CEL 1 2013 [PRATICAL ACCOUNTING 1]

UNIVERSITY OF SAN CARLOS

SCHOOL OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTANCY
COMPRHENSIVE EXAM ONE
PRACTICAL ACCOUNTING ONE
A.Y. 2012-2013

INSTRUCTIONS: Read each of the questions carefully. Shade the letter of your corresponding choice in
the answer sheet. Refrain from talking to your seatmates, as such will be construed as cheating. Avoid
making any erasures. Be wary of the time. Always do your best.

1. THISISIT! Corporation had the following transactions in its first year of operations:

Sales (90 percent collected in the first year) P750,000

Disbursements for costs and expenses 600,000
Purchases of equipment for cash 200,000
Proceeds from issuance of common stock 250,000
Payments on short-term borrowings. 25,000
Proceeds from short-term borrowings 50,000
Depreciation on equipment 40,000
Disbursements for income taxes 45,000
Bad debt write-offs 30,000

What is the cash balance at December 31 of the first year?

A. P 75,000 C. P 85,000
B. P105,000 D. P140,000

2. FOCUS Company had the following bank reconciliation on June 30, 2012:

Balance per bank statement, June 30 3,000,000

Add: Deposits in transit 400,000
Total 3,400,000
Less: Outstanding Checks 900,000
Balance per book, June 30 2,500,000

The bank statement for the month of July 2012 showed the following:

Deposits (including P200,000 note collected for FOCUS) 9,000,000

Disbursements (including P140,000 NSF check and P10,000 service charge) 7,000,000

All reconciling items on June 30, 2012 cleared through the bank in July. The outstanding checks
totalled P600,000& the deposits in transit amounted to P1,000,000 on July 31, 2012.

What is the cash balance per book on July 31, 2012?

A. P5,400,000 C. P5,550,000
B. P5,350,000 D. P4,500,000

3. Petty cash fund account of QUANDARY Company showed its composition as follows:

Coins and currency P3,300

Paid vouchers:
Transportation P600
Gasoline 400
Office Supplies 500

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Postage Stamps 300

Due from employees 1,200 3,000
Manager’s check returned by bank marked “NSF” 1,000
Check drawn by company to the order of petty cash
custodian 2,700

What is the correct amount of petty cash fund for statement of financial position purposes?
A. P10,000 C. P6,000
B. P7,000 D. P9,000

4. All of CATCH22 Company’s sales are on a credit basis. The following information is available for
2012:

Allowance for doubtful accounts, 1/1/2012 P1,000,000

Sales 22,000,000
Sales returns 2,000,000
Accounts written off as uncollectible 600,000
Recovery of accounts written off 200,000

CATCH22 provides for doubtful accounts expense at the rate of 10% of net sales. At December 31,
2012, the allowance for doubtful accounts balance should be
A. P3,200,000 C. P2,800,000
B. P2,600,000 D. P2,000,000

5. STICKY Company factored P5,000,000 of accounts receivable to SITUATION Bank on July 1, 2012.
Control was surrendered by STICKY. The bank assessed a fee of 5% and retains a holdback equal
to 20% of the accounts receivable. In addition, the bank charged 12% computed on a weighted
average time to maturity of the receivables of 30 days.

Assuming all receivables are collected, STICKY Company’s cost of factoring the receivables would
be
A. P250,000 C. P49,315
B. P299,315 D. P 0

6. The UNBELIEVABLE Corporation provided for uncollectible accounts receivable under the allowance
method since the start of its operations to December 31, 2012. Provisions were made monthly at 2
percent of credit sales; bad debts written off were charged to the allowance account; recoveries of
bad debts previously written off were credited to the allowance account; and no year-end adjustments
to the allowance account were made. UNBELIEVABLE’s usual credit terms are net 30 days.

The credit balance in the allowance for doubtful accounts was P260,000 at January 1, 2012. During
2012, credit sales totaled P18,000,000, interim provisions for doubtful accounts were made at 2
percent of credit sales, P180,000 of bad debts were written off, and recoveries of accounts previously
written off amounted to P30,000. UNBELIEVABLE installed a computer system in November 2012
and an aging of accounts receivable was prepared for the first time as of December 31, 2012. A
summary of the aging is as follows:

Classifications by Month of Sale Balance in Each Category Estimated % Uncollectible

November-December 2012 P2,280,000 2%
July-October 2012 1,200,000 15%
January-June 2012 800,000 25%
Prior to January 1, 2012 260,000 80%

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Based on the review of collectibility of the account balances in the "prior to January 1, 2012" aging
category, additional receivables totaling P120,000 were written off as of December 31, 2012.
Effective with the year ended December 31, 2012, UNBELIEVABLE adopted a new accounting
method for estimating the allowance for doubtful accounts at the amount indicated by the year-end
aging analysis of accounts receivable.

How much is the adjusted balance of the allowance for doubtful accounts as of December 31, 2012?
A. P537,600 C. P350,000
B. P633,600 D. P753,600

7. On December 31, 2012, GUESS Company received two P5,000,000 notes receivable from
customers in exchanged for consulting services rendered. On both notes, interest is calculated on the
outstanding principal balance at the annual rate of 4% and payable at maturity. The note from
SORRY Corporation, made under customary trade terms, is due on October 1, 2013 and the note
from TARRY Corporation is due on December 31, 2017. The market interest rate for similar notes on
December 31, 2012 was 10%. The compound interest factors to convert future value into present
value at 10% follow: present value of 1 due in nine months, 0.93, and present value of 1 due in five
years, 0.62. At what amounts should these two notes receivable be reported in GUESS’s December
31, 2012 statement of financial position?

SORRY TARRY SORRY TARRY

A. P4,650,000 P3,100,000 C. P5,000,000 P3,720,000
B. P5,000,000 P3,100,000 D. P4,836,000 P3,720,000

8. The MIRACLE Company counted its ending inventory on December 31. None of the following items
were included when the total amount of the company’s ending inventory was computed:

 P150,000 in goods located in MIRACLE’s warehouse that are on consignment from another
company.
 P200,000 in goods that were sold by MIRACLE and shipped on December 30 and were in transit
on December 31; the goods were received by the customer on January 2. Terms were FOB
Destination.
 P300,000 in goods were purchased by MIRACLE and shipped on December 30 and were in
transit on December 31; the goods were received by MIRACLE on January 2. Terms were FOB
shipping point.
 P400,000 in goods were sold by MIRACLE and shipped on December 30 and were in transit on
December 31; the goods were received by the customer on January 2. Terms were FOB
shipping point.

The company’s reported inventory (before any corrections) was P2,000,000. What is the correct
amount of the company’s inventory on December 31?
A. P2,550,000 C. P2,500,000
B. P1,950,000 D. P2,700,000

9. WILLPOWER Company sells one product, which it purchases from various suppliers. The trial
balance at December 31, 2012, included the following accounts:

Sales (100,000 units at P150) P15,000,000

Sales discount 1,000,000
Purchases 9,300,000
Purchase discount 400,000
Freight in 100,000
Freight out 200,000

The inventory purchases during 2012 were as follows:

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Units Unit cost Total cost

Beginning inventory, January 1 20,000 P60 P 1,200,000
Purchases, quarter ended March 31 30,000 65 1,950,000
Purchases, quarter ended June 30 40,000 70 2,800,000
Purchases, quarter ended Sept. 30 50,000 75 3,750,000
Purchases, quarter ended Dec. 31 10,000 80 800,000
150,000 P10,500,000

WILLPOWER’s accounting policy is to report inventory in its financial statements at the lower of cost
or market, applied to total inventory. Cost is determined under the first-in, first-out method.

WILLPOWER has determined that, at December 31, 2012, the replacement cost of its inventory was
P70 per unit and the net realizable value was P72 per unit. The normal profit margin is P10 per unit.

What should WILLPOWER report as cost of goods sold for the year 2012?
A. P6,400,000 C. P6,700,000
B. P6,600,000 D. P7,100,000

10. OMG Company uses the average cost retail method to estimate its inventory. Data relating to the
inventory at December 31, 2012 are:

Cost Retail
Inventory, January 1 P 2,000,000 P3,000,000
Purchases 10,600,000 14,000,000
Net markups 1,600,000
Net markdowns 600,000
Sales 12,000,000
Estimated normal shoplifting losses 400,000
Estimated normal shrinkage is 5% of sales

OMG’s cost of goods sold for the year ended December 31, 2012 is
A. P9,100,000 C. P8,400,000
B. P8,680,000 D. P7,700,000

11. INSPIRATION Company installs replacement siding, windows, and louvered glass doors for family
homes. At December 31, 2012, the balance of raw materials inventory account was P502,000, and
the allowance for inventory writedown was P33,000. The inventory cost and market data at
December 31, 2012, are as follows:

Cost Replacement Sales Net Normal

Cost Price Realizable Profit
value
Aluminum siding 89,000 86,000 91,500 87,000 5,000
Mahogany siding 94,000 92,000 93,000 85,000 7,000
Louvered glass
door 125,000 135,000 129,000 111,000 10,000
Glass windows 194,000 114,000 205,000 197,000 20,000
Total 502,000 427,000 518,500 480,000 32,000

The correct balance of the raw materials inventory after any allowance for write down is
A. P427,000 C. P480,000
B. P486,500 D. P477,000

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12. LOVELIFE Company has a herd of 10 2-year old animals on January 1, 2012. One animal aged 2.5
years was purchased on July 1, 2012 for P108, and one animal was born on July 1, 2012. No animals
were sold or disposed of during the year. The fair value less cost to sell per unit is as follows:

2-year old animal on January 1 100

2.5-year old animal on July 1 108
New born animal on July 1 70
2-year old animal on December 31 105
2.5-year old animal on December 31 111
New born animal on December 31 72
3-year old animal on December 31 120
0.5-year old animal on December 31 80

What is the fair value of the biological assets on December 31, 2012?
A. P1,400 C. P1,440
B. P1,320 D. P1,360

13. CHALLENGE Company purchased marketable equity securities during 2012 to be held as “trading”.
An analysis of the current investments on December 31, 2012 showed the following:

Cost Market
A Company ordinary shares 1,000,000 800,000
B Company ordinary shares 1,500,000 1,800,000
C Company preference shares 2,000,000 1,700,000
D Company preference shares 2,500,000 2,600,000

What is the measurement of the financial assets held for trading on December 31, 2012?
A. P6,900,000 C. P7,000,000
B. P6,800,000 D. P6,500,000

14. JOURNEY Company received dividends from its common stock investments during the year 2012 as
follows:

 A stock dividend of 20,000 shares from A Company when the market price of A’s shares was P30
per share.
 A cash dividend of P2,000,000 from B Company in which JOURNEY owns a 20% interest.
 A cash dividend of P1,500,000 from C Company in which JOURNEY owns a 10% interest.
 10,000 shares of common stock of D Company in lieu of cash dividend of P20 per share. The
market price of D Company’s shares was P180. JOURNEY holds originally 100,000 shares of D
Company common stock. Revolution owns 5% interest in D Company.

What amount of dividend revenue should JOURNEY report in its 2012 income statement?
A. P3,300,000 C. P5,300,000
B. P3,500,000 D. P2,500,000

15. On July 1, 2012, TOPNOTCHER Company paid P9,585,000 for 10% bonds with a face amount of
P8,000,000. Interest is paid on June 30 and December 31. The bonds were purchased to yield 8%.
TOPNOTCHER uses the effective interest method to recognize interest income from this investment.
What should be reported as the carrying amount of the bonds in the December 31, 20012 statement
of financial position?
A. P9,568,400 C. P9,601,600
B. P9,551,800 D. P9,618,200

Use the following information for numbers 16 and 17:

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TITANIUM Company ventured into construction of a condominium in Makati which is rated as the
largest state-of-the-art structure. The entity’s board of directors decided that instead of selling the
condominium, the entity would hold this property for the purpose of earning rentals by letting out
space to business executives in the area.

The construction of the condominium was completed and the property was placed in service on
January 1, 2012. The cost of the construction was P50,000,000. The useful life of the condominium is
25 years and its residual value is P5,000,000. An independent valuation expert provided the following
fair value at each subsequent year-end:

December 31, 2012 55,000,000

December 31, 2013 53,000,000
December 31, 2014 60,000,000

16. Under the cost model, what amount should TITANIUM Company report as depreciation of investment
property for 2012?
A. P1,800,000 C. P2,200,000
B. P2,000,000 D. P 0

17. Under the fair value model, what amount should TITANIUM Company recognize as gain from change
in fair value in 2014?
A. P5,000,000 C. P7,000,000
B. P3,000,000 D. P 0

Use the following information for numbers 18 to 20:

Selected accounts included in the property, plant and equipment of RISKTAKER Company on
December 31, 2012, had the following balances:

Land 400,000
Land improvements 130,000
Buildings 2,000,000
Machinery and equipment 800,000

During 2013, the following transactions occurred:

 A track of land was acquired for P200,000 as a potential future building site.
 A plant facility consisting of land and building was acquired in exchange for 20,000 shares of
RISKTAKER Company. On the acquisition date, RISKTAKER’s share had a closing market price
of P42 per share on a stock exchange. The plant facility was carried on the seller’s books at
P178,000 for land and P520,000 for the building at the exchange rate. Current appraised values
for the land and building, respectively, are P200,000 and P800,000. The building has an expected
life of forty years with a P20,000 residual value.
 Items of machinery and equipment were purchased at a total cost of P400,000. Additional costs
were incurred as follows: freight and unloading, P13,000; installation, P26,000. The equipment
had a useful life of ten years with no residual value.
 Expenditures totaling P120,000 were made for new parking lots, street and sidewalks at the
company’s various plant locations. These expenditures had an estimated useful life of fifteen
years. Research and development costs were P110,000 for the year.
 A machine costing P16,000 on January 1, 2006 was scrapped in June 30, 2013. Straight line
depreciation had been recorded on the basis of a 10 year life with no residual value. A machine
was sold for P48,000 on July 1, 2013. Original cost of the machine was P74,000 on January 1,
2010 and it was depreciated on the straight line basis over an estimated useful life of eight years
and residual value of P2,000.

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18. What is the total cost of land on December 31, 2013?

A. P768,000 C. P888,000
B. P778,000 D. P898,000
19. What is the total cost of buildings on December 31, 2013?
A. P2,672,000 C. P2,792,000
B. P2,520,000 D. P2,640,000

20. What is the total cost of machinery and equipment on December 31, 2013?
A. P1,149,000 C. P1,223,000
B. P1,239,000 D. P1,175,000

21. A schedule of plant assets owned by HAVEMERCY Company is presented below.

Cost Scrap Depreciable Life Annual

Cost Dep.
Building 8,800,000 800,000 20 years
Machinery 3,200,000 320,000 15 years
Equipment 640,000 5 years

HAVEMERCY computes depreciation on the straight line method. The composite life of the assets
should be
A. 19.8 years C. 13.3 years
B. 18.0 years D. 16.0 years

22. FEARLESS Company acquired property in 2012 which contains mineral deposit. The acquisition cost
of the property was P20,000,000. Geological estimates indicate that 5,000,000 tons of mineral may
be extracted. It is further estimated that the property can be sold for P5,000,000 following mineral
extraction. For P2,000,000, FEARLESS is legally required to restore the land to a condition
appropriate for resale. After acquisition, the following costs were incurred:

Exploration cost 13,000,000

Development cost related to drilling of wells 10,000,000
Development cost related to production equipment 15,000,000

The company extracted 600,000 tons of the mineral in 2012 and sold 450,000 tons. In the 2012
income statement, what amount of depletion is included in cost of sales?
A. P4,800,000 C. P3,600,000
B. P5,400,000 D. P4,050,000

23. On January 1, 2012, the historical balances of the land and building of FORMIDABLE Company are:

Cost Accumulated depreciation

Land 50,000,000
Building 300,000,000 90,000,000

The land and building were appraised on same date and the revaluation revealed the following:

Sound value
Land 80,000,000
Building 350,000,000

There were no additions or disposals during 2012. Depreciation is computed on the straight line. The
estimated life of the building is 20 years. The depreciation of the building for the year ended
December 31, 2012 should be
A. P25,000,000 C. P10,000,000
B. P15,000,000 D. P17,500,000

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24. During December 2012, FIERY Company determined that there had been a significant decrease in
market value of its equipment. At December 31, 2012, FIERY compiled the following information
concerning the equipment:

Original cost 20,000,000

Accumulated depreciation 12,000,000
Expected undiscounted net future cash inflows from the
continued use and eventual disposal 7,000,000
Expected discounted net future cash inflows from the
continued use and eventual disposal 5,000,000
Fair value less cost to sell 6,500,000

What is the impairment loss that should be reported in the 2012 income statement?
A. P1,000,000 C. P2,000,000
B. P1,500,000 D. P 0

Use the following information for numbers 25 and 26:

Transactions during 2013 of the newly organized PARADIGMSHIFT Corporation included the
following:

Jan. 2 Paid legal fees of P150,000 and stock certificate costs of P83,000 to compete
organization of the corporation.

15 Hired a clown to stand in front of the corporate office for 2 weeks and hand out pamphlets
and candy to create goodwill for the new enterprise. Clown cost, P10,000; pamphlets and
candy P5,000.

Apr. 1 Patented new developed process with costs as follows:

Legal fees to obtain patent P429,000
Patent application and licensing fees 63,500
Total P492,500

It is estimated that in 6 years other companies will have developed improved processes,
making the PARADIGMSHIFT Corporation process obsolete.

May 1 Acquired both a license to use a special type of container and a distinctive trademark to
be printed on the container in exchange for 6,000 shares of PARADIGMSHIFT’s no-par
ordinary shares selling for P50 per share. The license is worth twice as much as the
trademark, both of which may be used for 6 years.

July 1 Constructed a shed for P1,310,000 to house prototypes of experimental models to be

developed in future research projects.

Dec. 31 Incurred salaries for an engineer and chemist involved in product development totaling
P1,750,000 in 2013.

25. What is the cost of patent recorded in the statement of financial position?
A. P492,500 C. P63,500
B. P429,000 D. P 0

26. What is the carrying amount of Intangible Assets to be recorded in the statement of financial position?
A. P 712,604 C. P697,604

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B. P2,477,604 D. P 0

27. FAILUREISNOTANOPTION Company acquired three patents in January 2013. The patents have
different lives as indicated in the following schedule:

Cost Remaining useful life Remaining legal life

Patent A 2,000,000 10 8
Patent B 3,000,000 5 10
Patent C 6,000,000 Indefinite 15

Patent C is believed to be uniquely useful as long as the company retains the right to use it. In June
2013, the company successfully defended its right to Patent B. Legal fees of P800,000 were incurred
in this action. The company’s policy is to amortize intangible assets by the straight-line method to the
nearest half year. The company reports on a calendar-year basis. The amount of amortization that
should be recognized for 2013 is:
A. P1,330,000 C. P1,250,000
B. P2,050,000 D. P 950,000

28. TRUSTINYOURSELF Company provided the following information relevant to the research and
development expenditures for the year 2013:

Current period depreciation on the building housing R and D activities 1,500,000

Cost of market research study 1,000,000
Current period depreciation on a machine used in R and D activities 500,000
Salary of R and D director 1,200,000
Salary of Vice-President who spends ¼ of his time overseeing
R and D activities 2,400,000
Pension costs for salary of R and D director 50,000
Pension costs for salary of Vice-President 100,000

The R and D expense for the current period should be

A. P3,875,000 C. P4,875,000
B. P5,750,000 D. P3,800,000

29. On January 1, 2012, FREEDOMISNEAR Company took out a loan of P24,000,000 in order to finance
specifically the renovation of a building. The renovation work started on the same date. The loan
carried annual interest at 10%.

Work on the building was substantially complete on October 31, 2012. The loan was repaid on
December 31, 2012 and P200,000 investment income was earned in the period to October 31, 2012
on those parts of the loan not yet used for the renovation.

What is the amount of borrowing cost to be included in the cost of the building?
A. P2,400,000 C. P2,000,000
B. P2,200,000 D. P1,800,000

30. On January 1, 2013, REALITYBITES Company received a grant of P50 million from the British
government in order to defray safety and environmental costs within the area where the enterprise is
located. The safety and environmental costs are expected to be incurred over four years,
respectively, P4 million, P8 million, P12 million and P16 million.

How much income from the government grant should be recognized in 2013?
A. P50,000,000 C. P12,500,000
B. P 5,000,000 D. P 0

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31. IDEAL Company’s December 31, 2013 statement of financial position reported the following current
assets:

Cash 3,000,000
Accounts receivable 5,200,000
Inventory 2,000,000
Prepaid expenses 700,000
Equipment used and held for resale 100,000
11,000,000

An analysis of the accounts receivable disclosed that accounts receivable comprised the following:

Trade accounts receivable 4,000,000

Allowance for doubtful accounts ( 300,000)
Selling price of IDEAL Company’s unsold goods sent to
TRUTH Company on consignment at 125% of cost and
excluded from IDEAL’s ending inventory 1,500,000
5,200,000

At December 31, 2013, the total current assets should be

A. P10,600,000 C. P10,700,000
B. P 9,800,000 D. P 9,900,000

32. The trial balance of ALMOSTTHERE Company reflected the following liability account balances on
December 31, 2013:

Accounts payable 4,000,000

Bonds payable, due 2014 8,000,000
Discount on bonds payable 1,000,000
Deferred tax liability 1,500,000
Dividends payable 3,000,000
Income tax payable 500,000
Note payable, due 1/15/2015 2,500,000

In its December 31, 2013 statement of financial position, ALMOSTTHERE should report current
liabilities at
A. P16,000,000 C. P17,000,000
B. P14,500,000 D. P16,500,000

33. DONTGIVEUP Company includes one coupon in each box of laundry soap it sells. A towel is offered
as a premium to customers who send in 10 coupons and a remittance of P5. Data for the premium
offer are:
2012 2013
Boxes of soap sold 1,000,000 1,500,000
Number of towels purchased at P50 per towel 40,000 65,000
Number of towels distributed as premium 35,000 58,000
Number of towels to be distributed as premium next period 3,000 5,000

In its 2013 income statement, DONTGIVEUP Company should report premium expense at
A. P3,000,000 C. P2,700,000
B. P2,610,000 D. P2,835,000

34. During 2012, I<3ACCOUNTING Company introduced a new product carrying a two-year warranty
against defects. The estimated warranty costs related to peso sales are 5% within 12 months

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following sale and 10% in the second 12 months following sale. Sales and actual warranty
expenditures for the years ended December 31, 2012 and 2013 are as follows:

Sales Actual expenditures

2012 20,000,000 1,500,000
2013 25,000,000 3,000,000

At December 31, 2013, the company would report estimated warranty liability of
A. P1,500,000 C. P2,250,000
B. P 750,000 D. P 500,000

35. On December 31, 2013, VALIX Company purchased a machine from OBERITA Company in
exchange for a noninterest bearing note requiring eight payments of P200,000. The first payment was
made on December 31, 2013 and the others are due annually on December 31. At date of issuance,
the prevailing rate of interest for this type of note was 11%. Round off PV factors to three decimal
places.

In the December 31, 2013 statement of financial position, what is the carrying amount of the note
payable?
A. P1,142,400 C. P1,046,200
B. P1,029,200 D. P 942,400

36. Due to extreme financial difficulties, MEMORIZEDTHESTANDARDS Company has negotiated a

restructuring of its 10% P5,000,000 note payable due on December 31, 2012. The unpaid interest on
the note on such date is P500,000. The creditor has agreed to reduce the face value to P4,000,000,
forgive the unpaid interest, reduce the interest rate to 8% and extend the due date three years from
December 31, 2012. Round off all PV factors to two decimal places.

MEMORIZEDTHESTANDARDS Company should report gain on extinguishment of debt in its 2012

statement of comprehensive income at
A. P2,000,000 C. P1,703,200
B. P1,203,200 D. P 540,000

37. GAMAYNALANG Co. has outstanding 7%, 10-year P100,000 face value bond. The bond was
originally sold to yield 6% annual interest. GAMAYNALANG uses the effective interest rate method to
amortize bond premium. On June 30, 2012, the carrying amount of the outstanding bond was
P105,000. What amount of unamortized premium on bond should GAMAYNALANG report in its June
30, 2013 statement of financial position?
A. P1,050 C. P4,300
B. P3,950 D. P4,500

38. On March 1, 2012, HAPITNATIME Company issued 10,000 of its P1,000 face value bonds at 95 plus
accrued interest. HAPITNATIME Company paid bond issue cost of P1,000,000. The bonds were
dated November 1, 2011, mature on November 1, 2021, and bear interest at 12% payable
semiannually on November 1 and May 1. What amount did HAPITNATIME receive from the bond
issuance?
A. P8,500,000 C. P9,500,000
B. P8,900,000 D. P9,900,000

39. On December 31, 2012, FLATONE Company had outstanding 10% P1,000,000 face amount
convertible bonds payable maturing on December 31, 2015. Interest is payable on June 30 and
December 31. Each P1,000 bond is convertible into 50 shares of P10 par value. On December 31,
2012, the unamortized premium on bonds payable was P60,000.
On December 31, 2012, 400 bonds were converted when FLATONE’s share had a market price of
P24. FLATONE incurred P4,000 in connection with the conversion. No equity component was
recognized when the bonds were originally issued.

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What is the share premium from the issuance of shares as a result of the bond conversion on
December 31, 2012?
A. P176,000 C. P220,000
B. P276,000 D. P280,000

Use the following information for numbers 40 and 41:

On January 1, 2012, NEVER Company entered into a lease contract with REGRET Company for a
new equipment that had a selling price of P2,120,000. The lease contract provides that annual
payments of P420,000 will be made for 6 years. NEVER made the first payment on January 1, 2012,
subsequent payments are made on January 1 of each year. NEVER guarantees a residual value of
P367,122 at the end of the lease term. After considering the guaranteed residual value, the rate
implicit in the lease is determined to be 12%. NEVER has an incremental borrowing rate of 15%.
The economic life of the equipment is 9 years. NEVER depreciates its equipment using the straight
line method.

40. What is the annual depreciation expense to be recorded by REGRET Company?

A. P257,608 C. P292,146
B. P274,464 D. P 0

41. What is the liability under finance lease to be shown in NEVER Company’s statement of financial
position as of December 31, 2013?
A. P1,251,905 C. P1,484,000
B. P1,365,177 D. P0

42. WINNER Company is in the business of leasing new sophisticated equipment. As lessor, WINNER
expects a 12% return on its net investment. All leases are classified as direct financing lease. At the
end of the lease term, the equipment will revert to WINNER Company.

On January 1, 2012, an equipment is leased to another entity with the following information:

Cost of equipment to WINNER 5,500,000

Residual value - unguaranteed 400,000
Annual rental payable in advance 959,500
Useful life and lease term 8 years
Implicit interest rate 12%
First lease payment January 1, 2012

What is the unearned interest income on January 1, 2012?

A. P2,576,000 C. P2,176,000
B. P1,776,000 D. P1,616.500

43. The following information pertains to DREAMER Corporation’s defined benefit pension plan for 2013:

Service Cost P160,000

Actual gain on plan assets 35,000
Unexpected loss on plan assets related to a 2013 disposal
of a subsidiary 40,000
Prior service cost 5,000
Annual interest expense on pension obligation 50,000

What amount should DREAMER report as pension expense in its 2013 income statement?
A. P250,000 C. P215,000
B. P285,000 D. P180,000

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44. SUPERIOR Company had the following balances relating to its defined benefit plan on December 31,
2013:

Fair value of plan assets 37,000,000

Projected benefit obligation 33,000,000
Asset ceiling 2,500,000

What is the prepaid benefit cost to be reported in the December 31, 2013 statement of financial
position?
A. P4,000,000 C. P2,500,000
B. P1,500,000 D. P 0

45. BONUS Company provided the following comparative information concerning its defined benefit plan
in its memorandum records:
January 1, 2013 December 31, 2013
Fair value of plan assets 10,000,000 11,500,000
Prepaid benefit obligation 12,500,000 13,035,000

The transactions for 2013 related to the defined benefit plan are:

Current service cost 2,000,000

Contribution to the plan 2,800,000
Benefits paid to retirees 2,300,000
Unexpected decrease in the benefit obligation 165,000

The remeasurements to be recorded in other comprehensive income in 2013 is

A. P200,000 C. P1,000,000
B. P365,000 D. P1,165,000

46. The FUTURECPA Company is authorized to issue 200,000 of P10 par value ordinary shares and
60,000 of 6% cumulative and nonparticipating preference shares, par value P100 per share. The
company engaged in the following share capital transactions through December 31, 2012:

o 50,000 ordinary shares were issued for P650,000 and 20,000 preference shares for
machinery valued at P2,600,000.

o Subscriptions for 9,000 ordinary shares have been taken and 40% of the subscription price of
P18 per share has been collected. The shares will be issued upon collection of the
subscription price in full.

o 2,000 treasury ordinary shares have been purchased for P12 and accounted for under the
cost method.

The post-closing retained earnings balance at December 31, 2012 is P420,000.

What is FUTURECPA Company’s total shareholders’ equity at December 31, 2012?

A. P3,714,800 C. P3,710,800
B. P3,638,800 D. P3,110,800

47. The ROCKYROAD Company has incurred heavy losses since its inception. At the recommendation
of its president and CEO, the board of directors voted to implement quasi-reorganization, through
reduction of par value subject to stockholders’ approval. Immediately prior to the restatement on
December 31, 2012. ROCKYROAD Company’s shareholders’ equity was as follows:

Ordinary capital stock, P100 par 500,000 shares 50,000,000

Additional paid in capital 15,000,000

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Retained earnings (deficit) (10,000,000)

The shareholders approved the quasi-reorganization on December 31,2012 to be accomplished by a

reduction in inventory of P2,000,000, a reduction in property, plant and equipment of P6,000,000, and
writeoff of goodwill at P5,000,000. To eliminate the deficit, ROCKROAD should reduce ordinary share
capital stock by
A. P23,000,000 C. P13,000,000
B. P10,000,000 D. P 8,000,000

48. PERFECTNA Company reported the following amounts in the shareholders’ equity section of its
December 31, 2011 statement of financial position:

Preference shares, 10%, P10 par (100,000 shares

authorized, 20,000 shares issued) 200,000
Ordinary shares, P5 par (50,000 shares authorized
10,000 shares issued) 50,000
Share premium 96,000
Retained earnings 600,000
Total 946,000

The following transactions occurred during 2012:

1. Paid the annual 2011 P1 per share dividend on preference shares and P 0.50 per share dividend
on ordinary shares. These dividends had been declared on December 31, 2011.

2. Purchased 2,000 shares of its own outstanding shares for P20 per share.

3. Reissued 700 treasury shares for equipment valued at P25,000.

4. Issued 5,000 preference shares at P15 per share.

5. Declared a 10% stock dividend on the outstanding ordinary shares when the shares were selling
for P12 per share.

6. Issued the stock dividend.

7. Declared the annual 2012 P1 per share dividend on preference shares and P 0.50 per share
dividend on ordinary shares. These dividends are payable in 2013.

8. Appropriated retained earnings for plant expansion, P300,000.

9. Appropriated retained earnings for treasury services.

The net income for 2012 was P470,000.

What is the balance of the unappropriated retained earnings at December 31, 2012?
A. P714,775 C. P709,775
B. P703,775 D. P729,775

49. On January 1, 2011, CAMEANDCONQUERED Company offered its top management share
appreciation rights with the following terms:

Predetermined price P100 per share

Number of shares 50,000 shares
Service period 3 years

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Exercise date January 1, 2014

The share appreciation right is to be exercised on January 1, 2014. The quoted prices of
CONQUERED Company shares are 100, 124, and 151 on January 1, 2011, December 31, 2011 and
December 31, 2012, respectively. What amount should the company charge to compensation
expense for the year ended December 31, 2012 as a result of the share appreciation right?
A. P1,700,000 C. P1,200,000
B. P1,300,000 D. P 500,000

50. FINISHLINE Company’s general ledger shows the following liability and equity accounts at the end of
the reporting period.

Accounts payable 530,000

Accrued expenses 41,600
Reserve for bond retirement 320,000
Preference shares, 6% cumulative, P100 par;6,000 shares authorized;
4,000 sharesissued; 3,700 shares outstanding(P110 liquidation value) 400,000
Ordinary shares, P10 par; 200,000 sharesauthorized; 80,000 shares
issued and outstanding 800,000
Share premium 154,600
Retained earnings 262,520

What is the book value per share of the preference shares on December 31, 2012?
A. P116 C. P115
B. P110 D. P122

*End of Examination*
Good Luck and God Bless!
“Happiness is not GRANTED, it is ACHIEVED.”

MJL

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