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JOSE MARIA COLLEGE

Philippine Japan Friendship Highway, Sasa, Davao City

INTERMEDIATE ACCOUNTING 3 Set 2

PRELIM EXAMINATION
Sept. 19, 2024 10:30 AM– 12:00 NN

Directions: Read thoroughly the given information. For every number, choose the letter which
represents the correct answer and shade the space below the letter. All final answers should be
written on the given Answer Sheet. In problem solving, no credit will be given for a correct
answer when this is not supported with a traceable solution.

1. Identify the incorrect statement.

a. When an entity has departed from a requirement of a Standard or an
Interpretation in a prior period, and that departure affects the amounts
recognized in the financial statements for the current period, it shall disclose
the (a) title of the Standard or Interpretation from which the entity has departed
and the (b) impact of such departure.
b. In the extremely rare circumstances in which management concludes that
compliance with a requirement in a Standard or an Interpretation would be so
misleading that it would conflict with the objective of financial statements set
out in the Framework, but the relevant regulatory framework prohibits
departure from the requirement, the entity shall, to the maximum extent
possible, reduce the perceived misleading aspects of compliance by disclosing:
(a) the title of the Standard or Interpretation in question and (b) for each period
presented, the adjustments to each item in the financial statements that
management has concluded would be necessary to achieve a fair presentation.
c. Financial statements shall be prepared on a going concern basis unless
management either intends to liquidate the entity or to cease trading, or has no
realistic alternative but to do so.
d. PAS 1 requires an entity preparing financial statements, to make an assessment
of the entity’s ability to continue as a going concern. In assessing whether the
going concern assumption is appropriate, management takes into account all
available information about the future, which is at least, but is not limited to,
five years from the balance sheet date.

2. The objective of PAS 1 Presentation of Financial Statements is to prescribe the

basis for presentation of general purpose financial statements, to ensure
a. intra-comparability c. faithful representation
b. inter-comparability d. a and b

3. General purpose financial statements cater to what type of needs of users?

a. common needs c. a and b
b. specific needs d. loving and caring needs

4. Which of the following statements is/are correct?

I. External financial information is generally more highly summarized than the
information reported internally.
II. The Securities and Exchange Commission recommends, but does not require,
that all nationally registered companies have an annual independent audit as
protection for the shareholders.
III. PFRSs have, in most cases, eliminated the need for accountants to exercise
professional judgment in interpreting and applying accounting standards.
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a. I, II, III
b. II, III
c. I, II
d. I

5. The ledger of COPIOUS RICH Co. as of December 31, 20x1 includes the following:

15% Note payable 50,0

00
16% Bonds payable 100,0
00
18% Serial bonds 200,0
00
Interest payable
-

Additional information:
COPIOUS Co.’s financial statements were authorized for issue on April 15, 20x2.
 The 15% note payable was issued on January 1, 20x1 and is due on January 1, 20x5.
The note pays annual interest every year-end. The agreement with the lender
provides that COPIOUS Co. shall maintain an average current ratio of 2:1. If at any
time the current ratio falls below the agreement, the note payable will become due
on demand. As of the 3rd quarter in 20x1, COPIOUS’s average current ratio is
0.50:1. Immediately, COPIOUS informed the lender of the breach of the agreement.
On December 31, 20x1, the lender gave COPIOUS a grace period ending on
December 31, 20x2 to rectify the deficiency in the current ratio. COPIOUS
promised the creditor to liquidate some of its long-term investments in 20x2 to
increase its current ratio.
 The 16% bonds are 10-year bonds issued on December 31, 1992. The bonds pay
annual interest every year-end.
 The 18% serial bonds are issued at face amount and are due in semi-annual
installments of ₱20,000 every April 1 and September 30. Interests on the bonds are
also due semi-annually. The last installment on the bonds is due on September 30,
20x7.

How much are the total current liabilities?

a. 9,000
b. 100,000
c. 109,000
d. 120,000

6. Comprehensive income (or total comprehensive income) includes

a. Profit or loss
b. Other comprehensive income
c. Transactions with owners
d. a and b
e. All of these

7. Entity B has the following information:

Inventory, beg. 120,000

Inventory, end. 192,000
Purchases 480,000
Freight-in 24,000
Purchase returns 12,000
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Purchase discounts 16,800

How much is Entity B’s the cost of sales?

a. 403,200
b. 416,300
c. 420,300
d. 422,300

8. What is the purpose of reporting comprehensive income?

a. To report changes in equity due to transactions with owners.
b. To report a measure of overall performance of an entity.
c. To replace profit with a better measure.
d. To combine income from continuing operations with income from discontinued
operations and extraordinary items.

9. Bote Co. sold goods to a customer for ₱10,000. Normally, the goods are sold at
₱12,000, but the customer has negotiated for a discount. The sales representative
was paid a 2% commission based on the ₱10,000 selling price. How much net sales
revenue is recognized from the transaction?
a. 12,000
b. 11,860
c. 10,000
d. 9,800

10. An entity enters into a contract with a customer to sell a piece of equipment.
Control of the equipment transfers to the customer when the contract is signed.
The price stated in the contract is ₱1,000,000 plus a five per cent contractual rate
of interest, payable in 60 monthly installments of ₱18,871. In evaluating the
discount rate in the contract (which contains a significant financing component),
the entity observes that the five per cent contractual rate of interest reflects the
rate that would be used in a separate financing transaction between the entity and
its customer at contract inception (i.e., the contractual rate of interest of five per
cent reflects the credit characteristics of the customer). What amount of sales
revenue is recognized at contract inception?
a. 0
b. 18,871
c. 1,000,000
d. 1,132,260

Use the following information for the next two questions:

GUILE DECEITFULNESS Co. was incorporated on January 1, 20x1. The following were
the transactions during the year:
- Total consideration from share issuances amounted to ₱2,000,000.
- A land and building were acquired through a lump sum payment of ₱400,000. A
mortgage amounting to ₱100,000 was assumed on the land and building.
- Total payments of ₱80,000 were made during the year on the mortgage assumed on
the land and building, The payments are inclusive of interest amounting to ₱10,000.
- Additional capital of ₱200,000 was obtained through bank loans. None of the bank
loans were paid during the year. Half of the bank loans required a secondary
mortgage on the land and building.
- There is no accrued interest as of year-end.
- Dividends declared during the year but remained unpaid amounted to ₱60,000.
- No other transactions during the year affected liabilities.
- Retained earnings as of December 31, 20x1 is ₱120,000.

11. How much is the profit for the year?

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a. 120,000
b. 160,000
c. 180,000
d. 220,000

12. How much are the total assets as of December 31, 20x1?
a. 2,410,000
b. 2,520,000
c. 2,380,000
d. 2,420,000

13. ABC Co. has the following information as of December 31, 20x1:
Jan. 1 Dec. 31
Accounts receivable 90,000 320,000
Allowance for bad
26,000
debts 43,000
Net credit sales 1,200,000
Bad debt expense 80,000
Recoveries 10,000

How much are the cash receipts from customers during the period?
a. 970,000
b. 879,000
c. 907,000
d. 897,000

14. BLUFF DECEIVE Co. has the following information as of December 31, 20x2:

Jan. 1 Dec. 31
Accounts receivable 16,000 20,000
Allowance for bad debts (400) (1,000)
Prepaid rent 3,840 3,200
Accounts payable 6,800 8,800

BLUFF reported profit of ₱8,800 for the year, after depreciation expense of ₱200, gain
on sale of equipment of ₱240, and restructuring and other provisions of ₱400. None of
the provisions recognized during the period affected cash. How much are the net cash
flows from operating activities?
a. 4,800
b. 5,600
c. 7,800
d. 8,400

15. Which of the following items is within the scope of PAS 1?

a. Directors’ reports
b. Income Tax Return and supporting tax computations
c. Notes
d. Forecast sales and cash flows

16. It results from a change in measurement basis.

a. Change in accounting policy
b. Change in accounting estimate
c. Error
d. Any of these
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17. Mid-Ad Co. changes an accounting policy that is not generally accepted to one that
is generally accepted. Mid-Ad Co. should report the effect of the change, net of
applicable income taxes,
a. in the current income statement as part of profit from continuing operations.
b. in the current income statement after profit from continuing operations.
c. in the year-end statement of financial position as an adjustment to the opening
balance of retained earnings.
d. in the statement of changes in equity as an adjustment to the opening balance of
retained earnings.

18. On January 1, 20x1, Sleep, Inc. acquired a new machine for ₱600,000. The machine
had an estimated useful life of eight years and a residual value of ₱150,000. Sleep,
Inc. elected to depreciate the machine using the double-declining-balance method.
On January 1, 20x4, Sleep, Inc. decided to change to the straight-line method of
depreciation. How much are the following: (1) Depreciation expense in 20x4, (2)
carrying amount of the machine on December 31, 20x4, and (3) accumulated
depreciation on December 31, 20x4?
a. (1) 20,625; (2) 232,500; (3) 367,500
b. (1) 20,625; (2) 232,500; (3) 382,500
c. (1) 22,475; (2) 245,600; (3) 332,465
d. (1) 22,475; (2) 245,600; (3) 332,465

19. On January 1, 20x2, Grumpy Co. changed its inventory cost flow formula from the
Average Method to the FIFO Method. Grumpy Co.'s year-end inventories
determined under both methods are summarized below.

Years FIFO Average

20x0 310,000 283,000
20x1 400,000 360,000

Grumpy Co.’s income tax rate is 30%. What is the adjustment to the beginning balance
of retained earnings in 20x2?
a. 40,000 increase
b. 40,000 decrease
c. 28,000 increase
d. 12,000 increase

Use the following information for the next five questions:

ABC Co. made the following errors:
a) December 31, 20x1 inventory was understated by ₱25,000.
b) December 31, 20x2 inventory was overstated by ₱40,000.
c) A ₱100,000 purchase on account in 20x1 was recorded only in 20x2. The related
goods were all sold in 20x1.
d) Advances to suppliers in 20x2 totaling ₱130,000 were inappropriately charged as
purchases.
e) December 31, 20x1 prepaid insurance was overstated by ₱5,000.
f) December 31, 20x1 unearned rent income was overstated by ₱26,000.
g) December 31, 20x2 interest receivable was understated by ₱17,000.
h) December 31, 20x2 accrued salaries payable was understated by ₱30,000.
i) Advances from customers in 20x2 totaling ₱60,000 were inappropriately recognized
as sales but the goods were delivered in 20x3.
j) Depreciation expense in 20x1 was overstated by ₱7,200
k) In 20x2, the acquisition cost of a delivery truck amounting to ₱90,000 was
inappropriately charged as expense. The delivery truck has a useful life of five
years. ABC’s policy is to provide a full year’s straight line depreciation in the year
of acquisition and none in the year of disposal.
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l) Fully depreciated equipment with no residual value was sold in 20x3 for ₱50,000
but the sale was recorded in the following year.

Profits before correction of errors were ₱123,000, ₱156,000, and ₱210,000 in 20x1,
20x2, and 20x3, respectively.

Retained earnings before correction of errors were ₱1,123,000, ₱1,279,000 and

₱1,489,000 in 20x1, 20x2, and 20x3, respectively.

20. How much is the adjusted profit in 20x2?

a. 76,200
b. 143,000
c. 225,000
d. 299,000

21. How much is the adjusted profit in 20x3?

a. 225,000
b. 252,000
c. 276,200
d. 299,000

22. How much is the adjusted retained earnings in 20x2?

a. 1,276,200
b. 1,726,200
c. 1,375,200
d. 1,400,200

23. How much is the adjusted retained earnings in 20x3?

a. 1,476,200
b. 1,526,200
c. 1,400,200
d. 1,600,200

24. What is the effect of the errors on the working capital in 20x3?
a. 54,000 understatement
b. 54,000 overstatement
c. 50,000 understatement
d. 13,000 understatement

25. Perry Corp. reports operating expenses in two categories: (1) selling and (2)
general and administrative. The adjusted trial balance on December 31, 2023,
included the following expense accounts:
Accounting and legal fees P 280,000
Advertising 240,000
Freight out 150,000
Interest 120,000
Loss on sale of long-term investments 60,000
Officers’ salaries 360,000
Rent for office space 360,000
Sales salaries and commissions 220,000
One half of the rented premises is occupied by the sales department.

How much of the expenses listed above should be included in Perry/s (1) selling
expenses and (2) general and administrative expenses for 2023?

(1) Selling (2) Administrative

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a. 820,000 790,000
b. 1,000,000 790,000
c. 790,000 820,000
d. 790,000 1,000,000

26. A company reports the following amounts at the end of the current year:

Sales P 860,000
Inventory, Jan. 1 100,000
Net purchases 500,000
Selling expenses 100,000
Gain on sale of land 30,000
Interest expense 10,000

Inventory decreased by 20% during the year.

Ignoring income tax effects, how much should be reported as net income for the
current year?

a. P50,000 c. P90,000
b. P80,000 d. P110,000

27. Pale Company reported the following information for 2023:

Sales revenue P500,000

Cost of goods sold 150,000
Operating expenses 55,000
Translation adjustment – credit 20,000
Cash dividend received on trading
securities 2,000

Ignoring income tax, how much should Pale Company report as total
comprehensive income for the year 2023?

a. P117,000 c. P97,000
b. P115,000 d. P20,000

28. The two-statement approach of presenting comprehensive income is preparing:

a. A comparative statement of comprehensive income.
b. A combined statement of comprehensive income and retained earnings.
c. A combined income statement and a statement of changes in equity.
d. A separate income statement and a separate statement of comprehensive
income.

29. All of the following components of other comprehensive income should be

reclassified to profit or loss, except:
a. Gain or loss from translating the financial statements of a foreign operation.
b. Gain or loss on remeasuring debt investment at fair value through other
comprehensive income.
c. Gain or loss on remeasuring equity investment at fair value through other
comprehensive income.
d. The effective portion of gain or loss on hedging instrument in a cash flow
hedge.

30. An entity shall present an analysis of expenses using a classification based on:
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a. The nature of expenses.

b. The function of expenses.
c. Either the nature of expenses or the function of expenses, whichever
provides information that is reliable and more relevant.
d. Either the nature of expenses or the function of expenses, whichever the
entity would prefer to present.

“I press on toward the goal to win the prize for which God has called me heavenward in Christ Jesus.” –
(Philippians 3:14)
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