FINANCIAL ACCOUNTING

TEST BANK

PPE ACQUISITION
1. On October 1, 2005, Bitoy Company purchased a machine for P250,000 that was
placed in service on November 30, 2005. Bitoy incurred additional costs for this
machine, as follows:
Shipping 10,000
Installation 15,000
Testing 35,000
In Bitoy’s December 31, 2005 balance sheet, the machine’s cost should be
reported at
a. 250000
b. 295,000
c. 300,000
d. 310,000

2. On August 1, 2006, Bamco purchased a new machine on a deferred payment

basis. A down payment of P100,000 was made and the balance is payable in
P100,000 annually for 4 years. The current interest is 12%.The present value of an
annuity at 12% for 5 years is 3.04 and the present value of an amount at the end of
5th year at 12% is .064.
The same machine could be acquired on cash basis at P400,000.
Bamco should record the machine at
a. 500,000 b. 400,000 c. 403,735 d. 303,735

EXCHANGE
1. To save transportation costs, X acquired its needed equipment in exchange of its
inventory located in the supplier’s business place. The equipment acquired has
cash price of P650,000. The inventory of X has cost of P550,000, and X paid
P80,000 cash for the difference in fair value of the two assets in exchange.

In the books of X, the exchange is to be accounted as resulting to

a. gain of P20,000
b. loss of P20,000
c. gain of P30,000
d. loss of P30,000

2. X issued 100,000 of its common shares in the treasury stocks, in exchange for a
delivery truck. The treasury stocks with P10 par were selling at P12 at date of
exchange. The treasury shares were previously acquired at cost of P11/share. The
delivery truck has cash price of P1,250,000.

In the books of X, the exchange will result to

a. gain of P150,000 b. loss of P50,000 c. gain of P50,000 d. no gain/no loss
 3. A P5,000,000 face value bonds were issued to acquire a building. At the time of
acquisition, the fair value of the building is properly determined at P5,300,000
and the bonds are quoted at 110.
The building is depreciated under the double declining method of depreciation with
estimated economic life of 25 years and scrap value of P200,000.
This was sold for P4,500,000 at end of its 2nd year . The gain (loss ) from sale is
a. 14,080 b. 268,000 c. 183,360 d. (155,200)

BORROWING COST

1. Mozely Company borrowed P400, 000 on a 10 percent note payable to finance a new
warehouse Mozely is constructing for its own use. The only other debt on Monzely’s
books is a P600, 000, 12 percent mortgage payable on an office building. At the end of
the current year, average accumulated expenditures on the new warehouse totaled P475,
000. Mozely should capitalize interest for the current year in the amount of (use 2
decimal palaces)
a. P40, 000 b. P47, 500 c. P49, 000 d. P380, 000

2. X constructed its own building at a total labor, materials and overhead costs of
P5,000,000, which was started January 1 and completed December 31 of the same
year.
During construction, the following loans are outstanding during the year, which are
partly used in construction and partly used in regular operation:

Principal amount Interest Rate

P1,000,000 10%

Construction costs for the year are as follows:

Principal amount Date taken

P2,000,000 Jan.1
1,000,000 April 1
1,000,000 July 1
1,000,000 Oct. 1

The capitalized borrowing costs as part of building cost is

a. 350,000 b. 240,000 c. 140,000 d. 100,000

DONATION

1. BoyD Company received Land as donation from its shareholder. At date of donation,
the land has fair value of P1,000,000. The legal and documentation expenses to transfer
the title amounted to P25,000 at the expense of BoyD Company. The land was previously
acquired by the donor stockholder at P750,000.
BoyD should record the land at
a. 1,025,000 b. 1,000,000 c. 775,000 d. 750,000

2. An enterprise receives grant of P15,000,000 from the government as subsidy to defray

safety and environmental costs within the area where the enterprise is located. The safety
and environmental costs are expected to be incurred over four years as follows:
Year 1 P 2,000,000
Year 2 4,000,000
Year 3 6,000,000
Year 4 8,000,000

The amount to be reported as in year 1 Income Statement as other Income from

government grant is
a. 1,500,000 b. 2,000,000 c. 3,750,000 d. 15,000,000

PPE SUBSEQUENT EXPENDITURES

1. During 2006, Kiyen Company made the following expenditures relating to its
plant building:
Repainted the plant building 110,000
Major improvements in the electrical wiring 100,000
Partial replacement of roof tiles 80,000
Continuing and frequent repairs 200,000
How much should be capitalized in the above expenditures
a. 490,000
b. 290,000
c. 180,000
d. 100,000

2. A machine of X is overhauled at cost of 1,600,000. The overhauling resulted to

increase in production capacity of the machine. The machine was originally acquired at
cost of P7,000,000 and the depreciated book value before overhauling was P5,600,000. If
new similar machine would be purchased, it would have a cash price of 3,500,000.
What amount should X recognized as retirement loss?
a. 1,280,000 b. 1,600,000 c. 1,900,000 d. 2,100,000

DEPRECIATION

1. On January 1, year 1, the firm purchased for P2,400,000 a machine with useful life of
10 years, no scrap value. The machine was depreciated by the double declining balance
method and the carrying amount of the machine was P1,536,000 on December 31, year 2.
The firm can justify the change to straight line method of depreciation effective January
1, year 3. What would be the depreciation expense for year 3?
a. 307,200 b. 240,000 c. 192,000 d. 153,600
2. Debergen Company purchased factory equipment which was installed and put into
service January 3, 2000 at a total cost of P1,280,000. Salvage value was estimated at
P80,000. The equipment is being depreciated over eight years by the double declining
balance method. For the year 2000 how much depreciation expense should Debergen
record on this equipment.
a. 225,000 c. 300,000
b. 240,000 d. 320,000

3. On January 1, 2000, Flax Company purchased a machine for P528,000 and depreciated
it by the straight-line method using an estimated useful life of eight years with no salvage
value. On January 1, 2003, Flax determined that the machine had a useful life of six
years from the date of acquisition with no salvage value. An accounting change was
made in 2003 to reflect these additional data. The depreciation for this machine on
December 31, 2003 would be
c. 110,000 c. 320,000
d. 308,000 d. 352,000

4. On April 1, 2007, Wang Manufacturing Company bought a new equipment for

P800,000. The equipment has an estimated salvage value of P20,000 and useful life of 12
years. Depreciation is computed using the sum-of-the-years digits method.
How much is the amount of depreciation for 2007?
a. P60,000
b. P75,000
c. P90,000
d. P20,000

5. In January, Hunter Corporation entered into a contract to acquire a new machine for its
factory. The machine, which had a cash price of P300, 000, was paid for as follows:
Down payment P30, 000
Note payable in 10 equal monthly installments 240, 000
1, 000 shares of Hunter common stock with an
agreed value of P50 per share 50, 000
total P320, 000
Prior to the machine’s use, installation costs of P80,000 were incurred. The machine
has an estimated useful life of ten years and an estimated salvage value of P10, 000.
What should Hunter record as depreciation expense for the first year under the
straight-line method?
a. P29, 800 b. P30, 000 c. P31, 000 d. P31, 800

6. The Bucol Company purchased a tooling machine in 1992 for P120, 000. The machine
was being depreciated on the straight-line method over an estimated useful life of 20
years, with no salvage value. At the beginning of 2002. When the machine had been in
use for ten years, the company estimated that the useful life of the machine would be
extended an additional five years. What would be the depreciation expense recorded for
the above machine in 2002?
a. P4, 000 b. P5, 333 c. P6, 000 d. P7, 333
DEPLETION
1. The mining property was acquired at cost of P12,000,000. It has estimated life of 5
years. After exploration cost of P1,000,000, it was developed at cost of P1,500,000
(intangible). AT the end of its life, the property could be sold for P3,000,000 after
restoration cost of P500,000. Confirmed deposit is at 40,000,000 units. For its 1st year of
operation, 7,500,000 units were produced at production cost of P5,250,000. 7,125,000 of
production were sold during the year.
The depletion cost in the inventory is
a. 112,500 b. 140,625 c. 262,500 d. 2,137,500

2. On July 1, 2000, Kinanto Company, a calendar year corporation, purchased the rights
to a mine. The total purchase price was P13,200,000 of which P400,000 was
allocable to the land. Estimated reserves were 1,600,000 tons. Kinanto expects to
extract and sell 15,000 tons per month.

If sales and production conform to expectations, what is the depletion for 2000?
a. 1,200,000 c. 2,400,000
b. 720,000 d. 1,237,500

3. A wasting asset corporation has established its depletion cost at P1.20 per unit.
At the start of the year, it has beginning inventory of 100,000 units; during the
year it produced 1,500,000 units; and during the year, It was able to sell
1,400,000 units.

At the end of the year, how much is its depletion cost in the Inventory?
a. P1,800,000 b. P1,680,000 c. P240,000 d. 120,000

4. The depletion rate of the entity is P15/ton. During the year, 50,000 tons were
produced and at the end of the year, 5,000 tons are unsold. If the total production cost
is P85/ton before depletion cost, how much is the total cost of sale for the year?
a. 5,000,000 b.4,500,000 c. 3,825,000 d. 675,000

5. The total original depletable costs of the mining entity was P10,525,000. Its original
deposit was 42,100,000 tons. After producing 15,000,000 tons, additional reserves are
discovered at cost of P4,225,000 . The additional reserves discovered is equal to
22,900,000. What is the depletion cost for the year after adjustment on depletion rate,
if the production for the year is 6,000,000 tons?
a. 1,200,000 b. 1,320,000 c. 1,500,000 d. 1,770,000
DISPOSAL
1. A P5,000,000 face value bonds were issued to acquire a building. At the time of
acquisition, the fair value of the building is properly determined at P5,300,000 and
the bonds are quoted at 110.
The building is depreciated under the double declining method of depreciation with
estimated economic life of 25 years and scrap value of P200,000.
This was sold for P4,500,000 at end of its 2nd year . The gain (loss ) from sale is
a. 14,080 b. 183,360 c. 268,000 d. (155,200)

2. The equipment with estimated life of 12 years is being depreciated under SYD
method of depreciation. It was acquired in June 15, 1994 at cost of P2,500,000 and it
has estimated salvage value of P160,000.

In June 15, 2006, the equipment was sold at P200,000.

The sale will result to

a. gain of P40,000 b. loss of P40,000 c. loss of P70,000 d. gain of P10,000

REVALUATION
1. The building was constructed at cost of P12,000,000. It has original estimated life
of 24 years, zero scrap value. At the end of its 8th year, it is estimated that same
could be constructed at present price level for the amount of P15,000,000, 100%
condition.

If it will shift to revaluation model, the amount to be credited to revaluation

surplus should be
a. P7,000,000 b. P3,000,000 c. P2,000,000 d. P1,500,000

On January 1, 2003, a new building was purchased at a cost of P3,000,000. Depreciation

was regularly provided at 2% per year. On January 1, 2013, the building was appraised
by an independent appraiser at P4,500,000 and a condition percent of 75. The business
shifted to revalued amount.
The annual depreciation subsequent to appraisal should be
a. 112, 500 b. 150,000 c. 90,000 d. 60,000

PPE IMPAIRMENT

1. Simon Company, a clothing manufacturer, purchased a sewing machine for P2,000,000

on July 1, 2003. The machine had a 10-year life, a P100,000 residual value, and was
depreciated using the straight line method. On January 1, 2006 a test for impairment
indicated that the undiscounted cash flows from the sewing machine are less than its
carrying value. The machine’s fair value on January 1, 2006 is P600,000. What is the loss
on impairment?
a. 830,000
b. 925,000
 c. 950,000
d. 1,300,000

2. The Equipment was acquired at cost of P6,000,000. This is being depreciated at rate of
5% per year, without scrap. At the end of its 4th year, an independent appraiser valued it
at depreciated amount of P6,120,000 , without scrap value.
What amount should be credited to revaluation surplus to record the revaluation.?
a. 240,000 b. 420,000 c. 1,320,000 d. 1,740,000

3. On January 2, 2000 a machine was purchased for P800,000. It is being

depreciated on straight line method for 8 years with P160,000 scrap value. At the end
of its 4th year, it is observed that this suffered permanent impairment and estimated
that P200,000 is a reasonable amount to be recovered through its use for the rest of its
life. In its December 31, 2004, what amount should be reported as net book value of
the machine?
a. 320,000 b. 200,000 c. 150,000 d. 100,000

4. Crane Company reported an impairment loss of P2,200,000 in its income statement

for the year then ended December 31, 2005. This loss was related to an item of PPE
acquired on January 1, 2004 with useful life of 10 years and residual value of
P200,000. On December 31, 2005 balance sheet, Crane reported these PPE at
P6,000,000 which is the fair value on that date.

The original acquisition cost of the PPE is

a. 8,200,000 b. 9,800,000 c. 10,200,000 d. 10,950,000

5. Gem Company determined that due to obsolescence an equipment with original cost
of P4,500,000 and accumulated depreciation of P2,100,000 at January 1, 2006 had
suffered a permanent impairment and as a result should have a recoverable value of
only P1,500,000 as of the beginning of the year.

In addition, the remaining useful life was reduced from 8 years to only 3 years as of
January 1, 2006.

The annual depreciation after impairment loss is recorded would be

a. 800,000 b. 700,000 c. 500,000 d. 300,000

INTANGIBLE ASSETS
1. During 2006, Okay Company incurred the following costs:
Research and development services performed by Okra for Okay 150,000
Design, construction, and testing of preproduction prototype and model 160,000
Testing in search for new product or process alternative 200,000
 In its 2006 income statement, what should Okay report as research and
development expense?
a. 510,000
b. 360,000
c. 350,000
d. 200,000

2. Pastel Co. purchased a patent on January 1, 1999, for P714, 000. The patent was being
amortized over its remaining legal life of 15 years expiring on January 1, 2008. During
2002, Pastel determined that the economic benefits of the patent would not last longer
than 10 years from the date of acquisition. What amount should be charged to patent
amortization expense for the year ended December 31, 2002?
a. P47, 600 b. P68,000 c. P81, 600 d. P142, 800

3. Darrell Joe purchases a patent from Ziggy on January 2, 2004. For P64,000.
The patent has remaining legal life of 16 years at date of purchase.

Darrell Joe feels the patent will be useful for 10 years.

What should be the carrying value of the Patent in the books of Darrell Joe at
the end of December, 2005?

a. P51,200 b. P56,000 c. P57,600 d. P60,000

4. RamTell obtained from Rosebud a franchise for a cash payment of P200,000 on April
1, 2004. The franchise grants Ramtell the right to sell Rosebud’s product for a period
of 8 years.

The cost of the franchise to be reported in the year 2004 Income statement of Ramtell
would be.

a. P7,500 b.P18,750 c. P25,000 d. P182,250

5. On October 4, 2003 ,X exchanged 2,000 shares of its P50 par common stock held in
treasury for a patent of Y. The treasury shares were previously acquired at cost of
P80,000.
At the time of exchange, X’s common stock was quoted in the market at P55 per
share. The patent has carrying value in the books of Y at P90,000.

At what value should X record the acquisition of the Patent?

a. 80,000 1. b. 90,000 2. c. 100,000 3. d. 110,000

GOODWILL
1. X reported its past earnings for the last 5 years as P1,000,000, P1,200,000,
P1,400,000 , P1,600,000 and P1,300,000. In one of these years, P500,000 gains from
sale of PPE was reported.

The Fair value of the net assets of X is P8,000,000.

The normal earnings in the same industry where X belongs is 10%.

If X is to be sold at fair value with goodwill equal to excess earnings for the next
5 years, how much would be the value of the goodwill?
a. P400,000 b. P800,000 c. P1,200,000 d. P2,000,000

2. The following info pertain to X company which is to be acquired by Y company:

BOOK VALUE CURRENT VALUE
Tangible assets 1,500,000 2,000,000
Intangible, w/o goodwill 500,000 1,000,000
Liabilities………………….. 1,500,000 1,500,000
Normal rate of earning is 8%
X’s expected earnings is at 14% per year for 5 years.
What is the goodwill if agreed as equal to purchase of average excess earnings for
5 years?
a. 90,000 b. 210,000 c. 350,000 d. 450,000

3. On September 1, 2004, Rad U acquired Vic Tim for a cash payment of

P7,500,000. At the time of purchase, Vic Tim’s balance sheet showed assets
of P6,200,000 and liabilities of P2,000,000. The fair value of Vic Tim’s
identifiable tangible and intangible assets is P8,000,000 at time of purchase.
It is estimated that the goodwill will enable RAD U excess earnings for 10
Years.
At what value should the goodwill be reported in the December 31, 2005
balance sheet of Rad U in the absence of any indication of impairment?
a. P1,300,000 b. P1,312,500 c. P 1,400,000 d. P1,500,000

4. As of December 31, 2004, the patent of Mag Lucky with original life of 15 years has
carrying value of P300,000. AT that date, Mag Lucky expects future net cash flows from
this patent to total P180,000 for the rest of its remaining life of 5 years. At this date, the
fair value of the patent is P110,000.
What should be the amortization expense for this patent for the year 2005?
a. P20,000 b. P22,000 c. P24,000 d. P38,000

5. IMGONNAPASS is considering acquisition of the net assets of IHAVETOPASS to

expand its operations. The book value and current value of the net assets of
IHAVETOPASS company are P3,300,000 and P4,000,000, respectively. The normal rate
of return is believe to be 9%, but IMGONNAPASS believes it can earn 11.25% annually
on its investment in IHAVETOPASS due to its excellent reputation. What is the amount
of goodwill using the “year multiple of excess earning” method assuming a 10-year
period of excess earnings?

a. P1,000,000 c. P1,200,000
b. P900,000 d. None of the above

6. X’s business’ cumulative earnings for the past 5 years amounted to P500,000. The
appraised value of the business’ net assets was P800,000. X is selling the business plus
goodwill, determined by capitalizing average net earnings at 10%. The value of goodwill
is
a. P1,000,000 b. P4,200,000 c. P5,000,000 d. 200,000

LEASE

On July 1,2001, Radium Inc. leased a delivery truck from Titanium Corp. under a 3
year operating lease. Total rent for the term of the lease will be P360,000 payable as
follows:

12 months at P5,000 = P60,000

12 months at 7,500 = 90,000
12 months at 17,500 = 210,000

All payments were made when due. In Titanium’s June 30,2003 balance sheet, what
amount should be reported as accrued rent receivable?
a. P60,000
b. P90,000
c. P150,000
d. P210,000

ON December 31,2003, Soap Corporation signed an operating lease for a warehouse with
Opera Company for ten years at P30,000 per year. Upon execution of the lease, Opera
paid Soap P60,000, covering rent for the first two years. Soap closed its books on
December 31 and correctly reported P60,000 as gross rental income in its 2003 income
tax return.

How much should be shown in Soap’s 2003 income statement as gross rental
income?
a. P 0
b. P2,500
c. P30,000
d. P60,000
40. Rapp Company leased a new machine to Lake Company on January 1, 2002. The
lease expires on January 1, 2007. The annual rental is P90,000. Additionally, on
January 1, 2000, Lake paid P50,000 to Rapp as a lease bonus and P25,000 as a
security deposit to be refunded upon expiration of the lease. In Rapp’s 2002 income
statement, the amount of rental revenue should be.
a. 90,000 b. 100,000 c.125,000 d. 140,000

41. On October 1, 2002, Dean Company leased office space at a monthly rental of
P30,000 for 10 years expiring September 30, 2012. As an inducement for Dean to
enter into the lease, the lessor permitted Dean to occupy the premises rent-free from
October 1 to December 31, 2002. for the year ended December 31, 2002, Dean
should record rent expense of
0 b. 29,250 c. 87,750 d. 90,000

42. On December 31, 2002 , Bain Company sold a machine to Ryan and simultaneously
leased it back for one year. Pertinent information at this date follows:
Sales price 360,000
Carrying amount 330,000
Present value of reasonable lease rentals
(P3,000 for 12 months @ 12%) 34.100
Estimated remaining useful life 12 years
In Bain’s December 31, 2002 balance sheet, the deferred revenue from the sale of this
machine should be
a. 0 b. 4,100 c. 30,000 d. 34,100

3. On January 1, 1998, Worm Company signed a 12-year lease for warehouse space.
Worm has an option to renew the lease for an additional 8-year period on or before
January 1, 2001. During January 2000, Worm made a decision to exercise the
renewal option and made substantial improvements to the warehouse. The cost of
these improvements was P540,000, with an estimated useful life of 15 years. Worm
has taken a full years depreciation on this leasehold improvement. In the December
31, 2001, balance sheet, the carrying amount of this leasehold improvement should
be
a. 420,000
b. 468,000
c. 504,000
d. 510,000

4. On June 1, 2000, Oryx Company entered into a five-year nonrenewable lease,

commencing on that date, for office space and made the following payments to Cant
Properties:

Bonus to obtain lease 30,000

First month’s rent 10,000
Last month’s rent 10,000
 In its income statement for the year ended June 30, 2001, what amount should
Oryx report as rent expense?

a. 120,000
b. 120,500
c. 126,000
d. 135,000

2. On December 31, 2007, Lazarus Corporation leased equipment under a finance lease.
Annual lease payments of P200,000 are due December 31 for 10 years. The
equipment’s useful life is 10 years, and the interest rate implicit in the lease is 10%.
The capital lease obligation was recorded on December 31, 2007, at P1,350,000, and
the first lease payment was made on that date.
What amount should Lazarus include in current liabilities for this finance lease in
its December 31, 2007, balance sheet?
a. P65,000 c. P115,000
b. P85,000 d. P200,000
3. On January 2, 2007, Raphael Mining Company (lessee) entered into a 5-year lease for
drilling equipment. Raphael accounted for the acquisition as a finance lease for
P2,400,000, which includes a P100,000 bargain purchase option. At the end of the
lease, Raphael expects to exercise the bargain purchase option. Raphael estimates that
the equipment’s fair value will be P200,000 at the end of its 8-year life. Raphael
regularly uses straight-line depreciation on similar equipment.
For the year ended December 31, 2007, what amount should Raphael recognize as
depreciation expense on the leased asset?
a. P480,000 c. P300,000
b. P460,000 d. P275,000

State Repairs acquires equipment under a noncancelable lease at an annual rental of P45,
000, payable in advance for five years. After five years, there is a bargain purchase
option of P75, 000. The appropriate interest rate is 12 percent. What is the total present
value of the lease and the first year’s interest expense?
(use 2 decimal places for computation of PV)
a. P224,234 and P21,508
b. P224,550 and P21,546
c. P204,771 and P21,508
d. P204,771 and P19,173

On July 1, 2005 G leased a delivery truck from M under 3 year operating lease. Lease is
payable as follows:
· July 1, 2006, P60,000
· July 1, 2007, P90,000
· July 1, 2008, P210,000

The rent expense to be reported in the income statement of G for the year ended
December 31, 2005 is
 a. 30,000 b. 60,000 c. 90,000 d. 120,000

Stockton, Inc. leased machinery with a fair value of P250, 000 from Layton Machine Co.
on December 31, 2002. The contract is a 5- year noncancelable lease with an implicit
interest rate of 10 percent. The lease requires annual payments of P50, 000 beginning
December 31, 2002. Stockton appropriately accounted for the lease as a capital lease.
Stockton’s incremental borrowing rate is 12 percent. Assuming the present value of an
annuity due of 1 for 5 years at 10 percent is 3.79 and the present value of an annuity due
of 1 for 5 years at 12 percent to 3.60, what is the lease liability that Stockton should
report on the balance sheet at December 31, 2002?
a. P180,000 b. P189,500 c. P230,240 d. P239,540

X entered in a 5 year lease contract with Y. To obtain the right to the lease, X paid initial
payment of P100,000. The monthly rental is P20,000 payable every end of the year
starting year January 1, 2001, the year of signing. X also paid advance rental for 3
months
which is applicable to the last quarter of the contract.

In January 1, 2002, the following improvements on the leased property were

completed:

Economic life Cost scrap value

Mezzanine 5 years 60,000 -0-
Office ………. 3 years 120,000 6,000

The annual depreciation expense to be taken in the books of X is

a. 36,000 b. 50,000 c. 52,000 d. 55,000

LIABILITIES
6. HI reported the following items on its December 31, 2005 trial balance:
· Accounts Payable, P1,089,000
· Advances to officers and employees, P45,000
· Unearned Income, P288,000
· Outstanding gift certificates issued, redeemable with merchandise, P258,000
· Cash surrender value of life insurance, P75,000
· Bonds payable, face value, P5,550,000
· Discounts on bond payable, P225,000
· Accrued interest receivable, P39,000

How much should be reported in the December 31, 2005 balance sheet as total liabilities?
a. 7,210,000 b. 7,005,000 c. 6,960,000 d. 6,672,000
7. On January 1, 2005, GC received P300,000 covering first 2 years’ rent and a deposit of
P150,000 which is returnable at the end of the ten year lease . The else contract
commenced January 1, 2005.
As Of December 31, 2005 balance sheet, how much should be reported by GC as its
liabilities with respect to the above transactions?
CURRENT NON-CURRENT
a. 0 300,000
b. 150,000 150,000
c. 75,000 150,000
d. 150,000 75,000

9. On October 31, 2006, X discounted its own P1,000,000, 12% note payable for one
year.
In its income statement for the year ended December 31, 2006, X should report
interest expense of
a. 17,600 b. 20,000 c. 26,400 d. 30,000

On July 1, 2002, Riviera Manufacturing Co. issued a five year note payable with a face
amount of P250, 000 and an interest rate of 10 percent. The terms of the note require
Riviera to make five annual payments of P50, 000 plus accrued interest, with the first
payment due June 30, 2003. With respect to the note, the current liabilities section of
Riviera’s December 31, 2002, balance sheet should include
a. P12, 500 b. P50, 000 c. P62, 500 d. P75, 000

4. Monitor Company’s salaried employees are paid biweekly. Occasionally, advances

made to employees are paid back by payroll deductions. Information relating to
salaries for the calendar year 2007 is as follows:
12/31/06 12/31/07
Employee advances P 12,000 P 18,000
Accrued salaries payable 65,000
Salaries expense during the year 815,000
Salaries paid during the year (gross) 780,000

On December 31, 2007, what amount should Monitor report for accrued salaries
payable?
a. P100,000 c. P82,000
b. P94,000 d. P35,000

8. X issued a short term non-interest bearing note for cash loan received from a
bank. The bank discounted the note at 10%.

The effective interest paid by X for this loan is

a. 10% b. more than 10% c. less than 10% d. 9%
Tac Cute Co. is requiring a deposit of P 100 for each container that costs P80 each.
During the period, 100 containers were collected with deposit . These containers are
required to be returned within 3 months from date of issue. At the end of the period, 40
containers remained un-returned and out of these, 10 are expired and corresponding
deposits are forfeited.
How much is the outstanding liability on containers’ deposit?
a. 1,000 b. 4,000 c. 3,000 d. 2,400

RESTRUCTURING
On December 31, 2000 Sunrise Company is experiencing extreme financial pressure and
is in default in meeting interest payment on its long term note of P6,000,000 due on
December 31, 2002. The interest rate is 15% payable every end of the year.

In an agreement with the creditor, Sunrise Company obtained the following

changes in terms of note:
1. The accrued interest on December 31, 2000 is forgiven
2. The principal is reduced by P500,000.
3. The new interest rate is 8%
4. The new date of maturity is December 31, 2005.

What is the amount of gain/loss on the debt restructuring?

a. Gain of P 800,000 c. Gain of P900,000
b. Loss of P 800,000 d. Loss of P900,000

Woods, Inc. holds an overdue note receivable of P1, 600, 000 plus recorded accrued
interest of P128, 000. As a result of a court imposed settlement on December 31, 2002,
Woods agreed to the following restructuring arrangement:
Reduce the principal obligation to P1, 200, 000. Forgive the P128, 000 accrued
interest. Extend the maturity date to December 31, 2004. Annual interest of P120,
000 is to be paid to Woods on December 31, 2002 and 2003.
On December 31, 2002, Woods must recognize a loss from restructuring of
a. P0 b. P288, 000 c. P408, 000 d. P528, 000

As of December 31, 2006 X’s outstanding liabilities include:

· Note Payable, P2,000,000
· Accrued interest on the note, P400,000

The above date is also the maturity date of the liabilities. Since X has no cash
available to settle the due account, the creditor agreed to accept the land of X as
settlement. At the date of settlement, the land of X has recorded cost of
P1,500,000 and estimated to have realizable value of P2,200,000.
Under PAS 39, X should record
 a. gain on exchange of P900,000
b. gain on exchange of P700,000
c. gain on debt extinguishments of P900,000
d. gain on debt restructuring of P200,000

X has a 2- year P2,5000,000 loan, payable carrying 13% compounded annually. At

maturity date, X is in financial trouble and negotiated to transfer its machine as payment
of the matured liability. The bank accepted the offer and take over the machine which has
acquisition cost of P5,000,000 to X. The machine is being depreciated by X using
straight-line method over a period of 6 years, and estimated realizable value of P500,000
at the end of its life. At date of exchange it has remaining life of 4 years, and has fair
value of P3,100,000.

X should recognize gain on debt extinguishment of

a. 50,000 b. 92,250 c. 150,000 d. 192,250

WARRANTY
5. On April 1, 2000, Hole Company began offering a new product for sale under a one-
year warranty. Of the 5,000 units inventory at April 1, 2000, 3,000 had been sold by
June 30, 2000. Based on its experience with similar products, Hole estimated that the
average warranty cost per unit sold would be P80. Actual warranty costs incurred
from April 1 through June 30, 2000, were P70,000. At June 30, 2000, what amount
should Hole report as warranty liability, if based on experience, 90% of the units sold
would need repair?
a. 240,000
b. 170,000
c. 160,000
d. 146,000

9. East company manufactures stereo systems that carry a two-year warranty against
defects. Based on the past experience, warranty costs are estimated at 5% of sales for
the warranty period. During 2006, stereo system sales amounted to P5,000,000 and
warranty costs of P100,000 were incurred. In its income statement for the year ended
December 31,2006 East should report warranty expense of
a. 125,000
b. 100,000
c. 150,000
d. 250,000

10. W sells washing machines that carry a 3 year warranty against manufacturer’s
defects. Based on the company experience, warranty costs were estimated at
average of P30/unit sold. During 2005, W sold 24,000 washing machines and
paid warranty costs of P170,000.
 In its income statement for the year ended December 31, 2005, W should report
warranty expense of
a. P720,000 b. P550,000 c. P240,000 d. P170,000

1. G Company sells its only line product at average selling price of P500/unit. To promote its sales, a gift
item is offered to customers on the return of 5 empty containers as proof of purchase, plus remittance
of P50. The cost of gift item is P150/pc., and it is estimated that 80% of the proof of purchase will be
redeemed.
For the current year, G Company’s total sales for the product amounted to
P6,000,000, of which actual containers redeemed were 7,600.
How much of the estimated liability for premium payable should be reported in its
current year’s end balance sheet?
a. 20,000 b. 40,000 c. 60,000 d. 240,000

GIFT CERTIFICATE
5. At December 31, 2007, Laser Company had 1,000 gift certificates outstanding, which
had been sold to customers during 2007 for P75. Laser operates on a gross margin of
60%. How much revenue pertaining to the 1,000 outstanding gift certificates should
be deferred at December 31, 2007?
a. P0 c. P45,000
b. P30,000 d. P75,000

BONUS
6. The bonus agreement of Christian Company provides that the general manager shall
receive an annual bonus of 10% of the net income after bonus and after tax. The
income tax rate is 32%. How much should the general manager receive for the year
as bonus if the pre-tax income after bonus is P2,500,000?
a. 80,000 c. 170,000
b. 153,000 d. 250,000

11. The net income for year 2005 of PC before any deduction for bonus and income
tax amounted to P2,500,000.
Under an incentive compensation plan, the general manager is entitled to a year-
end bonus of 10% of the net income before deducting the bonus, but after
deducting the income tax. The prevailing income tax rate is 32%

The manger’s bonus for 2005 was

a. P157,620 b. P164,729 c. P170,000 d. P175,620

F has an agreement to pay it manager a 5% bonus . The bonus is to be computed on

income
after bonus and tax of 35%. The business earnings amounted to P8,000,000 before
P57,692
real property tax, before bonus and 35% income tax.
 How much bonus should be provided to the manager?

a. 380,952 b. 378,205 c. 251,816 d. 250,000

BOND ISSUE
12. During 2003, Haching company issued 3,000 of its 9%, P1,000 face value bonds at
102. In connection with the sale of these bonds, Haching paid the following expenses:
Promotion costs P 50,000
Engraving and printing 60,000
Underwriter’s commission 200,000
What amount should Haching record as bond issue costs to be amortized over the term of
the bonds
a. 50,000
b. 60,000
c. 110,000
d. 310,000

13. On June 30,2006, Huff Corporation issued at 99, four thousand of its 8%, P1,000
bonds. The bonds were issued through an underwriter to whom Huff paid bond issue
cost of P340,000. On June 30,2006, Huff should report the bond liability at
a. 3,620,000
b. 3,960,000
c. 3,820,000
d. 4,000,000

14. The following information pertains to SF’s issuance of bonds on July 1, 2005:
· Face value, P1,000,000
· Term, 10 years
· Nominal interest, 8%
· Interest dates, July 1 and January 1
· Issued at yield of 12%, (effective interest)
· PV of an ordinary annuity of 1 for 10 periods, @ 4% = 8.11 and @ 6% = 7.36
· PV of an ordinary annuity of 1 for 20 periods, @ 4% = 13.59 and @ 6% = 11.47
· PV of an ordinary annuity of 1 for 10 periods, @ 8% = 6.71 and @ 12% = 6.14
· PV of an ordinary annuity of 1 for 20 periods, @ 8% = 9.92 and @ 12% = 8.51

What should be the issue price for each P1,000 bonds?

a. 977 b. 982,98 c. 770.60 d. 659.60

7. On April 1, 2000, Gerry Corp. issued, at 99 plus accrued interest, 2,000 of its 8%
P1,000 bonds. The bonds are dated January 1, 2000, mature on January 1, 2010, and
 pay interest on July 1 and January 1. Gerry paid bond issue costs of P20,000. From
the bond issuance, Gerry received net cash of
a. 2,020,000
b. 2,000,000
c. 1,980,000

6. On April 1, 2007, Florida Corporation. issued at 97 plus accrued interest, 2,000 of its
10%, P1,000 bonds. The bonds are dated January 1, 2007 and mature on January 1,
2017. Interest is payable semi-annually on January 1 and July 1. From the bond
issuance, Florida would receive net cash of -
a. P1,940,000
b. P1,965,000
c. P1,890,000
d. P1,990,000

On January 1, 2002 X issued 1,000 of its P1,000 face value bonds for P1,500,000. Each
bond had 4 detachable warrants eligible for the purchase of one share each of X’s P50 par
value common stock for P60. At date of issue of bonds, the following market value are
known:
- X’s bonds, ex-warrant P1,330
- Warrant P 17.50 each
- Common stock of X…… P 55.42
What is the amount to be reported as bond liability in the X’ balance sheet at date of
issue?
a. 1,425,000 b. 1,430,000 c. 1,439.996 d. 1,479,808

The company issued 10,000 5-year bonds, face value P500 each, sold at 105. Each bond
is carrying a warrant that permits the bondholder to purchase 10 common shares, P50 par
value, at P55 per share. At the date of issuance, the market value of bonds, ex-warrant
was 98.
If 40% of the warrants were exercised 12 months after the bonds were issued and when
the price for each share of common stock was P60, in the books of issuing company, how
much should be credited to additional paid in capital at date of exercise of the warrants?
a. 850,000 b. 350,000 c. 340,000 d. 200,000
The company issued 10,000 5-year bonds, face value P500 each, sold at 105. Each bond
is carrying a warrant that permits the bondholder to purchase 10 common shares, P50 par
value, at P55 per share. At the date of issuance, the market value of bonds, ex-warrant
was 98.
40% of the warrants were exercised 12 months after the bonds were issued and when the
price for each share of common stock was P60.
Upon the exercise of 40% stock warrants, what is the book value of remaining bonds if
the issue date and date of bonds are the same?
a. 4,880,000 b. 4,920,000 c. 5,060,000 d. 4,780,000
BOND INTEREST
8. Boni corporation issued P5,000,000 face value, 12% 10 year bonds on October 1,
2002 at 105. The bonds are dated October 1, 2002 and pay semiannual interest on
April 1 and October 1. What is the interest expense to be reported for the year 2002?
a. 143,750
b. 150,000
c. 156,250
d. 625,000

7. Michigan, Inc. issued P1 million, 12%, 20-year bonds at 102 plus accrued interest on
February 1, 2007. The bonds are dated January 1, 2007 and pay interest semiannually
every June 30 and December 31. The premium is to be amortized using the straight-
line method over the period during which the bonds are outstanding. Bond issue costs
totaled P50,000. The accrued interest on the bonds issuance date is -
a. P10,000 c. P30,000 P20,000 d. P50,000

9. On November 1, 2002, Mason Corporation issued P4,000,000 of its 10-year, 8% term

bonds dated October 1, 2002. The bonds were sold to yield 10% with the total
proceeds of P3,500,000 plus accrued interest. Interest is paid every April1 and
October 1. What should Mason report for interest payable in its December 31, 2002,
balance sheet?
a. 53,333
b. 80,000
c. 87,500
d. 100,000

A 2-year, 12% , P5,000,000 face value bonds were issued to yield effective interest of
10%.
The bonds were dated July, 2004 and issued the same date. It’s interest is payable every
June 30 and December 30.
What is the amount of interest expense to be reported for the year ended December 31,
2004?
a. 341,125 b. 300,000
c. 258,875 d. 250,000

On July 1, 2004 the company sells a P5,000,000 face value bonds at 97. The bonds are
dated June 30, 2004 and mature in 5 years and pay 12% interest semi-annually on June
30 and December 30.
The interest expense to be reported for the year ended December 31, 2005 is
a. 945,000 b. 630,000 c. 615,000 d. 600,000

BOND RETIREMENT
10. On its December 31, 2000 balance sheet, Molo Corporation reported bonds payable
at P8,000,000 and related unamortized bond issue cost of P430,000. The bonds had
 been issued at par. On January 2, 2001, Molo retired P3,200,000 of the outstanding
bonds at par plus a call premium of P200,000. What amount should Molo report in
its 2001 income statement as loss on extinguishments of debt?
a. 172,000 c. 415,000
b. 372,000 d. 315,000

11. The December 31, 2001 balance sheet of Ross Company included the following
items:
Bonds payable, 12% due December 31, 2010 4,000,000
Premium on bonds payable 108,000

The bonds were issued on December 31, 2000, at 103, with interest payable on
June 30 and December 31, of each year. On March 1, 2002, P2,000,000 bonds
were retired at 99 plus accrued interest. What should be the gain on retirement of
these bonds?
a. 53,000 c. 93,000
b. 59,000 d. 73,000

Laker, Inc. had outstanding 10 percent P1, 000,000 face value, convertible bonds
maturing on December 31, 2005. Interest is paid December 31 and June 30. After
amortization through June 340, 2002 the unamortized balance in the bond premium
account was P30, 000. On that date, bonds with a face amount of P500, 000 were
converted into 20, 000 shares of P20 par common stock, recording the conversion by
using the value of the bonds, Laker should credit Additional Paid in Capital for
a. P0 b. P85, 000 c. P100, 000 d. P115, 000

TAX ACCOUNTING
12. For the year ended December 31, 2000, Tyre Company reported pretax financial
statement income of P750,000. Its taxable income was P650,000. The difference is
due to accelerated depreciation for income tax purposes. The income tax rate is 32%
and Tyre made estimated tax payments during 1st 3 quarters of 2000 in the total
amount of P90,000. What amount should Tyre report as current income tax payable
for 2000?
a. 118,000
b. 150,000
c. 208,000
d. 240,000

X’s books showed pre-tax income of P800,000 for the year ended December 31, 2003. In
the computation of income taxes, the following data were considered:
. gain from life insurance of the company president where the company is the
beneficiary….………………………………………………..P350,000
. Depreciation deducted for tax purposes in excess of
depreciation deducted for book purposes…………..50,000
. Estimated tax in 2003 paid for 1st 3 qtrs………..……………..78,000
 . Income tax rate………………………………………………………… 32%
What amount should X report as its current income tax liability on its December
31, 2003 balance sheet?
a. 50,000 b. 65,000 c. 82,000 d. 128,000
37. For the year ended December 31, 2002, Grim Company’s pretax financial statement
income was P200,000 and its taxable income was P150,000. The difference is due to
the following:
Interest income on saving deposits………………………. 70,000
Premium expense on keyman life insurance (Grim is the beneficiary) (20,000)
Total ………………………………………………………. 50,000

The income tax rate is 32%, In its 2002 income Balance sheet, what amount should
Grim report as current provision for income tax payable?
a. 48,000
b. 54,000
c. 64,000
d. 70,400

8. Quick Company leased a building and received the P360,000 annual rental payment on
June 15, 2007. The beginning of the lease was July 1, 2007. Rental income is taxable
when received. Quick’s tax rates are 30% for 2007 and 40% thereafter. Quick had no
other permanent or temporary differences. Quick determined that any deferred tax
asset is fully realizable.
What amount of deferred tax asset should Quick report in its December 31, 2007
balance sheet?
a. P54,000 c. P144,000
b. P72,000 d. P208,000

The Indy Company had taxable income of P12,000 during 2002. Indy used accelerated
depreciation for tax purposes (P3,400) and straight-line depreciation for
accounting purposes (P2,000). Assuming Indy had no other temporary
differences, what would the company's pretax accounting income be for 2002?

a. P1,400
b. P6,600
c. P13,400
d. P17,400

The prevailing tax rate is 35% .As of balance sheet date, the new tax law was enacted
implementing revised tax rate at 32% effective next year.
The taxable income per return is P1,000,000 and the temporary non-deductible
expenses, P100,000.
The current tax liability and deferred tax assets are
a. 320,000; 35,000
b. 350,000; 35,000
c. 320,000; 32,000
 d. 350,000; 32,000

2. For the year ended December 31, 2002, Grim Company’s pretax financial statement
income was P200,000 . To arrive at taxable income per Tax Code, the following
differences are considered which are part of the computation of GAAP income:
Interest income on saving deposits ……………………… 70,000
Premium expense on keyman life insurance (Grim is the beneficiary),(20,000)
Total ……………………………………………………..
50,000

The income tax rate is 32%, In its 2002 income Balance sheet, what amount should
Grim report as current provision for income tax payable?
a. 48,000 b. 54,000 c. 64,000 d. 70,400

RETIREMENT BENEFITS
9. Monitor Company’s salaried employees are paid biweekly. Occasionally, advances
made to employees are paid back by payroll deductions. Information relating to
salaries for the calendar year 2007 is as follows:
12/31/06 12/31/07
Employee advances P 12,000 P 18,000
Accrued salaries payable 65,000
Salaries expense during the year 815,000
Salaries paid during the year (gross) 780,000

On December 31, 2007, what amount should Monitor report for accrued salaries
payable?
a. P100,000 c. P82,000
b. P94,000 d. P35,000

10. On January 1, 2007, Stinx company had the following balances in its memorandum
records: Fair value of plan assets P3,200,000; Accrued Benefit Obligation
P3,200,000:

Other data related to the retirement benefit plan for 2006 are as follows:
Current service cost P140,000
Unrecognized prior service cost -0-
Contribution to the plan 204,000
Benefits paid 200,000
Actual return on plan assets 185,000
Discount rate 9%
Expected rate of return 6%
The retirement benefit expense for 2007 is
a. P143,000
b. P236,000
 c. P243,000
d. P436,000

On January 1, 2002, Cubs Corporation adopted a defined benefit pension plan. The plan's
service cost of P150,000 was fully funded at the end of 2002. Prior service cost was
funded by a contribution of P60,000 in 2002. Amortization of prior service cost was
P24,000 for 2002.

What is the amount of Cub's un-amortized past service cost at December 31, 2002?

a. P36,000
b. P60,000
c. P84,000
d. P90,000

The following information relates to the defined benefit pension plan for the McDonald
Company for the year ending December 31, 2002.

Projected benefit obligation, January 1 P4,600,000

Projected benefit obligation, December 31 4,729,000
Fair value of plan assets, January 1 5,035,000
Fair value of plan assets, December 31 5,565,000
Expected return on plan assets 450,000
Amortization of deferred gain 32,500
Employer contributions 425,000
Benefits paid to retirees 390,000
Settlement INTEREST rate 10%

Current Service cost for the year would be

a. P59,000.
b. P94,000.
c. P129,000.
d. P390,000.

At the start of the year, BoyD had the following balances in its pension benefit memo
records:
· Fair value of plan assets, P3,200,000
· Accrued benefit obligations, P3,200,000
During the year, the following data related to pension plan are available:
· current service cost, P140,000
· Contribution to the plan, P204,000
· Benefits paid to retirees, P200,000
· Actual return on plan assets, P185,000
· Discount rate, 9%
· Expected rate of return on plan assets, 6%
 BoyD’s retirement benefits expense for the year is
a. P143,000 b. P236,000 c. P243,000 d. 436,000

The following info are available pertaining to the defined benefit plan of DauzDos:
· Unamortized actuarian gain, P123,000
· Fair value of plan assets, 2,557,000
· Accrued benefit obligation, P2,800,000
How much should be shown in the balance sheet of DauzDos as Prepaid or
Accrued benefit cost?
a. Prepaid of P366,000
b. Prepaid of P 243,000
c. Accrued of P243,000
d. Accrued of P366,000

The agreed annual contribution to the defined contribution plan is P120,000.

The accumulated required contribution as of December 31, 2005 amounted to
P600,000,
and the actual contribution made as of the same date amounted to P650,000. If for
the succeeding year, the entity contributed P60,000, this will result to
a. prepaid benefit expense of ,P10,000
b. accrued benefit expense of P10,000
c. benefit expense for 2006 of P60,000
d. benefit expense for 2006 of P 70,000

SHARE CAPITAL
The accounts shown below appear in the December 31, 2003 trial of Hollow Corporation:

Preferred stock, authorized P0 par P10,000,000

Unissued preferred stock 3,600,000
Common stock, authorized P20 par 4,000,000
Unissued common stock 2,000,000
Subscription receivable, preferred stock 380,000
Subscription receivable, common stock 360,000
Subscribed preferred stock 600,000
Subscribed common stock 440,000
Treasury stock, preferred, at cost 1,360,000
Additional paid-in capital 1,700,000
Retained earnings 2,000,000

All subscription receivables are due in year 2004. How much is the total
stockholder’s equity of Hollow Corporation?

a. 11,040,000
 b. 11,780,000
c. 12,400,000
d. 13,760,000

Compute for the Stockholder’s Equity using the following data;

Bonds payable P300,000

Additional paid-in capital on common stock 50,000
Donated capital 40,000
Treasury stock at cost 20,000
Common stock, par P100 500,000
Common stock option warrants 100,000
Investments in marketable securities 70,000
Additional paid-in capital from treasury stock 15,000
Retained earnings 135,000

a. 720,000
b. 760,000
c. 820,000
d. 860,000

The Magic Lamp Corporation was incorporated on January 1, 2002, with following
authorized capitalization:
· 40,000 shares of common stock, no par value, stated value P40 per share
· 10,000 shares of 5% cumulative preferred stock, par value of P10 per
share

During 2002, Magic Lamp issued 24,000 shares of common stock for a total of
P1,200,000 and 6,000 shares of preferred stock at P16 per share. In addition, on
December 19,2002, subscriptions for 2,000 shares of preferred stock were taken at a
purchase price of P17. These subscribed shares were paid for on January 4, 2003.

What should Magic Lamp report as total contributed capital on its December 31,
2002 balance sheet?

a. 1,040,000
b. 1,262,000
c. 1,296,000
d. 1,330,000

11. The stockholders’ equity of May Co. revealed the following on January 1, 2007:
Preference Share, P100 par value P230,000
Paid-in Capital in Excess of Par - Preference 80,500
Ordinary Share, P15 par value 525,000
 Paid-in Capital in Excess of Par – Ordinary 275,000
Subscribed Ordinary Share 5,000
Retained Earnings 190,000
Notes Payable 400,000
Subscription Receivable — Ordinary 40,000
How much is the legal capital of the company?
a. P1.3055M c. P0.76M
b. P1.115M d. P0.755M

12. Queenie Corporation was incorporated on January 2, 2007. The following

information pertaining to Queenie’s ordinary stock transactions:
1/2/07 Number of shares authorized 80,000
1/1/07 Number of shares issued 60,000
7/1/07 Number of shares reacquired but not canceled 5,000
12/1/07 Two-for-one stock split
What is the number of shares of Queenie’s ordinary share outstanding at December
31, 2007?
a. 150,000 c. 115,000
b. 120,000 d. 110,000

Corridor Company issued 6,000 shares of its P10 par common stock to Max L. as
compensation for 1,000 hours of legal services performed. Max L. usually bills
P500 per
hour for legal services. On this data of issuance, the stock was selling at a public
trading at P150 per share.

By what amount should the additional paid in capital account of Corridor Company
will increase as a result of the issuance of those shares?

a. 60,000
b. 440,000
c. 900,000
d. 3,000,000

On July 1, 2003, Boom exchanged 2,600 shares of its p24 par value stock for land. A
few months ago, the land was appraised by an independent appraiser at P100,000.
Boom is currently trading at the stock exchange at P45. Earnings per share is P40.
How much should be debited to Land account?

a. P 62,400
b. P100,000
c. P104,000
d. P117,000
13. In 2006, Inna Corporation acquired 6,000 shares of its Pl0 par value ordinary shares
at P36 per share. During 2007, Inna issued 3,000 of these shares at P50 per share.
Inna uses the cost method to account for its treasury stock transactions.
What accounts and amounts should Inna credit in 2007 to record the issuance of the
3,000 shares?
Treasury Additional Retained Common
Stock Paid-in Capital Earnings Stock
a. - P102,000 P42,000 P6,000
b. - P144,000 - P6,000
c. P108,000 P 42,000 - -
d. P108,000 - P 42,000 -

14. Way Co. reported the following in its statement of equity on January 1, 2007:
Ordinary Share, PS par value, 200,000 shares
authorized; 100,000 shares issued P 500,000
Additional Paid-in Capital 1,500,000
Retained Earnings 516,000
P2,516,000
Less Treasury Stock, 5,000 shares at cost 40,000
Total shareholders’ equity P2,476,000

The following events occurred in 2007:

May 1 1,000 shares of treasury stock were sold for P10,000.
July 9 10,000 shares of previously unissued ordinary share were sold for P12
per share.
October 1 The distribution of a 2-for-1 stock split resulted in the ordinary share’s
par
value being halved.
Jennifer accounts for treasury stock under the cost method.
How many shares are issued and outstanding at December 31, 2007?
a. 220,000 and 216,000
b. 220,000 and 212,000
c. 110,000 and 106,0900
d. 100,000 and 95,000

Compute for the Stockholder’s Equity using the following data;

Bonds payable P300,000

Additional paid-in capital on common stock 50,000
Donated capital 40,000
Treasury stock at cost 20,000
Common stock, par P100 500,000
Common stock option warrants 100,000
Investments in marketable securities 70,000
Additional paid-in capital from treasury stock 15,000
Retained earnings 135,000
 a. 720,000
b. 760,000
c. 820,000
d. 860,000

TREASURY STOCKS
15. Following are shown on the balance sheet of Pay Company:
Capital Stock, P100 par, 1,000 shares P100,000
Premium on Capital Stock 2,000
Additional Paid-in Capital from Treasury Stock 3,000
Retained Earnings 75,000
Treasury Stock, 200 shares at cost 25,000

The whole 200 shares of treasury stock were sold for P20,000.
How would the resale of the treasury stock be recorded?
a. Cash 20,000
Treasury Stock 20,000
b. Cash 20,000
Premium on Capital Stock 2,000
Additional Paid-in Capital from Treasury Stock 3,000
Treasury Stock 25,000
c. Cash 20,000
Retained Earnings 5,000
Treasury Stock 25,000
d. Cash 20,000
Additional Paid-in Capital from Treasury Stock 3,000
Retained Earnings 2,000
Treasury Stock 25,000

. On July 1, 2005, Alto Corporation declared a 1 for 5 reverse stock split, when the
market value of stock was P100 per share. Prior to the split, Alto had P1,000,000
credited to capital stock, divided into 100,000 shares issued and outstanding. After the
split, the par value of the stock is
a. 2 b. 10 c. 20 d. 50

X grant of 30,000 stock appreciation rights enables key employees to receive cash equal
to the difference between P20 and the market price of the stock on the date each right is
exercised. The service period is year 2000 through year 2002, and the rights are
exercisable in 2003and 2004. The market price of the stocks was P25 and P28 on
December 31,. 2000 and 2001, respectively. As of December 31, 2001, what amount of
liability should be reported by X pertaining to stock appreciation right?
a. 240,000 b. 160,000 c. 110,000 d. 165,000
RETAINED EARNINGS/DIVIDEND
On May 31, 206, Ball Corporation’s board of directors declared a 10% stock dividend.
The market price of Ball’s 30,000 outstanding shares of P20 par value common stock was
P80 per share on that date. The stock dividend was distributed on July 31, 2006, whn the
stock’s market price was P100 per share. What amount should Ball credit to additional
paid in capital for this stock dividend?
a. 0
b. 240,000
c. 180,000
d. 300,000

16. The Powerpoint Corporation has two classes of stock outstanding: 9%, P20 par
Preference and P70 par Ordinary. During the fiscal year ending December 31, 2008,
the company had the following equity transactions in chronological order:
No. of Price per
Shares Share
Issue of preference share 10,000 P28
Issue of ordinary share 35,000 70
Reacquisition and retirement of preference 2,000 30
Purchase of treasury ordinary share 5,000 80
Stock split 2-for-1
Reissue of treasury ordinary share 5,000 52

Balances of the accounts in the shareholders’ equity section of the December 31,
2007 balance sheet were:
Preference Share, 50,000 shares P1,000,000
Ordinary Share, 100,000 shares 7,000,000
Paid-in Capital in Excess of Par, Preference 400,000
Paid-in Capital in Excess of Par, Ordinary 1,200,000
Retained Earnings 550,000

Dividends were paid at the end of the fiscal year on the common stock at P1.20 per
share and on the preferred stock at the preferred rate. Net income for the year was
P850,000.

How much should be the amount of Preference Share shown on the December 31,
2007 balance sheet?
a. P1,220,000
b. P1,160,000
c. P1,140,000
d. P1,116,000
17. On March 30, 2007, Mitz Co. declared a 30% ordinary share dividend. Shares were
selling on the market on this date at P25 per share. The par value is Pl0 per share and
180,000 shares are outstanding. In distributing the stock dividend, Mitz Co. issued
fractional share warrants totaling 600 shares. Assuming that 60% of the warrants are
exercised and the remaining warrants expire, the entry to record the exercise and
expiration of the fractional share warrants is -
a. Fractional Share Warrants Issued 15,000
Ordinary Share 9,000
PIC from Forfeited Warrants 6,000
b. Fractional Share Warrants Issued 6,000
Ordinary Share 3,600
PIC from Forfeited Warrants 2,400
c. Fractional Share Warrants Issued 15,000
Ordinary Share 3,600
PIC from Forfeited Warrants 11,400
d. Fractional Share Warrants Issued 15,000
Ordinary Share 15,000

18. Quebec Corporation, a calendar-year company, had sufficient retained earnings in

2007 as a basis for dividends, but was temporarily short of cash. Quebec declared a
dividend of P100,000 on April 1, 2007, and issued promissory notes to its
stockholders in lieu of cash. The notes, which were dated April 1, 2007, had a
maturity date of March 31, 2008, and a 10% interest rate. How should Quebec
account for the scrip dividend and related interest?
a. Debit Retained Earnings for P110,000 on April 1, 2007.
b. Debit Retained Earnings for P110,000 on March 31, 2008.
c. Debit Retained Earnings for P100,000 on April 1, 2007 and debit Interest Expense
for P10,000 on March 31, 2008.
d. Debit Retained Earnings for P100,000 on April 1, 2007 and debit Interest
Expense for P7,500 on December 31, 2007.

19. The directors of Pete Corporation, whose P50 par value ordinary share is currently
selling at P70 per share, have decided to issue a stock dividend. Pete has an
authorization for 250,000 ordinary shares, has issued 100,000 shares of which 10,000
shares are now held as treasury, and desires to capitalize P945,000 of the Retained
Earnings balance. To accomplish this, the percentage of stock dividend that the
directors should declare is -
a. 18.9% c. 12%
b. 15% d. 9%

20. Sine Co. had outstanding 20,000 shares of P100 par value 8% cumulative preference
shares and 30,000 shares of P50 par value ordinary shares on December 31, 2007. At
December 31, 2006, dividends in arrears on the preference shares were P80,000. Cash
dividends declared in 2007 totaled P300,000. The amounts paid to preference
shareholders and ordinary shareholders are:
 a. P80,000 and P220,000
b. P160,000 and P140,000
c. P220,000 and P80,000
d. P240,000 and P60,000

21. At December 31, 2006 and 2007, Eagle Company had outstanding 4,000 shares of
P100 par value 12% cumulative, fully participating preference share and 20,000 of
Pl0 par value ordinary share. At December 31, 2006, dividends in arrears on the
preference share were P24,000. Cash dividend declared in 2007 totaled P108,000.

What are the amounts of dividend per share on the preference and ordinary shares,
respectively?
a. P20.00 and Pl.40 c. P18.00 and Pl.40
b. P20.00 and Pl.80 d. P18.00 and Pl.80

WARRANTS
22. On March 2, 2007, Nanette Corporation issued 4,000 shares of 6% cumulative P100
par value preference share for P434,000. Each preference share carried one
nondetachable stock warrant which entitles the holder to acquire at P17, one share of
Nanette’s Pl0 par ordinary stock.

On March 2, 2007, the market price of the preference share without the warrants was
P90 per share and the market price of the stock warrants was P15 per warrant.

What is the amount credited to Paid-in Capital in Excess of Par- Preference by Nanette
on the issuance of the stock?
a. P0 c. P34,000
b. P8,000 d. P62,000

23. On July 1, 2007, Tools Company granted stock options to key employees for the
purchase of 20,000 shares of the company’s ordinary stock at P25 per share.

The options are intended to compensate employees for the next two years. The
options are exercisable within a four-year period beginning July 1, 2009 by grantees
still in the employ of the company. The market price of Tools’ ordinary share was
P33 per share at the date of grant. No stock options were terminated during the year.

How much should Tools charge to compensation expense for the year ended
December 31, 2007?
a. P0 c. P80,000
b. P40,000 d. P160,000

24. On May 1, 2007, Maine Company issued P2 million, 20-year, 10% bonds for
P2,120,000. Each P1,000 bond had a detachable warrant eligible for the purchase of
one share of Maine’s P50 par ordinary share for P60. Immediately after the bonds
 were issued, Maine’s securities had the following market values: 10% bonds without
warrants — P1,040; Warrants — P20; Ordinary Share P50 par — P56.

What amount should Maine record as additional paid-in capital?

a. P120,000 c. P40,000
b. P80,000 d. P0

BOOK VALUE PER SHARE

1. Below is the stock holders’ equity section of P
Preferred stock, 7%, P100 par value, 30,000 shares authorized
and issued, total liquidation value, P3,200,000 P3,000,000
Common stock, no par, 50,000 shares, authorized and issued 1,500,000
Donated Capital 500,000
Retained Earnings 4,500,000

All preferred dividends have been fully paid.

How much is the book value per share of common stock?

a. 125.80 b. 126.00 c. 130.00 d. 300

2. E Corp.s balance sheet reports the following stock holders’ equity:

5% Cumulative Preferred stock, P100 par, 5,000 shares issued
and outstanding……………………………………………P500,000
Common stock, P10 par, 50,000 shares issued and outstanding, P500,000
APIC………………………………………………………p300,000
Retained Earnings ………………………………………..P 700,000
Diviedends in arrears on the preferred stock amount tp P50,000. If E Corp
were to be liquidated, the preferred stockholders would receive par value
plus premium of P10/share.

How much would be the book value per share on common stock?
a. 24,000 b. 28,000 c. 29.50 d. 30.00

3. The stockholders’ equity of J Corp. on December 31, 2003 shown the following
balances:
10% Preferred stock, 5,000 shares, P100 par……………………P500,000
12% Preferred stock, 6,000 shares, P100 par…………………… 600,000
Common stock, 10,000 shares, P40 par………………………… 400,000
APIC…………………………………………………………… 320,000
Retained Earnings………………………………………………. 480,000
The 10% Preferred stock is cumulative and fully participating, while the 12% preferred
stock is non cumulative and fully participating. Dividends in arrears are 2 years.
What is the book value per share of common stock?
a. 44.00 b. 59.68 c. 60.27 d. 102.80

4. The stockholder’s equity of S Corp. shows the following balances on December 31,
2003:
10% Preferred stock, cumulative and non participating, P100 par, with liquidation value
of P110, 20,000 shares………………………………………..P2,000,000
Common stock, P100 par, 30,000 shares……………………. 3,000,000
Subscribed Common stock…………………………………. 1,000,000
Subscription Receivable……………………………………. 600,000
Treasury stock, 5,000 of common, at cost……………………….400,000
APIC……………………………………………………………..660,000
Retained earnings…………………………………………….. 1,580,000

What is the book value per share of common stocks, assuming

preferred dividends are in arrears since 2001?
a. 144.00 b. 149.70 c. 155.42 d. 161.14

EARNING PER SHARE

Ayos Company had the following capital structure during 2006:

Preferred stock, P 100 par, 4% cumulative, 25,000 shares

Issued and outstanding 2,500,000
Common stock, P50 par, 200,000 shares issued and outstanding 10,000,000

Ayos reported net income of P5,000,000 for the year ended December 31, 2006. Ayos
paid no preferred dividends during 2005 and paid P160,000 in preferred dividends during
2006. In its December 31, 2006 income statement, what amount should Ayos report as
basic earnings per share?
a. 24.50
b. 24.20
c. 24.80
d. 25

At January 1, 2006, Will Company had 500,000 shares of common stock outstanding. On
October 1, 2006, an additional 120,000 shares of common were issued for cash. Will also
had P4,000,000 of 8% convertible bonds outstanding at December 31, 2006, which are
convertible into 100,000 shares of common.

What is the number of hares that should be used in computing diluted earnings per share
on December 31, 2006?
a. 720,000
b 630,000
c. 600,000
d 530,000