Final Pre-board in Practical Accounting 1 (Review School of Accountancy)

1. The following were taken from the incomplete financial data of Sam Company, a
calendar year merchandising corporation:
December 31, 2008
December 31, 2009
Trade Accounts Receivable
840,000
780,000
Inventory
1,500,000
1,000,000
Accounts Payable
950,000
980,000
Accrued general & administrative
130,000
170,000
expenses
Prepaid selling expense
150,000
130,000
Property, plant and equipment
1,650,000
1,420,000
Patent
425,000
300,000
Investment in associate
550,000
720,000
The following additional information were made available: cash payments for
selling and administrative expenses was P900,000, payments for purchases, net of
cash discounts of P70,000 was P1,530,000. Equipment with a book value of
P200,000 was sold for P250,000. There were no acquisitions of property, plant and
equipment and other transactions affecting net income during the period. There
were no acquisitions of investment during 2009. If the company reported a net
income before tax of P270,000, what is the amount of collections on trade
receivables in 2009?
a. 2,425,000
c. 3,285,000
b. 2,470,000
d. 3,485,000
e.
2. The balance sheet at December 31, 2008 of Mall Company showed a cash balance
of P91,750. An examination of the books disclosed the following:
a.
b.
Cash sales of P12,000 from January 1-7, 2009 were predated as of
December 28-31, 2008 and charged to the cash account. Customers checks
totaling P4,500 deposited with and returned by the bank NSF on December 27,
2008 were not recorded in the books. Checks of P5,600 in payment of liabilities
were prepared before December 31, 2008 and recorded in the books, but withheld
by the treasurer. Post-dated checks totaling P3,400 are being held by the cashier as
part of cash. The companys experience shows that post-dated checks are
eventually realized. The cash account includes P20,000 being reserved for the
purchased of a mini-computer which will be delivered soon. Personal checks of
officers, P2,700, were redeemed on December 31, 2008, but returned to cashier on
January 2, 2009.
c.
d.
How much is the cash balance that should be shown in the December 31,
2008 balance sheet?
e. P91,750
f. P69,150
g. P54,750
h. P43,550
i.
3. Your clients, Mills Corporation, requests your assistance in determining the amount
of loss and in filing as insurance claim in connection with a fire on June 15, 2006
that destroyed some of the companys inventory and accounting records. You were
able to obtain the following information from available records:
a.
b.
The last physical inventory was taken on December 31, 2005. At the time,
total inventory (at cost) amounted to P210,798.80. Accounts payable were

P110,106.42 on December 31, 2005 to the date of the fire totaled P641,871.56. All
sales are on account and accounts receivable were P135,009.18 at December 31,
2005 and P107,145.25 at the date of the fire. Collections on receivable from
December 31, 2005 to the date of fire amounted to P876,195.50. Almost all the
merchandise items are sold at approximately 30% in excess of cost. As of June 15,
2006, the total cost of the inventory items not destroyed by the fire amounted to
P144,882.33.
c.
d.
How much is the loss incurred by the company as a result of the fire?
e. 72,055.23
g. 216,937.56
f. 130,785.88
h. 275,668.21
i.
4. Marcel Company purchased 5,000 shares of Boniface Co. par P100 at P120 in July
2006. Marcel Company classified the securities as available for sale. Marcel
Company received a share dividend of 1 share for every 5 owned on August 5,
2006. On September 16, 2006, the company received a cash dividend of P10 per
share on the stock and was granted to purchase 1 share at P105 for every 4 shares
held. The share had a market value ex-right of P115 and the right had a value of P5.
On December 20, 2006, the company sold 2,000 rights at P7.50 and exercised the
remaining rights. What is the average unit cost of the total investment as of
December 31, 2006?
a. 95.83
b. 98.70
c. 99.52
d. 105.00
e.
f.
5. ordinary share. On the date of organization, it sold 20,000 shares at P50 per share
and gave the remaining shares in exchange for certain land-bearing recoverable ore
deposits estimated by geologists at 900,000 tons. The property is deemed to have a
value of P2,700,000 with no residual value.
a.
b.
During 2005, purchases of mine buildings and equipment totaled P261,000.
During the year, 75,000 tons were mined; 8,000 tons of this amounts were unsold on
December 31, the balance of tonnage being sold for cash at P17 per ton. Expenses
incurred and paid during the year, exclusive of depletion and depreciation, were as
follows:
c.
Mining
P173,500
d.
Delivery
P 20,000
e.
General and administrative
P 19,500
f.
g.
Cash dividends of P2 per share were declared on December 31, payable
January 15, 2006. It is believed that buildings and sheds will be useful only over the
life of the mine, hence, depreciation is to be recognized in terms of mine output.
How much is the net income for 2005?
h. 705,
i. 723,
j. 724,
k. 765,
570
630
050
570
l.
6. During 2006, Rover spent P6,000,000 in its new software package. Of this amount,
60% was spent before technological feasibility was established for the product,
which is to be marketed to third parties. The package was completed at December

31, 2006. Rover expects a useful life of 8 years with total revenues of P20,000,000.
During 2004, Rover realizes revenues of P4,000,000. Net realizable value of the
software on December 31, 2007 is 85% of cost. What amount of software expense
should be included in the December 31, 2007 income statement?
a. 300,
b. 360,
c. 480,
d. 720,
000
000
000
000
e.
7. On January 1, 2006, Trooper Enterprises, Inc. developed a new machine that
reduces the time required to insert the fortunes into their fortune cookies. Because
the process is considered very valuable to the fortune cookie industry, Trooper had
the machine patented. The following expenses were incurred in developing and
patenting the machine:
a. Research and development laboratory expenses
P250,000
b. Metal used in construction of the machine
80,000
c. Blueprints used to design the machine
32,000
d. Legal expenses to obtain patent
120,000
e. Wages paid for the employees on the research, development and
f.
the building of the machine; 60% of the time was spent in actual
g.
building of the machine
150,000
h. Expense of drawing required by the patent office to be submitted with
i.
the patent application
17,000
j. Fees paid to government patent office to process application
24,500
k.
On January 2, 2007, Trooper Enterprises, Inc. paid P35,200 in legal fees to
successfully defend the patent against an infringement suit by Aliance
Company. What is the carrying value of the patent in December 31, 2007?
l. 142,
m. 145,
n. 175,
o. 178,
500
350
500
697
p.
8. Pine Company offers a coffee mug as a premium for every ten P2.50 candy bar
wrappers presented by customers together with P10.00. The purchase price of each
mug to the company is P8.00; in addition, it costs P5.00 to mail each mug. The
results of the premium plan for the years 2005 and 2006 are as follows (assume all
purchases and sales are for cash):
a.
b. 2005
c. 2006
d. Coffee mugs purchased
e. 480,0
f. 400,0
00
00
g. Candy bars sold
h. 3,750,
i. 4,500,
000
000
j. Wrappers redeemed
k. 1,900,
l. 2,800,
000
000
m. 2005 wrappers expected to be
n. 1,300,
o.
redeemed in 2006
000
p. 2006 wrappers expected to be
q.
r. 1,800,
redeemed in 2007
000
s.
What is the amount of premium liability in the December 31, 2006 balance
sheet?
t. 540,000
u. 840,000
v. 990,000
w. 1,380,000

9. 9. Dreamer Corp. has an employee benefit plan for compensated absences that
gives employees 10 paid vacation days and 10 paid sick days. Both vacation and
sick days can be carried over indefinitely. Employees can elect to receive payment
in lieu of vacation days; however, no payment is given for sick days not taken. At
December 31, 2006, Dreamers unadjusted balance of liability for compensated
absences was P210,000. Dreamer estimated that there were 150 vacation days
and 75 sick days available at December 31, 2006. Dreamers employees earn an
average of P1,000 per day. In its December 31, 2006 balance sheet, what amount
of liability for compensated absences is Dreamer required to report?
a. P360,000
b. P225,000
c. P210,000
d. P150,000
e.
10. Baron Appliance Companys accountant has been reviewing the firms past
television sales. For the past years, Baron has been offering a special service
warranty on all television sold. With the purchase of a television, the right to
purchase a 3-year service contract for an extra P800. Information concerning past
television and warranty contract sales is given below:
a.
b. 20
c. 200
06
5
d. Television sales in units
e. 1,
f. 920
10
0
g. Sales price per unit
h. P
i. P8,
10
000
,0
00
j. Number of service contracts sold
k. 70
l. 600
0
m. Expenses relating to television
n. P
o. P2
warranties
77
6,8
,0
00
40
p.
Barons accountant has estimated from past records that the pattern of
repairs has been 40% in the year of sale, 36% on the first year after sale and 24%
on 2nd year of sale. Sales of the contracts are made evenly during the year. How
much unearned service contract would be recognized in year 2006?
q. P201,600
r. P294,400
s. P448,000
t. P649,600
u.
v. Items 11 and 12 are based on the following information:
w. Matter Corporation is in the business of leasing new sophisticated
computer systems. As a lessor of computers, Matter purchased a new
system on December 31, 2005. The system was delivered the same day (by
prior arrangement) to DOT Company, a lessee.
The corporations
accountant revealed the following information relating to the lease
transaction:
x.
Cost of system to Matter
P550,000
y.
Estimated useful life and lease term
8 years
z.
Expected residual value (unguaranteed)
P40,000
aa.
Matrixs implicit rate of interest
12%
ab.
Date of first lease payment
December 31, 2005
ac. Additional information as follows:
At the end of the lease, the system will revert to Matter.

Dot is aware of Matters rate of implicit interest.

The lease rental consists of equal annual payments.
Matrix accounts for leases using the direct financing method. Dot intends to record
the lease as a finance lease. Both the lessee and the lessor report on a calendar
year basis and elect to depreciate all assets on the straight-line basis.
ad.
11. What amount of depreciation expense should the lessee recognized related to the
leased asset for the year ended December 31, 2006? (Carry present value
computations up to 3 decimal places.)
a. 52,5
b. 66,7
c. 64,0
d. 119,
47
30
61
277
e.
12. What amount of interest expense should the lessee recognized related to the lease
transaction for the year ended December 31, 2006?
a. 52,5
b. 66,7
c. 64,0
d. 119,
47
30
61
277
e.
13. The following information relates to the defined benefit pension plan for the Citywide
Company for the year ending December 31, 2006:
a. Present value of benefit obligation, January 1
P6,900,000
b. Present value of benefit obligation, December 31
7,793,500
c. Fair value of plan assets, January 1
7,552,500
d. Fair value of plan assets, December 31
8,347,500
e. Deferred gain on plan asset during 2003
42,500
f. Amortization of deferred gain
48,750
g. Employer contribution
637,500
h. Benefits paid to retirees
585,000
i. Settlement rate
10%
j.
How much would be the net pension cost for the year 2006?
k. 687,
l. 729,
m. 784,
n. 788,
250
750
750
500
o.
14. Swift Company operates a defined benefit pension plan and changes it on January
1, 2006 to a defined benefit contribution plan. The defined benefit plan still relates to
past service but not future service. The net pension liability after the plan
amendment is P35,000,000 and the net pension liability before the amendment was
P50,000,000. How should the Swift Company account for this change?
a. Swift Company recognizes a gain of P15,000,000.
b. Swift Company does not recognize a gain.
c. Swift Company recognizes a gain of P15,000,000 over the remaining service
lives of the employees.
d. Swift Company recognizes a gain but applies the 10% corridor approach to
it.
e.
15. On December 31, 2007, Woods Company changed its defined benefit pension plan
to defined contribution plan. Woods agrees with the employees to pay them

P18,000,000 in total on the introduction of a defined contribution plan. The

employees forfeit any pension entitlement for the defined benefit plan. The pension
liability recognized in the balance sheet at December 31, 2007 was P20,000,000.
How would this curtailment be accounted for in the balance sheet at December 31,
2008?
a. A settlement gain of P2,000,000 should be shown.
b. The pension liability should be credited to reserves and a cash payment of
P18,000,000 should be shown in expense in the income statement.
c. The cash payment should go to reserves and the pension liability should be
shown as a credit to the income statement.
d. A credit to reserves should be made of P2,000,000.
e.
16. Adverse financial and operating circumstances warrant that Cinema Company
undergoes a quasi-organization at December 31, 2006. The following information
may be relevant in accounting for the quasi-reorganization.
a.
b.
Inventory with a net realizable value of P215,000 is currently recorded in the
accounts at its cost of P250,000. Equipment with a fair market value of P700,000
are currently recorded at P875,000, net of accumulated depreciation. A creditor
agrees to extend the maturity date of a loan for five years, although interest as
originally stated must continue to be paid. Individual shareholders contribute
P800,000 to create additional paid-in capital to facilitate the reorganization. No new
shares of stock are issued, although control of a majority of the companys
outstanding stock passes to the companys creditors. The par value of the ordinary
share is reduced from P25 to P15. Immediately before those events, the
shareholders equity section appears as follows:
c.
d.
Ordinary share capital (P25 par value, 100,000 shs., authorized &
outstanding) 2,500,000
e.
Share premium reserve
1,750,000
f.
Retained earnings (deficit)
( 750,000)
g.
3,500,000
h.
i. After the quasi-reorganization, the share premium reserve should have a
balance of
j. 1,790,000
k. 2,390,000
l. 2,590,000
m. 3,350,000
n.
17. Honey Company reported the following amounts in the stockholders equity section
of its balance sheet dated December 31, 2005:
a. Preference share capital (P150 par value, 20,000 shares)
3,000,000
b. Ordinary share capital (P37.50 par value, 100,000 shares)
3,750,000
c. Share premium reserve
6,000,000
d. Accumulated profits
4,500,000
e. Treasury stock, at cost (5,000 ordinary shares)
250,000
f.
On January 2, 2006, Honey sold 20,000 additional shares of ordinary share
for P90 per share. Late in 2006, it was learned that because of mathematical error,
an overstatement of depreciation expense by P375,000 had occurred in 2005.
Honey reported net income of P825,000 for 2006. Honey declared cash dividends
of P150,000 on preference share and P450,000 on the ordinary share during 2006.

All the treasury shares were re-issued for P35 per share on December 31, 2006.
What should be the accumulated profits balance on December 31, 2006?
g. 4,275,000
h. 4,980,000
i. 5,025,000
j. 5,100,000
k.
l. Items 18 and 19 are based on the following information:
m. Data below came from the comparative trial balance of Mellow Company.
The books are kept on the accrual basis. Included in the operating expenses
are depreciation of P35,000 and amortization of P15,000.
n.
o. 2006
p. 2005
q. Accounts receivable
r. 2,200,00
s. 2,450,00
0
0
t. Interest receivable
u. 8,000
v. 17,000
w.
x.
y. 2006
z. 2005
aa. Inventories
ab. 4,200,00
ac. 4,050,00
0
0
ad. Prepaid insurance
ae. 50,000
af. 20,000
ag. Accounts payable
ah. 3,640,00
ai. 3,450,00
0
0
aj. Other operating expenses
ak. 250,000
al. 150,000
payable
am. Net sales
an. 12,000,0
ao.
00
ap. Interest revenue
aq. 65,000
ar.
as. Cost of goods sold
at. 8,000,00
au.
0
av. Insurance expense
aw. 500,000
ax.
ay. Other operating expenses
az. 950,000
ba.
bb.
18. Cash paid for operating expenses during the year amounted to
a. 1,330,000
b. 1,380,000
c. 1,400,000
d. 800,000
e.
19. If the companys net income was P500,000 under the accrual basis, what is the net
income for the year 2006 under the cash basis?
a. 869,
b. 895,
c. 919,
d. 960,
000
000
000
000
e.
20. Neon Company has 110,000 ordinary shares outstanding, 10,000, 6% cumulative,
P100 par convertible preference share that are convertible into 20,000 ordinary
shares and an 8% 4-year convertible bonds with a face value of P1,000,000,
convertible into 30,000 ordinary shares. The bonds were issued on January 1 when
the prevailing interest rate was 10%. The liability component of the bonds at the
time of issue is P936,600. Net income for the year is P850,000. Income tax rate is
32%. How much is the diluted earnings per share for the year?
a. P5.7
b. P5.6
c. P6.0
d. P7.1
1
5
0
8
e.
21. Pearl Company began operations on January 1, 2005. On December 31, 2005,
Pearl provided for uncollectible accounts based on 1% of annual credit sales. On
January 1, 2006, Pearl changed its method of determining its allowance for

uncollectible accounts by applying certain percentage to the accounts receivable

aging as follows:
a. Days past invoice date
b. Percent deemed to be
uncollectible
c. 0 30
d. 1
e. 31 - 90
f. 5
g. 91 - 180
h. 20
i. Over 180
j. 80
k.
In addition, Pearl wrote off all accounts receivable that were over 1 year old.
The following additional information relates to the years ended December 31, 2005
and 2006:
l.
m. 2006
n. 2005
o. Credit sales
p. P6,000
q. P5,600
,000
,000
r. Collections
s. 5,830,0
t. 4,800,0
00
00
u. Accounts written off
v. 54,000
w. None
x. Recovery of accounts previously
y. 14,000
z. none
written off
aa.
ab. Days past invoice date at December 31
ac.
ad.
ae. 0 30
af. 600,00
ag. 500,00
0
0
ah. 31 90
ai. 160,00
aj. 180,00
0
0
ak. 91 180
al. 120,00
am. 90,00
0
0
an. Over 180
ao. 50,000
ap. 30,000
aq.
What is the provision for uncollectible accounts for the year ended December
31, 2006?
ar. 22,0
as. 62,0
at. 76,0
au. 78,0
00
00
00
00
av.
22. The Killjoy Company sells Product A. During the year, the company moved to a new
location, the inventory records for Product A were misplaced. The bookkeeper has
been able to gather some information from the sales records and gives you the data
shown below:
a. July sales:
57,200 at P100
b.
c.
July purchases:
d. Date
e. Quantity
f. Unit Cost
g. July 5
h. 10,000
i. P65.00
j. July 9
k. 12,500
l. 62.50
m. July 12
n. 15,000
o. 60.00
p. July 23
q. 14,000
r. 62.00
s.
t.
u. On July 31, 16,000 units were on hand with a total value of P988,000. Killjoy
has always used a periodic FIFO inventory costing system. Gross profit on sales for
July was P2,058,750. What is the total cost and unit cost, respectively, of the
beginning inventory?

v. 1,345,400 and 62.00

x. 1,367,100 and 63.00
w. 1,353,538 and 62.38
y. 1,450,000 and 66.82
z.
23. Storm Company began business in May of 2005. During the year, Storm purchased
the three trading securities listed below. In its December 31, 2005 balance sheet,
Storm appropriately reported a P50,000 debit balance in its Fair Value Adjustment
Trading Securities account. There was no change during 2006 in the composition
of Storms portfolio of trading securities. Pertinent data are as follows:
a. Sec
b. Cost
c. December 31,
urit
2006
y
d. Market Value
e. G
f. P 400,000
g. P 350,000
h. O
i.
500,000
j.
350,000
k. D
l.
900,000
m.
800,000
n.
o. P1,800,000
p. P1,500,000
q.
What amount of unrealized loss on these securities should be included in
Storms income statement for the year ended December 31, 2006?
r. P0
s. P300,000
t. P350,000
u. P400,000
24.
25. Grand Company has 40,000 shares of unquoted equity instrument of Sand
Corporation. These shares were acquired at P40 per share on January 2, 2006. On
December 31, 2006, Grand Company sold 30,000 shares of its investment in Sand
Corporation for P50 per share. The remaining securities were sold on December 15,
2007 for P60 per share. Market value of Sands shares is not determinable or
cannot be measured reliably. Using the cost recovery method, what amount of
realized gain or loss should Grand Company recognize in 2007 from selling those
shares?
a. 100,
b. 400,
c. 500,
d. 600,
000
000
000
000
e.
26. Thank Company purchased 40% of God Companys outstanding ordinary shares on
January 2, 2006 for P8,000,000. The carrying amount of Gods net assets at the
date of purchase totaled P18,500,000. Fair values and carrying values were the
same for all items except for plant and inventory for which fair values exceeded their
carrying amounts by P1,000,000 and P200,000 respectively. The plant has a 20year life. The entire inventory was sold during 2006. Goodwill, if any, is not to be
amortized and no impairment test has been done since the company believes that
the goodwill has yet to decline its value. During 2006, God Company reported net
income of P2,400,000 and paid a P400,000 cash dividends. What amount should
Thank report in its income statement from its investment in God for the year ended
December 31, 2006?
a. 836,
b. 844,
c. 860,
d. 960,
000
000
000
000
e.
27. The December 31, 2006 and 2005 comparative financial statements of World
Gallery Company showed equipment with an original cost P379,000 and P344,000
with accumulated depreciation of P153,000 and P128,000, respectively. During
2006, the company purchased equipment costing P50,000, and sold equipment with
a carrying value of P9,000. What amount should the company report as
depreciation expense for 2006?

a. 19,0
b. 25,0
c. 31,0
d. 34,0
00
00
00
00
e.
28. An intangible asset cost P300,000 on January 1, 2005. On January 1, 2006, the
asset was evaluated to determine whether it was impaired. As of January 1, 2006,
the asset was expected to generate future cash flows of P25,000 per year (at the
end of the year). The appropriate discount rate is 5%. What total amount to be
charged against income in 2006, assuming that the asset was assumed to have a
total useful life of 10 years from date of acquisition?
a. 19,7
b. 92,3
c. 112,
d. 132,
44
04
044
334
e.
f. Items 28 and 29 are based on the following:
g.
On January 1, 2006, Belief Company issued its 9%, 4-year convertible debt
instrument with a face amount of P4,000,000 for P4,100,000. Interest is
payable every December 31 of each year. The debt instrument is convertible
into 80,000 ordinary shares with a par value of P50. When the debt
instruments were issued, the prevailing market rate of interest for similar debt
without conversion option is 10%. On December 31, 2007, 1/4 of the
convertible debt instruments were retired for P1,000,000. Without the
conversion option, the debt instrument can be retired at 97%.
h.
29. On the date of issue, what amount of the proceeds represents the equity
component?
a. None
b. 226,800
c. 3,873,200
d. 4,100,000
e.
f.
30. After the retirement, what is the carrying value of the debt instruments as of
December 31, 2007?
a. 2,947,929
b. 3,900,520
c. 3,930,572
d. 3,963,629
e.
31. Selfless Company determined that, due to the obsolescence, equipment with an
original cost of P180,000 and accumulated depreciation at January 1, 2005 of
P84,000 had suffered permanent impairment, and as a result should have a fair
value of only P60,000 as of the beginning of the year. Additionally, the remaining
useful life of the equipment was reduced from eight years to three years. In its
December 31, 2005 balance sheet, how much should Selfless report as
accumulated depreciation?
a. 20,0
b. 104,
c. 120,
d. 140,
00
000
000
000
e.
32. On January 2, 2005, Haven Corporation acquired a track of land that is to be sold in
the ordinary conduct of business.
The purchase price of the property of
P50,000,000 was paid in cash and a total transaction costs of P500,000 related to
the acquisition of the property was also paid at a later date. The land was
subdivided into 2,000 lots (200 square meters for every lot) for an additional cost of
P5,500,000. On December 31, 2005, the market value of the lot was P1,500 per
square meter.

a.
b.
As of December 31, 2006, only 20,000 square meters are still unsold and
market value of the lot had increased to P1,600 per square meter. On this date,
Haven Corporation decided to transfer the remaining lots into investment property
that is to be carried under the fair value model. There was no additional cost
incurred on the change of intention on the property.
c.
d.
What amount of gain should Haven Corporation recognize as a result of the
transfer?
e. 29,200,00
f. 29,225,00
g. 29,475,00
h. 29,500,00
0
0
0
0
i.
j. Items 32 and 33 are based on the following information:
k.
On June 15, 2006, Valiant Company sold its investment property for
P6,250,000, net of disposal cost and other transaction costs of P150,000.
This property was acquired at a historical cost of P5,120,000 including total
transaction costs of P190,00 and has a fair market value of P6,200,000 as of
December 31, 2005.
33. If the company uses the cost model, what amount of realized gain on sale of the
investment property should Valiant Company recognize?
a. 50,000
b. 790,000
c. 1,080,000
d. 1,130,000
e.
34. If the company uses the fair value model, what amount of realized gain on sale of
the investment property should Valiant Company recognize?
a. 50,000
b. 790,000
c. 1,080,000
d. 1,130,000
e.
35. The draft financial statements of Clarion Company, for the year ended December 31,
2006 are currently under consideration by the directors. The net asset for the year is
shown as P3,500,000. Since December 31, 2006, the following events have
occurred, but have not been reflected in any way in the draft financial statements to
that date.
a.
b.
Item 1 A substantial quantity of slow-moving inventory was sold for
P320,000. The inventory had cost P600,000 and had been valued for the accounts
at December 31, 2006 at its estimated net realizable value of P400,000
c.
Item 2 A trade receivable paid the amount owing of P130,000 in full. At
December 31, 2006, there were doubts as to whether it would be paid, and a
specific provision for the full amount had been made in the accounts.
d.
e.
What is the adjusted amount of net asset should Clarion Company report in
its December 31, 2006 balance sheet?
f. 3,420,000
g. 3,500,000
h. 3,550,000
i. 3,630,000
j.
36. The following information has been extracted from the accounting records of Trend
Company:
a.
b. December 31,
c. December 31,
2006
2007
d. Borrowings
e. P1,000,000
f. P2,000,000
g. Share capital
h. 2,000,000
i. 2,500,000
j. Property
revaluation
k. 500,000
l. 600,000
reserve

m. Retained earnings
p.
q.
r.

n. 750,000

o. 950,000

Additional information:
s.
Borrowings of P200,000 were repaid during the year 2007. New borrowings
include P600,000 vendor financing arising on the acquisition of a property.
The increase in share capital includes P300,000 arising from the companys
dividend reinvestment scheme.
The movement in retained earnings comprises profit for the year P900,000 and
of dividends P700,000.
There were no dividends payable reported in the balance sheet at either
December 31, 2006 or December 31, 2007.
t.
u.
What is the amount of financing net cash flows Trend Company should
report?
a. P200,000
b. P500,000
c. P400,000
d. P700,000
e.
37. The following information has been extracted from the accounting records of Smooth
Company:
f.
g. Decembe
h. Decemb
r 31,
er 31,
2006
2007
i. Land, at independent valuation
j. P1,000,0
k. P1,500,0
00
00
l. Plant, at cost
m. 2,100,000
n. 2,550,00
0
o. Accumulated depreciation
p. (200,000)
q. (280,000)
r. Available
for
sale
listed
s. 300,000
t. 500,000
investments, fair value
u. Goodwill
v. 250,000
w. 200,000
x.
Additional information:
There are no disposals of land.
There were no disposals of plant or investment.
The land revaluation reserve increment is net of deferred tax of P64,000.
The investment revaluation reserve for the year is net of deferred tax of P32,000.
y.
What is the amount of investing cash flows should Smooth Company report?
a. P300,000
b. P750,000
c. P450,000
d. P850,000
e.
f. Items 37 and 38 are based on the following information:
g. Zebra Co. leased equipment from Cobra Corp. on January 1, 2005 for an 8year period expiring December 31, 2012. Equal payments under the lease
are P600,000 and are due on December 31 of each year. The first payment
was made on December 31, 2005. The rate of interest contemplated by
Zebra and Cobra is 11%. The present value of the equipment is P3,087,674.
Zebra Company incurred a total transaction costs of P64,969 to negotiate the
contract of lease. If the transaction cost is deducted, the effective yield is
11.6%.
38. If the lease is accounted as a sales type lease, what is the initial carrying value of
the lease rental receivable on December 31, 2005?

a. 2,773,339
b. 2,827,318
c. 3,022,705
d. 3,087,674
e.
39. If the lease is accounted as a direct financing lease, what is the initial carrying value
of the lease rental receivable on December 31, 2005?
a. 2,773,339
b. 2,827,318
c. 3,022,705
d. 3,087,674
e.
40. Marcus Company has reported a total financial liability of P15,000,000 in its
accounting records as of December 31, 2007 which include the following:
A P3,000,000 face value perpetual bond that pays 5% interest each year.
A P2,000,000 redeemable preference share that will be redeemed by Marcus at
a future date
A P1,500,000 redeemable preference share redeemable at the option of the
holder
A P75,000 written call option that allows the holder to purchase a fixed number
of ordinary shares from Marcus Company for a fixed amount.
b.
What is the correct amount of financial liability that should be reported by
Marcus Company in its December 31, 2007 balance sheet?
a. P11,500,0
b. P11,925,0
c. P13,425,0
d. P14,925,0
00
00
00
00
e.
41. Titan Company issued a convertible bond on January 1, 2006, that matures in five
years. The bond can be converted into ordinary shares at any time. Titan has
calculated that the liability and the equity components of the bond are P3,000,000
for the liability component and P1,000,000 for the equity component, giving a total
amount of the bond of P4,000,000. The interest rate of the bond is 6% and local tax
legislation allows a tax deduction for the interest paid in cash.
f.
g.
What is the deferred tax liability arising on the bond as at the year ending
December 31, 2006? (Tax rate is 32%)
a. None
c. P960,000
d. P1,200,00
b. P320,000
0
e.
42. On January 1, 2006, Icor Company has spent P900,000 in developing a new
product. These costs meet the definition of an intangible asset under PAS 38 and
have been recognized in the balance sheet. Local tax legislation allows these costs
to be deducted for tax purposes when they are incurred. On December 31, 2007,
the intangible is deemed to be impaired by P75,000. What amount of tax base
related to the intangible asset as of December 31, 2006?
a. Zero
b. P75,000
c. P825,000
d. P900,000
e.
43. Mutant Companys current liabilities include fines and penalties for environmental
damage. The fines and penalties are stated at P5,000,000. The fines and penalties
are not deductible for tax purposes. Tax rate is 32%. What is the tax base of the
fines and penalties?
a. None
b. P1,600,00
c. P5,000,00
d. P6,000,00
0
0
0
e.
44. On January 2, 2007, Brand Company received a grant of P60,000,000 to
compensate it for costs it incurred in planting trees over a period of five years.
Brand Company will incur such cost in this manner:

a. Year
b. Costs
c. 2007
d. P2,000,000
e. 2008
f. P4,000,000
g. 2009
h. P6,000,000
i. 2010
j. P8,000,000
k. 2011
l. P10,000,000
m.
Actual costs incurred in planting the trees showed P2,000,000 and
P4,000,000 in years 2007 and 2008 respectively. However, in 2009 and up to year
2011, the company has stopped planting trees.
n.
o.
Due to the non-fulfillment of its obligation, the government is demanding an
immediate repayment of the grant in the amount of P50,000,000 which is considered
reasonable.
p.
q.
What amount should be recognized as an expense related to the repayment
of grant?
r. None
s. P2,000,00
t. P44,000,0
u. P50,000,0
0
00
00
v.
w. Items 44 to 46 are based on the following information:
x. On January 2, 2007, Wink Corporation received a grant of P20,000,000 to
build and run a power plant in an economically backward area. The
secondary condition attached to the grant is that the entity should directly
distribute the necessary needed power to the area at a rate that is much
lower than the prevailing power rate in other advance areas. The power
plant is to be depreciated using the straight-line method over a period of 10
years.
y.
z. The power plant was completed at the end of year 2007 at cost of
P50,000,000 and started producing and distributing power to the backward
area at rate which is at par that the prevailing rates in other advance areas.
aa.
ab. On June 30, 2009, the national government demanded P15,000,000 from
Wink Company the repayment of the grant due to the non-fulfillment of the
conditions. Wink Company paid the national government on July 1, 2009.
45. What is the carrying value of the power plant as of July 1, 2009 immediately after the
repayment was made assuming at the time of initial recognition the grant received
was recognized as a deferred income?
a. P25,500,0
b. P42,500,0
c. P45,000,0
d. P50,000,0
00
00
00
00
e.
46. What is the carrying value of the power plant as of July 1, 2009 immediately after the
repayment was made assuming at the time of initial recognition the grant received
was recognized as a reduction of the related asset?
a. P25,500,0
b. P42,500,0
c. P45,000,0
d. P50,000,0
00
00
00
00
e.
47. What total amount of income should Wink Company recognized in 2009 assuming
the grant was treated as deferred income at initial recognition?
a. None
b. P2,000,00
c. P3,000,00
d. P4,000,00
0
0
0

e.
48. Camper Company acquires a subsidiary with a view to selling it. The subsidiary
meets the criteria to be classified as held for sale. At the balance sheet date, the
subsidiary has not been sold and six months have passed since its acquisition. At
the balance sheet date, the carrying value of the subsidiary is P4,500,000; its
estimated selling price is P6,000,000 and estimated cost to sell is P1,200,000. How
much should the subsidiary be valued at balance sheet date?
a. P3,300,00
b. P4,500,00
c. P4,800,00
d. P6,000,00
0
0
0
0
e.
f.
49. On January 31, 2006, May Company enters into a contract with April Company to
receive the fair value of 2,000 of May Companys own outstanding shares as of
February 1, 2007 in exchange for a payment of P220,000 in cash or an equivalent of
P110 per share on February 1, 2007. Delivering a fixed amount of cash and
receiving a fixed number of May Companys shares will settle the contract. At the
time of the contract, the prevailing rate of interest is 10%.
a.
b.
At the time of the contract, shares of May Company are selling at P100 per
share, the present value of the forward contract is zero. On December 31, 2006,
shares of May Company are selling at P115 and the forward contract has a fair value
of P13,800. On February 28, 2007, shares of May Company are selling at P108 and
the fair value of the forward contract is P4,000.
c.
d.
What amount should May Company recognize as liability on January 31,
2006?
e. None
f. 200,
g. 218,
h. 220,
000
333
000
i.
j. Items 49 and 50 are based on the following information:
k. On February 1, 2006, Jaguar Company enters into a contract with Lynx
Company that gives Lynx Company the right to receive and Jaguar Company
the obligation to pay the fair value of 2,000 of Jaguars own ordinary shares
as of January 31, 2007 in exchange for P204,000 in cash (P102 per share)
on January 31, 2007, if Lynx Company exercises the right. The contract will
be settled by delivering a fixed number of shares and receiving a fixed
amount of cash. If Lynx Company does not exercise its right, no payment
will be made.
l.
m. Below is pertinent relevant information:
n.
o. Febr
p. Decemb
q. January
uary
er 31,
31, 2007
1,
2006
2006
r. Market value of
s. P100
t. P104/sh
u. P104/sha
shares
/shar
are
re
e
v. Fair value of
w. P10,
x. P6,000
y. P4,000
options
000
z.

50. What amount of shareholders equity will increase as a result of the contract on
February 1, 2006?
a. None
b. 4,00
c. 6,00
d. 10,0
0
0
00
e.
51. What amount of shareholders equity will increase in December 31, 2006 other than
the increase in February related to the contract?
a. Non
b. 4,00
c. 6,00
d. 10,0
e
0
0
00
e.

f.