INTERMEDIATE ACCOUNTING 1 | 1

THEORIES
INTERMEDIATE ACCOUNTING 1
CASH AND CASH EQUIVALENTS

IVANRICHE L. LANDAOS | BSAIS-2

1. These received by an entity do not qualify as cash because these are not presently
available for immediate use.
A. Unused credit line C. Postdated checks received
B. Stale checks D. Postdated checks drawn

2. It is a negative balance in the cash in bank account resulting from overpayment of

checks in excess of the amount of deposit.
A. No sufficient fund C. Cash shortage and overage
B. Bank overdraft D. None of the above

3. These system requires all cash receipts to be deposited intact and all cash purchases to
be made through checks.
A. Petty cash fund C. Fluctuating system
B. Replenishment D. Imprest system

4. These are checks drawn and released to payees but are not yet presented for
encashment to the bank.
A. Deposit in transit C. Credit memos
B. Outstanding checks D. Debit memos

5. What is the proper accounting treatment for a stale check?

A. Revert back to cash and accounts payable.
B. Revert back to cash and a credit to gain.
C. None of the above.
D. Either A or B.
 INTERMEDIATE ACCOUNTING 1 | 2

INTERMEDIATE ACCOUNTING 1
TRADE AND OTHER RECEIVABLES

IVANRICHE L. LANDAOS | BSAIS-2

1. Credit balances in accounts receivable are classified as

A. Long term liabilities C. Deduction from accounts receivable
B. Current liabilities D. Part of accounts payable

2. Which method of recording loss on doubtful account is consistent with accrual

accounting?
A. Percent of sales method
B. Percent of accounts receivable method
C. Allowance method
D. Direct write-off method

3. The following are the estimating doubtful accounts, except one.

A. Percentage of net credit sales
B. Percentage of receivables
C. Aging of receivables
D. Aging of sales

4. How will you compute the net realizable value?

A. Accounts receivable less allowance for doubtful account
B. Allowance for doubtful account less doubtful account expense
C. Accounts receivable less sales
D. Allowance for doubtful account less sales

5. A method to generate cash from accounts receivable.

A. Discounting C. Assignment
B. Factoring D. Assignment and factoring
 INTERMEDIATE ACCOUNTING 1 | 3

INTERMEDIATE ACCOUNTING 1
INVENTORIES

IVANRICHE L. LANDAOS | BSAIS-2

1. This cost of inventories include costs directly related to the units of productions.
A. Costs of purchase
B. Costs of conversion
C. Cost of inventories of a service provider
D. Cost of agricultural produce harvested from biological assets

2. Which are the following costs are excluded from the cost of inventories that are
recognized as expenses in the period in which they are incurred?

I. Abnormal amounts of wasted materials, labor, or other production costs.

II. Administrative overheads that do not contribute to bringing inventories to their
present location and condition.
III. Selling costs
IV. Labor and other costs relating to sales and general administrative personnel.

A. I, II, and III C. II, III, and IV

B. I, III, and IV D. All of the above

3. Goods may be transferred from one party to another for purposes of sale without the
ownership and ultimate economic control changing hands.
A. Goods in transit C. Consigned goods
B. Segregated goods D. Cost of goods sold

4. The pro-forma entry for sales of goods under perpetual inventory system.
A. Accounts receivable / Cash xxx
Sales xxx

Cost of goods sold xxx

Merchandise inventory xxx

B. Sales xxx
Merchandise inventory xxx

Cash / Accounts receivable xxx

Cost of goods sold xxx

C. Sales xxx
Accounts receivable / Cash xxx

Merchandise inventory xxx

Cost of goods sold xxx

D. No entry

5. This method considers goods to be undistinguishable and are, thereof, valued at an

average of the costs incurred.
A. First in, first out C. Moving average
B. Weighted average D. None of the above
 INTERMEDIATE ACCOUNTING 1 | 4

INTERMEDIATE ACCOUNTING 1
INVESTMENTS

IVANRICHE L. LANDAOS | BSAIS-2

1. Which of the following is not a financial asset?

A. Investments C. Intangible assets
B. Receivables D. Cash and cash equivalents

2. These are financial assets whose changes in fair values after initial recognition are
recognized in other comprehensive income.
A. Fair value through profit or loss
B. Fair value through other comprehensive income
C. Either A or B
D. Neither A or B

3. These are generally recognized as income when received or receivable.

A. Cash dividends C. Share dividends
B. Property dividends D. None of the above

4. The investment in associate or joint venture is initially recognized at purchase price plus
transaction costs. To illustrate, the pro-forma entry for the equity method is
A. Cash xxx
Investment in associate xxx

B. Investment in associate xxx

Share in profit of associate xxx

C. Investment in associate xxx

Other comprehensive income xxx

D. Investment in associate xxx

Cash xxx

5. It reflects the amount that would be required currently to replace the service capacity of
an asset.
A. Market approach C. Income approach
B. Cost approach D. Approachable thingy
 INTERMEDIATE ACCOUNTING 1 | 5

INTERMEDIATE ACCOUNTING 1
PROPERTY, PLANT, AND EQUIPMENT

IVANRICHE L. LANDAOS | BSAIS-2

1. Which of the following is not included in the characteristics of property, plant, and
equipment?
A. Tangible assets C. Long-term in nature
B. Used in normal operations D. None of the above

2. Property, plant, and equipment are tangible items that are:

I. Held for use in the production or supply of goods or services, for rental to others,
or for administrative purposes.
II. Expected to be used during more than one period.

Which of them are included as tangible items?

A. Item I C. Either item I or II
B. Item II D. All of them

3. Which of the following cost should be expensed immediately?

A. Administrative overhead
B. Initial operating loss
C. Cost of relocating or reorganizing part or all of an entity’s operation
D. All of these are expensed immediately

4. This method is widely used in practice because of its simplicity. It assumes that asset
provides equal economic benefits in each period of its estimated useful life.
A. Decreasing charge method
B. Straight-line method
C. Service-hours method
D. Units-of-output method

5. When property is acquired by issuing equity shares, which of the following is the best
basis for establishing the historical cost of the acquired asset?
A. Historical cost of the asset to the seller
B. Historical cost of a similar asset
C. Fair value of the asset received or the fair value of the shared issued,
whichever is more readily reliable
D. Historical cost of the asset is zero
 INTERMEDIATE ACCOUNTING 1 | 6

INTERMEDIATE ACCOUNTING 1
INTANGIBLES

IVANRICHE L. LANDAOS | BSAIS-2

1. An enterprise shall recognize separately at fair value an intangible asset acquired in a

business combination that is distinguishable from goodwill.
A. Acquisition by way of government grant
B. Separate acquisition
C. Acquisition as part of a business combination
D. Acquisition by exchange of assets

2. Factors in determining the useful life of an intangible asset include all, except
A. The expected use of the asset
B. Any legal or contractual provision
C. Any provision for renewal or extension of the legal life
D. The amortization method

3. After initial recognition, an intangible asset shall be measured using

A. Fair value model C. Cost model
B. Revaluation model D. Straight-line model

4. Goodwill should be tested for impairment at

A. each reporting unit C. each identifiable long-term asset
B. each acquisition unit D. entire business as a whole

5. An exclusive right or protection granted to an author of literary, musical, or artistic work.

A. Franchise C. Patent
B. Copyright D. Goodwill
 INTERMEDIATE ACCOUNTING 1 | 7

PROBLEMS
WITH
SOLUTIONS
INTERMEDIATE ACCOUNTING 1
CASH AND CASH EQUIVALENTS

IVANRICHE L. LANDAOS | BSAIS-2

1. Who Goat Era Company had the following balances on December 31, 2019:

Cash in checking account 275,000.00

Cash in money market account 625,000.00
Treasury bill, purchased Nov. 1, 2019 maturing Jan. 31, 2020 2,950,000.00
Time deposit purchased Dec. 1, 2019 maturing March 31, 2020 5,000,000.00
What amount should be reported as cash and cash equivalents on December 31, 2019?
A. ₱1,100,000 C. ₱4,600,000
B. ₱3,850,000 D. ₱8,600,000

Answer: B

Cash in checking account 275,000.00

Cash in money market account 625,000.00
Treasury bill, purchased Nov. 1, 2019 maturing Jan. 31, 2020 2,950,000.00
TOTAL CASH AND CASH EQUIVALENTS ₱ 3,850,000.00

Under PAS 7, treasury bills, money market placement, and time deposit normally qualify as
cash equivalents only when they have a short maturity of three months or less from the date of
acquisition.

In the absence of specific term, money market account is short-term investment of three months
or less.

The treasury bill is classified as cash equivalent because the term is three months, while time
deposit is not a cash equivalent because the term is four months.
 INTERMEDIATE ACCOUNTING 1 | 8

2. Cheese Mow Sah Company reported the following information in year-end:

 Share investments of ₱1,000,000 that are very actively traded in the stock market.
 Government treasury bills of ₱2,500,000 with a 10-year term but purchased on
December 31 at which they had two month to go until maturity.
 Cash of ₱4,400,000 in the form of coin, currency, saving account, and checking account.
 Commercial papers of ₱2,000,000 with term of nine months but purchased on December
31 at which they had three months to go until maturity.

Q1.What total amount should be reported as cash?

A. ₱3,400,000 C. ₱4,400,000
B. ₱4,900,000 D. ₱’5,400,000

Q2.What total amount should be reported as cash equivalent?

A. ₱2,000,000 C. ₱3,500,000
B. ₱1,500,000 D. ₱4,500,000

Answer:
Q1. C Q2. D

Cash - Coin, currency, saving, and checking ₱ 4,400,000.00

Government treasury bills 2,500,000.00

Commercial papers 2,000,000.00
TOTAL CASH EQUIVALENTS ₱ 4,500,000.00

The share investments cannot qualify as cash equivalents because although very actively
traded the investments do not have a maturity.

The commercial papers are actually money market placements.

 INTERMEDIATE ACCOUNTING 1 | 9

3. Mahla Bohka Company reported an imprest petty cash fund of ₱50,000 with the
following details:

Currencies 10,000.00
Coins 2,000.00
Petty cash vouchers:
Gasoline payments for delivery equipment 3,000.00
Medical supplies for employees 1,000.00
Repairs of office equipment 1,500.00
Loans to employees 3,500.00
A check drawn by the entity payable to the order of Ms. Papan Sinka, petty
cash custodian, representing her salary 15,000.00
An employee check returned by the bank for insufficiency of fund 3,000.00
A sheet of paper with names of several employees together with contribution
for a birthday gift of a co-employee. Attached to the sheet of paper is a
currency of 5,000.00

What amount of petty cash fund should be reported in the statement of financial position?
A. ₱42,000 C. ₱37,000
B. ₱27,000 D. ₱22,000

Answer: B

Currencies 10,000.00
Coins 2,000.00
Check drawn to the order of the petty cash custodian 15,000.00
₱ 27,000.00

The check drawn payable to the order of the petty cash custodian representing her salary is
actually an accommodation check.

Thus, the amount is included as part of cash.

 INTERMEDIATE ACCOUNTING 1 | 10

4. Philingsya Company had the following account balances on December 31, 2019.

Petty cash fund 75,000.00

Cash in bank - current account 3,700,000.00
Cash in bank - payroll account 1,500,000.00
Cash in bank - sinking fund 2,650,000.00
Cash on hand 575,000.00
Cash in bank - restricted account for plant addition and expected
to be disturbed in 2020 1,850,000.00
Treasury bills 1,600,000.00

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 Philingsya dated January
15, 2020.

In exchange 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 June 30, 2020.

What total amount should be reported as cash and cash equivalents on December 31, 2019?
A. ₱9,990,000 C. ₱8,690,000
B. ₱7,490,000 D. ₱6,690,000

Answer: A

Petty cash fund 75,000.00

Unreplenished petty cash voucher 5,000.00
Employee IOU 5,000.00
ADJUSTED PETTY CASH ₱ 65,000.00

Cash on hand 575,000.00

Customer check postdated January 31, 2020 100,000.00
ADJUSTED CASH ON HAND ₱ 475,000.00

Petty cash fund 65,000.00

Cash on hand 475,000.00
Current account 3,700,000.00
Payroll account 1,500,000.00
Sinking fund 2,650,000.00
Treasury bills 1,600,000.00

The customer postdated check should be reverted to accounts receivable.

The minimum balance of ₱200,000 to be maintained in the current account is included in cash
because the current account is unrestricted.

The sinking fund is included in cash and cash equivalents because the bond payable is already
due within one year from the end of the reporting period.

The classification of a cash fund should parallel the classification of the related liability.

The cash in bank restricted for plant addition is classified as noncurrent regardless the
expected year of disbursement.
 INTERMEDIATE ACCOUNTING 1 | 11

5. Bro. Kenhart Company provided the following information on December 31, 2019:

Cash on hand 500,000.00

Security Bank current account 1,000,000.00
PNB Current account No. 1 400,000.00
PNB Current account No. 2 (overdraft) 50,000.00

 The cash on hand included a customer postdated check of ₱100,000 and postal money
order of ₱40,000.
 A check for ₱200,000 in payment of account was drawn against Security Bank account,
dated January 15, 2020, delivered to the payee and recorded December 31, 2019.

What total amount of cash and cash equivalents should be reported on December 31, 2019?
A. ₱4,550,000 C. ₱4,750,000
B. ₱5,050,000 D. ₱1,950,000

Answer: A

Cash on hand (500,000 - 100,000 postdated ckeck) 400,000.00

Security Bank current account (1,000,000 + 200,000) 1,200,000.00
PNB Current account No. 1 400,000.00
PNB Current account No. 2 (overdraft) 50,000.00
BSP treasury bill - 60 days 3,000,000.00
TOTAL CASH AND CASH EQUIVALENTS ₱ 4,950,000.00

The bank overdraft is netted because it is in the same bank.

The postal money order is part of cash.

The postdated check delivered of ₱200,000 drawn against Security Bank is restored to cash in
bank by debiting cash in bank and crediting accounts payable.
 INTERMEDIATE ACCOUNTING 1 | 12

INTERMEDIATE ACCOUNTING 1
TRADE AND OTHER RECEIVABLES

IVANRICHE L. LANDAOS | BSAIS-2

1. Sexy Mote Company provided the following information relating to accounts receivable
for the current year:

Accounts receivable - January 1 1,300,000.00

Credit sales 5,400,000.00
Collections from customers, excluding recovery 4,750,000.00
Collection of accounts written off in prior year
(customer credit was not reestablished) 25,000.00
Accounts written off 125,000.00
Estimated uncollectible receivables per aging of receivables at Dec. 31 165,000.00

What is the balance of accounts receivable, before allowance for doubtful accounts on
December 31?
A. ₱1,825,000 C. ₱1,950,000
B. ₱1,850,000 D. ₱1,990,000

Answer: A

Accounts receivable - January 1 1,300,000.00

Credit sales 5,400,000.00
Total 6,700,000.00
Collections from customers, excluding recovery 4,750,000.00
Accounts written off 125,000.00 4,875,000.00
Accounts receivable - December 31 ₱ 1,825,000.00

The recovery of accounts written off does not affect the balance of accounts receivable because
the effect is offsetting.
 INTERMEDIATE ACCOUNTING 1 | 13

2. Dimag Aling Company prepared an aging of accounts reveivable on December 31 and

determined that the net realizable value of the accounts receivable was ₱2,500,000

Allowance for doubtful accounts - January 1 280,000.00

Accounts written off as uncollectible 230,000.00
Accounts receivable - December 31 2,700,000.00
Uncollectible accounts recovery 50,000.00
What amount should be recognized as doubtful account expense for the current year?
A. ₱230,000 C. ₱150,000
B. ₱200,000 D. ₱100,000

Answer: D

Allowance for doubtful accounts - January 1 280,000.00

Uncollectible accounts recovery 50,000.00
Doubtful account expense (SQUEEZE) 100,000.00
Total 430,000.00
Accounts written off as uncollectible 230,000.00
ALLOWANCE FOR DOUBTFUL ACCOUNTS - DECEMBER 31 ₱ 200,000.00

Since the December 31 accounts receivable balance is ₱2,700,000 and the net realizable value
is ₱2,500,000, the December 31 allowance for doubtful accounts should be ₱200,000.

The doubtful accounts expense is squeezed by working back from the December 31 allowance
for doubtful accounts of ₱200,000.

3. Beegyahnang Jahketyahn Company provided the following pertaining to accounts

receivable at year-end:

Days outstanding Estimated Amount Estimated uncollectible

0 - 60 1,200,000.00 1%
61 - 120 900,000.00 2%
Over 120 1,000,000.00 60,000.00
3,100,000.00

During the current year, the entity wrote off ₱70,000 in accounts receivable and recovered
₱40,000 that had been written off in prior years.

At the beginning of current year, the allowance for uncollectible accounts was ₱100,000.

Under the aging method, what amount of allowance for uncollectible accounts should be
reported at year-end?
A. ₱190,000 C. ₱130,000
B. ₱100,000 D. ₱ 90,000

Answer: D

0 - 60 (1,200,000 x 1%) 12,000.00

61 - 120 (900,000 x 2%) 18,000.00
Over 120 60,000.00
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS - DECEMBER 31 ₱ 90,000.00

Under the aging method, the amount computed represents the required ending allowance for
uncollectible accounts.
 INTERMEDIATE ACCOUNTING 1 | 14

4. Bulagaan Company has an 8% note receivable dated June 30, 2019, in the original
amount of ₱1,500,000.

Payments of ₱500,000 in principal plus accrued interest are due annually on July 1, 2020, 2021,
and 2022.

Q1. What is the balance of note receivable on July 1, 2020?

A. ₱1,500,000 C. ₱ 500,000
B. ₱1,000,000 D. ₱ 0

Q2. In the June 30, 2021 statement of financial position, what amount should be reported as
a current asset for interest on the note receivable?
A. ₱ 120,000 C. ₱ 80,000
B. ₱ 40,000 D. ₱ 0

Answer:
Q1. B

Note receivable, June 30, 2019 1,500,000.00

Payment on July 1, 2020 500,000.00
NOTE RECEIVABLE, JULY 1, 2020 ₱ 1,000,000.00

Q2. C

Accrued interest receivable - June 30, 2021 (1,000,000 x 8%) ₱ 80,000.00

Since the next payment is on July 1, 2021, the accrued interest is for one year from July 1,
2020 to June 30, 2021.
 INTERMEDIATE ACCOUNTING 1 | 15

5. National Bank granted a 10-year loan to Dee Mohn Yogah Company in the amount of
₱1,500,000 with a stated interest rate of 6%. Payments are due monthly and are
computed to be ₱16,650.

National Bank incurred ₱40,000 of direct loan origination cost and ₱20,000 of indirect loan
origination cost.

In addition, National Bank, charged Dee Mohn Yogah Company a 4-point nonrefundable loan
origination fee.

Q1. What is the initial carrying amount of the loan receivable on the part of National Bank?
A. ₱1,440,000 C. ₱1,500,000
B. ₱1,480,000 D. ₱1,520,000

Q2. What is the initial carrying amount of the loan payable on the part of Dee Mohn Yogah
Company?
A. ₱1,440,000 C. ₱1,500,000
B. ₱1,480,000 D. ₱1,520,000

Answer:
Q1. B

Loan receivable 1,500,000.00

Direct origination cost 40,000.00
Total 1,540,000.00
Origination fee received from borrower (1,500,000 x 4%) 60,000.00
CARRYING AMOUNT ₱ 1,480,000.00

The indirect origination cost incurred by the bank is an outright expense.

Q2. A

Loan payable 1,500,000.00

Origination fee charged by the bank 60,000.00
CARRYING AMOUNT ₱ 1,440,000.00
 INTERMEDIATE ACCOUNTING 1 | 16

INTERMEDIATE ACCOUNTING 1
INVENTORIES

IVANRICHE L. LANDAOS | BSAIS-2

1. Bee Got Mow Company incurred the following costs:

Materials 700,000.00
Storage costs of finished goods 180,000.00
Delivery to customers 40,000.00
Irrecoverable purchase taxes 60,000.00
At what amount should the inventory be measured?
A. ₱880,000 C. ₱980,000
B. ₱760,000 D. ₱940,000

Answer: B

Materials 700,000.00
Irrecoverable purchase taxes 60,000.00
TOTAL COST OF INVENTORY ₱ 760,000.00
2. At year-end, Ehh Pal Kah Company purchased goods costing ₱500,000 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 10,000.00

Shipping 15,000.00
Special handling charges 25,000.00

What total cost should be included in inventory?

A. ₱545,000 C. ₱520,000
B. ₱535,000 D. ₱500,000

Answer: D

When goods are purchased FOB destination, the seller is responsible for costs incurred in
transporting the goods to the buyer.

3. On October 1, 2019, Soon Tuhk Yuh Company consigned 40 freezers to Pah Nget Yuh
Company costing ₱14,000 each for sale at ₱20,000 each and paid ₱16,000 I
transporting costs.

On December 30, 2019, Pah Nget Yuh Company reported the sale of 10 freezers and remitted
₱170,000. The remittance was net of the agreed 15% commission.

What amount should be recorded as consignment sales revenue for 2019?

A. ₱154,000 C. ₱196,000
B. ₱170,000 D. ₱200,000

Answer: D

Freezers sold (10 x ₱20,000)

 INTERMEDIATE ACCOUNTING 1 | 17

4. Puhn Yeh Tah Company had the following transactions during December:

Inventory shipped on consignment to Kahla Yaahn Company 1,800,000.00

Freight paid by Puhn Yeh Tah 90,000.00
Inventory received on consignment from Henhe Rhaluhna Company 1,200,000.00
Freight paid by Henhe Rhaluhna 50,000.00
No sales of consigned goods were made in December.

What amount should be included in inventory on December 31?

A. ₱1,200,000 C. ₱1,800,000
B. ₱1,250,000 D. ₱1,890,000

Answer: D

Inventory shipped on consignment to Kahla Yaahn Company 1,800,000.00

Freight paid by Puhn Yeh Tah 90,000.00
TOTAL COST OF CONSIGNED INVENTORY ₱ 1,890,000.00
5. On December 1, 2019, Fee Lihn Gera Department Store received 505 sweaters on
consignment from Fee Lihn Pohgi. Fee Lihn Pohgi’s cost for the sweaters was ₱800
each, and they were priced to sell at ₱1,000.

Fee Lihn Gera’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 C. ₱450,000
B. ₱454,000 D. ₱404,000

Answer: C

Payable for consigned goods (500,000 - 50,000 commission) ₱ 450,000.00

 INTERMEDIATE ACCOUNTING 1 | 18

INTERMEDIATE ACCOUNTING 1
INVESTMENTS

IVANRICHE L. LANDAOS | BSAIS-2

1. Hung Hang You Company provided the following portfolio of equity investments
measured at fair value through other comprehensive income:

Aggregate cost - December 31, 2019 1,850,000.00

Unrealized gain - December 31, 2019 55,000.00
Unrealized loss - December 31, 2019 300,000.00
Net realizable gain during 2019 355,000.00
On January 1, 2019, the entity reported an unrealized loss of ₱25,000 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 C. ₱205,000
B. ₱220,000 D. ₱ 0

Answer: B

Aggregate cost - December 31, 2019 1,850,000.00

Unrealized gain - December 31, 2019 55,000.00
Unrealized loss - December 31, 2019 300,000.00
Net realizable gain during 2019 355,000.00

The increase in unrealized loss of ₱220,000 is reported in the statement of comprehensive

income as component of other comprehensive income.

However, the statement of changes in equity for 2019 would report the cumulative net
unrealized loss of ₱245,000.

Incidentally, the net realized gain represents gain from the investment that is actually sold and
should be directly credited to retained earnings.
 INTERMEDIATE ACCOUNTING 1 | 19

2. Shee Rahul Lokah Company held the following financial assets as trading investments
on December 31, 2019:

Cost Market value

100,000 shares of Pohk Pohk Company nonredeemable
preference share capital, par value ₱75 775,000.00 825,000.00
7,000 shares of Mahli Bogka Company preference share
capital, par value ₱100, subject to mandatory
redemption by the issuer at par on December 31, 2019 690,000.00 625,000.00
₱ 1,465,000.00 ₱ 1,450,000.00

On December 31, 2019, what is the total carrying amount of the investments?
A. ₱1,400,000 C. ₱1,450,000
B. ₱1,465,000 D. ₱1,475,000

Answer: C

The nonredeemable preference share is an equity security.

The redeemable preference share is a debt security.

Whether equity or debt security, financial assets held for trading are measured at fair value
through profit or loss.

3. Super Robots Company provided the following data for the current year:

 On September 1, Super Robots received a ₱510,000 cash dividend from Dark Rox
Company in which Super Robots owns a 30% interest.
 On October 1, Super Robots received a ₱75,000 liquidating dividend from FNAF
Company. Super Robots owns a 5% interest in FNAF.
 Super Robots owns a 10% interest in BATIM Company, which declared and paid
₱2,750,000 cash dividend on November 15.

What amount should be reported as dividend income for the current year?
A. ₱275,000 C. ₱475,000
B. ₱375,000 D. ₱575,000

Answer: A

Cash dividend from BATIM Company (10% x 2,750,000) ₱ 275,000.00

The cash dividend from Dark Rox and the liquidating dividend from FNAF are not income but
reduction of the investment account.
 INTERMEDIATE ACCOUNTING 1 | 20

4. On March 1, Ehwahn Kosahyu Company purchased 20,000 ordinary shares at ₱80 per
share.

On September 30, Ehwahn Kosahyu Company received 20,000 share rights to purchase an
additional 20,000 shares at ₱90 per share.

On September 30, the share had a market value ₱95 and the share right had a market value of
₱10.

What amount should be reported on September 30 for investment in share rights?

A. ₱100,000 C. ₱200,000
B. ₱150,000 D. ₱350,000

Answer: C

Initial measurement at fair value (20,000 rights x 10) ₱ 200,000.00

5. On July 1, 2019, Bahsag Muhkha Company purchased 30,000 shares of Bahsag Trip
Company’s 100,000 outstanding ordinary shares for ₱200 per share.

On December 15, 2019, the investee paid ₱475,000 in cash dividend to the ordinary
shareholders.

The investee’s net income for the year ended December 31, 2019 was ₱1,320,000, earned
evenly throughout the year.

What amount of income from the investment should be reported in 2019?

A. ₱ 72,000 C. ₱154,000
B. ₱126,000 D. ₱198,000

Answer: D

Interest acquired (30,000 / 100,000) 30%

Share in net income from July 1 to December 31, 2019

(1,320,000 x 6/12 x 30%) ₱ 198,000.00
 INTERMEDIATE ACCOUNTING 1 | 21

INTERMEDIATE ACCOUNTING 1
PROPERTY, PLANT, AND EQUIPMENT

IVANRICHE L. LANDAOS | BSAIS-2

1. Yahya Mahnin Company purchased a high-speed industrial centrifuge at a cost

₱920,000. Shipping cost amounted to ₱65,000. Foundation work to house the centrifuge
cost ₱85,000.

An additional water line had to be run to the equipment at cost of ₱50,000. Labor and testing
cost totaled ₱70,000. Materials used up in testing cost ₱37,500.

What is the capital cost of the equipment?

A. ₱1,267,500 C. ₱1,227,500
B. ₱1,207,000 D. ₱1,217,500

Answer: C

All costs incurred are capitalized ₱1,227,500

2. Pahgodna Company purchased a new machine on a deferred payment basis.

A down payment of ₱120,000 was made and four monthly installments of ₱280,000 are to be
made at the end of each month.

The cash equivalent price of the machine was ₱1,000,000. The entity incurred and paid
installation costs amounting to ₱40,000.

What is the amount to be capitalized as cost of the machine?

A. ₱1,000,000 C. ₱1,280,000
B. ₱1,040,000 D. ₱1,440,000

Answer: B

Cash price 1,000,000.00

Installation cost 40,000.00
TOTAL COST ₱ 1,040,000.00

An asset acquired by installment is recorded at cash price plus directly attributable cost.

3. GrUber Company purchased a ten-ton draw press at a cost of ₱3,600,000 with terms of
5/15, n/45. Payment was made within the discount period.

Shipping cost was ₱90,000 that included ₱4,000 for insurance in transit. Installation cost totaled
₱240,000 that included ₱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 C. ₱3,750,000
B. ₱3,670,000 D. ₱3,715,200

Answer: C
 INTERMEDIATE ACCOUNTING 1 | 22

Purchase price net of discount (3,600,000 x 95%) 3,420,000.00

Shipping cost 90,000.00
Installation cost 240,000.00
TOTAL COST ₱ 3,750,000.00
4. Tsahka Moteh Company purchased land adjacent to its plant to improve access for
trucks making deliveries. Expenditures incurred in purchasing the land were as follows:

Purchase price ₱ 550,000

Broker’s fees 60,000
Title search and other fees 50,000
Demolition of an old building on the property 57,000
Grading 12,000
Digging foundation for the road 30,000
Laying and paving driveway 250,000
Lighting 75,000
Signs 15,000

What is the total amount that should be included in the Land account?
A. ₱729,000 C. ₱809,000
B. ₱789,000 D. ₱859,000

Answer: A

Purchase price ₱ 550,000

Broker’s fees 60,000
Title search and other fees 50,000
Demolition of an old building on the property 57,000
Grading 12,000
LAND ACQUISITION COST ₱ 729,000

5. Equipment was acquired on January 1, 2016, at a cost of ₱75,000. The equipment was
originally estimated to have a salvage value of ₱5,000 and an estimated life of 10 years.
Depreciation has been recorded through December 31, 2019, using the straight-line
method. On January 1, 2020, the estimated salvage value was revised to ₱7,000 and
the useful life was revised to a total of 8 years.

Q1. What is the book value at the time of the revision by January 1, 2020?
A. ₱27,000 C. ₱47,000
B. ₱37,000 D. ₱57,000

Q2. Determine the depreciation expense for 2020.

A. ₱ 5,000 C. ₱20,000
B. ₱10,000 D. ₱35,000

Answer:
Q1. C

Annual depreciation expense = (75,000 – 5,000) / 10 yrs. = ₱7,000

Four years have been depreciated = 7,000 x 4 = ₱28,000
Book value = Cost – Accumulated depreciation
= 75,000 – 28,000
= ₱47,000

Q2. B

Depreciation expense 2020 = (Book value – Salvage value) / (Revised useful life – Useful life)
= (47,000 – 7,000) / (8 yrs. – 4 yrs.)
 INTERMEDIATE ACCOUNTING 1 | 23

= 40,000 / 4 yrs. remaining

= ₱10,000

INTERMEDIATE ACCOUNTING 1
INTANGIBLES

IVANRICHE L. LANDAOS | BSAIS-2

1. Pahbi Dahka Company acquires new energy efficient technology that will significantly
reduce its energy costs for manufacturing. Costs incurred include:

Cost of new solar technology 1,500,000

Trade discount provided 200,000
Training course for staff in new technology 70,000
Initial testing of new technology 20,000
Losses incurred while other parts of plant shut down
during testing and training 30,000

The cost that can be recognized and capitalized is:

A. ₱1,250,000 C. ₱1,410,000
B. ₱1,320,000 D. ₱1,500,000

Answer: B

Cost 1,500,000
Less: Discount (200,000)
Add: Initial testing 20,000
₱1,320,000

2. A company purchases a copyright for ₱300,000. The company plans to keep the
copyright for 20 years. Calculate the annual amortization amount of the patent.

A. ₱25,000 C. ₱6,000
B. ₱15,000 D. ₱5,000

Answer: B

Amortization of patent = 300,000 / 20 yrs. = ₱15,000

 INTERMEDIATE ACCOUNTING 1 | 24

3. Kahpal Mukska Company paid ₱420,000 for the outstanding common stock of Buhgbog
Kahsahkin Company. At that time, Buhgbog Kahsahkin had the following condensed
balance sheet:

Carrying Amounts
Current assets 56,000.00
Property, plant, and equipment 532,000.00
Liabilities 280,000.00

The fair value of PPE was ₱84,000 more than the recorded carrying amount. The fair values
and carrying amounts were equal for all other assets and liabilities. What amount of goodwill,
related to Buhgbog Kahsahkin’s acquisition, should Kahpal Mukska report in its consolidated
balance sheet?
A. ₱28,000 C. ₱ 84,000
B. ₱56,000 D. ₱112,000

Answer: A

Purchase price for the outstanding common stock of

Buhgbog Kahsahkin Company 420,000.00
Less: Fair value of net assets:
Current assets 56,000.00
PPE net (532,000 + 84,000) 616,000.00
Liabilities 280,000.00 392,000.00
EXCESS OF COST OVER FAIR VALUES ₱ 28,000.00

4. Stres Kahday Company acquired a patent for a drug with a remaining legal and useful
life of six years on January 1, 2017 for ₱6,300,000

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 is the amortization expense for 2019?

A. ₱900,000 C. ₱180,000
B. ₱210,000 D. ₱300,000

Answer: B

Cost - January 1, 2017 6,300,000.00

Amortization for 2017 and 2018 (6,300,000 / 6 x 2) 2,100,000.00
Carrying amount - January 1, 2019 ₱ 4,200,000.00

Amortization for 2019 (4,200,000 / 20) ₱ 210,000.00

 INTERMEDIATE ACCOUNTING 1 | 25

5. Rahke Tehra Company developed a trademark to distinguish its products from those of
the competitors.

Marketing research to study consumer tastes 475,000.00

Design cost of trademark 1,589,350.00
Legal fee of registering trademark 164,850.00
Advertising to establish recognition of trademark 263,750.00

What amount should be capitalized as cost of trademark?

A. ₱1,394,000 C. ₱1,829,700
B. ₱1,908,500 D. ₱1,927,400

Answer: C

Design cost of trademark 1,589,350.00

Legal fee of registering trademark 164,850.00
Registration fee with Intellectual Property Office 75,500.00
TOTAL COST OF TRADEMARK ₱ 1,829,700.00