Calculating Cash and Cash Equivalents

CASH & CASH EQUIVALENTS
Problem
1. In connection with your audit of John Paul Corporation for the year ended December 31, 2020, you gathered the following:
Current account at Metrobank - CIB P2,000,000

Current account at BPI – CURRENT LIAB (100,000)
Payroll account - CASH 500,000
Foreign bank account – restricted (in equivalent pesos) 1,000,000
Postage stamps - PREPAYMENTS 1,000
Employee’s post-dated check – RECEIVABLE 4,000
IOU from controller’s sister – RECEIVABLE 10,000
Credit memo from a vendor for a purchase return 20,000
Traveler’s check 50,000
Not-sufficient-funds check 15,000
Money order – CASH 30,000
Petty cash fund (P4,000 in currency and expense receipts for
P6,000) – CASH PCF REMAINING 10,000
Treasury bills, due 3/30/2021 (purchased 12/29/2020) – 200,000
CASH EQUIVALENTS
Treasury bills, due 1/31/2021 (purchased 2/1/2020) 300,000
Based on the above information, compute for the cash and cash equivalents that will be reported on the December 31,
2020 statement of financial position.
a. 2,784,000 c. 2,790,000
b. 3,084,000 d. 2,704,000
2. Angel Company reported the following accounts on Dec 31, 2020:

Cash on hand 1,000,000
Petty cash fund 50,000
Metrobank current account 2,000,000
DBP current account 1,500,000
BDO current account (overdraft) (200,000)
BSP treasury bill – 150 days 3,000,000
BPI time deposit – 60 days 2,000,000
Bond sinking fund 2,500,000
* The cash on hand included a customer postdated check of 150,000 and postal money order of 50,000
* The petty cash fund included unreplenished petty cash vouchers for 10,000 and an employee check for 5,000
dated January 31, 2021.
* The BPI time deposit is set aside for acquisition of land to be made in early January 2021.
* The bond sinking fund is set aside for payment of bond payable due December 30, 2021.
What is the total amount of cash and cash equivalents?
a. 4,335,000
b. 6,185,000
c. 4,285,000
d. 6,885,000
3. The controller Cooper Corporation, is attempting to determine the amount of cash to be reported on its December 31,
2020 statement of financial position. The following information is provided:
1. Commercial savings account of 1,200,000 and a commercial checking account balance of 1,800,000 are held at PS
Bank.
2. Travel advances of 360,000 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 3,000,000 is restricted for the retirement of a long-term debt.
4. Petty cash fund of 10,000.
5. An I.O.U. from a company officer in the amount of 40,000.
6. A bank overdraft of 250,000 has occurred at one of the banks the company uses to deposit its cash receipts. At the
present time, the company has no deposits at this bank.
7. The company has two certificates of deposit, each totaling 1,000,000. These certificates of deposit have maturity of
120 days.
8. Cooper has received a check dated January 2, 2021 in the amount of 150,000.
9. Cooper has agreed to maintain a cash balance of 200,000 at all times at PS Bank to ensure future credit availability.
10. Currency and coin on hand amounted to 15,000.
Based on the above data, how much will be reported as cash and cash equivalents at December 31, 2020?
a. 3,025,000 c. 2,575,000
b. 2,825,000 d. 5,025,000
4. Tricia is reviewing the cash accounting for Ozz, Inc. Tricia’s review will focus on the petty cash fund account for the
month ended May 31, 2021. She has collected the following information from Ozz’s bookkeeper for this task.
Petty Cash Fund

1. The petty cash fund was established on May 2, 2021, in the amount of 10,000.
2. Expenditures from the fund by the custodian as of May 31, 2021, were evidenced by approved petty cash
vouchers for the following:
Various office supplies expense 3,920
IOU from employees 1,200
Shipping Charges 2,298
Miscellaneous Expense 1,526
On May 31, 2021, the petty cash fund was replenished and increased to 12,000; currency and coin in the fund at
that time totaled P756.
1. What is the amount of petty cash shortage?

a. 2,300
b. 11,244
c. 300
d. 0
2. The journal entry to record the replenishment and increase in the petty cash fund includes a credit to
a. Cash of 10,944
b. Cash of 11,244
c. Petty cash fund of 10,944
d. Petty cash fund of 11,244
PCF 2,000
OS exp. 3,920
Advances 1,200
Shipping 2,298
Misc. exp. 1,526
CSO 300
CIB 11,244
5. In your cash count of the petty cash fund of Kaila Company as of July 4, 2021, you found the following composition of its
petty cash fund:
Bills and coins counted 2,450.00
Approved and signed petty cash vouchers
Dated June 2021 3,300.00
Dated July 1-4, 2021 800.00
IOU from Joe Santos (Employee) 1,400.00
A check drawn by Victoria, an employee, dated
July 15, 2021 2,000.00
The petty cash fund has an imprest balance of 10,000. The company’s reporting period ends on June 30.
1. What is the correct balance of the petty cash fund?
a. 3,000.00 c. 3,250.00
b. 3,200.00 d. 3,100.00
2. How much is the cash shortage or overage?

a. 100 shortage c. 100 overage
b. 50 shortage d. 50 overage
COUNT-ACCOUNTABILITY=CS/CO
6. An examination on the morning of January 2, 2021 by the auditor for the Kaila Company discloses the following items in
the petty cash drawer:
Postage stamps P 220.00
Currency and coins 1,156.60*
IOUS from members of the office staff 1,210.00
An envelope containing collections for a gift for a departing
employee, with office names attached 350.00
Petty cash vouchers for miscellaneous expenses (including a
PCV for stamps purchased for 450.00) 985.00
Employee's check postdated January 15, 2021 1,500.00
Employee's check marked "DAIF" 1,890.00
Check drawn by Kaila Company to Petty Cash 3,450.00*
P 10,761.60
The ledger account discloses a 10,500 balance for Petty Cash.
1. How much is the cash shortage or overage as of December 31, 2020?

a. 308.40 c. 88.40
b. 41.60 d. 658.40
10,761.60-(10,500+350+220) = 308.40
2. How much petty cash fund shall be shown as part of "Cash" balance as of December 31, 2020?
a. 10,761.60 c. 4,606.60*
b. 1,156.60 d. 5,141.60
116.60+3,450 = 4,606.60
7. The following data pertaining to the cash transactions and bank account of Angel Company for May 2020 are available to
you:
Cash balance, per accounting records, May 31, 2020 51,582
Cash balance, per bank statement, May 31, 2020 95,874
Bank service charge for May 327
Debit memo for the cost of printed checks delivered by the bank;
the charge has not been recorded in the accounting records 375
Outstanding checks, May 31, 2020 20,184
Deposit of May 30 not recorded by bank until June 1 14,610
Proceeds of bank loan on May 30, not recorded in the accounting
records, net of interest of P900 17,100
Proceeds from a customer’s promissory note; principal amount P24,000,
collected by the bank, and interest of 300 24,300
Check No. 1086 issued to a supplier entered in the accounting records
as P6,300 but deducted in the bank statement at an erroneous amount of 3,600
Stolen check lacking an authorized signature, deducted from Angel’s
account by the bank in error 2,400
Customer’s checks returned by the bank marked NSF, indicating that the
customer’s balance was not adequate to cover the checks; no entry has
been made in the accounting records to record the returned check 2,280
1. The adjusted cash in bank balance of Angel COMPANY at May 31, 2020 is:
a. P 87,570 b. P 90,000 c. P 90,570 d. P90,900
2. The cash in bank balance of Angel COMPANY at May 31, 2020 is:
a. Understated by P39,318 c. Understated by P38,418
b. Understated by P38,988 d. Understated by P35,988
90,000-51,582 = 38,418
Book (cash in bank) Bank (liability)

Dr. + Cr. - Dr. - Cr. +
Bal. per book 51,582 327 Outstanding checks 20,184 95,874
Proceeds of bank loan 17,100 375 Error - ch.# 1086 2,700 14,610
Collection of notes 24,300 2,280 2,400
92982 2982 22,884 112,884
-2,982 -22,884
Adjusted balance 90,000 90,000
8. Bank reconciliation; Computation of adjusted cash in bank balance
The books of JP's Service, Inc. disclosed a cash balance of P687,570 on December 31, 2021. The bank statement as of
December 31 showed a balance of P547,800. Additional information that might be useful in reconciling the two balances
follows:
(a) Check number 748 for P30,000 was originally recorded on the books as P45,000.= 15,000
(b) A customer's note dated September 25 was discounted on October 12. The note was dishonored on December 29
(maturity date). The bank charged JP's account for P142,650, including a protest fee of P2,650.
(c) The deposit of December 24 was recorded on the books as P28,950, but it was actually a deposit of P27,000.= -1,950
(d) Outstanding checks totaled P98,850 as of December 31.
(e) There were bank service charges for December of P2,100 not yet recorded on the books.
(f) JP's account had been charged on December 26 for a customer's NSF check for P12,960.
(g) JP properly deposited P6,000 on December 3 that was not recorded by the bank.
(h) Receipts of December 31 for P134,250 were recorded by the bank on January 2.
(i) A bank memo stated that a customer's note for P45,000 and interest of P1,650 had been collected on December 27,
and the bank charged a P360 collection fee.=46,290
QUESTIONS:
Based on the above and the result of your audit, determine the following:
1. Adjusted cash in bank balance

a. P583,200 c. P589,200
b. P577,200 d. P512,400
Book Bank
Unadjusted balances 687,570 547,800
Error - check # 748 15,000
Dishonored notes -142,650
Error in deposit -1,950
Outstanding checks -98,850
Bank charges -2,100
NSF check -12,960
Unrecorded deposit - bank 6,000
DIT/undeposited collection 134,250
collection by the bank 46,290
Adjusted balances 589,200 589,200
2. Net adjustment to cash as of December 31, 2021
a. P104,370 c. P 98,370
b. P110,370 d. P175,170
687,570-589,200 = 98,370
9. You are attempting to determine an apparent cash shortage that you believe resulted from an employee’s theft. You
have assembled the following information for the month of March:
Cash balance per books, March 1 115,963.70
Cash receipts for March, per books 246,475.00
Cash disbursements for March, per books 334,709.10
Cash balance, per bank statement, March 31 15,341.40
Deposit in transit, March 31 9,000.00
Outstanding checks, March 31 2,703.80
Bank service charge for March 92.00
What is the amount of the suspected ash shortage?

a. 5,800
b. 6,350
c. 6,000
d. 5,500
Book Bank
Cash balance 3/1 115,963.70
Receipts per book - March 246,475
Disb. Per book - March -334709.1
Balance per bank 3/31 15,341.40
DIT, 3/31 9,000
Outstanding checks, 3/31 -2,703.80
Bank service charge for March -92
Balances 27637.6 21637.6
Cash shortage -6,000
Adjusted balance 21637.6 21637.6
10. On March 3, 2021, Jerome Company received its bank statement. However, the closing balance of the account was
unreadable. Attempts to contact the bank after hours did not secure the desired information. Thus, you had to prepare
a bank reconciliation from the available information summarized below:
February 28 book balance 1,460,000
Note collected by bank 100,000
Interest earned on note 10,000
NSF check of customer 130,000
Bank service charge on NSF check 2,000
Other bank service charges 3,000
Outstanding checks 202,000
Deposit of February 28 placed in night depository 85,000
Check issued by Axle Company charged to Jerome’s account 20,000
What was the cash balance per bank statement?
a. 1,435,000
b. 1,532,000
c. 1,338,000
d. 1,557,000
Book to Bank
Dr. + Cr. -
Balance per book 1,460,000 130,000 NSF check
Note collected by bank 100,000 2,000 Bank service charge
Interest earned on notes 10,000 3,000 Other bank charges
Outstanding check 202,000 85,000 DIT
20,000 Check of other Co. charge in error
Debit 1772000 240000
Credit -240,000
Unadjusted bank bal. 1532000
11. Information pertaining to Ana Company appears below.

Balance per bank statement July 31 1,240,000
Balance per ledger, July 31 750,000
Deposit of July 30 not recorded by bank 280,000
Debit memo – service charge 10,000
Credit memo – collection of note by bank for Ana 300,000
Outstanding checks ?
An analysis of the canceled checks returned with the bank statement reveals the following:
? Check for purchases of supplies was drawn for 60,000 but was recorded as 90,000.
? The manager wrote a check for traveling expenses of 100,000 while out of town. The checks was not recorded.
What is the amount of outstanding checks on July 31?
a. 970,000 c. 270,000
b. 550,000 d. 610,000
Book
Bal. per ledger 750,000 10,000 DM- SC
CM - Collection 300,000 100,000 Unrecorded disbursement check
Error - purchases 30,000
Debit 1,080,000 110,000
Credit - 110,000
Adjusted balance 970,000
Bank
Outstanding checks ? 1,240,000 Balance
550,000 280,000 DIT
1,520,000 Debit
Credit
970,000 Adjusted bal
12. Norman Company had the following bank reconciliation on June 30, 2021:
Balance per bank statement, June 30 3,000,000
Add: Deposit in transit 400,000
Total 3,400,000
Less: Outstanding checks 900,000
Balance per book, June 30 2,500,000
The bank statement for the month of July showed the following:
Deposits (including P200,000 note collected for Norman) P9,000,00
Disbursement (including P140,000 NSF check and
P10,000 service charge) 7,000,000
All reconciling items on June 30 cleared through the bank in July. The outstanding checks totaled P600,000 and the deposit
in transit amounted to P1,000,000 on July 31.
Q1. What is the cash balance per book on July 31, 2021?
a. 5,400,000
b. 5,350,000
c. 5,550,000
d. 4,500,000
Balance per book, June 30 2,500,000
Add receipts in July 9,400,000
Total 11,900,000
Less disbursements in July - 6,550,000
Cash balance per book, July 31 5,350,000
Q2. What is the amount of cash receipts per book in July 2021?
a. 9,400,000
b. 9,600,000
c. 8,600,000
d. 9,800,000
DIT, June 30 400,000
Receipts per books - collections in July deposited ? 9.4M
Total for deposit 9,800,000
Less: Receipts per bank (deposit received by the bank) - 8,800,000 (9M-.200)
DIT, July 31 1,000,000
Q3. What is the amount of cash disbursements per book in July 2021?
a. 6,550,000
b. 6,700,000
c. 7,300,000
d. 6,850,000
Outstanding checks, June 30 900,000
Disbursement per book - checks issued in July ? 6,550,000
Total checks to be presented to the bank 7,450,000
Less disbursement per bank (checks cleared) - 6,850,000 (7M-.140-.010)
Outsanding checks, July 31 600,000
13. Jerome Co. was organized on January 2, 2021. The following items are from the company’s trial balance on December 31,
2021.
Common stock P1,200,000

Additional paid-in-capital 50,000 = 1,250,000 REC
Merchandise inventory 69,000
Land 1,000,000 DISB
Building 1,400,000 DISB
Furniture and fixtures 367,000 DIDB
Accounts receivable 165,400
Accounts payable 389,650
Notes payable-bank 500,000
Sales 6,235,200
Operating expenses (including depreciation of 400,000) 1,005,150 DISB = 605,150
Additional information is as follows:

1. Deposits in transit, December 31 45,167
2. Service charge for December 2,000
3. Outstanding checks, December 31 163,666
4. Bank balance, December 31 520,159
5. Jerome Co.’s mark up on sales is 30%.
1. What is the total collection from sales?

a. 6,114,967 c. 6,235,200
b. 4,119,240 d. 6,069,800
Accounts Receivable
Beg. - ? Collection
Sales 6,235,200 6,069,800
Debit 6,235,200
Credit
Ending 165,400
*WORK BACK 6,235,200+165,400 = 6,069,800
2. What is the total payment for merchandise purchases?
a. 3,905,990 c. 4,043,990
b. 4,649,140 d. 5,914,550
Accounts Payable
Payment ? - Beg. BI -
4,043,990 4,444,640 Purchases Add puchases ?
4,433,640 Credit Available for sale 4,433,640
Debit Less ending inventory - 69,000
389,650 Ending Cost of goods sold 4,364,640 (6,235,200 x 70%)
*WORK BACK 4,364,640+69,000 = 4,433,640
*WORK BACK 4,433,640-389,650 = 4,043,990
3. What is the total cash receipts per books?
a. 7,819,800 c. 7,985,200
b. 7,769,800 d. 5,869,240
*6,069,800+1,250,000+500,000 = 7,819,800
4. What is the total cash disbursements per books?
a. 7,816,140 c. 8,021,290
b. 7,416,140 d. 7,278,140
5. What is the cash balance per books on December 31?
a. 403,660 c. 569,060
b. 541,660 d. 707,060
Receipts:
Collection from customers(AR) 6,069,800
Issuance of CS (1,200,000 + 50,000) 1,250,000
Issuance of NP-bank 500,000 7,819,800
Disbursements:
Acquisition of Land 1,000,000
Acquisition of Bldg. 1,400,000
Acquisition of Furnitures & Fixtures 367,000
Payment for operating expense
(1,005,150 - 400,000) 605,150
Payment to suppliers (AP) 4,043,990 7,416,140
Cash balance per book 403,660
6. What is the adjusted cash balance on December 31?
a. 638,568 c. 401,660
b. 705,060 d. 539,660
Book Bank
Unadjusted bal 403,660 520,159
DIT 45,167
Service charge - 2,000
Outstanding checks - 163,666
Adjusted balances 401,660 401,660
14. The following information is shown in the accounting records of a company:
Balances as of January 1, 2021

Cash 93,000
Merchandise inventory 129,000
Accounts Receivable 100,500
Balances as of December 31, 2021
Merchandise Inventory 117,000
Accounts receivable 136,500
Total sales and cost of goods sold for 2021 were 1,197,000 and 874,500, respectively. All sales and all merchandise
purchases were made on credit. Various operating expenses of 160,500 were paid in cash. Assume that there were no
other pertinent transactions. The cash balance on December 31, 2021 would be
a. 162,500
b. 223,500
c. 384,000
d. 457,500
15. During the year, Jerome issued the following checks pertaining to its petty cash fund:
*P5,000 check issued to established the petty cash fund
*P2,000 checks issued to replenish the petty cash fund
*P2,000 check to increase the petty cash fund
All the above checks were correctly recorded.
At balance sheet date, the petty cash fund is consisting of the following:
*P2,200 paper currencies and coins
*P4,300 paid, but unreplenished vouchers
To record the adjustment of petty cash fund balance as of balance sheet date, the adjusting entry would have a
a. debit to petty cash shortage of P500 c. credit to overage of P1,500
b. debit to petty cash of P500 d. credit to petty cash of P4, 300
16. The bookkeeper of Jostin Company recently prepared the following bank reconciliation on December 31, 2021:
Balance per bank statement 20,000,000

Add: Deposit in transit 1,500,000
Checkbook and other bank charge 50,000
Error made by Jostin in recording check No.
1005 (issued in December) 150,000
Customer check marked DAIF 500,000 2,200,000
Total 22,200,000
Deduct: Outstanding checks 1,900,000
Note collected by bank (includes P200,000 interest) 2,300,000 4,200,000
Balance per book 18,000,000
Jostin has 1,000,000 cash on hand on December 31, 2021. The amount to be reported as cash on the balance sheet as of
December 31, 2021 should be
a. 19,600,000 c. 20,600,000
b. 18,600,000 d. 19,750,000
17. You were able to gather the following from the December 31, 2020 trial balance of JP Corporation in connection with your
audit of the company:
Cash on hand P 500,000

BPI current account 1,000,000
Security Bank current account No. 01 1,080,000
Security Bank current account No. 02 (80,000)
PNB savings account 1,200,000
PNB time deposit 500,000
Cash on hand includes the following items:
a. Customer’s check for 40,000 returned by bank on December 26, 2020 due to insufficient fund but subsequently
redeposited and cleared by the bank on January 8, 2021.
b. Customer’s check for 20,000 dated January 2, 2021, received on December 29, 2020.
c. Postal money orders received from customers, 30,000.
The petty cash fund consisted of the following items as of December 31, 2020.
Currency and coins P 2,000

Employees’ vales 1,600
Currency in an envelope marked “collections for charity”
with names attached 1,200
Unreplenished petty cash vouchers 1,300
Check drawn by JP Corporation, payable to the petty cashier
4,000
P10,100
Included among the checks drawn by JP Corporation against the BPI current account and recorded in December 2020 are
the following:
a. Check written and dated December 29, 2020 and delivered to payee on January 2, 2021, 80,000.
b. Check written on December 27, 2020, dated January 2, 2021, delivered to payee on December 29, 2020, 40,000.
The credit balance in the Security Bank current account No. 2 represents checks drawn in excess of the deposit balance.
These checks were still outstanding at December 31, 2020.
The savings account deposit in PNB has been set aside by the board of directors for acquisition of new equipment. This
account is expected to be disbursed in the next 3 months after the end of the reporting period.
QUESTIONS:
Based on the above and the result of your audit, determine the adjusted balances of following:
1. Cash on hand
a. 410,000 c. 470,000
b. 530,000 d. 440,000
2. Petty cash fund

a. 6,000 c. 2,000
b. 7,200 d. 4,900
3. BPI current account

a. 1,000,000 c. 1,080,000
b. 1,120,000 d. 1,040,000
4. Cash and cash equivalents

a. 2,917,200 c. 3,052,000
b. 3,074,900 d. 3,066,000
18. You noted the following composition of Cleo Company’s “cash account” as of December 31, 2021 in connection with your
audit:
Demand deposit account 2,000,000

Time deposit – 30 days 1,000,000
NSF check of customer 40,000
Money market placement (due June 30, 2022) 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, 2022 50,000
Customer’s check outstanding for 18 months 40,000
Total P7,760,000
Additional information follows:

a) Check of 200,000 in payment of accounts payable was recorded on December 31, 2021 but mailed to suppliers on
January 5, 2022.
b) Check of 100,000 dated January 15, 2022 in payment of accounts payable was recorded and mailed on December 31,
2021.
c) The company uses the calendar year. The cash receipts journal was held open until January 15, 2022, during which time
400,000 was collected and recorded on December 31, 2021.
The cash and cash equivalents to be shown on the December 31, 2021 balance sheet is
a) 3,310,000
b) 2,910,000
c) 1,910,000
d) 4,410,000
19. Tricia Company has cash in Bank X amounting to 5,000,000, another on its account on Bank Y which amounts to 2,500,000
netted of an overdraft of 500,000 from Bank Z. Cash on its vault amounts to 700,000. Its cash on another bank which is
intended for long term spending amounts to 500,000. On October 21, 2021, the entity purchased a time deposit of
2,000,000. The said time deposit is due on December 22, 2021.
Other than the given information, the entity also owns an investment securities of 1,500,000 which are share investments
in entities that are traded at the PSE. Furthermore, the Bank X was closed by the BSP on December 1 of the current year
due to some occurrences. As a result, the entity is expected to receive a 500,000 cash on the next year.
1. What total amount should be reported as cash under current asset on December 31, 2021?
a. 3,800,000
b. 3,700,000
c. 3,600,000
d. 3,500,000
2. What total amount should be reported as “Cash and Cash Equivalents” under current asset?
a. 3,700,000
b. 4,700,000
c. 5,700,000
d. 6,700,000
3. How much is the loss from Bank X?

a. 3,500,000
b. 3,000,000
c. 4,000,000
d. 4,500,000
20. Susan Company showed the following bank reconciliation July 31, 2021:
Balance per bank statement 2,100,000

Deposit s outstanding 300,000
Check outstanding (30,000)
Correct cash balance 2,370,000
Balance per book 2,372,000

Bank service charge (2,000)
Correct cash balance 2,370,000
August data are as follows:

BANK BOOK
Checks recorded 2, 300,000 2, 360,000
Deposits recorded 1,620,000 1,800,000
Collection by bank
(400,000 note + interest) 420,000 -
NSF check returned with August 31 10,000 -
Balances 1,830,000 1,810,000
1. What is the amount of outstanding checks on August 31, 2021?
a. 93,000
b. 80,000
c. 70,000
d. 90,000
2. What is the amount of deposit in transit on August 31, 2021?

a. 500,000
b. 650,000
c. 480,000
d. 750,000
3. What is the adjusted cash in bank on August 31?

a. 4,000,000
b. 3,990,000
c. 4,500,000
d. 2,220,000
RECEIVABLES
Problem
1. On December 31, 2021, the accounts receivable control account of Kaila Company had a balance of 2,865,000. An analysis
of the accounts receivable account showed the following:
Accounts known to be worthless P 37,500

Advance payments to creditors on purchase orders 150,000
Advances to affiliated companies – NON-CURRENT W/O 375,000
TERM
Customers’ accounts reporting credit balances arising from
sales return – CURRENT LIABILITY (225,000)
Interest receivable on bonds 150,000
Other trade accounts receivable – unassigned 750,000
Subscriptions receivable due in 30 days – W/O TERM 825,000
INCLUDE AS PART OF CONTRIBUTED CAPITAL
Trade accounts receivable - assigned (Kaila company’s equity
in assigned accounts is P150,000) 375,000
Trade installment receivable due 1 – 18 months, including
unearned finance charges of P30,000 330,000
Trade receivables from officers due currently 22,500
Trade accounts on which post-dated checks are held (no
entries were made on receipts of checks) 75,000
P2,865,000
Based on the above information, determine the adjusted balance of following:

*UNASSIGNED – DIDN’T USE AS A COLLATERAL TO A LOAN
*ASSIGNED – USE AS COLLATERAL TO A LOAN
*DO NO INCLUDE FINANCE CHARGES (INTEREST)
*TRADE – CLAIMS FROM SELLING MERCHANDISE EITHER FROM EXTERNAL OR INTERNAL
1. The trade accounts receivable as of December 31, 2021 is
a. 1,147,500
b. 1,522,500
c. 1,485,000
d. 1,447,500
750,000+375,000+(330,000-30,000) +22,500+75,000 = 1,522,500
2. The net current trade and other receivables as of December 31, 2021 is
a. 2,647,500
b. 2,610,000
c. 2,272,500
d. 1,822,500
*OTHER RECEIVABLES – THIS ARE NON-TRADE RECEIVABLE COLLECTIBLE WITHIN A YEAR.
1,522,500+(150,000+150,000+825,000) = 2,647,500
3. How much of the foregoing will be presented under noncurrent assets as of December 31, 2021?
a. 1,200,000
b. 375,000
c. 525,000
d. 0
2. Presented below are a series of unrelated situations. Answer the following questions relating to each of the independent
situations as requested.
1. Kaila Company’s unadjusted trial balance at December 31, 2021, included the following accounts:
Debit Credit
Accounts receivable P1,000,000
Allowance for doubtful accounts 40,000
Sales P15,000,000
Sales returns and allowances 700,000
Kaila Company estimates its bad debt expense to be 1 1/2% of net sales. Determine its bad debt expense for 2021.
a. 225,000
b. 254,500
c. 214,500
d. 55,000
*TWO BASIS OF ALLOWANCE:
1. INCOME STATEMENT – THE BASIS IS ELEMENT OF INCOME STATEMENT WHICH IS % OF SALES = DOUBTFUL
ACCOUNTS EXPENSE
2. BALANCE SHEET – THE BASIS IS ELEMENT OF BS EITHER % OF AR OR AGING OF AR = ENDING ALLOWANCE
(REQUIRED)
SALES 15,000,000
LESS: SR & ALLOW (700,000)
NET SALES 14,300,000
*1 ½%
214,500
2. An analysis and aging of Connie Corp. accounts receivable at December 31, 2021, disclosed the following:
Amounts estimated to be uncollectible P 1,800,000

Accounts receivable 17,500,000
Allowance for doubtful accounts (per books) 1,250,000
What is the net realizable value of Connie’ receivables at December 31, 2021?
a. 15,700,000
b. 17,500,000
c. 16,250,000
d. 14,450,000
17,500,000-1,800,000 = 15,700,000
3. Connie Company provides for doubtful accounts based 3% of credit sales. The following data are available for 2021.
Credit sales during 2021 P21,000,000

Allowance for doubtful accounts 1/1/2021 170,000
Collection of accounts written off in prior years
(Customer credit was reestablished) 80,000
Customer accounts written off as uncollectible during
2021 300,000
What is the balance in allowance for doubtful accounts at December 31, 2021?
a. 630,000
b. 420,000
c. 500,000
d. 580,000
ALLOW FOR D. A
300,000 170,000
80,000
---------- 630,000 21M*3%
880,000
(300,000)
580,000
*630,000 IS THE DOUBTFUL ACCOUNTS EXPENSE
4. At the end of its first year of operations, December 31, 2021, Joseph, Inc. reported the following information:
Accounts receivable, net of allowance for

doubtful accounts P9,500,000
Customer accounts written off as uncollectible
during 2021 240,000
Bad debts expense for 2021 840,000
What should be the balance in accounts receivable at December 31, 2021, before subtracting the allowance for
doubtful accounts?
Allow. For D.A
a. 10,100,000
b. 10,340,000 W/O 240,000 840,000 D.A. exp.
c. 9,740,000 -240,000 less debit
d. 10,580,000 600,000 Ending bal.
*WORK BACK
9,500,000+600,000 = 10,100,000
5. The following accounts were taken from Joseph Inc.’s statement of financial position at December 31, 2021.
Debit Credit
Net credit sales P7,500,000
If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2021.
a. 123,000
b. 23,000
c. 223,000
d. 225,000
WORKBACK: END BAL (4,100,000*3%) + ADA 100,000 = 223,000 DAE
3. In your audit of the books of Angel Company for the year of 2021, you concluded that the allowance for doubtful
accounts should be adjusted to equal the estimated amount required based on aging of the accounts as of December
31. During your audit, you were able to gather the following data:
Allowance for doubtful accounts, Jan. 2, 2021 P300 000
Provision for doubtful accounts during 2021 150 000
(3% of P5 000 000 sales)
Bab debts written off in 2021 187 500
Recovery of bad debts written off during 2021 50 000
Estimated doubtful accounts per aging on Dec. 31, 2021 200 000
Accounts receivable, Dec. 31, 2021 2,375 000
1. Doubtful accounts expense for 2021

a. 350 000
b. 162 500
c. 37 500
d. 112 500
Allow for D.A.

W/O 187,500 300,000 beg. Allow
50,000 Recovery
? 37500 D.A. expense
387,500 Credit
-187,500 Less debit
200,000 Ending
*WORKBACK: 387,500-50,000-300,000 = 37,500
2. Net realizable value of accounts receivable of December 31, 2021
a. 2 375 000
b. 2 575 000
c. 2 175 000
d. 2 875 000
AR 2,375,000 – ADA 200,000 = 2,175,000
3. The increase (decrease) in the recorded allowance for doubtful accounts of December 31, 2021
a. 112 500
b. 512 500
c. 312 500
d. 200 000
Allow. For D. A
W/o 187,500 300,000 beg
50,000 Recovery
150,000 Provision(5M x 3%)
500,000 Credit
-187,500 Debit
312,500 Bal. before adjustment
-200,000 Required allow. per aging
112,500 Required adjustments
4. Tricia Company started business at the beginning of current year. The entity established a doubtful accounts expense at
5% of credit sales. *NO BEGINNING INVENTORY = BEG OF CURRENT YEAR
During the year, the entity wrote off 50,000 of uncollectible accounts. Further analysis showed that merchandise
purchased amounted to 9,000,000 and ending merchandise inventory was 1,500,000. Goods were sold at 40% above
cost. *SALES 140%-CS 100% = GP 40%
The total sales comprised 80% sales on account and 20% cash sales. Total collections from customers, excluding cash
sales amounted to 6,000,000.
1. What is the cost of goods? BEG INVT 0

a. 7,500,000 PURCH (NET) 9,000,000
b. 18,750,000 GAFS 9,000,000
c. 12,000,000 LESS: END INVT (1,500,000)
d. 8,400,000 COGS 7,500,000
2. What is the amount of sales on account?
a. 10,500,000
b. 18,750,000
c. 12,000,000
d. 8,400,000
7,500,000*140% = 10,500,000
10,500,000*80% = 8,400,000
3. What is the net realizable value of accounts receivable at year-end?
a. 1,980,000
b. 2,350,000
c. 1,930,000
d. 2,400,000
8,400,000-(6,000,000+50,000) = 2,350,000
8,400,000*5% = 420,000 – 50,000 = 430,000
NRV = 1,980,000
5. Joseph Company’s statement of financial position shows the accounts receivable balance at December 31, 2020 as follows:

P3,528,000
During 2021, transactions relating to the accounts were as follows:
Sales on account, 38,400,000.

Cash received from collection of current receivable totaled 31,360,000, after discount of 640,000 were allowed for
prompt payment. = 32,000,000
Customers’ accounts of 160,000 were ascertained to be worthless and were written off.
Bad accounts previously written off prior to 2021 amounting to 40,000 were recovered.
The Company decided to provide 184,000 for doubtful accounts by journal entry at the end of the year.
Accounts receivable of 5,600,000 have been pledged to a local bank on a loan of 3,200,000. Collections of 1,200,000
were made on these receivables (not included in the collections previously given) and applied as partial payment to
the loan.
Accounts Receivable
Based on the above data, answer the following: Beg. Balance 3,600,000 32,000,000 Collection
Sales on account 38,400,000 160,000 Write off
1. The accounts receivable as of December 31, 2021 is
Recovery 40,000 40,000 Recovery
a. 8,680,000
b. 9,840,000 Debit 42,040,000 1,200,000 Collection
c. 4,240,000 Less credit -33,400,000 33,400,000
d. 8,640,000 AR, 12/31 8,640,000
2. The allowance for doubtful accounts as of December 31, 2021 is

a. 8,000
b. 136,000 (72,000+184,000+40,000)-160,000
c. 184,000
d. 176,000
3. The net realizable value of accounts receivable as of December 31, 2021 is

a. 8,544,000
b. 8,456,000
c. 8,504,000 8,640,000-160,000
d. 4,104,000
4. If receivables are hypothecated against borrowings, the amount of receivables involved should be
a. Disclosed in the statements or notes
b. Excluded from the total receivables, with disclosure
c. Excluded from the total receivables, with no disclosure
d. Excluded from the total receivables and a gain or loss is recognized between the face value and the amount of
borrowings
6. On January 1, 2021, JP Co. sells its equipment with a carrying value of 160,000. The company receives a non-interest-
bearing note due in 3 years with a face amount of 200,000. There is no established market value for the equipment. The
prevailing interest rate for a note of this type is 12%. The following are the present value factors of 1 at 12%:
*LONG-TERM: NON-INTEREST BEARING (LUMP-SUMP) – INITIAL PV; SUBS AMORT COST
*PV = FACE AMOUNT x PRESENT VALUE FACTOR EFFECTIVE RATE
*PV = 200,000*0.71178 = 142,356
Present value of 1 for 3 periods 0.71178 – USE IF THE PAYMENT WILL HAPPEN ONCE
Present value of an ordinary annuity of 1 for 3 periods 2.40183 – USE IF EVERY YEAR THE PAYMENT IS THE SAME
(HINUHULUGAN LANG)
1. What is the gain or loss to be recognized on the sale of the equipment?
a. 17,644 loss 142,356-160,000
b. 122 gain
c. 17,644 gain
d. 40,000 gain
2. The discount on note receivable on January 1, 2021, is
a. 57,644 200,000-142,356
b. 0
c. 40,000
d. 17,644
*DISCOUNT = FACE AMOUNT>PRESENT VALUE
*PREMIUM = FACE AMOUNT<PRESENT VALUE
3. The discount amortization at the end of the third year using the effective interest method is
a. 13,333
b. 19,215
c. 21,428
d. 0
DATE AMORT AMOUNT
01/01/21 142,356
12/31/21 17,083 159,439 142,356*12% = 17,083+142,356
12/31/22 19,133 178,572 159,439*12% = 19,133+159,439
12/31/23 21,429 200,000 178,572*12% = 21,429+178,572
7. On December 31, 2020, Ozz Company sold used equipment with carrying amount of 3,000,000 in exchange for a
noninterest bearing note of 7,000,000 requiring ten annual payments of 700,000. The first payment was made on
December 31, 2021.
*LT: NON-INTEREST-BEARING NOTE – INSTALLMENT
*PV = INSTALLMENT SALES*A1 FACTOR
*ANNUITY IN ADVANCE IF THE PAYMENT IS IN 2020 BUT ORDINARY IF THE FIRST PAYMENT WAS MADE ON 2021 (AFTER
A YEAR)
The 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 5.33 for nine periods.
1. What is the carrying amount of the note receivable on December 31,

2020?
a. 4,034,000
b. 3,955,000 700,000*5.65
c. 4,350,000
d. 5,330,900
2. What is the gain on sale of equipment to be recognized in 2020?
a. 559,000
b. 955,000 3,955,000-3,000,000 (GAIN)
c. 595,000
d. 950,500
3. What amount should be recognized as interest income for 2021?
a. 400,000 DATE ANNUAL INTEREST 12% PRINCIPAL CARRYING
b. 474,600 PAYMENT (CA*ER) AMOUNT
c. 386,400 12/31/20 3,955,000
d. 375,093
12/31/21 700,000 474,600 225,400 3,729,600
12/31/22 700,000 447,552 252,448 3,477,152
4. What is the carrying amount of the note receivable on December 31, 2021?
a. 3,729,600
b. 3,972,000
c. 3,927,000
d. 3,970,200
8. On December 31, 2019, Ozz Company finished consultation services and accepted in exchange a promissory note with a
face value of 600,000, a due date of December 31, 2022, and a stated rate of 5%, with interest receivable at the end of
each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the
circumstances, the note is considered to have an appropriate imputed rate of interest of 10%. The following interest
factors are provided:
*LT: SR<ER
*PV = (FACE AMOUNT*PV1) + (INT*A1)
600,000*.75132 = 450,792
600,000*5%*2.48685 = 74,606
PV = 450,792+74,606 = 525,398
Interest Rate
Table Factors For Three Periods 5% 10%
Future Value of 1 1.15763 1.33100
Present Value of 1 .86384 .75132
Future Value of Ordinary Annuity of 1 3.15250 3.31000
Present Value of Ordinary Annuity of 1 2.72325 2.48685
1. What is the present value of the note on December 31, 2019?

a. 450,792
b. 530,000
c. 600,000
d. 525,398
2. What is the amount of discount on notes receivable on December 31, 2019?

a. 75,000
b. 52,062
c. 74,602 600,000-525,298
d. 81,697
3. What is the amount of discount amortized during December 31, 2021?

a. 0
DATE FA*5% CA*10% AMORT CARRYING
b. 22,540
(SR) (ER) AMOUNT
c. 24,794
d. 27,268 12/31/19 525,398
12/31/20 30,000 52,540 22,540 547,938
12/31/21 30,000 54,794 24,794 572,624
4. What is the amount of interest income during December 31, 2021?
a. 52,540
b. 54,794
c. 57,268
d. 0
RECEIVABLES FINANCING – USE RECEIVABLES AS COLLATERAL
PLEGING AND ASSIGNMENT (FORMAL) – SAME USE THE RECEIVABLE AS COLLATERAL TO A LOAN. CONTINUE TO
RECOGNIZE THE ASSET (RECEIVABLE) AND LIABILITY RELATED TO THE LOANS; NO RECOGNITION FOR A GAIN OR LOSS,
YOU ONLY RECOGNIZE GAIN OR LOSS WHEN THERE IS A SALE.
9. On December 1, 2021, Tris Company assigned 400,000 of accounts receivable to Kaila, in consideration for a loan of
335,000. Company charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During
December, Tris collected 110,000 on assigned accounts after deducting 380 of discounts. Tris accepted returns worth
1,350 and wrote off assigned accounts of 2,980.
1. How much cash did Tris receive from Kaila at the time of the transfer?
a. 301,500
b. 327,000
c. 328,300 335,000-(335,000*2%)
d. 335,000
2. What is the carrying value of the account receivable assigned as of December 31, 2021?
a. None Account receivable assigned 400,000 AR-ass/AR
b. 285,290 Less: Collection -110,380 Cash/Sales Disc/AR-ass
c. 289,620 Sales return -1,350 SRA/AR-ass
d. 335,000 Write-off -2,980 Allow/AR-ass
Carrying value of accounts receivable assigned 285,290
10. On December 1, 2019, Winterton 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, 2019, the entity remitted the collections to the bank in payment for the interest accrued on
December 31, 2019 and the note payable.
1. What amount of cash was received from the assignment of accounts receivable on December 1, 2019?
a. 2, 000, 000
b. 2, 150, 000
c. 2, 375, 000
d. 3, 100, 000
2. What is the carrying amount of note on December 31, 2019?

a. 1, 550, 000
NP - bank 2,500,000 NP 925,000
b. 1, 575, 000
Less: Payment 950,000 Int. Exp 25,000
c. 1, 600, 000
d. 1, 757, 000 Interest -25,000 925,000 Cash 950,000
NP - bank, 12/31 1575000
3. What amount should be disclosed as the equity of Winterton Company in assigned accounts on December 31, 2019?
a. 425, 000
b. 475, 000 AR - ssigned (3.1M - 1M) 2,100,000
c. 495, 000 NP - bank - 1,575,000
d. 525, 000 Equity on assigned accounts 525,000
FACTORING:
WITHOUT RECOURSE – SALE AGREEMENT, DERECOGNIZE ASSET AND RECOGNIZED GAIN OR LOSS ON SALE
WITH RECOURSE – LOAN AGREEENT, RECOGNIZE ASSET AND LIABILITY; NO RECOGNITION FOR GAIN AND LOSS
11. On February 1, 2021, Joseph Corporation factored receivables with a carrying of 2,000,000 to Jerome Corporation.
Joseph Corporation assesses a finance charge of 3% of the receivables and retains 5% of the receivables.
1. If the factoring is treated as a sale, what amount of loss from sale should the company report in its 2021 statement of
comprehensive income for the year 2021?
a. none
Selling Price ( 2M x 97%) 1,940,000
b. 60,000
c. 100,000 CA of receivables - 2,000,000
d. 160,000 Loss from factoring - 60,000
2. Assume that Joseph Company retained significant amount of risk and rewards of ownership and had a continuing
involvement on the factored financial asset, what amount of loss from factoring should the company recognize?
a. none with recourse - no recognition for gain or loss
b. 60,000
c. 100,000
d. 160,000
DISCOUNTING:
WITH RECOURSE – LOAN AGREEMENT, RECOGNIZE ASSET AND LIABILITY
WITHOUT RECOURSE – SALE AGREEMENT, DERECOGNIZED THE ASSET AND RECOGNIZE GAIN OR LOSS
12. Jerome Received from a customer a one-year, P375,000 note bearing annual interest of 8%. After holding the note for
six months, Jerome discounted the note at I-Bank at an effective interest rate of 10%.
1. How much should Jerome receive from the bank?

a. 371,428.50 b. 384,750.00 c. 392,857.50 d. 405,000.00
Principal 375,000
Add interest 30,000 (Prin. X SR x Time)
Maturity value 405,000
Less discount - 20,250 (MV x Discount rate x Discount period)
Proceeds 384,750
*375,000*8% = 30,000
*405,000*10%*6/12 = 20,250
2. If the discounting is treated as a sale, what amount of loss on discounting should Jerome recognize?
a. 0
b. 5,250
c. 9,750
d. 20,250
SP/Proceeds from discounting 384,750
Less carrying value of the notes:
Principal 375,000
add accrued interest
(375,000 x 8% x 6/12) 15,000 390,000
Loss from discounting 5,250
LOAN RECEIVABLE:
INITIAL = PV OR INITIAL CASH OUTFLOWS
SUBS = AMORT COST
INT. INC = CA*ER
13. Scotia Bank granted a 10-year loan to Shawn Company in the amount of 1,500,000 with a stated interest rate of 6%.
Payments are due monthly and are computed to be 16,650. Scotia Bank incurred 40,000 of direct loan origination cost
and 20,000 of indirect loan origination cost. In addition, the bank charged Shawn Company a 4% nonrefundable loan
origination fee.
1. Scotia Bank, the lender, has a carrying amount of

a. 1,440,000
Principal 1,500,000
b, 1,480,000
c. 1,500,000 Direct origination cost 40,000
d. 1,520,000 Origination fee charged - 60,000
Initial CA 1,480,000
2. Shawn Company, the borrower, has carrying amount of
a. 1,440,000 Principal 1,500,000
b. 1,480,000 Less origination fee charged - 60,000
c. 1,500,000 Carrying amount 1,440,000
d. 1,520,000
14. TD Bank granted a loan to a borrower on January 1, 2019. The interest rate on the loan is 10% payable annually starting
December 31, 2019. The loan matures in five years on December 31, 2023. The data related to the said loan are:
Principal Amount 8,000,000

Origination fee received from the borrower 1,250,000
Direct origination cost incurred 50,000
The effective rate on the loan after considering the direct origination cost incurred and the origination fee is 15%.
1. What is the carrying amount of the loan receivable on January 1, 2019?

a. 3,544,000 Principal loans 8,000,000
b. 4,600,000 Direct origination cost incurred 50,000
c. 5,504,000 Origination fee charged - 1,250,000
d. 6,800,000
Initial carrying amount 6,800,000
Susequent: Amortized cost
Date SR 10% ER 15% AmortizationC.A.
1/1/19 6,800,000
12/31/19 800,000 1,020,000 220,000 7,020,000
12/31/20 800,000 1,053,000 253,000 7,273,000
2. What is the interest income for 2019?
a. 1,709,000
b. 1,907,000
c. 1,020,000
d. 2,000,000
3. What is the carrying amount of the loan receivable on December 31, 2019?
a. 7,020,000
b. 8,000,000
c. 6,200,000
d. 5,100,000
15. PNB Bank granted a loan to a borrower in the amount of 5,000,000 on January 1, 2021. The interest rate on the loan is
10% payable annually starting December 31, 2021. The loan matures in five years on December 31, 2025. PNB Bank incurs
39,400 of direct loan origination cost and 10,000 of indirect loan origination cost. In addition, PNB Bank charges the
borrower an 8-point nonrefundable loan origination fee.
Based on the above information, answer the following: (Round off present value factors to four decimal places)
1. The carrying amount of the loan as of January 1, 2021 is

a. 5,000,000 Principal 5,000,000
b. 4,639,400 Direct origination cost incurred 39,400
c. 5,039,400 Origination fee charged (8%) - 400,000
d. 4,649,400
Initial carrying amount 1/1/21 4,639,400
2. The effective interest rate of the loan is
a. 10.00%
b. 11.94%
c. 12.00%
d. 9.80%
Computation of estimated effective rate:
1. Compute the nominal interest income (5M x 10%) = 500,000
2. Compute for the straight line amortization of discount
(5M - 4,639,400 = 360,400 / 5) = 72,080
3. Add 1 & 2 (500,000 + 72,000) = 572,080
4. Divide 3 with the initial CA (572,000/4,639,400) = 0.1233
5. The estimated ER is an indication that ER is somewhere between
12% and 13%.
12% Effective rate:
Principal x PV1 (5,000,000 x .5674) = 2,837,000
Interest x A1 factor (5M x 10% = 500,000 x 3.6048) = 1,802,400
PV/ Initial CA 4,639,400
3. The interest income to be recognized in 2021 is
a. 500,000
b. 555,138
c. 493,861
d. 556,728
4. The carrying amount of the loan as of December 31, 2021 is

a. 5,000,000
b. 4,696,128
c. 5,033,261
d. 4,704,538
Subsequent measurement: Amortized cost

(CA x 12%) (FA x 10%)
Date ER 12% SR 10% Amortization C.A.
44,197 4,639,400
12/31/21 556,728 500,000 56,728 4,696,128
12/31/22 563,535 500,000 63,535 4,759,663
12/31/23 571,160 500,000 71,160 4,830,823
IMPAIRMENT LOSS = CARRYING AMOUNT – RECOVERABLE
CARRYING AMOUNT = FACE AMOUNT + ACCRUED INTEREST
RECOVERABLE – THE HIGHER OF FV LESS COST TO SELL AND VALUE IS IN USE
VALUE IN USE = PV OF EXPECTED CASH FLOW FROM PRINCIPAL AND INTERST COLLECTION
AFTER IMPAIRMENT:
1. THE NEW CA IS THE RECOVERABLE
2. INTEREST INCOME = RECOVERABLE * ER
16. On January 1, 2020, Omar Company loaned Alex Company amounting to 2,000,000 and received a two-year, 6%, 2,000,000
note. The note calls for annual interest to be paid each December 31. Omar collected the 2020 interest on schedule.
However, on December 31, 2021, based on the Alex’s recent financial difficulties, Omar expects that the 2021 interest,
which was recorded in the books, will not be collected and that only 1,200,000 of the principal will be recovered. The
1,200,000 principal amount is expected to be collected in two equal installments on December 31, 2023 and December
31, 2025. The prevailing interest rate for similar type of note as of December 31, 2021 is 8%.
Based on the above information, answer the following: (Round off present value factors to four decimal places)
1. The present value of the expected future cash flows as of December 31, 2021 is
a. 955,380 1. VIU - ER is the old rate 6%:
b. 2,079,060
Principal 12/31/23 (600,000 x .8900) = 534,000
c. 1,009,260
12/31/25 (600,000 x .7921) = 475,260
d. 950,920
Recoverable/VIU/PV of expected future cash flow 1,009,260
2. The loan impairment loss in 2021 is Principal 2,000,000
a. 1,164,620 Add accrued interest (2M x 6%) 120,000
b. 990,740 CA of loan, 12/31/21 2120000
c. 1,110,740 Less recoverable -1,009,260
d. 40,940 Impairment loss 12,31/21 1110740
3. How much is the interest income for the year 2022? 6%

a. 60,556 Principal (CA x ER) Carrying
b. 124,744 Date CollectionInterest Principal Amount
c. 57,323
12/31/21 1,009,260
d. 0
12/31/22 0 60,556 -60,556 1,069,816
4. Carrying amount of the loan as of December 31, 2023 is 12/31/23 600,000 64,189 535,811 534,005
a. 473,465 1/31/24 0 32,040 -32,040 566,045
b. 534,005 12/31/25 600,000 33,963 566,037 8
c. 1,736,032
d. 1,134,005
17. At December 31, 2020, Josh Co. had a receivable from A Company of 400,000 that has been outstanding for quite some
time. Further investigation revealed that F Company is taking over to run and operate the business affairs of A Company.
However F Company is more than willing to assume only 75% of A Company’s obligation and pay by the end of 2021. At
the time the receivable was recognized the prevailing rate of interest for similar financial asset is 14%.
1. What amount should Josh report its receivable on December 31, 2020 statement of financial position?
a. 136,843
b. 263,157 FS - SFP - receivable shall be reported at the lower of CA or Recoverable
c. 300,000
d. 400,000
2. How much impairment loss should be recognize related to its accounts receivable in 2020?
a. 136,843
b. 263,157 CA of receivables 400,000
c. 300,000 Recoverable (400,000 x 75% x .87719) -263,157 #1
d. 400,000 Impairment Loss 136,843
18. On December 31, 2021, general ledger of Steven Company’s account receivable showed a balance of 1,400,000. Because
of continuing decrease in expected cash flows on its financial assets. Steven Company has decided to estimate the cash
flow of the outstanding receivables. The estimates are based on the expected peso amount to be received on the
outstanding receivables: the category (age) which also includes the length and period of collectibility and time factor for
similar borrowers.
Category Amount Time Factor
A 400,000 .909
B 300,000 .826
C 250,000 .751
D 150,000 .683
1. How much should Steven Company report its account receivable in its December 31, 2021 statement of financial
position?
a. 799,150
b. 901,600 FS - SFP - receivable shall be reported at the lower of CA or Recoverable
c. 1,200,000
d. 1,400,000
2. What amount of loss impairment on receivable should Steven Company recognize in its December 31, 2021
statement of comprehensive income?
Recoverable: (VIU)
a. 200,000
b. 300,000 400,000 x .909 = 363,600
CA of receivables 1,400,000 300,000 x .826 = 247,800
c. 300,850
d. 498,400 Less recoverable -901,600 #1 250,000 x .751 = 187,750
Impairment loss 498400 150,000 x .683 = 102,450
901600
19. Connie Inc. Assigns 2,000,000 of its accounts receivables as collateral for a 1 million 8% loan with a bank. Connie Inc. also
pays a finance fee of 1% on the transaction upfront. What would be recorded as a gain (loss) on the transfer of receivables?
a.Loss of 20,000.
b.Loss of 160,000.
c.Loss of 180,000.
d. 0.
* Assignment is a loan agreement, therefore, no gain or loss shall be recognized
20. Alex Company sold accounts receivable without recourse with face amount of 5,000,000. The factor charged 14%
commission on all accounts receivable factored and withheld 12% of the accounts factored as protection against customer
returns and other adjustments. The entity has previously established an allowance for doubtful accounts of 150,000 for
these accounts. By year-end, the entity had collected the factor's holdback there being no customer returns and other
adjustments.
1. What amount of cash was initially received from the Accounts receivable 5,000,000
factoring? Commission (14% x 5M) -700,000
a. 4,400,000 Withheld (12% x 5M) -600,000
b. 4,300.000
Proceeds 3,700,000
c.3,700,000
d. 6,300,000 AR factored 5,000,000
Less commission -700,000
2. What is the loss on factoring? Net SP 4,300,000
a. 350,000
Less CA of receivable:
b. 450,000
Gross receivable 5,000,000
c. 550,000
d. 650,000 Less allowance for D.A. -150,000 4,850,000
Loss on factoring - 550,000
21. Joseph Company provided some information on their financial records on December 31,2021:
Accounts receivable, January 1 1,920,000

Collections of account receivable 6,240,000
Bad debts 200,000
Inventory, January 1 2,880,000
Inventory, December 31 2,640,000
Accounts payable, January 1 1,000,000
Accounts payable, December 31 1,500,000
Cash sales 1,200,000
Purchases 4,800,000
Gross Profit on Sales 2,160,000
What is the ending balance of accounts receivable on December 31, 2021?
a. 1,680,000
b. 2,880,000 Sales ?7.2M BI 2,880,000
c. 3,120,000 Less cost of sales - 5,040,000 Add purchases 4,800,000
d. 4,080,000 Gross profit 2,160,000 Available for sale 7,680,000
Less EI - 2,640,000
Cost of sales 5,040,000
Total sales 7,200,000 Accounts Receivable

Less cash sales - 1,200,000 Beg. balance 1,920,000 6,240,000 collection
Sales on account 6,000,000 Sales on account 6,000,000
Debit 7,920,000
Less credit - 6,240,000
Ending 1,680,000
22. On December 28, 2021, Omar Company sells a loan portfolio that has a carrying amount of 300,000 for 290,000 and
provides the buyer with guarantee to compensate for any impairment losses.
What amount of financial asset Omar Company should continue to recognize in its December 31, 2021 statement of
financial position?
a. none
b. 10,000
c. 290,000
d. 300,000
*If the transferor retains the risk and rewards of ownership, the entity shall continue to recognized the financial asset.
23. On January 1, 2021, Emerson Company sold a land with a carrying amount of 7,100,000 for a 9,700,000 non-interest-
bearing note due January 1, 2024. There is no established exchange price for the land. The prevailing rate of interest for
a note of this type on January 1, 2021 was 10%. The present value of 1 at 10% for three periods is .75.
1. In Emerson’s 2021 statement of comprehensive income, what amount should be reported as interest income?
a. 750,500
b. 727,500 CA of notes (9.7M x .75) 7,275,000
c. 700,500 ER x 10%
d. 800,770 Interest income 727,500
2. In Emerson’s 2021 statement of comprehensive income, what amount should be as gain or loss on sale of land?
a. 727,500 loss
b. 727,500 gain SP/ PV of notes received 7,275,000
c. 175,000 loss Less: CA of land - 7,100,000
d. 175,000 gain Gain (loss) 175,000
24. Joshtin Company reported the following balances after adjustment at year-end:
2019 2020 Gross Rec 6,360,000 4,780,000
Accounts Receivable. 6,360,000 4,780,000
Less: Allow - 310,000 - 260,000
Net Realizable Value. 6,050,000 4,520,000
NRV 6,050,000 4,520,000
During 2020, the entity wrote off accounts totaling 148,500 and collected 52,000 on accounts written off in previous year.
What amount should be recognized as doubtful accounts expense for the year ended December 31,2020?
a. 169,500 Allow. For D.A.
Write-off 148,500 310,000 Beg.
b. 196,500 52,000 Recovery
c. 198,500 ?46.5 D.A. expense
d. 169,050 408,500 Credit
- 148,500 Less debit
e. 46,500 260,000 Ending
25. Hacienda Santibanez sold a tract of land with a carrying amount of 3,000,000 to Hacienda Portalejo on July 1, 2020.
1,200,000 was collected on the date of sale, and the balance of 2,800,000 is collectible in four annual installments
902,500, consisting of principal and 11% interest on the unpaid balance. The first annual installment is due July 1, 2021.
What amount of notes receivable should be classified as current assets on December 31, 2021?
a. 594,500
b. 659,895
c. 781,198
d. 902,500
2. How much should be the interest income for the year December 31, 2021?
a. 121,303 Jan - June (308,000 x 6/12) = 154,000
b. 154,000 July - Dec. (242,605 x 6/12) = 121,303
c. 275,303 Interest income for 2021 275,303
d. 308,000
3. What amount of notes receivable should be classified as noncurrent assets on December 31, 2021?
a. 2,800,000
b. 1,210,500
c. 1,545,605
d. 2,205,500
Annual (CA x 11%) Carrying
Date CollectionInterest Principal Amount
07/01/2020 2,800,000
07/01/2021 902,500 308,000 594,500 2,205,500
07/01/2022 902,500 242,605 659,895 1,545,605
07/01/2023 902,500 170,017 732,483 813,122
07/01/2024 - 813,122
INVESTMENTS - NICE
Problem
1. On January 1, 2021, Angel Company purchased marketable equity securities to be held as “trading” for 3,700,000. The
entity also paid commission, taxes and other transaction cost amounting to 250, 000. The securities had market value
of 4,000,000 on December 31, 2021 and the transaction cost that would be incurred on sale is estimated at 150,000. No
securities were sold during 2021. What amount of unrealized gain or loss on these securities should be reported in the
2021 income statement?
a. 450,450
b. 555,000
c. 300,000
d. 250,000
2. During 2020, Mel Company purchased marketable equity securities as a trading investment. For the year ended
December 31, 2020, the entity recognized an unrealized loss of 150, 000. There were no security transactions during
2021. The information on December 31, 2021 is as follows:
Security Cost Market value
A 3,000,000 2,000,000
B 2,000,000 2,500,000
In the 2021 income statement, what amount should be reported as unrealized gain or loss?
a. Unrealized gain of 350, 000
b. Unrealized loss of 350, 000
c. Unrealized loss of 500, 000
d. Unrealized gain of 500, 000
*3M+2M-150,000 = 4,850,000
*(2M+2.5M)- 4,850,000 = -350,000
3. Tricia Company purchased the following securities during 2020:
Classification cost Market Value 12/31/2020
Security A trading 900,000 1,500,000
Security B trading 1,000,000 2,000,000
On July 31, 2021, the entity sold all the shares of Security B for a total of 1,700,000. On December 31, 2021, the shares
of Security A had market value of 600,000. What is the gain or loss on the sale of Security B on July 31, 2021?
a. 300, 000 gain
b. 300, 000 loss 1,700,000-2,000,000
c. 100, 000 gain
d. 100, 000 loss
4. Joseph, Inc. purchased 400 ordinary shares of JP Manufacturing as a trading investment for £26,400. During the year, JP
Manufacturing paid a cash dividend of £6.50 per share. At year-end, JP Manufacturing shares were selling for £69.00
per share. On the income statement for the year ended December 31, what is the total amount of unrealized gain/loss
and dividend revenue reported by Joseph, Inc.?
a. £2,600
b. £1,200
c. £1,400
d. £3,800 1,200+2,600 = 3,800
400*69 = 27,600-26,400 = 1,200
400*6.50 = 2,600
5. Angel Company acquired a financial instrument for 3,000,000 on March 31, 2021. The financial instrument is classified
as financial asset at fair value through other comprehensive income. The direct acquisition cost incurred amounted to
500,000. On December 31, 2021, the fair value of instrument was 5,600,000. What gain should be recognized in other
comprehensive income for the year-ended December 31, 2021?
a. 1,780,000
b. 2,400,000
c. 2,100,000 5,600,000-3,500,000 (3M+500K)
d. 0
6. On its December 31, 2020 balance sheet, John Paul Company appropriately reported a 10,000-debit balance in its
Securities Fair Value Adjustment account. There was no change during 2021 in the composition of John Paul’s portfolio of
equity securities held as available-for-sale securities. The following information pertains to that portfolio:
Security Cost Fair value at 12/31/2021
X 125,000 160,000
Y 100,000 95,000
Z 175,000 125,000
400,000 380,000
1. What amount of unrealized loss on these securities should be included in John Paul's equity section of the
statement of financial position at December 31, 2021?
P-6 SHE - cummulative
a. 30,000.
b. 20,000. FV 12/31/21 380,000
c. 10,000. Original cost - 400,000
d. 0. Cummulative loss - 20,000
2. The amount of unrealized loss to appear as a component of comprehensive income for the year ending December
31, 2021 is
Comprehensive - current change
a. 30,000.
b. 20,000. FV 12/31/21 380,000
c. 10,000. FV 12/31/20 (400,000 + 10,000) - 410,000
d. 0. Unrealized gain (loss) - 30,000 Comp. income
7. On January 1, 2020, Arlene Company purchased equity securities to be held as financial assets measured at fair value
through other comprehensive income.
Cost Market-12/31/2020 Market-12/31/2021
Security R 3,000,000 3,200,000 -
Security S 4,000,000 3,500,000 3,700,000
Security T 5,000,000 4,600,000 4,700,000
On January 31, 2021, the entity sold Security R for P3,500,000.
1. What amount should be recognized directly in retained earnings as a result of the sale of investment in 2021?
a. 500,000
b. 300,000 Selling Price - Security R 3,500,000 S.P. 3,500,000
c. 200,000 Original cost - 3,000,000 CA(adj to FV) 3,500,000
d. 0 Cummulative credit to RE 500,000 Gain (loss) -
2. What cumulative unrealized gain or loss on the remaining financial assets should be reported in the statement of
changes in equity for 2021?
a. 600,000 gain FV 12/31/21 - Sec. S 3,700,000 Comprehensive -current
b. 600,000 loss FV 12/31/21 - Sec. T 4,700,000 FV 12/31/21 8,400,000
c. 300,000 gain Total FV 12/31/21 8,400,000 FV 12/31/20 - 8,100,000
d. 300,000 loss
Original cost - S and T 300,000
(4,000,000 + 5,000,000) - 9,000,000
Cummulative gain(loss) - 600,000
8. During 2020, Steven Company purchased marketable equity securities as short-term investment to be measured at fair
value through other comprehensive income. The cost and market value on December 31,2020 were as follows:

A - 2,000 shares 450,000 600,000
B - 12,000 shares 1,860,000 1,700,000
The entity sold 2,000 shares of security A on April 5, 2020 for P250 per share and incurred P50,000 in brokerage
commission and taxes. What amount should be reported as gain (loss) on sale of equity securities in 2021?
a. 150,000
b. 100,000
c. 50,000
d. 0
9. During 2020, Shawn Company purchased 9,000 ordinary shares of Hurontario Company for P16 per share, 6,000 ordinary
shares of Eglinton Company for P33 per share and 120,000 of treasury notes at 101. These investments are intended to
be held as ready sources of cash and are classified as held for trading.
Also in 2020, Shawn purchased 10,500 ordinary shares of Dundas Company for P29 per share. The securities are classified
as available for sale.
During 2020, Shawn received the following interest and dividend payment on its investments:
Hurontario Company P1 per share dividend

Eglinton Company P3 per share dividend
Dundas Company P2 per share dividend
Treasury notes 6% annual interest earned for 6 months
Fair values of the securities at December 31, 2020, were as follows:
Hurontario Company P20 per share

Eglinton Company P22 per share
Dundas Company P26 per share
Treasury notes 102
On March 23, 2021, the 6,000 ordinary shares of Eglinton were sold for P17 per share. On June 30, 2021, the treasury
notes were sold 100.5 plus accrued interest.
Fair values of remaining securities at December 31, 2021, are as follows:
Hurontario Company P20 per share

Dundas Company P33 per share
QUESTIONS:
1. Total dividend income in Hurontario (9,000 x 1) 9,000 2020

a. 48,000 Eglinton (6,000 x 3) 18,000
b. 21,000 Dundas (10,500 x 2) 21,000
c. 27,000
Total dividend income 48,000
d. 0
2. Carrying amount of Trading Securities as of December 31, 2020

a. 434,400 Hurontario (9,000 x 20) 180,000
b. 342,000
Eglinton (6,000 x 22) 132,000
c. 463,200
d. 717,900 Treasury notes (120,000 x 102%) 122,400
CA - FV 12/31/20 434,400
3. Unrealized loss to be recognized in 2020 profit or loss
FV 12/31/20 434,400
a. 49,800 Less Initial CA:
b. 28,800 Hurontario (9,000 x 16) 144,000
c. 27,600 Eglinton (6,000 x 33) 198,000
d. 0 Treasury notes (120,000 x 101) 121,200 - 463,200
Unrealized gain (loss) - 28,800
4. Total realized loss on sale of securities in S.P. (Eglinton) (6,000 x 17) 102,000
2021 less CA (last FV) - 132,000
a. 96,600 Gain (loss) - 30,000 - 30,000
b. 5,400
c. 29,400 S.P. (Treasury notes) (120,000 x 100.5%) 120,600
d. 31,800 less CA (last FV) - 122,400
Gain (loss) - 1,800 - 1,800
Total loss - 31,800
5. Net unrealized gain in accumulated other comprehensive income in equity as of December 31, 2021
a. 42,000
5. SHE - cummulative
b. 73,500
c. 63,000 FV 12/31/21 (Dundas) (10,500 x 33) 346,500
d. 0 Original cost (10,500 x 29) - 304,500
Net unrealized gain 42,000
10. During 2020, Jerome Company bought the shares of another entity as Shares Cost
follows:
Lot 1-June1 20,000 2,000,000
June 1 20,000 shares @P100 2,000,000
December 1 30,000 shares @P120 3,600,000 S.D 20% 4,000 -
5,600,000 Bal. 24,000 2,000,000
The transactions for 2021 are: Lot 2 - Dec 30,000 3,600,000

January 10 Received cash dividend at P10 per share. SD 20% 6,000 -
January 20 Received 20% stock dividend
Bal 36,000 3,600,000
December 10 Sold 30,000 shares at P125 per share
Selling Price (30,000 x 125) 3,750,000
What is the gain on the sale of the investment assuming the FIFO approach? Cost: FIFO
a. 1,150,000
Lot 1 2,000,000
b. 950,000
c. 150,000 Lot 2 (6/36 x 3.6) 600,000 -2,600,000
d. 550,000 Gain (loss) 1,150,000
11. On January 1, 2021, Joshtin Company purchased 40% of the outstanding ordinary shares of an investee paying
2,560,000 when the carrying amount of the net assets of the investee equaled 5,000,000. The difference was attributed
to equipment which had a carrying amount of 1,200,000 and a fair market value of 2,000,000, and to building with a
carrying amount of 1,000,000 and a fair market value of 1,600,000. The remaining useful life of the equipment and
building was 4 years and 12 years, respectively. During 2021, the investee reported net income of 1,600,000 and paid
dividends of 1,000,000.
What is the carrying amount of the investment Purchase Price 2,560,000

in associate on December 31, 2021? CA acquired(5M x 40%) - 2,000,000
a. 2,550,000 Excess Payment 560,000 Amortization
b. 2,700,000 Excess FV on Equipment (800,000 x 40%) - 320,000 /4 = 80,000
c. 2,800,000 Excess FV on Bldg (600,000 x 40%) - 240,000 / 12 = 20,000
d. 3,050,000 Difference - 100,000
Investment in Asso.
Purchase Price 2,560,000 400,000 Dividends ( 1,000,000 x 40%)
Share in Income 640,000 100,000 Amortization
Total debit 3,200,000 500,000
less credit - 500,000 Income: 1,600,000 x 40% = 640,000
Carrying amount 2,700,000
12. On April 1, 2021, Joshtin Company purchased 30% of the outstanding ordinary shares of an associate for P4,000,000.
On this date, the investee’s net assets totaled P8,000,000 and Joshtin Company cannot attribute the excess of cost of
the investment over the equity in the investee’s net assets to any particular factor. The investee reported net income of
P1,000,000 for 2021.
What is the maximum amount which could be included in Joshtin Company’s 2021 income before tax to reflect its equity
earnings of the investee?
a. 275,000
b. 225,000 SNI 1,000,000*30%*9/12
c. 300,000
d. 405,000
13. Jeffrey Company bought 20% of Cooper Corporation’s ordinary shares on January 1, 2021 for P11,400,000. Carrying
amount of Cooper’s net assets at purchase date totaled P50,000,000. Fair value and carrying amounts were the same
for all items except for plant and inventory, for which fair values exceed their carrying amounts by P10,000,000 and
P2,000,000 respectively. The plant has a 5-year life. All inventory was sold during 2021. During 2021, Cooper reported
profit of P30,000,000 and paid a P10,000,000 cash dividend.
Based on the above information, answer the following:
1. What amount should Jeffrey report as net income related to this investment in 2021?
a. P5,200,000
b. P6,200,000 Share in Profit (30M x 20%) 6,000,000
c. P5,400,000 Amort of excess - Inventory - 400,000 Income/ Invest. In Asso
d. P4,200,000 Amort of excess - Plant (2,000,000/5) - 400,000
Income from acquisition 1,000,000 Invest./Income
Net investment income 6,200,000
Acquisition cost 11,400,000
Less CA of net assets acquired - 10,000,000
(50,000,000 x 20%)
Excess Payment 1,400,000
Attributed to: Amortization
Undervalued plant asset (10M x 20%) - 2,000,000 /5 = 400,000
Undervalued inventory (2M x 20%) - 400,000 400,000
Negative goodwill (income from acquisition) - 1,000,000 800,000
NOTE: Any excess of the investor's share of the net fair value of the associate's identifiable assets, liabilities and contingent
liabilities over cost of the investment is excluded from the carrying amount of the investment and is instead included as
income in the determination of the investor's share of the associates profit or loss in the period in which the investment
is acquired.
2. The carrying amount of Investment in Cooper Corporation as of December 31, 2021

a. P14,600,000
b. P14,800,000
c. P13,600,000 Net investment income 6,200,000
d. P15,600,000 Dividends received (10M x 20%) - 2,000,000
CA 12/31 15,600,000
14. Crisostomo, Inc. acquired 30% of Frias Co.’s voting stock for $200,000 on January 2, year 1. Crisostomo’s 30% interest
in Frias gave Crisostomo the ability to exercise significant influence over Frias’s operating and financial policies. During
year 1, Frias earned $80,000 and paid dividends of $50,000. Frias reported earnings of $100,000 for the six months
ended June 30, year 2, and $200,000 for the year ended December 31, year 2. On July 1, year 2, Crisostomo sold half of
its stock in Frias for $150,000 cash. Frias paid dividends of $60,000 on October 1, year 2.
Q1. Before income taxes, what amount should Crisostomo include in its year 1 income statement as a result of the
investment?
a. $15,000
b. $24,000 Share in NI (80,000 x 30%) 24,000
c. $50,000
d. $80,000
Q2. In Crisostomo’s December 31, year 1 balance sheet, what should be the carrying amount of this investment?
a. $200,000
Investment in Associates
b. $209,000
Acquisition 200,000 15,000 Dividends (50,000 x 30%)
c. $224,000
d. $230,000 Share in NI 24,000
Debit 224,000
Less credit - 15,000
CA 12/31/1 209,000
Share in NI: Jan-June
(100,000 x 30%) 30,000
CA 7/1/2 239,000
Q3. In its year 2 income statement, what amount should Crisostomo report as gain from the sale of half of its
investment?
a. $24,500
Selling Price 150,000
b. $30,500
c. $35,000 CA7/1/2 (239,000 x 1/2) - 119,500
d. $45,500 Gain (loss) 30,500
15. Jerome Company purchased 200 of the 1,000 outstanding ordinary shares of Joshtin Company's for 300,000 on January 2,
2021. During 2021, Joshtin Company declared dividends of 50,000 and reported earnings for the year of 200,000.
1. If Jerome Company used the fair value method of accounting for its investment in Joshtin Company, its Equity
Investments account on December 31, 2021 should be
a. 290,000. FV method
b. 330,000. Acquisition Investment 300,000
c. 300,000. Cash 300,000
d. 340,000.
Dividends Cash 10,000
Dividend income 100,000
(50,000 x 20%)
Net income No entry
2. If Jerome Company uses the equity method of accounting for its investment in Joshtin Company, its Equity
Investments account at December 31, 2021 should be
a. 290,000. Equity method
b. 300,000. Investment in Asso. 300,000
c. 330,000. Cash 300,000
d. 340,000.
Cash 10,000
Investment in Asso. 10,000
Invest in asso. 40,000

Invest. Income 40,000
(200,000 x 20%)
16. On April 1, 2021, Kelly Company acquired 20% interest in the voting shares of Kimberly Company for P1, 800, 000. the
net assets of Kimberly on this date were P6,000,000. Kelly received P100,000 dividends from Kimberly Company, which
the former credited to Dividend Income.
Kimberly reported profit after income tax of P800, 000 during the year, P160, 000 of which was earned during the first
quarter of 2021. Total market value of the shares of Kimberly held by Kelly was P2, 300,000 at December 31, 2021.
Kelly Company recorded the acquisition of the securities at April 1 by a change to Investment. Dividends received during
the year credited to Dividend Income and an Unrealized Gain for P500, 000 was reported on its draft of statement of
comprehensive income for the year 2021.
Kelly had no intention of selling the shares of Kimberly, as Kimberly is one of Kelly’s valued suppliers. As a result of this
acquisition, Kelly has the ability to exercise significant influence over the operating and financial policies of Kimberly.
Kimberly’s assets and liabilities at April 1, 2021 had market values approximating carrying amounts, except land which
had fair value of P750,000 more than its carrying amount, equipment with fair value at April 1, of P200,000 more than
their carrying amounts and inventories which showed carrying values less than fair values by total of P30,000 at April 1.
Equipment had a remaining life of 5 year at April 1, 2021. All inventory was sold during 2021.
1. How much total income from investment shall Kelly recognize for the year 2021 as a result of this investment?
a. P116, 000 c. P100, 000
b. P148, 000 d. P248, 000
Acquisition Price 1,800,000
CA acq (6M x 20%) - 1,200,000
Excess 600,000
L(750 x 20%) - 150,000
E(200 x 20%) - 40,000 /5 x9/12= 6,000
I(30 x 20%) - 6,000 6,000
Goodwill 404,000 Amort. 12,000
Share in NI (800,000 - 160,000) x 20% 128,000

Amortization on Equipment - 6,000
Amortization of inventory - 6,000
Net investment income 116,000
2. How much Dividend Income shall Kelly report for the year 2021 as a result of its investment in Kimberly?
a. P100, 000 c. P500, 000
b. P116, 000 d. P0
*Dividends received from associate is not classified as Dividend income, instead it should be credited to the investment
account.
3. At what amount should this investment be shown on the December 31, 2021 statement of financial position?
a. P1, 848, 000 c. P1, 816, 000
b. P1, 948, 000 d. P2, 300, 000
Income from investment 116,000
Dividends received - 100,000
Carrying value of investment 1,816,000
17. On January 2, 2019, Kristine Company purchased Tricia Company, 9% bonds with a face value of 4,000,000 for 3,760,000.
The bonds are designated as “Financial Asset at Fair Value Through Profit and Loss”. The effective interest rate on this
investment is 10%. The bonds are dated January 1, 2019 and mature on December 31, 2028. The bonds pay interest
semiannually on June 30 and December 31. Kristine’s accounting year is the calendar year.
On November 30, 2021, 2,000,000 of the bonds were sold for 1,960,000 inclusive of accrued interest.
The fair value of the bonds is 98 on December 31, 2019, 96 on December 31, 2020, 98 ½ at December 31, 2021.
1. What amount of interest revenue shall be presented in profit and loss for the year 2019?
a. 376,000
b. 338,400
c. 360,000 FA*SR = 4M*9%
d. 400,000
2. What amount of unrealized gain or loss shall be taken to profit or loss for the year 2019?
a. Unrealized Gain 160,000 FV 12/31/19 (4M x 98%) 3,920,000
b. Unrealized Gain 240,0000 Initial CA 1/2/19 - 3,760,000
c. Unrealized Gain 1,800,000 Unrealized gain 160,000
d. Unrealized Gain 80,000
3. How much gain or loss would be recognized upon the sale of the securities on November 30, 2021?
a. Gain of 40,000 Total proceeds 1,960,000
b. Gain of 35,000 less accrued interest (2M x 9% x 5/12) - 75,000
c. Loss of 40,000 Adjusted Selling Price 1,885,000
d. Loss of 35,000
Less CA(last FV) (2M x 96) - 1,920,000
Gain (loss) - 35,000
4. At what amount should the investment be shown on December 31, 2021 statement of financial position?
a. 4,000,000
b. 3,940,000
c. 1,920,000
d. 1970,000 2M*98.5%
5. What amount of unrealized gain/loss shall be presented in profit or loss for the year ended December 31, 2021?
a. Gain of 60,000 FV 12/31/21 (2M x 98.5%) 1,970,000
b. Gain of 50,000 FV 12/31/20 (2M x 96) - 1,920,000
c. Loss of 60,000 Unrealized gain 50,000
d. Loss of 50,000
18. BOND INVESTMENT AT FVOCI
An entity purchased P5,000,000 of 8%, 5-year bonds on January 1, 2020 with interest payable on June 30 and December
31. The bonds were purchased for P5,100,000 plus transaction cost of P108,000 at an effective interest rate of 7%.
The business model for this investment is to collect contractual cash flows and sell the bonds in the open market. On
December 31, 2020, the bonds were quoted at 106.
Initial (5,100,000 + 108,000) 5,208,000
5M x 4% CA x ER3.5% Carrying
Date Int. received= FA x SR Int. Income Amortization Amount
01/01/2020 5,208,000
06/30/2020 200,000 182,280 17,720 5,190,280
12/31/2020 200,000 181,660 18,340 5,171,940
1. What amount of interest income should be reported for 2020?
a. 400,000 Interest income:
b. 200,000 Jan - June 182,280
c. 364,560 July - Dec 181,660
d. 363,940
Interest income for 2020 363,940
2. What is the adjusted carrying amount of the investment on December 31, 2020?
a. 5,300,000 5M*106%
b. 5,171,940
c. 5,174,560
d. 5,000,000
3. What amount should be recognized in OCI in the statement of comprehensive income for 2020?
a. 300,000
b. 125,440 FV 12/31/2020 5,300,000
c. 128,060 CA (amort. Cost 12/31/20) - 5,171,940
d. 92,000 Unrealized gain (loss) - OCI 128,060
4. If the entity elected the fair value option, what total amount of income should be recognized for 2020?
a. 400,000
4. FA at FVPL - Trading
b. 492,000
c. 600,000 FV 12/31/2020 5,300,000
d. 200,000 Initial CA (FV exclusive of TC) - 5,100,000
Unrealized gain (loss) 200,000
Interest income ( 5M x 8%) 400,000
Total income 600,000
19. Legaspi Company purchased 200,000 of 10% bonds of Fran Co. on January 1, 2020, paying 211,950. The bonds mature
January 1, 2028; interest is payable each July 1 and January 1. The discount of 11,950 provides an effective yield of 9%.
Legaspi’s objective is to hold the bonds to collect the contractual cash flows. Legaspi Company uses the effective interest
method.
Initial (Acq. Cost + TC)
TC/PV) 211,950
Subsequent Amortized cost
Carrying
Date SR 5% ER 4.5% Amortization Amount
01/01/2020 211,950
07/01/2020 10,000 9,538 462 211,488
01/01/2021 10,000 9,517 483 211,005
1. On July 1, 2020, Legaspi Company should decrease its Held-for-collection Debt Investments account for the Fran
Co. bonds by:
a. 462.
b. 808.
c. 924.
d. 1,598.
2. For the year ended December 31, 2020, Legaspi Company should report interest revenue from the Fran Co.
bonds at:
a. 20,000. Interest income:
b. 19,037. Jan - June 9,538
c. 19,055. July - Dec. 9,517
d. 19,076.
Total 19,055
20. Investment in held to maturity securities
On June 1, 2020, Mhel Corporation purchased 4,000 of the P1,000 face value, 8% bonds of Emerson Corporation. The
bonds were purchased to yield 10% interest. Interest is payable semi-annually on December 1 and June 1. The bonds
mature on June 1, 2026. Mhel’s objective is to hold the bonds to collect the contractual cash flows and uses the effective
interest method of amortization. On November 1, 2021, Mhel sold the bonds for a total consideration of P3,925,000.
Subsequent: Amortized cost
Amortized
Date ER 5% SR 4% Amortization Cost
01/06/2020 3,645,328
01/12/2020 182,266 160,000 22,266 3,667,594
01/06/2021 183,380 160,000 23,380 3,690,974
01/12/2021 184,549 160,000 24,549 3,715,523
QUESTIONS:
Based on the above and the result of your audit, answer the following: (Round off present value factors to four decimal
places)
1.
1. The purchase price of the bonds on June 1, 2020 is
a. P3,645,328 c. P3,696,736 PV of Principal (4M x .5568) 2,227,200
b. P3,691,132 d. P3,624,596 PV of interest (4M x 4%) x 8.8633 1,418,128
*8.8633 = PV OF ANNUITY OF 5% Purchase price/ Initial CA 3,645,328
*.5568 = PV OF 1 OF 5%
2. The interest income for the year 2020 is
a. P215,850 c. P212,829
b. P215,521 d. P211,612
3. The carrying amount of the investment in bonds as of

December 31, 2020 is CA 12/1/2020 3,667,594
a. P3,725,919 c. P3,719,986 Add disc. Amort. - Dec. 1 - 31 3,897 (23,380 x 1/6)
b. P3,649,541 d. P3,671,491 CA 12/31/2020 3,671,491
4. The interest income for the year 2021 is Jan - May (183380 x 5/6) 152,817
a. P306,608 c. P311,218 Jun - Nov. 1 (184,549 x 5/6) 153,791
b. P310,715 d. P304,748 Total Interest income 2021 306,608
5. The gain on sale of investment in bonds on November 1, 2021 is
a. P21,196 c. P 27,632
b. P80,235 d. P104,045
Total Proceeds 3,925,000
CA 6/1/2021 3,690,974
Less accrued interest (160,000 x 5/6) - 133,333
Add discount amort., 6/1/2021 - 11/1/2021
Net Selling Price 3,791,667
(24,549 x 5/6) 20,458
Less CA 11/1/2021 - 3,711,432
CA 11/1/2021 3,711,432
Gain(loss) on sale of investment 80,235
21. Ozz Corp. owns 20% of Amaya Corp.’s preferred stock and 80% of its common stock. Amaya’s stock outstanding at
December 31, year 1, is as follows:
10% cumulative preferred stock 100,000 Common stock 700,000 Amaya reported net income of 60,000 for the year
ended December 31, year 1. What amount should Ozz record as equity in earnings of Amaya for the year ended
December 31, year 1?
a. 42,000
b. 48,000
c. 48,400
d. 50,000
22. On March 4, year 1, Cleo Co. purchased 1,000 shares of Ivan common stock at $80 per share. On September 26, year 1,
Cleo received 1,000 stock rights to purchase an additional 1,000 shares at $90 per share. The stock rights had an
expiration date of February 1, year 2. On September 30, year 1, Ivan’s common stock had a market value,
ex-rights, of $95 per share and the stock rights had a market value of $5 each. What amount should Cleo report on its
September 30, year 1 balance sheet as the cost of its investment in stock rights?
a. $ 4,000
b. $ 5,000
c. $10,000
d. $15,000
23. On January 1, 2021 Erin Company purchased 10,000 ordinary shares at P90 per share. On December 31, 2021, the entity
received 4,000 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 P50 per share. What amount should be reported as dividend income for 2021?
a. 120,000
b. 200,000
c. 20,000
d. 0
24. Tris Co. purchased 500,000 of bonds at par. Tris management has an active trading business model for this investment. At
December 31, Tris received annual interest of 20,000, and the fair value of the bonds was 470,400. In Tris Co.’s year-end
statement of financial position what amount will be reported for the bond investment and how much total income/loss
will be reported on its income statement?
Statement of financial position Income statement
a. 500,000 20,000
b. 470,400 20,000
c. 470,400 ( 9,600)
d. 470,400 49,600
25. Jade Co. owns 2,000 shares of Jericho, Inc.’s 20,000 shares of 100 par, 6% cumulative, nonparticipating preferred stock
and 1,000 shares (2%) of Jericho’s common stock. During year 2, Jericho declared and paid dividends of 240,000 on
preferred stock. No dividends had been declared or paid during year 1. In addition, Jade received a 5% common stock
dividend from Jericho when the quoted market price of Jericho’s common stock was 10 per share. What amount should
Jade report as dividend income in its year 2 income statement?
a. 12,000
b. 12,500
c. 24,000
d. 24,500
26. At year-end, Ivan Company held several investments with the intent of selling them in the near term. The investments
consisted of 1,500,000 10% three-year bonds purchased for 1,350,000 and equity securities purchased for 500,000. At
year-end, the bonds were selling om the open market for 1,600,000 and the equity securities had a market value of
700,000.
What amount should be reported as trading securities?

a. 1,850,000
b. 2,000,000
c. 2,300,000
d. 1,200,000
27. During 2020, JP Company purchased marketable equity securities as short-term investment to be measured at fair value
through other comprehensive income. The cost and market value on December 31, 2020 were as follows:
1,000 shares- A 300,000 350,000
10,000 shares- B 1,700,000 1,550,000
20,000 shares- C 3,150,000 2,950,000
The entity sold 10,000 shares of B on January 5, 2021 for P150 per share and incurred P50,000 in brokerage
commission and taxes. What amount should be reported as loss on sale of equity securities in 2021?
a. 200,000 Selling Price 1,450,000
b. 100,000 Original cost - 1,700,000
c. 250,000 Cummulative credit to RE - 250,000
d. 0
28. Kaila Company acquired 40,000 ordinary shares on October 1 for P 6,600,000 to be held for trading.
On November 30, the investee distributed a 10% ordinary share dividend when the market price of the share was P250.
On December 31, the entity sold 4,000 shares for P1,000,000.
What amount should be reported as gain on sale of investment in the current year?
a. 340,000
b. 400,000
c. 500,000
d. 600,000
29. At the beginning of the year, JP Company bought 20% of the outstanding ordinary shares of Joshtin Company for
P8,000,000 cash. JP Company accounts for this investment by the equity method. At the date of acquisition, Joshtin
Company’s net assets had a book value of P15,000,000.
Depreciable assets had an average remaining life of three years with a current market value that is P3,000,000 in excess
of their carrying amount.
What is the amount attributed to its goodwill?

a. 5,000,000
b. 600,000
c. 4,400,000
d. 300,000
30. On January 1,2016, Mark Company acquired as a long term investment for P7,000,000, a 40% interest in Alfredo Company
when the fair value of Alfredo’s net assets was P17,500,000. Alfredo Company reported the following net losses:
2016 5,000,000
2017 7,000,000
2018 8,000,000
2019 4,000,000
On January 1,2018, Mark Company made cash advances of P2,000,000 to Alfredo Company. On December 31,2019, it is
not expected that Mark Company will provide further financial support for Alfredo Company.
What amount should be reported as loss from investment for 2019?

a. 1,600,000
b. 4,000,000
c. 1,000,000
d. 600,000
INVESTMENTS - NICE
Answer Section
PROBLEM
1. answer: C
FV 12/31/21 4,000,000
Acquisition cost – Trading 3,700,000
Unrealized gain – included in profit and loss 300,000
The transaction cost that would be incurred in sale are ignored because the financial asset held for trading is
measured at fair value and not at fair value less cost of disposal.
2. answer: B
MV- 12/31/2021 4,500,000

MV- 12/31/2020 (5,000,000 – 150,000) (4,850,000)
Unrealized loss (350,000)
3. answer: B
Sale price of security B 1,700,000

C.A of security B (2,000,000)
loss on sale 300,000
4. d
Dividend Income(400 £6.50] 2,600
FV 12/31(400 x 69) 27,600

Initial CA 26,400
Unrealized gain 1,200
Total (P or L) 3,800
5. answer: C
Fair value 12/31/21 5,600,000

Acquisition cost (3,000,000 + 500,000) (3,500,000)
unrealized gain- OCI 2,100,000
6. 1. B
FV 12/31/21 380,000
Original cost 400,000
Cummulative loss 20,000
2. a
FV 12/31/21 380,000
FV 12/31/20 (400,000 + 10,000) 410,000
Unrealized loss 30,000
7. Solution: Question 1 A; 2 B
Sale price- Security R 3,500,000
Original cost- Security R 3,000,000
Cumulative credit to retained earnings 500,000
Market value- Security S- December 31, 2021 3,700,000

Market value- Security T- December 31, 2021 4,700,000
Total market value 12/31/21 8,400,000
Historical cost S and T (4,000,000 + 5,000,000) 9,000,000
Cumulative unrealized loss- December 31, 2021 ( 600,000)
8. D
Solution:
Investment in stocks measured at fair value through other comprehensive income doesn’t recognize gain (loss)
on sales.
9. Answers: 1) A; 2) A; 3) B; 4) D; 5) A
Question No. 1
Hurontario Com any (9,000 x 1) 9,000

Eglinton Company (6,000 x 3) 18,000
Dundas Company (10,500 x 2) 21,000
Total dividend income in 2020 48,000
Question No. 2
Hurontario Company shares (9,000 x 20) 180,000

Eglinton Company shares (6,000 x 22) 132,000
Treasury notes ( 120,000 x 1.02) 122,400
Carrying amount of trading securities, 12/31/2020 434,400
Question No. 3
Fair value of trading securities, 12/31/2020 (see no. 2) 434,400

Less CA before fair value adjustment:
Hurontario Company shares (9,000 x 16) 144,000
Eglinton Company shares (6,000 x 33) 198,000
Treasury notes ( 120,000 x 1.01) 121,200
463,200
Unrealized loss on trading securities in 2020 ( 28,800)
Question No. 4
Loss on sale of Eglinton shares:

Sales proceeds (6,000 shares x 17) 102,000
Less CA of shares sold 132,000 30,000
Loss on sale of Treasury notes:
Sales proceeds ( 120,000 x 1.005) 120,600
Less CA of treasury notes 122,400 1,800
Total 31,800
Question No. 5
FV of Dundas shares, 12/31/2021 (10,500 x 33) 346,500

Cost of Dundas shares (10,500 x 29) 304,500
Net unrealized gain on AFS, 12/31/2021 42,000
10. A SP(30,000 x 125) 3,750,000

Cost:FIFO
Lot 1 2,000,000
Lot 2 (6/36 x 3.6) 600,000 2,600,000
Gain 1,150,000
11. B
Purchase Price 2,560,000
C.A(5M x 40%) 2,000,000
Excess 560,000
Excess FV on Equipt(800x.4) (320,000)
Excess FV on Bldg(600x.4) ( 240,000)
Difference 0
Purchase price 2,560,000

Share in Income(1,600,000 x .4) 640,000
Dividends(1M x .4) (400,000)
Amort on Equipt(320/4) (80,000)
Amort on Bldg(240/12) (20,000)
C.A. 2,700,000
12. B
Share in NI (1,000,000 x 30% x 9/12) 225,000
13. Answers: 1) B; 2) D
Question No. 1
Share of profit (P30,000,000 x 20%) P6,000,000

Amortization of excess - Inventory ( 400,000)
Amortization of excess - Plant (P2,000,000/5) ( 400,000)
Income from acquisition (see below) 1,000,000
Net investment income P6,200,000
Acquisition cost P11,400,000

Less carrying amount of net assets acquired
(P50,000,000 x 20%) 10,000,000
Excess 1,400,000
Attributed to:
Undervalued plant asset (P10,000,000 x 20%) ( 2,000,000)
Undervalued inventory (P2,000,000 x 20%) ( 400,000)
Negative Goodwill (income from acquisition) (P1,000,000)
Any excess of the investor’s share of the net fair value of the associate’s identifiable assets, liabilities and contingent
liabilities over the cost of the investment is excluded from the carrying amount of the investment and is instead included
as income in the determination of the investor’s share of the associate’s profit or loss in the period in which the investment
is acquired. (PAS 28 par. 23)
Question No. 2
Acquisition cost P11,400,000

Net investment income 6,200,000
Dividends received (P10,000,000 x 20%) ( 2,000,000)
Carrying amount, 12/31/2012 P15,600.000
14. Q1. (b)

Share in NI (30% x 80,000) 24,000
Q2. (b)
Acquisition 1/2/1/1 200,000
Share in NI 24,000
Dividends (30% x 50,000) (15,000)
CA 12/31/1 209,000
Q3. (b)
Selling price 150,000
CA 7/1/2 (239,000 x 1/2) (119,500)
Gain on sale 30,500
CA 12/31/1 209,000
Share in NI: Jan - June
(100,000 x 30%) 30,000
CA 7/1/2 239,000
15. 1. c
2.c
FV method Equity method

Aquisition 1/2/21 Investment 300 Investment in Asso. 300
Cash 300 Cash 300
Dividends Cash 10 Cash 10

Dividend income 10 Invest. in asso. 10
NI No entry Invest. in asso. 40

Invest. income 40
16. Answers: a, d, c
Suggested Solutions:
1. Income from Associate
Initial Share (800,000 – 160,000) x 20% P128, 000
Depreciation of Equipment (6,000)
Inventory (6,000)
Income from Associate P116, 000
2. Dividend received from associate is not classified as Dividend Income, instead, it should be credited to the Investment
account.
3. Cost of investment P1, 800, 000
Dividends received (100, 000)
Income from Associate _116, 00)
Carrying value of investment P 1, 816, 000
17. Answers: c. a, d, d, b
Suggested Solutions:
1. Interest income = FA x SR
P4,000,000 x 9% = P360,000
2. FV 12/31/2019 (P4,000,000 @ 98) P3,920,000

FV 1/2/2019 _ 3, 760,000_
Unrealized Gain P 160,000
3. Selling Price P1,960,000

Accrued Interest (P2,000,000x9%x5/12) _( 75,000)_
Adjusted Selling Price P1,885,000
Market Value (P2,000,000 @ 96) (1,920,000)_
Loss on Sale (P 35,000)
4. Investment 12/31/2021 (P2,000,000 @ 98.5) = P1,970,000
5. Fair Value 12/31/2021 (P2,000,000 @ 98.5) P1,970,000

Fair Value 12/31/2020 (P2,000,000 @ 96) __(1,920,000)__
Unrealized Gain 12/31/2021 P 50,000
18.
Date Interest received Interest income Amortization Carrying amount
Jan. 1, 2020 5,208,000

Jan. 30, 2020 200,000 182,280 17,720 5,190,280
Dec. 31, 2020 200,000 181,660 18,340 5,171,940
Question 1 Answer D
Interest January to June 182,280

Interest July to December 181,660
Interest income for 2020 363,940
Question 2 Answer A
Market value on December 31, 2020 (5,000,000 x 106) 5,300,000
Question 3 Answer C
Market value on December 31, 2020 5,300,000

Carrying amount December 31, 2020 (see table of amortization) 5,171,940
Unrealized gain - OCI 128,060
Question 4 Answer C
Market value on December 31, 2020 5,300,000

Acquisition cost, excluding transaction cost 5,100,000
Gain from change in fair value 200,000
Interest income (8% x 5,000,000) 400,000
Total income 600,000
19. 1. a
Date SR5% ER4.5% Amortization Carrying amount
1/1/2020 211,950
7/1/2020 10,000 9,538 462 211,488
1/1/2021 10,000 9,517 483 211,005
( 200,000 .05) – ( 211,950 .045) = 462.
2.c
Interest income:
Jan- June 9,538
July - Dec 9,517
Total 19,055
20. Answers: 1) A; 2) C; 3) D; 4) A, 5) B
Question No. 1
PV of principal (P4,000,000 x 0.5568) P2,227,200

PV of interest [(P4,000,000 x 4%) x 8.8633] 1,418,128
Purchase price P3,645,328
Question No. 2
6/1/2020 to 11/30/2020 (see schedule) P182,266

12/1/2020 to 12/31/2020 (P183,380 x 1/6) 30,563
Total interest income for 2020 P212,829
Partial amortization schedule:
Effective Nominal Discount Amortized

Date interest (5%) interest (4%) amortization cost
6/1/2020 3,645,328
12/1/2020 182,266 160,000 22,266 3,667,594
6/1/2021 183,380 160,000 23,380 3,690,974
12/1/2021 184,549 160,000 24,549 3,715,523
Question No. 3
Carrying amount, 12/1/2020 (see schedule) P3,667,594

Add discount amortization, 12/1/2020 to
12/31/2020 (P23,380 x 1/6) 3,897
Carrying amount, 12/31/2020 P3,671,491
Question No. 4
1/1/2021 to 5/31/2021 (P183,380 x 5/6) P152,817

6/1/2021 to 11/1/2021 (P184,549 x 5/6) 153,791
Total interest income for 2021 P306,608
Question No. 5
Total proceeds P3,925,000

Accrued interest (P160,000 x 5/6) 133,333
Net proceeds 3,791,667
Less carrying amount, 11/1/2021 (see below) 3,711,432
Gain on sale of investment in bonds P 80,235
Carrying amount, 6/1/2021 (see schedule) P3,690,974

Add discount amortization, 6/1/2021 to
11/1/2021 (P24,549 x 5/6) 20,458
Carrying amount, 11/1/2021 P3,711,432
21. (a)
Net income 60,000
PS (100,000 x 10%) (10,000) x 20% = 2,000
Net income to OS 50,000 x 80% = 40,000
Total earnings 42,000
22. b
FV of rights (1,000 x 5) 5,000
23. B
Shares in lieu of cash dividend shall be recognized as income at fair value of shares received.
Dividend income (4,000 x 50) 200,000
24. c
SFT - FV
FV 12/31 470,400
Initital CA 500,000
Unrealized loss (29,600)
Interest income 20,000
Total (9,600)
25. (c)
PS dividend (240,000 x 10%) 24,000
26. Solution: Answer (C)

Bond investment 1,600,000
Equity investment 700,000
Total market value 2,300,000
27. D
SP (net) 1,450,000
Original cost 1,700,000
RE 250,000
28. B
Original shares on October 1 40,000
Stock dividend on November 30 (10%) 4,000
Total shares 44,000
Shares sold on December 31 ( 4,000)
Balance 40,000
Sales price 1,000,000

Cost of shares sold (4,000/44,000x6,600,000) ( 600,000)
Gain on sale 400,000
29. C
Acquisition Cost 8,000,000
Net assets acquired (20% x 15M) (3,000,000)
Excess of cost over book value 5,000,000
Excess attributable to depreciable assets (600,000)
(20% x 3,000,000)
Excess attributable to goodwill 4,400,000
30. Solution:
Answer: C
Original Cost 7,000,000
Cash Advances 2,000,000
Total Investment 9,000,000
Net loss from 2016 to 2018 (40% x 20,000,000) (8,000,000)
Carrying amount of investment – December 31,2018 1,000,000
Share in net loss of 2019 (4,000,000 x 4%) 1,600,000

Loss to be reported in 2019 should be equal to the
Investment balance only 1,000,000
PAS 28, paragraph 38, provides that if under equity method an investor’s share of losses of an associate equals or exceeds
the carrying amount of an investment, the investor discontinues recognizing its share of further losses.
The investment is reported at NIL or zero value.
INVESTMENT PROPERTY -Nice

Problem
1. JP Company and its subsidiaries own the following properties that are accounted for in accordance with PAS 40.
Land held for undetermined use 5,000,000

A vacant building to be leased out under operating lease 3,000,000
Property held by a subsidiary of JP, a real estate firm,
in the ordinary course of business 2,000,000
Property held for use in production 4,000,000
Building owned by a subsidiary of JP and for which the
subsidiary provides security and maintenance services
to the lessee 1,500,000
Land leased by JP to a subsidiary under an operating lease 2,500,000
Property under construction for use as investment property 6,000,000
Land held for future factory site 3,500,000
Machinery leased out to an unrelated party under an
operating lease 1,000,000
What is the total investment property that should be shown in the consolidated financial position of the parent and its
subsidiaries?
a. 12,000,000
b. 15,500,000
c. 10,500,000
d. 9,500,000
2. Angel Company measure the property at fair value at the end of reporting period. One investment property was measured
at 8,700,000 on December 31, 2020. The company paid 7,300,000 to the vendor, 420,000 to professional advisers and
250,000 to the local authority as a property transfer tax upon acquisition of the property. The property has a useful life of
30 years. In respect to the investment property, what is the amount of gain or loss to be recognized for the year ended
December 31, 2020?
a. 1,400,000
b. 1,150,000
c. 980,000
d. 730,000
3. Joshtin Company venture into construction of a condominium in Manila which is rated as the largest state-of-the-art
structure. The entity’s board of directors decided that instead of selling the condominium, the entity would hold this
property for purposes of earning rentals by letting out space to business executives in the area.
The construction of the condominium was completed and the property was place in service on January 1, 2020. The cost
of the construction was 50,000,000. The useful life of the condominium is 25 years and its residual value is 5,000,000.
An independent valuation expert provided the following fair value at each subsequent year-end:
December 31, 2020 55,000,000

December 31, 2021 53,000,000
December 31, 2022 60,000,000
1. Under the cost model, Joshtin Company should report depreciation of investment property
in 2020 at
a. 1,800,000
b. 2,200,000
c. 2,000,000
d. 0
2. Under the fair value model, Joshtin Company should recognize gain from change in
fair value in 2020 at
a. 5,000,000
b. 7,000,000
c. 3,000,000
d. 0
3. Under the fair value model how much is the depreciation for 2020
a. 1,800,000
b. 2,200,000
c. 2,000,000
d. 0
4. How gain or loss should be recognize in 2021

a. (1,800,000)
b. 2,200,000
c. (2,000,000)
d. 0
5. How much gain or loss should be recognize in 2022

a. 7,000,000
b. 2,200,000
c. 2,000,000
d. 0
4. Jerome Company completed the construction of a building at the end of 2020 for a total cost of P100 million. The
building is estimated to be economically useful for 25 years. The building was constructed for the purpose of earning
rentals under operating leases. The tenants began occupying the building after its completion. The company opted to
use the fair value model to measure the building. An independent valuation expert was used by the company to
estimate the fair value of the building on an annual basis. According to the expert the fair values of the building at the
end of 2020, 2021 and 2022 were P104 million, P118 million and 116 million, respectively.
The company’s business expanded in 2021. As a result, the company started to use the building in its operations on
January 1, 2022. Because of the change in use, the company reclassified the building from investment property to
property, plant and equipment.
1. How much should be recognized in profit or loss in 2020 as a result of the completion of the building at the end of
2020?
a. 18,000,000
b. 16,000,000
c. 4,000,000
d. 0
2. The depreciation expense in 2021 is

a. 4,000,000
b. 4,720,000
c. 4,160,000
d. 0
3. How much should be recognized in profit or loss in 2021 as a result of the fair value changes?
a. 18,000,000
b. 12,000,000
c. 14,000,000
d. 0
5. John Paul Company has an investment property which had an original cost of 5,800,000 on January 1, 2018. At
December 31, 2020 its fair value was 6,000,000 and at December 31, 2021, it had a fair value of 5,900,000. On
acquisition the property had a useful life of 40 years.
What should be the expense recognized in the profit or loss for the year ended December 31, 2021 under the fair value
model and cost model?
Fair Value Model Cost Model
a. 147,500 145,000
b. 100,000 145,000
c. 145,000 100,000
d. 100,000 147,500
6. JP’s investment property has a historical cost of 2,400,000. On December 31, 2021, the fair value of this investment
property is 2,800,000.
Under the fair value model, the Company should

a. recognize a 400,000 unrealized gain in the shareholders’ equity
b. recognize a 400,000 unrealized gain in the profit or loss.
c. recognize a revaluation surplus of 400,000.
d. ignore the increase in value of 400,000.
7. Tris Company owned five properties which are classified as investment property.
Initial cost Fair Value Fair Value
12/31/2020 12/31/2021
Property 1 3,600,000 4,000,000 4,400,000
Property 2 4,200,000 3,950,000 3,800,000
Property 3 4,500,000 4,800,000 4,600,000
Property 4 5,000,000 4,300,000 4,750,000
Property 5 4, 660,000 3,990,000 4,300,000
21,040,000 21,850,000
All of these properties are acquired 5 years ago with a useful life of 20 years.
What is the gain or loss to be recognized for the year ended 2021 if the accounting policy is to use fair value model for
investment property?
a. 820,000
b. 831,000
c. 811,000
d. 810,000
8. On January 1, 2021, Tricia Company acquired an investment property at a cost of 5,000,000. At December 31, 2021, the
carrying value of the property is 6,000,000.
On December 31, 2022, Tricia Company decided to use the property and immediately reclassified as plant asset (owner-
occupied).
1. What would be the initial cost of plant asset if the fair value is 6,500,000 at conversion date?
a. 5,000,000
b. 5,500,000
c. 6,000,000
d. 6,500,000
2. What amount of revaluation surplus Tricia Company would recognize at the time of conversion?
a. none
b. 500,000
c. 1,000,000
d. 1,500,000
9. Ozz, Inc., a real estate company, has a property included in its inventory with a cost of 10,000,000 and net realizable
value of 8,000,000 on December 31, 2019. Because of the decline in the real estate industry, the company decided to
lease out the property to a tenant under an operating lease in 2020 when the fair value of the property was 7,000,000.
1. If the company will use the cost model to measure the investment property, how much should be recognized in the
2020 profit or loss as a result of the transfer from inventory to investment property?
a. 3,000,000
b. 1,000,000
c. 2,000,000
d. 0
2. If the company will use the fair value model to measure the investment property, how much should be recognized in
the 2020 profit or loss as a result of the transfer from inventory to investment property?
a. 3,000,000
b. 1,000,000
c. 2,000,000
d. 0
10. On August 4, 2021, Emerson Inc. has an investment property at fair value with carrying amount of 3,400,000 and historical
cost of 3,150,000. As of December 31, 2021, the fair value of the property is 3,650,000 and the fair value of 3,800,000 on
December 31, 2022. On December 31, 2022 Emerson has decided to transfer its property to inventory.
On the date of transfer, what amount of gain from reclassification should be reported in the profit or loss?
a. 250,000
b. 650,000
c. 400,000
d. 150,000
11. On January 1, 2019, Cooper Company acquired an investment property and the initial cost of investment property was P4,
000,000. As of December 31, 2020, it has a carrying value of P3, 900,000 at fair value model. On December 31, 2021 the
company decided to transfer the investment property to owner occupied property. On the date of transfer the fair value
of property is P3, 700,000. What amount of gain or loss of transfer should the company recognized on December 31,
2021?
a. 300,000 loss
b. 200,000 loss
c. 100,000 loss
d. No Gain or Loss
12. Joseph Incorporated is a BPO company located in Makati City. Upon the arrival of more competitors in the area, it decided
to construct another building but for an initial purpose of earning rentals under operating leases. It was completed at the
end of 2020, having a total cost of 164,000,000 and a useful life of 20 years. After its completion, the building was soon
occupied by the company’s tenants. As a standard, fair value model was used to measure the building. According to the
independent valuation expert of the company, the fair values of the building at the end of 2020 was 170,000,000, 2021
for 181,000,000 and 2022 for 175,000,000 respectively.
However, the company flourished at the end of 2021 and decided to improve their operations resulting to its decision to
use the same building for its operations on January 1, 2022. To do this, the company reclassified the building from
investment property to property, plant and equipment.
How much should be recognized in profit or loss in 2021 as a result of the fair value changes and what is the depreciation
to be recorded in the same year
Gain or Loss Depreciation
a. 11,000,000 0
b. 17,000,000 8,200,00
c. ( 6,000,000) 8,200,00
d. 5,000,000 0
13. Steven Company, a real estate entity, had a building with a carrying amount of 30,000,000 on December 31, 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.
On December 31, 2021, the original building had a fair value of 42,000,000. The entity also had land that was held for sale
in the ordinary course of business. The land had a carrying amount of 15,000,000 and fair value of 18,000,000 on December
31, 2021. On such date, the entity decided to hold the land for capital appreciation. The accounting policy is to carry
investment property at fair value.
1. On December 31, 2021, what amount should be recognized in revaluation surplus as a result of transfer of the building
to investment property?
a. 12,000,000
b. 15,000,000
c. 18,000,000
d. 24,000,000
2. On December 31, 2021, what amount should be recognized in profit or loss as a result of transfer of the land to
investment property?
a. 10,000,000
b. 8,000,000
c. 5,000,000
d. 3,000,000
14. Shawn Company acquired a building on January 1, 2020 for 6,000,000. At that date the building had a useful life of 20
years.
On December 31, 2020 the fair value of the building was 6,750,000 and on December 31, 2021, the fair value is 8,000,000.
The building was classified as investment property and accounted for under the cost model.
What amounts should be carried in the statement of financial position and recognized in profit or loss for 2021?
Carrying Amount Profit or loss
a. 5,400,000 300,000 expense
b. 6,750,000 No gain, no loss
c. 8,000,000 500,000 gain
d. 6,000,000 300,000 expense
15. On January 1 2020, Kristine Company acquired property consisting of ten identical freehold detached houses each with
separate legal title including the land on which it is built for 200,000,000, 20% of which is attributable to the land. The
units have a useful life of 50 years.
The following costs are also incurred on such date:

• Nonrefundable transfer taxes not included in the purchase price 20,000,000
• Legal cost directly attributable to the acquisition 1,000,000
• Reimbursement to the previous owner for
prepaying nonrefundable property taxes
for the sixth-month period ending June 30, 2020 10,000
• Advertising campaign 500,000
• Opening function to celebrate new rental business 200,000
On June 30 2020, the entity paid local property taxes of 20,000 for the year ending June 30 2021.
Throughout 2020 the entity incurred repairs and maintenance of 120,000.
The entity used one of the ten units to accommodate the administration and maintenance staff. The other nine units are
rented out to independent parties under an operating lease.
On December 31 2020, the fair value of each unit was reliably estimated at 25,000,000. The fair value of the units can be
measured reliably.
The accounting policy is to use the fair value model for investment property.
What is the gain from the increase in fair value of investment property for the current year?
a. 51,100,000
b. 27,000,000
c. 45,000,000
d. 26,100,000
INVESTMENT PROPERTY – Set C

Problem
1. JP Company and its subsidiaries own the following properties that are accounted for in accordance with PAS 40.
Land held for undetermined use 5,000,000

A vacant building to be leased out under operating lease 3,000,000
Property held by a subsidiary of JP, a real estate firm,
in the ordinary course of business 2,000,000
Property held for use in production 4,000,000
Building owned by a subsidiary of JP and for which the
subsidiary provides security and maintenance services
to the lessee 1,500,000
Land leased by JP to a subsidiary under an operating lease 2,500,000
Property under construction for use as investment property 6,000,000
Land held for future factory site 3,500,000
Machinery leased out to an unrelated party under an
operating lease 1,000,000
What is the total investment property that should be shown in the consolidated financial position of the parent and its
subsidiaries?
a. 12,000,000
b. 15,500,000
c. 10,500,000
d. 9,500,000
2. Joshtin Company venture into construction of a condominium in Manila which is rated as the largest state-of-the-art
structure. The entity’s board of directors decided that instead of selling the condominium, the entity would hold this
property for purposes of earning rentals by letting out space to business executives in the area.
The construction of the condominium was completed and the property was place in service on January 1, 2020. The cost
of the construction was 50,000,000. The useful life of the condominium is 25 years and its residual value is 5,000,000.
An independent valuation expert provided the following fair value at each subsequent year-end:
December 31, 2020 55,000,000

December 31, 2021 53,000,000
December 31, 2022 60,000,000
1. Under the cost model, Joshtin Company should report depreciation of investment property
for 2020 at
a. 1,800,000
b. 2,200,000
c. 2,000,000
d. 0
2. Under the fair value model, Joshtin Company should recognize gain from change in
fair value in 2020 at
a. 5,000,000
b. 7,000,000
c. 3,000,000
d. 0
3. Under the fair value model how much is the depreciation for 2020
a. 1,800,000
b. 2,200,000
c. 2,000,000
d. 0
4. How gain or loss should be recognize in 2021

a. (1,800,000)
b. 2,200,000
c. (2,000,000)
d. 0
5. How much gain or loss should be recognize in 2022

a. 7,000,000
b. 2,200,000
c. 2,000,000
d. 0
3. JP Company has an investment property which had an original cost of 5,800,000 on January 1, 2018. At December 31,
2020 its fair value was 6,000,000 and at December 31, 2021, it had a fair value of 5,900,000. On acquisition the property
had a useful life of 40 years.
What should be the expense recognized in the profit or loss for the year ended December 31, 2021 under the fair value
model and cost model?
Fair Value Model Cost Model
a. 147,500 145,000
b. 100,000 145,000
c. 145,000 100,000
d. 100,000 147,500
4. Company Mhel owns a hotel, Company Joey, a subsidiary of Company Mhel, manages a chain of hotels and receives
management fees for operating its chains, except for the hotel owned by Company Mhel. Company Mhel’s owned hotel
is leased to Company Joey for 3,000,000 a month for a period of 6 years. Any profit or loss from operating the hotel rest
with Company Joey. The hotel has estimated life of 40 years, with carrying value of 85,000,000 as of December 31,
2021, and fair value of 82,000,000.
How should Company Mhel report the property on its December 31, 2021 consolidated statement of financial position?
a. as investment property at fair value of 82,000,000.
b. as investment property at its carrying value of 85,000,000.
c. as PPE at its fair value of 82,000,000.
d. as PPE at its carrying value of 85,000,000.
5. JP’s investment property has a historical cost of 2,400,000. On December 31, 2021, the fair value of this investment
property is 2,800,000.
Under the fair value model, the Company should

a. recognize a 400,000 unrealized gain in the shareholders’ equity
b. recognize a 400,000 unrealized gain in the profit or loss.
c. recognize a revaluation surplus of 400,000.
d. ignore the increase in value of 400,000.
6. On January 1, 2021, JP Company acquired an investment property at a cost of 5,000,000. At December 31, 2021, the
carrying value of the property is 6,000,000.
On December 31, 2022, JP Company decided to use the property and immediately reclassified as plant asset.(owner-
occupied)
Q1. What would be the initial cost of plant asset if the fair value is 6,500,000 at conversion date?
a. 5,000,000
b. 5,500,000
c. 6,000,000
d. 6,500,000
Q2. What amount of revaluation surplus JP Company would recognize at the time of conversion?
a. none
b. 500,000
c. 1,000,000
d. 1,500,000
7. On January 2, 2021, Kris Corporation has an investment property that was carried at fair value with carrying amount of
2,500,000 and historical cost of 2,400,000. As of December 31, 2021, the fair value of the property is 2,600,000, and fair
value of 2,800,000 on December 31, 2022. On December 31, 2022 the Corporation decided to transfer the property to
inventory.
On date of transfer, what amount should the inventory be valued?

a. 2,400,000
b. 2,500,000
c. 2,600,000
d. 2,800,000
8. DMC, Inc. completed the construction of a shopping mall at the end of 2018 for a total cost of P100 million. The mall has
an estimated economic life of 25 years. The mall was constructed for the purpose of earning rentals by letting out space
in the shopping mall to tenants. The company opted to use the fair value model to measure the shopping mall. An
independent valuation expert was used by the company to determine the fair value the shopping mall on an annual
basis. According to the fair valuation expert the fair values of the shopping mall at the end of 2019 and 2020 were P120
million and P115 million, respectively.
a. 23,000,000
b. 15,000,000
c. 5,000,000
d. 0
2. How much is the carrying amount of the shopping mall on December 31, 2020 if DMC used the cost model?
a. 100,000,000
b. 115,000,000
c. 96,000,000
d. 92,000,000
9. DEL, Inc., a real estate company, has a property included in its inventory with a cost of 10,000,000 and net realizable
value of 8,000,000 on December 31, 2019. Because of the decline in the real estate industry, the company decided to
lease out the property to a tenant under an operating lease in 2020 when the fair value of the property was 7,000,000.
1. If the company will use the cost model to measure the investment property, how much should be recognized in the
2020 profit or loss as a result of the transfer from inventory to investment property?
a. 3,000,000
b. 1,000,000
c. 2,000,000
d. 0
2. If the company will use the fair value model to measure the investment property, how much should be recognized in
the 2020 profit or loss as a result of the transfer from inventory to investment property?
a. 3,000,000
b. 1,000,000
c. 2,000,000
d. 0
10. Maxime, Inc. completed the construction of a building at the end of 2018 for a total cost of P100 million. The building is
estimated to be economically useful for 25 years. The building was constructed for the purpose of earning rentals under
operating leases. The tenants began occupying the building after its completion. The company opted to use the fair
value model to measure the building. An independent valuation expert was used by the company to estimate the fair
value of the building on an annual basis. According to the expert the fair values of the building at the end of 2018, 2019
and 2020 were P104 million, P118 million and 116 million, respectively.
The company’s business expanded in 2019. As a result, the company started to use the building in its operations on
January 1, 2020. Because of the change in use, the company reclassified the building from investment property to
property, plant and equipment.
1. How much should be recognized in profit or loss in 2018 as a result of the completion of the building at the end of
2018?
a. 18,000,000
b. 16,000,000
c. 4,000,000
d. 0
2. The depreciation expense in 2019 is

a. 4,000,000
b. 4,720,000
c. 4,160,000
d. 0
a. 18,000,000
b. 12,000,000
c. 14,000,000
d. 0
4. How much is the carrying amount of the building on December 31, 2020?
a. 118,000,000
b. 116,000,000
c. 113,083,333
d. 113,280,000
NICE CPA REVIEW

PRACTICAL ACCOUNTING 1 – REVIEW
INVENTORIES
PROF. U.C. VALLADOLID

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
1. A retailer imported goods at a cost of P 260,000, including P 40,000 non-refundable import duties and P 20,000
refundable purchase taxes. The risks and rewards of ownership of the time imported goods were transferred to the
retailer upon collection of the goods from the harbor warehouse. The retailer was required to pay for the goods upon
collection. The retailer incurred P 10,000 to transport the goods to its retail outlet and a further P 4,000 in delivering the
goods to its customer. Further selling costs of P 6,000 were incurred in selling the goods.
What amount should the inventory be valued?

a. 240,000
b. 250,000
c. 260,000
d. 270,000
2. On December 28, year 2, Angel Manufacturing Co. purchased goods costing 50,000. The terms were FOB destination.
Some of the costs incurred in connection with the sale and delivery of the goods were as follows:
Packaging for shipment 1,000 Shipping 1,500 Special handling charges 2,000. These goods were received on December
31, year 2. In Angel’s December 31, year 2 balance sheet, what amount of cost for these goods should be included in
inventory?
a. 54,500
b. 53,500
c. 52,000
d. 50,000
*When the shipping terms are FOB destination, the seller bears all costs of transporting the goods to the buyer.
Therefore, the seller is responsible for the payment of packaging costs (1,000), shipping costs (1,500), and the special
handling charges (2,000). The only amount to be included as the buyer’s cost of the inventory purchased is the
purchase price (50,000).
3. In connection with your review of the Rosalina Manufacturing Company, you reviewed its inventory as of December 31,
2020 and found the following items:
(a) A packing case containing a product costing 100,000 was standing in the shipping room when the physical inventory
was taken. It was not included in the inventory because it was marked “Hold for shipping instructions.” The
customer’s order was dated December 18, but the case was shipped and the customer billed on January 10, 2021.
(b) Merchandise costing 600,000 was received on December 28, 2020, and the invoice was recorded. The invoice was in
the hands of the purchasing agent; it was marked “On consignment”.
(c) Merchandise received on January 6, 2021, costing 700,000 was entered in purchase register on January 7. The invoice
showed shipment was made FOB shipping point on December 31, 2020. Because it was not on hand during the
inventory count, it was not included.
(d) A special machine costing 200,000, fabricated to order for a particular customer, was finished in the shipping room on
December 30. The customer was billed for 300,000 on that date and the machine was excluded from inventory
although it was shipped January 4, 2021.
(e) Merchandise costing 200,000 was received on January 6, 2021, and the related purchase invoice was recorded January
5. The invoice showed the shipment was made on December 29, 2020, FOB destination.
(f) Merchandise costing 150,000 was sold on an installment basis on December 15. The customer took possession of the
goods on that date. The merchandise was included in inventory because Rosalina still holds legal title. Historical
experience suggests that full payment on installment sale is received approximately 99% of the time.
(g) Goods costing 500,000 were sold and delivered on December 20. The goods were included in the inventory because
the sale was accompanied by a purchase agreement requiring Rosalina to buy back the inventory in February 2021.
Based on the above information, how much of these items should be included in the inventory balance at December 31,
2020?
a. 1,300,000 a. Unshipped goods 100,000
b. 800,000 c. Merchandise purchased in transit, FOB SP 700,000
c. 1,650,000 g. Goods used as collateral for a loan 500,000
d. 1,050,000
Total 1,300,000
4. The following information was available from the inventory records of Tricia Company for January:
Units Unit Cost Total Cost
Balance at January 1 3,000 9.77 29,310
Purchases:
January 6 2,000 10.30 20,600
January 26 2,700 10.71 28,917
Sales:
January 7 (2,500)
January 31 (3,200)
Balance at January 31 2,000
1. Assuming that Tricia does not maintain perpetual inventory records, what should be the inventory at January 31,
using the weighted-average inventory method, rounded to the nearest peso?
a. 21,010. 1. Periodic - weighted average
b. 20,474. Qty. Total Cost
c. 20,520. Beg. Bal. 1/1 3,000 9.77 29,310
d. 20,720. Purchases - Jan. 6 2,000 10.30 20,600
- Jan. 26 2,700 10.71 28,917
Available for sale 7,700 78,827
Sales (2,500 + 3,200) - 5,700
EI , 1/31 2,000
Average cost = Cost available for sale 78,827/7,700

Units available for sale
= 10.237/u
EI 2000 x 10.237 = 20,474
2. Assuming that Tricia maintains perpetual inventory records, what should be the inventory at January 31, using the
moving-average inventory method, rounded to the nearest peso?
a. 21,010.
b. 20,474.
c. 20,520.
d. 20,720.
5. The Starla Corporation applies the lower of cost or net realizable value (NRV) inventory. Data regarding the items in
work-in-process inventory are shown below:
Shorts Pants
Historical cost 56,640 90,000
Selling Price 108,800 108,000
Estimated cost to complete 14,400 20,400
Replacement Cost 50,400 95,400
Normal profit margin as percentage of selling price 25% 10%
Pants Shorts
Cost 90,000 56,640 lower
NRV:
Estimated Selling Price 108,000 108,800
Less : Estimated cost to complete - 20,400 - 14,500
Estimated cost to sell - -
Net realizable value 87,600 lower 94,300
Pants 87,600
Short 94,300
181,900 BS
Under the lower cost or NRV rule, the pants should be valued at?
a. 67,800
b. 90,000
c. 87,600
d. 95,400
6. Jerome Company provided the following data for the current year:
Inventory – January
Cost 3,000,000 BI (LCNRV) 2,800,000
Net realizable value 2,800,000 Purchases 8,000,000
Net purchases 8,000,000
Avail. 10,800,000
Inventory – December 31;
EI(LCNRV) - 3,700,000
Cost 4,000,000
Net realizable value 3,700,000 CS 7,100,000
Under the LCM rule, what should be reported as cost of goods sold?
a. 7,000,000
b. 7,100,000
c. 7,300,000
d. 7,200,000
7. Joseph Factory started operations in 2019. Joseph manufactures bath towels. 60% of the production are “Class A” which
sell for P500 per dozen and 40% are “Class B” which sell for P250 per dozen. During 2019, 6,000 dozens were produced
at an average cost of P360 per dozen. The inventory at the end of the year was as follows:
220 dozens “Class A” @ P360 P 79,200
300 dozens “Class B” @ P360 108,000
P187,200
Using the relative sales value method, which management considers as a more equitable basis of cost distribution, answer
the following:
Total Production cost (6,000 x 360) = 2,160,000
Allocation: FV/SP Allocation of cost
Class A (6,000 x 60% = 3,600 x 500) = 1,800,000 /2,400,000 x 2,160,000= 1,620,000
Class B (6,000 x 40% = 2,400 x 250) = 600,000 /2,400,000 x 2,160,000= 540,000
Total 2,400,000 2,160,000
1. How much of the total cost should be allocated to “Class A”?
a. 1,296,000
b. 1,620,000
c. 1,284,324
d. 925,714
2. How much of the total cost should be allocated to “Class B”?
a. 540,000
b. 875,676
c. 864,000
d. 1,234,286
Cost per unit: Cost/U
Class A 1,620,000 / 3,600 = 450
Class B 540,000 / 2,400 = 225
Ending Inventory: Cost of goods sold:

Class A (220 x 450) 99,000 (3,380 x 450) 1,521,000
Class B (300 x225 ) 67,500 (2,100 x 225) 472,500
EI 12/31 166,500 1,993,500
3. How much is the value of inventory as of December 31, 2019?
a. 187,200
b. 187,946
c. 117,000
d. 166,500
4. How much is the cost of sales for the year 2019?
a. 1,972,800
b. 1,993,500
c. 2,043,000
d. 1,972,054
Sales
5. How much is the gross profit for the year
Class A (3,600 - 220) x 500) = 1,690,000
2019?
a. 242,200 Class B (2,400 - 300) x 250) = 525,000
b. 406,500 Total Sales 2,215,000
c. 221,500 Less: Cost of sales - 1,993,500
d. 242,946 Gross Profit 221,500
8. On October 1, 2020, Kelly Company entered into a 6-month, 5,200,000 purchase commitment for a supply of a special
product on March 31, 2021, On December 31, 2020, the market value of this material had fallen to 5,000,000. O March
31, 2021, the market value of the purchase commitment is 4,900,000.
What is the loss on purchase commitment that should be recognized on March 31, 2021?
a. 200,000
Commitment date FS date
b. 100,000
no entry Loss - recognized
c. 300,000
d. 0 Gain - no recognition
Oct. 1, 2020 December 31, 2020

5,200,000 ------------------ 5,000,000 ------------------
Loss 200,000
Liab 200,000
Delivery date
loss - recognized
gain - recognized up to the loss recognized before
March 31, 2021

4,900,000
MI 4,900,000
Loss 100,000
Liab 200,000
Cash 5,200,000
2,200,000
MI 2,200,000
Loss 300,000
Cash 2,500,000
9. During the prior fiscal year, Kimberly Corp. signed a long-term non-cancellable purchase commitment with its primary
supplier to purchase 2.5 million of raw materials. Kimberly paid the 2.5 million to acquire the raw materials when the raw
materials were only worth 2.2 million. Assume that the purchase commitment was properly recorded. What is the journal
entry to record the purchase?
a.Debit Inventory for 2,200,000, and credit Cash for 2,200,000.
b.Debit Inventory for 2,200,000, debit Unrealized Holding Loss for 300,000, and credit Cash for 2,500,000.
c.Debit Inventory for 2,200,000, debit Purchase Commitment Liability for 300,000 and credit Cash for 2,500,000.
d.Debit Inventory for 2,500,000, and credit Cash for 2,500,000.???
10. Kris Company's accounting records indicated the following information:

Inventory, 1/1/2021 600,000
Purchases during 2021 3,000,000
Sales during 2021 3,800,000
A physical inventory taken on December 31, 2021, resulted in an ending inventory of 700,000. Kris's gross profit on sales
has remained constant at 35% in recent years. Kris suspects some inventory may have been taken by a new employee. At
December 31, 2021, what is the estimated cost of missing inventory?
a. 430,000.
Inventory estimates:
b. 150,000.
Gross Profit method(Sales - CS = GP)
c. 200,000.
d. 250,000. Beg. Invty. xx 600,000
*SALE 100%-GP 35% = 65% CS Add: net purchases xx 3,000,000
*3,800,000*65% = 2,470,000 COS Available for sale xx 3,600,000
Less: cost of sales (xx) - 2,470,000
Estimated Inventory before loss xx 1,130,000
Per count (undamage/damage) (xx) - 700,000
Loss xx 430,000
11. A fire destroyed JP Company's inventory on October 31. On January 1, the inventory had a cost of 3,500,000. During the
period January 32 to October 31, the entity had net purchases of 8,500,000 and net sales of 17,000,000. Undamaged
inventory at the date of fire had a cost of 170,000. The mark up on cost is 66 2/3%. What was the cost of inventory
destroyed by fire?
Beg. Invty. 3,500,000
a. 1,630,000
b. 1,970,000 Add: net purchases 8,500,000
c. 1,550,000 Available for sale 12,000,000
d. 5,170,000 Less: cost of sales (17M / 166.67%) - 10,200,000
*SALE 166 2/3%-100% = 66 2/3% Estimated Inventory before loss 1,800,000
*17M*166.67% = 10,200,000 Less: Undamage - 170,000
Inventory destroyed by fire 1,630,000
12. On August 31, 2021 a big flood caused a severe damage to the warehouse of Joseph Company. The company suffered an
enormous amount of loss on its merchandise inventory. The following information was available from the accounting
records of Joseph Company:
January 1, 2021 to
Date of flood 2020
Inventory beginning P 400, 000 none
Purchases 2, 380, 000 P 2, 240, 000
Purchase returns 60, 000 40, 000
Sales 3, 120, 000 2, 400, 000
At the beginning of 2021, the company changes its policy on selling prices of merchandise in order to produce a gross
profit rate 5% higher that the gross profit rate in 2020. Undamaged merchandise marked to sell at 100,000 were salvaged.
Damaged merchandise marked to sell P30, 000 had an estimated realizable value of P8, 000.
2020 2020: 2021
BI - Sales 2,400,000 100% 100%
Add: Purchases (net) 2,200,000 (2.240M-40K) Less cost of sales - 1,800,000 75% 70%
Available for sale 2,200,000 Gross Profit 2020 600,000 25% 30%
Less: EI - 400,000 Increase in GP rate 5%
CS 2020 1,800,000 Gross profit rate 2021 30%
*THE BEGINNING INVENTORY OF 2021 IS THE ENDING INVENTORY OF 2020
1. What is the estimated inventory cost lost from flood on August 31, 2021?
a. 436, 000 2021 2020
b. 458, 000 Beg. Invty. 400,000 -
c. 506, 000 Add: net purchases (2,380,000-60,000) 2,320,000 2,200,000
d. 536, 000
Available for sale 2,720,000 2,200,000
2. What is the gross profit for 2020? Less: cost of sales (3,120,000 x 70%) - 2,184,000 - 1,800,000
a. 900,000 Estimated Inventory before loss 536,000 400,000
b. 800,000 Less: Cost of undamaged invty(100,000 x 70%) - 70,000
c. 600,000 NRV of damaged inventory - 8,000
d. 500,000 Inventory loss 458,000
13. You obtained the following information in connection with your audit of Jerome Corporation:
Cost Retail
Beginning inventory 1,987,200 2,760,000
Sales 7,812,000
Purchases 4,688,640 6,512,000
Freight in 94,560
Mark ups 720,000
Mark up cancellations 120,000
Markdown 240,000
Markdown cancellations 40,000
Jerome Corp. uses the retail inventory method in estimating the values of its inventories.
Based on the above and the result of your audit, answer the following:
1. The cost ratio to be used considering the provisions of PAS 2 is
a.68.58%
b.69.20% Cost Retail
c.70.00% Beginning inventory 1,987,200 2,760,000
d.75.78% Purchases 4,688,640 6,512,000
*COST RATIO = 6,770,400/9,672,000 = 70% Freight in 94,560
2. The estimated ending inventory at retail is Net mark up (720 - 120) 600,000
a. 2,300,000 Net markdown (240 -40) -200,000
b. 2,060,000 Available for sale 6,770,400 9,672,000
c. 1,940,000
Less sales -7,812,000
d. 1,860,000
Ending inventory at retail 1,860,000
3. The estimated ending inventory at cost is Ending inventory at cost
a. 1,412,786 (1,860,000 x 70%) -1,302,000
b. 1,275,588 Estimated cost of sales 5,468,400
c. 1,302,000
d. 1,287,120
4. The estimated cost of goods sold is
a. 5,468,400
b. 5,494,812
c. 5,357,614
d. 4,685,117
14. Joshtin Farms produces 45,000 kilos of tobacco during the 2020 season. Company sells all of its tobacco to Philip which
has agreed to purchase the entire production at the prevailing market rate. Recent legislation assures market will not fall
below 70 per kilo during the next 2 years. During 2020, Joshtin delivered 30,000 kilos at market price of 70 to Philip and
sold the remaining 15,000 kilos in 2021 at the maket price of 72.
What amount of revenue should Joshtin recognize in 2020?

a. 2,100,000
b. 2,160,000
c. 3,150,000
d. 3,240,000
*PAS stipulates that producer of livestock, agricultural and forest product and mineral are were quoted market price
exist shall be recognize at market less disposal cost at point of harvest.
15. On January 1, year 2, Ozz, Inc. contracted with the city of Maya to provide custom built desks for the city schools. The
contract made Ozz the city’s sole supplier and required Ozz to supply no less than 4,000 desks and no more than 5,500
desks per year for two years. In turn, Maya agreed to pay a fixed price of 110 per desk. During year 2, Ozz produced
5,000 desks for Maya. At December 31, year 2, 500 of these desks were segregated from the regular inventory and were
accepted and awaiting pickup by Maya. Maya paid Ozz 450,000 during year 2. What amount should Ozz recognize as
contract revenue in year 2?
a. 450,000
b. 495,000
c. 550,000 5,000*110
d. 605,000
*Generally, goods are considered sold when legal title to the goods passes to the buyer.
*CUSTOM BUILT = WHEN FINISH THE TITLE GOES TO BUYER ALREADY. IF TITLE GOES TO THE BUYER THE REVENUE MUST
BE RECOGNIZE.
16. A group of twenty 2-year-old cattle was held at January 1, 2021. Five 2-year-old cattle were purchased on January 2, 2021
for 12,000 each and 5 calves were born on January 2, 2021. No cows or calves were disposed of during the period. Per
unit fair values less cost to sell were as follows:
January 1, 2021
2-year-old cattle 12,000
New born cattle 4,000
December 31, 2021
1-year old cattle 7,000
New born cattle 5,000
The Company records separately the increase in fair value less cost to sell due to physical change and change in fair value
less cost to sell due to price change.
BIOLOGICAL ASSETS FORMULA: GAIN FROM PHYSICAL CHANGE (P OR L)
GAIN FROM PRICE CHANGE (P OR L) FV 12/31 AT YR. END AGE
FV 12/31 LESS: FV 12/31 AT INITIAL AGE
LESS: FV @ INITIAL RECOGNITION GAIN FROM PHYSICAL CHANGE
GAIN FROM PRICE CHANGE ADD: INITIAL VALE OF NEW BORN
GAIN FROM PHYSICAL CHANGE
1. How much shall be taken to income statement as a gain arising physical change?
a. 30,000
b. 60,000
c. 80,000
d. 110,000
2-3 yrs. old
3 yr. old FV 12/31 15,000
2 yr. old FV 12/31 13,000 2,000 x 25 = 50,000
NB - 1 yr. old
1 yr. old FV 12/31 7,000
NB FV 12/31 5,000 2,000 x 5 = 10,000
Initial value of NB (5 x 4,000) 20,000
Gain from Physical change 80,000
2. How much shall be taken to income statement as a gain arising from change in fair value due to price change?
a. 30,000 2 yr. old
b. 60,000 FV 12/31 13,000
c. 90,000
FV on initial 1/1 -12,000 1,000 x 25= 25,000
d. 110,000
NB
FV 12/31 5,000
FV on initial 1/1 -4,000 1,000 x 5= 5,000
Gain from Price change 9,000 30,000
17. The following audited balances pertain to Shawn Company
Accts. Payable:
Jan.1, 2021 286, 924
Dec.31, 2021 737, 824
Inventory balance:
Jan. 1, 2021 815, 386
Dec.31, 2021 488, 874
Cost of goods sold-2021 1, 859, 082
How much was paid by Shawn Company to its supplier in 2021?

a. 1, 081, 670
b. 1, 065, 900 Accounts Payable
c. 1, 071, 678 Payment ? 286,924 Beginning BI 815,386
d. 1, 097, 000 1,081,670 1,532,570 Purchases Purchases ? 1,532,570
1,819,494 Credit Available 2,347,956
1,081,670 less debit Less EI -488,874
737,824 Ending CS 1,859,082
18. Steven Co. had the following amounts related to the sale of consignment inventory:
Cost of merchandise shipped to consignee 72,000

Sales value for two-thirds of inventory sold by consignee 80,000
Freight cost for merchandise shipped 7,500
Advertising paid for by consignee, to be reimbursed 4,500
10% commission due the consignee for the sale 8,000
What amount should Steven report as net profit (loss) from this transaction for the year?
a. (12,000)
b. 8,000 Revenue 80,000
c. 14,500 Less: cost of consigned goods 72,000
d. 32,000 Freight 7,500
Total cost 79,500
Percentage sold x 2/3
Cost of goods sold -53,000
Gross profit 27,000
Less: Advertising -4,500
Commission -8,000
Net Profit 14,500
19. The following account balances are presented by Connie Company:
2020 2021
Merchandise Inventory 150,000 90,000
Cash 180,000 ?
Accounts Receivable 240,000 180,000
Accounts payable 405,000 200,000
Assuming all sales and purchases are on account. The amount of cost of goods sold is 360,000 during the current year.
The gross profit margin on sales is 20%.
Cash Accounts Payable Sales 100%
Beg. Bal 180,000 505,000 Payment Payment ? 405,000 beg Less: CS ? 80%
Collection 510,000 505,000 300,000 Purchases GP 20%
Debit 690,000 505,000 705,000 Credit CS 360,000
Credit -505,000 -505,000 Debit Divide by /80%
Ending 185,000 200,000 Ending Sales 450,000
1. What is the 2021 cash balance? Accounts Receivable

a. 105,000 Beg. 240,000 ? Collection
b. 35,000 Sales 450,000 510,000
c. 55,000
Debit 690,000
d. 185,000
Credit
Ending 180,000
2. What is the amount of purchases? BI 150,000

a. 300,000
Purchases ? 300,000
b. 210,000
Avail 450,000
c. 240,000
d. 310,000 EI -90,000
CS 360,000
20. The closing inventory of Alfie Company amounted 284,000 at December 31, 2021. This total includes two inventory lines
about which the inventory taker is uncertain.
Item 1- 500 items which had cost P15 each and which were included at 7,500. These items were found to have been
defective at the balance sheet date. Remedial work after the balance sheet date cost 1,800 and they were then sold for
P20 each. Selling expenses were P400.
*COST (15*500) = 7,500 LOWER
NRV (500*20) - (400+1,800) = 9,420
ADJUSTMENT = NO ADJUSTMENT
Item 2- 100 items that had cost P10 each but after the balance sheet date, these were sold for P8 each with selling
expenses of P150.
*COST (100*10) = 1,000
NRV (100*8)-150 = 650 LOWER
ADJUSTMENR = 350
What figure should appear in Alfie’s statement of financial position for inventory?
a. 283,650 Inventory per book 284,000
b. 284,000 Item 1 - no adjustment -
c. 283,950 Item 2 - 350
d. 284,300 Adjusted value 283,650
*INVENTORY MUST BE REALIZED AT LOWER OF COST OR NET REALIZABLE VALUE
*NET REALIZABLE VALUE = SELLING PRICE – (COST TO COMPLETE+COST TO SELL)
21. Kris manufacturers and sells paper envelopes. The stock of envelopes was included in the closing inventory as of
December 31, 2020, at a cost of 50 per pack. During the final audit, the auditors noted that the subsequent sale price
for the inventory at Juanuary15, 2021, was 40 per pack. Furthermore, inquiry reveals that during the physical stock
take, a water leakage has created damages to the paper and the glue. Accordingly, in the following week, Kris has spent
a total of 15 per pack for repairing and reapplying glue to the envelopes. The net realizable value and inventory write-
down (loss) amount to
a. 40 and 10 respectively Cost 50
b. 45 and 10 respectively NRV (40 -15) 25
c. 25 and 25 respectively Write-down 25
d. 35 and 25 respectively
22. A recent fire severely damaged Allison Company’s administration building and destroyed many of its financial records.
You have been contracted by Allison’s management to reconstruct as much financial information as possible for the
month of July. You learn that Allison makes a physical inventory count at the end of each month to determine monthly
ending inventory values. You also find out that the company applies the average cost method.
You are able to gather the following information by examining various documents:
Inventory, July 31 150,000 units
Total cost of goods available for
sale in July 356,400
Cost of goods sold during July 297,000
Gross profit on sales for July 303,000
Cost of inventory, July 1 0.35 per unit
The following are Allison’s July purchases of merchandise:
Date Quantity Unit Cost
July 6 180,000 P0.40 72,000
12 150,000 0.41 61,500
16 120,000 0.42 50,400
17 150,000 0.45 67,500
600,000 251,400
1. Number of units on hand July 1

a. 450,000 b. 848,571
c. 169,714 d. 300,000
*WORKBACK: 297,000-356,400 = 59,400
*59,400/150,000 = 0.396
*356,400/0.396 = 900,000
*WORKBACK: 900,000-600,000 = 300,000
2. Units sold during July
a. 600,000 b. 300,000
c. 750,000 d. 450,000
3. Unit cost of inventory at July 31

a. 0.35 b. 0.396
c. 0.419 d. 0.279
23. Matet Company accumulated the following data for the current year.
Raw materials – beginning inventory 90,000 units @ P7.00
Purchases 75,000 units @ P8.00
Purchases 120,000 units @ P8.50
The entity transferred 195,000 units of raw materials to work in process during the year.
Work in process – beginning inventory 50,000 units @ P14.00

Work in process – end 720,000
Direct labor 3,100,000
Manufacturing overhead 2,950,000
The entity used the FIFO method for valuing inventory.
1. What is the cost of raw materials used?

a. 1,485,000
b. 2,250,000
c. 1,530,000
d. 3,015,000
2. What is the total manufacturing cost?

a. 8,300,000
b. 7,535,000
c. 7,580,000
d. 9,065,000
3. What is the cost of goods manufactured for the current year?

a. 7,535,000
b. 8,235,000
c. 7,515,000
d. 8,280,000
24. On January 1, year 2, Kristine Corp. signed a three-year non-cancelable purchase contract, which allows Kristine to
purchase up to 500,000 units of a computer part annually from Tris Supply Co. at .10 per unit and guarantees a minimum
annual purchase of 100,000 units. During year 2, the part unexpectedly became obsolete. Kristine had 250,000 units of
this inventory at December 31, year 2, and believes these parts can be sold as scrap for .02 per unit. What amount of
probable loss from the purchase commitment should Kristine report in its year 2 income statement?
a. 24,000
b. 20,000
c. 16,000
d. 8,000
25. On June 1, 2021, Jeffrey Company sold merchandise with the list price of 8,000,000 to Antonio Company on account.
Jeffrey allowed trade discounts of 20% and 10%.
Credit terms were 2/10, n/30 and the sale was made FOB shipping point. Jeffrey prepaid 50,000 of delivery costs for
Antonio as an accommodation.
1. What amount should be reported as sales revenue?

a. 5,760,000
b. 4,940,000
c. 5,648,000
d. 4,560,000
2. On June 11, 2021, what amount was received by Jeffrey from Antonio as remittance in full?
a. 5,644,000
b. 4,580,000
c. 5,694,900
d. 4,644,000
PPE SET C
Problem
1. Ivan Company installed a new equipment at the production facility and incurred the following costs:
Initial delivery and handling cost 400,000
Cost of site preparation 700,000
Cost of equipment per supplier’s invoice 3,000,000
Consultants used for advice on the acquisition of equipment 800,000
Interest charges paid to supplier for deferred credit 300,000
Estimated dismantling cost to be incurred as required by contract 350,000
Operating losses before commercial production 450,000
What total amount should be capitalized as cost of the equipment?

a. 5,250,000
b. 5,550,000
c. 4,900,000
d. 5,100,000
2. Angel Company purchased a machine:

Cash paid for machine 3,000,000
Insurance while in transit 100,000
Continuing and frequent repairs 200,000
Cost of installation 130,000
Profit saved by self-construction 300,000
Insurance for one year 75,000
Testing cost 50,000
Replacement of broken gear of a machine 60,000
Repainted the plant building 120,000
1. What amount should be charged to repair and maintenance expense?

a. 180,000
b. 320,000
c. 220,000
d. 380,000
2. What total amount should be capitalized as cost of the machine?

a. 3,280,000
b. 3,660,000
c. 3,180,000
d. 3,375,000
3. Cooper Company acquires a new manufacturing equipment on January 1, 2020, on installment basis. The deferred
payment contract provides for a down payment of 400,000 and an 8-year note for 3,204,160. The note is to be paid in 8
equal annual installment payments of 400,520 including 10% interest. The payments are to be made on December 31 of
each year, beginning December 31, 2020. The equipment has a cash price equivalent of 2,470,000. Cooper's financial
year-end is December 31.
1. The amount to be recognized on January 1, 2020, as discount on note payable is

a. 410,416
b. 0
c. 1,134,160
d. 927,160
2. What is the acquisition cost of the equipment?

a. 3,504,160
b. 2,904,160
c. 2,470,000
d. 3,204,160
3. The amount of interest expense to be recognized in 2021 is

a. 410,416
b. 207,000
c. 0
d. 187,648
4. At year-end, Ozz Company provided the following information about property, plant, & equipment:
Plant assets acquired form Maya 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 Maya company, Ozz 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 Building?

a. 5,250,000
b. 5,500,000
c. 5,000,000
d. 4,500,000
2. What is the cost of Land?

a. 600,000
b. 640,000
c. 670,000
d. 690,000
3. What is the cost of machinery?

a. 2,900,000
b. 2,000,000
c. 2,970,000
d. 2,830,000
5. Jerome Company made the following expenditures:

Purchase Price of Land (Fair value is 2,000,000) 2,475,000
Survey before construction of new building 75,000
Materials and Supplies 2,000,000
Saving on Construction 170,000
Legal cost of injury claim 200,000
Architect Fee 300,000
Special Tax Assessment 50,000
Safety inspection on building 20,000
Excavation 100,000
Cost of grading, leveling and landfill 50,000
New building constructed 5,450,000
Cost of window broken by vandals 75,000
Compensation insurance 40,000
1. What is the cost of land?

a. 2,325,000
b. 2,775,000
c. 2,650,000
d. 2,270,000
2. What is the cost of building?

a. 7,910,000
b. 8,155,000
c. 5,110,000
d. 2,775,000
6. A tract of land with a building was acquired for P6, 000,000. The closing statement indicated that the land value was
P5,000,000 and the building value was P1,000,000. Shortly after acquisition, the building was demolished at a cost of
P200, 000. A new building was constructed for P3, 000,000 plus the following costs: Excavation fees - P120, 000;
Architectural design fees - P160.000: Building permit fee - P40, 000; Payment for Insurance premium during the
construction period - P75, 000.
What are the costs of the land and new building, respectively?
a. P4200, 000 and P3, 395,000
b. P6, 000,000 and P3, 595,000
c. P5000, 000 and P4, 595,000
d. P5, 000.000 and P3, 595,000
7. In October, Gisel Company exchanged an old packaging machine costing 240, 000 and 50% depreciated, for a dissimilar
used machine and paid a cash difference of 32, 000. The market value of the old packaging machine was determined to
be P140, 000.
How much is the cost of the newly acquired machine and the amount of gain or. Loss, respectively, that Gisel should
record on this exchange?
a. 172,000 and 20,000 loss
b. 172,000 and 20,000 gain
c. 140,000 and 20,000 gain
d. 108,000 and 20,000 gain
8. John Paul Company exchanged a truck with carrying amount of 1,150,000 and a fair value of 1,700,000 for a truck and
220,000 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
b. 930,000
c. 1,700,000
d. 1,330,000
9. JP Company has an old equipment that cost 700, 000 with an accumulated depreciation of 400, 000. The equipment
was traded in for a new machine from a dealer company that had a list price of 800.000: however, the new machine
could be purchased without a trade in for 750, 000 cash. JP Company paid 500, 000 cash in the exchange.
1. At how much should JP record the newly acquired machine?
a. 1,250,000
b. 800,000
c. 750,000
d. 300,000
2. What is the amount of gain (loss) on the exchange?

a. 50, 000 gain
b. 50, 000 loss
c. 300, 000 loss
d. 250, 000 loss
10. On January 2, 2021, Joshtin Delivery Company traded in an old delivery truck for a newer
model. Data relative to the old and new trucks follow:
Old Truck
Original cost 36,000
Accumulated depreciation as of January 2, 2021 24,000
Average published retail value 11,000
New Truck
List price 60,000
Cash price without trade-in 54,000
Cash paid with trade-in 45,000
What should be the cost of the new truck for financial accounting purposes?
a. 45,000
b. 54,000
c. 57,000
d. 60,000
11. On January 2, 2021, Tricia Corporation traded is a used delivery truck with a carrying amount of 540,000 for a new
delivery truck having a list price of 1,600,000 and paid a cash difference of 750,000 to the dealer. The used truck had a
fair value of 600,000 on the date of the exchange.
At what amount should the new truck be recorded on Tricia’s book?

a. 1,060,000
b. 1,290,000
c. 1,350,000
d. 1,600,000
12. Tricia Company received a government grant for 45,000,000 to install and run a windmill in an economically backward
area. The entity had estimated that such a windmill will cost 65,000,000 to construct. The secondary attached to the grant
is that the entity shall hire a labor in the area where the windmill is located. The construction was completed on January
1, 2021. The windmill is to be depreciated using the straight line method over a period of 10 years.
What amount of income from the government grant should be recognized in 2021?
a. 1,500,000
b. 2,500,000
c. 3,500,000
d. 4,500,000
13. Angel Co. purchased a varnishing machine for 4,000,000 on January 1, 2020. The entity received a government grant of
840,000 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.
1. What amount should be reported as deferred grant income on December 31, 2021?
a. 420,000
b. 720,000
c. 840,000
d. 120,000
2. What is the carrying amount of the machine on December 31, 2021?

a. 2,000,000
b. 3,000,000
c. 2,420,009
d. 3,160,000
14. Ryan Company self-constructed an asset for its own use. Construction started on January 1, 2021 and the asset was
completed on December 31, 2021. Costs incurred during the year were as follows:
January 1- P400, 000; April 1- P500,000; August 1 - P480,000; December 1- P180,000
1. What is the average accumulated expenditures for the self-constructed asset?

a. 1, 560,000
b. 990,000
c. 870,000
d. 780,000
2. If the company had a two-year, 18% loan of P500,000, specifically obtained finance the asset construction, what is
the capitalized interest added to the of the self-constructed asset?
a. 90,000
b. 140,000
c. 178,200
d. 280,800
3. Assuming that in addition to the specific borrowing, prior to the construction, the company had a general borrowing
amounting to P600,000 with interest of 20% and a two-year term that was used in part In the self-construction, what is
the total cost of the self-constructed asset?
a. 1,770,000
b. 1,748,000
c. 2,650,000
d. 1,560,000
4. Assuming that the total construction costs of P1, 560000 were incurred evenly during the construction period, and
the company has the following outstanding obligations prior to the start of the construction:
Specific borrowing P700.000, 16%. Due January 1, 2022 General borrowing P500.000. 18%, due January}, 2021. What is
the total capitalized interest?
a. 126,400
b. 130,000
c. 112,000
d. 218,000
15. Biel Company purchased a tooling machine on January 3, 2014 for 700,000. The machine was being depreciated on the
straight-line method over an estimated useful life of 10 years, with no salvage value. At the beginning of 2021, the
company paid 175,000 to overhaul the machine. As a result of this improvement, the company estimated that the useful
life of the machine would be extended an additional 5 years (15 years total).
What should be the depreciation expense recorded for the machine in 2021?
a. 48,125
b. 58,333
c. 70,000
d. 77,000
16. Catherine Company provided the following information with respect to a building:
· The building was acquired January 1, 2018 at cost of 3,000,000. It has an estimated useful life of 12 years and
salvage value of 150,000. The method of depreciation used was double declining method.
· The building was renovated on January 1, 2021 at a cost of 800,000. The residual value became 200,000.
· On January 1, 2022, the management decided to change the method being used to straight line method.
What is the depreciation of the building for December 2021?

a. 439,352
b. 304,514
c. 493,352
d. 422,685
17. Allison Company determined that, due to obsolescence. Equipment with an original cost of 900,000 and accumulated
depreciation at December 31, 2020 of 420,000 had suffered permanent impairment, and as a result should have a carrying
value of only 360,000. In addition, the remaining useful life of the equipment was reduced from eight years to five years.
1. What was the impairment loss recognized on December 31, 2020?

a. 0
b. 100,000
c. 120,000
d. 180,000
2. What is the depreciation expense for December 31, 2021?

a. 0
b. 72,000
c. 96,000
d. 120,000
18. January 1, 2019 Kaya-Pa Company acquired an equipment that has a useful life of 10 years and has accumulated
depreciation of 1,000,000 as of December 31, 2020. The entity used a straight line method for the depreciation. The
equipment suffered a permanent impairment of 4,250,000 in December 2020. In January 1, 2021, the entity determined
that the carrying amount of the equipment is 2,750,000 with a 2-years remaining useful life and a residual value of
750,000.
1. What is the depreciation for 2021?

a. 1,375,000
b. 1,000,000
c. 2,000,000
d. 2,375,000
2. What is the carrying amount for December 31, 2021?

a. 2,750,000
b. 2,000,000
c. 7,000,000
d. 1,750,000
3. What is the cost of the equipment in January 1, 2019?

a. 10,000,000
b. 9,000,000
c. 8,000,000
d. 7,000,000
19. Theresa Company acquired a machine on January 1, 2018, at a cost of 120,000. It was expected to have a useful life of 10
years. Theresa uses the straight line method in depreciating its machinery and equipment and reports on a calendar year
basis. On December 31, 2020, the machine was appraised as having a gross replacement cost of 150,000. Theresa applies
the revaluation model in valuing this class of property, plant and equipment after its initial recognition.
How much should be credited to revaluation surplus on December 31,

2020?
a. 30,000
b. 105,000
c. 21,000
d. 9,000
20. On January 1, 2014, Kristine Corporation acquired a building at a cost of 22, 000,000. The building has been depreciated
using straight line on the basis of a 20-year life, with a residual value of 2, 000.000.
On January 1, 2019. An appraisal of the building by professional and competent appraisers reported a fair value of 20,
000,000. With an estimated residual value of 3, 000,000 and a remaining useful life of 10 years. It is the company's policy
to transfer a portion of the revaluation surplus to retained earnings while the asset is being used by the company.
Assume that the accumulated depreciation of the revalued asset is restated proportionately with the change in the gross
carrying amount of the asset.
1. What is the revaluation surplus recognized in the accounts at January 1, 2019?

a. 2,700,000
b. 3,000,000
c. 4,000,000
d. 5,000,000
2. What is the annual depreciation charge for the building after the revaluation?
a. 1,000,000
b. 1,700,000
c. 2,000,000
d. 2,700,000
3. Assuming that no further revaluation was recorded and the asset was sold on January 1, 2023 for P13, 500,000, what
is the gain or loss recognized by Kristine upon the disposal of the asset?
a. 300, 000 gain
b. 300, 000 loss
c. 2,000,000 gain
d. 2,000,000 loss
21. On June 30, 2021, Kelly Corp. completed the rearrangement of a group of factory machines to secure greater efficiency
in production. Kelly estimated that benefits from the rearrangement would extend over the remaining five year useful
lives of the machines. The following costs were incurred:
Moving 35,000
Reinstallation 75,000
Annual maintenance (performed at this time 10,000
For convenience)
How much of the costs incurred should be capitalized on June 30, 2021?
a. 0
b. 75,000
c. 110,000
d. 120,000
22. In January 2021, Kimberly Mining Corporation purchased a mineral mine for 6,300,000 with
removable ore estimated by geological surveys at 2,500,000 tons. The property has an estimated value of 600,000 after
the ore has been extracted. Kimberly incurred 1,725,000 of development costs preparing the property for the extraction
of ore. During 2021, 340,000 tons were removed and 300,000 tons were sold.
For the year ended December 31, 2021, Kimberly should include what amount of depletion in its cost of goods sold?
a. 775,200
b. 684,000
c. 891,000
d. 1,009,800
23. On January 1, 2019, Cooper 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, 2020 and resources removed totaled 500,000 tons. During 2021, it is discovered
that available resource will total 1,500,000 tons.
At the beginning of 2021, 800,000 development cost were incurred, and only 200,000 tons are extracted.
1. What is the depreciation for the year ended December 31, 2020 assuming that it uses a straight line method of
depreciation.
a. 800,000
b. 1,700,000
c. 888,888
d. 900,000
2. What amount should be reported as depletion for 2020?

a. 1,800,000
b. 1,600,000
c. 1,700,000
d. 1,500,000
3. What is the depletion for the year ended December 31, 2021?
a. 1,240,000
b. 1,300,000
c. 1,200,000
d. 1,340,000
24. On January 1, 2021 Shawn Company replaced an old machine with a more efficient one.
Purchase price of the new machine 7,000,000
Carrying amount of the old machine 2,000,000
Labor to install new machine 500,000
Fair value of the old machine 4,000,000
On July 1, 2021 an earthquake caused a total loss to the machine, the company depreciate the machine at 400,000
annually and the entity received an insurance proceeds of 8,000,000.
1. What is the total cost of the machine?

a. 7,000,000
b. 6,000,000
c. 6,500,000
d. 7,500,000
2. What is the depreciation expense?

a. 400,000
b. 200,000
c. 100,000
d. 0
3. What is the carrying amount June 30, 2021?

a. 7,500,000
b. 7,300,000
c. 7,000,000
d. 6,000,000
4. What is the amount recognized as gain on disposition?

a. 700,000
b. 600,000
c. 500,000
d. 400,000
25. On January 1, 2021, Alfie 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, 2021 with a cost 8,000,000. The entity earned 300,000
interest income from its fund. The plant was completed on December 31, 2021.
What amount of interest should be capitalized?

a. 483,750
b. 300,000
c. 220,000
d. 183,750
26. Constancia Incorporated purchased a new building at a cost of 7,500,000 on January 1, 2016. Depreciation was computed
on the straight line basis at 4% per year. On January 1, 2021, the building was revalued at fair value of 9,300,000.
1. What is the depreciation for 2021?

a. 456,000
b. 465,000
c. 435,000
d. 445,000
2. What is the revaluation surplus on December 31, 2021?

a. 3,135,000
b. 3,145,000
c. 3,200,000
d. 3,315,000
27. JP Company had the following property acquisitions during the current year:
Acquired a tract of land in exchange for 100,000 shares of Mhel Company with P100 par value that had a market price of
P500 per share on the date of acquisition. The last property tax bill indicated assessed value of 2,400,000 for the land.
Received land from a major shareholder as an inducement to locate a plant in the city. No payment was acquired but the
entity paid 50,000 for legal expenses for land transfer. The land is fairly valued at 2,000,000.
What is the total increase in land as a result of acquisitions?

a. 2,400,000
b. 52,000,000
c. 2,000,000
d. 10,000,000
28. On January 2, 2019, Omar Company received a grant of 60,000,000 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 2019, P4,000,000 for 2020, P6,000,000 for
2021, P8,000,000 for 2022, and P10,000,000 for 2023.
What amount of grant income should be recognized for 2020?

a. 6,000,000
b. 4,000,000
c. 12,000,000
d. 8,000,000
29. Emerson Company purchased a boring machine on January 1, 2020 for P162.000. The useful life of the machine is
estimated at three years with a residual value at the end of this period of P12, 000. During Its useful life, the expected
units of production from the machine are: 2020 – 24,000 units; 2021 -14,000 units; 2022 – 10,000 units.
What should be the depreciation expense for the year ended December 31, 2021, using the most appropriate
depreciation method permitted by 1A516 Property, plant and equipment?
a. 54,000
b. 50,000
c. 47,250
d. 43,750
30. Mhel Company acquired two items of machinery as follows:

On December 31, 2019, Mhel 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, Mhel 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?

a. 10,000,000
b. 5,950,000
c. 7,190,000
d. 6,590,000
INTANGIBLES
Problem
1. The following are items that could be included in the Intangible Assets:
1. Investment in a subsidiary company P1,500,000

2. Timberland 2,000,000
3. Cost of engineering activity required to advance the design
of a product to the manufacturing stage 120,000
4. Lease prepayments (6 months’ rent paid in advance) 60,000
5. Cost of equipment obtained under finance lease 700,000
6. Internally generated publishing title 230,000
7. Costs incurred in the formation of the corporation 90,000
8. Operating losses incurred in the start-up of the business 560,000
9. Training costs incurred in start-up operations 80,000
10. Purchase of a franchise 1,200,000
11. Goodwill internally generated 300,000
12. Cost of testing in search for product alternatives 65,000
13. Goodwill acquired in the purchase of a business 640,000
14. Cost of developing a patent 140,000
15. Cost of purchasing a patent from an inventor 500,000
16. Legal costs incurred in securing a patent 70,000
17. Costs of a successful legal suit to protect the patent 230,000
18. Cost of conceptual formulation of possible product
alternatives 160,000
19. Cost of purchasing a copyright 900,000
20. Research and development costs 340,000
21. Long-term receivables 310,000
22. Cost of developing a trademark 61,000
23. Cost of purchasing a trademark 290,000
24. Computer software for a computer-controlled machine that
cannot operate without that specific software for internal 130,000
use
25. Operating system of a computer for internal use 10,000
How much could be recognized as Intangible Assets?

a. 3,600,000
b. 3,740,000
c. 5,830,000
d. 3,530,000
2. An entity purchases a trademark and incurs the following costs in connection with the trademark:
One-time trademark purchase price 100,000; Nonrefundable VAT taxes 5,000; Training sales personnel on the use of the
new trademark 7,000; Research expenditures associated with the purchase of the new trademark 24,000; Legal costs
incurred to register the trademark 10,500; Salaries of the administrative personnel 12,000 Applying IFRS and assuming
that the trademark meets all of the applicable initial asset recognition criteria, the entity should recognize an asset in the
amount of
a. 100,000
b. 115,500
c. 146,500
d. 158,500
3. On January 2, 2019, Tablizo purchased a franchise with a useful life of ten years for 100,000. An additional franchise fee
of 3% of franchise operation revenues must be paid each year to the franchisor. Revenues from franchise operations
amounted to 800,000 during 2019. In its December 31, 2021 balance sheet, what amount should Tablizo report as
intangibles asset-franchise?
a. 70,000
b. 87,600
c. 90,000
d. 100,000
4. Cooper Company has broadcasting license that will expire in 5 years. As of January 1, 2021 the license has a carrying
amount of 2,000,000. The license is renewable and has already been renewed twice in the past. There are no factors to
suggest that the license will not be renewed again and the entity has the intention to do so. The license is expected to
contribute to the entity’s cash flow indefinitely.
In the December 31, 2021 statement of financial position, how much should be reported as the carrying value of the
broadcasting license?
a. none
c. 1,600,000
c. 1,900,000
d. 2,000,000
5. On December 31, 2020 Tricia Co. has capitalized software costs of 600,000 with an economic life of four years. Sales for
2021 were 10% of expected total sales of the software. At December 31, 2021 the software had a net realizable value of
480,000.
On December 31, 2021 balance sheet, what amount should Tricia report as net capitalized cost of computer software?
a. 432,000
b. 450,000
c. 480,000
d. 540,000
6. On January 1, 2019, Dennis Corporation signed a 12-year lease for warehouse space. Dennis has an option to renew the
lease for an additional 8-year. During January 2021, Dennis made substantial improvements to the warehouse. The cost
of these improvements was 540,000 with an estimated useful life of 15 years. At December 31, 2021, Dennis intended to
exercise the renewal option. Dennis has taken a full year’s depreciation on this leasehold improvement.
In the December 31, 2021 balance sheet, the carrying amount of this leasehold improvement should be
a. 486,000
b. 510,000
c. 504,000
d. 513,000
7. On January 2, 2018, Jerome Inc. purchased a patent for a new consumer product for 90,000. At the time of purchase,
the patent was valid for 15 years; however, the patent’s useful life was estimated to be only ten years due to the
competitive nature of the product. On December 31, 2021, the product was permanently withdrawn from sale under
governmental order because of a potential health hazard in the product.
What amount should Jerome charge against income during 2021, assuming amortization was recorded at the end of
each year?
a. 9,000
b. 54,000
c. 63,000
d. 72,000
8. On January 1, 2020, Coffee Prince Café’ bought a trademark for 400,000, having an estimated remaining useful life of 16
years. After 16 years, revenues expected from the intangible will be zero. In January 2021, Coffee Prince Café’ paid P
60,000 for legal fees in a successful defense of the trademark. What amount of expense should Coffee Prince Café’
recognize and charge against income during 2021?
a. 15,000
b. 25,000
c. 30,000
d. 85,000
9. On January 2, 2021, Joshtin Company paid 500,000 to acquire a patent with a remaining economic life of 15 years.
Joshtin Company expects to use the patent for 5 years and intends to sell it after 5 years. Jerome Company has
committed to buy the patent for 40% of the cost to Joshtin Company.
In December 31, 2021, what amount of patent amortization should Joshtin Company report its profit or loss?
a. 40,000
b. 60,000
c. 100,000
d. 200,000
10. A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1, 2019 for 1,800,000.
The company uses straight-line amortization for patents. On January 2, 2021, a new patent is 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 that could be recorded in 2021 is

a. 300,000
b. 60,000
c. 81,818
d. 69,000
11. On January 1, 2021, JP Corp. incurred organization costs of 24,000. What portion of the organization costs will JP defer
to years subsequent to 2021?
a. 23,400
b. 19,200
c. 4,800
d. 0
12. In connection with Ramil Corporation’s financial statements for the year 2021 you noted the following items relative to
the company’s Intangible assets.
A patent was purchased from Angel Company for 4,000,000 on January 2, 2020. Ramil estimated that the remaining
useful life of the patent to be 10 years. The patent was carried in Angel’s accounting records at a carrying value of
4,000,000 when Angel sold it to Ramil.
During 2021, a franchise was purchased from Gloria Company for 960,000. In addition, 5% of the revenue from the
franchise must be paid to Gloria. Revenue from the franchise for 2021 was 5,000,000. Ramil estimates the useful life
of the franchise to be 10 years and takes full year’s amortization in the year of purchase.
Ramil incurred research and development costs of 866,000 in 2021. Ramil estimates that these costs will be recouped
by December 31, 2019.
On January 1, 2021, Ramil, because of the recent events in the industry, estimates that the remaining life of the patent
purchased on January 2, 2020, is only 5 years from January 1, 2021.
1. Amortization of patent for 2021

a. 900,000
b. 800,000
c. 720,000
d. 400,000
2. Carrying amount of patent as of December 31, 2021

a. 2,880,000
b. 2,400,000
c. 2,700,000
d. 3,200,000
3. Carrying amount of intangible assets as of December 31, 2021

a. 3,264,000
b. 4,610,000
c. 3,564,000
d. 3,744,000
4. Total amount that should be charged against income in 2021

a. 2,112,000
b. 1,066,000
c. 2,012,000
d. 1,932,000
13. You gathered the following information related to the Patents account of the Gloria Cookie Corporation in connection
with your audit of the company’s financial statements for the year 2021.
In 2020, Gloria developed a new machine that reduces the time required to insert the fortunes into its fortune cookies.
Because the process is considered very valuable to the fortune cookie industry, Gloria patented the machine. The
following expenses were incurred in developing and patenting the machine:
Research and development laboratory expenses P1,000,000

Metal used in the construction of the machine 320,000
Blueprints used to design the machine 128,000
Legal expenses to obtain patent 480,000
Wages paid for the employees’ work on the research,
development, and building of the machine (60% of the
time was spent in actually building the machine)
1,200,000
Expense of drawing required by the patent office to be
submitted with the patent application 68,000
Fees paid to the government patent office to process
application 100,000
During 2021, Gloria paid 150,000 in legal fees to successfully defend the patent against an infringement suit by Cookie
Monster Corporation.
It is the company’s policy to take full year amortization in the year of acquisition.
1. Cost of patent
a. 580,000
b. 648,000
c. 1,128,000
d. 798,000
2. Cost of machine
a. 1,236,000
b. 1,648,000
c. 1,040,000
d. 1,168,000
3. Amount that should be charged to expense when incurred in connection with the development of the patented
machine
a. 1,480,000
b. 1,000,000
c. 1,608,000
d. 0

a. 522,000
b. 583,200
c. 1,015,200
d. 837,900
14. Marie Company incurred the following research and development cost in the current year:
Equipment acquired for use in various R and D projects 1,050,000

Depreciation on the above equipment 475,000
Materials used 250,000
Compensation cost of personnel 700,000
Outside consulting fees 350,000
Indirect cost appropriately allocated 175,000
What total amount of research and development cost should be recognized as expense for the current year?
a. 700,000
b. 950,000
c. 1,950,000
d. 1,050,000
15. Kelly Company is negotiating to acquire Emerson Company. Kelly manufactures and sells wood-burning stoves, and
Emerson Company produces parts that are required to manufacture the stoves. Emerson Company enjoys an
exceptional reputation, and Kelly management believes it can continue Emerson’s current level of income and satisfy its
own need for parts. Under the contemplated arrangement, Kelly Company will negotiate for the acquisition of the net
assets of Emerson Company. The following information has been developed to determine the appropriate price.
Recorded amounts and estimated values of Emerson Company’s assets and liabilities are as follows:
Recorded amount Current value
Assets to be received 16,000,000 19,500,000
Liabilities to be assumed 6,000,000 5,500,000
10,000,000 14,000,000
========== =========
Emerson Company’s earnings for the past five years averaged 2,000,000. This is believed to be a reasonable estimate of
future income. The level of income normally experienced by companies similar to Emerson Company is 10%.
Kelly Company and Emerson Company agreed to capitalize average excess earnings at 25% in estimating the value of
goodwill.
How much should Kelly Company pay in acquiring Emerson Company?

a. 16,400,000
b. 18,000,000
c. 14,200,000
d. 16,000,000
16. An intangible asset costs 300,000 on January 1, 2020. On January 1, 2021, the asset was evaluated to determine if it was
impaired. As of January 1, 2021, the asset was expected to generate future cash flows of 25,000 per year (at the end of
each year). The appropriate discount rate is 5%.
1. What total amount should be charged against income in 2021, assuming that the asset had a total useful life of 10
years from date of acquisition?
a. 30,000
b. 92,304
c. 112,048
d. 122,304
2. What total amount should be charged against income in 2021 assuming that as of January 1, 2020, the asset was
assumed to have an indefinite useful life and that as of January 1, 2021, the remaining life was still indefinite?
a. 0
b. 30,000
c. 92,304
d. 122,304
17. On December 31, 2021, Mark Company showed the following intangible assets:
Trademark 6,000,000
Patent 3,000,000
The trademark has 8 years remaining in its legal life. However, it is anticipated that the trademark will be routinely
renewed in the future. Thus, the trademark is considered to have an indefinite life.
Because of an inflationary economy, the trademark is expected to generate cash flows of 200,000 per year. The
appropriate discount rate is 10%. Mathematically, the discounted value of a stream of indefinite annual cash flow is simply
computed by dividing the annual cash flow by the discount rate.
The patent has an economic life of just 5 years because of market conditions. It is expected that the patent will generate
cash flows of 500,000 per year. The appropriate discount rate is also 10%. The present value of an ordinary annuity of 1
at 10% for 5 periods is 3.79
Mark Company shall recognize in 2021 total impairment loss at

a. 1,105,000
b. 4,000,000
c. 5,105,000
d. 0
18. On January 1, 2019, Alfredo Inc. purchased a patent with a cost 1,160,000, a useful life of 5 years. The company uses
straight-line depreciation. At December 31, 2020, the company determines that impairment indicators are present. The
fair value less cost to sell the patent is estimated to be 540,000. The patent's value-in-use is estimated to be 565,000.
The asset's remaining useful life is estimated to be 2 years.
1. Alfredo's 2020 income statement will report Loss on Impairment of

a. 0.
b. 131,000.
c. 156,000.
d. 595,000.
2. The company's 2021 income statement will report amortization expense for the patent of
a. 188,333.
b. 232,000.
c. 282,500.
d. 595,000
19. A license is acquired July 1, 2018, for 450,000; while it has a legal life of 15 years, due to rapidly changing environment,
management estimates a useful life of only 5 years. Straight-line amortization will be used. At January 1, 2019,
management estimated that the recoverable amount of the license is only 135,000. Amortization will be taken over 3
years from that point.
On January 1, 2021, due to the change in general economic situations, the license now has a fair value of 540,000. The
entity adopted the revaluation model to measure the license starting January 1, 2021. The estimated remaining useful life
is now believed to be 5 years.
1. How much is the loss on impairment on January 1, 2019?

a. 270,000
b. 300,000
c. 225,000
d. 0
2. How much can be recognized as gain on impairment recovery in 2021?

a. 270,000
b. 180,000
c. 495,000
d. 315,000
3. How much will be recognized as revaluation surplus on January 1, 2021?

a. 270,000
b. 180,000
c. 495,000
d. 315,000
20. A patent right is acquired on January 2019, for 500,000 while it has a legal life of 15 years, due to rapidly changing
technology, management estimates a useful life of 5 years. At January 1, 2020, management is uncertain that the
process can actually be made economically feasible, and decides to write-down the patent to an estimated market value
of 150,000 with no change in its remaining useful life. On January 1, 2021, having perfected the related production
process, the asset is now appraised at a sound value of 600,000.
1. Under the revaluation model, what amount should be reported in the shareholders equity as a result of revaluation?
a. none
b. 187,500
c. 250,000
d. 300,000
2. Under the revaluation model, what amount should be reported in the current year income statement as a result of
revaluation?
a. none
b. 187,500
c. 250,000
d. 300,000
21. You noted the following items relative to the company’s Intangible assets in connection with Angel Corporation’s financial
statements for the year 2021.
On January 1, 2021, Angel signed an agreement to operate as franchisee of Clear Copy Service, Inc. for an initial
franchise of 680,000. Of this amount, 200,000 was paid when the agreement was signed and the balance was payable
in four annual payments of 120,000 each, beginning January 1, 2022. The agreement provides that the down payment
is not refundable and no future services are required of the franchisor. The implicit rate for loan of this type is 14%.
The agreement also provides the 5% of the revenue from the franchise must be paid to the franchisor annually. Angel’s
revenue from the franchise for 2021 was 8,000,000. Angel estimates that the useful life of the franchise to be ten
years.
Angel incurred 624,000 of experimental and development costs in its laboratory to develop a patent which was
granted on January 2, 2021. Legal fees and another costs associated with the registration of the patent totaled
131,200. Angel estimates that the useful life of the patent will be eight years.
A trademark was purchased from Gloria Company for 320,000 on July 1, 2018. Expenditures for successful litigation
in defense of the trademark totaling 80,000 were paid on July 1, 2021. Angel estimates that the trademark’s useful
life will be indefinite.
Based on the above information, determine the following: (Round off present value factors to 4 decimal places)
1. Total expenses related to franchise in 2021

a. 503,914
b. 535,200
c. 448,950
d. 454,964
2. Carrying amount of franchise as of December 31, 2021

a. 549,644
b. 494,680
c. 538,733
d. 612,000

a. 131,200
b. 114,800
c. 124,640
d. 123,482
4. Carrying amount of trademark as of December 31, 2021

a. 320,000
b. 288,000
c. 304,000
d. 400,000
5. Carrying amount of intangible assets as of December 31, 2021

a. 1,046,800
b. 984,444
c. 1,009,480
d. 929,480
22. Brandon’s Company reported the following data at the year-end:

Franchise 2,000,000
Computer software 2,500,000
Deferred Charges 100,000
Patent 2,500,000
Customer list Purchased 500,000
Copyright 800,000
Deposit w/ advertising agency to promote Goodwill 400,000
Bond sinking Fund 1,300,000
Goodwill 5,000,000
Trademark 1,000,000
Research and development Cost 2,000,000
What total amount should be reported as Intangible Asset?
a. 14,000,000
b. 14,200,000
c. 14,300,000
d. 14,500,000
23. On January 1, 2020, Blossom Corporation acquired a 5-year lease on land and building from the Cherry Company at an
annual rental of 240,000. Improvements and alterations were made on the building at a cost of 100,000. The terms of the
lease required that the building be restored by the lessee to its original form upon termination of the lease. The restoration
costs would amount to about 30,000.
How much would be the leasehold expense for the year 2020?
a. 240,000
b. 266,000
c. 260,000
d. 290,000
24. Allison Company was granted a patent on January 1, 2018 and capitalized 650,000. The company was amortizing the
patent over the useful life of 16 years.
During 2021, the company paid 150,000 in successfully defending an attempted infringement involving the patent. After
legal action was completed, the entity sold the patent to the plaintiff for 800,000. The policy is to take no amortization in
the year of disposal.
What amount should Allison Company report as gain from sale of patent in 2021?
a. 800,000
b. 528,125
c. 650,000
d. 271,875
25. An intangible asset was acquired on January 2020, for 900,000 while it has a legal life of 15 years, due to rapidly changing
technology, management estimates a useful life of only 6 years. At January 2021, management is uncertain that the
process can actually be made economically feasible, and decides to write down the intangible asset to an estimated market
value of 200,000 with no change in its remaining useful life. On January 1, 2022, having perfected the related production
process, the asset is now appraised at a sound value of 700,000. Under the revaluation model, what amount should be
reported in the shareholders’ equity as a result of revaluation?
a. None
b. 100,000
c. 200,000
d. 350,000
MODULE 8 Post-test
BIOLOGICAL ASSETS
Multiple Choice
Identify the choice that best completes the statement or answers the question.
1. A group of twenty 2-year old cattle was held at January 1, 2020. Five 2-year old cattle were purchased on January 2,
2020 for 12,000 each and five calves were born on the same date. No cows or calves were disposed of during the period.
Per unit fair values less estimated point of sales were as follows:
January 1, 2020
Newborn cattle 4,000
December 31, 2020

1. How much shall be taken to profit or loss as a gain arising from change in fair value due to physical change?
a. 30,000
b. 60,000
c. 80,000
d. 110,000
2. How much shall be taken to profit or loss as a gain arising from change in fair value due to price change?
a. 30,000
b. 60,000
c. 80,000
d. 110,000
3. What amount shall be presented on the statement of financial position on December 31, 2020 under the caption
Biological Assets?
a. 320,000
b. 350,000
c. 390,000
d. 410,000
2. The following information is made available by Robby Farms of its dairy livestock:
Carrying amount, January 1, 2020 450,000
Fair value less point of sale costs of livestock
purchased during the year 250,000
Increase in fair value less estimated point of
sale costs attributable to physical changes 220,000
Increase in fair value less estimated point of
sale costs attributable to price change 64,000
Total selling price less point of sale costs of
livestock sold during the period 290,000
1. At what amount should the biological assets on the statement of financial position be reported at December 31,
2020?
a. 1,274,000
b. 764,000
c. 694,000
d. 630,000
2. What amount shall be included in gross income of Robby Farms as a result of the transactions on its dairy
livestock?
a. 64,000
b. 220,000
c. 284,000
d. 290,000
3. Burberry Dairy Products produces milk on its farms. At January 1, 2020, Burberry has 125 cows with average age of two
years and 75 heifers with average of one year. On July 1, 2020, Burberry purchased 80 heifers with average age of one
year. The unit values less estimated point of sale costs were:
Age January 1, 2020 July 1, 2020 December 31, 2020
1year old P3,000 P3,100 P3,200
2yearsold 4,000 4,500
1.5years old 3,600
3years old 5,000
The increase in value of biological assets in 2020 due to change in fair value is
a. 525,000
b. 277,000
c. 192,000
d. 85,500
4. A group of thirty 2-year-old cattle was held at January 1, 2020. Five 2-year-old cattle were purchased on January 2, 2020
for 12,500 each and 5 calves were born on January 2, 2020. No cows or calves were disposed of during the period. Per
unit value less estimated point of sale costs were:
January 1, 2020 December 31, 2020
2yr old cattle 12,500 3yr old cattle 15,000
Newborn cattle 4,000 2yr old cattle 13,000
1yr old cattle 7,000
1. The company records separately the increase in fair value less point of sale cost due to physical change and
change in fair value less point of sale cost due to price change. How much shall be taken to profit or loss as a
gain arising from the change in fair value less point of sale cost due to physical change?
a. 70,000
b. 82,000
c. 90,000
d. 102,500
2. How much shall be taken to profit or loss as a gain arising from change in fair value less point of scale cost due to
price change?
a. 17,500
b. 20,000
c. 25,000
d. 102,500
5. The Sergio Company has a herd of ten 2-year old animals on January 1, 2020. One animal aged 2.5 years was purchased
on July 1, 2020 for 10,800 and one animal was born on July 1, 2020. No animals were sold or disposed of during the year.
The fair value less estimated point of sale costs per unit were:
2-year old animal on January 1 – 10,000
2.5 year old animal on December 31 – 11,100
2.5 year old animal on July 1 – 10,800
2-year old animal on December 31 – 10,500
Newborn animal on July 1 – 7,000
0.5 year old animal on December 31 – 8,000
3-year old animal on December 31 – 12,000
Newborn animal on December 31 – 7,200
1. The December 31, 2020 statement of financial position should report biological assets of
a. 144,000
b. 140,000
c. 117,000
d. 110,800
2. The gain arising from change in fair value less estimated point of sale costs reported in the 2020 statement of
comprehensive income is
a. 5,500
b. 23,700
c. 29,000
d. 29,200
3. What is the change in fair value of the biological assets due to price change?
a. 5,000
b. 6,000
c. 5,500
d. 6,500
4. in fair value of the biological assets due to physical change?

a. 27,300 c, 23,700
b. 26,307 d. 23,607
Current Liabilities - Nice

Problem
1. On December 31, 2021, the bookkeeper of Tricia Distributors, Inc. gave us the following information:
Notes payable:
Arising from purchase of goods 47,200
Arising from loans from banks, on which
marketable securities valued at
28,000 have been pledged as
security(short-term) 20,000
Arising from advances by officers due 2022 25,000
Employees’ income taxes payable 960
Advances received from customers on purchase
orders 6,400
Accounts payable arising from purchases of goods 38,000
Customers’ accounts with credit balances arising
from sales returns 2,600
Stock dividends payable 24,000
First mortgage serial bonds payable in semiannual
installments of 5,000 due on April 1 and
October 1 of each year 150,000
Overdraft with EMC Commercial Bank 5,000
Estimated damages to be paid as a result of
unsatisfactory performance on a contract 2,400
Estimated expenses of meeting guarantee for service
Requirements on merchandise sold 4,800
Accrued interest on bonds payable 5,750
How much is the total current liabilities to be presented on the balance sheet as of December 31, 2021?
a. 160,910
b. 192,110
c. 168,110
d. 332,110
2. Olivia Company has the following info of the liabilities as of December 31, 2021:
10% note payable that was issued October 1, 2021, maturing
September 30, 2022 2,230,000
8% note payable issued July 1, 2021, payable in
10 equal annual installments of 330,000 beginning
June 30, 2022 3,300,000
The business’ financial statements were issued on March 15, 2022. On February 3, 2022, the whole 2,230,000 of the 10%
note was refinanced through issuance of a long-term liability payable in lump sum. Furthermore, on December 27, 2021
the business consummated a non-cancelable agreement with a creditor to refinance the 8% note on a long term basis, on
readily determinable terms which are not yet implemented.
The amount of short-term liabilities on December 31, 2021 financial statements is?
a. 5,530,000
b. 2,230,000
c. 3,300,000
d. 2,560,000
3. Dee Company has P2,500,000 of short-term debt it expects to retire with proceeds from the sale of 90,000 shares of
common stock. If the stock is sold for P20 per share subsequent to the balance sheet date, but before the balance sheet
is issued, what amount of short-term debt could be excluded from current liabilities?
a. P 1,800,000
b. P 2,500,000
c. P 700,000
d. 0
4. During 2021, Oz Company sold 350,000 boxes of pancake mix under a new sales promotional program. Each box contained
one coupon, which entitled to a customer to a pancake pan upon remittance of P50. The entity paid P60 per pan and
handling and shipping of P10 and estimated that 80% of the coupons will be redeemed, even though only 100,000 coupons
had been processed during 2021. What amount should be reported as a liability for unredeemed coupons?
a. 3,600,000.
b. 3,700,000
c. 3,800,000
d. 3,900,000
Estimated redemption (350,000 x 80%) 280,000
Redemption - 100,000
Estimated future redemption 180,000
Cost ( 60+10-50) x 20
Liability for unredeemed coupons 3,600,000
5. During the current year, Joseph Company sold 50,000 reversible belts under a new sales professional program. Each belt
carried one coupon which entitled the customer to a P80 cash rebate.
The entity estimated that 60% of the coupons will be redeemed even though only 20,000 coupons had been processed
during the current year.
1. What amount of rebate expense should be reported for the current year?
a. 2,400,000. Estimated redemption (50,000 x 60%) 30,000
b. 1,920,000 Cash rebate per coupon x 80
c. 30,000 Rebate expense 2,400,000
d. 24,000
Less: Payment (20,000 x 80) -1,600,000
Rebate liability 800,000
2. What amount should be reported as rebate liability for unredeemed coupon at year-end?
a. 2,400,000
b. 1,600,000
c. 800,000.
d. 900,000
6. Joshtin Company produced its latest waterpods – a wireless earphone last year which only requires Bluetooth connectivity.
It sells its new product that carry a 2-year warranty period. The estimated warranty cost per waterpod is 1,500. On the
current year, the company sold 10,000 waterpods and paid warranty cost of 11,450,000.
1. What amount should be recorded as warranty expense for the year-end?

a. 15,000,000
b. 11,450,000 Units sold 10,000
c. 11,440,000 Warranty cost per unit x 1,500
d. 3,550,000 Warranty expense 15,000,000
2. What amount should be recorded as warranty liability for the Less: Warranty cost paid - 11,450,000
year-end? Warranty liability 3,550,000
a. 15,000,000
b. 11,450,000
c. 11,440,000
d. 3,550,000
7. Oz grill, the owner of Mac café are giving gift certificates to its customers to boost sales and retained their loyal
customers. The gift certificates has no expiration date and can be used to purchase any product in the café. The
following are the information laid in connection to unearned revenue.
Deferred revenue from previous years P1 500 000
Sales in gift certificates, current year P2 500 000
Gift certificates redeemed, previous year sales P 500 000
Gift certificates redeemed, current year sales P 800 000
What should be recognized as deferred revenue for the current year?
a. 1 500 000 Beg. Bal. 1,500,000
b. 2 500 000 Gift certificate sold 2,500,000
c. 2 700 000 Total 4,000,000
d. 4 000 000 Less: redemption - from previous year sales - 500,000
- from current year sales - 800,000
Deferred revenue from sale of gift certificate 2,700,000
8. Jerome Company owns a car dealership that it uses for servicing cars under warranty. The entity’s experience with
warranty claims is that 60% of all cars sold in a year have zero defect, 25% of all cars sold in a year have normal defect,
and 15% of all cars sold in a year have significant defect. The cost of rectifying a “normal defect” in a car is 10,000. The
cost of rectifying a “significant defect” in a car is 30,000. The entity sold 500 cars during the year.
What is the “expected value” of the provision for warranty for the current year?
a. 3,500,000
Normal defect (25% x 500 x 10,000) 1,250,000
b. 1,750,000
c. 1,400,000 Significant defect ( 15% x 500 x 30,000) 2,250,000
d. 4,000,000 Provision for warranty 3,500,000
9. Kaila Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or
three-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had a
balance of 480,000 at December 31, 2021 before year-end adjustment. Service contract costs are charged as incurred to
the service contract expense account, which had a balance of 120,000 at December 31, 2021. Outstanding service
contracts at December 31, 2021 expire as follows:
During 2022 During 2023 During 2024
100,000 160,000 70,000
What amount should be reported as unearned service contract revenues in Kaila's December 31, 2021 balance sheet?
a. 360,000.
b. 330,000
c. 240,000.
d. 220,000.
10. Gaga Company promotes famous vloggers and streamers in the country. With the prevalence of social media, the
company decided to create an incentive compensation plan for its head manager. The head manager will receive 10% of
the entity’s earnings after deduction of the bonus but before the deduction of income tax.
The entity’s earnings for the current year before the bonus and income tax was 2,760,000. The given tax rate is 30%. What
is the bonus entitled to the head manager for the current year?
a. 276,000
B = .10(2,760,000 – B)
b. 250,909
B = 276,000 – .10B
c. 75,273
d. 175,636 1.10B/1.10 = 276,000/1.10
B = ? 250,909
or
NIBB 2,760,000 / 110%
NIAB - 2,509,091 100%
Bonus 250,909 10%
11. On July 1, 2021, Mark Company acquired machinery worth P2,500,000 from Alfredo Corporation. Terms of the contract
calls for a down payment of P500,000 and signing a 2-year 10% notes payable for the balance. Interest is payable
quarterly. The existing loan agreement does not carry a provision to refinance. During September, Mark was
experiencing financial difficulty and was unable to pay the periodic interest.
What total amount of current liability should Mark Company report in its December 31, 2021 statement of financial
position assuming Alfredo Company agreed at balance sheet date not to demand payment as a consequence of the
breach?
a. None
b. 50,000
c. 100,000
d. 2,100,000
12. Allisson Company sells motorcycle helmets. In 2021, the entity sold 4,000,000 helmets before discovering a significant
defect in their construction. By December 31, 2021, two lawsuits had been filed against the entity. The first lawsuit, which
the entity has little chance of winning, is expected to be settled out of court for 1,500,000 in January 2022. The legal
counsel believed that the entity has a 50-50 chance of winning the second lawsuit, which is for 1,000,000.
What is the accrued liability on December 31, 2021 as a result of lawsuits?

a. 1,500,000
b. 1,000,000
c. 2,500,000
d. 0
13. During January 2021, Theresa Corp. won a litigation award for P15,000 that was tripled to P45,000 to include punitive
damages. The defendant, who is financially stable, has appealed only the P30,000 punitive damages. Theresa was
awarded P50,000 in an unrelated suit it filed, which is being appealed by the defendant. Counsel is unable to estimate
the outcome of these appeals. In its 2021 financial statements, Theresa should report what amount of pretax gain?
a. 15,000
b. 45,000
c. 50,000
d. 95,000
14. During 2021, Alexander Company guaranteed a supplier’s 500,000 loan from a bank. On October 1, 2021, the entity was
notified that the supplier had defaulted on the loan and filed for bankruptcy protection. Counsel believed that the entity
would probably have to pay 250,000 under the guarantee.
As a result of the suppliers bankruptcy, the entity entered into a contract in December 2021 to retool its machines so
that the entity could accept parts from other suppliers. Retooling costs are estimated to be 300,000
What amount should be reported as liability on December 31, 2021?

a. 250,000.
b. 450,000
c. 550,000
d. 750,000
15. Edna Company is preparing annual financial statements on December 31, 2021. Because of the recently proven health
hazard in one of the products, the Philippine Government has clearly indicated its intention of requiring the entity to recall
all cans of this product sold in the last three months. The entity estimated that this recall would cost P680,000. What
accounting recognition should be accorded in this situation?
a. No recognition
b. Note disclosure only
c. Expense of 680,000 and Retained earnings restriction 680,000
d. Expense of 680,000 and liability of 680,000.
16. During 2021, Omar Company became involved in a tax dispute with the BIR. On December 31, 2021, the tax advisor
believed that an unfavorable outcome was probable and a reasonable estimate of additional taxes was 500,000
After the 2021 financial statements were issued, the entity received and accepted a BIR settlement offer of 550,000
What amount of accrued liability should have been reported on December 31, 2021?
a. 650,000
b. 550,000
c. 500,000.
d. 0
17. Ana Corporation had balance in accounts payable amounting to P3,000,000 and has recorded in the general ledger as of
December 31, 2021 before any consideration of the following unrecorded transactions:
Invoice Date Date
date Amount shipped received FOB terms
1/3/2022 P120,000 12/22/2021 12/24/2021 Destination
1/2/2022 140,000 12/28/2021 1/2/2022 Shipping point
12/26/2021 160,000 1/2/2022 1/3/2022 Shipping point
1/10/2022 180,000 12/31/2021 1/5/2022 Destination
In the December 31, 2021 balance sheet, the accounts payable should be reported in the amount of:
a. 3,000,000
b. 3,120,000
c. 3,260,000
d. 3,440,000
18. Among others, the December 31, 2021 trial balance includes the following accounts:
Stock dividends payable 50,000

Dividends in arrears on preferred stock 20,000
Withholding tax payable 3,000
Mortgage payable, Maturing April. 1, 2023 200,000
Estimated premium to be distributed in 2022 7,000
Debtor’s accounts with credit balances 5,000
Estimated costs to be incurred in meeting
service guarantees 6,000
Cash overdraft with Filipino Bank 10,000
Cash balance in Philippine National Bank 62,000
Accounts payable (net of debit balances
of 10,000) 70,000
Sinking fund set aside to pay mortgage 200,000
Contested BIR tax assessment 50,000
What is the amount of total current liabilities?

a. 106,000
b. 311,000
c. 111,000
d. 91,000
19. The following liability account balances on December 31, 2021 was reported by Arlene Company:
Accounts Payable 3,000,000
Bonds Payable, due 2023 2,700,000
Premium on bonds payable 300,000
Deferred Tax Liability 420,000
Income Tax Payable 900,000
Dividends in Kind due on March 3, 2022 1,200,000
Note Payable due January 1, 2023 780,000
The deferred tax liability is based on temporary differences stemming from different depreciation method for financial
reporting and income purposes. What amount should be treated as Current liabilities on December 31, 2021?
a. 5,400,000
b. 5,520,000
c. 5,700,000
d. 5,100,000
20. Jeffrey Co., a division of National Realty, Inc., maintains escrow accounts and pays real estate taxes for National’s
mortgage customers. Escrow funds are kept in interest-bearing accounts. Interest, less a 10% service fee, is credited to
the mortgagee’s account and used to reduce future escrow payments. Additional information follows:
Escrow accounts liability, 1/1/Y2 P 700,000

Escrow payments received during year 2 1,580,000
Real estate taxes paid during year 2 1,720,000
Interest on escrow funds during year 2 50,000
What amount should Jeffrey report as escrow accounts liability in its December 31, year 2 balance sheet?
a. P510,000
b. P515,000
c. P605,000
d. P610,000
21. Mother’s Care Co. offers three payment plans on its twelve-month contracts. Information on the three plans and the
number of children enrolled in each plan for the September 1, year 2 through August 31, year 3 contract year follows:
Plan Initial payment per child Monthly fees per child Number of children
#1 P500 P -- 15
#2 200 30 12
#3 -- 50 9
Mother received P9,900 of initial payments on September 1, year 2, and P3,240 of monthly fees during the period
September 1 through December 31, year 2.
In its December 31, year 2 balance sheet, what amount should Mother report as deferred revenues?
a. P3,300
b. P4,380
c. P6,600
d. P9,900
Initial Payment: Earned Unearned
Plan # 1 (500 x 15 x 4/12) = 2,500
(500 x 15 x 8/12) = 5,000
Plan # 2 (200 x 12 x 4/12) = 800
(200 x 12 x 8/12) = 1,600
Total 3300 6600
22. Constancia Company’s salaried employees are paid biweekly. Occasionally, advances made to employees are paid back
by payroll deductions. Information relating to salaries for the calendar year 2021 is as follows:
12/31/2020 12/31/2021
Employee advances P 24,000 P 36,000
Accrued salaries payable 130,000 ?
Salaries expense during the year 1,630,000
Salaries paid during the year (gross) 1,560,000
On December 31, 2021, what amount should Constancia report for accrued salaries payables?
a. P200,000
b. P188,000
c. P164,000
d. P70,000
23. Shawn Company operated a retail store and must determine the proper December 31, 2021 year-end accrual for the
following expenses:
The store lease calls for fixed rent of P12,000 per month, payable at the beginning of the month, and
additional rent, of 6% on sales in excess of 2,500,000, payable on January 31 of the following year. Net
sales for 2021 are P4,500,000.
An electric bill of P8,500 covering the period December 16, 2021 through January 15, 2022 was received
January 22, 2022.
A P4,000 telephone bill was received January 7, 2022, covering:
Service in advance for January 2022 P1,500

Local and toll calls for December 2021 2,500
In its December 31, 2021 statement of financial position, Shawn should report accrued liabilities of
a. 150,750
b. 131,000
c. 128,250
d. 126,750
24. COD Grocery operates a customer loyalty program. The entity grants program loyalty points when they send a specified
amount on groceries. Program members can redeem the points for further groceries and the points have no expiry date.
During 2021, the sales amounted to P8,000,000 based on stand-alone selling price. The entity granted 16,000 points but
management expected that only 80% of the points will be redeemed. The stand-alone selling price of each loyalty point is
P15. On December 31, 2021, 5,000 points have been redeemed. What amount should be reported as sales revenue
including the revenue earned from points for 2021?
a. 10,000,000
b. 6,400,000
c. 8,000,000
d. 7,025,000
25. Steven Corporation is selling audio and video appliances. The company’s fiscal year ends on March 31. The following
information relates to the obligations of the company as of March 31, 2020:
Notes payable
Steven has signed several long-term notes with financial institutions. The maturities of these notes are given below. The
total unpaid interest for all of these notes amounts to P340,000 on March 31, 2020.
Due date Amount

April 31, 2020 P 600,000
July 31, 2020 900,000
September 1, 2020 450,000
February 1, 2021 450,000
April 1, 2021 – March 31, 2022 2,700,000
P 5,100,000
Estimated warranties
Steven has a one-year product warranty on some selected items. The estimated warranty liability on sales made during
the 2018 – 2019 fiscal year and still outstanding as of March 31, 2019, amounted to P252,000. The warranty costs on sales
made from April 1, 2019 to March 31, 2020, are estimated at P630,000. The actual warranty costs incurred during 2019
– 2020 fiscal year are as follows:
Warranty claims honored on 2018 – 2019 sales P 252,000

Warranty claims honored on 2019 – 2020 sales 285,000
Total P 537,000
Trade payables
Accounts payable for supplies, goods, and services purchases on open account amount to P560,000 as of March 31, 2020.
Dividends
On March 10, 2020, Steven’ board of directors declared a cash dividend of P0.30 per common share and a 10% common
stock dividend. Both dividends were to be distributed on April 5, 2020 to common stockholders on record at the close of
business on March 31, 2020. As of March 31, 2020, Steven has 5 million, P2 par value, common shares issued and
outstanding.
Bonds payable
Steven issued P5,000,000, 12% bonds, on October 1, 2014 at 96. The bonds will mature on October 1, 2024. Interest is
paid semi-annually on October 1 and April 1. Steven uses the straight line method to amortize bond discount.
QUESTIONS:
Based on the foregoing information, determine the adjusted balances of the following as of March 31, 2020:
1. Estimated warranty payable

a. P252,000 b. P345,000 c. P630,000 d. P882,000
2. Unamortized bond discount
a. P110,000 b. P200,000 c. P100,000 d. P90,000
3. Bond interest payable
a. P0 b. P300,000 c. P150,000 d. P250,000
4. Total current liabilities
a. P6,445,000 b. P5,105,000 c. P5,445,000 d. P3,945,000
5. Total noncurrent liabilities
a. P7,700,000 b. P7,590,000 c. P7,500,000 d. P7,610,000
BONDS & NOTES PAYABLE

Problem
1. On January 1, 2021, Mhel Co. issued eight-year bonds with a face value of 1,000,000 and a stated interest rate of 6%,
payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6% ..................................................... .627
Present value of 1 for 8 periods at 8% ..................................................... .540
Present value of 1 for 16 periods at 3% ................................................... .623
Present value of 1 for 16 periods at 4% ................................................... .534
Present value of annuity for 8 periods at 6%........................................... 6.210
Present value of annuity for 8 periods at 8%........................................... 5.747
Present value of annuity for 16 periods at 3%......................................... 12.561
Present value of annuity for 16 periods at 4%......................................... 11.652
1. The present value of the principal is

a. 534,000.
b. 540,000.
c. 623,000.
d. 627,000.
2. The present value of the interest is
a. 344,820.
b. 349,560.
c. 372,600.
d. 376,830.
3. The issue price of the bonds is
a. 883,560.
b. 884,820.
c. 889,560.
d. 999,600.
2. Omar Company issues 20,000,000 of 10-year, 9% bonds on March 1, 2021 at 97 plus accrued interest. The bonds are dated
January 1, 2021, and pay interest on June 30 and December 31. What is the total cash received on the issue date?
a. 19,400,000
b. 20,450,000
c. 19,700,000
d. 19,100,000
3. A company issues 20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2021. Interest is paid on June 30 and
December 31. The proceeds from the bonds are 19,604,145. Using effective-interest amortization, what will the carrying
value of the bonds be on the December 31, 2021 statement of financial position?
a. 19,612,643
b. 20,000,000
c. 19,625,125
d. 19,608,310
4. On January 1, Emerson Inc. issued 5,000,000, 9% bonds for 4,695,000. The market rate of interest for these bonds is 10%.
Interest is payable annually on December 31. Emerson uses the effective-interest method of amortizing bond discount. At
the end of the first year, Emerson should report unamortized bond discount of
a. 274,500
b. 285,500
c. 258,050
d. 255,000
5. At the beginning of 2021, Mississauga Corporation issued 10% bonds with a face value of 600,000. These bonds mature in
five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for 555,840 to yield 12%.
Mississauga uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of
interest expense should be reported for 2021? (Round your answer to the nearest peso.)
a. 66,500
b. 66,700
c. 66,901
d. 68,832
6. At December 31, 2020 the following balances existed on the books of Queen Corporation:
Bonds Payable 2,000,000
Discount on Bonds Payable 160,000
Interest Payable 50,000
Unamortized Bond Issue Costs 120,000
If the bonds are retired on January 1, 2021, at 102, what will Queen report as a loss on redemption?
a. 370,000
b. 320,000
c. 270,000
d. 200,000
7. On December 1, 2018, the King Corporation issued five-year, non-convertible 5,000,000 face value 12% bonds for
5,386,072, a price that yields 10%. Interest is payable semi-annually on June 1 and December 1. On August 1, 2021, the
Emerald Corporation retired 3,000,000 of the bonds at 105 plus interest. The Accounting period for the King Corporation
is the calendar year.
1. What is the carrying value of the bonds on December 31, 2019?

a. 5,306,515
b. 5,309,000
c. 5,309,010
d. 5,317,505
2. What is the carrying value of the bonds retired on August 1, 2021?
a. 3,125,172
b. 3,127,008
c. 3,122,038
d. 3,200,061
3. What is the gain or loss on redemption of the bonds on August 1, 2021?
a. 24,828 loss
b. 24,848 loss
c. 24,828 gain
d. 24,848 gain
8. On January 1, 2021, Surrey Company received 1,077,200 for 1,000,000 face amount 12% bonds. The bonds were sold to
yield 10%. Interest is payable semiannually every January 1 and July 1. The entity has elected the fair value option for
measuring the financial liability.
On December 31, 2021, the fair value of the bonds is determined to be P1, 064,600 due to market and interest factors.
1. What is the carrying amount of the bonds payable on January 1, 2021?

a. 1,000,000
b. 1,077,200
c. 500,000
d. 538,600
2. What is the interest expense for 2021?

a. 120,000
b. 100,000
c. 107,000
d. 129,264
3. What is the gain or loss from change in fair value of the bonds for 2021?
a. 64,600
b. 64,600
c. 12,600
d. 12,000
4. What is the carrying amount of the bonds payable on December 31, 2021?
a. 1,064,600
b. 1,077,200
c. 1,000,000
d. 1,064,920
9. On January 2, 2021, the Balderama, Inc. issued 2,000,000 of 8% convertible bonds at par. The bonds will mature on
January 1, 2025 and interest is payable annually every January 1. The bond contract entitles the bondholders to receive
6, P100 par value, ordinary shares in exchange for each 1,000 bond. On the date of issue, the prevailing market interest
rate for similar debt without the conversion option is 10%.
On January 1, 2025, the holders of the bonds with total face value of 1,000,000 exercised their conversion privilege. On
that date, the bonds were selling at 110 and the ordinary share at P42.
QUESTIONS:
Based on the above and the result of your audit, answer the following: (Round off present value factors to 4 decimal
places)
1. The proceeds from issuance of convertible bonds to be allocated to the liability component is
a. 1,366,000
b. 1,778,336
c. 1,873,184
d. 2,000,000
2. The proceeds from issuance of convertible bonds to be allocated to the equity component is
a. 634,000
b. 221,664
c. 126,816
d. 0
3. The carrying amount of the bonds payable on December 31, 2021 is
a. 2,000,000
b. 1,796,170
c. 1,389,400
d. 1,900,502
4. The interest expense for the year 2022 is
a. 160,000
b. 179,617
c. 138,940
d. 190,050
5. The gain to be recognized on conversion of the bonds is
a. 126,816
b. 400,000
c. 463,408
d. 0
10. Hurontario Company had 600,000 convertible 8% bonds payable outstanding on June 30, 2021. Each 1,000 bond was
convertible into 10 ordinary shares of P50 par value. On July 1, 2021, the interest was paid into bondholders, and the
bonds were converted into ordinary shares, which had a fair value of P70 per share. The unamortized premium on these
bonds was 12,000 at the date of conversion. No equity component was recognized when the bonds were originally issued.
What is the increased in the share capital and share premium, respectively, as a result of the bond conversion?
a. 300,000 and 312,000
b. 306,000 and 306,000
c. 450,000 and 162,000
d. 600,000 and 12,000
11. Pickering Company issued 1,000,000 of 9% nonconvertible 2-year bonds at 108. Moreover, each P1,000 bond was issued
with 15 detachable share warrants, each of which entitled the bondholder to purchase for P45, one ordinary share of
Pickering Company, par value P20.
The quoted market value of each warrant was P5. The market value of the bonds ex-warrants at the time of issuance is
92.
What amount of the proceeds from the bond issuance is allocated to the equity component?
a. P 150,000
b. P 190,000
c. P 170,000
d. P 160,000
12. On December 1, 2021, the Eglinton Company issued at 103, one hundred of its 5%, 1000 bonds. Attached to each bond
was one detachable stock purchase warrant entitling the holder to purchase 10 shares of Eglinton’s common stock. On
December 1, 2021, the market value of the bonds, without the stock purchase warrant was 94, and the market value of
each stock purchase warrant was 60. The amount of the proceeds from the issuance that should be accounted for as initial
carrying value of the bonds payable would be.
a. 940,000
b. 96,820
c. 97,000
d. 103,000
13. Your company has been engaged to examine the financial statements of Gloria Company for the years ended in December
31, 2021 and December 31, 2020. You have been assigned to review the liabilities and shareholders’ equity balances. You
have learned that on January 1, 2019, Gloria Company issued a five-year, 8% bonds P5,000,000. Each 1,000 bond is
convertible into 8 shares of P100 par value ordinary share of Gloria Company, at the option of the bondholder. Interest
on the bonds is payable annually on December 31. Without the conversion feature, the bonds would have sold to yield
10% to the holders. (Round present value factors to four decimal places).
1. The issue price that was attributable to the debt is
a. 5,420,000
b. 5,399,350
c. 5,000,000
d. 4,620,820
2. What was the correct carrying value of the bonds on December 31, 2019?
a. 4,682,902
b. 4,744,984
c. 5,000,000
d. 5,467,402
3. What is the interest expense on these bonds for the year ending December 31, 2021?
a. 400,000
b. 437,932
c. 468,290
d. 500,000
4. If 2,000,000 of the bonds were converted into ordinary shares on January 1, 2022. What amount should have been
credited to share premium upon conversion?
a. 652,149
b. 520,000
c. 400,000
d. 300,477
5. Disregard the information given in item 5. Assume, instead, that on January 1, 2022, 2,000,000 of the bonds were
retired @ 109. The bonds without the conversion feature would have sold @ 105 on this date. What amount of gain
or loss should be recognized on the retirement of bonds?
a. 40,000
b. 160,000
c. (59,523)
d. (199,523)
6. Disregard the assumption in item 5. Assume that on January 1, 2022, 2,000,000 of the bonds were retired @ 109. The
bonds without the conversion feature would have sold @ 105 on this date. What should be the interest expense for
the year ended in December 31, 2021?
a. 252,374
b. 285,072
c. 300,000
d. 475,119
14. On July 1, 2021, Winterton Co. borrowed 1,000,000 on a 10%, five year note payable. On December 31, 2021, the fair
value of the note is determined to be 795,000 based on market and interest factors. The entity has a fair value option
for reporting the financial liability.
1. What is the carrying amount of the note payable On December 31, 2021?
a. 1,000,000
b. 795,000
c. 500,000
d. 397,500
2. What should be reported as interest expense for 2021?
a. 100,000
b. 79,500
c. 50,000
d. 48,750
3. What is the loss or gain to be recognized in 2021 as a result of the fair value option?
a. 205,000 loss
b. 205,000 gain
c. 102,500 gain
d. 0
15. On January 1, 2021 Jonathan Company borrowed 500,000 8% interest bearing note due in 4 years. The entity has
elected the fair value option for reporting the financial liability. On December 31, 2021, the fair value of the note is
408,150.
1. What is the carrying amount of the note payable on December 31, 2021?
a. 500,000
b. 367,500
c. 408,150
d. 460,000
2. What amount should be reported as interest expense for 2021?
a. 40,000
b. 29,400
c. 32,562
d. 20,000
3. What is the net gain from change in fair value to be recognized in 2021?
a. 132,500
b. 40,650
c. 91,850
d. 0
4. At what amount should the discount on note payable be presented on December 31, 2021?
a. 132,500
b. 103,100
c. 100,000
d. 0
16. Joshtin Co. purchased from Jerome Co. a 20,000, 8%, five-year note that required five equal annual year-end payments
of 5,009. The note was discounted to yield a 9% rate to Joshtin. At the date of purchase, Joshtin recorded the note at its
present value of 19,485. Joshtin does not elect the fair value option for reporting its financial liabilities. What should be
the total interest revenue earned by Joshtin over the life of this note?
a. 5,045
b. 5,560
c. 8,000
d. 9,000
17. A note payable to the Bank of the Philippine Islands for 2,400,000 is outstanding on December 31, 2021. The note is dated
October 1, 2020, bears interest at 18%, and is payable in three equal annual installment of 800,000. The first interest and
principal payment was made on October 1, 2021.
1. What should be reported as the current liability?

a. 800,000
b. 908,000
c. 72,000
d. 872,000
2. What should be reported as the accrued interest payable?

a. 800,000
b. 908,000
c. 72,000
d. 872,000
18. Dundas Company borrowed 1,000,000 on a 9% note payable on September 30, 2021. The entity paid the first of four
quarterly payments of 264,200 when due on December 31, 2021. What amount should be reported as note payable on
December 31, 2021?
a. 825,800
b. 758,300
c. 735,800
d. 750,000
19. Kaila Company after having experienced financial difficulties in 2021, negotiated with a major creditor and arrived at an
agreement to restructure note payable on December 31, 2021. The creditor was owed principal of 5,350,000 and interest
of 750,000 but agreed to accept machineries worth 1,260,000 and note receivable from Kaila Company’s customer with a
carrying amount 2,123,000. The equipment had an original cost of 1,500,000 and accumulated depreciation of 400,000.
What amount should be recognized as gain from debt extinguishment on December 31, 2021?
a. 1,087,700
b. 1,877,000
c. 2,877,000
d. 2,087,000
20. Kaila Company is experiencing financial difficulty and is negotiating debt restructuring with its creditor to relieve its
financial stress. Kaila Company has a 1,300,000 note payable to Krypton Bank. The bank accepted an equity interest in
Kaila Company in the form 100,000 ordinary shares quoted at P10 per share. The par value of each is P8.50.
The fair value of the note payable on the date of restructuring is 1,100,000.
What amount should be recognized as share premium from the issuance of the shares?
a. 200,000
b. 150,000
c. 100,000
d. 50,000
21. Due to adverse economic circumstances and poor management, Tris Company had negotiated a restructuring of its 9%
7,000,000 note payable to Kris Company due on January 1, 2021. 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, 2023.
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 2021?

a. 0
b. 206,000
c. 406,000
d. 406,600
22. Angel Company had an overdue 7% note payable to Piggy Bank at 1,300,000 and accrued interest of 91,000.
As a result of restructuring agreement on January 1, 2021, Piggy Bank agreed to the following provisions:
The principal obligation is reduced to 1,000,000.
The accrued interest of 91,000 is forgiven.
The date of maturity is extended to December 31, 2023.
Annual interest of 6% is to be paid for 3 years every December 31.
The present value of 1 at 7% for 3 periods is 0.816 and the present value of an ordinary annuity of 1 at 7% for 3 periods is
2.62.
What is the interest expense to be recognized for 2021?

a. 68,124
b. 58,380
c. 60,000
d. 70,000
23. Herbert CORPORATION is having financial difficulty and therefore has asked TD
Bank to restructure its P3 million note outstanding. The presented note has 3 years remaining and pays a current rate of
interest of 10%. The present market rate for a loan of this nature is 12%. The note was issued at its face value.
Presented below are four independent situations. Determine the journal entry that Herbert would make for each of the
following types of debt restructuring.
1. TD Bank agrees to take an equity interest in Herbert by accepting common stock valued at 2,400,000 in exchange for
relinquishing its claim on this note. The common stock has a par value of 1,200,000.
a. Notes payable 3,000,000
Common stock 3,000,000
b. Notes payable 3,000,000
Gain 600,000
APIC 1,200,000
c. Notes payable 3,000,000
Interest expense 300,000
APIC 1,500,000
d. No adjustment
2. TD Bank agrees to accept land in exchange for relinquishing its claim on this note. The land has a book value of
2,000,000 and a fair value of 2,500,000.
a. Notes payable 3,000,000
Land 2,000,000
Gain on debt restructuring 1,000,000
b. Notes payable 3,000,000
Land 2,000,000
Gain on exchange 200,000
Gain on debt restructuring 500,000
c. Notes payable 3,000,000
Land 2,000,000
Gain on exchange 500,000
d. No adjustment
3. TD Bank agrees to modify the terms of the note, indicating that Dolores does not have to pay any interest on the
note over the 3-year period.
a. Interest payable 300,000

b. Loss on debt restructuring 300,000
c. Interest expense 864,600
d. No adjustment
4. TD Bank agrees to reduce the principal balance due to 2,000,000 and require interest only in the second and third
year at a rate of 10%.
a. Notes payable – old 3,000,000
Notes payable – new 2,400,000
b. Notes payable - old 3,000,000
c. Notes payable – old 3,000,000
d. Notes payable – old 3,000,000

Discount on NP 283,600
Gain 1,283,600
24. On December 31, 2021, Robes Company was indebted to Angel Co. on a 2,000,000, 10% note. Only interest had been
paid to date. Due to its financial difficulties Robes Company has negotiated a restructuring of its note payable. The parties
agreed that Robes Company would settle the debt on the following terms:
Settle one-half of the note by transferring land with a recorded value of 800,000 and a fair value of 900,000.
Settle one-fourth of the note by transferring 20,000 shares of P10 par ordinary shares with a fair market value of P15
per share.
Modify the terms of the remaining one-fourth of the note by reducing the interest rate to 5%, extend the due date
three years from the date of restructuring and reducing the principal to P300,000.
QUESTIONS:
Based on the above and the result of your audit, determine the following.
1. Gain on extinguishment of debt on the P1 million note

a. 300,000 c. 100,000
b. 200,000 d. 0
2. Share premium to be recognized on the settlement of 500,000 note by issuing ordinary shares
a. 2,500,000 c. 2,300,000
b. 100,000 d. 0
3. Total gain on extinguishment of debt
a. 637,306 c. 550,006
b. 337,306 d. 0
4. Interest expense in 2022
a. 15,000 c. 7,500
b. 26,269 d. 13,134
5. Carrying amount of the note payable as of December 31, 2022
a. 273,963 c. 142,494
b. 262,694 d. 300,000
25. At the year end, Dayrit Company showed the following data with respect to matured obligation:
Note payable 5,000,000

Accrued interest 500,000
The entity is threatened with a court suit if it could not pay a maturing debt. Accordingly, the entity entered into an
agreement with the creditor for the issuance of share capital in full settlement of the note payable.
The agreement provided for the issue of 35,000 shares with par value of P100. The share is currently quoted at P130.
The fair value of the note payable on the date of restructuring is 4,700,000.
1. What amount should be recognized as gain from extinguishment of debt?

a. 1,000,000
b. 2,000,000
c. 950,000
d. 800,000
2. If the shares do not have fair value, what amount should be recognized as gain from extinguishment of debt?
a. 200,000
b. 800,000
c. 300,000
d. 0
3. If both shares and note payable do not have fair value, what amount should be recognized as gain from
extinguishment of debt?
a. 2,000,000
b. 1,500,000
c. 1,000,000
d. 0
MODULE # 14
NOTES PAYABLE & DEBT RESRUCTURING
Multiple Choice
1. At year-end, De Vera Company issued a 2,000,000 face amount note payable in exchange for services rendered. The note,
made at usual trade terms, is due in nine months and bears interest, payable at maturity, at the annual rate of 3%. The
market interest rate is 8%. The compound interest factor of 1 due in nine months at 8% is.944. At what amount should be
the note payable be reported at year-end?
a. 1,888,000 b. 1,930,400 c. 2,000,000 d. 2,060,000
2. Single Club Company had note payable amounting to 6,450,000 to the bank for them to fund their new project on May 1,
2020. The company signed a 4-year note bearing interest @ 6%. On April 30, 2022, the interest is payable in full at its
maturity. The note signed was compounded annually.
On December 31, 2021, what will be the amount of the accrued interest liability?
a. 410,220 b. 273,480 c. 660,480 d. 387,000
3. Minho Company had a 3,200,000 note payable due on June 30, 2020. On December 31, 2019, the entity signed an
agreement to borrow up to 3,200,000 to refinance the note payable on a long-term basis.
The financing agreement called for borrowing not to exceed 80% of the value of the collateral the entity was providing.
On December 31, 2019, the value of the collateral was 2,700,000.
On December 31, 2019, what amount of the note payable should be reported as current liability?
a. 3,200,000 b. 500,000 c. 2,700,000 d. 1,040,000
NP 3,200,000
REFINANCE (2,700,000*80%) 2,160,000 – NCL
NP NOT REFINANCE (CURRENT) 1,040,000 – CL
4. On January 1, 2021, Eva Co. sold an equipment to Adan Co. Adan gave Eva a 2,400,000 noninterest bearing note payable
in three equal annual installment of 800,000 with the first payment due December 31, 2021. The prevailing rate of
interest for a note of this type is 10%. The present value of the note is 1,989,600.
1. What is the discount on note payable on January 1, 2021?

a. 410,400 b. 2,201,040 c. 400,000 d. 1,790,640
2. What is the interest expense for 2021?

a. 240,000 b. 80,000 c. 198,960 d. 0
3. What is the discount on note payable on December 31, 2021?

a. 205,200 b. 198,960 c. 211,440 d. 240,000
4. What is the carrying amount of the note payable on December 31, 2021?
a. 1,388,560 b. 1,600,000 c. 2,201,040 d. 1,989,600
5. A note payable to the Bank of the Philippine Islands for 2,400,000 is outstanding on December 31, 2020. The note is dated
October 1, 2019, bears interest at 18%, and is payable in three equal annual installment of 800,000. The first interest and
principal payment was made on October 1, 2020.
1. What should be reported as the current liability on December 31, 2020?

a. 800,000 b. 908,000 c. 72,000 d. 872,000
2. What should be reported as the accrued interest payable on December 31, 2020?
a. 800,000 b. 908,000 c. 72,000 d. 872,000
6. On January 1, 2020, CARRIE Company borrowed 1,000,000, 9%, interest-bearing note due in five years. The present value
of the note is 835,000. The company has elected fair value option for this liability. At the end of the current year, the fair
value of the note is 873,000.
1. What is the carrying amount of the note at the end of the year?
a. 835,000 b. 873,000 c. 890,000 d. 1,000,000
2. What amount should be reported as interest expense for 2020?

a. 75,150 b. 78,570 c. 90,000 d. 91,570
3. What amount should be reported as net gain from change in fair value in 2020?
a. 165,000 b. 127,000 c. 38,000 d. 0
7. ACE Company, after having experienced financial difficulties in 2022, negotiated with a major creditor and arrived at an
agreement to restructure a note payable on December 31, 2022.
The creditor was owned principal of 4,000,000 and interest of 200,000 but agreed to accept equipment worth 900,000
and note receivable from an ACE Company’s customer with a carrying amount of 3,000,000.
The equipment had an original cost of 1,200,000 and accumulated depreciation of 500,000.
What amount should be recognized as gain from debt extinguishment on December 31, 2020?
a. 800,000 b. 200,000 c. 100,000 d. 500,000
8. On December 31, 2020, Phoebe Company shows the following data with respect to its matured obligation.
Notes Payable 5,520,000

Accrued Interest Payable 680,000
The company is threatened with a court suit if could not pay its maturing debt. Accordingly, the company enters into an
agreement with the creditor for the transfer of a non-cash asset in full settlement of the mortgage. The agreement
provides for the transfer of real estate carried in the books of Phoebe at 3,000,000. The real estate has a current fair
market value of 4,500,000.
What total amount should the Phoebe recognize in profit or loss for the year 2020 as a result of this transaction?
a. 500,000 b. 1,000,000 c. 1,500,000 d. 3,200,000
9. PCY Enterprises is experiencing financial distress and is negotiating debt restructuring with its creditor to relieve its
financial difficulty. PCY Enterprises has a 5,000,000 note payable to SM Financials. SM Financials accepted an equity
interest in the form of 100,000 ordinary shares with a par value of 40 and quoted at 45. The fair value of the note payable
on the date of restructuring is 4,400,000. What amount should be recognized as gain from extinguishment as a result of
equity swap?
a. 500,000 b. 600,000 c. 1,000,000 d. No gain is recorded.
10. Moon corp. have a matured notes payable amounting to 3,000,000 plus accrued interest of 750,000. Moon corp. was
sued by Sunrise Co. and they both agreed for the issuance of ordinary share capital for the full settlement of the
obligation. The agreement provides the following:
Issuance of 35,000 shares, 55 par.

Market value of the shares, 75
Fair value of the notes payable on date of restructuring, 2,700,000
Using equity-swap, what is the gain/loss from extinguishment of the debt and the share premium from the issuance of
the shares?
a. 1,825,000; 700,000 b. 1,125,000; 700,000
c. 825,000; 700,000 d. 75,000; 700,000
11. Shift Company entered into agreement with its creditors to reconstruct the terms of its 5,000,000 notes receivable on
December 31, 2020. The agreement term is as follows:
Reduced the Principal to 3,000,000

Forgiven accrued interest of 500,000
Change the interest rate from 10% to 8%
Extended the maturity from December 31, 2020 to December 31, 2025.
What is the gain/loss on the modification of the debt? (Use 5 decimal places on PV/Annuity factors)
a. 2,727,450.40 b. 2,772,549.60 c. 2,277,450.40 d. 2,272,549.60
12. On January 1, 2020, Sonic Corp had an overdue 10% notes payable to BDO at 2,300,000 and accrued interest of 540,000.
BDO agreed to the following provisions, as a result of a restructuring agreement on year end 2020:
-Reduction in principal obligation to 2,000,000

-Accrued interest is not to be paid anymore
-Annual interest of 11% is to be repaid for 5 years every year end
Present value of 1 at 10% for 5 periods is 0.62. present value of an ordinary annuity of 1 at 10% for 5 periods is 3.79.
What is the gain on extinguishment of debt?

a. 1,510,000 b. 2,840,000 c. 1,330,000 d. 4,350,000 e. 766,200
13. Grow Company had bonds payable with a face value of 5,000,000 and a carrying amount of 4,800,000. In addition, unpaid
interest on the bonds was accrued in the amount of 250,000. The creditor had agreed to the settlement of the bonds
payable in exchange for 50,000 shares of 50 par value. The shares have no reliable measure of fair value. However, the
bonds are quoted at 3,500,000.
1. What is the gain on extinguishment of the bonds payable?

a. 1,500,000 b. 1,300,000 c. 1,550,000 d. 0
2. What is the share premium from the issuance of the shares?

a. 2,300,000 b. 1,000 000 c. 1,500,000 d. 0
14. SPig Company experienced financial distress on 2,000,000. 10% 2 year note payable to Land bank. October 1, 2019, the
bank agreed to settle the note and unpaid interest of 750,000 for 2,000,000 cash payable on January 1, 2020.
What amount should be reported as gain from extinguishment of debt?

a. 85,000 b. 650,000 c. 750,000 d. 0
15. On February 29, 2020, Toben Company borrowed 500,000 on a 10% note payable due on 5 years. On December 31, 2020,
the fair value of note is determined to be 487,500 based on market and interest factors. The company elected the fair
value option for reporting financial liability.
What is the gain or loss to be recognized in 2020 as a result of the fair value option?
a. 0 b. 1,250 loss c. 12,500 loss d. 12,500 gain
16. Benjamin Company borrowed 2,000,000 on a 10% five year note payable on July 1, 2019.
On December 31, 2019, the fair value of the note is determined to be 1,975,000 based on market and interest factors.
.0
The entity has elected the fair value option for reporting the financial liability.
What is the carrying amount of the note payable on December 31, 2019?
a. 2,000,000 b. 1,975,000 c. 500,000 d. 1,900,000
17. On December 31, 2021, Juvia Company purchased a machine from Mira Company in exchange for a noninterest bearing
note requiring eight payments of 400,000.
The first payment was made on December 31, 2021 and the others are due annually on December 31.
At date of issuance, the prevailing note of interest for this type of note was 11%. The PV of an ordinary annuity of 1 at
11% for 8 periods is 5.146, and the PV of an annuity of 1 in advance at 11% for 8 periods is 5.712.
On December 31, 2021, what is the carrying amount of the note payable?
a. 2,284,800 b. 1,884,800 c. 2,058,400 d. 1,658,400
18. Mabuhay Company had notes payable of 3,000,000 and accrued interest payable of 700,000 on December 31, 2020.
Mabuhay is threatened with a court suit if it could not pay a maturing debt. Mabuhay entered into an agreement with
the creditor for the issuance of share capital in full settlement on the note payable. The agreement provided for the
issuance of 20,000 shares, par value 100. The share is currently quoted at 120. The fair value of the notes on the date of
restructuring is 2,600,000.
What amount should be recognized as gain from extinguishment of debt?

a. 1,300,000 b. 1,700,000 c. 400,000 d. 1,100,000
19. My company is in financial trouble and could not meet maturing installments and interest on its bank loan of 5,000,000.
The accrued interest on the loan to date is 1,000,000.
The entity and the bank agreed on a “dacion en pago” arrangement. Thus, the mortgaged land and building were given
by the entity as full payment for the loan including accrued interest.
The cost of land is 1,500,000 and the building, 6,000,000v with accumulated depreciation of 1,800,000. The fair value of
the land and building is about 5,900,00.
Compute the gain or loss on extinguishment of debt.

a. 500,000 b. 400,000 c. 300,000 d. 200,000
20. Barbie Company had a bonds payable with face amount of 4,900,000 and accrued interest of 200,000. The carrying amount
of the bonds is 4,500,000. The creditor agreed to the settlement of bonds with an exchange of 60,000 shares with a 55-
par value. The bonds are quoted at 3,750,000.
1. What amount should be reported as gain on the extinguishment of the bonds payable?
a. 950,000 b. 1,300,000 c. 1,350,000 d. 1,400,000
2. What amount should be recorded as share premium from the issuance of shares?
a. 400,000 b. 450,000 c. 500,000 d. 550,000
Practical accounting 1
SHAREHOLDER'S EQUITY - Set C
Multiple Choice
1. The accounts shown below appear in the December 31, 2021 trial balance of Angel Corporation:
Preference share, authorized, P50 par P10,000,000

Unissued preference share 3,600,000
Ordinary share, authorized, P20 par 4,000,000
Unissued ordinary share 2,000,000
Subscription receivable, preference share 380,000
Subscription receivable, ordinary share 360,000
Subscribed preference share 600,000
Subscribed ordinary share 440,000
Treasury share, preference at cost 1,360,000
Share premium 1,700,000
Accumulated profits and losses 2,000,000
All subscription receivables are due in year 2022.
How much is the total shareholder’s equity of Angel Corporation?

a. 11,040,000
b. 11,780,000
c. 12,400,000
d. 13,760,000
2. Presented below is information related to Catherine Corporation:

Share Capital—Ordinary, 1 par 4,300,000
Share premium—Ordinary 550,000
Share Capital—Preference 8 1/2%, 50 par 2,000,000
Share premium—Preference 400,000
Retained Earnings 1,500,000
Treasury Shares—Ordinary (at cost) 150,000
1. The total equity of Catherine Corporation is

a. 8,600,000.
b. 8,750,000.
c. 7,100,000.
d. 7,250,000.
2. The total contributed capital related to the ordinary shares is

a. 4,300,000.
b. 4,850,000.
c. 5,250,000.
d. 4,700,000.
3. The stockholders’ equity section of JP Company revealed the following information on December 31, 2022.
Preference shares, P100 par 2,300,000
Share premium – preference share 805,000
Ordinary share, P10 par 5,250,000
Share premium – ordinary share 2,750,000
Subscribed ordinary share 50,000
Retained earnings 1,900,000
Note payable 4,000,000
Subscription receivable – ordinary share 400,000
How much is the legal capital?

a. 7,600,000 c. 7,550,000
b. 13,055,000 d. 11,150,000
4. Of the 125,000 shares of ordinary share issued by Tina Company, 25,000 shares were held as treasury stock at December
31, 2021. During 2022, transactions involving Tina’s ordinary share were as follows:
January 1 through October 31 – 13,000 treasury shares were distributed to officers as part of a stock compensation plan.
November 1 – A 3 – for – 1 stock split took effect.
December 1 – Tina purchased 5,000 of its own shares to discourage an unfriendly takeover. These shares were not retired.
At December 31, 2022, how many shares of Tina’s ordinary share were issued and outstanding?
Issued Outstanding
a. 375,000 334,000
b. 375,000 324,000
c. 334,000 334,000
d. 324,000 324,000
5. Edna Company was incorporated on January 1, 2022, with the following authorized capitalization:
200,000 shares of ordinary share, no par, stated value P100 per share
200,000 shares of 10% cumulative Preference shares, par value P50 per share.
During 2022 Edna issued 150,000 shares of ordinary share for total of 18,000,000 and 50,000 shares of Preference share
at P60 per share. In addition, on December 15, 2022, subscriptions for 20,000 shares of Preference share were taken at a
purchase price of P100. These subscribed shares were paid for on January 15, 2022. Net income for 2022 was 5,000,000.
What should Negro report as total contributed capital on its December 31, 2022 balance sheet?
a. 28,000,000
b. 21,000,000
c. 23,000,000
d. 26,000,000
6. Amara Corp. issues 1,000 - 5 par value ordinary shares and 1,000 - 20 par value preference shares for a lump sum of
60,000. At the issue date, the ordinary shares were selling for 36 and the preference shares were selling for 28. The Share
Premium—Ordinary account will be credited for
a. 31,000
b. 36,000
c. 26,250
d. 28,750
7. On September 1, 2022, Kaila Company reacquired 12,000 shares of its 10 par value ordinary shares for 15 per share. Kaila
uses the cost method to account for treasury shares. The journal entry to record the reacquisition of the shares should
debit
a. Treasury Shares for 120,000.
b. Share Capital—Ordinary for 120,000.
c. Share Capital—Ordinary for 120,000 and Share Premium—Ordinary for 60,000.
d. Treasury Shares for 180,000.
8. Five years ago, Tricia Trading Co. issued 2,500 ordinary shares. The shares have a 2 par value and sold at that time for 12
per share. On January 1, 2022, Tricia Trading Co. Purchased 1,000 of these shares for 24 per share. On September 30,
2022, Tricia reissued 500 of the shares for 28 per share. The journal entry to record the reissuance will include
a. A debit to Treasury Shares 12,000.
b. A credit to Share Premium—Treasury 2,000.
c. A credit to Treasury Shares 14,000.
d. A credit to cash 14,000.
9. At its date of incorporation, Olivia, Inc. issued 100,000 shares of its 10 par ordinary shares at 11 per share. During the
current year, Olivia acquired 20,000 ordinary shares at a price of 16 per share and accounted for them by the cost method.
Subsequently, these shares were reissued at a price of 12 per share. There have been no other issuances or acquisitions
of its own ordinary shares. What effect does the reissuance of the shares have on the following accounts?
Retained Earnings Share Premium
a. Decrease Decrease
b. No effect Decrease
c. Decrease No effect
d. No effect No effect
Issue price (20,000 x 12) 240,000 Cash 240,000
Cost (20,000 x 16) -320,000 RE 80,000
SP-TS/RE -80000 TS 320,000
10. Oz Company issued 1,000,000 shares of 38 par value for 50 per share in year 2021. In 2022, the entity reacquired 200,000
shares at 67 per share. Immediately, all of these reacquired shares were retired.
What amount should be debited to share premium and retained earnings, respectively in connection of the retirement of
the shares?
a. 11,000,000 2,400,000
b. 5,800,000 2,400,000
c. 3,400,000 2,400,000
d. 13,400,000 2,400,000
11. Jerome Company issued 13% bonds with a maturity value of 19,000,000, together with 21,500 ordinary shares of 68 par
value for a combined cash amount of 21,000,000. If the bonds were issued separately, they would have sold for 15,610,000
on a 15% yield to maturity basis.
What amount for share premium should be reported on the issuance of ordinary shares?
a. 19,538,000
b. 14,148,000
c. 5,390,000
d. 3,928,000
12. Jerome Corporation has 50,000 shares of 10 par ordinary shares authorized. The following transactions took place during
2020, the first year of the corporation’s existence:
Sold 5,000 ordinary shares for 18 per share.
Issued 5,000 ordinary shares in exchange for a patent valued at 100,000.
At the end of the Jerome’s first year, total contributed capital amounted to
a. 40,000
b. 90,000
c. 100,000
d. 190,000
13. Joshtin Corporation was organized on January 1, 2022, with an authorization of 1,200,000 ordinary shares with a par value
of 6 per share. During 2022, the corporation had the following capital transactions:
January 5 issued 675,000 shares @ 10 per share
July 28 purchased 90,000 shares @ 11 per share
December 31 sold the 90,000 shares held in treasury @ 18 per share
Joshtin used the cost method to record the purchase and reissuance of the treasury shares. What is the total amount of
share premium as of December 31, 2022?
a. -0-.
b. 2,070,000.
c. 2,700,000.
d. 3,330,000.
14. Connie Co. issued 1,000 shares of its 5 par common stock to Howe as compensation for 1,000 hours of legal services
performed. Howe usually bills 160 per hour for legal services. On the date of issuance, the stock was trading on a public
exchange at 140 per share. By what amount should the additional paid-in capital account increase as a result of this
transaction?
a. 135,000
b. 140,000
c. 155,000
d. 160,000
15. On December 1, 2022, Joshtin Company received a donation of 2,000 shares of its P50 par value ordinary share from a
stockholder. On that date, the stock’s market value was P350 per share. The stock was originally issued for P250 per
share.
By what amount would this donation cause total stockholders’ equity to decrease?
a. 700,000 c. 200,000
b. 500,000 d. 0
16. Effective December 31, 2022, the stockholders of Joshtin Company approved a two-for-one split of the company’s
ordinary share, and an increase in authorized ordinary share shares from 100,000 shares (par value P20 per share) to
200,000 shares (par value P10). Joshtin’s stockholders’ equity accounts immediately before issuance of the stock split
shares were as follows:
Ordinary share, par value P20; 100,000 shares authorized; 50,000 shares
outstanding 1,000,000
Share premium 150,000
What should be the balances in Joshtin’s share premium and retained earnings accounts immediately after the stock split
is effected?
Share Premium Retained earnings
a. 0 500,000
b. 150,000 350,000
c. 150,000 1,350,000
d. 1,150,000 350,000
17. On July 1, 2022, Kristine Company issued rights to stockholders to subscribe to additional shares of its ordinary share.
One right was issued for each share owned. A stockholder could purchase one additional share for 10 rights plus P30
cash. The rights expired on December 31, 2022. On July 1, 2022, the market price of a share with the right attached was
P40 while the market price of one right alone was P2. All stock rights were exercised on December 31, 2022. Kristine’s
stockholders’ equity on June 30, 2022 comprised the following:
Ordinary share, P25 par value, 40,000 shares issued and outstanding
1,000,000
Share premium 600,000
Retained earnings 800,000
What is the contributed capital on December 31, 2022?

a. 2,400,000
b. 1,600,000
c. 1,100,000
d. 1,720,000
18. During 2022, Josh Company issued 50,000 shares of P100 par value convertible preference share capital for P120 per
share. One preference share can be converted into three ordinary shares with P10 par value at the option of the
preference shareholder. On December 31, 2022, when the market value of the ordinary share was P50 per share, all of
the preference share capital was converted. What amount should Josh credit to ordinary share capital and share premium
as a result of conversion?
Ordinary share capital Share premium
a. 1,500,000 3,500,000
b. 1,500,000 6,000,000
c. 1,500,000 4,500,000
d. 1,500,000 0
19. Kelly 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, Kelly’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?
a. Credit Share Capital—Preference 20,000.
b. Credit Share Premium—Ordinary 80,000.
c. Credit Share Capital—Ordinary 100,000.
d. Credit Share Premium—Ordinary 160,000.
20. Kimberlie Co. had 100,000 shares of common stock issued and outstanding at January 1, year 1. During year 1, Kimberlie
took the following actions:
March 15 — declared a 2-for-1 stock split, when the fair value of the stock was 80 per share. December 15 — declared a
.50 per share cash dividend. In Kimberlie’s statement of stockholders’ equity for year 1, what amount should Kimberlie
report as dividends?
a. 50,000
b. 100,000
c. 850,000
d. 950,000
21. Maple Tree Mall, Inc., has 2,500 shares of 2%, P25 par cumulative preferred stock and 125,000 shares of P2 par common
stock outstanding. At the beginning of the current year, preferred dividends were four years in arrears. Maple Trees
board of directors wants to pay a P2.50 cash dividend on each share of outstanding common stock in the current year.
To accomplish this, what total amount of dividends must Maple Tree declare?
a. 250,000
b. 255,000
c. 256,250
d 318,750
22. Jay Company, a real estate developer, is owned by five founding shareholders.
On December 1, 2021, the entity declared a property dividend of a one-bedroom-flat for each shareholder. The property
dividend is payable on January 31, 2022.
On December 1, 2021, the carrying amount of a one bedroom flat is 1,000,000 and the fair value is 1,500,000.
However, the fair value is 1,800,000 on December 31, 2021 and 1,900,000 on January 31, 2022.
1. What is the dividend payable on December 1, 2021?

a. 5,000,000
b. 7,500,000
c. 9,000,000
d. 0
2. What is the dividend payable on December 31, 2021?

a. 5,000,000
b. 7,500,000
c. 9,000,000
d. 0
3. What amount of gain is included in profit or loss as a result of the settlement of the property dividend on January 31,
2022?
a. 2,500,000
b. 4,000,000
c. 4,500,000
d. 0
23. On December 1, year 1, Joseph Corp. declared a property dividend of marketable securities to be distributed on
December 31, year 1, to stockholders of record on December 15, year 1. On December 1, year 1, the trading securities
had a carrying amount of 60,000 and a fair value of 78,000. What is the effect of this property dividend on Joseph’s year
1 retained earnings, after all nominal accounts are closed?
a. 0.
b. 18,000 increase.
c. 60,000 decrease.
d. 78,000 decrease.
24. John Paul Corp. declared a 5% stock dividend on its 10,000 issued and outstanding shares of 2 par value common stock,
which had a fair value of 5 per share before the stock dividend was declared. This stock dividend was distributed sixty
days after the declaration date. By what amount did John Paul’s current liabilities increase as a result of the stock
dividend declaration?
a. 0
b. 500
c. 1,000
d. 2,500
25. Tricia Company reported the following shareholders' equity at the current year end:
Share Capital, par 25, 150,000 authorized shares

55,000 shares issued of which 5,000 shares are in treasury 1,375,000
Treasury shares, at cost 150,000
A 95% share dividend was declared and all the treasury shares were issued as a share dividend and the balance from the
unissued shares. The share has a market value of 40.
1. What is the outstanding amount of shares?

a. 40,000
b. 50,000
c. 60,000
d. 70,000
2. What amount should be reported as share dividend shares?

a. 17,600
b. 25,400
c. 36,100
d. 47,500
3. What amount should be capitalized as retained earnings?

a. 1,250,000
b. 1,800,000
c. 1,275,000
d. 1,212,500
26. At December 31, year 1, Alex Corp. had 20,000 shares of 1 par value treasury stock that had been acquired in year 1 at
12 per share. In May year 2, Alex issued 15,000 of these treasury shares at 10 per share. The cost method is used to
record treasury stock transactions. Alex is located in a state where laws relating to acquisition of treasury stock restrict
the availability of retained earnings for declaration of dividends. At December 31, year 2, what amount should Alex show
in notes to financial statements as a restriction of retained earnings as a result of its treasury stock transactions?
a. 5,000
b. 10,000
c. 60,000
d. 90,000
27. The following information pertains to Ivan Corp.:
Dividends on its 1,000 shares of 6%, 10 par value cumulative preferred stock
have not been declared or paid for three years.
Treasury stock that cost 15,000 was reissued for 8,000.
What amount of retained earnings should be appropriated as a result of these items?

a. 0
b. 1,800
c. 7,000
d. 8,800
28. Omar Company reported the following adjusted account balances ay year-end:
Share Capital 15,000,000

Share premium 5,000,000
Treasury shares, at cost 2,000,000
Actuarial loss on defined benefit plan 1,000,000
Retained earnings unappropriated 6,000,000
Retained earnings appropriated 3,000,000
Revaluation surplus 4,000,000
Cumulative translation adjustment – credit 1,500,000
What amount should be reported as shareholders’ equity at year-end?

a. 31,500,000
b. 32,500,000
c. 28,500,000
d. 25,500,000
29. Alfie Corp. has incurred losses from operations for several years. At the recommendation of the new president, the
board of directors voted to implement a quasi-reorganization, subject to stockholder approval. Immediately prior to the
restatement, on June 30, Alfie's balance sheet was as follows:
Current assets ....................................... 550,000
Property, plant and equipment (net)................... 1,350,000
Other assets ......................................... 200,000
2,100,000
Total liabilities .................................... 600,000
Common stock ......................................... 1,600,000
Additional paid-in capital ........................... 300,000
Retained earnings (deficit)........................... (400,000)
2,100,000
The stockholders approved the quasi-reorganization effective July 1, to be accomplished by a reduction in other assets
of 150,000, a reduction in property, plant and equipment (net) of 350,000, and appropriate adjustment to the capital
structure. To implement the quasi-reorganization, Alfie should reduce the common stock account in the amount of
a. 0.
b. 100,000.
c. 400,000.
d. 600,000.
30. The board of directors of Emerson Co. decided that the company should undergo a quasi-reorganization effective on
December 31, 2022. On that date, the company determined the following asset values.
Book Value Market Value

Inventory ..................... 100,000 110,000
Building ...................... 800,000 400,000
Equipment ..................... 180,000 140,000
1,080,000 650,000
The stockholders' equity section at December 31, 2022, is presented below.
Common stock, 20 par, 80,000 shares issued and

outstanding ......................................... 1,600,000
Additional paid-in capital ............................ 800,000
Retained earnings (deficit) ........................... (700,000)
Total ................................................. 1,700,000
The quasi-reorganization is to be accomplished by reducing the par value of the stock to 15 per share. Immediately after
the quasi-reorganization, the common stock amount would be
a. 1,600,000.
b. 1,200,000.
c. 800,000.
d. 400,000.
31. Mhel Company's balance sheet at December 31, 2022, contained the following accounts:
Common stock, 20 par, 100,000 authorized, 60,000

outstanding ......................................... 1,200,000
Paid-In capital in excess of par ...................... 150,000
Retained earnings (deficit) ........................... (540,000)
Mhel's new management suggested, and received approval for a quasi- reorganization. The new par value is to be 10 a
share, Equipment is to be written down 152,000, and Inventory is to be increased 8,000. How much Additional Paid-In
Capital from Reorganization will initially be recorded with the entry to reduce the par value of the common stock?
a. 540,000
b. 600,000
c. 690,100
d. 1,000,000
32. Adverse financial and operating circumstances warrant that Ghette Company undergoes quasi-reorganization at
December 31, 2021. The following information may be relevant in accounting for the quasi-reorganization.
1. Inventory with a cost of P215, 000 is currently recorded at cost of P215, 000. Your review indicates that net
realizable value is P190, 000.
2. Plant assets with fair value less cost to sell of P700, 000 and value in use of P720, 000 are carried in the books at
P875, 000.
3. A creditor agrees to extend the maturity date of a loan for five years, although interest as originally stated must
continue to be paid.
4. Shareholders agreed to contribute a total of P600, 000 cash to create additional paid in capital to facilitate the
reorganization.
5. The par value of the ordinary share is reduced from P25 to P15.
6. Immediately before the events described above, the shareholders’ equity section appears as follows:
Ordinary Share Capital P 2,500,000
Share Premium 1,750,000
Retained Earnings (deficit) (750,000)
Total Shareholders’ Equity P 3,500,000
What is the total shareholders’ equity immediately after the quasi-reorganization?

a. 3,500,000
b. 3,920,000
c. 3,680,000
d. 3,770,000
33. The Retained Earnings account of Lovely Company follows:
Date Item Debit Credit

01-01-2021 Balance 485,000
03-31-2021 Dividends declared 200,000
12-31-2021 Profit for the year 324,000
04-01-2022 Share Premium 150,000
06-30-2022 Gain on sale of treasury shares 100,000
09-30-2022 Dividends declared 300,000
12-31-2022 Profit for the year 451,000
12-31-2022 Appraisal increase of land 300,000
12-31-2022 Balance 1,310,000
1,810,000 1,810,000
The only other shareholder's equity account in the books of the company as of December 31, 2022 is ordinary share
capital, which has a balance of 2,000,000. This is composed of 20,000 issued shares with par value of P100. All of these
shares are outstanding as of December 31, 2022.
1. The correct balance of Retained Earnings as of December 31, 2022 is

a. 760,000
b. 860,000
c. 1,060,000
d. 1,310,000
2. Additional Paid in Capital is

a. 100,000
b. 150,000
c. 250,000
d. 550,000
3. Total shareholder's Equity is

a. 2,710,000
b. 2,760,000
c. 3,010,000
d. 3,310,000
PRACTICAL ACCOUNTING 1
SHARE BASE PAYMENT - SET C
Problem
1. On January 1, 2022, Kim Company granted Kelly Williams, an employee, an option to buy 100 shares of Kim Co. shares
for 30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total
compensation expense is determined to be 900. Williams exercised his option on September 1, 2022, and sold his 100
shares on December 1, 2022. Quoted market prices of Kim Co. shares during 2022 were:
January 1 30 per share
September 1 36 per share
December 1 40 per share
As a result of the option granted to Williams, using the fair value method, Kim should recognize compensation expense
for 2022 on its books in the amount of
a. 1,000.
b. 900.
c. 450.
d. 0.
2. On January 1, 2022, Oz Company granted stock options to certain key employees as additional compensation. The
options were for 100,000 shares of Oz's P2 par value common stock at an option price of P15 per share. Market price of
stock on January 1, 2022, was P20 per share. The fair value of each stock option on January 1, 2022 is P8. The options
were exercisable beginning January 1, 2022 and expire on December 31, 2017. On April 1, 2022, when Oz's stock was
trading at P21 per share, all the options were exercised.
What amount of compensation should Oz report in 2022 in connection with the options?
a. 800,000
b. 500,000
c. 250,000
d. 400,000
3. On January 1, 2021, Angel Company granted an employee an option to purchase 30,000 shares of Angel's P5 par value
common stock at P20 per share. The option became exercisable on December 31, 2022, after the employee completed
two years of service. The option was exercised on January 15, 2023. The market prices of stock were as follows:
January 1, 2021 30
December 31, 2021 50
January 15, 2023 45
For 2021, Angel should recognize compensation expense of
a. 450,000
b. 375,000
c. 150,000
d. 0
4. On January 1, 2022, Tricia Company granted Morgan, its president, compensatory stock options to buy 10,000 shares of
Tricia's P10 par common stock. The options call for a price of P20 per share and are exercisable for 3 years following the
grant date. Morgan exercised the options on December 31, 2022. The market price of the stock was P50 on January 1,
2022, and P70 on December 31, 2022.
By what net amount should stockholders' equity increase as a result of the grant and exercise of the options?
a. 200,000
b. 300,000
c. 500,000
d. 700,000
5. Olivia Co. offers all its 10,000 employees the opportunity to participate in an employee share-purchase plan. Under the
terms of the plan, the employees are entitled to purchase 100 ordinary shares (par value 1 per share) at a 20 percent
discount. The purchase price must be paid immediately upon acceptance of the offer. In total, 8,500 employees accept
the offer, and each employee purchases on average 80 shares at 22 share (market price 27.50). Under IFRS, Olivia Co. will
record
a. No compensation since the plan is used to raise capital, not compensate employees.
b. Compensation expense of 5,500,000.
c. Compensation expense of 18,700,000.
d. Compensation expense of 3,740,000.
6. Catherine Company'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 2021
through 2023, and the rights are exercisable in 2024. The market price of the stock was P25 and P28 on December 31,
2021 and 2022, respectively.
What amount should Catherine report as the liability under the stock appreciation rights plan in its December 31, 2022
balance sheet?
a. 0
b. 130,000
c. 160,000
d. 240,000
7. On January 1, 2020, Kaila Company offered its chief executive officer, stock appreciation rights with the following terms:
Predetermined price P100 per share
Number of shares 10,000 shares
Service period - 3 years 2020, 2021and 2022
Exercise date December 31, 2022
The stock appreciation rights are exercised on December 31, 2022. The quoted price of the Kaila stock is as follows:
P118 on December 31, 2020, P112 on December 31, 2021, and P124 on December 31, 2022.
Kaila Company should record 2022 compensation expense at

a. 160,000
b. 60,000
c. 80,000
d. 20,000
8. On January 1, 2020, Jerome Company granted 100 share options each to 400 employees, conditional upon the employee’s
remaining in the entity’s employ during the vesting period. The share option vest at the end of 4-year period. On grant
date, each share option has a fair value of 40. The par value per share is 70 and the option price is 90.
At the end of the year 2021, 100 employees have left and it is expected that on the basis of a weighted average probability,
further 50 employees will leave before the end of 4-year period.
At the end of year 2022, only 25 employees actually left and all of the share options are exercised on this day.
What is the compensation expense at the end of 2022?

a. 400,000
b. 166,667
c. 266,667
d. 325,000
9. Alfredo Company has granted share options to its employees. The total compensation expense to the vesting date of
December 31, 2022 has been calculated at 10,000,000. The company decided to settle the award early on December 31,
2021. The compensation expense charged since the grant date on January 1, 2019 was 2,000,000 for 2019 and 3,000,000
for 2020.
What is the compensation expense for 2021 if the share options are not exercised but instead the entity paid 6,000,000
to its employees?
a. 4,000,000
b. 3,000,000
c. 2,000,000
d. 1,000,000
10. You were able to gather the following information in connection with your audit of Tintin Corporation:
On January 1, 2018, Tintin Corporation granted share options to officers and key employees for the purchase of
30,000, P10 par value, ordinary shares of the company at P25 per share. The options are exercisable within a 5-year
period beginning January 1, 2020 by grantees still in the employ of the company, and expiring December 31, 2024.
The service period for this award is 2 years. The fair value option pricing model determined total compensation
expense to be 525,000. The share was selling at P35 at the time the options were granted.
On April 1, 2019, 3,000 options were terminated when the employees resigned from the company. The market value
of ordinary share was P35 per share on this date.
On March 31, 2020, 18,000 option shares were exercised when the market value of ordinary share was P40 per share.
1. Compensation expense in 2018

a. 525,000 c. 236,250
b. 262,500 d. 150,000
2. Net compensation expense in 2019

a. 262,500 c. 120,000
b. 210,000 d. 150,000
3. The exercise of the 18,000 options will result in a credit to Share premium - excess over par of
a. 585,000 c. 270,000
b. 620,000 d. 450,000
4. Share premium - share options as of December 31, 2020

a. 0 c. 472,500
b. 90,000 d. 157,500
MODULE # 17 Post-test
GOVERNMENT GRANTS
Multiple Choice
1. Matalino Company received a government grant for P45,000,000 to install and run a windmill in an economically backward
area. The entity had estimated that such a windmill will cost P65,000,000 to construct. The secondary attached to the
grant is that the entity shall hire a labor in the area where the windmill is located. The construction was completed on
January 1, 2020. The windmill is to be depreciated using the straight line method over a period of 10 years. What amount
of income from the government grant should be recognized in 2020?
a. 1,500,000
b. 2,500,000
c. 3,500,000
d. 4,500,000
2. Demeter Company received a government grant of P600,000 related to depreciable asset acquired on January 1, 2018 for
P 7,000,000. This grant was deducted from the cost of the asset with a useful life of 10 years and residual value of P
800,000. On January 1, 2020, the grant became fully repayable due to noncompliance with conditions.
What is the depreciation for 2018?
a. P 560,000
b. P 550,000
c. P 800,000
d. P 850,000
3. The Good Samaritans 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 is 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?

a. 1,800,000
b. 3,600,000
c. 4,400,000
d. 6,200,000
4. Patriotic Company purchased a machine for 6,600,000 on January 1 2019 and received a government grant of 600,000
toward the asset cost. The policy is to treat the grant as a reduction in the cost of the asset.
The machine is to be depreciated on a straight line basis over 10 years with a residual value of 500,000.
On January 1 2021, the grant became fully repayable because of noncompliance with conditions.

a. 610,000
b. 600,000
c. 780,000
d. 730,000
e. 735,000
5. Quell Company purchased a varnishing machine for P3,000,000 on January 1, 2020. The entity received a government
grant of P500,000 in respect of this asset.
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 income from the government grant will be recognized for 2020?
a. 500,000
b. 125,000
c. 250,000
d. 0
6. On January 1, 2020, the city government agreed to provide Probity Company with a P5,000,000 three-year, zero-interest
loan evidenced by promissory note.
The prevailing rate of interest for a loan of this type is 10% and the present value of 1 at 10% for three years is .7513.
What is the deferred grant income on December 31, 2020?
a. 1,243,500
b. 867,850
c. 829,000
d. 375,650
7. On January 1, 2020, Humility Company received a government 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 costs at 2,000,000 for 2020, P4,000,000 for
2021, P6,000,000 for 2022, P8,000,000 for 2023, and P10,000,000 for 2024.
What amount of income from the government grant is recognized for 2020?
a. 12,000,000
b. 8,000,000
c. 6,000,000
d. 4,000,000
8. On January 1, 2019, Easy Company received a grant of P1,500,000 from the government to subsidized tuition fees for a
period of 5 years.
On January 1, 2021, the entity violated certain conditions attached to the grant, and therefore had to repay fully such
grant to the government.
1. What is the grant income for 2019?

a. 1,500,000
b. 600,000
c. 300,000
d. 0
2. What amount should be recognized as loss resulting from the repayment of the grant in 2021?
a. 1,500,000
b. 900,000
c. 600,000
d. 0
9. Futuristic Company purchased a jewel polishing machine for P3,600,000 on January 2, 2020 and received a government
grant of P500,000 in relation to the asset. The accounting policy is to treat the grant as a 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 residual value of P50,000 at
the end of this period.
What is the depreciation expense of the machine for the year ended December 31, 2020?
a. 387,500
b. 762,500
c. 443,750
d. 381,250
10. Tiger Company received a government related to depreciable asset five years ago on January 1, 2015 in the amount of
1,000,000. The grant was deducted from the capital cost of the asset purchased at a total amount of 6,000,000 on the
same date with a useful life of 10 years and no residual value. On January 1, 2020, the entire 1,000,000 became repayable
due to lack of compliance with the conditions attached to the grant.
What total amount should be recognized as depreciation expense for 2020?

a. 1,000,000
b. 1,100,000
c. 700,000
d. 600,000
MODULE # 17 Post-test
GOVERNMENT GRANTS
Multiple Choice
1. Matalino Company received a government grant for P45,000,000 to install and run a windmill in an economically backward
area. The entity had estimated that such a windmill will cost P65,000,000 to construct. The secondary attached to the
grant is that the entity shall hire a labor in the area where the windmill is located. The construction was completed on
January 1, 2020. The windmill is to be depreciated using the straight-line method over a period of 10 years. What amount
of income from the government grant should be recognized in 2020?
a. 1,500,000
b. 2,500,000
c. 3,500,000
d. 4,500,000
2. Demeter Company received a government grant of P600,000 related to depreciable asset acquired on January 1, 2018 for
P 7,000,000. This grant was deducted from the cost of the asset with a useful life of 10 years and residual value of P
800,000. On January 1, 2020, the grant became fully repayable due to noncompliance with conditions.
a. P 560,000
b. P 550,000
c. P 800,000
d. P 850,000
3. The Good Samaritans 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 is 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?

a. 1,800,000
b. 3,600,000
c. 4,400,000
d. 6,200,000
4. Patriotic Company purchased a machine for 6,600,000 on January 1 2019 and received a government grant of 600,000
toward the asset cost. The policy is to treat the grant as a reduction in the cost of the asset.
The machine is to be depreciated on a straight line basis over 10 years with a residual value of 500,000.
On January 1 2021, the grant became fully repayable because of noncompliance with conditions.
a. 610,000
b. 600,000
c. 780,000
d. 730,000
e. 735,000
5. Quell Company purchased a varnishing machine for P3,000,000 on January 1, 2020. The entity received a government
grant of P500,000 in respect of this asset.
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 income from the government grant will be recognized for 2020?
a. 500,000
b. 125,000
c. 250,000
d. 0
6. On January 1, 2020, the city government agreed to provide Probity Company with a P5,000,000 three-year, zero-interest
loan evidenced by promissory note.
The prevailing rate of interest for a loan of this type is 10% and the present value of 1 at 10% for three years is .7513.
What is the deferred grant income on December 31, 2020?
a. 1,243,500
b. 867,850
c. 829,000
d. 375,650
7. On January 1, 2020, Humility Company received a government 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 costs at 2,000,000 for 2020, P4,000,000 for
2021, P6,000,000 for 2022, P8,000,000 for 2023, and P10,000,000 for 2024.
What amount of income from the government grant is recognized for 2020?
a. 12,000,000
b. 8,000,000
c. 6,000,000
d. 4,000,000
8. On January 1, 2019, Easy Company received a grant of P1,500,000 from the government to subsidized tuition fees for a
period of 5 years.
On January 1, 2021, the entity violated certain conditions attached to the grant, and therefore had to repay fully such
grant to the government.
1. What is the grant income for 2019?

a. 1,500,000
b. 600,000
c. 300,000
d. 0
2. What amount should be recognized as loss resulting from the repayment of the grant in 2021?
a. 1,500,000
b. 900,000
c. 600,000
d. 0
9. Futuristic Company purchased a jewel polishing machine for P3,600,000 on January 2, 2020 and received a government
grant of P500,000 in relation to the asset. The accounting policy is to treat the grant as a 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 residual value of P50,000 at
the end of this period.
What is the depreciation expense of the machine for the year ended December 31, 2020?
a. 387,500
b. 762,500
c. 443,750
d. 381,250
10. Tiger Company received a government related to depreciable asset five years ago on January 1, 2015 in the amount of
1,000,000. The grant was deducted from the capital cost of the asset purchased at a total amount of 6,000,000 on the
same date with a useful life of 10 years and no residual value. On January 1, 2020, the entire 1,000,000 became repayable
due to lack of compliance with the conditions attached to the grant.
What total amount should be recognized as depreciation expense for 2020?

a. 1,000,000
b. 1,100,000
c. 700,000
d. 600,000
LEASES SETC
Problem
1. Angel Co. leased a new machine to Oz Co. on January 1, year 1. The lease is an operating lease and expires on January 1,
year 6. The annual rental is 90,000. Additionally, on January 1, year 1, Oz paid 50,000 to Angel as a lease bonus and
25,000 as a security deposit to be refunded upon expiration of the lease. In Angel’s year 1 income statement, the
amount of rental revenue should be
a. 140,000
b. 125,000
c. 100,000
d. 90,000
2. Amara Co. leased office premises to Kaila, Inc. for a five-year term beginning January 2, year 1. Under the terms of the
operating lease, rent for the first year is 8,000 and rent for years two through five is 12,500 per annum. However, as an
inducement to enter the lease, Amara granted Kaila the first six months of the lease rent-free. In its December 31, year 1
income statement, what amount should Amara report as rental income?
a. 12,000
b. 11,600
c. 10,800
d. 8,000
3. On January 1, year 1, Kaila Co. leased a building to Jerome under an operating lease for ten years at 50,000 per year,
payable the first day of each lease year. Kaila paid 15,000 to a real estate broker as a finder’s fee. The building is
depreciated 12,000 per year. For year 1, Kaila incurred insurance and property tax expense totaling 9,000. Kaila’s net
rental income for year 1 should be
a. 27,500
b. 29,000
c. 35,000
d. 36,500
4. Ozz Company, a lessor, leased an equipment under an operating lease. The lease term is 5 years and the lease payments
are made in advance on January 1 of each year as shown in the following schedule:
January 1, 2017 1,000,000
January 1, 2018 1,000,000
January 1, 2019 1,400,000
January 1, 2020 1,700,000
January 1, 2021 1,900,000
Total rentals 7,000,000
1. What is the rent income for 2017?

a. 1,000,000
b. 1,400,000
c. 2,000,000
d. 1,500,000
2. On December 31, 2018, what amount should be recognized as accrued rent receivable?
a. 700,000
b. 800,000
c. 400,000
d. 0
5. On January 1, 2020 Corpus Company leased a building to Brill under an operating lease for ten years at 600,000 per year,
payable at the first day of each lease year.
Corpus has paid an amount of 250,000 for a real estate broker as a finder’s fee.
The building is depreciated annually for 120,000 aside from this the company has also paid insurance and property tax
expense of 90,000.
What should be the reported net income for 2020?

a. 365,000
b. 140,000
c. 600,000
d. 455,000
6. On January 1, 2022, an entity leased a building from a lessor with the following pertinent information.
Annual rental payable at the end of each year 1,000,000
Initial direct cost paid 400,000
Lease incentive received 100,000
Leasehold improvement 200,000
Purchase option that is reasonably certain to be exercised 500,000
Lease term 5 years
Useful life of building 8 years
Implicit interest rate 10%
PV of an ordinary annuity of 1 for 5 periods at 10% 3.79
Present value of 1 for 5 periods at 10% 0.62
1. What is the cost of the right of use asset?

a. 4,500,000
b. 4,400,000
c. 4,700,000
d. 4,600,000
2. What is the lease liability on December 31, 2022?

a. 3,510,000
b. 3,169,000
c. 3,950,000
d. 3,719,000
7. At the beginning of the current year, Joshtin Company leased a machinery with the following information:

Residual value guarantee 500,000
Payment to lessor to obtain a long-term lease 300,000
Cost of dismantling and restoring the asset as required
by contract at present value 390,000
Annual executory cost paid by lessee 50,000
Lease term 4 years
Useful life of machinery 8 years
Present value of an ordinary annuity of 1 at 10% for 4 periods 3.17
Present value of 1 at 10% for 4 periods 0.68
1. What is the initial lease liability?

a. 3,510,000
b. 3,170,000
c. 4,010,000
d. 4,000,000
2. What is the cost of right use asset?

a. 4,200,000
b. 4,250,000
c. 3,810,000
d. 3,900,000
3. What is the depreciation for current year?

a. 462,500
b. 925,000
c. 850,000
d. 965,000
4. What is the lease liability at year-end?

a. 2,510,000
b. 3,159,000
c. 2,861,000
d. 3,620,000
8. Jerome Company entered into a ten-year non-cancelable lease requiring year-end payments of 1,200,000 on January 01,
2022. The incremental borrowing rate is 15%, while the lessor’s implicit interest rate is 10%. Present value factors for an
ordinary annuity for ten periods are 6.145 at 10% and 5.019 at 15%. An initial direct cost of P 150,000 in negotiating and
securing the leasing arrangement was paid on the same day. Ownership of the property remains with the lessor at
expiration of the lease. There is no purchase option. The leased property has an estimated economic life of 12 years.
1. What amount should be capitalized initially as cost of the right of use asset?
a. 7,245,000
b. 7,524,000
c. 7,750,000
d. 6,850,000
2. What amount should be recognized initially as lease liability?

a. 7,245,000
b. 6,145,000
c. 7,345,000
d. 7,374,000
3. What is annual depreciation of the right of use asset?

a. 834,500
b. 614,100
c. 752,400
d. 734,500
9. An entity recorded the cost of right use asset at 4,500,000. The underlying asset had a useful life of 8 years and the lease
term is 5 years. The asset is expected to have a fair value of 1,500,000 at the end of 5 years and a fair value of 500,000 at
the end of 8 years.
The lease agreement provided for the transfer of title of the underlying asset to the lessee at the end of the lease term.
What amount of depreciation expense should be recorded for the first year of the lease?
a. 900,000
b. 800,000
c. 600,000
d. 500,000
10. On January 1, 2022, Kaila Company and the lessor agreed to amend the original terms of the lease by reducing the lease
payment to 50,000 and increasing the implicit rate to 9%.
The lease liability has a carrying amount of 200,000 on January 1, 2022.
The present value of an ordinary annuity of 1 at 9% for 3 periods is 2.5313.
What is the decrease or increase in lease liability for 2022?

a. 73,435 increase
b. 73,435 decrease
c. 50,000 increase
d. 50,000 decrease
11. On December 30, year 1, Tricia Corp. leased equipment under a finance lease. Annual lease payments of 20,000 are due
December 31 for ten years. The equipment’s useful life is ten years, and the interest rate implicit in the lease is 10%. The
finance lease obligation was recorded on December 30, year 1, at 135,000, and the first lease payment was made on
that date.
What amount should Tricia include in current liabilities for this finance lease in its December 31, year 1 balance sheet?
a. 6,500
b. 8,500
c. 11,500
d. 20,000
12. On January 2, year 1, Philex Mining Co. (lessee) entered into a five-year lease for drilling equipment. Philex accounted
for the acquisition as a capital lease for 240,000, which includes a 10,000 bargain purchase option. At the end of the
lease, Philex expects to exercise the bargain purchase option. Philex estimates that the equipment’s fair value will be
20,000 at the end of its eight-year life. Philex regularly uses straight-line depreciation on similar equipment. For the year
ended December 31, year 1, what amount should Philex recognize as depreciation expense on the leased asset?
a. 48,000
b. 46,000
c. 30,000
d. 27,500
13. Metcalf Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease
for Metcalf. The six-year lease requires payment of 102,000 at the beginning of each year, including 15,000 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
a. 509,256
b. 488,661
c. 434,366
d. 416,799
14. An entity is a dealer in equipment and uses leases to facilitate the sale of its product. The entity expects a 12% return. At
the end of the lease term, the equipment will revert to the lessor.
On January 1, 2022, an equipment is leased to a lessee with the following information:

Cost of equipment to the entity 3,500,000
Fair value of equipment 5,500,000
Residual value – unguaranteed 600,000
Initial direct cost 200,000
Annual rental payable in advance 900,000
Useful life and lease term 8 years
PV of 1 at 12% for 8 periods 0.40
PV of an ordinary annuity of 1 at 12% for 8 periods 4.97
PV of an annuity due of 1 at 12% for 8 periods 5.56
First lease payment January 1, 2022
1. What is the gross investment in the lease?

a. 7,800,000
b. 7,200,000
c. 6,600,000
d. 6,900,000
2. What is the net investment in the lease?

a. 5,004,000
b. 5,244,000
c. 5,500,000
d. 5,740,000
3. What is the total financial revenue?

a. 2,196,000
b. 2,796,000
c. 2,556,000
d. 1,956,000
4. What amount should be recognized as interest income for 2022?

a. 600,480
b. 492,480
c. 536,760
d. 521,280
5. What amount of cost of goods sold should be recognized in recording the lease?
a. 3,260,000
b. 3,500,000
c. 3,740,000
d. 3,460,000
15. Fernando Incorporated uses leases as a method of selling its products. In early 2021, Fernando completed construction
of a passenger ferry for use between Quiapo and Guadalupe. On April 1, 2021, the ferry was leased to the Talion Ferry
line on a contract specifying that ownership of the ferry will transfer to the lessee at the end of the lease period. The ferry
is expected to be economically useful for 25 years. Annual lease payments do not include executory costs. Other terms
of the agreement are as follows:
Original cost of the ferry P1,500,000

Lease payments P225,000
Estimated residual value P78,000
Implicit rate 10%
Date of first lease payment April 1, 2021
Lease period 20 years
PV of an ordinary annuity of 1 for 20 periods at 10% 8.5136
PV of an annuity due of 1 for 20 periods at 10% 9.3649
PV of 1 for 20 periods at 10% 0.1486
Based on the above and the result of your audit, determine the following.
1. Total finance income that will be earned by the lessor over the lease term
a. 2,459,306 c. 2,392,897
b. 2,650,849 d. 2,584,440
2. The profit on sale to be recognized by the lessor
a. 607,103 c. 415,560
b. 427,151 d. 618,694
3. Liability under finance lease to be reported by the lessee as of December 31, 2022
a. 1,634,616 c. 1,858,063
b. 1,845,313 d. 1,647,366
4. Amount to be reported under current liabilities as liability under finance lease by the lessee as of December 31, 2022
a. 61,538 c. 40,469
b. 39,194 d. 60,263
5. Depreciation expense to be recognized by the lessee for the year 2021
a. 61,221 c. 76,091
b. 55,127 d. 60,873
16. At the beginning of current year, World Company sold a machine and immediately leased it back. The following data
pertain to the sale and leaseback transaction:
Sale price at fair value 5,000,000

Carrying amount of machine 6,000,000
Annual rental payable at the end of the year 500,000
Present value of an ordinary annuity of 1 at
6% for 5 periods 4.21

a. 2,500,000
b. 2,105,000
c. 3,000,000
d. 0
2. What is the cost of right of use asset?
a. 2,105,000
b. 2,526,000
c. 2,895,000
d. 1,500,000
3. What is the loss on right transferred to the buyer-lessor?

a. 508,200
b. 500,000
c. 579,000
d. 0
4. What is the net annual rent income of the buyer-lessor?

a. 373,700
b. 200,000
c. 500,000
d. 250,000
17. At the beginning of current year, Judy Company sold a building with remaining useful life of 30 years and immediately
leased it back for 5 years.
Sale price at below fair value 18,000,000

Fair value of building 20,000,000
Carrying amount of building 24,000,000
Present value of an ordinary annuity of 1 at 12%
For 5 periods 3.60

a. 3,600,000
b. 4,000,000
c. 4,800,000
d. 0
2. What is the cost of right of use of asset?

a. 3,000,000
b. 2,880,000
c. 5,760,000
d. 6,720,000
3. What is the loss on right transferred?

a. 4,000,000
b. 2,880,000
c. 4,320,000
d. 6,000,000
4. What is the net annual rent income of the buyer-lessor?

a. 400,000
b. 200,000
c. 300,000
d. 100,000
18. Arizcom Company leased an equipment to Jie Co. using the terms of an operating lease. The leased equipment is a 4-
year term made in advance every April 1 with different annual payments as shown below.
April 1
Year 1 1,300,000
Year 2 1,250,000
Year 3 1,400,000
Year 4 1,000,000
1. What is the Average Annual Rental Income for year 1?

a. 1,237,500
b. 1,000,000
c. 1,300,000
d. 1,347,530
2. What amount should be recognized as accrued rent receivable at December 31 year 2?

a. 237,500
b. 950,000
c. 337,500
d. 50,000
19. At the beginning of the year, Harry Co. sold a machine having a useful life of 15 years and immediately leased it back for
6 years. The data below pertains to the sales and leaseback transaction.
Sales Price at FV P 8,000,00

Book Value of Machine 6,000,000
Annual Rental payable at the end of each year 750,000
Implicit Interest rate 10%

a. 2,762,000
b. 3,270,000
c. 3,260,000
d. 2,440,000
2. What is the cost of the right of the use of asset?

a. 3,270,000
b. 3,744,000
c. 3,872,300
d. 2,452,800
3. What is the gain or loss transferred to buyer-lessor?

a. 1,182,600
b. 1,844,000
c. 1,872,500
d. 1,182,303
20. On December 31, 2020, Clean Company sold a machine with a 10-year useful life to another entity and simultaneously
leased it back for one year. The sales price of the machine is 450,000 with a carrying amount of 400,000. The present value
of the reasonable lease rentals is 36,000.
What amount of gain on right transferred should be reported in the current year?
a. 36,000
b. 40,000
c. 50,000
d. 55,000
21. Joshtin Company’s cost of right of use asset is amounting to 4,200,000. The machinery it leased has a guarantee residual
value of 500,000 and the fair value after the life is 400,000. The machinery has a useful life of 8 years while the lease
term is 4 years.
1. Assuming there is no transfer of title, what will be the amount of depreciation for the current year?
a. 700,000
b. 750,000
c. 800,000
d. 925,000
2. Assuming there is a transfer of title, what will be the amount of depreciation for the current year?
a. 550,000
b. 475,000
c. 800,000
d. 925,000
22. IV of Spades Company sold to Josh Company a building and immediately leased it back. Using the following information
compute for the gain on right transferred to the buyer-lessor: present value of an ordinary annuity of 1 at 4% for 6 periods
5.24; implicit interest rate 3% (two decimal places); remaining life of building 15 years; Lease term 6 years; Annual rental
payable at the end of each year 600,000; Carrying amount of the building 7,000,000; Sale price at fair value 90% of the
carrying amount.
a. 338,667
b. 388,766
c. 700,000
d. 0
23. Angel Company entered into a finance lease on January 1, 2022. The lessee guaranteed the residual value of the asset
under the lease estimated to be 1,200,000 on January 1, 2027, the end of the lease term.
Annual lease payments are 1,000,000 due each December 31, beginning December 31,2022.The last payment is due
December 31, 2026.
The remaining useful life of the asset was six years at the commencement of the lease.
Both the lessor and the lessee used 10% as the interest rate. The PV of 1 at 10% for 5 periods is .62, and the PV of an
ordinary annuity of 1 at 10% for 5 periods is. 3.79.
1. What is the net lease receivable of the lessor at the commencement of the lease?
a. 4,534,000
b. 3,790,000
c. 4,990,000
d. 2,590,000
2. What is the gross investment in the lease?

a. 5,000,000
b. 6,200,000
c. 3,800,000
d. 5,744,000
3. What is the total unearned interest income?

a. 2,410,000
b. 1,666,000
c. 1,210,000
d. 466,000
4. What is the interest income for 2022?

a. 379,000
b. 620,000
c. 453,400
d. 500,000
24. During the year Jerome Company had a cost of right of use amounting to 5,065,000. The lease agreement showed that
there is a cost of restoration at an estimated amount of 250,000, indirect cost of 400,000 and a lease incentive of
300,000.
What amount should be recognized as lease liability?

a. 4,725,000
b. 4,715,000
c. 5,415,000
d. 4,915,000
25. On January 1, 2022, Angel Company entered to a ten-year non-cancelable lease agreement to lease a building from Oz
Company. The agreement required equal annual payments at the end of each year. The fair value of the building at the
beginning of the lease is 3,949,500, while the carrying amount to Oz Company is 3,458,000. The building has estimated
useful life of 10 years. The title of the building will be transferred to Angel at the end of the lease. The incremental
borrowing rate of Angel Company is 12%. Oz Company set the annual rental to insure 10% rate of return. The implicit rate
of the lessor is known by the lessee. The annual lease payment includes 35,000 executory costs.
1. What is the minimum annual lease payment?

a. 642,718
b. 500,000
c. 562,734
d. 480,000
2. What Is the total annual lease payment?

a. 515,000
b. 535,000
c. 597,734
d. 677,718
26. On January 1, 2021, Catherine Corporation signed a five-year non-cancelable lease for equipment. The terms of the lease
called for Catherine to make annual payments of 50,000 at the beginning of each year for five years with title to pass to
Catherine at the end of this period. The equipment has an estimated useful life of 7 years and no residual value. Catherine
uses the straight-line method of depreciation for all of its fixed assets. Catherine accordingly accounts for this lease
transaction as a finance lease. The minimum lease payments were determined to have a present value of 208,493 at an
effective interest rate of 10%.
1.In 2021, Catherine should record interest expense of

a. 15,849.
b. 29,151.
c. 20,849.
d. 34,151.
2.In 2022, Catherine should record interest expense of

a. 10,849.
b. 12,434.
c. 15,849.
d. 17,434.
27. Pork and Chop Company leased many assets and capitalized most of the leased assets. On December 31, 2022, the
entity had the following balances in relation to a piece of specialized equipment:
Right of use asset 4,000,000

Accumulated depreciation 2,465,000
Lease liability 1,300,000
Depreciation has been recorded up to end of the year, and no accrued interest is involved. On December 31, 2022, the
entity decided to purchase the equipment for 1,600,000 and paid cash to complete the purchase.
What is the cost of equipment purchased?

a. 1,835,000
b. 1,935,000
c. 1,093,000
d. 2,424,000
28. At the beginning of the current year, Kaila Company sold an equipment and the n immediately leased it back. The following
data pertain to the sale and leaseback transaction.
Sale price at below fair value 3,950,000
Fair value of the machine 4,350,000
Carrying amount of machine 2,950,000
Annual rental payable at the end of each year 400,000
Lease term 3 yrs.
Implicit rate 5%
PV of ordinary annuity of 1 at 5% 2.72
What is the gain to be recognized on right transferred to the buyer-lessor?

a. 920,123
b. 980,102
c. 921,103
d. 980,600
29. In connection with your audit Shawn Enterprises, you noted that the company has a long-standing policy of acquiring
company equipment by leasing. Early in 2022, the company entered into a lease for a new milling machine. The lease
stipulates that annual payments will be made for 5 years. The payments are to be made in advance on December 31 of
each year. At the end of the 5-year period, Shawn may purchase the machine. The estimated economic life of the
equipment is 12 years. Shawn uses the calendar year for reporting purposes and straight-line depreciation for other
equipment. In addition, the following information about the lease is also available:
Annual lease payments

(including executory costs of P5,000) P60,000
Purchase option price P25,000
Estimated fair value of machine after 5 years P75,000
Implicit rate 10%
Date of first lease payment Jan. 1, 2022
Based on the foregoing and the result of your audit, compute for the following: (Round off present value factors to four
decimal places.)
1. Amount to be capitalized as an asset for the lease of the milling machine.

a. 229,345
b. 224,017
c. 244,868
d. 275,913
2. Liability under finance lease as of December 31, 2022

a. 130,919
b. 153,855
c. 136,780
d. 189,868
3. Amount to be reported under current liabilities as liability under finance lease as of December 31, 2022
a. 39,614
b. 41,322
c. 41,908
d. 36,013
4. Interest expense for the year 2022

a. 17,435
b. 18,987
c. 16,902
d. 0
5. Depreciation expense for the year 2022

a. 20,406
b. 19,112
c. 18,668
d. 48,974
30. Talion Inc. leases equipment to its customers under non-cancelable leases. On January 1, 2022, Talion leased equipment
costing 4,000,000 to Herbert Co., for nine years. The rental cost was 440,000 payable in advance semiannually (January 1
and July 1), plus 20,000 semiannually for executory costs. The equipment had an estimated life of 15 years and sold for
5,330,250 with an estimated unguaranteed residual value of 800,000. The implicit interest rate is 12 percent.
Based on the foregoing and the result of your audit, compute for the following: (Round off present value factors to four
decimal places.)
1. How much is the total interest income from lease that will be earned by Talion, Inc.?
a. 2,869,988
b. 3,389,748
c. 3,675,616
d. 0
2. Talion, Inc. should report profit on the sale at

a. 1,330,252
b. 1,044,384
c. 1,050,012
d. 1,338,492
3. How much should be reported by Herbert Co. as liability under finance lease as of December 31, 2022?
a. 4,143,593
b. 4,446,613
c. 4,273,410
d. 0
4. How much should be reported by Herbert Co. under current liabilities as liability under finance lease as of December
31, 2022?
a. 356,798
b. 378,207
c. 394,252
d. 0
5. How much interest expense should be reported by Herbert Co. in relation to the lease for the year ended December
31, 2022?
a. 508,064
b. 501,793
c. 543,398
d. 0

Calculating Cash and Cash Equivalents

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Calculating Cash and Cash Equivalents

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CASH & CASH EQUIVALENTS

Current account at Metrobank - CIB P2,000,000

2. Angel Company reported the following accounts on Dec 31, 2020:

Petty Cash Fund

1. What is the amount of petty cash shortage?

2. How much is the cash shortage or overage?

The ledger account discloses a 10,500 balance for Petty Cash.

1. How much is the cash shortage or overage as of December 31, 2020?

Book (cash in bank) Bank (liability)

1. Adjusted cash in bank balance

What is the amount of the suspected ash shortage?

11. Information pertaining to Ana Company appears below.

Common stock P1,200,000

Additional information is as follows:

1. What is the total collection from sales?

Balances as of January 1, 2021

Balance per bank statement 20,000,000

Cash on hand P 500,000

Cash on hand includes the following items:

Currency and coins P 2,000

2. Petty cash fund

3. BPI current account

4. Cash and cash equivalents

Demand deposit account 2,000,000

Additional information follows:

3. How much is the loss from Bank X?

Balance per bank statement 2,100,000

Balance per book 2,372,000

August data are as follows:

2. What is the amount of deposit in transit on August 31, 2021?

3. What is the adjusted cash in bank on August 31?

Accounts known to be worthless P 37,500

Based on the above information, determine the adjusted balance of following:

Amounts estimated to be uncollectible P 1,800,000

Credit sales during 2021 P21,000,000

Accounts receivable, net of allowance for

1. Doubtful accounts expense for 2021

Allow for D.A.

1. What is the cost of goods? BEG INVT 0

Accounts receivable P3,600,000

During 2021, transactions relating to the accounts were as follows:

Sales on account, 38,400,000.

2. The allowance for doubtful accounts as of December 31, 2021 is

3. The net realizable value of accounts receivable as of December 31, 2021 is

1. What is the carrying amount of the note receivable on December 31,

1. What is the present value of the note on December 31, 2019?

2. What is the amount of discount on notes receivable on December 31, 2019?

3. What is the amount of discount amortized during December 31, 2021?

2. What is the carrying amount of note on December 31, 2019?

1. How much should Jerome receive from the bank?

1. Scotia Bank, the lender, has a carrying amount of

Principal Amount 8,000,000

1. What is the carrying amount of the loan receivable on January 1, 2019?

1. The carrying amount of the loan as of January 1, 2021 is

4. The carrying amount of the loan as of December 31, 2021 is

Subsequent measurement: Amortized cost

3. How much is the interest income for the year 2022? 6%

Accounts receivable, January 1 1,920,000

Total sales 7,200,000 Accounts Receivable

On January 31, 2021, the entity sold Security R for P3,500,000.

Security Cost Market value

Hurontario Company P1 per share dividend

Fair values of the securities at December 31, 2020, were as follows: