UL COA Midterm Permit Number:_____________

1ST SEM SY 2020-2021

Name: ______________________________________
Subject: _______________
Midterm exam in ACC417/ACC412 REFRESHER

Instructions: Highlight your answer in light color. Show solutions to problems. Attached the accomplished examination to
the google classroom no later than 5:00 PM October 27, 2020.

1. Which method of income measurement is used in the preparation of the income statement?
a. Capital maintenance approach.
b. Transaction approach.
c. Cash-flow approach.
d. Income components approach.

2. The definition of expenses includes

a. losses only.
b. expenses and losses.
c. expenses only.
d. expenses, losses and unrealized losses on available-for-sale securities.

3. Undeclared dividends are deducted from net income in the earnings per share computation for which
type of preference shares?
a. Non-cumulative only.
b. Cumulative only.
c. Neither non-cumulative nor cumulative.
d. Both non-cumulative and cumulative.

4. Comprehensive income includes all of the following except

a. dividend revenue.
b. losses on disposal of assets.
c. investments by owners.
d. unrealized holding gains.

5. Watts Corporation made a very large arithmetical error in the preparation of its year-end financial
statements by improper placement of a decimal point in the calculation of depreciation. The error
caused the net income to be reported at almost double the proper amount. Correction of the error when
discovered in the next year should be treated as
a. an increase in depreciation expense for the year in which the error is discovered.
b. a component of income for the year in which the error is discovered, but separately listed on the
income statement and fully explained in a note to the financial statements.
c. an other expense item for the year in which the error was made.
d. a prior period adjustment.

6. Logan Corp.'s trial balance of income statement accounts for the year ended December 31, 2015
included the following:
Debit Credit
Sales revenue P140,000
Cost of sales P 60,000
Administrative expenses 25,000
Loss on sale of equipment 9,000
Commissions to salespersons 8,000
Interest revenue 5,000
Freight-out 3,000
Loss on disposition of wholesale division 17,000
Bad debt expense 3,000
Totals P125,000 P145,000
Other information:
Logan's income tax rate is 30%. Merchandise inventory:
January 1, 2015 P80,000
December 31, 2015 70,000
On Logan's income statement for 2015, income from continuing operations is
a. P54,000.
b. P20,000.
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UL COA Midterm Permit Number:_____________
1ST SEM SY 2020-2021
c. P37,000.
d. P32,000.

Solution:
145,000- (125,000- 17,000)= 37,000

7. Which of the following should be reported as a prior period adjustment?

Change in Estimated Lives Change from Unaccepted
of Depreciable Assets Principle to Accepted Principle
a. Yes Yes
b. No Yes
c. Yes No
d. No No

8. In a statement of cash flows, payments to acquire debt instruments of other entities (other than cash
equivalents) should be classified as cash outflows for
a. operating activities.
b. investing activities.
c. financing activities.
d. lending activities.

9. One of the benefits of the statement of cash flows is that it helps users evaluate financial flexibility.
Which of the following explanations is a description of financial flexibility?
a. The nearness to cash of assets and liabilities.
b. The firm's ability to respond and adapt to financial adversity and unexpected needs and
opportunities.
c. The firm's ability to pay its debts as they mature.
d. The firm's ability to invest in a number of projects with different objectives and costs.

10. Caroline, Inc. exchanged a tract of land it held in Mississippi for a tract of land owned by Rosalie
Corporation located in Illinois. How is this transaction reported on Caroline, Inc.’s statement of cash
flows?
a. As a cash inflow from investing activities and a cash outflow from financing activities.
b. As a cash inflow and a cash outflow from investing activities.
c. As a cash inflow and a cash outflow from financing activities.
d. This transaction is not reported in the body of the statement of cash flows.

11. Caroline, Inc. had the following transactions during 2015:

Exchanged land for a building P764,000

Purchased treasury shares 160,000
Paid cash dividend 380,000
Purchased equipment 212,000
Issued ordinary shares 588,000

What is Caroline, Inc.’s net cash provided (used) by investing activities?

a. P212,000 used by investing activities.
b. P552,000 provided by investing activities.
c. P372,000 used by investing activities.
d. P392,000 provided by investing activities.

12. During 2015 the DLD Company had a net income of 200,000. In addition, selected accounts showed
the following changes:
Accounts Receivable 12,000 increase
Accounts Payable 4,000 increase
Buildings 16,000 decrease
Depreciation Expense 6,000 increase
Bonds Payable 32,000 increase
What was the amount of cash provided by operating activities?
a. P198,000

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UL COA Midterm Permit Number:_____________
1ST SEM SY 2020-2021
b. P200,000
c. P206,000
d. P238,000

Solution:
Net Income P200,000
Less: Accounts Receivable (12,000)
Add: Accounts Payable 4,000
Depreciation Expense 6,000
Cash provided by operating activities P198,000

13. If ordinary shares were issued to acquire an P800,000 machine, how would the transaction appear on
the statement of cash flows?
a. It would depend on whether or not the direct method or the indirect method was used.
b. It would be a positive P800,000 in the financing section and a negative P800,000 in the investing
section.
c. It would be a negative P800,000 in the financing section and a positive P800,000 in the investing
section.
d. It would not appear on the statement of cash flows but rather in a cash flow note.

14. Costs which are inventoriable include all of the following except
a. costs that are directly connected with the bringing of goods to the place of business of the buyer.
b. costs that are directly connected with the converting of goods to a salable condition.
c. buying costs of a purchasing department.
d. selling costs of a sales department.

15. Which of the following types of interest cost incurred in connection with the purchase or manufacture of
inventory should be capitalized as a product cost?
a. Purchase discounts lost
b. Interest incurred during the production of discrete projects such as ships or real estate projects
c. Interest incurred on notes payable to vendors for routine purchases made on a repetitive basis
d. All of these should be capitalized.

Use the following information for questions 16 and 17.

During 2015, which was the first year of operations, Oswald Company had merchandise purchases of
P985,000 before cash discounts. All purchases were made on terms of 2/10, n/30. Three-fourths of the items
purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end.

16. Which of the following recording procedures would result in the highest cost of goods sold for 2015?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not taken shown under
"other income and expense" in the income statement
a. 1
b. 2
c. Either 1 or 2 will result in the same cost of goods sold.
d. Cannot be determined from the information provided.

17. Which of the following recording procedures would result in the highest net income for 2015?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not taken shown under
"other income and expense" in the income statement
a. 1
b. 2
c. Either 1 or 2 will result in the same net income.
d. Cannot be determined from the information provided.

Use the following information for questions 18 and 19.

Transactions for the month of June were:
Purchases Sales
June 1 (balance) 800 @ P3.20 June 2 600 @ P5.50
3 2,200 @ 3.10 6 1,600 @ 5.50
7 1,200 @ 3.30 9 1,000 @ 5.50
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1ST SEM SY 2020-2021
15 1,800 @ 3.40 10 400 @ 6.00
22 500 @ 3.50 18 1,400 @ 6.00
25 200 @ 6.00

18. Assuming that perpetual inventory records are kept in dollars, the ending inventory on a FIFO basis is
a. P4,110.
b. P4,160.
c. P4,290.
d. P4,470.
Solution:

per
Units Cost
unit
800 3.2 2560
-600 3.2 -1920
200 3.2 640
2,200 3.1 6820
2400 7460
-200 3.2 -640
-1,400 3.1 -4340
800 3.1 2480
1,200 3.3 3960
2000 6440
-800 3.1 -2480
-200 3.3 -660
1000 3.3 3300
-400 3.3 -1320
600 1980
1,800 3.4 6120
2400 8100
-600 3.3 -1980
-800 3.4 -2720
1000 3.4 3400
500 3.5 1750
1500 5150
-200 3.4 -680
1300 4470

19. Assuming that perpetual inventory records are kept in units only, the ending inventory on an average-
cost basis, rounded to the nearest dollar, is
a. P4,096.
b. P4,238.
c. P4,290.
d. P4,322.

Solution:

800 3.2 2560

2200 3.1 6820
1200 3.3 3960
1800 3.4 6120
500 3.5 1750
6500 21210

21210/6500= 3.3*1300= 4290

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UL COA Midterm Permit Number:_____________
1ST SEM SY 2020-2021
20. Milford Company had 500 units of “Tank” in its inventory at a cost of P4 each. It purchased, for P2,800,
300 more units of “Tank”. Milford then sold 400 units at a selling price of P10 each, resulting in a gross
profit of P1,600. The cost flow assumption used by Milford
a. is FIFO.
b. is specific identification.
c. is weighted average.
d. cannot be determined from the information given.

21. Which of the following is not an acceptable method of applying the lower-of-cost-or-net realizable value
method to inventory?
a. Inventory location.
b. Groups of inventory items.
c. Individual item.
d. Total of the inventory.

22. Which method(s) may be used to record a loss due to a price decline in the value of inventory?
a. Loss method.
b. Sales method.
c. Cost-of-goods-sold method.
d. Both the loss method and the cost-of-goods-sold method.

23. Shake Company’s inventory experienced a decline in value necessitating a write-down to lower of cost
or net realizable value (LCNRV) of P230,000. This amount is material to Shake’s income statement and
the company follows IFRS. Where should Shake Company report this decline in value according to
IFRS?
I. As a loss on the income statement.
II. As a separate component of other comprehensive income on the statement
of comprehensive income.
III. As part of cost of goods sold on the income statement.
a. Shake must use I.
b. Shake must use I, II or III.
c. Shake must use I, or III.
d. Shake must use III.

24. At the end of the fiscal year, Apha Airlines has an outstanding non-cancellable purchase commitment
for the purchase of 1 million gallons of jet fuel at a price of P4.10 per gallon for delivery during the
coming summer. The company prices its inventory at the LCNRV.
If the market price for jet fuel at the end of the year is P4.50, how would this situation be reflected in the
annual financial statements?
a. Record unrealized gains of P400,000 and disclose the existence of the purchase commitment.
b. No impact.
c. Record unrealized losses of P400,000 and disclose the existence of the purchase commitment.
d. Disclose the existence of the purchase commitment.

25. An inventory method which is designed to approximate inventory valuation at the lower of cost or net
realizable value is
a. last-in, first-out.
b. first-in, first-out.
c. conventional retail method.
d. specific identification.

26. Replenish, Inc. develops and produces sports drinks for sale throughout the United States and Europe.
The International Accounting Standards Board (IASB) prohibits Replenish, Inc. from using which of the
following cost flow assumptions for its inventory?
a. LIFO (last-in, first-out).
b. Specific identification.
c. Weighted-average.
d. The IASB allows any of these cost flow assumptions as long as the company uses it consistently.

27. On April 15 of the current year, a fire destroyed the entire uninsured inventory of a retail store. The
following data are available:
Sales, January 1 through April 15 P300,000
Inventory, January 1 50,000
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UL COA Midterm Permit Number:_____________
1ST SEM SY 2020-2021
Purchases, January 1 through April 15 250,000
Markup on cost 25%
The amount of the inventory loss is estimated to be
a. P60,000.
b. P30,000.
c. P75,000.
d. P50,000.

Solution:
300,000/ 1.25= 240,000
300,000- 240,000 = P60,000

28. Dicer uses the conventional retail method to determine its ending inventory at cost. Assume the
beginning inventory at cost (retail) were P130,000 (P198,000), purchases during the current year at
cost (retail) were P685,000 (P1,100,000), freight-in on these purchases totaled P43,000, sales during
the current year totaled P1,050,000, and net markups (markdowns) were P24,000 (P36,000). What is
the ending inventory value at cost?
a. P153,164.
b. P156,165.
c. P157,412.
d. P236,000.

Solution:
Ratio: 130k + 685k + 43k= 858,000
198k +1100k + 24k = 1,322,000
858,000/ 1,322,000=.6490166415

198k +1100k + 24k- 1050k -36k= 236,000 * ratio = 153,164

29. Which of the following is true regarding the alternative ways to apply the income approach to
accounting of resources acquired through government grants?
a. expenses will be higher and net income lower if the grant is recorded as deferred revenue.
b. expenses will be higher and net income lower if the grant is accounted for as an adjustment to the
asset.
c. depreciation expense will be higher if the grant is recorded as deferred revenue, but net income will
be the same under the two alternatives.
d. depreciation expense will be higher if the grant is recorded as an adjustment to the asset, but net
income will be the same under the two alternatives.

30. Which of the following non-monetary exchange transactions has commercial substance?
a. Exchange of assets with no difference in future cash flows.
b. Exchange of products by companies in the same line of business with no difference in future cash
flows.
c. Exchange of assets with a difference in future cash flows.
d. Exchange of an equivalent interest in similar productive assets that causes the companies involved
to remain in essentially the same economic position.

31. In accounting for plant assets, which of the following outlays made subsequent to acquisition should be
fully expensed in the period the expenditure is made?
a. Expenditure made to increase the efficiency or effectiveness of an existing asset
b. Expenditure made to extend the useful life of an existing asset beyond the time frame originally
anticipated
c. Expenditure made to maintain an existing asset so that it can function in the manner intended
d. Expenditure made to add new asset services

32. The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were
a. less than current fair value.
b. greater than cost.
c. greater than book value.
d. less than book value.

Use the following information for questions 33 through 35.

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UL COA Midterm Permit Number:_____________
1ST SEM SY 2020-2021
On March 1, 2015, Newton Company purchased land for an office site by paying P540,000 cash. Newton
began construction on the office building on March 1. The following expenditures were incurred for
construction:
Date Expenditures
March 1, 2015 P 360,000
April 1, 2015 504,000
May 1, 2015 900,000
June 1, 2015 1,440,000

The office was completed and ready for occupancy on July 1. To help pay for construction, P720,000 was
borrowed on March 1, 2015 on a 9%, 3-year note payable. Other than the construction note, the only debt
outstanding during 2015 was a P300,000, 12%, 6-year note payable dated January 1, 2015.

33. The weighted-average accumulated expenditures on the construction project during 2015 were
a. P384,000.
b. P2,934,000.
c. P312,000.
d. P696,000.

March 1, 2015 900,000 x 4/12 = 300,000 April 1, 2015 504,000 x 3/12 =126,000 May 1, 2015 900,000 x
2/12 =150,000 June 1, 2015 1,440,000 x 1/12 =120,000 Weighted Ave Acc Exp. P696,000

34. The actual interest cost incurred during 2015 was

a. P90,000.
b. P100,800.
c. P50,400.
d. P84,000.

Borrowing 1 720,000 x 9% x 10/12 = 54,000

Borrowing 2 300,000 x 12% = 36,000

35. Assume the weighted-average accumulated expenditures for the construction project are P870,000.
The amount of interest cost to be capitalized during 2015 is
a. P41,400.
b. P27,600.
c. P90,000.
d. P100,800.

Use the following information for questions 36 through 39.

On January 2, 2015, Indian River Groves began construction of a new citrus processing plant. The automated
plant was finished and ready for use on September 30, 2016. Expenditures for the construction were as
follows:

January 2, 2015 P200,000

September 1, 2015 600,000
December 31, 2015 600,000
March 31, 2016 600,000
September 30, 2016 400,000

Indian River Groves borrowed P1,100,000 on a construction loan at 12% interest on January 2, 2015. This
loan was outstanding during the construction period. The company also had P4,000,000 in 9% bonds
outstanding in 2015 and 2016.

36. What were the weighted-average accumulated expenditures for 2015?

a. P533,333
b. P500,000
c. P400,000
d. P1,000,000

(200,000 × 12/12) + (600,000 × 4/12) + (600,000 × 0/12) = 400,000

37. The interest capitalized for 2015 was:

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UL COA Midterm Permit Number:_____________
1ST SEM SY 2020-2021
a. P180,000
b. P48,000
c. P192,000
d. P60,000
400,000 (from # 36) × 12% = 48,000

38. What were the weighted-average accumulated expenditures for 2016 by the end of the construction
period?
a. P390,000
b. P1,635,000
c. P1,986,000
d. P1,386,000
[(200,000 + 600,000 + 600,000 + 48,000) × 9/12] + (600,000 × 6/12) + (400,000 × 0/12) = 1,386,000

39. The interest capitalized for 2016 was:

a. P124,740
b. P118,305
c. P 25,740
d. P 99,000
1,100,000 × 12% × 9/12 = 99,000; (1,448,000 × 9/12) + (600,000 × 6/12) = 1,386,000; [(1,386,000 –
1,100,000) × 9% × 9/12] + 99,000 = 118,305
40. On April 1, Mooney Corporation purchased for P855,000 a tract of land on which was located a
warehouse and office building. The following data were collected concerning the property:
Current Assessed Valuation Vendor’s Original Cost
Land P300,000 P280,000
Warehouse 200,000 180,000
Office building 400,000 340,000
P900,000 P800,000
What are the appropriate amounts that Mooney should record for the land, warehouse, and office
building, respectively?
a. Land, P280,000; warehouse, P180,000; office building, P340,000.
b. Land, P300,000; warehouse, P200,000; office building, P400,000.
c. Land, P299,250; warehouse, P192,375; office building, P363,375.
d. Land, P285,000; warehouse, P190,000; office building, P380,000.

.33*855k=285
.22*855k=190
.44*855k=380

41. On August 1, 2015, Mendez Corporation purchased a new machine on a deferred payment basis. A
down payment of P2,000 was made and 4 annual installments of P6,000 each are to be made beginning
on September 1, 2015. The cash equivalent price of the machine was P23,000. Due to an employee
strike, Mendez could not install the machine immediately, and thus incurred P300 of storage costs. Costs
of installation (excluding the storage costs) amounted to P800. The amount to be capitalized as the cost
of the machine is
a. P23,000.
b. P23,800.
c. P24,100.
d. P26,000.
23k + 1100= 24,100

42. Siegle Company exchanged 400 shares of Guinn Company ordinary shares, which Siegle was holding
as an investment, for equipment from Mayo Company. The Guinn Company ordinary shares, which had
been purchased by Siegle for P50 per share, had a quoted market value of P58 per share at the date of
exchange. The equipment had a recorded amount on Mayo's books of P21,000. What journal entry
should Siegle make to record this exchange?
a. Equipment .......................................................................... 20,000
Investment in Guinn Co. Ordinary Shares .................. 20,000
b. Equipment .......................................................................... 21,000
Investment in Guinn Co. Ordinary Shares .................. 20,000
Gain on Disposal of Investment ................................. 1,000
c. Equipment .......................................................................... 21,000
Loss on Disposal of Investment .......................................... 2,200
Investment in Guinn Co. Ordinary Shares .................. 23,200
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UL COA Midterm Permit Number:_____________
1ST SEM SY 2020-2021
d. Equipment .......................................................................... 23,200
Investment in Guinn Co. Ordinary Shares .................. 20,000
Gain on Disposal of Investment ................................. 3,200

43. On January 2, 2012, Stacy Company acquired equipment to be used in its manufacturing operations.
The equipment has an estimated useful life of 10 years and an estimated residual value of P15,000.
The depreciation applicable to this equipment was P70,000 for 2015, computed under the sum-of-the-
years'-digits method. What was the acquisition cost of the equipment?
a. P535,000
b. P565,000
c. P550,000
d. P541,667

44. Orton Corporation, which has a calendar year accounting period, purchased a new machine for
P40,000 on April 1, 2010. At that time Orton expected to use the machine for nine years and then sell it
for P4,000. The machine was sold for P22,000 on Sept. 30, 2015. Assuming straight-line depreciation,
no depreciation in the year of acquisition, and a full year of depreciation in the year of retirement, the
gain to be recognized at the time of sale would be
a. P4,000.
b. P3,000.
c. P2,000.
d. P0.

45. On January 1, 2015, the Accumulated Depreciation—Machinery account of a particular company

showed a balance of P370,000. At the end of 2015, after the adjusting entries were posted, it showed a
balance of P395,000. During 2015, one of the machines which cost P125,000 was sold for P60,500
cash. This resulted in a loss of P4,000. Assuming that no other assets were disposed of during the
year, how much was depreciation expense for 2015?
a. P85,500
b. P93,500
c. P25,000
d. P60,500
(370,000-395,000) + (( 125,000 – (60,500 + 4,000)) = 85,500

46. Which of the following does not describe intangible assets?

a. They lack physical existence.
b. They are monetary assets.
c. They provide long-term benefits.
d. They are classified as long-term assets.

47. Limited-life intangibles are reported at their

a. replacement cost.
b. carrying amount unless impaired.
c. acquisition cost.
d. liquidation value.

48. Factors considered in determining an intangible asset’s useful life include all of the following except
a. the expected use of the asset.
b. any legal or contractual provisions that may limit the useful life.
c. any provisions for renewal or extension of the asset’s legal life.
d. the amortization method used.

49. Which intangible assets are amortized?

Limited-Life Indefinite-Life
a. Yes Yes
b. Yes No
c. No Yes
d. No No
50. When a new company is acquired, which of these intangible assets, unrecorded on the acquired
company’s books, might be recorded in addition to goodwill?
a. A trade name.
b. A patent.
c. A customer list.
d. All of the above.
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51. Which of the following intangible assets could not be sold by a business to raise needed cash for a
capital project?
a. Patent.
b. Copyright.
c. Goodwill.
d. Trade name.

52. Recovery of impairment is recognized for all the following except

a. Patent held for sale.
b. Patent held for use.
c. Trademark.
d. Goodwill.

53. Which of the following principles best describes the current method of accounting for research and
development costs?
a. Associating cause and effect
b. Systematic and rational allocation
c. Income tax minimization
d. Immediate recognition as an expense

54. Which of the following is considered research and development costs?

a. Planned investigation undertaken with the prospect of gaining new scientific or technical knowledge
and understanding.
b. Application of research findings or other knowledge to a plan or design for a new product or
process.
c. Neither a nor b.
d. Both a and b.

55. If a company constructs a laboratory building to be used as a research and development facility, the
cost of the laboratory building is matched against earnings as
a. research and development expense in the period(s) of construction.
b. depreciation deducted as part of research and development costs.
c. depreciation or immediate write-off depending on company policy.
d. an expense at such time as productive research and development has been obtained from the
facility.

56. The general ledger of Vance Corporation as of December 31, 2015, includes the following accounts:
Copyrights P 30,000
Deposits with advertising agency (will be used to promote goodwill) 27,000
Bond sinking fund 70,000
Excess of cost over fair value of identifiable net assets of
Acquired subsidiary 390,000
Trademarks 120,000
In the preparation of Vance's statement of financial position as of December 31, 2015, what should be
reported as total intangible assets?
a. P510,000.
b. P537,000.
c. P540,000.
d. P537,000.
Solution: 30k + 390k + 120k= 540k

57. In January, 2010, Findley Corporation purchased a patent for a new consumer product for P840,000. At
the time of purchase, the patent was valid for fifteen years. Due to the competitive nature of the
product, however, the patent was estimated to have a useful life of only ten years. During 2015 the
product was permanently removed from the market under governmental order because of a potential
health hazard present in the product. What amount should Findley charge to expense during 2015,
assuming amortization is recorded at the end of each year?
a. P560,000.
b. P420,000.
c. P 84,000.
d. P 56,000.
840k/10= 84k *5 yrs = 420k
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UL COA Midterm Permit Number:_____________
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58. Hall Co. incurred research and development costs in 2015 as follows:
Materials used in research and development projects P 850,000
Equipment acquired that will have alternate future uses in future research
and development projects 3,000,000
Depreciation for 2015 on above equipment 300,000
Personnel costs of persons involved in research and development projects 750,000
Consulting fees paid to outsiders for research and development projects 300,000
Indirect costs reasonably allocable to research and development projects 225,000
P5,425,000
Assume economic viability has not been achieved.
The amount of research and development costs charged to Hall's 2015 income statement should be
a. P1,900,000.
b. P2,200,000.
c. P2,425,000.
d. P4,900,000.

59. On May 5, 2015, MacDougal Corp. exchanged 2,000 shares of its P25 par value ordinary treasury
shares for a patent owned by Masset Co. The treasury shares were acquired in 2014 for P45,000. At
May 5, 2015, MacDougal's ordinary shares was quoted at P38 per share, and the patent had a carrying
value of P68,000 on Masset's books. MacDougal should record the patent at
a. P45,000.
b. P50,000.
c. P60,000.
d. P76,000.
38 * 2,000= 76k

60. Ely Co. bought a patent from Baden Corp. on January 1, 2015, for P360,000. An independent
consultant retained by Ely estimated that the remaining useful life at January 1, 2015 is 15 years. Its
unamortized cost on Baden’s accounting records was P180,000; the patent had been amortized for 5
years by Baden. How much should be amortized for the year ended December 31, 2015 by Ely Co.?
a. P0.
b. P18,000.
c. P24,000.
d. P36,000.
360k/ 15 yrs

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