P1 Robles PDF

Chapter 1 – Cash and Cash Equivalents
A. 1. C Cash balance per bank statement P556,800

Outstanding checks (98,850)
Deposit on June 30 not recorded by bank 6,000
Deposits in transit 134,250
Correct cash balance P598,200
2. C Balance per books P691,720

Correct cash balance 598,200
Net adjustment to the cash account (reduction/credit) P 93,520
B. 3. C Deposit in transit, May 31 P22,500

Add receipts per books 2,618,200
Deduct deposits per bank (2,569,200)
Deposit in transit, June 30, 2016 P 71,500
4. D Outstanding checks, May 31 P 41,800

Disbursements per books
Reported per ledger P2,566,400
Check for P23,300 recorded as P32,300 (9,000)
Check for P18,000 recorded as P1,800 16,200
Correct disbursements per books 2,573,600
Checks that cleared the bank
Reported checks that cleared the bank P2,570,700
Check erroneously charged by bank (21,000) (2,549,700)
Outstanding checks, June 30, 2016 P 65,700
5. A Balance per bank statement, June 30 P778,300

Deposits in transit 71,500
Erroneous charge by bank 21,000
Correct cash balance, June 30 P805,100
C. 6. B Currencies and coins P 8,500

Replenishment check 2,320
Correct petty cash balance P10,820
7. Petty cash fund P 10,820

Cash on hand (190,700 – 30,000 – 15,000) 145,700
Metrobank current account (310,200 + 25,000 + 43,000) 378,200
Allied bank current account, net (320,000 – 40,000) 280,000
Total cash on hand and in banks P814,720
D. 8. A Balance per bank, August 31 (750,000 + 550,000 – 480,000) P820,000

No sufficient fund check 40,000
Service charge 2,000
Deposit in transit 190,000
Unadjusted cash balance per books P902,000
9. C Deposit in transit, end P190,000

Deposits per bank 550,000
Deposit in transit, beginning (120,000)
Cash receipts per books during August P620,000
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10. C Outstanding checks, end P150,000
Checks that cleared the bank during August
Total charges P480,000
No-sufficient fund check (40,000)
Service charges (2,000)
Erroneous bank credit in July cleared in August (50,000) 388,000
Outstanding checks, beginning (140,000)
Cash disbursements per books during August P398,000
11. B Cash balance per books (from No. 8) P902,000

No-sufficent fund checks (40,000)
Service charges (2,000)
Or
Cash balance per bank P820,000
E. 12. D See proof of cash below P5,776,500
13. B See proof of cash below P4,617,750
14. A See proof of cash below P3,212,250
March 31 Receipts Disbursements April 30

Balances per bank statement 2,203,500 5,251,500 4,357,750 3,097,250
Deposit in transit, March 31 125,000 (125,000)
Deposit in transit, April 30 670,000 670,000
Outstanding checks, March 31 (275,000) (275,000)
Outstanding checks, April 30 580,000 (580,000)
Erroneous bank credit (20,000) (20,000)
Loan amortization debited by bank (45,000) 45,000
Adjusted balances 2,053,500 5,776,500 4,617,750 3,212,250
Balances per books 2,038,300 5,601,000 4,619,800 3,019,500

Note collected by bank 17,000 (17,000)
Bank service charge for March (1,800) (1,800)
Bank service charge for April 2,450 (2,450)
Proceeds of own note discounted
200,000–(200,000 x .12 x 6/12) 188,000 188,000
Understated April book receipts 4,500 4,500
Overstated April book disbursements (2,700) 2,700
Adjusted balances 2,053,500 5,776,500 4,617,750 3,212,250
F. 15. C Note collected by bank P93,500

Company check for P18,300 erroneously recorded as P13,800 (4,500)
NSF check returned by bank (25,000)
Service charge for December (1,500)
Net debit adjustment to the cash balance P62,500
16. B Cash balance per ledger P852,400

Net debit adjustment to cash 62,500
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G. 17. A Cash in Metrobank P1,875,000
Cash in BPI 200,000
Cash on hand (125,000 – 15,000) 110,000
Total cash P2,185,000
H. 18. B Cash in Metrobank (99,320 -5,200) P 94,120

Savings account at Far East Bank 30,800
Petty cash fund (1,500 – 250) 1,250
Cash on hand 4,200
Cash in foreign bank (in equivalent pesos) 62,000
Travelers check 4,450
Certified check 3,120
90-day BSP treasury bills 12,000
Total cash and cash equivalents P211,940
I. 19. C Checkbook balance P123,450

NSF check included in checkbook balance (12,500)
Undelivered check recorded in the books 8,275
Adjusted cash balance P119,225
J. 20. B Bank statement balance P146,570

Correct cash balance P 78,100
K. 21. B Cash in BDO P320,000

Petty cash fund 580
Total cash, April 30 P320,580
L. 22. C Deposit in transit, July 31 P95,000

Cash receipts per ledger 321,000
Deposits per bank statement (302,000)
Deposit in transit, August 31 P114,000
23. C Outstanding checks, August 31 P125,800

Checks that cleared during August 326,000
Cash disbursements per ledger (265,000)
Outstanding checks, July 31 P186,800
M. 24. D Bank statement balance P102,000

Balance per books P128,000
Service charge (6,000)
Customer’s no sufficient fund check (20,000)
Face value of note collected by bank 15,000
Balance before interest on note 117,000
Interest on note collected by bank P 1,300
N. 25. C Currencies P 5,600

Coins 450
Paid vouchers for office supplies dated July 2 1,750
Replenishment check 3,850
Correct amount of petty cash P11,650
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26. A Imprest balance of petty cash fund P15,000
Total amount in the fund
Correct amount of petty cash P11,650
Paid vouchers dated June 29 300
Loans to employees 3,000 14,950
Shortage P 50
O. 27. A Imprest balance of petty cash fund P10,000.00

Count of cash on hand on June 30 P3,557.40
Paid vouchers (841.60 + 780 + 1,000 + 1,321.40 + 837.60) 4,780.60
Receivable from employee 1,100.00 9,438.00
Cash shortage P 562.00
P. 28. D Total disbursements per books for December (refer to proof of

cash) P407,500
29. B November 30 unadjusted balance per bank (refer to proof of cash) P269,500
30. A Total cash receipts per bank during December (refer to proof of
cash) P490,000
31. D Total disbursements per bank during December (refer to proof of

cash) P396,000
32. B Unadjusted bank balance, December 31 P363,500
Nov. 30 Receipts Disbursements Dec. 31

Balances per bank statement 269,500 490,000 396,000 363,500
Deposit in transit, Nov. 30 36,000 (36,000)
Deposit in transit, Dec. 31 28,750 28,750
Outstanding checks, Nov. 30 (63,000) (63,000)
Outstanding checks, Dec. 31 75,500 (75,500
Adjusted balances 242,500 482,750 408,500 316,750
Balances per books 244,500 482,750 407,500 319,750

Bank service charge for November (2,000) (2,000)
Bank service charge for December 3,000 (3,000)
Adjusted balances 242,500 482,750 408,500 316,750
Q. 33. A Deposit in transit, Feb. 28 P 18,200

Receipts per books (490,000 +7,200) 497,200
Deposits per bank (476,000)
Deposit in transit, March 31 P 39,400
34. A Outstanding checks, Feb. 28 P 38,100

Check issued per books 610,000
Checks cleared per bank (617,000 – 15,000) (602,000)
Outstanding checks, March 31 P 46,100
35. D Balance per bank, March 31 P919,300

Check erroneously charged by bank 15,000
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R. 36. B Cash on hand P 860
Receipts for miscellaneous expenses 2,740
Receivable from employee 1,250
Total in the fund P4,850
Petty cash fund established 5,000
Cash short and over P 150
S. 37. D Pre-adjustment cash balance per books P76,837.00

Outstanding checks 12,075.00
Deposit in transit (7,280.00)
Net adjustment in the cash balance (debit) 6,272.60
Unadjusted balance per bank statement P87,904.60
38. C Pre-adjustment cash balance per books P76,837.00

Net adjustment (debit) 6,272.60
Correct cash balance, June 30 P83,109.60
T. 39. B Per bank Per books

Unadjusted balances 2,230,000 2,009,000
Customer’s uncollectible check charged by bank (100,000)
Dishonored note receivable (50,500)
Customer’s check for P72,500 erroneously recorded in
the books as P62,500 10,000
Check issued for P124,250 recorded as P122,450 (1,800)
Check issued for P32,900 entered as P3,290 (29,610)
Bank service charges (2,090)
Note collected by bank, net 255,000
Undeposited receipts 420,000
Outstanding checks (P1,220,000 – P660,000) (560,000)
Adjusted balances P2,090,000 P2,090,000
U. 40. C Balance per bank P581,050

Balance per books P627,000
Interest earned 1,250
Service charges (400)
Balance per books before the unrecorded check 627,850
Amount of the unrecorded check issued by the company P 11,100
Z. 41. C Bank statement balance P140,230

Deposits not yet recorded by bank 18,445
Checks written but not yet cleared (32,650)
Adjusted cash balance P126,025
V. 42. A Outstanding checks, July 31 P13,260

Checks cleared during July
Checks and charges recorded by bank P17,210
Less July service charge (30)
Customer’s NSF check charged in July (100) 17,080
Checks issued during July
Total of credits to cash in all journals P19,802
Service charge in June recorded in July (20) (19,782)
Outstanding checks, July 1 P10,558
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W. 43. A Deposit in transit, December 31 P100,000
Deposits per bank
Total credits per bank P800,000
Credit memo in December (80,000)
Erroneous bank charge recorded and corrected in Dec (8,000) 712,000
Receipts per books
Total company receipts P850,000
Credit memo for November recorded in December (60,000)
Erroneous receipt during December (10,000) (780,000)
Deposit in transit, November 30 P 32,000
X. 44. B Bank statement balance P5,000,000

Deposit in transit 2,000,000
Outstanding checks (500,000 – 100,000) (400,000)
Correct cash balance P6,600,000
Y. 45. D Balance per books P170,000

Outstanding checks (100,000 – 20,000) 80,000
Deposit in transit (40,000)
NSF checks (30,000 – 10,000) (20,000)
Erroneous credit by bank 60,000
Note collected by bank 150,000
Balance per bank statement P400,000
Z. 46. C
Per bank Per books
Unadjusted balances P415,000 P396,980
Bank service charges (1,500)
Note collected by bank, net 92,050
Receipts not yet deposited 289,000
Customer’s uncollectible check charged by bank (45,320)
Customer’s check for P90,000 entered as P60,000 30,000
Company check for P49,100 entered as 41,900 (7,200)
Company check for P5,280 entered as P58,200 52,920
Adjusted cash balance P517,390 P517,390
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Chapter 2 – Trade and Other Receivables
A. 1. A Accounts receivable, December 31, 2015 P95,842

Sales on account (591,050 – 205,175) 385,875
Cash collections from credit customers (320,800)
Cash discounts granted to customers (281,300/97%) x 3% (8,700)
Accounts written off as worthless (4,955)
Credit memoranda for sales returns and allowances (26,275)
Accounts receivable, December 31, 2016 P120,987
Allowance for bad debts, December 31, 2016 (given) P 17,300
2. D Allowance for doubtful accounts, December 31, 2015 P9,740

Recoveries of accounts previously written off 6,615
Allowance balance before adjustment/provision P11,400
Required allowance balance, end 17,300
Bad debts expense for the year P 5,900
B. 3. D Accounts receivable, December 31, 2015 P 674,000

Sales on account 3,000,000
Cash received from customers (3,200,000)
Cash discounts granted to customers
(1,746,000/97%) x 3% P 54,000
(990,000/99%) x 1% 10,000 (64,000)
Recoveries of accounts previous written off 6,000
Credit memoranda for sales returns (12,000)
Accounts receivable, December 31, 2016 P 382,000
Allowance balance required at December 31, 2016

(150,000 x 2%) + (120,000 x 8%) + (86,000 x x 15%) + (26,000 x 30%) P33,300
4. D Allowance for bad debts, December 31, 2015 P24,000

Recovery of accounts written off 6,000
Accounts written off (22,000)
Allowance balance before adjustment P 8,000
Required allowance balance, end 33,300
Bad debts expense for 2016 P25,300
B. 5. B Required allowance balance, December 31

(2% x 1.5M) + (20% x 750,000) + (25% x 600,000) +
(50% x 300,000) + (80% x 200,000) P640,000
Allowance balance, beginning 400,000
Recoveries 15,000
Additional accounts written off (150,000)
Allowance balance before adjustment 215,000
Bad debt expense for the year P425,000
C. 6. A Accounts receivable, January 1 P 360,000

Sales (all on credit) 1,800,000
Accounts receivable, December 31 (315,000)
Cash collected from customers P1,837,500
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7. C Required allowance balance, end
(1% x 125,000) + (3% x 90,000) + (10% x 100,000) P13,950
Allowance balance before adjustment (12,000 – 7,500) 4,500
Bad debts expense for the year P 9,450
8. D Accounts receivable P315,000

Allowance for bad debts (13,950)
Carrying amount/amortized cost of accounts receivable P301,050
D. 9. B Accounts receivable, December 31, 2015 P1,300,000

Credit sales for the year 5,400,000
Collections from customers, including recoveries (4,750,000)
Recoveries of accounts written off 25,000
Accounts receivable, December 31, 2016 P1,850,000
Estimated uncollectibles per aging (165,000)
Net accounts receivable, December 31, 2016 P1,685,000
E. 10. B Allowance for bad debts, January 1 P63,000

Provision for the year 18,000
Recoveries 12,000 P93,000
Estimated uncollectibles per aging 85,200
Accounts written off during the year P7,800
F. 11. B Accounts receivable, beginning P120,000

Sales on account
Cost of goods sold (690,000 – 150,000) 540,000
Cost rate (100% - 25%) ÷ 75%
Total sales 720,000
Percentage of sales on account x 80% 576,000
Accounts receivable collected (545,000)
Accounts receivable, end P151,000
G. 12. B Accounts receivable, January 1 P325,000

Sales during the year 2,800,000
Cash received from customers (2,260,000)
Sales returns and allowances (14,280)
Sales discounts
(1,140,000 ÷ 95%) x 5% P60,000
(873,000 ÷ 97%) x 3% 27,000 (87,000)
Recoveries of accounts written off 12,000
Accounts receivable, December 31 P758,220
13. C Required allowance balance, December 31 (5% x 758,220) P37,911

Allowance balance before adjustment (18,400 + 12,000 – 17,500) 12,900
Bad debts expense for the year P25,011
H. 14. D Invoice price of goods (4.0M x 80% x 90%) P2,880,000

Sales returns 400,000
Net sales P2,480,000
Less freight paid by client 100,000
Net realizable value (the 10-day discount period has already
lapsed as of December 31) P2,380,000
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I. 15. D Invoice price of goods (5.0M x 80% x 95%) P3,800,000
Value added tax (12% x 3.8M) 456,000
Total accounts receivable P4,256,000
J. 16. A Reported amount of accounts receivable P1,300,000

Unrecorded sale on December 30, FOB shipping point 50,000
Customer’s check marked DAIF returned on December 29 5,000
Adjusted balance of accounts receivable P1,355,000
K. 17. D May Company (2.0M x 10% x 3/12) P 50,000

Bucks Company (630,000 x 12%) 75,600
Accrued interest receivable, December 31 P125,600
L. 18. A Present value of note/selling price of equipment (300,000 x .7972) P239,160

Carrying value of equipment (350,000 – 240,000) 110,000
Gain on sale of equipment P129,160
19. C Interest revenue for 2016 (239,160 x 12%) P28,699

Interest revenue for 2017 (300,000–239,160 = 60,840; 60840– 28,699) P32,141
M. 20. B Selling price of land P600,000

Cost of land 400,000
Gain on sale of land P200,000
21. A Interest revenue for 2016 (600,000 x 8%) P48,000
22. B Present value of note

200,000 + (8% x 600,000) = 248,000; 248,000 x 0.8929 221.439
200,000 + (8% x 400,000) = 232,000; 232,000 x 0.7972 184,950
200,000 + (8% x 200,000) = 216,000; 216,000 x 0.7118 153,749 P560,138
23. A Interest revenue for 2016 (560,138 x 12%) P 67,217
24. C Carrying amount of note, January 1, 2016 P560,138

1st principal payment on December 31 (200,000)
Amortization of discount (67,217 – 48,000) 19,217
Carrying amount of note, December 31, 2016 P379,355
N. 25. D Present value of note/selling price of equipment (1.0M x 0.712) P712,000

Book value of equipment 800,000
Loss on sale of equipment P 88,000
Interest income (712,000 x 12%) P 85,440
O. 26. C Present value of note (120,000 x 3.60) P432,000

Effective interest rate 12%
Interest revenue for 2016 P 51,840
27. C Present value of note, January 1 P432,000

1st principal payment (120,000)
Amortization of discount 51,840
Amortized cost of notes receivable, December 31 P363,840
P. 28. C Interest income for 2016 (400,000 x 0.75 x 10%) P30,000
29. B Carrying amount, December 31 (300,000 + 30,000) P330,000
30. A Interest income for 2016 (400,000 x 0.75 x 10% x 6/12) P15,000
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Q. 31. C Maturity value of note (400,000 x 10% x 6/12) + 400,000 P420,000
Discount (420,000 x 12% x 6/12) 25,200
Proceeds from discounting P394,800
32. C Maturity value of note (400,000 x 10% x 6/12) + 400,000 P420,000

Discount (420,000 x 12% x 4/12) 16,800
Proceeds from discounting P403,200
R. 33. A Face value of note P400,000.00

Accrued interest as of discounting date (400,000 x 10% x 2/12) 6,666.67
Carrying amount of notes receivable sold P406,666.67
Proceeds from discounting without recourse (see No. 32 403,200.00
Loss on sale of notes receivable P 3,466.67
S. 34. A Loan from Citibank (accounts receivable pledged)

500,000 – (500,000 x 12% x 6/12) P 470,000
Factoring of accounts receivable (1.0M x 0.85) 850,000
Total cash received P1,320,000
Loss on factoring (1.0M x 5%) P 50,000
T. 35. A Balance of accounts receivable assigned, November 30 600,000

Collections during December 200,000
Balance of accounts receivable assigned, December 31 P400,000
Balance of notes payable to Manila Bank (600,000 x 75%) 450,000
Payment 200,000
Interest (450,000 x 1%) 4,500
Applied to principal 195,500 254,500
Equity of Lebron in assigned accounts P145,500
36. D Estimated uncollectibles 5% x (500,000 + 400,000) P45,000

Allowance balance before adjustment 32,000
Uncollectible accounts expense P13,000
37. B Maturity value of note (300,000 x 10% x 120/360) + 300,000 P310,000

Discount (310,000 x 12% x 75/360) 7,750
Proceeds P302,250
U. 38. A Carrying value of impaired note, December 31, 2016 P5,500,000

Present value of restructured notes receivable
1,750,000 x 0.909 1,590,750
2,000,000 x 0.826 1,652,000
1,750,000 x 0.751 1,314,250 4,557,000
Impairment loss P 943,000
39. B Interest revenue for 2017 (4,557,000 x 10% P 455,700
V. 40. D Carrying value of impaired note, December 31, 2016 P5,500,000

Present value of restructured notes receivable
4.0M x 0.7513 3,005,200
4.0M x 8% x 2.4869 795,808 3,801,008
Impairment loss P1,698,992
41. B Restructured notes receivable, December 31, 2016 P3,801,008

Amortization of discount on notes receivable
Nominal interest (8% x 4.0M) P320,000
Effective interest (10% x 3,801,008) 380,101 60,101
Restructured notes receivable, December 31, 2017 P3,861,109
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Chapter 3 – Inventories
A. 1. C Reported amount of inventory P345,600

Goods purchased still in transit shipped FOB destination (14,800)
Goods held on consignment (19,200)
Correct amount of inventory, December 31, 2016 P271,600
B. 2. D Physical inventory, December 31, 2016 P364,000

Merchandise sold still in transit shipped FOB destination 62,000
Merchandise purchased still in transit shipped FOB seller 54,000
Correct inventory, December 31, 2016 P480,000
C. 3. C Physical count of goods, December 31, 2016 P570,000

Goods purchased still in transit shipped FOB shipping point 25,000
Goods sold still in transit shipped FOB destination (120,500/1.25) 96,400
Correct amount of inventory, December 31, 2016 P691,400
D. 4. B Purchases, net of returns

Metro Pacific Company (836,000 + 180,000 – 52,000) P964,000
Ayaling Corporation (524,500 – 28,500) P496,000
Cash discounts on net purchases
Metro Pacific Company (964,000 x 3%) P28,920
Ayaling Corporation (496,000 x 2%) 9,920
Total available cash discounts P38,840
Cash discounts taken during the year 22,180
Discounts lost P16,660
E. 5. A Reported inventory on hand P1,920,000

Purchases still in transit shipped FOB shipping point, including freight 175,000
Goods sold still in transit shipped FOB destination
245,000 – 20,000 = 225,000; 225,000 ÷ 1.5 150,000
Goods out on consignment (180,000 ÷ 1.5 = 120,000; 120,000 + 15,000 135,000
Correct amount of inventory P2,380,000
F. 6. A Reported inventory P2,350,000

Goods in the delivery department excluded in inventory 40,000
Goods on approval from a supplier included in inventory (200,000)
Correct merchandise inventory, December 31, 2016 P2,165,000
G. 7. C January 8 (40 units at P2,000) 80,000

January 30 (120 units at P2,400) 288,000 P368,000
Moving average unit cost (368,000 / 160 units) P2,300
H. 8. B January 5 43 units @ 1,102 47,365

(22 units @ 1,102 24,244)
January 8 21 units @ 1,101 23,121
38 units @ 1,180 44,840
January 24 59 units @ 1,152 67,961
January 30 36 units @ 1,152 41,472
January 31 23 units @ 1,152 P26,489
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9. C Cost of goods available for sale (25,800 + 21,565 + 44,840) P92,205
Total units available for sale (24 + 19 + 38) ÷ 81
Weighted average cost per unit P 1,138
Inventory value, January 31 (1,138 x 23 units) P26,174
I. 10. C Units, August 31 - 6,000

Most recent purchase 1,500 x P59 P 88,500
Next most recent purchase 3,000 x P55 165,000
Next most recent purchase 1,500 x P52 78,000
Cost of inventory, August 31, FIFO P331,500
11. B Sales (1,500 x 130) + (8,000 x 135) P1,275,000

Cost of goods sold (under weighted average)
Average cost per unit (821,500/15,500 units = 53.00
53.00 x 9,500 units sold 503,500
Gross profit P771,500
12. A Sold on August 10 (1,500 x 50) P 75,000

Sold on August 20 (8,000 x 52) 416,000
Cost of goods sold during August (Specific identification) P491,000
J. 13. B January 10 10,000 P2,250,000 @ P225

January 15 (6,000 1,350,000 @ P225)
4,000 P 900,000 @ P225
January 31 14,000 2,100,000 @ P150
January 31 18,000 P3,000,000 @ P167 P167
K. 14. A Average cost per unit (595,200/48,000) = 12.40

Number of units in ending inventory (279,000/12.40) = 22,500
Most recent cost (13,000) P167,700
Next most recent (9,500 x 12.00) 114,000
March 31 inventory using FIFO P281,700
L. 15. B 2014 2015 2016

Profit under FIFO P720,000 P1,000,000 P1,400,000
Difference in beginning inventory - 280,000 200,000
Difference in ending inventory (280,000) (200,000) (500,000)
Profit under weighted average P440,000 P1,080,000 P1,100,000
M. 16. C Total profit for three years under FIFO P910,000

Total profit for three years under weighted average 560,000
Difference in ending inventory of 2016 (excess FIFO inventory over WA) P350,000
Ending inventory of 2016 under FIFO 710,000
Ending inventory of 2016 under weighted average P360,000
N. 17. A Total profit for 2014-2016 under weighted average method P2,950,000
Difference in ending inventory of 2016 430,000
Total profit for 2014-2016 under FIFO basis P3,380,000
O. 18. B The cost per unit is increasing (inflation situation); hence, profit under
FIFO will be higher than under weighted average.
P. 19. B Cost is P680 which is lower than net realizable value of P780
(P1,200 – P480).
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Q. 20. D Cost P29,000
Net realizable value (54,000 – 4,000 – 20,000 – 3,000) Lower P27,000
R. 21. A Splendid Regular White Muscovado

Cost per unit P2,500 P1,500 P1,300
Net realizable value per unit P2,400 P1,600 P2,000
Lower amount P2,400 P1,500 P1,300
Number of units 200 500 250
Total P480,000 P750,000 P 325,000
Total inventory P1,555,000
S. 22. B Total cost P5,000,000

Total inventory value (lower of cost or net realizable value)
(700,000 + 1,500,000 +1,450,000 + 800,000) 4,450,000
Required balance in Allowance for inventory write down P 550,000
Reported balance before adjustment 200,000
Loss on inventory write down P 350,000
T. 23. B Cost NRV Lower

Product A: 30,000 @ 8.00 8.00 x 90% x 90% = 6.48 45,000 x 6.48 = 291,600
15,000 @ 6.50
Product B: 25,000 @ 10.50 11.00 x 90% x 90% = 8.91 25,000 x 8.91 = 222,750
Product C: 30,000 @ 1.25 2.00 x 90% x 90% = 1.62 30,000 x 1.25 = 37,500
20,000 @ 0.90 20,000 x 0.90 = 18,000
Total inventory value, December 31, 2016 P569,850
U. 24. A Gross profit rate in 2015

Cost of goods sold (2,200,000 – 400,000) 1,800,000
Gross profit (2.4M – 1.8M) 600,000
Gross profit rate (600,000 / 2,400,000) 25%
Gross profit rate in 2016 (25% + 5%) 30%
25. B Cost of goods available for sale (400,000 + 2,320,000) P2,720,000

Estimated cost of goods sold (3,120,000 x 70%) 2,184,000
Estimated ending inventory P 536,000
Cost of undamaged merchandise (100,000 x 70%) (70,000)
Estimated realizable value of damaged merchandise (8,000)
Estimated inventory loss from the flood P 458,000
26. B Estimated ending inventory P 536,000

Cost of damaged merchandise (30,000 x 70%) which is lower than the
estimated realizable value of damaged merchandise (21,000)
Estimated inventory loss from the flood P 445,000
V. 27. A Estimated cost of goods sold (3,640,000/1.3) P2,800,000
28. B Cost of goods available for sale (550,000 + 3,000,000) P3,550,000

Estimated cost of goods sold (3,640,000 x 70%) 2,548,000
Estimated cost of ending inventory P1,002,000
Less realizable value of damaged merchandise 50,000
Estimated cost of merchandise lost by the fire P 952,000
14
W. 29. B Inventory, January 1, 2016 P1,700,000
Net purchases (3.9M – 300,000) 3,600,000
Cost of goods available for sale P5,300,000
Estimated cost of goods sold (6,260,000 x 60%*) 3,756,000
Estimated cost of ending inventory P1,544,000
Net realizable value of damaged merchandise (53,000)
Amount of loss as a result of the fire P1,365,000
*Average gross profit rate (40.5% + 39.5%) / 2 = 40%
2014: 2,268/5,600 = 40.5%
2015: 1,975/5,000 = 39.5%
X. 30. C Inventory, December 31, 2015 P 320,000

Purchases (1,410,000 + 10,000 – 20,000) 1,400,000
Estimated cost of goods sold
Sales 350,000 +1.8M + 300,000 – 250,000 = 2,200,000 x 60% 1,320,000
Estimated cost of ending inventory P 400,000
Reported amount of ending inventory 360,000
Inventory shortage P 40,000
Y. 31. B Inventory, January 1 P 550,000

Net purchases (3M + 60,000- 200,000 -80,000 ) 2,780,000
Estimated cost of goods sold
Net sales (3.6M + 300,000 – 160,000) = 3,740,000; 3.74M x 70% 2,618,000
Estimated cost of ending inventory P 712,000
Realizable value of damaged merchandise 50,000
Inventory loss P 662,000
Z. 32. B Ending inventory, at retail (300,000 + 1.1M + 100,000 – 200,000 – 900,000) P400,000
Cost to retail ratio 600,000/1.1M + 100,000 – 200,000 60%
Estimated cost of ending inventory (FIFO retail) P240,000
33. C Ending inventory, at retail P400,000

Cost to retail ratio
115,000 + 600,000 = 715,000;
300,000 + 1.1M + 100,000 – 200,000 = 1,300,000
715,000/1,300,000 = 55% 55%
Estimated cost of ending inventory (Average retail) P220,000
34. D Ending inventory, at retail P400,000

600,000/1,200,000 50%
Estimated cost of ending inventory (lower of FIFO cost or NRV) P200,000
15
AA. 35. C Cost Retail
Beginning inventory P 650,000 P1,075,000
Purchases 2,450,000 3,025,000
Freight in 50,000
Net markup 400,000
Net markdown (300,000)
Available for sale (3,150/4,200 = 75%) P3,150,000 P4,200,000
Sales (3,880,000)
Ending inventory, at retail P 320,000
Cost ratio 75%
Ending inventory at estimated cost P 240,000
36. B Ending inventory, at retail P320,000

Cost ratio 2,500/3,125 80%
Ending inventory, at estimated cost P256,000
BB. 37. C Ending inventory, at retail

250,000 + 1,575,000 + 175,000 – 1,705,000 – 125,000 – 20,000 P150,000
180,000 + 1,020,000 = 1,200,000
250,000 + 1,575,000 + 175,000 – 125,000 = 1,875,000
1,200,000 / 1,875,000 64%
Ending inventory, at estimated cost P 96,000
CC. 38. A Cost Retail

Beginning inventory P 800,000 P1,400,000
Purchases P2,970,000 P4,200,000
Freight-in 40,000
Net markups 100,000
P3,010,000 P4,300,000
Available for sale P5,680,000
Sales (4,000,000)
Markdowns (20,000)
Shortages (80,000)
Ending inventory, at retail P1,600,000
Cost to retail ratio (3,010/4,300) 70%
Ending inventory, at estimated cost P1,120,000
DD. 39. C Loss on purchase commitments (2,700 – 2,680) x 1,000 P20,000
40. C Loss on purchase commitments (2,680 – 2,670) x 1,000 P10,000
41. B The recovery is limited by the amount of loss previously

recognized. P20,000
EE. 42. C Reported profit P658,000

Advances from customers recorded as sales revenue (40,000)
Overstated beginning inventory 71,000
Understated ending inventory 96,000
Correct profit P785,000
FF. 43. C Reported profit P320,000

Understated beginning inventory (20,000)
Goods counted twice in ending inventory (12,000)
Understated sales 33,000
Correct profit P321,000
16
Chapter 4 – Property, Plant and Equipment
A. 1. B a. 400,000 + 10,000 P410,000

b. Appraised value P800,000
c. Fair value of shares issued (100,000 x P78) P7,800,000
d. Down payment P100,000
Present value of note (120,000 x 0.91) 109,200
(80,000 x 0.75) 60,000 P269,200
B. 2. A Appraised Value Allocated Cost

Drill press P84,000 (84/420 x 400,000) P 80,000
Lathe (240,000 – 9,000) 231,000 (231/420 x 400,000) 220,000
Air compressor 105,000 (105/420 x 400,000) 100,000
Total P420,000 P400,000
C. 3. B Cost of land/present value of payments (100,000 x 3.49) P349,000
D. 4. D Land P5,000,000
New building
Demolition cost of old building P 200,000
Construction cost of new building 3,000,000
Excavation fees 120,000
Architectural design fees 160,000
Building permit fee 40,000
Insurance premiums during construction period 75,000
Total cost of new building P3,595,000
E. 5. D Land
Land Improvements Building
January 1 balances P 350,000 P20,000 P900,000
Cash purchase of land 1,250,000
Mortgage assumed on land purchase 2,000,000
Realtor’s commission 150,000
Legal fees, realty taxes, etc. 25,000
Payment to squatters to vacate 50,000
Demolition costs of old building 60,000
Recovery from demolished building (45,000)
Cost of fencing property 55,000
Payment to contractor 1,000,000
Building permit fees 10,000
Excavation expenses 25,000
Architect’s fees 25,000
Totals P3,775,000 P75,000 P2,025,000
F. 6. A Purchase price P600,000

Installation cost 80,000
Total cost of new mixing machinery P680,000
G. 7. C Cash price (given) P750,000
8. B Trade in allowance/Fair value of old asset (750,000 – 500,000) P250,000

Carrying value of old asset (700,000 – 400,000) 300,000
Loss on exchange P 50,000
17
H. 9. D Fair market value of automobile (no cash involved; same as machine) P172,800
Carrying value of automobile (Cool Company) 135,000
Gain on exchange P37,800
Fair market value of molding machine P172,800

Carrying value of molding machine (Water Company) 240,000-83,000 157,000
Gain on exchange P 15,800
10. A Fair market value of automobile P145,000

Carrying value of automobile (Cool Company) 135,000
Gain on exchange P10,000
Fair market value of molding machine P150,000

Carrying value of molding machine (Water Company) 240,000-83,000 157,000
Gain (loss) on exchange (P 7,000)
I. 11. B Cost of new machine (140,000 + 32,000) P172,000

Fair market value of old packaging machine P140,000
Carrying value (240,000 x 50%) 120,000
Gain on exchange P 20,000
J. 12. C Fair value of the computer system P860,000
13. C Fair value of the car (860,000 – 100,000) P760,000

Carrying amount of the car 600,000
Gain on the exchange P160,000
K. 14. B Interest on specific borrowing (1.5M x 12% P180,000

Interest earned on temporary investments (8,000)
Capitalized interest P172,000
15. Average accumulated expenditures

1.5M x 2/12 P 250,000
1.86M x 7/12 1,085,000
4.2M x 2/12 700,000
4.5M x 1/12 375,000
Total P2,410,000
Capitalized interest on specific borrowing (see no.14) P 172,000
Capitalized interest on general borrowing
Excess of ave. accum expenditures over specific borrowing
(2,410,000 – 1,500,000) P910,000
Weighted average interest rate
(16% x 1M) + (13% x 500,000)
1.0M + 500,000 x 15% 136,500
Capitalized interest P 308,500
Total construction costs 4,500,000
Total cost of self-constructed building P4,808,500
16. C Total interest on borrowings (162,500 + 490,000) P652,500

Weighted average interest rate
(16.25% x 1.0M) + (14% x 3.5M)
1.0M + 3.5M = 14.5%
Capitalized interest on general borrowings
2,410,000 x 14.5% 349,450
Interest expense P303,050
18
L. 17. B Average accumulated expenditures
400,000 x 12/12 P400,000
500,000 x 9/12 375,000
480,000 x 5/12 200,000
180,000 x 1/12 15,000
Total P990,000
18. A Interest on specific borrowing (500,000 x 15%) P90,000
19. B Interest on specific borrowing P 90,000

Interest on general borrowing (990,000 – 500,000) x 20% 98,000
Total capitalized interest P 188,000
Total construction costs 1,560,000
Total cost of self-constructed asset P1,748,000
20. A Average accumulated expenditures (1,560,000/2) = 780,000

Interest on specific borrowing (16% x 700,000) P112,000
Interest on general borrowing (780,000 – 700,000) x 18% 14,400
Total capitalized interest P126,400
M. 21. D Straight line depreciation expense for 2016

(125,000 – 5,000) / 5 = 24,000; 24,000 x 6/12 P12,000
22. A SYD depreciation expense for 2017

(125,000 – 5,000) x 4.5/15 P36,000
or (120,000 x 5/15 x ½) + (120,000 x 4/15 x ½)
23. A DDB carrying value at December 31, 2018

(125,000 x 80% x 60% x 60%) P36,000
or Cost 125,000
Accum. depreciation
2016 (125,000 x 40% x ½) 25,000
2017 (100,000 x 40%) 40,000
2018 (60,000 x 40%) 24,000 89,000
Carrying value, 12/31/18 36,000
24. A Service hours method depreciation rate per hour

(125,000 – 5,000) / 10,000 hours P12.00
25. C Productive output method

120,000/24,000 units = 5.00 / unit
Accumulated depreciation, December 31, 2017
(3,000 + 7,500) x 5.00 P52,500
N. 26. D Most appropriate is productive output method

(162,000 – 12,000) / 48,000 units = 3.125 / unit
3.125 x 14,000 units produced in 2016 P43,750
O. 27. B Trial and error computations

SL method would result to P42,000 accum. depreciation at 12/3/15
SYD method would result to P72,545 accum. depr. at 12/31/15
DDB method would result to P81,000 accum. depreciation at
12/31/15 which is in agreement with the given balance
Depreciation expense for 2016 (225,000 – 81,000) x 20% P28,800
19
P. 28. A Carrying value, October 1, 2015
250,000 – (250,000 x 25% x 2 years) 125,000
Additional capital expenditure 50,000
Revised depreciable cost 175,000
Remaining life of asset ÷ 2 years P87,500
Q. 29. A Carrying value of engine at time of replacement (300,000 – P100,000

200,000)
R. 30. B Cost 400,000

Accum. depreciation (360,000/5) x ½ 36,000
Carrying value, January 1, 2016 364,000
Revised depreciation for 2016
(364,000 – 10,000) / 2.5 years P141,600
S. 31. B Accumulated depreciation is the sum of 8 + 7 + 6 + 5 or 26 for the 1 st

four years of use
T. 32. A Straight line carrying value after two years

700,000 – (630,000/6 years) x 2 years P490,000
Upgrading costs 120,000
Total P610,000
Revised depreciation for third year (610,000 – 70,000)/ 4 years P135,000
SYD carrying value after two years

700,000 – (630,000 x 11/21) P370,000
Total P490,000
Revised depreciation for third year (490,000 – 70,000) x 4/10 P168,000
33. B Straight line carrying value after two years

700,000 – (630,000/6 years) x 2 years P490,000
Total P610,000
Revised depreciation for third year (610,000 – 70,000)/ 6 years P90,000
SYD carrying value after two years

700,000 – (630,000 x 11/21) P370,000
Total P490,000
Revised depreciation for third year (490,000 – 70,000) x 6/21 P120,000
U. 34. B Fair value, January 1, 2016 P20,000,000

Carrying value, January 1, 2016
Cost P22,000,000
Accumulated depreciation
(22M – 2M)/20 = 1.0M; 1.0M x 5 years 5,000,000 17,000,000
Revaluation surplus recognized in the accounts P 3,000,000
35. B Annual depreciation charge after revaluation

(20M – 3M) / 10 years P1,700,000
20
36. A Selling price P13,500,000
Carrying value, January 1, 2020
Fair value, January 1, 2016 P20,000,000
Less depreciation for 4 years (1.7M x 4) 6,800,000 13,200,000
Gain on sale P300,000
V. 37. D DDB depreciation for the year 2016

2015 210,000 x 2/6 x ½ = 35,000
2016 175,000 x 2/6 P58,333
W. 38. C Accumulated depreciation, December 31, 2015

132,000/8 years = 16,500; 16,500 x 3 years P49,500
Depreciation expense for 2016
(132,000 – 49,500) = 82,500; 82,500 / 3 years 27,500
Accumulated depreciation balance, December 31, 2016 P77,000
X. 39. B Depreciation expense for 2015 (400,000 - 40,000) x 5/15 P120,000

(360,000 x 5/15) + { (400,000 – 120,000 – 40,000)/4} = 180,000
Revised depreciation expense for 2016
Depreciable value, Jan. 1, 2016 (400,000 – 120,000 - 40,000) 240,000
240,000/4 60,000
Accumulated depreciation, December 31, 2016 P180,000
Y. 40. A. Impairment loss is recognized when the asset’ carrying value exceeds
its recoverable amount(the higher between value in use and net
realizable value
Case 1 No Case 4 Yes
Case 2 No Case 5 Yes
Case 3 No Case 6 No
Z. 41. B Carrying value (10M – 5M) P5,000,000

Recoverable value (higher of 3.0M and 4.0M) 4,000,000
Impairment loss P1,000,000
AA. 42. C Carrying value (4.5M – 1.8M) P2,700,000

2.7M – 2.25M = 450,000
Recoverable value Higher of (NRV – 2.25M) or (Value in use – P2.180) 2,250,000
43. C Depreciation expense for the year 2017

2,250,000 / 6 years* P375,000
*4.5M/10 = 450,000/year; 1.8M / 450,000 = 4 yearsl 10 – 4 = 6 years
BB. 44. B Carrying value (450,000 – 210,000) P240,000

Recoverable value 150,000
45. A Accumulated depreciation before impairment P210,000

(450,000 – 150,000) +(150,000/3) = 350,000
Impairment loss credited to accumulated depreciation 90,000
Depreciation expense for 2017 (150,000/3) 50,000
Accumulated depreciation, December 31, 2017 P350,000
21
CC. 46. D Life of asset (4.0M/160,000) = 25 years
Remaining life (25 – 9) = 16 years
Recovery of impairment (500,000 x 13/16) P 406,250
47. A Carrying value (4.0M x 16/25) P2,560,000

Impairment loss (given) 500,000
Recoverable value, December 31, 2013 P2,060,000
Depreciation for 3 years (2014 – 2016)
2,060,000/16 = 128,750/year; 128,750 x 3 years 386,250
Carrying value, December 31, 2016 P1,673,750
Fair value 3,240,000
Increase in value P1,566,250
Unrecovered impairment loss (500,000 x 13/16) 406,250
Revaluation surplus recognized P1,160,000
DD. 48. C Carrying value, January 1, 2016 (5.0M – 1.5M) P3,500,000

Depreciation expense for 2016 (500,000)
Carrying value, December 31, 2015 at time of impairment P3,000,000
Recoverable value 2,500,000
EE. 49. D Fair value P36,000,000

Carrying value 30M – (30M x 4% x 3 years) 26,400,000
Revaluation surplus P 9,600,000
50. A Revised depreciation expense for 2016 ( 36M / 15 years) P2,400,000
FF. 51. B Carrying value, December 31, 2016 (650,000 x 6/10) P390,000
Recoverable amount 240,000
Impairment loss P150,000
52. D Carrying amount prior to recovery of impairment (240,000 x 4/6) P160,000
53. C Recovery of previous impairment (150,000 x 4/6) P100,000
GG. 54. A Fair value, December 31, 2013 P550,000

Carrying value (500,000 x 8/10) 400,000
Revaluation surplus P150,000
55. A Carrying value, December 31, 2016 (550,000 x 5/8) P343,750

Recoverable amount 200,000
Decrease in value of asset P143,750
Charge to revaluation surplus balance (150,000 x 5/8) 93,750
HH. 56. A Fair value P22,000,000

Carrying value
Cost P30,000,000
Accumulated depreciation (27M/15 yrs) x 8 14,400,000 15,600,000
Revaluation surplus, January 1, 2016 P6,400,000
Amount transferred to retained earnings (6.4M/10) (640,000)
Revaluation surplus balance, December 31, 2016 P5,760,000
22
II. 57. B Fair value of land P20 million
Cost of land 10 million
Revaluation surplus, land P10 million
Replacement cost of building P100 million

Less accum. depreciation (90M/15) x 5 years 30 million
Fair value P 70 million
Carrying value of building (75M – 25M) 50 million
Revaluation surplus, January 1, 2016 P20 million
Less amount transferred to retained earnings (20M/10) 2 million
Revaluation surplus, building, December 31, 2016 18 million
Total revaluation surplus, December 31, 2016 P28 million
JJ. 58. A Purchase price of land P 9,000,000

Exploration and development costs 1,000,000
Present value of expected cashflows for restoration (1.5M x 0.62) 930,000
Total depletable cost P10,930,000
Total recoverable reserves (in tons) ÷ 2,500,000
Depletion rate per ton P 4.37
KK. 59. A Purchase price of property P28,000,000

Residual value (5,000,000)
Present value of estimated restoration costs (2M x 0.621) 1,242,000
Development costs incurred in 2014 1,000,000
Additional development cost incurred in 2015 1,200,000
Estimated total reserves (in tons) ÷ 10,000,000
Depletion rate per ton for 2015 P 2.64
Tons extracted during 2015 x 3,000,000
Depletion expense in 2015 P7,920,000
Total depletable cost in 2015 P26,442,000

Depletion for 2015 (7,920,000)
Carrying amount,end of 2015 P18,522,000
Estimated reserves, beginning of 2016 (3.5M + 2.5M) ÷ 6,000,000
Depletion rate per ton for 2016 P3.09
Tons extracted during 2016 x 3,500,000
Depletion expense in 2016 P10,815,000
LL. 60. A Cost of structures and sheds P3,600,000

Estimated yield (in tons) ÷ 480,000
Depreciation rate per ton P7.50
Number of tons removed during 2016 x 15,000
Depreciation expense for 2016 P112,500
MM. 61. A Depletion rate per metric ton for 2015 (20M–3M+1.5M=18.5M; 18.5M/4M) P4.625
Number of metric tons mined in 2015 x 2million
Depletion expense for 2015 P9,250,000

Depletion expense in 2015 (9,250,000)
Carrying value, end of 2015 P 9,250,000
Revised estimate of recovery (2.5M + 1.4M) ÷ 4,000,000
Revised depletion rate per metric ton P2,3125
Number of metric tons mined in 2016 x 1,500,000
Depletion expense for 2016 P3,468,750
23
Chapter 5 – Intangible Assets
A. 1. A Franchise
Cost 200,000 + (120,000 x 2.9137) P549,644
Less amortization for 2 years (549,644/10) x 2 years 109,929 P439,715
Patents (131,200 x 6/8) P 98,400
Trademarks (not subject to amortization) P320,000
B. 2. B R&D services performed for Mowgli P1,500,000

Cost in the conceptual formulation of process 2,000,000
Depreciation expense of building (3.0M/10 years) 300,000
Design of tools, jigs and moulds 1,300,000
Cost of testing prototype 900,000
Total research and development expense P6,000,000
C. 3. D Design of tools , jigs, moulds and dies P125,000

Modification of the formulation of a process 160,000
Research and development expense in 2016 P285,000
D. 4. C Development costs after establishing technological feasibility P500,000

Legal expenses to obtain patent 50,000
Expenses of drawings required by patent office 20,000
Licensing fees paid to patent office 150,000
Total cost to be capitalized as intangible asset P720,000
E. 5. A Patent
Legal fees to obtain patent P60,000
Patent application and licensing fees 25,000 P 85,000
License (150,000 x 2/3) 100,000
Trademark (150,000 x 1/3) 50,000
Total cost of intangible assets P235,000
F. 6. D Amortization expense (3,125,000 / 10) x 9/12 P234,375

Franchise fee (8.5M – 5.0M) x 5% P175,000
G. 7. C Amortization expense for 2014 (1,250,000/5=250,000; 250,000 x ½) P125,000
8. C Carrying amount 1,250,000 – (250,000 x 1.5 years) P875,000

Fair value 750,000
9. A New carrying value, January 1, 2016 P750,000

Less amortization for the year (750,000/3 years) 250,000
Patent carrying value, December 31, 2016 P500,000
H. 10. D Accumulated amortization, December 31, 2016 (10 M/ 10 years) P1,000,000
I. 11. B Cost of patent, June 28, 2013 P350,000

Less accumulated amortization (350,000/5 = 70,000; 70,000 x 2.5 years) 175,000
Carrying value, January 1, 2016 P175,000
Revised remaining life ÷ 4 years
Amortization expense for 2016 P43,750
24
J. 12. D Patent A
Carrying value, January 1, 2016 (150,000 x 3/8) P 56,250
Remaining useful life ÷ 2 years P28,125
Patent B (not subject to amortization)
Patent C (no amortization in the year of derecognition)
13. C Carrying amount of Patent C at December 31, 2015 (72,000 x 3/5) P43,200
Legal fees incurred 15,000
Loss on derecognition of Patent C P58,200
K. 14. C Down payment P2,000,000

Present value of six semi-annual payment of P500,000
500,000 x 5.2421 2,621,050
Cost of franchise P4,621,050
L. 15. C Patent amortization expense for 2011 (570,000/10 years)

570,000/7.5 years = 760,000; 760,000/10 P76,000
16. B Acquisition cost of the patent 570,000 ÷ 7.5 = 760,000

Carrying value, beginning of 2013 (760,000 x 5.5/10) P418,000
Additional expenditures capitalizable 142,000
Total carrying value subject to amortization P560,000
Revised remaining life ÷ 7 years
Patent amortization for 2013 P 80,000
17. D Patent’s carrying value, December 31, 2016 (560,000 x 3/7) P240,000
M. 18. B Accumulated amortization, January 1, 2016 (540,000 x 3/8) P202,500

Revised amortization for 2016
540,000 – 202,500 = 337,500; 337,500/3 112,500
Accumulated amortization, December 31, 2016 P315,000
N. 19. B Carrying value, December 31, 2014

714,000 x 5/8 x 2/3 P297,500
or Cost of patent, January 1, 2012 714,000
Less accum. amortization 714,000/8 years = 89,250 x 3 267,750
Carrying value, January 1, 2015 446,250
Less revised amortization for 2015 (446,250/3) 148,750
Carrying value, December 31, 2015 297,500
O. 20. A Straight line rate: 1/5 or 20%

Rate based on revenue: 30% (higher)
Amortization expense of computer software, Year 1 (30% x 1.2M) P360,000
P. 21. B Straight line rate: 1/3 or 33 1/3% (annual rate); 16 2/3% (half year)
Rate based on revenue: 2M/10M = 20% (annual rate) higher
Carrying amount of computer software, Dec. 31, 2016 (3.6M x 80%) P2,880,000
Q. 22. B Amortization of patents for 2016

Carrying value, January 1, 2016 (3.0M x 5/10) 1,500,000
Revised remaining life ÷ 3 years P500,000
Depreciation of manufacturing equipment
Depreciable carrying value, January 1, 2016
(8.0M – 3.4M – 200,000) = 4.4M; 4.4M/10 years 440,000
Total charge against 2016 income P940,000
25
R. 23. B Carrying value of trademark (not subject to amortization) P3,000,000
Recoverable value of trademark (120,000/6%) 2,000,000
Impairment loss on trademark P1,000,000
Carrying value of patent (2.0M x 4/5) P1,600,000

Recoverable value of patent (present value of future cash flows
500,000 x 0.94 470,000 400,000 x 0.84 336,000
600,000 x 0.89 534,000 500,000 x 0.79 395,000 1,735,000
No impairment on patent
S. 24. C Fair value of all net assets, excluding goodwill P38,000,000

Carrying amount of net assets, excluding 35,000,000
Value of goodwill P 3,000,000
Reported amount of goodwill 4,000,000
Impairment loss on goodwill P1,000,000
T. 25. C Purchase price of Wealth Company P25,000,000

Fair value of Wealth Company’s net assets 21,000,000
Goodwill P 4,000,000
U. 26. A Average earnings P3,000,000

Normal return based on appraised value of net assets (10% x P28.5M) 2,850,000
Excess earnings P 150,000
Goodwill (150,000 ÷ 25%) P 600,000
V. 27. B Implied value of the acquired company (8.0M x 1.6) P12,800,000

Net assets (15.0M – 4.0M) 11,000,000
Implied goodwill P 1,800,000
Reported amount of goodwill 5,000,000
Goodwill impairment loss P 3,200,000
W. 28. B Given (Other expenditures given are expensed) P10 million
X. 29. B Average earnings (7.2M ÷ 5 years) P1,440,000

Normal return on net assets (10.35M – 6.65M) x 20% 740,000
Excess earnings P 700,000
Goodwill (700,000 ÷ 25%) P2,800,000
Net assets 3,700,000
Amount paid in the acquisition of Rowen Corporation P6,500,000
Y. 30. D Correction in the problem. The given years of profit and net assets
should be 2015, 2014, 2013, 2012 and 2011.
Average earnings (16.5M/5) = 3,300,000
Normal return on average net assets (92.2M/5) x 10% = 1,844,000
Goodwill (3,300,000 – 1,844,000) ÷ 40% P 3,640,000
Net assets in 2015 20,200,000
Total payment in the acquisition of Toronto P23,840,000
26
Chapter 6 – Equity Investments
A. 1. B Equity investments at fair value, December 31, 2015

(4,000 x 106.70) P426,800
2. B Cash dividends received (4,000 x 4.50) P18,000
3. A Fair value, December 31, 2015 P426,800

Number of shares held after receipt of 10% bonus issue (4,000 + 400) ÷ 4,400
Revised carrying amount per share P 97.00
4. D No gain or loss. The shares are adjusted to their fair value (which is the P0
sales price) at the time of sale.
5. D Total cost of investment 101,600 + (3,000 x 104) = 413,600

Cost of 1,500 shares = 413,600 x 1,500/4,400 P141,000
Fair value (1,500 x 95) 142,500
Unrealized gain related to shares sold /transferred to retained
earnings P 1,500
6. B Shares remaining after sale (4,400 – 1,500) 2,900

Fair value per share on December 31, 2016 x P96.00
Equity investments , December 31, 2016 P278,400
B. 7. B Total market, December 31, 2016 (34,000 + 153,000 + 295,000) P482,000

Total cost (28,000 + 170,000 + 315,000) 513,000
Unrealized loss taken to profit or loss in 2016 P 31,000
8. A Net selling price (155,000 – 900) P154,100

Carrying amount (fair value), December 31, 2016 153,000
Gain on sale P 1,100
9. C AB Company ordinary (200 shares x P150) P 30,000

(200 x 150 = 30,000) + (2,000 x 153 = 306,000) = 336,000
EF Company ordinary (2,000 shares x 153) 306,000
Equity investment, December 31, 2017 P336,000
C. 10. A No income is recognized upon receipt of share rights. Only a

memorandum entry is made upon their receipt. P0
11. A Investment income is equal to the proceeds from sale (10,000 x 5) P50,000
12. A Total cost of new investment (market value of shares acquired)

2,000 shares x P98 P196,000
D. 13. C Preference shares received (1,000/10) 100

Market value per preference share x P100
Dividend revenue P10,000
E. 14. B Dividend revenue (3,000 shares x P4.00) P12,000
15. No gain or loss is recognized on sale of equity investments at FVOCI.

The shares are adjusted to their fair value (which is the sales price) at
the time of sale. P0
27
F. 16. D The shares are classified as investments at fair value through other
comprehensive income since they are not intended to be traded in the
near term and the investor does not have the ability to exercise
significant influence. Any change in fair value is taken to OCI and not
profit or loss P0
17. B Equity investments, December 31, 2016 (fair value) P222,000
G. 18. B Fair value of shares acquired through exercise of rights (250 x P203) P50,750
Cash paid upon exercise (250 x P180) 45,000
Investment income P 5,750
H. 19. C Cost of investment acquired through exercise of rights (1,000/4) x P124 P31,000
20. A Investment income from exercise (124 – 110) x 250 shares P3,500
Sale of rights (1,000 x 4) 4,000
Total investment income from the stock rights P7,500
I. 21. A Cash dividends from Purl (6,000 – 2,500) x P1.00 P3,500

Cash dividends from Axe Corp preference shares (1,000 x P2.40) 2,400
Dividend revenue for year 2016 P5,900
J. 22. A Unrealized loss is taken to other comprehensive income, not profit or loss.
K. 23. C FVPL market value, December 31, 2015 P 950,000

FVPL market value, December 31, 2016 1,050,000
Increase in market value/Unrealized gain taken to profit or loss P 100,000
24. B FVOCI market value, December 31, 2016 P 980,000

FVOCI cost 1,000,000
Accumulated unrealized loss (debit), December 31, 2016 P 20,000
L. 25. A FVPL market value, December 31, 2016 P512,000

FVPL market value, December 31, 2015 541,000
Decrease in market value/Unrealized loss in 2016 P 29,000
26. A Selling price of the securities P550,000

Carrying amount/fair value, December 31, 2016 512,000
27. D None
M 28. D Income from associates for year 2016 (1.2M x 30% x 9/12) P270,000
29. B Acquisition cost of investment P1,700,000

Share in income of associate 270,000
Cash dividends received (120,000 x P1.50) (180,000)
Investment carrying amount, December 31, 2016 P1,790,000
30. Acquisition cost of investment P1,700,000

Share in income of associate 270,000
Adjustment in share in income due to excess attributable to equipment
1.7M – 1.4M = 300,000 excess
300,000/5 years = 60,000/year; 60,000 x 9/12 (45,000)
Cash dividends received (120,000 x P1.50) (180,000)
28
N. 31. A Purchase price P510,000
Broker’s fees 5,100
Investment acquisition cost P515,100
32. C Acquisition cost, July 1, 2015 P515,100

Share in income of associate (850,000 x 6/12 x 25%) 106,250
Cash dividends (25% x 320,000) (80,000)
Investment carrying amount, December 31, 2015 P541,350
33. B Sales price of investment sold, net (275,000 – 2,750) P272,250

Carrying amount of investment sold (541,350 x ½) 270,675
34. D Carrying amount of remaining securities reclassified to fair value

5,000 shares x 49 P245,000
O. 35. B Investment carrying value, December 31, 2016 P4,840,000

Share in reported income (2.4M – 480,000) x 25% (480,000)
Cash dividends received during the year (60,000 + 80,000) 140,000
Acquisition cost of the investment P4,500,000
P. 36. A Investment balance, December 31, 2016 P12,000,000

Share in reported profit (20M x 25% x 6/12) (2,500,000)
Adjustment in reported profit due to undervalued equipment
1.0M/5 = 200,000/year; 200,000 x 6/12 100,000
Dividends received 1,000,000
Acquisition cost of the investment P10,600,000
Q. 37. A Acquisition cost P2,430,000

Share in reported profit (30% x 1,520,000) 456,000
Adjustment in reported profit attributable to
Machinery (500,000 x 30%) / 4 years P 37,500
Inventories (600,000 x 30%) 180,000 (217,500)
Dividends received (30% x 650,000) (195,000)
Investment carrying value, December 31, 2016 P2,473,500
R. 38. B Acquisition cost P200,000

Share in income (10% x 1.5M) 150,000
Investment in Sharon, December 31, 2016 P260,000
S. 39. C Profit reported by Joel for 2016 P900,000

Dividend on cumulative preference share (12% x 1M) (120,000)
Profit related to ordinary shareholders P780,000
Interest owned by Billy 25%
Share in income of Joel P195,000
T. 40. D Acquisition cost in excess of the Robbie Company’s net assets P150,000
Excess attributable to undervalued land and building
(250,000 + 100,000) x 30% 105,000
Excess attributable to goodwill P 45,000
29
41. C Acquisition cost P650,000
Share in reported income (600,000 – 120,000 ) x 30% 144,000
Adjustment in reported income
Attributable to equipment
(100,000 x 30% = 30,000; 30,000/5 years = 6,000; 6000 x 8/12) (4,000)
Dividends received (18,000 x P4.00) (72,000)
Investment carrying value, December 31, 2016 P718,000
U. 42. A Acquisition cost (30,000 x P180) P5,400,000

Share in profit for 9 months of 2015 (4.8M - 2,960,000) x 30% 552,000
Dividends received (120,000)
Share in profit of 2016 (2.8M x 30%) 840,000
Dividends received (1.7M x 30%) (510,000)
43. D Sales price (20,000 x P250) P5,000,000

5M – 4,108,000 = 892,000
Carrying amount of investment sold (6,162,000 x 2/3) 4,108,000
44. D Investment carrying amount, December 31, 2017 (after losing

significant influence, the investment is reclassified to fair value) P2,300,000
V. 45. C Share in reported income (1,350,000 – 650,000) x 25% P175,000

Adjustment for the excess attributable to
Depreciable plant assets
(150,000 x 25% = 37,500; 37,500/10 years = 3,750; 3,750 x ½ (1,875)
Inventories (20,000 x 25%) (5,000)
Adjusted share in income P168,125
W. 46. D FVOCI fair value, December 31, 2017 P4,850,000

FVOCI fair value, July 1, 2017 after reclassification 4,500,000
Unrealized gain taken to other comprehensive income P 350,000
X. 47. B Acquisition cost, January 1, 2015 P4,000,000

Share in profits of 2015 (30% x 800,000) 240,000
Share in losses of 2016 (30% x 320,000) (96,000
30
Chapter 7 – Debt Investments
A. 1. C Present value of maturity value (8M x 0.676) P5,408,000

Present value of interest payments (8M x 5% x 8.111) 3,244,400
Purchase price of the bonds P8,652,400
2. B Present value of maturity value (8M x 0.681) P5,448,000

Purchase price of the bonds P8,642,400
B. 3. B Present value of maturity value (2M x 0.3387) P 677,400

Purchase price of the debt investment P1,810,992
C. 4. A Purchase price (100,000 x .99) P 99,000.00

99,000 + (100,000 x 14% x 2/12) + 500 = 101,833.33
Accrued interest (100,000 x 14% x 2/12) 2,333.33
Broker’s fees 500.00
Total cash payment P101,833.33
5. D Interest revenue (100,000 x 14% x 3/12) P3,500
D. 6. D See table P1,051,163
7. B Interest revenue, January 1 – June 30 (see table below) P 53,250

Interest revenue, July 1 – December 31 (see table below) 52,913
Total interest revenue for the year 2016 P106,163
Date Nom. Int Effect Int Amort CV

1/1/16 1,065,000
7/1/16 60,000 53,250 6,750 1,058,250
1/1/17 60,000 52,913 7,087 1,051,163
8. B Fair value at December 31, 2016 (1,000 shares x 1,055) P1,055,000
9. A Interest revenue (nominal interest) for 2016 (1.0M x 12%) P120,000
E. 10. C Interest revenue (effective interest) 3,756,000 x 10% P375,600
11. D Investment carrying value, January 1, 2016 P3,756,000

Amortization of discount 375,600 - (4.0M x 9%) 15,600
12. A Fair value, December 31, 2016 (4M x .99) P3,960,000

Amortized cost (see No. 11) 3,771,600
Unrealized gain taken to other comprehensive income P 188,400
F. 13. C Investment cost, April 1, 2016 P8,295,000

Amortization of premium for 9 months
50,500 (see table) x 9/12 (37,875)
Investment carrying value, March 31, 2017 P8,244,500

Amortization of premium for 9 months
55,550 (see table) x 9/12 (41,663)
31
14. B Interest revenue for 2016 (829,500 (see table) x 9/12) P622,125
Interest revenue for 2017 (see table)
January 1 – March 31 829,500 x 3/12 207,375
April 1 – December 31 824,450 x 9/12 618,338 P825,713

4/1/16 8,295,000
3/31/17 880,000 829,500 50,500 8,244,500
3/31/18 880,000 824,450 55,550 8,188,950
G. 15. B Interest income (equal to nominal interest) 1.0M x 12% P120,000
16. B Selling price (600,000 x 1.01) P606,000

Market value on December 31, 2015 (600,000 x 1.06) 636,000
Loss on sale P 30,000
17. D Fair market value, December 31, 2015 (1M x 1.06) P1,060,000
Fair market value, December 31, 2016 (400,000 x 1.04) P 416,000
18. C Amortized cost, December 31, 2015 (see given table) P1,034,706
19. B Amortized cost, December 31, 2015 P1,034,706

Amortization of premium up to the date of sale (16,529 x 3/12) (4,132)
Amortized cost, April 1, 2016 P1,030,574
Portion of investment sold (600/1,000) 60%
Carrying amount of investment sold P 618,344
Selling price (600,000 x 1.01) 606,000
20. D Under IFRS 9, reclassification shall be made when and only when an
entity changes its business model for managing its financial assets. The
tainting concept, under IAS 39 does not apply. Since there is no
indication of change in business model for managing the entity’s
financial assets, interest income is, then, computed as follows
Jan. 1 – Apr. 1, 2016 103,471 x 3/12 P25,868
Apr. 1 – Dec. 31, 2016 103,471 x .40 x 9/12 31,041
Total interest income for year 2016 P56,909
21. B Under IFRS 9, after the sale of a significant portion of the investment, it
continues to be accounted for at amortized cost. The carrying amount
at December 31, 2016 is
1,018,177 x 4/10 P407,271
22. A Fair value, December 31, 2015 (1.0M x 1.06) P1,060,000
23. B Fair value, December 31, 2014 (1.0M x 1.08) P1,080,000

Amortized cost, December 31, 2014 (see given table) 1,049,733
Unrealized gain taken to other comprehensive income in 2014 P 30,267
24. A Fair value, December 31, 2015 (1.0M x 1.06) P1,060,000

Amortized cost, December 31, 2015 (see given table) 1,034,706
Accumulated amount of unrealized gain P 25,294
Unrealized gain recognized in 2014 30,267
Unrealized loss taken to other comprehensive income in 2015 P 4,973
32
H. 25. D Nominal interest (1.0M x 4%) P40,000
Amortization of discount 3,600
Interest revenue P43,600
I. 26. B January 1 – June 30 (1,812,000 x 5%) P 90,600

July 1 – December 31
90,600 – (2M x 4%) = 10,600; (1,812,000 + 10,600) x 5% 91,130
Interest revenue for year ended December 31, 2016 P181,730
J. 27. D Purchase price, January 1, 2015 P912,400

Amortization of discount in 2015 (912,400 x 10%) – 80,000 11,240
Amortized cost, December 31, 2015 P923,640
Amortization of discount in 2016 (923,640 x 10%) – 80,000 12,364
Amortized cost, December 31, 2016 P936,004
28. D Interest revenue for 2016 (923,640 x 10%) P92,364
K. 29. D Market value, December 31, 2015 (given) P472,500
30. C Interest revenue (500,000 x 8% x 6/12) P20,000
31. B Sales price P460,000

Carrying amount on December 31, 2015 472,500
L. 32. B Sales price at a premium of P28,000

Carrying amount at a discount (20,000 – 4,000) 16,000
Gain on sale P44,000
M. 33. B Sales price P1,595,000

Carrying value of debt investment sold
Purchase price, January 1 , 2015 (3,108,000 x ½) 1,554,000
Amortization of premium, December 31
Effective interest (1,554,000 x 12%) 186,480
Nominal interest (1.5M x 13%) 195,000 (8,520)
Carrying value, December 31, 2015 1,545,480
Amortization through June 30, 2016
Nominal interest (1.5M x 6.5%) 97,500 (4,771) 1,540,709
Gain on sale of debt investment P 54,291
34. D Market value of remaining bonds, December 31, 2016

1,500,000 x 1.01 P1,515,000
N. 35. D Sales price 7,850,000 – (8M x 8% x 6/12) P7,530,000

Carrying value of debt investment, June 1, 2017
Purchase price, June 1, 2016 7,383,000
Amortization of discount, December 1, 2016
Nominal interest (8M x 4%) 320,000 49,150
Carrying value, December 1, 2016 7,432,150
Amortization of discount, June 1, 2017
Nominal interest (8M x 4%) 320,000 51,608 7,483,758
33
36. D Interest revenue, June 1 – December 1 P369,150
Interest revenue, December 1-31 (371,608 x 1/6) 61,935
Interest revenue for 2016 P431,085
O. 37. D Acquisition cost 3,050,000 – 100,000 – (3M x 10% x 6/12) P2,800,000

Market value, December 31, 2016 (3M x 1.05) 3,150,000
Unrealized gain P 350,000
P. 38. B Present value of bonds

1M + (10% x 3M) = 1.3M x 0.885 1,150,500
1M + (10% x 2M) = 1.2M x 0.783 939,600
1M + (10% x 1M) = 1.1M x 0.693 762,300 P2,852,400
39. A Initial cost, December 31, 2015 P2,852,400

Principal due (1,000,000)
Amortization of discount (3M x 10) – (2,852,400 x 13%) 70,812
Carrying amount of debt investment, Dece,ber 31, 2016 P1,923,212
Q. 40. C Purchase price of debt investment, January 1, 2015 P2,819,100

2,819,100+ (338,292 – 300,000) + (343,887 – 300,000) = 2,900,279
Nominal interest (3M x 10%) 300,000
Effective interest (2,819,200 x 12%) 338,292 38,292
Carrying amount, December 31, 2015 P2,857,392
Nominal interest 300,000
Carrying value of debt investment on December 31, 2016 P2,900,279
41. B
42. A Fair market value at time of reclassification P3,030,000

Investment carrying amount prior to reclassification 2,900,279
Amount taken to profit or loss P 129,721
R. 43. B 10% treasury bonds interest income (1M x 10% x 9/12) P75,000
12% Buttercup bonds (150,000 x 12% x 6/12) 9,000
Blossom ordinary shares
Fair value, December 31, 2016 (2,000 x 190) P380,000
Cost of investment 374,000 6,000
10% treasury bonds
Fair value, December 31, 2016 (1M x .99) P990,000
Cost of investment 1,000,000 (10,000)
12% Buttercup bonds
Fair value, December 31, 2016 (150,000 x 1.02) 153,000
Cost of investment 150,000 3,000
Total income for the year 2016 P83,000
34
S. 44. B Sales price of bond investment (5.0M x 1.10) P5,500,000
Acquisition cost, January 1, 2015 P4,742,000
Nominal interest (5.0M x 6%) P300,000
Amortized cost, December 31, 2015 P4,821,360
Nominal interest P300,000
Effective interest (4,821,360 x 8%) 385,709 85,709 4,907,069
T. 45. C January 1- July 1 (3,761,000 x 5.5%) P206,855

July 1 – December 31
206,855 – (4.0M x 5%) = 6,855; (3,761,000+ 6,855) x 5.5% 207,232
Interest revenue for year ended December 31, 2016 P414,087
35
Chapter 8 – Investment Property
A. 1. B (Fair value model) Fair value, end of year P5,000,000

Reclassification from owner-occupied to investment property,
P500,000 difference is credited to revaluation surplus, not to P&L P0
B. 2. A Sales price P290,000

Carrying amount (cost model) 250,000 x 17/20 212,500
C. 3. D Carrying amount (cost model) 270,000 x 14/15 P252,000

Depreciation expense (270,000/15) P 18,000
D. 4. D Total fair value, December 31, 2016 (240,000+ 288,000 + 365,000) P893,000
Total fair value, December 31, 2015 (220,000 + 305,000 + 375,000) 900,000
Loss in 2016 P 7,000
E. 5. A Any difference resulting from reclassification from owner-occupied to

investment property is taken to equity/revaluation surplus. P0
F. 6. B Fair value model (590,000 – 580,000) P10,000

Cost model (580,000/40 years) P14,500
G. 7. D Building owned being rented out, at fair value P5,500,000

Fourth floor being rented under operating lease and subleased to
others, at fair value 2,000,000
Total amount reported as investment property P7,500,000
H. 8. B Land held, no intended specific use in the future P 1,800,000

Building in process of construction intended to be leased under
operating leases 8,000,000
Building 70% x 18.0M (being leased out) 12,600,000
Total investment property, December 31, 2016 P22,400,000
36
Chapter 9 – Other Non-current Financial Assets and Non-current Assets Held for Sale
A. 1. D Desired amount in five years P10,000,000

10M / 12.5779 = 795,045.27
Future value of ordinary annuity at 5% for ten periods ÷ 12.5779
Required semi-annual deposit P795,045
B. 2. A Face value of non-interesting bearing note P5,000,000

Present value of 1 at 12% for 5 periods x 0.5674
Present value of note, July 1, 2016 P2,837,000
3. D Interest revenue (2,837,000 x 6%) P170,220
C. 4. C 1st deposit on June 30, 2016 P 795,045.27

Interest, December 31, 2016 (795,045.27 x 5%) 39,752.26
2nd deposit, December 31, 2016 795,045.27
Bond sinking fund balance, December 31, 2016 P1,629,842.80
D. 5. B 1st deposit on January 1, 2016 P1,489,070.20

Interest at 10% 148,907.02
Bond sinking fund balance P1,637,977.22
E. 6. C Future amount in three years P21,000,000

Future value of an ordinarty annuity of 1 at 10% for 3 periods ÷ 3.31
Annual deposit to the fund P 6,344,410
F. 7. B Bond sinking fund, January 1, 2015 P5,000,000

Additional investment in 2015 1,000,000
Dividend on investment 510,000
Interest revenue 1,520,000
Administration costs (800,000)
Sinking fund balance, December 31, 2015 P7,230,000
G. 8. A Cash in sinking fund (including P200,000 earned prior to 2015) P3,900,000

Securities in sinking fund 1,600,000
Interest and dividends earned in 2015 (receivable in 2016) 80,000
Sinking fund balance, December 31, 2015 P5,580,000
H. 9. D Annual premium, net of dividends (40,000 – 6,000) P34.000

Increase in cash surrender value (108,000 – 87,000) 21,000
Life insurance expense for 2016 P13,000
I. 10. A Annual premium, net of dividends (96,000 – 1,500) P94,500

Increase in cash surrender value 7,000
Life insurance expense for 2016 P87,500
J. 11. A Cash surrender value, December 31, 2016 P182,000

Annual premium due, net of dividends (50,000 – 5,000) 45,000
Life insurance expense recognized in 2016 35,000
Increase in cash surrender value during 2016 10,000
Cash surrender value, January 1, 2016 P172,000
K. 12. D Annual premium P120,000

Increase in cash surrender value (62,000 – 49,000) (13,000)
Life insurance expense for one year P107,000
Life insurance expense for 9 months of 2016 (107,000 x 9/12) P 80,250
37
13. B Face value of life insurance policy P4,000,000
4M – 49,000 – (120,000 x 3/12) = 3,921,000
Cash surrender value of life insurance (49,000)
Unexpired insurance (120,000 x 3/12) (30,000)
Gain from life insurance settlement P3,921,000
L. 14. B Cash surrender value, December 31, 2016 P117,000

Annual premium P50,000
Life insurance expense recognized in 2016 (38,000) 12,000
Cash surrender value, December 31, 2015 P105,000
M. 15. D Face value of life insurance policy P8,000,000

Cash surrender value of life insurance, December 31, 2015 (60,000)
Unexpired insurance (200,000 x 3/12) (50,000)
Gain from life insurance settlement P7,890,000
N. 16. A Cash surrender value, January 1 P100,000

Increase in cash surrender value
Annual premium, net of dividends 190,000
Life insurance expensefor 2016 170,000 20,000
Cash surrender value, December 31 P120,000
O. 17. B Present value of security deposit (300,000 x 0.7513) P225,390
18. A Accretion using effective interest method (225,390 x 10%) P 22,539

Security deposit balance, December 31, 2016 (225,390 + 22,539) P247,929
P. 19. B Carrying value of asset P64,000

Fair value less cost to sell (48,000 – 3,800) 44,200
20. D Sales price P40,000

Carrying value 44,200
Loss on disposal P 4,200
Q. 21. C Lower of carrying amount (P34,000)

or fair value less cost to sell (48,000 – 3,800) P34,000
R. 22 C Cost of asset P100,000

Accumulated depreciation at time of reclassification
(100,000 – 10,000)/10 years = 9,000; 9,000 x 3.75 years 33,750
Carrying amount P66,250
S. 23. D Carrying amount P45,000

Sales price P27,600

Carrying amount of noncurrent asset held for sale 28,500
Loss on disposal P 900
38
T. 24. A Carrying amount P24,500
No impairment loss ------
The asset is reported at the lower amount P24,500
25. A Carrying amount, September 30, 2016

8.0M – 3.2M – (8M x 8% x 9/12) P4,320,000
Fair value less cost to sell (4.9M – 400,000) P4,500,000
Sales price net of disposal costs (4,950,000 – 350,000) P4,600,000
Carrying amount (lower amount) 4,320,000
26. B Carrying amount after classification as held for sale on January 1, 2016
(lower between P2,200,000 and P2,500,000) P2,200,000
Fair value less cost to sell at December 31, 2016 (1.8M – 50,000) 1,750,000
Additional loss in 2016 P 450,000
39
Chapter 10 – Biological Assets
A. 1. B Fair value less cost to sell , December 31

125 x 5,000 625,000
75 x 4,500 337,500
80 x 3,600 288,000 P1,250,500
Fair value less cost to sell, January 1
125 x 4,000 500,000
75 x 3,000 225,000
Purchased on July 1
80 x 3,100 248,000 973,000
Increase in value of biological assets in 2016 P 277,500
B. 2. D 30 x (15,000 – 13,000) 60,000

5 x (15,000 – 13,000) 10,000
5 x 4,000 20,000
5 (7,000 – 4,500) 12,500
Gain arising from change in FV less CTS due to physical change P102,500
3. B 30 x (13,000 – 12,500) 15,000

5 x (13,000 – 12,500) 2,500
5 (4,500 – 4,000) 2,500
Gain arising from change in FV less CTS due to price change P20,000
C. 4. B 11 x 12,000 132,000
1 x 8,000 8,000
Biological assets, December 31, 2016 P140,000
5. D Biological assets, December 31, 2016 P140,000

Biological assets, January 1, 2016
10 x 10,000 100,000
Purchased on July 1, 2016
1 x 10,800 10,800 110,800
Gain arising from change in fair value P 29,200
D. 6. B Fair value of biological assets, December 31 P3,600,000

Costs to sell (45,000 + 12,000) (57,000)
Biological assets (at FV less CTS), December 31, 2016 P3,543,000
E. 7. D Carrying amount at January 1 P1,000,000

Livestock purchased during the year 340,000
Increase in FV less cost to sell due to physical changes 180,000
Increase in FV less cost to sell due to price changes 40,000
Livestock sold during the year (890,000)
Biological assets at December 31 P 670,000
8. B Increase in FV less cost to sell due to physical changes P180,000

Increase in FV less cost to sell due to price changes 40,000
Amount included in gross income P220,000
F. 9. C 150 bulls x (38,000 – 35,000) P450,000

100 cattle x (24,000 – 22,000) 200,000
50 heifers x (13,000 – 12,500) 25,000
Change in FV less CTS due to price change P675,000
40
10. A 150 bulls x (45,000 – 38,000) P1,050,000
100 cattle x (38,000 – 24,000) 1,400,000
50 heifers x (24,000 – 13,000) 550,000
Change in FV less CTS due to physical change P3,000,000
11. B (150 – 40) bulls x 45,000 P4,950,000

(100 – 50) cattle x 38,000 1,900,000
50 heifers x 24,000 1,200,000
Biological assets, December 31, 2016 P8,050,000
G. 12. A Gain on initial recognition (8,500 – 8,000) x 5 P2,500
13. C 30 x (16,500 – 11,600) P147,000

5 x (11,600 – 8,800) 14,000
10 x 6,000 60,000
10 x (8,800 – 6,500) 23,000
Gain arising from change in FV due to physical change P244,000
14. B 30 x (11,600 – 11,200) P12,000

5 x (8,800 – 8,500) 1,500
10 x (6,500 – 6,000) 5,000
Gain arising from change in FV due to price change P18,500
15. B 25 x 16,500 P412,500

5 x 11,600 58,000
10 x 8,800 88,000
Biological assets, December 31, 2016 P558,500
41
Chapter 11 – Current Liabilities, Provisions and Contingencies
A. 1. B Mortgage note payable P1,500,000

Bank notes payable (50,000 x 2) 100,000
Accrued interest on notes payable (300,000 x 12% x 5/12) 15,000
Accounts payable (270,000 – 65,000) 205,000
Accrued wages payable (15,000 x 2/5) 6,000
VAT payable (3,640,000/1.12 = 3,250,000; 3,250,000 x 12%) 390,000
Withholding tax payable 120,000
SSS premiums payable 18,250
Philhealth premiums payable 8,400
Income tax payable (586,500 – 345,000) 241,500
Total current liabilities P2,604,150
B. 2. C Cash dividends payable (2.50 x 750,000 shares) P1,875,000

Current portion of bonds payable 2,500,000
Accrued interest on bonds (10M x 12% x 3/12) 300,000
Customer advances (2.0M + 4.0M – 2.5M) 3,500,000
Current liabilities, December 31, 2016 P8,175,000
C. 3. B Bank notes payable P 600,000

Accrued interest on notes payable (600,000 x 10% x 5/12) 25,000
Mortgage note payable 1,200,000
Accounts payable 35,000
Credit balances in customers’ accounts 18,000
Unearned rent revenue (30,000 x 10/12) 25,000
Total current liabilities, December 31, 2016 P1,903,000
D. 4. D Balance of accounts payable before adjustment P590,000

Goods in transit purchased FOB destination but recorded as purchase (30,000)
Goods in transit purchased FOB shipping point not yet recorded 9,000
Adjusted balance of accounts payable P569,000
E. 5. D Accrued wages for June 27-30 (720,000 x 4/10) P288,000

Overtime pay for two-week ended June 24 63,000
Overtime pay in the remaining days of June 18,000
Accrued salaries, June 30, 2016 P369,000
F. 6. B Accrued advertising P 37,500

Contingent rent (5.5M – 2M) x 3% 105,000
Accrued liabilities, December 31, 2016 P142,500
G. 7. C Accrued interest payable, December 31, 2016 (1.1M x 12% x 4/12) P44,000
H. 8. A Accrued interest payable, December 31, 2015 P15,000

Interest expense for year 2016 85,000
Interest payments during 2016 (68,000)
Accrued interest payable, December 31, 2016 P32,000
I. 9. B Principal due on July 31, 2017 P480,000

Accrued interest at December 31, 2016 (2.4M x 10% x 5/12) 100,000
Current liabilities related to the note, December 31, 2016 P580,000
42
J. 10. C Customer advances, January 1 P 5,800,000
Advances received with orders 12,000,000
Advances applied to orders shipped (10,700,000)
Advances applicable to orders cancelled (2,500,000)
Customer advances, December 31 P 4,600,000
K. 11. D Universal Time unearned subscriptions (45 x 3,000 x 3/12) P33,750

Condo International unearned subscriptions (60 x 2,400 x 4/12) 48,000
Unearned subscriptions revenue P81,750
L. 12. A Gift certificates outstanding, January 1 P 520,000

Gift certificates sold during 2016 1,800,000
Gift certificates redeemed (1,560,000)
Gift certificates outstanding, December 31 P 760,000
M. 13. D Unearned service contract revenue, January 1 P270,000

Service contracts sold during the year 480,000
Service contracts revenue (390,000)
Unearned service contract revenue, December 31 P360,000
N. 14. A Contracts sold in 2015 (1,000 x 5000) P5,000,000

Revenue recognized in 2015 (5.0M x 40% x ½) 1,000,000
Unearned revenue, December 31, 2015 P4,000,000
15. B From 2015 sales (5.0M x 40% x ½) + (5.0M x 60% x ½) P2,500,000

(5M x 40% x ½) + (5M x 60% x ½) + (4M x 40% x ½) = 3.3 million
From 2016 sales (800 x 5,000 = 4M; 4M x 40% x ½) 800,000
Contract sales revenue for year 2016 P3,300,000
O. 16. A From 2014 sales (800,000 x 30%) P 240,000

From 2015 sales (1.0M x 75%) 750,000
From 2016 sales (1.2M x 95%) 1,140,000
Unearned service contract revenue at December 31, 2016 P2,130,000
17. A Correction: Change choice (a) to P210,000

From 2014 sales (800,000 x 20%) P160,000
From 2015 sales (1.0M x 5%) 50,000
Revenue from service contracts for year 2015 P210,000
18. A From 2014 sales (800,000 x 45%) P360,000

From 2015 sales (1.0M x 20%) 200,000
From 2016 sales (1.2M x 5%) 60,000
Revenue from service contracts for year 2016 P620,000
Contract expenses (350,000)
Net revenue from service contracts P270,000
P. 19. A Minor repairs (100,000 x 15%) P15,000

Major repairs (500,000 x 5%) 25,000
Provision for repairs P40,000
Q. 20. A Total warranty expense for 2015 and 2016 (3.0M + 5.0M) x 6% P480,000
Actual warranty expenditures (45,000 + 150,000) 195,000
Estimated warranty liability, December 31, 2016 P285,000
R. 21. C Warranty expense in 2015 (7,500 x 5,000 x 12%) P4,500,000
43
22. A Warranty expense for 2015 and 2016
(7,500 + 8,400) x 5,000 = 79.5M; 79.5M x 12% P9,540,000
Actual warranty expenditures (530,000 + 1,176,000) 1,706,000
Liability for warranty, December 31, 2016 P7,834,000
23. C On 2015 sales (7,500 x 5,000 x 8%) P3,000,000

On 2016 sales (8,400 x 5,000 x 11%) 4,620,000
Predicted warranty expense covering 2015 and 2016 sales P7,620,000
S. 24. C Estimated total rebates (50,000 x 80% x 4) P160,000

50,000 x 80% x 4 = 160,000; 160,000 – 48,000 = 112,000
Rebates already given (48,000)
Remaining liability for rebates P112,000
T. 25. B Warranty expense for 2016 (3% x 7.2M) P216,000
26. C Estimated liability for warranty, January 1 P 80,000

Warranty expense for 2016 216,000
Actual warranty expenditures (184,000)
Estimated liability for warranty, December 31 P112,000
27. A Premium expense for 2016

40% x 2.6M = 1,040 coupons; 1,040/10 = 104 premiums
1,000
104 premiums x (1,200 – 500) P72,800
28. C Estimated premium claims outstanding, January 1 P17,500

Premium expense for 2016 72,800
Premiums redeemed (800/10) x 700 56,000
Estimated premium claims outstanding, December 31 P34,300
29. B Premiums inventory (30 + 100 – 80) x P1,200 P60,000
U. 30. C Estimated value of coupons to be redeemed (70% x 300,000) P210,000

10% handling costs 21,000
Total estimated reimbursement for redemption P231,000
Payments made to retailers 110,000
Liability for unredeemed coupons P121,000
V. 31. A Alternative 1 B=.08 x (8.0M – 5.0M) P240,000
32. C Alternative 2 T=.30 x (8.0M – B); B=.05 x (8.0M – B – T)

B=.05 x [8.0M – B – .30 (8M – B)]
B=.05 x (8.0M – B – 2.4M + .30B)
B=280,000 -.05B + .015B
B +.05B - .015B = 280,000; B=280,000/1.035 P270,531
33. C Alternative 3 B=.03 x (8.0M – B); B=240,000 -.03B

B +.03B = 240,000; B=240,000/1.03 P233,010
W. 34. B Profit before tax and after bonus (2,100,000/0.70) = P3.0M

Bonus 10% x (3.0M – 1.0M) P200,000
44
X. 35. A Total bonuses
B = 0.06(12M – B); B = 720,000 - .06B;
B+ .06B = 720,000; B = 720,000/1.06 = 679,245
Bonus (Vice President) 679,245 x 3/6 P339,623
Bonus (each Division Manager) 679,245 x 1/6 P113,208
36. C Total bonus = .08 (12M – B); 960,000 - .08B; 960,000/1.08 = 888,889
Income tax = 0.30 (12.0M – 888,889) P3,333,333
Y. 37. C Liability for deposits on returnable containers

From 2015 deliveries (215,000 – 125,000) P 90,000
From 2016 deliveries (390,000 – 143,000) 247,000
Total P337,000
Z. 38. B December 31, 2015 balance P 30,000

Deposits from January to September (25,000 x 9) 225,000
Payments made for taxes (280,000 x ¾) (210,000)
Escrow liability, September 30, 2016 P 45,000
AA. 39. A The obligation is classified as non-current liability
BB. 40. C The out-of-court settlement offer on March 10 and accepted by Snoopy
on March 12. P2,000,000
CC. 41. C Probable and amount is reliably estimable within the range. P300,000
DD. 42. A Reasonably possible requiring note disclosure; the amount is P500,000
which is the deductible clause. It is the extent of the insured
participation in the amount of the loss.
EE. 43. B Probable; amount is the most probable cost of P1,200,000 which is
between the lowest and highest range; excess of P800,000 (2M – 1.2M)
is disclosed as a contingent liability.
FF. 44. D No asset is recognized unless the inflow of economic benefits is

virtually certain. The decision is still being appealed by the defendant.
GG. 45. A The asset of P45,000 is not contingent (it is not being appealed) and its
recognition is appropriate. Only the P90,000 punitive damages is
being appealed.
45
Chapter 12 – Non-current Liabilities
A. 1. C Present value of maturity value (1,000 x 0.422) P422

Present value of interest payments (1,000 x 6% x 6.418) 385
Issue price of each P1,000 bond P807
B. 2. A Present value of maturity value (4.0M x 0.50835) P2,033,400

Present value of interest payments (4.0M x 8% x 7.02359) 2,247,549
Issue price of the bonds P4,280,949
3. B January 1 – July 1 (see table below) P298,243

July 1 – December 31 296,720
Bond interest expense for the year 2016 P594,963
4. B Bond carrying value at December 31, 2016 (see table below) P4,215,578

7/1/15 4,280,949
12/31/15 320,000 299,666 20,334 4,260,615
7/1/16 320,000 298,243 21,757 4,238,858
12/31/16 320,000 296,720 23,280 4,215,578
C. 5. D Issue price (600,000 x .99) P594,000

Accrued interest (600,000 x 10% x 3/12) 15,000
Cash received from bond issuance P609,000
D. 6. D Issue price at par P2,000,000

Bond issue costs incurred (250,000)
Bond carrying amount at January 2, 2016 P1,750,000
E. 7. C Bond price (5.0M x .97) P4,850,000
8. A Value of warrants (5,200,000 – 4,850,000) P350,000

Cash received upon exercise of warrants (5,000 x 20 x 20) 2,000,000
Total P2,350,000
Par value of shares issued (5,000 x 20 x 15) 1,500,000
Share premium P 850,000
F. 9. B Value allocated to bonds (2,000 x 1,040) P2,080,000

Bond face value 2,000,000
Premium on bonds payable P 80,000
G. 10. A Value allocated to bonds

(5M x .57) + (5M x 11% x 3.60) P4,830,000
Face value of bonds 5,000,000
Discount on bonds payable P 170,000
11. B Interest expense for 2016 (4,830,000 x 12% x 3/12) P144,900
H. 12. B Carrying value, December 31, 2014 P5,851,160

Amortization of premium
Effective interest (10% x 5,851,160) 585,116
Nominal interest (12% x 5.0M) 600,000 14,884
46
13. B Interest expense for 2015 (5,851,160 x 10%) P585,116
14. D Carrying value of bonds retired, December 31, 2015

5,836,276 x 2/5 P2,334,510
Amortization of premium prior to retirement
Effective interest (2,334,510 x 10% x 3/12) 58,363
Nominal interest (2.0M x 12% x 3/12) 60,000 (1,637)
Carrying value of bonds retired, April 1, 2016 P2,332,873
15. A Retirement price (2.0M x .98) P1,960,000

Carrying value of bonds retired 2,332,873
Gain on retirement of bonds P 372,873
16. D Carrying value of remaining bonds, December 31, 2015

5,836,272 x 3/5 P3,501,766
Amortization of premium for 2016
3,501,766 x 10% 350,177
3.0M x 12% 360,000 9,823
Carrying value of remaining bonds, December 31, 2016 P3,491,943
I. 17. B Face value of bonds converted P2,000,000

Unamortized premium related to bonds converted (350,000 x 2/20) 35,000
Paid in capital arising from bond conversion privilege related to
bonds converted (640,000 x 2/20) 64,000
Total P2,099,000
Par value of ordinary shares issued in exchange (2,000 x 60 x 10) 1,200,000
Share premium recognized upon conversion P 899,000
18. C Retirement price related to bonds (2.0M x 1.025) P2,050,000

Carrying value of bonds retired (2.0M + 35,000) 2,035,000
Loss on retirement taken to profit or loss P 15,000
J. 19. A Carrying amount of bonds converted P2,600,000

Paid in capital arising from conversion privilege 150,000
Total P2,750,000
Par value of ordinary shares issued (50,000 x 25) 1,250,000
Share premium resulting from bond conversion P1,500,000
K. 20. C Face value of bonds converted P500,000

Unamortized premium related to bonds converted (112,500 x 500/5,000) 11,250
Paid in capital arising from bond conversion privilege
80,000 x 500/5,000 8,000
Total P519,250
Par value of ordinary shares issued (500 x 60 x 15) 450,000
Share premium P 69,250
L. 21. D No gain or loss is recognized upon conversion of bonds.
M. 22. B Total issue price (5.0M x 1.1) P5,500,000

Issue price allocated to bonds
Present value of maturity value (5.0M x 0.77) 3,850,000
Present value of interest payments (5.0M x 6% x 2.53) 759,000 4,609,000
Equity component of the convertible bonds P 891,000
47
N. 23. B Bond carrying value, May 31, 2016 (6.0M x 1.0625) P6,375,000
Amortization of premium on November 30
Nominal interest (6.0M x 5.5%) 330,000 (11,250)
Carrying value, November 30 P6,363,750
Amortization of premium for December
Effective interest (6,363,750 x 5% x 1/6) 53,031
Nominal interest (6.0M x 5.5% x 1/6) 55,000 (1,969)
Carrying amount, December 31, 2016 P6,361,781
24. C Interest expense for the year 2016

See # 23 (318,750 + 53,031) P 371,781
O. 25. C Interest expense for six months ended December 31, 2016
1,032,880 x 5% P 51,644
26. A Bond carrying value, July 1, 2016 P1,032,880

Amortization of premium (1.0M x 6%) – 51,644 (8,356)
Bond carrying value, December 31, 2016 P1,024,524
P. 27. A Unamortized bond discount, January 1, 2016 P122,000

Amortization of discount for 2016
Nominal interest (2.0M x 9%) 180,000 (7,800)
Unamortized bond discount, December 31, 2016 P114,200
28. A Carrying value, January 1, 2016 P1,878,000

Amortization of discount (see No. 27) 7,800
Q. 29. B Effective interest (10M – 1,145,000) x 6% P531,300

Nominal interest (10.0M x 5%) 500,000
Amortization of discount at July 1, 2016 P 31,300
R. 30. C Issue price of bonds, January 2, 2016 P893,640

July 1 amortization of discount
Effective interest (893,640 x 7%) 62,555
Nominal interest (1.0M x 6%) 60,000 2,555
Carrying amount, July 1 P896,195
December 31 amortization of discount
Effective interest (896,195 x 7%) 62,734
Nominal interest 60,000 2,734
Carrying amount at December 31 P898,929
S. 31. C Interest expense for six months (5M x 1.136 = 5,680,000 x .04) P227,200
T. 32. B Interest expense for first year of bond issue (826,280 x 0.16) P132,205
U. 33. B Interest payable, December 31, 2016 (800,000 x 0.08 x 3/12) P16,000
V. 34. A Interest expense on September 1, 2016 (1,963,000 x 4.5%) P88,335
48
35. B Issue price on March 1, 2016 P1,963,000.00
Amortization of discount on September 1
Effective interest (see No. 34) 88,335.00
Nominal interest (2.0M x 8.5% x ½) 85,000.00 3,335.00
Carrying value, September 1 P1,966,335.00
Amortization of discount on December 31
Effective interest (1,966,335 x 9% x 4/12) 58,990.05
Nominal interest (2.0M x 8.5% x 4/12) 56,666.67 2,323.38
Carrying value, December 31 P1,968,658.38
W. 36. D Carrying value, December 31, 2015 P2,083,000

1st principal payment (500,000)
Amortization of premium
Effective interest (10% x 2,083,000) 208,300
Nominal interest (12% x 2.0M) 240,000 (31,700)
37. D Bond interest expense for 2016 (10% x 2,083,000) P208,300
X. 38. C Carrying value of debt restructured P950,000

Fair value/sales price of inventory transferred in settlement of debt 835,000
Gain on debt restructuring P115,000
39. B Carrying value of debt restructured (1.5M + 150,000) P1,650,000

Fair value of ordinary shares issued in settlement (20,000 x 65) 1,300,000
Gain on debt restructuring P 350,000
40. A Carrying value of debt restructured 2.0M x (2.0M x 12%) P2,240,000

Present value of restructured debt
Present value of reduced principal (1.8M x 0.797) 1,434,600
Gain on debt restructuring P 562,040
41. D Carrying amount of debt restructured P1,500,000

Present value of maturity value (1.5M x 0.6209) 931,350
Gain on debt restructuring P -0-
Y. 42. D Gain on disposal of real estate (4.5M – 3.0M) P1,500,000

Gain on debt restructuring (5.5M – 4.5M) 1,000,000
Total amount taken to profit or loss P2,500,000
Z. 43. B Carrying amount of debt restructured (8.0M + 640,000) P8,640,000

Present value of maturity value (7.0M x 0.735) 5,145,000
Present value of interest payments (7.0M x 10% x 3.31) 2,317,000 7,462,000
Gain on debt restructuring P1,178,000
49
Chapter 13 – Shareholders’ Equity
A. 1. C Ordinary shares outstanding, December 31, 2015 100,000

New shares issued on February 1 30,000
Treasury shares at December 31 (5,000 – 2,000) (3,000)
Ordinary shares outstanding, December 31, 2016 127,000
2. B Dividends on preference shares (2.0M x 12%) P240,000

Dividends on ordinary shares (127,000 x 5) 635,000
Total amount of cash dividends P875,000
3. B Accumulated profits, December 31, 2015 P2,586,000

March 10 property dividends (736,000)
Cash dividends declared (875,000)
Profit for the year 8,380,000
Accumulated profits, December 31, 2016 P9,355,000
4. D Total shareholders’ equity, Decembe 31, 2015 P13,586,000

February 1 Issue of shares in exchange of land (30,000 x 20) 600,000
March 1 Purchase of treasury shares (5,000 x 24) (120,000)
May 10 Declaration and distribution of property dividends (736,000)
October 1 Reissue of treasury shares (2,000 x 26) 52,000
Cash dividends declared (875,000)
Total shareholders’ equity, December 31, 2016 P20,887,000
B. 5. D Preference shares outstanding, December 31, 2015 15,000

Retired shares (b) (2,000)
Preference shares outstanding, December 31, 2016 13,000
6. A Issued ordinary shares 250,000

Treasury shares (30,000 – 5,000 + 20,000 – 10,000) 35,000
Outstanding ordinary shares 215,000
7. B Dividends on preference shares (13,000 x 200 x 12%) P312,000

Dividends on ordinary shares outstanding (215,000 x 1.50) 322,500
Total amount of dividends P634,500
8. B Total shareholders’ equity, December 31, 2015 P14,250,000

a. Retirement of preference shares (2,000 x 280) (560,000)
b. Purchase of own ordinary shares (30,000 x 35) (1,050,000)
c. Reissue of treasury shares (5,000 x 38) 190,000
d. Donated treasury shares ---
e. Sale of donated shares (10,000 x 39) 390,000
f. Profit for the year 1,850,000
g. Cash dividends declared (634,500)
C. 9. C Outstanding shares, January 1 80,000

Bonus issue (15% x 80,000) 12,000
Treasury shares acquired (10,000)
Outstanding shares before share split 82,000
Outstanding shares after 1-for-4 split (82,000/4) 20,500
50
D. 10. B Oustanding shares after 15% bonus issue (8,000 x 1.15) 9,200
Outstanding shares after 10% bonus issue (9,200 x 1.10) 10,120
Treasury shares acquired (2,000)
Outstanding shares prior to 3-for-1 split 8,120
Outstanding shares, December 31, 2016 (8,120 x 3) 24,360
E. 11. B Retained earnings, January 1, 2016 P3,000,000

Cash dividends declared (1,500,000)
Large bonus issue (5,000 x 100 par) (500,000)
Retained earnings, December 31, 2016 P6,000,000
F. 12. B Contributed capital, December 31, 2015 (18,000 x 24) P432,000

Retained earnings, December 31, 2015 550,000
January 16-Issue of ordinary shares (13,000 x 25) 325,000
March 21-Issue of shares in exchange of equipment (12,000 x 27) 324,000
May 7-Reacquired shares (5,000 x 26) (130,000)
July 1-Received subscriptions of ordinary shares (10,000 x 28) 280,000
August 20-Sale of treasury shares (4,000 x 29) 116,000
Profit for the year 640,000
G. 13. C Cost of remaining treasury shares (20,000 – 15,000) x 24 P120,000
H. 14. A Purchase of treasury shares 5,000 @ P30 = P150,000

3-for-1 split 15,000 @ P10 = P150,000
Sale of shares (3,000 @ P10 = 30,000)
Remaining treasury shares 12,000 @ P10 P120,000
I. 15. B Total shareholders’ equity, December 31, 2015 P10,150,000

Issue of preference shares (10,000 x 28) 280,000
Issue of ordinary shares (35,000 x 70) 2,450,000
Reacquisition and retirement of preference shares (2,000 x 30) (60,000)
Purchase of ordinary treasury shares (5,000 x 80) (400,000)
Share split (2-for-1) ---
Reissue of ordinary treasury shares (5,000 x 52) 260,000
16. B Purchase of treasury shares 5,000 @ P80 = P400,000

2-for-1 split 10,000 @ P40 = P400,000
Reissue of shares (5,000 @ P40 = 200,000)
Remaining treasury shares 5,000 @ P40 P200,000
J. 17. A Retained earnings is not affected by issue of stock rights. Issue of stock
rights is recorded by a memorandum entry only.
K. 18. A Ordinary share capital (20,000 x P20 par) P 400,000

Preference share capital (6,000 x P50 par) P 300,000
Share premium (20,000 x P40 excess) + (6,000 x P50 excess) P1,100,000
L. 19. B Ordinary shares issued P1,080,000

Par value of retired ordinary shares (50,000 x P5 par) 250,000
Ordinary shares outstanding, December 31, 2016 P 830,000
51
M. 20. D Ordinary shares issued, after 5-for-2 split (280,000/2) x 5 700,000
Ordinary shares issued and outstanding, end of 2015 (280,000 – 50,000) 230,000
January 1 – October 31 Issue of treasury shares 30,000
Total outstanding shares prior to split 260,000
Total outstanding shares after 5-for-2 share split (260,000/2) x 5 650,000
21. D Par value prior to split P30.00

Par value after 5-for-2 split (30 x 2)/5 P12.00
N. 22. A Large bonus issue is recorded at the par value of shares issued. No
amount is transferred to share premium.
O. 23. B Share premium is unchanged by the share split.
P. 24. C Compensation expense for 2013 and 2014

3,000 x 60 = 180,000; 180,000 x 2/3 = 120,000
Compensation expense for 2015
2,200 x 60 = 132,000; 132,000 – 120,000 P12,000
Q. 25. B Intrinsic value of option 33-25 = 8.00

Compensation expense for six months ended December 31, 2016
20,000 x 8 = 160,000; 160,000/2 years = 80,000/year; 80,000 x ½ P40,000
R. 26. A Compensation expense for 2014

30,000 x 75 = 2,250,000; 2,250,000/3 years P750,000
22,000 x 75 x 2/3 = 1,100,000; 1,100,000 – 750,000 P350,000
22,000 x 75 = 1,650,000; 1,650,000 – 1,100,000 P550,000
27. B Compensation expense for 2014 (see No. 26) P750,000

Compensation expense for 2015 (see No. 26) P350,000
19,000 x 75 = 1,425,000; 1,425,000 – 750,000 – 350,000 P325,000
S. 28. C Compensation expense for 2014

182 x 100 x 30 = 546,000; 546,000 x 1/3 P182,000
173 x 100 x 30 x 2/3 =346,000; 346,000 – 182,000 P164,000
172 x 100 x 30 = 516,000; 516,000 – 182,000 – 164,000 P170,000
29. C As of December 31, 2015 (see No. 28) P346,000
30. D Subscription price upon exercise per share P180

Fair value of each option 30
Total P210
Par value 100
Excess credited to share premium per share P110
Number of shares/options exercised (140 x 100) 14,000
Amount credited to share premium P1,540,000
52
T. 31. A Compensation expense for 2014
15,000 x (63 – 60) = 45,000 x 1/3 = 15,000
15,000 x (66 – 60) = 90,000; 90,000 x 2/3 = 60,000; 60,000-15,000 P 45,000
15,000 x (75 – 60) = 225,000; 225,000 – 15,000 – 45,000 P165,000
32. B Compensation expense for 2017

10,000 x (88-75) P130,000
U. 33. B Compensation expense for 2014

200 x 100 x 15 x 1/3 = 100,000
Compensation expense fo 2015
200 x 100 x 18 x 2/3 = 240,000; 240,000- 100,000 P140,000
200 x 100 x 20 =400,000 – 240,000 = 160,000
Exercise of rights (20-15) x (40 x 100) (20,000) P140,000
34. D Liability for share appreciation rights, December 31, 2016

160 x 100 x 20 P320,000
V. 35. A Compensation expense for 2014

10,000 shares x (77 – 50) = 270,000; 270,000 x ½ P135,000
36. D Compensation expense for 2015

12,000 shares x (75 – 50) = 300,000; 300,000 – 135,000 P165,000
W. 37. C Fair value of share alternative (10,000 x 48) P480,000

Amount accounted as liability (7,500 x 50) 375,000
Amount accounted as equity P105,000
38. B Compensation expense for 2015 relating to equity

105,000/3 years P 35,000
Compensation expense for 2015 relating to debt
7,500 x 52 = 390,000; 390,000/3 years P130,000
39. C Compensation expense for 2016 relating to equity (same as in 2015) P 35,000
Compensation expense for 2016 relating to debt
7,500 x 57 = 427,500; 427,500 x 2/3 = 285,000; 285,000 – 130,000 P155,000
40. A Payment upon exercise opting for cash alternative (7,500 x 61) P457,500
X. 41. B Total cash dividends P300,000

Ordinary share dividends 300,000 x (1.0/2.5)* P120,000
*The total amount of dividends (300,000) is more than enough to cover
the dividends on both preference and ordinary shares of P200,000 (8% x
2.5M); Thus, the P300,000 may be divided simply based on their total
par since the preference shares are fully participating.
42. A Total cash dividends P300,000

Less arrears on preference shares 75,000
Available for distribution proportionately P225,000
Dividend per ordinary share 225,000 x (1.0/2.5) =90,000;
90,000/100,000 shares P0.90
53
Y. 43. A Dividends in arrears P24,000
Current year’s dividends 108,000 – 24,000 = 84,000; 84,000 x 4/6 56,000
Total amount of dividends payable to preference shareholders P80,000
44. D Total dividends P108,000

Preference share dividends (see No. 43) 80,000
Ordinary share dividends (or 84,000 x 2/6) P 28,000
Ordinary shares outstanding ÷ 20,000
Dividend payable to each ordinary share P 1.40
Z. 45. C 12% Pref. 10% Pref Ordinary

Dividends in arrears P960,000 P400,000
Current dividends 480,000 200,000 P 960,000
Balance (6.0M – 3.0M) allocated to 12%
Preference and Ordinary shares
3.0M x 4/12; 3.0M x 8/12 1,000,000 2,000,000
Total dividends payable to ordinary P2,960,000
AA. 46. B Total shareholders’ equity P49,000,000

Less equity identified with preference shares
Liquidation value (50,000 x 110) 5,500,000
Dividends in arrears (5M x 10% x 3 years) 1,500,000 7,000,000
Equity identified with ordinary shares P42,000,000
Number of ordinary outstanding shares, including subscribed ÷ 250,000
Book value per share P 168.00
BB. 47. A Share premium P9,000,000

Treasury shares (250,000)
Preference shares 1,750,000
Ordinary shares 400,000
Retained earnings 1.0M + (10.0M – 7.8M) 3,200,000
CC. 48. D Accumulated losses prior to quasi-reorganization P30,000,000

Reduction in inventory charged to accumulated losses 4,000,000
Reduction in property, plant and equipment 5,500,000
Write off of goodwill 3,000,000
Unrecorded liabilities recognized 2,500,000
Total amount of accumulated losses (deficit) P45,000,000
Existing balance in share premium 25,000,000
Amount to be taken from ordinary share capital to eliminate deficit P20,000,000
DD. 49. B Total equity, December 31, 2016 (14,950,000/130%) P11,500,000

Share capital (5,600,000)
Share premium (2,400,000)
Retained earnings, December 31, 2016 P 3,500,000
Prior period adjustment for 2015 over depreciation (500,000)
Dividends declared 1,200,000
Profit for 2016 (2,000,000)
Retained earnings, January 1, 2016 P2,200,000
54
Chapter 14 – Leases
A. 1. B Total rental payments

(15,000 x 2) + (12,000 x 3) + (10,000 x 3) + (7,500 x 4) = 126,000
Rent expense per month (126,000/12) = 10,500
Rent expense, August 1 – December 31 (10,500 x 5 months) P52,500
2. A Total payments for 5 months (15,000 x 2) + (12,000 x 3) P66,000

Rent expense for the period 52,500
Prepaid rent, December 31, 2016 P13,500
B. 3. A Rent revenue (920,000 x 9/12) P690,000

Depreciation expense (1.5M/6 = 250,000/year; 250,000 x 9/12) (187,500)
Maintenance and other related costs (50,000)
Profit before income tax P452,500
4. A Rent expense (920,000 x 9/12) P690,000
5. A Rent revenue (920,000 x 9/12) P690,000

Depreciation expense (1.5M/6) (250,000)
Maintenance and other related costs (50,000)
Profit before income tax P390,000
C. 6. B Rent revenue for 2016 (630,000/3 = 210,000; 210,000 x ½) P105,000
7. B Total rentals received (15,500 x 6) P 93,000

Rent revenue for 2016 (see No. 6) 105,000
Accrued rent receivable P 12,000
D. 8. C Total rentals for the lease term (12,000 x 33 mos.) = 396,000

Rent expense for year ended December 31, 2016
396,000/3 years = 132,000; 132,000 x 9/12 P99,000
E. 9. B Annual rental P 960,000

Additional rental (6.0M – 5.0M) x 5% 50,000
Lease bonus to lessor (240,000/10) 24,000
Rent expense for the year P1,034,000
F. 10. B Rental payment on May 1, 2015 P1,000,000

Rent expense for 2015 (7.2M/5 = 1,440,000/year; 1,440,000 x 8/12) 960,000
Prepaid rent, December 31, 2015 P 40,000
Total rental payments for 2015 and 2016 (1.0M + 1.2M) P2,200,000
Accumulated rent expense, May 1, 2015 – December 31, 2016
120,000/month x 20 months 2,400,000
Accrued rent payable, December 31, 2016 P 200,000
G. 11. C Present value of security deposit (35,000 x 0.62) P21,700
12. C Rent expense for 6 months (15,000 x 6) P 90,000

Depreciation of leasehold improvement (90,000/5) x ½ 9,000
Amortization of prepaid lease expense
35,000 – 21,700 = 13,300; 13,300/5 =2,660; 2,660 x ½ 1,330
Total expense relating to the lease P100,330
55
H. 13. B Rental payments for the 1st year (20,000 x 12) P240,000
Rental payments for the 2nd year (22,000 x 12) 264,000
Total P504,000
Annual rent revenue (504,000/2) P252,000
I. 14. C Rental payments

1st year (100,000 x 12) P1,200,000
2nd year (105,000 x 12) 1,260,000
3rd year (110,250 x 12) 1,323,000
Total for 3 years P3,783,000
Rent revenue per year (3,783,000/3) P1,261,000
Initial direct costs (120,000/3) (40,000)
Depreciation expense (2,000,000/10) (200,000)
Net rental income P1,021,000
J. 15. A Pine Company

Rent revenue (4,000 x 6) + (50,000 x 6) P 540,000
Depreciation expense (3.2M/8) 400,000
Income P 140,000
Snead Company (expense) (4,000 x 6 mos.) P(240,000)
Orton Company (expense) (5,000 x 6 mos.) P(300,000)
K. 16. C Interest expense for 2016 (671,008 x 8%) P53,861

Depreciation expense for 2016 (671,008/15 years) P44,734
L. 17. D Capitalized cost of leased asset (90,000 x 4.17) P375,300
18. A Interest expense for 2016 (375,300 – 90,000) x 10% P28,530
19. A Depreciation expense for 2016 (375,300/5 years) P75,060
20. B Capitalized cost of the asset (90,000 x 4.17) + (30,000 x 0.621) P393,930
Residual value 30,000
Depreciable cost P363,930
Lease term ÷ 5 years
Depreciation expense for 2016 P 72,786
21. A Capitalized cost of the asset P393,930

1st payment in advance (90,000)
Liability balance after 1st payment P303,930
Implicit rate 10%
Interest expense for 2016 P 30,393
M. 22. D Annual payment (second payment) P400,000

Interest expense after 1st payment (2,700,000 – 400,000) x 10% 230,000
Payment to reduce liability P170,000
23. A Double declining rate = 2/10 = 20%

Depreciation expense for 2016 (2.7M x 20%) P540,000
N. 24. A Capitalized cost of the asset (45,000 x 4.0373) + (75,000 x 0.5674) P224,234
Interest expense for first year (224,234 – 45,000) x 12% P 21,508
56
O. 25. C Lease liability, January 1, 2016 (1M x 6.759) + ( 500,000 x 0.385) P6,961,500
= 6,961,500; 6,951,500 – 1M = 5,951,500
1st payment in advance (1,000,000)
Lease liability, December 31, 2016 P5,961,500
P. 26. A Lease liability, December 31, 2016 (50,000 x 4.7908) P239,540

1st payment in advance (50,000)
Lease liability, December 31, 2015 after 1st payment P189,540
Q. 27. D Depreciation expense for 2016

(2,520,000/15 years = 168,000; 168,000 x 7/12) P98,000
R. 28. A Capitalized cost of asset, December 31, 2015 (80,000 x 4.037) P322,960
Depreciation expense for 2016 (322,960/5 years) 64,592
Carrying amount of leased asset, December 31, 2016 P258,358
29. A Finance lease obligation, December 31, 2015 after 1 st payment

322,960 – 80,000 P242,960
December 31, 2016 payment 80,000 – (12% x 242,960) (50,845)
Finance lease obligation, December 31, 2016 P192,115
S. 30. B Capitalized cost of asset (market value) P1,000,000

Present value of guaranteed residual value (400,000 x 0.68) 272,000
Present value of annual payments P 728,000
Annual lease payment (728,000/3.99) P 182,456
T. 31. C Present value of minimum lease payments (418,000 x 4.355) P1,820,390
32. A Annual payment (418,000 x 6) P2,508,000

Unguaranteed residual value 200,000
Gross investment in the lease, January 1, 2016 P2,708,000
U. 33. A Finance lease liability, January 1, 2016 (440,000 x 11.47) P5,049,880
34. A Present value of annual payments (see No. 33) P5,049,880

Present value of unguaranteed residual value (800,000 x .35) 280,000
Net investment in the lease, January 1, 2016 P5,329,880
V. 35. C Cost of asset (normal sales price) P365,760

Present value of annual payments P311,120
Annual lease payment (311,120/3.487) P 89,223
36. C Gross lease receivable (89,223 x 4) P356,892

Guaranteed residual value 80,000
Gross investment in the lease P436,892
37. A Gross investment in the lease P436,892

Net investment/present value 365,760
Interest revenue over the four-year lease term P 71,132
57
38. B Net investment, December 31, 2015 (after 1st payment)
365,760 – 89,223 P276,537
Amortization of unearned interest income (10% x 276,537) 27,654
2nd annual payment on December 31, 2016 (89,223)
Net investment in the lease, December 31, 2016 P214,968
39. A From the viewpoint of the lessor, the residual value, whether guaranteed
or not, is accounted for in the same manner. P365,760
W. 40. C Gross investment (58,860 x 10) P588,600

Cost of machine 330,000
Total interest revenue over the lease term P258,600
41. A Interest revenue in 2016 (330,000 – 58,860) x 16% P43,382

Interest revenue in 2017 (330,000 – 58,860 + 43,382 – 58,860) x 16% P40,906
X. 42. B Fair market value/sales price P792,200

Cost of leased equipment 684,000
Manufacturer’s profit P108,200
43. C Gross investment P1,080,000

Sales price 792,200
Total financial revenue P 287,800
44. A Interest revenue in 2016 (792,200 – 135,000) x 10% x 6/12 P32,860
45. D Fair value/sales price P792,200

Gross investment P815,525
Cost of leased equipment 684,000
Manufacturer’s profit P131,525
Interest revenue for 2016 (815,525 – 135,000) x 10% x 6/12) P 34,026
46. A Cost of leased equipment P684,000

Present value of unguaranteed residual value (50,000 x 0.4665) (23,325)
Cost of goods sold P660,675
Y. 47. B Present value of rent payments P1,582,500

Cost of leased equipment 1,337,500
Gross profit on sale P 245,000
Interest income for 2016 (1,582,500 – 250,000) x 12% x 6/12 P 79,950
Z. 48. C Sales price/present value of lease payments P5,280,000

Cost of equipment (4,800,000)
Cost of negotiating and arranging the lease (150,000)
Profit on sale P 330,000
Interest income (5,280,000 – 900,000) x 10% 438,000
Total income relating to the lease in 2016 P 768,000
49. A Net investment, January 1, 2016 (after the 1st payment in advance)
5,280,000 – 900,000 P4,380,000
Amortization of unearned interest income 438,000
Net investment, December 31, 2016 P4,818,000
58
AA. 50. B Cash selling price P620,625
Cost of equipment 550,000
Net investment, after 1st advance payment (620,625 – 100,000) = 520,625
Interest income (520,625 x 8% x 6/12) P 20,825
BB. 51. B Net investment/present value of lease payments (400,000 x 3.3521) P1,340,860
Cost of asset 1,200,000
Dealer’s profit P 140,860
CC. 52. A Net investment (2,500,000 x 4.04) P10,100,000

Cost of helicopter (6,000,000)
Initial direct costs (500,000)
Profit on sale P3,600,000
DD. 53. B Interest revenue

(5,680,000 – 1,000,000) x 12% P561,600
EE. 54. A Annual payment 484,440/4.037 = 120,000

Gross investment 120,000 x 5 P600,000
Cost of equipment 484,440
Interest revenue over the lease term P115,560
FF. 55. C Sales price P807,460

Carrying amount (600,000 – 250,000) 350,000
Deferred gain P457,460
56. C Depreciation expense for 2016 (807,460/5) P161,492
57. A Finance lease obligation after first payment (807,460 – 200,000)=607,460

Interest expense (607,460 x 12%) P72,895.20
58. B Revenue on sale leaseback for 2016 (457,460/5) P91,492
GG. 59. A Gain on sale (480,000 – 400,000) P80,000

Revenue from sale leaseback
520,000 – 480,000 = 40,000 deferred gain, January 1, 2016
40,000/10 years 4,000
Total gain for 2016 P84,000
HH. 60. A The full amount of P180,000 (720,000 – 540,000) is immediately

recognized in profit or loss. No amount is deferred. P0
II. 61. D Sales price P4,800,000

Carrying amount 3,600,000
Deferred gain P1,200,000
62. C Revenue on sale-leaseback for 2016

1,200,000/12 years = 100,000/year; 100,000 x 6/12 P50,000
JJ. 63. C Unearned gain, January 1, 2016 (150,000 – 100,000) P50,000

Less gain on sale leaseback recognized in 2016 (50,000/10) (5,000)
Unearned gain, December 31, 2016 P45,000
59
KK. 64. C Fair value P2,150,000
Cost of land 1,500,000
LL. 65. D Fair value P850,000

Carrying amount (1,500,000 – 700,000) 800,000
Gain on sale leaseback P 50,000
MM. 66. B Annual rent P100,000

Additional rent/amortization of deferred loss
550,000 – 510,000 = 40,000 deferred loss
40,000/2 years 20,000
Total rent expense P120,000
60
Chapter 15 – Income Taxes
A. 1. A
Pretax financial income P1,800,000
Non-deductible expense
Fines paid for late payment of taxes 15,500
Premiums on life insurance, company is beneficiary 200,000
Impairment loss on goodwill 90,000 305,500
Future deductible amounts
Rent collected in advance of period earned 35,000
Excess of warranty expense over actual expenditures 27,000
Excess of estimated uncollectibles over write off 12,000 74,000
Future taxable amount
Excess of tax depreciation over book depreciation (30,000)
Taxable income P2,149,000
2. B Deferred tax asset (74,000 x 30%) P22,200

Deferred tax liability (30,000 x 30%) P 9,000
B. 3. A Future taxable amounts

Rent paid in advance 60,000
Tax depreciation in excess of book depreciation 50,000
Total 110,000
Deferred tax liability (110,000 x 30%) P33,000
4. B Pretax financial income P1,200,000

Non-deductible expenses
Fines and penalties paid 22,500
Donation to Hospicio de San Jose 25,000 47,500
Non-taxable revenue
Dividends from domestic corporation (5,200)
Financial income subject to tax P1,242,300
Future taxable amounts (see No. 3) (110,000)
5. A Financial income subject to tax P1,242,300

Income tax rate x 30%
Total income tax expense P 372,690
or
Current income tax expense (1,132,300 x 30%) P 339,690
Deferred income tax expense (110,000 x 30%) 33,000
Total income tax expense P 372,690
C. 6. B Taxable income P1,658,000

Book depreciation in excess of tax depreciation (FDA) (160,000)
Accrual of product warranty claims in excess of actual claims (FDA) (250,000)
Reported installment sales revenue (FTA) 530,000
D. 7. D Taxable income P1,200,000

Excess of tax depreciation over book depreciation (FTA) 140,000
Pretax accounting income P1,340,000
61
E. 8. A 2015 2016
Reported pretax financial income P6,500,000 P8,200,000
Excess of tax depreciation over book depreciation* (350,000) (250,000)
Excess of warranty expense over actual expenditures 35,000 100,000
Taxable income P6,185,000 P8,050,000
*Straight line depreciation

3.6M/8 = 450,000/year
Sum-of-years-depreciation
2015: 3.6M x 8/36 = 800,000
2016: 2.6M x 7/36 = 700,000
9. B Deferred tax asset, December 31, 2015 (35,000 x 30%) P10,500

Deferred tax asset, December 31, 2016 (35,000 + 100,000) x 30% P40,500
10. C Deferred tax liability, December 31, 2015 (350,000 x 30%) P105,000
Deferred tax liability, December 31, 2016 (350,000 + 250,000) x 30% P180,000
11. C 2015 2016

Reported pretax financial income P6,500,000 P8,200,000
Income tax expense
Current (6,185,000 x 30%); (8,050,000 x 30%) 1,855,500 2,415,000
Deferred (105,000-10,500); (75,000 – 30,000) 94,500 45,000
Total income tax expense 1,950,000 2,460,000
Profit for the year P4,550,000 P5,740,000
F. 12. C Deferred tax asset (24,500 x 32%) P 7,840

Deferred tax liability
(15,000 x 32%) + (15,000 x 34%) + (15,000 x 35%) P15,150
G. 13. D Future taxable amount (84,000/30%) P 280,000

Depreciation expense per books 1,200,000
Depreciation expense per tax return P1,480,000
H. 14. D Pretax accounting income P2,400,000

Collection from 2015 installment sale 600,000
I. 15. A Deferred tax liability, December 31, 2016

30% x (80,000 + 70,000 + 72,000)
32% (40,000 + 38,000) P91,560
J. 16. B Deferred tax asset (the difference is a future deductible amount;

warrant expense in excess of warranty deductions)
(240,000 x 32%) + (240,000 x 34%) + (240,000 x 36%) P244,800
K. 17. C Total provision for income tax (Financial income subject to tax x rate)
750,000 x 30% P225,000
L. 18. B Net deferred tax expense (100,000 – 20,000) x 30% P 24,000

Current tax expense (700,000 x 30%) P210,000
Income tax expense (700,000 +100,000 – 20,000) x 30% P234,000
62
M. 19. B Pretax income P720,000
Tax depreciation in excess of book depreciation (32,000)
Income for tax purposes in excess of book income 24,000
Taxable income P712,000
Current income tax liability (712,000 x 30%) P213,600
N. 20. A Income taxes payable, beg P 90,000

Current income tax expense for the year
Income tax reported 110,000
Increase in deferred tax liability (130,000-105,000) 25,000 85,000
Income taxes payable, end (110,000)
Cash paid for income taxes P 75,000
O. 21. B Pretax financial income P5,000,000

Non-taxable income (Life insurance proceeds) (900,000)
Warranty expense accrued but not paid 1,200,000
Non-deductible expense (Impairment loss in goodwill) 200,000
Current income tax expense (5.5M x 30%) P1,650,000
Income tax payments up to 3rd quarter 928,000
Income tax payable, December 31, 2016 P 722,000
P. 22. A Pretax income P2,000,000

Non-deductible expense (premiums on officers’ life insurance) 180,000
23. B Financial income subject to tax P2,180,000

Future taxable amounts
Rent revenue (240,000 – 140,000) (100,000)
Depreciation expense (560,000 – 440,000) (120,000)
Income tax rate for 2016 x 30%
Income tax payable P 588,000
Q. 24. D Future deductible amount/Deferred tax liability (9,500 x 30%) P2,850
R. 25. B Tax rate is 30% (228,000/760,000

Deferred tax liability (Future deductible amount x tax rate)
(268,000 – 160,000) x 30% P32,400
S. 26. C Book basis (Straight-line method)

1,200,000 - (1,100,000/5 yrs. = 220,000/year; 220,000 x 1.5 yrs) P870,000
Book basis (Double-declining balance method)
Rate = 2/5 = 40%
1,200,000 x 80% x 60% P576,000
27. B Deferred tax liability (book basis asset is greater than tax basis asset)
(870,000 – 576,000) x 30% P88,200
T. 28. A Accounting income before tax P5,000,000

Unrealized gain on investments at fair value through profit or loss
(2,100,000 – 1,500,000) (600,000)
Impairment write down on manufacturing facility 400,000
Current income tax expense (4,800,000 x 30%) P1,440,000
63
U. 29. C Tax depreciation in excess of book depreciation (FTA) P900,000
Rent collected in advance of period earned (FDA) (200,000)
Operating loss carryforward (FDA) 100,000
Net temporary difference P600,000
Income tax expense (600,000 x 30%) P180,000
V. 30. C Income tax expense for 2016 (1,800,000 x 30%) P540,000

Income tax payments relating to 2016 income (400,000 – 150,000) 250,000
Income tax payable, December 31, 2016 P290,000
31. D Income tax expense – current (see No. 30) P540,000

Deferred income tax expense
Future deductible amounts
Trade and other receivables (1,780,000 – 1,500,000) 280,000
Accrued warranty obligation 800,000
Total future deductible amounts 1,080,000
Deferred tax asset, end (1,080,000 x 30%) 324,000
Deferred tax asset, beginning (300,000) (24,000)
Future taxable amount
Property, plant and equipment (4.5M – 2.8M) (1,700,000)
Deferred tax liability, end (1.7M x 30%) 510,000
Deferred tax liability, beg (240,000) 270,000
Total income tax expense P786,000
W. 32. D Total income under percentage of completion method P3,680,000

Total income under cost recovery method 2,150,000
Difference P1,530,000
Deferred tax liability (1,530,000 x 34%) P 520,200
X. 33. B Carrying amount of asset is greater than tax base resulting to a deferred
tax liability (12.5M – 8,250,000) x 30% P1,275,000
Y. 34. C Current tax expense P5,530,000

Deferred income tax expense
Decrease in deferred tax asset
(500,000 – 200,000) 300,000
Decrease in deferred income tax liability
(600,000 – 420,000) 180,000 120,000
Total income tax expense P5,650,000
64
Chapter 16 – Employee Benefits
A. 1. A Liability for compensated absences, December 31, 2016

Employee A (12 + 10 – 8) x 520 7,280
Employee B (13 + 10 – 9) x 480 6,720
Employee C (15 + 10 – 6) x 450 8,550
Employee D (8 + 10 – 4) x 400 5,600
Employee E (10 – 2) x 375 3,000 P31,150
2. A Sick leave
Employee A (10 x 520) 5,200
Employee B (8 x 480) 3,840
Employee C (8 x 450) 3,600
Employee D (2 x 400) 800
Employee E (6 x 375) 2,250 P15,690
Vacation leave
(10 x 520) + (10 x 480) + (10 x 450) + (10 x 400) + (10 x 375) 22,250
Total employee benefit cost for sick leave and vacation leave P37,940
B. 3. B Vacation earned for work in 2016 P40,000

10% salary adjustment for unused beginning balance
(50,000 – 40,000) x 10% 1,000
Vacation pay expense for 2016 P41,000
4. C Liability for vacation pay, January 1 P50,000

Vacation pay expense for the year 41,000
Accrued vacation taken (40,000)
Liability for vacation pay, December 31 P51,000
C. 5. A Annual contribution (9% x 6.5M) P 585,000

Additional contribution (32M – 15M) x 6% 1,020,000
Retirement benefit expense P1,605,000
6. B Contributions to the fund 1.7M – 1,605,000 = 95,000 P1,700,000

Required funding (retirement benefit expense) 1,605,000
Overfunding (Prepaid) benefit P 95,000
D. 7. D Fair value of pension plan assets, December 31 P4,950,000

Benefits paid to retirees 700,000
Contributions to the fund (500,000)
Fair value of pension plan assets, January 1 (4,600,000)
Actual return on plan assets P550,000
8. B Expected return on plan assets (10% x 4.6M) P460,000

Actual return on plan assets (see No. 7) 550,000
Actuarial gain taken to other comprehensive income P 90,000
E. 9. A Fair value of plan assets P3,000,000

Defined benefit obligation 2,600,000
Net prepaid defined benefit cost, December 31, 2015 P 400,000
10. C Current service cost P800,000

Expected return on plan assets (9% x 3.0M) (270,000)
Interest cost on defined benefit obligation (9% x 2.6M) 234,000
Retirement benefit expense taken to profit or loss P764,000
65
11. B Actuarial gain on plan assets (300,000 – 270,000) P 30,000
Actuarial loss on remeasurement of defined benefit obligation (100,000
Net actuarial loss P(70,000)
12. D Benefit obligation, December 31

January 1 balance 2,600,000
Service cost
Interest cost 234,000
Benefits paid (350,000)
Actuarial loss on remeasurement 100,000 P3,384,000
Plan assets, December 31 3,000,000
Actual return 300,000
Contributions 780,000
Benefits paid (350,000) P3,730,000
13. C Plan assets P3,730,000

Benefit obligation 3,384,000
Prepaid benefit cost, December 31, 2016 P 346,000
F. 14. A Service cost P2,000,000

Net interest cost (1,350,000 – 1,250,000) x 9% 9,000
Past service cost 300,000
Retirement benefit expense taken to profit or loss P2,309,000
15. A Actuarial loss on defined benefit obligation P50,000

Actuarial loss on plan assets 2,000
Retirement benefit cost taken to other comprehensive income P52,000
16. A January 1 net defined benefit liability (1,350,000 – 1,250,000) P100,000

Underfunding
Retirement benefit cost (2,309,000 + 52,000) 2,361,000
Contribution to the fund 2,360,000 1,000
December 31 net defined benefit liability P101,000
The amount may also be taken by computing the benefit obligation and
plan assets at December 31 as follows:
Benefit obligation, December 31
1,350,000 + 2.0M + (9% x 1,350,000) +50,000 + 300,000 – 120,000 P3,701,500
Plan assets, December 31
1,250,000 + (9% x 1,250,000) – 2,000 + 2,360,000 – 120,000 3,600,500
December 31 net defined benefit liability P 101,000
G. 17. B Current service cost P3,600,000

Net interest cost (9.5M – 8.0M) x 10% (150,000)
Retirement benefit expense for 2016 P3,450,000
18. B Actuarial gain on plan assets (1.2M – 950,000) P250,000

Actuarial loss on remeasurement of benefit obligation (120,000)
Net actuarial gain P130,000
19. D Net prepaid, January 1 (9.5M – 8.0M) P1,500,000

Underfunding
Retirement benefit cost (3,450,000 – 130,000) 3,320,000
Contribution to the fund 3,300,000 (20,000)
Prepaid retirement benefit cost, December 31 P1,480,000
66
20. A Plan assets, January 1 P9,500,000
Actual return on plan assets 1,200,000
Contributions to the fund 3,300,000
Plan assets, December 31 P14,000,000
21. A Benefit obligation, January 1 P8,000,000

Interest cost (10% x 8.0M) 800,000
Current service cost 3,600,000
Actuarial loss on remeasurement 120,000
Benefit obligation, December 31 P12,520,000
H. 22. C Fair value of plan assets, beginning P3,500,000

Contribution to the plan 280,000
Benefits paid (250,000)
Fair value of plan assets, ending, before actual return P3,530,000
Fair value of plan assets, ending 3,900,000
Actual return on plan assets P 370,000
23. B Expected return (12% x 3.5M) P420,000

Actual return (see No. 22) 370,000
Actuarial loss taken to other comprehensive income P50,000
I. 24. C Benefit obligation, January 1 P9,000,000

Current service cost 2,700,000
Interest cost (12% x 9.0M) 1,080,000
Benefits paid (2,200,000)
Actuarial gain due to remeasurement of benefit obligation (400,000)
25. B Current service cost P2,700,000

Retirement benefit expense P3,080,000
26. C Plan assets, beginning P10,000,000

Actual return on plan assets 1,100,000
Contribution to the plan 2,000,000
Plan assets, ending P10,900,000
27. B Plan assets, end P10,900,000

Benefit obligation, end 10,680,000
Defined benefit asset, December 31 P 220,000
J. 28. C Fair value of plan assets, beginning P10,500,000

Actual return 900,000
Contribution to the fund 2,100,000
Fair value of plan assets, December 31 P12,100,000
67
29. B Benefit obligation, beginning P9,000,000
Interest cost (12% x 9.0M) 1,080,000
Benefits paid (1,400,000
Service cost 1,800,000
Actuarial loss from remeasurement of benefit obligation 210,000
K. 30. B Current service cost P140,000

Retirement benefit expense taken to profit or loss P122,000
31. B Actuarial loss on plan assets (288,000 – 185,000) P103,000

Loss on remeasurement of benefit obligation
Remeasurement at December 31 3,300,000
Benefit obligation before remeasurement
(3.0M + 140,000 + 270,000- 200,000) 3,210,000 90,000
Actuarial loss taken to other comprehensive income P193,000
32. A Defined benefit asset, beginning (3.2M – 3.0M) P200,000

Underfunding
Retirement benefit cost (122,000 + 193,000) 315,000
Contribution to the fund 204,000 (111,000)
Defined benefit asset, ending P89,000
L. 33. A Accrued benefit obligation P2,800,000

Fair value of plan assets 2,557,000
Accrued retirement benefit cost P 243,000
M. 34. D Accrued benefit obligation, January 1 P4,600,000

Interest cost (10% x 4.6M) 460,000
Actuarial gain due to remeasurement of benefit obligation (32,500)
Benefits paid to retirees (390,000)
Accrued benefit obligation, December 31 before current service cost P4,637,500
Accrued benefit obligation, December 31 4,929,000
Current service cost P 291,500
35. B Fair value of plan assets, January 1 P5,035,000

Employer contributions 425,000
Benefits paid to retirees (390,000
Fair value of plan assets, December 31, before actual return P5,070,000
Fair value of plan assets, December 31 5,565,000
Actual return on plan assets P 495,000
36. C Current service cost (see No. 34) P291,500

Net interest cost (5,035,000 – 4,600,000) x 10% (43,500)
Retirement benefit expense reported in profit or loss P248,000
68
Chapter 17 – Earnings Per Share
A. 1. C January 1 (44,000 x 1.25 x 2) 110,000

February 1 (56,000 x 1.25 x 2 x 11/12) 128,333
May 1 (25,000 x 1.25 x 2 x 8/12) (41,667)
September 1 (10,000 x 2 x 4/12) 6,667 203,333
B. 2. C January 1 (100,000 x 1.05) 105,000

February 1 (20,000 x 1.05 x 11/12) 19,250
April 1 (5,000 x 1.05 x 9/12) (3,938)
July 1 (35,000 x 1.05 x 6/12) 18,375 138,687
3. C Number of shares for basic earnings per share 138,687

Potential ordinary shares (1,000 x 50 x 1.05 x 6/12) 26,250
Number of shares for diluted earnings per share 164,937
4. B Basic earnings per share (2,120,000/138,687) P15.29
5. D Diluted earnings per share

2,120,000 + (1M x 12% x 6/12 x 70%) /164,937 P13.11
C. 6. A Basic earnings per share

1,800,000 – (2,000 x 100 x 8%) / 200,000 P8.92
7. D Diluted earnings per share

1,800,000/(200,000 + 4,000) P8.82
D. 8. A January 1 (500,000 x 2 x 12/12) 1,000,000

March 1 (60,000 x 2 x 10/12) 100,000
November 1 (48,000 x 2/12) (8,000)
Average ordinary shares outstanding 1,092,000
9. C Basic earnings per share (2,930,000–(100,000x20x 10%) / 1,092,000 P2.50
10. B Diluted earnings per shae (2,930,000/1,092,000+ (100,000 x 2) P2.27
E. 11. C Basic earnings per share (3,464,000/25,000) P138.56
12. B Diluted earnings per share

3,464,000 + (1M x 10% x 70%)
25,000 + (1,000 x 10) P100.97
13. B Diluted earnings per share

3,464,000 + (1M x 10% x 6/12 x 70%)
25,000 + (1,000 x 10 x 6/12) P116.63
F. 14. D Basic earnings per share (2,750,000 / 200,000 ) P13.75
15. C Diluted earnings per share (2,750,000 / 200,000 + (50,000 x 15/75) P13.10
16. B Basic earnings per share (2,750,000 / 200,000 + (20,000 x 9/12) P12.79
17. A Diluted earnings per share

2,750,000
215,000 + (50,000 x 15/75 x 3/12) + (30,000 x 15/75 x 9/12) P12.39
69
G. 18. B Basic earnings per share (2,414,000 – (5 x 20,000) / 100,000) P23.14
19. C Diluted earnings per share

2,414,000 + (2M x 10% x 70%)
100,000 + 40,000 + 30,000 P15.02
H. 20. C Basic earnings per share

1,000,000 – (20,000 x 100 x 5%)
200,000 P4.50
I. 21. B Diluted earnings per share

1,100,000
220,000 + (40,000 x 5/25) P4.82
J. 22. C Basic earnings per share

300,000 – 30,000
30,000 + (6,000 x 6/12) P8.18
K. 23. B Basic earnings per share

2,901,000 – (30,000 x 40)
60,000 + (31,500 X 8/12) P21.00
L. 24. D Average number of shares for diluted earnings per share

250,000 + (60,000 x 3/12) + 50,000 315,000
M. 25. D Increase in the number of shares for stock options

30,000 x 5/25 6,000
N. 26. D Number of shares for BEPS

2,500,000 + (50,000 x 9/12) + (250,000 x 6/12) 3,000,000
Number of shares for DEPS
3,000,000 + (5,000 x 40 x 3/12) 3,050,000
O. 27. B 2016 (825,000/113,000 shares* P7.30

2015 5.28/110% P4.80
*528,000/5.28 = 100,000; (100,000 x 1.10) + (12,000 x 3/12) =113,000
P. 28. B Diluted earnings per share 850,000/(110,000 + 20,000) P6.54
Q. 29. B Number of shares for diluted earnings per share

150,000 + (25,000 X 6/12) + (20,000 X 5/20) 167,500
R. 30. B January 1 (1,000 x 2 x 1.2 x 3) 7,200

April 1 (300 x 9/12 x 2 x 1.2 x 3) 1,620
June 30 (100 x 6/12 x 1.2 x 3) = 8,640 (180)
Weighted average number of shares 8,640
S. 31. C Basic earnings per share for 2015

100-60 = 40/(5+1) = 6.67; 6.67/93.33 = 7%
210,000/(8,000 X 1.07) P24.53
32. B Basic earnings per share for 2016

350,000
(8,000 x 1.07 x 3/12) + (9,600 X 9/12) P37.47
70
T. 33. D Basic earnings per share
1.5M – (1,250,000 x 12%) P1.35
1,000,000 shares
10% Bonds P1.40
10M x 10% x 3/12 x 70% (Antidilutive)
10,000 x 50 x 3/12
12% Bonds
2M x 12% x 70% P0.84
200,000
Preference shares P1.50
1,250,000 x 12% (Antidilutive)
100,000
Options
They are dilutive since option price is lower than the average price
per share
Dilutive potential ordinary shares are options and 12% bonds
34. A See computation in No. 33 P1.35
35. A Diluted earnings per share

1,500,000 – (1.25M x 12%) + (2M x 12% x 70%)
1,000,000 + 10,000 + 200,000 P1.25
71
Chapter 18 – Cash to Accrual Accounting and Single-entry System
A. 1. A Depreciation expense – Equipment

(350,000 x 80%)/10 years = 28,000; 28,000 x 9/12 P21,000
100,000/5 years = 20,000; 20,000 x 3/12 5,000
Total depreciation expense for equipment P26,000
2. C Cash receipts
Initial investment 2,000,000
Bank loan 200,000
Sales 6,150,000 P8,350,000
Cash payments
Leaseholds 200,000
Rental payments (12 x 9,000) 108,000
Equipment (350,000 + 100,000) 450,000
Leasehold improvements 420,000
Taxes and licenses 45,000
Purchases 4,550,000
Bank loan (200,000–50,000) 150,000
Other cash operating expenses (659,500 – 12,000) 647,500 6,570,500
Cash balance, December 31, 2016 P1,779,500
3. A Cash P1,779,500
Accounts receivable 150,000
Inventory* 1,750,000
Total current assets P3,679,500
*Profit 1,215,000
Operating expenses
Depreciation-equipment 26,000
Depreciation-leaseholds improvements 31,500
Taxes and licenses 45,000
Rent expense 108,000
Amortization of leaseholds
(200,000/10) x 9/12 15,000
Other cash operating expenses 659,500 885,000
Gross profit 2,100,000
Cost of goods sold (2.1M/50% ) 4,200,000
Purchases 5,950,000
Inventory, end 1,750,000
4. D Equipment 450,000
Less accumulated depreciation 26,000 P424,000
Leasehold improvement 420,000
Less accumulated depreciation 31,500 388,500
Leaseholds 200,000
Less accumulated amortization 15,000 185,000
Total non-current assets, December 31, 2016 P997,500
B. 5. A Capital, December 31 (2,104,000 – 1,116,000) P988,000

Capital, January 1 (1,833,200 – 1,020,000) 813,200
Increase in capital P174,800
Withdrawals during the period 24,000
Profit P198,800
72
6. Cash received from sales P 70,000
Collections on accounts receivable 2,656,000
Accounts receivable, beginning (260,000)
Accounts receivable, ending 340,000
Sales P3,496,000
Payments for merchandise purchases P 420,000

Payments on accounts payable 1,880,000
Accounts payable, beginning (780,000)
Accounts payable, ending 960,000
Purchases P2,480,000
7. A Rent expense (3,000 + 12,000) P 15,000

Depreciation – Delivery equipment (240,000/10) 24,000
Depreciation – Store fixtures (100,000/10) 10,000
Other operating expenses (940,000 + 20,000 – 16,000) 944,000
Total operating expenses P993,000
C. 8. Cash receipts from customers P6,000,000

Accounts written off 100,000
Accounts receivable, beg (1,200,000)
Accounts receivable, end 1,350,000
Notes receivable - trade, beg (525,000)
Notes receivable - trade, end 370,000
Net sales P6,095,000
C. 9. A Cash payments to trade creditors P4,000,000

Purchase discounts 300,000
Purchase returns 80,000
Accounts payable, beginning (1,500,000)
Accounts payable, ending 1,850,000
Gross purchases P4,730,000
D. 10. D Capital, beginning (236,000 – 62,800) P173,200

Capital, ending (210,000 – 54,100) 155,900
Decrease in capital P(17,300)
Withdrawals 12,000
Additional investments (40,000)
Loss P45,300)
E. 11. A Increase in assets P540,000

Decrease in liabilities 270,000
Increase in share capital (900,000)
Increase in share premium (60,000)
Net decrease in retained earnings P(150,000)
Dividends paid 130,000
Loss for the year P 20,000
F. 12. A Increase in cash P21,000

Increase in accounts receivable 25,000
Decrease in inventory (10,000)
Increase in equipment 70,000
Decrease in accounts payable 5,000
Increase in bank loan (50,000)
Increase in interest payable (1,000)
73
Net increase in capital P60,000
Issue of shares (additional investment) 5,000 x 8 (40,000)
Dividends paid 15,000
Donated equipment (18,000)
Profit for 2016 P17,000
G. 13. A Net credit sales (120,000 – 6,000) P114,000

Accounts receivable, January 1 40,000
Accounts receivable, December 31 (30,000)
Collections from customers on account P124,000
Net cash sales (80,000 – 4,000) 76,000
Net revenue under cash basis P200,000
H. 14. D Cash collected from customers P160,000

Accounts receivable, November 30 (20,000)
Accounts receivable, December 31 6,000
Sales P146,000
15. B Inventory, November 30 P14,000

Purchases (120,000 + 30,000 – 24,000) 126,000
Cost of goods available for sale P140,000
Inventory, December 31 (12,000)
Cost of goods sold P128,000
16. D Cash paid for insurance P10,000

Prepaid insurance, November 30 10,000
Prepaid insurance, December 31 (15,000)
Insurance expense for December P 5,000
17. D Cash paid for wages P20,000

Wages payable, November 30 (10,000)
Wages payable, December 31 6,000
Wages expense for December P16,000
I. 18. A Cash receipts for rentals P800,000

Rent receivable, beginning (96,000)
Unearned rent, beginning 320,000
Rent receivable, ending 124,000
Rent revenue for the year (908,000)
Unearned rent revenue, ending P240,000
J. 19. B Salaries and wages reported P189,000

Interest expense reported 36,000
Accrued salaries and wages, 12/31/16 (8,000)
Accrued salaries and wages, 12/31/15 12,000
Accrued interest payable, 12/31/16 (10,500)
Accrued interest payable, 12/31/15 7,000
Cash basis expenses (Payments for expenses) P225,500
K. 20. A Accumulated depreciation, end P600,000

Accumulated depreciation of equipment sold (300,000 – 180,000) 120,000
Accumulated depreciation, beginning (580,000)
Depreciation expense for the year P140,000
74
L. 21. C Pretax income under cash basis P600,000
Increase in accounts receivable (400,000 – 200,000) 200,000
Increase in accounts payable (150,000 – 100,000) (50,000)
Pretax income under accrual basis P750,000
M. 22. C Insurance expense for the period P300,000

Prepaid insurance, beginning (90,000)
Prepaid insurance, ending 150,000
Cash paid for insurance P360,000
N. 23. D Collections from customers P7,940,000

Accounts receivable, January 1 (450,000)
Sales P8,000,000
O. 24. C Payments to suppliers P5,000,000

Accounts payable, beginning (700,000)
Purchases P4,300,000
Inventory, beginning 200,000
Inventory, ending (350,000)
Cost of goods sold P4,150,000
P. 25. C Wages expense P2,550,000

Wages payable, beginning 115,000
Wages payable, ending (225,000)
Cash paid for wages P2,440,000
Q. 26. B Payments to suppliers P11,000,000

Purchase discounts 250,000
Accounts payable, end 3,500,000
Accounts payable, beginning (2,500,000)
Notes payable, end (4.0M – 1.0M) 3,000,000
Notes payable, beginning (1,500,000)
Gross purchases under accrual basis P14,250,000
R. 27. A Collections from customers P320,000

Accounts receivable, end 22,000
Sales for the year P342,000
Payments for purchase of merchandise P220,000

Accounts payable, end 30,000
Purchases for the year P250,000
28. B Salaries expense (80,000 +5,000) P 85,000

Rent expense (14,000-2,000) 12,000
Depreciation expense (30,000/10) 3,000
Miscellaneous expenses 10,000
S. 29. D Collections from customers on account P310,000

Cash sales 85,000
Sales returns 4,000
Gross sales P465,000
75
Payments on accounts payable P280,000
Accounts payable, December 31 67,000
Gross purchases P352,000
30. C Purchases (net of 5,000 returns) P347,000

352,000 - 5,000 – 21,700 = 325,300
Inventory, December 31 21,700
Cost of sales P325,300
31. C Depreciation expense – equipment (5% x 20,000) P 1,000

Depreciation expense – building (2% x 200,000) 4,000
Other operating expenses (45,000 + 3,500) 48,500
T. 32. D Collections from clients P1,234,500

Professional fees receivable, beginning (54,320)
Professional fees receivable, ending 43,210
Unearned professional fees, beginning 26,200
Unearned professional fees, ending (29,000)
Professional fees earned under accrual basis P1,220,590
33. B Payments for expenses P987,600

Accrued expenses, beginning (18,200)
Accrued expenses, ending 23,500
Prepaid expenses, beginning 6,400
Prepaid expenses, ending (5,120)
Total expenses for the year P994,180
34. A Professional fees earned P1,220,590

Total expenses (994,180)
Profit for the year under accrual basis P 226,410
76
Chapter 19 – Financial Statements
A. 1. C
Cash on hand and in banks (2,950,000 – 1,350,000) P1,600,000
Financial assets ar FV through P&L (at market) 2,150,000
Accounts receivable – trade (2,800,000 + 200,000) 3,000,000
Inventories (5,200,000 – 200,000 – 1,300,000) 3,700,000
Advertising supplies 200,000
Deposit with supplier 1,500,000
Supplier’s account with debit balance 500,000
2. B Customer’s account with credit balance P 200,000

Accrued salaries payable 400,000
Accrued income taxes 955,000
Unearned rent revenue 445,000
Trade accounts payable (13,500,000 + 500,000 – 1,300,000) 12,700,000
Mortgage payable – current portion 1,000,000
Total current liabilities P15,700,000
3. A Preference share capital P4,000,000

Ordinary share capital 8,000,000
Share premium – ordinary 2,000,000
Retained earnings (2,000,000 + 1,500,000 +150,000*) (3,650,000)
Treasury shares, at cost (500 shares) (50,000)
Total shareholders’ equity P10,300,000
*Decline in value of FA at FV through P&L (2,300,000 – 2,150,000)
B. 4. D Cash and cash equivalents P400,000

Trade and other receivables (2,000,000 – 430,000) 1,570,000
Subscription receivable (200,000 + 100,000) 300,000
Inventory (500,000 + 125,000) 625,000
5. ----- Trade and other payables (670,000 – 170,000 + 125,000) P625,000

Cash dividends payable 70,000
Income tax payable 196,500
Total current liabilities P891,500
C. 6. C Reported amount of trade and other receivables P147,000

Sales price of goods still in transit shipped FOB destination (20,000)
Correct amount of trade and other receivables P127,000
7. B Reported inventories (physical count) P220,000

Cost of goods in transit shipped FOB destination (20,000/1.25) 16,000
Correct amount of inventories P236,000
8. B Reported property, plant and equipment P3,200,000

Land and building classified as investment property
(200,000 + 950,000 – 230,000) (920,000)
Land with undetermined future use classified as investment property (248,000)
Correct amount of property, plant and equipment P2,032,000
77
9. D Deferred tax asset P85,000
Property, plant and equipment 2,032,000
Investment property (200,000 + 720,000 + 248,000) 1,168,000
Cash surrender value of life insurance 35,000
Total non-current assets P3,320,000
D. 10. C Total assets, end P6,700,000

Capital, end (2,500,000 + 525,000 – 400,000 + 300,000) 2,925,000
Total liabilities, end P3,775,000
E. 11. C Pre-tax profit (491,400/70%) = 702,000

Operating expenses (702,000 x 30% x 3) P631,800
12. A Pre-tax profit P702,000

Operating expenses 631,800
Cost of goods sold 2,108,000
Sales for the year P3,441,800
F. 13. ----- Adjustment, net of tax (300,000 – 105,000 P195,000
G. 14. C Total credits P1,500,000

Total debits 1,100,000
Pre-tax profit P400,000
Income tax 120,000
Net profit P280,000
H. 15. D Profit before tax (2,100,000/70%) P3,000,000

Profit percentage (100% - 60%CGS – 30%OE – 2% Finance costs) ÷ 8%
Sales P37,500,000
16. A Purchases 130% x 22,500,000 CGS P29,250,000

CGS = 60% x 37.5M = 22.5M; Purchases = 1.3 x 22.5M = 29.25M
29.5M – 22.5 M = 6,750,000
Cost of goods sold (60% x 37,500,000) 22,500,000
Increase in inventory P6,750,000
I. 17. B Total manufacturing costs (1,080,000/80%) P1,350,000

Percentage of direct labor cost x 35%
Direct labor cost during the period P472,500
J. 18. C Net profit

(800,000 – 84,000 + 40,000 – 4,000 – 480,000 – 40,000) x 70% P162,400
Retained earnings, January 1 160,000
Correction of prior period error, net of tax (16,000 x 70%) 11,200
Cumulative effect of change in accounting policy, net of tax
(28,000 x 70%) 19,600
Dividends declared (12,000)
Retained earnings, December 31, 2016 P341,200
K. 19. C Depreciation expense omitted, net of tax (100,000 x 9/12 x 70%) P52,500
78
L. 20. C Operating profit of discontinued operations (4.5M – 4.08M) P420,000
Disposal costs incurred (22,500)
Gain on disposal of discontinued segment (850,000 – 800,000) 50,000
Net amount P447,500
Net of 30% tax x 70%
Amount reported as discontinued operations P313,250
M. 21. D Operating income (1,500,000 + 100,000) P1,600,000

Impairment loss (4.0M – 3.8M) (200,000)
Net amount P1,400,000
Net of 30% tax x 70%
Discontinued operations P980,000
N. 22 C Sales P4,050,000
Increase in accounts receivable (600,000)
Decrease in trade notes receivable 230,000
Collections from customers P3,680,000
23. B Cost of goods sold P2,340,000

Decrease in merchandise inventory (520,000)
Decrease in accounts payable 430,000
Payments made to suppliers P2,250,000
24. D Operating expenses P795,000

Depreciation expense (70,000)
Loss on sale of equity securities at FVPL (5,000)
Increase in salaries and wages payable (30,000)
Decrease in prepaid expenses (52,250)
Payments for operating expenses P637,750
25. C Collections from customers P3,680,000

Payments to suppliers (2,250,000)
Payments for operating expenses (637,750)
Payments for interest (30,000 + 5,800) (35,800)
Payments for income taxes (277,500 – 25,000) (252,500)
Net cash flow from operating activities P503,950
O. 26. B Profit before income tax (1,470,000/70%) P2,100,000

Depreciation expense 750,000
Loss on retirement of bonds 12,500
Interest expense 100,000
Income from investment in associates (480,000)
Unrealized gain on equity investments at FV through PL (13,000)
Patent amortization expense 270,000
Increase in accounts receivable (340,000)
Decrease in accounts payable (26,000)
Decrease in trade notes payable (180,000 – 150,000) (30,000)
Cash generated from operating activities P2,343,500
27. B Interest expense P100,000

Amortization of discount on bonds payable (14,500)
Decrease in interest payable 18,000
Cash paid for interest P103,500
79
28. C Income tax expense (2,100,000 x 30%) P630,000
Increase in income tax payable (60,000)
Income tax paid P570,000
P. 29. C Proceeds from sale of plant building P1,200,000

Payment for purchase of machinery (500,000)
Net cash flow from investing activities P700,000
30. A Proceeds from issuance of preference shares P4,000,000

Dividends paid on preference shares (400,000)
Net cash flow from financing activities P3,600,000
Q. 31. C Profit P11,200,000

Amortization of premium on debty securities at amortized cost 600,000
Decrease in accounts receivable 800,000
Decrease in accounts payable (2,800,000)
Increase in inventories (3,500,000)
Gain on sale of land (920,000)
Increase in prepaid assets (290,000)
Decrease in income tax payable (1,280,000)
Increase in wages payable 68,000
Patent amortization expense 650,000
Net cash flow from operating activities P5,468,000
R. 32. D Net profit P554,000

Gain on retirement of bonds (92,000)
Increase in inventory (67,000)
Decrease in accounts payable (40,000)
Loss on sale of investments 48,000
Amortization of discount on debt securities at amortized cost (15,000)
Net cash flow from operating activities P545,000
33. C Proceeds from sale of investment P85,000

Payment for purchase of patent (198,000)
Payment for purchase of equipment (394,000)
Net cash flow from investing activities (P507,000)
34. D Proceeds from issuance of note P250,000

Payment of dividends (300,000)
Payment to retire bonds (370,000)
Repurchase of treasury shares (120,000)
Proceeds from issuance of preference shares 528,000
Net cash flow from financing activities (P12,000)
S. 35. A Sales P7,200,000

Interest revenue 430,000
Total cash receipts from operating activities P8,240,000
80
36. B Payments to suppliers
Cost of goods sold P3,750,000
Increase in inventory 980,000
Increase in accounts payable (700,000) P4,030,000
Payments for salaries
Salaries expense P1,360,000
Decrease in salaries payable 90,000 1,450,000
Payments for interest
Interest expense P540,000
Increase in interest payable (40,000) 500,000
Payments for income tax
Income tax expense 300,000
Total cash payments for operating activities P6,280,000
T. 37. C Sales on account P1,300,000

Cash sales 740,000
Cash collections from customers P2,650,000
38. A Cost of goods sold P975,000

Increase in accounts payable (72,000)
Increase in inventory 48,000
Cash payments to suppliers P951,000
81

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Chapter 1 – Cash and Cash Equivalents

A. 1. C Cash balance per bank statement P556,800

2. C Balance per books P691,720

B. 3. C Deposit in transit, May 31 P22,500

4. D Outstanding checks, May 31 P 41,800

5. A Balance per bank statement, June 30 P778,300

C. 6. B Currencies and coins P 8,500

7. Petty cash fund P 10,820

D. 8. A Balance per bank, August 31 (750,000 + 550,000 – 480,000) P820,000

9. C Deposit in transit, end P190,000

11. B Cash balance per books (from No. 8) P902,000

E. 12. D See proof of cash below P5,776,500

13. B See proof of cash below P4,617,750

14. A See proof of cash below P3,212,250

March 31 Receipts Disbursements April 30

Balances per books 2,038,300 5,601,000 4,619,800 3,019,500

F. 15. C Note collected by bank P93,500

16. B Cash balance per ledger P852,400

H. 18. B Cash in Metrobank (99,320 -5,200) P 94,120

I. 19. C Checkbook balance P123,450

J. 20. B Bank statement balance P146,570

K. 21. B Cash in BDO P320,000

L. 22. C Deposit in transit, July 31 P95,000

23. C Outstanding checks, August 31 P125,800

M. 24. D Bank statement balance P102,000

N. 25. C Currencies P 5,600

O. 27. A Imprest balance of petty cash fund P10,000.00

P. 28. D Total disbursements per books for December (refer to proof of

31. D Total disbursements per bank during December (refer to proof of

32. B Unadjusted bank balance, December 31 P363,500

Nov. 30 Receipts Disbursements Dec. 31

Balances per books 244,500 482,750 407,500 319,750

Q. 33. A Deposit in transit, Feb. 28 P 18,200

34. A Outstanding checks, Feb. 28 P 38,100

35. D Balance per bank, March 31 P919,300

S. 37. D Pre-adjustment cash balance per books P76,837.00

38. C Pre-adjustment cash balance per books P76,837.00

T. 39. B Per bank Per books

U. 40. C Balance per bank P581,050

Z. 41. C Bank statement balance P140,230

V. 42. A Outstanding checks, July 31 P13,260

X. 44. B Bank statement balance P5,000,000

Y. 45. D Balance per books P170,000

A. 1. A Accounts receivable, December 31, 2015 P95,842

2. D Allowance for doubtful accounts, December 31, 2015 P9,740

B. 3. D Accounts receivable, December 31, 2015 P 674,000

Allowance balance required at December 31, 2016

4. D Allowance for bad debts, December 31, 2015 P24,000

B. 5. B Required allowance balance, December 31

C. 6. A Accounts receivable, January 1 P 360,000

8. D Accounts receivable P315,000

D. 9. B Accounts receivable, December 31, 2015 P1,300,000

E. 10. B Allowance for bad debts, January 1 P63,000

F. 11. B Accounts receivable, beginning P120,000

G. 12. B Accounts receivable, January 1 P325,000

13. C Required allowance balance, December 31 (5% x 758,220) P37,911

H. 14. D Invoice price of goods (4.0M x 80% x 90%) P2,880,000

J. 16. A Reported amount of accounts receivable P1,300,000

K. 17. D May Company (2.0M x 10% x 3/12) P 50,000

L. 18. A Present value of note/selling price of equipment (300,000 x .7972) P239,160

19. C Interest revenue for 2016 (239,160 x 12%) P28,699

M. 20. B Selling price of land P600,000

21. A Interest revenue for 2016 (600,000 x 8%) P48,000