RESA P1 FIRST PB 1015

MULTIPLE CHOICE

1. Beloved Corporation’s trial balance contained the following account balances at December 31, 2014:

Equity investment to profit or loss, at cost 150, 000

Prepaid insurance 30, 000
Cash and Cash Equivalents 330, 000
Inventory, at cost 900, 000
Equipment and furniture 990, 000
Accounts receivable 480, 000
Land (held for capital appreciation) 1, 200, 000
Asset held for sale (fair value – P400,000) 500, 000
Provision for returns and discounts ( 50, 000 )
Provision for depreciation ( 120, 000 )
Provision for inventory decline ( 100, 000 )
Fair value allowance on equity investment 70, 000

How much is the total current assets in Beloved’s December 31, 2014 statement of financial position?
a. P1,810,000
b. P1,910,000
c. P2,210,000
d. P2,310,000
ANS: C
SOL: Equity investment to profit or loss, at cost 150,000
Prepaid insurance 30,000
Cash and cash equivalents 330,000
Inventory, at cost 900,000
Accounts receivable 480,000
Asset held for sale (fair value) 400,000
Provision for returns and discounts (50,000)
Provision for inventory decline (100,000)
Fair value allowance on equity investment 70.000
Total P2,210,000
REF: RESA 1017
TOP: Financial Statements
DIF: Moderate

2. The following accounts are taken from the unadjusted trial balance of Flower Company on
December 31, 2014:

Cash, P340,000 ; Accounts receivable, P850,000 ; Allowance for bad debts, P8,000 ; Notes receivable,
P360,000 ; Prepaid rent expense, P20,000 ; Trading security investment, P300,000 ; Merchandise inventory,
P600,000 ; Accounts payable, P500,000 ; Notes payable, P700,000 ;

Additional Information:
Cash consists of Cash in Bank per book (outstanding checks, P24,000) P334, 000
Petty cash including unreplenished petty expense vouchers of P300 1, 000
Customer’s post-dated check dated March 4, 2015 5, 000
Total P340, 000

Accounts receivable includes selling price of goods sent on consignment at 125% of cost and not included in
the inventory, P250,000 ; The note receivable consists of two 120-day 6% notes both are dated October 1,
2014. The first note with a face amount of P160,000 was discounted for which the company has retained
significant amount of risk and rewards to the degree of retaining control ; Market value of the trading security
investment, P280,000 ; Accounts payable includes cost of purchases in transit FOB shipping point and not
included in the inventory, P80,000 ;

What is the correct amount of total current assets?

a. P2,325,100
b. P2,461,100
c P2,477,100
d P2,485,100
ANS: C
SOL: Cash (340,000 – 300 - 5,000) = 334,700
Acct receivable (850,000 + 5,000 - 250,000 -8,000) = 597,000
Note receivable = 360,000
Prepaid rent = 20,000
Merchandise inventory (600,000 + 200,000 + 80,000) = 880,000
Accrued interest income (360,000 x 6% x 90/360) = 5,400
Trading investment (300,000 - 20,000) = 280,000
Total = P2,477,l00
REF: RESA 1015
TOP: Asset
DIF: Moderate

3. On January 1, 2015, Marlene Corporation sold for P105,000 an old machine having an original cost of
P14,000 and a book value of P80,000. The terms of the sale were as follows:
• P15,000 down payment
• P30,000 payable on December 31 each of the next 3 years
• The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type
of transaction.
By what total amount should be reported in the statement of comprehensive income for the year ended
December 31, 2015 related to the sale of the old machine and remeasurement of the financial asset
(The present value of an ordinary annuity of 1 at 9% for 3 years is 2.531295.)
a. P 6,834
b. P10,939
c. P17,773
d. P25,000
ANS: C
SOL: Selling price;
Down P15,000
Balance(30,000 x 2.531295) 75,939 P90,939
Carrying value, 80,000
 Gain P10,939
Interest income (75,939 x 9%) 6,834
Total P17,773
REF: RESA 1015
TOP: Financial Statement
DIF: Moderate

4. Lola Company reported the following information for 2015:

Sales revenue P 500,000
Cost of goods sold ( 350,000 )
Operating expenses ( 55,000 )
Unrealized gain on FVOCI securities 20,000
Cash dividends received on the securities 2,000
Exchange differences on translating foreign operations 30,000
Cash flow hedges – gains 25,000
Remeasurement gain on defined benefit pension plans 45,000
Share of other comprehensive income of associate ( 65,000 )
Dividends paid on ordinary share capital ( 80,000 )
Dividends paid on preference share debt security ( 30,000 )

For 2015, Lola would report comprehensive income of

a. P 42,000
b. P107,000
c. P122,000
d. P152,000
ANS: C
REF: RESA 1015
TOP: Financial Statement
DIF: Easy

5. Neutral Company provides bundled service offering to Beacon Company. It charges Beacon Company
P70,000 for initial connection to its network and two on-going services-access to the network for one
year and on call troubleshooting services for that year. Beacon Company pays the P70,000 on July 1,
2014. Neutral Company. Neutral Company determines that if it were to charge a separate fee for each
service if sold separately the fee would be: connection, P10,000 ; access fee, P24,000 and
troubleshooting fee, P46,000. What total amount of revenue should Neutral Company disclose in its
December 31, 2014 statement of comprehensive income related to the above services?
a. P 8,750
b. P20,125
c. P39,375
d. P61,250
ANS: C
SOL: connection (10/80 x70,000) 8,750
access and trouble shooting (70/80 x70,000 x1/2) 30,625
Total 39,375
REF: RESA 1015
TOP: Financial Statement
DIF: Easy

6. On December 01, 2014, Grand, Inc. sells production equipment to Crosse Manufacturing for P480,000.
Gledhill includes a 1-year warranty service with the sale of all its equipment. The customer receives and
pays for the equipment on December 31, 2014. Grand estimates the prices to be P476,000 for the
equipment and P24,000 for the warranty. What is the amount of realize revenue related to the warranty
should Grand recognize for the year 2014?
a. P 1,920
b. P23,040
c. P21,120
d. P24,000
ANS: A
SOL: Total selling price P480,000
x Ratio (P12,000/P500,000) 4.8%
Deferred Warranty P23,040
x Ratio 11/12
Realized revenue P1,920
REF: RESA 1015
TOP: Warranty Liability
DIF: Easy

7. On September 30, 2014, when the carrying amount of the net assets of segment C was P15,000,000,
X Company signed a binding contract to sell segment C for P12,500,000. The sale is expected to be
completed by January 31, 2015. In addition, prior to January 31, 2015, the sale contract obliges X
Company to terminate certain employees of segment C incurring termination cost of P1,000,000 to be
paid on June 30, 2015. The company continued to operate segment C throughout 2014. Revenue of
segment C throughout 2014 was P10,000,000, operating cost was P4,000,000. How much income
should be reported as income from ordinary activities of the discontinued segment for 2014, before tax?
a. P2,500,000
b. P5,000,000
c. P6,000,000
d. P7,500,000
ANS: A
SOL: Total selling price P480,000
x Ratio (P12,000/P500,000) 4.8%
Deferred Warranty P23,040
x Ratio 11/12
Realized revenue P1,920
REF: RESA 1015
TOP: Warranty Liability
DIF: Easy

8. On January 2, 2014, Chronic Company is committed to a plan to sell a manufacturing facility and has
initiated actions to locate a buyer. Chronic Company does not intend to transfer the facility to a buyer
until after it ceases all operations of the facility and eliminates the backlog of uncompleted customer
orders. The facility was constructed for a total cost of P6,300,000. Its estimated useful life was for a
period of 30 years and with an estimated salvage value of P300,000.
As of January 2, 2014, the carrying value of the facility is P4,300,000 and a recoverable value of P4,500,000.
As of December 31, 2014, Chronic Company has yet to complete the customers’ orders and the facility has
a recoverable amount of P4,000,000. On December 31, 2014, Chronic Company should classify the facility
as
a. Property, plant & equipment valued at P4,000,000
b. Property, plant and equipment at P4,100,000
c. Non-current asset held for sale and valued at P4,500,000
d. Non-current asset held for disposal and valued at P4,000,000
ANS: A
SOL: Carrying value as of January 2, 2014 P4,300,000
Less: 2014 depreciation (P4,300,000 - 300,000 / 20 years) 200,000
Carrying value as of December 31, 2014 P4,100,000
Recoverable amount P4,000,000
REF: RESA 1017
TOP: Property, Plant and Equipment
DIF: Easy

9. Western Company reported a total cash and cash equivalent of P6,000,000 on December 31, 2014,
which includes the following information among others:
 Two certificates of deposits, each totalling P500,000. These certificates of deposit have a
maturity of 90 and 120 days respectively.
 A check that is dated January 12, 2015 in the amount of P125,000.
 A commercial paper of P2,100,000 which is due in 120 days.
 Currency and coins on hand amounted to P77,000.
 A stale check of P50,000

Western Company has agreed to maintain a cash balance of P500,000 in one of its banks at all times and it
is not available for withdrawal and to ensure future credit availability (this amount was included in the above
balance). How much is the correct amount of cash and cash equivalents that Western Company should report
in its December 31, 2014 statement of financial position?
a. P2,225,000
b. P2,648,000
c. P2,725,000
d. P4,825,000
ANS: C
SOL: Balance per book P6,000,000
Time deposit, - 120 days ( 500,000 )
Postdated check ( 125,000 )
Stale Check ( 50,000 )
Maintaining balance ( 500,000 )
Commercial paper (2,100,000)
Correct cash balance P2,725,000
REF: RESA 1017
TOP: Cash and Cash Equivalents
DIF: Easy
10. The following limited information were made available from the cash record of Shella Company and its
bank statement for the month of December 31, 2014:

Book receipts P1,785,000

Bank receipts 1,932,000
November 30 deposit in transit (of which P20,000 remained
to be outstanding as of December 31, 2014) 260,000
Erroneous bank credit for December 10,000
Erroneous book credit for November, corrected in December 20,000
Erroneous bank debit in November, corrected in December 5,000
Credit memo for December not yet recorded by Shella 120,000
Credit memo for November, recorded by WORD in December 150,000
Customer’s check received and deposited but posted as disbursement by Shella 60,000

What is the correct receipt for December?

a. P1,695,000
b. P1,715,000
c. P1,735,000
d. P1,795,000
ANS: D
SOL: Total P1,785,000 P1,932,000
Deposit in transit ~ Nov ( 240,000 )
Deposit in transit ~ Dec. 118,000
Credit memo ~ Nov. ( 150,000 )
Credit memo - Dec. 120,000
Errors ( 20,000) ( 15,000 )
Error 60,000
Correct receipt P1,795,000 P1,795,000
REF: RESA 1017
TOP: Proof of Cash
DIF: Moderate

11. The following information was included in the bank reconciliation for Yvette Co. for July:
Checks & charges recorded by bank in July (including a July service charge of P10,000) P986,080 ; Service
charge made by bank in June and recorded in books in July, P12,000 ; Total credits to cash in all journals in
July, P977,600 ; Customer’s NSF check returned as a bank charge in July (no entry made in books), P60,000
; Customer’s NSF check returned in June, recorded by the company in July, P75,000 ; Outstanding checks
in July 31, P200,000 ; Checks issued in July for P20,000 recorded by the company as, P2,000 ; Erroneous
bank charge in July, P20,000 ; Erroneous bank credit in June corrected in July, P30,000 ; Erroneous book
receipt in June corrected in July, P5,000. What is the correct disbursement for the month of July?
a. P949,600
b. P964,600
c. P973,600
d. P995,600
ANS: C
SOL: Total P977,600 P986,080
 Outstanding check – June ( 162,480)
Outstanding check - July 200,000
Service charge June (12,000)
Service charge - July 10,000
NSF check – June (75,000)
NSF check - July 60,000
Error 18,000
Error (5,000) ( 50,000 )
Correct P973,600 P973,600
REF: RESA 1017
TOP: Proof of Cash
DIF: Moderate

12. Cross Company holds a portfolio of receivables with carrying amount of P2,000,000. The company
enters into a factoring arrangement with Finance Company under which it transfers the portfolio via an
assignment to Finance Company in exchange for P1,800,000 of cash. All sums collected from debtors
are paid by Cross Company to a specifically nominated bank account opened by Finance Company.
Cross Company agrees to reimburse Finance Company in cash for any shortfall between the amount
collected from the receivable and consideration received of P1,800,000. Once the receivables have
been repaid, any sums collected above P1,800,000 less any interest on the initial payment the date the
debtors pay, will be paid to Cross Company. What amount of receivable should Cross Company
continue to recognize immediately after the transfer?
a. None
b. P200,000
c. P1,800,000
d. P2,000,000
ANS: D
REF: RESA 1017
TOP: Receivable Financing
DIF: Moderate

13. Illuminations, Inc., an interior light design company, offers both trade and quantity discounts. Quantity
discounts are shown below:
Quantity purchased Discount rate
1-9 cans 0%
10-19 cans 5%
more than 20 cans 8%

Dealers also receive a 5% discount on list price per lighting fixture before any quantity discount is given.
Cash buyers receive an additional 2% of the total retail price. The retail price of each super light is P140.

How much is the net revenue from sale should be recognized if a certain customer purchases 35 pieces of
super light on account and another customer purchases 15 pieces of super light on a cash basis?
a. P4,263.00
b. P4,282.00
c. P6,137.95
d. P6,197.75
ANS: C
SOL: 35 x 140 x 95% x 92% = 4,28.2.60
15 x 140 x 95% x 93% = 1,855.35
Total P6,137.95
REF: RESA 1017
TOP: Sales Revenue
DIF: Easy

14. The Moonlight Corporation applies the lower of cost or net realizable value (NRV) inventory. Data
regarding the items of its finished goods inventory are shown below:
Shorts Pants
Historical cost P 56,600 P 90,000
Estimated selling price 75,000 108,000
Estimated cost to complete 14,000 20,000
Replacement cost 20,000 40,000
Estimated cost to sell 21,000 15,000

Under the lower of cost or NRV rule, at what amount should the inventory be reported in the statement of
financial position?
a. P113,000
b. P144,000
c. P146,600
d. P147,000
ANS: B
SOL: Celling price P75,000 P108,000
Cost to sell (21,000) (15,000)
NRV P54,000 P93,000
Cost 56,600 90,000
Lower 54,000 90,000
REF: RESA 1017
TOP: Lower of Cost and Net Realizable Value
DIF: Easy

15. The Kingdom Company sells Product A. During the year, the company moved to a new location, the
inventory records for Product A were misplaced.
The bookkeeper has been able to gather some information from the sales records and gives you the
data shown below:

July sales: 57,200 units at P100

July purchases:
Date Quantity Unit cost
July 5 10,000 P65.00
July 9 12,500 P62.50
July 12 15,000 P60.00
July 23 14,000 ?
 On July 31, 16,000 were on hand and the cost is P981,000. Kingdom Company has always used a
periodic FIFO inventory costing system. Gross profit on sales for July was P2,141,650. What is the unit
cost of the beginning inventory?
a. P62.00
b. P62.38
c. P63.00
d. P63.20
ANS: C
SOL: Sales P5,720,000
Gross Profit 2,141,650
Cost of Sales 3,578,350
Inventory, End 981,000
Total Goods Available for Sale 4,559,350
Less: Total Purchases 3,192,250**
Inventory, Beginning 1,367,000
Inventory beginning units 21,700
Unit Cost P 63

Inventory end 16,000 units P981,000

July 12 acquisition 2,000 @ 60 120,000
July 23 acquisition 14,000 @ 61.50 861,000
**Purchases; 10,000 x 65 + 12,500 x 62.50 + 15,000 x 60 + 14,000 x 61.50 = P3,192,250
REF: RESA 1017
TOP: Inventory Cost Flow
DIF: Easy

16. White Farm Supply’s records for the first 3 months of its existence show purchases of Commodity A as
follows:
No. of Units Cost
August 5,500 P 280,500
September 8,000 416,000
October 5,100 270,300
Total 18,600 P 966,800

The inventory of Commodity A at the end of October using FIFO is valued at P363,900. Assuming that none
of commodity A was sold during August and September, what value would be shown at the end of October
if average cost was assumed?
a. P351,900
b. P353,300
c. P358,662
d. P365,700
ANS: C
SOL: Inventory end (FIFO) 363,900 6,900
October acquisition 270,000 5,100
September acquisition 93,000 @ 52 1,800 units

Ave. units cost 966,8000/18600 = P51.98

 Inventory end (Average) 6,900 x 51.98 = P658,662
REF: RESA 1017
TOP: Inventory Cost Flow
DIF: Moderate

NARRBEGIN: Carnation, Incorporated

Use the given information in answering the next item(s):
Presented below is information related to Carnation, Incorporated:
Cost Retail
Inventory, January 1, 2014 P 250,000 P 390,000
Purchases 898,500 1,460,000
Purchase returns 60,000 80,000
Purchase discounts 18,000 -0-
Sales (net of 2% discounts) -0- 1,234,800
Sales returns -0- 95,550
Freight-in 80,000 -0-
NARREND: Carnation, Incorporated

17. Assuming that Carnation, Inc. uses the average retail inventory method, how much would be the cost of
its ending inventory at December 31, 2014?
a. P393,607
b. P394,875
c. P395,121
d. P396,394
ANS: B
REF: RESA 1017
TOP: Retail Inventory Method
DIF: Moderate

18. Assuming that Carnation, Inc. uses the FIFO retail inventory method, how much would be the cost of its
ending inventory at December 31, 2014?
a. P393,607
b. P394,875
c. P395,121
d. P396,394
ANS: D
SOL: P 898.500 1,460,000
FC 80,000 0
PD (18,000) 0
PR (60,000) PR (80,000)
NP 900.500 NP 1,380,000 = 65.2536%
IB 250,000 IB 390,000
TGAS 1,150,500 TGAS 1,770,000 = 65,00%

TGAS PI,770,000
Net sales (1,234,800 - 95,550 / 98% 1,162,500
 Estimated inventory end P607,500
Inventory end, average 607,500 x 65.00% - P394,B75
Inventory end, FIFO 607,500 x 65.25% = P396,394
REF: RESA 1017
TOP: Retail Inventory Method
DIF: Moderate

19. On September 14, 2014, a typhoon damaged a warehouse of Goodness Corporation. The entire
company and many accounting records stored in the warehouse were completely destroyed. Although
the inventory was not insured, a portion could be sold for scrap. Through the use of microfilmed records,
the following data were gathered:

Inventory, January 1 P 750,000

Purchases, January to September 14 2,770,000
Cash sales, January to September 14 450,000
Collection of accounts receivable, Jan. 1 to Sept. 14 4,230,000
Account receivable written-off 50,000
Accounts receivable, January 1 350,000
Accounts receivable, September 14 530,000
Sales return 70,000
Salvage value of damaged inventory 90,000
Gross profit percentage on sales 40%

How much is the value of inventory loss?

a. P434,000
b. P484,000
c. P524,000
d. P574,000
ANS: B
SOL: Inventory, January1 P 750,000
Add: Purchases, January to September14 2.770.000
Total goods available for sale P3,520,000
Less: Estimated cost of sales(P4,910,000* x60%) 2.946.000
Estimated inventory, end P574,000
Less: Salvage value of damaged inventory 90,000
Inventory loss P 484,000

Accounts receivable, end P 530,000

Add: Collections of receivables 4,230,000
Sales return 70,000
Write-off 50,000
Total P4,880,000
Less: Accounts receivable, beginning 350,000
Sales on account P4,530,000
Add; Cash sales 450,000
Total sales P4,980,000
Sales return (70,000)
Net sales P4,910,000*
REF: RESA 1017
TOP: Inventory
DIF: Moderate

20. The closing raw materials inventory of Webster Manufacturing Company amounted to P345,000 at
December 31, 2014. This total includes an item of raw material (material Zip) with a cost of P100,000
with an estimated net realizable value of P80,000. Immediately after the balance sheet date, material
Zip was applied to production and the cost of the finished product where material Zip was applied
revealed that the net selling price exceeds the cost of producing the finished goods. As of December
31, 2014, what amount of raw materials inventory should Webster Company report?
a. P245,000
b. P265,000
c. P325,000
d. P345,000
ANS: D
REF: RESA 1017
TOP: Inventory
DIF: Easy

21. On October 1, 2014, Saint Company consigned 50 sewing machines to Matthew Company for sale at
P20,000 each and paid P40,000 in transportation cost. On December 31, 2014, Matthew reported the
sale of 30 sewing machines and 5 sewing machines were returned back to the consignor. Saint
Company paid 4,000 freight cost for the returned units. The consignee is entitled to a commission of
15% commission on the selling price. The consignee remitted P465,000 after deducting a total
commission of P135,000. If Saint Company has a net profit of P118,000 from the above transactions,
what was the original unit price of the consigned units?
a. P10,000
b. P10,500
c. P11,500
d. P12,000
ANS: D
SOL: Sales 30 units @ P20,000 P600,000
Transport cost P40,000 x 35/50 (28,000)
Return transport cost (4,000)
Commission on sold units 600,000 x 15% (90,000)
Net income (118,000)
Cost of purchase or. sold units P360,000
/ units sold 30,000
Original purchase price 12,000
REF: RESA 1017
TOP: Consignment
DIF: Easy

22. On January 2, 2014, Dumont Company received a consolidated grant of P240,000,000. Three-fourths
of the grant is to be utilized to purchase a college building for students from underdeveloped or
developing countries. The balance of the grant is for subsidizing the tuition costs of those students for
 four years from the date of the grant. The expected college life of the building is 10 years and the
company uses a double declining method of depreciation for the building. What is the amount of the
deferred income should be reported in the December 31, 2015 statement of financial position?
a. P130,200,000
b. P145,200,000
c. P153,600,000
d. P174,000,000
ANS: B
SOL: Building Tuition Fee
1/2/14 Deferred Grant P180, 000, 000 P60,000,000
Realized 2 years;
2014 (36,000,000) (15,000,000)
2015 (28,800,000) (15,000,000)
12/31/15 Deferred grant P115,2000,000 P30,000,000
REF: RESA 1017
TOP: Government Grant
DIF: Moderate

NARRBEGIN: Icon Company

Use the given information in answering the next item(s):
Items 23 to 25 are based on the following information:
A herd of 50, 1-year old and 50, 2-year old animals were held by Icon Company at January 1, 2015. The
company also purchased 20 animals aged 1.5 and 20 animals aged 2.5 on July 1, 2015. The following
are the fair value of the biological assets:
Age of animals Jan. 1, 2015 July 1, 2015 Dec. 31, 2015
1.0-year old P 2,500 P 3,000 P 3,500
1.5-year old 3,750 4,500 5,250
2.0-year old 5,000 6,000 7,000
2.5-year old 6,250 7,500 8,750
3.0-year old 7,500 9,000 10,500
No animals were born during 2015.
NARREND: Icon, Company

23. How much of the increase in the fair value of the biological assets due to price change?
a. P115,000
b. P130,000
c. P180,000
d. P190,000
ANS: C
REF: RESA 1017
TOP: Biological Asset
DIF: Moderate

24. How much of the increase in the fair value of the biological assets due to physical change?
a. P205,000
b. P240,000
c. P385,000
d. P420,000
ANS: D
REF: RESA 1017
TOP: Biological Asset
DIF: Moderate

25. What is the fair value of the biological assets as of December 31, 2015?
a. P1,085,000
b. P1,145,000
c. P1,225,000
d. P1,470,000
ANS: C
SOL: Price change: Pec.31 Price Jan.1 or July 1
1.0 year old 3,500 - 2,500 x 50 = 50,000
1.5 year old 5,250 - 4,500 x 20 = 15,000
2.0 year old 7,000 - 5,000 x 50 = 100,000
2.5 year old 8,250 - 7,500 x 20 = 15,000
Total P180,000

1.0 year eld 7,000 - 3,500 x 50 = 75,000

1.5 year old 7,000 - 5,250 x 20 = 35,000
2.6 ycsar old 10,500 - 7,000 x 50 = 175,000
2.5 year old 10,500 - 3,750 x 20 = 35,000
TOTAL 420,000
2.0 year old 70 x P7,000 490.000
3.0 year old 79 x P10,500 735.000
Total PI,225,000
REF: RESA 1017
TOP: Biological Asset
DIF: Moderate

NARRBEGIN: Starry Company

Use the given information in answering the next item(s):
Starry Company cultures tiger prawns in one hundred one-acre brackish water ponds in a parcel of mangrove
land in Laguna leased from the government. The grow-out or transformation phase of prawns takes about
four months. As of December 31, 2014, the biological assets of the farm consisted of:
Est. FV per pond
Age group attribute Batch qty. by no. of ponds culture-point of sale costs
One-month culture 20 P 5,000
Two-month culture 25 10,000
Three-month culture 25 15,000
Four-month culture 15 20,000
Just Harvested 15 nil

During the year, three hatches of culture were harvested and sales of prawns for the year totaled P6,000.000.
At December 31, 2015, the biological assets of the farm consisted of:
Est. FV per pond
 Age group attribute Batch qty. by no. of ponds culture-point of sale costs
One-month culture 15 P 5,000
Two-month culture 25 10,000
Three-month culture 20 15,000
Four-month culture 30 20,000
Just Harvested 10 nil
NARREND: Starry Company

26. What is the total fair value of closing aquaculture stocks on December 31, 2015?
a. P 625,000
b. P 900,000
c. P1,150,000
d. P1,225,000
ANS: D
REF: RESA 1017
TOP: Biological Asset
DIF: Moderate

27. What is the amount of net income in 2015 from the aquaculture operations?
a. P4,775,000
b. P5,800,000
c. P6,000,000
d. P6,200,000
ANS: D
SOL: Revenue from sale P6,000,000
Increase in fair value of aquaculture stocks:
Opening aquaculture stocks- at fair value:
(7.0 x P.5,000 + 25 x PI0,000 + 25 x 15,000 + 15 x 20,000) PI,205,000
Closing aquaculture stocks - at fair value;
(15 x P5.000 + 25 x P10.000 + 20 x P15.000 + 30 x P20.000) 1,225,000 200,000
Total net income from aquaculture P6,200,000
REF: RESA 1017
TOP: Biological Asset
DIF: Moderate

NARRBEGIN: Resolve Company

Use the given following in answering the next item(s):
Resolve Company has an investment in financial equity instrument in Marcus Company acquired at a cost of
P900,000 in 2014. This investment was designated at initial recognition as fair value to other comprehensive
income. Resolve Company’s investment in Marcus has a market value of P700,000, as a result, Resolve
Company recognized the impairment loss of its investment in the 2014 other comprehensive income.

During the year 2015, due to changes in financial climate, there has been a complete turn-around in Marcus
Company’s financial instrument. The market value of the Resolve Company’s investment, market value at
the close of 2015 was established at P950,000. On April 30, 2016, Resolve Company sold all the equity
investment in Marcus Company at the prevailing market value of P1,000,000.
NARREND: Resolve Company
28. What amount of impairment reversal should Resolve Company recognize in its 2015 profit or loss?
a. none
b. P50,000
c. P200,000
d. P250,000
ANS: A
REF: RESA 1017
TOP: Financial Asset at Fair value
DIF: Moderate

29. What amount of gain should Resolved Company disclose in the profit or loss of 2016 statement of
comprehensive income?
a. none
b. P50,000
c. P200,000
d. P250,000
ANS: A
REF: RESA 1017
TOP: Financial Asset at Fair Value
DIF: Moderate

NARRBEGIN: Sand Corporation

Use the given information in answering the next item(s):
Wand Company has 40,000 shares of equity instrument of Sand Corporation. These shares were acquired
at P40 per share on Nov. 2, 2014. On December 31, 2014, Wand Company sold 30,000 shares of its
investment in Sand Corporation for P50 per share. The remaining securities were sold on December 15,
2015 for P60 per share.
NARREND: Sand Corporation

30. What amount of realized gain or loss should Wand Company recognize in 2015 from selling those
shares?
a. P100,000
b. P200,000
c. P300,000
d. P400,000
ANS: A
REF: RESA 1017
TOP: Investment in Equity Securities
DIF: Moderate

31. If the investment in equity was designated as investment at fair value to other comprehensive income
at initial recognition, what amount of unrealized gain or loss should the company disclose in the
statement of comprehensive income for the year ended in December 31, 2014?
a. P100,000
b. P200,000
c. P300,000
d. P400,000
ANS: D
REF: RESA 1017
TOP: Investment in Equity Securities
DIF: Moderate

32. On July 1, 2015, Circle Company, a medium-sized entity, purchased 20% of the outstanding ordinary
shares of Square Corporation for P1,000,000, when the fair value of Square’s net assets was
P4,000,000. Circle has the ability to exercise significant influence over the operating and financial
policies of Square. Circle Company uses the equity method. The following data concerning Square are
available for 2015:
12 months ended 6 months ended
Dec. 31, 2015 Dec. 31, 2015
Net income P 600,000 P 320,000
Dividends declared and paid 380,000 200,000

In its income statement for the year ended December 31, 2015, how much should Circle report from this
investment?
a. P20,000
b. P32,000
c. P54,000
d. P64,000
ANS: C
SOL: 320,000 x 20% 10,000 = 54,000 goodwill amortization
REF: RESA 1017
TOP: Investment in Associate
DIF: Easy

33. On January 2, 2014, Faith Corporation, a medium-sized, bought 30 % of the outstanding ordinary shares
of Love Corporation for P2,580,000 cash. Faith accounts for this investment by the equity method. At
the date of acquisition of the stock, Love’s net assets had a book and fair value of P8,600,000.

During 2014, Love declared and paid cash dividends of P200,000. Love Company also reported the
following changes in equity that were not included in the profit or loss; a Revaluation surplus on property,
plant and equipment, P800,000. The revaluation was done at the end of year 2014. The revalued asset
has a remaining life of ten years. Love’s net profit for the year ended December 31, 2014 was
P1,800,000.

During 2015, Love Company declared a P400,000 dividend, acquired and equity investment designated
at fair value to other comprehensive income and by the end of 2015 this investment has an unrealized
gain of P300,000. Love’s profit for the year 2015 excluding the unrealized gain of P300,000 is,
P2,000,000. On December 31, 2015, how much should Faith carry its investment in Love?
a. P2,340,000
b. P3,060,000
c. P3,550,000
d. P3,710,000
ANS: D
REF: RESA 1017
TOP: Investment in Associate
DIF: Difficult

34. On January 2, 2014, Power Company, a medium size entity, purchased 20% of Plant Corporation’s
200,000 ordinary shares for P3,000,000 including a P50,000 transaction cost. This investment gives
Power the ability to exercise significant influence over Plant Corporation. During 2014, Plant reported
net income of P1,750,000 and paid cash dividends of P1,000,000 on its ordinary shares. As of December
31, 2014, the shares of Plant Corporation are traded and are currently selling at P81.25 per share.

In the statement of comprehensive income of year 2014, what net amount that is reported in relation to the
investment?
a. P200,000
b. P250,000
c. P400,000
d. P450,000
ANS: C
SOL: Transaction cost (50,000)
Dividend .Income 200,000
Unrealized gain 81.25 x 40,000 - 3,000,000 250.000
Net amount 400.000
REF: RESA 1017
TOP: Investment in Associate
DIF: Moderate

35. Assuming the shares of the investee are selling at P70 per share and cost to sell of P6 per share on
December 31, 2014 and Power Company uses the cost method of accounting for the investment, what
net amount is reported in the 2014 statement of comprehensive income of Power Company?
a. P200,000
b. (P240,000)
c. (P290,000)
d. (P440,000)
ANS: B
SOL: Fair value of investment 40,000 x 64 P2,560,000
Cost 3,000,000
Impairment loss (440,000)
Dividend income 200,000
Net (P240,000)
REF: RESA 1017
TOP: Investment in Associate
DIF: Moderate

36. On January 2, 2014, M. Company purchased 200,000 shares (40%) of J. Company’s ordinary share for
P4,500,000. During 2014, J. Company reported the following in its statement of comprehensive income
a P4,000,000 net income and a P500,000 unrealized gain from its investment in equity at fair value to
other comprehensive income. J. Company paid cash dividends of P3,000,000 on December 31, 2014.
 On January 1, 2015, J. Company issued 300,000 shares at P22 per share but M. Company did not
acquire any of these shares. What is the carrying value of the investment after the dilution?
a. P 3,187,500
b. P 3,450,000
c. P 4,837,500
d. P 5,100,000
ANS: C
SOL: Cost P4,500,000
Nat income 4,000,000 x .40 1,600,000
OCI 500,000 x .40 200,000
Dividend 3,000,000 x .40 (1,200,000)
Carrying value P5,100,000
Share in the proceeds 6,600,000 x.1 650,000
Deemed sold 5,100,000 x 15/40 (1,912,500)
Carrying value P4,837,500
REF: RESA 1017
TOP: Investment in Associate
DIF: Moderate

37. On January 1, 2014, Glare Company purchased P3,000,000 face value bonds, 8%, 5-year bonds of
Spare. The bonds mature on January 1, 2019 and pay interest semi-annually beginning July 1, 2014.
Glare purchased the bonds to yield a 10% interest.

What amount of interest income should Glare report in its 2014 income statement?
a. 240,000
b. 277,284
c. 277,786
d. 278,707
ANS: C
SOL: Cost 3,000,000 x .614 + 120,000 x 7.722 = P2,768,640
Discount amortization ( 1/1 – 6/30 )
Interest income 5% x 2,760,640 = 138,432
Interest receive 120,000 18,432
Amortized cost 6/30/14 P2,787,072

Interest income 1/1/14 to 3/30/14 130,432

Interest Income 7/1/14 to12/31/14 2,787,072 x 5% 139,353
Total interest income 277.786
REF: RESA 1017
TOP: Bonds
DIF: Moderate

38. Rosalie Corporation is located in London but does business throughout Europe. The company builds
and sells equipment used in manufacturing pharmaceuticals. On December 31, 2015, Rosalie has
trading securities valued at P63,000 ; goodwill valued at P450,000; prepaid insurance valued at
P36,000; patents valued at P210,000; and a customer list valued at P390,000. On Rosalie Corporation’s
 statement of financial position at December 31, 2015, what amount should be reported as intangible
assets?
a. P 660,000
b. P1,050,000
c. P1,113,000
d. P1,149,000
ANS: B
REF: RESA 1017
TOP: Intangible
DIF: Easy

39. The following information is available for Murphy Company:

Allowance for doubtful accounts at December 31, 2014 P 8,000
Credit Sales during 2015 400,000
Accounts receivable deemed worthless and written off during 2015 9,000

As a result of a review and aging of accounts receivable in early January 2016, however, it has been
determined that an allowance for doubtful accounts of P5,500 is needed at December 31, 2015. What amount
should Murphy record as “bad debt expense” for the year ended December 31, 2015?
a. P4,500
b. P5,500
c. P6,500
d. P13,500
ANS: C
REF: RESA 1017
TOP: Estimation of Doubtful Accounts
DIF: Easy

40. Wilkinson Corporation factored, with guarantee (recourse), P400,000 of accounts receivable with Huskie
Financing. The finance charge is 3%, and 5% was retained to cover sales discounts, sales returns, and
sales allowances. What amount of cash would Wilkinson receive on the sale of receivables?
a. P368,000
b. P380,000
c. P388,000
d. P400,000
ANS: A
REF: RESA 1017
TOP: Receivable Financing
DIF: Easy