COLLEGE OF ACCOUNTANCY

FINAL EXAMINATION
ACCTG 206B
INSTRUCTIONs:
Make a summary of answer and show your solutions on a separate sheet of paper
no solution no points; and
send to my messenger account the picture of the summary of answers and solutions.
Multiple Choice
1. On January 1, 2006, GC had the following balances in its memo records with respect to a defined benefit
plan:
Fair value of plan assets, P5,000,000
Projected benefit obligation, P4,000,000
During the year, the current service cost is P1,550,000. Interest cost is to be recognized at 10%, while the
actual and expected return on plan assets is 12%. The entity funds P1,500,000 into the plan at the end of
the year. The benefit expense for year 2006 is
a. P1,750,00
b. P1,550,000
c. P1,350,000
d. P1,150,000
2. Piston Corporation has the following pension information for the year ended December 31, 2002:
Service cost P 225,000
Contributions to the plan 240,000
Actual return on plan assets 210,000
Projected benefit obligation (beginning of year) 2,700,000
Market-related and fair value of plan assets 1,800,000
(beginning of year)
Assuming the expected return on plan assets and the settlement rate are both 10 percent, what amount
should Piston report for pension expense for 2002?
a. P225,000
b. P285,000
c. P315,000
d. P495,000
3. PC leased office premises for a 5 year term starting January 1, 2005. Under the terms of the operating
lease, rent for the first year is P80,000 and rent for years 2 through year 5 is P125,000 per year. As an
incentive to enter the lease. PC granted the first 6 months of the lease rent-free. In its Income statement for
the year ended December 31, 2005, what amount should PC report as rental income?
a. P80,000
b. P108,000
c. P116,000
d. P120,000
4. X entered in a 5 year lease contract with Y. To obtain the right to the lease, X paid initial payment of
P100,000. The monthly rental is P20,000 payable every end of the year starting year January 1, 2001, the
year of signing. X also paid advance rental for 3 months which is applicable to the last quarter of the
contract. In January 1, 2002, the following improvements on the leased property were completed:
Economic life Cost scrap value
Mezzanine 5 years 60,000 -0-
Office ………. 3 years 120,000 6,000
The annual depreciation expense to be taken in the books of X is
a. 36,000
b. 50,000
c. 52,000
d. 55,000
5. State Repairs acquires equipment under a noncancelable lease at an annual rental of P45, 000, payable in
advance for five years. After five years, there is a bargain purchase option of P75, 000. The appropriate
interest rate is 12 percent. What is the first year’s interest expense? (use 2 decimal places for computation
of PV)
a. 21,508
b. P21,546
c. P21,508
d. P19,173
On January 1, 2006, Tudor Company issued its 10%, 5-year convertible debt instrument with a face amount of
P10 million for P10 million. Interest is payable every December 31 of each year. The debt instrument is
convertible into 90,000 ordinary shares with a par value of P100. When the debt instruments were issued, they
were selling at 97 without conversion option. Tudor Company incurred P80,000 transaction costs on the issue
of the debt instruments.
6. How much of the net proceeds represent the equity component?
a. 297,600
b. 9,920,000
c. 9,622,400
d. 10,000,000
7. How much of the net proceeds represent the debt component?
a. 297,600
b. 9,920,000
c. 9,622,400
d. 10,000,000
In 2004, ABC Company accrued, for financial statement reporting, estimated losses on disposal of unused
plant facilities of P900,000. The facilities were sold in March 2005 and a P900,000 loss was recognized for tax
purposes. Also in 2004, Danner paid P60,000 in premiums for a two-year life insurance policy in which the
company was the beneficiary.
8. Assuming that the enacted tax rate is 30% in both 2004 and 2005, and that ABC paid P468,000 in income
taxes in 2004, the amount reported as net deferred income taxes on ABC's balance sheet at December 31,
2004, should be a
a. P252,000 asset.
b. P216,000 asset.
c. P216,000 liability.
d. P270,000 asset.
9.ABC Co. has P5,000,000 of 8% convertible bonds outstanding. Each P1,000 bond is convertible into 30
shares of P30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31,
2004, the holders of P1,500,000 bonds exercised the conversion privilege. On that date the market price of
the bonds was 105 and the market price of the common stock was P36. The total unamortized bond
premium at the date of conversion was P350,000. ABC should record, as a result of this conversion, a
a. credit of P255,000 to share premium.
b. credit of P225,000 to share premium.
c. credit of P105,000 to Premium on Bonds Payable.
d. loss of P15,000.
Supposing that during the year 200a, the following common stock transactions transpired:
Year 200a Stock transactions Number of shares
January 1 Outstanding shares 10,000 shares
April 1 Issuance 5,000 shares
July 1 Reacquired treasury stock 3,000 shares
10. The average outstanding shares is
a. 147,000
b. 12,000
c. 12,250
d. 15,250
11. If the adjusted income before tax is P200,000 the basic earnings per share if the tax rate is 32% is
computed as follows:
a. 8.92
b. 16.33
c. 11.33
d. 11.10

12. ABC Incorporated has 2,500,000 shares of common stock outstanding on December 31, 2002. An
additional 500,000 shares of common stock were issued April 1, 2003, and 250,000 more on July 1, 2003.
On October 1, 2003, ABC issued 5,000, P1,000 face value, 7 percent convertible bonds. Each bond is
convertible into 40 shares of common stock. No bonds were converted into common stock in 2003. What is
the number of shares to be used in computing diluted earnings per share, respectively?
a. 2,925,000
b. 3,075,000
c. 3,050,000
d. 3,200,000
13.
14. Compute for the Stockholder’s Equity using the following data;
Bonds payable P300,000
Additional paid-in capital on common stock 50,000
Donated capital 40,000
Treasury stock at cost 20,000
Common stock, par P100 500,000
Common stock option warrants 100,000
Investments in marketable securities 70,000
Additional paid-in capital from treasury stock 15,000
Retained earnings 135,000
a. 720,000 c. 820,000
b. 760,000 d. 860,000
15. During, 2000, ABC company issued 5,000 shares of P100 par value convertible preferred stock for
P110 per share. One share of preferred stock can be converted into three shares of ABC’s P25 par
common stock at the option of the preferred stockholder. On December 31, 2001, when the market value of
the common stock was P40 per share, all of the preferred stock was converted. What amount should ABC
credit to common stock and additional paid in capital as a result of the conversion?
Common stock Additional paid in capital
a. 375,000 175,000
b. 375,000 225,000
c. 500,000 50,000
d. 600,000 0
16. ABC Corporation was organized on January 3, 2007, with authorized capital of 100,000 shares of P10
par common stock. During 2007, ABC had the following transactions affecting stockholders’ equity:
 January 7--Issued 40,000 shares at P12 per share
 December 2--Purchased 6,000 shares of treasury stock at P13 per share
The cost method was used to record the treasury stock transaction. ABC’s net income for 2007 is P300,000.
What is the amount of stockholders’ equity at December 31, 2007?
a. P640,000 c. P708,000
b. P702,000 d. P720,000
17. As of December 31, 2001 the following are the ledger balances of XYZ equity elements:
Common stock :
P20 PAR, 10,000,000 shares authorized,
250,000 shares issued and outstanding..... P 5,000,000
8% Preferred Stock:
P10 PAR, 40,000 shares authorized
100,000 shares issued and outstanding.............. 1,000,000
Preferred stock is cumulative but non-participating.
Dividend in arrears is 2 years, aside from the current year’s dividend.
If XYZ declared a cash dividend of P300,000, how much would be the dividend payable to common stock
shareholders?
a. 210,000 b. 140,000 c. 60,000 d. 50,000
18. At December 31, 2005 and 2006, C had outstanding 40,000 shares, P100 par, 6% cumulative preferred
stock and 200,000 shares, P10 par, common stock. At December 31, 2005, dividends in arrears on
preferred stock were P120,000. Cash dividend declared in 2006 totaled P440,000. Of the P440,000, what
amounts were payable on each class of stock?
a. 440,000 to preferred, and none to common
b. 360,000 to preferred, and 80,000 to common
c. 320,000 to preferred, and 120,000 to common
d. 240,000 to preferred, and 200,000 to common
19. The outstanding capital stock of Z at December 15, 2006, consisted of the following:
 30,000 shares of 10% cumulative preferred stock, par value P100/share, fully participating as to
dividends. No dividends were in arrears in prior years.
 200,000 shares of common stock P10 par.
On December 31,2006 Z declared dividends of P1,000,000. Compute for the dividends payable to
common.
a. 200,000 b. 400,000 c. 600,000 d. 700,000
20. Entity A is preparing its March 31, 20x1 bank reconciliation. The following information was determined:
 The cash balance per books is P280,000 while the cash balance per bank statement is P320,000.
 Credit memo – P20,000
 Debit memo – P15,000
 Deposits in transit – P75,000
 Outstanding checks – P25,000
 The disbursements per books are overstated by P45,000.
 The bank debits are understated by P40,000.
How much is the adjusted balance of cash?
a. 370,000 b. 330,000
 c. 285,000 d. 380,000

21. ABC Co.’s accounts receivable balances at the beginning and end of the period were P80,000 and
P100,000, respectively. Write-offs and recoveries during the period amounted to P10,000 and P8,000,
respectively. Collections of sales on account during the period totaled P120,000, excluding the recoveries.
How much is the total credit sales during the period?
a. 130,000
b. 150,000
c. 170,000
d. 210,000
22. On January 1, 20x1, ABC Co. received a 3-year, noninterest bearing note of P133,100 in exchange for
land with carrying amount of P100,000. The note is due on December 31, 20x3. The effective interest rate
is 10%. How much is the carrying amount of the note on December 31, 20x2?
a. 133,100
b. 121,000
c. 110,000
d. 100,000
23. ABC Company transferred loan assets with carrying amount and fair value of P100,000 to Tristan Co. for
cash amounting to P100,000. The terms of the transfer include a provision that any individual loan could be
called back but the aggregate amount of loans that could be repurchased could not exceed P10,000. How
much asset would be derecognized in the following transaction?
a. 100,000
b. 90,000
c. 110,000
d. 10,000
24. On June 30, 2002, ABC Company discounted a customer's P180,000, 6 month, 10 percent note receivable
dated April 30, 2002. A discount rate of 12 percent was charged by the bank. ABC's proceeds from this
discounted note would be
a. P169,200.
b. P172,800.
c. P181,440.
d. P185,220.
25. ABC Co. made expenditures for the following:
 Cost in activities aimed at obtaining new knowledge P10,000
 Marketing research to study consumer tastes 5,000
 Cost of developing and producing a prototype model 3,000
 Cost of testing the prototype model for safety and environmental friendliness 40,000
 Cost revising designs for flaws in the prototype model 15,000
 Salaries of employees, consultants, and technicians involved in R&D 20,000
 Cost of conference for the introduction of the newly developed product including fee of a model
hired as endorser 100,000
 Advertising to establish recognition of the newly developed product 30,000
How much is recognized as research and development expense?
a. 68,000
b. 72,000
c. 88,000
d. 94,000
26. ABC Co. made expenditures for the following:
 Cost incurred on search for alternatives for materials, devices, products, processes,
systems or services P10,000
 Cost of final selection of possible alternatives for a new process 8,000
 Trouble-shooting during commercial production 5,000
 Periodic or routine design changes to existing products 3,000
 Modification of design for a specific customer 40,000
 Payments made to XYZ, Inc. for R&D performed by XYZ for ABC 15,000
 Cost of R&D performed by ABC for Alpha Corp. 20,000
How much is recognized as research and development expense?
a. 33,000
b. 42,000
c. 52,000
d. 53,000

--------------------------------------------------------END OF EXAMINATION-------------------------------------------------------