to changes in actuarial assumptions 

              120,000
What is the balance of prepaid/ accrue benefit cost account on December 31, 2007?
a.      1,530,000                                               c. 1,770,000
b.     1,560,000                                                d. 1,680,000

1. PRC Company began selling a new calculator that carried a two year warranty against
defects in 2007.
    PRC projected the estimated warranty cost (as a percent of sales) as follows:
            First year warranty                                                             4%
            Second year warranty                                                        10%       
Sales and actual warranty repairs were:
             2007                           2008 
Sales                         5,000,000                   9,000,000        
Actual warranty repairs                    390,000                      900,000
What is the estimated warranty liability on December 31, 2007?
a.       670,000                                                             c.  700,000
b.      790,000                                                              d.  650,000

2. On December 31, 2007 Colt 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, 2009. The interest rate is 12% payable every December 31.
In an agreement with the creditor, Colt obtained the following changes in the terms of note:
a. The accrued interest on December 31, 2007 is forgiven.
b. The principal is reduced by 500,000.
c. The new interest rate is 8%.
d. The new date of maturity is December 31, 2011.
The present value of 1 at12% for four periods is 0.6355 and the present value of an
ordinary annuity of 1 at 12% for four periods is 3.0373.
How much is the gain or loss on extinguishment?
a.       2,504,750                                                    c. 1,888,338
b.      1,168,338                                                   d. 0

3. East Company leased machinery from Chin Company on January 1, 2007 for a 10-year
period (useful life of 20 years)
Equal annual payments under the lease are P200,000 and are due on January 1 of each year
starting January 1, 2007.
The present value at January 1, 2007 of the lease payments over the lease term discounted
at 10% was 1,352,000. The lease was appropriately accounted for as finance lease by
East because there is a very nominal bargain purchase option.
What is interest expense for 2008?
a.       106,720                                                                    c. 200,000
b.      115,200                                                            d. 0
4. The Cloak Corporation received the following report from its actuary at the end of the
year:

01/01/06 01/31/06

Unrecognized past service cost 500,000 450,000

Accumulated benefit obligation 6,000,000 6,400,000
Fair Value of pension plan assets 5,800,000 6,276,000
Actuarial net gain 800,000 ?
Benefits paid during the year 680,000
Contribution made during the year 520,000
Current service cost 495,000
Expected rate of return 10%
Settlement rate 12%
Ave. working lives of employees 20 years

What is the amount of net benefit expense to be charged against income for the year 2006?

a. 675,000 c. 716,000
b. 685,000 d. 875,000

5. Francisco Company was organized on January 2, 2006 with 300,000 ordinary shares
with a P6 par value authorized. During 2006, Francisco had the following stock
transactions:

January 2 Issued 60,000 shares at P10 per share

March 8 Issued 20,000 shares at P11 per share.
May 9 Purchased 7,500 shares at P12 per share.
July 2 Issued 15,000 shares at P13 per share.
August 17 Sold 5,000 treasury shares at P14 per share.

Francisco uses the FIFO method for purchase-sale purposes.

If Francisco uses the cost method to record treasury stock transactions, how much would
be the Share Premium at December 31,2006?

a. 445,000 c. 465,000
b. 455,000 d. 485,000

6. Genius Company reported an Accumulated Profits balance of P300,000at December

31,2005. In June 2006, Genius discovered that merchandise costing P100,000 had not
been included in the inventory in its 2005 financial statements. Assume Genius has 35%
tax rate.
What amount should Genius report as adjusted beginning Accumulated Profits and Losses
on January 1, 2006?

a. 235,000 c. 300,000
b. 365,000 d. 400,000

7. In 2004, Power Designs Corporation sold a layout design to Mass,Inc. and will receive
royalties of future revenues associated with the said layout design. On December
31,2005, Power Designs reported royalties receivable of P75,000 from Mass, Inc.
During 2006, Power Designs received royalty payments of P200,000. Mass,Inc. reported
revenues of P1,500,000 in 2006 from the layout design.

In its 2006 Income Statement, what amount should Power Designs report as royalty
revenue?

a. 125,000 c. 200,000
b. 175,000 d. 300,000

8. The following pertains to an operating sale and leaseback of equipment by Harbor Co.
on December 31,2005:

Sales price 420,000

Carrying amount 520,000
Monthly lease payment 37,334
Present value of lease payments/Fair Market Value 420,000
Estimated remaining life 12 years
Lease term 1 year
Implicit rate 12%

What amount of deferred loss should Harbor report at December 31, 2005?

a. 0 c. 100,000
b. 37,334 d. 200,000

9. The Puncher Co. launched a sales promotional campaign on June 30, 2006. For every
ten empty packs returned to Puncher, customers will receive an attractive food
container. The company estimates that only 30% of the packs reaching the market will
be redeemed. Additional information are as follows:

Units Amount
Sales of food packs 3,000,000 P9,000,000
Food containers purchased 60,000 180,000
Prizes distributed to customers 37,000

At the end of the year, Puncher recognized a liability equal to the estimated cost of
potential prizes outstanding.
What is the amount of this estimated liability?

a. 69,000 c. 159,000
b. 90,000 d. 180,000

10. Green Company has 2,000,000 shares of ordinary shares outstanding on December 31,
2005. An additional 100,000 shares are issued on April 1, 2006 and 240,000 more on
September 1. On October 1, Green issued P3,000,000 of 9% convertible bonds. Each
bond is convertible into 40 shares of ordinary shares. At the time of issue of the
convertible bonds, the market rate of the bonds without conversion option is equal to
its nominal rate. No bonds have been converted.

The number of shares to be issued in computing basic earnings per share and diluted
earnings per share on December 31, 2006 would be: