40308117 Financial Accounting Testbank PDF

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FINANCIAL ACCOUNTINGTEST BANKPPE ACQUISITION On October 1, 2005, Bitoy Company purchased a machine for P250,000 that was placed in service on November 30, 2005. Bitoy incurred additional costs for this machine, as follows: Shipping 10, Installation 15, Testing 35, In Bitoy’s December 31, 2005 balanc...

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FINANCIAL ACCOUNTING TEST BANK PPE ACQUISITION 1. On October 1, 2005, Bitoy Company purchased a machine for P250,000 that was placed in service on November 30, 2005. Bitoy incurred additional costs for this machine, as follows: Shipping 10,000 Installation 15,000 Testing 35,000 In Bitoy’s December 31, 2005 balance sheet, the machine’s cost should be reported at a. 250000 b. 295,000 c. 300,000 d. 310,000 2. On August 1, 2006, Bamco purchased a new machine on a deferred payment basis. A down payment of P100,000 was made and the balance is payable in P100,000 annually for 4 years. The current interest is 12%.The present value of an annuity at 12% for 5 years is 3.04 and the present value of an amount at the end of 5th year at 12% is .064. The same machine could be acquired on cash basis at P400,000. Bamco should record the machine at a. 500,000 b. 400,000 c. 403,735 d. 303,735

EXCHANGE 1. To save transportation costs, X acquired its needed equipment in exchange of its inventory located in the supplier’s business place. The equipment acquired has cash price of P650,000. The inventory of X has cost of P550,000, and X paid P80,000 cash for the difference in fair value of the two assets in exchange. In the books of X, the exchange is to be accounted as resulting to a. gain of P20,000 b. loss of P20,000 c. gain of P30,000 d. loss of P30,000 2. X issued 100,000 of its common shares in the treasury stocks, in exchange for a delivery truck. The treasury stocks with P10 par were selling at P12 at date of exchange. The treasury shares were previously acquired at cost of P11/share. The delivery truck has cash price of P1,250,000. In the books of X, the exchange will result to a. gain of P150,000 b. loss of P50,000

c. gain of P50,000

d. no gain/no loss

3. A P5,000,000 face value bonds were issued to acquire a building. At the time of acquisition, the fair value of the building is properly determined at P5,300,000 and the bonds are quoted at 110. The building is depreciated under the double declining method of depreciation with estimated economic life of 25 years and scrap value of P200,000. This was sold for P4,500,000 at end of its 2nd year . The gain (loss ) from sale is a. 14,080 b. 268,000 c. 183,360 d. (155,200)

BORROWING COST 1. Mozely Company borrowed P400, 000 on a 10 percent note payable to finance a new warehouse Mozely is constructing for its own use. The only other debt on Monzely’s books is a P600, 000, 12 percent mortgage payable on an office building. At the end of the current year, average accumulated expenditures on the new warehouse totaled P475, 000. Mozely should capitalize interest for the current year in the amount of (use 2 decimal palaces) a. P40, 000 b. P47, 500 c. P49, 000 d. P380, 000 2. X constructed its own building at a total labor, materials and overhead costs of P5,000,000, which was started January 1 and completed December 31 of the same year. During construction, the following loans are outstanding during the year, which are partly used in construction and partly used in regular operation: Principal amount P1,000,000

Interest Rate 10%

Construction costs for the year are as follows: Principal amount P2,000,000 1,000,000 1,000,000 1,000,000

Date taken Jan.1 April 1 July 1 Oct. 1

The capitalized borrowing costs as part of building cost is a. 350,000

b. 240,000

c. 140,000

d. 100,000

DONATION 1. BoyD Company received Land as donation from its shareholder. At date of donation, the land has fair value of P1,000,000. The legal and documentation expenses to transfer

the title amounted to P25,000 at the expense of BoyD Company. The land was previously acquired by the donor stockholder at P750,000. BoyD should record the land at a. 1,025,000 b. 1,000,000 c. 775,000 d. 750,000 2. An enterprise receives grant of P15,000,000 from the government as subsidy to defray safety and environmental costs within the area where the enterprise is located. The safety and environmental costs are expected to be incurred over four years as follows: Year 1 P 2,000,000 Year 2 4,000,000 Year 3 6,000,000 Year 4 8,000,000 The amount to be reported as in year 1 Income Statement as other Income from government grant is a. 1,500,000 b. 2,000,000 c. 3,750,000 d. 15,000,000 PPE SUBSEQUENT EXPENDITURES 1. During 2006, Kiyen Company made the following expenditures relating to its plant building: Repainted the plant building 110,000 Major improvements in the electrical wiring 100,000 Partial replacement of roof tiles 80,000 Continuing and frequent repairs 200,000 How much should be capitalized in the above expenditures a. 490,000 b. 290,000 c. 180,000 d. 100,000 2. A machine of X is overhauled at cost of 1,600,000. The overhauling resulted to increase in production capacity of the machine. The machine was originally acquired at cost of P7,000,000 and the depreciated book value before overhauling was P5,600,000. If new similar machine would be purchased, it would have a cash price of 3,500,000. What amount should X recognized as retirement loss? a. 1,280,000 b. 1,600,000 c. 1,900,000 d. 2,100,000 DEPRECIATION 1. On January 1, year 1, the firm purchased for P2,400,000 a machine with useful life of 10 years, no scrap value. The machine was depreciated by the double declining balance method and the carrying amount of the machine was P1,536,000 on December 31, year 2. The firm can justify the change to straight line method of depreciation effective January 1, year 3. What would be the depreciation expense for year 3? a. 307,200 b. 240,000 c. 192,000 d. 153,600

2. Debergen Company purchased factory equipment which was installed and put into service January 3, 2000 at a total cost of P1,280,000. Salvage value was estimated at P80,000. The equipment is being depreciated over eight years by the double declining balance method. For the year 2000 how much depreciation expense should Debergen record on this equipment. a. 225,000 c. 300,000 b. 240,000 d. 320,000 3. On January 1, 2000, Flax Company purchased a machine for P528,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 2003, Flax determined that the machine had a useful life of six years from the date of acquisition with no salvage value. An accounting change was made in 2003 to reflect these additional data. The depreciation for this machine on December 31, 2003 would be c. 110,000 c. 320,000 d. 308,000 d. 352,000 4. On April 1, 2007, Wang Manufacturing Company bought a new equipment for P800,000. The equipment has an estimated salvage value of P20,000 and useful life of 12 years. Depreciation is computed using the sum-of-the-years digits method. How much is the amount of depreciation for 2007? a. P60,000 b. P75,000 c. P90,000 d. P20,000 5. In January, Hunter Corporation entered into a contract to acquire a new machine for its factory. The machine, which had a cash price of P300, 000, was paid for as follows: Down payment P30, 000 Note payable in 10 equal monthly installments 240, 000 1, 000 shares of Hunter common stock with an agreed value of P50 per share 50, 000 total P320, 000 Prior to the machine’s use, installation costs of P80,000 were incurred. The machine has an estimated useful life of ten years and an estimated salvage value of P10, 000. What should Hunter record as depreciation expense for the first year under the straight-line method? a. P29, 800 b. P30, 000 c. P31, 000 d. P31, 800 6. The Bucol Company purchased a tooling machine in 1992 for P120, 000. The machine was being depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage value. At the beginning of 2002. When the machine had been in use for ten years, the company estimated that the useful life of the machine would be extended an additional five years. What would be the depreciation expense recorded for the above machine in 2002? a. P4, 000 b. P5, 333 c. P6, 000 d. P7, 333

DEPLETION 1. The mining property was acquired at cost of P12,000,000. It has estimated life of 5 years. After exploration cost of P1,000,000, it was developed at cost of P1,500,000 (intangible). AT the end of its life, the property could be sold for P3,000,000 after restoration cost of P500,000. Confirmed deposit is at 40,000,000 units. For its 1st year of operation, 7,500,000 units were produced at production cost of P5,250,000. 7,125,000 of production were sold during the year. The depletion cost in the inventory is a. 112,500 b. 140,625 c. 262,500 d. 2,137,500 2. On July 1, 2000, Kinanto Company, a calendar year corporation, purchased the rights to a mine. The total purchase price was P13,200,000 of which P400,000 was allocable to the land. Estimated reserves were 1,600,000 tons. Kinanto expects to extract and sell 15,000 tons per month. If sales and production conform to expectations, what is the depletion for 2000? a. 1,200,000 c. 2,400,000 b. 720,000 d. 1,237,500 3. A wasting asset corporation has established its depletion cost at P1.20 per unit. At the start of the year, it has beginning inventory of 100,000 units; during the year it produced 1,500,000 units; and during the year, It was able to sell 1,400,000 units. At the end of the year, how much is its depletion cost in the Inventory? d. 120,000 a. P1,800,000 b. P1,680,000 c.P240,000 4. The depletion rate of the entity is P15/ton. During the year, 50,000 tons were produced and at the end of the year, 5,000 tons are unsold. If the total production cost is P85/ton before depletion cost, how much is the total cost of sale for the year? a. 5,000,000 b.4,500,000 c. 3,825,000 d. 675,000 5. The total original depletable costs of the mining entity was P10,525,000. Its original deposit was 42,100,000 tons. After producing 15,000,000 tons, additional reserves are discovered at cost of P4,225,000 . The additional reserves discovered is equal to 22,900,000. What is the depletion cost for the year after adjustment on depletion rate, if the production for the year is 6,000,000 tons? a. 1,200,000 b. 1,320,000 c. 1,500,000 d. 1,770,000

DISPOSAL 1. A P5,000,000 face value bonds were issued to acquire a building. At the time of acquisition, the fair value of the building is properly determined at P5,300,000 and the bonds are quoted at 110. The building is depreciated under the double declining method of depreciation with estimated economic life of 25 years and scrap value of P200,000. This was sold for P4,500,000 at end of its 2nd year . The gain (loss ) from sale is a. 14,080 b. 183,360 c. 268,000 d. (155,200) 2. The equipment with estimated life of 12 years is being depreciated under SYD method of depreciation. It was acquired in June 15, 1994 at cost of P2,500,000 and it has estimated salvage value of P160,000. In June 15, 2006, the equipment was sold at P200,000. The sale will result to a. gain of P40,000

b. loss of P40,000

c. loss of P70,000

d. gain of P10,000

REVALUATION 1. The building was constructed at cost of P12,000,000. It has original estimated life of 24 years, zero scrap value. At the end of its 8th year, it is estimated that same could be constructed at present price level for the amount of P15,000,000, 100% condition. If it will shift to revaluation model, the amount to be credited to revaluation surplus should be d. P1,500,000 a. P7,000,000 b. P3,000,000 c.P2,000,000 On January 1, 2003, a new building was purchased at a cost of P3,000,000. Depreciation was regularly provided at 2% per year. On January 1, 2013, the building was appraised by an independent appraiser at P4,500,000 and a condition percent of 75. The business shifted to revalued amount. The annual depreciation subsequent to appraisal should be a. 112, 500 b. 150,000 c. 90,000 d. 60,000 PPE IMPAIRMENT 1. Simon Company, a clothing manufacturer, purchased a sewing machine for P2,000,000 on July 1, 2003. The machine had a 10-year life, a P100,000 residual value, and was depreciated using the straight line method. On January 1, 2006 a test for impairment indicated that the undiscounted cash flows from the sewing machine are less than its carrying value. The machine’s fair value on January 1, 2006 is P600,000. What is the loss on impairment? a. 830,000 b. 925,000

c. 950,000 d. 1,300,000 2. The Equipment was acquired at cost of P6,000,000. This is being depreciated at rate of 5% per year, without scrap. At the end of its 4th year, an independent appraiser valued it at depreciated amount of P6,120,000 , without scrap value. What amount should be credited to revaluation surplus to record the revaluation.? a. 240,000 b. 420,000 c. 1,320,000 d. 1,740,000 3. On January 2, 2000 a machine was purchased for P800,000. It is being depreciated on straight line method for 8 years with P160,000 scrap value. At the end of its 4 th year, it is observed that this suffered permanent impairment and estimated that P200,000 is a reasonable amount to be recovered through its use for the rest of its life. In its December 31, 2004, what amount should be reported as net book value of the machine? a. 320,000 b. 200,000 c. 150,000 d. 100,000 4. Crane Company reported an impairment loss of P2,200,000 in its income statement for the year then ended December 31, 2005. This loss was related to an item of PPE acquired on January 1, 2004 with useful life of 10 years and residual value of P200,000. On December 31, 2005 balance sheet, Crane reported these PPE at P6,000,000 which is the fair value on that date. The original acquisition cost of the PPE is a. 8,200,000

b. 9,800,000

c. 10,200,000

d. 10,950,000

5. Gem Company determined that due to obsolescence an equipment with original cost of P4,500,000 and accumulated depreciation of P2,100,000 at January 1, 2006 had suffered a permanent impairment and as a result should have a recoverable value of only P1,500,000 as of the beginning of the year. In addition, the remaining useful life was reduced from 8 years to only 3 years as of January 1, 2006. The annual depreciation after impairment loss is recorded would be a. 800,000 b. 700,000 c. 500,000 d. 300,000

INTANGIBLE ASSETS 1. During 2006, Okay Company incurred the following costs: Research and development services performed by Okra for Okay 150,000 Design, construction, and testing of preproduction prototype and model 160,000 Testing in search for new product or process alternative 200,000

In its 2006 income statement, what should Okay report as research and development expense? a. 510,000 b. 360,000 c. 350,000 d. 200,000 2. Pastel Co. purchased a patent on January 1, 1999, for P714, 000. The patent was being amortized over its remaining legal life of 15 years expiring on January 1, 2008. During 2002, Pastel determined that the economic benefits of the patent would not last longer than 10 years from the date of acquisition. What amount should be charged to patent amortization expense for the year ended December 31, 2002? a. P47, 600 b. P68,000 c. P81, 600 d. P142, 800 3. Darrell Joe purchases a patent from Ziggy on January 2, 2004. For P64,000. The patent has remaining legal life of 16 years at date of purchase. Darrell Joe feels the patent will be useful for 10 years. What should be the carrying value of the Patent in the books of Darrell Joe at the end of December, 2005? a. P51,200

b. P56,000

c. P57,600

d. P60,000

4. RamTell obtained from Rosebud a franchise for a cash payment of P200,000 on April 1, 2004. The franchise grants Ramtell the right to sell Rosebud’s product for a period of 8 years. The cost of the franchise to be reported in the year 2004 Income statement of Ramtell would be. a. P7,500

b.P18,750

c. P25,000

d. P182,250

5. On October 4, 2003 ,X exchanged 2,000 shares of its P50 par common stock held in treasury for a patent of Y. The treasury shares were previously acquired at cost of P80,000. At the time of exchange, X’s common stock was quoted in the market at P55 per share. The patent has carrying value in the books of Y at P90,000. At what value should X record the acquisition of the Patent? a. 80,000

1. b. 90,000

2. c. 100,000

3. d.110,000

GOODWILL 1. X reported its past earnings for the last 5 years as P1,000,000, P1,200,000, P1,400,000 , P1,600,000 and P1,300,000. In one of these years, P500,000 gains from sale of PPE was reported. The Fair value of the net assets of X is P8,000,000. The normal earnings in the same industry where X belongs is 10%. If X is to be sold at fair value with goodwill equal to excess earnings for the next 5 years, how much would be the value of the goodwill? a. P400,000 b. P800,000 c. P1,200,000 d.P2,000,000

2. The following info pertain to X company which is to be acquired by Y company: BOOK VALUE CURRENT VALUE Tangible assets 1,500,000 2,000,000 Intangible, w/o goodwill 500,000 1,000,000 Liabilities………………….. 1,500,000 1,500,000 Normal rate of earning is 8% X’s expected earnings is at 14% per year for 5 years. What is the goodwill if agreed as equal to purchase of average excess earnings for 5 years? a. 90,000 b. 210,000 c. 350,000 d. 450,000 3. On September 1, 2004, Rad U acquired Vic Tim for a cash payment of P7,500,000. At the time of purchase, Vic Tim’s balance sheet showed assets of P6,200,000 and liabilities of P2,000,000. The fair value of Vic Tim’s identifiable tangible and intangible assets is P8,000,000 at time of purchase. It is estimated that the goodwill will enable RAD U excess earnings for 10 Years. At what value should the goodwill be reported in the December 31, 2005 balance sheet of Rad U in the absence of any indication of impairment? a. P1,300,000 b. P1,312,500 c. P 1,400,000 d. P1,500,000 4. As of December 31, 2004, the patent of Mag Lucky with original life of 15 years has carrying value of P300,000. AT that date, Mag Lucky expects future net cash flows from this patent to total P180,000 for the rest of its remaining life of 5 years. At this date, the fair value of the patent is P110,000. What should be the amortization expense for this patent for the year 2005? a. P20,000 b. P22,000 c. P24,000 d. P38,000

5. IMGONNAPASS is considering acquisition of the net assets of IHAVETOPASS to expand its operations. The book value and current value of the net assets of IHAVETOPASS company are P3,300,000 and P4,000,000, respectively. The normal rate of return is believe to be 9%, but IMGONNAPASS believes it can earn 11.25% annually

on its investment in IHAVETOPASS due to its excellent reputation. What is the amount of goodwill using the “year multiple of excess earning” method assuming a 10-year period of excess earnings? a. P1,000,000 b. P900,000

c. P1,200,000 d. None of the above

6. X’s business’ cumulative earnings for the past 5 years amounted to P500,000. The appraised value of the business’ net assets was P800,000. X is selling the business plus goodwill, determined by capitalizing average net earnings at 10%. The value of goodwill is a. P1,000,000 b. P4,200,000 c. P5,000,000 d. 200,000

LEASE On July 1,2001, Radium Inc. leased a delivery truck from Titanium Corp. under a 3 year operating lease. Total rent for the term of the lease will be P360,000 payable as follows: 12 months at P5,000 = P60,000 12 months at 7,500 = 90,000 12 months at 17,500 = 210,000 All payments were made when due. In Titanium’s June 30,2003 balance sheet, what amount should be reported as accrued rent receivable? a. P60,000 b. P90,000 c. P150,000 d. P210,000 ON December 31,2003, Soap Corporation signed an operating lease for a warehouse with Opera Company for ten years at P30,000 per year. Upon execution of the lease, Opera paid Soap P60,000, covering rent for the first two years. Soap closed its books on December 31 and correctly reported P60,000 as gross rental income in its 2003 income tax return. How much should be shown in Soap’s 2003 income statement as gross rental income? a. P 0 b. P2,500 c. P30,000 d. P60,000

40. Rapp Company leased a new machine to Lake Company on Jan...