REVIEWER IN INTERMEDIATE ACCOUNTING
Problem 169 (IAA)
Vanity Company showed the following balance at year-end:
Copyright
Deposit with advertising agency used to promote goodwill
Bond sinking fund
Excess of cost over fair value of identifiable net
Assets of acquired subsidiary
Trademark
500,000
400,000
1,000,000
4,000,000
900,000
What total amount should be reported as intangible assets?
a. 1,400,000
b. 4,500,000
c. 5,400,000
d. 5,800,000
Problem 170 (IAA)
Alcaraz Company paid P5,000,000 to purchase intangible assets with the following fair value:
Internet domain name
Order backing
In-process research and development
Operating permit
1,500,000
1,200,000
2,400,000
900,000
In addition, the entity spent P2,000,000 to run an advertising campaign to boost its image in the
local community.
What amount should be recognized as cost of the in-process research and development?
89
a. 2,400,000
c. 2,800,000
b. 2,000,000
d.
0
Problem 171 (AICPA Adapted)
Tobin Company incurred P1,600,000 of research and development costs to develop a product
For which a patent was granted at the beginning of current year.
Legal fee and other costs associated with registration of the patent totalled P300,000. At the
year-end, the entity paid P450,000 for legal fees in a successful defense of the patent.
What is the total amount that should be capitalized for the patent at year-end?
a.
b.
750,000
300,000
c. 2,050,000
d. 2,350,000
Problem 172 (IAA)
Harmonious Company acquired a patent for a drug with a remaining legal and useful life of six
years on January 1,2014 for P5,400,000.
On January 1, 2016, a new patent is received for an improved version of the same drug. The
new patent has a legal and useful life
l ife of twenty years.
What is the amortization expense for 2016?
a. 900,000
b. 200,000
c. 180,000
d. 300,000
Problem 173 (IAA)
Golden Company developed a new machine for manufacturing baseballs. Because the machine
is considered very valuable, the entity had it patented.
The following expenditures were incurred in developing and patenting the machine:
Purchase of special equipment to be used solely for
Development of the new machine
Research salaries and fringe benefits for engineers
And scientists
Cost of testing prototype
Legal cost for filing of patent
Fees paid to government patent office
Drawings required by patent office to be filed with
Patent application
1,800,000
200,000
250,000
150,000
50,000
40,000
1. What amount should be capitalized as cost of patent?
a. 240,000
b. 540,000
c. 740,000
d. 200,000
2. What amount of research and development cost should be expensed in the current
year?
a. 2,250,000
c. 2,490,000
b. 2,000,000
d. 1,800,000
90
Problem 174 (AICPA Adapted)
On January 1, 2016, Boracay Company bought a trademark from Lamitan Company for
P3,000,000. The entity retained an independent consultant who estimated the trademark’s life
to be indefinite. The carrying amount of the trademark was P1,500,000 on the books of Lamitan
Company.
On December 31, 2016, what is the carrying amount of the trademark?
a. 3,000,000
b. 1,500,000
c. 2,850,000
d.
0
Problem 175 (IAA)
On January 1, 2016, Aim Company showed patent of P1,920,000 with related accumulated
amortization of P240,000. The patent was purchased on January 1, 2014 at which date the legal
life is 16 years.
On January 1, 2016, the useful life of the patent was determined to be only 8 years from the
date of acquisition.
On January 1, 2016, in connection with the purchase of a trademark from Cat Company, the
parties entered into a noncompetition agreement and a consulting contract.
Aim Company paid Cat Company P800,000, of which three-fourths was for the trademark, and
one-fourth was for the Cat Company’s agreement not to compete for a five -year period in the
line of business covered by the trademark. Aim Company considered the life of the trademark
to be indefinite.
Moreover, Aim Company agreed to pay Cat Company P50,000 annually on January 1 of each
year for 5 years.
1. What is the carrying amount of intangible assets on January 1, 2016?
a. 2,280,000
b. 2,480,000
c. 1,880,000
d. 1,680,000
2. What is the total amortization of intangible assets for 2016?
a. 280,000
b. 440,000
c. 320,000
d. 160,000
Problem 176 (AICPA Adapted)
On January 1, 2016, Hart Company signed an agreement to operate as a franchisee of Ace
Company for an initial franchise fee of P12,000,000.
The same date, Hart Company paid P4,000,000 and agreed to pay the balance in four equal
annual payments of P2,000,000 beginning January 1, 2017.
Hart Company can barrow at 14% for a loan of this type. The present value factors at 14% are as
follows:
Present value of 1 at 14% for four periods
0.59
Present value of an ordinary annuity of 1 at 14% for four periods
2.91
91
What is the acquisition cost of the franchise?
a. 13,520,000
b. 12,000,000
c. 9,820,000
d. 8,720,000
Problem 177 (AICPA Adapted)
Carr Company recently acquired that now has remaining legal life of 40 years. The copyright
initially had a 30-year useful life. An analysis of market trend and consumer habit indicated that
the copyrighted material will generate positive cash flows for approximately 25 years.
What is the remaining useful life over which the entity can amortize the copyright?
a. 25
b. 30
c. 40
d. 0
Problem 178 (IAA )
Java Company purchased an entity for P6,000,000 cash at the beginning of the current year.
The carrying amount and fair value of the assets of the acquire on the date of the acquisitions
are as follows:
Carrying amount
Fair value
Cash
Accounts receivable
Patent
Property, plant and equipment
Property, plant and equipment
50,000
500,000
1,000,000
0
2,000,000
50,000
500,000
1,500,000
250,000
3,000,000
Total
3,550,000
5,300,000
In addition, the acquitee had liabilities totalling P2,000,000 at the time of acquisition. The
acquire had no other separately identifiable intangible assets.
What is the goodwill arising from the acquisition?
a. 2,700,000
b. 2,450,000
c. 4,450,000
d. 700,000
Problem 179 (IAA )
Casanova Company purchased another entity for P500,000 cash. The following carrying amount
and fair value were associated with the items acquired in this business combination:
Carrying amount
Accounts receivable
Inventory
Government contract
Equipment
Short-term payable
2,000,000
1,000,000
0
400,000
(2,000,000)
Net Assets
1,400,000
Fair value
2,000,000
500,000
1,000,000
500,000
(2,000,000)
2,000,000
The fair value associated with the acquired entity ’s government contract is not based on any
92
legal or contractual relationship.
In addition, for obvious reason, there is no open market trading for an intangible of this sort.
What is the goodwill arising from the business combination?
a. 3,000,000
b. 3,600,000
c. 4,000,000
d.
0
Problem 180 (IAA)
Clever Company purchased for P4,000,000 cash all of the outstanding ordinary shares of Sun
Company when Sun’s statement of financial position showed net assets of P3,200,000.
On the dat e of acquisition, Sun’s assets and liabilities had fair value different from the carrying
amount as follows:
Property, plant and equipment, net
Other assets
Long-term debt
Carrying amount
Fair value
5,000,000
500,000
3,000,000
5,750,000
0
2,800,000
What amount should be reported as goodwill in the consolidated statement of financial
position of Clever Company and its wholly-owned subsidiary?
a. 350,000
b. 250,000
c. 750,000
d. 800,000
Problem 181 (IFRS)
Brisbane Company has recently diversified by taking over the operations of Darwin Company at
a cost of P10,000,000.
Darwin manufactures and sells a cleaning cloth called the “Superswipe” which was developed
by Darwin’s highly trained staff.
The unique nature of the coating used on the “Superswipe” has resulted in Darwin Company a
significant share of the South African market.
As a result of the takeover, Brisbane Company acquired the following assets at fair value:
Land and building
Production machinery
Inventory
Accounts receivable
3,200,000
2,000,000
1,800,000
700,000
In addition, Darwin Company owned, but had not recognized, the following:

Trademark – “Superswipe” with fair value of P1,000,000.

Patent – Formula for the special coating with fair valuew3 of P5000,000.
What amount of goodwill should be recognized on the date of acquisition?
a. 2,300,000
b. 1,300,000
c. 1,800,000
d. 800,000
93
Problem 182 (IAA)
At year-end, Bliss Company purchased the net assets of another entity for P6 ,000,000. On the
date of the transaction, the acquire had P2,000,000 of liabilities.
The assets of the acquire at fair value were P3,000,000 for current assets and P6,000,000 for
noncurrent assets.
How should the purchase be accounted for?
a. Retained earnings should be credited for P1,000,000.
b. Gain on bargain purchase should be credited for P1,000,000.
c. The current assets should be reported at P3,000,000 and the noncurrent assets at
P5,000,000.
d. Negative goodwill should be credited for P1,000,000.
Problem 183 (IAA)
East Company is planning to sell the business to new interest. The cumulative net earnings for
the past five years amounted to P5,500,00 including expropriation gain of P500,000.
The fair value of net assets of East Company was P7,500,000. The goodwill is determined by
capitalizing average net earnings at 10%.
1. What is the purchase price of the business?
a. 10,000,000
b. 12,500,000
c. 15,000,000
d. 7,500,000
2. What is the amount to be paid for goodwill?
a. 3,500,000
b. 7,500,000
c. 2,500,000
d. 5,000,000
Problem 184 (AICPA Adapted)
On January 1, 2014, Wayne Company signed an eight-year lease for office space. The entity has
the option to renew the lease for an additional four-year period on or before January 1, 2021.
During January 2016, two years after occupying the leased premises, the entity made general
improvement costing P3,600,000 and having a useful life of ten years.
On December 31, 2016, the entity’s intention as to exercise of the renewal option is uncertain.
What is the depreciation of leasehold improvement for 2016?
a. 300,000
b. 360,000
c. 450,000
d. 600,000
Problem 185 (AICPA Adapted)
On January 1, 2016, Ames Company signed an eight-year lease for office space. The entity has
the option to renew the leave for an additional four-year period on or before January 1, 2023.
During January 2016, the entity incurred the following costs:

P1,200,000 for general improvement to the leased premises with an estimated useful
life of ten years.
94

P500,000 for office furniture and equipment with an estimated useful life of ten years.

P400,000 for moveable assembly line equipment with useful life of 5 years.
On December 31, 2016, the entity’s intention as to exercise of the renewal option is uncertain.
What is the accumulated depreciation of leasehold improvement on December 31, 2016?
a. 292,500
c. 170,000
b. 150,000
d. 212,500
Problem 186 (AICPA Adapted)
On January 1, 2014, Nobb Company signed a 12-year lease for warehouse space. The entity has
an option to renew the lease for an additional 8-year period on or before January 1, 2018.
During January 2016, the entity made substantial improvement to the warehouse. The cost of
the improvement was P540,000 with an estimated useful life of 15 years.
On December 31, 2016, the entity intended to exercise the renewal option.
On December 31, 2016, what is the carrying amount of the leasehold improvement?
a. 486,000
c. 510,000
Historical cost
Replacement cost
Sales price
Net realizable value
Normal profit
28
Product 1
Product 2
Product 2
Product 3
800,000
900,000
1,200,000
550,000
250,000
1,000,000
1,200,000
1,300,000
1,100,000
150,000
700,000
1,000,000
1,250,000
950,000
300,000
500,000
600,000
1,000,000
350,000
300,000
What amount of loss on inventory write down should be included in cost of goods sold?
a.
b.
c.
d.
100,000
200,000
400,000
250,000
Problem 42 (IAA)
On the night of September 30,2016, a fire destroyed most of the merchandise inventory of
Sonia Company. All goods were completely destroyed except for partial damaged goods that
normally sell for P100,000 and that had an estimated net realizable value of P25,000 and
undamaged goods that normally sell for P60,000.
Inventory, January 1
Net purchases, January 1 through September 30
Net sales, January 1 through September 30
660,000
4,240,000
5,600,000
Total
2015
2014
2013
Net sales
Cost of goods
9,000,000
6,750,000
5,000,000
3,840,000
3,000,000
2,200,000
1,000,000
710,000
Gross income
2,250,000
1,160,000
800,000
290,000
What is the estimated amount of fire loss on September 30, 2016?
a.
b.
c.
d.
700,000
615,000
630,000
580,000
Problem 42 (AICPA Adapted)
On December 31,2016, Empress Company had a fire which completely destroyed the goods in
process inventory. After the fire a physical inventory was taken.
The raw materials were valued at P600,000, the finished goods at P1,000,000 and factory
supplies at P100,000 on December 31,2016.
The inventories on January 1,2016 consisted of the following:
Finished goods
Goods in process
Raw materials
Factory supplies
1,400,000
1,000,000
300,000
400,000
29
Data for the current year
Sales
Purchases
Freight in
Direct labor
Manufacturing overload – 50% of direct labor
Average gross profit rate on sales
3,000,000
1,000,000
100,000
800,000
?
30%
1. What is the cost of goods sold?
a.
b.
c.
d.
2,100,000
1,700,000
1,900,000
2,300,000
2. What is the cost of goods manufactured?
a.
b.
c.
d.
2,500,000
1,700,000
3,100,000
2,300,000
3. What is the estimated cost of the goods in process on December 31,2016 that were
completely destroyed by fire?
a.
b.
c.
d.
1,300,000
2,100,000
2,000,000
1,700,000
Problem 43 (IAA)
Moderate Company provided the following information:
June
Sales on account
Cash sales
7,200,000
720,000
July
7,360,000
800,000
August
7,600,000
1,040,000
All merchandise is marked up to sell at invoice cost plus 20%. Inventory at the beginning of each
month is 30% of that month’s cost of goods sold.
1. What is the cost of goods sold for June?
a.
b.
c.
d.
5,760,000
6,000,000
6,080,000
6,600,000
2. What is the amount of purchases for July?
a.
b.
c.
d.
6,528,000
8,304,000
6,800,000
6,920,000
30
Problem 44 (AICPA Adapted)
On April 30, 2016, a fire damaged the office of Amaze Company. The following balances were
gathered from the general ledger on March 31, 2016:
Accounts receivable
Inventory – January 1
Accounts payable
Sales
Purchases

920,000
1,880,000
950,000
3,600,000
1,680,000
An examination of the April bank statement and cancelled checks revealed checks
written during the period April 1 – 30 as follows:
Accounts payable as of March 31
April merchandise shipments
Expenses
240,000
80,000
160,000
Deposits during the same period amounted to P440,000 which consisted of collections
from customers with the exception of P20,000 refund from a vendor for merchandise
returned in April.



Customers acknowledged indebtedness of P1,040,000 at April 10. Customers owed
another P60,000 that will never be recovered. Of the acknowledged indebtedness,
P40,000 may prove uncollectible.
Correspondence with suppliers revealed unrecorded obligations at April 30, of P340,000
for April merchandise shipment, including P100,000 for shipments in transit on that
date.
The average gross profit rate is 40%.
Inventory with a cost of P260,000 was salvaged and sold for P140,000. The balance of
the inventory was a total loss.
1. What is the amount of sales up to April 30?
a. 4,200,000
c. 4,140,000
b. 4,220,000
d. 4,160,000

2. What is the total number of purchases up to April 30?
a. 1,760,000
c. 2,020,000
b. 2,100,000
d. 1,680,000
3. What is the inventory on April 30?
a. 1,476,000
b. 1,464,000
c. 1,440,000
d. 1,428,000
4. What is the fir loss to be recognized on April 30?
a. 1,440,000
c. 1,340,000
b. 1,300,000
d. 1,200,000
Problem 45 (IFRS)
Forester Company provided the following assets in a forest plantation and firm:
Freestanding trees
Land under trees
5,000,000
600,000
Total current liabilities
16,000,000
1. What amount should be reported as total current assets on December 31, 2016?
a.
b.
c.
d.
19,040,000
20,040,000
20,050,000
24,040,000
2. What amount should be reported as total current liabilities on December 31, 2016?
a.
b.
c.
d.
19,000,000
16,000,000
15,500,000
15,000,000
Problem 3 (AICPA Adapted)
Mint Company provided the following account balances on December 31, 2016 which had been
adjusted except for income tax expense:
Cash
Accounts receivable
Cost in excess of billings on long-term contracts
Billings in excess of cost on long-term contracts
Prepaid taxes
Property, plant, and equipment, at carrying amount
Note payable – noncurrent
Share capital
Share premium
Retained earnings unappropriated
2
600,000
3,500,000
1,600,000
700,000
450,000
1,510,000
1,620,000
750,000
2,030,000
900,000
Retained earnings restricted for note payable
Earnings from long-term contracts
Cost and expenses
160,000
6,680,000
5,180,000
All receivables on long-term contracts are considered to be collectible within 12 months. During
the year, estimated tax payments of P450, 000 were charged to prepaid taxes. The entity has
not recorded income tax expense. The tax rate is 30%.
On December 31,2016, what amount should be reported as
1. Total retained earnings?
a. 1,950,000
b. 2,110,000
c. 2,400,000
d. 2,560,000
2. Total noncurrent liabilities?
a. 1,620,000
b. 1,780,000
c. 2,320,000
d. 2,480,000
3. Total current accounts?
a. 5,000,000
b. 4,100,000
c. 5,700,000
d. 6,150,000
4. Total shareholders’ equity?
a. 2,940,000
b. 2,780,000
c. 4,890,000
d. 4,730,000
Problem 4 (AICPA Adapted)
Vigor Company provided the following information for the current year:
Net accounts receivable at January 1
Net accounts receivable at December 31
Account receivable turnover
Inventory at January 1
Inventory at December 31
Inventory turnover
900,000
1,000,000
5 to 1
1,100,000
1,200,000
4 to 1
What is the gross margin for the current year?
a.
b.
c.
d.
150,000
200,000
300,000
400,000
3
Problem 5 (AICPA Adapted)
Kay Company provided the following information for the current year.
Increase in raw materials inventory
Decrease in goods in process inventory
Decrease in finished goods inventory
Raw materials purchased
Direct labor payroll
Factory overhead
Freight out
Freight in
What is the cost of goods sold for the current year?
a.
b.
c.
d.
9,950,000
9,550,000
9,250,000
9,150,000
Problem 6 (IAA)
150,000
200,000
350,000
4,300,000
2,000,000
3,000,000
450,000
250,000
Sheraton Company reported the following information for the current year.
Ending goods in process
Depreciation on factory building
Beginning raw materials
Direct labor
Factory supervisor’s salary
Depreciation on headquarters building
Beginning goods in process
Ending raw materials
Indirect labor
Purchases of raw materials
1,000,000
320,000
400,000
1,980,000
560,000
210,000
760,000
340,000
360,000
2,300,000
What is the cost of goods manufactured for the current year?
a.
b.
c.
d.
5,340,000
5,580,000
5,550,000
5,820,000
Problem 7 (PHILCPA Adapted)
Mercury Company showed cost of goods sold of P4, 320,000 in the statement of
comprehensive income after the first year of operations.
The total manufacturing cost comprised the following:
Materials used
Direct labor incurred
Manufacturing overhead
50%
30%
20%
Goods in process at year-end amounted to 10% of the total manufacturing cost.
Finished goods at year-end amounted to 20% of the cost of goods manufactured.
4
What is the amount of the direct labor cost incurred?
a.
b.
c.
d.
1,800,000
2,400,000
3,000,000
5,400,000
Problem 8 (IAA)
Tactful Company reported that the operating expenses other than interest expense for the year
amount to 40% of cost of goods sold but only 20% of sales, Interest expense is 5% of sales.
The amount of purchases is 120% of cost of goods sold. Ending inventory is twice as much as
the beginning inventory, The net income for the year is P560, 000. The income tax rate is 30%?
What is the amount of sales for the year?
a. 2,080,000
b. 1,485,000
c. 2,285,000
d. 3,200,000
Problem 8 (AICPA Adapted)
2. What amount should be reported as allowance for doubtful accounts on December 31,
2016?
a. 110,000
b. 378,000
c. 300,000
d. 478,000
3. What is the net realizable value of account a receivable on December 31,2016?
a.
b.
c.
d.
2,650,000
2,690,000
2,760,000
2,800,000
Problem 22 (AICPAM Adapted)
Sigma Company began operations on January 1, 2015. On December 31, 2015, the entity
provided for doubtful accounts based on 1% of annual credit sales.
On January 1, 2016, the entity changed the method of determining the allowance for doubtful
accounts receivable.
Days past invoice date
Percent uncollectible
0 – 30
31-90
91 – 180
Over 280
1
5
20
80
In addition, the entity wrote off all accounts receivable that were over 1 year old.
14
The following additional information related to the years ended December 31,2016 and 2015.
Credit sales
Collections, including recovery
Accounts written off
Recovery of accounts previously
Written off
2016
2015
3,000,000
2,915,000
27,000
2,800,000
2,400,000
none
7,000
none
Days past invoice date at December 31
0 – 30
31 – 90
91 – 180
Over 180
300,000
80,000
60,000
25,000
250,000
90,000
45,000
15,000
1. What is the allowance for doubtful accounts on December 31, 2015?
a. 28,000
b. 24,000
c. 26,000
d.
0
2. What is the allowance for doubtful accounts on December 31, 2016?
a.
b.
c.
d.
30,000
39,000
29,150
27,000
3. What amount should be reported as doubtful accounts expense for 2016?
a.
b.
c.
d.
39,000
31,000
38,000
11,000
Problem 23 (IAA)
Freeway Company provides financing to order entities by purchasing their accounts receivable
on a nonrecourse basis. Freeway charges clients a commission of 15% on all receivables
factored.
In addition, Freeway withholds 10% of receivables factored as protection against sales returns
and other adjustments.
Freeway credits the 10% withheld to Clients Retainer account and makes payments to client s at
the end of each month so that the balance in the retainer is equal to 10% of unpaid receivables
at the end of the month.
Experience has led Freeway to establish an allowance for doubtful accounts of 4% of all unpaid
receivables purchased.
During the current year, Freeway purchased receivables from Motorway Company totalling
P3,000,000.
15
Motorway had previously established an allowance for doubtful accounts for these receivables
at P100, 000.
By year-end, Freeway had collected P2, 500,000 on these receivables.
1. What is the amount of cash initially received by Motorway Company from Freeway
Company?
a.
b.
c.
d.
2,2250,000
3,000,000
2,550,000
2,700,000
2. What is the loss on factoring to be recognized by Motorway Company?
a.
b.
c.
d.
350,000
450,000
650,000
750,000
Problem 24 (IAA)
During the second year of operations, Shark Company found itself in financial difficulties. The
entity decided to use the accounts receivable as a means of obtaining cash to continue
operations.
On July 1, 2016, the entity sold P1, 500,000 of accounts receivable for cash proceeds of
P1,390,000. No bad debt allowance was associated with these accounts.
On December 15,2016, the entity assigned the remainder of its accounts receivable, P5,000,000
as of that date, as collateral on a P2,500,000, 12% annual interest rate loan from Finance
Company. The entity received P2, 500,000 less a 2% finance charge.
None of these assigned accounts had been collected by the end of the year. It is estimated that
10% of accounts receivable would be uncollectible.
The entity revealed the following data in December 31, 2016:
Accounts receivable, excluding factored and
Assigned accounts
Accounts receivable- assigned
Accounts receivable – factored
Allowance for bad debts before adjustments
1.
a.
b.
c.
d.
1,000,000
5,000,000
1,500,000
100,000
What total amount should be reported as accounts receivable on December 31,2016?
7,500,000
6,000,000
5,000,000
1,000,000
2. What amount should be recognized as bad debt expense for 2016?
a. 600,000
b. 500,000
c. 650,000
d.
0
16
Problem 25 (IAA)
On August 31, 2016, Sunflower Company discounted with recourse a note at the bank at
discount rate of 15%. The note was received from the customer on August 1, 2016, is for 90
days, has a face value of P5, 000,000, and carries an interest rate 12%.
The discounting transaction is accounted for as secured borrowing.
The customer paid the note to the bank on October 30, 2016, the date of maturity.
What is the interest expense to be recognized on August 31, 2016?
a.
b.
c.
d.
50,000
21,,250
28,750
25,000
Problem 26 (IAA)
On April 1, 2016, Shalimar Company discounted with recourse a 9 – month, 10% note dated
January 1, 2016 with face of P6,000,000. The bank discount rate is 12%. The discounting
transaction is accounted for as a conditional sale with recognition of contingent liability.
Principal amount
Origination fee received from borrower
Direct origination cost incurred
4,000,000
350,000
61,500
The effective rate on the loan after considering the direct origination cost incurred and
origination fee received is 12%.
1. What is the carrying amount of the loan receivable on January 1, 2016?
a.
b.
c.
d.
4,000,000
4,650,000
4,411,500
3,711,500
2. What is the interest income for 2016?
a.
b.
c.
d.
400,000
558,000
529,380
445,380
3. What is the carrying amount of the loan receivable on December 31, 2016?
a.
b.
c.
d.
4,000,000
3,756,880
4,243,120
3,600,000
Problem 28 (IAA)
Kalibo bank loaned P5, 000,000 to Caticlan Company on January 1, 2014. The terms of the loan
require principal payments of P1, 000,000 each year
y ear for 5 years plus interest at 8%.
18
The first principal and interest payment is due on January 1, 2015. Caticlan Company made the
required payments during 2015 and 2016.
However, during2016 Caticlan Company began to experience financial difficulties , requiring
Kalibo Bank to reassess
reassess the collectability
collectability of the loan.
loan.
On December 31, 2016, Kalibo Bank has determined that the remaining principal payment will
be collected but the collection of the interest in unlikely, Kalibo Bank did not accrue the
interest on December 31,2016.
The present value of 1 at 8% is as follows:
For one period
For two periods
For three periods
1. What is the loan impairment loss on December 31,2016 ?
a. 423,000
b. 217,000
c. 222,000
d.
0
0.926
0.857
0.794
2. What is the interest income for 2017?
a. 126,160
b. 142,640
c. 240,000
d.
0
3. What is the carrying amount of the loan receivable on December 31, 2017?
a.
b.
c.
d.
2,000,000
1,925,640
1,640,360
1,783,000
Problem 29 (IAA)
On January 1, 2016, Oceanic Bank made a P1, 000, 000, 8% loan. The P80, 000 interest is
receivable at the end of each year, with the principal amount to be received at the end of five
years. At the end of 2016, the fi rst year’s interest of P80, 00 has not yet been received because
the borrower is experiencing financial
f inancial difficulties. The borrower negotiated a restructuring of
the loan.
The payment of all of the interest for 5 years will be delayed until the end of the 5 – year loan
term. In addition, the amount of principal repayment will be dropped from P1, 000,000 to P500,
000.
The PV of 1 at 8% for 4 periods is .735. No interest
i nterest revenue has been recognized in 2016 in
connection with the loan.
1. What is the loan impairment loss on December 31, 2016?
a. 338,500
b. 238,500
c. 388,000
d. 288,000
2. What is the interest income for 2017?
19
a. 80,000
b. 52,920
c. 48,960
d.
0
Problem 30 (IAA)
On December 31, 2016, Solid Bank has a loan receivable of (4,000,000 from
from a borrower that it
is carrying at face value and is
i s due on December 31,2021. Interest on the loan is payable at 9%
each December 31,
The borrower paid the interest due on December 31, 2016 but informed the bank that it would
probably miss the next two years’ interest payments.
After that the borrower is expected to resume the annual interest payment but it would make
the principal payment one year late, with interest paid for that additional year at the time of
principal payment.
The PV of 1 at 9% is.772 for three periods, .708 four periods, .650 for five peri ods, and .596 for
six periods.
What is the loan impairment loss for 2016?
a.
b.
c.
d.
634,640
720,000
721,960
913,120
Problem 31 (AICPA Adapted)
Diane Company sold loans with a P2, 200 fair value and a carrying amount of P2,000. The entity
obtained an option to purchase similar
simil ar loans and assumed a recourse obligation to repurchase
loans. The entity also agreed to provide a floating rate of interest to the transferee.
Fair values
Cash proceeds
Interest rate swap
Call option
Recourse obligation
2,100
140
80
( 20)
1. What is the gain (loss) on the sale?
a.
b.
c.
d.
320
200
(100)
120
2. What is included in the journal entry to record the transfer on the books of Diane
Company?
a.
b.
c.
d.
A debit to call option
A credit to interest rate swap
A debit to loans
A credit to cash
20
3. Assume that Diane Company agreed to service the loans without explicitly stating the
compensation. The fair value of the service is
i s P50. What are the net proceeds and the
gain (loss) on the sale, respectively?
a.
b.
c.
d.
2,200 and 200
2,250 and 250
2,150 and 150
2,200 and (250)
Problem 31 (IAA)
Aman Company provided the following data:
Items counted in the bodega
Items included in the count specifically segregated
per sale contract
Items in receiving department, returned by customer,
In good condition
Items ordered and in the receiving department
Items ordered, invoice received but goods not
Received, Freight is on account of seller .
4,000,000
100,000
50,000
400,000
300,000
Items shipped today, invoice mailed, FOB shipping point
Items shipped today, invoice mailed, FOB destination
Items currently being used for window display
Items on counter for sale
Items in receiving department, refused because of damage
Items included in count, damaged and unsalable
Items in the shipping department
250,000
150,000
200,000
800,000
180,000
50,000
250,000
What is the correct amount of inventory?
a.
b.
c.
d.
5,700,000
6,000,000
5,800,000
5,150,000
Problem 32 (IAA)
Ram company provided the following information at the end of current year.
Finished goods in storeroom, at cost, including overhead
Of P400, 000 or 20%
Finished goods in transit, including freight charge of
P20, 000. FOB shipping point
Finished goods held by salesman, at selling price,
Cost, P100,000
Goods in process, at cost of materials and direct labor
Materials
Materials in transit, FOB destination
Defective matrials returned to suppliers
Shipping supplies
Gasoline and oil for testing finished goods
Machine lubricants
2,000,000
250,000
140,000
720,000
1,000,000
50,000
100,000
20,000
110,000
60,000
21
What is the correct amount of inventory?
a.
b.
c.
d.
4,00,000
4,170,000
4,270,000
4,090,000
Problem 33 (AICPA Adapted)
Brunette Company shipped inventory on consignment to Heart Company with original cost
P500,00. Heart paid P12,000 for advertising that was reimbursable from Brunette.
At the end of the year, 40% of the inventory was sold for P320,000. The agreement stated that
a commission of 10% will be provided to Heart for all sales.
What amount should be reported as net income from the consignment?
a. 100,000
b. 120,000
c. 76,000
d.
0
Problem 34 (AICPA Adapted)
Seafood Company commenced operations during the year as large importer and exporter of
seafood. The imports were all from one country overseas. The entity reported the following
data:
Purchases during the year
Shipping costs from overseas
Shipping costs to export customers
Inventory at year-end
12,000,000
1,500,000
1,000,000
3,000,000
What amount of shipping costs should be included in the year-end inventory valuation?
a. 250,000
b. 625,000
c. 375,000
d.
0
Problem 35 (AICPA Adapted)
On June 1, 2016, Pitt Company sold merchandise with a list price of P5,000,000 to Burr on
account. Pitt allowed trade discounts of 30% and 20%.
Credit items were 2/10, n/30 and the sale was made FOB shipping point. Pitt prepaid P200,000
of delivery costs for Burr as an accommodation.
1. What amount should be reported as sales revenue?
a.
b.
c.
d.
5,000,000
2,800,000
3,500,000
2,500,000
22
2. On June 11, 2016, what amount was received by Pitt from Burr as remittance in full?
a.
b.
c.
d.
2,744,000
2,940,000
2,944,000
3,140,000
Problem 36 (AICPA Adapted)
Kew Company reported accounts payable on December 31,2016 at P2,200,000 before
considering the following data:


Goods shipped to Kew F.O.B. shipping point on December 22, 2016, were lost in
transit. The invoice cost of P40,000 was not recorded by Kew. On January 7,2017, Kew
filed a P40,000 claim against the common carrier.
On December 27, 2016, a vendor authorized Kew to return, for full credit, goods
shipped and billed at P70,000 on December 3, 2016. The returned goods were shipped
by Kew on December 28, 2016. A P70,000 credit memo was ,received and recorded by
Kew on January 5, 2017.

On December 31, 2016, Kew has a P500,000 debit balance in accounts payable to Ross,
a supplier, resulting from a P500,000 advance payment for goods to be manufactured.
What amount should be reported as accounts payable on December 31, 2016?
a.
b.
c.
d.
2,170,000
2,680,000
2,730,000
2,670,000
Problem 37 (AICPA Adapted)
Lyle Company is preparing financial statements for the year ended December 31, 2016.
Accounts payable amounted to P360,000 before any necessary year-end adjustment related to
the following:


On December 31, 2016, Lyle has a P50,000 debit balance in accounts payable to Reese, a
supplier, resulting from a P50,000 advance payment for goods to be manufactured.
Checks in the amount of P100,000 were written to vendors and recorded on December
20, 2016. The checks were mailed on January 5, 2017.
What amount should be reported as accounts payable on December 31, 2016?
a.
b.
c.
d.
510,000
410,000
310,000
210,000
Problem 30 (AICPA Adapted)
Bakun Company began operations late in 2015. For the first quarter ended March 31, 2016, the
entity provided the following information:
23
Total merchandise purchased through March 15, 2016
recorded at net
Merchandise inventory on January 1, 2016,
At selling price
4,900,000
1,500,000
All merchandise was acquired on credit and no payments have been made on accounts payable
since the inception of the entity.
All merchandise is marked to sell at 50% above invoice cost before time discounts of 2/10,
n/30. No sales were made in 2016.
What amount of cash is required to eliminate the current balance in accounts payable?
a.
b.
c.
d.
6,000,000
5,900,000
6,400,000
5,750,000
Problem 31 (IAA)
Jayson Company used the perpetual system . The following information has been extracted
from the records about one product:
a. 147, 500
b. 100, 000
c. 200, 000
d.
0
2. Under the cost model , what is the expense to be recognized for the year ended
December 31, 2017?
a. 145, 000
b. 150, 000
c. 147,500
d.
0
Problem 75 (IFRS)
Rhino Company, a real estate entity, had a building with a carrying amount of P20, 000, 000 on
December 31, 2016. The building was used as offices of the entity’s administrative staff.
On December 31, 2016, the entity intended to rent out the building to independent third
parties. The staff will be moved to a new building purchased early in 2016.
On December 31, 2016, the original building had a fair value of P35, 000, 000.
On December 31, 2016, the entity also had land that was held for sale in the ordinary course of
business.
The land had a carrying amount of P10, 000, 000 and fair value of P15, 000, 000 on December
31, 2016.
On such date, the entity decided to hold the land for capital appreciation.
The accounting policy is to carry all investment property at fair value.
1.
On December 31, 2016, what amount should be recognized in revaluation surplus as a
result of transfer of the building to investment property?
47
a. 20, 000, 000
b. 35, 000, 000
c. 15, 000, 000
d.
0
2. On December 31, 2016, what amount should recognized in profit or loss as a result of
transfer of the land to investment property?
a. 15, 000, 000
b. 10, 000, 000
c. 5, 000, 000
d.
0
Problem 76 (AICPA Adapted)
Fall Company provided the following information in relation to a bond sinking fund that was
placed in trust as required by the underwriter:
Bond sinking fund, January 1, 2016
Additional investment in 2016
4, 500, 000
900, 000
Dividends on investments
Interest revenue
Administration costs
Carrying amount of bonds payable
150, 000
300, 000
50, 000
8, 000, 000
What is the carrying amount of the bond sinking fund on December 31, 2016?
a. 5, 850, 000
b. 5, 800, 000
c. 5, 750, 000
d. 5, 400, 000
Problem 76 (PHILCPA Adapted)
In January 2016, Cameron Company established a sinking fund in connection with an issue of
bonds due in 2018. A bank was appointed as independent trustee of the fund. On December
31, 2016, the trustee held P365, 000 cash in the sinking fund account representing P300, 000 in
annual deposits to the fund, and P65, 000 of interest earned on those deposits.
How should the sinking fund be reported on December 31, 2016?
a.
b.
c.
d.
No part of the sinking fund should appear in Cameron’s statement of financial position.
P65, 000 should appear as a current asset
P365, 000 should appear as a current asset
P365, 000 should appear as a noncurrent asset
Problem 77 (AICPA Adapted)
On March 15, 2016, Ashe Company adopted a plan to accumulate P5, 000, 000 by September 1,
2020. The entity plans to make four equal annual deposits to a fund that will earn interest at
10% compounded annually. The entry made the first deposit on September 1, 2016.
Future value of 1 at 10% for 4 periods
Future value of an ordinary annuity of 1 at 10% for 4 periods
Future value of an annuity of 1 in advance at 10% for 4 periods
What is the annual deposit to the fund?
a. 1, 250, 000
b. 1, 077, 500
c.
d.
1.46
4.64
5.11
978,500
730,000
48
Problem 78 (AICPA Adapted)
Ball Company purchased a P1, 000, 000 ordinary life insurance policy on its president. Ball
Company is the beneficiary under the life insurance policy. The policy year and the entity’s
accounting year coincide.
Cash surrender value, January 1
Cash surrender value, December 31
Annual advance premium paid January 1
Dividend received July 1
What amount should be reported as life insurance expense for 2016?
a. 17, 000
b. 20, 000
c. 6, 500
d. 9, 500
Problem 79 (AICPA Adapted)
43, 500
54, 000
20, 000
3, 000
Chain Company purchased a P1, 000, 000 life insurance on its president, of which Chain
Company is the beneficiary.
The entity provided the following information regarding the policy for the year ended
December 31, 2016:
Cash surrender value, January 1
Cash surrender value, December 31
Annual advance premium paid January 1
87, 000
108, 000
40, 000
During 2016, dividend of P6, 000 was applied to increase the cash surrender value of the policy.
What amount should be reported as life insurance expense for 2016?
a.
b.
c.
d.
40, 000
25, 000
19, 000
13, 000
Problem 80 (IAA)
On January 1, 2016, Pasay Company entered into a two-year P3, 000, 000 variable interest rate
loan at the prevailing rate of 12%.
In 2017, the interest rate is equal to the prevailing interest rate at the beginning of the year.
The principal loan is payable on December 31, 2017 and the interest is payable on December 31
of each year.
On January 1, 2016, Pasay Company entered into a “receive variable, pay fixed” interest swap
agreement with a speculator bank designated as a cash flow hedge.
The prevailing interest rate on January 1, 2017 is 14% and the present value of 1 at 14% for one
period is .877.
1. What amount should be reported as interest rate swap receivable on December 31,
2016?
a. 60, 000
b. 52, 620
c. 30, 000
d.
0
2.
a.
b.
c.
d.
What amount should be reported as interest expense for 2017?
360, 000
420, 000
390, 000
323, 400
Problem 81 (IAA)
On January 1, 2016, Aloha Company received a four-year P5, 000 loan with interest payments
occurring at the end of each year and the principal to be repaid on December 31, 2019.
The interest for 2016 is the prevailing market rate of 10% on January 1, 2016, and the market
interest rate every January 1 resets the variable rate of interest for that year. The “underlying”
fixed interest rate is 10%.
Excelsior Company was incorporated on January 1, 2016 but began activities on 0July 1, 2016.
The land and building account of December 31, 2016 was as follows:
January
February
May
June
June
June
June
July
31
28
1
1
1
1
30
1
Land and an old building
Cost of removal of old building
Partial payment on new construction
Second payment on new construction
Insurance premium
Special tax assessment
General expenses
Final payment on new construction
1,600,000
90,000
700,000
400,000
480,000
60,000
320,000
900,000
To acquire land and building, the entity paid P800,000 cash and issued 8,000 preference shares
with par value of P100 and fair value of P150.
The old building with insignificant fair value was demolished to make room for the construction
of a new building.
Legal fees covered organization cost P15,000, title examination of land purchased P10,000, and
legal work P25,000 in connection with construction contract.
Insurance premium covered the building for a two-year term beginning May 1, 2016.
The special tax assessment was for street improvements that are permanent in nature.
General expenses included the president’s salary of P220,000 and the plant superitendent’s
salary of P100,000.
1. What is the cost of land?
a. 2,070,000
b. 2,160,000
c. 2,000,000
d. 2,100,000
2. What is the cost of building?
a. 2,155,000
b. 2,065,000
c. 2,395,000
d. 2,305,000
62
Problem 105 (AICPA Adapted)
On January 1, 2016, Melancholy Company reported the following property, plant and
equipment:
Land
Land Improvements
Building
Machinery
3,500,000
900,000
6,000,000
1,500,000
Transaction during the current year


A tract of land was acquired for P1,250,000 and intended definitely for use as future
building site.
A plant facility consisting of land and building was acquired in exchange for 100,000
Melancholy Company’s shares.
On the acquisition date, the share had a closing market price of P45 on a stock
exchange.
The plant facility was carried at P1,000,000 for land and P3,000,000 for the building at
the exchange date.
Current appraised values for the land and building, respectively, are P1,200,000 and
P2,400,000.

Expenditure totalling P750,000 were made in January For new parking lot, street and
sidewalk at the entity’s various plant locations. These expenditures had an estimated
useful life of fifteen years.


Machine was purchased at a cost of P3,000,000. Freight and unloading charge of
P50,000, and installation cost of P350,000 were incurred.
A machine was sold for P175,000 on July 1, 2016. Original cost of machine was P500,000
on January 1, 2014 and it was depreciated on the straight line basis over an estimated
useful life of five years and no residual value.
1. What is the total cost of land at year-end?
a. 6,250,000
b. 5,950,000
c. 5,750,000
d. 9,250,000
2. What is the total cost of building at year-end?
a.
b.
c.
d.
8,400,000
9,000,000
8,250,000
8,500,000
3. What is the total cost of land improvements at year-end?
a. 1,650,000
b.
900,000
c.
750,000
d.
800,000
63
4. What is the total cost of machinery at year-end?
a.
b.
c.
d.
4,600,000
3,400,000
4,900,000
4,400,000
Problem 106 (IFRS)
Basilan Company acquired a machine at the beginning of the current year:
Cash paid for machine, including VAT of P96,000
Cost of transporting machine
Labor cost of installation by expert filter
Labor cost of testing machine
Insurance cost for the current year
Cost of training personnel who will use the machine
Cost of safety rails and platform surrounding machine
Cost of water device to keep machine cool
896,000
30,000
50,000
40,000
15,000
25,000
60,000
80,000
Cost of adjustment to machine to make it operate more efficiently
Estimated dismantling cost to be incurred as required by contract
75,000
65,000
What total amount should be capitalized as cost if the machine?
a. 1,135,000
b. 1,231,000
c. 1,200,000
d. 1,150,000
Problem 107 (PHILCPA Adapted)
Karla Company acquired a new processing machine.
Invoice cost
Cost of transportation
Cost of installation
1,600,000
50,000
50,000
The terms of the acquisition include 3% discount if payment is made in 10 days. The entity
beyond the discount period.
The entity’s chief engineer spent two-thirds of his time during trial run of the new machine. The
monthly salary is P60,000.
The entity requested an allowance from the supplier because the machine proved to be of less
than standard performance capability. The supplier granted a cash allowance of P100,000.
The cost of removing the old machine before the new machine was installed amount to
P10,000.
The operator of the old machine who was laid off due to the acquisition of the new machine
was paid a granuity of P30,000.
What is the initial cost of the new machine?
a. 1,592,000
b. 1,622,000
c. 1,640,000
d. 1,552,000
Problem 108 (IAA)
Rona Company provided the following charges to the “repair and maintenance account”.
64
Service contract on office equipment
100,000
Initial design fee for proposed extension of office building
150,000
New condenser for central air conditioning unit
10,000
Purchase of executive chairs and desks
200,000
Purchase of storm windows and screens and their installation
on all office windows
500,000
Sealing of roof leaks in production area
80,000
Replacement of door to production area
50,000
Installation of automatic door-opening system
200,000
Overhead crane for assembly department to speed up production
350,000
Replacement of broken gear on machine
60,000
What total amount of expenditures should be capitalized?
a. 1,400,000
c. 1,500,000
b. 1,200,000
d. 1,410,000
Problem 109 (IFRS)
On January 1, 2016, Hamlet Company borrowed P6,000,000 at an annual interest rate of 10% to
finance specifically the cost of building an electricity generating plant. Construction
commenced on January 1, 2016 with a cost P6,000,000.
Not all the cash borrowed was used immediately, so interest income of P80,000 was generated
by temporarily investing some of the borrowed funds prior to use. The project was completed
on November 30,2016?
What is the carrying amount of the plant on November 30, 2016?
a. 6,000,000
c. 6,520,000
b. 6,470,000
d. 6,550,000
Problem 110 (AICPA Adapted)
Clay Company started construction of a new office building on January 1, 2016, and moved into
the finished building on July 1, 2017. Of theP25,000,000 total cost, P20,000,000 was incurred in
2016 evenly throughout the year. The incremental borrowing rate was 12% throughout 2016,
and the total amount of interest incurred was P1,020,000
What amount should be reported as capitalized interest on December 31, 2016?
a. 1,020,000
c. 1,500,000
b. 1,200,000
d. 2,400,000
Problem 111 (IAA)
Moses Company borrowed P4,000,000 on a 10% note payable to finance a new warehouse
which the entity is constructing for own use. The only other debt of the entity is a P6,000,000,
12% mortgage payable on an office building. At the end of the current year, average
accumulated expenditures on the new warehouse totalled P4,750,000.
What amount should be capitalized as interest for the current year?
a. 400,000
c. 490,000
b. 475,000
d. 522,500
Problem 112 (IAA)
The third year of a construction project of Jilliane Company began with a P3,000,000 balance in
construction in progress.
65
Included in that figure is P600,000 of interest capitalized in the first two years.
Construction expenditures during the third year were P8,000,000 which were incurred evenly
throughout the entire year.
The entity had P30,000,000 in interest –bearing debt outstanding in the third year at an interest
rate of 9%.
1. What amount of interest for the third year is capitalized?
a. 360,000
c. 936,000
b. 630,000
d. 990,000
2.
What amount should be reported as interest expense for the third year?
2,700,000
c. 1,980,000
a. 2,070,000
d. 1,350,000
Problem 113 (IAA)
During 2016, Joshua Company constructed asset costing P5,000,000. The weighted average
expenditures totalled P3,000,000. To help pay for construction, P2,200,000 was borrowed at
10% on January, 2016?
Funds not needed for construction were temporarily invested in short-term securities yielding
P45,000 in interest revenue.
Other than the construction funds borrowed, the only other debt outstanding P250,000 2.
1. What amount of interest should be capitalized during 2016?
a. 300,000
c. 247,000
b. 150,000
d. 472,000
2. What amount should be reported as interest expense for 2016?
a. 225,000
c. 153,000
b. 178,000
d.
0
Problem 114 (AICPA)
During 2016, Elysee Company constructed a new facility at a cost of P30,000,000.
The expenditures for the building, which was finished late in 2016, were incurred evenly during
the year.
The entity had the following loans outstanding on December 31,2016:

10% note to finance specifically the construction, dated January 1, 2016, P10,000,000.
This note is unpaid on December 31, 2016.
Investments were made on the proceeds from this loan and income of P100,000 was
realized in 2016.

8% 5-year note payable, dated March 1, 2015, P10,000,000.
What amount of interest is capitalized as cost of the new building?
a. 1,550,000
b. 1,450,000
c. 1,400,000
d. 1,500,000
66
Problem 115 (IAA)
During 2016, Israel Company constructed asset costing P4,215,000. The weighted average
expenditures during 2016 amounted to P3,900,000.
The entity borrowed P2,000,000 at 7,5% on January 1, 2016. Funds not needed for construction
were temporarily invested in short-term securities and earned P59,000 in interest revenue.
In addition to the construction loan, the entity had two other notes outstanding during the
year, a P1,500,000, 10-year, 10% note payable dated October 1, 2015, and a P1,000,000, 8% 5 year note payable dated November 1, 2015.
What amount of interest should be capitalized during 2016?
a. 324,800
b. 297,500
Problem 116 (IFRS)
c. 273,000
d. 265,800
Congo Company commenced construction of a new plant on February 1, 2016 and was funded
from existing general borrowings . The construction was completed on September 30, 2016.
The borrowings during 2016 comprised following:
Bank A – 6%
Bank B – 6.6.%
Bank C – 7%
8,000,000
10,000,000
30,000,000
What is the amount of borrowing cost that should be capitalized in relation to the plant?
a. 1,215,000
b.
810,000
c. 911,250
d.
0
Problem 117 (IFRS)
Ultimate Company, a socially responsible multinational entity, decided to construct a tunnel
that will link two sides of the village that were separated by a natural disaster years ago,
Realizing its role as a good corporate citizen, the entity has been in this village a couple of years
exploring oil and gas in the nearby offshore area. The tunnel would take two years to build and
the total capital outlay needed for the construction would not be less than P20,000,000. To
allow itself a margin of safety, the entity borrowed P25,000,000 from three sources and used
the extra P5,000,000 for working capital purposes. Financing was arranged at follows:
Bank term loan
Institutional borrowing
Corporate bonds
- 7%
- 8%
- 9%
5,000,000
10,000,000
10,000,000
In the first phase of the construction of the tunnel, there were idle funds of P10,000,000 which
the entity invested for a period of six months. Income from the investment was P500,000.
What amount of borrowing cost should be capitalized as cost of the asset upon completion?
a. 4,100,000
b. 3,280,000
c. 3,200,000
d. 2,780,000
67
Problem 118 (IAA)
Hothead Company had the following loans outstanding for 2016.
Specific construction loan
Generic loan
1,000,000
20,000,000
10%
12%
The entity began the self-construction of a building on January 1, 2016 and the building was
completed on December 31, 2016. The following expenditures were made during the year.
January
July
November
1
1
1
1,000,000
2,000,000
3,000,000
What is the cost of the new building?
a. 6,000,000
b. 6,280,000
c. 6,300,000
d. 6,250,000
In January 2015, Winn Company purchased equipment at a cost of P5,000,000. The equipment
had an estimated residual value of P1,000,000, an estimated 8-year useful life, and was being
depreciated by the straight line method.
Two year later, it became apparent that this equipment suffered a permanent impairment of
value.
In January 2017, management determined the carrying amount should be only P1,750,000 with
a 2-year remaining useful life, and the residual value should be reduced to P250,000.
1. What is the impairment loss for 2016?
a. 4,000,000
b. 3,250,000
c. 2,250,000
d.
0
2. On December 31, 2017, what is the carrying amount of the equipment?
a. 3,500,000
b. 1,750,000
c. 1,500,000
d. 1,000,000
Problem 162 (AICPA Adapted)
Scarbrough Company had purchased equipment for P5,600,000 on January 1, 2013. The
equipment had an 8-year life and residual value of P800,000. The entity depreciated the
equipment using the straight line method.
In August 2016, the entity questioned the recoverability of the carrying amount of this
equipment.
On August 31, 2016, the discounted expected net future cash inflows related to the continued
use and eventual disposal of the equipment amounted to P3,500,000. The fair value of the
equipment on same date is P3,000,000.
After any loss on impairment has been recognized, what is the carrying amount of the
equipment?
a. 3,500,000
b. 3,400,000
c. 3,000,000
d. 2,600,000
85
Problem 163 (IFRS)
At the beginning of current year, Jolo Company acquired all the assets and liabilities of another
entity. The acquiree of operating divisions, including one whose major industry is the
manufacture of toy train. The toy train division is regarded as a cash generating unit.
In paying P20,000,000 for the assets of the acquiree, Jolo calculated that it had acquired
goodwill of P2,400,000. The goodwill was allocated to each of the divisions, and the assets and
Liabilities acquired are measured at fair value at acquisition date. At year-end, the carrying
amounts of the assets of the toy train division were:
Building
Inventory
Trademark
Goodwill
2,000,000
1,500,000
1,000,000
500,000
There is a declining interest in toy train because of the aggressive marketing of computer-based
toys.
The entity measured the value in use of the toy train division at year-end at P3,600,000.
1. What is the impairment loss on goodwill?
a. 140,000
b. 250,000
c. 500,000
d.
0
1. What is the impairment loss to be allocated to the building?
a. 400,000
b. 500,000
c. 900,000
d. 300,000
Problem 164 (IFRS)
Palawan Company determined that the electronics division is a cash generating unit. The entity
calculated the value in use of the division to be P8,000,000.
The assets of the cash generating unit at carrying amount are as follows:
Building
Equipment
Inventory
5,000,000
3,000,000
2,000,000
10,000,000
The entity also determined that the fair value less cost of disposal of the b uilding is P4,500,000.
1. What is the total impairment loss?
a. 2,000,000
b. 4,000,000
c. 3,000,000
d.
0
2. What is the impairment loss allocated to building?
a. 1,000,000
b.
500,000
c. 750,000
d.
0
86
3. What is the impairment loss allocated to equipment?
a. 600,000
b. 850,000
c. 900,000
d.
0
4. What is the impairment loss allocated to inventory?
a. 400,000
b. 200,000
c. 600,000
d.
0
Problem 165 (IFRS)
Devin Company is testing two reporting units for impairment of goodwill.
Telecommunication
Segment carrying amount
Networking
Including goodwill
Carrying amount of goodwill
Estimated total fair value of segment
Estimated total fair value of segment
Other than goodwill
2,500,000
500,000
2,900,000
3,000,000
500,000
2,800,000
2,100,000
2,500,000
1. After properly adjusting the goodwill for impairment, what is the adjusted amount of
goodwill for the reporting unit telecommunication?
a. 400,000
b. 800,000
c. 500,000
d.
0
2. After properly adjusting the goodwill for impairment, what is the adjusted amount of
goodwill for the reporting unit networking?
a. 500,000
b. 200,000
c. 300,000
d.
0
Problem 166 (IFRS)
One of the cash generating units of Sanmig Company if the production of liquor. The entity
believed that the assets of the cash generating unit (CGU) are impaired based on an analysis of
economic indicators. The assets and liabilities of the cash generating unit at carrying amount at
year-end are:
Cash
Accounts receivable
Allowance for doubtful accounts
Inventory
Property, plant and equipment
Accumulated depreciation
Goodwill
Accounts payable
Loans payable
4,000,000
6,000,000
1,000,000
7,000,000
22,000,000
4,000,000
3,000,000
2,000,000
1,000,000
The entity determined that the value in use of the cash generating unit is P30,000,000. The
accounts receivable are considered collectible, except those considered doubtful.
87
1. What is the impairment loss of goodwill?
a. 3,000,000
b. 1,500,000
c. 2,000,000
d.
0
2. What is the impairment loss on inventory?
a. 3,500,000
b. 1,000,000
c. 1,120,000
d.
0
3. What is the impairment loss on property, plant and equipment?
a. 4,000,000
b. 2,880,000
Problem 167 (AICPA - Adapted)
c. 2,400,000
d. 4,200,000
During the current year, Nicole Company acquired Jones Company in a business combination.
As a result og the combination, the following amounts of goodwill were recorded for each of
the three reporting units of the acquired entity.
Retailing
Service
Financing
300,000
200,000
400,000
Near the year-end, a new major competitor entered the en tity’s market and the entity was
concerned that this might cause a significant decline in the value of goodwill.
Accordingly, the entity computed the implied value of the goodwill for the three major
reporting units at year-end as follows:
Retailing
Service
Financing
250,000
100,000
600,000
What amount of goodwill impairment should be recorded for the current year?
a. 100,000
b. 250,000
c. 150,000
d.
0
Problem 168 (IAA)
On December 31, 2016, Zemice Company acquired the following three intangible assets:



A trademark for P3,000,000. The trademark has 4 years remaining in its illegal life. It is
anticipated that the trademark will be renewed in the future indefinitely.
Goodwill for P500,000.
A customer list for P2,100,000. By contract, the entity has exclusive use of the list
li st for
five years. However, it is expected that the list will have an economic life of 3 years.
On December 31, 2017, before any adjusting entries for the year were made, the following
information was assembled:
a. Because of a decline in the economy, the trademark is now expected to generate cash
flows of just P105,000 per year.
88
b. The cash flow expected to be generated by the cash generating unit to which the
goodwill is related is P200,000 per year for the next 20 years. The carrying amounts of
the assets and liabilities of the cash generating unit are:
Identifiable
Goodwill
Liabilities
3,500,000
500,000
1,100,000
It is reliably determined that the cash flows of the cash generating unit cannot be
computed without consideration of the liabilities.
c. The cash flows expected to be generated by the customer list are P800,000 in 2018 and
P500,000 in 2019.
d. The appropriate discount rate is 6%. The present value of 1 at’ 10% is .94 for one period
and .89 for two periods. The present value of an ordinary annuity of 1 at 10% for
f or 20
periods is 11.45.
1. What is impairment loss on trademark?
a. 3,000,000
b. 1,750,000
c. 1,250,000
d.
0
2. What is the impairment loss on goodwill?
a. 610,000
b. 500,000
c. 110,000
d.
0
Problem 169 (IAA)
Vanity Company showed the following balance at year-end:
Copyright
Deposit with advertising agency used to promote goodwill
Bond sinking fund
Excess of cost over fair value of identifiable net
Assets of acquired subsidiary
Trademark
500,000
400,000
1,000,000
4,000,000
900,000
What total amount should be reported as intangible assets?
c. 1,400,000
d. 4,500,000
c. 5,400,000
d. 5,800,000
Problem 170 (IAA)
Alcaraz Company paid P5,000,000 to purchase intangible assets with the following fair value:
Internet domain name
Order backing
In-process research and development
Operating permit
1,500,000
1,200,000
2,400,000
900,000
In addition, the entity spent P2,000,000 to run an advertising campaign to boost its image in the
local community.
What amount should be recognized as cost of the in-process research and development?
89
c. 2,400,000
c. 2,800,000
d. 2,000,000
d.
0
Problem 171 (AICPA Adapted)
Tobin Company incurred P1,600,000 of research and development costs to develop a product
For which a patent was granted at the beginning of current year.
Legal fee and other costs associated with registration of the patent totalled P300,000. At the
year-end, the entity paid P450,000 for legal fees in a successful defense of the patent.
What is the total amount that should be capitalized for the patent at year-end?
c.
d.
750,000
300,000
c. 2,050,000
d. 2,350,000
Problem 172 (IAA)
Harmonious Company acquired a patent for a drug with a remaining legal and useful life of six
years on January 1,2014 for P5,400,000.
On January 1, 2016, a new patent is received for an improved version of the same drug. The
new patent has a legal and useful life
l ife of twenty years.
What is the amortization expense for 2016?
c. 900,000
d. 200,000
c. 180,000
d. 300,000
Problem 173 (IAA)
Golden Company developed a new machine for manufacturing baseballs. Because the machine
is considered very valuable, the entity had it patented.
The following expenditures were incurred in developing and patenting the machine:
Purchase of special equipment to be used solely for
Development of the new machine
Research salaries and fringe benefits for engineers
And scientists
Cost of testing prototype
Legal cost for filing of patent
Fees paid to government patent office
Drawings required by patent office to be filed with
Patent application
1,800,000
200,000
250,000
150,000
50,000
40,000
3. What amount should be capitalized as cost of patent?
c. 240,000
d. 540,000
c. 740,000
d. 200,000
4. What amount of research and development cost should be expensed in the current
year?
c. 2,250,000
c. 2,490,000
d. 2,000,000
d. 1,800,000
90
Problem 174 (AICPA Adapted)
On January 1, 2016, Boracay Company bought a trademark from Lamitan Company for
P3,000,000. The entity retained an independent consultant who estimated the trademark’s life
to be indefinite. The carrying amount of the trademark was P1,500,000 on the books of Lamitan
Company.
On December 31, 2016, what is the carrying amount of the trademark?
c. 3,000,000
d. 1,500,000
c. 2,850,000
d.
0
Problem 175 (IAA)
On January 1, 2016, Aim Company showed patent of P1,920,000 with related accumulated
amortization of P240,000. The patent was purchased on January 1, 2014 at which date the legal
life is 16 years.
On January 1, 2016, the useful life of the patent was determined to be only 8 years from the
date of acquisition.
On January 1, 2016, in connection with the purchase of a trademark from Cat Company, the
parties entered into a noncompetition agreement and a consulting contract.
Aim Company paid Cat Company P800,000, of which three-fourths was for the trademark, and
one-fourth was for the Cat Company’s agreement not to compete for a five -year period in the
line of business covered by the trademark. Aim Company considered the life of the trademark
to be indefinite.
Moreover, Aim Company agreed to pay Cat Company P50,000 annually on January 1 of each
year for 5 years.
3. What is the carrying amount of intangible assets on January 1, 2016?
c. 2,280,000
d. 2,480,000
c. 1,880,000
d. 1,680,000
4. What is the total amortization of intangible assets for 2016?
c. 280,000
d. 440,000
c. 320,000
d. 160,000
Problem 176 (AICPA Adapted)
On January 1, 2016, Hart Company signed an agreement to operate as a franchisee of Ace
Company for an initial franchise fee of P12,000,000.
The same date, Hart Company paid P4,000,000 and agreed to pay the balance in four equal
annual payments of P2,000,000 beginning January 1, 2017.
Hart Company can barrow at 14% for a loan of this type. The present value factors at 14% are as
follows:
Present value of 1 at 14% for four periods
0.59
Present value of an ordinary annuity of 1 at 14% for four periods
2.91
91
What is the acquisition cost of the franchise?
c. 13,520,000
d. 12,000,000
c. 9,820,000
d. 8,720,000
Problem 177 (AICPA Adapted)
Carr Company recently acquired that now has remaining legal life of 40 years. The copyright
initially had a 30-year useful life. An analysis of market trend and consumer habit indicated that
the copyrighted material will generate positive cash flows for approximately 25 years.
What is the remaining useful life over which the entity can amortize the copyright?
c. 25
d. 30
Problem 178 (IAA )
c. 40
d. 0
Java Company purchased an entity for P6,000,000 cash at the beginning of the current year.
The carrying amount and fair value of the assets of the acquire on the date of the acquisitions
are as follows:
Carrying amount
Fair value
Cash
Accounts receivable
Patent
Property, plant and equipment
Property, plant and equipment
50,000
500,000
1,000,000
0
2,000,000
50,000
500,000
1,500,000
250,000
3,000,000
Total
3,550,000
5,300,000
In addition, the acquitee had liabilities totalling P2,000,000 at the time of acquisition. The
acquire had no other separately identifiable intangible assets.
What is the goodwill arising from the acquisition?
c. 2,700,000
d. 2,450,000
c. 4,450,000
d. 700,000
Problem 179 (IAA )
Casanova Company purchased another entity for P500,000 cash. The following carrying amount
and fair value were associated with the items acquired in this business combination:
Carrying amount
Accounts receivable
Inventory
Government contract
Equipment
Short-term payable
2,000,000
1,000,000
0
400,000
(2,000,000)
Net Assets
1,400,000
Fair value
2,000,000
500,000
1,000,000
500,000
(2,000,000)
2,000,000
The fair value associated with the acquired entity’s government contract is not based on any
legal or contractual relationship.
92
In addition, for obvious reason, there is no open market trading for an intangible of this sor t.
What is the goodwill arising from the business combination?
c. 3,000,000
d. 3,600,000
c. 4,000,000
d.
0
Problem 180 (IAA)
Clever Company purchased for P4,000,000 cash all of the outstanding ordinary shares of Sun
Company when Sun’s statement of financial position showed net assets of P3,200,000.
On the date of acquisition, Sun’s assets and liabilities had fair value different from the carrying
amount as follows:
Carrying amount
Fair value
Property, plant and equipment, net
Other assets
Long-term debt
5,000,000
500,000
3,000,000
5,750,000
0
2,800,000
What amount should be reported as goodwill in the consolidated statement of financial
position of Clever Company and its wholly-owned subsidiary?
c. 350,000
d. 250,000
c. 750,000
d. 800,000
Problem 181 (IFRS)
Brisbane Company has recently diversified by taking over the operations of Darwin Company at
a cost of P10,000,000.
Darwin manufactures and sells a cleaning cloth called the “Superswipe” which was developed
by Darwin’s highly trained staff.
The unique nature of the coating used on the “Superswipe” has resulted in Darwin Company a
significant share of the South African market.
As a result of the takeover, Brisbane Company acquired the following assets at fair value:
Land and building
Production machinery
Inventory
Accounts receivable
3,200,000
2,000,000
1,800,000
700,000
In addition, Darwin Company owned, but had not recognized, the following:

Trademark – “Superswipe” with fair value of P1,000,000.

Patent – Formula for the special coating with fair valuew3 of P5000,000.
What amount of goodwill should be recognized on the date of acquisition?
c. 2,300,000
d. 1,300,000
c. 1,800,000
d. 800,000
93
Problem 182 (IAA)
At year-end, Bliss Company purchased the net assets of another entity for P6,000,000. On the
date of the transaction, the acquire had P2,000,000 of liabilities.
The assets of the acquire at fair value were P3,000,000 for current assets and P6,000,000 for
noncurrent assets.
How should the purchase be accounted for?
e. Retained earnings should be credited for P1,000,000.
f. Gain on bargain purchase should be credited for P1,000,000.
g. The current assets should be reported at P3,000,000 and the noncurrent assets at
P5,000,000.
h. Negative goodwill should be credited for P1,000,000.
Problem 183 (IAA)