PROFESSIONAL REVIEW & TRAINING CENTER
PRACTICAL ACCOUNTING 1
Posted:
PRTC P1 October 2015 First Preboard (50)
PRTC P1 May 2015 First & Final Preboard (100)
PRTC P1 May 2012 Preweek Drill (47)
Accounting Process
1
.
Lakers Company received P12,000 from a tenant on December 1 for four months' rent of an
office. This rent was for December, January, February, and March. If Lakers debited Cash
and credited Unearned Rental Income for P12,000 on December 1, the necessary
adjustment December 31 would include
A. A debit to Rental Income of P3,000
B. A credit to Rental Income of P3,000
C. A debit to Unearned Rental Income of P9,000
D. A credit to Unearned Rental Income of P9,000
PRTC 0515
.
2
Presented below is the December 31 trial balance of Corinthians Company.
Corinthians Company
Trial Balance
December 31, 2012
Debit
Credit
Cash
P 14,800
Accounts Receivable
33,600
Allow. For Doubtful Accounts
P2,160
Inventory, January 1
62,400
Furniture and Equipment
67,200
Accumulated Depreciation, January 1
26,880
Prepaid Insurance
4,080
Notes Payable
22,400
Owner, Capital
72,000
Sales
480,000
Purchases
320,000
Sales Salaries Expense
40,000
Advertising Expense
5,360
Administrative Salaries Expense
52,000
Office Expense
4,000
.
603,440
603,440
Information necessary for the preparation of adjusting journal entries:
a) Adjust the Allowance for Doubtful Accounts to 8 percent of the accounts receivable.
May 2015, Final Preboard
b) Furniture and equipment is depreciated at 20 percent per year.
c) Insurance expired during the year, P2,040.
d) Interest accrued on notes payable, P2,688.
e) Sales salaries incurred but not paid, PI,920.
f) Advertising paid in advance, P560.
g) Office supplies on hand, P1,200, charged to Office Expense when purchased.
h) Inventory on December 31, P64,000.
Disregarding income taxes, the adjusted profit is
A. P39,224
C. P41,912
B. P41,384
D. P44,072
PRTC 0512
Statement of Financial Position
1. A chain of bicycle shops holds bicycles for short-term hire and for sale. The bicycles available
for hire are used for two or three years and then sold by the shops as second-hand models.
All shops sell both new and second-hand bicycles. The entity sold a new bicycles for
P500,000 (cost P400,000) and a second-hand bicycles for P100,000 (carrying amount
P50,000).
Which statement is correct?
A. The bicycles for hire are reported in the statement of financial position as property, plant
and equipment.
B. The entity shall reclassify the bicycles for hire as non-current assets held for sale when
they cease to be rented and become held for sale.
C. The difference between the net disposal proceeds and the carrying amount of the
second-hand bicycles is recognized as other income in profit or loss.
D. All of the above.
PRTC 1015
.
3
A corporation's accounting records provided the following information:
12/31/11
12/31/12
Current assets
P240,000
P?
Noncurrent assets
1,600,000
1,500,000
Current liabilities
?
130,000
Noncurrent liabilities
580,000
?
All assets and liabilities of the company are reported in the schedule above. Working capital
of P92,000 remained unchanged from 2011 to 2012. Net income in 2012 was P88,000. No
dividends were declared during 2012 and there were no other changes in equity. Total
noncurrent liabilities at December 31, 2012 would be
A. P392,000
C. P568,000
B. P480,000
D. P616,000
CPAR 0512
Page 1 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
2.
PRACTICAL ACCOUNTING 1
Leased assets
Other loans
Patents
Plant and equipment
Prepayments
Provision for employment benefits
Provision for restructuring
Provision for warranty
Raw materials
Retained earnings
Share capital
Sundry creditors and accruals
Sundry debtors
Trade creditors
Trade debtors
Work in progress
Ottawa Electronics Inc. reported the following items on its December 31, 2015, trial balance:
Accounts Payable
P108,900
Advances to Employees
4,500
Unearned Rent Revenue
28,800
Estimated Liability Under Warranties
25,800
Cash Surrender Value of Officers' Life Insurance
7,500
Bonds Payable
555,000
Discount on Bonds Payable
22,500
Trademarks
3,900
The amount that should be recorded on Ottawa's statement of financial position as total
liabilities is
A. P696,000
C. P703,500
B. P700,500
D. P741,000
PRTC 1015
Use the following information for the next two questions:
PRTC 0515
The general ledger summarized trial balance of Heat Corporation, a manufacturing company,
includes the following accounts at December 31, 2015:
Debit
Credit
Accumulated depreciation – buildings
P120,000
Accumulated depreciation – leased assets
310,000
Accumulated depreciation – plant and equipment
3,726,000
Allowance for doubtful debts
80,000
Bank loans
2,215,000
Bank overdrafts
350,000
Buildings, at cost
P1,030,000
Cash
175,000
Current tax payable
152,000
Debentures
675,000
Deferred tax
420,000
Deposits, at call
36,000
Finished goods
1,042,000
Goodwill
2,530,000
Investments in listed companies (AFS)
52,000
Investments revaluation reserve
25,000
Land, at valuation
250,000
Land revaluation reserve
81,000
Lease liabilities
350,000
May 2015, Final Preboard
775,000
110,000
8,275,000
141,000
490,000
320,000
1,744,000
151,000
P17,121,000
575,000
275,000
412,000
42,000
1,481,000
3,500,000
715,000
1,617,000
.
P17,121,000
Additional information:
a) Bank loans and other loans are all repayable beyond one year.
b) P300,000 of the debentures is repayable within one year.
c) Lease liabilities include P125,000 repayable within one year.
d) Provision for employment benefits includes P192,000 payable within one year.
e) The planned restructuring is intended to be completed within one year,
f) Provision for warranty includes P20,000 estimated to be incurred beyond one year.
.
4
.
5
Total noncurrent assets is
A. P8,814,000
B. P8,839,000
C. P8,866,000
D. P8,891,000
Total current liabilities is
A. P3,693,000
B. P3,883,000
C. P3,885,000
D. P3,921,000
Use the following information for the next five questions.
PRTC 0515
The following is a post-closing trial balance for June 30, 2015, East Company, an SME:
Account Title
Debits
Credits
Cash
P830,000
Short-term investments
650,000
Page 2 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
Accounts receivable
Prepaid expenses
Land
Buildings
Accumulated dep. – buildings
Equipment
Accumulated dep. - equipment
Accounts payable
Accrued expenses
Notes payable
Mortgage payable
Ordinary shares
Retained earnings
Total
PRACTICAL ACCOUNTING 1
2,800,000
320,000
750,000
3,200,000
2,650,000
.
P11,200,000
A. P3,590,000
B. P3,630,000
May 2015, Final Preboard
The total noncurrent assets of East Company as of June 30, 2015 is
A. P 900,000
C. P4,400,000
B. P3,550,000
D. P4,450,000
.
The total current liabilities of East Company as of June 30, 2015 is
A. P2,280,000
C. P2,780,000
B. P2,680,000
D. P2,880,000
.
The total noncurrent liabilities of East Company as of June 30, 2015 is
A. P 500,000
C. P2,900,000
B. P2,400,000
D. P5,680,000
P1,600,000
Additional Information:
1. The short-term investments account includes P180,000 in treasury bills purchased in May.
The bills mature in July.
2. The accounts receivable account, consists of the following:
a. Amounts owed by customers
P2,250,000
b. Allowance for uncollectible accounts trade customers
(150,000)
c. Nontrade note receivable (due in three years)
650,000
d. interest receivable on note (due in four months)
50,000
Total
P2,800,000
3. The notes payable accounts consists of two notes of P500,000 each. One note is due on
September 30, 2015, and the other is due on November 30, 2016.
4. The mortgage payable is payable in semiannual installment of P50,000 each plus interest. The
next payment is due on October 31, 2015. Interest has been properly accrued and is included
in accrued expenses.
5. Five hundred thousand shares of no par ordinary shares are authorized, of which 200,000
shares have been issued and are outstanding.
6. The land account includes P500,000 representing the cost of the land on which the company's
office building resides. The remaining P250,000 is the cost of land that the company is
holding for investment purposes. The fair values of land cannot be determined reliably without
undue cost or effort on an ongoing basis.
QUESTIONS:
6
.
The total current assets of East Company as of June 30, 2015 is
.
7
1,200,000
1,730,000
450,000
1,000,000
2,500,000
1,000,000
1,720,000
P11,200,000
C. P3,900,000
D. P3,950,000
8
9
.
10
The total shareholders' equity as of June 30, 2015 is
A. P1,000,000
C. P2,270,000
B. P1,720,000
D. P2,720,000
Statement of Comprehensive Income
11
What amount of comprehensive income should Searles Corporation report on its statement of
profit or loss and other comprehensive income given the following net of tax figures that
represent changes during a period?
Remeasurement loss on defined benefit obligation
(P3,000)
Unrealized gain on available-for-sale securities
15,000
Reclassification adjustment, for securities gain included in net income
(2,500)
Share warrants outstanding
4,000
Net income
77,000
A. P86,500
C. P89,500
B. P89,000
D. P90,500
PRTC 0515
.
12
The following information for 2015 is provided by Rockets Company:
Sales
Cost of goods sold
Selling expenses
General and administrative expenses
Interest expense
Gain on early extinguishment of long-term debt
P20,000,000
12,000,000
1,200,000
1,800,000
1,500,000
500,000
Page 3 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
Correction of inventory error, net of income tax - credit
Investment income - equity method
Gain on sale of investment
Income tax expense
Dividends declared
What was the 2015 income from continuing operations?
A. P4,500,000
C. P6,600,000
B. P4,900,000
D. P7,000,000
3.
PRACTICAL ACCOUNTING 1
800,000
600,000
2,000,000
2,100,000
2,500,000
PRTC 0515
The general ledger trial balance of Kimberly Limited includes the following accounts at
December 31, 2015:
Sales revenue
P975,000
Interest income
20,000
Share of profit of associates
15,000
Other income
8,000
Decrease in inventories of finished goods
25,000
Raw materials and consumables used
350,000
Employee benefit expenses
150,000
Loss on translation of foreign operations
30,000
Depreciation of property and equipment
45,000
Impairment of property
80,000
Finance costs
35,000
Other expenses
45,000
Income tax expense
75,000
How much should be reported as profit for the year ended December 31, 2015?
A. P183,000
C. P263,000
B. P213,000
D. P288,000
PRTC 1015
Use the following information for the next five questions.
PRTC 0515
Selected pre-adjustment account balances and adjusting information of Lakers Inc. for the year
ended December 31, 2015, are as follows:
Retained earnings, January 1, 2015
P440,670
Sales salaries and commissions
25,000
Advertising expense
16,090
Legal services
2,225
Insurance and licenses
7,680
Travel expense - sales representatives
4,560
Depreciation - sales/delivery equipment
6,100
May 2015, Final Preboard
Depreciation - office equipment
Interest income
Utilities
Telephone and postage
Supplies inventory
Miscellaneous selling expenses
Dividends paid
Dividends received
Interest expense
Allowance for doubtful accounts
Officers' salaries
Sales
Sales returns and allowances
Sales discounts
Gain on sale of assets
Inventory, January 1
Inventory, December 31
Purchases
Freight in
Accounts receivable, December 31
Gain from discontinued operations (before income taxes)
Loss on sale of equipment
4,200
550
6,400
1,475
2,180
2,740
33,000
5,150
4,520
160
36,600
451,000
3,900
880
7,820
89,700
20,550
141,600
5,525
261,000
40,000
72,600
Adjusting information:
a) Goods amounting to P18,600 in the possession of consignees as of December 31,2015 was
not included in the ending inventory balance.
b) After preparing an analysis of aged accounts receivable, a decision was made to increase the
allowance for doubtful accounts to 2% of the ending accounts receivable balance.
c) Purchase returns and allowances were unrecorded. They are computed as 6% of purchases
(not including freight in).
d) Sales commissions for the last day of 2015 had not been accrued. Total sales for that day
amounted to P3,050. Average sales commissions is 3% of sales.
e) No accrual had been made for a P570 freight bill received on January 3, 2016, for goods
received on December 29, 2015.
f) An advertising campaign was initiated on November
1, 2015. P1,818 was recorded as
"prepaid advertising" and should be amortized over a six-month period. No amortization was
recorded.
g) Freight charges of P3,500 paid during 2015 on sold merchandise were netted against sales.
Page 4 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
PRACTICAL ACCOUNTING 1
h) P560 interest earned at the end of 2015 was not accrued.
i) A forklift with a useful life of 10 years was purchased on March 1, 2015 for P7,800.
Depreciation had not been recognized,
j) Supplies on hand amounted to P1,225 at December 31, 2015. A "real" account is debited
upon receipt of supplies.
k) Income tax rate on all items is 30%.
QUESTIONS:
Compute for the following for the year ended December 31, 2015:
.
Net sales
A. P447,500
B. P449,720
C. P451,000
D. P454,500
.
Cost of goods sold
A. P189,749
B. P208,399
C. P208,449
D. P210,149
.
Selling expenses
A. P55,838
B. P58,596
C. P58,688
D. P59,338
.
General and administrative expenses
A. P64,595
B. P64,915
C. P66,140
D. P68,095
.
Income from continuing operations
A. P50,707
B. P51,099
C. P79,099
D. P95,227
13
14
15
16
17
Income Statement
18
. The following information for 2012 is provided by Matthew Company:
Sales
P20,000,000
Cost of goods sold
12,000,000
Selling expenses
1,200,000
General and administrative expenses
1,800,000
Interest expense
1,500,000
Gain on early extinguishment of long-term debt
500,000
May 2015, Final Preboard
Correction of inventory error, net of income tax - credit
Investment income - equity method
Gain on sale of investment
Income tax expense
Dividends declared
What was the 2012 income from continuing operations?
A. P4,500,000
C. P6,600,000
B. P4,900,000
D. P7,000,000
.
19
800,000
600,000
2,000,000
2,100,000
2,500,000
CPAR 0512
Below are selected account balance of the Petronius Company with additional information
as of December 31, 2012:
Retained earnings, January 1
P 540,000
Sales (net)
8,375,000
Dividends received
15,000
Dividends paid
140,000
Loss on sale of marketable securities
40,000
Loss from write-down of obsolete inventory
115,000
Merchandise inventory, January 1
1,040,000
Purchase (net)
4,720,400
Salaries
1,540,000
Contribution to employees' pension fund
280,000
Delivery expenses
205,000
Miscellaneous expense
125,000
Doubtful accounts expense
12,000
Depreciation expense - fixed assets
86,000
Income tax expense
120,000
Inventory at December 31, 2012 was valued at P760,000 (P875,000 less P115,000 writedown of obsolete inventory).
How much should be reported as profit for the year ended December 31, 2012?
A. P841,600
C. P981,600
B. P866,600
D. P986,600
CPAR 0512
Cash Flow Statement
20
. Ryan Company's income statement for the year ended December 31, 2015, reported net
income of P360,000. The financial statements also disclosed the following information:
Amortization
P 20,000
Depreciation
60,000
Increase in accounts receivable
140,000
Page 5 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
Increase in inventory
Decrease in accounts payable
Increase in salaries payable
Dividends paid
Purchase of equipment
Increase in long-term note payable
Net cash provided by operating activities for 2015 should be reported as
A. P 84,000
C. P234,000
B. P204,000
D. P324,000
.
21
.
22
.
23
PRACTICAL ACCOUNTING 1
48,000
76,000
28,000
120,000
150,000
300,000
PRTC 0515
The following information is available from the financial statements of Hornets Corporation for
the year ended December 31, 2015:
Net income
P396,000
Depreciation expense
102,000
Decrease in accounts receivable
126,000
Increase in inventories
90,000
Increase in accounts payable
24,000
Payment of dividends
54,000
Purchase of available-for-sale securities
22,000
Decrease in income taxes payable
16,000
What is Hornets Corporation's net cash flow from operating activities?
A. P440,000
C. P520,000
B. P466,000
D. P542,000
PRTC 0515
Sales, P102,000; Cost of goods sold, P40,000; Wages, P31,800; Purchase of land, P8,000;
Increase in accounts receivable, P3,600; Depreciation expense, P4,000; Gain on sale of
equipment, PI,400; Issuance of bonds, P16,000 at face value; Increase in accounts payable,
P5,200; Patent amortization expense, P2,600; Decrease in inventory, P2,000; Loss on sale of
tand PI,000; Decrease in wages payable, P600; Declaration and payment of dividend,
P6,800.
Net cash flows from operating activities is
A. P22,800
C. P36,800
B. P33,200
D. P38,000
PRTC 0515
Luke Company began the current year with the following:
Accounts receivable
Allowance for doubtful accounts
Net account receivable
May 2015, Final Preboard
During the current year, the following events occurred:
Accounts written off
P 12,000
Sales on account
300,000
Bad debt expense recognized
20,000
At the end of the current year, the company showed a balance in gross accounts receivable
(before the allowance for doubtful accounts) of P168,000.
What amount would be shown as an operating cash inflow in the statement of cash flows
under the direct method?
A. P210,000
C. P282,000
B. P220,000
D. P300,000
CPAR 0512
P100,000
(8,000)
92,000
.
24
At balance sheet date, Dim Limited had the following net balance from cash flows:
• Operating activities, P53,440;
• Investing activities, P45,230;
• Financing activities, P(47,860).
If the company had an ending balance of cash amounting to P107,310, what was the
comparative ending balance of cash for the previous year?
A. P(39,220)
C. P158,120
B. P56,500
D. P163,380
CPAR 0512
Notes to Financial Statements
Operating Segments
25
. The following segments were identified for Oklahoma Corporation:
Segment
Operating Profit (Loss)
#1
P1,000,000
#2
200,000
#3
(500,000)
#4
(100,000)
Which of the four segments is a reportable segment?
A. 1 and 2 only
C. 1, 2, and 3 only
B. 1 and 3 only
D. all four
PRTC 0512, 0515
.
26
Hyde Corp. has three manufacturing divisions, each of which has been determined to be a
reportable operating segment. In the year just ended, Clay division had sales of P3,000,000,
which was 25% of Hyde's total sales, and had traceable operating costs of PI,900,000. Hyde
incurred operating costs of P500,000 that were not directly traceable to any of the divisions.
In addition, Hyde incurred interest expense of P300,000. The calculation of the measure of
segment profit or loss reviewed by Hyde's chief operating decision maker does not include an
Page 6 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
PRACTICAL ACCOUNTING 1
allocation of interest expense incurred by Hyde. However, it does include traceable costs. It
also includes nontraceable operating costs allocated based on the ratio of divisional sales to
aggregate sales. In reporting segment information, what amount should be shown as Clay's
profit for the year?
A. P875,000
C. P 975,000
B. P900,000
D. P1,100,000
CPAR 0512
Discontinued operations & assets held for sale
27
. Byron Inc. decided on August 1, 2012, to dispose of a segment of its business'. The segment
was sold on November 30, 2012. Byron's income for 2012 included income of P250,000 from
operating the discontinued segment from January 1 to the sale date. Byron incurred a loss on
the November 30 sale of P220,000. Ignoring income taxes, what amount should be reported
in the 2012 income statement as the net income or loss under "Discontinued Operations"?
A. P220,000 loss
C. P30,000 income
B. P150,000 loss
D. P250,000 income
CPAR 0512
.
28
.
29
On January 1, 2012, Generator Corp. met the criteria for discontinuance of a business
component. For the period January
1 through October 15, 2012, the component had
revenues of P500,000 and expenses of P800,000. The assets of the component were sold on
October 15, 2012, at a loss for which no tax benefit is available. In its income statement for
the year ended December 31, 2012, how should Generator report the component's
operations from January 1 to October 15, 2012?
A. P300,000 should be reported as an extraordinary loss.
B. P500,000 should be reported as revenues from operations of a discontinued component.
C. P300,000 should be reported as part of the loss on operations and disposal of a
component.
D. P500,000 and.P800,000 should be included with revenues and expenses, respectively,
as part of continuing operations.
CPAR 0512
Arvin Inc. is a small publicly listed company whose activities consist of an engineering branch
(also acting as the head office) and a paint shop branch producing specialized industrial
coatings. During the year ended December 31, 2012, the paint shop branch became
unprofitable and the directors made the decision to close down the branch. The employees
have been told of the closure and those employees who cannot be transferred to the
engineering branch have been given redundancy/retrenchment notices. In addition, the
directors have written to all of the paint shop's customers informing them that no further
orders will be accepted and the branch will formally close on January 31, 2013.
The
estimated direct costs of the closure, which have not yet been provided for, are:
May 2015, Final Preboard
Employee related costs
P10,000,000
Losses on disposal of branch net assets
15,000,000
The paint shop's revenues and operating expenses for 2012, respectively, were
P40,000,000 and P60,000,000. In addition, it is expected that the operating losses of the
paint shop during January 2013 will be P2,000,000. Assuming a 35% tax rate, how much will
be reported as loss from discontinued operations in Arvin's 2012 income statement?
A. P13,000,000
C. P29,250,000
B. P19,500,000
D. P30,550,000
CPAR 0512
Interim Financial Reporting
30
. An entity prepares quarterly financial reports in accordance with PAS 34. At the end of the
first quarter, an entity's investment in equity instrument carried at cost is deemed to be
impaired by P100,000. The fair value of the equity instrument subsequently recovered at the
end of the second quarter so that by the half-year date there had not been a significant
decline in fair value below cost. The entity would not recognize an impairment loss in its
annual financial statements if it tested for impairment only at its annual reporting date. How
much should the entity recognize as reversal of impairment loss in its second quarter income
statement?
A. P0
C. P50,000
B. P25,000
D. P100,000
CPAR 0512
.
31
Cyrene Company, a calendar-year corporation, has the following income before income tax
provision and estimated effective annual income tax rates for the first three quarters of the
current year:
Income before
Estimated effective annual
Quarter
income tax provision
tax rate at end of quarter
First
P60,000
40%
Second
70,000
40%
Third
40,000
45%
Cyrene's income tax provision in its interim income statement for the third quarter should be
A. P18,000
C. P25,500
B. P24,500
D. P76,500
PRTC 0515
Revenue & Expense Recognition
45. Assume Sweet Corp., an equipment distributor, sells a piece of machinery with a list price of
P800,000 to Arch Inc. Arch Inc. will pay P850,000 in one year. Sweet Corp. normally sells this
type of equipment for 90% of list price. How much should be recorded as revenue?
A. P720,000
C. P800,000
Page 7 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
B. P765,000
.
32
PRACTICAL ACCOUNTING 1
D. P850,000
PRTC 1015
On 1 July 2011, The Pyretus Company, a manufacturer of office furniture, supplied goods to
The Natiso Company for P120,000 on condition that this amount was paid in full on 1 July
2012. Natiso had earlier rejected an alternative offer from Pyretus whereby they could have
bought the same goods by paying cash of P108,000 on 1 July 2011.
Under PAS18 Revenue, how much relating to this transaction should Pyretus recognize in
profit or loss in respect of revenue and interest income for the year ended 30 June 2012?
CPAR 0512
A.
B.
C.
D.
Revenue
P108,000
P108,000
P120,000
P120,000
Interest income
Nil
P 12,000
Nil
P12,000
46. On July 1, 2015, Sadanga Company finished consultation services and accepted in exchange
a promissory note with a face value of P300,000, a due date of June 30, 2018, and a stated
rate of 5%, with interest receivable at the end of each year. The fair value of the services is
not readily determinable and the note is not readily marketable. Under the circumstances, the
note is considered to have an appropriate imputed rate of interest of 10%. The total income
to be recognized in Sadanga's 2015 profit or loss is
A. P262,694
C. P288,963
B. P275,829
D. P307,500
PRTC 1015
.
33
.
34
On November 1, 2011, an operator enters into a service contract with a customer for a period
of 12 months. Under the contract specifications, the customer is offered for the first 2 months
60 free minutes per month of communication, and for the remaining 10 months of the contract
the customer will pay a fixed fee of P30 per month for 60 minutes of communication per
month. The operator considers the recoverability of the amounts due under the contract from
the customer to be probable.
How much is the total income of the Operator from communication service for the year 2012?
A. P0
C. P250
B. P50
D. P300
CPAR 0512
John sells goods supplied by Espiyu. The goods are classed as A grade (perfect quality) or
B grade, having slight faults. John sells the A grade goods acting as an agent for Espiyu at a
fixed price calculated to yield a gross profit margin of 50%. John receives a commission of
12.5% of the sales it achieves for these goods. The arrangement for B grade goods is that
they are sold by Espiyu to John and John sells them at a gross profit margin of 25%. The
following information has been obtained from John's financial records:
A grade
B grade
May 2015, Final Preboard
Inventory held on premises, 1/1
P 2,400,000
P1,000,000
Goods from Espiyu year to 12/31
18,000,000
8,800,000
Inventory held on premises, 12/31
2,000,000
1,250,000
How much should be reported as sales revenue in John's income statement?
A. P11,400,000
C. P36,800,000
B. P26,950,000
D. P48,200,000
PRTC 0515
47. On January 2, 2015, Kamprad Company assigned its patent to Alive for royalties of 10% of
patent related sales. On the same date, Kamprad received a P400,000 advance to be applied
against royalties for 2015 sales. Royalties are payable every six months. Alive reported the
following sales:
Six months ended
Amounts
June 30, 2015
P1,500,000
December 31, 2015
2,000,000
How much royalty revenue should Kamprad report in its 2015 income statement?
A. P200,000
C. P400,000
B. P350,000
D. P750,000
PRTC 1015
.
Play Co.'s professional fees expense account had a balance of P92,000 at December 31,
2015, before considering year-end adjustments relating to the following:
• Consultants were hired for a special project at a total fee not to exceed P65,000. Play
has recorded P55,000 of this fee based on billings for work performed in 2015.
• The attorney's letter requested by the auditors, dated January 28, 2016, indicated that
legal fees of P6,000 were billed on January 15, 2016 for work performed in November
2015 and that unbilled fees for December 2015 were P9,000.
What amount should Play report for professional fees expense for the year ended December
31, 2015?
A. P52,000
C. P107,000
B. P92,000
D. P117,000
PRTC 0515
.
Loading Corp. pays commissions to its sales staff at the rate of 3% of net sales. Sales staff
are not paid salaries but are given monthly advances of P30,000. Advances are charged to
commission expense, and reconciliations against commissions are prepared quarterly. Net
sales for the year ended March 31, 2015 were P30 million. The unadjusted balance in the
commissions expense account on March 31, 2015 was P800,000. March advances were
paid on April 3, 2015. In its income statement for the year ended March 31, 2015, what
amount should Loading Corp. report as commission expense?
A. P800,000
C. P900,000
35
36
Page 8 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
B. P830,000
.
37
PRACTICAL ACCOUNTING 1
D. P930,000
PRTC 0515
Prude Corporation has an incentive commission plan for its salesmen, entitling them to an
additional sales commission when actual quarterly sales exceed budgeted estimates. An
analysis of the account "incentive commission expense" for the year ended December 31,
2012, follows:
Amount
For Quarter Ended
Date Paid
P42,000
December 31, 2011
January 23, 2012
36,000
March 31, 2012
April 24,2012
39,000
June 30, 2012
July 19, 2012
43,000
September 30, 2012
October 22, 2012
The incentive commission for the quarter ended December 31, 2012, was P45,000. This
amount was recorded and paid in January 2013. What amount should Prude report as
incentive commission expense for 2012?
A. P118,000
C. P163,000
B. P160,000
D. P205,000
CPAR 0512
48. Crush Company is an experienced home appliance dealer. Crush Company also offers a
number of services together with the home appliances that it sells (installation and
maintenance). Crush Company sells dishwashers on a standalone basis, it also sells
installation and maintenance service for the dishwashers.
Pricing for dishwashers is as follows:
Dishwasher only
P1,600
Dishwasher with installation service
1,700
Dishwasher with maintenance services
1,950
Dishwasher with installation and maintenance services
2,000
In cases where maintenance services are provided, the maintenance service is separately
priced within the arrangement at P350. Dishwashers are sold subject to a general right of
return. If a customer purchases a dishwasher with installation and/or maintenance
services, in the event Crush Company does not complete the service satisfactorily, the
customer is only entitled to a refund of the portion of the fee that exceeds P1,600. On
January 1, 2015, Crush Company sells 100 dishwashers to Condo Complex, Inc. a
developer of high-rise condos. The dishwashers are installed and Condo Complex, Inc.
purchases the dishwashers with the installation and maintenance services. The total price
for the 100 dishwashers is P190,000. How much revenue should Crush Company allocate
to the dishwashers?
A. P150,000
C. P160,000
B. P152,000
D. P190,000
PRTC 1015
May 2015, Final Preboard
Cash & Cash Equivalent
38
. Consider the following: Cash in Bank - checking account of P13,500, Cash on hand of P500,
Post-dated checks received totaling P3,500, and Certificates of deposit totaling P124,000.
How much should be reported as cash in the statement of financial position?
A. P13,500
C. P137,500
B. P14,000
D. P138,000
PRTC 0515
.
The following pertains to Miraflor, Inc. on December 31 of the current year: Checking account
balance P925,000; an overdraft in special checking account at same bank as normal
checking account of P17,000; certificate of deposit P400,000; cash held in a bond sinking
fund P200,000; postdated check from customer PI 1,000; certified check from customer
P9,800; NSF cheek received from customer PI 5,000; cash advance to subsidiary of
P300,000; postage stamps on hand P620; utility deposit paid to electric company P8,000;
currency and coins in a petty cash fund (the company has not replenished the fund to the
imprest amount of P5,000) P800. The correct amount that should be reported as cash is
A. P908,800
C. P1,318,600
B. P918,600
D. P1,322,800
PRTC 0515
.
The cash account of Target Corp. on December 31, 2015 has a balance of P127,600 and it
consists of the following:
Bills and coins on hand
P52,780
Petty cash including petty cash vouchers of P650
1,000
Balance in savings account with a bank closed by the BSP
36,000
Customer's check dated January 15, 2016
8,000
Credit memo from suppliers for purchases returns
6,500
Postage stamps
120
Money order
800
IOU of an employee
400
Checking account balance In Bank of P.I.
22,000
The correct cash balance on December 31, 2015 of Target Corp. is
A. P75,130
C. P76,330
B. P75,930
D. P76,580
PRTC 0515
39
40
11. At December 31,
2015, Mursi Co. had the following balances in the accounts it maintains
at First State Bank:
Checking account #101
P175,000
Checking account #201
(10,000)
Page 9 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
Money market account
25,000
90-day certificate of deposit, due 2/28/16
50,000
180-day certificate of deposit, due 3/15/16
80,000
In its December 31, 2015 statement of financial position, what amount should Mursi report as
cash and cash equivalents?
A. P190,000
C. P240,000
B. P200,000
D. P320,000
PRTC 1015
.
41
PRACTICAL ACCOUNTING 1
.
42
Charm Carpet Cleaning prepares a bank reconciliation at the end of every month. At the end
of July, the balance in the general ledger checking account, was P2,750 and the bank
balance on the bank statement was P2,980. Outstanding checks totaled P680 and deposits
in transited were P400. The bank statement revealed that a check written for P120 was
incorrectly recorded by Charm as a P220 disbursement. The bank statement listed service
charges and NSF check charges totaling P150. The corrected cash balance is:
A. P2,270
C. P2,550
B. P2,470
D. P2,700
PRTC 0515
12. The following data pertaining to the cash transactions and bank account of Mandirigma
Company for the month of May are available to you:
Cash balance, per bank statement, 5/31
31,948
Bank service charge for May
109
Debit memo for the cost of printed checks delivered by the bank
125
Outstanding checks, May 31
6,728
Deposit of May 30 not recorded by bank until June 1
4,880
Proceeds of a bank loan of May 30, net of interest of P300
5,700
Proceeds from a customer's promissory note, including interest of P100
8,100
Check No. 2772 issued to a supplier entered in the accounting records
at
P2,100 but deducted in the bank statement at an erroneous amount
of
1,200
Stolen check lacking an authorized signature, deducted from
Mandirigma's account by the bank in error
800
Customer's check returned by the bank marked NSF; no entry
has been made in the accounting records to record the returned check
760
What is the cash balance per books at May 31?
A. P17,194
C. P30,000
B. P18,994
D. P42,806
PRTC 1015
May 2015, Final Preboard
Carefree Company's newly hired assistant prepared the following bank reconciliation on
March 31, 2012:
Book balance
P1,405,000
Add: March 31 deposit
P 750,000
Collection of note
2,500,000
Interest on note
150,000
3,400,000
Total
4,805,000
Less: Careless Company's deposit to our account1,100,000
Bank service charge
45,000
1,145.000
Adjusted book balance
3,660,000
Bank balance
P5,630,000
Add: Error on check No. 175
45,000
Total
5,675,000
Less: Preauthorized payments for water bills
205,000
NSF check
220,000
Outstanding check
1,650,000
2,075,000
Adjusted bank balance
3,660,000
Check No. 175 was made for the proper amount P249,000 in payment of account. However
it was entered in the cash payments journal as P294,000. Carefree authorized the bank to
automatically pay its water bill as submitted directly to the bank. The correct cash in bank
balance is
A. P2,880,000
C. P3,630,000
B. P3,600,000
D. P3,660,000
CPAR 0512
Receivables
43
. Tanya, Inc had net sales in 2015 of P700,000. At December 31, 2015, before adjusting
entries, the balances in selected accounts were: accounts receivable P125,000 debit, and
allowance for doubtful accounts PI,200 debit. Tanya estimates that 2% of its accounts
receivable will prove to be uncollectable. What is the cash realizable value of the receivables
reported on the statement of financial position at December 31, 2015?
A. P109,800
C. P112,200
B. P111,000
D. P122,500
PRTC 0515
.
44
Your analysis of the accounts receivable of Hollande Company indicates the following:
Accounts receivable, January 1
P 300,000
Allowance for doubtful accounts, January 1
40,000
Credit sales during the year
1,200,000
Page 10 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
PRACTICAL ACCOUNTING 1
Cash collections during the year
1,100,000
Accounts receivable written off during the year
20,000
In prior years, Hollande's bad debt expense has averaged 2% of credit sales. On December
31, what would be the amount of Hollande's accounts receivable, net of any allowance for
doubtful accounts, assuming that Hollande uses the credit sales method to estimating bad
debt expense?
A. P336,000
C. P360,000
B. P358,000
D. P400,000
PRTC 0515
14. Lemonade Corporation had a 1/1/15 balance in the Allowance for Doubtful Accounts of
P10,000. During 2015, it wrote off P7,200 of accounts and collected P2,100 on accounts
previously written off. The balance in Accounts Receivable was P200,000 at 1/1 and
P240,000 at 12/31. At 12/31/15, Lemonade estimates that 5% of accounts receivable will
prove to be uncollectible. What is Doubtful Accounts Expense for 2015?
A. P2,000
C. P 9,200
B. P7,100
D. P12,000
PRTC 1015
of P8,000 were allowed for prompt payment.
 Customer's accounts of P2,000 were ascertained to be worthless and were written off.
 Bad accounts previously written off prior to 2015 amounting to P500 were recovered.
 The company provided P2,300 for doubtful accounts by a journal entry at the end of the
year.
 Accounts receivable of P70,000 have been pledged to a local bank on a loan of P40,000.
Collections of P15,000 were made on these receivables (not included in the collections
previously given) and applied as partial payment to the loan.
The amortized cost of accounts receivable at December 31, 2015 is
A. P 81,300
C. P106,300
B. P105,800
D. P106,800
PRTC 0515
.
The Hawthorne Manufacturing Company sells its products, offering 30 days credit to its
customers. Uncollectible amounts are estimated by accruing monthly charge to bad debt
expense equal to 2% of credit sales. At the end of the year, the allowance for uncollectible
accounts is adjusted based on aging of accounts receivable. The company started the
current year with the following balances in its accounts:
Accounts receivable
P305,000
Allowance for doubtful accounts
25,500
During the year, sales on credit were P1,300,000, cash collections from customers were
P1,250,000, and actual write-offs of accounts were P25,000. An aging of accounts
receivable at the end of the year indicates a required allowance of P30,000.
Based on the foregoing, which statement is true?
A. The doubtful accounts expense for the year is P26,000.
B. The balance of accounts receivable at the end of the year is P300,000.
C. The adjusting entry for doubtful accounts at the end year includes a credit to allowance
for doubtful accounts of P30,000.
D. None of the above.
PRTC 0515
.
On January 1, 2010, Tasty Company sold a machine with a carrying amount of P300,000 and
accepted in exchange a promissory note with a face value of P500,000, a due date of
December 31, 2019, and a stated rate of 4%, with interest receivable at the end of each year.
The fair value of the machine is not readily determinable and the note is not readily
marketable. Under the circumstances, the note is considered to have an appropriate imputed
rate of interest of 8%.
The interest income to be recognized in 2015 is
A. P20,000
C. P32,604
B. P29,264
D. P33,612
PRTC 0515
46
15. Excel Company is a leading educational institution with student population of more than
50,000. Excel continuously maintains good quality education and a roster of qualified
professors. As a result, Excel continuously produces top graduates in several fields. As at
December 31, Excel has an outstanding receivable balance of P23,250,000 broken down
into: 0-60 days outstanding, P9,000,000; 61-120 days outstanding, P6,750,000; and over
120 days outstanding, P7,500,000. Estimated percent uncollectible of these accounts is 1%,
2% and 6%, respectively. Excel wrote off P525,000 of its accounts receivable and recovered
P50,000 from accounts previously written of in prior year. As at January 1, Excel has an
allowance for uncollectible accounts of P650,000. Based on the aging analysis, Excel should
report doubtful accounts expense for the year at
A. P475,000
C. P550,000
B. P500,000
D. P675,000
PRTC 1015
47
.
45
The balance sheet of Lake Products Co, shows the accounts receivable balance at
December 31, 2014 as follows:
Accounts receivable - trade
P45,000
Less allowance for doubtful accounts
900
P44,100
During 2015, transactions relating to the accounts were as follows:
 Sales on account, P480,000.
 Cash received from collections of current receivables totaled P392,000, after discounts
May 2015, Final Preboard
Page 11 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
.
Moves Corporation obtained a P40,000 note receivable from a customer on June 30, 2015.
The note, along with interest at 6%, is due on June 30, 2016. On September 30, 2015,
Moves discounted the note at Out bank. The bank's discount rate is 10%. What amount of
cash did Moves receive from Out Bank?
A. P36,000
C. P39,220
B. P36,820
D. P40,600
PRTC 0515
.
Wonderful Inc. assigns P1,500,000 of its accounts receivables as collateral for a P1 million
loan with a bank. The bank assesses a 3% finance fee and charges interest on the note at
6%. The journal entry to record this transaction would not include a
A. Debit to Cash for P970,000
B. Debit to Finance Charge for P30,000
C. Credit to Notes Payable for P1,000,000.
D. Credit to Accounts Receivable for P1,000,000.
PRTC 0515
48
49
.
50
PRACTICAL ACCOUNTING 1
on December 31, 2015. The customer was scheduled to receive the merchandise on
January 2, 2016.
c. Merchandise costing P46,000 which was shipped by Hug f.o.b. shipping point to a
customer on December 29, 2015. The customer was scheduled to receive the
merchandise on January 2, 2016.
d. Merchandise costing P83,000 shipped by a vendor f.o.b. destination on December 30,
2015, and received by Hug on January 4, 2016.
e. Merchandise costing P51,000 shipped by a vendor f.o.b. seller on December 31, 2015,
and received by Hug on January 5, 2016.
The adjusted cost of Hug Company's inventory at December 31, 2015 should be
A. P441,000
C. P530,000
B. P479,000
D. P538,000
PRTC 0515
.
The Yeti Corporation's inventory at December 31, 2015, was P325,000 based on a physical
count priced at cost, and before any necessary adjustment for the following:
• Merchandise costing P30,000, shipped F.o.b. shipping point from a vendor on December
30, 2015, was received on January 5, 2016.
• Merchandise costing P22,000, shipped F.o.b. destination from a vendor on December
28, 2015, was received on January 3, 2016.
• Merchandise costing P38,000 was shipped to a customer F.o.b. destination on
December 28, arrived at the customer's location on January 6, 2016.
• Merchandise costing P12,000 was being held on consignment by Club Company.
What amount should Yeti Corporation report as inventory in its December 31, 2015,
statement of financial position?
A. P325,000
C. P405,000
B. P367,000
D. P427,000
PRTC 0515
.
Mernadeth Corporation reported P70,000 of inventory on December 31, 2015, based on
physical count. Additional information was given as follows:
a. Included in the physical count were goods billed to a customer, FOB shipping point, on
December 31, 2015. The goods had a cost of P3,000 and have been billed at P5,000.
The shipment is ready for pick-up by the delivery contractor.
b. Goods were in transit from a vendor. The invoice cost was P8,000 and goods were
shipped FOB shipping point on December 31, 2015.
c. Work in process costing P500 was sent to an outside processor for finishing on
December 30, 2015.
d. Goods out on consignment amounted to P4,600 (sales price); shipping costs, P120
(markup is 15% on cost).
52
Score Inc. factors P2,000,000 of its accounts receivables without guarantee (recourse) for a
finance charge of 5%. The finance company retains an amount equal to 10% of the accounts
receivable for possible adjustments. What would be recorded as a gain (loss) on the transfer
of receivables?
A. Gain of P100,000
C. Loss of P200,000
B. Loss of P100,000
D. Loss of P300,000
PRTC 0515
16. On April 1 of the current year, Misery Company factored receivables with a carrying value of
P85,000 for P60,000 in cash from Scrooge Lenders. The transfer was made without
recourse. On April 1, Misery would
A. Debit discount on liability for P25,000.
B. Credit deferred interest expense for P25,000.
C. Debit loss on sale of receivables for P25,000.
D. Credit factored accounts receivable for P85,000.
Inventories
51
. In your review of Hug Company, you find that a physical inventory on December 31, 2015,
showed merchandise with a cost of P441,000 was on hand at that date. You also discover
the following items were all excluded from the P441,000.
a. Merchandise of P61,000 which is held by Hug on consignment. The consignor is Kisses
Company.
b. Merchandise costing P38,000 which was shipped by Hug f.o.b. destination to a customer
May 2015, Final Preboard
53
Page 12 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
The correct amount of inventory on December 31, 2015 is
A. P82,500
C. P85,500
B. P82,620
D. P85,620
PRACTICAL ACCOUNTING 1
PRTC 0515, 1015
18. The Shop Company sells TVs. The perpetual inventory was stated as P305,000 on the books
at December 31, 2015. At the close of the year, a new approach for compiling inventory was
used and apparently a satisfactory cut-off for preparation of financial statements was not
made. Some events that occurred are as follows.
a) TVs shipped to a customer January 2, 2016, costing P50,000 were included in inventory
at December 31, 2015. The sale was recorded in 2016.
b) TVs costing P100,000 received December 30, 2015, were recorded as received on
January 2, 2016.
c) TVs received during 2015 costing P46,000 were recorded twice in the inventory account.
d) TVs shipped to a customer December 28, 2015, f.o.b. shipping point, which cost
P150,000, were not received by the customer until January, 2016. The TVs were
included in the ending inventory.
e) TVs on hand that cost P61,000 were never recorded on the books.
Compute the correct inventory at December 31, 2015.
A. P220,000
C. P270,000
B. P259,000
D. P320,000
PRTC 1015
Gross & net method of recording purchases
54
. Cupcake Co. started 2015 with P94,000 of merchandise inventory on hand. During 2015,
P400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All
discounts were taken. Purchases were all made f.o.b. shipping point. Cupcake paid freight
charges of P7,500, Merchandise with an invoice amount of P5,000 was returned for credit.
Cost of goods sold for the year was P380,000. Cupcake uses a perpetual inventory system.
What is ending inventory assuming Cupcake uses the gross method to record purchases?
A. P112,490
c. P116,500
B. P112,550
d. P120,300
PRTC 0515
.
55
On December 3, Francis Company purchased inventory listed at P8,600 from Lyn Corp.
Terms of the purchase were 3/10, n/20. Francis Company also purchased inventory from
Duck Company on December 10 for a list price of P7,500. Terms of the purchase were 3/10,
n/30. On December 16, Francis paid both suppliers for these purchases. If Francis uses the
net method of recording purchases, the journal entry to record the payment on December 16
will include
A. A credit to Cash of P15,617.
May 2015, Final Preboard
B. A credit to Purchase Discounts of P258.
C. A debit to Accounts payable of P15,875.
D. A debit to Purchase Discounts Lost of P258.
PRTC 0515
Cost Flow Method
20. Inventory records for Epstein's Chemicals revealed the following:
March 1, 2015, inventory:
1,000 gallons P7.20 = P7,200
Purchases
Sales
Mar. 10
600 gals @ P7.25
Mar. 5
400 gals
16
800 gals @ 7.30
14
700 gals
23
600 gals @ 7.35
20
500 gals
26
700 gals
Ending inventory assuming FIFO in a perpetual inventory system would be:
A. P4,960
C. P5,080
B. P5,060
D. P5,140
PRTC 1015
Lower of cost or net realizable value
21. Gillard Enterprises Inc. is a retailer of Italian furniture and has five major product lines: sofas,
dining tables, beds, closets, and lounge chairs. At December 31, 2015, quantity on hand, cost
per unit, and net realizable value (NRV) per unit of the product lines are as follows:
Product line
Quantity
Cost per unit
NRV per unit
Sofas
100
P1,000
P1,020
Dining tables
200
500
450
Beds
300
1,500
1,600
Closets
400
750
770
Lounge chairs
500
250
200
In Gillard's December 31, 2015 statement of financial position, Inventory should be carried at
A. P1,040,000
C. P1,080,000
B. P1,075,000
D. P1,115,000
PRTC 1015
Net provision
22. Chomper Co. incurred P1,200,000 in manufacturing 10,000 widgets. The inventories were
manufactured for the purpose of filling-up a binding contract to sell of 9,000 units of widgets.
The contract with the buyer stipulates unit price of 100. The Company actively sells widgets in
the market at 200 per unit. The delivery date will be on January 10, 2016.
As of December 31, 2015, how much should the company recognize as net provision?
A. Nil
C. P200,000
B. P180,000
D. P900,000
PRTC 1015
Page 13 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
Writedown
56
. The trial balance of Krea Company showed inventories of P164,000. The inventories include
some goods that have a production cost of P18,000. These goods have a manufacturing
defect that will cost P6,000 to correct. The normal selling price for these goods would be
P25,000, but after the remedial work they will be sold through an agent as refurbished goods
at a discount of 20% on the normal selling price. The agent will receive a commission of 10%
of the reduced selling price. In relation to the defective goods, the company will recognize a
loss on inventory write down of
A. P
0
C. P4,000
B. P1,000
D. P6,000
PRTC 0515
Average cost retail method
25. Mary Lou Company uses the average cost retail method to estimate its inventory. December
31, 2015 are:
Cost
Retail
Inventory, January 1
P2,000,000
P3,000,000
Purchases
10,600,000
14,000,000
Net markups
1,600,000
Net markdowns
600,000
Sales
12,000,000
Data relating to the inventory at
Estimated normal shoplifting losses
400,000
Estimated normal shrinkage is 5% of sales
Mary Lou's cost of goods sold for the year ended December 31, 2015 is
A. P7,700,000
C. P8,680,000
B. P8,400,000
D. P9,100,000
PRTC 1015
Loss
57
. On June 30, 2015, a flash flood damaged the warehouse and factory of Raptors Corporation,
completely destroying the work in process inventory. There was no damage to either the raw
materials or finished goods inventories. A physical inventory taken after the flood revealed
the following valuations:
Finished Goods
P112,000
Work-in-process
0
Raw Materials
52,000
The inventory on January 1, 2015, consisted of the following.
Finished Goods
P120,000
May 2015, Final Preboard
PRACTICAL ACCOUNTING 1
Work-in-process
Raw Materials
115,000
42,500
P277,500
A review of the books and records disclosed that the gross profit margin historically
approximated 34% of sales. The sales for the first 6 months of 2015 were P428,000. Raw
materials purchases were P96,000. Direct labor costs for this period were P130,000, and
manufacturing overhead has historically been applied at 60% of direct labor.
Compute the value of the work in process inventory lost on June 30, 2015.
A. P 92,220
C. P135,020
B. P119,020
D. P271,980
PRTC 1015
24. A flood recently destroyed many of the financial records of Review Manufacturing Company.
Management has hired you to re-create as much financial information as possible for a month
of July. You are able to find out that the company uses an average cost inventory valuation
system. You also learn that Review makes a physical count at the end of each month in order
to determine monthly ending inventory values. By examining various documents you are able
to gather the following information:
Ending inventory at July 31
50,000 units
Total cost of units available for sale in July
P118,800
Cost of goods sold during July
P99,000
Cost of beginning inventory, July 1
P0.35/ unit
Gross profit on sales for July
P101,000
July purchases
Date
Units
Unit Cost
July 5
60,000
P0.40
11
50,000
0.41
15
40,000
0.42
16
50,000
0.45
The value of inventory at July 31 is
A. P19,800
C. P25,300
B. P24,600
D. P28,000
PRTC 1015
Purchase commitment
58
. A physical inventory taken on December 31, 2015 resulted in an ending inventory of
P1,440,000. Circus Company suspects some inventory may have been taken by employees.
To estimate the cost of missing inventory, the following were gathered:
Inventory, Dec. 31, 2014
P1,280,000
Purchases during 2015
5,640,000
Page 14 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
Cash sales during 2015
Shipment received on December 26, 2015, included in physical
inventory, but not recorded as purchases
Deposits made with suppliers, entered as purchases. Goods were
not received in 2015
Collections on accounts receivable, 2015
Accounts receivable, January 1, 2015
Accounts receivable, Dec. 31, 2015
Gross profit percentage on sales
At December 31, 2015 what is the estimated cost of missing inventory?
A. P160,000
C. P240,000
B. P200,000
D. P320,000
.
59
PRACTICAL ACCOUNTING 1
1,400,000
40,000
80,000
7,200,000
1,000,000
1,200,000
40%
PRTC 0515
On November 20, 2015, Celtic Corporation entered into a non-cancellable contract to
purchase P100,000 of inventory on January 15, 2016. The value of the inventory on
December 31, 2015, Celtic's year end, was P90,000. What amount should be reported on
the statement of financial position at December 31 related to this purchase commitment?
A. P90,000 inventory
B. P100,000 accounts payable
C. P90,000 purchase commitment liability
D. P10,000 estimated liability on purchase commitment
PRTC 0515
Biological Assets
26. XYZ Dairy Ltd is engaged in milk production for supply to various customers. The Company
produced milk with a fair value of P550,000 (that is determined at the time of milking) in the
year ended 31 December 2015.
The Company also estimated the following costs:
Commissions to brokers and dealers
20,000
Levies by regulatory agencies and commodity exchanges
55,000
Transfer taxes and duties
20,000
Transport and other costs necessary to get assets to a market.
10,000
The milk should be valued at
A. P445,000
C. P530,000
B. P455,000
D. P550,000
PRTC 1015
Investments in Debt & Equity Securities
Trading securities
60
. Miami Dealers has an investment in Heat Corporation that Miami accounts for as a trading
May 2015, Final Preboard
security. Heat Corporation shares are publicly traded on the Stock Exchange, and the
prevailing price on that exchange indicates that Miami's investment is worth P20,000.
However, Miami management believes that the stock market is generally overvalued, and
their analysis of the Heat investment suggests to them that it is worth P18,000. Miami should
carry the Heat investment on its statement of financial position at:
A. P18,000.
B. P20,000.
C. either P18,000 or P20,000, as either are defensible valuations.
PRTC 0515
D. P19,000, the midpoint of Miami's range of reasonably likely valuations of Heat.
Available-for-sale securities
27. On January 1, 2014, Alaska Corporation purchased P1,000,000 10% bonds for PI,051,510
(including broker's commission of P20,000). Interest is payable annually every December 31.
The bonds mature on December 31, 2016.
The bonds are classified as available-for-sale. The prevailing market rate for the bonds is
9% at December 31, 2014. On December 31, 2015, Alaska sold the bonds at 105. (Round
off present value factors to four decimal places)
How much is the gain on sale of bonds on December 31, 2015?
A. P 1,510
C. P31,510
B. P18,490
D. P32,390
PRTC 1015
Debt securities at amortized cost
61
. On March 1, 2015, Pyne Furniture Co. acquired P700,000 of 10 percent bonds to yield 8
percent. Interest is payable semiannually on February 28 and August 31. The bonds mature
in ten years. Pyne Furniture Co. is a calendar-year corporation. If the bonds are not held for
trading, the interest income to be recognized in 2015 is
A. P52,925
C. P58,333
B. P53,000
D. P58,933
PRTC 0515
.
62
On July 1, 2015, Morales Corp. acquired P4,000,000 face value of X Corporation bonds with
a nominal rate of interest of 4%. The bonds mature on July 1, 2020 and pay interest semiannually each July 1 and January 1, with the first interest payment due on January 1, 2016.
The bonds are held to maturity. At the date of issuance the bonds had a market rate of
interest of 6%. The entity incurred transaction costs of 1% of the purchase price. On
December 31, 2015, the market value of the bonds was P3,700,000. The amount to be
recognized in 2015 profit or loss related to the bond investment is
A. Nil
C. P109,764
B. P106,797
D. P142,498
PRTC 0515
Page 15 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
.
63
.
64
On January 1, 2015, Alaska Corporation purchased P1,000,000 10% bonds for P1,051,510
(including broker's commission of P20,000). Interest is payable annually every December 31.
The bonds mature on December 31, 2017. The prevailing market rate for the bonds is 9% at
December 31, 2015. If the bonds are classified as available for sale, the amount to be
recognized in the entity's 2015 OCI.
A. Nil
C. P18,020
B. P13,900
D. P33,900
PRTC 0515
On January 1, 2015, Next Corporation purchased P1,000,000 10% bonds for P927,880
(including broker's commission of P20,000). Next has the intention to hold the bonds
indefinitely. The bonds were purchased to yield 12%. Interest is payable annually every
December 31. The bonds mature on December 31, 2019. On December 31, 2015 the bonds
were selling at 99. How much is the carrying amount the investment in bonds on December
31, 2015?
A. P916,534
C. P961,626
B. P939,226
D. P990,000
PRTC 0515
FA@FVOCI
65
. For the year ended December 31, 2014, WQA Company reported opening retained earnings
of P1,850,000 and cumulative unrealized gains recorded as reserves of P25,000. These
gains are from an investment with an original cost of P100,000 and a fair value of P125,000.
The company policy is to value all investments at fair value with unrealized gains and losses
included in reserves. The company's accounting policy is that when an investment is sold,
the reserve amount is transferred to retained earnings. During 2015, one-half of the
investment was sold. The remaining investment increased in value to P70,000. A second
investment was bought for P150,000 and its fair value had increased to P165,000 by the end
of 2015. What is the reserve balance at December 31, 2015?
A. P27,500
C. P45,000
B. P35,000
D. P60,000
PRTC 0515
.
66
On January 1, 2007, Kara Company purchased, at par, 500 of the P1,000 face value, 8%
bonds of Louisse Corporation as a long-term investment. The bonds mature on January 1,
2017, and pay interest semiannually on July 1 and January 1. Louisse incurred heavy losses
from operations for several years and defaulted on the July 1, 2011 and January 1, 2012
interest payments. Because of the permanent decline in market value of Louisse's bond,
Kara wrote down its investment to P400,000 at December 31, 2011. Pursuant to Louisse's
plan of reorganization effected on July 1, 2012, Kara received 5,000 shares of P100 par
May 2015, Final Preboard
PRACTICAL ACCOUNTING 1
value,8% cumulative preference shares of Louisse in exchange for the P500,000 face value
bond investment. The quoted market value of the preference share was P70 per share on
July 1, 2012. What amount of loss should be included in the determination of Kara's profit or
loss for 2012?
A. P0
C. P100,000
B. P50,000
D. P150,000
CPAR 0512
Investment in associate
67
. Hawks Corp. acquired a 25% interest in Atlanta Co. on January 1, 2015, for P5,000,000. At
that time, Atlanta had 1,000,000, P1 par, ordinary shares issued and outstanding. On June
30, 2015, Atlanta declared and issued a 5% share dividend when the market value was P2
per share. On December 31, 2015, Atlanta declared cash dividends of P2.2 per share
payable on January 15, 2016. Atlanta's net income for 2015 was P4,800,000. What should
be the balance in Hawks' investment in Atlanta Co. at the end of 2015?
A. P5,622,500
C. P5,862,500
B. P5,650,000
D. P6,200,000
PRTC 0512, 0515
Trading securities & Investment in associate
Questions 8 & 9 are based on the following information.
PRTC 0515
On July 1, 2015, TGV purchased 10,000 of BPO's 50,000 outstanding shares at a price of P6.00
per share. BPO had earnings of P3,000 per month during 2013 and paid dividends of P10,000 on
March 1, 2015 and P12,500 on December 1, 2015. The market value of BPO's shares was P6.50
per share on December 31, 2015.
.
Assuming that TGV accounts for its investment in BPO as a held-for-trading investment, what
would be the total effect on TGV's profit or loss for the year ended December 31, 2015?
A. P2,500
C. P6,500
B. P4,500
D. P7,500
.
Assuming that TGV had significant influence over BPO, what would be the balance in TGV's
"Investment in BPO" account on its statement of financial position on December 31, 2015?
A. P61,100
C. P64,700
B. P62,700
D. P65,000
68
69
Derivatives & Hedging Activities
49. Avent Company sells a financial asset with a carrying amount of P500,000 for P600,000 and
simultaneously enters into a total return swap with the buyer under which the buyer will return
any increases in value to Avent and Avent will pay the buyer interest plus compensation for
Page 16 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
any decreases in the value of the investment. Avent expects the fair value of the financial
asset to decrease by P40,000. The journal entry to record the sale would include a credit to
A. Financial asset of P500,000
C. Gain on sale of P60,000
B. Financial liability of P600,000
D. Gain on sale of P100,000
PRTC 1015
Questions 18 & 19 are based on the following information.
CPAR 0512
On November 15, 2011, Hector Cop., a calendar-year-end Philippine company, signed a legallybinding contract to purchase equipment from Diego Corp., a foreign company. The negotiated price
is FC1,000,000. The scheduled delivery date is February 15, 2012. Terms require payment by
Hector Corp. upon delivery. The terms also impose a 10% penalty on Diego Corp. if the equipment
is not delivered by February 15, 2012.
To hedge its commitment to pay FC1,0Q0,000, Hector entered into a forward-exchange contract
on November 15, 2011 to receive FC1,000,000 on February 15, 2012 at an exchange rate of
FC1.00 = P0.36. Additional exchange rate information:
Forward Rates for
Date
Spot Rates
February 15, 2012
11/15/11
1FC = P0.35
1FC = P0.36
12/31/11
1FC = P0.36
1F'C= P0.38
02/15/12
1FC = P0.39
1FC = P0.39
Quotes obtained from dealers indicate the following incremental changes in the fair Values of the
forward-exchange contract based on the changes in forward rates discounted on a net-present
value basis:
Date
Gain/(Loss)
11/15/11
P0
12/31/11
P19,600
02/15/12
P10,400
Hector formally documented its objective and strategy for entering into this hedge. Hector also
decided to assess hedge effectiveness based on an assessment of the difference between
changes in value of the forward-exchange contract and the peso equivalent of the firm
commitment.
Because both changes are based on changes in forward rates, Hector further
determined that the hedge is 100% effective.
.
70
What are the amounts reported for the forward contract receivable and the firm commitment
liability at December 31, 2011 and February 15, 2012 (prior to the settlement of the
contract?)
A.
B.
C.
D.
12/31/11
P10,000
P19,600
P19,600
P20,000
02/15/12
P40,000
P30,000
P10,400
P30,000
May 2015, Final Preboard
PRACTICAL ACCOUNTING 1
.
As a result of this hedging transaction, at what amount should Hector recognize the
equipment on
February 15, 2012?
a. P350,000
c. P390,000
b. P360,00O
d. P420,000
.
Wizard Inc. borrows P10 million from Bank A at a fixed rate of 7%, payable quarterly in
arrears. The prime rate is 4.5% when the loan is taken out. Wizard's management believes
that interest rates will decline in the near future. Accordingly, it enters into a swap agreement
with Bank B. Under the agreement, Wizard is committed to pay to Bank B a sum equal to
prime plus 2.5% on a notional principal of P10 million and Bank B is committed to pay to
Wizard a sum equal to 7% on a notional principal of P10 million, with the amounts settled on
a net basis at the end of each quarter. If the prime rate drops to 4%, what are Wizard's cash
flows for the next quarter?
A. P162,500 outflow to Bank B
B. P162,500 inflow from Bank A
C. P175,000 outflow to Bank A and P12,500 outflow to Bank B
D. P175,000 outflow to Bank A and P12,500 inflow from Bank B
PRTC 0515
71
72
Investment Property
73
. Minty Corporation's investment properties included the following items:
• Land held as potential plant site, P5,000,000.
• A vacant building to be leased out under an operating lease, P20,000,000.
• Property held for sale in the ordinary course of its business, P30,000,000.
• Property held for administrative purposes, P10,000,000.
• A hotel owned and managed, P50,000,000.
• A building being leased out to a subsidiary, P8,000,000.
• A building, which cannot be sold or leased out separately, used in the production of
goods and around 2% of the area being leased out to canteen operators, P2,000,000.
How much will be reported as investment properties in Minty Corporation's separate financial
statements?
A. P20,000,000
C. P28,000,000
B. P25,000,000
D. P33,000,000
PRTC 0515
29. On 1 January 2015 Kabila Corporation acquired an investment property (building) in a remote
location for P100,000. After initial recognition, the entity measures the investment property
using the cost-depreciation-impairment model, because its fair value cannot be measured
Page 17 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
reliably without undue cost or effort on an ongoing basis.
At 31 December 2015, management:
• assessed the building's useful life at
50 years from the date of acquisition
• assessed that the entity will consume the building's future economic benefits evenly over
50 years from the date of acquisition
• declined an unsolicited offer to purchase the building for P130,000. This is a 'one-off
offer that is unlikely to be repeated in the foreseeable future.
The entity should measure the carrying amount of the building on 31 December 2015 at:
A. P 98,000
C. P127,400
B. P100,000
D. P130,000
PRTC 1015
Government Grants & Government Assistance
74
. On 1 January 2015 Central Company purchased a plating machine with a 5-year useful life
for P135,000. Central received a grant of P13,500 towards the capital cost. Company policy
is to treat the grant as a reduction in the cost of the asset. What should be the depreciation
expense in respect of this machine for the year ended 31 December 2015, assuming that
depreciation is calculated on a straight-line basis?
A. P19,440
C. P24,300
B. P21,600
D. P27,000
PRTC 0515
28. Nadine Company received a P1,800,000 subsidy from the government to purchase
manufacturing equipment on January, 2, 2015. The equipment has a cost of P3,000,000, a
useful life a six years, and no salvage value. Nadine depreciates the equipment on a
straight-line basis.
Which statement is correct?
A. Expenses will be higher and net income lower if the grant is recorded as deferred
income.
B. Expenses will be higher and net income lower if the grant is accounted for as an
adjustment to the asset.
C. Depreciation expense will be higher if the grant is recorded as deferred income, but net
income will be the same under the two alternatives.
D. Depreciation expense will be higher if the grant is recorded as an adjustment to the
asset, but net income will be the same under the two alternatives.
PRTC 1015
Property, Plant & Equipment
Initial measurement
75
. A piece of machinery has a marked price of P550,000. It was purchased under the term,
15%, 10%, and 5% discounts. The cost of freight and installation after deducting the P8,000
May 2015, Final Preboard
PRACTICAL ACCOUNTING 1
sales proceeds of the old machinery which was replaced is P12,000.
The new machinery shall be recorded at a cost of
A. P397,000
C. P411,712
B. P405,000
D. P419,712
CPAR 0512
30. Lukashenko Company acquired land and an old building. Lukashenko acquired the land and
building by providing 40,000 of its shares that were trading on the Stock Exchange at price of
P13 per share, and by paying off the existing mortgage of P30,000 and back taxes on the old
building of P5,000. Lukashenko also paid P20,000 to demolish the old building on the land,
P30,000 to an architect to design a new building, and P220,000 to a contractor to build the
building. How much is the cost of the new building in accordance with PIC Q&A 2012-2?
A. P250,000
C. P300,000
B. P270,000
D. P305,000
PRTC 1015
.
76
Wharf Corp. bought a new printing machine. The cost of the machine was P80,000. The
installation costs were P5,000 and the employees received training on how to use the
machine, at a cost of P2,000. Before using the machine to print customers' orders, a test
was undertaken and the paper and ink cost P1,000.
What should be the cost of the machine in the company's statement of financial position?
A. P80,000
C. P86,000
B. P85,000
D. P88,000
PRTC 0515
Nonmonetary exchange
77
. A machine has a cost of P60,000, has an annual depreciation of P12,000, and has
accumulated depreciation of P30,000 on December 31, 2014. On April 1, 2015, when the
machine has a fair value of P24,000, it is exchanged for a similar machine with a fair value of
P72,000 and the proper amount of cash is paid. The loss to be recognized on exchange is
A. P 0
C. P6,000
B. P3,000
D. P21,000
PRTC 0515
31. On March 31, 2015, Nathaniel Company traded in an old machine having a carrying amount
of P168,000, and paid a cash difference of P60,000 for a new machine having a total cash
price of P205,000. The cash flows from the new machine are expected to be significantly
different than the cash flows from the old machine. On March 31, 2015, what amount of loss
should Nathaniel recognize on this exchange?
A. P 0
C. P37,000
B. P23,000
D. P60,000
PRTC 1015
Page 18 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
32. Campbell Corp. exchanged delivery trucks with Highway, Inc. Campbell's truck originally cost
P2,300,000, its accumulated depreciation was P2,000,000, and its fair value was P500,000.
Highway's truck originally cost P2,350,000, its accumulated depreciation was PI,990,000, and
its fair value was P570,000. Campbell also paid Highway P70,000 in cash as part of the
transaction. The transaction lacks commercial substance. What amount is the new book
value for the truck Campbell received?
A. P300,000
C. P500,000
B. P370,000
D. P570,000
PRTC 1015
PRACTICAL ACCOUNTING 1
estimated useful life of ten years and an estimated salvage value of P10,000. What should
Peppermint record as depreciation expense for the first year under the straight-line method?
A. P29,800
C. P31,000
B. P30,000
D. P31,800
PRTC 1015
.
Bubblegum Company takes a full year's depreciation in the year of an assets acquisition, and
no depreciation in the year of disposition. Data relating to one depreciable asset acquired in
2013, with residual value of P400,000 and estimated useful life of 8 years, at December 31,
2014 are:
Cost
P5,400,000
Accumulated depreciation
2,362,500
Using the same depreciation method in 2013 and 2014, how much depreciation should
Bubblegum record in 2015 for this asset?
A. P625,000
C. P703,125
B. P659,375
D. P759,375
PRTC 0515
.
Lexter Manufacturing acquired a new milling machine on April 1, 2006. The machine has a
special component that requires replacement before the end of the useful life. The asset was
originally recorded in two accounts, one representing the main unit and the other for the
special component. Depreciation is recorded by the straight-line method to the nearest
month, residual values being disregarded. On April 1, 2012, the special component is
scrapped and is replaced with a similar component. This component is expected to have a
residual value of approximately 25% of cost at the end of the useful life of the main unit, and
because of its materiality, the residual value will be considered in calculating depreciation.
Specific asset information is as follows:
Main milling machine
Purchase price in 2006.
P62,400
Residual value
P4,400
Estimated useful life
10 years
First special component:
Purchase price
P10,000
Residual value
P250
Estimated useful life
6 years
Second special component:
Purchase price
P15,250
What is the depreciation charge to be recognized for the year 2012?
A. P5,930
C. P8,800
B. P6,775
D. P9,100
CPAR 0512
80
Disposal
78
. The carrying value of company's property and equipment was P200,000 at 1 August 2014,
During the year ended 31 July 2015, the company sold equipment for P25,000 on which it
made a loss of P5,000. The depreciation charge for the year was P20,000. What was the
carrying value of property and equipment at 31 July 2015?
A. P150,000
C. P160,000
B. P155,000
D. P180,000
PRTC 0515
81
Depreciation
79
. Jeric Company purchased a machine on December 2, 2013 at an invoice price of P4,500,000
with terms 2/10, n/30. On December 10, 2013, Jeric paid the required amount for the
machine. On December 2, 2013, Jeric paid P80,000 for delivery of the machine and on
December 31, 2013, it paid P310,000 for installation and testing of the machine. The
machine was ready for use on January 1, 2014. It was estimated that the machine would
have a useful life of 5 years, and a residual value of P800,000. Engineering estimates
indicated that the useful life in productive units was 200,000. Units actually produced during
the first two years were 30,000 in 2014 and 48,000 in 2015. Jeric Company decided to use
the productive output method of depreciation.
What is the depreciation of the machine for 2015?
A. P600,000
C. P960,000
B. P 720,000
D. P1,560,000
PRTC 0515
33. In January, Peppermint Corporation entered into a contract to acquire a new machine for its
factory. The machine, which had a cash price of P300,000, was paid for as follows:
Down payment
P30,000
Note payable in 10 equal monthly installments
240,000
1,000 ordinary shares of Peppermint with an agreed value of P50 per share 50,000
Total
P320,000
Prior to the machine's use, installation costs of P8,000 were incurred. The machine has an
May 2015, Final Preboard
Page 19 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
PRACTICAL ACCOUNTING 1
The equipment consisted of two machines, machine A and machine B. Machine A had cost
P3,000,000 and had a carrying amount of PI,800,000 at 30 June 2015, while machine B had
cost P2,000,000 and was carried at PI,700,000. Both machines are measured using the cost
model, and depreciated on a straight-line basis over a ten-year period.
On 31 December 2015, the directors of Johnston Ltd decided to change the basis of
measuring the equipment from the cost model to the revaluation model. Machine A was
revalued to P1,800,000 with an expected useful life of six years, and machine B was revalued
to PI,550,000 with an expected useful life of five years.
The amount to be recognized in profit or loss as a result of the revaluation of assets on
December 31, 2015 is
A. (P150,000)
C. P100,000
B. (P 50,000)
D. P150,000
PRTC 0515
Borrowing costs
34. The Gargantuar Company commenced the construction of a new packaging plant on 1
February 2015. The cost of PI,800,000 was funded from existing borrowings. The
construction was completed on 30 September 2015. Gargantuar's borrowings during 2015
comprised:
• Loan from Allied Bank: P800,000 at 6% per annum;
• Loan from BDO Bank: PI million at 6.6% per annum; and
• Loan from Metro Bank: P3 million at 7% per annum.
The amount of borrowing costs to be capitalized in relation to the packaging plant is
A. Nil
C. P91,125
B. P81,000
D. P121,500
PRTC 1015
Condemnation
82
. The national government condemned Sagigilid Co.'s parcel of real estate. Sagigilid will
receive P750,000 for this property, which has a carrying amount of P575,000. Sagigilid
incurred the following costs as a result of the condemnation:
Appraisal fees to support a P750,000 value
P2,500
Attorney fees for the closing with the government
3,500
Attorney fees to review contract to acquire replacement property
3,000
Title insurance on replacement property
4,000
What amount of cost should Sagigilid use to determine the gain on the condemnation?
A. P581,000
C. P584,000
B. P582,000
D. P588,000
CPAR 0512
Revaluation
36. 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.
C. Plant assets P750,000.
B. Depreciation expense P50,000.
D. Revaluation surplus P50,000. PRTC 1015
.
83
In the 30 June 2015 annual report of Johnston Ltd, the equipment was reported as follows:
Equipment (at cost)
P5,000,000
Accumulated depreciation
1,500,000
P3,500,000
May 2015, Final Preboard
Questions 10 & 11 are based on the following information.
CPAR 0512
An entity has a nuclear power plant and a related decommissioning liability.
The
nuclear
power plant started operating on 1 January 2009. The plant has a useful life of 40 years. Its initial
cost was P120 million, this included an amount for decommissioning costs of P10 million, which
represented estimated cash flows payable in 40 years discounted at a risk-adjusted rate of 5 per
cent. The entity's financial year ends on 31 December.
The entity adopts the revaluation model on 31 December 2011. A market-based discounted cash
flow valuation of P115 million is obtained at 31 December 2011. It includes an allowance of
P11.6 million for decommissioning costs, which represents no change to the original estimate, after
the unwinding of three years' discount.
On 31 December 2012, the decommissioning liability (before any-adjustment) is P12.2 million and
the discount rate has not changed. However, on that date, the entity estimates that, as a result of
technological advances, the present value of the decommissioning liability has decreased by P5
million.
The entity decides that a full valuation of the asset is needed at 31 December 2012, in order to
ensure that the carrying amount does not differ materially from fair value. The asset is now valued
at P107 million, which is net of an allowance of P7.2 million for the reduced decommissioning
obligation that should be recognized as a separate liability.
The entity does not transfer realized surplus directly to retained earnings.
.
The entity should report revaluation surplus as of 31 December 2011 at
A. P1.65 million
C. P13.25 million
B. P4 million
D. P15.6 million
.
The entity should report revaluation surplus as of 31 December 2012 at
84
85
Page 20 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
A. Nil
B. P0.108 million
PRACTICAL ACCOUNTING 1
C. P8.358 million
D. P11.622 million
Wasting Assets
37. In January, 2015, Yoder Corporation purchased a mineral mine for P3,400,000 with
removable ore estimated by geological surveys at 2,000,000 tons. The property has an
estimated value of P200,000 after the ore has been extracted. The company incurred
PI,000,000 of development costs preparing the mine for production. During 2015, 500,000
tons were removed and
400,000 tons were sold. What is the amount of depletion that
Yoder should expense for 2015?
A. P640,000
C. P 840,000
B. P800,000
D. P1,050,000
PRTC 1015
.
On January 2, 2011, Memphis Corporation purchased land with valuable natural ore
deposits for P10 million. The estimated residual value of the land was P2 million. At the time
of purchase, a geological survey estimated 2 million tons of removable ore were under the
ground. Early in 2011, roads were constructed on the land to aid in the extraction and
transportation of the mined ore at a cost of P750,000. In 2011, 50,000 tons were mined. In
2012, Memphis fired its mining engineer and hired a new expert. A new survey made at the
end of 2012 estimated 3 million tons of ore were available for mining.
In 2012, 150,000
tons were mined. All the ore mined was sold. Compute the amount of depletion for 2012.
A. P372,000
C. P426,000
B. P406,500
D. P433,500
CPAR 0512, 1015
.
On January 15, 2013, Mountain Company paid P5,400,000 for property containing natural
resource of 2,000,000 tons of ore. The entity is legally required to restore the site after mining
operations. The estimated cost of restoring the land after the resource is extracted is
P450,000 and the land will have a value of P650,000 after it is restored for suitable use.
Tunnels, bunk houses and other fixed installations are constructed at a cost of P8,000,000
and such expenditures are charged to mine improvements.
Operations began on January 1, 2014 and resources removed totaled 600,000 tons. During
2015, a discovery was made indicating that available resource after 2015 will total 1,875,000
tons. At the beginning of 2015, additional bunk houses were constructed in the amount of
P770,000. In 2015, only 400,000 tons were mined because of a strike.
Mountain Company should report depletion for 2015 at
A. P640,000
C. P1,040,000
B. P776,000
D. P1,560,000
PRTC 0515
86
87
May 2015, Final Preboard
.
88
Diana Mining Company constructed a building costing P2,800,000 on the mine property. Its
estimated residual value will not benefit the company and will be ignored for purposes of
computing depreciation. The building has an estimated life of 10 years. The total estimated
recoverable units from the mine is 500,000 tons. The company's production of the first four
years of operations was:
First year
100,000 tons
Second year
100,000 tons
Third year
Shut down, no output
Fourth year
100,000 tons
What is the depreciation for the fourth year?
A. P210,000
C. P490,000
B. P336,000
D. P560,000
PRTC 0515
Intangible Assets
Composition
89
. Houston, Inc. has been considering the accounting treatment of its intangible assets and has
asked for your opinion on how the matters below should be treated in its financial statements
for the year ended March 31, 2012.
• Houston has developed and patented a new drug which has been approved for clinical
use. The costs of developing the drug were P12 million. Based on early assessments of
its sales success, independent valuers have estimated its market value at P20 million.
• Houston's manufacturing facilities have recently received a favorable inspection by the
government medical scientists. As a result of this, the company has been granted an
exclusive five-year license to manufacture and distribute a new vaccine. Although the
license had no direct cost to Houston, its directors feel its granting is a reflection of the
company's standing and have asked independent valuers to measure the license.
Accordingly, they have placed a value of P10 million on it.
• In the current accounting period, Houston has spent P3 million sending its staff on
specialized training courses. While these courses have been expensive,
they
have led to a marked improvement in production quality and the staff now needs less
supervision. This in turn has led to an increase in revenue and cost reductions. The
directors of Houston believe these benefits will continue for at least three years and wish
to treat training costs as an asset.
• In December 2011, Houston paid P5 million for a television advertising campaign for its
products that will run for 6 months from January 1 to June 30, 2012. The directors
believe that increased sales as a result of the publicity will continue for two years from
the start of the advertisements.
Compute the total amount to be recognized as assets in Houston's March 31, 2012 statement
Page 21 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
of financial position. (Ignore amortization)
A. P0
B. P22.0 million
PRACTICAL ACCOUNTING 1
C. P24.5 million
D. P32.5 million
CPAR 0512
Patent
90
. Mini Corp. acquires a patent from Maxi Co. in exchange for 2,500 shares of Mini Corp.'s P5
par value ordinary shares and P75,000 cash. When the patent was initially issued to Maxi
Co., Mini Corp.'s shares were selling at P7.50 per share. When Mini Corp. acquired the
patent, its shares were selling for P9 a share. Mini Corp. should record the patent at what
amount?
A. P75,000
C. P93,750
B. P87,500
D. P97,500
PRTC 0515
.
91
Buck Enterprises acquired a patent from Wolly Research Corporation on 1/1/15 for P4 million.
The patent will be used for five years, even though its legal life is 20 years. Bully Corporation
has made a commitment to purchase the patent from Buck for P200,000 at the end of five
years. Compute Buck's patent amortization for 2015, assuming the straight-line method is
used.
A. P380,000
C. P760,000
B. P400,000
D. P800,000
PRTC 0515
Goodwill
92
. Level has just acquired the net assets of Complete for P100,000. In acquiring Complete, the
owners of Level felt that Complete had unrecorded goodwill. They decided to capitalize the
estimated annual superior earnings of Complete at 20% to determine the amount of goodwill.
The computation resulted in an estimated goodwill of P10,000. A rate of 10% on net assets
before recognition of goodwill was used to determine normal annual earnings of Complete,
because it is the rate that is earned on net assets in the industry in which Complete operates.
All other assets of Complete were properly recorded. The estimated annual earnings of
Complete is
A. P2,000
C. P10,000
B. P9,000
D. P11,000
PRTC 0515
Research & development costs
39. Riley Co. incurred the following costs during 2015:
Significant modification to the formulation of a chemical product
P160,000
Trouble-shooting in connection with breakdowns during commercial production 150,000
Cost of exploration of new formulas
200,000
May 2015, Final Preboard
Seasonal or other periodic design changes to existing products
185,000
Laboratory research aimed at discovery of new technology
225,000
In its income statement for the year ended December 31, 2015, Riley should report research
and development expense of
A. P585,000
C. P770,000
B. P735,000
D. P920,000
PRTC 1015
40. Hali Co. incurred research and development costs in 2015 as follows:
Materials used in research and development projects
P450,000
Equipment acquired that will have alternate future uses in future
research and development projects
3,000,000
Depreciation for 2015 on above equipment
300,000
Personnel costs of persons involved in research and development projects 750,000
Consulting fees paid to outsiders for research and development projects
300,000
Indirect costs reasonably allocable to research and development projects 225,000
P5,025,000
Assume economic viability has not been achieved.
The amount of research and development costs charged to Hall's 2011 income
statement should be
A. P1,500,000
C. P2,025,000
B. P1,900,000
D. P4,500,000
PRTC 1015
Comprehenisve
93
. During 2015, Vic Co, had the following transactions:
• On January 2, Vic purchased the net assets of Amp Co. for P360,000. The fair value of
Amp's identifiable net assets was P172,000, Vic believes that, due to the popularity of
Amp's consumer products, the life of the resulting goodwill is unlimited.
• On February 1, Vic purchased a franchise to operate a ferry service from the state
government for P60,000 and an annual fee of 1% of ferry revenues. The franchise
expires after five years. Vic received P20,000 of ferry revenues in 2015.
• On April 5, Vic was granted a patent that had been applied for by Amp. During 2015, Vic
incurred legal costs of P51,000 to register the patent and an additional P85,000 to
successfully prosecute a patent infringement suit against a competitor. Vic estimates the
patent's economic life to be ten years.
Vic has determined that it is appropriate to amortize these intangibles on the straight-line
basis over the maximum period permitted by generally accepted accounting principles, taking
a full year's amortization in the year of acquisition.
Calculate the total expense to be recognized in 2015 income statement resulting from the
Page 22 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
foregoing intangible assets.
A. P25,600
B. P35,200
PRACTICAL ACCOUNTING 1
C. P102,300
D. P111,700
PRTC 0515
Impairment of Long-Lived Assets
43. Harrel Company acquired a patent on an oil extraction technique on January 1, 2014 for
P5,000,000. It was expected to have a 10 year life and no residual value. Harrel uses
straight-line amortization for patents. On December 31, 2015, the recoverable amount of the
patent was estimated to be P4,300,000. At what amount should the patent be carried on the
December 31, 2015 balance sheet?
A. P4,000,000
C. P4,500,000
B. P4,300,000
D. P5,000,000
PRTC 1015
41. An entity has a database that it purchased five years ago. At that date, the database had
30,000 customer addresses on it. Since the date of purchase, 2,000 addresses have been
taken from the list and 4,000 addresses have been added to the list. It is anticipated that in
two years' time, a further 8,000 addresses will have been added to the list. In determining the
value-in-use of the customer lists, how many addresses should be taken into account at the
current date?
A. 30,000
C. 40,000
B. 32,000
D. 42,000
PRTC 1015
.
94
Hammer Corporation acquired all the assets and liabilities of New Corporation. New
Corporation has a number of operating divisions, including one whose major industry is the
manufacture of toy train, particularly those having historical significance. The toy trains
division is regarded as a cash-generating unit. In paying P20 million for the net assets of
New Corporation, Hammer calculated that it had acquired goodwill of P2,400,000. The
goodwill was allocated to each of the divisions, and the assets and liabilities acquired are
measured at fair value at acquisition date.
At the end of the period, the carrying amounts of the assets of the toy train division were:
Factory
P2,500,000
Inventory
1,500,000
Brand - "Choochoo"
500,000
Goodwill
500,000
Total
P5,000,000
There is a declining interest in toy trains because of the aggressive marketing of computerbased toys, so the management of Hammer measured the value in use of the toy train
division at P4,230,000.
May 2015, Final Preboard
The carrying amount of Brand - "Choochoo" after allocating impairment loss, if any, is
A. P0
C. P470,000
B. P423,000
D. P500,000
PRTC 0515
.
Twilight Corporation has determined that its fine china division is a cash-generating unit. The
carrying amounts of the assets at 31 December 2015 are as follows:
Factory
P210,000
Land
150,000
Equipment
120,000
Inventory
60,000
Total
P540,000
Twilight Corporation calculated the value in use of the division to be P510,000. Assuming
that the fair value less costs to sell of the land is P145,000, how much is the carrying amount
of equipment after allocating impairment loss?
A. P110,909
C. P112,500
B. P112,308
D. P113,333
PRTC 0515
.
On January 2, 2014, Meadow Inc. purchased a patent with a cost P940,000 a useful life of 4
years. At December 31, 2014, and December 31, 2015, the company determines that
impairment indicators are present. The following information is available for impairment
testing at each year end:
12/31/2014
12/31/2015
Fair value less costs to sell
P715,000
P420,000
Value-in-use
P750,000
P445,000
No changes were made in the asset's estimated useful life.
The company's 2015 income statement will report
A. Loss on impairment of P70,000.
B. Amortization Expense of P235,000.
C. Amortization Expense of P250,000 and Loss on Impairment of P55,000.
D. Amortization Expense of P235,000 and a Loss of Impairment of P25,000.
PRTC 0515
95
96
42. Four years ago on January 2, Randall Co. purchased a long-lived asset. The purchase price
of the asset was P2,500,000, with no salvage value. The estimated useful life of the asset
was 10 years. Randall used the straight-line method to calculate depreciation expense. An
impairment loss on the asset of P300,000 was recognized on December 31 of the current
Page 23 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
year. The estimated useful life of the asset at December 31 of the current year did not
change. What amount, should Randall report as depreciation expense in its income
statement for the next year?
A. P200,000
C. P250,000
B. P220,000
D. P300,000
PRTC 1015
.
97
On April 1, 2015, Brandoni Company has a piece of machinery with a cost of P1,000,000 and
accumulated depreciation of P750,000. On April 1, Brandoni decided to sell the machine
within 1 year. Assume that the asset qualified as noncurrent asset held for sale. As of April
1, 2015, the machine had an estimated selling price of P100,000 and a remaining useful life
of 2 years. It is estimated that selling costs associated with the disposal of the machine will
be P10,000. On December 31, 2015, the estimated selling price of the machine had
increased to P150,000, with estimated selling costs increasing to P16,000. The gain on
reversal of impairment loss on December 31, 2015 is
A. P0
C. P50,000
B. P44,000
D. P160,000
PRTC 0515
PRACTICAL ACCOUNTING 1
Current Liabilities, Provisions & Contingencies
Accounts payable
99
. Life, Inc. is preparing its financial statements for the year ended December 31, 2015.
Accounts payable amounted to P200,000 before any necessary year-end adjustment related
to the following:
• At December 31, 2015, Life has a P50,000 debit balance in its accounts payable to
Twist, a supplier, resulting from a P50,000 advance payment for goods to be
manufactured to Life's specifications.
• Checks in the amount of P25,000 were written to vendors and recorded on December
29, 2015. The checks were dated January 5, 2016.
What amount should Life report as accounts payable in its December 31, 2015 statement of
financial position?
A. P125,000
C. P250,000
B. P200,000
D. P275,000
PRTC 0515
.
100
44. On June 2, 2014, Lindt Inc. Purchased a trademark with a cost P9,440,000. The trademark
is classified as an indefinite-life intangible asset. At December 31, 2014 and December 31,
2015, the following information is available for impairment testing:
12/31/2014
12/31/2015
Fair value less costs to sell
P9,115,000
P9,050,000
Value-in-use
P9,350,000
P9,550,000
The 2015 income statement will report
A. Impairment Loss of P90,000.
B. Recovery of Impairment of P90,000.
C. Recovery of Impairment of P200,000.
D. No Impairment Loss or Recovery of Impairment.
PRTC 1015
Other Investments
98
. During 2012, Ischyrine Co. pays an insurance premium of P31,800 on a P900,000 life
insurance policy covering the president. The cash surrender value of the policy will increase
from P165,000 to P175,200 during 2012. Dividends received from the insurance company
during 2012 total P6,300. The president died half-way through 2012. The policy indicates
that the cash surrender value is P170,100 at that date and 50% of the premium is refunded.
The gain on life insurance settlement is
A. P714,000
C. P729,900
B. P723,600
D. P736,200
CPAR 0512
May 2015, Final Preboard
DATACORP a computer store in Virra Mall, Greenhills specializes in the sale of IBM
compatibles and software packages and had the following transactions with one of its
suppliers:
Purchase of IBM compatibles
P328,000
Purchases of commercial software packages.
90,000
Returns and allowances
8,000
Purchases discounts taken
2,700
Purchases were made throughout the year on terms 3/10, n/60. All returns and allowances
took place within 5 days of purchase and prior to any payment of account. Discount lost is
A. P6,900
C. P9,600
B. P7,140
D. P9,840
CPAR 0512
Deferred revenues
101
. Parity Company sells subscriptions to a specialized directory that is published semiannually
and shipped to subscribers on April 15 and October 15. Subscriptions received after the
March 31 and September 30 cutoff dates are held for the next publication. Cash from
subscribers is received evenly during the year and is credited to deferred revenues from
subscriptions. Data relating to 2015 are as follows:
Deferred revenues from subscriptions, balance 12/31/14
P1,500,000
Cash receipts from subscribers
7,200,000
In its December 31, 2015 statement of financial position, Parity should report deferred
revenues from subscriptions of
Page 24 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
A. P1,800,000
B. P3,300,000
PRACTICAL ACCOUNTING 1
C. P3,600,000
D. P5,400,000
PRTC 0515
Liability for premiums
102
. In an effort to increase sales, Blue Razor Blade Company inaugurated a sales promotion
campaign on June 30, 2012, whereby Blue placed a coupon in each package of razor blades
sold, the coupons being redeemable for a premium. Each premium costs Blue P.50, and five
coupons must be presented by a customer to receive a premium. Blue estimated that only 60
percent of the coupons issued will be redeemed. For the six months ended December 31,
2012, the following information is available:
Packages of razor blades sold
400,000
Premiums purchased
30,000
Coupons redeemed
100,000
What is the estimated liability for premium claims outstanding at December 31, 2012?
A. P10,000
C. P18,000
B. P14,000
D. P24,000
CPAR 0512
.
103
The Generous Corporation's president has a profit-sharing agreement with the company. The
agreement states that the president is to receive a bonus consisting of a basic amount
equivalent to 10% of the company's net income before deduction of bonus but after deduction
of income tax. In addition, the basic bonus shall be increased by the company's tax savings
on bonus because the total amount of bonus is deductible in computing the company's
taxable income. The company registered a net income of P5,000,000 before deduction of the
president's bonus and income tax. The company is subject to corporate income tax of 30%.
The total bonus due to the president is
A. P263,158
C. P360,825
B. P339,806
D. P522,388
CPAR 0512
Provisions
35. On January 1, 2015, Burns Company has purchased land that will serve as a temporary
repository for nuclear waste. The site will function for 30 years, at which time Burns will be
required to completely decontaminate the land. The purchase price for the land is P500,000.
Burns knows that the land will have to be decontaminated but isn't sure which of several
possible approaches will be sufficient to reach the level of decontamination necessary by law.
The costs of each approach, and the estimated probability that the approach will be the one
used, follow:
Approach 1 - 10% probability of total decontamination cost of P5,000 at the end of 30
years.
May 2015, Final Preboard
Approach 2 - 20% probability of total decontamination cost of P100,000 at the end of
30 years.
Approach 3 - 70% probability of total decontamination cost of PI,500,000 at the end of
30 years.
Assuming that the appropriate interest rate is 8%, the total expense to be recognized in 2015
profit or loss is
A. Nil
C. P8,511
B. P3,546
D. P12,057
PRTC 1015
Questions 25 & 26 are based on the following information.
CPAR 0512
Opus sells sports goods and clothing through a chain of retail outlets. It offers customers a full
refund facility for any goods returned within 28 days of their purchase provided they are unused
and in their original packaging. In addition, all goods carry a warranty against manufacturing
defects for 12 months from their date of purchase. For most goods the manufacturer underwrites
this warranty such that Opus is credited with the cost of the goods that are returned as faulty.
Goods purchased from one manufacturer, Header, are sold to Opus at a negotiated discount which
is designed to compensate Opus for manufacturing faults of these goods.
Opus makes a uniform mark up on cost of 25% on all goods it sells, except for those supplied from
Header on which it makes a mark up on cost of 40%. Sales of goods manufactured by Header
consistently account for 20% of all Opus's sales. Sales in the last 28 days of the trading year to
December 31, 2012 were PI,750,000. Past trends reliably indicate that 10% of all goods are
returned under the 28-day return facility. These are not faulty goods. Of these 70% are later sold at
the normal selling price and the remaining 30% are sold as 'sale' items at half the normal retail
price. In addition to the above expected returns, an estimated P160,000 (at selling price) of the
goods sold during the year will have manufacturing defects and have yet to be returned by
customers. Goods returned as faulty have no resale value.
Compute the provision that the company is required to make as of December 31, 2012 for
.
Goods subject to the 28 day return policy
A. P38,000
B. P52,850
C. P122,150
D. P137,000
.
Goods that are likely to be faulty
A. P32,000
B. P57,600
C. P125,260
D. P134,400
104
105
Lawsuits
106
. On November 7, 2015 local residents sued Brimley Corporation for excess chemical
Page 25 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
emissions that caused some of them to seek medical attention. The total lawsuit is
P8,000,000. Brimley Corporation's lawyers believe that the lawsuit will be successful and that
the amount to be paid to the residents will be P4,000,000. On its December 31, 2015
financial statements Brimley should:
A. Do nothing as the lawsuit has not yet ended.
B. Accrue a provision loss of P4,000,000 and note disclose.
C. Simply disclose the details regarding the lawsuit in a note.
PRTC 0515
D. Accrue a provision loss of P8,000,000 with no financial statement disclosure necessary.
.
In 2015, Cobus Limited was sued for P1,000,000. Lawyers have advised that the obligating
event has occurred, but that the probability of making a payout is 25%, which is deemed not
certain. It is expected to take at least 3 years before the lawsuit is finalized. Cobus uses an
8% discount rate. What amount would be recorded as a liability in 20157
A. P0
C. P 250,000
B. P 198,450
D. P 314,928
PRTC 0515
.
In 2016, before the entity's 2015 financial statements were approved for issue, a class action
lawsuit was filed against the entity. The lawsuit seeks compensation for a community
experiencing health problems allegedly caused by pollution from the entity's plant. Legal
counsel advised management that there is a 30 per cent chance that the action will be
successful. If successful, the court is likely to award the community compensation of
between P1,000,000 and P2,000,000. In its financial statements for the year ended 31
December 2015, the entity should recognize a liability for the lawsuit of
A. Nil
C. P1,500,000
B. P1,000,000
D. P2,000,000
PRTC 0515
107
108
.
109
On January 3, 2012, Sun Corp. owned a machine that had cost P300,000. The accumulated
depreciation was P180,000, estimated salvage value was P18,000, and fair market value was
P480,000. On January 4, 2012, this machine was irreparably damaged by Light Corp. and
became worthless. In October 2012, a court awarded damages of P480,000 against Light in
favor of Sun. At December 31, 2012, the final outcome of this case was awaiting appeal and
was, therefore, uncertain. However, in the opinion of Sun's attorney, Light's appeal will be
denied. At December 31, 2012, what amount should Sun accrue for this gain contingency?
A. P0
C. P390,000
B. P300,000
D. P480,000
CPAR 0512
Long-Term Debt
110
. VCR Company owed a P73,311 debt due on January 1, 2013. An agreement was reached to
May 2015, Final Preboard
PRACTICAL ACCOUNTING 1
pay it off in three equal annual payments of P30,000 each, starting on December 31, 2013.
The interest rate was 11 percent. The balance in the liability account of VCR Company on
January 1, 2015 is:
A. P27,027
C. P73,321
B. P51,875
D. P90,000
PRTC 0515
.
111
On December 31, 2014, Merciful Bank entered into a debt restructuring agreement with
Floreza Corp., which was experiencing financial difficulties. A note for P1,000,000 and one
year's accrued interest was due on this date from Floreza. The note receivable from Floreza
was restructured as follows:
• reduced the principal obligation to P700,000.
• forgave the P120,000 of accrued interest for 2014.
• extended the maturity date to December 31, 2017.
• reduced the interest rate to 8%.
Interest is payable annually on December 31, beginning 2015. In accordance with the
agreement, Floreza made payment to Merciful Bank on December 31, 2015.
How much interest expense should Floreza report for the year ended December 31, 2015?
A. P 0
C. P64,258
B. P56,000
D. P75,931
PRTC 0515
Compound Financial Instruments
112
. On January 1, 2015, DCE Company dated and issued P1,000,000, 5%, 5-year convertible
bonds for P1,045,000. Bonds are convertible at the investor's option into 200,000 ordinary
shares. Interest is payable quarterly. Bonds without the conversion feature would have been
issued to yield 6%. What is the value of the conversion feature?
A. P42,892
C. P87,080
B. P56,917
D. P87,892
PRTC 0515
.
113
On January 1, 2015, SWQ Company issued P500,000 convertible bonds. In part, the journal
entry to record the bond issue included a credit to the conversion feature of P21,450 and a
debit to discount on bonds for P19,560. What was the amount of cash received for the
convertible bond issue?
A. P458,990
C. P501,890
B. P480,440
D. P521,450
PRTC 0515
Accounting for Leases
114
. Adam Limited and Davies Limited enter into a finance lease agreement with the following
terms:
Page 26 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
• lease term is 3 years
• estimated economic life of the leased asset is 6 years
• 3 x annual rental payments of P23,000; each payment is one year in arrears
• residual value at the end of the lease term is not guaranteed by the lessee
• interest rate implicit in the lease is 7%
On inception date, the present value of the minimum lease payments is:
A. P60,359
C. P64,584
B. P64,170
D. P69,000
CPAR 0512
.
115
.
116
On January 1, Jessa Company signed a 1-year rental with quarterly payments of P100,000
due at the end of each quarter. In addition, the renter must pay contingent rent of 5% of a!!
sales in excess of P10,000,000. The contingent rent is paid in one payment on December
31. On March 31, Jessa Company received the first rental payment. At that time, sales for the
renter had reached P3,000,000. The same renter has used the building for the past 5 years,
and in each of those years the renter reached the contingent rent threshold of P10,000,000
in sales. Accordingly, the accountant for Jessa Company recognized total rent revenue of
P125,000 for the first quarter P100,000 collected in cash and another P25,000 in estimated
contingent rent. Sales for the quarter ended June 30 were P2,800,000, and the accountant
for Jessa Company followed the same procedure regarding the contingent rent. Sales in the
third quarter were P3,500,000. However, in the third quarter the accountant for Jessa
Company learned that contingent rentals should not be estimated, but instead should be
recognized only after the threshold has been reached. The accounting was done correctly in
the third quarter, and the appropriate entry was made to correct the mistakes made in the first
and second quarters. Sales by the renter in the fourth quarter were P4,000,000.
The total rent income for the year is
A. P265,000
C. P 565,000
B. P400,000
D. P1,365,000
PRTC 0515
Lovely Company leased equipment to Mie Inc. on January 1, 2014. The lease is for an eightyear period. The first of eight equal annual payments of P900,000 was made on January 1,
2014. Lovely had purchased the equipment on December 29, 2013, for P4,800,000. The
lease is appropriately accounted for as a sales-type lease by Lovely. Assume that the
present value at January 1, 2014, of all rent payments over the lease term discounted at a 10
percent interest rate was P5,280,000. What amount of interest income should Lovely record
in 2015 as a result of the lease?
A. P391,800
C. P480,000
B. P438,000
D. P490,000
PRTC 0515
May 2015, Final Preboard
PRACTICAL ACCOUNTING 1
.
117
NHO Company has machinery with an original cost of P100,000 and accumulated
depreciation of P30,000. At the beginning of the year, NHO sold the machinery to RTQ
Company for P80,000 and immediately leased the machinery back from RTQ. The lease
qualifies as a financing lease. Which of the following would be included in the journal entry to
record the sale of the machinery?
A. Debit to machinery for P80,000
B. Debit to loss on sale of machinery for P20,000
C. Credit to accumulated depreciation for P30,000
D. Credit to deferred gain on sale and leaseback of machinery for P10,000
PRTC 0515
Accounting for Income Taxes
118
. The Timberwolves Company purchased a building in January 2012 for P150,000. The
accounting depreciation charge is 5% straight-line. For tax purposes, depreciation of 2%
straight-line is deducted annually. The remaining cost will be deducted in future periods,
either as depreciation or through a deduction on disposal. The tax rate is 25%.
What should be the deferred tax balance at 31 December 2015?
A. P3,375 deferred tax asset
C. P4,500 deferred tax asset
B. P3,375 deferred tax liability
D. P4,500 deferred tax liability PRTC 0515
.
119
Tower Corp. began operations on January 1, 2014. For financial reporting, Tower recognizes
revenue from all sales under the accrual method. However, in its income tax returns, Tower
reports qualifying sales under the installment method. Tower's gross profit on these
installment sales under each method was as follows:
Year
Accrual method
Installment method
2014
P1,600,000
P 600,000
2015
2,600,000
1,400,000
The income tax rate is
30% for 2014 and future years. There are no other temporary
or permanent differences. In its December 31, 2015 balance sheet, what amount should
Tower report as liability for deferred income taxes?
A. P360,000
C. P660,000
B. P600,000
D. P840,000
PRTC 0515
Accounting for Employee Benefits
120
. The following information pertain Mavericks Corporation's which started operations on 31
December 2011. Summarized information about its employees at 31 December 2015
includes:
Number of
Salary level for the 12Percentage wage
Employee
employees in
month period ending
increase effective
Page 27 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
category
category
30/06/2016
from 01/07/2016
A
9
P100,000
5%
B
200
P50,000
7%
C
300
P25,000
9%
Annual salary increases are expected to continue at the same rates for the foreseeable
future. In December 2015, with a view to reducing its workforce, the entity made an
irrevocable offer to its employees of a voluntary redundancy package. In accordance with the
offer the entity will compensate any employee who accepts voluntary redundancy on or
before 30 June 2016. The compensation offered is equal to the employee's annualized
salary for the 12-month period ending 30 June 2016.
At 31 December 2015 the entity's voluntary redundancy records include:
Employee Number of employees who accepted Number of employees expected to
category
voluntary redundancy by
accept voluntary redundancy in
31/12/2015
2016
A
0
1
B
2
8
C
5
25
Calculate the entity's liability for termination benefits at 31 December 2015.
A. P225,000
C. P1,350,000
B. P243,250
D. P1,457,500
PRTC 0515
.
121
The following information relates to the defined benefit pension plan for the Nicola Company
for the year ending December 31, 2015.
Defined benefit obligation, January 1
P4,600,000
Defined benefit obligation, Dec. 31
4,729,000
Fair value of plan assets, January 1
5,035,000
Fair value of plan assets, Dec. 31
5,565,000
Expected return on plan assets
450,000
Employer contributions
425,000
Benefits paid to retirees
390,000
Settlement rate
10%
Service cost for the year would be
A. P59,000
C. P129,000
B. P94,000
D. P390,000
PRTC 0515
Share-Based Payment
122
. At the beginning of year 1, Dickenson Corporation grants 100 share options to each of its 200
employees. Each grant is conditional upon the employee remaining in service over the next
May 2015, Final Preboard
PRACTICAL ACCOUNTING 1
three years. The entity estimates that the fair value of each option is P21. On the basis of a
weighted average probability, the entity estimates that 60 employees will leave during the
three-year period and therefore forfeit their rights to the share options.
Suppose that 15 employees leave during year 1. Also suppose that by the end of year 1, the
entity's share price has dropped, and the entity reprices its share options, and that the
repriced share options vest at the end of year 3. The entity estimates that a further 35
employees will leave during years 2 and 3. During year 2, a further 10 employees leave, and
the entity estimates that a further 10 employees will leave during year 3. During year 3, a
total of 8 employees leave.
The entity estimates that, at the date of repricing, the fair vaiue of each of the original share
options granted (i.e., before taking into account the repricing) is P10 and that the fair value of
each repriced share option is P13.
The amount to be recognized as expense in year 3 is
A. P136,800
C. P150,750
B. P145,050
D. P400,800
PRTC 0515
Shareholders’ Equity
123
. Tekka Corporation was incorporated on June 1, 2015 with an authorized 200,000, no-par,
ordinary shares, stated value P10 and 10,000, 9% par value P30, preference shares.
Transactions affecting company's equity as of July 31, 2015 were as follows:
June 1 50,000 ordinary shares were issued at P10.
June 5 Assets with a total appraised value of P600,000 were acquired in exchange for
50,000 ordinary shares.
June 15 Subscriptions were received for 100,000 ordinary shares at P15 and for 5,000
preference shares at P35.
June 25 Payments in full for the ordinary and preference shares subscribed June 15 were
received and the corresponding shares were issued.
The total shareholders' equity as of July 31, 2015 is
A. P2,300,000
C. P2,775,000
B. P2,750,000
D. P2,875,000
PRTC 0515
.
124
Julia Corp.'s equity as of December 31, 2014 is P534,000. The Julia's shares have a par
value of P10 per share. The following transactions occurred in 2015: February 15: Dividends
of P10,000 are paid; March 14: 10 ,000 shares are sold for P14 per share; June 6: 2,000
shares are repurchased for P16 per share; October 8: 2,000 shares previously repurchased
are resold for P18 per share. Profit for 2015 is P103,000. On December 31, 2015, Julia
should report equity of
A. P664,000
C. P771,000
Page 28 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
B. P767,000
.
125
.
PRACTICAL ACCOUNTING 1
D. P781,000
PRTC 0515
At December 31, 2014, Rama Corp. had 20,000 shares of P1 par value treasury shares that
had been acquired in 2014 at P12 per share. In May 2015, Rama issued 15,000 of these
treasury shares at P10 per share. At December 31, 2015, what amount should Rama show
in notes to financial statements as a restriction of retained earnings as a result of its treasury
shares transactions?
A. P 5,000
C. P 90,000
B. P60,000
D. P240,000
PRTC 0515
126
Ricky Corp.'s outstanding share capital at December 15, 2012, consisted of the following:
• 30,000 5% cumulative preference shares, par value P10 per share, fully participating as
to dividends. No dividends were in arrears.
• 200,000 ordinary shares, par value PI per share.
On December 15, 2012, Ricky declared dividends of P100,000. What was the amount of
dividends payable to Ricky's ordinary shareholders?
A. P10,000
C. P40,000
B. P34,000
D. P47,500
CPAR 0512
127
The December 31, 2015, the balance sheet of TXY reflected the following:
Total assets (market value P298,000)
Total liabilities
Preference shares, P.10 cumulative,
non-participating, P2.20 liquidation preference
per share, 20,000 shares outstanding
Ordinary shares, no par, 30,000 shares outstanding
Retained earnings (no dividends were declared or paid in 2014 - 2015)
P252,000
P70,000
50,000
120,000
12,000
P252,000
Assume the company sold all of the assets at December 31, 2015, at market value for cash;
paid off the liabilities and distributed all of the remaining cash to the shareholders. The
amount of cash per share that each common shareholder would receive would be:
A. P4.47
C. P6.07
B. P6.00
D. P8.33
PRTC 0515
Earnings per Share
128
. Entity A has made a profit attributable to ordinary shareholders of P20,000,000 for the year
ended December 31, 2015. Ten million ordinary shares were outstanding during 2015.
Since January 2015 there has been P8,000,000 of 5% convertible bonds in issue. The terms
May 2015, Final Preboard
of conversion are for every P1,000 nominal value of shares:
December 31, 2015
120 ordinary shares
December 31, 2016
150 ordinary shares
December 31, 2017
140 ordinary shares
Assuming that the income tax rate is 35%, the diluted earnings per share in 2015 is
A. P1.81
C. P1.83
B. P1.82
D. P1.85
PRTC 0515
.
129
Calvin Company's capital structure was as follows:
2014
2015
Outstanding securities:
Ordinary
1,000,000
1,000,000
Convertible preference
100,000
100,000
10% convertible bonds payable
P30,000,000
P30,000,000
During 2015, Calvin paid dividends of P15 per share on its preference shares. The
preference shares are convertible into 150,000 ordinary shares and the 10% bonds are
convertible into 300,000 ordinary shares. Profit for 2015 was P10,000,000. The income tax
rate is 35%. The diluted earnings per share for 2015 should be
A. P7.50
C. P8.24
B. P8.04
D. P8.50
PRTC 0515
Corporate restructuring
130
. Bago's directors decided on 3 November 2012 to restructure the company's operations. As
at Bago's balance sheet date of 31 December 2012 the following transactions and events had
occurred:
• Factory Z was shut down on 30 November 2012. An offer of P4M had been received for
Factory Z; however there was no binding sales agreement.
• The 100 employees had been retrenched, had left and their accumulated entitlements
had been paid, however an amount of P76,000, representing a portion of the 3 months'
wages for the retrenched employees, had still not been paid.
• Costs of P23,000 were expected to be incurred in transferring the 20 employees to their
new work in Factory X. The transfer will occur on 15 January 2013.
• Four of the five head-office staff had been retrenched, had left and their accumulated
entitlements, including the 3 months' wages, had been paid. However one employee, D.
Terminator, remained on to complete administrative tasks relating to the closure of
Factory Z and the transfer of staff to Factory X. D. Terminator was expected to stay until
31 January 2013. D. Terminator's salary for January would be P4,000 and his
retrenchment package would be P13,000, all of which would be paid on the day he left.
Page 29 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
He estimated that he would spend 60% of his time administering the closure of Factory
Z, 30% of his time administering the transfer of staff to Factory X and the remaining 10%
on general administration.
Calculate the amount of the restructuring provision to be recognized in Bago's financial
statements as at 31 December 2012.
A. P89,000
C. P93,000
B. P91,400
D. P116,000
CPAR 0512
Accounting Changes & Prior Period Errors
131
. TUQ Company discovered errors in its ending inventory for the year ended December 31,
2014. The error was discovered in early 2015, after the books were closed. Some inventory
in the amount of P12,000 was counted twice and inventory valued at P5,000 was excluded
from the inventory count because it was in transit (with terms FOB shipping point). The tax
rate is 30%. Which of the following would be included in the correcting journal entry to be
done in 2015?
A. Credit inventory for P12,000
C. Debit deferred income tax P1,500
B. Debit cost of goods sold P12,000
D. Debit retained earnings P4,900
PRTC
0515
4.
5.
A receipt of P12,600 cash from a customer as a payment on account was incorrectly credited
to service revenue. What is the effect of this error on the financial statements of the
company?
A. Assets are overstated by P12,600 and equity is overstated by P12,600.
B. Assets are overstated by P25,200 and equity is overstated by P25,200.
C. Assets are understated by P12,600 and equity is understated by P12,600.
D. Assets are understated by P12,600 and liabilities are understated by P12,600.
PRTC
1015
On January 1, year 1, Newport Corp. purchased a machine for P1,000,000. The machine
was depreciated using the straight-line method over a 10-year period with no residual value.
Because of a bookkeeping error, no depreciation was recognized in Newport's year 1
financial statements, resulting in a P100,000 overstatement of the book value of the machine
on December 31, year 1. The oversight was discovered during the preparation of Newport's
year 2 financial statements. What amount should Newport report for depreciation expense
on the machine in the year 2 financial statements?
A. P 90,000
C. P110,000
B. P100,000
D. P200,000
PRTC 1015
May 2015, Final Preboard
PRACTICAL ACCOUNTING 1
Reconstruction of Accounts
132
. At January 1, a sole proprietorship's assets totaled P210,000, and its liabilities amounted to
P120,000. During the year, owner investments amounted to P72,000, and owner
withdrawals totaled P75,000. At year-end, assets totaled P270,000, and liabilities amounted
to P171,000. The amount of net income for the year was
A. P 0
C. P 9,000
B. P6,000
D. P12,000
PRTC 0515
.
133
A company reported P210,000 in sales. Its opening accounts receivable balance was
P45,000 and its ending accounts receivable balance was P50,000. The company also
reported P20,000 in unearned revenues at the end of the year. What was the amount of cash
collected from customers for the year?
A. P205,000
C. P215,000
B. P210,000
D. P225,000
PRTC 0515
13. Certain information relative to the operation of Stripes Company follows:
Accounts receivable, January 1
Account receivable collected
Cash sales
Inventory, January 1
Inventory, December 31
Purchases
Gross profit on sales
What is the accounts receivable balance at December 31?
A. P 700,000
C. P1,300,000
B. P1,200,000
D. P1,700,000
.
134
P 800,000
2,600,000
500,000
1,200,000
1,100,000
2,000,000
900,000
PRTC 1015
Damascus Company had the following information relating to its accounts receivable:
Accounts receivable, 12/31/2011
P1,300,000
Credit sales for 2012
5,400,000
Collections from customers for 2012, excluding recovery
4,750,000
Accounts written off 9/30/2012
125,000
Estimated uncollectible receivables per aging of receivables at 12/31/2012 165,000
Collection of accounts written off in prior year (customer credit 25,000 was not
reestablished)
On December 31, 2012, the amortized cost of accounts receivable is
A. P1,635,000
C. P1,800,000
B. P1,660,000
D. P1,825,000
CPAR 0512
Page 30 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
.
135
PRACTICAL ACCOUNTING 1
The following data were taken from the books of Marina Co. for the year 2012:
From cash records:
Cash purchases
P 30,000
Payments to trade creditors for credit purchases
302,600
From balance sheets
Accounts payable
Jan. 1, 2012
37,500
Dec. 31, 2012
43,300
Merchandise inventory, Jan. 1, 2012
12,800
From other records:
Purchase returns and allowances
7,500
Cost of goods for the year
335,000
The merchandise inventory at the end of the year is
A. P12,800
C. P16,200
B. P13,800
D. P23,700
CPAR 0512, 1015
8.
Mharis Co. began operations on January 1, 2015, with P1,500,000 from the issuance of
share capital and borrowed funds of P300,000. Net income for 2015 was P100,000 and
Mharis paid a P50,000 cash dividend on December 15. No additional activities affected
owners' equity in 2015. At December 31, 2015, Mharis' liabilities had increased to P550,000.
In Mharis' December 31, 2015, statement of financial position, total assets should be reported
at
A. P1,550,000
C. P2,100,000
B. P1,850,000
D. P2,400,000
PRTC 1015
9.
Using the data for Llanah Corporation, compute the liabilities at year-end
Total assets, end
Share capital, end
Retained earnings, beg.
Net income
Dividends declared
A. P35,000
C. P50,000
B. P43,000
D. P65,000
.
136
P80,000
15,000
22,000
15,000
7,000
PRTC 1015
Changes in account balances of Kirchner Company for 2015, except for retained earnings,
are:
Increase (Decrease)
May 2015, Final Preboard
Cash
P5,000,000
Accounts receivable, net
3,500,000
Inventory
2,000,000
Investments
(500,000)
Accounts payable
(3,000,000)
Bonds payable
4,000,000
Share capital
6,000,000
Share premium
1,000,000
What should be the 2015 net income, assuming there were no entries in the retained
earnings account except for the net income and a dividend declaration of P2,000,000 which
was paid in the current year?
A. P2,000,000
C. P7,000,000
B. P4,000,000
D. P9,000,000
PRTC 0515
10. Presented below are changes in all the account balances of Mangold Company for 2015,
except for retained earnings:
Increase
(Decrease)
Cash
P 790,000
Accounts receivable (net)
240,000
Inventory
1,270,000
Investments
( 470,000)
Accounts payable
( 380,000)
Bonds payable
820,000
Share capital
1,250,000
Share premium
130,000
What amount should net income for 2015 be, assuming that there were no entries in the
retained earnings account except for net income and a dividend declaration of P190,000
which was paid in the current year?
A. P 10,000
C. P1,080,000
B. P 200,000
D. P1,140,000
PRTC 1015
50. On December 31, 2015, the following accounts appear in the trial balance of Grizzlies
Company:
Inventories on January 1:
Raw materials
P 350,000
Goods in process
400,000
Finished goods
319,000
Page 31 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
Purchases of raw materials
4,200,000
Purchases returns and allowances
120,000
Freight in
80,000
Direct labor
1,420,000
Indirect labor
900,000
Realty tax-factory building
150,000
Realty tax- salesroom and office
120,000
Depreciation-factory building
90,000
Depreciation-salesroom and office
50,000
Light and power
1,000,000
• Of the light and power, 60% was consumed in the factory, 25% in the office and 15% in
the salesroom.
• Inventories on December 31:
Raw materials
P380,000
Goods process
500,000
Finished goods
250,000
The cost of materials used is
A. P4,050,000
C. P4,170,000
B. P4,130,000
D. P4,250,000
PRTC 1015
.
137
.
138
The following balances were reported by Mall Co. at December 31, 2012 and 2011:
12/31/12
12/31/11
Inventory
P260,000
P290,000
Accounts payable
75,000
50,000
Mall paid suppliers P490,000 during the year ended December 31, 2012. What amount
should Mall report for cost of goods sold in 2012?
A. P285,000
C. P495,000
B. P435,000
D. P545,000
CPAR 0512
An analysis of Perk, Inc., disclosed changes in account balances for 2012 and the following
supplementary data.
Cash
P21,000 increase
Accounts receivable
25,000 increase
Inventory
10,000 decrease
Equipment
70,000 increase
Accounts payable
5,000 decrease
Perk sold 5,000 shares of its P5 par shares for P8 per share and received cash in full.
Dividends of P15,000 were paid in cash during the year. Perk borrowed P50,000 from the
May 2015, Final Preboard
PRACTICAL ACCOUNTING 1
bank and made interest payments of P5,000. Perk had no other loans payable. Interest of
P1,000 was payable at December 31, 2012. There was no interest payable at December 31,
2011. Equipment of P20,000 was donated by shareholders during the year.
From these data, the profit for 2012 is
A. P10,000
C. P20,000
B. P15,000
D. P65,000
CPAR 0512
.
139
The company's accounting records show that changes in ledger account balances occurred
during 2012 as follows:
Increase
Decrease
Cash
P800,000
Accounts receivable (net)
P40,000
Inventories
300,000
Equipment (net)
360,000
Building (net)
600,000
Loans payable
1,000,000
Accounts payable
300,000
Share capital, P10 par
600,000
Share premium
200,000
Retained earnings
?
Assuming that there were no transactions affecting retained earnings other than the
P250,000 cash dividends, compute the net income for 2012.
A. P 270,000
C. P770,000
B. P520,000
D. P2,170,000
CPAR 0512
PFRS for SMEs
140
. On 1 January 2012 Phoenix Corporation, an SME, acquired an investment property
(building) in a remote location for P100,000. After initial recognition, the entity measures
the investment property using the cost-depreciation-impairment model, because its fair value
cannot be measured reliably without undue cost or effort on an ongoing basis.
At 31 December 2012, management:
• assessed the building's useful life at 50 years from the date of acquisition
• presumed the residual value of the building to be nil (given that the fair value cannot be
determined reliably)
• assessed that the entity will consume the building's future economic benefits evenly over
50 years from the date of acquisition
• declined an unsolicited offer to purchase the building for P130,000. This is a 'one-off'
offer that is unlikely to be repeated in the foreseeable future.
Page 32 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
The entity should measure the carrying amount of the building on 31 December 2012 at:
A. P 98,000
C. P127,400
B. P100,000
D. P130,000
CPAR 0512
Cash basis vs. accrual basis of accounting
141
. Class Corp. maintains its accounting records on the cash basis but restates its financial
statements to the accrual method of accounting. Class had P60,000 in cash-basis pretax
income for 2012. The following information pertains to Class's operations for the years ended
December 31, 2012 and 2011:
2012
2011
Accounts receivable
P40,000
P20,000
Accounts payable
15,000
30,000
Under the accrual method, what amount of income before taxes should Class report in its
2012 income statement?
A. P25,000
C. P65,000
B. P55,000
D. P95,000
CPAR 0512
Financial Statement Analysis
17. Lollipop Corporation had accounts receivable of P100,000 at 1/1. The only transactions
affecting accounts receivable were sales of P600,000 and cash collections of P550,000. The
accounts receivable turnover is
A. 4.0
C. 4.8
B. 4.4
D. 6.0
PRTC 1015
7.
On December 31, Joan Corporation's current liabilities total P50,000 and long-term liabilities
total P150,000. Working capital at December 31 is equal to P80,000. If Joan Corporation's
debt-to-equity ratio is .32 to 1, total long-term assets must equal
A. P625,000
C. P745,000
B. P695,000
D. P795,000
PRTC 1015
Current Cost Accounting
142
. Acts Inc., paid P1,200,000 in December 2011 for its inventory. In December 2012, one half
of the inventory was sold for P1,000,000 when the replacement cost of the original inventory
was PI,400,000. Ignoring income taxes, what amount should be shown in the current cost
accounting income statement for 2012?
A. P200,000
C. P400,000
B. P300,000
D. P500,000
CPAR 0512
May 2015, Final Preboard
PRACTICAL ACCOUNTING 1
46. On December 30, 2010, Future, Incorporated paid P2,000,000 for land. At December
31,2011, the current value of the land was P2,200,000. In January 2012, the land was sold
for P2,250,000. Ignoring income taxes, by what amount should shareholders' equity be
increased for 2011 and 2012 as a result of the above facts in current value financial
statements?
CPAR 0512
A.
B.
C.
D.
2011
P
0
P
0
P200,000
P200,000
2012
P50,000
P250,000
P
0
P 50,000
.
143
On January 1, 2015, Jayson Company acquired inventory for P20,000. The inventory
consisted of 10,000 identical units. The current cost of the inventory was P30,000 on July 1,
2.015; on that date Jayson Company sold three-fourths of the inventory for P28,000. On
December 31, 2015, the current cost of the inventory on hand was P8,500. The general price
index on various dates is as follows:
Jan. 1, 2015
110.0
July 1, 2015
121.0
Dec. 31, 2015
133.1
Assuming that cost of goods sold is Jayson Company's only expense and that no purchasing
power gain or loss exist, the net income for the 2015 under current cost/constant peso basis
would be
A. P14,100
C. P17,050
B. P15,100
D. P23,650
PRTC 0515
Financial Statement Analysis
144
. Sharm Co. has total debt of P252,000 and stockholders’ equity of P420,000. Sharm is
seeking capital to fund an expansion. Sharm is planning to issue an additional P180,000 in
ordinary shares, and is negotiating with a bank to borrow additional funds. The bank requires
a maximum debt ratio of .75. What is the maximum additional amount Sharem will be able to
borrow after the ordinary shares are issued?
A. P1,428,000
C. P1,680,000
B. P1,548,000
D. P1,800,000
PRTC 0515
Cost Accounting
145
. The following quarterly cost data have been accumulated for Grace Mfg. Inc.
Raw materials - beginning inventory (Jan. 1, 2012) 10,000 units @P6.00
Purchases
8,500 units @P7.00
11,000 units @P7.50
Transferred 21,500 units of raw materials to work in process:
Page 33 of 56
PROFESSIONAL REVIEW & TRAINING CENTER
PRACTICAL ACCOUNTING 1
Work in process - beginning inventory (Jan. 1, 2012) 5,600 units @P13.50
Direct labor
P250,000
Manufacturing over head
P325,000
Work in process - ending inventory (Mar. 31, 2012) 4,200 units @P13.75
If Grace uses the FIFO method for valuing raw materials inventories, compute for the cost of
goods manufactured for the quarter ended Mar. 31 2012
A. P699,150
C. P734,850
B. P717,000
D. P746,850
CPAR 0512
May 2015, Final Preboard
Page 34 of 56
1
2
3
4
5
.Answer is (B).
Adjusting entry
Unearned rental income
Rental income
(P12,000 x 1/4)
.Answer is (B).
Sales
Less cost of goods sold:
Inventory, beginning
Purchases
Inventory, ending
Gross profit
Sales salaries expense
(P40.000 + P1,920)
Advertising expense
(P5,360 - P560)
Administrative salaries expense
Office expense
(P4,000 - P1,200)
Doubful accounts expense [(P33,600 x .08) - P2.160]
Depreciation
(P67.200 x .2)
Insurance expense
Interest expense
Profit
3,000
480,000
62,400
320,000
(64,000)
.Answer is (A).
Current assets, 12/31/12
(P130,000+P92,000)
Noncurrent assets, 12/31/12
Total assets, 12/31/12
Less equity, 12/31/12
Total assets, 12/31/11
(P240,000+P1.6M)
Less total liabilities, 12/31/11
[(P240,000-P92,000)+P580,000]
Equity, 12/31/11
Net income-2012
Total liabilities, 12/31/12
Less current liabilities, 12/31/12
Noncurrent liabilities, 12/31/12
.Answer is (C)
Investments in listed companies (available for sale)
Land, at valuation
Buildings, at cost
Accumulated depreciation - buildings
Plant and equipment
Accumulated depreciation - plaht and equipment
Leased assets
Accumulated depreciation - leased assets
Goodwill
Patents.
Noncurrent assets
.Answer is (C)
Trade creditors
Sundry creditors and accruals
Bank overdrafts
3,000
318,400
161,600
(41,920)
(4,800)
(52,000)
(2,800)
(528)
(13,440)
(2,040)
(2,688)
41,384
222,000
1,500,000
1,722,000
1,840,000
728,000
1,112,000
88,000
522,000
130,000
392,000
52,000
250,000
1,030,000
(120,000)
8,275,000
(3,726,000)
775,000
(310,000)
2,530.000
110,000
8,866,000
1,617,000
715,000
350,000
1,200,000
Debentures
Lease liabilities
Provision for employment be nefits
Provision for restructuring
Provision for warranty (P42.000 - P20.000)
Current tax payable
Current liabilities
6
7
8
9
10
11
.Answer is (D).
Cash and cash equivalents
Short term investment
. Accounts receivable
Interest receivable
Prepaid expenses.
Current assets
.Answer is (D).
Land
Buildings
Accumulated depreciation - buildings
Equipment
Accumulated depreciation - equipment
Investment property
Property, plant and equipment
Notes receivable
Noncurrent assets
300,000
125,000
192,000
412,000
22,000
152,000
3,385,000
(P830,000 + P180,000)
(P650,000 - P180,000)
(P2,250,000 - P150,000)
1,010,000
470,000
2,100,000
50,000
320,000
3,950,000
(P750,000 - P250,000)
500,000
3,200,000
(1,600,000)
2,650,000
(1,200,000)
250,000
3,800,000
650,000
4,450,000
.Answer is (C).
Accounts payable
Accrued expenses
Notes payable - current
Mortgage payable - current
Current liabilities
.Answer is (C).
Notes payable - noncurrent
Mortgage payable - noncurrent
Noncurrent liabilities
(P50.000 x 2)
(P2,500,000 - P100,000)
.Answer is (D).
Share capital
Retained earnings
Equity
.Answer is (A).
Net income
Other comprehensive income:
Remeasurement loss on defined benefit obligation
Unrealized gain on available-for-sale securities
Reclassification adjustment
Comprehensive income
1,730,000
450,000
500,000
100,000
2,780,000
500,000
2,400,000
2,900,000
1,000,000
1,720,000
2,720,000
77,000
(3,000)
15,000
(2,500)
9,500
86,500
12
13
14
15
16
17
.Answer is (A)
Sales
Cost of goods sold
Selling expenses
General and administrative expenses
Interest expense
Gain on early extinguishment of long-term debt
Investment income - equity method
Gain on sale of investment
Income tax expense
Income from continuing operations
.Answer is (B).
Sales
Sales returns and allowances
Sales discounts
Net sales
(P451,000 + P3,500)
.Answer is (A).
Inventory, January 1
Purchases
Purchase returns and allowances
Freight in
Total goods- available for sale
Inventory, December 31
Cost of goods sold
.Answer is (D).
Sates salaries and commissions
Advertising expense
Travel expense - sales representatives
Depreciation - delivery equipment
Miscellaneous selling expenses
Freight out
Total selling expenses
P20,000,000
(12,000,000)
(1,200,000)
(1,800,000)
(1,500,000)
500,000
600,000
2,000,000
(2,100,000)
4,500,000
(P141,600 x .06)
(P5,525 + P570)
(P20,550 + P18,600)
[P25,000 + (P3,050 x .03)]
[P16,090 + (P1,818 x 2/6)]
[P6,100 + (P7,800 x 10/120)]
.Answer is (A).
Legal services
Insurance and licenses
Depreciation - office equipment
Utilities
Telephone and postage
Supplies expense
Doubtful accounts expense
Officers' salaries
Total general and administrative expenses
(P2,180 - P1,225)
(P261,000 x .02) - P160]
.Answer is (B).
Net sales (see no. 1)
Cost of goods sold (see no. 2)
Selling expenses (see no. 3)
General and administrative expenses (see no. 4)
454,500
(3,900)
(880)
449,720
89,700
141,600
(8,496)
6,095
228,899
(39,150)
189,749
25,092
16,696
4,560
6,750
2,740
3,500
59,338
2,225
7,680
4,200
6,400
1,475
955
5,060
36,600
64,595
449,720
(189,749)
(59,338)
(64,595)
Other income
Interest income
(P550 + P560)
Dividends received
Gain on sale of assets
Other expenses
Interest expense
Loss on sale of equipment
Income from continuing operations before income tax
Income tax expense (30%)
Income from continuing operations
Income from discontinued operations
(P40,000 x .7)
Net income
18
19
.Answer is (A)
Sales
Cost of goods sold
Selling expenses
General and administrative expenses
Interest expense
Gain on early extinguishment of long-term debt
Investment income - equity method
Gain on sale of investment
Income tax expense
Income from continuing operations
Items excluded in the computation:
Correction of inventory error - credit to retained earnings beginning
Dividends declared - debit to retained earnings
.Answer is (C).
Sales (net)
Cost of goods sold (see computation below)
Dividends received
Loss on sale of marketable securities
Loss from -write-down of obsolete inventory
Salaries
Contribution to employees' pension fund
Delivery expenses
Miscellaneous expense
Doubtful accounts expense
Depreciation expense - fixed assets
Income tax expense
Profit
Computation of cost of goods sold:
Merchandise inventory, January 1
Purchase (net)
Merchandise inventory, December 31
20
.Answer is (B)
Net income
Amortization
Depreciation
1,110
5,150
7,820
(4,520)
(72,600)
14,080
(77,120)
72,998
(21,899)
51,099
28,000
79,099
20,000,000
(12,000,000)
(1,200,000)
(1,800,000)
(1,500,000)
500,000
600,000
2,000,000
(2,100,000)
4,500,000
8,375,000
(4,885,400)
15,000
(40,000)
(115,000)
(1,540,000)
(280,000)
(205,000)
(125,000)
(12,000)
(86,000)
(120,000)
981,600
1,040,000
4,720,400
(875,000)
4,885,400
360,000
20,000
60,000
21
22
23
24
25
26
27
Increase in accounts receivable
Increase in inventory
Decrease in accounts payable
Increase in salaries payable'
Cash provided by operating activities
(140,000)
(48,000)
(76,000)
28,000
204,000
.Answer is (D).
Net income
Depreciation expense
Decrease in accounts receivable
Increase in inventories
Increase in accounts payable
Decrease in income taxes payable
Cash provided by operating activities
396,000
102,000
126,000
(90,000)
24,000
(16,000)
542,000
.Answer is (B).
Collections from sales
Payments for purchases
Payments for wages
Net cash flows from operating activities
(P102,000 - P3,600)
(P40,000 - P2,000 - P5,200)
(P31,800 + P600)
.Answer is (B)
Accounts receivable, beg.
Sales on account
Accounts written off
Accounts receivable, end.
Collections
100,000
300,000
(12,000)
(168,000)
220,000
.Answer is (B).
Cash balance, ending
Less net increase in cash (P53.440 + P45.230 - P47,860)
Cash balance, beginning
.Answer is (C).
Profit or loss threshold
.Answer is (C).
Income from operations of discontinued segment
Loss from sale of segment
Income from discontinued operations
.Answer is (C).
29
.Answer is (C).
Paint shop revenue
Paint shop expenses
107,310
50,810
56,500
(P1,200,000 x . 1)
.Answer is (C).
Sales of Clay division
Traceable operating costs
Allocated indirect operating costs (P500,000 x .2)
Clay division profit
28
98,400
(32,800)
(32,400)
33,200
120,000
3,000,000
(1,900,000)
(125,000)
975,000
250,000
(220,000)
30,000
40,000,000
(60,000,000)
Loss from operations
Employee related costs
Losses on disposal of branch net assets
Total loss before tax benefit
Tax benefit
Loss from discontinued operations
(20,000,000)
(10,000,000)
(15,000,000)
(45,000,000)
15,750,000
(29,250,000)
30
.Answer is (A).
31
.Answer is (B).
Cumulative income tax expense, end of 3rd quarter
(P170,000 x .45)
Less cumulative income tax expense, end of 2nd quarter (P130,000 x .40)
Income tax provision - 3rd quarter
76,500
52,000
24,500
32
.Answer is (B). PAS18 para 11 covers deferred income. In this problem the revenue is the value at the time of supply ,
July 2011. Therefore the interest is the amount of the payment in full in July 2012 less the offered cash payment price
at July 2011.
33
.Answer is (C). Income for 2012 (P30 x 10 mos. x 10/12) = 250
34
.Answer is (A)
Cost of goods sold - B grade
(P1 M + P8.8M - P1.25 M)
8,550,000
Divide by the cost ratio (1 - 0.25)
÷ 0.75
Sales revenue
11,400,000
Note: The entity, will recognize commission income of P4.6M on sales of A grade goods.
35
.Answer is (C)
Unadjusted professional fees expense
Unrecorded legal fees for Nov. and Dec. 2015
Adjusted professional fees expense
36
.Answer is (C).
Commission expense - year ended 3/31/15
(P6,000+P9,000)
92,000
15,000
107,000
(P30,000,000 x 3%)
900,000
37
.Answer is (C). Commission expense-2012 (P36,000+P39,000+P43,000+P45,000) = 163,000
38
.Answer is (B).
Cash in bank
Cash on hand
Total cash
Notes: PDCs - receivables: Certificates of deposit - cash equivalents
39
40
.Answer is (B)
Total cash
(P925,000 – P17,000 + P9.800 + P800)
.Answer is (B).
Bills and coins on hand
Petty cash
Money order
Checking account balance in Bank of P.I.
Total cash
(P1,000 - P650)
13,500
500
14,000
918,600
52,780
350
800
22,000
75,930
41
42
43
44
45
46
47
.Answer is (D).
Balance per bank
Outstanding checks
Deposits in transit
Total cash
2,980
(680)
400
2,700
.Answer is (C).
Unadjusted bank balance
March 31 deposit (In transit)
Erroneous bank credit (Careless Co. deposit)
Outstanding checks
Adjusted bank balance
.Answer is (D)
Net realizable value
5,630,000
750,000
(1,100,000)
(1,650,000)
3,630,000
(P125,000 x .98)
.Answer is (A)
Accounts receivable; January 1
Credit sales during the year
Cash collections during the year
Accounts receivable written off during the year
Accounts receivable, December 31
Allowance for doubtful accounts, January 1
Accounts receivable written off during the year
Doubtful accounts expense
(P1.2M x .02)
Allowance for doubtful accounts, December 31
Accounts receivable - net, December 31
40,000
(20,000)
24,000
122,500
300,000
1,200,000
(1,100,000)
(20,000)
380,000
44,000
336,000
.Answer is (C)
Accounts receivable, 12/31/14
Sales on account
Collections on AR
(P392,000 + P8,000)
AR write-off
Recovery of accounts previously written off
Collections on AR pledged
Accounts receivable, 12/31/15
Less allowance for DA, 12/31/15 (P900 – P2,000 + P500 + P2,300)
Amortized cost of AR, 12/31/15
45,000
480,000
(400,000)
(2,000)
-(15,000)
108,000
1,700
106,300
.Answer is (D)
Accounts receivable, ending (P305,000 +P1,300,000 : PI,250,000 - P25,000)
Doubtful accounts expense
(P30,000 + P25,000 - P25,500)
Required allowance
Recorded allowance
[P25,500 + (P1,300,000 x .02) - P25,000]
Increase (decrease) in allowance for doubtful accounts
.Answer is (D)
Principal
Interest
Cash flows
500,000
20,000
PVF at 8%,
5 periods
0.6806
3.9927
330,000
29,500
30,000
26,500
3,500
AC, 12/31/14
340,300
79,854
420,154
Interest income - 2015
48
49
50
51
52
53
54
(P420,154 x .08)
.Answer is (C)
Principal
Interest to maturity
Maturity value
Discount
Proceeds
(P40,000 x .06)
(P42,400 x .1 x 9/12)
.Answer is (D)
Journal entries:
Accounts receivable - Assigned
Accounts receivable
Cash (P1,000,000 x .97)
Finance charge (P1M x .03)
Notes payable
1,500,000
40,000
2,400
42,400
(3,180)
39,220
1,500,000
970,000
30,000
1,000,000
.Answer is (B)
Consideration received and receivable (P2M x .95)
CA of receivables
Gain (loss) on factoring
.Answer is (C)
Unadjusted Inventory,12/31/15
(b) Goods sold in transit - FOB destination
(e) Goods purchased - FOB shipping.point
Adjusted Inventory,12/31/15
.Answer is (C)
Unadjusted inventory
Add (deduct) adjustments
Goods purchased FOB shipping point
Goods sold FOB destination
Goods out on consignment
Adjusted inventory
1,900,000
2,000,000
(100,000)
441,000
38,000
51,000
530,000
325,000
30,000
38,000
12,000
405,000
.Answer is (B)
Unadjusted inventory
b) Goods in transit purchased FOB shipping point
c) Work in process sent to outside processor
d) Goods out on consignment
[(P4.600/1.15) + P120]
Adjusted inventory
.Answer is (B)
Inventory, beginning
Purchases
Purchase returns
Purchase discounts
Freight in
Cost of goods sold
Inventory, ending
33,612
[(P400.000 - P5.000) x .01]
70,000
8,000
500
4,120
82,620
94,000
400,000
(5,000)
(3,950)
7,500
(380,000)
112,550
55
56
57
58
.Answer is (D)
Journal entry, 12/16
Accounts payable
Purchase discount lost
Cash
[(P8,600 + P7,500) x .97]
(P8.600 x .03)
(P8,600 + (P7,500 x .97)]
.Answer is (D)
Cost
Net realizable value
Estimated selling price
Cost to correct defect
Commission
Loss on write down
15,875
18,000
(P25.000 x .8)
(P20,000 x .1)
20,000
(6,000)
(2,000)
.Answer is (C).
Raw materials, 1/1
Purchases
Raw materials available for use
Less raw materials, 6/30
Raw materials used
Direct labor
Factory overhead (P130,000 x .6)
Total manufacturing cost
Work-in-process, 1/1
Total cost placed in process
Less work-in-process, 6/30 (squeeze)
Cost of goods manufactured
Finished goods, 1/1
Total goods available for sale
Less finished goods, 6/30
Cost of goods sold (P428.000 x .66)
.Answer is (D)
12,000
6,000
42,500
96,000
138,500
52,000
86,500
130,000
78,000
294,500
115,000
409,500
135,020
274,480
120,000
394,480
112,000
282,480
.Answer is (A)
Inventory: 12/31/14
Purchases
(P5,640,000 + P40,000 – P80,000)
Cost of sales (see computation below)
Estimated Inventory, 12/31/15
Inventory based on physical count
Estimated cost of missing inventory
Computation of cost of sales:
Accounts receivable, 12/31/15
Collections
Accounts receivable, 1/1/15
Sales on account
Cash sales
Total sales
x COS ratio
59
15,617
258
(1 - .4)
1,280,000
5,600,000
(5,280,000)
1,600,000
(1,440,000)
160,000
1,200,000
7,200,000
(1,000,000)
7,400,000
1,400,000
8,800,000
0.60
5,280,000
60
.Answer is (B)
61
.Answer is (A)
Principal
Interest
Cash flows
700,000
35,000
PVF at 4%
20 periods
0.4564
13.5903
EI (4%)
Disc. Amort.
31,806
31,678
3,194
3,322
Partial amortization schedule:
Date
NI (5%)
3/1/15
8/31/15
35,000
2/28/16
35,000
Interest income
3/1/15 – 8/31/15
9/1/15 – 12/31/15
Total
62
Initial carrying amount
Interest income - 2015
63
A.C.
795,141
791,947
788,625
31,806
21,119
52,925
(P31,678 x 4/6)
.Answer is (B)
Principal
Interest
Purchase price
319,480
475,661
795,141
Cash flows
4 000,000
80,000
PVF at 3%,
10 periods
0.7441
8.5302
(P2,658,816 x 1.01)
(P3,695,404 x .0289)
.Answer is (C)
Purchase price
2,976,400
682,416
3,658,816
3,695,404
106,797
Principal
Interest
Cash flows
1,000,000
100,000
PVF at 9%,
2 periods
.08417
1.7591
Fair value,
12/3115
841,700
175,910
1,017,610
Principal
Interest
Cash flows
1,000,000
100,000
PVF at 8%
2 periods
0.8573
1.7833
Amortized cost
12/31/15
857,300
178,330
1,035,630
(18,020)
Fair value adjustment gain (loss) – OCI
64
.Answer is (D).
Carrying amount (Fair value), 12/31/15
(P1M x .99)
990,000
- Since the bond investment is not held for collection (the entity has the intention to hold the bonds indefinitely), it
shall be measured at fair value in accordance with PFRS 9.
- In accordance with PAS 39, the bond investment is AFS.
65
.Answer is (B).
Unrealized gain (Reserve), 12/31/14
Reserve transferred to retained earnings
Increase in FV of remaining investment
(P25,000 x 1/2)
[P70,000 - (P125.000/2)]
25,000
(12,500)
7,500
Increase in FV of new investment
Unrealized gain (Reserve), 12/31/15
66
67
68
69
(P165,000 - P150,000)
.Answer is (B).
Fair value of PS received
Carrying amount of investment
Loss on settlement (exchange)
.Answer is (A).
Acquisition cost
Cash dividends receivable
Share of profit of associate
Carrying amount, 12/31/15
(5,000 x P70)
(1,000,000 x .25 x 1.05 x P2.2)
(P4,800,000 x .25)
.Answer is (D).
Dividend income
Fair value adjustment gain
Effect on profit or loss
.Answer is (A).
Acquisition cost
Share of profit
Dividend received
Carrying amount of investment, 12/31/15
15,000
35,000
350,000
400,000
(50,000)
5,000,000
(577,500)
1,200,000
5,622,500
(P12,500 x .2)
[10,000 x (P6.50 - P6.00)]
2,500
5,000
7,500
(10,000 x P6)
(P3,000 x 6 x .2)
(P12,500 x .2)
60,000
3,600
(2,500)
61,100
70
.Answer is (B).
Journal entries - accounted for as fair value hedge Journal entry, 11/15/11
Memo entry
Journal entry, 12/31/11
To recognize gain on forward contract
Derivative asset - FC
19,600
FV adj. gain - FC (P/L)
19,600
To recognize loss on firm commitment
Loss on firm commitment (P/L)
19,600
Firm commitment liability
19,600
Journal entry, 2/15/12
To recognize gain on forward contract
Derivative asset - FC
10,400
FV adj. gain - FC (P/L)
10,400
To recognize loss on firm commitment
Loss on firm commitment (P/L)
10,400
Firm commitment liability
10,400
To record the purchase of equipment
Equipment
360,000
Firm commitment liability
30,000
Cash
390,000
To record settlement on forward contract
Cash
30,000
Derivative asset - FC
30,000
71
.Answer is (B). See journal entries above.
72
73
74
75
76
77
78
79
80
81
.Answer is (D).
Outflow to Bank A
Inflow from Bank B
(P10M x .07 x 1/4)
(P10M x.005 x 1/4)
.Answer is (D)
Land held as potential plant site
Vacant building to be leased out under an operating It
Building being leased out to a subsidiary
Investment properties in the separate FS
.Answer is (C)
Depreciation - 2015
5,000,000
20,000,000
8,000,000
33.000,000
[(P135,000 - P13,500)/5]
.Answer is (D).
Purchase price, net (P550.000 x .85 x .9 x .95)
Freight cost (P12,000 + P8.000)
Total cost
.Answer is (C)
Cost of machine
.Answer is (A)
Carrying value, 8/1/14
Carrying value of asset sold
Depreciation for the year
Carrying value, 7/31/15
.Answer is (C)
Purchase price.net
Delivery cost
Installation and testing
Total cost
Residual value
Depreciable amount
/Estimated total output
Depreciation rate
2015 depreciation
24,300
399,712
20,000
419,712
(P80.000 + P5.000 + P1.000)
.Answer is (B).
Fair value of asset given up
Carrying amount, 4/1/14
Cost
Ace. Dep.
[P30,000 + (P12,000 x 3/12)]
Gain (loss) on exchange
175,000
12,500
86,000
24,000
60,000
33,000
(P25,000 + P5,000)
(P4,500.000 x .98)
27,000
(3,000)
200,000
(30,000)
(20,000)
150,000
(48,000 units x P20)
4,410,000
80,000
310,000
4,800,000
(800,000)
4,000,000.
÷ 200,000
20 per unit
960,000
.Answer is (D)
Depreciation - 2015
(P5,400,000 x .75 x .75 x .25)
759,375
.Answer is (C).
Main machine
First component
Second component
(P62.400/10)
(P10,000/6 x 3/12)
[(P15,250 x .75)/4 x 9/12]
6,240
417
2,145
Total depreciation - 2012
82
83
8,801
.Answer is (A).
Cost/CA for gain computation (P575.000 + P2.500 + P3.500)
.Answer is (B)
Fair value
Carrying amount, 12/31/15
Increase (Decrease)
581,000
Machine A
1,800,000
1,650,000
150,000
OCI (RS)
Machine B
1,550,000
1,600,000
(50,000)
P/L (RL)
Computation of carrying amount, 12/31/15
Machine A:
Machine B:
Carrying amount, 6/30/15
1,800,000
1,700,000
Depreciation
(P3M/10 x 6/12) (150,000) (P2M/10 x 6/12) (100,000)
1,650,000
1,600,000
84
85
86
87
.Answer is (D). (in millions)
Fair value, 12/31/11
Less carrying amount, 12/31/11
Revaluation surplus, 12/31/11
(P115M + P11.6M)
(P120M x 37/40)
.Answer is (D). (in millions)
Revaluation surplus, 12/31/11 (see no. 10)
Decrease in decommissioning liability
Revaluation decrease:
Fair value, 12/31/12
(P107M + P7.2M)
Less carrying amount, 12/31/12
(P126.6M x 36/37)
Revaluation surplus, 12/31/12
126.6
111.0
15.6
15.600
5.000
114.200
123.178
.Answer is (B).
Cost of natural resources, net of residual value (P10M - P2M)
Mine improvements
Cost subject to depletion
Divide by total estimated reserves in 2011
Depletion rate in 2011
Number of tons mined in 2011
Depletion for 2011
Original cost subject to depletion
Less depletion in 2011
Remaining cost to deplete, 1/1/12
Remaining tons of ore, 1/1/12
(3,000,000+150,000)
Depletion rate in 2012
Number of tons mined in 2012
Depletion for 2012
.Answer is (A)
Acquisition cost
Estimated restoration cost
Total
Residual value
(8.978)
11.622
8,000,000
750,000
8,750,000
2,000,000
4.38
50,000
219,000
8,750,000
219,000
8,531,000
3,150,000
2.71
150,000
406,500
5 400,000
450,000
5,850,000
(650,000)
Amount subject to depletion
5,200,000
Depletion for 2014
(600,000 x P2.6*) (1,560,000)
Remaining amount subject to depletion, 1/1/15
3,640,000
Divide by remaining estimated reserves, 1/1/15 (1,875,000+400,000) 2,275,000
Depletion rate for 2015
1.60
Depletion for 2015
(400,000 tons x P1..60)
640,000
* (P5,200,000/2,000,000)
88
89
90
91
92
93
94
.Answer is (C)
Cost/Depreciable amount
Accumulated depreciation, beg. of 3rd year
(200,000 x P5.6)
CA/Remaining depreciable amount beg. of 3rd year
Depreciation - 3rd year
(P1,680,000/8)
CA/Remaining depreciable amount beg. of 4th year
/Remaining remaining reserves beg. of 4th year
Depreciation rate - 4th year
Depreciation - 4th year
(100,000 x P4.9)
.Answer is (C).
Patent (at cost)
License (government grant, at fair value)
Prepaid advertising (P5M x 3/6)
Total assets
.Answer is (D)
FV of shares issued
Cash paid
Cost of patent
.Answer is (C)
Patent amortization
.Answer is (D)
Excess annual earnings
Normal return on net assets
Annual earnings
2,800,000
(1,120,000)
1,680,000
(210,000)
1,470,000
÷ 300,000
4.90
490,000
12,000,000
10,000,000
2,500,000
24,500,000
(2,500 x P9)
22,500
75,000
97,500
[(P4,000,000 -P200,000)/5]
760,000
(P10,000 x .2)
[(P100.000 – P10,000) x .1
2,000
9,000
11,000
.Answer is (C)
Franchise
Amortization
(P60,000 ÷ 5)
Annual fee
(P20,000 x .01)
Patent
Amortization
(P51,000/10)
Legal costs to prosecute patent infringement
Total expenses
12,000
200
5,100
85,000
12,200
90,100
102,300
.Answer is (C)
Factory
Inventory
Brand
Goodwill
Carry amount
2,500,000
1,500,000
500,000
500,000
5,000,000
Impairment Loss Allocation
(150,000)
( 90,000)
( 30,000)
(500,000)
(770,000)
Carrying amount after
2,350,000
1,410,000
470,000
4,230,000
* Remaining impairment loss of P270,000 is allocated pro rate based on CA of other assets
95
.Answer is (B)
Impairment
Carrying
Loss
Amount
Allocation*
Factory
210,000
(11,667)
Land
150,000.
(8,333)
Equipment
120,000
- (6,667)
Inventory
60,000
(3,333)
540,000
(30,000)
* Allocated pro rata based on CA of all assets
** Allocated pro rata based on CA of other assets
96
.Answer is (D)
Carrying amount, 12/31/14
Recoverable amount (value-in-use)
Impairment loss – 2014
Carrying amount, 12/31/14
Amortization -2015
Carrying amount, 12/31/15
Recoverable amount (value-in-use)
Impairment loss - 2015
97
.Answer is (B)
Date of classification as held for sale:
Carrying amount
Fair value less costs to sell
impairment loss
At December 31, 2015:
Fair value less costs to sell
Carrying amount before remeasurement
Gain on reversal of impairment loss
98
99
100
Carrying
Amount
after
198,333
141,667
113,333
56,667
510,000
Impairment
loss Reallocation*
(1,795)
3,333
(1,026)
(513)
--
Carrying
Amount
after
196,538
145,000
112,307
56,154
510,000
(P940.000 x 3/4)
705,000
750,000
--
(P940,000 x 3/4)
(P940.000/4)
705,000
(235,000)
470,000
(445,000)
25,000
(P1M - P750.000)
(P100,000 - P10,000)
250,000
90,000
160,000
(P150,000 - P16,000)
134,000
90,000
44,000
.Answer is (C).
Policy amount
Cash surrender value, 7/1/12
Gain on life insurance settlement
.Answer is (D).
Unadjusted accounts payable
Debit balance in accounts payable
Post date checks issued
Adjusted accounts payable
.Answer is (C).
Total discounts available [(P328,000+P90,000-P8,000) x .03]
Purchase discounts taken
Purchase discounts lost
900,000
(170,100)
729,900
200,000
50,000
25,000
275,000
12,300
(2,700)
9,600
101
102
.Answer is (A)
Deferred revenue, 12/31/15
(P7,200,000x 3/12)
.Answer is (B).
Estimated coupons to be redeemed (400,000 x .6)
Coupons redeemed already
Estimated coupons to be redeemed after 12/31/12
Estimated liability, 12/31/12 (140,000/5 x P.5)
1,800,000
240,000
(100,000)
140,000
14,000
103
.Answer is (D).
B=.1 (NI-T) + .3B T = .3 (Nl - B)
T = .3 (5,000,000 - B) T= 1,500,000-,3B
B = .1 [5,000,000 - (1,500,000 - .3B)] + .3B
B = .1 (5,000,000 - 1,500,000 + .3B) + .3B B=.1 (3,500,000 + .3B) + .3B
B =. 350,000 + .03B + .3B B ■ 350,000 + .33B
.67B = 350,000
0.67
B = 522,388
104
.Answer is (B).
Goods which the entity expects will be returned (P1,750,000 x 10%)
175,000
Breakdown:
Manufactured by Header
(P175,000 x 20%)
35,000
Manufactured by Other Manufacturers
(P175,000 x 80%)
140,000
Provision for sale of goods manufactured by Header:
Goods to be resold at normal prices (P35,000 x 70% x 40/140)
7,000
Goods to be resold at half the normal prices (P35,000 x 30% x 50%) 5,250
12,250
Provision for sale of goods manufactured by other manufacturers:
Goods to be resold at normal prices (P140,000 x 70% x 25/125) 19,600
Goods to be resold at half the normal prices (P14,000 x 30% x 50%) 21,000 40,600
Total
52,850
105
.Answer is (B)
Estimated selling price of goods with defects
Breakdown:
Manufactured by Header (P160,000 x 20%)
Manufactured by Other Manufacturers (P160,000 x 80%)
Provision for sale of goods manufactured by Header
Provision for sale of goods manufactured by other manufacturers
(P128,000 x 25/125)
Total
106
.Answer is (B).
107
.Answer is (B).
Liability, 12/31/15
(P1,000,000 x .25 x .7938)
160,000
32,000
128,000
32,000
25,600
57,600
198,450
108
.Answer is (A). Based on the given information, it is probable that the entity will successfully defend the court case.
Therefore, the entity has only a possible obligation and consequently a contingent liability.
109
.Answer is (A). Since the collection is not virtually certain, this is only a contingent asset.
110
111
112
.Answer is (A).
Liability, 1/1/15
(P30,000/1.11)
.Answer is (D).
CA of old liability
(P1M + P120T)
PV of hew liability (Discounted @ 12%):
PV of reduced P
(P700,000 x .7118)
PV of 1
(P700,000 x .08 x 2.4018)
Gain on debt extinguishment
Interest expense-2015
(P632,761 x .12)
Principal
Interest
Issue price without
Issue price with
Equity component - conversion feature
.Answer is (C).
Equity component - conversion feature
Issue price without
Issue price with
114
.Answer is (A). PV of MLP
115
.Answer is (C).
Quarterly rent
Additional rent
Total rent income
116
117
118
1,120,000
498,260
134,501
632,761
487,239 44%
75,931
.Answer is (D).
Cash flows
1,000,000
12,500
113
27,027
.Answer is (A).
Date
1/1/14.
1/1/14
1/1/15
1/1/16
PVF at 1.5%,
20 periods
0.7425
17.1686
Purchase price
742,500
214,608
957,108
1,045,000
87,892
(P500.000 - P19,560)
(P23.000 x 2.6243)
(P100,000 x 4)
[(P13.3M - P10M) x .05]
Payment
Interest (10%)
900,000
900,000
900,000
438,000
391,800
.Answer is (D).
Cash
Accumulated depreciation
Machinery
Deferred gain on sale and leaseback
.Answer is (C).
Carrying amount
Tax base
Temporary difference - Deductible
Deferred tax asset
Principal
900,000
462,000
21,450
480,440
501,890
60,359
400,000
165,000
565,000
CA
5,280,000
4,380,000
3,918,000
80,000
30,000
100,000
10,000
[P150,000 - (P150,000 x .05 x 4)]
[P150,000 - (P150,000 x .02 x 4)]
(P18,000 x .25)
120,000
138,000
18,000
4,500
119
120
121
122
123
124
125
126
.Answer is (C).
Accumulated gross profit, 12/31/15 - Accrual
Accumulated gross profit, 12/31/15 - Installment
Taxable temporary difference, 12/31/15
Tax rate
Deferred tax liability, 12/31/15
.Answer is (C).
Category A employees
Category B employees
Category C employees
4,200,000
(2,000,000)
2,200,000
0.30
660,000
(P100,000 x 1)
(P50,000 x 10)
(P25,000 x 30)
.Answer is ().
Defined benefit obligation, 1/1
Current service cost (balancing figure)
Interest cost
Benefits paid
Defined benefit obligation, 12/31
.Answer is (B).
Cumulative expense, year 3
Cumulative expense, year 2
Expense - year 3
(P4.6M x .1)
{167 x 100 x [(P21 x 3/3) + (P3 x 2/2)]}
{165 x 100 x [(P21 x 2/3) +(P3 x 1/2)]}
.Answer is (D)
Question No. 43 - D
June 1
(50,000 shares x P10)
June 5
June 15
[(100,000 x P15) + (5,000 x P35)]
June 25
Total shareholders' equity, 7/31/15
100,000
500,000
750,000
1,350,000
4,600,000
59,000
460,000
(390,000)
4,729,000
400,800
(255,750)
145,050
500,000
600,000
1,675,000
-2,775,000
.Answer is (C).
Equity, 12/31/14
2/15 - Dividends paid
3/14 - Issuance of shares
6/6 - Repurchase of shares
10/8 - Reissuance of TS
Profit for 2015
Equity, 12/31/15
.Answer is (B).
Remaining cost of treasury shares
(10,000 x P14)
(2,000 x P16)
(2,000 x P18)
534,000
(10,000)
140,000
(32,000)
36,000
103,000
771,000
(P5,000 x P12)
60,000
.Answer is (C).
Basic
Participation
Total
Basic dividend:
Preference shares (30,000 x P10 x 0.05)
PS
15,000
45,000
60,000
15,000
OS
10,000
30,000
40,000
Total
25,000
75,000
100,000
Ordinary shares (200,000 x P1 x 0.05)
Participation:
Preference shares (P75,000 x 3/5)
Ordinary shares (P75,000 x 2/5)
127
128
129
132
30,000
.Answer is (A).
Profit
Net interest expense on bonds
Profit to OS
AA/A outstanding OS
Actual
Potential (P8M/P1Tx 150)
Diluted EPS
.Answer is (B).
Profit
PS dividends
Profit to OS
AVA outstanding OS
Basic EPS
Conversion of PS
131
45,000
.Answer is (C).
Market value of assets
Liabilities
Preference shares liquidation value
(20,000 x P2.20)
Preference shares dividend
(20,000 x P. 10)
Amount available to ordinary (common) shareholders
Divide by ordinary shares outstanding
Amount per share to be received by ordinary shareholders
Basic
Conversion of bonds
130
10,000
(P8M x .05 x .65)
.Answer is (D).
Net assets, ending
Net assets, beginning
Net increase in capital
Contributions from owner
20,000,000
260,000
20,260,000
10,000,000
1,200,000 11,200,000
1.81
Profit to OS
8,500,000
1,950,000
10,450,000
1,500,000
11,950,000
10,000,000
(100,000 x P15) (1,500,000)
8,500,000
1,000,000
8.50
WA O/S OS
EPS
1,000,000
8.50
300,000
1,300,000
8.04
150,000
1,450,000
8.24
.Answer is (B).
Unpaid entitlements- retrenched employees
Retrenchment package - D. Terminator
Salary related to closure administration (P4,000 x .6)
Provision for restructuring, 12/31/12
.Answer is (D).
Retained earnings
Income tax payable
Cost of sales (Inventory, beg.)
298,000
(70,000)
(44,000)
(2,000)
182,000
30,000
6.07
(P7,000 x .7)
76,000
13,000
2,400
91,400
4,900
2,100
(P270,000 - P171.000)
(P210,000 - P120,000)
7,000
99,000
(90,000)
9,000
(72,000)
Distributions to owner
Net income
133
134
135
136
137
138
.Answer is (D)
Cash (balancing figure)
Accounts receivable
Unearned revenues
Sales
75,000
12,000
225,000
5,000
(50,000 – 45,000)
20,000
210,000
.Answer is (B).
Accounts receivable at 12/31/2011
Credit sales
Collections from customers
Accounts written off
Collection of accounts written off in prior year
Accounts receivable at 12/31/2012
Estimated uncollectible receivables per aging
Amortized cost, 12/31 /12
1,300,000
5,400,000
(4,750,000)
(125,000)
-.
1,825,000
(165,000)
1,660,000
.Answer is (C).
Inventory, 1/1
Add net purchases:
Cash purchases
Credit purchases (P302,600+P431300-P37,500+7,500)
Purchase returns and allowances
Goods available for sale
Less cost of goods sold
Inventory, 12/31
.Answer is (B)
Cash
Accounts receivable, net
Inventory
Accounts payable
Dividend declared
Investments
Bonds payable
Share capital
Share premium
Net income (balancing figure)
.Answer is (D).
Inventory, 12/31/11
Purchases
Inventory, 12/31/12
Cost of good's sold
30,000
315,900
(7,500)
338,400
351,200
335,000
16,200
5,000,000
3,500,000
2,000,000
3,000,000
2,000,000
(P490,000 + 75,000 - P50,000)
.Answer is (B).
Increase in cash
Increase in accounts receivable
Decrease in inventory
12,800
500,000
4,000,000
6,000,000
1,000,000
4,000,000
290,000
515,000
(260,000)
545,000
21,000
25,000
(10.000)
Increase in equipment
Decrease in accounts payable
Incteasein bank loan
Increase in interest payable
Proceeds from issuance of share capital (5,000 x P8)
Donated capital
Dividends paid
Profit
139
70,000
5,000
(50,000)
(1,000)
(40,000)
(20,000)
15,000
15,000
.Answer is (C).
Cash - increase
Accounts receivable, net - decrease
Inventories - increase
Equipment, net - increase
Building, net -increase
Loans payable - increase
Accountilpayable - decrease
Net increase in equity
Contributions from owners (P600,000 + P200.000)
Distributions to owners
Net income-2012
Effect on equity
800,000
(40,000)
300,000
360,000
600,000
(1,000,000)
300,000
1,320,000
(800,000)
250,000
770,000
140
.Answer is (A). Carrying amount of building, 12/31/12 (P100,000x49/50)
141
.Answer is (D).
Net income - cash basis
Accounts receivable, 12/31/12
Accounts receivable, 12/31/11
Accounts payable, 12/31/12
Accounts payable, 12/31/11
Net income - accrual basis
60,000
40,000
(20,000)
(15,000)
30,000
95,000
.Answer is (D).
Profit on sale [P1M - (P1,4M x 1/2)]
Holding gain (P1.4M - P1.2M)
Total amount in 2012 income statement
300,000
200,000
500,000
142
143
144
.Answer is (B).
Sales
(P28,000x 133.1/121)
Cost of sales
(P30.000 x 3/4 x 133.1/121)
Profit on sale
Holding gain - inventory sold [P24,750 - (P20,000 x 3/4 x 133.1/110)]
Holding gain - ending inventory [P8,500 - (P20,000 x 1/4 x 133.1/110)]
Net income
.Answer is (B)
Debt
Equity
Total
Before
252,000
420,000
662,000
%
37.5%
62.5%
100.0%
Additional
1,548,000
180,000
98,000
30,800
(24,750)
6,050
6,600
2,450
15,100
After
%
1,800,000 75%
600,000 25%
2,400,000 100%
145
.Answer is (C).
Raw materials, 1/1
(10,000 x P6)
Purchases
[(8,500 x P7) + (11,000 x P7.50)
Raw materials available for use
Less raw materials, 3/31
(8,000 x P7.50)
Raw materials used
Direct labor
Manufacturing overhead
Total manufacturing cost
Work in process, 1/1
(5,600 x P13.50)
Total cost placed in process
Less work in process, 3/31
(4,200 x P13.75)
Cost of goods manufactured
60,000
142,000
202,000
60,000
142,000
250,000
325,000
717,000
75,600
792,600
57,750
734,850