Professional Documents
Culture Documents
SET A
INSTRUCTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING QUESTIONS. FULLY
SHADE ONLY ONE BOX FOR EACH ITEM. STRICTLY NO ERASURES ALLOWED.
On January 2, 2008, Norzagaray Company acquired 20% of the 400,000 ordinary shares
of Imaw Corporation for P30 per share. The purchase price was equal to Imaw’s
underlying book value. Norzagaray plans to hold this stock to influence the
activities of Imaw.
2008 2009
On January 2, 2010, Norzagaray company sold 20,000 shares of Imaw at their quoted
price of P31 per share. During 2010, Imaw reported profit of P120,000 and on
October 31, 2010, Imaw paid dividends of P20,000. At December 31, 2010, after
significant stock decline, which is expected to be temporary, Imaw’s stock was
selling for P22 per share. After selling the 20,000 shares, Norzagaray does not
expect to exercise significant influence over Imaw, and the shares are classified
as available for sale.
The Marilao Company has the following transactions in the non-marketable shares of
the Sta. Maria Corp.
a. On January 2, 2004, Marilao purchased 4,000, P100 par value, ordinary shares
of Sta. Maria Corp. at P110 per share. Marilao debited investment In Stock
account.
b. The Sta. Maria Corp. was expanding on March 2, 2004, it issued share rights
to its shareholders. The holder needs four rights to purchase one ordinary
share at par. The best estimate of the fair value of the ordinary share on
that date was P140 per share. There was no quoted price for the rights. No
journal entry was made record the receipt of the rights.
c. On April 2, 2004, Marilao exercised all its share rights. The investment in
Stock account was charged for the amount paid.
d. Robinson, Marilao’s accountant, felt that the cash paid for the new shares
was merely an assessment since Marilao’s proportionate share in Sta. Maria
was not changed. Hence he credited all dividends (5% in December of each
year) to the Investment in Stock account until the debit was fully offset.
e. Marilao received a 50% share dividend from Sta. Maria in December 2008.
Because the shares received were expected to be sold, the company’s president
instructed Robinson not to make any entry for this dividend. The company did
sell the dividend shares in January 2009 for P150 per share. The proceeds
from the sale were credited to income.
f. In December 2009, Sta. Maria’ shares were split on a two-for-one basis and
the new shares were issued as no par shares. Marilao found that each new
share was worth P10 more than the P110 per share original acquisition cost.
For this reason, Marilao decided to debit the investment in stock account
with the additional shares received at 110 per share and credited revenue for
it.
g. In August 2010, Marilao sold one half (1/2) of its holdings in Sta. Maria at
P120 per share. The proceeds were credited to the investment in stock
account.
Marilao uses the average method in recording the sale of its investment in stock.
The fair value of the investment cannot be reliably measured since the shares of
Sta. Maria are not actively traded. Therefore, Marilao used cost to measure its
investment in Sta.Maria.
During 2009, Pampanga Company purchased 9,000 ordinary shares of Angeles Company
for P16 per share, 6,000 ordinary shares of Apalit Company for P33 per share and
P120, 000 of treasury notes at 101. These investments are intended to be held as
ready sources of cash and are classified as held for trading.
Also in 2009, Pampanga purchased 10,500 ordinary shares of Arayat Company for P29
per share. The securities are classified as available for sale.
During 2009, Pampanga received the following interest and dividend payment on its
investments:
On March 23, 2010, the 6,000 ordinary shares of Apalit were sold for P17 per share.
On june 30, 2010, the treasury notes were sold 100.5 plus accrued interest.
The following transactions of the Angat Company were completed during the year
2010:
Jan. 2 Purchased 20,000 shares of Bulacan Auto Co. for P40 per share plus brokerage
costs of P4, 500. These shares were classified as held for trading.
Feb. 1 Purchased 20,000 shares of Malolos Company ordinary shares at P125 per share
plus brokerage fee of P19,000. Angat classifies the shares as available for sale.
Apr. 1 Purchased P2, 000,000 of RP Treasury 7% bonds, paying 102.5 plus accrued
interest of P35, 000. In addition, the company paid brokerage fees of P18,000.
Angat classified these bonds as held for trading.
Oct. 1 Sold 3,000 shares of Malolos at its fair value of P132 per share.
The market values of the shares and bonds on December 31, 2010, are as follows:
On June 1, 2010, Natividad Mining Corp. acquired the rights to a coal mine
containing an estimated reserve of 2,000,000 tons of coal. The company estimated
that 25,000 tons of coal would be extracted and sold each month. Cost allocable to
coal was P7, 000,000.
Also on June 1, 2010, the company purchased an equipment to be used in the
production, costing P190, 000 which has an estimated useful life of 10 years. The
equipment was expected to become obsolete after all the coal deposits had been
extracted from the mine and only P10, 000 selling price of the equipment could be
expected. Production was in full blast since June 2, 2010.
Based on the above and the result of your audit, answer the ff.:
21 What would be the depletion expense for the year ended December 31, 2010
a. P1,050,000 c. P306,250
b. P 525,000 d. P612,500
22 What would be the depreciation expense on the new equipment for the year
ended December 31, 2010
a. P18,000 c. P15,750
b. P9,000 d. P16,625
In connection with your employment with Talavera Mining Corporation for the year
ended December 31, 2010, you noted that the company purchased for P10,400,000
mining property estimated to contain 8,000,000 tons of ore. The residual value of
property is P800,000
Building used in mine operations costs P800,000 and have estimated life of fifteen
years with no residual value. Mine machinery costs P1,600,000 with an estimated
residual value P320,000 after its physical life of 4 years.
Following is the summary of the company’s operations for the first year of
operations.
Based on the above and the result of your audit, answer the ff.:
Cost Accumulated
Depreciation
Machinery and equipment P1,380,000 P 367,500
Automobiles and Trucks 210,000 114,326
Leasehold improvements 432,000 108,000
Depreciation policy:
Additional information
a. Gabaldon entered into a 12-year operating lease starting January 1, 2007. The
leasehold improvements were completed on December 31, 2006 and the facility
was occupied on January 1, 2007
b. On july 1, 2010, machinery and equipment were purchased at a total invoice
cost of P325,000. Installation cost of P44,000 was incurred.
c. On August 30, 2010, Gabaldon purchased new automobile for P25,000.
d. On September 30, 2010, a truck with a cost of P48,000 and a carrying amount
of P30,000 on December 31, 2009 was sold for P23,500
e. On December 20, 2010, a machine with a cost of P17,000 a carrying amount of
P2,975 on date of disposition, was sold for P4,000
Based on the above and the result of your audit, answer the following:
Jan. 1 Purchased real property for P5,026,000, which included a charge of P146,000
representing property tax for 2010 that had been prepaid by the vendor; 20% of the
purchased price is deemed applicable to land and the balance to buildings. A
mortgage of P3,000,000 was assumed by Cuyapo on the purchase. Cash was paid for the
balance.
Jan. 15 Previous owners had failed to take care of normal maintenance and repair
requirements on the buildings, necessitating current reconditioning at a cost of
P236,800.
Feb. 15 Demolished garages in the rear of the building, P36,000 being recovered on
the lumber salvage. The company proceeded to construct a warehouse. The cost of
such warehouse was P540,800, which was P90,000 less than the average bids made on
the construction by independent contractors. Upon completion of construction, city
inspectors ordered extensive modifications to the building as a result of failure
on the part of the company to comply with building safety code. Such modifications,
which could have been avoided, cost P76,800.
Mar. 1 The company exchanged its own shares with a fair value of P320,000 (par
P24,000) for a patent and a new equipment. The equipment has a fair value of
P200,000
Apr. 1 The new machinery for the new building arrived. In addition, a new franchise
was acquired from the manufacturer of the machinery. Payment was made by issuing
bonds with a face value of P400,000 and by paying cash of P144,000. The value of
the franchise is set at P160,000, while the machine’s fair value is P360,000.
May. 1 The company contracted for parking lots and waiting sheds at a cost P360,000
and P76,800, respectively. The work was completed and paid for on June 1.
Dec. 31 The business was closed to permit taking the year-end inventory. During
this time, required redecorating and repairs were completed at a cost of P60,000.
Based on the above and the result of your audit, determine the cost of the
following:
33 Land
a. P940,000 c. P976,000
b. P1,005,200 d. P1,052,800
34 Buildings
a. P4,645,600 c. P4,762,400
b. P5,005,600 d. P4,681,600
35 Machinery and equipment
a. P360,000 c. P576,615
b. P560,000 d. 659,692
36 Land improvements
a. P360,000 c. P436,800
b. P76,800 d. P 0
37 Total property, plant and equipment
a. P6,764,400 c. P6,718,092
b. P6,731,200 d. P6,618,400
Llanera Corporation for the year 2010 disclosed the following property
dispositions:
Land
On January 15, a condemnation award was received as consideration for the forced
sale of the company’s land and building, which stood in the path of a new highway.
Building
On March 12, land and building were purchased at a total cost of P6,000,000, of
which 30% to the building on the corporate books. The real state was acquired with
the intention of demolishing the building, and this was accomplished during the
month of August. Cash proceeds received in September represent the net proceeds
from demolition of building.
Warehouse
On July 4, the warehouse was destroyed by fire. The warehouse was purchased on
January 2, 2004. On December 12, the insurance proceeds and the other funds were
used to purchase a replacement warehouse at a cost of P7,200,000.
Machine
On December 15, the machine was exchanged for a machine having a fair value of
P765,000 and cash of P108,000 was received.
Delivery truck
On November 13, the delivery truck was sold to a used car dealer.
Compute the gain or loss to be recognized for each of the following dispositions:
38 Land
a. P3, 720,000 gain c. P4,800,000 loss
b. P1,080,000 loss d. P 0
39 Building
a. P432,000 gain c. P 1,368,000 loss
b. P2,232,000 loss d. P 0
40 Warehouse
a. P1,800,000 gain c. P5,400,000 loss
b. P480,000 gain d. P 0
41 Machine
a. P36,000 gain c. P 288,000 gain
b. P27,000 gain d. P 0
42 Delivery truck
a. P636,000 loss c. P 66,000 loss
b. P636,000 gain d. P66,000 gain
On January 1, 2009, Cabiao Corporation purchased a tract of land (site number 101)
with a building for P1,800,000. Additionally, Cabiao paid a real state broker’s
commission of P108,000, legal fees of P18,000 and title guarantee insurance of
P54,000. The closing statement indicated that the land value was P1,500,000 and the
building value was P300,000. Shortly after acquisition, the building was razed at a
cost of P225,000.
The building is estimated to have a forty-year life from date of completion and
will be depreciated using the 150%-declining-balance method.
To finance the construction cost, Cabiao borrowed P9,000,000 on March 1, 2009. The
loan is payable in ten annual installments of P900,000 plus interest at the rate of
14%. Cabiao used part of the loan proceeds for working capital requirements.
Cabiao’s average amounts of accumulated building construction expenditures were as
follows:
Based on the above and the result of your audit, determine the following:
Jasmin Corporation was incorporated on January 2, 2016. The following items relate
to Jasmin's property and equipment transactions:
Depreciation policy:
Additional information:
1. The land improvements were completed on December 25, 2015 and is expected to
have a useful life of 12 years.
3. On July 1, 2017, machinery and equipment were purchased at a total invoice cost
of P325,000. Installation cost of P44,000 was incurred.
5. On September 30, 2017, a truck with a cost of P48,000 and a carrying amount of
P30,000 on December 31, 2016 was sold for P23,500
6. Jasmin entered into a P9,000,000 fixed-price contract with Joanne Builders, Inc.
on March 1, 2016 for the construction of an additional office building on the land.
The building was completed and occupied on September 30, 2017. Additional
construction costs were as follows:
Plans, specifications, and blueprints P 36,000
Architect's fees for design and supervision 285,000
To finance the construction cost, Jasmin borrowed P9,000,000 on March 1, 2016. The
loan is payable in ten annual installments of P900,000 plus interest at the rate of
14%. Jasmin used part of the loan proceeds for working capital requirements.
Jasmin's average amounts of accumulated building construction expenditures were as
follows:
For the period March 1 to December 31, 2016 P2,700,000
For the period January 1 to September 31, 2017 6,900,000
55. The adjusted balance of the property and equipment as of December 31, 2017 is
A. P26,656,500 B. P26,721,500 C. P26,931,500 D. P26,866,500
56. Which of the following statements best describes the principle for classifying
an issued financial instrument as either financial liability or equity?
59. An entity did not amortize the discount on its trading bond investment. What
effect would this have on the carrying amount of the investment and on net income,
respectively?
A. Overstated, overstated
B. Understated, overstated
C. Understated, understated
D. No effect, No effect
61. In a nonmonetary exchange, which of the following situations will require the
asset to be recognized at the carrying amount of the asset relinquished?
A. A delivery truck exchanged for a delivery van that can deliver four times the
quantity of goods to customers
B. The exchange transaction is intended to facilitate sales to customers
C. The cash flows from the new asset will be significantly different from cash
flows of the exchanged asset
D. The assets are both productive assets
63. Which of the following statements about the capitalization of borrowing cost as
part of the cost of a qualifying asset is true?
64. An entity incurred cost to modify its building and to rearrange its production
line. As a result, an overall reduction in production cost is expected. However,
the modification did not increase the building's fair value and the rearrangement
did not extend the production line's life. Should the building modification cost
and the production line rearrangement cost be capitalized?
A. The expiration of the period for which the entity has the right to explore in the
specific area unless the right is expected to be renewed
B. The absence of budgeted or planned substantive expenditure on further exploration
and evaluation activities in the specific area
C. A decision to discontinue exploration and evaluation activities in the specific
area when those activities have not led to the discovery of commercially viable
quantities of mineral resources
D. Lack of sufficient data to determine whether the carrying amount of the exploration
and evaluation asset is likely to be recovered in full from successful development or
by sale
67. For a fixed amount a month, an entity visits its customers' premises and performs
insect control services. If customers experience problems between regularly scheduled
visits, the entity makes service calls at no additional charge. Instead of paying
monthly, customers may pay a certain annual fee in advance. For a customer who pays
the annual fee in advance, the entity should recognize the related revenue
A. When the cash is collected
B. At the end of the fiscal year
C. At the end of the contract year after all of the services have been performed
D. Evenly over the contract year as the services are performed
68. At issuance date, the present value of a note payable shall be equal to its face
amount if the note
A. Bears a stated rate of interest which is realistic
B. Bears a stated rate of interest which is less than the prevailing market rate for
similar notes
C. Is noninterest bearing and the implicit interest rate is less than the prevailing
market rate for similar notes
D. Is noninterest bearing and the implicit interest rate is equal to the prevailing
market rate for similar notes
69. The gain or loss from extinguishment of a financial liability by issuing equity
instruments shall be presented in the statement of comprehensive income as
A. Other income or other expenses
B. Separate line item in profit or loss
C. Component of other comprehensive income
D. Component of finance cost
70. Plan assets are assets held by a long-term benefit fund that satisfies all of the
following conditions, except
A. The fund is legally separate from the reporting entity
B. The assets of the fund are to be used only to settle the employee benefit
obligations
C. The assets in the fund can be returned to the entity even if the remaining assets
of the fund are not sufficient to meet the plan's obligation
D. The assets are not available to the reporting entity's creditors even in bankruptcy
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