each employee will receive 200 share options. If
the sales increase by more than 15%, each employee will receive 300 share
options. On Dec 31 2013, the sales increased by more than 10% but not more
than 15%, and no employees have left the entity. On Dec 31 2014, sales
increased by more than 15% and no employees left. On December 31 2015,
the sales increased by more than 15%, and 50 employees left the entity.
What amount should be recognized as compensation expense for 2015?
a. 2,250,000
b. 1,200,000
c. 450,000
d. 900,000

12

AIR DIAGNOSTIC EXAM

Cluster 1- Level 2 & 3
03.30.15

If sales >10% 200 share options

If sales >15% 300 share options

END OF EXAM

VMBM,CPA

2013- (200 share options*300*30)/3=600,000

2014(300
share
options*300*30)*2/3=1,800,000600,000=1,200,000
2015- (300 share options*250*30)-1,800,000=450,000

13