VALIDATING/QUALIFYING EXAM FOR FAR 3

A. TRUE OR FALSE - Indicate before each number, whether the statement is True or False

1. An SME is not required to provide related party disclosures.

2. The accounting for stockholders’ equity does not apply to SMEs.
3. An SME is not required to present any interim financial reports.
4. An SME does not prepare a trial balance.
5. The basic accounting concepts of prudence or conservatism, stable monetary assumption, and going
concern do not apply to SMEs.
6. The FVOCI classification is not permitted under the PFRS for SMEs.
7. The accounting procedures followed by an SME is very different from the accounting procedures
applicable to large entities.
8. An entity cannot qualify as an SME if its accountant is a CPA.
9. The PFRS for SMEs does not include an option to designate financial assets at fair value through profit or
loss.
10. An SME does not recognize any share premium from issuances of share capital at above par value.
11. An SME does not account for any events after the reporting period.
12. An SME does not capitalize any borrowing costs.
13. An SME tests for impairment annually any goodwill recognized from a business combination.
14. An SME measures non-monetary government grants either at fair value or at nominal cost.
15. An SME may recognize goodwill from an investment in associate, which shall be amortized over its
useful life.

Multiple Choice
Identify the choice that best completes the statement or answers the question.

16.____ The ledger of SCHOLIAST COMMENTATOR Co. as of December 31, 20x1 includes the following:
Assets  

Cash 10,000

Trade accounts receivable (net of ₱10,000 credit balance in accounts) 40,000

Held for trading securities 80,000

Financial assets designated at FVPL 30,000

Investment in equity securities at FVOCI 70,000

Investment in bonds measured at amortized cost (due in 3 years) 60,000

Prepaid assets 10,000

Deferred tax asset (expected to reverse in 20x2) 12,000

Investment in Associate 36,000

Investment property 46,000

Sinking fund 38,000

Property, plant, and equipment 100,000

Goodwill 28,000

Totals 560,000

How much is the total current assets?

a. 220,000
b. 180,000
c. 340,000
d. 164,000

17. The ledger of PERNICIOUS DEADLY Co. as of December 31, 20x1 includes the following:
Liabilities  

Bank overdraft 10,000

Trade accounts payable (net of ₱10,000 debit balance in accounts) 40,000

Notes payable (due in 20 semi-annual payments of ₱4,000) 80,000

Interest payable 30,000

Bonds payable (due on March 31, 20x2) 70,000

Discount on bonds payable (30,000)

Dividends payable 10,000

Share dividends payable 12,000

Deferred tax liability (expected to reverse in 20x2) 36,000

Income tax payable 44,000

Contingent liability 100,000

Reserve for contingencies 28,000

Totals 430,000

How much is the total current liabilities?

a. 192,000
 b. 186,000
c. 212,000
d. 178,000

____ 18. Which of the following represents a form of communication through financial reporting but not
through financial statements?
a. Statement of financial position c. Income statement
b. President’s letter d. Notes to financial statement
____ 19. The process of identifying, measuring, analyzing, and communicating financial information needed
by management to plan, evaluate, and control an organization’s operations is called
a. financial accounting c. tax accounting
b. managerial accounting d. auditing
____ 20. How does accounting help the capital allocation process attract investment capital?
a. Provides timely, relevant information c. Promotes productivity
b. Encourages innovation d. a and b above
____ 21. An effective capital allocation process
a. promotes productivity c. encourages innovation
b. provides an efficient market for buying d. all of these
and selling securities
____ 22. What would be an advantage of having all countries adopt and follow the same accounting standards?
a. Consistency c. Lower preparation costs
b. Comparability d. b and c
____ 28. General-purpose financial statements are the product of
a. financial accounting c. managerial accounting
b. both financial & managerial accounting d. neither financial nor managerial
accounting
____ 23. Users of financial reports include all of the following except:
a. creditors c. unions
b. government agencies d. all of these are users
____ 30. Financial statements in the early 2000s provided information related to
a. nonfinancial measurements c. forward-looking data
b. hard assets (inventory & plant assets) d. none of these
____ 24. Which of the following is an ethical concern of accountants?
a. Earnings manipulation c. Industry practices
b. Conserative accounting d. None of the above
____ 25. The international financial reporting environment includes challenges in financial reporting including all of
the following except:
a. Political environment c. Decision-usefullness
b. Expectations ga[ d. Ethics
____ 26. (P1) Rice Company was incorporated on Jan 1, 2013 with P5,000,000 from the issuance if share capital and
borrowed funds of P1,500,000. During the first year, net income was P2,500,000. On Dec 15, 2013, 31,
2013, the entity paid a P500,000 cash dividend. No additional activities affected shareholders’ equity in
2013. On Dec 31, 2013, the liabilities had increased to P1,800,000. On December 31, 2013, what amount
should be reported as total assets?
a. 6,500,000 c. 8,800,000
b. 6,800,000 d. 9,300,000
____ 27. (P1) - Brite Company had the following liabilities on December 31, 2013:
Accounts payable.................................................,. 550,000
Unsecured note payable, 8% due July 1, 2014.........4,000,000
Accrued expenses................................................. 350,000
Contingent liabilities............................................. 450,000
Deferred tax liability............................................. 250,000
Senior bond payable, 7% due March 31, 2014........ 5,000,000
What amount should be reported as total current liabilities?
a. 10,350,000 c. 9,900,000
b. 10,150,000 d. 4,900,000
____ 28. (P1) - The unadjusted current assets and shareholders’ equity of United Company on December 31, 2013 are
as follows:
Cash.................................................................................... 600,000
Financial assets at fair value (including cost of P300,000 of
United Company’s shares).......................................... 1,000,000
Trade accounts receivable..................................................... 3,500,000
Inventory............................................................................ 1,500,000
Share capital........................................................................ 5,000,000
Share premium..................................................................... 2,000,000
Retained earnings.................................................................. 500,000
What amount should be reported as total shareholders’ equity?
a. 5,200,000 c. 7,500,000
b. 7,200,000 d. 7,800,000
____ 29. (P1) - In preparing the bank reconciliation on December 31, 2013, Case Company provided the following
data:
Balance per bank statement................................................. 3,800,000
Deposit in transit................................................................ 520,000
Amount erroneously credited by bank to Case’s account....... 40,000
Bank service charge for December...................................... 5,000
Outstanding checks............................................................ 675,000
What is the adjusted cash in bank on December 31, 2013?
a. 3,685,000 c. 3,605,000
b. 3,645,000 d. 3,600,000
____ 30. (P1) - Mill Company’s allowance for doubtful accounts was P1,000,000 at the end of 2013 and P900,000 at
the end of 2012. For the year ended December 31, 2013, the entity reported doubtful accounts expense of
P160,000 in the income statement. What amount was debited to the appropriate account in 2013 to write off
uncollectible accounts?
a. 60,000 c. 160,000
b. 100,000 d. 200,000
____ 31. (P1) - Brandy Company took a physical inventory at end of the year and determined that P2,600,000 of goods
were on hand. In addition, the entity determined that P200,000 of goods purchased in transit shipped FOB
shipping point were actually received two days after the physical count and that the entity had P300,000 of
goods out on consignment. What amount should be reported as inventory at year-end?
a. 2,600,000 c. 2,900,000
b. 2,800,000 d. 3,100,000
____ 32. (P1) - Eagle Company incurred the following costs in relation to a certain product:
Direct materials.................................... 700,000
Storage costs of finished goods.............. 180,000
Delivery to customers........................... 40,000
 Irrecoverable purchase taxes................. 60,000
At what amount should the inventory be measured?
a. 760,000 c. 980,000
b. 880,000 d. 940,000
____ 33. (P1) - Foresters Company has reclassified certain assets as biological assets. The total value of the forest
assets is P6,000,000 which comprises:
Freestanding trees....................................... 5,100,000
Land under trees........................................ 600,000
Roads in forests......................................... 300,000
In the statement of financial position, what total amount of the forest assets should be classified as biological
assets?
a. 5,100,000 c. 5,700,000
b. 5,400,000 d. 6,000,000
____ 34. (P1) - Mitoy Co.’s trial balance included the following balances at Dec 31, 2012:
Accounts payable..................................................P150,000
Bonds payable, due 2013...................................... 250,000
Discount on bonds payable due 2013..................... 30,000
Dividends payable, 1/31/2013............................... 80,000
Notes payable, due 1/31/2014.............................. 200,000
What amount should be included in the current liability section of Mitoy’s December 31, 2012 statement of
financial position?
a. 450,000 c. 650,000
b. 510,000 d. 780,000
____ 35. (P1) - Lylo Co. is preparing its financial statements for the year ended Dec 31, 2013. Accounts payable
amounted to P360,000 before any necessary year-end adjustment related to the following:
1. At Dec 31, 2013 Lylo has a P50,000 debit balance in its accounts payable to Ross, a supplier, resulting
from a P50,000 advance payment for goods to be manufactured to Lylo’s specifications.
2. Checks in the amount of P100,000 were written to vendors and recorded on Dec 29, 2013. The checks
were mailed on Jan 6, 2014.
What amount should Lylo report as accounts payable in its Dec 31, 2013 balance sheet?

a. 210,000 c. 410,000
b. 310,000 d. 510,000
____ 36. (P1) - Able Co. provides an incentive compensation plan under which its president receives a bonus equal to
10% of the company’s income before income tax but after deduction of the bonus. If the tax rate is 30% and
net income after bonus and income tax was P630,000, what amount was provided for the president’s bonus?
a. 63,000 c. 88,200
b. 81,000 d. 90,000
____ 37. (P1) Donna Co. had P4,000,000 note payable on June 30, 2015. Under the existing loan facility, Donna had
the discretion to refinance or roll over the note payable for at least 12 months after the end of the accounting
period. On Dec 31, 2014, what amount of the note payable should be reported as noncurrent liability?
a. - 0 - c. 4,000,000
b. 2,000,000 d. 6,000,000
____ 38. (P1) - On Dec 31, 2014, Largo Co. had a P7.5 million interest bearing note payable outstanding due July 31,
2015. The entity planned to refinance the note by issuing long-term bonds. Because Largo temporarily had
excess cash, it prepaid P2.5 million of the note on Jan 15, 2015. In Feb 2015, Largo completed a P15 million
bond offerring. Largo intended to use the proceeds to repay the note payable at maturity. On Mar 31, 2015,
the 2014 financial statements were authorized for issue. What amount of the note payable should be reported
as current liabilities on Dec 31, 2014?
 a. - 0 - c. 5,000,000
b. 2,500,000 d. 7,500,000
____ 39. (P1) On April 1, 2013, Greg Co. issued at 99 plus accrued interest 2,000 of its 8% P1,000 face value bonds.
The bonds are dated Jan 1, 2013 and mature on Jan 1, 2023, and pay interest on July 1 and Jan 1. Greg paid
bond issue cost of P70,000. From the bond issuance, Greg received net cash of
a. 1,910,000 c. 1,980,000
b. 1,950,000 d. 2,020,000
____ 40. (P1) - On June 30, 2013, Huff Co. issued at 99, five thousand of its 8%, P1,000 face value bonds. The bonds
were issued through an underwriter to whom Huff paid bond issue cost of P425,000. On June 30, 2013, Huff
should report the bond liability at
a. 4,525,000 c. 4,950,000
b. 4,575,000 d. 5,000,000
____ 41. (P1) - On August 1, 2013, Cameo Company purchased a new machine on a deferred payment basis. A
downpayment of P100,000 was made and four monthly installments of P250,000 each are to be made
beginning on September 1, 2013. The cash equivalent price of the machine was P950,000. The entity
incurred and paid installation costs amounting to P30,000. What is the amount to be capitalized as cost of the
machine?
a. 950,000 c. 1,100,000
b. 980,000 d. 1,130,000
____ 42. (P1) - Figaro Company acquired land and paid in full by issuing P600,000 of its 10% bonds payable and
40,000 ordinary shares with par value of P10. The share was selling at P19 and the were trading at 102.
What amount should be recorded as cost of the land?
a. 988,000 c. 1,372,000
b. 1,000,000 d. 1,387,200
____ 43. (P1) During the current year, Beam Company paid P100,000 cash and traded inventory, which had a carrying
amount of P2,000,000 and a fair value of P2,100,000, for another inventory in the same line of business with
a fair value of P2,200,000. What amount should be recorded as cost of the inventory received in exchange?
a. 2,000,000 c. 2,200,000
b. 2,100,000 d. 2,300,000

44. In a normal sale, generally the most uncertain factor in the revenue recognition process is
a. the seller's fulfillment of its responsibility in the transaction
b. the measurability of the resource or item received by the seller
c. the realizability of the resource or item received by the seller
d. the relevance of the resource or item received by the seller

45. Which of the following methods of service revenue recognition usually would be most appropriate
for a business engaged in packing, loading, transporting and delivering freight (where each of the processes
is an input to a combined output specified by the customer)?
a. Proportional performance method (i.e., over time as the entity progresses towards the complete
satisfaction of the performance obligation)
b. Completed performance method (i.e., at a point in time when the entity completes the output
specified in the contract)
c. Specific performance method (i.e., when the customer pays for the completion of a single specific
activity)
d. Collection method (i.e., when cash is collected)
Use the following information for the next three questions:
The movements in the cash account of DEADLOCK STANDSTILL Co. during 20x2 are shown below.

Cash

beg. 400

7,60
Sales 12,000 0 Purchases

2,40
Interest income 40 0 Operating expenses

Rent income 540 60 Interest expense

Dividend income 80 140 Income taxes

Sale of held for trading securities 1,600 200 Investment in FVOCI

2,20
Sale of old building 1,040 0 Purchase of equipment

Collection of non-trade note 120 260 Loan granted to employee

Proceeds from loan with a bank 3,200 480 Payment of loan borrowed

Issuance of shares 1,940 400 Reacquisition of shares

180 Dividends

7,04
0 end.

46. How much is the cash flows from operating activities?

a. 4,600
b. 4,840
c. 5,040
d. 4,060

47. How much is the cash flows from investing activities?

a. (1,500)
b. 1,500
c. 1,240
d. (1,240)
48. How much is the cash flows from financing activities?
a. 4,800
b. (4,800)
c. 4,240
d. 4,080

49. The balance in retained earnings at December 31, 2003 was ₱810,000 and at December 31, 2004
was ₱654,000. Net income for 2004 was ₱563,000. A stock dividend was declared and distributed which
increased common stock ₱225,000 and paid-in capital ₱125,000. A cash dividend was declared and paid. The
amount of the cash dividend was
a. ₱279,000. c. ₱494,000.
b. ₱369,000. d. ₱719,000.

50. On April 1, 2008, Ivy began operating a service proprietorship with an initial cash investment of ₱1,000.
The proprietorship provided ₱3,200 of services in April and received full payment in May. The
proprietorship incurred expenses of ₱1,500 in April which were paid in June. During May, Ivy drew ₱500
against her capital account.
What was the proprietorship's income for the two months ended May 31, 2008, under the following
methods of accounting?

Cash basis Accrual basis

a. 1,200 1,200
b. 1,700 1,700
c. 2,700 1,200
d. 3,200 1,700