1

PREWEEK P1 (2017)

1. Emerson Company was incorporated on January 1, 2018 by issuing common stock with a par value
of P50,000,000 for P60,000,000. The other transactions that affected the cash account during
January were:
 Land and building were purchased for P25,000,000 with a down payment of
P10,000,000. A note was signed for the remainder, the property being given as
collateral to the note due in six months time only.
 Bonds with a face amount of P5,000,000 were issued at 120 for additional working
capital requirements.
 A check was written for P7,500,000 to pay for computers and other equipment.
 A check in the amount of P1,500,000 was written to acquire software technology.
 A computer unit which did not fit the company’s requirements was sold at its original
sales price of P2,000,000 and the cash was deposited in the company’s checking
account.

What is the balance of the checking account on January 31, 2018?

a. P34,000,000 c. P49,000,000
b. P48,000,000 d. P43,000,000

2. In your audit of Emerson Company as of December 31, 2018, you gathered the following
information:

Balance per bank P5,000,000

Deposit in transit 2,500,000
Outstanding checks 1,200,000
Customer’s note collected by bank 650,000
Customer’s NSF check 148,000
Checkbook printing charge 2,000
Certified checks included in the outstanding checks 300,000
Depositor’s note charged to account 200,000

The cash balance per book of Emerson Company on December 31, 2018 is
a. P6,600,000 c. P6,100,000
b. P6,300,000 d. P6,950,000

3. The petty cash fund of Libra Company as of September 4, 2017 the following composition of its
petty cash fund:

Bills and coins counted 2,450

Approved and signed petty cash vouchers
Dated August 2017 3,800
Dated September 1-4, 2017 1,250
IOU from employee 1,800
A check drawn by an employee, dated September 15, 2017 1,100

The petty cash fund has an imprest balance of 10,000. The company’s reporting period ends on
August 30.

1. What is the correct balance of the petty cash fund?

a. 3,700 c. 4,250
b. 2,450 d. 6,250

2. What is the cash short or over?

a. 400 c. 550
b. 700 d. 1,350
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4. The Patrick Company had a weak internal control structure over its cash transactions. Facts
about its cash position at November 30, 2017 were as follows:

The cash books showed a balance of P 1,890,162, which included undeposited receipts. A credit of
P 10,000 on the bank’s records did not appear on the books of the company. The balance per bank
statement was P 1,555,000. Outstanding checks were no. 62 for P 11,625, no. 183 for P 15,000,
no. 284 for P 25,325, no. 8621 for P 19,071, no. 8622 for P 20,680, and no. 8632 for P 14,528.

The cashier stole all undeposited receipts in excess of P 379,441 and prepared the following
reconciliation:

Balance per books, November 30, 2017 P1,890,162

Add: outstanding checks
8621 P 19,071
8622 20,680
8632 14,528 44,279
P 1,934,441
Less: undeposited receipts 379,441
Balance per bank, November 30, 2017 P 1,555,000
Deduct unrecorded credit 10,000
True cash, November 30,2017 P 1,545,000

1. How much did the cashier stole?

a. P71,000 c. P81,110
b. P71,950 d. P 94,650

2. What is the correct amount of cash to be shown on the statement of financial position on
November 30, 2017?
a. P 1,882,612 c. P 1,862,212
b. P 1,828,212 d. P 1,682,612

5. On December 31, 2018, Angola Company revealed a balance of P 9, 750, 000 in the accounts
receivable control account. An analysis of the accounts receivable provided the following
information:
1. Accounts receivable known to be worthless 200, 000
2. Trade accounts receivable- assigned (equity in assigned 1, 900, 000
account is P 350,000)
3. Advance payments to creditors on purchase orders 600, 000
4. Advance to affiliated companies 1, 500, 000
5. Trade accounts on which postdated checks are held ( no 345, 000
entries were made on receipts of checks)
6. Trade accounts receivable from officers, currently due 250, 000
7. Interest receivable on bonds 350, 000
8. Subscription receivable due in 30 days 2, 200, 000
9. Costumer’s accounts reporting credit balances arising from 700, 000
sales returns
10. Trade accounts receivables- unassigned 2, 190, 000
11. Trade installment receivable due 1- 18 months, including 775, 000
unearned finance charge Of P 67, 000

What amount should be reported as “trade accounts receivable” on December 31, 2018?
a. 5, 000, 000
b. 5, 530, 000
c. 5, 900, 000
d. 5, 393, 000

6. Langerhans Company sells directly to retail customers. On January 1,2018, the balance of the
accounts receivable was 4,140,000 while the allowance for doubtful accounts was a credit of
156,000. The following data are gathered:
Credit Sales. Writeoffs. Recoveries
2015. 22,200,000. 520,000. 44,000
2016. 24,500,000. 590,000. 74,000
2017. 29,300,000. 600,000. 72,000
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2018. 30,000,000. 620,000. 84,000

Doubtful accounts are provided for as a percentage of credit sales. The entity calculated the
percentage annually by using the experience of the three years prior to the current year.

1. What is the percentage of credit sales to be used in computing doubtful accounts expense for
2018?
a) 2%
b) 4%
c) 6%
d) 8%

2. What amount should be reported aa doubtful accounts expense for 2018?

a) 610,000
b) 600,000
c) 444,000
d) 756,000

3. What accounts should be reported as allowance for doubtful accounts on December 31,2018?
a) 220,000
b) 756,000
c) 600,000
d) 956,000

7. AWW Company assigned specific accounts receivable totaling P3, 100, 000 as collateral on a P2,
500, 000, 12% note from a certain bank on December 1, 2017,. The entity will continue to collect
the assigned accounts receivable. In addition to the interest on the note, the bank also charged a
5% finance charge deducted in advance on the P2, 500, 000 value of the note. The December
collections of assigned accounts receivable amounted to P1, 000, 000 less cash discounts of P50,
000. On December 31, 2017, the entity remitted the collections to the bank in payment for the
interest accrued on December 31, 2017 and the note payable.

i. What is the carrying amount of note on December 31, 2017?

a. 1, 550, 000
b. 1, 575, 000
c. 1, 600, 000
d. 1, 757, 000

ii. What amount should be disclosed as the equity of AWW Company in assigned accounts on
December 31, 2017?
a. 425, 000
b. 475, 000
c. 495, 000
d. 525, 000

iii. What amount of cash was received from the assignment of accounts receivable on December 1,
2017?
a. 2, 000, 000
b. 2, 150, 000
c. 2, 375, 000
d. 3, 100, 000

8. Sakura Company sold 7,900,000 in accounts receivable for cash of 7,000,000. The factor withheld
10% of the cash proceeds to allow for possible customer returns and other adjustments. An
allowance for bad debts of 500,000 had previously been established by the entity in relation to this
accounts.

What is the loss on factoring that should be recognized?

a. 400,000
b. 390,000
c. 500,000
d. 420,000
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9. Ylona Company factored 5,000,000 of accounts receivable to a finance entity on October 20, 2016.
Control was surrendered by Ylona Company. The factor assessed a fee of 5% and retained
holdback equal to 8% of the accounts receivable. In addition, the factor charged 20% interest
computed on a weighted average time to maturity of the accounts receivable of 60 days.

1. What is the amount of cash initially received from the factoring?

a. 4,500,000
b. 5,050,000
c. 6,985,520
d. 4,185,616

2. What is the cost of factoring if all of the accounts are collected?

a. 127,680
b. 360,780
c. 414,384
d. 223,200

10. Cher Company discounted with recourse a note at the bank, On July 31 of the current year, at
discount rate of 13%. The note was received from the customer on August 1, 2018, is for 60 days,
has a face value of P5, 500,000 and carries an interest rate of 10%. The customer paid the note to
the bank on October 30, 2018, the date of maturity. Given that the discounting is accounted for a
secured borrowing.

1. What amount of interest expense should be recognized on July 31, 2018?

a. 300, 175
b. 235, 895
c. 135, 895
d. 532, 598

2. What should be the amount to be recognized as the net proceeds?

a. 5,500,000
b. 5,545, 833.33
c. 5,409, 937.50
d. 5, 000, 000

11. Jostin Bank granted a 10-year loan to Jerome Company in the amount of P1,500,000 with a stated
interest rate of 6%. Payments are due monthly and are computed to be P16,650. Jostin Bank
incurred P40,000 of direct loan origination cost and P20,000 of indirect loan origination cost. In
addition, Jostin Bank charged Jerome Company a 4-point non-refundable loan origination fee.

i. What is the initial carrying amount of the loan receivable on the part of Jostin Bank?
a. 1,520,000
b. 1,500,000
c. 1,480,000
d. 1,580,000

ii. What is the initial carrying amount of the loan payable on the part of Jerome Company?
a. 1,520,000
b. 1,500,000
c. 1,480,000
d. 1,440,000

12. Jostin Bank granted a loan to a borrower on January 1, 2018. The interest rate on the loan is 10%
payable annually starting December 31, 2018. The loan matures in five years on December 31,
2020. The data related to the said loan are:

 Principal Amount 8,000,000

 Origination fee received from the borrower 1,250,000
 Direct organization cost incurred 50,000
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The effective rate on the loan after considering the direct organization cost incurred and the
origination fee is 15%.

1. What is the carrying amount of the loan receivable on January 1, 2018?

a. 3,544,000
b. 4,600,000
c. 5,504,000
d. 6,800,000

2. What is the interest income for 2018?

a. 1,709,000
b. 1,907,000
c. 1,020,000
d. 2,000,000

3. What is the carrying amount of the loan receivable on December 31, 2018?
a. 7,020,000
b. 8,000,000
c. 6,200,000
d. 5,100,000

13. On December 31, 2017, SUNSHINE Bank has a 5-year loan receivable with a face value of
P5,000,000 dated January 1, 2016 that is due on December 31, 2020. Interest on the loan is
payable at 9% every December 31.

The borrower paid the interest that was due on December 31, 2016 but informed the bank
that interest accrued in 2017 will be paid at maturity date. There is a high probability that the
remaining interest payments will not be paid because of financial difficulty.

The prevailing market rate of interest on December 31, 2017 is 10%. The PV of 1 for three
periods is .772 at 9%, and .751 at 10%.

What is the loan impairment loss to be recognized on December 31, 2017?

a. 1,695,000
b. 1,590,000
c. 1,242,600
d. 1,357,050

14. Jerome Company is a dealer in equipment. On December 31, 2017, the entity sold an equipment in
exchange for a non-interest bearing note requiring five annual payments of 500,000. The first
payment was made on December 31, 2018. The market interest for the similar notes was 8%. The
PV of 1 at 8% for 5 periods is 0.68, and the PV of an ordinary annuity of 1 at 8% for 5 periods is
3.99.

1. On December 31, 2017, what is the carrying amount of the note?

a. 1,995,000
b. 1,740,000
c. 1,590,000
d. 1,840,000

2. What interest income should be reported for 2018?

a. 210,000
b. 340,000
c. 159,600
d. 250,000

15. Trisha Company purchased P 5, 000, 000 of Bonds at par. The entity has chosen the fair value
model for this investment. At year-end, the entity receives annual interest of P 350, 000 and the fair
value of the bonds was P 4, 705, 000.

What amount should be reported for the bond investment as total income or loss in the income
statement?
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a. 65, 000
b. 55, 000
c. 295, 000
d. 50, 000

16. On January 1, 2017, Aroma Company purchased bonds with face amount of P5,000,000 for
P4,766,00. The stated rate on the bonds is 10% but the bonds are required to yield 12%. The
bonds mature at the rate of P1,000,000 annually every December 31 and the interest is payable
annually also every December 31. The entity used the effective interest method of amortization.

What is the carrying amount of the bond investment on December 31, 2017?
a. 4,766,000
b. 3,694,080
c. 4,837,920
d. 3,837,920

17. At the beginning of current year, Illusion Company acquired an equity instrument for
P 4,000,000 to be measured at fair value through other comprehensive income. The entity incurred
direct acquisition cost of P700,000.

At year-end, fair value of the instrument was P5,500,000 and the transaction cost that would be
incurred on the sale of the investment were estimated at P600,000.

What amount of unrealized gain should be recognized in other comprehensive income for the
current year?
a. 200,000
b. 900,000
c. 800,000
d. 0

18. During 2016, Trisha Company purchased marketable equity securities to be measured at fair value
through other comprehensive income. On December 31, 2016, the balance in the unrealizable loss
on these securities was 200,000.

There were no security transaction during 2017. Pertinent data on December 31, 2017 are as
follows:
Security Cost Market Value
X 2,100,000 1,600,000
Y 1,850,000 2,000,000
Z 1,050,000 900,000

In the statement of changes in equity for 2017, what amount should be included as cumulative
unrealized loss as component of other comprehensive income?
a. 500,000
b. 300,000
c. 200,000
d. 0

19. On January 1, 2017, Jerome Company purchased nontrading equity investments which are
irrevocably designated at FVOCI:

Purchase Price Transaction Cost Market Value

December 31, 2017
Security A 1,000,000 100,000 1,500,000
Security B 2,000,000 200,000 2.400,000
Security C 4,000,000 400,000 4,700,000

On July 1, 2018, the entity sold Security C for 5,200,000.

What amount of gain on sale should be recognized in the income statement for 2018?
a. 800,000
b. 500,000
c. 300, 000
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d. 0

20. Maxim Company acquired 40,000 ordinary shares on October 1 for P6,600,000 to be held for
trading. On November 30, the investee distributed a 10% ordinary stock dividend when the market
price of the share was P250. On December 31, the entity sold 4,000 shares for P1,000, 000.

What amount should be reported as gain on sale of investment in the current year?
a. 340,000
b. 400,000
c. 500,000
d. 600,000

21. Jerome Company purchased the following securities during 2016:

Classification
Cost Market Value
December 31, 2016
Security A Trading 900,000 1,200,000
Security B Trading 800,000 1,000,000

On July 31, 2017, the entity sold all the shares of Security B for 1,100,000. On December 31, 2017,
the shares of Security A had a market value of 600,000.
No other activity occurred during 2017 in relation to the trading security portfolio.

What total loss on the trading securities should be reported in the income statement for 2017?
a. 500,000
b. 400,000
c. 900,000
d. 100,000

22. Inspiration Company had trading and non-trading investments held throughout 2016 and 2017

The non-trading investments are measured at fair value through other comprehensive income.

The investments had a cost of P3,000,000 for trading and P3,000,000 for non-trading.

December 31, 2016 December 31, 2017

Trading 4,000,000 3,800,000
Nontrading 3,200,000 3,700,000

1. What amount of unrealized gain or loss should be reported in the income statement for
2017?
a. 200,000 gain
b. 200,000 loss
c. 300,000 gain
d. 300,000 loss

2. What amount of cumulative unrealized gain or loss should be reported as component of

other comprehensive income in the statement of changes in equity on December 31,
2017?
a. 500,000 gain
b. 500,000 loss
c. 700,000 gain
d. 700,000 loss

23. On January 1, 2016, Happy Company purchased 10% of Rose Company’s ordinary share capital
for P6,000,000. Rose Company reported net income of P500,000 for 2016 and P2,000,000 for
2017, and paid dividend of P3,000,000 on December 31, 2017.

What amount should be reported as dividend income for 2017?

a. 300,000
b. 200,000
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c. 250,000
d. 500,000

24. At the beginning of the current year, Lavish Company purchased 10,000 ordinary shares at P90 per
share to be held for trading. At the year-end, the entity received 2,000 shares of the investee in lieu
of cash dividend of P10 per share. On this date, the investee’s share has a quoted market price of
P60 per share.

What amount should be reported as dividend income for the current year?
a. 120,000
b. 100,000
c. 20,000
d. 0

25. Solaire Company acquired 100,000 ordinary shares of Sun Company and 300,000 ordinary shares
of Star Company. Both Sun Company and Star Company had 1,000,000 ordinary shares
outstanding.

Sun Company reported net income of P3, 000,000 and paid dividends of P2, 000,000 during the
current year.

Star Company reported net income of P4, 000,000 and paid dividends of P1, 000,000 during the
current year.

What total amount on income from the investment should be reported for the current year?
a. 1,500,000
b. 1,200,000
c. 1,400,000
d. 500,000

26. At the beginning of the current year, Peer Company acquired as a long term investment a 20%
interest in another entity. Peer Company paid P7, 000,000 for this investment when the fair value of
the net assets was P35, 000,000. The investor can exercise significant influence over the investee’s
operating and financial policies.

During the current year, the investee reported net income of P6, 000,000 and paid cash dividend of
P4, 000,000

What amount of revenue from the investment should be reported for the current year?
a. 1,200,000
b. 800,000
c. 600.000
d. 400,000

27. Temporal Company owned 50,000 ordinary shares held for trading. These 50,000 were purchased
120 per share. During the year, the investee distributed 50,000 stock rights to the investor. The
investor was entitled to buy one new share for P90 cash and two of these rights. Each share had a
market value of P130 and each right had a market value of P20 on the date of issue.
What total cost should be recorded for the new shares that are acquired by exercising the rights?
a. 2,250,000
b. 3,250,000
c. 3,050,000
d. 5,500,000

28. Brady Corporation values its inventory at the lower of cost or net realizable
value as required by IFRS. Brady has the following information regarding its inventory:
Historical cost 1,000 Estimated selling price 900 Estimated costs to complete and sell 50
Replacement cost 800 What is the amount for inventory that Brady should report on the balance
sheet under the lower of cost or net realizable value method?
a. 1,000
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b. 900
c. 850
d. 750

29. On September 30, 2018, a fire at Elusive Company's only warehouse caused severe damaged to
its entire inventory. Based on recent history, the entity has a gross profit of 30% on cost of sales.
The following information is available from the records for the nine months ended September 30,
2018:
Inventory - January 1 550,000
Purchases 3,000,000
Net sales 3,640,000

A physical inventory disclosed usable damaged goods which can be sold to a jobber for P50,000.
Using the gross profit method, what is the estimated cost of goods sold for the nine months ended
September 30, 2018?
a.P2,950,000 c.P2,800,000
b.P2,485,000 d.P2,485,000

30. Turner Corporation acquired two inventory items at a lump-sum cost of 50,000. The acquisition
included 3,000 units of product LF, and 7,000 units of product 1B. LF normally sells for 15 per unit,
and 1B for 5 per unit. If Turner sells 1,000 units of LF, what amount of gross profit should it
recognize?
a. 1,875
b. 5,625.
c. 10,000.
d. 11,875.

31. Boxer Inc. uses the conventional retail method to determine its ending inventory at cost. Assume
the beginning inventory at cost (retail) were 65,500 ( 99,000), purchases during the current year at
cost (retail) were 568,000 ( 865,600), freight-in on these purchases totaled 26,500, sales during
the current year totaled 811,000, and net markups were 69,000. What is the ending inventory
value at cost?
a. 222,600.
b. 174,366.
c. 142,241.
d. 152,308.

32. On October 1, 2017, Kaila Company entered into a 6-month, P5,200,000 purchase commitment for
a supply of a special product on March 31, 2018, On December 31, 2017, the market value of this
material had fallen to P5,000,000. O March 31, 2018, the market value of the purchase commitment
is P4,900,000. What is the loss on purchase commitment that should be recognized on March 31,
2018?
a. 200,000
b. 100,000
c. 300,000
d. 0

33. On January 1, year 2, Card Corp. signed a three-year noncancelable purchase

contract, which allows Card to purchase up to 500,000 units of a computer part annually from Hart
Supply Co. at .10 per unit and guarantees a minimum annual purchase of 100,000 units. During
year 2, the part unexpectedly became obsolete. Card had 250,000 units of this inventory at
December 31, year 2, and believes these parts can be sold as scrap for .02 per unit. What amount
of probable loss from the purchase commitment should Card report in its year 2 income statement?
a. 24,000
b. 20,000
c. 16,000
d. 8,000
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34. During the current fiscal year, Jeremiah Corp. signed a long-term noncancellable 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.

35. On January 1, year 2, Dell, Inc. contracted with the city of Little to provide custom built desks for the
city schools. The contract made Dell the city’s sole supplier and required Dell to supply no less than
4,000 desks and no more than 5,500 desks per year for two years. In turn, Little agreed to pay a
fixed price of 110 per desk. During year 2, Dell produced 5,000 desks for Little. At December 31,
year 2, 500 of these desks were segregated from the regular inventory and were accepted and
awaiting pickup by Little. Little paid Dell 450,000 during year 2. What amount should Dell recognize
as contract revenue in year 2?
a. 450,000
b. 495,000
c. 550,000
d. 605,000

36. Risers Inc. reported total assets of 1,600,000 and net income of 85,000 for the current year. Risers
determined that inventory was understated by 23,000 at the beginning of the year and 10,000 at
the end of the year. What is the corrected amount for total assets and net income for the year?
a. 1,610,000 and 95,000.
b. 1,590,000 and 98,000.
c. 1,610,000 and 72,000.
d. 1,600,000 and 85,000.

37. Dub Dairy produces milk to sell to local and national ice cream producers. Dub Dairy began
operations on January 1, 2017 by purchasing 840 milk cows for 1,176,000. The company controller
had the following information available at year end relating to the cows:
Milking cows
Carrying value, January1, 2017 1,176,000
Change in fair value due to growth and price changes 365,000
Decrease in fair value due to harvest (42,000)
Milk harvested during 2017 54,000

At December 31, 2017, what is the value of the milking cows on Dub Dairy’s statement of financial
position?
a. 1,176,000
b. 1,541,000
c. 1,134,000
d. 1,499,000

38. Dub Dairy produces milk to sell to local and national ice cream producers. Dub Dairy began
operations on January 1, 2017 by purchasing 840 milk cows for 1,176,000. The company controller
had the following information available at year end relating to the cows:
Milking cows
Carrying value, January1, 2017 1,176,000
Change in fair value due to growth and price changes 365,000
Decrease in fair value due to harvest (42,000)
Milk harvested during 2017 but not yet sold 54,000

On Dub Dairy’s income statement for the year ending December 31, 2017, what amount of
unrealized gain on biological assets will be reported?
a. -0-
b. 365,000
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c. 323,000
d. 54,600

39. The ff. audited balances pertain to Angel Company

Accts. Payable:
Jan.1, 2018 p286, 924
Dec.31, 2018 737, 824
Inventory balance:
Jan. 1, 2018 815, 386
Dec.31, 2018 488, 874
Cost of goods sold-2018 1, 859, 082

How much was paid by Angel Company to its supplier in 2018?

a.P1, 081, 670
b.P1, 065, 900
c.P1, 071, 678
d.P1, 097, 000

40. A physical count of inventory at December 31, 2017 revealed that Victory Enterprises had inventory
on hand at that date with a cost of P441,800. The annual audit identified that the following items
were excluded from this amount:

 Merchandise inventory of P61,000 is held by Victory on consignment. The consignor

is Genesis Company.

 Merchandise costing P38,000 was shipped by Victory Enterprises FOB Destination

to a customer on December 31, 2017.

 Merchandise costing P46,000 was shipped by Victory FOB Shipping point to a

customer on December 29, 2018. The customer was scheduled to receive the goods
on January 6, 2018.

 Merchandise costing P83,000 shipped by a vendor FOB Destination on December

31, 2017 was received by Victory on January 4, 2018.

 Merchandise costing P51,000 purchased FOB shipping point was shipped by the
supplier on December 31, 2017 and received by Victory on January 5, 2018.

What amount if inventory should be recorded in the December 31, 2017 statement of financial
position of Victory enterprises?
a. P545,000 c. P540,400
b. P530,800 d.P645,000

41. Begonia Company installed a new equipment at the production facility and incurred the following
costs:
Initial delivery and handling cost 400,000
Cost of site preparation 700,000
Cost of equipment per supplier’s invoice 3,000,000
Consultants used for advice on the acquisition of equipment 800,000
Interest charges paid to supplier for deferred credit 300,000
Estimated dismantling cost to be incurred as required by contract 350,000
Operating losses before commercial production 450,000.

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

a. 5,250,000
b. 5,550,000
c. 4,900,000
d. 5,100,000
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42. Choco Company incurred the following expenditures related to the construction of a new home
office:

Cost of Land, which included usable old apartment

building with fair value of P200,000 3,000,000
Legal fees, including fee for title search 20,000
Payment of land mortgage and related interest due
at time of sale 60,000
Payment of delinquent property taxes 15,000
Cost of razing the apartment building 45,000
Grading and drainage on land site 20,000
Architect fee on new building 250,000
Payment to building contractor 7,000,000
Interest cost on specific borrowing during construction 200,000
Payment of medical bills of employees accidentally
injured while inspecting building construction 30,000
Cost of paving driveway and parking lot 70,000
Cost of trees, shrubs, and other landscaping 65,000
Cost of installing light in parking lot 8,000
Premium for insurance on building during construction 22,000
Cost of open house party to celebrate opening of building 80,000

1. What is the cost of land?

a. 2,720,000 c. 3,205,000
b. 2,915,000 d. 2,950,000

2. What is the cost of building?

a. 7,517,000 c. 7,495,000
b. 7,537,000 d. 7,525,000

3. What is the cost of land improvement?

a. 200,000 c. 143,000
b. 203,000 d. 0

43. Patrick Company incurred the following costs during the current year in relation to property, plant
and equipment:

Cash paid for purchase of land 3,500,000

Mortgage assumed on the land purchased, including
interest accrued 1,400,000
Realtor commission 500,000
Legal fees, realty taxes and documentation expenses 40,000
Amount paid to relocate persons squatting on the property 150,000
Cost of tearing down an old building on the land to
make room for construction of new building 350,000
Salvage value of the old building demolished 50,000
Cost of fencing the property 110,000
Amount paid to contractor for the building constructed 4,500,000
Building permit fee 40,000
Excavation 45,000
Architect Fee 200,000
Interest that would have been earned had the money used
during the period of construction been invested 150,000
Invoice cost of machine acquired 2,500,000
Freight, unloading and delivery charges 60,000
Custom duties and other charges 140,000
Allowances and hotel accommodation, paid to foreign
technicians during installation and test run of machine 500,000
 13

1. What amount should be capitalized as cost of land?

a. 5,450,000 c. 5,440,000
b. 5,590,000 d. 5,550,000

2. What amount should be capitalized as cost of building?

a. 5,000,000 c. 5,135,000
b. 5,085,000 d. 4,885,000

3. What amount should be capitalized as cost of machine?

a. 3,060,000 c.3,140,000
b. 3,200,000 d.3,000,000

44. EXON COMPANY acquires a new manufacturing equipment on January 1, 2015, on installment
basis. The deferred payment contract provides for a down payment of P400,000 and an 8-year note
for P3,204,160. The note is to be paid in 8 equal annual installment payments of P400,520,
including 10% interest. The payments are to be made on December 31 of each year, beginning
December 31, 2015. The equipment has a cash price equivalent of P2,470,000. Exo's financial
year-end is December 31.

1. The amount to be recognized on January 1, 2015, as discount on note payable is

a. 410,416
b. 0
c. 1,134,160
d. P927,160

2. What is the acquisition cost of the equipment?

a. 3,504,160
b. 2,904,160
c. 2,470,000
d. 3,204,160

3. The amount of interest expense to be recognized in 2016 is

a. 410,416
b. 207,000
c. 0
d. 187,648

45. Kaila Company has some old equipment that cost P700, 000 with an accumulated depreciation of
P400, 000. The equipment was traded in for a new machine from a dealer company that had a list
price of P800.000: however, the new machine could be purchased without a trade In for P750, 000
cash. Kaila Company paid P500, 000 cash in the exchange.
(1) At how much should Kaila record the newly acquired machine?
a. P1,250,000
b. P 800,000
c. P 750,000
d. P 300,000

(2) What is the amount of gain (loss) on the exchange?

a. P50, 000 gain
b. P50, 000 loss
c. P300, 000 loss
d. P250, 000 loss

46. Cool Company exchanges an automobile with a carrying amount of P135, 000 (original cost, P550,
000) for a molding machine owned by Water Company. The molding machine is carried in Water
Company's books at a cost of P240.000 with an accumulated depreciation of P83, 000 at time of
exchange.
(1) Assume that no cash is involved in the transaction and the fair value of the automobile is not
readily determinable. The fair market value of the molding machine is P172, 800. How much is the
gain or loss on the exchange of Cool Company and Water Company, respectively?
 14

a. P37, 800 gain and P15.800 loss

b. P37, 800 loss and P15, 800 gain
c. P37, 800 loss and P15, 800 gain
d. P37, 800 gain and P15, 800 gain

(2) Assume that the fair values of the automobile and the molding machine arc P145, 000 and
P150, 000, respectively. In addition, Cool Company paid P5, 000 to Water Company to complete
the transaction. How much is the gain or loss on the exchange of Cool Company and Water
Company, respectively?
a. P10, 000 gain and P7, 000 loss
b. P10.000 loss and P7, 000 gain
c. P15, 000 loss and P12, 000 gain
d. P15, 000 gain and P12, 000 loss

47. On January 2 ,2014, Marlborough Company received a grant of P60,000,000 to compensate for
costs to be incurred in planting trees over a period of 5 years. The entity will incur such cost at
P2,000,000 for 2014, P4,000,000 for 2015, P6,000,000 for 2016, P8,000,000 for 2017, and
P10,000,000 for 2018. What amount of grant income should be recognized for 2015?

a. 6,000,000

b. 4,000,000

c. 12,000,000

d. 8,000,000

48. Angel Incorporated purchased a new building at a cost of 7,500,000 on January 1,2010.
Depreciation was computed on the straight line basis at 4% per year. On January 1, 2015, the
building was revalued at fair value of 9,300,000.

1. What is the depreciation for 2015?

a) 456,000
b) 465,000
c) 435,000
d) 445,000

2. What is the revaluation surplus on December 31, 2015?

a) 3,135,000
b) 3,145,000
c) 3,200,000
d) 3,315,000

49. Bells company acquired a machine on January 1, 2012, at a cost of P120,000. It was expected to
have a useful life of 10 years. Bells uses the straight line method in depreciating its machinery and
equipment and reports on a calendar year basis. On December 31, 2014, the machine was
appraised as having a gross replacement cost of P150,000. Bells applies the revaluation model in
valuing this class of property, plant and equipment after its initial recognition.

How much should be credited to revaluation surplus on

December 31, 2014?
a. P30,000 c. P21,000
b. P105,000 d. P 9,000
 15

50. On January 1, 2015, Alaska Company borrowed 6,450,000 at an annual interest rate of 7.5% to
finance specifically the cost of building a plant. Construction commenced on January 1, 2015 with a
cost 8,000,000. The entity earned P300,000 interest income from its fund. The plant was completed
on December 31, 2015. What amount of interest should be capitalized?
a. 483,750
b. 300,000
c. 220,000
d. 183,750

51. The Calvin Company self-constructed an asset for its own use. Construction started on January 1,
2016 and the asset was completed on December 31, 2016. Costs incurred during the year were as
follows:
January 1- P400, 000; April 1- P500,000; August 1 - P480,000; December 1- P180,000
(1) What is the average accumulated expenditures for the self-constructed asset?
a. P1, 560,000
b. P 990,000
c. P 870,000
d. P 780,000

(2) If the company had a two-year, 18% loan of P500,000, specifically obtained finance the asset
construction, what is the capitalized interest added to the of the self-constructed asset?
a. P 90,000
b. P140, 000
c. P178.200
d. P280, 800

(3) Assuming that in addition to the specific borrowing, prior to the construction, the company had a general
borrowing amounting to P600,000 with interest of 20% and a two-year term that was used in part In the
self-construction, what is the total cost of the self-constructed asset?
a. P1, 770,000
b. P1, 748,000
c. P2, 650,000
d. P1.560, 000

(4) Assuming that the total construction costs of P1, 560,000 were incurred evenly during the construction
period, and the company has the following outstanding obligations prior to the start of the construction:
Specific borrowing P700.000, 16%. Due January 1, 2018 General borrowing P500.000. 18%, due January},
2017
What is the total capitalized interest?
a. P126, 400
b. P130, 000
c. P112, 000
d. P218, 000

52. Euro Company purchased a computer hardware on July 1, 2015 for P400, 000. The economic life
and residual value are estimated to be 5 years and P36.000, respectively. The straight-line method
is used. In January. 2016, due to advances in technology, the company adjusted its estimate to a
three-year total life and a residual value of P10.000.

What is the depreciation expense for 2016?

a. P148, 800 b. P141, 600 c. P141,440 d. P120, 667

53. Angel Company operates a product line which is treated as a cash generating unit for impairment
purposes. On December 31, 2017, the carrying amounts of the noncurrent assets are as follows:
Machine 4,000,000
Equipment 3,000,000
 16

Goodwill 1,000,000

On December 31, 2017 the fair value less cost to sell is 7,500,000

i. What amount will be the balance of goodwill?

a. 500,000
b. 62,500
c. 1,000,000
d. 66,667

ii. Assuming that the fair value less cost to sell is 6,000,000. What is the amount of impairment
allocated to machine?
a. 4,000,000
b. 571,428.57
c. 857,142.86
d. 3,000,000

iii. What is the new carrying amount of goodwill, machine and equipment respectively?
a. 500,000; 3,500,000; 2,500,000
b. 0; 3,428,571.43; 3,000,000
c. 0; 3,428,571.43; 2,571,428.57
d. 750,000; 3,000,000; 2,250,000

54. On July 1, 2017, Angel purchased a patent from the inventor, who asked P1,100,000 for it. Angel
paid for the patent as follows: cash, P400,000; issuance of 10,000 shares of its own ordinary
shares, par P10 (market value, P20 per share); and a note payable due at the end of three years,
face amount, P500,000, noninterest-bearing. The current interest rate for this type of financing is 12
percent. Angel estimates the useful life of the patent to be ten years.
Carrying amount of patent as of December 31,
2017
a. P1,045,000 c. P860,310
b. P 955,900 d. P908,105

55. On January 1, 2017, Angel signed an agreement to operate as franchisee of Clear Copy Service,
Inc. for an initial franchise of P680,000. Of this amount, P200,000 was paid when the agreement
was signed and the balance was payable in four annual payments of P120,000 each, beginning
January 1, 2018. The agreement provides that the down payment is not refundable and no future
services are required of the franchisor. The implicit rate for loan of this type is 14%. The
agreement also provides the 5% of the revenue from the franchise must be paid to the franchisor
annually. Angel’s revenue from the franchise for 2017 was P8,000,000. Angel estimates the useful
life of the franchise to be ten years.
Carrying amount of franchise as of December 31, 2017
a. P549,644
b. P494,680
c. P538,733
d. P612,000

56. On January 1, 2014, Tris Company signed an eight-year lease for office space. The entity has an
option to renew the lease for an additional 8-year period on or before January 1, 2017.

During January 2016, the entity made substantial improvement to the warehouse. The cost of the
improvement was P540,000 with an estimated useful life of 15 years. On December 31, 2016, the
entity intended to exercise the renewal option. The entity has taken a full year depreciation on this
leasehold improvement for 2016.

On December 31, 2016, what is the carrying amount of the leasehold improvement?
a. 486,000
b. 501,429
c. 510,000
 17

d. 513,000

57. Tris Company was granted a patent on January 1, 2013 and appropriately capitalized P450,000 of
related costs. The entity was amortizing the patent over the useful life of 15 years.

During 2016, the entity paid P150,000 in legal costs in successfully defending an attempted
infringement of the patent. After the legal action was completed, the entity sold the patent to the
plaintiff for P750,000. The policy is to take no amortization in the year of disposal

What amount should be reported as gain from sale of patent in 2016?

a.150,000
b.240,000
c.270,000
d.390,000

58. At the beginning of the current year, Uptown Company acquired an intangible asset for P3,000,000.
The intangible asset has an estimated useful life of 10 years.

At the end of the year, the intangible asset was evaluated to determine whether it was impaired. On
same date, the fair value less cost of disposal of intangible asset is P2,000,000. The asset is
expected to generate future cash flows of P300,000 annually for the remaining 9 years.

The appropriate discount rate is 5%. The present value of an ordinary annuity of 1 at 5% for nine
periods is 7.11.

What is the impairment loss to be recognized for the current year?

a. 700,000
b. 567,000
c. 867,000
d. 0

59. On January, 2016, Ramos Company owned an investment property which had an original cost of
7,250,000 and useful life of 50 years.

On December 31, 2016, the fair value was 6,100,000 and on December 31, 2017, the fair value was
6,000,000.

1. Under the fair value model, what is the expense to be recognized for the year ended December
31,2017?

a. 147,000
b. 100,000
c. 200,000
d. 0

2. Under the cost model, what is the expense to be recognized for the year ended December
31,2017?
a. 145,000
b. 150,000
c. 147,500
d. 0

60. Angel Company purchased an investment property on January 1, 2016 for a cost of P2, 200,000.

The property had a useful life of 40 years and on December 31, 2018 had a fair value of
P3, 000,000.

On December 31, 2018 the property was sold for net proceeds of P2, 900,000. The entity used the
cost model to account for the investment property.
 18

What is the gain or loss to be recognized for 2018 regarding the disposal of the investment
property?
a. 865,000 gain
b. 810,000 gain
c. 100,000 loss
d. 700,000 gain

61. A building previously occupied by Grand Company with a cost of P10 million and an accumulated
depreciation of P5.5 million is reclassified as investment property, at the time of reclassification, the
building has a fair value of P5 million.

Using the fair value model, upon reclassification to investment property, at what amount should
Grand record the investment property and what amount of gain is recognized in profit or loss,
respectively?
a. P4.5 million and P500, 000
b. P5 million and PO
c. PS million and P500, 000
d. P4.5 million and PO

62. On September 1, 2017,Cement Company has a building with a cost of 4,000,000 and accumulated
depreciation of 3,100,000. The company commits to a plan to sell the building by February 1, 2018.
On September 1, 2017, the building has an estimated selling price of 800,000, and it is estimated
selling costs associated with the disposal of the building will be 120,000. On December 31, 2017,
the estimated selling price of the building has increased to 1,200,000, with estimated selling costs
remaining at 120,000.

1. At the time of reclassification as held for sale, what amount should the noncurrent asset held
for sale be recognized?
a.680,000
b.780,000
c.800,000
d.900,000

2. What amount of loss should Cement Company recognize at the time the building was
reclassified as held for sale?
a. None
b.100,000
c.120,000
d.220,000

3. As of December 31, 2017, what amount of gain on recovery should cement Company
recognize related to the asset held for sale?
a. None
b. 180,000
c. 220,000
d. 400,000

63. On September 30, 2017, when the carrying amount of the net assets of segment C was 7,000,000,
X Company signed a binding contract to sell segment C for P12,000,000. The sale is expected to
be completed by January 31, 2018, the sale contract obliges X Company to terminate certain
employees of segment C incurring termination costs of P2,000,000 to be paid on June 30, 2018.
The company continued to operate segment C throughout 2017. Revenue of segment C throughout
2017 was P 8,000,000, operating costs was P4,000,000.

How much income should be reported as income from discontinued segment for 2017, before tax ?
a.None
b.2,000,000
c.7,000,000
d.8,000,000
 19

64. The following liability account balances on December 31, 2016 was reported by Righteousness
Company:
Accounts Payable 3,000,000
Bonds Payable, due 2018 2,700,000
Premium on bonds payable 300,000
Deferred Tax Liability 420,000
Income Tax Payable 900,000
Dividends in Kind due on March 3, 2017 1,200,000
Note Payable due January 1, 2018 780,000

The deferred tax liability is based on temporary differences stemming from different depreciation
method for financial reporting and income purposes. What amount should be treated as Current
liabilities on December 31, 2016?
a. 5,400,000
b. 5,520,000
c. 5,700,000
d. 5,100,000

65. On December 31, 2016, the bookkeeper of the Lyndon Company gave the following information:
 Notes payable arising from purchases of goods, P472,000; arising from short term loans
from banks, P200,000 on which trading securities valued at P280,000 have been
pledged as security; arising from long-term advances by officers, P250,000.
 Employees’ income taxes payable, P9,600.
 Advances received from customers on purchase orders, P64,000
 Accounts payable arising from purchases of goods, P380,000.
 Customers’ accounts with credit balances arising from sales returns, P26,000
 Share dividends distributable, P240,000.
 First mortgage serial bonds, P1,500,000 payable in semi-annual installments of P50,000
due on April 1 and October 1 of each year.
 Cash overdraft with ABC Commercial Bank, P50,000.
 Estimated damages to be paid as a result of unsatisfactory performance on a contract,
P24,000
 Estimated expenses of meeting guarantee for service requirement on merchandise sold,
P48,000.
 Accrued interest on bonds payable, P57, 500.

What total current liabilities shall be presented in the statement of financial position as of December
31, 2016?
a. P1,431,100
b. P1,609,100
c. P1,921,100
d. P3,321,100

66. Prime Company has long owned a manufacturing site that has now been discovered to be
contaminated with toxic waste. The entity has acknowledged its responsibility for the contamination.
An initial clean up feasibility study has shown that it will cost at least 500,000 to clean up the toxic
waste. During the current year, the entity has been sued for patent infringement and lost the case. A
preliminary judgment of 300,000 was issued and is under appeal. The entity’s attorneys agree that it
is probable that the entity will lose this appeal.

What amount of provision should be accrued as liability?

a. 500,000
b. 800,000
c. 300,000
d. 0
 20

67. In June 2018, Supremo Company filed suit against La Luna Company for the damages for patent
infringement. The damages being sought by Supremo Company was 3,000,000. A court verdict in
August 2018 awarded Supremo 2,600,000. La Luna Company appealed for that amount but,
Supremo’s counsel believed that Supremo will be successful against La Luna Company for an
estimated amount in the range between 2,200,000 and 2,400,000 with 2,300,000 as the most
likely amount.

For the year 2018, what amount would Supremo Company record as income from lawsuit?
a. 3,000,000
b. 2,600,000
c. 2,300,000
d. 0

68. Toyo Company owns a car dealership that it uses for servicing cars under warranty. The entity’s
experience with warranty claims is that 60% of all cars sold in a year have zero defect, 25% of all
cars sold in a year have normal defect, and 15% of all cars sold in a year have significant defect.
The cost of rectifying a “normal defect” in a car is 10,000. The cost of rectifying a “significant defect”
in a car is 30,000. The entity sold 500 cars during the year.

What is the “expected value” of the provision for warranty for the current year?
a. 3,500,000
b. 1,750,000
c. 1,400,000
d. 4,000,000

69. The bonus agreement of Christian Company provides that the general manager shall receive an
annual bonus of 10% of the net income after bonus and tax. The income tax rate is 30%. The
general manager received 280,000 for the current year as bonus.

What is the income before bonus and tax?

a. 4,280,000
b. 4,000,000
c. 2,800,000
d. 3,720,000

70. Olson uses the accrual method to account for the warranty and premium costs for financial
reporting purposes. Olson’s sales for 2010 totaled P54,000,000 from musical instruments and
sound reproduction equipment and P18,000,000 from recorded music and sheet music. The
balances in the accounts related to warranties and premiums on January 1, 2016, were as shown
below:
Inventory of premium CD players P399, 500
Estimated premium claims outstanding 448,000
Estimated liability from warranties 1,360,000

Based on the preceding information, determine the amounts that will be shown on the 2016
financial statements for the following:

1. Warranty Expense
a. P1,640,000
b. P1,080,000
c. P800,000
d. P360,000

2. Estimated liability from warranties

a. P1,920,000
b. P1,080,000
c. P240,000
d. P800,000
 21

3. Inventory of premium CD players

a. P399,500
b. P569,5000
c. P2,210,00
d. P739, 500

71. In 2016, Infinite Incorporated sells 5000 electric fans at an average price of P750 each. To earn
additional income, Infinite Inc. sells separate items such as television for P 1750 each and
refrigerator with a negotiable price of P4670. The selling price includes one-year warranty on parts.
Infinite Inc. expects that 88% of the fans won’t be defective and certainly in good condition.
Warranty repair costs will average P103.75 per unit. In 2016, How much would be the estimated
warranty liability?
a. P181,562.50
b. P62,250
c. P456,500
d. P86,457.50

72. Toddler Care Co. offers three payment plans on its twelve-month contracts. Information on the three
plans and the number of children enrolled in each plan for the September 1, year 2 through August
31, year 3 contract year follows:

Plan Initial payment per child Monthly fees per child Number of children
#1 P500 P -- 15
#2 200 30 12
#3 -- 50 9

Toddler received P9,900 of initial payments on September 1, year 2, and P3,240 of monthly fees
during the period September 1 through December 31, year 2. In its December 31, year 2 balance
sheet, what amount should Toddler report as deferred revenues?
a. P3,300
b. P4,380
c. P6,600
d. P9,900

73. Rolly Company after having experienced financial difficulties in 2018, negotiated with a major
creditor and arrived at an agreement to restructure note payable on December 31, 2018. The
creditor was owed principal of 5,350,000 and interest of 750,000 but agreed to accept machineries
worth 1,260,000 and note receivable from Rolly company’s customer with a carrying amount
2,123,000. The equipment had an original cost of 1,500,000 and accumulated depreciation of
400,000.

What amount should be recognized as gain from debt extinguishment on December 31, 2018?
a. 1,087,700
b. 1,877,000
c. 2,877,000
d. 2,087,000

74. Huhubels Company had an overdue 7% note payable to Power Bank at 1,300,000 and accrued
interest of 91,000.

As a result of restructuring agreement on January 1, 2014, Power Bank agreed to the following
provisions:
The principal obligation is reduced to 1,000,000.
The accrued interest of 91,000 is forgiven.
The date of maturity is extended to December 31, 2016.
Annual interest of 6% is to be paid for 3 years every December 31.
 22

The present value of 1 at 7% for 3 periods is 0.816 and the present value of an ordinary annuity of 1
at 7% for 3 periods is 2.62.

What is the interest expense to be recognized for 2014?

a. 68,124
b. 58,380
c. 60,000
d. 70,000

75. Joules Company is experiencing financial difficulty and is negotiating debt restructuring with its
creditor to relieve its financial stress. Joules Company has a 1,300,000 note payable to Krypton
Bank. The bank accepted an equity interest in Joules Company in the form 100,000 ordinary shares
quoted at 10 per share. The par value of each is 8.50.
The fair value of the note payable on the date of restructuring is 1,100,000.

What amount should be recognized as share premium from the issuance of the shares?
a. 200,000
b. 150,000
c.100,000
d. 50,000

76. Hiro Corp. issues 1,000, 5 par value ordinary shares and 1,000 20 par value preference shares for
a lump sum of 60,000. At the issue date, the ordinary shares were selling for 36 and the preference
shares were selling for 28. The Share Premium—Ordinary account will be credited for
a. 31,000
b. 36,000
c. 26,250
d. 28,750

77. Sosa Co.'s equity at January 1, 2018 is as follows:

Share capital—ordinary, 10 par value; authorized 300,000 shares;
Outstanding 225,000 shares 2,250,000
Share premium—ordinary 900,000
Retained earnings 2,190,000
Total 5,340,000
During 2018, Sosa had the following share transactions:
Acquired 6,000 shares of its shares for 270,000.
Sold 3,600 treasury shares at 50 a share.
Sold the remaining treasury shares at 41 per share.
No other share transactions occurred during 2018. Assuming Sosa uses the cost method to record
treasury share transactions, the total amount of all share premium accounts at December 31, 2018
is
a. 891,600.
b. 870,000.
c. 908,400.
d. 927,600.

78. Trisha Co. issues 10,000 shares of 10 par value convertible preference shares for 12 cash per
share. Each share is convertible into 4 ordinary shares. On this date the 1 par value ordinary shares
are selling for 3 per share. Approximately 2 years later, Trisha’s shareholders convert their
preference shares into ordinary shares. On the date of conversion the preference shares are selling
for 16 and the ordinary shares are selling for 5 per share. The journal entry on the date of
conversion will include which of the following?
a. Credit Share Capital—Preference 20,000.
b. Credit Share Premium—Ordinary 80,000.
c. Credit Share Capital—Ordinary 100,000.
 23

d. Credit Share Premium—Ordinary 160,000.

79. Trisha Corporation has outstanding 10,000 shares of 10 par value ordinary shares and retained
earnings of 500,000. If Trisha declares a 2-for-1 share split when the fair value of the shares is 85
per share, the entry includes:
a. A debit to Retained Earnings for 10,000.
b. A credit to Share Premium—Ordinary for 75,000.
c. A debit to cash for 85,000.
d. No entry is required for a share split.

80. Tris Company reported the following shareholders' equity at the current year end:

Share Capital, par 25, 150,000

authorized shares 55,000 shares issued
of which 5,000 shares are in treasury 1,375,000
Retained earnings 2,000,000
Treasury shares, at cost 150,000

A 95% share dividend was declared and all the treasury shares were issued as a share dividend
and the balance from the unissued shares. The share has a market value of 40.

Q1) How many shares is outstanding?

a. 40,000
b. 50,000
c. 60,000
d. 70,000

Q2) What should be reported as share dividend?

a. 17,600
b.25,400
c. 36,100
d. 47,500

Q3) What amount to be charged to retained earnings is?

a. 1,250,000
b. 1,800,000
c. 1,275,000*
d. 1,212,500

81. On July 1, year 1, Cove Corp., a closely held corporation, issued 6% bonds with a maturity value of
60,000, together with 1,000 shares of its 5 par value common stock, for a combined cash amount of
110,000. The market value of Cove’s stock cannot be ascertained. If the bonds were issued
separately, they would have sold for 40,000 on an 8% yield to maturity basis. What amount should
Cove report for additional paid-in capital on the issuance of the stock?
a. 75,000
b. 65,000
c. 55,000
d. 45,000

82. On December 31, year 1, Pack Corp.’s board of directors canceled 50,000 shares of 2.50 par value
common stock held in treasury at an average cost of 13 per share. Before recording the
cancellation of the treasury stock, Pack had the following balances in its stockholders’ equity
accounts:
Common stock 540,000 Additional paid-in capital 750,000 Retained earnings 900,000 Treasury
stock, at cost 650,000.

In its balance sheet at December 31, year 1, Pack should report a common stock balance of
a. 0
b. 250,000
c. 415,000
d. 540,000
 24

83. On December 1, year 1, Rolly Corp. declared a property dividend of marketable securities to be
distributed on December 31, year 1, to stockholders of record on December 15, year 1. On
December 1, year 1, the trading securities had a carrying amount of 60,000 and a fair value of
78,000. What is the effect of this property dividend on Rolly’s year 1 retained earnings, after all
nominal accounts are closed?
a. 0.
b. 18,000 increase.
c. 60,000 decrease.
d. 78,000 decrease.

84. On January 1, year 1, Doro Corp. granted an employee an option to purchase 3,000 shares of
Doro’s 5 par value common stock at 20 per share. The option became exercisable on December
31, year 2, after the employee completed two years of service. The option was exercised on
January 10, year 3. The market prices of Doro’s stock and stock options were as follows:
Date Market price of stock Market price of similar stock option January 1, year 1 30; 8; December
31, year 2 50; 9; January 10, year 3 45; 11.

For year 1, Doro should recognize compensation expense of

a. 45,000
b. 30,000
c. 15,000
d. 12,000

85. On January 2, year 1, Kine Co. granted Morgan, its president, compensatory stock options to buy
1,000 shares of Kine’s 10 par common stock. The options call for a price of 20 per share and are
exercisable for three years following the grant date. Morgan exercised the options on December 31,
year 1. The market price of the stock was 50 on January 2, year 1, and 70 on December 31, year 1.
The fair value of a similar stock option with the same terms was 28 on the grant date.

Q1. What is compensation expense for year 1 for the share-based payments?
a. 9,333
b. 10,000
c. 20,000
d. 28,000

Q2. By what net amount should stockholders’ equity increase as a result of the grant and exercise
of the options?
a. 20,000
b. 30,000
c. 50,000
d. 70,000

86. Cramer Company granted 202 share share appreciation rights to each of the 1,200 employees in
January 2017. The entity estimated that 90% of the awards will vest on December 31, 2019. The
fair value of each right on December 31, 2017 is 22.

What is the accrued liability on December 31, 2017?

a. 4,799,520
b. 4,000,000
c. 1,200,000
d. 1, 599,840

87. The shareholder’s equity of Tacucuy co. on January 1,2017 is as follows:

Ordinary shares, P20 par, 60,000 shares authorized,

30,000 shares issued and outstanding 600,000
Share premium 100,000
Accumulated profits 325,000
 25

On June 1, 2017 the company declared and issued a 15% share dividend. The market value of the
share on June 1 is P26 per share. No additional shares of ordinary were issued between January 1
and June 1, 2017.

How much is the total contributed capital after the share dividend?
a. 780,000
b. 790,000
c. 817,000
d. 924,000

88.
Jeffrey Company’s stockholders’ equity is comprised of 100,000 shares of P20 par ordinary share,
P4,000,000 of Share premium on ordinary share, and retained earnings of P6,000,000. If a 40%
stock dividend is declared when the stock is selling for P50 per share. What amount should be
transferred from the retained earnings account to Share premium account?
a. 2,000,000
b. 1,200,000
c. 800,000
d. 0

89.
Lani Company has sustained heavy losses over a period of time and conditions warrant that Lani undergo
a quasi-reorganization at December 31, 2017. Selected balance sheet items prior to the quasi-
reorganization are as follows:
 Inventory was recorded in the accounting records at December 31, 2017, at its
market value of P6,000,000. Cost was P6,500,000.
 Property, plant and equipment were recorded in the accounting records at
December 31, 2017, at P12,000,000, net of accumulated depreciation. The
sound value was P8,000,000.
 Stockholders’ equity on December 31, 2017 was as follows:
Ordinary share, par value P10 per share;
Authorized, issued and outstanding, 700,000 shares 7,000,000
Share premium 1,600,000
Retained earnings (deficit) ( 900,000)
7,700,000
 Under the terms of the quasi-reorganization, the par value of the ordinary share
is to be reduced from P10 per share to P5 per share.
Immediately after the quasi-reorganization has been accomplished, the total stockholders’
equity should be
a. 3,300,000
b. 3,500,000
c. 3,700,000
d. 4,200,000

90. Tris Company reported taxable income of P8,000,000 in the income tax return for the first year of
operations.

Temporary differences between financial income and taxable income for the first year are as
follows:
Tax depreciation in excess of book depreciation 800,000
Accrual for product liability claim in excess of actual claim 1,200,000
Reported installment sales income in excess of taxable 2,600,000
Installment sales income
Income tax rate 30%

1. What is the deferred tax asset at year-end?

a. 240,000
b. 360,000
c. 780,000
d. 0

2. What is the deferred tax liability at year-end?

 26

a. 1,020,000
b. 780,000
c. 240,000
d. 0

3. What is the deferred tax expense for the first year?

a. 1,380,000
b. 1,020,000
c. 660,000
d. 360,000

4. What is the total tax expense for the first year?

a. 3,060,000
b. 2,400,000
c. 2,580,000
d. 2,220,000

91. On January 1, 2017, Raquel Company reported the fair value of plan assets at P 7,700,000 and the
projected benefit obligation at P9,800,000. The entity revealed the following for the current year :
Current service cost 3,660,000
Past service cost 700,000
Discount rate 13%
Actual return on plan assets 800,000
Contribution to the plan 1,900,000
Benefits paid to retirees 950,000

1. What is the employee benefit expense?

a. 1,840,000
b. 1,540,000
c. 2,510,000
d. 1,750,000

2. What is the remeasurement gain or loss on plan assets?

a. 170,000 gain
b. 170,000 loss
c. 670,000 gain
d. 670,000 loss

3. What is the fair value of plan assets on December 31?

a. 8,070,000
b. 7,400,000
c. 7,900,000
d. 8,200,000

4. What is the projected benefit obligation on December 31?

a. 8,250,000
b. 9,050,000
c. 9,010,000
d. 9,310,000

92. Brad Company provided the following information for the current year :
Current service cost 520,000
Actual return 810,000
Interest expense 590,000
Interest income 350,000
Loss on settlement 240,000
Past service cost 360,000
Contribution 1,500,000

1. What is the employee benefit expense?

a. 1,710,000
b. 1,470,000
 27

c. 1,350,000
d. 1,360,000

2. What is the remeasurement gain or loss on plan assets?

a. 460,000 loss
b. 460,000 gain
c. 220,000 loss
d. 220,000 gain

3. What is the total defined benefit cost?

a. Q,820,000
b. 900,000
c. 740,000
d. 960,000

4. What is the prepaid or accrued benefit cost for the year?

a. 600,000
b. (600,000)
c. 140,000
d. (140,000)

93. Rose Co. leased machinery on January 1, 2018 for a 15-year period. The useful life of the
machinery is 25 years. Equal payments of P500,000 are due every January 1 starting January 1,
2018. The present value on January 1, 2018 of the lease payments over the lease term, discounted
at 12% is P1,457,000. The incremental borrowing rate was 15%. The lease was accounted as
finance lease because of a nominal bargain purchase option.

1. What is the interest expense for 2018?

a. 0
b. 957,000
c. 500,000
d. 114,840

2. What is the depreciation expense for 2018?

a. 20,000
b. 38,280
c. 58,280
d. 97,133

94. On January 1, 2018, Mess Company entered to a ten-year non-cancelable lease agreement to
lease a building from Keep Company. The agreement required equal annual payments at the end of
each year. The fair value of the building at the beginning of the lease is P3,949,500, while the
carrying amount to Keep Company is P3,458,000. The building has estimated useful life of 10
years. The title of the building will be transferred to Mess at the end of the lease. The incremental
borrowing rate of Mess Company is 12%. Keep Company set the annual rental to insure 10% rate
of return. The implicit rate of the lessor is known by the lessee. The annual lease payment includes
P35,000 executory costs.
1. What is the minimum annual lease payment?
a. 642,718
b. 500,000
c. 562,734
d. 480,000

2. What Is the total annual lease payment?

a. 515,000
b. 535,000
c. 597,734
d. 677,718

95. On December 1, 2017, Angel Corporation leased office space for 10 years at a monthly rental of
90,000. On that date Perez paid the landlord the following amounts:
Rent deposit 90,000
 28

First month's rent 90,000

Last month's rent 90,000
Installation of new walls and offices 495,000
765,000
The entire amount of 765,000 was charged to rent expense in 2017. What amount should Angel
have charged to expense for the year ended December 31, 2017?
a. 90,000
b. 94,125
c. 184,125

96. Angel, Inc. manufactures machinery used in the mining industry. On January 2, 2017 it leased
equipment with a cost of 200,000 to Silver Point Co. The 5-year lease calls for a 10% down
payment and equal annual payments of 73,259 at the end of each year. The equipment has an
expected useful life of 5 years. Silver Point’s incremental borrowing rate is 10%, and it depreciates
similar equipment using the double-declining balance method. The selling price of the equipment is
325,000, and the rate implicit in the lease is 8%, which is known to Silver Point Co. What is the
book value of the leased asset at December 31, 2017, and what is the balance in the Lease Liability
account?

Book Value of Balance in Lease

Leased Asset Liability________
a. 325,000 219,243
b. 260,000 248,491
c. 195,000 242,643
d. 208,000 248,491

97. Hull Co. leased equipment to Riggs Company on May 1, 2017. The lease expires on May 1, 2018.
Riggs could have bought the equipment from Hull for 3,200,000 instead of leasing it. Hull's
accounting records showed a book value for the equipment on May 1, 2017, of 2,800,000. Hull's
depreciation on the equipment in 2017 was 360,000. During 2017, Riggs paid 720,000 in rentals to
Hull for the 8-month period. Hull incurred maintenance and other related costs under the terms of
the lease of 64,000 in 2017. After the lease with Riggs expires, Hull will lease the equipment to
another company for two years.

1. Ignoring income taxes, the amount of expense incurred by Riggs from this lease for the year
ended December 31, 2017, should be
a. 296,000.
b. 360,000.
c. 656,000.
d. 720,000.
2. The income before income taxes derived by Hull from this lease for the year ended
December 31, 2017, should be
a. 296,000.
b. 360,000.
c. 656,000.
d. 720,000.

98.
The following are two (2) unrelated situations. Answer the questions at the end of each situation.
The December 31 year-end financial statements of SAMOA COMPANY contained the following
errors:
Dec. 31 2016 Dec. 31 2017
Ending inventory P48,000 understated P40,500 overstated
Depreciation expense P11,500 understated ---

An insurance premium of P330,000 was prepaid in 2016 covering the years 2016, 2017, and
2018. The entire amount was charged to expense in 2016. In addition, on December 31, 2017, a
fully depreciated machinery was sold for P75,000 cash, but the sale was not recorded until
2018. There were no other errors during 2016 and 2017, and no corrections have been made for
any of the errors. Ignore income tax effects.
 29

1. What is the total effect of the errors on Samoa's 2017 net income?
a. P123,500 overstatement
b. P27,500 overstatement
c. P192,500 understatement
d. PI77,500 understatement

2. What is the total effect of the errors on the amount of Samoa's working capital at December
31, 2017?
a. P75,500 overstatement
b. P40,500 overstatement
c. P225,500 understatement
d. P144,500 understatement

3. What is the total effect of the errors on the balance of Samoa's retained earnings at December
31, 2017?
a. P156,000 understatement
b. P87,000 overstatement
c. P133,000 understatement
d. P85,000 understatement

99. During the course of an audit of the financial statements of Julie Company for the year ended
December 31, 2017, the following data are discovered:

 Inventory on January 1, 2017 had been overstated by 300,000.

 Inventory on December 31, 2017 was understated by 500,000.
 An insurance policy covering three years had been purchased on January 1, 2016,
for 150,000. The entire amount was charged as an expense in 2016.

During 2017, the entity received a 100,000 cash advance from a customer for merchandise to be
manufactured and shipped during 2018. The amount had been credited to sales revenue. The
gross profit on sales is 50%. Net income per book was 2,000,000. What is the proper net income for
the current year?
a. 2,650,000
b. 2,350,000
c. 1.650,000
d. 2.050,000

100. Angel Co. provided the following information on selected transactions during 2017:
Purchase of land by issuing bonds 250,000
Proceeds from issuing bonds 500,000
Purchases of inventory 950,000
Purchases of treasury shares 150,000
Loans made to affiliated corporations 350,000
Dividends paid to preference shareholders 100,000
Proceeds from issuing preference share 400,000
Proceeds from sale of equipment 50,000

1. The net cash provided (used) by investing activities during 2017 is

a. 50,000.
b. (300,000).
c. (550,000).
d. (1,250,000).

2. The net cash provided by financing activities during 2017 is

a. 550,000.
b. 650,000.
c. 800,000.
d. 900,000.

101. Selected information from Dinkel Company's 2017 accounting records is as follows:
 30

Proceeds from issuance of ordinary shares 400,000

Proceeds from issuance of bonds 1,200,000
Cash dividends on ordinary shares paid 160,000
Cash dividends on preference shares paid 60,000
Purchase of treasury shares 120,000
Sale of ordinary shares to officers and employees not included above 100,000

Dinkel's statement of cash flows for the year ended December 31, 2017, would show net cash
provided (used) by financing activities of
a. 60,000.
b. (220,000).
c. 160,000.
d. 1,360,000.

102. Kensington Industries reported net income of 50,000 in 2017. Depreciation expense was 19,000.
The following working capital accounts changed:
Accounting receivable 11,000 increase
Non-trading equity investment 16,000 increase
Inventory 7,300 increase
Non-trade note payable 15,000 increase
Accounts payable 12,200 increase
If Kensington uses IFRS reporting and the indirect method, what amount is their adjustments to
reconcile net income to net cash provided by or (used in) operating activities?
a. 3,100
b. 49.500
c. 12,900
d. 10,500

103. The balance in retained earnings at December 31, 2016 was 720,000 and at December 31, 2017
was 582,000. Net income for 2017 was 500,000. A share dividend was declared and distributed
which increased share capital 200,000 and share premium 110,000. A cash dividend was declared
and paid.

1. The amount of the cash dividend was

a. 248,000.
b. 328,000.
c. 442,000.
d. 638,000.

2. The share dividend should be reported on the statement of cash flows (indirect method) as
a. an outflow from financing activities of 200,000.
b. an outflow from financing activities of 310,000.
c. an outflow from investing activities of 310,000.
d. Share dividends are not shown on a statement of cash flows.

104. The following information was taken from the 2017 financial statements of Dunlop Corporation:
Bonds payable, January 1, 2017 500,000
Bonds payable, December 31, 2017 2,000,000
During 2017
 A 450,000 payment was made to retire bonds payable with a face amount of 500,000.
 Bonds payable with a face amount of 200,000 were issued in exchange for equipment.
In its statement of cash flows for the year ended December 31, 2017, what amount should Dunlop
report as proceeds from issuance of bonds payable?
a. 1,500,000
b. 1,750,000
c. 1,800,000
d. 2,200,000
 31

105. During 2017, Orton Company earned net income of 384,000 which included depreciation expense
of 78,000. In addition, the company experienced the following changes in the account balances
listed below:
Increases Decreases
Accounts payable 45,000 Accounts receivable 12,000
Inventory 36,000 Accrued liabilities 24,000
Prepaid insurance 33,000
Based upon this information what amount will be shown for net cash provided by operating activities
for 2017?
a. 492,000
b. 465,000
c. 285,000
d. 267,000

106. Donnegan Company reported operating expenses of 285,000 for 2017. The following data were
extracted from the company’s financial records:
12/31/16 12/31/17
Prepaid Expenses 60,000 69,000
Accrued Expenses 210,000 255,000
On a statement of cash flows for 2017, using the direct method, cash payments for operating
expenses should be:
a. 339,000.
b. 321,000.
c. 249,000.
d. 231,000.

107. Gold Dryads company provided the following trial balance on December 31,2016:
Cash Overdraft 100,000
Accounts Receivable 350,000
Inventory 580,000
Prepaid Expenses 120,000
Land Classified as held sale 1,000,000
Property,Plant and Equipment, net 950,000
Accounts Payable and Accrued Expenses 320,000
Ordinary Share Capital 250,000
Share Premium 1,500,000
Retained Earnings 830,000

3,000,000 3,000,000

Checks amounting to P300,000 were written to vendors and recorded on December 29, 2016
resulting in a cash overdraft of P100,000. The check were mailed on January 15,2017. Land
classified as held for sale was sold for cash on January 31,2017. The entity issued and financial
statements on March 31,2017.

On December 31,2016, what total amount should be reported as current assets?

a. 2,250,000
b. 2,050,000
c. 1,950,000
d. 1,250,000

108. On June 30,2017, Milo Company incurred a P1,000,000 net loss from disposal of a business
segment, Also. On June 30,2017, the entity paid P400,000 for property taxes assessed for the
calendar year 2017. What amount should be included in the determination of the net income or loss
for the six month interim period ended June 30,2017?

a. 1,400,000
b. 1,200,000
c. 900,000
d. 700,000
 32

109. Darwin company reported cash balance of 8,000,000 on January 1, 2017. During 2017, the entity
disclosed the following changes in certain amount :

Accounts receivable 2,000,000 increase

Inventory 1,500,000 decrease
Accounts payable 3,000,000 decrease

Total sales and cost of goods sold were 30,000,000 and 20,000,000 respectively . All sales and
purchases were made on credit . Various expenses of 5,000,000 were paid in cash. There were no
other pertinent transaction.
What is the cash balance on December 31, 2017?
a. 13,000,000
b. 16,500,000
c. 10,500,000
d. 9,500,000

110.
At December 31, 2016 Trisha Company had 200,000 shares of common stock and 10,000 shares
of 5%, P100 par value cumulative preferred stock outstanding. No dividends were declared on
either the preferred or common stock in 2016 or 2017. On February 10, 2018, prior to the issuance
of its financial statements for the year ended December 31, 2017, Pine declared a 100% stock split
on its common stock. Net income for 2017 was P900,000.

In its 2017 financial statements, Pine’s 2017 earnings per common share should be
a. P4.25
b. P4.00
c. P2.13
d. P1.25

111.
Trisha Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock,
and P1,000,000 of 7.5% convertible bonds outstanding during 2017. The preferred stock is
convertible into 40,000 shares of common stock. During 2017, Trisha paid dividends of P.90 per
share on the common stock and P3 per share on the preferred stock. Each P1,000 bond is
convertible into 45 shares of common stock. The net income for 2017 was P600,000 and the
income tax rate was 30%.

Basic earnings per share for 2017 is

a. P2.20
b. P2.42
c. P2.51
d. P2.70

112. Helen Inc., had 620,000 shares of common stock issued and outstanding at December 31, 2016.
On July 1, 2017, an additional 50,000 shares of common stock were issued for cash. Helen also
had unexercised stock options to purchase 32,000 shares of common stock at P15 per share
outstanding at the beginning and end of 2017. The average market price of Helen's common stock
was P20 during 2017.

What is the number of shares that should be used in computing diluted earnings per share for the
year ended December 31, 2017?
a. 578,000
b. 589,000
c. 653,000
d. 658,000

113. Under the accrual basis, Lucena Company reported rental income for the current year at 600,000.
The entity provided the following additional information regarding rental income.

Unearned rental income - January 1 50,000

 33

Unearned rental income - December 31 75,000

Accrued rental income - January 1 30,000
Accrued rental income - December 31 40,000

What total amount of cash was received from rental in the current year?
a. 585,000
b. 615,000
c. 625,000
d. 655,000

114. During the current year, Samar Company reported total operating expenses of 3,200,000 consisting
of 1,000,000 depreciation, 700,000 insurance and 1,500,000 salaries. The prepaid insurance is
150,000 on January 1 and 200,000 on December 31. The accrued salaries payable totaled of
120,000 on January 1 and 100,000 on December 31.

What total amount was paid for operating expenses?

a. 3,270,000
b. 2,270,000
c. 2,130,000
d. 2,230,000

115. Ana & Associates maintains its records on the cash basis. You have been engaged to convert its
cash basis income statement to the accrual basis. The cash basis income statement, along with
additional information, follows:

Ana & Associates

Income Statement (Cash Basis)
For the Year Ended December 31, 2017

Cash receipts from customers P2,800,000

Cash payments:
Wages P1,200,000
Taxes 520,000
Insurance 320,000
Interest 200,000 2,240,000
Net profit P 560,000

Additional information:

12/31/2016 12/31/2017
Accounts receivable P240,000 P400,000
Wages payable 160,000 120,000
Taxes payable 152,000 112,000
Prepaid insurance 32,000 64,000
Accumulated depreciation 600,000 760,000
Interest payable 72,000 24,000

No plant assets were sold during 2017.

QUESTION:

How much is the profit before income tax under the accrual basis of accounting?
a. P880,000 c. P720,000
b. P816,000 d. P656,000
 34

PREWEEK P1 2017
Answer Section

PROBLEM

1. ANS:
C

PTS: 1

2. ANS:
B

PTS: 1

3. ANS:

A,A

1Answer is a

Solution:

Bills and coins 2,450

Petty Vouchers dated (September 2013) 1,250

Petty cash balance 3,700

Answer is a

Solution:

Bills and coins 2,450

Petty cash vouchers- August 3,800

Petty cash vouchers- September 1,250

IOU 1,800

Post dated checks drawn by an employee 1,100

Total 10,400

Petty cash fund per ledger 10,000

Cash overage 400

PTS: 1

4. ANS:
Solutions:
Per bank Per books
Unadjusted balances 1,555,000
1,890,162
Credit memo for collections by bank
10,000
 35

Outstanding checks (106,229)

Undeposited receipts 379,441
Balances before shortage P1,828,212
1,900,162
17. Amount stolen
(71,950)
18. Actual cash existing P1,828,212
P1,828,212

PTS: 1

5. ANS:
Solution: Answer D

Accounts Receivable-unassigned P 2,190, 000

Accounts Receivable-assigned 1, 900, 000
Trade installments receivable(775, 000- 67,000) 708, 000
Accounts Receivable from officers 250, 000
Accounts on which postdated checks are held 345, 000
Total trade accounts receivable P 5, 393, 000

PTS: 1

6. ANS:
Supporting Computations:

• Question 1. a
Credit Sales. Writeoffs. Recoveries
2015. 22,200,000. 520,000. 44,000
2016. 24,500,000. 590,000. 74,000
2017. 29,300,000. 600,000. 72,000
76,000,000. 1,710,000. 190,000

Rate = 1,710,000 - 190,000

76,000,000.
= 2%

• Question 2 b
Doubtful Accounts Expense for 2018.
( 2% x 30,000,000) 600,000

• Question 3. a
Allowance for doubtful accounts - 1/1/2018. 156,000
Doubtful account expense for 2018. 600,000
Recoveries for 2018. 84,000
Total. 840,000
Writeoffs in 2018. (620,000)
Allowance for doubtful acounts - 12/31/2018. 220,000

PTS: 1

7. ANS:
B,A,C

PTS: 1

8. ANS:
Solution: Answer A

Sale price ? 7,000,000

 36

Carrying amount of Accounts receivable

(?7,900,000 - ?500,000) 7,400,000
Loss on factoring ( ? 400,000 )

PTS: 1

9. ANS:
1.Solution: Answer D

Accounts Receivable ? 5,000,000

Factor’s holdback (?5,000,000 x 8%) 400,000
Factoring fee (?5,000,000 x 5%) 250,000
Interest (?5,000,000 x 20% x 60/365) 164,384
Cash initially received from factoring ? 5,814,384

2.Solution: Answer C

Factoring fee ? 250,000

Interest 164,384
Cost of factoring ? 414,384

PTS: 1

10. ANS:
Solution:

Question 1 and 2: Answer C

Principal P 5,500,000
Interest (5,500,000 x 10% x 60/360) 91,666.67
Maturity value P5, 591, 666.67
Discount (5, 591, 666.67x 13% x 90/360) 181, 729
Net proceeds P5,409, 937.50

Principal P 5,500,000
Accrued interest receivable (5,500,000 x 10% x 30/360) 45, 833.33
Carrying amount of note receivable P 5,545, 833.33

Net proceeds P 5,409, 937.50

Carrying amount of note receivable 5,545, 833.33
Interest expense P ( 135, 895.7)

PTS: 1

11. ANS:
Answer: (i) C (ii) D

Solution:
(i)

Loan receivable 1,500,000

Direct origination cost 40,000

Total 1,540,000
Origination fee received from borrower (1,500,000 x 4%) ( 60,000)
Carrying amount 1,480,000
(ii)
Loan payable 1,500,000
Origination fee charged by the bank ( 60,000)

Carrying amount 1,440,000

 37

PTS: 1

12. ANS:
1.Solution: Answer D

Note receivable 8,000,000

Direct organization cost 50,000
Organization fee received (1,250,000)
Carrying amount- January 1, 2018 6,800,000

2.Solution: Answer C

Interest income for 2018 ( 6,800,000 x 15%) 1,020,000

3.Solution: Answer A

C.A. of Loan receivable 6,800,000

Interest income 1,020,000
Interest received ( 800,000 )
Amortization of Interest 220,000
Carrying amount – 12/31/18 7,020,000

PTS: 1

13. ANS:
Answer: C

Solution:

Loan receivable 5,000,000

Accrued interest receivable (9% x 5,000,000) 450,000
Carrying amount – December 31, 2015 5,450,000
Present value of cash inflows (5,450,000 x .772) 4,207,400
Impairment loss 1,242,600

PTS: 1

14. ANS:
1.Solution: Answer A
PV of note receivable (?500,000 x 3.99) ? 1,995,000

2.Solution: Answer C
Interest income for 2016 (?1,995,000 x 8%) ? 159,000

PTS: 1

15. ANS:
Solution: Answer B
Interest Income 350, 000
Loss from change in fair value (5, 000, 000- 4, 705, 000) (295, 000)
Total gain 55, 000

PTS: 1

16. ANS:
SOLUTION
D.
Cost 4,766,000
Discount Amortization 71,920
Annual Installment (1,000,000)
Carrying Amount – December 31, 2016 3,837,920
 38

PTS: 1

17. ANS:
Answer: C

Fair Value 5,500,000

Acquisition cost 4,700,000
Gain 800,000

PTS: 1

18. ANS:
Solution.:A
F.V. 12/31/17 – Original Cost
4,500,000 – 5,000,000 = 500,000 loss A.

PTS: 1

19. ANS:
D.
0 is the answer because it is nontrading the gain or loss of a nontrading securities should be
reported on the other comprehensive income and not on the income statement.

PTS: 1

20. ANS:

Computation:

Sales 1,000,000

(660,000)

Gain 340,000

Carrying amount 6,600,000

Number of ordinary shares acquired ÷ 40,000

165

Number of shares sold 4,000

× 165

660,000

PTS: 1

21. ANS:
Solution: A
Gain on Shares of Security B Sold 100,000
Loss on Market Value of Shares of Security A 12/31/17 (600,000)
 39

Loss on Trading Securities 500,000 A.

PTS: 1

22. ANS:

SOLUTION
1. B.

2. C.

PTS: 1

23. ANS:
SOLUTION:A
3,000,000
x 10%
300,000

PTS: 1

24. ANS:
SOLUTION:A
2,000
x 60
120,000

PTS: 1

25. ANS:
SolutionC
(4,000,000 x 30%) = 1,200,000
(2,000,000 x 10%) = 200,000
C. 1,400,000

PTS: 1

26. ANS:
The answer is letter A.

6,000,000 x 20% = 1,200,000

PTS: 1

27. ANS:
SolutionC
25,000 x 90 = 2,250,000
50,000 x 20 = 1,000,000
C. 3,250,000

PTS: 1

28. ANS:
(c) The requirement is to calculate the amount that should be presented for inventory. Answer (c) is
correct because the lower of cost or net realizable value method requires net realizable value to be
calculated as the estimated selling price less estimated costs of completion and estimated costs to
sell. Therefore, the NRV is 850 (900 – 50). The lower of cost or net realizable value is determined
by comparing the cost of 1,000 to the NRV of 850, and using the lower amount. Inventory should be
reported at 850.

PTS: 1
 40

29. ANS:
A answer:
Beginning Inventory 700,000
Add: Purchase 3,600,000
TGAS 4,300,000
Less: CGS (1,350,000)
Estimated Ending Inventory 2,950,000

Sales 4,500,000
CGS 3,150,000 (4,500,000 x 70%)
gross 1,350,000 (4,500,000 x 30%)

PTS: 1

30. ANS:
b LF 3,000 × 15 = ( 45,000 ÷ 80,000) × 50,000 = 28,125
1B 7,000 × 5 = 35,000; 35,000 + 45,000 = 80,000
(1,000 × 15) – ( 28,125 × 1,000/3,000) = 5,625.

PTS: 1

31. ANS:
c 99,000 + 865,600 + 69,000 – 811,000 = 222,600;
( 65,500 + 568,000 + 26,500) ÷ ( 99,000 + 865,600 + 69,000)
= 63.9%;
222,600 × .639 = 142,241.

PTS: 1

32. ANS:
B

PTS: 1

33. ANS:
(c) The requirement is to determine the amount of probable loss from the purchase commitment
that Card should report in its year 2 income statement. When there is a decline in market value
below the contract price at the balance sheet date and the contract is noncancelable, an unrealized
loss should be recorded in the period of decline and reported in the income statement. In this case,
Card has a contract to purchase a minimum of 100,000 units both in year 3 and year 4 at .10 per
unit. The 20,000 loss (200,000 × .10) on these obsolete units should be reduced by the amount
Card believes is realizable from the sale of these units. Therefore, the loss on purchase
commitment is 16,000 [20,000 – (200,000 × .02)]. Additionally, Card Corp. would need to record a
loss of 20,000 (.08 × 250,000) from inventory obsolescence.

PTS: 1

34. ANS:
a 2.5 million – 2.3 million = 200,000.

PTS: 1

35. ANS:
(c) Generally, goods are considered sold when legal title to the goods passes to the buyer. In
certain situations, however, the transfer of title criteria does not reflect the underlying economics of
the situation. In this situation, although transfer of legal title may not have occurred for the 500
segregated desks, the economic substance of the
transaction is that the seller no longer retains the risks of ownership. Therefore, all 5,000 desks
(including the 500 segregated and accepted desks) are considered sold in year 2, and revenue of
550,000 is recognized (5,000 × 110). Note that the amount of cash collected (450,000) does not
affect the amount of revenue recognized in this case.
 41

PTS: 1

36. ANS:
c ( 1,600,000 + 10,000) and ( 85,000 – 23,000 + 10,000) = 72,000.

PTS: 1

37. ANS:
d 1,176,000 + 365,000 – 42,000= 1,499,000.

PTS: 1

38. ANS:
c 365,000 – 42,000 = 323,000.

PTS: 1

39. ANS:
Solution: A
Cost of goods sold p1, 859, 082
Less: Decrease in inventory (P815, 386-p488, 874) 326, 512
Purchases 1, 532, 570
Less: Increase in accts. Payable (P737, 824-p286, 924) 450, 900
Amount paid to supplier in 2013 p1, 081, 670

PTS: 1

40. ANS:
Answer: b

Inventory pre client P441,800

Goods shipped to customer on Dec. 31, 2017 38,000
(presumed in transit), FOB destination
Goods in transit, shipped by a supplier FOB 51,000
shipping point
Correct inventory amount, December 31 P530,800

PTS: 1

41. ANS:
Answer: A
Solution:

Cost of Equipment 3,000,000

Initial delivery and handling cost 400,000
Cost of site preparation 700,000
Consultants used for advice 800,000
Estimated dismantling cost 350,000
Total Cost 5,250,000

PTS: 1

42. ANS:
1.1 Solution Answer B

Allocated cost of land (3,000,000 – 200,000) 2,800,000

Legal fees 20,000

 42

Payment of land mortgage 60,000

Payment of delinquent property taxes 15,000

Grading and drainage 20,000

Total Cost of Land 2,915,000

1.2 Solution Answer A

Cost of razing old apartment building 45,000

Architect fee 250,000

Payment to building contractor 7,000,000

Interest cost 200,000

Premium for insurance during construction 22,000

Total Cost of New Building 7,517,000

1.3 Solution Answer C

Cost of paving driveway and parking lot 70,000

Cost of trees, shrubs, and other landscaping 65,000

Cost of installing light in parking lot 8,000

Total Cost of Land Improvement 143,000

PTS: 1

43. ANS:
3.1 Solution Answer B

Cash paid for Land 3,500,000

Mortgage assumed including interest accured 1,400,000
Commission 500,000
Legal fees, realty taxes and documentation 40,000
Cost of relocating squatters 150,000
Cost of land 5,590,000

3.2 Solution Answer B

Cost of tearing down old building 350,000

Salvage value of old building ( 50,000)
Amount paid to contractor 4,500,000
Building permit fee 40,000
Excavation 45,000
Architect fee 200,000
Cost of Building 5,085,000

3.3 Solution Answer

Invoice cost 2,500,000

 43

Freight 60,000
Custom duties and other charges 140,000
Allowances and hotel accommodation 500,000
Cost of Machine 3,200,000

PTS: 1

44. ANS:
Answer: (i) C (ii) C (iii) D

Solution:
(i)
Cost of equipment (cash price equivalent) P2,470,000
Less: Down payment 400,000
Amount assigned to note payable 2,070,000
Face value of note 3,204,160
Discount on note payable, January 1, 2015 1,134,160
(ii)
Acquisition cost of equipment
(cash price equivalent) P2,470,000

(iii) Interest expense for 2016:

Note payable, Jan. 1, 2015 P2,070,000
Less: Payment made on Dec. 31, 2015
( 400,520 - 207,000) 193,520

Carrying value of note, Dec. 31, 2015 1,876,480

Interest rate x 10%
Interest expense) for 2016 P 187,648

PTS: 1

45. ANS:

C 750,000 (cash price)

B 750,000 – 500,000 = 250,000 Trade in value; 700,000 – 400,000 CV; Loss
50,000

PTS: 1

46. ANS:

1 172,800 – 135,000 = 37,800; 240,000 – 83,000 = 157,000; 172,800 –

D 157,000 = 15,800

2A 145,000 – 135,000 = 10,000 G; 157,000 – 150,000 = 7,000 L

PTS: 1

47. ANS:
Solution Answer d

Grant income (4/30 x 60,000,000) 8,000,000

 44

PTS: 1

48. ANS:
Supporting Solutions: b, d
1) Accumulated depreciation (4% x 5 years expired) 20%
Life of Asset. (5 years/20%) 25 years
Expired. ( 5 )
Remaining Life. 20 years

Depreciation for 2015 (9,300,000/20) 465,000

2) Fair Value. 9,300,000

Carrying Amount (7,500,000 x 80%) 6,000,000
Revaluation Surplus - January 1, 2015. 3,300,000
Realization in 2015 (3,300,000/20) ( 165,000)
Revaluation Surplus - December 31,2015 3,135,000

PTS: 1

49. ANS:
Solution:C
Replacemen
t
Cost Cost Appreciatio
Machinery P120,000 P150,000 P30,000
Accum. Dep. (3/10) 36,000 45,000 9,000
Net (7/10) P84,000 P105,000 P21,000

PTS: 1

50. ANS:
Answer: D

Solution:

Actual interest (6,450,000 x 7.5%) 483,750

Interest income (300,000)
Capitalizable interest 183,750

PTS: 1

51. ANS:

B 400,000 + (500,000 x 9/12) + (480,000 x 5/12) + (180,000 x 1/12) =

990,000
A 500,000 x 18% = 90,000
B 1,560,000 + 90,000 + (990,000 – 500,000 = 490,000 x 20%) = 1,748,000
A 1,560,000/2 = 780,000; (700,000 x 16%) + (80,000 x 18%) = 126,400

PTS: 1

52. ANS:

C 400,000-36,000/5x.5 = 36,400;(400,000-36,400) - 10,000/2.5 = 141,440

 45

PTS: 1

53. ANS:
Answer: (i) A (ii) B (iii) C

Solution:
(i)
Carrying amount of CGU 8,000,000
Fair value less cost to sell 7,500,000
Impairment loss 500,000

Impairment is charged to goodwill up to the extent of it balance.

Goodwill (1,000,000-500,000) 500,000

(ii)
Impairment loss (8,000,000-6,000,000) 2,000,000
Charged to goodwill 1,000,000
Allocable to other assets 1,000,000
Allocated to machine (1,000,000 x 4/7) 571, 428.57

(iii)
Goodwill 0
Machine [4,000,000-(1,000,000 x 4/7)] 3,428,571.43;
Equipment [3,000,000-(1,000,000 x 3/7)] 2,571,428.57

PTS: 1

54. ANS:
D
Cash 400,000
Shares – 10,000 shares @ P20 200,000
Notes Payable – P500,000*0.7117 355,850
Carrying Amount of Note (7/15) 955,850
Amortization – (955,850/10)/2 47,792.50
Carrying Amount (12/15) 908,057.5

PTS: 1

55. ANS:
B
Acquisition Cost
Cash 200,000
Installment – 120,000*2.9137 349,644
Carrying Amount of Franchise (1/14) 549,644
Amortization – 594,644/10 -54964
Carrying Amount (12/14) 494,680

PTS: 1
 46

56. ANS:
B

Computation:

Cost of improvement 540,000 Cost of improvement 540,000

Useful life × 15 years Depreciation (36,000)

Depreciation 36,000 Carrying amount 504,000

PTS: 1

57. ANS:
Answer: D. 390,000
Acquisition Cost 450,000
Amortization ( 90,000)
Book Value 360,000

Sales Price 750,000

Less: Remaining Cost (360,000)
Gain from Sale 390,000

PTS: 1

58. ANS:
B

Computation:

Carrying Amount 12/31/16 2,700,000

Less: Present value of cash flows (2,133,000)

Impairment loss 567,000

Computation of carrying amount:

Acquisition Cost 3,000,000

Depreciation (300,000)

Carrying Amount 2,700,000

Present value of cash flows computation:

Expected generate cash flows 300,000

PV of ordinary annuity of 1 at 5% × 7.11

Present value of cash flows 2,133,000

PTS: 1

59. ANS:
B,A
 47

Solution:

Q1)
Fair Value Model:
Fair Value-12/31/17 6,100,000
Fair Value-12/31/16 6,000,000
Fair from change in fair value 100,000*

Q2)
Cost Model:
Depreciation 2017 (7,250,00/50) 145,000*

PTS: 1

60. ANS:
The answer is letter A.

2,200,000 S.P. 2,900,000

165,000 C.A. (2,035,000)
2,035,000 GAIN 865,000

PTS: 1

61. ANS:
b

PTS: 1

62. ANS:

Answer: D,D,C

Fair Market Value (P800,000-P120,000) P680,000

Carrying Value (P4,000,000-P3,100,000) 900,000

Initial Measure of held for sale (lower) P680,000

Answer: D,D

Carrying Value (4,000,000-3,100,000) 900,000

Fair market Value (800,000-120,000) 680,000

Loss on reclassification or impairment loss 220,000

Answer: C

Fair Value as of December 31, 2017 (1,200,000-120,000) 1,080,000

Fair value date of reclassification 680,000

Increase in value 400,000

Max gain 220

PTS: 1

63. ANS:

Answer: B

Revenue P8,000,000
 48

Operating Cost ( 4,000,000)

Termination Cost (2,000,000)

Operating Income P2,000,000

Recoverable amount ( selling price) P12,000,000

Carrying Value 7,000,000

Gain P5,000,000

PTS: 1

64. ANS:
Answer: D

Accounts Payable 3,000,000

Income tax Payable 900,000
Dividends in kind, due March 3, 2015 1,200,000
Current Liability 5,100,000

PTS: 1

65. ANS:
A
Solution:
Currentliabilitiesconsistof:
Notes payable arising from purchases of goods P472,000
Notes payable from loans from banks 200,000
Employees’ income taxes payable 9,600
Advances from customers on purchase orders 64,000
Accounts payable arising from purchases of goods 380,000
Customers’ accounts with credit balances 26,000
Current portion of mortgage serial bonds (50,000 x 2) 100,000
Bank overdraft 50,000
Estimated liability for damages 24,000
Estimated expenses for guarantee 48,000
Accrued interest on bonds payable 57,500
Total current liabilities P1,431,100

PTS: 1

66. ANS:
Solution: Answer b

Accrued liability ( 500,000 + 300,000 ) 800,000

PTS: 1

67. ANS:
Answer: D
If the inflow of economic benefits is probable, any contingent asset and related contingent gains are
only disclosed.

PTS: 1

68. ANS:
 49

Solution: Answer A

Normal defect (25% x 500 x 10,000) 1,250,000

Significant defect (15% x 500 x 30,000) 2,250,000
Provision for warranty 3,500,000

PTS: 1

69. ANS:
Solution: Answer a

Income after bonus and tax (280,000/10%) 2,800,000

Income before tax (2,800,000/70%) 4,000,000
Income before bonus and tax (4,000,000 + 280,000) 4,280,000

PTS: 1

70. ANS:
1.Answer: B
Sales of musical instruments and sound reproduction equipment
P54,000,000
Estimated warranty cost x
2%
Warranty expense for 2016 P 1,080,000
2. Answer: D
Estimated liability from warranties, Jan 1, 2016 P1,360,000
Add: 2016 warranty expense 1,080,000
Total P2,440,000
Less: Actual warranty costs during 2016 1,640,000
Estimated liability from warranties, Dec. 31, 2016 P 800,000

3. Answer: B
Inventory of premium CD players P 399,500
Add: Premium CD players purchased during 2016 (P340 x 6,500) 2,210,000
Total 2,609,500
Less: Premium CD players distributed to customers during 2016
(1,200,000/200 = 6,000 x P340) 2,040,000
Inventory of premium CD players, Dec 31, 2016 P 569,500

PTS: 1

71. ANS:
Answer : B. P62,250

Number of units sold 5000

Estimated rate of defective units(100%-88%) x 12%
Total estimated defective units 600
Average warranty repair cost x 103.75
Estimated product warranty liability P62,250

PTS: 1

72. ANS:

C
Solution:
8/Y3 (P9,900 × 8/12= P6,600).

PTS: 1
 50

73. ANS:
Answer: C
Note payable 5,350,000
Accrued interest payable 750,000
Total liability ?6,100,000
Assets transferred:
Note receivable 2,123,000
Equipment at carrying amount (1,500,000 - 400,000) 1,100,000 3,223,000
Gain from debt extinguishment ?2,877,000

PTS: 1

74. ANS:
Answer: B
Present Value of Principal (1,000,000 x 0.816) 816,000
Present Value of annual interest payments ( 60,000 x 2.62) 157,200
Total PV of new liability 973,200
Interest expense for 2015 973,000 x 6% 58,380

PTS: 1

75. ANS:
Answer: B
Fair Value of shares 1,000,000
Par Value of shares (100,000 x 8.50) 850,000
Share Premium ?150,000

PTS: 1

76. ANS:
d (1,000  36) + (1,000  28) = 64,000
[(36,000 ÷ 64,000)  60,000] – 5,000 = 28,750.

PTS: 1

77. ANS:
c 900,000 + (3,600  5) – (2,400  4) = 908,400.

PTS: 1

78. ANS:
b (10,000  12) – (10,000  4  1) = 80,000.

PTS: 1

79. ANS:
d

PTS: 1

80. ANS:
B,D,D
Solution:

Q1)
Shares issued 55,000
Treasury Shares (5,000)
Outstanding shares 50,000*
 51

Q2)
Share dividend shares (95% x 50,000) 47,500*

Q3)
Treasury Shares (5,000 shares at cost) 150,000
Unissued shares as share divided at par
(42,500 x 25) 1,062,500
Retained Earnings 1,212,500*

PTS: 1

81. ANS:
(b) Lump sum receipt 110,000 FV of bonds 40,000 Balance allocated to common stock 70,000 As
the par value of the common stock is 5,000 (1,000 shares × 5), 65,000 (70,000 - 5,000) should be
reported as additional paid-in capital on the issuance of the stock.

PTS: 1

82. ANS:
(c) When accounting for the retirement of treasury stock that was initially recorded using the cost
method, common stock and additional paid-in capital are removed from the books based on the
original issuance of the stock. Treasury stock is credited for the cost of the shares acquired. Any
difference is debited to retained earnings or credited to paid-in capital from retirement. In this
problem, common stock should be debited for 125,000 (50,000 shares × 2.50), and the common
stock balance at December 31, year 1, is 415,000 (540,000 – 125,000).

PTS: 1

83. ANS:
(c) After all nominal accounts are closed, the effect on retained earnings would be 60,000 (78,000
debit to retained earnings less 18,000 credit to retained earnings when the “gain on disposition”
account is closed out).

PTS: 1

84. ANS:
(d) Employee compensation expense as the result of a stock option plan is calculated as the fair
value of the equity instrument at the date of grant times the number of option shares.
3,000 shares × 8 fair value of option = 24,000
The total compensation expense must be recognized over the requisite service period for which the
option plan represents compensation. If not otherwise specified, the required service period (two
years) is assumed to be the period benefited. Therefore, year 1 compensation expense is 12,000
(24,000 ÷ 2). Note that compensation expense is not affected by changes in the market value of the
stock after the measurement date.

PTS: 1

85. ANS:
Q1. (d) The fair value of the stock option at date of grant was 28 (28 × 1,000 shares = 28,000). The
entire amount is recognized because the options are exercisable
immediately for three years after the grant date.

Q2. (a) The net increase in stockholders’ equity (SE) as a result of the grant and exercise of the
options is equal to the increase in cash (1,000 shares × 20 option price = 20,000). The journal entry
to record the options has no effect on SE because a SE account will be credited while a contra SE
account will be debited as follows:
Deferred compensation 28,000 Paid-in capital stock options 28,000 (1,000 shares × 28 per option)
The entry to recognize compensation expense has no effect on SE because the debit decreases SE
while the credit increases SE by reducing the contra account as follows:
 52

Compensation expense 28,000 Deferred compensation 28,000 The only entry which does affect SE
is the entry for the exercise of the options, which decreases SE by 28,000 while increasing it by
48,000 (a net increase of 20,000).
Cash (1,000 × 20) 20,000 Paid-in capital stock options (1,000 × 28) 28,000 Common stock (1,000 ×
10) 10,000 Paid-in capital in × of PV (plug) 38,000 Thus, the net increase in stockholders’ equity is
20,000.

PTS: 1

86. ANS:
Answer: D
Total compensation (202 x 1,200 x 22 x 90%) 4,799,520

Accrued compensation (4,799,520/3) 1,599,840

PTS: 1

87. ANS:
C
Contributed capital before the share dividend:
Par P600,000
Share premium 100,000 P700,000
Par & share premium on the issuance of a small share dividend:
Stock dividend – shares (15% x 30,000) 4,500
Market value of shares x P26 117,000
Total contributed capital P817,000

PTS: 1

88. ANS:
D

PTS: 1

89. ANS:
C

PTS: 1

90. ANS:
SOLUTION

Q1 : b
Deferred tax asset (30% x 1,200,000) 360,000
The accrual for product liability in excess of actual claim is a future deductible amount and
therefore will result to a deferred tax asset.

Q2 : a
Excess tax depreciation 800,000
Installment sales income 2,600,000
Total future taxable amount 3,400,000
Deferred tax liability (30% x 3,400,000) 1,020,000

Q3 : c
Increase in deferred tax liability 1,020,000
Increase in deferred tax asset (360,000)
Deferred tax expense 660,000
 53

Q4 : a
Taxable income 8,000,000
Excess tax depreciation 800,000
Estimated product claim liability (1,200,000)
Installment sales income not included in taxable income 2,600,000
Accounting income subject to tax 10,200,000
Total tax expense (30% x 10,200,000) 3,060,000
Another approach
Current tax expense (30% x 8,000,000) 2,400,000
Deferred tax expense 660,000
Total tax expense 3,060,000

PTS: 1

91. ANS:
SOLUTION

Q1 : a
Current service cost 3,660,000
Past service cost 700,000
Interest expense (13% x 9,800,000) 1,274,000
Interest income (13% x 8,700,000) (1,131,000)
Employee benefit expense 4,503,000

Q2 : b
Actual return 800,000
Interest income (1,131,000)
Remeasurement loss on plan asset (331,000)

Q3 : c
FVPA – 1/1 7,700,000
Contribution 1,900,000
Actual return 800,000
Benefits paid (950,000)
FVPA 12/31 9,310,000 9,450,000

Q4 : d
PBO – 1/1 9,800,000
Current service cost 3,660,000
Past service cost 700,000
Interest expense 1,274,000
Benefits paid (950,000)
PBO 12/31 14,484,000

Prepaid / accrued benefit cost - 12/31 (9,450,000– 14,484,000) (5,034,000)

PTS: 1

92. ANS:
SOLUTION

Q1 : d
Current service cost 520,000
Interest income (350,000)
Interest expense 590,000
Loss on plan settlement 240,000
Past service cost 360,000
Employee benefit expense 1,360,000

Q2 : b
Actual return 810,000
Interest income 350,000
 54

Remeasurement gain 460,000

Q3 : b
Employee benefit expense 1,360,000
Remeasurement gain (460,000)
Total defined cost 900,000

Q4 : b
Contribution 1,500,000
Total defined cost 900,000
Prepaid benefit cost – overfunding 600,000

PTS: 1

93. ANS:
D,C
1. Rose Co.
Carrying amount 1,457,000
Advance payment (500,000)
Bal. 957,000
Discount rate x 12%
Interest expense 114,840

2. Rose Co.
Straight line method of depreciation:
Cost – Residual value 1,457,000 = 58,280
Life 25

PTS: 1

94. ANS:
A,D
1. Mess Company & Keep Company
Fair value 3,949,500
Annuity of 1 / 6.145
Minimum annual lease payment 642,718

2. Mess Company & Keep Company

Minimum annual lease payment 642,718
Executory costs 35,000
Annual lease payment 677,718

PTS: 1

95. ANS:
 $495, 000 1 
  
b 90,000 +  10 12  = 94,125.

PTS: 1

96. ANS:
c 325,000 – (325,000  .40) = 195,000
73,259  3.99271 = 292,502
292,502 – [ 73,259 – ( 292,502  .08)] = 242,643.

PTS: 1

97. ANS:
1. d 720,000.

2.a 720,000 – 64,000 – 360,000 = 296,000.

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PTS: 1

98. ANS:

ADC
SOLUTION:
1. Understatement of 2016 ending inventory 48,000
Overstatement of 2017 ending inventory 40,500
Prepaid insurance charged to expense in 2016 (330,000/3) 110,000
Unrecorded sale of fully depreciated machinery in 2017 (75,000)
TOTAL EFFECT OF ERROR ON NET INCOME P123,500

2. Overstatement of 2017 ending inventory 40,500

Prepaid insurance charged to expense in 2016 (330,000/3) (110,000)
Unrecorded sale of fully depreciated machinery in 2017 (75,000)
TOTAL EFFECT OF ERROR ON NET INCOME (P144,500)

3. Overstatement of 2017 ending inventory 40,500

Understatement of depreciation expense in 2016 11,500
Prepaid insurance charged to expense in 2016 (330,000/3) (110,000)
Unrecorded sale of fully depreciated machinery in 2017 (75,000
TOTAL EFFECT OF ERROR ON NET INCOME (133,000)

PTS: 1

99. ANS:

Solution: Answer A

Net income per book 2,000,000

January 1 inventory overstated(NI - under) 300,000
December 31 inventory understated(NI under) 500,000
Unrecorded insurance expense(NI over) (50,000)
Advances from customer (NI over) (100,000)
Proper net income for current year 2,650,000

PTS: 1

100. ANS:
1. b 50,000 – 350,000 = (300,000).

2. b 500,000 – 150,000 – 100,000 + 400,000 = 650,000.

PTS: 1

101. ANS:
d 400,000 + 1,200,000 – 160,000 – 60,000 – 120,000 + 100,000 = 1,360,000.

PTS: 1

102. ANS:
c 50,000 + (19,000 + 12,200 – 11,000 – 7,300) = 62,900.

PTS: 1

103. ANS:
1. b 720,000 + 500,000 – (200,000 + 110,000) – X = 582,000
X = 328,000.

2. d Conceptual.
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PTS: 1

104. ANS:
c 2,000,000 – 500,000 + 500,000 – 200,000 = 1,800,000.

PTS: 1

105. ANS:
a 384,000 + 78,000 + 45,000 – 36,000 + 12,000 – 24,000 + 33,000 = 492,000.

PTS: 1

106. ANS:
c 285,000 + 9,000 - 45,000 = 249,000.

PTS: 1

107. ANS:
A
Solution:
Cash (300,000-100,000 overdraft) 200,000
Accounts Receivable 350,000
Inventory 580,000
Prepaid Expenses 120,000
Land Classified as held for Sale 1,000,000
2,250,000

The undelivered checks of P300,000 should be adjusted by debiting cash and crediting accounts
payable.

PTS: 1

108. ANS:
Solution Answer b
Net loss from disposal of segment 1,000,000
Property Taxes (400,000 x 6/12) 200,000
Total Amount 1,200,000

PTS: 1

109. ANS:
Solution:
Cash balance- 1/1 8,000,000
Increase in AR (2,000,000)
Decrease in inventory 1,500,000
Decrease in AP 3,000,000
Sales 30,000,000
Cost of goods sold (20,000,000)
Expenses (5,000,000)
Cash balance 12/31 9,500,000

PTS: 1

110. ANS:
Answer: C.
 57

Net income 900,000

Preference shareholder’s equity (10,000  P100  .05) (50,000)
Ordinary shareholder’s equity 850,000
÷ (200,000  2)
P 2.13

PTS: 1

111. ANS:
Answer: D.

Net income P600,000

Preference shareholder’s equity (20,000  P3) 60,000
P540,000
÷ 200,000
P 2.70

PTS: 1

112. ANS:
Answer: C

620,000 + (50,000 × 6/12) + [32,000 – (32,000 × P15 ÷ P20)] = 653,000.

PTS: 1

113. ANS:

Solution: Answer B

Rental income - accrual basis 600,000

Unearned rental income - January 1 (50,000)
Unearned rental income - December 31 75,000
Accrued rental income - January 1 30,000
Accrued rental income - December 31 (40,000)
Rental received - cash basis 615,000

PTS: 1

114. ANS:

Solution: Answer B

Operating expenses per book 3,200,000

Depreciation (1,000,000)
Prepaid insurance - December 31 200,000
Prepaid insurance - January 1 (150,000)
Accrued salaries payable - December 31 (100,000) Accrued
salaries payable - January 1 120,000
Cash paid for operating expenses 2,270,000

PTS: 1

115. ANS:
Answer: C

Suggested Solution:

Revenue (P2,800,000 - P240,000 + P400,000) P2,960,000

Expenses:
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Wages (P1,200,000 - P160,000 + P1,160,000

P120,000)
Taxes (P520,000 - P152,000 + 480,000
P112,000)
Insurance (P320,000 + P32,000 – 288,000
P64,000)
Depreciation (P760,000 - P600,000) 160,000
Interest (P200,000 - P72,000 + 152,000 2,240,000
P24,000)
Profit before income tax P 720,000

PTS: 1