Practical Accounting 1 Reviewer

1. When an economy ceases to be hyperinflationary, an entity shall discontinue the

preparation and presentation of financial statements under a condition of
hyperinflationary economy. Thus the amount expressed in the measuring unit
current at the end of the previous reporting period shall be the
a. the present Value amount in the subsequent financial statement.
b. the carrying amount in the subsequent financial statement.
c. the fairvalue amount in the subsequent financial statement.
d. the historical Value amount in the subsequent financial statement.
2. Irrespective of whether there is any indication of impairment , an entity shall test
a not tangible asset with an indefinite useful life or an intangible asset not yet
available for use for impairment\
a. every three years\
b. annually
c. intangible assets not yet available for use, annually and not tangible assets
every three years
d. intangible assets not yet available for use, every three years and not
tangible assets Annually
3. Depreciation of an asset begins when
a. It was acquired
b. It is available for use
c. It was assembled in its location
d. When the management decides to do so.
4. the initial direct cost in a direct financing lease are added to the carrying amount
of the leased asset and this would effectively spread the initial direct cost over the
lease term and reduce the amount of
a. interest expense
b. interest income
c. lease expense
d. lease income
5. this is the recognition of a deferred tax asset or deferred tax liability
a. intraperiod tax allocation
b. Interperiod tax allocation
c. None
d. both
6. The present value of the defined benefit obligation is the present value, without
deducting any plan assets, f expected future payments required to settle the
obligation resulting from employee service in the
a. Current periods
b. Current and prior periods
c. Current or prior periods
d. Prior periods
7. it is said that no entry is required when share warrants are issued to existing
shareholders because these warrants are issued usually
a. with consideration

b. without consideration
c. as bonus
d. as stock dividends
8. treasury shares may be reissued as dividends, in which case the _____ of the
shares be charged to retained earnings
a. historical value
b. cost
c. fair value
d. selling price
9. ordinary shares issued as a result of the conversion of a debt instrument to
ordinary shares are incuded from the date
a. it was converted
b. interest ceases to accrue
c. as of the balance sheet
d. prior to the date of the balance sheet
10. in computation of cost of sales the basic rule is All increases are added and all
decreases are deducted except the changes in
a. earned income
b. unearned income
c. withdrawals
d. expenses
11. PAS 8 provides that an entity shall correct material prior period errors
retrospectively in the first set of financial statements authorized for issue after the
discovery by
a. Restating the comparative amounts for the latest period presented in which
the error was discovered.
b. Restating the opening balances of asset liabilities and equity for all prior
period presented if the error occurred before the earliest period presented
c. Restating the comparative amounts for the latest period presented in
which the error was Corrected
d. Restating the opening balances of asset, liability and equity for the earliest
period presented if the error occurred before the earliest period presented
12. preferred shares with specific redemption date and acquired before the balance
sheet date can qualify as cash equivalents
a. True
b. False, if cannot qualify as cash equivalents
c. False, it should be acquired three months before the balance sheet date
d. False, it should be acquired three months before the redemption date
13. in which circumstances that a bank overdraft is include as component of cash and
cash equivalent
a. when it s repayable on demand
b. when it is repayable on demand or form an integral part of an entitys cash
management
c. when it is repayable on demand and form an integral part in the entitys
cash financial statement

d. when it is repayable on demand and form an integral part of an entitys

cash management
14. if the containers are not returnable, they are
a. Charged to loss
b. Charged to gain
c. Charged to the cost of the product
d. Charged as an out right expense
15. developed goodwill is
a. recorded at fair value
b. recorded at historical value
c. recorded at present value
d. not recorded
16. in a warranty liability any difference between estimate and actual cost is a change
in
a. accounting procedure
b. accounting principle
c. accounting entity
d. accounting estimate
17. under the effective interest method, bond issue cots must be lumped with the
discount on bonds payable and netted against the
a. selling price of the bond
b. present value of the bond
c. market value of the bond
d. premium on bonds payable
18. in the books of the lessor, using a direct financing lease, the net investment is
equal to the
a. cost of the lease
b. fairvalue of the lease
c. fairvalue of the asset
d. cost of the asset
19. under the defined benefit plan the obligation of the entity is to provide the
a. benefits to current employees
b. the benefits to current and former employees
c. the agreed benefit to current employees
d. the agreed benefit to current and former employees.
20. the revalued asset can only be carried at revalued amount if there is
a. An inflation in the economy
b. A deflation in the economy
c. An market value for the asset\
d. An active market for the asset
21. in tangible assets wth indefinite life are
a. Amortized for its useful like
b. Amortized for its legal life
c. Not amortized and not impaired
d. Not amortized but tested for impairment

22. in a patent, if the litigation is unsuccessful, the legal cost and the remaining cost
of the patent should be written off as
a. expense
b. a deduction from the other patent
c. outright income
d. loss
23. the immaterial cost of the leasehold shall be amortized over the life
a. of the lease
b. of the leasehold or lease which ever is shorter
c. of the leasehold
d. of none, it is charged to outright expense
24. the basis of normal rate return is based on net assets meaning
a. the exces of the total assets including goodwill over total liabilities
b. the equity of the entity
c. the equity of the entity plus subsidiaries
d. total assets minus total liabilities minus goodwill
25. if there is an indication that goodwill may be impaired, recoverable amount is
determined for the cash generating unit to which
a. the impairement can be written off
b. the goodwill can be written off
c. the impairment belongs
d. the goodwill belongs

1. Selected records from the accounting records of Malakas Company

are as follows:
Net accounts receivable at Dec. 31, 2005
1,900,000
Net
accounts
receivable
at
2006
1,000,000
Account receivable turnover
Inventory at Dec. 31, 2005
1,100,000
Inventory at Dec.31, 2006
1,200,000
Inventory
turnover
4:1
What is the amount of gross margin?
a. 5,000,000
b. 5,150,000

Dec.

31,
5:1

c.5,200,000
d.5,300,000

2. The following information for 2006 is provided by Guam Company:

Sales
50,000,000
Cost of Sales
30,000,000
Selling Expenses
5,000,000
General and Administrative Expenses
Interest Expense
2,000,000
Gain on early extinguishment of long term debt
Correction of Inventory error, net of income
1,000,000
Investment
Income-equity
method
3,000,000
Gain on expropriation
2,000,000
Income tax expense
5,000,000
Dividends declared
2,500,000
What is the amount of finance cost?
a. 1,200,000
b. 2,000,000

4,000,000
500,000
tax-credit

c. 1,500,000
d. 1,800,000

3. Dakak Company issued bonds with a face value of P4, 000,000 and

with a stated interest rate of 10% on Jan. 01, 2008. The interest is

payable semiannually on June 30 and December 31. The bonds

mature on every December 31 at a rate of P2, 000,000 per year for
2 years. The prevailing rate for the bonds is 8%. The present value
of 1 at 4% is as follows:
One
period
0.9615
Two
periods
0.9426
Three
periods
0.8990
Four
periods
0.8548
What is the present value of the bonds on January 1, 2008?
a. 4,111,400
c.4,099,600
b. 4,263,400
d.4,252,580
4. On January 1, 2004, Loyal Company purchased an equipment for P8,

000,000. The equipment is depreciated using straight line method

based on a useful life of 8 years with no residual value. On January
1, 2007, after 3 years, the equipment was revalued at a
replacement cost of 12,000,000 with no change in residual value.
On June 30, 2007, the equipment was sold for 10,000,000. What is
the effect of the June 30, 2007 transaction to the retained earnings?
a.2, 500,000 increase
c.
5,000,000 increase
b.3,250,000 increase
d.
5,750,000 increase
5. A natural resources property was purchased by Nge Wang Company

for 6,000,000. The output was estimated to be 1,500,000 tons. Nge

Wang Company purchased a mining equipment at a cost of
8,000,000 and has a useful life of 10 years but is capable of
exhausting the resource in8 years. Production is as follows:
1st Year
150,000
tons
2nd Year
225,000 tons
3rd Year
None
th
4 Year
225,000
tons
What is the carrying amount of the mining equipment at the end of
four years?
a. 4,800,000
c. 4,200,000

b. 4,000,000

d. 4,500,000

6. Danhag

Company has determined its 2008 Net Income is

P3,000,000.In the first time audit of company financial statements,
you determined he following errors:
P400, 000 revenue received in advanced during 2008was
credited to revenue account.P100, 000 was earned in 2008, P200,00
will be earned in 2009 and the remainder will be earned in 2010.
A P150, 000 was recognized as a loss resulting from a
change in inventory valuation method during 2008.
What will be the adjusted Net Income during 2008?
a.2, 800,000
c..2, 850,000
b.3,150,000
d.2,600,000
7. Lathan Company was organized on January 1,2006 with the

following capital structures:

12%Cumulative preference share,P100 par ,with liquidation
value of P120,50,000 shares authorized, issued and outstanding
20,000 shares,P2,500,000.
Ordinary Share Capital, par value P50, authorized 80,000
shares, issued and outstanding 20,000 shares, P1, 200,000.
The net income for the years December 31, 2006 and December 31,
2007 were P2, 000,000 and 3,000,000, respectively. No dividends
were declared. What is the December 31, 2008 book value per
ordinary share?
a.256
c.260
c.291
d.285
8. Meninqiuz Company provided the following information for the

2008:
Total Assets at December 31
4,500,000
Share Capital at December 31
2,000,000
Share Premium at December 31
200,000
Treasury
Stock
(at
300,000

cost)

The debt-to-equity ratio is 25% at December 3, 2008. What is the

retained earnings unappropriated on December 31, 2008?
a.1, 400,000
c.2, 300,000
b.1, 100,000
d.1, 700,000
9. Felicia Co. owns 20% royalty interest in an oil well. Felicia receives

royalty payments on January 31 for the oil sold between June 1 and
November 30, and July 30 for oil sold between December 1 and May
31 Production report shows the following sales:
June
1,
2006-November
30,
2006
4,050,000
December1, 2006-December 31, 2006
675,000
December
1,
2006-may
31,
2007
5,400,000
June 1, 2007-November 30, 2007
4,387,500
December
1,
2007-December31,
2007
945,000
What amount should Felicia report as royalty revenue for 2007?
a.1, 890,000
c.2, 011,500
b.1, 944,000
d.2, 146,000
Assume the following balances at the end of the current year:
Capital
Liquidated
1,800,000
Accumulated
Depletion
2,500,000
Retained
Earnings
1,500,000
Depletion based on 50,000 units extracted @P20 per unit
1,000,000
Inventory of resource deposit 5,000 units
What is the maximum dividend that can be declared by the company?
10.

a. 2,100,000
c.2, 200,000
b.2, 000,000
d.1, 500,000

Marie Company sells gift certificates redeemable only when

merchandise is purchased. These gift certificates have an expiration
date of two years after issuance date. Upon redemption or
expiration, Marie recognizes the unearned revenue as realized.
Information for 2007 as follows:
Gift certificate payable 12/31/2006
520,000
Gift certificate payable 12/31/2007
680,000
Gift
certificate
redeemed
1,560,000
Expired
gift
certificates
80,000
Cost of goods sold
80%
How much Gift certificates sold during the year?
a.
1,800,000
c..
1,640 ,000
b.
1,500,000
d.
1,760,000
11.

Zee Company provided the following informations concerning its

defined benefit plan in its memorandum records on January 1, 2007.
Fair
Value
of
plant
assets
5,100,000
Unamortized
past
service
cost
210,000
Unrecognized
Actuarial
Loss
610,000
Projected Benefit Obligation
(4,500,000)
Prepaid/Accrued benefit cost
1,410,000
During the current year, the entity determined that its Current service
cost was 600,000 and the interest cost is 10%. The expected return
was 10% but the actual return was 12%. Past service cost and any
actuarial gain or loss should be amortized over 10 years. Other
related information is as follows:
Contribution to the plan
720,000
Benefits
paid
to
retirees
900,000
Decrease in PBO due to changes in actuarial assumptions
120,000
What is the balance of prepaid/ accrue benefit cost account on
December 31, 2007?
12.

a. 1,530,000
b. 1,560,000

c. 1,770,000
d. 1,680,000

PRC Company began selling a new calculator that carried a two

year warranty against defects in 2007.
PRC projected the estimated warranty cost (as a percent of sales) as
follows:
First year warranty
4%
Second
year
warranty
10%
Sales and actual warranty repairs were:
2007
2008
Sales
5,000,000
9,000,000
Actual warranty repairs
390,000
900,000
What is the estimated warranty liability on December 31, 2007?
a. 670,000
c. 700,000
b. 790,000
d. 650,000
13.

On December 31, 2007 Colt Company is experiencing extreme

financial pressure and is in default in meeting interest payment on
its long term note of P6, 000,000 due on December 31, 2009. The
interest rate is 12% payable every December 31.
In an agreement with the creditor, Colt obtained the following changes
in the terms of note:
a. The accrued interest on December 31, 2007 is forgiven.
b. The principal is reduced by 500,000.
c. The new interest rate is 8%.
d. The new date of maturity is December 31, 2011.
The present value of 1 at12% for four periods is 0.6355 and the
present value of an ordinary annuity of 1 at 12% for four periods is
3.0373.
How much is the gain or loss on extinguishment?
a. 2,504,750
c. 1,888,338
b. 1,168,338
d. 0
14.

East Company leased machinery from Chin Company on January

1, 2007 for a 10-year period (useful life of 20 years)
Equal annual payments under the lease are P200,000 and are due on
January 1 of each year starting January 1, 2007.
15.

The present value at January 1, 2007 of the lease payments over the
lease term discounted at 10% was 1,352,000. The lease was
appropriately accounted for as finance lease by East because there
is a very nominal bargain purchase option.
What is interest expense for 2008?
a. 106,720
c. 200,000
b. 115,200
d. 0
The Cloak Corporation received the following report from its
actuary at the end of the year:

16.

01/01/06
Unrecognized past service cost
Accumulated benefit obligation
Fair Value of pension plan assets
Actuarial net gain
Benefits paid during the year
Contribution made during the year
Current service cost
Expected rate of return
Settlement rate
Ave. working lives of employees

01/31/06

500,000
6,000,000
5,800,000
800,000

450,000
6,400,000
6,276,000
?
680,000
520,000
495,000
10%
12%
20 years

What is the amount of net benefit expense to be charged against income for the year
2006?
a. 675,000
b. 685,000

c. 716,000
d. 875,000

Francisco Company was organized on January 2, 2006 with

300,000 ordinary shares with a P6 par value authorized. During
2006, Francisco had the following stock transactions:

17.

January 2
Issued 60,000 shares at P10 per share
March 8 Issued 20,000 shares at P11 per share.
May 9
Purchased 7,500 shares at P12 per share.
July 2
Issued 15,000 shares at P13 per share.
August 17 Sold 5,000 treasury shares at P14 per share.
Francisco uses the FIFO method for purchase-sale purposes.
If Francisco uses the cost method to record treasury stock transactions, how much would
be the Share Premium at December 31,2006?

a. 445,000
b. 455,000

c. 465,000
d. 485,000

Genius Company reported an Accumulated Profits balance of

P300,000at December 31,2005. In June 2006, Genius discovered
that merchandise costing P100,000 had not been included in the
inventory in its 2005 financial statements. Assume Genius has 35%
tax rate.

18.

What amount should Genius report as adjusted beginning Accumulated Profits and
Losses on January 1, 2006?
a. 235,000
b. 365,000

c. 300,000
d. 400,000

In 2004, Power Designs Corporation sold a layout design to

Mass,Inc. and will receive royalties of future revenues associated
with the said layout design. On December 31,2005, Power Designs
reported royalties receivable of P75,000 from Mass, Inc. During
2006, Power Designs received royalty payments of P200,000.
Mass,Inc. reported revenues of P1,500,000 in 2006 from the layout
design.

19.

In its 2006 Income Statement, what amount should Power Designs report as royalty
revenue?
a. 125,000
b. 175,000

c. 200,000
d. 300,000

The following pertains to an operating sale and leaseback of

equipment by Harbor Co. on December 31,2005:

20.

Sales price
420,000
Carrying amount
520,000
Monthly lease payment
37,334
Present value of lease payments/Fair Market Value
420,000
Estimated remaining life
12 years
Lease term
1 year
Implicit rate
12%
What amount of deferred loss should Harbor report at December 31, 2005?

a. 0
b. 37,334

c. 100,000
d. 200,000

The Puncher Co. launched a sales promotional campaign on June

30, 2006. For every ten empty packs returned to Puncher,
customers will receive an attractive food container. The company
estimates that only 30% of the packs reaching the market will be
redeemed. Additional information are as follows:

21.

Sales of food packs

Food containers purchased
Prizes distributed to customers

Units
3,000,000
60,000
37,000

Amount
P9,000,000
180,000

At the end of the year, Puncher recognized a liability equal to the estimated cost of
potential prizes outstanding.
What is the amount of this estimated liability?
a. 69,000
b. 90,000

c. 159,000
d. 180,000

Green Company has 2,000,000 shares of ordinary shares

outstanding on December 31, 2005. An additional 100,000 shares
are issued on April 1, 2006 and 240,000 more on September 1. On
October 1, Green issued P3,000,000 of 9% convertible bonds. Each
bond is convertible into 40 shares of ordinary shares. At the time of
issue of the convertible bonds, the market rate of the bonds without
conversion option is equal to its nominal rate. No bonds have been
converted.

22.

The number of shares to be issued in computing basic earnings per share and diluted
earnings per share on December 31, 2006 would be:
a. 2,155,000 & 2,155,000
b. 2.155.000 & 2,275,000

c. 2,155,000
d. 2,540,000

Tarzana Company reported total purchases of P3,200,000 in its

accrual basis financial statement on December 31,2006. Additional
information revealed the following:

23.

Accounts Payable, December 31,2005

Accounts Payable, December 31,2006

P 900,000
1,250,000

What is the amount of purchases under the cash basis on December 31,2006?
a. 2,850,000
b. 3,550,000

c. 4,100,000
d. 4,450,000

On March 31, 2005 Mr. Right Enterprise traded in an old machine

having a carrying amount of P1,600,000 and paid cash difference of
P600,000 for a new machine having a total cash price of
P2,000,000.

24.

On March 31,2005, what amount of loss should Mr. Right recognize on this exchange?
a. P
0
b. P200,000

c. P400,000
d. P600,000

On April 30, 2005, Shark Corporation purchased for P 30 per

share all 200,000 of Fins Corporations outstanding ordinary share.
On this date, Fins balance sheet showed net assets of
P
5,000,000. Additionally, the fair value of Fins identifiable assets on
the same date was P600,000 in excess of their carrying amount.

25.

What amount should Shark report as goodwill in its April 30, 2005 consolidated balance
sheet?
a. P 0
b. P400,000

c. P600,000
d. P 1,000,000

On September 30, LBC Delivery service had a P28,000 debit balance in Accounts
Receivable. During October, the company had sales of P137,000, which included
P90,000 in credit sales. October collections were P91,000, and write-offs of
uncollectible receivables totaled P1,010. Other data include: September 30 credit
balance in allowance of uncollectible accounts, P1,060; Uncollectible-account
expense, estimated as 2% of the credit sales. Determine the ending balances in
Accounts Receivable, Allowance for Uncollectible Accounts and Net Accounts
Receivable at October 30.

26.

KHAE, Inc. is a manufacturer of cosmetics, specializing in products for sensitive

skin. During 2008, MARK & YHANE offered KHAE products for the first time, so
2008 was the KHAEs best year ever. Net Income reached P18M on sales of P430M,
and KHAE collected P440M from customers. The increased volume sales and
collections left KHAE w/ excess cash during the year, so the company invested P18M
in 90-day BSP Treasury Bills. These were the first short term investments in the

27.

companys history. KHAE cashed in P16M of the T-Bills during the year. At
December 31, 2008, KHAEs interest revenue for the year totaled P1.3M. of this
amount, KHAE expects to collect P.30M early in 2009 when the T-bills mature.
Determine the cash provided by operating, financing & Investing Activities.
In August 2008, JPIA Corp. purchased a trading investment some NDMU stock
for P312,000. The stock headed down, and one month later, JPIA sold the stock for
P309,000. On November 16, 2008, JPIA purchased 90-day BSP Treasury bill for
P380,000. JPIA intends to collect the T-bill at its maturity value of P388,000. Another
cash excess developed in December, and JPIA paid P263,000 for some Notes
Receivable that it will hold in the hope of selling them at a profit early in January
2009. the Notes Receivable is scheduled to mature in August 2009. At December 31,
2008, the market value of these notes is P262,000, not including the accrued interest
of P2,000 that was earned. How much is the interest income & purchase price of short
term investments?

28.

Glitters Corp. is a newly organized business for a medical practice to specialize in

genecology. Transactions for the month first month are:
a. Invested in the business of P25,000 in exchange of common stock.
b. Paid cash for land costing P15,000.
c. Purchased a medical supplies for P2,000 on account.
d. Glitters treated patients and earned service revenue of P8,000, receiving cash
for half the revenue earned.
e. Business paid the following expenses: salaries P1,400, office rent
P1,000,Utilities P300.
f. Business sold the supplies to another physician for cost of P500.
g. Business borrowed P10,000 signing a note payable on the bank.
h. Paid P1,500 on account.
Requirements:
1. Amount that business expects to collect from patients.
2. Amount owed by the business. Amount of Net Income or Net Loss does
business experienced.
3. The total assets of the business. Harrison 1-5

29.

30.

Information regarding Fs portfolio of marketable equity securities as follows:

Aggregate cost as of 12/31/08
P 340,000
Unrealized gains- 12/31/08
8,000
Unrealized Losses; 12/31/08
52,000
Net Realized gains during 2008
60,000
At December 31, 2007, F reported an allowance of P 1,500 to reduce investments
to lower cost or market. In its December 31, 2008, balance sheet, what allowance
should F report?

Based on physical inventory taken on December 31, 2008, Adobo Co. determined
its chocolate inventory on a FIFO basis at P26,000 with a replacement cost of
P20,000. Adobo estimated that, after further processing costs of P12,000, the
chocolate could be sold as finished candy bars for P40,000. Adobo normal profit
margin is 10% 0f sales. Under the lower cost or market rule, what amount should
Adobo report as chocolate inventory in its December 31, 2008 balance sheet?

31.

Yoo Co. determined that, due to obsolescence, equipment with an original cost of
P 900,000 and accumulated depreciation at January 1, 2007 of P420,000 had suffered
permanent impairment, and as a result should have a carrying value of only P300,000
as of beginning of the year. In addition, the remaining useful life of the equipment
was reduced from 8 to 3 years. In its December 31, 2008, balance sheet, what amount
should be report as accumulated depreciation?

32.

On January 8, 2008, Pagod Corp. established a noncontributory defined benefit

plan covering all employees and contributed P 1,000,000 to the plan. At December
31, 2008, Pagod determined that the 2008 service and interest costs on the plan were
P 620,000. The expected and the actual rate of return on plan assets for 2008 was
10%. There are no other components of Pagod pension expense. What amount should
Pagod report in its December 31, 3008, balance sheet as prepaid pension cost?

33.

On July 1, 2008, after recording interest and amortization, Nah Co. converted P
2,000,000 of its 12% convertible bonds into 50,000 shares of P2 par value common
stock. On the conversion date the carrying value of the bonds was P 2,800,000, and
Nah common stock was publicly trading at P60 per share. Using the book value
method, what amount of additional paid in capital should Nah record as a result of the
conversion. 5-9 from Luis hidalgo

34.

The notes to Van Corp.s financial statements recently reported the following data
on September 30, Year 1 (the end of fiscal year):

35.

Long-Term debt at September 30, Year 1, included the following:

6% debentures due year 20 with an effective interest rate of 9.66%, net of unamortized
discount
of
P58,695,000..P166,305,000
Other indebtedness with an interest rate of 8.30%, due P12,108,000 in year 5 and
P19,527,000
in
year
6.P31,365,000
Van amortizes discount by the effective interest method. What should be the bonds
carrying amount? Harrison & Horgren

Kuyaw Corp. entered into a 9 year lease on a warehouse on December 31, 2007.
Lease payments of P52,000, which includes real estate taxes of P2,000 are due
annually beginning on December 31, 2008, and every December 31 thereafter. Kuyaw
does not know the implicit rate in the lease. Kuyaws incremental borrowing rate is
9%. The rounded present value if an ordinary annuity for nine years at 9% is 5.6.
What amount should kuyaw report as capitalized lease liability at December 31,
2007?

36.

On June 1, 2005, Mardhex, Inc. issued P500,000 of 10%, 15-year bonds at par.
Interest is payable semiannually on June 1 and December 1. Bond issue costs were
P6,000. On June 1, 2010. Mardhex retired half of the bonds at 98. What is the net
amount that Mardhex should use in computing the gain or loss on retirement debt?

37.

On January 2, 2008, Marcfe Co. sold a used machine to Mardhex Inc. for
P900,000, resulting in a gain of P270,000. On that date, Mardhex paid P150,000 cash
and signed a P750,000 note bearing interest at 10%. The note was payable in three
annual installments of P250,000 beginning on January 2, 2009. Marcfe appropriately
accounted for the sale under the installment method. Mardhex made a timely payment
of the first installment on January 2, 2009, of P325,000, which included accrued
interest of P75,000. What amount of deferred gross profit should Marcfe report at
December 31, 2009?

38.

39.

KCC Mall made the following expenditures during 2007:

Costs to develop the computer software for internal
use in KCCs general management information
system
Costs of market research activities

P100,000
75,000

What amount of these expenditures should KCC report in its 2007 income statement as
research and development expenses? until here( hidalgo)
Red Company had the following balances at December 31, 2008; Cash in bank
P2,250,000, Cash on hand P125,000 & cash legally restricted for additions to plant
(expected to be disbursed in 2009) P1,600,000. Cash in bank includes P600,000
compensating balance is not legally restricted as to withdrawal by Red. In the current
assets section of Reds December 31, 2008 balance sheet, total cash should be
reported at:

40.

LL Inc. accepted from a customer a P40,000, a 90 day 12% interest bearing note
dated August 31, 2000. On September 30, 2000, LL discounted the note at the DBP
bank at 15%. However, the proceeds were not received until October 1, 2000. In LLs
September 30, 2000 balance sheet, the amount receivable from the bank based on a
360-day year, includes accrued interest revenue of:

41.

On July 1, 2005, PP Corp. sold equipment to OO Co. for P100,000. PP accepted a

10% note receivable for the entire sales price. This note is payable in 2 installments of
P50,000 plus accrued interest on December 31, 2005 and December 31, 2006. On
July 1, 2006, PP discounted the note at the bank at an interest rate of 12%. PPs
proceeds from the discounted note were:

42.

Coca Companys inventory at December 31, 2007 was P1,200,000 based on

physical count of goods priced at cost, and before any necessary year-end adjustments
relating to the following:

43.

Included in the physical count were goods billed to a customer FOB shipping
point on December 30, 2007. The goods had a cost of P25,000 and were picked
up by the carrier on January 7, 2008.
Goods shipped FOB shipping point on December 28, 2007, from a vendor to
Coca were received on January 4, 2008. The invoice cost was P60,000

What amount should Coca report as inventory in its December 31, 2007 balance sheet?
MC Corp. uses FIFO retail method of inventory valuation. The following
information is available:
Cost
Retail
Beginning inventory
P12,000
P30,000
Purchases
60,000
110,000
Net Additional Markups
10,000
Net Markdowns
20,000
Sales Revenue
90,000
44.

If the lower of cost or market rule is disregarded, what would be the estimated cost of the
ending inventory?
Problem 20-21 is based on the following:
During 2007, Pittoh Corp. incurred costs to develop and produce a routine, low-risk
computer software product, as follows:
Completion of detail program design

P13,000

Cost incurred for coding and testing to

Establish technological feasibility
Other coding costs after establishment
Of technological feasibility
Other testing costs after establishment
Of technological feasibility
Costs of producing product masters for training materials
Duplication of computer software and training
Material from product masters (1,000 units)
Packaging product

10,000
24,000
20,000
15,000
25,000
9,000

In Pittohs December 31, 2007 balance sheet, what amount should be reported in
inventory?

45.

In Pittohs December 31, 2007, balance sheet, what amount should be capitalized
as software cost, subject to amortization?

46.

Marbel, Inc. purchased a machine for P450,000 0n January 2, 2007. The machine
has an estimated useful life of four years and a salvage value of P50,000. The
machine is being depreciated using sum-of-the-years digits method. The December
31, 2008 asset balance, net of accumulated depreciation should be?

47.

Among items reported on U-Toh Inc.s Income Statement for year ended
December 31, 2008 were the following:

48.

Amortization of goodwill
Insurance premium on life of an officer
with U-toh as owner and beneficiary

P10,000
5,000

Temporary differences amount to? 0

For the year ended December 31, 2007, Jasmine Corp. has a loss carryforward of
P180,000 available to offset future taxable income. At December 31, 2008, realization
of the tax benefit is probable, but not assured beyond any reasonable doubt. Income
tax rate is 35%. What amount of the tax benefit should be reported in Jamines 2008
income statement? 0

49.

CPA Corporation owns an office building and normally charges tenants P30 per
square foot per year for office space. Because the occupancy rate is low, CPA agreed
to lease 10,000 square feet to MBA at P12 per square foot for the first year of a three
year operating lease. Rent for the remaining years will be at the P30 rate. MBA
moved into the building on January 1, 2007, and paid the first years rent in advance.
What amount of rental revenue should CPA report from MBA in its income statement
for the year ended September 30, 2007? 80,000

50.

During 2007, Mer Corp. sold goods to its 80% subsidiary, Xer Corp. At December
31, 2007, of these goods were included in Xers ending inventory. Reported 2007
selling expenses were P 1,000,000 and P 400,000 for Mer and Xer, respectively.
Pards selling expenses included P50,000 in freight out costs for goods sold to Xer.
What amount of selling expenses should be reported in Mers 2007 consolidated
income statement?

51.

On January 1, 2008, Pacman Corp. purchased 40% of the voting common stock of
Glen, Inc and appropriately accounts for its investment by the equity method. During
2008, Glen reported earnings of P225,000 and paid dividends of P75,000. Pacman
assumes that all of Glens undistributed earnings will be distributed as dividends in
the future periods when the enacted tax rate is 30%. Ignore the dividend-received
deduction. Pacman uses the liability method to account for temporary differences.
The increase in Pacmans deferred income tax liability for this temporary difference
is?

52.

53.
The Goat Corp. is authorized to issue 100,000 shares at P20 par ordinary share.
At the beginning of 2006, 18,000 ordinary shares were issued and outstanding.
These shares had been issued at P27 per share. During 2006, the company entered
into the following transactions:
January 4
March 19

Issued 1,300 ordinary shares at P28 per share

Exchanged 12,000 ordinary shares for a machine

The ordinary shares was selling at P30 per share.

May 9
Reacquired 500 ordinary shares at P29 per share.
July 19
Accepted subscriptions for 1,000 ordinary shares at P31 per
share. The contract called for 10% down payment with the
balance due on December 1.
September 4
Sold 500 of treasury share at P32 per share.
December 1
Collected the balance due on July 1 subscriptions and issued
the stock certificate.
How much is the contributed capital for December 31, 2006? (914,900)
54.
The shareholders equity section of Bless Corps balance sheet at December 31,
2005 was as follows:
Ordinary share (P10 par value, authorized 1,000,000
shares issued and outstanding 900,000 shares)
9,000,000
Share premium
2,700,000
Accumulated Profits and losses
1,300,000
Total shareholders' equity
13,000,000
On January 2, 2006, Bless purchased and retired 100,000 shares of its stock for
P1,800,000.
Immediately after retirement of these 100,000 shares, how much is the
balance in the Share Premium and Accumulated Profits? (Share premium
2,400,000; Accumulated Profit 800,000)

55.
Salvation Corporation had two issues of securities outstanding ordinary share
and an 8% convertible bond issue with a face amount of P16,000,000. Interest
payment dates of the bond issue are June 30 and December 31. The conversion
clause in the bond indenture entitles the bondholders to receive forty share of P20
par value ordinary share in exchange for each P1,000 bond. On June 30, 2006, the
holders of P2,400,000 face value bonds exercised the conversion privilege. The
equity component of the convertible debt at the time of issue is P950,000. The
market price of the bonds on that date was P1,100 and the market price of the
ordinary share was P35. The total unamortized bond discount at the date of the
conversion was P1,000,000.
In applying the book value method, what amount should Salvation credit to
the share premium in excess of par account as a result of this
conversion? (472,000)
56.
On January 1, 205, Elle Company granted 5,000 share options with a ten-year
life to each of ten executives. The share option will vest and become exercisable
immediately if and when the companys share price increases from P50 to P70 and
provided that the executives remain in service until the share target is achieved.
The company applies the binomial option model, which takes into account the
possibility that the target share price will not be achieved. The company
estimates that the fair value of the options at grant date is P25 per option. From
the option pricing model, the company determines that the mode of the
distribution of possible vesting date is five years. The most likely outcome of the
market condition is that the share price target will be achieved at the end of 2009.
Therefore, Elle estimates that the expected vesting period is five years. Elle also
estimates that two executives will have left by the end of 2009 and therefore
expects that 40,000 share options will vest at the end of 2009.
Throughout 2005 to 2008, Elle continues to estimate that a total of two
executives will leave by end of 2009. However, in total, three executives had left,
one each in 2007, 2008 and 2009. Another executive left in 2010 before the
share price target is achieved.
What amount of remuneration expense should the company recognize in
its December 31, 2009 income statement? (75,000)
57.

The shareholders equity of the Albert co. on June 30, 2006 was as follows:
Contributed capital:
5% preference shares,P50 par, cumulative, 30,000 shares
issued, dividends 5 years in arrears
Ordinary shares, P30 par, 100,000 shares issued
Deficits from operations
Total shareholders' equity

1,500,000
3,000,000
4,500,000
(600,000)
3,900,000

On July 1, the following actions were taken:

a. Ordinary shareholders turned in their old ordinary shares and received
in exchange new ordinary shares, 1 share of the new share being
exchanged for every 4 shares of the old. New ordinary share was
given a stated value of P60 per share.
b. One-half share of the new ordinary share was issued on each share
of preference share outstanding in liquidation of dividends in arrears
on preference share.
c. The deficit from operations was applied against the share premium
arising from the ordinary share restatement.
Transactions for the remainder of 2006 affecting the shareholders equity were as
follows:
October 1
November 10
December 31

10,000 preference shares were called at P55 plus dividends for 3

months at 5%. Share was formally retired.
60,000 new ordinary shares were sold at P65.
Net income for the 6 months ended on this date, was P400,000
(Assume that revenues and expenses were closed to a temporary
account, Income Summary. Use this account to complete the closing
process). The semi-annual dividend was declared on preference
shares, and a P0.75 dividend was declared on ordinary shares,
dividends being payable January 2, 2007.

What would be the total Shareholders Equity as of December 31, 2006?

(7,543,750)
58.
As the beginning of the accounting year 2006, Trum has machinery with a
historical cost of P4,500,000 and accumulated depreciation of P1,500,000.
On December 31, 2006, Trum declared the machinery as dividend which has a
carrying amount at the time of P2,500,000. Trums policy is to measure all
depreciable asset at cost. At the time of declaration, the equipment has a fair
market value of P2,000,000.
What total amount should Trum charge its accumulated profits and losses
related to the machinery during 2006? (3,000,000)
59.
In 2009, The Worf Company, reported pretax financial income of P500,000.
Included in that pretax financial income was P90,000 of nontaxable life insurance
proceeds received as a result of the death of an officer; P120,000 of warranty
expenses accrued but unpaid as of December 31, 2009; and P20,000 of life
insurance premiums for a policy for an officer.
Assuming that no income taxes were previously paid during the year and
assuming an income tax rate of 40 percent, the amount of income taxes
payable on December 31, 2009, would be (220,000)

60.
The books of the Tracker Company for the year ended December 31, 2008,
showed pretax income of P360,000. In computing the taxable income for federal
income tax purposes, the following timing differences were taken into account:
Depreciation deducted for tax purposes in excess of
depreciation recorded on the books ...................
P16,000
Income from installment sale reportable for tax purposes
in excess of income recognized on the books ..........
12,000

What should Tracker record as its current income tax liability at December
31, 2008, assuming a corporate income tax rate of 30 percent? (106,800)
61.
Frey Corporation's income statement for the year ended December 31, 2008,
shows pretax income of P1,000,000. The following items are treated differently on
the tax return and in the accounting records:

Rent income ...........................

Depreciation expense ..................
Premiums on officers' life insurance ..

Tax
Return
P 70,000
280,000
--

Accounting
Records
P120,000
220,000
90,000

Assume that Frey's tax rate for 2008 is 30 percent. What is the amount of
income tax payable for 2008? (294,000)
62.
Inventive Corporation's income statement for the year ended December 31,
2008, shows pretax income of P300,000. The following items are treated differently
on the tax return and in the accounting records:

Warranty expense ......................

Depreciation expense ..................
Premiums on officers' life insurance ..

Tax
Return
P170,000
150,000
--

Accounting
Records
P185,500
100,000
60,000

Assume that Inventive's tax rate for 2008 is 40 percent. What is the current
portion of Inventive's total income tax expense for 2008? (130,000)
63.
The following differences between financial and taxable income were reported by
Dider Corporation for the current year:
(a)
(b)
(c)
(d)
(e)
(f)

Excess of tax depreciation over book depreciation ....

Interest revenue on municipal bonds ..................
Excess of estimated warranty expense over actual
expenditures .........................................
Unearned rent received ...............................
Fines paid ...........................................
Excess of income reported under percentage-of-completion

P60,000
9,000
54,000
12,000
30,000

(g)
(h)

accounting for financial reporting over

completed-contract accounting used for tax reporting .
Interest on indebtedness incurred to purchase tax-exempt
securities ....................................
Unrealized losses on marketable securities recognized
for financial reporting ..............................

45,000
3,000
18,000

Assume that Dider Corporation had pretax accounting income [before considering
items (a) through (h)] of P900,000 for the current year. Compute the taxable
income for the current year. (903,000)
64.
In 2008, Wyatt Corporation issued for P110 per share, 15,000 shares of P100 par
value convertible preferred stock. One share of preferred stock may be converted
into three shares of Wyatt's P25 par value common stock at the option of the
preferred shareholder. On December 31, 2009, all of the preferred stock was
converted into common stock. The market value of the common stock at the
conversion date was P40 per share.
What amount should be credited to the common stock account on
December 31, 2009? (1,125,000)
65.
Beldon Co. was organized on January 2, 2008, with the following capital
structure:
10 percent cumulative preferred stock, par value P100,
and liquidation value P105; issued and outstanding
2,000 shares ........................................
P200,000
Common stock, par value P25; authorized 100,000 shares;
issued and outstanding 20,000 shares ................
500,000

Beldon's net income for the year ended December 31, 2008, was P900,000,
but no dividends were declared. Beldon's balance sheet would report
Dividends Payable at December 31, 2005, of (-0-)

66.
The accounts and balances shown below were gathered from Paynter
Corporation's trial balance on December 31, 2007. All adjusting entries have been
made.
Wages Payable ...........................................
Cash ....................................................
Mortgage Payable ........................................
Dividends Payable .......................................
Prepaid Rent ............................................
Inventory ...............................................
Sinking Fund Assets .....................................
Short-Term Investments ..................................
Premium on Bonds Payable ................................
Stock Investment in Subsidiary ..........................
Taxes Payable ...........................................
Accounts Payable ........................................
Accounts Receivable .....................................

P 25,600
17,700
151,600
14,000
13,600
81,800
52,400
15,200
4,600
102,400
22,800
24,800
36,600

The amount that should be reported as current assets on Paynter

Corporation's balance sheet is? P164,000
67.
See information for Paynter Corporation above. The amount that should be
reported as current liabilities on Paynter Corporation's balance sheet is
(87,200)

68.
Maryk Electronics Inc. reported the following items on its December 31, 2007,
trial balance:
Accounts Payable ........................................
Advances to Employees ...................................
Unearned Rent Revenue ...................................
Estimated Liability Under Warranties ....................
Cash Surrender Value of Officers' Life Insurance ........
Bonds Payable ...........................................
Discount on Bonds Payable ...............................
Trademarks ..............................................

P108,900
4,500
28,800
25,800
7,500
555,000
22,500
3,900

The amount that should be recorded on Maryk's balance sheet as total

liabilities is? (696,000)
69.
Eagle Co. prepared a draft of its 2007 balance sheet. The draft statement
reported current liabilities totaling P200,000. However, none of the following items
were included in this preliminary total at December 31, 2007:
Accounts payable ........................................
Bonds payable, due 2008 .................................
Discount on bonds payable, due 2008 .....................
Dividends payable on January 31, 2008 ...................
Notes payable, due 2009 .................................

P30,000
50,000
6,000
16,000
40,000

At which amount should Eagle's current liabilities be correctly reported in

the December 31, 2007, balance sheet? (290,000)

70.
The December 31, 2007, balance sheet of Madden Inc., reported total assets of
P1,050,000 and total liabilities of P680,000. The following information relates to the
year 2008:

Madden Inc. issued an additional 5,000 shares of common stock at P25 per
share on July 1, 2008.
Madden Inc. paid dividends totaling P80,000.
Net income for 2008 was P110,000.
No other changes occurred in stockholders' equity during 2008.

The stockholders' equity section of the December 31, 2008, balance sheet
would report a balance of? (525,000)

71.
Seahawk Company's adjusted trial balance at December 31, 2007, includes the
following account balances:
Common Stock, P3 par ....................................
Additional Paid-In Capital ..............................
Treasury Stock, at cost .................................
Net Unrealized Holding Loss on Available-For-Sale
Securities ............................................
Retained Earnings--Appropriated for Uninsured Earthquake
Losses ................................................
Retained Earnings--Unappropriated .......................

P300,000
400,000
25,000
10,000
75,000
100,000

What amount should Seahawk report as total owners' equity in its

December 31, 2007, balance sheet? (840,000)
72.
The following expenses were recognized by Kalob Company, a retailer, during
2008:
Interest expense .....................................
Telephone expense ....................................
Loss on sale of store equipment ......................
Legal fees ...........................................
Officers' salaries ...................................

P120,000
95,000
47,000
74,000
115,000

What should Kalob report as general and administrative expenses for

2008? (284,000)

ANSWER KEY
Theories
1.10 B
11-25 D
Problems
1. Answer: b

Solution: (1900,000 +1,000,000) /2 =1,950,000 x 5

=9,750,000
(1,100,000 + 1,200,000)/2 =1,150,000 x 4
=4,600,000
9,750,000-4,600,000 = 5,150,000
2. Answer: c

Solution: 2,000,000 500,000 =

1,500,000
========

3. Answer: a

Solution: (4,000,000 x 10%)/2 = 200,000 x 0.9615 = 192,300

2,000,000 + (4,000,000 x 10%)/2 = 2,200,000 x 0.9246=2,043,120
(2,000,000 x 10%)/2 = 100,000 x 0.8990 = 89,900
2,000,000 + (2,000,000 x 10%)/2 = 2,100,000 x 0.8548 =1,795,080
4,111,400
========
4. Answer: c

Solution:

Cost

8,000,000
8,000,000 x 3/8 = (300,000)

5,000,000

Replacement cost
12,000,000
12,000,000 x 3/8 = (4,500,000)
Revaluation Surplus

7,500,000
2,500,000

Depreciation

7,500,000/5 x 6/12 = 750,000

10,000,000
3,250,000

2,500,000
6,750,000

5,750,000
(750,000)
= 5,000,000

========
5. Answer: c
Solution:

1st year (8,000,000 x 150,000)/1,500,000 =

2nd year (8,000,000 x 225,000)/1,500,000 =
3rd year
( 8,000,000-800,000-1,200,000)/8 =

800,000
1,500,000
750,000

4th year

(8,00,000-800,000-1,200,000-750,000 x 225,000)/1,050,00 = 1,050,000

3,800,000
8,000,000-3,800,000 =
4,200,000
========

6. Answer: c

Solution:

Unadjusted Income
Unearned Income
Loss on Inventory

3,000,0000
(300,000)
150,000

Adjusted Income

2,850,000
========

7. Answer: b
Solution:
R/E
SP
(2,000,000 x 12% x 2)
(20,000 x 20)

Excess
5,000,00
700,000
(480,000)
(400,000)
(4,820,000)
0

Preference
2,000,000

Ordinary
1,000,000

480,000
4,820,000
5,820,000/20,000
= P 291
=====

8. Answer: a
Solution:

4,500,000/125% = 3,600,000
(2,000,000)
(200,000)
300,000
Total Retained Earnings
1,700,000
R/E Appropriated for T/S
(300,000)
1,400,000
========
9. Answer: c
Solution:
(5,400,000-675,00) x 20% = 945,000
(4,387,500+945,000 x 20% = 1,066,500
2,011,500
========
10. Answer: a
Solution:
Retained Earnings
1,500,000
Accum. Depletion
2,500,000
4,000,000
Less: Capital Liquidated
(1,800,000)
Inventory (15,000 x 20)
(100,000)
2,100,000
=======
11. Answer: a
Solution: Gift Certificate Payable, end
680,000
Certificates Redeemed
1,560,000

Expired Certificates
Gift Certificates, beg.
Gift Certificates Sold

80,000
(520,000)
1,800,000
========

12. Answer: d
Solution:
Prepaid/Accrued-Debit, beg.
1,410,000
Current Service Cost
600,000
Interest ( 4,500,000 x 10%)
450,000
Expected Return (5,100,000 x 10%) (510,000)
Past Service Cost ( 210,000/10)
21,000
Amortization ( 600,000-510,00)/10
9,000
Curtailment/ Settlement
(120,000)
Benefit Expense
450,000
Prepaid/Accrued (720,000-450,000)
270,00
Total
1,680,000
=======
13. Answer: a
Solution:

( 5,000,000 + 9,000,0000) = 14,000,000

14,000,0000 x 14%

1,960,000
(390,000)
(900,000)
670,000
======

14. Answer: c
Solution
5,500,000 x 0.6355 = 3,495,250
(5,500,000 x 8%) = 440,000x 3.0373= 1,336,412
PV of restructured liability
4,831,662
6,000,000
720,000
6,720,000
(4,831,000)
1,888,338
=======
15. Answer: a
Solution:

1,152,000 x 10% =

200,000
(115,200)
84,800

(1,152,000-84,800) x 10% = 106,720

======

16. Answer: a
Solution:

Current service cost

Interest (6,000,000 x 12%)
Amortization (500,000-450,000)
Amortization of he net gain
Expected return on plan assets
Net benefit Expense

495,000
720,000
50,000
(10,000)
(580,000)
P 675,000
=======

17. Answer: b
Solution

January 2
[60,000 x (P10 P6)]
240,000
March 8
[20,000 x (P11 P6)]
100,000
July 2
[15,000 x (P13 P6)]
105,000
August 17
[15,000 x (P14 P12)]
10,000
Total Share Premium
P 455,000
=======

18. Answer: c
Solution: Accumulated Profits
Understatement in Inventory for 2005
100,000 x 65%
Adjusted January 1 2006 Accumulated Profits

P300,000
65,0000
P365,000
=======

19. Answer: d
Solution:

1,500,000 x 20%

P300,000
=======

20. Answer: a
21. Answer: c
Estimated no. of packs to be redeemed (3,000,000 x 30%)

900,000/10
= 90,000
-37,000
53,000
X P3
159,000
======

22. Answer: b
Solution:
Average # of shares for basic EPS
01/01/06
04/01/06
09/01/06

2,000,000 x 12/12
100,000 x 9/12
240,000 x 4/12

2,000,000
75,000
80,000
2,155,000

=======
Diluted EPS = Average # of shares issued
2,155,000
Average Ordinary shares issued as if it
converted (3,000,000 x 1,000 x 40 x 3/12)

30,000
2,185,000

23. Answer: a
Solution:
Purchases, accrual
P3,200,000
Accounts Payable, December 31,2005
900,000
Less: Accounts Payable December 31,2006

4,100,000
1,250,000
P2,850,000
========

24.Answer: b
Solution:
Trade-in value/Fair value (2,000,000 600,000)
Carrying value

P1,400,000
1,600,000
P 200,000
=========

25. Answer: b
Solution:
Acquisition cost (200,000 x P30)
Less: Market value of the net assets acquired
Book value
P5,000,000
Fair value of identifiable assets
600,000

P6,000,000
5,600,000
P 400,000
========