1

OUR LADY OF FATIMA UNIVERSITY

PRACTICAL ACCOUNTING 1
COMPREHENSIVE EXAMINATION 2

Multiple Choice- SHADE THE RIGHT ANSWER. STRICTLY NO ERASURES.

Identify the choice that best completes the statement or answers the question.

1. The cash account shows a balance of 45,000 before reconciliation. The bank statement does not
include a deposit of 2,300 made on the last day of the month. The bank statement shows a collection by
the bank of 940 and a customer's check for 320 was returned because it was NSF. A customer's check
for 450 was recorded on the books as 540, and a check written for 79 was recorded as 97. The correct
balance in the cash account was
a. 45,512.
b. 45,548.
c. 45,728.
d. 47,848.
2. Vivian, Inc had net sales in 2017 of 700,000. At December 31, 2016, before adjusting entries, the
balances in selected accounts were: accounts receivable 125,000 debit, and allowance for doubtful
accounts 1,200 credit. Vivian estimates that 2% of its net sales will prove to be uncollectable. What is
the cash realizable value of the receivables reported on the statement of financial position at December
31, 2017?
a. 112,200
b. 122,500
c. 111,000
d. 109,800
3. Vista newspapers sold 4,000 of annual subscriptions at 125 each on September 1. How much unearned
revenue will exist as of December 31?
a. 0.
b. 333,333.
c. 166,667.
d. 500,000.
4. On December 31, 2016, Lang Corporation leased a ship from Fort Company for an eight-year period
expiring December 30, 2024. Equal annual payments of 200,000 are due on December 31 of each year,
beginning with December 31, 2016. The lease is properly classified as a finance lease on Lang 's books.
The present value at December 31, 2016 of the eight lease payments over the lease term discounted at
10% is 1,173,685. Assuming all payments are made on time, the amount that should be reported by
Lang Corporation as the total lease liability on its December 31, 2017 statement of financial position.
a. 1,091,054.
b. 1,000,159.
c. 871,054.
d. 1,200,000.
5. A company issues 20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2016. Interest is paid on
June 30 and December 31. The proceeds from the bonds are 19,604,145. Using effective-interest
amortization, how much interest expense will be recognized in 2016?
a. 780,000
b. 1,560,000
c. 1,568,498
d. 1,568,332
6. Reyes Company had a gross profit of 360,000, total purchases of 420,000, and an ending inventory of
240,000 in its first year of operations as a retailer. Reyess sales in its first year must have been
a. 540,000.
b. 660,000.
c. 180,000.
d. 600,000.
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7. Harrel Company acquired a patent on an oil extraction technique on January 1, 2016 for 5,000,000. It
was expected to have a 10 year life and no residual value. Harrel uses straight-line amortization for
patents. On December 31, 2017, the recoverable amount of the patent was estimated to be 4,500,000.
At what amount should the patent be carried on the December 31, 2017 balance sheet?
a. 5,000,000
b. 4,500,000
c. 4,000,000
d. 2,800,000
8. On August 1, 2016, Mendez Corporation purchased a new machine on a deferred payment basis. A
down payment of 2,000 was made and 4 annual installments of 6,000 each are to be made beginning
on September 1, 2016. The cash equivalent price of the machine was 23,000. Due to an employee
strike, Mendez could not install the machine immediately, and thus incurred 300 of storage costs. Costs
of installation (excluding the storage costs) amounted to 800. The amount to be capitalized as the cost
of the machine is
a. 23,000.
b. 23,800.
c. 24,100.
d. 26,000.
9. In January, 2011, Findley Corporation purchased a patent for a new consumer product for 720,000. At
the time of purchase, the patent was valid for fifteen years. Due to the competitive nature of the product,
however, the patent was estimated to have a useful life of only ten years. During 2016 the product was
permanently removed from the market under governmental order because of a potential health hazard
present in the product. What amount should Findley charge to expense during 2016, assuming
amortization is recorded at the end of each year?
a. 480,000.
b. 360,000.
c. 72,000.
d. 48,000.
10. Pember Corporation started business in 2014 by issuing 200,000 shares of 20 par ordinary shares for
36 each. In 2016, 20,000 of these shares were purchased for 52 per share by Pember Corporation and
held as treasury shares. On June 15, 2017, these 20,000 shares were exchanged for a piece of property
that had an assessed value of 810,000. Perbers shares are actively traded and had a fair price of 60
on June 15, 2017. The cost method is used to account for treasury shares. The amount of share
premiumtreasury resulting from the above events would be
a. 800,000.
b. 480,000.
c. 390,000.
d. 160,000.
11. Manning Company issued 10,000 shares of its 5 par value ordinary shares having a fair value of 25 per
share and 15,000 shares of its 15 par value preference shares having a fair value of 20 per share for a
lump sum of 480,000. How much of the proceeds would be allocated to the ordinary shares?
a. 50,000
b. 218,182
c. 250,000
d. 255,000
12. Mendenhall Corporation constructed a building at a cost of 10,000,000. Average accumulated
expenditures were 4,000,000, actual interest was 600,000, and avoidable interest was 300,000. If the
salvage value is 800,000, and the useful life is 40 years, depreciation expense for the first full year
using the straight-line method is
a. 237,500.
b. 245,000.
c. 257,500.
d. 337,500.
13. Equestrain Roads accepted a customer's 50,000 zero-interest-bearing six-month note in a sales
transaction. The product sold normally sells for 46,000. If the sale was made on June 30, how much
interest revenue from this transaction would be recorded for the year ending December 31?
a. 0.
b. 2,000.
c. 4,000.
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d. 5,000.
14. Floyd Company purchases Haeger Company for 800,000 cash on January 1, 2017. The book value of
Haeger Companys net assets, as reflected on its December 31, 2016 statement of financial position is
620,000. An analysis by Floyd on December 31, 2016 indicates that the fair value of Haegers tangible
assets exceeded the book value by 60,000, and the fair value of identifiable intangible assets exceeded
book value by 45,000. How much goodwill should be recognized by Floyd Company when recording
the purchase of Haeger Company?
a. -0-
b. 180,000
c. 120,000
d. 75,000
15. On December 1, 2017, Abel Corporation exchanged 20,000 shares of its 10 par value ordinary shares
held in treasury for a used machine. The treasury shares were acquired by Abel at a cost of 40 per
share, and are accounted for under the cost method. On the date of the exchange, the ordinary shares
had a fair value of 55 per share (the shares were originally issued at 30 per share). As a result of this
exchange, Abel's total equity will increase by
a. 200,000.
b. 800,000.
c. 1,100,000.
d. 900,000.
16. Tender Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has
consulted with its attorney and determined that it is possible that they may lose the case. The attorneys
estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the
amount of any payment would be 500,000. What is the required journal entry as a result of this
litigation?
a. Debit Litigation Expense for 500,000 and credit Litigation liability for 500,000.
b. No journal entry is required.
c. Debit Litigation Expense for 200,000 and credit Litigation Liability for 200,000.
d. Debit Litigation Expense for 300,000 and credit Litigation Liability for 300,000.
17. On January 2, 2017, Rapid Delivery Company traded in an old delivery truck for a newer model. The
exchange lacked commercial substance. Data relative to the old and new trucks follow:
Old Truck
Original cost 24,000
Accumulated depreciation as of January 2, 2017 16,000
Average published retail value 7,000
New Truck
List price 40,000
Cash price without trade-in 36,000
Cash paid with trade-in 30,000
What should be the cost of the new truck for financial accounting purposes?
a. 30,000.
b. 36,000.
c. 38,000.
d. 40,000.
18. Lexington Company sells product 1976NLC for 45 per unit. The cost of one unit of 1976NLC is 36. The
estimated cost to complete a unit is 8, and the estimated cost to sell is 5. At what amount per unit
should product 1976NLC be reported, applying lower-of-cost-or-net realizable value?
a. 36.
b. 32.
c. 37.
d. 40.
19. Morgan Manufacturing Company has the following account balances at year end:
Office supplies 4,000
Raw materials 27,000
Work-in-process 59,000
Finished goods 72,000
Prepaid insurance 6,000
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What amount should Morgan report as inventories in its statement of financial position?
a. 72,000.
b. 76,000.
c. 158,000.
d. 162,000.
20. Metcalf Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to
be a finance lease for Metcalf. The six-year lease requires payment of 102,000 at the beginning of each
year, including 15,000 per year for maintenance, insurance, and taxes. The incremental borrowing rate
for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. The present value of
an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six
years at 8% is 4.99271. Metcalf should record the leased asset at
a. 509,256.
b. 488,661.
c. 434,366.
d. 416,799.
21. During the current fiscal year, Jeremiah Corp. signed a long-term non-cancellable purchase commitment
with its primary supplier. Jeremiah agreed to purchase 2.5 million of raw materials during the next fiscal
year under this contract. At the end of the current fiscal year, the raw material to be purchased under this
contract had a market value of 2.3 million. What is the journal entry at the end of the current fiscal year?
a. Debit Unrealized Holding Loss for 200,000 and credit Purchase Commitment Liability for
200,000.
b. Debit Purchase Commitment Liability for 200,000 and credit Unrealized Holding Gain for
200,000.
c. Debit Unrealized Holding Loss for 2,300,000 and credit Purchase Commitment Liability for
2,300,000.
d. No journal entry is required.
22. Feller Company issues 20,000,000 of 10-year, 9% bonds on March 1, 2017 at 97 plus accrued interest.
The bonds are dated January 1, 2017, and pay interest on June 30 and December 31. What is the total
cash received on the issue date?
a. 19,400,000
b. 20,450,000
c. 19,700,000
d. 19,100,000
23. Bell Inc. took a physical inventory at the end of the year and determined that 650,000 of goods were on
hand. In addition, Bell, Inc. determined that 50,000 of goods that were in transit that were shipped f.o.b.
shipping were actually received two days after the inventory count and that the company had 75,000 of
goods out on consignment. What amount should Bell report as inventory at the end of the year?
a. 650,000.
b. 700,000.
c. 725,000.
d. 775,000.
24. Storm Corporation purchased a new machine on October 31, 2017. A 1,200 down payment was made
and three monthly installments of 3,600 each are to be made beginning on November 30, 2017. The
cash price would have been 11,600. Storm paid no installation charges under the monthly payment plan
but a 200 installation charge would have been incurred with a cash purchase. The amount to be
capitalized as the cost of the machine on October 31, 2017 would be
a. 12,200.
b. 12,000.
c. 11,800.
d. 11,600.
25. Sun Inc. factors 2,000,000 of its accounts receivables without guarantee (recourse) for a finance charge
of 5%. The finance company retains an amount equal to 10% of the accounts receivable for possible
adjustments. What would be recorded as a gain (loss) on the transfer of receivables?
a. Loss of 100,000.
b. Gain of 100,000.
c. Loss of 300,000.
d. Loss of 200,000.
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26. On August 31, a hurricane destroyed a retail location of Vinny's Clothier including the entire inventory on
hand at the location. The inventory on hand as of June 30 totaled 320,000. From June 30 until the time
of the hurricane, the company made purchases of 85,000 and had sales of 250,000. Assuming the rate
of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed?
a. 320,000.
b. 181,500.
c. 205,000.
d. 255,000.
27. Finley, Inc.s checkbook balance on December 31, 2017 was 21,200. In addition, Finley held the
following items in its safe on December 31.
(1) A check for 450 from Peters, Inc. received December 30, 2017, which was not included
in the checkbook balance.
(2) An NSF check from Garner Company in the amount of 900 that had been deposited at
the bank, but was returned for lack of sufficient funds on December 29. The check was
to be redeposited on January 3, 2018. The original deposit has been included in the
December 31 checkbook balance.
(3) Coin and currency on hand amounted to 1,450.
The proper amount to be reported on Finley's statement of financial position for cash at December 31,
2017 is
a. 21,300.
b. 20,400.
c. 22,200.
d. 21,750.
28. On August 1, 2015, Wei Inc. purchased a license with a cost of 8,424,000 and a useful life of 10 years.
At December 31, 2017, when the carrying value of the asset was 6,388,200, the company determined
that impairment indicators were present. The fair less costs to sell the license was estimated to be
5,909,120. The asset's value-in-use is estimated to be 6,084,000. Wei's 2017 income statement will
report Loss on Impairment of
a. 109,300.
b. 304,200.
c. 299,425.
d. 1,272,500.
29. Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops
from Palmer Frosted Flakes boxes and 1.00. The company estimates that 60% of the boxtops will be
redeemed. In 2017, the company sold 675,000 boxes of Frosted Flakes and customers redeemed
330,000 boxtops receiving 110,000 bowls. If the bowls cost Palmer Company 2.50 each, how much
liability for outstanding premiums should be recorded at the end of 2017?
a. 25,000
b. 37,500
c. 62,500
d. 87,500
30. Warranty4U provides extended service contracts on electronic equipment sold through major retailers.
The standard contract is for three years. During the current year, Warranty4U provided 21,000 such
warranty contracts at an average price of 81 each. Related to these contracts, the company spent
200,000 servicing the contracts during the current year and expects to spend 1,050,000 more in the
future. What is the net profit that the company will recognize in the current year related to these
contracts?
a. 451,000.
b. 1,501,000.
c. 150,333.
d. 367,000.
31. A reconciliation of Gentry Company's pretax accounting income with its taxable income for 2016, its first
year of operations, is as follows:
Pretax accounting income 3,000,000
Excess tax depreciation (90,000)
Taxable income 2,910,000
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The excess tax depreciation will result in equal net taxable amounts in each of the next three years.
Enacted tax rates are 40% in 2016, 35% in 2017 and 2018, and 30% in 2019. The total deferred tax
liability to be reported on Gentry's statement of financial position at December 31, 2016, is
a. 36,000.
b. 30,000.
c. 31,500.
d. 27,000.
32. Jerome Company sold P 5, 750, 000 in accounts receivable for cash payment of P 4,
950,000.An allowance for bad debts of P500, 000 had previously been established by the entity
in relation to these accounts. To allow adjustments and possible customer returns the factor
withheld 10% of the cash proceeds.
What is the loss on factoring that should be recognized?
a.300, 000
b.498, 875
c. 500, 000
d.800, 000
33. Berry Corporation has 50,000 shares of 10 par ordinary shares authorized. The following transactions
took place during 2017, the first year of the corporations existence:
Sold 5,000 ordinary shares for 18 per share.
Issued 5,000 ordinary shares in exchange for a patent valued at 100,000.
At the end of the Berrys first year, total contributed capital amounted to
a. 40,000.
b. 90,000.
c. 100,000.
d. 190,000.
34. On June 30, 2016, Falk Co. sold equipment to an unaffiliated company for 700,000. The equipment had
a book value of 630,000 and a remaining useful life of 10 years. That same day, Falk leased back the
equipment at 7,000 per month for 5 years with no option to renew the lease or repurchase the
equipment. Falk's rent expense for this equipment for the year ended December 31, 2016, should be
a. 84,000.
b. 42,000.
c. 35,000.
d. 28,000.
35. On January 1, 2017, Dean Corporation signed a ten-year noncancelable lease for certain machinery.
The terms of the lease called for Dean to make annual payments of 100,000 at the end of each year for
ten years with title to pass to Dean at the end of this period. The machinery has an estimated useful life
of 15 years and no residual value. Dean uses the straight-line method of depreciation for all of its fixed
assets. Dean accordingly accounted for this lease transaction as a finance lease. The lease payments
were determined to have a present value of 671,008 at an effective interest rate of 8%. With respect to
this capitalized lease, Dean should record for 2017
a. lease expense of 100,000.
b. interest expense of 44,734 and depreciation expense of 38,068.
c. interest expense of 53,681 and depreciation expense of 44,734.
d. interest expense of 45,681 and depreciation expense of 67,101.
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P1- EVALUATION EXAM (OLFU SUMMER)

Answer Section

PROBLEM

1. b 45,000 + 940 320 90 + 18 = 45,548.

2. d125,000 [(700,000 .02) + 1,200] = 109,800.
3. b (4,000 125) 8/12 = 333,333.
4. c 1,173,685 200,000 = 973,685 .10 = 97,369
973,685 ( 200,000 97,369) = 871,054.
5. c (19,604,145 .04) + (19,608,310 .04) = 1,568,498.
6. a 360,000 + ( 420,000 240,000) = 540,000.
7. c 5,000,000 [( 5,000,000 10) 2] = 4,000,000.
8. b 23,000 + 800 = 23,800.
9. b ( 720,000 10) 5 = 360,000.
10. d ( 60 52) 20,000 = 160,000.
11. b (10,000 25) + (15,000 20) = 550,000
( 250,000 550,000) 480,000 = 218,182.
12. a [( 10,000,000 + 300,000) 800,000] 40 = 237,500.
13. c 50,000 46,000 = 4,000.
14. d 620,000 + 60,000 + 45,000 = 725,000.
800,000 725,000 = 75,000.
15. c 20,000 55 = 1,100,000.
16. b Likelihood of loss is only possible, not probable.
17. b Fair value of new truck = 36,000.
Loss: ( 36,000 30,000) 8,000 = ( 2,000).
New Machine: 8,000 + 30,000 2,000 = 36,000.
18. b NRV = 45 8 5 = 32.
19. c 27,000 + 59,000 + 72,000 = 158,000.
20. c ( 102,000 15,000) 4.99271 = 434,366.
21. a 2.5 million 2.3 million = 200,000.
22. c (20,000,000 .97) + (1,800,000 2/12) = 19,700,000.
23. d 650,000 + 50,000 + 75,000 = 775,000.
24. c 11,600 + 200 = 11,800.
25. a 2,000,000 .05 = 100,000.
26. d ( 320,000 + 85,000) [ 250,000 (1 .40)] = 255,000.
27. c 21,200 + 450 900 + 1,450 = 22,200.
28. b 6,388,200 6,084,000 = 304,200
29. b {[(675,000 .60) 330,000] 3} 1.50 = 37,500.
30. d [(21,000 81) 3 yrs.] 200,000 = 367,000.
31. b (30,000 35%) + (30,000 35%) + (30,000 30%) = 30,000.
32. Solution: Answer A

Sale price P4, 950, 000

Carrying amount of accounts receivable 5, 250, 000
(5, 750, 000 500, 000)
Loss on Factoring (P 300, 000)
33. d (5,000 18) + 100,000 = 190,000.
34. b 7,000 6 = 42,000.
35. c 671,008 .08 = 53,681, 671,008 15 = 44,734.
36. a 1,000,000 10 = 100,000.
37. c 365,000 42,000 = 323,000.
38. b 3,992,625 3,802,500 = 190,125
39. a 800,000 .28 = 224,000.
40. b (10,000 12) (10,000 4 1) = 80,000.
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