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INSTRUCTIONS: Write your final answer at the answer sheet provided at the end of
exam. Strictly no erasure. Provide solutions as necessary. Good luck!


1. The following data pertain to Lincoln Corporation on December 31, 2010:

Current account at Metrobank P1,800,000

Current account at Allied Bank (100,000)
Payroll account 500,000
Foreign bank account (in equivalent pesos)
Savings deposit in a closed bank 150,000
Postage stamps 1,000
Employee’s post dated check 4,000
IOU from employees 10,000
Credit memo from a vendor for a purchase
return 20,000
Traveler’s check 50,000
Money order 30,000
Petty cash fund (P4,000 in currency and
expense receipts for P6,000) 10,000
Pension fund 2,000,000
DAIF check of customer 15,000
Customer’s check dated 1/1/11 80,000
Time deposit – 30 days 200,000
Money market placement (due 6/30/11) 500,000
Treasury bills, due 3/31/11 (purchased
12/31/10) 200,000
Treasury bills, due 1/31/11 (purchased 1/1/10)

The cash and cash equivalents as of December 31, 2010 is

a. P2,784,000 c. P3,784,000
b. P3,084,000 d. P3,584,000

2. Ralf Corporation had the following account balances at December 31, 2010:

Cash on hand and in bank P2,500,000

Cash restricted for bonds payable due on June 30,
Time deposit 3,000,000
Savings deposit set aside for dividends payable on
June 30, 2011

The total amount to be reported as cash and cash equivalents as of December 31,
2010 is
a. P7,000,000 c. P6,500,000
b. P6,000,000 d. P5,500,000

3. On December 31, 2010, Alfonso Company had the following cash balances:

Cash in bank P15,000,000

Petty cash fund 50,000
Time deposit 5,000,000
Saving deposit 2,000,000

Cash in bank includes P500,000 of compensating balance against short term borrowing
arrangement at December 31, 2010. The compensating balance is legally restricted
as to withdrawal by Alfonso. A check of P300,000 dated January 15, 2011 in payment
of accounts payable was recorded and mailed on December 31, 2010. In the current
assets section of the December 31, 2010 statement of financial position, what
amount should be reported as “cash and cash equivalents”?

a. P21,850,000 c. P21,800,000
b. P16,850,000 d. P14,850,000

4. An office supplies enterprise, operating on a calendar-year basis, has the following

data in its accounting records:

01/01 12/31
Cash P 47,000
Inventory 101,000 P 93,000
Accounts receivable 82,000 116,000
Accounts payable 68,000 63,000
Sales 1,150,000
Cost of goods sold 900,000
Operating expenses 200,000

What is the expected cash balance for December 31?

a. P50,000 c. P 76,000
b. P66,000 d. P134,000

5. The petty cash fund of Guiguinto Company on December 31, 2010 is composed of the

Coins and currencies P14,000

Petty cash vouchers:
Gasoline payments 3,000
Supplies 1,000
Cash advances to employees 2,000
Employee’s check returned by bank marked NSF
Check drawn by the company payable to the order of the petty cash 20,000
custodian, representing her salary
A sheet of paper with names of employees together with contribution 8,000
for a birthday gift of a co-employee in the amount of

The petty cash ledger account has an imprest balance of P50,000. What is the
correct amount of petty cash on December 31, 2010?
a. P34,000 c. P39,000
b. P14,000 d. P42,000


6. The following data pertaining to the cash transactions and bank account of
Mandirigma Company for the month of May are available to you:

Cash balance, per records, May P17,194

Cash balance, per bank 31,948
statement, 5/31
Bank service charge for May 109
Debit memo for the cost of 125
printed checks delivered by
the bank
Outstanding checks, May 31 6,728
Deposit of May 30 not recorded 4,880
by bank
until June 1
Proceeds of a bank loan of May
30, net of interest of P300
Proceeds from a customer's
promissory note, including 8,100
interest of P100
Check No. 2772 issued to a
supplier entered in the
accounting records at P2,100
but deducted in the bank 1,200
statement at an erroneous
amount of
Stolen check lacking an
authorized signature,
deducted from Mandirigma's 800
account by the bank in error
Customer's check returned by
the bank marked NSF; no entry
has been made in the 760
accounting records to record
the returned check

What is the correct cash balance at May 31?

a. P29,200 c. P30,000
b. P30,300 d. P30,900

7. The information below is from the books of the Seminole Corporation on June 30:

Balance per bank statement P11,164

Receipts recorded but not yet deposited in the 1,340

Bank charges not recorded 16

Note collected by bank and not recorded on
Outstanding checks 1,100
NSF checks - not recorded on books nor

Assuming no errors were made, compute the cash balance per books on June 30 before
any reconciliation adjustments.
a. P11,404 c. P10,460
b. P12,348 d. P10,220

Shown below is the bank reconciliation for YOUR Company for May 2010:

Balance per bank, May 31, 2010 P75,000

Add: Deposits in transit 12,000
Total 87,000
Less: Outstanding checks P14,000
Bank credit recorded in error 5,000 19,000
Cash balance per books, 5/31/10 P68,000

The bank statement for June 2010 contains the following data:

Total deposits P55,000

Total charges, including an NSF check of P4,000 and
a service charge of P200

All outstanding checks on May 31, 2010, including the bank credit, were cleared in
the bank in June 2010.

There were outstanding checks of P15,000 and deposits in transit of P19,000 on June
30, 2010.

8. What is the cash balance per bank on June 30, 2010?

a. P75,000 c. P82,000
b. P86,000 d. P86,200

9. What is the cash balance per books on June 30, 2010?

a. P73,800 c. P88,200
b. P90,200 d. P94,400

10. As of June 30, 2010, the bank statement of Ang Po Trading had an ending balance
of P373,612. The following data were assembled in the course of reconciling the
bank balance:
 The bank erroneously credited Ang Po Trading for P2,150 on June 22.
 During the month, the bank charged back NSF checks amounting to P2,340 of which
P800 had been redeposited by the 25th of June.
 Collection for June 30 totalling P10,330 was deposited the following month.
 Checks outstanding as of June 30 were P30,205.
 Notes collected by the bank for Ang Po Trading were P8,150 and the corresponding
bank charges were P50.
The adjusted bank balance on June 30, 2010 is
a. P351,587 c. P353,927
b. P358,147 d. P359,687


11. On December 31, 2010 the accounts receivable control account of Ipil-ipil Co.
had a balance of P181,000. An analysis of the accounts receivable account showed
the following:

Accounts known to be worthless P 2,500

Advance payments to creditors on purchase
Advances to affiliated companies 25,000
Customers’ accounts reporting credit balance
arising from sales return
Interest receivable on bonds 10,000
Other trade accounts receivable – unassigned
Subscriptions receivable for ordinary share
capital due in 30 days
Trade accounts receivable – assigned 15,000
Trade installment receivable due 1 – 18 months,
(including unearned finance charges, P2,000)

Trade receivables from officers, due currently
Trade accounts on which post-dated checks are
held (no entries were made on receipts of
Total P181,000

The correct balance of trade accounts receivable of Ipil-ipil on December 31, 2010
a. P 86,500 c. P 91,500
b. P103,500 d. P206,000

12. Roxy Company had the following information relating to its accounts receivable:

Accounts receivable at 12/31/2009 P1,300,000

Credit sales for 2010 5,400,000
Collections from customers for 2010,
excluding recovery 4,750,000

Accounts written off 9/30/2010 125,000

Collection of accounts written off in

prior year (customer credit was not
reestablished) 25,000

Estimated uncollectible receivables per

aging of receivables at 12/31/2010

On December 31, 2010, the amortized cost of accounts receivable is

a. P1,825,000 c. P1,635,000
b. P1,800,000 d. P1,660,000

13. Banayoyo Company sells to wholesalers on terms of 5/15, net 30. Banayoyo has
no cash sale but 50% of customers take advantage of the discount. Banayoyo uses
the gross method of recording sales. An analysis of trade receivables at December
31, 2010 revealed the following:

Age Amount Collectible

0 – 15 days P15,000,000 100%
16 – 30 days 3,000,000 95%

Over 30 days 2,000,000 P1,500,000

On the December 31, 2010, what amount should be reported as allowance for discounts?
a. P750,000 c. P375,000
b. P650,000 d. P500,000

14. The January 1, 2010 trial balance of Barlig Company shows:

Accounts receivables P2,000,000

Allowance for doubtful accounts 100,000

Additional information for 2010:

a. Cash sales of the company amount to P800,000 and represent 10% of gross sales.
b. Ninety percent of the credit sales customers do not take advantage of the 5/10,
n/30 terms.
c. Customers who did not take advantage of the discount paid P5,940,000.
d. It is expected that cash discounts of P10,000 will be taken on accounts
receivable outstanding at December 31, 2010.
e. Sales returns in 2010 amounted to P80,000. All returns were from charge sales.
f. During 2010 accounts totaling P60,000 were written off as uncollectible.
Recoveries during the year amounted to P10,000. This amount is not included in
the foregoing collections.
g. The allowance for doubtful accounts is adjusted so that it represent a certain
percentage of the outstanding accounts receivable at year end.

On December 31, 2010, the net realizable value of accounts receivable is

a. P2,400,000 c. P2,270,000
b. P2,280,000 d. P2,260,000

15. The Pacifier Company uses the net price method of accounting for cash discounts.
In one of its transactions on December 15, 2010, Pacifier sold merchandise with a
list price of P500,000 to a client who was given a trade discount of 20% and 15%.
Credit terms were 2/10, n/30. The goods were shipped FOB destination, freight
collect. Total freight charges paid by the client amounted to P7,500. On December
20, 2010, the client returned damaged goods originally billed at P60,000.

What is the net realizable value of this receivable on December 31, 2010?
a. P272,500 c. P280,000
b. P274,400 d. P333,200

16. December 31, 2010 balances of selected accounts of Bicolano Company and pertinent
information are shown below:

Inventory, January 1 P2,000,000

Purchases 7,500,000
Purchases returns and allowances 500,000
Sales returns and allowances 750,000
Inventory at December 31 2,800,000
Gross profit rate on net sales 20%

Gross sales for 2010 amount to

a. P7,750,000 c. P8,500,000
b. P7,000,000 d. P9,125,000

17. Badoc Corporation's books disclosed the following information for the year ended
December 31, 2010:

Net credit sales P1,500,000

Net cash sales 240,000
Accounts Receivable at beginning of year 200,000
Accounts Receivable at end of year 400,000

Badoc's accounts receivable turnover is

a. 3.75 times c. 4.35 times
b. 5.00 times d. 5.80 times

18. Certain information relative to the operation of Cuyonin Company follows:

Accounts receivable, January 1 P 800,000

Account receivable collected 2,600,000
Cash sales 500,000
Inventory, January 1 1,200,000
Inventory, December 31 1,100,000
Purchases 2,000,000
Gross profit on sales 900,000

What is the accounts receivable balance at December 31?

a. P1,700,000 c. P1,200,000
b. P1,300,000 d. P 700,000
19. Gomez Company's net accounts receivable were P400,000 at December 31, 2009 and
P440,000 at December 31, 2010. Net cash sales for 2010 were P260,000. The accounts
receivable turnover for 2010 was 7.0. What were Gomez's total net sales for 2010?
a. P1,820,000 c. P2,940,000
b. P3,200,000 d. P2,680,000

20. Ilocos Company sold merchandise on credit to Norte Company for P100,000 on July
1, with terms of 2/10, net /30. On July 6, Norte returned P20,000 worth of
merchandise claiming the materials were defective. On July 8, Ilocos received a
payment from Norte and credited Accounts Receivable for P45,000. On July 24, Norte
Company paid the remaining balance on its account. What was the total cash received
from Norte during July?
a. P44,100 c. P45,000
b. P79,100 d. P80,000


21. La Union Company included the following items under inventories:

Materials P1,400,000
Advance for materials ordered 200,000
Goods in process 650,000
Unexpired insurance on inventories 60,000
Advertising catalogs and shipping boxes
Finished goods in factory 2,000,000
Finished goods in company-owned retail
stores, including 50% profit on cost 750,000

Finished goods in hands of consignees

including 40% profit on sales 400,000
Finished goods in transit to customers, shipped
FOB destination, at cost 250,000
Finished goods out on approval, at cost
Unsalable finished goods, at cost 50,000
Office supplies 40,000
Materials in transit shipped FOB shipping
point, excluding freight of P30,000 330,000

Goods held on consignment, at sales price,

cost P150,000 200,000

Compute the amount to be presented as “Inventories” under current assets.

a. P5,500,000 c. P5,650,000
b. P5,470,000 d. P5,700,000

22. Ovation Company asks you to review its December 31, 2010, inventory values and
prepare the necessary adjustments to the books. The following information is given
to you.
a. Ovation uses the periodic method of recording inventory. A physical count
reveals P2,348,900 inventory on hand at December 31, 2010.
b. Not included in the physical count of inventory is P134,200 of merchandise
purchased on December 15 from Standing. This merchandise was shipped f.o.b.
shipping point on December 29 and arrived in January. The invoice arrived and
was recorded on December 31.
c. Included in inventory is merchandise sold to Oval on December 30, f.o.b.
destination. This merchandise was shipped after it was counted. The invoice
was prepared and recorded as a sale on account for P128,000 on December 31. The
merchandise cost P73,500, and Oval received it on January 3.
d. Included in inventory was merchandise received from Owl on December 31 with an
invoice price of P156,300. The merchandise was shipped f.o.b destination. The
invoice, which has not yet arrived, has not been recorded.
e. Not included in inventory is P85,400 of merchandise purchased from Oxygen
Industries. The merchandise was received on December 31 after the inventory
had been counted. The invoice was received and recorded on December 30.
f. Included in inventory was P104,380 of inventory held by Ovation on consignment
from Ovoid Industries.
g. Included in inventory is merchandise sold to Kemp f.o.b. shipping point. This
merchandise was shipped after it was counted. The invoice was prepared and
recorded as a sale for P189,000 on December 31. The cost of this merchandise
was P105,200, and Kemp received the merchandise on January 5.
h. Excluded from inventory was carton labeled “Please accept for credit.” This
carton contains merchandise costing P15,000 which had been sold to a customer
for P25,000. No entry had been made to the books to reflect the return, but
none of the returned merchandise seemed damaged.

The adjusted inventory cost of Ovation Company at December 31, 2010 should be
a. P2,217,620 c. P2,411,320
b. P2,396,320 d. P2,373,920

23. The physical inventory of Pangasinan Company on December 31, 2010, showed
merchandise with a cost of P4,000,000 was on hand at that date. You also discovered
the following items were all excluded from the count:
a. Merchandise costing P160,000, which was held by Pangasinan on consignment. The
consignor is a subsidiary.
b. A special machine, fabricated to order for a customer costing P400,000, was
finished and specifically segregated in the back part of the shipping room on
December 31, 2010. The customer was billed on that date and the machine excluded
from inventory although it was shipped on January 4, 2011.
c. Merchandise costing P80,000, which was shipped by Pangasinan f.o.b. destination
to a customer on December 31, 2010. The customer expects to receive the
merchandise on January 3, 2011.
d. Merchandise costing P120,000 which was shipped by Pangasinan f.o.b. shipping
point to a customer on December 29, 2010.
e. Merchandise costing P50,000 shipped by a vendor f.o.b. seller on December 28,
2010 and received by Pangasinan on January 10, 2011.

The corrected balance of Pangasinan’s inventory should be

a. P4,530,000 c. P4,480,000
b. P4,130,000 d. P4,690,000

Transactions for the month of June were:

June 1 400 @ P3.20 June 2 300 @ P5.50

3 1,100 @ 3.10 800 @ 5.50


7 600 @ 3.30 500 @ 5.50

15 900 @ 3.40 10 200 @ 6.00

22 250 @ 3.50 18 700 @ 6.00

25 150 @ 6.00

24. Assuming that perpetual inventory records are kept in pesos, the ending inventory
on a FIFO basis is
a. P1,900 c. P2,065
b. P1,920 d. P2,100

25. Assuming that perpetual inventory records are kept in units only, the ending
inventory on an average-cost basis is
a. P1,980 c. P1,970
b. P1,956 d. P1,995

26. The Alcala Company counted its ending inventory on December 31. None of the
following items were included when the total amount of the company’s ending
inventory was computed:
 P150,000 in goods located in Alcala’s warehouse that are on consignment from
another company.
 P200,000 in goods that were sold by Alcala and shipped on December 30 and were
in transit on December 31; the goods were received by the customer on January
2. Terms were FOB Destination.
 P300,000 in goods were purchased by Alcala and shipped on December 30 and were
in transit on December 31; the goods were received by Alcala on January 2. Terms
were FOB shipping point.
 P400,000 in goods were sold by Alcala and shipped on December 30 and were in
transit on December 31; the goods were received by the customer on January 2.
Terms were FOB shipping point.

The company’s reported inventory (before any corrections) was P2,000,000. What is
the correct amount of the company’s inventory on December 31?
a. P2,550,000 c. P2,500,000
b. P1,950,000 d. P2,700,000

27. The Mary I Mfg. Co. in its balance sheet as of December 31, 2010 has an inventory
the amount of P176,000 which consists of:

Direct materials P55,000

Direct materials purchases in transit, FOB
Direct materials purchases in transit, FOB shipping
Prepaid insurance on inventory 2,000
Work-in-process 38,000
Finished goods 45,000
Goods shipped on consignment, at selling price with
20% profit on sales

What is the cost of inventory to be shown in the statement of financial position

of Mary I Mfg. Co. as of December 31, 2010?
a. P162,500 c. P159,000
b. P150,000 d. P159,500

28. The following information was available from the inventory records of Breakaway
Company for January:

Units Unit Cost

Balance at January 1 3,000 P9.77
January 6 2,000 10.30
January 26 2,700 10.71
January 7 2,500
January 31 3,200

Assuming that Breakaway maintains perpetual inventory records, what should be the
inventory at January 31, using the moving-average inventory method, rounded to the
nearest peso?
a. P20,474 c. P20,720
b. P20,520 d. P21,010

29. Skyfall Co. records purchases at net amounts. On May 5 Skyfall purchased
merchandise on account, P32,000, terms 2/10, n/30. Skyfall returned P2,000 of the
May 5 purchase and received credit on account. At May 31 the balance had not been

By how much should the account payable be adjusted on May 31?

a. P600 c. P680
b. P640 d. P 0

30. Yontabal Company started operations in 2008. The following data are abstracted
from the company’s production and sales records:

2008 2009 2010

Number of units
240,000 232,500 202,500
Number of units sold
150,000 217,500 195,000
Unit production cost
4.50 5.20 5.80
Sales revenue 1,200,000 1,800,000 1,950,000

Using the FIFO cost flow assumption, the gross profit for the year ended December
31, 2010 is
a. P819,000 c. P1,068,000
b. P882,000 d. P1,072,500

31. Newcastle Ltd uses many kinds of machines in its operations. It

constructs some of these machines itself and acquires others from the
manufacturers. The following information relates to machine A that
it has recorded in during 2010.

Cash paid for equipment, including VAT of P9,600 P89,600

Costs of transporting machine - insurance and 3,000
Labor costs of installation by expert fitter 5,000
Labor costs of testing equipment 4,000
Insurance costs for 2010 1,500
Costs of training for personnel who will use the 2,500
Costs of safety rails and platforms surrounding 6,000
Costs of water devices to keep machine cool 8,000

Costs of adjustments to machine to make it operate 7,500

more efficiently

Determine the amount at which machine A should be recorded in the

records of Newcastle Ltd.
a. P105,500 c. P113,500
b. P116,000 d. P121,500
Applying IAS
32. Sunflower Company acquired some new equipment. The following data
have been made available to you:
List price of the equipment P14,000
Cash discount available but not taken on purchase
Freight paid on the new equipment 250
Cost of removing the old equipment 170
Installation costs of the new equipment 430
Testing costs before the equipment was put to 295
regular operation (including P120 in wages of the
regular equipment operator)

Loss on premature retirement of the old equipment 120

Estimated cost of manufacturing similar equipment 13,800

in the company's own plant, including overhead

What amount should be capitalized as the cost of the new equipment?

a. P14,775 c. P14,975
b. P28,865 d. P15,065

33. White Airlines sold a used jet aircraft to Brown Company for
P800,000, accepting a five-year 6% note for the entire amount.
Brown's incremental borrowing rate was 14%. The annual payment of
principal and interest on the note was to be P189,930. The aircraft
could have been sold at an established cash price of P651,460. The
present value of an ordinary annuity of P1 at 8% for five periods is
3.99. The aircraft should be capitalized on Brown's books at
a. P949,650 c. P757,820
b. P800,000 d. P651,460

34. Imus Company acquired two items of machinery as follows:

 On December 30, 2010, Imus Company purchased a machine in exchange
for a noninterest bearing note requiring three payments of
P1,000,000. The first payment was made on December 30, 2010, and
the others are due annually on December 30. The prevailing rate
of interest for this type of note at date of issuance was 12%. The
present value of an ordinary annuity of 1 at 12% is 1.69 for two
periods and 2.40 for three periods. The new machine was damaged
during its installation and the repair cost amounted to P50,000.
 On January 1, 2010, Imus Company acquired used machinery by issuing
to the seller a three-year, noninterest-bearing note for
P3,000,000. In recent borrowing, Imus has paid a 12% interest for
this type of note. The present value of 1 at 12% for 3 years is
What is the total cost of the machinery?
a. P4,820,000 c. P4,530,000
b. P4,580,000 d. P4,870,000

35. On September 1, 2010, Ron Corporation issued 10,000 shares of its

P25 par treasury ordinary shares for a parcel of land intended as a
future plant site. The treasury shares were acquired by Ron at a
cost of P30 per share. Ron's ordinary share had a fair market value
of P40 per share on September 1, 2010. Ron received P50,000 from the
sale of scrap when an existing structure on the site was razed. At
what amount should the land be carried?
a. P400,000 c. P300,000
b. P350,000 d. P250,000

36. In January 2010 Bell Company exchanged an old machine, with a book
value of P39,000 and a fair value of P35,000, and paid P10,000 cash
for a similar used machine having a list price of P50,000. The
transaction has commercial substance. At what amount should the
machine acquired in the exchange be recorded on the books of Bell?
a. P45,000 c. P49,000
b. P46,000 d. P50,000

37. Aquator Motor Sales exchanged a car for a computer to be used as a

noncurrent operating asset. The following information relates to
this exchange that took place on July 31, 2010:

Carrying amount of the car P30,000

Listed selling price of the car 45,000

Fair value of the computer 43,000

Cash difference paid by Aquator 5,000

On July 31, 2010, how much profit should Aquator recognize on this
a. P13,000 c. P8,000
b. P10,000 d. P 0
P37 TB13 Skousen 15th ed

38. Amble, Inc. exchanged a truck with a carrying amount of P12,000

and a fair value of P20,000 for a truck and P2,500 cash. The cash
flows from the new truck are not expected to be significantly
different from the cash flows of the old truck. The fair value of
the truck received was P17,500. At what amount should Amble record
the truck received in the exchange?
a. P7,000 c. P10,500
b. P9,500 d. P17,500
P11 M9 pp. 345 Wiley07-08

39. A used delivery truck was traded in for a new truck. Information
relating to the trucks follows:

Used truck:
Cost P1,600,000
Accumulated depreciation 1,200,000
Estimated current fair value 320,000
New truck:
List price 2,000,000
Cash price without trade-in 1,900,000
Cash price with trade-in 1,560,000

The amount that should be capitalized as the cost of the new truck is
a. P1,560,000 c. P1,880,000
b. P1,900,000 d. P1,960,000
rpcpa 5/86 (P220 Kimwell)-AMP

40. The Royal Furniture Mfg. Co. fabricated furniture and fixtures for
its office use in the company’s plant during 2010. The following
data were taken from the company’s records:

Materia Direct
ls Labor
Finished goods P100,80 P151,200
Office furniture &
fixtures 67,200 50,500

Factory overhead amounted to P134,000. Normal production of finished

goods results to 420 units. Due to the fabrication of office furniture
and fixtures, finished goods produced totaled 294 units only in 2010.
The assets are to be charged with the overhead which would have been
apportioned to the 126 units which were not produced.

What is the total cost of office furniture and fixtures?

a. P117,600 c. P175,029
b. P157,900 d. P251,600

41. Laur Company uses the composite method of depreciation and has a
composite rate of 25%. During 2010, it sold assets with an original
cost of P100,000 and residual value of P20,000 for P80,000 and
acquired P60,000 worth of new assets with residual value of P10,000.
The original group of assets had the following characteristics:

Total cost P250,000

Total residual value 30,000

The above original group includes the assets sold in 2010 but not the
assets purchased in 2010. What was the depreciation in 2010?
a. P62,500 c. P47,500
b. P52,500 d. P46,500

42. Cabiao Company purchased a machine on December 2, 2009 at an invoice

price of P4,500,000 with terms 2/10, n/30. On December 10, 2009,
Cabiao paid the required amount for the machine. On December 2, 2009,
Cabiao paid P80,000 for delivery of the machine and on December 31,
2009, it paid P310,000 for installation and testing of the machine.
The machine was ready for use on January 1, 2010. It was estimated
that the machine would have a useful life of 5 years, and a residual
value of P800,000. Engineering estimates indicated that the useful
life in productive units was 200,000. Units actually produced during
the first two years were 30,000 in 2010 and 48,000 in 2011. Cabiao
Company decided to use the productive output method of depreciation.
What is the depreciation of the machine for 2010?
a. P1,560,000 c. P960,000
b. P 720,000 d. P600,000

43. On the first day of its current fiscal year, Lupao Corporation
purchased equipment costing P400,000 with a salvage value of P80,000.
Depreciation expense for the year was P160,000. If Lupao uses the
double-declining-balance method of depreciation, what is the
estimated useful life of the asset?
a. 5 years c. 2.5 years
b. 4 years d. 2 years

44. SEASON’S INC. acquired an asset that had a cost of P130,000. The
asset is being depreciated over a 5-year period using the sum-of-the-
years’ digit method. It has a salvage value estimated at P10,000.
The loss/gain if the asset is sold for P38,000 at the end of the third
year is
a. P4,000 gain c. P68,000 loss
b. P20,000 loss d. P92,000 loss
RPCPA 1095
45. Natividad Company purchased a tooling machine in 2000 for P3,000,000.
The machine was being depreciated on the straight-line method over an
estimated useful life of twenty years, with no salvage value. At the
beginning of 2010, when the machine had been in use for ten years,
the company paid P600,000 to overhaul the machine. As a result of
this improvement, the company estimated that the useful life of the
machine would be extended an additional five years. What should be
the depreciation expense recorded for the machine in 2010?
a. P150,000 c. P210,000
b. P140,000 d. P340,000


46. Laguna Company incurred P900,000 of research and development cost

to develop a product for which a patent was granted on January 2,
2010. Legal fees and other costs associated with the registration of
the patent totaled P200,000. On July 31, 2010, Laguna paid P400,000
for legal fees in a successful defense of the patent. The total
amount capitalized for this patent through July 31, 2010 should be

a. P1,500,000 c. P1,100,000
b. P 600,000 d. P 200,000

47. Alaminos Company acquired three patents in January 2010. The patents
have different lives as indicated in the following schedule:

Remaining Remaining legal

Patent Cost useful life life
A P2,000,000 10 8
B 3,000,000 5 10
C 6,000,000 Indefinite 15

Patent C is believed to be uniquely useful as long as the company

retains the right to use it. In June 2010, the company successfully
defended its right to Patent B. Legal fees of P800,000 were incurred
in this action. The company’s policy is to amortize intangible assets
by the straight-line method to the nearest half year. The company
reports on a calendar-year basis. The amount of amortization that
should be recognized for 2010 is

a. P1,330,000 c. P1,250,000
b. P2,050,000 d. P 950,000

48. On January 1, 2010, Calamba Company signed an agreement to operate

as a franchisee of Bay Company for an initial franchise fee of
P30,000,000. Of this amount, P10,000,000 was paid when the agreement
was signed and the balance is payable in equal annual payment of
P5,000,000 beginning December 31, 2010. The agreement provides that
the down payment is not refundable and no future services are required
of the franchisor. Calamba’s credit rating indicates that it can
borrow money at 12% for a loan of this type.

How much is the cost of franchise?

a. P30,000,000 c. P21,541,500
b. P25,186,500 d. P19,065,000

49. Biñan Company incurred the following costs during 2010:

Design of tools, jigs, molds and dies involving

new technology
Modification of the formulation of a process
Trouble shooting in connection of breakdowns
during commercial production

Adaptation of an existing capability to a
particular customer’s need as part of a
continuing commercial activity

In its 2010 income statement, Biñan should report research and

development expense of
a. P2,500,000 c. P3,200,000
b. P4,700,000 d. P5,700,000

50. On January 1, 2009, Magdalena purchased Victoria Company at a cost

that resulted in recognition of goodwill of P5,000,000 having an
expected benefit period of 10 years. During January of 2010,
Magdalena spent an additional P2,000,000 on expenditures designed to
maintain goodwill. Due to these expenditures, at December 31, 2010,
Magdalena estimated that the benefit period of goodwill was
indefinite. In its December 31, 2010 statement of financial position,
what amount should Magdalena report as goodwill?

a. P5,000,000 c. P7,000,000
b. P4,750,000 d. P4,500,000

-End of Examination-
Answer Sheet
1. 11. 21. 31. 41.
2. 12. 22. 32. 42.
3. 13. 23. 33. 43.
4. 14. 24. 34. 44.
5. 15 25. 35. 45.
6. 16. 26. 36. 46.
7. 17. 27. 37. 47.
8. 18. 28. 38. 48.
9 19. 29. 39. 49.
10. 20. 30. 40. 50.