Page 1 of 8

CEBU CPAR CENTER

M0CK COMPREHENSIVE EXAMINATION
Visit-http://www.cebu-CPAR.com
1. The liabilities section of the balance sheet of Pug Company on December 31, 2005
detailed the following:
Accounts payable
Notes payable-trade
Bank note payable -10%
Bank note payable 12%
Accrued expenses
Accrued interest payable
Mortgage note payable 6%
Bonds payable 10% due June 30, 2006

2,000,000
2,500,000
800,000
1,000,000
350,000
500,000
4,000,000
5,000,000

The 10% bank note payable is issued on January 1, 2005, payable on demand and
interest is payable every six months. The 12% bank note payable is a two-year note
issued on July 1, 2004.
The 6%, 10 year mortgage note was issued on October 1, 2002. Terms of the note give
the holder to demand payment if the company fails to make monthly interest payment.
On December 31, 2005, Pug is three months behind in paying its required interest.
What is the total amount of current liabilities on December 31, 2005?
a. P10,150,000
c. P15,750,000
b. P16,150,000
d. P15,150,000
2. To increase sales, Quezon Company inaugurated a promotional campaign on June 30,
2005. Quezon placed a coupon redeemable for a premium in each package of cereal
sold at P200. Each premium costs P100. A premium is offered to customers who send
in 5 coupons and a remittance of P30. The distribution cost per premium is P20.
Quezon estimated that only 60% of the coupons issued will be redeemed. For the six
months ended December 31, 2005, the following is available:
Packages of cereal sold
Premiums purchased
Coupons redeemed

100,000
10,000
40,000

What is the estimated liability for coupons on December 31, 2005?

a. P1,080,000
c. P360,000
b. P1,000,000
d. P720,000
3. A new product introduced by Wilkenson Promotions carries a two-year warranty against
defects. The estimated warranty costs related to dollar sales are as follows:
Year of sale ..............................
Year after sale ...........................

3 percent
5 percent

Sales and actual warranty expenditures for the years ended December 31, 2004 and
2005, are as follows:

2004
2005

Sales
P 8,000,000
10,000,000

Actual Warranty
Expenditures
P200,000
700,000

What amount should Wilkenson report as its estimated liability as of December 31,
2005?
a. P540,000
c. P 40,000
b. P240,000
d. P740,000

Page 2 of 8

4. National Appliance Center sells washing machines that carry a three-year warranty
against manufacturer's defects. Based on company experience, warranty costs are
estimated at P60 per machine. During the year, National sold 48,000 washing
machines and paid warranty costs of P340,000. In its income statement for the year
ended December 31, National should report warranty expense of
a. P2,200,000
c. P680,000
b. P2,880,000
d. P960,000
5. On November 5, 2005, a Calauag Company truck was in an accident with an auto
driven by Macalelon. Calauag received notice on January 15, 2006, of a lawsuit for
P4,000,000 damages for personal injuries suffered by Macalelon. Calauags counsel
believes it is probable that Macalelon will be awarded an estimated amount in the
range between P2,000,000 and P3,000,000, and no amount is a better estimate of
potential liability than any other amount. The accounting year ends on December 31,
and the 2005 financial statements were issued on March 31, 2006. What amount of
provision should Calauag accrue at December 31, 2005?
a. P4,000,000
c. P2,500,000
b. P3,000,000
d. P2,000,000
6. On March 1, 2004, Bohol Company borrowed P5,000,000 and signed a 2-year note
bearing interest at 12% per annum compounded annually. Interest is payable in full at
maturity on February 28, 2006. What amount should Bohol report as a liability for
accrued interest at December 31, 2005?
a. P1,200,000
c. P1,160,000
b. P1,100,000
d. P
0
7. On March 1, 2005, Tiaong Company issued 10,000 of its P1,000 face value bonds at
95 plus accrued interest. Tiaong Company paid bond issue cost of P1,000,000. The
bonds were dated November 1, 2004, mature on November 1, 2014, and bear interest
at 12% payable semiannually on November 1 and May 1. What amount did Tiaong
receive from the bond issuance?
a. P8,500,000
c. P9,500,000
b. P8,900,000
d. P9,900,000
8. On December 31, 2005, Atimonan Company issued 8,000 of its 8%, 10-year P1,000
face value bonds with detachable stock warrants at 120. Each bond carried a
detachable warrant for two shares of Atimonans P100 par value common stock at a
specified option price of P150. Immediately after issuance, the market value of the
bonds ex-warrants was P8,100,000 and the market value of the warrants was
P900,000. In its December 31, 2005 balance sheet, what amount should Atimonan
report as bonds payable?
a. P8,000,000
c. P8,100,000
b. P8,640,000
d. P9,600,000
9. Lara Company showed the following balances in connection with its noncurrent
liabilities on December 31, 2005.
Bonds payable 10%, maturing December 31, 2010
Bonds payable 12%, maturing December 31, 2015
Discount on bonds payable
Premium on bonds payable
Bond issue cost

10,000,000
8,000,000
800,000
500,000
200,000

The discount is related to the 10% bonds payable and the premium and bond issue
cost are applicable to the 14% bonds payable. No bonds were retired during 2005.
How much interest expense on the bonds payable should Lara report in its 2005
income statement?
a. P2,070,000
c. P1,870,000
b. P2,090,000
d. P1,890,000

Page 3 of 8

10. On April 1, 2004, Jerry Company sold 12,000 of its P1,000 11%, 5-year face value
bonds at 96. The bonds are dated April 1, 2004 and interest payment dates are April 1
and October 1, and the company uses the straight-line method of bond discount
amortization. On March 31, 2005, Jerry took advantage of favorable prices of its stock
to extinguish all of the bonds by issuing 800,000 shares of its P10 par value common
stock. At this time, accrued interest was paid in cash. The companys stock was selling
for P30 per share on March 1, 2005. The increase in additional paid in capital due to
the conversion of Jerrys bonds is
a. P4,000,000
c. P3,616,000
b. P3,520,000
d. P
0
11. As an inducement to enter a lease, Legaspi Company, a lessor, grants Daraga
Company, a lessee, nine months of free rent under a five year operating lease. The
lease is effective on July 1, 2005, and provides for monthly rental of P500,000 to begin
April 1, 2006. In Daragas income statement for the year ended June 30, 2005, rent
expense should be reported as
a. P3,825,000
c. P1,500,000
b. P4,500,000
d. P5,100,000
12. Tabaco Company leased equipment for its entire nine-year useful life, agreeing to pay
P1,000,000 at the start of the lease term on January 1, 2004, and P1,000,000 annually
on each January 1, for the next eight years. The present value on January 1, 2004, of
the nine lease payments over the lease term, using the rate implicit in the lease which
Tabaco knows to be 10% was P6,330,000. The January 1, 2004, present value of the
lease payments using Tabacos incremental borrowing rate of 12% was P5,970,000.
Tabaco made a timely second lease payment. What amount should Tabaco report as
capital lease liability in its December 31, 2005 balance sheet?
a. P4,863,000
c. P4,970,000
b. P4,467,000
d. P5,330,000
13. Bran Company leased equipment for its entire 10 year economic life, agreeing to pay
P1,000,000 at the start of the lease term on January 1, 2005 and P1,000,000 annually
on each January 1 for the next nine years. The present value factors using the implicit
rate in the lease which is 10% for an annuity due with ten payments: 6.76 and for an
ordinary annuity with ten payments: 6.15. Bran properly recorded the finance lease
and depreciated the asset using the straight line method. What is the current portion of
the lease liability on December 31, 2005?
a. P324,000
c. P424,000
b. P466,400
d. P516,040
14. On January 2, 2005, Trent Company signed an 8-year noncancelable lease for a new
machine requiring P1,500,000 annual payments at the beginning of each year. The
machine has a useful life of 12 years with no residual value. Title passes to Trent at the
lease expiration date. Trent uses the straight-line depreciation for all of its plant assets.
Aggregate lease payments have a present value on January 2, 2005 of P5,400,000
based on an appropriate interest rate. For 2005, Trent should record depreciation
expense for the leased machine at
a. P1,500,000
c. P675,000
b. P 450,000
d. P325,000
15. Cabusao Company is indebted to Ragay Company under a P5,000,000, 10^% threeyear note dated December 31, 2002. Because of financial difficulties, Cabusao owed
accrued interest of P500,000 on the note at December 31, 2005. Under a debt
restructuring on December 31, 2005, Ragay Company agreed to settle the note and
accrued interest for a tract of land having a fair value of P3,500,000. The acquisition
cost of the land is P1,000,000. The income tax rate is 32%. In its 2005 income
statement Cabusao should report gain on restructuring at
a. P4,000,000
c. P1,500,000
b. P2,720,000
d. P1,020,000

Page 4 of 8

16. Camarines Company is a dealer in machinery. On January 1, 2005, a machinery was

leased to another enterprise with the following provisions:
Annual rental payable at the end of each year
Lease term and useful life of machinery
Cost of machinery
Residual value-unguaranteed
Implicit interest rate
PV of an ordinary annuity of 1 for 5 periods at 10%
PV of 1 for 5 periods at 10%

2,000,000
5 years
5,000,000
1,000,000
10%
3.79
0.62

At the end of the lease term on December 31, 2009, the machinery will revert to
Camarines. The perpetual inventory system is used. Camarines incurred initial direct
costs of P200,000 in finalizing the lease agreement. Camarines Company should
report profit on the sale at
a. P5,800,000
c. P3,200,000
b. P6,000,000
d. P3,000,000
17. Bacolod Company provided the following data in its memorandum records for a defined
benefit plan on January 1, 2005.
Fair value of plan assets
Unamortized past service cost
Accrued benefit obligation
Prepaid/accrued benefit cost

12,000,000
1,000,000
( 9,000,000)
4,000,000

The remaining average vesting period for the employees covered by the past service
cost is 5 years. Transactions affecting the plan for 2005 are:
Service cost
Interest cost
Expected and actual return on plan on assets
Contribution to the plan
Benefits paid to retirees
What is the 2005 total benefit expense?
a. P2,800,000
b. P3,000,000

3,500,000
500,000
1,200,000
2,300,000
2,500,000

c. P3,500,000
d. P5,400,000

18. Mara Company provided the following comparative information concerning its defined
benefit plan in its memorandum records:
January 1, 2005 December 31, 2005
Fair value of plan assets
10,000,000
11,500,000
Unamortized past service cost
1,500,000
1,350,000
Accrued benefit obligation
12,500,000
13,035,000
Unrecognized actuarial gain
1,700,000
1,620,000
The transactions for 2005 related to the defined benefit plan are:
Current service cost
Interest cost
Expected return on plan assets
Contribution to the plan
Benefits paid to retirees
Unexpected decrease in accrued benefit obligation
Amortization period of past service cost and actuarial gain
The actual return on plan assets in 2005 is
a. P1,200,000
c. P1,000,000
b. P1,905,000
d. P2,000,000

2,000,000
1,000,000
1,200,000
2,800,000
2,300,000
165,000
10 years

Page 5 of 8

19. Binalbagan Company obtains the following from its actuary on January 1, 2005?
Accrued benefit obligation
Market related asset value
Unrecognized net loss

9,000,000
10,000,000
1,500,000

During 2005, the actuary determined the current service and interest cost at
P4,000,000. The expected and actual return on plan assets was P1,000,000. The
average remaining service period of the covered employees is 10 years. What is the
total benefit expense for 2005?
a. P3,000,000
c. P3,150,000
b. P3,060,000
d. P3,050,000
20. Manapla Company computed a pretax financial income of P15,000,000 for the year
ended December 31, 2005. In preparing the tax return, the following differences are
noted between financial income and taxable income.
Nondeductible expense
Nontaxable revenue
Estimated warranty cost that was recognized as expense
in 2005 but deductible for tax purposes when paid
Excess tax depreciation over financial depreciation
What is the current tax expense for 2005 if the tax rate is 32%?
a. P5,440,000
c. P4,800,000
b. P5,600,000
d. P5,120,000

2,000,000
1,000,000
1,500,000
500,000

21. Matalam Company has one temporary difference at the end of 2005 that will reverse
and cause taxable amounts of P2,000,000 in 2006 and P3,000,000 in 2007. Matalams
pretax financial income for 2005 is P20,000,000 and the tax rate is 32%. There are no
deferred taxes on January 1, 2005. The income tax payable for 2005 should be
a. P4,800,000
c. P6,400,000
b. P5,760,000
d. P5,440,000
22. The accounts below appear in the December 31, 2005 trial balance of Dumaguete
Company:
Authorized common stock
30,000,000
Unissued common stock
5,000,000
Subscribed common stock
3,000,000
Subscription receivable
1,000,000
Additional paid in capital
10,000,000
Retained earnings unappropriated
6,000,000
Retained earnings appropriated
2,000,000
Revaluation surplus
4,500,000
Treasury stock, at cost
1,500,000
In its December 31, 2005 balance sheet , Dumaguete should report total equity at
a. P49,000,000
c. P43,500,000
b. P48,000,000
d. P58,000,000
23. The stockholders equity section of Norm Company revealed the following information
on December 31, 2005:
Preferred stock, P100 par
5,000,000
Additional paid in capital-preferred
2,000,000
Common stock, P50
3,200,000
Additional paid in capital-common
500,000
Subscribed common stock
800,000
Retained earnings-appropriated
250,000
Unrealized loss on available for sale securities
600,000
Subscription receivable-common
400,000
Retained earnings- unappropriated
3,500,000
Treasury stock
1,000,000

Page 6 of 8

How much is the contributed capital of Norm Company as of December 31, 2005?
a. P10,100,000
c. P11,100,000
b. P11,500,000
d. P10,500,000
24. Victorias Company reported the following in its statement of stockholders equity on
January 1, 2005:
Common stock, P50 par value, authorized 1,000,000 shares,
issued 500,000 shares
Additional paid-in capital
Retained earnings
Less: Treasury stock, at cost, 100,000 shares
Total stockholders equity

25,000,000
25,000,000
15,000,000
65,000,000
7,000,000
58,000,000

The following transactions occurred in 2005:

June 1
40,000 shares of treasury stock were sold for P3,200,000.
August 31
200,000 shares of previously unissued common stock were sold for
P120 per share.
October 1
Distribution of a 2-for-1 stock split, resulting in the common stocks per
share par value being halved.
Victorias accounts for treasury stock under the cost method. In Victorias Companys
statement of stockholders equity, the number of outstanding shares should be
a. 1,400,000
c. 1,280,000
b. 1,320,000
d. 2,280,000
25. On June 1, Mason Company issued 80,000 shares of its P10 par common stock to
Dixon for a tract of land. The stock had a fair market value of P18 per share on this
date. On Dixon's last property tax bill, the land was assessed at P960,000. Mason
should record an increase in Additional Paid-In Capital of
a. P960,000
c. P400,000
b. P640,000
d. P160,000
26. On August 1, 2005, B. Doran Company reacquired 4,000 shares of its P15 par value
common stock for P18 per share. What journal entry should Doran make to record the
acquisition of treasury stock?
a. Treasury Stock
60,000
Additional Paid-In Capital
12,000
Cash
72,000
b. Treasury Stock
60,000
Retained Earnings
12,000
Cash
72,000
c. Retained Earnings
72,000
Cash
72,000
d. Treasury Stock
72,000
Cash
72,000
27. Manjuyod Company was organized on January 1, 2003. On that date it issued 500,000
shares of its P10 par value common stock at P15 per share. During the period January
1, 2003 through December 31, 2005, Manjuyod reported net income of P3,000,000 and
paid cash dividends of P500,000. On January 5, 2005, Manjuyod purchased 50,000
shares of its common stock at P20 per share. On December 31, 2005, 45,000 treasury
shares were sold at P30 per share and retired the remaining treasury shares. What is
the total stockholders equity on December 31, 2005?
a. P10,250,000
c. P10,850,000
b. P10,500,000
d. P10,350,000

Page 7 of 8

28. In connection with a stock option plan for the benefit of key employees, Matanao
Company intends to distribute treasury shares when the options are exercised. These
shares were originally bought at P70 per share. On January 1, 2005, Matanao granted
stock options for 50,000 shares at P150 per share as additional compensation for
services to be rendered over the next two years. The options are exercisable during a
4-year period beginning January 1, 2007, by grantees still employed by Matanao.
Market price of Matanao stock was P200 per share at the grant date. The fair value of
each stock option is P60 on grant date. No stock options were terminated during 2005.
In Matanaos 2005 income statement, what amount should be reported as
compensation expense pertaining to the options?
a. P1,500,000
c. P1,250,000
b. P1,750,000
d. P 750,000
29. On January 1, 2005, Mabel Company established a fixed stock option plan for its senior
employees. At total of 200,000 options were granted that permit employees to purchase
200,000 shares of P50 par common stock at P100 per share. Each option had a fair
value of P42 on the grant date. Options are exercisable beginning January 1, 2008 and
can be exercised anytime during 2008. The market price for Mabel common stock on
January 1, 2005 was P130. What is the compensation expense for the year 2005?
a. P6,000,000
c. P2,000,000
b. P8,400,000
d. P2,800,000
30. On January 1, 2004, Bansalan Company offered its top management stock
appreciation right with the following terms:
Predetermined price
Number of shares
Service period
Exercise date

P100 per share

50,000 shares
3 years
January 1, 2007

The stock appreciation right is to be exercised on January 1, 2007. The quoted prices
of Bansalan Company stock are 100, 124, and 151 on January 1, 2004, December 31,
2004 and December 31, 2005, respectively. What amount should Bansalan charge to
compensation expense for the year ended December 31, 2005 as a result of the stock
appreciation right?
a. P1,700,000
c. P1,200,000
b. P1,300,000
d. P 500,000
31. Nabunturan Companys stockholders equity comprised of 50,000shares of P100 par
common stock, P2,000,000 of additional paid-in capital and retained earnings of
P1,500,000. Stock dividend of 10% was declared when the stock is selling for P120 per
share. What should be the total contributed capital immediately after the issuance of
the stock dividend?
a. P7,000,000
c. P7,600,000
b. P9,100,000
d. P7,500,000
32. Rex Company was organized on January 1, 2000. After 5 years of profitable
operations, the equity section of the balance sheet on December 31, 2004 was as
follows:
Common stock, P50 par, 1,000,000 shares authorized
400,000 shares issued and outstanding
20,000,000
Additional paid in capital
5,000,000
Retained earnings
10,000,000
On January 20, 2005, Rex Company reacquired 50,000 shares of common stock at
P100 per share. The treasury stock is recorded at cost. On March 1, 2005, the
company issued a 20% stock dividend. The market value of the stock is P100 on this
date. On June 30, 2005 the company declared a P5 cash dividend per share payable
on September 10, 2005. The company reported net income of P8,000,000 for the year
ended December 31, 2005. What should be the balance of retained earnings on
December 31, 2005?

Page 8 of 8

a. P16,250,000
b. P12,400,000

c. P11,850,000
d. P18,900,000

33. The following information pertains to Babak Company:

* Dividends on its 50,000 shares of 10%, P100 par value cumulative preferred
stock have not been declared or paid for 3 years.
* Treasury stock was acquired at a cost of P1,000,000 during the year. The treasury
stock had been reissued as of year-end.
What amount of retained earnings should be appropriated as a result of these items?
a. P1,500,000
c. P2,500,000
b. P1,000,000
d. P
0
34. The stockholders equity of Sunny Company on December 31, 2005, consists of the
following capital balances:
Preferred stock, 10% cumulative, 3 years in arrears, P100 par,
P110 liquidation price 150,000 shares
15,000,000
Common stock, P100 par, 200,000 shares
20,000,000
Subscribed common stock, net of subscription receivable of
P4,000,000
6,000,000
Treasury common stock, 50,000 shares at cost
4,000,000
Additional paid in capital
3,000,000
Retained earnings
20,000,000
The book value per share of the common stock is
a. P156.00
b. P190.00
c. P172.00

d. P286.67

35. Bindayan Company has incurred heavy losses since its inception. At the
recommendation of its president and CEO, the board of directors voted to implement
quasi-reorganization, through reduction of par value subject to stockholders approval.
Immediately prior to the restatement on December 31, 2005. Bindayan Companys
stockholders equity was as follows:
Common stock, P100 par 500,000 shares
Additional paid in capital
Retained earnings (deficit)

50,000,000
15,000,000
(10,000,000)

The stockholders approved the quasi reorganization on December 31,2005 to be

accomplished by a reduction in inventory of P2,000,000, a reduction in property, plant
and equipment of P6,000,000, and writeoff of goodwill at P5,000,000. To eliminate the
deficit, Bindayan should reduce common stock by
a. P23,000,000
c. P13,000,000
b. P10,000,000
d. P 8,000,000
- end of examination Good Luck