MAPA INSTITUTE OF TECHNOLOGY

E.T. Yuchengco School of Business and Management

Bachelor of Science in Accountancy

Mock Examination in ACT113X-0

Term 4 / Academic Year 2013 - 2014

PART I. MULTIPLE CHOICE (ACCOUNTING THEORY). Select the best answer by shading the
circle that corresponds to the letter of your choice.

1. Which of the following statements about the nature of accounting is not true?
A. Accounting is the language of business.
B. Accounting identifies, measures, and communicates financial information about economic entries
for use by both external and internal users in making economic decisions.
C. Before accounting can render communication services, an economic entity should first be
created.
D. Accounting communication services are available only to publicly accountable, medium-sized,
and small industries and not micro entities.
2. Mr. James owns two businesses, a spa and a coffee shop. His accountant has recorded the expense
of the spa in the books of the coffee shop. What accounting principle or assumption was violated by
the accountant?
A. Periodicity concept. C. Business entity concept.
B. Exchange price or cost principle. D. Monetary unit principle.
3. What is the purpose of information presented as notes to financial statements?
A. To provide disclosures required by generally accepted accounting principles.
B. To correct improper presentation in the financial statements.
C. To provide recognition of amounts not included in the totals of the financial statements.
D. To present managements responses to auditor comments.
4. Which of the following best describes the typical order in which assets and liabilities are listed on a
classified balance sheet?
A. Asset accounts in descending peso values and liability accounts in ascending peso values.
B. Asset accounts in alphabetical order and liability accounts in order of liquidity.
C. Asset accounts in order of liquidity and liability accounts in order of maturity.
D. Asset and liability accounts in alphabetical order.
5. The time frame associated with the statement of financial performance is
A. A point in time in the past. C. A future period of time.
B. A past period of time. D. A function of the information included in it.
6. Financial statements report on
A. Economic entities rather than on industries or members of society as consumers.
B. Industries rather than on economic entities or members of society as consumers.
C. Economic entities and industries rather than on members of society as consumers.
D. Economic entities members of society as consumers and industries.
7. Which of the following changes would most likely accompany an increase in an asset?
A. Decrease in income. C. Decrease in liability.
B. Increase in expense. D. Increase in equity.
8. Which of the following statements is incorrect?
A. The double-entry accounting system requires that a transaction has at least one credit and at
least one debit.
B. The right side of a T-account is the debit side and the left side of a T-account is the credit side.
C. The difference between the total debit and credit amounts for an account is called the account
balance.
D. The primary purpose of the trial balance is to verify the equality of debits and credits.
9. Which of the following accounting cycle steps happens throughout the period?
A. Prepare the financial statements.
B. Journalize and post the adjusting entries and the closing entries.
C. Start with the beginning account balances.
D. Analyze and journalize transactions as they occur.
10. Which of the following April transactions would appear on the monthly income statement for April
done using accrual accounting?
A. P3500 received in April for jobs completed in March
B. P2300 in salaries for March paid on April 1st
C. P85 paid in April for CDs purchased on credit in February
D. P175 in depreciation representing 5% of the cost of a computer expected to be used for 20
months
11. Which of the following is not a principal purpose of a trial balance?
A. It proves that debits and credits of equal amounts are in the ledger.
B. It is the basis for any adjustments to the account balances.
C. It supplies a listing of open accounts and their balances.
D. It proves that debits and credits were properly entered in the ledger accounts.
12. An accounting device for accumulating increases and decreases relating to a particular accounting
value such as an asset, a liability etc.
A. Account. B. Ledger. C. Journal. D. Book of secondary entry.
13. Which of the following statements is incorrect?
A. All of the accounts of a specific business enterprise are referred to as a ledger.
B. Every adjusting entry affects both a balance sheet and an income statement.
C. Transactions often overlap accounting periods.
D. The fact that an expense is recognized on the income statement indicates that an equivalent
outlay of cash has been made in the same period.
14. Adjusting entries are needed
A. Whenever revenue is not received in cash.
B. Whenever expenses are not paid in cash.
C. Primarily to correct errors in the initial recording of business transactions.
D. Whenever transactions affect the revenue or expenses of more than one accounting period.
15. Which one of the following is a purpose of adjusting entries?
I. To apportion the proper amounts of revenue and expense to the current accounting period.
II. To establish the proper amounts of assets and liabilities in the balance sheet.
III. To accomplish the objective of offsetting the revenue of the period with all the expenses incurred
in generating that revenue.
IV. To prepare the revenue and expense accounts for recording transactions of the following period.
A. I and II only. B. II and III only. C. I, II and III only. D. All of these.
16. Which one of the following items least resembles a typical adjusting entry?
A. Debit an asset and credit revenue. C. Debit revenue and credit liability.
B. Debit an expense and credit liability. D. Debit an asset and credit liability.
17. The entry to record depreciation is an example of an adjusting entry
A. To apportion a recorded cost. C. To record unrecorded expense.
B. To apportion unearned revenue. D. To record unrecorded revenue.
18. Which of the following are correct about accrued expenses?
A. They have no effect on the income statement.
B. They are the same as prepaid expenses.
C. They have been paid in advance.
D. They refer to costs that are incurred but are unpaid and unrecorded.
19. Failure to recognize the accrued expenses at the end of the period would result in
A. Overstated profit and understated liabilities. C. Understated profit and understated liabilities.
B. Understated profit and overstated liabilities. D. Overstated profit and overstated liabilities.
20. The accounting cycle includes the following steps
A. Completing the work sheet. F. Journalizing.
B. Adjusting the accounts. G. Posting.
C. Preparing a post-closing trial balance. H. Closing temporary accounts.
D. Preparing an adjusted trial balance. I. Preparing the statements.
E. Analyzing the transactions. J. Reversing entries.
What is the proper order of the last five steps?
A. F, G, H, I, J. B. E, D, C, B, A. C. D, I, H, C, J. D. E, F, G, H, J.
21. If revenues exceed expenses for the accounting period, the income summary account
A. Will have a debit balance after closing. C. Will have a credit balance prior to closing.
B. Will have a debit balance prior to closing. D. Will have a credit balance after closing.
22. In which of the columns of a worksheet would insurance expense be found?
A. In the Trial Balance debit column, the Adjusted Trial Balance debit column and the Balance Sheet
debit column.
B. In the Adjusted Trial Balance debit column and the Income Statement credit column.
C. In the Trial Balance credit column, the Adjusted Trial Balance credit column and the Balance
Sheet credit column.
D. In the Adjusted Trial Balance credit column and the Income Statement credit column.
23. In preparing a worksheet, a net loss would be computed and entered in the
A. Debit column of the income statement columns of the worksheet.
B. Credit column of the income statement columns of the worksheet.
C. In the debit column of the adjusted trial balance.
D. In the credit column of the balance sheet columns of the worksheet.
24. Which of the following accounts would not be debited or credited in closing entries?
A. Prepaid insurance. C. Utility expense.
B. Owners capital. D. Owners withdrawals.
25. An error which is disclosed by a trial balance is
A. An omission of a journal entry on purchases on account.
B. Double-posting a credit to sales amounting to P210,000.
C. A journal entry for salaries paid amounting to P500,000 was not posted.
D. Posting to the correct debit or credit side of a wrong account.
26. Which one of the following aspects of the firm's daily operations best represents the difference
between a service firm such as a law firm and a merchandiser such as Puregold?
A. The law firm does not incur advertising expense during its accounting period but Puregold does
incur advertising expense during its accounting period.
B. Only the law firm will incur salaries expense during the accounting period. Puregold does not pay
salaries.
C. The law firm is likely to have a lot of merchandise inventory on hand for sale to customers.
D. Puregold is likely to have a large amount of merchandise inventory on hand for sale to customers.
27. FOB Shipping Point means that the
A. Buyer pays the freight. C. Goods are shipped free on board to the buyer's place of business.
B. Seller pays the freight. D. The trucking company pays the freight.
28. Which of the following appears in the income statement of a merchandising business, but not in the
income statement of a business that renders only services?
A. Interest revenue. C. Advertising expense.
B. Gross profit. D. Income tax expense.
29. In a perpetual inventory system,
A. Merchandising transactions are recorded as they occur.
B. No effort is made to record the cost of goods sold until year-end.
C. Entries are made in the Cost of Goods Sold account whenever merchandise is purchased or sold.
D. The need for ever taking physical inventory is eliminated.
30. The Cost of Goods Sold account is closed by
A. Debiting Cost of Goods Sold and crediting Income Summary.
B. Debiting Cost of Goods Sold and crediting Retained Earnings.
C. Debiting Income Summary and crediting Cost of Goods Sold.
D. Debiting Retained Earnings and crediting Cost of Goods Sold.
31. The cost of goods available for sale is allocated between
A. Beginning inventory and ending inventory.
B. Beginning inventory and cost of goods on hand.
C. Ending inventory and cost of goods sold.
D. Beginning inventory and cost of goods purchased.
32. An overstatement of opening inventory results in
A. An understatement of net income. C. A need to adjust purchases.
B. An overstatement of net income. D. No effect on the periods net income.
33. Reduction of invoice prices awarded for prompt payment is a(n)
A. Sales discount. B. Cash discount. C. Sales allowance. D. Trade discount.
34. The purchasing agent of Ace Service Co. wants to know the peso amount of inventory purchased on
account during the year from a particular supplier. This information can be found most easily in Ace
Service's
A. Inventory subsidiary ledger. C. Inventory controlling account.
B. Accounts payable controlling account. D. Accounts payable subsidiary ledger.
35. After all postings have been made, the total of the schedule of accounts receivable should equal
A. The balance of the Accounts Receivable account in the general ledger.
B. The total of Cash in the general ledger.
C. The total of all sales on account for the accounting period.
D. The total amount collected during the accounting period
36. During a period of deflation, the FIFO method of inventory valuation, as compared with the LIFO
method of inventory valuation, will result in
A. Lower ending inventory, higher cost of goods sold, and lower net income.
B. Higher ending inventory, higher cost of goods sold, and lower net income.
C. Lower ending inventory, lower cost of goods sold, and higher net income.
D. Higher ending inventory, higher cost of goods sold, and higher net income.
37. During a period of rising prices, which of the following cost flow assumptions will result in the highest
cost of goods sold?
A. First-in, first-out. B. Last-in, first-out. C. Average cost. D. Specific identification.
38. Which of the following inventory cost flow methods would an automobile dealership most likely use
for its new car sales?
A. First-in, first out. B. Last-in, first out. C. Average cost. D. Specific identification.
39. The bookkeeper prepared a check for P58 but accidentally recorded it as P85. When preparing the
bank reconciliation, this should be corrected by
A. Adding P27 to the bank balance. C. Adding P27 to the book balance.
B. Subtracting P27 from the bank balance. D. Subtracting P27 from the book balance.
40. In reconciling a bank statement, which of the following items could cause the cash per the bank
statement to be greater than the balance of cash shown in the depositor's accounting records?
A. An outstanding check.
B. A check returned to the depositor marked NSF.
C. Check 457 written for P574 was recorded by the depositor as P475.
D. A bank service charge.
41. When a bank reconciliation has been satisfactorily completed, the only related entries to be made in
the depositor's records are
A. To correct errors made by the bank in recording the peso amounts of cash transactions during the
period.
B. To reconcile items that explain the difference between the balance per the books and the balance
per the bank statement.
C. To record outstanding checks and bank service charges.
D. To record items that explain the difference between the balance per the accounting records and
the adjusted cash balance.
42. The bookkeeper recorded a check at P340.56 for store supplies. The check was recorded by the
bank at its correct amount of P430.65. The bank reconciliation will require a(an)
A. Addition per book balance of cash. C. Addition per bank statement balance.
B. Deduction per book balance of cash. D. Deduction per bank statement balance.
43. During the year, Hauser Co. wrote off a customer's account receivable. Hauser used the allowance
method for uncollectable accounts. What impact would the write-off have on net income and total
assets?
A. B. C. D.
Net income Decrease Decrease No effect No effect
Total assets Decrease No effect Decrease No effect
44. The allowance method for estimating and reporting bad debt expense
A. Demonstrates the importance of full-disclosure.
B. Requires the use of estimates to establish an approximation of uncollectible accounts.
C. Requires that a loss on receivables be reported in the period in which an account is determined to
be uncollectible.
D. Results a direct write-off of all uncollectible accounts.
45. When a firm collects (recovers) an account receivable that was previously written off under the
allowance method of accounting for bad debts,
A. The realizable value of accounts receivable will decrease.
B. The cash account will decrease by the full amount of the recovery.
C. The allowance account will decrease by the amount collected.
D. The realizable value of accounts receivable will increase.
46. A company which uses the direct write-off method recognizes uncollectible accounts expense
A. As a percentage of net sales during the period.
B. As a percentage of net credit sales during the period.
C. As indicated by aging the accounts receivable at the end of the period.
D. As specific accounts receivable are determined to be worthless.
47. Which one of the following statements best describes 'residual value'?
A. The estimated net amount currently obtainable if the asset were at the end of its useful life.
B. The present value of estimated future cash flows expected to arise from the continuing use of the
asset and from its ultimate disposal.
C. The amount at which the asset could be exchanged between knowledgeable, willing parties in an
arm's length transaction.
D. The amount of cash or cash equivalents that could currently be obtained by selling the asset in an
orderly disposal.
48. As generally used in accounting, what is depreciation?
A. It is a process of asset valuation for balance sheet purposes.
B. It applies only to long-lived intangible assets.
C. It is used to indicate a decline in market value of long-lived asset.
D. It is an accounting process which systematically allocates long-lived asset cost to accounting
periods.
49. When a depreciable asset is sold at a price equal to its book value, a journal entry would include
A. A credit to the asset account for its book value. C. A credit to accumulated depreciation.
B. A debit to accumulated depreciation. D. A credit to cash.
50. When comparing the units-of-output method of depreciation with straight-line depreciation,
A. The depreciation expense in the first year will always be greater under units-of-output method.
B. The depreciation expense in the first year will always be less under the units-of-output method.
C. The depreciation expense in the first year will always be the same.
D. The depreciation expense in the first year may be greater than, equal to, or less under the units-
of-output method.
PART II. MULTIPLE CHOICE (PROBLEMS). Select the best answer by shading the circle that
corresponds to the letter of your choice.

1. For a given year, beginning and ending total liabilities were P8,400 and P10,000, respectively. At
year-end, owners equity was P26,000 and total assets were P2,000 larger than at the beginning of
the year. If additional investments exceeded withdrawals by P2,400, net income (loss) for the year
was apparently
A. (P2,800). B. (P2,000). C. P400. D. P2,800.
2. Miami Heat Ball Co. is owned and operated by Pat Riley. From the information given by his secretary:
Cash in bank in the name of Miami Heat Ball Co. P 100,000
Personal savings account of Pat Riley 140,000
Office furniture and fixtures 35,000
Residential house and lot of Pat Riley 2,100,000
Salaries payable to employees 18,000
Mortgage payable on residential house and lot 1,200,000
Accounts payable for repair of office 12,000
Unpaid household bills 15,000
Personal car of Pat Riley 500,000
Office supplies 10,000
Office equipment 1,250,000
How much is the total assets and total liabilities of the business?
A. P1,395,000 and P30,000. C. P4,135,000 and P1,245,000.
B. P2,235,000 and P1,230,000. D. P3,495,000 and P1,230,000.
3. After one month operation of the law firm owned by Atty. Chamers, salaries of P15,000; telephone bill
of P1,300; rent of P 12,000 were paid. He also received P30,000 cash for legal services rendered.
Some clients still owe him P43,900 for the services rendered. What is the result of operation after a
month?
A. P45,600 net income. C. P15,600 net loss.
B. P1,700 net income. D. P1,700 net loss.
4. Lewis opened an internet cafe and after one month of operation the following accounts show these
balances: Cash P80,000; Accounts Receivable P6,500; Supplies P2,300; Equipment P168,000;
Furniture and Fixtures P46,500; Notes Payable P54,300; and Utilities Payable P1,200. His initial
investment is P150,000 and there was no additional investment and withdrawal made during the
month. How much is the income earned by the Internet cafe for the month?
A. P247,800. B. P205,500. C. P153,300. D. P97,800.
5. The Times Media Company showed an P11,200 liability in its 2013 balance sheet for subscription
revenue received in advance. During 2014, P62,000 was received from customers for subscriptions
and the 2014 income statement reported subscription revenue of P63,700. What is the liability
amount for unearned subscription revenue that will appear in the 2014 balance sheet?
A. P0. B. P11,200. C. P12,900. D. P9,500.
6. The correct amount of prepaid insurance shown on a company's December 31, 2013, balance sheet
was P900. On July 1, 2014, the company paid an additional insurance premium of P600. In the
December 31, 2014, balance sheet, the amount of prepaid insurance was correctly shown as P500.
The amount of insurance expense that should appear in the company's 2014 income statement is
A. P1,500. B. P1,400. C. P1,000. D. P600.
7. The following are the selected data of Miami Heat Dental Clinic after its one year operation:
Cash collected from customers on account P 50,000
Cash withdrawn by Dr. James 25,000
Cash paid to creditor, Metro Bank (long term loan) 100,000
Revenue from dental treatment collected in cash 250,000
Revenue from dental treatment rendered on account 125,000
Operating expenses paid in cash 75,000
Operating expenses incurred on account 95,000
Dr. James Capital, end 460,000
How much is the beginning capital of Miami Heat Dental clinic?
A. P280,000. B. P260,000. C. P235,000. D. P230,000.
8. The subtotals of the Income Statement Debit and Credit columns of the work sheet are P3,500 and
P4,900, respectively. If the subtotal of the Balance Sheet Debit column is P9,600, what should be the
subtotal of the Balance Sheet Credit column?
A. P1,400. B. P11,000. C. P8,200. D. P4,700.
9. On September 1, a company received a P1,000 prepayment for services they had not yet performed.
By December 31, the company had completed P500 worth of service for this customer. Which of the
following will be a part of the year-end adjusting entry?
A. Debit expense P1,000. C. Credit revenue P500.
B. Credit unearned revenue P1,000. D. Credit unearned revenue P500.
10. At the end of the accounting period, the business had P450 of office supplies on hand, which was a
50% increase over the beginning balance. If the business purchased P1,200 of office supplies during
the year, then how much office supplies were used during the year?
A. P975. B. P1,050. C. P1,650. D. P1,425.
11. An analysis of Thrift Corp.s unadjusted prepaid expense account at December 31, 2014, revealed
the following:
An opening balance of P1,500 for Thrifts comprehensive insurance policy. Thrift had paid an
annual premium of P3,000 on July 1, 2013.
A P3,200 annual insurance premium payment made July 1, 2014.
A P2,000 advance rental payment for a warehouse
Thrift leased for one year beginning January 1, 2015. In its December 31, 2014 balance sheet, what
amount should Thrift report as prepaid expenses?
A. P5,200. B. P3,600. C. P2,000. D. P1,600.
12. On November 16, the company borrowed P24,000 for 90 days at 6% interest. Interest expense was
not adjusted at the end of November. The adjusting entry made on December 31 would include which
of the following?
A. A debit to Interest Expense of P360. C. A credit to Interest Payable of P180.
B. A debit to Interest Expense of P120. D. A credit to Interest Payable of P480.
13. The records for Charlie Company showed the following: sales revenue, P225,000; beginning
merchandise inventory, P40,000; purchases during the period, P144,000; and, cost of goods sold,
P172,000. What is the amount of the ending merchandise inventory?
A. P212,000. B. P144,000. C. P12,000. D. P15,000.
14. The following costs were incurred by Griff Co., a manufacturer, during 2014:
Accounting and legal fees P 25,000
Freight-in 175,000
Freight-out 160,000
Officers salaries 150,000
Insurance 85,000
Sales representatives salaries 215,000
What amount of these costs should be reported as general and administrative expenses for 2014?
A. P260,000. B. P550,000. C. P635,000. D. P810,000.
15. York Company had the following transactions during March 2014:
Purchased merchandise inventory of P25,000 from Richardson Company with freight terms FOB
destination. Freight costs on the Richardson Company purchase were P800.
Purchased merchandise inventory of P43,000 from Martin Company with freight terms FOB
shipping point. Freight costs on the Martin Company purchase were P1,200.
What is the total amount York Company recorded to the Merchandise Inventory account as a result of
these transactions?
A. P68,000. B. P68,800. C. P69,200. D. P70,000.
16. Bren Co.s beginning inventory at January 1, 2014, was understated by P26,000, and its ending
inventory was overstated by P52,000. As a result, Brens cost of goods sold for 2014 was
A. Understated by P26,000. C. Understated by P78,000.
B. Overstated by P26,000. D. Overstated by P78,000.
17. Sao Paolo Trading, Inc., had 800 units of inventory on hand at March 1, 2014, costing P20 each.
Purchases and sales of inventory during the month of March were as follows:
Date Purchases Sales
March 08 600 units
15 400 units @ P22 each
22 400 units @ P24 each
27 400 units
Sao Paolo uses the periodic inventory system. According to a physical count, 600 units were on hand
at the end of March. The cost of inventory at the end of March applying the first-in, first-out method is
A. P12,900. B. P14,400. C. P12,000. D. P14,000.
18. A drug store sells bottles of aspirin over-the-counter. For the month of January, which is the first
month of the new accounting period, the company has the following purchases and sales of aspirin
bottles. The sales price for each bottle is P3.00 for the entire period.
Beginning inventory of aspirin bottles on January 1 20 units at P1.00 each
First purchase 10 units at P1.10 each
First sale 11 units
Second sale 12 units
Second purchase 14 units at P1.25 each
Third purchase 10 units at P1.35 each
The company uses the FIFO periodic method. What is the gross profit for the month of January?
A. P69.00. B. P39.25. C. P41.75. D. P45.70.
19. Heffner Company wants to know the effect of different inventory methods on financial statements.
Given below is information about beginning inventory and purchases for the current year.
January 2 Beginning Inventory 500 units at P3.00
April 7 Purchased 1,100 units at P3.20
June 30 Purchased 400 units at P4.00
December 7 Purchased 1,600 units at P4.40
Sales during the year were 2,700 units at P5.00. If Heffner used the weighted-average method, gross
profit would be
A. P3,255. B. P3,415. C. P10,245. D. P13,500.
20. Alvin Electronics is in the process of reconciling its bank account for the month of November. The
following information is available:
Balance per bank statement P8,325
Outstanding checks 2,400
Deposits outstanding 1,215
Bank service charges for November 35
Check written by Alvin for P300 but recorded incorrectly by
Alvin as a P30 disbursement.
What should be the corrected cash balance at the end of November?
A. P6,870. B. P7,140. C. P6,835. D. P7,105.
21. Poe, Inc. had the following bank reconciliation at March 31, 2014:
Balance per bank statement, 3/31/14 P46,500
Add deposit in transit 10,300
56,800
Less outstanding checks 12,600
Balance per books, 3/31/14 P44,200
Data per bank for the month of April 2014 follow:
Deposits P58,400
Disbursements 49,700
All reconciling items at March 31, 2014, cleared the bank in April. Outstanding checks at April 30,
2014, totaled P7,000. There were no deposits in transit at April 30, 2014. What is the cash balance
per books at April 30, 2014?
A. P48,200. B. P52,900. C. P55,200. D. P58,500.
22. Enchill Company accrues bad debt expense during the year at an amount equal to 3% of credit
sales. At the end of the year, a journal entry adjusts the allowance for uncollectible accounts to a
desired amount based on an aging of accounts receivable. At the beginning of 2014, the allowance
account had a credit balance of P18,000. During 2014, credit sales totaled P480,000 and receivables
of P14,000 were written off. The year-end aging indicated that a P21,000 allowance for uncollectible
accounts was required. Enchill's bad debt expense for 2014 would be:
A. P17,000. B. P2,600. C. P21,000. D. P14,400.
23. Makhas Industries experienced the following transactions during 2014, its first year of operations:
Provided P173,000 of services on account
Collected P137,000 cash from accounts receivable
Established an Allowance for Doubtful Accounts using the aging below:
Days Past Due Balance Uncollectible %
Current P23,000 .01
0 30 6,500 .07
31 60 2,500 .12
61 90 750 .35
Over 90 3,250 .60
Using the information given, what amount should be reported as the balance in the company's
allowance for uncollectible accounts?
A. P2,835. B. P3,150. C. P3,198. D. P2,975.
24. An asset having a four-year service life and a salvage value of P5,000 was acquired for P45,000
cash on June 28. The depreciation expense at the end of the first year, December 31, will be
A. P10,000, using the straight-line method.
B. P22,500, using the double declining-balance method.
C. P7,000, using the straight-line method.
D. P11,250, using the double declining-balance method.
25. A company owns an asset that had an original cost of P65,000. The asset had an estimated useful
life of 12 years and an estimated salvage value of P5,000. The company uses the straight line
method of depreciation. After 7 years, the company sells the asset for P27,000 cash. What would be
the amount of gain or loss on the sale?
A. P3,000 loss. B. P3,000 gain. C. P2,000 loss. D. P2,000 gain.

END