PRACTICAL ACCOUNTING 1

1. The cash account of the Makati Corporation as of December 31,

2016 consists of the following:
On deposit in current account with Real Bank P 900,000
Cash collection not yet deposited to the bank 350,000
A customers check returned by the bank for insufficient 150,000
fund
A check drawn by the Vice-President of the Corporation
dated January 15, 2017 70,000
A check drawn by a supplier dated December 28, 2016 for
goods returned by the Corporation 60,000
A check dated May 31,2016 drawn by the Corporation
against the Piggy Bank in payment of customs duties.
Since the importation did not materialize, the check was
returned by the customs broker. This check was an
outstanding check in the reconciliation of the Piggy
Bank account 410,000
Petty Cash fund of which P5,000 is in currency; P3,600 in
form of employees I.O.U. s; and P1,400 is supported by
approved petty cash vouchers for expenses all dated
prior to closing of the books on December 31, 2016 10,000
Total 1,950,000
Less: Overdraft with Piggy Bank secured by a Chattel
mortgage on the inventories 300,000
Balance per ledger P1,650,000

At what amount will the account Cash appear on the December 31, 2016
balance sheet?
a. P1,315,000 c. P1,495,000
b. P1,425,000 d. P1,725,000

Your audit disclosed that on December 31, 2016, the accounts

receivable control account of Alilem Company had a balance of P
2,865,000. An analysis of the accounts receivable account showed the
following:
Accounts known to be worthless P 37,500
Advance payments to creditors on purchase orders 150,000
Advances to affiliated companies 375,000
Customers accounts reporting credit balances arising from
sales return
(225,000)
Interest receivable on bonds 150,000
Other trade accounts receivable unassigned 750,000
Subscriptions receivable for common stock due in 30 days 825,000
Trade accounts receivable - assigned (Finance companys equity
in assigned
accounts is P150,000) 375,000
Trade installment receivable due 1 18 months, including
unearned finance
charges of P30,000 330,000
Trade receivables from officers due currently 22,500
Trade accounts on which post-dated checks are held (no entries
were made on
receipts of checks) 75,000
P2,865,000
Determine the adjusted balance of following:

2.The trade accounts receivable as of December 31, 2016 is

a. P1,147,500 c. P1,485,000
b. P1,522,500 d. P1,447,500
The current trade and other receivables net as of December 31,
3. 2016 is
a. P2,647,500 c. P2,272,500
b. P2,610,000 d. P1,822,500
PRACTICAL ACCOUNTING 1

4. How much of the foregoing will be presented under noncurrent

assets as of December 31, 2016?
a. P1,200,000 c. P525,000
b. P 375,000 d. P 0

You obtained the following information in connection with your audit

of Villasis Corporation:
Cost Retail
Beginning inventory P1,987,200 P2,760,000
Sales 7,812,000
Purchases 4,688,640 6,512,000
Freight in 94,560
Mark ups 720,000
Mark up cancellations 120,000
Markdown 240,000
Markdown cancellations 40,000

Villasis Corp. uses the retail inventory method in estimating the

values of its inventories and costs.

Based on the above and the result of your audit, answer the following:
5. The cost ratio to be used considering the provisions of PAS 2 is
a. 68.58% c. 70.00%
b. 69.20% d. 75.78%
6. The estimated ending inventory at retail is
a. P2,300,000 c. P1,940,000
b. P2,060,000 d. P1,860,000
7. The estimated ending inventory at cost is
a. P1,412,786 c. P1,302,000
b. P1,275,588 d. P1,287,120
8. The estimated cost of goods sold is
a. P5,468,400 c. P5,357,614
b. P5,494,812 d. P4,685,117

9. The following items relate to the acquisition of a new machine by

Bongabon Corporation in 2016:
Invoice price of machinery P2,000,000
Cash discount not taken 40,000
Freight on new machine 10,000
Cost of removing the old machine 12,000
Loss on disposal of the old machine 150,000
Gratuity paid to operator of the old machine who was
laid off 70,000
Installation cost of new machine 60,000
Repair cost of new machine damaged in the process
of installation 8,000
Testing costs before machine was put into regular 15,000
operation
Salary of engineer for the duration of the trial run 40,000
Operating cost during first month of regular use 250,000
Cash allowance granted because the new machine
proved to be of inferior quality 100,000
How much should be recognized as cost of the new machine?
a. P1,985,000 c. P1,930,000
b. P1,993,000 d. P2,025,000
PRACTICAL ACCOUNTING 1

10. Selected records from the accounting records of Malakas

Company are as follows:
Net accounts receivable at Dec. 31, 2015 1,900,000
Net accounts receivable at Dec. 31, 2016 1,000,000
Account receivable turnover 5:1
Inventory at Dec. 31, 2015 1,100,000
Inventory at Dec.31, 2016 1,200,000
Inventory turnover 4:1
What is the amount of gross margin?
a. 5,000,000
b. 5,150,000
c. 5,200,000
d. 5,300,000

11. The following information for 2006 is provided by Guam

Company:
Sales 50,000,000
Cost of Sales 30,000,000
Selling
Expenses 5,000,000
General and Administrative Expenses 4,000,000
Interest Expense 2,000,000
Gain on early extinguishment of long term debt 500,000
Correction of Inventory error, net of income tax-credit 1,000,000
Investment Income-equity method 3,000,000
Gain on expropriation 2,000,000
Income tax expense 5,000,000
Dividends declared 2,500,000
What is the amount of finance cost?
a. 1,200,000
b. 2,000,000
c. 1,500,000
d. 1,800,000

12. Dakak Company issued bonds with a face value of P4, 000,000
and with a stated interest rate of 10% on Jan. 01, 2018. The
interest is payable semiannually on June 30 and December 31. The
bonds mature on every December 31 at a rate of P2, 000,000 per
year for 2 years. The prevailing rate for the bonds is 8%. The
present value of 1 at 4% is as follows:
One period 0.9615
Two periods 0.9426
Three periods 0.8990
Four periods 0.8548
What is the present value of the bonds on January 1, 2018?
a. 4,111,400
b. 4,263,000
c. 4,099,600
d. 4,252,580

13. On January 1, 2014, Loyal Company purchased equipment for

P8, 000,000. The equipment is depreciated using straight line
method based on a useful life of 8 years with no residual value.
On January 1, 2017, after 3 years, the equipment was revalued at
a replacement cost of 12,000,000 with no change in residual
value. On June 30, 2017, the equipment was sold for 10,000,000.
What is the effect of the June 30, 2017 transaction to the
retained earnings?
a.2, 500,000 increase C. 5,000,000 increase
b.3,250,000 increase d. 5,750,000 increase
PRACTICAL ACCOUNTING 1

14. A natural resources property was purchased by Nge Wang

Company for 6,000,000. The output was estimated to be 1,500,000
tons. Nge Wang Company purchased a mining equipment at a cost of
8,000,000 and has a useful life of 10 years but is capable of
exhausting the resource in 8 years. Production is as follows:
1st Year 150,000 tons
2nd Year 225,000 tons
3rd Year None
4th Year 225,000 tons
What is the carrying amount of the mining equipment at the end of four
years?
a. 4,800,000 c. 4,200,000
b. 4,000,000 d. 4,500,000

15. Danhag Company has determined its 2008 Net Income is

P3,000,000.In the first time audit of company financial
statements, you determined he following errors:
P400, 000 revenue received in advanced during 2018 was credited to
revenue account.P100, 000 was earned in 2008, P200,00 will be earned
in 2019 and the remainder will be earned in 2010.

A P150, 000 was recognized as a loss resulting from a change in

inventory valuation method during 2008.
What will be the adjusted Net Income during 2019?
A. 2,800,000
B. 3,250,000
C. 2,850,000
D. 2,600,000

16. Lathan Company was organized on January 1,2016 with the

following capital structures:
12%Cumulative preference share,P100 par ,with liquidation value of
P120,50,000 shares authorized, issued and outstanding 20,000
shares,P2,500,000.
Ordinary Share Capital, par value P50, authorized 80,000 shares,
issued and outstanding 20,000 shares, P1, 200,000.

The net income for the years December 31, 2016 and December 31, 2017
were P2, 000,000 and 3,000,000, respectively. No dividends were
declared. What is the December 31, 2018 book value per ordinary
share?
A. 256
B. 291
C. 260
D. 285

17. Meninqiuz Company provided the following information for

the 2018:
Total Assets at December 31 4,500,000
Share Capital at December 31 2,000,000
Share Premium at December 31 200,000
Treasury Stock (at cost) 300,000
The debt-to-equity ratio is 25% at December 3, 2018. What is the
retained earnings unappropriated on December 31, 2018?
a. 1,400,000
b. 1,100,000
c. 2,300,000
d. 1,700,000
PRACTICAL ACCOUNTING 1

18. Felicia Co. owns 20% royalty interest in an oil well.

Felicia receives royalty payments on January 31 for the oil sold
between June 1 and November 30, and July 30 for oil sold between
December 1 and May 31 Production report shows the following
sales:
June 1, 2016-November 30, 2016 4,050,000
December1, 2006-December 31, 2016 675,000
December 1, 2006-may 31, 2017 5,400,000
June 1, 2007-November 30, 2017 4,387,500
December 1, 2007-December31, 2017 945,000
What amount should Felicia report as royalty revenue for 2017?
a.1, 890,000 c.2, 011,500
b.1, 944,000 d.2, 146,000

19. Assume the following balances at the end of the current

year:
Capital Liquidated 1,800,000
Accumulated Depletion 2,500,000
Retained Earnings 1,500,000
Depletion based on 50,000 units extracted @P20 per unit
1,000,000
Inventory of resource deposit 5,000 units
What is the maximum dividend that can be declared by the company?
a. 2,100,000 c.2, 200,000
b.2, 000,000 d.1, 500,000

20. Marie Company sells gift certificates redeemable only when

merchandise is purchased. These gift certificates have an
expiration date of two years after issuance date. Upon redemption
or expiration, Marie recognizes the unearned revenue as realized.
Information for 2017 as follows:
Gift certificate payable 12/31/2016 520,000
Gift certificate payable 12/31/2017 680,000
Gift certificate redeemed 1,560,000
Expired gift certificates 80,000
Cost of goods sold 80%
How much Gift certificates sold during the year?
a. 1,800,000 c. 1,640 ,000
b. 1,500,000 d. 1,760,000

21. PRC Company began selling a new calculator that carried a

two year warranty against defects in 2007.
PRC projected the estimated warranty cost (as a percent of sales)
as follows:
First year warranty 4%
Second year warranty 10%
Sales and actual warranty repairs were:

2007 2008
Sales 5,000,000 9,000,000
Actual warranty repairs 390,000 900,000
What is the estimated warranty liability on December 31, 2017?
a. 670,000 c. 700,000
b. 790,000 d. 650,000

22. On December 31, 2017 Colt Company is experiencing extreme

financial pressure and is in default in meeting interest payment
PRACTICAL ACCOUNTING 1

on its long term note of P6, 000,000 due on December 31, 2019.
The interest rate is 12% payable every December 31.
In an agreement with the creditor, Colt obtained the following changes
in the terms of note:
a. The accrued interest on December 31, 2017 is forgiven.
b. The principal is reduced by 500,000.
c. The new interest rate is 8%.
d. The new date of maturity is December 31, 2021.
The present value of 1 at12% for four periods is 0.6355 and the
present value of an ordinary annuity of 1 at 12% for four periods is
3.0373.
How much is the gain or loss on extinguishment?
a. 2,504,750 c. 1,888,338
b. 1,168,338 d. 0

23. East Company leased machinery from Chin Company on January

1, 2017 for a 10-year period (useful life of 20 years)
Equal annual payments under the lease are P200,000 and are due on
January 1 of each year starting January 1, 2017.
The present value at January 1, 2017 of the lease payments over the
lease term discounted at 10% was 1,352,000. The lease was
appropriately accounted for as finance lease by East because there
is a very nominal bargain purchase option.
What is interest expense for 2018?
a. 106,720 c. 200,000
b. 115,200 d. 0

24. The Cloak Corporation received the following report from

its actuary at the end of the year:

01/01/16 01/31/16

Unrecognized past service cost 500,000 450,000

Accumulated benefit obligation 6,000,000 6,400,000
Fair Value of pension plan assets 5,800,000 6,276,000
Actuarial net gain 800,000 ?
Benefits paid during the year 680,000
Contribution made during the year 520,000
Current service cost 495,000
Expected rate of return 10%
Settlement rate 12%
Ave. working lives of employees 20years

What is the amount of net benefit expense to be charged against income

for the year 2016?

a. 675,000 c. 716,000
b. 685,000 d. 875,000

25. Francisco Company was organized on January 2, 2016 with

300,000 ordinary shares with a P6 par value authorized. During
2006, Francisco had the following stock transactions:

January 2 Issued 60,000 shares at P10 per share

March 8 Issued 20,000 shares at P11 per share.
May 9 Purchased 7,500 shares at P12 per share.
July 2 Issued 15,000 shares at P13 per share.
August 17 Sold 5,000 treasury shares at P14 per share.

Francisco uses the FIFO method for purchase-sale purposes.

PRACTICAL ACCOUNTING 1

If Francisco uses the cost method to record treasury stock

transactions, how much would be the Share Premium at December
31,2016?

a. 445,000 c. 465,000
b. 455,000 d. 485,000

26. Genius Company reported an Accumulated Profits balance of

P300,000 at December 31,2015. In June 2016, Genius discovered
that merchandise costing P100,000 had not been included in the
inventory in its 2015 financial statements. Assume Genius has 35%
tax rate.

What amount should Genius report as adjusted beginning Accumulated

Profits and Losses on January 1, 2016?

a. 235,000 c. 300,000
b. 365,000 d. 400,000

27. In 2014, Power Designs Corporation sold a layout design to

Mass,Inc. and will receive royalties of future revenues
associated with the said layout design. On December 31,2015,
Power Designs reported royalties receivable of P75,000 from Mass,
Inc. During 2006, Power Designs received royalty payments of
P200,000. Mass,Inc. reported revenues of P1,500,000 in 2006 from
the layout design.

In its 2016 Income Statement, what amount should Power Designs report
as royalty revenue?

a. 125,000 c. 200,000
b. 175,000 d. 300,000

28. The following pertains to an operating sale and leaseback

of equipment by Harbor Co. on December 31,2015:

Sales price 420,000

Carrying amount 520,000
Monthly lease payment 37,334
Present value of lease payments/Fair Market Value 420,000
Estimated remaining life 12 years
Lease term 1 year
Implicit rate 12%

What amount of deferred loss should Harbor report at December 31,

2015?

a. 0 c. 100,000
b. 37,334 d. 200,000

29. The Puncher Co. launched a sales promotional campaign on

June 30, 2016. For every ten empty packs returned to Puncher,
customers will receive an attractive food container. The company
estimates that only 30% of the packs reaching the market will be
redeemed. Additional information are as follows:

Units Amount
Sales of food packs 3,000,000 P9,000,000
PRACTICAL ACCOUNTING 1

Food containers purchased 60 180,000

Prizes distributed to customers 37,000

At the end of the year, Puncher recognized a liability equal to the

estimated cost of potential prizes outstanding.
What is the amount of this estimated liability?

a. 69,000 c. 159,000
b. 90,000 d. 180,000

30. Green Company has 2,000,000 shares of ordinary shares

outstanding on December 31, 2015. An additional 100,000 shares
are issued on April 1, 2016 and 240,000 more on September 1. On
October 1, Green issued P3,000,000 of 9% convertible bonds. Each
bond is convertible into 40 shares of ordinary shares. At the
time of issue of the convertible bonds, the market rate of the
bonds without conversion option is equal to its nominal rate. No
bonds have been converted.

The number of shares to be issued in computing basic earnings per

share and diluted earnings per share on December 31, 2016 would be:

a. 2,155,000 & 2,155,000 c. 2,155,000

b. 2.155.000 & 2,275,000 d. 2,540,000

31. Tarzana Company reported total purchases of P3,200,000 in

its accrual basis financial statement on December 31,2006.
Additional information revealed the following:

Accounts Payable, December 31,2015 P 900,000

Accounts Payable, December 31,2016 1,250,000

What is the amount of purchases under the cash basis on December

31,2016?

a. 2,850,000 c. 4,100,000
b. 3,550,000 d. 4,450,000

32. On March 31, 2015 Mr. Right Enterprise traded in an old

machine having a carrying amount of P1,600,000 and paid cash
difference of P600,000 for a new machine having a total cash
price of P2,000,000.

On March 31,2015, what amount of loss should Mr. Right recognize

on this exchange?

a. P 0 c. P400,000
b. P200,000 d. P600,000

33. On April 30, 2015, Shark Corporation purchased for P 30 per

share all 200,000 of Fins Corporations outstanding ordinary
share. On this date, Fins balance sheet showed net assets of P
5,000,000. Additionally, the fair value of Fins identifiable
assets on the same date was P600,000 in excess of their carrying
amount.

What amount should Shark report as goodwill in its April 30, 2015
consolidated balance sheet?

a. P 0 c. P600,000
PRACTICAL ACCOUNTING 1

b. P400,000 d. P 1,000,000

34. You noted the following composition of Malabon Companys

cash account as of December 31, 2016 in connection with your
audit:
Demand deposit account P2,000,000
Time deposit 30 days 1,000,000
NSF check of customer 40,000
Money market placement (due June 30, 2017) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
Petty cash fund 10,000
Customers check dated January 1, 2017 50,000
Customers check outstanding for 18 months 40,000
Total P7,760,000

Additional information follows:

a) Check of P200,000 in payment of accounts payable was recorded on
December 31, 2016 but mailed to suppliers on January 5, 2017.
b) Check of P100,000 dated January 15, 2017 in payment of accounts
payable was recorded and mailed on December 31, 2016.
c) The company uses the calendar year. The cash receipts journal was
held open until January 15, 2017, during which time P400,000 was
collected and recorded on December 31, 2016.

Question:
The cash and cash equivalents to be shown on the December 31, 2016
balance sheet is
a. P3,310,000 c. P2,910,000
b. P1,910,000 d. P4,410,000

35. To increase sales, Adversity Company inaugurated a

promotional campaign on June 30, 2018. Adversity placed a coupon
redeemable for a premium in each package of cereal sold at P300.
Each premium cost P200. A premium is offered to customers who
send in 5 coupons and a remittance of P50. The distribution cost
per premium is P10. Adversity estimated that only 80% of the
coupons issued will be redeemed. For the six months ended
December 31, 2018, the following is available:
Packages of cereal sold 50,000
Premiums purchased 8,000
Coupons redeemed 30,000
What is the estimated liability for coupons on December 31, 2018?
a. 320,000
b. 1,500,000
c. 400,000
d. 1,280,000
36. Advisory Company includes one coupon in each box of laundry
soap it sells. A towel is offered as a premium to customers who
send in 10 coupons and a remittance of P5. Data for the premium
offer are:
2017 2018
Boxes of soap sold 1,000,000 1,500,000
Number of towels purchased at P50 per
towel 40,000 65,000
Number of towels distributed as premium
35,000 58,000
Number of towels to be distributed as
premium next period 3,000 5,000
PRACTICAL ACCOUNTING 1

In its 2018 income statement, Advisory Company should report premium

expense at
a. 3,000,000
b. 2,700,000
c. 2,610,000
d. 2,835,000

37. Destination Company launched a sales promotional campaign

on June 30, 2018. For every ten empty packs returned to
Destination, customers will receive an attractive food container.
The company estimates that only 30% of the packs reaching the
market will be redeemed. Additional data are as follows:

Units Amount

Sales of food packs 3,000,000 9,000,000

Food containers purchased 60,000 1,800,000

Prizes distributed to customers 37,000

At the end of the year, Destination should recognize a liability

equal to the estimated cost of potential prizes at

a. 1,800,000
b. 1,590,000
c. 900,000
d. 690,000
38. During 2018, Luciana Company introduced a new product
carrying a two-year warranty against defects. The estimated
warranty costs related to peso sales are 3% within 12 months
following sale and 5% in the second 12 months following sale.
Sales and actual warranty expenditures for the years ended
December 31, 2017 and 2018 are as follows:
Sales Actual
expenditures
2007 40,000,000 1,000,000
2008 50,000,000 4,000,000
At December 31, 2018, Luciana would report estimated warranty
liability of
a. 2,500,000
b. 2,200,000
c. 1,500,000
d. 0

39. Included in Ingenuity Companys liability balances at

December 31, 2018 were the following:
10% note payable issued on October 1, 2007, maturing
October 1, 2019 3,000,000
12% note payable issued on March 1, 2006, maturing on 5,000,000
March 1, 2019
Ingenuitys 2008 financial statements were issued on March 31, 2009.
On January 31, 2019, the entire P5,000,000 balance of the 12% note
payable was refinanced through issuance of a long-term obligation
payable lump sum. Under the loan agreement for the 10% note payable,
Ingenuity has the discretion to refinance the obligation for at
PRACTICAL ACCOUNTING 1

least twelve months after December 31, 2018. What amount of the
notes payable should be classified as current on December 31, 2018?
a. 8,000,000
b. 5,000,000
c. 3,000,000
d. 0

40. Patio Company sells gift certificates redeemable only when

merchandise is purchased. The certificates have an expiration
date two years after issuance date. Upon redemption or
expiration, Patio recognizes the unearned revenue as realized.
Data for 2018 are as follows:
Unearned revenue, 1/1/2018 2,500,000
Gift certificates sold 6,000,000
Gift certificates redeemed 6,500,000
Expired gift certificates 500,000
Cost of goods sold 60%
At December 31, 2018, Patio report unearned revenue for gift
certificates of
a. 1,500,000
b. 2,000,000
c. 1,000,000
8d. 500,000
41. Horner Company requires advance payments with special orders
for machinery constructed to customer specifications. These
advances are nonrefundable. Data for the year are:
Customer advances 6,800,000
Advances received with orders in 2018 9,000,000
Advances applied to orders shipped in 8,700,000
2018
Advances applicable to orders canceled in 2,600,000
2018
The December 31, 2018 balance sheet should report current
liability for advances at
a. 4,500,000
b. 7,100,000
c. 6,400,000
d. 4,400,000
43. On November 5, 2018, a Breakthrough Company truck was in an
accident with an auto driven by McAllen. Breakthrough received
notice on January 15, 2019, of a lawsuit for P4,000,000 damages for
personal injuries suffered by McAllen. Breakthroughs counsel
believes it is probable that McAllen will be awarded an estimated
amount in the range between P2,000,000 and P3,000,000, and no amount
is a better estimate of potential liability than any other amount.
The accounting year, ends on December 31, and the 2018 financial
statements were issued on March 31, 2019. What amount of provision
should Breakthrough accrue at December 31, 2018?
a. 4,000,000
b. 3,000,000
c. 2,000,000
d. 2,500,000