Junior Philippine Institute of Accountants

Polytechnic University of the Philippines

College of Accountancy and Finance
JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS
Sta. Mesa, Manila
MOCK SPECIAL QUALIFYING EXAMINATION
FINANCIAL ACCOUNTING AND REPORTING, P1&P2
Academic Year 2016-2017

GENERAL INSTRUCTIONS: Select the letter of the best answer by shading

properly on the answer sheet provided. Be honest, even if others are not,
even if others will not, and even if others cannot.
Theories (1 point)
1. According to Republic Act 9298, also known as Philippine Accountancy
Act of 2004, the FRSC shall be composed of
A.
A Chairman and 13 members
B.
A Chairman and 14 members
C.
A Chairman and 15 members
D.
A Chairman and 16 members
2. What
A.
B.
C.
D.
E.

are the components of Faithful Representation?

Completeness, Neutrality, Validity
Neutrality, Freedom from error, Comparability
Validity, Comparability, Clarity
Understandable, Independency, Clarity
Freedom from error, Completeness, Neutrality

3. The process of recognition requires assigning a value to the financial

statement element is called
A.
Realization
C.
Measurement
B.
Valuation
D.
Recording
4. This is one of the four measurement bases which is the discounted
future cash flows.
A.
Present Value
C.
Historical Cost
B.
Current Cost
D.
Realizable Value
5. Advances for employee travel should be reported as
A.
Accounts Receivable
C.
Travel Advance
B.
Defined Benefit Asset
D.
Prepaid Expense
6. The following are examples of credit memos except
A.
Notes collected by bank in favor of depositor
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Financial Accounting and Reporting, P1 & P2

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Junior Philippine Institute of Accountants

B.
Proceeds of bank loan credited directly to the account of the
depositor
C.
Drafts paid by bank in favor of depositor
D.
Interest earned on the companys checking account
7. Which of the following is not a reason for a bank to return a check to
the maker?
A.
The signature is missing
B.
The makers account has been closed
C.
The amount of the check is too small
D.
The check has been altered
8. Under the allowance method of recording cash discounts, sales
discounts are recorded
A.
Only when not taken within the discount period
B.
When the account is collected within the discount period
C.
When offered at the date of sale
D.
When the customer pays beyond the discount period
9. An impairment loss is recognize in profit and loss when
A.
There is objective evidence of impairment as a result of one or
more events that
occurred before the initial recognition
B.
There is objective evidence of impairment as a result of one or
more events that
occurred after the initial recognition
C.
The impact on the estimated present cash flow of the receivable
can be reliably
measures
D.
The impact on the estimated future cash flow of the receivable
cannot be reliably
measured
10.
A.
B.
C.
D.

Goods on consignment should be included in the inventory of

The consignee
The consignor
Both the consignor and the consignee
Whoever has the possession of the goods

11.
Bagwis Corporation regularly buys sweater from Alab Company
and is allowed a trade
discount of 20% and 10% from the list price.
Bagwis made a purchase on May 4, 2016,
and received an invoice with
a list price of P90, 000, a freight charge of P5, 000, and payment terms of
net of 30 days.
Which of the following is true?
A.
Bagwis Corporation should record accounts payable of P95, 000
B.
Good Available for Sale will increase by P68, 400
C.
Alab Company will record a freight charge for P5, 000
D.
Total cost of inventory purchase is P69, 800
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Financial Accounting and Reporting, P1 & P2

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Junior Philippine Institute of Accountants

12.
What is the title of IAS 16?
A.
Intangibles
B.
Receivables
Equipment

C.
D.

Inventory
Property,

Plant

and

13. It refers to the application of research findings or other knowledge to a

plan or design for
the production of new materials, devices, products,
process systems or services before
the start of commercial production
or use.
A.
Research
C.
Invention
B.
Development
D.
Reproduction
14.
Which is not part of cost of IAS 16?
A.
Cost of opening a new facility
B.
Professional fees
C.
Cost of testing wheter the assets is functioning properly, after
deducting the net
proceeed
from
selling
any
items
produced while bringing the asset to that location
and condition
D.
Initial delivery and handling costs.
15.
Which of the following assets does not have the characteristic of
exchangeability?
A.
Goodwill
C.
Patents
B.
Copyrights
D.
Franchise
16.
Statement 1 Cost of closing and obtaining title, escrows fees,
surveying costs, local
government
special
assessment taxes, and all other costs that are
not permanently improve the land are included in the cost of Land.
Statement 2 Water systems, sidewalks, driveways, parking lots and
landscaping are
separately reported under land
improvements account and depreciated
over their
estimated useful life.
A.
Both statements are correct
C.
Only Statement 2 is
correct
B.
Only Statement 1 is correct
D.
Both statements are
wrong
17.
A method that ignores salvage value in calculating periodic
depreciation expense is the
A.
Productive-output method
C.
Sum-of-the-years
digits method
B.
Group or Composite method
D.
Double
declining
balance method
18.

An impairment loss recognize in prior years should be recovered

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Financial Accounting and Reporting, P1 & P2

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Junior Philippine Institute of Accountants

A.
If and only if, there has no changes in the estimate used to
determine the assets
recoverable amount since the last
impairment loss was recognized.
B.
If there has been a changes in the estimate used to determine
the assets
recoverable amount since the beginning
of impairment loss was recognized.
C.
If and only if, there has been a changes in the estimate used to
determine the
assets recoverable amount since the last
impairment loss was recognized.
D.
If and only if there has no changes in the estimate used to
determine the assets
recoverable amount since the
beginning of impairment loss was recognized.
18.
I Evidence indicating that the economic performance of an
asset is, or will be, worse
than expected.
II Evidence of obsolescence or physical damage of an asset.
III Excess of the carrying amount of the net assets of the reporting
enterprise over its
market capitalization.
IV Significant changes in the technological, market, economic or legal
environment with
adverse effect on the enterprise.
V Significant changes in the extent or manner in which an asset is
used or is expected to
be used with adverse effect on the
enterprise.
Which of the following are internal source indicators that an asset may
be impaired?
A.
I, II, III
C.
I, III, IV
E. I, II, V
B.
II, III, IV
D.
II, III, V
19.
Which if the following is correct?
A.
An enterprise has control over an asset is it has the power to
obtain the future
economic benefits from the assets.
B.
Patent is a right granted to an author of literary, musical or
artistic work for the
publication, distribution and adaptation
of that work.
C.
Franchises are words, names, symbols, or other devices used in
trade to indicate
the source of a product and to distinguish
it from the product of others.
D.
As defined in IAS 16, Intangible Asset is an identifiable nonmonetary assets
without physical substance.
20.
Amortization of intangible asset shall begin
A.
When the asset is in the location and condition necessary for it to
be capable of
operating in the manner intended by
management.
B.
When the asset has been approved by the Intellectual Property
Office
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Financial Accounting and Reporting, P1 & P2

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Junior Philippine Institute of Accountants

C.
When the asset is placed in the market and basic advertisements
have been made.
D.
From the moment it was made and presented to the board or
management. The
board shall assess the number of years
to be amortized the intangible asset.
21.
The following are true about Goodwill except
A.
It is not subject to amortization
B.
It does not generate cash flows independent of other assets, as it
is specifically
identifiable
C.
It results from several factors such as high employee morale,
effective promotions
and other factors that contribute to
higher earnings for the enterprise
D.
It shall be tested for impairment at least annually, or more
frequently, if there is
an indication for impairment
22.
These are present obligation of an enterprise arising from the
past event, the settlement
of which is expected to result in an
outflow from the enterprise of resources embodying
economic
benefits.
A.
Liability
B.
Expenses C.
Cost
D.
Expenditures
23.
Ronald Co. has co-signed the mortgage note on the residential
house of its president
guaranteeing the indebtedness in the vent that
the president should default. Ronald considers the likelihood of the
default to be remote.
How should the guaranty be treated in Ronalds financial statements?
A.
Disclosed Only
C.
Accrued Only
B.
Accrued and Disclosed
D.
Neither Disclosed or Accrued
24.
A.
B.

Bonds maturing on a single date are called

Callable bonds
C.
Debenture Bonds
Serial Bonds
D.
Term Bonds

25.
Joseph Company failed to amortize discount on outstanding 10year bonds payable. What is the effect to the failure to record
amortization on interest expense, profit and bond carrying
value,
receptively?
A.
Understate, Overstate, Understate
B.
Overstate, Understate, Overstate
C.
Understate, Overstate, Overstate
D.
Overstate, Understate, Understate

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Financial Accounting and Reporting, P1 & P2

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Junior Philippine Institute of Accountants

26.
Jam Company declared a cash dividend on its ordinary shares in
April 2016, payable in
May 2016. Retained earnings would
A.
Increase on the date of declaration
B.
Not be affected on the date of declaration
C.
Not be affected on the date of payment
D.
Decrease on the date of payment
27.
The equal monthly rentals payments made by the lessee in an
operating lease should be
A.
Recorded partly as interest expense and party a reduction of
lease liability
B.
Recorded as rent expense
C.
Recorded as reduction of leases liability
D.
Allocated between interest expense and depreciation expense
28. The portion of the lease payments that is not fixed in amount but is
based on a factor other than just the passage of time such as percentage
of sales, amount of usage, price index, and the market rate of interest is
called
A.
Bargain Purchase Option
C.
Contingent Rent
B.
Variable Tend
D.
Executory Cost
29.
According to the National Internal Revenue Code, the corporation
is obliged to pay the
Bureau of Internal Revenue
A.
An income tax of 30% based on computed taxable profit or 2% of
gross income,
whichever is higher.
B.
An income tax of 20% based on computed taxable profit or 5% of
gross income,
whichever is higher
C.
An income tax of 30% based on computed taxable profit or 2% of
gross income,
whichever is lower
D.
An income tax of 20% based on computed taxable profit or 5% of
gross income,
whichever is lower
E.
An income tax of 25% based on computed taxable profit and 5%
of gross income
30. According to IAS 19, these are plans that define the benefit that
employees will receive at retirement based on a formula
A.
Funded plans
C.
Contributory plans
B
Defined contribution plans
D.
Defined benefit plans
Problems (2 points)
31.
Shields Company provided the following adjusted account
balances on December 31,
2015:
Cash
400, 000
Wages Payable
250, 000
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Junior Philippine Institute of Accountants

Taxes Payable
Inventories
Prepaid Rent
Mortgage Payable
Dividends Payable
Sinking Fund
Accounts Payable
Investment in Associate
Accounts Receivable
Short-term Investments

220, 000
600, 000
150, 000
1, 500, 000
150, 000
500, 000
240, 000
2, 000, 000
350, 000
550, 000

What amount should be reported as current assets on December 31,

2015?
A.
P 2, 050, 000
C.
P 2, 000, 000
B
P 4, 550, 000
D.
P 2, 400, 000
32.
Micka Company provided the following account balances on
December 31, 2015:
Bonds Payable
1, 000, 000
Accounts Receivable
200, 000
Notes Payable, due January 31, 2016
800, 000
Allowance for Doubtful accounts
Dividends Payable
Accounts Payable
Treasury Shares
Premium on Bonds Payable

50, 000
450, 000
2, 050, 000
250, 000
500, 000

What amount should be reported as current liabilities?

A.
P 3, 300, 000
C.
P 4, 800, 000
B.
P 3, 850, 000
D.
P 4, 850, 000
33.
The adjusted trial balance of Jonnel Company on December 31,
2015 included the following accounts:
Share Premium
500, 000
Treasury Shares, at cost
300, 000
Revaluation Surplus
1, 250, 000
Retained Earnings appropriated
1, 000, 000
Actuarial loss recognized through
other comprehensive income
250, 000
Share Capital
3, 000, 000
Cumulative translation adjustment credit
900, 000
Retained earnings unappropriated
2, 000, 000
What amount should be reported as total shareholders equity?
A.
P 6, 900, 000
C.
P 8, 100, 000
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Junior Philippine Institute of Accountants

B.

P 6, 300, 000

D.

P 7, 450, 000

34.
On December 31, 2015, Jorge Company had the following cash
balances:
Cash in bank
Petty cash fund
Time deposit (due January 31, 2016)

1, 500, 000
150, 000
300, 000

Cash in bank included P 400, 000 of compensating balances against

short-term borrowing
arrangement on December 31, 2015. The
compensating balance is legally restricted as to
withdrawal.
In
the
December 31, 2015 statement of financial position, what total amount
should be reported as cash and cash equivalents?
A.
P 1, 950, 000
C. P 1, 550, 000
B.
P 1, 800, 000
D. P 1, 400, 000
35. Russel Companys month-end bank statement showed a balance of P
3, 800, 000. Outstanding checks amounted to P 500, 000, a deposit of P
900, 000 was in transit at month-end, and a check for P 250, 000 was
erroneously charged by the bank against the
account. What is the
correct balance in the bank account at month-end?
A.
P 4, 950, 000
C.
P 4, 050, 000
B.
P 4, 450, 000
D.
P 3, 650, 000

36.
In reconciling the cash balance on December 31, 2015 with that
shown in the bank statement, the following facts are gathered from the
records of Klein Company:
Balance per bank statement
000
Balance per book
Outstanding checks
000
Deposit in transit
Service charge
000
Proceeds of bank loan, December 1 discounted
For 6 months at 12%, not recorded on Kleins books
000
Customers check charged back by bank for
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Financial Accounting and Reporting, P1 & P2

3,

850,

2, 650, 000
700,
495, 000
15,
960,

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Junior Philippine Institute of Accountants

Absence of counter signature

70,

000
Deposit of P150, 00 incorrectly recorded by bank as
15, 000
Check of Calvin Company charged by bank against
Klein account
160, 000
Customers note collected by bank in favor of Klein Company.
Face
400, 000
Interest
40, 000
Total
440, 000
Collection fee
10,
000
Erroneous debit memo of December 28, to charge
Klein account with settlement of bank loan
210,
000
Deposit of Calvin Company credited to Klein account
195,
000
What is the adjusted cash in bank on December 31, 2015?
A.
P 4, 275, 000
C.
P 3, 955, 000
B.
P 4, 140, 000
D.
P 3, 885, 000
37.
Ericka Company provided the following information relating to
current operations:
Accounts receivable, January 1
P 3, 500, 000
Accounts receivable collected
7, 445, 000
Cash Sales
2, 565, 000
Inventory, January 1
6, 215, 000
Inventory, December 31
5, 985, 000
Purchases
7, 770, 000
Gross margin on sales
3, 675, 000
What is the balance of accounts receivable on December 31?
A.
P 5, 165, 000
C.
P 4, 950, 000
B.
P 5, 075, 000
D.
P 4, 825, 000
38.
Locre Company started business on January 1, 2015. After
considering the collection experience of other entities in the industry, the
entity established an allowance for
doubtful accounts estimated at 5%
of credit sales. Outstanding accounts receivable recorded on December
31, 2015 totaled P 460, 000, while the allowance for doubtful accounts
has a credit balance of P 50, 000 after recording estimated doubtful
account expense for December and after writing-off P 10, 000 of
uncollectible accounts. Further analysis
showed
that
merchandise
inventory was P 300, 000. Goods were sold at 40%
above cost. The
total sales comprised 80% sales on account and 20% cash sales. Total
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Junior Philippine Institute of Accountants

collections from customers, excluding cash sales, amounted to p 1,
200, 000. What is the
effect of the transactions on the accounts
receivable and allowance for doubtful accounts, respectively?
A.
B.
C.
D.

10, 000 understated

20, 000 understated
330, 000 understated
330, 000 understated

24,
34,
40,
50,

000
000
000
400

understated
understated
understated
understated

39.
Mervryl Company assigned P 6, 000, 000 of accounts receivable
as collateral for a
P 3, 500,000 with a bank loan of 10%. The entity also paid the finance
fee of 5% on the
transaction upfront. What amount should be recoded
as a gain or loss on the transfer of
accounts receivable?
A.
354, 872 loss
C.
236, 979 gain
B.
281, 395 gain
D.
0
40.
On April 30, 2015, John Paul Company sold goods for P 20, 000,
000 and accepted the
customers 12% one-year note in exchange.
The 12% interest rate approximately the
market return. What amount
should be reported as interest income for the year ended
December
31, 2015?
A.
P 1, 833, 000
C.
P 1, 600, 000
B.
P 1, 800, 000
D.
P 1, 333, 000
41.
Clark Company sold one of its factories on January 1, 2015 for
P8, 000, 000. The entity received a cash down payment of P 1, 500, 000
and a 4-year, 12% note for the balance.
The notes payable in equal
annual payments of principal and interest of P 1, 975, 400
payable on
December 31 of each year until 2018. What is the carrying amount of the
note
receivable on December 31, 2015?
A.
P 6, 205, 600
C.
P 5, 614, 600
B.
P 5, 915, 600
D.
P 5, 304, 600
42.
Cedrec Company incurred the following costs in relation to a
certain product:
Direct materials and labor
180, 000
Variable production overhead
25, 000
Factory administrative costs
15, 000
Fixed production costs
20, 000
What is the correct measurement of the product?
A.
240, 000
C.
205, 000
B.
225, 000
D.
195, 000
43. Honey Company provided the following for the current year:
Central Held
by
warehouse Consignees
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Junior Philippine Institute of Accountants

Beginning inventory
Purchases
Freight in
Transportation
consignees
Freight out
Ending inventory

1, 890, 000
3, 475, 000
150, 000

210, 000
775, 000

to

75, 000
300, 000
1, 450, 000

What is the cost of sales for the current year?

A.
P 4, 715, 000
B.
P 4, 560, 000

80, 000
565, 000
C.
D.

P 4, 365, 000
P 4, 150, 000

44.
Kate Company sold merchandise for P 800, 00 on December 31,
2015. The terms of the
sale state that payment is due in one years
time. The imputed rate of interest is 9%. What
amount
of
sales
revenue be recognized?
A.
872, 000
C.
800, 000
B.
733, 600
D.
712, 400
45.
Tricia Company has a herd of 10 2-year old animals on January 1,
2015. One animal aged
2.5 year was purchased on July 1, 2015 for
P108, and one animal was born on the same
day. No animals were
sold or disposed of during the year. The fair value less cost of disposal
per unit is as follows:
2 year old animal on January 1
100
2.5 year old animal on 1uly 1
108
New born animal on July 1
70
2 year old animal on December 31
105
2.5 year old animal on December 31
111
New born animal on December 31
72
3 year old animal on December 31
120
0.5 year old animal on December 31
80
What is the gain from change in fair value due to price and physical
change, respectively?
A.
292 and 55
C.
237 and 292
B.
55 and 292
D.
55 and 237
46.

Tan Company provided the following net income and inventory:

2014
2015
Net income using LIFO
2, 750, 000 3, 000, 000
Year-end inventory FIFO
1, 400, 000 2, 000, 000
Year-end inventory LIFO
900, 00
1, 600, 00
What is the net income for 2015 using the FIFO cost flow?
A.
P 2, 900, 000
C.
P 3, 300, 000
B.
P 3, 100, 00
D.
P 3, 500, 000

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Financial Accounting and Reporting, P1 & P2

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Junior Philippine Institute of Accountants

47. On December 31, 2015, Katrina Companys ending inventory was P 3,
000, 000, and the
allowance for inventory write down before ant
adjustment was P 150, 000. Relevant information on December 31, 2015
follows:
Product
Product 2 Product 3 Product 4
1
Historical cost
800, 000
1, 000,
700, 000
500, 000
000
Sales price
1, 200,
1, 300,
1, 250,
1, 000,
000
000
000
000
Normal profit
250, 000
150, 000
300, 000
300, 000
Replacement cost
900, 000 1, 200, 00
1, 000,
600, 000
000
Net
realizable 550, 000
1, 100,
950, 000
350, 000
value
000
What amount of loss on inventory write down should be included in cost of
goods sold?
A.
100, 000
C.
400, 000
B.
250, 000
D.
500, 000
48. Joyce Company provided the following information:
June
July
August
Sales on account
7, 200, 000
7, 360, 000 7, 600, 000
Cash sales
720, 000
800, 000 1, 040, 000
All merchandise is marked up to sell at invoice cost plus 20%.
Inventory at the beginning
of each month is 30% of that months
cost of goods sold. What is the amount of purchases for July?
A.
P 6, 528, 000
C.
P 8, 304, 000
B.
P 6, 800, 000
D.
P 6, 920, 000
49. Kevin Company is provided a grant by a foreign government for the
purpose of acquiring
land for a building site. The grant is a zerointerest loan for 5 years evidence by a
promissory note. The loan
was granted on January 1, 2015 for P 8, 000, 000. The market
rate
of interest is 6%. What is the carrying amount of note payable on
December 31, 2016?
A.
P 8, 000, 000
C.
P 6, 717, 330
B.
P 6, 787, 040
D.
P 6, 337, 104
50. On February 1, 2016, Kate Company purchased a parcel of land as a
factory site for
P 1, 000, 000. An old building on the property was demolished and
construction began on
a new building which was completed on
November 1, 2016. Other costs incurred were as follows:
Demolition of old building
100, 000
Architect fee
175, 000
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Junior Philippine Institute of Accountants

Legal fee for title investigation and purchase contract 25, 000
Construction cost
5, 450, 000
Salvaged materials resulting from demolition
50, 000
What amount should be recorded as cost of land and cost of building,
respectively?
A.
1, 125, 000 and 5, 575, 000
C.
1, 100, 000 and
5, 650, 000
B.
1, 075, 000 and 5, 625, 000
D.
1, 050, 000 and
5, 450, 000
51. Tricia Company provided the following:
Total cost
Residual
Estimated
value
life
Machine A
5, 500, 000
500, 000
20
Machine B
2, 000, 000
200, 000
15 The
Machine C
400, 000
5
entity computed depreciation on the straight line method. What is the
composite life of the assets?
A.
13.3 years B.
16 years
C.
18 years
D.
19.8 years
52. Bolaos Company purchase a machine on January 1, 2015 for P 8,
100, 000. The
useful
life of the machine is estimated at 3
years with the residual value at the end of
this period of P600, 000.
During its useful life, the expected units of production are 12000
units
in 2015, 7000 units in 2016, and 5000 units in 2017. What is the depreciation
expense for 2014 using the most appropriate depreciation method?
A.
P 2, 700, 000
C.
P 3, 750, 000
B.
P 2, 187, 500
D.
P 2, 500, 000
53. Dorias Co. reported the following operating income (loss) for its first
three years of
operations:
2013
2014
2015

P 300, 000
(700, 000)
1, 200, 000

For each year, there were no deferred income taxes, and Dorias
effective income tax rate
was 30%. In its 2014 income tax return, Dorias
elected to carry back the maximum amount
of loss possible. Additionally,
there was more negative evidence than positive evidence concerning
profitability for Dorias in 2015. In its 2015 income statement, what amount
should Dorias report as total income tax expense?
A.
P 120, 000
C.
P 240, 000
B.
P 150, 000
D.
P 360, 000
54. Camille Corporation incurred the following costs in 2012:
Acquisition of R&D equipment with a useful
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Junior Philippine Institute of Accountants

life of 4 years in R&D projects
P
600,000
Start-up costs incurred when opening a new plant
140,000
Advertising
expense
to
introduce
a
new
product
700,000
Engineering costs incurred to advance a product
to full production stage (economic viability not achieved)
400,000
What amount should Camille record as research & development expense
in 2012?
A.
P 550, 000
C.
P 1, 000, 000
b.
P 740, 000
D.
P 1, 140, 000
55.
Ryan company has the following information related to its
warranty obligation:
In year 2012, goods are sold for P10,000,000. Experience indicates
that 90% of the
products sold require no warranty repairs; 6% of
products sold require minor repairs costing 30% of the sales price; and
4% of products sold require major repairs or
replacement
costing
70% of sales price.
The expenditures for warranty repairs and
replacements for products sold in 2010 are expected to be made 60%
in 2013, 30% in
2014 and 10% in 2015, in each case at the end of the
period. Because the cash flows
already reflect the probabilities of
the cash flows, and assuming there are no other risks or uncertainties
that must be reflected, to determine the present values of those cash
flows the entity uses a risk free discount rate based on government
bonds with the
same term as expected cash flows (6% for one-year
bonds and 7% for two-year and threeyear bonds). What amount
of provision on warranty should Ryan Company report in its statement
of financial position for the year ended December 31, 2012?
A.
P 418, 457
C.
P 260, 378
B.
P 380, 907
D.
P 120, 529
56. Stephanie Company owes P 1, 998, 000 to Kim, Inc. The debt is a 10year, 11% note.
Because Stephanie Company is in financial
trouble, Kim, Inc. agrees to accept some
property and cancel the
entire debt. The property has a book value of P800, 000 and fair
market value of 1, 200, 000. What amount of gain or loss on the
settlement of the liability should Stephanie Company recognize?
A.
P--0
C.
P 798, 000
B.
P 400,
000
D.
P 1, 198, 000

Mock Special Qualifying Examination

Financial Accounting and Reporting, P1 & P2

| 14

Junior Philippine Institute of Accountants

57. Jeffrey Company is experiencing financial difficulty and is negotiating
trouble debt restructuring with its creditors to relieve its financial stress.
Jeffrey has a P3, 000, 000 note payable to Sheena.
The bank is
considering acceptance of an equity interest in
Jeffrey Company in the
form of 200, 000 ordinary shares with a fair value of P12 per share. The
par value of the ordinary share is P10 per share. Jeffrey Company
incurred total transaction costs of P80, 000 related to the issue of shares.
What is the amount of
share premium to be reported by Jeffrey in its
statement of financial position as a result
of the restructuring applying
IFRIC 19?
A.
P 320, 000
C.
P 920, 000
B.
P 400, 000
D.
P 1, 000, 000
58. Kelvin Company grants 150 share options to each of its 500
employees on January 2, 2010, and exercisable starting December 31,
2012 for a 2-year period. Each grant is
conditional
upon
the
employee working for the entity over the next three years. Kelvin
estimates that the fair value of each option is P40. On the basis of
weighted average probability, the entity estimates that 20% of the
employees will leave during the three- year period and forfeit their rights
to the share options. During the year 2010, 20
employees leave and
Kelvin Company still believes that 20% is a fair estimate of
employee
departures. During 2011 a further 22 employees leave. Due to the low
turnover as if December 31, 2011, Kelvin revises its estimates of
employee departures over
the three-year period from 20% to 15%.
During 2012, a further 18 employees leave. What is the compensation
expense to be recognized by Kelvin Company for the share options in
2012?
A.
P 800, 000
C.
P 980, 000
B.
P 940, 000
D.
P 1, 700, 000
59. The Miracle Company leased some plant and machinery for 10 years,
its useful life, with effect from January 1, 2012. At that date the fair
value of the plant and machinery was P 490, 000. Annual rentals of P 70,
000 are payable in advance on 1 January and the interest rate implicit in
the lease is 9%. What is the total lease liability which Miracle should
recognize in its statement of financial position at December 31, 2012,
according
to PAS 17?
A.
P 94, 850
C.
P 425, 600
B.
P 350, 500
D.
P 457, 800
60. On December 31, 2011, Raven Company has 200,000 ordinary shares
outstanding with a par value of P100 per share. Information revealed
that Raven had a 9% convertible
debenture, P1, 000,000 face value
bonds. The bond has a carrying value of P1, 067,830
as of January 2,
2011 based on a prevailing rate of 7%. Each 1,000 bond is convertible into
Mock Special Qualifying Examination
Financial Accounting and Reporting, P1 & P2

| 15

Junior Philippine Institute of Accountants

20 ordinary shares. The bonds were dated January 1, 2011. Net
income after tax of 32% for 2011 was P418, 000. How much should
Raven Company report as earnings per share
in
its
financial
statements?
A.
P1.90
C.
P 2.13
B.
P2.09
D.
P 2.89
61. Home Company reported the following amounts in the stockholders
equity section of its balance sheet dated December 31, 2011:
Preference share capital (P150 par value, 20,000 shares)
3,
000, 000
Ordinary share capital (P37.50 par value, 100,000 shares)
3,
750, 000
Share premium reserve
6,000,000
Accumulated profits
4, 500,
000
Treasury stock, at cost (5, 000 ordinary shares)
250,
000
On January 2, 2012, Home sold 20, 000 additional shares of ordinary
share for P90 per
share. Late in 2012, it was learned that because of
mathematical error, an overstatement
of depreciation expense by
P375, 000 had occurred in 2005. Home reported net income of
P825,
000 for 2012. Home declared cash dividends of P150, 000 on preference
share
and P450, 000 on the ordinary share during 2012. All the
treasury shares were re-issued for P35 per share on December 31, 2012.
What should be the accumulated profits balance on
December
31,
2011?
A.
P 4, 500, 000
C.
P 4, 875, 000
B.
P 4, 905, 000
D.
P 5, 025, 000
Use the following information for the next two questions.

On March 1, 2012, Ponytail Corporation purchased 8% P30, 000, 000

bonds of Totoy
Company when the market interest in purchasing this
type of bonds was 11% without incurring any cost. The bonds pay
interest annually every December 31 and mature on
December 2016.
As one of the few entities who early adopted the revised standard for
financial instruments, the company opted not to use the fair value
option for debt
instruments under PFRS 9 after meeting the
requirements in measuring the financial asset
at
amortized
cost.
Transaction costs incurred by Ponytail Corporation amounted to
P1,
024, 904. The market rate at December 31, 2012 for this type of
instrument was 9%.

Mock Special Qualifying Examination

Financial Accounting and Reporting, P1 & P2

| 16

Junior Philippine Institute of Accountants

62.
Determine the amount of amortized of transaction costs
recognized in 2012s statement of comprehensive income.
A.
P 134, 628
C.
P 890, 276
B.
P 161, 554
D.
P 2, 792, 204
63. Assuming the fair value option was used at initial recognition of the
financial instrument,
how much is the net increase in comprehensive
income in 2012?
A.
P 2, 795, 346
C.
P 3, 329, 496
B.
P 3, 863, 646
D.
P 3, 240, 471
64. The memorandum records of Revised Inc. for its defined benefit plan
show the following balances:
Plan asset, January 1, 2014
P
5,000, 000
Defined benefit obligation, January 1, 2014
5,200,000
2014 information:
Current service cost
750,000
Market yields on government bonds at year - end
10%
Contributions made
1,800,000
Benefits paid
480,000
Past service cost as a result of plan amendment
2,300,000
Plan asset, at fair value, December 31, 2014
8,000,000
Defined benefit obligation, re-measured, December 31, 2014

8,350,000
The fair value of Plan asset at year end includes the unpaid
contributions due from the
Revised Inc. to the fund, as well as the
non-transferable FVPL issued by the Revised Inc. and held by the fund
amounting to P700,000 and P300,000, respectively. Determine the
amount recognized in profit or loss in accordance with revised PAS 19
Employee
Benefits.
A.
P 3, 050, 000
C.
P 3, 570, 000
B.
P 3, 070, 000
D.
P 2, 300, 000
65.

1.
2.

BONUS!

ANSWER SHEET

17.
18.

Mock Special Qualifying Examination

Financial Accounting and Reporting, P1 & P2

33.
34.

49.
50.
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Junior Philippine Institute of Accountants

3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.

19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.

35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.

51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.

Prepared by:
Mervryl D. Mercado
Vice President for Academic Affairs
Academic Year 2016 2017

Mock Special Qualifying Examination

Financial Accounting and Reporting, P1 & P2

| 18