PRACTICAL ACCOUNTING I

1.Joanna Company recorded journal entries for the declaration of P500,000 of dividends, the
increase in accounts receivable for services rendered of P300,000, and the purchase of
equipment for P150,000 for cash. What net effect do these entries have on equity?
a.
b.
c.
d.

Decrease of P650,000
Decrease of P350,000
Decrease of P200,000
Increase of P150,000

2. Eros Inn is a resort located in Palawan. The entity collects cash when guests make a reservation.
During December 2014, the entity collected P600,000 of cash and recorded the receipt by
recognizing unearned revenue. The entity had earned one-third of this amount and the other
two-thirds will be earned during January 2015. What is the impact of the adjusting entry on
December 31, 2014?
a.
b.
c.
d.

400,000 increase in equity

200,000 decrease in liability
600,000 increase in asset
200,000 decrease in equity

3. Karlo Inn is a resort located in Caticlan. During December 2014, PICPA held an annual
conference at the resort. The charges related to the conference totaled P4,000,000, of which 25%
had been paid. The entity failed to make the appropriate adjusting entry on December 31, 2014.
Which of the following statements is true?
a.
b.
c.
d.

Equity is overstated by P3,000,000

Equity is understated by P1,000,000
Assets are understated by P3,000,000
Assets are overstated by P1,000,000

4.During the first year of operations, Laurence Company recorded all purchases of supplies as
assets. Store supplies in the amount of P2,000,000 were purchased. Actual year-end store
supplies amounted to P500,000. What is the impact of the adjusting entry on store supplies?
a.
b.
c.
d.

Increase in net income P1,500,000

Increase in expenses P1,500,000
Decrease in store supplies P500,000
Decrease in accounts payable P500,000

5.Orville Company reported that the office Supplies account had a balance at the beginning of the
year of P40,000 before the reversing entry. Payments for purchases of office supplies during
current year amounted to P250,000 and were recorded as expense. A physical count at the end
of year revealed office supplies costing P50,000 were on hand. Reversing entries are made by
the entity. What is debited in the adjusting entry at year-end?
a.
b.
c.
d.

Office Supplies Expense P10,000

Office Supplies P10,000
Office Supplies Expense P240,000
Office Supplies P50,000

6.Cristy Company provided the following information for the current year:
Disbursements for purchases
Increase in trade accounts payable
Decrease in merchandise inventory
What is the cost of goods sold for the current year?
a. 1,155,000
b. 1,095,000
c. 1,005,000
d. 945,000

1,050,000
75,000
30,000

Page 2
7. On January 1, 2014, Mark Company reported total assets P5,400,000 and total liabilities
P3,240,000. During the year, share capital increased by P972,000 and the entity paid dividends
of P1,080,000 and reported net income of P1,080,000. What is the shareholders equity on
December 31, 2014?
a.
b.
c.
d.

1,890,000
1,998,000
3,132,000
3,186,000

8. Klaus Company provided the following information on December 31, 2014:

Total reported income since incorporation
Total cash dividends paid
Unrealized holding loss on trading investment
Total share dividends distributed
Prior period adjustment recorded January 1, 2014

1,700,000
( 800,000)
( 120,000)
( 200,000)
75,000

What amount should be reported as retained earnings on December 31, 2014?

a.
b.
c.
d.

655,000
700,000
580,000
775,000

9.Julius Company provided the following events for 2014:

Depreciation for 2012 was found to be understated
A litigation settlement resulted in a loss
The inventory on December 31, 2012 was overstated
The entity disposed of the recreational division at a loss
Income tax rate

30,000
25,000
40,000
500,000
30%

What would be the effect of these events on 2014 net income net of tax?
a.
b.
c.
d.

17,500
367,500
388,500
416,500

10. Meredith Company reported cash account balance of P4,500,000 before reconciliation. The
bank statement did not include a deposit of P230,000 made on the last day of the month. The
bank statement showed a collection by the bank of P94,000 and a customer check for P32,000
was returned marked NSF. A customer check for P45,000 was recorded on the books as
P54,000, and a check written for P7,900 was recorded as P9,700. What is the correct balance in
the cash account?
a.
b.
c.
d.

4,551,200
4,554,800
4,572,800
4,784,800

11. Jesus Company provided the following information for the current year:
Allowance for doubtful accounts, January 1
8,000
Credit sales
400,000
Accounts receivable deemed worthless and written off
9,000
As a result of aging of accounts receivable in early January 2015, it was determined that an
allowance for doubtful accounts of P5,500 was needed on December 31, 2014. What amount
should be recorded as bad debt expense for the current year?
a. 4,500
b. 5,500
c. 6,500
d. 13,500

Page 3
12. Erica Company took a physical inventory at the end of the year and determined that P475,000 of
goods were on hand. The entity determined that goods costing P60,000 were shipped f.o.b.
destination from a vendor. The goods were actually received by the entity three days after the
inventory count. The entity sold P25,000 worth of inventory shipped f.o.b. destination at yearend. What amount should be reported as inventory at year-end?
a.
b.
c.
d.

475,000
535,000
500,000
560,000

13. Ferdinand Company budgeted the following sales.

Sales on account
Cash sales

June

July

August

1,800,000
180,000

1,840,000
200,000

1,900,000
260,000

All merchandise is marked up to sell at invoice cost plus 20%. Merchandise inventory at the
beginning of each month is 30% of that month's projected cost of goods sold. What is the
amount of anticipated purchases for July?
a.
b.
c.
d.

1,632,000
2,076,000
1,700,000
1,730,000

14. Grace Company purchased a delivery van with a list price of P3,000,000. The dealer granted a
15% reduction in list price and an additional 2% cash discount on the net price if payment is
made in 30 days. Nonrefundable purchase taxes amounted to P40,000 and the entity paid an
extra P30,000 to have a special horn installed. What amount should be recorded as cost of the
van?
a.
b.
c.
d.

2,499,000
2,564,500
2,569,000
2,539,000

15. Christine Company incurred the following costs during the construction of an asset:
Fixed overhead for the year
Portion of P1,000,000 fixed overhead that would
be allocated to asset as a result of construction
Variable overhead attributable to self-construction

1,000,000
40,000
35,000

What amount of overhead should be included in the cost of the self-constructed asset?
a. 75,000
b. 35,000
c. 40,000
d.
0
16. On September 1, 2014, Arlyn Company purchased a new machine on a deferred payment basis. A
down payment of P200,000 was made and 4 annual installments of P600,000 each are to be made
beginning on September 1, 2015. The cash equivalent price of the machine was P2,300,000. Due
to an employee strike, the entity could not install the machine immediately and thus incurred
P30,000 of storage cost. Cost of installation excluding the storage cost amounted to P80,000.
What is the total cost of the machine?
a.
b.
c.
d.

2,300,000
2,380,000
2,410,000
2,600,000

Page 4
17. Mei Company purchased a new machine on October 31. A P120,000 down payment was made
and three monthly installments of P360,000 each are to be made beginning on November 30.
The cash price would have been P1,160,000. The entity paid no installation charges under the
monthly payment plan but a P20,000 installation charge would have been incurred with a cash
purchase. What amount should be capitalized as the cost of the machine?
a.
b.
c.
d.

1,220,000
1,200,000
1,180,000
1,160,000

18. Adrian Company purchased land for a manufacturing facility for P1,100,000. The entity paid
P70,000 to tear down a building on the land to make room for the construction of new building.
Salvage was sold for P10,000. Legal fees of P6,000 were paid for title investigation and making
the purchase. The entity paid architect fee P40,000, title insurance P4,000, liability insurance
during construction P14,000, and excavation P12,000. The contractor was paid P1,357,000. A
one -time assessment made by the city for sidewalks was P8,000. The entity installed lighting
and signage at a cost of P11,000. What is the total cost of the new building?
a.
b.
c.
d.

1,494,000
1,432,000
1,423,000
1,483,000

19. During 2014, Kathleen Company constructed an asset costing P10,000,000. The weighted
average accumulated expenditures on the asset during the year totaled P6,000,000. To help pay
for construction, P4,400,000 was borrowed at 10% on January 1, 2014, and funds not needed for
construction were temporarily invested in short-term securities, yielding P90,000 in interest
revenue. Other than the construction funds borrowed, the only other debt outstanding during the
year was a P5,000,000, 10-year, 9% note payable dated January 1, 2011. What is the amount of
interest that should be capitalized during 2014?
a.
b.
c.
d.

600,000
300,000
494,000
944,000

20. On January 1, 2014, Salve Company purchased equipment with a cost of P4,500,000, useful
life of 12 years and no residual value. The entity used straight line depreciation. On December
31, 2014, the entity determined that impairment indicators are present. The fair value less cost of
disposal of the asset is estimated at P3,850,000. The value in use is P3,500,000. There is no
change in the useful life or residual value. What amount should be reported as depreciation
expense for 2015?
a.
b.
c.
d.

275,000
350,000
375,000
385,000

21. Veronica Company provided the following information at year-end:

Copyright
Deposit with advertising agency used to promote goodwill
Bond sinking fund
Excess of cost over fair value of identifiable net assets of acquired subsidiary
Trademark
What amount should be reported as total intangible assets at year-end?
a.
b.
c.
d.

4,800,000
5,070,000
5,100,000
5,370,000

300,000
270,000
700,000
3,900,000
900,000

Page

22. Troy Company acquired a patent in exchange for 2,500 ordinary shares of P50 par value and
P750,000 cash. When the patent was initially issued to the original patentee, Troy Companys
share was selling at P75. When Troy Company acquired the patent, the share was selling for
P90. The patent should be recorded at what amount?
a.
b.
c.
d.

875,000
937,500
975,000
750,000

23. Felimyn Company is located in London but does business throughout Europe. The entity builds
and sells equipment used in manufacturing pharmaceuticals. At year-end, the entity had trading
securities P42,000, goodwill P300,000, prepaid insurance P24,000, patent P140,000, and a
customer list P260,000. What amount should be reported as intangible assets at year-end?
a.
b.
c.
d.

742,000
766,000
700,000
440,000

24. Richard Company incurred the following costs during the current year:
Laboratory research aimed at discovery of new knowledge
Costs of testing prototype and design modifications but economic viability
not yet achieved
Quality control during commercial production, including routine testing
Construction of research facilities having an estimated useful life of
6 years but no alternative future use
What total amount should be recognized as research and development expense?
a.
b.
c.
d.

180,000
45,000
270,000
360,000

555,000
855,000
585,000
285,000

25. Earl Company is being sued for illness caused to local residents as a result of negligence in
permitting the residents to be exposed to highly toxic chemicals. It is probable that the entity
would lose the suit and be found liable for a judgment costing anywhere from P1,200,000 to
P6,000,000. However, the most probable cost is P3,600,000. What should be reported in the
financial statements?
a. Accrual of loss contingency P1,200,000.
b. Accrual of loss contingency P3,600,000 and disclosure of an additional contingency
P2,400,000.
c. Accrual of loss contingency P3,600,000 but no disclosure of any additional contingency.
d. No accrual and disclosure of loss contingency.
26. Jeff Company paid all salaried employees on a biweekly basis. Overtime pay is paid in the next
biweekly period. The entity accrued salaries expense only on December 31.
Last payroll was paid on December 26, 2014, for the 2-week period ended
December 26, 2014. Overtime pay earned in the 2-week period ended December 26, 2013 was
P100,000. Remaining work days in 2013 were December 29, 30, 31 on which days there was no
overtime. The recurring biweekly salaries totaled P1,800,000.
Assuming a five-day work week, what amount should be recorded as liability on December 31,
2014 for accrued salaries?
a. 1,080,000
b. 1,180,000
c.
640,000
d.
540,000

Page

27. Merill Company has 35 employees who work 8-hour days and are paid hourly. On January 1,
2012, the entity began a program of granting the employees 10 days of paid vacation each year.
Vacation days earned in 2012 may first be taken on January 1, 2013.
Year

Hourly
Wages

2012
2013
2014

25.80
27.00
28.50

Vacation Days Earned Vacation Days Used

by Each Employee
by Each Employee
10
10
10

0
8
10

The entity has chosen to accrue the liability for compensated absences at the current rate of pay
in effect when the compensated time is earned. What is the accrued liability for compensated
absences on December 31, 2014? (Hint FIFO)
a.
b.
c.
d.

94,920
90,720
79,800
95,760

28. Czarina Company reported 10% bonds payable with net carrying amount of P5,700,000 on
December 31, 2014. The bonds which had a face value of P6,000,000 were issued at a discount
to yield 12%. The effective interest method of amortization is used. Interest was paid on January
1 and July 1 of each year. On July 1, 2015, the entity retired the bonds at 102. The interest
payment on July 1, 2015 was made as scheduled. What amount should be recorded as loss on
the early retirement of the bonds?
a.
b.
c.
d.

120,000
378,000
336,000
462,000

29. On January 1, 2014, Jeric Company issued P8,000,000 8% nonconvertible bonds at 104, due on
February 28, 2023. Each P1,000 bond was issued with 25 detachable share warrants, each of
which entitled the bondholder to purchase for P50 one ordinary share, par value P25. The bonds
without the warrants would normally sell at 95. On January 1, 2014, the fair value of ordinary
share was P40 and the fair value of the warrant was P2. What amount should be recorded as
share premium from share warrants?
a.
b.
c.
d.

400,000
416,000
720,000
832,000

30. Danica Company has four segments with the following information:
Segment
A
B
C
D

Total revenue
255,000
600,000
225,000
90,000

Profit (loss) Identifiable assets

30,000
(55,000)
6,000
4,000

900,000
800,000
450,000
225,000

For which of the segments would information have to be disclosed in accordance with
professional pronouncement?
a.
b.
c.
d.

Segments A, B, C, and D
Segments A, B, and C
Segments A and B
Segments A and D

Page
31.

On December 31, 2014, Rachell Company had bonds payable of P1,380,000 and interest
payable of P37,000. If the bonds are retired on January 1, 2015, for P1,530,000 what amount
should be reported as a loss on redemption?
a.
b.
c.
d.

37,000
113,000
150,000
187,000

32. On December 31, 2014 Lourdes Company reported 9% bonds payable due December 31,
2021 at P3,081,000. The bonds were issued on December 31, 2011 and have a face amount of
P3,000,000 with interest payable semiannually on July 1 and December 31. On January 1, 2015,
the entity retired P1,000,000 of these bonds at 98. What amount should be reported as gain on
the retirement of the bonds in 2015?
a. 141,000
b. 47,000
c. 21,000
d. 7,000

33. Patrick Company, an SME, has a deferred tax asset account with a balance of P300,000 at the
end of 2013 due to a single cumulative temporary difference of P750,000. At the end of 2014,
this same temporary difference has increased to a cumulative amount of P1,000,000. Taxable
income for 2014 is P1,700,000. The tax rate is 40% for 2014 but enacted tax rate for all future
years is 35%. It is probable that 70% of the deferred tax asset will be realized. What amount
should be reported for deferred tax asset on December 31, 2014?
a.
b.
c.
d.

262,500
280,000
245,000
595,000

34. Rowelma Company used the accrual method for financial reporting and the cash basis for
income tax reporting. Profit of P3,000,000 recognized for books in 2014 will be collected
P500,000 in 2015, P1,000,000 in 2016, and P1,500,000 in 2017. The enacted tax rates are 40%
for 2014, 35% for 2015, and 30% for 2016 and 2017. Taxable income is expected in all future
years. What amount should be reported on December 31, 2014 as deferred tax liability?
a. 1,200,000
b.
750,000
c.
925,000
d.
175,000

35. Jessa Company revealed that the cumulative taxable temporary differences totaled
P1,350,000 on December 31, 2014 and P960,000 on December 31, 2013. The tax rate for 2014
is 40% and the tax rate for future years is 30%. Taxable income for 2014 is P2,400,000 and
there are no permanent differences. What is the pretax financial income for 2014?
a.
b.
c.
d.

3,750,000
2,790,000
2,010,000
1,050,000

Page

36. Joan Company started business in 2008 by issuing 200,000 ordinary shares of P20 par for P36
each. In 2012, 20,000 of these shares were purchased for P52 per share and held as treasury
shares. On June 30, 2014, these 20,000 shares were exchanged for a property that had an
assessed value of P810,000. The shares are actively traded and had a fair price of P60 on June
30, 2014. The cost method is used to account for treasury shares. What is the amount of share
premium from treasury share transactions?
a.
b.
c.
d.

800,000
480,000
390,000
160,000

37. Jannah Company had 40,000 treasury shares with P10 par value on December 31, 2013
acquired at P11 per share. On June 30, 2014, the entity issued 20,000 treasury shares to
employees who exercised options under the employee share option plan. The fair value per
share was P13 on December 31, 2013, P15 on June 30, 2014, and P18 on December 31, 2014.
The share options had been granted for P12 per share. The cost method is used. What is the
balance of the treasury shares on December 31, 2014?
a.
b.
c.
d.

140,000
180,000
220,000
240,000

38. Gabriel Company had 420,000 ordinary shares of P25 par value outstanding. During the year,
the entity declared a 5% share dividend when the market price of the share was P36. Three
months later, the entity declared a P6 per share cash dividend. As a result of the dividends
declared during the year, what is the decrease in retained earnings?
a.
b.
c.
d.

3,402,000
3,171,000
3,276,000
2,646,000

39. Paolo Company offered all 10,000 employees the opportunity to participate in an employee
share-purchase plan. Under the terms of the plan, the employees are entitled to purchase 100
ordinary shares with par value of P1 at a 20% discount. The purchase price must be paid
immediately upon acceptance of the offer. In total, 8,500 employees accepted the offer, and each
employee purchased an average 80 shares at P22 per share when market price was P27.50. What
amount of compensation expense should be recorded?
a. 18,700,000
b. 5,500,000
c. 3,740,000
d.
0
40. Jenica Company had 200,000 ordinary shares, 20,000 convertible preference shares, and
P1,000,000 10% convertible bonds outstanding during the year. The preference shares are
convertible into 40,000 ordinary shares. During the year, the entity paid dividends of P0.90 per
ordinary share and P3.00 per preference share. Each P1,000 bond is convertible into 45 ordinary
shares. The net income for the year was P600,000 and the tax rate was 30%. What amount
should be reported as diluted earnings per share?
a.
b.
c.
d.

2.14
2.25
2.35
2.46

Page

41. On January 1, 2013, Kim Company had a held-to-maturity investment in bonds with a carrying
amount of P700,000. During the year, the entity determined it would not be able to collect all
contractual cash flows and the bonds have decreased in value to P600,000. It was determined
that this is a permanent loss in value. During 2014, events and economic conditions have
changed such that the impairment loss has decreased. The fair value of the bonds is now
P750,000. How much recovery of impairment loss should be reported in the income statement
for 2014?
a. 150,000
b. 100,000
c. 50,000
d.
0
42. Alyssa Company and Mae Company reported the following on December 31, 2014:
Alyssa
Mae
Liabilities
1,500,000
2,250,000
Share capitalordinary
6,000,000
5,550,000
Retained earnings
4,500,000
1,200,000
Alyssa Company acquired a 30% interest in Mae Company on December 31, 2014 for
P2,025,000. During 2015, Mae Company had net income of P750,000 and paid a cash dividend
of P300,000. What is the debit balance in the Equity Investment account on December 31,
2015?
a.
b.
c.
d.

2,025,000
2,160,000
2,225,000
2,175,000

43. Aimee Company provided the following data related to the pension plan.
December 31, 2013
Defined benefit obligation
Plan assets at fair value
Net actuarial loss
Discount rate
Expected rate of return

8,400,000
9,000,000
1,440,000
10%
8%

December 31, 2014

11,100,000
9,900,000
1,500,000
9%
7%

The contribution was P1,260,000 in 2014 and benefits paid totaled P1,125,000. What was the
actual return on plan assets in 2014?
a.
b.
c.
d.

900,000
765,000
600,000
465,000

44. Rina Company reported net income of P5,000,000 for the current year. Depreciation expense
was P1,900,000. The following working capital accounts changed:
Accounts receivable
Nontrading equity investment
Inventory
Nontrade note payable
Accounts payable

1,100,000 increase
1,600,000 increase
730,000 increase
1,500,000 increase
1,220,000 increase

Under the indirect method, what net amount of adjustments is required to reconcile net income
to net cash provided by operating activities?
a. 4,950,000
b. 1,050,000
c. 1,290,000
d.
310,000

Page

10

45. David Company reported net cash flow from operating activities for the current year at
P3,000,000. The following items are also reported in the financial statements:
Cash dividends paid on ordinary shares
Depreciation and amortization
Increase in accounts receivable

200,000
120,000
240,000

What was the net income for the current year?

a. 3,120,000
b. 2,960,000
c. 2,640,000
d. 2,560,000
46. Ben Company reported on December 31, 2014 assets of P6,000,000 and liabilities of
P2,500,000. All of the carrying amounts approximate fair value, except for land, which has a
fair value that is P400,000 greater than carrying amount. On December 31, 2014, Patrick
Company paid P6,100,000 to acquire Ben Company. What amount of goodwill should be
recorded as a result of this purchase?
a.
b.
c.
d.

2,600,000
2,200,000
100,000
0

47. Rey Company has 50,000 ordinary shares authorized with P10 par value. The following
transactions took place during the first year of operations:
Sold 20,000 ordinary shares for P25 per share.
Issued 5,000 ordinary shares in exchange for a patent fairly valued at P100,000.
What is the total contributed capital at year-end?
a.
b.
c.
d.

600,000
300,000
250,000
500,000

48. On January 15, 2014, Vancey Company paid property taxes on factory building for the calendar
year 2014 in the amount of P560,000. In the first week of April 2014, the entity made
unanticipated major repairs to plant equipment at a cost of P1,500,000. These repairs will
benefit operations for the remainder of the calendar year. What total amount of these expenses
should be reported in the second quarter ending June 30, 2014?
a. 1,640,000
b.
140,000
c.
640,000
d.
515,000
49. Marie Company, a lessor of office machines, purchased a new machine for P6,000,000 on

January 1, 2014, which was leased the same day to another entity. The machine is depreciated
P550,000 per year. The lease is for a four-year period expiring January 1, 2018, and provides for
annual rental payment of P1,000,000 beginning January 1, 2014. Additionally, the lessee paid
P640,000 to the lessor as a lease bonus. What amount of net rental revenue should be reported
on the leased asset for 2014?
a. 1,090,000
b. 1,160,000
c.
610,000
d.
450,000

Page

11

50. Jacqueline Company provided the following increases (decreases) in the statement of financial

position accounts on December 31, 2014 and 2013:

Cash and cash equivalents
Available for sale securities
Accounts receivable, net
Inventory
Long-term investments
Plant assets
Accumulated depreciation
Accounts payable
Dividend payable
Short-term bank debt
Long-term debt
Share capital, P10 par
Share premium
Retained earnings

120,000
300,000
80,000
(100,000)
700,000
( 5,000)
160,000
325,000
110,000
100,000
120,000
290,000

Net income for the year was P790,000. Cash dividend of P500,000 was declared. Building
costing P600,000 and with carrying amount of P350,000 was sold for P350,000. Equipment
costing P110,000 was acquired through issuance of long-term debt. A long-term investment was
sold for P135,000. There were no other transactions affecting long-term investment. The shares
were issued for cash.
1. What is the net cash provided by operating activities?
a. 1,160,000
b. 1,040,000
c.
920,000
d.
705,000
2. What is the net cash used in investing activities?

a.
b.
c.
d.

1,005,000
1,190,000
1,275,000
1,600,000

3. What is the net cash provided by financing activities?

a. 205,000
b. 150,000
c. 45,000
d. 20,000

Page

12

ANSWER
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

C
B
C
B
D
A
C
D
B
B

11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

C
C
D
C
A
B
C
D
C
B

21.
22.
23.
24.
25.
26.
27.
28.
29.
30.

C
C
C
C
B
C
A
B
C
B

31.
32.
33.
34.
35.
36.
37.
38.
39.
40.

C
B
C
C
B
D
C
A
C
C

41.
42.
43.
44.
45.
46.
47.
48.
49.
50.

B
B
B
C
A
B
A
C
C
1. C 2. A 3.A