PRACTICAL ACCOUNTING 1

1. Ortiz Co. had the following account balances:

Sales P1,200,000
Cost of Goods Sold 600,000
Salary Expense 100,000
Depreciation Expense 200,000
Dividend Revenue 40,000
Utilities Expense 80,000
Rental Revenue 200,000
Interest Expense 120,000
Sales Returns 110,000
Advertising Expense 130,000

What amount would Ortiz report as other income and expense in its income statement?
a. P100,000
b. P120,000
c. P240,000
d. P490,000
e.
2. Manning Company has the following items: write-down of inventories, P120, 000; loss on disposal of part of Sports
Division, P185, 000; and loss on restructurings, P113, 000. Ignoring income taxes, what total amount should Manning
Company report as other income and expense?
a. P185,000
b. P233,000
c. P298,000
d. P418,000
e.
3. Minstrel Company had the following information for its 2014 operation.
f. Sales g. P2,000,00
0
h. Cost of Goods Sold i. 1,200,000
j. Salary Expense k. 160,000
l. Depreciation Expense m. 220,000
n. Dividend Revenue o. 180,000
p. Utilities Expense q. 20,000
r. Loss from discontinued operation s. 200,000
t. Interest Expense u. 40,000
v.
w. If the income tax rate is 32%, what is the amount of income tax expense of Ministrel Company for the
year 2014?
a. P51,200
b. P108,800
c. P115,200
d. P172,800
4.
5. The following information was included in the bank reconciliation for Romar Co. for July of 2014:
6.
7. Checks & charges recorded by bank in July, including a July service charge of P2,800, P932,600; Service charge
made by bank in June and recorded in books in July, P1,200; Customer’s NSF check returned as a bank charge
in July (no entry made in books), P6,000; Customer’s NSF check returned June, recorded by the company in July,
P15,000; Outstanding checks in July 31, P300,000; Outstanding checks for June, P255,000; checks issued in July
for P20,000 recorded by the company as, P2,000; Erroneous bank charge in July, P20,000; Erroneous bank credit
in June corrected in July, P30,000 and Erroneous book receipt in June corrected in July, P5,000.
8.
9. What is the unadjusted disbursement per book on July 31, 2014?
a. P909,400
b. P918,800
c. P922,000
d. P927,600
e.
10. Rotary Corporation is located in Quezon but does business throughout Metro Manila. The company builds and sells
equipment used in manufacturing pharmaceuticals. On December 31, 2014, Rotary’s accounts receivable are as
follows:
f. Individually significant receivables
g. A Company h. P 320,000
i. B Company j. 800,000
k. C Company l. 480,000
m. D Company n. 400,000
o. All other receivables p. 2,
000,000
q. Total r. P 4,
000,000
s.
t. Rotary Corporation determines that A Company’s receivable is impaired by P160,000 and D
Company’s receivable is totally impaired. The other receivables from B and C are not considered
impaired. Rotary determines that a composite rate of 2% is appropriate to measure impairment of
receivables for Rotary Corporation for 2014?
a. P 494,600
b. P 560,000
 c. P600,000
d. P625,600
11.
12. Wave Crest Hotels is located in Canada, but manages an extensive network of boutique hotels in the United States.
Wave Crest has significant receivables from 3 customers, P480,000 due from Stephanie Inn, P900,000 due from
Warren House, and P760,000 due from Hallmark Hotels. Wave Crest has other receivables totaling P440,000.
13.
14. Wave Crest determines that the Warren House receivable is impaired by P160,000 and the Hallmark Hotels
receivable is impaired by P200,000. The receivable from the Stephanie Inn is not considered impaired. Wave Crest
determines that a composite rate of 5% is appropriate to measure impairment on all other receivables. What amount
of receivables should Wave Crest Hotel in the statement of financial position for the year ended December 31, 2014?
a. P 2,198,000
b. P 2,380,000
c. P2,418,000
d. P2,580,000
e.
15. At the close of its first year of operations, December 31, 2014, Ming Company held accounts receivable of P540,000,
after deducting the related allowance for doubtful accounts. During 2014, the company had charges to bad debts
expense of P90,000 and wrote off, as uncollectible, accounts receivable of P40,000. What should the company report
on its statement of financial position at December 31, 2014, as accounts receivable before the allowance for doubtful
accounts?
a. P 440,000
b. P 490,000
c. P 590,000
d. P 670,000
e.
16. Jarvis, Inc. manufactures cruise ships for sale. Each ship costs approximately P25,000,000 to build and takes 3 years
to fully construct. During the time it takes to construct one cruise ship, Jarvis incurs P2,400,000 in interest cost related
to the construction. The interest cost is incurred evenly throughout the construction period. During the first year of
construction, Jarvis builds a shell that can be customized for any purchaser according to specifications; construction
during the final 2 years is all based on client specification. The International Accounting Standards Board requires that
Jarvis account for this interest cost as
a. P2,400,000 is recorded as interest expense as incurred.
b. P2,400,000 is capitalized to the cruise ship.
c. P800,000 incurred in the 1st year is expensed as incurred; the remaining amount is capitalized to the
cruise ship.
d. P800,000 is capitalized to the cruise ship; the remaining amount is expensed as incurred.
f.
17. Checkers uses the periodic inventory system. For the current month. The beginning inventory consisted of 1,200 units
that cost P12 each. During the month, the company made two purchases: 500 units at P13 each and 2,000 units at
P13.50 each. Checkers also sold 2,150 units during the month.
g. Using the average cost method, what is the amount of cost of goods sold for the month?
a. P26, 973
b. P27, 833
c. P27,950
d. P28,950
18.
19. Rios, Inc. uses International Financial Reporting Standards (IFRS). In 2013, Rios, Inc. experienced a decline in the
value of its inventory resulting in a write-down of its inventory from P240,000 to P200,000. The company used the loss
method in 2013 to record the necessary adjustment and uses an allowance account to reduce inventory to NRV. In
2014, market conditions have improved dramatically and Rios Inc.’s inventory increases to an NRV of P216,000.
Which of the following will Rios, Inc. record in 2014?
a. A debit to Recovery of Inventory Loss for P16,000.
b. A credit to Recovery of Inventory Loss for P24,000.
c. A debit to Allowance to Reduce Inventory Loss to NRV of P16,000.
d. A credit to Allowance to Reduce Inventory Loss to NRV of P24,000.
20.
21. Dub Dairy produces milk to sell to local and national ice cream producers. Dub Dairy began operations on January 1,
2014 by purchasing 840 milk cows for P1,176,000. The company controller had the following information available at
year end relating to the cows:
22.
23. Mlilking cows
24. Carrying value, January 1, 2014 25. P1,176,00
0
26. Change in fair value due to the growth and price changes 27. 365,000
28. Decrease in fair value due to harvest 29. (42,000)
30. Milk harvested during 2014 31. 54,000
32.
33. At December 31, 2014, what is the value of the milking cows on Dub Dairy’s statement of financial position?
a. 1,134,000
b. 1,176,000
c. 1,499,000
d. 1,541,000
34.
35. Dub Dairy produces milk to sell to local and national ice cream producers. Dub Dairy began operations on January 1,
2014 by purchasing 840 milk cows for P1,176,000. The company controller had the following information available at
year end relating to the cows:
36.
37. Mlilking cows
38. Carrying value, January 1, 2014 39. P1,176,00
 0
40. Change in fair value due to the growth and price changes 41. 365,000
42. Decrease in fair value due to harvest 43. (42,000)
44. Milk harvested during 2014 but not yet sold 45. 54,000
46.
47. On Dub Dairy’s income statement for the year ending December 31, 2014, what amount of unrealized gain on
biological assets will be reported?
a. P-0-
b. P54,600
c. P323,000
d. P365,000
48.
49. Lucy’s Llamas purchased 1,000 llamas on January 1, 2014. These llamas will be sheared semiannually and their wool
sold to specialty clothing manufacturers. The llamas were purchased for P148,000. During 2014 the change in fair
value due to growth and price changes is P9,400, the wool harvested but not yet sold is valued at net realizable of
P18,000, and the change in fair value of the llamas on Lucy’s Llamas statement of financial position on June 30,
2014?
a. P128,850
b. P146,850
c. P148,000
d. P156,250
e.
50. During the calendar year 2012, National Company purchased an equity security designated as investment to other
comprehensive income. As of December 31, 2012 the fair market value of the securities was P1,000,000 and the
amount of unrealized gain was P140,000 net of deferred tax liability of P60,000. On December 31, 2013, National
Company sold 40% of the equity security it holds for P500,000 which is equal to its current fair value.
a. What amount of realized gain should National Company recognize and disclose in the profit or loss?
b. None
c. P100,000
d. P120,000
e. P200,000
51.
52. Based on problem 16, what amount of unrealized gain, net of the application tax should the company report in the
other comprehensive income of the statement of comprehensive income for the year ended December 31, 2013?
a. P35,000
b. P75,000
c. P175,000
d. P250,000
53.
54. On January 1, 2014, Axis Company, a medium-sized entity, acquired 30% of the ordinary shares that carry voting
rights at a general meeting of shareholders of Maxim Company for P6,000,000. For the year ended December 31,
2014 Maxim Company recognized a profit of P8,000,000 and declared and paid dividend of P4,000,000. The fair
value of Axis Company investment on impairment loss model of accounting its investment because Maxim Company
shares have no published price quotations. What amount of net revenue (revenue less any amount of expense)
should Axis Company report in its statement of comprehensive income related to its investment in Maxis Company for
the year ended December 31, 2014?
a. P200,000
b. P1,000,000
c. P1,200,000
d. P2,400,000
e.
55. On January 2, 2014, Horizon Company, a medium-sized entity acquired 20% of the outstanding ordinary shares of
Meadow Company for P2,200,000 which included P50,000 transaction cost. This investment gave Horizon the ability
to exercise significant influence over Meadow Company. The book value of the acquired shares was P1,800,000. The
excess of cost over book value was attributed to a depreciable asset which was undervalued on Meadow Company’s
balance sheet and which had ten years useful life remaining. For the year ended December 31, 2014. Meadow
Company reported net income of P540,000 and paid cash dividends of P180,000 on its ordinary.
a.
b. If Horizon Company uses the fair value model to account for its investment and the investment has a fair value of
P2,4000,000 on December 31, 2014, what total amount of income and other revenue from investment should Horizon
Company disclosed in its December 31, 2014 profit or loss?
c. P200,000
d. P236,000
e. P250,000
f. P286,000
g.
56. On March 1, 2014 Armor Company, a medium-sized entity acquired 30% of the outstanding ordinary shares that carry
voting rights at a general meeting of shareholders of Knight Company for P3,000,000 when the fair value of net asset
was P9,000,000. On December, 31, 2014, Knight Company declared a dividend of P1,000,000 for the year 2014 but
reported a net income of P800,000 or the year ended at December 31, 2014. At December 31, 2014, the recoverable
amount of Armor Company’s investment in Knight Company is P2,900,000 (Fair value of P2,930,000 less costs to sell
of P30,000).
a.
b. If the shares of Knight Company are traded and Armor Company uses the fair value model, at what amount
should the investment in Knight Company be reported in the income statement of financial position and the net
amount o be reported in the statement of comprehensive income for the year ended December 31, 2014,
respectively?
c. P2,900,000 and P300,000
d. P2,900,000 and P230,000
e. P2,930,000 and P230,000
 f. P2,930,000 and P300,000
g.
57. Based on problem 20, If Armor Company uses the equity method, what amount should be the investment account be
reported in the December 31, 2014 statement of financial position?
a. P2,900,000
b. P3,570,000
c. P3,600,000
d. P3,900,000
e.
58. Holding Company invests in bonds of ten listed companies. The investments are designated as investment at
amortized cost and any premium or discount is amortized using the effective interest method. In the current period, it
sells bonds of Sunshine Company, one of the ten listed companies, for funding its working capital requirements. The
carrying amount of this investment is P8,000,000 and proceeds from the sale amount to P7,500,000. The carrying
amount of the remaining bonds is P92,000,000 and the market value is P96,000,000.
a.
b. If the sale was triggered by a reported fraud that could cause the issuer to go bankrupt, what amount of unrealized
gain or loss should Holding Company recognized related to the debt securities?
c. None
d. P500,000
e. P4,000,000
f. P4,500,000
59.
60. On January 1, 2012, Settler Company purchases a property at a cost of P10,000,000. The property is classified as
investment property and accounted for under the fair value model. On December 31, 2012, the market value of the
property is P15,000,000. On January 31, 2013, the property was sold for P15,200,000. Costs of disposal which
comprised mainly an agency fee, amounted to P380,000.
61.
62. What is the amount of gain or loss from the sale of the property?
a. P180,000
b. P200,000
c. P4,820,000
d. P5,000,000
e.
63. On July 1, 2014, Challenger Corporation exchanged its non-monetary asset (equipment) with another non-monetary
asset. The following data were made available:
a. Equipment b. P4,400,00
0
c. Accumulated Depreciation d. 2,600,000
e. Fair value of equipment received f. 1,100,000
g. Cash received or exchange h. 900,000
i.
j. If the cash flows of the non-monetary assets were not the same, what is the amount of gain or loss from the
exchange?
k. None
l. P200,000
m. P700,000
n. P900,000
o.
64. Nestle Corporation, one of the largest mining companies, paid P20,000,000 to the local government for the right
explore and extract mineral reserves in an area of interest. The following costs were also incurred related to the
exploration and evaluation activities of the entity: Total exploration costs, P7,000,000 and evaluation costs of
P3,000,000. Results of the study revealed that the total estimated mineral reserve is 10,000,000 tons. Nestle
Company started its commercial production in year 2014. The company produced 1,200,000 tons in 2014.
a.
b. What is the amount of amortization/depletion on the capitalized intangible exploration and evaluation cost for the
year 2014?
c. P2,000,000
d. P2,760,000
e. P3,240,000
f. P3,600,000
g.
65. On January 1, 2014, Fredrichs Inc. purchased equipment with a cost of P3,060,000, a useful life of 12 years and no
salvage value. The company uses straight-line of depreciation. At December 31, 2014, the company determines that
impairment indicators are present. The fair value less cost to sell the asset is estimated to beP2,600,000. The asset’s
value-in-use is estimated to be P2,365,000. There is no change in the asset’s useful life or salvage value.
a.
b. What amount of impairment loss should appear in the statement of comprehensive income of 2014?
c. P0
d. P205,000
e. P440,000
f. P460,000
g.
66. A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1, 2012 for
P1,800,000. The company uses straight-line amortization for patents. On January 2, 2014, a new patent is received
for a timed-release version of the same drug. The new patent has a legal and useful life of twenty years. The least
amount of amortization that could be recognized in 2014 is
a. P60,000
b. P69,000
c. P81,818
d. P300,000
 e.
67. During 2014, Bond Company purchased the net assets of May Corporation for P1,000,000. On the date of the
transaction, May had P300,000 of liabilities. The fair value of May’s assets when acquired were as follows:
a. Current Assets b. P540,000
c. Noncurrent Assets d. 1,260,000
e. f. 1,800,000
g.
h. How should the P500,000 difference between the fair value of the net assets acquired (P1,500,000) and the cost
(P1,000,000) be accounted for by bond?
i. The P500,000 difference should be credited to retained earnings.
j. The P500,000 difference should be recognized as a gain.
k. The current assets should be recorded at P540,000 and the noncurrent assets should be recorded at
P760,000.
l. A deferred credit of P500,000 should be set up then amortized to income over a period not to exceed forty
years.
m.
68. On January 2, 2014, Lutz Inc. purchased a patent with 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:
a. b. 12/31/301 c. d. 12/31/201
4 5
e. Fair value less cost to sell f. P715,000 g. h. P420,000
i. Value in use j. P750,000 k. l. P445,000
m.
n. No changes were made in the asset’s estimated useful life. The company’s 2015 income statement will report
o. Amortization Expense of P235,000.
p. Amortization Expense of P250,000 and Loss on Impairment of P55,000.
q. Amortization Expense of P235,000 and a Recovery of Impairment of P25,000.
r. Loss on Impairment of P190,000.
s.
69. In 2014, Edwards Corporation incurred research and development costs as follows:
a. Materials and Equipment b. P540,000
c. Personnel d. 120,000
e. Indirect Costs f. 150,000
g. h. P360,000
i.
j. The costs relate to a product that will be marketed in 2015. It is estimated that these costs will be recouped by
December 31, 2017, but its process has not achieved economic viability. The equipment has no alternative future use.
What is the amount of research and development costs that should be expensed in 2014?
k. P0
l. P210,000
m. P270,000
n. P360,000
o.
70. On February 10, 2014, after issuance of its financial statements for 2013, House Company entered into a financing
agreement with Lebo Bank, allowing House Company to borrow up to P4,000,000 at any time through 2012. Amounts
borrowed under the agreement bear interest at 2% above the bank’s prime interest rate and mature two years from
the date of loan. House Company presently has P1,500,000 of notes payable with First National Bank maturing March
15, 2014. The company intends to borrow P2,500,000 under the agreement with Lebo and liquidate the notes payable
to First National. The agreement with Lebo also requires House to maintain a working capital level of P6,000,000 and
prohibits the payment of dividends on ordinary shares without prior approval by Lebo Bank.
a.
b. From the above information only, the total short-term debt of House Company as of the December 31, 2014
statement of financial position date is
c. P0
d. P1,500,000
e. P2,000,000
f. P4,000,000
g.
71. A company gives each of its 50 employees (assume they were all employed continuously through 2014 and 2015) 12
days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken
starting January 1 of the next year. The employees work 8 hours per day. In 2014, they made P17.50 per hour and in
2015 they made P20 per hour. During 2015, they took an advantage of 9 days of vacation each. The company’s policy
is to record the liability existing at the end of each year at the wage rate for that year.
a.
b. What amount of vacation liability would be reflected on the 2014 and 2015 balance sheets, respectively?
c. P84,000; P117,000
d. P84,000; P120,000
e. P96,000; P120,000
f. P96,000; P117,000
g.
72. Recycle Exploration is involved with innovative approaches to finding energy reserves. Recycle recently built a facility
to extract natural gas at a cost of P15 million. However, Recycle is also legally responsible to remove the facility at the
end of its useful life of 20 years. This cost is estimated to be P21 million (the present value of which is P8 million).
What is the journal entry required to record the environmental liability?
a. No journal entry required.
b. Debit Natural Gas Facility for P21,000,000 and credit Environmental Liability for P21,000,000.
c. Debit Natural Gas Facility for P6,000,000 and credit Environmental Liability for P6,000,000.
d. Debit Natural Gas Facility for P8,000,000 and credit Environmental Liability for P8,000,000.
e.
73. LeMay Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from LeMay
Frosted Flakes boxes and P1.00. The company estimates that 60% of the boxtops will be redeemed. In 2014, the
company sold 500,000 boxes of Frosted Flakes and customers redeemed 220,000 boxtops receiving 55,000 bowls. If
the bowls cost LeMay Company P2.50 each, how much liability for outstanding premiums should be recorded at the
end of 2014?
a. P20,000
b. P30,000
c. P50,000
d. P70,000
e.
74. An entity is the defendant in a patent infringement lawsuit. The entity’s lawyers believe there is a 30% chance that the
court will dismiss the case and the entity will incur no outflow of the economic benefits. However, if the court rules in
favor of the claimant, the lawyers believe that there is a 20% chance that the entity will be required to pay charges of
P2,000,000 (the amount sought by the claimant) and an 80% chance that the entity will be required to pay damages
of P1,000,000 (the amount that was recently awarded by the same judge in a similar case). Other outcomes are
unlikely. The court is expected to rule in late 2012. There is no indicator that the claimant will settle out of court. A 7%
risk adjustment factor to the probability-weighted expected cash flows is considered appropriate to reflect the
uncertainties in the cash flow estimates. An appropriate discount rate is 10% per year. What amount of provision
should the entity recognize on December 31, 2011?
a. None
b. P817,090
c. P898,800
d. P1,000,000
e.
75. On January 1, 2014, Tudor Company issued its 10%, 5-year convertible debt instrument with a face amount of
P10,000,000 for P10,000,000. Interest is payable every December 31 of each year. The debt instrument is convertible
into 90,000 ordinary shares with a par value of P100. When the debt instruments were issued, they were selling at
97% without conversion option. Tudor Company incurred P80,000 transaction costs on the issue of the debt
instruments.
a.
b. How much of the net proceeds represent the debt component?
c. P297,600
d. P9,622,400
e. P9,920,000
f. P10,000,000
g.
76. Brim Company leased office premises to Whim Inc. for a 5-year term beginning January 2, 2014. Under the terms of
the operating lease, rent for the first year is P150,000 and rent for years 2 through 5 is P187,500 per annum.
However, as an inducement to enter the lease, Brim granted Whim the first 6 months of the lease rent-free and
provided an allowance of P8,000 as an additional incentive. In its December 31, 2014 profit or loss, what amount
should Brim report as rental income?
a. P150,000
b. P163,400
c. P165,000
d. P166,600
e.
77. Jason Company has taken out of foreign loan of $100,000 that is recorded at P4,400,000. At the reporting date, the
carrying value of the loan is P4,000,000. The unrealized exchange gain of P400,00 is included in profit or loss, but will
be taxable when the gain is realized on the repayment of the loan. If the current and future tax rates are 34% and
35%, respectively, what amount of deferred tax liability should the company recognize?
a. None
b. P136,000
c. P140,000
d. P276,000
e.
78. Triumphant Company has a year-end of 31 March. The tax year in the jurisdiction runs from April 1 to March 31. The
relevant income tax rate for 2014 is 32%. Triumphant Company has an accounting profit f P1,500,000 for the year
ended March 31, 2015. The rules determining the determination of taxable profit in the jurisdiction are identical to the
IFRS for SMEs for the year ended March 31, 2015, except for the following income and expenses:
 P200,000 interest revenue recognized in 2015 is exempt from income tax
 No tax deduction is permitted for entertainment expenses of P50,000
 No tax deduction for bad debts is allowed until the debtors are derecognized from the financial statements. On
May 31, 2014 P20,000 of debts were derecognized from the financial statements because the entity waived
payment from one of the customers who was suffering financial difficulty. The bad debt provision, which is offset
against trade receivables, was P40,000 andP45,000 on March 31, 2014 and March 31, 2015 respectively.
Consequently, the bad debt expense for the year ended March 31, 2015 was P25,000 – comprising the debts
written off and the increase in the provision.
 The building is depreciated at a faster rate for tax purposes. The amount of tax depreciation deductible in the year
ended March 31, 2015 was P430,000. The amount of accounting depreciation in the financial statements for the
same building for the year was P350,000.
a.
b. If the future tax rate is 34%, what is the total amount of tax expense to be disclosed in the statement of
comprehensive income for the year ended March 31, 2015?
c. P382,500
d. P408,000
e. P433,500
f. P446,250
g.
79. On December 31, 2011, Gorilla Company was experiencing financial difficulties and entered into a debt restructuring
agreement with the creditor. The creditor restructured the obligation as follows:
 The principal was reduced from P10,000 to P9,000,000.
 Forgave the accrued interest of P1,200,000.
 Extended the maturity date from Dec. 31, 2011 to Dec. 31, 2014.
 Reduced the interest from 12% to 10%. Interest is payable annually or December 31, 2012, 2013, and 2014.
a.
b. If the fair value of the restructured debt is P9,166,667, how much should Gorilla Company report as gain/loss on
debt restructuring?
c. None
d. P1,954,200
e. P2,033,333
f. P2,630,200
g.
80. Grand Company operates a non0contributory defined benefit pension plan for its employees. Grand Company has not
funded is benefit obligation. On January 1, 2014, the company decides to remove the uncertainty about its future
benefit obligation and replace the desired benefit plan with a defined contribution plan. The benefits with respect to
services provided up to January 1, 2014 are not affected.
a.
b. On July 1, 2014, Grand Company agrees with employee representatives to make a lump sum cash payment o
P5,000,000 and introduces a defined contribution plan in exchange for cancelling their pension entitlement. The
pension liability recognized in the balance sheet on July 1, 2014 before the agreement was P5,500,000.
c.
d. What amount of gain on settlement should the company recognize on July 1, 2014?
e. None
f. P500,000
g. P5,000,000
h. P5,500,000
i.
81. At December 31, 2014, Troop Corp. pension plan administrator provided the following information:
a. Fair value of plan assets b. P5,000,00
0
c. Present value of benefit obligation d. 4,300,000
e. Present value of future available refunds f. 500,000
g.
h. What is the amount of pension asset that should be shown on Troop’s December 31, 2014 statement of financial
position?
i. P500,000
j. P700,000
k. P900,000
l. P1,100,000
m.
82. Alley Company has in issue of 20,000,000 ordinary shares of P1 par each. As at 1 January 2014, its retained profits
were P10,000,000.
a.
b. On 30 June 2014, it paid a net dividend of P1,800,000 to shareholders after the proposed final dividend of 10%
per share for the preceding financial year 2013 was approved by shareholders in a general meeting. On 30 November
2014 an interim dividend of 5% was paid to shareholders.
c.
d. During the year ended 31 December 2014, Alley Company made a profit before tax of P6,000,000. Its tax
expense for the year was P1,500,000, consisting of P1,000,000 current income tax expense and P500,000 deferred
tax expense. The final tax on dividend is 10% and statutory income tax rate was 32%.
e.
f. On 31 March 2015, the directors of the company proposed a gross final dividend of 7.5% per ordinary share for
the year ended 31 December 2015.
g.
h. What is the total amount of dividend (net of applicable tax) being charged to retained profits during the year 2014?
i. P1,800,000
j. P2,000,000
k. P2,700,000
l. P3,000,000
m.
83. Holy Trinity Corporation is under protection of the bankruptcy court and has the following account balances at June
30, 2014:
a. Cash b. P c. d. Accounts Payable e. P
(5,000) 450,000
f. Accounts Receivable g. 320,000 h. i. Notes Payable j. 605,00
0
k. Inventory l. 450,000 m. n. Taxes and Wages o. 60,000
p. Equipment q. 860,000 r. s. Mortgage Payable t. 150,00
0
u. Accum. Depreciation v. (525,000) w. x. Ordinary Shares y. 50,000
z. Intangibles aa. 80,00 ab. ac. Accum. Profits ad. (135,00
0 0)
ae. Total af. P ag. ah. Total ai. P1,180,
1,180,000 000
aj.
ak. The court has accepted the following proposed settlement of the company’s affairs: write down the assets
by the following amounts:
 al. Accounts Receivable am. P40,000
an. Inventory ao. 160,000
ap. Intangibles aq. 80,000
ar.
as. The trade creditors (accounts payable) will reduce their claim by 30%, will accept one-year notes for 50%, and
retain their current claim for the remaining 20%. The tax, wage, and mortgage claims will remain unchanged. The
current ordinary shares will be surrendered to the corporation and cancelled. In consideration thereof, the current
shareholders shall be held harmless from any possible personal liability. The current holder of the note payable shall
receive 1,000 shares of no par ordinary shares in full satisfaction of the note payable. After these adjustments have
been made, the Accum. Profits and Losses shall be raised to zero by a change against invested capital.
at.
au. How much is the total shareholder’s equity after the quasi-reorganization?
av. P325,000
aw. P350,000
ax. P375,000
ay. P400,000
az.
84. Space Corporation’s current balance sheet reports the following shareholders’ equity:
a.
b. 5% cumulative preference share, par value, P100 per share; 25,000 shares issued and outstanding, P2,500,000;
Ordinary share, par value P35 per share; 100,000 shares issued and outstanding, P3,500,000; Share premium in
excess of par value of ordinary share, P1,250,000; Accumulated profits and losses, P3,000,000.
c.
d. Dividends in arrears on the preference share amount to P250,000. If Space were to be liquidated, the preference
shareholders would receive par value plus a premium of P500,000.
e.
f. How much would be the book value per share of ordinary share?
g. P70.00
h. P72.50
i. P75.00
j. P77.50
k.
85. Neon Company has 110,000 ordinary shares outstanding, 10,000, 6% cumulative, P100 par convertible preference
share that are convertible into 20,000 ordinary shares and an 8%, 4-years convertible bonds with a face value of
P1,000,000 convertible into 30,000 ordinary shares. The bonds were issued on January 1 when the prevailing interest
rate was 10%. The liability component of the bonds at the time of issue is P936,000. Net income for the year is
P850,000. Income tax rate is 32%.
a.
b. How much is the diluted earnings per share for the year?
c. P5.71
d. P5.65
e. P6.09
f. P7.18
g.
86. Groom Company’s professional fees expense account had a balance of P164,000 on December 31, 2013 before
considering year-end adjustment relating to the following:
a.
b. Consultants were hired for a special project at a total fee not to exceed P130,000. Groom has recorded P110,000
of this fee based on billings for work performed in 2013.
c.
d. The attorney’s letter requested by the auditors dated January 30, 2013, indicated that legal fees of P12,000 were
billed on January 15, 2014 for worked performed in November 2013 and unbilled fees for December 2013 were
P14,000.
e.
f. What amount of professional fees expense should Groom report for the year ended December 31, 2013?
g. 164,000
h. 176,000
i. 190,000
j. 210,000
k.
87. The December 31, 2015 and 2014 comparative financial statements of World Gallery Company showed equipment
with an original cost P379,000 and P344,000 with accumulated depreciation of P153,000 and P128,000, respectively.
During 2015, the company purchased equipment costing P50,000 and sold equipment with a carrying value of
P9,000.
a.
b. What amount should the company report as depreciation expense for 2015?
c. 19,000
d. 25,000
e. 31,000
f. 34,000
g.
88. Welch Co. purchased a put option on Reese common shares on January 7, 2014, for P2,150. The put option is for
3,000 shares, and the strike price is P51. The portion expires on July 31, 2014. The following data are available with
respect to the put option:
a. Date Market b. c. Price of Reese d. e. Time Value of Put
Shares Option
f. March 31, 2014 g. h. P48 per i. j. k. P1,200 l.
share
m. June 30, 2014 n. o. P50 per p. q. r. 540 s.
share
 t. July 6, 2014 u. v. P46 per w. x. y. 160 z.
share
aa.
ab. If the change in fair value was recognized on March 31, 2014 and then again on June 30, 2014, what amount of
loss the company recognized on the re-measurement of the option on June 30, 2014?
ac. P660
ad. P2,150
ae. P3,540
af. P6,660
ag.
89. The net income for the year ended December 31, 2014 for Knot Corporation was P3,520,000. Additional data follow:
a. Purchases of plan assets b. P2,800,00
0
c. Depreciation of plant assets d. 1,480,000
e. Dividends declared on plant assets f. 970,000
g. Net decrease in non-cash current assets h. 290,000
i. Loss on sale of equipment j. 130,000
k.
l. What should be the cash provided from operating activities in Knot’s statement o cash flows for the year ended
December 31, 2014?
m. P5,130,000
n. P5,290,000
o. P5,420,000
p. P7,250,000
q.
90. In 2014, a typhoon completely destroyed by a building belonging to Carpet Corporation. The building cost P2,500,000
and had accumulated depreciation of P1,200,000 at the time of the loss. Carpet received a cash settlement from the
insurance company and reported a loss of P525,000.
a.
b. In Carpet’s 2014 cash flow statement, how much would be the net changes that would be reported in the cash
flows from investing activities section?
c. P250,000 increase
d. P525,000 increase
e. P775,000 increase
f. P1,300,000 increase
g.
91. On January 2, 2014, Blink Corporation was granted 5,000 acres of land in a village, located near the slums outside
the city limits, by a local government authority. The condition attached to this grant was that Blink Corporation should
clean up this land and lay roads by employing laborers from the village in which the land is located. The government
has fixed the minimum wage payable to the workers. The entire operation will take three years and estimated to cost
P100,000,000. This amount will be spent in this way, P20,000,000 each in the first, P30,000,000 in the second years
and P50,000,000 in the third year. The fair value of the land is currently P120,000,000. What portion of the grant is
recognized for the year ended December 31, 2015?
a. None
b. P24,000,000
c. P36,000,000
d. P60,000,000
 e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
s.
t.
u.
v.
w.
x.
y.
z.
aa.
ab.
ac.
ad.
ae.
af.
ag.
ah.
ai.
aj.
ak.
al.
am.
an.
ao.
ap.
aq.
ar.
as.
at.
au.
av.
aw.
ax.
ay.
az.
ba.
bb.
bc.
bd.
be.
bf.
bg. PRACTICAL ACCOUNTING 1 – SOLUTION
bh.
1. C
bi. Dividend Revenue bj. P 40,000
bk. Rental Revenue bl. 200,000
bm. Total Other Income bn. P240,000
 bo.
2. D 120,000 + 185,000 + 113,000 = 418,000
3. D
bp. Sales bq. P 2,000,000
br. Cost of Goods Sold bs. (1,200,000)
bt. Salary Expense bu. (160,000)
bv. Depreciation Expense bw. (220,000)
bx. Dividend Revenue by. 180,000
bz. Utilities Expense ca. (20,000)
cb. Interest Expense cc. (40,000)
cd. Net Income Before Tax ce. P 540,000
cf. Tax Rate cg. 32%
ch. Income Tax Expense ci. P 172,800
cj.
4. C
ck. cl. Per Bank
cm. Reported disbursement cn. P 932,000
co. Outstanding check – June cp. (255,000)
cq. Outstanding check – July cr. 300,000
cs. Error correction ct. (30,000)
cu. Erroneous charge cv. (20,000)
cw. Adjusted disbursement for July cx. P 927,600
cy.
cz. Adjusted disbursement da. P 927,600
db. Service charge – June dc. 1,200
dd. Service charge – July de. (2,800)
df. NSF check – June dg. 15,000
dh. NSF check – July di. (6,000)
dj. Understatement of disbursement dk. (18,000)
dl. Erroneous charge dm. 5,000
dn. Unadjusted book disbursement do. P 922,000
dp.
5. C
dq. D Company dr. P
400,000
ds. A Company dt. 160,000
du. Other receivables P2,000,000 x dv. 40,000
2%
dw. Total Impairment Loss dx. P 600,000
dy.
6. A
dz. Total receivables ea. P
2,580,000
eb. Less: impairment loss ec. 382,000
ed. Amortized cost ee. P 2,198,000
ef.
eg. Warren eh. P
160,000
ei. Hallmark ej. 200,000
ek. Other receivables 5% x 440,000 el. 22,000
em. Total impairment loss en. P 382,000
eo.
7. C P540,000 + (P90,000 – P40,000) = P590,000
8. B
9. B
ep. eq. er. Unit es. Cost
Units Cost
et. Beginning eu. ev. P12 ew. P14,400
1,200
ex. Purchase ey. ez. 13 fa. 6,500
 500
fb. Purchase fc. fd. 13.50 fe. 27,000
2,000
ff. Total fg. fh. fi. P47,900
3,700
fj. 47,900 / 3,700 x 2,150 = P27,833
fk.
10. C P216,000 – P200,000 = P16,000
11. C P1,176,000 + P365,000 – P42,000 = P1,499,000
12. C P365,000 – P42,000 = P323,000
13. D P148,000 + P9,400 – P1,150 = P156,250
14. A
15. A
fl. Total fair value (500,000/40%) fm. P
1,250,000
fn. Historical Cost fo. 1,000,000
fp. Cumulative unrealized gain before tax fq. 256,000
fr. Deferred tax 30% fs. (75,000)
ft. Cumulative unrealized gain, net of tax fu. 175,000
fv. Beginning balance of unrealized gain, net of tax fw. (140,000)
fx. Unrealized gain during 2013 on retained investment fy. P
230,000
fz.
16. B 4,000,000 x 30% = P1,200,000 – (6,000,000 – 5,800,000)
17. D
ga. Change in fair value 2,400,000 – 2,150,000 gb. P 250,000
gc. Dividend income 130,000 x 20% gd. 36,000
ge. Total revenue gf. P
286,000
gg.
18. C
gh. Historical Cost gi. P3,000,00
0
gj. Fair value gk. 2,930,000
gl. Change in fair value (loss) gm. P
70,000
gn. Share in amount of dividend (P1,000,000 x 30%) go. 300,000
gp. Net amount to be reported in the profit or loss gq. P
230,000
gr.
19. A
gs. Acquisition Cost gt. P3,0
00,000
gu. Share in the reported income P3,000,000 x 30% gv. 900,
000
gw. Share in the amount of dividend P1,000,000 x 30% gx. (300
,000)
gy. Goodwill amortization P3,000,000 – P2,700,000 ÷ 10 gz. (3
years 0,000)
ha. Carrying value of investment hb. P3,5
70,000
hc. Impairment loss hd. 67
0,000
he. Amount to be reported hf. P2,9
00,000
hg.
20. A
21. A
hh. Net selling price 15,200,000 – 380,000 hi. P14,820,0
00
 hj. Carrying value of investment hk. 15,000,00
0
hl. Loss from sale hm. P
130,000
hn.
22. B
ho. hp. Received hq. Parted
hr. Fair value hs. 1,100,000 ht. 2,000,
000
hu. Cash hv. 900,000 hw. P
286,000
hx. Fair value of asset given up hy. P2,000,00
0
hz. Book value of asset given up ia. 1,800,000
ib. Gain ic. P
200,000
id.
23. D
ie. Acquisition of rights if. P20,000,
000
ig. Exploration and evaluation cost ih. 10,000,0
00
ii. Total capitalized intangible E&E asset ij. P30,000,
000
ik. ÷ Estimated life in tons il. 10,000,0
00
im. Depletion in rate per ton in. P 3.00
per ton
io. Amortization/depletion = P3 x P1,200,000 tons
P3,600,000
ip.
24. B
iq. Cost ir. P3,0 is. 12
60,000 years
it. Depreciation (3,060,000/12) iu. (255 iv.
,000)
iw. Carrying value ix. P2,3 iy.
05,000
iz. Recoverable amount ja. 2,60 jb.
0,000
jc. Impairment loss jd. P je.
205,000
jf.
25. A
jg. Cost jh. P1,8 ji. 6
00,000 years
jj. Amortization 1,800,000/6 x 2 years jk. (600 jl. (2
,000) years)
jm. Carrying value jn. P1,2 jo. 4
00,000 years
jp. ÷ Revised remaining life jq. 20 jr.
years
js. Amortization jt. P ju.
60,000
jv.
26. B
27. A
jw. Cost jx. 940, jy. 4
000 years
jz. Amortization – 2014 940,000/4 ka. (235 kb. (1
 ,000) year)
kc. Carrying value kd. 705, ke. 3
000 years
kf. Amortization – 2015 kg. (235 kh.
,000)
ki. Carrying value kj. 470, kk.
000
kl. Recoverable amount km. 445, kn.
000
ko. Impairment loss kp. 25,0 kq.
00
kr.
28. D Expense total of P360,000
29. B P1,500,000 bonus
30. B 50 x 12 x 8 x P17.50 = P84,000; 50 x 15 x 8 x P20 = P120,000
31. D Present value of the removal cost
32. B {[(500,000 x .60) – 220,000] ÷ 4} x P1.50 = P30,000
33. B
ks. 70% x 20% x 2,000,000 = kt. P
280,000
ku. 70% x 80% x 1,000,000 = kv. 560,
000
kw. Total kx. P
840,000
ky. Adjustment factor 840,000 x 7% kz. 58,
800
la. Total lb. P
898,800
lc. Discount factor ld.
1.1
le. Present value of provision lf. P
817,090
lg.
34. B
lh. R li. lj. Proceeds lk. Trans ll. Net
atio action Proceeds
lm. D ln. 97 lo. P lp. P lq. P9,622,
ebt % 9,700,000 77,600 400
lr. Eq ls. lt. 300,00 lu. 2,4 lv. 297
uity 3% 0 00 ,000
lw. To lx. 10 ly. P10,000,00 lz. P ma. P9,920,
tal 0% 0 80,000 000
mb.
35. B
mc. Cash rent for 2014 (P150,000 x 1/2) md. P
75,000
me. Cash rent for 2015 to 2018 (P187,500 x 4) mf. 75
0,000
mg. Total cash rent mh. P
825,000
mi. Less: cash incentive provided mj.
8,000
mk. Adjusted total cash rent for 5 years ml. P
817,000
mm. ÷ Leased term mn. 5
years
mo. Annual rent income mp. P
163,400
mq.
36. C
 mr. ms. Carrying mt. Tax Base mu. Temporary
Value Difference
mv. At inception mw. (P4,400,0 mx. (P4,400,0 my.
00) 00)
mz. Exchanged na. 400,0 nb. nc.
gain 00 0
nd. Net amount ne. (P4,000,0 nf. - ng. = P400,000
00) (P4,400,000)
nh.
ni. Tax amount of P140,000 (P400,000 x 35%) is a deferred tax liability because
the temporary difference is a future taxable amount.
nj.
37. C
nk. Current tax expense P1,275,000 x 32% = nl. P
408,000
nm. Deferred tax expense P75,000 x 34% nn. 2
5,500
no. Total tax expense np. P
433,500
nq.
nr. ns. Financial nt. Taxation nu. Future
Amount
nv. Net income nw. P1,725,0 nx. P1,725,0 ny.
00 00
nz. Temporary difference: oa. ob. oc.
od. Depreciation oe. (350,000) of. (430,000) og. P80,000
oh. Bad Debts oi. (25,00 oj. (20,00 ok. (5,000)
0) 0)
ol. Net om. P1,350,0 on. P1,275,0 oo. P75,000
00 00
op. oq. or. os.
ot. Permanent difference: ou. ov. ow.
ox. Interest revenue oy. 200,000 oz. pa.
pb. pc. pd. pe.
pf. Entertainment pg. (50,00 ph. pi.
Expense 0)
pj. Reported net income pk. P1,500,0 pl. pm.
00
pn.
po.
38. C
pp. Carrying value of the liability: pq. pr.
ps. Face value (principal) pt. P10,000,00 pu.
0
pv. Accrued interest pw. 1,200,000 px. P11,200,0
00
py. Less: Discount value of the expected pz. qa.
cash outflow: (discount rate of 12%)
qb. Principal qc. P5,408,000 qd.
qe. Interest qf. 2,161,800 qg. 8,569,800
qh. Gain qi. qj. P2,630,00
0
qk. ql. qm.
qn. Gain qo. qp. P2,630,00
0
qq. ÷ Carrying value of expected liability qr. qs. 11,200,00
0
qt. Percentage (substantial modification) qu. qv. 23.48%
qw. qx. qy.
qz. Carrying/amortized cost of the liability ra. rb. P11,200,0
 00
rc. Fair value of restructured cash flow rd. re. (9,166,667
)
rf. Gain from restructuring rg. rh. P2,033,00
0
ri.
rj. The amount gain over the original liability is 23.48%, therefore the restructuring is
considered with the necessary commercial substance. However, the amount of gain or
loss that should be given accounting recognition on the part of the borrower (Gorilla
Company) is the difference between the amortized cost of the original liability and the fair
value of the revised or restructured cash flow.
rk.
39. B
rl. Pension liability per book rm. P5,500,00
0
rn. Less: Amount paid for the settlement ro. 5,000,000
rp. Gain on settlement rq. P
500,000
rr.
40. A
rs. Present value of benefit obligation – credit rt. P4,300,00
0
ru. Fair value of plan assets – debit rv. (5,000,000
)
rw. Asset before the ceiling rx. (P
700,000)
ry.
41. C 20,000,000 x 15% X (1 – 10%) = 2,700,000
42. C
rz. Asset before write-down sa. sb. P1,180,00
0
sc. Less: Write-down of assets: sd. se.
sf. Accounts receivable sg. P 40,000 sh.
si. Inventory sj. 160,000 sk. 280,000
sl. Intangibles sm. 80,000 sn. P900,000
so. Assets after the write-down sp. sq.
sr. Less: Liabilities ss. st.
su. Accounts payable (20% x 450,000) sv. 90,000 sw.
sx. Notes payable (50% x 430,000) sy. 225,000 sz.
ta. Taxes payable tb. 60,000 tc.
td. Mortgage payable te. 150,000 tf. 525,000
tg. Shareholder’s equity after the quasi-organization th. P375,000
ti.
43. A
tj. Total shareholders’ equity tk. tl. P10,250,0
00
tm. Preference shareholders’ equity tn. to.
tp. Preference share tq. P2,500,000 tr.
ts. Preference dividends in arrears tt. 250,000 tu.
tv. Liquidation premium tw. 500,000 tx. 3,250,000
ty. Ordinary shareholders’ equity tz. ua. P7,000,00
0
ub. ÷ Ordinary shares outstanding uc. ud. 100,00
0
ue. Book value per ordinary share uf. 7
0
ug.
44. A
45. C
uh. Professional fees per book ui. uj. P 164,000
 uk. Accrued legal fees ul. um.
un. November uo. P12,000 up.
uq. December ur. 14,000 us. 26,000
ut. Adjusted professional fees uu. uv. P190,000
uw.
ux.
46. C
uy. Accumulated depreciation, December 31, 2015 uz. P153,000
va. Add: Accumulated depreciation of asset sold vb. 6,000*
vc. Total vd. P159,000
ve. Less: Accumulated depreciation, December 31, 2014 vf. 128,000
vg. Depreciation, 2015 vh. P 31,000
vi. vj.
vk. Equipment, December 2014 vl. P334,000
vm. Add: Acquisition vn. 50,000
vo. Total vp. P394,000
vq. Less: Equipment, December 2015 vr. P379,000
vs. Cost of equipment disposed of vt. P 15,000
vu. Less: Book value of equipment disposed of vv. 9,000
vw. Accumulated depreciation of equipment disposed of vx. P 6,000
vy.
47. D
vz. wa. March wb. wc. June wd.
31 30
we. Intrinsic value P3 x wf. P9,00 wg. (P1 x wh. P3,0 wi.
3,000 0 3,000) 00
wj. Time value wk. 1,200 wl. wm. 5 wn.
40
wo. Total fair value wp. P10,2 wq. wr. P3,5 ws. =
00 40 P6,660
wt.
48. C
wu. Cash provided from operating activities: wv.
ww. Net income wx. P3,520,00
0
wy. Depreciation of plant assets wz. 1,480,000
xa. Net decrease in non-cash current asset xb. 290,000
xc. Loss on sale of equipment xd. 130,00
0
xe. Cash provided from operation xf. P5,420,00
0
xg.
49. C
xh. Book value of building xi. xj.
xk. Cost xl. P2,500,000 xm.
xn. Less: Accumulated depreciation xo. 1,200,000 xp. P1,300,00
0
xq. Less: Amount of loss xr. xs. 525,00
0
xt. Cash received from insurance company xu. xv. P
(inflow-investing activity) 775,000
xw.
50. C
xx. Grants related to non-depreciable assets which require the fulfillment of an obligation
would be recognized as income over periods which bear the cost of meeting the
obligation, thus the P120,000,000 will be recognized as follows:
xy. xz. Amount of ya. Ratio yb. Amount of Grant
Year Grant Recognized
yc. yd. P120,000,000 ye. 20/100 yf. = P24,000,000
2014
 yg. yh. P120,000,000 yi. 30/100 yj. = P36,000,000
2015
yk. yl. P120,000,000 ym. 50/100 yn. = P60,000,000
2016
yo.