1

CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING PREWEEK LECTURE
OCTOBER 2024 CPALE BATCH 96
1. An entity provided the following account balances at year-end which had been adjusted except for
income tax expense:
Cash 3,600,000
Accounts receivable 3,500,000
Cost in excess of billings on long-term contracts 1,500,000
Billings in excess of cost on long-term contracts 700,000
Prepaid taxes 1,000,000
Property, plant and equipment, at carrying amount 4,000,000
Note payable - noncurrent 3,500,000
Share capital 2,000,000
Share premium 1,000,000
Retained earnings unappropriated 1,400,000
Retained earnings restricted for note payable 1,000,000
Earnings from long-term contracts 9,000,000
Costs and expenses 5,000,000
All receivables on long-term contracts are considered to be collectible with 12 months. During the year,
estimated tax payments of P1,000,000 were charged to prepaid taxes. The entity has not recorded income
tax expense. The rate is 25%.
I. The total current assets should be reported at P8,600.000.
II. The total noncurrent liabilities should be reported P4,200,000.
III. The retained earnings should be reported at P5,400,000
IV. Cash or cash equivalent restricted to settle a liability for more than twelve months after reporting
period should be classified as noncurrent.
a. All statements are true
b. All statements are not true
c. Only statements I and III are true
d. Only statements I, III and IV are true
2. An entity reported the following liabilities on December 31, 2024:
Accounts payable, after deducting debit balances in suppliers’ accounts of P500,000 2,000,000
Short-term borrowings 1,500,000
Bonds payable due December 31, 2025 3,000,000
Discount on bonds payable 200,000
Bank loan due June 30, 2025 1,000,000
Credit balances in customers’ accounts 400,000
Share dividend payable 600,000
Claims for increase in wages by employees covered in pending lawsuit 700,000
Estimated expenses in redeeming prize coupons 800,000
Deferred tax liability 1,200,000
The P1,000,000 bank loan was refinanced with a 5-year loan on December 31, 2024. The financial
statements were issued on March 1, 2025.
I. The total current liabilities should be reported at P8,000,000.
II. The total noncurrent liabilities should be reported at P2,200,000.
III. A financial liability due within twelve months after the reporting period should be classified as
noncurrent if the entity has an existing right at the end of reporting period to defer settlement for at
least twelve months after the reporting period.
a. All statements are true c. All statements are false
b. Statements I and III are true d. Only statement III is true

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SITUATION – Four independent entities

Dean Company acquired 100% of Morey Company in the prior year. During the current year, the
individual entities included in their financial statements the following:
Dean Morey
Key officers’ salaries 750,000 500,000
Officers’ expenses 200,000 100,000
Loans to officers 1,250,000 500,000
Intercompany sales 1,500,000
Steel Company reported wages expense of P6,000,000 for 2024. The wages payable at the beginning of
year amounted to P1,500,000. Wage payments during 2024 totaled P5,000,000. The previous year’s
adjusting entry for unpaid wages was reversed on January 1, 2024.

Albania Company reported income before tax of P5,000,000 for the current year which included the
following amounts income before tax:
Equity in earnings of an associate 1,600,000
Dividend received from associate 300,000
Adjustment of profit of prior year for arithmetical error in depreciation (1,400,000)
Gain on sale of equity investment at FVOCI 1,000,000
Unrealized loss on foreign currency translation ( 500,000)

Roma Company provided the following data relating data to operating segments for current year:
Total revenue 50,000,000
Sales to external customers included in total revenue 10,000,000

3. What total amount should be reported as related party disclosures in the notes to Dean Company’s
consolidated financial statements for the current year?
a. 1,500,000
b. 1,550,000
c. 1,750,000
d. 3,000,000

4. What is the adjusting entry for accrued wages payable recorded by Steel Company on December 31,
2024?

a. Debit wages expense and credit wages payable P1,000,000

b. Debit wages expense and credit wages payable P1,500,000
c. Debit wages expense and credit wages payable P2,500,000
d. Debit wages payable and credit wages expense P2,500,000

5. What amount should Albania Company report as income before tax?

a. 5,600,000
b. 4,700,000
c. 5,100,000
d. 6,600,000

6. What amount of external revenue must at least be reported by Roma Company for reportable segments?
a. 30,000,000
b. 37,500,000
c. 7,500,000
d. 6,000,000

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7. On April 1, 2024, an entity had a machine with cost of P5,000,000 and accumulated depreciation of
P3,750,000. On April 1, 2024, the entity classified the machine as held for sale and decided to sell the
machine within one year. On April 1, 2024, the machine had an estimated selling price of P500,000 with
estimated cost of disposal of P50,000 and remaining useful life of 2 years. On December 31, 2024, the
estimated selling price of the machine had increased to P750,000 with estimated cost of disposal of
P100,000.
I. An impairment loss of P800,000 should be recognized on April 1, 2024.
II. No gain on reversal of impairment should be recognized.
III. A noncurrent asset held for sale should be recorded at the lower between carrying amount and fair
value less cost of disposal and should be depreciated.
a. All statements are true
b. Only statement I is true
c. All statements are not true
d. Only statements I and III are true
8. The entity had the following account balances on December 31, 2024:

Petty cash fund 50,000

Philippine Bank – current account 4,000,000
Manila Bank – current account (overdraft) (1,200,000)
Security Bank – value added tax account 200,000
Metrobank – payroll account 400,000
Cash on hand 500,000
Asia Bank – savings account for plant addition in 2025 1,500,000
Treasury bills 1,000,000
Treasury bonds 700,000
The petty cash fund included unreplenished December 2024 petty cash expense vouchers P5,000 and
employee IOU P5,000. The cash on hand included a P100,000 customer check payable to the entity dated
January 15, 2025. Check of P400,000 drawn against Philippine Bank current account dated and recorded
on December 31, 2024 was mailed to creditor on January 15, 2025.
I. The unrestricted cash should be reported at P5,440,000 under current assets.
II. The total amount of cash equivalents should be reported at P1,700,000
III. Cash set aside for the payment of bonds payable due on December 31, 2025 is included in
unrestricted cash under current assets.
a. All statements are true
b. All statements are not true
c. Statements I and II are true
d. Statements I and III are true.
9. An entity reported an imprest petty cash fund of P50,000 with the following details:
Currencies 20,000
Coins 2,000
Petty cash vouchers 9,000
A check drawn by the entity payable to the order of Anne Cruz, petty cash custodian,
representing her salary 15,000
An employee check returned by the bank marked NSF 3,000
A sheet of paper with names of several employees together with contribution for a
birthday gift to a co-employee. Attached to the sheet of paper is a currency of 5,000
I. The petty cash fund should be reported at P37,000
II. A cash overage of P1,000 should be reported.
III. The replenishment of an imprest petty cash fund is recorded by debiting petty cash fund and
crediting cash in bank.
a. Statements I, II and III are true.
b. Only statement I is true.
c. All statements are not true.
d. Only statements I and II are true.
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SITUATION – Four independent entities

Bee Company provided the following information on December 31:
Credit memo for November recorded in December 600,000
Credit memo for December not yet recorded 800,000
Deposit in transit – December 31 1,500,000
Erroneous bank charge in December corrected by bank in December 200,000
Erroneous receipt by Bee Company in December not corrected until next year 100,000
Total book receipts for December 8,500,000
Total bank credits in December 8,000,000
Zee Company provided the following information for October and November:
Checks and charges recorded by bank in November, including a November service
charge of P5,000 and NSF customer check of P20,000 550,000
Service charge made by bank in October and recorded by depositor in November 10,000
Total credits to cash in all journals during November 620,000
Customer NSF check returned in October and redeposited in November but no entry
made by depositor in either October or November 40,000
Outstanding checks on October 31 that cleared in November 230,000
Dior Company used the net price method of accounting for cash discounts. In one of its transactions on
December 26, 2024, the entity sold merchandise with a list price of P1,000,000 to a client who was
given a trade discount of 20%, 10% and 5%. Credit terms were 4/10, n/30. The goods were shipped
FOB destination, freight collect. Total freight charge paid by the customer was P25,000. On December
27, 2024, the customer returned damaged goods originally billed at P100,000.
Exelsa Company provided the following information pertaining to accounts receivable at year-end:
Days outstanding Amount Uncollectible
0 - 60 1,200,000 5%
61 - 120 900,000 10%
Over 120 1,000,000 20%
During the current year, the entity wrote off P100,000 in accounts receivable and recovered P50,000 that
had been written off in prior years. At the beginning of current year, the allowance for doubtful accounts
was P150,000.
10. What amount should Bee Company report as deposit in transit on November 30?
a. 700,000
b. 600,000
c. 500,000
d. 900,000
11. What amount should Zee Company repost as outstanding checks on November 30?
a. 275,000
b. 300,000
c. 315,000
d. 290,000
12. What amount should Dior Company report as net realizable value of accounts receivable?
a. 559,000
b. 584,000
c. 535,640
d. 560,640
13. Which amount should be recognized as doubtful accounts expense for the year?
a. 450,000
b. 250,000
c. 200,000
d. 300,000
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14. At the beginning of current year, an entity reported accounts receivable of P2,000,000 and allowance
for doubtful accounts of P100,000.
Credit sales during the year amounted to P7,200,000. Ninety percent of the credit customers did not
take advantage of the 5/10, N/30 terms. The customers who did not take advantage of the cash discount
paid P5,940,000. Sales returns from credit customers amounted to P80,000.
During the year, accounts totaling P60,000 were written off as uncollectible. Recoveries amounted to
P10,000 during the year. This amount was not included in the total collections from credit customers.
The allowance for doubtful accounts is adjusted so that it represented a percentage of the year -end
outstanding accounts receivable.
I. The year-end accounts receivable should be reported at P2,400,000 before allowance.
II. The doubtful accounts expense should be reported at P70,000 for the current year.
III. The net realizable value of accounts receivable should be reported at P2,280,000
IV. Under the allowance method for recording doubtful accounts, the collection of an account
previously written of would not affect the allowance account.
a. All statements are true
b. All statements are not true
c. Statements I, II and III are true
d. Only statements I and II are true.

15. An entity factored P750,000 of accounts receivable. Control was surrendered. The factor accepted the
accounts receivable subject to recourse for nonpayment. The fair value of the recourse obligation was
P20,000. The factor assessed a factoring fee of 2% and retained a holdback of 4% of the accounts
receivable. In addition, the factor charged 12% interest computed on a weighted-average time to
maturity of 51 days.
I. The cash received initially from the factoring amounted to P692,425.
II. The total amount of loss on factoring should be recognized initially at P27,575.
III. When an entity factored accounts receivable without recourse with a bank, the transaction is best
described as sale of accounts receivable with risk of uncollectible accounts retained by the entity.
a. Only statements I and II are true.
b. All statements are true
c. All statements are false.
d. Only statement I is true.

16. An entity provided the following data relating to an inventory:

Units Unit cost Total cost
January 1 Beginning balance 5,000 200 1,000,000
10 Purchase 5,000 250 1,250,000
15 Sale 7,000
16 Sale return 1,000
30 Purchases 16,000 150 2,400,000
31 Purchase return 5,000 150 750,000

I. Under the weighted average method, the inventory on January 31 should be reported at
P2,785,650.
II. Under the moving average method, the January 31 inventory should be reported at P2,550,000.
III. The cost of goods sold for January under the moving average method should be reported at
P1,350,000.

a. All statements are true

b. All statements are false
c. Only statement II is true
d. Only statements I and II are true

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17. An entity started operations on January 1, 2024 and adopted the weighted average method:
2024 2025 2026
Sales 3,000,000 4,000,000 4,800,000
Cost at goods sold 1,500,000 2,000,000 2,400,000
Gross income 1,500,000 2,000,000 2,400,000
Expenses 800,000 900,000 1,000,000
Net income 700,000 1,100,000 1,400,000
The entity provided the following comparative inventory amount:
Weighted average FIFO
December 31, 2024 270,000 420,000
December 31, 2025 300,000 500,000
December 31, 2026 380,000 650,000
Which of the following statements is false?
a. The net income under FIFO should be reported at P850,000 for 2024.
b. The net income under FIFO should be reported at P1,300,000 for 2025.
c. The net income under FIFO should be reported at P1,470,000 for 2026.
d. A change in inventory valuation method is a change in accounting policy
18. An entity reported the following information for the current year:
Beginning inventory 5,000,000
Purchases 26,000,000
Freight in 2,000,000
Purchase returns and allowances 3,500,000
Purchase discounts 1,500,000
Sales 40,000,000
Sales returns 3,000,000
Sales allowances 500,000
Sales discounts 1,000,000
A physical inventory taken at year-end resulted in an ending inventory of P4,000,000. At year-end,
unsold goods out on consignment with selling price of P1,000,000 are in the hands of a consignee. The
gross profit rate is 40%.
I. The estimated cost of inventory shortage should be reported at P1,200,000.
II. The gross profit method may be used to estimate inventory for reporting of annual financial
statements.
a. All statements are true
b. All statements are false
c. Only statement II is true.
d. Only statement I is true.
19. An entity used the retail inventory method to estimate inventory at year-end.
Cost Retail
Beginning inventory 720,000 1,000,000
Purchases 4,080,000 6,300,000
Net markups 700,000
Net markdowns 500,000
Sales 6,800,000
Estimated normal shoplifting losses 100,000
Which of the following statements is false?
a. Under conservative approach, the estimated cost of ending inventory is P360,000
b. Under average cost approach, the estimated cost of ending inventory is P384,000
c. Under average cost approach, the cost of goods sold should reported at P4,416,000
d. The conventional retail approach is designed to approximate inventory valuation at average cost.

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20. An entity is engaged in raising dairy livestock. The entity provided the following information during
current year:
Carrying amount on January 1 5,000,000
Increase due to purchases 2,000,000
Gain arising from change in fair value less cost of disposal attributable to price change 400,000
Gain arising from change in fair value less cost of disposal attributable to physical change 600,000
Decrease due to sales 850,000
Decrease in fair value due to harvest 200,000
Which of the following statements is false?
a. The biological asset be reported at P6,950,000 at end of the current year.
b. The gain from biological asset should be reported at P800,000 for the current year.
c. Under IFRS, bearer plants are classified as property, plant and equipment
d. In a forest plantation and farm, freestanding trees, land under trees and roads in forest should be
included in biological assets.

21. An entity insured the life of its president for P6,000,000. The entity is the beneficiary of the ordinary
insurance policy. The premium is P400,000. The policy is dated January 1, 2021. The cash surrender
values on December 31, 2024 and 2025 are P120,000 and P160,000, respectively. The entity follows the
calendar year as its fiscal year. The president died on October 1, 2025 and the policy was collected on
December 31, 2025. No premium was refunded on the insurance settlement. What is the gain on life
insurance settlement?
a. 5,620,000
b. 5,780,000
c. 5,740,000
d. 5,580,000

22. An entity began operations at the beginning of current year. The entity provided the following
information relating to portfolio of equity securities at end of the year:
Trading Nontrading
Aggregate cost 4,000,000 6,000,000
Aggregate market value 3,700,000 5,500,000
Aggregate lower of cost or market value applied to each security 3,500,000 5,300,000
The nontrading securities are designated at fair value through other comprehensive income. The market
declines are judged to be other than temporary. Which of the following statements is true?
a. The amount of unrealized loss on the securities that should be reported in the income statement is
P300,000.
b. The amount of unrealized loss on the securities that should be reported as component of other
comprehensive income is P700,000.
c. The irrevocable election to designate equity securities at FVOCI is applicable to both trading and
nontrading equity.
d. Any transaction cost on the acquisition of equity investments held for trading are capitalized.
23. At the beginning of current year, an entity acquired 20% of the outstanding ordinary shares of an investee
for P7,000,000. This investment the entity the ability to exercise significant influence over the investee.
The carrying amount of the acquired shares was P6,000,000. The excess of cost over carrying amount
was attributed to an identifiable intangible asset which was undervalued on the investee’s statement of
financial position and which had a remaining useful life of ten years. The investee reported net income
of P1,800,000 and paid cash dividends of P600,000 and thereafter issued 5% share dividend during the
current year. Which of the following statements is false?
a. The investment income should be reported at P260,000 for current year.
b. The carrying amount of the investment in associate is P7,140,000 at end of year.
c. The implied goodwill from the acquisition amounted to P1,000,000.
d. An investor that owned 20% of the associate should report separately any receivable from the
associate.

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24. On January 1,2024, an entity purchased 9% bonds in the face amount of P6,000,000. The bonds mature
on January 1, 2029 and were purchased for P5,555,000 to yield 11%. The entity classified the bonds as
held for trading and interest is payable annually every December 31. The entity provided the following
information about fair value of the bonds and effective rate:
Fair value Effective rate
December 31, 2024 5,450,000 12%
December 31, 2025 6,155,000 8%
On December 31, 2025, the entity changed the business model for this investment to collect contractual
cash flows composed of principal and interest. On January 1, 2026, the fair value of the bonds did not
change. Which of the following statements is false?
a. An entity is permitted to reclassify debt-type financial assets, except those under the fair value option,
if it changes the business model of managing such financial assets.
b. If an entity reclassifies a financial asset from FVPL to amortized cost, a new effective rate shall not
be computed based on the fair value at the date of reclassification.
c. The unrealized loss for 2024 is P105,000.
d. The interest income for 2026 is P492,400.
25. On December 31, 2024, an entity, a real estate company, has an existing building used for administrative
purposes and land that is be sold in the ordinary course of business. The building has a carrying amount
of P50,000,000 and the land has a cost of P2,500,000. On December 31, 2024, the entity decided to
change the use of both building and land. The existing building shall be rented out under an operating
lease. The administrative staff will be relocated to a new building that was acquired by the entity. The
land will be held for capital appreciation. Both assets shall be carried at fair value. On December 31,
2024, the fair values of the building and land were P65,000,000 and P4,500,000 respectively.
Statement I: The building and land shall be reclassified to investment property.
Statement II The entity shall recognize P15,000,000 as revaluation surplus on December 31, 2024.
Statement III: The entity shall recognize P2,000,000 in profit or loss on December 31, 2024.
a. All statements are true.
b. Only statement I is true.
c. Statements II and III are true.
d. Only statement II is true.
26. An entity had the following loans outstanding in 2024:
Specific construction loan – 8% 5,000,000
General purpose loan – 10% 20,000,000
The entity began the construction of a building on January 1, 2024 and the building was completed on
December 31, 2024. The expenditures during 2024 were January 1, P3,000,000, July 1 P6,000,000 and
November 1 P9,000,000.
I. The capitalizable interest should be reported at P650,000 for 2024.
II. The cost of the building should be reported at P18,650,000 on December 31, 2024.
III. The interest expense should be reported at P1,750,000 for 2024.
IV. Any investment income on the temporary investment of specific loan proceeds shall reduce the
cost of the asset.
a. All statements are true
b. All statements are not true.
c. Statements I, II and III are true
d. Only statements I and II are true.
27. An entity acquired at the beginning of 2024 nontrading equity instrument for P5,000,000 including
transaction cost of P550,000 and irrevocably designated as financial asset at fair value through other
comprehensive income. The fair value was P5,900,000 at December 31, 2024 and the transaction cost
that would be incurred on the sale of the investment is estimated at P500,000. What amount of unrealized
gain should be recognized in OCI for 2024?
a. 900,000 c. 400,000
b. 350,000 d. 950,000

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28. An entity incurred the following costs in relation to property, plant and equipment:
Cash paid for purchase of land and an old building 2,500,000
Mortgaged assumed on the land purchased, including interest accrued P100,000 1,000,000
Realtor commission 300,000
Legal fees, realty taxes and documentation expenses 50,000
Amount paid to relocate persons squatting on the property 100,000
Cost of tearing down an old building on the land to make room for construction
of new building 200,000
Salvage value of old building demolished 50,000
Cost of fencing the property after construction 250,000
Amount paid to contractor for the building constructed 5,000,000
Building permit fee 50,000
Excavation 50,000
Architect fee 200,000
I. The cost of the land should be reported at P3,950,000.
II. The cost of the building should be reported at P5,450,000
III. The cost of demolishing an old building on land purchased without constructing a new building
should be expensed as incurred minus salvage proceeds.
a. All statements are true.
b. Only statements I and II are true
c. All statements are false.
d. Only statement II is false.

29. An entity issued on December 31, 2023 20-year bonds of P5,000,000 for P5,426,000 to yield 10%.
Interest is payable annually on December 31 at 11%. On June 30, 2025, the entity retired 2,000 bonds
with P1,000 face amount per bond at 96 plus accrued interest. The accounting period is the calendar year.

Statement I: The gain on early retirement of bonds in 2025 is P245,812.

Statement II: The carrying amount of the remaining bonds on December 31, 2025 is P3,246,276.
Statement III: Interest expense for the year 2025 is P433,488.

a. All statements are true

b. Statements I and II are true.
c. Statements II and III are true.
d. Statements I and III are true.

Bonds retired (2,000 / 5,000 x 5,426,000) 2,170,400

(11%) (10%)
Date Interest paid Interest expense Amortization Carrying amount
12/31/23 2,170,400
12/31/24 220,000 217,040 2,960 2,167,440
6/30/25 110,000 108,372 1,628 2,165,812

Remaining bonds (3,000 / 5,000 x 5,426,000) 3,255,600

(11%) (10%)
Date Interest paid Interest expense Amortization Carrying amount
12/31/23 3,255,600
12/31/24 330,000 325,560 4,440 3,251,160
12/31/25 330,000 325,116 4,884 3,246,276

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30. An entity started business in 2024 and sold printers with a three-year warranty. The warranty cost is
estimated as a percent of sales 3% in the first year of warranty, 5% in the second year of warranty and
10% in the second year of warranty. The entity was able to sell 7,500 units in 2024 and 10,000 units in
2025 at P4,000 per unit. The entity incurred actual warranty cost of P800,000 in 2024 and P2,400,000 in
2025. Sales and repairs occurred evenly throughout the year.

1. What amount should be reported as adjusted warranty liability on December 31, 2025?
a. 9,675,000
b. 9,600,000
c. 9,300,000
d. 8,100,000

2. What amount should be reported as adjusted warranty expense for 2025?

a. 7,475,000
b. 6,925,000
c. 7,200,000
d. 7,400,000

Computation
January 1, 2024 sales
First contract year 2024 ( 3% x 15,000,000) 450,000
Second contract year 2025 ( 5% x 15,000,000) 750,000
Third contract year 2026 (10% x 15,000,000) 1,500,000
July 1, 2024 sales
First contract year July 1, 2024 to June 30, 2025 450,000
Second contract year July 1, 2025 to June 30, 2026 750,000
Third contract year July 1, 2026 to June 30, 2027 1,500,000
Total warranty expense for 2024 5,400,000

2024 sales still under warranty on December 31, 2025

Third contract year January 1,2024 sales - 2026 1,500,000
Second contract year July 1, 2024 sales - January 1, 2026 to June 30, 2026 (750,000 x ½) 375,000
Third contract year July 1, 2024 sales - July 1, 2026 to June 30, 2027 1,500,000
2024 sales still under warranty on December 31, 2025 3,375,000
January 1, 2025 sales
First contract year 2025 ( 3% x 20,000,000) 600,000
Second contract year 2026 ( 5% x 20,000,000) 1,000,000
Third contract year 2027 (10% x 20,000,000) 2,000,000
July 1, 2025 sales
First contract year July 1, 2025 to June 30, 2026 600,000
Second contract year July 1, 2026 to June 30, 2027 1,000,000
Third contract year July 1, 2027 to June 30, 2028 2,000,000
Total warranty expense for 2025 7,200,000
2025 sales still under on December 31, 2025
Second contract year January 1, 2025 sales – 2026 1,000,000
Third contract year January 1, 2025 sales - 2027 2,000,000
First contract year July 1, 2025 sales - January 1, 2026 to June 30, 2026 (600,000 x ½) 300,000
Second contract year July 1, 2025 sales - July 1, 2026 to June 30, 2027 1,000,000
Third contract year July 1, 2025 sales - July 1, 2027 to June 30, 2028 2,000,000
2024 sales still under warranty on December 31, 2025 6,300,000

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31. On December 31, 2024, an entity had outstanding P3,000,000, 8% convertible bonds that mature on
December 31, 2026. Interest is payable annually every December 31 and each P1,000 bond is convertible
into 30 ordinary shares with a P20 par value per share. The unamortized premium was P300,000 and the
equity component when the bonds were sold was P700,000. On the same date, 1,200 bonds were
converted when the fair value of entity’s share was P40. What amount of share premium should the entity
record as a result of the conversion?
a. 640,000
b. 880,000
c. 600,000
d. 760,000

32. An entity operates a customer loyalty program. The entity grants program members loyalty points when
they spend a specified amount of purchases. Program members can redeem the points for further
purchases. The points have no expiry date. During 2024, the customer earned 60,000 points.
Management expects the 100% of these points will be redeemed. The stand-alone selling price of each
loyalty point is P20. The sales during 2024 amounted to P6,800,000 based on stand-alone selling price.
On December 31, 2024, 28,800 points have been redeemed in exchange for purchases. In 2025, the
management revised expectations and now expects 90% of the points to be redeemed. In 2025, the entity
redeemed 9,000 points.
Statement I: The transaction price allocated to the loyalty points on January 1, 2024 is P1,020,000.
Statement II: The revenue from the points in 2024 is P489,600.
Statement III: The revenue from the points in 2025 is P224,400.
a. All statements are true.
b. Only statements II and III are true.
c. Only statement II is true.
d. All statements are false.

33. On December 31, 2024, an entity leased a machine for a five-year period. Equal annual payments under
the lease are P1,050,000 including P50,000 annual executory cost and are due on December 31 of each
year. The first payment was made on December 31, 2024, and the second payment was made on
December 31, 2025. The five lease payments are discounted at 10% over the lease term. The present
value of minimum lease payments at the inception of the lease and before the first annual payment was
P4,170,000.
I. The carrying amount of the lease liability is P3,170,000 on December 31, 2024.
II. There is no interest expense in 2024.
III. The carrying amount of the liability is P2,487,000 on December 31, 2025.
IV. The interest expense is P317,000 for 2025.
a. All statements are true.
b. Only statements I and III are true.
c. Statement IV is false
d. Only Statements I, III and IV are true.

34. An entity leased equipment to a lessee on January 1, 2024 for an eight-year period. Equal payments under
the lease are P500,000 and are due on January 1 of each year. The first payment was made on January 1,
2024. The selling price of the equipment is P2,900,000 and the carrying amount is P2,000,000. The lease
is appropriately accounted for as a sales type lease. The lessor incurred an initial direct cost of P100,000.
The present value of the lease payments at an implicit interest rate of 12% is P2,780,000.
I. The unearned interest revenue should be reported at P1,100,000 on January 1, 2024.
II. The gross profit on the sale should be reported at P680,000 for 2024.
III. The interest revenue should be reported at P273,600 for 2024.
IV. The carrying amount of the lease receivable is P2,053,600 on January 1, 2025.
a. All statements are true
b. Only statements II and III are true.
c. Statements I and II are false
d. Only statements II, III and IV are true

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35. On June 1, 2024, an entity entered into a lease agreement for a new building with a lessee. The lease is
accounted for as an operating lease and fully executed on that day. According to the terms of the lease,
payments of P200,000 per month are scheduled to begin on September 1, 2024 and to continue each
month thereafter. The lease term spans 5 years effective June 1, 2024. The entity has a calendar year -
end.
Statement I: A lessor recognizes operating lease payments as income on a straight-line basis or, if more
representative of the pattern in which benefit from use of the underlying asset is diminished,
another systematic basis.
Statement II: Rental income for the year 2024 is P2,280,000.
a. All statements are true.
b. All statements are false.
c. Only statement I is true.
d. Only statement II is true.
36. At the beginning of current year, an entity sold a building with remaining life of 20 years and
immediately leased it back for 5 years.
Sale price at above fair value 6,000,000
Fair value of building 5,000,000
Carrying amount of building 4,500,000
Annual rental payable at the end of each year 800,000
Implicit interest rate 12%
Present value of an ordinary annuity of 1 at 12% for five periods 3.60
Which of the following statements is false?
a. In a sale and leaseback transaction, any excess of sales price over the fair value of the asset is
recognized as additional financing.
b. The cost of the right of use asset is P1,692,000.
c. The gain on the right transferred is P P312,000.
d. The depreciation of the right of use asset is P84,600.
37. An entity reported pretax financial income of P6,000,000 for 2024.
Tax return Accounting record
Rent income 70,000 120,000
Depreciation 280,000 220,000
Payment of penalty 0 10,000
Premiums on officers’ life insurance 0 90,000
The income tax rate for 2024 is 25% and the enacted tax rate for 2025 and future years is 20%.
Statement I: The entity shall report income tax payable of P1,497,500 on December 31, 2024.
Statement II: The entity shall report total tax expense of P1,525,000 for the year 2024.
a. All statements are true.
b. All statements are false.
c. Only statement I is true.
d. Only statement II is true.
38. An entity provided the following information for the current year:
January 1 Benefit obligation 3,500,000
During the year Pension benefits paid to retired employees 250,000
Past service cost 500,000
Actuarial gain 200,000
Current service cost 700,000
Discount rate 10%
What amount should be reported by the entity as benefit obligation on December 31?
a. 4,600,000 c. 4,250,000
b. 5,000,000 d. 4,650,000

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39. An entity provided the following information during 2024:

January 1 December 31
Fair value of plan assets 6,000,000 7,900,000
Projected benefit obligation 5,000,000 5,900,000
Prepaid benefit cost – surplus 1,000,000 2,000,000
Asset ceiling 700,000 1,200,000
Effect of asset ceiling 300,000 800,000

During 2024, the entity recognized current service cost of P700,000, past service cost of P200,000, actual
return on plan assets P900,000, and contribution to the plan P1,000,000 and decrease in projected benefit
obligation due to change in actuarial assumptions of P500,000. The discount rate is 10%.
I. The employee benefit expense is P800,000 for 2024.
II. The net remeasurement gain in other comprehensive income is P300,000 for 2024.
a. All statements are true.
b. All statements are false.
c. Only statement I is true.
d. Only statement II is true.

40. Due to extreme financial difficulties, an entity negotiated a restructuring of a 10%, P5,000,000 note
payable due on December 31, 2024. The unpaid interest on the note on such date is P500,000. The
creditor agreed to reduce the face amount to P4,500,000, forgive the unpaid interest, reduce the interest
rate to 8% and extend the due date three years from December 31, 2024. The entity paid P200,000 as
arrangement fee to the creditor. The market rate of interest is 12%. The present value of 1 at 10% for
three periods is 0.75 and the present value of an ordinary annuity of 1 at 10% for three periods is 2.49.
The PV of 1 at 12% for three periods is 0.71 and the PV of an ordinary annuity of 1 for three periods is
2.40. Which of the following statements is true?
a. If the modification of terms is substantial, the new liability shall be measured using the original
effective interest rate.
b. The net gain on extinguishment in 2024 is P1,028,600.
c. The interest expense for the year 2025 is P487,080.
d. The carrying amount of the note payable on December 31, 2025 is P4,338,540.

Present value of new note payable at 10% (4,500,000 x .75) 3,375,000

Present value of interest (360,000 x 2.49) 896,400
Total Present value using 10% original rate 4,271,400
Note payable – old 5,000,000
Accrued interest payable 500,000
Carrying amount 5,500,000
Total present value of new note payable using 10% original rate 4,271,400
Gain from modification 1,228,600
Arrangement fee ( 200,000)
Net gain from modification 1,028,600

Present value of new note payable at 12% (4,500,000 x .71) 3,195,000

Present value of interest (360,000 x 2.40) 864,000
Total Present value using market rate of 12% 4,059,000
Note payable – old 5,000,000
Accrued interest payable 500,000
Carrying amount 5,500,000
Total present value of new note payable using 12% market rate 4,059,000
Gain from extinguishment 1,441,000
Arrangement fee ( 200,000)
Net gain from extinguishment 1,241,000

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41. On January 1, 2024, an entity was authorized to issue 100,000 shares with a P50 par value. The entity
had the following share capital transactions during 2024:
January 1 Sold 80,000 shares at P60 per share.
April 1 Reacquired 4,000 treasury shares at P75 per share.
May 1 Approved a 5-for-1 share split.
September 30 Issued a 10% share dividend when the market value of a share was P30.
November 30 Reissued 4,000 treasury shares at P40 per share.
December 31 Net income for the year was P4,000,000.
What amount should be reported as total shareholder’s equity on December 31, 2024?
a. 8,660,000
b. 7,520,000
c. 7,280,000
d. 8,800,000
42. On January 1, 2024 an entity granted to an employee the right to choose either to receive 50,000 shares
with a par value of P20 or to receive cash equal to the market value of 40,000 shares. The vesting period
is three years. On January 1, 2024, share price is P47.50. After considering the effects of post-vesting
restrictions, the entity has estimated that the fair value of the share alternative is P50 per share. The share
prices on December 31, 2024, 2025 and 2026 were P51, P63 and P65 respectively.
Statement I: The compensation expense for 2026 is P1,120,000.
Statement II: If the employee has elected to receive shares, the share premium recorded is P2,200,000.
Statement III: If the employee has elected to receive cash, the share premium recorded is P600,000.
a. All statements are true.
b. Statements I and II are true.
c. Statements I and III are true.
d. Statements II and III are true.
43. On January 1, 2024, an entity had 200,000 ordinary shares outstanding.
March 1 120,000 ordinary shares were issued.
May 1 6,000 ordinary shares were reacquired as treasury.
October 1 100,000 cumulative preference shares were issued. Each preference share can be
converted into 3 ordinary shares. The preference dividend per share is P5.
November 1 A 10% bonus issue on the ordinary shares was distributed.
December 31 Net income for the year is P3,500,000.
I. The basic earnings per share should be reported at P9.21.
II. The diluted earnings per share should be reported at P8.58.
a. Statement I and II are true
b. Statements I and II are false
c. Only statement I is true.
d. Only statement II is true
Jan. 1 (200,000 x 1.10 x 12/12) 220,000
March 1 (120,000 x 1.10 x 10/12) 110,000
May 1 ( 6,000 x 1.10 x 8/12) ( 4,400)
Average shares – basic EPS 325,600
Oct. 1 (300,000 x 1.10 x 3/12) 82,500
Average shares – diluted EPS 408,100
44. An entity had outstanding 20,000 written put options on the ordinary shares with an exercise price of
P350. The average market price of ordinary share of the period is P280. Which of the following
statements is false?
a. Written put options are contracts that require the entity to purchase its own shares.
b. If the exercise price is higher than average market price, the written put options are dilutive.
c. Sufficient number of shares shall be issued at the average market price to cover the exercise price or
cost of the written put options of P7,000,000.
d. The number of potential ordinary shares that should be included in computing diluted EPS is 20,000
shares.

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45. On January 1, 2024, the entity had 100,000 ordinary shares outstanding. The shareholders’ equity was
affected by the following transactions during 2024:
February 1 30,000 ordinary shares were sold in the market.
July 1 Issued P1,000,000, 5-year, 10% bonds at face amount. Each P1,000 bond
is convertible into 50 ordinary shares.
July 1 35,000 ordinary shares were sold.
October 1 A 10% bonus issue was declared and distributed.
December 31 Net income for 2024 was P3,500,000. The income tax rate is 25%.
Statement I: The basic earnings per share should be reported at P21.94.
Statement II: The diluted earnings per share should be reported at P18.92

a. All statements are true.

b. All statements are false.
c. Only statement I is true.
d. Only statement II is true.

January 1 (100,000 x 1.10 x 12/12) 110,000

February 1 ( 30,000 x 1.10 x 11/12) 30,250
July 1 ( 35,000 x 1.10 x 6/12) 19,250
Average shares – Basic EPS 159,500

Average shares – Basic EPS 159,500

July 1- convertible bonds (50,000 x 1.10 x 6/12) 27,500
Average shares – Diluted EPS 187,000
46. An entity provided the following data:
December 31, 2024 December 31, 2025
Accounts receivable 840,000 780,000
Inventory 1,500,000 1,400,000
Accounts payable 950,000 980,000
Total sales were P12,000,000 for 2025 and P11,000,000 for 2024. Cash sales were 20% of total sales
each year. Cost of goods sold was P8,400,000 for 2025. Variable general and administrative expenses
for 2025 were P1,200,000. The variable expenses have varied in proportion to sales. Variable expenses
have been paid 50% in the year incurred and 50% the following year. Fixed expenses, including P350,000
depreciation and P50,000 bad debt expense, totaled P1,000,000 each year. Eighty percent of fixed
expenses involving cash were paid in the year incurred and 20% the following year. Each year there was
a P50,000 bad debt estimate and a P50,000 writeoff.
I. The total collections from customers amounted P12,060,000 during 2025.
II. The purchases amounted to P8,300,000 during 2025.
III. The total disbursements for purchases amounted to P8,270,00 during 2025.
IV. The total disbursements for fixed and variable expenses amounted to P1,750,000.
a. All statements are true.
b. Only three statements are true.
c. Two statements are false
d. All statements are false

END

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