Accounting Reviewer in FinAcc, MAS, Cost Acctg and Tax, Exercises of Cost Accounting

Download Accounting Reviewer in FinAcc, MAS, Cost Acctg and Tax and more Exercises Cost Accounting in PDF only on Docsity! Review 105-----------Day 3 THEORY OF ACCOUNTS 1. It is a possible asset that arises from past event and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the enterprise. a. Continge nt asset c. Goodwill b. Intangible asset d. Other asset 2. A contingent asset (choose the incorrect one) a. Disclosed where an inflow of economic benefits if probable. b. Disclosed where an inflow of economic benefits is remote. c. Not recognized in the financial statement. d. No longer contingent if the realization of income is virtually certain. 3. These are the events, both favorable and unfavorable, that occur between the balance sheet date and the date when financial statements are authorized for issue. 1. Events after the balance sheet date c. Fundamental errors 2. Contingencies d. Current events 4. Which of the following statements concerning discount on note payable is false? a. Discount on note payable may be debited when a company discounts its own note with the bank. b. The discount on note payable is a contra liability account which is shown as a deduction from note payable. c. The discount on note payable represents interest charges applicable to future periods. d. Amortizing the discount causes the carrying value of the liability to gradually decrease over the life of the note. 5. The proceeds from a bond issued with detachable stock purchase warrants should be accounted for a. Entirely as bonds payable b. Entirely as stockholders’ equity c. Partially as unearned revenue and partially as bonds payable d. Partially as stockholders’ equity and partially as bonds payable 6. The proceeds from the issuance of convertible bonds payable shall initially be accounted for as a. Equity for the entire proceeds b. Liability for the entire proceeds c. Liability for the face amount of the bonds and equity for the excess proceeds. d. Partly liability and partly equity 7. After initial recognition, an entity shall measure a bond liability at amortized cost using the a. Effective interest method c. Straight line method b. Bond outstanding method d. Either effective interest or straight line method 8. Events after the balance sheet date are a. 4. Adjusting events only c.Both adjusting and nonadjusting events b. Nonadjusting events only d. Neither adjusting nor nonadjusting events 9. Adjusting events after balance sheet date include all of the following, except a. The resolution after the balance sheet date of a court case. b. The bankruptcy of a customer which occurs after the balance sheet date resulting to a loss on a trade receivable account. c. The discovery of fraud or errors that show that the financial statements were incorrect. d. Dividends to holders of equity instruments proposed or declared after balance sheet date 10. Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. These broad classes are termed as the a. Elements of financial statements c. Accounting constraints b. Features of accounting d. Concepts of capital and capital maintenance 11. The elements directly related to the measurement of financial position are a. Assets, liabilities, equity, revenue and expenses b. Assets, liabilities, equity and revenue c. Assets, liabilities and equity d. Revenue and expenses 12. Asset is a. A resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise. b. A present obligation of the enterprise arising from past events the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. c. The residual interest in the assets of the enterprise after deducting all its liabilities. d. Equivalent to all financial resources of the enterprise. 13. It is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element of financial statements. a. Recognition b. Allocation c. Realization d. Summarization 14. It is the process of determining the monetary amounts at which the elements are to be recognized and carried in the balance sheet and income statement. a. Measurement b. Recognition c. Reporting d. Interpreting 15. Historical cost is the measurement basis most commonly adopted by enterprises in preparing the financial statements. This means the a. Amount of cash or cash equivalent paid or the fair value of the consideration given. b. Amount of cash or cash equivalent that would have to be paid if the same or an equivalent asset was acquired currently. c. Amount of cash or cash equivalent that could currently be obtained by selling the asset in an orderly disposal. d. Discounted value of the future net cash inflows that an item is expected to generate in the normal course of business. P1 1. On July 1, 2005, Cagayan Company paid P9,585,000 for 10% bonds with a face amount of P8,000,000. Interest is paid on June 30 and December 31. The bonds were purchased to yield 8%. Cagayan uses the effective interest method to recognize interest income from this investment. What should be reported as the carrying amount of the bonds in the December 31, 2005, balance sheet? a. 9,568,400 b. 9,601,600 c. 9,551,800 d. 9,618,200 2. On July 1, 2005, Tuguegarao Company purchased as a long term investment P8,000,000 of Candon Company’s 8% bonds for P7,570,000, including accrued interest of P320,000. The bonds were purchased to yield 10% interest. The bonds pay interest annually on December 31. Tuguegarao uses the interest method. In its December 31, 2005 balance sheet, what amount should Tuguegarao report as investment in bonds? a. 7,292,500 b. 7,207,500 c. 7,628,500 d. 7,335,000 3. On January 1, 2004, Sibalon Company purchased as a long-term investment P5,000,000 face value of 8% bonds for P4,562,000. The bonds were purchased to yield 10% interest. The bonds pay interest annually December 31. Sibalon uses the interest method of amortization. What amount (rounded to the nearest P100) should Sibalon report on its December 31, 2005 balance sheet for this long-term investment? a. 4,680,000 b. 4,662,000 c. 4,618,000 d. 4,562,000 4. On July 1, 2005, Solana Company purchased Amulong Company’s 10- year, 8% bonds with face amount of P8,000,000 for P6,720,000. The bonds mature on June 30, 2013 and pay interest semiannually on June 30 and December 31. Using the interest method, Solana recorded bond discount amortization of P28,800 for six months ended December 31, 2005. From this long-term investment, Solana should report 2005 income of a. 348,800 b. 291,200 half of 2005. In Pandan’s 2005 income statement, how much should be reported as 12. Total income from investments in securities? a. 2,200,000 c. 6,000,000 b. 6,700,000 d. 8,200,000 13. Rental revenue? a. 2,500,000 c. 3,300,000 b. 2,660,000 d. 2,760,000 14. Royalty revenue? a. 3,000,000 c. 3,800,000 b. 4,000,000 d. 5,000,000 15. During 2005, Cavite Company made the following property, plant and equipment expenditures: Land and building acquired from Bacoor Company 9,000,000 Repairs made to the building 300,000 Special tax assessment 50,000 Remodeling of office space including new partitions and walls 400,000 In exchange for the land and building acquired from Bacoor, Cavite issued 60,000 shares of its P100 par value common stock. On the date of purchase, the stock had a market value of P150 per share and the land and building had fair value of P2,000,000 and P6,000,000 respectively. During the year, Cavite also received land from a shareholder to facilitate the construction of a plant in the city. Cavite paid P100,000 for the land transfer and charged this amount to legal expenses. The land is fairly valued at P1,500,000. The cost of the land and building acquired should respectively be a. 3,800,000, and 7,450,000 b. 3,550,000, and 6,700,000 c. 3,500,000, and 6,400,000 d. 3,500,000, and 6,750,000 MAS 1.The following credit sales are budgeted by Roswell Company: January $34,000 February 50,000 March 70,000 April 60,000 The company's past experience indicates that 70% of the accounts receivable are collected in the month of sale, 20% in the month following the sale, and 8% in the second month following the sale. The anticipated cash inflow for the month of April is a. $61,720. b. $56,000. c. $60,000. d. $58,800. 2. A beverage stand can sell either soft drinks or coffee on any given day. If the stand sells soft drinks and the weather is hot, it will make P2,500; if the weather is cold, the profit will be P1,000. If the stand sells coffee and the weather is hot, it will make P1,900; if the weather is cold, the profit will be P2,000.The probability of cold weather on a given day at this time is 60%. The expected payoff for either selling coffee or soft drinks and the expected payoff if the vendor has perfect information are Coffee Soft drinks Perfect information A. P1,360 P1,600 P3,000 B. P1,960 P1,600 P2,200 C. P2,200 P1,900 P1,360 D. P3,900 P1,900 P1,960 3. Turnaround documents A. generally circulate only within the computer center. B. can be read and processed only by the computer. C. are generated by the computer and eventually return to it. D. are only used internally in an organization. 4. Why do the NPV method and the IRR method sometimes produce different rankings of mutually exclusive investment projects? A. The NPV method does not assume reinvestment of cash flows while the IRR method assumes the cash flows will be reinvested at the internal rate of return. B. The NPV method assumes a reinvestment rate equal to the discount rate while the IRR method assumes a reinvestment rate equal to the internal rate of return.* C. The IRR method does not assume reinvestment of the cash flows while the NPV assumes the reinvestment rate is equal to the discount rate. D. The NPV method assumes a reinvestment rate equal to the bank loan interest rate while the IRR method assumes a reinvestment rate equal to the discount rate. 5. What is the effective annual interest rate on a 9% annual percentage rate automobile loan that has monthly payments? A. 9% B. 9.38% C. 9.81% D. 10.94% 6. Corbin, Inc. can issue 3-month commercial paper with a face value of $1,000,000 for $980,000. Transaction costs will be $1,200. The effective annualized percentage cost of the financing, based on a 360-day year, will be A. 8.48%. B. 8.66%. C. 8.00%. D. 2.00%. 7. ABC Company finances all of its seasonal inventory needs from the local bank at an effective interest cost of 9%. The firm’s supplier promises to extend trade credit on terms that will match the 9% bank credit rate. What terms would the supplier have to offer (approximately)? a. 2/10, n/60. b. 2/10, n/100. c. 2/10, n/90. d. 3/10, n/60. 8. A company has accounts payable of $5 million with terms of 2% discount within 15 days, net 30 days (2/15 net 30). It can borrow funds from a bank at an annual rate of 12%, or it can wait until the 30th day when it will receive revenues to cover the payment. If it borrows funds on the last day of the discount period in order to obtain the discount, its total cost will be A. $51,000 less. B. $75,500 less. C. $100,000 less. D. $24,500 more. 9. Every 15 days a company receives $10,000 worth of raw materials from its suppliers. The credit terms for these purchases are 2/10, net 30, and payment is made on the 30th day after each delivery. Thus, the company is considering a 1- year bank loan for $9,800 (98% of the invoice amount). If the effective annual interest rate on this loan is 12%, what will be the net dollar savings over the year by borrowing and then taking the discount on the materials? A. $3,624 B. $1,176 C. $4,800 D. $1,224 10. A lock-box system A. Reduces the need for compensating balances. B. Provides security for late night deposits. C. Reduces the risk of having checks lost in the mail. D. Accelerates the inflow of funds. 11. Ignoring cost and other effects on the firm, which of the following measures would tend to reduce the cash conversion cycle? a. Maintain the level of receivables as sales decrease. b. Buy more raw materials to take advantage of price breaks. c. Take discounts when offered. d. Forgo discounts that are currently being taken. 12. In choosing from among mutually exclusive investments the manager should normally select the one with the highest A. NPV C. payback reciprocal B. IRR D. book rate of return 13. For the past 12 years, the Blue Company has produced the small electric motors that fit into its main product line of dental drilling equipment. As material costs have steadily increased, the controller of the Blue Company is reviewing the decision to continue to make the small motors and has identified the following facts: 1. The equipment used to manufacture the electric motors has a book value of P150,000. 2. The space now occupied by the electric motor manufacturing department could be used to eliminate the need for storage space now being rented. 3. Comparable units can be purchased from an outside supplier for P59.75. 4. Four of the persons who work in the electric motor manufacturing department would be terminated and given eight weeks’ severance pay. 5. A P10,000 unsecured note is still outstanding on the equipment used in the manufacturing process. Which of the items above are relevant to the decision that the controller has to make? A. 1, 3, and 4 C. 2, 3, 4, and 5 B. 2, 3, and 4 D. 1, 2, 4, and 5 14. Ottawa Corporation produces two products from a joint process. Information about the two joint products follows: Product X Product Y Anticipated production 2,000 lbs 4,000 lbs Selling price per lb. at split-off P30 P16 Additional processing costs/lb after split-off (all variable) P15 P30 Selling price/lb after further processing P40 P50 The cost of the joint process is P85,000. Ottawa currently sells both products at the split-off point. If Ottawa makes decisions which maximizes profit, Ottawa’s profit will increase by A. P16,000 C. P50,000 B. P4,000 D. P10,000 15.Opportunity costs: A. Are treated as period costs under variable costing. B. Have already been incurred as a result of past action. C. Are benefits that could have been obtained by following another course of action. D. Do not vary among alternative courses of action. P2 1. Paris LTD. owned a 75% interest in Scott Company prior to January 1, 20X3. On January 1, 20X1, Paris LTD. paid $600,000 for its interest when Scott Company had total equity of $550,000. On January 1, 20X3, Scott Company had the following stockholders' equity: Common stock, $10 par............... $100,000 Other paid-in capital............... 200,000 Retained earnings................... 350,000 On January 2, 20X3, Scott Company sold 2,500 additional shares of stock for $80 each in a private offering to noncontrolling shareholders. As a result of this sale, which of the following changes would appear in the 20X3 consolidated statements? a. $50,000 gain b. $22,500 gain c. $50,000 increase in controlling paid-in capital d. $22,500 increase in controlling paid-in capital 2. Paris LTD. owned a 75% interest in Scott Company prior to January 1, 20X3. On January 1, 20X1, Paris LTD. paid $600,000 for its interest when Scott Company had total equity of $550,000. On January 1, 20X3, Scott Company had the following stockholders' equity: Common stock, $10 par............... $100,000 Other paid-in capital............... 200,000 Retained earnings................... 350,000 On January 2, 20X3, Scott Company sold 2,500 additional shares of stock for $35 each in a public offering to noncontrolling shareholders. As a result of this sale, which of the following changes would appear in the 20X3 consolidated statements? a. $45,000 loss b. $21,875 loss c. $45,000 decrease in controlling paid-in capital d. $21,875 decrease in controlling paid-in capital 3. When a parent purchases a portion of the newly issued stock of its subsidiary and the ownership interest remains the same, Depreciation Expense (29,000) Other Expenses (166,000) Interest Expense (20,000) Net Income P25,000 Your investigation revealed the following information: a. On January 1, 2007, UKG issued P200,000, 10%, 10 year bonds when the market rate of interest was 8%. Interest is payable on June 30 and December 31. b. All purchases of inventory are on account and other expenses reflect those expenses paid in cash during the period. c. The company had open invoice (unpaid invoices) from suppliers amounting to P120,000 on December 31, 2007 and P116,000 on January 1, 2007. d. The company had outstanding invoices (uncollected invoices) to customers amounting to P96,000 on January 1, 2007 and P110,000 on December 31, 2007. e. Inventory taking at the end of each year revealed that inventory on hand on December 31, 2006 amounted to P186,000 while inventory on December 31, 2007 was at P174,000. f. Accrued utilities at the beginning and at the end of the year amounted to P5,000 and P7,000 respectively while prepaid rentals at the beginning and at the end of the year amounted to P10,000 and P14,000, respectively. Based on the information available and as a result of your audit, determine the following: 1. How much was paid for inventory purchases? a. 344,000 b. 348,000 c. 368,000 d. 372,000 2. How much was received from customers in 2007? a. 490,000 b. 566,000 c. 586,000 d. 614,000 3. What is the carrying value of the bonds payable on December 31, 2007? a. 225,318 b. 226,267 c. 226,840 d. 227,180 4. What is the correct interest expense in 2007? a. 21,862 b. 20,000 c. 19,087 d. 18,138 5. What is the correct net income in 2007? a. 26,862 b. 28,862 c. 29,718 d. 46,000 You are performing, for the first time, the audit for the year ended December 31, 2007 of GKNB CORP.financial statements. The company reported the following amounts of net income for the years ended December 31, 2005, 2006, and 2007: 2005 P381,000 2006 450,000 2007 385,500 During your examination, you discovered the following errors: a. You observed that there were errors in the physical count: December 31, 2006 inventories were understated by 42,000 and December 31, 2007 were overstated by 69,000. b. On December 30, 2007 GKNB recorded on account, merchandise in transit which cost 45,000. The merchandise was shipped FOB Destination and had not arrived by December 31. The merchandise was not included in the ending inventory. c. Accrual sales at each year end were consistently omitted as follows: 2005 12,000 2006 15,000 2007 10,500 d. Accrual of salaries were consistently omitted as follows: December 31, 2005 30,000 December 31, 2006 42,000 e. On march 5, 2006, a 10%stock dividend was declared and distributed. The par value of the shares amounted to 30,000 and market value was 39,000. The stock dividend was recorded as follows: Other expense 30,000 Ordinary shares 30,000 f. On July 1, 2006, GKNB paid a 3-year rent. The 3-year premium of 18,000 was paid on that date, and the entire premium was recorded as insurance expense. g. On January 1, 2007, GKNB retired bonds with a book value of 360,000 for 318,000. The gain was deferred and amortized over 10 years as a reduction of interest expense on other outstanding bonds. 6. What is the correct net income in 2005? a. 399,000 b. 363,000 c. 351,000 d. 339,000 7. What is the correct net income in 2006? a. 477,000 b. 498,000 c. 528,000 d. 534,000 8. What is the correct net income in 2007? a. 313,200 b. 388,800 c. 393,000 d. 418,800 9. What is the retroactive adjustment to the beginning retained earnings in 2007 to correct the prior years’ errors? a. 21,000 cr. B. 21,000 dr. c. 69,000 dr. d. 69,000 cr. 10. What is the adjusting entry in 2007 to correct the error in item e above? a. Accumulated profits 39,000 Other expense 30,000 Share premium 9,000 b. Accumulated profits 30,000 Accumulated profits 30,000 c. Accumulated profits 9,000 Share premium 9,000 d. No adjustment is necessary You are auditing the financial statements of Morlog Co. the company’s accountant provided you with the following comparative statements of income and accumulated profits for the years 2006 and 2007. 2007 2006 Sales P4,500,000 6,000,000 Cost of goods sold ( 2,800,000) (2,400,000) Gross income 3,200,000 2,100,000 Operating expenses (1,500,000) (1,800,000) Net profit 1,700,000 300,000 Accumulated profits, beg 1,150,000 1,000,000 Net profit 1,700,000 300,000 Dividends paid (500,000) (150,000) Accumulated profits, end 2,350,000 1,150,000 Audit notes: a. The ending inventory for 2006 was understated by 100,000. b. The company decided to change its method of depreciation from the double- declining balance method to the straight-line. The depreciable assets had a 10 year useful life and is 50% depreciated as at the end of 2006. The salvage value of the said assets was estimated to be 50,000. Expenses in the income statements included a 350,000 depreciation expense computed based on double-declining balance method. c. On August 31, 2006, the company started the construction of a building it plans to use as a second factory. As of the current balance sheet, the construction is yet to be finished. Total accumulated costs incurred on the construction and recorded in its construction-in-progress account, amounted to 1,250,000, which included a 25,000 capitalized borrowing cost in 2006, since the company opted to apply the alternative approach of accounting for finance cost in accordance with PAS 23. During the current year, the company decided to change the method of accounting for borrowing cost to follow the benchmark treatment. Actual borrowing cost in 2007 amounted to 75,000 it charged to current operations. Answer the following questions based on the above information: 11. What is the correct net income in 2006? a. 400,000 b. 300,000 c. 275,000 d. 200,000 12. What is the correct net income in 2007? a. 1,715,000 b. 1,685,000 c. 1,675,000 d. 1,610,000 13. What is the adjusted accumulated profits balance at the beginning of 2007? a. 1,025,000 b. 1,075,000 c. 1,225,000 d. 1,275,000 14. What is the adjusted accumulated profits at the end of 2007? a. 2,335,000 b. 2,385,000 c. 2,835,000 d. 2,885,000 15. What is the necessary adjusting entry as a result of the change described in item c? a. No adjustment is necessary b. Interest expense 25,000 Retained earnings 25,000 c. Interest expense 25,000 Construction in progress 25,000 d. Retained earnings 25,000 Construction in progress 25,000 BLT The BFABF corporation provided the following data for calendar year ending December 31,2009: ($1-P50) Philippines Abroad GROSS INCOME P4,000,000 $40,000 DEDUCTIONS P2,500,000 $15,000 INCOME PAID 3,000 1.If it is a domestic corporation, its income tax after credit is: a. P812,500 b.P832,000 c.P880,000 d.P675,000 2.if it is a resident corporation, its income tax is: a.P525,000 b.P1,280,000 c.P880,000 d.P450,000 3.if it is a non-resident alien corporation, its income tax: a. 1200,000 b. 128,000 c. 880,000 d. 730,000 4. if it is a private educational institution, its income tax after tax credit: a. 675,000 b. 832,000 c. 275,000 d. 150,000 5. If it is a resident corporation and it remitted 60% of its head office abroad, its total tax liability is (original data): a. 544,500 b. 571,800 c. 196,000 d. 612, 750 6. In a contract of sale executed by S and B, it appears S sold his motor vehicle to B for P50,000. It turned out however, S has three motor vehicles. Gallant valued P80,000: Hi-Ace van valued P70,000: and a Jeep valued P50,000. Which of the following is correct? a. The contract shall be reformed because there was mistake. b. The parties can ask interpretation because the word Motor vehicle is ambiguous. c. The parties can ask for annulment of the contract. d. There is no contract 7. An agreement restraint of trade or establishing monopoly is: a. Perfectly valid b. Voidable c. Unenforceable d. Valid 8. Three of the following is rescissible which is not? a. Sale of property under litigation made by defendant without the consent of plaintiff or authority of the court