Accountancy Department

Midterm Examination in INTACC 2

Name of Student: ____________________________________ Score: _______________

Class Schedule: ____________________________________ Date: _______________

MULTIPLE CHOICE: Read each statement carefully and write the letter of your choice
inside the box provided.

1. 6. 11. 16. 21. 26.

2. 7. 12. 17. 22. 27.

3. 8. 13. 18. 23. 28.

4. 9. 14 19. 24. 29.

5. 10. 15. 20. 25. 30.

1. Cute Chan Company acquired a factory equipment overseas on a cash basis for P 120,000. Additional
costs incurred include the following: commissions paid to brokers for the purchase of equipment, P5,000;
import duties of P25,000; recoverable purchase taxes of P10,000; freight cost of transferring the
equipment to Cute Chan Company’s premises, P1,000; costs of assembling and installing the equipment,
P2,000; costs of testing the equipment , P1,500; administration and other general overhead costs, P4,200;
and advertisement and promotion costs of the new product to be produced by the equipment, P3,800. The
samples generated from testing the equipment were sold at P500.

What is the capitalizable amount of the factory equipment?

A. 154,000 C. 164,000
B. 153,000 D. 164,500

2. On December 31, 2017, Astig Abanilla Company purchased a machine in exchange for a noninterest
bearing note requiring eight payments of P200, 000. The first payment was made on December 31, 2017
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%. The cash price of machine is P 1,100,000.00.

PV of ordinary annuity of 1 at 11% for 8 periods 5.146

PV of ordinary annuity of 1 in advance at 11% for 8 periods 5.712

What is the discount on note payable on December 31, 2017?

A. 457,600 C. 570,800
B. 657,600 D. 500,000

3. Pogi Cabidog Company received a government grant related to depreciable asset five years ago on
January 1, 2012 in the amount of P1, 000,000. The grant was deducted from the capital cost of the asset
purchased at a total amount of P6, 000,000 on the same date with a useful life of 10 years and P 200,000
residual value. On January 1, 2017, the entire P1, 000,000 became repayable due to lack of compliance
with the conditions attached to the grant. What total amount should be recognized as depreciation expense
for 2017?
A. 1,000,000 C. 700,000
B. 1,100,000 D. 1,080,000
1|Page
4. On January 1, 2017, Pretty Oraller Company received a grant of P1, 500,000 from the government to
subsidize tuition fees for a period of 5 years. On January 1, 2019, the entity violated certain conditions
attached to the grant and therefore had to repay P 1,400,000 to the government. What amount should be
recognized as loss resulting from the repayment of the grant in 2019?
A. 1,200,000 C. 600,000
B. 900,000 D. 500,000

5. Queen Maraya Company acquired a machine and incurred the following costs:

Cash paid for machine, including import duties of P96,000 896,000

Cost of transportation machine 30,000
Labor cost of installation by expert fitter 50,000
Labor cost of testing machine 40,000
Insurance cost while in transit 15,000
Cost of training for personnel who will use the machine 25,000
Cost of safety rails and platform surrounding machine 60,000
Cost of water device to keep machine cool 80,000
Cost of adjustment to machine to make it operate more efficiently 75,000
Estimated dismantling cost to be incurred not required by contract 65,000

What total amount should be capitalized as cost of the machine?

A. 1,200,000 C. 1,246,000
B. 1,231,000 D. 1,150,000

6. The Fiery Osang Company owned a building that appeared in the statement of financial position at the
end of last year at the original P8, 400,000 cost less P 7,000,000 accumulated depreciation. The building
had been depreciated on a straight line basis under the assumption it would have a 30-year life and no
residual value. During the first week in January of the current year, major structural improvements were
completed on the building at a P2, 500,000 cost. The improvements extended the expected life of the
building for 10 years beyond the 30 years originally estimated. The improvements do not involve major
replacement of parts.

What is the depreciation for current year?

A. 260,000 C. 280,000
B. 780,000 D. 500,000

Items 7-11

Lovely Arleen Corporation was incorporated on January 2, 2019. The following items relate to the Lovely
Arleen’s property and equipment transactions:

Cost of land, which included an old unusable apartment building appraised 3,000,000
at P300,000
Mortgage assumed, including related interest 80,000
Delinquent property taxes assumed by Lovely Arleen 30,000
Payments to tenants to vacate the property 20,000
Cost of razing the apartment building 40,000
Proceeds from sale of salvaged materials 10,000
Architects fee for new building 60,000
Building permit for new construction 40,000
Fee for title search 25,000
Survey before construction of new building 20,000
Excavation before construction of new building 100,000
Payment to building contractor 10,000,000
Assessment by city for drainage project 15,000
Cost of grading and leveling 50,000
Temporary quarters for construction crew 80,000
Temporary building to house tools and materials 50,000
Cost of changes during construction to make new building more energy
efficient 90,000
Interest cost on specific borrowing cost incurred during construction 360,000
2|Page
 Payment of medical bills of employees accidentally injured while inspecting
building construction 18,000
Cost of paving driveway and parking lot 60,000
Cost of installing lights in parking lot 12,000
Premium for insurance on building construction 30,000
Cost of open house party to celebrate opening of new building 50,000
Cost of windows broken by vandals distracted by the celebration 12,000

Based on the information above, determine the following:

7. Cost of land:
A. 2,980,000 C. 3,185,000
B. 3,270,000 D. 3,240,000

8. Cost of building:
A. 10,810,000 C. 10,840,000
B. 10,985,000 D. 11,110,000

9. Cost of land improvements:

A. 12,000 C. 122,000
B. 72,000 D. 0

10. Amount that should be expensed when incurred:

A. 80,000 C. 62,000
B. 110,000 D. 50,000

11. Total depreciable property and equipment:

A. 11,182,000 C. 10,947,500
B. 10,912,000 D. 10,882,000

12. The following items relate to the acquisition of a new machine by Master Oledan Company in 2019:

Invoice price of machinery 2,000,000

Cash discount not taken 40,000
Freight on new machine 10,000
Cost of removing the old machine 12,000
Loss on disposal of the old machine 150,000
Gratuity paid to operator of the old machine who was laid off 70,000
Installation cost of new machine 60,000
Repair cost of new machine damaged in the process of installation 8,000
Testing costs before machine was put into regular operation 15,000
Salary of engineer for the duration of the trial run 40,000
Operating cost during first month of regular use 250,000
Cash allowance granted because new machine proved to be of
inferior quality 100,000

How much should be recognized as cost of the new machine?

A. 1,985,000 C. 1,930,000
B. 1,993,000 D. 2,025,000

13. On June 1, 2019, Sweet Marilou purchased equipment from Charming Abet under a deferred payment
plan. Sweet Marilou issued a P1, 000,000 four-year noninterest bearing note to Charming Abet for the
new equipment. The loan agreement provides that Sweet Marilou is to pay off the note in four equal
installments due at the end of each of the next four years. On the date of the acquisition, the prevailing
market rate of interest for obligations of this nature was 10% percent. The following costs were incurred
to complete this transaction:

Freight 21,250
Installation 25,000

The following are the appropriate factors for the time value of money at a 10% rate of interest:

3|Page
 Future value of 1 for 4 periods 1.46
Future value of an ordinary annuity for 4 periods 4.64
Present value of 1 for 4 periods 0.68
Present value of an ordinary annuity for 4 periods 3.17

What is the cost of the equipment?

A. 792,500 C. 1,046,250
B. 838,750 D. 1,206,250

14. On January 2, 2015, Disserald Company received a grant of P60, 000,000 to compensate it for costs it
incurred in planting trees over a period of five years. Disserald Company will incur such cost in this
manner: 2015- P 2,000,000; 2016-P 4,000,000; 2017- P 6,000,000; 2018- P 8,000,000; 2019- P10,
000,000.

What amount of income should Disserald Company recognize at the end of year 2018?
A. 8,000,000 C. 16,000,000
B. 12,000,000 D. 20,000,000

15. On January 2, 2015, Happy Jay Company received a grant of P60, 000,000 to compensate it for costs it
incurred in planting trees over a period of five years. Happy Jay Company will incur such costs in this
manner:
Years Costs
2015 2,000,000
2016 4,000,000
2017 6,000,000
2018 8,000,000
2019 10,000,000

Actual costs incurred in planting the trees showed P2, 000,000 and P4, 000,000 in years 2015 and 2016,
respectively. However, in 2017 and up to year 2018, the company has stopped planting trees. Due to the
non-fulfillment of its obligation, the government is demanding an immediate repayment of the grant in the
amount of P50, 000,000 which is considered reasonable. What amount should be recognized as an
expense related to the repayment of grant?
A. None C. 44,000,000
B. 2,000,000 D. 38,000,000

16. At the beginning of the current year, Simon Company traded in an old machine having a carrying amount
of P1, 680,000 and paid a cash difference of P600, 000 for a new machine having a cash price of P2,
050,000. What amount of gain should be recognized on the exchange?
A. 600,000 C. 370,000
B. 230,000 D. 0

17. Caring Dove Company purchased a machine for P 1,260,000 that was placed in service at year-end. The
entity incurred additional costs for this machine:

Shipping 30,000
Installation 40,000
Irrecoverable taxes 10,000
Testing 40,000

At year-end, what amount should be reported as expense?

A. 50,000 C. 40,000
B. 0 D. 70,000

18. On July 1, 2019, J exchanged machines with D Company. The following facts pertain to these assets.

J Company’s Asset D Company’s Asset

Original cost 288,0000 330,0000
Accumulated depreciation 135,000 156,000
Fair market value 180,000 225,000
Cash paid by J 45,000
4|Page
 Cash received by D 45,000

Cash flow calculations made by both companies proved that this exchange is considered not lacking
commercial substance.

What amount of machine should D Company report in its books?

A. 129,000 C. 180,000
B. 174,000 D. 108,000

19. Precious Company received land from a major shareholder as an inducement to locate a plant in the city.
No payment was required but the entity paid P30, 000 for legal expenses for land transfer. The land is
fairly valued at P1, 330,000. What is the total effect in the shareholder’s equity of Precious Company as a
result of donation?
A. 30,000 C. 0
B. 1,300,000 D. 1,360,000

20. The following are correct, except:

A. The cost of PPE acquired on a cash basis is the cash price equivalent at the recognition date
B. When payment for item of PPE is deferred beyond normal credit terms, the cost is present
value of all payments using an implied interest rate. If no available present value, use cash
price.
C. The cost of an item of PPE acquired in exchange for a nonmonetary asset or a combination of
monetary and nonmonetary is measured at fair value
D. The cost of self-constructed PPE shall include DM, DL and OH.

21. Which of the following expenditure will not affect a PPE account?
A. Irrecoverable purchase taxes of new equipment
B. Net proceeds of samples produced when testing equipment
C. Purchase price of new equipment
D. Organization cost

22. A government grant that becomes repayable because of noncompliance with conditions shall be
accounted for as a:
A. Change in accounting policy
B. Prior period error
C. Change in accounting estimate
D. None of the above

23. Which of the following is correct according to PIC Interpretation?

A. If the old building is unusable, the single cost is allocated to the land and building based on
relative fair value
B. If the old building is usable, the single cost is allocated to building only
C. The net demolition cost is capitalized as cost of the new building whether the new building is
accounted for as PPE, Investment Property or Inventory
D. None of the above

24. Which cost is capitalized to building?

A. Cost of surveying the land
B. Cost of clearing the land
C. Cost of excavating the land
D. Cost of sidewalks and pavements

25. Which of the following is correct?

A. Machine tools and hand tools are included in the machinery account
B. Capital expenditure are expenditure that benefits the current period and future periods
C. Revenue expenditure are capitalized and reported as an asset
D. Real property taxes are generally capitalized

26. Which cost is capitalized to land?

A. Excavation
B. Building permit
C. Cost of temporary fence
D. Special assessment

5|Page
27. Which is false?
A. Government grant shall be recognized when the grant is actually received
B. Grant related to depreciable asset shall be recognized as income over the periods and in
proportion to the depreciation of the related asset
C. Grant in recognition of specific expenses shall be recognized as income over the period of
the related expense
D. Grant related to nondepreciable asset requiring fulfillment of certain conditions shall be
recognized as income over the periods which bear the cost of meeting the conditions

28. Which of the following is correct?

A. When several assets are acquired at a basket price, it is necessary to apportion the single
price to the assets acquired on the basis of carrying amounts.
B. When an asset is acquired on account subject to a cash discount, the cost of the asset is
equal to the invoice price minus the discount only if taken.
C. Contributions received from nonshareholders shall be recorded at the fair value with the
credit going to donated capital
D. None of the above

29. The single cost of acquiring land and usable old building shall be allocated to the
A. Land only
B. Building only
C. Land and building, using assessed values
D. Land and building, using relative fair values

30. The single cost of acquiring land and unusable old building with no fair value shall be allocated to the
A. Land only
B. Building only
C. Land and building, using assessed values
D. Land and building, using relative fair values

6|Page