ACC 108

P3 Exam

The accountant of Honda Company presented to you the

following information in 2022:
Pre-tax financial income ​ ​ P3,000,000
Impairment loss on Machinery ​ ​ 50,000
Unearned rental income ​ ​ 350,000
Prepaid advertising expense ​ ​ 250,000
Interest income on time deposit ​​ 80,000
Excess tax depreciation over
accounting depreciation ​ ​ 520,000
Installment sale which will be recognized 4. How much should Liam Company report the deferred
as taxable income upon collection ​ 900,000 tax asset and deferred tax liability
Bad debts expense using a method as of December 31, 2022, respectively?
under accrual basis ​ ​ ​ 75,000 a. P42,000 and P185,000
Provision for warranty ​ ​ ​ 180,000 b. P42,000 and P180,000
Unrealized loss on trading securities ​ 20,000 c. P85,000 and P100,000
Impairment loss on goodwill ​ ​ 30,000 d. P80,900 and P93,600
Income tax rate is constant at 30% for all years.
1. How much is the deferred tax asset at December 31, 5. What amount should Niall Incorporated’s report as net
2022? income after in its Income
a. P501,000 Statement for the year 2022?
b. P202,500 a. P2,890,000 ​ ​ c. P3,290,000
c. P298,500 b. P3,450,000 ​ ​ d. P3,210,000
d. P586,500
6. How much is the balance of the FV of plan asset and
2. How much is the deferred tax liability at December 31, defined benefit obligation as of December 31, 2022
2022? disclosed in Tomlinson’s Financial Statement?
a. P501,000 a. P9,115,000 and P7,781,000
b. P202,500 b. P9,065,000 and P7,781,000
c. P298,500 c. P9,065,000 and P7,831,000
d. P586,500 d. P9,115,000 and P7,831,000

3. The current income tax expense (CITE) is: 7. Tomlinson Company:

a. financial income multiplied by current year tax rate. Statement 1: Total benefit expense for the year ending
b. financial income multiplied by future enacted tax rate. December 31, 2022 is P2,496,000.
c. taxable income multiplied by future enacted tax rate. Statement 2: The amount presented in the statement of
d. taxable income multiplied by current year tax rate. financial position as of December 31, 2022 is
P1,334,000 net defined benefit asset.
Liam Company reported pretax income of P6,400,000 a. Only statement 1 is correct
for the year ended December 31, 2022. The company b. Only statement 2 is correct
record shows the following differences: c. Both statements are correct
d. Both statements are incorrect

8. An entity reported pretax financial income of

P6,000,000 in the income statement for the current year.
Tax return ​ Accounting record
Rent income ​ 70,000 ​ 120,000
Depreciation 280,000 ​ ​ 220,000
Payment of penalty ​ ​ ​ ​ 10,000
Premiums on officers’ life insurance ​ 90,000
Tax rate is 25% in 2022 and 30% in the future as The income tax rate is 25%. What is the taxable income
enacted by the congress. Payments in previous quarters for the current year?
totaled P350,000. Niall Incorporated’s partial income a. 6,100,000​ ​ ​ c. 5,990,000
statement after its first year of operation (2022) is as b. 6,090,000​ ​ ​ d. 5,810,000
follows:
Income tax expense: 9. An entity started operations on January 1, 2023 and
Current P1,050,000 reported the following assets and liabilities on December
Deferred ​ 100,000 31, 2023:
Total income tax expense P1,150,000 Carrying amount ​ Tax base
Land ​ ​ 12,000,000 ​ ​ 8,000,000
Niall Incorporated uses straight-line method of Equipment ​ 5,000,000 ​ ​ 3,500,000
depreciation for financial reporting purposes and Inventory ​ 2,000,000 ​ ​ 3,600,000
accelerated depreciation method for tax purposes. The Accounts receivable 1,500,000 ​ ​ 1,900,000
amount charged to depreciation expenses on its book Liabilities ​ 6,000,000 ​ ​ 5,500,000
this year was P1,500,000. There were penalties paid by The pretax financial income is P8,000,000 for 2023 and
Niall amounting to P240,000 because of late filing in BIR the income tax rate is 25%. Which of the following
in previous quarters. No other temporary differences statements is / are true?
existed between book income and taxable income Statement 1: Deferred tax asset and deferred tax liability
except for the amount of depreciation. tax rate is 25%. shall not be classified current.
On January 1, 2022, Tomlinson Company reported the Statement 2: The entity shall report a deferred tax
fair value of plan assets at P8,000,000 and defined expense of P750,000.
benefit obligation at P7,100,000. Transactions affecting Statement 3: The entity shall report total tax expense of
the balances for the current year are as follows: P2,000,000.
a. Statements 1 and 3 are true. b. Revenues or gains that are taxable before they are
b. Statements 1 and 2 are true. recognized in financial income.
c. Statements 2 and 3 are true. c. Revenues or gains that are recognized in financial
d. All statements are true. income but are never included in taxable income.
d. Expenses or losses that are tax deductible
10. For the calendar year 2023, Mylene Corporation before they are recognized in financial income.
reported depreciation of P1,200,000 in its income
statement. On its 2023 income tax return, Mylene 17. Stuart Corporation's taxable income differed from its
reported depreciation of P1,800,000. Mylene's income accounting income computed for this past year. An
statement also included P225,000 accrued warranty item that would create a permanent difference in
expense that will be deducted for tax purposes when accounting and taxable incomes for Stuart would be
paid. Mylene's enacted tax rates are 30% for 2023 and a. a balance in the Unearned Rent account at year end.
2024, and 24% for 2025 and 2026. The depreciation b. using accelerated depreciation for tax purposes and
difference and warranty expense will reverse over the straight-line depreciation for book purposes.
next three years as follows: c. a fine resulting from violations of OSHA regulations.
d. making installment sales during the year.

18. An example of a permanent difference is

a. proceeds from life insurance on officers.
b. interest expense on money borrowed to invest in
How much is the deferred tax asset on December 31, municipal bonds.
2023? c. insurance expense for a life insurance policy on
a. 180,000​ ​ ​ c. 67,500 officers.
b. 158,400​ ​ ​ d. 56,700 d. all of these.

11. Taxable income of a corporation 19. Which of the following will not result in a temporary
a. differs from accounting income due to differences in difference?
intraperiod allocation between the two methods of a. Product warranty liabilities
income determination. b. Advance rental receipts
b. differs from accounting income due to differences in c. Installment sales
interperiod allocation and permanent differences d. All of these will result in a temporary difference.
between the two methods of income determination.
c. is based on generally accepted accounting principles. 20. A company uses the equity method to account
d. is reported on the corporation's income statement. for an investment. This would result in what type of
difference and in what type of deferred income tax?
12.Taxable income of a corporation differs from pretax Type of Difference Deferred Tax
financial income because of a. Permanent ​ ​ Asset
Permanent Differences Temporary Differences b. Permanent ​ ​ Liability
a. No ​ ​ ​ No c. Temporary ​ Asset
b. No ​ ​ ​ ​ Yes d. Temporary ​ ​ Liability
c. Yes ​ ​ ​ ​ Yes
d. Yes ​ ​ ​ ​ No 21. At the beginning of the current year, an entity
reported fair value plan assets at P4,750,000 and
13. The deferred tax expense is the projected benefit obligation at P5,500,000. The
a. increase in balance of deferred tax asset minus the transactions for the current year are as follows:
increase in balance of deferred tax liability. Current service cost ​ ​ ​ 925,000
b. increase in balance of deferred tax liability minus the Discount rate ​ ​ ​ ​ 6%
increase in balance of deferred tax asset. Actual return on plan assets​ ​ 485,000
c. increase in balance of deferred tax asset plus the Contribution to the plan​ ​ ​ 1,350,000
increase in balance of deferred tax liability. Benefits paid to retirees​​ ​ 995,000
d. decrease in balance of deferred tax asset minus the Increase in projected benefit obligation due to change in
increase in balance of deferred tax liability. actuarial assumptions ​ ​ ​ 150,000
Present value of benefit obligation in advance 800,000
14. Which of the following are temporary differences that Gain on plan settlement before the normal retirement
are normally classified as expenses or losses that are date ​ ​ ​ ​ ​ 200,000
deductible after they are recognized in financial income? Which of the following statements is / are false?
a. Advance rental receipts. Statement 1: An entity shall disclose an explanation of
b. Product warranty liabilities. characteristics and risks of its defined benefit plan.
c. Depreciable property. Statement 2: The employee benefit expense amounts to
d. Fines and expenses resulting from a violation of law. P720,000.
Statement 3: The fair value of plan assets at year-end
15. Which of the following is a temporary difference amounts to P4,990,000.
classified as a revenue or gain that is taxable after it a. Statement 3 is false.
is recognized in financial income? b. Statement 2 is false.
a. Subscriptions received in advance. c. Statements 1 and 2 are false.
b. Prepaid royalty received in advance. d. Statements 1 and 3 are false
c. An installment sale accounted for on the accrual
basis for financial reporting purposes Wella company reported a prepaid benefit cost of P
and on the installment (cash) basis for tax purposes. 1,500,000 on January 1, 2016. The entity provided the
d. Interest received on a municipal obligation. following information related to a defined benefit plan
during the current year:
16. Which of the following differences would result in
Current Service cost 3,000,000
future taxable amounts?
a. Expenses or losses that are tax deductible after Actual return on plan assets 1,200,000
they are recognized in financial income.
What is the employee benefit expense for the current year?
Interest cost 800,000
a. 1,300,000 ​ ​ ​ c. 1,050,000
b. 1,500,000 ​ ​ ​ d. 1,100,000
Settlement price of benefit obligation 500,000
paid in advance
28-31. An entity provided the following information during the
current year:
Present value of benefit obligation pain in 600,000
advance 01/01 12/31

Interest Income 1,000,000 Fair value of plan 6,000,000 9,000,000

assets
Actuarial gain on PBO 400,000
Projected benefit 4,500,000 5,000,000
Past service cost 500,000 obligation

Benefits paid to retirees 2,500,000 Prepaid/accrued benefit cost 1,500,000 4,000,000

– surplus
Contribution to the plan 4,000,000
Asset ceiling 1,000,000 2,500,000
Projected benefit obligation. January 1 8,000,000
Effect of asset ceiling 500,000 1,500,000
Fair value of plan assets – January 10,000,000
1 Additional information during the year are as follows:
Current service cost 2,000,000
Asset ceiling January 1 1,500,000
Actual return on plan assets 400,000
Asset ceiling – December 31 2,000,000
Contribution to the plan 4,550,000
Discount rate 10%
22. What is the 2016 benefit expense? Benefits paid 1,950,000
A. 3,250,000 ​ C. 3,300,000
B. 3,350,000 ​ D. 3,000,000 Discount rate 10%
28. What is the employee benefit expense for the current year?
23. What is the fair value of the plan asset at December a. 1,900,000 b. 1,850,000 c. 1,800,000 d. 2,000,000
31?
A. 12,700,000​ C. 12,100,000 29. What is the remeasurement loss for the current year?
B. 12,200,000 ​ D. 10,000,000 a. 1,150,000 b. 1,200,000 c. 800,000 d. 3,000,000
24. What is the projected benefit obligation at December
31? 30. What is the defined benefit cost?
A. 9,700,000​ C. 8,900,000 a. 3,050,000 b. 3,100,000 c. 4,550,000 d. 3,000,000
B. 9,600,000 ​ D. 8,800,000
31. What amount of prepaid benefit cost should be
25. What is the net remeasurement gain or loss in OCI ? reported on December 31?
A. 600,000 gain ​ C. 250,000 loss a. 4,000,000 b. 2,500,000 c. 1,500,000 d. 1,000,000
B. 600,000 loss ​ D. 150,000 gain
32. Sorry na Company implemented a defined benefit
26. When an entity amends a pension plan, past service plan for the employees on January 1, 2022. During
cost should be 2022 and 2024, the contributions full funded the plan.
A. Treated as a prior period adjustment because no The following data are provided for 2025 and 2026.
future periods are benefitted.
B. Amortized in accordance with procedures used 2026 2025
for income tax purposes.
C. Recorded in Other Comprehensive Income Projected obligation, 7,500,000 7,000,000
D. Reported as an expense in the period the plan December 31
is amended
Plan asset at fair value, 6,750,000 6,000,000
27. An entity provided the following information for the December 31
current year:
Projected benefit obligation 750,000 1,000,000
Current Service Cost 500,000 in excess of plan assets

Interest on projected benefit 600,000

Defined benefit cost 900,000 800,000
obligation
Employer Contribution 500,000
Interest income on plan assets 350,000
What amount should be contributed to the plan in order to
Loss on plan settlement 250,000 report an accrued pension liability of 200,000 in the
December 31, 2026 statement of financial position?
Past Service Cost during the year 300,000 a. 1,000,000 b. 700,000 c. 600,000 d. 500,000

Actual return on plan assets 850,000 33. Babayu Company pays all salaried employees on a
biweekly basis. Overtime pay, however, is paid in the
Actuarial loss during the year 200,000 next biweekly period. The entity accrues salaries expense
only at the December 31 year-end. Last payroll was paid
Contribution to the plan 1,500,000 on December 26,2025, for the 2-week period ended
December 26,2025 was P50,000. Remaining workdays in c. Projected benefit obligation exceed the fair value
2025 were December 27, 28, 29, on which days there of the plan assets
was no overtime. The recurring biweekly salaries total d. Amount of pension expense exceeds the amount of
P900,000. The entity follows a five-day work week. employer contribution
What amount should be reported as liability for accrued
salaries on December 31,2025? 40. Which is not included in service cost?
a. 270,000 b. 320,000 c. 540,000 d. 590,000 a. Current service cost ​ c. Past Service Cost
b. Interest cost​​ d. Plan settlement gain or loss
34. Plus Company determined that it has an obligation
relating to employees’ rights to receive compensation for 41. The report of a defined benefit plan shall contain I. A
the future absences attributed to employees’ services statement showing net assets available for benefits, the
already rendered. The obligation related to rights that present value of promised benefits and the resulting
vest, and payment of the compensation is probable. excess or deficit. II. A statement of net assets available
The obligations on December 31, 2025 are reasonably for benefits including a note disclosing the present value
estimated as follows: of promised benefits.
Vacation pay ​ ​ ​ ​ 1,100,000 a. I only ​ ​ c. Both I and II
Sick pay ​ ​ ​ ​ 900,000 b. II only ​ ​ d. Either I or II
On December 31, 2025, what amount should be reported
as liability for compensated absences? 42. Employee benefits is under
a. 1,100,000 b. 2,000,000 c. 900,000 d. 0 a. PAS 19​ ​ c. PAS 17
b. PAS 2​ ​ d. PAS 10
35. Bonus Company has a profit-sharing bonus plan
which requires the entity to pay 12% of the income for 43. According to the PAS which covers Employee
the year to the employees who serve throughout the benefits, which of the following terms best describes
current year and who will continue to serve throughout other long-term employee benefits?
the following year. a. Benefits which are payable after completion of
The entity reported income of P80,000,000 for 2025. The employment
entity expects to save 5% of the maximum possible b. Benefits which fall due within twelve months of the end
bonus payment through staff turnover. The bonus will be of the period in which the service is rendered.
paid on December 31, 2026. What is the bonus expense c. Benefits not falling due wholly within twelve
for 2025? months of the end of the period in which the service
a. 9,600,000 b. 4,800,000 c. 9,120,000 d. 4,560,000 is rendered.
d. Benefits payable as a result of an entity’s decision to
36. C.U. Again Company has established a defined end an employment before the normal retirement care.
benefit pension plan for an employee. Annual payments
under the pension plan are equal to the employee’s 44. Which of the following components of the annual
highest lifetime salary multiplied by 3% multiplied by the pension costs shall be recognized in the other
number of years with the entity. On December 31, 2025, comprehensive income (rather than in profit or loss)?
the employee had worked for 15 years. The current a. Service Cost
salary is P500,000. b. Net interest on the net defined benefit liability
The employee is expected to retire in 5 years and the c. Remeasurements of the net defined benefit liability
salary increase are expected to average 4% per year d. All of these items are required to be recognized in this
during the period. The employee is expected to live for 6 profit or loss
years after retiring and will receive the first annual
pension payment one year after retirement. 45. The vested benefits of an employee in a pension plan
The discount rate is 12%. The relevant present value and represent
future value factors are: a. Benefits to be paid to the retired employee in the
Future value of 1 at 4% for 5 periods ​ ​ 1.217 subsequent year
PV of ordinary annuity of 1 at 12% for 6 periods ​4.111 b. Benefits accumulated in the hands of an independent
PV of 1 at 12% for 5 periods ​ ​ ​ 0.567 trustee
What is the projected benefit obligation on December c. Benefits to be paid to the retired employee in the
31,2025? current year
a. 638,269 b. 225,000 c. 524,460 d. 608,500 d. Benefits that are not contingent on the employee’s
continuing in service
37. Which of the following methods is used in PFRS to
account for defined benefit pension plans? A = TRUE, B = FALSE
a. Accumulated benefits method 46.When calculating the present value of defined benefit
b. Projected-unit-credit-method obligations, companies must consider both demographic
c. Benefit-years-of-service method and financial assumptions to accurately estimate future
d. Vested years of service method benefits. A
47.Multi-employer plans should always be classified as
38. The interest on the defined benefit obligation defined benefit plans, regardless of the extent of the
component of pension expense employer’s obligation. B
a. is the same as the expected return on plan assets 48.State plans, being managed by government entities,
b. May be stated implicitly or explicitly when reported require actuarial calculations on the part of the employer
c. Reflects the incremental borrowing rate of the employer for liability recognition. B
d. Reflects the rate at which the pension benefits 49. Hybrid plans with features of both defined contribution
could be effectively settled and defined benefit plans are accounted for as defined
benefit plans. A
39. A pension liability would result at the end of the year if 50. Non-accumulating compensated absences lead to
the liability recognition only when the absences are used, as
a. Amount of employer contribution exceeds the pension they do not accumulate from period to period. A
expense
b. fair value of the plan assets exceeds the projected
benefit obligation