PRE-FINALS QUIZ

MULTIPLE CHOICE: On your answer sheet, write the corresponding letter of the best
answer. Provide solutions for problems solving questions. Write the letter of your
choice in the CAPITAL letters.

1. RFC provides 3-year warranty for the products it sells. RFC estimates that warranty costs
₱400 per unit sold. As of January 1, 20x1, the liability for warranty has a balance of
₱800,000 for units sold in 20x0. During the year RISIBLE sold 5,000 units and actual
warranty costs incurred were ₱1,240,000. How much is the warranty expense to be
recognized in 20x1? (nfl,p,c)
a. 2,000,000 b. 1,240,000 c. 3,240,000 d. 4,240,000

2. PFC launched a sales promotion in 20x1. For every ten empty packs returned to PFC plus
₱200, customers will receive a set of kitchen knives. PFC estimates that 40% of the packs
sold will be redeemed. Information on transactions during the year is as follows:

Units Amount
Sales 500,000 3B
Sets of kitchen knives purchased (₱800 per set) 300,000 240M
Number of packs redeemed 45,000

How much is the premium expense in 20x1? (nfl,p,c)

a. 8,000,000 b. 12,000,000 c. 14,000,000 d. 16,000,000

3. In December 20x1, Mill Co. began including one coupon in each package of candy that it
sells
and offering a toy in exchange for 50 centavos and five coupons. The toys cost Mill 80
centavos each. Eventually, 60% of the coupons will be redeemed. During December, Mill
sold 110,000 packages of candy and no coupons were redeemed. In its December 31, 20x1,
balance sheet, what amount should Mill report as estimated liability for coupons?
a. 3,960
b. 10,560
c. 19,800
d. 52,800

4. In May 20x6, Caso Co. filed suit against Wayne, Inc. seeking ₱1,900,000 damages for
patent
infringement. A court verdict in November 20x9 awarded Caso ₱1,5000,000 in damages, but
Wayne’s appeal is not expected to be decided before 2x10. Caso’s counsel believes it is
probable that Caso will be successful against Wayne for an estimated amount in the range
between ₱800,000 and ₱1,100,000, with ₱1,000,000 considered the most likely amount.
What
amount should Caso record as income from the lawsuit in the year ended December 31,
20x9?
a. 0
b. 800,000
c. 1,000,000
d. 1,500,000

5. National Appliance Center sells washing machines that carry a three-year warranty against
manufacturer’s defects. Based on company experience, warranty costs are estimated at ₱60
per machine. During the year, National sold 48,000 washing machines and paid warranty
costs of ₱340,000. In its income statement for the year ended December 31, National
should report warranty expense of:

a. 680,000 b. 960,000 c. 2,200,000 d. 2,880,000

6. During January 20x9, Haze Corp. won a litigation award for ₱15,000 which was tripled to
 ₱45,000 to include punitive damages. The defendant, who is financially stable, has appealed
only the ₱30,000 punitive damages. Haze was awarded ₱50,000 in an unrelated suit it filed,
which is being appealed by the defendant. Counsel is unable to estimate the outcome of
these
appeals. In its 20x9 financial statements, Haze should report what amount of pretax gain?
a. 15,000
b. 45,000
c. 50,000
d. 95,000

7. Taken from the records of ABC Co. as of December 31, 20x1 is the following information:

Carrying
amount Tax base Difference
Computer software cost 500,000 - 500,000
Machinery 1,000,000 600,000 400,000
Accrued liability - health care 200,000 - 200,000

Additional information:
 Software development costs after technological feasibility was established were capitalized
for financial reporting. The costs were recognized as outright deductions for tax purposes.
 Straight line method is used in depreciating the machinery while sum-of-the-years’ digits
method is used for tax purposes.
 Health care benefits are accrued as incurred but are tax deductible only when cash is
actually paid.
 Pretax profit for 20x1 is ₱1,000,000. Income tax rate is 30%.
 There were no temporary differences as of January 1, 20x1.

How much is the deferred tax liability on December 31, 20x1? (it)
a. 400,000
b. 900,000
c. 320,000
d. 270,000

8. Information on an entity’s operating segments is shown below:

Operating Identifiable
Total revenue Profit
segments assets

A 1,000,000 200,000 4,000,000

B 500,000 120,000 1,000,000

C 300,000 30,000 800,000

D 500,000 50,000 1,700,000

E 200,000 60,000 800,000

F 900,000 400,000 1,000,000

Totals 3,400,000 860,000 9,300,000

The reportable segments are

a. A, B and F c. A, B, C, D and F
b. A, B, D and F d. All segments

9. Stiggins Corporation had the following account balances for 20x2:

31-Dec 1-Jan
Accounts Payable 67,200 58,200
Prepaid Rent Expense 24,600 37,200
 Accounts Receivable (net) 84,000 66,600

Stiggins' 2002 profit is ₱450,000. What amount should Stiggins include as net cash
provided by operating activities in its 20x2 statement of cash flows?
a. 436,200 b. 445,200 c. 453,600 d. 454,200

10. Chow Company's 20x2 income statement reported the cost of goods sold as
₱135,000. Additional information is as follows:
31-Dec-02 31-Dec-01
Inventory 30,000 22,500
Accounts Payable 13,000 19,500
If Chow uses the direct method, what amount should Chow report as cash paid to
suppliers in its 2002 statement of cash flows?

a. 121,000 b. 134,000 c. 136,000 d. 149,000

Use the following for the next three questions:

Frye Company uses the direct method to prepare its statement of cash flows. The
company had the following cash flows in 2002:
Cash receipts from the issuance of ordinary shares 400,000
Cash receipts from customers 200,000
Cash receipts from dividends on long-term investments 30,000
Cash receipts from repayment of loan made to
220,000
another entity
Cash payments for wages and other operating expenses 120,000
Cash payments for insurance 10,000
Cash payments for dividends 20,000
Cash payments for taxes 40,000
Cash payment to purchase land 80,000

11. The net cash provided by (used in) operating activities is

a. 60,000 b. 40,000 c. 30,000 d. (20,000)
12. The net cash provided by (used in) investing activities is
a. 220,000 b. 140,000 c. 60,000 d. (80,000)
13. The net cash provided by (used in) all activities is
a. 580,000 b. 410,000 c. 380,000 d. (60,000)

14. Entity Co. uses the cash basis of accounting and reported income of ₱87,000 in 20x1. The
following items were considered in the computation of the cash basis net income.

Inventory, beginning 12,000

Inventory, ending 18,000
Receivables, beginning 40,000
Receivables, ending 38,000
Payables, beginning 19,000
Payables, ending 25,000

The accrual basis income is

a. 97,000 b. 73,000 c. 89,000 d. 85,000

15. Entity A reported profit of ₱340,000 for the year ended December 31, 20x1. Depreciation
expense for the year was ₱100,000. The following are the changes in the operating assets
and liabilities of Entity A during 20x1:

20x1 20x0
Accounts receivable 560,000 300,000
Accounts payable 240,000 120,000

How much is the net cash from operating activities?

 a. 820,000
b. 580,000
c. 300,000
d. 100,00

The following were the cash transactions of Entity A during the period:

Cash receipts from sale of goods 650,000

Cash paid for purchases of inventory 340,000
Cash receipts on loans taken from a bank 200,000
Cash paid for interest expense 20,000
Cash payment for the acquisition of property, plant and equipment 180,000

16. How much is the net cash from (used in) operating activities?
a. 155,000
b. (155,000)
c. 290,000
d. (290,000)

17. How much is the net cash from (used in) investing activities?
a. 180,000
b. (180,000)
c. 20,000
d. 0

18. Under the indirect method, the cash flow from operating activities is determined by adjusting
the reported profit by (choose the incorrect statement)
a. adding back non-cash expenses
b. adding back decreases in operating assets
c. deducting decreases in operating liabilities
d. adding back increases in operating assets

19. Under the indirect method, the cash flow from operating activities is determined by adjusting
the reported profit by (choose the incorrect statement)
a. deducting non-cash income
b. deducting increases in operating assets
c. deducting decreases in nonoperating liabilities
d. deducting gains on sale of nonoperating assets

20. When preparing a statement of cash flows using the direct method, amortization of patent is
a. shown as an increase in cash flows from operating activities.
b. shown as a reduction in cash flows from operating activities.
c. included with supplemental disclosures of noncash transactions.
d. not reported in the statement of cash flows or related disclosures.

The movements in the cash account of DEADLOCK STANDSTILL Co. during 20x2 are shown
below.
Cash
beg. 400
Sales 12,000 7,600 Purchases
Interest income 40 2,400 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
Sale of old building 1,040 2,200 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
7,040 end.

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

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

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

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

24. DEMENTED INSANE Co. is preparing its year-end financial statements and has identified
the following operating segments:
Segments Revenues Profit (loss) Assets

A 4,000,000 800,000 56,000,000

B 4,800,000 560,000 72,000,000

C 1,080,000 (280,000) 48,000,000

D 960,000 (2,800,000) 4,000,000

E 1,160,000 200,000 5,600,000

Totals 12,000,000 (1,520,000) 185,600,000

What are the reportable segments?

a. A, B and D
b. A, B, C and D
c. A and B
d. A, B, C, D and E

25. EMBOSOM CHERISH Co. engages in five diversified operations namely, operations A, B,
C, D, and E. Information on these segments are shown below:
Segment
s Revenues Profit (loss) Assets
A 3,200 800 40,000
B 3,200 400 8,000
C 200 40 4,000
D 600 80 8,000
E 800 280 24,000
Totals 8,000 1,600 84,000

Additional information:
a. For internal reporting purposes, segments A and B are considered as one operating segment.
b. Segment E is considered as an operating segment for internal decision making purposes.
c. Segments C and D have similar economic characteristics and share a majority of the
aggregation criteria.

What are the reportable segments?

a. A, B, C, D and E
b. A, B and E
c. A and B as one segment and E
d. A and B as one segment, E, and C and D as one segment

26. SORDID DIRTY Co. is preparing its year-end financial statements and has identified the
following operating segments:
Inter-
External segment Total
Segments revenues revenues revenues Profit Assets
A 4,800,000 2,400,000 7,200,000 2,800,000 48,000,000
B 1,600,000 400,000 2,000,000 1,600,000 28,000,000
C 1,000,000 - 1,000,000 400,000 4,000,000
D 800,000 - 800,000 320,000 3,200,000
E 600,000 - 600,000 280,000 2,800,000
F 400,000 - 400,000 200,000 2,000,000
Totals 9,200,000 2,800,000 12,000,000 5,600,000 88,000,000

Management believes that between segments C, D, E and F, segment C is most relevant to

external users of financial statements.

What are the reportable segments?

a. A and B
b. A, B, C and D
c. A, B and C
d. A, B, C, D, E and F

27. 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

28. On January 1, 20x1, ABC signed a 3-year, non-cancellable purchase contract which allows
ABC to purchase up to 12,000 units of Buko annually from XYZ at P15 per unit and
guarantees a minimum purchase of 3,000 units. At year-end, it was found out that the
goods become unique in the market. ABC had 4,000 units of this inventory at December
31, 20x1, and believes these can be sold for P25 per unit. How much is the gain on
purchase commitment to be recognized on December 31, 20x1?
a. 70,000
b. 100,000
c. 60,000
d. 0
29. ABC Co. has the following information relating to its income tax on December 31, 20x1:
 Provision for probable loss on litigation of ₱300,000 is recognized for financial reporting.
This amount is tax deductible only when actually paid. ABC expects to pay for the
accrued loss in 20x2.
 Revenue for financial reporting is recognized based on percentage of completion while
revenue for taxation purposes is recognized based on collections on progress billings.
Total revenue recognized for financial reporting is ₱1,000,000 while revenue recognized
for taxation purposes is ₱800,000.
 Pretax income for the year is ₱1,000,000. Income tax rate for 20x1 is 30%. However, an
enacted tax law that will take effect starting January 1, 20x2 requires a tax rate of 32%.
 There are no temporary differences on January 1, 20x1.

How much is the income tax expense?

a. 320,000
b. 300,000
c. 298,000
d. 289,000

30. ABC Co. is determining the amount of its pretax accounting income for the year by making
adjustment to taxable income from the company's year-end income tax return. The tax
return indicates taxable income of ₱100,000, on which a tax liability of ₱30,000 has been
recognized (₱100,000 x 30% = ₱30,000). Additional information is shown below:

Goodwill impairment loss not included as a deduction in the tax return but may 35,000
be deducted for financial reporting
Interest income on savings and time deposits with private banks 6,000
Revenues from installment sales are recognized as goods are sold but are taxed 40,000
only when installment payments are collected.
Excess of depreciation recognized for financial reporting over depreciation 10,000
recognized for taxation purposes due to shorter depreciation period used for
financial reporting
Bad debt expense recognized using the allowance method 15,000

How much is the pretax income?

a. 115,000
b. 100,000
c. 96,000
d. 86,000

-END OF QUIZ-