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) Disbursements for costs and expenses Purchases of equipment for cash Proceeds from issuance of common stock Payments on short-term borrowings. Proceeds from short-term borrowings Depreciation on equipment Disbursements for income taxes Bad debt write-offs 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 Add: Deposits in transit Total Less: Outstanding Checks Balance per book, June 30 The bank statement for the month of July 2012 showed the following: Deposits (including P200,000 note collected for FOCUS) Disbursements (including P140,000 NSF check and P10,000 service charge) 9,000,000 7,000,000 3,000,000 400,000 3,400,000 900,000 2,500,000 P750,000 600,000 200,000 250,000 25,000 50,000 40,000 45,000 30,000

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 Paid vouchers: Transportation Gasoline Office Supplies Postage Stamps Due from employees Managers check returned by bank marked NSF Check drawn by company to the order of petty cash custodian P3,300 P600 400 500 300 1,200

3,000 1,000 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

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4. All of CATCH22 Companys sales are on a credit basis. The following information is available for 2012: Allowance for doubtful accounts, 1/1/2012 Sales Sales returns Accounts written off as uncollectible Recovery of accounts written off P 1,000,000 22,000,000 2,000,000 600,000 200,000

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 Companys 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. UNBELIEVABLEs 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 November-December 2012 July-October 2012 January-June 2012 Prior to January 1, 2012 Balance in Each Category P2,280,000 1,200,000 800,000 260,000 Estimated % Uncollectible 2% 15% 25% 80%

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 GUESSs December 31, 2012 statement of financial position? SORRY A. P4,650,000 B. P5,000,000 TARRY P3,100,000 P3,100,000 SORRY C. P5,000,000 D. P4,836,000 TARRY P3,720,000 P3,720,000

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8. The MIRACLE Company counted its ending inventory on December 31. None of the following items were included when the total amount of the companys ending inventory was computed: P150,000 in goods located in MIRACLEs 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 companys reported inventory (before any corrections) was P2,000,000. What is the correct amount of the companys 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. balance at December 31, 2012, included the following accounts: Sales (100,000 units at P150) Sales discount Purchases Purchase discount Freight in Freight out The inventory purchases during 2012 were as follows: Units 20,000 30,000 40,000 50,000 10,000 150,000 Unit cost P60 65 70 75 80 Total cost P 1,200,000 1,950,000 2,800,000 3,750,000 800,000 P 10,500,000 P15,000,000 1,000,000 9,300,000 400,000 100,000 200,000 The trial

Beginning inventory, January 1 Purchases, quarter ended March 31 Purchases, quarter ended June 30 Purchases, quarter ended Sept. 30 Purchases, quarter ended Dec. 31

WILLPOWERs 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 P 2,000,000 10,600,000 Retail P3,000,000 14,000,000 1,600,000 600,000 12,000,000 400,000

Inventory, January 1 Purchases Net markups Net markdowns Sales Estimated normal shoplifting losses Estimated normal shrinkage is 5% of sales

OMGs 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

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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 Cost 86,000 92,000 135,000 114,000 427,000 Sales Price 91,500 93,000 129,000 205,000 518,500 Net Realizable value 87,000 85,000 111,000 197,000 480,000 Normal Profit 5,000 7,000 10,000 20,000 32,000

Aluminum siding Mahogany siding Louvered glass door Glass windows Total

89,000 94,000 125,000 194,000 502,000

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 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 2.5-year old animal on July 1 New born animal on July 1 2-year old animal on December 31 2.5-year old animal on December 31 New born animal on December 31 3-year old animal on December 31 0.5-year old animal on December 31 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 1,000,000 1,500,000 2,000,000 2,500,000 Market 800,000 1,800,000 1,700,000 2,600,000 100 108 70 105 111 72 120 80

A Company ordinary shares B Company ordinary shares C Company preference shares D Company preference shares

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 As 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 Companys 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

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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: TITANIUM Company ventured into construction of a condominium in Makati which is rated as the largest state-of-the-art structure. The entitys 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 December 31, 2013 December 31, 2014 55,000,000 53,000,000 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 Land improvements Buildings Machinery and equipment 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, RISKTAKERs share had a closing market price of P42 per share on a stock exchange. The plant facility was carried on the sellers 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 companys 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. 400,000 130,000 2,000,000 800,000

18. What is the total cost of land on December 31, 2013? A. P768,000 C. P888,000 B. P778,000 D. P898,000

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

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 Development cost related to drilling of wells Development cost related to production equipment 13,000,000 10,000,000 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 50,000,000 300,000,000 Accumulated depreciation 90,000,000

Land Building

The land and building were appraised on same date and the revaluation revealed the following: Sound value 80,000,000 350,000,000

Land Building

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 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 Accumulated depreciation Expected undiscounted net future cash inflows from the continued use and eventual disposal Expected discounted net future cash inflows from the continued use and eventual disposal Fair value less cost to sell 20,000,000 12,000,000 7,000,000 5,000,000 6,500,000

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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. 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. 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 PARADIGMSHIFTs 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. Constructed a shed for P1,310,000 to house prototypes of experimental models to be developed in future research projects. Incurred salaries for an engineer and chemist involved in product development totaling P1,750,000 in 2013.

15

Apr. 1

July 1

Dec. 31

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 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 2,000,000 3,000,000 6,000,000 Remaining useful life 10 5 Indefinite Remaining legal life 8 10 15

Patent A Patent B Patent C

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

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Pension costs for salary of R and D director Pension costs for salary of Vice-President 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 31. IDEAL Companys December 31, 2013 statement of financial position reported the following current assets: Cash Accounts receivable Inventory Prepaid expenses Equipment used and held for resale 3,000,000 5,200,000 2,000,000 700,000 100,000 11,000,000 50,000 100,000

An analysis of the accounts receivable disclosed that accounts receivable comprised the following: Trade accounts receivable Allowance for doubtful accounts Selling price of IDEAL Companys unsold goods sent to TRUTH Company on consignment at 125% of cost and excluded from IDEALs ending inventory 4,000,000 ( 300,000)

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 Bonds payable, due 2014 Discount on bonds payable Deferred tax liability Dividends payable Income tax payable Note payable, due 1/15/2015 4,000,000 8,000,000 1,000,000 1,500,000 3,000,000 500,000 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

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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 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 20,000,000 25,000,000 Actual expenditures 1,500,000 3,000,000

2012 2013

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.

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On December 31, 2012, 400 bonds were converted when FLATONEs 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. 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 Companys statement of financial position as of December 31, 2013? A. P1,251,905 C. P1,484,000 B. P1,365,177 D. P 0 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 Residual value - unguaranteed Annual rental payable in advance Useful life and lease term Implicit interest rate First lease payment 5,500,000 400,000 959,500 8 years 12% 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 Corporations defined benefit pension plan for 2013: Service Cost Actual gain on plan assets Unexpected loss on plan assets related to a 2013 disposal of a subsidiary Prior service cost Annual interest expense on pension obligation P160,000 35,000 40,000 5,000 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 44. SUPERIOR Company had the following balances relating to its defined benefit plan on December 31, 2013: Fair value of plan assets Projected benefit obligation Asset ceiling 37,000,000 33,000,000 2,500,000

What is the prepaid benefit cost to be reported in the December 31, 2013 statement of financial position?

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A. P4,000,000 B. P1,500,000 C. P2,500,000 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 Contribution to the plan Benefits paid to retirees Unexpected decrease in the benefit obligation 2,000,000 2,800,000 2,300,000 165,000

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 o 50,000 ordinary shares were issued for P650,000 and 20,000 preference shares for machinery valued at P2,600,000. 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. 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 Companys 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 t he restatement on December 31, 2012. ROCKYROAD Companys shareholders equity was as follows: Ordinary capital stock, P100 par 500,000 shares Additional paid in capital Retained earnings (deficit) 50,000,000 15,000,000 (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 s ection of its December 31, 2011 statement of financial position: Preference shares, 10%, P10 par (100,000 shares authorized, 20,000 shares issued) Ordinary shares, P5 par (50,000 shares authorized 10,000 shares issued) Share premium Retained earnings Total

200,000 50,000 96,000 600,000 946,000

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CEL 1 2013 [PRATICAL ACCOUNTING 1]

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 Number of shares Service period Exercise date P100 per share 50,000 shares 3 years 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 Companys general ledger shows the following liability and equity accounts at the end of the reporting period. Accounts payable Accrued expenses Reserve for bond retirement Preference shares, 6% cumulative, P100 par; 6,000 shares authorized; 4,000 shares issued; 3,700 shares outstanding (P110 liquidation value) Ordinary shares, P10 par; 200,000 shares authorized; 80,000 shares issued and outstanding Share premium Retained earnings 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. 530,000 41,600 320,000 400,000 800,000 154,600 262,520

MJL

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