R4ACADS-FINACC-FINAL[2]

Easy TOP: Leases, Finance lease – lessee, Application of periodic payment

1. A six-year finance lease entered into on December 31 of the current year specified equal minimum annual lease
payments due on December 31 of each year, the first payment being made on December 31 of the current
year. The portion of the third minimum lease payment applicable to which of the following increased over
the corresponding second minimum lease payment?
I Interest expense
II Reduction of liability
a. Both I and II c. I only
b. Neither I nor II d. II only

Easy TOP: Profit or loss

2 .Under a strict transaction approach to income measurement, which of the following would not be considered a
transaction?
a. Adjustment of inventory to lower of cost or net realizable value when net realizable value
is below cost
b. Payment of salaries
c. Sale of goods at certain markup
d. Exchange of inventory valued at regular selling price for an equipment

Easy TOP: Installment method

3. Under which of the following circumstances is the installment sales method appropriate for the recognition of
revenue?
a. For sales where collection is spread over a reasonable long period of time and significant
doubt exists about the ultimate collection of the receivables.
b. In any situation where management wishes to delay the recognition of revenue in order to
smooth its income.
c. For sales where collection is spread over a reasonable long period of time and no significant
doubt exists concerning ultimate collection of the receivables.
d. For any sales where collection is spread over a reasonable long period of time.

Average TOP: Accounts receivable - net

4. Germany Company started business at the beginning of current year. The entity established an allowance for
doubtful accounts estimated at 5% of credit sales. During the year, the entity wrote off P50,000 of
uncollectible accounts. Further analysis showed that merchandise purchased amounted to P9,000,000 and
ending merchandise inventory was P1,500,000. Goods were sold at 40% above cost. The total sales
comprised 80% sales on account and 20% cash sales. Total collections from customers, excluding cash
sales, amounted to P6,000,000. What is net realizable value of accounts receivable at year-end?
a. 1,980,000 c. 2,400,000
b. 1,930,000 d. 2,350,000
 R4ACADS-FINACC-FINAL[2]

Difficult TOP: Ending inventory

5. Fairy Company provided the following information:
2013 2014
Sales 7,500,000 4,500,000
Beginning inventory 1,260,000
Purchases 6,450,000
3,180,000
Freight in 350,000 220,000
Purchase discounts 90,000 45,000
Purchase returns 120,000 40,000
Purchase allowances 20,000 15,000
Ending inventory 2,355,000 ?
What is the inventory on December 31, 2014?
a. 2,505,000 c. 2,025,000
b. 3,285,000 d. 2,370,000

Difficult TOP: Interpolation, Effective interest method, Interest revenue

6. On January 1, 2014, Cambodia Company purchased bonds with face value of P5,000,000 at a cost of P4,700,000
to be held as financial asset at amortized cost. The stated interest is 10% payable annually every December
31. The bonds mature in 4 years or January 1, 2018. What amount of interest income should be reported
for the year ended December 31, 2014 under the effective interest method?
a. 470,000 c. 517,000
b. 500,000 d. 562,590

Difficult TOP: Interest rate swap

7.On January 1, 2014, Pasay Company entered into a two-year P3,000,000 variable interest rate loan at the
prevailing rate of 12%. In 2015, the interest rate is equal to the prevailing interest rate at the beginning of
the year.
The principal loan is payable on December 31, 2015 and the interest is payable on December 31 of each
year. On January 1, 2014, Pasay Company entered into a "receive variable, pay fixed" interest swap
agreement with a speculator bank designated as a cash flow hedge.
The prevailing interest rate on January 1, 2015 is 14% and the present value of 1 at 14% for one period is
.877. What amount should be reported as interest rate swap receivable on December 31, 2014?
a. 30,000 c. 0
b. 60,000 d. 52,620
 R4ACADS-FINACC-FINAL[2]

Average TOP: Total capitalized cost | General & specific borrowing

8. Warhead Company had loans outstanding during 2014 and 2015.
Specific construction loan 2,000,000 10%
General loan 15,000,000 12%
The entity began the self-construction of a new building on January 1, 2014 and the building was completed
on December 31, 2015. Expenditures during 2014 and 2015 were:
January 1,2014 2,000,000
July 1, 2014 4,000,000
November 1,2014 3,000,000
July 1,2015 1,000,000
What is the cost of the new building on December 31, 2015?
a. 11,700,000 c. 11,660,000
b. 10,000,000 d. 11,500,000

Average TOP: Impairment loss

9. Seafarer Company has an oil platform in the sea. The entity has to decommission the platform at the end of the
useful life, and a provision was set up at the commencement of production. The carrying amount of the
provision for decomissioning is P5,000,000. The entity has received an offer of P8,000,000 for the rights
to the platform which reflects the fact that Seafarer Company has to decommission it at the end of the useful
life. Disposal costs would be P500,000. The value in use of the oil platform is P12,000,000 ignoring the
decommissioning cost. The carrying amount of the oil platform is P15,000,000. What amount should be
recognized as impairment loss for the current year in relation to the oil platform?
a. 2,500,000 c. 3,000,000
b. 2,000,000 d. 7,500,000

Average TOP: Depletion expense – Output method

10. At the beginning of the current year, Vorst Company purchased a mineral mine for P26,400,000 with removable
ore estimated at 1,200,000 tons. After it has extracted all the ore, the entity will be required by law to restore
the land to its original condition at an estimated cost of P2,100,000. The present value of the estimated
restoration cost is P1,800,000. The entity believed that it will be able to sell the property afterwards for
P3,000,000. During the current year, the entity incurred P3,600,000 of development cost preparing the
mine for production, removed 80,000 tons of ore and sold 60,000 tons. What total amount of depletion
should be recorded for the current year?
a. 1,455,000 c. 1,940,000
b. 1,920,000 d. 1,440,000