Instructions:

Write the letter that best corresponds to your answer in the booklet that was
given to you. Do not write on the test questions and return it after use. Thank you
and GODBLESS!

FINANCIAL INSTRUMENTS (4)

On January 1, 2014, Sun Company purchased the debt instruments of Silk
Company with a face value of P5,000,000 bearing interest rate of 8% for
P4,621,006 to yield 10% interest per year. The bonds mature on January 1, 2019
and pay interest annually on December.
1. What is the amortized cost of the investment as of December 31, 2015?
a. 4,909,215
b. 4,826,559
c. 4,751,417
d. 4,683,107
2. If the prevailing rate for similar debt instrument on December 31, 2015 is
11%, what amount of unrealized gain or loss to be reported in the December
31, 2015 balance sheet assuming the debt instrument was classified as
available for sale?
a. 117,937
b. 163,475
c. 213,785
d. 306,927
On January 2, 2013, Saint Company invested in a 4-year 10% bond with a face
value of P6,000,000 in which interest is to be paid every December 31. The
bonds has an effective interest rate of 9% and was acquired for P6,194,220.

During December 2014, the management of Saint Company decided to dispose

P4,000,000 face value debt instrument which will be used to settle an obligation
and to finance some of its operating costs.

The company has a business model of collecting the contractual cash flows for
all their debt security investments, however due to frequent sale and disposal of
investments the management has decided that the business model is no longer
appropriate.

On December 31, 2014, the four million face value debt instrument was disposed
of when the market rate of similar instruments was 11%.
PV factor of 11% after 2 years 0.8116
PV factor of annuity of 11% after 2 years 1.7125

3. What is the amortized cost of the debt instrument on December 31, 2014
a. 6,000,000
b. 6,105,353
c. 6,151,700
d. 6,194,220
4. What is the amount of gain or loss should the company recognize in its 2014
profit or loss as a result of the transfer?
a. None
b. 69,418
c. 78,134
d. 96,330
IMPAIRMENT OF ASSETS (5) REVALUATION SURPLUS (4)
On January 1, 2009, MONICA CORP. acquired a factory equipment at a cost of
P450,000. The equipment is being depreciated using the straight-line method
over its projected useful life of 10 years with P50,000 salvage value.
On December 31, 2010, a determination was made that the future net cash flows
expected from the contributed use of the asset shall be P40,000 per year.
Estimated salvage value remains to be P50,000. The asset also had a fair value
less cost to sell at P220,000 on the same date. You ascertained that this was
properly computed and that recognition of the impairment was warranted. (The
prevailing interest rate is 10%)

On December 31, 2012, the asset’s replacement cost was determined to be

P555,000 with a total life of 12 years from date of acquisition. Salvage value is
still estimated to be at P50,000. You also ascertained that this valuation is
reasonable in the circumstance.

You have been asked to assist the company’s accountant in the application of
PAS 36, the standard on Impairment of assets.
5. What is the recoverable amount of the asset on December 31, 2010?
a. 236,722
b. 213,397
c. 220,000
d. 320,000
6. How much impairment loss should be recognized on December 31, 2010?
a. 133,278
b. 156,603
c. 150,000
d. 0
7. What is the asset’s carrying amount on December 31, 2012, before
revaluation?
a. 177,525
b. 190,042
c. 160,050
d. 172,548
8. How much impairment recovery should be reported in the 2012 income
statement?
a. 155,475
b. 99,958
c. 142,975
d. 117,450
9. What is the depreciation expense in 2014, under cost method?
a. 41,625
b. 36,250
c. 37,875
d. 30,000
10. What is the depreciation expense in 2014, under revaluation method?
a. 41,625
b. 36,250
c. 37,875
d. 30,000
11. What is the balance of any revaluation surplus at the end of 2014, under the
piecemeal realization?
a. 63,000
b. 55,125
c. 52,500
d. 47,250
King Company has an overdue note receivable from Kevin Company for P300,000.
The note was dated January 1, 2012. It has an annual interest rate of 9% and interest
is paid December 31 of each year. Kevin paid the interest on the note on December
31, 2012, but Kevin did not pay the interest due in December 2013. The current
effective interest rate is 6%.
On January 1, 2014, King agrees to the following restructuring arrangement:
  Reduce the principal to P250,000.

 Forgive recorded accrued interest.

 Reduce the interest rate of 6%.

 Extend the maturity date of the note to December 31, 2016.

Questions:
Based on the above and the result of your audit, answer for the following: (Round off
present value factors to four decimal places.)
12. The loss on impairment of loans to be recognized by King in 2014 is
a. P95,980 c. P88,387
b. P77,000 d. P18,980
13. The carrying amount of the loan as of December 31, 2014 is
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a. P239,128 c. P236,812
b. P245,088 d.P250,000

BIOLOGICAL ASSETS (5)

On December 31, 2014, Farmville Inc. had the following animals in its herd:
3 year old cow, all acquired on December 31, 2011 50,000
2 year old cow, all acquired on December 31, 2012 20,000
1 year old cow, acquired on June 30, 2014 10,000

The following information were also made available:

Fair value less cost to sell
3 year old cow, 12/31/2014 P 5,000
2 year old cow, 12/31/2014 4,000
1 year old cow, 12/31/2014 3,000
0.5 year old cow, 12/31/2014 2,500
3 year old cow, 12/31/2013 4,500
2 year old cow, 12/31/2013 3,500
1 year old cow, 12/31/2013 2,500
0.5 year old cow, 06/30/2014 2,000
14. How much should be presented at biological assets in the company’s December 31,
2014 balance sheet?
a. 360,000,000
b. 320,000,000
c. 300,000,000
d. 250,000,000
15. How much is the change in the biological assets value due to physical change?
a. 115,000,000
b. 85,000,000
c. 75,000,000
d. 40,000,000
On January 1, 2013, an entity purchased 200 cows which are 5 years old for P15,000 each for the
purpose of producing milk for the local community. On July 1, 2013, the cows gave birth to 40 calves.
The active market provided the fair value less cost to sell of the biological assets as follows:
Newborn calf on July 1 4,000
Newborn calf on December 31 5,000
½ year old calf on December 31 7,000
5 years old cow on December 31 18,000
6 years old cow on December 31 24,000
16. How much is the total gain realized from the Biological Assets?
a. P4,280,000
b. P2,080,000
c. P7,160,000
d. P3,580,000
17. How much is the gain realized through physical change?
a. P4,280,000
b. P2,880,000
c. P2,140,000
d. P1,440,000
18. How much is the gain realized through price change?
a. P4,280,000
b. P2,880,000
c. P640,000
d. P1,440,000
CASH AND CASH EQUIVALENTS (4)
In your audit of National Inc.’s cash account as of December 31, 2014, you ascertained
the following information:
The bookkeeper’s bank reconciliation on November 30, 2014, is as follows:
Bank balance per bank statement, November 30 P 24,298
Add: Deposit in transit 3,648
Total 27,946

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Less: Outstanding checks

No. 3408 P 440
3413 300
3414 6,820
3416 3,924
3417 800
12,284
Balance
15,662
Add: Bank service charge for November
36 *
Book balance per General Ledger, November 30
15,698
*Entered in Check Register in December

The Cash Receipts Journal shows a total receipts for December of P371, 766.
The Check register reflects total checks issued in December P377,632. A
collection of P5,912 was recorded on company books on December 31 but
was not deposited until January 2, 2015.

The balance per bank statement at December 31, 2014, is P17,516. This
statement shows total receipts of P373,502 and checks paid of P380,284.

Your examination revealed the following additional information:

a. Check no. 3413 dated November 24, 2014, was entered in the Check
Register as P300. Your examination of the paid returned with the
December bank statement reveals that the amount of the check is P30.
b. Check no. 3417 was mutilated and returned by the payee. A
replacement check (no. 3453) was issued and cleared the bank in
November. Both checks were entered in the Check Register but no
entry was made to cancel check no. 3417.
c. The December bank statement includes an erroneous bank charge of
P480.
d. On January 3, 2015, the bank informed your client that a December
bank charge of P42 was omitted from the statement.
e. Your examination of the bank credit memo accompanying the
December bank statement discloses that it represents proceeds from
the note collection in December for P4,000.
f. The outstanding checks at December 31, 2014, are as follows:
No. 3408 P 440
No. 3417 800
No. 3418 2,814
No. 3419 5,788
19. What is the total book disbursement for the month of December?
a. 377,668
b. 377,710
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c. 377,632
d. 377,596
20. What is the total outstanding checks at December 31?
a. 8,602
b. 9,072
c. 9,042
d. 9,842
21. What is the adjusted bank balance on November 30?
a. 16,690
b. 16,732
c. 16,804
d. 16,774
22. What is the adjusted book receipts for the month of December?
a. 375,724
b. 371,766
c. 371,238
d. 375,766
23. What is the adjusted book balance on December 31?
a. 14,824
b. 14,866
c. 14,908
d. 14,782
LIABILITIES (5)
The following information relates to Sonic Company’s obligations as of
December 31,
2015. For each of the numbered items, determine the amount if any, that
should be reported as current liability in Sonic’s December 31, 2015 balance
sheet.
24. Accounts payable:
Accounts payable per general ledger control amounted to P5,440,000, net of
P240,000 debit balances in suppliers’ accounts. The unpaid voucher file
included the following items that not had been recorded as of December 31,
2005:
a) A Company – P224,000 merchandise shipped on December 31,
2005, FOB destination; received on January 10, 2006.
b) B, Inc. – P192,000 merchandise shipped on December 26, 2005,
FOB shipping point; received on January 16, 2006.
c) C Super Services – P144,000 janitorial services for the three-month
period ending January 31, 2006.
d) MERALCO – P67,200 electric bill covering the period December 16,
2005 to January 15, 2006.
On December 28, 2005, a supplier authorized Sonic to return goods billed at
P160,000 and shipped on December 20, 2005. The goods were returned by
Sonic on December
28, 2005, but the P160,000 credit memo was not received until January 6,
2006.
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a. P5,923,200 b. P5,712,000 c. P5,601,600 d.

P5,841,600

25. Payroll:
Items related to Sonic’s payroll as of December 31, 2015 are:
Accrued salaries and wages P 776,000
Payroll deductions for:
Income taxes withheld 56,000
SSS contributions 64,000
Philhealth contributions 16,000
Advances to employees 80,000
a. P776,000 b. P992,000 c. P832,000 d.
P912,000
26. Litigation:
In May, 2015, Sonic became involved in a litigation. The suit is being
contested, but
Sonic’s lawyer believes it is possible that Sonic may be held liable for
damages estimated in the range between P2,000,000 and P3,000,000, and
no amount is a better estimate of potential liability than any other amount.
a. P0 b. P2,000,000 c. P3,000,000 d.
P2,500,000

27. Product warranty:

Sonic has a one year product warranty on selected items in its product line.
The estimated warranty liability on sales made during 2014, which was
outstanding as of
December 31, 2014, amounted to P416,000. The warranty costs on sales
made in
2015 are estimated at P1,504,000. Actual warranty costs incurred during the
current
2015 fiscal year are as follows:
Warranty claims honored on 2014 sales P 416,000
Warranty claims honored on 2015 sales 992,000
Total warranty claims honored P 1,408,000
a. P0 b. P1,504,000 c. P96,000 d.
P512,000
28. Premiums:
To increase sales, Sonic Company inaugurated a promotional campaign on
June 30,
2005. Sonic placed a coupon redeemable for a premium in each package of
product sold. Each premium costs P100. A premium is offered to customers
who send in 5 coupons and a remittance of P30. The distribution cost per
premium is P20. Sonic estimated that only 60% of the coupons issued will be
redeemed. For the six months ended December 31, 2005, the following is
available:
Packages of product sold 160,000
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Premiums purchased 16,000

Coupons redeemed 64,000
a. P1,728,000 b. P1,152,000 c. P1,600,000 d.
P576,000
LEASE LIABILITY (4)
On January 1, 2014, Raise Corp. leased an asset having a useful life of 15
years for 10 years. The lease agreement calls for a payment of P120,000 at
the beginning of each lease year, starting January 1, 2014. There is no
bargain purchase option and the ownership over the asset shall revert back to
the lessee. Raise Corp. guarantees the lessor a residual value amounting to
P80,000 at the end of the lease term. The fair value of the leased asset on the
same date was P900,000. The incremental borrowing rate is at 12%, while the
implicit rate known to the parties of the contract was at 10%.

29. Assuming that the actual residual value is expected to be at P50,000, what
is the depreciation expense to be reported on Raise’s books for the year
2014?
a. None
b. 74,192
c. 79,193
d. 85,000
30. How much is the interest expense to be reported in the income statement
of 2015?
a. None
b. 72,192
c. 67,412
d. 62,153
On January 1, 2018, Dexter, Inc. signs a 10-year noncancelable lease agreement
to lease a storage building from Garr Warehouse Company. Collectibility of lease
payments is reasonably predictable and no important uncertainties surround the
amount of costs yet to be incurred by the lessor. The following information
pertains to this lease agreement.
(a) The agreement requires equal rental payments at the end of each year.
(b) The fair value of the building on January 1, 2018 is P3,000,000; however,
the book value to Garr is P2,500,000.
(c) The building has an estimated economic life of 10 years, with no residual
value. Dexter depreciates similar buildings on the straight-line method.
(d) At the termination of the lease, the title to the building will be transferred
to the lessee.
(e) Dexter's incremental borrowing rate is 11% per year. Garr Warehouse Co.
set the annual rental to insure a 10% rate of return. The implicit rate of the
lessor is known by Dexter, Inc.
(f) The yearly rental payment includes P10,000 of executory costs related to
taxes on the property.

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31.What is the amount of the minimum annual lease payment? (Rounded to the
nearest peso.)
a. P188,237
b. P478,236
c. P488,236
d. P498,236

32.Dexter, Inc. would record depreciation expense on this storage building in 2018
of (Rounded to the nearest peso.)
a. P0.
b. P250,000.
c. P300,000.
d. P488,237.
STOCKHOLDERS’ EQUITY (5)
On January 1, 2014, Luzon Company issued a 3-year, P4,000,000, 10%
bonds at P4,250,000. The bonds are convertible to 50,000 ordinary shares
(P50 par value) at any time up to maturity. Interest on the bonds are payable
semi-annually every June 30 and December 31. Similar securities without
conversion option had prevailing market rate of interest at 12%. The issuance
was recorded as a debit to cash and credit to bonds payable for the total cash
proceeds. Semi-annual interest payments were appropriately recorded. On
December 31, 2014, P3,000,000 of the bonds were converted to ordinary
shares. No entry had been made by the company upon the said conversion.
33. What is the equity component of the compound security?
a. 446,693
b. 442,146
c. 554,089
d. 650,349
34. What is the credit to share premium as a result of the conversion of bonds
on December 31, 2014?
a. 1,356,067
b. 1,361,396
c. 1,808,089
d. 965,349
On January 2, 2014, ABC granted 20 of its key executive’s options to acquire
certain number of shares of the company at P50 per share (par value P20 per
share), condition upon the employees staying with the company’s employ up
to December 31, 2017 and condition upon the average increase in sales
volume over the same period by at least 5%. If the average increase in sales
volume over four years is 5% to 9%, each employee get to exercise 1,000
option each; 10% to 14%, each employee get to exercise 2,000 option each;
15% and above, 3,000 option each. At the end of 2014 average increase in
sales volume was 12%. The fair value of the options on the grant date was
ascertained to be at P5. The company expects to maintain the said sales
volume achievement over the next three years, no employee left the company
but it is estimated that 5 employees will actually leave by 2017.
35. How much is compensation expense in 2014?
a. 37,500

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b. 50,000
c. 75,000
d. 100,000
36. Assuming that at the end of 2015, 3 employees actually left the company
and it is estimated that additional 5 employees will leave the company by
the end of 2017, and in addition average increase in sales volume for the
year was at 18%, a rate the company expects to maintain over the next
two years, how much is compensation expense in 2015?
a. 37,500
b. 45,000
c. 52,500
d. 40,000
Camby Corporation's balance sheet reported the following:
Common shares outstanding, 5,000 shares, par P30 per share P150,000
Paid-in capital in excess of par
Retained earnings

The following transactions occurred this year:

(a) Purchased 120 shares of capital stock to be held as treasury stock, paying
P60 per share.
(b) Sold 30 of the shares of treasury stock at P65 per share.
(c) Sold the remaining shares of treasury stock at P50 per share.

Compute for the following questions at the end of the year:

37. Retained earnings
a. 100,000 b. 99,250 c. 99,850 d.
100,750
EARNINGS PER SHARE (4)
On December 31, 2012 Mark Company has 20,000, 8%, P100 par value
cumulative convertible preference shares, convertible into 18,000 shares,
which were originally issued in 2011 and 300,000, P5 par value ordinary
shares outstanding at yearend of which 100,000 ordinary shares were
issued in April 1, 2012. Net income for the year was P3,300,000. No
dividends were declared

In March 1, 2013, Mark Company issued 60,000 ordinary shares for P5.25
each; On July 1, 2013 Mark company declared a 10% stock dividend. On
October 1, 2013 Mark Company issued 80,000 stock options. The exercise
price for the option shares was P5.75 wherein average market price of the
shares was P5.40. The net income reported by Mark Company for 2013
was P4,250,000. No dividends were declared in 2013.
38. Basic earnings per share reported in the 2012 income statement is
a. 12.31 b. 10.38 c. 11.41 d. 12.56
39. Diluted earnings per share reported in the 2012 income statement is
b. 12.31 b. 10.38 c. 11.71 d. 11.26
40. Basic earnings per share reported in the 2013 income statement is
c. 9.74 b. 10.11 c. 10.62 d. 11.36
41. Diluted earnings per share reported in the 2013 income statement is
d. 9.68 b. 9.70 c. 9.81 d. 10.55

INVENTORY (2)

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You are engaged in an audit of the financial statements of the Oprah Company for
the year ended October 30,2010, and have observed the physical inventory count
on that date.

All merchandise received up to and including October 30, 2010 has been included
in the physical count. The following list of invoices is for purchase of merchandise
and are entered in the purchases journal for the months of October and
November 2010, respectively:

Amount FOB Date of Invoice Date Merchandise

Received
OCTOBER 2010
P7,200 Destination October 19 October 21
4,400 Destination October 20 October 22
9,250 Shipping point October 20 October 30
3,900 Destination October 25 November 3
2,500 Destination November 4 October 29
10,250 Shipping point October 25 October 30
9,200 Shipping point October 25 October 30
13,600 Destination October 21 October 30
34,600 Destination October 29 October 30
NOVEMBER 2010
P2,000 Destination October 29 November 4
4,850 Destination October 30 October 31
6,420 Shipping point October 27 October 30
7,220 Shipping point November 2 October 30
12,820 Shipping point October 23 November 3
14,200 Shipping point October 23 November 3
15,000 Destination October 27 November 3

No perpetual inventory records are maintained, and the physical inventory count
is to be used as a basis for the financial statements.
42. What adjusting entry is necessary for the October 25 invoice?
a. Accounts payable 3,900
Purchase 3,900
b. Purchases 3,900
Accounts payable 3,900
c. Inventory, ending 3,900
Cost of sales 3,900
d. No adjusting entry is necessary.

43. What adjusting entry is necessary for the November 4 invoice?

a. Purchases 2,500
Accounts payable 2,500
b. Accounts payable 2,500
Purchases 2,500
c. Cost of sales 2,500
Inventory, ending 2,500
d. No adjusting entry is necessary.

ACCOUNTS RECEIVABLE (2)

Juliet Inc. reported the following information as of December 31, 2014:
Accounts receivable, December 31 P 4,200,000
Allowance for doubtful accounts, January 1 520,000
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Write-off of receivables during the year 210,000

Recoveries of previous write-offs 125,000
Additional information:
a. P1,200,000 of the accounts receivables are still currently due (60 days
old), and as per past experience, half of the receivables that are
currently due are normally collected during the discount period. Term of
sale is 10/20, n/60.
b. Moreover, as per past experience it is expected that merchandise
equivalent to 2% of the accounts receivable that are still currently due
will be returned due to defects in the following period. The period of
return allowed for customers is during the 60-day current period only.
c. The balance of the accounts receivables are aged as follows:
Age Amount % Doubtful of collection
Current (1-60 days old) 1,200,000 5%
1-60 days past due 2,000,000 10%
61-120 days past due 700,000 25%
More than 120 days past due 300,000 50%
44. What is the correct amortized cost of receivable as of December 31,
2014?
a. 3,531,000
b. 3,591,000
c. 3,555,000
d. 3,615,000
45. What is the correct bad debt expense for the year?
a. 150,000
b. 275,000
c. 200,000
d. 225,000
INVESTMENT PROPERTY (2)
Use the following information for numbers 48 – 49
On January 1, 2011 Violet Company acquired a building which it classified as
an investment property. Violet Company paid 4,000,000 to the seller, as well
as, P200,000 for taxes, legal and professional fees. The fair value of the
building was 3,900,000.

The building has a useful life of 20 years and residual amount of P400,000.

The fair value of the building at December 31, 2011 was P4,120,000 while the
estimated transaction cost on sale was 80,000.

The fair value of the building on December 31, 2012 was P3,750,000 while
the estimated transaction cost on sale was P110,000.

46. If Violet Company uses the cost model, the measurement at recognition
of the building is

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a. 3,900,000 b. 4,000,000 c. 4,100,000 d.

4,200,000
47. If Violet Company uses the cost model, the net effect in the profit or loss
section for 2011 is
a. (300,000) b. (210,000) c. (190,000) d.
(100,000)

BORROWING COST (4)

The following transactions pertain to the general borrowings made during 2010 by
Victory Company in connection with the construction of the company’s new
warehouse:

Principal Borrowing Costs

8% bank loan 2,400,000 192,000
6% short-term note 1,600,000 96,000
8% long-term note 2,000,000 160,000
The construction started on January 1, 2010 and the warehouse was completed on
December 31, 2010. Expenditures on the warehouse were as follows:

1-Jan 400,000 30-Sep 1,000,000

31-Mar 1,000,000 31-Dec 400,000
30-Jun 1,200,000

48. The weighted average cash expenditures for the year?

a. 2,000,000
b. 2,033,333
c. 24,000,000
d. 24,400,000
49. The weighted average interest rate need to compute the capitalizable
borrowing cost?
a. 7.50%
b. 7.47%
c. 7.00%
d. 8.00%
50. How much is the capitalizable borrowing cost of Victory Company?
a. None

b. P149,400

c. P298,600

d. P448,000

END OF THE EXAMINATION!

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SOURCES
PREWEEK MATERIALS RESA 2014
PREWEEK MATERIAL CRC-ACE PRACTICAL ACCTG 1(#48-49)

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