INTERMEDIATE ACCOUNTING 2 – SET G
1. At the beginning of the current year, Yukio Company acquired 40% of the outstanding shares
of an investee for P6.5M. The carrying amount of the net assets of the investee equaled P12.5M.
Any excess of cost over carrying amount is attributable to goodwill. The investee reported a net
loss of P4M and paid cash dividend of P2.5M. What is the carrying amount of the investment at
year-end?
a. 6,500,000
c. 4,900,000
b. 3,900,000
d. 5,500,000
2. On January 1, 2016, Ken Company acquired as a long term investment a 20% ordinary share
interest in Matrix Company. Ken paid P7,000,000 for this investment when the fair value of
Matrix’s net assets was P35,000,000. For the year ended December 31, 2016, the investee
reported net income of P4,000,000 and declared and paid cash dividends of P1,600,000.
What amount of revenue from the investment should be reported for 2016?
a. 1,120,000
c. 800,000
b. 480,000
d. 320,000
3. On Dec 31, 2016, Fay Company appropriately reported a P100,000 unrealized loss. There was
no change during 2017 in the composition of the portfolio of non-trading equity securities held at
fair value through OCI.
SECURITY
COST
MV
@
DEC
31,
2017
A
1,200,000
1,300,000
B
900,000
500,000
C
1,600,000
1,500,000
TOTAL
3,700,000
3,300,000
What is the market value of the investment on Dec 31, 2016?
a. 3,600,000
c. 3,500,000
b. 3,700,000
d. 3,800,000
On Oct 1, 2016, Danica Co purchased P2,000,000 face value 12% bonds for 98 plus accrued
interest and brokerage fee. Interest is paid semi-annually on Jan 1 and July 1. Brokerage fee for
this transaction was P50,000.
4. At what amount should this acquisition of bonds be recorded?
a. 1,960,000
b. 2,010,000
c. 2,020,000
d. 2,070,000
During 2016, Lawan Company bought the shares of Burwood Company as follows:
June 1
20,000 shares @ 100 2,000,000
Dec 1
30,000 shares @ 120 3,600,000
5,600,000
Transactions for 2017:
Jan 10
Received cash dividend @ 10 per share
Jan 20
Received 20% stock dividend
Dec 10
Sold 30,000 shares @ 125 per share
5. If FIFO approach is used, what is the gain on the sale of shares?
a. 1,150,000
c. 150,000
b. 950,000
d. 550,000
Cobb Company purchased 10,000 shares of Roe Company on Feb 15, 2016. Cobb Company
received a stock dividend of 2,000 shares on March 31, 2016. Roe Company paid a cash
dividend of P15 per share on Sept 15, 2016.
6. In the income statement, what amount should be reported as dividend income?
a. 150,000
c. 880,000
b. 180,000
d. 980,000
Tower Co. made the following acquisitions during the year:
 Purchased for P5,400,000, including appraiser fee of P50,000, a warehouse building and the
land on which it is located. The land had an appraised value of P2,000,000 and original cost
of P1,400,000. The building had an appraised value of P3,000,000 and original cost of
P2,800,000.
 Purchased an office building and the land on which it is located for P7,500,000 cash and
assumed an existing mortgage of P2,500,000. For realty tax purposes, the property is
assessed at P9,600,000, 60% of which is allocated to the building.
7. What is the total cost of the land?
a. 6,160,000
b. 5,840,000
c. 6,000,000
d. 5,000,000
8. What is the total cost of building?
a. 8,760,000
b. 9,240,000
c. 9,000,000
d. 7,760,000
Fade Company acquired a new machinery:
Invoice price of the machinery
Cash discount available but not taken on purchase
Freight paid on the new machinery
Cost of removing the old machinery
Installation cost of the new machinery
Testing cost before the machinery was put into regular
operation including P10,000 wages of the regular
machinery operator
Loss on premature retirement of the old machinery
Including overhead
1,400,000
20,000
40,000
15,000
50,000
30,000
1,300,000
Ivy Company installed a production assembly line to manufacture furniture. In the current year,
the entity purchased a new machine and improved the assembly line to install this machine.
The improvement did not increase the estimated useful life of the assembly line but it did result
in significant increase in production.
The following expenditures were incurred in connection with this project:
Machine
750,000
Labor to install machine
140,000
Parts added in improving the assembly line
400,000
Labor and overhead in improving the assembly line 180,000
9. What total amount of the expenditure should be capitalized?
a. 1,470,000
c. 890,000
b. 1,070,000
d. 750,000
Pass Company purchased a boring machine on Jan 1, 2016 for P8,100,000. The useful life of the
machine is estimated at 3 years with a residual value at the end of this period of P600,000.
During the useful life, the expected units of production are 12,000 units in 2016, 7,000 units in
2017, and 6,000 units in 2018.
10. What is the depreciation expense for 2017 using the most appropriate depreciation method?
a. 2,100,000
c. 3,600,000
b. 2,268,000
d. 1,800,000
Far Company quarries limestone, crushes it, and sells it to be used in road building. The entity
paid P10,000,000 for a certain quarry. The property can be sold for P3,000,000 after production
ceases.
Estimated total reserves
10,000,000
Tons quarried through Jan 1, 2015
4,000,000
Tons quarried in 2015
1,500,000
An engineering study indicated that on Jan 1, 2015 7,500,000 tons of limestone were available.
11. What is the depletion for 2015?
a. 1,050,000
b. 2,800,000
c. 1,200,000
d. 840,000
On January 1, 2009, Raven Company acquired a building at cost of P5,000,000. The building
has been depreciated on the basis of a 20-year life. On January 1, 2014, an appraisal of the
building showed replacement cost at P8,000,000 with no change in useful life.
12. What amount should be credited to revaluation surplus on January 1, 2014.
a. 3,000,000
c. 4,250,000
b. 2,250,000
d. 6,000,000
13. What is the Depreciation for 2014?
a. 250,000
c. 400,000
b. 150,000
d. 300,000
14. What is the revaluation surplus that should be reported in the December 31, 2014 of financial
position?
a. 2,100,000
c. 1,850,000
b. 2,250,000
d. 2,800,000
John Company acquired a coal mine at a cost of P25,000,000. Intangible development cost
totaled P6,000,000. After the extraction has occurred, the entity must restore the property and the
estimated fair value of the obligation is P3,000,000. The property can be sold for 8,5000,000
after restoration. The entity estimated that 500,000 tons of coal can be extracted. The entity
extracted 90,000 tons in the first year.
15. Which of the following would be included in the journal entry to record depletion
a. Debit accumulated depletion P4,590,000
b. Debit inventory P4,590,000
c. Credit inventory P4,500,000
d. Credit accumulated depletion P7,650,000
Fame Company showed the following balances 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
16. What total amount should be reported as intangible asset?
a. 1,400,000
c. 5,400,000
b. 4,500,000
d. 5,800,000
17. Mellow Company acquired a patent for a drug with a remaining legal and useful life of six
years on Jan 1, 2013 for P5,400,000. On Jan 1, 2015, a new patent is received for a timed-release
version of the same drug. The new patent has a legal and useful life of twenty years.
What is the amortization expense for 2015?
a. 900,000
b. 200,000
c. 180,000
d. 300,000
18. Rock Company recently acquired a copyright 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
c. 40
b. 30
d. 0
19. Grace Company developed a trademark to distinguish its products from those of the
competitors.
Marketing research to study consumer tastes
400,000
Design cost of trademark
1,500,000
Legal fee of registering trademark
150,000
Advertising to establish recognition of trademark
200,000
Registration fee with Intellectual Property Office
50,000
What amount should be capitalized as cost of trademark?
a. 1,700,000
c. 2,300,000
b. 1,900,000
d. 2,100,000
For nos. 20-22:
At the beginning of current year, Explicable Company acquired a 5-year lease on land and
building from another entity at an annual rental of P1,200,000.
On same date, the entity paid P2,400,000 representing rental for the first year and an advance
rental for one year which will be applied for the last year of the lease contract.
Moreover, the entity paid P2,000,000 upon signing of the contract to obtain right to the lessee.
Improvement and alteration were made on the building at a cost of P500,000.
20. What is the rent expense for the current year?
a. 1,200,000
c. 3,600,000
b. 2,400,000
d. 1,800,000
21. What is the amortization of leasehold for the current year?
a. 500,000
c. 200,000
b. 400,000
d. 0
22. What is the depreciation of leasehold improvement for the current year?
a. 500,000
c. 100,000
a. 900,000
d. 0
23. Salve Company is engaged in raising dairy livestock. Information regarding activities
relating to the dairy livestock during the current year is as follows:
Carrying amount on January 1
5,000,000
Increase due to purchases
2,000,000
Gain arising from change in fair value
less cost of disposal attributable to
price change
400,000
Gain arising from change in fair value
less cost of disposal attributable to
physical change
600,000
Decrease due to sales
850,000
Decrease due to harvest
200,000
What is the carrying amount of the biological asset on December 31?
a. 6,950,000
c. 8,000,000
b. 6,000,000
d. 7,150,000
24. Dragon Company and its subsidiaries own the following properties at year-end:
Land held by Dragon for undetermined use
5,000,000
A vacant building owned by Dragon and to be leased
out under an operating lease
3,000,000
Property held by a subsidiary of Dragon, a real estate
firm, in the ordinary course of business
2,000,000
Property held by Dragon for use in production
4,000,000
Building owned by a subsidiary of Dragon and for which
the subsidiary provides security and maintenance
services to the lessees
1,500,000
Land leased by Dragon to a subsidiary under an
operating lease
2,500,000
Property under construction for use as investment
property
6,000,000
Land held for future factory site
3,500,000
Machinery leased out by Dragon to an unrelated party
under an operating lease
1,000,000
What total amount should be considered as owner-occupied property and included in property,
plant and equipment in the consolidated statement of financial position?
a. 11,000,000
c. 10,500,000
b. 13,000,000
d. 8,500,000
Ant Company, a real estate entity, had a building with a carrying amount of P20,000,000 on Dec
31, 2015. The building was used as offices of the entity’s administrative staff.
On Dec 31, 2015, the entity intended to rent out the building to independent parties. The staff
will be moved to a new building purchased early in 2015.
On Dec 31, 2015, the original building had a fair value of P35,000,000.
On Dec 31, 2015, 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 Dec 31, 2015.
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.
25. On Dec 31, 2015, what amount should be recognized in revaluation surplus as a result of
transfer of the building to investment property?
a. 20,000,000
c. 15,000,000
b. 35,000,000
d. 0
On Jan 1, 2013, Maliksi Company owned an investment property which had an original cost of
P5,800,000 and useful life of 40 years.
On Dec 31, 2015, the fair value was P6,000,000 and on Dec 31, 2016, the fair value
wasP5,900,000.
26. Under the fair value model, what is the expense to be recognized for the year ended Dec
31,2016?
a. 147,500
c. 200,000
b. 100,000
d. 0
27. Under the cost model, what is the expense to be recognized for the year ended Dec 31, 2016?
a. 145,000
c. 147,500
b. 150,000
d. 0
Casa Co. purchased a tract of land for P12,000,000. The entity incurred additional cost of
P3,000,000 during the remainder of the year in preparing for the sale. The tract of land was
subdivided into residential lots.
LOT CLASS
NUMBER OF LOTS
SALES PRICE PER LOT
A
100
240,000
B
100
160,000
C
200
100,000
28. Using the relative sales value method, what amount of cost should be allocated to Class A
lots?
a. 3,000,000
b. 3,750,000
c. 6,000,000
d. 7,200,000
Eagle Co. incurred the following costs in relation to certain product:
Direct materials & labor
180,000
Variable production overhead25,000
Factory administrative costs
15,000
Fixed production overhead
20,000
29. What is the correct measurement of product?
a. 205,000
c. 195,000
b. 225,000
d. 240,000
30. Parent entity has a controlling interest in Subsidiaries A, B, and C and has significant
influence over Associates 1 and 2. Subsidiary C has significant influence over Associate 3.
Associate 3 is related to:
a. Associate 1
c. Both a and b
b. Subsidiary A
d. Neither A nor B
31. On July 1, 2018, Morales Corp. Acquired P4,000,000 face value of Nina Corporation bonds
with a nominal rate of interest of 4%. The bonds mature on July 1, 2023 and pay interest semiannually each July 1 and January 1, with the first interest payment due on January 1, 2019. The
entity designated the bond investment as available for sale. At the date of issuance, the bonds had
a market rate of interest of 6%. On December 31, 2018, the market value of the bonds was
P3,700,000. The amount to be recognized in 2018 profit or loss related to the bond investment i:
a. P109,764
c. P219,529
b. P109,896
d. P219,791
32. On December 28, 2018, Chyna Company commits itself to purchase a financial asset to be
classified as held for trading for P500,000, its fair value on commitment (trade) date. This
security has a fair value of P505,000 and P510,000 on December 31, 2018 (Chyna’s financial
year-end), and January 5, 2019 (settlement date), respectively.
If Chyna applies the settlement date accounting method to account for regular-way purchases of
its securities, how much should be recognized as fair value adjustment gain in its 2018 profit or
loss?
a. P15,000
c. P5,000
b. P10,000
d. Nil
33. Hawks Corp. acquired a 25% interest in Atlanta Co. on January 1, 2018, for P5,000,000. At
that time, Atlanta had 1,000,000, P1 par, ordinary shares issued and outstanding. On June 30,
2018, Atlanta declared and issues a 5% share dividend when the market value was P2 per share.
On December 31, 2018, Atlanta declared cash dividends of P2.2 per share payable on January
15, 2019. Atlanta’s net income for 2018 was P4,8000,000. What should be the balance in
Hawk’s investment in Atlanta Co. at the end of 2018?
a. P5,650,000
c. P5,622,500
b. P5,862,500
d. P6,200,000
34. On January 1, 2018, Psalms Corporation adopted a plan to accumulate funds for a new plant
building to be erected beginning July 1, 2023, at an estimated cost of P6,000,000. Psalms intends
to make five equal annual deposits in a fund that will earn interest at 8% compounded annually.
The first deposit is made on July 1, 2018. Present value and future amount factors are as follows:
Present value of 1 at 8% for 5 periods
Present value of 1 at 8% for 6 periods
Future amount of ordinary annuity of 1 at
8% for 5 periods
Future amount of annuity in advance of 1 at
8% for 5 periods
Psalms should make five annual deposits (rounded) of:
a. P1,022,150
c. P946,400
0.68
0.63
5.87
6.34
b. P816,000
d. P756,000
For items 35-36:
Gatas Dairy produces milk to sell to local and national ice cream producers. Gatas Dairy began
operations on January 1, 2018 by purchasing 840 milk cows for P1,176,000. The company
controller had the following information available at year-end relating to the cows:
Carrying value, January 1, 2018
P 1,176,000
Increase in fair value due to growth
and price changes
365,000
Decrease in fair value due to harvest
42,000
Milk harvested during 2018 but not yet sold
54,000
35. At December 31, 2018, what is the value of the milking cows on Gatas Dairy’s statement of
financial position?
a. P1,583,000
c. P1,499,000
b. P1,553,000
d. P1,445,000
36. On Gatas Dairy’s income statement for the year ending December 31, 2018, what amount of
unrealized gain on biological assets will be reported?
a. P461,000
c. P377,000
b. P407,000
d. P323,000
37. On January 1, 2015, Neal Corporation acquired equipment at a cost of P540,000. Neal
adopted the sum of the years’ digits method of depreciation for this equipment and had been
recording depreciation over an estimated life of eight years with no residual value. At the
beginning of 2018, a decision was made to change to the straight-line method of depreciation for
this equipment. The depreciation expense for 2018 would be:
a. P28,125
c. P67,500
b. P45,000
d. P108,000
38. Simpson Company applies revaluation accounting to plant assets with a carrying value of
P800,000, a useful life of 4 years, and no salvage value. Depreciation is calculated on the
straight-line basis. At the end of year 1 independent appraisers determine that the asset has a fair
value of P750,000.
The financial statements for year one will include the following information:
a. Accumulated depreciation P200,000.
b. Depreciation expense P50,000.
c. Plant assets P750,000.
d. Revaluation surplus P50,000.
39. Choc Co. acquires a chocolate bar brand from a competitor for P900,000 on 1 August 2018.
The brand is considered by Choc Co. to have a useful life 25 years, and in order to maintain its
market position, Choc Co. have, since acquisition, spent P100,000 on a marketing campaign.
What intangible asset is recognized in Choc Co.’s statement of financial position at 31 December
2018?
a. P888,000
c. P862,500
b. P885,000
d. P810,000
40. An entity that acquires an intangible asset may use the revaluation model for subsequent
measurement only if:
a. The useful life of the intangible asset can be reliably determined
b. An active market exists for the intangible asset
c. The cost of the intangible asset can be measured reliably
d. The intangible asset is a monetary asset
For items 41-42:
On May 31, 2018, the Portland Co. acquired the rights to a coal mine containing an estimated
reserves of 1,000,000 tons of coal. The company estimated that 12,500 tons of coal would be
extracted and sold each month. Cost allocable to coal was P3,500,000.
Also on May 31, 2018, the company purchased an equipment to be used in the production,
costing P95,000 which has an estimated useful life of 10 years. The equipment was expected to
become obsolete after all the coal deposits had been extracted from the mind and only P5,000
selling price of the equipment could be expected. Production was in full blast since June 1, 2018.
41. What would be the depletion expense for the year ended December 31, 2018?
a. P525,000
c. P153,125
b. P262,500
d. P306,250
42. What would be the depreciation expense on the new equipment for the year ended December
31, 2018?
a. P9,000
c. P7,875
b. P4,500
d. P8,313
43. Denton Co. acquired a piece of machinery on 1 July 2016 for P80,000 and commenced
depreciation on a straight-line basis over 10 years. At 31 December 2017, the machine was tested
for impairment as a result of a downturn in the market. It was found to have a value in use of
P66,000 and the fair value less costs of disposal was P60,000. What was the depreciation charge
on the machine in the year ended 31 December 2018 assuming that there was no change in useful
life?
a. P8,000
c. P7,529
b. P7,765
d. P7,059
44. Which statement is correct regarding measurement after recognition of investment property
in accordance with Section 16 of PFRS for SMEs?
a. An entity has a choice to use either the fair value or the cost model
b. An entity is required to use the fair value mode
c. Investment property whose fair value can be measured reliably without undue cost or
effort shall be measured at fair value at each reporting date with changes in fair value
recognized in other comprehensive income.
d. Investment property whose fair value cannot be measured reliably without undue cost or
effort shall be measured using the cost-depreciation impairment model
45. Entities holding assets for reasons incidental to a primary business and therefore not publicly
accountable include the following, except:
a. Real estate agents
b. Schools
c. Co-operative enterprises requiring a nominal membership deposit
d. Rural banks
46. Investment in associates must be tested for impairment in accordance with Section 27
Impairment of Assets, if the entity uses:
a. The cost model, equity method or fair value model
b. The cost model or the equity method
c. The cost model or the fair value model
d. The equity method or the fair value model
47. Dragon Company and its subsidiaries own the following properties at year-end:
Land held by Dragon for undetermined use
A vacant building owned by Dragon and to be leased
out under an operating lease
Property held by a subsidiary of Dragon, a real estate
firm, in the ordinary course of business
Property held by Dragon for use in production
Building owned by a subsidiary of Dragon and for which
the subsidiary provides security and maintenance
services to the lessees
Land leased by Dragon to a subsidiary under an
operating lease
Property under construction for use as investment
property
Land held for future factory site
Machinery leased out by Dragon to an unrelated party
under an operating lease
5,000,000
3,000,000
2,000,000
4,000,000
1,500,000
2,500,000
6,000,000
3,500,000
1,000,000
What is the total investment property that should be reported in the consolidated statement of
financial position of the parent and its subsidiaries?
a. 12,000,000
b. 15,500,000
c. 10,500,000
d. 9,500,000
48. Joy Company owned three properties which are classified as:
Initial
Fair value
Fair value
Cost
12/31/2015 12/31/2016
2,700,000
3,200,000
3,500,000
3,450,000
3,050,000
2,850,000
3,300,000
3,850,000
3,600,000
Each property was acquired three years ago with a useful life of 25 years. The accounting policy is
to use the fair value model for investment property.
What is the gain or loss to be recognized for the year ended December 31, 2016?
a. 189,000 loss
c. 300,000 gain
b. 150,000 loss
d. 450,000 loss
49. Faith Company purchased another entity for P8,000,000 at year-end. The carrying amount of
the acquiree’s net assets on the date of purchase is P6,200,000.
An analysis indicated that the fair value of the acquiree’s tangible assets exceeded the carrying
amount by P600,000, and the fair value of identifiable assets exceeded carrying amount by
P450,000.
What amount of goodwill should be recognized by the acquirer?
a. 1,800,000
c. 750,000
b. 1,200,000
d. 0
50. Harris Co provided the following information for an inventory at year-end:
Historical Cost
1,200,000
Estimated Selling price
1,300,000
Estimated completion & selling cost 150,000
Replacement cost
1,100,000
What amount should be reported as inventory at year-end?
a. 1,100,000
b. 1,150,000
c. 1,200,000
d. 1,300,000
Brilliant Co counted and reported the ending inventory on Dec 31, 2016 at P2,000,000. None of
the following items were included in the total amount computed:
 Goods located in the entity’s warehouse that are on consignment from another entity—
150,000
 Goods sold by the entity & shipped Dec 30 FOB Destination were in transit on Dec 31,
‘16 & received by customer on Jan 2, 2017—200,000
 Goods purchased by entity & shipped Dec 30 FOB Shipping Point were in transit on Dec
31, ’16 & received by entity on Jan 2, 2017—300,000
51. What is the correct amount of inventory on Dec 31, 2016?
a. 2,500,000
b. 2,350,000
c. 2,900,000
d. 2,750,000
Altitude Co purchased a plot of land for P2,000,000 as a plant site. There was a small office
building on the plot with fair value of P700,000 which the entity will continue to use with some
modification and renovation. The entity decided to construct a factory building & incurred the
following costs:
Materials & supplies
3,000,000
Excavation
100,000
Labor on construction
2,500,000
Cost of remodeling office
200,000
Legal cost of conveying land
10,000
Imputed interest on money used during construction
120,000
Cash discounts on materials purchased
60,000
Supervision by the management
70,000
Compensation insurance premium for workers
20,000
Clerical and other expenses related to construction
30,000
Pavings of streets and sidewalks
40,000
Plans and specifications
140,000
Payment for claim for injuries not covered by insurance
25,000
Legal cost of injury claims
15,000
Saving on construction
200,000
52. What is the initial cost of land?
a. 1,310,000
b. 1,300,000
c. 1,350,000
d. 1,410,000
53. What is the initial cost of office building?
a. 1,050,000
b. 900,000
c. 700,000
d. 850,000
54. What is the initial cost of factory building?
a. 5,720,000
b. 5,920,000
c. 5,800,000
d. 5,600,000
Persevere Company purchased a machine for P4,500,000 on Jan 1, 2016. The machine has an
estimated useful life of four years and a residual value of P500,000. The machine is being
depreciated using the sum of the years’ digits method.
55. What is the carrying amount of the asset on Dec. 31, 2017?
a. 2,900,000
c. 1,700,000
b. 2,700,000
d. 1,350,000
On July 1, 2016, Will Company purchased an equipment for P5,000,000. Residual value was
estimated at P200,000. The equipment is depreciated over ten years using the double declining
balance method.
56. What is the depreciation expense for 2017?
a. 1,000,000
c. 768,000
b. 900,000
d. 960,000
57. Cool company owned an equipment costing P5,200,000 with original residual value of
P400,000. The life of the asset is 10 years and was depreciated using the straight line method.
The equipment has a replacement cost of P8,000,000 with residual value of P200,000. The age of
the asset is 4 years. The appraisal of the equipment showed a total revised useful life of 12 years
and the entity decided to carry the equipment at revalued amount.
What amount should be initially reported as revaluation surplus
a. 1,600,000
c. 1,680,000
b. 2,600,000
d. 6,680,000
58. On Jan 1, 2016, Lebanon Company purchased equity securities to be held at fair value
through OCI. On Dec 31, 2016, the cost & MV were:
Cost
Market Value
X
2M
2.4M
Y
3M
3.5M
Z
5M
4.9M
On July 1, 2017, the entity sold X for P2,500,000.
What amount should be recognized directly in retained earnings as a result of sale of financial
asset in 2017?
a. 0
b. 100,000
c. 400,000
d. 500,000
On July 1, 2016, Cody Company paid P1,198,000 of 10%, 20-year bonds with a face amount of
P1,000,000. Interest is paid on June 30 and Dec 31. The bonds were purchased to yield 8%. The
effective interest method is used to recognize interest income from this long-term investment.
59. What is the carrying amount of the investment in bonds on Dec 31, 2016?
a. 1,207,900
c. 1,195,920
b. 1,198,000
d. 1,193,050
On Jan 1, 2016, Purl Company purchased as long-term investment P5,000,000 face value of
Shaw Co.’s 8% bonds for P4,562,000. The bonds were purchased to yield 10% interest. The
bonds mature on Jan 1, 2021 and pay interest annually on Dec 31. The interest method of
amortization is used.
60. What is the interest income for 2017?
a. 456,200
b. 461,820
c. 400,000
d. 369,456
61. What is the carrying amount of the bond investment on Dec 31, 2017?
a. 4,680,020
c. 4,618,200
b. 4,662,000
d. 4,562,000
62. On July 1, 2017, Rin Company purchased 25% of Shiro Co.’s outstanding shares and no
goodwill resulted from the purchase. Rin appropriately carried this investment at equity and the
balance in Rin’s investment account was P1.9M on Dec. 31, 2017. Shiro Co. reported net income
of 1.2M for the year ended Dec. 31, 2017, and paid cash dividend totaling P480k on Dec. 31,
2017.
How much did Rin pay for the 25% interest in Shiro?
a. 1,720,000
c. 1,870,000
b. 2,020,000
d. 2,170,000
On January 3, XYZ Company purchased a specialized factory equipment at a purchase price of
P1M plus 12% value-added tax. The company incurred P30,000 in freight and P70,000
installation cost. The company expects that it will incur dismantling cost amounting to P133,815
at the end of the equipment’s 5-year useful life. The prevailing market interest rate during the
transaction date was 6%.
The present value factor of P1 at 6% for periods is at 0.7473
The present value factor of P1 ordinary annuity for 5 periods is at 4.2124
63. How much should the equipment be initially recognized?
a. 1,000,000
b. 1,100,000
c. 1,200,000
d. 1,220,000
64. Assuming an estimated useful life of 5 years and a 10% salvage value, what is the
depreciation expense for the first year under the straight-line method?
a. 216,000
b. 219,600
c. 240,000
d. 244,000
On April 1, 2020, XYZ Corporation purchased P2,700,000 for tract of land, a warehouse and an
office building. The following data were collected regarding the property:
Appraised Values
Vendor’s Book Value
Land
P 875,000
P 700,000
Warehouse
375,000
400,000
Office building
1,000,000
975,000
65. What are the appropriate amounts that XYZ should record for the land, warehouse and office
building, respectively?
a. 700,000; 400,000 and 900,000
c. 945,000; 540,000 and 1,215,000
b. 875,000; 375,000 and 1,000,000
d. 1,050,000; 450,000 and 1,200,000
66. Assuming an estimated useful life of 10 years for the warehouse and the office building and
an estimated salvage value of 10%, what is the depreciation expense of the warehouse and office
building in 2020 under the sum-of-years-digits method?
a. 81,818 and 218,182
c. 73,636 and 196,364
b. 61,364 and 290,909
d. 55,227 and 147,273
On April 3, XYZ Co. purchased and installed several furniture and fixtures items from a local
furniture manufacturer and dealer under the term 5/10, n/ 30. The amount was paid on April 23
and was recorded as:
4/23 Furniture and fixtures
2,500,000
Cash
2,500,000
In addition, the company incurred freight and installation costs amounting to P10,000 and
P15,000, respectively.
67. How much should the furniture and fixtures be initially recognized?
a. 2,375,000
b. 2,400,000
c. 2,500,000
d. 2,525,000
68. Assuming an estimated useful life of 5 years and a 10% salvage value, what is the
depreciation expense for the first year under the double-declining balance method?
a. 960,000
b. 720,000
c. 864,000
d. 648,000
On May 1, the XYZ Co. purchased factory machinery having an installment price of P5,000,000
and a list price of P4,500,000. The company made a P1,000,000 down payment and issued a 4year, 4 million non-interest bearing note payable P1M every May 1 starting next year. The
prevailing interest rate for similar note is at 6%.
The present value factor of P1 at 6% for 4 periods is at 0.7921
The present value factor of P1 at 6% ordinary annuity for 4 periods is at 3.4651
69. How much should the factory machinery be initially recognized?
a. 3,465,100
b. 4,465,100
c. 4,500,000
d. 5,000,000
70. Assuming an estimated useful life of 5 years with a 10% salvage value based on cost, what is
the depreciation expense for the first year under the 150% declining balance method?
a. 1,350,000
b. 1,339,530
c. 900,000
d. 893,020
On June 1, XYZ Co. acquired a real property by issuing 35,360 shares of its P100 par value
ordinary shares. A share was selling on the same date at P125. A mortgage of P4,000,000 was
assumed by XYZ Co. on the purchase. Moreover, the company paid P 180,000 real property
taxes of prior years. Twenty percent of the purchase price should be allocated to the land and the
balance to the building.
In order to make proper use of the building XYZ Co., incurred remodeling costs in the amount of
P900,000. This however necessitated the demolition of a portion of the building, which resulted
in recovery of salvage material sold for P30,000.
Cost of the company’s parking lot totaled P320,000; while repairs in the main hall were incurred
at P45,000 prior to its use.
71. The correct cost of the land should be
a. 1,664,000
b. 1,720,000
c. 2,040,000
d. 2,400,000
72. The correct cost of the building should be
a. 6,330,000
b. 7,795,000
c. 7,750,000
d. 7,570,000
73. On December 31, 2020, Julrecha Inc. signed an agreement authorizing Ruel Company to
operate as a franchisee for an initial franchisee fee of P 50,000. Of this amount, P 20,000 was
received upon signing of the agreement and the balance is due in three annual payments of P
10,000 each beginning December 2021. The agreement provides that the down payment
(representing a fair measure of the services already performed) is not refundable and substantial
services are required of Julrecha. Ruel Company’s credit rating is such that collection of the
note is reasonably assured. The present value at December 31, 2020 of the three annual
payments discounted at 14% (the implicit rate for a loan of this type) is P 23,220.
On December 31, 2020, Ruel Company should record unearned franchise fees of:
a. P 50,000
b. P 30,000
c. P 43,220
d. P 23,220
XYZ Co. owns a tract of land which it purchased in 2017 for P1,000,000. The land is held as a
future plant site and has a fair market value of P1,500,000 on July 1, 2020. Mall Company also
owns a tract of land held as a future plant site. Mall paid P1,800,000 for the land in 2014 and the
land has a fair market value of P2,000,000 on July 1, 2020. On this date XYZ exchanged its land
and paid P500,000 cash for the land owned by Mall. The expected cash flows from the asset
received differ from the cash flows expected from the asset transferred and the difference is
significant relative to the fair value of the land given up.
74. How much should the property be initially recognized in the books of XYZ?
a. 500,000
b. 1,500,000
c. 2,000,000
d. 2,500,000
75. How much is XYZ’s gain or loss from the transaction?
a. none
b. 500,000
c. 1,000,000
d. 2,000,000
76. Assuming that the cash flows expected from the assets exchanged are not materially
different, how much should the property be initially recognized in the books of XYZ?
a. 500,000
b. 1,500,000
c. 2,000,000
d. 2,500,000
On July 1, 2020, XYZ traded in an old machine with a book value of P10,000 for a similar new
machine having a cash price of P32,000, and paid a cash difference of P19,000. XYZ recorded
the new machine at the cash payment made.
77. How much should the property be initially recognized?
a. 32,000
b. 29,000
c. 22,000
78. How much is the gain or loss from the trade in transaction?
a. none
b. 3,000
c. 7,000
d. 19,000
d. 10,000
On July 1, 2020, the XYZ Co. accepted several office equipment from a stockholder which
originally costed the stockholder P2,000,000. On the same date, the items had aggregate market
value totaling to P1,500,000. The company incurred P100,000 for professional fees and transfer
taxes related to the transaction. The amount was charged to other expenses.
79. How much should the property be initially recognized?
a. 0
b. 1,500,000
c. 1,600,000
d. 2,000,000
80. The entries to record the donation involves a net credit to:
a. donated capital at 2,000,000
c. donated capital at 1,400,000
b. donated capital at 1,500,000
d. gain from grants at 1,500,000