Practical Financial Accounting - Volume 1 (Condrado T. Valix)

Chapter 1: Statement of Financial Position (Basic
Problems)
Problem 1-1
Darwin Company provided the following information at year-end:
Cash 1,500,000
Accounts Receivable 1,200,000
Inventory, including inventory expected in the 1,000,000

ordinary course of operations to be sold beyond 12
months amounting to P700,000
Financial asset held for trading 300,000
Equity investment at fair value through other 800,000

comprehensive income
Equipment held for sale 2,000,000
Deferred tax asset 150,000

What amount should be reported as total current assets at year end?
a) 6,000,000
b) 4,000,000
c) 6,800,000
d) 4,800,000
Problem 1-2
Petite Company reported the following current assets at year-end:
Cash 5,000,000
Inventory, including goods received on consignment at P200,000 800,000
Bond investment at fair value through other comprehensive income 1,000,000
Prepaid expenses, including a deposit of P50,000 made on inventory to be 150,000

delivered in 18 months
Total current assets 8,950,000
Cash in general checking account 3,500,000
Cash fund to retire 5-year bonds payable 1,000,000

Cash held to pay value added taxes 500,000
Total Cash 5,000,000
What total amount of current assets should be reported at year-end?

a) 6,750,000
b) 6,700,000
c) 7,700,000
d) 7,750,000
Problem 1-3
Rice Company was incorporated on January 1, 2019 with P5,000,000 from the issuance of
share capital and borrowed funds.
On December 15, the entity paid a P500,000 cash dividend. On December 31, 2019, the
liabilities had increased to P1,800,000.
On December 31, 2019, what amount should be reported as total assets?

a) 6,500,000
b) 9,300,000
c) 8,800,000
d) 6,800,000
Problem 1-4
Mirr Company was incorporated on January 1, 2019 with proceeds from the issuance of
P7,500,000 in share capital and borrowed funds of P1,100,000 .
During the first year, revenue from sales and consulting amounted to P8,200,000, and
operating costs and expenses totaled P6,400,000.
On December 15, 2019, the entity declared a P300,000 dividend, payable to shareholders
January 15, 2020.The liabilities increased to P2,000,000 by December 31, 2019.
On December 31, 2019 what amount should be reported as total assets?

a) 11,000,000
b) 11,300,000
c) 10,100,000
d) 12,100,000
Problem 1-5
Arabian Company reported the following current assets at year-end:
Cash 4,500,000
Notes receivable, net of discounted note P500,00 2,000,000
Inventory 4,000,000
Deferred charges 1,000,000
19,400,000
Account Receivable compromised to the following:
Trade account receivable 5,000,000
Allowance for doubtful accounts (500,000)
Claim against shipper for goods loss in transit 400,000
Selling price for Arabian Company’s unsold goods sent to Tar Company on 3,000,000
consignment at 150% of cost and excluded from Arabian’s ending inventory
7,900,000
What amount should be reported as total current assets at year-end?

a) 17,400,000
b) 17,000,000
c) 18,400,000
d) 15,400,000
Problem 1-6
East Company reported the following current assets at year-end:
Cash 3,500,000
Inventory 2,800,000
Prepaid Insurance 200,000
Total Current Assets 9,500,000
Account Receivable compromised to the following:
Customer’s account 1,400,000
Employee's account collectible currently 200,000
Allowance to subsidiary 500,000

Subscription receivable, not collectible currently 1,000,000
3,000,000
What total amount should be reported as current assets at year-end?
a) 8,000,000
b) 9,500,000
c) 8,500,000
d) 9,000,000
Problem 1-7
Ivan Company showed the following current assets at year-end:
Cash 3,200,000
Inventory 2,000,000
Cash on hand, including customer postdated check P100,000 and employee 500,000
IOU P50,000
Cash in bank per bank statement (outstanding check at year-end P200,000) 2,700,000
Total Cash 3,200,000
What amount should be reported as current assets?

a) 7,700,000
b) 7,450,000
c) 7,400,000
d) 7,500,000
Problem 1-8
Gar Company reported the following liability account balances on December 31, 2019:
Accounts Payable 1,900,000
Bonds Payable, due on December 31, 2020 3,400,000
Discounts on bonds 200,000
Deferred tax liability 400,000
Dividends Payable 500,000

Income tax payable 900,000
Note Payable, due January 31, 2021 600,000

On December 31, 2019, What total amount should be reported as current liabilities?
a) 7,100,000
b) 6,700,000
c) 6,500,000
d) 6,900,000
Problem 1-9
Brite Company provided the following information on December 31, 2019:
Accounts Payable 550,000
NotesPayable, 8% unsecured, due July 1, 2020 4,000,000
Accrued Expenses 350,000
Contingent liability 450,000
Bonds payable, 7% due March 31, 2020 5,000,000
Premium on bonds payable 500,000

The contingent liability is an accrual for possible loss on a P1,000,000 lawsuit filed against the
entity.
The legal counsel expects the suit to be settled in 2020 and has estimated that the entity will be
liable for damages in the range of P450,000 and P750,000.
The deferred tax liability is not related to an asset for financial reporting and is expected to
reverse in 2020.
What total amount should be reported as current liabilities on December 31, 2019?
a) 10,350,000
b) 10,150,000
c) 10,400,000
d) 10,950,000
Problem 1-10
Burma Company disclosed the following information:
Accounts Payable, after deducting debit balances in suppliers’ accounts 4,000,000
amounting to P100,000
Accrued expenses 1,500,000

Credit balances of customers’ accounts 500,000
Share Dividend payable 1,000,000
Claims for increase in wages and allowance by employees the entity, covered in 400,000
a pending lawsuit
Estimated expenses in redeeming prize coupon 600,000

What amount should be reported as total current liabilities?
a) 6,700,000
b) 6,600,000
c) 7,100,000
d) 7,700,000
Problem 1-11
Mazda Company reported the following liability balances on December 31, 2019:
10% note payable issued on October 1, 2018, maturing October 1, 2020 2,000,000
12% note payable issued on March 1, 2018, maturing March 1, 2020 4,000,000
The 2019 financial statements were issued on March 31, 2020.
Under the loan agreement, the entity has the discretion to refinance the 10% note payable for at
least twelve months after December 31, 2019.
On March 31, 2020, the entire 4,000,000 balance of the 12% note payable was refinanced
through issuance of a long term obligation payable lump sum.
What amount of the notes payable should be classified as current on December 31, 2019?
a) 6,000,000
b) 4,000,000
c) 2,000,000
d) 0
Problem 1-12
Willem Company reported the following liabilities on December 31,2019:
Short term borrowings 1,500,000
Bonds payable due December 31, 2021 3,000,000
Mortgage payable, current portion P500,000 3,500,000

Bank loan, due june 30, 2020 1,000,000
The P1,000,000 bank loan was refinanced within a 5-year loan on December 31, 2019. The
financial statements were issued March 1, 2020.
a) 7,500,000
b) 5,000,000
c) 8,500,000
d) 4,000,000
Problem 1-13
Ronna Company provided the following information on December 31, 2019:
Accounts Payable, net of creditors’ debit balances of P200,000 2,000,000
Accrued expenses 800,000
Bonds payable due December 31, 2021 4,500,000
Deferred tax Liability 500,000
Income Tax payable 1,100,000
Cash dividend payable 600,000
Share dividend payable 400,000
Note payable, 6% due March 1,2020 1,500,000
Note payable, 8% due October 1,2020 1,000,000
The financial statements for 2019 were issued on March 21, 2020.
On December 31, 2019, the 6% note payable was refinanced on a long term basis.
Under the loan agreement , the entity has the discretion to refinance the 8% note payable for at
least twelve months after December 31,2019.

a) 7,200,000
b) 4,700,000
c) 6,200,000
d) 5,100,000
What amount should be reported as total noncurrent liabilities?

a) 8,400,000
b) 5,500,000
c) 8,000,000
d) 7,500,000
Problem 1-14
Manchester Company provided the following information on December 31, 2019:
Employee income taxes withheld 900,000
Cash balance at First State Bank 2,500,000
Cash overdraft at Harbor Bank 1,300,000
Account Receivable with credit balance 750,000
Estimated expenses of meeting warranties 500,000
Estimated damages as a result of unsatisfactory performance on a contract 1,500,000
Accounts payable 3,000,000
Deferred serial bonds, issued at par and bearing interest at 12%, payable in 5,000,000
semiannual installments of P500,000 due April 1 and October 1 each year
the last bond to be paid on October 1, 2025. Interest is also paid
semiannually.
What amount should be reported as total current liabilities on December 31, 2019?
a) 8,100,000
b) 7,950,000
c) 9,100,000
d) 7,350,000
Problem 1-15
Charice Company provided the following information on December 31, 2019:
● Accounts payable, amounted to P500,000 and accrued expenses totaled P300,000 on

December 31, 2019.
● On December 15, 2019, the entity declared a cash dividend of P7 per share on 100,000
outstanding shares payable on January 15, 2020.
● On July 1, 2019, the entity issued P5,000,000, 8% bonds for P4,400,000 to yield at
10%. The bonds mature on June 30, 2024, and pay interest annually every June 30.
● The pretax financial income was P8,500,000 and taxable income was P6,000,000. The
difference due to P1,000,000 permanent difference and P1,500,000 of taxable temporary
difference to reverse in 2020.
The income tax rate is 30%. The entity made estimated income tax payments during the
year of P1,000,000.
What amount should be reported as total current liabilities on December 31,2019?

a) 3,500,000
b) 2,700,000
c) 2,300,000
d) 2,500,000
Problem 1-16
United Company provided the following current assets and shareholders’ equity at year-end:
Cash 600,000
Financial assets at fair value through profit or loss, including cost of 1,000,000
P300,000 of United Company shares
Inventory 1,500,000
Share capital 5,000,000
Share premium 2,000,000
Retained earnings 500,000
Total shareholders’ equity 7,500,000
What amount should be reported as total shareholders’ equity?

a) 7,200,000
b) 7,500,000
c) 7,800,000
d) 5,200,000
Problem 1-17
Kalinga Company provided the following information at year-end:

Treasury shares, at cost 2,000,000
Actuarial loss on defined benefit plan 1,000,000
Retained earnings unappropriated 6,000,000
Retained earnings appropriated 3,000,000
Revaluation surplus 4,000,000
Cumulative translation adjustment- credit 1,500,000
What amount should be reported as total shareholders’ equity?

a) 31,500,000
b) 32,500,000
c) 28,500,000
d) 25,500,000
Problem 1-18
Silver Company provided the following information at year-end:
Share Premium 1,000,000
Preference share capital, at par 2,000,000
Ordinary share capital, at par 3,000,000
Sales 10,000,000
Total Expenses 7,800,000
Treasury shares at cost - ordinary 500,000
Dividends 700,000
Retained earnings - beginning 1,000,000
What amount should be reported as total shareholders’ equity at year-end?

a) 8,000,000
b) 8,500,000
c) 5,800,000
d) 8,700,000
Problem 1-19
Mont Company reported net assets totaling P8,750,000 at year-end which include the
following:
Treasury share of Mont Company at cost 250,000
Idle Machinery 100,000
Trademark 150,000
Allowance for inventory writedown 200,000
What amount should be reported as net assets at year-end?

a) 8,500,000
b) 8,400,000
c) 8,300,000
d) 8,200,000
Problem 1-20
Puzzle Company provided the following information at year-end:
Cash and Cash Equivalents 500,000
Accounts Receivable, net of allowance P100,000 2,000,000
Inventory 6,000,000
Property, plant and equipment at carrying amount 12,000,000
Wages payable 1,500,000
Share Capital 6,000,000

The only asset not listed is short-term investment.
The only liabilities not listed are a P3,000,000 note payable due in twelve months are related
accrued interest of P100,000 due in four months.
The current ratio at year-end is 1.5 to 1.00.
What is the amount of current liabilities?

a) 5,900,000
b) 6,000,000
c) 9,000,000
d) 8,900,000
What is the amount of short-term investment?

a) 700,000
b) 400,000
c) 500,000
d) 0
What is the balance of Retained earnings at year-and?

a) 2,000,000
b) 6,000,000
c) 5,000,000
d) 1,500,000
Chapter 2: Statement of Financial Position (

Comprehensive Problems)
Problem 2-1
Kenya Company provided the following information on December 31, 2019:
Cash in bank, net of bank overdraft 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 6,000,000

P1,500,000
Inventory 3,000,000
Bond sinking fund 3,000,000
Accounts payable, net of suppliers’ accounts with debit balances of 7,000,000

P1,000,000
Note payable 4,000,000
Bond payable due on June 30, 2020 3,000,000
Accrued expenses 2,000,000
Total current liabilities 16,000,000
What amount should be reported as total current assets on December 31, 2019?
a) 19,040,000
b) 20,040,000
c) 20,050,000
d) 24,040,000
What amount should be reported as total current liabilities on December 31, 2019?
a) 19,000,000
b) 16,000,000
c) 15,500,000
d) 15,000,000
Problem 2-2
Gold Company provided the following trial balance on December 31, 2019:
Cash Overdraft 100,000
Account receivable 350,000
Inventory 600,000
Prepaid expenses 100,000
Land held for sale 1,000,000
Property, plant and equipment 950,000
Accounts payable 200,000
Accrued expenses 150,000
Ordinary share capital 1,500,000
Share Premium 250,000
3,000,000 3,000,000
Checks amounting to P300,000 were written to vendors and recorded on December 29, 2019
resulting in cash overdraft of P100,000. The checks were mailed on January 15, 2020.
Land held for sale was sold for cash on January 31, 2020.
The entity issued the financial statements on March 31, 2020.
What total amount should be reported as current assets?

a) 2,250,000
b) 2,050,000
c) 1,950,000
d) 1,250,000
What total amount should be reported as current assets?
a) 650,000
b) 500,000
c) 350,000
d) 300,000
What is the total shareholders’ equity?

a) 2,550,000
b) 1,750,000
c) 1,500,000
d) 2,300,000
Problem 2-3
Trey Company provided the following trial balance at year-end which had been adjusted except
for the income tax expense:
Cash Overdraft 1,250,000
Account receivable 1,650,000
Prepaid taxes 500,000
Share Premium 500,000
Retained earnings, beginning 1,500,000
Foreign currency translation adjustment 800,000
Revenue 4,000,000
Expense 3,000,000
7,200,000 7,200,000
During the current year, estimated tax payments of P500,000 were charged to prepaid taxes.
The entity has not yet recorded income tax expenses.
There were no difference between financial and taxable income. The tax rate is 30%.
Included in accounts receivable is P500,000 due from a customer. Special terms granted to this
customer require payment in equal semiannual installments of P125,000 every April 1 and
October 1.
What amount should be reported as total current assets at year-end?

a) 2,850,000
b) 2,650,000
c) 2,900,000
d) 3,100,000
What amount should be reported as l retained earnings at year-end?

a) 3,500,000
b) 2,000,000
c) 2,200,000
d) 1,400,000
Problem 2-4
Mint Company provided the following balances at year-end which has 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
Retained earnings unappropriated 900,000
Retained earnings restricted for note payable 160,000
Earnings from long term contracts 6,680,000
Cost and expenses 5,180,000
All receivable 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 expenses. The tax rate is 30%.
Total retained earnings?

a) 1,950,000
b) 2,110,000
c) 2,400,000
d) 2,560,000
Total noncurrent liabilities?

a) 1,620,000
b) 1,780,000
c) 2,320,000
d) 2,480,000
Total current assets?

a) 5,000,000
b) 4,100,000
c) 5,700,000
d) 6,150,000
Total shareholders’ equity?

a) 2,940,000
b) 2,780,000
c) 4,890,000
d) 4,730,000
Problem 2-5
Shaw Company provided the following trial balance on December 31, 2019 which had been
adjusted except for income tax expense:
Cash 600,000
Inventory 2,000,000
Property, plant and equipment 10,500,000
Accounts payable and accrued liabilities 1,800,000
Income tax payable 1,500,000
Share Capital 2,500,000
Retained earnings, January 1 3,500,000
Net sales and other revenue 15,000,000
Cost and expenses 10,000,000
Income tax expense 2,100,000

28,000,000 28,000,000
The accounts receivable included P1,000,000 due from a customer and payable in quarterly
installments of P125,000. The last payments is due December 30, 2021.
During the year, estimated tax payment of P600,000 was charged to income tax expense. The
income tax rate is 30%.

a) 3,400,000
b) 4,400,000
c) 5,400,000
d) 4,900,000
Total current liabilities?

a) 2,700,000
b) 3,300,000
c) 4,050,000
d) 3,450,000
Retained earnings?
a) 8,500,000
b) 6,400,000
c) 7,000,000
d) 3,500,000
Problem 2-6
Cara company provided the following information for the current year:
January 1 December 31
Current assets 700,000 ?
Property, plant and equipment 3,000,000 4,000,000
Current liabilities ? 3,000,000
Noncurrent liabilities 1,000,000 ?
Working capital of P600,000 remained unchanged.
Net income for the current year was P400,000.
No dividends were declared during the year and there were no other changes in shareholders’
equity.
What is the amount of current assets on December 31?
a) 900,000
b) 300,000
c) 600,000
d) 450,000
What is the amount of shareholders’ equity on December 31?

a) 3,000,000
b) 2,600,000
c) 2,700,000
d) 3,700,000
What is the amount of noncurrent liabilities on December 31?

a) 2,200,000
b) 1,100,000
c) 1,600,000
d) 1.900,000
Problem 2-7
Goodrich Company provided the following information on December 31, 2019:
Bank note payable- 10% 3,000,000
Bank note payable- 11% 5,000,000
Mortgage note payable- 10% 2,000,000
Bonds payable 4,000,000
● The P3,000,000, 10% note was issued March 1, 2019 payable on demand. Interest is
payable every six months.
● The one year P5,000,000, 11% note was issued January 15, 2019.
On December 31, 2019, the entity negotiated a written agreement with the bank to
replace the note with a 2-year, P5,000,000, 10% note to be issued January 15, 2020.
● The 10% mortgage note was issued on October 1, 2016, with a term of 10 years. Terms
of the note give the holder the right to demand immediate payment if the entity fails to
make monthly interest payments within 10 days from the date the payment is due.
On December 31,2019, the entity was three months behind in making the required
interest payment.
● The bonds payable are ten year, 8% bonds, issued June 30,2010. Interest is payable
semiannually on June 30 and December 31.

a) 15,650,000
b) 11,650,000
c) 20,650,000
d) 13,650,000
What amount should be reported as total noncurrent liabilities?

a) 8,000,000
b) 7,000,000
c) 5,000,000
d) 0
Problem 2-8
Aroma Company provided the following information on December 31, 2019:
Cash 300,000
Account receivable 800,000
Inventory 1,650,000
Accumulated Depreciation 800,000
Accrued Expenses 250,000
Bonds payable 4,000,000
A P500,000 note payable to the bank, due on June 30, 2020, was deducted from the balance on
deposit in the same bank.
The entity recorded checks of P200,000 in payment of accounts payable on December 31,
2019. These checks were still on hand on January 20,2020.
An advance payment of P100,000 from a customer for goods to be delivered in 2020 was
deducted from account receivable.
What total amount should be reported as current assets on December 31, 2019?
a) 3,800,000
b) 3,600,000
c) 3,700,000
d) 3,900,000
a) 2,100,000
b) 2,300,000
c) 1,900,000
d) 2,200,000
Problem 2-9
Daet Company provide the following account balances and related information a year-end:
Cash 3,700,000
Allowance for doubtful accounts 200,000
Inventory 2,000,000
Prepaid Insurance 300,000
Analysis of cash
Cash in bank 1,300,000
Bank overdraft in another bank (300,000)
Cash set aside for plant edition 2,000,000
Petty cash fund 10,000
Cash withheld from wages 190,000
General cash 500,000
Total cash 3,700,000
The accounts receivable included a past due account in the amount of P100,000. The account
is deemed uncollectible and should be written off.
The inventory included goods held in consignment amounting to P150,000 and goods of
P200,000 purchased and received at year end.
Neither of these items have been recorded as a purchase.
The prepaid insurance included cash surrender value of life insurance of P50,000.
What is the adjusted cash balance?

a) 2,000,000
b) 1,700,000
c) 4,000,000
d) 2,300,000
What is the adjusted cash balance of accounts receivable?

a) 1,200,000
b) 1,400,000
c) 1,300,000
d) 1,500,000
What is the adjusted inventory?

a) 2,200,000
b) 2,000,000
c) 1,850,000
d) 1,650,000
What total amount should be reported as current assets at year-end?

a) 5,400,000
b) 5,100,000
c) 5,300,000
d) 5,200,000
Problem 2-10
Icarus Company provided the following data at year-end:
Cash 2,000,000
Inventory 1,900,000
Interest payable 150,000

Income tax payable 300,000
Money claim of the union pending final decision 500,000
Mortgage payable, due in four annual installments 2,000,000
Analysis of cash
Cash in bank 1,650,000
Customer check marked NSF 100,00
Employee IOU 50,000
Deposit with court for case under litigation 200,000
Total cash 2,000,000
Analysis of account receivable
Customer’s debit balances 1,600,000
Advances to subsidiary 400,000
Advances to suppliers 200,000
Advances to officers due currently 300,000
Selling price of merchandised invoice at 120% of cost undelivered and 600,000

excluded from inventory
Total account receivable 3,000,000
What amount should be reported as total current assets?

a) 6,600,000
b) 6,300,000
c) 6,800,000
d) 6,400,000

a) 3,450,000
b) 3,400,000
c) 3,950,000
d) 3,700,000
Chapter 3: Notes to Financial Statements (Events
after reporting period)
Problem 3-1
Dean Company acquired 100% of Morey Company in the prior year. During the current year, the
individual entities included in their financial statements the following:
Dean Morey
Key officers’ salary 750,000 500,000
Officers’ expenses 200,000 100,000
Loan to officers 1,250,000 500,000
Intercompany sales 1,500,000
What total amount should be reported as related party disclosures in the notes to Dean
Company’s consolidated financial statements for the current year?
a) 1,500,000
b) 1,550,000
c) 1,750,000
d) 3,000,000
Problem 3-2
During the current year, Jane Company engaged in the following transactions:
Key management personnel compensation 2,000,000
Sales to affiliated entities 3,000,000
What total amount should be included as related party disclosures in Jane company separate
financial statements for the current year?
a) 5,000,000
b) 3,000,000
c) 2,000,000
d) 0
Problem 3-3
Gibson Company reported that remuneration and other payments made to the entity’s chief
executive officer during the current year were:
Annual Salary 2,000,000
Share options and other share-based payments 1,000,000

Contributions to retirement benefit plan 500,000
Reimbursement of travel expenses for business trips 1,200,000
What total amount should be disclosed as “compensation” to key management personnel?

a) 3,500,000
b) 4,700,000
c) 3,000,000
d) 2,500,000
Problem 3-4
The audit of Anne Company for the year ended December 31, 2019 was completed on March 1,
2020
The financial statements were signed by the managing director on March 15, 2020 and
approved by the shareholders on March 31, 2020.
● On January 15, 2020, a customer owing P900,000 to Anne Company filed for
bankruptcy.
The financial statements included an allowance for doubtful accounts pertaining to this
customer of P100,000.
● Anne’s Company issued share capital compromised 100,000 ordinary shares with 100
par value.
The entity issued additional 25,000 shares on March 1, 2020 at par value.
● Equipment with a carrying amount of P525,000 was destroyed by fire on December 15,
2019.
Anne Company had booked a receivable of P400,000 from the insurance entity on
December 31, 2019.
After the insurance entity completed an investigation on February 1, 2020, it was

discovered that the fire took place due to negligence of the machine operator. As a
result, the insurer’s liability was zero on this claim
What total amount should be reported as “adjusting events” on December 31, 2019?
a) 1,300,000
b) 1,200,000
c) 3,800,000
d) 3,700,000
Problem 3-5
The end of the reporting period of Norway Company is December 31, 2019 and the financial
statements for 2019 are authorized for issue on March 15, 2020.
● On December 31, 2019, Norway Company had a receivable of P400,000 from a

customer that is due 60 days after the end of reporting period. On January 15, 2020, a
receiver was appointed for the said customer. The receiver informed Norway that
P400,000 would be paid fully by June 30, 2020.
● Norway Company had equity investment held for trading. On December 31, 2019, these
investments were recorded at the fair value of P5,000,000. During the period up to
February 15, 2020, there was a steady decline in the fair value of all the shares in the
portfolio, and on February 15, 2020, the fair value had fallen to P2,000,000.
● Norway Company had reported a contingent liability on December 31, 2019 related to a
court case in which Norway Company was the defendant. The cas was not heard until
the first week of February 2020. On February 15, 2020, the judge handed down a
decision against Norway Company. The judge determined that Norway Company was
liable to pay damages totaling P3,000,000.
● On December 31, 2019, Norway Company had a receivable from a large customer in the
amount of P3,500,000. On January 31, 2020, Norway Company was advised in writing
by the liquidator of the said customer that the customer was insolvent and that only 10%
of the receivable will be paid on April 30, 2020.
What total amount should be reported as “adjusting events” on December 31, 2019?
a) 6,150,000
b) 9,150,000
c) 9,550,000
d) 6,500,000
Problem 3-6
Ginger Company is completing the preparation of the financial statements for the year ended
December 31, 2019. The financial statements are authorized for issue on March 31, 2020.
● On March 15, 2020, a dividend of P3,000,000 was declared and a contractual profit
share payment of P1,000,000 was made, based on the profit for the year ended
December 31, 2019.
● On February 1, 2020, a customer went into liquidation having owed the entity P500,000
for the 5 months.
No allowance had been made against this account in the financial statements.
● On March 20, 2020, a manufacturing plant was destroyed by fire resulting in a financial
loss of P2,500,000.
What total amount should be recognized in profit or loss for 2019 to reflect adjusting events after
the end of reporting period?
a) 4,000,000
b) 3,000,000
c) 2,500,000
d) 1,500,000
Problem 3-7
During 2019, Marian Company was sued by a competitor for P5,000,000 for infringement of a
patent.
Based on the advice of the legal counsel, the entity accrued the sum of P3,000,000 as a
provision on December 31, 2019.
Subsequently on March 15, 2020, the Supreme court decided in favor of the party alleging
infringement of the patent and ordered the defendant to pay the aggrieved party a sum of
P3,500,000.
The financial statements were prepared by management on February 15, 2020 and approved
by the board of directors on March 31, 2020.
What amount should be recognized as accrued liability on December 31, 2019?

a) 5,000,000
b) 3,500,000
c) 3,000,000
d) 1,500,000
What amount should be adjusted on December 31, 2019 in relation to this event?
a) 1,500,000
b) 3,000,000
c) 500,000
d) 0
Problem 3-8
Caroline Company provided the following events that occurred after December 31, 2019:
January 15, 2020 P3,000,000 of accounts receivable was written off due to the
bankruptcy of a major customer.
February 15, 2020 A shipping vessel of the entity with carrying amount of
P5,000,000 was completely lost at sea because of hurricane.
March 10, 2020 A court case involving the entity as the defendant was settled
and the entity was obligated to pay the plaintiff P1,500,000. The
entity previously has not recognized a liability suit because
management deemed it possible that the entity would lose the
case.
March 15, 2020 A factory with a carrying amount of P4,000,000 was completely
razed by forest fire that erupted in the vicinity.
The management completed the draft of the financial statements for 2019 on February 10,
2020. On March 31, 2020, the board of directors authorized the financial statements for issue.
The entity announced the profit and other selected information on March 22, 2020.
The financial statements were approved by shareholders on April 2, 2020 and filed with the
regulatory agency the very next day.
What total amount should be reported as adjusting events on December 31, 2019?
a) 9,500,000
b) 8,500,000
c) 9,000,000
d) 4,500,000
Chapter 4: Statement of Comprehensive Income

Problem 4-1
Brock Company reported operating expenses in two categories, namely distribution and general
and administrative.
The adjusted trial balance at year-end included the following expense and loss accounts for
current year.
Accounting and legal fees 1,200,000
Advertising 1,500,000
Freight out 800,000
Interest 700,000
Loss on sale of long-term investment 300,000
Officers’ salaries 2,250,000
Rent for office space 2,200,000
Sales and salaries commissions 1,400,000

One half of the rented premises is occupied by the sales department.
What amount should be reported as total distribution costs?

a) 4,800,000
b) 4,000,000
c) 3,700,000
d) 3,600,000
Problem 4-2
Lee Company reported the following data for the current year:
Legal and audit fees 1,700,000
Rent for office space 2,400,000
Interest on inventory loan 2,100,000
Loss on abandoned data processing equipment 350,000
Freight in 1,750,000
Freight out 1,600,000
Offices’ salaries 1,500,000
Insurance 850,000
Sales representative salaries 2,150,000
Research and development expense 1,000,000

The office space used equally by the sales and accounting departments.
What amount should be classified as general and administrative expenses?

a) 5,250,000
b) 6,450,000
c) 5,600,000
d) 6,250,000
Problem 4-3
Vigor Company provided the following information for the current year:
Net accounts receivable at January 1 1,750,000
Net accounts receivable at December 31 1,600,000
Account receivable turnover 1,500,000
Inventory at January 1 850,000

Inventory at December 31 2,150,000
Inventory turnover 1,000,000
What is the gross income for the current year?

a) 150,000
b) 200,000
c) 300,000
d) 400,000
Problem 4-4
Hiligaynon Company provided the following information for the current year:
Beginning Inventory 400,000
Freight in 300,000
Purchase return 900,000
Ending Inventory 500,000
Selling expenses 1,250,000
Sales Discount 250,000

The cost of goods sold is six times the selling expenses.
What is the amount of gross purchases?

a) 6,500,000
b) 6,700,000
c) 8,000,000
d) 8,200,000
Problem 4-5
Bicolano Company provided the following data for the current year:
Inventory, January 1 2,000,000
Purchases 7,500,000
Purchase return and allowances 500,000
Sales return and allowances 750,000
Inventory, December 31 2,800,000
Gross profit rate 20%
What is the cost of goods sold?

a) 6,700,000
b) 6,200,000
c) 7,200,000
d) 9,000,000
What is the amount of gross sales for the current year?

a) 7,750,000
b) 8,500,000
c) 7,000,000
d) 9,125,000
Problem 4-6
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 goods in finished goods inventory 350,000
Raw material purchases 4,300,000
Debit 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 4-7
Argentina Company incurred the following costs and expenses during the current year:
Raw material purchases 4,000,000
Direct Labor 1,500,000
Indirect labor- factory 800,000
Factory repairs and maintenance 200,000
Taxes on factory building 100,000

Depreciation- factory building 300,000
Taxes on salesroom and general office 150,000
Depreciation- sales equipment 50,000
Advertising 400,000
Sales salaries 500,000
Office salaries 700,000
Utilities- 60% Applicable to factory 500,000
Beginning Ending
Raw materials 300,000 450,000
Working in process 400,000 350,000
Finished goods 500,000 700,000
What is the cost of raw material used?

a) 3,850,000
b) 4,000,000
c) 4,150,000
d) 4,750,000
What is the cost of goods manufactured for the current year?

a) 7,450,000
b) 7,200,000
c) 7,100,000
d) 7,300,000

a) 7,300,000
b) 6,900,000
c) 7,600,000
d) 8,300,000
Problem 4-8
Mercury Company showed cost of goods sold of P 4,320,000 in the statement of
comprehensive income after the first year of operations.
The total manufacturing cost compromised the following:

Material 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 sold manufactured.
What is the amount of direct labor cost incurred?

a) 1,800,000
b) 2,400,000
c) 3,000,000
d) 5,400,000
Problem 4-9
Tanzania Company reported operating expenses other than interest expense for the year at
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 P2,100,000. The income tax rate is 30%.
What is the amount of sales for the year?

a) 10,000,000
b) 15,000,000
c) 18,000,000
d) 12,000,000
What is the amount of purchases?

a) 6,000,000
b) 7,200,000
c) 3,000,000
d) 3,600,000
Problem 4-10
Ronalyn Company reported that the financial records were destroyed by fire at the end of the
current year.
However, certain statistical data related to the income statement are available.
Interest Expense 200,000
Cost of goods sold 3,000,000

Sales discount 300,000
The beginning inventory was P500,000 and decreased 20% during the year.
Administrative expenses are 25% of cost of goods sold but only 10% of gross sales.
Distribution cost represents 70% of the operating expenses.
What is the amount of gross sales?

a) 7,500,000
b) 8,000,000
c) 4,500,000
d) 5,000,000
What is the total amount of operating expenses?

a) 1,750,000
b) 2,500,000
c) 3,000,000
d) 2,700,000
What is the income before tax for the current year?

a) 1,500,000
b) 1,000,000
c) 1,800,000
d) 1,750,000
Chapter 5: Statement of Comprehensive Income

(Net Income and Comprehensive Income)
Problem 5-1
Thorpe Company reported net income of P7,500,000 for the current year which included the
following amounts:
Unrealized loss on foreign currency translation (500,000)
Gain on early retirement of bonds payable 2,200,000
Adjustment of profit of prior year for error in (750,000)

depreciation, net of tax effect
Loss from fire (1,400,000)
What amount should be reported as adjusted net income?

a) 6,250,000
b) 9,500,000
c) 8,000,000
d) 8,750,000
Problem 5-2
Pearl Company reported income before tax of P5,000,000 for the current year which included
the following accounts:
Equity in earnings of Cinn Company - 40% interest 1,600,000
Dividend received from Cinn Company 400,000
Adjustment of profit of prior year for arithmetical error (500,000)

in depreciation
Gain on sale of equity investment at FVOCI 1,000,000
What amount should be reported as income before tax?

a) 4,100,000
b) 4,600,000
c) 5,500,000
d) 5,100,000
Problem 5-3
Remy Company had the following events and transactions during 2019:
● Depreciation for 2018 was discovered to be understated by P300,000.
● A litigation settlement resulted in a loss of P250,000.
● The inventory on December 31, 2017 was overstated by P200,000.
● The entity disposed of a recreational division at a loss of P600,000.
● The income tax rate is 30%.
What is the effect of this event on the income from continuing operations for 2019?
a) 175,000
b) 385,000
c) 665,000
d) 750,000
What is the effect of these events on net income for 2019?

a) 245,000
b) 595,000
c) 420,000
d) 850,000
Problem 5-4
Divina Company provided the following information for the current year:
Income from continuing operations 4,000,000
Income from discontinued operations 500,000
Unrealized gain on financial asset - FVPL 800,000
Unrealized loss on equity investment - FVOCI 1,000,000
Unrealized gain on debt investment- FVOCI 1,200,000
Unrealized gain on futures contract designated as a 400,000

cash flow hedge
Translation loss on foreign operation 200,000
Net “remeasurement” gain on defined benefit plan 600,000
Loss on credit risk of a financial liability at FVPL 300,000
Revaluation surplus during the year 2,500,000
What amount should be reported as net income for the current year?
a) 4,000,000
b) 4,500,000
c) 5,300,000
d) 4,800,000
What net amount should be reported as OCI for the current year?
a) 4,000,000
b) 3,500,000
c) 3,200,000
d) 700,000
What amount should be reported as comprehensive income for the current year?
a) 5,200,000
b) 7,700,000
c) 8,500,000
d) 7,200,000
Problem 5-5
Bangladesh Company provided the following information for the current year:
Sales 50,000,000
Distribution costs 5,000,000
General and administrative expenses 4,000,000
Interest expense 2,000,000
Gain on early extinguishment of long-term debt 500,000
Correction of inventory error, net of income tax- 1,000,000

credit
Investment income - equity method 3,000,000
Gain on expropriation 2,000,000
Dividends declared 2,500,000
What is the income from continuing operations?

a) 9,000,000
b) 8,000,000
c) 9,500,000
d) 7,000,000
Problem 5-6
Rosebud Company provided the following information for the current year:
Sales 5,000,000
Foreign translation adjustment - credit 400,000
Selling expenses 700,000
Unusual and Infrequent gain 400,000
Correction of inventory error 200,000
General and administrative expenses 600,000
Income tax expense 150,000
Gain on sale of investment 50,000
Proceeds from sale of land at cost 800,000
Dividends 300,000
What amount should be reported as net income from continuing operations?
a) 1,200,000
b) 1,350,000
c) 1,600,000
d) 2,000,000
Problem 5-7
Vane Company provided the following information for the current year:
Debit Credit
Sales 5,750,000
Administrative expenses 700,000
Sales commissions 500,000
Interest revenue 250,000
Freight out 150,000
Uncollectible accounts expense 150,000
Loss on sale of equipment 100,000
Loss on early retirement of long-term debt 200,000
4,200,000 6,000,000
Finished goods
January 1 4,000,000
December 31 3,600,000
Income tax rate 30%
What amount should be reported as cost of goods manufactured?

a) 2,000,000
b) 2,150,000
c) 2,800,000
d) 2,950,000
What amount should be reported as income from continuing operations?

a) 1,260,000
b) 1,295,000
c) 1,400,000
d) 1,470,000
Problem 5-8
Dahlia Company provided the following information for the current year:
Sales 9,500,000
Gain on sale of equipment 100,000
Revaluation surplus during the year 1,200,000
Share of profit of associate 350,000
Finance cost 150,000
Distribution costs 500,000
Administrative expenses 300,000
Translation loss on foreign operation 200,000
What is the net income for the current year?

a) 2,300,000
b) 3,300,000
c) 4,200,000
d) 2,100,000
Problem 5-9
Rose Company, an investment entity, provided the following income and expense for the current
year:
Dividend income from investments 9,200,000
Distribution income from trusts 500,000
Interest income on deposits 700,000
Income from bank treasury bills 100,000
Unrealized gain on derivative contract s cash flow 400,000

hedge
Income from dealing in securities and derivatives 600,000
held for trading
Writedown of securities and derivatives held for 150,000

trading
Other income 250,000
Finance costs 300,000
Administrative staff costs 3,800,000
Sundry administrative costs 1,200,000
What is the total income before tax?

a) 11,200,000
b) 11,350,000
c) 10,700,000
d) 10,750,000
What is the total amount of expenses before tax?

a) 5,450,000
b) 5,300,000
c) 5,000,000
d) 5,150,000

a) 5,900,000
b) 3,700,000
c) 4,200,000
d) 5,500,000
What is the comprehensive income for the current year?

a) 4,200,000
b) 4,600,000
c) 3,800,000
d) 9,200,000
Problem 5-10
Empress Company provided the following information for the current year:
Retained earnings, January 1 3,000,000
Dividends declared 1,000,000

Sales 8,400,000
Dividend Income 100,000
Purchases 3,700,000
Salaries 1,540,000
Contributions to employees’ pension fund 300,000
Delivery 200,000
Miscellaneous expense 120,000
Doubtful Expense 10,000
Depreciation expense 80,000
Loss on sales investment 100,000
Income from discontinued operation, net of tax 500,000
Inventory on December 31 at cost 850,000
Net realizable value of inventory 700,000

a) 3,850,000
b) 4,000,000
c) 4,150,000
d) 4,700,000
What is the total amount of expenses before tax?

a) 2,350,000
b) 2,500,000
c) 2,250,000
d) 2,050,000

a) 2,000,000
b) 2,500,000
c) 1,500,000
d) 2,650,000
What is the balance of retained earnings on December31?
a) 4,000,000
b) 4,500,000
c) 3,500,000
d) 4,650,000
Chapter 6: Noncurrent Asset Held for

Sale
Problem 6-1
Dana Company accounted for noncurrent assets using the cost model. On October 1, 2019, the
entity classified a noncurrent asset as held for sale.
At that date, the carrying amount was P3,200,000, the fair value was estimated at P2,200,000
and the cost of disposal at P200,000.
On December 31, 2019, the asset was sold for net proceeds of P1,850,000.
What amount should be recognized as an impairment loss for 2019?

a) 1,000,000
b) 1,200,000
c) 1,350,000
d) 0
Problem 6-2
Arlene Company accounted for noncurrent assets using the cost model. On October 30,2019,
The entity classified a noncurrent asset as held for sale.
At that date, the carrying amount was P1,500,000, the fair value was estimated at P1,100,000
and the cost of disposal at P150,000.
On December 31, 2019, the asset was sold at net proceeds of P800,000.

a) 550,000
b) 400,000
c) 700,000
d) 0
Total current liabilitiesWhat amount should be recognized as loss on disposal for 2019?
a) 550,000
b) 700,000
c) 150,000
d) 0
Problem 6-3
On January 1, 2019, Racelle Company purchased land at a cost of P6,000,000. The entity used
the revaluation model for this asset.
The fair value of the land was P7,000,000 on December 31, 2019 and P8,500,000 on December
31, 2020.
On July 1, 2021, the entity decided to sell the land and therefore classified the assets as held for
sale.
The fair value of the land on this date is P7,600,000. The estimated cost of disposal is very
minimal.
On December 31, 2021, the land was sold for P8,000,000.
What amount in OCI should be recognized in the statement of comprehensive income for the
year ended December 31, 2020?
a) 2,500,000
b) 1,500,000
c) 400,000
d) 900,000
What amount should be recognized as gain or loss on sale of land in 2021?

a) 2,000,000 gain
b) 1,400,000 gain
c) 400,000 gain
d) 500,000 loss
What amount of OCI is recycled to retained earnings in 2021?

a) 1,000,000
b) 1,600,000
c) 2,500,000
d) 2,000,000
Problem 6-4
Surreal Company accounted for noncurrent assets using the revaluation model. On October 1,
2019, the entity classified a land as held for sale.
At that date, the carrying amount of the land was P5,000,000 and the balance in the revaluation
surplus was P1,500,000.
At the same date, the fair value of the land was estimated at P5,500,000 and the cost of
disposal at P100,000.
On December 31, 2019, the fair value less cost of disposal of the land did not change. The land
was sold on January 31, 2020 for P6,000,000.

a) 100,000
b) 500,000
c) 400,000
d) 0
What is the adjusted carrying amount of the land on December 31, 2019?
a) 5,000,000
b) 5,500,000
c) 5,400,000
d) 3,500,000
What amount should be reported as gain on disposal of the land in 2020?

a) 1,000,000
b) 2,600,000
c) 500,000
d) 600,000
What amount of OCI is reclassified to retained earnings in 2020?

a) 1,500,000
b) 2,000,000
c) 500,000
d) 0
Problem 6-5
Affable Company purchased an equipment for P5,000,000 on January 1, 2019. The equipment
has useful life of 5 years with no residual value.
On December 31, 2019, the entity classified the equipment as held for sale. On such date, the
fair value less cost of disposal of the equipment was P3,500,000.
On December 31, 2020, the entity believed that the criteria for classifications as held for sale
can no longer be met.
Accordingly, the entity decided not to sell the equipment but to continue to use it.
On December 31, 2020, the fair value less cost of disposal was P2,700,000.
What is the carrying amount of the equipment on December 31, 2019 before classification as
held for sale?
a) 5,000,000
b) 4,000,000
c) 3,500,000
d) 4,500,000
What amount of impairment loss should be recognized in 2019?

a) 1,500,000
b) 1,000,000
c) 500,000
d) 0
What amount should be included in profit or loss in 2020 as a result of the reclassification of the
equipment to property, plant and equipment?
a) 800,000 gain
b) 800,000 loss
c) 300,000 gain
d) 300,000 loss
What is the adjusted carrying amount of the equipment on December 31, 2021?
a) 2,700,000
b) 1,800,000
c) 2,000,000
d) 3,000,000
Problem 6-6
Clara Company purchased equipment for P5,000,000 on January 1, 2019 with a useful life of 10
years and no residual value.
On December 31, 2020, the entity classified the equipment as held for sale. The fair value of the
equipment on December 31, 2020 was P3,300,000 and the cost of disposal P100,000.
On December 31, 2021, the fair value of the equipment was P3,800,000 and the cost of
disposal P200,000. The value in use was determined to be P3,300,000.
On December 31, 2021, the entity believed that the criteria for classification as held for sale can
no longer be met.
Accordingly, the entity decided not to sell the asset but to continue to use it.
What amount of impairment loss should be recognized for 2020?

a) 300,000
b) 800,000
c) 700,000
d) 0
What is the measurement of the equipment that ceases as held for sale on December 31,
2021?
a) 3,200,000
b) 4,000,000
c) 3,500,000
d) 3,600,000
What amount should be recognized as gain as a result of the reclassification in 2021?

a) 800,000
b) 300,000
c) 400,000
d) 0
Chapter 7: Discounted Operation

Problem 7-1
On September 30, 2029, when the carrying amount of the net assets of a business
segment was P70,000,000, Young Company signed a legally binding contract to sell the
business segment.
The sale is expected to be completed by January 31, 2020 at a sale price of P60,000,000
In addition, prior to January 31, 2020, the sale contract obliged Young Company to terminate the
employment of certain employees of the business segment incurring an expected termination
cost of P5,000,000 to be paid on June 30, 2020.
The segment revenue and expenses for 2029 were P40,000,000 and P45,000,000 respectively
What amount should be reported as pretax loss from discontinued operation for 2019?
a) 14,000,000
b) 20,000,000
c) 15,000,000
d) 10,500,000
Problem 7-2
Xavier Company has three segments. A, B and C. Segment C, the closing division, is deemed
inconsistent with the long-term direction of the entity. Management has decided to dispose of
Segment C.
On November 15, 2019, the board of directors of Xavier Company voted to approve the disposal
and an announcement was made.
On that date the carrying amount of Segment C's net assets was P90,000,000 and the fair value
less cost of disposal was P70,000,000.
Segment C’s revenue and expenses for 2019, respectively, were and P50,000,000 and
P45,000,000, including an interest of P5,000,000 attributable to Segment C.
There was no further impairment of assets between November 15 and December 31, 2019. The
What amount of loss from discontinued operation should be reported for 2019?
a) 15,000,000
b) 10,500,000
c) 7,000,000
d) 5,000,000
Problem 7-3
Zebra Company is a diversified entity with nationwide interests in commercial real estate
development,banking, mining and food distribution. The food distribution division was deemed
to be inconsistent with the long-term direction of the entity.
On October 1, 2019 the board of directors voted to approve the disposal of this division. The
sale is expected to occur in August 2020.
The food distribution had revenue of P35,000,000 and expenses of P27,000,000 for the period
January1 to September 30, and revenue of P15,000,000 and expenses of P10,000,000 for the
period October 1 to December 31.
The carrying amount of the division's net assets on December 31, 2019 was P55,000,000 and
the fair value less cost of disposal was P60,000,000.
The sale contract required Zebra to terminate certain employees, incurring an expected
termination cost of P4,000,000 to be paid by December 15, 2020. The income tax rate is 30%.
What amount should be reported as income from discontinued operation for 2019?
a) 7,700,000
b) 8,300,000
c) 9,000,000
d) 6,300,000
Problem 7-4
Vernon Company had two operating divisions, one manufacturing farm equipment and the other
office supplies. Both divisions are considered separate components.
The farm equipment component had been unprofitable and on September 1, 2019, the entity
adopted a plan to sell the assets of the division.
The actual sale was effected on December 15, 2019 at a price of P3,000,000. The carrying
amount of the division's assets was P5,000,000.
The farm equipment division incurred a before tax operating loss of P1,500,000 from the
beginning of the year through December 15, 2019.
The entity's after-tax income from continuing operations is P9,000,000. The income tax rate is
30%.
What amount should be reported as net income for the current year?
a) 5,500,000
b) 6,550,000
c) 6,300,000
d) 7,600,000
Problem 7-5
Dublin Company had two operating divisions, one manufactures machinery and the other
breeds and sell horses. Both divisions are considered separate components
The horse division has been unprofitable and on November 15, 2019, the entity adopted a
formal plan to sell the division On December 31, 2019, the component was considered held for
sale.
The sale was completed on April 30, 2020.
On December 31, 2019, the carrying amount of the assets of the horse division was
P5,000,000. On that date, the fair value of the assets less cost of disposal was P4,000,000.
The before-tax operating loss of the horse division for the year was P1,500,000.
The after-tax income from continuing operations of Dublin Company for 2019 was P8,000,000.
The income tax rate is 30%.
What is the net income for 2019?

a) 4,500,000
b) 5,600,000
c) 3,850,000
d) 6,250,000
Problem 7-6
In 2019, Isuzu Company decided to discontinue the Electronics Division, a separate identifiable
component of Isuzu’s business. On December 31,2019, the division had not been completely
sold.
However, negotiations for the final and complete sale are progressing in a positive manner and
it is probable that the disposal will be completed within a year.
Analysis of the records for the year disclosed the following relative to the Electronics Division:
Operating loss for 2019 8,000,000
Loss on disposal of some electronics assets during 2019 500,000
Expected operating loss in 2020 preceding final disposal 1,000,000
Expected gain in 2020 on disposal of division 2,000,000
What amount should be reported as pretax loss from discontinued operation in 2019?
a) 8,000,000
b) 8,500,000
c) 9,500,000
d) 7,500,000
Problem 7-7
On December 31, 2019, Max Company committed to a plan to discontinue the operations
of its Underwear Division.
The fair value of its facilities was P1,000,000 less than carrying amount on December 31,
2019.
The division's operating loss for 2019 was P2,000,000 and the division was actually sold for
P1,200,000 less than carrying amount in 2020.
The entity estimated that the division's operating loss for 2020 would be P500,000.
What amount should be reported as pretax loss from discontinued operations in 2019?
a) 3,000,000
b) 2,000,000
c) 1,000,000
d) 3,200,000
Problem 7-8
Flame Company has two divisions, North and South. Both qualify as business components.
In 2019, the entity decided to dispose of the assets and liabilities of division South and it is
probable that the disposal will be completed early next year.
The revenue and expense of Flame Company for 2010 and 2009 are as follows:
2019 2018
Sales- North 5,500,000 4,600,000
Total nontax expenses- North 4,400,000 4,100,000
Sales- South 3,500,000 5,100,000
Total nontax expenses- South 3,900,000 4,500,000
During the later part of 2010, Flame disposed of a portion of division South and recognized a
pretax loss of P2,000,000 on the disposal.
What amount should be reported as pretax loss from discontinued operation in 2019?
a) 2,000,000
b) 2,400,000
c) 1,400,000
d) 1,600,000
Problem 7-9
Jazz Company operates two restaurants, one in Boracay and one in Dakak. The operation cash
flows of each of the two restaurants and clearly distinguishable.
During 2019, the entity decided to close the restaurant in Dakak and sell the property. It is
probable that the disposal will be completed early next year.
The revenue and expenses for 2019 and for the preceding two years are as follows:
2019 2018 2017
Sales- Boracay 60,000 48,000 40,000
Cost of goods sold- Boracay 26,000 22,000 18,000
Other expenses- Boracay 14,000 13,000 12,000
Sales- Dakak 23,000 30,000 52,000
Cost of goods sold- Dakak 14,000 19,000 20,000
Other expenses- Dakak 17,000 16,000 15,000

The other expenses do not include income tax expenses. During the later part of 2019, the
entity sold much of the kitchen equipment of the Dakak restaurant and recognized a pretax gain
of P15,000 on the disposal.
What amount should be reported as pretax income or loss from discontinued operation for
2019?
a) 8,000 loss
b) 7,000 gain
c) 5,600 loss
d) 1,000 gain
Problem 7-10
Marquee Company, a parent entity, approved on December 1, 2019 a plan to sell a subsidiary.
The sale is expected to be completed on March 31, 2020.
The year-end is December 31, 2019 and the financial statements were approved on March 1,
2020.
The subsidiary had net assets with carrying amount of P 15,000,000 including goodwill of P
1,500,000 on December 31 , 2019.
The subsidiary made a loss of P3,000,000 from January 1 to March 1, 2020 and is expected to
make a further loss of P2,000,000 up to the date of sale.
At the date of approval of the financial statements, the entity was in negotiation for the sale of
the subsidiary but no contract had been signed.
The entity expected to sell the subsidiary for P9,000,000 and to incur cost of disposal of
P500,000. The value in use of the subsidiary was estimated to be P10,000,000
On December 31, 2019, what is the measurement of the subsidiary which is considered as a
disposal group classified as held for sale?
a) 15,000,000
b) 10,000,000
c) 9,000,000
d) 8,500,000
Chapter 8: Change in Accounting Policy

Problem 8-1
During 2019, Orea Company decided to change from the FIFO inventory valuation to the
weighted average method. The income tax rate is 30%.
FIFO Weighted Average
January 1 - Inventory 7,100,000 7,700,000
December 31 - Inventory 7,900,000 8,200,000
What amount should be reported as the cumulative effect of the accounting change for 2019?
a) 420,000 increase
b) 420,000 decrease
c) 600,000 increase
d) 600,000 decrease
Problem 8-2
Year FIFO Weighted Average
2016 4,500,000 5,400,000
2017 7,800,000 7,100,000
2018 8,300,000 7,800,000
What amount should be reported for 2019 as the cumulative effect of the change in accounting
policy?
a) 500,000 decrease
b) 350,000 decrease
c) 500,000 increase
d) 350,000 increase
Problem 8-3
Banko Company used the cost recovery method of accounting since it began operations in
2016. In 2019, management decided to adopt the percentage of completion method.
2016 2017 2018
Revenue from completed contracts 25,000,000 42,000,000 40,000,000
Cost of completed contracts 18,000,000 29,000,000 28,000,000
Income from operations 7,000,000 13,000,000 12,000,000
Casualty loss 0 0 (2,000,000)
Income 7,000,000 13,000,000 10,000,000

Analysis of the accounting records disclosed the following income by contracts using the
percentage of completion method.
2016 2017 2018
Contract 1 7,000,000
Contract 2 5,000,000 8,000,000
Contract 3 3,000,000 7,000,000 2,000,000
Contract 4 1,000,000 6,000,000
Contract 5 (1,000,000)
What amount of the pretax cumulative effect of change in accounting policy should be reported
in the statement of retained earnings for 2019?
a) 6,000,000
b) 8,000,000
c) 7,000,000
d) 0
Problem 8-4
During 2019, Build Company changed from cost recovery method to the percentage of
completion method. The tax rate is 30%.
The entity revealed the following gross income under the cost recovery and percentage of
completion method:
2017 2018 2019
Cost of recovery method 950,000 1,250,000 1,400,000
Percentage of completion 1,600,000 1,900,000 2,100,000
How should this accounting change be reported in 2019?

a) 1,400,000 increase in income
b) 1,400,000 increase in retained earnings
c) 910,000 increase in income
d) 910,000 increase in retained earnings
Problem 8-5
ABC Company provided the following net income and inventory:
2019 2020
Net income using LIFO 2,750,000 3,000,000

Year-end inventory - FIFO 1,400,000 2,000,000
Year-end inventory - LIFO 900,000 1,600,000
What amount should be reported as net income for 2020 using the FIFO cost flow?
a) 2,900,000
b) 3,600,000
c) 3,500,000
d) 3,100,000
Chapter 9: Change in Accounting Estimate

Problem 9-1
Blue Company purchased a machine on January 1, 2016 for P6,000,000. At the date of
acquisition, the machine had a life of six years with no residual value. The machine was
depreciated on a straight line basis.
On January 1, 2019, the entity determined that the machine had a useful life of eight years from
the date of acquisition with no residual value.
What is the depreciation of the machine for 2019?

a) 750,000
b) 600,000
c) 375,000
d) 500,000
Problem 9-2
On January 1, 2019, Flax Company purchased a machine for P5,280,000 and depreciated it by
the straight line method using an estimated useful life of eight years with no residual value.
On January 1, 2019, the entity determined that the machine had a useful life of six years from
the date of acquisition and the residual value was P480,000.
An accounting change was made in 2019 to reflect these additional data.
What is the accumulated depreciation for the machine on December 31, 2019?
a) 2,920,000
b) 3,080,000
c) 3,200,000
d) 3,520,000
Problem 9-3
On January 1, 2015, Roma Company purchased equipment for P4,000,000. The equipment has
a useful life of 10 years and a residual value of P400,000.
On January 1, 2019, the entity determined that the useful life of the equipment was 12 years
from the date of acquisition and the residual value was P480,000.
What is the carrying amount of the equipment on January 1, 2019?

a) 2,560,000
b) 2,920,000
c) 2,400,000
d) 2,800,000
What is the depreciation of the equipment for 2019?

a) 175,000
b) 260,000
c) 360,000
d) 300,000
Problem 9-4
Acute Company was incorporated on January 1, 2016. In preparing the financial statements for
the year ended December 31, 2018, the entity used the following original cost and useful life for
the property, plant and equipment:
Original Cost Useful life
Building 15,000,000 15 years
Machinery 10,500,000 10 years
Furniture 3,500,000 7 years
On January 1, 2018, the entity determined that the remaining useful life is 10 years for the
building, 7 years for the machinery and 5 years for the furniture.
The entity used the straight-line method of depreciation with no residual value.
What amount should be reported as total depreciation for 2019?

a) 2,650,000
b) 3,700,000
c) 2,550,000
d) 3,500,000
Problem 9-5
On January 1,2019, Canyon Company decided to decrease the estimated useful life of the
patent from 10 years to 8 years.
The patent was purchased on January 1,2015 for P3,000,000 with residual value of zero.
The entity decided on January 1,2020 to change the depreciation method from accelerated
method to straight line.
On January 1,2019, the cost of the equipment was P8,000,000 and the accumulated
depreciation was P3,400,000.
The remaining useful life of the equipment on January 1,2020 is 10 years and the residual value
is P200,000.
What is the total charge against income for 2019 as a result of the accounting changes?
a) 940,000
b) 960,000
c) 627,500
d) 647,500
Problem 9-6
On January 1, 2017, Brazillia Company purchased for P4,800,000 a machine with a useful life
of ten years and a residual value of P200,000.
The machine was depreciated by the double declining balance and the carrying amount of the
machine was P3,072,000 on December 31, 2018.
The entity changed to the straight line method on January 1, 2019. The residual value did not
change.
What is the depreciation expense on this machine for 2019?

a) 287,200
b) 384,000
c) 460,000
d) 359,000
Chapter 10: Prior Period Errors

Problem 10-1
Effective January 1, 2016, King Company adopted the accounting policy of expensing
advertising and promotion costs when incurred.
Previously, advertising and promotion costs applicable to future periods were recorded in
prepaid expenses.
The entity can justify the change, which was made for both financial statement and income tax
reporting purposes.
The prepaid advertising and promotion costs totaled P600,000 on December 31, 2016. The
What is the net charge against income for 2019 as a result of the change?
a) 600,000
b) 180,000
c) 420,000
d) 0
Problem 10-2
Harbor Company reported the following events during 2019:
● It was decided to write off P1,000,000 from inventory which was over two years old as it
was obsolete.
● Sales of P1,500,000 had been omitted from the financial statements for the year ended
December 31, 2018.
What pretax amount should be reported as prior period error in the financial statements for
2019?
a) 2,500,000
b) 1,500,000
c) 1,000,000
d) 0
Problem 10-3
Universal Company failed to accrue warranty cost of P500,000 on December 31, 2018.
In addition, a change from straight line to accelerated depreciation made at the beginning of
2019 resulted in a cumulative effect of P400,000 on retained earnings.
What pretax amount should be reported as a prior period error in 2019?

a) 500,000
b) 900,000
c) 400,000
d) 0
Problem 10-4
Extracts from the statement of financial position of Animus Company showed the following:
December 31, 2020 December 31, 2019

Development costs 8,000,000 5,800,000
Amortization (1,800,000) (1,200,000)
The capitalized development costs relate to a single project that commenced in 2017.
It has now been discovered that one of the criteria for capitalization has never been met.
What amount of pretax adjustment is required to restate retained earnings on January 1, 2020?
a) 6,200,000
b) 1,600,000
c) 4,600,000
d) 0
What amount of the development costs should be expensed in 2020?

a) 5,800,000
b) 6,200,000
c) 1,600,000
d) 0
Problem 10-5
In reviewing the draft financial statements for the year ended December 31, 2020, Bituin
Company decided that market conditions were such that the provision for inventory
obsolescence on December 31, 2020 should be increased by P3,000,000.
If the same basis of calculating inventory obsolescence had been applied on December 31,
2019, the provision would have been P1,800,000 higher than the amount recognized in the
statement of comprehensive income.
What adjustments should be made to the net income of 2020?

a) 3,000,000 decrease
b) 3,000,000 increase
c) 1,200,000 decrease
d) 1,200,000 increase
What adjustments should be made to the net income of 2019 presented as comparative
a) 1,800,000 decrease
b) 1,800,000 increase
c) 3,000,000 decrease
d) 0
Problem 10-6
Samar Company reported the following events during the year ended December 31, 2020:
● A counting error relating to the inventory on December 31, 2019 was discovered.
This required a reduction in the carrying amount of inventory at that date of P2,000,000.
● The provision for uncollectible accounts receivable on December 31, 2019 was
P500,000.
During 2020, P800,000 was written off related to the December 31, 2019 accounts
receivable.
● The income tax rate is 30%.
What adjustment is required to restate retained earnings on January 1, 2020?

a) 1,400,000
b) 2,000,000
c) 2,500,000
d) 0
Problem 10-7
After the issuance of the 2019 financial statements, Narra Company discovered a computational
error of P150,000 in the calculation of the December 31, 2019 inventory.
The error resulted in a P150,000 overstatement in the cost of goods sold for the year ended
December 31, 2019.
In October 2020, the entity paid the amount of P500,000 in settlement of litigation instituted
against it during 2020.
The income tax rate is 30%
In the financial statements for 2020, what is the pretax adjustment of the retained earnings on
January 1, 2020?
a) 150,000 credit
b) 105,000 credit
c) 350,000 debit
d) 245,000 debit
Problem 10-8
Natasha Company reported net income of P700,000 for 2020. The entity declared and paid
dividend of P150,000 in 2020.
In the financial statements for the year ended December 31, 2019, the entity reported earnings
of P1,100,000 on January 1, 2019.
The net income for 2019 was 600,000 and the entity declared and paid dividend of P300,000 in
2019.
In 2020, after the 2019 financial statements were approved for issue, the entity discovered an
error in the December 31, 2018 financial statements.
The net effect of the error was a P650,000 overstatement of net income for the year ended
December 31, 2018 due to under depreciation.
What amount should be reported as retained earnings on December 31, 2020?

a) 1,300,000
b) 1,400,000
c) 1,650,000
d) 1,950,000
Problem 10-9
While preparing the 2019 financial statements, Dek Company discovered computational errors
in the 2017 and 2018 depreciation expense.
These errors resulted in overstatement of each year's income by P100,000, net of income tax.
The following accounts were reported in the previously issued financial statements.
2017 2018
Retained earnings, January 1 2,000,000 2,800,000
Net income 800,000 600,000
Retained earnings, December 31 2,800,000 3,400,000
The net income for 2019 is correctly reported at P700,000.
What amount should be reported as retained earnings on December 31, 2019?

a) 3,900,000
b) 4,100,000
c) 4,300,000
d) 4,000,000
Problem 10-10
On January 1, 2019, Raven Company discovered that it had incorrectly expensed a P2,100,000
machine purchased on January 1, 2016.
The entity estimated the machine's original useful life to be 10 years and the residual value at
P100,000.
The entity used the straight line method of depreciation and is subject to a 30% income tax rate.
In the 2019 financial statements, what amount should be reported as a prior period error?
a) 1,659,000
b) 1,029,000
c) 1,050,000
d) 1,680,000
Chapter 11: Operating Segment

Problem 11-1
Aroma Company and its divisions are engaged solely in manufacturing operations. The entity
reported the following segment profit (loss) for the current year:
V 3,400,000
W 1,000,000
X (2,000,000)
Y 400,000
Z (200,000)
2,600,000
In the segment information for the current year, what are the reportable segments?
a) V, W, X and Y
b) V, W and X
c) V and W
d) V, W, X, Y and Z
Problem 11-2
Correyy Company and its division are engaged solely in manufacturing operations.
The following data pertain to the industries in which operations were conducted for the current
year:
Industry Revenue Profit Assets
A 10,000,000 1,750,000 20,000,000

B 8,000,000 1,400,000 17,500,000
C 6,000,000 1,200,000 12,500,000
D 3,000,000 550,000 7,500,000
E 4,250,000 675,000 7,000,000
F 1,500,000 225,000 3,000,000
32,750,000 5,800,000 67,500,000
How many reportable segments does Correyy have?

a) Three
b) Four
c) Five
d) Six
Problem 11-3
Macbeth Company, an entity listed on a recognized stock exchange, reports operating results
from its North American division to the chief operating decision maker.
The entity revealed the following segment information for the current year:
Revenue 3,800,000
Profit 1,200,000
Assets 1,800,000
Number of 2,500
employees
The results for all of the operating segments in total are:

Revenue 40,000,000
Profit 10,000,000
Assets 20,000,000
Number of 25,000
employees
Which piece of information determines that the North American division is a reportable
segment?
a) Revenue
b) Profit
c) Assets
d) Number of employees
Problem 11-4
Aria Company and its divisions provided the following information for the current year:
Sales to unaffiliated customers 20,000,000
Intersegments sales of products similar to 6,000,000

those sold to unaffiliated customers
Interest earned on loans to other operating 400,000

segments
Aria Company and all of its divisions are engaged solely in manufacturing operations.
What is the minimum amount of segment revenue in order that a division can be considered a
reportable segment?
a) 2,640,000
b) 2,600,000
c) 2,040,000
d) 2,000,000
Problem 11-5
Timmy Company provided the following information pertaining to revenue earned by operating
segments for the current year:
Segment Sales to unaffiliated Intersegment sales Total revenue

customers
Alo 5,000 3,000 8,000
Bix 8,000 4,000 12,000
Cee 4,000 - 4,000
Dil 43,000 16,000 59,000
Combined 60,000 23,000 83,000
Elimination - (23,000) (23,000)
Consolidated 60,000 - 60,000
In conformity with the revenue test, what is the total revenue of the reportable segments?
a) 83,000
b) 71,000
c) 51,000
d) 60,000
Problem 11-6
In the income statement for the current year, Grum Company reported revenue P50,000,000,
excluding intersegment sales P10,000,000, expenses P47,000,000 and net income P3,000,000.
Expenses include payroll costs of P15,000,000.
The combined identifiable assets of all operating segments at year-end totaled P40,000,000.
What is the minimum amount of sales to a major customer?

a) 5,000,000
b) 4,000,000
c) 6,000,000
d) 4,700,000
What is the minimum amount of external revenue to be disclosed by reportable segments?
a) 22,500,000
b) 30,000,000
c) 33,750,000
d) 37,500,000
Problem 11-7
Graf Company discloses supplemental operating segment information. The following
information is available for the current year:
Segment Sales Traceable expenses
X 5,000,000 3,000,000
Y 4,000,000 2,500,000
Z 3,000,000 1,500 000
12,000,000 7,000,000
Additional expenses are as follows:
Indirect expenses 1,800,000
General corporate expenses 1,200,000
Interest expense 600,000

The interest expense and income tax expense are regularly reviewed by the chief operating
decision maker as a measure of profit or loss.
Appropriate common expenses are allocated to segments based on the ratio of a segment's
sales to total sales.
What is Segment Z's profit for the current year?

a) 900,000
b) 950,000
c) 800,000
d) 500,000
Problem 11-8
Clay lines has three lines of business, each of which was determined to be reportable segment.
The entity sales aggregated P7,500,000 in the current year, of which Segment No. 1 contributed
40%.
Traceable costs were P1,750,000 for Segment No. I out of a total of P5,000,000 for the entity as
a whole.
For external reporting, the entity allocated common costs of P 1,500,000 based on the ratio of a
segment's income before common costs to the total income before common costs.
In the financial statements for the current year, what amount should be reported as profit for
Segment No. 1?
a) 1,250,000
b) 1,000,000
c) 650,000
d) 500,000
Problem 11-9
Colt Company has four manufacturing divisions, each of which has been determined to be a
reportable segment.
Common costs are appropriately allocated on the basis of each division's sales in relation to
Colt's aggregate sales.
Colt's Delta division accounted for 40% of Colt's total sales in the current year.
For the current year, Delta division had sales of P8,000,000 and traceable costs of P4,800,000.
In addition, the Delta division incurred interest expense of P 680,000.
In the current year, Colt incurred costs of P800,000 that were not directly traceable to any of the
divisions.
It is an entity policy that interest expense is included in the measure of profit or loss that is
reviewed by the chief operating decision maker.
What amount should be disclosed as Delta's profit for the current year?
a) 3,200,000
b) 3,000,000
c) 2,880,000
d) 2,200,000
Problem 11-10
Eagle Company operates in several different industries. Total sales for Eagle Company totaled
P14,000,000, and total common costs amounted to for the current year.
For internal reporting purposes. Eagle Company allocated common costs based on the ration of
a segment’s sales to total sales.
Segment A contributed 25 % to the total sales and incurred specific costs of P1,100,000.
What is the profit of Segment A?

a) 3,500,000
b) 1,875,000
c) 2,400,000
d) 775,00
Problem 11-11
Taylor Company, a publicly owned entity, assesses performance and makes operating decisions
using the following information for the reportable segments:
Total segment revenue 7,700,000

Total segment profit 500,000
The total segment profit included inter segment profit of P50,000. In addition, the entity has
P10,000 of common costs for reportable segments are not allocated in reports reviewed by the
chief operating decision maker.
What amount should be reported segment profit?

a) 550,000
b) 450,000
c) 510,000
d) 500,000
Problem 11-12
Congo Company provided the following data for the current year:
Sales 60,000,000
Cost Of goods sold 28,000,000
Expenses 14,000,000
Depreciation 4,000,000

The entity has two major reportable segments, X and Y. An analysis revealed that P1,000,000 of
the total depreciation expense and P2,000,000 of the expenses are related to general corporate
activities.
The remaining expenses and sales are directly allocable to segment activities according to the
following percentages:
Segment X Segment Y Others
Sales 45% 45% 15%
Cost Of goods sold 35 50 15
Expenses 40 40 20
Depreciation 40 45 15
What amount should be reported as profit of Segment X?

a) 8,200,000
b) 6,600,000
c) 7,000,000
d) 5,400,000
Problem 11-13
Revlon Company had no intersegment sales and provided the following data for the current
year:
Segment Revenue Profit (Loss) Assets
1 620,000 200,000 400,000
2 100,000 20,000 80,000
3 340,000 70,000 300,000
4 190,000 (30,000) 140,000
5 180,000 (25,000) 180,000

6 70,000 10,000 120,000
7 120,000 (20,000) 140,000
Others 380,000 (25,000) 140,000

● The "others" category includes five operating segments, none of which has revenue or
assets greater than P 80,000 and none with an operating profit.
● Operating Segments I and 2 produce very similar products and use very similar
production processes, but serve different customer types and use quite different product
distribution systems. These differences are due in part to the fact that Segment 2
operates in a regulated environment while Segment 1 does not.
● Operating Segments 6 and 7 have very similar products, production processes, product
distribution systems, but are organized as separate divisions since they serve
substantially different types of customers.
Neither Segments 6 and 7 operate in a regulated environment.
What are the reportable segments for the current year?

a) Segments l, 3, 4 and 5
b) Segments l, 3, 4, 5 and 7
c) Segments l, 2, 3, 4 and 5
d) Segments l. 3, 4, 5 and Segments 6and 7 combined as one segment
Chapter 12: Operating Segment

Problem 12-1
Farr Company had the following transactions during the first quarter:
Loss from typhoon 700,000
Loss from inventory writedown 500,000
Loss from disposal of a business segment 1,000,000
Payment of fire insurance premium for calendar year 100,000

What total amount of expenses should be included in the income statement for the first quarter?
a) 1,300,000
b) 2,225,000
c) 1,475,000
d) 2,300,000
Problem 12-2
Everest Company has historically reported bad debt expense of 5% sales in each quarter. For
the current year, the entity followed the same procedure in the three quarters of the year.
However, in the fourth quarter, the entity determined that bad debt expense for the entire year
should be P450,000.
Sales in each quarter of the year were first quarter P2,000,000, second quarter P1,500,000,
third quarter P2,500,000 and fourth quarter P4,000,000.
What amount of bad debt expense should be recognized for the fourth quarter?
a) 200,000
b) 150,000
c) 300,000
d) 400,000
Problem 12-3
Davao Company prepares quarterly interim financial reports. The entity sells electrical goods
and normally 5% of customers claim on their warranty.
The provision in the first quarter was calculated at 5% of sales to date which amounted to
P10,000,000.
However, in the second quarter, a design fault was found, and warranty claims were expected to
be 10% for the whole year. Sales for the second quarter amounted to P15,000,000.
What amount of warranty expense should be reported in the interim income statement for
the first quarter?
a) 1,000,000
b) 750,000
c) 500,000
d) 250,000
What amount of warranty expense should be reported in the interim income statement for
the second quarter?
a) 2,000,000
b) 1,250,000
c) 1,500,000
d) 750,000
Problem 12-4
Kell Company reported P950,000 net income for the quarter ended September 30,2019 which
included the following after tax items:
● A P600,000 expropriation gain, realized on April 30, 2019, was allocated equally to the
second, third, and fourth quarters of 2019.
● A P150,000 cumulative-effect loss resulting from a change in inventory valuation
method was recognized on August 1, 2019.
In addition, the entity paid P480,000 on February 1, 2019, for 2019 calendar-year property
taxes. Of this amount, P 120,000 was allocated to the third quarter of 2019.
For the quarter ended September 30, 2019, what amount should be reported as net income?
a) 1,100,000
b) 1,020,000
c) 950,000
d) 900,000
Problem 12-5
Mount Company operates in the travel industry and incurs costs unevenly throughout the year.
Advertising costs of P2,000,000 were incurred on March l, 2019 and staff bonuses are paid at
year-end based on sales.
Staff year-end bonuses are expected to be around P20,000,000 for the year.
What total amount of expenses should be included in the quarterly financial report ending March
31, 2019?
a) 7,000,000
b) 5,500,000
c) 5,000,000
d) 3,500,000
Problem 12-6
The terms and conditions of employment with Pauline Company include entitlement to share in
the staff bonus system, under which 5% of the profit for the year before charging the bonus is
allocated to the bonus pool, provided the annual profit exceeds P50,000,000.
The profit before accrual of any bonus for the first half of the current year amounted to
P40,000,000 and the latest estimate of the profit before accrual of any bonus for the year as a
the whole is P60,000,000.
What amount should be recognized in profit or loss as bonus expense for the half year ended
June 30?
a) 1,500,000
b) 3,000,000
c) 2,000,000
d) 0
Problem 12-7
Snider Company is preparing interim financial statements for the first quarter ended March 31.
Expenses in the first quarter totaled P4,000,000 of which 25% was variable.
The fixed expenses included television advertising expense of P1,600,000 representing air time
to be incurred evenly during the current year and depreciation expense of P600,000 for the year
for an equipment that was available for use on January 1.
What amount should be reported as total expenses for the first quarter ended March 31?
a. 4,000,000
b. 2,800,000
c. 4,150,000
d. 2,350,000
Problem 12-8
At the beginning of current year, Builder Company entered into a P20,000,000 long-term fixed
price contract to construct a factory building.
The entity accounted for this contract under the percentage of completion at the end of each
quarter for the current year.
Quarter Percentage of completion Estimated cost
1 10% 15,000,000
2 10% 15,000,000
3 25% 19,200,000
4 25% 19,200,000
No work was performed in the second and fourth quarters.
What amount of income should be reported in the first quarter?

a) 2,000,000
b) 200,000
c) 500,000
d) 0
What amount of income should be reported in the second quarter?

a) 500,000
b) 250,000
c) 750,000
d) 0
What amount of income or loss should be reported in the third quarter?

a) 200,000 income
b) 200,000 loss
c) 300,000 income
d) 300,000 loss
What amount of income should be reported in the fourth quarter?

a) 800,000
b) 400,000
c) 200,000
d) 0
Problem 12-9
Bailar Company, a calendar-year entity, reported the following income before income tax and
effective tax rate for the first three quarters of the current year:
Income before tax Effective tax rate
First quarter 6,000,000 30%
Second quarter 7,000,000 30%
Third quarter 8,000,000 25%
What is the income tax expense for the first quarter?

a) 1,500,000
b) 1,800,000
c) 1,200,000
d) 2,400,000
What is the income tax expense for the second quarter?

a) 1,750,000
b) 2,800,000
c) 2,100,000
d) 1,400,000
What is the income tax expense for the third quarter?

a) 5,250,000
b) 1,350,000
c) 2,400,000
d) 2,000,000
Problem 12-10
Hyper Company prepared the following income statement for then current year:
Sales 6,000,000
Cost of goods sold (2,800,000)
Gross income 3,200,000

Gain on sale of equipment 100,000
Total income 3,300,000
Operating expenses ( 500,000)
Casualty loss ( 300,000)
Income before tax 2,500,000
Income tax - 30% 750,000
Net income 1,750,000

* Third quarter sales were 30% of total sales.
* For interim reporting purposes, a gross profit rate of 40% can be justified.
* Variable operating expenses are allocated in the same proportion as sales.
* Fixed operating expenses are allocated based on the expiration of time.
* Of the total operating expenses, P400,000 relate to variable expenses and P100,000 relate to
fixed expenses.
* The equipment was sold on June 1.
* The casualty loss occurred on September 1.
What amount should be reported as income before tax for the third quarter ended September
30?
a) 275,000
b) 375,000
c) 500,000
d) 300,000
Chapter 13: Cash and Cash Equivalents (Basic

Problems)
Problem 13-1
Tranvia Company had the following balances on December 31,2019:
Cash in checking account 350,000
Cash in money market account 750,000
Treasury bill, purchased November 1, 2019 maturing January 3,500,000

31, 2020
Time deposit purchased December 1, 2019 maturing March 4,000,000

31, 2020
What amount should be reported as cash and cash equivalents on December 31, 2019?
a) 1,100,000
b) 3,850,000
c) 4,600,000
d) 8,600,000
Problem 13-2
Pygmalion Company had the following balances on December 31, 2019:
Cash in bank - current account 5,000,000
Cash in bank - payroll account 1,000,000
Cash on hand 500,000
Cash in bank - restricted account for building transaction 3,000,000

expected to be disbursed in 2020
Time Deposit purchased December 15, 2019 and due 2,000,000

March 15, 2020
The cash on hand included a P200,000 check payable to Pygmalion, dated January 15, 2020.
What total amount should be reported as cash and cash equivalents on December 31, 2019?
a) 6,300,000
b) 8,300,000
c) 6,500,000
d) 8,700,000
Problem 13-3
Thor Company provided the following data on December 31,2019:
Checkbook balance 4,000,000
Bank statement balance 5,000,000
Check drawn on Thor’s account, payable to supplier, 500,000

dated and recorded on December 31,2019 but not
mailed until January 31,2020
Sinking fund cash 2,000,000

On December 31,2020, what amount should be reported as “cash” under current assets?
a) 4,500,000
b) 5,500,000
c) 3,500,000
d) 6,500,000
Problem 13-4
At year-end, Myra Company reported cash and cash equivalents which comprised the following:
Demand deposit 4,000,000
Certificate of deposit 2,000,000
Postdated customer check 300,000
Traveler’s check 200,000
Manager’s check 100,000
Money order 150,000

What total amount should be reported as “cash” at year-end?
a) 7,000,000
b) 4,800,000
c) 6,800,000
d) 5,000,000
Problem 13-5 (IFRS)

Everlast Company reported the following information at the current year-end:
● Investment securities of P 1,000,000. These securities are share investments in entities
that are traded in the Philippine Stock Exchange. As a result, the shares are very
actively traded in the market.
● Investment securities of P 2,000,000. These securities are government treasury bills.
The treasury bills have a 10-year term and purchased on December 31 at which time
they had two months to go until they mature.
● Cash of P 3,400,000 in the form of coin, currency, saving account and checking account.
● Investment securities of P 1,500,000. These securities are commercial papers. The term
of the papers is nine months and they were purchased on December 31 at which time
they had three months to go until they mature.
What total amount should be reported as cash?

a) 3,400,000
b) 4,900,000
c) 4,400,000
d) 5,400,000
What total amount should be reported as cash and cash equivalents?

a) 2,000,000
b) 1,500,000
c) 3,500,000
d) 4,500,000
Problem 13-6
Burr Company had the following account balances at year end:
Cash in banks 2,250,000
Cash legally restricted for additions to plant 1,600,000

expected to be disbursed next year
Cash in banks includes P600,000 of compensating balances against short-term borrowing
arrangements.
The compensating balances are not legally restricted as to withdrawal.
What total amount of cash should be reported under current assets at year-end?
a) 1,775,000
b) 2,250,000
c) 2,375,000
d) 3,975,000
Problem 13-7
On December 31, 2019, West Company had the following cash balances:
Petty cash fund - all funds were reimbursed at year end 50,000
Time deposit due February 1, 2020 250,000
Time Deposit in bank closed by BSP 1,000,000

Cash in bank including 600,000 of compensating balance against short term borrowing
arrangement on December 31, 2019. The compensating balance is legally restricted as to
withdrawal.
On December 31, 2019, what total amount should be reported as cash and cash equivalents?
a) 2,500,000
b) 1,250,000
c) 2,100,000
d) 1,500,000
Problem 13-8
Ral Company reported the checkbook balance on December 31, 2019 at 5,000,000 and held
the following items on same date:
Check payable to Ral, dated January 2, 2020 in payment 2,000,000
of a sale made in December 2019, not included in
December 31 checkbook balance
Check payable to Ral, deposited December 15 and 500,000

included in December 31 checkbook balance, but
returned by bank on December 30 stamped “NSF”. The
check was redeposited on January 2, 2020 and cleared
on January 9, 2020.
Check drawn on Ral’s account, payable to a vendor, 300,000

dated and recorded in Ral’s books on December 31,
2019 but not mailed until January 10, 2020.
Certificate of time deposit 1,000,000
What amount should be reported as cash on December 31, 2019?

a) 4,800,000
b) 5,300,000
c) 6,500,000
d) 5,800,000
Problem 13-9
Timex Company reported petty cash fund which comprised the following:
Coins and Currency 3,300
Paid vouchers: 600
Transportation 400
Gasoline 500
Office supplies 300
Postage stamps 1,200 3,000
Due from employees 1,000
Manager’s check returned by bank marked “NSF” 2,700

Check drawn by the entity to the order of petty cash
custodian
What is the correct amount of petty cash fund for statement presentation purposes?
a) 10,000
b) 7,000
c) 6,000
d) 9,000
Problem 13-10
Liwanag Company reported an imprest petty cash fund of 50,000 with the following details:
Currencies 20,000
Coins 2,000
Petty cash vouchers:
Gasoline payments for delivery equipment 3,000
Medical supplies for employees 1,000
Repairs of office equipment 1,500
Loans to employees 3,500
A check drawn by the entity payable to the order of Grace de la 15,000

cruz, petty cash custodian, representing her salary
An employee check returned by the bank of insufficiency of fund 3,000
A sheet of paper with names of several employees together 5,000

with contribution for a birthday gift of a co-employee. Attached
to the sheet is a currency of
What amount of petty cash fund should be reported in the statement of financial position?
a) 42,000
b) 27,000
c) 37,000
d) 22,000
Chapter 14: Cash and Cash Equivalents

(Comprehensive Problems)
Problem 14-1
Campbell Company had the following account balances on December 31, 2019:
Cash in bank - payroll account 1,200,000
Cash in bank - sinking fund 2,000,000

Cash in bank - restricted account for plant addition and 1,500,000
expected to be disbursed in 2020
Treasury bills 1,000,000

The petty cash fund included unreplenished December 2019 petty cash expense vouchers
5,000 and employee IOU 5,000.
The cash on hand included a 100,000 customer check payable to Campbell dated January 15,
2020.
Exchanged for a guaranteed line of credit, the entity has agreed to maintain a minimum
balance of 200,000 in the unrestricted current bank account.
The sinking fund is set aside to settle a bond payable that is due on December 31, 2020.
a) 8,640,000
b) 7,440,000
c) 7,640,000
d) 5,640,000
Problem 14-2
Yasmin Company provided the following information on December 31, 2019:
Current account - First bank 4,000,000
Current account - Second Bank (overdraft) (250,000)
Money market placement - Third bank 1,000,000
Time deposit - Fourth bank 2,000,000

● A check for 100,000 was drawn against First Bank current account dated and recorded
December 29, 2019 but delivered to payee on January 15, 2020.
● The Fourth bank time deposit is set aside for land acquisition in early January 2020.
What amount should be reported as cash and cash equivalents on December 31, 2019?
a) 5,050,000
b) 5,150,000
c) 4,900,000
d) 4,150,000
Problem 14-3
On December 31, 2019, Erika Company reported cash account balance per ledger of 9,500,000
which included the following:
Cash in bank - demand deposit 3,000,000
Time deposit - 30 days 500,000
NSF check of customer 200,000
Money market placement due on June 30, 2020 2,000,000
Saving deposit 1,000,000
IOU from an employee 300,000
Pension fund 1,500,000
Customer check dated January 31, 2020 600,000
Customer check outstanding for 18 months 400,000
9,500,000
● Check of 100,000 in payment of accounts payable was dated and recorded on
December 31, 2019 but mailed to creditors on January 15, 2020.
● Check of 300,000 dated January 31, 2020 in payment of accounts payable was recorded
and mailed December 31,2019.
● The cash receipts journal was held open until January 15, 2020, during which time
200,000 was collected and recorded on December 31, 2019.
a) 4,700,000
b) 6,700,000
c) 4,900,000
d) 5,100,000
Problem 14-4
On December 31, 2019, Roma Company reported cash of 9,950,000 which comprised the
following:
Undeposited collections 600,000
Cash in bank - BDO checking account 4,000,000
Undeposited NSF check received from customer, dated 1500,000

December 1, 2019
Undeposited check from a customer, dated January 15, 250,000

2020
Cash in bank - BDO fund for payroll 1,000,000
Cash in bank - BDO money market instrument, 90 days 1,200,000
Cash in foreign bank 1,500,000
Cash in bank - BDO value added tax account 450,000
Total 9,950,000
On December 31, 2019, what total amount should be reported as cash and cash equivalents?
a) 7,600,000
b) 8,200,000
c) 6,050,000
d) 8,050,000
Problem 14-5
Love Company reported the following information in relation to cash on December 31,2019:
● Checkbook balance, P4,000,000.

● Undeposited collections, P400,000.
● A customer check amounting to P200,000 dated January 2,2020 was included in the
December 31,2019 checkbook balance.
● Another customer check for P500,000 deposited on December 22,2019 was included in
the checkbook balance but returned by the bank for insufficiency of fund.
This check was redeposited on December 26,2019 and cleared two days later.
● A P400,000 check payable to supplier dated and recorded on December 30,2019 was
mailed on January 16,2020.
● A petty cash fund of P50,000 comprised the following on December 31,2019:
Coins and currencies 5,000
Petty cash and vouchers 40,000
Refundable deposits for returnable containers 5,000
50,000
● A check of P40,000 was drawn on December 31,2019 payable to Petty Cash.
What is the adjusted cash in bank on December 31,2019?

a) 4,600,000
b) 4,200,000
c) 4,400,000
d) 3,700,000
What total amount should be reported as cash on December 31,2019?
a) 4,645,000
b) 4,845,000
c) 4,600,000
d) 4,650,000
Chapter 15: Bank Reconciliation (Basic Problems)

Problem 15-1
In preparing the bank reconciliation for the month of August, ApexCompany
provided the following information:
Balance per bank statement 1,805,000
Deposit in transit 325,000
Return of customer check for insufficient fund 60,000
Outstanding checks 275,000
Bank service charge for August 10,000
What is the adjusted cash in bank?

a) 1,855,000
b) 1,795,000
c) 1,785,000
d) 1,755,000
Problem 15-2
In preparing the bank reconciliation for the month of December, CaseCompany provided the
following information:
Amount erroneously credited by bank to Case’s 40,000

account
Bank service charge for December 5,000
NSF check 50,000

a) 3,685,000
b) 3,645,000
c) 3,600,000
d) 3,605,000
What is the unadjusted cash balance per book?

a) 3,550,000
b) 3,660,000
c) 3,610,000
d) 3,655,000
Problem 15-3
Core Company provided the following data for the purpose of reconciling the cash balance per
book with the balance per bank statement onDecember 31:
Balance per book 850,000
Outstanding checks, including certified check of P100,000 500,000
December NSF check, of which P50,000 had been redeposited 150,000

and cleared on December 27
Erroneous credit to Core’s account, representing proceeds of 300,000

loan granted to another company
Proceeds of note collected by bank for Core, net of service 750,000

charge of P20,000
What amount should be reported as cash-in-bank in year end?

a) 1,500,000
b) 1,400,000
c) 1,800,000
d) 1,450,000
Problem 15-4
Able Company received the bank statement for the month of March.However, the closing
balance of the account was unreadable.
Attempts to contact the bank after hours did not secure the desired information.
February 28 book balance 1,460,000
Note collected by bank 100,000
Interest earned on note 10,000

NSF check of customer 130,000
Bank service charge on NSF check 2,000
Other bank service charges 3,000
Deposit of February 28 placed in night depository 85,000
Check issued by Axle Company charged to Able’s 20,000

account
What is the cash balance per bank statement?

a) 1,435,000
b) 1,530,000
c) 1,340,000
d) 1,550,000
Problem 15-5
Stellar Company provided the bank statement for the month of December which included the
following information:
Ending balance, December 31 2,800,000
Bank service charge for December 12,000
Interest paid by bank to Stellar Company for December 10,000
In comparing the bank statement to its own cash records, the entity found the following:
Deposits made but not yet recorded by the bank 350,000
Checks written and mailed but not yet recorded by the bank 650,000
In addition, the entity discovered that it had drawn and erroneously recorded a
check for P46,000 that should have been recorded for P64,000.
What is the cash per ledger on December 31?

a) 2,500,000
b) 2,520,000
c) 2,540,000
d) 2,800,000
Problem 15-6
Letty Company provided the bank statement for the month of April which included the following
information:
Bank service charge for April 15,000
Check deposited by Letty during April was not collectible and 40,000
has been marked “NSF” by the bank and returned
In comparing the bank statement to its own records, the entity found the following:
Deposits made but not yet recorded by bank 130,000
Checks written and mailed but not yet recorded by bank 100,000
All deposits in transit and outstanding checks have been properly recorded in the
entity’s books.
A customer check for P35,000 payable to Letty Company had not yet been deposited and had
not been recorded by the entity.
The cash in bank account balance per ledger is P920,000.
What amount should be reported as adjusted cash in bank on April 30?

a) 900,000
b) 865,000
c) 930,000
d) 965,000
Problem 15-7
Gallant Company showed a cash account balance of P4,500,000 at the month-end.
The bank statement did not include a deposit of P230,000 made on the last day of the month.
The bank statement showed a collection by the bank of P94,000 for the depositor and a
customer check of P32,000 returned because it was NSF.
A customer check for P45,000 was recorded by the depositor asP54,000 and a check written for
P79,000 was recorded as P97,000.
What amount should be reported as cash in bank?

a) 4,765,000
b) 4,571,000
c) 4,819,000
d) 4,801,000
Problem 15-8
Aries Company kept all cash in a checking account. An examination of the accounting records
and bank statement for the month of June revealed the following information:
● A cash balance per book on June 30 was P8,500,000.
● A deposit of P1,000,000 that was placed in the bank’s night depository on

June 30 did not appear on the bank statement.
● The bank statement showed that on June 30 the bank collected note for the entity and
credited the proceeds of P950,000 to the entity’s account, net of collection charge
P50,000.
● Checks outstanding on June 30 amounted to P300,000 including certified check of

P100,000.
● The entity discovered that a check written in June for P200,000 inpayment of an account
payable had been recorded in the entity’s records as P20,000.
● Included with the June bank statement was NSF check forP250,000 received
from a customer on June 26.
● The bank statement showed a P20,000 service charge for June.
What amount should be reported as cash in bank on June 30?

a) 9,000,000
b) 8,300,000
c) 9,360,000
d) 9,180,000
What is the balance per bank statement on June 30?

a) 8,300,000
b) 9,700,000
c) 8,660,000
d) 8,200,000
What is the net adjustment to cash in bank on June 30?

a) Net debit P950,000
b) Net credit P450,000
c) Net debit P500,000
d) Net debit P860,000
Problem 15-9
Boracay Company kept all cash in checking account. An examination of the bank
statement for the month of December revealed a bank statement balance of P8,470,000.
A deposit of P950,000 placed in the bank’s night depository onDecember 29 does not appear on
the bank statement
Checks outstanding on December 31 amount to P270,000.
The bank statement showed that on December 25 the bank collected a note for
Boracay Company and credited the proceeds ofP935,000 to the entity’s account which included
P35,000 interest.
Boracay Company discovered that a check written in December forP183,000 in payment of

an account had been recorded asP138,000.
Included with the December 31 bank statement was an NSF checkfor P250,000 that Boracay
Company had received from a customer on December 20
The bank statement showed a P15,000 service charge for December
What is the adjusted cash in bank on December 31?

a) 9,150,000
b) 9,240,000
c) 9,195,000
d) 9,215,000
What is the unadjusted balance per book on December 31?

a) 8,480,000
b) 8,525,000
c) 8,435,000
d) 8,510,000
What is the net adjustment to cash in bank on December 31?

a) Net debit P935,000
b) Net credit P310,000
c) Net debit P625,000
d) Net credit P625,000
Problem 15-10
Pearl Company maintains a checking account at the City Bank. The bank provides a bank
statement along with canceled checks on the last day of each month. The July bank statement
included the following information:
Balance, July 1 550,000
Deposits 1,800,000
Checks processed 1,400,000
Service charge 30,000

NSF check 120,000
Monthly loan payment deducted by bank from account 100,000
Deposits outstanding totaled P100,000 and all checks written by the entity were processed by
the bank except for check of P150,000.
A P200,000 July deposit from a credit customer was recorded by the entity as P20,000 debit to
cash and credit to accounts receivable.
A check correctly recorded by the entity as P30,000, disbursement was incorrectly processed by
the bank as P300,000 disbursements.
What is the balance per bank on July 31?

a) 700,000
b) 550,000
c) 800,000
d) 950,000
What is the adjusted cash in bank on July 31?

a) 650,000
b) 920,000
c) 380,000
d) 970,000
What is the cash in bank balance per ledger on July 31?

a) 1,350,000
b) 1,170,000
c) 990,000
d) 890,000
Chapter 16: Bank Reconciliation (Comprehensive

Problems)
Problem 16-1
Divine Company prepared the following bank reconciliation on December31:
Add: Deposit in transit 195,000
Checkbook printing page 5,000

Error made by Divine in recording 35,000
check issued in December
NSF check 110,000 345,000
Total 3,145,000
Less: Outstanding check 100,000
Note collected by bank including 215,000 315,000

P15,000 interest
Balance per book 2,830,000
The entity had cash on hand P500,000 and petty cash fund P50,000 ion December 31.
What amount should be reported as cash in bank at year-end?

a) 2,930,000
b) 3,095,000
c) 2,895,000
d) 3,130,000
What total amount of cash should be reported at year-end?

a) 3,395,000
b) 3,350,000
c) 3,445,000
d) 3,380,000
Problem 16-2
Ron Company provided the following data for the month of January:
Balance per book, January 31 3,130,000
Balance per bank statement, January 31 3,500,000
Collections on January 31 but un deposited 550,000
NSF check received from a customer returned by the 50,000

bank on February 5 with the January bank statement
Checks outstanding on January 31 650,000
Bank debit memo for safety deposit box rental not 5,000
recorded by depositor
A creditor check for P30,000 was incorrectly recorded 300,000

in the depositor’s book as
A customer check for P200,000 was recorded by the 20,000
depositor as
The depositor neglected to make an entry for a check 125,000

drawn in payment of an account payable
What amount should be reported as adjusted cash in bank on January31?

a) 3,130,000
b) 3,500,000
c) 3,400,000
d) 2,950,000
Problem 16-3
In reconciling the cash balance on December 31 with that shown in the bank statement, Sam
Company provided the following information:
Service charge 10,000
Proceeds of bank loan, December 1, discounted for 6 940,000

months at 12%, not recorded on Sam Company’s
books
Customer check charged back by bank for absence of 50,000

counter signature
Deposit of P100,000 incorrectly recorded by bank as 10,000
Check of Sim Company charged by bank against Sam 150,000

account
Customer note collected by bank in favor of Sam Company.

Face 400,000
Interest 40,000
Total 440,000
Collection fee 5,000 435,000
Erroneous debit memo of December 28, to 200,000

charge Sam account with settlement of bank
loan
Deposit of Sim Company credited to Sam 300,000

account
What amount should be reported as adjusted cash in bank on December31?

a) 4,315,000
b) 3,925,000
c) 3,075,000
d) 4,015,000
Problem 16-4
Susan Company showed the following information on August 31:
Balance of cash in bank account 1,300,000
Balance of bank statement 1,200,000
Outstanding checks, August 31:
Number 555 10,000
761 55,000
762 40,000
763 25,000
764 65,000
765 70,000
Receipts of August 31, deposited September 1 275,000
Service charge for August 5,000
NSF check received from a customer 85,000
The cashier book-keeper had misappropriated P30,000 and an additional P 10,000 by

charging sales discounts and crediting accounts receivable.
The stub for check number 765 and the invoice relating thereto showed that it was for P50,000.
It was recorded incorrectly in the cash disbursements journal as P70,000.
This check was drawn in payment of an account payable.
Payment has been stopped on check number 555 which was drawn in payment of an account
payable. The payee cannot be located.
What is the adjusted cash in bank on August 31?
a) 1,240,000
b) 1,230,000
c) 1,210,000
d) 1,200,000
Problem 16-5
Mcbride Company provided the following data pertaining to the cash transactions and bank
account for the month of May:
Cash balance per accounting period 1,719,000
Cash balance per bank statement 3,195,000
Bank service charge 10,000
Debit memo for the cost of printed checks delivered by the 12,000
bank; the charge has not been recorded in the accounting
record
Deposit of May 30 not recorded by bank until June 1 500,000
Proceeds of a bank loan on May 30, not recorded in he 570,000

accounting record, net of interest of P30,000
Proceeds from a customer promissory note, principal 810,000

amount P800,000 collected by the bank not taken up in
the accounting record with interest
Check No. 1086 issued to a supplier entered in the 120,000

accounting record as P210,000 but deducted in he bank
statement at an erroneous amount of
Stolen check lacking an authorized signature deducted 80,000

from Mcbride’s account by the bank in error
Customer check returned by the bank marked NSF, 77,000

indicating that the customer balance was no adequate to
cover the check; no entry has been made in the
accounting record to record the returned check

a) 3,000,000
b) 2,910,000
c) 3,080,000
d) 2,990,000
Problem 16-6
Carefree Company prepared the following bank reconciliation on March 31:
Book balance 1,405,000
Collection of note 2,500,000
Interest on note 150,000 3,400,000
Total 4,805,000
Less: Careless Company deposit credited to our 1,100,000

account
Bank service charge 45,000 1,145,000
Adjusted book balance 3,660,000
Bank balance 5,630,000
Add: Error by depositor on recording check 45,000
Total 5,675,000
Less: Pre authorized payment for water bills 205,000
NSF customer check 220,000
Outstanding checks 1,650,000 2,075,000
Adjusted bank balance 3,600,000
The check erroneously recorded by the depositor was made for the proper amount of P249,000
in payment of account. However it was entered in the cash payments journal as P294,000.
The entity authorized the bank to automatically pay its water bills as submitted directly to the
bank.
What amount should be reported as cash in bank on March 31?

a) 3,660,000
b) 3,600,000
c) 3,630,000
d) 2,880,000
Chapter 17: Proof of Cash

Problem 17-1
Lazer Company had the following bank reconciliation on June 30:
Balance per bank statement, June 30 3,000,000
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 7,000,000

checks and P10,000 service charge
All reconciling items on June 30 cleared through the bank in July. The outstanding checks
totaled P600,000 and the deposit in transit amounted to P1,000,000 on July 31.

a) 2,500,000
b) 5,400,000
c) 2,900,000
d) 5,000,000
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
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
What is the amount of cash disbursement per book in July?

a) 6,550,000
b) 6,700,000
c) 7,300,000
d) 6,350,000
Problem 17-2
Chris Company presented the following bank reconciliation for the month of November:
Balance per bank statement, November 3,600,000
30
Total 4,400,000
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 5,500,000
P1,000,000 for Chris
December disbursements, including NSF customer 4,400,000

check P350,000 and service charge P50,000
All items that were outstanding on November 30 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.
What is the adjusted cash in bank on December31?

a) 4,700,000
b) 4,900,000
c) 4,500,000
d) 3,200,000
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
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
What is the amount of cash disbursement per book in December?
a) 3,700,000
b) 3,300,000
c) 3,100,000
d) 3,500,000
Problem 17-3
Lira Company prepared the following bank reconciliation on June 30:
Balance per bank 9,800,000
Deposits in transit 400,000
Outstanding checks ( 1,400,000 )
There were total deposits of P 6,500,000 and charges for disbursements of P 9,000,000 for July
per bank statement. All reconciliation items on June 30 cleared the bank on July 31
Checks outstanding amounted to P 1,000,000 and deposits in transit totalled P 1,200,000 on

July 31.
What is the amount of cash receipts per book in July?

a) 6,500,000
b) 7,300,000
c) 5,700,000
d) 7,900,000
What is the amount of cash disbursement per book in July?

a) 8,600,000
b) 7,600,000
c) 9,400,000
d) 8,400,000

a) 7,300,000
b) 6,300,000
c) 7,500,000
d) 6,500,000
What is the cash balance per ledger on July 31?

a) 8,800,000
b) 8,500,000
c) 6,300,000
d) 7,500,000
Problem 17-4
Oro Company had the following bank reconciliation on March 31:
Balance per bank statement, March 31 4,650,000
Add: Deposit in transit 1,030,000
Total 5,680,000
Less: outstanding checks (1,260,000)
Balance per book, March 31 4,420,000
Data per bank statement for the Month of April:

Deposits 5,840,000
Disbursements 4,970,000
All reconciliation items on March 31 cleared through the bank in April.
Outstanding checks on April 30 totaled P 700,000 and there were no deposits in transit on April
30.
What is the amount of cash balance per book in April?

a) 4,820,000
b) 5,290,000
c) 5,520,000
d) 5,850,000
Problem 17-5
Jam Company provided the following bank reconciliation on May 31:
Deposits outstanding 300,000
Checks outstanding ( 50,000 )
Correct cash balance 2,350,000
Bank service charge ( 10,000 )
Correct cash balance 2,350,000

Data for the month of June:
Bank Book
Checks recorded 2,300,000 2,400,000
Deposits recorded 1,700,000 1,800,000
Collection by bank, P500,000 Note plus 550,000

interest
NSF check returned with June 30 100,000

Statement
Balances 1,950,000 1,750,000
What is the amount of check outstanding on June 30?

a) 200,000
b) 150,000
c) 100,000
d) 0
What is the amount of deposit in transits on June 30?

a) 400,000
b) 100,000
c) 200,000
d) 0
What amount should be reported as adjusted cash in bank on June 30?

a) 1,760,000
b) 2,200,000
c) 1,950,000
d) 2,250,000
Chapter 18: Accounts Receivable

Problem 18-1
Roxy Company provided the following information for the current year:
Accounts receivable on January 1 1,300,000
Credit sales 5,400,000
Collection from customers, excluding recovery 4,750,000
Accounts written off 125,000

Collection of accounts written off in prior year(customer 25,000
credit was not reestablished)
Estimated uncollectible receivables per aging of receivables 165,000

on December 31
What is the balances of account receivable, before allowance for doubtful accounts on
December 31?
a) 1,825,000
b) 1,850,000
c) 1,950,000
d) 1,990,000
Problem 18-2
Jay Company provided the following data relating to accounts receivable for the current year:
Accounts receivable, January 1 650,000
Credit Sales 2,700,000
Sales returns 75,000
Collections from customers 2,150,000
Estimated future sales returns at December 31 50,000
Estimated uncollectible accounts at 12/31 per aging 110,000
What is the amortized cost of accounts receivable on December 31?

a) 1,200,000
b) 1,125,000
c) 1,085,000
d) 925,000
Problem 18-3
Miami Company reported the following information at year-end:
Trade accounts receivable 930,000
Allowance for uncollectible accounts (20,000)
Claim against shipper for goods lost in transit in November 30,000
Selling price of unsold goods sent byMiami on consignment at 260,000

130% of cost and not included in Miami's ending inventory
Security deposit on lease of warehouse used for storing some 300,000
inventories
Total 1,500,000
What total amount should be reported as trade and other receivables under current assets at
year-end?
a) 940,000
b) 1,200,000
c) 1,240,000
d) 1,500,000
Problem 18-4
Faith Company provided the following information relating to current operations:
Accounts Receivable, January 1 4,000,000
Accounts receivable collected 8,400,000
Cash sales 2,000,000
Inventory, December 31 4,000,000
Purchases 8,000,000
Gross Margin on sales 4,200,000
What amount should be reported as accounts receivable on December 31?

a) 8,200,000
b) 6,200,000
c) 2,000,000
d) 4,200,000
Problem 18-5
Steven Company provided the following information during the first year operations:
Total merchandise purchases for the year 7,000,000
Merchandise inventory on December 31 1,400,000
Collections from customers 4,000,000
All merchandise was marked to sell at 40% above cost. All sales are on a credit basis and all
receivables are collectible
What amount should be reported as accounts receivable on December 31?
a) 1,000,000
b) 3,840,000
c) 5,000,000
d) 5,800,000
Problem 18-6
Honduras Company revealed a balance of 8,200,000 in the accounts receivable control account
at year-end.
An analysis of the accounts receivables showed the following:

Accounts known to be worthless 100,000
Advance payments to creditors on purchase orders 400,000
Advances to affiliated entities 1,000,000Customers' 1,000,000

accounts reporting credit balances arising from sales returns
Customers' accounts reporting credit balances arising from (600,000)

sales returns
Interest receivables on bonds 400,000
Trade accounts receivable - unassigned 2,000,000
Subscription receivable due in 30 days 2,200,000
rade accounts receivable- assigned (FinanceCompany's 1,500,000

equity in assigned accounts is P500,000)
Trade installments receivable due 1 - 18 months,including 850,000

unearned finance charge of P50,000
Trade accounts receivable from officers, due currently 150,000
Trade accounts on which postdated checks are held and no 200,000

entries were made on receipt of checks
Total 8,200,000
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 18-7
When examining the accounts of Groot Company, it is ascertained that balances relating to both
receivables and payables are included in a single controlling account called “receivables
control” with a debit balance of P4,850,000. An analysis of the make-up of this account
revealed the following:
Debit Credit
Accounts receivable –customers 7, 800,000
Trade accounts receivable –officers 500,000
Debit balance –creditors 300,000
Postdated checks from customers 400,000
Subscription receivable 800,000
Accounts payable for merchandise 4,500,000
Credit balances in customer’s account 200,000
Cash received in advance from customers 100,000
Expected bad debts 150,000
After further analysis of the aged accounts receivable, it is determined that the
allowance for doubtful accounts should be 200,000.
What is the net realizable value of account receivable?

a) 8,000,000
b) 8,500,000
c) 8,300,000
d) 8,550,000
What is the balance of accounts payable?

a) 4,200,000
b) 4,700,000
c) 4,500,000
d) 4,800,000
Problem 18-8
Von Company provided the following data for the current year in relation to accounts receivable:
Debits
January 1 balance after deducting credit balance P30,000 530,000
Charge sales 5,250,000

Charge for goods out on consignment 50,000
Shareholders' subscriptions 1,000,000
Accounts written off but recovered 10,000
Cash paid to customer for January 1 credit balance 25,000
Goods shipped to cover January 1 credit balance 5,000
Deposit on long-term contract 500,000
Claim against common carrier 400,000
Advances to supplier 300,000
Credit
Collections from customers, including overpayment of 5,200,000

P50,000
Writeoff 35,000
Merchandise returns 25,000
Allowances to customers for shipping damages 15,000
Collection on carrier claim 50,000
Collection on subscription 200,000
What amount should be reported as account receivable on December 31?

a) 565,000
b) 595,000
c) 545,000
d) 495,000
What is the total amount of trade and other receivables should be reported under current
assets?
a) 1,725,000
b) 2,045,000
c) 1,245,000
d) 1,195,000
What total amount of other receivables should be reported under noncurrent assets?
a) 1,650,000
b) 1,150,000
c) 1,300,000
d) 1,600,000
Problem 18-9
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 3,024,000

advantage of the discount feature of the credit terms 4/10,
n/30
Cash received from cash customers 2,100,000
Accounts receivable written off as worthless 50,000
Credit memorandum issued to credit customers for sales 250,000

returns and allowances
Cash refunds given to customers for sales returns and 20,000

allowances
Recoveries on accounts receivable written off as 80,000

uncollectible in prior periods not included in cash received
from customer stated above
Balances on January 1
Accounts receivable 950,000
The entity provided for uncollectible account losses by crediting allowance for doubtful accounts
in the amount of 70,000 for the current year.
What amount should be reported as account receivable on December 31?

a) 1,300,000
b) 1,426,000
c) 1,280,000
d) 1,220,000
What amount should be reported as allowance for doubtful accounts on December 31?
a) 120,000
b) 200,000
c) 250,000
d) 170,000
Problem 18-10
Germany Company started business at the beginning of current year. The entity established an
allowance for doubtful accounts estimated at 5% 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 P1,500,000. Goods were sold at 40% above cost.
The total sales comprised 80% sales on account and 20% cash sales. Total collections from
customers, excluding cash sales, amounted to P6,000,000.
.
What is the cost of good sold?
a) 7,500,000
b) 5,400,000
c) 3,600,000
d) 6,900,000
What is the amount of sales on account?

a) 10,500,000
b) 18,750,000
c) 12,000,000
d) 8,400,000
What is the net realizable value of account receivable at year-end?

a) 1,980,000
b) 2,350,000
c) 1,930,000
d) 2,400,000
Chapter 19: Estimation of Doubtful Accounts (Basic

Problems)
Problem 19-1
Orr Company prepared an aging of accounts receivable on December 31 and determined that
the net realizable value of the accounts receivable was P2,500,000.
Allowance for doubtful accounts on January 1 280,000
Accounts written off as uncollectible 230,000
Accounts receivable on December 31 2,700,000
Uncollectible accounts recovery 50,000
What amount should be recognized as doubtful account expense for the current year?
a) 230,000
b) 200,000
c) 150,000
d) 100,000
Problem 19-2
Roanne Company used the allowance method of accounting for uncollectible accounts.
During the current year, the entity had charged P800,000 to bad debt expense and wrote off
accounts receivable of P900,000 as uncollectible.
What was the decrease in working capital?

a) 900,000
b) 800,000
c) 100,000
d) 0
Problem 19-3
Mill Company’s allowance for doubtful accounts was P1,000,000 at the end of 2020 and
P900,000 at the end of 2019.
For the year ended December 31, 20120, the entity reported doubtful accounts expense of
P160,000 in the income statement.
What amount was debited to the appropriate account to write off uncollectible accounts in 2020?
a) 60,000
b) 100,000
c) 160,000
d) 260,000
Problem 19-4
Tara Company provided the following information pertaining accounts receivable at year-end:
Days Outstanding Amount Uncollectible
0 – 60 1,200,000 5%
61 – 120 900,000 10%
Over 120 1,000,000 20%
During the current year, the entity wrote off P100,000 in account receivable and recovered
P40,000 that had been written off in prior years. At the beginning of current year, the allowance
for uncollectible account was P150,000.
Under the aging method, what amount of allowance for doubtful accounts should be reported at
year-end?
a) 150,000
b) 200,000
c) 500,000
d) 350,000
What is the amount should be recognized as doubtful account expense for the year?
a) 450,000
b) 250,000
c) 200,000
d) 300,000
Problem 19-5
Marian Company used the allowance method of accounting for doubtful accounts.
The following summary schedule was prepared from an aging of accounts receivable
outstanding on December 31:
Number of days Amount Probability of collection
outstanding
0 – 30 days 5,000,000 .98
31 – 60 days 2,000,000 .90
Over 60 days 1,000,000 .80
The following additional information is available for the current year:

Net credit sales for the year 40,000,000
Allowance for doubtful accounts:
Balance, January 1 (cr) 450,000
Balance before adjustment, December 31 (dr) 20,000
The entity based the estimate of doubtful accounts on the aging of accounts receivable.
What is the amount should be recognized as doubtful account expense for the current year?
a) 470,000
b) 480,000
c) 500,000
d) 520,000
Problem 19-6
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%
4,000,0000
What amount should be reported as allowance for sales discount at year-end?

a) 20,000
b) 32,400
c) 33,500
d) 40,000
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
What is the net realizable value of accounts receivable at year-end?

a) 4,000,000
b) 3,750,000
c) 3,770,000
d) 3,790,000
Problem 19-7
Manchester Company provided the following accounts abstracted from the unadjusted trial
balance at year-end:
Debit Credit
Net credit sales 20,000,000

The entity estimated that 3% of the gross accounts receivable will become uncollectible.
What amount should be recognized as doubtful accounts expense for the current year?
a) 110,000
b) 150,000
c) 190,000
d) 600,000
Problem 19-8
At the beginning of current year, Jasmin Company had a credit balance of P260,000 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 P325,000 of uncollectible accounts. Credit sales for
the year totaled P9,000,000
What amount should be reported as uncollectible account expense for the year?
a) 325,000
b) 180,000
c) 440,000
d) 65,0000
What amount should be reported as allowance for uncollectible accounts at year-end?

a) 115,000
b) 180,000
c) 245,000
d) 440,000
Problem 19-9
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 5% of net sales.
What amount should be reported as doubtful account expense?

a) 435,000
b) 425,000
c) 475,000
d) 415,000
What amount should be reported as allowance for doubtful accounts on December 31?
a) 415,000
b) 425,000
c) 405,000
d) 605,000
Problem 19-10
Effective with the current year, Hall Company adopted a new accounting method for estimating
the allowance for doubtful accounts at the amount indicated by the year-end aging of accounts
receivable.
Allowance for doubtful accounts, January 1 250,000
Provision for doubtful accounts during the current year at 2% of 200,000

credit sales of P10,000,000
Estimated uncollectible accounts per aging on December 31 220,000
What amount should be reported as doubtful accounts expense for current year?
a) 220,000
b) 205,000
c) 200,000
d) 175,000
Chapter 20: Estimation of Doubtful Accounts

(Comprehensive Problems)
Problem 20-1
From inception of operations, Axis Company carried no allowance for doubtful accounts.
Uncollectible receivables were expensed as written off and recoveries were credited to income
as collected.
During the current year, management recognized that the accounting policy with respect
to doubtful accounts was not correct, and determined that an allowance for doubtful
accounts was necessary.
A policy was established to maintain an allowance for doubtful accounts based on historical bad
debt loss percentage applied to year-end accounts receivable.
The historical bad debt loss percentage is to be recomputed each year based on all available
past years up to a maximum of five years.
Year Credit Sales Written offs Recoveries
2016 1,500,000 15,000 -0-
2017 2,250,000 38,000 2,700
2018 2,950,000 52,000 2,500
2019 3,300,000 63,000 4,800
2020 4,000,000 83,000 5,000
The entity reported accounts receivables of P1,250,000 on December 31, 2019 and 200,000 on
December 31, 2020.
What is the allowance for doubtful accounts on December 31, 2019?

a) 20,000
b) 21,250
c) 22,500
d) 25,000

a) 32,000
b) 34,000
c) 36,000
d) 40,000
What amount should be reported as doubtful accounts expense for 2020?

a) 97,000
b) 78,000
c) 83,000
d) 92,000
Problem 20-2
Horus Company provided for doubtful accounts expense monthly at 3% of credit sales. The
balance in the allowance for doubtful accounts was P1,000,000 on January 1, 2019.
During 2019, credit sales totaled P20,000,000, interim provisions for doubtful accounts were
made at 3% of credit sales, P200,000 accounts were written off, and recoveries of accounts
previously written off amounted to P50,000.
An aging of accounts receivable was made on December 31, 2019.
1 – 60 days 6,000,000 10% uncollectible
More than one year 500,000 50% uncollectible
10,000,000
Based on the review of the “more than one year” category, additional accounts of P100,000 are
to be written off on December 31, 2019.
What amount should be reported for doubtful accounts expense for the current year?
a) 2,250,000
b) 1,650,000
c) 900,000
d) 850,000
What is the year-end adjustment to the allowance for doubtful accounts on December 31, 2019?
a) 900,000 debit
b) 900,000 credit
c) 300,000 debit
d) 300,000 credit
What is the carrying amount of accounts receivable on December 31, 2019?

a) 9,900,000
b) 8,250,000
c) 7,650,000
d) 8,450,000
Problem 20-3
Flappable Company began operations on January 1, 2016. The entity provided for doubtful
accounts based on 5% of annual credit sales in prior years. On January 1, 2019,the entity
changed the method of determining the allowance for doubtful accounts using an aging
schedule.
2019 2018 2017 2016
Credit sales 15,000,000 9,500,000 8,000,000 6,000,000
Collections excluding recovery 11,700,000 8,200,000 6,700,000 4,500,000
Accounts written off during year 200,000 120,000 80,000 None

Recovery of accounts written off 100,000 40,000 35,000 None
Days Account Outstanding Amount Probability of Collection
30 days or less 3,000,000 95%
Between 31 and 60 days 1,500,000 80%
Between 61 and 180 days 1,200,000 75%
Between 181 and one year 1,200,000 50%
Over one year – to be written off 100,000 0%
What amount should be reported as allowance for doubtful accounts on December 31, 2019?
a) 1.350,000
b) 1,450,000
c) 1,250,000
d) 1,000,000
What amount should be reported for doubtful accounts expense for 2019?
a) 500,000
b) 600,000
c) 700,000
d) 400,000
What is the net realizable value of accounts receivable on December 31, 2019?
a) 6,900,000
b) 7,000,000
c) 5,550,000
d) 5,650,000
Problem 20-4
Sigma Company began operations on January 1, 2019. On December 31, 2019, the entity
provided for doubtful accounts based on 1% of annual credit sales.
On January 1, 2020, the entity changed the method of determining the allowance for doubtful
accounts by aging of accounts receivable.
Days past invoice date Percent of uncollectible
0 – 30 1
31 – 90 5
91 – 180 20
Over 180 80
In addition, the entity wrote off all accounts receivable that were over 1 year old.
The entity provided the following additional information:

2019 2018
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

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

a) 30,000
b) 39,000
c) 29,150
d) 27,000
What amount should be reported as doubtful account expense for 2020?

a) 39,000
b) 31,000
c) 38,000
d) 11,000
Problem 20-5
On January 1, 2019, Easy Company reported accounts receivable 2,000,000 and allowance for
doubtful accounts P100,000. The entity provided the following data:
Credit sales Write-offs Recoveries
2016 11,100,000 260,000 22,000
2017 12,250,000 295,000 37,000
2018 14,650,000 300,000 36,000
2019 15,000,000 200,000 50,000
The collections from customers during 2018 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.
What amount should be reported for doubtful accounts expense for December 31, 2019?
a) 200,000
b) 300,000
c) 400,000
d) 250,000
What amount should be reported as allowance for doubtful accounts on December 31,
2019?
a) 250,000
b) 400,000
c) 300,000
d) 450,000
a) 2,550,000
b) 2,600,000
c) 2,750,000
d) 2,800,000
Problem 20-6
Sky Company provided the following information at year-end:
2020 2019
Accounts receivable 880,000 800,000
Allowance for doubtful accounts (10,000) (15,000)

Allowance for sales return (20,000) (25,000)
Net realizable value 850,000 760,000
The entity reported doubtful accounts expense in 2020 of P30,000 and had products returned
for credits totaling P15,000 at sales price. Gross sales for 2020 amounted to P6,150,000.
What amount of accounts receivable was written during 2020?

a) 35,000
b) 30,000
c) 15,000
d) 10,000
What amount was collected from customer during 2020?

a) 6,035,000
b) 6,070,000
c) 6,020,000
d) 6,100,000
What amount was recorded as estimated sales returns during 2020?

a) 10,0000
b) 15,000
c) 20,000
d) 5,000
What amount was reported as net sales for 2020?

a) 6,150,000
b) 6,140,000
c) 6,100,000
d) 6,135,000
Chapter 21: Assignment Factoring

Problem 21-1
Moon Company assigned 3,000,000 of accounts receivables as collateral for a 2,000,000 loan
with a bank. The bank assessed a 4% finance fee and charged 6% interest on the note maturity.
What would be the journal entry to record the transactions?

a) Debit cash 1,920,000, debit finance charge 80,000, and credit note payable
2,000,000.
b) Debit cash 1,920,000, debit finance charge 80,000, and credit accounts receivable
2,000,000.
c) Debit cash 1,920,000, debit finance charge 80,000, debit due from bank 1,000,000, and
credit accounts receivable 3,000,000
d) Debit cash 1,880,000, debit finance charge 120,000, and credit credit note payable
2,000,000.
Problem 21-2
On December 1, 2019, Bamboo Company assigned specific accounts receivable
totalingP4,000,000 as collateral on a P3,000,000, 12% note from a certain bank.
The entity will continue to collect the assigned accounts receivable.
In addition to the interest on the note, the bank also charged a 5% finance fee deducted in
advance on the P3,000,000 value of the note.
The December collections of assigned accounts receivable amounted to P2,000,000 less cash
discounts of P100,000. On December 31, 2021, the entity remitted the collections to the bank
in payment for the interest accrued on December 31 and the note payable.
The entity accepted sales returns of P150,000 on the assigned accounts and
wrote of assigned accounts of P200,000.
What amount of cash was received from the assignment of accounts receivable on December 1,
2019?
a) 4,000,000
b) 3,000,000
c) 3,800,000
d) 2,850,000
What is the carrying amount of note payable on December 31, 2019?

a) 1,000,000
b) 1,100,000
c) 1,130,000
d) 1,460,000
What is the balance of accounts receivable- assigned on December 31,2019?

a) 2,100,000
b) 2,000,000
c) 1,650,000
d) 1,850,000
Problem 21-3
Zeus Company factored P6,000,000 of accounts receivable to a finance entity at the end of the
current year. Control was surrendered by Zeus Company.
The factored assessed a fee of 3% and retained a holdback equal to 5% of the accounts
receivable.
In addition, the factor charged 15% interest computed on weighted average time to maturity of
the accounts receivable of 54 days.
What is the amount of cash initially received from the factoring?

a) 5,296,850
b) 5,386,850
c) 5,476,850
d) 5,556,850
If all accounts are collected, what is the cost of factoring the accounts receivable?
a) 313,150
b) 180,000
c) 433,150
d) 613,150
Problem 21-4
Cynthia Company factored P750,000 of accounts receivable at year-end. Control was
surrendered. The factor accepted the accounts receivable subject to recourse for nonpayment.
The factor assessed a fee of 2% and retained a holdback equal to 4% of the accounts
receivable.
In addition, the factor charged 12% interest computed on a weighted-average time to maturity of
51 days. The fair value of the recourse obligation is P20,000.
What is the amount of cash initially received from the factoring?

a) 692,425
b) 720,000
c) 722,425
d) 705,000
What total amount should be recognized initially as loss on factoring the account receivable?
a) 12,575
b) 15,000
c) 27,575
d) 45,475
Problem 21-5
Camia Company sold accounts receivable without recourse for 5,300,000. The entity received
5,000,000 cash immediately from the factor.
The remaining 300,000 will be received once the factor verifies that none of the accounts
receivable is in dispute.
The accounts receivable had a face amount of 6,000,000. The entity had previously established
an allowance for bad debts of 250,000 in connection with such accounts.
What amount of loss on factoring should be recognized?

a) 700,000
b) 450,000
c) 750,000
d) 300,000
Problem 21-6
Mazda Company sold 5,800,000 in accounts receivable for cash of 5,000,000. The factor
withheld 10% of the cash proceeds to allow for possible customer returns and other
adjustments.
An allowance for bad debts of 600,00 had previously been established by the entity in relation to
these accounts.
What amount of loss on factoring should be recognized?

a) 200,000
b) 700,000
c) 500,000
d) 800,000
Problem 21-7
Crater Company factored without recourse 2,000,000 of accounts receivable with a bank.
The finance charge is 3% and 5% was retained to cover sales discounts, sales returns, and
sales allowances.
What amount of cash was received on the sale of accounts receivable?

a) 1,940,000
b) 1,900,000
c) 1,840,000
d) 2,000,000
What amount should be recognized as loss on factoring?

a) 100,000
b) 160,000
c) 60,000
d) 0
Problem 21-8
Daisy Company sold accounts receivable without recourse with face amount of 6,000,000.
The factor charged 15% commission on all accounts receivable factored and withheld 10% of
the accounts factored as protection against customer returns and other adjustments.
The entity had previously established an allowance for doubtful accounts of 200,000 for these
accounts.
By year-end, the entity had collected the factor’s holdback there being no customer returns and
other adjustments.
What amount of cash was initially received from factoring?

a) 4,500,000
b) 5,400,000
c) 5,100,000
d) 6,000,000
What is the loss on factoring?

a) 700,000
b) 900,000
c) 200,000
d) 0
Problem 21-9
Freeway Company provides financing to other 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 totaling
P3,000,000.
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.
What is the amount of cash initially received by Motorway Company from Freeway Company?
a) 2,250,000
b) 3,000,000
c) 2,550,000
d) 2,700,000
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 21-10
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 1,2019, the entity sold P1,500,000 of accounts receivable for cash proceeds of
P1,400,000. No bad debt allowance was associated with these accounts.
On December 15,2019, 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 the 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 on December 31,2019:

Accounts receivable excluding factored and assigned 1,000,000
accounts,
Accounts receivable - assigned 5,000,000
Accounts receivable - factored 1,500,000
Allowance for bad debts before adjustment 100,000
What total amount was received from the financing of accounts receivable?
a) 3,900,000
b) 3,850,000
c) 3,950,000
d) 4,000,000
a) 4,500,000
b) 5,400,000
c) 6,000,000
d) 5,000,000
What amount should be recognized as doubtful accounts expense for 2019?

a) 600,000
b) 500,000
c) 650,000
d) 0
Chapter 22: Discounting of Note receivable

Problem 22-1
Roth Company received from a customer a one year, P500,000 note bearing annual interest of
8%.
After holding the note for six months, the entity discounted the without recourse at 10%.
What amount of cash was received from the bank?

a) 540,000
b) 523,810
c) 513,000
d) 495,238
Problem 22-2
On July 1, 2019, Lee Company sold goods in exchange for a 2,000,000, 8-month,
noninterest-bearing note receivable.
At the time of the sale, the note's market rate of interest was 12%. The entity discounted the
note at 10% on September 1, 2019.
What is the cash received from discounting?

a) 1,940,000
b) 1,938,000
c) 1,900,000
d) 1,880,000
What is the loss on note receivable discounting?

a) 100,000
b) 75,000
c) 25,000
d) 0
Problem 22-3
Apex Company accepted from a customer P 1,000,000 face amount, 6-month, 8% note dated
April 1, 2019.
On the same date Apex discounted the note without recourse at Union Bank at a 10% discount
rate.
What amount of cash was received from the discounting?

a) 900,000
b) 990,000
c) 988,000
d) 972,000

a) 50,000
b) 40,000
c) 52,000
d) 12,000
Problem 22-4
On June 30, 2019, Ray Company discounted at the bank a customer's P6,000,000, 6-month,
10% note receivable dated April 30, 2019.
The bank discounted the note at 12% without recourse.
What is the amount received from the note receivable discounting?

a) 5,640,000
b) 5,760,000
c) 6,048,000
d) 6,174,000

a) 252,000
b) 152,000
c) 52,000
d) 48,000
Problem 22-5
On July 1,2019, Kay Company sold equipment to Mando Company for Pl,000,000. Kay
accepted a 10% note receivable for the entire sales price.
This note is payable in two equal installments of P500,000 plus accrued interest on December
31,2019 and December 31, 2020.
On July 1, 2019, the entity discounted the note at a bank at an interest rate of 12%.
What is the amount received from the discounting of note receivable?

a) 484,000
b) 493,500
c) 503,500
d) 517,000
Problem 22-6
Rand Company accepted from a customer a P4,000,000,' 90-day, 12% interest-bearing note
dated August 31, 20 I 9.
On September 30, 2019, the entity discounted the note with recourse at the Apex State Bank at
15%.
However, the proceeds were not received until October 1, 20 19. The discounting with recourse
is accounted for as a conditional sale with recognition of a contingent liability.
What is the amount received from the discounting of note receivable?

a) 4,017,000
b) 4,120,000
c) 4,103,000
d) 3,965,500

a) 40,000
b) 23,000
c) 17,000
d) 20,000
Problem 22-7
On August 31, 2019, Sunflower Company discounted with recourse a customer's note at the
bank at discount rate of 15%. The note was received from the customer on August I, 2019, is for
90 days, has a face value of P5,000,000, and carries an interest rate of 12%.
The discounting transaction is accounted for as secured borrowing.
The customer paid the note to the bank on October 30, 2019, the date of maturity.
What amount should recognized as interest expense on August 31, 2019?

a) 50,000
b) 21,250
c) 28,750
d) 25,000
Problem 22-8
On April 1, 2019, Shalimar Company discounted with recourse a 9-month, 10% note dated
January 1, 2019 with face of 6,000,000. The bank discount rate is 12%. The discounting
transaction is accounted for a conditional sale with recognition of contingent liability.
On October 1, 2019, the maker dishonored the note receivable. The entity paid the bank the
maturity value of the note plus protest fee of P50,000.
On December 31, 2019, the entity collected the dishonored note receivable in full plus 12%
annual interest on the total amount due.
What amount was received from the note discounting on April 1, 2019?
a) 6,063,000
b) 6,450,000
c) 6,150,000
d) 5,963,000
What amount should be recognized as loss on note discounting?

a) 450,000
b) 387,000
c) 87,000
d) 63,000
What is the total amount collected from the customer on December 31, 2019?
a) 6,450,0000
b) 6,500,000
c) 6,696,000
d) 6,662,500
If the discounting is a secured borrowing, what is included in the journal entry to record the
transactions?
a) Debit loss on discounting, 87,000
b) Debit interest expense, 87,000
c) Credit liability for note discounted 6,063,000
d) Credit interest income , 63,000
Problem 22-9
On November 1, 2018, Davis Company discounted with recourse at 10% a one-year,
noninterest bearing, P4,000,000 note receivable maturing on January 31, 2020. The discounting
of the note receivable is accounted for as a conditional sale with recognition of a continge~t
liability.
What amount of contingent liability for this note must be disclosed in its financial statements for
the year ended December 31, 2019?
a) 4,000,000
b) 3,600,000
c) 4,400,000
d) 0
Problem 22-10
On August I, 2019, Vann Company's P5,0000,000 one-year interest-bearing note due July 31,
2020, was discounted at Ho ' non. Bank at 10.8%. Vann uses the straight line method of
amortizing discount.
What amount was received from the discounting on August 1, 2019?

a) 5,000,000
b) 4,460,000
c) 4,730,000
d) 4,775,000
What is the carrying amount of the note payable on December 31, 2019?
a) 5,000,000
b) 4,775,000
c) 4,685,000
d) 4,460,000
Chapter 23: Note Receivable

Problem 23-1
On June 1, 2006, Yola Corporation loaned Dale P500,000 on a 12% note, payable in five annual
installments of P100,000 beginning January 2, 2007.
In connection with this loan, Dale was required to deposit P5,000 in a non-interest bearing
escrow account.
The amount held in escrow is to be returned to Dale after all principal and interest payments
have been made.
Interest on the note is payable on the first day of each month beginning July 1, 2006. Dale
made timely payments through November 1, 2006.
On January 2, 2007, Yola received payment of the first principal installment plus all interest due.
On December 31, 2006, Yola’s interest receivable on the loan to Dale should be reported as
accrued interest receivable?
a) 0
b) 5,000
c) 10,000
d) 15,000
Problem 23-2
Frame Company has an 8% note receivable dated June 30, 2019, in the original amount of
P1,500,000.
Payments of P500,000 in principal plus accrued interest are due annually on July 1, 2020, 2021
and 2022.
What is the balance of note receivable on July 1, 2020?

a) 1,500,000
b) 1,000,000
c) 500,000
d) 0
On June 30, 2021,what amount should Frame report as a current asset for interest on the note
receivable?
a) 120,000
b) 40,000
c) 80,000
d) 0
Problem 23-3
Nova Company reported the following receivables on December 31, 2020:
Accounts receivable, net of P500,000 allowance for 4,600,000
doubtful accounts
Interest receivable 190,000
Notes receivable 4,000,000

● The notes receivable comprised:
P1,000,000 note dated October 31, 2020, with principal and interest payable on October
31, 2021.
P3,000,000 note dated March 31, 2020, with principal and 8% interest payable on March
31, 2021
● During 2021, sales revenue totaled P21,000,000, P18,000,000 cash was collected from
customers, and accounts receivable of P600,000 were written off. All sales were made
on a credit basis.
● Doubtful accounts expense was recorded at year-end by adjusting the allowance
account to an amount equal to 10% of year-end accounts receivable.
What amount should be reported as interest income for 2020?

a) 110,000
b) 240,000
c) 60,000
d) 80,000
What amount should be reported as doubtful accounts expense for 2020?

a) 750,000
b) 850,000
c) 600,000
d) 100,000
Problem 23-4
At year end, Jet Company received two P1,000,000 notes receivables from customers in
exchange for services rendered.
On both notes, interest is calculated on the outstanding principal balance at the annual rate of
3% and payable at maturity.
The note from Hart Company, made under customary trade terms, is due in nine months and
the note from Maxx Company is due in five years.
The market interest rate for similar notes at year end was 8%. The compound interest factors to
convert future value into present value at 8% follow:
Present value of 1 due in nine months .944

Present value of 1 due in five years .680 12.
What is the total amount of notes receivable at year end?

a) 1,624,000
b) 1,747,200
c) 1,680,000
d) 1,782,000
Problem 23-5
On January 1, 2019 Ott Company sold goods to Fox Company. Fox signed a
noninterest-bearing note requiring payment of P600,000 annually for seven years. The first
payment was made on January 1, 2019.
The prevailing rate of interest for this type of note at date of issuance was 10%. Information on
present value factors is as follows:
PV of ordinary annuity of 1 at 10% for 6 periods 4.36

PV of ordinary annuity of 1 at 10% for 7 periods 4.87
What amount should be recorded as sales revenue in January 2019?

a) 3,216,000
b) 2,922,000
c) 2,616,000
d) 2,142,000
What is the carrying amount of the note receivable on January 1,2019?

a) 3,600,000
b) 2,616,000
c) 3,000,000
d) 2,322,000
What is the interest income for 2019?

a) 300,000
b) 232,200
c) 261,600
d) 360,000
What is the carrying amount of the note receivable on December 31,2019?

a) 3,600,000
b) 3,000,000
c) 2,777,600
d) 2,877,600
Problem 23-6
On December 31, 2020, Park Company sold used equipment and received noninterest bearing
note requiring payment of P2,000,000 in exchange for noninterest bearing note of P5,000,000
requiring ten annual payments of P500,000. The first payment was made on December 31,
2020.
The market interest for similar notes was 12%. The present value of an ordinary annuity of 1 at
12% is 5.65 for ten periods and 5.33 for nine periods

a) 5,000,000
b) 2,825,000
c) 2,665,000
d) 4,500,000
What is the gain on sale of equipment to be recognized in 2019?

a) 3,000,000
b) 2,175,000
c) 825,000
d) 0
What amount should be recognized as interest income for 2020?

a) 600,000
b) 339,000
c) 319,800
d) 300,000

a) 2,664,000
b) 4,500,000
c) 2,825,000
d) 2,325,000
Problem 23-7
On December 31, 2020, Chang Company sold a machine in the ordinary course of business to
Door Company in exchange for a noninterest bearing note requiring ten annual payments of
Pl,000,000.
The entity made the first payment on December 31, 2020. The market interest rate for similar
notes at date of issuance was 8%.
PV of an ordinary annuity of 1 at 8% for 9 periods 6.25

PV of an ordinary annuity of 1 at 8% for 10 periods 6.71
What is the amount of sales revenue?

a) 7,250,000
b) 5,000,000
c) 6,250,000
d) 8,000,000
On December 31, 2019, what is the carrying amount of the note receivable?
a) 4,500,000
b) 4,600,000
c) 6,250,000
d) 6,710,000

a) 580,000
b) 720,000
c) 500,000
d) 625,000

a) 8,000,000
b) 6,720,000
c) 5,250,000
d) 5,750,000
Problem 23-8
On January 1, 2019, Emma company sold equipment with a carrying amount of P4,800,000 in
exchange for a P6,000,000 noninterest bearing note due on January 1, 2022. There was no
established exchange price for the equipment.
The prevailing rate of interest of this type on January 1, 2019, was 10%. The present value of 1
at 10% for three periods is 0.75.
What should be recorded as interest income for 2019?

a) 90,000
b) 450,000
c) 500,000
d) 600,000
What amount should be reported as gain or loss on sale of equipment?

a) 300,000 loss
b) 300,000 gain
c) 1,200,000 gain
d) 2,700,000 gain
Problem 23-9
On January 1, 2019, Mil Company sold a building and received as consideration P1,000,000
cash and a P4,000,000 noninterest bearing note due on January 1, 2022.
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 on January 1, 2020 was 10%. The present
value of 1 at 10% for three periods is 0.75.
What amount of interest revenue should be included in 2020 income statement?

a) 370,000
b) 400,000
c) 300,000
d) 330,000
Problem 23-10
At the beginning of the current year, Jean Company purchased from Carmina Company a
P2,000,00,8% five year note that required five year annual year-end payments of P500,900.
The note was discounted to yield a 9% rate to Jean Company.
At the date of purchase, Jean Companycorded the note at the present value of P1,948,500.
What is the total interest revenue earned by Jean Company over the life of this note?
a) 504,500
b) 556,000
c) 800,000
d) 900,000
What is the total interest revenue earned by Jean Company over the life of this note?
a) 175,365
b) 160,000
c) 111,200
d) 180,000
Chapter 24: Loan Receivable

Problem 24-1
Appari Bank granted a loan to a borrower on January 1, 2019. The interest rate on the loan is
10% payable annually starting December 31, 2019. The loan matures in five years on
December 31, 2023.
Principal amount 4,000,000
Original 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%.
What is the carrying amount of the loan receivable on January 1, 2019?

a) 4,000,000
b) 4,650,000
c) 4,411,500
d) 3,711,500
a) 400,000
b) 558,000
c) 529,380
d) 445,380
What is the carrying amount of the loan receivable on December 31, 2019?
a) 4,000,000
b) 3,756,880
c) 4,243,120
d) 3,600,000
Problem 24-2
National Bank granted a loan to a borrower on January 1,2019. The interest on loan is 10%
payable annually starting December 31,2019. The loan matures in three years on December 31,
2021.

After considering the origination fee charged against the borrower and the direct origination cost
incurred, the effective rate on the loan is 12%.
What is the Carrying amount of the loan receivable on January 1, 2019?

a) 4,000,000
b) 3,807,900
c) 4,150,000
d) 3,657,900
What amount should be the interest income for 2019?

a) 400,000
b) 380,900
c) 456,948
d) 480,000
What is the Carrying amount of the loan receivable on December 31, 2019?
a) 4,000,000
b) 3,807,900
c) 3,864,848
d) 3,750,932

a) 480,000
b) 400,000
c) 386,485
d) 463,792
Problem 24-3
Philippine Bank granted a loan to a borrower on January 1, 2019. The interest on the loan is 8%
payable annually starting December 31,2019. The loan matures in three years on December 31,
2021.

After considering the origination fee charged against the borrower and the direct origination cost
incurred, the effective rate on the loan is 6%.
What is the Carrying amount of the loan receivable on January 1, 2019?

a) 3,160,300
b) 3,260,300
c) 2,900,000
d) 3,000,000

a) 240,000
b) 189,618
c) 252,824
d) 180,000
What is the Carrying amount of the loan receivable on December 31, 2019?
a) 3,000,000
b) 3,160,300
c) 3,109,918
d) 3,210,682

a) 240,000
b) 180,000
c) 248,793
d) 186,595
Problem 24-4
On December 1, 200A, Nicole Company gave Dawn Company a P2,000,000, 12% loan.
Nicole Company paid proceeds of P1,940,000 after deduction of a P60,000 nonrefundable loan
origination fee.
Principal and interest are due in sixty monthly installments of P44,500, beginning January 1,
2020.
The repayments yield an effective interest rate of 12% at a present value of P2,000,000 and
13.4% at a present value of P1,940,000
What amount of interest income should be reported in 2019?

a) 22,333
b) 19,400
c) 21,663
d) 20,000
What amount should be recorded as accrued interest receivable on December 31, 2019?
a) 44,500
b) 60,000
c) 20,000
d) 0
Problem 24-5
National Bank granted a 10-year loan to Abbo Company in the amount of P1,500,000 with a
stated interest rate of 6%. Payments are due monthly and are computed to beP16,650.
National Bank incurred P40,000 of direct loan origination cost and P20,000 of indirect loan
origination cost. In addition,
National bank charged Abbo Company a 4-point non-refundable loan origination fee
What is the initial carrying amount of the loan receivable on the part of National Bank?
a) 1,440,000
b) 1,480,000
c) 1,500,000
d) 1,520,000
What is the initial carrying amount of the loan payable on the part of Abbo company?
a) 1,440,000
b) 1,480,000
c) 1,500,000
d) 1,520,000
Chapter 25: Impairment of loan
Problem 25-1
Beach Bank loaned Boracay Company P7,500,000 on January 1, 20017. The terms of the loan
were payment in full on January 1, 2021 plus annual interest payment at 11%.The interest
payment was made as scheduled on January 1, 2018. However, due to financial setbacks,
Boracay Company was unable to make the 2019 interest payment.
Beach Bank considered the loan impaired and projected the cash flows from the loan on
December 31, 2019. The bank accrued the interest on December 31, 2018, but did not
continue to accrue interest for 2019 due to the impairment of the loan. The projected cash flows
are:
Date of cash flow Amount projected on
December 31, 2019
December 31, 2020 500,000
December 31, 2021 1,000,000
December 31, 2022 2,000,000
December 31, 2023 4,000,000

The PV of 1 at 11% is 0.90 for one period, 0.81 for two periods, 0.73 for three periods, and 0.66
for four periods.
What is the loan impairment loss for 2019?

a) 2,965,000
b) 2,240,000
c) 5,360,000
d) 2,140,000

a) 589,600
b) 534,600
c) 825,000
d) 599,456
What is the carrying amount of loan receivable on December 31, 2020?

a) 7,000,000
b) 5,449,600
c) 4,860,000
d) 5,949,600
Problem 25-2
Kalibo Bank loaned P5,000,000 to Caticlan Company on January 1, 2017. The terms of the loan
require principal payments of P1,000,000 each year for 5 years plus interest at 8%.
The first principal and interest payment is due on January 1, 2018. Caticlan Company made the
required payments during 2018 and 2019.
However, during 2019 Caticlan Company began to experience financial difficulties, requiring
Kalibo Bank to reassess the collectability of the loan.
On December 31, 2019, Kalibo Bank has determined that the remaining principal payment will
be collected but the collection of the interest is unlikely. Kalibo Bank did not accrue the
interest on December 31, 2019.
The present value of 1 at 8% is as follows:

For one period 0.93
For two periods 0.86
For three periods 0.79

a) 410,000
b) 210,000
c) 220,000
d) 0
What is the interest income to be reported in 2020?

a) 207,200
b) 143,200
c) 240,000
d) 0
a) 2,000,000
b) 1,933,200
c) 1,590,000
d) 1,790,000
Problem 25-3
On January 1, 2019, 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 2019, the first year’s interest of P80,000 has not yet been received because the
borrower is experiencing financial difficulties. The borrower negotiated a restructuring of theloan.
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 2019 in
connection with the loan.
What is the loan impairment loss on December 31, 2019?

a) 338,500
b) 238,500
c) 388,000
d) 288,000

a) 80,000
b) 52,920
c) 48,960
d) 0
Problem 25-4
On December 31, 2019, Macedon Bank has a 5-year loan receivable with a face value of
P5,000,000 dated January 1, 2018 that is due on December 31, 2022. Interest on the loan is
payable at 9% every December 31.
The borrower paid the interest that was due on December 31, 2018 but informed the bank that
interest accrued in 2019 will be paid at maturity date.
There Is a high probability that the remaining interest payments will not be paid because of
financial difficulty.
The prevailing market rate of interest on December 31, 2019 is 10%. The PV of 1 for three
periods is .77 at 9% and .75 at 10%.
What is the loan impairment loss on December 31, 2019?

a) 1,253,500
b) 1,362,500
c) 1,250,000
d) 1,150,000
Problem 25-5
On December 31, 2019, Solid Bank has a loan receivable of P4,000,000 from a borrower that it
is carrying at face value and is due on December 31, 2024. Interest on the loan is payable at
9% each December 31, 2019.
The borrower paid the interest due on December 31, 2019 but informed the bank that it would
probably miss the next two year’s interest payments.
After that, the borrower is expected to resume its 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 .77 for three periods, .71 for four periods, .65 for five periods, and .60 for
six periods.

a) 617,200
b) 720,000
c) 360,000
d) 977,200
Problem 25-6
On December 31, 2019, Oregon Bank recorded an investment of P5,000,000 in a loan granted
to a client. The loan has a 10% effective interest rate payable annually every December 31. The
principal is due in full at maturity on December 31, 2022.
Unfortunately, the borrower is experiencing significant financial difficulty and will have a difficult
time in making full payment.
The bank projected that the entire principal will be paid at maturity and 4% interest of P200,000
will be paid annually on December 31 of the next three years. There is no accrued interest on
December 31, 2019.
The PV of 1 at 10% for three periods is 0.75, and the PV of an ordinary annuity of 1 at 10% for
three periods is 2.49.

a) 752,000
b) 600,000
c) 250,000
d) 748,000

a) 200,000
b) 424,800
c) 224,800
d) 500,000
a) 5,000,000
b) 3,750,000
c) 4,472,800
d) 4,672,800
Problem 25-7
On December 31, 2013, London Bank granted a P5,000,000 loan to a borrower with 10%
stated rate payable annually and maturing in five years.
The loan was discounted at the market interest rate of 12%. Unfortunately, the financial
condition of the borrower worsened because of lower revenue.
On December 31, 2021, the bank determined that the borrower would pay back only
P3,000,000 of the principal at maturity.
However, it was considered likely that the interest would continue to be paid on the
P5,000,000 loan.
The PV of 1 at 12% is .57 for five periods and .71 for three periods. The PV of an ordinary
annuity of 1 at 12% is 3.60 for five periods and 2.40 for three periods.
What is the amount of cash paid to the borrower on December 31, 2019?
a) 4,400,000
b) 4,500,000
c) 5,000,000
d) 4,650,000
a) 4,650,000
b) 4,790,000
c) 4,772,960
d) 4,720,000
What is the impairment loss for 2021?

a) 2,000,000
b) 1,442,960
c) 1,922,960
d) 1,670,000
Problem 25-8
Diane Company sold loans with a P2,200 fair value and a carrying amount of 2,000.
The entity obtained an option 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 (120)
What is the gain (loss) on the sale?

a) 320
b) 200
c) (100)
d) 120
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
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 25-9
On January 1, 2019, Global Bank loaned P3,000,000 to a borrower.The contract specified that
the loan had a 6 year term and a 9%interest rate.
Interest is payable annually every December 31 and the principal amount will be collected on
December 31, 2024. Interest is collected for 2019.
On December 31, 2019, the bank determined that the loan has a12-month probability of default
of 2% and expected to collect only 90% of the loan.
On December 31, 2020, the bank determined that there is a significant increase in the credit risk
of the loan but no objective evidence of impairment.
Based on the relevant information, the bank concluded that there is a 30% probability of default
over the remaining term of the loan and it is expected that only 60% of the loan will be
collected.Interest is collected for 2020.
On December 31, 2021, the borrower was under financial difficulty and the loan was considered
impaired because there is now objective evidence of impairment.
The bank agreed that only 40% of the principal will be collected on due date. Interest is
collected for 2021.
The present value of 1 at 9% is 0.65 for 5 periods, 0.71 for four periods and 0.77 for three
periods.
The entity decided to apply the three-stage approach of determining the impairment of loan.
What amount should be recognized as impairment loss for 2019?

a) 1,755,000
b) 1,245,000
c) 124,500
d) 300,000

a) 270,000
b) 267,759
c) 223,506
d) 0

a) 1,722,000
b) 1,200,000
c) 392,100
d) 516,600

a) 2,076,000
b) 1,559,400
c) 1,800,000
d) 0

a) 270,000
b) 102,196
c) 90,644
d) 83,160
Chapter 26: Inventory
Problem 26-1
Aman Company provided the following data:
Items counted in the bodega 4,000,000
Items included in the count specifically segregated per sale 100,000

contract
Items in receiving department, returned by customer, in good 50,000

condition
Items ordered and in the receiving department 400,000
Items ordered; invoice received but goods not received. Freight is 300,000
on 300,000 account of seller.
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 26-2
Lunar Company included the following items in inventory:
Materials 1,400,000
Advance for materials ordered 200,000
Goods in process 650,000
Unexpired insurance in inventory 60,000

Advertising catalogs and shipping cartons 150,000
Finished good in factory 2,000,000
Finished good in entity-owned retail store, including 50% profit on 750,000

cost
Finished goods in hands of consignees including 40% profit on 400,000

sales
Finished goods in transit to customers, shipped FOB destination at 250,000

cost
Finished goods in out on approval, at cost 100,000
Unsalable finished goods, at cost 50,000
Office supplies 40,000
Materials in transit, shipped FOB shipping point, 330,000 330,000

excluding freight of P30,000
Goods held on consignment, at sales price, cost P150,000 200,000

a) 5,375,00
b) 5,500,000
c) 5,540,000
d) 5,250,000
Problem 26-3
Ram Company provided the following information the end of current year.
Finished goods in storeroom, at cost, including overhead of 2,000,000

P400,000 0r 20%
finished goods in transit, including freight charge of P20,000, FOB 250,000

shipping point
Finished goods held by salesmen, 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 destinations 50,000
Defective materials returned to suppliers 100,000

Shipping supplies 20,000
Gasoline and oil for testing finished goods 110,000
Machine lubricants 60,000

a) 4,000,000
b) 4,170,000
c) 4,270,000
d) 4,090,000
Problem 26-4
Brilliant Company has incurred the following costs during the current year:
Cost of purchase based on vendors’ invoices 5,000,000
Trade discounts on purchases already deducted from vendors’ 500,000

invoices
Import duties 400,000
Freight and insurance in purchases 1,000,000
Other handling costs relating to imports 100,000
Salaries of accounting department 600,000
Brokerage commission paid to agents for arranging imports 200,000
Sales commission paid to sales agents 300,000
Sales commission paid to sales agents 250,000
What is the cost of purchases?

a) 5,700,000
b) 6,100,000
c) 6,700,000
d) 6,500,000
Problem 26-5
Corolla Company incurred the following cost:
Materials 700,000
Storage costs of finished goods 180,000

Delivery to customers 40,000
Irrecoverable purchase taxes 60,000
At what amount should the inventory be measured?

a) 880,000
b) 760,000
c) 980,000
d) 940,000
Problem 26-6
At year-end, Kerr Company purchased goods costing P500,000 FOB destination. These goods
were received at year-end. The costs incurred in connection with the sale and delivery of the
goods were:
Packaging for shipment 10,000
Shipping 15,000
Special handling charges 25,000
What total cost should be included in inventory?

a) 545,000
b) 535,000
c) 520,000
d) 500,000
Problem 26-7
Stone Company had the following transactions during December:
Inventory shipped on consignment to Beta Company 1,800,000
Freight paid by Stone 90,000
Inventory received on consignment from Alpha 1,200,000

Company
Freight paid by Alpha 50,000
No sales of consigned goods were made in December.
What amount should be included in inventory on December 31?

a) 1,200,000
b) 1,250,000
c) 1,800,000
d) 1,890,000
Problem 26-8
On October 1, 2019, Grimm Company consigned 40 freezers to Holden Company costing
P14,00 each for sale at P20,000 each and paid P16,000 in transportation costs.
On December 30, 2019, Holden Company reported the sale of 10 freezers and remitted
P170,000. The remittance was net of the agreed 15% commissions.
What amount should be recorded as consignment sales revenue for 2019?

a) 154,000
b) 170,000
c) 196,000
d) 200,000
Problem 26-9
On December 1, 2019, Alt Department Store received 505 sweaters on consignment from Todd.
Todd's cost for the sweaters was P800 each, and they were priced to sell at P1,000.
Alt's commission on consigned goods is 10%. On December 31, 2019, 5 sweaters remained.
On December 31, 2019, what amount should be reported as payable for consigned goods?
a) 490,000
b) 454,000
c) 450,000
d) 404,000
Problem 26-10
Clem Company provided the following for the current year:
Central warehouse Held by consignees
Beginning inventory 1,100,000 120,000
Purchases 4,800,000 600,000
Freight in 100,000
Transportation to consignees 50,000
Freight out 300,000 80,000
Ending inventory 1,450,000 200,000

a) 4,550,000
b) 4,850,000
c) 5,070,000
d) 5,120,000
Problem 26-11
Venice Company included the following in inventory at year end:
Merchandise out on consignment at sale price,including 1,500,000
30% markup on sales
Goods purchased in transit, shipped FOB shipping point 1,200,000
Goods held on consignment by Venice 900,000
At what amount should the inventory be reduced?

a) 1,350,000
b) 3,600,000
c) 2,400,000
d) 2,100,000
Problem 26-12
Dean Sportswear regularly buys sweaters from Mill Company and is allowed trade discounts of
20% and 10% from the list price.
Dean made a purchase during the year and received an invoice with a list price of P 600,000, a
freight charge of P 15,000 and payment terms of 2/10, n/30.
What is the cost of the purchase?

a) 432,000
b) 447,000
c) 438,360
d) 435,000
Problem 26-13
On June 1, 2019, Pitt Company sold merchandise with a list price of P 5,000,000 to Burr
account. Pitt allowed trade discounts of 30% and 20%
On June 11, 2019, the customer paid in full.
Credit terms were 2/10, n/30 and the sale was made FOB shipping point. Pitt prepaid P 200,000
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
2. 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 26-14
On August 1, Stella Company recorded purchases of inventory of P 800,000 and P 1,000,000
under credit terms of 2/15, net 30.
The payment due on the P 800,000 purchase was remitted on August 16. The payment due on
the P 1,000,000 purchase was remitted on August 31.
Under the net method and the gross method, these purchases should be included at what
respective amounts in the determination of cost of goods available for sale?
Net Method Gross Method
a) 1,784,000 1,764,000
b) 1,764,000 1,800,000
c) 1,764,000 1,784,000
d) 1,800,000 1,764,000
Problem 26-15
Rabb Company records purchases at gross amount but wishes to change to recording
purchases net of purchase discounts. Discounts available on purchase for the current year
amount toP20,000. Of this amount, P2,000 is still available in the accounts payable balance.
The balances in the accounts at year-end before conversion are;

Purchases 1,000,000
Purchase discount taken 8,000
What amount should be reported as accounts payable at year-end after the conversion?
a) 298,000
b) 292,000
c) 288,000
d) 282,000
Problem 26-16
Wine Company recorded purchases at net amount. On December 10, the entity purchase
merchandise on account, P4,000,000, terms 2/10, n/30. The entity returneP300,000 of the
December 10 purchase and received credit on account. The account had not been paid on
December 31.
At what amount should accounts payable be adjusted on December 31?

a) 74,000
b) 86,000
c) 80,000
d) 0
Chapter 27: Inventory Inclusion

Problem 27-1
Hero Company reported inventory on December 31, 2019 at P6,000,000 based on a physical
count of goods priced at cost and before any necessary year-end adjustments relating to the
following:
● Included in the physical count were goods billed to a customer FOB shipping point on
December 30, 2019. These goods had a cost of P125,000 and were picked up by the
carrier on January 7, 2020.
● Goods shipped FOB shipping point on December 28, 2019, from a vendor to Hero were
received and recorded on January 4, 2020. The invoice cost was P300.000.
What amount should be reported as inventory on December 31, 2019?

a) 5,875,000
b) 6,000,000
c) 6,175,000
d) 6,300,000
Problem 27-2
Madel Company revealed in inventory on December 31, 2019 at P3,250,000 based on a
physical count priced at cost before any necessary adjustment for the following:
● Merchandise costing P300,000 shipped FOB shipping point from a vendor on December
31, 2019 was received on January 5, 2020.
● Merchandise costing P220,000 shipped FOB destination from a vendor on December

28, 2019 was received on January 3, 2020.
● Merchandise costing P380,000 shipped to a customer FOB destination on December 28,
2019 arrived at the customer location on January 6, 2020.
● Merchandise costing P120,000 was being held on consignment by Trisha Company, a

consignee of Madel Company.

a) 3,670,000
b) 3,930,000
c) 4,050,000
d) 3,050,000
Problem 27-3
Colombia Company reported the December 31, 2019 inventory at P2,500,000. The entity
revealed the following transactions.
● Goods shipped to the entity FOB destination on December 26, 2019 were received on
January 2, 2020. The invoice costs of P300,000 is included in the preliminary inventory
balance.
● At year-end the entity held P250,000 of merchandise on consignment from another

entity. This merchandise is included in the preliminary inventory balance.
● On December 29, 2019 merchandise costing P100,000 was shipped to a customer FOB
shipping point and arrived at the customer location on January 3, 2020. The
merchandise is not included in the preliminary inventory balance.
● At year-end the entity had merchandise costing P150,000 out on consignment with the
another entity. The merchandise is not included in the preliminary inventory balance.
What amount of pretax adjustment is required to restate retained earnings on January 1, 2020?
a) 2,100,000
b) 2,200,000
c) 2,400,000
d) 2,500,000
Problem 27-4
Reverend Company conducted a physical count on December 31, 2019 which showed
inventory with a total cost of P5,000,000.
However, further investigation revealed that the following items were excluded from the count.
● Goods sold to a customer which are being held for the customer to call at the
customers convenience with a cost of P200,000.
● A packing case containing a product costing P500,000 standing in the shipping room
was not included in the physical count because it was marked “hold for shipping
instructions”.
● Goods in process costing P300,000 held by an outside processor for further processing.
● A special machine costing P250,000, fabricated to order for a customer, was finished
and specifically segregated at the back part of the shipping room on December 31,
2019.
The customer was billed on that date and the machine was excluded from inventory
although it was shipped on January 2, 2020.

a) 6,000,000
b) 6,250,000
c) 6,050,000
d) 5,800,000
Problem 27-5
Baritone Company counted and reported the ending inventory on December 31, 2019 at
P2,000,000.
None of the following items were included when the total amount of the ending inventory was
computed:
Goods located in the entity's warehouse that are on 150,000

consignment from another entity
Goods sold by the entity and shipped FOB destination were 200,000
in transit on December 31, 2019 and received by the
customer on January 2, 2020
Goods purchased by the entity and shipped FOB seller were 300,000
in transit on December 31, 2019 and received by the entity
on January 2, 2020
Goods sold by the entity and shipped FOB shipping point 400,000
were in transit on December 31, 2019 and received by the

a) 2,500,000
b) 2,350,000
c) 2,900,000
d) 2,750,000
Problem 27-6
Joy Company conducted a physical count on December 31, 2019 which revealed inventory with
a cost of P4,410,000.
The following items were excluded from the physical count:

Merchandise held by Joy on consignment 610,000
Merchandise shipped by Joy FOB destination to a customer 380,000

on December 31, 2019 and was received by the customer on
January 5, 2020
Merchandise shipped by Joy FOB shipping point to a 460,000

customer on December 31, 2019 and was received by the
Merchandise shipped by a vendor FOB destination on 830,000

December 31, 2019 and was received by Joy on January 5,
2020
Merchandise purchased FOB shipping point was shipped by 510,000

the supplier on December 31, 2019 and received by Joy on
January 5, 2020

a) 5,300,000
b) 4,690,000
c) 3,800,000
d) 4,920,000
Problem 27-7
Black Company reported accounts payable on December 31, 2019 at P4,500,00 before any
necessary year-end adjustments relating to the following transactions:
● On December 27, 2019, Black wrote and recorded checks to creditors totaling
P2,000,000 causing an overdraft of P500,000 in Black's bank account on December 31,
2019. The checks were mailed on January 10, 2020.
● On December 28, 2019, Black purchased and received goods for P750,000, terms 2/10,
n/30. Black records purchases and accounts payable at net amount. The invoice was
recorded and paid January 3, 2020.
● Goods shipped F.O.B. destination on December 20, 2019 from a vendor to Black were
received January 2, 2020. The invoice cost was P325,000.
On December 31, 2019, what amount should be reported as accounts payable?

a) 7,575,000
b) 7,250,000
c) 7,235,000
d) 7,553,500
Problem 27-8
Kew Company reported accounts payable on December 31, 2019 at P2,200,000 before
considering the following data:
● Goods shipped to Kew FOB shipping point on December 22, 2019, were lost in transit.
The invoice cost of P40,000 was not recorded by Kew. On January 7, 2020, Kew filed a
P40,000 claim against the common carrier.
● On December 27, 2019, a vendor authorized Kew to return, for full credit, goods shipped
and billed at P70,000 on December 3, 2019. The returned goods were shipped by Kew
on December 28, 2019. A P70,000 credit memo was received and recorded by Kew on
January 5, 2020.
● On December 31, 2019, 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, 2019?

a) 2,170,000
b) 2,680,000
c) 2,730,000
d) 2,670,000
Problem 27-9
Ashwood Company reported accounts payable on December 31, 2019 at P900,000 before any
necessary year-end adjustments relating to the following:
● Goods were in transit from a vendor to Ashwood on December 31, 2019. The invoice
cost was P50,000 and the goods were shipped FOB shipping point on December 29,
2019. The goods were received on January 4, 2020
● Goods shipped FOB shipping point on December 20, 2019 from a vendor to Ashwood
were lost in transit. The invoice cost was P25,000. On January 5, 2020, Ashwwood filed
a P25,000 claim against the common carrier.
● Goods shipped FOB destination on December 21, 2019 from a vendor to Ashwood
were received on January 6, 2020. The invoice cost was P15,000
What amount should be reported as accounts payable on December 31, 2019?

a) 925,000
b) 940,000
c) 950,000
d) 975,000
Problem 27-10
Bakun Company began operation late in 2018. For the first quarter ended March 31, 2019, the
entity provided the following information:
Total merchandise purchased through March 31, 4,900,000
2019 recorded at net
Merchandise inventory on January 1, 2019 at 1,500,000

selling price
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 2019.
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
Chapter 28: Sales Revenue

Problem 28-1
Lewis Company’s usual sales terms are net 60 days, FOB shipping point. Sales, net of returns
and allowances, totaled P9,200,000 for the year ended December 31, 2019, before year-end
adjustments.
• On December 27, 2019, Lewis authorized a customer to return, for full credit, goods shipped
and billed at P200,000 on December 15, 2019. The returned goods were received by Lewis on
January 4, 2020, and a P200,000 credit memo was issued and recorded on the same date.
• Goods with an invoice amount of P300,000 were billed and recorded on January 3, 2020. The
goods were shipped on December 30, 2019.
• Goods with an invoice amount of P400,000 were billed and recorded on December 30, 2019.
The goods were shipped on January 3, 2020.
• On January 5, 2020, a customer notified Lewis that goods billed and shipped on December 21,
2019 were lost in transit. The invoice amount was P500,000.
What amount should be reported as net sales for 2019

a) 9,300,000
b) 9,100,000
c) 8,400,000
d) 8,900,000
Problem 28-2
On December 15, 2019, Bagani Company sold 20,000 units at P250 per unit or a total of
P5,000,000. The entity granted the customers a right to return within 30 days if not satisfied and
will receive either a full refund if cash was already paid or a full credit for the amount owed as
the entity.
It estimated that 6% of the units sold will be returned within the 30-day period. The cost for each
unit is P175. The entity uses the perpetual method.
What amount of sales revenue should be recognized on December 5, 2019?

a. 4,700,000
b. 5,000,000
c. 2,500,000
d. 0
What amount of refund liability should be recorded on December 15, 2019?

a) 510,000
b) 300,000
c) 210,000
d) 0
What amount should be recorded as cost of recover asset on December 15, 2019?
a) 300,000
b) 150,000
c) 210,000
d) 0
What amount of cost of goods sold should be reported on December 15, 2019?
a) 3,500,000
b) 3,290,000
c) 3,200,000
d) 0
Problem 28-3
On December 1, 2019, Marvel Company sold 5,000 units at P500 per unit. The entity granted
the customers a right of return within 45 days if not satisfied. The customers shall receive either
a full refund if cash was already paid or a full credit for the amount owed.
Based on past experience, it is estimated that 5% of the units sold will be returned within the 45-
day period. The cost per unit is P200.
It estimated that 6% of the units sold will be returned within the 30-day period. The cost for each
unit is P175. The entity uses the perpetual method.
What amount should be reported as sales revenue for December?

a) 2,500,000
b) 2,375,000
c) 2,625,000
d) 0
What amount should be recognized as refund liability for the goods sold in December?
a) 125,000
b) 250,000
c) 150,000
d) 0
Problem 28-4
Fenn Company had sales of P5,000,000 during December. Experience had shown that
merchandise equaling 7% of sales will be returned within 20 days and an additional 3% will be
returned within 90 days.
Returned merchandise is readily resalable. In addition, merchandise equaling 15% of sales will
be exchanged for merchandise of equal or greater value.
What amount should be reported for net sales in the income statement for the month of
December?
a) 4,500,000
b) 4,250,000
c) 3,900,000
d) 3,750,000
Problem 28-5
Marie Company, a distributor of machinery, bought a machine from the manufacturer in
November 2019 for P10,000. On December 30, 2019, the entity sold this machine for P15,000
under the following terms: 2% discount if paid within thirty days, 1% discount if paid after thirty
days but within sixty days, or payable in full within ninety days if not paid within the discount
periods.
However, the customer had the right to return this machine if it was unable to resell the machine
before expiration of the ninety-day payment period, in which case customer’s obligation would
be canceled.
In the net sales for the year ended December 31, 2019, what amount should be included for the
sale of this machine?
a) 15,000
b) 14,700
c) 14,850
d) 0
Problem 28-6
On October 1, 2019, Acme Company sold 100,000 gallons of heating oil to Kam Company at
P30 per gallon. Fifty thousand gallons were delivered on December 15, 2019, and the remaining
50,000 gallons were delivered on January 15, 2020.
Payment terms were: 50% due on October 1, 2019, 25% on the first delivery, and the remaining
25% due on the second delivery.
What amount of revenue should be recognized from the sale during 2019?
a) 3,000,000
b) 1,500,000
c) 2,250,000
d) 750,000
Problem 28-7
Charlene Farms produced 50,000 kilos of tobacco during 2019 for a certain customer which has
agreed to purchase the entire production at the prevailing market price. Recent legislation
assures that the market price will not fall below P70 per kilo during the next two years. The costs
of selling and distributing the tobacco are immaterial and can be reasonably estimated. The
entity reported inventory at expected exit value.
During 2019, the entity sold and delivered to the customer 40,000 kilos at the market price of
P70. The entity sold the remaining 10,000 kilos during 2020 at the market price of P72.
What amount of sales revenue should be recognized in 2019?

a) 2,800,000
b) 2,880,000
c) 3,500,000
d) 3,600,000
Problem 28-8
Emco Company had the following transactions in 2019:
● Emco sold goods to a customer for P50,000, FOB shipping point on Dec. 30, 2019.
● Emco sold 3 pieces of equipment on a contract over a three-year period.
The sale price of each piece of equipment is P100,000. Delivery of each piece of
equipment is on Feb. 10 of each year.
In 2019, the customer paid a P200,000 down payment and will pay P50,000 per year in
2020 and 2021. Collectibility is reasonably assured
● On June 1, 2019, Emco signed a contract for P200,00 for goods to be sold on account.
Payment is to be made in two installments of P100,000 each on Dec. 1, 2019 and Dec.
1, 2020. The goods are delivered on Oct. 1, 2019. Collection is reasonably assured and
the goods may not be returned.
● Emco sold goods to a customer on July 1, 2019 for P500,000. If the customer does not
sell the goods to retail customers by Dec. 31, 2020, the goods can be returned to Emco.
The customer sold the goods to retail customers on Oct. 1, 2020.
What amount of sales revenue should be recognized in 2019?

a) 350,000
b) 850,000
c) 450,000
d) 550,000
Problem 28-9
Delicate Company is a wholesale distributor of automotive replacement parts.
The entity provided the following information on December 31, 2019:

Inventory in December 31 bases on physical 1,250,000
count
Sales 9,000,000
A. Parts held on consignment from another entity to Delicate, the consignee, amounting to
P165,000, were included on the physical count on December 31, 2019, and in accounts payable
on December 31, 2019.
B. P20,000 of parts which were purchased and paid for in December 2019, were sold in the last
week of 2019 and appropriately recorded as sales of P28,000. The part was included on the
physical count on December 31, 2019 because the parts were on the loading dock waiting to be
picked up by customers.
C. Parts in transit on December 31, 2019 to customers, shipped FOB shipping point on
December 28, 2019, amounted to 34,000. The customers received the parts on January 6,
2020. Sales of P40,000 to the customers for the parts were recorded by Delicate on January 2,
2020.
D. Retailers were holding P210,000 at cost and 250,000 at retail, of goods on consignment from
Delicate, at their stores on December 31, 2019.
E. Goods were in transit from a vendor to Delicate December 31, 2019. The cost of goods was
P25,000. The goods shipped FOB shipping point on December 29, 2019.

a) 1,300,000
b) 1,320,000
c) 1,334,000
d) 1,090,000
What is the correct amount of accounts payable?

a) 835,000
b) 960,000
c) 975,000
d) 860,000
What is the correct amount of sales?

a) 9,250,000
b) 9,290,000
c) 9,040,000
d) 9,000,000
Problem 28-10 (IFRS)
Roxanne Company has granted share options to the employees. The total compensation
expense to the vesting date of December 31, 2022 has been calculated at P8,000,000.
The entity has decided to settle the award early on December 31,2021.
The compensation expense charged since the date of grant on January, 2019 was P2,000,000
for 2019 and P2,100,000 for 2020.
The compensation expense that would have been charged in 2021 was P2,200,000.
1. What amount should be reported as compensation expense for 2021?
a. 2,200.000
b. 8,000,000
c. 3,900,000
d. 2,000,000
2. What amount should be reported as compensation expense for 2021 if the share options are
not exercised but instead the entity paid P7,500,000 to the employees?
a. 2,200,000
b. 3,900,000
c. 3,400,000
d. 7,500,000
On January 1, 2019, Alterra Company granted 60,000 share options to employees. The share
options will vest at the end of three years provided the employees remain in service until then.
The option price is P60 and the par value per share is P50.
At the date of grant, the entity concluded that the fair value of the share options cannot be
measured reliably.
The share options have a life of 4 years which means that the share options can be exercised
within one year after vesting.
The share prices are P62 on December 31, 2019, P66 on December 31, 2020, P75 on
December 31, 2021 and P85 on December 31, 2022.
All share options were exercised on December 31, 2022.
a. 120,000
b. 60,000
c. 40,000
d. 30,000
a. 360,000
b. 240,000
c. 200,000
d. 180,000
a. 900,000
b. 300,000
c. 450,000
d. 660,000
a. 500,000
b. 375,000
c. 600,000
d.0
On January 1, 2019, Easy Company granted 30,000 share options to employees.
The share options vest at the end of three years provided the employees remain in service until
then.
The option price is P60 and the share price is also P60 at the date of grant. The par value of the
share is P50.
At the date of grant, the entity concluded that the fair value of the share options cannot be
estimated reliably.
The share options have a life of 6 years. This means that the options can be exercised within
three years after vesting.
All share options vested at the end of three years and no employees left during the three-year
period.
The share prices and the number of share options exercised are set out below.
Share price Share options exercised at year-end
2019
2020
2021
2022
2023
2024
10,000 15,000
5,000
Required:
Determine the compensation expense for each year from 2019 to 2024 using the intrinsic value
method.
Solution 28-16
2019 Salaries (90,000/3 years) Share options outstanding
30,000
30,000
30,000
Share options
Multiply by intrinsic value (63-60)
Total intrinsic value
90,000
Chapter 29: INVENTORY COST FLOW

Problem 29-1
Marsh Company had 150,000 units of product A on hand at January 1, costing P21 each.
Purchases of Product A during the month of January were:
Units Unit Cost
January 10 200,000 22
18 250,000 23
28 100,000 24
A physical count on January 31 shows 250,000 units of product A on hand.

What is the cost of the inventory on January 31 under the FIFO method?
a) 5,850,000
b) 5,550,000
c) 5,350,000
d) 5,250,000
Problem 29-2
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 Purchases 3,000 70.50 211,500
Feb 5 Sales 10,000
Mar 5 Purchases 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 29-3
Mildred Company is a wholesaler of office supplies. The FIFO periodic inventory is used.
The entry reported the following activity for inventory of calculators during the month of
August:
Units Unit Cost
August 1 Inventory 20,000 36.00

7 Purchases 30,000 37.20
12 Sales 36,000
21 Purchases 48,000 38.00
22 Sales 38,000
29 Purchases 16,000 38.00
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 29-4
Lagoon Company accumulated the following data for the current year.
Raw Materials – beginning inventory 90,000 units @ P7.00
Purchases 75,000 units @ P8.00
Purchases 120,000 units @ P8.50

The entity transferred 195, 000 units of raw materials to work in process during the year.
Work in process – beginning inventory 50,000 units @ P14.00
Direct Labor 3,100,000
Manufacturing overhead 2,950,000
Manufacturing overhead 48,000 units @ P15.00

The entity used the FIFO method for valuing inventory.
What is the cost of raw materials used?

a) 1,485,000
b) 2,250,000
c) 1,530,000
d) 3,015,000
What is the total manufacturing cost?

a) 8,300,000
b) 7,535,000
c) 7,580,000
d) 9,065,000
What is the cost of goods manufactured for the current year?
a) 7,535,000
b) 8,235,000
c) 7,515,000
d) 8,280,000
Problem 29-5
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 Units Total Cost
Jan 5 10,000 65 650,000
10 12,000 70 840,000
15 15,000 60 900,000
25 14,000 55 770,000
On July 31, 17,000 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 the inventory on July 31?

a) 3,600,000
b) 1,670,000
c) 770,000
d) 950,000
What is the cost of inventory on July 1?

a) 1,390,000
b) 2,400,000
c) 950,000
d) 760,000
What is the number of units available for sale on July 1?

a) 34,000
b) 26,000
c) 10,000
d) 9,000
Problem 29-6
Lane Company provided the following inventory card during February:
Purchase Units Balance
Price Units Used Units
Jan. 10 100 20,000 20,000
21 10,000 10,000
Feb. 8 110 30,000 40,000
9 Returns from factory (Jan. 10 lot) (1,000) 41,000
28 (1,000) 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
Problem 29-7
During the month of January, Metro Company which used a perpetual inventory system
recorded the following information pertaining to inventory:
Units Units cost Total Cost 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 29-8
Frey Company recorded the following data pertaining to raw material during the month of
January:
Units
Date Received Cost Issued Issued
1/1 Inventory 200 8,000
1/8 Issue 4,000 4,000
1/20 Purchase 12,000 240 16,000
What is the moving average unit cost of the inventory on January 31?
a) 220
b) 224
c) 230
d) 240
Problem 29-9
Celine Company that used the perpetual system provided the following data relating to an
inventory item.
Jan 1 Beginning Balance 5,000 200 1,000,000
10 Purchase 5,000 250 1,250,000
15 Sales 7,000
16 Sale return 1,000
30 Purchase 16,000 150 2,400,000
31 Purchase Return 2,000 150 300,000
What is the moving average unit cost on January 31?

a) 167
b) 165
c) 181
d) 225
Problem 29-10
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
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
What is the number of units on July 1?

a) 102,500
b) 140,000
c) 76,500
d) 60,000
How many units were sold during the month of July?

a) 242,500
b) 140,000
c) 302,500
d) 260,000
What is the cost of the inventory on July 31?

a) 288,000
b) 410,000
c) 312,600
d) 240,000
Chapter 30: Relative Sales Price Method

Problem 30-1
Casa Company purchased a tract of land for P12,000,000. The entity incurred additional cost of
P3,000,000 during the remainder of the year in preparing the land for sale.
The tract of land was subdivided into residential lots.
Lot Class Number of lots Sales price per lot
A 100 240,000
B 100 160,000
C 200 100,000
a) 3,000,000
b) 3,750,000
c) 6,000,000
d) 7,200,000
Problem 30-2
Solid company purchased a plot of ground for P18,000,000. The entity also paid an independent
appraiser for the land the amount of P500,000.
The land was developed as residential lots at a total cost of P41,500,000.

Number of lots Sales price per lot
A 20 1,000,000
B 40 750,000
C 100 500,000
What total cost should be allocated to Highland lots?

a) 12,000,000
b) 11,900,000
c) 8,400,000
d) 8,300,000
Problem 30-3
Elixir Company bought a 10-hectare land for P5,800,000 to be improved, subdivided into lots
and eventually sold.
Taxes and documentation expenses on the transfer of the property amounted to P80,000
Lot Class Number of lots Sales price per lot Total Clearing cost
A 10 100,000 None
B 20 80,000 100,000
C 30 70,000 300,000
D 40 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 30-4
During the current year, Link Development Company purchased a tract of land for P9,000,000.
Additional cost of P1,500,000 was incurred in subdividing the land during the year.
Of the tract acreage, 70% was subdivided into residential lots and 30% was conveyed to the city
for road and a park.
Lot Class Number of lots Sales price per lot
A 100 120,000
B 100 80,000
C 200 50,000
Under the relative sales value method, what is the cost allocated to each Class A lot?
a) 29,400
b) 42,000
c) 36,000
d) 26,250
Problem 30-5
Apitong Company manufactures bath towels. The production comprises 60% of “Class A” which
sells for which sells for 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 entity revealed the following inventory at the end of the current year:
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 distributions, what is the measurement of the inventory?
a) 1,170,000
b) 1,665,000
c) 1,872,000
d) 2,340,000
Chapter 31: Lower of Cost and Net RealizableValue

Problem 31-1
Winter Company provided the following inventory data at year-end:
Cost NRV
Skis 2,200,000 2,500,000
Boots 1,700,000 1,500,000
Ski equipment 700,000 800,000
Ski apparel 400,000 500,000
What amount should be reported as inventory at year-end?

a) 5,000,000
b) 5,300,000
c) 4,800,000
d) 5,200,000
Problem 31-2
Harris Company provided the following information for an interview at year-end:
Historical cost 1,200,000
Estimated selling price 1,300,000
Estimated completion and selling cost 150,000
Replacement cost 1,100,000

a) 1,100,000
b) 1,150,000
c) 1,200,000
d) 1,300,000
Problem 31-3
Aloha Company determined the following information for an inventory at year-end:
Historical cost 2,000,000
Current replacement cost 1,400,000
Net realizable value 1,800,000
Net realizable value less a normal profit margin 1,700,000
Fair value 1,900,000

a) 1,400,000
b) 1,700,000
c) 1,800,000
d) 1,900,000
Problem 31-4
Chicago Company has two products in the industry:
Product X Product y
Selling price 1,000,000 3,000,000
Materials and conversion costs 1,500,000 1,800,000
Materials and conversion 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
Problem 31-5
Based on a physical inventory taken at year-end, Chewy Company determined the chocolate
inventory on a FIFO basis at P5,200,000 with a replacement cost of P4,000,000.
The entity estimated that after further processing costs of P2,400,000, the chocolate could be
sold as finished candy bars for P8,000,000. The normal profit margin is 10% of sales.
Using the measurement at the lower of cost and net realizable value, what amount should be
reported as chocolate inventory at year-end?
a) 5,600,000
b) 4,000,000
c) 5,200,000
d) 4,800,000
Problem 31-6
Greece Company provided the following data for the current year:
Inventory – January 1:
Cost 3,000,000
Net Purchases 8,000,000
Inventory - December 31:
Cost 4,000,000
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 31-7
At year-end, Julie Company reported ending inventory at P3,000,000 and the allowance for
inventory writedown before any adjustment at P150,000.
Product 1 Product 2 Product 3 Product 4

Historical cost 800,000 1,000,000 700,000 500,000
Replacement cost 900,000 1,200,000 1,000,000 600,000
Replacement cost 1,000,000 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 writedown should be included in cost of goods sold?
a) 100,000
b) 200.000
c) 400,000
d) 250,000
Problem 31-8
White Company carried four items in inventory. The following per-unit data relate to these items
at the end of first year of operations:
Units Cost Sales Price Selling cost Normal Profit
Category 1:
A 25,000 105 130 15 20
B 20,000 85 90 10 10
Category 2:
C 40,000 50 45 5 5
D 30,000 65 75 15 10
What is the measurement of inventory under LCNRV applied to individual item?

a) 7,625,000
b) 8,275,000
c) 7,725,000
d) 7,875,000
What is the measurement of inventory under LCNRV applied to inventory category?

a) 7,875,000
b) 7,725,000
c) 8,275,000
d) 7,625,000
What is the measurement of inventory under LCNRV applied to inventory as a whole?
a) 8,275,000
b) 7,625,000
c) 7,875,000
d) 7,725,000
Problem 31-9
Uptown Company used the perpetual method to record inventory transactions for the current
year.
Inventory 1,900,000
Sales 6,500,000
Sales return 150,000
Inventory losses 120,000
In the latter part of the year, the entity recorded a P150,000 credit sale of goods costing
P100,000.
These goods were sold on FOB destination terms and were in transit at year-end. The goods
were included in the physical count.
The inventory at year-end determined by physical count had a cost of P2,000,000 and a net
realizable value of P1,700,000.
Any inventory writedown is not yet recorded.
What amount should be reported as cost of goods sold for the current year?
a) 5,020,000
b) 4,500,000
c) 4,720,000
d) 4,920,000
Problem 31-10
Altis Company reported the following information for the current year:
Sales (100,000 units at P150) 15,000,000
Sales discount 1,000,000
Purchases 9,300,000
Purchase discount 400,000

The inventory purchases during the year were as follows:
Units Units cost Total Cost
Beginning inventory, January 1 20,000 60 1,200,000
Purchases, quarter ended March 31 30,000 65 1,950,000
Purchases, quarter ended June 30 40,000 50 2,800,000
Purchases, quarter ended Sept. 30 50,000 75 3,750,000
Purchases, quarter ended Dec. 31 10,000 80 800,000
150,000 10,500,000
The accounting policy is to report inventory in the financial statements at the lower of cost and
net realizable value.
Cost is determined under the first-in, first-out method.
At year-end, the entity has determined that the replacement cost of inventory was P70 per unit
and the net realizable value was P72 per unit. The normal profit margin is P10 per unit.
What amount should be reported at cost of goods sold for the current year?
a) 6,500,000
b) 6,300,000
c) 6,700,000
d) 6,900,000
Problem 31-11
In 2019, North company experienced a decline in the value of inventory resulting in a writedown
from cost of P3,600,000 to net realizable value of P3,000,000.
The entity used the allowance method to record the necessary adjustment.
In 2020, market conditions have improved dramatically. On December 31, 2020, the inventory
had a cost of P5,000,000 and net realizable value of P4,600,000.
What is included in the adjusting entry on December 31, 2020?

a) Debit gain on reversal of inventory writedown P200,000
b) Credit gain on reversal of inventory writedown P400,000
c) Debit allowance for inventory writedown P200,000
d) Credit allowance for inventory writedown P400,000
Problem 31-12
On December 31, 2019, Dos Company has outstanding purchase commitments for 50,000
gallons at P20 per gallon of new material.
It is determined that the market price of the new material has declined to P17 per gallon on
December 31, 2019 and it is expected to decline further to P15 in the first quarter of 2020.
What amount should be recognized as loss on purchase commitment in 2019?

a) 850,000
b) 150,000
c) 250,000
d) 0
Problem 31-13
On October 1, 2019, Gorgeous Company entered into a 6-month, P5,200,000 purchase
commitment for a supply of a special product.
On December 31, 2019, the market value of this material had fallen to P5,000,000
On March 31, 2020, the market value of the purchase commitment is P4,900,000.

a. 200,000
b. 100,000
c. 300,000
d. 0
Problem 31-14
On November 15, 2019, Diamond Company entered into a commitment to purchase 10,000
ounces of gold on February 15, 2020 at a price of p310 per ounce.
On December 31, 2019, the market price of gold is P270 per ounce. On February 15, 2020, the
price of gold is P300 per ounce.

a) 400,000
b) 100,000
c) 300,000
d) 0
What amount should be recognized as gain on purchase commitment in 2020?

a) 400,000
b) 300,000
c) 100,000
d) 0
What amount should be debited to purchases on February 15, 2020?
a) 3,000,000
b) 3,100,000
c) 2,700,000
d) 3,500,000
What amount should be recognized as accounts payable on February 15, 2020?

a) 2,700,000
b) 3,100,000
c) 3,500,000
d) 3,000,000
Problem 31-15
On January 1, 2019, Card Company signed a three-year noncancelable purchase contract,
which allows Card to purchase up to 5,000 units of a computer part annually from Hart
Company at P100 per unit and guarantees a minimum annual purchase of 1,000 units.
During 2019, the part unexpectedly became obsolete. Card had 2,500 units of this inventory on
December 31, 2019, and believed these parts can be sold as scrap for P20 per unit.
What amount of loss from the purchase commitment should be reported in the 2019
income statement?
a) 240,000
b) 200,000
c) 160,000
d) 360,000
What amount should be recognized as loss on inventory writedown in 2019?

a) 360,000
b) 560,000
c) 200,000
d) 0
Chapter 32: Gross Profit Method

Problem 32-1
Gecelle Company reported during the current year:
Net purchases 2,500,000
Net sales 3,200,000

A physical count at year-end resulted in an inventory of P575,000. The gross profit had
remained constant at 25%. The entity suspected that some inventory may have been taken by a
new employee.
What is the estimated cost of missing inventory at year-end?

a) 100,000
b) 175,000
c) 225,000
d) 25,000
Problem 32-2
Karen Company reported the following information for the current year:
Beginning inventory 5,000,000
Purchases 26,000,000
Freight in 2,000,000
Purchase returns and allowances 3,500,000
Purchase discounts 1,500,000
Sales 40,000,000
Sales return 3,000,000
Sales allowances 500,000
Sales discounts 1,000,000
A physical inventory taken at year-end resulted in an ending inventory of P4,000,000.
At year-end, unsold goods out on consignment with selling price of P1,000,000 are in the hands
of a consignee.
The gross profit was 40% on sales.
What is the cost goods available for sale?

a) 28,000,000
b) 31,000,000
c) 33,000,000
d) 29,500,000

a) 21,900,000
b) 22,200,000
c) 21,300,000
d) 24,000,000
What is the estimated cost of inventory shortage?

a) 1,800,000
b) 2,700,000
c) 1,200,000
d) 2,100,000
Problem 32-3
At year-end, Pamela Company reported that a flood caused severe damage to the entire
inventory. Based on recent history, the entity had a gross profit of 25% of sales.
The entity provided the following information for the current year:
Inventory, January 1 500,000
Purchases 4,000,000
Purchase returns 200,000
Sales 5,600,000
Sales return 400,000
Sales allowances 100,000
What is the cost of goods sold for the year?

a) 4,160,000
b) 4,080,000
c) 3,900,000
d) 3,825,000
What is the cost of ending inventory damaged by flood?

a) 475,000
b) 400,000
c) 260,000
d) 220,000
Problem 32-4
On September 30, Brock Company reported that a fire caused severe damage to the entire
inventory. The entity had a gross profit of 30% on cost.
The entity provided the following data for nine months ended September 30.
Inventory at January 1 1,100,000
Net Purchases 6,000,000
Net sales 7,280,000
A physical inventory disclosed usable damaged goods which can be sold for P100,000.
What is the estimated cost of goods sold for the nine months ended September 30?
a) 5,500,000
b) 4,970,000
c) 5,096,000
d) 5,600,000
What is the estimated amount of fire loss?

a) 1,500,000
b) 1,400,000
c) 2,004,000
d) 1,964,000
Problem 32-5
At year-end, a storm surge damaged the warehouse of Braveheart Company. The entire
inventory and many accounting records were completely destroyed.
Inventory 1,500,000
Purchases 5,500,000
Cash Sales 900,000
Collection of accounts receivable 8,400,000
Accounts Receivable 700,000 1,100,000
Gross profit on sales 40%
What is the inventory loss from the storm surge?

a) 1,180,000
b) 1,720,000
c) 2,700,000
d) 2,260,000
Problem 32-6
On the night of September 30,2019, a fire destroyed most of the merchandise inventory of
Sonia Company.
All good were completely destroyed except for partial damaged goods that normally sell for
P100,000 and that had an estimated net realizable value of 25,000 and undamaged goods that
normally sell for P60,000.
Inventory at January 1 660,000
Net Purchases, January 1 through 4,240,000

September 30
Net Sales, January 1 through September 30 5,600,000
Total 2018 2017 2016
Net Sales 9,000,000 5,000,000 3,000,000 1,000,000
Cost of goods sold 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 30,2019?

a) 700,000
b) 615,000
c) 630,000
d) 580,000
Problem 32-7
At year-end, Empress Company had a fire which completely destroyed the goods in process
inventory. A physical inventory was taken after the fire.
The raw materials were valued at P600,000, the finished goods at P1,000,000 and factory
supplies at P100,000 at year-end.
The beginning inventories consisted of the following:

Finished goods 1,400,000
Goods in process 1,000,000
Raw Materials 300,000
Factory Supplies 400,000

DATE FOR THE CURRENT YEAR
Sales 3,000,000
Purchases 1,000,000
Freight in 100,000
Direct labor 800,000
Manufacturing overhead – 50% of direct labor ?
Average gross profit on sales 30%

a) 2,100,000
b) 1,700,000
c) 1,900,000
d) 2,300,000
What is the cost of goods manufactured?

a) 2,500,000
b) 1,700,000
c) 3,100,000
d) 2,300,000
What is the estimated cost of the ending goods in process that were completely destroyed by
the fire?
a) 1,300,000
b) 2,100,000
c) 2,000,000
d) 1,700,000
Problem 32-8
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.

a) 5,760,000
b) 6,000,000
c) 6,080,000
d) 6,600,000
What is the amount of purchases for July?
a) 6,528,000
b) 8,304,000
c) 6,800,000
d) 6,920,000
Problem 32-9
On April 30, a fire damaged the office of Amaze Company. The following balances were
gathered from the general ledger on March 31:
Inventory – January 1 1,880,000
Sales 3,600,000
Purchases 1,680,000
● An examination of April bank statement and canceled 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 ₱ 440,000 which consisted of collections
from customers with the exception of ₱ 20,000 refund from a vendor for merchandise is
returned in April.
● Customers acknowledged indebtedness of ₱ 1,040,000 at April 30. Customers owed
another ₱ 60,000 that will never be recovered. Of the acknowledged indebtedness,
₱40,000 may prove uncollectible.
● Correspondence with suppliers revealed unrecorded obligations at April 30, of ₱
340,000 for April merchandise shipment including ₱ 100,000 for shipment in transit on
that date.
● The average gross profit rate is 40%.
● Inventory with a cost of ₱ 260,000 was salvaged and sold for ₱ 140,000. The balance of
the inventory was a total loss.
What is the total amount of sales up to April 30?

a) 4,200,000
b) 4,220,000
c) 4,140,000
d) 4,160,000
What is the total amount of pur

a) 1,760,000
b) 2,100,000
c) 2,020,000
d) 1,680,000
What is the inventory on April 30?

a) 1,476,000
b) 1,464,000
c) 1,440,000
d) 1,428,000
What is the fire loss to be recognized on April 30?

a) 1,440,000
b) 1,300,000
c) 1,340,000
d) 1,200,000
Problem 32-10
In conducting an audit of Remy Company for the year ended June 30, 2019, the entity’s CPA
observed that the physical inventory at an interim date, May 31, 2019.
Inventory, July 1, 2018 875,000
Physical Inventory, May 31, 2019 950,000
Sales for 11 months ended May 31, 2019 8,400,000
Sales for year ended June 30, 2019 9,600,000
Purchases for 11 months ended May 31, 2019 6,750,000
Purchases for year ended June 30, 2019 8,000,000
a. Shipments received in May and included in the 75,000

physical inventory but recorded as June purchases
b. Shipments received in unsalable condition and

excluded from physical invemtory. Credit memos
had not been received nor had chargebacks to
vendors been recorded:
Total at May 31, 2019 10,000
Total at June 30, 2019 (including the May unrecorded 15,000

chargebacks)
c. Deposit made with vendor and charge to purchases 20,000

in April 2019. Product was shipped in July 2019.
d. Deposit made with vendor and charge to purchases 55,000

in May 2019. Product was shipped FOB Destination,
on May 29, 2019 and was included in May 31, 2019
physical inventory as goods in transit.
e. Through the carelessness of the receiving department a June 100,000

shipment was damaged by rain. This shipment
was later sold in June at the cost of
What is the cost of goods sold for the month of June 2019?
a) 980,000
b) 960,000
c) 880,000
d) 780,000
What is the inventory on June 30, 2019?

a) 1,240,000
b) 1,140,000
c) 1,160,000
d) 1,340,000
Chapter 33: Retail Method

Problem 33-1
Janelle Company used the retail inventory method to approximate the ending inventory.
Cost Retail
Beginning Inventory 650,000 1,200,000
Purchases 9,000,000 14,700,000
Freight-in 200,000
Purchase Returns 300,000 500,000

Purchase Allowances 150,000
Departmental transfer in 300,000
Markup 200,000 400,000
Markup Cancelation 100,000
Markdown 1,200,000
Markdown Cancelation 200,000
Sales 9,500,000
Sales Discounts 100,000
Employee Discounts 500,000
Estimated Normal Shoplifting Loss 600,000
Estimated Normal Shrinkage
What is the estimated cost of ending inventory using the conservative approach?
a) 2,400,000
b) 2,460,000
c) 3,060,000
d) 2,700,000
What is the estimated cost of ending inventory using the average cost approach?
a) 2,560,000
b) 2,624,000
c) 3,264,000
d) 2,880,000
Problem 33-2
At year end, Huff Company provided the following information:
Cost Retail
Purchases 4,165,000 5,775,000
Additional Markups - 210,000
Available for Sale 4,900,000 7,000,000
Sales for the year totaled P5, 530, 000. Markdowns amounted to P70, 000.
Under the approximate lower of average cost or market retail method, what is the ending
inventory?
a. 1,540,000
b. 1,400,000
c. 1,078,000
d. 980,000
Problem 33-3
Dean Company used the retail inventory method to estimate inventory at year-end.
Cost Retail
Purchases 4,080,000 6,300,000
Net Markups 700,000
Net Markdowns 500,000
Sales 6,820,000
Estimated Normal Shoplifting Losses 80,000
Under the average cost retailed method, what is the estimated cost of ending inventory?
a) 408,000
b) 600,000
c) 360,000
d) 384,000
Problem 33-4
Caramel Company used the average retail inventory method. At year-end, the following
information relating to the inventory was gathered.
Cost Retail
Beginning Inventory 190,000 450,000
Purchases 2,990,000 4,350,000
Purchase Discounts 40,000
Freight in 150,000
Markups 300,000
Markdowns 400,000
Sales 4,400,000
Sales Return 100,000
Sales discount 50,000
Sales Allowance 30,000
What is the estimated cost of the ending inventory?

a) 400,000
b) 280,000
c) 245,000
d) 315,000
Problem 33-5
Hutch Company used the average cost retail inventory method to account for inventory. The
following information related to operations fo the current year:
Cost Retail
Beginning Inventory 6,000,000 9,2000,000
Net Markups 400,000
Net Markdowns 600,000
Sales 7,800,000
What amount should be reported as cost of goods sold for the current year?
a) 4,800,000
b) 4,875,000
c) 5,200,000
d) 5,250,000
Problem 33-6
Domicile Company had the following amounts all at retail:

Purchases 6,000,000
Purchase Returns 300,000
Net markup 900,000
Net markdown 140,000
Sales 3,600,000
Sales return 90,000
Employee discounts 80,000
Normal shortage 130,000
Abnormal shortage 200,000
What is the ending inventory at retail?

a) 2,700,000
b) 2,800,000
c) 2,880,000
d) 2,920,000
Problem 33-7
At the beginning of current year, the inventory of Ron Company was P1,000,000 at retail and
P560,000 at cost. During the current year, the entity registered the following purchases:
Cost 4,000,000
Retail price 6,200,000
Original markup 2,200,000

The amount of net sales was P5,400,000. The following reductions were made in the reatil
price:
To meet price competition 50,000
TTo dispose of overstock 30,000
Miscellaneous reductions 120,000
During the current year, the selling price of the certain inventory increased from P200 to P300.
This additional markup applied to 5,000 items but was later canceled on the remaining 1,000
items.
What is the estimated cost of ending inventory using the average cost retail method?
a) 2,000,000
b) 2,400,000
c) 1,240,000
d) 1,200,000
Problem 33-8
Airborne company used the average cost retail inventory method. The entity provided the
following information for the current year.
Cost Retail
Net purchase 3,725,000 4,950,000
Departmental transfer – credit 200,000 300,000
Net markup 150,000
Inventory shortage – sales price 100,000
Sales, including sales of P400,000 of 4,000,000

items which
were marked down from P500,000
What is the estimated cost of ending inventory?

a) 1,950,000
b) 2,600,000
c) 1,924,000
d) 2,250,000
Problem 33-9
Bizarre Company had always inventoried finished goods at selling price and prepared the
following statement on this basis
Sales 1,400,000
Raw materials used at cost 500,000
Labor 600,000
Overhead 240,000
Total 1,340,000
Work in process at cost:
January 1 612,000
December 31 752,000 140,000
Cost of goods manufactured 1,200,000
Finished good at selling price:
January 1 240,000
December 31 840,000 600,000 600,000
Gross Income 800,000

a) 1,950,000
b) 2,600,000
c) 1,924,000
d) 2,250,000
Problem 33-10
Union company used the FIFO retail method of inventory valuation. The entity provided the
following information for the current year.
Cost Retail
Purchases 3,000,000 5,500,000
Net markups 500,000
Net markdowns 1,000,000
Sales, revenue 4,500,000

a) 1,200,000
b) 1,040,000
c) 1,000,000
d) 960,000
Problem 33-11
Ross Company provided the following data for the current year.
Cost Retail
Net purchase 4,200,000 ?
Net markups 800,000
Net markdown 200,000
Net sales ?
The entity used the average retail inventory method to estimate ending inventory. It was
determined that the average cost of the ending inventory was P1,950,000. If the entity used the
FIFO retail method, the cost ratio would have been 60%.
What is the amount of the net purchases at original retail before markup and markdown?
a) 7,600,000
b) 7,000,000
c) 4,200,000
d) 6,400,000
What amount was reported as net sales

a) 9,000,000
b) 3,000,000
c) 6,000,000
d) 7,000,000
What amount was reported as the cost of goods sold?

a) 3,900,000
b) 3,000,000
c) 3,600,000
d) 1,800,000
Chapter 34: Biological Assets

Problem 34-1
Forester Company provided the following assets in a forest plantation and farm:
Freestanding trees 5,000,000
Land under trees 600,000
Roads in forest 300,000
Animals related to recreational activities 1,000,000
Bearer plants 1,500,000
Bearer animals 2,000,000
Agricultural produce growing on bearer plants 800,000
Agricultural produce harvested 1,200,000
Plants with dual use 1,400,000
What total amount should be reported as biological assets?

a) 7,800,000
b) 7,200,000
c) 8,400,000
d) 9,200,000
What total amount should be included in property, plant, and equipment?

a) 4,600,000
b) 3,400,000
c) 1,800,000
d) 4,200,000
Problem 34-2
Joan Company provided the following data:
Value of biological asset at acquisition cost on December 31, 2019 2,000,000
Fair valuation surplus on initial recognition at fair value on December 31, 800,000
2019
Change in fair value to December 31, 2020 due to growth and price 1,200,000
fluctuation
Decrease in fair value due to harvest in 2020 1,400,000
What is the carrying amount of the biological asset on December 31, 2020?
a) 1,400,000
b) 1,310,000
c) 1,300,000
d) 1,490,000
What amount of net gain from change in fair value of biological asset should be reported in
the 2020 income statement?
a) 100,000
b) 800,000
c) 710,000
d) 10,000
Problem 34-3
Salve Company is engaged in raising dairy livestock. The entity provided the following
information during the year:
Carrying amount on January 1 5,000,000
Increase due to purchases 2,000,000
Gain arising from change in fair value less cost of disposal attributable to 400,000
price change
Gain arising from change in fair value less cost of disposal attributable to 600,000
physical change
Decrease due to sales 850,000
Decrease due to harvest 200,000
What is the carrying amount of the biological asset on December 31?

a) 6,950,000
b) 6,000,000
c) 8,000,000
d) 7,150,000
Problem 34-4
Bear Company produced milk for sale to local and national ice cream producers. The entity
began operations at the beginning of current year by purchasing milk cows for P8, 000, 000.
The entity provided the following information for the current year:
Acquisition cost, January 1 8,000,000
Change in fair value due to growth and price changes 2,500,000

Decrease in fair value due to harvest 2,500,000
Milk harvested during the year but not yet sold 400,000
What amount of gain on change in fair value should be recognized for biological asset in the
current year?
a) 2,500, 000
b) 2,250,000
c) 2,900,000
d) 2,650,000
What amount of gain on change in fair value should be reported for agricultural produce in
the current year?
a) 200,000
b) 400,000
c) 150,000
d) 0
Problem 34-5
On January 1, 2014, Farm Company planted trees on its land. The entity purchased the land
two years ago at a cost of P1, 000,000.
The trees were considered bearing plants and had accumulated cost of P500, 000 on
December 31, 2018.
By January 1, 2019, the trees have matured and were produce for a period of 5 years.
On December 31, 2019, the trees produced fruit and the fair value less cost of disposal on such
date was P50, 000. There was no harvest during 2019.
On December 31, 2020, the fruits were harvested and the fair value less cost of disposal on
such date was P75, 000.
What is the carrying amount of the property, plant, and equipment on December 31, 2019?
a) 1, 500,000
b) 1, 400,000
c) 1, 000,000
d) 0
What is the carrying amount of the biological asset on December 31, 2019?
a) 550, 000
b) 450, 000
c) 50, 000
d) 0
3. What amount of gain from change in fair value is recognized for the agricultural produce for
the year ended December 31, 2020?
a) 75, 000
b) 50, 000
c) 25, 000
d) 0
Problem 34-6
At the beginning of the current year, Honey Company had a herd of 10 2-year old animals.
One animal aged 2.5 years was purchased on July 1for P108 and one animal was born on July
1.
No animals were sold or disposed of during the year.
Fair value less cost disposal per unit

2 – year old animal on January 1 100
2.5 – year old animal on July 1 108
New born animal on July 1 76
2 – year old animal on December 31 105
2.5 – year old animal on December 31 111
New born animal on December 31 72
3 – year old animal on December 31 120
1.5 – year old animal on December 31 80
What is the fair value of the biological assets on December 31?

a) 1,400
b) 1,320
c) 1,440
d) 1,360
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
What is the gain from change in fair value due to price change?
a) 292
b) 222
c) 237
d) 55
Problem 34-7
Columbia Company is a producer of coffee. The entity is considering tge valuation of harvested
coffee beans.
Industry practice is to value the coffee beans at market value and uses as reference a local
publication “Accounting for Successful Forms”.
On December 31, 2019, the entity has harvested coffee beans costing P3,000,000 and with a
fair value less cost of disposal of P3,500,000 at the point harvest.
Because of long aging and maturation process after harvest, the harvested coffee beans were
still on hand on December 31, 2020.
On December 31, 2020, the fair value less cost of disposal s P3,900,000 and the net realizable
value is P3,200,000.
What is the measurement of the coffee beans inventory on December 31, 2020?
a) 3,000,000
b) 3,500,000
c) 3,200,000
d) 3,900,000
Problem 34-8
Dairy Company provided the following information for the current year:
Cash 500,000
Trade and other receivables 1,500,000
Inventories 100,000
Dairy livestock-immature 50,000
Dairy livestock- mature 400,000
Property, plant and equipment, net 1,400,000

Trade and other payables 520,000
Note payable - long term 1,500,000
Retained earnings – beginning 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

a) 650,000
b) 600,000
c) 130,000
d) 185,000
What is the fair value of the biological assets at year-end?

a) 550,000
b) 450,000
c) 500,000
d) 400,000
Problem 34-9
At the beginning of the current year, Divine Company purchased a vineyard costing P6,000,000.
It was determined that the grape vines can produce fruit for a period of 8 years.
During the year, the entity harvested grapes with a fair value less cost of disposal of
P2,000,000.
By the end of the year, the grapes were sold for P3,500,000.
The entity incurred operating expenses of P500,000. The entity used the perpetual method.
1. What is the gross income on sales?

a) 3,500,000
b) 1,500,000
c) 2,000,000
d) 1,750,000
What is the pretax net income?

a) 1,250,000
b) 2,750,000
c) 2,250,000
d) 3,000,000
Chapter 35: Financial assets at Fair value

Problem 35-1
At the beginning of the current year, Alexis Company purchased marketable equity
securities to be held as “trading” for5,000,000. The entity also paid transaction costs
amounting to 200,000.
The securities had a market value of 5,500,000 at year end and the transaction cost
that would be incurred on sale is estimated at 100,000. No securities were sold during 2016.
What amount of unrealized gain or loss on these securities should be reported in

the income statement for the current year?
a) 500,000 gain
b) 500,000 loss
c) 300,000 gain
d) 400,000 gain
Problem 35-2
During 2019, Garr Company purchased marketableequity securities as a trading
investment.
For the year ended December 31, 2019, the entity recognized an unrealized loss of
230,000.
There were no security transactions during 2020. The Entity provided the following
information on December 31, 2020:
Security Cost Market Value
A 2,450,000 2,300,000
B 1,800,000 1,820,000
4,250,000 4,120,000
In the 2020 income statement, what amount should be reported as unrealized gain or loss?
a) Unrealized gain of 100,000
b) Unrealized loss of 100,000
c) Unrealized loss of 130,000
d) Unrealized gain of 130,000
Problem 35-3
During 2019, Latvia Company purchased trading securities with the following cost and
market value on December 31, 2019:
A-1,000 shares 200,000 300,000
B-10,000 shares 1,700,000 1,600,000
C-20,000 shares 3,100,000 2,900,000
5,000,000 4,800,000
The entity sold 10,000 shares of security B on January 15, 2017 for 150 per share.
What amount of unrealized gain or loss should be reported in the income statement for
2019?
a) 200,000 loss
b) 200,000 gain
c) 300,000 loss
d) 300,000 gain
What amount should be reported as loss on sale of trading investment in 2020?

a) 200,000 gain
b) 200,000 loss
c) 100,000 gain
d) 100,000 loss
Problem 35-4
At the beginning of the current year, Carmela Company acquired nontrading equity
instrument for 4,000,000.
The equity instrument is classified as financial asset at fair value through other
comprehensive income.
The transaction cost incurred amounted to 700,000.
The fair value of the instrument was 5,500,000 at year-end and the transaction cost that
would be incurred on the sale of the investment is estimated at 600,000.
What amount of gain should be recognized in other comprehensive income for the
current year?
a) 200,000
b) 900,000
c) 800,000
d) 0
Problem 35-5
Benquet Company began operations at the beginning of the year.The following information
pertains to the portfolio of equity securities at year-end:
Trading Non Trading
Aggregate cost 4.000,000 6,000,000
Aggregate market value 3,700,000 5,500,000
Aggregate lower cost or market 3,500,000 5,300,000

value applied to each security
The market declines are judged to be other than temporary.
The non-trading securities are designated at fair value through other comprehensive income.
What amount should be reported as total loss on these securities in the income statement for
the current year?
a) 800,000
b) 500,000
c) 300,000
d) 0
Problem 35-6
On December 31, 2019, Fay Company appropriately reported a 100,000 unrealized loss.
There was no change during 2020 in the composition of the portfolio of non-trading equity
securities held at fair value through other comprehensive income.
December 31, 2020
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
What is the market value of the investment on December 31, 2019?
a) 3,600,000
b) 3,700,000
c) 3,500,000
d) 3,800,000
What amount of loss on these securities should be included in the statement of

comprehensive income for the year ended December 31, 2020 as component of other
comprehensive income?
a) 400,000
b) 300,000
c) 100,000
d) 0
What cumulative amount of loss on these securities should be reported in the statement of
changes in equity for the year ended December 31, 2020 as a component of other
comprehensive income?
a) 100,000
b) 200,000
c) 400,000
d) 0
Problem 35-7
On January 1, 2016, Lebanon Company purchased equity securities to be held at fair
value through other comprehensive income. On December 31, 2016, the cost and market value
were:
X 2,000,000 2,400,000
Y 3,000,000 3,500,000
Z 5,000,000 4,900,000
On July 1, 2020, the entity sold Security X for2,500,000.
What amount should be recognized directly in retained earnings as a result of the sale of
financial asset in 2020?
a) 500,000
b) 100,000
c) 400,000
d) 0
Problem 35-8
Trinidad Company provided the following portfolio of equity investments measured at fair value
through other comprehensive income:
Aggregate cost- December 31, 2019 1,700,000
Unrealized gain- December 31, 2019 40,000
Unrealized loss- December 31, 2019 260,000
Net realized gain during 2019 300,000
On January 1, 2019, the entity reported an unrealized loss of15,000 as a component of other
comprehensive income.
In the 2019 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 35-9
At the beginning of the current year, RemingtonCompany acquired 200,000 ordinary
shares of UniversalCompany for 9,000,000.
At the time of purchase, Universal Company had outstanding 800,000 shares with carrying
amount of 36,000,000.
The following events took place during the current year:

● Universal Company reported net income of 1,800,000 for the current year.
● Remington Company received from Universal Company a dividend of 0.75 per ordinary
share.
● The market value of Universal Company shares had temporarily declined to 40.
Remington Company has elected irrevocably to measure the investment at fair value through
other comprehensive income.
What is the carrying amount of the investment at year end?

a) 9,000,000
b) 8,000,000
c) 9,300,000
d) 9,450,000
Problem 35-10
Neal Company held the following financial assets astrading investments on December
31, 2019:
Cost Market Value
100,000 shares of Company 775,000 825,000

Anon-redeemable preference share
capital, par value P75
7,000 shares of Company B preference 690,000 625,000

share capital, par value P100,subject to
mandatory redemption by the issue at
par on December 31, 2020
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
Chapter 36: Investment in Equity Securities

Problem 36-1
During 2019, Lawan Company bought the shares of Burwood Company as follows:
June 1 20,000 shares @ P100 2,000,000
December 1 30,000 shares @ P120 3,600,00
5,600,00
The transactions for 2020 are:
January 10 - Received cash dividend at P10 per share.
January 20 – Received 20% stock dividend.
December 10 – Sold 30,000 shares at P125 per share
What amount should be reported as dividend income for 2019?

a) 600,000
b) 500,000
c) 400,000
d) 300,000
What is the gain on the sale under FIFO approach?

a) 1,150,000
b) 950,000
c) 150,000
d) 550,000
What is the gain on the sale under average approach?

a) 390,000
b) 950,000
c) 500,000
d) 600,000
Problem 36-2
Wood Company owns 20,000 shares of Arlo Company’s 200,000 shares of P100par, 6%
cumulative, nonparticipating preferred stock and 10,000 sharesrepresenting 2% ownership of
Arlo’s common stock.
During 2019, Arlo Company declared and paid dividends of P2,400,000 on preferred stock. No
dividends had been declared or paid during 2018.
In addition, Wood received a 5% common stock dividend from Arlo when the quoted market
price of Arlo’s common stock wasP10 per share.
What amount should Wood report as dividend income in its 2019 income statement?
a) 120,000
b) 125,000
c) 240,000
d) 245,000
Problem 36-3
Day Company received dividends from its common stock investments during the current year:
● A share dividend of 4,000 shares from Parr Corporation when the market price of Parr’s
shares was P20 per share. Day Company owns less than 1% of Parr’s share capital.
● A cash dividend of P150,000 from Lark Corporation in which Day owns a25% interest. A
majority of Lark’s directors are also directors of Day Company.
What amount of dividend revenue should Day report in its 2006 income statement?
a) 230,000
b) 150,000
c) 80,000
d) 0
Problem 36-4
Wray Company provided the following data for the current year:
● On September 1, Wray received a P500,000 cash dividend fromSeco Company in which
Wray owns a 30% interest.
● On October 1, Wray received a P60,000 liquidating dividend fromKing Company. Wray
owns a 5% interest in King Company.
● Wray owns a 10% interest in Bow Company, which declared aP2,000,000 cash dividend
on November 15.
What amount should Wray report as dividend income for the current year?
a) 700,000
b) 560,000
c) 500,000
d) 200,000
Problem 36-5
During the current year, Neil Company held 30,000 shares of Brock Company’s 100,000
outstanding shares and 6,000 shares of Amal’s Company 300,000 outstanding shares. During
the year, Neil received P300,000 cash dividend from Brock, P15,000 cash dividend and 10%
share dividend from Amal. The closing price of Amal share is P150.
What amount should be reported as dividend revenue for the current year?
a) 342,000
b) 315,000
c) 442,000
d) 15,000
Problem 36-6
On March 1, Evan Company purchased 10,000 ordinary shares at P80 per share.
On September 30, Evan received 10,00 share rights to purchase an additional 10,000 shares at
P90 per share.
On September 30,the share had a market value ex-right of P95 and the share rights had a
market value of P5 each
What amount should be reported for investment in share rights on September 30?
a) 150,000
b) 100,000
c) 50,000
d) 60,000
Problem 36-7
Rice Company owns 30,000 ordinary shares of Wood Company acquired on July 31 at a total
cost of P1,100,000.
On December 1, Rice Received 30,000 stock rights from Wood. Each right entitles the holder to
acquire one share at P45.
The market price of Wood’s share on this date was P50 and the market price of each right was
P10. Rice sold its rights on December 31 for 450,000 less a 10,000 commission.
What amount should be reported as gain from sale of the rights?

a) 150,000
b) 140,000
c) 250,000
d) 240,000
Problem 36-8
Adam Company owned 50,000 ordinary shares of Bland Company . These 50,000 share were
purchased by Adam for P120 per share.
On August 30, Bland distributed 50,000 shares rights to Adam. Adam was entitled to buy new
share of Bland Company for P90 cash and two of these rights.
On August 30, each share had a market value of P130 and each right had a market value of
P20.
What total cost should be reported for the new shares that are acquired by exercising rights?
a) 2,250,000
b) 3,250,000
c) 3,050,000
d) 5,500,000
Problem 36-9
Excelsia Company issued rights to subscribe to its stock, the ownership of 4 shares entitling the
shareholders for 1 share at P100.
Jealina Company own 50,000 shares of Excelsia Company with total cost of P5,000,000. The
share is quoted right-on at P125.
What is the cost of new investment if all of the stock rights are exercised by the investor?
a) 1,500,000
b) 1,250,000
c) 1,562,000
d) 1,450,000
Problem 36-10
2017
Jan. 1 Christopher Company purchased 20,000 shares ofBay Company, P100 par, at
P110 per share.
Mar. 1 Bay Company issued rights to Christopher Company,each permitting the

purchase of ¼ share at par. Noentry was made. The bid price of the share was
140 and there was no quoted price for the rights
Apr. 1 Christopher Company paid for the new shares charging the payment to
the investment.
Since Christopher Company felt that it had been assessed by Bay

Company, the dividends received from Bay Company in 2014 and 2015 were
credited to the investment account until the debit for payment of the new share
was fully offset.
Dec. 31 Christopher Company received annual dividend of 250,000 from Bay

Company.
2018
Dec. 31 Christopher Company received annual dividend of 250,000 from Bay
Company.
2019
Jan. 1 Christopher Company received 50% stock dividend from Bay Company.
On same date, the shares received as stock dividend were sold at 160 per
share and the proceeds were credited to income.
Mar. 1 The shares of Bay Company were split 2 for 1. Christopher

Company found that each new share was worth P5 more than P110 paid for
the original shares.
Accordingly, Christopher Company debited the investment account

with the additional shares received at P110 per share and credited income.
2020
Dec. 31 Christopher Company sold one-half of the investment P92 per share and
credited the proceeds to the investment account.
What is the balance of the investment on December 31, 2020 as it was kept by Christopher
Company?
a) 3,150,000
b) 2,650,000
c) 2,200,000
d) 4,950,000
Using the average method, what is the correct balance of the investment on December 31,
2020?
a) 2,200,000
b) 1,800,000
c) 900,000
d) 0
What is the net adjustment to retained earnings on December 31, 2020?

a) 3,650,000 debit
b) 3,150,000 debit
c) 3,650,000 credit
d) 3,150,000 credit
What amount of gain on sale of investment should be reported in 2020?

a) 1,400,000
b) 1,100,000
c) 2,500,000
d) 1,900,000
Chapter 37: Investment Associate (basic problems)

Problem 37-1
At the beginning of the current year, Farley Company acquired 20% of the outstanding
ordinary shares of Davis Company for 8,000,000.
This investment gave Farley the ability to exercise significant influence over Davis. The
carrying amount of the acquired shares was 6,000,000.
The excess of cost over carrying amount was attributed to the depreciable asset which was
undervalued on Davi’s statement of financial position and which had a remaining useful life often
years.
The investee reported net income of 1,800,000 and paid cash dividends of 400,000 and
thereafter issued 5% share dividend during the current year.
What amount should be reported as investment income for the current year?
a) 360,000
b) 160,000
c) 240,000
d) 340,000
What is the carrying amount of the investment in associate at year end?

a) 7,720,000
b) 7,800,000
c) 8,000,000
d) 8,080,000
Problem 37-2
At the beginning of the current year, Well Company purchased 10% of ReaCompany’s
outstanding ordinary shares for 4,000,000.
Well Company is the largest single shareholders in Rea andWell’s officers are a majority of
Rea’s board of directors.
The investee reported net income of 5,000,000 for 2016 and paid dividends of 1,500,000.
What amount should be reported as investment in Rea Company at year end?

a) 4,500,000
b) 4,350,000
c) 4,000,000
d) 3,850,000
Problem 37-3
On April 1, 2019, Ben Company purchased 40% of the outstanding ordinary shares
of Clarke Company for 10,000,000. On that date Clarke’s net assets were 20,000,000and
Ben cannot attribute the excess of the cost of its investment in Clarke over its equity
in Clarke’s net asset to any particular factor. The investee’s net income for 2019 is5,000,000.
What amount should be reported as investment income for 2019?

a) 1,400,000
b) 1,500,000
c) 2,000,000
d) 1,850,000
Problem 37-4
Moss Company owned 20% of Dubro Company’s preference share capital and 50% of
the ordinary share capital. The investee reported net income 600,000 for the current year:
10% cumulative preference share capital 1,000,000
Ordinary share capital 7,000,000
What is the investment income for the current year?

a) 270,000
b) 300,000
c) 350,000
d) 250,000
Problem 37-5
At the beginning of current year, Ronald Company purchased 40% of the outstanding ordinary
shares of New Company, paying P6,400,000 when the carrying amount of the net assets of New
Company equaled P12,500,000
The difference was attributed to equipment which had a carrying amount of P3,000,000 and a
fair market value of P5,000,000 and to building which had a carrying amount of 2,500,000 and a
fair market value of P4,000,000.
The remaining useful life of the equipment and building was 4 years and 12 years, respectively.
During the current year, New Company reported net income of 5,000,000 and paid cash
dividend of P2,500,000.
What is the excess of cost over the carrying amount of net assets acquired?
a) 5,000,000
b) 1,400,000
c) 3,000,000
d) 0
a) 2,000,000
b) 1,000,000
c) 1,800,000
d) 1,50,000
What is the carrying amount of the investment in associate at year-end?

a) 6,400,000
b) 8,150,000
c) 7,150,000
d) 7,400,000
Problem 37-6
At the beginning of the current year, Kean Company Purchased 30% interest in Pod
Company for 2,500,000.
On this date Pod’s shareholder’s equity was 5,000,000. The Carrying amounts of Pod’s
identifiable assets approximated the fair values, except for land whose fair value
exceeded the carrying amount by 2,000,000.
The investee reported net income of 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 37-7
At the beginning of the current year, Sage Company bought40% of Eve Company’s
outstanding ordinary shares for4,000,000.
The carrying amount of Eve’s net assets at the purchase date totaled 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 900,000 and 100,000, respectively.
The plant has an 18-year life. All inventories were sold during the current year.
During the current year, the investee reported net income of1,200,000 and paid 200,000 cash
dividend.
What is the excess of cost over the carrying amount of net assets acquired?
a) 360,000
b) 400,000
c) 500,000
d) 0
a) 480,000
b) 420,000
c) 360,000
d) 320,000

a) 4,400,000
b) 4,420,000
c) 4,340,000
d) 4,220,000
Problem 37-8
At the beginning of the current year, Anne Company purchased 20% of the outstanding ordinary
shares of Dune Company for 4,000,000of which 1,000,000 was paid in cash and 3,000,000 is
payable which 12% annual interest at every year end.
Dune Shareholders equity at the beginning of the current year was 13,000,000.
Anne also paid 500,000 to 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 2,000,000 and an estimated life of 10 years.
During the current year, Dune Company reported net income of 5,000,000 and paid
dividend of 2,000,000.
What is the implied goodwill from the acquisition?

a) 1,900,000
b) 1,000,000
c) 1,500,000
d) 0
What amount of income should be reported for the current year as a result of the investment?
a) 810,000
b) 620,000
c) 960,000
d) 885,000

a) 4,560,000
b) 4,160,000
c) 5,060,000
d) 5,460,000
Problem 37-9
At the beginning of current year, Occidental Company purchased 40% of the
outstanding ordinary shares of ManaplaCompany for 3,500,000 when the net assets of
Manaplaamounted to 7,000,000.
At acquisition date, the carrying amounts of the identifiable assets and liabilities of Manapla
were equal to the fair value,except for fair value for which the fair value was 1,500,000greater
than the carrying amount and the inventory whose fair value was 500,000 greater than the cost.
The equipment has a remaining life of 4 years and the inventory was all sold during
the current year.
Manapla Company reported net income of 4,000,000 and paid no dividends during the current
year.
What is the excess fair value over the acquisition cost?

a) 100,000
b) 700,000
c) 500,000
d) 0
What is the maximum amount of the “equity in earnings of the investee”?

a) 1,350,000
b) 1,250,000
c) 1,600,000
d) 1,700,000

a) 4,450,000
b) 4,350,000
c) 4,700,000
d) 4,850,000
Problem 37-10
At the beginning of current year, Bing Company purchased 30,000 shares of Latt
Company’s 200,000 outstanding ordinary shares for 6,000,000. On that date, the
carrying amount of the acquired shares on Latt's books was 4,000,000.
Bing attributed the excess of cost over the carrying amount to patent. The patent has a
remaining useful life of 10 years.
During the current year, Bing’s officers gained a majority onLatt’s board of directors.
Latt Company reported earnings of 5,000,000 for the current year and declared and paid
dividend of 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 37-11
On July 1, 2019, Miller Company purchased 25% of Wall’sCompany’s outstanding ordinary
shares and no good will resulted from the purchase.
Miller appropriately carried this investment at equity and the balance in Miller’s investment
account was 1,900,000 on December 31, 2019.
Wall Company reported net income of 1,200,000 for the year ended December 31, 2019,
and paid cash dividend totalling 480,000 on December 31, 2019.
How much did Miller pay for the 25% interest in Wall?
a) 1,720,000
b) 2,020,000
c) 1,870,000
d) 2,170,000
Problem 37-12
At the beginning of the current year, Cyber Company bought30% of the outstanding ordinary
shares of Free Company for5,000,000 cash. Cyber Company accounts for this investment by
the equity method.
At the date of the acquisition, Free Company’s net assets had carrying amount of 12,000,000.
Depreciable assets with an average remaining life of five years have a current market value that
is 2,500,000 in excess of their carrying amount.
The remaining difference between the purchase price and the carrying amount of the underlying
equity cannot be attributed to any identifiable tangible or intangible asset. Accordingly,the
remaining difference is allocated to goodwill.
Free Company reported net income of 4,000,000 and paid cash dividends of 1,000,000 during
the current year.
What is the implied goodwill from the acquisition?

a) 1,400,000
b) 750,000
c) 650,000
d) 0
a) 1,200,000
b) 1,350,000
c) 1,050,000
d) 920,000

a) 5,000,000
b) 5,900,000
c) 5,750,000
d) 5,400,000
Chapter 38: Investment Associate (complex
problems)
Problem 38-1
Blue Company purchased 10% of Tot Company’s 100,000 outstanding ordinary shares
onJanuary 1, 2019 for P500,000.
On December 31, 2019, Blue Company purchased an additional 20,000 shares of Tot Company
for P1,500,000. Tot Company had not issued any additional shares during 2019.
The investee reported earnings of P3,000,000 for 2019.
The fair value of the 10% interest is P900,000 on December 31, 2019.
What is the carrying value amount of the investment in associate on December 31, 2019?
a) 2,300,000
b) 2,000,000
c) 2,400,000
d) 2,900,000
What total amount of income should be recognized for 2019?

a) 500,000
b) 400,000
c) 900,000
d) 0
Problem 38-2
On January 1, 2019, 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, 2020, 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.
The investee reported net income of P8,000,000 for 2020 and paid cash dividend of
P5,000,000on December 31, 2020.
What amount gain on remeasurement to equity should be recognized for 2020?
a) 1,500,000
b) 4,500,000
c) 2,250,000
d) 0
What is the implied goodwill arising from the acquisition?

a) 2,250,000
b) 1,250,000
c) 1,350,000
d) 350,000
What is the carrying amount of the investment in association on December 31, 2020?
a) 11,250,000
b) 11,800,000
c) 12,000,000
d) 14,300,000
Problem 38-3
On January 1, 2019, Mega Company acquired 10% of the outstanding ordinary shares of
PennyCompany for P4,000,000. The investment was appropriately accounted for under cost
method.
On January 1, 2020, Mega gained the ability to exercise significant influence over financial and
operating control of Penny by acquiring an additional 20% of Penny’s outstanding ordinary
shares for P10,000,000.
The fair value Penny’s net assets equaled carrying amount. The fair value of 10% interest
onJanuary 1, 2020 was P6,000,000.
For the years ended December 31,2019 and 2020, the investee reported the following:
2019 2020
Dividend paid 2,000,000 3,000,000
Net income 6,000,000 6,500,000
What amount should be reported as investment income in 2019?

a) 200,000
b) 400,000
c) 600,000
d) 300,000
What amount should be reported as investment income in 2020?

a) 1,300,000
b) 1,950,000
c) 1,000,000
d) 1,900,000
What is the carrying amount of the investment in associate on December 31, 2020?
a) 16,000,000
b) 17,050,000
c) 15,050,000
d) 16,700,000
Problem 38-4
Seiko Company had 100,000 ordinary shares outstanding. Globe Company acquired
30,000shares of Seiko for P120 per share representing 30% interest.
Changes in retained earnings for Seiko since acquisition are:

Retained earnings (deficit), January 1, 2019 (500,000)
Net income for 2019 700,000
Retained earnings, December 31, 2019 200,000
Cash dividend paid on December 31, 2020 800,000
Retained earnings, December 31, 2020 (400,000)
600,000
a) 3,600,000
b) 3,930,000
c) 3,780,000
d) 4,080,000
Problem 38-5
Chur Company acquired a 40% interest in Flim Company for P1,700,000 on January 1,
2019.The shareholder’s equity of Flim Company is presented below:
Share capital 3,000,000 3,000,000
Retained earnings 1,000,000 1,500,000

On January 1, 2019, all the identifiable assets and liabilities of Flim Company were recorded at
fair value. Flim Company reported profit of P700,000, after income tax expense of P300,000
andpaid dividend of P200,000 to shareholders during the current year.
The revaluation surplus is the result of the revaluation of land recognized by Flim Company
onDecember 31, 2019. Additionally, depreciation is provided by Flim Company on the
diminishing balance method whereas Chur Company used the straight line. Had Flim Company
used the straight line, the accumulated depreciation would be increased by P200,000.
a) 2,420,000
b) 1,700,000
c) 1,900,000
d) 2,320,000
Problem 38-6
Aye Company acquired 30% of the issued share capital of Bee Company for P1,000,000 on
January 1, 2019. The retained earnings of Bee Company on this date amounted to P2,000,000.
The entities prepared their financial statements on December 31 of each year.
Bee Company showed the following abbreviation statement of financial position on December
31, 2020:
Sundry net assets 6,000,000
Share Capital, P10 par 1,000,000
Retained earnings 3,000,000

The fair value of the net assets of Bee Company at the date of acquisition was P5,000,000.
The recoverable amount of net assets of Bee Company is P7,000,000 on December 31,2020.
a) 1,800,000
b) 2,100,000
c) 1,500,000
d) 1,000,000
Problem 38-7
Grant Company acquired 30% of South Company's voting share capital for P2,000,000 on
January 1, 2019. Grant’s 30% interest in South gave Grant the ability to exercise significant
influence.
During 2019, South earned P800,000 and paid dividend of P500,000.

South reported earnings of P1,000,000 for the 6 months ended June 30, 2020 and P2,000,000
for the year ended December 31, 2020.
On July 1, 2020, Grant sold half of the investment in South for P1,500,000 cash.
South paid dividend of P1,000,000 on October 1, 2020.
The fair value of the retained investment is P1,600,000 on July 1, 2020 and P2,000,000 on
December 31, 2020.
The retained investment is to be held as financial asset at fair value through profit or loss.
On December 31,2019, 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
What is the carrying amount of the investment in associate before disposal on June 30, 2020?
a) 1,790,000
b) 2,390,000
c) 1,195,000
d) 2,240,000
What total amount of income should be reported in 2020?

a) 1,560,000
b) 1,410,000
c) 1,160,000
d) 1,260,000
Problem 38-8
On January 1, 2019, Haven Company acquired 20% of the ordinary shares of an associate for
P6,000,000. On this date, all the identifiable assets and liabilities of the associate were recorded
at fair value.
An analysis of the acquisition showed that goodwill of P300,000 was acquired. The associate
reported the following net income and dividend:
2019 2020
Net Income 3,000,000 4,000,000
Dividend paid 1,000,000 1,500,000

In December 2019, the associate sold inventory to Haven Company for P900,000. The cost of
the inventory was P600,000.
This inventory remained unsold by Haven Company on December 31, 2019. However, it was
sold by Haven Company in 2020.
In December 2020, the associate sold inventory to Haven Company for P750,000. The cost of
the inventory was P500,000.
This inventory remained unsold by Haven Company on December 31,2020.
What amount should be reported as an investment income for 2019?

a) 600,000
b) 540,000
c) 660,000
d) 648,000

a) 860,000
b) 800,000
c) 810,000
d) 750,000
a) 6,900,000
b) 6,000,000
c) 6,790,000
d) 6,850,000
Problem 38-9
Glorious Company acquired 40% interest in an associate, Alta Company, for P5,000,000 on
January 1, 2019.
At the acquisition date, there were no differences between fair value and carrying amount of
identifiable assets and liabilities.
Alta Company reported the following net income and cash dividend for 2019 and 2020:
2019 2020
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, 2019, 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, 2020, Alta Company sold an equipment costing P500,000 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, 2020, 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 31,2020

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

a) 880,000
b) 748,000
c) 720,000
d) 732,000
a) 5,692,000
b) 5,000,000
c) 5,372,000
d) 5,360,000
a) 5,692,000
b) 5,704,000
c) 5,720,000
d) 6,120,000
Problem 38-10
At the beginning of the current year, Interclude Company acquired a 30% interest in an investee
at a cost of 3,200,000.
The equity of the investee on the date of acquisition was 6,000,000 consisting of 4,000,000
share capital and 2,000,000 retained earnings.
All the identifiable assets and liabilities of the investee were recorded at fair value except for an
equipment with a fair value of 3,000,000 greater than carrying amount. The remaining useful life
of the equipment is 5 years.
At year end, Interclude Company had inventory costing 2,000,000 on hand which had been
purchased from the investee. A profit of 600,000 has been made on the sale.
During the current year, the investee reported net income of 4,000,000 and paid a
dividend of 1,500,000.
The equity of the investee at year-end show the following:

Retained earnings 3,500,000
Retained earnings appropriated 1,000,000

The revaluation surplus arose from a revaluation of land made at the end of the current year.
Retained earnings appropriated arose from a transfer of unappropriated retained to retained

earnings appropriated for contingencies.
What is the implied goodwill from acquisition of investment?

a) 1,400,000
b) 700,000
c) 500,000
d) 0
a) 1,200,000
b) 1,020,000
c) 840,000
d) 750,000
What is the carrying amount of the investment in associates at year end?

a) 3,200,000
b) 3,690,000
c) 4,190,000
d) 3,590,000
Problem 38-11
Alpha company acquired 20,000 shares of beta company on January 1, 2019 at 120 per share.
Beta Company had 80,000 outstanding with a carrying amount of 8,000,000.
The difference between the carrying amount and fair value of beta company on January 1, 2019
is attributed to a broadcast license which is an intangible asset.
Beta company recorded earnings of 3,600,000 and 3,900,000 for 2019 and 2020, respectively,
and paid per-share dividend of 16 in 2019 and 20 in 2020.
Alpha company has a 20-year straight line amortization policy for the broadcast license.

a) 900000
b) 880,000
c) 320,000
d) 920,000
What is the carrying amount of the investment in associate on December 31 2019?

a) 2,980,000
b) 2,960,000
c) 3.300,000
d) 2,060,000

a) 975,000
b) 995,000
c) 955,000
d) 935,000
What is the carrying amount of the investment in associate on December 31 2020?

a) 3,515,000
b) 2,400,000
c) 3,555,000
d) 4,275,000
Problem 38-12
On January 21 2016, Bart company acquired as a long-term investment for 7,000,000, a
40%interest in Hall Company when the fair value of Hall’s net assets was 17,500,000. Hall
company reported the following net losses:
2016 5,000,000
2017 7,000,000
2018 8,000,000
2019 4,000,000
On January 1 2018, Bart Company made cash advances of 2,000,000 to Hall Company. On
December 31,2019, it is not expected that Bart Company will provide further financial support
for Hall Company.
What amount should be reported as loss from investment for 2019?

a) 1,600,000
b) 4,000,000
c) 1,000,000
d) 600,000
Chapter 39: Financial Asset at amortized cost

Problem 39-1
On July 1, 2019, Cody Company paid 1,198,000 of 10%, 20 year bonds with a face amount of
1,000,000. Interest is paid onJune 30 and December 31.
The bonds were purchased to yield 8%. The effective interest method is used to recognize
interest income from long term investments.
What is the carrying amount of the investment in bonds onDecember 31, 2019?
a) 1,207,900
b) 1,198,000
c) 1,195,920
d) 1.193,050
Problem 39-2
On January 1, 2019, Purl Company purchased as a long term investment 5,000,000
face value of Shaw Company’s 8% bonds for4,562,000.
The bonds were purchased to yield 10% interest.The bonds mature on January 1, 2021 and pay
interest annually onDecember 31. The interest method of amortization is used.

a) 456,200
b) 461,820
c) 400,000
d) 369,456
What is the carrying amount of the bond investment on December 31, 2020?
a) 4,680,020
b) 4,662,000
c) 4,618,200
d) 4,562,000
Problem 39-3
On July 1, 2019, York Company purchased as a long term investment 1,000,000 of Park
Company’s 8% bonds for 946,000 including accrued interest of 40,000.
The bonds were purchased to yield 10%interest.The bonds matured on January 1, 2022, and
pay interest annually onJanuary 1. York Company used the effective interest method
of amortization.

a) 80,000
b) 90,600
c) 45,300
d) 40,000
On December 31, 2019, what is the carrying amount of the investment in bonds?
a) 911,300
b) 916,600
c) 953,300
d) 960,600
Problem 39-4
On January 1, 2019, Portugal Company purchased bonds with face value of 8,000,000 for
7,679,000 as a long term investment.
The stated rate on the bonds is 10% but the bonds acquired to yield 12%.
The bonds mature at the rate of 2,000,000 annually everDecember 31 and the
interest is payable only also everyDecember 31. The entity used the effective interest
method of amortizing discount.

a) 800,000
b) 921,480
c) 960,000
d) 767,900
What is the carrying amount of the investment in bonds on December 31, 2019?
a) 5,759,250
b) 7,759,250
c) 7,800,480
d) 5,800,480
Problem 39-5
On July 1, 2019, East Company purchased as a long term investment 5,000,000
face amount, 8% bonds of RandCompany for 4,615,000 to yield 10% per year. The bonds
pay interest semi-annually on January 1 and July 1.
On December 31, 2019, what amount should be reported as interest receivable?

a) 184,600
b) 200,000
c) 230,750
d) 250,000
Problem 39-6
On July 1, 2019, Pell Company purchased Green Company ten year, 8% bonds with a
face amount of 5,000,000 for 4,200,000.
The bonds mature on June 30, 2026 and pay interest semi-annually June 30 and December 31.
Using the interest method, the entity record bond discount amortization of 18,000 for
the six months ended December 31,2019.

a) 168,000
b) 182,000
c) 200,000
d) 218,000
Problem 39-7
On January 1, 2016, Gilberto Company purchased 9% bonds with a face amount of 4,000,000
for 3,756,000 to yield 10%.The bonds are dated January 1, 2016, mature on December 31,2025
and pay interest annually on December 31. The interest method of amortizing bond discount is
used.
What amount should be reported as interest revenue for 2019?

a) 338,040
b) 360,000
c) 375,600
d) 400,000
What amount should be reported as interest revenue for 2020?
a) 400,000
b) 375,600
c) 360,000
d) 377,160
Problem 39-8
Jent Company purchased bonds at a discount of 100,000.Subsequently, Jent sold
these bonds at a premium of 140,000.During the period that Jent hold this long term
investment,amortization of the discount amounted to 20,000.
What amount should be reported as gain on the sale of bonds?

a) 120,000
b) 220,000
c) 240,000
d) 260,000
Problem 39-9
At the beginning of the current year, Dean Company purchased ten-year bonds with a face
value of P1,000,000 and a stated interest rate of 8% per year payable semiannually July 1 and
January 1. The bonds were acquired to yield 10%. Present value factors are as follows:
Present value of 1 for 10 periods at 10% 0.386
Present value of 1 for 20 periods at 5% 0.377
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) 873,380
Problem 39-10
On January 1, 2019, Russia Company purchased 5-year bonds with face amount of 8,000,000
and stated interest of 10% per year payable semiannually on June 310 and December 31.
The bonds were acquired to yield 8%.

Present value of ordinary annuity of 1 for 10 periods at 5% 7.72
Present value of ordinary annuity of 1 for 10 periods at 4% 8.11

Present value of an annuity of 1 for 10 periods at 4% .68
What is the market price of the bonds?

a) 5,440,400
b) 3,244,000
c) 8,684,000
d) 8,000,000
Problem 39-11
On January 1, 2019, Tagbilaran Company purchased bonds with face amount of
2,000,000. The bonds are dated January 1,2016 and mature on January 1, 2023.
The interest on the bonds is 10% payable semi-annually everyJune 30 and December 31.
The prevailing market rate of interest on the bonds is 12%.
The present value of 1 at 6% for 8 periods is .63 and the present value of an ordinary
annuity of 1 at 6% for 8 periods is 6.21.
What is the present value of the bonds on January 1, 2019?

a) 1,881,000
b) 1,888,000
c) 1,360,000
d) 1,480,000
Problem 39-12
On January 1, 2019, Arabian Company purchased serial bondswith face amount of 3,000,000
and stated 12% interest payableannually every December 31.
The bonds are to be held as financial asset at amortized costwith a 10% effective yield.
The bonds mature at an annual instalment of 1,000,000 everyDecember 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 1,2019?

a) 3,106,800
b) 3,060,000
c) 3,045,000
d) 3,149,000
Chapter 40: Bond Investment- OCI
Problem 40-1
On January 1, 2019, Queen Company purchased bonds with face amount of P5,000,000
forP4,760,00 including transaction costs of P160,000.
The business model is to collect contractual cash flows and sell the financial asset.
The bonds mature on December 31, 2021 and pay 10% interest annually on December 31 with
the 12% effective yield.
The bonds are quoted at 102 on December 31, 2019 and 105 on December 31, 2020. The
bondare sold on June 30, 2021 plus accrued interest.
What amount of unrealized gain should be reported as component of other comprehensive

income for 2019?
a) 268,800
b) 100,000
c) 340,000
d) 0
Which amount of unrealized gain should be reported as component of other comprehensive

income for 2020?
a) 339,056
b) 221,200
c) 70,256
d) 0
What amount should be recognized as gain on sale of the bond investment on June 30, 2021?
a) 544,528
b) 794,528
c) 250,000
d) 589,056
Problem 40-2
On January 1, 2019 Michelle Company purchased bonds with face amount of P5,000,000. The
Entity paid P4,600,000 plus transaction cost of P142,000.
The bonds mature on December 31, 2021 and pay 6% interest annually on December 31 of
each year with 8% effective yield.
The bonds are quoted at 105 on December 31, 2019 and 110 on December 31, 2020
The business model in managing the financial asset is to collect contractual cash flows that are
solely payments of the principal and interest and also to sell the bonds in the open market.
What amount of unrealized gain should be reported as components of other comprehensive

income for 2019?
a) 250,000
b) 400,000
c) 428,640
d) 0
What cumulative amount of unrealized gain should be reported as component of other

comprehensive income in the statement of changes in equity for 2020?
a) 500,000
b) 592,931
c) 164,291
d) 0

a) 300,000
b) 379,360
c) 385,709
d) 392,931
Problem 40-3
On January 1, 2019, Dumaguete Company purchased bonds with face amount of 4,000,000 for
4,206,000.
The business model in managing the financial asset is to collect contractual cash
flows that are solely payments of principal and interest and also to sell the bonds in the
open market.
The bonds mature on December 31, 2021 and pay 10%interest annually on
December 31 each year with 8% effective yield.
The bonds are quoted at 95 on December 31, 2019 and 90 on December 31, 2020.
What amount of unrealized loss should be reported as component of other

comprehensive income in 2019?
a. 342,480
b. 406,000
c. 469,520
d. 0
What amount of unrealized loss should be reported as component of other
comprehensive income in 2020?
a) 473,878
b) 131,398
c) 200,000
d) 0
What amount of cumulative unrealized loss should be reported in the statement of

changes in equity for 2020?
a) 406,000
b) 606,000
c) 473,878
d) 0
What is the carrying amount of the bond investment to be reported on December 31, 2020?
a) 4,206,000
b) 3,600,000
c) 3,800,000
d) 4,673,878
Problem 40-4
On January 1, 2016, Reign Company purchased 12% bonds with face amount of 5,000,000 for
5,380,000. The bonds provide an effective yield of 10%.
The bonds are dated January 1, 2019, mature on January 1, 2024 and pay interest
annually on December 31 of each year.
The bonds are quoted at 120 on December 31, 2019. The entity has elected the fair value
option for the bond investment.
What total income should be reported for 2019?

a) 1,220,000
b) 1,120,000
c) 1,138,000
d) 600,000
Problem 40-5
On January 1, 2019, Gleyka Company purchased 12% bonds with face amount of 5,000,000
for 5,500,000 including transaction cost of 100,000.
The bonds provide an effective yield of 10%.The bonds are dated January 1, 2019 and pay
interest annually onDecember 31 of each year.
The bonds are quoted at 115 on December 31, 2019. The entity has irrevocably elected to
use the fair value option.
1. What amount of gain from change in fair value should be reported for 2019?
a) 750,000
b) 250,000
c) 350,000
d) 0
2. What amount of interest income should be reported for 2019?

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, 2019?
a) 5,750,000
b) 5,400,000
c) 5,500,000
d) 5,450,000
4. What total amount of income from the investments should be reported in the
income statement for 2019?
a) 540,000
b) 950,000
c) 890,000
d) 900,000
Chapter 41: Reclassification of Financial asset

Problem 41-1
On January 1, 2019, Complex Company purchased bonds with face amount of P5,000,000. The
entity paid P4,500,000 plus transaction cost of P168,600.
The bonds mature on December 31, 2022 and pay 6% interest annually on December 31 of
eachyear with 8% effective yield.
The bonds are quoted at 105 on December 31, 2019 and 110 on December 31, 2020.
The business model in managing the financial asset is to collect contractual cash flows and also
to sell the bonds in the open market.
The entity has not elected the fair value option.

On December 31, 2020, the entity changed the business model to collect only contractual
cash flows.
On December 31, 2021, the bonds are quoted at 115 and the market rate of interest is 10%.
What amount of unrealized gain should be reported as component of OCI for 2019?
a) 250,000
b) 690,000
c) 507,912
d) 0
What amount of cumulative unrealized gain should be reported as component of OCI in the
statement of changes in equity for 2020?
a) 500,000
b) 678,545
c) 250,000
d) 875,200
What amount of unrealized gain should be reported as component of OCI for 2020?
a) 500,000
b) 250,000
c) 170,633
d) 185,200

a) 300,000
b) 500,000
c) 385,716
d) 369,984
What is the carrying amount of the investment on December 31, 2021?

a) 4,694,784
b) 4,668,600
c) 4,907,171
d) 5,750,000
Problem 41-2
On January 1, 2019, Knit Company purchased 8% bonds in the face amount of P8,000,000.
The bonds mature on January 1, 2024 and were purchased for P8,760,000 to yield 6%. Interest
is payable annually every December 31.
The business model for this investment is to collect contractual cash flows and to sell the bonds
in the open market.
Fair value Effective rate
December 31, 2019 7,740,000 9%
December 31, 2020 7,230,000 12%

On December 31, 2020, the entity changed the business model to collect contractual cash flows
only.
On January 1, 2021, the fair value of the bonds did not change.

a) 640,000
b) 520,200
c) 513,012
d) 720,000
What amount of unrealized loss as component of other comprehensive income for 2019?
a) 670,000
b) 405,100
c) 810,200
d) 550,200
What cumulative unrealized loss in other comprehensive income is recognized on December

31, 2020?
a) 1,193,212
b) 1,410,000
c) 730,000
d) 670,000
a) 505,393
b) 640,000
c) 867,600
d) 960,000
Problem 41-3
On January 1, 2019, Myopic Company purchased bonds with face amount of 2,000,000 for P
1,900,000 including transaction cost of P 100,500.
The business model for this investment is to collect contractual cash flows which are solely
payments of principal and interest.
The entity did not elect the fair value option. The bonds mature on December 31, 2021 and pay
8% interest annually every December 31 with a 10% effective yield.
On December 31, 2019, the entity changed the business model for this investment to collect
contractual cash flows and to sell the financial asset in the open market.
The bonds are quoted at 110 on January 1, 2020 and 120 on December 31, 2020.

a) 152,040
b) 190,050
c) 160,000
d) 200,000
What amount of unrealized gain in OCI should be recognized on January 1, 2020?

a) 200,000
b) 269,450
c) 290,500
d) 0
What cumulative amount on OCI is recognized in the statement of changes in equity for 2020?
a) 166,945
b) 269,450
c) 499,500
d) 436,395

a) 225,306
b) 180,244
c) 193,055
d) 220,000
What is the carrying amount of the investment on December 31, 2020?

a) 2,400,000
b) 1,930,500
c) 1,963,605
d) 2,200,000
Problem 41-4
On January 1, 2019, Soledad Company purchased 10% bonds with face amount of 3,000,000.
The bonds mature on January 1, 2029 and were purchased for 3,405,000 to yield 8%.
The entity used the effective interest method of amortization and interest is payable annually
every December 31.
The business model for this investment is to collect contractual cash flows composed of interest
and principal.
On December 31, 2020, the entity changed the business model for this investment to realize fair
value changes.
On January 1, 2021, the fair value of the bonds was P2,845,000 at an effective rate of 11.

a) 337,740
b) 300,000
c) 272,400
d) 270,192
What amount in profit or loss should be recognized in 2021 as a result of the reclassification?
a) 531,600
b) 502,292
c) 154,200
d) 0

a) 300,000
b) 312,950
c) 267,807
d) 284,500
Problem 41-5
On January 1, 2019, Royalty Company purchased 9% bonds with face amount of P6,000,000.
The bonds mature on January 1, 2024 and were purchased for P5,500,000 to yield 11%.
The entity classified the bonds as held for trading and interest is payable annually
everyDecember 31.The entity provided the following information about fair value of the bonds
and effective rate:
December 31, 2019 5,450,000 12%
December 31, 2020 6,155,000 8%

On December 31, 2020, the entity changed the business model for this investment to collect
contractual cash flows composed of principal and interest.

a) 540,000
b) 610,922
c) 660,000
d) 661,918
What amount of the unrealized loss should be recognized in profit or loss for 2019?
a) 500,000
b) 450,000
c) 105,000
d) 0
What amount of unrealized gain should be recognized in profit or loss for 2020?
a) 155,000
b) 600,000
c) 705,000
d) 0

a) 492,400
b) 540,000
c) 480,000
d) 677,050

a)
b)
c)
d)
Problem 41-6
On January 1, 2019, Zeta Company purchased 8% bonds in the face amount of P4,000,000.
The bonds mature on January 1, 2024 and were purchased for P4,335,000 to yield 6%. Interest
is payable annually every December 31.
The business model for this investment is to collect contractual cash flows composed of
principal and interest and to sell the asset in the open market.
December 31, 2019 3,870,000 9%

December 31, 2020 3,615,000 12%
On December 31, 2019, the entity changed the business model for this investment to realize fair
value changes.

a) 320,000
b) 260,100
c) 240,000
d) 346,800
What is the unrealized loss recognized in other comprehensive income for 2019?
a) 465,000
b) 405,100
c) 130,000
d) 0

a) 320,000
b) 360,100
c) 480,000
d) 384,759
What total amount is included in profit or loss in 2020 as a result of the reclassification from
FVOCI to FVPL?
a) 255,000
b) 405,100
c) 385,000
d) 660,100
Problem 41-7
On January 1, 2019, Gerry Company purchased 6% bonds in the face amount of
P4,000,000.This bonds mature on January 1, 2024 and were purchased for P3,530,000 to yield
9%.The entity classified the bonds as held for trading and interest is payable
annually everyDecember 31.
December 31, 2019 3,490,000 10%
December 31, 2020 3,425,000 12%

On December 31, 2019, the entity changed the business model to collect contractual cash flows
and also to sell the bonds in the open market.

a) 318,024
b) 240,000
c) 360,000
d) 212,016
What is the unrealized loss included in profit or loss for 2019?

a) 470,000
b) 510,000
c) 40,000
d) 0

a) 240,000
b) 349,000
c) 353,000
d) 400,000
What amount of unrealized loss is recognized in other comprehensive income for 2020?
a) 174,000
b) 575,000
c) 401,000
d) 0
Problem 41-8

a)
b)
c)
d)
Problem 41-9

a)
b)
c)
d)
Problem 41-10

a)
b)
c)
d)
Problem 41-11

a)
b)
c)
d)
Problem 41-12

a)
b)
c)
d)
Problem 41-13

a)
b)
c)
d)
Chapter 42: Investment property

Problem 42-1
Galore Company ventured into construction of condominiums inMakati which is rated
as the largest state of the art structure.
The board of directors decided that instead of selling a condominium, the entity
would hold this property for purposes of learning 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, 2019.
The cost of the construction was 50,000. The useful life of the condominium is 25
years and the residual value is 5,000,000.
An independent valuation expert provided the following fair value at each subsequent year end:
December 31, 2019 55,000,000
December 31, 2020 53,000,000
December 31, 2021 60,000,000
Under the cost model, what amount should be reported as depreciation of

investment property for 2019?
a) 1,800,000
b) 2,000,000
c) 2,200,000
d) 0
Under the fair value model, what amount should be recognized as gain from change in fair
value in 2019?
a) 5,000,000
b) 3,000,000
c) 7,000,000
d) 0
Problem 42-2
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 3,000,000

out under an operating lease
Property held by a subsidiary of Eragon, a real estate 2,000,000

firm, in the ordinary course of business
Property held by Eragon for use in production 4,000,000
Building owned by a subsidiary of Eragon and for 1,500,000

which the subsidiary provides security and
maintenanceservice to the lessees
Land leased by Eragon to a subsidiary under an 2,500,000

operating lease
Property under construction for the use as 6,000,000
investment property
Land held for future factory site 3,500,000
Machinery leased out by Eragon to an unrelated party 1,000,000

under an operating lease
What is the total investment property that should be reported in the consolidated statement
of financial position of the parent and its subsidiaries?
a) 12,500,000
b) 15,500,000
c) 10,500,000
d) 9,500,000
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 42-3
Bona Company purchased an investment property on January 1, 2017 for 2,200,000.
The property had a useful life of 40 years and onDecember 31, 2019 had a fair value of
3,000,000.
On December 31, 2019, the property was sold for net proceeds of 2,900,000. The entity
used the cost model to account for the investment property.
What is the carrying amount of the investment property onDecember 31, 2019?
a) 2,200,000
b) 2,035,000
c) 2,145,000
d) 2,090,000
What is the gain or loss to be recognized for the year endedDecember 31, 2019
regarding the disposal of the property?
a) 865,000 gain
b) 810,000 gain
c) 100,000 loss
d) 700,000 gain
Problem 42-4
Dayanara Company owned three properties which are classified as investment property.
Initial Cost Fair value Fair value

12/31/2019 12/31/2020
Property 1 2,700,000 3,200,000 3,500,000
Property 2 3,450,000 3,050,000 2,850,000
Property 3 3,500,000 3,850,000 3,600,000
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 endedDecember 31, 2017?
a) 189,000 loss
b) 150,000 gain
c) 300,000 gain
d) 450,000 loss
Problem 42-5
Mikka Company acquired a building on January 1, 2019 for 9,000,000. At that date,
the building had a useful life of 30 years.
On December 31, 2019, the fair value of the building was 9,600,000and on December 31, 2017,
the fair value was 9,900,000.
The building was classified as an investment property and accounted for under the cost model.
What is the depreciation of the investment property and account for 2019?
a) 300,000
b) 320,000
c) 330,000
d) 0
What is the carrying amount of the investment property on December 31, 2020?
a) 8,400,000
b) 9,000,000
c) 9,900,000
d) 9,570,000
Problem 42-6
Paradise Company’s accounting policy with respect to investment property is to
measure the property at fair value at the end of each reporting period.
One investment property was measured at 8,000,000 on December31, 2019.The property had
been acquired on January 1, 2019 for a total of 7,600,000, made up of 6,900,000 paid to the
vendor, 300,000 paid to the local authority as a property transfer tax and 400,000 paid to
professional advisers.
The useful life of the property is 40 years.
What is the amount of gain to be recognized in profit or loss for the year ended December 31,
2019 in respect of the investment property?
a) 400,000
b) 700,000
c) 800,000
d) 590,000
Problem 42-7
Rhino Company, a real estate entity, had a building with a carrying amount of 20,000,000 on
December 31, 2019. The building was used as offices of the entity’s administrative staff.
On December 31, 2019, the entity intended to rent out the building to independent third parties.
The staff will be moved to a new building purchased early in 2019.
On December 31, 2019, the original building had a fair value of 35,000,000.
On December 31, 2019, the entity also had land that was held for sale in the ordinary course of
business.
The land had a carrying amount of 10,000,000 and fair value of 15,000,000 on
December 31, 2019.
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.
On December 31, 2019, what amount should be recognized in revaluation surplus as

a result of transfer of the building to investment property?
a) 20,000,000
b) 35,000,000
c) 15,000,000
d) 0
On December 31, 2019, what amount should be 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
Chapter 43: Fund other investments

Problem 43-1
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, beginning 4,500,000
Bond sinking fund, during the year 900,000
Dividends on investments 150,000
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, 2019?
a) 5,850,000
b) 5,800,000
c) 5,750,000
d) 5,400,000
Problem 43-2
On March 15, 2019, Ashe Company adopted a plan to accumulate 5,000,000 by September 1,
2023. The entity plans to make four equal annual deposits to a fund that will earn interest at
10% compounded annually. The entity made the first deposit on September 1, 2019.
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
b) 1,077,500
c) 978,500
d) 730,000
Problem 43-3
On January 1, 2019, Beal Company adopted a plan to accumulate funds for a new plant
building to be erected beginning July 1, 2024,at an estimated cost of 6,000,000.
The entity intends to make five equal annual deposits in a fund that will earn interest at 8%
compounded annually.The first deposit is made on July 1, 2019.
Future value of an ordinary annuity of 1 at 8% for 5 periods 5.87
Future value of an annuity of 1 in advance at 8% for 5 periods 6.34
What is the annual deposit to the fund?

a) 1,022,150
b) 816,000
c) 946,400
d) 756,000
Problem 43-4
Cebu Company made an investment of 5,000,000 at 10% per annum compounded annually for
6 years. Round off future value factor to two decimal places.
What is the amount of the investment on the date of maturity?

a) 8,850,000
b) 8,050,000
c) 9,750,000
d) 5,500,000
Problem 43-5
At the beginning of the current year, Duripan Company invested 1,000,000 a 5 year certificate of
deposit at 8% interest.
The market interest rate at maturity is 10%. The entity does not elect the fair value option in
reporting financial asset.
Future amount of 1 at 5% for 5 periods 1.469

Future amount of 1 at 10% for 5 periods 1.611
Future amount of an ordinary annuity of 1 at 8% for 5 periods 5.867
Future amount of an annuity of 1 in advance at 10% for 5 periods 6.105
What is the maturity value of the certificate of deposit?

a) 5,867,000
b) 1,611,000
c) 1,469,000
d) 6,105,000
Problem 43-6
Ball Company purchased a 1,000,000 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.
The entity provided the following data for the year ended December 31, 2019:
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 43-7
Chain Company purchased a 1,000,000 life insurance policy 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, 2019:
Cash surrender value, 1/1 87,000

Cash surrender value, 12/31 108,000
Annual advance premium paid Jan 1 40,000
During the current year, dividend of 6,000 was applied to increase the cash surrender
value of the policy.
What amount should be reported as life insurance expense for the current year?
a) 40,000
b) 25,000
c) 19,000
d) 13,000
Problem 43-8
Slovenia Company insured the life of its president for 2,000,000, the entity being the beneficiary
of an ordinary life insurance policy. The Annual premium is 80,000 and the policy is dated
January 1, 2019.
The cash surrender values are 15,000 on December 31, 2018 and te19,000 on December 31,
2019.
The entity followed the calendar year at the fiscal period. The president died on October 1, 2019
and the policy is settled on December 31, 2019.
What is the gain on life insurance settlement for 2019?
a) 1,962,000
b) 2,000,000
c) 1,961,000
d) 1,981,0002.
What is the life insurance expense for 2019?

a) 80,000
b) 60,000
c) 77,000
d) 57,000
Problem 43-9
Grand Company reported the following accounts at the end of the reporting period:

Payroll fund 100,000
Sinking fund cash 500,000
Sinking fund securities 1,000,000
Accrued interest receivable- sinking fund securities 50,000
Plant expansion fund 600,000
Cash surrender value 150,000
Investment property 3,000,000
Advances to subsidiary 200,000
Investment in associate 2,000,000
What total amount should be reported as non-current investments at the end of the reporting
period?
a) 7,500,000
b) 4,500,000
c) 7,450,000
d) 2,300,000
Chapter 44: Derivatives (Interest swap)

Problem 44-1
On January 1, 2019, Pasay Company entered into a two-year P 3,000,000 variable
interest rate loan at the prevailing rate of 12%.
In 2020, the interest rate was equal to the prevailing interest rate at the beginning of the year.
The principal loan is payable on December 31, 2020 and the interest is payable on
December 31 of each year.
On January 1, 2019, 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, 2020 is 4% and the present value of 1 at 14% for one
period is .877.
How much should be reported as “interest rate swap receivable” on December 31, 2019?
a) 60,000
b) 52,620
c) 30,000
d) 0
What amount should be reported as interest expense for 2020?

a) 360,000
b) 420,000
c) 390,000
d) 323,400
Problem 44-2
Imus Company received a two-year variable interest rate loan of P 5,000,000 on January 1,
2019.
The interest on the loan is payable on December 31 of each year and the principal is to
be repaid on December 31, 2020.
On January 1, 2019, Imus Company entered into a “receive variable, pay fixed” interest rate
swap agreement with a speculator bank designated as a cash flow hedge.
The interest rate for 2019 is the prevailing interest rate of 10% and the rate in 2020 is equal to
the prevailing rate on January 1, 2011.
The market rate of interest on January 1, 2020 is 7% and the present value of 1 at 7% for one
period is .935.
What amount should be reported as “interest rate swap payable” on December 31, 2019?
a) 150,000
b) 140,250
c) 100,000
d) 0

a) 500,000
b) 300,000
c) 150,000
d) 467,500
Problem 44-3
On January 1, 2010, Taal Company received a 5-year variable interest rate loan of
P6,000,000 with the interest payment at the end of each year and the principal to be paid on
December 31, 2023.
The interest rate for 2019 is 8% and the rate in each succeeding year is equal to market interest
rate on January 1 of each year.
On January 1, 2019, Taal Company entered into a”receivable variable pay fixed” interest rate
swap agreement with a financial institution
The swap payments are made at the end of the year. The interest rate swap agreement is
designated as a cash flow hedge.
On January 1, 2020, the market rate of interest was 9%. The present value of an ordinary
annuity of 1 at 9% for four periods is 3.24.
On January 1, 202, the market rate of interest is 12%. The present value of an ordinary annuity
of 1 at 12% for three periods is 2.40.
On December 31, 2019, what amount should be reported as “interest rate swap receivable”?
a) 300,000
b) 240,000
c) 194,400
d) 120,000
On December 31, 2020, what amount should be reported as “interest rate swap receivable”?
a) 720,000
b) 777,600
c) 576,000
d) 240,000

a) 720,000
b) 540,000
c) 480,000
d) 240,000
Problem 44-4
On January 1, 2019, Aloha Company received a four year 5,000,000 loan with interest
payments occurring at the end of each year and the principal to be repaid on December 31,
2022.
The interest for 2019 is the prevailing market rate of 10% on January 1, 2019, 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 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, 2020 and 8% on January 1, 2021.
The PV of an ordinary annuity of 1 at 6% for the three periods is 2.67 and the PV of an ordinary
annuity of 1 at 8% for two periods is 1.78.
What is the derivative asset or liability on December 31, 2019?

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

a) 178,000 asset
c) 334,000 asset
What amount of interest expense should be reported for 2020?

a) 500,000
b) 300,000
c) 400,000
d) 156,000
Problem 44-5
On January 1, 2019, Trece Company borrowed P 5,000,000 from a bank at a variable rate of
interest for 4 years. Interest will be paid annually to the bank on December 31 and the principal
is due on December 31, 2022.
Under the agreement, the market rate of interest every January 1 resets the variable for that
period and the amount of interest to be paid on December 31.
In conjunction with the loan, Trece Company entered into a “receivable variable, pay fixed”
interest rate swap agreement with another bank speculator. The interest rate swap agreement
was designated as a cash flow hedge. The market rates of interest are:
January 1, 2010 10%
January 1, 2011 14%
January 1, 2012 12%
January 1, 2013 11%
The present value of an ordinary annuity of 1 is as follows:
At 14% for three periods 2.32
At 12% for two periods 1.69
At 11% for one period 0.90
What is the “notional” of the interest rate swap agreement?

a) 5,000,000
b) 2,000,000
c) 2,500,000
d) 500,000

a) 464,000 asset
c) 600,000 asset

a) 200,000 asset
c) 169,000 asset

a) 45,000 asset
b) 45,000 liability
c) 50,000 asset
d) 50,000 liability
Chapter 45: Derivatives (forward, futures,option,

foreign currency)
Problem 45-1
Chavacano Company a seafood restaurant. On October 1, 2019, the entity determined that it
will need to purchase 50,000 kilos of deluxe fish on March 1, 2020.
Because of the volatile fluctuation in the price of deluxe fish, on October 1, 2019, the entity
negotiated a forward contract with a reputable to purchase 50,000 kilos of deluxe fish on
March 1, 2020 t a price of P50per kilo or P2,500,000. This forward contract was designated as a
cash flow hedge.
The derivative forward contract provides that if the market price of deluxe fish on March 1, 2020
is more than P50,the difference is paid by the bank to the entity.
On the other hand, if the market price on March 1, 2020 is less than P50, the entity will pay the
difference to the bank.
On December 31, 2019, , the market price per kilo is P60 and on March 1, 2020, the market
price is P58.
The discount rate is 8%. The present value of 1 is 8% for one period is .93.
What is the fair value of the derivative asset or liability on December 31, 2019?
a) 500,000 asset
c) 465,000 asset
What is the fair value of the derivative asset or liability on March 1, 2020?
a) 400,000 asset
c) 372,000 asset
Problem 45-2
Seaside Company operates a five-star hotel. The entity makes very detailed long-term planning.
OnOctober 1, 2019, the entity determined that it would need to purchase 8,000 kilos of
Australian lobster on January 1, 2021.
Because of the fluctuation in the price of the Australian lobster, on October 1, 2019, the entity
nego-tiated a forward contract with a bank to purchase 8,000 kilos of Australian lobster on
January 1, 2021 at a price of P9,600,000.
The price of Australian lobster is P1,200 per kilo on October 1, 2019. This forward contract was
designated as cash flow hedge.
The entity is predicting a drop in worldwide lobster prices between October 1, 2019 and January
1, 2020.
On December 31, 2019, he price of a kilo of Australian lobster is P1,500. On December 31,
2020 and January 1, 2021, the price of a kilo of Australian lobster P1,000.
The discount rate throughout this period is 10%. The present value of 1 at 10% for one period is
.91.
What is the notional value of the forward contract?

a) 12,000,000
b) 9,600,000
c) 7,200,000
d) 4,800,000

a) 2,400,000 asset
b) 2,400,000 liability
c) 2,184,000 asset
d) 2,184,000 liability

a) 1,600,000 asset
b) 1,600,000 liability
c) 800,000 asset
Problem 45-3
Indang company requires 40,000 kilos of soya beans each month in its operation.
To eliminate the price risk associated with the purchase of soya beans, On December 1,
2019, Indang entered into a futures contract as a cash flow hedge to buy 40,000 kilos of soya
beans at P150 per kilo on March 1, 2020.
The market price on December 31, 2010 and March 1, 2011 is P160 per kilo. The market rate of
interest is 9% and the present value of 1 at 9% is .917 for one period.
What amount should be recognized as derivative asset or liability on December 31, 2019?
a) 400,000 asset
c) 366,800 asset
Problem 45-4
Naga Company produces bottled grape juice. Grape juice concentrate is typically bought and
sold by the pound. Naga uses 50,000 pounds of grape juice concentrate each month.
On November 1, 2019, the entity entered into a grape juice concentrate futures contract as a
cash flow hedge to buy 50,000 pounds of concentrate on February 1, 2020 t a price of P50
per pound.
The market price on December 31, 2019 and February 1, 2020 of the grape juice
concentrate is P38 per pound. The market rate of interest is 115. The periodic system is used.
What amount should be recognized as derivative asset or liability on December 31, 2019?
a) 540,540 asset
c) 600,000 liability
d) 600,000 asset
Problem 45-5
Legaspi Company produces colorful 100% cotton T-shirts that are very popular among the
youth. The entity uses 150,000 kilos of cotton each month in its production process.
On December 31, 2019, Legaspi Company purchased a call option as a cash flow hedge to buy
150,000 kilos of cotton on July 1, 2020.
The option strike is P100 per kilo. The entity paid P50, 000 for call option.
The derivative option contract means that if the market price is higher than 100, the entity can
exercise the option and buy the asset at the strike option price of 100.
If the market price is lower than 100, the entity can throw away the option and buy the asset at
the cheaper price.
The market price per kilo is 110 on December 31, 2019 and 115 on july 1, 2020.
What is the derivative asset on December 31, 2019?

a) 500,000
b) 450,000
c) 750,000
d) 700,000
What is the cash settlement from the speculators on July 1, 2020?

a) 750,000
b) 700,000
c) 500,000
d) 450,000
What is the cost of the purchases on July 1, 2020?

a) 5,750,000
b) 5,000,000
c) 5,050,000
d) 5,300,000
Problem 45-6
Bicol Company uses approximately 200,000 units of raw material in its manufacturing
operations. On December 31, 2019, Bicol Company purchased a call option to buy
200,000 units of raw materials on July 1, 2020 at a 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 28 on December 31,2019 and 22 on July 1, 2020.
What amount should be recognized as loss on call option in 2020?

a) 600,000
b) 500,000
c) 580,000
d) 20,000
Problem 45-7
Janina Company regularly hedges its purchases requirements and the sale of its finished
products in the futures market.
On December 1, 2019, Janina Company entered into the following three contracts designated
as cash flow hedge:
Type of contract Quantity Futures price Market price
1/1/2019 12/31/2019
Purchase sugar 20,000 60 75
Purchase milk 50,000 100 91
Sell ice cream 30,000 220 195
All three contracts are to be settled on January 1, 2011.

a) 300,000 asset
b) 600,000 asset
c) 1,500,000 liability
d) 1,050,000 liability
Problem 45-8
Hazel Company entered into a call option contract with a bank at the beginning of the current
year. This contract gives the entity the option to purchase 10,000 shares at P100 per
share. The option expires on April 30. The shares are trading at P100 per share at the
beginning of the current year, at which time the entity paid P10, 000 for the call option.
The market price per share is P120 on April 30 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 45-9
On June 30 of the current year, Ester Company entered into a firm commitment to
purchase specialized equipment from Nagasaki Company for ¥80,000,000 on August 31. The
exchange rate on June 30 is ¥100=$1. To reduce the exchange rate risk that could increase in
the cost of the equipment in U.S. dollars, the entity paid $12,000 for a call option contract. This
contract gave the entity the option to purchase ¥80,000,000 at an exchange rate of ¥100=$1 on
August 31. On August 31, the exchange rate ¥93=1
What amount in U.S dollars did the entity save by purchasing the call option?
a) 12,000
b) 48,215
c) 60,215
d) 0
Problem 45-10
On November 1, 2019, Cassandra Company sold some limited edition art prints to
NoritakeCompany for Y47,850,000 to be paid on January 1, 2020.
The current exchange rate onNovember 1, 2011 was Y110=$1, so the total payment at the
current exchange rate would be equal to $435,000.
Cassandra entered into a forward contract with a large bank to guarantee the number of dollars
to be received.
According to the terms of the contract, ifY47,850,000is worth less than $435,000, the bank will
pay Cassandra the difference in cash.
Likewise,ifY47,850,000 is worth more than $435,000, Cassandra must pay the bank the
difference in cash.
The exchange rate on December 31, 2011 is Y120=$1
What amount in US dollars will Cassandra report as derivative asset or liability on December
31,2019?
a) 398,750 asset
c) 36,250 asset
d) 36,250 liability
Chapter 46: Property, plant and equipment

(Acquisition cost)
Problem 46-1
Tower Company made the following acquisitions during this year.
● Purchased for P5,400,000, including appraiser fee of P50,000, and warehouse building
and the land on which it is located.
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
assumed an existing P2,500,000 mortgage.
For realty tax purposes, the property is assessed at P9,600,000, and 60% of which is
allocated to the building.
What is the total cost of land?

a) 6,160,000
b) 5,840,000
c) 6,000,000
d) 5,000,000
What is the total cost of building?

a) 8,760,000
b) 9,240,000
c) 9,000,000
d) 7,760,000
Problem 46-2
Bamco Company purchased a new machine on a deferred payment basis.
A down payment of P100, 000 was made and 4 monthly installments of P250, 000 are to be
made at the end of each month.
The cash equivalent price of the machine was P950,000. The entity incurred and paid
installation costs amounting to P30,000.
What is the amount to be capitalized as cost of the machine?

a) 950, 000
b) 980, 000
c) 1,100,000
d) 1,130,000
Problem 46-3
Josey Company entered into a contract to acquire a new machine which had a cash price of
2,000,000.
Down payment 400, 000
Note payable in 3 equal annual installments 1,200,000
20,000 ordinary shares with a par value of P25 and fair value of 800, 000
P40 per share
2,400,000
Prior to the machine’s use, installation cost of P50, 000 was incurred. The machine has
an estimated residual value of P100, 000.
What is the initial cost of the machine?

a) 2, 000, 000
b) 2, 400, 000
c) 2, 050, 000
d) 2, 450, 000
Problem 46-4
Anxious Company acquired two items of machinery as follows:
● On December 31, 2019, Anxious 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, 2020, 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, 2019, Anxious Company acquired used machinery by issuing the
seller a two – year, non interest-bearing note for P3,000,000.
In recent borrowing, Anxious has paid a 12% interest for this type of note. The present
value of 1 at 12% for 2 years is .80 and the present value of an ordinary annuity
of 1 at 12% for 2 years is 1.69.
What is the total cost of the machinery?

a) 5,065,000
b) 5,225,000
c) 5,565,000
d) 8,235,000
Problem 46-5
On December 31, 2019, 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, 2019, and the others are due annually on
December 31.
At the date of issuance, the prevailing rate of interest for this type of note was 11%.
Present value of an ordinary annuity of 1 at 11% for 8 periods 5.146
Present value of an annuity of 1 in advance at 11% for 8 5.712

periods
What amount should be recorded as initial cost of the machine?
a) 1,600,000
b) 1,029,200
c) 1,400,000
d) 1,142,400
What is the discount on note payable on December 31, 2019?

a) 657,600
b) 457,600
c) 570,800
d) 0

a) 125,664
b) 103,664
c) 113,212
d) 176,000
a) 200,000
b) 846,064
c) 742,400
d) 742,412
Problem 46-6
Precious Company had the following property acquisitions during the current year:
● Acquired a tract of land with an existing building 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 plant in the city.
No payment was required but Precious 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 result of the acquisitions?

a) 7,200,000
b) 6,000,000
c) 7,050,000
d) 6,100,000
Problem 46-7
Lax Company recently acquired two items of equipment.
● Acquired a press at an invoice price of P3,000,000 subject to a 5% cash discount which

was taken.
Costs of freight and insurance during shipment were P50,000 and installation cost
amounted to P200,000.
● Acquired a welding machine at an invoice price of P2,000,000 subject to a 10%

cash discount which was not taken.
Additional welding supplies were acquired at a cost of P100,000.
What is the total increase in the equipment account as a result of the transactions?
a) 4,900,000
b) 5,000,000
c) 5,100,000
d) 5,200,000
Problem 46-8
Grab Company purchased a ten-ton draw press at a cost of P 3,600,000 with terms of 5/15,
n/45. Payment was made within the discount period.
Shipping cost was P 90,000 which included P 4,000 for insurance in transit. Installation cost
totaled P 240,000 which included P 80,000 for taking out a section of a wall and rebuilding it
because the press was too large for the doorway.
What is the capitalized cost of the ten-ton draw press?

a) 3,420,000
b) 3,670,000
c) 3,750,000
d) 3,715,200
Problem 46-9
Holiday Company purchased a high speed industrial centrifuge at a cost of P 840,000. Shipping
cost amounted to P 50,000. Foundation work to house the centrifuge costP 80,000.
An additional water line had to be run to the equipment at cost of P 40,000. Labor and testing
cost totaled P 60,000. Materials used up in testing cost P 30,000
What is the capitalized cost of the equipment?

a) 1,100,000
b) 1,060,000
c) 1,020,000
d) 1,040,000
Problem 46-10
Taiwan Company fabricated equipment for office use during the current year. The following data
were from the accounting records:
Materials Direct Labor
Finished goods 1,000,000 1,500,000
Office equipment 600,0000 500,000
Factory overhead amounted to P 1,200,000. Normal production of finished goods is 50,000

units. Due to the fabrication of the office equipment, finished goods produced totaled 35,000
units only in the current year.
The office equipment is to be charged with the overhead whichwould have been apportioned to
the 15,000 units which werenot produced.
What is the total cost of office equipment after the apportionment of factory overhead?
a) 1,100,000
b) 1,400,000
c) 1,460,000
d) 2,300,000
Problem 46-11
During the current year, Ewing Company exchanged an old packing machine, which cost
P1,200,000 and was 50% depreciated for another used machine and paid a cash difference of
P160,000
The fair value of the old packaging machine was determined to be P700,000.
What is the cost of the machine acquired in the exchange?

a) 860,000
b) 700,000
c) 760,000
d) 540,000
What is the gain on exchange?

a) 540,000
b) 100,000
c) 60,000
d) 0
Problem 46-12
Caine Company exchanged a car from inventory for a computer to be used as 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
b) 160,000
c) 200,000
d) 0
What is the cost of the computer acquired in exchange?

a) 900,000
b) 900,000
c) 860,000
d) 760,000
Problem 46-13
During the current year Beam Company paid P 100,000 cash and traded inventory which had a
carrying amount of P 2,000,000 and a fair value of P 2,100,000, for other inventory in the same
line of business with a fair value of P 2,200,000.
What amount should be recorded as a cost of the inventory received in exchange?

a) 2,000,000
b) 2,100,000
c) 2,200,000
d) 2,300,000
Problem 46-14
Yola Company and Zaro Company are fuel oil distributors. To facilitate the delivery of oil to their
customers, Yola and Zaro exchange ownership of 1,200 barrels of oil without physically moving
the oil. Yola paid Zaro P 300,000, to compensate for a difference in the grade of oil. It is reliably
determined that the exchange lacks commercial substance. On the date of the exchange,
cost and fair value of the oil of Yola Company were P 1,000,000 and P 1,200,000, respectively
What amount should Yola Company record as cost ofthe oil inventory received in exchange?
a) 1,000,000
b) 1,200,000
c) 1,300,000
d) 1,500,000
Problem 46-15
Amiable Company exchanged a truck with a carrying amount of 1,200,000 and a fair value of
2,000,000 for a truck and 200,000 cash. The fair value of the truck received was 1,800,000.
The cash flows from the new truck are not expected to be significantly different from the
cash flows of the old truck.
At what amount should the truck received in the exchange be recorded?

a) 2,000,000
b) 1,400,000
c) 1,000,000
d) 1,800,000
Problem 46-16
At the beginning of the current year, Winn Company traded in an old machine having a carrying
amount of 2,000,000 and paid a cash difference of 600,000 for a new machine having a cash
price of 2,500,000.
What amount of loss should be recognized on the exchange?
a) 600,000
b) 100,000
c) 500,000
d) 0
Problem 46-17
During the current year, Wilbur Company traded in an old machine for a newer model.
Data relative to the old old and new machines on the date of exchange follow:
Old Machine
Original Cost 800,000
Accumulated 600,000
Average published retail value 170,000
New Machine
List price 1,000,000
Cash price without trade in 900,000
Cash paid with trade in 780,000

What amount should be recognized as cost of the new machine acquired in the exchange ?
a) 900,000
b) 950,000
c) 980,000
d) 970,000
Problem 46-18
Jilmar Company acquired a delivery truck and made payment of 2,870,000 analyzed as follows:
Price of truck 2,500,000
Charge for extra equipment 150,000
Value added tax- recoverable 300,000
Insurance for one year 100,000
Motor vehicle registration 20,000
Total 3,070,000
Trade in value of old truck (200,000)
Cash Paid 2,870,000

The cost of the old truck was 1,500,000 with the carrying amount of 400,000 and fair value of
350,000.
What is the cost of the new truck acquired in the exchange?

a) 2,800,000
b) 2,870,000
c) 2,650,000
d) 3,000,000
What amount should be recognized as loss on exchange?

a) 200,000
b) 150,000
c) 50,000
d) 70,000
Chapter 47: Government grant

Problem 47-1
At the beginning of current year, Sagada Company received a grant of P25,000,000 from
theAmerican government in order to defray safety and environmental costs within the area
where the entity is located.
The safety and environmental costs are expected to be incurred over four years,
respectively,P2,000,000, P4,000,000, P6,000,000 and P8,000,000.
What amount should be recognized as grant income for the current year?
a) 25,000,000
b) 2,000,000
c) 2,500,000
d) 6,250,000
Problem 47-2
At the beginning of current year, Besao Company received a grant of P10,000,000 from
theAustralian government for the construction of a laboratory and research facility
with an estimated cost of P15,000,000 and useful life of 5 years.
The laboratory and research facility was completed and ready for the intended use at the end of
the current year.
What amount of grant income should be included in the income statement for the current year?
a) 10,000,000
b) 2,000,000
c) 1,500,000
d) 0
Problem 47-3
At the beginning of current year, Barlig Company is granted a large tract of land in the Cordillera
Region by the Philippine government. The fair value of the land is P40,000,000. The entity is
required by the grant to construct chemical research facility and employ only personnel residing
in the Cordillera region.
The estimated cost of the facility is P45,000,000 with useful life of 10 years. The chemical
research facility was completed and ready for the intended use at the end of current year.
What amount should be recognized as grant income for the current year?
a) 40,000,000
b) 4,500,000
c) 4,000,000
d) 0
Problem 47-4
At the beginning of current year, Exuberant Company received a consolidated
grant ofP12,000,000. 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 early January and is to be depreciated using the straight line
method over 10 years. The tuition costs paid amounted to P600,000 during the current year.
What amount of grant income should be recognized for the current year?
a) 1,200,000
b) 3,000,000
c) 1,650,000
d) 1,050,000
Problem 47-5
At the beginning of current year, Sabangan Company received a grant of P6,000,000 from
theBritish government to compensate for massive losses incurred because of a recent tsunami.
The grant was made for the purpose of giving immediate financial support to the entity. It will
take the entity two years to reconstruct the assets destroyed by the tsunami.
What amount of grant income should be recognized in the current year?
a) 6,000,000
b) 3,000,000
c) 1,500,000
d) 0
Problem 47-6
Peach Company purchased a machine for P7,000,000 on January 1, 2019 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.
What is the carrying amount of the asset on December 31,2020?

a) 4,200,000
b) 5,700,000
c) 4,400,000
d) 3,900,000
What is the deferred grant income on December 31, 2020?

a) 400,000
b) 800,000
c) 600,000
d) 0
Problem 47-7
Betty Company purchased a jewel polishing machine for P3,600,000 on January 1, 2019 and
received a government grant of P500,000 toward the capital cost.
The accounting policy is to treat the grant as a reduction in the cost of the asset.
The machine is to be depreciated on a straight line basis over 8 years and estimated to have a
residual value of P100,000 at the end of period.
What is the depreciation of the machine for 2019?

a) 387,500
b) 500,000
c) 437,500
d) 375,000
What is the carrying amount of the asset on December 31, 2020?

a) 2,725,000
b) 2,350,000
c) 3,000,000
d) 2,250,000
Problem 47-8
On January 1, 2019, Darwin Company purchased a plating machine for P5,400,000. The entity
received a government grant of P400,000 toward this capital cost.
The machine is to be depreciated on a 20% reducing balance basis 10 years. The estimated
residual value is P200,000.
The accounting policy is to treat the government grant as a reduction in the cost of the asset.
What is the accumulated depreciation on December 31, 2020?

a) 1,000,000
b) 1,944,000
c) 1,800,000
d) 2,000,000
What is the carrying amount of the machine on December 31, 2020?

a) 4,000,000
b) 4,040,000
c) 3,456,000
d) 3,200,000
Problem 47-9
On January 1, 2019, 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, 2021, the entity violated certain conditions attached to the grant, and therefore
had to repay fully such grant to the government
What is the grant income for 2019?

a) 1,500,000
b) 600,000
c) 300,000
d) 0
What amount should be recognized as loss resulting from the repayment of the grant in 2021?
a) 1,500,000
b) 900,000
c) 600,000
d) 0
Problem 47-10
Tarhata Company received a government grant of P2,000,000 related to a factory building that
is bought in January 2019.
The entity's policy is to treat the grant as deferred income.
The entity acquired 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 1,2021, the entire amount of the government grant became repayable by reason of
non compliance with conditions attached to the grant
What is the depreciation of the building for 2019?

a) 1,200,000
b) 1,000,000
c) 600,000
d) 500,000
What amount should be recognized as grant income for 2019?

a) 400,000
b) 200,000
c) 100,000
d) 0
What amount of loss should be recognized resulting from the repayment of the grant in 2021?
a) 1,200,000
b) 2,000,000
c) 1,400,000
d) 400,000
Problem 47-11
Tiger Company received a government grant of P600,000 related to depreciable asset required
on January 1, 2019 for P6,600,000. This grant was deducted from the cost of the asset with the
useful life of 10 years and residual value of P500,000. On january 1, 2021, the grant become
fully repayable due to noncompliance with conditions.
What is the depreciation for 2020?

a) 600,000
b) 610,000
c) 550,000
d) 660,000
What is the depreciation for 2021?

a) 610, 000
b) 780,000
c) 730,000
d) 600,000
Problem 47-12
On January 1, 2019, the city government agreed to provide Probity Company with a P5,000,000
three-year, zero-interest 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
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 are included in the journal entry
What amount should be recognized a interest expense for 2019?

a) 500,000
b) 375,000
c) 125,000
d) 750,000
What amount should be recognized as grant income for 2019?

a) 625,000
b) 875,000
c) 500,000
d) 375,000
a) 5,000,000
b) 4,250,000
c) 4,125,000
d) 4,537,500
Chapter 48: Land and Building (Basic problems)

Problem 48-1
Boyd Company purchased a P4,000,000 tract of land for a factory site.
The entity razed an old building on the property to make room for the construction of new
building and sold the materials salvaged from the demolition.
Demolition of old building 200,000
Legal fees for purchase contract and recording ownership 150,000
Title guarantee insurance 50,000
Proceeds from sale of salvaged materials 20,000
What amount should be capitalized as cost of the land?

a) 4,200,000
b) 4,150,000
c) 4,050,000
d) 4,400,000
Problem 48-2
Kay Company purchased for P4,500,000 a tract of land as a factory site. An existing building
on the property was razed to pave the way for the construction of a new factory building.
Cost of razing old building 300,000
Title insurance and legal fees to purchase land 200,000
Architect fee 950,000
New building construction cost 8,000,000
Paving of street and sidewalk 100,000
What is the cost of the land?

a) 4,700,000
b) 5,000,000
c) 4,500,000
d) 4,800,000
What is the cost of the new building?

a) 9,250,000
b) 9,450,000
c) 8,000,000
d) 9,150,000
Problem 48-3
During the current year, Burr Company had the following transactions pertaining to a new office
building:
Purchase price of land 600,000
Legal fees for contract to purchase land 20,000
Demolition of old building on site to make room for 50,000

construction of new building
Sale of scrap from old building 30,000
Construction cost of new building fully completed 3,500,000
What amount should be recorded as cost of land?

a) 600,000
b) 620,000
c) 640,000
d) 650,000
What amount should be recorded as cost of building?

a) 3,520,000
b) 3,600,000
c) 3,500,000
d) 3,620,000
Problem 48-4
Biliran Company incurred the following costs at the beginning of the current year:
Purchase price of Land 1,000,000
Purchase price of Building 4,000,000
Remodeling and repairs prior to occupancy 500,000
Escrow fee 100,000
Clearing, leveling and landfill 250,000
Property tax for period prior to acquisition 150,000
Real estate commission 300,000

a) 4,500,000
b) 4,740,000
c) 4,800,000
d) 4,940,000
Problem 48-5
At the beginning of the current year, Newman Company purchased a parcel of land as a factory
site for P1,000,000.
An old building on the property was demolished to pave way for the construction of the new
building which was completed at year-end.
Demolition of the old building 100,000
Legal fee for title investigation and purchase 25,000

contract
Construction cost 5,450,000

a) 1,125,000
b) 1,100,000
c) 1,000,000
d) 1,025,000

a) 5,475,000
b) 5,570,000
c) 5,725,000
d) 5,450,000
Problem 48-6
Martini Company incurred the following costs in purchasing a land as a factory site:
Purchase price 2,400,000
Cost of tearing down old building 240,000
Legal fee for title investigation 15,000
Title insurance 10,000
Liability insurance during construction 25,000
Excavation cost 40,000
Payment to building contractor 8,800,000

Special assessment by city for public improvement 30,000
Interest cost during construction 300,000

a) 2,425,000
b) 2,455,000
c) 2,495,000
d) 2,695,000

a) 9,505,000
b) 9,490,000
c) 9,250,000
d) 9,530,000
Problem 48-7
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
Legal fee-title investigation Construction cost 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

a) 3,550,000
b) 3,750,000
c) 3,360,000
d) 3,660,000
What amount should be recorded as cost of new building?

a) 9,400,000
b) 9,200,000
c) 9,590,000
d) 9,290,000
Problem 48-8
Paragon Company incurred the following costs during the current year in relation to property,
plant and equipment:
Cash paid for purchased of land 2,500,000
Mortgages assumed on the land purchased. Including 1,000,000

Interest accrued
Realtor commission 300,000
Legal fees, realty taxes and documentation expenses 50,000
Amount paid to relocate persons squatting on the property 100,000
Cost of tearing down an old building on the land to 200,000

makeRoom for construction of new building
Salvage value of the old building demolished 50,000
Cost of fencing the property 110,000
Amount paid to the contractor the building constructed 5,000,000
Building permit fee 50,000
Excavation 50,000
Interest that would have been earned had the money used 150,000
during the period of construction been invested

a) 3,950,000
b) 4,100,000
c) 3,850,000
d) 3,800,000
a) 5,300,000
b) 5,410,000
c) 5,450,000
d) 5,560,000
Problem 48-9
Isabela Company incurred the following costs 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
Payment to city hall for approval of building construction 120,000
Contract price for factory construction site 5,000,000
Safety fence around construction site 35,000
Safety inspection on building 30,000
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

a) 1,050,000
b) 1,060,000
c) 1,145,000
d) 1,010,000

a) 5,635,000
b) 5,435,000
c) 5,350,000
d) 5,550,000
What amount should be recorded as cost of land improvement?

a) 750,000
b) 830,000
c) 630,000
d) 280,000
Problem 48-10
Rolex Company incurred the following expenditures related to land a building.
Cash paid for land and dilapidated building 1,000,000
Removal of old building to make room forConstruction of 50,000

new building
Payment to 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 government for drainage project 5,000
Cost of grading, leveling and landfill 45,000
Driveway and walk to new building from street as part of 40,000

building plan
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 50,000

more energy efficient
Cost of windows broken by vandals 25,000

a) 1,145,000
b) 1,215,000
c) 1,130,000
d) 1,080,000

a) 6,625,000
b) 6,560,000
c) 6,650,000
d) 6,645,000
Chapter 49: Land and Building (Comprehensive

problems)
Problem 49-1
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 a fair value of P700,000 which the entity will continue to use
with some modification and renovation. 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 remodeling office building 300,000
Legal cost of conveying land 50,000
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
Plans and specifications 340,000
Payment for claim for injuries not covered by 25,000

insurance
Legal cost of injury claim 15,000

a) 1,350,000
b) 1,300,000
c) 1,450,000
d) 1,410,000
What amount should be recorded as cost of office building?

a) 1,050,000
b) 1,000,000
c) 700,000
d) 850,000
What amount should be recorded as cost of factory building

a) 5,920,000
b) 6,120,000
c) 6,000,000
d) 5,800,000
Problem 49-2
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 50,000

sale
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 10,000

inspecting building construction
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 25,000
Cost of open house party to celebrate opening of building 60,000
What amount should be capitalized as cost of land?

a) 2,120,000
b) 1,920,000
c) 1,985,000
d) 1,845,000
What amount should be capitalized as cost of building?

a) 8,555,000
b) 8,525,000
c) 8,540,000
d) 8,530,000
What amount should be capitalized as cost of land improvement?

a) 300,000
b) 115,000
c) 100,000
d) 0
Problem 49-3
At the beginning of current year, Uptown Company disclosed the following balances:
Land 4,000,000
Land improvement 1,300,000
Building 20,000,000
Machinery and equipment 8,000,000

During the current year, the following transactions occurred:
● Land was acquired for P2,000,000 cash as a building site.
● A plant facility consisting of land and building was acquired in exchange for 200,000
shares of the entity. On the acquisition date, each share had a quoted price of P45 on a
stock exchange.
Current appraised values for the land and the building, respectively, are P2,000,000 and
P8,000,000. The building has an expected life of 40 years with a P200,000 residual
value.
● Items of machinery and equipment were purchased at a total cost of P4,000,000.

Additional costs incurred were freight and unloading P100,000 and installation
P300,000. The equipment has a useful life of ten years with no residual value.
● Expenditures totaling P1,200,000 were made for new parking lot, street and sidewalk at
the entity's various plant locations. These expenditures had an estimated useful life of
fifteen years.
● Research and development costs amounted to P1,100,000.

● A machine costing P200,000 acquired seven years ago w scrapped at year-end. Straight
line depreciation had been recorded on the basis of a 10-year life with no residual value.
● A machine was sold for P500,000 at the middle of the year. Original cost of the machine
sold was P700,000 when acquired three years ago and it was depreciated on the
straight line basis over an estimated useful life of eight years and a residual value of
P50,000.
What is the total cost of land at year end?

a) 7,800,000
b) 7,600,000
c) 8,000,000
d) 6,800,000
What amount should be capitalized as cost of land improvement at year end?

a) 1,200,000
b) 3,600,000
c) 1,300,000
d) 2,500,000
What amount should be capitalized as cost of building at year end?

a) 28,000,000
b) 25,400,000
c) 27,200,000
d) 27,000,000
What amount should be capitalized as cost of machinery and equipment at year end?
a) 12,400,000
b) 11,500,000
c) 11,000,000
d) 11,700,000
Problem 49-4
Excelsior Company was incorporated on January 1, 2019 but began activities on July 1, 2019.
An analysis of the land and building account on December 31, 2019 showed the following:
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
May 1 Legal fees paid 50,000
June 1 Second payment on new construction 400,000

June 1 Insurance premium 480,000
June 1 Special task 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 800,000 cash and issued 8,000 preference share s
with par value of 100 and fair value of 150.
The old building with insignificant fair value was demolished to make room for the construction
of a new building.
Legal fees covered organization cost 15,000, title examination of land purchase 10,000, and
legal work 25,000 in connection with construction contract.
Insurance premium covered the building for a two year term beginning May 1, 2019.
The special tax assessment was for street improvements that are permanent in nature.
General expenses included the president's salary of 220,000 and the plant superintendent’s
salary of 100,000

a) 2,070,000
b) 2,160,000
c) 2,000,000
d) 2,100,000

a) 2,155,000
b) 2,065,000
c) 2,395,000
d) 2,305,000
Problem 49-5
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 P 1,600,000
To be able to acquire the land, P 175,000 was paid to a real estate agent, and P 50,000
was incurred to clear the land
During the course of clearing the land, timber and gravel were recovered and sold for P
25,000
● A second piece of land with a building was acquired forP 4,500,000
The appraiser valued the land at P 2,000,000 and the building at P 1,000,000.
Shortly after acquisition, the building was demolished at a cost of P 100,000.
A new building was constructed at a cost of P 5,000,000 plus excavation fee P 50, 000,
architect fee P 80,000 and building permit P 70,000.
● A third piece of land was acquired for P 2,000,000 and was held for undetermined use.
What total cost of land should be reported in the statement of financial position under property,
plant and equipment?
a) 8,500,000
b) 7,000,000
c) 7,100,000
d) 8,600,000
What is the cost of new building?

a) 5,200,000
b) 5,300,000
c) 6,800,000
d) 6,700,000
Chapter 50: Machinery and Capital Expenditure

Problem 50-1
Negors Company acquired a new machinery.
Invoice price of the machinery 1,400,000
Cash discount available but not taken on purchase 20,000
Freight paid on the new machinery 40,000
Cost of removing the old machinery 15,000
Installation cost of the new machinery 50,000

Testing cost before the machinery was put into regular operation 30,000
including 10,000 in wages of the regular machinery operator
Loss on premature retirement of the old machinery 5,000
Estimated cost of manufacturing similar machinery including 1,300,000

overhead
What amount should be capitalized as cost of new machinery?

a) 1,500,000
b) 1,490,000
c) 1,515,000
d) 1,520,000
Problem 50-2
Shaw Company purchased a machine for P 1 260 000 that was placed in service at year – end.
The entity incurred additional costs for this machine.
Shipping 30,000
Installation 40,000
Testing 50,000
At year-end, what amount should be reported as machinery?

a) 1,260,000
b) 1,290,000
c) 1,330,000
d) 1,380,000
Problem 50-3
Charry Company purchased a second-hand polishing machine and incurred the following costs:
Agreed price to be paid to vendor 8,000,000
Dismantling the machine at the current location 400,000
Transportation to Charry's factory 350,000
Machine refurbishment cost prior to reinstallation 175,000
Reinstallation 125,000
What amount should be capitalized as cost of the second-hand machine?

a) 8,875,000
b) 9,050,000
c) 8,125,000
d) 8,000,000
Problem 50-4
Basilan Company acquired a machine at the beginning of the current year.
Cash paid for machine, including VAT of P96,000 8960,000
Cost of transporting machine 30,000
Labor cost of installation by expert fitter 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 of the machine?

a) 1,135,000
b) 1,231,000
c) 1,200,000
d) 1,150,000
Problem 50-5
Wisdom Company is installing new equipment at its production facility and incurred the following
costs:
Cost of equipment per supplier’s invoice 2,500,000
Initial delivery and handling cost 200,000
Cost of site preparation 600,000
Consultant’s used for advice on acquisition of equipment 700,000
Interest charges paid to suppliers foe deferred credit 200,000
Estimated dismantling cost to be incurred as required by the 300,000

contract
Operating losses before commercial production 400,000

What total amount should be capitalized as cost of the equipment?
a) 4,300,000
b) 4,000,000
c) 4,200,000
d) 4,500,000
Problem 50-6
Newcombe Company use may kinds of machine in operations. The entity acquires some
machine from others and constructs some machines itself.
The following information pertains to the machine constructed by the entity:

Cost of material to construct 700,000
Labor cost 430,000
Allocated overhead cost 220,000
Allocated interest cost of financing machine 100,000
Cost of installation 120,000
Insurance for one year 20,000
Profit saved by self-construction 150,000
Safety inspection cost prior to use 40,000
What amount should be capitalized as cost of the machine?

a) 1,610,000
b) 1,510,000
c) 1,630,000
d) 1,460,000
Problem 50-7
During the current year, Christian Company purchased a second hand machine at a price of
P5,000,000.
A cash payment of P1,000,000 was made and a two-year, noninterest bearing note was issued
for the balance of P4,000,000
Recent transactions involving similar machine indicate that the used machine has a second
hand market value of P4,500,000. A new machine would cost P6,500,000.
The following costs were incurred during the year:

Cost of removing old machine that is replaced 350,000
Cash proceeds from the sale of the old machine replaced 100,000
General overhaul and repairs to recondition machine prior to use 220,000
Cost of spare parts to cover breakdowns 80,000
Cost of testing machine prior to use 150,000
Cost of hauling the machine from vendor to company premises 40,000
Cost of repairing damage to machine caused when the machine 50,000

was dropped during installation
Repairs incurred during the first year of operation 160,000
Safety device added to the machine 235,000
What total amount should be capitalized as cost of the second hand machine?
a) 5,890,000
b) 5,390,000
c) 5,220,000
d) 5,325,000
Problem 50-8
Karla Company acquired a new processing machine.
Invoice costs 1,600,000
Cost of transportation 150,000

The terms of acquisition include a 5% discount if payment is made in 10 days. The entity paid
beyond the discount period.
The entity’s chief engineer spent two-thirds of his time during the trial run of the new machine.
The monthly salary is P60, 000.
The entity requested an allowance for the supplier because the machine proved to be less than
standard performance capability. The supplier was granted a cash allowance of 100,000.
The cost of removing the old machine before the new machine was acquired amounted to P10,
000.
The operator of the old machine who was laid off due to the acquisition of the new machine was
paid a gratuity of P 30,000.
What amount should be recorded as cost of the new machinery?
a) 1,650,000
b) 1,330,000
c) 1,660,000
d) 1,690,000
Problem 50-9
Yvo Corp. installed a production assembly line to manufacture furniture. The entity purchased a
new machine and rearranged the assembly line to install this machine.
The rearrangement did not increase the estimated useful life of the assembly line, but it did
result in significantly more efficient production.
The following expenditures were incurred in connection with this project:

Machine 750,000
Labor to install machine 140,000
Parts added in rearranging the assembly line 400,000
Labor and overhead to rearrange the assembly line 180,000
What total amount of the expenditures should be capitalized?

a) 1,470,000
b) 1,070,000
c) 890,000
d) 750,000
Problem 50-10
Bell Printing Company incurred the following costs:
Purchase of collating and stapling attachment 840,000
Installation of attachment 360,000
Replacement parts for overhaul of press 260,000
Labor and overhead in connection with overhaul 140,000
The overhaul resulted in a significant increase in production. Neither the attachment nor the
overhaul increased the estimated useful life of the press.
What total amount of the costs should be capitalized?

a) 1,600,000
b) 1,200,000
c) 840,000
d) 0
Problem 50-11
King Company made the following expenditures
Continuing and frequent repairs 400,000
Repainted the plant building 100,000
Major improvement to the electrical wiring system 300,000
Partial replacement of roof tiles 140,000
What amount should be charged to repair and maintenance expense?

a) 960,000
b) 820,000
c) 640,000
d) 540,000
Problem 50-12
Fox Company made the following expenditures
Renovation of a group of machines to secure significant 500,000
increase in production over the remaining five-year useful life
Continuing frequent, and low cost repair 350,000
Replacement of a broken gear on a machine 50,000
What amount should be charged to repair and maintenance expense?

a) 350,000
b) 400,000
c) 850,000
d) 900,000
Problem 50-13
Rona Company provided the following charges to the "repair and maintenance account"
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 500,000

all office windows
80,000
Sealing of roof leaks in production area 50,000
Replacement of door to production area 200,000
Installation of automatic door-opening system 350,000
Overhead crane for assembly department to speed up production 60,000
Replacement of broken gear on machine
What total amount of expenditures should be capitalized?

a) 1,400,000
b) 1,200,000
c) 1,500,000
d) 1,410,000
Problem 50-14
On July 1, Rudd Company’s delivery van was destroyed in an accident. On that date, the van’s
carrying amount was 500,000.
On July 15, the entity received and recorded a P140, 000 invoice for a new engine installed in
the van in May, and another P100, 000 invoice for various repairs.
In August, the entity received P700, 000 under its insurance policy on the van, which it plan to
use to replace the van.
What amount should be recorded as gain on disposal of the van in the income statement?
a) 200,000
b) 700,000
c) 60,000
d) 0
Chapter 51: Borrowing cost

Problem 51-1
On January 1, 2019, 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, 2019 with a cost of 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
onNovember 30, 2019.
What is the carrying amount of the plant on November 30, 2019?

a) 6,000,000
b) 6,470,000
c) 6,520,000
d) 6,550,000
Problem 51-2
On January 1, 2019, Cagayan Company took out a loan of P24,000,000 in order to finance
specifically the renovation of a building. The renovation work started on the same date.
The loan carried annual interest at 10%. Work on the building was substantially complete
onOctober 31,2019.
The loan was repaid on December 31,2019 and P200,000 investment income was earned in the
period to October 31 on the proceeds of the loan not yet used for the renovation.
What amount of capitalizable borrowing cost should be included in the cost of the building?
a. 2,400,000
b. 2,200,000
c. 2,000,000
d. 1,800,000

a. 800,000
b. 400,000
c. 200,000
d. 0
Problem 51-3
Sun Company was constructing an asset that qualified for interest capitalization.
The Construction began at the beginning of the current year and was completed at the end of
current year.
The construction cost totaled P12,000,000 and was incurred evenly during the current year.
The entity had outstanding notes payable during the entire year of construction comprising
P6,000,000 8% interest and P9,000,000 9% interest. None of the borrowings were specified for
the construction of the qualified asset.
What amount of interest should be capitalized?

a) 480,000
b) 516,000
c) 810,000
d) 960,000
What amount should be reported as interest expense for the current year?
a) 960,000
b) 645,000
c) 774,000
d) 0
Problem 51-4
Marian Company borrowed P20,000,000 at 10% partly for general purposes and partly to
finance the construction of a building on January 1, 2019. The loan shall be repaid commencing
the month following completion of the building.
Expenditures incurred evenly during the year for the completed building totaled P12,000,000
ohDecember 31, 2019. The entity earned interest of P200,000 for the year on the unexpensed
portion of the loan.
What amount of interest is capitalized on December 31,2019?

a) 1,200,000
b) 1,000,000
c) 600,000
d) 400,000
Problem 51-5
Moses Company borrowed P4,000,000 on a 10% note payable to finance a new warehouse
which the entity is constructing for its 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 totaled
P4,750,000.
What amount should be capitalized as interest for the current year?

a) 400,000
b) 475,000
c) 490,000
d) 522,500
Problem 51-6
The third year of a construction project of Jilliane Company began with a P3,000,000 balance in
construction in progress.
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%.
What amount of interest for the third year is capitalized?

a) 360,000
b) 630,000
c) 936,000
d) 990,000
What amount should be reported as interest expense for the third year?
a) 2,700,000
b) 2,070,000
c) 1,980,000
d) 1,350,000
Problem 51-7
Jam Company started construction on a building at the beginning of the current year and
completed construction at year-end.
The entity had only two interest notes outstanding during the year and both of these notes are
outstanding for all 12 months of the year.
The following information is available:

Average accumulated expenditures 2,500,000
Ending balance in construction in progress before 3,600,000

capitalization of interest
6% note incurred specifically for the project 1,500,000
9% long-term note 5,000,000
What amount should be recorded as cost of the building?

a) 3,780,000
b) 2,680,000
c) 3,750,000
d) 3,825,000
Problem 51-8
During 2019, Joshua Company constructed assets costing P5,000,000. The weighted average
expenditures totaled P3,000,000.
To help pay for construction, P2,200,000 was borrowed at 10% on January 1, 2019.
Funds not needed for construction were temporarily invested in short-term securities
yieldingP45,000 in interest revenue.
Other than the construction funds borrowed, the only other debt outstanding during the year was
a P2,500,000. 10-year, 9% note payable dated January 1, 2018.
What amount of interest should be capitalized during 2019?

a. 300,000
b. 150,000
c. 247,000
d. 472,000

a. 225,000
b. 178,000
c. 153,000
d, 0
Problem 51-9
During 2019, Elysee Company constructed a new facility at a cost of P30,000,000.
The expenditures for the building, which was finished late in 2019, were incurred evenly during
the year.
The entity had the following loans outstanding on December 31, 2019:
● 10% note to finance specifically the construction, dated January 1, 2019,
P10,000,000.This note is unpaid on December 31, 2019. Investments were made on the
proceeds from this loan and income of P100,000 was realized in 2019.
● 2% 20-year bonds issued at face amount on April 30, 2018, P30,000,000.
● 8% 5-year note payable, dated March 1, 2018, P10,000,000.
What amount of interest is capitalized as cost of the new building?

a) 1,550,000
b) 1,450,000
c) 1,400,000
d) 1,500,000
Problem 51-10
During 2019, Israel Company constructed assets costing P4,215,000. The weighted average
expenditures during the year amounted to P3,900,000.
The entity borrowed P2,000,000 at 7.5% on January 1,2019. 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,
aP1,500,000, 10-year, 10% note payable dated October 1, 2018, and a P1,000,000, 8% 5-year
note payable dated November 1,2018.
What amount of interest should be capitalized during 2019?

a) 324,800
b) 297,500
c) 273,000
d) 265,800
Problem 51-11
Congo Company commenced construction of a new plant onFebruary 1, 2019. The cost of
P18,000,000 was paid in full to the contractor on February 1, 2019 and was funded from
existing general borrowings. The construction was completed on September 30, 2019.
The borrowings during 2019 comprised the 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
b) 810,000
c) 911,250
d) 0
Problem 51-12
Warhead Company had loans outstanding during 2019 and 2020:
Specific construction loan 2,000,000 10%
General Loan 15,000,000 12%

The entity began the self construction of a new building on January 1, 2019 and the building
was completed on December 31,2020.
Expenditures during 2019:

January 1, 2019 2,000,000
July 1, 2019 4,000,000
November 1, 2019 3,000,000
July 1, 2020 1,000,000
What is the cost of the new building on December 31, 2019?

a) 9,000,000
b) 9,500,000
c) 9,200,000
d) 9,300,000

a) 10,000,000
b) 11,660,000
c) 11,700,000
d) 11,500,000

a) 3,000,000
b) 2,040,0000
c) 1,840,000
d) 0
Problem 51-13
Molave Company had the following outstanding loans during 2019 and 2020.
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, 2019 and the building
was completed on December 31,2020.
The following expenditures were made in 2019 and 2020:

January 1, 2019 4,000,000
April 1, 2019 5,000,000
December 1, 2019 3,000,000
March 1, 2020 6,000,000

a) 12,000,000
b) 12,900,000
c) 12,300,000
d) 12,600,000
What is the cost of the new building on June 30, 2020?

a) 18,000,000
b) 19,884,000
c) 20,868,000
d) 19,337,000

a) 2,316,000
b) 2,166,000
c) 2,016,000
d) 1,500,000
Problem 51-14
On June 1,2019, Circus Company began construction of a new manufacturing plant. The plant
was completed on October 31, 2020. Expenditure on the project were:
July 1, 2019 5,400,000
October 1, 2019 2,200,000
February 1, 2020 3,000,000
April 1, 2020 2,100,000
September 1, 20120 2,000,000
October 1, 2020 500,000

On July 1, 2019, the entity obtained a 7,000,000 construction loan with a 6% interest rate. The
loan was outstanding through the end of October 2020.
The only other interest-bearing debt was a long term note for P10,000,000 with an interest of
8%.
This note was outstanding during 2019 and 2020. The fiscal year-end is December 31.
What amount of interest should be capitalized in 2019?

a) 190,000
b) 195,000
c) 296,000
d) 390,000
What was the amount of average expenditure for 2020?

a) 12,415,000
b) 10,354,000
c) 12,230,000
d) 15,200,000
What amount of interest should be capitalized in 2020?

a) 620,750
b) 744,900
c) 993,200
d) 711,000
Problem 51-15
On January 1, 2019, Gemini Company contracted with a contractor to construct a building for
20,000,000.
Gemini is required to make 5 payments in 2019 with the last payment scheduled on the date of
completion. The building was completed on December 31, 2019.
The entity made the following payments during 2019:

January 1 2,000,000
March 1 4,000,000
June 30 6,100,000
September 30 4,400,000
December 31 3,500,000
20,000,000
The entity had the following debt outstanding on December 31, 2019:
● 12% 4-year note dated January 1, 2019, with interest compounded quarterly , both
principal and interest due December 31, 2022, relating specifically to the building
project - 8,500,000
● 10% 10-year note dated on December 31, 2018 with simple interest and interest payable
annually on December 31. - 6,000,000
● 12% 5-year note dated on December 31, 2018 with simple interest and interest payable
annually on December 31. - 7,000,000
What total amount of interest should be capitalized as cost of building on December 31, 2019?
a) 1,066,750
b) 1,138,770
c) 2,506,750
d) 1,092,020
Chapter 52: Depreciation (Straight Line and variable
method)
Problem 52-1
At the beginning of current year, Lem Company bought machinery under a contact that required
a down payment of P100,000, plus 24 monthly payments of P50,000 each, for total cash
payments of P1,300,000. The cash price of the machinery was P1,100,000.
The machinery has a useful life of 10 years and residual value of P50,000. The entity used
straight line depreciation.
What amount should be reported as depreciation for the current year?

a) 105,000
b) 110,000
c) 125,000
d) 130,000
Problem 52-2
Poe Company disclosed that the following depreciation policy on machinery:
● A full year depreciation is taken in the year of acquisition.
● No depreciation is taken in the year of disposition.
● The estimated useful life is five years.
● The straight line method is used.
On June 30,2020, the entity sold for P2,300,000 a machine acquired in 2017 for P4,200,000.
The residual value wasP600,000.
What amount of gain on the disposal should be recorded in 2020?

a) 140,000
b) 260,000
c) 620,000
d) 980,000
Problem 52-3
At the beginning of current year, Diamond Company acquired for P1,000,000a new machinery
with useful life of 10 years.
The machine had a drumcosting P200,000 that must be replaced every five years.
Continued operation of the machine required an inspection every four years after purchase and
the inspection cost is P80,000.The straight-line method of depreciation is used.
What amount should be recorded as depreciation for the current year?

a) 100,000
b) 108,000
c) 120,000
d) 140,000
Problem 52-4
On March 30, 2019, Camia Company purchased a drilling machine for P8,400,000. The
estimated useful life of the machine is 10 years with no residual value. An important component
of the machine is the drill housing component that will need to be replaced in five years.
The P2,000,000 cost of the drill housing component is included in the P8,400,000 cost of the
machine. The entity used the straight-line depreciation. The fiscal year ends on December 31.
What total amount of depreciation should be recorded in 2019?

a) 630,000
b) 840,000
c) 780,000
d) 480,000
Problem 52-5
Jade Company acquired a new milling machine on April 1,2013. 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, 2019, 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 2013 7,500,000
Residual Value 100,000
Estimated useful life 10 years
First special component:

Second special component:
What is the total depreciation for 2019?

a) 1,100,000
b) 1,087,500
c) 1,350,000
d) 1,175,000
Problem 52-6
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.
What is the composite life of the assets?

a) 13.3
b) 16.0
c) 18.0
d) 19.8
What is the composite rate of depreciation?

a) 6.25%
b) 5.70%
c) 2.50%
d) 7.50%
Problem 52-7
Norraine Company uses the composite method of depreciation based on a composite rate of
25%. At the beginning of the current year, the total cost of equipment was P5, 000,000 with a
total residual value of 600,000 and accumulated depreciation of 3,000,000.
In early part of the year, the entity purchased an equipment for 2,500,000 with no residual value.
At the end of the current year, the entity sold an equipment with an original cost of 1,000,000
and residual value of 200,000 for 350,000. This asset was acquired two years ago.

a) 1,625,000
b) 1,875,000
c) 1,125,000
d) 975,000

a) 100,000 gain
b) 150,000 loss
c) 50,000 loss
d) 0
Problem 52-8
Canada Company purchased a machine at an invoice price of 4,500,000 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, 2019.
It was estimated that the machine would have a useful life of 5 years and a residual value of
P800,000.
Engineering estimated indicated that the useful life of productive units was 200,000.
Units actually produced during the first two years were 30,000 in 2019 and 48,000 in 2020. The
entity decided to use the output method of depreciation.
What is the accumulated depreciation of the machine on December 31, 2020?

a) 1,560,000
b) 1,600,000
c) 960,000
d) 600,000
Problem 52-9
Tania Company purchased a boring machine on January 1. 2019 for P8,100,000. The useful life
of the machine is estimated at three years with a residual value at the end of this period of
P600,000.
During the useful life, the expected units of production are 12,000 units in 2019, 7,000 units in
2020, and 6,000 unitsin 2021.
What amount should be recorded as depreciation expense for 2020 using the appropriate
depreciation method?
a) 2,100,000
b) 2,268,000
c) 3,600,000
d) 1,800,000
Problem 52-10
Leonard Company acquired a machine on July 1, 2019 and paid P5,200,000 including freight
P50,000 and installation P150,000. The estimated life of the machine is 8 years or a totalof
100,000 working hours with no residual value.
The operating hours of the machine totalled 5,000 hours in 2019 and 12,000 hours in 2020. The
entity followed the working hours method of depreciation.
On December 31, 2020, what is the carrying amount of the machine?

a) 3,900,000
b) 4,299,000
c) 4,940,000
d) 4,316,000
Chapter 53: Depreciation (Sum of years’ digits and

declining balance)
Problem 53-1
Frey Company purchased a machine for P4,500,000 on January 1, 2019. The machine has an
estimated useful life of four years and a residual value of P500,000. The machine is being
depreciated using the sum of the years’ digits method.

a) 1,600,000
b) 2,800,000
c) 1,200,000
d) 3,150,000
What is the carrying amount on December 31, 2020?

a) 2,900,000
b) 2,700,000
c) 1,700,000
d) 1,350,000
Problem 53-2
On January 1, 2017, Mogul Company acquired equipment to be used in the manufacturing
operations.
The equipment had 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 2018 computed under the sum
of years’ digits method.
What was the acquisition cost of the equipment?

a) 1,650,000
b) 1,700,000
c) 2,400,000
d) 2,450,000
Problem 53-3
On April 1, 2019, Kew Company purchased new machinery for 3,300,000. The machinery had
an estimated useful life of five years with the residual value of 300,000. Depreciation is
computed by the sum of the years digits method.
What amount should be recorded as depreciation for 2019?

a) 500,000
b) 750,000
c) 900,000
d) 800,000

a) 1,600,000
b) 1,800,000
c) 850,000
d) 600,000
Problem 53-4
Rago Company takes a full year’s depreciation expense in the year of an asset’s acquisition and
no depreciation expense in the years of disposition.
Data relating to a depreciable assets on January 1, 2019:

Acquisition year 2016
Cost 1,100,000
Residual value 200,000

Accumulated depreciation 720,000
Using the same depreciation method in 2016, 2017 and 2018, what amount of depreciation
should be recorded in 2019?
a) 120,000
b) 180,000
c) 220,000
d) 240,000
Problem 53-5
Bergen Company purchased factory equipment which was installed and put into service
January 1, 2019 at a total cost of P 1,280,000.
The equipment is being depreciated over eight years by the double declining balance method.
Residual value was estimated at P 80,000.
What amount of depreciation expense should be recorded on the equipment for 2020?
a) 225,000
b) 240,000
c) 300,000
d) 320,000
Problem 53-6
On July 1, 2019, Mundo Corporation purchased factory equipment for P 5,000,000. Residual
value was estimated at P 200,000.
The equipment is depreciated over ten years using the double declining balance method.

a) 450,000
b) 900,000
c) 768,000
d) 960,000
Problem 53-7
Rapp Company purchased a machine on July 1, 2019 for P 6,000,000. The machine has an
estimated useful life of five years and a residual value of P 800,000. The machine is being
depreciated from the date of acquisition by the 150% declining balance method.
For the year ended December 31, 2020, what amount should be recorded as depreciation
expense on the machine?
a) 1,530,000
b) 1,326,000
c) 1,040,000
d) 1,800,000
Problem 53-8
On January 1, 2019, Tania Company acquired an equipment with useful life of 8 years and
residual value of 300,000.
The depreciation applicable to this equipment was 900,000 for 2020 using the double declining
balance method.
What is the acquisition cost of the equipment?

a) 3,600,000
b) 4,500,000
c) 4,800,000
d) 5,100,000
Problem 53-9
Patterson Company provided the following information on January 1, 2019:
Vehicle cost 5,000,000
Useful life in years 5
Useful life in miles 100,000
Residual value 1,000,000
Actual miles driven
2019 30,000
2020 20,000
2021 15,000
What is the depreciation for 2021 using the SYD method?

a) 1,000,000
b) 1,333,000
c) 800,000
d) 600,000
What is the accumulated depreciation on December 31, 2020 using the double declining
balance method?
a) 1,200,000
b) 1,600,000
c) 2,560,000
d) 3,200,000
What is the accumulated depreciation on December 31, 2020 using the miles driven?
a) 2,000,000
b) 2,600,000
c) 800,000
d) 600,000
Problem 53-10
Weir Company used straight line depreciation for property, plant and equipment which consisted
of the following:
2020 2019
Land 250,000 250,000
Buildings 1,950,000 1,950,000
Machinery and equipment 6,950,000 6,500,000
Total 9,150,000 8,700,000
Less: Accumulated Depreciation 4,000,000 3,700,000
5,150,000 5,000,000
The depreciation for 2020, and 2019 was 550,000 and 500,000, respectively.
What amount was debited to accumulated depreciation during 2020 because of property, plant
and equipment retirement?
a) 400,000
b) 250,000
c) 200,000
d) 100,000
Chapter 54: Depreciation (Change in useful life and

method)
Problem 54-1
Turtle Company purchased equipment on January 1,2017 for P5,000,000. The equipment had
an estimated 5-year service life.
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, 2019,what should be reported as accumulated depreciation for the
equipment?
a) 3,000,000
b) 3,800,000
c) 3,920,000
d) 4,200,000
Problem 54-2
On January 1, 2018, Miller Company purchased a machine for P2,750,000. The machine was
depreciated using the sum of years digits method based on a useful life of 10 years with no
residual value.
On January 1, 2019, the entity changed to the straight line method of depreciation. The entity
can justify the change.
What is the carrying amount of the machine on January 1, 2019?

a) 2,750,000
b) 2,250,000
c) 2,475,000
d) 1,800,000

a) 180,000
b) 220,000
c) 250,000
d) 275,000
Problem 54-3
Xavier Company purchased a machinery on January 1, 2016 for P7,200,000.
The machinery had useful life of 10 years with no residual value and was depreciated using the
straight line method.
In 2019, a decision was made to change the depreciation method from straight line to sum of
years digits method. The useful life and residual value remained unchanged.
What is the carrying amount of the machinery on January 1, 2019?

a) 7,200,000
b) 5,040,000
c) 5,760,000
d) 6,480,000

a) 1,260,000
b) 1,440,000
c) 916,360
d) 720,000
Problem 54-4
Arreza Company acquired a machine on January 1, 2017 for P 10,000,000. The machine has
an 8 year useful life and a P 1,000,000 residual value and was depreciated using the sum of the
year’s digits method.
In January 2019, the entity estimated that the asset’s useful life from the date of acquisition
should have been 6 years and its residual value P 400,000.

a) 5,212,500
b) 6,090,000
c) 4,400,360
d) 6,250,000
Problem 54-5
Spiderman Company owns a machine that was bought on January 1, 2016 for P 3,760,000.
The machine was estimated to have a useful life of five years and a residual value of P 240,000.
Spiderman uses the sum of the year’s digits method of depreciation.
On January 1, 2019, the entity determined that the total useful life if the machine should have
been four years and the residual value is P 352,000.
What amount should be recorded as depreciation expense on the machine for 2019?
a) 192,000
b) 444,000
c) 592,000
d) 704,000
Problem 54-6
On January 1, 2019, London Company purchased a large quantity of personal computers. The
cost of these computers was P 6,000,000.
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 P 600,000. The entity
used the double declining balance method.
During January 2020, 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 the computers to 2 years.
What amount should be recorded as depreciation expense on the machine for 2020?
a) 3,000,000
b) 2,400,000
c) 1,500,000
d) 1,200,000
Problem 54-7
On January 1, 2015, Lane Company acquired equipment for P1, 000,000 with an estimated
10-year useful life. Lane estimated a P100, 000 residual value. The straight line method of
depreciation is used.
During 2019, after its 2018 financial statements had been issued, the entity determined that,
due to obsolescence, this equipment’s remaining useful life was only four more years and its
residual value would be P40, 000.
What is the carrying amount of the equipment on December 31,2019?

a) 515,000
b) 490,000
c) 415,000
d) 390,000
Problem 54-8
On January 1, 2019, Union Company purchased a machine for 2,640,000 and depreciated it by
the straight line method using an estimated useful life of eight years with no residual value.
On January 1, 2022, the entity determined that the machine had useful life of six years from the
date of acquisition with residual value of 240,000.

a) 1,760,000
b) 1,600,000
c) 1,540,000
d) 1,460,000
Problem 54-9
On January 1, 2019, Kent Corporation purchased a machine for 5,000,000. The entity paid
shipping expenses of 50,000 as well as installation costs of 120,000.
The machine was estimated to have a useful life of 10 years and estimated salvage value of
300,000 and the straight line method is used.
In January 2020, additions costing 360,000 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 salvage value.

a) 557,000
b) 517,000
c) 487,000
d) 527,000
Problem 54-10
Carmel Company provided the following information with respect to its building.
● The building was acquired January 1, 2014 at a cost of P7,800,000, with an estimated
useful life of 40 years and salvage value of P200,000. Yearly depreciation was computed
on the straight line method.
● The building was renovated on January 1, 2016 at a cost of P760,000. This was
considered as improvement. Residual value did not change.
● On January 1, 2019, the management decided to change the total life of the building to
30 years.
What amount should be recorded as depreciation of the building for 2019?

a) 292,400
b) 266,000
c) 334,400
d) 294,000
Chapter 55: Depletion (basic problems)
Problem 55-1
At the beginning of the current year, Vorst Company purchased a mineral mine for P26,400,000
with removable ore estimated at 1,200,000 tons.
After it has extracted all the ore, the entity will be required by law to restore the land to its
original condition at an estimated cost of P2,100,000. The present value of the estimated
restoration cost is P1,800,000.
The entity believed that it will be able to sell the property afterwards for P3,000,000. During the
current year, the entity incurred P3,600,000 of development cost preparing the mine for
production, removed 80,000 tons of ore and sold 60,000 tons.
What total amount of depletion should be recorded for the current year?
a) 1,455,000
b) 1,940,000
c) 1,920,000
d) 1,440,000
Problem 55-2
At the beginning of the current year, Huff Mining Company purchased a mineral mine for
36,000,000 with removable ore estimated by geological survey at 2,160,000 tons.
The property has an estimated value of 3,600,000 after the ore has been extracted.
The entity incurred 10,800,000 of development cost preparing the property for the extraction 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 good sold for the current year?
a) 3,600,000
b) 4,050,000
c) 4,800,000
d) 5,400,000
Problem 55-3
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 wells 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 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
b) 930,000
c) 700,000
d) 785,000
Problem 55-4
On February 20, 2019, Genoa Company incurred cost of P36,000,000 to acquire and prepare to
extract an estimated 4,000,000 tons of mineral deposits. The entity mined 500,000 tons of ore in
2019.
On December 31, 2020, Geologists estimated that 3,000,000 tons of ore still remained. The
entity mined 600,000 tons of ore in 2020.
What amount should be recorded as depletion for 2019?

a) 4,500,000
b) 2,250,000
c) 6,000,000
d) 3,000,000

a) 5,250,000
b) 6,300,000
c) 7,200,000
d) 6,000,000
Problem 55-5
On March 31, 2019, Mariel Company purchased the right to remove gravel from an old rock
quarry. The gravel is to be sold as roadbed for highway construction.
The cost of the quarry right was P1,640,000 with estimated salable rock of 200,000 tons. During
2019, the entity loaded and sold 40,000 tons of rock.
On January 1, 2020, the entity estimated that 200,000 tons still remained. During 2020, the
entity loaded and sold 80,000 tons.

a) 410,000
b) 328,000
c) 307,500
d) 246,000

a) 540,000
b) 656,000
c) 524,800
d) 557,600
Problem 55-6
Farr Company quarries limestone, crushes it and sells it to be used in road building. The entity
paid P10,000,000 for a certain quarry. The property can be sold for P3,000,000 after production
ceases.
Estimated total reserves 10,000,000
Tons quarried through January 1, 2019 4,000,000
Tons quarried in 2019 1,500,000
An engineering study indicated that on January 1, 2017, 7,500,000 tons of limestone

were available.

a) 1,050,000
b) 2,800,000
c) 1,200,000
d) 840,000
Problem 55-7
Newton Company paid P1,000,000 to purchase land containing total estimated 160,00 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 2020, geological studies indicated that the total amount of mineral deposits had been
underestimated by 25,000 tons.
During 2020, 30,000 tons were expected and 28,000 tons were sold.
What is the depletion rate per ton in 2020?

a) 4.24
b) 4.32
c) 4.85
d) 5.19
Problem 55-8
Crowder 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 surveys estimate that the recoverable reserves will be 2,500,000 tons and that the
land will have a value of 500,000 after restoration.
Land 4,000,000
Estimated restoration costs 1,500,000
If Crowder maintains no inventories of extracted material, what should be the depletion expense
per ton of extracted material?
a) 1.80
b) 1.60
c) 1.90
d) 2.10
Problem 55-9
Canon Company purchased a coal mine for 2,000,000. An amount of 500,000 was incurred to
prepare the coal mine for extraction of the coal.
It was estimated that 750,000 tons of coal would be extracted from the mine during the useful
life.
The entity planned to sell the property for 100,000 at the end of the useful life.
During the current year, 15,000 tons of coal were extracted and sold.
What would be the depletion amount per ton for the current year?
a) 3.30
b) 2.60
c) 3.20
d) 2.50
Problem 55-10
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 of information follows:

Land 9,000,000
Exploration and development cost 1,000,000
Expected cashflow for restoration cost 1,500,000
Credit-adjusted risk free interest rate 10%
PV of 1 at 10% for 5 periods .62
What is the depletion charge per ton of extracted material?

a) 4.00
b) 4.37
c) 3.97
d) 3.60
Problem 55-11
Zeus Company paid $200,000 for the rights to mine lead in southeast Missouri. The cost to drill
and erect a mine sha was $2,400,000, and equipment to process the lead ore before shipment
to the smelter was $1,800,000. The mine is expected to yield 2,000,000 tons of ore during the
five years it is expected to be operating.
The equipment has an estimated residual value of $150,000 when mining is concluded. The
mine started operations on April 30, 2019. In 2019, 300,000 tons of ore were extracted.

a) 390,000
b) 195,000
c) 520,000
d) 260,000
a) 240,000
b) 120,000
c) 320,000
d) 160,000
Problem 55-12
On July 1, 2019, Lam Company, a calendar year corporation, purchased the rights to a mine.
The total price was P16,400,000 of which of P2,000,000 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 equipment on July 1, 2019 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

a) 1,200,000
b) 2,400,000
c) 1,366,500
d) 2,733,000
What amount should be recorded as depreciation of the mining equipment for 2016?
a) 450,000
b) 900,000
c) 600,000
d) 300,000
Problem 55-13
Surigao company operates a copper mine in Central mindanao. The entity paid 5,000,000 in
2019 for the mining site and spent an additional 3,000,000 to prepare the mine for extraction of
the copper.
After the copper is extracted in approximately four years, the entity is required to restore the
land to its original condition after which the land can be sold for 1,000,000.
The cashflow possibility for the restoration cost is 2,000,000. The credit adjusted risk-free rate of
interest is 10%. The present value of 1 at 10% for 4 periods is.68.
To aid extraction, the entity purchased new equipment on July 1, 2019 for 3,000,000 with useful
life of 5 years.
After the copper is removed from the mine, the equipment will be sold for an estimated residual
amount of 200,000.
The entity expects to extract 4,000,000 tons of copper from the mine . Actual production was
500,000 tons in 2019 and 450,000 tons were sold in 2019.

a) 1,170,000
b) 1,045,000
c) 1,250,000
d) 1,125,000

a) 315,000
b) 350,000
c) 300,000
d) 280,000
Problem 55-14
During the current year, Longhorn Company incurred 5,000,000 in exploration cost of each 20
oil wells drilled in the current year , in west Mindanao. Of the 20 wells drilled, 14 were dry holed.
The entity used the successful effort method of accounting. None of the oil found is depleted in
the current year.
What oil exploration expense should be reported in the current year?

a) 50,000,000
b) 30,000,000
c) 70,000,000
d) 0
Problem 55-15
During the current year, Prospect Company incurred 4,000,000 in exploration cost for each of
15 oil drilled in the current year. Of the 15 wells drilled, 10 were dry holes. The entity used the
successful effort of method of accounting. The entity depleted 30% of the oil discovered in the
current year.
What amount of exploration cost would be reported in the year-end statement of financial
position?
a) 42,000,000
b) 14,000,000
c) 20,000,000
d) 6,000,000
Chapter 56: Depletion (Comprehensive problems)
Problem 56-1
On January 1, 2019, 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 2019, 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 2019, 500,000 tons were mined and sold
A new survey at the end of 2020 estimated 4,200,000 tons of ore available for mining. In2020,
800,000 tons were mined and sold.

a) 1,250,000
b) 1,200,000
c) 1,450,000
d) 1,000,000

a) 1,344,000
b) 1,920,000
c) 1,200,000
d) 1,600,000
Problem 56-2
In 2016, Sunflower Company acquired a silver mine in Eastern Mindanao. Because the mine is
located deep in the Mindanao frontier, the entity was able to acquire the mine for the low price of
P50, 000
In 2017, the entity constructed a road to the silver mine costing P5, 000,000. Improvements and
other development costs made in 2017 cost P750, 000
Because of the improvements to the mine and to the surrounding land, it is estimated that the
mine can be sold for P600, 000 when mining activities are complete.
During 2018, a building was constructed near the mine site to house the mine workers and their
families.
The total cost of the building was P2, 000,000. Estimated residual value is P200, 000.
Geologist estimated that 4,000,000 tons of silver ore could be removed from the mine for
refining.
During 2019, the first year of operations, only 500,000 tons of silver ore were removed from the
mine.
However, in 2020, workers mined 1,000,000 tons of silver.
During the same year, geologists discovered that the mine contained 3,000,000 tons of silver
ore in addition to the original 4,000,000 tons.
Development cost of 1,300,000 were made to the mine early in 2020 to facilitate the removal of
the additional silver.
Early in 2020, an additional building was constructed at a cost of 375,000 to house the
additional workers needed to excavate the added silver. This building is not expected to have
any residual value.

a) 718,750
b) 650,000
c) 725,000
d) 643,750

a) 1,300,000
b) 1,525,000
c) 900,000
d) 700,000
What amount should be recorded as depreciation of building for 2019?

a) 250,000
b) 225,000
c) 318,750
d) 343,750
What amount should be recorded as depreciation of building for 2020?

a) 300,000
b) 450,000
c) 500,000
d) 290,000
Problem 56-3
Samar Company paid P5, 400,000 for property containing natural resource of 2,000,000 tons of
ore.
The present value of the estimated cost of restoring the land after the resource is extracted is
P450, 000.The land will have a value of P650, 000 after it is restored for suitable use.
Tunnels, bunk houses and other fixed installations are constructed at a cost of P8, 000,000 and
such expenditures are charged to mine improvements.
Operations began on January 1, 2019 and resources removed totaled 600,000 tons. During
2020, discovery was made indicating that available resource after 2020 will total 1,875,000 tons.
At the beginning of 2020, additional bunk houses were constructed in the amount of P770, 000.
In 2020,only 400,000 tons were mined because of a strike.
What amount should be recognized as depletion for 2019?

a) 1,560,000
b) 1,755,000
c) 1,620,000
d) 1,425,000

a) 1,560,000
b) 1,040,000
c) 640,000
d) 776,000
What amount should be recognized as depreciation for 2019?

a) 2,400,000
b) 1,200,000
c) 1,000,000
d) 500,000

a) 1,120,000
b) 2,400,000
c) 1,600,000
d) 1,360,000
Problem 56-4
In 2018, 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
rate of P2,000,000.
In 2018, the entity spent P1,000,000 in development cost and 3,000,000 in building on the
property.
The entity does not anticipate that the building will have utility after the natural resources are
removed.
In 2019, an amount of P1,000,000 was spent for additional development on the mine
The tonnage mined and estimated remaining tons are:

Tons extracted Tons remaining
2018 0 10,000,000
2019 3,000,000 7,000,000
2020 3,500,000 2,500,000

a) 6,900,000
b) 9,600,000
c) 8,100,000
d) 8,400,000

a) 10,150,000
b) 11,025,000
c) 15,750,000
d) 9,450,000
Problem 56-5
On January 1, 2019, Panatag Company purchased a mining site for P20,000,000 and spent an
additional P5,000,000 to prepare the mine for extraction of the mineral resources. After the
resources are extracted in 5 years, the entity is required by law to restore the land to its original
condition. The entity provided the following three cash flows and their probabilities for such
restoration:
3,000,000 30%
2,500,000 20%
4,000,000 50%
During 2019, the entity purchased new equipment at a cost of P8,000,000 with useful life of
8years. After the resources are removed from the mine, the equipment would be of no use.
Based On Geological Survey,the entity expected to extract 10,000,000 tons of minerals. Actual
production was 1,200,000 and 2,000,000 tons during 2019 and 2020 respectively. All resources
extracted were sold. The appropriate risk-free rate is 9% and the present value of I at 5% for 5
periods is 0.65.
What amount should be recorded as total cost of the mining site?

a) 25,000,000
b) 20,000,000
c) 27,210,000
d) 28,400,000
What amount of total expenses should be recognized in 2019?

a) 4,265,200
b) 4,424,100
c) 4,225,200
d) 3,960,000
What amount of total expenses should be recognized in 2020?

a) 7,258,801
b) 7,042,000
c) 5,442,000
d) 4,507,500
Problem 56-6
Toledo Mining Company constructed a building costing P 2,800,000 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 entity’s production of the first four years of operation was:
First year 100,000 tons
Seconde year 100,000 tons
Third year Shutdown, no output
Fourth year 100,000 tons
What amount should be recorded as depreciation for the fourth year?

a) 490,000
b) 560,000
c) 210,000
d) 336,000
Chapter 57: Revaluation

Problem 57-1
On January 1, 2014, Raven Company acquired a building at cost of P5,000,000. The building
has been depreciated on the basis of a 20-year life.
On January 1, 2019, an appraisal of the building showed replacement cost at P8,000,000 with
no change in useful life.
Before income tax, what amount should be credited to revaluation surplus on January 1, 2019?
a) 3,000,000
b) 2,250,000
c) 4,250,000
d) 6,000,000

a) 250,000
b) 150,000
c) 400,000
d) 300,000
What is the revaluation surplus that should be reported in the December 31, 2019 statement of
financial position?
a) 2,100,000
b) 2,250,000
c) 1,850,000
d) 2,800,000
Problem 57-2
On June 30, 2019, 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 a10-year period.
On December 31, 2019, 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
31, 2019.
What amount should be reported as pretax revaluation surplus on December 31, 2019?
a) 1,050,000
b) 1,300,000
c) 1,500,000
d) 2,000,000
What amount should be recorded as depreciation of the equipment for 2020?

a) 500,000
b) 910,000
c) 455,000
d) 650,000
What amount should be reported as pretax revaluation surplus on December 31, 2020?
a) 1,170,000
b) 1,040,000
c) 390,000
d) 845,000
Problem 57-3
On January 1, 2014, Boston Company purchased a new building at a cost of P6,000,000.
Depreciation was computed on the straight line basis at 4% per year.
On January 1, 2019, the building had a fair value of P8,000,000.

a) 320,000
b) 400,000
c) 100,000
d) 240,000
What is the pretax revaluation surplus on December 31, 2019?

a) 3,072,000
b) 1,900,000
c) 3,040,000
d) 1,920,000
Problem 57-4
Cycle Company provided the following account balances relating to property, plant
and equipment on January 1,2019.
Land 2,000,000
Building 15,000,000
Machinery 3,000,000
Assets have been carried at cost since their acquisition. All assets were acquired on January
1,2009. The straight line method is used.
On January 1, 2019, the entity revalued the property, plant and equipment. On such
date,competent appraisers submitted the following:
Replacement cost
Land 5,000,000
Building 20,000,000
Machinery 5,000,000
What is the pretax revaluation surplus on January 1, 2019?

a) 15,000,000
b) 11,500,000
c) 30,000,000
d) 8,500,000

a) 531,000
b) 875,000
c) 525,000
d) 625,000
What is the pretax revaluation surplus on December 31, 2019?

a) 11,075,000
b) 11,150,000
c) 11,050,000
d) 10,850,000
Problem 57-5
On January 1, 2019, Cool Company owned an equipment costing P5,200,000 with residual
value of P400,000.
The life of the asset is 10 years and was depreciated using the straight line method.
On such date, the equipment has a replacement cost of P8,000,000 with residual value
ofP200,000. The age of the asset is 4 years.
The appraisal of the equipment showed a total revised useful life of 12 years and the entity
decided to carry the equipment at revalued amount.
What amount should be reported as pretax revaluation surplus on January 1, 2019?

a) 1,600,000
b) 2,600,000
c) 1,680,000
d) 6,680,000
What amount should be reported as pretax revaluation surplus on December 31 2019?

a) 1,440,000
b) 1,400,000
c) 2,450,000
d) 2,520,000
What amount should be recorded as annual depreciation subsequent to revaluation?

a) 468,000
b) 390,000
c) 585,000
d) 975,000
Chapter 58: Impairment of Assets (Individual asset)

Problem 58-1
At year-end, Zee Company has an equipment with the following cost and
accumulated depreciation:
Equipment 9,000,000
Due to obsolescence and physical damage, the equipment is found to be impaired.

At year-end, the entity has determined the following information related to the equipment:
Fair value less cost of disposal 4,500,000
Value in use or discounted net cash inflows 4,000,000
Undiscounted net cash inflows 5,500,000
What amount should be reported as impairment loss for the year?

a) 1,500,000
b) 2,000,000
c) 500,000
d) 0
Problem 58-2
Jacqueline Company had an equipment with carrying amount of P4,500,000 at year-end:
Expected discounted net cash flows 4,000,000
Fair value of similar asset 4,150,000
Fair value of the asset when sold stand-alone 4,280,000

What amount should be reported as impairment loss for the current year?
a) 500,000
b) 350,000
c) 220,000
d) 0
Problem 58-3
Ball Company determined as result of a plant rearrangement that there had been a significant
change in the manner in which machinery was going to be used in the manufacturing process

For purposes of determining an impairment, what is the amount of expected future cash flows
that would be used for the machinery?
a) 4,000,000
b) 3,250,000
c) 3,500,000
d) 2,750,000
Problem 58-4
Listless Company acquired equipment on January 1, 2018 for P5,000,000. The equipment had
a10-year useful life and no residual value. On December 31,2019, the following information was
obtained:

a) 300,000
b) 400,000
c) 500,000
d) 0
Problem 58-5
Bubba Company determined that there had been a significant decrease in market value of an
equipment used in the manufacturing process.
Original cost of equipment 5,000,000
Expected undiscounted net future cash inflows 1,750,000

Fair value of equipment 1,250,000
What amount of impairment loss should be reported?
a) 3,250,000
b) 3,750,000
c) 750,000
d) 250,000
Problem 58-6
Zambia Company purchased four convenience store buildings on January 1, 2013 for a total of
P25,000,000. The buildings have been depreciated using the straight-line method with 20-year
useful life and 10% retained value.
On January 1, 2019 the entity 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 buildings 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
P1,500,000 per year and the current fair value of the four buildings 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.
What amount of impairment loss should be recognized for 2019?

a) 8,250,000
b) 9,775,000
c) 7,500,000
d) 0

a) 1,000,000
b) 900,000
c) 847,500
d) 762,750
Problem 58-7
Listless Company acquired equipment on January 1, 2018 for P5,000,000. The equipment had
a 10-year useful life and no residual value. On December 31, 2019, the following information
was obtained:
Expected value of undiscounted cash flows 3,600,000
Fair value estimated with in-use premise 3,700,000

Fair Value with in exchange premise 3,500,000
a) 300,000
b) 400,000
c) 500,000
d) 0
Problem 58-8
On January 1, 2017, Reed Company purchased a machine for P8,000,000 and established an
annual depreciation charge of P1,000,000 over an eight-year life.
During 2020, after issuing the 2019 financial statements, the entity concluded that the machine
suffered permanent impairment and P2,000,000 is a reasonable estimate of the amount
expected to be recovered through use of the machine for the period January 1, 2020 through
December 31, 2024 or 5 years.
What is the impairment loss for 2019?

a) 3,000,000
b) 4,000,000
c) 2,000,000
d) 0
What is the carrying amount of the machine on December 31, 2020?

a) 4,000,000
b) 1,000,000
c) 1,600,000
d) 0
Problem 58-9
Gei Company determined that, due to obsolescence, equipment with an original cost of
P9,000,000 and accumulated depreciation on January 1, 2019, of P4,200,000 had suffered
permanent impairment, and as a result should have a carrying amount of only P3,000,000 as of
the beginning of the year.
In addition, the remaining useful life of the equipment was reduced from 8 years to 3.
On December 31, 2019, what amount should be reported as accumulated depreciation?

a) 1,000,000
b) 5,200,000
c) 6,000,000
d) 7,000,000
Problem 58-10
In January 2018, Winn Company purchased equipment at a cost of P5,000,000. The
equipment had an estimated residual value of PI,000,000, an estimated 8-year useful life,
and was being depreciated by the straight line method.
Two years later, it became apparent that this equipment suffered a permanent impairment of
value.
In January 2020, management determined the carrying amount should be only PI,750,000
with a 2-year remaining useful life, and the residual value should be reduced to P250,000.
Wha6 amount should be recognized as impairment loss for 2019?
a) 4,000,000
b) 3,250,000
c) 2,250,000
d) 0
On December 31, 2020, what is the carrying amount of the equipment?

a) 1,000,000
b) 1,500,000
c) 1,750,000
d) 3,500,000
Problem 58-11
On January 1, 2015, Walton Company purchased a machine for P2,000,000 and established an
annual straight line depreciation rate of 10%, with no residual value.
During 2019, the entity determined that the machine will not be economically useful in
production process after December 31, 2019.
The entity estimated that the machine had no residual value on December 31, 2019 and
would be disposed of in early 2020 at a cost of P50,000.
What amount of impairment loss should be reported for the machine for 2019?
a) 50,000
b) 1,000,000
c) 1,050,000
d) 1,250,000
Problem 58-12
Scarbrough Company had purchased equipment for 5,600,000 on January 1, 2016. The
equipment had an eight-year useful life and a salvage value of 800,000. The entity depreciated
the equipment using the straight-line method.
In August 2019, Scarbrough questioned the recoverability of the carrying amount of this
equipment.
At August 31, 2019, the discounted expected net future cash inflows related to the continued
use and eventual disposal of the equipment amounted 3,500,000. The equipment’s fair value on
the same date is 3,000,000.
After any loss on impairment has been recognized, what is the carrying amount of the
equipment?
a) 3,500,000
b) 3,400,000
c) 2,000,000
d) 2,600,000
Problem 58-13
On July 1,2016, Rey Company purchased computer equipment at a cost of P3,600,000. The
equipment had a six-year life with no residual value and was depreciated by the straight line.
On January 1,2019, the entity determined that this equipment had been permanently
impaired, and that P700,000 could be recovered over the remaining useful life of the
equipment.
What is the carrying amount of the equipment on December 31,2019?

a) 1,500,000
b) 500,000
c) 700,000
d) 1,500,000
Problem 58-14
On January 1, 2019, Leah Company owned a machine having a carrying amount of
P2,400,000. The machine was purchased four years earlier for P4,000,000. The straight line
During December 2019, the entity determined that the machine suffered permanent impairment
and will not be economically useful after December 31, 2019. The entity sold the machine
for P650,000 on January 5,2020.
What amount should be recognized as impairment loss in 2019?

a) 2,000,000
b) 1,750,000
c) 1,350,000
d) 0
Problem 58-15
Marjorie Company acquired a machine for P3,200,000 on August 31, 2016.The machine has a
five-year life, a P500,000 residual value and was depreciated using the straight-line method.
On May 31, 2019, a test for recoverability revealed that the expected net future undiscounted
cash inflows related to the continued use and eventual disposal of the machine total
P1,080,000.The fair value date was P1,350,000 with no residual value.
What amount of impairment loss should be recognized on May 31,2019?

a) 635,500
b) 365,000
c) 500,000
d) 0
What amount should be recorded as depreciation for June 2019?

a) 63,520
b) 50,000
c) 45,000
d) 31,480
Chapter 59: Impairment of Assets (Cash generating

unit)
Problem 59-1
At the beginning of current year, Jolo Company acquired all the assets and liabilities of another
entity. The acquiree has a number 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 net assets of the acquiree, Jolo Company 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.
What amount should be recognized as impairment loss on goodwill?

a) 140,000
b) 250,000
c) 500,000
d) 0
What amount should be recognized as impairment loss to be allocated to the building?

a) 400,000
b) 500,000
c) 900,000
d) 300,000
Problem 59-2
Bronze Company operates a production line which is treated as a cash generating unit for
impairment review purposes. At year-end, the carrying amounts of the noncurrent assets are as
follows:
Goodwill 1,100,000
Machinery 2,200,000
The value in use of the production line is estimated at P2,700,000 at this time.
What is the revised carrying amount of goodwill after recognition of impairment?

a) 1,100,000
b) 900,000
c) 800,000
d) 500,000
What is the revised carrying amount of machinery after recognition of impairment?

a) 2,200,000
b) 1,800,000
c) 1,600,000
d) 1,900,000
Problem 59-3
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.
What is the total impairment loss?

a) 2,000,000
b) 4,000,000
c) 3,000,000
d) 0
What is the impairment loss allocated to building?

a) 1,000,000
b) 500,000
c) 750,000
d) 0
What is the impairment loss allocated to equipment?

a) 600,000
b) 850,000
c) 900,000
d) 0
What is the impairment loss allocated to inventory?

a) 400,000
b) 200,000
c) 600,000
d) 0
Problem 59-4
At the beginning of current year, Revlon Company acquired all of the outstanding ordinary
shares of an acquiree for P44,000,000. The fair value of the acquiree's identifiable tangible and
intangible assets total P50,000,00 and the fair value of liabilities assumed by the acquirer
wasP15,000,000. The acquirer performed the required goodwill impairment test at
year-end.Management provided the following data:
Fair value of acquiree's net assets including goodwill 37,000,000
Carrying amount of acquirce's net assets including goodwill 41,000,000

What amount of goodwill should be reported at year-end after recognizing any impairment loss?
a) 9,000,000
b) 4,000,000
c) 5,000,000
d) 0
Problem 59-5
Devin Company is testing two reporting units for impairment of goodwill.
Telecommunication Networking
Segment carrying amount including 2,500,000 3,000,000

goodwill
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 2,100,000 2,500,000

than goodwill
After properly adjusting the goodwill for impairment, what is the adjusted amount of goodwill for
the reporting unit telecommunication?
a) 400,000
b) 800,000
c) 500,000
d) 0
After properly adjusting the goodwill for impairment, what is the adjusted amount of goodwill for
the reporting unit networking?
a) 500,000
b) 200,000
c) 300,000
d) 0
Problem 59-6
During the current year, Nicole Company acquired Jones Company in a business combination.
As a result of the combination, the following amounts of goodwill were recorded for each of the
reporting units of the acquired entity:
Retailing 300,000
Servicing 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
Servicing 100,000
Financing 600,000
What amount of goodwill impairment should be recorded for the current year?
a) 100,000
b) 250,000
c) 150,000
d) 0
Problem 59-7
One of the cash generating units of Sanmig Company is 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
Allowance for doubtful accounts 1,000,000
Inventory 7,000,000
Goodwill 3,000,000
Loans payable 1,000,000

The entity determined that the value in use of the cash generating unit isP30,000,000.
The accounts receivable are considered collectible, except those considered doubtful.
What is the impairment loss to be allocated on goodwill?

a) 3,000,000
b) 1,500,000
c) 2,000,000
d) 0
What is the impairment loss to be allocated on inventory?

a) 3,500,000
b) 1,000,000
c) 1,120,000
d) 0
What is the impairment loss to be allocated to property, plant and equipment?
a) 4,000,000
b) 2,880,000
c) 2,400,000
d) 4,200,000
Problem 59-8
Brandy Company has two cash generating units. On December 31, 2019, the carrying
amounts of the assets of one cash generating unit are:
Inventory 200,000
Plant and equipment 6,000,000
Patent 850,000
Goodwill 100,000
The accounts receivable are regarded as collectible.
The fair value less cost of disposal of the inventory is equal to the carrying amount.
The patent has a fair value less cost of disposal of P750,000.
At year-end, the entity undertook impairment testing of the cash generating unit and
determined the value in use of the unit at P4,050,000.
What is the impairment loss to be allocated to the plant and equipment?

a) 800,000
b) 700,000
c) 600,000
d) 560,000
What is the impairment loss to be allocated to the patent?
a) 140,000
b) 100,000
c) 40,000
d) 0
Problem 59-9
Uranus Company has various cash generating units. On December 31,2019, one cash
generating unit has the following carrying amount of assets:
Cash 600,000
Inventory 1,400,000
Land 2,500,000
Plant and equipment 9,000,000
Accumulated depreciation (1,500,000)
Goodwill 1,000,000
Carrying amount 13,000,000

As part of the impairment testing procedure, the management determined the value in use of
the cash generating unit at P8,500,000.
The fair value less cost of disposal for the inventory is greater than the carrying amount.
What is the impairment loss to be allocated to plant and equipment?

a) 3,500,000
b) 4,500,000
c) 2,625,000
d) 3,375,000
Problem 59-10
On December 31,2019, Zernice Company acquired the following three intangible assets:
● A trademark for P3,000,000. The trademark has 4 years remaining in its legal 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 31,2020, 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.
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 assets 15,000,000
Goodwill 5,000,000
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 P800,060 in 2016 and
P500,000 in 2017.
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.
What is the impairment loss on trademark?
a) 3,000,000
b) 2,500,000
c) 500,000
d) 250,000
What is the impairment loss on goodwill?

a) 6,580,000
b) 5,000,000
c) 1,580,000
d) 0
What is the impairment loss on customer list?

a) 926,000
b) 800,000
c) 226,000
d) 0
Chapter 60: Reversal of Impairment

Problem 60-1
Lobo Company reported an impairment loss of P2,000,000 in 2018. This loss was related to an
item of property, plant and equipment which was acquired on January 1,2017 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 31,2018, the entity reported this asset at P6,000,000 which is the fair value
on such date.
On December 31,2019, the entity determined that the fair value of the impaired asset
had increased to P7,500,000.
What is the carrying amount of the impaired asset on December 31, 2019?
a) 5,250,000
b) 6,000,000
c) 5,400,000
d) 8,000,000
What is the carrying amount of the asset on December 31, 2019 on the basis that it was not
impaired?
a) 8,000,000
b) 7,000,000
c) 9,000,000
d) 6,000,000
What amount of gain on reversal of impairment should be reported in the income statement for
2019?
a) 2,250,000
b) 1,750,000
c) 1,500,000
d) 0
Problem 60-2
Tausug Company reported the following calculation relating to an impairment loss suffered on
December 31,2019:
Goodwill Other Assets
Carrying amount 3,000,000 9,000,000
Impairment loss (3,000,000) (2,000,000)
Adjusted carrying amount - 7,000,000
There has been a favorable change in the estimate of the recoverable amount of the
net assets. The recoverable amount is now P8,000,000 on December 31,2020.
The carrying amount of the net assets would have been P7,200,000 on December 31,2020 if
there was no impairment loss recognized on December 31,2019.
Assets are depreciated at 20% of reducing balance.
What is the carrying amount on December 31, 2020, assuming there was impairment?
a) 7,000,000
b) 5,600,000
c) 7,200,000
d) 9,600,000
What amount of gain on reversal of impairment should be recognized in 2020?

a) 1,000,000
b) 2,400,000
c) 1,600,000
d) 0
What amount of the gain is applied as a reversal of the impairment loss on goodwill?
a) 1,600,000
b) 1,000,000
c) 960,000
d) 0
Problem 60-3
On January 1, 2019, Elite Company purchased equipment with a cost of 11,000,000, useful life
of 10 years and no residual value. The entity used straight line depreciation.
On December 31, 2019 and December 31, 2020, the entity determined that impairment
indicators are present. There is no change in the useful life or residual value.
Fair value less cost of disposal 8,100,000 8,400,000
Value in use 8,550,000 8,200,000

a) 1,800,000
b) 1,350,000
c) 2,450,000
d) 0
What amount should be recognized as gain on reversal of impairment for 2020?

a) 400,000
b) 250,000
c) 800,000
d) 0

a) 1,100,000
b) 1,050,000
c) 1,025,000
d) 950,000
Problem 60-4
On January 31, 2019, Valentine Company purchased equipment with a cost of P10,000,000,
useful life of 5 years and no residual value. The entity used straight line depreciation.
On December 31, 2019 and December 31, 2020, the entity determined that impairment
indicators are present. There is no change in the useful life or residual value.
Fair value less cost of disposal 7,200,000 6,600,000
Value in use 6,500,000 6,300,000

a) 800,000
b) 750,000
c) 400,000
d) 0

a) 2,000,000
b) 1,800,000
c) 1,625,000
d) 1,000,000
What amount should be recognized as gain on reversal of impairment for 2020?

a) 300,000
b) 900,000
c) 600,000
d) 0

a) 2,200,000
b) 2,100,000
c) 1,800,000
d) 2,000,000
Chapter 61: Intangible assets

Problem 61-1
Vanessa Company reported the following data at year-end:
Franchise 1,000,000
Computer Software 1,500,000
Deferred charges 100,000
Patent 2,500,000
Customer list purchased 500,000
Copyright 700,000
Deposit with advertising agency to promote goodwill 400,000
Bond sinking fund 1,300,000

Goodwill 4,000,000
Trademark 900,000
Research and development cost 2,000,000
What amount should be reported as intangible assets?

a) 11,100,000
b) 11,500,00
c) 10,600,000
d) 13,100,000
Problem 61-2
Webster Company commenced operations in the current year. A number of expenditures were
made during the current year that were debited to one account intangible assets.
State incorporation fees and legal costs related to 100,000

organizing the corporation
Fire insurance premium for three-year period 60,000
Purchase of a copyright 200,000
Legal fees for filing a patent on a new product 50,000

resulting from an R&D project
Legal fees for successful defense of the patent 10,000

developed from the project
Entered into a 10-year franchise agreement with a 500,000

franchisor
Advertising cost 150,000
Purchase of all of the outstanding ordinary shares 5,000,000

of an acquiree. On the date of purchase, the
acquiree had total assets of P6,000,000 at fair
value and total liabilities of P2,200,000 at fair value
What total amount should be reported as intangible assets?

a) 1,950,000
b) 1,960,000
c) 2,050,000
d) 2,350,000
Problem 61-3
Alcaraz Company paid P5,000,000 to purchase intangible assets with the following fair value:
Internet domain name 1,500,000
Order backlog 1,200,000
In-process research and development 2,400,000
Operating permit 900,000
In addition, the entity spent P2,000,000to 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?
a) 2,400,000
b) 2,000,000
c) 2,800,000
d) 0
Problem 61-4
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:
Purchased of special equipment used solely for development 500,000
Research salaries and fringe benefits for engineers 200,000
Cost of testing prototype 250,000
Legal cost for filling patent 150,000
Fees paid to government patent office 50,000
Drawings required with patent application 40,000
What amount should be capitalized as cost of patent?

a) 240,000
b) 540,000
c) 740,000
d) 200,000
What amount of the research and development cost should be expensed in the current year?
a) 2,250,000
b) 2,000,000
c) 2,490,000
d) 1,800,000
Problem 61-5
Harmonious Company acquired a patent for a drug with a remaining legal and useful life of six
years on January 1, 2017 for P5,4000,000.
On January 1, 2019, 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 amount should be recorded as amortization expense for 2021?

a) 900,000
b) 200,000
c) 180,000
d) 300,000
Problem 61-6
Iceberg Company purchased a patent on January 1, 2014 for P6,000,000. The original useful
life was estimated to be 15 years.
However, in December 2019, the management received information proving conclusively that
the product protected by the Iceberg patent would be obsolete within four years.
Accordingly, the entity decided to write off the unamortized cost of the patent over five years
beginning 2019.
What amount should be recorded as patent amortization for 2019?

a) 1,200,000
b) 1,000,000
c) 800,000
d) 400,000
Problem 61-7
On January 1, 2016, Taft Company purchased a patent for P7,140,000. The patent is being
amortized over the remaining legal life of 15 years expiring on January 1, 2023.
During 2019, the entity determined that the economic benefits of the patent would not last
longer than ten years from the date of acquisition.
What is the carrying amount of patent on December 31, 2019?

a) 4,284,000
b) 4,896,000
c) 5,050,000
d) 5,236,000
Problem 61-8
On January 1, 2016, Lava Company purchased a patent for a new consumer product for
P900,000. At the time of purchase, the patent was valid for 15 years.
However, the useful life of the patent was estimated to be only 10 years due to the competitive
nature of the product.
On December 31, 2019, the product was permanently withdrawn from sale under governmental
order because of a potential health hazard in the product.
What amount should be charged against income in 2019 if amortization is recorded at the end
of each year?
a) 90,000
b) 540,000
c) 630,000
d) 720,000
Problem 61-9
Gray Company was granted a patent on January 1, 2018 and capitalized P450,000. The entity
was amortizing the patent over the useful life of 15 years.
During 2019, the entity paid P150,000in successfully defending an attempted infringement of
the patent.
After the legal action was completed, the entity sold the patent to the plaintiff for P750,000. The
policy is to take no amortization in the year of disposal.
What amount should be reported as gain from sale of patent in 2019?

a) 150,000
b) 240,000
c) 270,000
d) 390,000
Problem 61-10
At the beginning of current year, 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
What is the carrying amount of the trademark at year-end?

a) 3,000,000
b) 1,500,000
c) 2,850,000
d) 0
Problem 61-11
Raven Company developed a trademark to distinguish its products from those of the
competitors.
Marketing research to study consumer tastes 400,000
Design cost of trademark 1,500,000
Legal fee of registering trademark 150,000
Advertising to establish recognition of trademark 200,000
Registration fee with Intellectual Property Office 50,000
What amount should be capitalized as cost of trademark?

a) 1,700,000
b) 1,900,000
c) 2,300,000
d) 2,100,000
Problem 61-12
Royal Company purchased a trademark and incurred the following costs:
Nonrefundable value added tax 50,000
Training of personnel on the use of new trademark 70,000
Research expenditures associated with the purchase 240,000

of the new trademark
Legal cost incurred to register the new trademark 105,000
Administrative salaries 120,000
What is the initial cost of trademark?

a) 1,000,000
b) 1,155,000
c) 1,465,000
d) 1,585,000
Problem 61-13
On January 1, 2019, Aim company showed patent of P1,920,000 with related accumulated
amortization of P240,000. The patent was purchased on January 1, 2017 at which date the legal
life is 16 years.
On January 1, 2019, the useful life of the patent was determined to be only 8 years from the
date of acquisition.
On January 1, 2019, 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 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.
What is the carrying amount of intangible assets on January 1, 2019?

a) 2,280,000
b) 2,480,000
c) 1,880,000
d) 1,680,000
What amount should be recorded as total amortization for 2019?

a) 280,000
b) 440,000
c) 320,000
d) 160,000
Problem 61-14
At the beginning of current year, Hart Company signed an agreement to operate as a franchisee
of Ace Company for an initial franchise fee of P12,000,000.
Hart Company paid P4,000,000 down and agreed to pay the balance in four annual payments of
P2,000,000 at the end of each year.
Hart Company can borrow at 14% for a loan of this type.

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
What is the acquisition cost of the franchise?

a) 13,520,000
b) 12,000,000
c) 9,820,000
d) 8,720,000
Chapter 62: Goodwill

Problem 62-1
Wella Company acquired all of the outstanding ordinary shares of an acquiree paying
P7,400,000 çash.
The carrying amount and fair value of the assets and liabilities of the acquiree were:
Carrying amount Fair value
Accounts receivable 1,080,000 975,000
Inventory 1,620,000 2,400,000
Accounts payable (1,800,000) (1,800,000)
Bonds payable (2,700,000) (2,475,000)
Net assets acquired 3,600,000 6,075,000
What amount of goodwill should be reported at year-end?

a) 3,800,000
b) 1,325,000
c) 2,300,000
d) 0
Problem 62-2
Brewer Company acquired all of the outstanding ordinary shares of an acquiree paying
P12,000,000 cash. The carrying amount and fair value of the assets and liabilities of the
acquiree were:
Accounts receivable 1,800,000 2,000,000
Inventory 2,700,000 5,000,000
Accounts payable 3,000,000 3,000,000
Bonds payable 4,500,000 3,500,000
What amount should be recognized as gain on bargain purchase?

a) 2,500,000
b) 8,000,000
c) 1,500,0000
d) 0
Problem 62-3
At year-end, Bliss Company purchased the net assets of another entity for P6,000,000. On the
date of the transaction, the acquiree had P2,000,000 of liabilities.
The assets of the acquiree at fair value were P3,000,000 for current assets and P6,000,000 for
noncurrent assets.
How should be 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 62-4
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 acquiree on the date of the acquisition
are as follows:
Cash 50,000 50,000
Accounts receivable 500,000 500,000
Inventory 1,000,000 1,500,000
Patent 0 250,000
Total 3,550,000 5,300,000

In addition, the acquiree had liabilities totaling P2,000,000 at the time of acquisition.
Theacquiree had no other separately identifiable intangible assets.
What is the goodwill arising from acquisition?

a) 2,700,000
b) 2,450,000
c) 4,450,000
d) 700,000
Problem 62-5
Mayer Company purchased Tara Company for P8,000,000 cash. Tara Company had total
liabilities of P3,000,000.
Mayer Company's assessment of the fair value it obtained when it purchased Tara Company is
as follows:
Cash 50,000
Inventory 500,000
In-process research and development 1,000,000
Assembled workforce 1,200,000
What is the goodwill arising from acquisition?

a) 4,500,000
b) 3,000,000
c) 1,500,000
d) 300,000
Problem 62-6
Casanova Company purchased another entity for P5,000,000 cash, The following carrying
amount and fair value were associated with the items acquired in this business combination:
Accounts receivable 2,000,000 2,000,000
Inventory 1,000,000 500,000
Government contract 0 1,000,000
Equipment 400,000 500,000Short
Short-term loan 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. In addition, for obvious reason, there is no open market trading
for an intangible of this sort.
What is the goodwill arising from business combination?

a) 3,000,000
b) 3,600,000
c) 4,000,000
d) 0
Problem 62-7
High Company purchased for cash at P50 per share all 150,000 ordinary shares outstanding of
Skyline Company.
The statement of financial position of the acquiree on the date of acquisition showed net assets
with a carrying amount of P6,000,000.
The fair value of property, plant, and equipment on the date of acquisition was P800,000 in
excess of carrying amount.
What amount should be recorded as goodwill on the date of purchase?

a) 1,500,000
b) 800,000
c) 700,000
d) 0
Problem 62-8
At year-end, Sky Company reported assets of P5,000,000 and liabilities of P2,000,000. The
Carrying amounts of the assets approximate fair value, except for land which has a fair value
that is P300,000 greater than carrying amount.
On same date, Blue Company paid P6,000,000 to acquire Sky Company.
What amount should be recorded by the acquirer as a result of this purchase ?

a) 1,000,000
b) 3,300,000
c) 2,700,000
d) 3,000,000
Problem 62-9
Clever Company purchased for P4,000,000 cash all of the outstanding ordinary shares of
SunCompany 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:
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 recorded as goodwill in the consolidated statement of financial position
of Clever Company and its wholly-owned subsidiary?
a) 350,000
b) 250,000
c) 750,000
d) 800,000
Problem 62-10
Brisbane Company has recently diversified by taking over the operations of Darwin Company
ata cost of P10,000,000.
Darwin manufactures and sells a cleaning cloth called the "Super Swipe" which was developed
byDarwin's highly trained staff.
The unique nature of the coating used on the "Super Swipe" 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

In addition, Darwin Company owned, but had not recognized, the following:
● Trademark - "Super Swipe" with fair value of P1,000,000.
● Patent-Formula for the special coating with fair value of P500,000.
What amount should be recorded as goodwill on the date of acquisition?

a) 2,300,000
b) 1,300,000
c) 1,800,000
d) 800,000
Problem 62-11
Easter Company is planning to sell the business to new interests. The cumulative net earnings
for the past five years amounted to P16,500,000 including expropriation loss of P1,500,000.
The normal rete of return is 20%. The fair value of net assets of the entity at current year-end
was P10,000,000.
Excess earnings are purchased for 5 years?

a) 8,000,000
b) 4,000,000
c) 5,000,000
d) 4,500,000
Excess earnings are capitalized at 25%?

a) 7,200,000
b) 6,400,000
c) 8,000,000
d) 3,600,000
Annual average earnings are purchased for 3 years?
a) 10,800,000
b) 18,000,000
c) 4,800,000
d) 5,400,000
Annual average earnings are capitalized at 25%?

a) 1,600,000
b) 3,600,000
c) 4,400,000
d) 2,000,000
Excess earnings are discounted as 12% for 5 years? ( The PV of ordinary annuity of 1 for 5
years at 12% is 3.60)
a) 12,960,000
b) 10,800,000
c) 5,760,000
d) 7,200,000
Problem 62-12
Sarrah Company is interested in computing the goodwill that will be recognized in the purchase
of ABC Company in January 2020. The following information was taken from the records of
ABC.
Net Income Net Assets
2015 360,000 1,600,000
2016 388,000 1,800,000
2017 288,000 1,900,000
2018 380,000 2,000,000
2019 394,000 2,100,000
1,810,000 9,400,000
Goodwill is measured by capitalizing excess earnings at 40% with normal return on average net
assets of 10%.
What is the acquisition cost of ABC Company?

a) 2,535,000
b) 2,100,000
c) 2,315,000
d) 2,305,000
Chapter 63: Leasehold Improvement
Problem 63-1
On January 1, 2017, 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,
2024.
During January 2019, 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, 2019, the entity’s intention as to exercise of the renewal option is uncertain.
What amount should be recorded as depreciation of leasehold improvement for 2019?

a) 300,000
b) 360,000
c) 450,000
d) 600,000
Problem 63-2
On January 1, 2019, 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, 2026.
During January 2019, the entity incurred the following costs:

● P1,200,000 for general improvement to the leased premises with an estimated useful life
of ten years.
● 94P500,000 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, 2019, the entity’s intention as to exercise of the renewal option is uncertain.
What is the accumulated depreciation of leasehold improvement on December 31, 2019?

a) 292,500
b) 150,000
c) 170,000
d) 212,500
Problem 63-3
On January 1, 2019, Ral Co. leased land and building from an unrelated lessor for a ten-year
term.
The lease has a renewal option for an additional ten years, but Ral has not reached a decision
with regard to the renewal option.
In early January of 2019, Ral completed the following improvements to the property:
Sales office 10 years 470,000
Warehouse 25 years 750,000
Parking lot 15 years 180,000

What amount should be reported as depreciation of leasehold improvements for 2019?
a) 70,000
b) 89,000
c) 122,000
d) 140,000
Problem 63-4
On January 1, 2017, 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, 20121.
During January 2019, 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, 2019, the entity intended to exercise the renewal option.
On December 31, 2019, what is the carrying amount of the leasehold improvement?
a) 486,000
b) 504,000
c) 510,000
d) 513,000
Problem 63-5
Star Company leased a building to be used as product showroom. The ten-year nonrenewable
lease will expire on December 31, 2024.
In January 2019, the entity redecorated the showroom and made leasehold improvements of
480,000.
The estimated useful life of the improvements is 8 years. The straight line method of
What is the carrying amount of leasehold improvement on June 30, 2019?

a) 456,000
b) 450,000
c) 440,000
d) 432,000
Problem 63-6
On January 1, 2019, Bay Co. acquired a land lease for a 21-year period with no option to renew.
The lease required Bay to construct a building in lieu of rent.
The building, completed on December 31, 2019, at a cost of P8,400,000, will be depreciated
using the straight-line method.
At the end of the lease, the building's estimated market value will be P2,400,000. The useful life
of the building is 25 years.
What is the carrying amount of the building on December 31, 2020?

a) 7,980,000
b) 8,064,000
c) 8,160,000
d) 8,100,000
Chapter 64: Research and Development cost

Problem 64-1
Ward Company incurred the following research and development costs in the current year:
Equipment acquired for use in various R&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
b) 1,085,000
c) 1,235,000
d) 1,825,000
Problem 64-2
Ball Company incurred the following research and development costs during the current year:
Direct cost of doing contract research and development work for 400,000
the government to be reimbursed by the government unit
Depreciation 300,000
Salaries 700,000
Indirect costs appropriately allocated 200,000
Materials used 180,000

What total amount of R&D costs should be reported as expense in the current year?
a) 1,080,000
b) 1,380,000
c) 1,580,000
d) 1,780,000
Problem 64-3
West Company made the following expenditures relating to Product Y:
Legal costs to file a patent on Product Y. Production of the 100,000
finished product would not have been undertaken without the
patent.
Special equipment to be used solely for development of Product 600,000

Y. The equipment has no other use and has an estimated useful
life of four years.
Labor and material costs incurred in producing a prototype 2,000,000

model
Cost of testing the prototype 800,000

What is the total amount of costs that will be expensed when incurred?
a) 2,800,000
b) 2,950,000
c) 3,400,000
d) 3,500,000
Problem 64-4
Koral Company incurred the following costs during the current year:
Modification to the formulation of a chemical product 135,000
Trouble-shooting in connection with breakdowns during commercial 150,000

production
Design of tools, jigs, molds and dies involving new technology 170,000
Seasonal or other periodic changes to existing products 185,000
Laboratory research aimed at discovery of new technology 215,000
What total amount should be reported as research and development expense for the current
year?
a) 520,000
b) 470,000
c) 385,000
d) 335,000
Problem 64-5
Cody Company incurred the following cost 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 in connection with breakdowns during commercial 100,000

production
Adaptation of an existing capability to a particular customer’s need as part 110,000

of a continuing commercial activity
What total amount should be reported as research and development expense for the current
year?
a) 125,000
b) 160,000
c) 235,000
d) 285,000
Problem 64-6
Diel Company incurred the following costs during the current year:
Routing ongoing efforts to refine, enrich, or otherwise improve an existing 125,000
product
Design, construction and testing of reproduction models 110,000
Quality control during commercial production including routine testing of 150,000

products
Laboratory research for discovery of new knowledge 180,000
What total amount should be reported as research and development expense?

a) 235,000
b) 275,000
c) 290,000
d) 330,000
Problem 64-7
During the current year, Orr Company incurred the following costs:
Research and development services performed by Key Company to Orr 150,000
Design, construction and testing of reproduction prototypes 200,000
Testing in search for new products or process alternatives 175,000
What total amount should be reported as research and development expense?

a) 150,000
b) 200,000
c) 350,000
d) 525,000
Problem 64-8
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 production stage 1,200,000

but economic viability is not yet achieved
What amount should be recorded as research and development expense?

a) 1,650,000
b) 2,220,000
c) 3,000,000
d) 3,420,000
Problem 64-9
Fear Company incurred the following costs during the current year:
Laboratory research aimed at discovery of new knowledge 200,000
Costs of testing prototype but economic viability not achieved 50,000
Quantity control during commercial production 300,000
Construction of research facility having an estimated useful life of 5 years 400,000

but no alternative future use

a) 630,000
b) 330,000
c) 650,000
d) 950,000
Problem 64-10
At the beginning of the current year, West Company purchased two machines for 1,000,000
each. The machines were put into use immediately.
Machine A has a useful life of 5 years and can be used only in one research project. Machine B
will be used for 2 years on research and development project and then used by the production
division for an additional 8 years. The entity used the straight-line method of depreciation.
What amount should be recorded as research and development expense for the current year?
a) 2,000,000
b) 1,500,000
c) 1,100,000
d) 300,000
Problem 64-11
During the current year, Beta Company incurred the following costs related to a new
solar-powered car:
Salaries of laboratory employees researching how to build the new car 2,500,000
Legal fees for the patent application for the new car 200,000
Engineering follow up during the early stages of commercial production 500,000

and follow up occurred during the current year.
Marketing research to promote the new car 300,000
Design, testing and construction of prototype 4,000,000
a) 7,500,000
b) 6,500,000
c) 2,500,000
d) 7,200,000
Problem 64-12
During the current year, Montana Company began work on a research and development project.
The project was completed and commercial production of the developed product began in later
part of the year.
All the following expenditures were included in the Research and Development expense
account:
Salaries and wages for laboratory research 1,000,000
Design for preproduction prototype 200,000
Quality control during commercial production 100,000

Materials and supplies consumed for laboratory research 400,000
Construction for preproduction prototype 150,000
Purchase of equipment used solely for the project with useful 600,000
life of 5 years
Patent tiling and legal fee for completed project 50,000
Payment to others for research 300,000
Cost of adapting the new monitor for the specific needs of a 250,000
customer
a) 2,650,000
b) 2,170,000
c) 2,050,000
d) 2,350,000
Problem 64-13
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 220,000

technology
Quality control during commercial production, Including 350,000

routine testing
Equipment acquired two years ago, having an estimated 1,500,000

useful life of five years with no residual value, used in
various R and D projects
Research and development services performed by Stone 230,000

Company for Metal Company
Research and development services performed by Metal 20,000

Company for Kaye Company
a) 1,200,000
b) 1,500,000
c) 1,870,000
d) 2,170,000
Problem 64-14
Jess Company incurred the following research and development costs during the current year:
Equipment purchased for current and future projects 100,000
5 year useful life
Equipment purchased for current project only 200,000

5 year useful life
Research and development salaries of current project 400,000
Legal fees to obtain patent 50,000
Material and labor costs for prototype product 600,000

a) 1,220,000
b) 1,000,000
c) 1,300,000
d) 1,060,000
Problem 64-15
Brunson Company, a major company, began construction of a new facility in Mindanao. The
following costs are incurred in conjunction 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 1,200,000

operations
Advertising costs 850,000

What portion of the organization costs should be expensed?
a) 9,750,000
b) 1,600,000
c) 1,390,000
d) 0
Chapter 65: Computer Software

Problem 65-1
During the current year, Pitt Company incurred the following cost to developed and produce a
computer software product:
Completion of detailed program designed 1,300,000
Cost incurred for coding and testing to establish technological feasibility 1,000,000
Other coding costs after establishment of technological feasibility 2,400,000

Other coding testing after establishment of technological feasibility 2,000,000
Cost of producing product masters for training materials 1,500,000
Duplication of computer software and training materials from product master 2,500,000
Packaging product 900,000
What amount should be reported as inventory?

a) 2,500,000
b) 3,400,000
c) 4,000,000
d) 4,900,000
What total amount of the costs incurred should be expense immediately?

a) 8,200,000
b) 2,300,000
c) 6,700,000
d) 4,400,000
What amount should be capitalized as software cost?

a) 5,400,000
b) 5,700,000
c) 5,900,000
d) 5,900,000
Problem 65-2
Standard Company spent P9,000,000 on a new software package that is to be used only for
internal use. The amount was spent after the application development stage. The economic life
of the product is expected to be three years. The equipment on which the package is to be use
is being depreciated over 5 years.
What amount should be reported as amortization expense for the first full year?
a) 3,000,000
b) 9,000,000
c) 1,800,000
d) 0
Problem 65-3
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 amount should be reported as expense for the current year?

a) 6,012,500
b) 6,050,000
c) 1,600,000
d) 2,000,000
Problem 65-4
At the beginning of the current year, Bitter Company had a capitalized cost of P5,000,000 for a
new computer software product with an economic life of 5 years. Sales for the current year
amounted to P3,000,000.
The total share of software over the economic life is expected to be P10,000,000. The pattern of
future sales cannot be measured reliably.
At year-end, the software had a fair value less cost of disposal of P4,500,000.
What is the carrying amount of the computer software at year-end?

a) 5,000,000
b) 3,500,000
c) 4,500,000
d) 4,000,000
Problem 65-5
Summer Company has been working on creating a new tablet to compete with existing tablets.
The entity is confident it has the ability to sell the asset and show a profit.
The entity spent P2,000,000 during the first quarter of the current year studying alternatives.
During the second quarter, the entity spent an additional P 250,000 improving one alternative at
which point it became technologically and economically feasible.
During the third quarter, the entity spent another P750,000 on the tablet to make it ready for use
and sale by the end of the year.
Under IFRS, what amount should be capitalized?

a) 3,000,000
b) 1,000,000
c) 750,000
d) 0

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Chapter 1: Statement of Financial Position (Basic

Accounts Receivable 1,200,000

Inventory, including inventory expected in the 1,000,000

Financial asset held for trading 300,000

Equity investment at fair value through other 800,000

Equipment held for sale 2,000,000

Deferred tax asset 150,000

Accounts Receivable 2,000,000

Inventory, including goods received on consignment at P200,000 800,000

Bond investment at fair value through other comprehensive income 1,000,000

Prepaid expenses, including a deposit of P50,000 made on inventory to be 150,000

Total current assets 8,950,000

Cash in general checking account 3,500,000

Cash fund to retire 5-year bonds payable 1,000,000

Total Cash 5,000,000

What total amount of current assets should be reported at year-end?

On December 31, 2019, what amount should be reported as total assets?

On December 31, 2019 what amount should be reported as total assets?

Notes receivable, net of discounted note P500,00 2,000,000

Deferred charges 1,000,000

Account Receivable compromised to the following:

Trade account receivable 5,000,000

Allowance for doubtful accounts (500,000)

Claim against shipper for goods loss in transit 400,000

What amount should be reported as total current assets at year-end?

Accounts Receivable 3,000,000

Prepaid Insurance 200,000

Total Current Assets 9,500,000

Account Receivable compromised to the following:

Customer’s account 1,400,000

Employee's account collectible currently 200,000

Allowance to subsidiary 500,000

Subscription receivable, not collectible currently 1,000,000

Accounts Receivable 2,500,000

Total current assets 7,700,000

Total Cash 3,200,000

What amount should be reported as current assets?

Bonds Payable, due on December 31, 2020 3,400,000

Discounts on bonds 200,000

Deferred tax liability 400,000

Dividends Payable 500,000

Note Payable, due January 31, 2021 600,000

NotesPayable, 8% unsecured, due July 1, 2020 4,000,000

Accrued Expenses 350,000

Contingent liability 450,000

Deferred tax liability 250,000

Bonds payable, 7% due March 31, 2020 5,000,000

Premium on bonds payable 500,000

Accrued expenses 1,500,000

Share Dividend payable 1,000,000

Estimated expenses in redeeming prize coupon 600,000

The 2019 financial statements were issued on March 31, 2020.

Short term borrowings 1,500,000

Bonds payable due December 31, 2021 3,000,000

Premium on bonds payable 500,000

Mortgage payable, current portion P500,000 3,500,000

Accrued expenses 800,000

Bonds payable due December 31, 2021 4,500,000