Final Exam IA Reviewer

INVENTORIES
Activity-based cost (ABC) systems are designed to allocate direct labor costs to manufacturing activities.
FALSE.
Work in process inventories include only the costs of direct materials and direct labor. FALSE.
In a period of rising prices, the use of FIFO relates the current high costs of acquiring goods with rising
sales prices. As a result, FIFO tends to have a stabilizing effect on gross profit margins. FALSE.
Consigned goods are reported by the consignor in inventory at the sum of their cost, handling and
shipping costs, and the estimated gross profit. FALSE.
When a perpetual inventory system is used, physical counts may be made periodically to confirm the
inventory balances on the books. FALSE.
Normal inventory adjustments for shrinkage and breakage are reported as adjustments to cost of goods
sold. TRUE.
Goods held by customers on approval should be excluded from the seller's inventory. FALSE.
When the terms of a sale are FOB shipping point, goods in transit at year-end should not be included in
the inventory of the seller. TRUE.
Title to goods shipped FOB destination remains with the seller from the shipping point to the destination
point. TRUE.
Abnormal shortages or thefts of inventory should be reported separately as operating expenses. TRUE.
Which statement is true about the gross profit method?

a. It may not be used to estimate inventories for interim statements.
b. It may not be used by insurers of inventory.
c. It may not be used for internal estimates of inventory.
d. It may not be used to estimate inventories for annual statements.
What is the maximum amount at which inventory can be valued when the goods have experienced a
permanent decline in value?
a. Net realizable value reduced by a normal profit margin
b. Historical cost
c. Sales price
d. Net realizable value
An overstatement of ending inventory in Period 1 would result in income of Period 2 being

a. correctly stated.
b. understated.
c. The answer cannot be determined from the information given.
d. overstated.
Which one of the following would cause a decrease in the cost ratio as used in the retail inventory
method?
a. Lower net markups
b. Higher retail prices
c. More employee discounts given
d. Higher freight-in charges
The gross profit method of estimating inventory would not be useful when
a. inventories have been destroyed or lost by fire, theft, or other casualty, and the specific data required
for inventory valuation are not available.
b. there is a significant change in the mix of products being sold.
c. a periodic system is in use and inventories are required for interim statements.
d. the relationship between gross profit and sales remains stable overtime.
If ending inventory on December 31, 2019, is overstated by P30,000, what is the effect on net income
for 2020?
a. Net income is overstated by P60,000.
b. The answer cannot be determined from the information given.
c. Net income is understated by P30,000.
d. Net income is overstated by P30,000.
When the current year's ending inventory amount is overstated,

a. the next year's income is overstated.
b. the current year's cost of goods sold is overstated.
c. the current year's net income is overstated.
d. the current year's total assets are understated.
If the ending inventory balance is understated, net income of the same period
a. will be understated.
b. will be overstated.
c. will be unaffected.
d. cannot be determined from the above information.
Which of the following will result if the current year's ending inventory amount is understated in the
cost of goods sold calculation?
a. None will be overstated or understated.
b. Net income will be overstated.
c. Total assets will be overstated.
d. Cost of goods sold will be overstated.
Net realizable value can be defined as

a. selling price.
b. selling price less costs to complete and sell.
c. acquisition cost plus costs to complete and sell.
d. selling price plus costs to complete and sell.
1. The financial statements of Luke Company for the year ended December 31 revealed following items
to be included in the merchandise inventory.
Finished goods in factory P1,900,0

00
Finished goods in company-owned retail store, including a 50% profit on cost 330,000
Finished goods in hands of consignees including 30% profit on sales 200,000
Finished goods in transit to customers, shipped FOB point of shipment 160,000
Finished goods in transit to customers, shipped FOB destination 150,000
Finished goods out on approval, at cost 100,000
Unsalable finished goods, at cost 40,000
Goods in process 1,100,00

0
Unexpired insurance on inventories 29,000
Advertising catalogues and shipping cartons 120,000
Office supplies 22,000
Shipping supplies 9,000
Gasoline and oil for testing finished goods 89,000
Machine lubricants 30,000
Materials purchased in transit shipped FOB shipping point excluding freight of P20,000 220,000
Defective materials returned to suppliers for replacement 99,000
Materials 2,000,00
0
Advance payment for materials ordered 100,000
Total P6,698,0
00
Required:
How much is the correct amount of inventory?
Finished goods in factory 1,900,000

Finished goods in company-owned retail store (330,000/150%) 220,000
Finished goods in hands of consignees (70%*200,000) 140,000
Finished goods in transit to customers, shipped FOB destination 150,000
Finished goods out on approval, at cost 100,000
Goods in process 1,100,000
Gasoline and oil for testing finished goods 89,000
Machine lubricants 30,000
Materials purchased in transit shipped FOB shipping point (220,000+20,000) 240,000
Materials 2,000,000
Total 5,969,000
2. The following items were included in the merchandise inventory in the financial statements of
Kristal Mae Company for the year ended December 31.
Items counted in the warehouse (bodega) (including P23,000 damaged and unsalable
goods) P4,000,000
Items included in the count specifically segregated per sales contract 80,000
Goods held on consignment at sales price, cost P125,000 250,000
Items in receiving department, returned by the customer, in good condition 60,000
Goods out on consignment, at sales price, cost P140,000 200,000
Items ordered and in the receiving department, invoice not yet received 30,000
Items ordered, invoice received but goods not received Freight is paid by buyer. 100,000
Items on counter for sale 150,000
Items in receiving department refused by the entity because of damage 200,000
Items in shipping department 220,000
Items shipped today, invoice mailed, FOB shipping point 30,000
items shipped today, invoice mailed, FOB destination 25,000
Items currently being used for window display 18,000
Total P5,363,00
0
Required:
How much is the correct amount of inventory?
Items counted in the warehouse (bodega) (4,000,000- P23,000 - 80,000) 3,897,000

Items in receiving department, returned by the customer, in good condition 60,000
Goods out on consignment, at cost 140,000
Items ordered and in the receiving department, invoice not yet received 30,000
Items ordered, invoice received but goods not received Freight is paid by buyer. 100,000
Items on counter for sale 150,000
Items in shipping department 220,000
items shipped today, invoice mailed, FOB destination 25,000
Items currently being used for window display 18,000
Total P4,640,000
3. The accountant of Divine Grace Company has provided you with the following information regarding
the inventory on hand at December 31, 2020, used in the manufacture of two product lines:
a) motorbikes; and b) bicycles:
Cost NRV: if NRV: if sold

sold
as a Completed
'as is' product
Raw materials: P 100,000 P45,000 P65,000
Supply of steel (used for motorbikes) 40,000 25,000 15,000
Supply of aluminum (used for bicycles) 60,000 20,000 50,000
Work-in-process: 80,000 80,000 65,000
Incomplete motorbikes 30,000 20,000 25,000
Incomplete bicycles 50,000 60,000 40,000
Finished Goods: 160,000 N/a 170,000
Motorbikes 80,000 N/a 60,000
Bicycles 80,000 N/a 110,000
Total 340,000
The lifecycle of both product lines is coming to an end and the company has decided that where it is
more profitable to sell a class of inventory such as raw materials 'as is' than to convert it into the
finished product then the class of inventory will be sold 'as is'. Cost of sales before any adjustments to
the cost of inventory was P450,000.
Required:
Based on the above data how much is the inventory write-down for the raw materials?
Supply of steel (used for motorbikes) Writedowns

Cost 40,000
More Profitable (as is) 25,000 15,000
Supply of aluminum (used for bicycles)

Cost 60,000
More Profitable (completed product) 50,000 10,000
Total Write Down Raw Materials 25,000
Required:
Based on the above data how much is the inventory write-down for the work-in-process?
Incomplete motorbikes Writedowns

Cost 30,000
Incomplete bicycles
Cost 50,000
More Profitable (as is) 60,000 0
Total Write Down Work-in-process 5,000
Required:
Based on the above data how much is the inventory write-down for the finished goods?
Motorbikes Writedowns
Cost 80,000
Bicycles
Cost 80,000
More Profitable (completed product) 110,000 0
Total Write Down Finished Goods 20,000
4. Records of the Flordie Co. show the following data relative to Product XYZ during April;
Units Unit cost Total cost
April 1 Balance 20,000 P10 P200,000
Apr. 2 Purchase 30,000 12 360,000
Apr.4 Sale 25,000
Apr. 10 Purchase 15,000 14 210,000
Apr.15 Sale 27,000
Apr.17 Sales return (1,000)
Apr. 28 Purchase 20,000 16.75 335,000
Total 85,000 1,105,000
Required:
Using the weighted average method, how much is the cost of goods sold in April?
Weighted Average Cost per Unit:
= 1,105,000 / 85,000
= 13.0
Cost of Goods Sold:

=sold inventory in units*average cost
= 51,000*13 (25+27-1)
= 663,000
Required:
Using the weighted average method, how much is the cost of inventory at the end of April?
Ending Inventory:
=ending inventory in units*average cost
=34,000*13 (20+30-25+15-27+1+20 = 34)
=442,000
Required:
Using the moving average method, how much is the cost of inventory at the end of April? P506,500
PERPETUAL
Purchases Sales Balances
Units Unit Amount Units Unit Amount Units Unit Total Cost
Cost Cost Cost
April 1 Balance 20,000 10.00 200,000 20,000 10.00 200,000
April 2 Purchase 30,000 12.00 360,000 30,000 12.00 360,000
Balance 50,000 11.20 560,000
April 4 Sale 25,000 11.20 280,000 25,000 11.20 280,000
Balance 25,000 11.20 280,000
April 10 Purchase 15,000 14.00 210,000 15,000 14.00 210,000
Balance 40,000 12.25 490,000
April 15 Sale 27,000 12.25 330,750 27,000 12.25 330,750
Balance 13,000 12.25 159,250
April 17 Sales -1000 12.25 (12,250) 1,000 12.25 12,250

return
Balance 14,000 12.25 171,500
April 28 Purchase 20,000 16.75 335,000 20,000 16.75 335,000

Balance 34,000 14.90 506,500
Totals 85,000 1,105, 51,0 598,500

000 00
PERPETUAL
Units Unit Amount Units Unit Amount Units Unit Total Cost
Cost Cost Cost
April 1 Balance 20,000 10.00 200,000 20,000 10.00 200,000
April 2 Purchase 30,000 12.00 360,000 30,000 12.00 360,000
Balance 50,000 11.20 560,000
April 4 Sale 25,000 11.20 280,000 25,000 11.20 280,000
Balance 25,000 11.20 280,000
April 10 Purchase 15,000 14.00 210,000 15,000 14.00 210,000
Balance 40,000 12.25 490,000
April 15 Sale 27,000 12.25 330,750 27,000 12.25 330,750
Balance 13,000 12.25 159,250
April 17 Sales return -1000 12.25 (12,250) 1,000 12.25 12,250
Balance 14,000 12.25 171,500
April 28 Purchase 20,000 16.75 335,000 20,000 16.75 335,000
Balance 34,000 14.90 506,500
April 29 Purch (1,000) 16.75 (16,750) (1,000) 16.75 (16,750)

Return
Balance 33,000 14.84 489,750
Totals 84,000 1,088,250 51,000 598,500
Required:
Using the moving average method, how much is the cost of goods sold at the end of April? P598,500
Required:
Using the perpetual FIFO method, how much is the cost of inventory at the end of April? P531,000
Using the perpetual FIFO method, how much is the cost of goods sold in April? P574,000
PERPETUAL: FIFO
Units Unit Cost Amount Units Unit Cost Amount Units Unit Cost
April 1 Balance 20,000 10.00 200,000 20,000 10.00
April 2 Purchase 30,000 12.00 360,000
20,000 10.00
Balance 30,000 12.00
20,000 10.00 200,000
April 4 Sale 5,000 12.00 60,000 25,000 12.00
Balance 25,000 12.00
April 10 Purchase 15,000 14.00 210,000
25,000 12.00
Balance 15,000 14.00
25,000 12.00 300,000
April 15 Sale 2,000 14.00 28,000 13,000 14.00
Balance 13,000 14.00
April 17 Sales return (1000) 14.00 (14,000

)
Balance 14,000 14.00
April 28 Purchase 20,000 16.75 335,000
14,000 14.00
Balance 20,000 16.75
Totals 85,000 1,105,000 51,000 574,000 34,000

Periodic FIFO:
Ending Inventory
Units Cost Amount
20,000 16.75 335,000
14,000 14.00 196,000
34,000 531,000
Cost of Goods Sold:

Total Available for sale 1,105,000
Minus: Ending inv. 531,000
574,000
Required:
Using the moving average method, how much is the cost of goods sold at the end of April?
P598,500.00
Using the perpetual FIFO method, how much is the cost of goods sold in April?
P574,000.00
Using the perpetual FIFO method, how much is the cost of inventory at the end of April?
P531,000.00
Using the moving average method, how much is the cost of inventory at the end of April?
P506,500.00
Using the periodic FIFO method, how much is the cost of inventory at the end of April?
P531,000.00 (Note: Same as Perpetual FIFO Method)
PROPERTY, PLANT, AND EQUIPMENT
Depreciation, depletion, and amortization all involve the allocation of the cost of along-lived asset to
expense. TRUE.
An impairment loss is the amount by which the carrying amount of the asset exceeds the sum of the
expected future cash flows from the use of that asset. FALSE.
Unrealized gains from revaluations do not increase net income but are instead reported as components
of other comprehensive income. TRUE.
Depreciation is based on the decline in the fair value of the asset. FALSE.
Assets held for disposal should be reported at the lower of cost or net realizable value. TRUE.
Although IFRS allows it, most companies do not use revaluation accounting. TRUE.
Under component depreciation, each component of an item of property, plant, and equipment whose
cost is not significant relative to the total cost of the asset must be depreciated separately. FALSE.
Inadequacy is the replacement of one asset with another more efficient and economical asset. FALSE.
An accelerated depreciation method is appropriate when the asset’s economic usefulness is the same
each year. FALSE.
Changes in estimates are handled retrospectively by dividing the asset’s book value less any residual
value by the remaining estimated life. FALSE.
Intangible development costs and restoration costs are part of the depletion base. TRUE.
Recoveries of impairment for tangible long-lived assets are reported as components of other
comprehensive income. FALSE.
An asset’s value in use is defined as the present value of the cash flows expected from its future use and
eventual sale at the end its useful life. TRUE.
A recovery of impairment for a tangible long-lived asset is limited to the carrying value that would have
been reported had the impairment not occurred. TRUE.
Depreciation is a means of cost allocation, not a matter of valuation. TRUE.
The cost of an asset less its residual value is its depreciation base. TRUE.
The second step in determining an impairment loss is to identify whether impairment indicators are
present. FALSE.
The Accumulated Other Comprehensive Income account related to revaluations cannot have a negative
balance. TRUE.
Component depreciation maybe be calculated using the straight-line method. TRUE.
The three factors involved in the depreciation process are the depreciation base, the useful life, and the
risk of obsolescence. FALSE.
The major objection to the straight-line method is that it assumes the asset’s economic usefulness and
repair expense are the same each year. TRUE.
The recoverable amount used to impairment test a long-lived tangible asset is defined as the asset’s fair
value less costs to sell. FALSE.
Recoverable amount is defined as the higher of fair value less costs to sell or value-in-use. TRUE.
The units-of-production approach to depreciation is appropriate when depreciation is a function of time

instead of activity. FALSE.
Revaluation surplus is a temporary account which is closed to Retained Earnings at the end of an
accounting period. FALSE.
The declining-balance method deducts the residual value in computing the depreciation base. FALSE.
After an impairment loss is recorded, the recoverable amount becomes the basis for the impaired asset
and is used to calculate depreciation in future periods. TRUE.
The recoverability test is the first step in impairment testing under IFRS. FALSE.
1. Overberg Company purchased a machine on January 2, 2020, for P1,000,000. The machine has an
estimated useful life of five years and a salvage value of P100,000. Depreciation was computed by
the 150% declining-balance method. The accumulated depreciation balance at December 31, 2021,
should be?
P510,000
[1,000,000*(1.5 / 5 yrs)] = 300,000

1,000,000 – 300,000 = 700,000
700,000*(1.5 / 5 yrs) = 210,000
300,000 + 210,000 = 510,000
2. On January 1, 2018, Carson Company purchased equipment at a cost of P420,000. The equipment
was estimated to have a useful life of five years and a salvage value of P60,000. Carson uses the
sum-of-the-years'-digits method of depreciation. What should the accumulated depreciation be at
December 31, 2021?
P336,000
360,000 * (5/15) = 120,000
360,000 * (4/15) = 96,000
360,000 * (3/15) = 72,000
360,000 * (2/15) = 48,000
120,000 + 96,000 + 72,000 + 48,000 = 336,000
Numerator formula: (Useful Life – Number of years used) + 1

Denominator formula: [(Useful Life * (useful life + 1)] / 2
3. Carter Company acquired three machines for P200,000 in a package deal. The three assets together
had a book value of P160,000 on the seller's books. An appraisal costing the purchaser P2,000
indicated that the three machines had the following market values (book values are given in
parentheses):
Machine 1: P60,000 (P40,000)
Machine 2: P80,000 (P50,000)
Machine 3: P100,000 (P70,000)
Required: How much will Machine 2 be recorded in the books of Carter at initial recognition. (Round
answers to the nearest peso) P67,333
200,000+2,000*[(80,000 / (60,000+80,000+100,000)] = 67,333
4. HiTech Industries purchases new electronic equipment for its telecommunication system. The
contractual arrangement specifies 10 payments of P8,600 each to be made over a 10-year period. If
HiTech had borrowed money to buy the equipment, it would have paid interest at 9%. HiTech’s
accountant will record the purchase at what amount? (Round answer to the nearest peso)
P55,192
8,600*6.4177 = 55,192
(Use PV of ordinary annuity of 10 periods)
5. On January 1, 2020, Hamed Company borrowed P10,000,000 at 10% specifically for the construction
of its building. However, part of the borrowing is used for working capital during the year. The loan
shall be repaid commencing the month following completion of the building. Expenditures incurred
evenly during the year for the completed building totaled P6,000,000 on December 31, 2020.
Investment income earned from idle funds amounts to P80,000.
Required: What amount of interest is capitalized on December 31, 2020? P300,000
6,000,000*10% = 600,000
600,000 / 2 = 300,000
6. Jazz Company acquired land and paid for it in full by Issuing P600,000 of its 10 percent bonds
payable and 40,000 shares of its common stock, par P10. The stock was selling at P19 per share and
the bonds were trading at 102. What amount should Jazz record as the cost of the land? P1,372,000
(40,000*19) + (600,000*1.02) = 1,372,000
7. The company purchased a machine on April 1 for P100,000. The machine has an estimated useful
life of five years and estimated salvage value of P15,000. The company computes partial-year
depreciation to the nearest whole month. Compute the amount of depreciation expense for the
second year using sum-of-the-years’-digits depreciation. P24,083
85,000*(5/15)*(3/12) = 7,083
85,000*(4/15)*(9/12) = 17,000
7,083 + 17,000 = 24,083
Numerator formula: (Useful Life – Number of years used) + 1

Denominator formula: [(Useful Life * (useful life + 1)] / 2
8. The company purchased a machine on April 1 for P100,000. The machine has an estimated useful
life of five years and estimated salvage value of P15,000. The company computes partial-year
depreciation to the nearest whole month. Compute the amount of depreciation expense for the first
year using double-declining-balance depreciation. P30,000
100,000 * (2/5) = 40,000

40,000 x 9 = 360,000 /12 = 30,000
9 = April
12 = months
9. The Bucol Company purchased a tooling machine in 2010 for P120,000. The machine was being
depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage
value. At the beginning of 2020, when the machine had been in use for ten years, the company paid
P20,000 to overhaul the machine. As a result of this improvement, the company estimated that the
useful life of the machine would be extended an additional five years. What would be the
depreciation expense recorded for the above machine in 2020? (Round off answers to the nearest
peso)
P5,333
120,000/20 = 6,000
6,000*10 = 60,000 + 20,000 = 80,000/(20years-10+5)
80,000/15 = 5,333.33
10. Marburg Manufacturing Company purchased a machine on January 2, 2008. The invoice price of the
machine was P40,000, and the vendor offered a 2 percent discount for payment within ten days.
The following additional costs were incurred in connection with the machine:
Transportation-in P1,200
Installation cost 700
Testing costs prior to regular operation 550
If the invoice is paid within the discount period, Marburg should record the acquisition cost of the
machine at what amount? P41,650
40,000*98% = 39,200
39,200 + 1,200 + 700 + 550 = 41,650
11. Tillman Company owns a machine that was bought on January 2, 2018, for P376,000. The machine
was estimated to have a useful life of five years and a salvage value of P24,000. Tillman uses the
sum-of-the-years'-digits method of depreciation. At the beginning of 2021, Tillman determined that
the useful life of the machine should have been four years and the salvage value P35,200. For the
year 2021, Tillman should record depreciation expense on this machine of. P59,200
2018-2019 352,000*(5/15) = 117,333.3333

2019-2020 352,000*(4/15) = 93,866.6667
2020-2021 352,000*(3/15) = 70,400
Accumulated depreciation 281,600
352,000 – 281,600 = 70,400

70,400 – (35,200-24,000) = 59,200
12. Dewey Company purchased a machine that was installed and placed in service on January 2, 2019,
at a total cost of P480,000. Residual value was estimated at P80,000. The machine is being
depreciated over ten years by the double-declining-balance method. For the year 2020, Dewey
should record depreciation expense of. P76,800
480,000*(2 / 10 yrs) = 96,000

480,000 – 96,000 = 384,000
384,000*(2 / 10 yrs) = 76,800
13. The company paid P500,000 to buy a collection of assets. The assets had the following appraised
values:
Equipment................................................................................................................... P120,000
Building....................................................................................................................... 300,000
Land............................................................................................................................ 100,000
Compute the cost to be allocated to building. (Round off answers to the nearest peso)
P288,462
500,000*[300,000 / (120,000+300,000+100,000)] = 288,462
14. The company has decided to use group depreciation based on the straight-line depreciation
method. The initial pool of assets on which the group depreciation rate is based is as follows:
Acquisition Cost Salvage Value Useful Life

Asset 1 P64,000 P4,000 6 years
Asset 2 90,000 10,000 10
Asset 3 42,000 6,000 9
Asset 4 30,000 0 5
Compute the group depreciation rate. (Round off your answer to nearest five (5) decimal places)
Dep. Exp Cost

Asset 1 (64,000-4,000)/6 = 10,000 64,000
Asset 2 (90,000-10,000)/10 = 8,000 90,000
Asset 3 (42,000-6,000)/9 = 4,000 42,000
Asset 4 30,000/5 = 6,000 30,000
TOTAL 28,000 226,000
28,000/226,000 = 0.12389
15. XYZ Corporation bought a machine on January 1, 2020. In purchasing the machine, the company
paid P50,000 cash and signed an interest-bearing note for P100,000. The estimated useful life of the
machine is five years, after which time the salvage value is expected to be P15,000. Given this
information, how much depreciation expense would be recorded for the year ending December 31,
2021, if the company uses the sum-of-the-years'-digits depreciation method? P36,000
100,000 + 50,000 – 15,000 = 135,000

135,000 * (4/15) = 36,000
16. On January 1, 2019, Fernandez Company received a grant of P15 million from the Local government
of Dumaguete in order to defray safety and environmental costs within the area where the
enterprise is located. The safety and environmental costs are expected to be incurred over three
years, respectively, P2 million, P3 million, and P5 million. How much income from the government
grant should be recognized in 2021? P7,500,000
15M*(5M/2M+3M+5M) = 7.5M
LIABILITIES
A contingent loss should be disclosed in a note to the financial statements but should be recorded as a
liability if the actual incurrence of a loss is reasonably possible. FALSE.
Dividends in arrears on cumulative preference shares should not be reported as a current liability. TRUE.
A short-term obligation can’t be excluded from current liabilities if the company intends to refinance it
on a long-term basis. TRUE.
Long-term debt maturing within the next year may be classified as a noncurrent liability on the
statement of financial position. TRUE.
A liability to replace a specific defective television set already returned to the manufacturer is a
contingent liability. FALSE.
Disclosure usually is not required for contingent losses that are remote and can be reasonably
estimated. TRUE.
Magazine subscriptions and airline ticket sales both result always in earned revenues. FALSE.
An obligation that is contingent on the occurrence of a future event should be reported in the balance
sheet as a liability if
a. the occurrence of the future event is probable and the amount can be reasonably estimated.
b. the future event is likely to occur.
c. the amount of the obligation can be reasonably estimated.
d. the occurrence of the future event is at least reasonably possible and the amount is known.
Contingent liabilities will or will not become actual liabilities depending on

a. the outcome of a future event.
b. the present condition suggesting a liability.
c. whether they are probable and estimable.
d. the degree of uncertainty.
Reporting in the body of the financial statements is required for

a. gain contingencies that are probable and can be reasonably estimated.
b. loss contingencies that are probable and can be reasonably estimated.
c. loss contingencies that are possible and can be reasonably estimated.
d. all loss contingencies.
1. A company buys an oil rig for P2,500,000 on January 1, 2020. The life of the rig is 10 years and the
expected cost to dismantle the rig at the end of 10 years is P400,000 (round off present value factor
to 5 decimal places. at 10% is P154,220). 10% is an appropriate interest rate for this company. What
depreciation expense should be recorded for 2020 as a result of these events? P265,422
(2,500,000+154,220)/10= 265,422
2. A company buys an oil rig for P2,500,000 on January 1, 2020. The life of the rig is 10 years and the
expected cost to dismantle the rig at the end of 10 years is P400,000 (round off present value factor
to 5 decimal places. at 10% is P154,220). 10% is an appropriate interest rate for this company. What
interest expense should be recorded for 2020 as a result of these events? P15,422
154,220 x 10% = 15,422
3. In May 2018, the Marlins Company became involved in litigation. As a result of this litigation, it is
probable that Marlins will have to pay P700,000. In July 2018, a competitor commenced a suit
against Marlins alleging violation of antitrust laws seeking damages of P1,000,000. Marlins denies
the allegations, and the likelihood of Marlins paying any damages is probable. In September 2018,
Braves brought action against Marlins for P900,000 for polluting Lake Tomahawk. It is reasonably
possible that Braves will be successful, but the amount of damages Marlins will have to pay is not
reasonably determinable. What amount, if any, should be accrued by a charge to income in 2018?
P1,700,000
1,000,000 + 700,000 = 1,700,000
4. Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 5 boxtops
from Palmer Frosted Flakes boxes and P1.00. The company estimates that 60% of the boxtops will
be redeemed. In 2020, the company sold 675,000 boxes of Frosted Flakes and customers redeemed
330,000 boxtops receiving 66,000 bowls. If the bowls cost Palmer Company P2.50 each, how much
liability for outstanding premiums should be recorded at the end of 2020? P22,500
(675,000*60%) = 405,000/5 boxtops = 81,000*(2.5-1) = 121,500

330,000/5 boxtops= 66,000*(2.5-1) = (99,000)
22,500
5. In 2019, Mott Co. started to include one coupon in each bag of dog food it sells. In return for ten
coupons, customers receive a leash. The leashes cost Mott P2.50 each. Mott estimates that 50
percent of the coupons will be redeemed. Data for 2019 and 2020 are as follows:
2019 2020
Bags of dog food sold 500,000 600,000
Leashes purchased 18,000 22,000
Coupons redeemed 120,000 150,000
What is the premium liability for 2020? P70,000
2019 (500,000*50%) = 250,000 – 120,000 = 130,000/ 10 coupons = 13,000*2.50 = 32,500

2020 (600,000*50%) = 300,000 – 150,000 = 150,000/ 10 coupons = 15,000*2.50 = 37,500
TOTAL 70,000
2019 2020
What is the premium expense for 2019? P62,500
(500,000*50%)= 250,000/10 coupons = 25,000*2.50 = 62,500
2019 2020
What is the premium liability at December 31, 2019? P45,000
(500,000*60%)= 300,000 – 120,000 = 180,000/ 10 coupons = 18,000*2.50 = 45,000
2019 2020
What is the ending inventory count (in units) of the leashes as of December 31, 2020? P13,000
18,000 22,000 Purchased

12,000 (120,000/10 coupons) 15,000 (150,000/10 coupons) Redeemed
6,000 7,000
6,000+5,000 = 13,000
9. During 2019, Vanpelt Co. introduced a new line of machines that carry a three-year warranty against
manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales
in the year of sale, 5% in the year after sale, and 6% in the second year after sale. Sales and actual
warranty expenditures for the first three-year period were as follows:
Sales Actual Warranty Expenditures

2019 P 600,000 P 10,000
2020 1,500,000 45,000
2021 2,100,000 135,000
P4,200,000 P190,000
What amount should Vanpelt report as a liability at December 31, 2021? P356,000
2019 P 600,000 10,000 13%(2+5+6) 78,000 (600,000*13%)

2020 1,500,000 45,000 13% 195,000 (1,500,000*13%)
2021 2,100,000 135,000 13% 273,000 (2,100,000*13%)
P4,200,000 190,000 546,000
546,000 - 190,000 = 356,000
10. In 2019, Payton Corporation began selling a new line of products that carry a two-year warranty
against defects. Based upon past experience with other products, the estimated warranty costs
related to peso sales are as follows:
First year of warranty 2%

Second year of warranty 7%
Sales and actual warranty expenditures for 2019 and 2020 are presented below:
2019 2020
Sales P300,000 P400,000
Actual warranty expenditures 10,000 20,000
What is the estimated warranty liability at the end of 2020? P33,000
2019 300,000 10,000 0.09(2%+7%) 27,000 (300,000*0.09)

2020 400,000 20,000 0.09(2%+7%) 36,000 (400,000*0.09)
700,000 30,000 63,000
63,000 – 30,000 = 33,000
11. Electronics4U manufactures high-end whole home electronic systems. The company provides a one-
year warranty for all products sold. The company estimates that the warranty cost is P100 per unit
sold and reported a liability for estimated warranty costs P6.5 million at the beginning of this year. If
during the current year, the company sold 40,000 units for a total of P243 million and paid warranty
claims of P7,500,000 on current and prior year sales, what amount of liability would the company
report on its statement of financial position at the end of the current year? P3,000,000
6,500,000 – 7,500,000 + (40,000 units*100per unit sold) = 3,000,000
12. A company offers a cash rebate of P1 on each P4 package of batteries sold during 2019. Historically,
15% of customers mail in the rebate form. During 2019, 6,000,000 packages of batteries are sold,
and 120,000 P1 rebates are mailed to customers. What is the rebate expense to be shown on the
2019 financial statements dated December 31? P900,000
6,000,000*15%*1 = 900,000
13. A company offers a cash rebate of P1 on each P4 package of batteries sold during 2019. Historically,
15% of customers mail in the rebate form. During 2019, 6,000,000 packages of batteries are sold,
and 120,000 P1 rebates are mailed to customers. What is the rebate liability to be shown on the
(6,000,000*15%*1) – 120,000 = 780,000
14. A company offers a cash rebate of P1 on each P4 package of light bulbs sold since 2015. Historically,
10% of customers mail in the rebate form. During 2020, 5,000,000 packages of light bulbs are sold,
and 150,000 P1 rebates are mailed to customers. What is the rebate liability to be shown on the
(5,000,000*10%*1)-150,000 = 350,000
15. A company offers a cash rebate of P1 on each P4 package of light bulbs sold since 2015. Historically,
10% of customers mail in the rebate form. During 2020, 5,000,000 packages of light bulbs are sold,
and 150,000 P1 rebates are mailed to customers. What is the rebate expense to be shown on the
5,000,000*10%*1 = 500,000
16. During 2018, Stabler Co. introduced a new line of machines that carry a three-year warranty against
manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales
in the year of sale, 3% in the year after sale, and 7% in the second year after sale. Sales and actual
warranty expenditures for the first three-year period were as follows:
Sales Actual Warrant Expenditures

2018 P 400,000 P 6,000
2019 1,000,000 30,000
2020 1,400,000 60,000
P2,800,000 P96,000
What amount should Stabler report as a liability at December 31, 2020? P240,000
2019 P 400,000 6,000 12%(2+3+7) 48,000 (400,000*12%)

2020 1,000,000 30,000 12% 120,000 (1,000,000*12%)
2021 1,400,000 60,000 12% 168,000 (1,400,000*12%)
P2,800,000 96,000 336,000
336,000 – 96,000 = 240,000

17. Warranty4U provides extended service contracts on electronic equipment sold through major
retailers. The standard contract is for three years. During the current year, Warranty4U provided
21,000 such warranty contracts at an average price of P70 each. Related to these contracts, the
company spent P200,000 servicing the contracts during the current year and expects to spend
P1,050,000 more in the future. What is the net profit that the company will recognize in the current
year related to these contracts? P290,000
[(21,000*70)/3] – 200,000 = 290,000

(1,470,000/3) – 200,000 = 290,000
490,000 -200,000 = 290,000
18. On November 5, 2018, a Timp Rental truck was in an accident with an auto driven by Fred Meyer.
Timp Rental received notice on January 12, 2019, of a lawsuit for P700,000 damages for personal
injuries suffered by Meyer. Timp Rental's counsel believes it is probable that Meyer will be awarded
an estimated amount in the range between P200,000 and P450,000, and that P300,000 is a better
estimate of potential liability than any other amount. Timp's accounting year ends on December 31,
and the 2018 financial statements were issued on March 2, 2019. What amount of loss should Timp
accrue at December 31, 2018? P300,000
19. A truck owned and operated by Abbott Company was involved in an accident with an auto driven by
L. Costello on January 12, 2018. Abbott received notice on April 24, 2018, of a lawsuit for P800,000
damages for a personal injury suffered by L. Costello. Abbott’s counsel believes it is reasonably
probable that L. Costello will be successful against the company for an estimated amount in the
range between P200,000 and P500,000. No amount within this range is a better estimate of
potential damages than any other amount. It is expected that the lawsuit will be adjudicated in the
latter part of 2019. What amount of loss should Abbott accrue at December 31, 2018? P350,000
(200,000+500,000)/2 = 350,000
20. LeMay Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 5 boxtops
from LeMay Frosted Flakes boxes and P1.00. The company estimates that 70% of the boxtops will be
redeemed. In 2020, the company sold 500,000 boxes of Frosted Flakes and customers redeemed
220,000 boxtops receiving 44,000 bowls. If the bowls cost LeMay Company P2.00 each, how much
liability for outstanding premiums should be recorded at the end of 2020? P26,000
500,000*.70 = (350,000/5)= 70,000*(2-1) = 70,000

(220,000/5) = 44,000*(2-1) = 44,000
26,000
ACCOUNTING FOR INCOME TAX
Deductible amounts cause taxable income to be greater than pretax financial income in the future as a
result of existing temporary differences. FALSE.
Taxable amounts decrease taxable income in future years. FALSE.
A company should add a decrease in a deferred tax liability to income tax payable in computing income
tax expense. FALSE.
Taxable temporary differences will result in taxable amounts in future years when the related assets are
recovered. TRUE.
Permanent differences do not give rise to future taxable or deductible amounts. TRUE.
Taxable income is a tax accounting term and is also referred to as income before taxes. FALSE.
When a change in the tax rate is enacted, the effect is reported as an adjustment to income tax payable
in the period of the change. FALSE.
Companies should consider both positive and negative evidence to determine whether, based on the
weight of available evidence, it needs adjust the deferred tax asset. TRUE.
A deferred tax liability represents the increase in taxes payable in future years as a result of deductible
temporary differences existing at the end of the current year. FALSE.
A company reduces a deferred tax asset if it is possible that it will not realize some portion of the
deferred tax asset. FALSE.
A deferred tax asset represents the increase in taxes refundable in future years as a result of deductible
temporary differences existing at the end of the current year. TRUE.
Pretax financial income is not the amount used to compute income tax payable. TRUE.
Examples of taxable temporary differences are subscriptions received in advance and advance rental
receipts. FALSE.
1. The following information is taken from Didde Corporation's 2020 financial records:
Pretax accounting income P1,500,000

Excess tax depreciation (45,000)
Taxable income P1,455,000
Assume the taxable temporary difference was created entirely in 2020 and will reverse in equal net
taxable amounts in each of the next three years. If tax rates are 40 percent in 2020, 35 percent in 2021,
30 percent in 2022, and 30 percent in 2023, then the total deferred tax liability Didde should report on
its December 31, 2020, balance sheet is P14,250
45,000/3 = 15,000
2021 15,000*0.35 5,250

2022 15,000*0.30 4,500
2023 15,000*0.30 4,500
14,250
2. The Foltz Co. had taxable income of P21,000 during 2020. Foltz Co. used accelerated depreciation
for tax purposes (P3,400) and straight-line depreciation for accounting purposes (P2,000). Assuming
Foltz Co. had no other temporary differences, what would the company's pretax accounting income
be for 2020? P22,400
21,000 + (3,400 – 2,000) = 22,400
3. Lyon Inc. had pretax accounting income of P4,100 during 2020. Lyon used accelerated depreciation
for tax purposes (P1,000) and straight-line depreciation for financial reporting purposes (P200).
During 2020, Lyon accrued warranty expenses of P600 and paid cash to honor warranties of P500.
Lyon’s taxable income for 2020 would be P3,400
4,100 - (1,000 - 200) + 600 - 500 = P3,400
4. Marie Co., organized on January 2, 2020, had pretax accounting income of P880,000 and taxable
income of P1,500,000 for the year ended December 31, 2020 The only temporary difference is
accrued product warranty costs which are expected to be paid as follows:
2021 P240,000
2022 120,000
2023 120,000
2024 140,000
The enacted income tax rates are 30% for 2020, 35% for 2021 through 2023, and 25% for 2024. If Marie
expects taxable income in future years, the deferred tax asset in Marie's December 31, 2020 statement
of financial position should be P203,000
Warranty
2020 0.30
2021 240,000 0.35 = 84,000
2022 120,000 0.35 = 42,000
2023 120,000 0.35 = 42,000
2024 140,000 0.25 = 35,000
620,000 203,000
5. Kessler Corporation's 2021 income statement showed pretax accounting income of P570,000. To
compute the income tax liability, the following 2021 data are provided:
Income from government bonds P 30,000

Depreciation deducted for tax purposes in excess of depreciation
deducted for financial statement purposes 60,000
Estimated income tax payments made 130,000
Enacted corporate income tax rate 40%
What amount of current income tax liability should be included in Kessler's December 31, 2021
statement of financial position granting there was no beginning balance? P62,000
570,000
(30,000)
(60,000)
480,000
0.40
192,000
130,000
62,000
6. Kraft Company’s books showed pretax financial income of P1,500,000 for the year ended December
31, 2021. In the computation of income taxes, the following data were considered:
Gain on an involuntary conversion P560,000

(Kraft has elected to replace the property within the
statutory period using total proceeds.)
Depreciation deducted for tax purposes in excess of depreciation 100,000
deducted for book purposes
Estimated tax payments, 2021 125,000
Enacted tax rate, 2021 35%
What amount should Kraft report as its current income tax liability on its December 31, 2021 statement
of financial position granting there was no beginning balance? P169,000
1,500,000
(560,000)
(100,000)
840,000
.35
294,000
125,000
169,000
7. Cross Company's income statement for the year ended December 31, 2020, shows pretax income of
P300,000. The following items are treated differently on the tax return and in the accounting
records:
Tax Return Accounting Records

Warranty expense P170,000 P185,00
Depreciation expense 150,000 100,000
Premiums on officers' life insurance -- 60,000
Assume that Cross' tax rate for 2020 is 30 percent. What is the current portion of Cross' total income
tax expense for 2020? P97,500
300,000 or 300,000 +185,000+100,000+60,000-170,000-150,000= 325,000 *0.3= 97,500

60,000
15,000 (170,000 – 185,000)
(50,000) (150,000-100,000)
325,000*0.30 = 97,500
8. On January 1, 2020, Rowen Corp. purchased 40% of the voting common stock of Worf, Inc. and
appropriately accounts for its investment by the equity method. During 2020, Worf reported
earnings of P360,000 and paid dividends of P210,000. Rowen assumes that all of Worf's
undistributed earnings will be distributed as dividends in future periods when the enacted tax rate
will be 30%. Ignore the dividend-received deduction. Rowen's current enacted income tax rate is
25%. The increase in Rowen's deferred income tax liability for this temporary difference is P18,000
360,000*0.40= 144,000
210,000*0.40= 84,000
228,000
228,000 – 210,000 = 18,000
9. For the current year, Stephen Company reported total income tax expense of P193,000. Income
taxes payable at the end of the prior year were P115,000 and at the end of the current year were
P130,000. The deferred tax liability classified as noncurrent that resulted from the use of
accelerated depreciation for tax purposes and straight-line depreciation for financial reporting
purposes increased from P120,000 at the beginning of the current year to P123,000 at the end of
the current year. How much cash was paid for income taxes during the year? P175,000
193,000
(3,000) (120,000-123,000)
190,000
15,000 (115,000-130,000
175,000
or 193,000+115,000-130,000+120,000-123,000= P175,000
10. Kane Company had pretax accounting income of P24,000 during 2020. Kane's only temporary
difference for 2020 relates to a sale made in 2018 and recognized for accounting purposes at that
time. However, Kane uses the installment sales method of revenue recognition for tax purposes.
During 2020 Kane collected a receivable from the 2018 sale which resulted in P9,000 of income
under the installment sales method. Kane's taxable income for 2020 would be P33,000
24,000 + 9,000 = 33,000
11. Dunn Co. began operations in 2019 and had operating losses of P400,000 in 2019 and P300,000 in
2020. For the year ended December 31, 2021, Dunn had a pretax financial income of P900,000. For
2019 and 2020, assume an enacted tax rate of 30 percent, and for 2021 a 35 percent tax rate. There
were no temporary differences in any of the years. In Dunn's 2021 income statement, how much
should be reported as income tax expense? P70,000
2019 (400,000)
2020 (300,000)
2021 900,000
200,000
0.35
70,000
12. For calendar year 2020, Dodger Corp. reported depreciation of P1,200,000 in its income statement.
On its 2020 income tax return, Dodger reported depreciation of P1,900,000. Dodger's income
statement also included P235,000 accrued warranty expense that will be deducted for tax purposes
when paid. Dodger's enacted tax rates are 30% for 2020 and 2021, 24% for 2022 and 25% 2023. The
depreciation difference and warranty expense will reverse over the next three years as follows:
Depreciation Difference Warranty Expense

2021 P240,000 P 55,000
2022 210,000 75,000
2023 250,000 105,000
These were Dodger's only temporary differences. In Dodger's 2020 income statement, the net deferred
portion of its provision for income taxes should be P124,150
Depreciation Warranty
2020 0.30
2021 240,000 0.30 72,000 55,000 0.30 16,500
2022 210,000 0.24 50,400 75,000 0.24 18,000
2023 250,000 0.25 62,500 105,000 0.25 26,250
700,000 184,900 235,000 60,750
184,900 – 60,750 = 124,150
13. Pitman Manufacturing reported depreciation of P250,000 on its 2021 tax return. However, in its
2021 income statement, Pitman reported depreciation of P100,000. The difference in depreciation is
a temporary difference that will reverse over time. Assuming Pitman's tax rate is constant at 40
percent, what amount should be added to the deferred income tax liability in Pitman's December
31, 2021, balance sheet? P60,000
250,000
(100,000)
150,000*0.40 = 60,000
14. The books of Mathis Corporation for the year ended December 31, 2021, showed pretax income of
P360,000. In computing the taxable income for income tax purposes, the following timing
differences were taken into account:
Depreciation deducted for book purposes

in excess of depreciation recorded on the tax P16,000
Income from installment sale reportable for tax
purposes in excess of income recognized on the books 12,000
What should Mathis record as its current income tax liability at December 31, 2021, assuming a
corporate income tax rate of 30 percent? P116,400
360,000
16,000
12,000
388,000*30% = 116,400
15. Fleming Corp.'s 2020 income statement had pretax financial income of P250,000 in its first year of
operations. Fleming uses an accelerated depreciation method on its tax return and straight-line
depreciation for financial reporting. The differences between the book and tax deductions for
depreciation over the five-year life of the assets acquired in 2020, and the enacted tax rates for
2020 to 2024 are as follows:
Book Over (Under) Tax Tax Rates

2020 P(50,000) 30%
2021 (65,000) 35%
2022 (15,000) 35%
2023 60,000 35%
2024 70,000 35%
There are no other temporary differences. In Fleming's December 31, 2020 statement of financial
position, the income taxes currently payable should be P60,000
250,000
(50,000)
200,000*30% = 60,000
16. Fleming Corp.'s 2020 income statement had pretax financial income of P250,000 in its first year of
operations. Fleming uses an accelerated depreciation method on its tax return and straight-line
depreciation for financial reporting. The differences between the book and tax deductions for
depreciation over the five-year life of the assets acquired in 2020, and the enacted tax rates for
2020 to 2024 are as follows:
Book Over (Under) Tax Tax Rates

2020 P(50,000) 30%
2021 (65,000) 35%
2022 (15,000) 35%
2023 60,000 35%
2024 70,000 35%
There are no other temporary differences. In Fleming's December 31, 2020 statement of financial
position, the non-current deferred tax liability should be P17,500
50,000(70,000+60,000-15,000-65,000)*0.35 = 17,500
17. For the current year, Watson Inc. reported total income tax expense of P10,000. Income taxes
payable at the end of the prior year were P9,000 and at the end of the current year were P11,000.
The deferred tax liability classified as noncurrent that resulted from the use of accelerated
depreciation for tax purposes and straight-line depreciation for financial reporting purposes
increased from P11,000 at the beginning of the current year to P13,000 at the end of the current
year. How much cash was paid for income taxes during the year? P6,000
10,000 - (11,000 - 9,000) + (13,000 - 11,000) = 6,000
18. Hopkins Corporation's income statement for the year ended December 31, 2020, shows pretax
income of P1,000,000. The following items are treated differently on the tax return and in the
accounting records
Tax Return Accounting Records
Warranty expense P 70,000 P120,00
Depreciation expense 280,000 220,000
Premiums on officers' life insurance -- 60,000
Assume that Hopkins' tax rate for 2020 is 35 percent. What is the amount of income tax payable for
2020? P332,500
1,000,000
60,000
(50,000) (70-120)
(60,000) (280k-220k)
950,000*0.35 = 332,500
19. Begal Inc. uses the accrual method of accounting for financial reporting purposes and appropriately
uses the installment (cash) method of accounting for income tax purposes. Installment income of
P900,000 will be collected in the following years when the enacted tax rates are:
Collection of Income Enacted Tax Rates

2020 P 90,000 35%
2021 180,000 30%
2022 270,000 25%
2023 360,000 30%
The installment income is Begal's only temporary difference. What amount should be included in the
deferred income tax liability in Begal's December 31, 2020 statement of financial position? P229,500
900,000
2020 90,000 0.35
2021 180,000 0.30 54,000
2022 270,000 0.25 67,500
2023 360,000 0.30 108,000
900,000 229,500
20. Wright Corporation paid P20,000 in January of 2021 for premiums on a two- year life insurance
policy which names the company as the beneficiary. Additionally, Wright Corporation's financial
statements for the year ended December 31, 2021, revealed the company paid P105,000 in taxes
during the year and also accrued estimated litigation losses of P200,000. Assuming the lawsuit was
resolved in February of 2022 (at which time a P200,000 loss was recognized for tax purposes) and
that Wright's tax rate is 40 percent for both 2021 and 2022, what amount should Wright report as
asset for net deferred income taxes on its 2021 balance sheet? P80,000
200,000*0.40 = 80,000
21. In its 2020 income statement, Eden Corp. reported depreciation of P1,110,000 and interest revenue
on government obligations of P210,000. Eden reported depreciation of P1,560,000 on its 2020
income tax return. The difference in depreciation is the only temporary difference, and it will
reverse equally over the next three years. Eden's enacted income tax rates are 25% for 2020, 30%
for 2021, and 35% for 2022 and 2023. What amount should be included in the deferred income tax
liability in Eden's December 31, 2020 statement of financial position? P150,000
1,560,000
1,110,000
450,000 450,000/3= 150,000
2020 0.25
2021 0.30 45,000 (150,000*0.30)
2022 0.35 52,500 (150,000*0.35)
2023 0.35 52,500 (150,000*0.35)
150,000
22. For the current year, Link Company reported total income tax expense of P54,000. Income taxes
payable at the end of the prior year were P20,000 and at the end of the current year were P27,000.
The deferred tax liability classified as noncurrent that resulted from the use of accelerated
depreciation for tax purposes and straight-line depreciation for financial reporting purposes
increased from P18,000 at the beginning of the current year to P23,000 at the end of the current
year. How much cash was paid for income taxes during the year? P42,000
54,000
=18,000 – 23,000 (5,000)
49,000
=27,000 – 20,000 (7,000)
42,000
23. During 2020, Mitchell Inc. had pretax accounting income of P240. Mitchell’s only temporary
difference for 2020 was the collection of a receivable that resulted in P120 of income under the
installment sales method of revenue recognition that Mitchell uses for tax purposes. The sale was
originally made in 2018 and recognized for accounting purposes at that time. Mitchell’s taxable
income for 2020 would be: P360
240+120 = 360.00
24. Duncan Corp. prepared the following reconciliation of income per books with income per tax return
for the year ended December 31, 2020:
Book income before income taxes P2,100,000

Add temporary difference:
Construction contract revenue which will reverse in 2021 610,000
Deduct temporary difference:
Depreciation expense which will reverse in equal amounts in
each of the next four years (460,000)
Duncan's effective income tax rate is 43% for 2020. What amount should Duncan report in its 2020
income statement as the current provision for income taxes? P967,500
2,100,000
610,000
(460,000)
2,250,000
0.43
967,500.00
25. During a year, Krause Company reported total income tax expense of P250,000. The amount of taxes
currently payable remained unchanged from the beginning to the end of the year. The deferred tax
liability classified as noncurrent that resulted from the use of accelerated depreciation for tax
purposes and straight-line depreciation for financial reporting purposes, increased from P40,000 at
the beginning of the year to P44,000 at the end of the year. How much cash was paid for income
taxes during for the year? P246,000
250,000
(4,000) (40,000-44,000)
246,000
26. The following information was taken from Cohen Corporation's 2020 income statement:
Income before income taxes P1,500,000

Income tax expense:
Current P564,000
Deferred 36,000 600,000
Net income P 900,000
Cohen's first year of operations was 2020. The company has a 40 percent tax rate. Management decided
to use accelerated depreciation for tax purpose and the straight-line method of depreciation for
financial reporting purposes. The amount charged to depreciation expense in 2020 was P600,000.
Assuming no other differences existed between book income and taxable income, what amount did
Cohen deduct for depreciation on its tax return for 2020? P690,000
(900,000*40%) 360,000 0.40 90,000 (36,000/40%)

600,000
690,000
27. On January 1, 2021, Elephant Corporation purchased a machine for P750,000 which will be
depreciated P75,000 per year for financial statement reporting purposes. For income tax reporting,
Elephant elected to expense P60,000 and to use straight-line depreciation which will allow a
depreciation deduction of P69,000 for 2021. Assume a present and future enacted income tax rate
of 30%. What amount should be added to Elephant's deferred tax liability for this temporary
difference at December 31, 2021? P16,200
(60,000+69,000-75,000)*30% = P16,200
28. Lehman Company reported depreciation of P450,000 on its 2020 tax return. However, in its 2020
income statement, Lehman reported depreciation of P350,000 as well as P30,000 interest revenue
on tax-free bonds. The difference in depreciation is only a temporary difference, and it will reverse
equally over the next three years. Lehman's enacted income tax rates are as follows:
2020 35%
2021 30%
2022 25%
2023 25%
What amount should be included in the deferred income tax liability in Lehman's December 31, 2020,
balance sheet? P26,666.67
=450,000-350,000 100,000.00 100,000/3= 33,333.33
2020 0.35
2021 0.30 10,000.00(33,333.33*0.30)
2022 0.25 8,333.33(33,333.33*0.30)
2023 0.25 8,333.33(33,333.33*0.30)
26,666.67
29. Ferguson Company had taxable income of P5,100 during 2020. Ferguson used accelerated
depreciation for tax purposes (P2,000) and straight-line depreciation for financial reporting purposes
(P800). On December 30, 2020, Ferguson collected the January 2021 rent of P900 on a lot it rents on
a month-by-month basis to Larsen Corporation. Ferguson’s pretax accounting income for 2020
would be: P5,400
5,100+(2,000-800) – 900 = 5,400

LEASES
The lessor transfers title of the leased property to the lessee for the duration of the lease term is one of
the characteristics of an operating lease. FALSE.
If the residual value of a leased asset is greater than the amount guaranteed by the lessee the lessee
recognizes a gain at the end of the lease term. FALSE.
The distinction between a direct-financing lease and a sales-type lease is the presence or absence of a
transfer of title. FALSE.
The lease term may extend beyond the date a bargain purchase option becomes exercisable. FALSE.
The asset and related liability in a finance lease should be increased by the present value of the
guaranteed residual value. TRUE.
Guaranteed residual values and unguaranteed residual values are included in the gross investment of
the lessor. TRUE.
Equal monthly rental payments for a particular lease should be charged to Rental Expense by the lessee
for finance leases. FALSE.
For operating leases with initial or remaining lease terms in excess of one year, future minimum lease
payments for each of the five succeeding fiscal years must be disclosed. FALSE.
The minimum lease payments in a finance lease from the standpoint of the lessee includes any
estimated residual value at the end of the lease term. FALSE.
The lease term does not include all periods representing renewals or extensions of the lease at the
lessor's option. FALSE.
For finance leases, future minimum lease payments for each of the succeeding five years must be
disclosed. FALSE.
Initial direct costs incurred by a lessor in consummating a sales-type lease are deferred and allocated
over the lease term in proportion to the recognition of rent revenue. FALSE.
The lease term does not include all periods covered by bargain renewal options. FALSE.
In a lease that is recorded as an operating lease by the lessee, the equal monthly rental payments
should be allocated between interest expense and depreciation expense. FALSE.
The lease term includes all periods for which failure to renew imposes a penalty sufficiently high that the
lessee probably will renew. TRUE.
The lessee's balance sheet liability for a finance lease would be periodically reduced by the minimum
lease payment less the portion of the minimum lease payment allocable to interest. TRUE.
Under the operating method, the lessor records each rental receipt as part interest revenue and part
rental revenue. TRUE.
From the standpoint of the lessee, the minimum lease payment include the lessee's obligation to pay
executory costs. FALSE.
A lease contains a bargain purchase option. In determining the lessee's capitalizable cost at the
beginning of the lease term, the payment called for by the bargain purchase option would be added at
its present value. TRUE.
The lessor records depreciation and lease revenue for a finance lease. FALSE.
For a finance lease, the amount recorded initially by the lessee as a liability should not exceed the fair
value of the leased property at the inception of the lease. TRUE.
Lessors classify and account for all leases that don’t qualify as sales-type leases as operating leases.
FALSE.
A benefit of leasing to the lessor is the return of the leased property at the end of the lease term. TRUE.
The lessor recognizes a dealer's profit at lease inception and interest revenue over the asset life for
sales-type lease. FALSE.
Direct-financing leases are in substance the financing of an asset purchase by the lessee. TRUE.
1. Sauder, Inc. signed a 4-year noncancelable lease for the right of use of a new machine on December
31, 2020, requiring a P150,000 annual payments beginning December 31, 2020. The machine has a
useful life of 10 years, with no salvage value. The rate implicit on the lease is 12%. (Round off
present value factors to four decimal places.) Sauder has a bargain purchase option amounting to
P30,000 and it is reasonably certain that the corporation will exercise this option.
Required: What is the amount to be capitalized as a right-of-use asset as of December 31, 2020?
P529,335
PV of periodic rental payments 360,270 (150,000*2.4018)

Add: PV of bargain purchase 19,065 (30,000*0.6355)
Present Value of Lease Payment 379,355
Add: First payment 150,000
Right of use asset 529,355
2. On January 1, 2020, Alt Corporation leased a warehouse to Albert Co. under an operating lease for
ten years at P80,000 per year, payable the first day of each lease year. Alt Corporation paid P36,000
to a real estate broker as a finder's fee. The warehouse is depreciated at P20,000 per year. During
2020, Alt Corporation incurred insurance and property tax expense totaling P15,000. Alt
Corporation's net rental income for 2020 should be P41,400
80,000 – (36,000/10) = 76,400
76,400 – 20,000 – 15,000 = 41,400
3. On March 1, 2020, Haystack, Inc. became the lessee of new equipment under a noncancelable six-
year lease. The total estimated economic life of this equipment is ten years. The fair value of this
equipment on March 1, 2020, was P100,000. The lease does not meet the criteria for classification
as a finance lease with respect to transfer of ownership of the leased asset, or bargain purchase
option, or lease term. Nevertheless, Haystack, Inc. must classify this lease as a finance lease if, at
inception of the lease, the present value of the minimum lease payments (excluding executory
costs) is equal to at least P90,000
100,000*90% = 90,000 (90% daw ang sa lease na theory hahahah)
4. On December 31, 2020, Rigg Company leased a machine under a finance lease for a period of ten
years, contracting to pay P100,000 on signing the lease and P100,000 annually on December 31 of
the next nine years. The present value at December 31, 2020, of the ten lease payments over the
lease term discounted at 10 percent was P676,000. At December 31, 2021, Rigg's total finance lease
liability is P533,600
676,000 – 100,000 = 576,000

576,000*10% = 57,600
100,000 – 57,600 = 42,400
576,000 – 42,400 = 533,600
5. Emporia Corporation leased a machine for a period of eight years, contracting to pay P200,000 at
the beginning of the lease term on December 31, 2020, and P200,000 annually on December 31 for
each of the next seven years. The present value of the eight rent payments over the lease term,
appropriately discounted at 10 percent, is P1,174,000. On its December 31, 2021, balance sheet,
Emporia Corporation should report a liability under finance lease of P871,400
1,1,74,000 – 200,000 = 974,000

974,000*10% = 97,400
200,000 – 97,400 = 102,600
974,000 – 102,600 = 871,400
6. Lang Corporation leased equipment to Joe Inc. on January 1, 2020. The lease is for an eight-year
period expiring December 31, 2027. The first of eight equal annual payments of P900,000 was made
on January 1, 2020. Lang Corporation had purchased the equipment on December 31, 2019, for
P4,800,000. The lease is appropriately accounted for as a sales-type lease by Lang Corporation.
Assume that the present value at January 1, 2020, of all rent payments over the lease term
discounted at a 10 percent interest rate was P5,280,000. What amount of interest revenue should
Lang Corporation record in 2021 (the second year of the lease period) as a result of the lease?
P391,800
5,280,000 – 900,000 = 4,380,000

4,380,000*10% = 438,000
900,000 – 438,000 = 462,000
4,380,000 – 462,000 = 3,918,000
3,918,000*10% = 391,800
7. On January 1, Yates Rentals Co. as lessee signed a ten-year noncancelable lease for a machine with
annual payments of P60,000. The first payment was also made on January 1. Yates Rentals Co.
appropriately treated this transaction as a finance lease. The ten lease payments have a present
value of P405,000 at January 1, based on implicit interest of 10 percent. For the first year, Yates
Rentals Co. should record interest expense of P34,500
405,000- 60,000= 345,000*0.1= 34,500
8. Dean Corporation had a sale and leaseback transaction of its equipment on December 31, 2020. The
following data were provided:
Sales Price (equal to the present value of rentals) 1,000,000
Cost of Equipment 1,400,000
Accumulated Depreciation 300,000
Annual rent payable 240,000
Estimated remaining life 5
Lease Term 5
Implicit rate 10%
Required: What is the gain or (loss) in this transaction that will be recorded on the date of the sale and
leaseback? (P100,000)
1,000,000 – (1,400,000 – 300,000) = (P100,000)
9. Leicester Company leases a machine from Wentworth Corp. under an agreement which meets the
criteria to be a finance lease for Leicester. The six-year lease requires payment of P102,000 at the
beginning of each year, including P15,000 per year for maintenance, insurance, and taxes. The
incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the
lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of
an annuity due of 1 for six years at 8% is 4.99271. Leicester should record the leased asset at
P434,366
102,000 -15,000 = 87,000

87,000*4.99271 = 434,365.77
10. Plank Corporation on December 31, 2020 had the following data that relates to the sale and
leaseback of an equipment:
Sales Price 500,000

Estimated remaining life of equipment 8
Lease Term 4
Fair Value of Equipment 450,000
Required: What amount of gain on the sale should Plank immediately recognize, if any, as of December
31, 2020? P50,000
450,000 – (1,000,000 – 600,000) = 50,000
11. Kuhn Corporation leased a machine on December 31, 2020. Annual payments under the lease are
P110,000 (which includes P10,000 annual executory costs) and are due on December 31 each year,
for a ten-year period. The first payment was made on December 31, 2020, and the second payment
was made on December 31, 2021. According to the agreement, the lease payments are discounted
at 10 percent over the lease term. Assume the present value of minimum lease payments at the
inception of the lease and before the first annual payment was P615,000 and Kuhn Corporation
appropriately classified the lease as a finance lease. What is the lease liability Kuhn Corporation
should report in its December 31, 2021, balance sheet? P466,500
615,000 – 100,000= 515,000

515,000*10% = 51,500
100,000 – 51,500 = 48,500
515,000 – 48,500 = 466,500
12. On January 1, 2018, Horton Co. enters into a ten-year lease with Nall, the lessor, for 10,000 square
meters of office space for annual lease payment of P150,000 every December 31 of each year. The
incremental borrowing rate of Horton at the commencement date is 10%. On January 1, 2022,
when the present value of the lease liability is P653,289 and the carrying amount of the right-of-use
asset is P553,011, Horton and Nall agree to amend the original lease to reduce the space to only
5,000 square meters of the original space on the same date. The annual fixed lease payments are
P90,000. Horton’s incremental borrowing rate on January 1, 2022 is 12% per annum.
Required: How much is the gain or (loss) on the lease modification made on January 1, 2022? P50,139
Decrease in lease liability is computed as follows:

Present value of lease liability-original lease 653,289
Multiply by: Proportionate decrease in carrying amount 50% (5,000/10,000)
Decrease in Lease Liability 326,645
Decrease in the carrying amount of the right-of-use asset is computed as follows:
Carrying amount of right of use asset 553,011
Multiply by: Proportionate decrease in carrying amount 50% (5,000/10,000)
Decrease in the carrying amount of the right-of-use asset 276,506
326,645 – 276,506 = 50,139
13. Ziek Corporation on December 31, 2020 had the following data that relates to the sale and
Sales Price 500,000
Lease Term 4
Required: What amount of gain on the sale should Ziek defer to subsequent period, if any? P80,000
500,000 – 420,000 = 80,000
14. On January 1, Emley Company signed a ten-year noncancelable lease for a new machine, requiring
P40,000 annual payments at the beginning of each year. The machine has a useful life of 15 years,
with no salvage value. Title passes to Emley Company at the lease expiration date. Emley Company
uses straight-line depreciation for all of its plant assets. Aggregate lease payments have a present
value on January 1 of P252,000, based on an appropriate rate of interest. For the first year, Emley
Company should record depreciation (amortization) expense for the leased machine at P16,800
252,000/15 (Useful Life) = 16,800
15. Gold Star, Inc., leased equipment to Brick Company on January 1, 2020. The lease is for a five-year
period ending January 1, 2025. The first equal annual payment of P1,200,000 was made on January
1, 2020. The cash selling price of the equipment is P5,174,552, which is equal to the present value of
the lease payments at 8%. Gold Star purchased the equipment for P4,300,000. For 2020, Gold Star
should report interest revenue of P317,964
5,174,552 - 1,200,000= 3,974,552 * 8% = 317,964
16. On December 31, 2020, Silver Point Co. leased equipment from Stack Equipment Rental. Pertinent
lease transaction data are as follows:
● The estimated seven-year useful equipment life coincides with the lease term.
● The first of the seven equal annual P200,000 lease payments was paid on December 31, 2020.
● Stack's implicit interest rate of 12 percent is known to Silver Point Co..
● Silver Point Co.'s incremental borrowing rate is 14 percent.
● Present values of an annuity of 1 in advance for seven periods are 5.11 at 12 percent and 4.89 at
14 percent.
Silver Point Co. should record the equipment on the books at P1,022,000
200,000*5.11 = 1,022,000
17. On July 1, 2020, Yueve’s Company leased two helicopters from Goetz Corporation for an initial
period of 12 months with a provision for a continuation on a month-to-month basis. The lease is
properly classified as an operating lease. Lease payments are to be made as follows:
First two months ...............................14,000 per month
Second three months ........................11,000 per month
Third three months .............................9,000 per month
Last four months .................................8,000 per month
Required: How much is the total rent expense to be recognized by Yueve’s Company for the year 2020?
60,000
(14,000*2) + (11,000*3) + (9,000*3) + (8,000*4) = 120,000

120,000/12 = 10,000 per month
10,000 x 6 months = 60,000
18. On January 1, 2020, Ogleby Corporation signed a noncancelable lease for a sneaker shining machine.
The machine has an estimated useful life of nine years. The term of the lease is a six-year term with
title passing to Ogleby Corporation at the end of the lease. The agreement called for annual
payments of P40,000 starting at the end of the first year. Assume aggregate lease payments were
determined to have a present value of P200,000, based on implicit interest of 12 percent. What
amount of interest expense should Ogleby Corporation report in its 2020 income statement from
this lease transaction? P24,000
200,000*12% = 24,000
19. Hook Company manufactures equipment that is sold or leased. On December 31, 2020, Hook
Company leased equipment to Keith Inc. for a five-year period expiring December 31, 2025, at which
date ownership of the leased asset will be transferred to Keith. Equal P40,000 payments under the
lease are due on December 31 of each year. The first payment was made on December 31, 2020.
Collectability of the remaining lease payments is reasonably assured, and Hook Company has no
material cost uncertainties. The normal sales price of the equipment is P154,000 and cost is
P120,000. For the year ended December 31, 2020, how much income should Hook Company
recognize from the lease transaction? P34,000
154,000-120,000= 34,000
20. Pisa, Inc. manufactures equipment that they sell or lease. On December 31, 2020, Pisa, Inc. leased
equipment to Tower Company for a five-year period after which ownership of the leased asset will
be transferred to Tower. The lease calls for equal annual payments of P50,000, due on December 31
of each year. The first payment was made on December 31, 2020. The normal sales price of the
equipment is P220,000, and cost is P176,000. For the year ended December 31, 2020, what amount
of income should Pisa, Inc. report from the lease transaction? P44,000
220,000 – 176,000 = 44,000
21. Yancey, Inc. leased machinery with a fair value of P250,000 from Metcalf Company on December 31,
2020. The contract is a six-year noncancelable lease with an implicit interest rate of 10 percent. The
lease requires annual payments of P50,000 beginning December 31, 2020. Yancey, Inc. appropriately
accounted for the lease as a finance lease. Yancey, Inc.'s incremental borrowing rate is 12 percent.
Assuming the present value of an annuity due of 1 for 6 years at 10 percent is 4.7908 and the
present value of an annuity due of 1 for 6 years at 12 percent is 4.6048, what is the lease liability
that Yancey, Inc. should report on the balance sheet at December 31, 2020? P189,540
Present Value 50,000*4.7908 = 239,540

Lease Liability = PV – 50,000
239,540 – 50,000 = 189,540
22. Parker Corporation on December 31, 2020 had the following data that relates to the sale and
Sales Price 500,000
Lease Term 4
Required: What amount of gain on the sale should Parker immediately recognize, if any, as of
December 31, 2020? P100,000
500,000 – (1,000,000 – 600,000) = 100,000
23. Hobbs Corp. signed a 4-year noncancelable lease for the right of use of a new machine on December
31, 2020, requiring a P150,000 annual payments beginning December 31, 2020. The machine has a
useful life of 10 years, with no salvage value. The rate implicit on the lease is 12%. (Round off
present value factors to four decimal places.) Hobbs has a bargain purchase option amounting to
P30,000 and it is reasonably certain that the corporation will exercise this option.
Required: What is the amount of depreciation expense for the right-of-use asset in 2021? (Round off
final answer to the nearest two decimal places.) P52,933.50
Cost of the asset 529,335 [(150,000*3.4018)+(30,000*0.6355)] + 150,000

Less: Residual Value 0
Depreciable cost 529,335
Divided by: Useful life 10
Annual depreciation 52,933.50
24. Agler Corporation on December 31, 2020 had the following data that relates to the sale and
Sales Price 550,000
Lease Term 4
Required: What amount of gain on the sale should Agler immediately recognize, if any, as of December
31, 2020? P150,000
550,000 – (1,000,000 – 600,000) = 150,000
25. On December 1, 2020, Hull Inc. signed an operating lease for a warehouse for ten years at P24,000
per year. Upon execution of the lease, Hull paid P48,000 covering rent for the first two years. How
much should be shown in Hull 's income statement for the year ended December 31, 2020, as rent
expense? P2,000
48,000*1/24= 2,000 or 24,000 * 1/12= 2,000

EMPLOYEE BENEFITS
The interest expense component of pension expense in the current period is computed by multiplying
the discount rate by the beginning balance of the defined benefit obligation. TRUE.
Companies report any actuarial gains or losses charged or credited to other comprehensive income in
the statement of financial position. TRUE.
An employer does not have to report a liability on its statement of financial position in a defined-benefit
plan. FALSE.
Companies compute the vested benefit obligation using only vested benefits, at current salary levels.
TRUE.
Employers are at risk with defined-benefit plans because they must contribute enough to meet the cost
of benefits that the plan defines. TRUE.
Service cost is the expense caused by the increase in the projected benefit obligation because of
employees’ service during the current year. TRUE.
For defined benefit plans, PFRS recognizes a pension asset or liability as the funding status of the plan.
TRUE.
PFRS encourages, but does not require, companies to use actuaries in the measurement of the pension
amounts. TRUE.
The difference between the expected return and the actual return is referred to as the unexpected gain
or loss. TRUE.
Regarding the alternatives for measuring the pension liability, the profession adopted the accumulated
benefit obligation using the present value of vested and non-vested benefits accrued to date, based on
employees’ future salary levels. FALSE.
Qualified pension plans permit tax deductibility of the employer’s contributions to the pension fund.
TRUE.
A pension plan is contributory when the employer makes payments to a funding agency. FALSE.
The employees are the beneficiaries of a defined contribution trust, but the employer is the beneficiary
of a defined benefit trust. TRUE.
A curtailment occurs when a company enters into a transaction that eliminates all further obligations for
part or all of the benefits provided under a defined benefit plan. FALSE.
Qualified pension plans permit tax-free status of earnings from pension fund assets. TRUE.
The projected benefit obligation bases the deferred compensation amount on both vested and
nonvested service using future salary levels. TRUE.
In a defined contribution plan, the employer must make up any shortfall in the accumulated assets held
by the defined contribution trust. FALSE.
Companies should not recognize the entire increase in defined benefit obligation due to a plan initiation
or amendment as pension expense in the year of amendment. FALSE.
If a company grants plan amendments, it allocates the past service cost of providing these retroactive
benefits to pension expense in the future, specifically to the remaining service-years of the affected
employees. FALSE.
The unexpected gains and losses from changes in the defined benefit obligation are called asset gains
and losses. FALSE.
Interest cost included in pension expense recognized for a period by an employer sponsoring a defined-
benefit pension plan represents the
a. shortage between the expected and actual returns on plan assets.
b. increase in the fair value of plan assets due to the passage of time.
c. increase in the defined benefit obligation due to the passage of time.
d. amortization of the discount on PSC.
The relationship between the amount funded and the amount reported for pension expense is as
follows:
a. pension expense will be more than the amount funded.
b. pension expense may be greater than, equal to, or less than the amount funded.
c. pension expense must equal the amount funded.
d. pension expense will be less than the amount funded.
Which of the following statements is correct?

a. There is an account titled Pension Asset / Liability.
b. There is an account titled Defined Benefit Obligation.
c. Other comprehensive income (PSC) should be included in net income.
d. Unrecognized net gain or loss should be reported in the liability section of the balance sheet.
A pension liability is reported when

a. the defined benefit obligation exceeds the fair value of pension plan assets.
b. the pension expense reported for the period is greater than the funding amount for the same
period.
c. the accumulated benefit obligation is less than the fair value of pension plan assets.
d. accumulated other comprehensive income exceeds the fair value of pension plan assets.
In all pension plans, the accounting problems include all the following except
a. measuring the amount of pension obligation.
b. disclosing the status and effects of the plan in the financial statements.
c. determining the level of individual premiums.
d. allocating the cost of the plan to the proper periods.
Which of the following is not a characteristic of a defined-contribution pension plan?

a. The benefit of gain or the risk of loss from the assets contributed to the pension fund are borne by
the employee.
b. The accounting for a defined-contribution plan is straightforward and uncomplicated.
c. The benefits to be received by employees are usually determined by an employee’s three highest
years of salary defined by the terms of the plan.
d. The employer's contribution each period is based on a formula.
In a defined-benefit plan, a formula is used that

a. requires that pension expense and the cash funding amount be the same.
b. requires that the benefit of gain or the risk of loss from the assets contributed to the pension plan
be borne by the employee.
c. defines the benefits that the employee will receive at the time of retirement.
d. defines the contribution the employer is to make; no promise is made concerning the ultimate
benefits to be paid out to the employees.
In a defined-contribution plan, a formula is used that

a. ensures that pension expense and the cash funding amount will be different.
b. defines the benefits that the employee will receive at the time of retirement.
c. requires an employer to contribute a certain sum each period based on the formula.
d. ensures that employers are at risk to make sure funds are available at retirement.
In computing the service cost component of pension expense, the IASB concluded that
a. the accumulated benefit obligation provides a more realistic measure of the pension obligation on a
going concern basis.
b. a company should employ an actuarial funding method to report pension expense that best reflects
the cost of benefits to employees.
c. the defined benefit obligation using future compensation levels provides a realistic measure of
present pension obligation and expense.
d. All of these answers are correct.
Differing measures of the pension obligation can be based on

a. all years of service—both vested and nonvested—using current salary levels.
b. only the vested benefits using current salary levels.
c. both vested and nonvested service using future salaries.
d. All of these answers are correct.
In determining the present value of the prospective benefits (often referred to as the defined benefit
obligation), the following are considered by the actuary:
a. retirement and mortality rate.
b. interest rates.
c. benefit provisions of the plan.
d. all of these factors.
A corporation has a defined-benefit plan. A pension liability will result at the end of the year if the
a. amount of pension expense exceeds the amount of employer contributions.
b. defined benefit obligation exceeds the fair value of the plan assets.
c. fair value of the plan assets exceeds the defined benefit obligation.
d. amount of employer contributions exceeds the pension expense.
One component of pension expense is interest revenue on plan assets. Plan assets include
a. contributions made by the employer and contributions made by the employee when a contributory
plan of some type is involved.
b. plan assets still under the control of the company.
c. only assets reported on the statement of financial position of the employer as pension
asset/liability.
d. None of these answers are correct.
When a company amends a pension plan, for accounting purposes, past service costs should be
a. treated as a prior period adjustment because no future periods are benefited.
b. amortized in accordance with procedures used for income tax purposes.
c. recorded in other comprehensive income (PSC).
d. reported as an expense in the period the plan is amended.
Whenever a defined-benefit plan is amended and credit is given to employees for years of service
provided before the date of amendment
a. the expense should be recognized immediately, but the liability may be deferred until a reasonable
basis for its determination has been identified.
b. the expense and the liability should be recognized at the time the benefits are paid.
c. both the accumulated benefit obligation and the defined benefit obligation are usually greater than
before.
d. both the accumulated benefit obligation and the defined benefit obligation are usually less than
before.
In a defined-benefit plan, the process of funding refers to

a. determining the defined benefit obligation.
b. determining the amount that might be reported for pension expense.
c. making the periodic contributions to a funding agency to ensure that funds are available to meet
retirees' claims.
d. determining the accumulated benefit obligation.
Alternative methods exist for the measurement of the pension obligation (liability). Which measure
requires the use of future salaries in its computation?
a. Defined benefit obligation
b. Restructured benefit obligation
c. Accumulated benefit obligation
d. Vested benefit obligation
The defined benefit obligation is the measure of pension obligation that

a. requires pension expense to be determined solely on the basis of the plan formula applied to years
of service to date and based on existing salary levels.
b. is required to be used for reporting the service cost component of pension expense.
c. is not sanctioned under international financial reporting standards for reporting the service cost
component of pension expense.
d. requires the longest possible period for funding to maximize the tax deduction.
In accounting for a pension plan, any difference between the pension cost charged to expense and the
payments into the fund should be reported as
a. as accumulated other comprehensive income (PSC).
b. an offset to the liability for past service cost.
c. pension asset/liability.
d. as other comprehensive income (G/L)
In accounting for a defined-benefit pension plan

a. an appropriate funding pattern must be established to ensure that enough monies will be available
at retirement to meet the benefits promised.
b. the liability is determined based upon known variables that reflect future salary levels promised to
employees.
c. the expense recognized each period is equal to the cash contribution.
d. the employer's responsibility is simply to make a contribution each year based on the formula
established in the plan.
1. Presented below is pension information for Innova Company for the year 2016:
Interest on plan assets P24,000

Interest on vested benefits 10,000
Service cost 35,000
Interest on defined benefit obligation 21,000
Past service cost due to increase in benefits 18,000
The amount of pension expense to be reported for 2016 is P50,000
(24,000) + (35,000+21,000+18,000) = 50,000

2. Julie Company has experienced tough competition, leading it to seek concessions from its
employees in the company’s pension plan. In exchange for promises to avoid layoffs and wage cuts,
the employees agreed to receive lower pension benefits in the future. As a result, Julie amended its
pension plan on January 1, 2016, and recorded past service cost of P235,000. The average period to
vesting for the benefits affected by this plan is 6 years. What is the amount of past service cost
included in pension expense for 2016? P235,000
3. Bangus Company amends its defined pension plan on January 1, 2016, resulting in P420,000 of past
service cost. The company has 400 active employees, of which 100 vest immediately (25%) and the
other 300 (75%) vest in four years. The past service cost applicable to the vested employees is
P105,000 and vests immediately. The past service cost related to the unvested employees is
P315,000 and vests over five years. How much of past service costs would Bangus include in pension
expense in 2016? P420,000
4.
5. At January 1, 2016, Jasmin Company had plan assets of P215,000 and a defined benefit obligation of
the same amount. During 2016, service cost was P22,500, the discount rate was 10% actual and
expected return on plan assets were P26,000, contributions were P20,000, and benefits paid were
P19,500. Based on this information what would be the Defined Benefit obligation for Jasmin
Company for 2016? P239,500
215,000 + 22,500 – 19,500 + (215,000*10%) = 239,500
6. Rex Company is evaluating amendments to its pensions plans. Plan 1 covers its salaried employees
and Plan 2 provides benefits to its hourly workers. On January 1, 2016, Rex will grant employees in
Plan 2 additional pension benefits of P318,000 based on their past service. Employees in this plan
have an average period to vesting of 6 years. Plan 1 will be amended to reduce benefits by P160,000
(in exchange, employees will receive increased contributions to the company’s defined contribution
plan). Employees in this plan have an average period to vesting of 5 years. What is the total past
service cost included in pension expense 2016? P158,000
7. Jimar, Inc. sponsors a defined-benefit pension plan. The following data relates to the operation of
the plan for the year 2016.
Service cost 220,000

Contributions to the plan 200,000
Actual return on plan assets 180,000
Defined benefit obligation (beginning of year) 2,600,000
Fair value of plan assets (beginning of year) 2,400,000
The discount rate was 10%. The amount of pension expense reported for 2016 is P240,000
8. Azon Company amends its defined pension plan on January 1, 2016, resulting in P520,000 of past
service cost. The company has 600 active employees, of which 120 vest immediately (20%) and the
other 480 (80%) vest in three years. The past service cost applicable to the vested employees is
P104,000 and vests immediately. The past service cost related to the unvested employees is
P416,000 and vests over five years. How much of the past service costs would Azon include in
pension expense in 2016? P520,000
9. Judycel, Inc. received the following information from its pension plan trustee concerning the
operation of the company's defined-benefit pension plan for the year ended December 31, 2016.
January 1, 2016 December 31, 2016

Fair value of pension plan assets P4,800,000 P5,160,000
Defined benefit obligation 4,200,000 4,500,000
Accumulated OCI—Net Gain / Loss -0- (90,000)
The service cost component of pension expense for 2016 is P360,000 and the past service cost due to an
increase in benefits is P60,000. The discount rate is 10%. What is the amount of pension expense for
2016? P366,000
10. The following data are for the pension plan for the employees of Lite Company.
1/1/15 12/31/15 12/31/16

Defined benefit obligation P8,100,000 P8,400,000 P11,100,000
Plan assets (at fair value) 6,900,000 9,000,000 9,900,000
AOCI – net loss -0- 1,440,000 1,500,000
Discount rate (for year) 8% 7%
Lite’s contribution was P1,260,000 in 2016 and benefits paid were P1,125,000. Lite estimates that the
average remaining service life is 15 years. Assume that the actual return on plan assets in 2016 was
P800,000. The gain on plan assets in 2016 was P170,000
9,000,000*7% = 630,000
800,000 – 630,000 = 170,000
11. At the end of the current year, Dale Industries has a defined obligation of P433,000 and pension
plan assets with a fair value of P265,000. The amount of the vested benefits for the plan is P225,000.
Dale has an accumulated actuarial gain of P12,900. What account and amount(s) related to its
pension plan liability will be reported on the company’s statement of financial position? P168,000
12. The following data are for the pension plan for the employees of Revo Company.
1/1/15 12/31/15 12/31/16

Defined benefit obligation P8,100,000 P8,400,000 P11,100,000
Plan assets (at fair value) 6,900,000 9,000,000 9,900,000
AOCI – net loss -0- 1,440,000 1,500,000
Discount rate (for year) 8% 7%
Revo’s contribution was P1,260,000 in 2016 and benefits paid were P1,125,000. Revo estimates that the
average remaining service life is 15 years. The actual return on plan assets in 2016 was P765,000
13. The following information is related to the pension plan of Karen, Inc. for 2016.
Actual return on plan assets P200,000
Net gain on liability 82,500
Past service cost due to increase in benefits 150,000
Interest on plan assets 230,000
Interest on defined benefit obligation 326,500
Service cost 800,000
Pension expense for 2016 is P1,046,500
14. Paete Company is evaluating amendments to its pensions plans. Plan 1 covers its salaried employees
and Plan 2 provides benefits to its hourly workers. On January 1, 2016, Paete will grant employees in
Plan 2 additional pension benefits of P240,000 based on their past service. Employees in this plan
have an average period to vesting of 8 years. Plan 1 will be amended to reduce benefits by P120,000
(in exchange, employees will receive increased contributions to the company’s defined contribution
plan). Employees in this plan have an average period to vesting of 6 years. What is the total past
service cost included in pension expense 2016? P120,000
15. Presented below is information related to Fernando Company as of December 31, 2016.
Net gain/loss 90,000

Defined benefit obligation 3,600,000
Vested benefits 1,620,000
Plan assets (at fair value) 3,384,000
The amount reported as the pension liability on Fernando's statement of financial position at December
31, 2016 is as follows: P216,000
16. At January 1, 2016, Joy Company had plan assets of P250,000 and a defined benefit obligation of the
same amount. During 2016, service cost was P27,500, the discount rate was 12%, actual and
expected return on plan assets were P25,000, contributions were P20,000, and benefits paid were
P17,500. Based on this information what would be the defined benefit obligation for Joy Company
for 2016? P290,000
17. On January 1, 2016, Lando Co. has the following balances:
Defined benefit obligation P2,100,000

Fair value of plan assets 1,800,000
The discount rate is 10%. Other data related to the pension plan for 2016 are:
Service cost P180,000
Past service costs due to increase in benefits 60,000
Contributions 300,000
Benefits paid 105,000
The balance of the defined benefit obligation at December 31, 2016 is P2,433,000
18. On January 1, 2016, Amalayer Co. has the following balances:
Defined benefit obligation P2,100,000

Fair value of plan assets 1,800,000
The discount rate is 10%. Other data related to the pension plan for 2016 are:
Service cost P180,000
Past service costs due to increase in benefits 60,000
Contributions 300,000
Benefits paid 105,000
The fair value of plan assets at December 31, 2016 is P2,232,000
19. At January 1, 2016, Zedric Company had plan assets of P250,000 and a defined benefit obligation of
the same amount. During 2016, service cost was P27,500, the discount rate was 11% and actual
return on plan assets was P25,000, contributions were P20,000, and benefits paid were P17,500.
Based on this information, what would be the amount of plan assets on 12/31/16? P277,500 or
P280,000
20. Raycie Company’s employees earn vacation time at the rate of two hours per 40-hour work period.
The vacation pay vests immediately, meaning an employee is entitled to the pay even if employment
terminates. During 2020, total wages paid to employees equaled P8,260,000 including P180,000 for
vacations actually taken in 2020 but not including vacations related to 2020 that will be taken in
2021. All vacations earned before 2020 were taken before January 1, 2020. No accrual entries have
been made for the vacations. What amount should be reported as vacation pay liability on
December 31, 2020? P224,000
21. Can Corporation received the following report from its actuary at the end of the year:
December 31, 2015 December 31, 2016
Defined benefit obligation P1,600,000 P1,800,000
Fair value of pension plan assets 1,380,000 1,440,000
The amount reported as the pension liability at December 31, 2015 is P220,000
SHAREHOLDER’S EQUITY
A property dividend is also called a dividend in kind. TRUE.
A “secret reserve” will be created if liabilities are understated. FALSE.
A property dividend is usually in the form of securities of other companies. TRUE.
The accounting for a property dividend should be based on the carrying value (book value) of the
nonmonetary assets transferred. FALSE.
Cash dividends are paid on the basis of the number of shares issued. FALSE.
According to IFRS, redeemable preference shares should be included as a contra item in shareholders’
equity. FALSE.
Cumulative preference dividends in arrears should be shown in a corporation’s statement of financial

position as an increase in current liabilities for the current portion and non-current liabilities for the
long-term portion. FALSE.
When preference shares share ratably with the ordinary shareholders in any profit distributions beyond
the prescribed rate this is known as the cumulative feature. FALSE.
The cumulative feature of preference shares requires that preference dividends not paid in any year
must be made up in a later year before dividends are distributed to ordinary shareholders. TRUE.
At the date of the financial statements, ordinary shares issued would exceed ordinary shares
outstanding as a result of the purchase of treasury shares. TRUE.
Liquidating dividends reduce amounts paid-in by shareholders. TRUE.
Ordinary shareholders’ equity divided by the number of ordinary shares outstanding is called
a. stated value per share.
b. book value per share.
c. market value per share.
d. par value per share.
How should a “gain” from the sale of treasury shares be reflected when using the cost method of
recording treasury shares transactions?
a. As other income shown on the income statement.
b. As an increase in the retained earnings amount.
c. As an increase in the amount shown for share capital.
d. As share premium from treasury share transactions.
Which of the following is not a legal restriction related to profit distributions by a corporation?
a. Dividends must be in full agreement with the capital contracts as to preferences and participation.
b. Profit distributions must be formally approved by the board of directors.
c. The amount distributed in any one year can never exceed the net income reported for that year.
d. The amount distributed to owners must be in compliance with the laws governing corporations.
A feature common to both share splits and share dividends is

a. an increase in total liabilities of a corporation.
b. that there is no effect on total equity.
c. a transfer to earned capital of a corporation.
d. a reduction in the contributed capital of a corporation.
How should cumulative preference dividends in arrears be shown in a corporation’s statement of

financial position?
a. Increase in current liabilities
b. Increase in current liabilities for the amount expected to be declared within the year or operating
cycle, and increase in non-current liabilities for the balance
c. Increase in shareholders’ equity
d. Note disclosure
The balance in Ordinary Share Dividend Distributable should be reported as a(n)

a. contra current asset.
b. current liability.
c. deduction from share capital—ordinary.
d. addition to share capital—ordinary.
A dividend which is a return to shareholders of a portion of their original investments is a

a. liquidating dividend.
b. liability dividend.
c. participating dividend.
d. property dividend.
Dividends are not paid on

a. noncumulative preference shares.
b. nonparticipating preference shares.
c. treasury shares.
d. Dividends are paid on all of these.
When treasury shares are purchased for more than the par value of the shares and the cost method is
used to account for treasury shares, what account(s) should be debited?
a. Treasury shares for the purchase price.
b. Treasury shares for the par value and retained earnings for the excess of the purchase price over the
par value.
c. Share premium for the purchase price.
d. Treasury shares for the par value and share premium for the excess of the purchase price over the
par value.
If management wishes to “capitalize” part of the earnings, it may issue a

a. share dividend.
b. liquidating dividend.
c. property dividend.
d. cash dividend.
Which of the following best describes a possible result of treasury share transactions by a corporation?
a. May increase net income if the cost method is used.
b. May decrease but not increase retained earnings.
c. May decrease but not increase net income.
d. May increase but not decrease retained earnings.
The features most frequently associated with preference shares include all of the following except
a. Convertible into ordinary shares.
b. Callable at the option of the shareholder.
c. Preference as to assets in the event of liquidation.
d. Non-voting.
The declaration and issuance of a share dividend

a. increases ordinary shares outstanding and increases total equity.
b. increases retained earnings and increases total equity.
c. may increase share premium but does not change total equity.
d. decreases retained earnings but does not change total equity.
1. On January 1, 2019, Norton Company had five outstanding ordinary shares. On December 31, 2019,
Norton declared dividends on the ordinary shares. The corporation decided to give the ordinary
shareholders a choice between receiving a cash dividend of P10,000 per share or a property
dividend in the form of a noncash asset. Each noncash asset has a fair value of P12,000. The
corporation estimated that 40% of the ordinary shareholders will take the option of the cash
dividend and 60% will elect for the noncash asset. How much is the dividends payable on December
31, 2019? P56,000
Cash alternative (5*40%*10,000) 20,000

Non-cash alternative (5*60%*12,000) 36,000
Total Dividends 56,000
2. The shareholders' equity section of Sanchez Company on January 1, 2018 showed the following:
Ordinary share, P100 par, 200,000 shares authorized, 60,000 shares issued P6,000,000
Share premium 1,200,000
Retained earnings 2,500,000
During the year, Sanchez had the following transactions:

a. In February, Sanchez reacquired 4,000 shares for P100 per share.
b. In June, Sanchez sold 2,000 shares of its treasury share for P120 per share.
c. In September, each shareholder was issued for each share held one stock right to purchase two
additional shares of ordinary for P130 per share. The rights expire on December 31, 2018.
d. In October, 10,000 stock rights were exercised when the market value of the ordinary share was
P160 per share.
e. On December 15, 2018, Sanchez declared its first cash dividend to shareholders of P13 per
share, payable on January 14, 2019, to shareholders of record on December 31, 2018.
f. On December 23, Sanchez formally retired 1,000 treasury shares.
g. Net income for the year 2018 was P1,100,000.
h. Appropriated retained earnings equal to the cost of the treasury share.
How much is the share premium on the treasury shares on December 31,2018 statement of financial
position? P60,000

P160 per share.
How much is the ordinary share on December 31, 2018 statement of financial position? P7,900,000

P160 per share.
How much is the retained earnings unappropriated on December 31, 2018 statement of financial
position? P2,486,000

P160 per share.
How much is the total shareholders' equity on December 31, 2018 statement of financial position?
P12,226,000

P160 per share.
How much is the total share premium-OS on December 31, 2018 statement of financial position?
P1,780,000
7. The shareholders' equity section of Manning Co. on December 31, 2018 showed the following:
Ordinary share P10 par, 100,000 shares issued and outstanding 1,000,000
Share Premium on Ordinary shares 500,000
Accumulated Profits 4,000,000
On December 30, 2018, the company declared 20% share dividends to the shareholders of record
January 3, 2019 payable on January 31, 2019. Assume that of the share dividends declared, 90% of the
shares relate to full shares issued while remainder relate to the fractional shares issued. Also assume
that 3/4 of the fractional shares were exercised at par while the rests were not exercised. How much is
the amount of dividend payable at the date of declaration of share dividends? P200,000
the amount of share capital that is credited for the issuance of full share of the dividends declared
exclusive of the fractional share warrants or rights? P180,000
the amount of share capital that is credited for the subsequent issuance of full share of the dividends
declared in relation to the exercise of the fractional shares? P15,000
10. The company issued for P1,000,000 cash, 1,000 shares of P200 par value Preference share and 2,000
shares of P100 ordinary share. The preference share has a fair value of P240 on the date of sale. No fair
value available for the ordinary share.
How much is credited to Share Premium – Ordinary Shares? P560,000
Allocation of the lump-sum price:

Total proceeds 1,000,000
Less: Total fair value of pref. shares (1,000*240) 240,000
Amount allocated to the other securities 760,000
Less: Ordinary shares (2,000*100) 200,000
Premium 560,000
11. The company issued 2,000, P100 par ordinary shares for an outstanding bank loan of P250,000. On
this date, shares are quoted at P140 per share. How much is the loss on extinguishment of liability?
P30,000
Fair value of equity instruments issued, or if not reliably 280,000

Determinable, use the fair value of liability (2,000*140)
Less: Carrying amount of liability 250,000
Loss (or gain) on extinguishment of liability 30,000
12. The company issued for P1,000,000 cash, 1,000 shares of P200 par value Preference share and 2,000
shares of P100 ordinary share. The preference share and ordinary shares have fair values of P240 and
P180 per share, respectively, on the date of sale.
How much is credited to Share Premium – Ordinary Shares? P400,000
13. The accounts below appear in the December 31 trial balance of Wheeler Company:
Authorized ordinary share P3,500,000

Unissued ordinary share 1,000,000
Subscribed ordinary share 600,000
Subscription receivable 500,000
Premium on ordinary share 200,000
Retained earnings – unappropriated 500,000
Retained earnings – appropriated 220,000
Revaluation surplus 400,000
Treasury shares, at cost 220,000
Required: Compute the amount of total shareholder's equity that Wheeler should report in its
December 31 statement of financial position. P3,700,000
Authorized ordinary share P3,500,000

Unissued ordinary share (1,000,000)
Issued ordinary share 2,500,000
Subscription receivable (500,000) 100,000
Premium on ordinary share 200,000
Total contributed capital 2,600,000
Retained earnings - unappropriated 500,000
Retained earnings - appropriated 220,000
Revaluation surplus 400,000
Total 3,720,000
Treasury shares, at cost (220,000)
Total shareholders’ equity P3,700,000
14. The stockholders/ equity section of Glavine Company revealed the following information on
December 31, 2019:
Preference share, P100 par 1,150,000

Premium on share capital - Preference share 402,500
Ordinary share, P15 par 2,620,000
Premium on share capital - Ordinary share 1,375,000
Retained earnings 950,000
Note payable 2,000,000
Subscriptions receivable - Ordinary share 200,000
How much is the legal capital? P4,020,000
Preference share, P100 par 1,150,000

Ordinary share, P15 par 2,620,000
Total Legal Capital 4,020,000
15. The shareholders' equity section of Hale Co. on December 31, 2018 showed the following:
Ordinary share P50 par, 105,000 shares issued P5,250,000

Share Premium on Ordinary shares 1,010,000
Treasury shares (5,000 shares) 300,000
The company declared 20% share dividends on the ordinary share when the market value per share is
P130. How much is the amount credited to Share Premium on Ordinary shares on this transaction?
P0.00
16. The shareholders' equity section of Hale Co. on December 31, 2018 showed the following:
Ordinary share P50 par, 105,000 shares issued P5,250,000

Share Premium on Ordinary shares 1,010,000
Treasury shares (5,000 shares) 300,000
The company declared 10% share dividends on the ordinary share when the market value per share is
P120. How much is the amount credited to Share Premium on Ordinary shares on this transaction?
P700,000
[(105,000-5,000)*10%*120] = 1,200,000
[(105,000-5,000)*10%*50] = 500,000
1,200,000 – 500,000 = 700,000 share premium
17. On November 1, 2018, Berry Corporation declared equipment as property dividend payable on
February 15, 2019. The carrying amount of the equipment is P700,000. Data relating to the fair values
of the equipment are as follows:
Date Fair value

November 1, 2018 600,000
December 31, 2018 800,000
February 15, 2019 760,000
**(assume that the cost to distribute are immaterial)
How much is the gain on distribution of property dividends on February 15, 2019 when the dividends
were finally distributed? P60,000
Carrying amount of dividend payable = Fair Value P760,000

Less: Carrying amount of noncash assets 700,000
Gain on distribution of prop. Dividends 60,000
SHARE-COMPENSATION
PISTE NING ACCOUNTANCY. TRUE

PASAR RA UNTA. TRUE
DILI TAAS EXAM SA AFAR. TRUE
IGO RA UNTA ANG TIME SA EXAM. TRUE
MANIFESTING FOR 4.0 SA AFAR, MANSCI, IA. TRUE
MU SHIFT. FALSE (3)
MNSCI UTRO PD SKSKSSYAWA

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INVENTORIES

Which statement is true about the gross profit method?

An overstatement of ending inventory in Period 1 would result in income of Period 2 being

When the current year's ending inventory amount is overstated,

Net realizable value can be defined as

Finished goods in factory P1,900,0

Finished goods in hands of consignees including 30% profit on sales 200,000

Finished goods in transit to customers, shipped FOB point of shipment 160,000

Finished goods in transit to customers, shipped FOB destination 150,000

Finished goods out on approval, at cost 100,000

Unsalable finished goods, at cost 40,000

Goods in process 1,100,00

Unexpired insurance on inventories 29,000

Advertising catalogues and shipping cartons 120,000

Office supplies 22,000

Shipping supplies 9,000

Gasoline and oil for testing finished goods 89,000

Machine lubricants 30,000

Defective materials returned to suppliers for replacement 99,000

Advance payment for materials ordered 100,000

Finished goods in factory 1,900,000

Goods held on consignment at sales price, cost P125,000 250,000

Items in receiving department, returned by the customer, in good condition 60,000

Goods out on consignment, at sales price, cost P140,000 200,000

Items on counter for sale 150,000

Items in receiving department refused by the entity because of damage 200,000

Items in shipping department 220,000

Items shipped today, invoice mailed, FOB shipping point 30,000

items shipped today, invoice mailed, FOB destination 25,000

Items currently being used for window display 18,000

Items counted in the warehouse (bodega) (4,000,000- P23,000 - 80,000) 3,897,000

a) motorbikes; and b) bicycles:

Cost NRV: if NRV: if sold

Raw materials: P 100,000 P45,000 P65,000

Supply of steel (used for motorbikes) 40,000 25,000 15,000

Supply of aluminum (used for bicycles) 60,000 20,000 50,000

Work-in-process: 80,000 80,000 65,000

Incomplete motorbikes 30,000 20,000 25,000

Incomplete bicycles 50,000 60,000 40,000

Finished Goods: 160,000 N/a 170,000

Motorbikes 80,000 N/a 60,000

Bicycles 80,000 N/a 110,000

Supply of steel (used for motorbikes) Writedowns

Supply of aluminum (used for bicycles)

Incomplete motorbikes Writedowns

Units Unit cost Total cost

April 1 Balance 20,000 P10 P200,000

Apr. 2 Purchase 30,000 12 360,000

Apr.4 Sale 25,000

Apr. 10 Purchase 15,000 14 210,000

Apr.15 Sale 27,000

Apr.17 Sales return (1,000)

Apr. 28 Purchase 20,000 16.75 335,000

Total 85,000 1,105,000

Cost of Goods Sold:

Purchases Sales Balances

April 1 Balance 20,000 10.00 200,000 20,000 10.00 200,000

April 2 Purchase 30,000 12.00 360,000 30,000 12.00 360,000

Balance 50,000 11.20 560,000

April 4 Sale 25,000 11.20 280,000 25,000 11.20 280,000

Balance 25,000 11.20 280,000

April 10 Purchase 15,000 14.00 210,000 15,000 14.00 210,000

Balance 40,000 12.25 490,000

April 15 Sale 27,000 12.25 330,750 27,000 12.25 330,750

(675,00060%) = 405,000/5 boxtops = 81,000(2.5-1) = 121,500

2019 (500,00050%) = 250,000 – 120,000 = 130,000/ 10 coupons = 13,0002.50 = 32,500

(500,00050%)= 250,000/10 coupons = 25,0002.50 = 62,500

(500,00060%)= 300,000 – 120,000 = 180,000/ 10 coupons = 18,0002.50 = 45,000