NJPIA REGION 3 COUNCIL

21st ANNUAL REGIONAL CONVENTION

PRACTICAL ACCOUNTING 1
1. Ortiz Co. had the following account balances:
Sales P1,200,000
Cost of goods sold 600,000
Salary expense 100,000
Depreciation expense 200,000
Dividend revenue 40,000
Utilities expense 80,000
Rental revenue 200,000
Interest expense 120,000
Sales returns 110,000
Advertising expense 130,000

What amount would Ortiz report as other income and expense in its income
statement?
a. P100,000 c. P240,000
b. P120,000 d. P490,000

2. Rotary Corporation is located in Quezon but does business throughout Metro

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Manila. The company builds and sells equipment used in manufacturing

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pharmaceuticals. On December 31, 2014, Rotary’s accounts receivable are as
follows:

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Individually significant receivables

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A Company P 320,000
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B Company. 800,000
C Company. 480,000
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D Company 400,000
All other receivables 2,000,000
Total P4,000,000
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Rotary Corporation determines that A Company's receivable is impaired by

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P160,000 and D Company.'s receivable is totally impaired. The other

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receivables from B and C are not considered impaired. Rotary determines

that a composite rate of 2% is appropriate to measure impairment on all
other receivables. What is the total impairment of receivables for Rotary
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Corporation for 2014?

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a. P494,600 c. P600,000
b. P560,000 d. P625,600
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3. Wave Crest Hotels is located in Canada, but manages an extensive network of

boutique hotels in the United States. Wave Crest has significant
receivables from 3 customers, P480,000 due from Stephanie Inn, P900,000 due
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from Warren House, and P760,000 due from Hallmark Hotels. Wave Crest has
other receivables totaling P440,000.
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Wave Crest determines that the Warren House receivable is impaired by

P160,000 and the Hallmark Hotels receivable is impaired by P200,000. The
receivable from the Stephanie Inn is not considered impaired. Wave Crest
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determines that a composite rate of 5% is appropriate to measure impairment

on all other receivables. What amount of receivable should Wave Crest Hotel
in the statement of financial position for the year ended December 31,
2014?
a. P2,198,000 c. P2,418,000
b. P2,380,000 d. P2,580,000

4. Dub Dairy produces milk to sell to local and national ice cream
producers. Dub Dairy began operations on January 1, 2014 by purchasing
840 milk cows for P1,176,000. The company controller had the following
information available at year end relating to the cows:

Milking cows
Carrying value, January1, 2014 P1,176,000
Change in fair value due to growth and price changes 365,000

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 REGIONAL MOCK BOARD EXAMINATION Page 2 of 7
Decrease in fair value due to harvest (42,000)
Milk harvested during 2014 but not yet sold P54,000

On Dub Dairy’s income statement for the year ending December 31, 2014,
what amount of unrealized gain on biological assets will be reported?
a. P -0- c. P323,000
b. P54,600 d. P365,000

5. On January 1, 2014 Axis Company, a medium-sized entity, acquired 30% of the

ordinary shares that carry voting rights at a general meeting of
shareholders of Maxim Company for P6,000,000. For the year ended December
31, 2014 Maxim Company recognized a profit of P8,000,000 and declared and
paid dividend of P4,000,000. The fair value of Axis Company investment on
December 31, 2014 is P5,800,000. Axis Company uses the cost less
impairment loss model of accounting its investment because Maxim Company
shares have no published price quotations. What amount of net revenue
(revenue less any amount of expense) should Axis Company report in its
statement of comprehensive income related to its investment in Maxim
Company for the year ended December 31, 2014?
a. P 200,000 c. P1,200,000
b. P1,000,000 d. P2,400,000

6. On January 2, 2014, Horizon Company, a medium-sized entity acquired 20% of

the outstanding ordinary shares of Meadow Company for P2,200,000 which

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included P50,000 transaction cost. This investment gave Horizon the
ability to exercise significant influence over Meadow Company. The book

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value of the acquired shares was P1,800,000. The excess of cost over book
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value was attributed to a depreciable asset which was undervalued on
Meadow Company’s balance sheet and which had ten years useful life

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remaining. For the year ended December 31, 2014, Meadow Company reported
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net income of P540,000 and paid cash dividends of P180,000 on its
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ordinary.

If Horizon Company uses the fair value model to account for its investment
and the investment has a fair value of P2,400,000 on December 31, 2014,
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what total amount of income and other revenue from investment should
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Horizon Company disclosed in its December 31, 2014 profit or loss?

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a. P200,000 c. P250,000
b. P236,000 d. P286,000
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7. On March 1, 2014 Armor Company, a medium-sized entity, acquired 30% of the

ordinary shares that carry voting rights at a general meeting of
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shareholders of Knight Company for P3,000,000 when the fair value of net
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asset was P9,000,000 On December 31, 2014, Knight Company declared a

dividend of P1,000,000 for the year 2014 but reported a net income of
P800,000 for the year ended December 31, 2014. At December 31, 2014 the
recoverable amount of Armor Company’s investment in Knight Company is
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P2,900,000 (Fair value of P2,930,000 less costs to sell of P30,0000. .

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If the shares of Knight Company are traded and Armor Company uses the fair
value model, at what amount should the investment in Knight Company be
reported in the statement of financial position and the net amount to be
reported in the statement of comprehensive income for the year ended
December 31, 2014, respectively?
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a. P2,900,000 and P300,000 c. P2,930,000 and P230,000

b. P2,900,000 and P230,000 d. P2,930,000 and P300,000

8. Holding Company invests in bonds of ten listed companies. The investments

are designated as investment at amortized cost and any premium or discount
is amortized using the effective interest method. In the current period,
it sells bonds of Sunshine Company, one of the ten listed companies, for
funding its working capital requirements. The carrying amount of this
investment is P8,000,000 and proceeds from the sale amount to P7,500,000.
The carrying amount of the remaining bonds is P92,000,000 and the market
value is P96,000,000.

PRACTICAL ACCOUNTING 1
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 REGIONAL MOCK BOARD EXAMINATION Page 3 of 7
If the sale was triggered by a reported fraud that could cause the issuer
to go bankrupt, what amount of unrealized gain or loss should Holding
Company recognized related to the debt securities?
a. none c. P4,000,000
b. P500,000 d. P4,500,000

9. On January 1, 2012, Settler Company purchases a property at a cost of

P10,000,000. The property is classified as investment property and
accounted for under the fair value model. On December 31, 2012, the market
value of the property is P15,000,000. On January 31, 2013, the property
was sold for P15,200,000. Costs of disposal which comprised mainly an
agency fee, amounted to P380,000.

What is the amount of gain or loss from the sale of the property?
a. P180,000 c. P4,820,000
b. P200,000 d. P5,000,000

10. On July 1, 2014, Challenger Corporation exchanged its non-monetary asset

(equipment) with another non-monetary asset. The following data were made
available:

Equipment 4,400,000
Accumulated Depreciation 2,600,000
Fair value of equipment received 1,100,000
Cash received on exchange 900,000

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If the cash flows of the non-monetary assets were not the same, what is the

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amount of gain or loss from the exchange?
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a. none c. P700,000
b. P200,000 d. P900,000

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11. On January 1, 2014, Fredrichs Inc. purchased equipment with a cost of

P3,060,000, a useful life of 12 years and no salvage value. The company
uses straight-line depreciation. At December 31, 2014, the company
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determines that impairment indicators are present. The fair value less cost
to sell the asset is estimated to be P2,600,000. The asset’s value-in-use
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is estimated to be P2,365,000. There is no change in the asset’s useful

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life or salvage value.

What amount of impairment loss should appear in the statement of

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comprehensive income of 2014?

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a. P0 c. P440,000
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b. P205,000 d. P460,000

12. A company acquires a patent for a drug with a remaining legal and useful
life of six years on January 1, 2012 for P1,800,000. The company uses
straight-line amortization for patents. On January 2, 2014, a new patent is
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received for a timed-release version of the same drug. The new patent has a
legal and useful life of twenty years. The least amount of amortization
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that could be recorded in 2014 is

a. P60,000 c. P 81,818
b. P69,000 d. P300,000
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13. During 2014, Bond Company purchased the net assets of May Corporation for
P1,000,000. On the date of the transaction, May had P300,000 of
liabilities. The fair value of May's assets when acquired were as follows:

Current assets P 540,000

Noncurrent assets 1,260,000
P1,800,000
How should the P500,000 difference between the fair value of the net assets
acquired (P1,500,000) and the cost (P1,000,000) be accounted for by Bond?
a. The P500,000 difference should be credited to retained earnings.
b. The P500,000 difference should be recognized as a gain.
c. The current assets should be recorded at P540,000 and the noncurrent
assets should be recorded at P760,000.
PRACTICAL ACCOUNTING 1
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 REGIONAL MOCK BOARD EXAMINATION Page 4 of 7
d. A deferred credit of P500,000 should be set up and then amortized to
income over a period not to exceed forty years

14. On January 2, 2014, Lutz Inc. purchased a patent with a cost P940,000 a
useful life of 4 years. At December 31, 2014, and December 31, 2015, the
company determines that impairment indicators are present. The following
information is available for impairment testing at each year end:

12/31/2014 12/31/2015
Fair value less costs to sell P715,000 P420,000
Value-in-use P750,000 P445,000

No changes were made in the asset's estimated useful life. The company's
2015 income statement will report
a. Amortization Expense of P235,000
b. Amortization Expense of P250,000 and Loss on Impairment of P55,000.
c. Amortization Expense of P235,000 and a Recovery of Impairment of
P25,000.
d. Loss on impairment of 190,000.

15. On February 10, 2014, after issuance of its financial statements for 2013,
House Company entered into a financing agreement with Lebo Bank, allowing
House Company to borrow up to P4,000,000 at any time through 2012. Amounts
borrowed under the agreement bear interest at 2% above the bank's prime

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interest rate and mature two years from the date of loan. House Company
presently has P1,500,000 of notes payable with First National Bank

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maturing March 15, 2014. The company intends to borrow P2,500,000 under
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the agreement with Lebo and liquidate the notes payable to First National.
The agreement with Lebo also requires House to maintain a working capital

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level of P6,000,000 and prohibits the payment of dividends on ordinary
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shares without prior approval by Lebo Bank.
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From the above information only, the total short-term debt of House
Company as of the December 31, 2014 statement of financial position date
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a. P0 c. P2,000,000
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b. P1,500,000 d. P4,000,000
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16. Jason Company has taken out a foreign loan of $100,000 that is recorded at
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P4,400,000. At the reporting date, the carrying value of the loan is

P4,000,000. The unrealized exchange gain of P400,000 is included in profit
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or loss, but will be taxable when the gain is realized on the repayment of
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the loan. If the current and future tax rates are 34% and 35%,
respectively, what amount of deferred tax liability should the company
recognize?
a. None c. P140,000
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b. P136,000 d. P276,000
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17. Triumphant Company has a year-end of 31 March. The tax year in the
jurisdiction runs from April 1 to March 31. The relevant income tax rate
for 2014 is 32%. Triumphant Company has an accounting profit of P1,500,000
for the year ended March 31, 2015. The rules determining the determination
of taxable profit in the jurisdiction are identical to the IFRS for SMEs
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for the year ended March 31, 2015, except for the following income and
expenses:
* P200,000 interest revenue recognized in 2015 is exempt from income tax
* No tax deduction is permitted for entertainment expenses of P50,000
* No tax deduction for bad debts is allowed until the debtors are
derecognized from the financial statements. On May 31, 2014, P20,000 of
debts were derecognized from the financial statements because the entity
waived payment from one of the customers who was suffering financial
difficulty. The bad debt provision, which is offset against trade
receivables, was P40,000 and P45,000 on March 31, 2014 and March 31,
2015 respectively. Consequently, the bad debt expense for the year
ended March 31, 2015 was P25,000 – comprising the debts written off and
the increase in the provision.

PRACTICAL ACCOUNTING 1
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 REGIONAL MOCK BOARD EXAMINATION Page 5 of 7
* The building is depreciated at a faster rate for tax purposes. The
amount of tax depreciation deductible in the year ended March 31, 2015
was P430,000. The amount of accounting depreciation in the financial
statements for the same building for the year was P350,000.

If the future tax rate is 34%, what is the total amount of tax expense to
be disclosed in the statement of comprehensive income for the year ended
March 31, 2015?
a. P382,500 c. P433,500
b. P408,000 d. P446,250

18. On December 31, 2011, Gorilla Company was experiencing financial

difficulties and entered into a debt restructuring agreement with the
creditor. The creditor restructured the obligation as follows:

 The principal was reduced from P10,000,000 to P9,000,000.

 Forgave the accrued interest of P1,200,000.
 Extended the maturity date from Dec. 31, 2011 to Dec. 31, 2014.
 Reduced the interest from 12% to 10%. Interest is payable annually on
December 31, 2012, 2013 and 2014.

If the fair value of the restructured debt is P9,166,667, how much should
Gorilla Company report as gain/loss on debt restructuring?
a. None c. P2,033,333

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b. P1,954,200 d. P2,630,200

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19. Grand Company operates a non-contributory defined benefit pension plan for

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its employees. Grand Company has not funded is benefit obligation.
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January 1, 2014, the company decides to remove the uncertainty about its

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future benefit obligation and replace the defined benefit plan with a
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defined contribution plan. The benefits with respect to services provided
up to January 1, 2014 are not affected.
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On July 1, 2014, Grand Company agrees with employee representatives to make

a lump sum cash payment of P5,000,000 and introduces a defined contribution
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plan in exchange for cancelling their pension entitlement. The pension

liability recognized in the balance sheet on July 1, 2014 before the
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agreement was P5,500,000.

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What amount of gain on settlement should the company recognize on July 1,

2014?
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a. none c. P5,000,000
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b. P500,000 d. P5,500,000
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20. Alley Company has in issue of 20,000,000 ordinary shares of P1 par each.
As at 1 January 2014, its retained profits were P10,000,000.
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On 30 June 2014, it paid a net dividend of P1,800,000 to shareholders after

the proposed final dividend of 10% per share for the preceding financial
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year 2013 was approved by shareholders in a general meeting. On 30

November 2014 an interim dividend of 5% was paid to shareholders.

During the year ended 31 December 2014, Alley Company made a profit before
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tax of P6,000,000. Its tax expense for the year was P1.500,000,
consisting of P1,000,000 current income tax expense and P500,000 deferred
tax expense. The final tax on dividend is 10% and statutory income tax
rate was 32%.

On 31 March 2015, the directors of the company proposed a gross final

dividend of 7.5% per ordinary share for the year ended 31 December 2015.

What is the total amount of dividend (net of the applicable tax) being
charged to retained profits during the year 2014?
a. P1,800,000 c. P2,700,000
b. P2,000,000 d. P3,000,000

21. Holy Trinity Corporation is under protection of the bankruptcy court and
has the following account balances at June 30, 2014:
PRACTICAL ACCOUNTING 1
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 REGIONAL MOCK BOARD EXAMINATION Page 6 of 7

Cash P (5,000) Accounts payable P 450,000

Accounts receivable 320,000 Notes payable 605,000
Inventory 450,000 Taxes and wages 60,000
Equipment 860,000 Mortgage payable 150,000
Accum. Depreciation ( 525,000) Ordinary shares 50,000
Intangibles 80,000 Accumulated profits ( 135,000)
Total P1,180,000 Total P1,180,000

The court has accepted the following proposed settlement of the company’s
affairs: write down the assets by the following amounts:

Accounts receivable P40,000

Inventory 160,000
Intangibles 80,000

The trade creditors (accounts payable) will reduce their claim by 30%, will
accept one-year notes for 50%, and retain their current claim for the
remaining 20%. The tax, wage, and mortgage claims will remain unchanged.
The current ordinary shares will be surrendered to the corporation and
cancelled. In consideration thereof, the current shareholders shall be
held harmless from any possible personal liability. The current holder of
the note payable shall receive 1,000 shares of no par ordinary shares in
full satisfaction of the note payable. After these adjustments have been
made, the Accumulated Profits and Losses shall be raised to zero by a

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change against invested capital.

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How much is the total shareholders’ equity after the quasi-reorganization?
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a. P325,000 c. P375,000
b. P350,000 d. P400,000

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22. Neon Company has 110,000 ordinary shares outstanding, 10,000, 6%

cumulative, P100 par convertible preference share that are convertible into
20,000 ordinary shares and an 8%, 4-years convertible bonds with a face
value of P1,000,000, convertible into 30,000 ordinary shares. The bonds
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were issued on January 1 when the prevailing interest rate was 10%. The
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liability component of the bonds at the time of issue is P936,600. Net

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income for the year is P850,000. Income tax rate is 32%.

How much is the diluted earnings per share for the year?
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a. P5.71 c. P6.09
b. P5.65 d. P7.18
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23. The December 31, 2015 and 2014 comparative financial statements of World
Gallery Company showed equipment with an original cost P379,000 and
P344,000 with accumulated depreciation of P153,000 and P128,000,
respectively. During 2015, the company purchased equipment costing
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P50,000, and sold equipment with a carrying value of P9,000.

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What amount should the company report as depreciation expense for 2015?
a. 19,000 c. 31,000
b. 25,000 d. 34,000

24. Welch Co. purchased a put option on Reese common shares on January 7, 2014,
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for P2,150. The put option is for 3000 shares, and the strike price is P51.
The option expires on July 31, 2014. The following data are available with
respect to the put option:

Date Market Price of Reese Shares Time Value of Put Option

March 31, 2014 P48 per share P1,200
June 30, 2014 P50 per share 540
July 6, 2014 P46 per share 160

If the change in fair value was recognized on March 31, 2014 and then again
on June 30, 2014, what amount of loss the company recognized on the re-
measurement of the option on June 30, 2014?
a. P 660 c. P3,540
b. P2,150 d. P6,660

PRACTICAL ACCOUNTING 1
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 REGIONAL MOCK BOARD EXAMINATION Page 7 of 7

25. In 2014, a typhoon completely destroyed a building belonging to Carpet

Corporation. The building cost P2,500,000 and had accumulated depreciation
of P1,200,000 at the time of the loss. Carpet received a cash settlement
from the insurance company and reported a loss of P525,000.

In Carpet’s 2014 cash flow statement, how much would be the net changes that
would be reported in the cash flows from investing activities section?
a. P250,000 increase c. P 775,000 increase
b. P525,000 increase d. P1,300,000 increase

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PRACTICAL ACCOUNTING 1
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