Rogon, John Carlo A. BSA 2-1

ROGON, JOHN CARLO A.
BSA 2-1
CASH AND CASH EQUIVALENTS (PROBLEMS)
PROBLEM 12-1
The cash account of the Mang June Corporation as of December 31, 2006 consists of
the following:
On deposit in current account with Real Bank P 900,000
Cash collection not yet deposited to the bank 350,000
A customer’s check returned by the bank for insufficient Fund 150,000
A check drawn by the Vice-President of the Corporation
dated January 15, 2007 70,000
A check drawn by a supplier dated December 28, 2006 for
goods returned by the Corporation 60,000
A check dated May 31,2006 drawn by the Corporation
against the Piggy Bank in payment of customs duties.
Since the importation did not materialize, the check was
returned by the customs broker. This check was an
outstanding check in the reconciliation of the Piggy
Bank account 410,000
Petty Cash fund of which P5,000 is in currency; P3,600 in
form of employees’ I.O.U. s; and P1,400 is supported by
approved petty cash vouchers for expenses all dated
prior to closing of the books on December 31, 2006 10,000

Total P1,950,000
Less: Overdraft with Piggy Bank secured by a Chattel ( 300,000)
Balance per ledger P1,650,000
At what amount will the account “Cash” appear on the December 31, 2006 balance
sheet?
a. P1,425,000
b. P1,495,000
c. P1,315,000
d. P1,725,000
Solution: Answer (a)
Current account with Real Bank P 900,000
Undeposited collection 350,000
Supplier's check for goods returned by the Corporation 60,000
Unexpended petty cash 5,000
Current account with Piggy Bank (P410,000 - P300,000) 110,000
Total P1,425,000
PROBLEM 1-2
Dawn Company reported checkbook balance on December 31, 2015 at P4,000,000.

Data about certain cash items follow:
* A customer check amounting to P200,000 dated January 2, 2016 was included in the
December 31, 2015 check book balance.
* A P400,000 check payable to supplier date and recorded on December 30, 2015 was
mailed on January 16, 2016.
* Another customer check for P500,000 deposited on December 22, 2015 was included
in the checkbook balance but returned by the bank for insufficiency of fund. This check
was redeposited on December 26, 2015 and cleared two days after.
* A petty cash fund of P50,000 with the following summary on December 31, 2015:
Coins and currencies P5,000
Petty cash vouchers P43,000
Return value of 20 cases of soft drinks 2,000 45,000
Total P50,000
* A check of P43,000 was drawn on December 31, 2014 payable to Petty Cash
What total amount should be reported as “cash” on December 31, 2015?
a. P4,205,000
b. 3P3,748,000
c. P4,200,000
d. P4,248,000
Solution: Answer (d)
Check book balance P4,000,000
Postdated customer check (200,000)
Undelivered check payable to supplier 400,000
Adjusted cash in bank P4,200,000
Petty cash:
Coins and currencies P5,000
Replenishment check 43,000 48,000
Total P4,248,000
PROBLEM 12-3
In the course of your audit of the Las Conde Corporation, its controller is attempting to
determine the amount of cash to be reported on its December 31, 2006 balance sheet.
The following information is provided:
1. Commercial savings account of P1,200,000 and a commercial checking account

balance of P1,800,000 are held at PS Bank.
2. Travel advances of P360,000 for executive travel for the first quarter of the next year
(employee to reimburse through salary deduction).
3. A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a
long term debt.
4. Petty cash fund of P10,000.
5. An I.O.U. from a company officer in the amount of P40,000.
6. A bank overdraft of P250,000 has occurred at one of the banks the company uses to
deposit its time, the
cash receipts. At the present company has no deposits at this bank.
7. The company has two certificates of deposit, each totaling P1,000,000. These
certificates of
deposit have maturity of 120 days.
8. Las Conde has received a check dated January 2, 2007 in the amount of P150,000.
9. Las Conde has agreed to maintain a cash balance of P200,000 at all times at PS
Bank to ensure
future credit availability.
10. Currency and coin on hand amounted to P15,000.
Based on the above and the result of your audit, how much will be reported as cash and
cash equivalent at December 31, 2006?
a. P2,075,000
b. P3,025,000
c. P2,825,000
d. P5,025,000
Solution: Answer (b)
Savings account at PS Bank P1,200,000
Checking account at PS Bank 1,800,000
Petty cash fund 10,000
Currency and coin 15,000
Total P3,025,000
PROBLEM 12-5
Provided the following on December 31,2018:
Balance per bank statement P250,000
Balance per ledger 350,000
Cash in sinking fund 300,000
Check drawn on Carlo’s account payable to vendor, dated and
Recorded 12/31/18; not mailed until 1/15/19 75,000
What amount should be charged to “cash” under current assets?
a. 425,000
b. 975,000
c. 900,000
d. 725,000
Balance per ledger P350,000
Check drawn, not actually paid P75,000
Total Cash balance P425,000
PROBLEM 12-6
You noted the following composition of Malabanan Company’s “cash account” as of

December 31, 2006in connection with your audit:
Demand deposit account P2,000,000
Time deposit – 30 days 1,000,000
NSF check of customer 40,000
Money market placement (due June 30, 2007) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
Customer’s check dated January 1, 2007 50,000
Customer’s check outstanding for 18 months 40,000
Total P7,760,000
Additional information follows:
a) Check of P200,000 in payment of accounts payable was recorded on December 31,

2006 but mailed to suppliers on January 5, 2007.
b) Check of P100,000 dated January 15, 2007 in payment of accounts payable was
recorded and mailed on December 31, 2006.
c) The company uses the calendar year. The cash receipts journal was held open until
January 15, 2007, during which time P400,000 was collected and recorded on
December 31, 2006.
The cash and cash equivalents to be shown on the December 31, 2006 balance sheet
is
a. P3,310,000
b. 1,910,000
c. P2,910,000
d. P4,410,000
Solution: Answer (c)
Demand deposit account as adjusted:
Demand deposit account per books P2,000,000
Undelivered check 200,000
Postdated check issued 100,000
Window dressing of collection (400,000)
Total P1,900,000
Time deposit - 30 days 1,000,000
Cash and cash equivalents P2,910,000
PROBLEM 12-7
Joel Company reported cash account balance consisting of the following:
Currency and Coins P2,375,000
Bond sinking fund 1,600,000
Petty Cash Fund (53,000 is in the form of paid vouchers) 127,000

Receivables from officers and employees 326,000
Checking Account in BPI (240,000 check still outstanding) 3,450,000
Deposit in a bank closed by BSP 500,000
*The bond sinking fund will be held matured after 9 months
*The petty cash fund is not replenished at the end of the month.
What is the balance on “cash”?
a. 5,952,000
b. 5,899,000
c. 7,085,000
d. 7,259,000
Currency and coins P2,375,000
Petty cash fund (127,000-53,000) 74,000
Checking account in BPI 3,450,000
Total Cash on account P5,899,000
PROBLEM 12-8
Ezrael Company provided the following information with respect to the cash and cash
equivalents on December 31, 2015:
Checking account at First Bank (overdraft) (P200,000)
Checking account at Second Bank 3,500,000
Treasury bonds 1,000,000
Payroll account 500,000
Value added tax account 400,000

Foreign bank account – unrestricted (in equivalent pesos) 2,000,000
Postage stamps 50,000
Employee’s postdated check 300,000
IOU from president 750,000
Credit memo from a vendor for a purchase return 80,000
Traveler’s check 300,000
Not-sufficient-fund check 150,000
Petty cash fund (P20,000 in currency and expense receipts for P30,000) 50,000
Money order 180,000
What amount should be reported as unrestricted cash on December 31, 2015?
a. 4,600,000
b. 6,900,000
c. 5,900,000
d. 4,900,000
Checking account at Second Bank P3,500,000
Payroll account 500,000
Value added tax account 400,000
Foreign bank account – unrestricted 2,000,000
Traveler’s check 300,000
Money order 180,000
Total unrestricted cash P6,900,000

PROBLEM 12-9
Claine Company reported petty cash fund which comprised the following:
Coins and Currency P5,200
Paid Vouchers:
Office Supplies P1,600
Postage Stamps 420
Gasoline 530
Transportation 700 3,250
Total P8,450
Manager’s check returned; marked NSF P2,500
Checks drawn for replenishment of petty cash 3,100
What amount should be reported as cash?
a. 14,050
b. 8,450
c. 8,300
d. 7,700
Coins and Currency P5,200
Replenishment of petty cash 3,100
Total Cash P8,30

BANK RECONCILIATION (PROBLEMS)
1. Estella Company provided the bank statement for the month of December which
included the following information:
Ending balance, December 31 2,800,000
Bank service charge for December 12,000
Interest paid by bank to Estella Company for December 10,000
In comparing the bank statement to its own cash records, the entity found the following:
Deposits made but not yet recorded by the bank 350,000
Checks written and mailed but not yet recorded by the bank 650,000
In addition, the entity discovered that it had drawn and erroneously recorded a check for
P46,000 that should have been recorded for P64,000.
What is the cash balance per ledger on December 31?
a. 2,500,000
b. 2,800,000
c. 2,520,000
d. 2,540,000
Balance per bank P2,800,000
Deposits in transit 350,000
Outstanding checks ( 650,000)
Adjusted bank balance P2,500,000
Balance per ledger (SQUEEZE) 2,520,000
Unrecorded customer check 10,000
Bank service charge ( 12,000)

NSF check ( 18,000)
Adjusted book balance P2,500,000
2. Jacquard Loom Company collected the following information to prepare its May bank
reconciliation:
* Cash balance per books, May 31 P5,300
* Deposits in transit P510
* Notes receivable with interest collected by bank P580
* Bank service charges P30
* Outstanding checks P1,800
* NSF checks P150
*The deposit in transit was erroneously recorded by the bank as P150.
*The bank unappropriately charged a bank service fee to Jaguar Company chargeable
to the entity.
*The NSF checks returned was redeposited 2 days after the coming month.
The adjusted cash balance per books on May 31 is:
a. P5,700
b.P5,810
c.P6,210
d.P5,660
Cash balance per books,May 31 P5,300
Notes receivable with interest collected by bank 580
Bank service charges (30)

NSF checks (150)
Adjusted cash balance P5,700
3.In reconciling the book and bank balances of Papaya Corporation, you discover the
following for the month of December 2015:
Balance per bank statement 45,000

Balance per books 34,000
Receipts of December 31, 2015 not deposited until
January 3, 2016 10,000
Bank service charges for December 300
DAIF check returned with the December bank statement, P3,200. A paid check for
P4,000 was recorded in the cash register as P400. Customer’s check for P25,200
was recorded in the cash receipts journal as P22,500. Charges per bank statement
included a check of Pear Company erroneously charged in the amount of P8,000.
Assuming no error except as noted, the amount of outstanding checks is
a. 63,000
b. 29,600
c. 33,400
d. 16,200

Undeposited receipts 10,000
Erroneous debit memo 8,000
P63,000
Balance per books (34,000)
Service charge ( 300)
NSF check (3,200)
Book error in recording check (3,600)
Book error 2,700
Outstanding checks P 33,400
4.Ester Company provided the month-end bank statement which showed a balance of
P3,600,000. Outstanding checks amounted to P1,200,000, a deposit of P400,000 was
in transit at month-end, and a check for P50,000 was erroneously charged by the bank
against the account what amount should be reported as cash in bank at month-end?
a. 2,050,000
b. 2,750,000
c. 2,850,000
d. 4,350,000
Adjusted bank balance

(3,600,000 – 1,200,000 + 400,000 + 50,000) 2,850,000
5. The bank statement of Amethyst Corporation for April, 2015 showed an ending
balance of P169,263. Deposit in transit on April 30 was P18,200. Outstanding checks as
of April 30 were P59,435. During the month of April, the bank charged back NSF checks
in the amount of P3,435 of which P1,835 had been redeposited by April 30. The
company made no entry for the return and for the redeposit of the checks.
On April 23, the bank charged Amethyst Corporation’s account for a P2,200 item which
should have been charged against the account of Ametite Corporation; the error was
not detected by the bank. During April, the proceeds from notes collected by the bank
for Amethyst Corporation were P7,548 and bank charges for this service were P180.
What is the unadjusted book balance for “Cash” of Amethyst Corporation at April 30,
2015?
a. 132,008
b. 126,295
c. 124,460
d. 124,310

Deposit in transit, April 30 18,200
Outstanding checks, April 30 ( 59,435)
Erroneous charge by bank 2,200
NSF checks not yet redeposited (3,435 – 1,835) 1,600
Proceeds of note collected by bank ( 7,548)
Bank service charge 180
Unadjusted book balance for cash, April 30, 2015 P 124,460
6. The cash account shows a balance of P450,000 before reconciliation. The bank
statement does not include a deposit of P23,000 made on the last day of the month.
The bank statement shows a collection by the bank of P9,400 and a customer’s check
for P3,200 was returned because it was NSF. A customer’s check for P4,500 was
recorded on the books at P5,400, and a check written for P790 was recorded as P970.
The correct balance in the cash account was
a. P455,120
b. 455,480
c. 457,280
d. 478,480
Unadjusted cash balance P450,000

Collection 9,400
NSF Check ( 3,200)
Error made in recording customer’s check ( 900)
Error made in recording check written 180
Adjusted cash balance P455,480

7. Core Company provided the following data for the purpose of reconciling the cash
balance per book with the balance per bank statement on December 31, 2015:
Balance per bank statement 2,000,000

Outstanding checks (including certified check of P100,000) 500,000
Deposit in transit 200,000
December NSF checks (of which P50,000 had been redeposited
and cleared by December 27 150,000
Erroneous credit to Core’s account, representing proceeds
of loan granted to another company 300,000
Proceeds of note collected by bank for Core,
net of service charge of P20,000 750,000
What amount should be reported as cash in bank on December 31, 2015?
a. 1,500,000
b. 1,400,000
c. 1,800,000
d. 1,450,000

Total P2,200,000
Outstanding checks (500,000 – 100,000) ( 400,000)

Erroneous bank credit ( 300,000)
Adjusted bank balance 1,500,000

8. On June 30, 2015, the bank statement of Bougainvilla Company had an ending
balance of P3,735,000. The following data were assembled on the course of reconciling
the bank balance:
 The bank erroneously credited Bougainvilla Company for P21,000 on June 22

 During the month, the bank charged back NSF checks amounting to P23,000
of which P8,000 had been redeposited by June 25
 Collection for June 30 totaling P103,000 was deposited the following month
 Checks outstanding on June 30 amounted to P302,000
 Note collected by the bank for Bougainvilla Company was P80,000 and the
corresponding bank charge was P5,000.

What is the unadjusted cash in bank per ledger on June 30, 2015?
a. 3,515,000
b. 3,557,000
c. 3,455,000
d. 3,497,000

Erroneous bank credit ( 21,000)
Adjusted bank balance P3, 515,000
Balance per book (SQUEEZE) P3,455,000

NSF checks (23,000 – 8,000) ( 15,000)
Note collected by bank 80,000
Service charge ( 5,000)
Adjusted book balance P3,515,000

9. In preparing the bank reconciliation on December 31, 2015, Case Company provided
the following data:
Balance per bank statement 3,800,000

Amount erroneously credited by bank to Case’s account 40,000
Bank service charge for December 5,000
Outstanding checks 675,000
What is the adjusted cash in bank on December 31, 2015?
a. 3,685,000
b. 3,600,000
c. 3,645,000
d. 3,605,000
Per bank statement P 3,800,000

Bank error ( 40,000)
Adjusted bank balance P3,605,000
10) Ken Company has an existing balance of P5000 on his cash book on January. At
the end of the year, he reconciled the amount with the bank balance. The ff. information
was given:
Deposit In transit 500
Outstanding checks 100
NSF check 500

Interest earned by note collected by bank 500
What is ken’s correct cash balance on the end of the year?
a.5000
b.5500
c.5400
d.4900
Balance P5000
NSF check (500)
Interest earned by note collected by bank 500
Adjusted P5000
ACCOUNTS RECEIVABLE (PROBLEMS)
PROBLEM 1-1
Claine Company prepared an aging of Accounts Receivable on year end December
31,2014 and determined that the net realizable value of the Accounts Receivable was
P1,750,000.
Allowance for Doubtful Accounts, January 1(credit) 125,000
Accounts written off as uncollectible 100,000
Accounts Receivable., December 31 1,850,000
Collection of accounts written off 15,000
*No other transactions occurred during the year.
What amount of doubtful accounts expense should be recorded on December 31,2014?
a. 30,000
b. 40,000
c. 50,000
d. 60,000
Allowance, January 1 125,000
Recovery of accounts written off 15,000
Doubtful Accounts Expense (SQUEEZE) 60,000
Total 200,000
Accounts written off (100,000)
Allowance, December,31 100,000
PROBLEM 1-2
The Kramers Corporation starts operations in Year One and makes gross sales of
P740,000 per year, incurring P240,000 cost of expense; while collecting cash of only
P200,000 per year. During each year, P15,000 in accounts are judged to be
uncollectible. The company estimates that 8 percent of its credit sales will eventually
prove to be worthless.
In addition to that, the entity wrote off P24,000 during the year. There were no collection
of accounts written off.
The Accounts Receivable has an ending balance of 100,000.
What is reported as the allowance for doubtful accounts on the company’s balance
sheet at the end of Year Two
a. P15,000
b. P40,000
c. P24,000
d. P30,000

Net Sales (740,000-240,000) P500,000
x 8%
Doubtful Accounts Expense P40,000
PROBLEM 1-3
The Yasuo Corporation starts operations in Year One and makes credit sales of
P400,000 per year while collecting cash of only P300,000 per year. During each year,
P12,000 in accounts are judged to be uncollectible. The company estimates that 10
percent of its ending accounts receivable each year will eventually prove to be
worthless.
During the year, the entity wrote off 9,000 on the uncollectible accounts. Also, the
corporation made collection of P5,000 of accounts previously written off.
The entities accounts receivable totaled P170,000 on year end.
What is reported as bad debt expense on the company’s income statement for Year
Two?
a. P20,800
b. P17,600
c. P28,800
d. P32,000

Net Accounts Receivable P170,000
x 10%
Required Allowance P17,000
Required Allowance P17,000
Less: Allowance for Uncollectible Accounts (credit) (8,000)
Doubtful Accounts Expense P19,000
PROBLEM 1-4
A company has the following unadjusted account balances at December 31 of the

current year. Accounts Receivable of P185,700 and Allowance for Doubtful Accounts of
P1,600 (credit balance). This company uses the aging of accounts receivable to
estimate its bad debts. The following aging schedule reflects its accounts receivable at
the current year-end:
Account Age Age Group Estimated

Balance Uncollectible
Percentage
Current (not yet due) P96,000 1.5%
1-30 days past due 64,000 4.0
31-60 days past due 16,000 10.0
61-90 days past due 6,400 40.0
Over 90 days past due 3,200 65.0
Total P185,600
What is the Doubtful Accounts Expense that should appear on December 31 of the
current year?
a. 7,240
b. 8,600
c. 8,640
d. 8,200
P96,000 x 0.015 = P1,440
64,000 x .04 = 2,560
16,000 x .10 = 1,600
6,400 x .40 = 2,560
3,200 x .65 = 2,080
Total P10,240
Required Allowance P
10,240
Allowance for Doubtful Accounts (credit) (1,600)
Doubtful Accounts Expense 8,640
PROBLEM 1-5
The total credit sales of Fizz Company for the year 2015 are P175,000. At the end of the
year, the management estimates that 1% of the total credit sales will not be collected.
The balance in allowance for doubtful accounts is P650 before making adjusting entry.
What is the estimated uncollectible accounts using income statement approach?
a. 1,750
b. 17,500
c. 2,400
d. 1,744
Sales P175,000
x .01
Uncollectible Accounts P1,750
PROBLEM 1-6
Asrel Company provided the following information for the current year:
Allowance for Doubtful Accounts, January 1 P200,000
Sales 10,600,000
Sales Returns and Allowances 880,000
Sales Discounts 310,000
Write off 125,000
The firm provided for doubtful accounts expense at the rate of 8% of net sales. What is
the allowance for doubtful accounts at year-end?
a.
b.
c.
d. 827,800

Allowance for doubtful accounts, January 1 200,000
Doubtful Accounts Expense (10,600,000-880,000-310,000x8%) 752,800
Total 952,800
Accounts written off (125,000)

Allowance for Doubtful Accounts, December 31 827,800
PROBLEM 1-7
Von Company used the statement of financial approach in estimating uncollectible
accounts expense. The entity prepared an adjusting entry to recognize this expense at
the end of the year. During the year, the entity wrote off a 250,000 and made no
recovery of previous write off. After the adjusting entry for the year, the credit balance in
the allowance for doubtful accounts was 425,000 larger than it was on January 1.
What amount of uncollectible account expense was recorded for the year?
a. 250,000
b. 675,000
c. 425,000
d. 350,000
Excess of ending allowance over beginning allowance P425,000
Write off 250,000
Uncollectible Accounts Expense P675,000
PROBLEM 1-8
An entity provided the following: Allowance balances of December 31, 2013- 530,000;
December 31, 2014- 600,000; Doubtful Accounts Expense 90,000. What is amount was
debited to the appropriate account to write off uncollectible accounts in 2014?
a. 20,000
b. 30,000
c. 50,000
d. 0
Allowance for Doubtful Accounts, ending 2013 P530,000
Doubtful Accounts Expense 90,000

Total P620,000
Write off (SQUEEZE) (20,0000)
Allowance for Doubtful Accounts, ending 2014 P600,000
PROBLEM 1-9
Jean Company reported the following information after adjustments at year-end:
2015 2016
Accounts Receivable 7,100,000 6,900,000
Net Realizable Value 6,250,000 5,800,000
During 2016, the entity wrote off accounts totaling P330,000 and collected P207,000 on
accounts written off. What amount should be recognized as doubtful accounts expense
for the year ended December 31,2016?
a. 373,000
b. 473,000
c. 1,430,000
d. 850,000
Allowance- 2015 (7,100,00-6,250,000) P850,000
Recovery of accounts written off 207,000
Doubtful accounts expense for 2016 (SQUEEZE) 373,000
Total P1,430,000
Accounts written off in 2016 (330,000)
Allowance- 2016(6,900,000-5,800,000) P1,100,000
PROBLEM 1-10
Biann Company provided the following accounts abstracted from the unadjusted trial
balance on December 31, 2014:
Debit Credit
Accounts Receivable 10,000,000
Allowance for Doubtful Accounts 20,000
Net credit Sales 35,000,000
The company estimated that 11% of the gross accounts receivable will become
uncollectible. What amount should the company recognize as doubtful accounts
expense?
a. 1,210,000
b. 1,100,000
c. 1,120,000
d. 1,000,000
Required Allowance for Doubtful Accounts Expense
on December 31, 2014 ( 10,000,000 x 11%) P1,100,000
Allowance for Doubtful Accounts P1,100,00

Add: Debit balance in allowance for doubtful accounts 20,000
Doubtful Accounts Expense P1,120,000
RECEIVABLE FINANCING ( PLEDGE, FACTORING, ASSIGNMENT)
Lee Sin Company factored P7,980,000 accounts receivable to a finance entity on

August 1, 2015.The factor was assessed a fee of 5% and reserve a holdback of 6% of
the accounts receivable. Lee Sin Company also did surrender the control. In line with
this, the factor charged 10% interest on a weighted average time to maturity of the
accounts receivable of 69 days.
1. What is the amount of cash initially received from the factoring?
a. 6, 305, 000
b.6, 704, 000
c.6, 952, 145
d.7, 980, 000
2. What is the cost of factoring of the accounts receivable if all accounts are collected?
a. 399, 000
b. 549, 855
c. 798, 000
d.1, 027, 855
Accounts Receivable P7, 980, 000
Factor’s Holdback (7, 980, 000 x 6%) (478, 800)
Factoring Fee (7, 980, 000 x 5%) (399, 000)
Interest (7, 980, 000 x 10% x69/365) (150,855)
Cash initially received from factoring P 6, 952, 145

Factoring Fee P399, 000
Interest 150,855
Total cost of factoring P549, 855
2. Skarner Company factored accounts receivable of P450, 000 with credit terms of
3/10, n/15 instantly after the delivery of the goods to the costumer.
The factor is charged with 4% commission which is based on the gross amount of the
factored accounts receivables.
In addition the factor withheld 16% of the receivables factored in order to cover the
sales return and allowances.
What is the cash received from factoring?
a.351, 000
b.369, 000
c.387, 000
d.450, 000
Gross amount P450, 000
Less:
Sales Discount (450,000 x 2%) P9,000
Commission (450, 000 x 4%) 18,000
Factor’s Holdback (450,000 x 16%) 72,000 (99,000)

Cash Received from factoring P351, 000
3. Riven Company sold P 5, 750, 000 in accounts receivable for cash payment of P 4,
950,000.An allowance for bad debts of P500, 000 had previously been established by
the entity in relation to these accounts. To allow adjustments and possible costumer
returns the factor withheld 10% of the cash proceeds.
What is the loss on factoring that should be recognized?
a.300, 000
b.498, 875
c. 500, 000
d.800, 000
Sale price P4, 950, 000
Carrying amount of accounts receivable
(5, 750, 000 – 500, 000) 5, 250, 000
Loss on Factoring (P 300, 000)
4. Malphite Company during its third year of operations found itself at financial
difficulties. With this, the entity decided to use its accounts receivable as a means of
obtaining cash to continue operations.
On July 1, 2014, the entity sold P 2, 150, 000 of accounts receivable for cash proceeds
of P2, 000, 000. No bad debt allowance was associated with these accounts.
On December 15, 2014 the entity assigned the remainder of its accounts receivable,
P4,000,000 as of the date, as collateral on a P 2,550, 000, with 10% annual interest rate
loan from Teemo Company. The entity received P 2,500, 000 less a 3% finance charge.
None of the assigned accounts had been collected by the end of the year.
Allowance for bad debts before adjustment, 12/31/14 75, 000
Estimated uncollectible, 12/ 31. 14 3% of accounts receivable

Accounts receivable excluding factored
and assigned accounts, 12/31/14 1,550,000
What amount should be recognized as Bad debt expense for 2014?
a. 159, 000
b. 166, 500
c. 241, 500
d.550, 000
Accounts receivable- unassigned P 1,550,000
Accounts receivable-assigned 4,000,000
Total Accounts Receivable P 5, 550, 000
Required Allowance- 12/31/14 (3% x 5, 550, 000) P166, 500
Add: Allowance for Bad debts before adjustment 75, 000
Bad debt expense for 2014 P241, 500
5. Annie Company factored without recourse P 3,500, 000 of accounts receivable with a
bank. The finance charge is 3%, and 5% was restrained to cover sales discounts, sales
returns and sales allowances. What amount of cash was received on the sales of
accounts receivables?
a.2, 000, 000
b.2, 300, 000
c.2, 620, 000
d.3, 220, 000
Solution: Answer D
Accounts Receivable P3,500,000
Finance Charge (3% x 3, 500, 000) (105, 000)

Factor’s Holdback (5% x 3, 500, 000) (175, 000)
Cash Received from factoring P3, 220, 000
6. Lucian Company factored P 4,900, 000 of accounts receivable without guarantee for
a finance charge of 3%. The finance entity retained an amount equal to 8% of the
accounts receivable for possible adjustments. What should be recorded as gain or loss
on the transfer of accounts receivable?
a.490, 000
b.147, 000
c.392, 000
d.539, 000
Solution: Answer (c )
Loss in Factoring- Equal to finance fee( 3% x 4, 900 ,00) P 147, 000
7. Storm Company assigned P 4, 000, 000 of accounts receivables as collateral for a

P1, 500, 000 5% loan with a bank. The entity was also assessed by the bank for a
finance charge of 6% on the transaction and is paid up front. What amount should be
recorded as a gain or loss on the transfer of accounts receivables?
a.150, 000 gain
b.100, 000 gain
c.240, 000 loss
d. 0
No gain or loss is recognized because assignment of accounts receivable is a secures

borrowing and not a sale
8. On December 1, 2014, Mordekeiser Company assigned specific accounts receivable

totaling P3, 100, 000 as collateral on a P2, 500, 000, 12% note from a certain bank. The
entity will continue to collect the assigned accounts receivable. In addition to the interest
on the note, the bank also charged a 5% finance charge deducted in advance on the
P2, 500, 000 value of the note. The December collections of assigned accounts
receivable amounted to P1, 000, 000 less cash discounts of P50, 000. On December
31, 2014, the entity remitted the collections to the bank in payment for the interest
accrued on December 31, 2014 and the note payable.
1. What amount of cash was received from the assignment of accounts receivable on
December 1, 2014?
a.2, 000, 000
b.2, 150, 0000
c.2, 375, 0000
d.3, 100, 000
2. What is the carrying amount of note on December 31, 2014?
a.1, 550, 000
b.1, 575, 000
c. 1, 600, 000
d.1, 757, 000
3. What amount should be disclosed as the equity of Merriweather Company in

assigned accounts on December 31, 2014?
a.425, 000
b.475, 000
c.495, 000
d.525, 000
Solution:
Question 1: Answer (c)
Note Payable P2, 500, 000
Finance Fee (5% x 2, 500, 000) (125, 000)
Cash received on December 1 P2, 375, 000

Question 2: Answer (b)
Note Payable P2, 500, 000
Principal Payment:
Remittances P950,000
Interest (2,500, 000 x 12% x 1/12) 950,000 25, 000 925, 000
Note Payable- 12/31/14 P1, 575, 000
Question 3: Answer (a)
Accounts Receivable- assigned(3, 000, 000- 1, 000, 000) P2, 000, 000
Note Payable 1, 575, 000
Equity of Moedekeiser Company in assigned accounts P 425,000

NOTES RECEIVABLE (PROBLEMS)
PROBLEM 20-1
On January 1, 2015, Lux Companyany sold a building and received as consideration

P1,000,000 cash and a P4,000,000 noninterest bearing note due on January 1, 2018.
There was no established exchange price for the building, and the note had no ready
market. The prevailing rate of interest for a note of this type on January 1, 2015 was
10%. The present value of 1 at 10% for three periods is 0.75. What amount of interest
revenue should be included in the 2016 income statement?
a. 370,000 b. 300,000
c. 330,000 d. 400,000
Note receivable P4,000,000
Less: Present value (4,000,000x .75) 3,000,000
Unearned interest income P1,000,000
Present value, January 1, 2015 P3,000,000
Interest income for 2015 (10% x 3,000,000) 300,000
Present value, December 31, 2015 P3,300,000
Interest income for 2016 (10%x 3,300,000) 330,000
Interest income for 2017 ( 1,000,000 – 630,000) 370,000
Interest income for 2015 P300,000
Interest income for 2016 330,000
Interest income for 2017 (simply the remainder) 370,000

Total interest income P1,000,000
PROBLEM 20-2
Warwick Company discounted its own P5,000,000 one-year note at a discount rate of
12%, when the prime rate was 10%. In reporting the note prior to maturity, what rate
should be used for the recording of interest expense?
a.13.6%
b.12.7%
c.9.0%
d.12.0%
Note payable P5,000,000
Discount (5,000,000 x 12%) ( 600,000)
Net proceeds P4,400,000
Effective interest rate = Discount / Net proceeds
= 600,000 / 4,400,000
= 13.6%
PROBLEM 20-3
Lissandra Company received from a customer a one-year, P500,000 note bearing

annual interest of 8%. After holding the note for six months, the entity discounted then
note without recourse at 10%. What amount of cash was received from the bank?
a. 496,210
b. 523,000
c. 513,000
d. 523,810
Solution: Answer c
Principal P500,000
Interest (500,000 x 8%) 40,000
Maturity value P540,000
Less: discount (540,000 x 10% x 6/12) (27,000)
Net proceeds P513,000
PROBLEM 20-4
On January 1, 2015, Miss Fortune Company sold land with carrying amount of
P1,500,000 in exchange for a 9-month, 10% note with face value of P2,000,000. The
10% rate properly reflects the time value of money for this type of note.On April 1, 2015,
the entity discounted the note with recourse. The bank discount rate is 12%. The
discounting transaction is accounted for as a secured borrowing.On October 1, 2015,
the maker dishonoured the note receivable. The entity paid the bank the maturity value
of the note plus protest fee of P10,000.On December 31, 2015, the entity collected the
dishonoured note in full plus 12% annual interest on the total amount due.
What is the amount received from the discounting of note receivable?
a. 1,951,500
b. 2,021,000
c. 2,050,500
d. 2,150,000
Principal P2,000,000
Interest (2,000,000 x 10%x 9/12) 150,000
Maturity value P2,150,000

Discount (2,150,000 x 12% x 6/12) ( 129,000)
PROBLEM 20-5&6
On January 1, 2015, Nunu Company reported the following balances:
Note receivable from sale of building 7,500,000
Note receivable from an officer 2,000,000
The P2,000,000 note receivable is dated December 31, 2012, bears interest at 8% and
is due on December 31, 2017. Interest is payable annually on December 31, and all
interest payments were made through December 31, 2015.
The P7,500,000 note receivable is dated May 1, 2014, bears interest at 9%. Principal
payments of P2,500,000 plus interest are due annually beginning May 1, 2015.
On July 1, 2015, Ryze Company sold a parcel of land to Barr Company for P4,000,000
under an instalment sale contract. Blitz Company made a P1,200,000 cash down
payment on July 1, 2015, and signed a 4-year 10% note for the P2,800,000 balance.
The equal annual payments of principal and interest on the note totalled P880,000,
payable on July 1 of each year from 2016 through 2019.
5.What is the total amount of notes receivable including accrued interest that should be
classified as current assets on December 31, 2015?
a. 3,540,000
b. 3,080,000
c. 2,940,000
d. 3,820,000
6. What is the total amount of notes receivable that should be classified as noncurrent
assets on December 31, 2015?
a. 6,700,000
b. 7,300,000
c. 4,500,000
d. 6,420,000
Solution #5: Answer (a)
Note receivable from sale of building due 5/1/2016 P2,500,000
Accrued interest on note receivable from sale of building
from 5/1/2015 to 12/31/2015 (5,000,000 x 9% x 8/12) 300,000
Principal payment of note receivable from sale of land due
on 7/1/2016:
Annual Interest P880,000
Interest from 7/1/2015 to 7/1/2016 (280,000) 600,000
Accrued interest on NR from sale of land from
7/1/2015 to 12/31/2015 (1/2 x 280,000) 140,000
Total current receivable – December 31, 2015 P3,540,000
NR from sale of building due May 1, 2017 P2,500,000
NR from officer due December 31, 2017 2,000,000
NR from sale of land – noncurrent portion:
Due July 1, 2016 – current portion ( 600,000) 2,200,000
Total noncurrent notes receivable – December 31, 2015 P6,700,000

PROBLEM 20-7
On December 31, 2015, Hemeindeger Company sold for P3,000,000 an old equipment
having an original cost of P5,400,000 and carrying amount of P2,400,000. The terms of
the sale were P600,000 down payment and P1,200,000 payable each year on
December 31 of the next two years. The sale agreement made no mention of interest.
However, 9% would be a fair rate for this type of transaction. The present value of an
ordinary annuity of 1 at 9% for two years is 1.76.
What is the carrying amount of the note receivable on December 31, 2016?
a. 1,009,920
b. 2,302,080
c. 1,200,000
d. 1,102,080
Note receivable – December 31, 2015 P2,400,000
Present value (1,200,000 x 1.76) (2,112,000)
Unearned interest income P288,000
Interest income for 2016 (9% x 2,112,000) P190,080
Note Receivable – December 31, 2016 P1,200,000
Unearned interest income – 12/31/2016 (288,000 – 190,080) ( 97,920)
Carrying amount – December 31, 2016 P1,102,080
PROBLEM 20-8&9
On August 31, 2015, Syvir Company discounted with recourse a note at the bank at
discount rate of 15%. The note was received from the customer on August 1, 2015, is
for 90 days, has a face value of P5,000,000 and carries an interest rate of 12%. The
customer paid the note to the bank on October 30, 2014, the date of maturity.
8.If the discounting is accounted for as a secured borrowing, what is the interest
expense to be recognized on August 31, 2015?
a. 28,750
b. 23,000
c. 50,000
d. 0
9.What is the amount to be recorded as net proceeds?
a. 5,000,000
b. 5,021,000
c. 5,021,250
d. 5,050,000
Interest (5,000,000 x 12% x 90/360) 150,000
Maturity value P5,150,000
Discount (5,150,000 x 15% x 60/360) 128,750
Accrued interest receivable (5,000,000,000 x 12% x 30/360) 50,000
Carrying amount of note receivable P5,050,000
Carrying amount of note receivable (5,050,000)

Interest expense (P 28,750)
LOANS RECEIVABLE (PROBLEMS)
1. MALICIOUS BANK loaned P5,500,000 to MIHO Company on January 1, 2015. The

initial loan repayment terms include a 10% interest rate plus annual principal payments
of P1,100,000 on January 1 each year. Bargain made the required interest payment in
2014 but did not make the P1,100,000 principal payment nor the P550,000 interest
payment for 2015. Malicious is preparing its annual financial statements on December
31, 2015. Miho is having financial difficulty, and Malicioius has concluded that the loan is
impaired.
Analysis of Miho’s financial condition on December 31, 2015, indicates the principal
payments will be concluded, but the collection of interest is unlikely. Malicious did not
accrue the interest on December 31, 2015.
The projected cash flows are:
December 31, 2017 P1,750,000
December 31, 2018 2,000,000
December 31, 2019 1,750,000
What is the loan impairment loss on December 31, 2016?
What is the interest income to be reported by Malicious Bank in 2017?
What is the carrying value of the loan receivable on December 31, 2018?
What is the interest income in 2018?
What is the interest income in 2019?
a. 941,500 ; 455,850 ; 1,590,758 ; 326,435 ; 159,079
b. 1,095,500 ; 325,700 ; 1,850,563 ; 632,486 ; 156,084
c. 821,640 ; 485,240 ; 1,591,581 ; 125,435 ; 214,123
d. 0 ; 500,850 ; 1,095,597 ; 569,758 ; 109,559

Book value of loan receivable P5,500,000
Present Value of projected cash flows:
December 31, 2017 (P1,750,000 x 0.9091) P1,590,925
December 31, 2018 (P2,000,000 x 0.8264) 1,652,000
December 31, 2019 (P1,750,000 x 0.7513) 1,314,775 4,558,000
Loan impairment loss P 941,500
Date Receivable Allowance for Net loan Interest Payment

before loan receivable Income received
payment impairment
Dec. 31,2017 P5,500,000 P941,500 P4,558,500 P455,850 P1,750,000
Dec.31, 2018 3,750,000 485,650 3,264,350 326,435 2,000,000
Dec.31, 2019 1,750,000 150,215 1,590,785 159,079 1,750,000
Loan Receivable (P5,500,000 – P1,750,000 – P2,000,000) P1,750,000
Allowance for loan impairment (159,215)
Carrying Value P1,590,785
PROBLEM 2
FPJ Bank loaned P6,000,000 to Jax Company on January 1,2013. The terms of the
loan require principal payments of P1,500,000 each year for 4 years plus interest at 9%.
The first principal and interest payment is due on January 1,2014. Jax Company made
the required payments during 2014 and 2015.
However, during 2015 Jax Company began to experience financial difficulties, requiring
TVJ Bank to reassess the collectibility of the loan.
On December 31,2015, TVJ Bank has determined that the remaining principal payment
will be collected but the collection of the interest is unlikely. TVJ Bank did not accrue the
interest on December 31,2015.
The present value of 1 at 9% is as follow:
For one period 0.917
For two periods 0.842
1. What is the loan impairment loss on December 31,2015?
a. 237,000
b. 112,500
c. 124,500
d. 0
2. What is the interest income for 2016?
a. 124,875
b. 123,795
c. 113,670
d. 0
3. What is the carrying amount of the loan receivable on December 31,2016?
a. 1,499,295
b. 1,489,170
c. 1,375,500
d. 1,500,000
Question 1 Answer c
January 1,2016 ( 1,500,000 × 1.000 ) P1,500,000
January 1,2017 ( 1,500,000 × 0.917 ) 1,375,500
Total present value of loan P2,875,500
Loan receivable P3,000,000
Present value of loan (2,875,500)
Impairment loss P124,500
Journal entry to record the impairment loss
Impairment loss 124,500
Allowance for loan impairment 124,500
Loan receivable P3,000,000
Collection on January 1,2016 (1,500,000)
Loan receivable- January 1,2016 P1,500,000
Allowance for loan impairment (124,500)
Carrying amount - January 1,2016 P1,375,500
Interest income for 2016 (1,375,000 × 9%) P123,795
Loan receivable - December 31,2016 1,500,000
Allowance for loan impairment - December 31,2016

( 124,500 - 123,795 ) ( 705 )
Carrying amount - December 31,2016 P1,499,295
PROBLEM 4
March 16, 2015, TARIC INC. loaned P3,000,000 to AMUMU CO.. Under the loan
agreement, Alloy Co.is to make an annual principal payment of P600,000 for 5 years
plus interest at 8%. The first principal and interest payments is due on January 1, 2015.
The required payments were made by Alloy Co. for 2016 and 2017. However, during
2017, Alloy Co. began to face financial difficulties, requiring TARIC In. to reevaluate the
collectability of the loan. December 31, 2017, TARIC determines that it will be able to
collect the remaining principal, but it is unlikely that the interest will be collected.
The following present value actors are taken from the table of present values:
Present value of 1 at 8% for:
1 period 0.92593
2 period 0.85734
3 period 0.79383
What is the present value of the expected future cash flows as of December 31, 2017?
What is the amount of loan impairment on December 31, 2017?
Assuming that Taric Inc. assessment of the collectibility of the loan has not change,
what amount of interest income should be recognize 2018?
a. 969,953 ; 150,528 ; 72,567
b. 1,650,874 ; 120,058 ; 83,563
c. 1,855,542 ; 135,210 ; 76,462

d. 1,669,962 ; 130,038 ; 85,597
Present value of expected future cash flows:
January 1, 2017 P 600,000
January 1, 2018 (P600,000 x 0.92593) 555,558
January 1, 2019 (P600,000 x 0.85734) 514,404
Present value at December 21, 2015 P1,669,962
Carrying value of loan, December 31, 2017 (P600,000 x 3) P1,800,000
Present Value of future cash flows (1,669,962)
Loan Impairment P130,038
Present value of expected future cash flows P1,669,962
Less: Collection of loan payment on Jan. 1, 2017 (600,000)
Carrying value, Jan. 1, 2018 P1,069,962
Multiply Interest x8%
Interest income for 2018 P 85,597

INVENTORIES (PROBLEMS)
Problem 23-1
AC Company incurred the following costs:
Materials P430,000
Storage costs of finished goods 120,000
Delivery to customers 80,000
Irrecoverable purchase taxes 20,000
What is the cost of inventory?
a. 500,000
b. 450,000
c. 630,000
d. 520,000
Materials P430,000
Irrecoverable purchase taxes 20,000

Total cost of inventory P450,000
Problem 23-2
Mori Company provided the following information for the current year:
Merchandise purchased for sale 5,000,000
Freight in 300,000
Freight out 250,000
Purchase returns 82,000
Purchase discount 18,000
Interest on inventory loan 350,000
What is the amount to record on the purchase?
a. 5,218,000
b. 6,300,000
c. 5,200,000
d. 5,120,000
Merchandise purchased for sale P5,000,000
Freight in 300,000
Less: Purchase returns (82,000)
Cost of Purchase P5,218,000
PROBLEM 23-3&4
Joshua company shows the following account balances:

2014 2015
Merchandise Inventory 150,000 90,000
Cash 180,000 ?
Accounts Receivable 240,000 180,000
Accounts payable 405,000 200,00
Assuming all sales and purchases are on account. The amount of cost of goods sold is
P360,000 during the current year. The gross profit margin on sales is 20%.
3. What is the amount of purchases?
a. 300,000
b. 210,000
c. 240,000
d. 310,000
4. What is the 2015 cash balance?
a. 105,000
b. 35,000
c. 55,000
d. 185,000
Solution #3:Answer (a)
Merchandise Inventory – 12/31/14 P150,000
Purchases (SQUEEZE) 300,000
Total goods available for sale P450,000
Cost of goods sold (360,000)
Merchandise Inventory – 12/31/15 P90,000
Solution #4: Answer (b)
Sales (100%) P450,000
Cost of goods sold (80%) (360,000)
Gross profit (20%) P90,000
Cash – 12/31/14 P180,000
Add: Collections 510,000
Balance P690,000
Less: Disbursement P150,000
Payment to suppliers 505,000 (655,000)
Cash – 12/31/15 P35,000
Accounts Receivable – 12/31/14 240,000
Sales 450,000
Collections (510,000)
Accounts Receivable – 12/31/15 P180,000

Accounts Payable – 12/31/14 P405,000
Purchases 300,000
Payment to suppliers (505,000)
Accounts Payable – 12/31/15 P200,000
PROBLEM 23-5
On December 25, 2015, Joy Company purchased goods costing P500,000. The terms
were FOB shipping point. The goods were received on December 28, 2015. Costs
incurred by the entity in connection with the purchase and delivery of the goods were
normal freight charge P15,000, handling cost P10,000, insurance on shipment P2,000
and abnormal freight charge for express shipping P18,000. What is the total cost of the
inventory?
a. 527,000
b. 545,000
c. 515,000
d. 513,000
Purchased goods P500,000
Normal freight charge 15,000
Handling cost 10,000
Insurance 2,000
Inventory P527,000
PROBLEM 23-6
Gen Company recorded purchases at net amount. On December 10, 2015 the entity
purchased merchandise on account, P2,500,000, terms 4/10, n/30. The entity returned
P150,000 of the December 10 purchase and received credit on account. The account
had not been paid on December 31. At what amount should the account payable be
adjusted on December 31?
a. 150,000
b. 47,000
c. 103,000
d. 50,000
Gross invoice P2,500,000
Purchase return (150,000)
Balance P2,350,000
Purchase discount loss (2% x 2,350,000) P47,000
PROBLEM 23-7
Romar Company has the following data during the year:
Merchandise inventory – January 1, 2015 P685,000
Cost of goods sold 500,000
Merchandise inventory – December 31, 2015 435,000
What is the amount of purchases during the year?
a. 185,000
b. 65,000
c. 250,000
d. 620,000
Solution: Answer c
Merchandise inventory – beginning P685,000
Purchases (SQUEEZE) 250,000
Total goods available for sale P935,000
Cost of goods sold (500,000)
Merchandise inventory – ending P435,000
PROBLEM 23-8
Xtyle Sportswear regularly buys sweaters from Asahi Company and is allowed trade
discounts of 18% and 8% from the list price. Xtyle made a purchase during the year,
and received an invoice with a list price of P780,000 , a freight charge of P22,000 and
payment terms of 2/10, n/30. What is the cost of purchase?
a. 617,600
b. 588,432
c. 583,248
d. 566,432
List price P780,000
Trade discount (18% x 780,000) 140,400
Balance P639,600
Trade discount (51,168)
Invoice price P588,432
Freight charge (22,000)
Total cost of purchase P566,432
PROBLEM 23-9
Diego Company used perpetual inventory system. At the end of 2013, the inventory
account was P420,000 and P40,000 of those goods included in ending inventory were
purchased FOB shipping point and did not arrive until 2014. Purchases in 2014 were
P4,000,000. The perpetual inventory records showed an ending inventory of P500,000
for 2014. A physical count at the end of 2014 showed an inventory of P480,000.
Inventory shortages are included in cost of goods sold. What amount should be
reported as cost of goods sold for 2014?
a. 4,480,000
b. 4,420,000
c. 3,940,000
d. 4,000,000
Inventory – December 31, 2013 P420,000
Purchases – 2014 4,000,000
Goods available for sale P4,420,000
Inventory – December 31, 2014 (480,000)
Cost of goods sold P3,940,000
PROBLEM 23-10
On December 1, 2015, Mickey store 101 jeans on consignment from Donald. Donald’s
cost for the jeans was P950 each, and they were priced to sell at P1,200. Mickey’s
commission on consigned goods is 10%. On December 31, 2015, 1 jeans remained. In
the December 31, 2015 statement of financial position, what amount should be reported
as payable for consigned goods?
a. 120,000
b. 108,000
c. 121,200
d. 109,080
Solution: Answer b
Consigned goods sold P120,000
Commission (12,000)
Payable for consigned goods P108,000
FINANCIAL ASSET AT FAIR VALUE (PROBLEMS)
PROBLEM 32-1
On October 7, 2014, Reno Company acquired a financial asset for P3,000,00. The
entity also paid commission and taxes amounting to P300,000. The financial asset had
a market value of P2,900,000 on December 31, 2014. At what amount should the
financial asset initially be recognized if it is classified as fair value through profit or loss?
a.P3,000,000
b.P2,900,000
c.P3,300,000
d.P2,700,000
Answer (c)
Financial Asset at Fair Value P3,300,000
PROBLEM 32-2&3
During 2014, Ever Company purchased marketable equity securities held as trading
investment. The entity also paid commission and taxes amounting P400,000. For the
year ended December 31,2014, the entity recognized unrealized loss of P200,000.
There were no security transactions during 2015. The securities had the following fair
value at year-end:
Security December 31,2014 December 31, 2015
A 1,500 shares 300,000 350,000
B 2,000 shares 500,000 450,000
1. At what amount should the financial asset initially be recognized?
a. 800,000
b. 900,000
c 1,000,000
d. 1,100,000
2 What amount of unrealized gain or loss should be recognized in inome statement for
the year ended December 31,2015?
a. 50,000 gain
b. 100,000 gain
c. 150,000 gain
d. 50,000 loss
Solution #2: Answer (c)

Fair Value- 12/31/14 P800,000
Unrealized loss 200,000
Acquisition Cost P1,000,000
Fair Value- 12/31/15 P900,000
Fair Value- 12/31/14 800,000
Unrealized gain in 2015 P100,000
PROBLEM 32-4,5,6&7
On September 21,2013, JaLo Company purchased 35,000 shares for P50 per share
The investment was classified as trading investment On December 31,2013, the market
price per share is P42. During 2014, the entity sold 15,000 shares for P65 per share. On
December 31,2014, the market price per share had declined to P38.
4. What amount of unrealized gain or loss should be reported in the income statement
for 2013?
a. 280,000 loss
b. 525,000 gain
c. 420,000 loss
d. 280,000 gain
5. What is the carrying amount of the investment for the year ended December
31,2013?
a. 1,750,000
b. 1,570,000
c. 1,470,000
d. 1,330,000
6. What net amount of gain or loss should be recognized for 2014?

a. 345,000 gain
b. 265,000 gain
c. 80,000 loss
d. 105,000 gain
7. What is the carrying amount of the invesment for the year ended December 31,2014?
a. 760,000
b. 840,000
c. 670,000
d. 1,000,000
Solution #4 Answer (a)
Market Value- 12/31/13 P1,470,000
Acquisition Cost 1,750,000
Unrealized gain in 2013 (P280,000)
Carrying Amount- 12/31/13 ( 35,000 × 42 ) P1,470,000
Sale price ( 15,000 × 65 ) P975,000
Cost of shares sold ( 15,000 × 42) 630,000
Gain on sale P345,000
Market value of remaining shares (20,000 × 38) P760,000
Carrying amount (20,000 × 42) (840,000)
Loss from change in fair value (P80,000)
Net gain ( 345,000 - 80,000 ) P265,000

Carrying amount- 12/31/14 (20,000 × 42) P840,000
PROBLEM 31- 8&9
Dora Company acquired financial instrument for P4,000,000, on July 17,2014. The
entity also paid commission, taxes and other costs amounting P300,000. The financial
instrument is classified as financial asset at fair value through other comprehensive
income. On December 31,2014 the fair value of the instrument was P4,500,000 and the
transaction costs that would be incurred on the sale of investment are estimated at
P700,000. On December 31 2015, the issuer of the instrument was in severe financial
difficulty and the fair value of the instrument had fallen to P2,800,000.
1. What amount of unrealized gain or loss should be reported in the 2014 income
statement?
a. 500,000 gain
b. 200,000 gain
c. 200,000 loss
d. 0
2. What amount of loss should be reported as component of other comprehensive

income in the statement of changes in equity on December 31,2015?
a. 1,000,000
b. 1,200,000
c. 1,500,000
d. 1,700,000
Question #8: Answer (d)

When financial instrument classified as at fair value through other
comprehensive income, any unrealized gain or loss is reported as component of
other comprehensive income.
Fair Value- 12/31/15 P2,800,000
Historical Cost (4,300,000)
Cumulative unrealized loss (P1,500,000)
PROBLEM 32-10
On October 24,2014, Tiu Tan Company purchased P2,000,000 face value 10% bonds
for P1,875,000 plus accrued interest to yield 12%. The bonds mature on October
24,2010, pay interest semi-annually on Jan. 1 and July 1. On December 31,2014,the
bonds had a market value of P1,925,000. On March 12,2015,the entity sold the bonds
for P1,900,000. On December 31,2014, what amount should be reported for short-term
investments in trading debt securities?
a. 1,925,000
b. 1,875,000
c. 1,900,000
d. 2,000,000
Answer (a)
Financial Asset at fair value P1,925,000

INVESTMENT IN EQUITY SECURITIES (PROBLEMS)
1. On January 1, 2015, Mylene Company purchased 50,000 shares of another entity for
P3,600,000. On October 1. 2015, the entity received 50,000 stock rights from the
investee. Each right entitled the shareholder to acquire one share of P85. The market
price of the investee’s share was P100 immediately before the rights were issued and
P90 immediately after the rights were issued. On December 31, 2015, the entity sold
25,000 shares at P90 per share. The stock rights are not accounted for separately. The
FIFO approach is used. What is the gain on sale of investment that should be
recognized in 2015?
a. 700,000
b. 450,000
c. 287,500
d. 125,000
Shares Cost
Original Invetment 50,000 P3,600,000
New investment acquired through stock 50,000 4,250,000
rights (50,000x85)
Total 100,000 P7,850,000
FIFO approach
Sale price (25,000 x 90) P2,250,000
Cost of shares sold (25,000/50,000 x 3,600,000) 1,800,000
PROBLEM 33-2
On January 1, 2015, ABC Company purchased 40,000 shares of RST at P100 per
share. The investment is measured at fair value through other comprehensive income.
Brokerage fees amounted to P120,000. A P5 dividend per share of RST had been
declared on December 15, 2013, to be paid on March 31, 2015 to shareholders of
record on January 31, 2015. No other transactions occurred in 2015 affecting the
investment in RST shares. What is the initial measurement of the investment?
a. 4,120,000
b. 3,920,000
c. 4,000,000
d. 3,800,000
Purchase price (40,000 x 100) P4,000,000
Brokerage 120,000
Total P4,120,000
Less: Purchased dividend (40,000 x 5) (200,000)
Cost of investment P3,920,000

PROBLEM 33-3
On January 1, 2015, Hostile Company purchased 4,000 shares of another entity at

P100 per share. Transaction costs amounted to P12,000. The investment is measured
at fair value through other comprehensive income.
A P5 dividend per share had been declared on December 15, 2013, to be paid on
March 31, 2015 to shareholders of record on January 31, 2015. No other transaction
occurred in 2015 affecting the investment.
What is the initial measurement of the investment on January 1, 2015?
a. 392,000
b. 400,000
c. 412,000
d. 380,000
Fair Value (4,000 x 100) P400,000
Transaction Cost 12,000
Carrying Amount P412,000
Less: Dividends (4,000 x 5) ( 20,000)
Investment in Stocks P392,000
PROBLEM 33-4
Wray Company provided the following data for 2015:
* On September 1, Wray received a P500,000 cash dividend from Seco Company in

which Wray owns a 30% interest.
* On October 1, Wray received a P60,000 liquidating dividend from King Company.
Wray owns a 5% interest in King.
* Wray owns a 2% interest in Bow Company, which declared a P2,000,000 cash

dividend on November 15, 2015 payable on January 15, 2016.
What amount should be reported as dividend income for 2015?
a. 600,000
b. 560,000
c. 100,000
d. 40,000
Cash dividend from Bow Company (2% x 2,000,000) P40,000
PROBLEM 33-5
Valedictory Company issued rights to subscribe to its stock, the ownership of 4 shares
entitling the shareholders to subscribe for 1 share at P100. Vast Company owned
50,000 shares of Valedictory Company with total cost of P5,000,000. The share is
quoted right-on at 125. The stock rights are accounted for separately. What is the cost
of the new investment if all of the stock rights are exercised by Vast Company?
a. 1,250,000
b. 1,562,000
c. 1,500,000
d. 1,450,000

Theoretical value of right (125-100 / 4+1) P5
Initial cost of rights (50,000 x 5) P250,000
Cash paid for new shares (50,000/4 = 12,500 x 100) 1,250,000
Cost of new investment P1,500,000
PROBLEM 33-6
Rice company owned 30,000 ordinary shares of Wood Company acquired on July 31,
2015, at a total coast of P1,100,000. ON December 1, 2015, Rice received 30,000 stock
rights from Wood. Each right entitles the holder to acquire one share at P45. The market
price of each right was P10. Rice sold its rights on December 31, 2015 for P450,000
less a P10,000 commission. What amount should be reported as gain from the sale of
the rights?
a. 150,000
b. 140,000
c. 250,000
d. 240,000
Net sale price (450,000-10,000) P440,000
Initial cost of rights sold (30,000 x 10) ( 300,000)
Gain on sale of rights P140,000
PROBLEM 33-7
During 2015, Neil Company held 30,000 shares of Brock company’s 100,000
outstanding shares and 6,000 shares of Amal Company’s 300,000 outstanding shares.
During the year, Neil received P300,000 cash dividend from Brock, P15,000 cash
dividend and 3% stock dividend from Amal. The closing price of Amal share is P150.
What amount should be reported as dividend revenue for 2015?
a. 342,000
b. 315,000
c. 442,000
d. 15,000
Cash dividend from Amal (6,000/300,000 = 2% interest) P15,000
PROBLEM 33-8
Cobb Company purchased 10,000 shares representing 2% ownership of Roe Company

on February 15, 2015. Cobb Company received a stock dividend of 2,000 shares on
March 31, 2015, when the carrying amount per share was P350 and the market value
per share was P400. Roe Company paid a cash dividend of P15 per share on
September 15, 2015.
In the income statement for the year ended October 31, 2015, what amount should be
reported as dividend income?
a. 150,000
b. 980,000
c. 180,000
d. 880,000
Original shares 10,000
Stock Dividend 2,000
Total shares 12,000
Dividend income (12,000 x P15) P180,000

PROBLEM 33-9&10
On January 1, 2012, Christopher Company purchased 20,000 shares of Bay Company,

P100 par, at P110 per share. On March 1, 2012, Bay Company issued rights to
Christopher Company, each permitting the purchase of ¼ share at par. No entry was
made. The bid price of the share was 140 and there was no quoted price for the rights.
On April 1, 2012, Christopher Company paid for the new shares charging the payment
to the investment account.
Since Christopher Company felt that it had been assessed by Bay Company, the
dividends received from Bay Company in 2012 and 2013 (10% on December 31 of each
year) are credited to the investment account until the debit was fully offset. Bay
Company declared annual dividend of P2,500,000 for the year ended December 31,
2012 and 2013.
On January 1, 2014, Christopher Company received 50% stock dividend from Bay
Company. On same date, the shares received as stock dividend were sold at P160 per
share and the proceeds were credited to income.
On December 31, 2014, the shares of Bay Company were split 2 for 1. Christopher
Company found that each new share was worth P5 more than the P110 paid for the
original shares. Accordingly, Christopher Company debited the investment account with
the additional shares received at P110 per share and credited income. On June 30,
2015, Christopher Company sold one-half of the investment at P92 per share and
credited the proceeds to the investment account.
9. What is the balance of the investment on December 31, 2015 as it was kept by
Christopher Company?
a. 3,150,000
b. 2,650,000
c. 2,200,000
d. 4,950,000
10. Using the average method, what is the correct balance of the investment on
December 31, 2015?
a. 2,200,000
b. 1,800,000
c. 900,000
d. 0
Share Cost
1/1/2012 (20,000 x 110) 20,000 P2,200,000
4/1/2012 (5,000 x 100) 5,000 500,000
12/31/2012 (10% x 2,500,000) ----- (250,000)
12/31/2013 (10% x 2,500,000) ----- (250,000)
12/31/2014 (25,000 x 110) 25,000 2,750,000
6/30/2015 (25,000 x 92) (25,000) (2,300,000)
Investment account per book 25,000 P2,650,000
Shares Cost
1/1/2012 (20,000 x 110) 20,000 P2,200,000
4/1/2012 (5,000 x 100) 5,000 500,000
1/1/2014 (50% x 25,000) 12,500 -----
Balance 37,500 P2,700,000
1/1/2014 (12,500/37,500 X 2,700,000) (12,500) ( 900,000)
Balance 25,000 P1,800,000
12/31/2014 (2 for 1 split) 25,000 -----
Balance 50,000 P1,800,000
6/30/2015 (1/2 x 1,800,000) (25,000) ( 900,000)

Balance December 31, 2015 25,000 P900,000
FINANCIAL ASSET AT AMORTIZED COST
1. On October 1, 2015, Park Company purchased 6,000 of the P1,000 face amount,
10% bonds of Ott Company for P6,600,000 including accrued interest of P150,000. The
bonds, which mature on January 1, 2022, pay interest semiannually on January 1 and
July 1. Park used the straight line method of amortization and appropriately recorded
the bonds as financial asset at amortized cost. On December 31, 2015, the bond
investment should be reported at what amount?
a. 6,450,000
b. 6,432,000
c. 6,426,000
d. 6,360,000
Solution: Answer b
October 1, 2015 to January 1, 2022 = 75 months

Cost (6,600,000-150,000) P6,450,000
Face Value (6,000,000)
Premium P450,000
Monthly amortization (450,000 / 75) P6,000
Cost P6,450,000
Amortization of premium from October 1
to December 31, 2015 (4,000 x 3) ( 18,000)
Carrying Amount – December 41, 2015 P6,432,000
2. On January 1, 2015, Portugal Company purchased bonds with face value of

P8,000,000 for P7,679,000 as a long-term investment. The stated rate on the bonds is
10% but the bonds are acquired to yield 12%. The bonds mature at the rate of
P2,000,000 annually every December 31 and the interest is payable annually also every
December 31. The entity used the effective interest method of amortizing discount.
What is the carrying amount of the investment in bonds on December 31, 2015?
a. 5,729,250
b. 7,759,250
c. 7,800,480
d. 5,800,480
Interest income (7,679,000 x 12%) P921,480
Interest received (8,000,000 x 10%) (800,000)
Discount amortization P121,480
Cost P7,679,000
Discount amortization 121,480
Annual installment (2,000,000)

3. On January 1, 2015, Queen Company purchased bonds with face value of

P5,000,000 for P5,400,000. The stated interest rate is 8% payable annually every
December 31. The bonds are acquired to yield an effective rate of 6%. The entity has
elected the fair value option for the bond investment. On December 31, 2015, the bonds
had a fair value of P5,600,000. What total income should be reported for 2015?
a. 200,000
b. 400,000
c. 500,000
d. 600,000
Gain from change in fair value (5,600,000-5,400,000) P200,000
Interest income ( 5,000,000 x 8%) 400,000
Total income P600,000
4.-5. On January 1, 2015, Russia Company purchased 5-year bonds with face value of
P8,000,000 and stated interest of 10% per year payable semi-annually January 1 and
July 1. The bonds were acquired to yield 8%. Present value factors are:
Present value of an annuity of 1 for 10 periods at 5% 7.72
Present value of an annuity of 1 for 10 periods at 4% 8.11
Present value of 1 for 10 periods at 4% 0.6756

4. What is the purchase price of the bonds?
a. 7,732,400
b. 7,351,200
c. 8,648,800
d. 8,617,600
5. What is the carrying amount of the bond investment on December 31, 2015?
a. 8,538,542
b. 8,302,848
c. 8,594,752
d. 8,540,704
Solution: Question #4 (c)
Semi-annual nominal interest (8,000,000 x 5%) P400,000
Semi-annual effective interest (8,000,000 x 4%) 320,000
Difference P80,000
Multiply by PV of annuity of 1 for 10 periods at 4% x8.11
Premium P648,800
Face value 8,000,000
Purchase price P8,648,800
Another approach:
PV of principal (8,000,000 x .6756) P5,404,800
PV of semiannual interest payments (400,000 x 8.11) 3,244,000

Purchase price or present value of bonds P8,648,800
Solution: Question #5 (a)
Acquisition cost – January 1, 2015 P8,648,800
Amortization of premium – 1/1/2015 to 6/30/2015:
Interest received (5% x 8,000,000) P400,000
Interest income (4% x 8,648,800) 345,952 54,048
Carrying amount – June 30, 2015 P8,594,752
Amortization of premium – 7/1/2015 to 12/31/2015:
Interest received P400,000
Interest income (4% x 8,594,752) P343,790 56,210
6. On January 1, 2015, Venus company purchased 10% bonds with face value of
P5,000,000 plus transaction cost of P101,500 with a yield of rate of 8%. The bonds
mature on December 31, 2019 and pay interest annually on December 31. The carrying
amount of the investment on December 31, 2015 using the effective interest method is
P5,333,620. What is the initial acquisition cost of the bond investment?
a. 5,401,500
b. 5,300,000
c. 5,198,500
d. 5,398,500
Solution: Answer a
Carrying amount – December 31. 2015 P5,333,620
Nominal interest (5,000,000 x 10%) 500,000
Total P5,333,620
Divide by (100% + 8%) 108%
Total acquisition cost P5,401,500
7. On July 1, 2015, York Company purchased as a long-term investment P1,000,000 of

Park Company’s 8% bonds for P946,000, including accrued interest of P40,000. The
bonds were purchased to yield 10% interest. The bonds mature on January 1, 2021,
and pay interest annually on January 1. York Company used the effective interest
method of amortization. On December 31, 2015, what carrying amount of the
investment in bonds?
a. 916,600
b. 911,300
c. 953,300
d. 960,600
Purchase price P946,000
Less: Accrued interest ( 40,000)
Cost of investment P906,000
Amortization of discount from July 1 to December 31, 2015:
Interest income (906,000 x 10% x 6/12) P45,300
Interest received (1,000,000 x 8% x 6/12) 40,000 5,300
Carrying amount – December 31, 2015 P911,300

8. Tiger Company purchased P5.000,000 of bonds at par. The entity has elected the fair
value model for this investment. At year-end, the entity received annual interest of
P200,000 and the fair value of the bonds was P4,705,000. What amount should be
reported for the bond investment as total income or loss in the income statement?
a. 200,000 income
b. 295,000 loss
c. 495,000 income
d. 95,000 loss
Interest income P200,000
Loss from change in fair value (5,000,000 – 4,705,000) (295,000)
Total Loss (P95,000)
9. On January 1, 2015, Purl Company purchased as a long-term investment P5,000,000

face value of Shaw Company’s 8% bonds for P4,562,000. The bonds were purchased
to yield 10% interest. The bonds mature on January 1, 2020 and pay interest annually
on December 31. The interest method of amortization is used. What is the carrying
amount of the investment on December 31, 2016?
a. 4,662,000
b. 4,680,020
c. 4,562,000
d. 4,618,200
Carrying amount – January 1, 2015 P4,562,000
Amortization of discount for 2015:
Interest income (4,562,000 x 10%) 456,200

Interest received (5,000,000 x 8%) 400,000 56,200
Amortization of discount for 2016:
Interest income (4,618,200 x 10%) P461,820
Interest received (5,000,000 x 8%) 400,000 61,820
10. On October 1, 2015, Danica Company purchased P2,000,000 face value 12%
bonds for 98 plus accrued interest and brokerage fee. Interest is paid semi-annually on
January 1 and July 1. Brokerage fee for this transaction was P50,000. At what amount
should this acquisition of bonds be recorded?
a. 1,960,000
b. 2,010,000
c. 2,020,000
d. 2,070,000
Purchase price (2,000,000 x .98) P1,960,000
Brokerage fee 50,000

EFFECTIVE INTEREST METHOD
1. OnJanuary 1,2014 Tungsten Company purchased 15% bonds wuth face value of
4,000,000 plus transaction cost of 54,000 with a yield ate of13%. The bonds mature on
December 31,2018. And pay interest annually on December 31. The arrying amount of
the investment on December 31,2014 using the effective interest method is 4 ,146,000.
What is the initial cost of the bond investment?
A. 4,244,000
B. 3,138,000
C. 4,200,000
D. 4,126,000
Carrying amount - December 31,2014 P4,146,000

Add: Nominal interest (4,000,000x15%) 600,000
Total P4,746,000
Divide by (100 + 13%) 113%
2. On July 1, 2014 Xenon company purchased a long term investment 4,500,000 face
amount, 5% bonds of Xion Company for 3,150,000 to yield 10% per year .The bonds
pay interest semiannually on January 1 and July 1. On December 31,2014, what
amount should be reported as interest receivable?
A. 112,500
B. 225,000
C. 450,000
D. 115,375
Accrued interest receivable from
July 1 to December 31,2014 (4,500,000 x 5% x 6/12) P112,500
3. Company DS intended to issue a bond with face value of 100,000 having a maturity
of 5 years and annual coupon of 8%. At the time of issue however, the market interest
rate rose to 10% and the bond could fetch a price of 92,420 only. What is the
amortization on the first year?
A. 9,242
B. 8,000
C. 1,242
D. 2,606
Interest Income (92,420 x 10%) P9,242
Interest Receivable (100,000x8%) (8,000)
Amortization P1,242
4. On January 1, 2011, Company A issues long-terms bonds which are due on January
1, 2016. Interest is paid semiannually on January 1 and July 1 each year. Face amount
of bonds is 500,000 with stated interest rate (coupon rate) of 10%. At the time of
issuance, market interest rate is 12%. What will be the price of bonds issued by
Company A?
A. 463,202
B. 279,200
C. 500,000
D.184,002
Present value of principal = 500,000 x Present value factor for a single payment (6%, 10
periods)
= 500,000 x 0.5584
= 279,200
Present value of interest payments = 500,000 x Present value factor for an ordinary
annuity (6%, 10 periods)
= (500,000 x 5%) x 7.3601
= 184,002
Price of bonds
= Present value of principal + Present value of interest payments
= 279,200 + 184,002
= 463,202
5. Wrightway Corporation issues 100,000 of 10%, 5-year bonds on January 1, 2007,
with interest payable each January 1. The bonds sell for $92,790 which results in bond
discount of $7,210 ($100,000 - $92,790) and an effective-interest rate of 12%. What is
the carrying amount of bonds on December 31,2007?
A. 93,925
B.92,790
C. 98,865
D. 91,655
Bond interest expense ($92,790 x 12%) P11,135
Bond interest paid ($100,000 x 10%) ......... (10,000)
Bond discount amortization....................... P1,135
Carrying amount (92,790 + 1,135) P93,935
6. Helium Corporation issues 100,000, 10%, 5-year bonds on January 1, with interest
payable on January 1. In this case, the bonds sell for 107,985, which results in bond
premium of 7,985 and an effective-interest rate of 8%. What is the amortization
premium for the year?
A. 7,985
B. 2,159.5
C. 1,361
D. 2, 798.5
Answer C. 1,361
Bond interest paid (100,000 x 10%) P10,000
Bond interest expense (107,985 x 8%) 8,639
Bond premium amortization P1,361

7.Bismuth Company purchased 3,500,000 of bonds at par. The entity has elected the
fair value model for this investment. At year end, the entity received annual interest of
140,000 and the fair valur of bonds was 3,205,000. What amount should be reported for
the bond investment as total income or loss in the income statement?
A. 295,000loss
B. 155,000loss
C. 140,000 income
D. 435,000 loss
Interest income P140,000
Loss from change in fair value (3,500,000 -3,205,000) (295,000)
Total loss (P155,000)
8. OnJanuary 1,2014 Arci company purchased bonds with face valur of 2,500,000. The
bonds are dated January 1,2014 and mature on January 1,2018. The interest on bonds
is 10% payable semiannually every June 30 and December 31. The prevailing market
rate of interest on the bonds is 12%. What is the present value of the bonds on January
1,2014?
A. 806,750
B. 798,750
C. 1,575,000
D. 776,250
PV of principal (2,500,000 x .63) P1,575,000
PV of semiannual interest payments (776,250)
(125,000x6.21)
Present value P798,750

9. On January 2014 Linux Company purchased bonds with face value of 4,000,000 for
4,700,000. The stated interest rate is 12% payable annually every December 31. The
bonds are acquired to yield an effective rate of 8%. The entity has elected the fair value
option for the bond investment. On December 31,2014 the bonds had a fair value of
5,300,000. What total income should be reported for 2014?
A. 1,080,000
B.920,000
C. 1,620,000
D. 280,000
Gain from change in fair value (5,300,000-4,700,000) P600,000
Interest Income (4,000,000 x 12%) 320,000
Total Income P920,000
10. Hydrogen company purchased bonds at a discount of 200,000. Subsequently, the

entity sold these bonds at a premium of 230,000. During the period that the entity held
this investment, amortization of the discount amounted to 30,000. What amount should
be reported as gain on sale of bonds?
A. 460,000
B. 360,000
C. 480,000
D. 500,000
Carrying amount (1,000,000-200,000) P800,000
Amortization to date (30,000)
Carrying amount P770,000
Selling price (1,000,000 + 230,000) P1,230,000
Less: Carrying amount (770,000)

INVESTMENT PROPERTY
1. Azalea Company and its subsidiaries own the following properties that are accounted
for in accordance with PAS 40:
Land held for future factory site 4, 000, 000
Machinery leased out by Azalea to an unrelated party under
an operating lease 1, 500, 000
Land held by Azalea for undetermined use 5, 000, 000
A vacant building owned by Azalea and to be leased out
under an operating lease 3, 250, 000
Land leased by Azalea to a subsidiary under an operating
lease 2, 000, 000
Property held by a subsidiary of Azalea, a real estate firm, in

the ordinary course of business 2, 610, 000
Property held by Azalea for use in production 3, 950, 000
Building owned by a subsidiary of Azalea and for which the
subsidiary provides security and maintenance services to the
lessees 1, 750, 000
Property under construction for use in investment property 5, 550, 000
What is the total investment property that should be reported in the consolidated
statement of financial position of the parent and its subsidiaries?
a.15, 550, 000
b.15, 550, 000
c.17, 170, 000
d.21, 660, 000
Land held by Azalea for undetermined use P 5, 000, 000
A vacant building owned by Azalea and to be leased out
under an operating lease 3, 250, 000
Building owned by a subsidiary of Azalea and for which the 1, 750, 000
subsidiary provides security and maintenance services to the lessees
Property under construction for use in investment property 5, 550, 000
Total investment property P15, 550,000
2. George Company acquired a building on January 1, 2013 for P10, 000, 000. At the
date, the building had a useful life of 35 years. On December 31, 2013, the fair value of
the building was P10, 500, 000 and on December 31, 2014, the fair value was P10, 900,
000. The building was classified as an investment property and accounted for under the
cost model.
1. What is the depreciation of the investment property for 2014?
a.300, 000
b.241, 500
c.285, 714
d.298, 417
2. What is the carrying amount of the investment property on December 31, 2014?
a. 9, 428, 571
b. 10, 000, 000
c. 9, 714, 286
d.10, 285, 714
Depreciation for 2013 (10, 000, 000/ 35) P285, 714
Cost- January 1, 2013 P10, 000,000
Accumulated Depreciation (10, 000, 000/ 35x2) ( 571, 429)
Carrying Amount- December 31, 2014 P 9, 428,571
3. Howard Company owned an investment property which had an original cost of P6,
500,000 on January 1, 2012. On December 31, 2013, the fair value was P 7, 000, 000
and on December 31, 2014 the fair value was 6, 900, 000 .On acquisition, the property
had a useful life of 45 years.
1. Under the fair value model, what is the expense to be recognized for the year ended
December 31, 2014?
a.50,000
b.100,000
c.250,000
d.500,000
2. Under the cost model, what is the expense to be recognized for the year ended
December 31, 2014?
a.156, 000
b.153, 333
c. 195,667
d.144, 444
Solution:
Question 1: Answer (b)
FAIR VALUE MODEL
Fair value- December 31, 2013 P 6,900,000
Fair Value- December 31, 2014 7,000,000
Loss from change in Fair Value (P 100, 000)
Question 2: Answer (d)
COST MODEL
Depreciation Expense (2014)
(6, 500, 000/ 45) P144, 444
4. Amaya Company purchased an investment property in January 1, 2012 for P3, 450,
000. The property had a useful life of 35 years and on December 31, 2014 had a fair
value of P4, 000, 000. On December 31, 2014, the property was sold for net proceeds
of P3, 900, 000. The entity used the cost model to account the investment property.
What is the gain or loss to be recognized for the year ended December 31, 2014
regarding the disposal of the property?
a.645, 315
b.735, 451
c.745, 715
d.815, 669
Solution: Answer (c )
Cost- January 1, 2012 P 3, 450,000
Accumulated Depreciation (3, 450, 000/35x3) (295, 714)
Carrying Amount December 31, 2014 P 3,154,286
Selling Price P 3, 900,000
Carrying Amount-December 31, 2014 (3,154,286)
Gain on Disposal of Property P745, 715
5. Clayton Company owned three properties which are classified as investment

properties. Details of the properties are as follows:
Each property was acquired in 2011 with a useful life of 30 years. The accounting policy
is to use the fair value model for investment properties. What is the gain or loss to be
recognized for the year ended December 31, 2015?
a. 250, 000
b. 300, 000
c.450, 000
d. 500, 000

Fair Value 2014 Fair Value 2015 Gain (loss)
Property 1 P3,150,000 P3, 200,000 P50,000
Property 2 3,050, 000 2, 950, 000 (100,000)
Property 3 3,750, 000 3,500, 000 (250, 000)
Net loss from change in fair value (P300, 000)
6. Aslan Company has a building with a carrying amount of P25, 000, 000 on December
31, 2014. The building is used as offices of the entity’s administrative staff.
* On December 31, 2014, the entity intended to rent out the building to independent
third parties. The staff will be moved to a new building purchased early in 2014
* On December 31, 2014, the original building had a fair value of P35, 000, 000
* On December 31, 2014, the entity also had land that was held in the ordinary course
of the business
* The land had a carrying amount of P15, 000, 000 and fair value of P20, 000, 000 on
December 31, 2014. On such date, the entity decided to hold the land for capital
appreciation.
The accounting policy is to carry all investment property at fair value.
1. On December 31, 2014, what amount should be recognized as revaluation surplus as

a result of transfer of the building to investment property?
a. 10, 000, 000
b. 15, 000, 000
c. 20, 000, 000
d 25, 000, 000
2. On the same date, what amount should be recognized on profit or loss as a result of
the transfer of the land to investment property?
a. 5, 000, 000
b. 10, 000, 000
c. 20, 000, 000

d 15, 000, 000
Solution:
Fair value of Building- December 31, 2014 P 35,000,000
Carrying amount of building- December 31, 2014 25,000,000
Revaluation Surplus P10, 000,000
Question 2: Answer (d)
Fair value of land-December 31, 2014 P 20,000,000
Carrying amount of land- December 31, 2014 (15, 000,000)
Gain on Reclassification P 5,000,000
7. Lenidya Company’s accounting policy with respect to investment properties is to

measure them at fair value at the end of each reporting period.
One of the investment properties was measured at 7,950,000 and on December 31,
2014.
The property had been acquired on January 1, 2014 for a total of P 7, 600, 000, made
up of P 6,900, 000 paid to the vendor, P300, 000 paid to the local authority as a
property transfer tax and P400, 000 paid to professional advisers. The useful life of the
property is 50 years.
What is the amount of gain to be recognized in profit or loss for the year ended
December 31, 2014 in respect of the investment property?
a. 350, 000
b. 400, 000
c. 450, 000
d. 500, 000
Fair Value P7,950,000

Acquisition Cost 7, 600,000
Gain from change in Fair Value P 350,000
INVESTMENT IN ASSOCIATE (PROBLEMS)

PROBLEM 34-1
On March 31,2014, Qua Lee Company acquired 40% of the outstanding ordinary
shares of an investee for P8,000,000. The carrying amount of the net assets of the
investee equalled P15,000,000. Any excess of cost over carrying amount is attributable
to goodwill. During the year, the investee reported net loss of P4,500,000 and paid
dividends of P3,300,000. What is the carrying amount of the investment on December
31,2014?
a. 5,330,000
b. 5,660,000
c. 8,000,000
d. 6,650,000
Acquisition cost P8,000,000
Share in net loss (4,500,000 × 9/12 × 40%) (1,350,000)

Share in cash dividend (40% × 3,300,000) (1,320,000)
Carrying amount- December 31,2014 P5,330,000
PROBLEM 34-2
On June 30,2014, Clark Company purchased 20% of Leah Company's outstanding

ordinary shares and no goodwill resulted from the purchase Leah appropriately carried
its investment at equity and the balance in Leah's investment account was P2,700,000
at December 31,2014. Leah Company reported net income of P1,600,000 for the year
ended December 31,2014,and paid dividend totalling 220,000. How much did Clark pay
for the interest in Leah?
a. 2,744,000
b. 2,854,000
c. 2,584,000
d. 2,700,000
Acquisiton cost,June 31 (SQUEEZE) P2,584,000
Add: Share in net income (1,600,000 × 6/12 × 20%) 160,000
Total P2,744,000
Less: Share in cash dividend (20% × 220,000) (44,000)
Investment balance, December 31 P2,700,000
PROBLEM 34-3,4,5&6
Nica Company acquired 30% of Chizza Company's voting share capital for P2,000,000
on January 1,2013. Nica's 30% interest in Chizza gave Nica the ability to exercise
significant influence over Chizza's operating and financial policies. During 2013, Chizza
earned P1,200,000 and paid dividend of P800,000. Chizza reported earnings of
P900,000 for the 6 months ended June 30,2014, and P1,700,000 for the year ended
December 31,2014. On July 1,2014 Nica sold half of the investment in Chizza for
P1,900,000 cash. Chizza paid dividend of P400,000 September 31,2014.
The fair value of the retained investment is P1,400,000 on July 1,2014 and P1,650,000
on December 31,2014. The retained investment is to be held as financial asset at fair
value through other comprehensive income.
1. Before income tax, what amount should be included in the 2014 income statement as
a result of the investment?
a. 360,000
b. 180,000
c. 252,000
d. 1,200,000
2. In the December 31,2013 statement of financial position, what is the carrying amount
of the investment in associate?
a. 2,000,000
b. 2,360,000
c. 2,120,000
d. 2,600,000
3. In the 2014 income statement, what amount should be reported as gain from the sale
of investment?
a. 900,000
b. 600,000
c. 705,000
d. 720,000
4. In the 2014 income statement, what amount should be reported as gain from re-
measurement of the retained investment?
a. 220,000
b. 205,000
c. 400,000
d. 100,000
Share in 2013 net income (30% × 1,200,000) P360,000
Acquisition cost, January 1,2013 P2,000,000
Add: Share in 2013 net income 360,000
Total P2,360,000
Less: Share in 2013 dividend (30% × 800,000) (240,000)
Carrying amount of investment, December 31,2013 P2,120,000
Carrying amount of investment, December 31,2013 P2,120,000
Add: Share in net income from
January 1 to June 30,2014 (30% × 900,000) 270,000
Carrying amount of investment, June 30,2014 P2,390,000
Sale price P1,900,000
Cost of investment sold (2,390,000/2) (1,195,000)
Gain from sale of investment P705,000
Fair value - July 1,2014 P1,400,000
Carrying amount of retained investment 1,195,000
Gain from re-measurement P205,000

Fair value - December 31,2014 P1,650,000
Fair value - July 1,2014 (1,400,000)
Unrealized gain of financial asset P250,000
PROBLEM 34-7
On January 1,2013, Geneth Company purchased 20% of Janeth Company's ordinary

shares outstanding for P7,000,000. The acquisition cost is equal to the carrying amount
of the net assets acquired. During 2013, the investee reported net income of
P8,900,000 and paid cash dividend of P3,200,000. What amount should be reported as
investment in associate on December 31,2013?
a. 8,780,000
b. 8,140,000
c. 9,420,000
d. 7,640,000
Acquisition cost- January P17,000,000
Add: Share in net income (20% × 8,900,000) 1,780,000
Total P8,780,000
Less: Cash divided received (20% × 3,200,000) (640,000)
Carrying amount of investment P8,140,00
PROBLEM 34-8&9
On January 1,2014, Coco Company purchased 25% of Nata Company for P 2,500,000.
The carrying amount of Nata's net assets was P9,000,000.Fair values and carrying
amounts were the same for all items except for land whose fair value exceeded it's
carrying amount by P900,000. For the year ended December 31,2014, Nata Company
reported net income of P1,800,000 and declared and paid cash dividends of
P1,200,000.
1.What amount of revenue from the investment should be reported for 2014?
a. 300,000
b. 750,000
c. 450,000
d. 475,000
2. On December 31,2014, what is the amount of the investment in Nata Company?
a. 2,950,000
b. 2,800,000
c. 3,200,000
d. 2,925,000
Share in net income (25% × 1,800,000) 450,000
Net assets acquired (25% × 9,000,000) 2,250,000
Excess of cost over carrying amount P250,000
Less: Amount attributable to undervaluation of land (25% × 900,000) (225,000)
Goodwill- not amortized P25,000
Acquisition cost, January 1 P2,500,000
Add: Share in net income (25% × 1,800,000) 450,000
Carrying amount of investment P2,950,000
PROBLEM 34-10
Aldub Company owned 20% of Liz Quen Company's preference share capital and 80%
of the ordinary share capital on December 31,2014.
10% cumulative preference share capital 3,600,000
Ordinary share capital 6,000,000
The investee reported net income P3,000,000 for the year ended December 31, 2014.
What is the equity in earnings of the investee for 2014?
a. 2,400,000
b. 1,824,000
c. 1,842,000
d. 2,112,000
Solution #10: Answer (d)
Net income P3,000,000
Preference dividend (10% × 3,600,000) (360,000)
Net income to ordinary shares P2,640,000
Share in net income - ordinary shares (80% × 2,640,000) P2,112,000

PROPERTY PLANT AND EQUIPMENT (PROBLEMS)
P29-1
ALDUB, INC. has constructed a production equipment needed for the company's
expansion program. Aldub received a P2,000,000 bid from a reputable manufacturer for
the construction of the equipment.
The costs of direct material and direct labor incurred to construct the equipment were
P1,060,000 and P700,000, respectively. It is estimated that incremental overhead costs
for construction amount to 140% of direct labor costs.
Fixed costs (excluding interest) of P3,200,000 were incurred during the construction
period. This amount was allocated to construction on the basis of total prime costs-the
sum of direct labor and direct material. The prime costs incurred to construct the new
equipment amounted to 35% of the total prime costs incurred for the period. The
company's policy is to capitalize all possible costs on self-construction projects.
To assist in financing the construction of the production equipment, Aldub borrowed P2

million at the beginning of the 6-month construction period. The loan was for 2 years
with interest at 10%.
What is the total cost of the self-constructed equipment?

A. P3,960,000
B. P3,096,000
C. P2,960,000
D. P3,285,000
Direct material P1,060,000
Direct labor 700,000
Variable overhead (P700,000 x 140%) 980,000
Fixed overhead (P3,200,000 x 35%) 1,120,000
Interest on specific borrowing
(P2,000,000 x 10% x 6/12) 100,000
Total cost of self-constructed equipment P3,960,000
PROBLEM 29-2
HELLO COMPANY is a major supplier of computer parts and accessories. To improve

delivery services to customers, the company acquired four new trucks on July 1, 2015.
Described below are the terms of acquisition for each truck.
No. 1 P700,000 Acquired for a cash payment of P656,000.
No. 2 P900,000 Acquired for a down payment of P90,000 cash and a 1-year, non-
interest
bearing note with a face amount of P820,000. There was no established cash
price for the equipment. The prevailing interest rate for this type of note is 10%.
No. 3 P740,000 Acquired in exchange for a computer package that the company carries
in inventory. The computer package cost P580,000 and is normally sold
by Hello Co. for P708,000.
No. 4 P660,000 Acquired by issuing 50,000 of Hello Co.'s ordinary shares. The shares
have a par value per share of P10 and a market value per share of P13.
What is the total cost of the trucks purchased on July 1, 2015?
A. P2,524,000
B. P2,454,000
C. P2,889,454
D. P2,849,454
Solution 29-2 Answer d.
Truck No. 1 P656,000
Truck No. 2
Down payment P 90,000
Present value of note issued
(P820,000 x 0.90909) 745,454 835,454
Truck No. 3 708,000
Truck No. 4 (P13 x 50,000 shares) 650,000
Total cost P2,849,454
P29-3
EXO COMPANY acquires a new manufacturing equipment on January 1, 2015, on

installment basis. The deferred payment contract provides for a down payment of
P400,000 and an 8-year note for P3,204,160. The note is to be paid in 8 equal annual
installment payments of P400,520, including 10% interest. The payments are to be
made on December 31 of each year, beginning December 31, 2015. The equipment has
a cash price equivalent of P2,470,000. Exo's financial year-end is December 31.
1. What is the acquisition cost of the equipment?
A. P3,504,160
B. P2,904,160
C. P2,470,000
D. P3,204,160
2. The amount to be recognized on January 1, 2015, as discount on note payable is
A. P410,416
B. P 0
C. P1,134,160
D. P927,160
3. The amount of interest expense to be recognized in 2015 is
A. P410,416
B. P207,000
C. P 0
D. P187,648
4. The amount of interest expense to be recognized in 2016 is
A. P410,416
B. P207,000
C. P 0
D. P187,648
5. The carrying value of the note payable at December 31, 2016, is
A. P1,663,608
B. P1,988,980
C. P1,412,062
D. P1,800,082
Solution 29-3: Answer (c)(c) (b) (d) (a)
1. Acquisition cost of equipment

(cash price equivalent) P2,470,000
2. Cost of equipment (cash price equivalent) P2,470,000
Less: Down payment (400,000)
Amount assigned to note payable P2,070,000
Face value of note 3,204,160
Discount on note payable, January 1, 2015 P1,134,160
The entry to record the acquisition is:
Equipment 2,470,000
Discount on note payable 1,134,160
Note payable 3,204,160
Cash 400,000
3. Interest expense for 2015:
Carrying value of note payable, Jan. 1, 2015
(P3,204,160 - 1,134,160) P2,070,000
Interest rate x 10%
Discount amortization for 2015 P 207,000
The entry to record the discount amortization is:
Interest expense 207,000
Discount on note payable 207,000
4. Interest expense for 2016:
Note payable, Jan. 1, 2015 P3,204,160

Less: Payment made on Dec. 31, 2015 (400,520)
Note payable, Dec. 31, 2015 P2,803,640
Discount on note payable, Dec. 31, 2015
( P1,134,160 - P207,000) (927,160)
Carrying value of note, Dec. 31, 2015 P1,876,480
Interest rate x 10%
Discount amortization (interest expense) for 2016 P 187,648
5. Carrying value of note, Dec 31, 2015 (see no.4) P1,876,480
Discount amortization for 2015 (see no.4) P187,648
Payment made on Dec. 31, 2016 (400,520)
Carrying value of note, Dec. 31, 2016 P1,663,608
PROBLEM 29-4
Various equipment used by RICHARD CO. in its operations are either purchased from
dealers or self-constructed. The following items for two different types of equipment
were recorded during the calendar year 2015.
Manufacturing equipment (self-constructed):
Materials and purchased parts at gross invoice price
(Richard failed to take the 2% cash discount) P550,000
Imputed interest on funds used during construction
(Stock financing) 46,000
Labor costs 285,000
Overhead costs (fixed - P50,000; variable - P70,000) 120,000
Gain on self-construction 84,000

Installation cost 9,600
Store equipment (purchased):
Cash paid for equipment P275,000
Freight and insurance cost while in transit 4,500
Cost of moving equipment into place at store 2,200
Wage cost for technicians to test equipment 8,000
Insurance premium paid during first year of operation
on this equipment 6,200
Special plumbing fixtures required for this equipment 9,200
Repair cost incurred in first year of operations related
to this equipment 2,450
1. What is the total cost of the self-constructed equipment?
A. P953,600
B. P874,600
C. P970,600
D. P935,600
2. What is the total cost of the store equipment purchased?
A. P293,400
B. P295,700
C. P300,100
D. P298,900
Solution: Answer (a) (d)
1. Manufacturing equipment (self-constructed):

Materials and parts (P550,000 x 98%) P539,000
Labor costs P285,000
Overhead costs 120,000
Installation cost 9,600
Total cost P953,600
2. Store equipment (purchased):
Cash paid for equipment P275,000
Freight and insurance cost while in transit 4,500
Cost of moving equipment into place at store 2,200
Wage cost for technicians to test equipment 8,000
Special plumbing fixtures required for this equipment 9,200
Total cost P298,900
PROBLEM 29-5
CEILO CORP. has been experiencing a significant increase in customers' demand for
its product. To expand its production capacity, Ceilo decided to purchase equipment
from Bigay Pera Company on January 2, 2015. Ceilo issues a P2,400,000 5-year,
noninterest bearing note to Bigay Pera for the new equipment when prevailing market
rate of interest for obligations of this nature is 12%. The company will pay off the note in
five P480,000 installments due at the end of each year over the life of the note. Ceilo's
financial year-end is December 31. The appropriate present value factor of an ordinary
equity of 1 at 12% for 5 periods 3.60478.
1. What is the cost of the equipment?
A. P2,400,000
B. P1,730,294
C. P1,457,931
D. P2,112,000
2. What amount of interest expense should be reported in Ceilo's income statement for
the year ended December 31, 2016?
A. P230,400
B. P207,635
C. P174,951
D. P288,000
3. What is the carrying value of the note at December 31, 2017?
A. P811,226
B. P1,440,000
C. P1,152,880
D. P1,480,932
Solution: Answer (b) (c) (a)
1. Cost of the equipment (P480,000 x 3.60478) P1,730,294
The entry to record the purchase is:
Equipment 1,730,294
Discount on note payable
(P2,400,000 - 1,730,294) 669,706
Note payable 2,400,000
2. Interest expense for 2016
(See amortization schedule) P174,951
The entries to record the payment and interest for 2016 are:
Interest expense 174,951
Discount on notes payable 174,951
Note payable 480,000

Cash 480,000
PROBLEM 29-6
YAMAHA, INC. constructs equipment for its own use. The account below is for a
manufacturing equipment it has assembled in 2015.
EQUIPMENT
Debit Credit
Cost of dismantling old equipment P 53,440
Cash proceeds from sale of old equipment P46,000
Raw materials used in construction of new
equipment 328,000
Labor in construction of new machine 247,000
Cost of installation 43,600
Cost of testing the equipment 35,000
Materials spoiled in machine trial runs 8,200
Profit on construction 82,000
An analysis of the details in the account disclosed the following:
a.) The old equipment, which was removed before the installation of the new one, had
been fully depreciated.
b.) Cash discounts received on the payments for the materials used in construction
totalling P10,000 were reported in the purchase discounts account.
c.) The factory overhead account shows a balance of P976,000 for the year ended
December 31, 2015; this balance exceeds normal overhead on regular plant activities
by approximately P60,700 and is attributable to equipment construction.
d.) A profit was recognized on construction for the difference between costs incurred
and the price at which the equipment could have been purchased.
e.) While testing the equipment, sample items were produced. These were sold for
P6,000 which was credited to miscellaneous revenue.
1. What is the total cost of new equipment?
A. P711,500
B. P715,500
C. P686,500
D. P706,500
2. Prepare individual journal entries to correct the accounts as of December 31, 2015.
Assume that the nominal accounts are still open.
1. Cost of equipment:
Raw material used (P328,000 - P10,000 discount) P318,000
Labor 247,000
Installation 43,600
Factory overhead 60,700
Material spoiled in trial runs 8,200
Cost of testing 35,000
Net proceeds from sale of sample items (6,000)
Total P706,500
2. CORRECTING ENTRIES
a.) Loss on sale of equipment P7,440
Equipment 7,440
Proceeds from sale P46,000
Less: Cost of dismantling od equipment (53,440)

Loss on sale of equipment P (7,440)
b.) Purchase discounts 10,000
Equipment 10,000
c.) Equipment 60,700
Factory overhead 60,700
d.) Profit on construction of equipment 82,000
Equipment 82,000
e.) Miscellaneous revenue 35,000
Equipment 35,000
PROBLEM 29-7
On June 1, 2015, MAIDEN CORP. purchased equipment from Dingdong Company

under a deferred payment plan. Maiden issued a P2,000,000 four-year noninterest-
bearing note to Dingdong for the new equipment. The loan agreement provides that
Maiden is to pay off the note in four equal installments due at the end of each of the
next four years. On the date of the acquisition, the prevailing market rate of interest for
obligations of this nature was 10%. The following costs were incurred to complete this
transaction:
Freight P21,250
Installation 25,000
The following are the appropriate factors for the time value of money at a 10% rate of
interest:
Future value of 1 for 4 periods 1.46
Future value of an ordinary annuity for 4 periods 4.64
Present value of 1 for 4 periods 0.68
Present value of an ordinary annuity for 4 periods 3.17
What is the cost of the equipment?
A. P1,206,250
B. P1,046,250
C. P838,750
D. P792,500
Present value of noninterest-bearing note issued
(P250,000 x 3.17) P792,500
Freight 21,250
Installation 25,000
Total P838,750
PROBLEM 29-8
On July 1, 2015, WALLNUT, INC. exchanged machines with Busog Company. The
following facts pertain to these assets.
Wallnut’s Asset Busog’s Assett
Original cost P288,000 P330,000
Accumulated depreciation
(to date of exchange) 135,000 156,000
Fair market value at date
of exchange 180,000 225,000
Cash paid by Wallnut 45,000
Cash paid by Busog 45,000
Although the fair values of the assets involved in the exchange had been reliably
determined, certain cash flow calculations made by both companies proved that this
exchange transaction lacks commercial substance.What entry should be made on the
books of each company to record the exchange?
Solution: Answer
WALLNUT, INC.
Machinery - new 198,000
Accumulated depreciation 135,000
Cash 45,000
Machinery - old 288,000
Cost of machines given up P288,000
Less: Accumulated depreciation (135,000)
Add: Cash paid 45,000
Cost of machines acquired P198,000
BUSOG COMPANY
Cash 45,000
Machinery - new 129,000
Accumulated depreciation 156,000
Machinery - old 330,000
Cost of machines given up P330,000
Less: Accumulateddepreciation (156,000)
Book value P174,000
Less: Cash received (45,000)
Cost of machines acquired P129,000
PROBLEM 29-9
Sharalyn Company purchased equipment by making a down payment of P400,000 and

issuing a note payable for P1,800,000. A payment of P600,000 is to be made at the end
of each year for three years. The applicable rate of interest is 8%. The present value of
an ordinary annuity of 1 for three years at 8% is 2.58, and
the present value for the future amount of a single sum for three years 8% is .735.
Shipping charges for the equipment of P200,000 and installation charges of P350,000
were incurred. What is the capitalized cost of the equipment?
A. P1,948,000
B. P2,148,000
C. P2,498,000
D. P2,750,000
Down Payment P400,000
Present value of note receivable (600,000 x 2.58) 1,548,000
Shipping 200,000
Installation 350,000
Cost of equipment P2,498,000
PROBLEM 29-10
On March 16, 2015, Clinton Company issued 400,000 treasury shares with P35 par
value for a parcel of land to be held as investment property. The treasury shares were
acquired at a cost of P25 per share. The share had a fair market value of P50 on March
16, 2015. The entity received P64,000 from the sale of scrap when an existing unusable
structure on the site was immediately razed. What is the initial cost of the land?
a. 19,036,000
b. 18,996,000
c. 19,136,000
d. 19,936,000
Solution 29-10 Answer d.
Fair value of treasury shares (400,000 x 50) P20,000,000
Scrap value of existing structure 64,000

Cost of land P19,936,000
ACQUISITION BY EXCHANGE (PROBLEMS)
PROBLEM 1-1
During July of Year 1, Mary Joy Company exchanged an old equipment costing
P5,500,000 and was 30% depreciated for another used equipment. The entity also paid
a cash difference of P650,000. The fair value of old equipment is 4,250,000.
1. What is the cost of the equipment in the exchange?
a. 5,500,000
b.4,900,000
c. 4,250,000
d. 2,300,000
2. What is the gain or loss in the exchange?
a. 400,000 gain
b. 1,250, 000 loss
c. 40,000 loss
d. 1,250,000 gain
Fair Value of old Equipment P4,250,000
Cash Payment 650,000
Cost of new Equipment P4,900,000
Fair Value of old Equipment P4,250,000
Carrying amount (5,500,000 x 70%) 3,850,000
Gain on exchange P400,000
PROBLEM 1-2
On August 8, 2014, Evangeline Company paid a cash difference of P130,000 for the
exchange of an old van with a carryon amount of P1,900,000 and a fair value of
P2,070,000. The old van was exchange to another van with a market price of
P2,200,000.
1. What should be the cost of the van in the exchange?
a. 2,070,000
b. 1,900,000
c. 2,000,000
d. 2,200,000
2. What is the gain on exchange?
a. 0
b. 130,000
c. 170,000
d. 40,000
Fair Value of old Van P2,070,000
Cash Payment 130,000
Cost of new Van P2,200,000

Fair Value of new Van P2,200,000
Less: Cash paid by Evangeline (130,000)
Fair Value of old Van P2,070,000
Less: Carrying amount of Van (1,900,000)
Gain on exchange P170,000
PROBLEM 1-3
Michael and Jonalyn are with the same line of business. Michael and Jonalyn
exchanged ownership; Michael paying P410,000 to compensate for a difference in the
exchange. It is determined that the exchange lacks commercial substance. The
following are the cost and market value of item exchanged:
Michael Company Jonalyn Company

Cost P750,000 P1,000,000
Market Value 805,000 1,075,000
1. What amount should Michael record as cost of item received in exchange?

a.1, 160,000
b. 1,215,000
c. 805,000
d. 750,000
2. What amount should Jonalyn record as cost of exchange?
a. 1,000,000
b. 590,000
c. 1,075,000
d. 1,410,000
3. What amount should Michael record as gain or loss on exchange?
a. 55,000 gain
b. 0
c. 270,000 gain
d. 140,000 loss
4. What amount should Jonalyn record as gain or loss on exchange?
a. 75,000 gain
b. 270,000 loss
c. 625,000 gain
d. 0

Cost of item P750,000
Add: Cash Payment 410,000
Cost of new item P1,160,000
Cost item of item P1,000,000
Less: Cash paid by Michael (410,000)
Cost of new item P590,000
No gain or loss is recognized when the exchange lacks commercial substance.
No gain or loss is recognized when the exchange lacks commercial substance.
PROBLEM 1-4
Joshua Company acquired a delivery van. The entity paid a total of P3,300,000
consisting of:
Price of Van P3,025,000
Charge for extra Equipment 80,000
Value Added Tax- recoverable 405,000
Insurance 130,000
Motor Vehicle Registration 50,000
Total P3,690,000
Trade in Value of van (390,000)
Cash Payment P3,300,000
The cost of old van was P2,100,000 with carrying amount of P700,000 and fair value of
P80,000. What is the cost of new van acquired in the exchange?
a. 3,300,000
b. 700,000
c. 2,100,000
d. 2,795,000
Cash Paid P3,300,000
Value Added Tax (405,000)
Insurance (130,000)
Motor Vehicle Registration (50,000)
Capitalizable Cash Payment P2,715,000
Fair Value of old van 80,000
Cost of new Van P2,795,000
PROBLEM 1-5
Nino Company exchanged a truck with a carrying amount of 1,500,000 and a fair value
off P3,000,000 for a truck and P370,000 cash. The cash flows from the new truck are jot
expected to be significantly different from the cash flows of the old truck. The fair value
of the truck received was P1,950,000.
At what amount should the truck received in the exchange be recorded?
a. 1, 950,000
b. 3,000,000
c. 1,130,000
d. 1,500,000
Carrying amount of truck given P1,500,000
Cash Received (370,000)
Cost of new truck P1,130,000
GOVERNMENT GRANT
1.) On January 1,2015 Lourde Company received a grant of P25,000,000 from the
American Government in order to defray safety and environmental cost within the area
where the entity is located. The safety and environment cost are expected to be
incurred over four years, respectively,P2,000,000 ,P4,000,000 ,P6,000,000 and
P8,000,000.What amount of grant income should be recognized in 2015?
a. 25,000,000
b. 2,000,000
c. 2,500,000
d. 6,250,000
Year Cost Fraction Income
2014 P2,000,000 2/20 P2,500,000

2015 4,000,000 4/20 5,000,000
2016 6,000,000 6/20 7,500,000
2017 8,000,000 8/20 10,000,000
P20,000,000 P25,000,000
2.) On January 2 ,2014, Marlborough Company received a grant of P60,000,000 to

compensate for costs to be incurred in planting trees over a period of 5 years. The entity
will incur such cost at P2,000,000 for 2014, P4,000,000 for 2015, P6,000,000 for 2016,
P8,000,000 for 2017, and P10,000,000 for 2018. What amount of grant income should
be recognized for 2015?
a. 6,000,000
b. 4,000,000
c. 12,000,000
d. 8,000,000
Grant income (4/30 x 60,000,000) P8,000,000
3.) On January 1, 2015 Madlangtuta Co. received a grant of P25,000,000 from the
British government for the construction of a laboratory and research facility with an
estimated cost of P15,000,000 and useful life of 5 years. The laboratory and research
facility was completed and ready for the intended use on January 1, 2015. What amount
of grant income should be included in the income statement for 2016?
a. 3,000,000
b. 5,000,000
c. 0
d.1,500,000
Grant income (25,000,000/5) P5,000,000

4.) Brainless Company received a government grant of P15,000,000 to install and run a
windmill in an economically backward area. The entity had estimated that such a
windmill would cost P25,000,000 to construct. The secondary condition attached to the
grant is that the entity shall hire labor in the area where the windmill is to locate. The
construction was completed on January 1,2014 .The windmill is to be depreciated using
the straight line method over a period of 10 years. What amount of grant income should
be recognized for 2014?
a. 1,500,000
b. 3,000,000
c. 2,500,000
d. 5,000,000
Grant income (15,000,000/10) P1,500,000
5-6.) Clause Co. purchased a varnishing machine for P4,000,000 on January 1,2015.
The entity received a government grant of P840,000 in respect of this asset. The
accounting policy is to depreciate the asset over 4 years on a straight line method basis
and to treat the grant as deferred income.
5.) What is the carrying amount of the machine on December 31, 2016?
a. 2,000,000
b. 3,000,000
c. 2,420,009
d. 3,160,000
6.) What amount should be reported as deferred grant income on December 31, 2016?
a. 420,000
b. 720,000
c. 840,000
d. 120,000
Solution No. 5: Answer (a)
Cost P4,000,000
Accumulated Depreciation (4,000,000/4x2) (2,000,000)
Carrying Amount-Dec. 31 ,2016 P2,000,000
Solution No. 6 Answer a
Deferred Grant income P840,000
Income Earned (840,000/4x2) (420,000)
Deferred Grant Income - Dec. 31,2015 P420,000
7-8.) Arancar Company purchased a machine for P8,000,000 on January 1,2015 and
received a government grant of P2,000,000 toward the capital cost. The machine is to
be depreciated on a straight line basis over 5 years and estimated to have a residual
value of P500,000 at the end of this period. The accounting policy is to treat the grant as
a deferred income.
7.) What is the carrying amount of the asset on December 31,2016?
a. 6,500,000
b. 1,500,000
c. 5,000,000
d. 3,000,000
8.) What is the deferred grant income on December 31,2016?
a. 1,600,000
b. 400,000
c. 1,200,000
d. 800,000
Solution No. 7: Answer (c)
Cost of Machine P8,000,000
Accumulated Depreciation (8,000,000-500,000=7,500,000/5x2) (3,000,000)
Carrying Amount - Dec. 31 ,2016 P5,000,000
Solution No. 8: Answer (c)
Deferred Income Jan. 1,2015 P2,000,000
Earned grant income(2,000,000/5x2) (800,000)
Deferred Grant Income - Dec. 31, 2016 P1,200,000
9.) TMZ Company purchased a jewel polishing machine for P4,000,000 on January 1,
2015 and received a government grant of P500,000 toward the capital cost. The
accounting policy is to treat the grant as reduction in the cost of the asset. The machine
is to be depreciated on a straight line basis over 8 years and estimated to have a
residual value of P200,000 at the end of this period. What is the depreciation of the
machine for 2015?
a. 412,500
b. 475,000
c. 437,500
d.500,000
Cost P4,000,000
Government Grant (500,000)
Net Cost P3,500,000
Residual value (200,000)

Depreciable amount P3,300,000
Annual Depreciation (3,300,000/8) P412,500
10.) Mikmak Company purchased a varnishing machine for P3,000,000 on January

1,2014. The entity received a government grant of P500,000 in respect of this aaset.
The accounting policy is to depreciate the asset over 4 years on a straight line basis
and to treat the grant as deferred income. What amount of grant income should be
recognized for 2014?
a. 500,000
b. 125,000
c. 250,000
d. 0
Solution Answer b
Grant income (500,000/4) P125,000
BORROWING COST (PROBLEMS)
Problem 1
On January 1, 2015, Green Company borrowed P10,000,000 at an annual interest rate

of 9% to finance specifically the cost of building a plant. Construction commenced on
January 1, 2015 with a cost P10,000,000. The entity invested its idle funds and earned
interest income of P100,000. The project was completed on October 31, 2015. What is
the carrying amount of the plant?
a. 10,650,000
b.10,800,000
c. 10,000,000
d. 10,100,000
Solution 1 Answer (a)
Construction cost P10,000,000
Interest (10,000,000 x 9% x 10/12) 750,000

Interest income (100,000)
Total cost of plant P10,650,000
Problem 2
Sheeran Company borrowed P6,000,000 on a 15% note payable to finance a new

factory which the entity is constructing for own use. The only other debt of the entity is a
P8,000,000, 10% mortgage payable on an office building. At the end of the current year,
average accumulated expenditure on the new factory totaled P7,850,000. What amount
should be capitalized as interest for the current year?
a. 1,850,000
b. 1,700,000
c. 1,085,000
d. 1,075,000
Solution 2 Answer (c)
Accumulated Average Expenditure P7,850,000
Applicable to specific loan 6,000,000
Applicable to general loan 1,850,000
Specific borrowing (6,000,000 x 15%) 900,000
General borrowing (1,850,000 x 10%) 185,000
Capitalizable interest P1,085,000
Problem 3
Kyra Company had loans outstanding during 2015 and 2016.
Specific construction loan 2,500,000 8%
General loan 12,000,000 10%

The entity began the self-construction of a new building on January 1, 2015 and the
building was completed on December 31, 2016. Expenditures during 2015 and 2016
were:
January 1, 2015 3,000,000
July 1, 2015 1,500,000
November 1, 2015 3,000,000
July 1, 2016 2,000,000
What is the cost of the new building on December 31, 2016?
a. 8,125,000
b. 7,500,000
c. 7,875,000
d. 7,675,000
Solution 3 Answer (c)
Date Expenditure Fractional Months Average Expenditure
January 1,2015 P3,000,000 12/12 P3,000,000
July 1,2015 1,500,000 6/12 750,000
November 1,2015 3,000,000 2/12 500,000
Total P7,500,000 P4,250,000
Average expenditure in 2015 P4,250,000
Applicable to specific loan (2,500,000)
Applicable to general loan P1,750,000
Actual expenditure in 2015 7,500,000
Capitalizable interest in 2015:

Specific (2,500,000 x 8%) 200,000
General (1,750,000 x 10%) 175,000
Total cost of new building – 12/31/2015 P7,875,000
Date Expenditure Fractional Months Average Expenditure
January 1,2016 P7,7875,000 12/12 P7,875,000
July 1,2016 2,000,000 6/12 1,000,000
Total P9,875,000 P8,875,000
Average expenditure 2016 P8,875,000
Actual expenditure P9,875,000
Capitalizable interest in 2016:
Specific (2,500,000 x 8%) 200,000
General (6,375,000 x10%) 637,500
Total cost of new building – 12/31/16 P10,712,500
Problem 4
On January 1, 2015, Alaska Company borrowed 6,450,000 at an annual interest rate of

7.5% to finance specifically the cost of building a plant. Construction commenced on
January 1, 2015 with a cost 8,000,000. The entity earned P300,000 interest income
from its fund. The plant was completed on December 31, 2015. What amount of interest
should be capitalized?
a. 483,750
b. 300,000
c. 220,000
d. 183,750
Solution 4: Answer (d)
Actual interest (6,450,000 x 7.5%) P483,750
Capitalizable interest P183,750
Problem 5
On January 1, 2015, Shawty Company borrowed 8,750,000 at an annual interest rate of

12% to finance specifically the cost of building a plant. Construction commenced on
January 1, 2015 with a cost P9,500,000. The entity earned P370,000 interest income
from its fund. The plant was completed on December 31, 2015. What amount of interest
should be capitalized?
a. 750,000
b. 680,000
c. 380,000
d. 770,000
Solution 5: Answer (b)
Actual interest (8,750,000 x 12%) P1,050,000
Problem 6
Benny Company commenced construction of a new plant on February 1, 2015. The cost
of P20,500,000 was paid in full to the contractor on February 1, 2015 and was funded
from existing general borrowings. The construction was completed on October 31,
2015. The entity’s borrowing during 2015 comprised the following:
Bank A – 7% 9,000,000
Bank B – 7.7% 11,000,000
Bank C – 8% 25,000,000
What is the amount of borrowing cost that should be capitalized in relation of the plant?
a. 2,608,875
b. 2,898,750
c. 3,477,000
d. 3,478,500
Solution 6: Answer (a)
Principal Interest
Bank A – 7% P9,000,000 P630,000
Bank B – 7.7% 11,000,000 847,000
Bank C – 8% 25,000,000 2,000,000
Total P45,000,000 P3,477,000
Average interest rate (3,477,000/45,000,000) 7.73%
Capitalizable borrowing cost (45,000,000 x 7.73% x 9/12) P2,608,875
Problem 7
Agsunta Company started construction of a new building on January 1, 2015, and

moved into the finished building on June 31, 2015. Of the P20,000,000 total cost,
P30,000,000 was incurred in 2015 evenly throughout the year. The incremental
borrowing rate was 15% throughout 2015 and the total amount of interest incurred was
P2,000,000. What amount should be reported as capitalized interest on December 31,
2015?
a. 4,500,000
b. 3,000,000
c. 2,250,000
d. 2,000,000
Solution 7: Answer (d)
Average Expenditure ( 30,000,000/2) P15,000,000
Average Interest (15,000,000 x 15%) P2,250,000
Capitalizable Interest P2,000,000
The capitalizable borrowing cost is limited to the actual borrowing cost incurred of
P2,000,000 because this is the lower than the computed amount of P1,200,000.
Problem 8
Disney Company borrowed P30,000,000 at 15% partly for general purposes and partly
to finance the construction of an office building on January 1, 2015. The loan shall be
repaid commencing the month following completion of the building. Expenditures
incurred evenly during the year for the completed building totaled P10,000,000 on
December 31, 2015. The entity earned interest of P300,000 for the year on the
unexpected portion of the loan. What amount of interest capitalized on December 31,
2015?
a. 750,000
b. 450,000
c. 1,500,000
d. 1,200,000
Solution 8 Answer (a)
Average expenditure (10,000,000/2) P5,000,000
5,000,000 Capitalizable Interest(5,000,000 x 15%) P750,000
Problem 9
UNI Company borrowed 5,500,000 on a 8% note payable to finance a new plant which
the entity is constructing for own use. The only other debt of the entity is a P10,000,000,
12% mortgage payable on an office building. At the end of the current year, average
accumulated expenditure on the new factory totaled P9,000,000. What amount should
be capitalized as interest for the current year?
a. 1,140,000
b. 1,620,000
c. 860,000
d. 640,000
Solution 9: Answer (c)
Accumulated Average Expenditure P9,000,000
Applicable to specific loan (5,500,000)
Specific borrowing (5,500,000 x 8%) P440,000
General borrowing (3,500,000 x 12%) 420,000
Problem 10
During 2015, Jerusalem Company constructed a building costing P3,200,000. The

weighted average expenditure during 2015 amounted to P2,700,000. The entity
borrowed P1,500,000 at 9.5% on January 1, 2015. Funds not needed for construction
were temporarily invested and earned P45,000 in interest revenue. In addition to the
construction loan, the entity had two other notes outstanding during the year, a
P1,000,000. 10-year, 9% note payable date October 1, 2013, and a P800,000, 7%, 5-
year note payable dated November 5, 2014. What amount of interest should be
capitalized during 2015?
a. 288,500
b. 275,500
c. 320,700
d. 243,500
Solution 10: Answer (b)
Principal Interest
10-year note (9%) P1,000,000 P90,000
5-year note (7%) 800,000 56,000
P1,800,000 P146,000
Average rate (146,000/1,800,000) 8.1%
Average expenditure P2,700,000
Specific borrowing (1,500,000 x 9.5%) P142,500
Interest related to specific borrowing (45,000)
General borrowing (2,200,000 x 8.1%) 178,200
LAND AND BUILDING
1. Hasht5 Company purchased a P5,000,000 tract of land for a factory site. The entity
razed an old building on the property to make room for the construction of new building
and sold the materials salvaged from the demolition. The entity incurred additional costs
and realized salvage proceeds as follows: Demolition of Old Building 400,000 Legal
fees for purchase contract and recording ownership 250,000 Title guarantee insurance
70,000 Proceeds from sale of salvaged materials 30,000.
What is carrying amount of Land?
a. 5,290,000
b. 4,920,000
c. 5,320,000
d. 5,720,000
2. Pabebe Company incurred the following expenditures related to the construction of a
new home office: Cost of Land, which included usable old apartment building with fair
value of P200,000 3,000,000 Legal fees, including fee for title search 20,000 Payment
of land mortgage and related interest due at time of sale 60,000 Payment of delinquent
property taxes 15,000 Cost of razing the apartment building 45,000 Grading and
drainage on land site 20,000 Architect fee on new building 250,000 Payment to building
contractor 7,000,000 Interest cost on specific borrowing during construction 200,000
Payment of medical bills of employees accidentally injured while inspecting building
construction 30,000 Cost of paving driveway and parking lot 70,000 Cost of trees,
shrubs, and other landscaping 65,000 Cost of installing light in parking lot 8,000
Premium for insurance on building during construction 22,000 Cost of open house party
to celebrate opening of building 80,000
1. What is the cost of land?
a. 2,720,000
b. 3,205,000
c. 2,915,000
d. 2,950,000
2. What is the cost of building?
a. 7,517,000
b. 7,537,000
c. 7,495,000
d. 7,525,000
3. What is the cost of land improvement?
a. 200,000
b. 203,000
c. 143,000
d. 0
3. At year-end, Hecker Company provided the following information about property,

plant, & equipment: Plant assets acquired form Krom Company 8,000,000 Repairs
made on building prior to occupancy 250,000 Special tax assessment 40,000
Construction of platform for machinery 70,000 Remodeling of office space in building
including new partitions and walls 500,000 Purchase of new machinery 900,000 Total
property, plant and equipment 9,760,000 In exchange for the plant assets of Krom
company, Hecker company issued 50,000 shares with P100 par value. On the date of
purchase, the share had a quoted price of P150 and the plant assets had the following
fair value: Land 600,000 Building 4,500,000 Machinery 2,000,000 1.
What is the Cost of Land?
a. 600,000
b. 670,000
c. 640,000
d. 690,000
2. What is the Cost of Building?
a. 5,250,000
b. 5,000,000
c. 5,500,000
d. 4,500,000
3. What is the cost of machinery?
a. 2,900,000
b. 2,970,000
c. 2,000,000
d, 2,830,000
Kingsman Company incurred the following costs during the current year in relation to
property, plant and equipment: Cash paid for purchase of land 3,500,000 Mortgage
assumed on the land purchased, including interest accrued 1,400,000 Realtor
commission 500,000 Legal fees, realty taxes and documentation expenses 40,000
Amount paid to relocate persons squatting on the property 150,000 Cost of tearing
down an old building on the land to make room for construction of new building 350,000
Salvage value of the old building demolished 50,000 Cost of fencing the property
110,000 Amount paid to contractor for the building constructed 4,500,000 Building
permit fee 40,000 Excavation 45,000 Architect Fee 200,000 Interest that would have
been earned had the money used during the period of construction been invested
150,000 Invoice cost of machine acquired 2,500,000 Freight, unloading and delivery
charges 60,000 Custom duties and other charges 140,000 Allowances and hotel
accommodation, paid to foreign technicians during installation and test run of machine
500,000 1. What amount should be capitalized as cost of land?
a. 5,450,000
b. 5,590,000
c. 5,440,000
d. 5,550,000
2. What amount should be capitalized as cost of building?
a. 5,000,000
b. 5,085,000
c. 5,135,000
d. 4,885,000
3. What amount should be capitalized as cost of machine?
a. 3,060,000
b. 3,200,000
c. 3,140,000
d.3,000,000
Answer Key (Land & Building)
1. Answer: C
Purchase Price P5,000,000
Legal fees 250,000
Title guarantee insurance 70,000
Carrying Amount of Land P5,320,000

2. 2.1 Answer C
Allocated cost of land (3,000,000 – 200,000) P2,800,000
Legal fees 20,000
Payment of land mortgage 60,000
Payment of delinquent property taxes 15,000
Graining and drainage 20,000
Total Cost of Land P2,915,000
2.2 Answer A
Cost of razing old apartment building P45,000
Architect fee 250,000
Payment to building contractor 7,000,000
Interest cost 200,000
Premium for insurance during construction 22,000
Total Cost of New Building P7,517,000
2.3 Answer C
Cost of paving driveway and parking lot P70,000
Cost of trees, shrubs, and other landscaping 65,000
Cost of installing light in parking lot 8,000
Total Cost of Land Improvement P143,000
3. 3.1 Answer C
Fair Value P600,000
Special tax assessment 40,000
Total Cost of Land 640,000

3.2 Answer A
Repairs 250,000
Remodeling of Office Space 500,000
Total Cost of Building P5,250,000
3.3 Answer B
Construction of platform 70,000
New Machinery 900,000
Total Cost of Machinery P2,970,000
4. 4.1 Answer B
Cash paid for Land P3,500,000
Mortgage assumed including interest accured 1,400,000
Commission 500,000
Legal fees, realty taxes and documentation 40,000
Cost of relocating squatters 150,000
4.2 Answer B
Cost of tearing down old building P350,000

Salvage value of old building ( 50,000)
Amount paid to contractor 4,500,000
Building permit fee 40,000
Excavation 45,000
Architect fee 200,000
Cost of Building P5,085,000
4.3 Answer
Invoice cost P2,500,000
Freight 60,000
Custom duties and other charges 140,000
Allowances and hotel accommodation 500,000
Cost of Machine P3,200,000
DEPRECIATION
1. On April 1, 2012, Everbleen Co. purchased a new equipment for P300,000. The
equipment has an estimated useful life of 5 years, and the depreciation expense is
computed using sum-of-the-year- digits method. The accumulated depreciation of the
machinery at March 31, 2014 should be
a. 192,000
b. 180,000
c. 100,000
d. 150,000
Solution: Answer: B
SYD = (�+12) ; where n= useful life (in years)

Depreciation Formula: Cost x Remaining Useful Life (SYD)
Depreciation for the year ended March 31, 2013
(300,000 x 5/15) P 100,000
Depreciation for the year ended March 31, 2014
(300,000 x 4/15) 80,000
Accumulated Depreciation 3/31/14 P 180,000
2. Anneth runs a business making embroidered linens for receptions. She purchases a
new machine for P15,000. The machine is expected to produce approximately 5,000
linens, at which point it will be valueless. During the first year after buying the machine,
Anneth uses it to produce 1,500 linens. She plans to use the units of production method
of depreciation. At year end, which of the following entries is correct?
a. A debit to Depreciation Expense 5,500.
b. A credit to Depreciation Expense 4,500.
c. A credit to Accumulated Depreciation 5,500.
d. A debit to Depreciation Expense 4,500.
Solution: Answer: D
P15,000 depreciable value ÷ 5,000 units = P3 of depreciation per unit
1,500 units produce x P3 per unit = P 4,500 depreciation expense.
To record depreciation for the first year:
Depreciation Expense 4,500
Accumulated Depreciation 4,500
3. JJ spends P20,000 cash on a piece of equipment for use in her restaurant. She plans
to use the straight-line method to depreciate the equipment over 5 years. She expects it
to have no value at the end of the 5 years. After 4 years, JJ sells the equipment for
P2,000. What is the gain/loss on sale of the equipment?
a. P4,000 loss
b. P4,000 gain
c. P2,000 loss
d. P2,000 gain
Solution: Answer: C
Accumulated Depreciation after 4 years : (20000/5)= 4000 x 4 = 16,000
Computation for gain or loss:
Selling Price P 2,000
Less : Carrying Amount (20,000-16,000) 4,000
(P2,000) loss
4. On July 1, 2006, Oh Corp. purchased computer equipment at a cost of P360,000.

This equipment was estimated to have a six-year life with no residual value and was
depreciated by the straight-line method. On January 1, 2009, Oh determined that this
equipment could no longer process data efficiently, that its value had been permanently
impaired, and that P70,000 could be recovered with a residual value of 5,000 over the
remaining useful life of the equipment.
What is the amount of accumulated depreciation that should be reported at December

31, 2009 statement of financial position?
a. 308,571.43
b. 380,571.34
c. 308,517.43
d. 308,517.43
Solution: Answer: A
Accumulated Depreciation (360000/6)= 60000 x 30/12 = 150,000
New Carrying Amount as of 1/1/09 = 70,000 , Impairment Loss = 70,000- 210,000 =

140,000
New Depreciation Expense = 70000−5000/3.5 = 18,571.43

Accumulated Depreciation 12/31/09 = 150,000 + 140,000 = 18,571.43 = P308,571.43
5. Jun-jun Company’s statement of financial position at December 31, 2014 and 2013
reported accumulated depreciation balances of P950,000 and P600,000 respectively.
Property with a cost of P50,000 and a carrying amount of P35,000 was the only
property sold in 2014. Depreciation charged to operations in 2014 was
a. 350,000
b. 365,000
c. 370,000
d. 375,000
Solution: Answer: B
Accumulated Depreciation for 2013 P600,000
Less: Accumulated Depreciation of the
property sold (50,000-35,000) 15,000
Accumulated Depreciation balance before 2014
depreciation expense P585,000
Accumulated Depreciation for 2014 P950,000
Accumulated Depreciation, per above (585,000)
Depreciation charged to operations in 2014 P365,000
6. On January 1, 2013, Tropang Forever Co. sold a building for P900,000 to Tutan Corp.
, its wholly-owned subsidiary. Tropang Forever Co. paid P1,000,000 for this building,
which had accumulated depreciation of P250,000. Tropang Forever Co. estimated a
P100,000 salvage value and depreciated the building on the straight-line method over
20 years. In Tropang Forever Co.’s December 31, 2013 consolidated statement of
financial position, this building should be included in cost and accumulated depreciation
as
Cost Accumulated Depreciation
a. 850,000 42,500
b. 900,000 40,000
c. 1,100,000 290,000
d. 1,100,000 300,000
Solution: Answer: D
Cost of the building P1,100,000
Accumulated Depreciation
At January 1, 2013 P 250,000
For 2013 50,000
Total P 300,000
7. Klatuu purchased a photocopy machine at P500,000 on January 2008. The machine

had an estimated salvage value of P100,000, an estimated 8-year useful life, and was
being depreciated by the straight line method. Two years later, it became apparent to
Klaatu that this machine suffered a permanent impairment value. In January 2010,
management determined the carrying amount should be only P175,000, with a 2-year
remaining useful life, and the salvage value should be reduced by P25,000.
How much will be the difference of the original depreciation expense and the new
depreciation expense of the machine?
a. 12,500
b. 25,000
c. 0
d. no answer
Solution: Answer: C
Original Depreciation Expense= (500,000−100,0008) = P50,000
2010 New Carrying amount = P175,000
New Depreciation Expense = (175,000−75,0002) = P50,000
Difference of the original depreciation expense and the new depreciation expense of the
machine = P0
8. Sapphire Sky Company provided the following information with respect to a building:
* The building was acquired January 1, 2011 at cost of P3,000,000. It has an estimated
useful life of 12 years and salvage value of P150,000. The method of depreciation used
was double declining method.
* The building was renovated on January 1, 2014 at a cost of P800,000. The residual
value became P200,000.
* On January 1, 2015, the management decided to change the method being used to
straight line method.
What is the depreciation of the building for December 2014?
a. 439,351.85
b. 304,513.89
c. 493,351.58
d. 340,513.98
Solution: Answer: C
Accumulated Depreciation
Y1 (3,000,000 � 2/12) P 500,000
Y2 (2,500,000 � 212) 416,666.67
Y3 (2,083,333.33 � 2/12) 247,222.22
P1,163,888.9
CA = 3,000,000− 1,163,888.89 = 1,836,111.11 + 800,000 capitalized cost = 2,

636,111.11
Depreciation for 2014:
(2,636,111.11� 2/12) = P 439,351.85

9. Angela Company used straight line depreciation for property, plant and equipment
which consisted the following:
2014 2013
Land P500,000 P500,000
Machinery and Equipment 1,800,000 1,350,000
Total P2,300,000 P1,850,000
Less: Accumulated Depreciation (1,000,000) (700,000)
P1,300,000 P1,150,000
What amount was debited to accumulation depreciation during 2014 of property, plant
and equipment retirements if the depreciation for 2013 and 2014 was P300,000 and
P200,000 respectively.
a. 50,000
b. 75,000
c. 100,000
d. 125,000
Solution: Answer: C
Accumulated Depreciation – December 2013 P 700,000
Add: Depreciation for 2014 200,000
P900,000
Less: Accumulated Depreciation on
Property Retirement (squeeze) 100,000
Accumulated Depreciation – December 2014 P 1,000,000

10. On January 1, 2011, Lene Corporation purchased a building with an estimated
useful life of 10 years. At the end of its life, it is expected to sold at 5,000. The sum-of-
the-years-digit method was used in computing its depreciation. For the year ended
December 31, 2014, the depreciation applicable to the equipment was P42,000. What is
the acquisition cost of the equipment?
a. 309,000
b. 390,000
c. 930,000
d. 903,000
Solution: Answer: B
x = acquisition cost
42,000 = (�−5000) x �/31/�
42,000 6/31/2 = x – 5000
385,000 + 50000 = x
390,000 = x
DEPLETION (PROBLEMS)
Tropang FOREVER Company, purchased a tract of land for mining worth 5,000,000
with removable ore estimated at 20,000,000 tons. Before the start of its operation the
company incurred 3,000,000 exploration cost. Of these cost 2,000,000 was associated
with successful wells and the remaining with so called “dry holes”. The entity uses the
full cost method in accounting the exploration cost. The entity also incurred
development cost of 3,600,000 during the current year. The entity is required by the law
to restore the land to its original condition at estimated cost of 4,000,000. The present
value of Estimated restoration cost is 3,300,000 The land is estimated to be sold at
1,500,000 afterwards. The entity removed 400,000 tons during the year and sold
300,000 of it.
1. What total amount of depletion should be recorded for the current year?
A. 262,000
B. 268,000
C. 312,000
D.201,000
Exploration cost 3,000,000
Development cost 3,600,000
Restoration cost 3,300,000
Total cost of wasting asset P14,900,000
Residual value of land 1,500,000
Depletable amount P13,400,000
Rate per ton (13,400,000/20,000,000) x .67
Depletion (400,000 x .67) P268,000
2. Using the same information, what amount of depletion will be included on cost of
goods sold?
A. 196,500
B. 150,750
C. 234,000
D. 201,000
ANSWER : D
Cost of goods sold (.67 x 300,000) P201,000
3. On July 1, 2012, Nasasaktan Corp. purchased a mining land for 12,000,000. The
entity expects to extract 3,000,000 tons for the entire operation. They also estimated to
extract 500,000 tons per year. The entity purchased new mining equipment for
10,000,000 with estimated useful life of 10 years. The equipment is said to have a
residual value of 400,000.
The entity was able to extract 250,000 tons for the year. What amount should be
reported as depreciation of the mining equipment for 2012?
A. 960,000
B. 1,000,000
C. 2,000,000
D. 500,000
ANSWER: B
Depreciation per rate (12,000,000/3,000,000)= 4
Depreciation (4 x 250,000)= 1,000,000
Since the life of the mine(3,000,000/500,000= 6 years) is shorter than the life of the
equipment (8 years) the output method is used.
Ganda company acquired a tract of land containing an extractable natural resource. The
entity is required to restore the land after it has extracted the natural resources.
Geological study indicated that the recoverable reserves will be 2,500,000 tons which
will be completed in 10 years. Relevant costs are as follows:
Land 12,000,000
Exploration and development costs 3,000,000
Expected cash flow for restoration cost 2,000,000
Credit –adjusted risk free interest rate 10%
PV of 1 at 10% for 10 periods .39
4. What is the depletion rate per ton?
A. 6.31
B. 6.8
C. 5.56
D. 6.5
ANSWER: A
Exploration and development costs 3,000,000
Restoration cost (2,000,000 x .39) 780,000
P15,780,000
Depletion rate (15,780,000/ 2,500,000) 6.31%
5. Assuming that the entity has extracted 250,000 at the end of the year and new
geological study reveals that 5,000,000 tons are available for mining . What is the new
depletion per ton?
A. 3.16
B. 4.31
C. 2.84
D. 6.31
ANSWER:C
Less: depletion for the year (6.31 x 250,000) (1,577,500)
Carrying amount at the end of the year P14,202,500
New depletion per rate (14,202,500/5,000,000) 2.84%
6. The entity purchased a mining land for 7,000,000. The entity incurred exploration
costs of 5,000,000. Of these cost 3,500,000 is associated with successful holes and the
remaining is with “dry holes”. The entity uses successful method in accounting the
exploration costs. The entity also incurred 2,000,000 development costs. What is the
total amount of the wasting asset?
A. 12,000,000
B. 14,000,000
C. 11,500,000
D. 12,500,000
ANSWER: D
Land cost P7,000,000
Exploration costs 3,500,000
Development costs 2,000,000
On January 1, 2012, Spiderman Company paid 10,000,000 for property containing

natural resources of 3,000,000 tons. The present value of the estimated cost of
restoring the land is 800,000 and the land will have a value of 600,000 after it is
restored for suitable use.
Building and bunk houses were build costing 8,000,000 , it is use as a storage of mining
equipment and houses for the miners. Its expected useful life is 10 years with no
residual value.
Operations began on January 1, 2013 and resources removed totaled 500,000 tons.
During 2014, it is discovered that available resource will total 1,500,000 tons.
At the beginning of 2014, 800,000 development cost were incurred, and only 200,000
tons are extracted.
7. What amount should be reported as depletion for 2013?
A. 1,800,000
B. 1,600,000
C. 1,700,000
D. 1,500,000
ANSWER: C
Restoration cost 800,000

Rate per ton ( 10,200,000/3,000,000) 3.4%
Depletion (500,000 x 3.4) P1,700,000
8. What is the depreciation for the year ended December 31, 2013 assuming that it uses
a straight line method of depreciation.
A. 800,000
B. 1,700,000
C. 888,888
D. 900,000
ANSWER: A
Depreciation (8,000,000/ 10 years) P800,000
9. What is the depletion for the year ended December 31, 2014?
A. 1,240,000
B. 1,300,000
C. 1,200,000
D. 1,340,000
ANSWER: A
Depletion-2013 (1,700,000)
Carrying amount 8,500,000
Development cost 800,000

Depletion rate (9,300,000/1,500,000) 6.2%
Depletion- 2015 (200,000 x 6.2) P1,240,000
10. The following data are available at year-end:
Wasting asset, at cost 5,000,000
Retained earnings 9,000,000
Accumulated depletion 500,000
Capital liquidated 2,000,000
Unrealized depletion in ending inventory 850,000
What amount will be the maximum dividend?
A. 10,500,000
B. 9,650,000
C. 12,500,000
D. 9,000,000
ANSWER: B
Retained earnings P9,000,000
Accumulated depletion 3,500,000
Total P12,500,000
Capital liquidated (2,000,000)
Unrealized depletion in ending inventory (850,000)
Maximum dividend P9,650,000

IMPAIRMENT OF ASSET (PROBLEMS)
1. James Pogi Company acquired a machine for 5,000,000 on July 1, 2014. The
machine has a 12-year useful life, a 500,000 residual value, and was depreciated using
the straight-line method. On June 30, 2016 a test for recoverability revealed that the
machine has been impaired. The fair value less cost of disposal on this date is
1,750,000 and the value in use amount to 1,500,000. What amount should be
recognized as impairment loss?
A. 2,750,000
B. 2,500,000
C. 2,875,000
D. 3,125,000
ANSWER: B

Accumulated Depreciation (4,500,000/12 x 2) P750,000
Cost P5,000,000
Accumulated depreciation ( 750,0000)
Carrying amount P4,250,000
Fair value less cost of disposal (1,750,000)
Impairment loss P2,500,000
2. On January 1, 2013, Umasa Corporation acquired equipment for 19,000,000 with an

estimated useful life of 15 years. It is also estimated that the equipment will be sold for
1,500,000 at the end of its useful life. The entity uses the sum of year’s digit for
depreciation. At the year ended December 31, 2014 one of the adjusting entry includes
an impairment loss of 500,000. What will be the carrying amount of the equipment on
December 31, 2014?
A. 16,812,500
B. 17,312,500
C. 14,270,833
D. 19,000,000
ANSWER: C
SYD [15(15+1/2)]= 120years
Cost P19,000,000
Residual value (1,500,000)
Cost P19,000,000
Depreciation-2013(17,500,000 x 15/120) (2,187,500)

Carrying amount-January,2014 P16,812,500
Depreciation-2014(17,500,000 x 14/120) (2,041,667)
Impairment loss (500,000)
Recoverable amount/ carrying amount- December 2014 14 P270,833
3. Using the same information in No.2, Umasa Corporation change its depreciation
method into straight line method at the beginning of 2015. It is estimated to have a
residual value of 1,000,000 it is estimated to have a total of 10-year useful life. What
amount should be recognized as depreciation in 2015?
A. 1,914,062.5
B. 2,039,062.5
C. 1,701,388.89
D. 1,531,250
ANSWER: A
Residual value (1,000,000)
Depreciation (15,312,500/8years) P1,914,062.5
On January 1, 2008, Maganda company purchased a sewing machine for 3,000,000,

with a residual value of 500,000. On January 1, 2011 the Accumulated Depreciation
account has a balance of 750,000. A test for impairment also revealed that the
undiscounted cash flow from the sewing machine are 200,000 a year for the remaining
7 periods. The prevailing market rate at this date is 5%. The fair value less cost of
disposal amounted to 1,600,000. PV of ordinary annuity if 1 at 5% for 7 period is 5.79.
4. What amount should be reported as loss on impairment?
A. 650,000
B. 1,092,000
C. 150,000
D. 592,000
ANSWER: A
Value in use (200,000 x 5.79) P1,158,000
Fair value less cost of disposal 1,600,000
Cost P 3,000,000
Accumulated Depreciation (750,000)
Carrying amount 2,250,000
Less: fair value less cost of disposal (1,600,000)
On January 1, 2013, Diosa Company purchased equipment with cost of 15,000,000,

useful life of 10 years and no residual value. The entity used straight line depreciation.
On December 31, 2013, and December 31, 2014, the entity determined the impairment
indicators are present. There is no change in useful life or residual value.
December 31, 2013 December 31, 2014
Fair value less cost of disposal 9,100,000 9,300,000
Value in use 9,600,000 9,200,000
5. What is the impairment loss for 2013?
A. 4,400,000
B. 5,000,000
C. 5,400,000
D. 3,900,000
ANSWER: D
Cost P15,000,000
Depreciation (15,000,000/10) (1,500,000)

Value in use- (higher) (9,600,000)
Impairment loss P3,900,000
6. What would be the balance of Accumulated Depreciation on December 31, 2013?
A. 1,500,000
B. 3,000,000
C. 3,900,000
D. 5,400,000
ANSWER: D
Accumulated Depreciation P1,500,000
Impairment loss 3,900,000
Accumulated Depreciation- 2013 P5,400,000
7. What is the gain on reversal of impairment for 2014?
A. 766,667
B. 800,000
C. 866,667
D. 700,000
ANSWER: A
Carrying amount- 01/01/2014 P9,600,000
Depreciation- 2014(9,600,000/9) (1,066,667)
Carrying amount- with impairment P8,533,333

Cost- 01/01/2013 P15,000,000
Accumulated Depreciation (15,000,000/10 x 2) (3,000,000)
Carrying amount- with no impairment P12,000,000
Fair value less cost of disposal (higher) 9,300,000
Carrying amount –with impairment ( 8,533,333)
Gain on reversal of impairment P766,667
Gold Company operates a product line which is treated as a cash generating unit for
impairment purposes. On December 31, 2014, the carrying amounts of the noncurrent
assets are as follows:
Goodwill 1,000,000
Machine 4,000,000
Equipment 3,000,000
On December 31, 2014 the fair value less cost to sell is P7,500,000
8. What amount will be the balance of goodwill?
A. 500,000
B. 62,500
C. 1,000,000
D. 66,667
ANSWER: A
Carrying amount of CGU P8,000,000
Fair value less cost to sell 7,500,000

Impairment is charged to goodwill up to the extent of it balance.
Goodwill (1,000,000-500,000) P500,000
9. Assuming that the fair value less cost to sell is 6,000,000. What is the amount of
impairment allocated to machine?
A. 4,000,000
B. 571,428.57
C. 857,142.86
D. 3,000,000
ANSWER: B
Impairment loss (8,000,000-6,000,000) P2,000,000
Charged to goodwill 1,000,000
Allocable to other assets P1,000,000
Allocated to machine (1,000,000 x 4/7) P571, 428.57
10. What is the new carrying amount of goodwill, machine and equipment respectively?
A. 500,000; 3,500,000; 2,500,000
B. 0; 3,428,571.43; 3,000,000
C. 0; 3,428,571.43; 2,571,428.57
D. 750,000; 3,000,000; 2,250,000
ANSWER: C
Goodwill = P0
Machine [4,000,000-(1,000,000 x 4/7)] 3,428,571.43

Equipment [3,000,000-(1,000,000 x 3/7)] 2,571,428.57
INTANGIBLE ASSETS-GOODWILL (PROBLEMS)

1. Lucid Corp showed the following balances on December 31, 2015: Copyright 900,000
Deposit with advertising agency used to promote goodwill 600,000 Bond sinking fund
2,000,000 Excess of Cost over fair value of Identifiable asset 500,000 Trademark
4,000,000 What amount should be reported as intangible assets?
a. 1,400,000
b. 4,500,000
c. 5,400,000
d. 5,800,000
Total Intangible Assets (900,000+ 500,000+ 4,000,000) 5,400,000
2. Dick Co. Incurred P2,500,000 of research and development cost to develop a product
for which a patent was granted at the beginning year. Legal fees and other cost
associated with registration of the patent totaled P500,000. At year end, the entity paid
P750,000 for legal fees in a successful defense of the patent. What is the total amount
that should be capitalized for the patent at year end?
a. 2,250,000
b. 500,000
c 3,000,000
d 750,000
Legal fees and other cost associated with registration 300,000
3. Levi Co. builds and sells equipment used in manufacturing pharmaceuticals. On

December 31, 2015 , the entity has financial assets at fair value through profit or loss at
P1,000,000,goodwill valued at P1,500,000, prepaid insurance at P50,000 ,patent valued
at P2,500,000, and a customer list valued at P500,000. What amount should be
reported as total intangible assets Dec. 31,2015?
a. 4,000,000
b. 4,500,000
c. 5,500,000
d. 3,000,000

Goodwill P1,500,000
Patent 2,500,000
Customer list 500,000
Total Intangible Assets P 4,500,000
4.) Tententenen Company acquired a patent for a drug with remaining legal and useful
life of 6 years on January 1,2012 for P3,600,000. On January 1,2014, a new patent is
received for a timed release version of the same drug. The new patent has a legal and
useful life of 20 years. What is the amortization expense for 2014?
a. 180,000
b. 150,000
c. 120,000
d. 300,000
Cost P3,600,000
Amortization (3,600,000/6x2) (1,200,000)
Carrying Amount- Jan. 1, 2014 P2,400,000
Amortization for 2014 ( 2,400,000/20) P120,000
5.) Gru Co. Purchased a patent on January 1,2009 for P6,000,000. The original useful
life was estimated to be 15 years. However, in Dec. 2014, the management received
information proving conclusively that the product protected by the Gru patent would be
obsolete within 4 years. Accordingly, the entity decided to write off the unamortized cost
of patent over 5 years beginning in 2014.
What is the patent amortization for 2014?
a. 1,200,000
b. 1,000,000
c. 800,000
d. 400,000
Cost P6,000,000
Accumulated Depreciation (6,000,000/15x5) (2,000,000)
Carrying Amount -Jan. 2014 P4,000,000
Amortization for 2014 ( 4,000,000/5) P800,000
6.) Beiv Company has acquired a trademark relating to the introduction of a new
manufacturing process. The cost incurred were as follows: Cost of Trademark
3,500,000 Expenditure on promoting the new product 50,000 Employee benefits relating
to the process 400,000 What total cost should be capitalized as intangible non current
asset in respect to the new process?
a. 3,550,000
b. 3,900,000
c. 3,500,000
d. 3,950,000
Solution: Answer b
Total Cost ( 3,500,000+400,000) P3,900,000
7&8 Leviathan Company developed a new machine for manufacturing baseballs.

Because the machine is considered very valuable, the entity had it patented. The
following expenditures were incurred in developing and patenting the machine:
Purchase of new equipment to be used solely for development of new machine
2,000,000 Research salaries and fringe benefits for engineer and scientists 200,000
Cost of testing prototype 350,000 Legal fees for filing of patent 250,000 Fees paid to
government patent office 50,000 Drawings required by patent office to be filed with
patent application 40,000
What amount should be capitalized as cost of patent?

a. 340,000
b. 290,000
c. 250,000
d. 300,000
What amount of research and development cost should be expensed in the current
year?
a. 2,550,000
b. 2,200,000
c. 2,350,000
d. 2,750,000
Solution No. 7 Answer a
Legal cost for filing patent P250,000
Fees paid to patent office 50,000
Drawings required by the patent office (40,000)
Total cost of patent P340,000
Solution No. 8 Answer (a)
Purchase of special equipment P2,000,000
Research and fringe benefits 200,000
Cost testing prototype 350,000
Research and development expense P2,550,000

9.) On January 1,2012 , Water company purchased a patent for a new consumer
product for P900,000. At the time of purchase, the patent was valid for 15 years.
However, the patent's useful life was estimated to be only 10 years due to competitive
nature of the product. On Dec. 31,2015, the product was permanently withdrawn from
sale under governmental order because of a potential health hazard in the product.
What amount should be changed against income of 2015 if amortization is recorded at
the end of each year?
a. 90,000
b. 630,000
c. 540,000
d. 720,000

Acquisition cost P900,000
Amortization ( 900,000/10x3) (270,000)
Carrying Amount - Jan. 1,2015 P630,000
10. On Jan. 1,2015, Dante Company bought a trademark from Lucia Co. For
P5,000,000. The entity retained an independent consultant who estimated the
trademark's useful life to be indefinite. The carrying amount of the trademark was
P1,500,000 on the books of Lucia Co. On Dec. 31,2015, what is the carrying amount of
the Trademark?
a. 5,000,000
b. 1,500,000
c. 1,800,000
d. 0
The trademark has an indefinite life, therefore it will not be amortized but tested for
impairment at least annually.

Rogon, John Carlo A. BSA 2-1

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CASH AND CASH EQUIVALENTS (PROBLEMS)

On deposit in current account with Real Bank P 900,000

Cash collection not yet deposited to the bank 350,000

A customer’s check returned by the bank for insufficient Fund 150,000

A check drawn by the Vice-President of the Corporation

dated January 15, 2007 70,000

A check drawn by a supplier dated December 28, 2006 for

goods returned by the Corporation 60,000

A check dated May 31,2006 drawn by the Corporation

against the Piggy Bank in payment of customs duties.

Since the importation did not materialize, the check was

returned by the customs broker. This check was an

outstanding check in the reconciliation of the Piggy

Bank account 410,000

Petty Cash fund of which P5,000 is in currency; P3,600 in

form of employees’ I.O.U. s; and P1,400 is supported by

approved petty cash vouchers for expenses all dated

prior to closing of the books on December 31, 2006 10,000

Less: Overdraft with Piggy Bank secured by a Chattel ( 300,000)

Balance per ledger P1,650,000

Solution: Answer (a)

Current account with Real Bank P 900,000

Undeposited collection 350,000

Supplier's check for goods returned by the Corporation 60,000

Unexpended petty cash 5,000

Current account with Piggy Bank (P410,000 - P300,000) 110,000

Dawn Company reported checkbook balance on December 31, 2015 at P4,000,000.

Coins and currencies P5,000

Petty cash vouchers P43,000

Return value of 20 cases of soft drinks 2,000 45,000

What total amount should be reported as “cash” on December 31, 2015?

Solution: Answer (d)

Check book balance P4,000,000

Postdated customer check (200,000)

Undelivered check payable to supplier 400,000

Adjusted cash in bank P4,200,000

Coins and currencies P5,000

Replenishment check 43,000 48,000

1. Commercial savings account of P1,200,000 and a commercial checking account

4. Petty cash fund of P10,000.

5. An I.O.U. from a company officer in the amount of P40,000.

cash receipts. At the present company has no deposits at this bank.

deposit have maturity of 120 days.

future credit availability.

10. Currency and coin on hand amounted to P15,000.

Solution: Answer (b)

Savings account at PS Bank P1,200,000

Checking account at PS Bank 1,800,000

Petty cash fund 10,000

Currency and coin 15,000

Provided the following on December 31,2018:

Balance per bank statement P250,000

Balance per ledger 350,000

Cash in sinking fund 300,000

Check drawn on Carlo’s account payable to vendor, dated and

Recorded 12/31/18; not mailed until 1/15/19 75,000

What amount should be charged to “cash” under current assets?

Balance per ledger P350,000

Check drawn, not actually paid P75,000

Total Cash balance P425,000

You noted the following composition of Malabanan Company’s “cash account” as of

Demand deposit account P2,000,000