PRACTICAL ACCOUNTING PROBLEMS 1

1. Christine Company provided the following trial balance on June 30, 2013:
Cash Overdraf (200,000) Property, plant and equipment 1,900,000
Accounts Receivable 700,000 Accounts payable and accrued expenses 640,000
Inventory 1,200,000 Share capital 3,000,000
Prepaid Expenses 200,000 Share premium 500,000
Land held for resale 2,000,000 Retained earnings 1,660,000
Checks amounting to P600,000 were written to vendors and recorded on June 30 resulting in
cash overdraf of P200,000. The checks were mailed on July 9. Land held for resale was sold for
cash on July 15. The financial statements were issued on July 31. On June 30, 2013, what total
amount should be reported as current assets?
a. 4,500,000
b. 4,100,000
c. 4,300,000
d. 2,500,000

2. Jackson Company reported the following liability account balances on December 31, 2013:
Accounts payable 1,900,000
Bonds payable 3,400,000
Premium on bonds payable 200,000
Deferred tax liability 400,000
Dividends payable 500,000
Income tax payable 900,000
Note payable, due January 31, 2014 600,000
The deferred tax liability is based on temporary differences that will reverse in 2014. On
December 31, 2013, what total amount should be reported as current liabilities?
a. 7,100,000
b. 4,300,000
c. 3,900,000
d. 4,100,000

3. Raymond Company reported net assets totaling P8,750,000 on December 31, 2013. The assets
include the following:
Treasury shares, at cost 250,000
Idle machinery 100,000
Trademark 150,000
Allowance for inventory writedown 200,000
What amount should be reported as net assets?
a. 8,500,000
b. 8,400,00
c. 8,300,000
d. 8,200,000

4. Ybeth Company reported that the operating expenses other than the interest expense for the
current year amount to 40% of cost of sales but only 20% of sales. Interest expense is 5% of
sales. The amount of purchases is 120% of cost of sales. Ending inventory is twice as much as the
beginning inventory. The income afer tax of 30% for the current year is P560,000. What is the
amount of sales for the current year?
a. 2,080,000
b. 1,485,000
c. 2,285,000
d. 3,200,000

5. Jerwin Company reported the following data for the current year:
Accounting and legal fees 250,000
Freight in 1,750,000
Freight out 1,600,000
Officers salaries 1,500,000
Insurance 850,000
 Sales representatives salaries 2,150,000
Research and development expenses 1,000,000
What total amount should be reported as general and administrative expenses?
a. 2,600,000
b. 4,200,000
c. 4,350,000
d. 3,600,000

6. Richard Company reported that the Revenue section of the single step income statement for
the current year consisted the following:
Net sales revenue 2,000,000
Loss from discontinued component, including loss on disposal of
P12,000, net of tax benefit of P40,000 125,000

Interest revenue 100,000

Gain sale of equipment 50,000
Unrealized gain on available for sale financial asset 15,000
What total amount should be reported under the Revenue section of the income statement?
a. 2,275,000
b. 2,100,000
c. 2,165,000
d. 2,150,000

7. Loraine Company reported income before tax of P5,000,000 for the current year. The auditor
questioned the following amounts that had been included in income before tax:
Equity in earnings of Ann Company- 40% interest 1,600,000
Dividend received from Ann Company 320,000
Adjustment profit of prior year for arithmetical error in depreciation (1,400,000)
What amount should be reported as income before tax?
a. 3,400,000
b. 4,680,000
c. 4,800,000
d. 6,080,000

8. Christian Company was organized on January 1 ,2010. On such date, the property, plant and
equipment included building of P15,000,000 with useful life of 15 years, machinery of
P10,500,000 with useful life of 10 years, and furniture of P3,500,000 with useful life of 7 years.
On January 1, 2013, the entity decide to review the useful lives of the assets. On such date, the
remaining useful life is 10 years for the building, 7 years for the machinery and 5 years for the
furniture. The entity used the straight line method of depreciation with no residual value. What
total amount should be reported as depreciation for 2013?
a. 2,650,000
b. 3,700,000
c. 2,550,000
d. 3,500,000

9. On January 1, 2011, Jerelleen Company purchased for P4,800,000 a machine with a useful life of
ten years and a residual value of P200,000. The machine was depreciated by the double
declining balance and the carrying amount of the machine was P3,072,000 on December 31,
2012. The entity changed to the straight line method on January 1, 2013. The residual value did
not change. What is the depreciated expense for the year ended December 31, 2013?
a. 287,200
b. 384,000
c. 460,000
d. 359,000

10. Laurence Company, a publicly owned entity, assesses performance and makes operating
decisions using for the reportable segments total revenue of P7,680,000 and total profit and loss
of P406,000. The total profit and loss included intersegment profit of P61,000. In addition, the
 entity has P5,000 of common costs for the reportable segments that are not allocated in reports
reviewed by the chief operating decision maker. For purposes of segment reporting, what
amount should be reported as segment profit for the reportable segments?
a. 350,000
b. 354,000
c. 411,000
d. 359,000

11. Janine Company reported the checkbook balance on December 31, 2013 at P8,000,000. In
addition, the entity held the following items in the safe on the date:
Check payable on Janine, dated January 2, 2014 in payment of a sale,
not included in December 31 checkbook balance 1,000,000
Check payable to Janine, deposited December 15 and included in
December 31 checkbook balance, but returned by bank on
December 30 stamped NSF. The check was redeposited on
January 2, 2014 and cleared on January 5, 2014 3,000,000
Check drawn on Janines account, dated and recorded on
December 31, 2013 but not mailed until January 15, 2014 2,500,000
Coins and currencies on hand 800,000
Three-month money market instruments 1,500,000
What is the correct amount of cash on December 31, 2013?
a. 7,500,000
b. 9,300,000
c. 8,300,000
d. 9,800,000

12. Araceline Company prepared the following bank reconciliation on June 30:
Balance per bank 9,800,000
Deposit in transit 400,000
Outstanding checks (1,400,000)
Balance per book 8,800,000
There were total deposits of P6,500,000 and charges for disbursement of P9,000,000 for July per
bank statement. All reconciliation items on June 30 cleared the bank on July 31. Checks
outstanding amounted to P1,000,000 on July 31. What is the amount of cash disbursements per
book in July?
a. 8,600,000
b. 7,600,000
c. 9,400,000
d. 8,400,000

13. Lynaira Company reported current receivables on December 31, 2013 which consisted of the
following:
Trade accounts receivable 930,000
Allowance for uncollectible accounts 20,000
Claim against shipper for goods lost in transit in November 2013 30,000
Selling price of unsold goods sent by Lynaira on consignment at 130% of
cost and not included in the ending inventory 260,000
Security deposit on lease of warehouse used for storing inventories 300,000
What is the correct total of current net receivables on December 31, 2013?
a. 1,500,000
b. 1,200,000
c. 1,240,000
d. 940,000

14. From inception of operations, Carl Company provided for uncollectible accounts expense under
the allowance method and provisions were made monthly at 4% of credit sales. No year-end
adjustments to the allowance account were made. The balance in the allowance for doubtful
accounts was P1,000,000 on January 1, 2013. During 2013, credit sales totaled P20,000,000,
interim provisions for doubtful accounts were made at 4% of credit sales, P200,000 of bad debts
 were written off, and recoveries of accounts previously written off amounted to P50,000. An
aging of accounts receivable was made for the first time on December 31, 2013 as follows:

Classification Balance Uncollectible

November-December 6,000,000 10%
July-October 2,000,000 20%
January-June 1,500,000 30%
Prior to January 1, 2013 500,000 50%
Based on the review of collectability of the account balances in the prior to January 1, 2013
aging category, additional accounts totaling P100,000 are to be written off on December 31,
2013. Effective December 31, 2013, the entity adopted a new accounting method for estimating
the allowance for doubtful accounts at the amount indicated by the year-end aging of accounts
receivable. What is the year-end adjustment to the allowance for doubtful accounts on
December 31, 2013?
a. 900,00 debit
b. 100,000 credit
c. 100,000 debit
d. 0

15. On August 1, 2013, Nikki Companys P5,000,000 one-year, noninterest-bearing note due July 31,
2014, was discounted at 10.8%. The entity used the straight line method of amortizing discount.
What is the carrying amount of the note payable December 31, 2013?
a. 5,000,000
b. 4,775,000
c. 4,685,000
d. 4,460,000

16. On July 31, 2013, Angelo Company sold an equipment for P1,000,000. The entity accepted a 10%
note receivable for the entire sale price. The note is payable in two equal installments of
P500,000 plus accrued interest on December 31, 2013 and December 31, 2014. On July 1, 2014,
the entity discounted the note at a bank at an interest rate of 12%. What is the amount received
from the discounting of note receivable?
a. 484,000
b. 493,500
c. 503,500
d. 517,000

17. On December 31, 2013, Ricardo Company received two P2,000,000 notes receivable from
customers. On both notes, interest is calculated on the outstanding principal balance at the
annual rate of 3% and payable at maturity. The first note, made under customary trade terms, is
due in nine months and the second note is due on five years. The market interest rate for similar
notes on December 31, 2013 was 8%. The PV of 1 at &% due in nine months is .944, and the PV
of 1 at 8% due in 5 years is .68. On December 31, 2013, what total carrying amount should be
reported for the two notes receivable?
a. 3,248,000
b. 3,494,400
c. 3,360,000
d. 3,564,000

18. Jon Bank granted a 10-year loan to a borrower in the amount of P1,500,000 with states interest
rate of 6%. Payments are due monthly and are computed to be P16,650. The bank incurred
P40,000 of direct loan origination cost and P20,000 of indirect origination cost. In addition, the
bank charged the borrower a 4-point nonrefundable loan origination fee. What is the carrying
amount of the loan receivable to be reported initially by the bank?
a. 1,440,000
b. 1,480,000
c. 1,500,000
d. 1,520,000
19. On January 1, 2013, Paul Company contracted with the City of Manila to provide custom built
desks for the city schools. The contract made the entity the sole supplier and required the entity
ti supply no less than 4,000 desks and no more the 5,500 desks per year for two years. In turn,
the City of Manila agreed to pay a fixed price of P1,100 per desk. During 2013, the entity
produced 5,000 desks for the City of Manila. On December 31, 2013, 500 of these desks were
segregated from the regular inventory and were accepted and awaiting pickup by the City of
Manila. The City of Manila paid the entity P4,500,000 during 2013. What amount should be
recognized as contract revenue in 2013?
a. 4,500,000
b. 4,950,000
c. 5,500,000
d. 6,050,000

20. During December 2013, Connie Company shipped inventory on consignment to Ace Company
costing P1,800,000 and paid freight of P100,000. In the same month, the entity received
inventory on consignment from Bliss Company costing P1,200,000. Bliss Company paid freight of
P50,000 for the shipment. No sales of consigned goods were made in December 2013. What
amount should be included in inventory on December 31, 2013?
a. 1,800,000
b. 1,900,000
c. 1,250,000
d. 3,150,000

21. Alvin Company reported inventory on December 31, 2013 at P6,000,000 based on a physical
count at cost and before any necessary year-end adjustments relating to the following:
Included in the physical count were goods billed to a customer FOB shipping point on December
30, 2013. These goods had a cost of P125,000 and were picked up by the carrier on January 7,
2014.
Goods shipped FOB shipping point on December 28, 2013 from a vendor to Alvin were received
on January 4, 2013. The invoice cost was P300,000.
What amount should be reported as inventory on December 31, 2013?
a. 5,875,000
b. 6,000,000
c. 6,175,000
d. 6,300,000

22. Ann Company reported accounts payable on December 31, 2013 at P4,500,000 before any
necessary year-end adjustments relating to the following:
On December 27, 2013, the entity wrote and recorded checks to creditors totaling P2,000,000
causing an overdraf of P500,000 in the entitys bank account on December 31, 2013. The checks
were mailed on January 10, 2014.
On December 28, 2013, the entity purchased and received goods for P750,000, terms 2/10,
n/30. The entity recorded purchases and accounts payable at net amount. The invoice was
recorded and paid January 3, 2014.
Goods shipped FOB destination on December 20, 2013 from a vendor to the entity were
received January 2, 2014. The invoice cost was P325,000.
On December 31, 2013, what amount should be reported as accounts payable?
a. 7,575,000
b. 7,250,000
c. 7,235,000
d. 7,553,500

23. Arvin Company is engaged in raising dairy livestock.

Carrying amount of biological asset on January 1, 2013 5,000,000
Increase due to purchases 2,000,000
Gain from change in fair value less cost of disposal attributable
to price change 400,000
Gain from change in fair value less cost of disposal attributable
to physical change 600,000
 Decrease due to sales 850,000
Decrease due to harvest 200,000
What is the carrying amount of the biological asset on December 31, 2013?
a. 6,950,000
b. 6,000,000
c. 8,000,000
d. 7,150,000

24. Armando Company reported July purchases as follows:

July 5 10,000 units at P65 P650,000 July 12 15,000 units at P60 P900,000
9 12,000 units at P63 P756,000 25 14,000 units at P62 P868,000
On July 31, 15,000 units were on hand. The sales for July amounted to P6,000,000 or P60,000
units at P100 per unit. The entity used a periodic FIFO inventory costing system. Gross profit on
sales for July was P2,400,000. What is the cost of inventory on July 1?
a. 1,354,000
b. 2,400,000
c. 2,826,000
d. 426,000

25. On September 30, 2013, Michael Company reported that a fire caused a severe damage to the
entire inventory. The entity has a gross profit of 30% on cost. The data available for nine months
ended September 30, 2013 are inventory on January 1 of P1,000,000, net purchases of
P6,000,000 and net sales of P7,280,000. A physical inventory disclosed usable damaged goods
which can be sold for P100,000. What is the estimated cost of goods sold for the nine months
ended September 30, 2013?
a. 5,500,000
b. 4,970,000
c. 5,096,000
d. 5,600,000

26. Ric Company used the retail inventory method to estimate inventory. Data relating to the
inventory computation on December 31, 2013 are as follows:
Cost Retail
Inventor, January 1 700,000 1,000,000
Purchases 4,100,000 6,300,000
Net markups 700,000
Net markdowns 500,000
Sales 6,600,000
Estimated normal shoplifing losses 200,000
Under the conventional retail method, what is the estimated inventory on December 31, 2013?
a. 576,000
b. 540,000
c. 420,000
d. 448,000

27. Rodel Company received dividends from share investments during the year ended December 31,
2013 as follows:
A stock dividend of P40,000 shares from Pam Company on July 31, 2013 when the market
price of the share was P20. The entity owns less than 1% of Pams share capital.
A cash dividend of P900,000 from Lan Company in which the entity owns a 25% interest.
What amount of dividend revenue should be reported in the income statement?
a. 1,700,000
b. 900,000
c. 800,000
d. 0
28. George Company bought 20% of another entitys ordinary shares on January 1, 2013 for
P5,000,000. The carrying amount of the investees net assets at purchase date totals
P16,000,000. Fair value and carrying amount were the same for all items except for land and
inventory, for which fair value exceeds carrying amount by P3,000,000 ad P1,000,000
respectively. Only one-half of the inventory was sold during 2013. During 2013, the investee
reported net income of P4,000,000 and paid a P1,500,000 cash dividend. What os the carrying
amount of the investment in associate on December 31, 2013?
a. 5,400,000
b. 5,300,000
c. 5,600,000
d. 5,500,000

29. On July 1, 2013, Francisco Company purchased 30,000 shares of an investees 100,000
outstanding ordinary shares for P300 per share. On December 15, 2013, the investee paid
P2,000,000 in dividends to the ordinary shareholders. The net income of the investee for the
year ended December 31, 2013 was P6,000,000 earned evenly throughout the year. In the 2013
income statement, what amount of income from the investment should be reported?
a. 1,800,000
b. 900,000
c. 600,000
d. 0

30. On January 1, 2013, Ryan Company purchased as a long-term investment P5,000,000 face value
of 8% bonds for P4,562,000. The bonds were purchased to yield 10% interest. The bonds pay
interest annually on December 31. The entity used the interest method. What is the carrying
amount of the investment on December 31, 2014?
a. 4,680,020
b. 4,662,000
c. 4,618,200
d. 4,562,000

31. Ariel Company purchased a P1,000,000 life insurance policy on the president of which th entity is
the beneficiary. Information regarding the policy for 2013 is as follows:
Cash surrender value- January 1 90,000
Cash surrender value- December 31 115,000
Annual advance premium paid January 1 60,000
During 2013, dividend of P10,000 was applied to increase the cash surrender value of the policy.
What amount should be reported as life insurance expense for 2013?
a. 60,000
b. 45,000
c. 35,000
d. 25,000

32. On November 1, 2013, Angela Company sold some limited edition art prints to Noritake
Company 47,850,000 to be paid on January 1, 2014. The current exchange rate on November 1,
2013 was 110=$1, so the total payment at the current exchange rate would be equal to
$435,000. Angela Company entered into a forward contract with a large bank to guarantee the
number of dollars to be received. According to the terms of the contract, if 47,850,000 is worth
less than $435,000, the bank will pay Angela Company the difference in cash. Likewise, if
47,850,000 is worth more than the $435,000, Angela Company must pay the bank the
difference in cash. The exchange rate on December 31, 2013 is 120=$1. What amount in U.S.
dollars should be reported as derivative asset or liability on December 31, 2013?
a. 398,750 asset
b. 398,750 liability
c. 36,250 asset
d. 36,250 liability

33. On January 1, 2013, Julian Company borrowed P30,000,000 at 12% to finance partly the
construction of building and partly for general purposes. The loan shall be repaid commencing
 the month following completion of the building. Expenditures for the completed structure
totaled P25,000,000 during the year ended December 31, 2013. These expenditure were
incurred evenly throughout the year. The entity earned interest of P200,000 for the year on the
unexpended portion of the loan. What amount of interest is capitalized as cost of building on
December 31, 2013?
a. 3,000,000
b. 2,800,000
c. 1,500,000
d. 1,300,000

34. On December 31, 2013, Jenson Company purchased a machine in exchange for a noninterest-
bearing note requiring eight annual payments of P200,000. The first payment was made on
December 31, 2013. The prevailing interest rate for this note is 11%. Round off present value
factor to three decimals. What is the initial carrying amount of the machine?
a. 1,600,000
b. 1,029,200
c. 1,400,000
d. 1,142.400

35. At the beginning of the current year, Reve Company traded in an old machine having a carrying
amount of P3,500,000 and paid a cash difference of P1,200,000 for a new machine having a cash
price of P4,000,000. What amount of loss should be recognized in exchange?
a. 1,700,000
b. 1,200,000
c. 700,000
d. 0

36. On December 31, 2013, Franz Company reported property, plant and equipment of P9,000,000
which included the following:
Plant assets required from Aira Company 7,500,000
Repairs made on building prior to occupancy 200,000
Special tax assessment 30,000
Construction of platform for machinery 70,000
Remodeling of office space in building including new partitions and walls 400,000
Purchase of new machinery 800,000
In exchange for the plant assets of Aira Company, Franz Company issued 50,000 shares with
P100 par value. On the date of purchase, the share had a quoted price of P150 and the fair
values of the plant assets are land P500,000, building P4,000,000 and machinery P1,500,000.
What is the cost of building?
a. 4,400,000
b. 4,600,000
c. 5,600,000
d. 5,400,000

37. Karlo Company is installing a new equipment at its production facility and incurred the following
costs:
Cost of equipment per suppliers invoice 2,500,000
Initial delivery and handling cost 200,000
Cost of site preparation 600,000
Consultants used for advice on the acquisition of equipment 700,000
Interest charges paid to supplier for deferred credit 200,000
Estimated dismantling cost to be incurred as required by contract 300,000
Operating losses before commercial production 400,000
What total amount should be capitalized as cost of the equipment/
a. 4,300,000
b. 4,000,000
c. 4,200,000
d. 4,500,000
38. Jamaica Company incurred the following costs in relation to its printing press:
Purchase of collating and stapling attachment 850,000
Installation of attachment 400,000
Replacement parts for overhaul of press 250,000
Labor and overhead in connection with overhaul 150,000
The overhaul resulted in a significant increase in production. Neither the attachment nor the
overhaul increased the estimated useful life of the press. What total amount of the costs should
be capitalized?
a. 1,650,000
b. 1,250,000
c. 1,350,000
d. 0

39. On April 1 2013, Zyrine Company purchased new machinery fo P3,300,000. The machinery has
an estimated useful life of five years with residual value P300,000. Depreciation os computed by
the sum of the years digits method. What is the accumulated depreciation on December 31,
2014?
a. 1,600,000
b. 1,800,000
c. 1,200,000
d. 1,000,000

40. Ernesto Company purchased factory equipment which was installed and put into service on July
1, 2013 at a total cost of P6,400,000. Residual value was estimated at P400,000. The equipment
is being depreciated over eight years by the double declining balance method. What is the
depreciation of the equipment for 2014?
a. 1,125,000
b. 1,200,000
c. 1,400,000
d. 1,600,000

41. On January 2013, Gelianne Company purchased a mineral mine for P36,000,000 with removable
ore estimated be geological survey at 4,000,000 tons. The property has an estimated value of
P3,600,000 afer the ore has been extracted. The entity incurred P10,800,000 of development
cost preparing the property of the extraction of ore. The entity is required to restore the
property to the original condition at an estimated cost of P2,500,000. The present value of the
estimated restoration cost is P1,800,000. During 2013, 400,000 tons were removed and 300,000
tons were sold. For the year ended December 31, 2013, what amount of depletion should be
included in cost of goods sold?
a. 4,500,000
b. 3,375,000
c. 4,570,000
d. 3,427,500

42. On June 30, 2013, Galileo Company reported the following information:
Equipment at cost 7,500,000
Accumulated depreciation 2,250,000
The equipment was measured using the cost model and depreciated on a straight line basis over
10-year period. On December 31. 2013, the management decided to change the basis of
measuring the equipment from the cost model to the revaluation model. The equipment was
revalued to its fair value of P6,825,000 with remaining useful life of 5 years. Ignoring income tax,
what amount should be reported as revaluation surplus on December 31, 2013?
a. 1,575,000
b. 1,950,000
c. 2,250,000
d. 3,000,000

43. On January 1, 2013, Lilian Company reported patent cost of P1,920,000 and related accumulated
amortization of P240,000. The patent was purchased on January 1, 2011 at which date the
 remaining legal life was 16 years. On January 1, 2013, the useful life of the patent was
determined to be only 8 years from the date of acquisition. On January 1, 2013, the entity paid
P800,000, of which three-fourths was for a trademark and one-fourth was for the other entitys
agreement not to compete for a 5-year period in the line of business covered by the trademark.
The entity considered the life of the trademark indefinite. Moreover, the entity agreed to pay
P50,000 to the other entity as consulting fee each year for 5 years payable every January 1. What
is the amortization of intangible assets for 2013?
a. 320,000
b. 280,000
c. 250,000
d. 370,000

44. Mitchell Company was granted a patent on January 1, 2010 and appropriately capitalized
P4,500,000 of related costs. The entity was amortizing the patent over the estimated useful life
of 15 years. During 2013, the entity paid P1,500,000 in legal costs in successfully defending an
attempted infringement of the patent. Afer the legal action was completed, the entity sold the
patent to the plaintiff for P7,500,000. The policy is to take no amortization in the year of
disposal. What amount should be reported as gain from sale of patent?
a. 1,500,000
b. 2,400,000
c. 2,700,000
d. 3,900,000

45. Jivelle Company had purchased an equipment for P5,600,000 on January 1, 2010. The
equipment had an eight-year life and a residual value of P800,000. The entity depreciated the
equipment using straight line. On August 31, 2013, the discounted net future cash inflows of the
equipment amount to P3,500,000. The equipments fair value on August 31, 2013 is P3,000,000.
What is the carrying amount of the equipment on August 31, 2013?
a. 3,500,000
b. 3,400,000
c. 3,000,000
d. 3,900,000

46. On December 31, 2013, Miguel Company purchased for P40,000,000 cash all of the outstanding
ordinary shares of Mercury Company when the subsidiarys statement of financial position
showed net assets of P32,000,000. The subsidiarys assets and liabilities had fair value different
from the carrying amount as follows:
Carrying Amount Fair value
Property, plant and equipment, net 50,000,000 57,500,000
Other assets 5,000,000 0
Long-term debt 30,000,000 28,000,000
What amount should be reported as goodwill in the December 31, 2013 consolidated statement
of financial position of Miguel Company and its wholly-owned subsidiary?
a. 3,500,000
b. 2,500,000
c. 7,500,000
d. 8,000,000

47. Julie Company incurred the following costs in the current year:
R and D equipment with a useful life of four years in various R and D projects 1,800,000
Start-up costs incurred when opening a new plant 4,200,000
Advertising expense to introduce a new plant 2,100,000
Engineering costs incurred to advance a product to full production stage but
Economic viability is not yet achieved 1,200,000

What amount should be recorded as research and development expense?

a. 1,650,000
b. 2,220,000
c. 3,000,000
 d. 3,420,000

48. On January 1, 2013, Enrico Company signed an agreement to operate as a franchise of another
entity for an initial franchise fee of P12,000,000. The same date, the entity paid P4,000,000 and
agreed to pay the balance in four equal annual payments of P2,000,000 beginning January 1,
2014. The down payment is not refundable and no future services are required of the franchisor.
The entity can borrow at 14% for a loan of this type. Present and future value factors are as
follows:
Present value of 1 at 14% for 4 periods 0.59
Future amount of 1 at 14% for 4 periods 1.69
Present value of an ordinary annuity of 1 at 14% for 4 periods 2.91
What is the acquisition cost of the franchise?
a. 13,520,000
b. 12,000,000
c. 9,820,000
d. 8,720,000

49. On January 1, 2011, Alexis Company signed an eight-year lease for office space. The entity has
the option to renew the lease for an additional six-year period on or before January 1, 2017.
During January 2013, two years afer occupying the leased premises, the entity made general
improvements to the premises costing P3,600,000 with an estimated useful life of ten years. On
December 31, 2013 the entitys intentions as to exercise of the renewal option are uncertain.
What is the depreciation of leasehold improvements for 2013?
a. 300,000
b. 360,000
c. 450,000
d. 600,000

50. Arjay Company was organized in late 2012 and began operations on January 1, 2013. The entity
is engaged in conducting market research studies on behalf of manufacturers. Prior to the start
of operations, the following costs were incurred:
Legal fees in connection with organization on entity 900,000
Improvements to leased offices prior to occupancy 600,000
Meeting of incorporators, state filing fees and other organization costs 500,000
What amount of organization costs should be expensed for 2013?
a. 1,400,000
b. 2,000,000
c. 280,000
d. 0