E1 Midterm Exam --IntAcc1 2024 (Set A) PDF

LA SALLE UNIVERSITY College of Business and Accountancy First Semester 2024-2025 MIDTERM EXAMINATION INTERMEDIATE ACCOUNTING 1...

LA SALLE UNIVERSITY College of Business and Accountancy First Semester 2024-2025 MIDTERM EXAMINATION INTERMEDIATE ACCOUNTING 1 by Ms. Cindy Mae V. Pacot, CPA, MBA October 29, 2024 | 1:00 PM - 4:00 PM Instructions: Read each question carefully before selecting the best answer. Mark only one answer per question. No erasures are allowed. The examination consists of 70 multiple-choice questions. You have 3 hours to complete the exam. Only pens, pencils, erasers, and a non-programmable calculator are allowed. No electronic devices or reference materials are permitted. Use the provided answer sheet to mark your answers. Ensure you fill in the box completely and clearly. Inventories - Preliminary Considerations Number Selling price Total 1. Under the periodic inventory system, the Lot class of lots per lot clearing cost merchandise inventory account continuously A 10 100,000 None discloses the amount of inventory on hand. B 20 80,000 100,000 If the perpetual inventory system is used, the C 40 70,000 300,000 account entitled Merchandise Inventory is debited D 50 60,000 800,000 for purchases of merchandise. a. True, True c. False, False What amount should be allocated as total cost of b. False, True d. True, False Class B lots under the relative sales price method? a. 1,176,000 c. 1,220,000 2. In a manufacturing entity, the following are b. 1,276,000 d. 1,700,000 components of total manufacturing costs, except a. Direct materials purchased Inventories - Inclusions and Exclusions b. Direct materials used 6. Kristin’s Boutiques has identified the following c. Direct labor items for possible inclusion in its December 31, d. Factory overhead 2023 inventory. Which of the following would not be included in the year end inventory? 3. The following assets are correctly classified as a. Merchandise purchased FOB shipping point inventory of the relevant entity, except for was picked up by the freight company but had a. Condominium units being sold by a real estate still not arrived at Kristin’s Boutique as of developer. December 31, 2023. b. Equipment sold by a hardware store. b. Kristin has in its warehouse merchandise on c. Land sold by a fastfood restaurant. consignment from Abby Co. d. Vegetables sold by a market vendor. c. Kristin has sent merchandise to various retailers on a consignment basis. 4. On June 1, 2024 Compassion Company sold d. Kristin has merchandise on hand which has merchandise with a list price of ₱1,000,000 to a been returned by customers because of wrong customer. The entity allowed trade discounts of size. 20% and 10%. Credit terms were 5/10, n/30 and the sale was made FOB shipping point. The entity 7. Goods shipped FOB destination that are in transit prepaid ₱50,000 of delivery cost for the customer at the end of the year should be included in the as an accommodation. On June 11, 2024, what inventory of amount is received from the customer as full a. Seller c. Buyer remittance? b. Common carrier d. Bank a. ₱684,000 c. ₱720,000 b. ₱734,000 d. ₱770,000 8. “Bill and hold” sales, in which delivery is delayed at the buyer’s request but the buyer assumes title 5. Elixir Company bought a 10-hectare land in and accepts invoicing, shall be recognized when Novaliches to be improved, subdivided into lots a. The buyer makes an order and eventually sold. The purchase price of the land b. The seller starts manufacturing the goods was ₱5,800,000. Taxes and documentation c. The title has been transferred but the goods are expenses on the transfer of the property amounted kept on the seller’s premises to ₱80,000. d. It is probable that the delivery will be made, payment terms have been established and the buyer has acknowledged the delivery instructions 1 of 7 9. Kew Company reported accounts payable on 12. The two most widely used methods for December 31, 2023 at ₱2,200,000 before determining the cost of inventory are considering the following data: a. FIFO and LIFO Goods shipping to Kew FOB shipping point b. FIFO and average on December 22, 2023 were lost in transit. The c. LIFO and average invoice cost of ₱40,000 was not recorded by d. gross profit and average Kew. On January 7, 2024, Kew filed a ₱40,000 13. Which of the following companies would be more claim against the common carrier. likely to use the specific identification inventory On December 27, 2023, a vendor authorized costing method? Kew to return for full credit goods shipped and a. M Lhuillier Jewellers billed at ₱70,000 on December 15, 2023. b. Mr. DIY The returned goods were shipped by Kew on c. Gloria Bazaar December 28, 2023. A ₱70,000 credit memo d. Goldilocks Bakeshop, Inc. was received and recorded by Kew on January 5, 2020. 14. Massive Company provided the following On December 31, 2023, Kew has a ₱500,000 information for the current year: debit balance in accounts payable to Ross, a Unit Total supplier, resulting from a ₱500,000 advance Units cost Cost payment for goods to be manufactured. 1/1 Inventory on hand 200 1,500 300,000 4/3 Purchase 300 1,750 525,000 What amount should be reported as accounts 10/1 Purchase 500 2,000 1,000,000 payable on December 31, 2023? a. 2,170,000 c. 2,680,000 The entity sold 400 units on June 25 and 400 on b. 2,730,000 d. 2,670,000 December 10. What is the weighted average cost of the inventory at year-end? 10. A physical count on December 31, 2023 revealed a. 350,000 c. 400,000 that Joyous Company had inventory with a cost of b. 730,000 d. 365,000 ₱4,410,000. The following items were excluded from this amount: 15. Jailbird Company provided the following data Merchandise of ₱610,000 is held by Joyous on about the inventory for the month of January: consignment. Unit Total Merchandise costing ₱380,000 was shipped by Units cost Cost Joyous FOB destination to a customer on Jan 1 Beginning 16,000 140 2,240,000 December 31, 2023. 5 Purchase 4,000 150 600,000 The customer was expected to receive the 10 Sale 15,000 goods on January 5, 2024. 15 Purchase 20,000 160 3,200,000 Merchandise costing ₱460,000 was shipped by 16 Purchase return 1,000 160 160,000 Joyous FOB shipping point to a customer on 25 Sale 8,000 December 29, 2023. 26 Sale return 4,000 The customer was expected to receive the 31 Purchase 30,000 150 4,500,000 goods on January 10, 2024. Merchandise costing ₱830,000 shipped by a What is the moving average cost of the inventory vendor FOB destination on December 31, on January 31? 2023 was received by Joyous on January 15, a. 7,625,000 c. 7,500,000 2024. b. 7,690,000 d. 7,530,000 Merchandise costing ₱510,000 purchased FOB shipping point was shipped by the Inventories - Subsequent Measurements supplier on December 31, 2023 and received 16. Inventories shall be measured at by Joyous on January 5, 2024. a. Cost b. Net realizable value What amount of inventory should be reported on c. Lower of cost and net realizable value December 31, 2023? d. Higher of cost and net realizable value a. 5,300,000 c. 4,960,000 b. 3,800,000 d. 4,920,000 17. The amount of any writedown of inventory to net realizable value and all losses of inventory shall be Inventories - Cost Flow Assumptions a. Recognized as operating expense in the period 11. When using the FIFO inventory costing method, the writedown or loss occurs the most recent costs are assigned to the cost of b. Recognized as other expense in the period the goods sold. writedown or loss occurs FIFO is the inventory costing method that follows c. Recognized as component of cost of sales in the physical flow of the goods. the period the writedown or loss occurs a. True, True c. False, False d. Deferred until the related inventory is sold b. False, True d. True, False 2 of 7 18. Based on a physical inventory at year-end, Cherry d. The relationship between selling price and cost Company determined the chocolate inventory on a of goods sold is similar to prior years. FIFO basis at ₱2,600,000 with a replacement cost of ₱2,500,000. 23. Avarice Company has a recent gross profit history of 40% of net sales. The following data are Cherry Company estimated that, after further available from the accounting records for the three processing costs of ₱1,200,000, the chocolate months ended March 31: could be sold as finished candy bars for Inventory January 1 650,000 ₱4,000,000. The normal profit margin is 10% of Purchases 3,200,000 sales. Net sales 4,500,000 Purchase return 75,000 What amount should be reported as chocolate Freight in 50,000 inventory at year-end? a. 2,800,000 c. 2,600,000 Using the gross profit method, what is the b. 2,400,000 d. 2,500,000 estimated cost of inventory on March 31? a. 1,125,000 c. 1,120,000 19. Gem Company measured inventory at the lower of b. 2,025,000 d. 2,700,000 cost and net realizable value. Data regarding the items in the inventory are: 24. Abscond Company used the retail inventory Markers Pens Highlighters method to estimate inventory for interim statement Historical cost 240,000 188,000 300,000 purposes: Selling price 360,000 250,000 360,000 Cost Retail Estimated cost Beginning inventory 700,000 1,000,000 to complete 48,000 50,000 68,000 Purchases 4,100,000 6,300,000 Replacement Markup 700,000 cost 208,000 168,000 318,000 Markdown 500,000 Normal profit Sales 5,900,000 margin as a Normal shoplifting losses 100,000 percentage of selling price 25% 25% 10% Under the average cost approach, what is the estimated cost of ending inventory? a. 1,500,000 c. 1,024,000 What is the measurement of the inventory? b. 960,000 d. 900,000 a. 720,000 c. 728,000 b. 676,000 d. 694,000 25. The Ashby Sporting Goods Store uses the retail inventory method. Information relating to the 20. On November 15, 2019, Diamond Company computation of the inventory at December 31, entered into a commitment to purchase 10,000 2023, is as follows: ounces of gold on February 15, 2020 at a price of Cost Retail ₱310 per ounce. On December 31, 2019, the Inventory at Jan. 1, 2023 ₱32,000 ₱80,000 market price of gold is ₱270 per ounce. On Sales 580,000 February 15, 2020, the price of gold is ₱300 per Purchases 270,000 600,000 ounce. Freight-in 7,600 Net markups 40,000 What is the gain on purchase commitment to be Net markdowns 20,000 recognized on February 15, 2020? a. 400,000 c. 300,000 What is the ending inventory at cost at December b. 100,000 d. 0 31, 2023, using the retail inventory method and the FIFO cost estimation? Inventories - Gross Profit and Retail Methods a. ₱43,000 c. ₱51,600 21. If a company uses the periodic inventory system to b. ₱45,000 d. ₱53,724 cost its inventory, the gross profit method is a method that can be used to check on theft when Investment - Introduction the actual inventory is taken by the company. 26. All of the following are considered as financial In the retail inventory method, the cost to retail assets, except ratio is equal to the cost of goods sold divided by a. Cash c. Land the retail price of the good sold. b. Accounts receivable d. Notes receivable a. True, True c. False, False b. False, True d. True, False 27. Nonfinancial assets include the following, except a. Building 22. The gross profit method assumes that b. Inventory a. The amount of gross profit is the same as in c. Prepaid insurance prior years. d. Inventory in common shares of another entity b. The sales and cost of goods sold have not changed from previous years. c. Inventory values have not increased from previous years. 3 of 7 28. Investment in equity securities can be classified as December 31, 2024, the shares of Security A had a either at FVTPL or at Amortized Cost but not market value of ₱600,000. No other activity FVTOCI. occurred during 2024 in relation to the trading Investment in debt securities can be classified as security portfolio. What is the gain or loss on the either FVTPL or at Amortized Cost but not at sale of Security B on July 31, 2024? FVTOCI. a. ₱500,000 gain c. ₱500,000 loss a. True, True c. False, False b. ₱100,000 gain d. ₱100,000 loss b. False, True d. True, False 36. During 2023, Haggard Company purchased 29. Transaction costs are expensed outright if these are marketable equity securities for ₱1,850,000 to be related to investments at FVOCI. held as trading investments. In 2023, the entity Transaction costs are capitalized if these are appropriately reported an unrealized loss of related to investments at FVTPL. ₱200,000 in the income statement. There was no a. True, True c. False, False change during 2023 in the composition of the b. False, True d. True, False portfolio of trading securities. Pertinent data on 30. Transaction costs related to selling of investment December 31, 2024 are: in equity securities shall be recognized in profit or Security Cost Market value loss when the investment is classified as FVTPL. A 600,000 700,000 Transaction costs related to selling of investment B 450,000 400,000 in equity securities shall be recognized in profit or C 800,000 900,000 loss when the investment is classified as FVTOCI. a. True, True c. False, False What amount of unrealized gain on these securities b. False, True d. True, False should be included in the 2020 income statement? a. 350,000 c. 550,000 Investment in Equity Securities b. 150,000 d. 0 31. Investment in equity securities are reported as part of the shareholders’ equity of the issuer. 37. On January 1, 2023, Lebanon Company purchased Investment in equity securities are riskier relative equity securities to be held as “at fair value to investments in debt securities. through other comprehensive income”. On a. True, True c. False, False December 31, 2023, the cost and market value b. False, True d. True, False were: Security Cost Market 32. The default classification of investments in equity X ₱2,000,000 ₱2,400,000 securities is Y 3,000,000 3,500,000 a. At FVTPL c. Either a or b Z 5,000,000 4,900,000 b. At FVTOCI d. Neither a nor b On July 1, 2024, Lebanon Company sold Security 33. Which of the following statements is not true? X for ₱2,500,000. What amount of gain on sale of a. Changes in fair value from investments at financial asset should be reported in the 2024 FVTPL are recognized in profit or loss. income statement? b. Changes in fair value from investments at a. ₱500,000 c. ₱100,000 FVTOCI are recognized in OCI. b. ₱400,000 d. ₱0 c. Both a and b. d. Neither a nor b. 38. Judicious Company acquired an equity investment a number of years ago for ₱3,000,000 and 34. Which of the following statements is true? classified it as at fair value through other a. If an investment at FVTPL is sold, the comprehensive income. difference between the proceeds and the related carrying amount shall be recognized as On December 31, 2019, the cumulative loss realized gain or loss on sale in profit or loss. recognized in other comprehensive income was b. If an investment at FVOCI is sold, the ₱400,000 and the carrying amount of the difference between the proceeds and the investment was ₱2,600,000. related carrying amount shall be recognized as realized gain or loss on sale in OCI. On December 31, 2020, the issuer of the equity c. Both a and b. instrument was in severe financial difficulty and d. Neither a nor b. the fair value of the equity investment had fallen to ₱1,200,000. 35. Lagoon Company purchased the following securities during 2023: What cumulative amount of unrealized loss should Market value be reported as component of other comprehensive Security Classification Cost 12/31/2023 income in the statement of changes in equity for A Trading ₱ 900,000 ₱1,000,000 the year ended December 31, 2020? B Trading 1,000,000 1,600,000 a. 1,400,000 c. 1,000,000 b. 1,800,000 d. 0 On July 31, 2024, the entity sold all of the shares of Security B for a total of ₱1,100,000. On 4 of 7 39. During 2019, Opulence Company purchased b. Decrease in number of shares and decrease in marketable equity securities as short-term cost per share investment to be measured at fair value through c. Increase in number of shares and decrease in other comprehensive income. The cost and market cost per share value on December 31, 2019 were: d. Decrease in number of shares and increase in Security Cost Market value cost per share A 1,000 shares 300,000 350,000 B 10,000 shares 1,700,000 1,550,000 46. On January 31, 2023, Den Company acquired C 20,000 shares 3,150,000 2,950,000 100,000 ordinary shares of Cen Company for P60/share to be accounted for at FVTPL. On The entity sold 10,000 shares of B on January 5, March 31, 2023, Cen Company declared 20% 2020 for ₱1,450,000. What amount should be share dividends to be distributed on April 15, charged to retained earnings as a result of the sale 2023. On June 15, 2023, additional 60,000 Cen of equity securities in 2020? shares were acquired for P58/share. Cen Company a. 200,000 c. 250,000 dividends declared P2.60/share cash dividends on b. 100,000 d. 50,000 July 31, 2023 to be paid on August 31, 2023 for shareholders on record as of August 20, 2023. 40. On March 1, 2023, Don Company acquired Lastly, on December 31, 2023, the CCC shares had number of ordinary shares of Rac Company at a fair value of P59.50/share. total purchase price of P2,000,000 plus transaction costs 50,0,000. On October 1, 2023, the company Determine the total amount to be reported in Den sold half of these shares for P1,100,000 and Company’s 2023 profit or loss. incurred P10,000 transaction costs. As of a. P1,230,000 net income December 31, 2023, the remaining shares had a b. P1,230,000 net loss total fair value of P1,260,000 and estimated c. P1,698,000 net income transaction costs of P11,000 are to be incurred in d. P1,698,000 net loss selling the shares. 47. Maxim Company acquired 40,000 ordinary shares The net gain or loss amount to be reported in OCI. on October 1 for ₱6,600,000 to be held for trading. a. P299,000 net loss c. P310,000 net loss On November 30, the investee distributed a 10% b. P299,000 net gain d. P310,000 net gain ordinary share dividend when the market price of the share was ₱250. On December 31, the entity Dividends, Share Splits, and Share Rights sold 4,000 shares for ₱1,000,000. What amount 41. Which of the following statements is true? should be reported as gain on sale of investment in a. Cash dividends received from investment the current year? accounted for FVTPL shall be recognized as a. 340,000 c. 500,000 dividend income in profit or loss. b. 400,000 d. 600,000 b. Cash dividends received from investment accounted for FVTOCI shall be recognized as 48. During 2023, Reminiscent Company bought dividend income in OCI. shares of another entity to be held for trading. c. Both a and b. June 1 20,000 shares @ ₱100 2,000,000 d. Neither a nor b. December 1 30,000 shares @ ₱120 3,600,000 42. Generally, during which of the following dates Transactions for 2024 does an entity recognize dividend income? Jan. 10 Received cash dividend at ₱10 per share. a. Date of declaration c. Date of record Jan. 20 Received 20% share dividend. b. Date of payment d. Date of receipt Dec. 10 Sold 30,000 shares at ₱125 per share. 43. Property dividends are recorded as What is the gain on sale of investment using the a. Dividend income at carrying amount of the FIFO approach? property a. 1,150,000 c. 150,000 b. Dividend income at fair value of the property b. 950,000 d. 550,000 c. Return of investment and therefore credited to investment account Use the information for the next two items: d. Memorandum only On January 1, 2023, Scoundrel Company purchased 100,000 ordinary shares at ₱80 per 44. Liquidating dividends are credited to share to be classified as nontrading through other a. Income comprehensive income. On September 30, 2023, b. Retained earnings the entity received 100,000 share rights to c. Investment account purchase 20,000 shares at ₱90 per share. The share d. Share capital rights had an expiration date of February 1, 2024. On September 30, 2023, each share had a market 45. What is the effect of share split-up? value of ₱114 and the share right had a market a. Increase in number of shares and increase in value of ₱6. cost per share 5 of 7 49. What amount should be reported on September 30, 56. The net amount received from September 1, 2023 2023 as investment in share rights? shall be a. 500,000 c. 100,000 a. P4,042,000 c. P4,072,000 b. 400,000 d. 600,000 b. P4,282,000 d. P4,024,000 50. What is the total cost of the new investment if all 57. The total interest income for the year 2023 shall be of the share rights are exercised? a. P900,000 c. P592,500 a. 1,800,000 c. 2,200,000 b. P820,000 d. P577,500 b. 1,600,000 d. 2,400,000 58. The net income to be recognized in the profit or Investment in Debt Securities - FVTPL loss for the year 2023 shall be 51. All of the following are characteristics of of debt a. P695,500 c. P549,500 securities, except b. P654,500 d. P499,500 a. Return on investment includes dividends b. More steady returns Use the following for the next two items: c. Less risky compared to equity On January 1, 2023, Bul Company acquired a d. Liabilities of the issuing entity six-year, 8% interest-bearing, P5,000,000 face amount corporate bonds when market yields 52. The effective interest rate on bonds is higher than averaged 10%. The bonds were originally dated on the stated rate when bonds sell January 1, 2022. Interest is payable every a. At face value c. Below face value December 31 of each year. As of December 31, b. Above face value d. At maturity value 2023 and 2024, market yields averaged 9.5% and 8.50%, respectively. 53. In classifying debt securities for accounting purposes, which of the following shall be 59. The net amount to be recognized in profit or loss considered? for the year 2023 shall be a. Business model of managing cash flows. a. P400,000 c. P538,743 b. Characteristics of contractual cash flows. b. P462,092 d. P261,257 c. Both a and b. d. Either a and b. 60. The net amount to be recognized in profit or loss for the year 2024 shall be 54. In assessing an entity’s business model, the a. P576,486 c. P452,168 following are correct, except b. P223,514 d. P400,000 a. Business model shall be based on what is actually happening rather than the Investment in Debt Securities - Amortized Cost management’s intention. 61. The contractual agreement between an investor b. The assessment shall be on an and the bond issuer is contained in a formal investment-by-investment basis. document known as c. The assessment shall not incorporate the a. Contract of debt c. Bond certificate worst-case scenarios. b. Bond indenture d. Bond agreement d. None of the above. 62. On initial recognition, debt securities at amortized Use the following for the next four items: cost shall be measured at their At the beginning of 2023, Aqua Coompany had a. Fair value P10,000,000 face amount government bonds that b. Fair value plus transaction costs incurred in had a quoted price of 102.50. These bonds were acquiring the security acquired during 2022 for its 103 clean price. The c. Fair value plus transaction costs that are bonds pay interest of 9% every December 31 of expected to be incurred assuming the security each year. During 2023, the Company has sold the is to be sold following portions of these bonds: d. Amortized cost On March 31, 2023, P3,000,000 face amount was sold for its dirty price of 105.10. 63. On January 1, 2023, Russia Company purchased Transaction costs incurred amounted to 5-year bonds with face value of ₱8,000,000 and P20,000. stated interest of 10% per year payable On September 1, 2023, P4,000,000 face semiannually January 1 and July 1. The bonds amount was sold for its clean price of 101.80. were acquired to yield 8%. What is the carrying Transaction costs incurred amounted to amount of the bond investment on December 31, P30,000. 2023? a. ₱8,594,752 c. ₱8,540,704 As of December 31, 2023, the bonds had quoted b. ₱8,538,542 d. ₱8,302,848 price of 102.15. 55. The net amount received from March 31, 2023 shall be a. P3,200,500 c. P3,133,000 b. P3,220,500 d. P3,153,000 6 of 7 64. On July 1, 2023, York Company purchased as a long-term investment ₱1,000,000 to Park Company’s 8% bonds for ₱946,000, including accrued interest of ₱40,000. The bonds were purchased to yield 10% interest. The bonds mature on January 1, 2029 and pay interest annually on January 1. York uses the effective interest method of amortization. In its December 31, 2023 statement of financial position, what carrying amount should York report as investment in bonds? a. ₱911,300 c. ₱916,600 b. ₱953,300 d. ₱960,600 65. On January 1, 2023, Portugal Company purchased bonds with face value of ₱8,000,000 for ₱7,679,000 as a long-term investment. The stated rate on the bonds is 10% but the bonds are acquired to yield 12%. The bonds mature at the rate of ₱2,000,000 annually every December 31. The entity uses the effective interest method of amortizing discount. What carrying amount should Portugal Company report as investment in bonds on December 31, 2023? a. ₱5,759,250 c. ₱7,759,250 b. ₱7,800,480 d. ₱5,800,480 Use the following for the next five questions: On January 1, 2023, Thi Company acquired four-year, P7,000,000 face amount government bonds when prevailing market rates averaged 12%. The investment is accounted for at amortized cost. Interest of 10% is payable every June 30 and December 31 of each year. On November 1, 2024, P3,000,000 face amount of the bonds was sold for its dirty price of 99.35. 66. Total interest income for the year 2023 shall be a. P790,473 c. P788,972 b. P801,655 d. P799,649 67. Total interest income for the year 2024 shall be a. P804,752 c. P801,655 b. P749,538 d. P744,182 68. Carrying amount of the investment as of December 31, 2023 shall be a. P6,609,231 c. P6,705,132 b. P6,655,785 d. P6,757,440 69. Carrying amount of the investment as of December 31, 2024 shall be a. P3,776,703 c. P3,831,504 b. P3,803,306 d. P3,861,394 70. The gain or loss from the November 1, 2024 sale shall be a. P8,073 gain c. P91,927 gain b. P8,073 loss d. P91,927 loss 7 of 7