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CPA REVIEW SCHOOL OF THE PHILIPPINES

PRACTICAL ACCOUNTING-1
MULTIPLE CHOICE; MARK FULLY with PENCIL NO. 2 the letter of your choice on
the answer sheet provided. Make the mark DARK but do not use to much pressure.
ERASURES ARE STRICTLY NOT ALLOWED.
1. The statement of financial position of East company on December 31, 2011
reported the following current assets:
Cash including sinking fund of P300,000 with s trustee
2,000,000
Trade and other receivables
3,500,000
Inventory including P400,000 cost of goods in transit purchased
free alongside .The goods are received on January 3, 2012
2,800,000
Total
8,300,000
The trade and other receivables included the following:
Trade accounts ( of which 10% is considered doubtful in collection)
1,500,000
Advances to affiliated entities
1,000,000
Dividends receivable
600,000
Claims to shipper
400,000
Total
3,500,000
What amount should be reported as total current assets on December 31,
2011?
a. 7,000,000
b. 6,850,000
c. 6,450,000
d. 6,050,000
2. The trial balance of West Company showed the following liability account
balances on December 31,2011;
Accounts payable
( including a debit balance of P350,000 due to overpayment)
4,500,000
Bonds payable, due March 31,2012
Premium on bonds payable
Deferred tax liability

6,000,000
200,000
3,500,000

Income tax payable


Note payable January

5,500,000
2,000,000

The bank loan matures on July 31, 2012. On December 31, 2011, the entire
balance of the note was refinanced on a long-term basis. The 2011 financial
statements were authorized for issue on March 1, 2012. What amount should
be reported as total current liabilities on December 31, 2011?

a. 16,550,000
b. 16,200,000
c. 18,550,000
d. 18,200,000
3. On December 1, 2011, Helen Company gave Marie Company a P2,000,000,
12% loan. Marie received proceeds of P1,940,000 after the deduction of a
p60,000 loan origination fee. Principal and interest are due on sixty monthly
installments of P44,500 beginning January 1, 2012. The repayments yield an
effective interest rate of 12% at the present value of P2,000,000 and 13.4%
at a present value of P1,940,000. What amount of interest income should
Helen report for the year ended December 31, 2011?
a. 20,000
b. 21,663
c. 22,333
d. 19,400
4. Zoe Companys year-end December 31,2011 and the 2011 financial
statements were authorized for issue on March 31, 2012. Zoe had the
following events after reporting period:
On February 1, 2012, Zoe determined that the total cost of the
equipment purchased is P3,300,000. The asset was purchased on
November 12, 2011 and recorded at P2,000,000.
On March 15, 2012, Zoe discovered that its 2011 salary expense was
understatement by p150,000.
On March 20,2012, Zoe issued 100,000 ordinary shares at par P10 per
share.
How much should be reported as adjusting events on December 31, 2011?
a. 1,300,000
b. 1,450,000
c. 2,300,000
d. 2.450,000
5. On February 1, 2011, Sean company purchased machinery for P2,400,000
with a 10-year useful life and no residual value. On March 20, 2011, Sean
incurred repairs and maintenance cost to this equipment for P150,000. What
amount should be included in Seans quarterly income statement ending
March 31,2011?
a. 150,000
b. 190,000
c. 210,000
d. 390,000
6. Nonoy company reported the following data at the end of the current year :
Accounts receivable
Credit sales
Doubtful accounts expense(2% of credit sales)
240,000
Allowance for doubtful accounts January 1

6,000,000
12,000,000
50,000

Nonoy elected to estimate its doubtful accounts by using percent of accounts


receivable method. Nonoy determined that 6% would be a good estimate.

There were no write offs nor recoveries during the year. What amount should
be reported as doubtful accounts expense in the current year of this change?
a. 240,000
b. 360,000
c. 480,000
d. 310,000
7. On January 1, 2009 Mara Company purchased equipment for P3,000,000 with
a 5-year useful life and no residual value. On January 1, 2010, Mara incurred
repairs for P500,000 and inappropriately capitalized the entire amount. The
error was discovered on January 1, 2011 and the assets residual value was
estimated to be P400,000 also on the date. What amount should be
recognized as a prior error in the opening balance of retained earnings on
January 1, 2011?
a. 500,000
b. 375,000
c. 125,000
d.
0
8. Corazon Company accounts for noncurrent assets using the cost model. On
July 31, 2011, the entity classified a noncurrent asset as held for sale. At that
date, the assets carrying amount was P 1, 450, 000; its fair value was
estimated at P2, 500, 000 and the cost to sell at P150, 000. The asset was
sold on January 31, 2012 for P2, 120,000. At what amount should the asset
be measured in the statement of financial position on December 31, 2012?
a.
b.
c.
d.

2,000,000
2,150,000
2,120,000
1,450,000

9. Guns Company has two divisions, Smith and Wesson. Both qualify as business
components. In 2011, Guns decided to dispose of the Wesson division since it
does not meet the long term goal of Guns. In 2012, the Wesson division had
revenues of P5, 000,000 and expenses of P4, 500,000. Guns also disposed
some of the divisions asset and incurred a loss of P1, 500,000. In 2011, the
Wesson division had revenues of P4, 500,000 and expenses of P5, 700,000. If
the income tax rate is 30%, how much should be reported as loss from
discontinued operations in the 2012 comparative financial statements?
a.
b.
c.
d.

2012
700,000
1,000,000
1,000,000
700,000

2011
0
1,200,000
0
840,000

10.The records of Shoe Department Store report the following data for the month
of July 2011:

Sales
13,500,000
Mark down
1,200,000
Sales allowance
250,000 Mark down cancelations
200,000
Sales return
500,000 Freight on purchases
200,000
Employee discounts
200,000 Purchases at cost
9,400,000
Theft and other losses
300,000 Purchase return at cost
480,000
Initial markup on purchases
5,400,000 Purchase return at sales price
700,000
Additional markup
500,000 Beginning inventory at cost
880,000
Mark up cancelations
200,000 Beginning inventory at sales
price 1, 600,000
Using the average retail inventory method, what is the estimated ending
inventory?
a. 937,500
b. 1,000,000
c. 1,093,750
d. 1,125,000
11.On January 1, 201, Brood Company disposed its land having a carrying
amount of P2, 500,000. The buyer gave a Brood a 5 year noninterest bearing
note requiring equal annual installments of P600, 000. The first installment is
due January 1, 2012. The market rate for this type of note is 10%. The PV of
1, 10%, 5 periods is 0.62 and the PV of an ordinary annuity, 10%, 5 periods is
3.79. In the December 31, 2011 statement of financial position, what portion
of the note should be included in noncurrent assets?
a.
b.
c.
d.

1,901,400
2,400,000
2,627,400
2,501,000

12.Gilas Company provided the following items at the end of the current year:
Cash on hand (including the bank draft of P100, 000 and postdated check of P50,
000)
2,350,000
Cash in bank per bank statement
1,500,000
Treasury Bonds
1,700,000

3 year time deposits purchased 2 months prior to maturity


1,200,000
Credit memo authorizing return of goods to vendor
550,000
Debit balance in accounts payable due to overpayment
300,000
Loan proceeds credited by the bank to the depositors bank account
600,000
Cash surrender value
150,000
Cash fund set aside to acquire equipment next year
300,000
A review of the records revealed that deposits in transit and outstanding checks
were P600, 000 and P900, 000 respectively. What total amount should be reported
as cash and cash equivalents?
a.
b.
c.
d.

6,400,000
4,700,000
5,000,000
4,600,000

13.For the month of July, Cassandra Company had the following information:
bank service charge for July, P16, 500, NSF check, P40, 000. Upon review of
its records, Cassandra determined the following: deposit in transit P143, 000,
outstanding checks of P110, 000 and an unrecorded customer check of P38,
500. If the cash in bank balance per ledger is P920, 000, how much is the
adjusted balance?
a. 863,000
b. 935,000
c. 896,000
d. 90
14.Maple Company provides for doubtful accounts expense at the rate of 3% of
net credit sales. Maples credit terms are 2/10, n/30. The following data are
available for the current year:
Accounts written off as uncollectible during the year
60,000
Collection from customers beyond discount period
(Including recovered accounts of P15, 000)
1,500,000
Credit sales, year-ended December 31
3,300,000
Sales return and allowance
200,000
Collection from customers within discount period
882,000

Allowance for doubtful accounts, January 1


54,000
Accounts receivable, January
950,000
What is the net realizable value of the accounts receivable at December 31?
a. 1,605,000
b. 1,521,000
c. 1,503,540
d. 1,488,540
15.Jacky company sold accounts receivable without recourse with a face amount
P4, 000,000. The factor charged a service fee of 10% of the accounts factored
and withheld 5% of the accounts factored as protection against customer
returns and other adjustments. Jacky previously established an allowance for
doubtful accounts of 8% of the accounts factored. How much is the gain or
loss on factoring?
a. 80,000 loss
b. 400,000 loss
c. 320,000 gain
d. 280,000 loss
16.On August 31, 2011, Criselda Company discounted a customers note with
recourse at a bank with a 15% discount rate. The note is dated August 1,
2011, has a term of 90 days, has a face value of P6, 000,000 and an interest
rate of 12%. Since there was no loss of control of the note on discounting, it
was treated as secured borrowing. On August 31, the entry to discount the
note will include a
a.
b.
c.
d.

Debit to interest expense of P60,000


Credit to liability for notes discounted of P6,180,000
Debit to interest expenses of P34,500
Debit to loss on discounting of P34,500

17.Information regarding Alexandra Companys portfolio of available for sale


securities is as follows:
Aggregate cost- December 31, 2011
Unrealized gains- December 31, 2011
Unrealized losses- December 31, 2011
Net realized gains during 2011

1,800,000
60,000
280,000
320,000

On January 1, 2011 Alexandra reported an unrealized loss of P17, 000 as a


component of shareholders equity. What is the cumulative unrealized loss
that should be recognized in the 2011 statement of changes in equity?
a.
b.
c.
d.

220,000
263,000
280,000
203,000

18.Michelle Company owns 50,000 ordinary shares of Mary Company. These


50,000 shares were purchased by Michelle in 2009 for P100 per share. On
October 30, 2011, Mary distributed 50,000 stocks right to Michelle. Michelle
was entitled to buy the one new share of Mary Company for P90 cash and two
of these rights. On October 30, 2011, each share had a market value of P132
ex-right, and each had a market value of P18. The stocks right is accounted
for separately. What cost should be recorded for each new share that Michelle
acquired by exercising the rights?
a.
b.
c.
d.

90
114
126
132

19.JTG Company has 100,000 ordinary shares outstanding. NY Company


acquired 40,000 shares of JTG for P120 per share in 2008. The securities are
being held as long-term investments. Changes in retained earnings for JTG for
2010 and 2011 are as follows:
Retained earnings (deficit), January 1, 2010
(500,000)
Net income for 2010
700,000
Retained earnings, December 31, 2010
200,000
Net income for 2011
800,000
Cash dividend paid on December 31, 2011
(400,000)
Retained earnings, December 31, 2011
600,000
What is the balance of NY Companys investment in JTG Company on
December 31, 2011?
a. 4,800,000
b. 5,040,000
c. 5,240,000
d. 5,400,000
20.Wilkins Company purchased 40% of Absolute Companys outstanding
ordinary shares on January 1, 2011. The carrying amount of Absolutes equity
on this date totaled P9, 000,000. Fair values and carrying amounts were the
same for all items except for plant and inventory, for which fair values
exceeded their carrying amounts by P900, 000 and 100,000 respectively. The
plant has an 18-year life. Only half of the inventory was sold in 2011. During
2011, Absolute reported net income of P1, 200,000 and paid cash dividend of
P200, 000. The carrying amount of the investment in Absolute at December
31, 2011 was P4, 360,000. What is the purchase price on January 1?

a.
b.
c.
d.

4,020,000
3,920,000
4,000,000
3,980,000

21.Saplot Company regularly hedges its purchase requirements and the sale of
its finished products in the future market. On November 1, 2011, Saplot
entered into the following three contracts designated as cash flow hedge:
Type of Contract
price 12/31/11

Quantity

Purchase cotton
75
Purchase wool
109
Sell shirts
400

100,000

Futures prices 1/1/11

Market

85
150,000
90,000

90
350

22.All three contracts are to be settled on January 1, 2012. What is the


derivative asset or liability on December 31, 2011?
a. 2,650,000 liability
b. 2,650,000 asset
c. 6,350,000 asset
d. 6,350,000 liability
23.Acura Motor Sales exchanged a car from its inventory for a sophisticated
copying machine to be used as a long term asset. The following information
relates to the exchange.
Carrying amount of the car
machine 900, 000
List selling price of the car
Acura
150,000

650,000
1,200,000

Fair value of the copying


Cash difference paid by

What amount of gain or loss should Acura recognized?


a. 550, 000 gain
b. 100,000 gain
c. 300, 000 loss
d. 400, 000 gain
24.Sophia Company purchased equipment for P14, 100, 000 on January 1, 2011.
Sophia received a government grant of P600, 000 in respect of this asset.
Sophia treated the grant as a deduction from the cost of the asset. The
equipment has a useful life of 5 years and will use SYD in depreciating the
asset. On January 1, 2014, Sophia violated some conditions and fully repaid
the grant. What is the depreciation of the equipment to be recognized in
2014?
a. 1,800,000
b. 2,400,000

c. 2,200,000
d. 2,360,000
25.Punk Company acquired an existing building in exchange for 50, 000 ordinary
shares. The list price of the building id P8, 000, 000 and the shares have a
fair value of P120 per share. Punk also incurred the following costs:
Payment
65,000
Unpaid
78,000
Assessment
7,000
Driveways
550,000
Cost
45,000
Cost
of
750,000
Cost
300, 000
Remodeling
200,000

to

tenants

property

to

vacate

taxes

by

assumed

city

for

and
of

wing

of

by

sewerage
parking

grading

new

the

attached

new
costs

project

leveling
the

ventilation
prior

Punk

bays

and
to

building

to

building
system
occupancy

What is the total cost of the building?


a. 9, 093, 000
b. 7, 093, 000
c. 7, 393, 000
d. 9, 393, 000
26.Atom Company installed a production assembly line to manufacture tennis
balls. In the current year, Atom acquired a machine and rearranged the
assembly line to install the machine. The rearrangement resulted efficiency in
production. The following expenditures were incurred:
Purchase
price
of
the
machine
(VAT
inclusive,
12%)
1,008,000
Labor
cost
to
install
machine
130,000
Parts
added
in
rearranging
the
assembly
line
400,000
Cost
of
testing
the
machine
150,000
Proceeds
from
sale
of
samples
produced
from
testing
12,000
Cost
of
training
worker
who
will
operate
the
machine
20,000
What is the total amount of expenditures should be capitalized?
a. 1,568,000

b. 1,580,000
c. 1,600,000
d. 1,676,000
27.Hoyt Company started construction on a building on January 1, 2011 and
completed construction on December 31, 2011. Hoyt had only two interest
notes outstanding during the year and both of these notes were outstanding
for all 12months of 2011. The following information is available:
Average accumulated expenditures
4,500,000
Ending balance in construction in progress before capitalization of interest
5,400,000
7% note incurred specifically for the project
2,400,000
12% long term note
6,000,000
What is the cost of the building on December 31, 2011?
a. 5,715,000
b. 5,400,000
c. 5,820,000
d. 4,815,000
28.Kirkland Company acquired a tract of land containing an extractable natural
resource. Kirkland is required by the purchase contract to restore the land to
a condition suitable for recreational use after it has extracted the natural
resource. Geological survey indicated that the recoverable reserves will be
2,500,000 tons and the extraction will be completed in 5 years. Relevant cost
information follows;
Land
9,000,000
Exploration cost
1,000,000
Restoration cost
1,500,000
Credit-adjusted risk free interest rate
10%
What is the depletion charge per ton? (Round PV factor to two decimals.)
a.
b.
c.
d.

4.00
4.37
3.97
3.60

29.On June 31, 2011, the statement of financial position of Lourdes Company
reported the following balances:

Machinery at cost
5,000,000
Accumulated depreciation
1,500,000
The equipment was measured using the cost model and depreciated on a
straight-line basis over a 10-year period. On December 31, 2011, the
directors of Lourdes decided to change the basis of measuring the machinery
from the cost model to the revaluation model. The machinery was revalued to
its fair value of P4, 550, 000 with an expected remaining life of 5 years. The
entry to record the revaluation using the proportional method will include
30.Karla Company acquired a machine for P3, 200,000 on August 31, 2008. The
machine has a 5-year life, a P500, 000 residual values, and was depreciated
using the straight-line method. On May 31, 2011, a test for recoverability
reveals that the expected net future undiscounted cash inflows related to the
continued use and eventual disposal of the machine total P1, 500, 000. The
machines fair value on the same date is P1, 350,000 with no residual value.
What is the impairment loss to be recognized in 2011?
a. 365, 000
b. 215, 000
c. 90,000
d.
0
31.Jimboree Company 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, 2011 to August 31, 2011 contract year
follows:
Initial payment per child
Number of children
Plan A
50,000
15
Plan B
20,000
12
Plan C
9

Monthly fee per child


3,000
5,000

Jimboree received P990,000 of initial payments on September 1, 2011 and


P324,000 of monthly fees during the period September 1, 2011 to December 31,
2011. On December 31, 2011, what amount should be reported as deferred
revenue?
a. 330,000
b. 438,000
c. 660,000
d. 990,000
32.Marquee Company operates a customer loyalty program. The entity grants
points for goods purchased. The loyalty points can be exchanged for goods of
the entity. The points have no expiry date. During 2011, the entity issued 50,
000 award credits. The fair value of each credit is P60. In 2011, Marque sold
goods to customers for P9, 000,000 including the fair value of the credits.

The total award credits expected to be redeemed are 90% in 2011 and 95%
in 2012. The award credits actually redeemed are 15, 000 and 8, 750 in 2011
and 2012 respectively. What is the revenue earned from the award credits I
2012?
a. 525, 000
b. 500, 000
c. 1,500,000
d. 1,000,000
33.Yehey Company includes one coupon in each package it sells. A towel is
offered as a premium to customers who send in 10 coupons:
2011

2012
Packages of cereals sold
500,000
800,000
Number of towels acquired at P40 per towel
60, 000
Number of towels distributed as premium
50, 000
Number of towels to be distributed as premium next period
3, 000

30, 000
20, 000
5, 000

What amount should be reported as premium expense in 2012?


a. 2,400,000
b. 2,000,000
c. 2, 120, 000
d. 1, 920, 000
34.The following costs were incurred by Grace Company during the current year:
Accounting and legal fees
Freight in
Freight out
Officers salaries
Insurance
Sales representative salaries
Research and development expenses

250, 000
1, 750, 000
1, 600, 000
1, 500, 000
850, 000
2, 150, 000
1, 000, 000

What amount should be reported as general and administrative expenses?


a. 2, 600, 000
b. 1, 750, 000
c. 2, 750, 000
d. 3, 600, 000
35.The following information was taken from Katrina Company accounting
records for the current year:
Increase in raw materials inventory
Decrease in finished goods inventory
Raw materials purchased

150, 000
350, 000
4, 300, 000

Direct labor payroll


Factory overhead
Freight out

2, 000, 000
3, 000, 000
450, 000

There was no work in process inventory at the beginning or end of the year,
what is the cost of goods sold for the current year?
a. 9, 500, 000
b. 9, 650, 000
c. 9, 750, 000
d. 9, 950, 000
36.Vanessa Company incurred the following costs during the current year
Routine ongoing efforts to refine, enrich or otherwise improve
000
An existing product
Design, construction and testing of reproduction models
000
Quality control during commercial production including routine
Testing of products
150, 000
Laboratory research for discovery of new knowledge
000

125,
110,

180,

What is the total research and development expense?


a. 235, 000
b. 275, 000
c. 290, 000
d. 330, 000
37.During the current year, Crizza Company incurred the following costs in
connection with the issuance of bonds:
Promotion cost
Printing and engraving
Legal fees
Fees paid to independent accountants for registration
Commissions paid to underwriter
What amount should be recorded as bond issue costs to be amortized over
the term of the bonds?
a. 2, 550, 000
b. 2, 750, 000
c. 1, 500, 000
d. 1, 050, 000