DySAS Center for CPA Review

2F & 3F Mitra Building, San Pedro Street, Davao City

Tel. No. (082) 224-43-20: E-mail Address – dysasrev@yahoo.com

Practical Accounting 1 John C. Frivaldo, CPA, MBA

FINAL PRE-BOARD EXAMINATION May 1, 2010 @ 1:00 – 4:00 pm
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INSTRUCTIONS: Mark the letter of your choice with a VERTICAL LINE on the answer sheet
provided. ERASURES NOT ALLOWED.

1. Hartford Industrial, Inc. is owned by five founding shareholders. On December 1, 2009, the
entity declared a property dividend for each shareholder that is payable on January 31,
2010. The carrying amount of the property is P1,000,000 and the fair value is P1,500,000.
However, the fair value is P1,800,000 on December 31, 2009 and P1,900,000 on January
31, 2010.
What is the dividend payable on December 31, 2009?
(a) P5,000,000 (b) P7,500,000 (c) P9,000,000 (d) P 0 C

2. Prince Company had a profit after tax of P15,000,000 for 2009. The following
appropriations have not been considered in this amount:
Arrears of cumulative preference dividend for 2 years 4,000,000
Ordinary dividends 5,000,000
Preference share premium payable on redemption 1,000,000
Exceptional profit, net of tax 4,000,000
The entity had 3,000,000 ordinary shares of P1 par value outstanding on January 1, 2009.
The following share transactions occurred during the current year:
Jan 1 Issued at P5 per share, P1 paid to date and entitled
to participate in dividends to the extent paid up 250,000
April 1 Full market price P3 per share issue 600,000
July 1 Purchase of own shares at P3.50 per share 400,000
The basic earnings per share should be reported at:
(a) P4.85 (b) P4.57 (c) P3.64 (d) P3.94 A

Net income per book 15,000,000

Exceptional profit 4,000,000
Adjusted net income 19,000,000
Preference dividend for current year (4M / 2) (2,000,000)
Preference share premium (1,000,000)
Net income to ordinary shares 16,000,000
January 1 (3M x 12/12) 3,000,000
January 1 (250T x 1/5 x 12/12) 50,000
April 1 (600T x 9/12) 450,000
July 1 (400T x 6/12) ( 200,000)
Average shares 3,300,000
Basic earnings per share (16M/ 3.3M) 4.85

Items 3 to 5:
On January 4, 2010, Grip Corp. paid P1,296,000 for 40,000 ordinary shares of Bread
Company. The investment represents a 30% interest in net assets of Bread and gave Grip
the ability to exercise significant influence over Bread’s operating and financial policy
decisions. Grip received dividends of P1 per share on December 4, 2010 and Bread
reported net income of P640,000 for the year ended December 31, 2010. The market value
of Bread’s ordinary shares at December 31, 2010 was P32 per share. The book value of
Bread’s net assets was P3,200,000 and:
- The fair market value of Bread’s depreciable assets, with an average remaining
useful life of 8 years, exceeded their book value by P320,000.
- The remainder of the excess of the cost of investment over the book value of net
assets purchased was attributable to goodwill.
3. What amount of investment revenue should be reported in Grip’s income statement for the
year ended December 31, 2010?
(a) P120,000 (b) P108,000 (c) P180,000 (d) P192,000 C
4. What is the carrying value of the investment in Bread ordinary shares on December 31,
2010?
(a) P1,280,000 (b) P1,436,000 (c) P1,296,000 (d) P1,368,000 B

Assume that the 40,000 shares represent a 10% interest in the net assets of Bread rather
than 30% interest.

5. What is the carrying value of the investment in Bread ordinary shares at December 31,
2010?
(a) P1,296,000 (b) P1,436,000 (c) P1,280,000 (d) P1,236,000 C

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

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

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

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

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

Original investment 800,000

Add: Share in net income
(180,000 x20%) 36,000
Less: Amortization
(200,000 / 10) 20,000 16,000
Total 816,000
Less: Dividends (40,000 x 20%) 8,000
Carrying value of Farley’s investment 808,000

10. Barby Company owns 30% of the outstanding common stock and 100% of the outstanding
noncumulative nonvoting preferred stock of Excel Company. In 1997 Excel declared
dividends of P200,000 on its common stock and P150,000 on its preferred stock. What
amount of dividend revenue should Barby report in its 1997 income statement?
(a) P210,000 (b) P150,000 (c) P350,000 (d) P 0 B

Dividend on preferred stock only 150,000

11. On January 1, 2009, Pie Company purchased available-for-sale debt securities with face
value of P2,000,000 for P1,900,500 including transaction costs of P100,500. The bonds
mature on December 31, 2011 and pay interest of 8% annually every December 31 with a
10% effective yield. On December 31, 2009, the bonds are quoted at 105. What amount of
unrealized gain on these bonds should be reported on the 2009 statement of changes in
equity?
(a) P169,450 (b) P199,500 (c) P300,000 (d) P179,500 A

12. On January 1, 2004, Pike Company purchased at par 5,000 of the P1,000 face value 8%
bonds of Kite Company to be held as long-term investment. The bonds mature on January
1, 2014 and pay interest semiannually on July 1 and January 1. Kite incurred heavy losses
from operations for several years and defaulted on the July 1, 2008 and January 1, 2009
interest payments. Because of the permanent decline in market value of Kite’s bonds, Pike
wrote down its investment to P4,000,000 at December 31, 2008. Pursuant to Kite’s plan of
reorganization effected on July 1, 2009, Pike received 50,000 shares of P100 par value 8%
cumulative preferred stock of Kite in exchange for the P5,000,000 face value bond
investment. The quoted market value of preferred stock was P70 per share on July 1, 2009.
What amount of loss should be included in the determination of Pike’s net income for 2009?
(a) P1,500,000 (b) P1,000,000 (c) P500,000 (d) P 0 C

1/1/2004 Investment in bonds P5,000,000

Cash P5,000,000
12/31/2008 Impairment loss 1,000,000
Investment in bonds 1,000,000
7/1/2009 Investment in stock 3,500,000
Loss on exchange 500,000
Investment in bonds 4,000,000
Fair value of asset received
(50,000 x 70) 3,500,000
Book value of asset given (4,000,000)
Loss on exchange ( 500,000)

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

14. Hide Company reports on a calendar-year basis. The 2008 and 2009 financial statements
contained the following errors:
2008 2009
Over (under) statement of ending inventory (100,000) 40,000
Depreciation understatement 40,000 60,000
Failure to accrue salaries at year-end 80,000 120,000
As a result of the above errors, 2009 net income would be:
(a) P240,000 understated (c) P220,000 overstated
(b) P240,000 overstated (d) P260,000 overstated B

15. Jin Company issued its 2008 financial statements on March 1, 2009. The following data are
provided by the company for the year ended December 31, 2008.
Amount owing to another entity for services rendered
during December 2008 P 300,000
Estimated long service leave owing to employees in
respect of past services 1,200,000
Estimated cost of relocating an employee from head office to a
branch in another city (employee will physically relocate
January 2009) 100,000
Estimated cost of overhauling machine every 5 years (the machine
Is 5 years old as of December 31, 2008) 150,000
How much should be recognized as provision on December 31, 2008?
(a) P1,200,000 (b) P1,300,000 (c) P1,600,000 (d) P1,750,000 A
16. East Company has several contingent liabilities at December 31, 2008. The auditor
obtained the following brief description of each liability:
- In May 2008, East became involved in litigation. In December 2008, the court assessed
a judgment for P1,600,000 against East. East is appealing the amount of the judgment.
Its attorneys believe it is probable that they can reduce the assessment on appeal by
50%. The appeal is expected to take at least at year.
- In July 2008, Davao City brought action against East for polluting the Davao River with
its waste products. It is probable that Davao City will be successful but the amount of
damages East might have to pay should not exceed P1,500,000.
- East has signed as guarantor for a P1,000,000 loan by First Bank to Northern Company,
a principal supplier to East. At this time, there is only a remote likelihood that East will
have to make payment on behalf of Northern Company.
How much should be accrued as provision on December 31, 2008?
(a) P1,600,000 (b) P1,500,000 (c) P3,100,000 (d) P2,300,000 D

Assessment on appeal (50% x 1,600,000) 800,000

Environment cost 1,500,000
Total provision 2,300,000

The loss from guaranty is not accrued because it is remote.

17. During 2008, Might Company filed suit against West Company seeking damages for patent
infringement. At December 31, 2008, Might’s legal counsel believed that is was probable
that Might would be successful against West for an estimated amount of P1,500,000. In
March 2009, Might was awarded P1,000,000 and received full payment thereof. In Might’s
2008 financial statements issued February 2009, how should this award be reported?
(a) As a receivable and revenue of P1,000,000.
(b) As a receivable and deferred revenue of P1,000,000.
(c) As a disclosure of a contingent asset of P1,000,000.
(d) As a disclosure of a contingent asset of P1,500,000. D

18. In packages of its products, Care Company includes coupons that may be presented at retail
stores to obtain discounts on other Care products. Retailers are reimbursed for the face
amount of coupons redeemed plus 10% of that amount for handling costs. Care honors
requests for coupon redemption by retailers up to three months after the consumer
expiration date. Care estimates that 70% of all coupons issued will ultimately be redeemed.
Information relating to coupons issued by Care during 2007 is as follows:
Consumer expiration date December 31, 2007
Total face amount of coupons issued P600,000
Total payments to retailers as of Dec. 31, 2007 P220,000
What amount should Curran report as a liability for unredeemed coupons at December 31,
2007?
(a) P 0 (b) P200,000 (c) P242,000 (d) P308,000 C

Total coupons issued and to be redeemed

(600,000 x 70% x 110%) P462,000
Total payments to retailers (220,000)
Liability for unredeemed coupons – 12/31/2000 P242,000

19. In packages of its products, Cork Company includes coupons that may be presented to
grocers for discounts on certain products of Cork on or before a stated expiration date. The
grocers are reimbursed when they send coupons to Cork. In Cork’s experience, 40% of the
coupons are redeemed, and one month generally lapses between the date a grocer receives
a coupon from a customer and the date Cork receives it. During 2007, Cork issued two
series of coupons as follows:
Consumer Amount disbursed
Issued on Total value expiration date as of 12/31/2007
1/1/2007 P100,000 6/30/2007 P34,000
7/1/2007 120,000 12/31/2007 P40,000
Cork’s December 31, 2007 balance sheet should include a liability for unredeemed coupons
of:
(a) P 0 (b) P8,000 (c) P14,000 (d) P48,000 B

20. On April 1, 2007, Ash Corporation began offering a new product for sale under a one-year
warranty. Of the 50,000 units in inventory at April 1, 2007, 30,000 had been sold by June
30, 2007. Based on its experience with similar products, Ash estimated that the average
warranty cost per unit sold would be P8. Actual warranty costs incurred from April 1
through June 30, 2007, were P70,000. At June 30, 2007, what amount should Ash report
as estimated warranty liability?
(a) P90,000 (b) P160,000 (c) P170,000 (d) P330,000 C
Warranty expense (30,000 x 8) P240,000
 Less: Actual warranty cost 70,000
Warranty liability – June 30, 2007 P170,000

21. You are given the data as follows for CHIN UP CORPORATION:
Net Assets at the beginning of the year P130,000
Net Assets at the end of the year 175,000
Dividends declared 8,000
Capital Stock Issued 70,000
The net income (loss) is:
(a) Net loss – P107,000 (c) Net income – P107,000
(b) Net income – P17,000 (d) Net loss – P17,000 D

Net assets at the end of the year P 175,000

Net assets at the beginning of the year (130,000)
Increase in net assets P 45,000
Dividends declared 8,000
Capital Stock issued ( 70,000)
Net loss P 17,000

22. You are given the following closing entries of PASS NOW INC.:
Entry 1 Interest Revenue 4,700
Accounts Payable 1,900
Capital Stock 10,000
Sales 45,000
Income Summary 61,600
Entry 2 Income Summary 48,700
Gain on Sale of Land 3,000
Accounts Receivable 12,000
Operating expenses 4,200
Other Assets 3,500
Cost of Goods Sold 32,000
Entry 3 Income Summary 12,900
Retained Earnings 12,900
The properly computed net income is:
(a) P11,800 (b) P8,800 (c) P12,900 (d) P16,500 D

The answer is illustrated by the following closing entries:

Interest revenue 4,700
Sales 45,000
Gain on sale of land 3,000
Cost of good sold 32,000
Operating expenses 4,200
Income summary 16,500

Income Summary 16,500

Retained Earnings (net income) 16,500

23. Hilda made the following expenditures for research and development early in 2003; P15,000
for materials; P20,000 for contract services; P30,000 for employee salaries; and P250,000
for a building with an expected life of 20 years to be used for current and future research
projects. The company uses the straight line method of depreciation. The company
allocated P5,000 in overhead to research and development. What is the company’s
research and development expense?
(a) P315,000 (b) P82,500 (c) P300,000 (d) P77,500 B

Materials P15,000
Contract services 20,000
Employee salaries 30,000
Depreciation of building (250,000/ 20) 12,500
Overhead allocated to R & D 5,000
Research and development expense P82,500
24. Rose Company had sales of P5,000,000 during December 2009. Experience has shown that
merchandise equaling 7% of sales will be returned within 30 days and an additional 3% will
be returned within 90 days. Returned merchandise is readily resalable. In addition,
merchandise equaling 15% of sales will be exchanged for merchandise of equal or greater
value. What amount should Rose report for net sales in its income statement for the month
of December 2009?
(a) P4,500,000 (b) P5,000,000 (c) P3,750,000 (d) P4,250,000 A

Sales P5,000,000
Sales returns (10% x 5,000,000) ( 500,000)
Net sales P4,500,000

25. The owners of Zoot Suit Clothing Store are contemplating selling the business to new
interests. The cumulative net earnings for the past 5 years amounted to P450,000 including
extraordinary gains of P10,000. The annual earnings based on an average rate of return on
investment for this industry would have been P76,000. If excess earnings are to be
capitalized at 10%, then implied goodwill should be:
(a) P120,000 (b) P140,000 (c) P440,000 (d) P450,000 A

Average earnings (450,000 – 10,000/ 5) P88,000

Normal earnings (76,000)
Excess annual earnings P12,000
Implied goodwill (12,000/ 10%) P120,000

The owners of the RST Trading Company are planning to sell the business to new interests.
The cumulative net earnings for the past 5 years amounted to P550,000 including
extraordinary gains of P50,000. The appraised value of net assets was P750,000.

26. The general ledger of the Flint Corporation as of December 31, 2002 includes the following
accounts:
Organization costs P5,000
Deposits with advertising agency (will be used to
promote goodwill) 8,000
Discount on bonds payable 15,000
Excess of cost over book value of net assets
of acquired subsidiary 70,000
Trademarks 12,000
In preparation of Flint’s balance sheet as of December 31, 2002, what should be reported as
total intangible assets?
(a) P82,000 (b) P87,000 (c) P95,000 (d) P110,000 A

Excess of cost over book value of net assets

of acquired subsidiary P70,000
Trademarks 12,000
Total P82,000

27. Bend Company, having experienced financial difficulties in 2007, negotiated with a major
creditor and arrived at an agreement to restructure its notes payable on December 31,
2007. The creditor was owed principal of P3,600,000 and interest of P400,000 but agreed
to accept equipment worth P700,000 and note receivable from a Bend Company’s customer
with carrying amount of P2,700,000. The equipment had an original cost of P900,000 and
accumulated depreciation of P300,000. How much should be recognized as gain from debt
restructuring on December 31, 2007?
(a) P700,000 (b) P600,000 (c) P400,000 (d) P 0 A

Notes payable 3,600,000

Accrued interest 400,000
Total liability 4,000,000
Assets transferred:
Notes receivable 2,700,000
Equipment at book value
(900,000 – 300,000) 600,000 (3,300,000)
Gain from debt restructuring 700,000
28. JM Construction Co. started work on three jobs during the current year. Data relating to the
three jobs are given below:
Estimated
Contract Cost cost to Billings on Collections
Site price incurred complete contract on contract
Sasa P500,000 P375,000 P 0 P500,000 P400,000
Matina 700,000 100,000 400,000 100,000 50,000
Toril 250,000 100,000 100,000 0 0

What amount of income should be reported for the current year if the completed contract
method is used for all contracts?
(a) P100,000 (b) P125,000 (c) P240,000 (d) P375,000 B

Contract price P500,000

Less: Total cost incurred (375,000)
Income to be reported P125,000

29. On June 30, 2009, Lee Company sold equipment to an affiliated company for P5,500,000.
The equipment had a book value of P5,000,000 and a remaining life of 10 years. That same
day, Lee leased back the equipment at P15,000 per month for 2 years with no option to
renew the lease or repurchase the equipment. The present value of the lease payments
using the appropriate interest rate was P318,650 on June 30. Lee’s equipment rent
expense for the year ended December 31, 2009 should be:
(a) P110,000 (b) P90,000 (c) P50,000 (d) P40,000 B

Rent expense (15,000 x 6) P90,000

30. Sky Company has established a defined benefit pension plan for its employees. Annual
payments under the pension plan are equal to 3% of an employee’s highest lifetime salary
multiplied by the number of years with the company. An employee’s salary in 2009 was
P500,000. The employee is expected to retire in 10 years, and his salary increases are
expected to average 4% per year during that period. As of December 31, 2009, the
employee has worked for 15 years. The future value of 1 at 4% for 10 periods is 1.48.
What is the amount of annual pension payment that should be used in computing the
employees’ projected benefit obligation as of December 31, 2009?
(a) P555,000 (b) P375,000 (c) P333,000 (d) P225,000 C

Future salary (500,000 x 1.48) 740,000

Annual pension payment – PBO (740,000 x 3% x 15 years) 333,000

Annual pension payment – ABO (500,000 x 3% x 15 years) 225,000

Projected benefit obligation is based on future salary while accumulated benefit obligation is
based on current salary.

PAS dictates the concept of projected benefit obligation which reflects future salary
increases. Also, projected unit credit method considers future salary increase in computing
the defined benefit obligation.

31. Grant Company obtains the following from its actuary on January 1, 2009:
Projected benefit obligation P9,000,000
Fair value of plan assets 10,000,000
Unrecognized net actuarial loss 1,500,000
During 2009, the actuary determined the current service cost at P2,500,000 and interest
cost at P900,000. The expected and actual return on plan assets was P1,200,000. The
average remaining service period of the covered employees is 10 years. What is the total
benefit expense for 2009?
(a) P2,250,000 (b) P2,200,000 (c) P2,350,000 (d) P3,400,000 A

Unrecognized net actuarial loss 1,500,000

Corridor (10% x 10,000,000) (1,000,000)
Excess to be amortized 500,000

Current service cost P2,500,000

Interest cost 900,000
Expected return (1,200,000)
Amortization of actuarial loss (500,000 / 10) 50,000
Total benefit expense P2,250,000

32. If the assets of a business increased P120,000 during a period of time and its liabilities
increased P48,000 during the same period, owner’s equity in the business must have:
 (a) increased P72,000 (c) increased P168,000
(b) decreased P72,000 (d) decreased P168,000 A

33. The following information pertains to Malt Company on December 31 of the current year:
Property, plant and equipment P5,000,000
Accumulated depreciation 1,500,000
Accounts receivable 1,000,000
Prepaid insurance 50,000
Short-term note payable 150,000
Cash 500,000
Bonds payable 4,000,000
Total assets 8,950,000
Land 2,000,000
Accounts payable 800,000
Allowance for doubtful accounts 100,000
Merchandise inventory 1,300,000
Short-term investments 700,000
Wages payable 200,000
Total liabilities 5,450,000
Premium on bonds payable 300,000
The December 31 working capital is:
(a) P3,450,000 (b) P2,300,000 (c) P3,550,000 (d) P2,000,000 B

Accounts receivable P1,000,000

Prepaid insurance 50,000
Short-term note payable ( 150,000)
Cash 500,000
Accounts payable ( 800,000)
Allowance for doubtful accounts ( 100,000)
Merchandise inventory 1,300,000
Short-term investments 700,000
Wages payable ( 200,000)
Working capital P2,300,000

34. Dean Company acquired 100% of More Corporation prior to 2009. During 2009, the
individual companies included in their financial statements the following:
Dean More
Officers’ salaries P750,000 P500,000
Officers’ expenses 200,000 100,000
Loans to officers 1,250,000 500,000
Intercompany sales 1,500,000
What amount should be reported as related party disclosures in the notes to Dean’s 2009
consolidated financial statements?
(a) P1,500,000 (b) P1,550,000 (c) P1,750,000 (d) P3,300,000 C

Loans to officers (1,250,000 + 500,000) P1,750,000

35. The accounts below were taken from the unadjusted trial balance of Kase Corporation as at
December 31, 2009:
Cash, net of bank overdraft of P150,000 P600,000
Notes receivable (including discounted note of P100,000) 500,000
Trade accounts receivable, net of customers’ credit
balance of P50,000 700,000
Merchandise inventory 800,000
Trade accounts payable, net of creditors’ debit balances
of P100,000 800,000
What is the correct amount of current assets on December 31, 2009?
(a) P2,800,000 (b) P2,700,000 (c) P2,600,000 (d) P2,900,000 A

Cash (150,000 + 600,000) P 750,000

Notes receivable (500,000 - 100,000) 400,000
Trade accounts receivable (700,000 + 50,000) 750,000
Merchandise inventory 800,000
Creditors’ debit balances 100,000
Total current assets P2,800,000

Items 36 to 41:
 Presented below are the condensed income statement of Vital Corporation for the years
ended December 31, 2010 and 2009:
2010 2009
Sales 5,000,000 4,900,000
Cost of goods sold 3,350,000 3,300,000
Gross income 1,650,000 1,600,000
Operating expenses 675,000 650,000
Operating income 975,000 950,000
Gain on sale of division 200,000 0
Net income before income tax 1,175,000 950,000
Income tax expense (35%) 411,250 332,500
Net income 763,750 617,500
On October 10, 2010, Vital entered into an agreement to sell the assets of one of its
geographical segments. The geographical segment comprises operations and cash flows
that can be clearly distinguished, operationally and for financial reporting purposes, from
the rest of the company. The segment was sold on December 31, 2010, for P1,750,000.
The book value of the segment’s assets was P1,550,000. The segment’s contribution to
Vital’s operating income before tax for each year was as follows:
2010 113,750 loss
2009 81,250 income
Based on the above data, calculate the following:

36. Income from continuing operations in 2009:

(a) P617,500 (b) P670, 312 (c) P564,688 (d) P694,688 C
Operating income for 2009, as reported 950,000
Income from discontinued operations ( 81,250)
Income from continuing operations before tax 868,750
Income tax (35%) (304,062)
Income from continuing operations 564,688

37. Income from continuing operations in 2010:

(a) P837,688 (b) P707,688 (c) P559,812 (d) P763,750 B
Operating income for 2010, as reported 975,000
Loss from discontinued operations 113,750
Income from continuing operations before tax 1,088,750
Income tax (35%) (381,062)
Income from continuing operations 707,688

38. Net income in 2009:

(a) P645,938 (b) P950,000 (c) P617,500 (d) P564,688 C
Income from continuing operations in 2009 564,688
Post-tax income from discontinued operations
(81,250 x 65%) 52,812
Net income in 2009 617,500

39. Net income in 2010:

(a) P763,750 (b) P651,626 (c) P633,750 (d) P833,750 A
Income from continuing operations in 2010 707,688
Post-tax income from discontinued operations:
Gain on sale of assets
(200,000 x 65%) 130,000
Loss from disc. operations
(113,750 x 65%) (73,938) 56,062
Net income in 2010 763,750

40. Assume that by December 31, 2010, the segment had not yet been sold but was considered
held for sale. The fair value of the segment’s assets on December 31 was P1,750,000. The
post-tax income (loss) from discontinued operations for 2010 should be:
(a) (P73,938) (b) P73,612 (c) (P113,750) (d) P386,250 A
Post-tax loss from discontinued operations
(113,750 x 65%) (P73,938)

41. Assume that by December 31, 2010, the segment had not yet been sold but was considered
held for sale. The fair value of the segment’s assets on December 31 was P1,250,000. The
post-tax loss from discontinued operations for 2010 should be:
(a) P52,812 (b) P56,062 (c) P73,938 (d) P268,938 D
Post-tax loss from discontinued operations
(113,750 + 300,000 = 413,750 x 65%) P268,938
Fair value of assets P1,250,000
Carrying value (1,550,000)
Impairment loss P 300,000
42. Zeta Company had the following foreign currency transactions during 2009:
I. Merchandise was purchased from a foreign supplier on January 15, 2009 for the
Philippine peso equivalent of P4,500,000. The invoice was paid on March 15, 2009 at
the Philippine peso equivalent of P4,650,000.
II. On July 1, 2009, Zeta Company borrowed US dollars with Philippine peso equivalent of
P5,000,000 evidenced by a note that was payable in the lender’s local currency on July
1, 2010. On December 31, 2009, the Philippine peso equivalents of the principal and
accrued interest were P5,200,000 and P260,000, respectively. Interest on the note is
10% per annum.
In Zeta’s 2009 income statement, what amount should be included as foreign exchange
transaction loss as part of net income?
(a) P360,000 (b) P150,000 (c) P210,000 (d) P 0 A

Accounts payable – 1/15/2009 P4,500,000

Payment on 3/15/2009 4,650,000
Exchange loss P 150,000

Notes payable – 7/1/2009 P5,000,000

Exchange equivalent – 12/31/2009 5,200,000
Exchange loss P 200,000

Accrued interest payable (5,000,000 x 10% x 6/12) P 250,000

Exchange equivalent 260,000
Exchange loss P 10,000

Total exchange loss (150,000 + 200,000 + 10,000) P 360,000

43. During 2009, Fight Corporation acquired a plot of land for P1,000,000. At the end of 2009,
the land was appraised at P1,600,000 and has a zonal valuation of P1,500,000. During the
year, the general price level rose to 12%. In the preparation of the constant-peso
statements, land should be presented on the balance sheet as:
(a) P1,120,000 (b) P1,500,000 (c) P1,600,000 (d) P1,000,000 A

Value of land (1,000,000 x 112/100) P1,120,000

44. A store uses the gross profit method to estimate inventory and cost of goods sold for
interim reporting purposes. Past experience indicates that the average gross profit rate is
25% of sales. The following data relate to the month of October:
Inventory cost, October 1 P255,000
Purchases during the month at cost 683,400
Sales 856,800
Sales returns 30,600
Using the data above, what is the estimated ending inventory at October 31?
(a) P206,550 (b) P214,200 (c) P295,800 (d) P318,750 D

Inventory cost, October 1 P255,000

Purchases during the month at cost 683,400
Cost of goods sold
[(856,800 – 30,600) x 75%] (619,650)
Estimated inventory, October 31 P318,750

45. Roces Company acquired a building in early 2000. The costs related to the acquisition
include:
Acquisition price P7,000,000
Options 300,000
Repairs 500,000
The options include P200,000 on the building acquired and P100,000 on the building which
was note acquired. The repairs include renovation, remodelling of office space and new
partitions prior to the occupancy of the building. What is the proper cost of the building?
(a) P7,800,000 (b) P7,300,000 (c) P7,500,000 (d) P7,700,000 D

Acquisition price P7,000,000

Options 200,000
Repairs 500,000
Total cost P7,700,000
46. During the first month of 2009, Julie Company entered into the following transactions:
a. Purchased a parcel of land with a building on it for P7,500,000 cash. The building which
will be used in operations, has an estimated useful life of 25 years and residual value of
P200,000. The assessed valuation for property tax purposes show the land at P650,000
and the building at P5,850,000.
b. Paid P250,000 for the construction of a cemented parking lot for customers.
c. Paid P50,000 for the construction of a new entrance to the building.
d. Paid P15,000 for a one-year insurance on the building.
How much is the cost of the building based on the above-transactions?
(a) P6,750,000 (b) P6,800,000 (c) P5,900,000 (d) P6,815,000 B

Allocated cost of building

(5,850,000/6,500,000 x 7,500,000) P6,750,000
New entrance 50,000
Total cost of building P6,800,000

47. Royal Corporation’s books disclosed the following information as of and for the year ended
December 31, 2009:
Net credit sales P2,000,000
Net cash sales 500,000
Merchandise purchases 1,000,000
Inventory at beginning 600,000
Inventory at end 200,000
Accounts receivable at beginning 300,000
Accounts receivable at end 700,000
Net income 100,000
Royal’s accounts receivable turnover is:
(a) 2.9 times (b) 3.6 times (c) 4.0 times (d) 5.0 times C

[2,000,000 / (300,000 + 700,000/ 2) ] 4 times

48. Recto Company is preparing its cash budget for the month ending November 30, 2009. The
following information pertains to Recto’s past collection experience from its credit sales:
Current month’s sales 12%
Prior month’s sales 75%
Sales two months prior to current month 6%
Sales three months prior to current month 4%
Cash discount( 2/30, net 90) 2%
Doubtful accounts 1%
Credit sales:
November – estimated P200,000
October 180,000
September 160,000
August 190,000
How much is the estimated credit to accounts receivable as a result of collections expected
during November?
(a) P170,200 (b) P174,200 (c) P176,200 (d) P180,200 C

November (200,000 x 12%) P 24,000

October (180,000 x 75%) 135,000
September (160,000 x 6%) 9,600
August (190,000 x 4%) 7,600
Estimated credit to accounts receivable P176,200

49. Rain Company’s revenues for the current year were as follows:
Consolidated revenue per income statement P1,200,000
Intersegment sales 180,000
Intersegment transfers 60,000
Combined revenues of all operating segments P1,440,000
Rain has a reportable segment if that operating segment’s revenues exceed:
(a) P6,000 (b) P24,000 (c) P120,000 (d) P144,000 D
50. Ty Company, a publicly owned corporation, assesses performance and makes operating
decisions using the following information for its reportable segments:
Total revenue P7,680,000
Total profit and loss 406,000
Included in the total profit and loss are intersegment profit of P61,000. In addition, Ty has
P5,000 of common costs for its reportable segments that are not allocated in reports used
internally. For purposes of segment reporting, Ty report segment profit of:
(a) P350,000 (b) P345,000 (c) p411,000 (d) P406,000 D

If segment information is used by management to assess performance for internal use, the
segment profit should include intersegment profits but common costs are not allocated.

* end of the examination – practical accounting 1*