INTERNATIONAL SCHOOL OF ASIA AND THE PACIFIC

Alimannao Hills, Penablanca, Cagayan

COLLEGE OF ACCOUNTANCY

DRILL NO. 3

1. Data regarding Kiangan Company’s trading securities follow:

Cost Market_
December 31, 2004 10,000,000 8,500,000
December 31, 2005 10,000,000 9,500,000

Differences between cost and market value are considered temporary. The
income statement for 2005 should report unrealized gain on these securities at
a. 1,500,000
b. 1,000,000
c. 500,000
d. 0

2. Data regarding Lamut Company’s available for sale securities follow:

Cost Market_
December 31, 2004 10,000,000 8,500,000
December 31, 2005 10,000,000 11,000,000

Differences between cost and market value are considered temporary. The 2005
statement of stockholders’ equity should report unrealized gain on these
securities at
a. 2,500,000
b. 1,000,000
c. 1,500,000
d. 0

3. Banawe Company was organized on January 1, 2005. At December 31, 2005,

Banawe had the following investments:

Trading Available for

sale
Aggregate cost 10,000,000 10,000,000
Aggregate market value 9,000,000 8,500,000

The declines are judged to be nontemporary. In 2005, what amount of unrealized

loss should be shown as component of income and stockholders’ equity?

Income Stockholders’ equity

a. 2,500,000 0
b. 0 2,500,000
c. 1,000,000 1,500,000
d. 1,500,000 1,000,000

4. Lagawe Company purchased trading equity securities. The cost and market
value at December 31, 2004 were:

Security Cost Market_

A – 20,000 shares 2,000,000 2,500,000
B – 40,000 shares 4,000,000 3,000,000
C – 60,000 shares 6,000,000 5,500,000

Lagawe sold 60,000 shares of Security C on January 31, 2005, for P5,000,000,
incurring P100,000 in brokerage commission and taxes. On the sale, Lagawe
should report a realized loss of
a. 1,100,000
b. 1,000,000
c. 600,000
d. 500,000

5. Information about Ifugao Company’s portfolio of available for sale

securities is:

Aggregate cost – December 31, 2005 9,000,000

Unrealized gains– December 31, 2005 500,000
Unrealized losses – December 31, 2005 2,000,000
 Net unrealized gains during 2005 300,000

On January 1, 2005 Ifugao reported an unrealized loss of P400,000 as a component

of stockholders’ equity. In its December 31, 2005 stockholders’ equity, Ifugao
should report what amount of unrealized loss?
a. 2,000,000
b. 1,500,000
c. 1,100,000
d. 1,200,000

6. Hungduan Company had acquired investments in available for sale securities

for P15,000,000 on January 1, 2004. On December 31, 2005, Hungduan
decided to reclassify the available for sale securities as trading
securities. The market value of the securities was P13,000,000 on
December 31, 2004 and P12,000,000 on December 31, 2005. In its 2005 income
statement, Hungduan should report unrealized loss on the transfer of AFS
securities at

a. 2,000,000
b. 3,000,000
c. 1,000,000
d. 0

7. Hingyon Company had investments in marketable debt securities costing

P10,000,000 which were acquired on January 1, 2004 and classified as
“available for sale”. On December 31, 2005, the company decided to hold
the investments to maturity and accordingly reclassified them as “held to
maturity” on that date. The investments’ market value was P9,000,000 at
December 31, 2004, and P7,500,000 on December 31, 2005. What amount
should Hingyon Company report as unrealized loss on these securities in
its 2005 statement of stockholders’ equity?

a. 2,500,000
b. 1,000,000
c. 1,500,000
d. 0

8. On December 31, 2004, Mayayao Company purchased trading securities.

Pertinent data on December 31, 2005 are as follows:

Security Cost Market_value

X 4,000,000 3,500,000
Y 6,000,000 7,500,000
Z 8,000,000 6,000,000

On December 31, 2005, Mayayao reclassified its investment in security Z from

trading to available for sale. What amount of unrealized loss on the transfer
of trading securities should be shown in the 2004 income statement?

a. 2,000,000
b. 1,000,000
c. 3,000,000
d. 0

9. Ilocos Company received dividends from its common stock investments during
the year 2005 as follows:

1. A stock dividend of 20,000 shares from A Company when the market price
of A’s shares was P30 per share.

2. A cash dividend of P2,000,000 from B Company in which Ilocos owns a 20%

interest.

3. A cash dividend of P1,500,000 from C Company in which Ilocos owns a 10%

interest.

4. 10,000 shares of common stock of D Company in lieu of cash dividend of

P20 per share. The market price of D Company’s shares was P180. Ilocos
holds originally 100,000 shares of D Company common stock. Ilocos owns
5% interest in D Company.
What amount of dividend revenue should Ilocos report in its 2005 income
statement?
a. 3,300,000 b. 5,300,000 c. 3,500,000 d. 2,500,000
10. Data pertaining to dividends from Vigan Company’s common stock
investments for the year 2005 follow:

* On October 1, 2005, Vigan received P2,000,000 liquidating dividend from X

Company. Vigan owns a 5% interest in X Company.

* Vigan owns a 10% interest in Y Company which declared a P30,000,000 cash

dividend on November 15, 2005 to stockholders of record on December 15, 2005
payable on January 15, 2006.

* On December 1, 2005, Vigan received from Z Company a dividend in kind of one

share of V Company common stock for every 5 Z Company common shares held. Vigan
holds 200,000 Z Company shares which have a market price of P50 per share on
December 1, 2005. The market price of V Company common is P30 per share.

What amount should Vigan report as dividend income in its 2005 income statement?

a. 6,200,000 b. 4,200,000 c, 3,000,000 d. 5,000,000

11. Caoayan Company owns 1,000,000 shares of Suyo Company’s 5,000,000

shares of P50 par, 10% cumulative, nonparticipating preferred stock and
500,000 shares (2%) of Suyo’s common stock. During 2005 Suyo declared and
paid dividends of P40,000,000 on preferred stock. No dividends had been
declared or paid during 2004. In addition, Caoayan received a 15% common
stock dividend from Suyo when the quoted market price of common stock was
P100. What amount should Caoayan report as dividend income in its 2005
income statement?

a. 15,500,000 b. 20,000,000 c. 10,000,000 d. 8,000,000

12. On January 2, 2005, Narvacan Company acquired 100,000 shares of ABC

Company common stock for a total consideration of P6,000,000. On October
1, 2005, Narvacan received from ABC a preferred stock dividend of one
share for every 10 common shares held. On this date, the market price of
ABC common is P75 per share and the ABC preferred, P50 per share.
Narvacan Company should report its investment in ABC Company preferred
stock at

a. 500,000 b. 750,000 c. 375,000 d. 0

13. Candon Company owns 100,000 shares of the outstanding common stock
of Bantay Company which has several hundred thousand shares publicly
traded. These 100,000 shares were purchased in 2002 for P100 per share.
On December 1, 2005, Bantay Company distributed 100,000 rights to Candon.
Candon was entitled to buy one new share of Bantay common stock for P100
and five of these rights. On December 1, 2005, each share of stock had a
market value of P135 ex-right and each right had market value of P15. On
December 31, 2005, Candon exercised all rights. What cost should be
recorded for each new share that Candon acquired by exercising the rights?

a. 150 b. 100 C. 135 d. 15

14. Tagudin Company invested in stocks of Kaunlaran Company as follows:

2003 50,000 shares at P80 4,000,000

2004 100,000 shares at P70 7,000,000

In 2005, Tagudin received 150,000 rights to purchase Kanluran stock at P80 per
share plus five rights. At issue date, rights had a market value of P5 each
and stock was selling at P95 ex-right. Tagudin used rights to purchase 22,000
additional shares of Kanluran stock and allowed the remaining rights to lapse.
The FIFO mathod is used in determining the stock rights exercised. What is
the cost of the new investment?

a. 1,760,000 b. 2,170,000 c. 2,310,000 d. 2,100,000

15. Nagbukel Company issued rights to subscribe to its stock, the

ownership of 4 shares entitling the stockholders to subscribe for 1 share
at P100. Sinait Company owns 200,000 shares of Nagbukel Company with
 total cost of P15,000,000. The stock is quoted right-on at 125. What is
the theoretical value of the stock rights?

a. 1,000,000 b. 1,250,000 c. 1,500,000 d. 0

16. On January 1, 2004, Laoag Company purchased 15% of Vintar Company’s
common stock for P20,000,000. The following data concerning Vintar
Company are available:
2004 2005
Net income 6,000,000 7,000,000
Cash dividend paid None 15,000,000

In its income statement for the year ended December 31, 2005, how much should
Laoag report as income from this investment?

a. 2,250,000 b. 1,950,000 c. 700,000 d. 600,000

17. In January 2005 Paoay Company acquired 25% of the outstanding common
stock of Bangui Company for P25,000,000. The book value of the acquired
shares was P21,000,000. The excess of cost over book value was
attributable to an identifiable intangible asset which was undervalued on
Bangui’s balance sheet and which had an indefinite life. For the year
ended December 31, 2005, Bangui reported net income of P20,000,000 and
paid cash dividends of P6,000,000 on its common stock and thereafter
issued 10% stock dividend. What is the proper carrying value of
investment in associate at December 31, 2005?

a. 28,300,000 b. 28,500,000 c. 20,400,000 d. 28,700,000

18. On January 2, 2005, Currimao Company purchased 10% of Bacarra

Company’s outstanding common shares for P20,000,000. Currimao is the
largest single shareholder in Bacarra and Currimao’s officers are majority
of Bacarra’s board of directors. Bacarra reported net income of
P10,000,000 and paid dividend of P4,000,000. In its December 31, 2005
balance sheet, what amount should Currimao report as investment in Bacarra
Company?

a. 20,000,000 b. 21,000,000 c. 20,600,000 d. 21,400,000

19. On July 1, 2005, Batac Company purchased 40% of the outstanding

common stock of Dumalneg Company for P50,000,000. On this date, Dumalneg’s
net assets were P100,000,000 which approximated their fair values, except
for land whose fair value exceeded its carrying amount by P15,000,000.
Any implied goodwill has a useful life of 5 years. Dumalneg’s 2005 net
income was P25,000,000. The maximum amount which could be included in
Batac’s 2005 income before tax to reflect its “equity in earnings of
Dumalneg” is

a. 9,200,000 b. 4,600,000 c. 3,000,000 d. 4,200,000

20. Culasi Company bought 20% of Bugasong Corporation’s common stock on

January 1, 2005 for P20,000,000. Carrying amount of Bugasong’s net assets
at purchase date totaled P60,000,000. Fair value and carrying amounts
were the same for all items except for plant and inventory, for which fair
values exceed their carrying amounts by P15,000,000 and P5,000,000
respectively. The plant has a 5-year life. All inventory was sold during
2005. Goodwill, if any, has an indefinite life. During 2005, Bugasong
reported net income of P40,000,000 and paid a P15,000,000 cash dividend.
What amount should Culasi report as investment income for 2005?

a. 6,200,000
b. 6,400,000
c. 3,000,000
d. 7,600,000

21. Carasi Company purchased 15% of Badoc Company’s 500,000 outstanding

shares of common stock on January 2, 2005, for P15,000,000. On December
31, 2005, Carasi purchased additional 125,000 shares of Badoc for
P35,000,000. There was no goodwill as a result during 2005. Badoc
reported earnings of P20,000,000 for 2005. What amount should Carasi
report in its December 31, 2005 balance sheet as investment in Badoc
Company?
a. 50,000,000
b. 58,000,000
c. 55,000,000
d. 53,000,000

22. On January 1, 2004 Dingras Company acquired 10% of the outstanding

voting stock of Piddig Company. On January 1, 2005, Dingras gained the
ability to exercise significant influence over financial and operating
control of Piddig by acquiring 30% of Piddig’s outstanding stock. The two
purchases were made at prices proportionate to the value assigned to
Piddig’s net assets, which equaled their carrying amounts. For the years
ended December 31, 2004 and 2005, Piddig reported the following:

2004 2005 __
Dividend paid 5,000,000
10,000,000
Net income 8,000,000 15,000,000

In 2005, what amounts should Dingras report as current year investment income
and as an adjustment to 2004 income, respectively?

a. 6,000,000 and 800,000

b. 6,000,000 and 300,000
c. 4,500,000 and 300,000
d. 4,500,000 and 800,000

23. Pagudpud Company owns 50% of Sarrat Company’s preferred stock and
30% of its common stock. Sarrat’s stock outstanding at December 31, 2005
includes P20,000,000 of 10% cumulative preferred stock and P50,000,000 of
common stock. Sarrat reported net income of P10,000,000 for the year
2005. What amount should Pagudpud report as investment income for the
year 2005?

a. 3,000,000
b. 2,400,000
c. 3,400,000
d. 4,400,000

24. The following data pertain to Antique Company’s investments in debt

securities:

Market value
Cost 12/31/2005 12/31/2004
Trading 5,000,000 5,200,000 4,500,000
Available for sale 5,000,000 4,800,000 4,700,000

What amount should Antique report as unrealized gain in its 2005 income
statement?
a. 700,000
b. 200,000
c. 800,000
d. 100,000

25. On October 1, 2005, Bangued Company acquired P20,000,000 face value

12% bonds of Didigan Company at 110 plus accrued interest. The bonds were
dated July 1, 2004 and will mature on June 30, 2009. Interest is payable
June 30 and December 31. The commission to acquire the bonds was
P500,000. The total amount paid for the investment in bonds was
a. 23,100,000
b. 22,600,000
c. 22,500,000
d. 21,900,000

26. On July 1, 2005 Tagum Company purchased as a long-term investment in

Langiden Company’s 10-year 12% bonds, with face value of P20,000,000, for
P18,500,000. Interest is payable semiannually on June 30 and December 31.
The bonds mature on July 1, 2010. Tagum uses the straight line
amortization method. What is the amount of interest income that Tagum
should report in its 2005 income statement?
a. 1,350,000
b. 1,200,000
c. 1,500,000
d. 1,050,000
 27. On October 1, 2005 Bucay Company purchased 20,000 of the P1,000 face
value 12% bonds of Manabo Company for P23,000,000 including accrued
interest of P600,000. The bonds which mature on January 1, 2012, pay
interest semiannually on January 1 and July 1. Bucay used the straight
line method of amortization and appropriately recorded the bonds as a
long-term investment. On the December 31, 2006 balance sheet the bonds
should be reported at
a. 22,304,000
b. 21,920,000
c. 22,880,000
d. 22,400,000

28. On April 1, 2005, Caluya Company purchased P5,000,000 face value 9%.
Treasury notes for P4,962,500 including accrued interest of P112,500. The
notes mature on July 1, 2006 and pay interest semiannually. Caluya
intends to hold the notes to maturity. In its October 31, 2005 balance
sheet, the carrying amount of this investment should be
a. 4,850,000
b. 4,920,000
c. 4,930,000
d. 4,975,000

29. Luba Company purchased bonds at a discount of P5,000,000.

Subsequently, Luba sold these bonds at a premium of P2,000,000. During
the period that Luba held this investment, amortization of the discount
amounted to P1,500,000. What amount should Luba report as gain on the
sale of the bonds?

a. 2,000,000
b. 5,500,000
c. 3,500,000
d. 3,000,000

30. On January 1, 2005, Bucloc Company acquired for P6,500,000 the

entire P8,000,000 issue 12% serial bonds. Bonds of P2,000,000 mature at
annual intervals beginning December 31, 2005. Interest is payable
semiannually on June 30 and December 31. What is the interest income for
2005 using the bond outstanding method of amortization?

a. 1,560,000
b. 1,380,000
c. 780,000
d. 960,000

31. On January 1, 2005, Lacub Company purchased P8,000,000 face value

12% bonds at 120. Bonds are due on January 1, 2015 but can be redeemed at
earlier dates at premium values as follows:

January 1, 2007 to December 31, 2010, at 110

January 1, 2011 to December 31, 2014, at 104

What is the interest income for 2005 using the accelerated method of
amortization?

a. 1,360,000
b. 960,000
c. 560,000
d. 800,000

32. On July 1, 2005, Boloc Company purchased P2,000,000 of East

Company’s 8% bonds due on July 1, 2015. Boloc expects to hold the bonds
until maturity. The bonds pay interest semiannully on January 1 and July.
The bonds were purchased for P1,750,000 to yield 10%. In its 2005 income
statement, Boloc should report interest income at
a. 175,000
b. 160,000
c. 92,500
d. 87,500

33. On July 1, 2005, Cagayan Company paid P9,585,000 for 10% bonds with
a face amount of P8,000,000. Interest is paid on June 30 and December 31.
 The bonds were purchased to yield 8%. Cagayan uses the effective interest
method to recognize interest income from this investment. What should be
reported as the carrying amount of the bonds in the December 31, 2005,
balance sheet?

a. 9,568,400
b. 9,601,600
c. 9,551,800
d. 9,618,200

34. On July 1, 2005, Tuguegarao Company purchased as a long term

investment P8,000,000 of Candon Company’s 8% bonds for P7,570,000,
including accrued interest of P320,000. The bonds were purchased to yield
10% interest. The bonds pay interest annually on December 31. Tuguegarao
uses the interest method. In its December 31, 2005 balance sheet, what
amount should Tuguegarao report as investment in bonds?

a. 7,292,500
b. 7,207,500
c. 7,628,500
d. 7,335,000

35. On January 1, 2004, Sibalon Company purchased as a long-term

investment P5,000,000 face value of 8% bonds for P4,562,000. The bonds
were purchased to yield 10% interest. The bonds pay interest annually
December 31. Sibalon uses the interest method of amortization. What
amount (rounded to the nearest P100) should Sibalon report on its December
31, 2005 balance sheet for this long-term investment?
a. 4,680,000
b. 4,662,000
c. 4,618,000
d. 4,562,000

36. On July 1, 2005, Solana Company purchased Amulong Company’s 10-year,

8% bonds with face amount of P8,000,000 for P6,720,000. The bonds mature
on June 30, 2013 and pay interest semiannually on June 30 and December 31.
Using the interest method, Solana recorded bond discount amortization of
P28,800 for six months ended December 31, 2005. From this long-term
investment, Solana should report 2005 income of

a. 348,800
b. 291,200
c. 320,000
d. 384,000

37. On January 1, 2005 Aparri Company purchased 5-year bonds with face
value of P8,000,000 and stated interest of 10% per year payable
semiannually January 1, and July 1. The bonds were acquired to yield 8%.
Present value factors are:

Present value of an annuity of 1 for 10 periods at 5% 7.72

Present value of an annuity of 1 for 10 periods at 4% 8.11

What is the purchase price of the bonds?

a. 7,382,400
b. 8,617,600
c. 8,648,800
d. 7,351,200
- end -

38. The following information relate to a noncurrent investment that

Abra Company placed in trust as required by the underwriter of its bonds:

Bond sinking fund, 1/1/05 5,000,000

Additional investment in 2005 1,000,000
Dividend on investment 500,000
Interest revenue 1,500,000
Administration costs 800,000
Carrying amount of bonds payable 9,000,000
What amount should Abra report in its December 31, 2005 balance sheet related to
itsbond sinking fund?

a. 9,000,000
b. 8,000,000
c. 7,200,000
d. 5,200,000

39. Buguey Company insures the life of its president for P8,000,000, the
corporation being the beneficiary of an ordinary life policy. The premium
is P200,000. The policy is dated January 1, 2002. The cash surrender
value on December 31, 2004 and 2005 are P60,000 and P80,000 respectively.
The corporation follows the calendar year as its fiscal period. The
president dies on October 1, 2005 and the policy is collected on December
31, 2005. What is the gain on life insurance settlement?

a. 7,875,000
b. 7,890,000
c. 7,870,000
d. 7,800,000

40. On January 1, 2001 Baggao Company purchased P8,000,000 ordinary life

policy on its president. Additional data for the year 2005 are:

Cash surrender value, January 1 100,000

Cash surrender value, December 31
120,000
Annual advance premium paid on January 1, 2005
200,000
Dividend received on July 1, 2005
10,000

Baggao Company is the beneficiary under the life insurance policy. Baggao
should report life insurance expense for 2005 at

a. 200,000
b. 180,000
c. 170,000
d. 190,000

41. On January 1, 2005, Allacapan Company adopted a plan to accumulate

funds for a new building to be erected beginning January 1, 2008 at an
estimated cost of P21,000,000. Allacapan Company intends to make three
equal annual deposits in a fund beginning December 31, 2005 that will earn
interest at 10% compounded annually. Future amount factors at 10% for
three periods are:

Future value of 1 1.33

Future value of an ordinary annuity of 1
3.31
Future value of an annuity of 1 in advance
3.64

What is the annual deposit to the fund?

a. 7,000,000 c. 6,344,410
b. 5,769,230 d. 7,894,740

42. On March 1, 2005, Isabela Company adopted a plan to accumulate

P20,000,000 by September 1, 2009. Isabela plans to make four annual
deposits to a fund that will earn interest at 10% compounded annually.
Isabela made the first deposit on September 1, 2005. Future amount
factors at 10% for 4 periods are:

Ordinary annuity of 1 4.64

Annuity of 1 in advance 5.11

Isabela should make four annual deposits of (rounded to the nearest P100)
a. 5,000,000
b. 4,310,000
c. 3,913,900
d. 4,102,000
Pandan Company’s accounting records showed the following investments at January
1, 2005:
Common stock:
Kay Company (2,000 shares)
1,000,000 Aye Company (10,000 shares)
10,000,000
Parking lot (leased to Zee Company)
5,000,000
Trademark 4,000,000
Total investments 20,000,000

Pandan owns 1% of Kay and 30% of Aye. The Zee lease which commenced on January
1, 2004 is for 5 years at an annual rental of P2,500,000. In addition, on
January 1, 2004, Zee paid a nonrefundable deposit of P800,000 as well as a
security deposit of P500,000, to be refunded upon expiration of lease. During
the year ended December 31, 2005, Pandan received cash dividends of P700,000
from Kay and P1,500,000 from Aye, whose 2005 net earnings were P8,000,000 and
P20,000,000 respectively. Pandan also received P2,500,000 rent from Zee in 2005.

The trademark was licensed to Lawaan Company for royalties of 10% of sales of
the trademark items. Royalties are payable semiannually on March 1, for sales
in July through December of the prior year, and on September 1, for sales in
January through June of same year. On March 1, 2004 and 2005, Pandan received
royalties of P1,000,000 and P1,500,000 respectively. On September 1, 2004 and
2005, Pandan received royalties of P2,000,000 and P3,000,000 respectively.
Lawaan Company’s sales of the trademark items totaled P8,000,000 for the last
half of 2005. In Pandan’s 2005 income statement, how much should be reported as

43. Total income from investments in securities?

a. 2,200,000 c. 6,000,000
b. 6,700,000 d. 8,200,000

44. Rental revenue?

a. 2,500,000 c. 3,300,000
b. 2,660,000 d. 2,760,000

45. Royalty revenue?

a. 3,000,000 c. 3,800,000
b. 4,000,000 d. 5,000,000

46. On October 1, 2005, when the carrying amount of the net assets of a
business segment was P50,000,000, Tarlac Company signed a legally binding
contract to sell the business segment. The sale is expected to be
completed by March 31, 2006, at a selling price of P45,000,000. In
addition, prior to March 31, 2006, the sale contract obliges Tarlac
Company to terminate the employment of certain employees of the business
segment incurring an expected termination cost of P3,000,000 to be paid on
June 30, 2006. The segment’s revenues and operating expenses for 2005,
respectively, were P30,000,000 and P38,000,000. Before income tax, how
much will be reported as loss from discontinued operations for 2005?
a. P16,000,000
b. P10,000,000
c. P12,000,000
d. P 700,000

47. Siasi Company is a diversified company with nationwide interests in

commercial real estate developments, banking, mining and food
distribution. The food distribution division was deemed to be
inconsistent with the long-term direction of the company. On October 1,
2005, the board of directors voted to approve the disposal of this
division. The sale is expected to occur in August 2006. The food
distribution had the following revenue and expenses in 2005: January 1 to
September 30, revenue of P35,000,000 and expenses of P27,000,000; October
1 to December 31, revenue of P15,000,000 and expenses of P10,000,000. The
carrying amount of the division’s assets at December 31, 2005 was
P56,000,000 and the recoverable amount was estimated to be P59,000,000.
The sale contract requires Siasi to terminate certain employees incurring
an expected termination cost of P4,000,000 to be paid by December 15,
2006. The income tax rate is 32%. The income statement for the year
ended December 31, 2005 will report income from discontinued operation at
a. P12,000,000
b. P 8,160,000
c. P 9,000,000
d. P 6,120,000

48. Concepcion Company and its divisions are engaged solely in

manufacturing operations. The following data pertain to the industries in
which operations were conducted for the year ended December 31, 2005.

Segments Total revenue Operating profit

Identifiable assets
1 13,000,000 4,000,000 25,000,000
2 10,000,000 2,000,000 20,000,000
3 8,000,000 1,500,000 15,000,000
4 3,000,000 1,000,000 7,000,000
5 3,500,000 800,000 8,000,000
6 2,500,000 700,000 5,000,000
40,000,000 10,000,000 80,000,000

In its segment information for 2005, how many reportable segments does
Concepcion have?
a. Three
b. Four
c. Five
d. Six

49. Panamao Company, a publicly owned corporation, is subject to the

requirements for segment reporting. In its income statement for the year
ended December 31, 2005, Panamao reported revenue of P150,000,000,
operating expenses of P100,000,000 and net income of P50,000,000.
Operating expenses include payroll costs of P20,000,000. Panamao’s
combined identifiable assets of all industry segments at December 31, 2005
were P80,000,000. The reported revenue includes P120,000,0000 of sales to
external customers. External revenue reported by operating segments must
be at least
a. P112,500,000
b. P 90,000,000
c. P 37,500,000
d. P 60,000,000

50. Pura Company has three manufacturing divisions, each of which has
been determined to be a reportable segment. Common costs are
appropriately allocated on the basis of each division’s sales in relation
to Pura’s aggregate sales. In 2005, Division I had sales of P6,000,000,
which was 20% of Pura’s total sales, and had traceable operating costs of
P3,800,000. In 2005, Pura incurred operating costs of P1,000,000 that
were not directly traceable to any of the divisions. In addition, Pura
incurred interest expense of P600,000 in 2005. In reporting segment
information, what amount should be shown as operating profit of Division I
for 2005?
a. P2,000,000
b. P1,880,000
c. P1,400,000
d. P2,200,000

51. Camiling Company has estimated that total depreciation expense for
the year ending December 31, 2005 will amount to P2,000,000, and the 2005
year-end bonuses to employees will total P4,000,000. Camiling paid
P500,000 property taxes assessed for the year 2005. On June 30, 2005,
Camiling incurred a permanent inventory loss from market decline of
P800,000 and loss on sale of land of P200,000. In the interim income
statement for the six months ended June 30, 2005, what total amount of
expenses relating to these items should be reported?
a. P4,250,000
b. P3,750,000
c. P3,850,000
d. P3,450,000

52. Talipao Company’s P10,000,000 net income for the quarter ended
September 30, 2005, included the following after-tax items

• A P1,200,000 gain realized on April 30, 2005 was allocated equally to the
second, third and fourth quarters of 2005.
• A P3,000,000 cumulative loss resulting from a change in inventory
valuation method was recognized on August 2, 2005.

In addition, Talipao paid P600,000 on February 1, 2005, for 2005 calendar-year

property tax. Of this amount, P150,000 was allocated to the third quarter of
2005. For the quarter ended September 30, 2005, Talipao should report net
income of
a. P12,600,000
b. P11,800,000
c. P12,750,000
d. P 9,600,000

Presented below are the balance sheet accounts of Maasin Company:

2005 2004_
Assets
Cash 6,000,000 4,500,000
Trading securities 2,500,000 3,000,000
Accounts receivable 4,800,000 3,200,000
Allowance for doubtful accounts ( 800,000) ( 200,000)
Inventories 5,200,000 6,000,000
Property , plant and equipment 13,000,000 8,000,000
Accumulated depreciation (3,700,000) (3,200,000)
Patent, net 1,000,000 1,700,000
Total assets 28,000,000 23,000,000

Liabilities and Equity

Accounts payable 4,800,000 4,500,000
Note payable - bank 2,000,000 3,500,000
Deferred tax liability 700,000 500,000
Bonds payable 3,000,000 -
Common stock, P10 par value 12,000,000 10,000,000
Additional paid in capital 1,500,000 1,000,000
Treasury stock, at cost ( 500,000) -
Retained earnings 4,500,000 3,500,000
Total liabilities and equity 28,000,000 23,000,000

Additional information

• The net income for 2005 is P6,000,000. Maasin paid a cash dividend of
P5,000,000 on October 1, 2005.
• During 2005, there were no transactions affecting trading securities
except the change in market value.
• On January 2, 2005, Maasin sold equipment costing P1,000,000, with a
carrying amount of P600,000, for P500,000.
• On July 1, 2005, Maasin purchased equipment for P3,000,000 cash.
• On December 31, 2005, Maasin purchased land by issuing bonds payable at
face value of P3,000,000.

53. Net cash provided by operating activities was

a. P8,500,000
b. P7,500,000
c. P8,000,000
d. P6,000,000

54. Net cash used in investing activities was

a. P2,500,000
b. P4,000,000
c. P3,000,000
d. P3,500,000

55. Net cash used in financing activities was

a. P4,500,000
b. P4,000,000
c. P6,500,000
d. P7,000,000

56. Tubungan Company provides the following information for 2005:

Cash received from customers 8,000,000

Rent received 500,000
Interest received 300,000
Cash paid to suppliers and employees 3,000,000
Taxes paid 400,000
Interest paid on long term debt 600,000
Cash dividend paid ,000,000
Under the direct method, cash provided by operating activities was
a. P3,800,000
b. P5,400,000
c. P4,800,000
d. P5,100,000

57. The following was taken from the statements of Badiangan Company for
the year 2005:

Accounts receivable – January 1 500,000

Accounts receivable – December 31 1,000,000
Sales on account and cash sales 8,000,000
Uncollectible accounts 100,000

No accounts receivable were written off or recovered during 2005. If the direct
method is used in the 2005 cash flow statement, Badiangan should report cash
collected from customers at
a. P7,500,000
b. P7,400,000
c. P8,500,000
d. P8,400,000

58. Bingawan Company reported net income of P10,000,000 for 2005.

Changes occurred in several balance sheet accounts during 2005 as follows:

Investment in stock, carried at equity 2,500,000 increase

Premium on bonds payable 500,000 decrease
Accumulated depreciation, caused by major repair
to equipment 1,000,000 decrease
Deferred tax liability 400,000 increase

In the 2005 cash flow statement, the cash provided by operating activities
should be
a. P7,400,000
b. P6,400,000
c. P9,400,000
d. P7,000,000

59. During 2005, Sapa-Sapa has the following activities related to its
financial operations:

Payment for the early retirement of long-term bonds payable (carrying amount of
bonds payable P5,000,000)
5,500,000
Distribution in 2005 of cash dividend declared in 2004 3,000,000
Carrying amount of convertible preferred stock converted into common shares
2,000,000
Proceeds from sale of treasury stock (cost, P2,000,000) 2,500,000

In the 2005 cash flow statement, net cash used in financing activities should be
a. P6,000,000
b. P3,000,000
c. P8,500,000
d. P6,500,000

60. The transactions of Lambunao Company for the year 2005 included the
following:

Cash borrowed from bank for purchase of land 6,000,000

Purchase of land for cash 6,000,000
Sale of securities for cash 1,000,000
Dividend declared (of which P2,000,000 was paid during the year) 3,000,000
Issuance of common stock for cash 7,000,000
Payment of bank loan including interest of P500,000 3,500,000
Increase in customers’ deposits 500,000
The 2005 cash flow statement should report net cash provided by financing
activities at
a. P8,000,000
b. P8,500,000
c. P7,500,000
d. P7,000,000

61. Loboc Company had the following activities during 2005:

* Acquired common stock of Marbel Company for P3,000,000.

* Sold an investment in Raya Company for P4,500,000 when the carrying amount was
P3,800,000.
* Acquired a P5,000,000 one-year certificate of deposit from a bank. During the
year, interest of P400,000 was received from the bank.
* Collected dividends of P800,000 on stock investments.

In the 2005 cash flow statement, net cash used in investing activities should be
a. P3,500,000
b. P3,900,000
c. P4,300,000
d. P4,700,000

62. In 2005, a tsunami completely destroyed a building belonging to

Parian Comapny. The cost of the building was P8,000,000 and had
accumulated depreciation of P5,000,000 at the time of loss. Parian
received a cash settlement from an insurance company and reported a
casualty loss of P500,000. In its 2005 cash flow statement, the net change
reported in the cash flows from investing activities should be
a. P3,000,000 decrease
b. P2,500,000 increase
c. P3,500,000 increase
d. P 500,000 decrease

63. Kiangan Company has provided the following 2005 current account
balances:
January 1 December 31
Accounts receivable 1,500,000 2,800,000
Allowance for doubtful accounts 200,000 400,000
Prepaid insurance 600,000 450,000
Accounts payable 900,000 1,200,000

Kiangan’s net income for 2005 was P8,000,000. Net cash provided by operating
activities should be
a. P7,350,000
b. P9,550,000
c. P7,150,000
d. P8,650,000

64. Sabarre Inc. leases equipment to its customers under noncancelable

leases. On January 1, 2005, Sabarre leased equipment costing P4,000,000
to Rebasa Co., for nine years. The rental cost was P440,000 payable in
advance semiannually (January 1 and July 1), plus P20,000 semiannually for
executory costs. The equipment had an estimated life of 15 years and sold
for P5,330,250 with an estimated unguaranteed residual value of P800,000.
The implicit interest rate is 12 percent.
How much is the total interest income from lease that will be earned by
Sabarre, Inc.?
a. P2,869,988 b. P3,675,616 c. P3,389,748 d. P0

65. Using the same information in no. 20, Sabarre, Inc. should report
profit on the sale at
a. P1,330,252 b. P1,050,012 c. P1,044,384 d.
P1,338,492

66. Using the same information in no. 20, how much should be reported by
Rebasa Co. as liability under finance lease as of December 31, 2005?
a. P4,143,593 b. P4,273,410 c. P4,446,613 d. P0

67. Cabusao Company is indebted to Ragay Company under a P5,000,000, 10%

three-year note dated December 31, 2002. Because of financial
difficulties, Cabusao owed accrued interest of P500,000 on the note at
December 31, 2005. Under a debt restructuring on December 31, 2005, Ragay
 Company agreed to settle the note and accrued interest for a tract of land
having a fair value of P3,500,000. The acquisition cost of the land is
P1,000,000. The income tax rate is 32%. In its 2005 income statement
Cabusao should report gain on restructuring at
a. P4,000,000 c. P1,020,000
b. P2,720,000 d. P2,000,000

68. Manapla Company computed a pretax financial income of P15,000,000

for the year ended December 31, 2005. In preparing the tax return, the
following differences are noted between financial income and taxable
income.

Nondeductible expense 2,000,000

Nontaxable revenue 1,000,000
Estimated warranty cost that was recognized as expense
in 2005 but deductible for tax purposes when paid 1,500,000
Excess tax depreciation over financial depreciation 500,000
What is the current tax expense for 2005 if the tax rate is 32%?
a. P5,440,000 c. P4,800,000
b. P5,600,000 d. P5,120,000

69. Matalam Company has one temporary difference at the end of 2005 that
will reverse and cause taxable amounts of P2,000,000 in 2006 and
P3,000,000 in 2007. Matalam’s pretax financial income for 2005 is
P20,000,000 and the tax rate is 32%. There are no deferred taxes on
January 1, 2005. The income tax payable for 2005 should be
a. P4,800,000 c. P6,400,000
b. P5,760,000 d. P5,440,000

70. The following information relates to the defined benefit pension

plan of the Casino Company as of January 1, 2005:

Projected benefit obligation (PBO) P16,150,000

Fair value of plan assets 15,135,000
Unrecognized prior service cost 1,050,000
Unrecognized net pension gain or loss 0

Pension data for the year 2005 follows:

Current service cost P 870,000

Contributions to the plan 1,200,000
Benefits paid to retirees 1,320,000
Actual return on plan assets 263,500
Amortization of past service cost 210,000
Actuarial change increasing PBO 800,000
Settlement interest rate 11%
Long-term expected rate of return on plan 10%
assets
What is the 2005 net benefit expense?
a. P2,593,000 b. P1,200,000 c. P4,370,000 d. P1,343,000

71. Using the same information in no. 26, the projected benefit
obligation as of December 31, 2005 is
a. P18,276,500 c. P17,476,500
b. P16,973,000 d. P16,173,000

72. Using the same information in no. 26, the prepaid/accrued benefit
cost on December 31, 2005 is
a. P1,358,000 b. P108,000 c. P3,135,000 d. P0

73. In connection with a stock option plan for the benefit of key
employees, Matanao Company intends to distribute treasury shares when the
options are exercised. These shares were originally bought at P70 per
share. On January 1, 2005, Matanao granted stock options for 50,000 shares
at P150 per share as additional compensation for services to be rendered
over the next two years. The options are exercisable during a 4-year
period beginning January 1, 2007, by grantees still employed by Matanao.
Market price of Matanao stock was P200 per share at the grant date. The
fair value of each stock option is P60 on grant date. No stock options
were terminated during 2005. In Matanao’s 2005 income statement, what
amount should be reported as compensation expense pertaining to the
options?
 e. P1,500,000 c. P1,250,000
f. P1,750,000 d. P 750,000

74. On January 1, 2004, Bansalan Company offered its top management

stock appreciation right with the following terms:

Predetermined price P100 per share

Number of shares 50,000 shares
Service period 3 years
Exercise date January 1, 2007

The stock appreciation right is to be exercised on January 1, 2007. The quoted

prices of Bansalan Company stock are 100, 124, and 151 on January 1, 2004,
December 31, 2004 and December 31, 2005, respectively. What amount should
Bansalan charge to compensation expense for the year ended December 31, 2005 as
a result of the stock appreciation right?
a. P1,700,000 c. P1,200,000
b. P1,300,000 d. P 500,000

75. Rex Company was organized on January 1, 2000. After 5 years of

profitable operations, the equity section of the balance sheet on December
31, 2004 was as follows:
Common stock, P50 par, 1,000,000 shares authorized
400,000 shares issued and outstanding 20,000,000
Additional paid in capital 5,000,000
Retained earnings 10,000,000

On January 20, 2005, Rex Company reacquired 50,000 shares of common stock at
P100 per share. The treasury stock is recorded at cost. On March 1, 2005, the
company issued a 20% stock dividend. The market value of the stock is P100 on
this date. On June 30, 2005 the company declared a P5 cash dividend per share
payable on September 10, 2005. The company reported net income of P8,000,000
for the year ended December 31, 2005. What should be the balance of retained
earnings on December 31, 2005?
a. P16,250,000 c. P11,850,000
b. P12,400,000 d. P18,900,000

76. The following information pertains to Babak Company:


Dividends on its 50,000 shares of 10%, P100 par value cumulative
preferred
 stock have not been declared or paid for 3 years.
Treasury stock was acquired at a cost of P1,000,000 during the year.
The treasury stock had been reissued as of year-end.
What amount of retained earnings should be appropriated as a result of these
items?
a. P1,500,000 c. P2,500,000
b. P1,000,000 d. P 0

77. The stockholders’ equity of Sunny Company on December 31, 2005,

consists of the following capital balances:
Preferred stock, 10% cumulative, 3 years in arrears, P100 par,
P110 liquidation price 150,000 shares 15,000,000
Common stock, P100 par, 200,000 shares 20,000,000
Subscribed common stock, net of subscription receivable of
P4,000,000 6,000,000
Treasury common stock, 50,000 shares at cost 4,000,000
Additional paid in capital 3,000,000
Retained earnings 20,000,000

The book value per share of the common stock is

a. P156.00 b. P190.00 c. P172.00 d.
P286.67

78. Bindayan Company has incurred heavy losses since its inception. At
the recommendation of its president and CEO, the board of directors voted
to implement quasi-reorganization, through reduction of par value subject
to stockholders’ approval. Immediately prior to the restatement on
December 31, 2005. Bindayan Company’s stockholders’ equity was as
follows:

Common stock, P100 par 500,000 shares 50,000,000

 Additional paid in capital 15,000,000
Retained earnings (deficit) (10,000,000
)

The stockholders approved the quasi reorganization on December 31,2005 to be

accomplished by a reduction in inventory of P2,000,000, a reduction in property,
plant and equipment of P6,000,000, and writeoff of goodwill at P5,000,000. To
eliminate the deficit, Bindayan should reduce common stock by
a. P23,000,000 c. P13,000,000
b. P10,000,000 d. P 8,000,000

79. On January 1, 2005 Gingoog Company had 300,000 common shares

outstanding, P100 par, or a total par value of P30,000,000. During 2005,
Gingoog issued rights to acquire one common share at P100 in the ratio of
one share for every 5 shares held. The rights are exercised on March 31,
2005. The market value of each common share immediately prior to March 31,
2005 was P160. The net income for 2005 was P6,000,000. The 2005 income
statement should report basic earnings per share at
a. 17.14 b. 16.67 c. 18.75 d. 17.39
80. On April 1, 2004, Jerry Company sold 12,000 of its P1,000 11%, 5-
year face value bonds at 96. The bonds are dated April 1, 2004 and
interest payment dates are April 1 and October 1, and the company uses the
straight-line method of bond discount amortization. On March 31, 2005,
Jerry took advantage of favorable prices of its stock to extinguish all of
the bonds by issuing 800,000 shares of its P10 par value common stock. At
this time, accrued interest was paid in cash. The company’s stock was
selling for P30 per share on March 1, 2005. The increase in additional
paid in capital due to the conversion of Jerry’s bonds is
a. P4,000,000 c. P3,616,000
b. P3,520,000 d. P 0

81. Bran Company leased equipment for its entire 10 year economic life,
agreeing to pay P1,000,000 at the start of the lease term on January 1,
2005 and P1,000,000 annually on each January 1 for the next nine years.
The present value factors using the implicit rate in the lease which is
10% for an annuity due with ten payments: 6.76 and for an ordinary annuity
with ten payments: 6.15. Bran properly recorded the finance lease and
depreciated the asset using the straight line method. What is the current
portion of the lease liability on December 31, 2005?
a. P424,000 c. P324,000
b. P466,400 d. P516,040