1
Financial
Accounting pt.
1&2
Submitted by:
Terren, Jerome Carl B.
( BSA 2-1 )
2
Cash
1. Cash in bank balance of Eva Co. on January 1,2017 was P70,000 representing 35% paidup Capital of its authorized share capital of P200,000. During the year you ascertained
the following postings to some accounts, as follows:
Debit
Credit
Petty cash fund
Accounts receivable trade
Subscription receivable
Delivery equipment
Accounts payable trade
Bank loan
Accrued expenses
Subscribed share capital
Unissued share capital
Authorized share capital
Sales
Purchases
Expenses (including depreciation of P5,000and accrued
expenses of P1,500)
P2,000
450,000
60,000
50,000
280,000
35,000
P290,000
50,000
430,000
80,000
1,500
60,000
130,000
200,000
450,000
430,000
90,000
Cash in bank balance at December 31, 2016 was
a.
b.
c.
d.
P41,500
P33,000
P34,500
P39,500
Answer: D
Cash in bank balance, beginning
Establishment of petty cash fund
Collection of trade accounts receivable
Collection of subscriptions receivable
Purchase of delivery equipment
Payment of accounts payable
Bank loan obtained
Payment of bank loan
Payment of operating expenses (90,000 – 1,500 – 5,000)
Cash in bank balance, end
P70,000
(2,000)
290,000
50,000
(50,000)
(280,000)
80,000
(35,000)
(83,500)
P39,500
2. The following bank reconciliation is presented for Romeo Inc. for the month of July, 2016:
3
Balance per bank statement, 7/31
Add deposits in transit
Total
Less: Outstanding checks
Bank credit recorded in error
Balance per books, 7/31
P180,000
40,000
P220,000
P 60,000
10,000
70,000
P150,000
Data per bank statement for the month of August, 2016 follow:
August deposits, including note for P50,000 collected in behalf of Romeo Inc. P275,000
August disbursements (including NSF for P35,000 and service charges
of P1,500.)
220,000
All items that were outstanding as of July 31 cleared through the bank in August, including the
bank credit. In addition, P25,000 in checks were outstanding and deposits of P35,000 were in
transit as of August 31, 2016.
What is the cash receipts per books during August?
a. P220,000
b. P205,000
c. P195,000
d. P185,000
Answer: A
August deposits per bank statement
Deposit in transit at August 31
Deposit in transit at July 31
Note collected by bank in behalf of Lily Company
Cash receipts per books during August
P275,000
35,000
(40,000)
(50,000)
P220,000
3. What is the cash disbursements per books during August?
a. P138,500
b. P126,800
c. P135,000
d. P133,500
Answer: A
August disbursements per bank statement
Outstanding checks at August 31
Outstanding checks at July 31
Erroneous bank credit in July corrected in August
P220,000
25,000
(60,000)
(10,000)
4
NSF check
Service charge by bank
Cash disbursements per books during August
(35,000)
(1,500)
P138,500
4. What is the unadjusted cash balance per ledger at August 31, 2016?
a. P230,000
b. P231,500
c. P228,500
d. P250,050
Answer: B
Balance per books at July 31
Cash receipts per books
Cash disbursements per books
Unadjusted cash balance per books at August 31
P150,000
220,000
(138,500)
P231,500
5. What is the correct cash balance at August 31, 2016?
a. P235,000
b. P245,000
c. P230,000
d. P225,000
Answer: B
Unadjusted bank statement balance
Outstanding checks
Deposits in transit
Correct cash balance at August 31
P235,000
(25,000)
35,000
P245,000
Receivables
On January 1, 2016, Squander Company sells its machinery with a carrying value of P160,000.
The company receives a non-interest-bearing note due in 3 years with a face amount of
P200,000. 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%:
Present value of 1 for 3 periods
0.71178
Present value of an ordinary annuity of 1 for 3 periods
2.40183
5
1.
The gain or loss on the sale of equipment is:
a.
b.
c.
d.
P 40,000
P122
P0
(P 17,644)
Answer: D
Sale price (P200,000 x 0.71178)
Carrying amount of machinery
Loss on sale of machinery
2.
The discount on notes receivable is:
a.
b.
c.
d.
P 57,644
P 40,000
P 39,878
P0
Answer: A
Face Value of Note
Present Value of Note
Discount on notes receivable
3.
P 142,356
(160,000)
(P 17,644)
P 200,000
(142,356)
P 57,644
The discount amortization at the end of the first year using the effective-interest amortization
is:
a.
b.
c.
d.
P 17,083
P 19,133
P 21,428
P 36,216
Answer: A
Discount amortization (P142,356 x 12%)
P 17,083
4. The Allowance for Doubtful Accounts has a debit balance of P1,000 at the end of the year
(before adjustment), and uncollectible accounts expense is estimated at 2% of net sales. If net
sales are P600,000, the amount of the adjusting entry to record the provision for doubtful
accounts is:
a.
b.
c.
d.
P1,000
P13,000
P11,000
P12,000
Answer: B
Allowance for doubtful accounts (P600,000 x 2%)
P12,000
6
5. The following were taken from Reyes Tacandong and Company’s unadjusted trial balance as of
December 31, 2013
Debit
Accounts Receivable
Allowance for Uncollectible Accounts
Credit
1,000,000
8,000
Net Credit Sales
3,000,000
Reyes Tacandong and Company estimates that 3% of the gross accounts receivable will become
uncollectible. What is the bad debt expense at December 31, 2013?
a.
b.
c.
d.
90,000
38,000
20,000
22,000
Answer: B
Bad Debt Expense(P1,000,000 x 3%) + P8,000]
P38,000
Inventories
1. On April 15 of the current year, a fire destroyed the entire uninsured inventory of a retail store.
The following data are available:
Sales, January 1 through April 15
Inventory, January 1
Purchases, January 1 through April 15
Markup on cost
The amount of the inventory loss is estimated to be
a.
b.
c.
d.
$60,000.
$30,000.
$75,000.
$50,000.
Answer: A
$300,000
50,000
250,000
25%
7
Inventory – beg
Purchases
Sales ( P 300,000 / 1.25 )
Inventory- end
P 50,000
250,000
P 60,000
P 60,000
2. Crossings Company regularly buys merchandise from Best Company and is allowed trade
discounts of 20% and 10% from the list price. Crossings made a purchase on March 20, 2015,
and receive an invoice with a list price of $150,000, a freight charge of $2500, and payment
terms of net 30 days. What is the total cost of merchandise purchase?
a.
b.
b.
c.
$105,500
$110,500
$114,500
$109,000
Answer: B
Invoice price (150,000 x 0.80 x 0.90)
Freight charge
Total cost of merchandise purchase
$108,000
2,500
$110,500
3. Jane, Inc. had 10,200 units on April 30, 2015, based on physical count of goods on that date. The
following items have not yet been recorded as purchases and sales as of April 30.
No.
Transaction
Terms
Number of units
1
Purchase
FOB shipping point
250
2
Purchase
FOB destination
300
3
Sale
FOB shipping point
650
4
Sale
FOB destination
500
Items 1-4 were shipped by the seller April 30, 2015 and received by the buyer May 5, 2015.
How many units should be considered as inventory at the end of April 2015?
a. $12,500
b. $11,000
c. $10,950
d. $11,350
8
Answer: A
Reported units on April 30, 2013
$10,200
Adjustments:
No. 1 item – Purchased FOB shipping point still
in transit not included in purchases
250
No. 3 item – sold FOB destination still in transit
not included in inventory
500
Correct inventory quantity
$10,950
4. The Dechavez Company reported the following inventory figures at the end of each year:
Lower of cost and NRV
Cost FIFO
12/31/15
$600,000
660,000
12/31/14
$480,000
500,000
Sales
Purchases
Selling expenses
Administrative expenses
Year Ended
12/31/15
12/31/14
$3,200,000
$2,900,000
1,400,000
1,200,000
450,000
330,000
300,000
310,000
12/31/13
$300,000
380,000
Determine the profit or loss for the years ended December 31, 2013 and 2012 using Direct
Method
2013
2012
a. $1,170,000
$1,240,000
b. $1,040,000
$1,360,000
c. $1,280,000
$1,430,000
d. $1,130,000
$1,320,000
Answer: A
The profit is computed as follows:
Sales
Cost of goods sold
Gross profit
Selling expenses
General and administrative expenses
2013
P3,200,000
(1,280,000)
P1,920,000
(450,000)
(300,000)
2012
P2,900,000
(1,020,000)
P1,880,000
(330,000)
(310,000)
9
Profit
P 1,170,000
P 1,240,000
5. The president of HPL Inc. wants to know the effect of different inventory costing methods on
the financial statements. For the purpose of comparison of some popular inventory costing
methods, the following data was selected.
Cash balance on January 1, 2013
Retained earnings January 1, 2013
Inventory on January 1, 2013
Income tax rate
$14,000
$20,000
8,000 units × $6 $48,000
30%
HPL Inc. sold 10,000 units for $240,000 during the year 2013. The total purchases were 12,000
units @ $8 each and the total operating expenses were $25,000 during this period. A periodic
costing method is used.
What is the ending balance of the inventory under the LIFO method?
a. $64,000
b. $54,000
c. $48,000
d. $45,000
Answer: A
Inventory
( 2,000 x P8 )
( 8,000 x P8 )
Inventory – end
P 16,000
48,000
P 64,000
Investment
On January 2,2014 ,Kristine Company purchased Bolagdan Company , 9% bonds with a
face value of P4,000,000 and P3,670,000. Kristine Company intends to collect the contractual
cash flows from the bonds ,and as such the instruments were designated as Held for collection
and were measured at amortized cost .The effective interest rate on this investment is 10%. The
bonds are dated January 1,2014 and mature on December 31,2023. The bonds pay interest semi
-annually on June 30 and December 31. Kristine’s accounting year is the calendar year.
On November 30,2016 , P1800,000 of the bonds were sold at 98 plus accrued interest .As a
result of the change in Kristine’s business model for this portfolio of investment ,Kristine
reclassified the portfolio as at fair value through profit or loss.
10
The fair value of the bonds was 98 on December 31,2014 , 96 on December 31,2015 ,and 98.5 at
December 31,2016.
1. What is Kristine’s Interest Revenue for the year ended December 31,2014 ?
a. P376,400
b. P370,000
c. P380,000
d. P386,400
Answer: A
Interest Date
9% Interest
Paid
10% Effective
Interest
Discount
Amortization
Jan. 1 ,2014
Amortized Cost
,end
P3,760,000
June 30 ,2014
P180,000
188,000
8,000
3,768,000
December 31,2014
P180,000
188,400
8,400
3,776,400
Interest Revenue (P188,000 + P188,400)
P376,400
2. At what amount should this investment be presented on December 31,2014 ,statement of
Financial Position ?
a. P3,768,000
b. P3,776,400
c. P3,785,220
d. P3,760,000
Answer: B
Kristine Company
Interest Date
9% Interest
Paid
10% Effective
Interest
Discount
Amortization
Jan. 1 ,2014
Amortized Cost
,end
P3,760,000
June 30 ,2014
P180,000
188,000
8,000
3,768,000
December 31,2014
P180,000
188,400
8,400
3,776,400
3. What amount of Financial Asset shall be presented as part of current assets on December 31
,2015 as a result of the above statement ?
11
a.
b.
c.
d.
P3,776,400
P3,794,481
P0
P3,760,000
Answer: C
NO CURRENT ASSET SHALL BE REPORTED.
4. What amount of gain/loss shall be recognized upon sale of the securities at November 30,2016 ?
a.
b.
c.
d.
P48, 279
P48, 000
P22, 000
P44, 000
Answer: A
Selling Price on Nov. 30(1.8 M * 98%)
Carrying amount
10,210*1.8/4*5/6
Gain on Sale on Nov . 30
P1,764,000
1,711,892
3,829
(1,715,721)
P 48,279
5. At what amount should the investment be shown on December 31,2016 statement of financial
position?
a. P2, 552, 000
b. P2, 884, 000
c. P2, 000, 000
d. P2, 167,000
Answer: D
Investment – December 31, 2016 (P2,200,000 *.985)
P2,167,000
Property, Plant and Equipment
1. On March 1, 2017, Veronica Company purchased a machine for P565,000 that was placed in
service on April 30, 2017. Veronica incurred additional costs for this machine, as follows:
shipping cost P11,500, installation cost P30,000 and testing cost P54,600.
In Veronica’s December 31, 2017 balance sheet, the machine’s cost should be reported at
a. P565,000
b. P595,000
c. P606,500
d. P661,100
Answer: D
Machine
P 565,000
12
Shipping Cost
Installation Cost
Testing Cost
Total Cost of Machine
11,500
30,000
54,600
P 661,100
2. To save transportation costs, Xantia acquired its needed equipment in exchange of its inventory
located in the supplier’s business place. The equipment acquired has cash price of P650,000. The
inventory of Xantia has cost of P550,000, and Xantia paid P80,000 cash for the difference in fair
value of the two assets in exchange. In the books of Xantia, the exchange is to be accounted as
resulting to what amount?
a. gain of P20,000
b. loss of P20,000
c. gain of P30,000
d. loss of P30,000
Answer: A
Cost of Equipment
P 650,000Less: Cost of Inventory
P 550,000Additional cash
80,000( 630,000-)
Gain on Exchange
P 20,0003. A machine was purchased for P 8,000,000 on January 1, 2014. It has an estimated useful life of
8 years and a residual value of P 800,000. Depreciation is being computed using the sum-ofthe-years’-digits method.
A. What amount is Accumulated Depreciation for this machine at the end of 2015?
a.
b.
c.
d.
P 1,600,000
P 1,400,000
P 900,000
P3,000,000
Answer: D
Sum of the Years ( 8(9) / 2 )
36
Depreciable Amount (P 8,000,000 – 800,000 )
P7, 200,000
Depreciation for 2014 (8/36 x P 7,200,000 )
Depreciation for 2015 (7/36 x P 7, 200,000 )
Accumulated Depreciation
P 1,600,000
1,400,000
P 3,000,000
B. What amount should be shown for this machine, net of accumulated depreciation, in the
company’s December 31, 2015 balance sheet?
a.
b.
c.
d.
P 4,200,000
P 5,000,000
P 6,300,000
P 6,600,000
Answer: B
13
Cost
P 8,000,000
Accumulated Depreciation
( 3, 000,000)
Carrying Amount at 12/31/15
P 5,000,000
4. Kagura Co. and Miya Co. are fuel oil distributors. To facilitate the delivery of oil to their
customers, Kagura and Miya exchanged ownership of 1,200 barrels of oil without physically
moving the oil. Kagura paid Miya P20,000 to compensate for a difference in the grade of oil. On
the date of the exchange, cost and market values of the oil were as follows:
Cost
Market values
Kagura Co.
P100,000
130,000
Miya Co.
P126,000
150,000
In Miya’s income statement, what amount of gain should be reported from the exchange of the
oil?
a. P0
b. P3,200
c. P20,000
d. P24,000
Answer: B
Assets received ( P 130,000 + 20,000 )
Assets given up
Total Gain
P 150,000
( 126,000)
P 24,000
Gain recognized ( 20,000 / 150,000 x 24,000 )
P
3,200
5. Eudora, Inc., a clothing manufacturer, purchased a sewing machine for P 10,000 on July 1, year
2. The machine had a ten-year life, a P 500 salvage value, and was depreciated using the
straight-line method. On December 31, year 4, a test for impairment indicates that the
undiscounted cash flows from the sewing machine are less than its carrying value. The
machine’s actual fair value on December 31, year 4 is P 3,000. What is Eudora’s loss on
impairment on December 31, year 4?
a. P 6,500
b. P 4,750
c. P 4,625
d. P 4,150
Answer: C
Initial cost of Machine
Less: Salvage Value
Depreciable Amount
Estimated Useful Life
Depreciation per year
Years passed
P 10,000
(
500)
P 9,500
10
P
950
x
2.5
14
Accumulated Depreciation
Cost of the Machine
Less: Accumulated Depreciation
Carrying Amount
Actual Fair Value
Loss on Impairment
P
2, 375
P 10, 000
( 2, 375 )
P 7, 625
( 3,000 )
P 4, 625
Intangible Assets
On January 2, 2015, Amsterdam Enterprises, Inc. developed a new machine for manufacturing
baseballs. Because the machine is considered very valuable, the company had it patented. The
following expenditures were incurred in developing and patenting the machine in 2015:
Purchase of special equipment (Cost was P600,000)
recoverable amount after development of the new machine
P460,000
Research salaries and fringe benefits for engineers and scientists
51,300
Costs of testing prototype
70,800
Fees paid to Philippine Patent Office
7,500
Drawings required by the patent office to be filed with patent application
14,100
Legal costs of filing for patent
38,100
Amsterdam elected to amortize the patent over ten years. Full year amortization is taken up in
the year of acquisition. At January 2, 2017, Amsterdam paid P72,000 to successfully defend the patent in
an infringement suit. On January 3, 2018, Amsterdam determined that the remaining estimated useful
life of the patent was five years.
Compute for:
1. Research & Development Expense based on the foregoing data.
a. P191,300
b. P280,400
c. P262,100
d. P294,100
2. Patent carrying value at December 31,2016.
a. P47,760
b. P48,600
c. P50,000
d. P58,700
15
3. Amortization expense for the patent for the year ended December 31, 2017.
a. P7,980
b. P8,010
c. P8,340
d. P8,358
4. Carrying value of the patent at December 31, 2018.
a. P33,432
b. P49,770
c. P49,800
d. P50,130
(Amsterdam Enterprises, Inc.)
1.
2.
3.
4.
Answer: C
Special equipment (600,000 – 460,000)
Research salaries
Costs of testing prototype
R & D Expense
Answer: A
Fees paid to Phil. Patent Office
Drawings required by the patent office
Legal costs of filing patent
Patent cost, January 1, 2010
Less amortization of patent for years 2010 and 2011
(59,700/ 10) x 2 yrs.
Patent carrying value, December 31, 2011
P140,000
51,300
70,800
P262,100
P 7,500
14,100
38,100
P 59,700
11,940
P 47,760
Answer: D
Patent carrying value at December 31, 2012
59,700 x 7/10
Remaining estimated useful life at January 1, 2013
Amortization expense for year 2013
P 41,790
÷
5
P 8,358
Answer: A
Carrying value, January 1, 2013
Less amortization expense for 2013
Carrying value, December 31, 2013
P41,790
8,358
P33,432
5. ToGo Company previously purchased for P4,000,000 a trademark for a very successful coffee
drink it markets under the name of Cofiti-ormi. The trademark was determined to have an
indefinite life. A competitor recently introduced a product that is in direct competition with the
Cofiti-ormi product, thus, suggesting the need for an impairment assessment. Data gathered by
16
ToGo suggests that the useful life of the trademark is still indefinite, but the net cash flows
generated by the trademark have been reduced either to P150,000 annually, with a probability
of 80%, or to P300,000, with a probability of 20%. The appropriate risk-free interest rate is 6%.
The appropriate risk-adjusted interest rate is 10%. What is the amount of the impairment loss, if
any, on the trademark?
a. P2,000,000
b. P2,200,000
c. P2,500,000
d. P2,100,000
Answer: B
Carrying value
Recoverable value
150,000/10% = 1,500,000 x 80%
300,000/10% = 3,000,000 x 20%
Impairment loss
P4,000,000
P1,200,000
600,000
1,800,000
P2,200,000
Trade and Other Payables
Jenny Boo engaged into a one-year contract of music recording with Sonny in which the latter
received P700,000 as talent fee. Sonny, however did not honor the contract by not recording a
single song during the one-year contract period. Jenny Boo filed a case against Sonny and
recovered damages as follows:
Recovery of talent fee
P890,000
Liquidated damages for actual cost incurred
P430,000
Actual damages for anticipated profits
P990,000
Moral damages for breach of contract
P310,000
Exemplary damages for breach of contract
P 75,000
Interest on damages
P 79,000
In addition, Jenny Boo is also a sole proprietor of JB Company, a merchandising type of business
reported the following transactions during year 2016:
- Accounts payable, December 1, 2016 balance, P7,430,000
- Cash balance of P3,392,200 on 12/1/16
- Purchased air-conditioners on account amounted to P440,000
17
- Purchased merchandise on account from a vendor amounted to P870,000
- Issued promissory note for purchase of computers amounted to P724,000
1. What amount should be reported as accounts payable as of December 31, 2016?
a. P8,740,000
b. P5,310,000
c. P6,260,000
d. P6,750,000
Answer: A
12/1/16 accounts payable balance
Air-conditioners
Merchandise on account
12/31/16 accounts payable
P7,430,000
440,000
870,000
P8,740,000
2. What is the correct amount of accounts payable as of December 31, 2016, if in the same day the
entity purchased office supplies on account amounted P55,750?
a. P6,450,000
b. P8,795,750
c. P6,750,000
d. P6,260,000
Answer: B
12/1/16 accounts payable balance
Office supplies
Air-conditioners
Merchandise on account
12/31/16 accounts payable
P7,430,000
55,750
440,000
870,000
P8,795,750
3. What amount should be reported as accounts payable on December 31, 2016, if on December 4,
2016, there were goods of different classes such as Advance, Bright, Clear and Fragile that cost
P710,000, P590,000, P552,000 and P456,000 respectively and all of these were all lost in transit,
the goods were shipped FOB seller?
a. P6,500,000
b. P6,450,000
c. P11,048,000
d. P6,260,000
Answer: C
18
12/1/16 accounts payable balance
Class Advance
Class Bright
Class Clear
Class Fragile
Air-conditioners
Merchandise on account
12/31/16 accounts payable
P7,430,000
710,000
590,000
552,000
456,000
440,000
870,000
P11,048,000
4. What is the correct amount of accounts payable as of December 31, 2016, if the entity included
in the balance of the accounts payable the purchase of storing materials on account with the
issuance of promissory note amounting to P270,000?
a. P8,612,000
b. P8,450,000
c. P8,310,000
d. P8,470,000
Answer: D.
12/1/16 accounts payable balance
Storing materials
Air-conditioners
Merchandise on account
12/31/16 accounts payable
P7,430,000
(270,000)
440,000
870,000
P8,470,000
5. What amount should be the December 1, 2016 balance of accounts payable if the given ending
balance of accounts payable was P8,925,000?
a. P7,450,000
b. P7,101,000
c. P7,260,000
d. P7,615,000
Answer: D
12/1/16 accounts payable balance
Air-conditioners
Merchandise on account
12/31/16 accounts payable
Provision and Contingent Liability
Bonds and Notes Payable
P7,615,000
440,000
870,000
P8,925,000
19
On January 1, 2010, MA-EH Co. issued eight year bonds with a face value of P1,000,000 and a
stated interest rate of 6%, payable semi-annually 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%
Present value of 1 for 8 periods at 8%
Present value of 1 for 16 periods at 3%
Present value of 1 for 16 periods at 4%
Present value of annuity for 8 periods at 6%
Present value of annuity for 8 periods at 8%
Present value of annuity for 16 periods at 3%
Present value of annuity for 16 periods at 4%
.627
.540
.623
.534
6.210
5.747
12.561
11.652
1. The present value of the principal is
a. P 534,000
b. P 540,000
c. P 623,000
d. P 627,000
Answer: A
Face Value
PV of 1 factor
PV of the principal
P 1,000,000
.534
P 534,000
2. The present value of the interest is
a. P344,820
b. P349,560
c. P372,600
d. P376,830
Answer: B
Face Value
Interest Rate
Interest
PV of annuity factor
PV of interest
P 1,000,000
x
3%
P 300,000
x 11.652
P 349, 560
3. The issue price of the bonds is
a. P 883,560
b. P 884,820
c. P 889,560
d. P 999,600
Answer: A
PV of the principal
PV of interest
Issue price of the bonds
P 534,000
349,560
P 883,560
20
4. On July 1, year 2, Marseto Corporation borrows P100,000 on a 10%, five-year interestbearing note. At December 31, year 2, the fair value of the note is determined to be
P97,500. Marseto elects the fair value option for reporting its financial liabilities. On its
December 31, year 2 financial statements, what amounts should be presented for this note
for Interest Expense, Note Payable, Gain and loss, respectively?
a. P10,000 P100,000 P0
b. P10,000 P97,500 P2,500
c. P5,000 P97,500 P2,500
d. P0 P97,500 P(7,500)
Answer: C
Interest Expense ( P100,000 x 10% x 6/12)
P 5,000
Note Payable ( fair value )
P 97,500
Gain ( P100,000 – 97,500)
P 2,500
5. On January 1, year 2, Connor Corporation signed a 100,000 noninterest-bearing note due in
three years at a discount rate of 10%. Connor elects to use the fair value option for
reporting its financial liabilities. On December 31, year 2, Connor’s credit rating and risk
factors indicated that the rate of interest applicable to its borrowings was 9%. The present
value factors at 10% and 9% are presented below.
PV factor 10%, 3 periods
PV factor 10%, 2 periods
PV factor 10%, 1 period
PV factor 9%, 3 periods
PV factor 9%, 2 periods
PV factor 9%, 1 period
.751
.826
.909
.772
.842
.917
At what amount should Connor present the note on the December 31, year 2 balance
sheet?
a.
b.
c.
d.
P75,100
P77,200
P82,610
P84,200
Answer: D
Face Value
PV Factor
Note Payable
P 100,000
x
.842
P 84,200
21
Lease
1. Twice Corporation is in the business of leasing new trucks. As a lessor of trucks, Twice purchased
a new system on December 31,2016. The trucks were delivered the same day (by prior
arrangement) to General Investment Company, a lessee. The corporation accountant revealed
the following relating to the lease transaction:
Cost of system to Twice
P700,000
Estimated useful life and lease term
8 years
Expected residual value (unguaranteed)
P 70,000
Twice’s implicit interest rate
12%
Date of first lease payment
December 31,2016
Additional information is as follows:
(a) At the end of the lease, the system will revert toTwice
(b) General is aware of Twice’s rate of implicit interest
(c) The lease rental consists of equal annual payments
The annual lease payment under the lease is
a. P28,273
b. P70,000
c. P120,732
d. P111,470
Answer: C
Cost of system
Less present value of unguaranteed
residual value (70,000 x 0.4039)
Net investment to be recovered
Divide by the PV of annuity due factor
Annual lease payment
P700,000
28,273
671,727
/ 5.5638
P120,732
2. The total financial revenue to be earned by the lessor over the lease term is
a. P1,035,856
b. P335,856
c. P350,000
d. P671,727
Answer: B
Gross Investment in the lease:
Minimum lease payment (P120,732 x 8)
Unguaranteed residual value
P965,856
70,000
P1,035,856
22
Net investment in the lease:
PV of minimum lease payments
PV of unguaranteed residual value
Total unearned interest income
671,727
28,273
700,000
P 335,856
3. The interest income to be recognized by the lessor in 2017 is
a. P120,732
b. P100,000
c. P98,488
d. P87,500
Answer: C
Cost of System
Annual lease payment
Total
Interest rate
Interest income
P 700,000
( 120,732)
P 820,732
x
12%
P 98,488
4. On December 1, 2013, Bugritz Corporation leased office space for 10 years at a monthly rental
of P100,000. On that date, Tubolz paid the landlord the following amounts:
Rent deposit
First month's rent
Last month's rent
Installation of new walls and offices
P 100,000
100,000
100,000
550,000
P850,000
The entire amount of P850,000 was charged to rent expense in 2013. What amount should
Bugritz have charged to expense for the year ended December 31, 2013?
a.
b.
c.
d.
P90,000
P100,000
P104,583
P550,000
Answer: C
First month’s rent
Installation of new walls and offices
( 550,000 / 10 x 1/12 )
Rent Expense
P 100,000
4,583
P 104, 583
5. Taray Co. manufactures equipment that is sold or leased. On December 31, 2011, Taray leased
equipment to Dalton for a five-year period ending December 31, 2016, at which date ownership
of the leased asset will be transferred to Dalton. Equal payments under the lease are
Php530,000 (including Php30,000 executory costs) and are due on December 31 of each year.
23
The first payment was made on December 31, 2011. Collectibility of the remaining lease
payments is reasonably assured, and Taray has no material cost uncertainties. The normal sales
price of the equipment is Php870,000, and cost is Php700,000. For the year ended December 31,
2011, what amount of income should Taray realize from the lease transaction?
a.
b.
c.
d.
Php170,000
Php220,000
Php230,000
Php330,000
Answer: A
Sales price
Cost
Income
P 870,000
( 700,000)
P 170,000
Accounting for Income Tax
On January 2013, Maliwanag reported the following data:
Equipment
P 8,000,000
Useful life
8 years
Residual Value
None
Replacement cost after 3 years
P 12,000,000
Pretax Accounting Income
P 10,000,000
Income Tax Rate
30%
The company depreciate the equipment using the straight line method and there are no other
temporary differences at the beginning of the year.
1. What is the deferred tax liability on January 1, 2016 arising from the revalution?
i. P 1,200,000
ii. P 450,000
iii. P 750,000
iv. 0
Answer: C
Equipment
Acc. Depreciation
( 8M x 3/8 )
(12M x 3/8)
Cost
8,000,000
Replacement Cost
12,000,000
Appreciation
4,000,000
4,000,000
4,500,000
1,500,000
3,000,000
24
CA, SV, RS
5,000,000
4,000,000
Deferred Tax Liability ( P 2,500,000 x 30% )
2,500,000
P 750,000
2. What is the current tax expense for the current year?
a. P 2,700,000
b. P 3,000,000
c. P 3,450,000
d. P 3,300,000
Answer: A
Pretax income before depreciation
Depreciation on cost ( P5,000,000 / 5)
Taxable Income
Income Tax rate
Current Tax Expense
P 10,000,000
( 1,000,000)
P 9,000,000
x
30%
P 2,700,000
3. What is the deferred tax liability on December 31, 2016 arising from revaluation?
a. P750,000
b. P450,000
c. P600,000
d. P0
Answer: C
Equipment at replacement cost
Accumulated Depreciation:
January 1, 2016
Depreciation on revalued amount
CA – 12/31/16
Equipment at cost
Acc. Depreciation
January 1, 2016
Depreciation on cost for 2016
Tax Base
CA 12/31/16
Tax Base 12/31/16
Taxable Temporary Difference
Tax Rate
Deferred Tax Liability
4. What is the total tax expense for the current year?
a. P2,550,000
b. P3,000,000
c. P 2,700,000
d. P3,750,000
P 12,000,000
P 4,500,000
1,500,000
P 3,000,000
1,000,000
(6,000,000)
P 6,000,000
P 8,000,000
4,000,000
P 4,000,000
P 6,000,000
4,000,000
P 2,000,000
x
30%
P 600,000
25
Answer: A
Current Tax Expense
Decrease in Deferred Tax Liability
Total Tax Expense
P 2,700,000
( 150,000)
P 2,550,000
5. What is the revaluation surplus on December 31, 2016?
a. P2,500,000
b. P 1,750,000
c. P 1,400,000
d. P2,000,000
Answer: C
Revaluation Surplus – beg
Deferred Tax Liablity
Adj. Bal.
Realization in 2016 ( 1,750,000 / 5)
Revaluation Surplus – end
P 2,500,000
(750,000)
P1,750,000
( 350,000)
P 1,400,000
Employee Benefits
Jerry Co. provides retirement benefits to employees through a funded defined-benefit pension
plan. The company administering the plan provided the following information for the year
ended December 31, 2016:
Plan assets at fair value
P 8,200,000
Accumulated benefit obligation
1,465,000
Pension expense
400,000
Employer's contribution, 12/1/16
260,000
Unrecognized prior service cost
30,000
On December 31, 2016, the accrued/prepaid pension cost account had a debit balance of
P45,000. Assume that the fair value of the plan assets is equal to the market -related asset
value. Prior to 2008, the fair value of plan assets exceeded the accumulated benefit obligation.
1. At December 31, 2017, what is the amount of prepaid pension cost?
a. P95,000
b. P90,000
c. P60,000
26
d. P15,000
Answer: A
Employer’s contribution
Pension Expense
Prepaid pension cost
Pension cost
P 260,000
( 400,000)
45,000
P 95,000
1. In Jerry's December 31, 2017 balance sheet, what is the amount of the minimum pension
liability?
a.
b.
c.
d.
P1,130,000
P5,560,000
P6,735,000
P3,240,000
Answer: C
Accumulated Benefit Obligation
Plan assets at FV
Minimum Pension Liabililty
P 1,465,000
( 8,200,000)
(P 6,735,000)
The following information for Monroe Enterprises is given below:
December 31, 2017
Assets and obligations
Plan assets (at fair value)
P 1,500,000
Market-related asset value
1,160,000
Accumulated benefit obligation
1,680,000
Projected benefit obligation
1,840,000
Amounts to be Recognized
Prepaid/(accrued) pension cost at beginning of year
(32,000)
Pension expense
(165,000)
Contribution
Prepaid/(accrued) pension cost at end of year
216,000
P ( 66,000 )
27
Unrecognized prior service costs
P275,000
Unrecognized gains (net)
(140,000)
2. What is the pension expense that Mantra Enterprises should report for 2017?
a.
b.
c.
d.
P165,000
P180,000
P140,000
P168,000
Answer: A
Pension Expense
P 165,000
3. What is the amount that Mantra Enterprises should report as Intangible Asset—Deferred
Pension Cost as of December 31, 2017?
a.
b.
c.
d.
P114,000
P180,000
P48,000
P0
Answer: A
Accumulated Benefit Obligation
Plan Assets at FV
Deferred Pension cost - beg
Accrued Pension cost
Deferred pension cost – end
P 1,680,000
( 1,500,000)
P 180,000
( 66,000)
P 114,000
4. What is the amount that should be reported as the total liability related to pensions as of
December 31, 2017?
a.
b.
c.
d.
P24,000
P231,000
P48,000
P1,280,000
Answer: B
Total Liability (165,000 + P 66,000)
P231,000
Share Based Compensation
1. On January 1, 2017, Calyx Company granted 10,000 stock options to certain executives. The
options are exercisable no sooner than December 31, 2019, and expire on January 1, 2023. Each
28
option can be exercised to acquire one share of P3.50 par common stock for P8. An option
pricing model estimates the fair value of the options to be P9 on the date of grant. What
amount should Calyx Company recognize as compensation expense for 2017?
a.
b.
c.
d.
P56,000
P70,000
P105,000
P130,000
Answer: C
Stock options
Exercise price
FV price of options
Total
Compensation Expense ( P 315,000 / 3 years )
10,000
x P 3.50
x 9.00
P 315,000
P 105,000
2. On January 1, 2016, Ulysses Company granted 40,000 stock options to certain executives. The
options are exercisable no sooner than December 31, 2018, and expire on January 1, 2021. Each
option can be exercised to acquire one share of P3.50 par common stock for P10. An optionpricing model estimates the fair value of the options to be P9.50 on the date of grant. The
market price of Ulysses’ stock was as follows: January 1, 2016 - P11 & December 31, 2016 - P13.
What amount should Ulysses recognize as compensation expense for 2016?
a.
b.
c.
d.
P110,000
P210,000
P126, 667
P150,000
Answer: C
Stock options
FV of options
Total
Compensation Expense ( P 380,000 / 3 years )
40,000
P
9.50
P 380,000
P 126,667
3. On January 1, 2016, Cecilia Corporation granted its CEO, 150,000 stock appreciation rights,
which are exercisable no sooner than December 31, 2019, and expire on January 1, 2022. On
exercise, the CEO will receive cash for the excess of the stock's market price on the exercise date
over the market price on the grant date. The fair value of Cecilia's SARs was P3 on January 2,
2016, and P5 on December 31, 2016. As a result of the stock appreciation rights, Cecilia
Corporation should recognize compensation expense for 2016 of?
a. P187, 500
b. P130,000
29
c. P230,000
d. P133,000
Answer: A
Stock Appreciation rights
FV of stock appreciation rights
Total
150,000
x
5.00
P 750,000
Total compensation ( P 750,000 / 4 years )
P 187,500
4. On January 2, 2016, Karl Inc. granted Alicia Keys, its president, 300 stock appreciation rights that
are exercisable no sooner than December 31, 2018, and expire on January 1, 2018. On exercise,
Keys will receive cash for the excess of the stock's market price on the exercise date over the
market price on the grant date. The fair value of Keys' SARs was P15 on January 2, 2016, and P18
on December 31, 2016. As a result of the stock appreciation rights, Karl Inc. should recognize
compensation expense for 2016 of?
a.
b.
c.
d.
P3,000
P5,000
P1, 800
0
Answer: C
Stock option rights
FV of SAR
Total
300
P 18
P 5,400
Compensation Expense ( P 5,400 / 3 years )
P 1,800
5. On January 1, 2016, Alabang Travel and Tours granted its division managers 10,000 stock
appreciation rights. The SARs are exercisable no sooner than December 31, 2019, and expire on
January 1, 2023. Upon exercise, the division managers can elect to receive cash or common
stock equal to the excess of the stock's market price on the exercise date over the market price
on the grant date. The fair values of Alabang Travel and Tours's SARs were as follows:
January 1, 2016
P 6.00
December 31, 2016
P 7.00
December 31, 2017
P 11.00
As a result of the stock appreciation rights, Alabang should recognize compensation expense for
2017 of?
a. 0
b. P10,000
30
c. P17,500
d. P20,000
Answer: C
Compensation Expense ( 10,000 x P 7 x ¼ )
P 17,500
Retained Earnings
1. On January 2, year 2, Lake Mining Co.’s board of directors declared a cash dividend of $400,000
to stockholders of record on January 18, year 2, payable on February 10, year 2. The dividend is
permissible under law in Lake’s state of incorporation. Selected data from Lake’s December 31,
year 1 balance sheet are as follows:
Accumulated depletion
Capital stock
Additional paid-in capital
Retained earnings
$100,000
500,000
150,000
300,000
The $400,000 dividend includes a liquidating dividend of
a. $0 b.
b. $100,000
c. $150,000
d. $300,000
Answer: B
Cash dividend
Retained Earnings
Liquidating Dividend
P 400,000
300,000
P 100,000
2. Below are several amounts from Locust Company’s accounting records. Answer the questions
that follow.
Total assets, end of year
Total liabilities, end of year
Capital stock, end of year
Retained earnings, beginning of year
Dividends for the period
Net income
$190,000
30,000
20,000
65,000
15,000
32,000
Calculate the amount of retained earnings at the end of the year.
a.
b.
c.
d.
P82000
P32000
P65000
P75000
Answer: A
RE – beg
Net Income
P 65,000
32,000
31
Dividends
RE – end
(15,000)
P 82,000
3. At December 31, 2014 and 2015, Eagle Company had outstanding 4,000 shares of P100 par
value 12% cumulative, fully participating preference share and 20,000 or P10 par value ordinary
share. At December 31, 2014, dividends in arrears om the preference share were P24,000. Cash
dividends declared in 2015 totaled P108,000.
What are the amounts of dividend per share on the preference and ordinary shares,
respectively?
a.
b.
c.
d.
P20.00 and P1.40
P20.00 and 1.80
P18.00 and P1.40
P18.00 and P1.80
Answer: A
Dividends in arrears
Dividends for preferred shares
Total
P 24,000
48,000
P 72,000
Cash dividend declared
Preferred dividends
Common – dividends
Total
P 108,000
(72,000)
( 24,000)
P 12,000
Preferred
(72,000 + 12,000 x 4/6)
( 80,000 / 4,000 shares)
P 80,000
P 20
Common
( 24,000 + 12,000 x 2/6)
( P28,000 / 20,000 shares)
P 28,000
P 1.40
The Red Velvet Company paid a total of P610,000 dividends in 2015 to its 250,000 shares of P10
par ordinary share and 20,000 shares of 9% P100 par preference share.
Dividends of P50,000 were in arrears at January 1, 2015.
Compute the total amount of dividends on both preference share capital and ordinary share
capital, assuming
4. Preference is participating up to 14%
32
a.
b.
c.
d.
P12.44; P1.24
P15.44; P9.24
P13.44; P1.50
P10.44; P2.24
Answer: A
Preference
Current dividends:
9% x P2,000,000
9% x P2,500,000
Ordinary
P180,000
P225,000
Excess divided by total par
155,000/4,500,000 = 3.44%, which is
less than the limit of additional 5%;
therefore full excess is prorated.
P155,000 x 2M/4.5M
P155,000 x 2.5M/4.5M
Total
Dividend per share
5.
68,889
P248,889
P12.44
86,111
P311,111
P1.24
Preference is participating up to 12%
a. P10.00; P1.28
b. P12.00; P3.28
c. P12.00; P1.28
d. P13.00; P4.28
Answer: C
2013
Current dividends:
9% x P2,000,000
9% x P2,500,000
Preference
Ordinary
P180,000
P225,000
Excess divided by total par 155,000/4,500,000 = 3.44%,
which exceeds the additional limit of 3%;
therefore, additional to preference is limited to 3%;
remainder goes to ordinary
3% x P2,000,000
P155,000 – 60,000
Total
Dividend per share
60,000
P240,000
P12.00
95,000
P320,000
P1.28
33
Contributed Capital
1. Presented below is information related to Halley Corporation:
Common Stock, P1 par
Paid-in Capital in Excess of Par—Common Stock
Preferred 8 1/2% Stock, P50 par
Paid-in Capital in Excess of Par—Preferred Stock
Retained Earnings
Treasury Common Stock (at cost)
P4,800,000
550,000
2,000,000
400,000
1,500,000
150,000
The total stockholders' equity of Halley Corporation is
a.
b.
c.
d.
P9,100,000
P9,250,000
P7,600,000
P7,750,000
Answer: A
Common stock
Paid-in Capital in Excess of Par—Common Stock
Preferred Stock
Paid-in Capital in Excess of Par—Preferred Stock
Retained Earnings
Treasury stock
Total stockholder’s equity
P4,800,000
550,000
2,000,000
400,000
1,500,000
(150,000)
P9,100,000
2. The total paid-in capital (cash collected) related to the common stock is
a. P4,800,000
b. P5,350,000
c. P5,750,000
d. P5,200,000
Answer: B
Common stock
Paid-in Capital
Total paid-in capital
P4,800,000
550,000
P5,350,000
34
3. Manny Company issued 10,000 shares of its P5 par value common stock having a fair value of
P25 per share and 15,000 shares of its P15 par value preferred stock having a fair value of P20
per share for a lump sum of P520,000. How much of the proceeds would be allocated to the
common stock?
a. P54,167
b. P236,364
c. P270,833
d. P276,250
Answer: B
Common stock (10,000 shares × P25)
Preferred stock (15,000 shares × P20)
P250, 000
300, 000
P550,000
Allocated to Common Stock (P250,000 / P550,000) × P520,000
P236,364
4. Berry Corporation has 50,000 shares of P10 par common stock authorized. The following
transactions took place during 2012, the first year of the corporation’s existence: Sold 10,000
shares of common stock for P18 per share. Issued 10,000 shares of common stock in exchange
for a patent valued at P200,000. At the end of the Berry’s first year, total paid-in capital
amounted to
a. P80,000
b. P180,000
c. P200,000
d. P380,000
Answer: D
Common Stock (10,000 shares × P18) + P200,000
P380,000
5. Gladys Company issues 6,000 shares of its P5 par value common stock having a fair value of P25
per share and 9,000 shares of its P15 par value preferred stock having a fair value of P20 per
share for a lump sum of P312,000. The proceeds allocated to the common stock is
a. P32,500
b. P141,818
c. P162,500
d. P170,182
Answer: B
Common Stock
( 6,000 x P 25)
Preferred Stock
P 150,000
35
( 9,000 x P20)
Allocated to common stock ( 150,000 x 312,000 / 330,000 )
180,000
P 330,000
P141,818