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 entity’s cash
management
c. when it is repayable on demand and form an integral part in the entity’s
cash financial statement
 d. when it is repayable on demand and form an integral part of an entity’s
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 Dec. 31, 2006 1,000,000
Account receivable turnover 5:1
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 c.5,200,000
b. 5,150,000 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 4,000,000
Interest Expense 2,000,000
Gain on early extinguishment of long term debt 500,000
Correction of Inventory error, net of income tax-credit 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 c. 1,500,000
b. 2,000,000 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
rd
3 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 cost) 300,000
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

10. 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?
a. 2,100,000 c.2, 200,000
b.2, 000,000 d.1, 500,000

11. 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

12. 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?
a. 1,530,000 c. 1,770,000
b. 1,560,000 d. 1,680,000

13. 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
14. 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

15. 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.
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

16. The Cloak Corporation received the following report from its actuary at the end of
the year:

01/01/06 01/31/06

Unrecognized past service cost 500,000 450,000

Accumulated benefit obligation 6,000,000 6,400,000
Fair Value of pension plan assets 5,800,000 6,276,000
Actuarial net gain 800,000 ?
Benefits paid during the year 680,000
Contribution made during the year 520,000
Current service cost 495,000
Expected rate of return 10%
Settlement rate 12%
Ave. working lives of employees 20 years
What is the amount of net benefit expense to be charged against income for the year
2006?

a. 675,000 c. 716,000
b. 685,000 d. 875,000

17. 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:

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 c. 465,000
b. 455,000 d. 485,000

18. 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.

What amount should Genius report as adjusted beginning Accumulated Profits and
Losses on January 1, 2006?

a. 235,000 c. 300,000
b. 365,000 d. 400,000

19. 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.

In its 2006 Income Statement, what amount should Power Designs report as royalty
revenue?
 a. 125,000 c. 200,000
b. 175,000 d. 300,000

20. The following pertains to an operating sale and leaseback of equipment by Harbor
Co. on December 31,2005:

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 c. 100,000
b. 37,334 d. 200,000

21. 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:

Units Amount
Sales of food packs 3,000,000 P9,000,000
Food containers purchased 60,000 180,000
Prizes distributed to customers 37,000

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 c. 159,000
b. 90,000 d. 180,000

22. 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.
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 c. 2,155,000

b. 2.155.000 & 2,275,000 d. 2,540,000

23. Tarzana Company reported total purchases of P3,200,000 in its accrual basis financial
statement on December 31,2006. Additional information revealed the following:

Accounts Payable, December 31,2005 P 900,000

Accounts Payable, December 31,2006 1,250,000

What is the amount of purchases under the cash basis on December 31,2006?

a. 2,850,000 c. 4,100,000
b. 3,550,000 d. 4,450,000

24. 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.

On March 31,2005, what amount of loss should Mr. Right recognize on this exchange?

a. P 0 c. P400,000
b. P200,000 d. P600,000

25. On April 30, 2005, Shark Corporation purchased for P 30 per share all 200,000 of Fins
Corporation’s outstanding ordinary share. On this date, Fin’s balance sheet showed
net assets of P 5,000,000. Additionally, the fair value of Fin’s identifiable assets on
the same date was P600,000 in excess of their carrying amount.

What amount should Shark report as goodwill in its April 30, 2005 consolidated balance
sheet?

a. P 0 c. P600,000
b. P400,000 d. P 1,000,000

26. 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.

27. 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 KHAE’s 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
company’s history. KHAE cashed in P16M of the T-Bills during the year. At
December 31, 2008, KHAE’s 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.

28. 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?

29. 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

30. Information regarding F’s 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?

31. 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?

32. 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?

33. 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?

34. 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
35. The notes to Van Corp.’s financial statements recently reported the following data on
September 30, Year 1 (the end of fiscal year):

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 bond’s
carrying amount? Harrison & Horgren

36. 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. Kuyaw’s 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?

37. 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?

38. 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?

39. KCC Mall made the following expenditures during 2007:

Costs to develop the computer software for internal

use in KCC’s general management information
system P100,000
Costs of market research activities 75,000
What amount of these expenditures should KCC report in its 2007 income statement as
research and development expenses? until here( hidalgo)

40. 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 Red’s December 31, 2008 balance sheet, total cash should be
reported at:

41. 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 LL’s
September 30, 2000 balance sheet, the amount receivable from the bank based on a
360-day year, includes accrued interest revenue of:

42. 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%. PP’s
proceeds from the discounted note were:

43. Coca Company’s 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:

 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?

44. 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

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 10,000
Other coding costs after establishment
Of technological feasibility 24,000
Other testing costs after establishment
Of technological feasibility 20,000
Costs of producing product masters for training materials 15,000
Duplication of computer software and training
Material from product masters (1,000 units) 25,000
Packaging product 9,000

45. In Pittoh’s December 31, 2007 balance sheet, what amount should be reported in
inventory?

46. In Pittoh’s December 31, 2007, balance sheet, what amount should be capitalized as
software cost, subject to amortization?

47. 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?

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

Amortization of goodwill P10,000

Insurance premium on life of an officer
with U-toh as owner and beneficiary 5,000

Temporary differences amount to? 0

49. 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 Jamine’s 2008
income statement? 0

50. 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 year’s 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

51. During 2007, Mer Corp. sold goods to its 80% subsidiary, Xer Corp. At December 31,
2007, ½ of these goods were included in Xer’s ending inventory. Reported 2007
selling expenses were P 1,000,000 and P 400,000 for Mer and Xer, respectively.
Pard’s selling expenses included P50,000 in freight out costs for goods sold to Xer.
What amount of selling expenses should be reported in Mer’s 2007 consolidated
income statement?

52. 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 Glen’s 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 Pacman’s deferred income tax liability for this temporary difference
is?

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 Issued 1,300 ordinary shares at P28 per share

March 19 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 Corp’s 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 company’s 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 1,500,000
Ordinary shares, P30 par, 100,000 shares issued 3,000,000
4,500,000
Deficits from operations (600,000)
Total shareholders' equity 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 10,000 preference shares were called at P55 plus dividends for 3
months at 5%. Share was formally retired.
November 10 60,000 new ordinary shares were sold at P65.
December 31 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. Trum’s 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:
Tax Accounting
Return Records
Rent income ........................... P 70,000 P120,000
Depreciation expense .................. 280,000 220,000
Premiums on officers' life insurance .. -- 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:

Tax Accounting
Return Records
Warranty expense ...................... P170,000 P185,500
Depreciation expense .................. 150,000 100,000
 Premiums on officers' life insurance .. -- 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) Excess of tax depreciation over book depreciation .... P60,000

(b) Interest revenue on municipal bonds .................. 9,000
(c) Excess of estimated warranty expense over actual
expenditures ......................................... 54,000
(d) Unearned rent received ............................... 12,000
(e) Fines paid ........................................... 30,000
(f) Excess of income reported under percentage-of-completion
accounting for financial reporting over
completed-contract accounting used for tax reporting . 45,000
(g) Interest on indebtedness incurred to purchase tax-exempt
securities .................................... 3,000
(h) Unrealized losses on marketable securities recognized
for financial reporting .............................. 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 ........................................... P 25,600

Cash .................................................... 17,700
Mortgage Payable ........................................ 151,600
Dividends Payable ....................................... 14,000
Prepaid Rent ............................................ 13,600
Inventory ............................................... 81,800
Sinking Fund Assets ..................................... 52,400
Short-Term Investments .................................. 15,200
Premium on Bonds Payable ................................ 4,600
Stock Investment in Subsidiary .......................... 102,400
Taxes Payable ........................................... 22,800
Accounts Payable ........................................ 24,800
Accounts Receivable ..................................... 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 ........................................ P108,900

Advances to Employees ................................... 4,500
Unearned Rent Revenue ................................... 28,800
Estimated Liability Under Warranties .................... 25,800
Cash Surrender Value of Officers' Life Insurance ........ 7,500
Bonds Payable ........................................... 555,000
Discount on Bonds Payable ............................... 22,500
Trademarks .............................................. 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 ........................................ P30,000

Bonds payable, due 2008 ................................. 50,000
Discount on bonds payable, due 2008 ..................... 6,000
Dividends payable on January 31, 2008 ................... 16,000
Notes payable, due 2009 ................................. 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 .................................... P300,000

Additional Paid-In Capital .............................. 400,000
Treasury Stock, at cost ................................. 25,000
Net Unrealized Holding Loss on Available-For-Sale
Securities ............................................ 10,000
Retained Earnings--Appropriated for Uninsured Earthquake
Losses ................................................ 75,000
Retained Earnings--Unappropriated ....................... 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 ..................................... P120,000

Telephone expense .................................... 95,000
Loss on sale of store equipment ...................... 47,000
Legal fees ........................................... 74,000
Officers' salaries ................................... 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) 7,500,000
Revaluation Surplus 2,500,000

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

2,500,000
10,000,000 – 6,750,000 =
3,250,000
5,750,000
(750,000)
: = 5,000,000
========
5. Answer: c
Solution: 1st year (8,000,000 x 150,000)/1,500,000 = 800,000
2nd year (8,000,000 x 225,000)/1,500,000 = 1,500,000
3rd year ( 8,000,000-800,000-1,200,000)/8 = 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 3,000,0000

Unearned Income (300,000)
Loss on Inventory 150,000

Adjusted Income 2,850,000

========
7. Answer: b
Solution: Excess Preference Ordinary
R/E 5,000,00 2,000,000 1,000,000
SP 700,000
(2,000,000 x 12% x 2) (480,000) 480,000
(20,000 x 20) (400,000)
(4,820,000) 4,820,000
0 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 80,000
Gift Certificates, beg. (520,000)
Gift Certificates Sold 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
200,000
Solution: 1,152,000 x 10% = (115,200)
84,800

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

======
16. Answer: a
Solution: Current service cost 495,000
Interest (6,000,000 x 12%) 720,000
Amortization (500,000-450,000) 50,000
Amortization of he net gain (10,000)
Expected return on plan assets (580,000)
Net benefit Expense 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 P300,000
Understatement in Inventory for 2005
100,000 x 65% 65,0000
Adjusted January 1 2006 Accumulated Profits 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 2,000,000 x 12/12 2,000,000

04/01/06 100,000 x 9/12 75,000
09/01/06 240,000 x 4/12 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 4,100,000
Less: Accounts Payable December 31,2006 1,250,000
P2,850,000
========

24.Answer: b
Solution:
Trade-in value/Fair value (2,000,000 – 600,000) P1,400,000
Carrying value 1,600,000
P 200,000
=========

25. Answer: b
Solution:
Acquisition cost (200,000 x P30) P6,000,000
Less: Market value of the net assets acquired
Book value P5,000,000
Fair value of identifiable assets 600,000 5,600,000
P 400,000
========