Docx-converted - Lecture notes 1 PDF

Preview

Summary

PRACTICAL ACCOUNTING 1 Ortiz Co. had the following account balances: Sales P1,200, Cost of Goods Sold 600, Salary Expense 100, Depreciation Expense 200, Dividend Revenue 40, Utilities Expense 80, Rental Revenue 200, Interest Expense 120, Sales Returns 110, Advertising Expense 130, What amount would ...

Description

PRACTICAL ACCOUNTING 1 1. Ortiz Co. had the following account balances: Sales Cost of Goods Sold Salary Expense Depreciation Expense Dividend Revenue Utilities Expense Rental Revenue Interest Expense Sales Returns Advertising Expense

P1,200,000 600,000 100,000 200,000 40,000 80,000 200,000 120,000 110,000 130,000

What amount would Ortiz report as other income and expense in its income statement? a. P100,000 b. P120,000 c. P240,000 d. P490,000 2. Manning Company has the following items: write-down of inventories, P120, 000; loss on disposal of part of Sports Division, P185, 000; and loss on restructurings, P113, 000. Ignoring income taxes, what total amount should Manning Company report as other income and expense? a. P185,000 b. P233,000 c. P298,000 d. P418,000 3. Minstrel Company had the following information for its 2014 operation. Sales Cost of Goods Sold Salary Expense Depreciation Expense Dividend Revenue Utilities Expense Loss from discontinued operation Interest Expense

P2,000,000 1,200,000 160,000 220,000 180,000 20,000 200,000 40,000

If the income tax rate is 32%, what is the amount of income tax expense of Ministrel Company for the year 2014? a. P51,200 b. P108,800 c. P115,200 d. P172,800 4. The following information was included in the bank reconciliation for Romar Co. for July of 2014: Checks & charges recorded by bank in July, including a July service charge of P2,800, P932,600; Service charge made by bank in June and recorded in books in July, P1,200; Customer’s NSF check returned as a bank charge in July (no entry made in books), P6,000; Customer’s NSF check returned June, recorded by the company in July, P15,000; Outstanding checks in July 31, P300,000; Outstanding checks for June, P255, 000; checks issued in July for P20, 000 recorded by the company as, P2,000; Erroneous bank charge in July, P20,000; Erroneous bank credit in June corrected in July, P30,000 and Erroneous book receipt in June corrected in July, P5,000. What is the unadjusted disbursement per book on July 31, 2014? a. P909,400 b. P918,800 c. P922,000 d. P927,600 5. Rotary Corporation is located in Quezon but does business throughout Metro Manila. The company builds and sells equipment used in manufacturing pharmaceuticals. On December 31, 2014, Rotary’s accounts receivable are as follows: Individually significant receivables A Company P 320,000 B Company 800,000 C Company 480,000 D Company 400,000 All other receivables 2, 000,000 Total P 4, 000,000 Rotary Corporation determines that A Company’s receivable is impaired by P160,000 and D Company’s receivable is totally impaired. The other receivables from B and C are not considered impaired. Rotary determines that a composite rate of 2% is appropriate to measure impairment of receivables for Rotary Corporation for 2014?

a. b. c. d.

P 494,600 P 560,000 P600,000 P625,600

6. Wave Crest Hotels is located in Canada, but manages an extensive network of boutique hotels in the United States. Wave Crest has significant receivables from 3 customers, P480,000 due from Stephanie Inn, P900,000 due from Warren House, and P760,000 due from Hallmark Hotels. Wave Crest has other receivables totaling P440,000. Wave Crest determines that the Warren House receivable is impaired by P160,000 and the Hallmark Hotels receivable is impaired by P200,000. The receivable from the Stephanie Inn is not considered impaired. Wave Crest determines that a composite rate of 5% is appropriate to measure impairment on all other receivables. What amount of receivables should Wave Crest Hotel in the statement of financial position for the year ended December 31, 2014? a. P 2,198,000 b. P 2,380,000 c. P2,418,000 d. P2,580,000 7. At the close of its first year of operations, December 31, 2014, Ming Company held accounts receivable of P540,000, after deducting the related allowance for doubtful accounts. During 2014, the company had charges to bad debts expense of P90,000 and wrote off, as uncollectible, accounts receivable of P40,000. What should the company report on its statement of financial position at December 31, 2014, as accounts receivable before the allowance for doubtful accounts? a. P 440,000 b. P 490,000 c. P 590,000 d. P 670,000 8. Jarvis, Inc. manufactures cruise ships for sale. Each ship costs approximately P25,000,000 to build and takes 3 years to fully construct. During the time it takes to construct one cruise ship, Jarvis incurs P2,400,000 in interest cost related to the construction. The interest cost is incurred evenly throughout the construction period. During the first year of construction, Jarvis builds a shell that can be customized for any purchaser according to specifications; construction during the final 2 years is all based on client specification. The International Accounting Standards Board requires that Jarvis account for this interest cost as a. P2,400,000 is recorded as interest expense as incurred. b. P2,400,000 is capitalized to the cruise ship. c. P800,000 incurred in the 1st year is expensed as incurred; the remaining amount is capitalized to the cruise ship. d. P800,000 is capitalized to the cruise ship; the remaining amount is expensed as incurred. 9. Checkers uses the periodic inventory system. For the current month. The beginning inventory consisted of 1,200 units that cost P12 each. During the month, the company made two purchases: 500 units at P13 each and 2,000 units at P13.50 each. Checkers also sold 2,150 units during the month. Using the average cost method, what is the amount of cost of goods sold for the month? a. P26, 973 b. P27, 833 c. P27,950 d. P28,950 10. Rios, Inc. uses International Financial Reporting Standards (IFRS). In 2013, Rios, Inc. experienced a decline in the value of its inventory resulting in a write-down of its inventory from P240,000 to P200,000. The company used the loss method in 2013 to record the necessary adjustment and uses an allowance account to reduce inventory to NRV. In 2014, market conditions have improved dramatically and Rios Inc.’s inventory increases to an NRV of P216,000. Which of the following will Rios, Inc. record in 2014? a. A debit to Recovery of Inventory Loss for P16,000. b. A credit to Recovery of Inventory Loss for P24,000. c. A debit to Allowance to Reduce Inventory Loss to NRV of P16,000. d. A credit to Allowance to Reduce Inventory Loss to NRV of P24,000. 11. Dub Dairy produces milk to sell to local and national ice cream producers. Dub Dairy began operations on January 1, 2014 by purchasing 840 milk cows for P1,176,000. The company controller had the following information available at year end relating to the cows: Mlilking cows Carrying value, January 1, 2014 Change in fair value due to the growth and price changes Decrease in fair value due to harvest Milk harvested during 2014

P1,176,000 365,000 (42,000) 54,000

At December 31, 2014, what is the value of the milking cows on Dub Dairy’s statement of financial position? a. 1,134,000 b. 1,176,000 c. 1,499,000 d. 1,541,000 12. Dub Dairy produces milk to sell to local and national ice cream producers. Dub Dairy began operations on January 1, 2014 by purchasing 840 milk cows for P1,176,000. The company controller had the following information available at year end relating to the cows:

Mlilking cows Carrying value January 1 2014 Change in fair value due to the growth and price changes Decrease in fair value due to harvest Milk harvested during 2014 but not yet sold

P1 176 000 365,000 (42,000) 54,000

On Dub Dairy’s income statement for the year ending December 31, 2014, what amount of unrealized gain on biological assets will be reported? a. P-0b. P54,600 c. P323,000 d. P365,000 13. Lucy’s Llamas purchased 1,000 llamas on January 1, 2014. These llamas will be sheared semiannually and their wool sold to specialty clothing manufacturers. The llamas were purchased for P148,000. During 2014 the change in fair value due to growth and price changes is P9,400, the wool harvested but not yet sold is valued at net realizable of P18,000, and the change in fair value of the llamas on Lucy’s Llamas statement of financial position on June 30, 2014? a. P128,850 b. P146,850 c. P148,000 d. P156,250 14. During the calendar year 2012, National Company purchased an equity security designated as investment to other comprehensive income. As of December 31, 2012 the fair market value of the securities was P1,000,000 and the amount of unrealized gain was P140,000 net of deferred tax liability of P60,000. On December 31, 2013, National Company sold 40% of the equity security it holds for P500,000 which is equal to its current fair value. What amount of realized gain should National Company recognize and disclose in the profit or loss? a. None b. P100,000 c. P120,000 d. P200,000 15. Based on problem 16, what amount of unrealized gain, net of the application tax should the company report in the other comprehensive income of the statement of comprehensive income for the year ended December 31, 2013? a. P35,000 b. P75,000 c. P175,000 d. P250,000 16. On January 1, 2014, Axis Company, a medium-sized entity, acquired 30% of the ordinary shares that carry voting rights at a general meeting of shareholders of Maxim Company for P6,000,000. For the year ended December 31, 2014 Maxim Company recognized a profit of P8,000,000 and declared and paid dividend of P4,000,000. The fair value of Axis Company investment on impairment loss model of accounting its investment because Maxim Company shares have no published price quotations. What amount of net revenue (revenue less any amount of expense) should Axis Company report in its statement of comprehensive income related to its investment in Maxis Company for the year ended December 31, 2014? a. P200,000 b. P1,000,000 c. P1,200,000 d. P2,400,000 17. On January 2, 2014, Horizon Company, a medium-sized entity acquired 20% of the outstanding ordinary shares of Meadow Company for P2,200,000 which included P50,000 transaction cost. This investment gave Horizon the ability to exercise significant influence over Meadow Company. The book value of the acquired shares was P1,800,000. The excess of cost over book value was attributed to a depreciable asset which was undervalued on Meadow Company’s balance sheet and which had ten years useful life remaining. For the year ended December 31, 2014. Meadow Company reported net income of P540,000 and paid cash dividends of P180,000 on its ordinary. If Horizon Company uses the fair value model to account for its investment and the investment has a fair value of P2,4000,000 on December 31, 2014, what total amount of income and other revenue from investment should Horizon Company disclosed in its December 31, 2014 profit or loss? a. P200,000 b. P236,000 c. P250,000 d. P286,000 18. On March 1, 2014 Armor Company, a medium-sized entity acquired 30% of the outstanding ordinary shares that carry voting rights at a general meeting of shareholders of Knight Company for P3,000,000 when the fair value of net asset was P9,000,000. On December, 31, 2014, Knight Company declared a dividend of P1,000,000 for the year 2014 but reported a net income of P800,000 or the year ended at December 31, 2014. At December 31, 2014, the recoverable amount of Armor Company’s investment in Knight Company is P2,900,000 (Fair value of P2,930,000 less costs to sell of P30,000). If the shares of Knight Company are traded and Armor Company uses the fair value model, at what amount should the investment in Knight Company be reported in the income statement of financial position and the net amount o be reported in the statement of comprehensive income for the year ended December 31, 2014, respectively? a. P2,900,000 and P300,000 b. P2,900,000 and P230,000 c. P2,930,000 and P230,000

d. P2,930,000 and P300,000 19. Based on problem 20, If Armor Company uses the equity method, what amount should be the investment account be reported in the December 31, 2014 statement of financial position? a. P2,900,000 b. P3,570,000

c. P3,600,000 d. P3,900,000 20. Holding Company invests in bonds of ten listed companies. The investments are designated as investment at amortized cost and any premium or discount is amortized using the effective interest method. In the current period, it sells bonds of Sunshine Company, one of the ten listed companies, for funding its working capital requirements. The carrying amount of this investment is P8,000,000 and proceeds from the sale amount to P7,500,000. The carrying amount of the remaining bonds is P92,000,000 and the market value is P96,000,000. If the sale was triggered by a reported fraud that could cause the issuer to go bankrupt, what amount of unrealized gain or loss should Holding Company recognized related to the debt securities? a. None b. P500,000 c. P4,000,000 d. P4,500,000 21. On January 1, 2012, Settler Company purchases a property at a cost of P10,000,000. The property is classified as investment property and accounted for under the fair value model. On December 31, 2012, the market value of the property is P15,000,000. On January 31, 2013, the property was sold for P15,200,000. Costs of disposal which comprised mainly an agency fee, amounted to P380,000. What is the amount of gain or loss from the sale of the property? a. P180,000 b. P200,000 c. P4,820,000 d. P5,000,000 22. On July 1, 2014, Challenger Corporation exchanged its non-monetary asset (equipment) with another non-monetary asset. The following data were made available: Equipment P4,400,000 Accumulated Depreciation 2,600,000 Fair value of equipment received 1,100,000 Cash received or exchange 900,000 If the cash flows of the non-monetary assets were not the same, what is the amount of gain or loss from the exchange? a. None b. P200,000 c. P700,000 d. P900,000 23. Nestle Corporation, one of the largest mining companies, paid P20,000,000 to the local government for the right explore and extract mineral reserves in an area of interest. The following costs were also incurred related to the exploration and evaluation activities of the entity: Total exploration costs, P7,000,000 and evaluation costs of P3,000,000. Results of the study revealed that the total estimated mineral reserve is 10,000,000 tons. Nestle Company started its commercial production in year 2014. The company produced 1,200,000 tons in 2014. What is the amount of amortization/depletion on the capitalized intangible exploration and evaluation cost for the year 2014? a. P2,000,000 b. P2,760,000 c. P3,240,000 d. P3,600,000 24. On January 1, 2014, Fredrichs Inc. purchased equipment with a cost of P3,060,000, a useful life of 12 years and no salvage value. The company uses straight-line of depreciation. At December 31, 2014, the company determines that impairment indicators are present. The fair value less cost to sell the asset is estimated to beP2,600,000. The asset’s value-in-use is estimated to be P2,365,000. There is no change in the asset’s useful life or salvage value. What amount of impairment loss should appear in the statement of comprehensive income of 2014? a. P0 b. P205,000 c. P440,000 d. P460,000 25. A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1, 2012 for P1,800,000. The company uses straight-line amortization for patents. On January 2, 2014, a new patent is received for a timed-release version of the same drug. The new patent has a legal and useful life of twenty years. The least amount of amortization that could be recognized in 2014 is a. P60,000 b. P69,000 c. P81,818 d. P300,000

26. During 2014, Bond Company purchased the net assets of May Corporation for P1,000,000. On the date of the transaction, May had P300,000 of liabilities. The fair value of May’s asset s when acquired were as follows: Current Assets P540,000 Noncurrent Assets 1,260,000 1,800,000

How should the P500,000 difference between the fair value of the net assets acquired (P1,500,000) and the cost (P1,000,000) be accounted for by bond? a. The P500,000 difference should be credited to retained earnings. b. The P500,000 difference should be recognized as a gain. c. The current assets should be recorded at P540,000 and the noncurrent assets should be recorded at P760,000. d. A deferred credit of P500,000 should be set up then amortized to income over a period not to exceed forty years. 27. On January 2, 2014, Lutz Inc. purchased a patent with cost P940,000 a useful life of 4 years. At December 31,2014, and December 31, 2015, the company determines that impairment indicators are present. The following information is available for impairment testing at each year end: 12/31/3014 12/31/2015 Fair value less cost to sell P715,000 P420,000 Value in use P750,000 P445,000 No changes were made in the asset’s estimated useful life. The company’s 2015 income statement will report a. Amortization Expense of P235,000. b. Amortization Expense of P250,000 and Loss on Impairment of P55,000. c. Amortization Expense of P235,000 and a Recovery of Impairment of P25,000. d. Loss on Impairment of P190,000. 28. In 2014, Edwards Corporation incurred research and development costs as follows: Materials and Equipment Personnel Indirect Costs

P540,000 120,000 150,000 P360,000

The costs relate to a product that will be marketed in 2015. It is estimated that these costs will be recouped by December 31, 2017, but its process has not achieved economic viability. The equipment has no alternative future use. What is the amount of research and development costs that should be expensed in 2014? a. P0 b. P210,000 c. P270,000 d. P360,000 29. On February 10, 2014, after issuance of its financial statements for 2013, House Company entered into a financing agreement with Lebo Bank, allowing House Company to borrow up to P4,000,000 at any time through 2012. Amounts borrowed under the agreement bear interest at 2% above the bank’s prime interest rate and mature two years from the date of loan. House Company presently has P1,500,000 of notes payable with First National Bank maturing March 15, 2014. The company intends to borrow P2,500,000 under the agreement with Lebo and liquidate the notes payable to First National. The agreement with Lebo also requires House to maintain a working capital level of P6,000,000 and prohibits the payment of dividends on ordinary shares without prior approval by Lebo Bank. From the above information only, the total short-term debt of House Company as of the December 31, 2014 statement of financial position date is a. P0 b. P1,500,000 c. P2,000,000 d. P4,000,000 30. A company gives each of its 50 employees (assume they were all employed continuously through 2014 and 2015) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2014, they made P17.50 per hour and in 2015 they made P20 per hour. During 2015, they took an advantage of 9 days of vacation each. The company’s policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2014 and 2015 balance sheets, respectively? a. P84,000; P117,000 b. P84,000; P120,000 c. P96,000; P120,000 d. P96,000; P117,000 31. Recycle Exploration is involved with innovative approaches to finding energy reserves. Recycle recently built a facility to extract natural gas at a cost of P15 million. However, Recycle is also legally responsible to remove the facility at the end of its useful life of 20 years. This cost is estimated to be P21 million (the present value of which is P8 million). What is the journal entry required to record the environmental liability? a. No journal entry required. b. Debit Natural Gas Facility for P21,000,000 and credit Environmental Liability for P21,000,000. c. Debit Natural Gas Facility for P6,000,000 and credit Environmental Liability for P6,000,000. d. Debit Natural Gas Facility for P8,000,000 and credit Environmental Liability for P8,000,000. 32. LeMay Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from LeMay Frosted Flakes boxes and P1.00. The company estimates that 60% of the boxtops will be redeeme...