Instructions: Answer as required. Use the papers provided as answer sheets. Place your Code Number on the upper right hand corner of your answer sheets. The exam is good for four hours. Make your work as neat as possible. I. STRAIGHT PROBLEMS. Show your solutions in an organized manner. Encircle your final answers. 1. Grande has the following depreciation policies on machinery: a. A full year’s depreciation is taken in the year of acquisition. b. No depreciation in year of disposal. c. Life is 5 years. d. Straight line is used. On June 30, 2008, the company sold for P2,300,000 a machine acquired in June 1, 2005 for P4,200,000. Then estimated salvage value was P600,000. How much gain or loss should the company recognize? 2. A new business has the following transactions for the month: (1) the owner invested P36,000; (2) P26,000 of supplies were purchased for cash and ½ remained unused at the end of the month; (3) P23,000 was received for payment for services rendered by the business; (4) a salary of P10,000 was paid to an employee and (5) P30,000 was borrowed from the bank (6) equipment worth P25,000 was bought paying cash of P5,000 and the balance was payable in 45 days (7) a customer paid in advance P12,000 which remain unearned at the end of the month. a. Compute for total assets as at end of month. b. Ignoring depreciation, compute for owner’s equity as at end of the month. 3. You were given the following information about certain inventory sale shipments of LEI Company. Invoice # 7871 7872 7873 7874 7875 7876 7877 7878 7879 7880 FOB Term Destination Shipping Point Shipping Point Destination Destination Shipping Point Shipping Point Destination Shipping Point Destination Shipped 20-Oct 31-Oct 25-Oct 31-Oct 31-Oct 2-Nov 5-Nov 25-Oct 4-Nov 5-Nov Recorded 31-Oct 2-Nov 31-Oct 29-Oct 2-Nov 23-Oct 6-Nov 3-Nov 31-Oct 2-Nov Sales Price 1000 2500 1800 4200 9200 6500 7500 3900 8600 5000 Cost 900 2000 1200 3100 8000 5100 5800 2000 8200 4000 A physical inventory was taken as of the close of business on October 31, the company’s balance sheet date. All customers are within a three-day delivery of the company. The unadjusted balances of Sales and Inventories accounts are P2,500,000 and P110,000 respectively. Compute for the adjusted balances of (a) Sales and (b) Inventories. 4. Mr. A sells home cooked meals. He purchased the following for the day: Pork = P50, Beef = P55, Fish = P30, Chicken = P95, and Shrimps = P45. Out of these purchases he mad e 10 pork meals, 12 beef meals, 15 fish meals, 10 chicken meals and 12 shrimp meals. He still had the following meals from yesterday’s operation: 5 pork meals, 2 beef meals, 3 fish meals, 5 chicken meals and 4 shrimp meals. Mr. A purchased the same number of items as purchased yesterday only that the price for all items today were lower by P0.50. He made exactly the same number of meals of each type today compared to yesterday. Mr. A sells meals at the following prices: Pork = P10, Beef = P24, Fish = P11, Chicken = P13, and Shrimps = P14. Each meal sold comes with one cup of rice costing P2 each. Unsold meals as at the end of the day (Mr. A uses FIFO) were: Pork = 2, Beef = 1, Fish = 1, Chicken = 4, and Shrimps = 5. Mr. A also pays P50 per day for stall rental. Calculate the following: a. Total sales for the day b. Net income for the day c. Inventory as of the end of the day 5. ` Dreamtim Corporation keeps all its cash in checking account. An examination of the company’s accounting records and bank statement for the month’s accounting records and bank statement for the month of June 30, 2008 revealed the following information: The cash balance per book on June 30 is P8,500,000 A deposit of P1,000,000 that was place in the bank’s night depository on June 30 does not appear on the bank statement The bank statement shows on June 30, the bank collected note for Dreamtim and credited to company’s account: P950,000. Checks outstanding on June 30 amount to P300,000 Dreamtim discovered that checks written in June for P200,000 in payment of an accounts payable had been recorded in the company’s record as P20,000 Included with the June bank statement was NSF check for P250,000 that Dreamtim had received from a customer on June 26. The bank statement shows a P20,000 service charges for June. What amount of cash to be shown in the balance sheet on June 30, 2008? 6. The partial income statement of five different companies are as follows: BSA Pre-Qualifying Examination 2009 – Afternoon Session 1 Net sales Merchandise inventory, 1/1/09 Net Purchases Goods available for sale Merchandise inventory, 1/31/09 Cost of Goods Sold Gross Profit 1 A B 80,000 110,000 40,000 C 50,000 2 D 50,000 E 160,000 F 140,000 40,000 3 250,000 70,000 G H 30,000 230,000 I 4 290,000 J 160,000 K 70,000 L 160,000 5 400,000 120,000 390,000 M N 380,000 O 7. The financial statements of Dyosa Company contained the following errors: Ending inventory of 2008 was understated by P2,000. Ending inventory of 2009 was overstated by P1,800. Depreciation expense of 2008 was understated by P400. Insurance of P1,500 was prepaid in 2008 for the years 2008, 2009, and 2010. The entire amount was expensed in 2003. On December 31, 2009, a fully depreciated machinery was sold for P3,200 cash but the sale was not recorded until 2010. No corrections had been made for any of these errors. Compute for the net effect (indicate whether under or overstatement) of these errors on the 2008 income. 8. You were given the following purchase and sale schedule for Gladys Company. Purchases Sales Unit cost Beginning – 2008 2000 1.5 1-Jan-2008 5000 1.6 19-Feb-2008 3000 28-Apr-2008 2500 5-May-2008 1.8 3000 22-Jul-2008 5000 20-Sept-2008 1.8 1000 15-Nov-2008 3500 18-Dec-2008 2 500 15-Jan-2009 3000 18-Jan-2009 2.1 200 The company sells its product at P5.5. a. Compute for cost of goods sold for 2008 using weighted average inventory costing. b. Compute for gross profit of 2008 assuming FIFO. 9. You were given the following breakdown of Melody Company’s accounts receivable on December 31, 2008: Sales to Amount Date shipped-2008 Term Date received-2008 A P100,000 1-Nov Shipping point 2/10, n/30 15-Dec B P200,000 31-Aug Destination 2/10, n/60 15-Nov C P250,000 21-Nov Shipping point 5,10, 2/15, n/30 20-Dec D P300,000 1-Sept Destination 2/10, n/30 1-Oct In computing bad debts, the company uses the following estimates: not yet due, 2%; 1-20 days past due, 5%, 21-40 days past due, 8%; 41-60 days past due, 10%; and over 60 days, 15%. The credit period starts after each sale and includes holidays. If the unadjusted balance of the allowance account is a debit of P5000, calculate the bad debts expense to be reported for 2008. 10. On the worksheet, assume that the total of the debit column (before income) on the balance sheet is P5,524,875 and the total debit column (after income) on the income statement is P1,258,250, what was the total of the debit column on the income statement(before income) if the total of the credit column on the balance sheet (before income) is P4,921,651? 11. On August 31, 2001, M.Catherine Company acquired land and building at a single cost of P6,500,000. At the time of acquisition, the land had a fair value of P1,000,000 and the building P4,000,000. The building has a salvage value of P880,000 and will be depreciated for 12 years using the straight line method. On January 31, 2007, the company determined that the building had a useful life of 9 years. What is the depreciation expense for the year ended 2007 and accumulated depreciation on April 1, 2008? 12. A business owned by DJ was short of cash and he decided to form a partnership with Kates who was able to contribute cash twice the interest of DJ in the new partnership. The assets contributed by DJ appeared as follows in the balance sheet of his business: Cash P450; Accounts receivable P9,450 with allowance for doubtful accounts of P300; Inventory P21,000; and store equipment P7,500 with an accumulated depreciation of P75. DJ and Kates agreed that the allowance for doubtful accounts was inadequate and should be P500. They also agreed that the fair value for the inventory is P23,000 and for the store equipment P6,000. Compute for the cash contributed by Kates into the partnership. BSA Pre-Qualifying Examination 2009 – Afternoon Session 2 13. Hazel Company had the following account balances on December 31, 2008: Cash in bank – current account 5,000,000 Cash in bank – payroll account 1,000,000 Cash on hand 500,000 Cash in bank – restricted account for building construction expected to be disbursed in 2009 3,000,000 Treasury bills, purchased December 15, 2008 and due March 15, 2009 2,000,000 The cash on hand includes a P200, 000 check payable to Hazel dated January 15, 2009. What should be reported as “cash and cash equivalents” on December 31, 2008? 14. Cecile Company had the following bank reconciliation on June 30, 2008: Balance per bank statement, June 30 3,000,000 Add: Deposit in Transit 400,000 Total Less: Outstanding Checks Balance per book, June 30 3,400,000 900,000 2,500,000 The bank statement for the month of July showed the following: Deposits (Including P200,000 note collected for Lazer) 9,000,000 Disbursements (Including P140,000 NSF check and P10,000 service charge) 7,000,000 All reconciling items on June 30 cleared through the bank in July. The outstanding checks totaled P600,000 and the deposit in transit amounted to P1,000,000 on July 31. a. What is the cash balance per book on July 31, 2008? b. What is the amount of cash receipts per book in July 2008? c. What is the amount of cash disbursements per book in July 2008? 15. The balance sheet of Sandy Novem Company shows accounts receivable at January 1, 2008 as follows: Accounts receivable 450,000 Allowance for doubtful accounts 9,000 During 2008, transactions relating to the accounts receivable were as follows: Sales on account, P4,800,000 Cash collections of accounts receivable totaled P3,920,000 after discounts of P80,000 were allowed for prompt payment Bad accounts previously written off prior to 2008 amounting to P5,000 were recovered The company decided to provide P26,000 for doubtful accounts by a journal entry at the end of the year Accounts receivable of P700,000 have been pledged to a local bank on a loan of P400,000. Collections of P150,000 were made on these receivables (not included in the collections previously given) and applied as partial payment for the loan Compute for the estimated realizable value of accounts receivable at December 31, 2008. 16. The following information pertains to Tita Margie Company’s accounts receivable at December 31, 2008: Days outstanding Estimated amount % uncollectible 0 – 60 61 – 120 Over 120 1,200,000 900,000 1,000,000 1% 2% 6% During 2008, Tita Margie wrote off P70,000 in receivables and recovered P40,000 that had been written off in prior years. Tita Margie’s January 1, 2008, allowance for uncollectible accounts was P100,000. Under the aging method, what amount of allowance for uncollectible accounts should be reported at December 31, 2008? 17. On July 1, 2008, Jan Mark Corporation sold equipment to Mando Corporation for P1,000,000. Jan Mark accepted a 10% note receivable for the entire sales price. This note is payable in two equal installments of P500,000 plus accrued interest on December 31, 2008 and December 31, 2009. On July 1, 2009, Jan Mark discounted the note at a bank at an interest rate of 12%. Compute for Jan Mark’s proceeds from the discounted note. 18. Jerome company is preparing its 2007 year-end financial statements. Prior to any adjustments, inventory is valued at P7,600,000. The following information has been found relating to its certain inventory transactions: Goods valued at P1,000,000 are on consignment with a customer. These goods are not included in the year-end inventory figure. Goods costing P250,000 were received from a vendor on January 5, 2008. The related invoice was received and recorded on January 12, 2008. The goods were shipped on December 31, 2007, terms, FOB shipping point. Goods costing P850,000 were shipped on December 31, 2007, and were delivered to the customer on January 2, 2008. The terms of the invoice were FOB shipping point. The goods were included in ending inventory for 2007 even though the sale was recorded in 2007. A P350,000 shipment of goods to a customer on December 31, 2007, terms FOB destination, was not included in the year-end inventory. The goods cost P260,000 and were delivered to the customer on January 8, 2008. The sale was properly recorded in 2008. An invoice for goods costing P350,000 was received and recorded as a purchase on December 31, 2007. The related goods, shipped FOB destination, were received on January 2, 2008, and thus were not included in the physical inventory. Goods valued at P650,000 are on consignment from a vendor. These goods are not included in the year-end inventory figure. A P1,050,000 shipment of goods to a customer on December 30, 2007, terms FOB destination, was recorded as a sale in 2007. The goods, costing P840,000 and delivered to the customer on January 6, 2008, were not included in 2007 ending inventory. Compute for the correct inventory on December 31, 2007. 19. The inventory on hand at December 31, 2008 for Dexter Company is valued at a cost of P950,000. The following items were excluded in this inventory amount: BSA Pre-Qualifying Examination 2009 – Afternoon Session 3 Item 1: Purchased goods in transit, shipped FOB destination, invoice price P30,000 which includes freight charge of P1,500. Item 2: Goods held on consignment by Dexter Company at a sales price of P28,000 including sales commission of 20% of the sales price. Item 3: Goods sold to Dioville Company, under terms FOB destination, invoiced for P18,500 which includes P1,000 freight charge to deliver the goods. Goods are in transit. The company’s selling price is 40% above the cost. Item 4: Purchased goods in transit, terms FOB destination, invoice price P50,000 which includes freight cost, P2,500. Item 5: Goods out on consignment to Dreamtim Company, sales price P35,000, shipping cost of P2,000. What is the adjusted cost of the inventory on December 31, 2008? 20. Marianne Company started its operations in 2006. The following data are abstracted from the company’s purchases and sales records: Number of units purchased Number of units sold Unit cost Sales revenue 2006 160,000 100,000 4.00 800,000 2007 155,000 145,000 5.00 1,200,000 2008 135,000 130,000 6.00 1,300,000 The inventory value is calculated in terms of FIFO. How much is gross profit for the year 2008? 21. During January of the current year, Leisha Company which maintains perpetual inventory system, recorded the following information pertaining to its inventory: Balance on 1/1 Purchased on 1/7 Sold on 1/20 Purchased 1/25 a. b. Units 10,000 6,000 9,000 4,000 Unit cost 100 300 Total cost 1,000,000 1,800,000 500 2,000,000 Units on Hand 10,000 16,000 7,000 11,000 Under the moving average method, what amount should Leisha report as inventory at January 31? Under the FIFO method, what amount should Leisha report as inventory at January 31? 22. Reah Company’s accounting records indicated the following information for the year 2008: Inventory, 1/1 1,000,000 Purchases 5,000,000 Sales 6,400,000 A physical inventory taken on December 31, 3008, resulted in an ending inventory of P1,150,000. Reah’s gross profit on sales has remained constant at 25% in recent years. Reah suspects some inventory may have been taken by a new employee. At December 31, 2008, what is the estimated cost of missing inventory? 23. A major portion of Katrina Company’s inventory was stolen on the night of August 31, 2008. A physical count the next day revealed that goods costing P600,000 were still on hand. Your examination of the company’s accounting records reveal the following: Inventory, January 1 1,250,000 Transactions, January 1 through August 31 Purchases 4,850,000 Purchase Returns 100,000 Transportation in 300,000 Sales 7,250,000 Sales Returns 250,000 The company began operation early in 2007, and its income statement for the year appears below. Net sales 9,750,00 Cost of Goods Sold 0 5,850,00 0 Gross Margin on Sales Operating expenses stolen. 24. On for Income before income tax Income tax 3,900,00 0 1,400,00 0 Compute for the estimated cost of the inventory that was 2,500,00 0 800,000 1,700,00 0 April 1, 2008, Ladrero Company purchased new machinery P3,600,000. The machinery has an estimated useful life of Net income five years and is expected to be disposed for P600,000. Depreciation is computed by the sum-of-the-years’ digits method. Compute for the accumulated depreciation on this machinery at December 1, 2011. 25. On January 1, 2007, Dioville Company purchased a large quantity of personal computers. The cost of these computers was P6,000,000. On the date of purchase, the management estimated that the computers would last approximately four years and would have residual value at that time of P600,000. The company used the double declining balance method. During January 2008, the management realized technological advancements had made the computers virtually obsolete and that they would have to be replaced. Management proposed changing the remaining useful life of the computers to two years. What is the depreciation to be recognized for the year 2008? 26. Mataba Company is a partnership whose owners are Mads, Flor, and Danna. The partners share profits and losses at 20%, 20% 60% respectively. Due to mental incapacity of Mads, the partnership had to be dissolved and liquidated. Their balance sheet prepared as of January 1, 2005 shows the following: Cash P 12,000 Liabilities P125,000 Non-cash assets 425,200 Mads, Capital 107,700 Flor, Capital 78,500 BSA Pre-Qualifying Examination 2009 – Afternoon Session 4 Danna, Capital 126,000 All noncash assets were sold at a loss for P75,000. Liquidation expenses of P20,000 were also paid. Mads and Danna are insolvent while Flor is financially sound. How much capital deficiency was absorbed by Flor? 27. On December 1, 2008, Caloy Company received a donation of 2,000 shares of its P50 par value common stock from a stockholder. On that date, the stocks’s market value was P350 per share. The stock was originally issued for P250 per share. By what amount would this donation cause total stockholders’ equity to decrease? 28. MCS Limited is a liquidating partnership. It is owned by Mari, Cris and Sab who share profits at 40%, 40% and 20%, respectively. Mari is a limited partner. The liquidation of the partnership is to commence June 30, 2003 and their accounts as of this date appear as follows: Debits Credits Cash P45,200 Non-cash assets 528,000 Accounts payable 218,500 Loan from Mari 54,625 Mari, Capita 22,400 Cris, Capital 185,000 Sab, Capital 92,675 The first period of liquidation realized P200,000 cash from the sale of non-cash assets with book value of P245,500. Cash distribution to the partners as agreed will be based on the schedule of safe payments. Assuming no cash is withheld, how much cash should be paid to Mari as of this point in time? 29. The stockholders’ equity of Visa Company on December 31, 2008 includes the following: 12% Preferred stock, 20,000 shares, P100 par value 2,000,000 14% Preferred stock, 10,000 shares, P300 par value 3,000,000 Common Stock, 50,000 shares, P100 par value 5,000,000 Retained Earnings 2,240,000 Additional Paid in Capital 1,500,000 The 12% stock is cumulative and fully participating. The 14% stock is noncumulative and fully participating. Dividends have not been declared for 3 years. What is the book value per ordinary share? 30. Vacio Company’s capital structure at January 1, 2007 was as follows: Ordinary share capital Shares issued and outstanding 200,000 Nonconvertible preference share capital 50,000 On October 1, 2007, Vacio issued a 10% stock dividend on its ordinary share, and paid a cash dividend of P200,000 on its preference share. Net income for the year ended December 31, 2007 was P1,920,000. What should be the basic earnings per share? 31. The business of A and B appear as follows: Cash Accounts Receivable Inventories Building Land Furniture Keng 22,000 505,000 180,000 1,800,000 2,100,000 52,000 Other assets Accounts payable 1. 2. Kong 8,000 645,000 520,000 41,000 470,500 632,000 Loans payable 105,380 Notes payable 200,000 Keng and Kong agreed to form partnership by contributing their net assets to the new association subject however to the following adjustments: a. Accounts receivable is to be revalued, and should have an allowance which is equal to 5% of the outstanding book balance. Building is revalued at 30% less its book value. b. The land has a fair market value of P2,210,000 c. The furniture and other assets are to be written off because they are already considered worthless Assuming the books of A will be used as the books of the partnership, compute for the total assets immediately after formation of the partnership. Based on the above and assuming the books of B will be used as partnership books, calculate the total capital immediately after the formation of the partnership. 32. Garcia and Henson formed a partnership on January 2, 2008 and agreed to share profits 90%, 10%, respectively. Garcia contributed capital of P25,000. Henson contributed no capital but has a specialized expertise and manages the firm full time. There were no withdrawals during the year. The partnership agreement provides for the following: Capital accounts are to be credited annually with the interest at 5% of beginning capital. Henson is to be paid a salary of P1,000 a month. Henson is to receive a bonus of 20% of income calculated before deducting his salary and interest on both capital accounts. Bonus, interest, and Henson’s salary are to be considered partnership expenses. The partnership 2008 income statement follows: Revenues P96,450 Expenses (including salary, interest and bonus) P49,700 Net income P46.750 What is Henson’s 2008 bonus? BSA Pre-Qualifying Examination 2009 – Afternoon Session 5 33. On July 1, 2008, Moñuz and Pardo from the partnership, agreeing to share profits and losses in the ratio of 4:6, respectively. Moñuz contributed a parcel of land that cost him P25,000. Pardo contributed P50,000 cash. The land was sold for P50,000 on July 1, 2008 four hours after formation of the partnership. How much should be recorded in Moñuz capital account on the formation of the partnership? 34. Lina, Mina and Nina were partners with capital balances on January 2, 2008 of P300,000, P200,000 and P100,000, respectively. On July 1, 2008 Lina retires from the partnership. On the date of retirement the partnership net loss is P60,000 and that partners agreed that certain asset is to be revalued at P80,000 from its original cost of P50,000. The partners agreed further to pay Lina P225,000 in settlement of her interest. The remaining partners continue to operate under a new partnership, MN partnership. What is the total capital of MN partnership? 35. Abe, Bert Carl are partners sharing profits on a 7:2:1 ratio. On January 1, 2008, Dave was admitted into the partnership with 15% share in profits. The old partners continue to participate in profits in their original ratios. For the year 2008, the partnership showed a profit of P15,000. However, it was discovered that the following items were omitted in the firm’s book: Unrecorded at year end 2007 2008 Accrued expenses P1,050 Accrued income P875 Prepaid expenses P1,400 Unearned income P1,225 What is the share of partner Bert in the 2008 net profit? 36. On January 1, 2008, A, B, C and D formed Bekha Trading Co., a partnership with capital contribution as follows: A, P50,000; B, P25,000; C, P25,000; and D, P20,000. The partnership contract provided that each partner shall receive a 5% interest on contributed capital, and that A and B shall receive salaries of P5,000 and P3,000, respectively. The contract also provide that C shall receive a minimum of P2,500 per annum and D a minimum of P6,000 per annum, which is inclusive of amounts representing interest and share of remaining profits. The balance of the profits shall be distributed to A, B, C, and D in a 3:3:2:2 ratio. What amount must be earned by the partnership before any charge for interest and salaries, so that A may receive an aggregate of P12,500 including interest, salary and share of the profits? 37. Gilbert, Joseph and Li are partners with capital balance of P350,000, P250,000 and P350,000 and sharing profits 30%, 20% and 50% respectively. Partners agree to dissolve the business and upon liquidation, all of the partnership assets are sold and sufficient cash is realized to pay all the claims except one for P50,000. Li is personally insolvent, but the other two partners are able to meet any indebtedness to the firm. On the remaining claim against the partnership, how much will Gilbert absorb? 38. Penn Company began operations on January 1, 2008 by issuing at P15 per share one-half of the 950,000 ordinary shares of P1 par value that had been authorized for sale. In addition, Penn has 500,000 authorized preference shares of P5 par value. During 2008, Penn had P1,025,000 of net income and declared P230,000 of dividend. During 2009, Penn Company had the following transactions: Issued 100,000 ordinary shares for P17 per share. Issued 150,000 preference shares for P8 per share. Authorized the purchase of a custom-made machine to be delivered in January 2010. Penn restricted P300,000 of retained earnings for the purchase of the machine. Issued additional 50,000 preference shares for P9 per share. Reported P1,215,000 of net income and declared on December 31, 2009 a dividend of P635,000 to shareholders of record on January 15, 2010, to be paid on February 1, 2010. What is the total shareholder’s equity on December 31, 2009? 39. Dyosa Inc. was authorized to issue 500,000 ordinary shares at P10 par starting January 1, 2008. During the year, 40,000 shares were issued for P30 per share, 10,000 shares for P65 per share and 10,000 shares were issued in exchange for a parcel of land with cost of P150,00 and a fair value of P180,000 and 3,000 shares were subscribed for P40 per share ( ½ was collected on July 1, 2008). On January 15, 2009, 1,000 shares were reacquired for P55 per share and were held in treasury. How much is paid-incapital on December 31, 2008? 40. You were given the following shareholder’s equity accounts for Paperclip Inc.: Ordinary shares (15 par) P499,500 Unappropriated Retained Earnings P400,000 Ordinary share premium P200,000 Appropriated Retained Earnings P320,000 Preference shares (P40) P250,000 Treasury shares (ordinary) @ cost P25,000 Preference share premium P80,000 Treasury shares (ordinary) @ par P15,000 Subsequently, ½ of treasury shares were reissued at P20 per share and ½ of the issued preference shares were converted to ordinary shares at the rate of two ordinary shares for one preference share. The converted shares were originally issued at P50 per share. Compute the total shareholder’s equity after the above transactions. 41. On January 1, 2008, a group of stockholders set up Uhmwell Inc. They contributed cash of P2,500,000 and borrowed P300,000. During the year, revenues from sales totaled P154,000, while total costs and expenses were P148,000. Uhmwell declared a cash dividend of P10,000 on December 15, payable to the stockholders on January 15, 2009. There were no additional activities affecting stockholder’s equity. By December 31, 2008, liabilities increased to P440,000. How much is total assets of Uhmwell as of December 31, 2008? 42. On May 1 of the current year, Sol Company’s board of directors declared a 10% stock dividend. The market price of Sol’s 30,000 outstanding shares of P20 par value was P90 per share on that date. The stock dividend was distributed on July 1, when the market price was P100 per share. What amount should Sol credit to share premium for this stock dividend? 43. Cox Company was organized on January 1, 2007 at which date it issued 100,000 ordinary shares of P10 par value at P15 per share. During the period January 1, 2007 through December 31, 2007, Cox reported net income of P450,000 and paid cash dividend of P230,000. On January 10, 2008, Cox purchased 6,000 treasury shares at P12 per share. On December 31, 2008, Cox sold 4,000 treasury shares at P8 per share and retired the remaining treasury shares. Cox uses the cost method of accounting for treasury shares. What is the total shareholder’s equity at December 31, 2008? BSA Pre-Qualifying Examination 2009 – Afternoon Session 6 II. MULTIPLE CHOICE. Write the letter of your choice on a separate paper. No solutions are required. 1. On January 1, 2005, Charisma Company bought a machine for P1,500,000. At that time, this machine had an estimated useful life of six years, with no residual value. As a result of additional information, Charisma determined on January 1, 2008, that the machine had an estimated useful life of eight years from the date it was acquired, with no residual value. Accordingly, the appropriate accounting change was made in 2008. How much depreciation expense for this machine should Charisma record for the year ended December 31, 2008, assuming Charisma uses the straight line method of depreciation? a. 125,000 b. 150,000 c. 187,500 d. 250,000 2. Mataba Company was organized on January 1, 2008, with authorized capital of 100,000 shares of P200 par value common stock. During 2008, Mataba had the following transactions affecting the stockholders’ equity: January 10 Issued 25,000 shares at P220 a share March 25 Issued 1,000 shares for legal services when the fair value was P240 a share September 30 Issued 5,000 shares for a tract of land when the fair value was P260 a share What amount should Mataba report for additional paid-in capital at December 31, 2008? a. 840,000 b. 800,000 c. 540,000 d. 500,000 3. Vacio Company’s stockholders’ equity at December 31, 2008, consisted of the following: 8% cumulative preferred stock, P50 par; liquidating value P55 per share; authorized, issued and outstanding 20,000 shares 1,000,000 Common stock, P25 par, 200,000 shares authorized; 100,000 shares issued and outstanding 2,500,000 Retained earnings 400,000 Dividends on preferred stock have been paid through 2006 but have not been declared for 2007 and 2008. Compute for Vacio’s book value per common share as of December 31, 2008. a. 25 b. 27.20 c. 26.40 d. 29 4. Amitap Company had 10,000 shares of common stock issued and outstanding at January 1, 2008. During 2008, Amitap took the following transactions: March 15 Declared a 2-for-a stock split, when the fair value of the stock was P80 per share December 15 Declared a P5 per share cash dividend In Amitap’s statement of stockholder’s equity for 2008, what amount should Patima report as dividends? a. 50,000 b. 100,000 c. 850,000 d. 950,000 5. In preparing its bank reconciliation at December 31, 2008, Uhmwell Company has made available the following data: Balance per bank statement 3,800,000 Deposit in transit 520,000 Amount erroneously credited by bank to Umwell’s account 40,000 Bank service charge for December 5,000 Outstanding checks 675,000 The adjusted cash in bank balance on December 31, 2008 is a. 3,685,000 b. 3,645,000 c. 3,600,000 d. 3,605,000 6. Rai Company provided the following data for the purpose of reconciling the cash balance per book with the balance per bank statement on December 31, 2008: 2,000,00 Balance per bank statement 0 Balance per book 850,000 Outstanding checks (including certified check of P100,000) 500,000 Deposit in transit 200,000 December NSF checks (of which P50,000 had been redeposited and cleared by December 27 150,000 Erroneous credit to Rai's account, representing proceeds of loan granted to another company 300,000 Proceeds of note collected by bank fo Rai, net service charge of 20,000 750,000 The cash in bank to be shown in Rai’s December 31, 2008 statement of financial position is a. 1,500,000 b. 1,400,000 c. 1,800,000 d. 1,450,000 7. Luna Company prepared an aging of its accounts receivable at December 31, 2008 and determined that the net realizable value of the accounts receivable 2008 was P2,500,000. Additional information is available as follows: Allowance for uncollectible accounts at January 1 - credit balance 280,000 Accounts written off as uncollectible 230,000 2,700,00 Accounts receivable at December 31 0 Uncollectible accounts recovery 50,000 For the year ended December 31, 2008, Luna’s uncollectible accounts expense would be a. 230,000 b. 200,000 c. 150,000 d. 100,000 8. An analysis and aging of Kates Company’s accounts receivable at December 31, 2008 disclosed the following: 9,000,00 Accounts receivable 0 Allowance for doubtful accounts per book 500,000 Accounts deemed uncollectible 640,000 At December 31, 2008, the net realizable value of accounts receivable should be a. 8,860,000 b. 8,500,000 c. 8,360,000 d. 7,860,000 BSA Pre-Qualifying Examination 2009 – Afternoon Session 7 9. All of Meow Company’s sales are on credit basis. The following information is available for the current year: Allowance for doubtful accounts - January 1 180,000 9,500,00 Sales 0 Sales returns 800,000 Accounts written off as uncollectible 200,000 Meow provides for doubtful accounts expense at the rate of 3% of net sales. At December 31, the allowance for doubtful accounts balance should be a. 281,000 b. 265,000 c. 261,000 d. 241,000 10. Sexyriz Company’s inventory at December 31, 2008 was P7,500,000 based on physical count priced at cost and before any necessary adjustment for the following: Merchandise costing P450,000, shipped FOB shipping point from a vendor on December 30,2008, was received and recorded on January 5, 2009. Goods in the shipping area were excluded from inventory although shipment was not made until January 4, 2009. The goods billed to the customer FOB shipping point on December 30, 2008, had a cost of P600,000. What amount should Sexyriz report as inventory on December 31, 2008? a. 7,500,000 b. 7,950,000 c. 8,100,000 d. 8,550,000 11. The following information applied to Dann Company for the current year: 4,000,00 Merchandise purchased for resale 0 Freight in 100,000 Freight out 50,000 Purchase returns 20,000 Interest on Inventory loan 200,000 Dann’s inventoriable cost was a. 4,280,000 b. 4,030,000 c. 4,080,000 d. 4,130,000 12. n April 1, Ville Company had 6,000 units of merchandise on hand that cost P120 per unit. During the month, Ville had the following entries with regard to the merchandise: April 5 Purchased on account 15,000 units at P140 per unit 8 Returned 1,000 units from the April 5 purchase 29 Sold on account 16,000 units at P200 per unit Ville Company uses a perpetual inventory system and a FIFO cost flow. What is the cost of goods sold for April? a. 2,120,000 b. 2,200,000 c. 2,144,000 d. 2,080,000 13. On August 1, Borja Company purchased a new machine on a deferred payment basis. A down payment of P100,000 was made and 4 monthly installments of P250,000 each are to be made beginning on September 1. The cash price equivalent price of the machine was P950,000. Borja incurred and paid installation costs amounting to P30,000. The amount to be capitalized as the cost of the machine is a. 950,000 b. 980,000 c. 1,100,000 d. 1,130,000 14. On January 1, 2004, May Company acquired equipment for P1,000,000 with an estimated 10-year useful life. May estimated a P100,000 residual value and used the straight line method of depreciation. During 2008, after its 2007 financial statements had been issued, May determined that, due to obsolescence, this equipment’s remaining useful life was only four more years and its residual value would be P40,000. In May’s December 31, 2008 statement of financial position, what was the carrying amount of the equipment? a. 515,000 b. 490,000 c. 415,000 d. 390,000 15. Gladz Company purchased a tooling machine in 1998 for P3,000,000. The machine was depreciated on the straight line method over an estimated useful life of twenty years with no residual value. At the beginning of 2008, when the machine had been in use for ten years, the company paid P600,000 to overhaul the machine. As a result of this improvement, the company estimated that the useful life of the machine would be extended an additional five years, What should be the depreciation expense for the machine in 2008? a. 150,000 b. 140,000 c. 210,000 d. 340,000 16. On March 1, 2008, Santos and Pablo formed a partnership with each contributing the following assets. Santos Pablo Cash P30,000 P70,000 Machinery and equipment P25,000 P75,000 Building P225,000 Furniture and fixtures P10,000 The building is subject to mortgage loan of P80,000, which is to be assumed by the partnership. The partnership agreement provides that Santos and Pablo share profits and losses 30% and 70%, respectively. On March 1, 2008 the balance in Pablo’s capital account should be: a. P290,000 b. P305,000 c. P314,000 d. P370,000 17. A and B entered into a partnership as of March 1, 2008 by investing P125,000 and P75,000, respectively, they agreed that A, as the managing partner, was to receive a salary; P30,000 per year and a bonus computed at 10% of the net profit after adjustment of the salary; the balance of the profit was to be distributed in the ratio of their original capital balances. On December 31, 2008, account balances were as follows: Cash P70,000 Accounts Payable P60,000 Accounts Receivable P67,000 A, capital P125,000 Furniture and Fixtures P45,000 B, capital P75,000 Sales Return P5,000 A, drawing (P20,000) Purchases P196,000 B, drawing (P30,000) Operating expenses P60,000 Sales P233,000 BSA Pre-Qualifying Examination 2009 – Afternoon Session 8 Inventories on December 31, 2008 were as follows: supplies, P2,500, merchandise, P73,000, prepaid insurance was P950 while accrued expenses were P1,550. Depreciation rate was 20% per year. The partner’s capital balances on December 31, 2008, after closing the net profit and drawing accounts were: A B a. P135,940 P47,960 b. P139,540 P49,860 c. P139,680 P48,680 d. P142,350 P47,670 18. Mr. Zoom and his very close friend Mr. Boom formed a partnership on January 1, 2008 with Zoom contributing P16,000 cash and Boom contributing equipment with a book value of P6,400 and a fair value of P8,000. During 2008, Boom made additional investments of P1,600 on April 1 and P1,600 on June 1, and on September 1: he withdrew P4,000. Zoom had no additional investments or withdrawals during the year. The average capital balance at the end of 2008 for Mr. Boom is: a. P9,600 b. P8,000 c. P8,800 d. P7,200 19. Cong and Dong have just formed a partnership. Cong contributed cash of P126,000 and computer equipment that cost P54,000. The computer had been used in his sole proprietorship and had been depreciated to P24,000. The fair value of the equipment is P36,000. Cong also contributed a note payable of P12,000 to be assumed by the partnership. Cong is to have 60% interest in the partnership. Dong contributed only P90,000 cash. Cong should make an additional investment (withdrawal) of: a. P96,000 b. P84,000 c. (P76,800) d. (P15,000) 20. Bee, Cee and Dee are partners in BCD Partnership and share profits and losses, 5:3:2, respectively. The partners have agreed to liquidate the partnership. Prior to liquidation, the partnership balance sheet shows the following book values: Cash 25,200 Non-cash assets 297,600 Notes payable to Dee 38,400 Other Liabilities 184,800 Bee, capital 72,000 Cee, capital (12,000) Dee, capital 39,600 Liquidation expenses of P16,800 are paid. Non-cash assets with a book value of P240,000 are sold for P216,000. How much cash should Dee receive? a. P74,571 b. P46,458 c. P39,600 d. P37,600 21. Carlos and Deo are partners who share profits and losses in the ratio of 7:3, respectively. On October 5, 2008, their respective capital accounts were as follows: Carlos P35,000 Deo P30,000 On that day they agreed to admit Sotto as partner with a one-third interest in the capital and profits and losses, and upon his investment of P25,000. The new partnership will begin with a total capital of P90,000. Immediately after Sotto’s admission, what are the capital balances of Carlos, Deo and Sotto, respectively? a. P30,000; P30,000; P30,000 b. P31,500; P28,500; P30,000 c. P31,667; P28,333; P30,000 d. P35,000; P30,000; P25,000 22. The accounts below appear in the December 31, 2008 trial balance of Leytean Company: Authorized share capital 10,000,000 Unissued share capital 7,000,000 Subscribed share capital 6,000,000 Subscription receivable 5,400,000 Share premium 500,000 Retained Earnings unappropriated 300,000 Retained Earnings appropriated 600,000 Revaluation surplus 200,000 Treasury shares @ cost 100,000 In its December 31, 2008 statement of financial position, Leytean should report total shareholder’s equity at a. 5,100,000 b. 5,500,000 c. 4,900,000 d. 4,800,000 23. On December 1, Circle Company received a donation of 2,000 shares with P50 par value from a shareholder. On that date, the share market value was P350. The shares were originally issued for P250 per share. By what amount would this donation cause the total shareholder’s equity to decrease? a. 700,000 b. 500,000 c. 200,000 d. 0 24. The shareholder’s equity section of Mina Company revealed the following information on December 31,2008. Preference Share Capital, P100 par 2,300,000 Preference Share Premium 805,000 Ordinary Share Capital, P10 par 5,250,000 Ordinary Share Premium 2,750,000 Subscribed Ordinary Share Capital 50,000 Retained Earnings 1,900,000 Notes payable 4,000,000 Subscription Receivable-ordinary share 400,000 How much is the legal capital? a. 7,550,000 b. 7,600,000 c. 13,055,000 d. 11,150,000 25. Effective December 31,2008,the shareholders of Dorr Company approved a two-for-one split of the company’s share capital, and an increase in authorized shares from 100,000 shares (par value P20) to 200,000 shares (par value P10). Dorr’s shareholders’ equity accounts immediately before issuance of the split shares were as follows: Share capital, par value P20; 100,000 shares authorized; 50,000 shares outstanding 1,000,000 BSA Pre-Qualifying Examination 2009 – Afternoon Session 9 Share premium 150,000 Retained earnings 1,350,000 What should be the balances in Dorr’s share premium and retained earnings accounts immediately after the share split is effective? Share premium Retained earnings a. 0 500,000 b. 150,000 350,000 c. 150,000 1,350,000 d. 1,150,000 350,000 26. Of the 125,000 shares issued by Vey Company, 25,000 shares were held as treasury at January 1, 2008. During 2008, transactions were as follows: January 1 through October 31-13,000 treasury shares were distributed to officers as part of the share compensation plan. November 1- A 3-for-1 share split took effect. December1- Vey purchased 5,000 of its own shares to discourage an unfriendly takeover. These shares were not retired. On December 31, 2008, how many shares were issued and outstanding? Issued Outstanding a. 375,000 334,000 b. 375,000 324,000 c. 334,000 334,000 d. 324,000 324,000 27. Tarat Company’s shareholder’s equity at December 31, 2008 consisted of the following: Preference share capital – 12%, P50 par, 20,000 shares issued 1,000,000 Ordinary share capital, P25 par, 100,000 shares issued 2,500,000 Share premium 200,000 Retained earnings 400,000 Retained earnings appropriated 100,000 Revaluation surplus 300,000 Dividends on preference share have not been paid since 2006. The preference share has a liquidating value of P55 and a call price of P58. What is the book value per preference share? a. 61 b. 56 c. 55 d. 58 28. Negros Company was incorporated on January 1, 2008 with the following authorized capitalization: Ordinary share capital, 200,000 shares, no par P100 stated value 20,000,000 Preference share capital, 200,000 shares, 10% fixed rate, P50 par value 10,000,000 During 2008, Negros issued 150,000 ordinary shares for a total of P18,000,000 and 50,000 preference shares at P60 per share. In addition, on December 15, 2008, subscriptions for 20,000 preference shares were taken at a purchase price of P100. These subscribe shares were paid for on January 15, 2009. Net income for 2008 was P5,000,000. What should Negros report as total contributed capital on December 31, 2008? a. 28.000,000 b. 21,000,000 c. 23,000,000 d. 26,000,000 29. The directors of Ontario Company whose P50 par value share capital is currently selling at P60 per share have decided to issue a stock dividend. The selling price is not expected to be affected by the stock dividend. Ontario, which has an authorization for 1,000,000 shares, had issued 500,000 shares, of which 100,000 shares are now held as treasury. In order to capitalize P2,400,000 of the retained earnings balance, what percentage should be declared as a stock dividend by the directors? a. 10% b. 8% c. 6% d. 4% 30. Beauty Company has the following information in its equity accounts: Number of shares Amount Preference share capital, P500 par value 2,200 1,100,000 Treasury preference shares @ cost 100 110,000 Ordinary share capital without par value (at issue price) 3,000 600,000 Retained earnings 2,500,000 Due to the substantial amount of retained earnings, the company’s Board of Directors resolved to pay a 100% stock dividend on all shares outstanding, capitalizing amounts of retained earnings equal to the par value and the issue price of the preference and ordinary shares outstanding, respectively, and thereafter to pay a cash dividend of 10% on preference share and a cash dividend of P10 per ordinary share. What is the total shareholder’s equity of Beauty Company after effecting the above transactions? a. 4,090,000 b. 3,810,000 c. 3.820,000 d. 3,955,000 BSA Pre-Qualifying Examination 2009 – Afternoon Session 10