LA SALLE UNIVERSITY

COLLEGE OF BUSINESS AND ACCOUNTANCY

Second Semester of A.Y. 2019-2020
INTEGRATED ENHANCEMENT COURSE FOR ACCOUNTANCY
FAR: Financial Accounting and Reporting by Lowelle C. Pacot, CPA, MMA
MULTIPLE CHOICE
1. Depletion expense 6. The most common method of recording depletion for
a. is usually not part of cost of goods sold. accounting purposes is the
b. includes tangible equipment costs in the depletion a. percentage depletion method.
base. b. decreasing charge method.
c. includes intangible development costs from the c. straight-line method.
depletion base. d. units-of-production method.
d. excludes restoration costs from the depletion base.
7. The activity method of depreciation
2. Which of the following most accurately reflects the a. is a variable charge approach.
concept of depreciation as used in accounting? b. assumes that depreciation is a function of the
a. The process of charging the decline in value of an passage of time.
economic resource to income in the period in c. conceptually associates cost in terms of input
which the benefit occurred. measures.
b. The process of allocating the cost of tangible d. all of these.
assets to expense in a systematic and rational
manner to those periods expected to benefit from 8. For income statement purposes, depreciation is a
the use of the asset. variable expense if the depreciation method used is
c. A method of allocating asset cost to an expense a. units-of-production. c. straight-line.

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account in a manner which closely matches the b. sum-of-the-years'-digits. d. declining-balance.

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physical deterioration of the tangible asset

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involved. 9. Use of the double-declining balance method
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d. An accounting concept that allocates the portion
of an asset used up during the year to the contra
a. results in a increasing charge to depreciation
expense.

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asset account for the purpose of properly b. means salvage value is deducted in computing the
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recording the fair market value of tangible assets. depreciation base.
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c. means the book value should not be reduced

3. The major difference between the service life of an below salvage value.
asset and its physical life is that d. all of these.
a. service life refers to the time an asset will be used
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by a company and physical life refers to how long 10. If an industrial firm uses the units-of-production
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the asset will last. method for computing depreciation on its only plant
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b. physical life is the life of an asset without asset, factory machinery, the credit to accumulated
consideration of salvage value and service life depreciation from period to period during the life of
requires the use of salvage value. the firm will
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c. physical life is always longer than service life. a. be constant. c. vary with unit sales.
d. service life refers to the length of time an asset is b. vary with sales revenue. d. vary with production.
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of use to its original owner, while physical life

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refers to how long the asset will be used by all 11. Use of the sum-of-the-years'-digits method
owners. a. results in salvage value being ignored.
b. means the denominator is the years remaining at
4. The term "depreciable cost," or "depreciable base," as the beginning of the year.
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it is used in accounting, refers to c. means the book value should not be reduced
a. the total amount to be charged (debited) to below salvage value.
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expense over an asset's useful life. d. all of these.

b. the cost of the asset less the related depreciation
recorded to date. 12. A graph is set up with "yearly depreciation expense"
c. the estimated market value of the asset at the end on the vertical axis and "time" on the horizontal axis.
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of its useful life. Assuming linear relationships, how would the graphs
d. the acquisition cost of the asset. for straight-line and sum-of-the-years'-digits
depreciation, respectively, be drawn?
5. The book value of a plant asset is a. Vertically and sloping down to the right
a. the fair market value of the asset at a balance b. Vertically and sloping up to the right
sheet date. c. Horizontally and sloping down to the right
b. the asset's acquisition cost less the total related d. Horizontally and sloping up to the right
depreciation recorded to date.
c. equal to the balance of the related accumulated
depreciation account.
d. the assessed value of the asset for property tax
purposes.

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 13. Roberts Truck Rental uses the group depreciation
method for its fleet of trucks. When it retires one of its
trucks and receives cash from a salvage company, the
carrying value of property, plant, and equipment will
be decreased by the
a. original cost of the truck.
b. original cost of the truck less the cash proceeds.
c. cash proceeds received.
d. cash proceeds received and original cost of the
truck.
14. Depreciation is normally computed on the basis of the
nearest
a. full month and to the nearest cent.
b. full month and to the nearest peso.
c. day and to the nearest cent.
d. day and to the nearest peso.
15. Which of the following disclosures is not required in
the financial statements regarding depreciation?
a. Accumulated depreciation, either by major classes
of depreciable assets or in total.
b. Details demonstrating how depreciation was
calculated.
c. Depreciation expense for the period.
d. Balances of major classes of depreciable assets, by
20. On July 1, 2016, Rodriguez Corporation purchased
factory equipment for ₱150,000. Salvage value was
estimated to be ₱4,000. The equipment will be
depreciated over ten years using the double-declining
balance method. Counting the year of acquisition as
one-half year, Gonzalez should record depreciation
expense for 2017 on this equipment of
a. ₱30,000. c. ₱27,000.
b. ₱26,280. d. ₱24,000.
21. Norris Corporation purchased factory equipment that
was installed and put into service January 2, 2016, at a
total cost of ₱60,000. Salvage value was estimated at
₱4,000. The equipment is being depreciated over four
years using the double-declining balance method. For
the year 2017, Norris should record depreciation
expense on this equipment of
a. ₱14,000. c. ₱15,000.
b. ₱28,000. d. ₱30,000.
22. On April 13, 2016, Foley Co. purchased machinery for
₱120,000. Salvage value was estimated to be ₱5,000.
The machinery will be depreciated over ten years
using the double-declining balance method. If
depreciation is computed on the basis of the nearest
full month, Foley should record depreciation expense

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nature and function. for 2017 on this machinery of
a. ₱20,800. c. ₱20,400.

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16. A general description of the depreciation methods
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applicable to major classes of depreciable assets
a. is not a current practice in financial reporting. 23. Vinson Co. purchased machinery that was installed

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b. is not essential to a fair presentation of financial and ready for use on January 3, 2016, at a total cost of
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position. ₱69,000. Salvage value was estimated at ₱9,000. The
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c. is needed in financial reporting when company machinery will be depreciated over five years using
policy differs from income tax policy. the double-declining balance method. For the year
d. should be included in corporate financial 2017, Vinson should record depreciation expense on
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statements or notes thereto. this machinery of

a. ₱14,400. c. ₱16,560.
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17. Harrison Company purchased a depreciable asset for b. ₱18,000. d. ₱27,600.

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₱100,000. The estimated salvage value is ₱10,000,

and the estimated useful life is 10 years. The straight- 24. A plant asset has a cost of ₱24,000 and a salvage value
line method will be used for depreciation. What is the of ₱6,000. The asset has a three-year life. If
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depreciation base of this asset? depreciation in the third year amounted to ₱3,000,
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a. ₱9,000 c. ₱10,000 which depreciation method was used?

b. ₱90,000 d. ₱100,000 a. Straight-line
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b. Declining-balance
18. Lennon Company purchased a depreciable asset for c. Sum-of-the-years'-digits
₱200,000. The estimated salvage value is ₱10,000, d. Cannot tell from information given
and the estimated useful life is 10,000 hours. Lennon
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used the asset for 1,100 hours in the current year. The 25. On January 1, 2016, Carson Company purchased a new
activity method will be used for depreciation. What is machine for ₱2,100,000. The new machine has an
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the depreciation expense on this asset? estimated useful life of nine years and the salvage
a. ₱19,000 c. ₱20,900 value was estimated to be ₱75,000. Depreciation was
b. ₱22,000 d. ₱190,000 computed on the sum-of-the-years'-digits method.
What amount should be shown in Carson's balance
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19. Starr Company purchased a depreciable asset for sheet at December 31, 2017, net of accumulated
₱150,000. The estimated salvage value is ₱10,000, depreciation, for this machine?
and the estimated useful life is 8 years. The double- a. ₱1,695,000 c. ₱1,335,000
declining balance method will be used for b. ₱1,306,666 d. ₱1,244,250
depreciation. What is the depreciation expense for the
second year on this asset? 26. On January 1, 2010, Barnes Company purchased
a. ₱17,500 c. ₱26,250 equipment at a cost of ₱50,000. The equipment was
b. ₱28,125 d. ₱37,500 estimated to have a salvage value of ₱5,000 and it is
being depreciated over eight years under the sum-of-
the-years'-digits method. What should be the charge
for depreciation of this equipment for the year ended
December 31, 2017?
a. ₱1,250 c. ₱1,389
b. ₱2,500 d. ₱5,625

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 27. On September 19, 2016, Rosen Co. purchased
machinery for ₱190,000. Salvage value was estimated
to be ₱10,000. The machinery will be depreciated over
eight years using the sum-of-the-years'-digits method. If
depreciation is computed on the basis of the nearest full
month, Rosen should record depreciation expense for
2017 on this machinery of
a. ₱40,903. c. ₱38,845.
b. ₱38,750. d. ₱35,000.
34. George Martin Corporation purchased a depreciable
28. On January 3, 2015, Lopez Co. purchased machinery.
The machinery has an estimated useful life of eight
years and an estimated salvage value of ₱30,000. The
depreciation applicable to this machinery was
₱65,000 for 2017, computed by the sum-of-the-years'-
digits method. The acquisition cost of the machinery
was
a. ₱360,000. c. ₱390,000.
b. ₱420,000. d. ₱468,000.
35. Windsor Company purchased a depreciable asset for
29. On January 2, 2014, Payne Company acquired
equipment to be used in its manufacturing operations.
The equipment has an estimated useful life of 10 years
and an estimated salvage value of ₱15,000. The
depreciation applicable to this equipment was
₱70,000 for 2017, computed under the sum-of-the-
33. McCartney Company purchased a depreciable asset for
₱250,000 on April 1, 2014. The estimated salvage
value is ₱25,000, and the estimated useful life is 5
years. The straight-line method is used for
depreciation. What is the balance in accumulated
depreciation on May 1, 2017 when the asset is sold?
a. ₱90,000 c. ₱105,000
b. ₱123,750 d. ₱138,750
asset for ₱300,000 on January 1, 2014. The estimated
salvage value is ₱30,000, and the estimated useful life
is 9 years. The straight-line method is used for
depreciation. In 2017, George Martin changed its
estimates to a total useful life of 5 years with a salvage
value of ₱50,000. What is 2017 depreciation expense?
a. ₱30,000 c. ₱50,000
b. ₱80,000 d. ₱90,000
₱300,000 on April 1, 2014. The estimated salvage
value is ₱30,000, and the estimated total useful life is
5 years. The straight-line method is used for
depreciation. What is the balance in accumulated
depreciation on May 1, 2017 when the asset is sold?
a. ₱118,000 c. ₱126,000

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years'-digits method. What was the acquisition cost of b. ₱148,500 d. ₱166,500
the equipment?

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a. ₱535,000 c. ₱565,000eH w 36. Jaunt Corporation purchased a machine on July 1,
b. ₱550,000 d. ₱541,667 2014, for ₱750,000. The machine was estimated to
have a useful life of 10 years with an estimated salvage

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30. Sears Corporation, which has a calendar year value of ₱42,000. During 2017, it became apparent
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accounting period, purchased a new machine for that the machine would become uneconomical after
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₱40,000 on April 1, 2012. At that time Sears expected December 31, 2021, and that the machine would have
to use the machine for nine years and then sell it for no scrap value. Accumulated depreciation on this
₱4,000. The machine was sold for ₱22,000 on Sept. machine as of December 31, 2016, was ₱177,000.
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30, 2017. Assuming straight-line depreciation, no What should be the charge for depreciation in 2017
depreciation in the year of acquisition, and a full year under generally accepted accounting principles?
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of depreciation in the year of retirement, the gain to be a. ₱106,200 c. ₱114,600

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recognized at the time of sale would be b. ₱123,000 d. ₱143,250

a. ₱4,000. c. ₱3,000.
b. ₱2,000. d. ₱0. 37. Gant Co. purchased a machine on July 1, 2017, for
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₱400,000. The machine has an estimated useful life of

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31. On January 1, 2017, the Accumulated Depreciation— five years and a salvage value of ₱80,000. The machine
Machinery account of a particular company showed a is being depreciated from the date of acquisition by the
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balance of ₱370,000. At the end of 2017, after the 150% declining-balance method. For the year ended
adjusting entries were posted, it showed a balance of December 31, 2017, Gant should record depreciation
₱395,000. During 2017, one of the machines which expense on this machine of
cost ₱125,000 was sold for ₱60,500 cash. This a. ₱120,000. c. ₱80,000.
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resulted in a loss of ₱4,000. Assuming that no other b. ₱60,000. d. ₱48,000.

assets were disposed of during the year, how much
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was depreciation expense for 2017? 38. A machine with a five-year estimated useful life and an
a. ₱85,500 c. ₱93,500 estimated 10% salvage value was acquired on January
b. ₱25,000 d. ₱60,500 1, 2015. The depreciation expense for 2017 using the
double-declining balance method would be original
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32. During 2017, Geiger Co. sold equipment that had cost cost multiplied by
₱98,000 for ₱58,800. This resulted in a gain of a. 90% × 40% × 40%. c. 60% × 60% × 40%.
₱4,300. The balance in Accumulated Depreciation— b. 90% × 60% × 40%. d. 40% × 40%.
Equipment was ₱325,000 on January 1, 2017, and
₱310,000 on December 31. No other equipment was 39. On April 1, 2015, Riley Co. purchased new machinery
disposed of during 2017. Depreciation expense for for ₱240,000. The machinery has an estimated useful
2017 was life of five years, and depreciation is computed by the
a. ₱15,000. c. ₱19,300. sum-of-the-years'-digits method. The accumulated
b. ₱28,500. d. ₱58,500. depreciation on this machinery at March 31, 2017,
should be
a. ₱160,000. c. ₱144,000.
b. ₱96,000. d. ₱80,000.

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 40. Mack Co. takes a full year's depreciation expense in the 46. Revaluation surplus is equal to
year of an asset's acquisition and no depreciation a. Fair value minus carrying amount
expense in the year of disposition. Data relating to one b. Carrying amount minus depreciated replacement
of Mack's depreciable assets at December 31, 2017 are cost
as follows: c. Value in use less present value of future cash flows
Acquisition year 2015 d. Present value of future cash flows less carrying
Cost ₱140,000 amount
Residual value 20,000
Accumulated 96,000 47. Which of the following is not an acceptable method of
depreciation measuring the fair value of a property that is being
Estimated useful life 5 years revalued?
a. Market approach
Using the same depreciation method as used in 2015, b. Proportional approach
2016, and 2017, how much depreciation expense c. Income approach (PV of CF: income & expenses)
should Mack record in 2016 for this asset? d. Cost approach (current replacement cost)
a. ₱16,000 c. ₱24,000
b. ₱28,000 d. ₱32,000 48. The fair valuation technique reflects the amount that
would be required currently to replace the service
41. Under the revaluation model, subsequent to initial capacity of an asset
recognition as an asset, an item of property, plant and a. Market approach
equipment shall be carried at b. Proportional approach
a. Cost c. Income approach
b. Revalued amount d. Cost approach
c. Cost less accumulated depreciation and any
accumulated impairment loss 49. This fair valuation technique uses process and other
d. Revalued amount less accumulated depreciation relevant information generated by market transactions

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and any accumulated impairment loss involving identical or comparable assets, liabilities, or
a group of assets and liabilities.

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42. What is the treatment of the accumulated depreciation
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on the date of revaluation? b. Proportional approach
a. Restated proportionately with the change in the c. Income approach

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gross carrying amount of the asset so that the d. Cost approach
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carrying amount after the revaluation equals the
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revaluation amount. 50. Subsequent to revaluation, the depreciation on the

b. Eliminated against the gross carrying amount of revalued asset is computed on
the asset and the net amount restated to the a. Fair value on revaluation date
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revalued amount of the asset. b. Carrying amount before the revaluation

c. Either a or b c. Historical cost
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d. Neither a nor b d. Any of these

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43. Revaluations of items of property, plant and 51. If the revalued asset is depreciable,
equipment are recorded using the a. Only the depreciated replacement cost can be used
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a. Proportional method in the revaluation procedures

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b. Elimination method b. Revaluation shall be made with sufficient

c. Replacement method regularity – at least every three years
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d. a or b c. A portion of the revaluation surplus is transferred

periodically to profit or loss
44. The revaluation surplus resulting from initial d. A portion of the revaluation surplus is transfer
revaluation of property, plant, and equipment shall be periodically to retained earnings
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treated in which one of the following?

a. Credited to retained earnings 52. Under the revaluation model, the gain or loss on
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b. Debited to the class of property, plant, and
equipment revalued and credited to revaluation
surplus
c. Deducted from current assets and added to the
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disposal of an item of property, plant and equipment is
computed as the difference between
a. The net proceeds and the carrying amount
b. The net proceeds and the revalued amount

property, plant and equipment c. The net proceeds and accumulated depreciation
d. Released to the income statement an amount d. The sales price and the carrying amount
equal to the difference between the depreciation
calculated on historical cost vis-a-vis revalued 53. A building with historical cost of ₱10,000,000 and
amount. accumulated depreciation of ₱4,000,000 is estimated
to have a fair value of ₱12,000,000. The income tax is
45. Revaluation of items of property, plant and equipment 30%. How much is the revaluation surplus?
is made a. ₱1,800,000 c. ₱2,000,000
a. Simultaneously b. ₱4,200,000 d. ₱6,000,000
b. Every year
c. On all assets in a class
d. a and c

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 54. A building with historical cost of ₱10,000,000 and b. ₱11,075,000 d. ₱11,150,000
accumulated depreciation of ₱4,000,000 is estimated
to have a replacement cost of ₱12,000,000. The 58. Kytee Corporation has the following information on
building has an effective life of 5 years and remaining January 1, 2017 relating to its land and building.
life of 10 years. The income tax is 30%. How much is Land ₱20,000,000
the revaluation surplus? Building 450,000,000
a. ₱1,400,000 c. ₱2,000,000 Accumulated depreciation 75,000,000
b. ₱4,200,000 d. ₱6,000,000
There were no additions or disposals during 2017.
55. A building acquired 10 years ago for ₱8,000,000 is Depreciation is computed using straight line method
estimated to have an effective life of 10 years and over 15 years for building. On June 30, 2017, the land
remaining economic life of 30 years. The building is and building were revalued as follows:
originally depreciated using the straight-line basis Replacement Depreciated
over an estimated life of 25 years. The replacement cost replacement cost
cost is ₱12,000,000. Land ₱35,000,000 ₱35,000,000
Building 600,000,000 480,000,000
A patio was added to the building 10 years ago for a
total cost of ₱3,000,000. The addition was originally The revaluation surplus as of December 31, 2017 is
estimated to have a useful life 20 years from the a. ₱125 million c. ₱130 million
completion of the construction. The patio is currently b. ₱127 million d. ₱135 million
estimated to have an effective life of 10 years and
remaining economic life of 15 years. The replacement Use the following information to answer the next four
cost is ₱4,200,000. questions:
Light Company bought a machine for ₱300,000 on
If the tax rate is 30%, how much is the total January 1, 2017. The machine’s life is 10 years and it is
revaluation surplus recognized on the revaluation estimated to have a zero residual value and is

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date? depreciated using the straight-line method.
a. ₱3,654,000 c. ₱2,986,000

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b. ₱4,012,000 d. ₱3,874,000
eH w The revalued amount of the machine is as follows:
December 31 Fair value of the
56. The following account balance relating to property, machine

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plant and equipment of Barba Company appear on the 2017 ₱360,000
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books on January 1, 2017. 2018 335,000
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Land ₱2,000,00 2019 320,000

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Building 15,000,00 The enacted tax was 30% for each year.
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Accumulated depreciation 3,750,000 59. The revaluation surplus in the equity section of Light
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Machinery 3,000,000 Company’s December 31, 2017 statement of financial

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Accumulated depreciation 1,500,000 position is

a. ₱60,000 c. ₱90,000
Assets have been carried at cost since their b. ₱39,000 d. ₱63,000
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acquisition. All assets were acquired on January 1,

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2007. The straight line method is used. 60. The amount of depreciation expense to be recognized
in 2018 is
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On January 1, 2017, the entity revalued the property, a. ₱32,500 c. ₱36,000

plant and equipment. On such date, competent b. ₱40,000 d. ₱42,500
appraisers submitted the following:
Replacement cost 61. The amount of revaluation surplus transferred to
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Land ₱5,000,000 retained earnings during 2018 is

Building 25,000,000 a. ₱6,667 c. ₱7,000
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Machinery 5,000,000 b. ₱4,333 d. ₱10,000

Ignoring income tax, what is the revaluation surplus 62. Light does not periodically transfer a portion of
on January 1, 2017? revaluation surplus within the equity on a piecemeal
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a. ₱ 8,500,000 c. ₱11,500,000 basis. The revaluation surplus in the equity section of

b. ₱15,000,000 d. ₱30,000,000 Light Company’s December 31, 2019 statement of
financial position is
57. What is the revaluation surplus on December 31, a. ₱77,000 c. ₱110,000
2017? b. ₱123,443 d. ₱109,500
a. ₱10,850,000 c. ₱11,050,000

SUGGESTED ANSWERS:
1. C 6. D 11. C 16. D 21. C 26. A 31. A 36. C 41. D 46. A 51. D 57. C
2. B 7. A 12. C 17. B 22. C 27. B 32. B 37. B 42. C 47. B 52. A 58. C
3. A 8. A 13. C 18. C 23. C 28. B 33. D 38. C 43. D 48. D 53. B 59. D
4. A 9. C 14. B 19. B 24. C 29. C 34. B 39. C 44. B 49. A 54. A 60. B
5. B 10. D 15. B 20. C 25. C 30. B 35. D 40. D 45. D 50. A 55. A 61. C
56. C 62. A

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