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REVIEWER IN INTERMEDIATE ACCOUNTING

Problem 169 (IAA)

Vanity Company showed the following balance at year-end:

Copyright 500,000
Deposit with advertising agency used to promote goodwill 400,000
Bond sinking fund 1,000,000
Excess of cost over fair value of identifiable net
Assets of acquired subsidiary 4,000,000
Trademark 900,000

What total amount should be reported as intangible assets?

a. 1,400,000 c. 5,400,000
b. 4,500,000 d. 5,800,000

Problem 170 (IAA)

Alcaraz Company paid P5,000,000 to purchase intangible assets with the following fair value:

Internet domain name 1,500,000


Order backing 1,200,000
In-process research and development 2,400,000
Operating permit 900,000

In addition, the entity spent P2,000,000 to run an advertising campaign to boost its image in the
local community.

What amount should be recognized as cost of the in-process research and development?
89
a. 2,400,000 c. 2,800,000
b. 2,000,000 d. 0

Problem 171 (AICPA Adapted)

Tobin Company incurred P1,600,000 of research and development costs to develop a product

For which a patent was granted at the beginning of current year.

Legal fee and other costs associated with registration of the patent totalled P300,000. At the
year-end, the entity paid P450,000 for legal fees in a successful defense of the patent.

What is the total amount that should be capitalized for the patent at year-end?

a. 750,000 c. 2,050,000
b. 300,000 d. 2,350,000

Problem 172 (IAA)

Harmonious Company acquired a patent for a drug with a remaining legal and useful life of six
years on January 1,2014 for P5,400,000.

On January 1, 2016, a new patent is received for an improved version of the same drug. The
new patent has a legal and useful life of twenty years.
What is the amortization expense for 2016?

a. 900,000 c. 180,000
b. 200,000 d. 300,000

Problem 173 (IAA)

Golden Company developed a new machine for manufacturing baseballs. Because the machine
is considered very valuable, the entity had it patented.

The following expenditures were incurred in developing and patenting the machine:

Purchase of special equipment to be used solely for


Development of the new machine 1,800,000
Research salaries and fringe benefits for engineers
And scientists 200,000
Cost of testing prototype 250,000
Legal cost for filing of patent 150,000
Fees paid to government patent office 50,000
Drawings required by patent office to be filed with
Patent application 40,000

1. What amount should be capitalized as cost of patent?

a. 240,000 c. 740,000
b. 540,000 d. 200,000

2. What amount of research and development cost should be expensed in the current
year?
a. 2,250,000 c. 2,490,000
b. 2,000,000 d. 1,800,000

90
Problem 174 (AICPA Adapted)

On January 1, 2016, Boracay Company bought a trademark from Lamitan Company for
P3,000,000. The entity retained an independent consultant who estimated the trademark’s life
to be indefinite. The carrying amount of the trademark was P1,500,000 on the books of Lamitan
Company.

On December 31, 2016, what is the carrying amount of the trademark?

a. 3,000,000 c. 2,850,000
b. 1,500,000 d. 0

Problem 175 (IAA)

On January 1, 2016, Aim Company showed patent of P1,920,000 with related accumulated
amortization of P240,000. The patent was purchased on January 1, 2014 at which date the legal
life is 16 years.

On January 1, 2016, the useful life of the patent was determined to be only 8 years from the
date of acquisition.

On January 1, 2016, in connection with the purchase of a trademark from Cat Company, the
parties entered into a noncompetition agreement and a consulting contract.
Aim Company paid Cat Company P800,000, of which three-fourths was for the trademark, and
one-fourth was for the Cat Company’s agreement not to compete for a five-year period in the
line of business covered by the trademark. Aim Company considered the life of the trademark
to be indefinite.

Moreover, Aim Company agreed to pay Cat Company P50,000 annually on January 1 of each
year for 5 years.

1. What is the carrying amount of intangible assets on January 1, 2016?

a. 2,280,000 c. 1,880,000
b. 2,480,000 d. 1,680,000

2. What is the total amortization of intangible assets for 2016?

a. 280,000 c. 320,000
b. 440,000 d. 160,000

Problem 176 (AICPA Adapted)

On January 1, 2016, Hart Company signed an agreement to operate as a franchisee of Ace


Company for an initial franchise fee of P12,000,000.

The same date, Hart Company paid P4,000,000 and agreed to pay the balance in four equal
annual payments of P2,000,000 beginning January 1, 2017.

Hart Company can barrow at 14% for a loan of this type. The present value factors at 14% are as
follows:

Present value of 1 at 14% for four periods 0.59

Present value of an ordinary annuity of 1 at 14% for four periods 2.91

91
What is the acquisition cost of the franchise?

a. 13,520,000 c. 9,820,000
b. 12,000,000 d. 8,720,000

Problem 177 (AICPA Adapted)

Carr Company recently acquired that now has remaining legal life of 40 years. The copyright
initially had a 30-year useful life. An analysis of market trend and consumer habit indicated that
the copyrighted material will generate positive cash flows for approximately 25 years.

What is the remaining useful life over which the entity can amortize the copyright?

a. 25 c. 40
b. 30 d. 0

Problem 178 (IAA)

Java Company purchased an entity for P6,000,000 cash at the beginning of the current year.

The carrying amount and fair value of the assets of the acquire on the date of the acquisitions
are as follows:

Carrying amount Fair value


Cash 50,000 50,000
Accounts receivable 500,000 500,000
Patent 1,000,000 1,500,000
Property, plant and equipment 0 250,000
Property, plant and equipment 2,000,000 3,000,000

Total 3,550,000 5,300,000

In addition, the acquitee had liabilities totalling P2,000,000 at the time of acquisition. The
acquire had no other separately identifiable intangible assets.

What is the goodwill arising from the acquisition?

a. 2,700,000 c. 4,450,000
b. 2,450,000 d. 700,000

Problem 179 (IAA)

Casanova Company purchased another entity for P500,000 cash. The following carrying amount
and fair value were associated with the items acquired in this business combination:

Carrying amount Fair value

Accounts receivable 2,000,000 2,000,000


Inventory 1,000,000 500,000
Government contract 0 1,000,000
Equipment 400,000 500,000
Short-term payable (2,000,000) (2,000,000)

Net Assets 1,400,000 2,000,000

The fair value associated with the acquired entity’s government contract is not based on any
legal or contractual relationship. 92

In addition, for obvious reason, there is no open market trading for an intangible of this sort.

What is the goodwill arising from the business combination?

a. 3,000,000 c. 4,000,000
b. 3,600,000 d. 0

Problem 180 (IAA)

Clever Company purchased for P4,000,000 cash all of the outstanding ordinary shares of Sun
Company when Sun’s statement of financial position showed net assets of P3,200,000.

On the date of acquisition, Sun’s assets and liabilities had fair value different from the carrying
amount as follows:

Carrying amount Fair value

Property, plant and equipment, net 5,000,000 5,750,000


Other assets 500,000 0
Long-term debt 3,000,000 2,800,000

What amount should be reported as goodwill in the consolidated statement of financial


position of Clever Company and its wholly-owned subsidiary?
a. 350,000 c. 750,000
b. 250,000 d. 800,000

Problem 181 (IFRS)

Brisbane Company has recently diversified by taking over the operations of Darwin Company at
a cost of P10,000,000.

Darwin manufactures and sells a cleaning cloth called the “Superswipe” which was developed
by Darwin’s highly trained staff.

The unique nature of the coating used on the “Superswipe” has resulted in Darwin Company a
significant share of the South African market.

As a result of the takeover, Brisbane Company acquired the following assets at fair value:

Land and building 3,200,000


Production machinery 2,000,000
Inventory 1,800,000
Accounts receivable 700,000

In addition, Darwin Company owned, but had not recognized, the following:

 Trademark – “Superswipe” with fair value of P1,000,000.

 Patent – Formula for the special coating with fair valuew3 of P5000,000.

What amount of goodwill should be recognized on the date of acquisition?

a. 2,300,000 c. 1,800,000
b. 1,300,000 d. 800,000
93
Problem 182 (IAA)

At year-end, Bliss Company purchased the net assets of another entity for P6,000,000. On the
date of the transaction, the acquire had P2,000,000 of liabilities.

The assets of the acquire at fair value were P3,000,000 for current assets and P6,000,000 for
noncurrent assets.

How should the purchase be accounted for?

a. Retained earnings should be credited for P1,000,000.


b. Gain on bargain purchase should be credited for P1,000,000.
c. The current assets should be reported at P3,000,000 and the noncurrent assets at
P5,000,000.
d. Negative goodwill should be credited for P1,000,000.

Problem 183 (IAA)

East Company is planning to sell the business to new interest. The cumulative net earnings for
the past five years amounted to P5,500,00 including expropriation gain of P500,000.

The fair value of net assets of East Company was P7,500,000. The goodwill is determined by
capitalizing average net earnings at 10%.
1. What is the purchase price of the business?

a. 10,000,000 c. 15,000,000
b. 12,500,000 d. 7,500,000

2. What is the amount to be paid for goodwill?

a. 3,500,000 c. 2,500,000
b. 7,500,000 d. 5,000,000

Problem 184 (AICPA Adapted)

On January 1, 2014, Wayne Company signed an eight-year lease for office space. The entity has
the option to renew the lease for an additional four-year period on or before January 1, 2021.

During January 2016, two years after occupying the leased premises, the entity made general
improvement costing P3,600,000 and having a useful life of ten years.

On December 31, 2016, the entity’s intention as to exercise of the renewal option is uncertain.

What is the depreciation of leasehold improvement for 2016?

a. 300,000 c. 450,000
b. 360,000 d. 600,000

Problem 185 (AICPA Adapted)

On January 1, 2016, Ames Company signed an eight-year lease for office space. The entity has
the option to renew the leave for an additional four-year period on or before January 1, 2023.

During January 2016, the entity incurred the following costs:

 P1,200,000 for general improvement to the leased premises with an estimated useful
life of ten years. 94

 P500,000 for office furniture and equipment with an estimated useful life of ten years.

 P400,000 for moveable assembly line equipment with useful life of 5 years.

On December 31, 2016, the entity’s intention as to exercise of the renewal option is uncertain.

What is the accumulated depreciation of leasehold improvement on December 31, 2016?


a. 292,500 c. 170,000
b. 150,000 d. 212,500

Problem 186 (AICPA Adapted)

On January 1, 2014, Nobb Company signed a 12-year lease for warehouse space. The entity has
an option to renew the lease for an additional 8-year period on or before January 1, 2018.

During January 2016, the entity made substantial improvement to the warehouse. The cost of
the improvement was P540,000 with an estimated useful life of 15 years.

On December 31, 2016, the entity intended to exercise the renewal option.

On December 31, 2016, what is the carrying amount of the leasehold improvement?

a. 486,000 c. 510,000
b. 504,000 d. 513,000
Problem 187 (AICPA Adapted)

On January 1, 2015, Bay Company acquired a land lease for 21 years with no option to renew.
The lease required the lessec to construct a building in lieu of rent.

The building, completed on January 1, 2016, at a cost of P8,400,000, is depreciated using the
straight line method.

At the end of the lease, the building’s estimated fair value is P4,200,000. The useful life of the
building is 25 years.

What is the carrying amount of the building on December 31, 2016? ANSWER: A

a. 7,980,000 c. 8,190,000
b. 8,064,000 d. 8,232,000

Problem 188 (IAA)

At the beginning of current year, Explicable Company acquired a 5-year lease on land and
building from another entity at an annual rental of P1,200,000.

On same date, the entity paid P2,400,000 representing rental for the first year and an advance
rental for one year which will be applied for the last year of the lease contract.

Moreover, the entity paid P2,000,000 upon signing of the contract to obtain right to the lease.

Improvement and alteration were made on the building at a cost of P500,000.

1. What is the rent expense for the current year?

a. 1,200,000 c. 3,600,000
b. 2,400,000 d. 1,800,000 95

2. What is the amortization of leasehold for the current year?

a. 500,000 c. 200,000
b. 400,000 d. 0

3. What is the depreciation of leasehold improvement for the current year?

a. 500,000 c. 100,000
b. 900,000 d. 0

Problem 189 (IAA)

At the beginning of the current year, Alpha Company signed a contract whereby the entity was
to pay P3,000,000 cash plus P300,000 per month rent for an office building.

The contract is for 10 year and renewable for another 10 years at a monthly rental od
P400,000.

Prior to occupancy, the lease spent P1,000,000 in improving the building.

In addition, the parking lot was improved, new pavement and lighting were made at a cost of
P400,000. It is estimated that such improvement will be usable for 5 years.

1. What is the amortization of leasehold for the current year?


a. 600,000 c. 700,000
b. 300,000 d. 0

2. What is the depreciation of leasehold improvement for current year?

a. 480,000 c. 180,000
b. 280,000 d. 140,000

Problem 190 (AICPA Adapted)

Ward Company incurred the following research and development costs in the current year:

Equipment acquired for use in various R and D projects 975,000


Depreciation on the above equipment 135,000
Materials used 200,000
Compensation costs of personnel 500,000
Outside consulting fees 150,000
Indirect costs appropriately allocated 250,000

What total amount of research and development costs should be recognized as expense for the
current year?

a. 850,000 c. 1,235,000
b. 1,085,000 d. 1,825,000

Problem 191 (IAA)

Courage Company incurred the following costs in the current year:

R and D with 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 product 2,100,000
Engineering costs incurred to advance a product to full 96
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 c. 3,000,000
b. 2,220,000 d. 3,420,000

Problem 192 (IAA)

Metal Company incurred the following costs during the current year:

Laboratory research aimed at discovery of


New knowledge 750,000
Design of tools, jigs, molds and dies involving
New technology 220,000
Quality control during commercial production,
Including routine testing 350,000
Equipment acquired two years ago, having an estimated
useful life of five years with no residual value, used
in various R and D projects 1,500,000
Research and development services performed by
Stone Company for Metal Company 230,000
Research and development services performed by
Metal Company for Kaye Company 20,000
What amount of research and development expense should be reported in the current year?
a. 1,200,000 c. 1,870,000
b. 1,500,000 d. 2,170,000

Problem 193 (AICPA Adapted)

Brunson Company, a major winery, begun construction of a new facility in Mindanao. The
following costs are incurred in conjunction with the with the start-up activities of the new
facility.

Production equipment 8,150,000


Travel costs of salaried employees 400,000
License fees 140,000
Training of local employees for production and
Maintenance operations 1,200,000
Advertising costs 850,000

What portion of the organization costs should be expensed?

a. 9,750,000 c. 1,390,000
b. 1,600,000 d. 0

Problem 194 (AICPA Adapted)

During the current year , Pitt Company incurred the following costs to develop and produce a
computer software product:

Completion of detailed program design 1,300,000


Costs incurred for coding and testing to
Establish technological feasibility 1,000,000
Other coding costs after establishment
Of technological feasibility 2,400,000
Other testing costs after establishment 97
Of technological feasibility 2,000,000
Costs of producing product masters for training materials 1,500,000
Duplication of computer software and
Training materials from product masters 2,500,000
Packaging product 900,000

1. What amount should be reported as inventory?

a. 2,500,000 c. 4,000,000
b. 3,400,000 d. 4,900,000

2. What total amount of the costs incurred should be expensed immediately?

a. 8,200,000 c. 6,700,000
b. 2,300,000 d. 4,400,000

3. What amount should be capitalized as software cost?

a. 5,400,000 c. 5,900,000
b. 5,700,000 d. 6,900,000

Problem 195 (AICPA Adapted)


Yellow Company spent P12,000,000 during the current year developing a new software
package. Of this amount, P4,000,000 was spent before it was at the application development
stage and the package was only to be used internally.

The package was completed during the year and expected to have a four-year useful life. The
entity has a policy of taking a full year amortization in the first year.

After the development stage, an amount of P50,000 was spent on training employees to use
the program.

What total amount should be reported as an expense for the current year?

a. 6,012,500 c. 1,600,000
b. 6,050,000 d. 2,000,000

Problem 196 (AICPA Adapted)

On January 1, 2016, Bitter Company had capitalized cost of P5,000,000 for a new computer
software product with an economic life 5 years. Sales for 2016 amounted to P3,000,000.

The total sales of software over the economic life are expected to be P10,000,000. The pattern
of future sales cannot be measured reliably.

On December 31,2016, the software had a fair value less cost of disposal of P4,500,000.

What is the carrying amount of the computer software on December 31, 2016?

a. 5,000,000 c. 4,500,000
b. 3,500,000 d. 4,000,000

Problem 40 (IAA)

Greece Company provided the following data for the current year:

Inventory – January 1:
Cost 3,000,000
Net realizable value 2,800,000
Net purchases 8,000,000
Inventory – December 31:
Cost 4,000,000
Net realizable value 3,700,000

What amount should be reported as cost of goods sold?

a. 7,000,000
b. 7,100,000
c. 7,300,000
d. 7,200,000

Problem 41 (IAA)

At year-end, Julie Company reported ending inventory at P3,000,000, and the allowance for
inventory write down before any adjustment at P150,000.
28
Product 1 Product 2 Product 2 Product 3

Historical cost 800,000 1,000,000 700,000 500,000


Replacement cost 900,000 1,200,000 1,000,000 600,000
Sales price 1,200,000 1,300,000 1,250,000 1,000,000
Net realizable value 550,000 1,100,000 950,000 350,000
Normal profit 250,000 150,000 300,000 300,000

What amount of loss on inventory write down should be included in cost of goods sold?

a. 100,000
b. 200,000
c. 400,000
d. 250,000

Problem 42 (IAA)

On the night of September 30,2016, a fire destroyed most of the merchandise inventory of
Sonia Company. All goods were completely destroyed except for partial damaged goods that
normally sell for P100,000 and that had an estimated net realizable value of P25,000 and
undamaged goods that normally sell for P60,000.

Inventory, January 1 660,000


Net purchases, January 1 through September 30 4,240,000
Net sales, January 1 through September 30 5,600,000

Total 2015 2014 2013

Net sales 9,000,000 5,000,000 3,000,000 1,000,000


Cost of goods 6,750,000 3,840,000 2,200,000 710,000

Gross income 2,250,000 1,160,000 800,000 290,000

What is the estimated amount of fire loss on September 30, 2016?

a. 700,000
b. 615,000
c. 630,000
d. 580,000

Problem 42 (AICPA Adapted)

On December 31,2016, Empress Company had a fire which completely destroyed the goods in
process inventory. After the fire a physical inventory was taken.

The raw materials were valued at P600,000, the finished goods at P1,000,000 and factory
supplies at P100,000 on December 31,2016.

The inventories on January 1,2016 consisted of the following:

Finished goods 1,400,000


Goods in process 1,000,000
Raw materials 300,000
Factory supplies 400,000
29
Data for the current year

Sales 3,000,000
Purchases 1,000,000
Freight in 100,000
Direct labor 800,000
Manufacturing overload – 50% of direct labor ?
Average gross profit rate on sales 30%

1. What is the cost of goods sold?

a. 2,100,000
b. 1,700,000
c. 1,900,000
d. 2,300,000

2. What is the cost of goods manufactured?

a. 2,500,000
b. 1,700,000
c. 3,100,000
d. 2,300,000

3. What is the estimated cost of the goods in process on December 31,2016 that were
completely destroyed by fire?

a. 1,300,000
b. 2,100,000
c. 2,000,000
d. 1,700,000

Problem 43 (IAA)

Moderate Company provided the following information:

June July August

Sales on account 7,200,000 7,360,000 7,600,000


Cash sales 720,000 800,000 1,040,000

All merchandise is marked up to sell at invoice cost plus 20%. Inventory at the beginning of each
month is 30% of that month’s cost of goods sold.

1. What is the cost of goods sold for June?

a. 5,760,000
b. 6,000,000
c. 6,080,000
d. 6,600,000

2. What is the amount of purchases for July?

a. 6,528,000
b. 8,304,000
c. 6,800,000
d. 6,920,000
30
Problem 44 (AICPA Adapted)

On April 30, 2016, a fire damaged the office of Amaze Company. The following balances were
gathered from the general ledger on March 31, 2016:

Accounts receivable 920,000


Inventory – January 1 1,880,000
Accounts payable 950,000
Sales 3,600,000
Purchases 1,680,000

 An examination of the April bank statement and cancelled checks revealed checks
written during the period April 1 – 30 as follows:

Accounts payable as of March 31 240,000


April merchandise shipments 80,000
Expenses 160,000

Deposits during the same period amounted to P440,000 which consisted of collections
from customers with the exception of P20,000 refund from a vendor for merchandise
returned in April.

 Customers acknowledged indebtedness of P1,040,000 at April 10. Customers owed


another P60,000 that will never be recovered. Of the acknowledged indebtedness,
P40,000 may prove uncollectible.

 Correspondence with suppliers revealed unrecorded obligations at April 30, of P340,000


for April merchandise shipment, including P100,000 for shipments in transit on that
date.

 The average gross profit rate is 40%.

 Inventory with a cost of P260,000 was salvaged and sold for P140,000. The balance of
the inventory was a total loss.
1. What is the amount of sales up to April 30?
a. 4,200,000 c. 4,140,000
b. 4,220,000 d. 4,160,000

2. What is the total number of purchases up to April 30?


a. 1,760,000 c. 2,020,000
b. 2,100,000 d. 1,680,000

3. What is the inventory on April 30?


a. 1,476,000 c. 1,440,000
b. 1,464,000 d. 1,428,000

4. What is the fir loss to be recognized on April 30?


a. 1,440,000 c. 1,340,000
b. 1,300,000 d. 1,200,000

Problem 45 (IFRS)

Forester Company provided the following assets in a forest plantation and firm:

Freestanding trees 5,000,000


Land under trees 600,000
Roads in forests 31 300,000
32
Animal related to recreational activities 1,000,000
Bearer plants 1,500,000
Bearer animals 2,000,000

What total number of the assets should be classified as biological assets?

a. 7,000,000
b. 8,500,000
c. 5,000,000
d. 8,000,000

Problem 46 (IFRS)

Joan Company provided the following data:

Value of biological asset at acquisition cost on


December 31, 2016 600,000
Fair valuation surplus on initial recognition at fair
Value on December 31,2016 700,000
Change in fair value to December 31, 2017 due to
Growth and price fluctuation 100,000
Decrease in fair value due to harvest in 2017 90,000

1. What is the carrying amount of the biological asset on December 31, 2017?

a. 1,400,000
b. 1,310,000
c. 1,300,000
d. 1,490,000

2. What is the gain from change in fair value of biological asset that should be reported in
the 2017 income statement?

a. 100,000
b. 800,000
c. 710,000
d. 10,000

Problem 47 (IFRS)

Honey Company has a herd of 10 2-year old animals on January 1, 2016. One animal aged 2.5
years was purchased on July 1, 2016 for P108, and one animal was born on July 1, 2016.

No animal were sold or disposed of during the year. The fair value less cost of disposal per unit
is as follows:

2 – year old animal on January 1 100


2.5 – year old animal on July 1 108
New born animal on July 1 70
2 – year old animal on December 31 105
2.5 – year old animal on December 31 111
Newborn animal on December 31 72
3 – year old animal on December 31 120
0.5 – year old animal on December 31 80

1. What is the fair value of the biological assets on December 31?


33
a. 1,400
b. 1,320
c. 1,440
d. 1,360

2. What amount of gain from change in fair value of biological assets should be recognized
in the current year?

a. 222
b. 292
c. 300
d. 332

3. What is the gain from change in fair value due to price change?

a. 292
b. 222
c. 237
d. 55

Problem 48 (IFRS)

Dairy Company provided the following information for the year ended December 31, 2016:

Cash 500,000
Trade and other receivables 1,500,000
Inventories 100,000
Dairy livestock – immature 50,000
Property, plant and equipment, net 1,400,000
Trade and other payables 520,000
Note payable – long-term 1,500,000
Share capital 1,000,000
Retained earnings – January 1 800,000
Fair value of milk produced 600,000
Gain from change in fair value 50,000
Inventories used 140,000
Staff costs 120,000
Depreciation expense 15,000
Other operating expenses 190,000
Income tax expense 55,000

1. What is the net income for 2016?

a. 650,000
b. 600,000
c. 130,000
d. 185,000

2. What is the fair value of biological assets on December 31, 2016?

a. 550,000
b. 450,000
c. 500,000
d. 400,000
34
Problem 49 (AICPA Adapted)

On December 31,2016, Fay Company appropriately reported a P100,000 unrealized loss. There
was no charge during 2017 in the composition of the portfolio of non trading equity securities
held at fair value through other comprehensive income.
Market value
Security Cost December 31, 2017

A 1,200,000 1,300,000
B 900,000 500,000
C 1,600,000 1,500,000

3,700,000 3,300,000

1. What is the market value of the investment on December 31,2016?

a. 3,600,000
b. 3,700,000
c. 3,500,000
d. 3,800,000

2. What amount of loss on these securities should be included in the statement of


comprehensive income for the year ended December 31, 2017 as component of other
comprehensive income?

a. 400,000
b. 300,000
c. 100,000
d. 0

3. What cumulative amount of loss in these securities should be reported in the


statement of changes in equity for the year ended December 31,2017 as component of
other comprehensive income?

a. 100,000
b. 200,000
c. 400,000
d. 0

Problem 50 (AICPA Adapted)

Neal Company held the following financial assets as trading investments on December 31,
2016:

Market
Cost Value

100,000 shares of Company A


nonredeemable preference
share capital, par value P75 775,000 825,000

7,000 shares of Company B


preference share capital, par value P100,
subject to mandatory redemption
by the issuer at par on
December 31, 2017. 690,000 625,000
1,465,000 1,450,000

On December 31, 2016, what is the total carrying amount of the investments?

a. 1,400,000
b. 1,450,000
c. 1,465,000
d. 1,475,000

Problem 51 (AICPA Adapted)

Trinidad Company provided the following portfolio of equity investments measured at fair
value through other comprehensive income:

Aggregate cost – December 31, 2016 1,700,000


Unrealized gain – December 31, 2016 40,000
Unrealized loss – December 31, 2016 260,000
Net realized gain during 2016 300,000

On January 1, 2016, the entity reported an unrealized loss of P15,000 as a component of other
comprehensive income.

In the 2016 statement of changes in equity, what cumulative amount should be reported as
unrealized loss on these securities?

a. 260,000
b. 220,000
c. 205,000
d. 0

Problem 52 (AICPA Adapted)

Day Company received dividends from share investments during the year ended December 31,
2016 as follows:

 A stock dividend of 4,000 shares from Parr Company on July 31, 2016 when the market
price of Parr’s share was P 20. Day owns less than 1% of Parr’s share capital.

 A cash dividend of P150,000 from Lark Company in which Day owns a 25% interest. A
majority of Lark’s directors are also directors of Day.

What amount of dividend revenue should be reported in 2016?

a. 230,000
b. 150,000
c. 80,000
d. 0

Problem 53 (AICPA Adapted)

On July 1, 2016, Denver Company purchased 30,000 shares of Eagle Company’s 100,000
outstanding ordinary shares for P200 per share, On December 15, 2016, the investee paid
P400,000 in dividends to the ordinary shareholders.

The investee’s net income for the year ended December 31, 2016 was P1,200,000, earned
evenly throughout the year.
35
36
What amount of income from the investment should be reported in 2016?

a. 360,000
b. 180,000
c. 120,000
d. 60,000

Problem 54 (AICPA Adapted)

On April 1, 2016, Ben Company purchased 40% of the outstanding ordinary shares of Clarke
Company for P10,000, 000. On that date, Clarke’s net assets were P20,000,000 and Ben cannot
attribute the excess of the cost of its investment in Clarke over its equity in Clarke’s net assets
to any particular factor. The investee’s net income for 2016 is P5,000, 000.

What is the maximum amount which could be included in 2016before tax to reflect the ‘’equity
in net income of investee”?

a. 1,400,000
b. 1,500,000
c. 2,000,000
d. 1,850,000

Problem 55 (AICPA Adapted)

At the beginning of current year, Kean Company purchased 30% interest in Pod Company for
P2,500,000.

On this date Pod’s shareholders’ equity was P5,000,000. The carrying amounts of Pod’s
identifiable net assets approximated their fair values, except for land whose fair value exceeded
the carrying amount by P2,000,000.

The investee reported net income of P 1,000,000 and paid no dividends during the current year.

What amount should be reported as investment in associate at year-end?

a. 2,100,000
b. 2.200,000
c. 2,800,000
d. 2,760,000

Problem 56 (AICPA Adapted)

At the beginning of current year,. Sage Company bought 40% of Eve Company’s outstanding
ordinary shares for P 4,000,000.

The carrying amount of Eve’s net assets at the purchase date totalled P 9,000,000.

Fair values and carrying amounts were the same for all items except for plant and inventory, for
which fair values exceeded their carrying amounts by P900,000 and P 100,000, respectively. The
plant has an 18-year life. All inventory was sold during the current year.

During the current year, the investee reported net income of P1,200,000 and paid a P 200,000
cash dividend.

What amount should be reported as investment income for the current year?
a. 480,000
b. 420,000 37
c. 360,000
d. 320,000

Problem 57 (AICPA Adapted)

On, January 1, 2016, Anne Company purchased 20% of the outstanding ordinary shares of Dune
Company for P 4,00,000, of which P 1,000,000 was paid in cash and P 3,000,000 is payable with
12 % annual interest on December 31, 2016. Dune’s shareholders’ equity on January 1, 2016
was P13,000,000.

Anne also paid P 500,000 to a business broker who helped find a suitable business and
negotiated the purchase.

At the time of acquisition, the fair values of Dune’ identifiable assets and liabilities were equal
to their carrying amounts except for an office building which had a fair value in excess of
carrying amount of P 2,000,000 and an estimated life of 10 years.

During 2016, Dune Company reported net income of P 5,000,000 and paid dividend of
P 2,000,000.

What amount of income should be reported for 2016 as a result of the investment?

a. 810,000
b. 620,000
c. 960,000
d. 885,000

Problem 58 (IAA)

At the beginning of current year, Bing Company purchased 30,000 shares of Latt Company’s
200,000 outstanding ordinary shares for P 6,000,000. On that date , the carrying amount of the
acquired shares on Latt’s books was P 4,000,000.

Bing attributed the excess of cost over carrying amount to patent. The patent has a remaining
useful life of 10 years.

During the current year, Bing’s officers gained a majority on Latt’s board of directors.

Latt Company reported earnings of P 5,000,000 for the current year and declared and paid
dividend of P 3,000,000 at year-end.

What is the carrying amount of the investment in associate at year-end?

a. 6,000,000
b. 6,100,000
c. 6,300,000
d. 6,750,000

Problem 59 (IAA)

On January 1, 2016, Marissa Company acquired 25% of the outstanding shares of an investee at
a total cost of P 7,000,000. At the time , the carrying amount of net assets of the investee
totalled P 24,000,000.
The investee owned equipment with 5-year remaining life and with a fair value of P 2,000,000
more than carrying amount . The investee owned land with a fair value of P 1,000,000 more
than carrying amount.
38
The investee earned net income of P 5,000,000 evenly during the current year. The investee
declared and paid a cash dividend of P 3,000,000 to shareholders at year-end. The fair value of
the investment at year-end is P 7, 500,000.

1. What is the goodwill arising from the investment in associate?

a. 750,000
b. 500,000
c. 250,000
d. 0

2. What is the investment income for 2016?

a. 1,250,000
b. 1,150,000
c. 900,000
d. 650,000

3. What is the carrying amount of the investment on December 31, 2016?

a. 7, 400,000
b. 7, 500,000
c. 7, 000,000
d. 8, 150,000

Problem 60 (AICPA Adapted)

Pare Company purchased 10% of Tot Company’s 100,000 outstanding ordinary shares on
January 1, 2016 for P500,000.

On December 31, 2016, Pare purchased an additional 20,000 shares of Tot for P1, 500,000. Tot
had not issued any additional shares during 2016.

The investee reported earnings of P3, 000,000 for 2016.

The fair value of the 10% interest is P900,000 on December 31, 2016.

What is the carrying amount of the investment in associate on December 31, 2016?

a. 2, 300,000
b. 2,000,000
c. 2,400,000
d. 2,900,000

Problem 61 (IFRS)

On January 1, 2016, Forensic Company acquired a 10% interest in an investee for P3,000,000.
The investment was accounted for using the cost method.

On January 1, 2017, the entity acquired a further 15% interest in the investee for P6, 750,000.

On such date, the carrying amount of the net assets of the investee was P36,000,000 and the
fair value of the 10% interest was P4,500,000.
The fair value of the net assets of the investee is equal to carrying amount except for an
equipment whose fair value exceeds carrying amount by P4,000,000. The equipment has a
remaining life of 5 years.
39
The investee reported net income of P8,000,000 for 2017 and paid dividend of P5,000,000 on
December 31, 2017.

1. What is the gain remeasurement to equity to be recognized for 2017?

a. 1,500,000
b. 4,500,000
c. 2,250,000
d. 0

2. What is the goodwill arising from the acquisition on January 1, 2017?

a. 2,250,000
b. 1,250,000
c. 1,350,000
d. 350,000

3. What is the carrying amount of the investment in associate on December 31, 2017?

a. 11,250,000
b. 11,800,000
c. 12,000,000
d. 14,300,000

Problem 62 (AICPA Adapted)

Grant Company acquired 30% of South Company”s voting share capital for P2,000,000 on
January 1, 2016. Grant’s 30% interest in South gave Grant the ability to exercise significant
influence over South’s operating and financial policies, During 2016, South earned P800,000
and paid dividend of P500,000. South reported earnings of P1,000,000 for the 6 months ended
June 30, 2017, and P2,000,000 for the year ended December 31, 2017. On July 1, 2017, and
P2,000,000 for the year ended December 31, 2017. On July 1, 2017, Grant sold half of the
investment in South for P1, 500,000 cash. South paid dividend of P600,000 on October 1, 2017.

The fair value of the retained investment is P1, 600,000 on July, 2017 and P1, 800,000 on
December 31, 2017. The retained investment is to be held as financial asset at fair value
through profit or loss.

1. Before income tax, what amount should be included in the 2016 income statement as a
result of the investment?

a. 150,000
b. 240,000
c. 500,000
d. 800,000

2. On December 31, 2016, what is the carrying amount of the investment in associate?

a. 2,000,000
b. 2,090,000
c. 2,240,000
d. 2,300,000
3. In the income statement for 2017, what amount should be reported as gain from sale of
investment?

a. 245,000
b. 305,000 40
c. 350,000
d. 455,000

4. In the income statement for 2017, what amount should be reported as gain from
remeasurement of the retained investment?

a. 605,000
b. 405,000
c. 710,000
d. 910,000

Problem 63 (IFRS)

Glorious Company acquired 40% interest in an associate, Alta Company, for P5,000,000 on
January 1, 2016.

At the acquisition date, there were no differences between fair value and carrying amount of
identifiable assets and liabilities.

Alta Company reported the following ne income and dividend for 2016 and 2017:

2016 2017

Net income 2,000,000 3,000,000


Dividend paid 800,000 1,000,000

The following transactions occurred between Glorious Company and Alta Company:

 On January 1, 2016, Alta Company sold an equipment costing P500,000 to Glorious


Company for P800,000. Glorious Company applied a 10% straight line depreciation.

 On July 1, 2017, Alta Company sold and equipment for P900,000 to Glorious Company.

 The carrying amount of the equipment is P500,000 at the time of sale.

 The remaining life of the equipment is 5 years and Glorious Company used the straight
line depreciation.

 On December 1, 2017, Alta Company sold an inventory to Glorious Company for


P2,800,000

The inventory had a cost of P2,000,000 and was still on hand on December 31, 2017.

1. What is the investor’s share in the profit of the associate for 2016?

a. 692,000
b. 800,000
c. 680,000
d. 920,000

2. What is the investor’s share in the profit of the associate for 2017?

a. 880,000
b. 748,000
c. 720,000
d. 732,000

41
3. What is the carrying amount of the investment in associate on December 31, 2016?

a. 5,692,000
b. 5,000,000
c. 5,372,000
d. 5,360,000

4. What is the carrying amount of the investment in associate on December 31, 2017?

a. 5,692,000
b. 5,704,000
c. 5,720,000
d. 6,120,000

Problem 64 (IAA)

On January 1, 2016, Portugal Company purchased bonds with face value of P8,000,000 for
P7,679,000 as a long-term investment. The stated rate on the bonds is 10% but the bonds are
acquired to yield 12%

The bonds mature at the rate of P2,000,000 annually every December 31 and the interest is
payable annually also every December 31. The entity used the effective interest method of
amortizing discount.

1. What is the interest income for 2016?


a. 800,000
b. 921,480
c. 960,000
d. 767,900

2. What is the carrying amount of the investment in bonds on December 31, 2016?

a. 5, 759, 250
b. 7, 759, 250
c. 7, 800, 480
d. 5, 800, 480

Problem 65 (AICPA Adapted)

On October 1, 2016, Danica Company purchased P2, 000, 000 face value 12% bonds for 998
plus accrued interest and brokerage fee. Interest is paid semi annually on January a and July 1.
Brokerage fee for this transaction was P50, 000.

At what amount should this acquisition of bonds be recorded?

a. 1,960,000
b. 2,010,000
c. 2,020,000
d. 2,070,000

Problem 66 (IAA)
On January 1, 2016, Russia Company purchased 5-year bonds with face amount of P8, 000, 000
and stated interest of 10% per year payable semi annually on June 30 and December 31.

42
The bonds were acquired to yield 8%.
Present value of an annuity of 1 for 10 periods at 5% 7.72
Present value of an annuity of 1 for 10 periods at 4% 8.11
Present value of 1 for 10 periods at 4% 0.6756

1. What is the market price or purchase price of the bonds?

a. 7. 382, 400
b. 8, 617, 600
c. 8, 648, 800
d. 7, 351, 200

2. What is the carrying amount of the bond investment on December 31, 2016?

a. 8, 594, 752
b. 8, 540, 704
c. 8, 538, 542
d. 8, 302, 848

Problem 66 (AICPA Adapted)

At the beginning of current year, Dean Company purchase ten-year bonds with a face amount
of P 1, 000,000 and s stated rate of 8% per year payable semi annually June 30 and December
31. The bonds were acquired to yield 10%.

Present value of 1 for 10 periods at 10% .386


Present value of 1 for 20 periods at 5% .377
Present value of an annuity of 1 for 10 periods at 10% 6.145
Present value of an annuity of 1 for 20 periods at 5% 12.462

What is the market price or purchase price of the bonds?

a. 1, 124, 620
b. 1, 100, 000
c. 1, 000, 000
d. 875, 380

Problem 67 (IAA)

On January 1, 2016, Arabian Company purchased serial bonds with face amount of P3,000,000
And stated 12% interest payable annually every December 31.

The bonds are to be held as financial asset at amortized cost with a 10% effective yield.

The bonds mature at an annual instalment of P1,000,000 every December 31. The present
value of 1 at 10% for:

One period 0.91


Two periods 0.83
Three periods 0.75

What is the present value of the serial bonds on January 1, 2016?


a. 3. 106, 800
b. 3, 060, 000
c. 3, 045, 000
d. 3, 149, 400
43
Problem 68 (IFRS)

Love Company purchased P5, 000, 000 of 8%, 5-year bonds on January 1, 2016 with interest
payable on July 1 and January 1. The bonds were purchased for P5, 208, 000 at an effective
interest rate of 7%.

The business model for this investment is to collect contractual cash flows and sell the bonds in
the open market. On December 31, 2016, the bonds were quoted at 106.

1. What amount of interest income should be reported for 2016?

a. 400, 000
b. 200, 000
c. 364, 560
d. 363, 940

2. What amount should be recognized in OCI in the statement of comprehensive income


for 2016?

a. 300,000
b. 125, 440
c. 128, 060
d. 92, 000

3. If the entity elected the fair value equation, what total amount of income should be
recognized for 2016?

a. 400, 000
b. 492, 000
c. 208, 000
d. 300, 000

Problem 69 (IAA)

On January 1, 2016, Reign Company purchased 12% bonds with face amount of P5, 000, 000 for
P5, 380, 000. The bonds provide an effective yields of 10%. The bonds are dated January 1,
2015, mature on January 1, 2021 and pay interest annually on December 31 of each year.

The bonds are quoted at 120 on December 31, 2016. The entity has elected the
fair value option for the bond investment.

What total income should be reported for 2016?

a. 1, 220, 000
b. 1, 120, 000
c. 1, 138, 000
d. 600,000

Problem 70 (IAA)
On January 1, 2016, Gelyka Company purchased 12% bonds with face amount of P5, 000, 000
for P5, 500, 000 including transaction cost of P100, 000. The bonds provide an effective yield of
10%.

The bonds are dated January 1, 2016 and pay interest annually on December 31 of each year.

The bonds are quoted at 115 on December 31, 2016. The entity has Irrevocably elected to use
the fair value option.

1. What amount of gain from change in fair value should be repored for 2016?

a. 750, 000
b. 250, 000
c. 350, 000
d. 0

2. What amount of interest income should be reported for 2016?

a. 600, 000
b. 550, 000
c. 660, 000
d. 540, 000

3. What is the carrying amount of the bond investment on December 31, 2016?

a. 5, 750, 000
b. 5, 400, 000
c. 5, 500, 000
d. 5, 450, 000

4. What total amount of income from the investment should be reported in the income
statement for 2016?

a. 540, 000
b. 950, 000
c. 890, 000
d. 900, 000

Problem 1 (AICPA Adapted)

On December 31,2016, Ivan Company shoed the following current assets:

Cash 3,200,000
Accounts receivable 2,500,000
Inventory 2,000,000
Prepaid expenses 100,000

Total current assets 7,800,000

Cash on hand, including customer postdated check


P50 ,000 and employees IOU’s P50,000 500,000
Cash in bank per bank statement (outstanding
Checks on December 31, 2016 P200,000) 2,700,000

Total cash 3,200,000

Customer’s debit balances , net of customer


Deposit of P50, 000 1,900,000
Allowance for doubtful accounts ( 150,000)
Sale price of goods invoiced to customers at 150%
of cost in December 29,2016 but delivered on
January 5, 2017 and excluded from reported
Inventory 750,000

Total accounts receivable 2,500,000

1. What is the adjusted cash balance?

a. 2,900,000
b. 2,500,000
c. 2,950,000
d. 3,200,000

2. What is the adjusted balance of accounts receivable?

a. 1,950,000
b. 2,000,000
c. 1,850,000
d. 1,800,000

3. What is the adjusted inventory?

a. 1,500,000
b. 2,000,000
c. 2,500,000
d. 2,750,000

1
4. What total amount should be reported as current assets?

a. 6,900,000
b. 7,050,000
c. 7,350,000
d. 7,400,000
Problem 2 (PHILCPA Adapted)

Kabugao Company provided the following information on December 31,2016:

Cash in bank, net of bank overdraft of P500, 000 5,000,000


Petty cash, unreplenished petty cash expenses P10, 000 50,000
Notes receivable 4,000,000
Accounts receivable, net of customers’ accounts with
Credit balances of P1, 500,000 6,000,000
Inventory 3,000,000

Total current assets 21,050,000

Accounts payable, net of suppliers’ accounts with debit


Balances of P1, 000,000 7,000,000
Notes payable 4,000,000
Bond payable due June 30, 2017 3,000,000
Accrued expenses 2,000,000
Total current liabilities 16,000,000

1. What amount should be reported as total current assets on December 31, 2016?

a. 19,040,000
b. 20,040,000
c. 20,050,000
d. 24,040,000

2. What amount should be reported as total current liabilities on December 31, 2016?

a. 19,000,000
b. 16,000,000
c. 15,500,000
d. 15,000,000

Problem 3 (AICPA Adapted)

Mint Company provided the following account balances on December 31, 2016 which had been
adjusted except for income tax expense:

Cash 600,000
Accounts receivable 3,500,000
Cost in excess of billings on long-term contracts 1,600,000
Billings in excess of cost on long-term contracts 700,000
Prepaid taxes 450,000
Property, plant, and equipment, at carrying amount 1,510,000
Note payable – noncurrent 1,620,000
Share capital 750,000
Share premium 2,030,000
Retained earnings unappropriated 900,000
2

Retained earnings restricted for note payable 160,000


Earnings from long-term contracts 6,680,000
Cost and expenses 5,180,000

All receivables on long-term contracts are considered to be collectible within 12 months. During
the year, estimated tax payments of P450, 000 were charged to prepaid taxes. The entity has
not recorded income tax expense. The tax rate is 30%.

On December 31,2016, what amount should be reported as

1. Total retained earnings?


a. 1,950,000
b. 2,110,000
c. 2,400,000
d. 2,560,000

2. Total noncurrent liabilities?


a. 1,620,000
b. 1,780,000
c. 2,320,000
d. 2,480,000

3. Total current accounts?


a. 5,000,000
b. 4,100,000
c. 5,700,000
d. 6,150,000

4. Total shareholders’ equity?


a. 2,940,000
b. 2,780,000
c. 4,890,000
d. 4,730,000

Problem 4 (AICPA Adapted)

Vigor Company provided the following information for the current year:

Net accounts receivable at January 1 900,000


Net accounts receivable at December 31 1,000,000
Account receivable turnover 5 to 1
Inventory at January 1 1,100,000
Inventory at December 31 1,200,000
Inventory turnover 4 to 1

What is the gross margin for the current year?

a. 150,000
b. 200,000
c. 300,000
d. 400,000

Problem 5 (AICPA Adapted)

Kay Company provided the following information for the current year.

Increase in raw materials inventory 150,000


Decrease in goods in process inventory 200,000
Decrease in finished goods inventory 350,000
Raw materials purchased 4,300,000
Direct labor payroll 2,000,000
Factory overhead 3,000,000

Freight out 450,000


Freight in 250,000

What is the cost of goods sold for the current year?

a. 9,950,000
b. 9,550,000
c. 9,250,000
d. 9,150,000

Problem 6 (IAA)
Sheraton Company reported the following information for the current year.

Ending goods in process 1,000,000


Depreciation on factory building 320,000
Beginning raw materials 400,000
Direct labor 1,980,000
Factory supervisor’s salary 560,000
Depreciation on headquarters building 210,000
Beginning goods in process 760,000
Ending raw materials 340,000
Indirect labor 360,000
Purchases of raw materials 2,300,000

What is the cost of goods manufactured for the current year?

a. 5,340,000
b. 5,580,000
c. 5,550,000
d. 5,820,000

Problem 7 (PHILCPA Adapted)


Mercury Company showed cost of goods sold of P4, 320,000 in the statement of
comprehensive income after the first year of operations.

The total manufacturing cost comprised the following:

Materials used 50%


Direct labor incurred 30%
Manufacturing overhead 20%

Goods in process at year-end amounted to 10% of the total manufacturing cost.


Finished goods at year-end amounted to 20% of the cost of goods manufactured.
4

What is the amount of the direct labor cost incurred?

a. 1,800,000
b. 2,400,000
c. 3,000,000
d. 5,400,000

Problem 8 (IAA)

Tactful Company reported that the operating expenses other than interest expense for the year
amount to 40% of cost of goods sold but only 20% of sales, Interest expense is 5% of sales.

The amount of purchases is 120% of cost of goods sold. Ending inventory is twice as much as
the beginning inventory, The net income for the year is P560, 000. The income tax rate is 30%?

What is the amount of sales for the year?


a. 2,080,000
b. 1,485,000
c. 2,285,000
d. 3,200,000

Problem 8 (AICPA Adapted)


Pearl 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 Cinn Company – 40% interest 1,600,000


Dividend received from Cinn Company 320,000
Adjustment of profit of prior year
For arithmetical error in depreciation (1, 400,000)
Gain on sale of equity investment at PVOCI 1,000,000

What amount should be reported as income before tax?

a. 3,400,000
b. 4,680,000
c. 5,080,000
d. 6,080,000

Problem 9 (IFRS)

On January 1, 2016, Racelle Company purchased land at a cost of P6,000,000. The entity used
the revolution model for this asset.

The fair value of the land was P7, 000,000 on December 31,2016 and P8,500,000 on December
31,2017.

On July 1, 2018, the entity decided to sell the land and therefore classified the asset as held for
sale.

The fair value of the land on this date in P7, 600,000. The estimated cost of disposal is very
minimal.

On December 31, 2018, the land was sold for P8,000,000.

1. What amount is OCI should be recognized in the statement of comprehensive income for
the year ended December 31,2017?

a. 2,500,000
b. 1,500,000
c. 400,000
d. 900,000

2. What amount of gain or loss on sale of land is recognized in 2018?

a. 2,000,000 gain
b. 1,000,000 gain
c. 400,000 gain
d. 500,000 loss

3. Wha amount of OCI is recycled to retained earnings in 2018?

a. 1,0000,000
b. 1,600,000
c. 2,500,000
d. 2,000,000\

Problem 10 (IAA)
On April 1, 2016, Brandy Company has a machine with a cost of P5,000,000 and accumulated
depreciation of P3,750,000.

On April 1, 2016, the entity classified, the machine as held for sale and decided to sell the
machine within one year.

On April 1, 2016, the machine had an estimated selling price of P500,000 and a remaining
useful life of 2 years.

It is estimated that selling cost associated with the disposal of the machine will be P50, 000.

On December 31,2016, the estimated selling price of the machine had increased to P75,000
with estimated selling cost of P100,000.

1. What amount of impairment loss should be recognized in 2016?

a. 1,250,000
b. 800,000
c. 750,000
d. 0

2. What amount should be recognized as gain on reversal of impairment on December 31,


2016?

a. 468,750
b. 368,750
c. 300,000
d. 200,000

Problem 11 (IAA)

On December 31, 2016, Erika Company reported cash account balance per ledger of P3,600,000
which included the following:
6
Cash in bank – demand deposit 1,500,000
Time deposit – 30 days 500,000
NSF check of customer 20,000
Money market placement due on June 30,2017 1,000,000
Saving deposit 50,000
IOU from an employee 30,000
Pension fund 400,000
Petty cash fund 10,000
Customer check dated January 31,2017 60,000
Customer check outstanding for 18 months 30,000

3,600,000

 Check of P100, 000 in payment of accounts payable was dated and recorded on
December 31, 2016 but mailed to creditors on January 15, 2017.

 Check of P50, 000 dated January 31, 2017 in payment of accounts payable was recorded
and mailed December 31, 2016.

 The cash receipts journal was held open until January 15, 2017, during which time
P200,000 was collected and recorded on December 31, 2016.

What total amount should be reported as cash and cash equivalents on December 31, 2016?
a. 2,010,000
b. 1,960,000
c. 1,860,000
d. 1,510,000

Problem 12 (IAA)

On December 31, 2016, Roma Company reported cash of P3,350,000 with the following details:

Undeposited collections 60,000


Cash in bank – BDO checking account 500,000
Cash in bank – PNB (overdraft) ( 50,000)
Undeposited NSF check from a customer,
Dated December 1, 2016 15,000
Undeposited check from a customer, dated January 15, 2017 25,000
Cash in bank – BDO fund for payroll 150,000
Cash in bank – BDO saving deposit 100,000
Cash in bank – BDO money market instrument , 90 days 2,000,000
Cash in foreign bank restricted 100,000
Cash in bank – BDO value added tax account 450,000

Total 3,350,000

On December 31, 2016, what total amount should be reported as cash and cash equivalents?

a. 2,910,000
b. 2,810,000
c. 2,760,000
d. 3,260,000

PROOF OF CASH

Problem 13 (AICPA Adapted)

Lazer Company had the following bank reconciliation on June 30:

Balance per bank statement, June 30 3,000,000


Deposit in transit 400,000

Total 3,400,000
Outstanding checks ( 900,000)

Balance per book, June 30 2,500,000

The bank statement for the month of July showed the following:

Deposits, including, P200, 000 note collected for Lazer 9,000,000


Disbursements, including P140,000 NSF customer check
And P10, 000 service charge 7,000,000

All reconciling items on June 30 cleared through the bank in July. The outstanding checks
totalled P600, 000 and the deposit in transit amounted to P1,000,000 on July 31.
1. What is the adjusted cash in bank on July 31?
a. 2,500,000
b. 5,400,000
c. 2,900,000
d. 5,000,000

2. What is the cash balance per book on July 31?


a. 5,400,000
b. 5,350,000
c. 5,550,000
d. 4,500,000

3. What is the amount of cash receipts per book in July?


a. 9,400,000
b. 9,600,000
c. 8,600,000
d. 9,800,000

4. What is the amount of cash disbursements per book in July?


a. 6,550,000
b. 6,700,000
c. 7.300,000
d. 6,850,000

Problem 14 (AICPA Adapted)

Chris Company presented the following bank reconciliation for the month of November:

Balance per bank statement, November 30 3,600,000


Add: Deposit in transit 800,000

4,400,000

8
Less: Outstanding checks 1,200,000
Bank credit recorded in error 200,000 1,400,000

Balance per book, November 30 3,000,000

Data per bank statement for the month of December follow:

December deposits, including note


Collected of P1, 000,000 for Chris 5,500,000
December disbursements, including NSF customer check
P350, 000 and service charge P50,000 4,400,000

All items that were outstanding on November30 cleared through the bank in December ,
including the bank credit.

In addition, checks amounting to P500, 000 were outstanding and deposits of P700,000 were in
transit on December 31.

1. What is the adjusted cash in bank on December 31?


a. 4,700,000
b. 4,900,000
c. 4,500,000
d. 3,200,000
2. What is the cash balance per ledger on December 31?
a. 4,100,000
b. 4,900,000
c. 4,700,000
d. 4,300,000

3. What is the amount of cash receipts per book in December?


a. 5,400,000
b. 4,400,000
c. 5,500,000
d. 6,400,000

4. What is the amount of cash disbursements per book in December?


a. 3,700,000
b. 3,300,000
c. 3,100,000
d. 3,500,000

Problem 15 (PHILCPA Adapted)

Jam Company provided the following bank reconciliation on May 31:

Balance per bank statement 2,100,000


Deposits outstanding 300,000
Checks outstanding ( 30,000)

Current cash balance 2,370,000

Balance per book 2,372,000


Bank service charge ( 2,000)

Correct cash balance 2,370,000

9
Data for the month of June:

Bank Book

Checks recorded 2,300,000 2,360,000


Deposits recorded 1,620,000 1,800,000
Collections by bank (P400, 000 note
Plus interest) 420,000
NSF check returned with June 30 statements 10,000
Balance 1,830,000 1,810,000

1. What is the amount of checks outstanding on June 30?

a. 30,000
b. 90,000
c. 60,000
d. 0

2. What is the amount of deposits in transit on June 30?

a. 480,000
b. 120,000
c. 180,000
d. 680,000
3. What is the adjusted cash in bank on June 30?

a. 1,810,000
b. 2,220,000
c. 2,240,000
d. 2,780,000

Problem 16 (PHILCPA Adapted)

Honduras Company revealed a balance of P8, 200,000 in the accounts receivable control
account at year-end.

An analysis of the accounts receivable showed the following:

Accounts known to be worthless 100,000


Advance payments to creditors on purchase orders 400,000
Advances to affiliated entities 1,000,000
Customers’ accounts reporting credit balances arising
from sales returns ( 600,000)
Interest receivable on bonds 400,000
Trade accounts receivable- unassigned 2,000,000
Subscription receivable due in 30 days 2,200,000
Trade accounts receivable – assigned (Finance
Company’s equity in assigned accounts is P500, 000) 1,500,000
Trade instalments receivable due 1 – 18 month,
Including unearned finance charge of P50, 000 850,000
Trade accounts receivable from officers, due currently 150,000
Trade accounts on which postdated checks are held
and no entries were made on receipt of checks 200,000

Total 8,200,000

10
What amount should be reported as trade accounts receivable at year-end?

a. 4,650,000
b. 4,700,000
c. 4,150,000
d. 4,050,000

Problem 17 (IAA)

Wonder Company provided the following transactions affecting accounts receivable during the
current year:

Sales (cash and credit) 5,900,000


Cash received from credit customers, all of whom
took advantage of the discount feature of the
credit terms 4/10, n/30 3,024,000
Cash received from cash customers 2.100,000
Accounts receivable written off as worthless 50,000
Credit memorandum issued to credit customers
for sales returns and allowances 250,000
Cash refunds given to cash customers for sales
returns and allowances 20,000
Recoveries on accounts receivable written off as
uncollectible in prior periods not included in
cash received from customers stated above 80,000

The balances on January 1 were as follows:

Accounts receivable 950,000


Allowance for doubtful accounts 100,000

The entity provided for uncollectible account losses by crediting allowance for doubtful
accounts in the amount of P70,000 for the current year.

1. What is the balance of accounts receivable on December 31?


a. 1,300,000
b. 1,426,000
c. 1,280,000
d. 1,220,000

2. What is the balance of allowance for doubtful accounts on December 31?


a. 120,000
b. 200,000
c. 250,000
d. 170,000

Problem 18 (PHILCPA Adapted)

Germany Company started business at the beginning of current year. The entity established an
allowance for doubtful accounts estimated at 5% of credit sales. During the year, the entity
wrote off P50, 000 of uncollectible accounts.

Further analysis showed that merchandise purchased amounted to P9, 000,000 and ending
merchandise inventory was P1500,000. Goods were sold at 40% above cost.

The total sales compromised 80% sales on account and 20% cash sales. Total collections from
customers, excluding cash sales, amounted to P6, 000,000.
11
1. What is the cost of goods sold?

a. 7,500,000
b. 5,400,000
c. 3,600,000
d. 6,900,000

2. What is the amount of sales on account?

a. 10,500,000
b. 18,750,000
c. 12,000,000
d. 8,800,000

3. What is the net realizable value of accounts receivable at year-end?

a. 1,980,000
b. 2,350,000
c. 1,930,000
d. 2,400,000

Problem 19 (AICPA Adapted)


Delta Company sold goods to wholesalers on terms 2/15, net 30. The entity had no cash sales
but 50% of the customers took advantage of the discount.

The entity used the gross method of recording sales and accounts receivable.

An analysis of the trade accounts receivable at year-end revealed the following.

Age Amount Collectible

0 – 15 days 2,000,000 100%


16 – 30 days 1,400,000 95%
31- 60 days 400,000 90%
Over 60 days 200,000 50%

4,000,000

1. What amount should be reported as allowances for sales discount at year-end?

a. 20,000
b. 32,400
c. 33,500
d. 40,000

2. What amount should be reported as allowance for doubtful accounts at year-end?

a. 230,000
b. 210,000
c. 190,000
d. 200,000

12
3. What is the net realizable value of accounts receivable?

a. 4,000,000
b. 3,750,000
c. 3,770,000
d. 3,790,000

Problem 20 (AICPA Adapted)

On January 1, 2016, Jamin Company had a credit balance of 260,000 in the allowance for
uncollectible accounts .Based on past experience, 2% of credit sales would be uncollectible.

During the current year, the entity wrote off 325,000 of uncollectible accounts. Credit sales for
the year totalled P9, 000,000.

1. What is the uncollectible accounts expense for the year?

a. 325,000
b. 180,000
c. 440,000
d. 65,000
2. On December 31, 2016, what amount should be reported as allowance for uncollectible
accounts?

a. 115,000
b. 180,000
c. 245,000
d. 440,000

Problem 20 (AICPA Adapted)

Ladd Company provided the following data for the current year:

Allowance for doubtful accounts – January 1 180,000


Sales 9,500,000
Sales returns and allowances 800,000
Sales discounts 200,000
Accounts written off as uncollectible 200,000

The entity provided for doubtful accounts expense at the rate of 3% of net sales.

What is the allowance for doubtful accounts at year-end?

a. 435,000
b. 265,000
c. 235,000
d. 241,000

Problem 21 (PHILCPA Adapted)

On January 1, 2016, Easy Company reported accounts receivable P2, 070,000 and allowance for
doubtful accounts P80,000. The entity provided the data:

13
Credit sales Write offs Recoveries

2013 11,100,000 260,000 22,000


2014 12,250,000 295,000 37,000
2015 14,650,000 300,000 36,000
2016 15,000,000 310,000 40,000

The collections from customers during 2016 totaled P14, 000,000, excluding recoveries.

Doubtful accounts are provided for as a percentage of credit sales.

The entity calculated the percentage annually by using the experience of the three years prior
to the current year.

1. What amount should be reported as doubtful accounts expense for 2016?

a. 310,000
b. 300,000
c. 222,000
d. 378,000
2. What amount should be reported as allowance for doubtful accounts on December 31,
2016?

a. 110,000
b. 378,000
c. 300,000
d. 478,000

3. What is the net realizable value of account a receivable on December 31,2016?

a. 2,650,000
b. 2,690,000
c. 2,760,000
d. 2,800,000

Problem 22 (AICPAM Adapted)

Sigma Company began operations on January 1, 2015. On December 31, 2015, the entity
provided for doubtful accounts based on 1% of annual credit sales.

On January 1, 2016, the entity changed the method of determining the allowance for doubtful
accounts receivable.

Days past invoice date Percent uncollectible

0 – 30 1
31-90 5
91 – 180 20
Over 280 80

In addition, the entity wrote off all accounts receivable that were over 1 year old.

14
The following additional information related to the years ended December 31,2016 and 2015.

2016 2015

Credit sales 3,000,000 2,800,000


Collections, including recovery 2,915,000 2,400,000
Accounts written off 27,000 none
Recovery of accounts previously
Written off 7,000 none

Days past invoice date at December 31

0 – 30 300,000 250,000
31 – 90 80,000 90,000
91 – 180 60,000 45,000
Over 180 25,000 15,000

1. What is the allowance for doubtful accounts on December 31, 2015?

a. 28,000
b. 24,000
c. 26,000
d. 0

2. What is the allowance for doubtful accounts on December 31, 2016?

a. 30,000
b. 39,000
c. 29,150
d. 27,000

3. What amount should be reported as doubtful accounts expense for 2016?

a. 39,000
b. 31,000
c. 38,000
d. 11,000

Problem 23 (IAA)

Freeway Company provides financing to order entities by purchasing their accounts receivable
on a nonrecourse basis. Freeway charges clients a commission of 15% on all receivables
factored.

In addition, Freeway withholds 10% of receivables factored as protection against sales returns
and other adjustments.

Freeway credits the 10% withheld to Clients Retainer account and makes payments to clients at
the end of each month so that the balance in the retainer is equal to 10% of unpaid receivables
at the end of the month.

Experience has led Freeway to establish an allowance for doubtful accounts of 4% of all unpaid
receivables purchased.

During the current year, Freeway purchased receivables from Motorway Company totalling
P3,000,000.
15
Motorway had previously established an allowance for doubtful accounts for these receivables
at P100, 000.

By year-end, Freeway had collected P2, 500,000 on these receivables.

1. What is the amount of cash initially received by Motorway Company from Freeway
Company?

a. 2,2250,000
b. 3,000,000
c. 2,550,000
d. 2,700,000

2. What is the loss on factoring to be recognized by Motorway Company?

a. 350,000
b. 450,000
c. 650,000
d. 750,000

Problem 24 (IAA)
During the second year of operations, Shark Company found itself in financial difficulties. The
entity decided to use the accounts receivable as a means of obtaining cash to continue
operations.

On July 1, 2016, the entity sold P1, 500,000 of accounts receivable for cash proceeds of
P1,390,000. No bad debt allowance was associated with these accounts.

On December 15,2016, the entity assigned the remainder of its accounts receivable, P5,000,000
as of that date, as collateral on a P2,500,000, 12% annual interest rate loan from Finance
Company. The entity received P2, 500,000 less a 2% finance charge.

None of these assigned accounts had been collected by the end of the year. It is estimated that
10% of accounts receivable would be uncollectible.

The entity revealed the following data in December 31, 2016:

Accounts receivable, excluding factored and


Assigned accounts 1,000,000
Accounts receivable- assigned 5,000,000
Accounts receivable – factored 1,500,000
Allowance for bad debts before adjustments 100,000

1. What total amount should be reported as accounts receivable on December 31,2016?


a. 7,500,000
b. 6,000,000
c. 5,000,000
d. 1,000,000

2. What amount should be recognized as bad debt expense for 2016?

a. 600,000
b. 500,000
c. 650,000
d. 0

16
Problem 25 (IAA)

On August 31, 2016, Sunflower Company discounted with recourse a note at the bank at
discount rate of 15%. The note was received from the customer on August 1, 2016, is for 90
days, has a face value of P5, 000,000, and carries an interest rate 12%.

The discounting transaction is accounted for as secured borrowing.

The customer paid the note to the bank on October 30, 2016, the date of maturity.

What is the interest expense to be recognized on August 31, 2016?

a. 50,000
b. 21,,250
c. 28,750
d. 25,000

Problem 26 (IAA)

On April 1, 2016, Shalimar Company discounted with recourse a 9 – month, 10% note dated
January 1, 2016 with face of P6,000,000. The bank discount rate is 12%. The discounting
transaction is accounted for as a conditional sale with recognition of contingent liability.
On October 1, 2016, the maker dishonoured the note receivable. The entity paid the bank the
maturity value of the note plus protest fee of P50, 000.

On December 31, 2016, the entity collected the dishonoured note in full plus 12% annual
interest on the total amount due.

1. What amount was received from the note discounting on April 1, 2016?

a. 6,063,000
b. 6,450,000
c. 6,150,000
d. 5,963,000

2. What amount should be recognized as loss on note discounting?

a. 450,000
b. 387,000
c. 87,000
d. 63,000

3. What is the total amount collected from the customer on December 31, 2016?

a. 6,450,000
b. 6,500,000
c. 6,695,000
d. 6,662,000

4. If the discounting is a secured borrowing, what is included in the journal entry to record
the transaction?

a.
Debit loss on discounting P87,000
b.
Debit interest expense P87,000
c.
Credit liability for note discounted P6,063,000
d.
Credit interest income P63,000
17
Problem 27 (AICPA Adapted)

On January 1, 2016, Mill Company sold a building and received as consideration P1, 000,000
cash and a P4, 000,000 noninterest bearing note due on January 1, 2019.

There was no established exchange price for the building and the note had no ready market.

The prevailing rate of interest for a note of this type was 10%. The present value of 1 at 10% for
three periods is 0.75.

What amount of interest revenue should be included in the 2017 income statement?

a. 370,000
b. 400,000
c. 300,000
d. 330,000

Problem 27 (IFRS)

Appari Bank granted a loan to a borrower on January 1, 2016. The interest rate on the loan is
10% payable annually starting December 31, 2016. The loan matures in five years on December
31, 2020.
Principal amount 4,000,000
Origination fee received from borrower 350,000
Direct origination cost incurred 61,500

The effective rate on the loan after considering the direct origination cost incurred and
origination fee received is 12%.

1. What is the carrying amount of the loan receivable on January 1, 2016?

a. 4,000,000
b. 4,650,000
c. 4,411,500
d. 3,711,500

2. What is the interest income for 2016?

a. 400,000
b. 558,000
c. 529,380
d. 445,380

3. What is the carrying amount of the loan receivable on December 31, 2016?

a. 4,000,000
b. 3,756,880
c. 4,243,120
d. 3,600,000

Problem 28 (IAA)

Kalibo bank loaned P5, 000,000 to Caticlan Company on January 1, 2014. The terms of the loan
require principal payments of P1, 000,000 each year for 5 years plus interest at 8%.

18
The first principal and interest payment is due on January 1, 2015. Caticlan Company made the
required payments during 2015 and 2016.

However, during2016 Caticlan Company began to experience financial difficulties , requiring


Kalibo Bank to reassess the collectability of the loan.

On December 31, 2016, Kalibo Bank has determined that the remaining principal payment will
be collected but the collection of the interest in unlikely, Kalibo Bank did not accrue the
interest on December 31,2016.

The present value of 1 at 8% is as follows:

For one period 0.926


For two periods 0.857
For three periods 0.794

1. What is the loan impairment loss on December 31,2016?

a. 423,000
b. 217,000
c. 222,000
d. 0
2. What is the interest income for 2017?

a. 126,160
b. 142,640
c. 240,000
d. 0

3. What is the carrying amount of the loan receivable on December 31, 2017?

a. 2,000,000
b. 1,925,640
c. 1,640,360
d. 1,783,000

Problem 29 (IAA)

On January 1, 2016, Oceanic Bank made a P1, 000, 000, 8% loan. The P80, 000 interest is
receivable at the end of each year, with the principal amount to be received at the end of five
years. At the end of 2016, the first year’s interest of P80, 00 has not yet been received because
the borrower is experiencing financial difficulties. The borrower negotiated a restructuring of
the loan.

The payment of all of the interest for 5 years will be delayed until the end of the 5 – year loan
term. In addition, the amount of principal repayment will be dropped from P1, 000,000 to P500,
000.

The PV of 1 at 8% for 4 periods is .735. No interest revenue has been recognized in 2016 in
connection with the loan.

1. What is the loan impairment loss on December 31, 2016?

a. 338,500
b. 238,500
c. 388,000
d. 288,000 19
2. What is the interest income for 2017?

a. 80,000
b. 52,920
c. 48,960
d. 0

Problem 30 (IAA)

On December 31, 2016, Solid Bank has a loan receivable of (4,000,000 from a borrower that it
is carrying at face value and is due on December 31,2021. Interest on the loan is payable at 9%
each December 31,

The borrower paid the interest due on December 31, 2016 but informed the bank that it would
probably miss the next two years’ interest payments.

After that the borrower is expected to resume the annual interest payment but it would make
the principal payment one year late, with interest paid for that additional year at the time of
principal payment.

The PV of 1 at 9% is.772 for three periods, .708 four periods, .650 for five periods, and .596 for
six periods.
What is the loan impairment loss for 2016?

a. 634,640
b. 720,000
c. 721,960
d. 913,120

Problem 31 (AICPA Adapted)

Diane Company sold loans with a P2, 200 fair value and a carrying amount of P2,000. The entity
obtained an option to purchase similar loans and assumed a recourse obligation to repurchase
loans. The entity also agreed to provide a floating rate of interest to the transferee.

Fair values

Cash proceeds 2,100


Interest rate swap 140
Call option 80
Recourse obligation ( 20)

1. What is the gain (loss) on the sale?

a. 320
b. 200
c. (100)
d. 120

2. What is included in the journal entry to record the transfer on the books of Diane
Company?

a. A debit to call option


b. A credit to interest rate swap
c. A debit to loans
d. A credit to cash
20

3. Assume that Diane Company agreed to service the loans without explicitly stating the
compensation. The fair value of the service is P50. What are the net proceeds and the
gain (loss) on the sale, respectively?

a. 2,200 and 200


b. 2,250 and 250
c. 2,150 and 150
d. 2,200 and (250)

Problem 31 (IAA)

Aman Company provided the following data:

Items counted in the bodega 4,000,000


Items included in the count specifically segregated
per sale contract 100,000
Items in receiving department, returned by customer,
In good condition 50,000
Items ordered and in the receiving department 400,000
Items ordered, invoice received but goods not
Received, Freight is on account of seller . 300,000
Items shipped today, invoice mailed, FOB shipping point 250,000
Items shipped today, invoice mailed, FOB destination 150,000
Items currently being used for window display 200,000
Items on counter for sale 800,000
Items in receiving department, refused because of damage 180,000
Items included in count, damaged and unsalable 50,000
Items in the shipping department 250,000

What is the correct amount of inventory?

a. 5,700,000
b. 6,000,000
c. 5,800,000
d. 5,150,000

Problem 32 (IAA)

Ram company provided the following information at the end of current year.

Finished goods in storeroom, at cost, including overhead


Of P400, 000 or 20% 2,000,000
Finished goods in transit, including freight charge of
P20, 000. FOB shipping point 250,000
Finished goods held by salesman, at selling price,
Cost, P100,000 140,000
Goods in process, at cost of materials and direct labor 720,000
Materials 1,000,000
Materials in transit, FOB destination 50,000
Defective matrials returned to suppliers 100,000
Shipping supplies 20,000
Gasoline and oil for testing finished goods 110,000
Machine lubricants 60,000

21
What is the correct amount of inventory?

a. 4,00,000
b. 4,170,000
c. 4,270,000
d. 4,090,000

Problem 33 (AICPA Adapted)

Brunette Company shipped inventory on consignment to Heart Company with original cost
P500,00. Heart paid P12,000 for advertising that was reimbursable from Brunette.

At the end of the year, 40% of the inventory was sold for P320,000. The agreement stated that
a commission of 10% will be provided to Heart for all sales.

What amount should be reported as net income from the consignment?

a. 100,000
b. 120,000
c. 76,000
d. 0
Problem 34 (AICPA Adapted)

Seafood Company commenced operations during the year as large importer and exporter of
seafood. The imports were all from one country overseas. The entity reported the following
data:

Purchases during the year 12,000,000


Shipping costs from overseas 1,500,000
Shipping costs to export customers 1,000,000
Inventory at year-end 3,000,000

What amount of shipping costs should be included in the year-end inventory valuation?

a. 250,000
b. 625,000
c. 375,000
d. 0

Problem 35 (AICPA Adapted)

On June 1, 2016, Pitt Company sold merchandise with a list price of P5,000,000 to Burr on
account. Pitt allowed trade discounts of 30% and 20%.

Credit items were 2/10, n/30 and the sale was made FOB shipping point. Pitt prepaid P200,000
of delivery costs for Burr as an accommodation.

1. What amount should be reported as sales revenue?

a. 5,000,000
b. 2,800,000
c. 3,500,000
d. 2,500,000

22

2. On June 11, 2016, what amount was received by Pitt from Burr as remittance in full?

a. 2,744,000
b. 2,940,000
c. 2,944,000
d. 3,140,000

Problem 36 (AICPA Adapted)

Kew Company reported accounts payable on December 31,2016 at P2,200,000 before


considering the following data:

 Goods shipped to Kew F.O.B. shipping point on December 22, 2016, were lost in
transit. The invoice cost of P40,000 was not recorded by Kew. On January 7,2017, Kew
filed a P40,000 claim against the common carrier.

 On December 27, 2016, a vendor authorized Kew to return, for full credit, goods
shipped and billed at P70,000 on December 3, 2016. The returned goods were shipped
by Kew on December 28, 2016. A P70,000 credit memo was ,received and recorded by
Kew on January 5, 2017.
 On December 31, 2016, Kew has a P500,000 debit balance in accounts payable to Ross,
a supplier, resulting from a P500,000 advance payment for goods to be manufactured.

What amount should be reported as accounts payable on December 31, 2016?

a. 2,170,000
b. 2,680,000
c. 2,730,000
d. 2,670,000

Problem 37 (AICPA Adapted)

Lyle Company is preparing financial statements for the year ended December 31, 2016.
Accounts payable amounted to P360,000 before any necessary year-end adjustment related to
the following:

 On December 31, 2016, Lyle has a P50,000 debit balance in accounts payable to Reese, a
supplier, resulting from a P50,000 advance payment for goods to be manufactured.

 Checks in the amount of P100,000 were written to vendors and recorded on December
20, 2016. The checks were mailed on January 5, 2017.

What amount should be reported as accounts payable on December 31, 2016?

a. 510,000
b. 410,000
c. 310,000
d. 210,000

Problem 30 (AICPA Adapted)

Bakun Company began operations late in 2015. For the first quarter ended March 31, 2016, the
entity provided the following information:

23
Total merchandise purchased through March 15, 2016
recorded at net 4,900,000
Merchandise inventory on January 1, 2016,
At selling price 1,500,000

All merchandise was acquired on credit and no payments have been made on accounts payable
since the inception of the entity.

All merchandise is marked to sell at 50% above invoice cost before time discounts of 2/10,
n/30. No sales were made in 2016.

What amount of cash is required to eliminate the current balance in accounts payable?

a. 6,000,000
b. 5,900,000
c. 6,400,000
d. 5,750,000

Problem 31 (IAA)

Jayson Company used the perpetual system. The following information has been extracted
from the records about one product:
Units Unit cost Total cost

Jan. 1 Beginning balance 8,000 70.00 560,000


6 Purchase 3,000 70.50 211,500
Feb. 5 Sale 10,000
Mar. 5 Purchase 11,000 73.50 808,500
Mar. 8 Purchase return 800 73.50 58,800
Apr. 10 Sale 7,000
Apr. 30 Sale return 300

If the FIFO cost flow method is used, What is the cost of the inventory on April 30?

a. 330,750
b. 315,000
c. 433,876
d. 329,360

Problem 32 (IAA)

Mildred Company is a wholesaler of office supplies. The FIFO periodic inventory is used. The
entity reported the following activity for inventory of calculators during the month of August:

Units Cost

August 1 Inventory 20,000 36.00


7 Purchase 30,000 37.20
12 Sale 36,000
21 Purchase 48,000 38.00
22 Sale 38,000
29 Purchase 16,000 38.60

24
What is the ending inventory on August 31?

a. 1,500,800
b. 1,501,600
c. 1,522,880
d. 1,529,600

Problem 33 (IAA)

Hilltop Company sells a new product. During a move to a new location, the inventory records
for the product were misplaced. The entity has been able to gather some information from the
purchases and sales records. The July purchases are as follows:

Quantity Unit cost Total cost

July 5 10,000 65 650,000


9 12,000 63 756,000
12 15,000 60 900,000
25 14,000 62 868,000

51,000 3,174,000
On July 31, 15,000 units were on hand. The sales for July amount to P6, 000,000, or 60,000 units
at P100 per unit. Gross profit on sales for July was P2, 400,000.

The entity has always used a periodic FIFO inventory costing system.

What is the cost of inventory on July 1?

a. 1,354,000
b. 2,400,000
c. 2,826,000
d. 426,000

Problem 34 (PHILCPA Adapted)

Lane Company provided the following inventory card during February:

Purchase Units Balance


Price Units Used Units

Jan. 10 100 20,000 20,000


31 10,000 10,000
Feb. 8 110 30,000 40,000
9 Returns from factory (Jan. 10 lot) ( 1,000) 41,000
28 11,000 30,000

Using the weighted average method, what is the cost of inventory on February 28?

a. 3,180,000
b. 3,150,000
c. 3,120,000
d. 3,300,000

25

Problem 35 (AICPA Adapted)

During the month of January, Metro Company which used a perpetual inventory system
recorded the following information pertaining to inventory:

Units Unit cost Total cost Units on hand

Balance on 1/1 10,000 100 1,000,000 10,000


Purchased on 1/7 6,000 300 1,800,000 16,000
Sold on 1/20 9,000 7,000
Purchased 1/25 4,000 500 2,000,000 11,000

Under the moving average method, what amount should Metro report as inventory on January
31?

a. 2,640,000
b. 3,225,000
c. 3,300,000
d. 3,900,000

Problem 36 (IAA)
Yakal Company reported that a flood recently destroyed many of the financial records. The
entity used an average cost inventory valuation system. The entity made a physical count at the
end of each month in order to determine monthly ending inventory value. By examining various
documents, the following data are gathered:

Ending inventory at July 31 60,000 units


Total cost of units available for sale in July 1,452,100
Cost of goods sold during July 1,164,100
Cost of beginning inventory, July 1 4.00 per unit
Gross profit on sales for July 935,900

Units Unit cost Total cost

July 5 55,000 5.10 280,500


11 53,000 5.00 265,000
15 45,000 5.50 247,500
16 47,000 5.30 249,100

Total purchases 200,000 1,042,100

1. What is the number of units on July 1?

a. 102,500
b. 140,000
c. 76,500
d. 60,000

2. How many units were sold during the month of July?

a. 242,500
b. 140,000
c. 302,500
d. 260,000

26
3. What is the cost of the inventory on July 31?

a. 288,000
b. 410,000
c. 312,600
d. 240,000

Problem 37 (PHILCPA Adapted)

Elixir Company bought a 10-hectares land in Novaliches to be improved, subdivided into lots
and eventually sold. The purchase price of the land was P5,800,000.

Taxes and documentation expenses on the transfer of the property amounted to P80,000.

Lot class Number of lots Selling price per lot Total clearing cost

A 10 100,000 None
B 20 80,000 100,000
C 40 70,000 300,000
D 50 60,000 800,000
What amount should be allocated as total cost of Class B lots under the relative sales price
method?

a. 1,176,000
b. 1,220,000
c. 1,276,000
d. 1,700,000

Problem 38 (PHILCPA Adapted)

Apitong Company manufactures bath towels. The production comprises 60% of “Class A” which
sells for P500 per dozen and 40% of “Class B” which sells for P250 a dozen.

During the current year, 60,000 dozens were produced at an average cost of P360 a dozen.

The inventory at the end of the current year was as follows:

2,200 dozens “Class A” @ P360 792,000


3,000 dozens “Class B” @ P360 1,080,000

Total inventory 1,872,000

Using the relative sales value method which management considers as a more equitable basis
of cost distribution, what is the measurement of the inventory?

a. 1,170,000
b. 1,665,000
c. 1,872,000
d. 2,340,000

27
Problem 39 (IFRS)

Chicago Company has two products in the inventory.

Product X Product Y

Selling price 2,000,000 3,000,000


Materials and conversion costs 1,500,000 1,800,000
General administration costs 300,000 800,000
Estimated selling costs 600,000 700,000

At the year-end, the manufacture of items of inventory has been completed but no selling costs
have yet been incurred.

1. What amount should be reported as inventory using the LCNRV individual approach?

a. 3,700,000
b. 3,200,000
c. 3,800,000
d. 3,300,000
2. What amount should be reported as inventory using the LCNRV total approach?

a. 3,300,000
b. 3,200,000
c. 3,700,000
d. 2.450,000

In the absence of any statement to the contrary, the LCNRV should be applied using the
individual approach.

Problem 71 (IFRS)

Galore Company ventured into construction of a condominium in Makati which is rated as the
largest state-of-the-art structure.

The board of directors decided that instead of selling the condominium, the entity would hold
this property for purposes of earning rentals by letting out space to business executives in the
area.
The construction of the condominium was completed and the property was placed in service on
January 1, 2016.

The cost of construction was P50, 000, 000. The useful life of the condominium is 25 years and
the residual value is P5, 000, 000.

An independent valuation expert provided the following fir value at each subsequent year-end:

December 31, 2016 55, 000, 000


December 31, 2017 53, 000, 000
December 31, 2018 60, 000, 000

1. Under the cost mold, what amount should be reported as depreciation of investment
property for 2016?

a. 1, 800, 000
b. 2, 000, 000
c. 2, 200, 000 44
d. 0

2. Under the fair value model, what amount should be recognized as gain from change in
fair value in 2016?

a. 5, 000, 000
b. 3, 000, 000
c. 7, 000, 000
d. 0

Problem 72 (IFRS)

Eragon Company and its subsidiaries own the following properties at year-end:

Land held by Eragon for undetermined use 5, 000, 000


A vacant building owned by Eragon and to be
leased out under an operating lease 3, 000, 000
Property held by a subsidiary of Eragon, a real
estate firm, in the ordinary course of business 2, 000, 000
Property held by Eragon for use in production 4, 000, 00
Building owned by a subsidiary of Eragon and
for which the subsidiary provides security
and maintenance services to the lessees 1, 500, 000
Land leased by Eragon to a subsidiary under an
operating lease 2, 500, 000
Property under construction for use as investment
Property 6, 000, 000
Land held for future factory site 3, 500, 000
Machinery leased out by Eragon to an unrelated
Party under an operating lease 1, 000, 000

1. What is the total investment property that should be reported in the consolidated
statement financial position of the parent and its subsidiaries?

a. 12, 000, 000


b. 15, 500, 000
c. 10, 500, 000
d. 9, 500, 000

2. What total amount should be considered as owner-occupied property and included in


property, plant and equipment in the consolidated statement of financial position?

a. 11, 000, 000


b. 13, 000, 000
c. 10, 500, 000
d. 8, 500, 000

Problem 73 (IFRS)

Dayanara Company owned three properties which are classified as investment property.

Initial Fair Value Fair value


Cost 12/31/2016 12/31/2017

Property 1 2,700, 000 3, 200, 000 3, 500, 000


Property 2 3, 450,000 3, 050, 000 2, 850, 000
Property 3 3, 300, 000 3, 850, 000 3, 600, 000
45

46
Each property was acquired three years ago with a useful life of 25 years. The accounting policy
is to use the fair value model for investment property.

What is the gain or loss to be recognized for the year ended December 31, 2017?

a. 189, 000 loss


b. 150, 000 loss
c. 300, 000 gain
d. 450, 000 loss

Problem 74 (IFRS)

On January 1, 2014, Crosswind Company owned an investment property which had an original
cost of P5, 800, 000 and useful life of 40 years.

On December 31, 2016, the fair value was P6, 000, 000 and on December 31, 2017, the fair
value was P5, 900, 000.

1. Under the fair value model, what is the expense to be recognized for the year ended
December 31, 2017?
a. 147, 500
b. 100, 000
c. 200, 000
d. 0

2. Under the cost model, what is the expense to be recognized for the year ended
December 31, 2017?

a. 145, 000
b. 150, 000
c. 147,500
d. 0

Problem 75 (IFRS)

Rhino Company, a real estate entity, had a building with a carrying amount of P20, 000, 000 on
December 31, 2016. The building was used as offices of the entity’s administrative staff.

On December 31, 2016, the entity intended to rent out the building to independent third
parties. The staff will be moved to a new building purchased early in 2016.

On December 31, 2016, the original building had a fair value of P35, 000, 000.

On December 31, 2016, the entity also had land that was held for sale in the ordinary course of
business.

The land had a carrying amount of P10, 000, 000 and fair value of P15, 000, 000 on December
31, 2016.

On such date, the entity decided to hold the land for capital appreciation.

The accounting policy is to carry all investment property at fair value.

1. On December 31, 2016, what amount should be recognized in revaluation surplus as a


result of transfer of the building to investment property?

47

a. 20, 000, 000


b. 35, 000, 000
c. 15, 000, 000
d. 0

2. On December 31, 2016, what amount should recognized in profit or loss as a result of
transfer of the land to investment property?
a. 15, 000, 000
b. 10, 000, 000
c. 5, 000, 000
d. 0

Problem 76 (AICPA Adapted)

Fall Company provided the following information in relation to a bond sinking fund that was
placed in trust as required by the underwriter:

Bond sinking fund, January 1, 2016 4, 500, 000


Additional investment in 2016 900, 000
Dividends on investments 150, 000
Interest revenue 300, 000
Administration costs 50, 000
Carrying amount of bonds payable 8, 000, 000

What is the carrying amount of the bond sinking fund on December 31, 2016?
a. 5, 850, 000
b. 5, 800, 000
c. 5, 750, 000
d. 5, 400, 000
Problem 76 (PHILCPA Adapted)

In January 2016, Cameron Company established a sinking fund in connection with an issue of
bonds due in 2018. A bank was appointed as independent trustee of the fund. On December
31, 2016, the trustee held P365, 000 cash in the sinking fund account representing P300, 000 in
annual deposits to the fund, and P65, 000 of interest earned on those deposits.

How should the sinking fund be reported on December 31, 2016?

a. No part of the sinking fund should appear in Cameron’s statement of financial position.
b. P65, 000 should appear as a current asset
c. P365, 000 should appear as a current asset
d. P365, 000 should appear as a noncurrent asset

Problem 77 (AICPA Adapted)

On March 15, 2016, Ashe Company adopted a plan to accumulate P5, 000, 000 by September 1,
2020. The entity plans to make four equal annual deposits to a fund that will earn interest at
10% compounded annually. The entry made the first deposit on September 1, 2016.

Future value of 1 at 10% for 4 periods 1.46


Future value of an ordinary annuity of 1 at 10% for 4 periods 4.64
Future value of an annuity of 1 in advance at 10% for 4 periods 5.11

What is the annual deposit to the fund?


a. 1, 250, 000 c. 978,500
b. 1, 077, 500 d. 730,000
48
Problem 78 (AICPA Adapted)

Ball Company purchased a P1, 000, 000 ordinary life insurance policy on its president. Ball
Company is the beneficiary under the life insurance policy. The policy year and the entity’s
accounting year coincide.

Cash surrender value, January 1 43, 500


Cash surrender value, December 31 54, 000
Annual advance premium paid January 1 20, 000
Dividend received July 1 3, 000

What amount should be reported as life insurance expense for 2016?

a. 17, 000
b. 20, 000
c. 6, 500
d. 9, 500

Problem 79 (AICPA Adapted)


Chain Company purchased a P1, 000, 000 life insurance on its president, of which Chain
Company is the beneficiary.

The entity provided the following information regarding the policy for the year ended
December 31, 2016:

Cash surrender value, January 1 87, 000


Cash surrender value, December 31 108, 000
Annual advance premium paid January 1 40, 000

During 2016, dividend of P6, 000 was applied to increase the cash surrender value of the policy.

What amount should be reported as life insurance expense for 2016?

a. 40, 000
b. 25, 000
c. 19, 000
d. 13, 000

Problem 80 (IAA)

On January 1, 2016, Pasay Company entered into a two-year P3, 000, 000 variable interest rate
loan at the prevailing rate of 12%.

In 2017, the interest rate is equal to the prevailing interest rate at the beginning of the year.

The principal loan is payable on December 31, 2017 and the interest is payable on December 31
of each year.

On January 1, 2016, Pasay Company entered into a “receive variable, pay fixed” interest swap
agreement with a speculator bank designated as a cash flow hedge.

The prevailing interest rate on January 1, 2017 is 14% and the present value of 1 at 14% for one
period is .877.

1. What amount should be reported as interest rate swap receivable on December 31,
2016?
a. 60, 000
b. 52, 620
c. 30, 000
d. 0

2. What amount should be reported as interest expense for 2017?


a. 360, 000
b. 420, 000
c. 390, 000
d. 323, 400

Problem 81 (IAA)

On January 1, 2016, Aloha Company received a four-year P5, 000 loan with interest payments
occurring at the end of each year and the principal to be repaid on December 31, 2019.

The interest for 2016 is the prevailing market rate of 10% on January 1, 2016, and the market
interest rate every January 1 resets the variable rate of interest for that year. The “underlying”
fixed interest rate is 10%.
In conjunction with the loan, the entity entered into a “receive variable, pay fixed” interest rate
swap agreement with a financial institution as cash flow hedge. The interest swap payment will
be made on December 31 of each year.

The market rate of interest is 6% on January 1, 2017 and 8% on January 1, 2018.

The PV of an ordinary annuity of 1 at 6% for three periods is 2.67 and the PV of an ordinary
annuity of 1 at 8% for two periods is 1.78.

1. What is the derivative asset or liability on December 31, 2016?


a. 600, 000 asset
b. 600, 000 liability
c. 534, 000 asset
d. 534, 000 liability

2. What is the derivative asset or liability on December 31, 2017?


a. 178, 000 asset
b. 178, 000 liability
c. 334, 000 asset
d. 334, 000 liability

3. What amount of interest expense should be reported for 2017?


a. 500, 000
b. 300, 000
c. 400, 000
d. 156, 000

Problem 82 (IAA)

Chavacano Company operates a seafood restaurant. On October 1, 2016, the entity determined
that it will need to purchase 50, 000 kilos of deluxe fish on March 1, 2017.

Because of the volatile fluctuation in the price of deluxe fish, on October 1, 2016, the entity
negotiated a forward contract with a reputable bank to purchase 50, 000 kilos of deluxe fish on
March 1, 2017 at a price of P50 per kilo or P2, 500, 000. This forward contract was designated
as a cash flow hedge. 49
50
The derivative forward contract provides that if the market price of deluxe fish on March 1,
2017 is more than P50, the difference is paid by the bank to the entity.

On the other hand, if the market price on March , 2017 is less than P50 , the entity will pay the
difference to the bank.

On December 31, 2016, the market price per kilo is P60 and on March 1, 2017, the market price
is P58.

The discount rate is 8%. The present value of 1 at 8% for one period is .93.

1. What is the fair value of the derivatives asset or liability on December 31,2016?

a. 500, 000 asset


b. 500, 000 liability
c. 465, 000 asset
d. 465, 000 liability

2. What is the fair value of the derivative asset or liability on March 1, 2017?
a. 400, 000 asset
b. 400, 000 liability
c. 372, 000 asset
d. 372, 000 liability

Problem 83 (IAA)

Bicol Company uses approximately 200,000 units of raw material in its manufacturing
operations. On December 1, 2016, the entity purchased a call option to buy 200, 000 units of
the raw material on July 1, 2017 at a strike price of P25 per unit.

The entity paid P20, 000 for the call option. The entity designated the call option as a cash flow
hedge against price fluctuation for its July purchase.

The market price of the raw material is P28 on December 31, 2016 and P22 on July 1, 2017.

What amount should be recognized as loss on call option in 2017?

a. 600, 000
b. 500, 000
c. 580, 000
d. 20, 000

Problem 84 (IAA)

Janina Company regularly hedges purchase requirements and the sale of finished products in
the futures market.

On December 1, 2016, the entity entered into the following three contracts designated as cash
flow hedge:

Future Market price


Type of contract Quantity 12/1/2016 12/31/2016

Purchase sugar 20,000 60 75


Purchase milk 50,000 100 91
Sell ice cream 30,000 220 195

52

All three contracts are to be settled on January 1, 2017.

What is the derivative asset or liability on December 31, 2016?

a. 300, 000 asset


b. 600,000 asset
c. 900,000 liability
d. 1,050,000 liability

Problem 85 (IAA)

Hazel Company entered into a call option contract with a bank on January 1, 2016. This contract
gave the entity the option to purchase 10,000 shares at P100 per share The option expires on
April 30, 2016. The shares are trading at P100 per share on January 1, 2016, at which time the
entity paid P10, 000 for the call option.

The market price per share in P120 on April 30, 2016, and the time value of the option has not
changed.

In order to settle the option contract, what would the entity most likely do?
a. Pay the bank P200, 000
b. Purchase the shares at P100 per share and sell the shares at P120
c. Receive P200, 000 from the bank
d. Receive P190, 000 from the bank

Problem 86 (IFRS)

Oriental Company has the Philippine peso as the functional currency. The entity expects to
purchase goods from USA for $50, 000 on March 31, 2017.

Accordingly, the entity is exposed to a foreign currency risk. If the dollar increases before the
purchase takes place, the entity will have to pay more pesos to obtain the $50, 000 tht it will
have to pay for the goods.

On October 1, 2016, the entity entered into a foreign currency forward contract with a bank
speculator to purchase $50, 000 in six months for a fixed amount of P2, 050, 000 or P41 to $1.

This forward contract is designated as cash flow hedge of the entity’s exposure to increase in
dollar exchange rate.

On December 31, 2016, the exchange rate is P42 to $1 and on March 31, 2017, the exchange
rate is P44 to $1.

What is the derivative asset or liability on December 31, 2016?


a. 150, 000 asset
b. 150, 000 liability
c. 50, 000 asset
d. 50, 000 liability

Problem 87 (AICPA Adapted)

Tower Company made the following acquisition during the year:

 Purchased for P5,400,000, including appraiser fee for of P50,000, a warehouse building
and the land on which it is located.
53
The land had an appraised value of P2,000,000 and original cost of P1,400,000. The
building had an appraised value of P3,000,000 and original cost of P2,800,000.

 Purchased an office building and the land on which it is located for P7,500,000 cash and
assumes an existing P2,500,000 mortgage.

For realty tax purposes, the property is assessed at P9,600,000.60% of which is allocated
to the building.

1. What is the total cost of land?

a. 6,160,000 c. 6,000,000
b. 5,840,000 d. 5,000,000

2. What is the total cost of building?

a. 8,760,000 c. 9,000,000
b. 9,240,000 d. 7,760,000

Problem 88 (IAA)
Anxious Company acquired two items of machinery as follows:

 On December 31, 2016, An Company purchased a machine in exchange for a


noninterest bearing note requiring ten payments of P500,000. The first payment was
made on December 31, 2017, and the others are due annually on December 31.

The prevailing rate of interest for this type of note at date of issuance was 12%. The
present value of an ordinary annuity of 1 at 12% is 5.33 for nine periods and 5.65 for ten
periods.

 On December 31, 2016, Anxious Company acquired used machinery by issuing the seller
a two-year, noninterest-bearing note for P3,000,000.

In recent borrowing, the entity has paid a 12% interest for this type of note. The present
value of 1 at 12% for 2 years it .80 and the present value of an ordinary annuity of 1 at
12% for years is 1.69.

What is the total cost of the machinery?

a. 5,065,000 c. 5,565,000
b. 5,225,000 d. 8,235,000

Problem 89 (AICPA Adapted)

On December 31, 2016, Bart Company purchased a machine in exchange for a noninterest
bearing note requiring eight payments of P200,000.

The first payment was made on December 31, 2016 and the others are due annually on
December 31.

At date of issuance, the prevailing rate of interest for this type of note was 11%.

PV of an ordinary annuity of 1 at 11% for 8 periods 5.146


PV of an annuity of 1 advance at 11% for 8 periods 5.712

1. What amount should be recorded as initial cost of the machine?


54
a. 1,600,000 c. 1,400,000
b. 1,029,200 d. 1,142,400

2. What is the discount on note payable on December 31, 2016?


a. 657,600 c. 570,000
b. 457,600 d. 0

3. What is the interest expense for 2017?


a. 125,664 c. 113,212
b. 103,664 d. 176,000

4. What is the carrying amount of note payable on December 31, 2017?


a. 1,200,000 c. 742,400
b. 846,064 d. 742,412

Problem 90 (AICPA Adapted)

Precious Company had the following property acquisitions during the current year:
 Acquired a tract of land in exchange for P50,000 shares of Precious Company with P100
par value that had a market price of P120 per share on the date of acquisition. The last
property tax bill indicated assessed value of P2,400,000 for the land.

 Received land from a major shareholder as an inducement to locate a plate in the city.
No payment was required but the entity paid P50,000 for legal expenses for land
transfer. The land is fairly valued at P1,200,000.

What is the total increase in land as a result of the acquisitions?


a. 7,200,000 c. 7,050,000
b. 6,000,000 d. 6,100,000

Problem 91 (IAA)

Figaro Company acquired land and paid in full by issuing P600,000 10 percent bonds payable
and 40,000 ordinary shares with par value od P10. The share was selling at P19 and the bonds
were trading at 102.

What amount should be recorded as cost of the land?


a. 988,000 c. 1,372,000
b. 1,000,000 d. 1,387,200

Problem 92 (IAA)

Taiwan Company fabricated equipment for office use during the current year. The following
data were taken from the accounting records:

Materials Direct labor


Finished goods 1,000,000 1,500,000
Office equipment 600,000 500,000

Factory overhead amounted to P1,200,000. Normal production of finished goods is50,000 units.
Due to the fabrication of the office equipment, finished goods produced totalled 35,000 units
only in the current year.

The office equipment is to be charged with the overhead which would have been apportioned
to the 15,000 units which were not produced.
55
What is the total cost of office equipment after the apportionment of factory overhead?
a. 1,100,000 c. 1,460,000
b. 1,400,000 d. 2,300,000

Problem 93 (AICPA Adapted)

Caine Company exchanged a car from inventory for a computer to be used as a long-term asset.
The following information relates to this exchange:

Carrying amount of the car 600,000


List selling price of the car 900,000
Fair value of the computer 860,000
Cash difference paid by Caine 100,000

What amount of gain should be recognized on the exchange?

a. 260,000 c. 200,000
b. 160,000 d. 0

Problem 93 (AICPA Adapted)


During the current year, Bell Company exchanged an old machine, with a carrying amount of
P390,000 and a fair value of P350,000, and paid P100,000 cash for another used machine
having a list price of P500,000.

At what amount should the machine acquired in the exchange be recorded?

a. 450,000 c. 490,000
b. 460,000 d. 500,000

Problem 94 (IFRS)

On January 1, 2016, Exuberant Company received a consolidated grant of P12,000,000. Three-


fourths of the grant will be utilized to purchase a college building for students from
underdeveloped countries. The balance of the grant is for subsidizing the tuition costs of those
students for four years from date of grant.

The building was purchased in January 2016 and is to be depreciated using the straight line
method over 10 years, The tuition costs paid in 2016 amounted to P600,000.

What amount of grant income should be recognized for 2016?


a. 1,200,000 c. 1,650,000
b. 3,000,000 d. 1,050,000

Problem 95 (IFRS)

Peach Company purchased a machine for P7,000,000 on January 1, 2016 and received a
government grant of P1,000,000 toward the capital cost.

The machine is to be depreciated on a straight line basis over 5 years and estimated to have a
residual value of P500,000 at the end of this period. The accounting policy is to treat the grant
as a deferred income.

1. What is the carrying amount of the asset on December 31, 2017?


a. 4,200,000 c. 4,400,000
b. 5,700,000 d. 3,900,000
56

2. What is the deferred grant income on December 31, 2017?


a. 400,000 c. 600,000
b. 800,000 d. 0

Problem 96 (IFRS)

On January 1, 2016, Easy Company received a grant of P1,500,000 from the government to
subsidize tuition fees for a period of 5 years.

On January 1, 2016, the entity violated certain conditions attached to the grant, and therefore
had to repay fully such grant to the government.

1. What is the grant for 2016?


a. 1,500,000 c. 300,000
b. 600,000 d. 0

2. What amount should be recognized as loss resulting from the repayment of the grant in
2018?

a. 1,500,000 c. 600,000
b. 900,000 d. 0

Problem 97 (IFRS)

Tarbata Company received a government grant of P2,000,000 related to a factory building that
it bought in January 2016. The entity’s policy is to treat the grant as deferred income.

The entity required the building from an industrialist identified by the government. If the entity
did not purchase the building, which was located in the slums of the city, it would have been
repossessed by the government agency.

The entity purchased the building for P12,000,000. The useful life of the building is 10 years
with no residual value.

On January 1, 2018, the entire amount of the government grant became repayable by reaon of
noncompliance with conditions attached to the grant.

What is the loss to be recognized resulting from the repayment of the grant in 2018?

a. 1,200,000 c. 1,400,000
b. 2,000,000 d. 400,000

Problem 98 (IAA)

On January 1, 2016, Batangas City agreed to provide Probity Company with a P5,000,000 three-
year, zero-interest bearing loan evidenced by promissory note.

The prevailing rate of interest for a loan of this type is 10% and the present value of 1 at 10%
for three years is .75

1. What is included in the journal entry to record the loan and grant?
a. Debit discount on note payable P1,250,000
b. Credit deferred grant income P1,250,000
c. Credit note payable P5,000,000
d. All of these

57

2. What is the interest expense for 2016?

a. 500,000 c. 125,000
b. 375,000 d. 750,000

3. What is the deferred grant income on December 31, 2016?

a. 1,250,000 c. 500,000
b. 875,000 d. 375,000

4. What is the carrying amount of the note payable on December 31, 2017?

a. 5,000,000 c. 4,125,000
b. 4,250,000 d. 4,537,500
Problem 98 (PHILCPA Adapted)

Biliran Company incurred the following costs at the beginning of the current year:

Cost of land 1,000,000


Cost of building 4,000,000
Remodelling and repairs prior to occupancy 500,000
Escrow fee 100,000
Clearing, levelling and landfill 250,000
Property tax for period prior to acquisition 150,000
Real estate commission 300,000

What is the cost of building?

a. 4,500,000 c. 4,800,000
b. 4,740,000 d. 4,940,000

Problem 99 (AICPA Adapted)

At the beginning of the current year, Leonora Company purchased a parcel of land as a factory
site.

An old building on the land was demolished and construction started on a new building that
was completed at the end of current year.

Purchase price of land 3,200,000


Demolition of old building 200,000
Architect fee 300,000
Legal fee-title investigation 50,000
Construction cost 8,500,000
Imputed interest on construction cost 140,000
Landfill for building site 190,000
Clearing of trees from building site 100,000
Timber sold 30,000
Temporary building used for construction activities 290,000
Land survey 40,000
Excavation for basement 110,000

1. What is the cost of land?

a. 3,550,000 c. 3,360,000
b. 3,750,000 d. 3,660,000

58
2. What is the cost of new building?

a. 9,400,000 c. 9,590,000
b. 9,200,000 d. 9,290,000

Problem 100 (AICPA Adapted)

At the beginning of the current year, Rock Company reported the following balances:

Land 2,200,000
Building 6,500,000

During the current year, the following transactions occurred:

 A piece of land was acquired for P1,600,000.

To be able to acquire the land, P175,000 was paid to a real estate agent, and P50,000
was incurred to clear the land.
During the course of clearing the land, timber and gravel were recovered and sold for
P25,000

 A second piece of land with a building was acquired for P4,500,000.

The appraiser valued the land at P2,000,000 and the building at P1,000,000.

Shortly after acquisition, the building was demolished at a cost of P100,000.

A new building was constructed at a cost of P5,000,000 plus excavation fee P50,000,
architect fee P80,000 and building permit P70,000.

 A third piece of land was acquired for P2,000,000 and was held for undetermined use.

1. What total cost of land should be reported in the statement of financial position under
property, plant and equipment?

a. 8,500,000 c. 7,100,000
b. 7,000,000 d. 8,600,000

2. What is the cost of new building?

a. 5,200,000 c. 6,800,000
b. 5,300,000 d. 8,600,000

Problem 101 (IFRS)

Isabela Company incurred the following cost during the current year:

Option fee for land acquired 10,000


Option fee for Land not acquired 10,000
Taxes in arrears on land 50,000
Payment for land 1,000,000
Architect fee 230,000
Payment to city hall for approval of building construction 120,000
Contract price for factory building 5,000,000
Safety fence around construction site 35,000
Safety inspection on building 30,000
59
Removal of safety fence after completion of building 20,000
New fence surrounding the factory 80,000
Driveway, parking bay and safety lighting 550,000
Trees, shrubs and other landscaping 200,000

1. What is the cost of land?


a. 1,050,000 c. 1,145,000
b. 1,060,000 d. 1,010,000

2. What is the cost of new building?


a. 5,635,000 c. 5,350,000
b. 5,435,000 d. 5,550,000

3. What is the cost of land improvements?


a. 750,000 c. 630,000
b. 830,000 d. 280,000

Problem 102 (IAA)


Rolex Company incurred the following expenditures related to land and building.

Cash paid for land and dilapidated building 1,000,000


Removal of old building to make room for
Construction of new building 50,000
Payment of tenants for vacating old building 15,000
Architect fee for new building 200,000
Building permit for new construction 30,000
Fee for title search 10,000
Survey before construction of new building 20,000
Excavation before new construction 100,000
New building constructed 6,000,000
Assessment by city for drainage project 5,000
Cost of grading, levelling and landfill 45,000
Driveway and walk to new building from street
(part of building plan) 40,000
Temporary quarters for construction crew 80,000
Temporary building to house tools and materials 60,000
Cost of changes during construction to make new
Building more energy efficient 50,000
Cost of windows broken by vandals 25,000

1. What is the cost of land?

a. 1,145,000 c. 1,130,000
b. 1,215,000 d. 1,080,000

2. What is the cost of new building?

a. 6,625,000 c. 6,650,000
b. 6,560,000 d. 6,645,000

Problem 102 (IAA)

Altitude Company purchased a plot of land for P2,000,000 as a plant site. There was a small
office building on the plot with fair value of P700,000 which the entity will continue to use with
some modification and renovation.
60

The entity decided to construct a factory building and incurred the following costs:

Materials and supplies 3,000,000


Excavation 100,000
Labor on construction 2,500,000
Cost remodelling office building 200,000
Legal cost of conveying land 10,000
Imputed interest on money used during construction 120,000
Cash discounts on materials purchased 60,000
Supervision by management 70,000
Compensation insurance premium for workers 20,000
Clerical and other expenses related to construction 30,000
Paving of streets and sidewalks 40,000
Plans and specifications 140,000
Payment for claim for injuries not covered by insurance 25,000
Legal cost of injury claim 15,000
Saving on construction 200,000
1. What is initial cost of land?

a. 1,310,000 c. 1,350,000
b. 1,300,000 d. 1,410,000

2. What is the initial cost of office building?

a. 1,050,000 c. 700,000
b. 900,000 d. 850,00

3. What is the initial cost of factory building?

a. 5,720,000 c. 5,800,000
b. 5,920,000 d. 5,600,000

Problem 103 (IAA)

Facetious Company incurred the following expenditures related to the construction of a new
home office:

Purchase price of land and an old apartment building 2,000,000


Fair value of land 1,800,000
Legal fees, including fee for title search 10,000
Payment of land mortgage and related interest due
at time of sale 50,000
Payment of delinquent property taxes 20,000
Cost of razing the apartment building 30,000
Grading and drainage on land site 15,000
Architect fee on new building 200,000
Payment to building contractor 8,000,000
Interest cost on specific borrowing during construction 300,000
Payment of medical bills of employees accidentally
Injured while inspecting building construction 10,000
Cost of paving driveway and parking lot 40,000
Cost of trees, shrubs and other landscaping 55,000
Cost of installing light in parking lot 5,000
Premium for insurance on building during construction 55,000
Cost of open house party to celebrate opening of building 60,000
61

1. What is the cost of land?

a. 2,120,000 c. 1,895,000
b. 1,920,000 d. 1,845,000

2. What is the cost of building?

a. 8,555,000 c. 8,540,000
b. 8,525,000 d. 8,530,000

3. What is the cost of land improvement?

a. 300,000 c. 100,000
b. 115,000 d. 0

Problem 104 (AICPA Adapted)


Excelsior Company was incorporated on January 1, 2016 but began activities on 0July 1, 2016.
The land and building account of December 31, 2016 was as follows:

January 31 Land and an old building 1,600,000


February 28 Cost of removal of old building 90,000
May 1 Partial payment on new construction 700,000
June 1 Second payment on new construction 400,000
June 1 Insurance premium 480,000
June 1 Special tax assessment 60,000
June 30 General expenses 320,000
July 1 Final payment on new construction 900,000

To acquire land and building, the entity paid P800,000 cash and issued 8,000 preference shares
with par value of P100 and fair value of P150.

The old building with insignificant fair value was demolished to make room for the construction
of a new building.

Legal fees covered organization cost P15,000, title examination of land purchased P10,000, and
legal work P25,000 in connection with construction contract.

Insurance premium covered the building for a two-year term beginning May 1, 2016.

The special tax assessment was for street improvements that are permanent in nature.

General expenses included the president’s salary of P220,000 and the plant superitendent’s
salary of P100,000.

1. What is the cost of land?

a. 2,070,000 c. 2,000,000
b. 2,160,000 d. 2,100,000

2. What is the cost of building?

a. 2,155,000 c. 2,395,000
b. 2,065,000 d. 2,305,000

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Problem 105 (AICPA Adapted)

On January 1, 2016, Melancholy Company reported the following property, plant and
equipment:

Land 3,500,000
Land Improvements 900,000
Building 6,000,000
Machinery 1,500,000

Transaction during the current year

 A tract of land was acquired for P1,250,000 and intended definitely for use as future
building site.

 A plant facility consisting of land and building was acquired in exchange for 100,000
Melancholy Company’s shares.
On the acquisition date, the share had a closing market price of P45 on a stock
exchange.

The plant facility was carried at P1,000,000 for land and P3,000,000 for the building at
the exchange date.

Current appraised values for the land and building, respectively, are P1,200,000 and
P2,400,000.

 Expenditure totalling P750,000 were made in January For new parking lot, street and
sidewalk at the entity’s various plant locations. These expenditures had an estimated
useful life of fifteen years.

 Machine was purchased at a cost of P3,000,000. Freight and unloading charge of


P50,000, and installation cost of P350,000 were incurred.

 A machine was sold for P175,000 on July 1, 2016. Original cost of machine was P500,000
on January 1, 2014 and it was depreciated on the straight line basis over an estimated
useful life of five years and no residual value.

1. What is the total cost of land at year-end?

a. 6,250,000 c. 5,750,000
b. 5,950,000 d. 9,250,000

2. What is the total cost of building at year-end?

a. 8,400,000
b. 9,000,000
c. 8,250,000
d. 8,500,000

3. What is the total cost of land improvements at year-end?

a. 1,650,000
b. 900,000
c. 750,000
d. 800,000
63
4. What is the total cost of machinery at year-end?

a. 4,600,000
b. 3,400,000
c. 4,900,000
d. 4,400,000

Problem 106 (IFRS)

Basilan Company acquired a machine at the beginning of the current year:

Cash paid for machine, including VAT of P96,000 896,000


Cost of transporting machine 30,000
Labor cost of installation by expert filter 50,000
Labor cost of testing machine 40,000
Insurance cost for the current year 15,000
Cost of training personnel who will use the machine 25,000
Cost of safety rails and platform surrounding machine 60,000
Cost of water device to keep machine cool 80,000
Cost of adjustment to machine to make it operate more efficiently 75,000
Estimated dismantling cost to be incurred as required by contract 65,000

What total amount should be capitalized as cost if the machine?

a. 1,135,000 c. 1,200,000
b. 1,231,000 d. 1,150,000

Problem 107 (PHILCPA Adapted)

Karla Company acquired a new processing machine.

Invoice cost 1,600,000


Cost of transportation 50,000
Cost of installation 50,000

The terms of the acquisition include 3% discount if payment is made in 10 days. The entity
beyond the discount period.

The entity’s chief engineer spent two-thirds of his time during trial run of the new machine. The
monthly salary is P60,000.

The entity requested an allowance from the supplier because the machine proved to be of less
than standard performance capability. The supplier granted a cash allowance of P100,000.

The cost of removing the old machine before the new machine was installed amount to
P10,000.

The operator of the old machine who was laid off due to the acquisition of the new machine
was paid a granuity of P30,000.

What is the initial cost of the new machine?


a. 1,592,000 c. 1,640,000
b. 1,622,000 d. 1,552,000

Problem 108 (IAA)

Rona Company provided the following charges to the “repair and maintenance account”.
64
Service contract on office equipment 100,000
Initial design fee for proposed extension of office building 150,000
New condenser for central air conditioning unit 10,000
Purchase of executive chairs and desks 200,000
Purchase of storm windows and screens and their installation
on all office windows 500,000
Sealing of roof leaks in production area 80,000
Replacement of door to production area 50,000
Installation of automatic door-opening system 200,000
Overhead crane for assembly department to speed up production 350,000
Replacement of broken gear on machine 60,000

What total amount of expenditures should be capitalized?


a. 1,400,000 c. 1,500,000
b. 1,200,000 d. 1,410,000

Problem 109 (IFRS)


On January 1, 2016, Hamlet Company borrowed P6,000,000 at an annual interest rate of 10% to
finance specifically the cost of building an electricity generating plant. Construction
commenced on January 1, 2016 with a cost P6,000,000.

Not all the cash borrowed was used immediately, so interest income of P80,000 was generated
by temporarily investing some of the borrowed funds prior to use. The project was completed
on November 30,2016?

What is the carrying amount of the plant on November 30, 2016?


a. 6,000,000 c. 6,520,000
b. 6,470,000 d. 6,550,000

Problem 110 (AICPA Adapted)

Clay Company started construction of a new office building on January 1, 2016, and moved into
the finished building on July 1, 2017. Of theP25,000,000 total cost, P20,000,000 was incurred in
2016 evenly throughout the year. The incremental borrowing rate was 12% throughout 2016,
and the total amount of interest incurred was P1,020,000

What amount should be reported as capitalized interest on December 31, 2016?


a. 1,020,000 c. 1,500,000
b. 1,200,000 d. 2,400,000

Problem 111 (IAA)

Moses Company borrowed P4,000,000 on a 10% note payable to finance a new warehouse
which the entity is constructing for own use. The only other debt of the entity is a P6,000,000,
12% mortgage payable on an office building. At the end of the current year, average
accumulated expenditures on the new warehouse totalled P4,750,000.

What amount should be capitalized as interest for the current year?


a. 400,000 c. 490,000
b. 475,000 d. 522,500

Problem 112 (IAA)

The third year of a construction project of Jilliane Company began with a P3,000,000 balance in
construction in progress.

65
Included in that figure is P600,000 of interest capitalized in the first two years.

Construction expenditures during the third year were P8,000,000 which were incurred evenly
throughout the entire year.

The entity had P30,000,000 in interest –bearing debt outstanding in the third year at an interest
rate of 9%.

1. What amount of interest for the third year is capitalized?


a. 360,000 c. 936,000
b. 630,000 d. 990,000

2. What amount should be reported as interest expense for the third year?
2,700,000 c. 1,980,000
a. 2,070,000 d. 1,350,000

Problem 113 (IAA)


During 2016, Joshua Company constructed asset costing P5,000,000. The weighted average
expenditures totalled P3,000,000. To help pay for construction, P2,200,000 was borrowed at
10% on January, 2016?

Funds not needed for construction were temporarily invested in short-term securities yielding
P45,000 in interest revenue.

Other than the construction funds borrowed, the only other debt outstanding P250,000 2.

1. What amount of interest should be capitalized during 2016?


a. 300,000 c. 247,000
b. 150,000 d. 472,000

2. What amount should be reported as interest expense for 2016?


a. 225,000 c. 153,000
b. 178,000 d. 0

Problem 114 (AICPA)

During 2016, Elysee Company constructed a new facility at a cost of P30,000,000.

The expenditures for the building, which was finished late in 2016, were incurred evenly during
the year.

The entity had the following loans outstanding on December 31,2016:

 10% note to finance specifically the construction, dated January 1, 2016, P10,000,000.
This note is unpaid on December 31, 2016.

Investments were made on the proceeds from this loan and income of P100,000 was
realized in 2016.

 8% 5-year note payable, dated March 1, 2015, P10,000,000.

What amount of interest is capitalized as cost of the new building?

a. 1,550,000 c. 1,400,000
b. 1,450,000 d. 1,500,000

66
Problem 115 (IAA)

During 2016, Israel Company constructed asset costing P4,215,000. The weighted average
expenditures during 2016 amounted to P3,900,000.

The entity borrowed P2,000,000 at 7,5% on January 1, 2016. Funds not needed for construction
were temporarily invested in short-term securities and earned P59,000 in interest revenue.

In addition to the construction loan, the entity had two other notes outstanding during the
year, a P1,500,000, 10-year, 10% note payable dated October 1, 2015, and a P1,000,000, 8% 5-
year note payable dated November 1, 2015.

What amount of interest should be capitalized during 2016?

a. 324,800 c. 273,000
b. 297,500 d. 265,800

Problem 116 (IFRS)


Congo Company commenced construction of a new plant on February 1, 2016 and was funded
from existing general borrowings . The construction was completed on September 30, 2016.

The borrowings during 2016 comprised following:

Bank A – 6% 8,000,000
Bank B – 6.6.% 10,000,000
Bank C – 7% 30,000,000

What is the amount of borrowing cost that should be capitalized in relation to the plant?

a. 1,215,000 c. 911,250
b. 810,000 d. 0

Problem 117 (IFRS)

Ultimate Company, a socially responsible multinational entity, decided to construct a tunnel


that will link two sides of the village that were separated by a natural disaster years ago,
Realizing its role as a good corporate citizen, the entity has been in this village a couple of years
exploring oil and gas in the nearby offshore area. The tunnel would take two years to build and
the total capital outlay needed for the construction would not be less than P20,000,000. To
allow itself a margin of safety, the entity borrowed P25,000,000 from three sources and used
the extra P5,000,000 for working capital purposes. Financing was arranged at follows:

Bank term loan - 7% 5,000,000


Institutional borrowing - 8% 10,000,000
Corporate bonds - 9% 10,000,000

In the first phase of the construction of the tunnel, there were idle funds of P10,000,000 which
the entity invested for a period of six months. Income from the investment was P500,000.

What amount of borrowing cost should be capitalized as cost of the asset upon completion?

a. 4,100,000 c. 3,200,000
b. 3,280,000 d. 2,780,000

67
Problem 118 (IAA)

Hothead Company had the following loans outstanding for 2016.

Specific construction loan 1,000,000 10%


Generic loan 20,000,000 12%

The entity began the self-construction of a building on January 1, 2016 and the building was
completed on December 31, 2016. The following expenditures were made during the year.

January 1 1,000,000
July 1 2,000,000
November 1 3,000,000

What is the cost of the new building?

a. 6,000,000 c. 6,300,000
b. 6,280,000 d. 6,250,000
Problem 119 (IAA)

Molave Company had the following outstanding loans during 2016 and 2017.

Specific construction loan 3,000,000 10%


General loan 25,000,000 12%

The entity began the self-construction of a new building on January 1, 2016 and the building
was completed on June 30,2017. The following expenditures were made in 2016 and 2017:

January 1, 2016 4,000,000

April 1, 2016 5,000,000


December 1, 2016 3,000,000
March 1, 2017 6,000,000

1. What is the cost of the new building on December 31, 216?

a. 12,000,000 c. 12,300,000
b. 12,900,000 d. 12,600,000

2. What is the cost of the new building on June 30, 2017?

a. 18,000,000 c. 20,868,000
b. 19,884,000 d. 19,377,000

3. What is the interest expense for 2017?

a. 3,000,000 c. 2,016,000
b. 2,166,000 d. 666,000

Problem 120 (AICPA Adapted)

Poe Company disclosed that the depreciation policy on machinery in as follows:

 A full year depreciation is taken in the year of acquisition.

 No depreciation is taken in the year of disposition.


68
 The estimated useful life is five years.

 The straight line method is used.

On June 30, 2017, the entity sold for P2,300,000 a machine acquired in 2014 for P4,200,000.
The residual value was P600,000.

What amount of gain on the disposal should be recorded in 2017?


a. 140,000 c. 620,000
b. 260,000 d. 980,000

Problem 121 (AICPA Adapted)

Lester Company provided the following:

Total cost Residual value Estimated life

Machine A 5,500,000 500,000 20


Machine B 2,000,000 200,000 15
Machine C 400,000 5

The entity computed depreciation on the straight line method.

1. What is the composite life of the assets?

a. 13.3 c. 18.0
b. 16.0 d. 19.8

2. What is the composite rate of depreciation?

a. 6.25% c. 2.50%
b. 5.70% d. 7.50%

Problem 122 (IAA)

Hamilton Company provided the following information at year-end:

2017 2016

Building 25,000,000 25,000,000


Accumulated depreciation 5,000,000 3,875,000

The straight line method of depreciation is used. The residual value is 10% of asset cost.

What is the useful life of the building?

a. 20.00 c. 5.00
b. 22.22 d. 6.45

Problem 123 (IAA)

Norraine Company used the composite method of depreciation based on a composite rate of
25%. At the beginning of 2016, the total cost of equipment was P5,000,000 with a total residual
value of P600,000 and accumulated depreciation of P3,000,000.

In January 20116, the entity purchased an equipment for P2, 500,000 with no residual value.
69
At the end of 2016, the entity sold and equipment with an original cost of P1,00,000 and a
residual value of P200,000 for P350,000. This asset was acquired on January 1, 2014.

1. What is the depreciation for 2016?

a. 1,625,000 c. 1,125,000
b. 1,875,000 d. 975,000

2. What is the gain or loss from the derecognition of the asset on December 31, 2016?

a. 100,000 gain c. 50,000 loss


b. 150,000 loss d. 0

Problem 124 (IAA)

Jade Company acquired a new milling machine on April 1, 2010. The machine has a special
component that required replacement before the end of the useful life. The asset was originally
recorded in two accounts, one representing the main unit and the other for the special
component. Depreciation is recorded by the straight line method and residual value is
disregarded.

On April 1, 2016, the special component is scrapped and is replaced with a similar component.
This new component is expected to have a residual value of approximately 20% of cost at the
end of the useful life of the main unit, and because of materiality, the residual value will be
considered in calculating depreciation.

Main milling machine:


Purchase price in 2010 7,500,000
Residual value 100,000
Estimated useful life 10 years

First special component:


Purchase price 1,200,000

Residual value 60,000


Estimated useful life 6 years

Second special component:


Purchase price 2,000,000
Residual value (20% x 2,000,000) 400,000

What is the total depreciation for 2016?

a. 1,100,000 c. 1,350,000
b. 1,087,500 d. 1,175,000

Problem 125 (AICPA Adapted)

Canada Company purchased a machine at an invoice price of P4,500,000 with terms 2/10, n/30.
The entity paid the required amount for the machine beyond the discount period.

The entity paid P80,000 for delivery of the machine and P310,000 for installation and testing.
The machine was ready for use on January 1, 2016.

It was estimated that the machine would have a useful life of 5 years and a residual value of
P800,000.

70
Engineering estimate indicated that the useful life in productive units was 200,000.

Units actually produced during the first two years were 30,000 in 2016 and 48,000 in 2017. The
entity decided to use the output method of depreciation.

What is the accumulated depreciation of the machine on December 31, 2017?


a. 1,560,000 c. 960,000
b. 1,600,000 d. 600,000

Problem 126 (IAA)

Leonard Company acquired a machine on July 1, 2016 and paid P5,200,000 including freight
P50,000 and installation P150,000. The estimated life of the machine is 8 years or a total of
100,000 working hours with no residual value. The operating hours of the machine totalled
5,000 hours in 2016 and 12,000 hours in 2017. The entity followed the working hours method
of depreciation.

Problem 127 (AICPA Adapted)


On April 1, 2016, Kew Company purchased new machinery for P3,300,000. The machinery has
an estimated useful life of five years with residual value of P300,000. Depreciation is computed
by the sum of the years’ digits method.

1. What is the depreciation for 2016?


a. 1,000,000 c. 900,000
b. 750,000 d. 600,000

2. What is the depreciation for 2017?


a. 1,600,000 c. 850,000
b. 1,800,000 d. 600,000

Problem 128 (AICPA Adapted)

On January 1, 2014, Mogul Company acquired equipment to be used in the manufacturing


operations. The equipment has an estimated useful life of 10 years and an estimated residual
value of P50,000. The depreciation applicable to this equipment was P240,000 for 2016
computed under the sum of years’ digits methods.

What was the acquisition cost of the equipment?


a. 1,650,000 c. 2,400,000
b. 1,700,000 d. 2,450,000

Problem 129 (AICPA adapted)

Rapp Company purchased a machine on July 1, 2016 for P6,000,000. The machine has an
estimated useful life of five years and a residual value of P800,000. The machine is being
depreciated by the 150% declining balance method.

For the year ended December 31, 2017, what amount should be recorder as depreciation
expense on the machine?
a. 1,530,000 c. 1,040,000
b. 1,326,000 d. 1,800,000

71

Problem 130 IAA)

On January 1, 2016, Tania Company acquired an equipment with useful life of 8 years and
residual value of P300,000. The depreciation applicable to the equipment was P900,000 for
2017 using the double declining balance method.

What was the acquisition cost of the equipment?


a. 3,600,000 c. 4,800,000
b. 4,500,000 d. 5,100,000

Problem 131 (AICPA adapted)

Patterson Company provided the following information on January 1, 2016:

Vehicle cost 5,000,000


Useful life in years 5
Useful life in miles 100,000
Residual value 1,000,000
Actual miles driven
2016 30,000
2017 20,000
2018 15,000

1. What is the depreciation for 2018 using the SYD method?


a. 1,000,000 c. 800,000
b. 1,333,000 d. 600,000

2. What is the accumulated depreciation on December 31, 2017 using the double
declining balance method?

a. 1,200,000 c. 1,600,000
b. 1,600,000 d. 3,200,000

3. What is the accumulated depreciation on December 31, 2018 using the miles driven ?
a. 2,000,000 c. 800,000
b. 2,600,000 d. 600,000

Problem 132 (IAA)

On January 1, 2016, Zoe Company showed accumulated depreciation on machinery with a


balance of P3,700,000. At the end of 2016, after the adjusting entries were posted, the
accumulated depreciation showed a balance of P3,950,000.

During 2016, a machine costing P1,250,000 was sold for P605,000 cash. The transaction
resulted in a loss of P40,000. No other asset was disposed of during the year.

What was the depreciation for 2018?

a. 855,000 c. 250,000
b. 935,000 d. 605,000

Problem 133 (AICPA Adapted)

Turtle Company purchased equipment on January 1, 2014 for P5,000,000. The equipment had
an estimated 5-year service life.

72
The depreciation policy for 5-year assets is to use the 200% double declining balance method
for the first two years and then switch to the straight line depreciation method.

On December 31, 2016, what amount should be reported as accumulated depreciation for the
equipment?

a. 3,000,000 c. 3,920,000
b. 3,800,000 d. 4,200,000

Problem 134 (IAA)

On January 1, 2016, London Company purchased a large quantity of personal computers. The
cost of these computers was P6,000,000.

On the date of purchase, the management estimated that the computers would last
approximately 4 years and would have a residual value at that time of P600,000. The entity
used the double declining balance method.
During January 2017, the management realized that technological advancements had made the
computers virtually obsolete and that they would have to be replaced. Management proposed
changing the remaining useful life of computers to 2 years.

What is the depreciation expense for 2017?

a. 3,000,000 c. 1,500,000
b. 2,400,000 d. 1,200,000

Problem 135 (AICPA Adapted)

On January 1, 2016, Kent Company purchased a machine for P5,000,000. The entity paid
shipping expenses P50,000 as well as installation cost of P120,000.

The machine was estimated to have a useful life of 10 years, an estimated residual value of
P300,000 and the straight line method is used.

In January 2017, additions costing P360,000 were made to the machine in order to comply with
pollution control ordinances. These additions neither prolonged the life of the machine nor did
they have any residual value.

What amount should be recorded as depreciation expense for 2017?


a. 557,000 c. 487,000
b. 517,000 d. 527,000

Problem 136 (PHILCPA Adapted)

Carmel Company provided the following information with respect to a building.

 The building was acquired January 1, 2011 at a cost of P7,800,000 with an estimated
useful life of 40 years and residual value od P200,000. Yearly depreciation was
computed on the straight line method.
 The building was renovated on January 1, 2013 at a cost of P760,000. This was
considered as improvement. Residual value did not change.
 On January 1, 2016, the management decided to change the total life of the building to
30 years.

What is the depreciation of the building for 2016?


73
a. 292,400 c. 334,400
b. 266,000 d. 294,000

Problem 137 AICPA Adapted)

At the beginning of current year, Huff mining Company purchased a mineral mine for
P36,000,000 with removal ore estimated by geological survey at 2,160,000 tons.

The property has an estimated value of P3,600,000 after the ore has been extracted.

The entity incurred P10,800,000 of development cost preparing the property for the extractions
of ore.

During the current year, 270,000 tons were removed and 240,000 tons were sold.

What amount of depletion should be included in cost of goods sold for the current year?
a. 3,600,000 c. 4,800,000
b. 4,050,000 d. 5,400,000
Problem 138 (IAA)

June Company acquired for P9,000,000 property which is believed to include mineral deposit.
Geological estimates indicate that approximately 1,000,000 tons of mineral may be extracted.

It is further estimated that the property can be sold for P2,500,000 following mineral
extraction.
After initial acquisition, the following costs were incurred:

Exploration cost 3,500,000


Development cost related to drilling of walls 3,200,000
Development cost related to production equipment 4,600,000

The entity is legally required to restore the land to a condition appropriate for resale at a
discounted amount of P800,000.

The entity is legally required to restore the land to a condition appropriate for resale at a
discounted amount of P800,000.

The entity extracted 50,000 tons of the mineral in the current year.

What amount should be recorded as depletion for the current year?

a. 825,000 c. 700,000
b. 930,000 d. 785,000

Problem 139 (IAA)

In 2015, Newton Company paid P1,000,000 to purchase land containing total estimated
160,000 tons of extractable mineral deposits. The estimated value of the property after the
mineral has been removed is P200,000.

Extraction activities began in 2016, and by the end of the year, 20,000 tons had been recovered
and sold.

In 2017, geological studies indicated that the total amount of mineral deposits had been
underestimated by 25,000 tons.
74
During 2017, 30,000 tons were extracted and 28,000 tons were sold.

What is the depletion rate per ton in 2017?

a. 4.24 c. 4.85
b. 4.32 d. 5.19

Problem 140 (IAA)

Josephine Company acquired a tract of land containing an extractable natural resource. The
entity is required by the purchase contract to restore the land to a condition suitable for
recreational use after it has extracted the natural resource.

Geological survey indicated that the recoverable reserves would be 2,500,000 tons and that the
extraction will be completed in five years.

Relevant cost information follows:

Land 9,000,000
Exploration and development cost 1,000,000
Expected cash flow for restoration cost 1,500,000
Credit-adjusted risk free interest rate 10%
PV of 1 at 10% for 5 periods 0.62

What is the depletion charge per ton of extracted material?


a. 4.00 c. 3.97
b. 4.37 d. 3.60

Problem 141 (AICPA Adapted)

On July 1, 2016, Lam Company, a calendar year corporation, purchased the rights to a mine.
The total purchase price was P16,400,000, of which O2,000,000 was allocable to the land.

Estimated reserves were 1,800,000 tons. The entity expects to extract and sell 25,000 tons per
month.

The entity purchased new equivalent on July 1, 2016 for P7,500,000. The equipment had a
useful life of 8 years.

However, after all the resource is removed, the equipment would be of no use and could be
sold for P300,000.

1. What amount should be recorded as depletion for 2016?

a. 1,200,000 c. 1,366,500
b. 2,400,000 d. 2,733,000

2. What amount should be recorded as depreciation of the mining equipment for 2016?
a. 450,000 c. 600,000
b. 900,000 d. 300,000

Problem 142 (IFRS)

Harriet Company is involved in the exploration for mineral rights. During the current year, the
entity incurred the following expenditures.
Exploratory drilling for mineral on site 2,000,000
Roads and infrastructure to access exploration site 3,500,000
Expenditures relating to the subsequent development of
the resources 3,400,000 75

At what amount should exploration assets be initially recognized?


a. 2,000,000 c. 5,500,000
b. 5,400,000 d. 8,900,000

Problem 143 (IAA)

O January 1, 2016, Mankayan Company purchased land with valuable natural ore deposits for
P10,000,000. The residual value of the land was P2,000,000. At the time of purchase, a
geological survey estimated a recoverable output of 4,000,000 tons.

Early in 2016, roads were constructed on the land to aid in the extraction and transportation of
the mined ore at a cost of P1,600,000. In 2016, 500,000 tons were mined and sold.

A new survey at the end of 2017 estimated 4,200,000 tones of ore available for mining. In 2017,
800,000 tons were mined and sold.

1. What amount should be recognized as depletion for 2016?


a. 1,250,000 c. 1,450,000
b. 1,200,000 d. 1,000,000

2. What amount should be recognized as depletion for 2017?


a. 1,344,000 c. 1,200,000
b. 1,920,000 d. 1,600,000

Problem 144 (IAA)

In 2015, Lepanto Mining Company purchased property with natural resources for P28,000,000.
The property had a residual value of P5,000,000.

However, the entity is required to restore the property to the original condition at a discounted
amount of P2,000,000.

In 2015, the entity spent P1,000,000 in development cost and P3,000,000 in building on the
property.

The entity does not anticipate that the building will have utility after the natural resources are
removed.

In 2016, an amount of P1,000,000 was spent for additional development on the mine.

The tonnage mined and estimated remaining tons for years 2015 to 2017 are as follows:

Tons extracted Tons remaining

2015 0 10,000,000
2016 3,000,000 7,000,000
2017 3,500,000 2,500,000

1. What amount should be recognized as depletion for 2016?

a. 6,900,000 c. 8,100,000
b. 9,600,000 d. 8,400,000

2. What amount should be recognized as depletion for 2017?

a. 10,150,000 c. 15,750,000
b. 11,025,000 d. 9,450,000 76

Problem 145 (PHILCPA Adapted)

Toledo Mining Company constructed a building costing P2,800,000 on the mine property. The
estimated residual value will not benefit the entity and will be ignored for purposes of
computing depreciation.

The building has an estimated life of 10 years. The total estimated recoverable output from the
mine is 500,000 tons. The production of the first four years of operations was:

First year 100,000 tons


Second year 100,000 tons
Third year Shut down, no output
Fourth year 100,000 tons

What is the depreciation for the fourth year?

a. 490,000 c. 210,000
b. 560,000 d. 336,000

Problem 146 (ACP)

ABC Company provided the following balances at the end of the current year:

Wasting asset, at cost 80,000,000


Accumulated depletion 20,000,000
Capital liquidated 15,000,000
Retained earnings 10,000,000
Depletion based on 100,000 units extracted at P50 per unit 5.000,000
Inventory of resource deposit (20,000 units) 2,000,000

What is the maximum dividend that can be declared at the end of current year?

a. 14,000,000 c. 10,000,000
b. 30,000,000 d. 15,000,000

Problem 147 (IAA)

Seaside Company applied revaluation accounting to plant asset with carrying amount of
P4,000,000 on January 1, 2016, useful life of 4 years, and no residual value, Depreciation is
calculated on the straight line basis.

On December 31, 2016, independent appraisers determined that the asset has a fair value of
P3,750,000.

1. What is the journal entry to record depreciation for 2016?

a. Debit accumulated depreciation P1,000,000


b. Debit depreciation P250,000.
c. Credit accumulated depreciation P250,000
d. Debit depreciation P1,000,000.

2. What is the journal entry to record the revaluation on December 31, 2016?

a. Debit accumulated depreciation P250,000.


b. Credit depreciation P750,000.
c. Credit plant asset P750,000.
d. Credit revaluation surplus P750,000. 77

3. The financial statements for 2016 shall include which of the following information?
a. Accumulated depreciation P1,000,000.
b. Depreciation P250,000.
c. Plant asset P3,750,000.
d. Revaluation surplus P250,000.

4. What is the journal entry to record depreciation for 2017?

a. Debit accumulated depreciation P1,000,000.


b. Debit depreciation P1,250,000.
c. Credit accumulated depreciation P750,000.
d. Debit depreciation P1,000,000.

Problem 148. (IFRS)

On June 30, 2016, Louisiana Company reported the following information:


Equipment at cost 5,000,000
Accumulated depreciation 1,500,000

The equipment was measured using the cost model and depreciated on a straight line basis
over a 10-year period.

On December 31, 2016, the management decided to change the basis of measuring the
equipment from the cost model to the revaluation model.

The equipment had a fair value of P4,550,000 with remaining useful life of 5 years on December

1. Before income tax, what amount should be reported as revaluation surplus on


December 31, 2016?

a. 1,050,000 c. 1,500,000
b. 1,300,000 D. 2,000,000

1. What is the depreciation of the equipment for 2017?

a. 500,000 c. 455,000
b. 910,000 d. 650,000

2. Before income tax, what amount should be reported as revaluation surplus on


December 31, 2017?

a. 1,170,000 c. 390,000
b. 1,040,000 d. 845,000

Problem 149 (IAA)

Cycle company provided the following account balances relating to property, plant and
equipment on January 1, 2016.

Land 2,000,000
Building 15,000,000
Accumulated depreciation 3,750,000
Machinery 3,000,000
Accumulated depreciation 1,500,000
78
Assets have been carried at cost since their acquisition. All assets were acquired on January 1,
2006. The straight line method is used.

On January 1, 2016, the entity revalued the property, plant and equipment. On such date,
competent, appraisers submitted the following:

Replacement cost

Land 5,000,000
Building 25,000,000
Machinery 5,000,000

1. Before income tax, what is the revaluation surplus on January 1, 2016?

a. 15,000,000 c. 30,000,000
b. 11,500,000 d. 8,500,000

2. What is the depreciation for 2016?


a. 531,250 c. 525,000
b. 875,000 d. 625,000

3. What is the revaluation surplus on December 31, 2016?

a. 11,075,000 c. 11,050000
b. 11,150,000 d. 10,850,000

Problem 150 (PHILCPA Adapted)

On January 1, 2016, Sabangan Company reported the following account balances:

Cost Accumulated depreciation

Land 50,000,000
Building 300,000,000 90,000,000

The land and building were revalued on January 1, 2016 and the revaluation revealed the
following sound value:

Land 70,000,000
Building 315,000,000

There were no additions or disposals during 2016. Depreciation is computed on the straight
line. The estimated life of the building is 20 years.

1. Before income tax, what amount should be recognized as revaluation surplus on January
1, 2016?

a. 125,000,000 c. 385,000,000
b. 105,000,000 d. 315,000,000

2. What is the depreciation for 2016?

a. 22,500,000 c. 15,750,000
b. 15,000,000 d. 27,500,000

3. What amount should be reported as revaluation surplus on December 31, 2016?


a. 117,500,000 c. 105,000,000 79
b. 125,000,000 d. 119,750,000

Problem 151 (PHILCPA Adapted)

Kibungan Company provided the following information on January 1, 2016 relating to property,
plant and equipment.

Land 30,000,000
Building 300,000,000
Accumulated depreciation – building (37,500,0000)
Machinery 400,000,000
Accumulated depreciation – machinery (100,000,000)

Carrying amount 592,500,000

There were no additions or disposals during 2016. Depreciation is computed using straight line
over 20 years for building and 10 years for machinery.
On June 30, 2016, all of the property, plant and equipment were revalued.

Replacement cost Sound value

Land 40,000,000 40,000,000


Building 500,000,000 425,000,000
Machinery 650,000,000 455,000,000

1. Before income tax, what is the revaluation surplus on June 30,2016?

a. 355,000,000 c. 345,000,000
b. 920,000,000 d. 327,500,000

2. What is the total depreciation for 2016?

a. 72,500,000 c. 55,000,000
b. 90,000,000 d. 66,750,000

3. What is the revaluation surplus on December 31, 2016?

a. 337,500,000 c. 345,000,000
b. 355,000,000 d. 327,500,000

Problem 152 (IAA)

Divine Company provided the following information relating to the revaluation of an equipment
on January 1, 2016.

Cost Replacement cost


Equipment 6,500,000 9,200,000
Residual value 500,000 200,000
Useful life 12
Age of the equipment 12
Accumulated depreciation ? ?

The equipment was sold on December 31, 2016 for P8,000,000.

1. Before income tax, what is the revaluation surplus on January 1, 2016?

a. 2,700,000 c. 2,500,000 80
b. 2,200,000 d. 2,000,000

2. What is the depreciation for 2016?

a. 530,000 c. 750,000
b. 900,000 d. 220,000

3. What is the revaluation surplus on December 31, 2016?

a. 2,200,000 c. 2,430,000
b. 2,250,000 d. 1,980,000

4. What is the gain on sale of equipment on December 31, 2016?

a. 1,050,000 c. 3,230,000
b. 3,030,000 d. 300,000

Problem 153 (IFRS)


London Company owned a building on January 1, 2016 with historical cost of P40,000,000. The
property is depreciated over 40 years on a straight line basis with no residual value.

The entity adopted a policy of revaluation of property. The building has so far been revalued
twice at fair value as follows:

January 1, 2017 46,800,000


January 1, 2019 55,500,000

1. Before income tax, what is the revaluation surplus on January 1, 2017?

a. 7,800,000 c. 5,800,000
b. 6,800,000 d. 4,800,000

2. What is the increase in revaluation surplus to be recognized as component of other


comprehensive income on January 1, 2019?

a. 15,500,000 c. 8,700,000
b. 11,100,000 d. 9,900,000

3. What is the revaluation surplus to be reported in the statement of changes in equity for
the year ended December 31, 2019?

a. 18,200,000 c. 18,900,000
b. 18,000,000 d. 18,500,000

Problem 154 (AICPA Adapted)

At year-end , Zee Company has an equipment with the following cost and accumulated
depreciation:

Equipment 9,000,000
Accumulated depreciation 3,000,000

Due to obsolescence and physical damage, the equipment is found to be impaired.

At the year-end, the entry had determined the following information related to the equipment:
81
Fair value less cost of disposal 4,500,000
Value in use or discounted, net cash inflows 4,000,000

What amount should be reported as impairment loss for the year?

a. 1,500,000 c. 500,000
b. 2,000,000 d. 0

Problem 155 (IAA)

Zambia Company purchased four convenience store buildings on January 1, 2010 for a total of
P25,000,000. The buildings have been depreciated using the straight-line method with a 20-
year useful life and 10% residual value.

On January 1, 2016, the entity has converted the buildings into a hotel and restaurant. Because
of the change in the use of the buildings, the entity is evaluating the buildings for possible
impairment.
The entity estimated that the building have a remaining useful life of 10 years, that their
residual value will be zero, that undiscounted net cash inflows from the buildings will total
P1,500,00 per year, and that the current fair value of the four building totals P10,000,000.

The appropriate discount rate is 12%. The present value of an ordinary annuity of 1 at 12% for
10 periods is 5.65.

1. What amount of impairment loss should be recognized for 2016?

a. 8,250,000 c. 7,500,000
b. 9,775,000 d. 0

2. What is the depreciation of the building for 2016?

a. 1,000,000 c. 847,500
b. 900,000 d. 762,750

Problem 156 (IAA)

At year-end, Visayas Company showed the following intangible assets:

Trademark 6,000,000
Patent 3,000,000

The trademark has 8 years remaining in the legal life. However, it is anticipated that the
trademark will be routinely renewed in the future.

Thus, the trademark is considered to have an indefinite life. Because of an inflationary


economy., the trademark is expected to generate cash flows of P200,000 per year.

The appropriate discount rate is 10%. Mathematically, the discounted value of a stream of
indefinite annual cash flows is simply computed by dividing the annual cash flow by the
discount rate.

The patent has a remaining economic life of 5 years. It is expected that the patent will generate
cash flows of P500,000 per year.

The appropriate discount rate is also 10%. The present value of an ordinary annuity of 1 at 10%
for 5 periods is 3.79.
82
What total amount should be recognized as impairment loss for the year?

a. 1,105,000 c. 4,000,000
b. 5,105,000 d. 0

Problem 157 (AICPA)

Lobo Company reported an impairment loss of P2,000,000 in 2015. This loss was related to an
item of property, plant and equipment which was acquired on January 1, 2014 with cost of
P10,000,000, useful life of 10 years and no residual value. The straight line method is used in
recording depreciation.

On December 31, 2015, the entity reported this asset at P6,000,000 which is the fair value om
such date.

On December 31, 2016, the entity determined that the fair value of the impaired asset had
increase to P7,500,000.
What amount of gain on reversal of impairment should be reported in the income statement
for 2016?

a. 2,250,000 c. 1,500,000
b. 1,750,000 d. 0

Tausug Company reported the following calculation relating to an impairment loss suffered on
December 31, 2016:

Goodwill Net assets

Carrying amount 3,000,000 9,000,000


Impairment loss (3,000,000) (2,000,000)

Adjusted carrying amount - 7,000,000

Has been a favourable change in the estimate of the recoverable amount of the net assets. The
recoverable amount is now P8,000,000 on December 31, 2017.

The carrying amount of the net assets would have been P7,200,000 on December 31, 2017 if
there ws no impairment loss recognized on December 31, 2016. Assets are depreciated at 20%
of reducing balance.

What gain on reversal of impairment should be recognized in 2017?

a. 1,000,000 c. 1,600,000
b. 2,400,000 d. 0

Problem 158 (IAA)

On January 1, 2016, Elite Company purchased equipment with cost of P11,000,000, useful life
of 10 years and no residual value. The entity used straight line depreciation.

On December 31, 2016 and December 31, 2017, the entity determined that impairment
indicators are present. There is no change in the useful life or residual value.

December 31, 2016 December 31, 2017

Fair value less cost of disposal 8,100,000 8,400,000


Value in use 8,550,000 8,200,000 84

1. What is the impairment loss for 2016?

a. 1,800,000 c.2,450,000
b. 1,350,000 d. 0

2. What is the gain on reversal of impairment for 2017?


3.
a. 400,000 c. 800,000
b. 250,000 d. 0

4. What is the depreciation for 2018?

a. 1,100,000 c. 1,025,000
b. 1,050,000 d. 950,000

Problem 161 (AICPA Adapted)


In January 2015, Winn Company purchased equipment at a cost of P5,000,000. The equipment
had an estimated residual value of P1,000,000, an estimated 8-year useful life, and was being
depreciated by the straight line method.

Two year later, it became apparent that this equipment suffered a permanent impairment of
value.

In January 2017, management determined the carrying amount should be only P1,750,000 with
a 2-year remaining useful life, and the residual value should be reduced to P250,000.

1. What is the impairment loss for 2016?

a. 4,000,000 c. 2,250,000
b. 3,250,000 d. 0

2. On December 31, 2017, what is the carrying amount of the equipment?

a. 3,500,000 c. 1,500,000
b. 1,750,000 d. 1,000,000

Problem 162 (AICPA Adapted)

Scarbrough Company had purchased equipment for P5,600,000 on January 1, 2013. The
equipment had an 8-year life and residual value of P800,000. The entity depreciated the
equipment using the straight line method.

In August 2016, the entity questioned the recoverability of the carrying amount of this
equipment.

On August 31, 2016, the discounted expected net future cash inflows related to the continued
use and eventual disposal of the equipment amounted to P3,500,000. The fair value of the
equipment on same date is P3,000,000.

After any loss on impairment has been recognized, what is the carrying amount of the
equipment?

a. 3,500,000 c. 3,000,000
b. 3,400,000 d. 2,600,000

85
Problem 163 (IFRS)

At the beginning of current year, Jolo Company acquired all the assets and liabilities of another
entity. The acquiree of operating divisions, including one whose major industry is the
manufacture of toy train. The toy train division is regarded as a cash generating unit.

In paying P20,000,000 for the assets of the acquiree, Jolo calculated that it had acquired
goodwill of P2,400,000. The goodwill was allocated to each of the divisions, and the assets and

Liabilities acquired are measured at fair value at acquisition date. At year-end, the carrying
amounts of the assets of the toy train division were:

Building 2,000,000
Inventory 1,500,000
Trademark 1,000,000
Goodwill 500,000
There is a declining interest in toy train because of the aggressive marketing of computer-based
toys.

The entity measured the value in use of the toy train division at year-end at P3,600,000.

1. What is the impairment loss on goodwill?

a. 140,000 c. 500,000
b. 250,000 d. 0

1. What is the impairment loss to be allocated to the building?

a. 400,000 c. 900,000
b. 500,000 d. 300,000

Problem 164 (IFRS)

Palawan Company determined that the electronics division is a cash generating unit. The entity
calculated the value in use of the division to be P8,000,000.

The assets of the cash generating unit at carrying amount are as follows:

Building 5,000,000
Equipment 3,000,000
Inventory 2,000,000

10,000,000

The entity also determined that the fair value less cost of disposal of the building is P4,500,000.

1. What is the total impairment loss?

a. 2,000,000 c. 3,000,000
b. 4,000,000 d. 0

2. What is the impairment loss allocated to building?

a. 1,000,000 c. 750,000
b. 500,000 d. 0

86
3. What is the impairment loss allocated to equipment?

a. 600,000 c. 900,000
b. 850,000 d. 0

4. What is the impairment loss allocated to inventory?

a. 400,000 c. 600,000
b. 200,000 d. 0

Problem 165 (IFRS)

Devin Company is testing two reporting units for impairment of goodwill.

Telecommunication Networking

Segment carrying amount


Including goodwill 2,500,000 3,000,000
Carrying amount of goodwill 500,000 500,000
Estimated total fair value of segment 2,900,000 2,800,000
Estimated total fair value of segment
Other than goodwill 2,100,000 2,500,000

1. After properly adjusting the goodwill for impairment, what is the adjusted amount of
goodwill for the reporting unit telecommunication?

a. 400,000 c. 500,000
b. 800,000 d. 0

2. After properly adjusting the goodwill for impairment, what is the adjusted amount of
goodwill for the reporting unit networking?

a. 500,000 c. 300,000
b. 200,000 d. 0

Problem 166 (IFRS)

One of the cash generating units of Sanmig Company if the production of liquor. The entity
believed that the assets of the cash generating unit (CGU) are impaired based on an analysis of
economic indicators. The assets and liabilities of the cash generating unit at carrying amount at
year-end are:

Cash 4,000,000
Accounts receivable 6,000,000
Allowance for doubtful accounts 1,000,000
Inventory 7,000,000
Property, plant and equipment 22,000,000
Accumulated depreciation 4,000,000
Goodwill 3,000,000
Accounts payable 2,000,000
Loans payable 1,000,000

The entity determined that the value in use of the cash generating unit is P30,000,000. The
accounts receivable are considered collectible, except those considered doubtful.

87
1. What is the impairment loss of goodwill?

a. 3,000,000 c. 2,000,000
b. 1,500,000 d. 0

2. What is the impairment loss on inventory?

a. 3,500,000 c. 1,120,000
b. 1,000,000 d. 0

3. What is the impairment loss on property, plant and equipment?

a. 4,000,000 c. 2,400,000
b. 2,880,000 d. 4,200,000

Problem 167 (AICPA - Adapted)


During the current year, Nicole Company acquired Jones Company in a business combination.
As a result og the combination, the following amounts of goodwill were recorded for each of
the three reporting units of the acquired entity.

Retailing 300,000
Service 200,000
Financing 400,000

Near the year-end, a new major competitor entered the entity’s market and the entity was
concerned that this might cause a significant decline in the value of goodwill.

Accordingly, the entity computed the implied value of the goodwill for the three major
reporting units at year-end as follows:

Retailing 250,000
Service 100,000
Financing 600,000

What amount of goodwill impairment should be recorded for the current year?

a. 100,000 c. 150,000
b. 250,000 d. 0

Problem 168 (IAA)

On December 31, 2016, Zemice Company acquired the following three intangible assets:

 A trademark for P3,000,000. The trademark has 4 years remaining in its illegal life. It is
anticipated that the trademark will be renewed in the future indefinitely.

 Goodwill for P500,000.

 A customer list for P2,100,000. By contract, the entity has exclusive use of the list for
five years. However, it is expected that the list will have an economic life of 3 years.

On December 31, 2017, before any adjusting entries for the year were made, the following
information was assembled:

a. Because of a decline in the economy, the trademark is now expected to generate cash
flows of just P105,000 per year.
88
b. The cash flow expected to be generated by the cash generating unit to which the
goodwill is related is P200,000 per year for the next 20 years. The carrying amounts of
the assets and liabilities of the cash generating unit are:

Identifiable 3,500,000
Goodwill 500,000
Liabilities 1,100,000

It is reliably determined that the cash flows of the cash generating unit cannot be
computed without consideration of the liabilities.

c. The cash flows expected to be generated by the customer list are P800,000 in 2018 and
P500,000 in 2019.

d. The appropriate discount rate is 6%. The present value of 1 at’ 10% is .94 for one period
and .89 for two periods. The present value of an ordinary annuity of 1 at 10% for 20
periods is 11.45.
1. What is impairment loss on trademark?

a. 3,000,000 c. 1,250,000
b. 1,750,000 d. 0

2. What is the impairment loss on goodwill?

a. 610,000 c. 110,000
b. 500,000 d. 0

Problem 169 (IAA)

Vanity Company showed the following balance at year-end:

Copyright 500,000
Deposit with advertising agency used to promote goodwill 400,000
Bond sinking fund 1,000,000
Excess of cost over fair value of identifiable net
Assets of acquired subsidiary 4,000,000
Trademark 900,000

What total amount should be reported as intangible assets?

c. 1,400,000 c. 5,400,000
d. 4,500,000 d. 5,800,000

Problem 170 (IAA)

Alcaraz Company paid P5,000,000 to purchase intangible assets with the following fair value:

Internet domain name 1,500,000


Order backing 1,200,000
In-process research and development 2,400,000
Operating permit 900,000

In addition, the entity spent P2,000,000 to run an advertising campaign to boost its image in the
local community.

What amount should be recognized as cost of the in-process research and development?
89
c. 2,400,000 c. 2,800,000
d. 2,000,000 d. 0

Problem 171 (AICPA Adapted)

Tobin Company incurred P1,600,000 of research and development costs to develop a product

For which a patent was granted at the beginning of current year.

Legal fee and other costs associated with registration of the patent totalled P300,000. At the
year-end, the entity paid P450,000 for legal fees in a successful defense of the patent.

What is the total amount that should be capitalized for the patent at year-end?

c. 750,000 c. 2,050,000
d. 300,000 d. 2,350,000
Problem 172 (IAA)

Harmonious Company acquired a patent for a drug with a remaining legal and useful life of six
years on January 1,2014 for P5,400,000.

On January 1, 2016, a new patent is received for an improved version of the same drug. The
new patent has a legal and useful life of twenty years.

What is the amortization expense for 2016?

c. 900,000 c. 180,000
d. 200,000 d. 300,000

Problem 173 (IAA)

Golden Company developed a new machine for manufacturing baseballs. Because the machine
is considered very valuable, the entity had it patented.

The following expenditures were incurred in developing and patenting the machine:

Purchase of special equipment to be used solely for


Development of the new machine 1,800,000
Research salaries and fringe benefits for engineers
And scientists 200,000
Cost of testing prototype 250,000
Legal cost for filing of patent 150,000
Fees paid to government patent office 50,000
Drawings required by patent office to be filed with
Patent application 40,000

3. What amount should be capitalized as cost of patent?

c. 240,000 c. 740,000
d. 540,000 d. 200,000

4. What amount of research and development cost should be expensed in the current
year?
c. 2,250,000 c. 2,490,000
d. 2,000,000 d. 1,800,000

90
Problem 174 (AICPA Adapted)

On January 1, 2016, Boracay Company bought a trademark from Lamitan Company for
P3,000,000. The entity retained an independent consultant who estimated the trademark’s life
to be indefinite. The carrying amount of the trademark was P1,500,000 on the books of Lamitan
Company.

On December 31, 2016, what is the carrying amount of the trademark?

c. 3,000,000 c. 2,850,000
d. 1,500,000 d. 0

Problem 175 (IAA)

On January 1, 2016, Aim Company showed patent of P1,920,000 with related accumulated
amortization of P240,000. The patent was purchased on January 1, 2014 at which date the legal
life is 16 years.
On January 1, 2016, the useful life of the patent was determined to be only 8 years from the
date of acquisition.

On January 1, 2016, in connection with the purchase of a trademark from Cat Company, the
parties entered into a noncompetition agreement and a consulting contract.

Aim Company paid Cat Company P800,000, of which three-fourths was for the trademark, and
one-fourth was for the Cat Company’s agreement not to compete for a five-year period in the
line of business covered by the trademark. Aim Company considered the life of the trademark
to be indefinite.

Moreover, Aim Company agreed to pay Cat Company P50,000 annually on January 1 of each
year for 5 years.

3. What is the carrying amount of intangible assets on January 1, 2016?

c. 2,280,000 c. 1,880,000
d. 2,480,000 d. 1,680,000

4. What is the total amortization of intangible assets for 2016?

c. 280,000 c. 320,000
d. 440,000 d. 160,000

Problem 176 (AICPA Adapted)

On January 1, 2016, Hart Company signed an agreement to operate as a franchisee of Ace


Company for an initial franchise fee of P12,000,000.

The same date, Hart Company paid P4,000,000 and agreed to pay the balance in four equal
annual payments of P2,000,000 beginning January 1, 2017.

Hart Company can barrow at 14% for a loan of this type. The present value factors at 14% are as
follows:

Present value of 1 at 14% for four periods 0.59

Present value of an ordinary annuity of 1 at 14% for four periods 2.91

91
What is the acquisition cost of the franchise?

c. 13,520,000 c. 9,820,000
d. 12,000,000 d. 8,720,000

Problem 177 (AICPA Adapted)

Carr Company recently acquired that now has remaining legal life of 40 years. The copyright
initially had a 30-year useful life. An analysis of market trend and consumer habit indicated that
the copyrighted material will generate positive cash flows for approximately 25 years.

What is the remaining useful life over which the entity can amortize the copyright?

c. 25 c. 40
d. 30 d. 0

Problem 178 (IAA)


Java Company purchased an entity for P6,000,000 cash at the beginning of the current year.

The carrying amount and fair value of the assets of the acquire on the date of the acquisitions
are as follows:

Carrying amount Fair value

Cash 50,000 50,000


Accounts receivable 500,000 500,000
Patent 1,000,000 1,500,000
Property, plant and equipment 0 250,000
Property, plant and equipment 2,000,000 3,000,000

Total 3,550,000 5,300,000

In addition, the acquitee had liabilities totalling P2,000,000 at the time of acquisition. The
acquire had no other separately identifiable intangible assets.

What is the goodwill arising from the acquisition?

c. 2,700,000 c. 4,450,000
d. 2,450,000 d. 700,000

Problem 179 (IAA)

Casanova Company purchased another entity for P500,000 cash. The following carrying amount
and fair value were associated with the items acquired in this business combination:

Carrying amount Fair value

Accounts receivable 2,000,000 2,000,000


Inventory 1,000,000 500,000
Government contract 0 1,000,000
Equipment 400,000 500,000
Short-term payable (2,000,000) (2,000,000)

Net Assets 1,400,000 2,000,000

The fair value associated with the acquired entity’s government contract is not based on any
legal or contractual relationship. 92

In addition, for obvious reason, there is no open market trading for an intangible of this sort.

What is the goodwill arising from the business combination?

c. 3,000,000 c. 4,000,000
d. 3,600,000 d. 0

Problem 180 (IAA)

Clever Company purchased for P4,000,000 cash all of the outstanding ordinary shares of Sun
Company when Sun’s statement of financial position showed net assets of P3,200,000.

On the date of acquisition, Sun’s assets and liabilities had fair value different from the carrying
amount as follows:

Carrying amount Fair value


Property, plant and equipment, net 5,000,000 5,750,000
Other assets 500,000 0
Long-term debt 3,000,000 2,800,000

What amount should be reported as goodwill in the consolidated statement of financial


position of Clever Company and its wholly-owned subsidiary?

c. 350,000 c. 750,000
d. 250,000 d. 800,000

Problem 181 (IFRS)

Brisbane Company has recently diversified by taking over the operations of Darwin Company at
a cost of P10,000,000.

Darwin manufactures and sells a cleaning cloth called the “Superswipe” which was developed
by Darwin’s highly trained staff.

The unique nature of the coating used on the “Superswipe” has resulted in Darwin Company a
significant share of the South African market.

As a result of the takeover, Brisbane Company acquired the following assets at fair value:

Land and building 3,200,000


Production machinery 2,000,000
Inventory 1,800,000
Accounts receivable 700,000

In addition, Darwin Company owned, but had not recognized, the following:

 Trademark – “Superswipe” with fair value of P1,000,000.

 Patent – Formula for the special coating with fair valuew3 of P5000,000.

What amount of goodwill should be recognized on the date of acquisition?

c. 2,300,000 c. 1,800,000
d. 1,300,000 d. 800,000
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Problem 182 (IAA)

At year-end, Bliss Company purchased the net assets of another entity for P6,000,000. On the
date of the transaction, the acquire had P2,000,000 of liabilities.

The assets of the acquire at fair value were P3,000,000 for current assets and P6,000,000 for
noncurrent assets.

How should the purchase be accounted for?

e. Retained earnings should be credited for P1,000,000.


f. Gain on bargain purchase should be credited for P1,000,000.
g. The current assets should be reported at P3,000,000 and the noncurrent assets at
P5,000,000.
h. Negative goodwill should be credited for P1,000,000.

Problem 183 (IAA)


East Company is planning to sell the business to new interest. The cumulative net earnings for
the past five years amounted to P5,500,00 including expropriation gain of P500,000.

The fair value of net assets of East Company was P7,500,000. The goodwill is determined by
capitalizing average net earnings at 10%.

3. What is the purchase price of the business?

c. 10,000,000 c. 15,000,000
d. 12,500,000 d. 7,500,000

4. What is the amount to be paid for goodwill?

c. 3,500,000 c. 2,500,000
d. 7,500,000 d. 5,000,000

Problem 184 (AICPA Adapted)

On January 1, 2014, Wayne Company signed an eight-year lease for office space. The entity has
the option to renew the lease for an additional four-year period on or before January 1, 2021.

During January 2016, two years after occupying the leased premises, the entity made general
improvement costing P3,600,000 and having a useful life of ten years.

On December 31, 2016, the entity’s intention as to exercise of the renewal option is uncertain.

What is the depreciation of leasehold improvement for 2016?

c. 300,000 c. 450,000
d. 360,000 d. 600,000

Problem 185 (AICPA Adapted)

On January 1, 2016, Ames Company signed an eight-year lease for office space. The entity has
the option to renew the leave for an additional four-year period on or before January 1, 2023.

During January 2016, the entity incurred the following costs:

 P1,200,000 for general improvement to the leased premises with an estimated useful
life of ten years. 94

 P500,000 for office furniture and equipment with an estimated useful life of ten years.

 P400,000 for moveable assembly line equipment with useful life of 5 years.

On December 31, 2016, the entity’s intention as to exercise of the renewal option is uncertain.

What is the accumulated depreciation of leasehold improvement on December 31, 2016?


c. 292,500 c. 170,000
d. 150,000 d. 212,500

Problem 186 (AICPA Adapted)

On January 1, 2014, Nobb Company signed a 12-year lease for warehouse space. The entity has
an option to renew the lease for an additional 8-year period on or before January 1, 2018.
During January 2016, the entity made substantial improvement to the warehouse. The cost of
the improvement was P540,000 with an estimated useful life of 15 years.

On December 31, 2016, the entity intended to exercise the renewal option.

On December 31, 2016, what is the carrying amount of the leasehold improvement?

c. 486,000 c. 510,000
d. 504,000 d. 513,000
Problem 187 (AICPA Adapted)

On January 1, 2015, Bay Company acquired a land lease for 21 years with no option to renew.
The lease required the lessec to construct a building in lieu of rent.

The building, completed on January 1, 2016, at a cost of P8,400,000, is depreciated using the
straight line method.

At the end of the lease, the building’s estimated fair value is P4,200,000. The useful life of the
building is 25 years.

What is the carrying amount of the building on December 31, 2016? ANSWER: A

c. 7,980,000 c. 8,190,000
d. 8,064,000 d. 8,232,000

Problem 188 (IAA)

At the beginning of current year, Explicable Company acquired a 5-year lease on land and
building from another entity at an annual rental of P1,200,000.

On same date, the entity paid P2,400,000 representing rental for the first year and an advance
rental for one year which will be applied for the last year of the lease contract.

Moreover, the entity paid P2,000,000 upon signing of the contract to obtain right to the lease.

Improvement and alteration were made on the building at a cost of P500,000.

4. What is the rent expense for the current year?

c. 1,200,000 c. 3,600,000
d. 2,400,000 d. 1,800,000 95

5. What is the amortization of leasehold for the current year?

c. 500,000 c. 200,000
d. 400,000 d. 0

6. What is the depreciation of leasehold improvement for the current year?

c. 500,000 c. 100,000
d. 900,000 d. 0

Problem 189 (IAA)

At the beginning of the current year, Alpha Company signed a contract whereby the entity was
to pay P3,000,000 cash plus P300,000 per month rent for an office building.
The contract is for 10 year and renewable for another 10 years at a monthly rental od
P400,000.

Prior to occupancy, the lease spent P1,000,000 in improving the building.

In addition, the parking lot was improved, new pavement and lighting were made at a cost of
P400,000. It is estimated that such improvement will be usable for 5 years.

3. What is the amortization of leasehold for the current year?


c. 600,000 c. 700,000
d. 300,000 d. 0

4. What is the depreciation of leasehold improvement for current year?

c. 480,000 c. 180,000
d. 280,000 d. 140,000

Problem 190 (AICPA Adapted)

Ward Company incurred the following research and development costs in the current year:

Equipment acquired for use in various R and D projects 975,000


Depreciation on the above equipment 135,000
Materials used 200,000
Compensation costs of personnel 500,000
Outside consulting fees 150,000
Indirect costs appropriately allocated 250,000

What total amount of research and development costs should be recognized as expense for the
current year?

c. 850,000 c. 1,235,000
d. 1,085,000 d. 1,825,000

Problem 191 (IAA)

Courage Company incurred the following costs in the current year:

R and D with 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 product 2,100,000
Engineering costs incurred to advance a product to full 96
Production stage but economic viability is not yet achieved 1,200,000

What amount should be recorded as research and development expense?

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

Problem 192 (IAA)

Metal Company incurred the following costs during the current year:

Laboratory research aimed at discovery of


New knowledge 750,000
Design of tools, jigs, molds and dies involving
New technology 220,000
Quality control during commercial production,
Including routine testing 350,000
Equipment acquired two years ago, having an estimated
useful life of five years with no residual value, used
in various R and D projects 1,500,000
Research and development services performed by
Stone Company for Metal Company 230,000
Research and development services performed by
Metal Company for Kaye Company 20,000

What amount of research and development expense should be reported in the current year?
c. 1,200,000 c. 1,870,000
d. 1,500,000 d. 2,170,000

Problem 193 (AICPA Adapted)

Brunson Company, a major winery, begun construction of a new facility in Mindanao. The
following costs are incurred in conjunction with the with the start-up activities of the new
facility.

Production equipment 8,150,000


Travel costs of salaried employees 400,000
License fees 140,000
Training of local employees for production and
Maintenance operations 1,200,000
Advertising costs 850,000

What portion of the organization costs should be expensed?

c. 9,750,000 c. 1,390,000
d. 1,600,000 d. 0

Problem 194 (AICPA Adapted)

During the current year , Pitt Company incurred the following costs to develop and produce a
computer software product:

Completion of detailed program design 1,300,000


Costs incurred for coding and testing to
Establish technological feasibility 1,000,000
Other coding costs after establishment
Of technological feasibility 2,400,000
Other testing costs after establishment 97
Of technological feasibility 2,000,000
Costs of producing product masters for training materials 1,500,000
Duplication of computer software and
Training materials from product masters 2,500,000
Packaging product 900,000

4. What amount should be reported as inventory?

c. 2,500,000 c. 4,000,000
d. 3,400,000 d. 4,900,000

5. What total amount of the costs incurred should be expensed immediately?

c. 8,200,000 c. 6,700,000
d. 2,300,000 d. 4,400,000
6. What amount should be capitalized as software cost?

c. 5,400,000 c. 5,900,000
d. 5,700,000 d. 6,900,000

Problem 195 (AICPA Adapted)

Yellow Company spent P12,000,000 during the current year developing a new software
package. Of this amount, P4,000,000 was spent before it was at the application development
stage and the package was only to be used internally.

The package was completed during the year and expected to have a four-year useful life. The
entity has a policy of taking a full year amortization in the first year.

After the development stage, an amount of P50,000 was spent on training employees to use
the program.

What total amount should be reported as an expense for the current year?

c. 6,012,500 c. 1,600,000
d. 6,050,000 d. 2,000,000

Problem 196 (AICPA Adapted)

On January 1, 2016, Bitter Company had capitalized cost of P5,000,000 for a new computer
software product with an economic life 5 years. Sales for 2016 amounted to P3,000,000.

The total sales of software over the economic life are expected to be P10,000,000. The pattern
of future sales cannot be measured reliably.

On December 31,2016, the software had a fair value less cost of disposal of P4,500,000.

What is the carrying amount of the computer software on December 31, 2016?

c. 5,000,000 c. 4,500,000
d. 3,500,000 d. 4,000,000

98