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INTERMEDIATE ACCOUNTING 1
SECOND GRADING EXAMINATION

1. It is a systematic compilation of a group of accounts.

a. Chart of T-accounts c. Ledger
b. Trial balance d. Journal

2. A trial balance may prove that debits and credits are equal, but
a. an amount could be entered in the wrong account.
b. a transaction could have been entered twice.
c. a transaction could have been omitted.
d. all of these.

3. Unearned income can best be described as an amount that is

a. collected and currently matched with expenses.
b. collected but not currently matched with expenses.
c. not collected but currently matched with expenses.
d. not collected and not currently matched with expenses.

4. The following were taken from the records of SML Co. as of December 31, 20x1:
Checks drawn but not yet issued to payees ₱120,000
Customers’ checks dated January 15, 20x2 35,000
Customers’ checks dated Dec. 31, 20x1 40,000
SML’s check dated Jan. 15, 20x2 already mailed to payee 16,000
Cash on hand 130,000
Employees’ checks representing unclaimed salaries, held by the treasurer 14,000
Petty cash fund (fully replenished) 20,000

How much of the items listed above will be included in SML’s Dec. 31, 20x1 cash?
a. 340,000
b. 260,000
c. 280,000
d. 320,000

5. Devin Co.'s cash balance in its balance sheet is ₱1,300,000, of which ₱300,000 is identified as a
compensating balance. In addition, Devin has classified cash of ₱250,000 that has been restricted for
future expansion plans as "other assets". Which of the following should Devin disclose in notes to
its financial statements?
Compensating balance Restricted cash
a. Yes Yes
b. Yes No
c. No Yes
d. No No
6. It is a report that is prepared for the purpose of bringing the balances of cash per records and per
bank statement into agreement.
a. Bank statement
b. Check Disbursement Voucher
c. Bank reconciliation
d. Bank deposit slip

7. Entity A is preparing its November 30, 20x1 bank reconciliation statement. The following
information was determined:
 Cash balance per accounting books, Nov. 30, 20x1, ₱600,000
 Cash balance per bank statement, Nov. 30, 20x1, ₱860,000
 Credit memo, ₱380,000
 Debit memo, ₱60,000
 Deposits in transit, ₱100,000
 Outstanding checks, ₱40,000

How much is the adjusted balance of cash?

a. 840,000
b. 880,000
c. 920,000
d. 1,040,000

8. Under the allowance method of recognizing bad debts on trade accounts receivable, the effect of
writing off an account to an entity's current ratio is
a. increase
b. decrease
c. increase if the entity's current ratio is higher than 1 prior to the write-off; decrease if the entity's
current ratio is lower than 1 prior to the write-off
d. no effect

9. Howl Co. has the following information:

Days outstanding Receivable balances % uncollectible
0 – 60 180,000 1%
61 – 120 135,000 2%
Over 120 150,000 6%
Total accounts receivables 465,000  

During the year, Howl Co. wrote off ₱10,500 receivables and recovered ₱6,000 that had been written-off
in prior years. The allowance for doubtful accounts has a beginning balance of ₱3,000. How much is the
doubtful accounts expense for the year?
a. 20,000
b. 25,000
c. 15,000
d. 30,000

10. In its December 31 balance sheet, Devin Co. reported trade accounts receivable of ₱250,000 and
related allowance for uncollectible accounts of ₱20,000. What is the total amount of risk of
 accounting loss related to Devin's trade accounts receivable, and what amount of that risk is off
balance-sheet risk? (Item 1) Risk of accounting loss; (Item 2) Off-balance-sheet risk
a. 0; 0
b. 230,000; 20,000
c. 230,000; 0
d. 250,000; 20,000

11. What is the effective interest rate of a bond or other debt instrument measured at amortized cost?
a. The stated coupon rate of the debt instrument.
b. The current market rate published by a regulatory body.
c. The interest rate that exactly discounts the estimated future cash payments or receipts over the
expected life of the debt instrument or, when appropriate, a shorter period, to the net carrying
amount of the instrument.
d. The basic, risk-free interest rate that is derived from observable government bond prices.

12. ABC Co. received the following notes receivable on January 1, 20x1:
9-month, 10% note from Alpha Company. 15,00
0
6-month, noninterest bearing note from Beta, Inc. (the effect of discounting is deemed 20,00
immaterial) 0
14%, 3-year note from Charlie Corp. 30,00
0
Market rate of interest on January 1, 20x1 10%

At what total net amount will the notes be initially recognized?

a. 65,000
b. 53,673
c. 62,357
d. 50,000

13. On March 1, 20x1, Nickelodeon Co. received a 12% note dated January 1, 20x1. Principal and
interest on the note are due on July 1, 20x1. On initial recognition, which of the following accounts
increased?
a. Prepaid interest
b. Unearned interest income
c. Interest revenue
d. Interest receivable

14. What are the effects of direct loan origination costs and origination fees on the carrying amount of a
loan receivable?
Direct origination costs Origination fees
a. increase increase
b. decrease decrease
c. increase decrease
d. no effect no effect

15. The application of the expected credit loss (ECL) model of PFRS 9 requires the measurement of
expected credit losses in a manner that reflects reasonable and supportable information that is
 available without undue cost or effort at the reporting date. Such reasonable and supportable
information does not include
a. past events.
b. current conditions.
c. forecasts of future economic conditions.
d. All of these are included

16. When testing loans and note receivables for impairment, the rate that should be used is
a. the current market rate as of impairment testing date.
b. the weighted average rate on the remaining term of the instrument.
c. the original effective rate of the instrument.
d. the weighted average rate over the total life of the instrument.

17. The due date of a 90-day note receivable dated July 12 is

a. September 12.
b. October 9.
c. October 10.
d. October 11.

18. On January 1, 20x1, Hollycow Bank extended a 3-year, ₱1,000,000, 12% loan to Manna, Inc. at a
price that yields an effective interest rate of 10%. Principal is due at maturity but interest is due
annually every December 31.

On December 31, 20x1, it was ascertained that the loan was credit-impaired. The loan was
restructured as follows:
 Only the principal amount of ₱1,000,000 will be collected on the loan. This is due on December
31, 20x3.
 The ₱120,000 interest receivable accrued in 20x1 and future interests are waived.

How much is the impairment loss on December 31, 20x1?

a. 105,289
b. 129,091
c. 212,561
d. 328,265

19. Tremolo Co. transferred loans receivables with carrying amount and fair value of ₱200,000 to XYZ,
Inc. for cash amounting to ₱200,000. Under the terms of the transfer, Tremolo Co. is obligated to
repurchase some of the loans transferred not exceeding ₱20,000. The entry to record the transfer
includes all of the following except
a. a debit to cash for ₱200,000.
b. a credit to loans receivable of ₱200,000.
c. a credit to liability on repurchase agreement of ₱20,000.
d. a credit to loans receivable of ₱180,000.

20. According to PAS 2, inventories are measured at

a. cost.
b. fair value.
c. net realizable value.
d. lower of a and c.
21. ABC Co. purchased goods with invoice price of ₱3,000 on account on December 27, 20x1. The
related shipping costs amounted to ₱50. The seller shipped the goods on December 31, 20x1. ABC
Co. received the goods on January 2, 20x2 and settled the account on January 5, 20x2. How much is
the capitalizable cost of the inventory purchased if the terms of the shipment are FOB shipping point,
freight prepaid?
a. 3,050 b. 3,000 c. 2,950 d. 0

22. Haze Co. provided you the following information for the purpose of determining the amount of its
inventory as of December 31, 20x1:
Goods located at the warehouse (physical count) 3,400,000
Goods located at the sales department (at cost) 15,800,000
Goods in-transit purchased FOB Destination 2,400,000
Goods in-transit purchased FOB Shipping Point 1,600,000
Freight incurred under “freight prepaid” for the
goods purchased under FOB Shipping Point 80,000
Goods held on consignment from Smoke, Inc. 1,800,000

How much is the total inventory on December 31, 20x1?

a. 25,080,000
b. 25,080,000
c. 20,880,000
d. 20,800,000

23. ABC Co. consigned goods costing ₱14,000 to XYZ, Inc. Transportation costs of delivering the goods
to XYZ, Inc. totaled ₱3,000. Repair costs for goods damaged during transportation totaled ₱1,500.
To induce XYZ, Inc. in accepting the consigned goods, ABC Co. gave XYZ, Inc. ₱2,000 representing
an advance commission. How much is the cost of the consigned goods?
a. 20,500 b. 18,500 c. 17,000 d. 14,000

24. ABC Co., a VAT payer, imported goods from a foreign supplier. Costs incurred by ABC include the
following: purchase price, excluding VAT, ₱250; import duties, ₱20; value added tax, ₱15;
transportation and handling costs, ₱5; and commission to broker, ₱2. How much is the cost of
purchase of the imported goods?
a. 292 b. 277 c. 257 d. 255

25. The following are among the transactions of ABC Co. during the year:
 Purchased goods costing ₱20,000 from XYZ, Inc. Billing was received although delivery was delayed
per request of ABC Co. The goods purchased were segregated and ready for delivery on demand.
 Purchased goods costing ₱35,000 from Alpha Corp. on a lay away sale agreement. The goods were
not yet delivered until after ABC makes the final payment on the purchase price. ABC Co. made total
payments of ₱34,920 during the year.

How much of the goods purchased above will be included in ABC’s year-end inventory?
a. 55,000 b. 54,290 c. 34,920 d. 0

26. Based on the following information, how much is the cost of goods sold?
Decrease in inventory 12,000
Increase in accounts payable 16,000
Payments to suppliers 80,000

a. 108,000 b. 96,000 c. 76,000 d. 84,000

Use the following information for the next two questions:

Miller Inc. is a wholesaler of office supplies. The activity for Model III calculators during August is
shown below:
Date Transaction Units Cost
Aug. 1 Inventory 2,000 ₱36.00
7 Purchase 3,000 37.20
12 Sales 3,600
21 Purchase 4,800 38.00
22 Sales 3,800
29 Purchase 1,600 38.60

27. If Miller Inc. uses a FIFO periodic inventory system, the ending inventory of Model III calculators at
August 31 is reported as
a. 150,080 b. 150,160 c. 152,288 d. 152,960

28. If Miller Inc. uses a FIFO cost perpetual inventory system, the ending inventory of Model III
calculators at August 31 is reported as
a. 150,080 b. 150,160 c. 152,232 d. 152,960

Use the following information for the next two questions:

Stephens Inc. is a wholesaler of photography equipment. The activity for the VTC cameras during July
is shown below:
Date Transaction Units Cost
July 1 Inventory 2,000 ₱36.00
7 Purchase 3,000 37.00
12 Sales 3,600
21 Purchase 5,000 37.88
22 Sales 3,800
29 Purchase 1,600 38.11

29. If Stephens Inc. uses the average cost method to account for inventory, the ending inventory of VTC
cameras at July 31 is reported as
a. 153,400 b. 156,912 c. 158,736 d. 159,464

30. If Stephens Inc. uses a moving average perpetual inventory system, the ending inventory of the
VTC cameras at July 31 is reported as
a. 153,400 b. 156,912 c. 158,736 d. 159,464

31. On June 19, 2002, a fire destroyed the entire uninsured merchandise inventory of Allen
Merchandising Company. The following data are available:

Inventory, January 1 .................................. ₱ 80,000

Purchases, January 1 through June 560,000
19 ..................
 Sales, January 1 through June 19 ...................... 776,000
Markup percentage on cost ............................. 25%

What is the approximate inventory loss as a result of the fire?

a. ₱19,200
b. ₱27,200
c. ₱34,000
d. ₱58,000

32. The following information is available for Torino Corp. for its most recent year:

Net sales ............................................. ₱3,600,000

Freight-in ............................................ 90,000
Purchase 50,000
discounts ....................................
Ending inventory ...................................... 240,000

The gross margin is 40 percent of net sales. What is the cost of goods available for sale?
a. ₱1,680,000
b. ₱1,920,000
c. ₱2,400,000
d. ₱2,440,000

33. The Ashby Sporting Goods Store uses the retail inventory method. Information relating to the
computation of the inventory at December 31, 2002, is as follows:
Cost Retail
Inventory at January 1, 2002 .............. ₱ 32,000 ₱ 80,000
Sales ..................................... 580,000
Purchases ................................. 270,000 600,000
Freight-in ................................ 7,600
Net markups ............................... 40,000
Net markdowns ............................. 20,000

What is the ending inventory at cost at December 31, 2002, using the retail inventory method and the
FIFO cost estimation?
a. ₱43,000 c. ₱51,600
b. ₱45,000 d. ₱53,724

34. According to PFRS 9 Financial Instruments, a financial instrument is recognized

a. when the entity purchases investments in equity securities
b. when the entity becomes a party to the contractual provisions of the instrument
c. when the entity has a codified business model with an objective of holding assets in order to
collect contractual cash flows.
d. all of these

35. Financial assets are initially classified and subsequently measured on the basis of
a. the entity’s business model for managing the financial assets.
b. the contractual cash flow characteristics of the financial asset.
 c. a and b
d. a or b

36. Entity Y has operated a “hold to collect” business model for many years. Its portfolio of assets has
for many years consisted of investment grade bonds issued by utility companies. Entity Y’s
investment policies attach importance to both the yield and the stability afforded by such
investments, and result in sales only in response to significant deteriorations in the credit risk of
individual assets within the portfolio. Recently, however, there has been a wave of takeovers in the
utility sector fuelled by overseas interest in the sector. As a result, Entity Y has sold a number of the
bonds within its portfolio in response to unsolicited offers that have been made to it. Continuing
interest in this sector means that such sales are likely to continue in the future. Can Entity Y
continue to classify the unsold bonds under a held to collect business model?
a. Yes, Entity Y may continue to classify the remaining bonds under the “hold to collect” model.
b. No, Entity Y shall reclassify the remaining bonds to the “hold to sell” model.
c. No, Entity Y shall reclassify the remaining bonds to the “hold to collect and sell” model.
d. No, Entity Y must either designate the remaining bonds as FVPL or elect to classify them as
FVOCI. The amortized cost measurement is not appropriate for the remaining bonds.

37. Dawn Co. had the following portfolio of securities at the end of its first year of operations:
Year-End
Security Classification Cost Fair Value
A Held for Trading ₱18,000 ₱23,000
B Held for Trading ₱25,000 ₱27,000

The year-end adjusting entry would most likely include a

a. ₱11,000 net debit to gain.
b. ₱7,000 net credit to a fair value adjustment account.
c. ₱7,000 net debit to held for trading securities.
d. ₱5,000 net credit to loss.
SOLUTIONS:
Chapter 1 - The Accounting Process
1. C
2. D
3. B
Chapter 2 – Cash and Cash Equivalents
4. A
Solution:
Checks drawn but not yet issued to payees 120,000
Customers’ checks dated Dec. 31, 20x1 40,000
SML’s check dated Jan. 15, 20x2 already mailed to payee 16,000
Cash on hand 130,000
Employees’ checks representing unclaimed salaries,
held by the treasurer 14,000
Petty cash fund (fully replenished) 20,000
Total 340,000

5. A
Chapter 3 – Bank Reconciliation
6. C

7. C
Solution:
Bal. per books, end. ₱600,000 Bal. per bank, end. ₱860,000
Add: CM 380,000 Add: DIT 100,000
Less: DM (60,000) Less: OC (40,000)
Add/Less: Book errors - Add/Less: Bank errors -
Adjusted balance ₱920,000 Adjusted balance ₱920,000

Chapter 4 - Accounts Receivable

8. D

9. C
Solution:
Days outstanding Receivable balances % uncollectible Required allowance
(a) (b) (c) = (a) x (b)
0 – 60 180,000 1% 1,800
61 – 120 135,000 2% 2,700
Over 120 150,000 6% 9,000
Totals 465,000 13,500

Allowance for doubtful accounts

3,000 Beg. bal.
Write-offs 10,500 6,000 Recoveries
15,000 Doubtful accounts expense (squeeze)
End. Bal. 13,500

10. C

Chapter 5 - Notes Receivable

11. C
12. A (15,000+20,000+30,000) = 65,000
13. D

Chapter 6 – Receivables: Additional concepts

14. C
15. D
16. C
17. C

18. D
Solution:
The issue price of the loan at a yield rate of 10% is computed as follows:
Future cash flows PV factors @ 10%, n=3 Present value
Principal 1,000,000 PV of 1 0.75131480090 751,315
Interest 120,000 PV of ord. annuity 2.48685199098 298,422
1,049,737

Original amortization table:

Date Collection Interest income Amortization Present value
1/1/x1 1,049,737
12/31/x1 120,000 104,974 15,026 1,034,711
12/31/x2 120,000 103,471 16,529 1,018,182
12/31/x3 120,000 101,818 18,182 1,000,000

 PV of the restructured loan on December 31, 20x1:

Future cash flow 1,000,000
PV of 1 @10%, n=2 0.8264463
PV of restructured loan – Dec. 31, 20x2 826,446

 Impairment loss on December 31, 20x1:

PV of restructured loan 826,446
Carrying amt. (1,034,711 + 120,000 int. receivable) (1,154,711)
Impairment loss - 12/31/x1 (328,265)

19. B
Solutions:
Date Cash
Loans receivable
Liability on repurchase
agreement 200,000

180,000
20,000

Chapter 7 – Inventories
20. D
21. A (3,000 cost of purchase + 50 freight-in) = 3,050

22. C
Solution:
Goods located at the warehouse (physical count) 3,400,000
Goods located at the sales department (at cost) 15,800,000
Goods in-transit purchased FOB Shipping Point 1,600,000
Freight incurred under “freight prepaid” for the goods
purchased under FOB Shipping Point 80,000
Total inventory - Dec. 31, 20x1 20,880,000

23. C 17,000 (14,000 + 3,000)

24. B 277 excluding VAT (250 + 20 + 5 + 2).
25. A - (20,000 purchased on a ‘bill and hold’ sale agreement + 35,000 purchased under ‘lay
away’ sale wherein significant payment has been made) = 55,000

26. A
Solution:
Accounts payable
0 Beginning balance
Payments to suppliers 80,000 96,000 Net purchases (squeeze)
Ending balance 16,000

Inventory
Beginning balance 12,000
Net purchases 96,000 108,000 Cost of goods sold (squeeze)
0 Ending balance

27. D
Solution:
Date Balance/Transaction Units Cost
Aug. 1 Inventory 2,000 ₱36.00
7 Purchase 3,000 37.2
12 Sales (3,600)
21 Purchase 4,800 38
22 Sales (3,800)
29 Purchase 1,600 38.6
Ending inventory 4,000

Units Unit cost Total cost

Ending inventory 4,000
From Aug. 29 purchase (1,600) 38.6 61,760
Balance 2,400
From Aug. 21 purchase (2,400) 38 91,200
As allocated - 152,960

28. D Same with FIFO periodic

29. B
Solution:
Date Balance/Transaction Units Cost Total cost
1-Jul Inventory 2,000 36.00 72,000
7 Purchase 3,000 37.00 111,000
21 Purchase 5,000 37.88 189,400
29 Purchase 1,600 38.11 60,976
Total goods available for sale 11,600 433,376
Average cost = 433,376 ÷ 19,000 = 22.81

Date Balance/Transaction Units

1-Jul Inventory 2,000
7 Purchase 3,000
12 Sales (3,600)
21 Purchase 5,000
22 Sales (3,800)
29 Purchase 1,600
Ending inventory 4,200
Average cost 37.36
Ending inventory in pesos 156,912
30. C
Solution:
Date Transaction Units Cost Total cost
1-Jul Inventory 2,000 36.00 72,000
7 Purchase 3,000 37.00 111,000
Total 5,000 36.60 183,000
12 Sales (3,600) 36.60 (131,760)
21 Purchase 5,000 37.88 189,400
Total 6,400 37.60 240,640
22 Sales (3,800) 37.60 (142,880)
29 Purchase 1,600 38.11 60,976
Ending inventory 4,200 158,736

Chapter 8 – Inventory estimation

31. A (80,000 + 560,000) – (776,000 x 100%/125%) = 19,200
32. C (3,600,000 x 60%) = 2,160,000 COGS + 240,000 EI = 2,400,000
33. D (270,000 + 7,600) ÷ (600,000 + 40,000 – 20,000) = 44.77%
(80,000 + 600,000 + 40,000 – 20,000 – 580,000) x 44.77% = 53,724

Chapter 9 – Investments
34. B
35. C
36. A – The “hold to collect” business model remains appropriate even when sales of financial
assets occur because of increase in credit risk.

37. C
Held for trading securities 7,000
Unrealized Gain on Trading Securities 7,000