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If an entity uses the modified cash basis of accounting, the modifications from the accrual basis should have substantial support which requires that

The financial statements have only minor modifications from GAAP.

The modifications must be the same as those required by a regulatory body.

The modifications must be the same as GAAP and not illogical.

No modifications are allowed.

A non-monetary asset is invested in a corporation. Assuming all of the following values are equally reliable, the best measure of the increase in owner’s equity is

Fair value of the stock issued

Fair value of the non-monetary asset received

Book value of the stock issued

Assessed value of non-monetary asset received

The following information is available for Hawaiian Breeze Company for 2017:

Disbursements for purchases P 1 050 000

Increase in trade accounts payable 75 000

Decrease in merchandise inventory 30 000

Cost of goods sold for 2017 under modified cash basis is:

P 1 155 000

P 1 095 000

P 1 005 000

P 945 000

All of the following are classified as Investment Property except,

Land held for long term capital appreciation rather than for short term sale in the ordinary course of business.

A building owned by the entity (or held by the entity under a finance lease) and leased out to one or more operating lease.

A building that is vacant but is held to be leased out by the entity under one or more operating leases.

Property being constructed or developed on behalf of third parties.

Deluxe Corporation made a very large arithmetical error in the preparation of its year-end financial statements by improper placement of a decimal point in the calculation of depreciation. The error caused the net income to be reported at almost double the proper amount. Correction of the error when discovered in the next year should be treated as

An increase in depreciation expense for the year on the year in which the error is discovered.

A component of income for the year in which the error is discovered, but separately listed in the income statement and fully explained in a note to the financial statements.

Another expense item for the year in which the error was made.

An adjustment to the beginning balance of Retained Earnings for the year in which the error was made.

A owes B P20 000 which became due on December 20, 2017. On that date, A offered P10 000, the only money he then had. But B refused to accept the payment. Thereafter, A met C, B’s 23-year old daughter, to whom she gave the P10 000 with the request that she turn the money over her mother (B). The money was stolen while in C’s possession. How much may B still recover from A?

P 20 000

P 10 000

P 15 000

P 0

The statement “Contracts shall be obligatory in whatever form they have been entered into provided all the requisites for their validity are present” refers to

Real contract

Consensual contract

Formal contract

Solemn contract

This contract is without effect unless ratified

Marriage between first degree cousins

Contract of sale between two insane persons

Contract of sale between a guardian and his ward

Donation between husband and wife

The right of the creditor to exercise all the rights of his debtor to satisfy his claim, except rights which are inherent and personal on the part of the debtor

Action subrogatoria

Action redhibitoria

Accion pauliana

Accion quanti minoris

Which of the following is not correct?

The validity and compliance of a contract cannot be left to the will of one of the parties.

In case of foreclosure and the price of the sale is less than the amount due, the pledge cannot recover any deficiency.

Persons who are prohibited by law to enter into contract of donation cannot form universal partnership.

Actions for fraud cannot be waived.

Which of the following is not normally a duty of the controller?

Operational reporting and interpretation

Insurance coverage

Preparing Tax Returns

Establishing internal control procedures to safeguard the company’s assets.

A company has income after tax of P5.4 million, interest expense of P1 million for the year, depreciation expense of P1 million, and a 40% tax rate. What is the company’s times-interest-earned ratio?

5.4

6.4

7.4

10.0

Managers of the Doggie Food Co. Want to add a bonus component to their compensation plan. They are trying to decide between return on investment (ROI) and residual income (RI) as the performance measure they will use. If doggie adopts RI performance measure, the relevant required rate of return would be 18%. One segment of Doggie is the Good Treats Division, where the manager has invested in new equipment. The operating results from this equipment are as follows: Revenues P 80 000 Cost of goods sold 45 000 General and administrative expenses 15 000 Assuming that there are no income taxes, what would be the ROI and RI for this equipment that has an average value of P 100 000?

ROI P2 000; RI 20%

ROI 35%; RI P3 600

ROI P3 600; RI 35%

ROI 20%; RI P2 000

Pearl Beads Company is a large manufacturer that treats its divisions as profit centers. Division X produces an electronic component at the following costs: Variable production cost P80/unit Variable selling cost P10/unit Fixed cost (based on 10 000 units) P10/unit Division Y currently purchases a similar component from an outside supplier for P105/unit. It has determined that the component produced by Division X could be used instead with no adverse effects on the quality of the final product. Currently, Division X, which is operating at full capacity, sells all of its output to outside customer at P112/unit per component. What is the lowest price at which Division X would agree to transfer the component to Division Y?

P90

P100

P102

P112

Anderson Cable wishes to calculate their return on assets. You know that the return on equity is 12% and that the debt ratio is 40%. What is the return on assets?

4.8%

7.2%

12.0%

20.0%

A clown was invited to perform magic in a kiddy party. The funnyman was to be paid P 200 000 for his performance, and the parties signed the necessary contract. He then gratuitously assigned his rights under the contract to his son. The son later on collected the P 200 000 talent fee of his father from the contractee. The national interval revenue tax/es payable is/are:

Donors tax only

Income tax only

Both income and donor’s taxes

Neither income tax nor donor’s tax

Which one of the following statements is incorrect?

Income out of the labor if the husband is exclusive property.

Income out of the separate property of the wife is conjugal property.

Amount receivable as retirement benefit under RA 4917 during the marriage is community property.

Property received during the marriage as donation when the fair value was P 1 500 000 is sold for cash when the value was P 2 000 000 resulting in a gain of P 500 000. The gain is exclusive property.

Cain and Abel are brothers, citizens and residents of the Philippines. Both of them are well-placed in the business community. They had the following data on net income from the operations of their respective businesses for a calendar year:

Cain P 1 800 609.12

Abel 1 425 163.99

Cain is still single, but has with him an illegitimate child, two years old. Abel is married and has with him six dependent legitimate children, the eldest of whom was ten years old at the beginning of the year, and one of whom died within the year. 18. The taxable income of Abel is:

P 1 275 163.99

P 1 275 163.00

P 1 725 609.12

P 1 725 609.00

Statement I: As to the property of the State, Taxation is the rule and exemption the exception. Statement II: As to the property of the taxpayer, exemption is the rule and taxation the exception.

Both statements are correct.

Both statements are incorrect.

Statement I is correct while statement II is incorrect.

Statement II is correct while statement I is incorrect.

Which of the following statements is TRUE?

The intercompany profit in inventory transfer between affiliates is computed by multiplying the gross profit rate based on sales of buying affiliate.

The income and expenses of a subsidiary are included in the consolidated financial statements from the acquisition date.

Recognition of the realized profit in beginning inventory requires a working paper debt to cost of goods sold.

The non-controlling interest in profit is affected by the bargain purchase or gain on acquisition.

Which of the following statement is wrong regarding installment sales?

Trade-in merchandise and repossessed merchandise are considered as part of collections and both are included in the total goods available for sale.

Upon repossession, the defaulted account is credited while the debit includes the true worth of the repossessed merchandise.

Under installment method, the deferred gross profit account must be set-up on the year of sale and adjusted by the portion which is realized of the end of the year.

Gain on repossession may be recognized on the year the merchandise was repossessed.

Which of the following statements is wrong regarding long-term construction contracts?

The amount of expected warranty cost is part of the estimated cost at completion.

If upon completion of the project, the balance of Progess Billings is greater than the balance of Construction in Progress, the excess is Due to Customer which is a liability.

General administrative costs may be part of contract costs but would usually be expensed.

The latest estimated of anticipated cost of materials, labor and subcontracting costs, and indirect cost required to complete a project should be used to determine the progress toward completion.

Home Select Company holds 90% of the common stock of Pricewater Company. In 2017, Home Select reports sales of P 800 000, and cost of sales of P 600 000. For this same period, Pricewater has sales of P 300 000, and cost of sales of P 180 000. During 2017, Home Select sold merchandise to Pricewater for P 100 000. The subsidiary still possesses 40% of this inventory at the end of 2017. Home Select had established the transfer price based on its normal markup. What are the consolidated sales and cost of sales?

P 1 000 000 and P 690 000

P 1 000 000 and P 705 000

P 1 000 000 and P 740 000

P 970 000 and P 696 000

Use the same information as in previous problem except assume that the transfer were from Pricewater Company to Home Select Company. What are the consolidated sales and cost of goods sold for 2017?

P 1 000 000 and P 720 000

P 1 000 000 and P 755 000

P 1 000 000 and P 696 000

P 970 000 and P 712 000

Which of the Following is explicitly included in the Auditor’s responsibility section of the auditor’s report?

Reason for modification of opinion

Philippine Financial Reporting Standards

Philippine Standards on Auditing

Division of responsibility with another auditor

Based on RA 9298, how many years can a partner who survived the death or withdrawal of other partner(s) continue to practice under the partnership name after becoming a sole practitioner?

1 year

2 year

3 years

Indefinite period of time

In testing the existence assertion for an asset, an auditor ordinarily works from the

Financial statements to the potentially unrecorded items.

Potentially unrecorded items to the financial statements.

Accounting records to the supporting evidence.

Supporting evidence to the accounting records.

The confirmation of customers’ accounts receivable rarely provides reliable evidence about the completeness assertion because

Many customers merely sign and return the confirmation without reviewing its details.

Recipients usually respond only if they disagree with the information on the request.

Customers may not be inclined to report understatement errors in their accounts.

Auditors typically select many accounts with low recorded balances to be confirmed.

Which of the following procedures concerning accounts receivables is an auditor most likely to perform to obtain evidential matter in support of an assessed level of control risk below the maximum level?

Observing an entity’s employee prepare the schedule of past due accounts receivable.

Sending confirmation requests to an entity’s principal customers to verify the existence of accounts receivable.

Inspecting an entity’s analysis of accounts receivable for unusual balances.

Comparing an entity’s uncollectible accounts expense to actual uncollectible accounts receivable.

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