UL CPA REVIEW CENTER

FINANCIAL ACCOUNTING & REPORTING - PPE

MULTIPLE CHOICE QUIZZER (CPA EXAM ADAPTED)

1.On December 1, 2019, Hogan Co. purchased a tract of land as a factory site for P800,000. The old
building on the property was razed, and salvaged materials resulting from demolition were sold.
Additional costs incurred and salvage proceeds realized during December 2019 were as follows:
Cost to raze old building P70,000
Legal fees for purchase contract and to record ownership 10,000
Title guarantee insurance 16,000
Proceeds from sale of salvaged materials 8,000
In Hogan's December 31, 2019 statement of financial position, what amount should be reported as
land?

a. P826,000.
b. P862,000.
c. P888,000.
d. P896,000.

2. Land was purchased to be used as the site for the construction of a plant. A building on the
property was sold and removed by the buyer so that construction on the plant could begin. The
proceeds from the sale of the building should be

a. classified as other income.

b. deducted from the cost of the land.
c. netted against the costs to clear the land and expensed as incurred.
d. netted against the costs to clear the land and amortized over the life of the plant.

3. A company is constructing an asset for its own use. Construction began in 2019. The asset is
being financed entirely with a specific new borrowing. Construction expenditures were made in
2019 and 2020 at the end of each quarter. The total amount of interest cost capitalized in 2020
should be determined by applying the interest rate on the specific new borrowing to the

a. total accumulated expenditures for the asset in 2019 and 2020.

b. average accumulated expenditures for the asset in 2019 and 2020.
c. average expenditures for the asset in 2020.
d. total expenditures for the asset in 2020.

4. Colt Football Co. had a player contract with Watts that is recorded in its books at P3,600,000 on
July 1, 2019. Day Football Co. had a player contract with Kurtz that is recorded in its books at
P4,500,000 on July 1, 2019. On this date, Colt traded Watts to Day for Kurtz and paid a cash
difference of P450,000. The fair value of the Kurtz contract was P5,400,000 on the exchange date.
The exchange had no commercial substance. After the exchange, the Kurtz contract should be
recorded in Colt's books at

a. P4,050,000.
b. P4,500,000.

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FINANCIAL ACCOUNTING & REPORTING - PPE

c. P4,950,000.
d. P5,400,000.

5. Huff Co. exchanged non-monetary assets with Sayler Co. No cash was exchanged and the
exchange had no commercial substance. The carrying amount of the asset surrendered by Huff
exceeded both the fair value of the asset received and Sayler's carrying amount of that asset. Huff
should recognize the difference between the carrying amount of the asset it surrendered and

a. the fair value of the asset it received as a loss.

b. the fair value of the asset it received as a gain.
c. Sayler's carrying amount of the asset it received as a loss.
d. Sayler's carrying amount of the asset it received as a gain.

6. On September 10, 2019, Jenks Co. incurred the following costs for one of its printing presses:
Purchase of attachment P55,000
Installation of attachment 5,000
Replacement parts for renovation of press 18,000
Labor and overhead in connection with renovation of press 7,000
Neither the attachment nor the renovation increased the estimated useful life of the press.
However, the renovation resulted in significantly increased productivity. What amount of the costs
should be capitalized?
a. P0.
b. P67,000.
c. P78,000.
d. P85,000.

7. On January 2, 2019, York Corp. replaced its boiler with a more efficient one. The following
information was available on that date:
Purchase price of new boiler P150,000
Carrying amount of old boiler 10,000
Fair value of old boiler 4,000
Installation cost of new boiler 20,000
The old boiler was sold for P4,000. What amount should York capitalize as the cost of the new
boiler?
a. P170,000.
b. P166,000.
c. P160,000.
d. P150,000.

8. Pike Co. purchased a machine on July 1, 2019, for P400,000. The machine has an estimated
useful life of five years and a residual value of P80,000. The machine is being depreciated from the
date of acquisition by the 150% declining-balance method. For the year ended December 31,
2019, Pike should record depreciation expense on this machine of

a. P120,000.

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FINANCIAL ACCOUNTING & REPORTING - PPE

b. P80,000.
c. P60,000.
d. P48,000.

9. A machine with a five-year estimated useful life and an estimated 10% residual value was acquired
on January 1, 2017. The depreciation expense for 2019 using the double-declining balance method
would be original cost multiplied by

a. 90% × 40% × 40%.

b. 60% × 60% × 40%.
c. 90% × 60% × 40%.
d. 40% × 40%.

10. On April 1, 2017, Verlin Co. purchased new machinery for P240,000. The machinery has an
estimated useful life of five years, and depreciation is computed by the sum-of-the-years'-digits
method. The accumulated depreciation on this machinery at March 31, 2019, should be

a. P160,000.
b. P144,000.
c. P96,000.
d. P80,000.

11. Hahn Co. takes a full year's depreciation expense in the year of an asset's acquisition and no
depreciation expense in the year of disposition. Data relating to one of Hahn's depreciable assets
at December 31, 2019 are as follows:
Acquisition year 2017
Cost P140,000
Residual value 20,000
Accumulated depreciation 96,000
Estimated useful life 5 years
Using the same depreciation method as used in 2017, 2018, and 2019, how much depreciation
expense should Hahn record in 2020 for this asset?
a. P16,000
b. P24,000
c. P28,000
d. P32,000

12. A depreciable asset has an estimated 15% residual value. At the end of its estimated useful life,
the accumulated depreciation would equal the original cost of the asset under which of the
following depreciation methods?
Straight-line Productive Output
a. Yes No
b. Yes Yes
c. No Yes
d. No No

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FINANCIAL ACCOUNTING & REPORTING - PPE

13. Net income is understated if, in the first year, estimated residual value is excluded from the
depreciation computation when using the
Straight-line Production or
Method Use Method
a. Yes No
b. Yes Yes
c. No No
d. No Yes

14. A plant asset with a five-year estimated useful life and no residual value is sold at the end of the
second year of its useful life. How would using the sum-of-the-years'-digits method of depreciation
instead of the double-declining balance method of depreciation affect a gain or loss on the sale of
the plant asset?
Gain Loss
a. Decrease Decrease
b. Decrease Increase
c. Increase Decrease
d. Increase Increase

15. Giger Company acquired a tract of land containing an extractable mineral resource. Giger is
required by the purchase contract to restore the land to a condition suitable for recreational use
after it has extracted the mineral resource. Geological surveys estimate that the recoverable
reserves will be 5,000,000 tons, and that the land will have a value of P1,000,000 after restoration.
Relevant cost information follows:
Land P7,000,000
Estimated restoration costs 1,500,000
If Giger maintains no inventories of extracted material, what should be the charge to depletion
expense per ton of extracted material?
a. P1.70
b. P1.50
c. P1.40
d. P1.20

16. In January 2019, Fehr Mining Corporation purchased a mineral mine for P4,200,000 with
removable ore estimated by geological surveys at 2,500,000 tons. The property has an estimated
value of P400,000 after the ore has been extracted. Fehr incurred P1,150,000 of development
costs preparing the property for the extraction of ore. During 2019, 340,000 tons were removed
and 300,000 tons were sold. For the year ended December 31, 2019, Fehr should include what
amount of depletion in its cost of goods sold?
a. P516,800
b. P456,000
c. P594,000
d. P673,200