CPA Review School of the Philippines Practical Accounting 1

1. On December 31, 2014, the Board of Directors of Max Company committed to a plan to
discontinue the operations of its Underwear Division. The entity estimated that Underwear’s 5. During the current year, Bred Company exchanged inventory with Oreo Company. The
2015 operating loss would be P500,000 and that the fair value of its facilities was P300,000 configuration of cash flows before and after the exchange does not significantly differ. Bred’s
less than carrying amount. Underwear’s 2014 operating loss was P1,400,000, and the division inventory had a fair value of P2,800,000 and Bred appropriately recorded the inventory
was actually sold for P400,000 less than carrying amount in 2015. The effective tax rate is received in exchange at P2,600,000. Oreo’s inventory had a fair value of P2,500,000 and
30%. What amount should be reported as loss from discontinued operations in 2014? Oreo appropriately recorded the inventory received in exchange at P2,300,000. Oreo paid
A. 0 C. 1,190,000 P300,000 to Bred to make up for the difference in fair value. What was the carrying amount of
B. 980,000 D. 1,400,000 AICPA 0593 Bred’s old inventory?
A. 2,000,000 C. 2,600,000
2. Wong Company prepared an income statement for the current year which included legal and B. 2,300,000 D. 2,900,000
audit fees of P1,700,000, rent for office space P2,400,000, interest on inventory loan
P2,100,000, and loss on abandoned data processing equipment P350,000. The office space 6. Omar Company presented the following information on December 31, 2014:
is used equally by sales department and accounting department. What total amount should be Cash 1,320,000
included in general and administrative expenses? Investment securities held for trading,
A. 2,900,000 C. 4,100,000 including long-term investment of P550,000 in ordinary shares 2,200,000
B. 3,250,000 D. 5,000,000 Inventories, including goods received on consignment of P220,000 880,000
Prepaid expenses, including a deposit of P55,000 made on
3. During the current year, Steel Company retired bonds payable five years before their inventories to be delivered in 15 months 165,000
scheduled maturity resulting in a P260,000 gain. A steel forming segment suffered P55,000 in Property, plant & equipment 11,000,000
loss due to storm surge damage during the year. Moreover, a component of Steel’s Goodwill, solely based on skill of employees estimated by the president 1,100,000
operations was sold at a loss of P350,000. What amount of pretax gain or loss should be Total assets 16,665,000
reported separately as a component of income from continuing operations?
A. 350,000 loss C. 205,000 gain Cash in general checking account 660,000
B. 255,000 loss D. 260,000 gain Sinking fund to retire bonds payable in 2016 550,000
Cash held to pay value added taxes 110,000
4. Flip Company incurred the following computer software costs for the development and sale of Total cash 1,320,000
software programs during the current year: What total amount of current assets should be reported on December 31, 2014?
Planning costs 500,000 A. 3,190,000 C. 3,740,000
Design of the software 1,500,000 B. 3,245,000 D. 3,795,000
Substantial testing of the project’s initial stages 750,000
Production and packaging costs for the first month’s sales 5,000,000 7. On January 1, 2014, Gamma Company changed the inventory method from weighted-average
Costs of producing product masters and technology feasibility to FIFO for both financial and income tax reporting. The change resulted in a P600,000
was established 2,000,000 increase in the January 1, 2014 inventory balance. The income tax rate is 30%. What is
The project was not under any contractual arrangement when these expenditures were included in the journal entry to effect the accounting change?
incurred. What amount should be reported as research and development expense for the A. Debit income tax payable P180,000 C. Credit income tax payable P180,000
current year? B. Debit inventory P420,000 D. Credit retained earnings P600,000
A. 2,000,000 C. 5,000,000
B. 2,750,000 D. 9,750,000 AICPAR03

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8. Terra Company used the imprest system in accounting for petty cash fund. The fund had an sales. An analysis of the collectability of accounts receivable on December 31, 2014 revealed
imprest balance of P20,000 at year-end which consisted of currency and coins P1,000, the following k
employees’ advances P3,000, currency in envelope marked “collections for Christmas Party” 0 – 15 days 5,000,000 100%
P2,000, check drawn by Terra Company payable to petty cashier representing salary P14,000. 16 – 30 days 2,000,000 90%
What is included in the entry to adjust the petty cash fund at year-end? Over 30 days 1,000,000 700,000
A. Debit cash short/over P2,000 C. Credit cash short/over P2,000 What amount should be reported as net realizable value of accounts receivable?
B. Debit petty cash fund P15,000 D. Credit advances to employees P3,000 A. 6,975,000 C. 7,500,000
B. 7,375,000 D. 7,875,000
9. Karen Company provided the following information on December 31, 2014:
Cash on hand 500,000 12. On December 31, 2014, Macho Bank has a 5-year loan receivable with a face value of
Petty cash fund 20,000 P6,000,000 dated January 1, 2012 due on December 31, 2017. Interest is payable annually
Security Bank current account 3,000,000 every December 31 at 9%. The borrower made the required interest payment on December
BDO Current account No. 1 400,000 31, 2013 but informed the bank that interest accrued for 2014 will be paid together with the
BDO Current account No. 2 (50,000) principal at maturity. There is a high probability that remaining interest payments will not be
BSP treasury bill – 60 days 4,000,000 paid. The prevailing market interest rate is 10%. What is the loan impairment loss for 2014?
BPI time deposit – 30 days 1,000,000 (Round PV factors to 2 decimals)
The cash on hand included a customer postdated check of P100,000 and postal money order A. 1,046,400 C. 1,504,200
of P40,000. A check for P300,000 was drawn against Security Bank account, dated January B. 1,111,800 D. 1,635,000
15, 2015, delivered to the payee and recorded December 31, 2014. The BPI time deposit is
set aside for acquisition of equipment. What total amount of cash & cash equivalents should 13. Mars Company is engaged in dairy livestock and provided the following for current year:
be reported on December 31, 2014? Carrying amount of biological assets on January 1 5,000,000
A. 7,470,000 C. 8,070,000 Increase due to purchase 2,000,000
B. 7,770,000 D. 9,070,000 Gain attributable to price change of biological asset 1,000,000
Gain attributable to physical change of biological asset 600,000
10. Brat Company adopted the aging method of estimating doubtful accounts on December 31, Milk produced during the year but unsold at year-end 100,000
2014. The following data are available for the current year: k What is the carrying amount of biological asset at year-end?
Allowance for doubtful accounts, January 1 2,500,000 A. 8,000,000 C. 8,600,000
Provision for doubtful accounts recorded during the year based on credit sales 2,000,000 B. 8,100,000 D. 8,700,000
Recoveries of accounts written off 500,000
Accounts written off 2,050,000 14. A physical count on December 31, 2014 revealed that Tones Company had inventory with a
Estimated uncollectible accounts per aging on December 31 2,200,000 cost of P4,400,000. The following items were excluded from this amount:
Estimated future sales return 1,500,000  Merchandise of P600,000 is held on consignment by Tones.
What is the year-end adjustment to the allowance for doubtful accounts?  Goods costing P400,000 was shipped by Tones “Ex-ship” to a customer on December 31,
A. 250,000 debit C. 750,000 debit 2014. The customer received the goods on January 3, 2015.
B. 250,000 credit D. 750,000 credit  Merchandise costing P500,000 was shipped by Tones “Free alongside” to a customer on
December 29, 2014. The customer received the goods on January 6, 2015.
11. Bum Company had no cash sales but 50% of customers take advantage of the discount based  Goods costing P800,000 shipped by a vendor FOB destination on December 31, 2014
on past experience. The terms were 5/15, n/30. The entity used the gross method of recoding was received by Tones on January 7, 2015.
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CPA Review School of the Philippines Practical Accounting 1

 Goods costing P700,000 was shipped by a supplier “CIF” on December 30, 2014 and Markdown 500,000
received by Tones on January 10, 2015. Markdown cancellation 100,000
What is the correct amount of inventory on December 31, 2014? The estimated normal shrinkage is 5% of sales. What is the estimated cost of inventory at
A. 4,900,000 C. 5,500,000 year-end?
B. 5,400,000 D. 6,000,000 A. 765,000 C. 990,000
B. 945,000 D. 1,170,000
15. Danika Company provided the following information for the current year:
Inventory, January 1 1,300,000 18. On January 1, 2014, Remy Company acquired 200,000 ordinary shares of Global Company
Purchases 4,600,000 for P9,000,000. At the time of purchase, Global Company had outstanding 800,000 shares
Purchase returns 100,000 with a carrying amount of P36,000,000. Global Company reported net income of P1,800,000
Freight-in 200,000 for 2014. Remy Company received from Global Company a dividend of P150,000 during the
Sales 6,800,000 year. The market value of Global Company share had temporarily declined to P40. Remy
Sales discounts 100,000 Company elected to measure the investment at fair value through other comprehensive
Sales returns 300,000 income. What is the carrying amount of the investment on December 31, 2014?
At year-end, a physical inventory revealed that the ending inventory was only P850,000. The A. 8,000,000 C. 9,300,000
gross profit on sales was 30%. The entity suspected that some inventory may have been B. 9,000,000 D. 9,450,000
pilfered. What is the estimated cost of missing inventory at year-end?
A. 600,000 C. 1,450,000 19. On January 1, 2014, Buff Company purchased 25,000 shares or 10% interest of Clean
B. 670,000 D. 1,520,000 Company for P2,000,000. Buff used the cost method to account for this investment. Clean
reported net income of P4,000,000 and paid no dividends in 2014. On January 1, 2015, Buff
16. On September 1, Star Company received P500,000 cash dividend from Sun Company in paid P5,000,000 for 50,000 additional shares of Clean Company. The fair value of the existing
which Star Company owned a 30% interest. On October 1, Star Company received P100,000 10% interest was P1,700,000 on January 1, 2015. The fair values of the identifiable ne t
liquidating dividend from Moon Company. Star Company owned a 5% interest in Moon assets of Clean Company equal the carrying amount of P20,000,000 on such date except for
Company. Star Company owned a 10% interest in Sky Company which declared a land whose fair value is greater than carrying amount by P4,000,000. The investee reported
P2,000,000 cash dividend on December 31. What amount of dividend revenue should be net income of P6,000,000 for 2015 and paid dividends of P10 per share. What is the carrying
reported for the current year? amount of the investment in associate on December 31, 2015?
A. 200,000 C. 700,000 A. 6,700,000 C. 8,250,000
B. 600,000 D. 800,000 B. 7,750,000 D. 8,550,000

17. Divine Company used the conservative retail method and showed the following information at 20. Rock Company purchased 30% of Dale Company’s ordinary shares on January 1, 2014. The
year-end: purchase resulted in no goodwill or excess fair value
Cost Retail  Dale sold goods costing P500,000 for P750,000 to Rock in 2014. On December 31, 2014,
Inventory, January 1 560,000 1,400,000 the goods remained unsold by Rock. In 2015, Rock sold such goods to the regular
Sales 10,000,000 customers.
Purchases 4,960,000 10,320,000  On January 1, 2014, Dale also sold machinery with carrying amount of P3,000,000 to
Freight-in 150,000 Rock for P4,200,000. The machinery’s remaining life was 6 years.
Markup 1,000,000  Dale reported net income of P3,500,000 and P2,500,000 in 2014 and 2015, respectively.
Markup cancellation 120,000 What amount of equity in earnings of Dale should Rock report for 2015?
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CPA Review School of the Philippines Practical Accounting 1

A. 675,000 C. 825,000 line of business with a fair value of P2,200,000. What amount should be recorded as cost of
B. 750,000 D. 885,000 the inventory received in exchange?
A. 2,000,000 C. 2,200,000
21. On January 1, 2014, Westfield Company purchased building to be leased out under an B. 2,100,000 D. 2,300,000
operating lease. The total payment for the purchase is P9,900,000 which included a 10% non- 25. On January 1, 2014, Jessica Company received a consolidated grant of P12,000,000. Three
recoverable purchase tax. The entity used the cost model for the investment property. The fourths of the grant will be utilized to purchase a college building for students from
building has a useful life of 20 years. On December 31, 2015, impairment indicators are underdeveloped countries. The balance of the grant is for subsidizing the tuition costs of those
present. On such date, it was determined that the fair value less cost of disposal of the students for four years from date of grant. The building was purchased in January 2014 and is
building was P7,000,000. What amount of impairment loss should be recognized for 2015? to be depreciated using the straight-line method over 10 years. The tuition costs paid in 2014
A. 0 C. 2,405,000 amounted to P600,000. What amount of grant income should be recognized for 2014?
B. 1,910,000 D. 2,900,000 A. 1,050,000 C. 1,650,000
B. 1,200,000 D. 3,000,000
22. Castlehill Company regularly hedges its purchase requirements and the sale of its finished
products in the futures market. On November 1, 2014, the entity entered into the following 26. During 2014, Leah Company constructed asset costing P5,000,000. The weighted average
three contracts designated as cash flow hedge: k expenditures totaled P3,000,000. To help for construction, an amount of P2,200,000 was
Type of contract Quantity Futures strike price Market price 12/31/14 borrowed at 10% on January 1, 2014, and funds not needed for construction were temporarily
Purchase cotton 100,000 85 75 invested in short-term securities yielding P50,000 in interest revenue. Other than the
Purchase wool 150,000 90 110 construction funds borrowed, the only other debt outstanding during the year was a
Sell shirts 90,000 350 400 P2,500,000 10-year, 12% note payable dated January 1, 2011. What amount of interest
All three contracts are to be settled on January 1, 2015. What is the derivative asset or liability should be capitalized during 2014?
on December 31, 2014? A. 266,000 C. 470,000
A. 2,500,000 asset C. 6,500,000 asset B. 300,000 D. 500,000
B. 2,500,000 liability D. 6,500,000 liability
27. Punk Company acquired land and an existing building in exchange for 60,000 ordinary shares.
23. On January 1, 2014, Tara Company received a 5-year variable interest rate loan of The real property tax billed showed an assessed value of P3,000,000 for the land and
P10,000,000 with interest payment at the end of each year and the principal to be paid on P2,000,000 for the building. The shares have a par value of P100 and a fair value of P150 per
December 31, 2018. The interest rate for 2014 is 8% and the rate in each succeeding year is share. Punk also incurred the following costs:
equal to market interest rate on January 1 of each year. Tara Company entered into a Payment to tenants to vacate the building 100,000
“receive variable, pay fixed” interest rate swap agreement. The swap payments are made at Unpaid property taxes on land and building assumed by Punk 375,000
the end of the year. This interest rate swap agreement is designated as a cash flow hedge. Assessment by city for sewerage project 10,000
On January 1, 2015, the market rate of interest is 6%. On December 31, 2014, what amount Driveways and parking bays 550,000
should be reported as derivative asset or liability? Cost of grading and leveling 50,000
A. 694,000 asset C. 800,000 asset Cost of new wing attached to the building 750,000
B. 694,000 liability D. 800,000 liability Cost of new split type air-conditioning units 300,000
Remodeling cost prior to occupancy 200,000
24. During the current year, Isabel Company paid P100,000 cash and traded inventory which had What is the total cost of the building?
a carrying amount of P2,000,000 and a fair value of P2,100,000 for other inventory in the sale A. 4,650,000 C. 5,025,000
B. 4,800,000 D. 5,100,000

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with a useful life of 12 years. On December 31, 2015, the entity’s intentions to renew the lease
28. Rouse Company installed a production assembly line to manufacture tennis balls. In the contract are certain. What is the depreciation of the lease improvements in 2015?
current year, the entity acquired a machine and rearranged the assembly line to install the A. 87,500 C. 125,000
machine. The rearrangement resulted in efficiency in production. The following expenditures B. 100,000 D. 140,000
were incurred:
Purchase price of the machine (VAT inclusive, 12%) 1,008,000 32. On January 1, 2014, Harbor Company purchased land and building at a single cost of
Labor cost to install machine 250,000 P20,000,000. On this date, it was determined that the land and building had a fair value of
Parts added in rearranging the assembly line 400,000 P18,000,000 and P7,000,000 respectively. The entity also incurred legal fees for purchase
Cost of testing the machine 150,000 contract and recording ownership P200,000, and title guarantee insurance P100,000. The
Proceeds from sale of samples produced from testing 50,000 entity immediately demolished the building to make way for construction of a new building to
Cost of training worker who will operate the machine 100,000 be used as owner-occupied. The total contract price and other directly attributable cost to the
What is the initial cost of the machine? building amounted to P15,000,000. The entity incurred demolition cost of P350,000. Under
A. 1,250,000 C. 1,358,000 the PIC Interpretation, what is the initial cost of the land?
B. 1,300,000 D. 1,650,000 A. 14,700,000 B. 15,350,000
B. 15,050,000 D. 20,300,000
29. On January 1, 2014, Parram Company purchased equipment at a total cost of P6,000,000 with
a 10-year useful life and no residual value. On January 1, 2016, the entity revalued the 33. Ace Company is involved in litigation regarding a faulty product sold in a prior year. The entity
equipment and it was determined that the sound value on such date is P8,000,000. On has consulted with an attorney and determined that there is a 50% chance of losing. The
January 1, 2019, the entity decided to test the asset for impairment. It was determined that the attorney estimated that the amount of any payment would be between P500,000 and P800,00
fair value of the equipment on such date was P2,600,000. What amount of impairment loss with P500,000 as the best estimate. What is the required journal entry as a result of this
should be recognized in 2019? litigation?
A. 0 C. 2,000,000 A. No journal entry is required.
B. 400,000 D. 2,400,000 B. Debit Litigation Expense and credit Litigation Liability P250,000
C. Debit Litigation Expense and credit Litigation Liability P500,000
30. Windsor Company developed a trademark and incurred the following expenditures: D. Debit Litigation Expense and credit Litigation Liability P660,000 KW&W 1e
Marketing research 600,000
Design cost of trademark 1,700,000 34. On January 1, 2014, Rainier Company purchased 12% bonds with face value of P5,000,000
Legal registration fee 200,000 for P5,380,000. The bonds provide an effective yield of 10%. The bonds are dated January 1,
Advertising cost 350,000 2014, mature on January 1, 2019 and pay interest annually on December 31 of each year.
Registration with Intellectual Property Office 100,000 The bonds are quoted at 120 on December 31, 2014. The entity elected the fair value option
What amount should be capitalized as cost of the trademark? for the bond investment. What total income should be reported for 2014?
A. 1,900,000 C. 2,450,000 A. 600,000 C. 1,138,000
B. 2,000,000 D. 2,600,000 B. 1,120,000 D. 1,220,000

31. Bauk Company signed a 10-year lease for office space on January 1, 2014. The entity has the 35. Darlene Company owned a machine that was bought on January 1, 2011 for P5,000,000. The
option to renew the contract for an additional five years on or before January 1, 2024. During machine was estimated to have a useful life of five years and a residual value of P200,000.
January 2015, the entity incurred P1,400,000 for general improvements on the space. The The entity used the sum of years’ digits method of depreciation. On January 1, 2014, the
improvements have a useful life of 16 years. Also the entity acquired furniture for P300,000

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entity determined that the total useful life of the machine should have been four years and the A. 600,000 C. 646,200
residual value is P400,000. What amount should be recorded as depreciation for 2014? B. 644,355 D. 720,000
A. 460,000 C. 580,000
B. 480,000 D. 760,000 40. On January 1, 2014, Feather Company issued P8,000,000 10% bonds at 105 which are due
36. In January 2014, Troy Company purchased a mineral mine for P36,000,000 with removable on December 31, 2018. Each 1,000 bond was issued with 20 non-detachable share warrants,
ore estimated by geological survey at 2,160,000 tons. The property has an estimated value of each of which entitled the bondholder to purchase one share of Feather for P45 with a par
P3,600,000 after the ore has been extracted. The entity incurred P10,800,000 of development value of P20 per share. On January 1, 2014, the market value of each warrant is P4 while the
cost preparing the property for the extraction of ore. During the current year, 270,000 tons bond ex-warrant was selling at 95. What is the equity component from the issuance of bonds
were removed and 240,000 tons were sold. What amount of depletion should be included in with share warrants?
cost of goods sold for 2014? A. 0 C. 640,000
A. 3,600,000 C. 4,800,000 B. 400,000 D. 800,000
B. 4,050,000 D. 5,400,000
41. On October 1, 2014, Nova Company leased office space at a monthly rental of P350,000 for
37. Mark Company acquired equipment on January 1, 2013 for P5,000,000. The equipment has a ten years expiring on September 30,2024. Payment is made at the start of every month. As
10-year useful life and no residual value. On December 31, 2014, the following information an inducement to enter into the lease, the lessor permitted the lessee to occupy the premises
was obtained: rent-free from October 1, 2014 to December 31, 2014. On December 31, 2015, what amount
Expected value of undiscounted cash flows 3,600,000 should be recognized as accrued rent payable?
Fair value estimated with in-use premise 3,700,000 A. 0 C. 1,023,750
Fair value estimated with in-exchange premise 3,500,000 B. 918,750 D. 4,095,000
What amount should be recognized as impairment loss for 2014?
A. 0 C. 400,000 42. Mane Company lease equipment with a ten-year useful life, from Joy Company on January 1,
B. 300,000 D. 500,000 2014 for an eight-year period expiring December 31, 2022. Equal annual payments under the
lease are P800,000 and are due on January 1 of each year. The first payment was made on
38. City Company included one coupon in each package sold. A towel is offered as a premium to January 1, 2014. The rate of interest contemplated by Mane and Joy is 8%. The cash selling
customers who send in 10 coupons price of the equipment is P4,965,000 and the cost of the equipment on Joy’s accounting
2014 2015 records was P4,200,000. The lease provide for a bargain purchase option on the part of the
Packages sold 500,000 800,000 lessee upon the lease expiration. What total amount of expense should Mane recognize for
Number of towels acquired at P40 per towel 30,000 45,000 the year ended December 31, 2014?
Number of towels distributed as premium 20,000 50,000 A. 496,500 C. 893,700
Number of towels to be distributed as premium next period 5,000 10,000 B. 829,700 D. 953,825
What amount should be reported as premium expense in 2015?
A. 1,800,000 C. 2,200,000 43. On January 1, 2014, Yole Company signed a 10-year non-cancelable lease agreement to
B. 2,000,000 D. 2,400,000 lease an equipment to Warehouse Company. The agreement required equal rental payments
at the each of each year beginning December 31, 2014. The fair value of the building on
39. On January 1, 2014, Hubert Company sold 12% bonds with a face value of P6,000,000. The January 1, 2014 is P6,000,000 and the carrying amount is P5,000,000. The equipment has an
bonds mature in five years and interest is paid semi-annually on June 30 and December 31. estimated economic life of 10 years with no residual value. At the termination of the lease, the
The bonds were sold for P6,462,000 to yield 10%. The entity used the effective interest title to the building will be transferred to the lessee. The lessee’s incremental borrowing rate is
method of amortization. What is the interest expense for 2014? 11%. The lessor determined the annual rental to insure a 10% rate of return which is known to

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the lessee. What total amount of income should the lessor recognize in 2014 if the transaction 47. On January 1, 2014, before adoption of PAS 19R, Church Company had a projected benefit
is treated as sales type? obligation of P4,350,000 and pension plan assets with a fair value of P2,650,000. The entity
A. 1,000,000 C. 1,600,000 had unrecognized past service cost of P450,000 and an unrecognized actuarial gain of
B. 1,500,000 D. 1,660,000 P150,000. The entity decided to adopt PAS 19R on January 1, 2014. What is included in the
journal entry to effect the initial adoption on January 1, 2014 of PAS 19R?
44. On January 1, 2014, Halt Company sold a computer system to Finance Company for A. No entry is necessary
P5,000,000 and immediately leased the computer system back. The computer was carried on B. Debit expense P300,000
Halt’s books at a value of P4,400,000. The term of the non-cancelable lease is 10 years and C. Debit retained earnings P300,000
title will transfer to the lessee at the end of the lease term. The lease agreement required D. Debit prepaid/accrued benefit cost P450,000
equal rental payments of P830,000 at the end of each year. The implicit rate is 10%. The
computer has a fair value of P5,000,000 on January 1, 2014, and an estimated economic life 48. Hoax Company reported the following data on January 1, 2014 based on PAS 19R:
of 12 years. Halt Company paid executor costs of P100,000 for the year. What is the deferred Projected benefit obligation 10,000,000
gain on December 31, 2014? Fair value of plan asses 9,000,000
A. 440,000 C. 550,000 During the current year, the actuary determined the current service cost at P2,000,000 and
B. 540,000 D. 600,000 interest cost at P1,000,000. The interest income on plan assets was P900,000 while actual
return on plan assets was P600,000. There was a decrease in the projected benefit obligation
45. Tabloid Company negotiated with a major creditor to restructure a maturing debt on December due to changes in actuarial assumptions of P200,000. The average remaining service period
31, 2014. The creditor was owed a principal of P10,000,000 and interest of P1,200,000 but of the employees is 10 years. What is the defined benefit cost for the current year?
agreed to accept equipment with fair value of P8,000,000 and note receivable from Tabloid A. 2,000,000 C. 2,200,000
Company’s customer with a face value of P2,000,000. The equipment had a carrying amount B. 2,100,000 D. 2,500,000
of P5,000,000. What amount should be recognized as gain from extinguishment of debt on
December 31, 2014? 49. Mine Company declared and distributed a 15% share dividend with fair value of P5,000,000
A. 0 C. 2,000,000 and par value of P4,000,000 and a 30% share dividend with a fair value of P10,000,000 and
B. 1,200,000 D. 4,200,000 par value of P7,000,000. What amount should be recognized as share premium from share
dividend?
46. Boom Company reported current tax expense of P5,000,000 for 2015. The changes in assets A. 0 C. 3,000,000
and liabilities are as follows: B. 1,000,000 D. 4,000,000
December 31, 2015 December 31, 2014
Deferred tax asset 1,000,000 800,000 50. Andrew Company issued 200,000 shares of P5 par value at P10 per share. On January 1,
Deferred tax liability 450,000 600,000 2014, the retained earnings amounted to P3,000,000. In March 2014, the entity reacquired
Income tax payable 500,000 200,000 50,000 treasury shares at P20 per share. In June 2014, the entity sold 10,000 of these shares
The deferred tax liability was caused by accelerated depreciation and the deferred tax asset is to corporate officers for P25 per share. The entity used the cost method to record treasury
for rentals received in advance. What amount of total tax expense should be recognized in shares. Net income for the year ended December 31, 2014 was P4,000,000 and the entity
2015? paid cash dividends of P1,000,000 on December 31, 2014, what amount should be reported
A. 4,650,000 C. 5,350,000 as unappropriated retained earnings?
B. 4,950,000 D. 5,650,000 A. 5,000,000 C. 5,800,000
B. 5,200,000 D. 6,000,000

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Solutions: BDO current account #2 (50,000)

BSP Treasury bill 4,000,000
1. Answer is (C). (1,400,000 + 300,000) x 70% = 1,190,000 Cash and cash equivalent 8,070,000

2. Answer is (A). 1,700,000 + (2,400,000 x ½) = 2,900,000 10. Answer is (C).

Allowance for doubtful accounts 750,000
3. Answer is (C). 260,000 – 55,000 = 205,000 gain Doubtful accounts expense 750,000

4. Answer is (B). 500,000 + 1,500,000 + 750,000 = 2,750,000 11. Answer is (B).

Gross 8,000,000
5. Answer is (D). Less: Allowance for sales discount (5,000,000 x 50% x 5%) (125,000)
Bred Oreo Allowance for doubtful accounts (200,000 + 300,000) (500,000)
Inventory – new 2,600,000 2,300,000 Net realizable value 7,375,000
Cash 300,000 300,000
Inventory – old 2,900,000 2,000,000 12. Answer is (C).
Carrying amount (6,000,000 + 540,000) 6,540,000
6. Answer is (A). Present value (6,540,000 x 0.77) (5,035,800)
Cash (1,320,000 – 550,000) 770,000 Impairment loss 1,504,200
Trading (2,200,000 – 550,000) 1,650,000
Inventories (880,000 – 220,000) 660,000 13. Answer is (C). 5,000,000 + 2,000,000 + 1,000,000 + 600,000 = 8,600,000
Prepaid expenses (165,000 – 55,000) 110,000
Total current assets 3,190,000 14. Answer is (C). 4,400,000 + 400,000 + 700,000 = 5,500,000

7. Answer is (C). 15. Answer is (A).

Inventory 600,000 Goods available for sale 6,000,000
Retained earnings 420,000 Cost of sales (6,500,000 x 70%) (4,550,000)
Income tax payable (600,000 x 30%) 180,000 Estimated inventory 1,450,000
Physical count (850,000)
8. Answer is (A). Loss 600,000
Advances to employees 3,000
Cash short/over 2,000 16. Answer is (A). 2,000,000 x 10% = 200,000
Petty cash fund 5,000
17. Answer is (A).
9. Answer is (C). Goods available for sale (including net markup) 12,600,000
Cash on hand (500,000 – 100,000) 400,000 Net markdown (400,000)
Petty cash fund 20,000 Sales (10,000,000)
Security Ban current account (3,000,000 + 300,000) 3,300,000 Normal shrinkage (10,000,000 x 5%) (500,000)
BDO current account #1 400,000 Inventory at retail 1,700,000

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Cost ratio x 45% Income from grant 2 (3,000,000 / 4) 750,000

Inventory at cost 765,000 Total income 1,650,000

18. Answer is (A). 40 x 200,000 = 8,000,000 26. Answer is (A).

Specific borrowing (2,200,000 x 10% = 220,000 – 50,000) 170,000
19. Answer is (C). General borrowing (800,000 x 12%) 96,000
Cost (1,700,000 + 5,000,000) 6,700,000 Capitalized borrowing cost 266,000
Carrying amount of net asset acquired (20,000,000 x 30%) (6,000,000)
Excess cost 700,000 27. Answer is (B).
Land (4,000,000 x 30%) (1,200,000) Allocated fair value (9,000,000 x 2/5) 3,600,000
Excess fair value (500,000) Allocated property tax (375,000 x 2/5) 150,000
Payment to tenants 100,000
Cost 6,700,000 New wing 750,000
Excess fair value 500,000 Remodeling 200,000
Share in net income (6,000,000 x 30%) 1,800,000 Cost of building 4,800,000
Dividend received (75,000 x 10) (750,000)
Carrying amount, 12/31/2014 8,250,000 28. Answer is (A). 900,000 + 250,000 + 150,000 – 50,000 = 1,250,000

20. Answer is (D). 2,500,000 + 250,000 + (1,200,000 / 6) = 2,950,000 x 30% = 885,000 29. Answer is (B).
Sound value 8,000,000
21. Answer is (B). Carrying amount, 1/1/16 (6,000,000 – 1,200,000) (4,800,000)
Carrying amount (9,900,000 – 990,000) 8,910,000 Revaluation surplus, 1/1/16 3,200,000
Recoverable amount (7,000,000)
Impairment loss 1,910,000 Carrying amount, 1/1/19 (8,000,000 – 3,000,000) 5,000,000
Recoverable amount (2,600,000)
22. Answer is (B). Impairment loss 2,400,000
Cotton (10 x 100,000) 1,000,000 liability
Wool (20 x 150,000) 3,000,000 asset Revaluation surplus, 1/1/19 (3,200,000 – 1,200,000) 2,000,000
Shirt (50 x 90,000) 4,500,000 liability
2,500,000 liability Revaluation surplus 2,000,000
Impairment loss 400,000
23. Answer is (B). Accumulated depreciation 2,400,000
10,000,000 x 2% = 200,000 x 3.47 = 694,000 liability
30. Answer is (B).
24. Answer is (C). 2,100,000 + 100,000 = 2,200,000 Design cost of trademark 1,700,000
Legal registration fee 200,000
25. Answer is (C). Registration with Intellectual Property Office 100,000
Income from grant 1 (9,000,000 / 10) 900,000 Total cost of trademark 2,000,000

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CPA Review School of the Philippines Practical Accounting 1

Annual rent expense (117 x 350,000 = 40,950,000 / 10) 4,095,000

31. Answer is (B). 1,400,000 / 14 = 100,000
2014 Rent expense (4,095,000 x 3/12) 1,023,750
32. Answer is (A). 20,000,000 x 18/25 = 14,400,000 + 200,000 + 100,000 = 14,700,000 Rent payable 1,023,750
2015 Rent expense 4,095,000
33. Answer is (A). Contingent liability to be disclosed only. Rent payable 105,000
Cash 4,200,000
34. Answer is (D).
Interest income (5,000,000 x 12%) 600,000 Rent payable, 12/31/15 (1,023,750 – 105,000) = 918,750
Unrealized gain (6,000,000 – 5,380,000) 620,000
Total income 1,220,000 42. Answer is (B).
Interest expense (4,965,000 – 800,000 = 4,165,000 x 8%) 333,200
35. Answer is (D). Depreciation (4,965,000 / 10) 496,500
Cost 5,000,000 Total expense 829,700
Accumulated depreciation, 1/1/14 (4,800,000 x 12/15) (3,840,000)
Carrying amount, 1/1/14 1,160,000 43. Answer is (C).
Residual value (400,000) Gross profit (6,000,000 – 5,000,000) 1,000,000
Depreciation, 2014 (last year) 760,000 Interest income (6,000,000 x 10%) 600,000
Total income 1,600,000
36. Answer is (C). 240,000 x 20 = 4,800,000
44. Answer is (B). 600,000 – (600,000 / 10) = 540,000
37. Answer is (B). 4,000,000 – 3,700,000 = 300,000
45. Answer is (D).
38. Answer is (C). 50,000 – 5,000 + 10,000 = 55,000 x 40 = 2,200,000 Carrying amount of the liability (10,000,000 + 1,200,000) 11,200,000
Carrying amount of the assets transferred (2,000,000 + 5,000,000) (7,000,000)
39. Answer is (B). Gain on extinguishment 4,200,000
Date Interest expense Interest paid Amortization Carrying amount
1/1/14 6,462,000 46. Answer is (A).
6/30/14 323,100 360,000 36,900 6,425,100 Current tax expense 5,000,000
12/31/14 321,255 360,000 38,745 6,386,355 Increase in deferred tax asset (1,000,000 – 800,000) (200,000)
644,355 Decrease in deferred tax liability (450,000 – 600,000) (150,000)
Total tax expense 4,650,000
40. Answer is (D).
Proceeds from issue (8,000 x 105%) 8,400,000 47. Answer is (C).
Bonds ex-warrant (8,000 x 95%) (7,600,000) Retained earnings 450,000
Share warrants outstanding 800,000 Prepaid/accrued benefit cost 450,000

41. Answer is (B). Prepaid/accrued benefit cost 150,000

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Retained earnings 150,000

Net debit to retained earnings 300,000

48. Answer is (C).

Current service cost 2,000,000
Interest expense 1,000,000
Interest income (900,000)
Employee benefit expense 2,100,000

Remeasurement loss (600,000 – 900,000) (300,000)

Decrease in PBO – remeasurement gain 200,000
Net remeasurement loss – OCI (100,000)

Defined benefit cost (2,100,000 + 100,000) 2,200,000

49. Answer is (B). 5,000,000 – 4,000,000 = 1,000,000

50. Answer is (B).

Retained earnings, 1/1/14 3,000,000
Appropriation for treasury (50,000 – 10,000 = 40,000 x 20) (800,000)
Net income 4,000,000
Cash dividend (1,000,000)
Retained earnings, unappropriated, 12/31/14 5,200,000

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