se CPA REVIEW SCHOOL OF THE PHILIPPINES : - Manile + PRACTICAL ACCOUN'SING I- PREWEEK LECTURE VALIX STY VALIX FERRER span hd anloe of P1,000,000.curing December 2014. Experience has shown tat 7 Mhurchadiee ecquating 7% of sales wil be feturned within thirty days and an additions! °% tunel within ninety days. Returned merchandise is readily resatable. In addition, ise equuling 159% of sales will be exchanged for merchandise of equal or greater Hat aunt should be reported for net sales for the month of December 20147 2, Belgicd Company allows customers to retum goods within. 90,deys of purchase. The entity aot eae er salea wil be returned within the 90-period period. During the month, the SRuty Has sales of P200,000 and retums of sales made i prier months of PS,000. What Sau T Should be secorded a8 net sules tevenue for new sales made during the month? a, 185,000 ‘ b. 190,00 a ee fe. 195,000 d. 200,000 * 3. On Jaquary 1, 2014, Gerald Company purchased 10% of Dana Company's outstanding sRhinazy shared for P3,000,000, Gereld is the largest singie sharenolder in Dana and Gerald's ea nes jority of Dana's bourd of directors. The investee reported net income of $2 000 000 for 2014 and paid dividends of P1,500,000, On December 31, 2014, what amneunt should be reported as investment in Danw/ Company’? , 4,500,000 b. 4:350,000 e 4 é 3 | 4. On January 1, 2014, Gilberto Compeny purchased 9% bonds with a fnce amount of 74,000,000 fr P3,756,000 to, yiuld 10%. The bonds ave dated January 1, 2014, marure on Denenier 31, 2033 and pay interest annually on December 31. The interest method of nortunng ooné discount is used. Whet amount should be teported as interest revenue from the bond investment for 2015? 400,000 375,600 360,000 377.160 pose \ 5, On March 5, 2014, Ashe Company adopted a plan to accumulate P1,000,000 by September T2018. The entity plans to make four equal annual deposits to a fund that will eam interest a1 10% compounded annually. The entity made the first deposit on September 1, 2014. - Futurg value of 1 at 19% for 4 periods 1.46 Futurd amount of ordinaty annuity of 1 at 10% for four periods 4.64 Futurd amourt of annuity in advancd of | at 10% for four periods SAL ‘What js the annual deposit to the Fund (rounded)? a. 299,000 wee b. 245.00 4 . ©. 195,700 a 4. 146,000 5859| 6. On July 1, 2014, East Company pt 8% bonds for P461,500 to yield 10% per year, The bon: Page 2 wurchaved as long-temt inveotment P500,000 fave amount, pay interest semiannually on Januhry 1 and July I, The entity does not elect the fair value ‘option for reporting these ‘afities. On December 31,2014, What anount should be reported as interest receivable? sect a. 18,460 . ». 70,000 e. 33,075 4. 43,000 C/ 7, Altoh Company began operatio“s on Jenvary 1, 2014. The following information perzins to, the portfcliv of marketable equity securities on December 31, 2014: 7+" *°", Ets F | ‘Trading Available for, sale * Aggregate cost 360,000 550,000° ‘ A gate fair value 320,000 450,000 o ‘Aggregate lower of cost or market value applied 304,000 420,000 judged to be the 2014 income statement? ‘rading securities a ~ ‘The entity elects the fair value option for all financial in each security in the portfolio struments, If the fair value declines ‘anit amounts should be reported os a less on these securities in ‘Available for sale securities ° a] 49,000) . b 0 100,000 ci | 40,000 +7 -100;000 d.} 56,000 » 130,000 B 8. Shelton Company reported the following portfolio of available fer sale securities: Agdsegate cost 12/31/2014 150,000 zed gains 12/31/2014 14,000 zed losses 12/31/2014 26,000 30,000 Net\realized gains during 2014 ‘The entity elects the fair value total amount should be reported. a. | 4,000 gain b. [18,000 gain c: B0,000 gain d. 44,000 gain 9, Most Company owns 20% of Dubro Company's shards, Dubzo’s shnre capital 10% cumulative preference Ordinary share capital option for reportitg all available for sale secusities, What in the incotae staterent for 2014? preference shares and 80% of the ordinary ‘outsianding on December 31, 2014 is as follows: share cupita 100,000 700,000 2014. Moss doés not elect the fair valve option to Dubro reported net income of P60,000 for th rt jount should be reported as equity in earnings of rep Dutjro for 2034? a. 42,000 b. 78,000 cc. $8,400 d. $0,000 yt the investment in Dubro. Wbat anv 5859v . Page 3 10. Sage Company bought 40% of ait inv " i boug vestee on Sanuary 1, 2014 for P400,000. The cazr ‘amount of the investee’s net essety at the purchase date totaled P900.000, Fair ered + carrying amounts were the same for all item * for plant-2qd inventory, for which fair exceeded their carrying amounta by £90,000, and 10,090, respectively. The plant has itoen-year life, All inventory Wes sold during 2014: During 2014, the investee reported “ome of P120,000'and paid « P20,000 cash dividend. What amount should be reported me from the investment in associate for 2014? a, 48,000 i b. 43.000 of c. 36,000 . : d. 32,000 Jdnuary 1, 2014, Kean Company purchased @ 30% interest in an investes for P250,000. ‘this date, the investee’s shareholders’ equity was P500,000. The carrying amounts of the invesfee's identifiable net assets approximated fair value, except for land whose fair value exe edded carrying amount by P200,000. The investee reported net income of P100,000 for 2014{ and pid no dividends. On December 31, 2014, what amount should be reported as a b a see in associate? 20,000 2p0,000 0,000 280,000 C/ 12. Ondhly 1, 2014, Diamond Company paid P1,000,000 for 100,000 outstanding shares (40%) of val Abhley Compact. At that date, the net assets of Ashley totaled P2,500,000 and the fair lugs of ail of Ashley's identifiable assets and liabilities were equal to their carrying amount, Ashley reported net income f P500,000 for 2014, of which 390,000 was for the + six months. ended December 31, 2014, Askley paid cash dividends of P250,000 on Septpmber 39, 2014. Diamond does not elect the fair value option for reporting the investment in Ashley. What amount of income should Diamond report from the investment in Aphley? a. [80,000 b. 490,000 ec. 120,000 4. 400,000 AB ws Company purchased for P4,500,000 a tract of land as a factory site: An existing building on the property was razed’ and construction was begun on a new factory building. ‘The kntity incurred the following cost. = Cos} of razing old Building, net of proceeds from salvaged materials + 300,000 ‘Titld insurance and legal fees to purckase land : 200,000 Architect foe 950,000 ‘Nev! building construction cost 8,000,000 Whitis the cost of building in acccrdance with PIC Interpretation? a. 9,250,006 — b. 9,459,000 ©. 8,950,000 . 9,150,000 5859 eda A Page 4 ‘On Defeniber 1, 2014, Boyd Company purchased a P400,0C0 tact of land as an jnvestiient properly. The entity razed an old buiiding on the property and sold the materials it salvaged from the demolition. The entity incurred additions] costs‘and realized salvage proceeds 8s followg: Demol}tion of old building Legal ies for purchase contract and recording ownership Title gharartee insurance : from sale of salvaged materials |, What is the carrying amount of the land? 1 that date, the truck's'cerrying amcunt was P2,500,000, and the 50,000 10,000 12,000 8,000 On July 1, 2014, Bless Company exchanged a truck for 25,000 shares of Ace Company. On ir value was P3,000,000. ‘Also, the bock value of Ace's share was P69. On December 31, 2014, Ace had 250,000 ‘shares putsanding and the book value per share was P50. What on December 31, 2014 as investment in Ace? a. 3,0 of b. 2,500,090 Amble| Company oxchanged a truck with a carrying amount of P12,000 and, jount should Blass report fair value of P20,000 for a truck and P2,500 cash. The vash Lows from the new truck are poy-=xpected to be sigdificandy different froin the-cash Jows of the old truck. The fair value of the truck receiv4d was P17,500. At what amount should Amble record the truck received in the excharlge? . es a. 7,000 CF sey ayciom es eH b. 94500 . we eS tthe c. 10[s00 ane 7 - 4. 17,500 On July 1, 2014, Rudd Companyeeported that’a delivery van was destroyed in an accident. On thdt date, the cazrying amount was P2,500,000. On July 15, 2014, Rudd received and recorded a P700,00Gtinvoice for a new engine installed in the van in May 2014,,.and another PS00,400 invoice for various sop: insuragce policy on the van, whi reportdd as gain or loss on disposal of the van? ‘a. 1,090,000 gain b. "300,000 geia c, 400,000 Inss a 0 Ropaiilied the plart building . Major fmprovements to the electrical wiring system Partial|replacement of roof tiles ‘How nluch should be charged to repair and maintenance expense? s. In August, Rudd received P3,5C0,000 under an it pl-ns to use to replace the van, What amount should be During the year, Kinig Company made the following expenditures relating to plant building: 40,000 10,000 32,000 14,0005 . Page 5 © D 19,0n Jandpry 1, 2014, Union Company purchased n machine for P264,000 and depreciated i ‘by the uraight line method using an estimated useful life of sight years with no residual vatue. Gn January 1, 2017, the entity determined that Vs ine had a useful life of six years from the date of seafintion ‘with yesidual value of P24,000: What fs a accumulated * depreciation on December 31,2017? ~ Sat a. 176,)00 ». 160,00 ¢ ©. * d. 146 % 8 20. Weir Company used siraight-line depreciation for property, plang and equipme " 12/31/2015 1273172014 Land r : 25,000 25,000 * Building { 195,000 : 195,000 Machingry ana equipment 695,000 650,000 i 600,000 370,000 ased depreciation reciation expense for 2015 and 2014 was P55,000 and P50,000, respectively What lwas debited to accumulated depreciation during 2015 because of retirement? oo 0 + © Cp 2. Basico Pompany uses the sum of yoats digits method fo depreciate equipment purchased in January 2014 for P2,000,000. ‘The residual value is ‘200,000 and the useful lifeis four years. What id the carrying ammount of the equipment on December 31, 20167 a. 180,000 . ‘ b, 200,000 ¢. 380,000 d. 450,000 Cy 22: Jacqueline Company had equipment wit carrying amount of P4,500,000 at year-end: Expectpd discounted net cash flows a 4,000,000 Fair value, assuming similar other ssset 4,150,000 Fair value, assuming the asset is sold stand-alone 4,280,000 ‘What if the impairment loss for the year? ‘a, 504,000 b. 354,000 . 220,000 " ~ Pl 4 o t 4% B 23.1n Jamry 2014, Maik’ Company purgliased exgineral mine for P36,000,000 with removable ore estimated by geological survey 4,000,000 tons. ‘The property hus an estimated value of P3,6001000 after the ore has been extracted. The entity incurred P10,800,000 of development cost preparing the property for the extraction of ore. The entity is required to restore the pap ‘the criginal condition at an estimated cost of P2,500,000, The present value of the imafed restoration vost is P1,800,009. Durjng 2014, 400,000 tons were removed and tons were sold. For the year ended December 31, 2014, what amount of depletion should|be included in,cost of goods sold? a. 4,5p0,000 b. 3,375,000 . + © 4,570,000 4. 3,427,500 5859i | ‘ mu Fase + @y 24. Syntlia Company purchased a sewing machine for P1,000,000 on July 1, 2914. The machine had « ten-year life, a PS0,000 residurl value, and was deptociated using the straigntline ‘Op December 31, 2016, a test [or iinpaitment indicates that the undiscaante cash flow from che sewing machine are lest than earying amount.-The machine's sctual fair value on December 31, 2016 is P300,009. What i I * \- 650,000 475,000 e. 462,500 4. 435,009 . loss ‘on impatrment for 20167 « 25, Masiprie Company” acquired a machine for P320,000 on August 31, 2014. The macbine has a five-year life, a P50,000 residual valve and was depreciated using the straightline methcd. On May B1, 201, a test for recoverability reveals that the expected net ftuce Undiscounted cash inflofs related to the continued use and eventual disposal of the machine total P150,000. The machine's actual fair value on May 31, 2017 is P135.000 with no residual value. Assuming ere ca impairment is recognized on May 31, 2017, what is the depreciation expense for June F a. 6352 b. 3,000 4500 a. 3148 . . D 25. During the current year, Wilson Compeny sold a piece of equipment used in production. The equigment ‘iad been accounted for ucing the revaluation method and details of the eccounts le are as follows. Sale price * 100,000 Carrying umount of equipment + 90,000 Revalustion surplus 20,000 ‘Whigh of the following is correct about recording the sale? a. The gain that should be recorded in profit and loss is P30,000 b. The gain that should be recorded in other compretiensive income Is P10,000 cc, The gain that should be recorded in other comprei.ensive income is P30,000 d. ‘The gain tha: should be recorded in profit and loss is P10,000 and the P20,000 uation surplus should 2 transferred to retained earnings. . £ CY 27.0n Jhnuary 1, 2014, Kristine Company signed an agreement to operate as a franchisee of anotHer entity for an initial franchise fee of P12,000,000. Tre same date, the entity paid 4,040,000 and greed. pay the belance in four equal annual payments of P2,C00,000 beginfaing January 1, 2013) The dowa payment is not refundable and no future services are required of the frartchisor. The entity can borrow ut 14% for a loan of this type. Present and future value factors are as foliows: Presdnt value of 1 at 14% for 4 periods ft : 0.59 Futuge amount of 1 at 14% for 4 periods 1.69 t value of an ordinary annuity of 1 at 14% for 4 periods 291 is the acquisition cost of the frauchise? a -y) 3,520,990 2,000,000 9,820,600 720,000 += g 5859: cof wea ghectel te steed soe Tice veetons. Page 7 28. On Jaruary 1, 2014, Judd Conipaay bought & trademark for P500,000. The entity retained an + independent consultant who estimated the trademark's remaining useful life to be fifly years. ‘The ulamortized cest of the trdemark wns P320,000. On December 31, 2014, what amount should te reported as accumulated amortization?, + a. b, a. 7600 9)500 1ofo09 135001 B 29.0n Idnuary 1, 2014, Paye Company purchased another entity at a cost that resulted in recoghition of goodwill of P200,000.-Duaing the first quarter, the entity spent an additional Cy 30.00 resulilof the combitation, the amounts of goodwill recorded for each of the three reporting 4 -P80,000 on expenditures designed to maintain goodwill. On December 31, 2014, what amouft should be repirted us goodwill? vw © a. 180,000 290,000 2$2,000 280,000 Iuly 1, 2014, Carver Company required Jones Company in a business combination. As a units [of the acquire were Retailing P300,000, Service P200,000 and Financing P400,000- Near fie end of 2014 a new major competitor entered the market and Carver was conosmed ‘that this might cause a significant deoline in the value of the goodwill for the three mazor eporfing units on December 31, 2014. On such date, the amounts of goodwill are Retailing 2501000, Service’ P100,000 and Financing ?600,000. What amount of impairment of ‘goodwill should be recorded on December 31, 20147 a b. co a. “toinoa ty RM tee . gees reame (mmd 160,00, S poas leeen Cunaa) 150,000 © Jie bate OS oo: |. Cody| Company incurred the folldwiig costs during the current year: Design of tools, jigs, molds, and dies involving new technology 125,000 ‘Modification of the formulation of'a process 160,000 Trouble shooting of breakdowns dusing commercial ptodietion 109,000 jon of an existing capability to & particular customer need as part ‘of a continuing commercial activity +510,000 Wha} amount should be recognized as research and development expense for the current year’ a 1p5,000 5 ’. 60,000 : ©. 235,000 a 4. 85,000 . 5859i ces 8 f . ’ Page 8 i PB 32.Ball Company focured the: following research and development costs during thé current ‘ costs of contract research and development work for the goverament be. einburel by government unit 490,000 ciation * 300,000 : 700,000 ict costs appropriztely allocated 200,000 , 180,000 One-fime trademark purchasé price 100,000 Nonipfundable VAT taxes. 3,000 ‘Trainting sales personnel on the use of new trademark 7,000 Research expenditures associated with the purcliase of the new trademark 24,000 ‘Legs costs incurzed to register the trademark 10,500 Salaijes of the administrative 12,000 ‘What {s the iritial cost of the trademark? 2. 140,000 . b. 115,500 - ©. 146,500 143,500 On December 1, 2014, Poplar Company purchased for cach at P18 per share all 200,000 al of Spruce Company. On"Desember 1, 2014, Spruce showed a carrying amount of net assety of P3,200,009. The carrying amounts are equel to the fair values of all the identifiable assets except propeity, plant and equipment. The fair value of property, plent and equipment led carrying amount by P150,000. What amount should be reported as goodwill? ex a. b. ©. a. year: 400,000 2,000,000 ‘ ciation on ebove equipment ‘500,000 Persqnel costs of persons involved in research and development projects 1,000,000 Consulting fees paid to outsiders for reearch and development projects 100,000 Indirpct costs reasopably allocable to research and developinent projects 200,000 ‘Wha{ mount of research and development costs should he expensed in the current yeur? b. 1}700,000 si 5859Te ta, EP Se Page 9 D_ 36.Greene|Company bought a patent ‘rom White Company on January 1. 2014 for P102,000. B 37. On Jajuary 1, 2014, Alpha Company signed an An independent research consultant estimated that the remaining useful life of the patent was four years. The remaining legel life was six years. The unamortized cost ef the patent on January 1, 2014 was P30,000. What is the amortization of patent for 20147 a $000 b. 7S00 c. 17,000 4. 25,500 . \ annuab maintenance agreement with a Softwaie provider for P13,000 aad the maintenance period begins oo Marchj1, 2014. Alpha also inkurred P5.000 on January 1, 2014 related to software modification request tat will increas the functionality of the software assei over five years using the straight line me'hod- What if the total expense that should be recognized as a result of the maintenance agreement and the software modification for 2014? l / a. §,000 ms | ~b. 14,500 7 c. 14,000 . 4, 29,000 | 38, Metal Company ineired te following cess 4uring the current year: Laborgtory research aimed at discovery of new knowledge 75,000 ‘Desigs of tools, jigs, malds and dies involving new technology 22.000 Quality control during commercial preduction, including routine testing Equipfnent acquired two years ago, aaving an-egtimated usefui life of five dard in varios R and JD projects the entire year 150,000 ars with no residual value, Reseafch and developmeat Reseatch and development services perfurmed by Metal Company for Kaye Company 2,000 What hmourt of research ahd development expense should be reported in the eurrent year? a. 130,000 b. 190,090 ! | ©. 197,000 1 4. 21/7,000 Sape R ee eat B38. Smythe Company invested P20,000 in a call option for 1,000 shares of Gin Company P50 par, fnen the market price, was P1G0 per share. The option expired in three months and had ‘an extreise piice of P90 per share, What was the intrinsic value of the call option at the time of inifial investment? a. $1,000 . : b, 10,000 ©. 46,000 . 4. {5,000 : 5859 Services performed t;" Stone Company forMetal Company 23,000—— * g* ity ent repurchase loans. The fair values*re listed, b. © 4. A o pose 3 + 38 ah Compeny sold Joans cbiained an option to Cash proceeds Interest cate swap Call option Recovise obtigation Wee eras Got 320 200 100) 120 A debit to call option .| A crest to interest rute swap * A debit to loans .| A credit to eagh e& sume that Daniea Company agreed to servi ;penssation. The fair value of the service ir P50. ss) on the sale, respectively? 2,200 and 200 2,250 and 250 2,150 and 150 2,200 und (250) at is the gain (loss) om the Page 10 with P2.200 fair value and carrying amount of P2,000. The purchase similar Joans and assumed a recourse obligation to 2,160 140, 80 ( 120) 2. Tie joumal entey to record the transfer on the books of Danica Company includes ie Wott ce the Joans without explicitly stacing the ‘What are the net proceeds and the gein et pros END 5859