1. On January 1, 2007, Ola purchased a machine that had a list price of P46,320.

Ola paid cash of P18,000 and executed a one-year non-interest bearing note for the
balance. The going rate of interest was 18 percent. The machine has a 6-year life
and no residual value. Depreciation expense on the SYD basis at the end of 2007 is
a. P 8,092
b. P12,000
c. P13,234
d. P14,690

2. Bodie had a P5,400 temporary tax difference resulting using an accelerated

depreciation method for tax purposes at the end of 2007. This temporary difference
will reverse equally during 2008, 2009, 2010. The currently enacted tax rates are:
2007 25%; 2008 30%; 2009 26%; and 2010 25%. The related deferred tax
liability at the end of 2007 would be:
a. P1,350
b. P1,404
c. P1,431
d. P1,458
1. Dakak Company issued bonds with a face value of P4, 000,000 and with a stated
interest rate of 10% on Jan. 01, 2008. The interest is payable semiannually on
June 30 and December 31. The bonds mature on every December 31 at a rate of
P2, 000,000 per year for 2 years. The prevailing rate for the bonds is 8%. The
present value of 1 at 4% is as follows:
One period
0.9615
Two periods

0.9426

Three periods

0.8990

Four periods

0.8548

What is the present value of the bonds on January 1, 2008?

a.

4,111,400

c.4,099,600

b.

4,263,400

d.4,252,580

21.The Puncher Co. launched a sales promotional campaign on June 30, 2006. For
every ten empty packs returned to Puncher, customers will receive an attractive

food container. The company estimates that only 30% of the packs reaching the
market will be redeemed. Additional information are as follows:

Units
Sales of food packs

3,000,000

Food containers purchased

Prizes distributed to customers

Amount
P9,000,000

60,000

180,000

37,000

At the end of the year, Puncher recognized a liability equal to the estimated cost of
potential prizes outstanding.
What is the amount of this estimated liability?

a. 69,000

c. 159,000

b. 90,000

d. 180,000

Estimated no. of packs to be redeemed (3,000,000 x 30%)

900,000/10
=

90,000
-37,000
53,000
X P3
159,000

2. The following pertains to an operating sale and leaseback of equipment by

Harbor Co. on December 31,2005:
Sales price

420,000

Carrying amount

520,000

Monthly lease payment

37,334

Present value of lease payments/Fair Market Value

420,000

Estimated remaining life

12 years

Lease term

1 year

Implicit rate

12%

What amount of deferred loss should Harbor report at December 31, 2005?

a. 0

c. 100,000

b. 37,334

d. 200,000

3. The Cloak Corporation received the following report from its actuary at the end
of the year:
01/01/06

01/31/06

Unrecognized past service cost

500,000

Accumulated benefit obligation

6,000,000

6,400,000

Fair Value of pension plan assets

5,800,000

6,276,000

800,000

Actuarial net gain

450,000

Benefits paid during the year

680,000

Contribution made during the year

520,000

Current service cost

495,000

Expected rate of return

10%

Settlement rate

12%

Ave. working lives of employees

20 years

What is the amount of net benefit expense to be charged against income for the
year 2006?

a. 675,000

c. 716,000

b. 685,000
Solution:

d. 875,000

Current service cost

495,000

Interest (6,000,000 x 12%)

720,000

Amortization (500,000-450,000)

50,000

Amortization of he net gain

(10,000)

Expected return on plan assets

(580,000)

Net benefit Expense

P 675,000

4. East Company leased machinery from Chin Company on January 1, 2007 for a
10-year period (useful life of 20 years)
Equal annual payments under the lease are P200,000 and are due on January 1 of
each year starting January 1, 2007.
The present value at January 1, 2007 of the lease payments over the lease term
discounted at 10% was 1,352,000. The lease was appropriately accounted for as
finance lease by East because there is a very nominal bargain purchase option.
What is interest expense for 2008?
a.

106,720

c. 200,000

b.

115,200

d. 0
200,000
Solution:

1,152,000 x 10% =

(115,200)
84,800

(1,152,000-84,800) x 10% = 106,720

5. On December 31, 2007 Colt Company is experiencing extreme financial pressure

and is in default in meeting interest payment on its long term note of P6,
000,000 due on December 31, 2009. The interest rate is 12% payable every
December 31.
In an agreement with the creditor, Colt obtained the following changes in the terms
of note:
a. The accrued interest on December 31, 2007 is forgiven.

b. The principal is reduced by 500,000.

c. The new interest rate is 8%.
d. The new date of maturity is December 31, 2011.
The present value of 1 at12% for four periods is 0.6355 and the present value of an
ordinary annuity of 1 at 12% for four periods is 3.0373.
How much is the gain or loss on extinguishment?
a.

2,504,750

b.

1,168,338

Solution

c. 1,888,338
d. 0
5,500,000 x 0.6355 =

3,495,250

(5,500,000 x 8%) = 440,000x 3.0373=

PV of restructured liability

1,336,412
4,831,662

6,000,000
720,000
6,720,000
(4,831,000)

1,888,338
=======
6. PRC Company began selling a new calculator that carried a two year warranty
against defects in 2007.
PRC projected the estimated warranty cost (as a percent of sales) as follows:
First year warranty

4%

Second year warranty

10%

Sales and actual warranty repairs were:

2007
Sales
9,000,000

2008
5,000,000

Actual warranty repairs

390,000

900,000

What is the estimated warranty liability on December 31, 2007?

a.

670,000

c. 700,000

b.

790,000

d. 650,000

Solution:

( 5,000,000 + 9,000,0000) =

14,000,000

14,000,0000 x 14%

1,960,000
(390,000)
(900,000)

670,000
======

7. Zee Company provided the following informations concerning its defined benefit
plan in its memorandum records on January 1, 2007.
Fair Value of plant assets
5,100,000
Unamortized past service cost
Unrecognized Actuarial Loss

210,000
610,000

Projected Benefit Obligation

(4,500,000)

Prepaid/Accrued benefit cost

1,410,000

During the current year, the entity determined that its Current service cost was
600,000 and the interest cost is 10%. The expected return was 10% but the
actual return was 12%. Past service cost and any actuarial gain or loss should be
amortized over 10 years. Other related information is as follows:
Contribution to the plan
Benefits
900,000

paid

to

720,000
retirees

Decrease in PBO due to changes in actuarial assumptions

120,000
What is the balance of prepaid/ accrue benefit cost account on December 31, 2007?
a.

1,530,000

c. 1,770,000

b.

1,560,000

d. 1,680,000

Solution:

Prepaid/Accrued-Debit, beg.

1,410,000

Current Service Cost

Interest ( 4,500,000 x 10%)

600,000
450,000

Expected Return (5,100,000 x 10%) (510,000)

Past Service Cost ( 210,000/10)
Amortization ( 600,000-510,00)/10
Curtailment/ Settlement
Benefit Expense
Prepaid/Accrued (720,000-450,000)
Total

21,000
9,000
(120,000)
450,000
270,00
1,680,000
=======

8. Marie Company sells gift certificates redeemable only when merchandise is

purchased. These gift certificates have an expiration date of two years after
issuance date. Upon redemption or expiration, Marie recognizes the unearned
revenue as realized. Information for 2007 as follows:
Gift certificate payable 12/31/2006
520,000
Gift certificate payable 12/31/2007

680,000

Gift certificate redeemed

1,560,000

Expired gift certificates

80,000

Cost of goods sold

80%

How much Gift certificates sold during the year?

a.

1,800,000

c.. 1,640 ,000

b.

1,500,000

d. 1,760,000

Solution:

Gift Certificate Payable, end

680,000

Certificates Redeemed

1,560,000

Expired Certificates
Gift Certificates, beg.

80,000
(520,000)

Gift Certificates Sold

1,800,000
========

9. Assume the following balances at the end of the current year:

Capital Liquidated
1,800,000
Accumulated
Depletion
Retained
1,500,000

2,500,000
Earnings

Depletion based on 50,000 units extracted @P20 per unit

1,000,000
Inventory of resource deposit 5,000 units
What is the maximum dividend that can be declared by the company?
a. 2,100,000
200,000

c.2,

b.2, 000,000
500,000

d.1,

Solution:

Retained Earnings

1,500,000

Accum. Depletion

2,500,000
4,000,000

Less: Capital Liquidated

Inventory (15,000 x 20)

(1,800,000)
(100,000)
2,100,000

10.A natural resources property was purchased by Nge Wang Company for
6,000,000. The output was estimated to be 1,500,000 tons. Nge Wang Company

purchased a mining equipment at a cost of 8,000,000 and has a useful life of 10

years but is capable of exhausting the resource in8 years. Production is as
follows:
1st Year
150,000 tons
2nd Year

225,000 tons

3rd Year

None

4th Year

225,000 tons

What is the carrying amount of the mining equipment at the end of four years?
a.

4,800,000

c. 4,200,000

b.

4,000,000

d. 4,500,000

Solution:

1st year

(8,000,000 x 150,000)/1,500,000 =
2nd year
3rd year

4th year

800,000

(8,000,000 x 225,000)/1,500,000 =

1,500,000

( 8,000,000-800,000-1,200,000)/8 =

750,000

(8,00,000-800,000-1,200,000-750,000 x 225,000)/1,050,00 = 1,050,000

3,800,000
8,000,000-3,800,000 =

4,200,000
========