Financial Accounting and Reporting Mock Board 2022

1. Which statement is incorrect?

a. The BOA is composed of a chairman and six members appointed by the President of the Philippines.
b. The Chairman and members of FRSC are appointed by the PRC upon the recommendation of the BOA in coordination with
the accredited professional organization of CPAs.
c. The principal objective of the Philippine Interpretations Committee is to issue implementation guidance of PFRSs.
d. The PICPA is the accounting standard setting body in the Philippines.

2. Which statement is correct regarding the accounting process?

a. An adjusted trial balance that shows equal debit and credit columnar totals proves the accuracy of the adjusting entries.
b. The trial balance is a listing of all accounts and their balances in the order the accounts appear on the statement of financial
position.
c. Reversing entries are made at the end of the accounting cycle to correct errors in the original recording of transactions.
d. Each adjusting entry affects one statement of financial position account and one income statement account.

3. The following errors were made in preparing a trial balance: the P1,350 balance of Inventory was omitted; the P450 balance of
Prepaid Insurance was listed as a credit; and the P300 balance of Salaries Expense was listed as Utilities Expense. The debit and
credit totals of the trial balance would differ by

a. P1,350 c. P1,800
b. P2,100 d. P2,250

Use the following information for the next five questions.

Presented below is the statement of financial position of Smile Corporation prepared by the chief accountant for the current year,
2021.

Smile Corporation
Statement of Financial Position
December 31, 2021

Current Assets P435,000 Current Liabilities P330,000

Investments 640,000 Long-term Liabilities 1,000,000
PPE 1,720,000 Shareholders’ Equity 1,770,000
Intangible Assets 305,000
Total P3,100,000 Total P3,100,000

Consider the following information:

 The current assets section includes: cash P100,000, accounts receivable P170,000 less P10,000 for allowance for doubtful
accounts, inventories P180,000, and unearned revenue P5,000. The cash balance is composed of P114,000, less a bank
overdraft of P14,000. Inventories are stated on the lower of FIFO cost or market.
 The investments section includes: the cash surrender value of a life insurance contract P40,000; investment in ordinary
shares, short-term (trading) P80,000 and long-term (available-for-sale) P270,000; and bond sinking fund P250,000. The cost
and fair value of investments in ordinary shares are the same.
 PPE includes: buildings P1,040,000 less accumulated depreciation P360,000; equipment P450,000 less accumulated
depreciation P180,000; and land held for future use P270,000.
 Intangible assets include: a franchise P165,000; goodwill P100,000; and discount on bonds payable P40,000.
 Current liabilities include: accounts payable P90,000; notes payable – short-term P80,000 and long-term P120,000; and taxes
payable P40,000.
 Long-term liabilities are compose solely of 10% bonds payable due 2027.
 Shareholders’ equity has; preference shares, no par value, authorized 200,000 shares, issued 70,000 shares for P450,000; and
ordinary shares, P1.00 par value, authorized 400,000 shares, issued 100,000 shares at an average price of P10. In addition, the
corporation has retained earnings of P320,000.

Compute the adjusted amounts to be reported on the company’s statement of financial position as of December 31, 2021:

4. Current assets

a. P548,000 c. P588,000
b. P574,000 d. P534,000

5. Noncurrent investments

a. P830,000 c. P560,000
b. P520,000 d. P790,000

6. PPE

a. P1,720,000 b. P1,885,000
Financial Accounting and Reporting Mock Board 2022

c. P1,615,000 d. P1,450,000

7. Total assets

a. P2,814,000 c. P3,079,000
b. P2,979,000 d. P3,093,000

8. Current liabilities

a. P224,000 c. P210,000
b. P229,000 d. P215,000

9. When an entity applies an accounting policy retrospectively, it shall present, as a minimum

a. Three complete sets of financial statements
b. Three statements of financial position and cash flows, two each of the other statements and related notes.
c. Three statements of financial position and statement of comprehensive income, two of each of the other statements, and
related notes.
d. Three statements of financial position, two of each of the other statements, and related notes.

10. Which statement is true according to PAS 10 Events after the reporting period?
a. A decline in the market value of investments would normally be classified as an adjusting events.
b. The settlement of a long-running court case would normally be classified as a non-adjusting event.
c. Notes to the financial statements should give details of all material adjusting events included those in the financial
statements.
d. Notes to the financial statements should give details of material non-adjusting events which could influence the economic
decision of users.

11. Changes in economic resources and claims not resulting from financial performance are reported in
a. Statement of financial position
b. Statement of Profit or Loss and Other comprehensive income
c. Statement of cash flows
d. Statement of changes in equity

Use the following information for the next three questions.

The differences in Nika Inc.’s statement of financial position accounts at December 31, 2021 and 2020, are presented below

Assets Increase (Decrease)

Cash and cash equivalents P120,000
Available-for-sale securities 300,000
Accounts receivable, net
Inventory 80,000
Long-term investments (100,000)
PPE 700,000
Accumulated Depreciation
P1,100,000
Liabilities and Equity
Accounts payable and accrued liabilities P(5,000)
Dividends payable 160,000
Short-term bank debt 325,000
Long-term bank debt 110,000
Share capital, P10 par 100,000
Share premium 120,000
Retained earnings 290,000
P1,100,000

The following additional information relates to 2021:

 Net income was P790,000.
 Cash dividends of P500,000 were declared
 Building costing P600,000 and having a carrying amount of P350,000 was sold for P350,000.
 Equipment costing P110,000 was acquired through issuance of long-term debt
 A long term investment was sold for P135,000. There were no other transactions affecting long-term investments.
 10,0000 ordinary shares were issued for P22 a share.

Determine the net cash provided by (used in)

12. Operating activites

a. P1,160,000 b. P1,040,000
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c. P920,000 d. P705,000

13. Investing activities

a. P(1,115,000) c. P(515,000)
b. P(1,005,000) d. P(215,000)

14. Financing activites

a. P(280,000) c. P205,000
b. P45,000 d. P545,000

15. The following pertains to Mira, Inc. on December 31 of the current year: Checking account balance P925,000; an overdraft in
special checking account at same bank as normal checking account of P17,000; certificate of deposit P400,000; cash held in a
bond sinking fund P200,000; postdated check from customer P11,000; certified check from customer P9,800; NSF check received
from customer P15,000; cash advance to subsidiary of P300,000; postage stamps on hand P620; utility deposit paid to electric
company P8,000; currency and coins in a petty cash fund (the company has not replenished the fund to the imprest amount of
P5,000) P800. The correct amount that should be reported as cash is

A. P908,800 C. P1,318,600
B. P918,600 D. P1,322,800

16. If the petty cash fund is established in the amount of P2,500, and contains P2,000 in cash and P450 in receipts for disbursements
when it is replenished, the journal entry to record replenishments should include credit to the following accounts

a. Petty cash, P450 c. Cash, P450; Cash over and short, P50
b. Petty cash, P500 d. Cash P500

17. A company has prepared its bank reconciliation at March 31, 2021taking the following information into account:

Deposit in transit P1,500

Outstanding checks 2,800
Bank charges shown in the bank statement but not recorded in the cash book 125
The adjusted cash book balance per the bank reconciliation was a debit balance of P2,060.
What was the cash balance as shown on the bank statement at March 31, 2021?

a. P760 c. P3,360
b. P885 d. P3,485

18. X Corporation started its business on January 1, 2021. After considering the collections experience of other companies in the
industry, X Corporation established an allowance for bad debts estimated to be 5% of credit sales.

Further analysis of the company’s accounts showed that merchandise purchased in 2021 amounted to P2,250,000 and ending
merchandise inventory was P375,000. Goods were sold at 40% above cost.

80% of total sales were on account. Total collections from customers, on the other hand, excluding proceeds from cash sales,
amounted to P1,500,000. Accounts written off during 2021 totaled P12,500.

The NRV of accounts receivable as of December 31, 2021 is

a. P495,000 c. P512,500
b. P993,750 d. P875,000

19. AA Company accepted a P10,000, 2% interest-bearing note from BB Company on December 31, 2021, in exchange for a
machine with a list price of P8,000 and a cash price of P7,500. The note is payable on December 31, 2023. In its 2021 income
statement, AA Company should report the sale at

a. P7,500 c. P8,000
b. P10,000 d. P10,400

20. MM Co. purchased from NN Company a P20,000, 8% five-year note that required five equal annual year-end payments of
P5,009. The notes was discounted to yield a 9% rate to MM. What should be the total interest revenue earned by MM over the life
of this note?

a. P5,045 c. P10,018
b. P5,561 d. P8,000
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21. On December 31, 2020, BB Company entered into a debt restructuring agreement with CC Company, which was experiencing
financial difficulties. BB restructured a P100,000 note receivable as follows:
 Reduced the principal obligation to P70,000
 Forgave P12,000 of recorded accrued interest
 Extended the maturity date from December 31, 2020 to December 31, 2022.
 Reduced the interest rate from 125 to 8%. Interest was payable annually on December 31, 2021 and 2022.
PV factors:
Single sum, two years @ 8% 0.8573
Single sum, two years @ 12% 0.7972
Ordinary annuity, two years @ 8% 1.7833
Ordinary annuity, two years @ 12% 1.6901

In accordance with the agreement, CC made payment to BB on December 31, 2021. How much interest income should BB report
for the year ended December 31, 2021?

a. P46,731 c. P8,100
b. P5,600 d. P7,832

22. In your review of HH Company, you find that a physical inventory on December 31,2021, showed merchandise with a cost of
P441,000 was on hand at that date. You also discover the following items were all excluded from the P441,000.
 Merchandise of P61,000 which was held by HH on consignment. The consignor is KK Company.
 Merchandise costing P38,000 which was shipped by HH FOB Destination to a customer on December 31,2021. The
customer was scheduled to receive the merchandise on January 2, 2022.
 Merchandise costing P46,000 which was shipped by HH FOB Shipping Point to a customer on December 29, 2021. The
customer was scheduled to receive the merchandise on January 2, 2022.
 Merchandise costing P83,000 shipped by a vendor FOB destination on December 30, 2021, and received by HH on January
4, 2022.
 Merchandise costing P51,000 shipped by a vendor fob seller on December 31, 2021, and received by HH on January 5, 2022.

The adjusted cost of HH Company’s inventory at December 31, 2021 should be

a. P538,000 c. P479,000
b. P530,000 d. P441,000

23. Which statement is incorrect regarding a biological asset?

a. It is a living animal or plant within the scope of PAS 41.
b. It is presented in the statement of financial position as part of the line item property, plant and equipment.
c. Produce growing on bearer plants is a biological asset.
d. It is measured on initial recognition and at subsequent reporting dates at fair value less costs to sell, unless fair value cannot
be reliably measured.

24. On August 15, 2021, a typhoon damaged a warehouse of Ichi Merchandising Company. The entire inventory and many
accounting records stored in the warehouse were completely destroyed. Although the inventory was not insured, a portion could
be sold for scrap. Through the use of the remaining records, the following data are assembled:

Inventory, January 1 P375,000

Purchases, January 1 – August 15 1,385,000
Cash sales, January 1 – August 15 225,000
Collection of accounts, January 1 – August 15 2,115,000
Accounts receivable, January 1 175,000
Accounts receivable, August 15 Salvage value of inventory 265,000
Salvage value of inventory 5,000
Gross profit percentage on sales 32%

Compute the inventory loss as a result of the typhoon.

a. P107,600 c. P102,600
b. P104,200 d. P255,600

25. Martha Company sold a tract of land to Mosh Co. on July 1, 2017, for P8,000,000 under an installment sale contract. Mosh Co.
signed a 4-year 11% note for P5,600,000 on July 1, 2017, in addition to the down payment of P2,400,000. The equal annual
payments of principal and interest on the note will be P1,805,000 payable on July 1, 2018, 2019, 2020, and 2021. The land had an
established cash price of P8,000,000, and its cost to the company was P6,000,000. The collection of the installments on this note
is reasonably assured.
The current portion of the installment receivable on December 31, 2018 is

a. P1,805,000 c. P1,319,790
b. P1,400,000 d. P1,189,000
Financial Accounting and Reporting Mock Board 2022

26. In accordance with the revised PAS 19, which of the following is reported in profit or loss?

a. Actuarial loss on defined benefit obligation c. Interest on the effect of asset ceiling
b. Actuarial gain on plan assets d. Gain or loss on routine settlements

27. For a given year, beginning and ending total liabilities were P168,00 and P200,000, respectively. At year-end owners’ equity was
P520,000 and total assets were P40,000 larger than at the beginning of the year. If new share capital issued exceeded dividends by
P48,000, profit or (loss) for the year was

a. (P56,000) c. (P40,000)
b. P56,000 d. P8,000

28. Under PAS 24, all of the following are considered to be NOT necessarily related parties of the reporting entity, except

a. Post-employment benefit plans c. Public utilities

b. Providers of finance d. Trade unions

29. If revenues from transactions with a single external customer amount to 10% or more of an entity’s revenues, the entity shall
disclose
a. The identity of a major customer
b. The amount of revenues that each segment reports from a major customer
c. Both a and b
d. Neither a nor b

30. Which statement is incorrect regarding interim financial in accordance with PAS 34?
a. This standard does not mandate which entities should be required to publish interim financial reports.
b. The IASB encourages publicly traded entities to provide interim financial reports at least at the end of the half year and
within 45 days of the of the interim period.
c. The year-end financial statements’’ compliance with PFRS is not affected even if an entity does not prepare interim financial
reports.
d. Measurements of interim reporting purposes shall be made on a year-to-date basis.

31. Boy Company floated a serial bond issue in 2016. Details of the issue are as follows:

Total amount P5,000,000

Date issue October 2, 2018
Proceeds from issue P4,900,000
Interest rate 5% per annum
Interest payment date October 1
Maturity date P1,000,000 annually, starting October 1, 2020

Using the bond outstanding method of amortizing discount, compute the interest expense to be recognize for the year ended
December 31, 2020.

a. P237,500 c. P273,750
b. P257,500 d. P261,250

32. On July 1, 2014 Yam Corporation issued for P960,000 one thousand of its 9 percent, P1,000 bonds. The bonds are dated July 1,
2014, and mature on July 1, 2024. Interest is payable semiannually on January 1 and July 1. Yam uses the straight-line method of
amortizing bond discount. On July 1, 2020, Yam reacquired all of the bonds at 101 and retired them. How much loss should Yam
report on this early extinguishment of debt for the year ended December 31, 2020?

A. P50,000 C. P26,000
B. P34,000 D. P10,000

33. On December 31, 2020, Joy Company purchased equipment from Nika Corp. and issued noninterest-bearing note requiring
payment of P50,000 annually for ten years. The first payment is due on December 31, 2020, and the prevailing rate of interest for
this type of note at the date of issuance is 12%. The interest expense to be reported by Joy in its 2021 income statement is

A. P37,969 C. P30,301
B. P31,969 D. P27,901

34. Lyla, Inc. is preparing its financial statements for the year ended December 31, 2021. Accounts payable amounted to ₱360,000
before any necessary year-end adjustment related to the following:
Financial Accounting and Reporting Mock Board 2022

 At December 31, 2021, Lyla has a ₱50,000 debit balance in its accounts payable to Rose, a supplier, resulting from a ₱50,000
advance payment for goods to be manufactured to Lyla’s specifications.
 Checks in the amount of ₱100,000 were written to vendors and recorded on December 29, 2021. The checks were mailed on
January 5, 2022.

What amount should Lyla report as accounts payable in its

December 31, 2021 balance sheet?

a. ₱510,000 c. ₱310,000
b. ₱410,000 d. ₱210,000

35. Lebong Corporation is the defendant in a breach of patent lawsuit. Its lawyers believe there is a 70% chance that the entity will
successfully defend the case. However, if the court rules in favor of the claimant, the lawyers believe that there is 60% chance that
the entity will be required to pay damages of P2,000,000 (the amount sought by the claimant) and a 40% chance that the entity
will be required to pay damages of P1,000,000 (the amount that was recently awarded by the same judge in a similar case). Other
amount of charges are unlikely.
The court is expected to rule in late December of the following year. There is no indication that the claimant will settle out of
court.
A 7% risk adjustment factor to the cash flows is considered appropriate to reflect uncertainties in the cash flow estimates. An
appropriate discount rate of 5%.
How much should the entity recognize as provision for damages at the end of the current year?

a. P1,500,000 c. P1,141,356
b. P1,712,000 d. Nil

36. Which of the following statement is not correct?

a. Conceptually, liabilities should be valued at the present value of all cash to be paid in the future.
b. All liabilities must have a definite amount owed and must not be contingent on a future event.
c. If a note payable is secured, disclosures must specify what assets are pledged.
d. Long-term debt should be reported at their present values computed on the basis of both principal and interest.

37. Milner Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Milner Frosted Flakes
boxes and P1.00. The company estimates that 60% of the boxtops will be redeemed. In 2017, the company sold 675,000 boxes of
Frosted Flakes and customers redeemed 330,000 boxtops receiving 110,000 bowls. If the bowls cost Milner Company P2.50 each,
how much liability for outstanding premiums should be recorded at the end of 2017?

A. P25,000 C. P62,500
B. P37,500 D. P87,500

38. Adrian Corporation share capital currently consists of 40,000 ordinary shares issued with a par value of P5 per share, and 20,000
10% preference shares issued at P10 each. In relation to the preference shares, dividends have not been paid for the two years
prior to the current year. The company plans to pay out P100,000 in dividends in the current period, meeting all past obligations
(where applicable) to shareholders. How much should the ordinary shareholders receive if the preference shares are cumulative
and participating?

a. P80,000 c. P30,000
b. P40,000 d. P33,333

39. Gomu Co. purchased equipment on 1/1/17 for P500,000 estimating a four-year useful life and no residual value. In 2016 and
2017, Gomu depreciated the asset using sum-of-years’-digits method. In 2018, Gomu changed to straight-line method for this
equipment. What depreciation would Gomu record for the year 2018 on this equipment?

a. P75,000 c. P150,000
b. P125,000 d. P175,000

40. Qualitative characteristic(s) that make useful information more useful include

a. Relevance c. Comparability
b. Faithful representation d. All of these

41. On January 1, 2018, Adios Company signs a four-year fixed price contract to provide services for a customer. The contract value
is P550,000. At December 31, 2018 the contract is thought to be 30% complete. Costs to complete the contract cannot be reliably
estimated and costs incurred to date of P152,000 are recoverable from the customer. What is the revenue to be recognized in
profit or loss for the year ended December 31, 2018?

a. P13,000 b. P152,000
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c. P137,500 d. P165,000

42. In accordance with PFRS 15, the first step in the five-step approach that entities will follow in recognizing revenue is
a. Determine the transaction price
b. Identify the contract(s) with the customer
c. Identify the separate performance obligations in the contract
d. Allocate the transaction price to separate performance obligations

43. Under the revaluation model, how often shall revaluations be made?
a. Annually
b. Every three or five years
c. It depends upon the entity’s accounting policy
d. It depends upon the changes in fair values of the items of PPE being revalued.
44. Which statement is incorrect regarding measurement of non-current asset held for sale?
a. Immediately before the initial classification of the asset as held for sale, the carrying amount of the asset will be measure in
accordance with applicable PFRSs.
b. Non-current asset classified as held for sale is measured at the lower of its carrying amount and the fair value less costs to
sell.
c. An impairment loss is recognized in the profit or loss for any initial and subsequent write-down if the asset to fair value less
costs to sell.
d. Non-current asset held for sale shall continue to be depreciated.

45. Hope Company, a calendar-year corporation, has the following income before income tax provision and estimated effective
annual income tax rates for the first three quarters of the current year:

Income before Estimated effective annual tax

Quarter income tax provision rate at the end of the quarter
First P60,000 40%
Second 70,000 40%
Third 40,000 45%
Hope income tax provision in its interim income statement for the third quarter should be

a. P18,000 c. P25,500
b. P24,500 d. P76,500

46. On March 31, 2020, Win Company traded in an old machine having a carrying amount of P168,000 and paid a cash difference of
P60,000 for a new machine having a total cash price of P205,000. On March 31, 2020, what amount of gain/loss should Win
recognize on this exchange?

a. P37,000 loss c. P37,000 gain

b. P23,000 loss d. P60,000 loss

47. Which statement is false concerning recognition of property, plant and equipment?
a. Most spare parts and servicing equipment are usually carried as inventory and recognized as expense when consumed.
b. If the spare parts and servicing equipment can be used only in connection with an item of property, plant and equipment and
their use is expected to be irregular, they are accounted for as property, plant and equipment and are depreciated over their
useful life or useful life of the related asset, whichever is longer.
c. An aircraft and its engines need to be treated as separate depreciable assets if they have different useful lives.
d. Property, plant and equipment may be acquired for safety and environmental reasons in order for the enterprise to obtain
future economic benefits from its other assets

(48-50) Yumi Company is making a four-column reconciliation at June 30 from the following data. The amounts per bank statement
were: Balance - May 31, P6,500; June receipts, P13,000; June disbursements, P11,000. The amounts per books were: Balance –
May 31, P7,635; June receipts, P11,548; June disbursements, P11,235; Balance – June 30, P7,948.

May 31 June 30
Note collected by bank, recorded after
receiving the bank statement 1,800
NSF checks recorded after receiving
bank statement 560 480
Service charge, recorded after receiving
the bank statement 45 60
Yumi recorded a P374 check received from
a customer in June as P347

48. The corrected balance per bank on June 30 is:

a. P9,181 b. P9,160
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c. P9,235 d. P10,071

49. The corrected June receipts per books is:

a. P11,575 c. P13,346
b. P13,321 d. P13,375

50. The corrected June disbursements per books is:

a. P10,830 c. P11,250
b. P11,170 d. P11,300