CPA Review School of the Philippines Man

Accounting (Far Eastern University)

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 CPA Review School of the Philippines
Manila

Practical Accounting Problems 1

First Pre-board Examination
Multiple choices: mark fully with pencil no. 2 the letter of your choice on the answer sheet provided.
Make the mark Dark but do not use too much pressure. Erasures are strictly not allowed.

1. On December 31, 2011, the current receivables of Marty company consisted of the following:

Trade accounts receivable 1, 200,000

Allowance for uncollectible accounts (100, 000)
Claim against shipper for goods lost in transit (November 2011) 50, 000
Selling price of unsold goods sent by Marty on Consignment at 125%
Of cost (not included in Marty’s ending inventory) 300, 000
Security deposit on lease of warehouse used for storing some inventories 200, 000

What is the correct total of current net receivables on December 31, 2011?
a. 1, 150, 000
b. 1, 390, 000
c. 1, 350, 000
d. 1, 650, 000
2. Farmville company had sales of P2, 500, 000 during December 2011. Experience has shown that
merchandise equalling 6% of sales will be returned within thirty days and an additional 4% will
be returned within ninety days. Returned merchandise is readily resalable in addition
merchandise equalling 15% of sales will be exchanged for merchandise of equal or greater
value. What amount should Farmville report for net sales in its statements of comprehensive
income for the month of December 2011?
a. 2, 125, 000
b. 1, 875, 000
c. 2, 250, 000
d. 2, 025, 000
3. On December 1, 2011, Mandela company gave Mosgov company a P2, 000, 000, 12% loan
Mosgov received proceeds of P1, 940, 000 after the deduction of a P60, 000 non-
refundable loan origination fee. Principal and interest are due in sixty monthly instalments
of P44, 500 beginning January 1, 2012. The payment yield an effective interest rate of 12%
at a present value of P2, 000, 000 and 13.4% at a present value of P1, 940, 000. What
amount of accrued interest receivables should Mandela report on December 31, 2011?
a. 20, 000
b. 21, 663
c. 22, 333

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 d. 19, 400
4. Rogers Company factored P3, 000, 000 of accounts receivable to Musburger company on
August 1, 2011. Control was surrendered by Rogers. Musburger accepted the receivables
subject to recourse for non-payment. Musburger assessed a fee of 2% and retains a holdback
equal to 5% of the accounts receivable. In addition. Musburger charged 15% interest computed
on a weighted average time to maturity of the receivables of forty days. The fair value of the
recourse obligation is P300, 000. Assuming all receivables are collected what is the cost of
factoring the receivables?
a. 110, 000
b. 260, 000
c. 259, 315
d. 109, 315
5. Indira Company offers a three year warranty on its product. Indira previously estimated
Warranty cost to the 5% of sales. Due to a technological advancement in production at the
beginning of 2011, Indira now believed 4% of sales to be a better estimate of warranty costs
warranty costs of P300, 000 and P400, 000 were reported n 2009 and 2010 respectively.
Sales for 2011 were P9, 000, 000. What should be reported as warranty expenses for 2011?
a. 360, 000
b. 500, 000
c. 220, 000
d. 450, 000
6. Fidel Company began operations on January 1, 2010 and used the FIFO method of inventory
costing. Management is contemplating a change to the average method to be consistent
with Fidel’s parent company. The following information has been developed
2010 2011
Ending inventory:
FIFO 150, 000 400, 000
Average 300, 000 200, 000
Income under FIFO 2, 500, 000 3, 000, 000

What is the income after a change to the average method?

a. 3, 200, 000
b. 2, 950, 000
c. 2, 650, 000
d. 3, 050, 000
7. Adolph company provided the following information for 2011:

Gross profit 500, 000

Cost of goods manufactured 2,800, 000

Beginning inventories:
Goods in process 350, 000

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 Finished goods 520,
000 Ending inventories:
Goods in process 230, 000
Finished goods 150, 000
How much was the amount of sales for
2011?
a. 3, 050, 000
b. 3, 670, 000
c. 3, 790, 000
d. 2, 810, 000
8. Marilyn Company regularly buys sweaters from Marcus Company and is allowed trade
discount of 20% and 10% from the list price. Marilyn made a purchase on March 20 and
received an invoice with a list price of P1, 200, 000 under terms of 2/10, n/30 and a freight
charge of P50,
000. Marilyn uses the net method of recording purchases. What is the amount of inventory
from his purchases assuming payment was made on April 1, 2011?
a. P914, 000
b. 890, 000
c. 896, 720
d. 873, 200
9. Ronald Company specializes in the sale of apple accessories and software packages. Ronald
had the following transaction with one of its suppliers:
Purchases of accessories 3, 000, 000
Purchases of software packages 2, 500, 000
Returns and allowances 200, 000
Purchase discounts taken 160, 000

Purchases were made throughout the year on terms 5/10, n/30 all returns and allowances
took place within 5 days of purchases and prior to any payment on the account. What is the
amount of discounts lost for the purchases?
a. 115, 000
b. 105, 000
c. 120, 000
d. 100, 000
10. Edison Company began the year with 500 units of its inventory. The sale price of each
unit varied throughout the month of January. During January, Edison completed the
following inventory transactions:

Unit unit cost unit sale price

January 3 purchases 200 P3, 000
10 sales 400 P4, 000
14 sales 100 4, 200
20 purchase 400 3, 200
22 Sale 500 4, 500

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 30 purchase 200 3, 300
Edison used the periodic average method of inventory costing. What is the total cost of
the beginning inventory if the gross profit in the month of January was P1, 470, 000?
a. P1, 100, 000
b. P1, 210, 000
c. P1, 400, 000
d. P1, 300, 000
11. The following information pertains to Lech company for the current year:
Cash sales 750, 000
Cash collected on accounts receivable 4, 800, 000
Accounts receivables, January 1 400, 000
Accounts receivable, December 31 850, 000
Bad debts written off 100, 000
Purchases 4, 000, 000
Inventory, December 31 620, 000
Gross profit on sales 30%

What was the cost of goods sold for the current year?
a. 3, 640, 000
b. 3, 745, 000
c. 4, 200, 000
d. 4, 270, 000
12. Evington Company sells new equipment with P880, 000 list prices at a mark-up of 20% on
selling price. A dissatisfied customer returned a piece of equipment. Evington Company
determined that the returned equipment can be sold if it is reconditioned. The estimated sales
price of the reconditioned equipment is P800, 000. The reconditions cost is estimated to be
P50, 000 and estimated cost to sell is 10% of the selling price. What is the equipment net
realizable value?
a. 742, 000
b. 670, 000
c. 510, 000
d. 566, 000
13. The records for Thurgood’s discount store are summarized below for the month of July

Inventory. July 1 at retail P450, 000; at cost P300, 000

Purchases in July-at retail P5, 400; at cost P3, 500, 000; freight in P75, 000
Purchase return-at retail P225, 000; at cost P125, 000; purchase allowance
P25, 000 transfers in from suburb branch-at retail P300, 000; at cost P235,
000 Net mark-ups P675, 000; net markdowns P600, 000
Inventory losses due to normal breakage-at retail P150, 000
Employee discounts-P100, 000 sales P5, 000, 000 sales returns P250, 000;
sales Allowance P50, 000; sales discounts P25, 000

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 Using the average retail inventory method, what is the estimated cost of sales?
a. 3, 250, 500
b. 3, 151, 500
c. 3, 400, 000
d. 3, 300, 000
14. Information regarding marshal company portfolio of available for sale securities is as follows:
Aggregate cost on December 31, 2011 1, 500, 000
Unrealized gains on December 31, 2011 50, 000
Unrealized losses on December 31, 2011 200, 000
Net realized gains during 2011 70, 000

On December 31, 2010, marshal reported an unrealized loss of P60, 000 in other
comprehensive income to reduce these securities to market value. What amount of unrealized
loss on available for sale securities should be reported as other comprehensive income in the
shareholders equity on December 31, 2011?
a. 200, 000
b. 150, 000
c. 90, 000
d. 80, 000
15. Guevara company statements of comprehensive income for the year ended December 31,
2011 reported income before taxes of P3, 000, 000. The auditor questioned the following
amounts that had been included in income:

Unrealized gain on available for sale investment 250, 000

Equity in earnings of James Company 400, 000
Dividends received from James 150, 000

Guevara owns 30% of James preferences shares but has no interest in ordinary shares, what
should be reported as income before taxes?
a. 2, 750, 000
b. 2,600, 000
c. 2, 350, 000
d. 2, 050, 000
16. On January 1, 2011, Stallone company purchased held to maturity bonds with face value of
P5, 000, 000 for P4, 682, 600 including transactions cost of P82, 600 the bonds are purchased
to yield 10% interest. The nominal interest rate on the bonds is 8% payable annually every
December 31. Stallone appropriately used the effective interest method of amortization. The
market value of the bonds on December 31, 2011 is 105. What is the carrying amount of the
investment on December 31, 2011?
a. 4, 750, 860
b. 4, 682, 600
c. 5, 250, 000

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 d. 4, 614, 340
17. On December 31, 2011. Siefert Company purchased 12, 000 ordinary shares of Alexander
Company with P100 par value for P1, 650, 000 to be held as available for sale. On March 1,
212. Seifert received a 10% stock dividend from Alexander company. On this date: Alexander’s
ordinary share is selling for P140. On June 1, 2012, Seifert sold all the stock dividends that
were received on March 1, 2012 at P150 per share. What is the total amount of income to be
recorded by Seifert in 2012 from its investment in Alexander?
a. 198, 000
b. 183, 000
c. 30, 000
d. 15, 000
18. On July 1, 2011 Aguilera Company purchased bonds with face value of P5, 000, 000 to be held a
available for sale. The entity paid P4, 600, 000 plus transactions cost of P142, 000 and accrued
interest of P150, 000. The bonds pay 6% interest annually on December 31 of each year with an
8% effective yield. The transaction cost was appropriately included in the carrying amount of
the investment while payment for the interest was recorded as interest receivable. The bonds
are quoted at 105 on December 31, 2011. What is the amount of interest that was received on
December 31, 2011?
a. 184, 000
b. 150, 000
c. 300, 900
d. 189, 680
19. Winston Company has seven operating segments, five of which are reportable. A
reconciliation prepared by the chief financial officer with regards to the reportable and not
reportable operating segments is as follows

Reportable operating segments

Sales from external customers 25, 000, 000

Intersegment sales 5, 000, 000
Intersegment transfers 3, 000, 000
Total segment expenses 10, 000, 000
Total segment asset 75, 000, 000
Total segment liability 18, 000, 000

All other segments

Sales from external customers 3, 000, 000
Intersegment sales 500, 000
Intersegment transfers 200, 000
Total segments expenses 700, 000
Total segment asset 5, 000, 000
Total segment liabilities 1, 200, 000

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 What is the minimum revenue from a customer to qualify as a major customer?
a. 2, 500, 000
b. 2, 800, 000
c. 3, 300, 000
d. 3, 670, 000
20. Benazir Company prepares quarterly interim financial reports, the entity sells it products
through agents who are paid a fixed monthly salary and a commission of 5% that is paid at
year end. Sales for the first quarter were P10, 000, 000.however, in the second quarter the
employees union negotiated that agents commission should be increased to 8% and to be
applied as of the beginning o the current year. Sales in the second quarter were P15, 000,
000. What would be the sale commission expense charged in the second quarter’s interim
financial statements?
a. 1, 500, 000
b. 1, 200, 000
c. 1, 700, 000
d. 2, 000, 000
21. On January 1, 2011, Wallace Company acquired 100, 000 ordinary shares of milestones
company for P5, 000, 000 at the time of purchase milestones company had 500, 000
outstanding shares with a fair value and book value of P25 million for the year ended
December 31, 2011. The following events took place:
 Milestone reported net income of P1, 800, 000 for the calendar year 2011
 Wallace received from Milestone a dividend of P2.50 per ordinary share
 Milestone recognized unrealized gains of P600, 000 on its investment on available for
sale securities as other comprehensive income

Wallace does have significant influence over Milestone. What is the carrying amount of the
investment on December 31, 2011?
a. 4, 500, 000
b. 5, 230, 000
c. 5, 110, 000
d. 5, 000, 000
22. The audit of Benoit Company for the year ended December 31, 2011 was completed on March
1, 2012. The financial statements were signed by the managing director on March 15, 2012
and approved by the shareholders on March 31, 2012. The following events have occurred
before march 31, 2012:
 On January 14, 2012 a customer owing P900, 000 to Benoit Field for Bankruptcy. The
financial statements include an allowance for doubtful debts pertaining to this customer
of P100, 000.
 An asset acquired in December 2011 was recorded at a cost of P600, 000. It was
determined on February 15, 2012 that the total cost of asset is P1, 600, 000

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  Benoit company discovered errors on march 10, 2012 that showed that the correct
cash balance should be P1, 200, 000 instead of the previous balance of P1, 000, 000
 A noncurrent asset with a carrying amount of P2, 000, 000 was classified as held for sale
on March 13, 2012. The recoverable amount of the noncurrent asset was determined to
be P1, 500, 000.

What is the net increase or net decrease in the total asset to be reported by Benoit Company
on December 31, 2011 as a result of events after the reporting period?
a. 100, 000 decrease
b. 400, 000 increase
c. 1, 100, 000 decrease
d. 300, 000 decrease
23. On December 1, 2011, Landsman Company purchased for P3, 000, 000 a tract of land as a
factory site. Landsman razed an old building on the property and used the materials it
salvaged from the demolition for the new factory. Landsman incurred additional costs and
realized salvage proceeds during December 2011 as follows:

Demolition of old building 300, 000

Legal fees for purchase contract and recording ownership 20, 000
Filling, grading and levelling 50, 000
Title guarantee insurance 30, 000
Salvaged materials 100, 000

What is the total cost of the land?

a. 3, 300, 000
b. 3, 250, 000
c. 3, 400, 000
d. 3, 350, 000
24. Kennedy Company reported an impairment loss of P200, 000 in its statements of
comprehensive income for the year ended December 31, 2010. This loss was related to
noncurrent asset which Kennedy currently used in its operations on the December 31, 2010.
Kennedy reported the noncurrent asset after impairment at P1, 000, 000 and estimated that
the noncurrent asset would be used for another five years regardless whether the impairment
was recognized or not. Kennedy used the straight line depreciation with no residual value. On
December 31, 2011. Kennedy used the straight line depreciation with no impaired noncurrent
asset had increase by P50, 000 over its fair value on December 31, 2010. In the 2011
statements of comprehensive income. What amount should be reported as gain on the reserve
of the impairment loss/
a. 250, 000
b. 160, 000
c. 50, 000
d. 0

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25. Mikhail Company started construction of a building on January 1, 2011 and completed
construction on December 31, 2012. Mikhail had two interest bearing notes outstanding
during both years and all of the notes were outstanding for all 12 months of each year. The
following information is available:
8% note (specifically for the project) 2, 000, 000
10% long term note 8, 000, 000

2010 average accumulated expenditures 2, 800,

000 2010 ending balance in construction in progress
Before capitalization of interest 3, 600, 000
2010 expenditures which were incurred evenly 2, 000, 000

What is the total cost of the building on December 31, 2012?

a. 6, 282, 000
b. 5, 600, 000
c. 5, 920, 000
d. 7, 520, 000
26. On January 1, 2011. Truman Company acquired equipment to be used in its manufacturing
operations. The equipment has an estimated useful life of 8 years and an estimated residual
value of P300, 000. The depreciation applicable to his equipment was P900, 000 for 2012
computed under the 200% double declining balance method. What was the acquisition cost
of the equipment?
a. 3, 600, 000
b. 4, 500, 000
c. 4, 800, 000
d. 5, 100, 000
27. Luther Company has recently acquired a computer system for its central office in Makati
Luther provided the following information for the new computer

List price 1, 000, 000

Trade discount 10%
Removal of old computer 20, 000
Concrete slab poured as a base for the new computer 30, 000
Insurance taken during delivery 20, 000
Repairs incurred while in transit 10, 000
Transportation cost 50, 000
Purchase discount available on purchase (not Taken) 5%
Computer software that is an integral part of the system 95, 000

What is the total amount to be capitalized as cost of the computer system?

a. 1, 050, 000
b. 1, 070, 000

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 c. 1, 060, 000
d. 955, 000
28. Emmeline Company’s check book balance on December 31, 2011 was P1, 500, 000. In addition,
Emmeline held the following items in its safe on December 31, 2011?
 A post-dated check for P300, 000 from Lydia Company received December 1, 0211
and dated December 30, 2011 which was not included in the check book balance
 An NSF check from Steve Company in the amount of P100, 000 that had been deposited at
the bank on December 15, 2011 but was retuned for lack of sufficient fund on December
28, 2011. The check was redeposited on January 3, 2012. The original deposit has been
included in the December 31 check book balance
 Coin and currency on hand amounted to P250, 000
What is the correct amount of cash to be reported on December 31, 2011?
a. 1, 650, 000
b. 2, 050, 000
c. 1, 700, 000
d. 1,950, 000
29. On march 1, 2011, Daniela Company classified anon current asset as held for sale that had a
carrying amount of P1, 500, 000. On this date, the noncurrent asset has a fair value of P1,
400,
000. Estimated disposal cost to be incurred for sale was P50, 000. By December 31, 2011. The
asset had not been sold but the sale is still considered to be highly probable and management
intention to sell has not changed. At the same time. Daniela managers estimated that because
of recent changes for the demand of the noncurrent asset and price increases the noncurrent
asset was now expected to be selling for P1, 600, 000 with the related disposal cost unchanged
at P50, 000. Depreciation from March 1, 2011 to December 31, 2011 was computed at P80,
000. How much gain from the increase in fair value less cost to sell should be reported in 2011?
a. 150, 000
b. 250, 000
c. 230, 000
d. 200, 000
30. Carson corporation purchased a new machine on January 1, 2012 A P500, 000 down payments
was made and three quarterly instalments of P200, 000 each are to be made beginning on
April 1, 2011 the cash price of the new machine would have been P1, 000, 000 if paid in full.
Carson paid no installation charges under the quarterly instalments plan but a P20, 000
installation charge would have been incurred with a cash purchase. Delivery of P30, 000 was
also incurred with the purchase what is the amount to be capitalized as the cost of the new
machine?
a. 1, 030, 000
b. 1, 100, 000
c. 1, 050, 000
d. 1, 150, 000
31. On January 1, 2011, Altidor Company received a 4 year variable interest rate loan of P4, 000,
000 with principal payment at maturity and annual interest payment at the end of each year.
The

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 interest rate of fro 2011 is 10% and the rate in each succeeding year is equal to market interest
rate on January 1 of that year. In connection with the loan. Altidor company entered into an
interest rate swap agreement with another financial institution to the effect that altidor will
receive a swap payment i the interest rate on January 1 is more than 10% will make a swap
payment if the interest rate is less than 10%. The swap payments are made at the end of the
year on December 31. On January 1, 2012, the market rate of interest is 12% and on January 1,
2013, the market rate of interest is 14%.

What is the derivative or liability under the interest swap agreement on December 31, 2012?
(Round off PV factor to two decimal places)
a. 264, 000 asset
b. 264, 000 liability
c. 192, 000 asset
d. 192, 000 liability
32. The total debits and credits in selected accounts of Condor Company after closing entries
were posted on December 31, 2011 are given below:
Debits credits
Materials 200, 000 800, 000
Goods in process 500, 000 700, 000
Material purchases 2, 000, 000 2, 000, 000
Purchases discount 80, 000 80, 000
Transportation in 150, 000 150, 000
Direct labor 1, 000, 000 1, 000, 000
Manufacturing overhead 500, 000 500, 000
Finished goods 250, 000 700, 000

What was the cost of goods sold for 2011?

a. 4, 820, 000
b. 4, 750, 000
c. 4, 520, 000
d. 4, 450, 000
33. The general ledger trial balance of Armani Company included the following accounts
on December 31, 2011:

Inventory including inventory expected in the ordinary course of

Operations to be sold beyond 12 months amounting to P700, 000 1, 000, 000
Trade receivables 1, 200, 000
Prepayments 50, 000
Listed investment at fair value through profit or loss 200, 000
Available for sale securities 800, 000
Cash and cash equivalents 300, 000
Deferred tax asset 150, 000

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 Asset of a disposal group 250, 000

What amount should be reported as total current asset on December 31, 2011?
a. 3, 000, 000
b. 2, 750, 000
c. 3, 550, 000
d. 2, 500, 000
34. Bankrupt bank has a 5 year loan receivable with a face value of P2, 000, 000 dated January 1,
2010 from a borrower that is due on December 31, 2014. Interest on the loan is payable at
10% every December 31. The borrower paid the interest that was due on December 31, 2010
but informed bankrupt on December 31, 2011 that interest accrued in 2011 and the interest
for 2012 will be paid at maturity date. The borrower will also probably miss the two years for
interest payments because of financial difficulty. After that the borrower is expected to pay
the loan and accrued interest in 2011 and 2012 on December 31, 2014.what is the loan
impairment loss to be recognized on December 31, 2011? (round off present value factor to
three decimal places)
a. 97, 200
b. 397, 600
c. 597, 600
d. 197, 600
35. Blake Company used the composite method of depreciation based on a composite rate of 10%
at the beginning of 2011, the total cost of Blake’s’ depreciable asset was P2, 500, 000 with a
total residual value of P300, 000. Accumulated depreciation was P750, 000 on the same date.
During 2011. Blake sold asset with an original cost of P500, 000 an d a residual value of P60,
000 for P150, 000 no gain or loss was recognized on the sale. Asset costing P1, 000, 000 with a
residual value of P120, 000 were also acquired during 2011 to replace asset sold within a year.
What is the balance of the accumulated depreciation on December 31, 2011?
a. 1, 050, 000
b. 664, 000
c. 700, 000
d. 850, 000
36. For the year ended December 31, 2011, Greenberg Company estimated its allowance for
uncollectible accounts using the year end aging of accounts receivable. The following data
for 2011 are available:

Allowance for uncollectible accounts 1/1/11

Provision for uncollectible accounts during 2011 (2% on credit sales
Of P25, 000, 000)
Uncollectible accounts written off
Recovery accounts writeen off
Estimated uncollectible accounts per aging 12/13/11

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 How much doubtful accounts expenses should be reported for 2011?
a. 880, 000
b. 380, 000
c. 180, 000
d. 500, 000
37. Precious Company purchased 10% of an investee 100, 000 outstanding ordinary shares on
January 1, 2011 for P500, 000. On December 31, 2011. Precious purchased an additional 20,
000 shares of the investee for P1, 500,000. There was no goodwill as a result of either
acquisition and the investee had not issued any additional shares during 2011. The investee
reported earnings of P3, 000, 000 for 2011 what is the carrying amount of the investment on
December 31, 2011?
a. 1, 700, 000
b. 2, 000, 000
c. 2, 300, 000
d. 2, 900, 000
38. During the current year. Aura Company incurred the following costs:

Research and development services performed by Amor Company for Aura 150, 000
Design, construction and testing of preproduction prototypes and models 200, 000
Testing in search for new product or process alternatives 175, 000

What should be reported as research and development expense?

a. 150, 000
b. 200, 000
c. 350, 000
d. 525, 000
39. Mariel Company acquired a trademark relating to the introduction of a new
manufacturing process. The cost incurred were as follows:

Cost of trademark 3, 500, 000

Expenditure on promoting the new product 50,
000 Employee benefits relating to the testing of the proper functioning of the new
Process 200, 000

What is the total cost that should be capitalized as intangible noncurrent asset in respect of the
new process?
a. 3, 750, 000
b. 3, 700, 000
c. 3, 500, 000
d. 3, 550, 000
40. In 2010, Vanna Company paid P1, 000, 000 to purchase land containing total estimated 160,
000 tons of extractable mineral deposits. The estimated value of the property after the mineral
has

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been removed is P200, 000. Extraction activities began in 2011 and by the end of the year, 20,
000 tons had been recovered and sold in 2012, geological studies indicated that the total
estimated tons extricable mineral deposits had been underestimated by 60, 000 tons. During
2012, 50, 000 tons were extracted and 48, 000 tons were sold. What is the depletion included
in cost of sales for 2012?
a. 175, 000
b. 168, 000
c. 200, 000
d. 192, 000

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