Dynamic Society of Accounting Students

Monthly Examinations
Practical Accounting 1

1. In an audit of Selena Company on December 31, 2009, the following information is gathered:
Balance per book 6,700,000
Customer’s check 200,000
Depositor’s note charged to account 650,000
Customer’s note collected by bank 120,000
Outstanding checks 800,000
Checkbook printing charge 2,000
Certified checks included in the outstanding checks 100,000
Deposit in transit 1,200,000
Interest earned on deposits net of 20% final tax 32,000
The adjusted cash in bank of Selena Company on December 31, 2009 is
a. 6,050,000 b. 6,700,000 c. 6,000,000 d. 5,300,000

Balance per book 6,700,000

Customer’s NSF check ( 200,000)
Depositor’s note charged to account ( 650,000)
Customer’s note collected by bank 120,000
Checkbook printing charge ( 2,000)
Interest earned on deposits 32,000
Balance per books 6,000,000

2. On January 1, 2009, Everlasting Company purchased serial bonds with a face value of P4,000,000
and a stated interest rate of 10% to be held to maturity. The stated interest is payable annually on
December 31. The bonds are acquired to have an effective yield at 12%. The bonds mature at
annual installments of P1,000,000 every January 1, beginning in January 1, 2010 and every January
1 thereafter. What is the market price of the bond investment on January 1, 2009? (Round off
present value factors to 2 decimal places)
a. 4,000,000 b. 3,776,000 c. 3,842,000 d. 3,876,000

PV of 1/1/10 cash flow (1.4M x .89) 1,246,000

PV of 1/1/11 cash flow (1.3M x .80) 1,040,000
PV of 1/1/12 cash flow (1.2M x .71) 852,000
PV of 1/1/13 cash flow (1.1M x .64) 704,000
Total 3,842,000

3. On December 31, 2009, the balance of accounts receivable of Jalena Company was P6,000,000 and
the January 1, 2009 balance of allowance for doubtful accounts was P800,000. The following data
were gathered:
Credit Sales Write offs Recoveries
2006 9,000,000 400,000 30,000
2007 13,000,000 600,000 70,000
2008 15,000,000 700,000 120,000
2009 20,000,000 650,000 150,000
Doubtful accounts are provided for a percentage of credit sales. The accountant calculates the
percentage annually by using the experience of the three years prior to the current year. How much
should be reported as allowance for doubtful accounts on December 31, 2009?
a. 1,100,000 b. 800,000 c. 1,300,000 d. 1,250,000

Total writeoff (400 + 600 + 700) 1,700,000

Less: Total recovery (30 + 70 + 120) 220,000
Net writeoff 1,480,000
Divided by total credit sales 37,000,000
Doubtful accounts expense rate 4%

Beg. ADA 800,000

Writeoff ( 650,000)
Recovery 150,000
DAE (20M x 4%) 800,000
ADA, end 1,100,000
4. Esplanade Company sells a variety of merchandise to its customers. On December 31, 2009, the
balance of Esplanade’s ending inventory account was P3,000,000, and the allowance for inventory
writedown account before any adjustment was P150,000. Relevant information about the proper
valuation of inventories and the breakdown of inventory cost and market data at December 31, 2009,
are as follows:
Cost Replacement Sales NRV Normal
Cost Price Profit
Bags 800,000 900,000 1,200,000 550,000 250,000
Shoes 1,200,000 1,200,000 1,300,000 1,100,000 150,000
Clothing 700,000 1,000,000 1,250,000 950,000 300,000
Lingerie 500,000 600,000 1,000,000 350,000 300,000
How much loss on inventory writedown is included in 2009 cost of sales?
a. 50,000 b. 200,000 c. 400,000 d. 250,000

Lower of cost or NRV on item by item basis (550 + 1M + 700 + 350) 2,600,000
Less: Total cost 3,000,000
Required allowance for inventory writedown 400,000
Less: Beginning allowance 150,000
Loss on writedown 250,000

5. Flavia Manufacturing began operations 3 years ago. On October 1, 2009, a fire broke out in the
warehouse destroying all inventories. The information available is presented below.
January 1 October 1
Inventory 500,000
Accounts receivable 800,000 500,000
Accounts payable 400,000 650,000
Collection on accounts receivable, 1/1 to 10/1 6,500,000
Payments to suppliers, 1/1 to 10/1 5,200,000
Goods out on consignment at October 1, at cost 400,000
2006 2007 2008
Sales 6,000,000 7,500,000 8,000,000
Gross profit on sales 1,650,000 1,725,000 2,000,000
What is the inventory loss suffered as a result of the fire?
a. 900,000 b. 425,000 c. 200,000 d. 825,000

Sales (6,500,000 – 800,000 + 500,000 6,200,000

Purchases (5,200 – 400 + 650) 5,450,000
GP % (27.5% + 23% +25%) / 3 or (5,375/21,500) 25%
GAS (500,000 + 5,450,000) 5,950,000
Less: Estimated COS (6.2M x (1-25%) 4,650,000
Estimated ending inventory 1,300,000
Less: Cost of goods out on consignment 400,000
Estimated fire loss 900,000

6. On January 1, 2009, Katherine Company purchased 20% of the outstanding ordinary share capital of
David Company for P4,000,000, of which P1,000,000 was paid in cash and P3,000,000 payable with
12% annual interest on December 31, 2010. Katherine also paid P500,000 to a business broker who
helped find a suitable business and negotiated to purchase.

At the time of the acquisition, the fair value of David’s identifiable assets and liabilities were equal to
their carrying value except for an office building which has a fair value in excess of book value of
P2,000,000 and an estimated life of 4 years. David’s shareholder’s equity on January 1, 2009 was
P13,000,000.

During 2009, David reported net income of P6,000,000 and paid dividends of P4,000,000. What
amount should Katherine Company report as investment in associate on December 31, 2009?
a. 4,300,000 b. 4,800,000 c. 4,900,000 d. 4,500,000

Cost 4,500,000
Share in net income (6M x 20%) 1,200,000
Dividends ( 800,000)
Amortization ( 100,000)
Carrying amount 12/31/09 4,800,000
7. During 2009, Judith Company Corporation constructed a new hydro electric power plant at a cost of
P25,000,000. The expenditures for this facility, which was finished late in 2009, were incurred evenly
during the year. The entity had the following loans among Judith’s liabilities outstanding on
December 31, 2009:
 12% note to finance construction of the hydro-electric power plant, dated January 1, 2009,
P10,000,000 that was unpaid as of December 31, 2009. Investments were made on the excess
borrowings from this loan and income of P50,000 was realized from deposits and other
investments during 2009.
 8%, 20-year bonds payable issued at face value on January 1, 2001, P40,000,000.
 15%, 5-year mortgage note payable, dated March 1, 2006, P10,000,000.
What is the amount of interest that was capitalized as cost of new building?
a. 2,560,000 b. 1,385,000 c. 1,200,000 d. 2,325,000

Average expenditures (25M / 2) 12.5M

Interest on BP (8% x 40M) 3.2M
Interest on MP (15% x 10M) 1.5M
Total 4.7M
Divide by the total Principal (40M + 10M) 50M
Capitalization rate 9.4%
Specific borrowings (10M x 12%) – 50,000 1,150,000
General borrowings 235,000
Total borrowing cost eligible for capitalization 1,385,000

8. On January 1, 2009, Amanda Company received from a customer an 8-month, 6,000,000 note
bearing an annual interest rate of 10%. The principal and the interest are payable on September 1,
2009. To obtain cash quickly, Amanda discounted the note with East-West Bank on March 1, 2009.
The bank charged a discount rate of 12%. What is the loss on note receivable discounting to be
recognized by Amanda?
a. 100,000 b. 400,000 c. 384,000 d. 84,000

Maturity value (6M x 10% x 8/12) 6,400,000

Less: Discount (6.4M x 12% x 6/12) 384,000
Proceeds 6,016,000
Less: Principal and interest receivable (6M x 10% x 2/12) 6,100,000
Loss on discounting ( 84,000)

9. Marla Company acquired new equipment on account on March 1, 2009 with a 5% discount if paid
with in 15 days. The following information is available:
List price 3,500,000
Trade discount 20%
Removal of old equipment 100,000
Cost of installation 50,000
Cost of redecoration of office in connection with the purchase 250,000
Insurance taken during delivery 20,000
Repairs incurred while in transit 10,000
Transportation costs 30,000
If the invoice was paid on March 31, 2009, what should be the cost of equipment?
a. 2,760,000 b. 3,425,000 c. 2,900,000 d. 3,010,000

Purchase price net of discount (2,800 -140) 2,660,000

Direct cost (50 + 20 + 30) 100,000
Total cost 2,760,000

10. The inventory control account balance of Luca Company at December 31, 2009 was P4,000,000 using
the perpetual inventory system. A physical count conducted on that day found inventory on hand
worth of P3,400,000. Net realizable value for each inventory item held for sale exceeded cost. An
investigation of the discrepancy revealed the following:
a. Goods costing P300,000 were sold on credit to Fernando Company for P500,000 on December
28, 2009 FOB destination. The goods were still in transit on December 31, 2009. The sales
invoice was raised and processed on December 31, 2009.
b. Goods costing P450,000 were purchased on credit FOB destination from Kimi Company on
December 29, 2009. The goods were received on December 30, 2009 and included in the
physical count. The purchase invoice was received on January 2, 2010.
 c. Goods costing P150,000 were purchased on credit from Alistair Company on December 27, 2009
FOB shipping point. The goods were shipped on December 28, 2009 but, as they had not arrived
by December 31, 2009, were not included in the physical count. The purchase invoice was
received and processed on December 31, 2009.
d. Goods worth P200,000 held on consignment from Jensen Company had been included in the
physical count.
e. On December 31, 2009, Luca Company sold goods costing P750,000 on credit FOB shipping point
to Ruben Company for P1,000,000. The goods were dispatched from the warehouse on
December 31, 2009 but the sales invoice had not been raised at that date.
f. Damaged inventory items valued P350,000 were discovered during the physical count. These
items were still recorded as of December 31, 2009 but were omitted from the physical count
records pending their writeoff.
What is Luca Company’s adjusted inventory amount?
a. 3,650,000 b. 3,600,000 c. 4,100,000 d. 4,000,000

Unadjusted perpetual balance 4,000,000

Recorded goods sold FOB destination 300,000
Unearned merchandise that had been received 450,000
Unrecorded goods sold FOB shipping point ( 750,000)
Damaged goods ( 350,000)
Adjusted perpetual balance 3,650,000

Unadjusted periodic balance 3,400,000

Uncounted goods sold FOB destination 300,000
Goods in transit purchased FOB shipping point 150,000
Goods held on consignment ( 200,000)
Adjusted periodic balance 3,650,000

11. Lene Company uses straight line depreciation for its property, plant and equipment. Balances of the
property, plant and equipment and related accumulated depreciation accounts on January 1, 2009
are P25,000,000 and P5,000,000 and on December 31, 2009 are P20,000,000 and P6,200,000. Lene
did not purchase property, plant and equipment during 2009. However, machinery was sold for
P3,000,000 that resulted in a P400,000 loss. What is the depreciation expense for 2009?
a. 1,200,000 b. 2,800,000 c. 3,600,000 d. 2,200,000

Accum. Depn. 1/1 5,000,000

Accum. Depn. From sold equipment (5M – (3M + 400) (1,600,000)
Depreciation expense (SQUEEZE) 2,800,000
Accum. Depn. 12/31 6,200,000

12. During 2009, Dinara Company made the following property, plant and equipment expenditures:
Land and building acquired from Samantha Company 7,000,000
Repairs and reconditioning cost made to the building 250,000
Reconstruction of sidewalk and fences 100,000
Special tax assessment 50,000
Remodeling of office space including new partitions and walls 400,000

In exchange for the land and building acquired from Samantha, Dinara issued 50,000 ordinary shares
of its P100 par value ordinary shares. On the date of purchase, the shares had a market value of
P140 per share and the land and building had a fair value of P2,000,000 and P6,000,000 respectively.
During the year, Dinara also received land from a shareholder to facilitate to relocation of its main
offices in the city. Dinara paid P50,000 for the donated land transfer. The donated land is fairly
valued at P1,800,000. What is the total cost of the land acquisition?
a. 4,100,000 b. 3,900,000 c. 3,850,000 d. 3,600,000

FV of land acquired by issuing of shares 2,000,000

Special assessment 50,000
FV of donated land 1,800,000
Total cost 3,850,000

13. Dominika Company purchased another entity for P8,000,000 cash. The acquiree had total liabilities of
P1,500,000. Dominika Company’s assessment of the fair value of the assets it obtained when it
purchased the other entity is as follows:
Cash 500,000
Accounts receivable – net 1,000,000
 Inventory 800,000
Property, plant and equipment – net 3,000,000
In-process research and development 2,000,000
Assembled workforce 1,200,000
What is the goodwill arising from the acquisition?
a. 2,200,000 b. 3,000,000 c. 1,000,000 d. 700,000

Acquisition cost 8,000,000

Less: FV on net assets acquired (7.3M-1.5M) 5,800,000
Goodwill 2,200,000

14. The following were taken from the incomplete financial data of Sam Company, a calendar year
merchandising corporation:
December 31, 2005 December 31, 2006
Trade accounts receivable 840,000 780,000
Inventory 1,500,000 1,000,000
Accounts payable 950,000 980,000
Accrued gen. & admin. expense 130,000 170,000
Prepaid selling expense 150,000 130,000
PPE, net 1,650,000 1,420,000
Patent 425,000 300,000
Investment in Associate 550,000 720,000
The following additional information were made available: cash payments for selling and
administrative expense was 900,000, payments for purchases, net of discounts of 70,000 was
1,530,000. Equipment with a book value of 200,000 was sold for 250,000. There were no acquisitions
of PPE and other transactions affecting net income during the period . There no acquisitions of
investment during the year 2006.

If the company reported a net income of 270,000, what is the amount of collections on trade
receivables in 2006?
a. 2,425,000 b. 2,470,000 c. 3,285,000 d. 3,485,000

Net income 270,000

Gain on sale of equipment ( 50,000)
Income from investment in associates ( 170,000)
Depreciation 30,000
Amortization of patent 125,000
Selling and Admin. expenses 960,000
Gross profit 1,165,000

Sales 3,225,000
Cost of sales 2,060,000
Gross profit 1,165,000

Cost of sales:
Beg. Inv. 1,500,000
Purchases 1,630,000
Purchase discounts ( 70,000)
Ending inventory (1,000,000)
COS 2,060,000

Accounts payable Accounts Receivable

1,530,000 950,000 840,000 3,825,000
70,000 1,630,000 3,200,000
980,000 780,000

Cash paid – Selling & Admin 900,000

PB 150,000
AE 170,000
AB (130,000)
AB (130,000)
Selling & Admin (accrual) 960,000

Property, plant & equipment

1,650,000 200,000 sold
 - 30,000 depreciation
1,420,000

15. The balance sheet at December 31, 2006 of Mall Company showed a cash balance of P91,750. An
examination of the books disclosed the following:

Cash sales of P12,000 from January 1 to 7 were pre-dated as of December 28, 31, 2006 and charged
to the cash account. Customer’s check totaling P4,500 deposited with and returned by the bank
“NSF” on December 27, 2006 were not recorded in the books. Checks of P5,600 in payment of
liabilities were prepared before December 31, 2006 and recorded in the books, but withheld by the
treasurer. Post-dated checks totaling P3,400 are being held by the cashier as part of cash. The
company’s experience shows that post-dated checks are eventually realized. The cash account
includes P20,000 being reversed for the purchased of a mini-computer which will be delivered soon.
Personal checks officers, P2,700 were “redeemed” on December 31, 2006, but returned to cashier on
January 2, 2007. How much is the cash balance that should be shown in the December 31, 2006?
a. 91,750 b. 69,150 c. 54,750 d. 43,550

Balance per book 91,750

Cash sales for 2007 dated 2006 (12,000)
NSF ( 4,500)
Undelivered check 5,600
Post dated check ( 3,400)
Cash set aside for computer (20,000)
Personal check ( 2,700)
Correct cash balance 54,750

16. Your client, Mills Corporation, requests your assistance in determining the amount of loss and in filing
in insurance claim in connection with a fire on June 15, 2006 that destroyed some of the company’s
inventory and accounting records. You were able to obtain the following information from available
records.

The last physical inventory was taken on December 31, 2005. At the time, total (at cost) amounted to
P210,789.80. Accounts payable were P110,106.42 on December 31, 2005 and P126,945.37 at the
time the fire occurred. Payments to vendors from December 31, 2005 to the date of fire totaled
P641,871.56. All sales are on account and account receivable were P135,009.18 at December 31,
2005 to the date of fire amounted to P876,195.50. Almost all the merchandising items are sold
approximately 30% in excess of cost. As at June 15, 2006, the total cost of inventory items not
destroyed by the fire amounted to P144,882.33.

How much is the loss incurred by the company as a result of the fire?
a. 72,055.23 b. 216,937.56 c. 275,668.21 d. 430,785.88

Beginning inventory 210,789.80

Purchases 658,710.51
TGAS 869,500.31
Cost of sales (848,331.57 / 130%) 652,562.75
Estimated inventory 216,937.56
Goods based on counting 144,882.33
Inventory loss 72,055.23

Accounts payable Accounts receivable

641,871.56 110,106.42 135,009.18 876,195.50
658,710.51 848,331.57
126,945.37 107,145.25

17. Marcel Company purchased 5,000 shares of Boniface Co. par P100 at P120 on July 2006. Marcel
Company classified the securities as available for sale. Marcel Company received a cash dividend of 1
share dividend at P10 per share on the stock and was granted to purchase 1 share at 105 for every 4
shares held. The share had a market value ex-right of P115 and the right had a value of P5. On
December 20, 2006, the company sold 2,000 rights at P7.50 and exercised remaining rights. What is
the average unit cost of the total investment as of December 31, 2006?
a. 95.83 b. 99.52 c. 98.70 d. 105.00

Upon acquisition P600,000 5,000

Share dividend - 1,000
 Share rights (5/20 x P600,000) ( 25,000) _____
Balance of original investment P575,000 6,000

Cost of new investment on exercise of rights

Cash paid (4,000 rights / 4 x P105) P105,000
Cost of rights exercised (4,000/6,000 x P25,000) 16,667
Cost of new investment P121,667

Cost Shares Unit cost

Original P575,000 6,000
New 121,667 1,000
Total 696,667 7,000 P99.52

18. On January 1, 2006, Trooper Enterprises, Inc. developed a new machine that reduces the time
required to insert the fortunes into their fortune cookies. Because the process is considered valuable
to the fortune cookie industry, Trooper had a machine patented. The following expenses were
incurred in developing and patenting the machine:

Research and development laboratory expenses P250,000

Metal used in construction of the machine 80,000
Blueprints expenses to design the machine 32,000
Legal expense to obtain patent 120,000
Wages and employees work on the research, development,
and building of the machine; 60% of the time was
spent in actual building of the machine 150,000
Expense of drawing required by the patent office to be
submitted with the patent application 17,000
Fees paid to Government patent office to process application 24,500

On January 2, 2007, Trooper Enterprises, Inc. paid P35,200 in legal fees to successfully defend the
patent against an infringement suit by Alliance Company.

What is the carrying value of the patent in December 31, 2007?

a. 142,500 b. 145,350 c. 175,500 d. 178,697

Total cost of patent (120 + 17 + 24.5) P161,500

Less: Amortization for 2 years (161.5 x 2/20) 16250
Carrying value P145,350

19. Pearl Company began operations on January 1, 2005. On December 31, 2005, Pearl provided for
uncollectible accounts based on 1% of annual credit sales. On January 1, 2006, Pearl changed its
method of determining its allowance for uncollectible accounts by applying certain percentage to the
accounts receivable aging as follows:

Days past invoice date Percent deemed to be uncollectible

0-30 1
31-90 5
91-180 20
Over 180 80

In addition, Pearl wrote off all accounts receivable that were over 1 year old. The following additional
information relates to the year ended December 31, 2005 and 2006:
2006 2005
Credit sales P6,000,000 P5,600,000
Collections 5,830,000 4,800,000
Accounts written off 54,000 none
Recovery of accounts previously
Written off 14,000 none
Days past invoice date @ 12/31
0-30 600,000 500,000
31-90 160,000 180,000
91-180 120,000 90,000
Over 180 50,000 30,000

What is the provision for uncollectible accounts for the year ended December 31, 2006?
 a. 22,000 b. 62,000 c. 76,000 d. 78,000
Required allowance for bad debts – 2006
600,000 x 1% = P 6,000
160,000 x 5% = 8,000
120,000 x 20% = 24,000
50,000 x 80% = 40,000 P 78,000
Accounts written off 54,000
Total P132,000
Beginning balance (1% P5,600,000) 56,000
Recovery 14,000 70,000
Bad debts P 62,000

Items 6 to 8:
On June 30, 2010, Cape Company purchased 25% of the outstanding ordinary shares of
Bit Co. at a total cost of P2,100,000. The book value of Bit Co.’s net assets on
acquisition date was P7,200,000. For the following reasons, Cape was willing to pay
more than book value for Bit Co. stock:
- Bit Co. has depreciable assets with a current fair value of P180,000 more than
their book value. These assets have a remaining useful life of 10 years.
- Bit co. owns a tract of land with a current fair value of P900,000 more than its
carrying amount.
- All other identifiable tangible and intangible assets of Bit Co. have current fair
values that are equal to their carrying amounts.
Bit reported net income of P1,620,000, earned evenly during the current year ended
December 31, 2010. Also in the current year, it declared and paid cash dividends of
P315,000 to its ordinary shareholders. Market value of Bit Co.’s ordinary shares at
December 31, 201o0 is P9 million. Cape Company’s financial year-end is December 31.

20. What is the total amount of goodwill of Bit Co. based on the price paid by Cape
Company?
(a) P300,000 (b)P1,080,000 (c) P120,000 (d) P30,000 C

21. What amount of investment revenue should Cape report on its income statement for the
year ended December 31, 2010 under the equity method?
(a) P202,500 (b) P200,250 (c) P78,750 (d) P123,750 B

22. Under the equity method, the carrying value of Cape Company’s investment in ordinary
shares of Bit Co. on December 31, 2010 should be:
(a) P2,221,500 (b) P2,100,000 (c) P2,070,000 (d) P2,250,000 A

23. In January 2009, Farley Corp. acquired 20% of the outstanding common stock of Davis
Co. for P800,000. This investment gave Farley the ability to exercise significant influence
over Davis.
The book value of the acquired shares was P600,000. The excess of cost over book
value was attributed to an identifiable intangible asset which was undervalued on Davis’
balance sheet and which had a remaining useful life of ten years.
For the year ended December 31, 2009, Davis reported net income of P180,000 and
paid cash dividends of P40,000 on its common stock.
What is the proper carrying value of Farley’s investment in Davis at December 31,
2009?
(a) P772,000 (b) P780,000 (c) P800,000 (d) P 808,000 D

Original investment 800,000

Add: Share in net income
(180,000 x20%) 36,000
Less: Amortization
(200,000 / 10) 20,000 16,000
Total 816,000
Less: Dividends (40,000 x 20%) 8,000
Carrying value of Farley’s investment 808,000
24. On January 1, 2009, Pie Company purchased available-for-sale debt securities with face
value of P2,000,000 for P1,900,500 including transaction costs of P100,500. The bonds
mature on December 31, 2011 and pay interest of 8% annually every December 31 with
a 10% effective yield. On December 31, 2009, the bonds are quoted at 105. What
amount of unrealized gain on these bonds should be reported on the 2009 statement of
changes in equity?
(a) P169,450 (b) P199,500 (c) P300,000 (d) P179,500 A

25. On January 1, 2009, Sweet Company purchased 5-year bonds with face value of
P8,000,000 and stated interest of 10% per year payable semi-annually January 1 and
July 1. The bonds acquired to yield 8%. What is the purchase price of the bonds?
(a) P7,382,400 (b) P8,617,600 (c) P8,648,800 (d) P7,351,200 C