REVIEW 105 – DAY 18 6. Ral Co. sells 20,000 radios evenly throughout the year.

6. Ral Co. sells 20,000 radios evenly throughout the year. The cost of carrying one unit in
inventory for one year is $8, and the purchase order cost per order is $32. What is the
economic order quantity?
MAS a. 625
b. 400
c. 283
1. When the federal government imposes health and safety regulations on certain products,
d. 200
one of the most likely results is
a. Greater consumption of the product.
7. When a firm finances each asset with a financial instrument of the same approximate
b. Lower prices for the product.
maturity as the life of the asset, it is applying
c. Greater tax revenues for the federal government.
a. Working capital management.
d. Higher prices for the product.
b. Return maximization.
c. Financial leverage.
2. In which of the following situations would there be inelastic demand?
d. A hedging approach.
a. A 5% price increase results in 3% decrease in the quantity demanded.
b. A 4% price increase results in a 6% decrease in the quantity demanded.
8. If a $1,000 bond sells for $1,125, which of the following statements are correct?
c. A 4% price increase results in a 4% decrease in the quantity demanded.
I. The market rate of interest is greater than the coupon rate on the bond.
d. A 3% price decrease results in 5% increase in the quantity demanded.
II. The coupon rate on the bond is greater than the market rate of interest.
III. The coupon rate and the market rate are equal.
3. To determine the inventory reorder point, calculations normally include the
IV. The bond sells at a premium.
a. Ordering cost.
V. The bond sells at a discount.
b. Carrying cost.
a. I and IV.
c. Average daily usage.
b. I and V.
d. Economic order quantity.
c. II and IV.
d. II and V.
4. The benefits of a just-in-time system for raw materials usually include
a. Elimination of non-value-added operations.
9. Para Co. is reviewing the following data relating to an energy saving investment proposal:
b. Increase in the number of suppliers, thereby ensuring competitive bidding.
Cost $50,000
c. Maximization of the standard delivery quantity, thereby lessening the paperwork for each
Residual value at the end of 5 years 10,000
delivery.
Present value of an annuity of 1 at 12% for 5 years 3.60
d. Decrease in the number of deliveries required to maintain production.
Present value of 1 due in 5 years at 12% 0.57
What would be the annual savings needed to make the investment realize a 12% yield?
5. The economic order quantity formula assumes that
a. $ 8,189
a. Periodic demand for the good is known.
b. $11,111
b. Carrying costs per unit vary with quantity ordered.
c. $12,306
c. Costs of placing an order vary with quantity ordered.
d. $13,889
d. Purchase costs per unit differ due to quantity discounts.
10. Which of the following is a characteristic of just-in-time (JIT) inventory management
systems?
a. JIT users determine the optimal level of safety stocks.
b. JIT is applicable only to large companies. c. Investment capital divided by the capital employed turnover rate.
c. JIT does not really increase overall economic efficiency because it merely shifts inventory d. Investment capital multiplied by the capital employed turnover rate.
levels further up the supply chain.
d. JIT relies heavily on good quality materials.
P1
11. In a competitive market for labor in which demand is stable, if workers try to increase
their wage 1. Calasiao Company determined that the net realizable value of its accounts
a. Employment must fall. receivable at December 31, 2005 based on an aging of the receivables, was
b. Government must set a maximum wage below the equilibrium wage. P15,000,000. Additional information is as follows:
c. Firms in the industry must become smaller.
d. Product supply must decrease. Allowance for uncollectible accounts – 1/1/2005 P1,500,000
Uncollectible accounts written off during 2005 1,000,000
12. A target in the balanced scorecard framework is Uncollectible accounts recovered during 2005 200,000
a. A statement of what the strategy must achieve and what is critical to its success. Accounts receivable – December 31, 2005 17,000,000
b. A key action program required to achieve strategic objectives.
c. A diagram of the cause-and-effect relationships between strategic objectives. For 2005, what should be Calasiao’s uncollectible accounts expense?
d. The level of performance or rate of improvement needed in the performance measure. a. P2,000,000 c. P1,800,000
b. P1,500,000 d. P1,300,000
Items 13 and 14 are based on the following information: 2. Matalam Company has one temporary difference at the end of 2005 that will
The following is available for Cara Corp. for 2003: reverse and cause taxable amounts of P2,000,000 in 2006 and P3,000,000 in 2007.
Sales $2,000,000 Matalam’s pretax financial income for 2005 is P20,000,000 and the tax rate is 32%.
Average invested capital 500,000 There are no deferred taxes on January 1, 2005. The income tax payable for 2005
Net income 300,000 should be
Required rate of return 18%
13. What is the return on investment at Cara Corp.? 1. P4,800,000 c. P6,400,000
a. 60% 2. P5,760,000 d. P5,440,000
b. 33%
c. 18% 3. Reconciliation of Malolos Corporation’s bank account at November 30, 2005
d. 15% follows:
Balance per bank statement P3,150,000
14. What is the residual income for Cara Corp.? Deposits in transit 450,000
a. $0 Checks outstanding (45,000)
b. $200,000 Correct cash balance P3,555,000
c. $210,000
d. $246,000 Balance per books P3,558,000
Bank service charge (3,000)
15. A company’s rate of return on investment (ROI) is equal to the Correct cash balance P3,555,000
a. Percentage of profit on sales divided by the capital employed turnover rate.
December data are as follows:
b. Percentage of profit on sales multiplied by the capital employed turnover rate.
 Bank Books 4. In connection with a stock option plan for the benefit of key employees, Matanao
Checks recorded P3,450,000 P3,540,000 Company intends to distribute treasury shares when the options are exercised.
Deposits recorded 2,430,000 2,700,000 These shares were originally bought at P70 per share. On January 1, 2005,
Collection by bank (P600,000 plus interest) 630,000 - Matanao granted stock options for 50,000 shares at P150 per share as additional
NSF check returned with December bank statement 15,000 - compensation for services to be rendered over the next two years. The options
Balances 2,745,000 2,715,000 are exercisable during a 4-year period beginning January 1, 2007, by grantees
still employed by Matanao. Market price of Matanao stock was P200 per share at
The checks outstanding on December 31, 2005 amount to the grant date. The fair value of each stock option is P60 on grant date. No stock
a. P45,000 b. P135,000 c. P90,000 d. options were terminated during 2005. In Matanao’s 2005 income statement, what
P0 amount should be reported as compensation expense pertaining to the options?
a. P1,500,000 c. P1,250,000
b. P1,750,000 d. P 750,000
1. The following information relates to the defined benefit pension plan of the
Casino Company as of January 1, 2005: 5. On January 1, 2004, Bansalan Company offered its top management stock
Projected benefit obligation (PBO) P16,150,000 appreciation right with the following terms:
Fair value of plan assets 15,135,000 Predetermined price P100 per
Unrecognized prior service cost 1,050,000 share
Unrecognized net pension gain or loss 0 Number of shares 50,000 shares
Pension data for the year 2005 follows: Service period 3
years
Current service cost P 870,000 Exercise date January 1,
Contributions to the plan 1,200,000 2007
Benefits paid to retirees 1,320,000
Actual return on plan assets 263,500 The stock appreciation right is to be exercised on January 1, 2007. The quoted
Amortization of past service cost 210,000 prices of Bansalan Company stock are 100, 124, and 151 on January 1, 2004,
Actuarial change increasing PBO 800,000 December 31, 2004 and December 31, 2005, respectively. What amount should
Settlement interest rate 11% Bansalan charge to compensation expense for the year ended December 31,
Long-term expected rate of return on plan assets 10% 2005 as a result of the stock appreciation right?
a. P1,700,000 c. P1,200,000
What is the 2005 net benefit expense? b. P1,300,000 d. P 500,000
a. P2,593,000 b. P1,200,000 c. P4,370,000 d.
P1,343,000 6. Rex Company was organized on January 1, 2000. After 5 years of profitable
operations, the equity section of the balance sheet on December 31, 2004 was
2. Using the same information in no. 26, the projected benefit obligation as of as follows:
December 31, 2005 is Common stock, P50 par, 1,000,000 shares authorized
a. P18,276,500 c. P17,476,500 400,000 shares issued and outstanding 20,000,000
b. P16,973,000 d. P16,173,000 Additional paid in capital 5,000,000
Retained earnings 10,000,000
3. Using the same information in no. 26, the prepaid/accrued benefit cost on On January 20, 2005, Rex Company reacquired 50,000 shares of common stock
December 31, 2005 is at P100 per share. The treasury stock is recorded at cost. On March 1, 2005,
a. P1,358,000 b. P108,000 c. P3,135,000 d. P0 the company issued a 20% stock dividend. The market value of the stock is
P100 on this date. On June 30, 2005 the company declared a P5 cash dividend
 per share payable on September 10, 2005. The company reported net income of for a birthday gift of a co-employee in the amount of 8,000
P8,000,000 for the year ended December 31, 2005. What should be the balance Total P53,000
of retained earnings on December 31, 2005?
1. P16,250,000 c. P11,850,000 The petty cash ledger account has an imprest balance of P50,000. What is the
2. P12,400,000 d. P18,900,000 correct amount of petty cash on December 31, 2005?
a. P34,000 b. P39,000 c. P14,000 d. P42,000
10. Aparri Company included the following items in its inventory on December 31,
2005:
Merchandise out on consignment, at sales price,
including 25% markup on cost P4,000,000 13. The stockholders’ equity of Sunny Company on December 31, 2005, consists
Goods purchased in transit, FOB destination 2,000,000 of the following capital balances:
Goods held on consignment by Aparri Company 1,000,000
Preferred stock, 10% cumulative, 3 years in arrears, P100 par,
By what amount should the inventory at December 31, 2005 be reduced?
P110 liquidation price 150,000 shares 15,000,000
a. P3,800,000 c. P1,800,000
Common stock, P100 par, 200,000 shares 20,000,000
b. P2,000,000 d. P1,000,000
Subscribed common stock, net of subscription receivable of
P4,000,000 6,000,000
11. The following information pertains to Babak Company: Treasury common stock, 50,000 shares at cost 4,000,000
Additional paid in capital 3,000,000
* Dividends on its 50,000 shares of 10%, P100 par value cumulative
Retained earnings 20,000,000
preferred
stock have not been declared or paid for 3 years. The book value per share of the common stock is
* Treasury stock was acquired at a cost of P1,000,000 during the year. a. P156.00 b. P190.00 c. P172.00 d.
P286.67
The treasury stock had been reissued as of year-end.
What amount of retained earnings should be appropriated as a result of 14. Bindayan Company has incurred heavy losses since its inception. At the
these items? recommendation of its president and CEO, the board of directors voted to implement
a. P1,500,000 c. P2,500,000 quasi-reorganization, through reduction of par value subject to stockholders’
approval. Immediately prior to the restatement on December 31, 2005. Bindayan
b. P1,000,000 d. P 0
Company’s stockholders’ equity was as follows:
12. The petty cash fund of Guiguinto Company on December 31, 2005 is composed Common stock, P100 par 500,000 shares 50,000,000
of the following: Additional paid in capital 15,000,000
Retained earnings (deficit) (10,000,000)
Coins and currencies P14,000 The stockholders approved the quasi reorganization on December 31,2005 to be
Petty cash vouchers: accomplished by a reduction in inventory of P2,000,000, a reduction in property,
Gasoline payments 3,000 plant and equipment of P6,000,000, and writeoff of goodwill at P5,000,000. To
Supplies 1,000 eliminate the deficit, Bindayan should reduce common stock by
Cash advances to employees 2,000 a. P23,000,000 c. P13,000,000
Employee’s check returned by bank marked NSF 5,000 b. P10,000,000 d. P 8,000,000
Check drawn by the company payable to the order of Kristine
Anson, petty cash custodian, representing her salary 20,000 15. The following data pertain to Balagtas Corporation on December 31, 2005:
A sheet of paper with names of employees together with contribution
 Checkbook balance P10,000,000 current statement and as a result, the enterprise has created a valid
Bank statement balance 15,000,000 expectation in other parties that it will discharge those responsibilities.
Check drawn on Balagtas’ account, payable to supplier, dated and a. Both I and II b. Neither I nor II c. I only d.
recorded on Dec. 31, 2005, but not mailed until Jan. 15, 2006 3,000,000II only
Cash in sinking fund 4,000,000
Money market, three months due January 31, 2006 5,000,000
5. It is an event that creates a legal or constructive obligation because the
On December 31, 2005, how much should be reported as “cash and cash
enterprise has no other realistic alternative but to settle the obligation.
equivalents”?
a. Event after balance sheet date c. Nonadjusting event
a. P13,000,000 c. P18,000,000
b. P12,000,000 d. P17,000,000 b. Adjusting event d. Obligating event

6. Which one of the following is not a component of the cost of internally generated
TOA intangible asset?
a. Cost of materials and services used or consumed in generating the
1. Which is not an essential characteristic of an accounting liability? intangible asset.
a. The liability is the present obligation of a particular entity.
b. The payee to whom the obligation is owed must be identified. b. Cost of employee benefits arising from the generation of the intangible
c. The liability arises from past event or transaction. asset.
d. The settlement of the liability requires an outflow of resources embodying
economic benefits. c. Fees to register a legal right

d. Expenditure on training staff to operate the asset.

2. It is an existing liability of uncertain amount or uncertain timing.
a. Contingent liability c. Discount on note payable

b. Unearned income d. Provision 7. Which statement is incorrect concerning internally generated intangible asset?
a. To assess whether an internally generated intangible asset meets the
criteria for recognition, an enterprise classifies the generation of the asset
3. A provision is recognized in the balance sheet when and only when into a research phase and a development phase.
a. An enterprise has a present obligation, legal or constructive, as a result b. The cost of an internally generated asset comprises all directly attributable
of a past event. costs necessary to create, produce and prepare the asset for its intended
b. It is probable that an outflow of resources embodying economic benefits will use.
be required to settle the obligation. c. Internally generated brands, mastheads, publishing titles, customer lists
c. A reliable estimate can be made of the amount of the obligation. and items similar in substance should not be recognized as intangible assets.
a. I, II and III b. I only c. II and III d. d. Internally generated goodwill may be recognized as an intangible asset.
II only
8. The following expenditures should be expensed when incurred, except
4. A constructive obligation is an obligation a. Advance payment for delivery of goods or rendering of services
I. Arising from contract, legislation or operation of law. b. Relocation costs
II. That is derived from an enterprise’s action that the enterprise will accept c. Advertising and promotion costs
certain responsibilities because of past practice, published policy or d. Organization and other start up costs
 a. Engineering follow-through in early phase of commercial production
9. A lessee incurred costs to construct office space in a leased warehouse. The
estimated useful life of the office is 10 years. The remaining term of the b. Design, construction, and testing of preproduction prototypes and models
nonrenewable lease is 15 years. The cost should be
c. Trouble shooting in connection with breakdowns during commercial
a. Capitalized as leasehold improvement and depreciated over 15 years. production

b. Capitalized as leasehold improvement and depreciated over 10 years. d. Periodic design changes to existing products

c. Capitalized as leasehold improvement and expensed in the year in which 13. On January 1, 2005, Haze Company had capitalized costs for a new
the lease expires computer software product with an economic life of five years. Sales for 2005
were 30 percent of expected total sales of the software and the pattern of
d. Expensed as incurred future sales can be measured reliably. At December 31, 2005, the software
had a net realizable value equal to 90 percent of the capitalized cost. What
10. Research is percentage of the original capitalized cost should be reported as the net
amount on the December 31, 2005 balance sheet?
I. Original and planned investigation undertaken with the prospect of gaining
a. 70% b. 72% c. 80% d. 90%
new scientific or technical knowledge and understanding.
14. The proper accounting for the costs incurred in creating computer software
II. Application of research finding or other knowledge to a plan or design for
products is to
the production of new or substantially improved material, device, product,
a. Capitalize all costs until the software is sold.
process, system or service, prior to the commencement of commercial
production or use. b. Charge research and development expense when incurred until
technological feasibility has been established for the product.
a. I only b. II only c. Both I and II d.
Neither I nor II c. Charge research and development expense only if the computer software
has alternative future use.
11. If a company constructs a laboratory building to be used as a research d. Capitalize all costs as incurred until a detailed program design or working
and development facility, the cost of the laboratory building is matched model is created.
against earnings as
a. Research and development expense in the period of construction

b. Depreciation deducted as part of research and development cost 15. Which statement is correct regarding the proper accounting treatment for
internal-use software costs?
c. Depreciation or immediate writeoff depending on company policy I. Preliminary costs should be capitalized as incurred.
d. An expense at such time as productive research has been obtained from II. Application and development costs should be capitalized as incurred.
the facility
a. I only b. II only c. Both I and II d. Neither I and II

12. A research and development activity for which the cost should be
expensed as incurred is
 a. 320,500 b. 365,500 c. 460,500 d. 456,500
AP
The following information has been taken from the Accumulated Profits ledger account of
GOING CORP.:
The NINGNING INC. has requested you to audit its financial statements for the year2007.
a. Total net income since incorporation 3,200,000 During your audit, Ningning presented to you its balance sheet as of December 31,
b. Total cash dividends paid 150,000 2006which had the following Shareholders’ equity section:
c. Carrying value of the company’s equipment
declared as property dividend 600,000 Preference shares, 10 par; 90,000 shares authorized and issued,

d. Proceeds from sale of donated stocks 150,500 of which 9,000 are in the treasury costing 135,000 and shown as an asset
e. Total value of stock dividends distributed 250,000 900,000
f. Gain on treasury share transaction 375,000
g. Unamortized premium on bonds payable 413,200 ordinary shares, 4 par value; 900,000 shares authorized, of which 675,000
h. Appropriated for plant expansion 700,000
i. Loss on treasury share reissue 515,000 shares are issued and outstanding 2,700,000
j. Share premium in excess of par from issued shares 215,000
Share premium (5 per share on preference shares issued in 2001)
k. Share issuance expense
450,000
45,000
l. Appropriated for remaining treasury shares at cost P50/share 1,000,000\ Allowance for doubtful accounts receivable 180,000

Additional notes: Reserve for depreciation 1,260,000

 The equipment declared as dividends had a recoverable value of 450,000 as of the Reserve for fire insurance 297,000
date of declaration.
 The stock dividend distributed was based on a 10% share dividend declared on Accumulated profits 3,375,000
100,000, 25 par value shares issued. The market value of shares on the date of
Total shareholders’ equity P9,000,000
declaration was at 42 per share.
 The only transactions affecting the treasury shares were those described in item f
and item i.
1. How much should be the correct debit to retained earnings for the property Audit notes:
dividends?
a. 600,000 b. 550,000 c. 500,000 d. 450,000 a. Of the preference shares, 4,500 shares were sold for 18 per share on August 30,
2. How much should be the correct debit to retained earnings for the share dividends? 2007. Ningning credited the proceeds to the Preference share account. The treasury
a. 420,000 b. 336,000 c. 250,000 d. 200,000 shares as of December 31, 2006 were acquired in one purchase in 2006.
3. How much is the correct balance of the Accumulated retained earnings b. The preference shares carry an annual dividend of 1 per share. The dividend is
unappropriated account? cumulative. As of December 31, 2006, unpaid cumulative dividends amounted to 5
a. 190,000 b. 140,000 c. 375,000 d. 515,000 per share. The entire accumulation was liquidated in June 2007, by issuing to the
4. What is the balance of the share premium from treasury stock transactions? preference shareholders 81,000 ordinary shares.
a. 0 b. 140,000 c. 375,000 d. 550,000 c. A cash dividend of 1 per share was declared on December 1, 2007 to preference
5. The necessary net adjustment involves an adjustment to additional paid in capital in shareholders of record December 15, 2007. The dividends are payable on January
the amount of: 15, 2008.
 d. At December 31, 2007, the Allowance for Doubtful Accounts Receivable and Reserve b. Class B laundry appliances are sold with a two-year warranty for replacement of
for Depreciation had balances of 37,500 and 1,575,000, respectively. parts and labor. The estimated warranty cost, based on the past experience, is 1% of
e. On March 1, 2007, the Reserve for Fire Insurance was increased by 90,000; sales to be incurred on the year of sale and 2% of sales to be incurred on the year
Accumulated profits was debited. following the year of sale. Replacement of parts and labor for warranty work totaled
f. On December 31, 2007, the Reserve for fire insurance was decreased by 45,000 1,640,000 during 2007.
which represents the carrying value of a machine destroyed by fire on that date. Fire c. The company provides key employees 5% bonus based on the net income of the
cleanup costs 9,000 does not appear in the records. company after tax. The same is yet to be accrued at year end.
g. The December 31, 2006 Accumulated profits consists of the following: d. Labandera uses the accrual method to account for the warranty and premium costs
Donated land from a stockholder 675,000 for financial reporting purposes. Labandera’s sales for 2007 totaled 280,000,000,
Gains from treasury stock transactions 76,500 60% of which is attributed to Class A laundry appliance sales.
Earnings retained in the business 2,623,500 e. The company reported the following balances at year end:
P3,375,000
Inventory of premium items 1,530,000
Premium expense 17,220,000
h. Unadjusted net income for the year ended December 31, 2007 was 1,946,250 per
Warranties expense 1,640,000
company’s books. Net income, before 35% income tax
And before any adjustments 80,164,000
Based on the information above, answer the following:

6. What is the adjusted net income for the year ended December 31, 2007? 11. What is the correct premiums liability as of December 31, 2007?
a. 1,946,250 b. 1,973,250 c. 1,937,250 d. 1,892,250 a. 4,284,000 b. 3,444,000 c. 1,530,000 d. 1,230,000
7. What is the correct Additional Paid in Capital as of December 31, 2007? 12. What is the correct warranties expense?
a. 1,296,000 b. 1,215,000 c. 1,206,000 d. 621,000 a. 1,640,000 b. 1,720,000 c. 2,240,000 d. 3,360,000
8. What is the correct Appropriated accumulated profits as of December 31, 2007? 13. What is the total bonus to key employees?
a. 454,500 b. 387,000 c. 342,000 d. 0 a. 2,395,577 b. 2,468,354 c. 2,480,916 d. 3,865,504
9. What is the correct Unappropriated accumulated profits as of December 31, 2007?
a. 4,016,250 b. 3,939,750 c. 3,935,250 d. 3,867,750
10. What is the total shareholders’ equity as of December 31, 2007?
a. 5,550,750 b. 8,718,750 c. 9,474,750 d. 9,479,250 14. What is the correct income tax?
a. 25,381,679 b. 25,386,076 c. 25,411,548 d. 25,897,074
15. What is the correct net income?
a. 47,137,405 b. 47,145,570 c. 47,192,875 d. 46,237,422
You are auditing the financial statements of LABANDERA INC., a company which carries a
wide variety of laundry appliance and supplies, for the year ended December 31, 2007.
Information about the company’s varied liability accounts are as follows:
P2
1. During 2003, an alumnus of Smith College, a private not-for-profit college, transferred
a. Premiums items are being offered to its Class A (residential use) washing machines 100,000 to the college with the stipulation that it be spent for library acquisitions. However,
and dryers. Customers shall receive a coupon for each P50 spent on Class A laundry the alumnus specified that none of the cash transferred could be spent until the college had
appliance. Customers may exchange 400 coupons and P1,000 for a dryer. matched the entire amount transferred with donations from other alumni by December 31,
Labandera pays P5,100 for each dryer and estimates that 60% of the coupons given 2004. As of December 31, 2003, the college had received matching cash donations of only
to customers will be redeemed. A total of 4,500 dryers to be used on the premium 5,000 from other alumni, and the college estimated that it was reasonably possible that it
program were purchased during the year and there were 1,680,000 coupons would not reach the goal of 100,000 by December 31, 2004. If the funds are not matched by
redeemed during the year. December 31, 2004, the cash will be returned to the alumnus.
On the college’s statement of financial position at December 31, 2003, the cash transfer of d. 35,000 decrease in unrestricted net assets.
100,000 would be included in the amount reported for

a. Liabilities.
4. Clara Hospital, a private not-for-profit hospital, earned 250,000 of gift shop revenues and
b. Unrestricted net assets. spent 50,000 on research during the year ended December 31, 2003. The 50,000 spent on
research was part of a 75,000 contribution received during December of 2002 from a donor
c. Temporarily restricted net assets. who stipulated that the donation be used for medical research. Assume none of the gift shop
revenues were spent in 2003. For the year ended December 31, 2003, what was the increase
d. Permanently restricted net assets.
in unrestricted net assets from the events occurring during 2003?

a. 300,000 b. 200,000 c. 250,000 d. 275,000

2. During the year ended December 31, 2003, a not-forprofit performing arts entity received
the following donorrestricted contribution and investment income:
5. Which of the following transactions of a private notfor- profit voluntary health and welfare
I. Cash contribution of 100,000 to be permanently invested.
organization would increase temporarily restricted net assets on the statement of activities for
II. Cash dividends and interest of 6,000 to be used for the acquisition of theater equipment. the year ended June 30, 2003?

As a result of these cash receipts, the statement of cash flows for the year ended December I. Received a contribution of 10,000 from a donor on May 15, 2003, who stipulated that the
31, 2003, would report an increase of donation not be spent until August of 2003.

a. 106,000 from operating activities. II. Spent 25,000 for fund-raising on June 20, 2003. The amount expended came from a
25,000 contribution on March 12, 2003. The donor stipulated that the contribution be used for
b. 106,000 from financing activities. fund-raising activities.

c. 6,000 from operating activities and an increase of 100,000 from financing activities. a. Both I and II. b. Neither I nor II. c. I only. d. II only.

d. 100,000 from operating activities and an increase of 6,000 from financing activities.

6. Catherine College, a private not-for-profit college, received the following contributions

during 2003:
3. Sea Lion Park, a private not-for-profit zoological society, received contributions restricted
for research totaling 50,000 in 2003. None of the contributions were spent on research in I. 5,000,000 from alumni for construction of a new wing on the science building to be
2003. In 2004, 35,000 of the contributions constructed in 2003.

were used to support the research activities of the society. The net effect on the statement of II. 4,000,000 from a donor who stipulated that the contribution be invested indefinitely and
activities for the year ended December 31, 2004, for Sea Lion Park would be a that the earnings be used for scholarships. As of December 31, 2003, earnings from
investments amounted to 50,000.
a. 15,000 increase in temporarily restricted net assets.
For the year ended December 31, 2003, what amount of these contributions should be
b. 35,000 decrease in temporarily restricted net assets. reported as temporarily restricted revenues on the statement of activities?

c.35,000 increase in unrestricted net assets. a. 50,000 b. 5,050,000 c. 5,000,000 d. 6,050,000

 was paid when the agreement was signed and the balance payable in four annual payments
beginning on December 31, 2009 . SD signed a non interest bearing note for the balance.
7. PJD Enterprises, a franchisor charges franchisees a “franchise fee” of P500,000. Of this SD's rating indicates that he can borrow money at 16% for the loan of this type. Assume that
amount, a non-refundable P200,000 is paid upon the signing of the contract with the balance substantial services amounting to P283,500 had already been rendered by TQ Products and
payable in three equal annual installments after each year thereafter starting 2012; PJD will that additional indirect franchise cost of P25,500 was also incurrred. PV factor is 2.80
assist in locating a suitable business site, conduct a market study, oversee the construction of
facilities, and provide initial training for employees.

If the collection of the note is not reasonably assured, the net income for the year ended
December 31, 2009 is
On October 1, 2011, PJD entered into a franchising agreement to cover an entirely new and
untested area. By december 31, 2011, PJD has substantially completed and rendered
appropriate services at a total cosr of P150,000, but has somehow, has raised some doubts
on the collectibility of the balance of the franchise fee. In its 2011 income statement, PJD A. P313,435 B. P228,035 C. P168,135 D.P253,535
Enterprises should recognize a profit of:

10. oN November 30, 2009, Loveless Company authorized NBSB Corp. to operate as a
A.P50,000 B. P140,000 C. P200,000 D. P350,000 frachisee for an initial franchise fee of P1,950,000. Of this amount, P750,000 was received
upon signing the agreement and the balance, represented by a note, is due in four annual
payments starting November 30, 2010. PV of P1 at 12% for 4 periods is .06355.Present
Value of an ordinary annuity of P1 at 12% for 4 periods is 3.0374 The period of refund will
8. Ruby Company charges new franchisees an initial fee of P2,500,000. Of this amount, elapsed on January 31, 2010. The franchisor has performed substantially all of the initial
P1,000,000 is payable in cash when the agreement is signed, and the remainder is to be paid services but the operations of the store have yet to start. Collectibility of the note is
in three annual installments, which are evidenced by an interest bearing promissory notes. In reasonably certain. How much is the unearned franchise fee on the year ended December
consideration therefore, Ruby Company will assist in locating the business site, conduct a 31, 2009?
market study to estimate the earnings potential, supervise construction of a building, and
provide initial training to employees.

A. P1,661,220 B.P750,000 C.P911,220 D, P0

On December 31, 2011, Ruby Company entered into a franchise agreement with Jade, Inc.
by the end of the year. Ruby Company has completed about 25% of the initial services at a
cost of P150,000 and it has ascertained that collection of the notes is reasonably assured. 11. Forever, Inc granted a franchise to Hopeless Romantic for the Manila area. The
For 2011, Ruby Company should recognize franchise revenue of: franchisee was to pay a franchise fee of P250000, payable in five equal installments starting
with the payment upon signing of the agreement. The franchise was to pay monthly 3% of
gross sales of the preceding month. Should the operations of the outlet prove to be
unprofitable, the franchise may be cancelled with whatever obligations owing Forever, Inc. in
A.P0 B. P850,000 C. P1,000,000 D.P2,500,000 connection with the P250,000 franchise fee waived. The prevailing interest rate for a non-
interest bearing note is 14%. The first year generated a gross sales of P1,250,000. What is
the amount of unearned franchise fee after the first year of operations?
9. On January 2, 2009, SD Company signed an agreement to operate as a franchisee of TQ
Products, Icn., for an initial franchise fee of P937,500 for 7 years. Of this amount, P175,000
A.P287,500 B.P145700 C. P195,700 D.P250,000

12. AAA,Inc.awarded its franchise for Davao City to Savory Foods for a total fee of
P250,000 , payable P50,000 at the time the contract is signed and the balance in two equal
installments after each year following the signing date. The agreement was signed at the
beginning of 2008 and it provided among others, that in the event the first year of operations
prove to be uncollectible the franchise agreement may be voided with no need for the
franchisor to return any amount already paid nor the franchisee to pay any balance still
unpaid. Indeed, the first year proved to be unprofitable . In 2008 AAA, Inc. would report
franchise fee revenue of :

A. P0 C. P150,000

B P50,000 D. P250,000

13. On December 29,2008, Fiesta Hat signed a franchising agreement for the operation of an
outlet in Dagupan City by Sombrero Company. The franchising agreement required the
franchisee, Sombrero Company to make an initial payment of P200,000 upon signing of the
contract and three payments each of P100,000 beginning one year from the agreement date
and yearly thereafter. The franchisor agrees to make market studies, find a suitable location,
train employees and perform some other related services. The initial payment is refundable
until substantial performance is effected. At the end of 2008 , Fiesta Hat should report
franchise fee revenue of:

A. P0 C. P200,000

B. P125,000 D. P500,000