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Practical Accounting 1 Reviewer When an economy ceases to be hyperinflationary, an entity shall discontinue the preparation and presentation of financial statements under a condition of hyperinflationary economy. Thus the amount expressed in the measuring unit current at the end of the previous repo...

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Practical Accounting 1 Reviewer 1. When an economy ceases to be hyperinflationary, an entity shall discontinue the preparation and presentation of financial statements under a condition of hyperinflationary economy. Thus the amount expressed in the measuring unit current at the end of the previous reporting period shall be the a. the present Value amount in the subsequent financial statement. b. the carrying amount in the subsequent financial statement. c. the fairvalue amount in the subsequent financial statement. d. the historical Value amount in the subsequent financial statement. 2. Irrespective of whether there is any indication of impairment , an entity shall test a not tangible asset with an indefinite useful life or an intangible asset not yet available for use for impairment\ a. every three years\ b. annually c. intangible assets not yet available for use, annually and not tangible assets every three years d. intangible assets not yet available for use, every three years and not tangible assets Annually 3. Depreciation of an asset begins when a. It was acquired b. It is available for use c. It was assembled in its location d. When the management decides to do so. 4. the initial direct cost in a direct financing lease are added to the carrying amount of the leased asset and this would effectively spread the initial direct cost over the lease term and reduce the amount of a. interest expense b. interest income c. lease expense d. lease income 5. this is the recognition of a deferred tax asset or deferred tax liability a. intraperiod tax allocation b. Interperiod tax allocation c. None d. both 6. The present value of the defined benefit obligation is the present value, without deducting any plan assets, f expected future payments required to settle the obligation resulting from employee service in the a. Current periods b. Current and prior periods c. Current or prior periods d. Prior periods 7. it is said that no entry is required when share warrants are issued to existing shareholders because these warrants are issued usually a. with consideration

b. without consideration c. as bonus d. as stock dividends 8. treasury shares may be reissued as dividends, in which case the _____ of the shares be charged to retained earnings a. historical value b. cost c. fair value d. selling price 9. ordinary shares issued as a result of the conversion of a debt instrument to ordinary shares are incuded from the date a. it was converted b. interest ceases to accrue c. as of the balance sheet d. prior to the date of the balance sheet 10. in computation of cost of sales the basic rule is –All increases are added and all decreases are deducted except the changes in a. earned income b. unearned income c. withdrawals d. expenses 11. PAS 8 provides that an entity shall correct material prior period errors retrospectively in the first set of financial statements authorized for issue after the discovery by a. Restating the comparative amounts for the latest period presented in which the error was discovered. b. Restating the opening balances of asset liabilities and equity for all prior period presented if the error occurred before the earliest period presented c. Restating the comparative amounts for the latest period presented in which the error was Corrected d. Restating the opening balances of asset, liability and equity for the earliest period presented if the error occurred before the earliest period presented 12. preferred shares with specific redemption date and acquired before the balance sheet date can qualify as cash equivalents a. True b. False, if cannot qualify as cash equivalents c. False, it should be acquired three months before the balance sheet date d. False, it should be acquired three months before the redemption date 13. in which circumstances that a bank overdraft is include as component of cash and cash equivalent a. when it s repayable on demand b. when it is repayable on demand or form an integral part of an entity’s cash management c. when it is repayable on demand and form an integral part in the entity’s cash financial statement

d. when it is repayable on demand and form an integral part of an entity’s cash management 14. if the containers are not returnable, they are a. Charged to loss b. Charged to gain c. Charged to the cost of the product d. Charged as an out right expense 15. developed goodwill is a. recorded at fair value b. recorded at historical value c. recorded at present value d. not recorded 16. in a warranty liability any difference between estimate and actual cost is a change in a. accounting procedure b. accounting principle c. accounting entity d. accounting estimate 17. under the effective interest method, bond issue cots must be lumped with the discount on bonds payable and netted against the a. selling price of the bond b. present value of the bond c. market value of the bond d. premium on bonds payable 18. in the books of the lessor, using a direct financing lease, the net investment is equal to the a. cost of the lease b. fairvalue of the lease c. fairvalue of the asset d. cost of the asset 19. under the defined benefit plan the obligation of the entity is to provide the a. benefits to current employees b. the benefits to current and former employees c. the agreed benefit to current employees d. the agreed benefit to current and former employees. 20. the revalued asset can only be carried at revalued amount if there is a. An inflation in the economy b. A deflation in the economy c. An market value for the asset\ d. An active market for the asset 21. in tangible assets wth indefinite life are a. Amortized for its useful like b. Amortized for its legal life c. Not amortized and not impaired d. Not amortized but tested for impairment

22. in a patent, if the litigation is unsuccessful, the legal cost and the remaining cost of the patent should be written off as a. expense b. a deduction from the other patent c. outright income d. loss 23. the immaterial cost of the leasehold shall be amortized over the life a. of the lease b. of the leasehold or lease which ever is shorter c. of the leasehold d. of none, it is charged to outright expense 24. the basis of normal rate return is based on net assets meaning a. the exces of the total assets including goodwill over total liabilities b. the equity of the entity c. the equity of the entity plus subsidiaries d. total assets minus total liabilities minus goodwill 25. if there is an indication that goodwill may be impaired, recoverable amount is determined for the cash generating unit to which a. the impairement can be written off b. the goodwill can be written off c. the impairment belongs d. the goodwill belongs

1. Selected records from the accounting records of Malakas Company are as follows: Net accounts receivable at Dec. 31, 2005 1,900,000 Net accounts receivable at Dec. 31, 2006 1,000,000 Account receivable turnover 5:1 Inventory at Dec. 31, 2005 1,100,000 Inventory at Dec.31, 2006 1,200,000 Inventory turnover 4:1 What is the amount of gross margin? a. 5,000,000 c.5,200,000 b. 5,150,000 d.5,300,000

2. The following information for 2006 is provided by Guam Company: Sales 50,000,000 Cost of Sales 30,000,000 Selling Expenses 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-credit 1,000,000 Investment Income-equity method 3,000,000 Gain on expropriation 2,000,000 Income tax expense 5,000,000 Dividends declared 2,500,000 What is the amount of finance cost? a. 1,200,000 c. 1,500,000 b. 2,000,000 d. 1,800,000

3. Dakak Company issued bonds with a face value of P4, 000,000 and with a stated interest rate of 10% on Jan. 01, 2008. The interest is

payable semiannually on June 30 and December 31. The bonds mature on every December 31 at a rate of P2, 000,000 per year for 2 years. The prevailing rate for the bonds is 8%. The present value of 1 at 4% is as follows: One period 0.9615 Two periods 0.9426 Three periods 0.8990 Four periods 0.8548 What is the present value of the bonds on January 1, 2008? a. 4,111,400 c.4,099,600 b. 4,263,400 d.4,252,580

4. On January 1, 2004, Loyal Company purchased an equipment for P8, 000,000. The equipment is depreciated using straight line method based on a useful life of 8 years with no residual value. On January 1, 2007, after 3 years, the equipment was revalued at a replacement cost of 12,000,000 with no change in residual value. On June 30, 2007, the equipment was sold for 10,000,000. What is the effect of the June 30, 2007 transaction to the retained earnings? a.2, 500,000 increase c. 5,000,000 increase b.3,250,000 increase d. 5,750,000 increase

5. A natural resources property was purchased by Nge Wang Company for 6,000,000. The output was estimated to be 1,500,000 tons. Nge Wang Company purchased a mining equipment at a cost of 8,000,000 and has a useful life of 10 years but is capable of exhausting the resource in8 years. Production is as follows: 1st Year 150,000 tons 2nd Year 225,000 tons 3rd Year None th 4 Year 225,000 tons What is the carrying amount of the mining equipment at the end of four years? a. 4,800,000 c. 4,200,000

b. 4,000,000

d. 4,500,000

6. Danhag Company has determined its 2008 Net Income is P3,000,000.In the first –time audit of company financial statements, you determined he following errors: P400, 000 revenue received in advanced during 2008was credited to revenue account.P100, 000 was earned in 2008, P200,00 will be earned in 2009 and the remainder will be earned in 2010. A P150, 000 was recognized as a loss resulting from a change in inventory valuation method during 2008. What will be the adjusted Net Income during 2008? a.2, 800,000 c..2, 850,000 b.3,150,000 d.2,600,000

7. Lathan Company was organized on January 1,2006 with the following capital structures: 12%Cumulative preference share,P100 par ,with liquidation value of P120,50,000 shares authorized, issued and outstanding 20,000 shares,P2,500,000. Ordinary Share Capital, par value P50, authorized 80,000 shares, issued and outstanding 20,000 shares, P1, 200,000. The net income for the years December 31, 2006 and December 31, 2007 were P2, 000,000 and 3,000,000, respectively. No dividends were declared. What is the December 31, 2008 book value per ordinary share? a.256 c.260 c.291 d.285

8. Meninqiuz Company provided the following information for the 2008: Total Assets at December 31 4,500,000 Share Capital at December 31 2,000,000 Share Premium at December 31 200,000 Treasury Stock (at cost) 300,000

The debt-to-equity ratio is 25% at December 3, 2008. What is the retained earnings unappropriated on December 31, 2008? a.1, 400,000 c.2, 300,000 b.1, 100,000 d.1, 700,000

9. Felicia Co. owns 20% royalty interest in an oil well. Felicia receives royalty payments on January 31 for the oil sold between June 1 and November 30, and July 30 for oil sold between December 1 and May 31 Production report shows the following sales: June 1, 2006-November 30, 2006 4,050,000 December1, 2006-December 31, 2006 675,000 December 1, 2006-may 31, 2007 5,400,000 June 1, 2007-November 30, 2007 4,387,500 December 1, 2007-December31, 2007 945,000 What amount should Felicia report as royalty revenue for 2007? a.1, 890,000 c.2, 011,500 b.1, 944,000 d.2, 146,000 10.

Assume the following balances at the end of the current year: Capital Liquidated 1,800,000 Accumulated Depletion 2,500,000 Retained Earnings 1,500,000 Depletion based on 50,000 units extracted @P20 per unit 1,000,000 Inventory of resource deposit 5,000 units What is the maximum dividend that can be declared by the company? a. 2,100,000 c.2, 200,000 b.2, 000,000 d.1, 500,000

11. Marie Company sells gift certificates redeemable only when merchandise is purchased. These gift certificates have an expiration date of two years after issuance date. Upon redemption or expiration, Marie recognizes the unearned revenue as realized. Information for 2007 as follows: Gift certificate payable 12/31/2006 520,000 Gift certificate payable 12/31/2007 680,000 Gift certificate redeemed 1,560,000 Expired gift certificates 80,000 Cost of goods sold 80% How much Gift certificates sold during the year? a. 1,800,000 c.. 1,640 ,000 b. 1,500,000 d. 1,760,000

12. Zee Company provided the following informations concerning its defined benefit plan in its memorandum records on January 1, 2007. Fair Value of plant assets 5,100,000 Unamortized past service cost 210,000 Unrecognized Actuarial Loss 610,000 Projected Benefit Obligation (4,500,000) Prepaid/Accrued benefit cost 1,410,000 During the current year, the entity determined that its Current service cost was 600,000 and the interest cost is 10%. The expected return was 10% but the actual return was 12%. Past service cost and any actuarial gain or loss should be amortized over 10 years. Other related information is as follows: Contribution to the plan 720,000 Benefits paid to retirees 900,000 Decrease in PBO due to changes in actuarial assumptions 120,000 What is the balance of prepaid/ accrue benefit cost account on December 31, 2007?

a. 1,530,000 b. 1,560,000

c. 1,770,000 d. 1,680,000

13. PRC Company began selling a new calculator that carried a two year warranty against defects in 2007. PRC projected the estimated warranty cost (as a percent of sales) as follows: First year warranty 4% Second year warranty 10% Sales and actual warranty repairs were: 2007 2008 Sales 5,000,000 9,000,000 Actual warranty repairs 390,000 900,000 What is the estimated warranty liability on December 31, 2007? a. 670,000 c. 700,000 b. 790,000 d. 650,000

14. On December 31, 2007 Colt Company is experiencing extreme financial pressure and is in default in meeting interest payment on its long term note of P6, 000,000 due on December 31, 2009. The interest rate is 12% payable every December 31. In an agreement with the creditor, Colt obtained the following changes in the terms of note: a. The accrued interest on December 31, 2007 is forgiven. b. The principal is reduced by 500,000. c. The new interest rate is 8%. d. The new date of maturity is December 31, 2011. The present value of 1 at12% for four periods is 0.6355 and the present value of an ordinary annuity of 1 at 12% for four periods is 3.0373. How much is the gain or loss on extinguishment? a. 2,504,750 c. 1,888,338 b. 1,168,338 d. 0

15. East Company leased machinery from Chin Company on January 1, 2007 for a 10-year period (useful life of 20 years) Equal annual payments under the lease are P200,000 and are due on January 1 of each year starting January 1, 2007.

The present value at January 1, 2007 of the lease payments over the lease term discounted at 10% was 1,352,000. The lease was appropriately accounted for as finance lease by East because there is a very nominal bargain purchase option. What is interest expense for 2008? a. 106,720 c. 200,000 b. 115,200 d. 0

16. The Cloak Corporation received the following report from its actuary at the end of the year: 01/01/06 Unrecognized past service cost Accumulated benefit obligation Fair Value of pension plan assets Actuarial net gain Benefits paid during the year Contribution made during the year Current service cost Expected rate of return Settlement rate Ave. working lives of employees

01/31/06

500,000 6,000,000 5,800,000 800,000

450,000 6,400,000 6,276,000 ? 680,000 520,000 495,000 10% 12% 20 years

What is the amount of net benefit expense to be charged against income for the year 2006? a. 675,000 b. 685,000

c. 716,000 d. 875,000

17. Francisco Company was organized on January 2, 2006 with 300,000 ordinary shares with a P6 par value authorized. During 2006, Francisco had the following stock transactions: January 2 Issued 60,000 shares at P10 per share March 8 Issued 20,000 shares at P11 per share. May 9 Purchased 7,500 shares at P12 per share. July 2 Issued 15,000 shares at P13 per share. August 17 Sold 5,000 treasury shares at P14 per share. Francisco uses the FIFO method for purchase-sale purposes. If Francisco uses the cost method to record treasury stock transactions, how much would be the Share Premium at December 31,2006?

a. 445,000 b. 455,000

c. 465,000 d. 485,000

18. Genius Company reported an Accumulated Profits balance of P300,000at December 31,2005. In June 2006, Genius discovered that merchandise costing P100,000 had not been included in the inventory in its 2005 financial statements. Assume Genius has 35% tax rate. What amount should Genius report as adjusted beginning Accumulated Profits and Losses on January 1, 2006? a. 235,000 b. 365,000

c. 300,000 d. 400,000

19. In 2004, Power Designs Corporation sold a layout design to Mass,Inc. and will receive royalties of future revenues associated with the said layout design. On December 31,2005, Power Designs reported royalties receivable of P75,000 from Mass, Inc. During 2006, Power Designs received royalty payments of P200,000. Mass,Inc. reported revenues of P1,500,000 in 2006 from the layout design. In its 2006 Income Statement, what amount should Power Designs report as royalty revenue? a. 125,000 b. 175,000

c. 200,000 d. 300,000

20. The following pertains to an operating sale and leaseback of equipment by Harbor Co. on December 31,2005: Sales price 420,000 Carrying amount 520,000 Monthly lease payment 37,334 Present value of lease payments/Fair Market Value 420,000 Estimated remaining life 12 years Lease term 1 year Implicit rate 12% What amount of deferred loss should Harbor report at December 31, 2005?

a. 0 b. 37,334

c. 100,000 d. 200,000

21. The Puncher Co. launched a sales promotional campaign on June 30, 2006. For every ten empty packs returned to Puncher, customers will receive an attractive food container. The company estimates that only 30% of the packs reaching the market will be redeemed. Additional information are as follows:

Sales of food packs Food containers purchased Prizes distributed to customers

Units 3,000,000 60,000 37,000

Amount P9,000,000 180,000

At the end of the year, Puncher recognized a liability equal to the estimated cost of potential prizes outstanding. What is the amount of this estimated liability? a. 69,000 b. 90,000

c. 159,000 d. 180,000

22. Green Company has 2,000,000 shares of ordinary shares outstanding on December 31, 2005. An additional 100,000 shares are issued on April 1, 2006 and 240,000 more on September 1. On October 1, Green issued P3,000,000 of 9% convertible bonds. Each bond is convertible into 40 shares of ordinary shares. At the time of issue of the convertible bonds, the market rate of the bonds without conversion option is equal to its nominal rate. No bonds have been converted. The number of shares to be issued in computing basic earnings per share and diluted earnings per share on December 31, 2006 would be: a. 2,155,000 & 2,155,000 b. 2.155.000 & 2,275,000

c. 2,155,000 d. 2,540,000

23. Tarzana Company reported total purchases of P3,200,000 in its accrual basis financial statement on December 31,2006. Additional information revealed the following: Accounts Payable, December 31,2005 Accounts Payable, December 31,2006

P 900,000 1,250,000

What is the amount of purchases under the cash basis on December 31,2006? a. 2,850,000 b. 3,550,000

c. 4,100,000 d. 4,450,000

24. On March 31, 2005 Mr. Right Enterprise traded in an old machine having a carrying amount of P1,600,000 and paid cash difference of P600,000 for a new machine having a total cash price of P2,000,000. On March 31,2005, what amount of loss should Mr. Right recognize on this exchange? a. P 0 b. P200,000

c. P400,000 d. P600,000

25. On April 30, 2005, Shark Corporation purchased for P 30 per share all 200,000 of Fins Corporation’s outstanding ordina...