DySAS Center for CPA Review

2F & 3F Mitra Building, San Pedro Street, Davao City

Tel. No. (082) 224-43-20: E-mail Address – dysasrev@yahoo.com

Practical Accounting 1 John C. Frivaldo, CPA, MBA

SECOND PRE-BOARD EXAMINATIONS February 15, 2009 @ 8:00 – 10:00 am
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INSTRUCTIONS: Mark the letter of your choice with a VERTICAL LINE on the answer sheet provided.
ERASURES NOT ALLOWED.

1. Forex Company prepared the following reconciliation of income per book with income per tax return for the year
ended December 31, 2008:
Book income before income tax P15,000,000
Add temporary difference:
Construction contract revenue which will
reverse in 2009 2,000,000
Deduct temporary difference:
Depreciation expense which will reverse in
equal amounts in each of the next 4 years ( 8,000,000)
Taxable income P 9,000,000
If the income tax rate is 32%, what amount should Forex report in its 2008 income statement as the current
provision for income tax?
(a) P3,150,000 (b) P5,250,000 (c) P5,950,000 (d) P2,450,000 A

Current tax liability (9,000,000 x 35%) P3,150,000

2. The following information pertains to Malt Company on December 31 of the current year:
Property, plant and equipment P 5,000,000
Accumulated depreciation 1,500,000
Accounts receivable 1,000,000
Prepaid insurance 50,000
Short-term note payable 150,000
Cash 500,000
Bonds payable 4,000,000
Total assets 8,950,000
Land 2,000,000
Accounts payable 800,000
Allowance for doubtful accounts 100,000
Merchandise inventory 1,300,000
Short-term investments 700,000
Wages payable 200,000
Total liabilities 5,450,000
Premium on bonds payable 300,000
The December 31 working capital is:
(a) P3,450,000 (b) P2,300,000 (c) P3,550,000 (d) P2,000,000 B

Accounts receivable P1,000,000

Prepaid insurance 50,000
Short-term note payable ( 150,000)
Cash 500,000
Accounts payable ( 800,000)
Allowance for doubtful accounts ( 100,000)
Merchandise inventory 1,300,000
Short-term investments 700,000
Wages payable ( 200,000)
Working capital P2,300,000

3. Hort Corporation had 100,000 shares of P100 par, 10%, preferred shares and 400,000 shares of P100 par, 8%,
preferred shares outstanding the entire year. Both classes of the preferred shares were considered not to be
ordinary shares equivalents. In addition to its preferred shares, Hort had 1,000,000 ordinary shares outstanding for
3 months and 1,500,000 ordinary shares outstanding for 9 months. What was Hort’s net income for the year if its
basic earnings per share were P4.75?
(a) P10,731,250 (b) P9,731,250 (c) P6,531,250 (d) P5,531,250 A

4. Aries uses the cash basis of accounting and reported income of P87,000 in 2008. The following items were not
considered in the computation of cash basis net income:
Inventory, beginning P12,000
Inventory, ending 18,000
Receivables, beginning 40,000
Receivables, ending 38,000
Payables, beginning 19,000
Payables, ending 25,000
The accrual basis income is:
(a) P97,000 (b) P89,000 (c) P77,000 (d) P85,000 D

Reported net income – cash basis P 87,000

Increase in inventory (P18,000 – 12,000) 6,000
 Decrease in accounts receivable (P40,000 – P38,000) ( 2,000)
Increase in accounts payable (P25,000 – P19,000) ( 6,000)
Adjusting income – accrual basis P 85,000

5. The accountant for the Eastern Company assembled the following data:
June 30 July 31
Cash account balance P 15,822 P 39,745
Bank statement balance 107,082 137,817
Deposit in transit 8,201 12,800
Outstanding checks 27,718 30,112
Bank service charge * 72 60
Customer’s check deposited July 10,
returned by bank on July 16 marked
NSF, and redeposited immediately;
no entry made on books for return
or redeposit 8,250
Collection by bank of company’s notes
receivables 71,815 80,900
* recorded on books in months following charge or collection.
The bank statements and the company’s cash records show these totals:
Disbursements in July per bank statement P218,373
Cash receipts in July per Eastern’s books 236,452
Checks written in July per Eastern’s books 212,529
Receipts in July per bank statement 249,108
What is the correct cash balance to be shown on Eastern Company’s balance sheet at December 31, 2008?
(a) P128,835 (b) P112,335 (c) P120,585 (d) P115,906 C

Balance per bank P137,817

Deposit in transit 12,800
Outstanding checks ( 30,112)
Adjusted cash balance P120,585

6. Selected information from Kit Company’s accounting records is as follows:

Cash paid to retire common stock P 12,000
Proceeds from issuance of preferred stock 15,000
Cash dividends paid 5,000
Proceeds from sale of equipment 25,000
On the statement of cash flows for the year, Kit should report net cash flow from financing activities as:
(a) P2,000, net outflow of cash (c) P23,000, net outflow of cash
(b) P13,000, net outflow of cash (d) P25,000, net inflow of cash A

Cash paid to retire common stock (12,000)

Proceeds from issuance of preferred stock 15,000
Cash dividends paid ( 5,000)
Cash flow from financing activities ( 2,000)

7. On November 30, 2007, Parola Company, a publishing company in the Philippines, executed a contract with Charles,
an author from Canada, providing for payment of 10% royalties on Canadian sales of Han’s books. Payment is to be
made in Canadian dollars each January 10 for the previous year’s sales. Canadian sales for the year ended
December 31, 2008 totaled $50,000 Canadian. Parola paid Han his royalties on January 15, 2009. Spot rate for
Canadian dollars were as follows: P36 on November 30, 2007, P39 on December 31, 2008, and P41 on January 15,
2009. How much should Parola accrue for royalties payable at December 31, 2008?
(a) P180,000 (b) P205,000 (c) P195,000 (d) P200,000 C

Royalties payable – 12/31/2008

(10% x $50,000 = $5,000 x 39) P195,000

8. The following information pertains to Helen Company for the current year:
Monetary assets: January 1 250,000
December 31 700,000
Monetary liabilities: January 1 100,000
December 31 300,000
Increase in net monetary items as restated for
hyperinflation 3,500,000
Decrease in net monetary items as restated for
hyperinflation 3,000,000
General price index: January 1 125
December 31 300
What is the gain or loss on purchasing power for the current year?
(a) P460,000 gain (c) P250,000 gain
(b) P460,000 loss (d) P250,000 loss B

Monetary assets – January 1 250,000

Monetary liabilities – January 1 100,000
Net monetary assets – January 1 at cost 150,000

Net monetary assets – January 1 as restated

(150,000 x 300/125) 360,000
Increase in net monetary items as restated 3,500,000
 Decrease in net monetary items as restated (3,000,000)
Net monetary assets – December 31 as restated 860,000

Monetary assets – December 31 700,000

Monetary liabilities – December 31 300,000
Net monetary assets – December 31 at cost 400,000
Net monetary assets – December 31 as restated ( 860,000)
Loss on purchasing power ( 460,000)

9. The following is a statement of retained earnings for the current year provided by Laser Company (in millions):
Balance at beginning of year 85,000
Additions:
Change in estimate of amortization
expense for the year 2,500
Gain on sale of land 18,000
Interest revenue 4,500
Profit and loss for current year 13,000 38,000
Total 123,000
Deductions:
Increased depreciation due to change in
estimated life 5,000
Dividends declared and paid 11,000
Loss on sale of equipment 3,000
Loss from major casualty 7,000 26,000
Balance at end of year 97,000

What net income should have been reported in the income statement for the year?
(a) P23,000 (b) P13,000 (c) P12,000 (d) P25,500 A

Profit and loss for current year 13,000

Change in estimate of amortization expense 2,500
Gain on sale of land 18,000
Interest revenue 4,500
Increased depreciation due to change in
estimated life (5,000)
Loss on sale of equipment (3,000)
Loss from major casualty (7,000)
Adjusted net income 23,000

10. Chester Corporation was a development stage enterprise from its inception on September 1, 2007 to December 31,
2008. The following information was taken from Chester’s accounting records for the above period:
Net sales P1,350,000
Cost of sales 1,000,000
Selling, general and administrative expenses 400,000
Research and development costs 300,000
Interest expense 100,000
In the period September 1, 2007 to December 31, 2008, what amount should Chester report as net loss?
(a) P50,000 (b) P150,000 (c) P350,000 (d) P450,000 D

Net sales P1,350,000

Cost of sales (1,000,000)
Gross profit P 350,000
Selling, general and administrative expenses ( 400,000)
Research and development costs ( 300,000)
Interest expense ( 100,000)
Net loss P 450,000

11. The book value of Good’s inventory at the end of 2008 is P95,000. Included in the amount are the following items:
Merchandise in transit, purchased FOB shipping point P6,800
Goods held as consignee 5,000
Goods out on consignment, at cost plus 50% markup
on cot plus P100 delivery charge 6,100
The correct amount of inventory is:
(a) P83,100 (b) P87,900 (c) P86,200 (d) P88,000 D

Inventory per books, December 31 P95,000

Goods held as consignee ( 5,000)
Markup on goods out on consignment
[6,000 – (6,000/ 1.50)] ( 2,000)
Inventory as adjusted, December 31 P88,000

12. Manuel Lim, an investor, had the following transactions on Apollo Mining Corp. common stock during the year 2008:
Feb 8 Purchased 200 shares of Apollo common stock at P60 per share, plus brokers’ commission of P720.
June 10 Received a 100% stock dividend and a cash dividend of P5 per share.
Nov. 3 Received stock rights entitling him to purchase one new share at P50 for every four shares held. On
this date, sold rights at P5 each and 100 shares at P70 each share.
Nov 21 Exercised 300 rights.
What is the gain on sales of 100 stock rights on November 3, 2008?
(a) 0 (b) 100 (c) 288 (d) 344 C
 Proceeds from sale of stock rights (100 rights x 5) 500
Less: Cost allocated to 100 stock rights (848* x ¼) 212
Gain on sale 288

* Cost of stock purchased (200 shares x 60) + 720 12,720

Cost allocated to stock rights [5/(70 + 5)] x 12,720 848

13. On January 1, 2008, Mid Company purchased ten-year bonds with a face value of P1,000,000 and a stated interest
rate of 8% per year payable semi-annually July 1 and January 1. The bonds were acquired to yield 10%. The
purchase price of the bonds is:
(a) P1,124,620 (b) P1,100,000 (c) P1,000,000 (d) P875,380 D

Semiannual nominal interest (1,000,000 x 4%) P 40,000

Semiannual effective interest (1,000,00 x 5%) 50,000
Difference P 10,000
PV of annuity of P1 for 20 periods at 5% x 12.462
Discount P124,620

Face value P1,000,000

Discount ( 124,620)
Purchase price P 875,380

14. On December 31, 2008, Act Corporation signed a 7-year capital lease for an airplane to transport its sport team
around the country. The airplane’s fair value was P8,415,000. Act made the first annual lease payment of
P1,530,000 on December 31, 2008. Act’s incremental borrowing rate was 12%, and the interest rate implicit in the
lease, which was known by Act, was 9%. The following are the rounded present value factors for an annuity due:
9% for 7 years 5.5 12% for 7 years 5.1
What amount should Act report as capital lease liability in its December 31, 2008 balance sheet?
(a) P8,415,000 (b) P7,803,000 (c) P6,885,000 (d) P6,273,000 C

PV, December 31, 2008 (1,530,000 x 5.5) P8,415,000

First payment on December 31, 2008
(all applicable to principal) (1,530,000)
Lease liability – 12/31/2008 P6,885,000

15. On January 1, 2008, Cherry Company issued 4,000 of its 8%, P2,000 bonds at 97 plus accrued interest. The bonds
are dated October 1, 2007 and mature on October 1, 2017. Interest is payable semiannually on April 1 and October
1. Accrued interest for the period October 1, 2007 to January 1, 2008 amounted to P160,000. On January 1, 2008,
what amount should Cherry report as bonds payable, net of discount?
(a) P7,840,000 (b) P7,766,000 (c) P7,600,000 (d) P7,760,000 D

(4,000 x 2,000 x 97%) P7,760,000

16. Ben Company’s current liabilities at December 31, 2008 totaled P2,000,000 before any necessary year-end
adjustment relating to the following:
a. During December 2008, Bea received P100,000 from ABC as an advance payment. From this transaction, Bea
has a P100,000 credit balance in its accounts receivable from ABC at December 31, 2008.
b. On December 26, 2008, Bea wrote and recorded checks to creditors totaling P800,000 which would cause an
overdraft of P200,000 in Bea’s bank account at December 31, 2008. The checks were mailed out on January 10,
2008.
At December 31, 2008, what amount should Bea report as total current liabilities?
(a) P2,100,000 (b) P2,300,000 (c) P2,800,000 (d) P2,900,000 D

Unadjusted balance P2,000,000

Customer accounts with credit balance 100,000
Undelivered check 800,000
Adjusted balance P2,900,000

17. JM Construction Co. started work on three jobs during the current year. Data relating to the three jobs are given
below:
Estimated
Contract Cost cost to Billings on Collections
Site price incurred complete contract on contract
Sasa P500,000 P375,000 P 0 P500,000 P400,000
Matina 700,000 100,000 400,000 100,000 50,000
Toril 250,000 100,000 100,000 0 0

What amount of income should be reported for the current year if the percentage of completion method is used for
all contracts?
(a) P65,000 (b) P190,000 (c) P215,000 (d) P240,000 B

Sasa Matina Toril

Cost incurred 375,000 P100,000 P100,000
Cost to complete 0 400,000 100,000
Total estd. cost P375,000 P500,000 P 200,000
% of completion 100% 20% 50%

Sasa Matina Toril Total

 Contract price P500,000 P700,000 P250,000 P1,450,000
Less: Estimated cost 375,000 500,000 200,000 1,075,000
Estimated profit P125,000 P200,000 P 50,000 P 375,000
Multiply: % of completion
100% 20% 50% _________
Gross profit to be
recognized P125,000 P 40,000 P 25,000 P 190,000

What would be the amount of Construction in Progress to be reported on the balance sheet if the percentage of
completion method is used?
(a) P165,000 (b) P265,000 (c) P575,000 (d) P765,000 B

Matina Toril Total

Cost incurred P100,000 P100,000 P200,000
Profit recognized 40,000 25,000 65,000
Construction in progress P140,000 P125,000 P265,000

18. Prey Company purchased a tooling machine in 1999 for P500,000. The machine was being depreciated on the
straight-line method over an estimated life of 20 years, with no salvage value. At the beginning of 2009, when the
machine had been in use for 10 years, Prey Company paid P50,000 to overhaul the machine. As a result of this
improvement, it is estimated that the useful life of the machine would be extended an additional five years. What
should be the depreciation expense recorded for the above machine in 2009?
(a) P25,000 (b) P20,000 (c) P22,000 (d) P30,000 B

Original cost P500,000

Less: Accum. depreciation:
(500,000 x 10/20) P250,000
Cost to overhaul ( 50,000) (200,000)
Book value – 1/1/2009 P300,000
Depreciation [ 300,000/(20+5-10)] P 20,000

19. Mercurial Corporation reported the following balances on January 1, 2008:

Accounts receivable P1,500,000
Allowance for doubtful accounts 90,000
During 2008, Mercury Corporation reported credit sales of P9,000,000 and interim provision for doubtful accounts at
2% of credit sales. Accounts of P100,000 were written off during 2008 but accounts of P20,000 were subsequently
recovered. The balance of accounts receivable on December 31, 2008 amounted to P2,000,000 and aged as follows:
Classification Balance Estimated uncollectible
Under 30 days P1,000,000 1%
31 – 60 days 400,000 5%
61 – 120 days 300,000 10%
121- 180 days 200,000 25%
Over 180 days 100,000 100%
Based on the review of collectibility of account balances, additional receivables of P40,000 under the classification
“more than one year” are to be written off on December 31, 2008. Mercury Corporation should report doubtful
accounts expense for 2008 in the amount of:
(a) P200,000 (b) P170,000 (c) P240,000 (d) P20,000 A

Under 30 days P1,000,000 x 1% P 10,000

31 – 60 days 400,000 x 5% 20,000
61 – 120 days 300,000 x 10% 30,000
121- 180 days 200,000 x 25% 50,000
Over 180 days 100,000 x 100% 60,000
Allowance – 12/31 P170,000
Write off 140,000
Allowance – 1/1 ( 90,000)
Recovery ( 20,000)
Doubtful accounts expense P200,000
20. Due to extreme financial difficulties, Art Company has negotiated a restructuring of its 10% P5,000,000 note payable
due on December 31, 2008. The unpaid interest on the note on such date is P500,000. The creditor has agreed to
reduce the face value to P4,000,000, forgive the unpaid interest, reduce the interest rate to 8% and extend the due
date three years from December 31, 2008. Art should report gain on extinguishment of debt in its 2008 income
statement at:
(a) P1,703,200 (b) P1,203,200 (c) P2,000,000 (d) P540,000 C

PV of principal (4,000,000 x .75) 3,000,000

PV of annual interest payments
(320,000 x 2.49) 796,800
Total present value of new liability 3,796,800

Note payable – old 5,000,000

Accrued interest payable 500,000
Total old liability 5,500,000
PV of new liability (3,796,800)
Gain on extinguishment of debt 1,703,200

Note payable – new 4,000,000

PV of new liability (3,796,800)
Discount on note payable 203,200
 Entry:
Notes payable – old 5,000,000
Accrued interest payable 500,000
Discount on notes payable 203,200
Notes payable – new 4,000,000
Gain on extinguishment of debt 1,703,200

21. Sky Company has established a defined benefit pension plan for its employees. Annual payments under the pension
plan are equal to 3% of an employee’s highest lifetime salary multiplied by the number of years with the company.
An employee’s salary in 2008 was P500,000. The employee is expected to retire in 10 years, and his salary increases
are expected to average 4% per year during that period. As of December 31, 2008, the employee has worked for 15
years. The future value of 1 at 4% for 10 periods is 1.48.
What is the amount of annual pension payment that should be used in computing the employees’ projected
benefit obligation as of December 31, 2008?
(a) P555,000 (b) P375,000 (c) P333,000 (d) P225,000 C

Future salary (500,000 x 1.48) 740,000

Annual pension payment – PBO (740,000 x 3% x 15 years) 333,000

Annual pension payment – ABO (500,000 x 3% x 15 years) 225,000

Projected benefit obligation is based on future salary while accumulated benefit obligation is based on current salary.

PAS dictates the concept of projected benefit obligation which reflects future salary increases. Also, projected unit
credit method considers future salary increase in computing the defined benefit obligation.

22. Ty Company, a publicly owned corporation, assesses performance and makes operating decisions using the following
information for its reportable segments:
Total revenue P7,680,000
Total profit and loss 406,000
Included in the total profit and loss are intersegment profit of P61,000 In addition, Ty has P5,000 of common costs
for its reportable segments that are not allocated in reports used internally. For purposes of segment reporting, Ty
report segment profit of:
(a) P350,000 (b) P345,000 (c) P411,000 (d) P406,000 D

23. Cable began operations in 2005. During the first 5 years of operations, it reported the following net loss or income:
2005 P400,000 loss 2008 P1,670,000 income
2006 170,000 loss 2009 1,950,000 income
2007 240,000 loss
You are given the following capital accounts at December 31, 2009:
Common stock, par P8 per share, authorized, issued
and outstanding, 140,000 shares P1,120,000
5% non-participating, non-cumulative preferred stock,
par P100, authorized, issued and outstanding
2,500 shares 250,000
9% non-participating, cumulative preferred stock,
par P100, authorized and issued in 2001 and
outstanding 20,000 shares 2,000,000
The company has never paid a cash dividend in any other type of dividend. The amount of dividends that can be
paid out of retained earnings at the end of 2008 is:
(a) P1,670,000 (b) P2,810,000 (c) P860,000 (d) P1,950,000 C

2001 P400,000 loss

2002 170,000 loss
2003 240,000 loss
2004 1,670,000 income
Ret. earnings, Dec. 31, 2008 P860,000

24. The Shopping Mall has 3,000 shares of P200 par value, 7% cumulative and nonparticipating preferred stock and
10,000 shares of P20 par value common stock. Dividends have not been paid on the preferred stock for the current
and one prior year. The corporation has been enjoying brisk sales, and the Board of Directors has voted out P98,000
of the corporation’s retained earnings in dividends. If the P98,000 is paid out, how much should the preferred and
common stockholders receive on per share basis?
(a) P14 per share preferred and P5.60 per share common
(b) P2.28 per share preferred and P9.12 per share common
(c) P28 per share preferred and P1.40 per share common
(d) P24.50 per share preferred and P2.46 per share common C

Preferred Common
To preferred (600,000 x .07 x 2) P84,000
Balance to common (98,000 – 84,000) P14,000
Divide by no. of shares outstanding 3,000 10,000
Dividends per share P 28.00 P 1.40

25. Fritz Company enters into a call option contract with a bank on January 1, 2008 that gives the entity the option to
purchase 10,000 shares at P100 per share. The option expires on April 30, 2008. The shares are trading at P100
per share on January 1, 2008, at which time Fritz pays P10,000 for the call option. The market price per share is
 P120 on April 30, 2008, and the time value of the option has not changed. In order to settle the option contract,
Fritz would most likely:
(a) Pay the bank P200,000
(b) Purchase the shares at P100 per share and sell the shares at P120 per share to the bank
(c) Receive P200,000 from the bank
(d) Receive P190,000 from the bank C

Call option receipt (10,000 x 20) 200,000

26. Mart Company’s post-closing trial balance at December 31, 2008 appear as follows:
Accounts payable and accrued liabilities 3,000,000
Accounts receivable 6,000,000
Accumulated depreciation 2,500,000
Allowance for doubtful accounts 800,000
Bonds payable 5,000,000
Property, plant and equipment 11,000,000
Cash 2,500,000
Common stock (P50 par value) 6,000,000
Dividends payable 200,000
Inventory 8,000,000
Trading securities 3,500,000
Investment in equity securities at cost 2,000,000
Unrealized loss on trading securities 500,000
Additional paid in capital – common
In excess of par 5,000,000
From sale of treasury stock 1,000,000
Preferred stock (P25 par value) 5,000,000
Retained earnings 6,500,000
Treasury stock – common, at cost 1,500,000
At December 31, 2008, Mart had the following number of common and preferred shares:
Common Preferred
Authorized 300,000 300,000
Issued 120,000 200,000
Outstanding 100,000 200,000
The dividend on preferred stock is 10% cumulative. The preferred stock has a preference in liquidation of P50 per
share. What is the total stockholders’ equity on December 31, 2008?
(a) P22,000,000 (b) P21,500,000 (c) P21,700,000 (d) P23,500,000 B

Common stock P 6,000,000

Preferred stock 5,000,000
Additional paid in capital 6,000,000
Retained earnings 6,500,000
Treasury stock ( 1,500,000)
Total stockholders’ equity P22,000,000

27. On January 1, Uni Company assigned P500,000 of accounts receivable to Mix Finance Company. Uni gave a 14%
note for P450,000 representing 90% of the assigned accounts and received proceeds of P432,000 after deduction of
a 4% fee. On February 1, Uni remitted P80,000 to Mix, including interest for 1 month on the unpaid balance. As a
result of this P80,000 remittance, accounts receivable assigned and notes payable will be decreased by what
amount?
Accounts receivable Notes payable Accounts receivable Notes payable
(a) P80,000 P74,750 (c) P72,000 P74,750
(b) P80,000 P80,000 (d) P74,750 P80,000 A

Accounts receivable assigned is reduced by the amount of P80,000 collected.

Notes payable is reduced by P74,750.
[80,000 – (450,000 x 14% x 1/12)]

28. You were approached by the parish priest to determine if there is a cash shortage or overage of the parish finances
as of September 30, 2008. He stated that he does not maintain a good internal control over its cash transactions.
The parish records show a balance of cash on hand and in bank of P25,095.00. You counted the cash on hand
amounting to P14,560.00. A pledge of P200.00 was collected by the bank and for which a service charge of P15.00
did not appear in the parish records. The bank statement balance is P18,500.00. Outstanding checks amounted to
P6,850.00. Based from the foregoing information, there is a cash shortage or cash overage of:
(a) P930.00 cash shortage (c) P930.00 cash overage
(b) P11,650.00 cash shortage (d) P11,650.00 cash overage C

Accountability:
Cash on hand and in bank, per record P25,095
Collection by bank 200
Bank service charge ( 15)
Per audit P25,280
Per record:
Balance per bank P18,500
Outstanding checks ( 6,850)
Balance P11,650
Add: Cash on hand 14,560 (26,210)
Cash overage (P 930)
29. Lemke Company carried out a number of transactions involving the acquisition of several assets. All expenditures
were recorded in the following single asset account identified as property, plant and equipment:
Acquisition price of land and building P7,200,000
Options taken out of several pieces of property 240,000
List price of machinery purchased 1,500,000
Freight on machinery purchased 50,000
Repair to machinery resulting from damage
during shipment 10,000
Cost of removing old machinery 20,000
Driveways and sidewalks 200,000
Building remodeling 500,000
Utilities paid since acquisition of building 30,000
Based on property tax assessments, which are believed to fairly represent the relative value involved, the building is
worth twice as much as the land. The machinery was subject to a 2% cash discount, which was taken and credited
to purchase discounts. Of the two options, P180,000 related to the building and land purchased and P60,000 related
to those not purchased. The old machinery was sold at book value.

What is the cost of the land?

(a) P2,460,000 (b) P4,860,000 (c) P2,480,000 (d) P2,660,000 A

Acquisition cost (7,200,000 x 1/3) P2,400,000

Option (180,000 x 1/3) 60,000
Total cost of land P2,460,000

30. The following costs were among those incurred by Wendel Corporation during 2004:
Merchandise purchased for resale P500,000
Salesmen’s commissions 40,000
Interest on notes payable to vendors 5,000
How much should be charged to the cost of merchandise purchases?
(a) P500,000 (b) P505,000 (c) P540,000 (d) P545,000 A

* end of the examination – practical accounting 1*