CPA REVIEW SCHOOL OF THE PHILIPPINES
PRACTICAL ACCOUNTING-1MULTIPLE CHOICE; MARK FULLY with PENCIL NO. 2 the letter of your choice on the answer sheet provided. Make the mark DARK but do not use to much pressure. ERASURES ARE STRICTLY NOT ALLOWED.
1. The statement of financial position of East company on December 31, 2011 reported the following current assets:
Cash including sinking fund of P300,000 with s trustee 2,000,000
Trade and other receivables 3,500,000
Inventory including P400,000 cost of goods in transit purchased “free alongside” .The goods are received on January 3, 2012
2,800,000
Total 8,300,000
The trade and other receivables included the following:
Trade accounts ( of which 10% is considered doubtful in collection) 1,500,000
Advances to affiliated entities 1,000,000
Dividends receivable 600,000
Claims to shipper 400,000
Total 3,500,000
What amount should be reported as total current assets on December 31, 2011?
a. 7,000,000
b. 6,850,000
c. 6,450,000 d. 6,050,000
2. The trial balance of West Company showed the following liability account balances on December 31,2011;
Accounts payable
( including a debit balance of P350,000 due to overpayment) 4,500,000
Bonds payable, due March 31,2012 6,000,000
Premium on bonds payable 200,000
Deferred tax liability 3,500,000
Income tax payable 5,500,000
Note payable – January 2,000,000
The bank loan matures on July 31, 2012. On December 31, 2011, the entire balance of the note was refinanced on a long-term basis. The 2011 financial statements were authorized for issue on March 1, 2012. What amount should be reported as total current liabilities on December 31, 2011?
a. 16,550,000
b. 16,200,000 c. 18,550,000 d. 18,200,000
3. On December 1, 2011, Helen Company gave Marie Company a P2,000,000, 12% loan. Marie received proceeds of P1,940,000 after the deduction of a p60,000 loan origination fee. Principal and interest are due on sixty monthly installments of P44,500 beginning January 1, 2012. The repayments yield an effective interest rate of 12% at the present value of P2,000,000 and 13.4% at a present value of P1,940,000. What amount of interest income should Helen report for the year ended December 31, 2011?
a. 20,000
b. 21,663
c. 22,333 d. 19,400
4. Zoe Company’s year-end December 31,2011 and the 2011 financial statements were authorized for issue on March 31, 2012. Zoe had the following events after reporting period:
On February 1, 2012, Zoe determined that the total cost of the equipment purchased is P3,300,000. The asset was purchased on November 12, 2011 and recorded at P2,000,000.
On March 15, 2012, Zoe discovered that its 2011 salary expense was understatement by p150,000.
On March 20,2012, Zoe issued 100,000 ordinary shares at par P10 per share.
How much should be reported as adjusting events on December 31, 2011? a. 1,300,000
b. 1,450,000
c. 2,300,000 d. 2.450,000
5. On February 1, 2011, Sean company purchased machinery for P2,400,000 with a 10-year useful life and no residual value. On March 20, 2011, Sean incurred repairs and maintenance cost to this equipment for P150,000. What amount should be included in Sean’s quarterly income statement ending March 31,2011?
a. 150,000
b. 190,000
c. 210,000 d. 390,000
6. Nonoy company reported the following data at the end of the current year :
Accounts receivable 6,000,000
Credit sales 12,000,000
Doubtful accounts expense(2% of credit sales) 240,000
Allowance for doubtful accounts – January 1 50,000 Nonoy elected to estimate its doubtful accounts by using percent of accounts receivable method. Nonoy determined that 6% would be a good estimate.
There were no write offs nor recoveries during the year. What amount should be reported as doubtful accounts expense in the current year of this change? a. 240,000
b. 360,000 c. 480,000
d. 310,000
7. On January 1, 2009 Mara Company purchased equipment for P3,000,000 with a 5-year useful life and no residual value. On January 1, 2010, Mara incurred repairs for P500,000 and inappropriately capitalized the entire amount. The error was discovered on January 1, 2011 and the asset’s residual value was estimated to be P400,000 also on the date. What amount should be
recognized as a prior error in the opening balance of retained earnings on January 1, 2011?
a. 500,000
b. 375,000
c. 125,000 d. 0
8. Corazon Company accounts for noncurrent assets using the cost model. On July 31, 2011, the entity classified a noncurrent asset as held for sale. At that date, the asset’s carrying amount was P 1, 450, 000; its fair value was estimated at P2, 500, 000 and the cost to sell at P150, 000. The asset was sold on January 31, 2012 for P2, 120,000. At what amount should the asset be measured in the statement of financial position on December 31, 2012? a. 2,000,000
b. 2,150,000 c. 2,120,000
d. 1,450,000
9. Guns Company has two divisions, Smith and Wesson. Both qualify as business components. In 2011, Guns decided to dispose of the Wesson division since it does not meet the long term goal of Guns. In 2012, the Wesson division had revenues of P5, 000,000 and expenses of P4, 500,000. Guns also disposed some of the division’s asset and incurred a loss of P1, 500,000. In 2011, the Wesson division had revenues of P4, 500,000 and expenses of P5, 700,000. If the income tax rate is 30%, how much should be reported as loss from discontinued operations in the 2012 comparative financial statements?
2012 2011
a. 700,000 0
b. 1,000,000 1,200,000 c. 1,000,000 0
d. 700,000 840,000
10.The records of Shoe Department Store report the following data for the month of July 2011:
Sales 13,500,000 Mark down 1,200,000
Sales allowance 250,000 Mark down cancelations 200,000
Sales return 500,000 Freight on purchases 200,000
Employee discounts 200,000 Purchases at cost 9,400,000
Theft and other losses 300,000 Purchase return at cost 480,000
Initial markup on purchases 5,400,000 Purchase return at sales price 700,000
Additional markup 500,000 Beginning inventory at cost 880,000
Mark up cancelations 200,000 Beginning inventory at sales price 1, 600,000
Using the average retail inventory method, what is the estimated ending inventory?
a. 937,500
b. 1,000,000
c. 1,093,750 d. 1,125,000
11.On January 1, 201, Brood Company disposed its land having a carrying amount of P2, 500,000. The buyer gave a Brood a 5 year noninterest bearing note requiring equal annual installments of P600, 000. The first installment is due January 1, 2012. The market rate for this type of note is 10%. The PV of 1, 10%, 5 periods is 0.62 and the PV of an ordinary annuity, 10%, 5 periods is 3.79. In the December 31, 2011 statement of financial position, what portion of the note should be included in noncurrent assets?
a. 1,901,400 b. 2,400,000 c. 2,627,400 d. 2,501,000
12.Gilas Company provided the following items at the end of the current year: Cash on hand (including the bank draft of P100, 000 and postdated check of P50, 000) 2,350,000
Cash in bank per bank statement
1,500,000
Treasury Bonds 1,700,000
3 year time deposits purchased 2 months prior to maturity 1,200,000
Credit memo authorizing return of goods to vendor 550,000
Debit balance in accounts payable due to overpayment 300,000
Loan proceeds credited by the bank to the depositor’s bank account 600,000
Cash surrender value 150,000
Cash fund set aside to acquire equipment next year 300,000
A review of the records revealed that deposits in transit and outstanding checks were P600, 000 and P900, 000 respectively. What total amount should be reported as cash and cash equivalents?
a. 6,400,000
b. 4,700,000
c. 5,000,000 d. 4,600,000
13.For the month of July, Cassandra Company had the following information: bank service charge for July, P16, 500, “NSF” check, P40, 000. Upon review of its records, Cassandra determined the following: deposit in transit P143, 000, outstanding checks of P110, 000 and an unrecorded customer check of P38, 500. If the cash in bank balance per ledger is P920, 000, how much is the adjusted balance?
a. 863,000 b. 935,000 c. 896,000 d. 90
14.Maple Company provides for doubtful accounts expense at the rate of 3% of net credit sales. Maple’s credit terms are 2/10, n/30. The following data are available for the current year:
Accounts written off as uncollectible during the year 60,000
Collection from customers beyond discount period (Including recovered accounts of P15, 000) 1,500,000
Credit sales, year-ended December 31 3,300,000
Sales return and allowance 200,000
Collection from customers within discount period 882,000
Allowance for doubtful accounts, January 1 54,000
Accounts receivable, January 950,000
What is the net realizable value of the accounts receivable at December 31? a. 1,605,000
b. 1,521,000
c. 1,503,540
d. 1,488,540
15.Jacky company sold accounts receivable without recourse with a face amount P4, 000,000. The factor charged a service fee of 10% of the accounts factored and withheld 5% of the accounts factored as protection against customer returns and other adjustments. Jacky previously established an allowance for doubtful accounts of 8% of the accounts factored. How much is the gain or loss on factoring?
a. 80,000 loss
b. 400,000 loss c. 320,000 gain d. 280,000 loss
16.On August 31, 2011, Criselda Company discounted a customer’s note with recourse at a bank with a 15% discount rate. The note is dated August 1, 2011, has a term of 90 days, has a face value of P6, 000,000 and an interest rate of 12%. Since there was no loss of control of the note on discounting, it was treated as secured borrowing. On August 31, the entry to discount the note will include a
a. Debit to interest expense of P60,000
b. Credit to liability for notes discounted of P6,180,000
c. Debit to interest expenses of P34,500
d. Debit to loss on discounting of P34,500
17.Information regarding Alexandra Company’s portfolio of available for sale securities is as follows:
Aggregate cost- December 31, 2011 1,800,000 Unrealized gains- December 31, 2011 60,000 Unrealized losses- December 31, 2011 280,000 Net realized gains during 2011 320,000 On January 1, 2011 Alexandra reported an unrealized loss of P17, 000 as a component of shareholders’ equity. What is the cumulative unrealized loss that should be recognized in the 2011 statement of changes in equity?
a. 220,000 b. 263,000 c. 280,000 d. 203,000
18.Michelle Company owns 50,000 ordinary shares of Mary Company. These 50,000 shares were purchased by Michelle in 2009 for P100 per share. On October 30, 2011, Mary distributed 50,000 stocks right to Michelle. Michelle was entitled to buy the one new share of Mary Company for P90 cash and two of these rights. On October 30, 2011, each share had a market value of P132 ex-right, and each had a market value of P18. The stocks right is accounted for separately. What cost should be recorded for each new share that Michelle acquired by exercising the rights?
a. 90 b. 114
c. 126
d. 132
19.JTG Company has 100,000 ordinary shares outstanding. NY Company acquired 40,000 shares of JTG for P120 per share in 2008. The securities are being held as long-term investments. Changes in retained earnings for JTG for 2010 and 2011 are as follows:
Retained earnings (deficit), January 1, 2010 (500,000)
Net income for 2010 700,000
Retained earnings, December 31, 2010 200,000
Net income for 2011 800,000
Cash dividend paid on December 31, 2011 (400,000)
Retained earnings, December 31, 2011 600,000
What is the balance of NY Company’s investment in JTG Company on December 31, 2011?
a. 4,800,000
b. 5,040,000
c. 5,240,000 d. 5,400,000
20.Wilkins Company purchased 40% of Absolute Company’s outstanding ordinary shares on January 1, 2011. The carrying amount of Absolute’s equity on this date totaled P9, 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 100,000 respectively. The plant has an 18-year life. Only half of the inventory was sold in 2011. During 2011, Absolute reported net income of P1, 200,000 and paid cash dividend of P200, 000. The carrying amount of the investment in Absolute at December 31, 2011 was P4, 360,000. What is the purchase price on January 1?
a. 4,020,000 b. 3,920,000
c. 4,000,000
d. 3,980,000
21.Saplot Company regularly hedges its purchase requirements and the sale of its finished products in the future market. On November 1, 2011, Saplot entered into the following three contracts designated as cash flow hedge: Type of Contract Quantity Futures prices 1/1/11 Market price 12/31/11 “Purchase” cotton 100,000 85 75 “Purchase” wool 150,000 90 109 “Sell” shirts 90,000 350 400
22.All three contracts are to be settled on January 1, 2012. What is the derivative asset or liability on December 31, 2011?
a. 2,650,000 liability
b. 2,650,000 asset c. 6,350,000 asset d. 6,350,000 liability
23.Acura Motor Sales exchanged a car from its inventory for a sophisticated copying machine to be used as a long term asset. The following information relates to the exchange.
Carrying amount of the car 650,000 Fair value of the copying machine 900, 000
List selling price of the car 1,200,000 Cash difference paid by Acura 150,000
What amount of gain or loss should Acura recognized? a. 550, 000 gain
b. 100,000 gain
c. 300, 000 loss d. 400, 000 gain
24.Sophia Company purchased equipment for P14, 100, 000 on January 1, 2011. Sophia received a government grant of P600, 000 in respect of this asset. Sophia treated the grant as a deduction from the cost of the asset. The equipment has a useful life of 5 years and will use SYD in depreciating the asset. On January 1, 2014, Sophia violated some conditions and fully repaid the grant. What is the depreciation of the equipment to be recognized in 2014?
a. 1,800,000 b. 2,400,000
c. 2,200,000
d. 2,360,000
25.Punk Company acquired an existing building in exchange for 50, 000 ordinary shares. The list price of the building id P8, 000, 000 and the shares have a fair value of P120 per share. Punk also incurred the following costs:
Payment to tenants to vacate the building
65,000
Unpaid property taxes assumed by Punk
78,000
Assessment by city for sewerage project
7,000
Driveways and parking bays
550,000
Cost of grading and leveling
45,000
Cost of new wing attached to the building
750,000
Cost of new ventilation system
300, 000
Remodeling costs prior to occupancy
200,000
What is the total cost of the building? a. 9, 093, 000
b. 7, 093, 000
c. 7, 393, 000 d. 9, 393, 000
26.Atom Company installed a production assembly line to manufacture tennis balls. In the current year, Atom acquired a machine and rearranged the assembly line to install the machine. The rearrangement resulted efficiency in production. The following expenditures were incurred:
Purchase price of the machine (VAT inclusive, 12%) 1,008,000
Labor cost to install machine
130,000
Parts added in rearranging the assembly line
400,000
Cost of testing the machine
150,000
Proceeds from sale of samples produced from testing 12,000
Cost of training worker who will operate the machine 20,000
What is the total amount of expenditures should be capitalized?
b. 1,580,000 c. 1,600,000 d. 1,676,000
27.Hoyt Company started construction on a building on January 1, 2011 and completed construction on December 31, 2011. Hoyt had only two interest notes outstanding during the year and both of these notes were outstanding for all 12months of 2011. The following information is available:
Average accumulated expenditures 4,500,000
Ending balance in construction in progress before capitalization of interest 5,400,000
7% note incurred specifically for the project 2,400,000
12% long term note 6,000,000
What is the cost of the building on December 31, 2011? a. 5,715,000
b. 5,400,000
c. 5,820,000
d. 4,815,000
28.Kirkland Company acquired a tract of land containing an extractable natural resource. Kirkland 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 will be 2,500,000 tons and the extraction will be completed in 5 years. Relevant cost information follows; Land 9,000,000 Exploration cost 1,000,000 Restoration cost 1,500,000
Credit-adjusted risk free interest rate 10%
What is the depletion charge per ton? (Round PV factor to two decimals.) a. 4.00
b. 4.37
c. 3.97 d. 3.60
29.On June 31, 2011, the statement of financial position of Lourdes Company reported the following balances:
Machinery 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, 2011, the
directors of Lourdes decided to change the basis of measuring the machinery from the cost model to the revaluation model. The machinery was revalued to its fair value of P4, 550, 000 with an expected remaining life of 5 years. The entry to record the revaluation using the proportional method will include 30.Karla Company acquired a machine for P3, 200,000 on August 31, 2008. The
machine has a 5-year life, a P500, 000 residual values, and was depreciated using the straight-line method. On May 31, 2011, a test for recoverability reveals that the expected net future undiscounted cash inflows related to the continued use and eventual disposal of the machine total P1, 500, 000. The machine’s fair value on the same date is P1, 350,000 with no residual value. What is the impairment loss to be recognized in 2011?
a. 365, 000
b. 215, 000 c. 90,000 d. 0
31.Jimboree Company offers three payment plans on its twelve-month
contracts. Information on the three plans and the number of children enrolled in each plan for the September 1, 2011 to August 31, 2011 contract year follows:
Initial payment per child Monthly fee per child Number of children Plan A 50,000 - 15 Plan B 20,000 3,000 12 Plan C - 5,000 9
Jimboree received P990,000 of initial payments on September 1, 2011 and
P324,000 of monthly fees during the period September 1, 2011 to December 31, 2011. On December 31, 2011, what amount should be reported as deferred
revenue? a. 330,000 b. 438,000
c. 660,000
d. 990,000
32.Marquee Company operates a customer loyalty program. The entity grants points for goods purchased. The loyalty points can be exchanged for goods of the entity. The points have no expiry date. During 2011, the entity issued 50, 000 award credits. The fair value of each credit is P60. In 2011, Marque sold goods to customers for P9, 000,000 including the fair value of the credits.
The total award credits expected to be redeemed are 90% in 2011 and 95% in 2012. The award credits actually redeemed are 15, 000 and 8, 750 in 2011 and 2012 respectively. What is the revenue earned from the award credits I 2012?
a. 525, 000
b. 500, 000
c. 1,500,000 d. 1,000,000
33.Yehey Company includes one coupon in each package it sells. A towel is offered as a premium to customers who send in 10 coupons:
2011 2012
Packages of cereals sold 500,000 800,000
Number of towels acquired at P40 per towel 30, 000 60, 000
Number of towels distributed as premium 20, 000 50, 000
Number of towels to be distributed as premium next period 5, 000 3, 000
What amount should be reported as premium expense in 2012? a. 2,400,000
b. 2,000,000 c. 2, 120, 000
d. 1, 920, 000
34.The following costs were incurred by Grace Company during the current year: Accounting and legal fees 250, 000
Freight in 1, 750, 000
Freight out 1, 600, 000
Officer’s salaries 1, 500, 000
Insurance 850, 000
Sales representative salaries 2, 150, 000 Research and development expenses 1, 000, 000
What amount should be reported as general and administrative expenses?
a. 2, 600, 000
b. 1, 750, 000 c. 2, 750, 000 d. 3, 600, 000
35.The following information was taken from Katrina Company accounting records for the current year:
Increase in raw materials inventory 150, 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
There was no work in process inventory at the beginning or end of the year, what is the cost of goods sold for the current year?
a. 9, 500, 000
b. 9, 650, 000 c. 9, 750, 000 d. 9, 950, 000
36.Vanessa Company incurred the following costs during the current year
Routine ongoing efforts to refine, enrich or otherwise improve 125, 000
An existing product
Design, construction and testing of reproduction models 110, 000
Quality control during commercial production including routine
Testing of products 150, 000
Laboratory research for discovery of new knowledge 180, 000
What is the total research and development expense? a. 235, 000
b. 275, 000
c. 290, 000
d. 330, 000
37.During the current year, Crizza Company incurred the following costs in connection with the issuance of bonds:
Promotion cost
Printing and engraving Legal fees
Fees paid to independent accountants for registration Commissions paid to underwriter
What amount should be recorded as bond issue costs to be amortized over the term of the bonds?
a. 2, 550, 000
b. 2, 750, 000
c. 1, 500, 000 d. 1, 050, 000
