CARLOS HILADO MEMORIAL STATE COLLEGE

COLLEGE OF BUSINESS, MANAGEMENT AND ACOCUNTANCY

PRACTICAL ACOUNTING 1
FINAL PREBOARD EXAMINATION
1.

JOSE

Ayos bought five identical plots of development land

for P2 million in 2012. On 2 January 2014 Ayos sold
three of the plots of land to an investment company,
Landbank, for a total of P2.4 million. This price was
based on 75% of the fair market value of P3.2 million
as determined by an independent surrveyor at the
date of sale. The terms of the sale contained two
clauses:

Ayos can re-purchase the plots of land for the full

fair value of P3.2 million (the value determined of
the date of sale) any time until 31 December
2016; and
On 1 January 2017, Landbank has the option to
require Ayos to re-purchase the properties for
P3.2 million. You may assume that Landbank
seeks a return on its investments of 10% per
annum.
If Ayos recorded the legal form of the transaction
instead of its substance, profit for 2014 will be
overstated by
a. P1,440,000
c. P640,000
b. P1,200,000
d. P400,000

2.

An analysis of Blackjacks Corp.s unadjusted prepaid

expense account at December 31, 2013, revealed the
following:

An opening balance of P1,500 for Blackjacks

comprehensive insurance policy. Blackjacks had
paid an annual premium of P3,000 on July 1,
2012.

A P3,200 annual insurance premium payment

made July 1, 2013.

A P2,000 advance rental payment for a warehouse

Blackjacks leased for one year beginning January
1, 2014.

Stores, Inc. had sales of P1,000,000 during

December, 2013.
Experience has shown that
merchandise equaling 7% of sales will be returned
within 30 days and an additional 3% will be returned
within 90 days.
Returned merchandise is readily
resalable. In addition, merchandise equaling 15% of
sales will be exchanged for merchandise of equal or
greater value.
What amount should Stores, Inc.
report for net sales in its income statement for the
month of December 2013?
a. P900,000
c. P780,000
b. P850,000
d. P750,000

MENDOZA, CPA, MBA

MARCH 18, 2015

4.

Amar Farms produced 300,000 pounds of cotton

during the 2013 season. Amar sells all of its cotton to
Brye Co., which has agreed to purchase Amar's entire
production at the prevailing market price. Recent
legislation assures that the market price will not fall
below P.70 per pound during the next two years.
Amar's costs of selling and distributing the cotton are
immaterial and can be reasonably estimated. Amar
reports its inventory at expected exit value. During
2013, Amar sold and delivered to Brye 200,000
pounds at the market price of P.70. Amar sold the
remaining 100,000 pounds during 2014 at the market
price of P.72. What amount of revenue should Amar
recognize in 2013?
a. P140,000
c. P210,000
b. P144,000
d. P216,000

5.

Clark Co.'s advertising expense account had a balance

of P146,000 at December 31, 2013, before any
necessary year-end adjustment relating to the
following:

Included in the P146,000 is the P15,000 cost of

printing catalogs for a sales promotional campaign
in January 2014.

Radio advertisements broadcast during December

2013 were billed to Clark on January 2, 2014.
Clark paid the P9,000 invoice on January 11,
2014.
What amount should Clark report
expense in its income statement for
December 31, 2013?
a. P122,000
c.
b. P131,000
d.

6.

In its December 31, 2013, balance sheet, what

amount should Blackjacks report as prepaid
expenses?
a. P3,600
c. P1,600
b. P5,200
d. P2,000
3.

B.

as advertising
the year ended
P140,000
P155,000

Regal Department Store sells gift certificates,

redeemable for store merchandise, that expire one
year after their issuance. Regal has the following
information pertaining to its gift certificates sales and
redemptions:
Unredeemed at 12/31/12
2013 sales
2013 redemptions of prior year sales
2013 redemptions of current year sales

P 75,000
250,000
25,000
175,000

Regal's experience indicates that 10% of gift

certificates sold will not be redeemed.
In its
December 31, 2013 balance sheet, what amount
should Regal report as unearned revenue?
a. P125,000
c. P100,000
b. P112,500
d. P 50,000
7.

On December 28, 2013, Kerr Manufacturing Co.

purchased goods costing P50,000. The terms were
FOB destination.
Some of the costs incurred in
connection with the sale and delivery of the goods
were as follows:
Packaging for shipment
Shipping
Special handling charges

P1,000
1,500
2,000

These goods were received on December 31, 2013.

In Kerr's December 31, 2013 balance sheet, what
amount of cost for these goods should be included in
inventory?
a. P54,500
c. P52,000

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8.

b. P53,500
d. P50,000
Rabb Co. records its purchases at gross amounts but
wishes to change to recording purchases net of
purchase discounts. Discounts available on purchases
recorded from October 1, 2012, to September 30,
2013, totaled P2,000. Of this amount, P200 is still
available in the accounts payable balance.
The
balances in Rabb's accounts as of and for the year
ended September 30, 2013, before conversion are
Purchases
Purchase discounts taken
Accounts payable

P100,000
800
30,000

What is Rabb's accounts payable balance as of

September 30, 2013, after the conversion?
a. P29,800
c. P29,200
b. P28,800
d. P28,200
9.

Lewis Company's usual sales terms are net sixty days,

FOB shipping point. Sales, net of returns and
allowances, totaled P2,300,000 for the year ended
December 31, 2013, before year-end adjustments.
Additional data are as follows:

On December 27, 2013, Lewis authorized a

customer to return, for full credit, goods shipped
and billed at P50,000 on December 15, 2013. The
returned goods were received by Lewis on January
4, 2014, and a P50,000 credit memo was issued
and recorded on the same date.

Goods with an invoice amount of P80,000 were

billed and recorded on January 3, 2014. The
goods were shipped on December 30, 2013.

Goods with an invoice amount of P 100,000 were

billed and recorded on December 30, 2013. The
goods were shipped on January 3, 2014.
Lewis' adjusted net sales for 2013 should be
a. P2,330,000
c. P2,250,000
b. P2,280,000
d. P2,230,000

10. On 1 January 2014, an entity accepted an order for

7,000 custom-made corporate gifts.
On 3 January 2014 the entity purchased raw materials
to be consumed in the production process for
P550,000, including P50,000 refundable purchase
taxes. The purchase price was funded by raising a
loan of P555,000 (including P5,000 loan-raising fees).
The loan is secured by the inventories.
During January 2014 the entity designed the
corporate gifts for the customer. Design costs
included:

Cost of external designer = P7,000

Labor = P3,000
During February 2014, the entitys production team
developed the manufacturing technique and made
further modifications necessary to bring the
inventories to the conditions specified in the
agreement. The following costs were incurred in the
testing phase:

Material, net of P3,000 recovered from the sale of

the scrapped output = P21,000

Labor = P11,000

Depreciation of plant used to perform the

modifications = P5,000
During February 2014 the entity incurred the following
additional costs in manufacturing the customized
corporate gifts:

Consumable stores = P55,000

Labor = P65,000

Depreciation of plant used to perform the

modifications = P15,000

Page 2 of 7

The customized corporate gifts were ready for sale on

1 March 2014. No abnormal wastage occurred in the
development and manufacture of the corporate gifts.
What is the cost of the inventory?
a. P682,000
c. P632,000
b. P635,000
d. P585,000
11. Following information pertain to Prudential Company
for the first quarter of 2013
Accounts receivable, Jan. 1, 2013
Accounts receivable, Mar. 31, 2013
Cash sales
Cash collected on accounts receivable
Inventory, March 31, 2013
Purchases, net
Gross profit rate on sales
Bad debts written off

P 90,000
85,000
32,000
220,000
52,000
180,350
30%
3,500

The inventory on January 1, 2013 is

a. P24,600
c. P52,000
b. P47,000
d. P43,500
Use the following information for next two questions.
At the end of the reporting period (31 December 2013) a
tomato growers vines are bearing developed ripe
tomatoes. On 31 December 2013, the fair value less
costs to sell of the vines with the soon-to-be harvested
tomatoes attached is measured at P24,000. The initial
cost of the vines was P5,500 and the cost of growing
them during 2013 (planting, irrigation and fertilization)
was P7,250.
The entity harvested its tomatoes on 3 January 2014.
The cost of harvesting the tomatoes is P1,000. The quoted
price per kilogram of tomatoes is P50 and costs to sell are
estimated at 1 per cent of quoted price. The entity
harvests 500 kilograms of tomatoes.
The life of a tomato vine is about 6 months. After
harvest, the vine has come to the end of its life and its
fair value is negligible.
12. The fair value adjustment gain to be recognized in
2013 profit or loss is
a. P18,500
c. P10,250
b. P11,250
d. Nil
13. The fair value adjustment gain on initial recognition of
agricultural produce to be recognized in 2014 profit or
loss is
a. P24,750
c. P750
b. P23,750
d. Nil
14. On July 1, 2013, Bait Co. exchanged a truck for
twenty-five ordinary shares of Sama Corp. On that
date, the truck's carrying amount was P2,500, and its
fair value was P3,000. Also, the book value of Sama's
stock was P60 per share. On December 31, 2013,
Sama had 250 ordinary shares outstanding and its
book value per share was P50. What amount should
Bait report in its December 31, 2013 balance, sheet
as investment in Sama?
a. P3,000
c. P1,500
b. P2,500
d. P1,250

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15. During 2013, King Company made the following
expenditures relating to its plant building:
Continuing and frequent repairs
Repainted the plant building
Major improvements to the electrical
wiring system
Partial replacement of roof tiles

P40,000
10,000
32,000
14,000

How much should be charged to repairs

maintenance expense in 2013?
a. P96,000
c. P64,000
b. P82,000
d. P54,000

and

16. On January 2, 2013, Ral Co. leased land and building

from an unrelated lessor for a ten-year term. The
lease has a renewal option for an additional ten years,
but Ral has not reached a decision with regard to the
renewal option.
In early January of 2013, Ral
completed the following improvements to the
property:
Description
Sales office
Warehouse
Parking lot

Estimated life
10 years
25 years
15 years

Cost
P470,000
750,000
180,000

Amortization of leasehold improvements for 2013

should be
a. P84,500
c. P122,000
b. P96,500
d. P140,000
17. Towsey Manufacturing acquired a new milling machine
on April 1, 2007. The machine has a special
component that requires replacement before the end
of the useful life. The asset was originally recorded in
two accounts, one representing the main unit and the
other for the special component.
Depreciation is
recorded by the straight-line method to the nearest
month, residual values being disregarded. On April 1,
2013, the special component is scrapped and is
replaced with a similar component. This component is
expected to have a residual value of approximately
25% of cost at the end of the useful life of the main
unit, and because of its materiality, the residual value
will be considered in calculating depreciation. Specific
asset information is as follows:
Main milling machine
Purchase price in 2007
Residual value
Estimated useful life
First special component:
Purchase price
Residual value
Estimated useful life
Second special component:
Purchase price

P62,400
P4,400
10 years
P10,000
P250
6 years
P15,250

What is the depreciation charge to be recognized for

the year 2013?
a. P8,800
c. P5,930
b. P6,775
d. P9,100
18. Weir Co. uses straight-line depreciation for its
property, plant, and equipment, which, stated at cost,
consisted of the following:
Land
Buildings
Machinery and
equipment

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12/31/13
P 25,000
195,000

12/31/12
P 25,000
195,000

695,000
915,000

650,000
870,000

Less accumulated
depreciation

400,000
P515,000

370,000
P500,000

Weirs depreciation expense for 2013 and 2012 was

P55,000 and P50,000, respectively. What amount
was debited to accumulated depreciation during 2013
because
of
property,
plant
and
equipment
retirements?
a. P40,000
c. P20,000
b. P25,000
d. P10,000
19. On January 1, 2010, Sihamoni Corp. acquired a gold
mine property for P10,000,000. In 2010 and 2011,
Sihamoni spent P4,000,000 on exploration and
development. It expects to be able to mine 35,000
ounces of gold over the 10-year life of the mine.
Sihamoni uses the output method to account for its
gold costs and expects to be able to sell the property
to a real estate developer for P2,000,000 at the end
of the10 years. It mined 3,100 ounces in 2012 and
2,800 in 2013. How much depletion would be
recorded related to the gold in 2013?
a. P 960,000
c. P1,200,000
b. P1,120,000
d. P1,400,000
20. Decepticons Corporation is performing its annual test
of the impairment of the goodwill related to its
Technology reporting unit. The carrying amount of
goodwill allocated to the unit is P500,000. Using a
multiple of revenue, Decepticons has determined the
fair value of the Technology reporting unit to be
P1,700,000 at December 31, 2013, and the fair value
and carrying amount of the assets and liabilities were
determined as follows:

Cash
Accounts receivable
Inventory
Net equipment
Patents
Goodwill
Accounts payable
Long term debt

Carrying
amount
P 200,000
250,000
350,000
700,000
400,000
500,000
( 200,000)
( 300,000)
P1,900,000

Fair value
P 200,000
250,000
400,000
700,000
450,000
?
( 200,000)
( 300,000)

Calculate the goodwill impairment loss.

a. P500,000
c. P200,000
b. P300,000
d. P
0
21. Optimus Prime Company had the following account
balances at December 31, 2013:
Cash in banks
Cash on hand
Cash legally restricted for additions
to plant (expected to be disbursed
in 2013)

P2,250,000
125,000
1,600,000

Cash in banks includes P600,000 of compensating

balances against short-term borrowing arrangements.
The compensating balances are not legally restricted
as to withdrawal by Optimus Prime. In the current
assets section of Optimus Prime's December 31, 2013
balance sheet, total cash should be reported at
a. P1,775,000
c. P2,375,000
b. P2,250,000
d. P3,975,000

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22. On January 1, 2013, the lending company made a
P200,000, 8% loan. The interest is receivable at the
end of each year, with the principal amount to be
received at the end of 5 years. As of December 31,
2013, the interest for the current year has not yet
been received nor recorded because the borrower is
experiencing financial difficulties.
The lending
company negotiated a restructuring of the loan. The
payment of all of the interest based on the original
principal will be delayed until the end the 5-year loan
term. In addition, the amount of principal repayment
will be dropped from P200,000 to P100,000. The
prevailing interest rate for similar type of loan as of
December 31, 2013 is 10%. (Round off present value
factors to four decimal places)
The carrying amount of the loan as of December 31,
2014 is
a. P136,613
c. P142,884
b. P132,309
d. P200,000
23. In its December 31, balance sheet, Old Co. reported
trade accounts receivable of P250,000 and related
allowance for uncollectible accounts of P20,000. What
is the total amount of risk of accounting loss related
to Olds trade accounts receivable, and what amount
of that risk is off-balance sheet risk?

a.
b.
c.
d.

Risk of
Accounting Loss
P
0
P230,000
P230,000
P250,000

Off-Balance
Sheet Risk
P
0
P
0
P20,000
P20,000

24. An entity often factors its accounts receivable. The

finance company requires an 8% reserve and charges
a 1.5% commission on the amount of the receivable.
The remaining amount to be advanced is further
reduced by an annual interest charge of 16%. What
proceeds (rounded to the nearest peso) will the
enterprise receive from the finance company at the
time a 110,000 account that is due in 60 days is
turned over to the finance company?
a. P83,630
c. P99,550
b. P81,950
d. P96,895
25. A company buys ten shares of securities at P1,000
each on January 15, 2013.
The securities are
classified as available-for-sale. The fair value of the
securities increases to P1,250 per share as of
December 31, 2013. Assume no dividends are paid
and that the company has a 30% tax rate. What is
the amount of the holding gain arising during the
period that is classified in other comprehensive
income for the period ending December 31, 2013?
a. 0
c. P2,500
b. P7,500
d. P1,750
26. On July 1, 2013, Diamond, Inc, paid P1,000,000 for
100,000 ordinary shares (40%) of Ashley Corporation.
At that date the net assets of Ashley totaled
P2,500,000 and the fair values of all of Ashley's
identifiable assets and liabilities were equal to their
book values. Ashley reported net income of P500,000
for the year ended December 31, 2013, of which
P300,000 was for the six months ended December 31,
2013. Ashley paid cash dividends of P250,000 on
September 30, 2013. Diamond does not elect the fair
value option for reporting its investment in Ashley. In
its income statement for the year ended December
31, 2013, what amount of income should Diamond
report from its investments in Ashley?

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a.
b.

P 80,000
P100,000

c. P120,000
d. P200,000

27. Nepal Co. requires advance payments with special

orders for machinery constructed to customer
specifications. These advances are nonrefundable.
Information for 2013 is as follows:
Customer advances-balance 12/31/12
Advances received with orders in 2013
Advances applied to orders shipped in
2013
Advances applicable to orders canceled
in 2013

P236,000
368,000
328,000
100,000

In Nepals December 31, 2013 balance sheet, what

amount should be reported as a current liability for
advances from customers?
a. P
0
c. P276,000
b. P176,000
d. P296,000
28. On December 31, 2013, Roth Co. issued a P10,000
face value note payable to Wake Co. in exchange for
services rendered to Roth. The note, made at usual
trade terms, is due in nine months and bears interest,
payable at maturity, at the annual rate of 3%. The
market interest rate is 8%. The compound interest
factor of P1 due in nine months at 8% is .944. At
what amount should the note payable be reported in
Roth's December 31, 2013 balance sheet?
a. P10,300
c. P 9,652
b. P10,000
d. P 9,440
29. Kay Company, a lessor of office machines, purchased
a new machine for P600,000 on January 1, 2013,
which was leased the same day to Lee. The machine
will be depreciated P55,000 per year. The lease is for
a four-year period expiring January 1, 2017, and
provides for annual rental payments of P100,000
beginning January 1, 2013. Additionally, Lee paid
P64,000 to Kay as a lease bonus. In its 2013 income
statement, what amount of revenue and expense
should Kay report on this leased asset?
Revenue
Expense
a. P100,000
P0
b. P116,000
P0
c. P116,000
P55,000
d. P164,000
P55,000
30. On December 1, 2013, Clark Co. leased office space
for five years at a monthly rental of P60,000. On the
same date, Clark paid the lessor the following
amounts:
First month's rent
Last month's rent
Security deposit
(refundable at lease expiration)
Installation of new walls and offices

P 60,000
60,000
80,000
360,000

What should be Clark's 2013 expense relating to

utilization of the office space?
a. P60,000
c. P120,000
b. P66,000
d. P140,000

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31. Shafer Corporation (a nonpublic company) established
an employee stock option plan. The plan allows its
employees to acquire 20,000 shares of its P5 par
value common stock at P70 per share, when the
market price is P75.
The options may not be
exercised until five years from the grant date. The
risk-free interest rate is 6%, and the stock is expected
to pay dividends of P3 annually. The fair value of a
similar option at the grant date is P6.40. What is the
amount of deferred compensation expense that should
be recorded in year one?
a. P 20,000
c. P100,000
b. P 25,000
d. P128,000
32. In connection with a share option plan for the benefit
of key employees, Ward Corp. intends to distribute
treasury shares when the options are exercised.
These shares were bought in 2010 at P42 per share.
On January 1, 2013, Ward granted share options for
10,000 shares at P38 per share as additional
compensation for services to be rendered over the
next three years. The options are exercisable during
a four-year period beginning January 1, 2016, by
grantees still employed by Ward. Market price of
Ward's share was P47 per share at the grant date.
The fair value of a similar share option with the same
terms was P12 at the grant date. No share options
were terminated during 2013. In Ward's December
31, 2013 income statement, what amount should be
reported as compensation expense pertaining to the
options?
a. P120,000
c. P40,000
b. P 90,000
d. P30,000
33. Oak Co. offers a three-year warranty on its products.
Oak previously estimated warranty costs to be 2% of
sales. Due to a technological advance in production at
the beginning of 2013, Oak now believes 1% of sales
to be a better estimate of warranty costs. Warranty
costs of P80,000 and P96,000 were reported in 2012
and 2013, respectively.
Sales for 2013 were
P5,000,000. What amount should be disclosed in
Oak's 2013 financial statements as warranty expense?
a. P 50,000
c. P100,000
b. P 88,000
d. P138,000
34. Garner Food Company distributes to consumers
coupons which may be presented (on or before a
stated expiration date) to grocers for discounts on
certain products of Garner.
The grocers are
reimbursed when they send the coupons to Garner.
In Garner's experience, 50% of such coupons are
redeemed, and generally one month elapses between
the date a grocer receives a coupon from a consumer
and the date Garner receives it. During 2014 Garner
issued two separate series of coupons as follows:

Issued
On
1/1/14
7/1/14

Total Value
P500,000
720,000

Consumer
Expiration
Date
06/30/14
12/31/14

Amount
Disbursed
as of
12/31/14
P236,000
300,000

The only journal entries to date recorded debits to

coupon expense and credits to cash of P536,000. The
December 31, 2014 statement of financial position
should include a liability for unredeemed coupons of
a. P
0
c. P 74,000
b. P60,000
d. P360,000

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35. West Corporation leased a building and received the

P36,000 annual rental payment on June 15, 2013.
The beginning of the lease was July 1, 2013. Rental
income is taxable when received. Wests tax rates are
30% for 2013 and 40% thereafter. West had no other
permanent
or
temporary
differences.
West
determined that no valuation allowance was needed.
What amount of deferred tax asset should West report
in its December 31, 2013 statement of financial
position?
a. P5,400
c. P10,800
b. P7,200
d. P14,400
36. An entity has the following information:
12/31/13
Cumulative temporary
difference giving rise
to future taxable
amounts,
Cumulative temporary
difference giving rise
to the future
deductible amounts
Tax rate

12/31/14

P8 million

P10 million

6 million

5 million

30%

30%

The deferred tax expense for the year 2014 is

a. P300,000
c. P 900,000
b. P600,000
d. P1,500,000
37. The Christian Corporation was incorporated on
January 1, 2013, with the following authorized
capitalization:

40,000 ordinary shares, no par value, stated

value P40 per share

10,000 5 percent cumulative preference

shares, par value P10 per share
During 2013, Christian issued 24,000 ordinary shares
for a total of P1,200,000 and 6,000 preference shares
at P16 per share. In addition, on December 20, 2013,
subscriptions for 2,000 preference shares were taken
at a purchase price of P17. These subscribed shares
were paid for on January 2, 2014. What should
Christian report as total contributed capital on its
December 31, 2013, statement of financial position?
a. P1,040,000
c. P1,296,000
b. P1,262,000
d. P1,330,000
38. The December 31, 2013 balance sheet of Maria Corp.
showed
shareholders
equity
of
P448,700.
Transactions during 2013 which affected the
shareholders equity were:
(1) an adjustment to
Retained
Earnings
for
an
overstatement
of
depreciation in 2012 P10,000; (2) gain on the sale of
treasury shares, P9,000; (3) declared dividends of
P60,000 of which P40,000 were paid during the year;
and (4) net income after tax of P75,500. The share
capital balance of P300,000 remain unchanged during
the year.
The retained earnings balance on January 1, 2013
was
a. P134,200
c. P123,200
b. P132,300
d. P114,200

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39. Cox Corporation had 1,200,000 ordinary shares stock
outstanding on January 1 and December 31, 2013. In
connection with the acquisition of a subsidiary
company in June 2012, Cox is required to issue
50,000 additional ordinary shares on July 1, 2014, to
the former owners of the subsidiary.
Cox paid
P200,000 in preference share dividends in 2013, and
reported profit of P3,400,000 for the year. Cox's
diluted earnings per share for 2013 should be
a. P2.83
c. P2.67
b. P2.72
d. P2.56
40. Roro, Inc. paid P7,200 to renew its only insurance
policy for three years on March 1, 2013, the effective
date of the policy.
At March 31, 2013, Roro's
unadjusted trial balance showed a balance of P300 for
prepaid insurance and P7,200 for insurance expense.
What amounts should be reported for prepaid
insurance and insurance expense in Roro's financial
statements for the three months ended March 31,
2013?
Prepaid insurance
Insurance expense
a.
P7,000
P300
b.
P7,000
P500
c.
P7,200
P300
d.
P7,300
P200
41. On December 31, Naismith Company noted the
following transactions that occurred during 2014,
some or all of which might require adjustment to the
books.
a. Payment of P2,900 to suppliers was made for
purchases on account during the year and was not
recorded.
b. Building and land were purchased on January 2
for P175,000. The buildings fair market value
was P120,000 at the time of purchase.
The
building is being depreciated over a 20-year life
using the straight-line method, assuming no
salvage value.
c. Of the P34,000 in Accounts Receivable, 2.5% is
estimated to be uncollectible.
Currently,
Allowance for Bad Debts shows a debit balance of
P460.
d. On August 1, P40,000 was loaned to a customer
on a 6-month note with interest at an annual rate
of 12%.
e. During 2014, Naismith received P8,500 in advance
for services, 80% of which will be performed in
2015. The P8,500 was credited to sales revenue.
f. The interest expense account was debited for all
interest charges incurred during the year and
shows a balance of P1,100. However, of this
amount, P600 represents a discount on a 60-day
note payable, due January 30, 2015.
The net reduction in reported net income as a result
of the required adjustments is
a. P14,710
c. P11,810
b. P10,890
d. P 9,810

42. Net income for Vivo Company for the calendar year
2013 and 2014 is shown below. A review of the
accounts disclosed the following errors:
Net income per books
Errors disclosed:
Equipment purchased at
year-end charged to
expense (with estimated
10-year life)
Increase of Reserve for
Contingencies charged
to operations
Overstatement of inventory
at year-end
Goods purchased not
recorded as liability and
not included in inventory
Rent received in advance
Unpaid salaries not taken up
in the books
Insurance premium on oneyear fire policy taken
and paid on May 1,
2014, all charged to
expense

2013
P75,600

2014
P96,900

10,000
12,000
3,000
4,000

1,500
900

1,200

The correct net income for 2014 is

a. P114,700
c. P108,300
b. P113,700
d. P114,200
43. When preparing a draft of its 2013 balance sheet,
Mount Inc. reported net assets totaling P875,000.
Included in the asset section of the balance sheet
were the following:
Treasury shares of Mount, Inc. at cost,
which approximates market value
Idle machinery
Cash surrender value of life insurance
policy on corporate executives
Allowance for decline in market value of
available-for-sale securities

P24,000
11,200
13,700
8,400

At what amount should Mounts net assets be

reported in the December 31, 2013 balance sheet?
a. P851,000
c. P842,600
b. P850,100
d. P834,500
44. The general ledger trial balance of Colton Corporation
includes the following accounts at December 31,
2013:
Sales revenue
Interest income
Proceeds on sale of fixed assets
Written-down value of assets sold
Valuation gain on trading investments
Dividends received
Cost of sales
Finance expenses
Selling and distribution expenses
Administrative expenses
Income tax expense

P1,200,000
24,000
50,000
45,000
20,000
5,000
840,000
18,000
76,000
35,000
85,000

How much should be reported as profit for the year

ended December 31, 2013?
a. P285,000
c. P200,000
b. P150,000
d. P195,000

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EXCEL PROFESSIONAL SERVICES, INC.

45. The following information pertains to LeBron Co.s
2013 sales:
Cash sales
Gross
Returns and allowances
Credit sales
Gross
Discounts

P 800,000
40,000
1,200,000
60,000

On January 1, 2013 customers owed LeBron

P400,000. On December 31, 2013, customers owed
LeBron P300,000. LeBron uses the direct write-off
method for bad debts. No bad debts were recorded in
2013.
Under the cash basis of accounting, what
amount of net revenue should LeBron report for
2013?
a. P 760,000
c. P1,900,000
b. P1,700,000
d. P2,000,000
46. An analysis of Perk, Inc., disclosed changes in account
balances for 2014 and the following supplementary
data.
Cash
Accounts receivable
Inventory
Equipment
Accounts payable

P21,000
25,000
10,000
70,000
5,000

increase
increase
decrease
increase
decrease

Perk sold 5,000 shares of its P5 par shares for P8 per

share and received cash in full. Dividends of P15,000
were paid in cash during the year. Perk borrowed
P50,000 from the bank and made interest payments
of P5,000. Perk had no other loans payable. Interest
of P1,000 was payable at December 31, 2014. There
was no interest payable at December 31, 2013.
Equipment of P20,000 was donated by shareholders
during the year.
From these data, the profit for 2014 is
a. P15,000
c. P20,000
b. P10,000
d. P65,000
47. Ernestine Corp., a publicly owned corporation,
assesses performance and makes operating decisions
using the following information for its reportable
segments:
Total revenues
Total profit and loss

P7,680,000
406,000

Included in the total profit and loss are intersegment

profits of P61,000. In addition, Ernestine has P5,000
of common costs for its reportable segments that are
not allocated in reports used internally. For purposes
of segment reporting, Ernestine should report
segment profit of
a. P350,000
c. P345,000
b. P411,000
d. P406,000

48. On December 1, 2014, Joy Corporation decided to

dispose of an item of plant that is carried in its
records at a cost of P450,000, with accumulated
depreciation of P80,000. Depreciation on the plant
since it was originally acquired has been charged at
P5,000 per month. The plant will continue to be
operated until it is sold, at which time the operations
of the plant will be outsourced.
The company
undertook all the necessary actions to be able to
classify the asset as held for sale. It is estimated that
it could sell the plant for its fair value, P350,000,
incurring P10,000 selling costs in the process. The
plant has been depreciated at an amount of P5,000
per month.
If Joy Corporation had not sold the plant as of
December 31, 2015 and the recoverable amount at
that date is P315,00, the plant should be carried in
Joy's statement of financial position at 31 December
2015 at
a. P370,000
c. P315,000
b. P350,000
d. P305,000
49. The terms and conditions of employment with The
Pleasing Company include entitlement to share in the
staff bonus system, under which 5% of the profits for
the year before charging the bonus are allocated to the
bonus pool, provided the annual profits exceed P50
million. The profits (before accrual of any bonus) for
the first half of 2013 amount to P40 million and the
latest estimate of the profits (before accrual of any
bonus) for the year as a whole is P60 million.
How much should be recognized in profit or loss in
respect of the staff bonus for the half year to 30 June
2013, according to PAS34 Interim financial reporting?
a. Nil
c. P2.0 million
b. P3.0 million
d. P1.5 million
50. In its financial statements, Hila Co. discloses
supplemental information on the effects of changing
prices. Hila computed the increase in current cost of
inventory as follows:
Increase in current cost (nominal pesos)
Increase in current cost (constant pesos)

P15,000
P12,000

What amount should Hila disclose as the inflation

component of the increase in current cost of
inventories?
a. P 3,000
c. P15,000
b. P12,000
d. P27,000

done, check your answers.

Good luck on the actual examination!

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