Northern CPAR: Practical Accounting I – FINAL PRE-BOARD EXAMINATION

NORTHERN CPA REVIEW

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4 Floor Pelizloy Centrum, Lower Session Road, Baguio City, Philippines
Mobile Numbers: SMART 09294891758 & GLOBE 09272128204
E-mail: ncpar@yahoo.com
ZEUS VERNON MILLAN, CPA

PRACTICAL ACCOUNTING I
FINAL PRE-BOARD EXAMINATION

1. Taken from the accounting records of Metropolis Co. are the following
information:
 Accum. Depreciation, Jan.1 P760,000
 Accum. Depreciation, Dec.31` 850,000
 A machine with a cost of P750,000 was sold for P360,000 during the
year at a loss of P250,000.
 During the year, a major improvement costing P550,000 was incurred to
extend the life of the machines for five years. Moreover, on January
1, a patent related to the use of a machine was granted to Metropolis
Co. Legal fees and registration fees incurred amounted to P250,000.
The patent amortization was credited to the accumulated depreciation
account and included in the depreciation expense charged to profit or
loss.
 Impairment loss on the machines charged to expense amounted to
P350,500.

The correct depreciation expense for the year amounted to

a. P792,500 c. P417,000
b. P658,000 d. P429,500

2. Loeb Corp. frequently borrows from the bank in order to maintain

sufficient operating cash. The following loans were at a 12% interest
rate, with interest payable at maturity. Loeb repaid each loan on its
scheduled maturity date.

Date of loan Amount Maturity date Term of loan

11/1/96 P 5,000 10/31/97 1 Year
2/1/97 15,000 7/31/97 6 Months
5/1/97 8,000 1/31/98 9 Months

Loeb records interest expense when the loans are repaid. As a result,
interest expense of P1,500 was recorded in 1997. If no correction is
made, by what amount would 1997 interest expense be understated?
a. P540 c. P640
b. P620 d. P720

3. Declaration, Inc., is a calendar year corporation. Its financial

statements for the years 2008 and 2007 contained errors as follows:
2008 2007
Ending Inventory P 1,000 understated P 3,000 overstated
Depreciation expense P 800 understated P 2,500 overstated

Assume that the proper correcting entries were made at December 31, 2007.
By how much will 2008 income before income taxes be overstated or
understated?
a. P 200 understated.
b. P 500 overstated.
c. P 1,000 overstated.
d. P 3,200 understated.
e. No overstatement or understatement

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NCPAR…driven for real excellence! P1 by Zeus Vernon Millan, CPA P1 – 5 Batch – PB03
Northern CPAR: Practical Accounting I – FINAL PRE-BOARD EXAMINATION
4. Changes in the account balances for Symphony Co. during 2008 are shown
below:
Increase (Decrease)
Cash P 1,850,000
Accounts receivable 1,650,000
Allowance for bad debts 450,000
Inventory (850,000)
Investment in Mandrake Company (equity method) 450,000
Buildings and equipment (800,000)
Accumulated depreciation (400,000)
Accounts payable 700,000
Bonds payable (800,000)
Discount on bonds payable (100,000)
Capital stock 600,000
Additional paid-in capital 300,000
Revaluation Surplus (on appraisal conducted during the year 200,000

Dividends declared during 2008 were P500,000. No other transactions

affected retained earnings during the year. Calculate the amount of net
income to be reported in 2008.
a. P1,850,000 c. P1,950,000
b. P1,650,000 d. P2,550,000

5. Fender Co. reported a net income of P270,000 in 2008, its first year of
operation. Selected information follows: Depreciation expense, P30,000;
Loss on sale of equipment, P3,500; Gain on sale of treasury stock,
P5,000; Amortization of discount on bond investment, P1,500; Unrealized
loss on non-current equity securities, P7,000. At the end of 2008,
accounts receivable amounted to P20,000, inventory P34,700 and accounts
payable P18,000.

The net cash provided by operating activities in 2008 is

a. P265,300 c. P268,300
b. P338,700 d. P267,300

The next two questions are based on the following information:

You gathered the following November 30 bank reconciliation from the cash
records of the Conrad Company in connection with your audit of the company’s
financial statements for the year 2006:
Balance per bank P 560,000
Deposits in transit 123,200
Outstanding checks (160,000)
Balance per books P 523,200

Results for the month of December follow:

Bank Books
Balance December 31 P 692,000 P740,000
December deposits 400,000 464,800
December note collected (not included in
deposits) 80,000 -
December bank service charge 1,200 -
December NSF check, returned by the bank
(recorded by bank as a charge) 26,800 -

Based on the above and the result of your audit, answer the following:

6. The outstanding checks as of December 31, 2006 is

a. 72,000 c. 88,000
b. 116,000 d. 108,000

7. The adjusted cash balance as of December 31, 2006 is

a. 684,800 c. 844,000
b. 792,000 d. 765,000

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NCPAR…driven for real excellence! P1 by Zeus Vernon Millan, CPA P1 – 5 Batch – PB03
Northern CPAR: Practical Accounting I – FINAL PRE-BOARD EXAMINATION
8. Zamboanga Enterprises records all transactions on the cash basis. The
company’s accountant prepared the following income statement at the end
of the company’s first year of operations:

Zamboanga Enterprises
Income Statement
For the Year Ended December 31, 2006

Sales P2,016,000
Selling and administrative expenses:
Salaries expense P 624,000
Rent expense 360,000
Utilities expense 232,000
Equipment 240,000
Commission expense 302,400
Insurance expense 48,000
Interest expense 24,000 1,830,400
Net Income P 185,600

You have been asked to prepare an income statement on the accrual basis. The
following information is given to you to assist in the preparation:
 Amounts due from customers at year-end were P224,000. Of this amount,
P24,000 will probably not be collected.
 Salaries of P88,000 for December 2006 were paid on January 5, 2007.
 Zamboanga rents its building for P24,000 a month, payable quarterly in
advance. The contract was signed on December 31, 2005.
 The bill for December’s utility costs of P21,600 was paid January 10,
2007.
 Equipment of P240,000 was purchased on January 1, 2006. The expected
life is 5 years, no salvage value. Assume straight-line depreciation.
 Commissions of 15% of sales are paid on the same day cash is received
from customers.
 A 1-year insurance policy was issued in company assets on July 1,
2006. Premiums are paid annually in advance.
 Zamboanga borrowed P400,000 for one year on May 1, 2006. Interest
payments based on an annual rate of 12% are made quarterly, beginning
with the first payment on August 1,2006.

How much is the net income before income tax under the accrual basis of
accounting?
a. 526,000 c. 514,000
b. 286,000 d. 574,000

The next two questions are based on the following information.

An enterprise had the pre-closing trial balance at December 31 shown below:

Cash 80,000
Accounts receivable 100,000
Inventory 230,000
Property, plant, and equipment 600,000
Accumulated Depreciation 60,000
Accounts payable 200,000
Long-term debt 1,000,000
Share capital 2,000,000
Retained earnings – Jan. 1 500,000
Sales revenue 750,000
Purchases 530,000
Administrative expenses 200,000

Additional information:
 The long-term debt pays interest at a rate of 10% per annum, payable
every 12 months. The debt was issued on July 1 of the current year and
originally had 5 years to maturity.
 The assets classified as property, plant, and equipment have a 10-year
estimated useful life and were 1 year old at the start of the current
year. Straight-line depreciation is used.
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NCPAR…driven for real excellence! P1 by Zeus Vernon Millan, CPA P1 – 5 Batch – PB03
Northern CPAR: Practical Accounting I – FINAL PRE-BOARD EXAMINATION
9. Assume that the enterprise reports cost of goods sold of 200,000 and
interest expense of 10,000 for the current period. Also assume a 50% tax
rate on corporate earnings. The final closing entry required to ensure
that current earnings are incorporated into year-end retained earnings is
a. Income summary 140,000
Retained earnings 140,000
b. Retained earnings 280,000
Income summary 280,000
c. Income summary 240,000
Retained earnings 240,000
d. Retained earnings 240,000
Income summary 240,000

10. The enterprise will report year-end total assets of

a. 800,000 c. 950,000
b. 890,000 d. 1,010,000

11. Profit before income tax shown in the income statement of LIE Co.
amounted to P1,820,000. Deferred tax liability decreased by P40,000
during the year. Deferred tax asset at the beginning of the year amounted
to P95,000 and at year-end it was P65,000. Income tax payable account has
balances of P265,000 and P575,000 at Jan. 1 and Dec. 31 respectively. LIE
Co. is subject to 35% tax rate. Payments for taxes during the year
amounted to
a. P670,000 c. P970,000
b. P680,000 d. P990,000

12. On January 2, 2008, Ral Co. leased land and building from an unrelated
lessor for a ten-year term. The lease has a renewal option for an
additional ten years, but Ral has not reached a decision with regard to
renewal option. In early January of 2008, Ral completed the following
improvements to the property.
Description Estimated Life Cost
Sales office 10 years P 47,000
Warehouse 25 years 75,000
Parking lot 15 years 18,000
Amortization of leasehold improvements for 2008 should be
a. P 7,000 c. P12,200
b. P 8,900 d. P14,000

13. On January 1, 2008, West Co. entered into a ten-year operating lease
for a manufacturing plant. The annual minimum lease payments are
P100,000. In the notes to the December 31, 2009 financial statements,
what amounts of subsequent years lease payments should be disclosed?

Amount for appropriate Aggregate amount for

required period the period thereafter

a. P100,000 P0
b. P300,000 P500,000
c. P500,000 P300,000
d. P500,000 P0
e. P100,000 for 2010, P400,000 from
2011 to 2014 P300,000

14. Oak Co. leased equipment for its entire nine-year useful life,
agreeing to pay P50,000 at the start of the lease term on December 31,
2008, and P50,000 annually on each December 31 for the next eight years.
The present value on December 31, 2008, of the nine lease payments over
the lease term, using the rate implicit in the lease which Oak knows to
be 10%, was P316,500. The December 31, 2008 present value of the lease
payments using Oak's incremental borrowing rate of 12% was P298,500. Oak
made a timely second lease payment. What amount should Oak report as
capital lease liability in its December 31, 2009 balance sheet?
a. P350,000 c. P228,320
b. P243,150 d. P0

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NCPAR…driven for real excellence! P1 by Zeus Vernon Millan, CPA P1 – 5 Batch – PB03
Northern CPAR: Practical Accounting I – FINAL PRE-BOARD EXAMINATION
15. On January 1, 2005, E Company granted 5,000 share options with a ten-
year life to each of 10 executives. The chare 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 price target is achieved.

The company applies a binomial option model, which takes into account the
possibility that the share price will be achieved during the ten-year
life of the options and 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
dates is five years. The most likely outcome of the market condition is
that the share price target will be achieved at end of 2009. Therefore, E
Company estimates that the expected vesting period is five years. E
Company also estimates that 2 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, E Company continues to estimate that a total of

two executives will leave be the 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?
a. 75,000 c. 85,000
b. 150,000 d. 120,000

16. On January 1, 2005, F Company grants 100 share options to each of its
400 employees. Each grant is conditional upon the employee remaining in
the employ of the company over the next three years. F Company estimates
that the fair value of each option is P20. On the basis of weighted
average probability, F Company estimates that 100 employees will leave
during the three-year period and therefore their right to the share
option will be forfeited.

During 2005, 30 employees had left and the share price dropped and F
Company reprices its share options, and that the repriced share options
vest at the end of 2007. F Company estimates that a further 70 employees
will leave during 2006 and 2007. During 2006, 35 employees left the
company and the company estimates that 30 employees will leave in 2007,
while during 2007, 28 employees left the company.

At the end of 2005 (date of repricing), the company estimates that the
fair value of each of the original share options granted (before taking
into account the repricing) is P6 and that the fair value of each
repriced share option is P9.

What amount of remuneration expense should the company recognize in its

December 31, 2007 income statement?
a. 253,683 c. 245,653
b. 265,678 d. 233,853

17. On January 1, 2005, H Company granted 20,000 shares with a fair market
value of P30 per share to its key officers, conditional upon the
completion of three years’ service. By the end of 2006, the share price
has dropped to P26 per share. Immediately, H Company adds a cash
alternative to the grant, whereby the officer can choose whether to
receive 20,000 shares or cash equal to the value of 20,000 shares on
vesting date, which is on December 31, 2007. On December 31, 2007, the
share price is P24.

What amount of remuneration cost should the company recognize in its

December 31, 2007 income statement?
a. 133,333 c. 180,000
b. 26,667 d. 160,000

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NCPAR…driven for real excellence! P1 by Zeus Vernon Millan, CPA P1 – 5 Batch – PB03
Northern CPAR: Practical Accounting I – FINAL PRE-BOARD EXAMINATION
18. The following information pertains to Galileo Company:

Sales (all account) made evenly throughout 2005 P 220,000

Equipment purchased for cash on May 1, 2005 50,000
Purchases (all account) made evenly throughout 2005 80,000
Cash received evenly throughout 2005 from customers on
account 190,000
Cash dividends declared on September 1, 2005 and paid on
October 1, 2005 20,000
Land acquired for cash on June 1, 2005 30,000
Depreciation expense for 2005 10,000
Ordinary shares issued for cash on March 1, 2005 60,000
Operating expenses paid evenly throughout 2005 40,000
Income tax expense paid evenly throughout 2005 25,000
Purchase of treasury shares for cash on Nov. 1, 2005 17,000
Sale of investment in ordinary shares on August 1, 2005 for cash
(cost = P5,000; selling price = P8,000) 8,000
Cash paid evenly throughout 2005 on accounts payable 60,000
Monetary assets
January 1, 2005 25,000
December 31, 2005 71,000
Monetary liabilities
January 1, 2005 10,000
December 31, 2005 30,000

The following values of the CPI-U for 2005 are available:

1/1 100 8/1 114

2/1 102 9/1 116
3/1 104 10/1 118
4/1 106 11/1 120
5/1 108 12/1 122
6/1 110 12/31 124
7/1 112 Average for the year 112

The purchasing power gain (loss) for 2005 in end-of-year pesos is

a. (10,704) c. 10,000
b. 10,704 d. ( 1,000)

Use the following information for the next eight questions:

The following information relates to a defined benefit pension plan of the
Ferdie Company for the year ending December 31, 2008:

Projected benefit obligation, January 1 P 4,600,000

Projected benefit obligation, December 31 4,729,000
Fair value of plan assets, January 1 5,035,000
Expected return on plan assets 450,000
Actual return on plan assets 495,000
Amortization of deferred gain
(based on the remaining service life of 10 years) 32,500
Employer contributions 425,000
Benefits paid to retirees 390,000
Settlement rate 10%

Based on the information given above, answer the following:

19. The current service cost for 2008 is

a. P59,000 c. P519,000

b. P94,000 d. P390,000

20. What is the 2008 net benefit expense?

a. P36,500 c. P496,000
b. P71,500 d. P367,500

21. The fair value of plan assets on December 31, 2008 is

a. P5,520,000 c. P5,597,000

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NCPAR…driven for real excellence! P1 by Zeus Vernon Millan, CPA P1 – 5 Batch – PB03
Northern CPAR: Practical Accounting I – FINAL PRE-BOARD EXAMINATION
b. P5,565,000 d. P5,528,500
22. The unrecognized actuarial gain as of December 31, 2008 is
a. P337,500 c. P841,000
b. P873,500 d. P797,500

23. The prepaid/accrued benefit cost on January 1, 2008 and December 31,
2008, respectively are
Jan.1, 2008 Dec.31, 2008
a. P110,000 P498,500
b. P393,500 P 37,500
c. P350,000 P 38,500
d. P393,500 P 5,000

Using the same information as used in the immediately preceding

questions, however, assuming further that Ferdie Company opts to
recognize any actuarial gain or loss in full, answer the following
questions.

24. Ferdie Company should report 2008 benefit expense at

a. P69,000 c. P96,000
b. P79,500 d. P37,500

25. Ferdie’s other comprehensive income in 2008 would include actuarial

gain of
a. 828,500 c. 73,500
b. 873,500 d. 45,000

26. The actuarial gain to be presented in equity as of December 31, 2008

is
a. 828,500 c. 73,500
b. 873,500 d. 45,000

27. Bigco, Inc. transferred long-term receivables with a carrying value of

P500,000 to Banco for P425,000 cash. Banco will collect interest on the
receivables during the life of the receivables, but Bigco is obligated to
repurchase the receivables prior to their maturity. What amount of
receivables has Bigco surrendered control of for accounting purposes?
a. 0 b. 75,000 c. 425,000 d. 500,000

28. On February 1, Rayco transferred a bond with a maturity value of

P50,000 it owned to Dayco as security for a short-term loan from Dayco.
By terms of the agreement, Dayco cannot resell or otherwise use the bond
except as collateral for its loan to Rayco. Rayco defaulted on its
repayment of the loan from Dayco on August 1 when the bond had a fair
value of P48,000. On what date and in what amount should Dayco recognize
the bonds on its books?
a. February 1, b. February 1, c. August 1, d. August 1,
P50,000 P48,000 P50,000 P48,000

29. Servco, a loan servicing agency, paid P60,000 to acquire a three-year

right to service P1,000,000 of Banco's loans. Servco will be entitled to
a servicing fee 1% of the interest and fees collected during the three-
year period. Serveco expects its servicing fees to be: Year 1, P40,000;
Year 2, 30,000; and Year 3, 10,000
Which one of the following is the amount of the P60,000 acquisition fee
that Servco should amortize during year 1?
a. 0 b. 20,000 c. 30,000 d. 40,000

30. Taft Inc. borrowed P1,000,000 from Wilson Company on July 2, 2001. As
part of the loan agreement, Taft granted Wilson a security interest in
land that originally cost P750,000 when it was acquired by Taft in 1994.
The land had a fair value of P900,000 on July 2, 2001. In June 2003, Taft
defaulted on its loan to Wilson, and the land was transferred to Wilson
in full settlement of the debt on June 30. The land had a fair value of
P950,000 on June 30, 2003. In accordance with PAS 39, what amount should
Wilson record for land on June 30, 2003?
a. 0 b. 75,000 c. 900,000 d. 950,000

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NCPAR…driven for real excellence! P1 by Zeus Vernon Millan, CPA P1 – 5 Batch – PB03
Northern CPAR: Practical Accounting I – FINAL PRE-BOARD EXAMINATION

31. Taken from the records of Devin Company is the following information:

Accounts Receivables P 888,000

Accounts Receivables- assigned 145,000
Notes Receivables 234,000
Discount on notes receivables 45,000
Notes Receivable – discounted 63,000

Of the total accounts receivables, P230,000 is hypothecated for bank

loans. Total credit balances in customers’ accounts is P330,000 and total
debit balances in suppliers’ accounts is P87,000.

How much would be shown as total receivables in Devin Company’s year-end

financial statements?
a. 1,465,000 b. 1,729,000 c. 1,576,000 d. 1,172,000

32. On December 31, 2008 balance sheet of Mark Co., the current
receivables consisted of the following:

Advances to subsidiaries 45,000

Trade accounts receivable 115,000
Allowance for bad debts (5,000)
Claims against shipper for goods lost in transit –
FOB Destination 4,000
Selling price of unsold goods sent by Mark on consignment
at 125% of cost (not included in Mark’s ending invty.) 65,000
Security deposit on lease of warehouse used for storing some
inventories 30,000
Advances to officers 16,000
Claims from customers for shipments
lost in transit – FOB Destination 26,000
Freight charges paid on goods sold FOB Shipping Pt. 32,000

What is the correct amount of current receivables at December 31, 2008?

a. 146,000 b. 140,000 c. 176,000 d. 202,000

33. On April 1, 2009, Amurusa Co. discounted its “own” P60,000, one-year
note, with Dippig Bank at 14%. The entry to record the discounting on
April 1, 2009 would include
a. debit to cash of P60,000
b. credit to Notes receivable of P60,000
c. credit to Discount on notes receivable of P8,400
d. credit to Notes payable of P60,000

34. Manila and Co. accepted a P5,000, 8%, 90-day note receivable for
services rendered to a client. Thirty days later Manila & Co. discounted
the note at a bank at 10%. The entry to record the proceeds from the
sales of the note would include a:
a. credit to notes receivable for P50,000
b. debit to cash for P51,000
c. credit to interest income for P100
d. debit to loss from discounting of note for P150

35. The carrying value of building C on December 31, 2005 is P8,000,000

and had remaining useful life of 25 years. It is the company’s policy to
depreciate all its buildings using the straight-line method.

On January 2, 2006, Chamber Company committed to a plan to sell building

C and classified this asset as held for sale. Building C was priced at
P8,600,000, which is equal to its fair market value.

During 2006, the market conditions that existed at the date the building
was classified initially as held for sale deteriorate and as a result,
the asset is not sold at the end of the end of 2006. During 2006, the
company actively solicited but did not received any reasonable offers to
purchase the building and, in response, reduced the price to P7,500,000.

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NCPAR…driven for real excellence! P1 by Zeus Vernon Millan, CPA P1 – 5 Batch – PB03
Northern CPAR: Practical Accounting I – FINAL PRE-BOARD EXAMINATION
The building continues to be actively marketed at a price that is
reasonable given the change in market conditions.

In 2007, the market conditions deteriorate further, and the building is

yet to be sold by the end of 2007. Chamber Company believes that the
market conditions will improve and has not further reduced the price of
the building. The building continues to be held for sale at a price in
excess of its current fair value.

In Chamber Company’s December 31, 2007 balance sheet, the building

a. should be included as property, plant & equipment valued at
P7,360,000.
b. should be included among the property, plant and equipment at
P8,000,000
c. should be reported separately as non-current asset held for sale and
valued at P7,500,000.
d. should be reported separately as non-current asset held for disposal
and valued at P8,600,000.

36. An entity already has a number of general loan arrangements:

Loan 1 of P800,000, interest paid at 9%;

Loan 2 of P2 million, interest paid at 8%; and
Loan 3 of P400,000, interest paid at 7.5%.

The entity has commissioned a new printing press to be constructed on its

behalf. The total cost will be P800,000 and the entity will be able to
fund the purchase from its existing borrowings since it has arranged for
stage payments to be made. The construction takes six months. The
borrowing cost to be capitalized is
a. 32,000 c. 26,000
b. 48,000 d. 0

37. On 1 January 20X7 The Cygan Company took out a loan of P26 million in
order to finance the renovation of a building. The renovation work
started on the same date. The loan carried interest at 10%. Work on the
building was substantially complete on 31 October 20X7. The loan was
repaid on 31 December 20X7 and P180,000 investment income was earned in
the period to 31 October on those parts of the loan not yet used for the
renovation. According to IAS23 Borrowing costs, what is the total amount
of borrowing costs to be included in the cost of the building?
a. P2,600,000 c. P2,166,667
b. P2,420,000 d. P1,986,667

The next two questions are based on the following information:

On January 1, 2000, PC Corporation acquired a building for P30,000,000
with an estimated useful life of 40 years Additional P500,000 was
incurred by the company in connection with the acquisition and
preparation as their main office. It is the company’s policy to
depreciate this building using a sum-of-years’ digit. The salvage value
of the building upon the expiration of its useful life was estimated at
P750,400. On January 2005, a test of impairment was made on the building
and it was determined that the building has a recoverable value of
P19,650,400 with no change in the estimated salvage value. On January 1,
2007, PC acquired a new building as the new headquarter but immediately
converted the old building as investment property. As of January 2007,
the old building was revalued, and its fair market value was determined
at P23,000,000.

38. What amount of gain on transfer should the company report in its
equity as a result of the conversion?
a. 1,734,520 b. 1,896,520 c. 2,125,520 d. 3,523,080

39. What amount of gain on the transfer should the company report in its
income statement as a result of the conversion?
a. 1,734,520 b. 1,896,520 c. 2,125,520 d. 3,523,080

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NCPAR…driven for real excellence! P1 by Zeus Vernon Millan, CPA P1 – 5 Batch – PB03
Northern CPAR: Practical Accounting I – FINAL PRE-BOARD EXAMINATION
40. On December 31, 2008, the property, plant and equipment account of
Pearl Company includes the details below.

Plant assets acquired from XYZ Company 7,500,000

Repairs made on building prior to occupancy 200,000
Special tax assessment 30,000
Construction of platform for machinery 70,000
Remodeling of office space in building
including new partitions and walls 400,000
Purchase of new machinery 800,000

In exchange to plant assets of XYZ Company, Pearl Company issued 50,000

shares of its P100 par common stock. On the date of purchase, the common
stock had a quoted price of P150 per share, and the following fair value.

Land 500,000
Building 4,000,000
Machinery 1,500,000

41. The land should be reported at

a. 530,000 c.625,000
b. 500,000 d.655,000

42. The building should be reported at

a. 4,400,000 c. 5,600,000
b. 4,600,000 d. 5,400,000

43. The machinery should be reported at

a. 2,300,000 c. 2,370,000
b. 2,675,000 d. 2,745,000

44. Reks Company manufactures computer chips and Marilyn Company

constructs the machinery used to manufacture the chips. Each machine that
Marilyn Company constructs is built to the customer's specifications. Due
to the decline in the chip market, Reks Company's management negotiates
extended payment terms for a new machine to be constructed by Marilyn
Company. Reks Company will pay Marilyn Company P30,000,000 two years
after delivery of the new machine. Due to the individual nature of the
machine, there is no list price to determine the equivalent price under
normal credit terms. The discount rate relevant for Reks Company is 7%.

The machine was delivered on July 1, 2008. Installation costs and costs
of testing totaled P40,000. Reks Company expects that the machine would
be useful for the next 8 years and that the residual value would be
P50,000. Reks Company uses the declining balance method in relation to
this type of machines.

The amount of depreciation expense to be reported in the 2008 income

statement of Reks Company is
a. 3,280,395 c. 3,275,395
b. 3,290,876 d. 6,560,790

45. On December 31, 2008, Legato Company engaged an appraiser to value its
assets. The result of the appraisal is shown below.

Cost Replacement Cost

Land P 9,000,000 P 11,000,000
Building 10,000,000 16,000,000
Accumulated Depreciation 4,000,000
Machinery 6,000,000 9,000,000
Accumulated Depreciation 2,000,000

The original useful lives of the building and machinery are 5 years and 3
years, respectively, but the appraisal reveals revised useful lives of 8
years and 5 years, respectively. Tax rate is 35%.

10
th
NCPAR…driven for real excellence! P1 by Zeus Vernon Millan, CPA P1 – 5 Batch – PB03
Northern CPAR: Practical Accounting I – FINAL PRE-BOARD EXAMINATION
How much would be the balance of the revaluation surplus to be shown in
Legato’s December 31, 2008 balance sheet?
a. 4,940,000 c. 11,200,000
b. 7,280,000 d. 7,600,000

The next three questions are based on the following information:

Kibungan Company has the following information on January 1, 2007 relating
to its property, plant and equipment.

Land P 30,000,000
Building 300,000,000
Accumulated depreciation-building ( 37,500,000 )
Machinery 400,000,000
Accumulated depreciation-machinery ( 100,000,000 )
Book value P 592,500,000

There were no additions or disposals during 2007. Depreciation is

computed using straight line over 20 years for building and 10 years for
machinery. On June 30, 2007, all of the property, plant and equipment
were revalued as follows:

Replacement cost Sound value

Land 40,000,000 40,000,000
Building 500,000,000 425,000,000
Machinery 650,000,000 455,000,000

Tax rate is 35%.

46. What is the revaluation surplus on June 30, 2007?

a. 355,000,000 c. 545,000,000
b. 920,000,000 d. 230,750,000

47. What is the total depreciation for 2007?

a. 72,500,000 c. 55,000,000
b. 90,000,000 d. 66,750,000

48. The December 31, 2007 balance sheet should show revaluation surplus at
a. 337,500,000 c. 345,000,000
b. 355,000,000 d. 219,375,000

The next two questions are based on the following:

On January 2, 2006, Grand Company made a test of impairment on one of its
buildings carried as plant asset. The test on impairment revealed a
recoverable value of P5,500,000 on that building. The carrying value of
this building as of January 2, 2006 is P8,000,000 with a remaining useful
life of 10 years.

On January 2, 2008, Grand Company decided to convert this building into

an investment property that is to be carried at fair value. The cost of
converting the building is insignificant but as a result of the change in
the usage, the fair market value of the building was reliably valued at
P7,000,000.

49. What amount of unrealized gain should Grand Company recognize in its
shareholders’ equity on the date of transfer?
a. 0 b. 600,000 c. 2,000,000 d. 2,600,000

50. What amount of realized revenue should Grand Company recognize in its
profit or loss statement on the date of transfer?
a. 0 b. 600,000 c. 2,000,000 d. 2,600,000

---- End of Examination ----

11
th
NCPAR…driven for real excellence! P1 by Zeus Vernon Millan, CPA P1 – 5 Batch – PB03