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 EXAMINATIONS February 15, 2009 @ 8:00 10:00 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. Forex Company prepared the following reconciliation of income per book with
income per tax return for the year ended December 31, 2008:
Book income before income tax P15,000,000
Add temporary difference:
Construction contract revenue which will
reverse in 2009 2,000,000
Deduct temporary difference:
Depreciation expense which will reverse in
equal amounts in each of the next 4 years ( 8,000,000)
Taxable income P 9,000,000
If the income tax rate is 32%, what amount should Forex report in its 2008 income
statement as the current provision for income tax?
(a) P3,150,000 (b) P5,250,000 (c) P5,950,000 (d) P2,450,000
A

Current tax liability (9,000,000 x 35%) P3,150,000

2. The following information pertains to Malt Company on December 31 of the current

year:
Property, plant and equipment P 5,000,000
Accumulated depreciation 1,500,000
Accounts receivable 1,000,000
Prepaid insurance 50,000
Short-term note payable 150,000
Cash 500,000
Bonds payable 4,000,000
Total assets 8,950,000
Land 2,000,000
Accounts payable 800,000
Allowance for doubtful accounts 100,000
Merchandise inventory 1,300,000
Short-term investments 700,000
Wages payable 200,000
Total liabilities 5,450,000
Premium on bonds payable 300,000
The December 31 working capital is:
(a) P3,450,000 (b) P2,300,000 (c) P3,550,000 (d) P2,000,000
B

Accounts receivable P1,000,000

Prepaid insurance 50,000
Short-term note payable ( 150,000)
Cash 500,000
Accounts payable ( 800,000)
Allowance for doubtful accounts ( 100,000)
Merchandise inventory 1,300,000
Short-term investments 700,000
Wages payable ( 200,000)
Working capital P2,300,000

3. Hort Corporation had 100,000 shares of P100 par, 10%, preferred shares and
400,000 shares of P100 par, 8%, preferred shares outstanding the entire year. Both
classes of the preferred shares were considered not to be ordinary shares
equivalents. In addition to its preferred shares, Hort had 1,000,000 ordinary shares
 outstanding for 3 months and 1,500,000 ordinary shares outstanding for 9 months.
What was Horts net income for the year if its basic earnings per share were P4.75?
(a) P10,731,250 (b) P9,731,250 (c) P6,531,250 (d) P5,531,250
A

4. Aries uses the cash basis of accounting and reported income of P87,000 in 2008.
The following items were not considered in the computation of cash basis net
income:
Inventory, beginning P12,000
Inventory, ending 18,000
Receivables, beginning 40,000
Receivables, ending 38,000
Payables, beginning 19,000
Payables, ending 25,000
The accrual basis income is:
(a) P97,000 (b) P89,000 (c) P77,000 (d) P85,000 D

Reported net income cash basis P 87,000

Increase in inventory (P18,000 12,000) 6,000
Decrease in accounts receivable (P40,000 P38,000) ( 2,000)
Increase in accounts payable (P25,000 P19,000) ( 6,000)
Adjusting income accrual basis P 85,000

5. The accountant for the Eastern Company assembled the following data:
June 30 July 31
Cash account balance P 15,822 P 39,745
Bank statement balance 107,082 137,817
Deposit in transit 8,201 12,800
Outstanding checks 27,718 30,112
Bank service charge * 72 60
Customers check deposited July 10,
returned by bank on July 16 marked
NSF, and redeposited immediately;
no entry made on books for return
or redeposit 8,250
Collection by bank of companys notes
receivables 71,815 80,900
* recorded on books in months following charge or collection.
The bank statements and the companys cash records show these totals:
Disbursements in July per bank statement P218,373
Cash receipts in July per Easterns books 236,452
Checks written in July per Easterns books 212,529
Receipts in July per bank statement 249,108
What is the correct cash balance to be shown on Eastern Companys balance sheet
at December 31, 2008?
(a) P128,835 (b) P112,335 (c) P120,585 (d) P115,906C

Balance per bank P137,817

Deposit in transit 12,800
Outstanding checks ( 30,112)
Adjusted cash balance P120,585

6. Selected information from Kit Companys accounting records is as follows:

Cash paid to retire common stock P 12,000
Proceeds from issuance of preferred stock 15,000
Cash dividends paid 5,000
Proceeds from sale of equipment 25,000
On the statement of cash flows for the year, Kit should report net cash flow from
financing activities as:
(a) P2,000, net outflow of cash (c) P23,000, net outflow of cash
(b) P13,000, net outflow of cash (d) P25,000, net inflow of cash
A

Cash paid to retire common stock (12,000)

Proceeds from issuance of preferred stock 15,000
Cash dividends paid ( 5,000)
Cash flow from financing activities ( 2,000)
7. On November 30, 2007, 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, 2008 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, 2007, P39 on December 31, 2008, and P41 on January 15, 2009.
How much should Parola accrue for royalties payable at December 31, 2008?
(a) P180,000 (b) P205,000 (c) P195,000 (d) P200,000 C

Royalties payable 12/31/2008

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

8. The following information pertains to Helen Company for the current year:
Monetary assets: January 1 250,000
December 31 700,000
Monetary liabilities: January 1 100,000
December 31 300,000
Increase in net monetary items as restated for
hyperinflation 3,500,000
Decrease in net monetary items as restated for
hyperinflation 3,000,000
General price index: January 1 125
December 31 300
What is the gain or loss on purchasing power for the current year?
(a) P460,000 gain (c) P250,000 gain
(b) P460,000 loss (d) P250,000 loss B

Monetary assets January 1 250,000

Monetary liabilities January 1 100,000
Net monetary assets January 1 at cost 150,000

Net monetary assets January 1 as restated

(150,000 x 300/125) 360,000
Increase in net monetary items as restated 3,500,000
Decrease in net monetary items as restated (3,000,000)
Net monetary assets December 31 as restated 860,000

Monetary assets December 31 700,000

Monetary liabilities December 31 300,000
Net monetary assets December 31 at cost 400,000
Net monetary assets December 31 as restated ( 860,000)
Loss on purchasing power ( 460,000)

9. The following is a statement of retained earnings for the current year provided by
Laser Company (in millions):
Balance at beginning of year 85,000
Additions:
Change in estimate of amortization
expense for the year 2,500
Gain on sale of land 18,000
Interest revenue 4,500
Profit and loss for current year 13,000 38,000
Total 123,000
Deductions:
Increased depreciation due to change in
estimated life 5,000
Dividends declared and paid 11,000
Loss on sale of equipment 3,000
Loss from major casualty 7,000 26,000
Balance at end of year 97,000

What net income should have been reported in the income statement for the
year?
(a) P23,000 (b) P13,000 (c) P12,000 (d) P25,500 A
 Profit and loss for current year 13,000
Change in estimate of amortization expense 2,500
Gain on sale of land 18,000
Interest revenue 4,500
Increased depreciation due to change in
estimated life (5,000)
Loss on sale of equipment (3,000)
Loss from major casualty (7,000)
Adjusted net income 23,000

10.Chester Corporation was a development stage enterprise from its inception on

September 1, 2007 to December 31, 2008. 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, 2007 to December 31, 2008, what amount should
Chester report as net loss?
(a) P50,000 (b) P150,000 (c) P350,000 (d) P450,000D

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

11.The book value of Goods inventory at the end of 2008 is P95,000. Included in the
amount are the following items:
Merchandise in transit, purchased FOB shipping point P6,800
Goods held as consignee 5,000
Goods out on consignment, at cost plus 50% markup
on cot plus P100 delivery charge 6,100
The correct amount of inventory is:
(a) P83,100 (b) P87,900 (c) P86,200 (d) P88,000 D

Inventory per books, December 31 P95,000

Goods held as consignee ( 5,000)
Markup on goods out on consignment
[6,000 (6,000/ 1.50)] ( 2,000)
Inventory as adjusted, December 31 P88,000

12.Manuel Lim, an investor, had the following transactions on Apollo Mining Corp.
common stock during the year 2008:
Feb 8 Purchased 200 shares of Apollo common stock at P60 per share, plus
brokers commission of P720.
June 10 Received a 100% stock dividend and a cash dividend of P5 per share.
Nov. 3 Received stock rights entitling him to purchase one new share at P50 for
every four shares held. On this date, sold rights at P5 each and 100 shares
at P70 each share.
Nov 21 Exercised 300 rights.
What is the gain on sales of 100 stock rights on November 3, 2008?
(a) 0 (b) 100 (c) 288 (d) 344
C

Proceeds from sale of stock rights (100 rights x 5) 500

Less: Cost allocated to 100 stock rights (848* x ) 212
Gain on sale 288

* Cost of stock purchased (200 shares x 60) + 720 12,720

Cost allocated to stock rights [5/(70 + 5)] x 12,720 848

13.On January 1, 2008, Mid Company purchased ten-year bonds with a face value of
P1,000,000 and a stated interest rate of 8% per year payable semi-annually July 1
 and January 1. The bonds were acquired to yield 10%. The purchase price of the
bonds is:
(a) P1,124,620 (b) P1,100,000 (c) P1,000,000 (d)
P875,380 D

Semiannual nominal interest (1,000,000 x 4%) P 40,000

Semiannual effective interest (1,000,00 x 5%) 50,000
Difference P 10,000
PV of annuity of P1 for 20 periods at 5% x 12.462
Discount P124,620

Face value P1,000,000

Discount ( 124,620)
Purchase price P 875,380

14.On December 31, 2008, Act Corporation signed a 7-year capital lease for an
airplane to transport its sport team around the country. The airplanes fair value
was P8,415,000. Act made the first annual lease payment of P1,530,000 on
December 31, 2008. Acts incremental borrowing rate was 12%, and the interest
rate implicit in the lease, which was known by Act, was 9%. The following are the
rounded present value factors for an annuity due:
9% for 7 years 5.5 12% for 7 years 5.1
What amount should Act report as capital lease liability in its December 31, 2008
balance sheet?
(a) P8,415,000 (b) P7,803,000 (c) P6,885,000 (d) P6,273,000
C

PV, December 31, 2008 (1,530,000 x 5.5) P8,415,000

First payment on December 31, 2008
(all applicable to principal) (1,530,000)
Lease liability 12/31/2008 P6,885,000

15.On January 1, 2008, Cherry Company issued 4,000 of its 8%, P2,000 bonds at 97
plus accrued interest. The bonds are dated October 1, 2007 and mature on October
1, 2017. Interest is payable semiannually on April 1 and October 1. Accrued
interest for the period October 1, 2007 to January 1, 2008 amounted to P160,000.
On January 1, 2008, what amount should Cherry report as bonds payable, net of
discount?
(a) P7,840,000 (b) P7,766,000 (c) P7,600,000 (d) P7,760,000
D

(4,000 x 2,000 x 97%) P7,760,000

16.Ben Companys current liabilities at December 31, 2008 totaled P2,000,000 before
any necessary year-end adjustment relating to the following:
a. During December 2008, Bea received P100,000 from ABC as an advance
payment. From this transaction, Bea has a P100,000 credit balance in its
accounts receivable from ABC at December 31, 2008.
b. On December 26, 2008, Bea wrote and recorded checks to creditors totaling
P800,000 which would cause an overdraft of P200,000 in Beas bank account at
December 31, 2008. The checks were mailed out on January 10, 2008.
At December 31, 2008, what amount should Bea report as total current liabilities?
(a) P2,100,000 (b) P2,300,000 (c) P2,800,000 (d) P2,900,000
D

Unadjusted balance P2,000,000

Customer accounts with credit balance 100,000
Undelivered check 800,000
Adjusted balance P2,900,000

17.JM Construction Co. started work on three jobs during the current year. Data
relating to the three jobs are given below:
Estimated
Contract Cost cost to Billings on
Collections
Site price incurred complete contract on contract
Sasa P500,000 P375,000 P 0 P500,000 P400,000
 Matina 700,000 100,000 400,000 100,000 50,000
Toril 250,000 100,000 100,000 0 0

What amount of income should be reported for the current year if the percentage of
completion method is used for all contracts?
(a) P65,000 (b) P190,000 (c) P215,000 (d) P240,000 B

Sasa Matina Toril

Cost incurred 375,000 P100,000 P100,000
Cost to complete 0 400,000 100,000
Total estd. cost P375,000 P500,000 P 200,000
% of completion 100% 20% 50%

Sasa Matina Toril Total

Contract price P500,000 P700,000 P250,000 P1,450,000
Less: Estimated cost 375,000 500,000 200,000 1,075,000
Estimated profit P125,000 P200,000 P 50,000 P 375,000
Multiply: % of completion
100% 20% 50% _________
Gross profit to be
recognized P125,000 P 40,000 P 25,000 P 190,000

What would be the amount of Construction in Progress to be reported on the

balance sheet if the percentage of completion method is used?
(a) P165,000 (b) P265,000 (c) P575,000 (d) P765,000B

Matina Toril Total

Cost incurred P100,000 P100,000 P200,000
Profit recognized 40,000 25,000 65,000
Construction in progress P140,000 P125,000 P265,000

18.Prey Company purchased a tooling machine in 1999 for P500,000. The machine
was being depreciated on the straight-line method over an estimated life of 20
years, with no salvage value. At the beginning of 2009, when the machine had
been in use for 10 years, Prey Company paid P50,000 to overhaul the machine. As
a result of this improvement, it is estimated that the useful life of the machine
would be extended an additional five years. What should be the depreciation
expense recorded for the above machine in 2009?
(a) P25,000 (b) P20,000 (c) P22,000 (d) P30,000 B

Original cost P500,000

Less: Accum. depreciation:
(500,000 x 10/20) P250,000
Cost to overhaul ( 50,000) (200,000)
Book value 1/1/2009 P300,000
Depreciation [ 300,000/(20+5-10)] P 20,000

19.Mercurial Corporation reported the following balances on January 1, 2008:

Accounts receivable P1,500,000
Allowance for doubtful accounts 90,000
During 2008, Mercury Corporation reported credit sales of P9,000,000 and interim
provision for doubtful accounts at 2% of credit sales. Accounts of P100,000 were
written off during 2008 but accounts of P20,000 were subsequently recovered. The
balance of accounts receivable on December 31, 2008 amounted to P2,000,000 and
aged as follows:
Classification Balance Estimated uncollectible
Under 30 days P1,000,000 1%
31 60 days 400,000 5%
61 120 days 300,000 10%
121- 180 days 200,000 25%
Over 180 days 100,000 100%
Based on the review of collectibility of account balances, additional receivables of
P40,000 under the classification more than one year are to be written off on
December 31, 2008. Mercury Corporation should report doubtful accounts expense
for 2008 in the amount of:
(a) P200,000 (b) P170,000 (c) P240,000 (d) P20,000 A
 Under 30 days P1,000,000 x 1% P 10,000
31 60 days 400,000 x 5% 20,000
61 120 days 300,000 x 10% 30,000
121- 180 days 200,000 x 25% 50,000
Over 180 days 100,000 x 100% 60,000
Allowance 12/31 P170,000
Write off 140,000
Allowance 1/1 ( 90,000)
Recovery ( 20,000)
Doubtful accounts expense P200,000
20.Due to extreme financial difficulties, Art Company has negotiated a restructuring of
its 10% P5,000,000 note payable due on December 31, 2008. The unpaid interest
on the note on such date is P500,000. The creditor has agreed to reduce the face
value to P4,000,000, forgive the unpaid interest, reduce the interest rate to 8% and
extend the due date three years from December 31, 2008. Art should report gain
on extinguishment of debt in its 2008 income statement at:
(a) P1,703,200 (b) P1,203,200 (c) P2,000,000 (d) P540,000 C

PV of principal (4,000,000 x .75) 3,000,000

PV of annual interest payments
(320,000 x 2.49) 796,800
Total present value of new liability 3,796,800

Note payable old 5,000,000

Accrued interest payable 500,000
Total old liability 5,500,000
PV of new liability (3,796,800)
Gain on extinguishment of debt 1,703,200

Note payable new 4,000,000

PV of new liability (3,796,800)
Discount on note payable 203,200

Entry:
Notes payable old 5,000,000
Accrued interest payable 500,000
Discount on notes payable 203,200
Notes payable new 4,000,000
Gain on extinguishment of debt 1,703,200

21.Sky Company has established a defined benefit pension plan for its employees.
Annual payments under the pension plan are equal to 3% of an employees highest
lifetime salary multiplied by the number of years with the company. An employees
salary in 2008 was P500,000. The employee is expected to retire in 10 years, and
his salary increases are expected to average 4% per year during that period. As of
December 31, 2008, the employee has worked for 15 years. The future value of 1
at 4% for 10 periods is 1.48.
What is the amount of annual pension payment that should be used in
computing the employees projected benefit obligation as of December 31, 2008?
(a) P555,000 (b) P375,000 (c) P333,000 (d) P225,000C

Future salary (500,000 x 1.48) 740,000

Annual pension payment PBO (740,000 x 3% x 15 years) 333,000

Annual pension payment ABO (500,000 x 3% x 15 years) 225,000

Projected benefit obligation is based on future salary while accumulated benefit

obligation is based on current salary.

PAS dictates the concept of projected benefit obligation which reflects future salary
increases. Also, projected unit credit method considers future salary increase in
computing the defined benefit obligation.

22.Ty Company, a publicly owned corporation, assesses performance and makes

operating decisions using the following information for its reportable segments:
Total revenue P7,680,000
Total profit and loss 406,000
 Included in the total profit and loss are intersegment profit of P61,000 In addition,
Ty has P5,000 of common costs for its reportable segments that are not allocated in
reports used internally. For purposes of segment reporting, Ty report segment profit
of:
(a) P350,000 (b) P345,000 (c) P411,000 (d) P406,000D

23.Cable began operations in 2005. During the first 5 years of operations, it reported
the following net loss or income:
2005 P400,000 loss 2008 P1,670,000 income
2006 170,000 loss 2009 1,950,000 income
2007 240,000 loss
You are given the following capital accounts at December 31, 2009:
Common stock, par P8 per share, authorized, issued
and outstanding, 140,000 shares P1,120,000
5% non-participating, non-cumulative preferred stock,
par P100, authorized, issued and outstanding
2,500 shares 250,000
9% non-participating, cumulative preferred stock,
par P100, authorized and issued in 2001 and
outstanding 20,000 shares 2,000,000
The company has never paid a cash dividend in any other type of dividend. The
amount of dividends that can be paid out of retained earnings at the end of 2008 is:
(a) P1,670,000 (b) P2,810,000 (c) P860,000 (d) P1,950,000 C

2001 P400,000 loss

2002 170,000 loss
2003 240,000 loss
2004 1,670,000 income
Ret. earnings, Dec. 31, 2008 P860,000

24.The Shopping Mall has 3,000 shares of P200 par value, 7% cumulative and
nonparticipating preferred stock and 10,000 shares of P20 par value common stock.
Dividends have not been paid on the preferred stock for the current and one prior
year. The corporation has been enjoying brisk sales, and the Board of Directors has
voted out P98,000 of the corporations retained earnings in dividends. If the
P98,000 is paid out, how much should the preferred and common stockholders
receive on per share basis?
(a) P14 per share preferred and P5.60 per share common
(b) P2.28 per share preferred and P9.12 per share common
(c) P28 per share preferred and P1.40 per share common
(d) P24.50 per share preferred and P2.46 per share common C

Preferred Common
To preferred (600,000 x .07 x 2) P84,000
Balance to common (98,000 84,000) P14,000
Divide by no. of shares outstanding 3,000 10,000
Dividends per share P 28.00 P 1.40

25.Fritz Company enters into a call option contract with a bank on January 1, 2008 that
gives the entity the option to purchase 10,000 shares at P100 per share. The option
expires on April 30, 2008. The shares are trading at P100 per share on January 1,
2008, at which time Fritz pays P10,000 for the call option. The market price per
share is P120 on April 30, 2008, and the time value of the option has not changed.
In order to settle the option contract, Fritz would most likely:
(a) Pay the bank P200,000
(b) Purchase the shares at P100 per share and sell the shares at P120 per share to
the bank
(c) Receive P200,000 from the bank
(d) Receive P190,000 from the bank C

Call option receipt (10,000 x 20) 200,000

26.Mart Companys post-closing trial balance at December 31, 2008 appear as follows:
Accounts payable and accrued liabilities 3,000,000
Accounts receivable 6,000,000
Accumulated depreciation 2,500,000
Allowance for doubtful accounts 800,000
 Bonds payable 5,000,000
Property, plant and equipment 11,000,000
Cash 2,500,000
Common stock (P50 par value) 6,000,000
Dividends payable 200,000
Inventory 8,000,000
Trading securities 3,500,000
Investment in equity securities at cost 2,000,000
Unrealized loss on trading securities 500,000
Additional paid in capital common
In excess of par 5,000,000
From sale of treasury stock 1,000,000
Preferred stock (P25 par value) 5,000,000
Retained earnings 6,500,000
Treasury stock common, at cost 1,500,000
At December 31, 2008, Mart had the following number of common and preferred
shares:
Common Preferred
Authorized 300,000 300,000
Issued 120,000 200,000
Outstanding 100,000 200,000
The dividend on preferred stock is 10% cumulative. The preferred stock has a
preference in liquidation of P50 per share. What is the total stockholders equity on
December 31, 2008?
(a) P22,000,000 (b) P21,500,000 (c) P21,700,000 (d) P23,500,000 B

Common stock P 6,000,000

Preferred stock 5,000,000
Additional paid in capital 6,000,000
Retained earnings 6,500,000
Treasury stock ( 1,500,000)
Total stockholders equity P22,000,000

27.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 P80,000 collected.

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

28.You were approached by the parish priest to determine if there is a cash shortage or
overage of the parish finances as of September 30, 2008. He stated that he does
not maintain a good internal control over its cash transactions. The parish records
show a balance of cash on hand and in bank of P25,095.00. You counted the cash
on hand amounting to P14,560.00. A pledge of P200.00 was collected by the bank
and for which a service charge of P15.00 did not appear in the parish records. The
bank statement balance is P18,500.00. Outstanding checks amounted to
P6,850.00. Based from the foregoing information, there is a cash shortage or cash
overage of:
(a) P930.00 cash shortage (c) P930.00 cash overage
(b) P11,650.00 cash shortage (d) P11,650.00 cash overage
C

Accountability:
Cash on hand and in bank, per record P25,095
Collection by bank 200
Bank service charge ( 15)
Per audit P25,280
 Per record:
Balance per bank P18,500
Outstanding checks ( 6,850)
Balance P11,650
Add: Cash on hand 14,560 (26,210)
Cash overage (P 930)

29.Lemke Company carried out a number of transactions involving the acquisition of

several assets. All expenditures were recorded in the following single asset account
identified as property, plant and equipment:
Acquisition price of land and building P7,200,000
Options taken out of several pieces of property 240,000
List price of machinery purchased 1,500,000
Freight on machinery purchased 50,000
Repair to machinery resulting from damage
during shipment 10,000
Cost of removing old machinery 20,000
Driveways and sidewalks 200,000
Building remodeling 500,000
Utilities paid since acquisition of building 30,000
Based on property tax assessments, which are believed to fairly represent the
relative value involved, the building is worth twice as much as the land. The
machinery was subject to a 2% cash discount, which was taken and credited to
purchase discounts. Of the two options, P180,000 related to the building and land
purchased and P60,000 related to those not purchased. The old machinery was sold
at book value.

What is the cost of the land?

(a) P2,460,000 (b) P4,860,000 (c) P2,480,000 (d) P2,660,000
A

Acquisition cost (7,200,000 x 1/3) P2,400,000

Option (180,000 x 1/3) 60,000
Total cost of land P2,460,000

30.The following costs were among those incurred by Wendel Corporation during 2004:
Merchandise purchased for resale P500,000
Salesmens commissions 40,000
Interest on notes payable to vendors 5,000
How much should be charged to the cost of merchandise purchases?
(a) P500,000 (b) P505,000 (c) P540,000 (d) P545,000A

* end of the examination practical accounting 1*