1st quiz
1. On July 1, 2010, Tow Company purchased for P5,400,000 including appraiser’s
fee of P50,000, a warehouse building and the land on which it is located. The
following data were available concerning the property:
Market value
Seller’s Original Cost
Land
P2,000,000
P1,400,000
Warehouse Building
P3,000,000
P2,800,000
Tow should record the land at __________. 2,160,000
2. On August 1, 2010, Bam Company purchased a new machine on a new 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, 2007.
The cash equivalent price of the machine was P950,000. Bam incurred and paid
installation costs amounting to P30,000. The amount to be capitalized as the cost
of the machine is __________. P280,000
3. Elec Company bought a new machine and agreed to pay it in equal annual
installments of P500,000 at the end of the next five years. Assume a prevailing
interest rate at 15%. The present value of an ordinary annuity of 1 at 15% for five
periods is 3.35. How much should Elec record as the cost of the machine?
P1,675,000
4. On September 1, 2010, Ron Company issued 10,000 shares of its P25 par
ordinary share for a parcel of land to be held for a future plant site. The ordinary
share had a fair market value of P40 per share on September 1, 2010. Ron
received P50,000 from the sale of scrap when an existing structure on the site was
razed. At what amount should the land be carried? P400,000
5. During 2010, Bu Company had the following transactions pertaining to its new
office building:
Purchase price or land
P600,000
Legal fees for contract to purchase
P20,000
Architect fees
P80,000
Demolition of old building site
P50,000
Sale of scrap from old building
P30,000
Construction of new building (fully completed) P3,500,000
In Bu’s December 31, 2020 balance sheet, what amount should be reported as the
cost of the land? P620,000
6. The company paid cash for machinery, P1,800,000 subject to 2% cash discount,
and freight on machinery, P70,000. How much should be the cost of the
machinery? P1,834,000
7. During 2009, Yuri Company installed a production assembly line to manufacture
furniture. In 2010, Yuri purchased a new machine and rearranged the assembly
line to install this machine. The arrangement did not increase the estimated useful
life of the assembly line, but it did result in significantly more efficient production.
The following expenditures were incurred in connection with this project:
Machine
P750,000
Labor to install machine
P140,000
Parts added in rearranging the assembly
line to provide future benefits
P400,000
Labor and overhead to rearrange assembly line
P180,000
What amount of expenditures should be capitalized in 2010? P1,470,000
8. On January 1, 2010, Ayala Company borrowed P2,000,000 at an interest rate of
12% specifically for the construction of a new building. The actual interest cost on
this specific borrowing was P240,000 but interest of P10,000 was earned from the
temporary investment of the borrowing proceeds. Ayala also had the following
other loans in 2010 which were borrowed for general purposes but the proceeds
were used in part for the construction of the building:
10% bank loan
P3,000,000
12% long-term loan
P5,000,000
The construction began on January 1, 2010 and was completed on December 31,
2010. The expenditures on the construction were:
January 1
P2,000,000
March 31
P1,000,000
September 30
P3,000,000
Compute for the cost of the new building. P6,398,750
9. King Company exchanges an automobile with a carrying value of P135,000 with
Queen, Inc. for a tooling machine with a fair market value of P172,800. No cash is
involved in the transaction and the fair value of the automobile is not readily
determinable. How much is the cost of the tooling machine? P172,800
10. Congo Company commenced construction of a new plant on February 1, 2010.
The cost of P18 million was funded from existing borrowings. The construction was
completed on September 30, 2010. The Congo Company’s borrowings during
2010 comprised:
Bank A
6% P8,000,000
Bank B
6.6% P10,000,000
Bank C
7% P30,000,000
What is the amount of borrowing costs that should be capitalized in relation to the
plant? P810,000
1st worksheet
1. Gnow Company purchased land, land improvements and building from Cola
Company for P14,400,000 and from Sarsi Company furniture and equipment for
P18,600,000. The total cash outlay for the transactions amounted to P33,000,000.
The appraised values of the assets are as follows:
2.
3.
4.
5.
Building
P5,000,000
Equipment
P3,000,000
Furniture
P1,00,000
Land
P13,500,000
Land improvements
P1,500,000
The allocated cost of the building is __________. P3,600,000
The following were incurred by the Gnek, Inc. in 2010:
Cost of land
P4,500,000
Expenses of land survey
P30,000
Expenses for search of land title
P6,000
Building permit fee
P10,000
Temporary building to house
materials and construction workers
P50,000
Demolition of old building
P40,000
Payments to tenants to vacate
the premises of the old building
P60,000
Payments to some construction for
injuries sustained (no insurance)
P85,000
Interest on temporary loan for
construction
P90,000
Cost of paving parking area adjoining
building
P45,000
Excavation expenses for foundation
of building
P150,000
Cost of construction
P9,800,000
What is the cost of the building? P10,245,000
Using the data in no. 2, what is the cost of the land? P4,536,000
During 2010, Bing Company constructed its own equipment costing P5,000,000.
The weighted average accumulated expenditure on these assets during 2010 was
P2,500,000. To help finance the construction, P1,800,000 was borrowed at 10%
on January 1, 2010, and 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 during the year
was a P2,500,000, 10-year, 9% notes payable dated January 1, 2010. What is the
amount of interest that should be capitalized by Bing during 2010? P198,000
On October 5, 2010, Bancnet Company traded its old delivery equipment with
Megalink Company’s office equipment. The following data are available:
Bancnet cost
P40,000
Accumulated depreciation
P30,000
Fair value
P20,000
Cash received from Megalink
P3,000
Meglaink cost
P50,000
Accumulated depreciation
P38,000
Fair value
P17,000
For financial accounting purposes, how much is the cost of the office equipment to
be recognized by Bancnet? P17,000
6. Using the data in no. 5, how much gain is to be recognized by Bancnet Company?
P10,000
7. ONGOG Company receives a grant of P50,000,000 from the African Government
to compensate for massive losses incurred because of a recent typhoon. How
much is the deferred income? 0
8. An old cooler with a recorded cost of P150,000 and accumulated depreciation
P140,000 was sold P4,000. A new cooler with marked price of P200,000 was
purchased in February 10, 2010. Freight charge of P3,000 and installation cost of
P6,000 were paid. The new cooler shall be recorded at cost of _____. P209,000
9. Sonia Company acquired the assets of Slow Company, which had discontinued
operations. The fair values of the property are:
Land
P1,000,000
Building
P5,000,000
Machinery
P2,000,000
Sonia Company gave 60,000 shares of its P100 pr value ordinary share in
exchange. The stock had a quoted price of P150 per share on the date of purchase
of the property. How much is the share premium? P2,000,000
10. On January 1, 2010, ABC Company borrowed P4,000,000 at an interest rate of
10% specifically for the construction of its new building. Interest earned from the
temporary investment of the proceeds of the loan prior to their disbursement
amounted to P50,000. ABC also had the following other loans in 2010 which were
borrowed for general purposes. The proceeds of these loans were used in part for
the construction of the building:
10% short-term note
P3,000,000
12% long-term loan
P4,000,000
The construction began January 1, 2010 and the building was completed on
December 31, 2010. Expenditures on the building were made as follows:
January 1
P1,000,000
March 31
P2,500,000
June 30
P3,000,000
September 30
P2,500,000
December 31
P1,000,000
What is the amount of capitalizable borrowing cost? P461,430
2nd quiz
1. Babichi Company purchased factory equipment which was installed and put into
service January 3, 2015 at a total cost of P1,280,000. Salvage value was estimated
at P80,000. The equipment is being depreciated over 8 years by double declining
balance method. For the year 2016, how much depreciation expense should
Babichi record on this equipment? P240,000
2. On January 1, 2015, SopingGawlo Company purchased a machine for P2,112,000
and depreciated it by straight line method using an estimated useful life of 8 years
with no salvage value. On January 1, 2018, SopingGawlo determined that the
machine had a useful life of six years from the date of acquisition with no salvage
value. An accounting change was made in 2018 to reflect these additional data
The accumulated depreciation for this machine should have a balance at
December 31, 2018 of _____. P1,232,000
3. On January 1, 2015, Sean Company purchased a new machine for P4,000,000.
The new machine has an estimated useful life of 8 years and the salvage value
was estimated to be P400,000. Depreciation was computed on the sum of the
years’ digits method. What amount should be shown in Sean’s balance sheet at
Decemebr 31, 206, net of accumulated depreciation for this machine? P2,500,000
4. P928,000
5. Pororo Company purchased equipment on January 2, 2006 for P1,000,000. The
equipment had an estimated 5-year service life. Pororo’s policy for 5-year assets
is to use the 200% declining balance method for the first two years of the asset’s
life and then switch to the straight-line depreciation method. In its December 31,
2008 balance sheet, what amount should Pororo report as accumulated
depreciation for equipment? P760,000
6. 15.76
7. Tugang Company acquired a tract of land containing an extractable natural
resource. Tugang is required by its purchase contract to restore the land to a
condition suitable for recreational use after it has extracted the natural resource.
The estimated number of units to be extracted is 1,000,000. Geological surveys
estimate that the land will have a value of P500,000 after restoration. Relevant
cost information is as follows:
Land
P4,500,000
Estimated restoration cost P600,000
If Tugang maintains no inventories of extracted material, what should be the
charge to depletion expense per ton of extracted material? 4.60
8. 420,000
9. Compute the depreciation expense for 2012 on buildings. P2,810,700
10. Using the data in no. 9, compute the depreciation expense for 2012 on Machinery
and Equipment. P5,188,750
2nd worksheet
1. On January 1, 2015, Mel Corporation bought machinery under a contract that
required a down payment of P100,000 plus 24 monthly payments of P50,000 each,
for total cash payments of P1,300,000. The cash equivalent price of the machinery
was P1,100,000. The machinery has an estimated useful life of 10 years and
estimated salvage value of P50,000. Mel uses straight-line depreciation. In its 2015
income statement, what amount should Mel report as depreciation for this
machinery? P105,000
2. Mari Company’s depreciation policy on machinery: a full year depreciation is taken
in the year of an asset’s acquisition. No depreciation is taken in the year of an
asset’s disposition. The estimated useful life is 5 years. The straight-line method
is used. On June 30, 2015, Mari sold for P2,3000,000, a machine acquired in 2012
for P4,200,000. The estimated salvage value was P6,000,000. How much gain on
the disposal should Mari recorded in 2015? P260,000
3. Carmel Company provided the following information with respect to its building.
The building was acquired January 1, 2010 at a cost of P3,900,000, with an
estimated useful life of 40 years and salvage value of P100,000. Yearly
depreciation was computed on the straight-line method. The building was
renovated on January 1, 2012 at a cost of P380,000. This was considered as
improvement. Salvage value did not change. On January 1, 2015, the
management decided to change the total life of the building to 30 years. What is
the depreciation on the building for 2015? P147,000
4. P250,000
5. P811,800
6. On January 1, 2010, Dan Company purchased a new machine for P2,000,000.
The new machine has an estimated useful life of 8 years and the salvage value
was estimated to be P200,000. Depreciation was computed on the sum of the
years’ digits method. What amount should be shown in Dan’s balance sheet at
December 31, 2011, net of accumulated depreciation for this machine?
P1,250,000
7. On July 1, 2011, Lam Company, a calendar year corporation, purchased the rights
to a mine. The total purchase price was P7,000,000 of which P1,000,000 was
allocated to the land. Estimated reserved were 1,500,000 tons. Lam expects to
extract and sell 25,000 tons per month. Lam purchased new equipment on July 1,
2011. The equipment cost P4,000,000 and had a useful life of 8 years. However,
after all the resource is removed, the equipment will be of no use and will be sold
for P250,000. If sales and production conform to expectation, what is the depletion
for 2011? P600,000
8. Using the data in no. 7, the depreciation of the equipment for 2011 is _____.
P375,000
9. Based on the data below, compute the depreciation expense for 2012 on Delivery
Equipment. P1,200,000
10. Based on the data in no. 9, compute the depreciation expense for 2012 on
Leasehold improvements. P840,000
3rd quiz
1. On January 1, 2001, Rebec Company acquired a building at cost of P2,500,000.
The building has been depreciated on the basis of a 20-year life. On January 1,
2011, an appraisal of the building set its replacement cost at P4,000,000 with a
total useful life of 25 years. In recording the revaluation of the building, the amount
that should be credited to revaluation surplus in property is _____. P750,000
2. P262,500
3. How much is the revaluation surplus? P5,400,000
4. Please refer to no. 3 data. If the machinery will have a fair value of P3,150,000
after 3 years, how much will be the revaluation loss to be recorded? P1,350,000
5. How much is the gain/loss on sale of the building? P500,000 loss
6. P22,120,500/P22,120,000/P22,118,114
7. On January 1, 2006, Kazoo Company acquired a factory equipment at a cost of
P150,000. The equipment is being depreciated using the straight-line method over
its projected useful life of 10 years. On December 31, 2007, a determination was
made that the asset’s recoverable amount was only P96,000. Assumer that this
was properly computed and that the recognition of the impairment was warranted.
On December 31, 2008, the asset’s recoverable amount was determined to be
P111,000 and management believes that the impairment loss previously
recognized should be reversed. You have been asked to assist the company’s
accountant in the application of PAS36, the standard on impairment of assets. How
much impairment loss should be recognized on December 31, 2007? P24,000
8. Please refer to no. 7 data. What is the asset’s carrying amount on December 31,
2008? P84,000
9. Please refer to no. 7 data. What would have been the asset’s carrying amount at
December 31, 2008? P105,000
10. Please refer to no. 7 data. How much impairment recovery should be reported in
the 2008 income statement of Kazoo Company? P21,000
3rd worksheet
1. Bell Company acquired a machine on January 1, 2020, at a cost of P120,000. It
was expected to have a useful economic life of 10 years. Bell uses the straightline method in depreciating its machinery and equipment and reports on a calendar
year basis. On December 31, 2022, the machine was appraised as having a gross
replacement cost of P150,000. Bell applies the revaluation model in valuing this
class of property, plant and equipment after its initial recognition. How much should
be credited to revaluation surplus on December 31, 2022? P21,000
2. How much is the revaluation surplus of the building? P9,000,000
3. Please refer to no. 2. Compute for the amount to be credited to the retained
earnings following the annual depreciation. P300,000
4. Compute for the Accumulated depreciation per cost. (Use 2 decimal in condition
percentage.) P3,000,000
5. Please refer to no. 4 data. Compute for the Accumulated depreciation per
replacement cost. P3,500,000/P3,500,700
6. Please refer to no. 4 data. How much is the revaluation surplus?
P1,599,300/P1,600,000
7. Please refer to no. 4 data. What is the amount to be credited to retained earnings?
P159,930/P160,000
8. Please refer to no. 4 data. How much is the gain on the machinery if it is sold for
P24,000,000 one year after revaluation? P7,650,730/P7,650,000/P7,650,630
9. Synthia Company, a clothing manufacturer, purchased a sewing machine for
P1,000,000 on July 1, 2008. That machine had a 10-year life, a P50,000 residual
value, and was depreciated using the straight-line method. On January 1, 2011, a
test for impairment indicates that the undiscounted cash flows from the sewing
machine are less than its carrying value. The machine’s fair value on January 1,
2011 is P300,000. What is the loss on impairment? P462,500
10. Scarborough Company had purchased equipment for P4,200,000 on December
31, 2007. The equipment had an 8-year life and residual value of P600,000.
Scarborough depreciated the equipment using the straight-line method. In August
2011, Scarborough questioned the recoverability of the carrying amount of this
equipment. On August 31, 2011, the undiscounted expected net future cash
inflows related to the continued use and eventual disposal of the equipment total
P2,475,000. The equipment’s fair value on August 31, 2011 is P2,250,000. After
any loss on impairment has been recognized, what is the carrying value of
Scarborough’s equipment? P2,250,000
4th quiz
1. What is the total cost of the patent? P486,000
2. Please refer to the data in no. 1. What is the total cost of the new machine?
P876,000
3. Meru, Inc. leases an old building which it intends to improve and use for
administrative purposes. The company pays a bonus of P100,000 to obtain the
lease. Annual rental for the 10-year lease period is P160,000. No option to renew
the lease or right to purchase the property is given by the lessor. After obtaining
the lease, improvements on the leased building are made costing P400,000. The
building has an estimated remaining useful life of 19 years. What is the annual
expense, excluding the depreciation, of this lease to Meru? P170,000
4. Please use the data in no. 3. What is the amount of annual depreciation (straightline), if any, should Meru, Inc. record? P40,000
5. On December 31, 2012, the carrying value of the patent should be _____.
P4,320,000
6. Please use the data in no. 5. The unamortized cost of the franchise at December
31, 2012, should be _____. P1,374,000
7. Please use the data in no. 5. How much should be charged against Cameroon’s
income for the year ended December 31, 2012? P2,820,000
8. Determine the Goodwill on the basis of the following assumption: Goodwill is equal
to 3 years’ excess earnings. P390,000
9. Use the data in no. 8. Determine the Goodwill on the basis of the following
assumptions: Goodwill is equal to the present value of excess earnings discounted
at 15% for 3 years. (PVoA of 1 at 15% for 3 periods is 2.28323). (Answer should
be rounded to a whole number. No decimal places.) P296,820
10. Use the data in no. 8. Determine the Goodwill on the basis of the following
assumptions: Goodwill is equal to the capitalization of excess earnings at 15%.
(Answer should be rounded to a whole number. No decimal places.) P866,667
4th worksheet
1. On January 1, 2011, Mendoza Co. purchased a franchise from Tuy Company for
P5,000,000. Mendoza paid P1,000,000 in cash and the balance will be paid in four
equal installments every end of the year by issuing a non-bearing promissory note.
The prevailing interest rate on this kind of note is 10%. The franchise will have an
indefinite life. How much is the cost of the franchise? P4,170,000
2. Use the data in no. 1. How much is the amortization of the franchise? 0
3. How much is the amortization of the patent? P140,000
4. Please use the data in no. 3. How much is the cost of the trademark? P1,200,000
5. Please use the data in no. 3. How much is the cost of the noncompetition
agreement? P400,000
6. Please use the data in no. 3. How much is the amortization of the noncompetition
agreement? P80,000
7. Average future earnings are capitalized at 8%. P1,250,000
8. Please use the data in no. 7. Goodwill is valued at the average excess earnings
capitalized at 20%. Normal rate is 8%. P500,000
9. Please use the data in no. 7. Goodwill is at the present value of the average excess
earnings discounted at 20% for four years. Normal rate is 7%. The present value
of annuity of 1 for 4 years at 20% is 2.589. P388,350
10. P176,000
Prelims
1. Major spare parts and standby equipment which are expected to be used over a
period of more than one year should be classified as:
a. Property, plant and equipment
b. Inventory
c. Noncurrent investment
d. Expense
2. Under the cost model, subsequent to initial recognition as an asset, an item of
property, plant and equipment should be carried at:
a. Cost
b. Revalued amount
c. Cost less any accumulated depreciation and any accumulated
impairment loss
d. Revalued amount less any accumulated depreciation and any accumulated
impairment loss
3. When any payment for item of property, plant and equipment is deferred beyond
normal credit terms, the difference between the cash price equivalent and the total
payments should be recognized as:
a. Interest expense of the current year
b. Component of the cost of the property, plant and equipment
c. Interest expense over the credit period
d. Interest expense over the life of the asset
4. The cost of an item of property, plant and equipment that is acquired in exchange
for a combination of monetary and nonmonetary asset is measured at the:
a. Fair value of the asset given up plus the amount of any cash or cash
equivalent transferred
b. Fair value of the asset received plus the amount of any cash or cash equivalent
transferred
c. Book of the asst given up plus the amount of any cash or cash equivalent
transferred
d. Fair value of the asst received plus the amount of any cash or cash equivalent
transferred
5. Which is incorrect concerning acquisition of an item of property, plant and
equipment by self-construction?
a. The cost of self-constructed asset is determined using the same principles as
for an acquired asset.
b. Any internal profits are eliminated in arriving at the cost of self-constructed
asset.
c. The cost of abnormal amount of wasted material, labor and other
resources incurred in the production of self-constructed asset is included
in the cost of the asset.
d. The cost of normal amount of wasted material, labor and other resources
incurred in the production of self-constructed asset is included in the cost of the
asset.
6. Subsequent cost relating to an item of property, plant and equipment should be
added to the carrying amount of the asset when:
a. It is probable that future economic benefits will flow to the enterprise and
the subsequent cost can be measured reliably.
b. It is possible that future economic benefits will flow to the enterprise and the
subsequent cost can be measured reliably.
c. It is probable that future economic benefits will flow to the enterprise.
d. It is possible that future economic benefits will flow to the enterprise.
7. Gains and losses arising from the derecognition of an item of property, plant and
equipment should be determined as difference between:
a. Gross disposal process and the cost of the asset
b. Gross disposal process and the carrying amount of the asset
c. Net disposal process and the cost of the asset
d. Net disposal process and the carrying amount of the asset
8. When a company acquires land with a building on it and immediately tears down
the building so that land can be used for the construction of plant, the cost incurred
to tear down the building should be:
a. Expensed as incurred
b. Added to the cost of the plant
c. Added to the cost of the land
d. Amortized over the estimated time period between the tearing down of the
building and the completion of the plant
9. The term “betterment” refers to:
a. An expenditure made for new facilities which increase capacity
b. An expenditure made to restore capacity after abandonment or retirement
c. An expenditure made to improve existing facilities by increasing capacity
d. An expenditure made to help insure continuity of service capacity
10. A building suffered uninsured fire damage. The damaged portion was refurbished
with higher quality materials. The cost and accumulated depreciation of the
damaged portion are identifiable. To account for these events, the company should
be:
a. Capitalize the cost of refurbishing and record a loss equal to the carrying
amount of the damaged portion
b. Capitalize the cost of refurbishing and adding the cost to the carrying amount
of the building
c. Record the cost of refurbishing as loss and continue to depreciate the original
cost of the building
d. Record a loss equal to the sum of the cost of refurbishing and the carrying
amount of the building
11. Borrowing costs include all of the following, except:
a. Interest on short-term and long-term borrowing
b. Amortization of discount or premium related to borrowing
c. Amortization of ancillary cost incurred in connection with the arrangement of
borrowing
d. Salary of the officer who approved the loan
12. For purposes of capitalization of borrowing cost, a qualifying asset is an asset that
necessarily takes a substantial period of time to get ready for its intended use or
sale. Which of the following is not a qualifying asset?
a. Manufacturing plant
b. Power generation facility
c. Investment property
d. Inventory that is routinely manufactured or otherwise produced in large
quantity on a repetitive basis over a short period of time
13. Government grants should be recognized when there is reasonable assurance
that:
I. The enterprise will comply with the conditions attaching to them.
II. The grants will be received.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
14. On January 1, 2005, PC purchased a used cement truck from EC. The carrying
value of the truck on EC’s books was P12,500. PC paid cash of P2,000 and gave
a 2-year note that required semiannual payments of P4,000 each payable at the
end of each semiannual period (the market rate of interest was 12 percent). A
similar truck reportedly was sold recently for P14,000. PC Company should record
the cost of the truck as:
a. P14,000
b. P15,860
c. P16,080
d. P17,000
15. The following information pertains to equipment constructed by a firm for its own
use. The construction is finished. Materials used in construction P400,000:
Labor cost during construction
P170,000
Fringe benefits on above labor
P60,000
Incremental overhead due to construction
P80,000
Interest expense on debt during construction assumer this meets the requirements
for interest capitalization P20,000.
The market value of the equipment immediately after construction was completed
was P650,000. What is the loss on construction incurred by the firm?
a. 0
b. P60,000
c. P80,000
d. P20,000
16. A firm acquired used equipment on 1/1/05 by issuing a note calling for four equal
payments to be made each December 31 starting 2005. The note’s principal value
equals the negotiated price of P40,000, and the interest rate implied in the note is
consistent with the market rate of interest for this level of risk (8%). What is the
amount to be recorded for the equipment?
a. Less than P40,000
b. More than P40,000
c. P40,000
d. Insufficient information
17. An old machine with a book value of P20,000 was traded in on a new machine.
The new machine, which had a cash price of P80,000, was purchased for P62,000
cash plus the old machine. The cost of the new machine was:
a. P78,000
b. P82,000
c. P81,000
d. P80,000
18. A used machine with a carrying value of P8,000 was traded in on a new machine.
The new machine, which had a cash price of P12,000, was acquired and cash boot
of P3,000 was received. The old machine had a market value of P15,000 at the
time that it was traded in. The new machine would be recorded at:
a. P5,000
b. P6,400
c. P11,000
d. P12,000
19. Light Company has recently purchased a computer system for its office. The
following information were gathered in relation to the acquisition of the unit:
List price
P152,000
Trade discount and rebates taken P56,000
Installation and assembly cost
P3,200
Initial delivery and handling cost P6,400
Purchase discount
2%
What is the acquisition cost of the new computer?
a. 94,080
b. 103,680
20. Periodic depreciation expense is primarily the result of applying the:
a. Revenue principle
b. Full-disclosure principle
c. Cost principle
d. Matching principle
21. All of the following are causes of depreciation except:
a. Obsolescence of the asset
b. Inadequacy of the assets
c. Wear and tear from operational use
d. Decline in current market value of the asset
22. Which of the following items relevant to the depreciation of an asset can be
negative?
a. Residual value
b. Depreciable cost
c. Useful life
d. Cost subsequent to acquisition
23. Accumulated depreciation, as used in accounting, represents:
a. Funds set aside to replace assets
b. Earnings retained in the business that will be used to purchase another
operational asset when the related asset becomes fully depreciated
c. An expense on the income statement
d. The portion of the asset cost written-ff as an expense since the
acquisition date
24. For each succeeding period, the declining balance method of depreciation
recognizes an amount of depreciation expense that is:
a. Decreasing
b. Computed using a declining rate
c. Increasing
d. Constant
25. Depreciation is a variable expense if the depreciation method used for reporting
purposes is:
a. Declining balance
b. Units of production
c. Straight-line
d. Sum of the years’ digits
26. Which of the following is not an objection to the use of the straight-line method of
depreciation?
a. It may not satisfactorily match expense with revenue, depending on the asset.
b. It tends to ignore obsolescence as a major source of decline in economic value.
c. It does not recognize the investment characteristics of the ownership of
operational assets.
d. It generally results in the lowest earnings.
27. The accounts of C at the end of 2005 showed the tools account as follows:
Beginning balance
P16,000
Tool purchases during 2005
P6,000
An inventory of the tools on-hand was taken and valued at a “cost in present
condition” of P16,000. Assuming the inventory appraisal system is used,
depreciation expense for 2005 is:
a. 0
b. P2,000
c. P6,000
d. P8,000
28. On January 1, 2005, MB purchased a machine that had a list price of P46,320. MB
paid cash of P18,000 and executed a one-year non-interest-bearing note for the
balance. The going rate of interest was 18 percent. The machine has a 6-year life
and no residual value. Depreciation expense on the SYD basis at the end of 2005
is:
a. P8,092
b. P12,000
c. P13,234
d. P14,690
29. On January 1, 2003, Conventional Waterbeds, Inc. purchased some equipment
for P3,900. The estimated life was five years, after which there would be a residual
value of P200. On January 1, 2005, the estimated total economic life from the
original purchase date was changed to six years and the estimated residual value
was increased by P100. What is the amount of depreciation expense for the year
2005?
a. P480
b. P530
c. P555
d. P424
30. 16.0
31. On July 1, 2005, Pablo Corporation purchased factory equipment for P50,000.
Residual was estimated at P2,000. The equipment will be depreciated over 10
years using the double-declining balance method. Counting the year of acquisition
as one-half year. Pablo should record 2006 depreciation expense of:
a. P7,680
b. P9,000
32. Which of the following depreciation methods is not based on the passage of time?
a. Sum of units’ method
b. Sum of years’ digits
c. Declining balance
d. Straight line
33. Which of the following utilizes straight-line depreciation?
I. Composite depreciation
II. Group depreciation
a. I only
b. II only
c. Both I and II
d. Neither I nor II
34. Poe Company’s depreciation policy on machinery and equipment is as follows: A
full year depreciation is taken in the year of an asset’s acquisition. No depreciation
is taken in the year of an asset’s disposition. The estimated useful life is five years.
The straight-line method is used. On June 30, 2005, Poe sold for P2,300,000 a
machine acquired in 2002 for P4,200,000. The estimated salvage value was
P600,000. How much gain on the disposal should Poe record in 2005?
a. P140,000
b. P260,000
c. P620,000
d. P980,000
35. Carmel Company provided the following information with respect to its building.
The building was acquired January 1, 2000 at a cost of P7,800,000, with an
estimated useful life of 40 years and salvage value of P200,000. Yearly
depreciation was computed on the straight-line method. The wing was added to
the building on January 1, 2002 at a cost of P760,000. Salvage value did not
change the total life of the building to 30 years. What is the depreciation on the
building for 2005?
a. P292,400
b. P266,000
c. P334,400
d. P294,000
36. On January 1, 2005, Kent Company purchased a machine for P500,000. Kent paid
shipping expense of P5,000 as well as installation cost of P12,000. The machine
was estimated to have a useful life of ten years and an estimated salvage value of
P30,000. In January 2006, additions costing P72,000 were made to the machine
in order to comply with pollution control ordinances. These additions neither
prolonged the life of the machine nor did they have any residual value. If Kent
records depreciation under the straight-line method, depreciation for 2006 is:
a. P48,700
b. P59,700
c. P56,700
d. P55,900
37. SR Company purchased a machine on December 2, 2005 at an invoice price of
P4,500,000 with terms 2/10, n/30. On December 10, 2005, SR paid the required
amount for the machine. On December 2, 2005, SR paid P80,000 for delivery of
the machine and on December 31, 2005, it paid P310,000 for installation and
testing machine. The machine was ready for use on January 1, 2006. It was
estimated that the machine would have a useful life of 5 years, and a residual value
of P800,000. Engineering estimated indicated that the useful life in productive units
was P200,000. Units actually produced during the first two years were P30,000 in
2006 and P48,000 in 2007. SR Company decided to use the productive output
method of depreciation. What is the depreciation of the machine for 2006?
a. P1,560,000
b. 720,000
c. P960,000
d. P600,000
38. On January 2, 2003, Mogul Company acquired equipment to be used in its
manufacturing operations. The equipment has an estimated useful life of 10 years
and an estimated residua value of P50,000. The depreciation applicable to this
equipment was P240,000 for 2005 computed under the sum of years’ digits
method. What was the acquisition cost of the equipment?
a. P1,650,000
b. P1,700,000
c. P2,400,000
d. P2,450,000
39. On July 1, 2005, Mundo Company purchased equipment for P500,000. Salvage
value was estimated atP20,000. The equipment will be depreciated over ten years
using the double declining method. Counting the year of acquisition as one-half
year, Mundo should record depreciation for 2006 at:
a. P100,000
b. P90,000
c. P76,800
40. The Knight Company imported an equipment at a peso equivalent to P330,000.
The company has to pay additional cost of importing the asset such as P10,000
import duties and P15,000 non-refundable purchase taxes. Costs of brining and
preparing the asset for its intended use include P2,000 transportation cost, P3,000
installation and P1,000 testing and trial run costs. How much is the initial cost of
the new machine?
a. P330,000
b. P336,000
c. P346,000
d. P361,000
Prefinals
1. When the bonds are issued at face value, which of the following statements in
false?
a. The issue price is equal to the amount appearing on the face of the bonds.
b. The nominal interest rate is equal to effective interest rate.
c. The interest paid is equal to interest expense.
d. There is amortization of discount or premium.
2. On December 31, 2014. YFEN Inc. issued a 3-year P4,500,000 serial bonds
payable with 10% interest payable every December 31 starting in 2015. The
P4,500,000 bonds is payable through equal annual installment every December
31. The effective interest rate of the bonds is 8%. What is the initial measurement
of the bonds payable on December 31, 2014?
a. P4,731,939
b. P5,025,339
c. P4,658,589
d. P4,834,863
3. Under generally accepted accounting principles, warranty expense shall be
recorded on:
a. The year the warranty is performed
b. The year the professional who will perform the repair is called
c. The year the warranty is paid
d. The year the sales revenue is recorded
4. On December 31, 2014. YFEN Inc. issued a 3-year P4,500,000 serial bonds
payable with 10% interest payable every December 31 starting in 2015. The
P4,500,000 bonds is payable through equal annual installment every December
31. The effective interest rate of the bonds is 8%. What is the initial measurement
of the bonds payable on December 31, 2015?
a. P378,555
b. P372,687
c. P386,775
d. P402,027
5. On January 1, 2014, LINE Inc. issued a 4-year, P1,000,000 bonds payable dated
January 1, 2014, with 10% interest. The principal will be due at the end of the term
and the interest is payable annually every December 31. The effective interest is
payable annually every December 31. The effective interest rate of the bonds is
12%. Half of the bonds were retired on July 1, 2016 at P110. What is the
gain/(loss) on retirement of bonds payable?
a. (P50,000)
b. P62,915
c. P52,409
d. P55,871
6. On January 1, 2014, TEL Inc. issued a 3-year P2,000,000 bonds payable with an
annual interest of 10% payable annually every December 31. The principal will be
payable at the end of the term. The bonds payable are issued at P110 and TEL
incurred P96,917 bond issue cost. The effective interest rate of the bonds payable
is 8%. What is the carrying value of bonds payable on December 31, 2015?
a. P2,263,124
7. When a bond payable is retired, which of the following is proper?
a. Bonds payable account is credited
b. Unamortized discount in bounds payable is credited
c. Unamortized premium on bonds payable is credited
d. Cash is debited
8. When the bonds are issued at discount, which of the following statements is
proper?
a. The effective interest rate is lower than nominal interest rate
b. The issue price is higher than face value of the bonds
c. The amortization of discount decreases the interest expense
d. The amortization of discount increases the carrying value of bonds payable
9. HAIER Inc. sells a new smart-TV. The company offers a two-year warranty for
every unit sold. The first-year warranty period will require 6% repair based on gross
sales. The second-year warranty period will require 10% repair based on gross
sales. The sales for the year 2014 and 2015 were evenly incurred. The gross sales
for the two years are as follows:
2014
P4,000,000
2015
P6,000,000
What is warranty expense to be recognized by HAIER Inc. for the year ended
December 31, 2015?
a. P630,000
b. P360,000
c. P760,000
d. P960,000
10. SM Supermarket operates a customer loyalty program since January 1, 2014. The
entity grants program members loyalty points when they spend a specified amount
on groceries. Program members can redeem the points for further groceries. The
points have no expiry date. During 2014, the entity granted 5,000 points.
Management expects that 80% or 4,000 of these points will be redeemed. The fair
value of each loyalty point is estimated at P50. The sales during 2014 amounted
to P1,750,000 including the loyalty points. On December 31, 2014, 2,000 points
have been redeemed in exchange for groceries. In 2015, the management revised
its expectations and now expects that 60% or 3,000 points will be redeemed
altogether. During 2015, the entity redeemed 400 points. In 2016, a further 1,650
points were redeemed. Management expects that 90% or 4,500 will be redeemed
altogether. What is the unearned revenue from customer loyalty program as of
December 31, 2016?
a. Zero
b. P25,000
c. P50,000
d. P200,000
11. On December 31, 2014. YFEN Inc. issued a 3-year P4,500,000 serial bonds
payable with 10% interest payable every December 31 starting in 2015. The
P4,500,000 bonds is payable through equal annual installment every December
31. The effective interest rate of the bonds is 8%. What is the carrying value of
bonds payable on December 31, 2016?
a. P1,527,778
b. P1,602,351
c. P1,573,091
d. P1,605,871
12. HAIER Inc. sells a new smart-TV. The company offers a two-year warranty for
every unit sold. The first-year warranty period will require 6% repair based on gross
sales. The second-year warranty period will require 10% repair based on gross
sales. The sales for the year 2014 and 2015 were evenly incurred. The gross sales
for the two years are as follows:
2014
P4,000,000
2015
P6,000,000
What is warranty expense to be recognized by HAIER Inc. for the year ended
December 31, 2014?
a. P240,000
b. P180,000
c. P640,000
d. P440,000
13. On January 1, 2014, LINE Inc. issued a 4-year, P1,000,000 bonds payable dated
January 1, 2014, with 10% interest. The principal will be due at the end of the term
and the interest is payable annually every December 31. The effective interest is
payable annually every December 31. The effective interest rate of the bonds is
12%. Half of the bonds were retired on July 1, 2016 at P110. What is the interest
expense for the year ended December 31, 2014?
a. P56,355
b. P46,963
c. P47,294
d. P50,000
14. It refers to the rate appearing on the face of the bond certificate or it is that interest
which the issuing entity periodically pays to the buyer or bondholder.
a. Effective interest rate
b. Nominal rate
c. Yield rate
d. Prevailing market rate
15. On January 1, 2014, WAYNE Inc. issued a 2-year, P4,000,000 bonds payable with
12% interest. The principal will be due at the end of the term and the interest is
payable semi-annually every June 30 and December 31. The effective interest rate
of the bonds is 15%. The bonds were retired on July 1, 2015 at P95. What is the
interest expense for the year ended December 31, 2014?
a. P570,737
b. P569,856
c. P573,226
d. P576,514
16. PAS 1, par. 69 provides that an entity shall classify a liability as current when,
except:
a. The entity has an unconditional right to defer settlement of the liability for
at least twelve months after the reporting period
b. The liability is due to be settled within twelve months after the reporting period
c. The entity holds the liability primarily for the purpose of trading
d. The entity expects to settle the liability within the entity’s operating cycle
17. When there is a continuous range of possible outcomes and each point in that
range is as likely as any other, what point of range is used as amount of the
provision?
a. Any point in the range
b. Highest point in the range
c. Lowest point in the range
d. Mid-point in the range
18. On January 1, 2014, LINE Inc. issued a 4-year, P1,000,000 bonds payable dated
January 1, 2014, with 10% interest. The principal will be due at the end of the term
and the interest is payable annually every December 31. The effective interest is
payable annually every December 31. The effective interest rate of the bonds is
12%. Half of the bonds were retired on July 1, 2016 at P110. What is cash received
by LINE Inc. on July 1, 2014 from the issuance of bonds payable?
a. P939,253
b. P989,253
c. P945,608
d. P995,608
19. SM Cinema Inc. started a promotional campaign to boost its sale of tickets. The
promo will start on January 1, 2014. For every 10 used tuckets submitted, a
customer will receive a THOR-TOY upon payment of P100. On January 1, 2014,
SM Cinema purchased 5,000 THOR-TORYs at P500 per piece. During 2014, a
total of 50,000 tickets were sold. At the end of 2014, 20,000 tickets were redeemed
by the moviegoers. SM Cinema estimated that 60% of the customers will probably
avail of the promo. What is the estimated premium liability to be presented by SM
Cinema as of December 31, 2014?
a. P1,200,000
b. P400,000
c. P800,000
d. Zero
20. How shall the gain or loss from retirement of bonds payable prior to maturity be
computed?
a. Fair value of bonds payable less retirement price
b. Face value of bonds payable less retirement price
c. Carrying value of bonds payable less retirement price
d. Fair value of bonds less carrying value of bonds payable
21. AMAIA Inc., a subdivision developer, set-up a real estate tax escrow account for
payment of the real estate taxes of the homeowners in AMAIA Subdivision. AMAIA
Inc. shall be responsible for the payment of the real estate taxes of the house and
lot in AMAIA Inc. but the burden final liability falls on the homeowners. During 2014,
the homeowners deposited a total of P500,000 in the escrow account which earns
P50,000 interest during the year. The City of Manila billed AMAIA Inc. in the
amount of P400,000 for the total real estate taxes of AMAIA Subdivision which was
paid by AMAIA Inc. on December 31, 2014. The total administrative and trustees
expense for year 2014 incurred by AMAIA Inc. for administering the real estate
taxes totaled P20,000. What is the current liability on real estate tax escrow
account to be presented by AMAIA Inc. on December 31, 2014?
a. P100,000
b. P80,000
c. P150,000
d. P130,000
22. Which of the following statements concerning the recognition of liability is
incorrect?
a. When the outcome is probable, the entity shall accrue the liability
b. When the outcome is reasonably possible, the entity shall disclose the liability
c. When the outcome is remote, the entity shall not accrue nor disclose the liability
d. When the outcome is reasonably possible, it is a provision and not
contingent liability
23. The gain or loss arising from retirement of bonds payable shall be presented as
part of:
a. Income from continuing operations in profit or loss
b. Income from discontinued operations in profit or loss
c. Other comprehensive income
d. Statement of changes in equity
24. On January 1, 2014, TEL Inc. issued a 3-year P2,000,000 bonds payable with an
annual interest of 10% payable annually every December 31. The principal will
be payable at the end of the term. The bonds payable are issued at P110 and
TEL incurred P96,917 bond issue cost. The effective interest rate of the bonds
payable is 8%. What is the initial measurement of the bonds payable on January
1, 2014?
a. P2,200,000
b. P1,903,083
c. P2,296,917
d. P2,103,083
25. What is the proper treatment of bond issue costs or transaction costs?
a. Treat as outright expense as incurred
b. Recognized as a current asset
c. Amortize over the life of the bond in a manner similar to a premium on bonds
payable
d. Amortize over the life of the bond in a manner similar to a discount on bonds
payable
26. They are obligations which exist at the end of reporting period although the
amount is not definite.
a. Estimated liabilities
b. Current liabilities
c. Contingent liabilities
d. Secret liabilities
27. When the bonds are issued at premium, which of the following statements is
proper?
a. The nominal interest rate is lower than effective interest rate
b. The issue price is higher than face value of the bonds
c. The interest paid is lower than actual interest expense
d. The amortization of premium increases the interest expense
28. SM Cinema Inc. started a promotional campaign to boost its sale of tickets. The
promo will start on January 1, 2014. For every 10 used tuckets submitted, a
customer will receive a THOR-TOY upon payment of P100. On January 1, 2014,
SM Cinema purchased 5,000 THOR-TORYs at P500 per piece. During 2014, a
total of 50,000 tickets were sold. At the end of 2014, 20,000 tickets were redeemed
by the moviegoers. SM Cinema estimated that 60% of the customers will probably
avail of the promo. What is the premium expense to be recognized by SM Cinema
for the year ended December 31, 2014?
a. P1,500,000
b. P1,000,000
c. P1,200,000
d. P800,000
29. CHERRY MOBILE Inc. sells affordable smartphones. On January 1, 2014, the
company offered a warranty repair for every unit sold. The estimated repair/unit is
P200. During 2014, the cellphone company sold a total of 5,000 smartphones. The
chief accountant estimated that 20% of the smartphones sold might need to be
repaired. During 2014, the service center of CHERRY MOBILE incurred P150,000
in repairing the defective units returned by customers. What is the estimated
warranty liability to be presented by CHERRY MOBILE Inc. as of December 31,
2014?
a. P50,000
b. P150,000
c. Zero
30. CHERRY MOBILE Inc. sells affordable smartphones. On January 1, 2014, the
company offered a warranty repair for every unit sold. The estimated repair/unit is
P200. During 2014, the cellphone company sold a total of 5,000 smartphones. The
chief accountant estimated that 20% of the smartphones sold might need to be
repaired. During 2014, the service center of CHERRY MOBILE incurred P150,000
in repairing the defective units returned by customers. What is the warranty
expense to be recognized by CHERRY MOBILE Inc. for the year ended December
31, 2014?
a. P50,000
b. P150,000
c. P1,000,000
d. P200,000
31. PAS 1 provides that a liability which is due to be settles within twelve months after
the reporting period is classified as current, even if:
a. The original term was for a period longer than twelve months
b. An agreement to refinance or to reschedule payment on a long-term basis is
completed after the reporting period and before the financial statements are
authorized for issue
c. The entity has the discretion to refinance or roll over an obligation for at least
twelve months after the reporting period under an existing loan facility
d. A liability in which its conditions are breached and the lender has agreed, after
the reporting period and before the statements are authorized for issue, not to
demand payment as a consequence of the breach
32. What is the payroll expense to be reported by AVIDA Inc. for the year ended
December 31, 2014?
a. P2,000,000
b. P1,885,000
c. P2,085,000
d. P85,000
33. SM Supermarket operates a customer loyalty program since January 1, 2014. The
entity grants program members loyalty points when they spend a specified amount
on groceries. Program members can redeem the points for further groceries. The
points have no expiry date. During 2014, the entity granted 5,000 points.
Management expects that 80% or 4,000 of these points will be redeemed. The fair
value of each loyalty point is estimated at P50. The sales during 2014 amounted
to P1,750,000 including the loyalty points. On December 31, 2014, 2,000 points
have been redeemed in exchange for groceries. In 2015, the management revised
its expectations and now expects that 60% or 3,000 points will be redeemed
altogether. During 2015, the entity redeemed 400 points. In 2016, a further 1,650
points were redeemed. Management expects that 90% or 4,500 will be redeemed
altogether. What is the unearned revenue from customer loyalty program as of
December 31, 2015?
a. P75,000
b. P125,000
c. P50,000
d. P200,000
34. What is the current liability related to payroll as of December 31, 2014?\
a. P285,000
b. P85,000
c. P200,000
d. Zero
35. On January 1, 2014, WAYNE Inc. issued a 2-year, P4,000,000 bonds payable with
12% interest. The principal will be due at the end of the term and the interest is
payable semi-annually every June 30 and December 31. The effective interest rate
of the bonds is 15%. The bonds were retired on July 1, 2015 at P95. What is the
gain/(loss) on retirement of bonds payable?
a. P144,186
b. P147,262
c. P92,266
d. P95,652
Finals
1. In 2006, Bunny Corp. acquired land by paying P300,000 and signing a note with a
maturity value of P4,000,000, on the note’s due date, December 31, 2006. Bunny
owed P320,000 of accrued interest and P4,000,000 principal on the note. Bunny
and the bank agreed to amend the note as follows: The P320,000 interest due on
December 31, 2006 was forgiven. The principal of the note was reduced by
P200,000 and the maturity date was made payable December 31, 2007. Bunny
would be required to make one interest payment totaling P342,000 on December
2.
3.
4.
5.
31, 2007. On December 31, 2006, the prevailing rate of interest for a similar debt
instrument is 9%. As a result of the restructuring of debt, how much should Bunny
report as gain, before income taxes, in its 2006 income statement?
a. P484,508
b. P563,792
c. P160,000
d. P140,000
What is the most likely effect of a share split on the par value per share?
a. Increase
b. No effect
c. Either
d. Decrease
WL owns a used crane that was originally purchased on June 1, 2003 for
P180,000. Straight-line monthly depreciation has been recorded on the basis of an
estimated useful life of 5 years and no residual value. On January 31, 2006, WL
sold the crane for P80,000 cash. The pretax gain (loss) on the disposal was:
a. P2,000 gain
b. P4,000 loss
c. 0
d. P1,000 loss
A company reacquires shares of its own during the fiscal year and reports the
transaction on the theoretically correct manner. What effect will this transaction
have on shareholders’ equity and earnings per share, respectively?
a. Increase and decrease
b. Decrease and decrease
c. Decrease and increase
d. Increase and no effect
ETC purchased a plant, including land, building and machinery, for P110,000.
These items were carried on the books of the seller as follows:
Land
P30,000
Building
P60,000
Machinery P30,000
Immediately after the purchase, the assets were appraised at the following values:
Land
P30,000
Building
P45,000
Machinery P75,000
What cost should ETC record for the land, building and machinery?
a. Land
P36,666
Building
P36,667
Machinery
P36,667
b. Land
P27,500
Building
P55,000
Machinery
P27,500
6.
7.
8.
9.
c. Land
P22,000
Building
P33,000
Machinery
P55,000
d. Land
P24,000
Building
P30,000
Machinery
P66,000
East Corporation, a calendar year company, had sufficient retained earnings in
2005 as a basis for dividends but was temporarily short of cash. East declared a
dividend of P100,000 on April 1, 2005 and issued promissory notes to its
stockholders in lieu of cash. The notes, which were dated April 1, 2005, had a
maturity date of March 31, 2006 and a 10% interest rate. How should East account
for the scrip dividend and related interest?
a. Debit retained earnings for P110,000 on March 31, 2006
b. Debit retained earnings for P100,000 on April 1, 2005 and debit interest
expense for P10,000 on March 31, 2006
c. Debit retained earnings for P110,000 on April 2005
d. Debit retained earnings for P100,000 on April 1, 2005 and debit interest
expense for P7,500 on December 31, 2005
Harvey Company purchased equipment under deferred payment contract. The
agreement was to pay P100,000 annually for 5 years. The equipment should be
measured at:
a. Present value of a P100,000 annuity for 5 years at the bank prime interest rate
b. P500,000 plus imputed interest
c. Present value of a P100,000 annuity for 5 years at an imputed interest
d. P500,000
In January 2003, Winn Company purchased equipment at a cost of P500,000. The
equipment had an estimated residual value of P100,000, an estimated 8-year
useful life, and was being depreciated by the straight-line method. Two years later,
it became apparent to Winn that this equipment suffered a permanent impairment
of value. In January 2005, management determined the carrying amount should
only be P175,000, with a 2-year remaining useful life, and the residual value should
be reduced to P25,000. In Winn’s December 31, 2005 balance sheet, the
equipment should be reported at a carrying amount of:
a. P100,000
b. P150,000
c. P350,000
d. P175,000
If a bond was sold at P108, the stated rate of interest was:
a. Lower than market rate
b. Not related to market rate
c. Higher than market rate
d. Equal to market rate
10. What is the minimum book value to be disclosed in the balance sheet for a plant
asset which is expected to be sold for reasonable amount at the end of its useful
life?
a. Zero
b. Salvage value
c. Depreciable cost
d. Total original cost less accumulated depreciation
11. On December 31, 2005, when EC Corporation’s share was selling at P36 per
share, its shareholders’ equity accounts we as follows:
Ordinary shares (par value)
100,000 shares
Issued and outstanding
P2,000,000
Contributed capital in excess of par
800,000
Retained earnings (credit)
P4,550,000
A 100% share dividend was declared and issued. The effect of this dividend was:
a. Total shareholders’ equity decreased
b. Ordinary share increased to P5,600,000
c. Ordinary shares increased to P4,000,000
d. Total retained earnings did not change
12. Nerve Company was organized on January 1, 2005. On that date, it issued
200,000 shares at P15 per share (400,000 were authorized). During the period,
January 1, 2005 through December 31, 2005, Nerve reported net income of
P750,000 and paid cash dividends of P380,000. On January 5, 2006, Nerve
purchased 12,000 shares of its common stock at P12 per share. On December 31,
2006, 8,000 treasury shares were sold at P8 per share and retired the remaining
4,000 shares. What is the total stockholders’ equity on December 31, 2006?
a. P3,290,000
b. P3,338,000
c. P3,370,000
d. P3,306,000
13. What is the amount charged to retained earnings when treasury shares are
reissued as dividends?
a. Cost of the treasury shares
b. Fair value of the treasury shares
c. Pair value of the treasury shares
d. Book value of the treasury shares
14. Depreciation
a. Is a cash expense
b. Is an allocation of property, plant and equipment cost to the time period
of usefulness, in a systematic and rational manner
c. Expense of P2,000 reflects a P2,000 increase in liquid funds
d. Is a process of recognizing the decreasing value of an asset over time
15. At the beginning of the year, JTC issued a P20,000. 9%, five-year bond at a yield
rate of 7%. The interest is payable at the end of each year. Using the interest
method amortization, bond interest expense for JTC for the first year would be:
a. P1,272
b. P1,400
c. P1,800
d. P1,515
16. Of the 125,000 shares of common stock issued by the Vey Corporation 25,000
shares were held as treasury stock at January 1, 2005. During 2005, transactions
involving Vey’s common stock were as follows:
January 31 through October 31- 13,000 shares were distributed to officers as part
of a stock compensation plan.
November 1- A 3 for 1 stock split took effect.
December 1- Vey purchased 5,000 of its own shares to discourage an unfriendly
takeover. These shares were not retired.
At December 31, 2005, how many shares of Vey’s common stock were issued and
outstanding?
a. Issued
375,000; Outstanding
334,000
b. Issued
334,000; Outstanding
334,000
c. Issued
375,000; Outstanding
324,000
d. Issued
325,000; Outstanding
324,000
17. Jaycee Fabrics borrowed cash from a local bank by issuing a P5,000, 6-month,
noninterest-bearing note. Assuming an effective interest rate of 10%, the principal
amount that Jaycee borrowed from the bank is:
a. P5,500
b. P4,500
c. P5,000
d. P4,762
18. A company purchased land to be used as the site for construction of a plant.
Timber was cut from the building site so construction of the plant could begin. The
proceeds from the sale of the timber should be:
a. Deducted from the cost of the plant
b. Deducted from the cost of the land
c. Classified as income
d. Netted against the cost to clear the land and expensed as incurred
19. On January 1, 2005, Pal Corporation granted stock options to key employees for
the purchase of 40,000 shares of the company’s common stock at P25 per share.
The options are intended to compensate employees for the next two years. The
options are exercisable within a four-year period beginning January 1, 2007 by
grantees still in the employ of the company. The market price of Pal’s common
stock was P40 per share at the date of grant. The fair value of each stock option
is P20. No stock options were terminated during the year. What amount should Pal
charge to compensate expense for the year ended December 31, 2005?
a. P600,000
b. P300,000
c. P800,000
d. P400,000
20. Munn Corporation’s records included the following stockholders’ equity accounts:
Preferred stock, par value P15, authorized 200,000 shares; 2,550,000; Additional
paid-in capital, preferred stock; 150,000; Common stock, no par, P50 stated value,
100,000 shares authorized; 3,000,000. In Munn’s statement of stockholders’
equity, the number of issued and outstanding shares for each class of stock is:
a. Common stock 60,000; Preferred stock
170,000
b. Common stock 63,000; Preferred stock
170,000
c. Common stock 60,000; Preferred stock
180,000
d. Common stock 63,000; Preferred stock
180,000
21. How would a stock split in which the par value per share decreases in proportion
to the number of additional shares issued affect share premium and retained
earnings?
a. Share premium Increase; Retained earnings
No effect
b. Share premium No effect; Retained earnings
No effect
c. Share premium No effect; Retained earnings
Decrease
d. Share premium Increase; Retained earnings
Decrease
22. A company may effect a reverse stock split in order to:
a. Increase the number of shares outstanding
b. Raise the unit market price of its shares
c. Reduce the market price per share
d. Obtain a wider distribution of shares
23. Lark Company issued a note solely in exchange for cash. Assuming that the items
listed below differ in amount the present value of the note at issuance is equal to:
a. Face amount
b. Proceeds received
c. Proceeds received discounted at the prevailing interest rate
d. Face amount discounted at the prevailing interest rate
24. Which of the following statements is true?
Statement 1- If a bond sells on a date between interest payment dates, accrued
interest must be collected equal to the amount of interest due since the last interest
payment date.
Statement 2- Amortizing the discount on bonds payable causes the bond carrying
value to decrease.
a. Statement I only
b. Statement II only
c. Both Statement I and II
d. Neither Statement I nor II
25. CTBL Company acquired a tract of land containing an extractable natural resource.
CTBL is required by the purchase contract to restore the land to a condition
suitable for recreational use after it has extracted the natural resource. Geological
surveys estimate that the recoverable reserves will be 5,000,000 tons and that the
land will have a value of P1,000,000 after restoration. Relevant cost information
follows:
Land
P9,000,000
Estimated restoration costs
P1,500,000
If CTBL maintains no inventories of extracted material, what should be the
depletion expense per ton of extracted material?
a. 1.90
b. 2.10
c. 1.80
d. 1.60
26. On January 2, 2005, West Company issued 9% bonds in the amount of
P5,000,000 which mature on January 2, 2015. The bonds were issued for
P4,695,000 to yield 10%. Interest is payable annually on December 31, West uses
the interest method of amortizing bond discount. In its June 30, 2005 balance
sheet, what amount should West report as bonds payable?
a. P4,704,750
b. P5,000,000
c. P4,695,000
d. P4,710,250
27. For bonds payable, the cash interest paid in each interest period is:
a. Different depending upon the date of sale
b. Not the same amount when the stated and yield interest rates are different
c. The same amount regardless of whether the bond was sold at par, a discount,
or a premium
d. Dependent on the initial amount of accrued interest
28. The book value per share for a corporation is:
a. The market price of the stock
b. The cost of investments in stock of other corporations
c. Based on the excess of total assets over total liabilities
d. The amount shareholders would receive if they sold their shares back to the
corporation
29. The effect of a stock dividend is:
a. To permanently capitalize a portion of the company’s retained earnings
b. To achieve a reduction in the market price per share by decreasing the number
of outstanding shares
c. To issue the stockholders some evidence of an increase in stockholders’ equity
after paying a cash dividend
d. An increase in the stockholders’ payments to the corporation, although assets
and liabilities are not affected by the declaration of a stock dividend
30. Turtle Company is experiencing financial difficulty and is negotiating trouble debt
restructuring with its creditors to relieve its financial stress. Turtle has a P5,000,000
note payable to Metrobank. The bank is considering acceptance of an equity
interest in Turtle Company in the form of 400,000 ordinary shares valued at P12
per share. The par value of the ordinary share. What is the amount of gain to be
reported by turtle in its income statement as a result of the restructuring?
a. 0
b. P500,000
c. P1,000,000
d. P200,000
31. A large company began the year with P100,000 of unappropriated retained
earnings and P20,000 of appropriated retained earnings. During the year, it
created P50,000 of new appropriations and reversed P60,000 appropriations. It
had income for that year of P250,000. What is total end-of-year retained earnings?
a. P360,000
b. P250,000
c. P350,000
d. P370,000
32. A portion of a bond issue is retired before maturity. Therefore, a pro rata portion
(Pxx) of the deferred bond issue costs is removed from the accounts. This amount,
Pxx:
a. Reduces the gain on retirement
b. Decreases the loss on retirement
c. Increases the gain on retirement
d. Has no effect on the gain or loss
33. The accounts below appear in the December 31, 2005 trial balance of Mara
Company:
Authorized common stock
P5,000,000
Unissued common stock
P2,000,000
Subscribed common stock
P1,000,000
Subscription receivable
P400,000
Additional Paid-in capital
P500,000
Retained earnings unappropriated
P600,000
Retained earnings appropriated
P300,000
In its December 31, 2005 balance sheet, Mara should report total stockholders’
equity at:
a. P5,500,000
b. P5,200,000
c. P5,000,000
d. P4,900,000
34. On July 1, 2005, Vail Corporation issued rights to stockholders to subscribe to
additional shares of its common stock. One right was issued for each share owned.
A stockholder could purchase one additional share for 10 rights plus P15 cash.
The rights expired on September 30, 2005. On July 1, 2005, the market price of a
share with the right attached was P40 while the market price of one right alone
was P2. Vail’s stockholders’ equity on June 30, 2005 comprised the following:
Common stock, P25 par value
40,000
Shares issued and outstanding 1,000,000
Additional paid-in capital
600,000
Retained earnings
800,000
By what amount should Vail’s retained earnings decrease as a result of issuance
of the stock rights on July 1, 2005?
a. 0
b. P100,000
c. P80,000
d. P50,000
35. On December 31, 2006, the Pacey Company had the following liabilities: Trade
accounts payable P200,000; 11% Note payable, maturing in 5 equal installments
on December 30, 2007 through 2011 300,000; 12% Note payable, issued October
15, 2006, maturing February 1, 2007, 80,000. On December 31, 2006, Pacey
signed a binding agreement with its bank to refinance the 12% note through
February 14, 2009, at a variable interest rate. What is the amount of Pacey’s
current liabilities on December 31, 2006?
a. P500,000
b. P260,000
c. P200,000
d. P580,000
36. A company issued bonds at 98, with a maturity value of P50,000. The entry the
company uses to record the original issue should include which of the following?
a. A credit to bond discount of P1,000
b. A credit to bonds payable of P49,000
c. A credit to bond premium of P1,000
d. A debit to bonds payable of P50,000
37. During 2005, Brad Company issued 5,000 shares of P100 par value convertible
preferred stock for P110 per share. One share of preferred stock can be converted
into three shares of Brad’s P25 par ordinary stock at the option of the preferred
stockholder. On December 31, 2006, when the market value of the ordinary stock
was P40 per share, all of the preferred stock was converted. What amount should
Brad credit share premium as a result of the conversion?
a. P50,000
b. P225,000
c. P175,000
d. 0
38. Bone Company is the defendant in a lawsuit filed by Mitt in 2005 disputing the
validity of a copyright held by Bone. At December 31, 2005. Bone determined that
Mitt would probably be successful against Bone for an estimated amount of
P800,000. Appropriately, an P800,000 loss was accrued by a charge to income for
the year ended December 31, 2005. On December 15, 2006, Bone and Mitt agreed
to a settlement providing for cash payment of P500,000 by Bone to Mitt and
transfer of Bone’s copyright to Mitt. The carrying amount of the copyright on Bone’s
accounting records was P120,000 at December 15, 2006. What would be the effect
of the settlement of this liability on Bone’s income before income tax in 2006?
a. No effect
b. P300,000 increase
c. P180,000 increase
d. P120,000 decrease
39. On January 1, 2005 Doro Corporation granted an employee an option to purchase
20,000 shares of Doro’s P5 par value common stock at P20 per share. The option
became exercisable on December 31, 2006, after the employee completed two
years of service. The fair value of the stock option is P15. The option was exercised
on January 1, 2005- 30, December 31, 2006- 5-, January 10, 2007- 60. For 2005,
Doro should recognize compensation expense of:
a. P300,000
b. P100,500
c. P400,000
d. P150,000
40. Which of the following statements is incorrect concerning stock dividends?
a. Stock dividends are recorded on the date of declaration
b. Stock dividends of 20% or more shall be capitalized at par or stated value
c. Stock dividends declared by closely held entities shall be capitalized at par
stated value
d. A stock dividend gives rise to a change in either the entity’s assets or its
shareholders’ proportionate interest therein
41. A depreciable property costing P2,600,000 with original scrap value of P200,000
after 15 years, had been revalued at a replacement cost of P4,000,000 with scrap
of P40,000. The age of the asset is 5 years. What is the revaluation surplus?
a. P680,000
b. P920,000
c. P1,040,000
d. P1,000,000
42. Which of the following statements is true?
a. If a bond is sold at its face amount, the stated and effective interest rates are
the same
b. The yield or effective interest rate on a bond is equal to the stated rate if the
bond premium or discount is amortized by using the straight-line method
c. Interest revenue and expense related to bonds are always computed using the
stated rate of interest
d. The terms “yield rate”, “stated rate”, and “market rate” are generally
interchangeable when referring to interest on bonds
43. The stockholders’ equity section of Glee Company revealed the following
information on December 31, 2005: Preferred stock, P100 par 2,300,000; Paid-in
capital in excess of par-preferred, 805,000; Common stock, P15 par, 5,250,000;
Paid-in capital in excess of par-common, 2,750,000; Subscribed common stock,
500,000; Retained earnings, 1,900,000; Note payable, 4,000,000; Subscription
receivable-common, 400,000. How much is the legal capital?
a. P9,950,000
b. P7,650,000
c. P8,050,000
d. P11,650,000
44. If an impairment of property, plant and equipment is indicated, any impairment loss
is recorded at an amount equal to the:
a. Excess of the carrying amount over the fair value of the asset
b. Excess of the carrying amount over the recoverable amount of the asset
c. Excess of the carrying amount over the discounted cash flows from the asset
d. Excess of the recoverable amount over the carrying amount of the asset
45. The cost of an item of property, plant and equipment acquired in a nonmonetary
exchange is measured at the:
a. Fair value of the asset given up
b. Carrying amount of the asset given up
c. Carrying amount of the asset received
d. Fair value of the asset received
46. Borrowing costs related to a qualifying asset shall be:
a. Capitalized
b. Expensed in the period incurred
c. Neither capitalized nor expensed in the period incurred
d. Capitalized or expensed in the period incurred upon the decision of
management
47. A company issued a bond with a stated rate of interest that is less than the effective
interest rate on the date of issuance. The bond was issued on one of the interest
payment dates. What should the company report on the first interest payment
date?
a. An interest expense that is less than the cash payment made to bondholders
b. An interest expense that is greater than the cash payment made to bondholders
c. A debt to the unamortized bond discount
d. A debt to the unamortized bond premium
48. Ester Company has just acquired the net assets of XYZ Corporation for
P5,000,000. In acquiring XYZ, the owners of Ester felt that XYZ had an unrecorded
goodwill. They decided to capitalize the estimated annual superior earnings of XYZ
at 20% to determine the amount of goodwill. The computation resulted in an
estimated goodwill of P500,000. A rate of 10% or net assets before recognition of
goodwill was used to determine normal annual earnings of XYZ because it is the
rate that is earned on net assets in the industry in which XYZ operates. All other
assets of XYZ are properly recorded. What is the amount of estimated annual
earnings of XYZ?
a. P100,000
b. P550,000
c. P450,000
d. P500,000
49. Presented below is the stockholders’ equity section of the Caper Corporation on
January 1, 2005: Common stock, par value P20 authorized 50,000 shares, issued
and outstanding, 30,000 shares, 600,000; Capital in excess of par value, 150,000;
Retained earnings, 230,000. During 2005, the following transactions occurred
relating to stockholders’ equity: 1,000 shares were reacquired at P28 per share,
900 shares were reacquired at P30 per share. 1,500 shares of treasury were sold
at P32 per share. For the year ended December 31, 2005, Caper reported net
income of P110,000. What should the company report as total stockholders’ equity
on the December 31, 2005 balance sheet?
a. P1,078,000
b. P1,083,000
c. P1,071,000
d. P973,000
50. On July 1, 2005, Hart signed an agreement to operate as a franchise for an initial
franchise fee of P6,000,000. The same date, Hart paid P2,000,000 and agreed to
pay the balance in four equal payments of P1,000,000 beginning July 1, 2006.The
down payment is not refundable and no future services are required of the
franchisor. Hart can borrow at 14% for a loan of this type. Present and future value
factors are as follows: present value of 1 at 14% for 4 periods 0.59; future amount
of 1 at 14% for 4 periods 1.69; present value of an ordinary annuity of 1 at 14% for
4 periods 2.91. Hart should record the acquisition cost of the franchise on July 1,
2005 at:
a. P4,910,000
b. P4,360,000
c. P6,000,000
d. P6,760,000