Cleo Corp.

on January 1, 2020, granted stock options for 40,000 shares of its P10 par value
common stock to its key employees. The market price of the common stock on that date was
P23 per share and the option price was P20. The Black-Scholes option pricing model
determines total compensation expense to be 240,000. The options are exercisable beginning
January 1, 2023, provided those key employees are still in Cleo’s employ at the time the
options are exercised. The options expire on January 1, 2024.On January 1, 2023, when the
market price of the stock was P29 per share, all 40,000 options were exercised. The amount
of compensation expense Cleo should record for 2020 under the fair value method is
- c. 80,000

On January 1, 2021, John Company borrowed 1,000,000 7% non-interest bearing note due in
three-years. The present value of the note on the date of issuance was 899,000. The entity
elected irrevocably the fair value option in measuring the note payable. On December 31,
2021, the fair value of the note is 944,000. At what amount should the discount on note
payable be presented on December 31, 2021

- 0

At the beginning of the current year. Tris Company sold 5,800,000 in accounts receivable for
cash of 5,000,000. The factor withheld 10% of the cash proceeds to allow for possible
customer returns and other adjustments. An allowance for bad debts of 600,000 had
previously been established by Tris Co. in relation to these accounts. What was the loss on
factoring recognized by Olivia Co.?
- b. 700,000.

Steven Co. issues 10,000 shares of 10 par value convertible preference shares for 12 cash
per share. Each share is convertible into 4 ordinary shares. On this date the 1 par value
ordinary shares are selling for 3 per share. Approximately 2 years later, Steven’s shareholders
convert their preference shares into ordinary shares. On the date of conversion the preference
shares are selling for 16 and the ordinary shares are selling for 5 per share. The journal entry
on the date of conversion will include which of the following?
- b. Credit Share Premium—Ordinary 80,000.

Due to adverse economic circumstances and poor management, Jeffrey Company had
negotiated a restructuring of its 9% 7,000,000 note payable to Boot Company due on January
1, 2019. There is no accrued interest on the note. The bank has reduced the principal
obligation from 7,000,000 to 6,000,000 and extend the maturity to 3 years or on December 31,
2021. However the new interest rate is 13% payable annually every December 31. The
present value of 1 at 9% for three periods is .77 and the present value of an ordinary annuity
of 1 at 9% for three periods is 2.53.What is the gain on extinguishment of debt to be
recognized for 2020?
- 0

On March 1, year 1, Amara Co. borrowed 10,000 and signed a two-year note bearing interest
at 12% per annum compounded annually. Interest is payable in full at maturity on February
28, year 3. What amount should Amara report as a liability for accrued interest at December
31, year 2?
 - d. 2,320

Fences and parking lots are reported on the balance sheet as

- b. land improvements

The Ivan Company purchased a machine for 8,000,000 on January 1, 2019 and received a
government grant of 2,000,000 toward the capital cost. The machine us to be depreciated on
a straight line basis over 4 years and estimated to have a residual value of 800,000 at the end
of this period. The accounting policy is to treat the grant as a deferred income. What is the
carrying amount of the asset on December 31, 2020?
- c. 4,400,000

Goma Company issued 4,000,000 face amount 10% convertible bonds at 120 on January 1,
2020, maturing on January 1, 2025 and paying interest semiannually on January 1 and July
1.It is estimated that the bonds would sell only at 113 without the conversion feature. Each
1,000 bond is convertible into 10 ordinary shares with P100 par value. What is the increase in
shareholders’ equity arising from the original issuance of the convertible bonds
- b. 280,000

A transaction whereby a debtor and creditor may renegotiate the terms of a financial liability
with the result that the liability is fully or partially extinguished by the debtor issuing equity
instruments to the creditor.
- b. Equity swap

It is a practice of opening the books of accounts beyond the close of the reporting period for
the purpose of showing a better financial position and performance
- a. Window dressing

Metcalf Company leases a machine from Vollmer Corp. under an agreement which meets the
criteria to be a capital lease for Metcalf. The six-year lease requires payment of Php102,000
at the beginning of each year, including Php15,000 per year for maintenance, insurance, and
taxes. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8%
and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is
4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Metcalf
should record the leased asset at
- c. 434,366

On January 1, 2018 Alfie Company, purchased a patent for P 9, 140, 000. The patent is being
amortized over the remaining legal life of 15 years expiring on January 1, 2030. During 2021
the entity determined that the economic benefits of the patent would not last longer than ten
years from the date of acquisition. What is the carrying amount of the patent on December 31,
2021?
- a. 6, 267, 428.57
Natsu Company is authorized to issue 4,500,000 of 8%, 10-year bonds dated July 1, 2020
with interest payments on June 30 and December 31.When the bonds are issued on
November 1, 2020, the entity received cash of 5,000,000 including accrued interest. What is
the discount or premium on bonds payable?
- a. 380,000 bond premium

Transfer from investment property to property, plant and equipment is appropriate

- c. When there is a change of use.

Which of the following is true about exchange without commercial substance?

- a. Acquired asset is measured at the Carrying amount of the asset given

Dart Company’s accounting records indicated the following information: Inventory, 1/1/Y2
500,000 Purchases during year 2 2,500,000; Sales during year 2 3,200,000; A physical
inventory taken on December 31, year 2, resulted in an ending inventory of 575,000. Dart’s
gross profit on sales has remained constant at 25% in recent years. Dart suspects some
inventory may have been taken by a new employee. At December 31, year 2, what is the
estimated cost of missing inventory?
- a. 25,000

The cash account balance of Kaila Company was 5,400,000. At the end of the month, the
bank didn’t include the 10,000 cash deposit of Kaila Company. The bank also caught an error
that the customers check was recorded as 30,000 which was the original price was 40,000,
and 56,000 error that the original price was 65,000. On December 31, 2020 the check of
37,000 was returned because it is NSF. Outstanding check was 205,200. On December 31,
2020 what amount should be recorded in the bank account of Kaila Company?
- c. 5,186,800

Bank statements provide information about all of the following except

- d. Errors made by the depositor.

Shawn reported the “receivables” account with a debit balance of 2,000,000

- d. 1,360,000

The accounts shown below appear in the December 31, 2019 trial balance of Kristin
Corporation:
- b. 11,780,000

During 2020, Angel Company constructed a new building at a cost of 30,000,000. The
expenditures for the building which was finished late in 2020 were incurred evenly during the
year. The entity had the following loans outstanding on December 31, 2020: •10% note to
finance specifically the construction, dated January 1, 2020, 10,000,000. The note is unpaid
on December 31, 2020. • Investments were made on the proceeds from the loan and income
of 100,000 was realized in 2020. • 12% 10-year bonds issued at face value on April 30, 2019,
30,000,000. • 8% 5-year note payable, dated March 1, 2019, 10,000,000. What is the
capitalized borrowing cost?
- b. 1,450,000

The trial balance of Steven Enterprises on December 31, 2021 shows 350,000 as the
unaudited balance of the Machinery Account. On April 1, 2021, a Jacuzzi Machine costing
40,000 with accumulated depreciation of 30,000 was sold for 20,000, which proceeds was
credited to the Machinery Account. On June 30, 2021, A Golds machine, costing 50,000 and
with accumulated depreciation of 22,000 was traded in for a new Pioneer Machine with an
invoice price of 100,000. The cash paid of 90,000 for the Pioneer machine (100,000 less
trade-in allowance of 10,000 was debited to the Machinery account.)Company policy on
depreciation which you accept, provides an annual rate of 10% without salvage value. A full
year’s depreciation is charged in the year of acquisition and none in the year of disposition.
The adjusted balance of the Machinery account at December 31, 2021 is:
- a. 290,000

Gains or losses on cash flow hedges are

- b. recorded in equity, as part of other comprehensive income.

The amount of any writedown of inventory to net realizable value and all losses of inventory
shall be:
- c. recognized as component of cost of sales in the period the writedown or loss occurs

Santo Corporation declares and distributes a cash dividend that is a result of current earnings.
How will the receipt of those dividends affect the investment account of the investor under
each of the following accounting methods?
- a. Fair Value Method - No Effect, Equity Method - Decrease.

It is an original and planned investigation undertaken with the prospect of gaining scientific or
technical knowledge and understanding
- a. Research.

Chogiwa Co.’s grant of 30,000 stock appreciation rights enables key employees to receive
cash equal to the difference between P20 and the market price of the stock on the date each
right is exercised.The service period is Year 2020 through Year 2022, and the rights are
exercisable in Year 2023 and Year 2024. The market prices of the stock were P25 and P28 at
December 31, 2020 and 2021, respectively. What amount should Chogiwa report as the
liability under the stock appreciation rights plan in its December 31, 2021, balance sheet
- c. 160,000

Use of the accrual method in accounting for product warranty costs

 - d. represents accepted practice and should be used whenever the warranty is an integral
and

Which of the following do not comprise as the cost of right of use asset?
- d. Depreciation.
- Omar Company, a real estate entity had a building with a carrying amount of
15,000,000 on December 21, 2021. The building was used as offices of the
entity’s administrative staff.On December 31, 2021, the entity intended to rent
out the building to independent third parties. The staff will be moved to a new
building purchased early in 2021. The original building had a fair value of
25,000,000.On the same year, the entity also had land that was held for sale in
the ordinary course of business. The land had a carrying amount of 20,000,000
and fair value of 30,000,000on December 31, 2021. 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.On December 31, 2021 what amount
should be recognized in revaluation surplus as a result of transfer of the
building to investment property?
- a. 10,000,000
-
At December 31, 2019 Dee Company had 300,000 shares of common stock
and 10,000 shares of 6%, P100 par value cumulative preferred stock
outstanding. No dividends were declared on either the preferred or common
stock in 2019 or 2020. On January 30, 2021, prior to the issuance of its
financial statements for the year ended December 31, 2020, Dee declared a
100% stock dividend on its common stock. Net income for 2020 was 1,140,000.
In its 2020 financial statements, Dee's 2020 earnings per common share should
be
- a. 1.80

Rocky Company acquired two items of machinery as follows: • On December 31, 2019, Rocky
Company purchased a machine in exchange for a noninterest bearing note requiring ten
payments of 600,000. The first payment was made on December 31, 2020, and the others are
due annually on December 31. The prevailing rate of interest for this type of note at date of
issuance was 12%. The present value of an ordinary annuity of 1 at 12% is 5.33 for nine
periods and 5.65 for ten periods. • On December 21, 2019, Rocky Company acquired used
machinery by issuing the seller a two-year, non-interest-bearing note for 4,000,000. In recent
borrowing, the entity has paid 12% interest for this type of interest. The present value of 1 at
12% for 2 years is .80 and the present value of an ordinary annuity of 1 at 12% for 2 years is
1.69. What is total cost of the machinery?
- d. 6,590,000
If an inventory is transferred to investment property that is to be carried at fair value, the
remeasurement to the fair value is
- a. Included in profit or loss.

Share dividends distributable should be classified on the

- d. statement of financial position as an item of equity.

The following data are provided: a. 36

On December 31, 2021, Kelly Company sold a used equipment with the carrying amount of
2,000,000 in exchange for a non interest bearing note of 5,000,000 requiring ten annual
payments of 500,000. The first payment to be made on December 31, 2022The market
interest for similar note was 12%. The present value of an ordinary annuity of 1 at 12% is 5.65
for ten periods and 5.53 for nine periodsWhat is the carrying amount of the note on December
31, 2021
- b. 2,825,000

The difference between the carrying amount of the financial liability extinguished and the fair
value of equity instruments issued shall be recognized in
- c. Profit or loss

Oz Company used the allowance method of accounting for uncollectible accounts. During
2018, the entity had charged 750,000 to bad debt expense, and wrote off accounts receivable
of 850,000 as uncollectible. What was the decrease in working capital
- b. 750,000.

The cost of agricultural produced harvested from biological assets is:

- d. fair value less estimated point of sale costs at the point of harvest

Allisson Company started a new promotional program. For every 10 box tops returned,
customers receive a basketball.
d. 14,000,000.

It is a customer database containing the name, contract information, order history and other
vital and social statistics, such as birth, death and even sickness.
c. Customer list.

It refers to an exclusive right granted by the government to the author, composer or

artist enabling to publish, sell or otherwise benefit from his literacy, musical and artistic
work
a. Copyright

Cooper Company was granted a patent on January 1, 2021. The company incurred 1, 550,
000 of research and development cost. Legal fees and other associated cost amounting to
395, 550 for the registration of the patent. On December 31, 2021, the entity paid 356, 000 for
legal fees on the successful defense of the patent. What is the total amount to be recognized
or capitalized for the year- end December 31, 2021?
- d. 356, 000

If an entity owns and manages a hotel, services provided to guests are a significant
component of the arrangement as a whole. In such a case, the hotel is classified as
- b. Owner-occupied property

Angel Company owned 50,000 ordinary shares held for trading. These 50,000 were
purchased 120 per share. During the year, the investee distributed 50,000 stock rights to the
investor. The investor was entitled to buy one new share for P90 cash and two of these rights.
Each share had a market value of P130 and each right had a market value of P20 on the date
of issue. What total cost should be recorded for the new shares that are acquired by
exercising the rights?
- c. 3,050,000
-  
Angel Company accounts for noncurrent assets using the cost model. On
July 31, 2020, the entity classified a noncurrent asset as held for sale. At that
date, the asset’s carrying amount was 1,450,000, the fair value was
estimated at P2,150,000 and the costs of disposal at P150,000. The asset
was sold on January 31, 2021 for 2,120,000.At what amount should the
asset be measured on December 31, 2020?
- d. 1,450,000

On July 1, 2020, Olive Corp. sold equipment to Oil Co. 250,000. Olive accepted a 10% note
receivable for the entire sales price. This note is payable in 2 equal installments of 125,000
plus accrued interest on Dec. 31, 2020 and Dec. 31, 2021. On July 1, 2021, Olive discounted
the note at the bank at an interest rate of 12 %. How much was Olive’s proceeds from the
discounted note?
- d. 129,250

Which of the following is a current liability?

c. A cash dividend payable to preference shareholders

In asset swap debt restructuring, the gain on extinguishment is equal to:

- a. Excess of the carrying amount of the debt over the carrying amount of the asset.

Under what condition/s can the lessee be permitted to apply for an operating lease model?
- d. Short-term and low value lease

The following data are given for Tricia Company:

- d. 45,000

A discount on bond payable is charged to interest expense

- c. Using effective interest method.

If management wishes to "capitalize" part of the earnings, it may issue a

- b. Stock Dividend

When the entity uses the cost model, transfer between investment property, owner-occupied
property and inventory shall be accounted for at
- d. Carrying amount

Jay Company provided a data of their financial statement at December 31, 2020. They
showed the following information:
- b. 555,000

Scotia Bank granted a loan to a borrower on January 1, 2020. The interest is 10%
payable annually starting December 31, 2020. The loan matures in four years on
December 31, 2023.

- b. 3,758,000

SNC Company's a real estate, has a building with a carrying amount of 20,000,000 on
December 31, 2019. The building was used as offices of the entity’s administrative staff. On
December 31, 2019, the entity intended to rent out the building to independent third parties.
The staff will be moved to a new building purchased early in 2020. On December 31, 2019,
the original building had a fair value of 35,000,000. On December 31, 2019, the entity also
had land that was held for sale in the ordinary course of business. The land had a carrying
amount of 10,000,000 and fair value of 15,000,000 on December 31, 2019. 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. On December 31, 2019, what amount should be recognized
in revaluation surplus as a result of transfer of the building to investment property
- c. 15,000,000

When bonds are issued with share warrants, the equity component is equal to
- b. The excess of the proceeds over the fair value of the bonds without the share warrants.

Kaila Company had loans outstanding during 2020 and 2021.

- c. 7,875,000

How will you distinguish direct financing lease to a sales type lease?

- a. Direct financing lease recognizes only interest income while sales type lease
recognizes both interest income and gross profit on sale.

An unrealized holding gain or loss on a trading debt investment is the difference between the
investment’s

- c. fair value and amortized cost

Babes Company acquired land on April 1, 2021 on which a new building will be
immediately constructed. The costs related to the acquisition include:

- d. 2,095,000

Connie Company purchased the following securities during 2020:

- a. 500,000

On July 1, 2021, Tricia Company purchased ten-year, 8% bonds with a face amount of
P5,000,000 for P4,200,000 to be held as financial assets at amortized cost; The bonds mature
on June 30, 2029 and pay interest semiannually on June 30 and December 31.Using the
interest method, the entity recorded discount amortization of P18,000 for the six month ended
December 31, 2021.What amount should be reported as interest income for 2021?

- d. 218,000
The proceeds from the bonds payable issued will always be

- a. Dependent upon the market interest rate

At the beginning of the current year, Tricia Company purchased 10,000 ordinary shares at
P90 per share to be held for trading. At the year-end, the entity received 2,000 shares of the
investee in lieu of cash dividend of P10 per share. On this date, the investee’s share has a
quoted market price of P60 per share. What amount should be reported as dividend income
for the current year?

- a. 120,000

Kimberly Company exchanged a truck with carrying amount of 1,150,000 and a fair value of
1,700,000 for a truck and P220,000 cash. The fair value of the truck received was
1,550,000.The cash flows from the new truck are not expected to be significantly different
from the cash flows of the old truck. At what amount should the truck received in the exchange
be recorded?

- a. 1,550,000

The pre-emptive right of a common stockholder is the right to

- b. share proportionately in any new issues of stock of the same class.

During 2020, Tricia Company purchased marketable equity securities to be measured at fair
value through other comprehensive income. On December 31, 2020, the balance in the
unrealizable loss on these securities was 200,000.

- a. 500,000