PRACTICAL ACCOUNTING 1 C.T.

ESPENILLA
STATEMENT OF COMPREHENSIVE INCOME (PAS 1, PAS 18)
1. Big Bulk has arrangements with its customers that, in any 12 months period ending March
31, if they purchase goods for a value of at least P1M, they will receive a retrospective
discount of 2%. Big Bulks year end is !ecem"er 31, and it has made sales to a customer
during the period #pril 1 to !ecem"er 31 of P$%%,%%%. &ow much should Big Bulk
recogni'e as revenue for the period ended !ecem"er 31(
a. 1,%%%,%%% c. ))2,%%%
". $%%,%%% d. %
2. *ice +uy sells goods with a cost of P1%%,%%% to ,tart-up .o. for P1/%,%%% and cr3edit
period of si0 months. *ice +uy 1nc.s normal cash price would have "een P122,%%% with a
credit period of one month or with a P2,%%% discount for cash on delivery. &ow much
should *ice +uy measure the income from the transaction(
a. 1/%,%%% c. 12%,%%%
". 122,%%% d. 1%%,%%%
3. 3ull service sells some e4uipment, the cash price of which is P1%%,%%%, for P1/%,%%% with
a commitment to service the e4uipment for a period of 2 years, with no further charge.
&ow much should full service recogni'e as revenue from the transaction for the current
year(
a. 1%%,%%% c. 13%,%%%
". 12%,%%% d. 1/%,%%%
/. Bespoke 1nc. has manufactured a machine specifically to the design of its customer. 5he
machine could not "e used "y any other party. Bespoke 1nc. has never manufactured this
type of machine "efore and e0pects a num"er of faults to materiali'e in its operation
during its first year of use, which Bespoke 1nc. is contractually "ound to rectify at no
further cost to the customer. 5he nature of these faults could well "e significant. #, of
Bespoke 1nc.s year end, the machine had "een delivered and installed, the customer
invoiced for P1%%,%%% 6the contract price7, and the costs incurred "y Bespoke 1nc. up to
that date amounted to P82,%%%. &ow much should Bespoke 1nc. recogni'e as revenue
from this transaction(
a. 1%%,%%% c. 32,%%%
". 82,%%% d. %
2. 5he following transactions were entered into "y 9:; .orp. for the current year<
,old goods to #B. amounting to P1%%,%%%. 1n the sales contract, there is a
clause that the seller has an o"ligation for unsatisfactory performance, which is
not governed "y normal warranty provisions.
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,hipped machinery invoiced at P2%%,%%% to a destination specified "y the
"uyer. # significant part of the transaction involves installation that has not
"een fulfilled "y 9:;.
,old at P3%%,%%% another machinery to !=3, where !=3 has the right to cancel
the purchase for a reason not specified in the contract of sale and the seller is
uncertain a"out the outcome.
&ow much should "e recogni'ed "y 9:; as revenue from the a"ove transactions(
a. % c. 3%%,%%%
". 1%%,%%% d. 8%%,%%%
8. 5anduay !istillers 1nc. normally stores its alchohol products a period of 3 to 2 years in oak
"arrels "efore they are ready for further processing and production.
>n ?anuary 2, 2%%3, 5anduay sold a "atch of its alcohol in oak "arrels to BP1 1nc. 5he
products had cost the company P2%,%%%,%%% and the proceeds from the sale was
P3%,%%%,%%%. 1t will "e 2 years "efore the products are ready for further processing.
5anduay will "e responsi"le for he seasoning process. @hen the alchohol is ready, it will
have a market price of P)%,%%%,%%%. 5anduay has an option to repurchase the products
in five years ?anuary 2, 2%%) for P22,)A%,%%%. 5he prevailing market rate of interest for
agreements of this nature is 12%.
#ssuming that 5anduay repurchases the products in ?anuary 2, 2%%),, and immediately
resells it at the e0pected market price, what amount of net profit should "e recogni'ed "y
5anduay in 2%%)(
a. )%,%%%,%%% c. 2A,13%,%%%
". 8%,%%%,%%% d. none

A. 5he following information was taken from the accounting records of Morgan .ompany for
the year ended !ecem"er 31, 2%%)< Baw materials, purchased, P),%%%,%%%C 1ncrease in
raw materials inventory, P/%%,%%%C !irect la"or cost, P2,%%%,%%%C 3actory overhead,
P8,%%%,%%%C !ecrease in work-in-process inventory, P3%%,%%%C 1ncrease in 3inished
goods inventory, P8%%,%%%.
.ost of goods sold in 2%%) should "e<
a. 1),3%%,%%% c. 1$,2%%,%%%
". 1),2%%,%%% d. 2%,3%%,%%%
). >n !ecem"er 31, 2%%), the accounting records of Dagome 1nc. contained the following
year-end information< 3actory overhead, P1,2%%,%%%C 1ncrease in finished goods
inventory , P2%%,%%%C !irect la"or, P1,22%,%%%C 3reight out, P22%,%%%C >ffice salaries,
P8%%,%%%C Baw materials purchased P2,82%,%%%C !ecrease in raw materials inventory,
P2%,%%%.
Dagomes cost of goods sold, if there is no work in process inventory at the "eginning or
end of the year is<
a. 2,22%,%%% c. 2,2%%,%%%
". 2,/%%,%%% d. 2,22%,%%%
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$. 5he following pertains to ,outas 2%%) cost of sales< 1nventory at the "eginning of the
year, P2,%%%,%%%C 1nventory at the end of the year, P1,2%%,%%%C Purchases of
merchandise during the year, P2,%%%,%%%C Purchase returns, P2%,%%%C Purchase discount,
P$%,%%%C 3reight in, P1%,%%%C 3reight out, P2%,%%%C @rite-off of o"solete inventory
P22%,%%%. @hat amount should "e reported "y the company as cost of sales(
a. 2,12%,%%% c. 2,8%%,%%%
". 2,3A%,%%% d. 8,/%%,%%%
1%. 5he following are certain account "alances of Boulevard Products 1nc.< =nding inventory,
P/),%%%C Bental income, P8,2%%C 1nterest e0pense, P12,A%%C Purchase returns and
allowances, P1%,2%%C Beginning accumulated profits, P11/,/%%C =nding accumulated
profits, P13/,%%%C 3reight-in, P1%,1%%C !ividends income, PA1,%%%C ,ales returns,
P12,/%%C ,ales discount, PA,)%%C ,elling e0penses, P$$,/%%C ,ales, P3$%,%%%C 1ncome
ta0, P21,)28C Beginning 1nventory, P/2,3%%C Purchases, P1$%,%%%C Purchase discounts,
P2,2%%C #dministrative e0pense, P)2,2%%. Fnreali'ed increase in the value of 5rading
,ecurities, P1%,%%%C Fnreali'ed increase in the value of #vaila"le for sale security,
P1%,%%%C Bevaluation surplus of Property, plant and e4uipment, P2%%,%%%C 5ranslation
loss, P2%,%%%C 1ncome ta0 on other comprehensive income, P/%,%%%. @hat is the correct
net income for the year(
a. /8,/// c. 2%,32%
". 28,/// d. 8),%%%
11. Fsing the information in num"er 1%, how much is the total comprehensive income to "e
reported in the statement of comprehensive income(
a. /8,/// c. 228,///
". 2/8,/// d. 2A8,///
12. Presented "elow are year-end "alances of assets and lia"ilities pertaining Martin Gooter
.orp.
2%%) 2%%A
.ash 1,2%%,%%% 1,2%%,%%%
.urrent marketa"le securities 2,8%%,%%% 2,3%%,%%%
#ccounts receiva"le, net 3,8%%,%%% /,%%%,%%%
Merchandise inventories A,%2%,%%% 8,32%,%%%
Prepayments 1,3%%,%%% 1,2)%,%%%
#ccounts paya"le 1,)2%,%%% 1,38%,%%%
>ther current lia"ilities 1,/1%,%%% 1,22%,%%%
Bonds paya"le 2,%%%,%%% 2,%%%,%%%
&ow much is the net income for 2%%)(
a. 3%%,%%% c. 1,$%%,%%%
". 1,/%%,%%% d. 2,$%%,%%%
13. Presented "elow is selected information pertaining to Mendre' .orp as of and for the
period ended !ecem"er 31, 2%%)<
.ash "alance, ?anuary 1, 2%%) P13%,%%%
#ccounts receiva"le, ?anuary 1 1$%,%%%
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.ollections from customers in 2%%) 2,1%%,%%%
.apital account "alance, ?anuary 1 3)%,%%%
5otal assets, ?anuary 1 A2%,%%%
.ash investments added, #ugust 1 2%,%%%
5otal assets, !ecem"er 31 1,%1%,%%%
.ash "alance, !ecem"er 31 2%%,%%%
#ccounts receiva"le, !ecem"er 31 38%,%%%
Merchandise taken for personal use in 2%%) 11%,%%%
5otal lia"ilities, !ecem"er 31 /1%,%%%
&ow much is the net income for 2%%)(
a. 22%,%%% c. 2)%,%%%
". 28%,%%% d. 3%%,%%%
1/. Presented "elow are year-end "alances of assets and lia"ilities of Butterfly .orporation for
the years 2%%) and 2%%A<
2%%) 2%%A
.urrent assets 2,2%%,%%% 3,%%%,%%%
*oncurrent assets 2,2%%,%%% A,%%%,%%%
.urrent lia"ilities 2,%%%,%%% 2,)%%,%%%
*oncurrent lia"ilities 2,%%%,%%% 2,2%%,%%%
!uring 2%%), the company issued additional shares for a total proceeds of P2,%%%,%%% of
which P)%%,%%% as used to pay dividends accruing to the last year that has "een declared
in the previous year and a P1,%%%,%%% current year dividends. 1t was also noted that a
piece of land was received as a donation from its maHor shareholder with a fair value of
P2,%%%,%%%. @hat amount of net incomeIloss the company earnedIincurred in 2%%)(
a. 2%%,%%% net loss c. 1,2%%,%%% net loss
". 1,%%%,%%% net loss d. 2,%%%,%%% net loss
12. >n ?uly 1, 2%%), Black .orp. incurred an infre4uent and unusual loss of P3%%,%%% net of a
/%% income ta0 savings. 5he operating income for full year ending !ecem"er 31, 2%%)
was e0pected to "e P2%%,%%%. &ow much e0traordinary loss should "e presented
separately on the face of the income statement(
a. 2%%,%%% c. 2%%,%%%
". 3%%,%%% d. none
ACCOUNTING CHANGES (PAS 8)
18. .haro .ompany purchased an e4uipment costing P32,%%% on ?anuary 1, 2%%8. 5he
e4uipment is "eing depreciated using the ,:! over an estimated useful life of 2 years and
a residual value of P2,%%%. >n ?anuary 1, 2%%), it was determined that the asset should
"e useful for a total of $ years from the date of ac4uisition without residual value. @hat
is the amount of the depreciation e0pense in 2%%).
a. 1,2%% c. 2,)%%
". 2,/%% d. 3,2%%
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1A. 5rust .o. purchased an e4uipment for P1,2%%,%%% that had an estimated residual value of
P1%%,%%% and an estimated service life of 1% years. 5he asset was purchased / years ago
and is "eing depreciated under the straight-line method. #t the "eginning of the 2
th
year,
the following were ascertained<
a. 5he company changes to sum-of-years-digits method.
". 1t was estimated that the assets remaining life is ) years.
@hat is the depreciation e0pense for the 2
th
year assuming that the estimated residual
value remains the same.
a. 1/8,88A c. 28/,%%%
". 18),))$ d. 3%/,%%%
1). >n ?anuary 1, 2%%2, Daye 5rading purchased for P2/%,%%% a machine with a useful life of
1% years with a 2%,%%% salvage value. 5he machine was depreciated "y the dou"le-
declining "alance method. >n ?anuary 1, 2%%) Daye changes to the straight line method
with the same salvage value. 3urther, the asset was found to have a estimated life of 2
years from date of purchase. @hat is the carrying value of the machine on !ecem"er 31,
2%%)(
a. A1,//% c. 21,//%
". 81,//% d. 2%,%%%
1$. >n ?anuary 2, 2%%8, Blue .orp. leased e4uipment to ,kies 1nc. 5he present value of the
minimum lease payments is P2,)%%,%%%. 5he lease term is for a period of eight years
while the e4uipment had a total life of ten. 5here is no "argain purchase option and the
ownership over the asset shall revert "ack to Blue after the lease e0piration.
>n ?anuary 2, 2%%), Blue informed the lessee that the title to the leased asset will "e
surrendered to the lessee upon the lease e0piration. #s a result of the agreement the
company changed the method of depreciation from straight line to dou"le declining
"alance method.
@hat is the correct depreciation e0pense on the "ooks of ,kies 1nc. for the year 2%%)(
a. none c. 222,%%%
". 282,2%% d. A%%,%%%
2%. & .o. has "een using the 313> method of inventory costing since it "egan operations in
2%%8. 1n 2%%) the company changed to the weighted average method. 5he following are
the !ecem"er 31 inventory "alances under each method<
313> @eighted #verage
2%%8 /2%,%%% 28%,%%%
2%%A )$2,%%% $$$,%%%
2%%) A$%,%%% )A2,%%%
@hat is the effect on retained earnings as a result of making the change on ?anuary 1,
2%%)(
a. 11%,%%% increase c. )2,%%% increase
". 1%/,%%% increase d. 1$,%%% increase
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21. B>: .>BP. ac4uired 1%% of the 2%%,%%% ordinary shares of +irl 1nc. at a total cost of P13
per share on March 31, 2%%A. >n ?une 3%, +irl declared and paid cash dividends totaling
to PA2,%%%. >n !ecem"er 31, +irl reported net income of P2/%,%%% for the year. #t
!ecem"er 31, market price of +irl 1nc. ordinary shares was P12 per share. 5he securities
were appropriately classified as securities availa"le for sale.
>n ?anuary 1, 2%%), +irl reac4uired and retired 1%%,%%% of its share outstanding held "y
other stockholders. +irl reported net income of P2%%,%%% and distri"uted dividends of
P2Ishare "y the end of 2%%).
@hat is the effect on retained earnings as a result of development on ?anuary 1, 2%%)(
a. 33,%%% increase c. 18,2%% increase
". 21,%%% increase d. 1%,2%% increase
INTERIM REPORTING (PAS 34)
22. >n March 12, 2%%), #tlas .orp. paid property ta0es amounting to P$%,%%% on its office
"uilding for the calendar year 2%%). >n #pril 3, 2%%), 5he company also made
unanticipated repairs on its plant e4uipment amounting to P12%,%%%. 5he repairs is
e0pected to "enefit the company for the remainder of the year. Moreover on May 2, the
company sold an investment incurring a loss on disposal amounting to P8%,%%%.
&ow much should of the e0penseIloss a"ove should "e included in the companys second
4uarter income statement(
a. 132,2%% c. $%,%%%
". 12%,%%% d. A2,2%%
23. ,an ?uan .orp.s net income is P1,$%%,%%% for the 4uarter ended ,eptem"er 3%, 2%%)
which included the following items<
P/%%,%%% allocated gain on disposal of e4uipment, reali'ed on #pril 3%, 2%%)
and was allocated e4ually to the 2
nd
, 3
rd
and /
th
4uarters.
P32%,%%% cumulative effect loss resulting from a change in inventory valuation
method which was recogni'ed in #ugust.
P2/,%%% of the P$8,%%% property ta0es paid on 3e"ruary 1, 2%%) for the 2%%)
calendar year. 5he amount was allocated amount to the third 4uarter.
&ow much is the correct net income for the 4uarter ended ,eptem"er 3%, 2%%)(
a. 1,)2%,%%% c. 2,22%,%%%
". 2,%8%,%%% d. 2,3%%,%%%
2/. #n inventory loss from a permanent market decline of P12%,%%% occurred in May 2%%).
5he company appropriately recorded this loss in May 2%%) after its March 31, 2%%)
4uarterly report was issued.
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@hat amount of inventory loss should "e reported in the 4uarterly income statement for
the three months ended ?une 3%, 2%%)(
a. none c. /%,%%%
". 3%,%%% d. 12%,%%%
22. Getran 1nc. operates in the travel industry and incurs cost seasonally. #dvertising costs of
P2,%%%,%%% were incurred on March 1, 2%%), and staff "onuses are paid at year-end
"ased on sales. ,taff "onuses are e0pected to "e around P2%,%%%,%%% for the yearC of
that sum, P3,%%%,%%% would related to the period ending March 31, 2%%).
&ow much total e0pense should "e included in the companys first 4uarter interim report(
a. A,%%%,%%% c. 2,%%%,%%%
". 2,2%%,%%% d. 3,2%%,%%%
STATEMENT OF FINANCIAL POSITION (PAS 1)
28. 5he accounts and "alances shown "elow were gathered from .lown .ompanys trial
"alance on !ecem"er 31, 2%%). #ll adHusting entries have "een made.
@ages Paya"le, P22%,%%%C .ash, P1A2,%%%C Bonds Paya"le, P8%%,%%%C !ividends Paya"le,
P1/%,%%%C Prepaid =0pense, P138,%%%C 1nventory, P)2%,%%%C Gong-term 3unds,
P222,%%%C 5rading securities, P123,%%%C #vaila"le for sale securities, P3%%,%%%C Premium
on Bonds Paya"le, P/),%%%C 1nvestment in #ssociate, P1,%2%,%%%C 5a0es Paya"le,
P22),%%%C #ccounts Paya"le, P2/),%%%C #ccounts Beceiva"le, P388,%%%, Property Plant J
=4uipment, P1,2%%,%%%C Patents K net, P12%,%%%C #ccumulated !epreciation K PP=,
P/%%,%%%C Gand held for future "usiness site, P$%%,%%%C and +oodwill P/2%,%%%.
Luestion 1< &ow much should "e the amount of current and non-current assets,
respectively, on .lowns !ecem"er 31, 2%%) "alance sheet(
a. 1,82%,%%% and 2,3A2,%%% c. 1,)%%,%%% and 2,222,%%%
". 1,82%,%%% and /,1/2,%%% d. 1,)%%,%%% and 3,A$2,%%%
Luestion 2< &ow much should "e the amount of current and non-current lia"ilities,
respectively, to "e reported in the !ecem"er 31, 2%%) "alance sheet of .lown
.ompany(
a. AA8,%%% and 222,%%% c. $18,%%% and 8/%,%%%
". )88,%%% and 8/),%%% d. $18,%%% and 8/),%%%
2A. =ver, 1nc. reported the following items on its !ecem"er 31, 2%%) trial "alance<
#ccounts paya"le, net of P121,%%% de"it "alance, P1,%)$,%%%C customers account with
credit "alance, P12%,%%%C advances to employees, P/2,%%%C unearned rent revenue,
P2)),%%%C estimated lia"ility under warranties, P22),%%%C "onds paya"le, P2,%%%,%%%C
discount on "onds paya"le, P22%,%%% and deferred gain, P1%%,%%%.
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5he deferred gain was a result of a sale and lease"ack accounted for as a finance lease
concept. @hat total amount of lia"ilities should "e reported in the companys "alance
sheet(
a. 8,828,%%% c. A,128,%%%
". 8,A28,%%% d. A,228,%%%
2). Gever .ompany prepared a draft of its 2%%) "alance sheet. 5he draft statement reported
current lia"ilities totaling P2,%%%,%%%. &owever, none of the following items were included
in this preliminary total at !ecem"er 31, 2%%)<
#ccounts paya"le, P3%%,%%%C "onds paya"le due in 2%%$, P2%%,%%%C premium on "onds
paya"le, P8%,%%%C dividends paya"le due 2%%$, P18%,%%%C notes paya"le due 2%1%,
P/%%,%%%C "ond issue costs, P2%,%%% and deferred ta0 lia"ility, P8%,%%%.
5he deferred ta0 lia"ility is e0cess ta0 depreciation over financial that is e0pected to
reverse in the ne0t three years. #t which amount should Gevers current lia"ilities
correctly reported in the !ecem"er 31, 2%%) "alance sheet(
a. 2,$%%,%%% c. 3,%%%,%%%
". 2,$3%,%%% d. 3,%2%,%%%
2$. >n !ecem"er 31, 2%%), ,tar .ompany showed the following information<
>rdinary share, no par, 2%,%%% shares issued at a price of P12 per share.
Preference share, par P2, 1%,%%% shares issued and outstanding, issued at P12 per share
&olding gain on availa"le for sale securities, P1)%,%%%.
Betained earnings, Fnappropriated, P2%%,%%%
,u"scri"ed preference shares 6/%%% shares not yet issued7, su"scription price P2% per
share.
,u"scription receiva"le on preference shares, P2%,%%% to "e collected on ?an. 2%%$.
Beserve for treasury stock, P1%%,%%%
5reasury stock, ordinary share, 1%,%%% shares, P1%%,%%%.
Bevaluation reserve, P8%%,%%%
5ranslation reserve K de"it, P3%%,%%%
,tar .ompany has a total shareholders e4uity of
a. 1,/8%,%%% c. 1,28%,%%%
". 1,21%,%%% d. 2,11%,%%%
3%. 5he !ecem"er 31, 2%%A "alance sheet of Luiver .ompany reported total assets of
P2,22%,%%% and total lia"ilities of P3,/%%,%%%. 5he following information relates to 2%%)<
Luiver .ompany issued an additional 2,%%% shares of P1%% par ordinary stock at P122
per share on ?uly 1, 2%%).
Beac4uired 2,%%% treasury shares at P12% per share and later reissued 1,%%% shares for
P13% per share. Bemaining treasury shares were retired at the end of the accounting
year.
5he company reali'ed a net income ofP22%,%%% in 2%%).
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.ash dividends declared and paid in 2%%) was P/%%,%%%% and distri"uted an inventory
as dividend having a carrying value of P8%%,%%% "ut with a fair value less cost to sell of
P2%%,%%%. 1nformation revealed that the loss was not recogni'ed at year end.
,tock dividend declared in 2%%) has a total par of P)%%,%%% "ut with a market value of
P1,%%%,%%% on declaration date while its year-end value was P1,2%%,%%%. 5he stock
dividend represents 1%% of the shares outstanding.
5he shareholders e4uity section of !ecem"er 31, 2%%), "alance sheet would report a
"alance of
a. 1,1$2,%%% c. 2,%12,%%%
". 1,$12,%%% d. 2,212,%%%
31. 5he following accounts were taken from the unadHusted trial "alance of 3orgive Me
.ompany on !ecem"er 31, 2%%)<
#ccounts paya"le, P)AA,%%%C #ccounts receiva"le, P)%),%%%C #ccrued e0penses,
P3/%,%%%C #ccrued interest paya"le, P3%,%%%C #llowance for dou"tful de"ts,
P12,%%%C .ash and cash e4uivalents, P2%$,%%%C !ividends paya"le, P22,%%%C
1ncome ta0 paya"le, P22,%%%C 5rading securities, at cost, P1/3,%%%C *otes
receiva"le, P1%%,%%%C Merchandise inventory, PA$8,%%%C Bonds paya"le, 8%,
P2%,%%% due ,eptem"er 3% annually, P2%%,%%%C Prepaid e0penses, P1%,%%%C
Betained earnings, P/%,%%%C .ontingent lia"ilities, P22A,%%%.
#dditional information<
5he accounts receiva"le "alance is net of customers deposit of P/%,%%%. 5he market
value of the trading securities is P12%,%%%. 5he "alance of notes receiva"le includes
P)%,%%% of note discounted for which the company is contingently lia"le. 1n 2%%2, the
company "egan using the average cost method of valuing the inventory. Prior to 2%%),
the 313> method was used. 5he value of the inventory if the 313> method was used would
"e P)12,%%%.
&ow much should 3orgive Me .ompany report as current assets on !ecem"er 31, 2%%)(
a. 1,$3%,%%% c. 1,$A1,%%%
". 1,$31,%%% d. 2,%1),%%%
32. 5he following accounts and their "alances appear in an unadHusted trial "alance of
+ood"ye .ompany as of !ecem"er 31, 2%%)<
.ash, P/%%,%%%C #ccounts receiva"le, P2,%%%,%%%C 1nventory, P2%%,%%%C
#ccounts paya"le, P3%%,%%%C *otes paya"le, P2%%,%%%.
5he cash account includes collection in ?anuary 2%%$ of P2%%,%%% account
from customer who was given a cash discount of P1%,%%%.
1t also includes a ?anuary 2%%$ cash sale of P2%,%%%. +ross profit on the
sale was /%%.
3rom the amount collected, the company fully paid a "ank loan of P1%%,%%%
with interest of P2%,%%% accruing ?anuary 2%%$.
@hat is the correct amount of working capital on !ecem"er 31, 2%%)(
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a. 2,3)%,%%% c. 2,/%%,%%%
". 2,3$%,%%% d. 2,/1%,%%%
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PRACTICAL ACCOUNTING 1