D10.docx

Review 105-----------Day 10 THEORY OF ACCOUNTS 1. Kyla Company purchased bonds at a discount on the open market and intends to hold these bonds to maturity. Kyla should account for those bonds at a. Cost c. Fair value b. Amortized cost d. Lower at cost or market 2. For a marketable debt securities portfolio classified as held to maturity, which of the following amounts should be included in the net income? I. Unrealized temporary losses during the period. II. Realized gains during the period III. Changes in the valuation allowance during the period. a. III only b. II only c. I and II d. I, II and III 3. Moira has a portfolio of marketable equity securities which it does not intend to sell in the near term. How should Moira classify these and how should it report unrealized gains and losses from these securities? a. Trading securities and any unrealized gains and losses are reported as component of income. b. Available for sale securities and any unrealized gains and losses are reported as component of equity. c. Trading securities and any unrealized gains and losses are reported as component of equity. d. Available for sale securities and any unrealized gains and losses are reported as component of income. 4. A financial liability is any liability that is I. A contractual obligation to deliver cash or another financial asset to another entity. II. A contractual obligation to exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity. III. A contract that will or may be settled in the entity's own equity instruments. a. I, II and III b. I and II only c. I and III only d. I only 5. Which statement is incorrect regarding the classification of financial instruments as liability or equity? a. The fundamental principle of PAS 32 is that a financial instrument should be classified as either a financial liability or an equity instrument according to the substance of the contract. b. The enterprise must make the decision every balance sheet date. c. The classification is not subsequently changed based on changed circumstances. d. A financial instrument is an equity instrument only if (a) the instrument includes no contractual obligation to deliver cash or another financial asset to another entity and (b) if the instrument will or may be settled in the issuer's own equity instruments.

6. Which statement is correct regarding the classification of financial instruments as liability or equity? a. If an enterprise issues preferred shares that pay a fixed rate of dividend and that have a mandatory redemption feature at a future date should be recognized as equity. b. A financial instrument that gives the holder the right to return it to the issuer for cash or another financial asset is a financial liability. c. A contractual right or obligation to receive or deliver a number of its own shares or other equity instruments that varies so that the fair value of the entity's own equity instruments to be received or delivered equals the fixed monetary amount of the contractual right or obligation is equity. d. When a derivative financial instrument gives one party a choice over how it is settled, it is usually treated as equity. 7. Which statement is incorrect regarding compound financial instruments a. Compound instruments have both a liability and an equity component from the issuer's perspective. b. The component parts should be accounted for and presented separately according to their substance based on the definitions of liability and equity. c. The split is made at issuance and not revised for subsequent changes in market interest rates, share prices, or other event that changes the likelihood that the conversion option will be exercised. d. When the initial carrying amount of a compound financial instrument is required to be allocated to its equity and liability components, the liability component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the equity component. 8. On both December 31, 2004 and 2005, Kate Company’s only marketable equity security had the same market value, which was below cost. Kate considered the decline in value to be temporary in 2004 but “other than temporary” in 2005. At the end of both years, the security was classified as a noncurrent asset. Kate considers the investment as “available for sale”. What should be the effects of the determination that the decline was other than temporary on Kate’s 2005 noncurrent assets and net income? a. No effect b. No effect on noncurrent assets and decrease in net income c. Decrease in noncurrent assets and no effect on net income d. Decrease in both noncurrent assets and net income 9. The transfer of a security between categories of investments shall be accounted for at fair value. Which is incorrect concerning the treatment of the security’s unrealized gain or loss at the date of transfer? a. For a security transferred from trading securities, the unrealized gain or loss at the date of transfer shall be recognized in earnings.

b. For a security transferred into trading securities, the unrealized gain or loss at the date of transfer shall be recognized in earnings. c. For a debt security transferred into available for sale securities from “held to maturity”, the unrealized gain or loss at the date of transfer shall be reported as a separate component of stockholders equity. d. For a security transferred into “held to maturity” from available for sale securities, the unrealized gain or loss at the date of transfer shall be included in earnings. 10. It is an enterprise in which the investor has significant influence. a. Subsidiary c. Parent b. Associate d. Investee 11. Significant influence is to power I. To participate in the financial and operating policy decisions of the investee but not control over those policies II. Govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. a. Both I and II b. Neither I nor II c. I only d. II only 12. Which statement is correct concerning the equity method? I. . The investment in an associate is initially recognized at cost and the carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the investee after the date of acquisition. II. Adjustments to the carrying amount may also be necessary for changes in the investor’s proportionate interest in the investee arising from changes in the investee’s equity that have not been recognized in the investee’s profit or loss. a. I only b. II only c. Both I and II d. Neither I nor II 13. An investor uses the equity method to account for an investment in common stock. After the date of acquisition, the investment account of the investor would a. Not be affected by its share of the earnings or losses of the investee b. Not be affected by its share of the earnings of the investee but be decreased by its share of the losses of the investee c. Be increased by its share of the earnings of the investee but not be affected by its share of the losses of the investee d. Be increased by its share of the earnings of the investee and decreased by its share of the losses of the investee 14. When an investor uses the equity method to account for investment in common stock, cash dividends received by the investor from the investee should be recorded as a. Dividend income b. A deduction from the investor’s share of the investee’s earnings c. A deduction from investment account d. A deduction from goodwill

15. An investor uses the equity method to account for investment in common stock. The purchase price implies a fair value of the investee’s depreciable assets in excess of the investee’s net asset carrying values. The investor’s amortization of the excess a. Decreases the investment account b. Decreases the goodwill account c. Increases the investment revenue account d. Does not affect the investment account

P1 The following trial balance of Macabebe Company on December 31, 2005 has been adjusted except for income tax expense. Cash Accounts receivable Inventory Property, plant and equipment Accounts payable and accrued liabilities Income tax payable Deferred tax liability Common stock Additional paid in capital Retained earnings – 1/1 Nets sales and other revenues Costs and expenses Income tax expense

4,000,000 6,700,000 11,000,000 19,000,000 7,000,000 4,800,000 1,200,000 10,000,000 4,000,000 5,000,000 80,000,000 65,000,000 6,300,000 ________ 112,000,000 112,000,000

During the year, estimated tax payments of P1,500,000 were charged to income tax expense. The current and future tax rate is 32% on all types of revenue. The deferred tax liability is unrelated and will reverse in 2006. 1. The adjusted retained earnings on December 31, 2005 should be a. P15,200,000 c. P20,000,000 b. P13,700,000 d. P15,000,000 2. The total current liabilities on December 31, 2005 should be a. P10,300,000 c. P11,800,000 b. P11,500,000 d. P13,000,000

The bookkeeper for Guagua Computers, Inc., reports the following balance sheet amounts as of June 30, 2005. Current assets

P2,440,500

Noncurrent assets Current liabilities Noncurrent liabilities Owners’ equity

6,285,500 1,386,000 900,000 6,440,000

Preferred stock: 190,000 shares outstanding (P20 par value) Common stock: 1,600,000 shares at P1 stated value Additional paid-in capital

A review of account balances reveals the following data.

f.

3,800,000 1,600,000 1,040,000 P6,440,000

Common shares were originally issued for P3,910,000, but the losses of the company for the past years were charged against additional paid-in capital.

a. An analysis of current assets discloses the following: QUESTIONS: Cash Investment securities – trading Trade accounts receivable Inventories, including advertising supplies of P20,000

P 422,500 600,000 568,000 850,000 P2,440,500

c.

5. Current liabilities a. P1,401,000 b. P1,602,500 c. P1,581,000 d. P1,491,000

P5,490,000 21,500 774,000 P6,285,500

Payroll payable P 71,500 Taxes payable 41,500 Rent payable 114,000 Trade accounts payable Total owed to suppliers on account P1,014,000 Less: 6-month note received from a supplier who purchased some used equipment on June 29, 2005 15,000 999,000 Notes payable 160,000 P1,386,000 d. Noncurrent liabilities include the following: 9% mortgage on property, plant, and equipment, payable in semiannual installment of P90,000 through to June 30, 2010

6. Noncurrent liabilities a. P720,000 P880,000

b. P900,000

c. P810,000

d.

7. Owners’ equity a. P7,710,000 b. P6,440,000 c. P8,750,000 d. P5,666,000

Current liabilities include the following:

e. Owners’ equity Includes the following:

3. Current assets a. P2,462,000 b. P2,477,000 c. P2,440,500 d. P2,435,500 4. Noncurrent assets a. P5,490,000 b. P6,560,000 c. P5,511,500 d. P6,264,000

b. Noncurrent assets include the following: Property, plant and equipment: Depreciated book value (cost P6,560,000) Deposit with a supplier for merchandise ordered for August delivery Goodwill recorded on the books to cancel losses incurred by the company in prior years

Determine the adjusted amounts of the following:

P900,000

8. The following information pertains to Malolos Company’s 2005 cost of good sold. Inventory, January 1 Purchases Writeoff of obsolete inventory Inventory, December 31

10,000,000 40,000,000 5,000,000 3,000,000

What amount should Malolos report as cost of goods sold? a. P42,000,000 c. P47,000,000 b. P45,000,000 d. P50,000,000

9. Valenzuela Company incurred the following infrequent losses during 2005: Loss on disposal of one of four dissimilar factories Foreign exchange loss on an amount remitted by a foreign

1,000,000

customer due to major currency devaluation Loss on worthless inventory due to a competitor’s unexpected product innovation Loss from major strike by employees Loss on early extinguishment of long-term debt Loss from expropriation of asset

2,000,000 5,000,000 4,000,000 1,500,000 3,000,000

In its 2005 income statement, what total amount should Valenzuela report as part of continuing operations? a. P13,500,000 c. P12,000,000 b. P16,500,000 d. P15,500,000 10. The following information was taken from Hagonoy Company’s accounting records for the year ended December 31, 2005: Decrease in raw materials inventory Increase in goods in process inventory Increase in finished goods inventory Raw materials purchased Direct labor payroll Factory overhead Freight out Freight in The cost of goods sold is a. P59,000,000 b. P57,000,000

1,000,000 3,000,000 2,000,000 40,000,000 10,000,000 6,000,000 4,000,000 5,000,000

c. P61,000,000 d. P63,000,000

b. P432,000

d. P691,200

13. During 2005, Angat Company decided to change from the FIFO method of inventory valuation to the weighted average method. Inventory balances under each method were: FIFO Weighted average December 31, 2003 10,000,000 7,000,000 December 31, 2004 8,000,000 7,500,000 December 31, 2005 6,000,000 5,000,000 Ignoring income tax, in its 2005 statement of retained earnings, what amount should Angat report as the effect of this accounting change? a. P3,500,000 c. P3,000,000 b. P4,500,000 d. P 500,000 14. The Natividad Publishing Company follows the procedure of debiting Bad Debts Expense for 2% of all new sales. Sales for 4 consecutive years and year-ended allowance account balances were as follows: Allowance for Bad Debts End-of-Year Credit Balance Year 2002 2003 2004 2005

Sales P2,100,000 1,975,000 2,500,000 2,350,000

Compute the amount of accounts written off for the year 2005. a. P31,000 b. P25,500 c. P35,500 11. On January 1, 2003, Calumpit Company purchased a machine for P12,000,000 and depreciated it by the straight line method using an estimated useful life of eight years with no residual value. On January 1, 2005, Calumpit determined that the machine had a useful life of six years from the date of acquisition and will have a residual value of P200,000. An accounting change was made in 2005 to reflect these additional data. The accumulated depreciation for this machine should have a balance on December 31, 2005 of a. P5,200,000 c. P5,250,000 c. P6,000,000 d. P4,425,000

12. On January 1, 2003, Baliuag Company purchased for P5,400,000 a machine with a useful life of 10 years and no residual value. The machine was depreciated by the double declining balance method and the carrying amount of the machine was P3,456,000 on December 31, 2004. Baliuag changed to the straight line method on January 1, 2005. In its 2005 income statement, what amount should Baliuag report as depreciation for this machine? a. P345,600 c. P540,000

P21,500 35,500 50,000 66,000

d. P5,500

15. The following information for 2005 is provided by Marilao Company: Sales Cost of goods sold Selling expenses General and administrative expenses Interest expense Gain on early extinguishment of long-term debt Correction of inventory error, net of income tax – credit Investment income – equity method Gain on sale of investment Income tax expense Dividends declared

20,000,000 12,000,000 1,200,000 1,800,000 1,500,000 500,000 800,000 600,000 2,000,000 2,100,000 2,500,000

B. systems feasibility What was the 2005 income from continuing operations? a. P4,900,0007. b. P6,600,000 c. P4,500,000 d. P7,000,000

MAS 1. The process of learning how the current system, functions, determining the needs of users, and developing the logical requirements of a proposed system is referred to as A. systems maintenance

C. systems feasibility study

B. systems analysis

D. systems design

2. Which of the following is not a characteristic of a batch processing system? A. The collection of like transactions which are sorted and processed sequentially against a master file. B. Keypunching of transactions, followed by machine processing. C. The production of numerous printouts. D. The posting of a transaction, as it occurs, to several files without intermediate printouts. 3. All activity related to a particular application in a manual system is recorded in a journal. The name of the corresponding item in a computerized system is a A. master file C. transaction file B. year-to-date file

D. current balance file

4. One of the first steps in the creation of a data base is to A. define common variables and fields used throughout the firm* B. increase the secondary storage capacity. C. obtain software that will facilitate data retrieval. D. integrate the accounting system into the data base. 5. A system with several computers that are connected for communication and data transmission purposes but that permits each computer to process its own data is a A. distributed data processing network C. decentralized network B. centralized network

D. systems maintenance

7. Which of the following costs would not be accounted for in a company's recordkeeping system? a. b. c. d.

an unexpired cost an expired cost a product cost an opportunity cost

8. The basis for measuring the cost of capital derived from bonds and preferred stock, respectively, is the a. pre-tax rate of interest for bonds and stated annual dividend rate less the expected earnings per share for preferred stock. b. pre-tax rate of interest for bonds and stated annual dividend rate for preferred stock. c. after-tax rate of interest for bonds and stated annual dividend rate less the expected earnings per share for preferred stock. d. after-tax rate of interest for bonds and stated annual dividend rate for preferred stock. 9. All other factors equal, a large number is preferred to a smaller number for all capital project evaluation measures except a. b. c. d.

net present value. payback period. internal rate of return. profitability index. make or buy decision, the reliability of a potential supplier is

10. In a make or buy decision, the reliability of a potential supplier is a. b. c. d.

an irrelevant decision factor. relevant information if it can be quantified. an opportunity cost of continued production. a qualitative decision factor.

D. multidrop network

6. The process of developing specifications for hardware, software, personnel hours, data resources, and information products required to develop a system is referred to as A. systems analysis C. systems design

11. Which of the following costs is irrelevant in making a decision about a special order price if some of the company facilities are currently idle? a. direct labor

b. equipment depreciation c. variable cost of utilities d. opportunity cost of production 12. A manager is attempting to determine whether a segment of the business should be eliminated. The focus of attention for this decision should be on a. b. c. d.

the net income shown on the segment's income statement. sales minus total expenses of the segment. sales minus total direct expenses of the segment. sales minus total variable expenses and avoidable fixed expenses of the segment.

13. Which of the following costs should consider the tax shield effect in computing the costs of capital? A. Cost of debt B. Cost of common stock C. Cost of preferred stock D. Cost of retained earnings 14. Which of the following is not considered in the cash conversion cycle? A. Receivable collection period B. Debt repayment period C. Inventory conversion period D. Payable deferral period 15.

Cash flows from capital budgeting projects are assumed to be received A. At the beginning of the year B. Evenly during the year C. At the end of the year D. At a certain point of the year

P2 1. On September 1, 2003, Bain Corp. received an order for equipment from a foreign customer for 300,000 local currency units (LCU) when the US dollar equivalent was 96,000. Bain shipped the equipment on October 15, 2003, and billed the customer for 300,000 LCU when the US dollar equivalent was 100,000. Bain received the customer’s remittance in full on November 16, 2003, and sold the 300,000 LCU for 105,000. In its income statement for the year ended December 31, 2003, Bain should report as part of net income a foreign exchange transaction gain of a. 0

b. 4,000 c. 5,000 d. 9,000

2. Lindy, a US corporation, bought inventory items from a supplier in Argentina on November 5, 2002, for 100,000 Argentine pesos, when the spot rate was .4295. At Lindy’s December 31, 2002 year-end, the spot rate was .4245. On January 15, 2003, Lindy bought 100,000 pesos at the spot rate of .4345 and paid the invoice. How much should Lindy report as part of net income for 2002 and 2003 as foreign exchange transaction gain or loss?

a. b. c. d.

2002 2003 500 (1,000) 0 (500) (500) 0 (1,000) 500

3. On November 30, 2003, Tyrola Publishing Company, located in Colorado, executed a contract with Ernest Blyton, an author from Canada, providing for payment of 10% royalties on Canadian sales of Blyton’s book. Payment is to be made in Canadian dollars each January 10 for the previous year’s sales. Canadian sales of the book for the year ended December 31, 2003, totaled 50,000 Canadian. Tyrola paid Blyton his 2003 royalties on January 10, 2004. Tyrola’s 2003 financial statements were issued on February 1, 2004. Spot rates for Canadian dollars were as follows: November 30, 2002 .87 January 1, 2003 .88 December 31, 2003 .89 January 10, 2004 .90 How much should Tyrola accrue for royalties payable at December 31, 2003? a. 4,350 b. 4,425 c.4,450 d. 4,500

4. Which of the following statements is(are) true regarding derivative financial instruments? I. Derivative financial instruments should be measured at fair value and reported in the balance sheet as assets or

liabilities.

to occur?

II. Gains and losses on derivative instruments not designated as hedging activities should be reported and recognized in earnings in the period of the change in fair value.

a. The embedded derivative meets the definition of a derivative instrument. b. The hybrid instrument is regularly recorded at fair value. c. Economic characteristics and risks of the embedded instrument are “clearly and closely” related to those of the host contract. d. All of the above.

a. I only. b. II only. c. Both I and II. d. Neither I nor II.

5. If the price of the underlying is greater than the strike or exercise price of the underlying, the call option is a. At the money. b. In the money. c. On the money. d. Out of the money.

6. Which of the following is not a distinguishing characteristic of a derivative instrument?

10. Financial instruments sometimes contain features that separately meet the definition of a derivative instrument. These features are classified as a. Swaptions. b. Notional amounts. c. Embedded derivative instruments. d. Underlyings.

11. The process of bifurcation

a. Terms that require or permit net settlement. b. Must be “highly effective” throughout its life. c. No initial net investment. d. One or more underlyings and notional amounts.

a. Protects an entity from loss by entering into a transaction. b. Includes entering into agreements between two counterparties to exchange cash flows over specified period of time in the future. c. Is the interaction of the price or rate with an associated asset or liability. d. Separates an embedded derivative from its host contract.

7. An example of a notional amount is a. Number of barrels of oil. b. Interest rates. c. Currency swaps. d. Stock prices.

12. On December 12, 2003, Imp Co. entered into three forward exchange contracts, each to purchase 100,000 euros in ninety days. The relevant exchange rates are as follows: Spot rate

Forward rate (for March 12, 2004)

8. Which of the following is not a derivative instrument? a. Futures contracts. b. Credit indexed contracts. c. Interest rate swaps. d. Variable annuity contracts.

9. Which of the following criteria must be met for bifurcation

November 30, 2003

.87

.89

December 12, 2003

.88

.90

December 31, 2003

.92

.93

. Imp entered into the first forward contract to hedge a purchase of inventory in November 2003, payable in March 2004. At December 31, 2003, what amount of foreign currency transaction gain from this forward contract should Imp include in net income? a. 0 b. 3,000 c. 5,000 d. 10,000

13. At December 31, 2003, what amount of foreign currency transaction loss should Imp include in income from the revaluation of the Accounts Payable of 100,000 euros incurred as a result of the purchase of inventory at November 30, 2003, payable in March 2004? a. 0 b.3,000 c. 4,000 d. 5,000

Corporation as of December 31, 2005: Authorized common stock, P100 par value Cash dividends payable Donated capital Gain on sale of treasury stock Net unrealized loss on available for sale securities Premium on capital stock Premium on bonds payable Reserve for bond sinking fund Reserve for depreciation Revaluation increment on property Retained earnings, unappropriated Subscribe capital stock Stock subscriptions receivables Stock warrants outstanding Treasury stock, at cost Unissued common stock REQUIRED: Compute for the following: A

14. Imp entered into the third forward contract for speculation. At December 31, 2003, what amount of foreign currency transaction gain from this forward contract should Imp include in net income? a. 0 b. 3,000 c. 5,000 d. 10,000

15. The risk of an accounting loss from a financial instrument due to possible failure of another party to perform according to terms of the contract is known as

P4,000,000 160,000 800,000 80,000 96,000 320,000 240,000 400,000 600,000 800,000 720,000 480,000 120,000 200,000 144,000 800,000

1. Common stock issued 4,000,000 2. Additional paid-in capital (APIC) 320,000 3. Appropriated retained earnings 400,000 4. Total stockholders’ equity 6,760,000 5. Legal capital 3,200,000

B

C

D

3,200,000

3,056,000

3,680,000

1,400,000

1,320,000

1,200,000

544,000

1,000,000

6,640,000

6,480,000

6,240,000

3,680,000

3,560,000

4,000,000

a. Off-balance-sheet risk. b. Market risk. c. Credit risk. d. Investment risk.

PROBLEM NO. 2

AP PROBLEM NO. 1

Common stock, P10 par value; authorized

1,500,000

shares; issued and outstanding 900,000 shares

P9,000,000

The following data were compiled prior to preparing the balance sheet of the Conviction

Following is the stockholders’ equity section of Tenacity Corporation’s balance sheet at December 31, 2004:

Additional paid-in capital Retained earnings Total stockholders’ equity

750,000 2,700,000 P12,450,000

Transactions during 2005 and other information relating to the stockholders’ equity accounts were as follows: • On January 26, Tenacity reacquired 75,000 shares of its common stock for P11 per share. • On April 4, Tenacity sold 45,000 shares of its treasury stock for P14 per share. • On June 1, Tenacity declared a cash dividend of P1 per share, payable on July 15, 2005 to stockholders of record on July 1, 2005. • On August 15, each stockholder was issued one stock right for each share held to purchase two additional shares of stock for P12 per share. The rights expire on October 31, 2005. • On September 30, 150,000 stock rights were exercised when the market value of the stock was P12.50 per share. • On November 2, Tenacity declared a two for one stock split-up and charged the par value of the stock from P10 to P5 per share. On November 20, shares were issued for the stock split. • On December 5, 60,000 shares were issued in exchange for a secondhand equipment. It originally cost P600,000, was carried by the previous owner at a book value of P300,000, and was recently appraised at P390,000. • Net income for 2005 was P720,000. QUESTIONS:

7. Additional paid-in capital a. P1,485,000 b. P1,575,000 c. P3,825,000 d. P1,275,000 8. Unapproriated retained earnings a. P2,550,000 b. P2,422,500 c. P2,220,000 d. P2,190,000 9. Total stockholders’ equity a. P16,425,000 b. P14,295,000 c. P16,095,000 d. P16,065,000 10.In an examination of shareholder’s equity, an auditor is most concerned that a. Capital stock transactions are properly authorized. b. Stock splits are capitalized at par or stated value on the dividend declaration date. c. Dividends during the year under audit were approved by the shareholders. d. Changes in the accounts are verified by a bank serving as a registrar and stock transfer agent. 11.In audit of a medium-sized manufacturing concern, which one of the following areas can be expected to require the least amount of audit time? a. Owner’s equity b. Assets c. Revenue d. Liabilities 12.When a corporate client maintains its own stock records, the auditor primarily will rely upon a. Confirmation with the company secretary of shares outstanding at year-end. b. Review of the corporate minutes for data as to shares outstanding. c. Confirmation of the number of shares outstanding at year-end with the appropriate state official. d. Inspection of the stock book at year-end and accounting for all certificate numbers. 13.When a client company does not maintain its own stock records, the auditor should obtain written confirmation from the transfer agent and registrar concerning a. Restrictions on the payment of dividends. b. The number of shares issued and outstanding. c. Guarantees of preferred stock liquidation value. d. The number of shares subject to agreement to repurchase

Based on the above and the result of your audit, determine the following as of December 31, 2005:

14.The auditor is concerned with establishing that dividends are paid to client corporation shareholders owning stock as of the a. Issue date c. Record date b. Declaration date d. Payment date

6. Common stock a. P12,600,000 b. P10,800,000 c. P10,050,000 d. P12,300,000

15. An audit program for the retained earnings account should include a step that requires verification of the

a. Fair value used to charge retained earnings to account for a two-for-one-stock split. b. Approval of the adjustment to the beginning balance as a result of a write-down of an account receivable. c. Authorization for both cash and stock dividends. d. Gain or loss resulting from disposition of treasury shares. BLT 1. For the donation to be considered valid, acceptance of the donation must be made. a. b. c. d.

during the lifetime of the donor only. during the lifetime of the donee only during the lifetime of the donor and the donee none of the choices

2. First statement: Donors tax shall be levied, assessed collected and paid upon the transfer of property by any person , resident or non-resident as a gift. Second statement: For the purpose of donor’s tax, a stranger is a person who is not a relative by consanguinity in the collateral line within the fifth degree of relationship. a. b. c. d.

True, True False, False True, False False True

3. One of the following donees will not entitle the donor-parent to a P10,000 dowry exemption. a. b. c. d.

Legitimate Child Recognize Natural Child Adopted Child Stepchild

4. Which of the following statement is incorrect? a. A separate return shall be filed by each donor for each gift or donation made on different dates during the year reflecting therein any previous net gift made in the same calendar year. b. Only one return shall be filed for several gift or donations by a donor to the different donees on the same date.

c.

When a donors tax return was filed and it was found out by the BIR to have errors which gave rise to a deficiency donors tax, the donor cannot be required to pay the deficiency.

d. The government is not legally bound by the agreement between the donor and the donee that the later shall pay the donors tax instead of the former.

5. First statement: In all cases, void donations are not subject to donors tax. Second statement: Every donation between the spouses during the marriage shall be void. a. b. c. d.

both statements are true both statements are false First statement is true while second statement is false First statement is false while the second statement is true

6. A leased to B a 5 DOC generator for two years at a lease rental fee of P1,000 per month and signed an option in favor of B to buy the generator at the end of the term of the lease at P60,000. All rental fees paid are to be considered as partial payment of the sale. After 12 months B was able to pay the rental fees for 9 months and was in arrears for three months. A terminated the lease contract and repossessed the generator. The consequence of the transaction is a. A can collect the rental fees for three months which are in arrears b. A can collect the rental fees for the unexpired 12 months of the lease contract c. When A took possession of the generator, he has no further action against B d. A in terminating the lease and repossessing the generator is obliged to refund the 9 months 7. X sold his car to Y for P50,000. No date was fixed for the performance of the obligation of the seller and the buyer. The obligation of X is a. To deliver the car immediately because the sale is a perfected contract b. To deliver the car only after Y writes to X demanding the delivery of the car c. To deliver the car only after Y pays the P50,000 d. To rescind the contract because there is no time fixed for the delivery 8. Earnest money and option money both apply to perfected sale. In a contract of sale of personal property the price of which is payable in installment, the vendor may cancel the sale should the vendee fail to pay. a. Both are true b. Both are false c. Only the first is true d. Only the second is true

9. Should the vendee’s failure to pay, cover two or more installments, the vendor may foreclose the chattel mortgage on the thing sold but he shall have no further action against the purchaser to recover any unpaid balance of the price, except if there is an agreement to the contrary. Sale is a consensual contract, therefore delivery or payment is not essential for perfection. a. Both are true b. Both are false c. Only the first is true d. Only the second is true

14. Income tax is not a

10. The ownership of the thing sold shall be transferred to the vendee upon perfection of the contract. An unaccepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor. a. Both are true b. Both are false c. Only the first is true d. Only the second is true

15. Under RA8424, the allowable deduction for medical expenses of a resident decedent shall not exceed :

11. Gross income means all income derived from whatever source, including the following items except: a. b. c. d.

Pensions Prizes and winnings Rents Stock dividends

12. A tax imposed at every stage of distribution process on the sale, barter or exchange of goods and services and transactions deemed sale, as well as importation of goods and services. a. b. c. d.

privilege tax percentage tax VAT excise tax

13. Additional exemption for each dependent child per RA 9504 a. P 10,000 b. P 9,000

c. P 8,000 d. P 25,000

a. b. c. d.

a. b. c. d.

personal tax national tax excise tax direct tax

P 50,000 P 550,000 P 5,000 P 500,000