DySAS Center for CPA Review

2F & 3F Mitra Building, San Pedro Street, Davao City

Tel. No. (082) 224-43-20: E-mail Address dysasrev@yahoo.com

Practical Accounting 1 John C. Frivaldo, CPA, MBA

SECOND PRE-BOARD EXAMINATION February 14, 2010 @ 10:00 12:00 am
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INSTRUCTIONS: Mark the letter of your choice with a VERTICAL LINE on the answer sheet
provided. ERASURES NOT ALLOWED.

1. On January 1, 2009, Height Company appropriately reported a credit balance of P125,000 in

the fair value adjustment account in conformity with the valuation of available for sale
securities. There was no change during 2009 in the composition of the portfolio of available
for sale investments. Pertinent data on December 31, 2009 are as follows:
Securities Cost Market
C 1,500,000 1,625,000
P 1,250,000 1,000,000
A 2,250,000 1,750,000
At the end of 2009, that information coming to the attention of the management which
suggests that the decline in the value of the securities are not temporary, what amount of
loss should be recognized by the company in its 2009 income statement?
(a) P 0 (b) P375,000 (c) P500,000 (d) P625,000 D

Aggregate cost 5,000,000

Aggregate market value 4,375,000
Total impairment loss 625,000

2. During 2004, Traco Machine Company spent P176,000 on research and development costs
for an invention. This invention was patented on January 2, 2005 at a nominal cost that was
expense in 2005. The patent had a legal life of 17 years and an estimated useful life of 8
years. In January 2009, Traco paid P16,000 for legal fees in a successful defense of the
patent. Amortization for 2009 should be:
(a) P 0 (b) P1,231 (c) P4,000 (d) P26,000 C

Amortization (16,000/ 4) P4,000

3. On January 1, 2009, Mark Corporation purchased 2,000 of the P1,000 face value, 9% 10-year
bonds of Park, Inc. The bonds mature on January 1, 2019, and pay interest annually
beginning January 1, 2010. At the time of acquisition, the market rate of interest for similar
debt instrument is 11%. What is the fair value of the debt instrument at the time of
acquisition?
(a) P1,411,960 (b) P1,764,420 (c) P1,904,820 (d) P2,256,760 B

Future interest (2,000,000 x 9% x 5.8890) 1,060,020

Face (2,000,000 x .3522) 704,400
Fair value (purchase price) 1,764,420

4. Anxious Company acquired two items of machinery as follows:

a. On December 30, 2009, Anxious purchased a machine in exchange for a non-interest
bearing note requiring ten payments of P500,000. The first payment was made on
December 30, 2010 and the others are due annually on December 30. The prevailing
rate of interest for this type of note at date of issuance was 12%.
b. On January 1, 2009, Anxious acquired used machinery by issuing the seller a two-year,
non-interest bearing note for P3,000,000. In recent borrowing, Anxious has paid a 12%
for this type of note.
What is the total cost of the machinery?
(a) P5,065,000 (b) P5,225,000 (c) P5,565,000 (d) P8,235,000 B

PV of first note payable (500,000 x 5.65) P2,825,000

PV of second note payable (3,000,000 x .80) 2,400,000
Total costs P5,225,000

5. During the first month of 2009, Julie Company entered into the following transactions:
a. Purchased a parcel of land with a building on it for P7,500,000 cash. The building which
will be used in operations, has an estimated useful life of 25 years and residual value of
P200,000. The assessed valuation for property tax purposes show the land at P650,000
and the building at P5,850,000.
b. Paid P250,000 for the construction of a cemented parking lot for customers.
c. Paid P50,000 for the construction of a new entrance to the building.
d. Paid P15,000 for a one-year insurance on the building.
 How much is the cost of the building based on the above-transactions?
(a) P6,750,000 (b) P6,800,000 (c) P5,900,000 (d) P6,815,000 B

Allocated cost of building

(5,850,000/6,500,000 x 7,500,000) P6,750,000
New entrance 50,000
Total cost of building P6,800,000

6. Valiant Company issues rights to subscribe to its stock, the ownership of 4 shares entitling
the shareholders to subscribe for 1 share at P100. Connie owns 20,000 shares with total
cost of P1,650,000. The share is quoted rights-on at P125. What is the cost of the new
investment assuming Connie exercises all stock rights?
(a) P66,000 (b) P500,000 (c) P563,462 (d) P566,000 D

Cash paid (20,000 / 4 x 100) 500,000

Cost of stock rights (1,650,000 x 5/125) 66,000
Total 566,000
Theoretical value of right (125-100/ 4+1) 5

7. The building account on December 31, 2009 follows:

Debit Credit
Balance, January 1 P1,500,000
Additional room self-constructed,
including profit on construction
of P20,000 180,000
Cost of removal of wall for new room P 10,000
Repainting of walls and ceiling 15,000
Replacement of electrical wiring, net of cost
of old wiring 12,000
Equipment purchased to furnish new room 58,000
Balance, December 31 __________ 1,755,000
P1,765,000 P1,765,000
What is the correct cost of the building on December 31, 2009?
(a) P1,677,000 (b) P1,687,000 (c) P1,680,000 (d) P1,650,000 A

Per book P1,755,000

Profit on construction ( 20,000)
Equipment ( 58,000)
Adjusted cost of building P1,677,000

8. On January 1, 2009, Alex Corporation acquired as a long-term investment for P2,500,000, a

30% ordinary share interest in Paul Company. On that date, Paul had net assets with a book
value and current market value of P8,000,000. During 2009, Paul reported net income of
P900,000, declared and paid cash dividends of P200,000. At the end of 2009, Alex
Corporation, made a test on impairment of the goodwill identified with its investment in Paul
Company. The impairment test showed that the goodwill was impaired by 20%. What is the
maximum amount of income that Paul should report from this investment in 2009?
(a) P60,000 (b) P210,000 (c) P250,000 (d) P270,000 C

Share in net income (900,000 x 30%) 270,000

Impairment of goodwill (20,000)
Income from investment 250,000

Acquisition cost 2,500,000

Market value of net assets (8M x 30%) 2,400,000
Goodwill 100,000
X % of impairment 20%
Impairment loss 20,000

9. On January 1, 2006, Excel Company purchased an asset for P1,000,000 with an estimated
useful life of 10 years. Straight line method of depreciation is to be used. On January 1,
2008, it was properly determined that the recoverable amount of the asset is P640,000. On
January 1, 2009, it was properly computed that the recoverable amount of the asset is
P740,000. Under the revaluation model for long-lived assets, what are the amounts to be
reported in the income statement and shareholders equity on January 1, 2009?
(a) P140,000 and P40,000 (c) P180,000 and P 0
(b) P20,000 and P160,000 (d) P 0 and P180,000 A

Recoverable amount January 1, 2009 740,000

Carrying amount based on its previous
recoverable amount 560,000
Increase in the value of the asset 180,000
Reversal of impairment loss prev. recognized:
Rec. value January 1, 2009 P560,000
 Carr. Value Jan. 1, 2009 700,000 140,000
Revaluation surplus to be reported in sh. equity 40,000

10. In 2004, Page spent P68,000 on R & D costs for a new product. This product was patented
on January 2, 2005 at a very small cost which was expensed in 2005. The patent has legal
life of 17 years and an estimated useful life of 8 years. In 2009, Page paid P8,000 for legal
fee in successful defense of the patent. Amortization for 2009 should be:
(a) P 0 (b) P11,000 (c) P2,000 (d) P13,000 A

Legal costs, whether successful or unsuccessful, are expensed outright.

11. Chester Corporation was a development stage enterprise from its inception on September 1,
2008 to December 31, 2009. The following information was taken from Chesters accounting
records for the above period:
Net sales P1,350,000
Cost of sales 1,000,000
Selling, general and administrative expenses 400,000
Research and development costs 300,000
Interest expense 100,000
In the period September 1, 2008 to December 31, 2009, what amount should Chester report
as net loss?
(a) P50,000 (b) P150,000 (c) P350,000 (d) P450,000 D

Net sales P1,350,000

Cost of sales (1,000,000)
Gross profit P 350,000
Selling, general and administrative expenses ( 400,000)
Research and development costs ( 300,000)
Interest expense ( 100,000)
Net loss P 450,000

12. Pine Company prepares monthly income statements. A physical inventory is taken only at
year-end; hence, month-end inventories must be estimated. All sales are made on account.
The rate of markup on cost is 50%. The following information relates to the month of
November:
Accounts receivable, November 1 P102,000
Accounts receivable, November 30 153,000
Collection of accounts receivable during November 255,000
Inventory, November 1 183,600
Purchases of inventory during November 163,200
The estimated cost of the November 30 inventory is:
(a) P122,400 (b) P142,800 (c) P193,800 (d) P224,400 B

Inventory, November 1 P183,600

Purchases of inventory during November 163,200
Cost of goods available for sale P346,800
Accounts receivable, November 30 P153,000
Collection of accounts receivable during Nov. 255,000
Accounts receivable, November 1 (102,000)
Sales P306,000
Divided by 150% (50% markup on cost) 50%
Estimated cost of goods sold P204,000
Estimated cost of the Nov. 30 inventory
(346,800 204,000) P142,800

13. Groovy, a distributor of machinery, bought a machine from the manufacturer in November
2009 for P200,000. On December 30, 2009, it sold this machine to Ace for P300,000 under
the following terms: 2% discount if paid within 30 days; 1% discount if paid after 30 days but
within 60 days, or payable in full within 90 days if not paid within the discount period.
However, Ace had the right to return this machine to Groovy if Aces obligation to Groovy
would be cancelled. In Groovys net sales for the year ended December 31, 2009, how much
should be included for the sale of this machine?
(a) P 0 (b) P294,000 (c) P297,000 (d) P300,000 A

14. Grind Company has 60,000 ordinary shares of Bang Corporation as an investment in
available for securities. These shares were acquired at fair market value, which was P80 per
share on May 2, 2009. On December 20, 2009, the market value of these shares is P90 per
share. On December 22, 2009, Grind Company sold 42,000 shares of its investment in Bang
Corporation for P85 per share. Market value of Bangs shares has yet to change, it remained
at P90 per share. What amount of realized gain or loss should Grind Company recognize in
selling those shares?
(a) P 0 (b) P210,000 (c) P300,000 (d) P420,000 B
 Selling price 3,570,000
Carrying value of security sold 3,360,000
Realized gain on sale 210,000

15. On October 1, 2009, Acme Fuel Company sold 100,000 gallons of heating oil to Karn
Company at P3 per gallon. Fifty thousand gallons were delivered on December 15, 2009,
and the remaining 50,000 gallons were delivered on January 15, 2010. Payment terms were:
50% due on October 1, 2009, 25% due on the first delivery, and the remaining 25% due on
the second delivery. What amount of revenue should Acme recognize from this sale during
2009?
(a) P75,000 (b) P150,000 (c) P225,000 (d) P300,000 B

Sales for 2004 (50,000 x 3) P150,000

16. On December 31, 2008, the machinery account of Art Corporation had the following
transactions:
Machinery P576,000
Accumulated depreciation 216,000
Additional information:
(a) The estimated useful life of machinery is 8 years with no salvage. Straight line method is
used.
(b) On July 10, 2009, a new machine was purchased at an invoice cost of P200,000.
Additional costs of P10,400 for freight and P20,000 for installation and testing were
incurred. After a testing and 2002 breaking-in period, the machine was ready for use in
July 26, 2009.
(c) On May 6, 2009, a machine purchased for P120,000 on January 1, 2006 was overhauled
at a cost of P20,000. As a result, the company estimated that its original estimated
useful life of 8 years would be extended by an additional 2 years.
How much is the depreciation for 2009?
(a) P15,000 (b) P29,000 (c) P69,000 (d) P83,000 D

Old machine overhauled P120,000

Accumulated depreciation:
2006 2008 (120,000 x 3/8) P45,000
2009 (15,000 x 4/12) 5,000
Total P50,000
Cost of overhaul (20,000) ( 30,000)
Book value 5/1/2009 P90,000
Original life ( 8 years x 12 ) 96 months
Expired life 40
Remaining 56
Extension (2 years x 12) 24
Extended period 32 months

Old machine:
1/1/2009 to 5/1/2009 P 5,000
5/1/2009 to 12/31/2009 (90,000 x 8/80) 9,000
P14,000
Remaining cost of old machine:
(576,000 120,000/ 8) 57,000
New machine (230,400/ 8 x 5/12) 12,000
Total depreciation P83,000

17. On January 1, 2009, Dell contracted the City of Davao to provide custom build desks for the
city schools. The contract made by Dell the citys sole supplier and required Dell to supply
no less than 4,000 desks and no more than 5,000 desks per year for two years. In turn, the
City of Davao agreed to pay a fixed price of P110 per desk. During 2009, Dell produced
5,000 desks for the City of Davao. At December 31, 2009, 500 of these desks were
segregated from the regular inventory and were accepted and awaiting pickup by the City of
Davao. The City of Davao paid Dell P450,000 during 2009. What amount should Dell
recognize as contract revenue in 2009?
(a) P450,000 (b) P495,000 (c) P550,000 (d) P605,000 C

Dell should recognize contract revenue of P550,000 (5,000 x 110) in 2009 because:
a. The number of desks produced in 2009 in within the parameters of the contract
(meaning, more than 4,000 and less than 5,000)
b. The earnings process is virtually complete (meaning, the desks have been
accepted and are awaiting pickup by the customer)

18. Trim Company bought 2,000 shares of Mike Company on January 2, 2009 at P150 per share
and paid P2,250 as brokerage fee and P1,500 non-refundable tax. At the time of acquisition,
Trim Company had a positive intent to hold this instrument for an indefinite period of time.
Prior to the date of acquisition, information revealed that on December 9, 2008, Mike
Company declared a P10 cash dividend to shareholders on record as of January 31, 2009
 payable on April 30, 2010. There were no other transactions in 2009 affecting the
investment in Mike Company.
(a) P283,750 (b) P300,000 (c) P302,250 (d) P303,750 A

Purchase price 300,000

Transaction costs (2,250 + 1,500) ( 3,750)
Amount of dividend included in cash outlay
(2,000 shares x P10) (20,000)
Historical cost of investment 283,750

19. Melissa Company has an agreement with its bondholders that required the company to
make payments to a sinking fund and to maintain a related appropriated of accumulated
profits to retire the bonds.
The company has been required to make sinking fund contributions of P500,000 for each
of the last 5 years.
At the end of 2009, the bonds are repaid, the accumulated profits appropriation is
canceled, and a 40% ordinary share dividend is declared and distributed.
Immediately before the declaration of the dividend, the company had 1,250,000 shares
of P10 par value ordinary share outstanding with a P12.50 market value per share.
Immediately before repaying the bonds at their carrying amount, the companys
unappropriated accumulated profits balance was P6,000,000.
What is the adjusted unappropriated accumulated profits balance on December 31,
2009?
(a) 3,500,000 (b) 1,000,000 (c) 2,250,000 (d) 6,000,000 A

Unappropriated accumulated profits 6,000,000

Add: Cancelation of accumulated profits
appropriated for sinking fund (500,000 x 5) 2,500,000
Total 8,500,000
Less: Share dividend (40% x 1,250,000 x 10) 5,000,000
Adjusted balance 3,500,000

20. Zeta Company had the following foreign currency transactions during 2009:
a. Merchandise was purchased from a foreign supplier on January 15, 2009 for the
Philippine peso equivalent of P4,500,000. The invoice was paid on March 15, 2009 at the
Philippine peso equivalent of P4,650,000.
b. On July 1, 2009, Zeta Company borrowed US dollars with Philippine peso equivalent of
P5,000,000 evidenced by a note that was payable in the lenders local currency on July 1,
2005. On December 31, 2009, the Philippine peso equivalents of the principal and
accrued interest were P5,200,000 and P260,000, respectively. Interest on the note is
10% per annum.
In Zetas 2009 income statement, what amount should be included as foreign exchange
transaction loss as part of net income?
(a) P360,000 (b) P150,000 (c) P210,000 (d) P 0 A

Accounts payable 1/15/2009 P4,500,000

Payment on 3/15/2009 4,650,000
Exchange loss P 150,000

Notes payable 7/1/2009 P5,000,000

Exchange equivalent 12/31/2009 5,200,000
Exchange loss P 200,000

Accrued interest payable (5,000,000 x 10% x 6/12)P250,000

Exchange equivalent 260,000
Exchange loss P 10,000

Total exchange loss (150,000 + 200,000 + 10,000) P360,000

21. The following information pertains to revenue earned by Tiny Companys industry segments
for the year ended December 31, 2009 (in millions):
Sales to
unaffiliated Intersegment Total
Segment customers sales revenue
Alo P 5,000 P 3,000 P 8,000
Bix 8,000 4,000 12,000
Cee 4,000 - 4,000
Dil 43,000 16,000 59,000
Combined P60,000 P23,000 P83,000
Elimination - (23,000) (23,000)
Consolidated P60,000 P - P60,000
In conformity with the revenue test, Tinys reportable segments were:
(a) only Dil (c) only Alo, Bix and Dil
(b) only Bix and Dil (d) Alo, Bix, Cee and Dil B
 Total revenue Percent
Alo P 8,000 9.64%
Bix 12,000 14.46%
Cee 4,000 4.82%
Dil 59,000 71.08%
P83,000 100.00%

22. On January 1, 2009, Bob Company leased two automobiles for executive use. The lease
requires Bob to make five annual payments of P1,300,000 beginning January 1, 2009. At the
end of the lease term, December 31, 2013, Bob guarantees the residual value of the
automobiles will total P1,000,000. The lease qualifies as a capital lease. The interest rate
implicit in the lease is 9%. Present value factors for the 9% rate implicit in the lease are as
follows:
For an annuity due with 5 payments (in advance) 4.240
For an ordinary annuity with 5 payments 3.890
Present value of 1 for 5 periods 0.650
Bobs recorded capital lease liability immediately after the first required payment should be:
(a) P4,862,000 (b) P4,407,000 (c) P3,562,000 (d) P3,107,000 A

PV of rentals (1,300,000 x 4.24) P5,512,000

PV of guaranteed residual value (1,000,000 x 0.65) 650,000
Total lease liability 1/1/2009 P6,162,000
First payment on January 1, 2009
(all applicable to principal) (1,300,000)
Lease liability 1/1/2009 P4,862,000

23. During 2009, Fight Corporation acquired a plot of land for P1,000,000. At the end of 2009,
the land was appraised at P1,600,000 and has a zonal valuation of P1,500,000. During the
year, the general price level rose to 12%. In the preparation of the constant-peso
statements, land should be presented on the balance sheet as:
(a) P1,120,000 (b) P1,500,000 (c) P1,600,000 (d) P1,000,000 A

Value of land (1,000,000 x 112/100) P1,120,000

24. On January 1, 2009, the balance sheet of Ray Company showed total assets of P5,000,000,
total liabilities of P2,000,000 and contributed capital of P2,000,000. During the year 2009,
the corporation issued common stock of P500,000 par value at an additional capital of
P300,000, Dividends of P250,000 were paid on December 31, 2009. The balance sheet on
December 31, 2009 showed total assets of P7,500,000 and total liabilities of P3,200,000.
What was the net income for the year 2009?
(a) P1,750,000 (b) P1,000,000 (c) P750,0000 (d) P500,000 C

Total assets January 1 P5,000,000

Less: Total liabilities 2,000,000
Contributed capital 2,000,000 4,000,000
Retained earnings January 1 P1,000,000

Total assets December 31 7,500,000

Less: Total liabilities 3,200,000
Contributed capital
(2,000,000 + 500,000 + 300,000) 2,800,000 6,000,000
Retained earnings December 31 1,500,000
Add: Dividends paid 250,000
Total 1,750,000
Less: Retained earnings 1,000,000
Net income 750,000

25. An equipment was acquired in 2006 for P100,000 when the general price-level index was 80.
The price-level index at the end of the year 2009 is 120. What is the depreciation for the
current year, adjusted for price-level changes of an equipment that is being depreciated on
a straight-line basis using a 20-year life?
(a) P9,750 (b) P6,650 (c) P7,500 (d) P12,000 C

Depreciation based on nominal pesos (100,000/ 20) P5,000 a year

Depreciation for 2009 based on cost but adjusted
for price level changes (5,000 x 120/80) P7,500

26. At both the beginning and end of the year, Lily Companys monetary assets exceeded
monetary liabilities by P3,000,000. On January 1, the general price level was 125. On
December 31, the general price level was 150. How much was the purchasing power loss on
net monetary items during the year?
(a) P 0 (b) P600,000 (c) P750,000 (d) P1,125,000 B
 Net monetary assets Dec. 31 P3,000,000
Net monetary liabilities Dec. 31
As restated (3,000,000 x 150/125) 3,600,000
Loss on purchasing power (P 600,000)

27. On November 30, 2008, Parola Company, a publishing company in the Philippines, executed
a contract with Charles, an author from Canada, providing for payment of 10% royalties on
Canadian sales of Hans books. Payment is to be made in Canadian dollars each January 10
for the previous years sales. Canadian sales for the year ended December 31, 2009 totaled
$50,000 Canadian. Parola paid Han his royalties on January 15, 2009. Spot rate for
Canadian dollars were as follows: P36 on November 30, 2008, P39 on December 31, 2009,
and P41 on January 15, 2010. How much should Parola accrue for royalties payable at
December 31, 2009?
(a) P180,000 (b) P205,000 (c) P195,000 (d) P200,000 C

Royalties payable 12/31/2009

(10% x $50,000 = $5,000 x 39) P195,000

28. On January 1, Uni Company assigned P500,000 of accounts receivable to Mix Finance
Company. Uni gave a 14% note for P450,000 representing 90% of the assigned accounts
and received proceeds of P432,000 after deduction of a 4% fee. On February 1, Uni remitted
P80,000 to Mix, including interest for 1 month on the unpaid balance. As a result of this
P80,000 remittance, accounts receivable assigned and notes payable will be decreased by
what amount?
Accounts receivable Notes payable Accounts receivable Notes payable
(a) P80,000 P74,750 (c) P72,000 P74,750
(b) P80,000 P80,000 (d) P74,750 P80,000 A

Accounts receivable assigned is reduced by the amount of P80,00 collected.

Notes payable is reduced by P74,750.
[80,000 (450,000 x 14% x 1/12)]

29. Mart Corporation uses the allowance method for bad debts. During 2009, Mart charged
P30,000 to bad debts expense, and wrote off P25,000 of uncollectible accounts receivable.
These transactions resulted in decrease in working capital of:
(a) P 0 (b) P4,800 (c) P25,200 (d) P30,000 D

30. Barts stockholders equity includes 5,000 shares of common stock with a par value of P26.
If Bart declares a 30% stock dividend when the market price of its stock is P31 per share,
what amount must be transferred from retained earnings?
(a) P46,500 (b) P39,000 (c) P33,800 (d) none B

31. At December 31, 2008, Eagle Corporation reported P1,750,000 of appropriated accumulated
profits for the construction of a new office building, which was completed in 2009 at a total
cost of P1,500,000. In 2009, Eagle appropriated P1,200,000 of accumulated profits for the
construction of a new plant. Also, P2,000,000 of cash was restricted for the retirement of
bonds due in 2010. In its 2009 balance sheet, Eagle should report what amount of
appropriated accumulated profits?
(a) 1,200,000 (b) 1,450,000 (c) 2,950,000 (d) 3,200,000 A

32. Charm Company reported the following income statement for 2009:
Sales P3,900,000
Cost of goods sold 2,600,000
Operating expenses paid for in cash 650,000
Depreciation 350,000
The general price index at the beginning of the year was 120. During the year, the index
averaged 130 and stood at 140 by December 31.
All sales, purchases and cash expenses accrued evenly throughout the year.
Depreciation relates to the equipment acquired when the index was 100.
Assuming there is no purchasing power gain or loss on net monetary items, net income
in a constant purchasing power income statement is:
(a) P300,000 (b) P700,000 (c) P350,000 (d) P210,000 D

Sales (3,900,000 x 140/130) P4,200,000

Cost of goods sold (2,600,000 x 140/130) 2,800,000
Gross income P1,400,000
Operating expenses:
Paid for in cash (650,000 x 140/130) 700,000
Depreciation (350,000 x 140/100) 490,000
Net income P 210,000
33. George Corporation declared a cash dividend of P10,000 on January 17, 2009. This dividend
was payable to shareholders of record on February 10, 2009, and payment was made on
March 2, 2009. As a result of this cash dividend, working capital will increase (decrease) on:
January 17 February 10 January 17 February 10
(a) 0 0 (c) (10,000) 0
(b) 10,000 0 (d) (10,000) 10,000 C

34. The following are pertinent accounts on December 31, 2009:

Accumulated profits
Debit Credit
Dividends on ordinary 50,000 Balance-1/1/2009 200,000
Appropriation for bond Revaluation of plant 100,000
redemption 20,000 Net income for year 300,000
Sale of share at a Gain on sale of
discount 25,000 treasury share 28,000
Profit sharing bonus Donation of land from
to employees 3 0,000 a shareholder 52,000
Proceeds of life
insurance policy 150,000
Share premium
Dividends on preference 40,000 Balance-1/1/2009 100,000
Correction of profit of Gain on sale of securities 12,000
prior year 15,000 Appropriation for bond
retirement 20,000
Premium on sale of
bonds 35,000
Gain on sale of property 23,000

How much is the accumulated profits unappropriated on December 31, 2009?

(a) P530,000 (b) P560,000 (c) P685,000 (d) P710,000 A

Accumulated profits 1/1/2009 200,000

Net income 300,000
Proceeds from life insurance policy 150,000
Gain on sale of securities 12,000
Gain on sale of property 23,000
Total 685,000
Less: Dividends ordinary 50,000
Appropriated for bond
redemption 20,000
Bonus 30,000
Dividends prefer. 40,000
Correction of profit 15,000 155,000
Accumulated profits 12/31/2009 530,000

35. Following data reselected information on Marbel Company for the year 2009:
Cash balance, January 1 130,000
Accounts receivable, January 1 190,000
Collections from customers 2,100,000
Stockholders equity, January 1 380,000
Total assets, January 1 750,000
Total assets, December 31 880,000
Cash balances, December 31 160,000
Accounts receivable, December 31 360,000
Total liabilities, December 31 390,000
The net income of Marbel for 2009 is:
(a) P490,000 (b) P150,000 (c) P110,000 (d) P70,000 C

Total assets December 31 880,000

Total liabilities December 31 390,000
Stockholders equity December 31 490,000
Stockholders equity January 1 380,000
Net income 110,000

Since there are no dividends declared and issuance of capital stock during the year, the net
increase in stockholders equity is already the net income for the year.

36. On April 1, 2009, Brand Company has a machine with a cost of P1,000,000 and accumulated
depreciation of P750,000. On April 1, Brand classified the machine as held for sale and
decided to sell the machine within 1 year. As of April 1, 2009, the machine had an
estimated selling price of P100,000 and a remaining useful life of 2 years. It is estimated
that selling cost associated with the disposal of the machine will be P10,000. On December
31, 2009, the estimated selling price of the machine had increased to P150,000 with
 estimated selling cost of P20,000. How much should be recognized as gain on impairment
recovery on December 31, 2009?
(a) P93,750 (b) P73,750 (c) P60,000 (d) P40,000 D

Cost 1,000,000
Accumulated depreciation (750,000)
Book value 4/1/2009 250,000
Fair value less cost to sell 4/1/2009
(100,000 10,000) ( 90,000)
Impairment loss 4/1/2009 160,000

Impairment loss 160,000

Accumulated depreciation 160,000

Fair value less cost to sell 12/31/2009

(150,000 20,000) 130,000
Fair value less cost to sell 4/1/2009 ( 90,000)
Gain on impairment recovery 40,000

Accumulated depreciation 40,000

Gain on reversal of impairment 40,000

Noncurrent asset held for sale shall not be subject to depreciation.

37. In 2005, Chain Company purchased a P5,000,000 life insurance policy on its president, of
which Chain is the beneficiary. Information regarding the policy for the year ended
December 31, 2009 follows:
Cash surrender value, January 1, 2009 P435,000
Cash surrender value, December 31, 2009 540,000
Annual advance premium paid January 1, 2009 200,000
During 2009, dividends of P30,000 were applied to increase the cash surrender value of the
policy. What amount should Chain report as life insurance expense for 2009?
(a) P200,000 (b) P125,000 (c) P65,000 (d) P95,000 D

Premium paid P200,000

Increase in cash surrender value
(540,000 435,000) (105,000)
Life insurance expense P 95,000

38. The inventory card of Lane Company as at February 28, 2009 is as follows:
Purchase Units Balance
Cost Units Used Units
January 10 100 2,000 2,000
31 1,000 1,000
February 8 110 3,000 4,000
9 (return from factory, Jan. 10 lot) ( 100) 4,100
28 1,100 3,000
The weighted average cost of the inventory as at February 28, 2009 is:
(a) P318,000 (b) P312,000 (c) P315,000 (d) P330,000 A

Units Unit cost Total cost

January 10 2,000 100 200,000
February 8 3,000 110 330,000
5,000 106 530,000
Inventory (3,000 x 106) 318,000

39. The following transactions pertain to Coral Corporation for year ended December 31, 2009:
1. Coral Corporation is authorized to issue 5,000 shares of P100 par preference share and
20,000 shares of P50 par ordinary share.
2. Sold 10,000 shares of ordinary share at par for cash.
3. Issued 400 shares of preference share for P120 per share cash.
4. Reacquired 500 ordinary shares as treasury share for P90 per share.
5. Reissued 300 shares of treasury share for P100 per share.
6. Agreed to a subscription contract for 1,000 shares of ordinary share for P60 per share.
The subscription requires a down payment of P20 per share.
7. Declared 30% share dividend on the ordinary share. The market value of the ordinary
share at the time of declaration is P80 per share.
8. The revenue and expense summary account has a credit balance of P300,000. This is
closed to accumulated profits.
How much is the total shareholders equity at December 31, 2009?
(a) 853,000 (b) 1,052,000 (c) 1,850,000 (d) 2,012,000 A

Preference share (500,000 460,000) 40,000

Ordinary share (1,000,000 500,000) 500,000
 Share dividend payable ordinary 162,000
Subscribed ordinary share, net of subscriptions
receivable (50,000 40,000) 10,000
Share premium:
Premium of preference share 8,000
Premium on ordinary share 10,000
From treasury share 3,000
Accumulated profits:
Unappropriated 120,000
Appropriated for treasury share 18,000
Total 871,000
Less: Treasury share, at cost 18,000
Shareholders equity 853,000

40. On April 1, 2009, Rich Company purchased P4,000,000 face value, 9% treasury notes for
P3,970,000, including accrued interest of P90,000. The notes mature July 1, 2010 and pay
interest semiannually on January 1 and July 1. Rich uses the straight line method of
amortization and intends to hold the notes to maturity. In its October 31, 2009 balance
sheet, the carrying amount of this investment should be:
(a) P3,944,000 (b) P3,880,000 (c) P3,980,000 (d) P3,936,000 D

Investment balance, 4/1/2009

(3,970,000 90,000) P3,880,000
Discount amortization
(4,000,000 3,880,000 =
120,000 x 7/15) 56,000
Carrying value 10/31/2009 P3,936,000

* end of the examination practical accounting 1*