ROBLES ONLY

MULTIPLE CHOICE QUESTIONS – THEORY

CURRENT LIABILITIES
1. A financial liability is any liability that is a contractual obligation –
I. To deliver cash or another financial asset to another entity.
II. To exchange financial asset or financial liability with another entity under
conditions that are potentially unfavorable to the entity.
a. I only c. Both I and II
b. II only d. Neither I nor II

2. It is an existing liability of uncertain amount or uncertain timing.

a. Contingent liability c. Unearned income
b. Discount on notes payable d. Provision

3. Where there is a continuous range of possible outcomes, and each point in that range is
as likely as any other, the range to be used is the –
a. minimum c. maximum
b. sum of minimum & maximum d. midpoint

4. It is the statistical method of estimating a provision which means that where the
provisions being measured involves a large population of items, the obligation is
estimated by “weighting” all possible outcomes by their associated possibilities.
a. Extrapolation c. Simple average
b. Weighted average d. Expected value

5. Which of the following contingencies need not be disclosed in the financial statements or
the notes thereto?
a. Probable losses not reasonably estimable.
b. Possible assessments of additional taxes.
c. Guarantees of indebtedness of others.
d. All of these must be disclosed.

6. Which of the following is a current liability?

a. preferred dividends in arrears
b. a dividend payable in the form of additional shares of stock
c. a cash dividend payable to preferred stockholders.
d. all of these
7. When the word accrued is used in connection with a current liability, it means –
a. an expense has been incurred, but is unpaid at the financial statement date.
b. An expense has been incurred for which cash has been paid.
c. The liability will not come due in the subsequent accounting period.
d. The liability is being contested and may not be paid.

8. A company borrowed cash from a bank and issued to the bank a short-term non-interest
bearing note payable. The bank discounted the note at 10% and remitted the proceeds
to the company. The effective interest rate paid by the company in this transaction
would be –
a. equal to the stated discount rate of 10%.
b. more than the stated discount rate of 10%.
c. less than the stated discount rate of 10%.
 d. independent of the stated discount rate.

9. Which of the following sets of conditions would give rise to the accrual of a contingency?
a. Amount of loss is reasonably estimable and event occurs infrequently.
b. Amount of loss is reasonably estimable and occurrence of event is probable.
c. Event is unusual in nature and occurrence of event is probable.
d. Event is unusual in nature and event occurs infrequently.

10. Which of the following sets of conditions would give rise to the accrual of a contingency?
a. Amount of loss is reasonably estimable and event occurs infrequently.
b. Amount of loss is reasonably estimable and occurrence of event is probable.
c. Event is unusual in nature and occurrence of event is probable.
d. Event is unusual in nature and event occurs infrequently.
11. If a contingent loss is probable and can be reasonably estimated to be within a given
range, but no amount within the range is a better estimate than any other amount within
the range, the amount to be accrued should be –
a. the mean of the upper and lower limit of the range
b. the upper limit of the range
c. the lower limit of the range
d. zero

12. An estimated liability is an obligation that is uncertain as to –

Amount Existence
a. Yes Yes
b. Yes No
c. No Yes
d. No No

13. Cali Company had a P4.0 M note payable due March 15, 2007. On January 15, 2007
before the issuance of its 2006 financial statements, Cali issued long-term bonds in the
amount of P4.5 M. Proceeds from the bonds were used to repay the note when it came
due. How should Cali classify the note in its December 31, 2006 financial statements?
a. as a current liability with separate disclosure of the note refinancing.
b. as a non-current liability with separate disclosure of the note refinancing.
c. as a current liability with no separate disclosure required.
d. as a non-current liability with no separate disclosure required.

14. A retail store received cash and issued gift certificates that are redeemable in
merchandise. The gift certificates lapse one year after they are issued. How should the
deferred revenue account be affected by each of the following transactions?
Redemption of certificates Lapse of certificates
a. No effect Decrease
b. Decrease Decrease
c. Decrease No effect
d. No effect No effect
15. Which of the following loss contingencies is normally accrued?
a. pending or threatened litigation
b. general or unspecified business risk
c. obligations related to product warranties
d. risk of property loss due to fire
16. Which is not an essential characteristic of an accounting liability?
a. The liability is the present obligation of a particular enterprise.
b. The liability arises from past transaction or event.
c. The settlement of the liability requires an outflow of resources embodying
economic benefits.
d. The liability is payable to a specifically identifiable payee.
17. How would the proceeds received from the advance sale of nonrefundable tickets for a
theatrical performance be reported in the seller’s financial statements before the
performance?
a. Revenue for the entire proceeds.
b. Revenue to the extent of related costs expended.
c. Unearned revenue to the extent of related costs expended.
d. Unearned revenue for the entire proceeds

18. A contingent liability –

a. has a most probable value of zero but may require a payment if a given future
event occurs.
b. definitely exists as a liability but its amount or due date is indeterminate.
c. is commonly associated with operating loss carry forwards.
d. is not disclosed in the financial statements.

19. On August 1, 2006, ABC Company borrowed cash and signed a one-year interest-
bearing note on which both the principal and interest are payable on August 1, 2007.
How will the note payable and the accrued interest be classified in the balance sheet at
December 31, 2006?
Note payable Accrued Interest
a. Current liability Non-current liability
b. Non-current liability Current liability
c. Current liability Current liability
d. Non-current liability No entry
MULTIPLE CHOICE QUESTIONS – PROBLEMS

1. The accounts payable balance of Jek Company at December 31, 2006 was P540,000
before the year-end adjustments relating to the following information:

a. Goods with an invoice cost of P30,000 were in transit from the vendor to Jek on
December 31, 2006. The goods were shipped FOB destination on December
29, 2006 and were received on January 3, 2007.

b. Goods with an invoice cost of P15,000 which were shipped FOB shipping point
on December 23, 2006, from a vendor to Jek were lost in transit. On January 4,
2007, Jek filed a P15,000 claim against the transportation company.

c. Goods with an invoice cost of P9,000 which were shipped FOB shipping point
from a vendor to Jek were received on January 5, 2007.

What amount should Jek report as accounts payable on its December 31, 2006 balance
sheet?
a. P555,000 c. P570,000
b. P564,000 d. P585,000
2. Dexter Company requires advance payments with special orders for machinery
constructed to customer specifications. These advances are nonrefundable. Data for
the year are:

Customer advances, January 1, 2006 - P 5,800,000

Advances received with orders in 2006 - 12,000,000
Advances applied to orders shipped in 2006 - 10,700,000
Advances applicable to orders cancelled in 2006 - 2,500,000

The December 31, 2006 balance sheet should report current liability at -
a. P2,000,000 c. P4,600,000
b. P2,500,000 d. P7,100,000

3. At December 31, 2006, Joy Corporation owned notes payable of P1,000,000 with a
maturity date of April 30, 2007. These notes did not arise from transactions in the
normal course of business. On February 1, 2007, Joy issued P3,000,000 of ten-year
bonds with the intention of using part of the bond proceeds to liquidate the P1,000,000 of
notes payable. Joy’s 2006 financial statements were issued on March 29, 2007.

How much of the P1,000,000 notes payable should be classified as current in Joy’s
balance sheet at December 31, 2006?
a. P 0 c. P 900,000
b. P100,000 d. P1,000,000

4. In November and December 2006 , Belle Company, a newly organized magazine

publisher, received P720,000 for 1,000, three-year subscriptions at P240 per year,
starting with the January 2007 issue. Belle elected to include the entire P720,000 in its
2006 income tax return.

What amount should Belle report in its December 31, 2006 balance sheet as unearned
subscriptions revenue?
a. P 0 c. P240,000
b. P40,000 d. P720,000

5. Mega Galleria sells gift certificates that are redeemable only when merchandise is
purchased from its stores. These gift certificates have an expiration date of two years
after issuance date. It is the company’s policy to recognize the amount redeemed or
expired as realized. During 2006, Mega sold gift certificates amounting to P1,800,000
and redeemed gift certificates worth P1,560,000. Gift certificates outstanding at January
1, 2006 is P520,000 and at the end of 2006, P80,000 worth of gift certificates expired.
The company’s gross profit rate is 40%.

What is the liability for outstanding gift certificates at December 31, 2006?
a. P760,000 c. P680,000
b. P720,000 d. P520,000

6. Dan Company sells contracts agreeing to service air-conditioners for a three-year

period. Information for the year ended December 31, 2006 is as follows:

Unearned service contract revenue, January 1, 2006 - P270,000

 Cash receipts from service contracts sold during 2006 - 480,000
Service contracts revenue recognized in the
income statement - 390,000

What amount should Dan report as unearned service contract revenue in its December
31, 2006 balance sheet?
a. P120,000 c. P275,000
b. P195,000 d. P360,000

7. Rye Company sells equipment service contracts that cover a two-year period. The
sales price of each contract is P5,000. Rye’s past experience shows that of the total
pesos spent for repairs in service contracts, 40% is incurred evenly during the first
contract year and 60% evenly during the second contract year. Rye sold 1,000
contracts evenly throughout 2006.

In its December 31, 2006 balance sheet, what amount should Rye report as unearned
revenue?
a. P4,000,000 c. P1,500,000
b. P3,000,000 d. P0

8. Burgundy Company pays all salaried employees on a biweekly basis. Overtime pay,
however, is paid in the next biweekly period. Burgundy accrued salaries expense only
at its June 30 fiscal year-end. Data relating to salaries earned in June 2006 were as
follows:

o Last payroll was paid on 06/26/06 for the two-week period ended 06/26/06.
o Overtime pay earned in the two-week period ended 06/26/06 was P42,000.
o Remaining work days in June 2006 were June 28, 29, and 30, on which there was no
overtime.
o The recurring biweekly salaries total P750,000.
Assuming a five-day work week, Burgundy should report a liability at June 30, 2006 for
accrued salaries of –
a. P225,000 c. P450,000
b. P267,000 d. P492,000

9. Apachi must determine the December 31, 2006 year-end accruals for advertising and
rent expenses. A P50,000 advertising bill was received January 7, 2007, comprising of
P37,500 for advertisements in December 2006 issues and P12,500 for advertisements
in January 2007 issues of the newspaper.

A store lease effective December 1, 2006 calls for fixed rent of P120,000 per month
payable at the beginning of each month. In addition, rent equal to 5% of net sales over
P3,000,000 per month is payable on the 20th day of the following month. Net sales for
December 2006 were P5,500,000.

In its December 31, 2006 balance sheet, Apachi should report accrued liabilities of –
a. P282,500 c. P162,500
b. P175,000 d. P125,000
10. In its 2006 financial statements, Toronto Company reported interest expense of P85,000
in its income statement and cash paid for interest of P68,000 in its cash flows statement.
There was no prepaid interest or interest capitalization either at the beginning or end of
2006. Accrued interest at December 31, 2005 was P15,000.

What amount should Toronto report as accrued interest payable in its December 31,
2006 balance sheet?
a. P32,000 c. P15,000
b. P17,000 d. P 2,000

11. On September 1, 2005, Tom Company borrowed on a P1,350,000 note payable from
ABN Bank. The note bears interest at 18% and is payable in three equal annual
payments of P450,000. On this date, the bank’s prime rate is 16%. The first annual
payment for interest and principal was made on September 1, 2006.
At December 31, 2006, what amount should Tom Company report as accrued interest
payable?
a. P81,000 c. P54,000
b. P72,000 d. P48,000

Nos. 12 and 13 are based on the following information.

12. Jack Company grants all employees two weeks paid vacation for each full year of
employment. Unused vacation time can be accumulated and carried forward to
succeeding years, and will be paid at the salaries in effect when vacations are taken or
when employment is terminated. During 2006, there was no employee turnover. Jack
granted a 10% salary increase to all employees on October 1, 2006, its annual salary
increase date. Information relating to the year ended December 31, 2006 follows:

Liability for vacation pay, January 1, 2006 - P50,000

Accrued vacation taken from January 1, 2006 to
September 30, 2006 (pre-2006 accruals) - 30,000
Vacations earned for work in 2006, adjusted
to current rates - 40,000

How much is the vacation pay expense for the year ended December 31, 2006?
a. P62,000 c. P40,000
b. P42,000 d. P38,000

13. What amount is reported as liability for vacation pay at Jack Company’s December 31,
2006 balance sheet?
a. P62,000 c. P42,000
b. P60,000 d. P40,000

14. Jill Company estimates its annual warranty expense as 4% of annual net sales. During
the year 2006, Jill had the following relevant data: Net sales – P1,500,000; Liability
for warranty, December 31, 2006 before adjustment – P10,000 (debit); Liability for
warranty, December 31, 2006 after adjustment – P50,000 (credit).

Which one of the following entries was made to record the 2006 estimated warranty
expense?
a. Warranty Expense 60,000
 Retained Earnings 10,000
Liability for Warranty 50,000
b. Warranty Expense 50,000
Retained Earnings 10,000
Liability for Warranty 60,000
c. Warranty Expense 40,000
Liability for Warranty 40,000
d. Warranty Expense 60,000
Liability for Warranty 60,000

15. Des Moines Company introduced during 2005, a new television model with a two-year
warranty against defects. Des Moines estimates the warranty costs at 2% of peso sales
within 12 months following the sale and at 4% in the second 12 months following the
sale. Sales and actual warranty expense for the year ended December 31, 2005 are
P3,000,000 and P45,000, respectively, and for the year ended December 31, 2006 are
P5,000,000 and P150,000, respectively.

Des Moines should report an estimated warranty liability in its December 31, 2006
balance sheet of –
a. P285,000 c. P85,000
b. P225,000 d. P50,000

Nos. 16 - 18 are based on the following data.

16. Sam Company started business in 2006. It sells printers with a three-year warranty.
Sam estimates its warranty cost as a percentage of peso sales. Based on past
experience, it is estimated that 2% will be repaired during the first year of warranty, 4%
will be repaired during the second year of warranty and 6% will be repaired in the third
year. In 2006 and 2076, the company was able to sell 7,500 units and 8,400 units,
respectively at a selling price of P5,000 per unit. The company also incurred actual
repair costs of P530,000 and P1,176,000 in 2006 and 2007, respectively.
What amount should Sam report as warranty expense in 2006?
a. P7,834,000 c. P4,500,000
b. P5,040,000 d. P3,970,000

17. What is the amount of liability for warranty reported in Sam’s December 31, 2007
balance sheet?
a. P7,834,000 c. P4,500,000
b. P5,040,000 d. P3,024,000

18. Assuming that sales and repair occur evenly throughout the period, how much would be
the predicted warranty expense covering 2006 and 2007 sales still under warranty?
a. P8,790,000 c. P7,620,000
b. P7,834,000 d. P6,450,000

Nos. 19 and 20 are based on the following information.

19. Pretender Music Store carries a wide variety of musical instruments, sound reproduction
equipment, recorded music and sheet music. Pretender uses two sales promotion
techniques: warranties and premiums to attract customers.
 Musical instruments and sound reproduction equipment are sold with a one-year
warranty for replacement of parts and labor. The estimated warranty costs, based on
past experience is 2% of sales.

The premium was offered on the recorded and sheet music. Customers received a
coupon for each peso spent on recorded and sheet music. Customers may exchange
200 coupon and P20 for a cassette player. Pretender pays P34 for each cassette
player and estimates that 60% of the coupons given to the customers will be redeemed.

Pretender’s total sales for 2006 were P7,200,000: P5,400,000 from musical instruments
and sound reproduction equipment and P1,800,000 from recorded and sheet music.
Replacement parts and labor for warranty work totaled P164,000 during 2006. A total of
6,500 cassette players used in the premium program were purchased during the year
and there were 1,200,000 coupons redeemed in 2006.

The accrual method is used by Pretender to account for the warranty and premium costs
for financial reporting purposes. The balances in the accounts related to warranties and
premiums on January 1, 2006 were shown as follows:
Inventory of cassette players - P 39,950
Estimated premium claims outstanding - 44,800
Estimated liability for warranties - 136,000

19. What amount should the warranty expense and premium expense, respectively, be
shown in the December 31, 2006 income statement of Pretender Music Store?
a. P108,000 and P75,600 c. P164,000 and P120,400
b. P136,000 and P204,000 d. P108,000 and P56,950

20. What amount should the Estimated Liability from Warranties and Premiums,
respectively, be shown in the December 31, 2006 balance sheet?
a. P80,000 and P84,000 c. P108,000 and P75,000
b. P80,000 and P36,400 d. P108,000 and P84,000

Nos. 21 and 22 are based on the following information.

21. Beginning the year 2006, the Asian Beer Company began marketing a new beer called
“Serbesa”. To help promote the product, the management of Asian is offering a special
Serbesa beer mug to each customer for every 20 specially marked bottle caps of
Serbesa. Asian estimates that out of the 300,000 bottles of Serbesa sold during 2006,
only 50% of bottle caps will be redeemed. For the year 2006, 7,000 beer mugs were
ordered by the company at a total cost of P245,000. A total of 4,500 mugs were already
distributed to customers.

What is the amount of the liability that Asian should report on their 2006 balance sheet?
a. P105,000 c. P245,000
b. P157,500 d. P262,500
22. What is the amount of premium expense that Asian should report on their 2006 income
statement?
a. P 87,500 c. P245,000
b. P105,000 d. P262,500
23. The Nice Food Company is engaged in a sales promotion. It gives a rebate of P4.00 for
every food box returned. It is estimated that only 80% of the food boxes will be returned
and receive the rebate. Included in the promotion and sold are 50,000 boxes with the
selling price of P1,250,000. Rebates already given amounted to P48,000. How much
is the remaining liability?
a. P160,000 c. P112,000
b. P152,000 d. P 48,000

24. Under an incentive compensation plan, the general manager of Jones Company is
entitled to a year-end bonus of 10% of the net income before deducting the bonus but
after deducting the income tax. The net income for 2006 of Jones before any deduction
for bonus and income tax amounted to P2,500,000. The prevailing income tax rate is
35%.

What is the general manager’s bonus for 2006?

a. P175,620 c. P162,500
b. P168,394 d. P157,005

Nos. 25 and 26 are based on the following information.

25. Jam Company distributes annual bonuses to its sales manager and two sales
supervisors. The company reported P2,000,000 income for 2006 before bonuses and
income tax. Income tax rate is 35%.

How much is the total amount of bonus if the bonus for each of them is computed at
15% of income after bonuses and income tax?
a. P150,870 c. P452,611
b. P177,677 d. P533,030

26. How much should the sales manager and each sales supervisor receive, respectively, if
the sales manager gets 15% and each sales supervisor gets 10% of income after
bonuses but before income taxes?
a. P857,143 and P571,428 c. P222,222 and P148,148
b. P518,519 and P518,519 d. P260,870 and P173,913

27. Buffy Company provides an incentive compensation plan under which its President is to
receive a bonus equal to 10% of the income in excess of P1,000,000 before deducting
income tax but after deducting the bonus. Income after income tax of 35% is
P1,950,000.

How much is the amount of bonus?

a. P129,888 c. P204,000
b. P200,000 d. P220,000

28. On July 1, 2006, Joe Company issued a five-year note payable with a face amount of
P2,500,000 and an interest rate of 10%. The terms of the note require Joe to make five
annual payments of P500,000 plus accrued interest, with the first payment due on June
30, 2007.

With respect to the note, the current liabilities section of Joe’s December 31, 2006
balance sheet should include –
 a. P125,000 c. P625,000
b. P500,000 d. P750,000

29. Town Company had the following amounts of long-term debt outstanding at December
31, 2006:

14 ½% term note, due 2007 P 60,000

11 1/8% term note, due 2009 2,140,000
8% note, due in 11 equal annual principal payments
plus interest beginning December 31, 2007 2,200,000
Guaranteed debentures, due 2010 2,000,000
Total P6,400,000

Town’s annual sinking fund requirement on the guaranteed debentures is P80,000 per
year.

What amount should Town report as current liabilities in its December 31, 2006 balance
sheet?
a. P260,000 c. P140,000
b. P200,000 d. P 80,000

30. Jel Company sells its products in reusable expensive containers. The customer is
charged a deposit for each container delivered and receives a refund for each container
returned within two years after the year of delivery. Jel accounts for any containers not
returned within the time limit as being retired by sale at the deposit amount. Information
relating to customer deposits follows:
Containers held by customers at December 31, 2005 from deliveries in:
2004 P75,000
2005 215,000 P290,000
Containers delivered in 2006 390,000
Containers returned in 2006 from deliveries in:
2004 P 45,000
2005 125,000
2006 143,000 313,000
What amount should Jel Company report as a liability for deposits on returnable
containers at December 31, 2006?
a. P247,000 c. P337,000
b. P322,000 d. P367,000

Nos. 31 and 32 are based on the following information:

31. During 2006, Cyber Company became involved in a tax dispute with the Bureau of
Internal Revenue. At December 31, 2006, Cyber’s tax advisor believed that an
unfavorable outcome was probable and a reasonable estimate of additional taxes was
P500,000 but could be as much as P650,000. After the 2006 financial statements were
issued, Cyber received and accepted a BIR settlement offer of P550,000.

What amount of accrued liability would Cyber have reported in its December 31, 2006
balance sheet?
 a. P650,000 c. P550,000
b. P575,000 d. P500,000

32. Assume that the company accepted the BIR settlement offer of P550,000 before the
2006 financial statements were issued. What amount of accrued liability would Cyber
have reported in its December 31, 2006 balance sheet?
a. P650,000 c. P500,000
b. P550,000 d. P 0

33. Included in May Company’s liability balances at December 31, 2006 were the following:
10% note payable issued on October 1, 2005
maturing on October 1, 2007 P2,000,000
12% note payable issued on March 1, 2005
maturing on March 1, 2007 4,000,000
May’s 2006 financial statements were issued on March 31, 2007. On December 31,
2006, the entire P4,000,000 balance of the 12% note payable was refinanced through
issuance of a long-term obligation payable lump sum. Under the loan agreement for the
10% note payable, May has the discretion to refinance the obligation for at least twelve
months after December 31, 2006.

What amount of the notes payable should be classified as current on December 31,
2006?
a. P6,000,000 c. P2,000,000
b. P4,000,000 d. P 0

34. Sylvester Company sells an electric timer that carries a 60-day unconditional warranty
against product failure. Based on a reliable statistical analysis, Sylvester knows that
between the sale and the lapse of the product warranty, 2% of units sold will require an
average cost of P200 per unit.

The following data reflect the recent experience of Sylvester for its fiscal year ending
June 30.
April May June
Units sold 40,000 45,000 50,000
Known product failures
from sales of:
April 100 300 200
May 180 320
June 250
What is Sylvester Company’s estimated warranty liability on June 30, 2006?
a. P270,000 c. P230,000
b. P250,000 d. P150,000

35. Robots Corporation is preparing its December 31, 2006 balance sheet. The following
items may be reported as either current or non-current liability:

 On December 15, 2006, Robots declared a cash dividend of P2.50 per share to
shareholders of record on December 31. The dividend is payable on January 15,
 2007. Chopin has issued 1,000,000 ordinary shares, of which 50,000 shares are
held in the treasury.

 Also on December 31, Robots declared a 10% stock dividend to shareholders of

record on January 15, 2007. The dividend will be distributed on January 31, 2007.
Robots’ ordinary share has a par value of P10 per share and a market value of P38
per share.

 At December 31, bonds payable of P10,000,000 are outstanding. The bonds pay
12% interest every September 30 and mature in installments of P2,500,000 every
September 30, beginning September 30, 2007.

 At December 31, 2005, customer advances were P12,000,000. During 2006, Robots
collected P30,000,000 of customer advances, and advances of P25,000,000 were
earned.

 At December 31, 2006, retained earnings appropriated for future inventory losses is
P1,500,000.

How much of the foregoing should be reported as current liabilities?

a. P58,275,000 c. P22,175,000
b. P22,300,000 d. P10,175,000

36. On the first day of each month, Jake Company receives of Carlo Monte Corporation an
escrow deposit of P250,000 for real estate taxes. Jake records the P250,000 in an
escrow account. Carlo Monte Corporation’s real estate tax for the year ended
December 31, 2006 is P2,800,000, payable in equal installment on the first day of each
calendar quarter.

On December 31, 2005, the balance in the escrow account of Carlo Monte Corporation
was P300,000.

On September 30, 2006, what amount should Jake Company show as an escrow liability
to Carlo Monte Corporation?
a. P150,000 c. P 850,000
b. P450,000 d. P1,150,000

37. Snoopy Company is engaged in the manufacture of chemicals which it exports to other
countries. On December 20, 2006, one of its storage tanks in the plant exploded.
Unfortunately, one of its employees was caught by the accident and suffered severe
burns all over his body. For damages sustained because of the explosion, the
employee sued Snoopy and claimed an amount totaling P3.0 million for physical injuries
sustained.

The lawyer of Snoopy expects that the company will probably lose the lawsuit and
estimates that the company may have to pay the amount of P2.5 million.
 On March 10, 2007, upon advice of the lawyer, the injured employee offered to have an
out of court settlement of P2.0 million. The offer was tendered on the same date and
Snoopy accepted the offer on March 12, 2007 upon advice of its legal counsel. The
financial statements for the year 2006 were issued on March 31, 2007.

What amount should be reported by Snoopy Company as liability from the legal case in
its December 31, 2006 balance sheet?
a. P3,000,000 c. P2,000,000
b. P2,500,000 d. P 0

38. On November 5, 2006, Tim Truck Rental Company was in an accident with an auto
driven by Jayson. Tim Truck Rental Company received notice on January 12, 2007, of
a lawsuit for P700,000 damages for personal injuries suffered by Jayson. Tim’s counsel
believes it is probable that Jayson will be awarded an estimated amount in the range
between P200,000 and P450,000, and that P300,000 is a better estimate of potential
liability than any other amount. Tim’s accounting year ends on December 31, and the
2006 financial statements were issued on March 2, 2007.

What amount of loss should Tim accrue at December 31, 2006?

a. P 0 c. P300,000
b. P200,000 d. P450,000

39. On January 17, 2007, an explosion occurred at an Action Fireworks plant in Bulacan
causing extensive property damage to area buildings. Although no claims had yet
been asserted against Action by March 10, 2007, Action’s management and counsel
concluded that it is reasonably possible that Action will be responsible for damages and
that P2,500,000 would be a reasonable estimate of its liability. Action’s P10 million
compre-hensive public liability policy has a P500,000 deductible clause.

In Action’s December 31, 2006 financial statements, which were issued on March 25,
2007, how should this item be reported?
a. As a footnote disclosure indicating the possible loss of P500,000.
b. As an accrued liability of P500,000.
c. As a footnote disclosure indicating the possible loss of P2,500,000.
d. As an accrued liability of P2,500,000.

40. Mother, Inc. is being sued for illness caused to local residents as a result of negligence
on the company’s part in permitting the local residents to be exposed to highly toxic
chemicals from its plant. Mother, Inc.’s lawyer states that it is probable that Mother, Inc.
will lose the suit and be found liable for a judgment costing Mother, Inc. anywhere from
P400,000 to P2,000,000. However, the lawyer states that the most probable cost is
P1,200,000.
As a result of the given facts, Mother, Inc. should accrue –
a. a loss contingency of P400,000 and disclose an additional contingency of up to
P1,600,000.
b. a loss contingency of P1,200,000 and disclose an additional contingency of
up to P800,000.
 c. a loss contingency of P1,200,000 but not disclose any additional contingency.
d. no loss contingency but disclose a contingency of P400,000 to P2,000,000.

41. Brian Company carries P10 million comprehensive public liability insurance with a
P200,000 deductible clause. A suit for personal injury damages was brought against
Brian in 2003. Brian’s counsel believes it probable that the insurance company will
settle out of court for an estimated amount of P550,000.

At December 31, 2006, Brian should report an accrued liability of-

a. P550,000 c. P200,000
b. P350,000 d. P0

42. On November 1, 2006, Corn Company was awarded judgment of P3,000,000 in

connection with a lawsuit. The decision is being appealed by the defendant, and it is
expected that the appeal process will be completed by the end of 2007. Corn’s
attorneys feel that it is highly probable that an award will be upheld on appeal, but the
judgment may be reduced by an estimated 40%.
In addition to a footnote, what amount should be reported as a receivable in Corn’s
balance sheet at December 31, 2006?
a. P3,000,000 c. P1,200,000
b. P1,800,000 d. P0

43. Hay Company won a litigation for P45,000 tripled to P135,000 to include punitive
damages during January 2006. Only the P90,000 punitive damages were appealed by
the defendant. In an unrelated suit it filed, which is still on appeal by the defendant, Hay
was awarded P145,000. The outcome of these appeals could not be estimated by the
counsel.

How much should Hay report as pretax gain in its 2006 financial statements?
a. P 45,000 c. P150,000
b. P135,000 d. P285,000

44. Twin Company filed a patent infringement suit against Cager, Inc. in May 2004 seeking
P2,850,000 for damages. Twin was awarded P2,250,000 in damages by a court verdict
in November 2006; but Cager, Inc. appealed the decision and its appeal is not expected
to be decided before 2008. The counsel of Twin will be successful against Cager and
estimates an amount in the range between P1,200,000 and P1,650,000 with P1,500,000
considered as the most likely amount.
Twin Company should record as income from the lawsuit in the year ended December
31, 2006, the amount of –
a. P 0 c. P1,500,000
b. P1,200,000 d. P2,250,000
 Chapter 8:
Non-Current
Liabilities
 MULTIPLE CHOICE QUESTIONS - THEORY
NON-CURRENT LIABILITIES

1. If bonds were issued initially at a premium and the effective interest method of
amortization is used, interest expense in the earlier years will be –
a. greater than if the straight-line method were used.
b. greater than the amount of the interest payments
c. the same as if the straight-line method were used.
d. less than if the straight-line method were used.

2. When all bonds mature on a single date, they are called –

a. term bonds c. debenture bonds
b. serial bonds d. callable bonds

3. The proceeds from a bond issued with detachable stock purchase warrants should be
accounted for –
a. entirely as bonds payable
b. entirely as shareholders’ equity
c. partially as unearned revenue and partially as bonds payable.
d. Partially as shareholders’ equity and partially as bonds payable.

4. Bond premium should be reported in the balance sheet –

a. at the present value of the future reduction in bond interest expense due to the
premium.
b. as a deferred credit.
c. along with other premium accounts such as those resulting from stock
transactions.
d. as a direct addition to the face amount of the bonds.

5. How would the carrying value of a bond payable be affected by amortization of each of
the following?
Discount Premium
a. No effect No effect
b. Increase No effect
c. Increase Decrease
d. Decrease Increase

6. Bond issue costs, such as printing fees, legal fees, commissions, etc. are most
appropriately accounted for by –
a. charging them to an expense account in the year the bonds are actually sold.
b. debiting them to unamortized bond issue costs, setting them as a deferred
charge on the balance sheet and amortizing them in a manner similar to bond
discount over the life of the bond.
c. charging them to an expense account in the year the bonds are originally dated
whether or not they are sold in that year.
d. adding them to any discount on bonds or subtracting them from any premium on
bonds when the bonds are sold.

7. Moon Corporation markets a 10-year bond issue dated January 1, 2006. The bonds pay
interest semi-annually on January 1 and July 1. If these bonds are sold on September 1,
 2006, how many months accrued interest must be paid by the purchaser and over how
many months would any premium on the bonds be amortized?
Months of accrued interest Amortization period
a. 8 120 months
b. 8 112 months
c. 2 120 months
d. 2 112 months

8. Under the effective interest method of bond discount or premium amortization, the
periodic interest expense is equal to –
a. the stated (nominal) rate of interest multiplied by the face value of bonds.
b. the effective (yield) rate of interest multiplied by the face value of the bonds.
c. the stated rate multiplied by the beginning-of-period carrying amount of the
bonds.
d. the effective rate multiplied by the beginning-of-period carrying amount of the
bonds.

9. ABC neglected to amortize premium on outstanding 20-year bonds payable. What is

the effect of the failure to record premium amortization on interest expense and bond
carrying value, respectively?
a. understate; understate
b. understate; overstate
c. overstate; overstate
d. overstate; understate

10. What is the market rate of interest for a bond issue that sells for more than its face
value?
a. Lower than the rate stated on the bond.
b. Equal to the rate stated on the bond.
c. Higher than the rate stated on the bond.
d. Independent of the rate of the bond.

11. Bonds with a par value of P5.0 million carrying a stated interest rate of 12% payable
semiannually on March 1 and September 1 were issued on July 1. The total proceeds
from the issue amounted to P5,200,000. The best explanation for the excess amount
received over par value is –
a. the bonds were sold at a premium.
b. the bonds were sold at a higher effective interest rate.
c. the bonds were issued at par value plus accrued interest.
d. No explanation is possible without knowing the maturity date of the bond issue.

12. If bonds are held to maturity, any premium or discount as well as any bond issue costs –
a. should be written off directly to a bond retirement account as the bond will be
redeemed.
b. are carried forward and written off in the same manner as that used prior to the
maturity date.
c. will be fully amortized as their amortization period is designed to coincide with the
life of the bond issue.
d. should be used to calculate the gain or loss resulting from the maturity of the
bonds.
13. Conceptually, the proceeds from the sale of a bond will equal to –
a. the face amount of the bond.
b. the present value of the principal amount due at the end of the life of the bond
plus the present value of the interest payments made during the life of the bond.
c. the face amount of the bond plus the present value of the interest payments
during the life of the bond.
d. the sum of the face amount of the bond and the periodic interest payments.

14. A call privilege attached to a bond issue means that –

a. the investor may convert bonds held to cash at his or her option.
b. the issuer may retire the bonds by paying a specified call price during a specified
period.
c. the issuer may retire the bonds by paying a specified market price at the open
market at any point in the life of the bond.
d. the issuer may convert the bonds to some form of equity security during a
specified period.

15. A bond or similar instrument convertible by the holder into a fixed number of ordinary
shares of the entity is -
a. a compound financial instrument.
b. a primary financial instrument.
c. a derivative financial instrument.
d. an equity.

16. A compound financial instrument shall be accounted for as -

a. financial liability only.
b. equity only.
c. partly financial liability and partly equity.
d. neither financial liability nor equity.

MULTIPLE CHOICE QUESTIONS - PROBLEMS

1. The following information pertains to Camp Corporation’s issuance of bonds on July 1,

2006:

Face amount – P800,000 Interest payment dates – July 1

Term-10 years Market yield – 9%
Stated interest rate – 6%
6% 9%
Present value of 1 for 10 periods 0.558 0.422
Future value of 1 for 10 periods 1.791 2.367
Present value of ordinary annuity of 1 for 10 periods 7.360 6.418

What should be the issue price of each P1,000 bond?

 a. P1,000 c. P807
b. P 864 d. P700

2. On July 1, 2006, Eagle Corporation issued 600 of its 10%, P1,000 bonds at 99 plus
accrued interest. The bonds are dated April 1, 2006 and mature on April 1, 2016.
Interest is payable semiannually on April 1 and October 1.

What amount did Eagle receive from the bond issuance?

a. P579,000 c. P600,000
b. P594,000 d. P609, 000

3. On January 2, 2006, Mall Company issued P2,000,000 of 10-year, 8% bonds at par.

The bonds, dated January 1, 2006, pay interest semi-annually on January 1 and July 1.
Bond issue costs were P250,000.

What is the bond carrying amount at January 2, 2006?

a. P2,250,000 c. P1,910,000
b. P2,000,000 d. P1,750,000

4. On July 1, 2006, after recording interest and amortization, Bert Company converted
P2,000,000 bonds of its 12% convertible bonds into 50,000 ordinary shares, P25 par
value. On the conversion date, the carrying amount of the bonds was P2,600,000 and
the paid-in capital arising from the conversion privilege recognized in the accounts is
P150,000. The market value of the bonds without the conversion privilege was
P2,800,000, and Bert’s ordinary share was publicly trading at P45 each.

Under IAS / PAS 32, what amount of paid-in capital in excess of par should Bert record as
a result of the conversion?
a. P1,350,000 c. P500,000
b. P1,500,000 d. P350,000

5. On December 31, 2006, Uni Corporation had outstanding, 8%, P5.0 million face value
convertible bonds maturing on December 31, 2009. Interest is payable annually on
December 31. Each P1,000 bond is convertible into 60 shares of Uni’s P15 par value
ordinary shares. The unamortized premium balance on December 31, 2006 is
P112,500. The Paid-in Capital Arising from Bond Conversion Privilege account has a
balance of P80,000. On December 31, 2006, an individual holding 500 of the bonds
exercised the conversion privilege when the market value of Uni’s ordinary share was
P28 per share.

Under IAS / PAS 32, Uni’s entry to record conversion should include a credit to Share
Premium of –
a. P390,000 c. P69,250
b. P242,500 d. P61,250

6. On July 1, 2006, an interest date, P100,000 of Hill Company bonds were converted into
2,000 of Hill’s ordinary share, each having a par value of P40 and a market value of P55.
There is P4,000 unamortized discount on the bonds.

Under IAS / PAS 32, what amount of gain or loss should Hill recognize in 2006 as a
result of the conversion?
 a. P14,000 gain c. P16,000 loss
b. P24,000 gain d. P0

7. On May 1, 2006, Vision Corporation issued P2.0 million, 20-year, 10% bonds for
P2,120,000. Each P1,000 bond had a detachable warrant eligible for the purchase of
one share of Vision’s P50 par common stock for P60. Immediately after the bonds were
issued, Vision’s securities had the following market values: 10% bonds without
warrants – P1,040; Warrant – P20; Common Stock, P50 par – P56.

What amount should Vision credit to Premium on Bonds Payable?

a. P120,000 c. P40,000
b. P80,000 d. P0

8. On July 1, 2006, Ultra Company issued P5 million of its 10%, 7-year bonds with one
detachable warrant attached to each P1,000 bond. Each warrant provides for the right
to purchase 20 shares of P15 par common stock for P20 each. The market value of the
common stock was P25 per share at July 1, 2006. The detachable warrant has a
market price of P70 each and each bond, without the warrants attached, is quoted at 97.
The bonds were sold at 104.

What are the values assigned to the bonds and warrants, respectively?
a. P5,200,000 and P0 c. P5,000,000 and P200,000
b. P4,850,000 and P350,000 d. P5,150,000 and P50,000

9. On December 31, 2006, Belfast Company issued P5,000,000 face value, 5-year bonds
at 102. Each P1,000 bond was issued with 20 detachable share warrants, each of
which entitled the bondholder to purchase one share of P5 par ordinary share at P25.
Immediately after issuance, the market value of each warrant was P5.

The stated interest rate on the bonds is 11% payable annually every December 31.
However, the prevailing market rate of interest for similar bonds without warrants is 12%.
The present value of 1 at 12% for 5 periods is 0.57 and the present value of an ordinary
annuity of 1 at 12% for 5 periods is 3.60.

On December 31, 2006, what amount should Belfast record as discount or premium on
bonds payable?
a. P170,000 discount c. P170,000 premium
b. P400,000 discount d. P400,000 premium
10. On March 1, 2006, Iliad Company issued P1,000,000 of its 10% nonconvertible bonds at
103 due February 28, 2016. Each P1,000 bond was issued with 30 detachable stock
warrants, each of which entitles the holder to purchase for P50, one ordinary share of
Iliad, par P40. On March 1, 2006, the quoted market price of each warrant was P4.

At how much should the bonds payable be recorded on March 1, 2006?

a. P1,030,000 c. P1,000,000
b. P1,026,000 d. P 910,000

11. Liverpool Company issued 5,000 convertible bonds on January 1, 2006. The bonds
have a three-year term and are issued at 110 with a face value of P1,000 per bond.
Interest is payable annually in arrears at a nominal 6% interest rate. Each bond is
convertible at anytime up to maturity into 100 ordinary shares with par value of P5.
 When the bonds are issued, the prevailing market rate for similar instrument without
conversion option is 9%. The present value of 1 at 9% for 3 periods is 0.77 and the
present value of an ordinary annuity of 1 at 9% for 3 periods is 2.53.

What is the equity component of the issuance of the convertible bonds on January 1,
2006?
a. P391,000 c. P1,150,000
b. P891,000 d. P1,650,000

12. Tom Company issued P6,000,000, 11%, 10-year bonds on May 31, 2006, when the
market interest was 10%. The bonds are priced at 106 ¼. The bonds pay interest on
May 31 and November 30. Tom uses the effective interest method of amortization.

What is the carrying amount of the bonds on December 31, 2006 balance sheet after all
year-end adjustments are correctly made?
a. P6,351,938 c. P6,363,750
b. P6,361,781 d. P6,364,063

13. Using the data of No. 12, what is the total interest expense that Tom will record for the
year 2006?
a. P660,000 c. P371,781
b. P385,000 d. P330,000

14. On July 1, 2006, Madison Company received P1,032,880 for P1,000,000 face amount,
12% bonds, a price that yields 10%.

Using the interest method of amortization, how much is the interest expense for the six
months ended December 31, 2006?
a. P61,973 c. P51,644
b. P60,000 d. P50,000

15. Using the data of No. 14, how much is the bond carrying value at December 31, 2006?
a. P1,024,524 c. P1,032,880
b. P1,031,236 d. P1,041,236

16. On January 1, 2006, London Company issued its 9% bonds in the face amount of P2.0
million which mature on January 1, 2016. The bonds were issued for P1,878,000 to
yield 10% resulting in a bond discount of P122,000. London Company uses the interest
method of amortizing bond discount. Interest is payable annually on December 31.

At December 31, 2006, London's unamortized bond discount should be –

a. P114,200 c. P103,220
b. P104,000 d. P102,000

17. Using the data of No. 16, what is the carrying value of the bonds at December 31, 2006?
a. P1,885,800 c. P1,896,780
b. P1,896,000 d. P1,898,000

18. On January 1, 2006, when the market rate for bond interest was 12%, Victoria
Corporation issued P10 million face amount of bonds with interest to be paid
 semiannually at a 10% annual rate. The bonds mature on December 31, 2014 and
were issued at a discount of P1,145,000.

How much of the discount should be amortized by the effective interest method at July 1,
2006?
a. P11,450 c. P 57,250
b. P31,300 d. P696,667

19. Grand Company issued P100,000 par value, 12% bonds on January 2, 2006. The bonds
mature in 10 years and pay interest semiannually on June 30 and December 31. The
bonds were sold for P89,406 which yield an effective interest rate of 14%.

The amount of interest expense to be recognized in 2006 using the effective method of
discount amortization is –
a. P14,000 c. P12,534
b. P12,517 d. P10,729

20. Nevada, Inc. issued a P5,000,000, 10%, 10-year bonds on July 1, 2006 for 113.6 when
the effective interest rate was 8%. Interest is payable on June 30 and December 31.
Nevada uses the effective interest method to amortize all premiums and discounts.

How much interest expense should Nevada report in its income statement for the year
ended December 31, 2006?
a. P284,000 c. P227,200
b. P250,000 d. P200,000

21. Frank, Inc. sold 100, P1,000 par value bonds that bear interest at 12% at a price of
P82,626, which yields an effective interest rate of 16%. Interest is paid annually on the
bonds, which mature 8 years from their date of issuance.

The interest expense and the discount amortization for the first year of the bond issue
using the effective interest method is –
a. P10,780 c. P13,220
b. P12,000 d. P14,172
22. On November 1, 2006, Mason Corporation issued P800,000 of its 10-year, 8% term
bonds dated October 1, 2006. The bonds were sold to yield 10%, with total proceeds of
P700,000 plus accrued interest. Interest is paid every April 1 and October 1.

What amount should Mason report for interest payable in its December 31, 2006
balance sheet?
a. P17,500 c. P11,667
b. P16,000 d. P10,667

23. Sim Company is issuing P2,000,000 of 8 ½ %, 5-year bonds. The bonds are dated and
sold on March 1, 2006. Interest payment dates are March 1 and September 1. With a
market interest rate of 9%, the bonds were sold for P1,963,000. The company uses the
effective interest method of amortization.
 What is the interest expense and discount amortization that Sim will record on
September 1, 2006?
Interest Expense Discount Amortization
a. P88,335.00 P3,335.00
b. P90,000.00 P5,000.00
c. P83,427.50 P1,762.50
d. P85,000.00 P 0

24. Using the data of No. 23, what is the carrying amount of the bonds on the December 31,
2006 balance sheet, after all year-end adjustments are made?
a. P1,963,000.00 c. P1,968,658.40
b. P1,969,820.10 d. P2,000,000.00

25. On December 31, 2006, Bell Co. issued P2,000,000, 12% serial bonds to be repaid in
the amount of P500,000 each year. Interest is payable annually on December 31. The
bonds were issued to yield 10% a year. The bond proceeds were P2,083,000 based on
the present values at December 31, 2006. Bell amortizes the bond discount by the
interest method. In its December 31, 2007 balance sheet, at what amount should Bell
report the carrying value of the bonds?
a. P2,083,000 c. P1,531,700
b. P2,051,300 d. P1,551,300
26. How much is the bond interest expense reported by Bell Company for the year ended
December 31, 2007?
a. P271,300 c. P240,000
b. P249,960 d. P208,300

27. On December 31, 2007, Columbia Company shows the following data with respect to its
matured obligation.
Notes Payable 5,000,000
Accrued Interest Payable 500,000
The company is threatened with a court suit if it could not pay its maturing debt.
Accordingly, the company enters into an agreement with the creditor for the transfer of a
non-cash asset in full settlement of the mortgage. The agreement provides for the
transfer of real estate carried in the books of Columbia at P3,000,000. The real estate
has a current fair market value of P4,500,000.

What is the gain on disposal of real estate that Columbia recognizes as a result of the
debt restructuring?
a. P 500,000 c. P1,500,000
b. P1,000,000 d. P2,500,000

28. Birmingham Company has an overdue 8% note payable to First Bank of P8,000,000 and
accrued interest of P640,000. As a result of a restructuring agreement on January 1,
2006, First Bank agreed to the following provisions:

 The principal obligation is reduced to P7,000,000.

 The accrued interest of P640,000 is forgiven.
 The date of maturity is extended to December 31, 2009.
 Annual interest of 10% is to be paid in 4 years every December 31.
The present value of 1 at 8% for 4 periods is 0.735 and the present value of an ordinary
annuity of 1 at 8% for 4 periods is 3.31. What is the gain on extinguishment to be
recognized for the year 2006?
a. P1,640,000 c. P1,000,000
b. P1,178,000 d. P 538,000
 Chapter 9:
Stockholders’
Equity
 MULTIPLE CHOICE – THEORY
STOCKHOLDERS’ EQUITY
1. An ordinary share –
a. is an equity instrument that is subordinate to all other classes of equity
instruments.
b. is a financial instrument or other contract that may entitle its holder to ordinary
shares.
c. is a financial instrument that gives the holder the right to purchase ordinary
shares.
d. is any contract that gives rise to both a financial asset of one entity and a
financial liability or equity instrument of another entity.

2. The entry to record the issuance of ordinary shares for fully paid
subscription is –
a. Memorandum entry
b. Ordinary Share Subscribed
Ordinary Share
Additional Paid-in Capital
c. Ordinary Share Subscribed
Subscription Receivable
d. Ordinary Share Subscribed
Ordinary Share

3. How would a stock split affect each of the following?

Total Shareholders’ Additional
Assets Equity Paid-in Capital
a. Increase Increase No effect
b. No effect No effect No effect
c. No effect No effect Increase
d. Decrease Decrease Decrease

4. Which of the following is an appropriate presentation of treasury

shares?
a. As trading securities
b. As a deduction at cost from total shareholders’ equity
c. As a deduction at cost from total contingent liabilities
d. As a deduction at par from total shareholders’ equity

5. A nominal value assigned to each share of stock and reported on

the stock certificate.
a. Face value c. Par value
b. Market value d. Parity value
6. Gains or losses on the purchase and resale of treasury shares is
reflected in-
a. paid-in capital account only.
b. paid-in capital and retained earnings accounts.
c. income, paid-in capital, and retained earnings accounts.
d. income and paid-in capital accounts.

7. At the date of the financial statements, ordinary shares issued

would exceed ordinary shares outstanding as a result of the –
a. declaration of a stock split.
b. declaration of a share bonus.
c. purchase of treasury shares.
d. payment in full of subscribed shares.

8. On February 1, authorized ordinary shares were sold on a

subscription basis at a price in excess of par value, and 20% of the
subscription price was collected. On May 1, the remaining 80% of
the subscription price was collected. Additional paid in capital
would increase on –
February 1 May 1
a. No Yes
b. No No
c. Yes No
d. Yes Yes

9. A company issued rights to its existing shareholders to purchase, for

P30 per share, unissued ordinary shares of P15 par. Additional paid-in
capital will be credited when the-
Rights are issued Rights lapse
a. Yes No
b. No No
c. No Yes
d. Yes Yes

10. Preference share that has no claim on any prior year dividends
that may have passed.
a. Cumulative c. Non-cumulative
b. Participating d. Non-participating

11. A company declared a cash dividend on its ordinary shares in

December 2005, payable in January 2006. Retained earnings
 would -
a. increase on the date of declaration.
b. not be affected on the date of declaration.
c. not be affected on the date of payment.
d. decrease on the date of payment.

12. For transactions with employees and others providing similar services, the fair value of
the equity instrument granted is measured on –
a. exercise date
b. grant date
c. balance sheet date
d. beginning of the year of grant

13. A company issued rights to its existing shareholders to purchase

ordinary shares. When the rights are exercised, additional paid-in
capital would be credited if the purchase price-
a. exceeded the par value.
b. was the same as the par value.
c. was the same as the par value, but less than the market value at the date of
exercise.
d. was less than the par value.

14. When a property dividend is declared and the carrying amount of

the property exceeds its fair market value, the dividend is recorded
at the-
a. fair market value of the property at the date of distribution.
b. fair market value of the property at the date of declaration.
c. carrying amount of the property at the date of declaration.
d. carrying amount of the property at the date of distribution if it still exceeds the fair
market value of the property at the date of declaration.
15. A company issued rights to its existing shareholders to purchase, for P30 per share,
unissued P15 par ordinary shares. When the rights lapse, –
a. no entry will be made.
b. additional paid-in capital will be debited.
c. additional paid-in capital will be credited.
d. stock rights outstanding will be debited.

16. Assuming that the issuing company has only one class of stock, a transfer from retained
earnings to capital stock equal to the market value of the shares issued is ordinarily a
characteristic of-
a. either a stock dividend or a stock split.
b. neither a stock dividend nor a stock split.
c. a stock split but not a stock dividend.
d. a stock dividend but not a stock split.

17. Dividends in arrears are classified on the balance sheet as –

a. current liabilities.
b. contra-equity accounts.
c. contra-asset accounts.
d. None of the above answers is correct.
18. Modest Company has not declared or paid dividends on its cumulative preference
shares in the last three years. These dividends should be reported –
a. in a note to the financial statements
b. as a reduction in shareholders’ equity
c. as a current liability.
d. as a non-current liability.

19. Fully participating preference share means that-

a. the ordinary shareholders receive a dividend rate per share equal to the
preference and all excess dividends are given to the ordinary shareholders.
b. the ordinary shareholders receive a dividend rate per share equal to the
preference and all excess dividends go to the preference shareholders
c. the ordinary shareholders receive a dividend rate per share equal to the
preference and all excess dividends are shared proportionately between the two
classes.
d. the preference shareholders receive their full dividend and any excess dividends
on the ordinary shareholders.

20. Select the statement that is incorrect concerning the appropriations of retained earnings.
a. Appropriations of retained earnings do not change the total amount of
shareholders’ equity.
b. Appropriations of retained earnings reflect funds set aside for a designated
purpose, such as plant expansion.
c. Appropriations of retained earnings can be made as a result of contractual
requirements.
d. Appropriations of retained earnings can be made at the discretion of the board of
directors.

MULTIPLE CHOICE QUESTIONS – PROBLEMS

1. Cage Company had 80,000 shares of ordinary shares outstanding in January 2006.
The company distributed a 15% share bonus in March. After acquiring 10,000 shares in
November, the company split its stock 1 for 4 in December.

How many ordinary shares are outstanding as of December 31, 2006?

a. 328,000 c. 23,000
b. 20,500 d. 13,000

2. At the beginning of 2006, Better Company had retained earnings of P3,000,000.

Throughout the year, the company had 20,000 shares of P100 par value ordinary shares
that are issued and outstanding.

During the year 2006, Better reported net income of P5,000,000, purchased treasury
stock for P580,000, declared cash dividends of P1,500,000, reissued all treasury shares
at a gain of P180,000, and declared and issued 5,000 ordinary shares as bonus issue
when the market value of the stock was P150 per share.

What is the retained earnings balance at December 31, 2006?

a. P6,180,000 c. P5,930,000
b. P6,000,000 d. P5,750,000
3. Keana Rivas, a top executive of KKK Corporation, was granted a stock option by her
company on December 31, 2003, when the market price of the company’s stock was
P90 per share. The stock option allows her to acquire 2,000 shares of P15 per value
ordinary share for P55.50 per share, after completing a two-year service period. The
option expires on December 31, 2006. On April 16, 2006, when the market price of the
stock was P95, Keana exercised her option.

What is the paid in capital in excess of par recorded upon exercise of the stock options
recognized on April 16, 2006?
a. P75,000 c. P150,000
b. P81,000 d. P160,000

4. During 2006, United Company issued 5,000 shares of P100 par convertible preference
shares for P110 per share. One preference share can be converted into three shares
of United’s P25 par value ordinary shares at the option of the preference shareholder.
On December 31, 2006, when the market value of the ordinary share was P40 each, all
of the preference shares were converted.

What amount should United credit to Ordinary Share and Paid-in Capital in Excess of
Par as a result of the conversion?
Ordinary Share Paid-in Capital in Excess of Par
a. P375,000 P175,000
b. P375,000 P225,000
c. P500,000 P 50,000
d. P600,000 P 0

5. At the end of 2005, Cartoon Company has 18,000 shares of P20 par ordinary shares
which were all issued at an average price of P24 per share. The retained earnings
balance on this date is P550,000. During 2006, the company entered into the following
transactions:

January 16 -Issued 13,000 ordinary shares at P25 each.

March 21 -Exchanged 12,000 ordinary shares for an
equipment. On this date, the ordinary share is
selling at P27.
May 7 -Reacquired 5,000 of its own ordinary shares at
P26.
July 1 -Accepted subscriptions to 10,000 ordinary
shares at P28. The contract called for a 10%
down payment.
August 20 -Sold 4,000 shares of treasury stock at P29 per
share.
December 1 -Collected the balance due on July 1
subscriptions and issued the stock.

Net income for the year 2006 was P640,000. No dividends were declared during the
year.

What is Cartoon’s total shareholders’ equity at December 31, 2006?

a. P2,375,000 c. P2,735,000
 b. P2,537,000 d. P1,895,000

6. At December 31, 2005, Travolta Company had 20,000 shares of P20 par value treasury
shares which were acquired in 2004 at P24 per share. In May 2005, Travolta issued
15,000 of these treasury shares at P20 each. The cost method is used to record the
treasury share transactions.

At December 31, 2006, what amount should Travolta show in notes to financial
statements as a restriction of retained earnings as a result of its treasury share
transactions?
a. P 10,000 c. P120,000
b. P100,000 d. P180,000

7. At December 31, 2005 and 2006, Eagle Company had outstanding 4,000 shares of 100
par value, 12% cumulative, fully participating preference shares and 20,000, P10 par
value ordinary shares. At December 31, 2005, dividends in arrears on the preference
shares were P24,000. Cash dividends declared in 2006 totaled P108,000.

What is the total amount of dividends payable to preference shareholders?

a. P80,000 c. P56,000
b. P72,000 d. P24,000

8. Using the data of No. 7, what is the amount of dividend payable to each ordinary share?
a. P4.20 c. P1.80
b. P2.60 d. P1.40

9. On July 1, 2006, Tools Company granted stock options to key employees for the
purchase of 20,000 ordinary shares at P25 per share. The options are intended to
compensate employees for the next two years. The options are exercisable within a
one-year period beginning July 1, 2008 by grantees still in the employ of the company.
The market price of Tools’ ordinary share was P33 at the date of grant. No stock
options were terminated during the year.

How much should Tools charge to compensation expense for the year ended December
31, 2006?
a. P 0 c. P80,000
b. P40,000 d. P160,000

10. The Power Company had 100,000 shares of P15 par value ordinary share on January 1,
2005. During 2006, the following transactions pertaining to its ordinary shares occurred:

 Purchased 5,000 shares as treasury shares at P30 each.

 The ordinary share was split 3-for-1.
 Reissued 3,000 treasury shares at P14 per share.

What is the total cost of the remaining treasury shares at the end of 2006?
a. P 0 c. P108,000
b. P60,000 d. P120,000

11. Dave Company retired 50,000 ordinary shares, P5 par value, which it held in the
treasury at an average cost of P26 per share on December 31, 2006. The balance in
 Dave’s shareholders’ equity accounts before recording the retirement of the treasury
shares are:

Ordinary Shares – P1,080,000; Paid-in Capital In Excess of Par – P1,500,000;

Treasury Shares, at cost – P1,300,000; Retained Earnings – P1,800,000.

Dave should report Ordinary Share outstanding in its December 31, 2006 balance sheet
of –
a. P1,080,000 c. P500,000
b. P 830,000 d. P 0

12. On April 1, 2006, Keene Corporation, a newly formed company, had the following stock
issued and outstanding:

Ordinary Share, no par, P20 stated value, 20,000 shares originally issued for P60 per
share.
Preference Share, P50 par value, 6,000 shares originally issued for P100 per share.

Keene’s April 1, 2006 statement of shareholders’ equity should report Ordinary Share /
Preference Share / Paid-in Capital in Excess of Par, respectively, of-
a. P400,000/P300,000/P1,100,000
b P1,200,000/P300,000/P300,000
c. P400,000/P600,000/P800,000
d. P1,200,000/P600,000/P0

13. Monterey Corporation’s shareholders’ equity is comprised of 10,000 of P10 par ordinary
share, P40,000 paid-in capital in excess of par, and retained earnings of P600,000.

If a 40% stock dividend is declared when the stock is selling for P50 per share, what
amount should be transferred from the retained earnings account to the paid-in capital in
excess of par account?
a. P 0 c. P160,000
b. P40,000 d. P200,000

14. On July 1, 2006, Wish Company issued rights to stockholders to subscribe to additional
ordinary shares. One right was issued for each share owned. A shareholder could
purchase one additional share for ten rights plus P60 cash. The rights expire on
September 30, 2006. On July 1, 2006, the market price of a share with the right
attached was P160 while the market price of one right alone was P8. Wish’s
stockholders’ equity on June 30, 2006 comprise the following:
Ordinary Share, P100 par, 4,000 shares issued
and outstanding P400,000
Additional Paid-in Capital 240,000
Retained Earnings 320,000
By what amount should Wish’s retained earnings decrease as a result of issuance of the
stock rights on July 1, 2006?
a. P 0 c. P32,000
b. P20,000 d. P40,000
15. Of the 250,000 ordinary shares issued by Thorn Company, 50,000 shares were held as
treasury at December 31, 2005. During 2006, transactions involving Thorn’s ordinary
shares were as follows:

January 1 through October 31 – 26,000 treasury shares were distributed to officers as

part of a stock compensation plan.
November 1 – a 3-for-1 stock split took effect.
December 1 – Thorn purchased 10,000 shares of its own shares to discourage an
unfriendly takeover. These shares were not retired.

At December 31, 2006, how many shares of Thorn’s ordinary shares were issued and
outstanding?
a. 750,000 and 648,000 c. 668,000 and 668,000
b. 648,000 and 648,000 d. 750,000 and 668,000

16. Ben Company had the following classes of stock outstanding at December 31, 2006:

Ordinary Share, P20 par - P8,000,000

12% Preference Share, P100 par, cumulative
and fully participating - 4,000,000
10% Preference Share, P100 par, cumulative
and non-participating - 2,000,000

Dividends on preference shares have been in arrears for 2004 and 2005. On
December 31, 2006, total cash dividend of P6,000,000 was declared.

What is the amount of dividends payable to ordinary shares?

a. P2,640,000 c. P2,960,000
b. P2,906,667 d. P3,960,000

17. Dayton Company had 8,000 ordinary shares outstanding in January 2006. The
company distributed a 15% stock dividend in March and a 10% stock dividend in June
2006. After acquiring 1,000 shares of treasury stock in July, the company split its stock
4-for-1 in December 2006.

How many ordinary shares are outstanding as of December 31, 2006?

a. 36,480 c. 49,800
b. 48,800 d. 35,480

18. The Rockwell Corporation has two classes of shares outstanding: 9%, P20 par
Preference Share and P70 par Ordinary Share. During the fiscal year ending
December 31, 2006, the company had the following equity transactions in chronological
order:

No. of Price per

Shares Share
Issue of preference shares 10,000 P28
Issue of ordinary shares 35,000 70
Reacquisition and retirement of preference 2,000 30
Purchase of ordinary treasury shares 5,000 80
 Stock split 2-for-1
Reissue of ordinary treasury shares 5,000 52

Balances of the accounts in the shareholders’ equity section of the December 31, 2005
balance sheet were:

Preference Share, 50,000 shares P1,000,000

Ordinary Share, 100,000 shares 7,000,000
Paid-in Capital in Excess of Par, Preference 400,000
Paid-in Capital in Excess of Par, Ordinary 1,200,000
Retained Earnings 550,000

Dividends were paid at the end of the fiscal year on the ordinary shares at P1.20 per
share and on the preference shares at the preferred rate. Net income for the year was
P850,000.

How much is the Preference Share account balance shown in the December 31, 2006
balance sheet?
a. P1,220,000 c. P1,140,000
b. P1,160,000 d. P1,116,000

19. How much is the Ordinary Share account balance shown in the December 31, 2006
balance sheet?
a. P9,450,000 c. P9,130,000
b. P9,310,000 d. P4,725,000

20. The retirement of the 2,000 preference shares would decrease paid-in capital in excess
of par – preference by -
a. P 0 c. P20,000
b. P16,000 d. P60,000

21. After the split, the par value of each ordinary share -
a. remained at P70 c. decreased by P35
b. increased by P70 d. decreased by P14

22. What is the total cost of the remaining treasury shares?

a. P 0 c. P260,000
b. P200,000 d. P400,000

23. On July 1, 2006, Crafters, Inc. has 200,000 ordinary shares outstanding with par value of
P10 par and the market price of the stock is P12 per share. On the same date, Crafters
declared a 1-for-2 reverse stock split. The par value of the stock was increased from
P10 to P20 and one new P20 par value stock was issued for each two P10 par shares
outstanding. Immediately before the 1-for-2 reverse stock split, Crafters’ additional
paid-in capital was P450,000.

What should be the balance in Crafters’ additional paid-in capital account immediately
after the reverse stock split is effected?
a. P 0 c. P650,000
b. P450,000 d. P850,000
24. Netrix Company’s outstanding capital stock at December 31, 2006 consisted of:

* 30,000 shares of 5% cumulative Preference Share, P10 par, fully participating as to

dividends. No dividends were in arrears.
* 200,000 Ordinary Share, P1 par.

On December 15, 2006, Netrix declared dividends of P100,000.

What was the amount of dividends payable to Netrix ordinary stockholders?
a. P10,000 c. P40,000
b. P34,000 d. P47,500

25. In 2006, Matrix Company bought 10,000 ordinary shares of Mat Company at a cost of
P20,000. On January 15, 2006, Matrix declared a property dividend of Mat Company
stock to shareholders of record on February 1, 2006, payable on February 15, 2006.
During 2006, the Mat Company stock had the following market values: January 15–
P25,000; February 1–P26,000; February 15–P24,000

The net effect of the foregoing transactions on retained earnings during 2006 is a
reduction of –
a. P20,000 c. P25,000
b. P24,000 d. P26,000

26. On June 27, 2006, Rex Company distributed to its ordinary shareholders 100,000
outstanding ordinary shares of its investment in Box Company, an unrelated party. The
carrying amount on Rex’s books of Box’s P10 par value ordinary share was P20.
Immediately after the distribution, the market price of Box’s stock was P25 per share.

In its income statement for the year ended June 30, 2006, what amount should Rex
report as gain before income tax on disposal of the stock?
a. P250,000 c. P50,000
b. P200,000 d. P0

27. On January 2, 2006, Kin Company granted Morgan, its president, compensatory share
options to buy 1,000 shares of Kin’s P10 par ordinary share. The options call for a price
of P20 per share and are exercisable for three years following the grant date. Morgan
exercised the options on December 31, 2006. The market price of the stock was P50
on January 2, 2006 and P70 on December 31, 2006.

By what net amount should shareholders’ equity increase as a result of the grant and
exercise of the options?
a. P20,000 c. P50,000
b. P30,000 d. P70,000

28. On January 1, 2005, ABC Company issued share appreciation rights to its CEO
exercisable for one year beginning January 1, 2007 provided that the officer is still in the
employ of the company at the date of exercise. Each right provides for a cash payment
equal to the excess of the ABC share price over P50. The equivalent number of shares
for stock appreciation rights will be based on the level of sales of the company at the
date of exercise as follows:
 Level of Sales Equivalent Shares Granted
P100 million – P300 million 10,000
Over P300 million 12,000
Actual sales achieved by ABC Company and the stock price at the end of each year are
as follows:
Year Sales Share Price
2005 P120 million P75
2006 P350 million P82

How much is the compensation expense recognized in the accounts for the year ended
December 31, 2005?
a. P250,000 c. P750,000
b. P125,000 d. P375,000

29. Using the data of No. 28, how much is the compensation expense recognized in the
accounts for the year ended December 31, 2006?
a. P384,000 c. P259,000
b. P192,000 d. P134,000

30. On January 2, 2006, the shareholders of Ethan Company, a calendar-year corporation,

approved a plan and granted the company’s three executives options to purchase a total
of 3,000 shares of the company’s P100 par value ordinary shares. The options may be
exercised for one year effective January 1, 2009. The option price per share is P120
and the market price of the ordinary shares on the date of grant is P180 per share.

On February 14, 2008, one of the executives, who was granted an option to purchase
800 shares, decided to resign from the organization. On January 21, 2009, the
remaining executives exercised their options.

What is the compensation expense recognized in the accounts in the year 2008?
a. P60,000 c. P12,000
b. P44,000 d. P 0
 SAGOT
MULTIPLE CHOICE QUESTIONS
CHAPTER 7 – CURRENT LIABILITIES
Theory
1. c 11. a
2. d 12. b
3. d 13. a
4. d 14. b
5. c 15. c
6. c 16. d
7. a 17. d
8. b 18. a
9. d 19. c
10. b

Problems
1. b 540,000 + 15,000 + 9,000 = 564,000
2. c 5,800,000+12,000,000-10,700,000-2,500,000 = 4,600,000
3. d The entire amount of P1,000,000 is reported as a current liability since the agreement to
refinance was signed after the balance sheet date, which is February 1, 2007.
4. d
5. d 520,000+1,800,000-1,560,000-80,000 = 680,000
6. d 270,000 + 480,000 – 390,000 = 360,000
7. a 1,000 x 5,000 = 5,000,000; 5,000,000 x 40% x ½ = 1,000,000
5,000,000 – 1,000,000 = 4,000,000
8. b 750,000 x 3/10 = 225,000 + 42,000 = 267,000
9. c 37,500 + (5% x 2.5M) = 162,500
10. a 15,000 + 85,000 – 68,000 = 32,000
11. c 900,000 x .18 x 4/12 = 54,000
12. b 50,000 – 30,000 = 20,000 x 10% = 2,000 + 40,000 = 42,000
13. a 22,000 + 40,000 = 62,000
14. d 50,000 + 10,000 = 60,000
15. a 6% x (3M + 5M) = 480,000 – (45,000 + 150,000) = 285,000
16. c 12% x (7,500 x 5,000) = 4.5M
17. a (7,500 + 8,400) x 5,000 = 79.5M; 79.5 M x 12% = 9,540,000
9,540,000 – 1,706,000 = 7,834,000
18. c 7,500 x 5,000 x 8% = 3M; 8,400 x 5,000 x 11% = 4.62 M;
3M + 4.62M = 7,620,000
19. a 2% x 5.4M = 108,000; (1,800,000 x 60%)/200 = 5,400 x (34-20) = 75,600
20. b 136,000 + 108,000 – 164,000 = 80,000; 44,800 + 75,600 – (6,000 x 14) = 36,400
21. a 245,000/7,000 = 35; 300,000 x 50% = 150,000
150,000/20 = 7,500; 7,500–4,500 = 3,000; 3,000 x 35 = 105,000
22. d 7,500 x 35 = 262,500
23. c 50,000 x 80% = 40,000 x 4 = 160,000 – 48,000 = 112,000
24. b B = .10 [2,500,000 - .35 (2,500,000 – B)] = 168,394
25. c B = .45 [2,000,000 – B - .35 (2,000,000 – B)] = 452,611
26. c B = .35 (2,000,000 – B) = 518,519; B (SM) = 518,519 x 15/35 = 222,222;
B (Each SA) = 518,519 x 10/35 = 148,148
27. b 1,950,000/.65 = 3,000,000 – 1,000,000 = 2,000,000
B = .10 x 2,000,000 = 200,000
28. c 500,000 + (2.5M x .10 x 6/12) = 625,000
29. a 60,000 + (2,200,000 / 11) = 260,000
30. c (215,000 – 125,000) + (390,000 – 143,000) = 337,000
31. b 500,000 + 650,000 = 1,150,000; 1,150,000 / 2 = 575,000
32. b
33. d
34. c 2%x(45,000+50,000)=1,900; 1,900–(180+320+250)=1,150; 1,150x200=230,000
35. c (950,000 x 2.50) + 2,500,000 + (10M x 12% x 3/12)+
(17M+30M-25M) = 22,175,000
36. b 300,000 + (250,000 x 9 mos) – (2,800,000 x ¾) = 450,000
37. c Probable and best estimate prior to the issuance of financial statements.
38. c Probable and amount is reliably estimable within the range.
39. a Reasonably possible; the amount is P500,000 which is the deductible clause. It is the
extent of the insured participation in the amount of the loss.
40. b Probable; amount is the most probable cost of P1,200,000 which is between the
lowest and highest range; excess of P800,000 (2M – 1.2M) is disclosed as a contingent
liability.
41. c Probable; The amount is the P200,000 deductible clause.
42. d No asset is recognized unless the inflow of economic benefits is virtually certain. The
decision is still being appealed by the defendant.
43. a The asset of P45,000 is not contingent (it is not being appealed) and its recognition is
appropriate. Only the P90,000 punitive damages is being appealed.
44. a No asset is recognized; the defendant appealed the decision.

MULTIPLE CHOICE QUESTIONS

CHAPTER 8 – NON-CURRENT LIABILITIES

Theory
1. a 9. c
2. a 10. a
3. d 11. c
4. d 12. c
5. c 13. b
6. d 14. b
7. d 15. a
8. d 16. c
Problems
1. c (1,000 x 0.4222) + (1,000 x .06 x 6.418) = 807
2. d (600,000 x 0.99) + (600,000 x .10 x 3/12) = 609,000
3. d 2,000,000 - 250,000 = 1,750,000
4. b 2,600,000 + 150,000 = 2,750,000; 50,000 x 25 = 1,250,000
2,750,000 – 1,250,000 = 1,500,000
5. c 500,000 + (112,500 x 10%) + (80,000 x 10%) = 519,250;
519,250 – (500 x 60 x 15) = 69,250
6. d
7. b 2,120,000 x 1040/1060 = 2,080,000-2,000,000 = 80,000
8. b 5,000,000 x .97 = 4,850,000; 5,200,000 – 4,850,000 = 350,000
9. a 5,000,000 x .57 = 2,850,000; 5,000,000 x 11% x 3.60=1,980,000
2,850,000 = 1,980,000 = 4,830,000; 5,00000 – 4,830,000=170,000
10. d 1,030,000 – (1,000 x 30 x 4) = 910,000
11. b (5,000,000 x .77)+(300,000 x 2.53) = 4,609,000;
(5,000,000 x 1.10) – 4,609,000 = 891,000
12. b 6,375,000 – 11,250* - 1,969** = 6,361,781
*(6,000,000 x 5.5%) – (6,375,000 x 5%) = 11,250
**(6,000,000 x 5.5% x 1/6) - (6,363,750 x 5% x 1/6) = 1,969
13. c see No. 12 318,750 + 53,031 = 371,781
14. c 1,032,880 x 5% = 51,644
15. a 1,032,880 – (60,000 – 51,644) = 1,024,524
16. a (1,878,000 x .10) – (2M x .09) = 7,800; 122,000 – 7,800 = 114,200
17. a 1,878,000 + 7,800 = 1,885,800
18. b 10M – 1,145,000 = 8,855,000 x 0.06 = 531,300 - (10M x 0.05) = 31,300
19. c 89,406 x 0.07 = 6,258; 89,406 + (6,258-6,000) = 89,664 x 0.07 = 6,276
6,258 + 6,276 = 12,534
20. c 5M x 1.136 = 5,680,000 x .04 = 227,200
21. c 82,626 x 0.16 = 13,220
22. b 800,000 x 0.08 x 3/12 = 16,000
23. a 1,963,000 x 0.045 = 88,335
24. c 1,963,000 + 3,335 = 1,966,335 x 0.045 = 88,485–85,000 = 3,485 (4/6) +1,966,335 =
1,968,658.40
25. d 10% x 2,083,000 = 208,300; 12% x 2,000,000 = 240,000
240,000 – 208,300 = 31,700; 2,083,000 – 31,700 – 500,000 = 1,551,300
26. d 10% x 2,083,000 = 208,300
27. b 5,500,000 – 4,500,000 = 1,000,000
28. b (7,000,000 x 0.735) + ((7,000,000 x 10% x 3.31) = 7,462,000
8,640,000 – 7,462,000 = 1,178,000

MULTIPLE CHOICE QUESTIONS

CHAPTER 9 – SHAREHOLDERS’ EQUITY

Theory
1. a 8. c 15. a
2. d 9. b 16. d
3. b 10. c 17. d
4. b 11. c 18. a
5. a 12. b 19. c
6. b 13. a 20. b
7. c 14. b

Problems
1. b 80,000 x 1.15 – 5,000 = 82,000 ÷ 4 = 20,500
2. b 3M + 5M – 1.5M – (5,000 x 100) = 6M
3. c 2,000 x (90 – 15) = 150,000
4. a 5,000 X 3 X 25 = 375,000; 5,000 X 110 = 550,000; 550,000– 375,000 = 175,000
5. b (18,000 x 24) + 550,000 + (13,000 x 25) + (12,000 x 27) – (5,000 x 26) + (10,000 x 28) +
(4,000 x 29) + 640,000 = 2,537,000
6. c (20,000 – 15,000) x 24 = 120,000
7. a 4,000 x 100 x 12% = 48,000 + 24,000 = 72,000 + (12,000 x 4/6) = 80,000
8. d 108,000 – 80,000 = 28,000 ÷ 20,000 = 1.40
9. b (33 – 25) x 20,000 = 160,000 ÷ 2 = 80,000 x 6/12 = 40,000
10. d 5,000 x 3 = 15,000 – 3,000 = 12,000 x 10 = 120,000
11. b 1,080,000 – (50,000 x 5) = 830,000
12. a 20,000x20=400,000; 6,000x50=300,000; (20,000 x40) + (6,000 x 50) =1,100,000
13. a
14. a
15. d 250,000 x 3 = 750,000
250,000 – 50,000 + 26,000 = 226,000 x 3 = 678,000 – 10,000 = 668,000
16. c 12% x 4M x 3 =1,440,000; 10% x 2M x 3 yrs. = 600,000; 12% x 8M = 960,000
6M – 1,440,000- 600,000 – 960,000 = 3,000,000
(12% x 8M) + (3M x 8/12) = 2,960,000
17. a 8,000 x 1.15 x 1.10 = 10,120 – 1,000 = 9,120 x 4 = 36,480
18. b 50,000 + 10,000 – 2,000 = 58,000 x 20 = 1,160,000
19. a 100,000 + 35,000 = 135,000 x 70 = 9,450,000
20. b 400,000/50,000 = 8 x 2,000 = 16,000
21. c 70/2 = 35; 70-35 = 35
22. b 5,000 x 2 = 10,000 – 5,000 = 5,000 x 40 = 200,000
23. b 450,000 unchanged by the share split
24. c 100,000 x 200/500 = 40,000
25. c given
26. d
27. a 1,000 x 20 = 20,000
28. b 75 – 50 = 25; 25 x 10,000 shares = 250,000; 250,000 / 2 years = 125,000
29. c 82 – 50 = 32; 32 x 12,000 shares = 384,000; 384,000 – 125,000 = 259,000
30. c 2,200 x 60 = 132,000; 132,000 – 120,000* = 12,000
*3,000 x 60 = 180,000; 180,000 x 2/3 = 120,000