P1_final preboard.p1.ans.doc PDF

Preview

Summary

Northern CPA Review (NCPAR)305 Gamboa Building Extn., Session Rd., Baguio City (above KFC Session) Cel. No. 09081354810Practical Accounting Problems 1 z.bFinal Preboard Examination Taken from the accounting records of Metropolis Co. are the following information:  Accum. Depreciation, Jan P760,  A...

Description

N.C.P.A.R. Practical Accounting Problems 1_Final Preboard_October 2009 Batch

Northern CPA Review (NCPAR) 305 Gamboa Building Extn., Session Rd., Baguio City (above KFC Session) Cel. No. 09081354810 Practical Accounting Problems 1 z.b.millan

Final Preboard Examination 1. Taken from the accounting records of Metropolis Co. are the following information:  Accum. Depreciation, Jan.1 P760,000  Accum. Depreciation, Dec.31` 850,000  A machine with a cost of P750,000 was sold for P360,000 during the year at a loss of P250,000.  During the year, a major improvement costing P550,000 was incurred to extend the life of the machines for five years. Moreover, on January 1, a patent related to the use of a machine was granted to Metropolis Co. Legal fees and registration fees incurred amounted to P250,000. The patent amortization was credited to the accumulated depreciation account and included in the depreciation expense charged to profit or loss.  Impairment loss on the machines charged to expense amounted to P350,500. The correct depreciation expense for the year amounted to a. P792,500 b. P658,000 c. P417,000 d. P429,500 C 850+140+550-760-12.5 = 767.5 – 350.5 = 417 2. Loeb Corp. frequently borrows from the bank in order to maintain sufficient operating cash. The following loans were at a 12% interest rate, with interest payable at maturity. Loeb repaid each loan on its scheduled maturity date. Date of loan 11/1/96 2/1/97 5/1/97

Amount P 5,000 15,000 8,000

Maturity date 10/31/97 7/31/97 1/31/98

Term of loan 1 Year 6 Months 9 Months

Loeb records interest expense when the loans are repaid. As a result, interest expense of P1,500 was recorded in 1997. If no correction is made, by what amount would 1997 interest expense be understated? a. P540 b. P620 c. P640 d. P720 A 3. Declaration, Inc., is a calendar year corporation. Its financial statements for the years 2008 and 2007 contained errors as follows: 2008 2007 Ending Inventory P 1,000 understated P 3,000 overstated Depreciation expense P 800 understated P 2,500 overstated

1

N.C.P.A.R. Practical Accounting Problems 1_Final Preboard_October 2009 Batch

Assume that the proper correcting entries were made at December 31, 2007. By how much will 2008 income before income taxes be overstated or understated? a. P 200 understated. b. P 500 overstated. c. P 1,000 overstated. d. P 3,200 understated. e. No overstatement or understatement A 4. Changes in the account balances for Symphony Co. during 2008 are shown below: Increase (Decrease) Cash P 1,850,000 Accounts receivable 1,650,000 Allowance for bad debts 450,000 Inventory (850,000) Investment in Mandrake Company (equity method) 450,000 Buildings and equipment (800,000) Accumulated depreciation (400,000) Accounts payable 700,000 Bonds payable (800,000) Discount on bonds payable (100,000) Capital stock 600,000 Additional paid-in capital 300,000 Revaluation Surplus (on appraisal conducted during the year 200,000 Dividends declared during 2008 were P500,000. No other transactions affected retained earnings during the year. Calculate the amount of net income to be reported in 2008. a. P1,850,000 b. P1,650,000 c. P1,950,000 d. P2,550,000 B 5. Fender Co. reported a net income of P270,000 in 2008, its first year of operation. Selected information follows: Depreciation expense, P30,000; Loss on sale of equipment, P3,500; Gain on sale of treasury stock, P5,000; Amortization of discount on bond investment, P1,500; Unrealized loss on non-current equity securities, P7,000. At the end of 2008, accounts receivable amounted to P20,000, inventory P34,700 and accounts payable P18,000. The net cash provided by operating activities in 2008 is a. P265,300 b. P338,700 c. P268,300 d. P267,300 A The next two questions are based on the following information: You gathered the following November 30 bank reconciliation from the cash records of the Conrad Company in connection with your audit of the company’s financial statements for the year 2006: Balance per bank P 560,000 Deposits in transit 123,200 Outstanding checks (160,000) Balance per books P 523,200 Results for the month of December follow: 2

N.C.P.A.R. Practical Accounting Problems 1_Final Preboard_October 2009 Batch

Bank Balance December 31 P 692,000 December deposits 400,000 December note collected (not included in deposits) 80,000 December bank service charge 1,200 December NSF check, returned by the bank (recorded by bank as a charge) 26,800

Books P740,000 464,800 -

Based on the above and the result of your audit, answer the following: 6. The outstanding checks as of December 31, 2006 is a. 72,000 b. 116,000 c. 88,000 d. 108,000 C 7. The adjusted cash balance as of December 31, 2006 is a. 684,800 b. 792,000 c. 844,000 d. 765,000 B 8. Zamboanga Enterprises records all transactions on the cash basis. The company’s accountant prepared the following income statement at the end of the company’s first year of operations: Zamboanga Enterprises Income Statement For the Year Ended December 31, 2006 Sales Selling and administrative expenses: Salaries expense P 624,000 Rent expense 360,000 Utilities expense 232,000 Equipment 240,000 Commission expense 302,400 Insurance expense 48,000 Interest expense 24,000 Net Income

P2,016,000

1,830,400 P 185,600

You have been asked to prepare an income statement on the accrual basis. The following information is given to you to assist in the preparation:  Amounts due from customers at year-end were P224,000. Of this amount, P24,000 will probably not be collected.  Salaries of P88,000 for December 2006 were paid on January 5, 2007.  Zamboanga rents its building for P24,000 a month, payable quarterly in advance. The contract was signed on December 31, 2005.  The bill for December’s utility costs of P21,600 was paid January 10, 2007.  Equipment of P240,000 was purchased on January 1, 2006. The expected life is 5 years, no salvage value. Assume straight-line depreciation.  Commissions of 15% of sales are paid on the same day cash is received from customers.  A 1-year insurance policy was issued in company assets on July 1, 2006. Premiums are paid annually in advance. 3

N.C.P.A.R. Practical Accounting Problems 1_Final Preboard_October 2009 Batch



Zamboanga borrowed P400,000 for one year on May 1, 2006. Interest payments based on an annual rate of 12% are made quarterly, beginning with the first payment on August 1,2006.

How much is the net income before income tax under the accrual basis of accounting? a. 526,000 b. 286,000 c. 514,000 d. 574,000 A The next two questions are based on the following information. An enterprise had the pre-closing trial balance at December 31 shown below: Cash Accounts receivable Inventory Property, plant, and equipment Accumulated Depreciation Accounts payable Long-term debt Share capital Retained earnings – Jan. 1 Sales revenue Purchases Administrative expenses

80,000 100,000 230,000 600,000 60,000 200,000 1,000,000 2,000,000 500,000 750,000 530,000 200,000

Additional information:  The long-term debt pays interest at a rate of 10% per annum, payable every 12 months. The debt was issued on July 1 of the current year and originally had 5 years to maturity.  The assets classified as property, plant, and equipment have a 10-year estimated useful life and were 1 year old at the start of the current year. Straight-line depreciation is used. 9. Assume that the enterprise reports cost of goods sold of 200,000 and interest expense of 10,000 for the current period. Also assume a 50% tax rate on corporate earnings. The final closing entry required to ensure that current earnings are incorporated into year-end retained earnings is a. Income summary 140,000 Retained earnings 140,000 b. Retained earnings 280,000 Income summary 280,000 c. Income summary 240,000 Retained earnings 240,000 d. Retained earnings 240,000 Income summary 240,000 A 10. The enterprise will report year-end total assets of a. 800,000 b. 890,000 c. 950,000 d. 1,010,000 B 11. Profit before income tax shown in the income statement of LIE Co. amounted to P1,820,000. Deferred tax liability decreased by P40,000 during the year. Deferred tax asset at the beginning of the year amounted 4

N.C.P.A.R. Practical Accounting Problems 1_Final Preboard_October 2009 Batch

to P95,000 and at year-end it was P65,000. Income tax payable account has balances of P265,000 and P575,000 at Jan. 1 and Dec. 31 respectively. LIE Co. is subject to 35% tax rate. Payments for taxes during the year amounted to a. P670,000 b. P680,000 c. P970,000 d. P990,000 B 12. On January 2, 2008, 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 renewal option. In early January of 2008, Ral completed the following improvements to the property. Description Estimated Life Cost Sales office 10 years P47,000 Warehouse 25 years 75,000 Parking lot 15 years 18,000 Amortization of leasehold improvements for 2008 should be a. P 7,000 b. P 8,900 c. P12,200 d. P14,000 D 13. On January 1, 2008, West Co. entered into a ten-year operating lease for a manufacturing plant. The annual minimum lease payments are P100,000. In the notes to the December 31, 2009 financial statements, what amounts of subsequent years lease payments should be disclosed? Amount for appropriate required period

Aggregate amount for the period thereafter

a. P100,000 P0 b. P300,000 P500,000 c. P500,000 P300,000 d. P500,000 P0 e. P100,000 for 2010, P400,000 from 2011 to 2014 P300,000 E PSA 100,000 for not exceeding 1 yr. + 400,000 for exceeding 1 yr. but not 5 yrs; and beyond 5 yrs. C US GAAP For five years and total remaining after five years. 14. Oak Co. leased equipment for its entire nine-year useful life, agreeing to pay P50,000 at the start of the lease term on December 31, 2008, and P50,000 annually on each December 31 for the next eight years. The present value on December 31, 2008, of the nine lease payments over the lease term, using the rate implicit in the lease which Oak knows to be 10%, was P316,500. The December 31, 2008 present value of the lease payments using Oak's incremental borrowing rate of 12% was P298,500. Oak made a timely second lease payment. What amount should Oak report as capital lease liability in its December 31, 2009 balance sheet? a. P350,000 b. P243,150 c. P228,320 d. P0 B 5

N.C.P.A.R. Practical Accounting Problems 1_Final Preboard_October 2009 Batch

15. On January 1, 2005, E Company granted 5,000 share options with a tenyear life to each of 10 executives. The chare option will vest and become exercisable immediately if and when the company’s share price increases from P50 to P70 and provided that the executives remain in service until the share price target is achieved. The company applies a binomial option model, which takes into account the possibility that the share price will be achieved during the ten-year life of the options and the possibility that the target share price will not be achieved. The company estimates that the fair value of the options at grant date is P25 per option. From the option-pricing model, the company determines that the mode of the distribution of possible vesting dates is five years. The most likely outcome of the market condition is that the share price target will be achieved at end of 2009. Therefore, E Company estimates that the expected vesting period is five years. E Company also estimates that 2 executives will have left by the end of 2009 and therefore expects that 40,000 share options will vest at the end of 2009. Throughout 2005 to 2008, executives will leave be executives had left, one in 2010 before the share

E Company continues to estimate that a total of two the end of 2009. However, in total, three each in 2007, 2008 and 2009. Another executive left price target is achieved.

What amount of remuneration expense should the company recognize in its December 31, 2009 income statement? a. 75,000 b. 150,000 c. 85,000 d. 120,000 A 16. On January 1, 2005, F Company grants 100 share options to each of its 400 employees. Each grant is conditional upon the employee remaining in the employ of the company over the next three years. F Company estimates that the fair value of each option is P20. On the basis of weighted average probability, F Company estimates that 100 employees will leave during the three-year period and therefore their right to the share option will be forfeited. During 2005, 30 employees had left and the share price dropped and F Company reprices its share options, and that the repriced share options vest at the end of 2007. F Company estimates that a further 70 employees will leave during 2006 and 2007. During 2006, 35 employees left the company and the company estimates that 30 employees will leave in 2007, while during 2007, 28 employees left the company. At the end of 2005 (date of repricing), the company estimates that the fair value of each of the original share options granted (before taking into account the repricing) is P6 and that the fair value of each repriced share option is P9. What amount of remuneration expense should the company recognize in its December 31, 2007 income statement? a. 253,683 b. 265,678 c. 245,653 d. 233,853 A 6

N.C.P.A.R. Practical Accounting Problems 1_Final Preboard_October 2009 Batch

17. On January 1, 2005, H Company granted 20,000 shares with a fair market value of P30 per share to its key officers, conditional upon the completion of three years’ service. By the end of 2006, the share price has dropped to P26 per share. Immediately, H Company adds a cash alternative to the grant, whereby the officer can choose whether to receive 20,000 shares or cash equal to the value of 20,000 shares on vesting date, which is on December 31, 2007. On December 31, 2007, the share price is P24. What amount of remuneration cost should the company recognize in its December 31, 2007 income statement? a. 133,333 b. 26,667 c. 180,000 d. 160,000 C 18. The following information pertains to Galileo Company: Sales (all account) made evenly throughout 2005 P 220,000 Equipment purchased for cash on May 1, 2005 50,000 Purchases (all account) made evenly throughout 2005 80,000 Cash received evenly throughout 2005 from customers on account 190,000 Cash dividends declared on September 1, 2005 and paid on October 1, 2005 20,000 Land acquired for cash on June 1, 2005 30,000 Depreciation expense for 2005 10,000 Ordinary shares issued for cash on March 1, 2005 60,000 Operating expenses paid evenly throughout 2005 40,000 Income tax expense paid evenly throughout 2005 25,000 Purchase of treasury shares for cash on Nov. 1, 2005 17,000 Sale of investment in ordinary shares on August 1, 2005 for cash (cost = P5,000; selling price = P8,000) 8,000 Cash paid evenly throughout 2005 on accounts payable 60,000 Monetary assets January 1, 2005 25,000 December 31, 2005 71,000 Monetary liabilities January 1, 2005 10,000 December 31, 2005 30,000 The following values of the CPI-U for 2005 are available: 1/1 2/1 3/1 4/1 5/1 6/1 7/1

100 102 104 106 108 110 112

8/1 9/1 10/1 11/1 12/1 12/31 Average for the year

114 116 118 120 122 124 112

The purchasing power gain (loss) for 2005 in end-of-year pesos is a. (10,704) b. 10,704 c. 10,000 d. ( 1,000) A 7

N.C.P.A.R. Practical Accounting Problems 1_Final Preboard_October 2009 Batch

Use the following information for the next eight questions: The following information relates to a defined benefit pension plan of the Ferdie Company for the year ending December 31, 2008: Projected benefit obligation, January 1 P 4,600,000 Projected benefit obligation, December 31 4,729,000 Fair value of plan assets, January 1 5,035,000 Expected return on plan assets 450,000 Actual return on plan assets 495,000 Amortization of deferred gain (based on the remaining service life of 10 years) 32,500 Employer contributions 425,000 Benefits paid to retirees 390,000 Settlement rate 10% Based on the information given above, answer the following: 19.

The current service cost for 2008 is a. P59,000 b. P94,000 c. P519,000 d. P390,000 A = PSI(B)AP= 4,600 + X SQUEEZE + (10% x 4,600) – 390 = 4,729 20. What is the 2008 net benefit expense? a. P36,500 b. P71,500 c. P496,000 d. P367,500 A = 59 + 460 – 450 – 32.5 = 36.5 A 21. The fair value of plan assets on December 31, 2008 is a. P5,520,000 b. P5,565,000 c. P5,597,000 d. P5,528,500 B 5,035,000 + 495,000 + 425,000 – 390,000= 5,565,000 B 22. The unrecognized actuarial gain as of December 31, 2008 is a. P337,500 b. P873,500 c. P841,000 d. P797,500 C 828,500 (gross of corridor) – Amort. 32,500 + Excess of Actual over Expected Return 45,000 = 841,000 C 23. The prepaid/accrued benefit cost on January 1, 2008 and December 31, 2008, respectively are Jan.1, 2008 Dec.31, 2008 a. P110,000 P498,500 b. P393,500 P 37,500 c. P350,000 P 38,500 d. P393,500 P 5,000 D Using the same information as used in the immediately preceding questions, however, assuming further that Ferdie Company opts to recognize any actuarial gain or loss in full, answer the following questions. 24. Ferdie Company should report 2008 benefit expense at a. P69,000 b. P79,500 8

N.C.P.A.R. Practical Accounting Problems 1_Final Preboard_October 2009 Batch

c. d.

P96,000 P37,500

A 25. Ferdie’s other comprehensive income in 2008 would include actuarial gain of a. 828,500 b. 873,500 c. 73,500 d. 45,000 D 26. The actuarial gain to be presented in equity as of December 31, 2008 is a. 828,500 b. 873,500 c. 73,500 d. 45,000 B 27. Bigco, Inc. transferred long-term receivables with a carrying value of P500,000 to Banco for

P425,000 cash. Banco will collect interest on the receivables during the life of the receivables, but Bigco is obligated to repurchase the receivables prior to their maturity. What amount of receivables has Bigco surrendered control of for accounting purposes? a. 0

b. 75,000

c. 425,000

d. 500,000

A 28.

On February 1, Rayco transferred a bond with a maturity value of P50,000 it owned to Dayco as security for a short-term loan from Dayco. By terms of the agreement, Dayco cannot resell or otherwise use the bond except as collateral for its loan to Rayco. Rayco defaulted on its repayment of the loan from Dayco on August 1 when the bond had a fair value of P48,000. On what date and in what amount should Dayco recognize the bonds on its books? a. February 1, P50,000

b. February 1, P48,000

c. August 1, P50,000

d. August 1, P48,000

D 29. Servco, a loan servicing agency, paid P60,000 to acquire a three-year right to service P1,000,000 of Banco's loans. Servco will be entitled to a servicing fee 1% of the interest and fees collected during the threeyear period. Serveco expects its servicing fees to be: Year 1, P40,000; Year 2, 30,000; and Year 3, 10,000

Which one of the following is the amount of the P60,000 acquisition fee that Servco should amortize during year 1? a. 0 b. 20,000 c. 30,000 d. 40,000 C 30. Taft Inc. borrowed P1,000,000 from Wilson Company on July 2, 2001. As part of the loan agreement, Taft granted Wilson a security interest in land that originally cost P750,000 when it was acquired by Taft in 1994. The land had a fair value of P900,000 on July 2, 2001. In June 2003, Taft defaulted on its loan to Wilson, and the land was transferred to Wilson in full settlement of the debt on June 30. The land had a fair value of P950,000 on June 30, 2003. In accordance with PAS 39, what amount should

Wilson record for land on June 30, 2003? a. 0 D 31.

b. 75,000

c. 900,000

d. 950,000

Taken from the records of Devin Company is the following information: Accounts Receivables Accounts Receivables- assigned Notes Receivables

P 888,000 145,000 234,000 9
...