On December 31, 20x1, ABC Has Total Expenses of P1,000,000 Before Possible Adjustment For The Following

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PRAC 1 SECOND PREBOARD

1. Rex Adorable Co. prepared its unadjusted trial balance and determined that the totals of debits and
credits do not equal. Further investigation revealed the following:
The debit posting for a cash sale was omitted. P 2,000
The balance of Inventory was listed as a credit 12,000
The balance of Insurance expense was listed as Rent expense 3,000
The balance of Unearned interest income was listed as a debit 5,000
Year-end depreciation not yet recorded 15,000

How much is the difference between total debits and total credits in the unadjusted trial balance?
a. 16,000 excess of credits over debits
b. 9,000 excess of credits over debits
c. 16,000 excess of debits over credits
d. 9,000 excess of debits over credits

2. The credit total of a trial balance exceeds the debit total by P350. In investigating the cause of the
difference, the following errors were determined:
a) a credit to accounts receivable of P550 was not posted;
b) a P5,000 debit to be made to the Purchases account was debited to Accounts payable instead;
c) a P3,000 credit to be made to the Sales account was credited to the Accounts receivable account
instead;
d) the interest payable account balance of P4,500 was included in the trial balance as P5,400.

How much is the correct balance of the trial balance?


a. 8,550
b. 9,450
c. 7,450
d. 9,550

3. The total credits in the statement of financial position columns of the worksheet amounted P720,400
while the total debits in the income statement columns is P246,800. If the total debits in the adjusted
trial balance is P990,000, how much is the profit/(loss) for the period?
a. 22,800
b. (22,800)
c. 266,000
d. (266,000)

4. Darrell God-fearing, Inc. records all disbursements using nominal accounts. On December 31, 20x1,
ABC has total expenses of P1,000,000 before possible adjustment for the following:
a. Advertisement costs paid during December 31, 20x1 totaled P10,000. The advertisement was
aired on TV on January 5, 20x2.
b. A two-year insurance on assets was obtained on July 1, 20x1 for P24,000.
c. On July 15, 20x1, ABC entered into an operating lease requiring monthly payments of P60,000
starting on the date of the lease contract and monthly thereafter.
d. Office supplies expense has a balance of P20,000. The physical count of office supplies revealed
a balance of P16,000.

The adjusted total expenses is


a. 938,000
b. 926,000
c. 944,000
d. 932,000

5. The inexperienced accountant of Raymund Achiever, Inc. prepared the following closing entry on
December 31, 20x1:
Dec. 31, Prepaid insurance 10,000
20x1 Accrued interest expense 2,000
Cost of goods sold 170,000
Interest income 20,000
Dividend income 30,000
Unrealized gain – OCI 5,000
Income summary 447,000
Dividends 12,000
Sales 450,000
Operating expenses 200,000
Finance cost 2,000
Accrued interest income 20,000
Dec. 31, Retained earnings 447,000
20x1 Income summary 447,000
How much is the correct amount of “Income summary” to be closed to retained earnings?
a. 447,000
b. 140,000
c. 146,000
d. 128,000

6. On September 30, 20x1, Rhad Down2earth Co. issued a P1,000,000, 12%, 4-year note payable to
XYZ, Inc. Principal in equal annual installments and interest are payable every September 30. ABC
Co. records disbursements for expenses using nominal accounts. At December 31, 20x1, the
following adjusting entry was made to take up the accrued interest.
Dec. 31, 20x1 Interest expense (1M x 12% x 3 /12) 30,000
Interest payable 30,000

If no reversing entries were made, the adjusting entry on December 31, 20x2 to take up accrued interest
will include
a. debit to interest expense of P22,500
b. credit to interest payable of P22,500
c. debit to interest expense of P7,500
d. debit to interest payable of P7,500

7. The following information shows the changes in the account balances of Andrix Half man-half
amazing, Inc. during 20x1.
Increase (Decrease)
Cash P 100,000
Accounts receivable (880,000)
Allowance for bad debts (120,000)
Inventory 800,000
Investment in associate 700,000
Property and equipment 1,100,000
Accumulated depreciation 400,000
Accounts payable 900,000
Bonds payable (700,000)
Discount on bonds payable (150,000)
Share capital 900,000
Share premium 100,000
Revaluation Surplus 900,000
Treasury shares 80,000

Cash dividends declared during 20x1 amounted to P100,000, stock dividends declared amounted to
P200,000, and appropriations of retained earnings for the retirement of bonds amounted to P50,000.
Profit (loss) for the year is
a. 530,000
b. (530,000)
c. 280,000
d. (280,000)

8. ABC Company is preparing its September 30, 20x1 bank reconciliation. Relevant information is
shown below:

Balance per books P1,740


Balance per bank statement 2,000
Collection on note by bank (including P50
Interest) 1,150
NSF check returned by bank 600
Bank service charges for December 20
Deposits in transit 780
Outstanding checks (including certified checks of P100) 1,000

 Collection on receivables of P450 was erroneously recorded by ABC as P540. The actual amount
deposited of P450 was correctly credited by the bank in ABC’s bank account.
 Amortization of loan by AVC Company amounting to P300 was erroneously debited by the bank from
ABC Co.’s bank account.

The adjusted balance of cash is


a. 2,180
b. 2,080
c. 1,480
d. 1,580

9. ABC Company has the following information:


Balance per bank statement 400
Credit memos 210
Debit memos 150
Deposits in transit 130
Outstanding checks 80

The cash balance per books is


a. 450
b. 510
c. 390
d. 420

Use the following information for the next two questions:


Information from ABC Co. is shown below.

Excerpt from cash books.


Collections Deposit Checks
Date deposited slip # drawn Debits Credits Balance
Sept. 1 Bal. forwarded P 10
Sept. 3 CM from Aug. a P 120 130
Sept. 3 DM from Aug. b P 5 125
Sept. 3 Error correction c 10 135
Sept. 3 Error correction d 8 127
Sept. 4 134 100190 30 157
Sept. 13 Cash 103001 42 199
Sept. 14 201 30 169
Sept. 19 547 105004 100 269
Sept. 20 202 20 249
Sept. 21 203 10 239
Sept. 25 Cash 105057 60 299
Sept. 27 389 105100 50 349
Sept. 28 204 65 284
Sept. 29 987 106007 30 314
Sept. 30 768 108112 40 354
Sept. 30 205 90 P 264
P 482 P 228

a
The CM from August represents a receivable collected by the bank on behalf of ABC.
b
The DM from August represents bank service charge in August.
c
This error correction pertains to a check issued and recorded in August at P120 however the correct
amount that cleared the bank is P110.
d
This error correction pertains to a collection on account in August of P120 but was recorded as P128.

There were no deposits in transit or outstanding checks from August. The bank statement for the month
of September is shown below:
Piggy bank
Period covered: Sept. 1, 20x1 to Sept. 30, 20x1
Account No.: 0012345
Date Check # Checks Deposits Balance
Sept. 1 P 127
Sept. 2 40 CM 167
Sept. 4 134 30 197
Sept. 13 - 50 247
Sept. 15 201 30 217
Sept. 18 20 DM 197
Sept. 20 547 100 297
Sept. 21 297
Sept. 23 203 10 287
Sept. 25 - 60 347
Sept. 27 389 50 NSF 397
Sept. 28 389 50 NSF 347
Sept. 28 500 EC 500 EC 347
Sept. 29 5 SC 342
Sept. 30 987 30 372
Sept. 30 204 50 P 322
P 665 P 860

SC - Service charge NSF - No suff icient fund


EC - Error corrected DM - Debit memo
CM - Credit memo

10. How much is the deposits in transit?


a. 40
b. 125
c. 52
d. 60

11. How much is the outstanding checks?


a. 114
b. 110
c. 152
d. 154

Use the following information for the next two questions:


Taken from the records of ABC Co. are following:
Balance per bank statement, October 31 P 1,600
Balance per bank statement, November 30 800
Total Credits per bank statement, November 1,500
Balance per books, October 31 700
Total Credits per books, November 1,900
Balance per books, November 30 900
Collection of note directly credited to ABC’s account in October 500
Proceeds of loan directly credited to ABC’s account in
November 300
NSF checks returned during October. 900
NSF checks returned during Nov.- not yet taken up in the
books 200
Check from customer in October amounting to P200 but was
taken up in the book as P2,000. 1,800
Check issued to supplier in November amounting to P100 was
taken up erroneously in the books as P1,000. 900
Collections in November for P1,300 was recorded as P300 1,000
Checks properly drawn in October at P1,900 was erroneously
recorded by the bank at P190 1,710
Deposits in November properly recorded by ABC
as P1,500 but was recorded by the bank as P150 1,350
Deposits in transit – October 31 800
Outstanding checks – October 31 2,190

12. How much is the deposits in transit as of November 30?


a. 580
b. 720
c. 810
d. 850

13. How much is the outstanding checks as of November 30?


a. 100
b. 120
c. 110
d. 150

14. The overdraft per bank statement of ABC Co. was P13,880 as of March 31, 20x1. The following
information was gathered.
 Interest on overdraft for the quarter ended March 20x1 – P480 (not yet entered in cash book)
 Check deposited in the bank, but not cleared – P1,800
 Check issued but not presented – P2,350
 A check for P1,000 which was discounted with the bank earlier was dishonored. ABC Co. was not
aware of the dishonor.

What will be the overdraft as per ABC’s cashbook on March 31, 20x1?
a. 12,950
b. (12,950)
c. 13,910
d. (13,910)

15. Data concerning the cash records of ABC Company for the months of November and December 20x1
are shown below:
November 30 December 31
Book balance 5,600 ?
Book debits 31,900
Book credits 28,200
Bank balance 15,000 20,400
Bank debits ?
Bank credits 27,300
Notes collected by bank 2,250 3,000
Bank service charge 20 100
NSF checks 880 1,400
Overstatement of check in payment
of salaries 1,900 1,200
Deposit in transit 6,000 11,250
Outstanding checks 9,750 17,850
Deposit of 123 Corporation erroneously
credited to ABC Co.’s account 2,400 1,800

How much is the adjusted cash receipts in December?


a. 30,750
b. 33,000
c. 34,550
d. 34,350

16. Information from the records of ABC Company is shown below:

Accounts receivable - net of P10,000 credit balance in


customers' accounts P 50,000
Notes receivable (trade) 5,000
Notes receivable (non-trade), P5,000 collectible within one year 25,000
Dividends receivable 1,000
Subscriptions receivable 2,000
Advances to officers and employees (due in 12 months) 4,000
Accounts payable - net of P6,000 debit balance in
suppliers' accounts 3,000

Total trade receivables and total current receivables, respectively, are


a. 55,000 and 73,000
b. 56,000 and 74,000
c. 56,000 and 72,000
d. 55,000 and 75,000
17. On December 31, 20x1, ABC Co. sold goods costing P10,000 and with sales price of P15,000 to
XYZ, Inc. on account. To induce sale, ABC Co. provides its buyers the right to return goods within 30
days upon purchase if the buyer is not satisfied with the goods. ABC Co. estimates that 20% of goods
sold are returned within the agreed period of time. How much is credited to the sales account on
December 31, 20x1?
a. 15,000
b. 10,000
c. 12,000
d. 0

18. ABC Co. has the following information on December 31, 20x1 before any year-end adjustments.
Allowance for doubtful accounts, Jan. 1 P 8,000
Write-offs 5,000
Recoveries 1,000
Sales (including cash sales of P100,000) 600,000
Sales returns and discounts
(including P1,000 sales returns on cash sales) 6,000
Accounts receivable, December 31 150,000
Percentage of credit sales 2%

How much is the net realizable value of accounts receivable on December 31, 20x1?
a. 140,100
b. 136,100
c. 136,120
d. 138,100

19. ABC Co. has the following information on December 31, 20x1 before any year-end adjustments.
Accounts receivable, Jan. 1 P 80,000
Net credit sales 270,000
Collections from customers (excluding recoveries) 140,000
Allowance for doubtful accounts, Jan. 1 P 10,000
Write-offs 5,000
Recoveries 1,000
Percentage of receivables 5%

How much is net realizable value of accounts receivable on December 31, 20x1?
a. 202,000
b. 119,100
c. 110,000
d. 191,100

20. ABC Co. has the following information on December 31, 20x1 before any year-end adjustments.
Net credit sales P,2,000,000
Accounts receivable, December 31 310,000
Allowance for doubtful accounts, Dec. 31
(before necessary year-end adjustments) 20,000
Percentage of credit sales 2%

The aging of receivables is shown below:


Days outstanding Receivable balances % uncollectible
0 - 60 P 120,000 1%
61 - 120 90,000 2%
Over 120 100,000 6%
Total accounts receivables P 310,000

ABC Co. uses the percentage of credit sales in determining bad debts in monthly financial reports and the
aging of receivables for its annual financial statements. Accounts written-off during the year amounted to
P38,000 and accounts recovered amounted to P9,000. As of December 31, ABC Co. determined that a
P20,000 accounts receivable from a certain customer included in the “61-120 days outstanding” group is
95% collectible and a P10,000 account included in the “Over 120 days outstanding” group is worthless
and needs to be written-off. The year-end adjusting entry to bring the unadjusted bad debts to its adjusted
balance includes
a. a debit to allowance of P10,000
b. a debit to bad debts of P10,000
c. a credit to bad debts of P2,000
d. a credit to allowance of P2,000
21. On January 1, 20x1, ABC Bank extended a 10%, P1,000,000 loan to XYZ, Inc. Principal is due on
January 1, 20x4 but interests are due annually starting January 1, 20x1. ABC Bank incurred direct
loan origination costs of P12,000 and indirect loan origination costs of P8,000. In addition, ABC Bank
charged XYZ, Inc. a 6-point nonrefundable loan origination fee. The initial carrying amount of the loan
in ABC’s books is
a. 988,000
b. 1,000,000
c. 952,000
d. 1,048,000

22. On January 1, 20x1, ABC Bank extended a P1,000,000 loan to XYZ, Inc. Principal is due on
December 31, 20x5 but 10% interest is due annually starting December 31, 20x1. On December 31,
20x3, XYZ, Inc. was delinquent and it was ascertained that the loan was impaired. ABC Bank
assessed that interests accruing on the loan will not be collected; however, the principal is expected
to be received in two equal annual installments starting on December 31, 20x4. Interest accrued as of
December 31, 20x3 includes the unpaid interest for 20x2; accrued interest for 20x3 was not yet
recorded. The current market rate on December 31, 20x3 is 14%. How much is the balance in the
allowance for impairment loss on December 31, 20x3?
a. 232,231 debit
b. 232,231 credit
c. 132,231 credit
d. 132,231 debit

23. On January 1, 20x1, ABC Bank extended a 6-year, 10%, P1,000,000 loan to XYZ, Inc. Net
transaction costs incurred amounted to P92,458. Principal is due on December 31, 20x5 but 10%
interest is due every year-end. The effective interest rate adjusted for transaction costs is 8%.

On December 31, 20x3, XYZ was delinquent and it was ascertained that the loan was impaired. All
accrued interests as of 20x3 were collected. The present value remaining future cash flows is P773,129.
Impairment loss of P278,413 was recognized on December 31, 20x3.

On December 31, 20x4, XYZ’s credit rating has improved and the loan was then again restructured. After
collection of the scheduled payment on December 31, 20x4, the present value of the remaining cash
flows on the newly restructured loan is P1,069,959. How much is the gain on impairment loss reversal
recognized in profit or loss on December 31, 20x4?
a. 500,686
b. 534,979
c. 34,294
d. 534,980

24. ABC Co. transferred loans receivables with carrying amount and fair value of P100,000 to XYZ, Inc.
for cash amounting to P100,000. ABC Co. is obligated under the terms of the transfer to repurchase
any individual loan but the aggregate amount of loans that could be repurchased could not exceed
P10,000. How much of the loans transferred is accounted for as secured borrowing?
a. 90,000
b. 10,000
c. 100,000
d. none

Use the following information for the next two independent questions:
ABC Co. transfers loans receivables with a fair value of P300,000 and carrying amount of P280,000. The
transfer qualified for derecognition. ABC Co. obtains an option to purchase similar loans and assumes a
recourse obligation to repurchase similar loans. ABC Co. also agrees to provide a floating rate of interest
to the transferee company. The assets and liabilities received as consideration of the transfer are listed
below:
Fair values
Cash proceeds P200,000
Interest rate swap 150,000
Call option 50,000
Recourse obligation (100,000)

25. How much is the gain (loss) on the transfer?


a. 20,000
b. (20,000)
c. 120,000
d. (120,000)
26. Assuming further that ABC Co. agreed to service the loans without explicitly stating the compensation
and fair value of the service is P15,000, the entry to record the transfer includes
a. a credit to gain on transfer of P105,000.
b. a debit to loss of P135,000.
c. a credit to gain of P5,000
d. a credit to recourse obligation of P115,000

27. ABC Co. sold a loan receivable with a fair value and a carrying amount of P25,000 for P25,000 to
XYZ, Co. The transaction includes a repurchase agreement wherein ABC should repurchase the
financial asset at P25,000 plus interest of 10% to be computed on an annual basis starting on the
date of sale. How much is the gain (loss) on the transfer?
a. 5,438
b. 1,967
c. 23,567
d. 0

Use the following information for the next two questions:


On December 31, 20x1, ABC Co. has balance of P160,000 in its inventory account determined through
physical count and a balance of P100,000 in its accounts payable account. The balances were
determined before any necessary adjustment for the following:

a. Merchandise costing P10,000, shipped FOB shipping point from a vendor on December 30, 20x1, was
received and recorded on January 5, 20x2.

b. A package containing a product costing P50,000 was standing in the shipping area when the physical
inventory was conducted. This was not included in the inventory because it was marked “Hold for
shipping instructions.” The purchase order was dated December 17 but the package was shipped and the
customer was billed January 3, 20x2.

c. Goods in the shipping area were included in inventory because shipment was not made until January 4,
20x2. The goods, billed to the customer FOB shipping point on December 30, 20x1, had a cost of
P20,000.

d. Goods shipped F.O.B. destination on December 27, 20x1, from a vendor to ABC Co. were received on
January 6, 20x2. The invoice cost of P30,000 was recorded on December 31, 20x1 and included in the
count as “goods in-transit.”

28. The adjusted balance of accounts payable is


a. 60,000
b. 80,000
c. 110,000
d. 130,000

29. The adjusted balance of inventory is


a. 190,000
b. 140,000
c. 120,000
d. 110,000

30. The records of ABC Co. show the following:


- Goods sold on an installment basis to XYZ, Inc., title to the goods is
retained by ABC until full payment is made P 750,000
- Goods sold to Alpha Co., for which ABC Co. has signed an agreement
to repurchase the goods sold at a set price that covers all costs related
to the inventory 680,000
- Goods sold where large returns are predictable 270,000
- Goods received from Beta Co. for which an agreement was signed
requiring ABC Co. to replace such goods in the near future 580,000

How much of the items listed above will be included in ABC’s year-end inventory
a. 1,260,000
b. 1,700,000
c. 2,280,000
d. 1,020,000

31. The following are taken from the records of ABC Co. as of year-end.
Cash and cash equivalents 13,000 Investment in subsidiary 55,000
Accounts receivable 15,000 Shares of stocks of ABC 56,000
Co.
Allowance for bad debts (2,000) Investment in bonds 12,000
Note receivable 5,000 Land 140,000
Interest receivable 2,000 Building 260,000
Claim for tax refund 12,000 Accumulated depreciation (65,000)
Advances to suppliers 6,000 Investment property 50,000
Inventory 75,000 Biological assets 30,000
Prepaid expenses 5,000 Intangible assets 70,000
Prepaid interest 1,000 Deferred tax assets 60,000
Investment in equity 13,000 Cash surrender value 12,000
instruments
Investment in associate 20,000 Sinking fund 20,000

How much is the total financial assets to be disclosed in the notes?


a. 165,000
b. 166,000
c. 226,000
d. 265,000

32. On January 1, 20x1, ABC Co. purchased P100,000 12% bonds at 98. The bonds will mature on
January 1, 20x5 and pays annual interest beginning January 1, 20x2. Commission paid amounted to
P10,000. The objective of the ABC’s business model is to sell such bonds in the near term to take
advantage of fluctuations in fair values for short-term profit taking. On December 31, 20x1, the
investment is quoted at 102. How much is the initial measurement of the investment?
a. 98,000
b. 108,000
c. 96,764
d. 106,764

33. ABC Co. purchased equity securities on January 1, 20x1 for a total amount of P90,000. The shares
did not qualify for recognition as held for trading nor were they designated. On December 31, 20x1,
the portfolio of ABC Co. comprised the following.
Cost Fair value – 12/31/x1
Apple Co. preference shares P 50,000 P60,000
Boy Co. ordinary shares 40,000 15,000
Totals P 90,000 P75,000

How much is the unrealized gain (loss)?


a. 0
b. (15,000) in profit or loss
c. (15,000) in other comprehensive income
d. 10,000 gain in OCI and (25,000) in profit or loss

34. On January 1, 20x1, ABC Co. acquired 10%, P1,000,000 bonds for P951,963. The principal is due on
January 1, 20x4 but interest payments are made annually starting December 31, 20x1. The yield rate
on the bonds is 12%. Interest income in 20x2 is
a. 114,236
b. 115,944
c. 117,857
d. 120,000

35. On January 1, 20x1, ABC Co. acquired 12%, P1,000,000 bonds for P1,049,737. The principal is due
on December 31, 20x3 but interest payments are made annually starting December 31, 20x1. The
effective interest rate on the bonds is 10%. Premium amortization in 20x2 is
a. 15,026
b. 16,529
c. 18,182
d. 0

36. On January 1, 20x1, ABC Co. acquired 10%, P1,000,000 bonds for P951,963. The principal is due on
January 1, 20x4 but interest payments are made annually starting December 31, 20x1. The yield rate
on the bonds is 12%. On January 1, 20x3, half of the bonds were sold at 110. Commission paid to
broker amounted to P10,000. How much is the gain (loss) on the sale?
a. 117,857
b. 104,662
c. 58,928
d. 48,928
37. ABC Co. is contemplating on investing on 12%, 3-year, P1,000,000 bonds. Principal is due at
maturity but interest is due annually at each year-end. ABC determines that the current market rate
on January 1, 20x1 is 10%. How much is the estimated total purchase price of the bonds assuming
ABC purchases bonds on April 1, 20x1?
a. 1,054,980
b. 1,750,980
c. 1,045,980
d. 1,075,980

38. On January 1, 20x1, ABC Co. purchased 5-year, 10%, P1,000,000 callable bonds at 95. Transaction
costs incurred amounted to P16,199. Principal is due on December 31, 20x5 but interests are due
annually at each year-end. The bond indenture restricts the issuer to call the bonds within 2 years
from date of bonds. ABC’s business model’s objective is to hold investments to collect the principal
and interests thereon. How much is the interest income in 20x1?
a. 93,345
b. 115,494
c. 98,993
d. 115,944

39. ABC Co. owns 15,000 shares out of the 100,000 outstanding shares of XYZ, Inc. As of year-end,
ABC holds 20,000 stock rights which enable it to acquire additional shares from XYZ on a “2 rights for
1 share” basis. The stock rights are exercisable immediately; however, management does not intend
to exercise the stock rights. XYZ does not have any other stock rights outstanding aside from those
held by ABC. XYZ reported year-end profit of P1,000,000 and declared cash dividends of P100,000.
How much share in profit of associate will ABC Co. recognize for the year?
a. 150,000
b. 220,730
c. 15,000
d. none

40. ABC Co. owns 20% of XYZ Inc.’s ordinary shares. XYZ also has an outstanding cumulative 6%
redeemable preference shares of P2,000,000. None of those preference shares is held by ABC. No
cumulative preference share dividends are in arrears as of the beginning and end of the year. XYZ
reported year-end profits of P1,000,000 and declared no dividends on oridnary shares. How much is
the share in the associate’s profit?
a. 200,000
b. 176,000
c. 189,000
d. 190,000

41. ABC Co. owns 30% of XYZ, Inc.’s ordinary shares. On July 1, 20x2, ABC Co. sold half of its
investment for P400,000. The adjusted balances of the related accounts as of July 1, 20x2
immediately before the sale are:
 Investment in associate P1,200,000
 Cumulative share in associate’s other comprehensive income 500,000 Cr.

The remaining ownership of does not give ABC significant influence over XYZ. The share in the profit
of the associate during 20x2 should have been reduced by
a. 250,000
b. 180,000
c. 150,000
d. 75,000

42. ABC Co. owns 20% of XYZ Inc. and uses the equity method because it has significant influence. In
20x1, ABC sells inventory to XYZ for P100,000 with a 60% gross profit on the transaction. The
inventory remains unsold during 20x1 and was sold by XYZ to external parties only in 20x2. ABC’s
income tax rate is 30%. Assuming XYZ reports profit of P1,000,000 on December 31, 20x1, the share
in the profit of associate in 20x1 is
a. 140,000
b. 158,000
c. 191,600
d. 188,000

43. ABC Co. owns 20% of XYZ Inc. and uses the equity method because it has significant influence. In
20x1, XYZ sells inventory to ABC for P100,000 with a 60% gross profit on the transaction. The
inventory remains unsold during 20x1 and was sold by ABC to external parties only in 20x2. ABC’s
income tax rate is 30%. Assuming XYZ reports profit of P1,000,000 on December 31, 20x1, the share
in the profit of associate in 20x1 is
a. 140,000
b. 158,000
c. 191,600
d. 188,000

44. ABC Co. owns 20% of XYZ, Inc.’s outstanding ordinary shares. On January 1, 20x1, ABC sold an
equipment with a carrying amount of P100,000 and a remaining useful life of 10 years to XYZ for
P120,000. Gain of P20,000 was recorded by ABC. Both ABC and XYZ uses the straight line method
of depreciation. Assuming XYZ reports profit of P1,000,000 on December 31, 20x1, the share in the
profit of associate in 20x1 is
a. 182,000
b. 180,000
c. 196,400
d. 196,000

45. ABC Co. owns 20% of the ordinary shares of XYZ, Inc. The records of ABC as of December 31, 20x1
show the following information before any necessary year-end adjustments.

Investment in associate P 200,000


Trade accounts receivable – XYZ 300,000
Investment in preference shares – XYZ 100,000
Advances to associate – XYZ 50,000
Loans receivable, secured - XYZ 120,000

XYZ reported losses of P1,400,000 and P500,000 in 20x1 and 20x2, respectively. How much is the share
in associate’s loss in 20x2?
a. 100,000
b. 75,000
c. 120,000
d. 0

Use the following information for the next two questions:


On January 1, 20x1, ABC Co. has ten 2-year old dairy cattle with per unit FVLCS of P10,000 or a total of
P100,000.

Transactions during the year were:


 One animal aged 2.5 years was purchased on July 1, 20X1 for P10,800.
 One animal was born on July 1, 20X1.
 Two animals from the January 1, 20x1 biological assets were sold for P12,000 each on Sept. 1, 20x1.
 One animal from January 1, 20x1 biological assets died of “mad cow” disease on November 1, 20x1.

Per-unit fair values less costs to sell are as follow:


Newborn animal at July 1, 20X1 P7,000
2.5 year old animal at July 1, 20X1 10,800

Newborn animal at 31 December 20X1 7,200


0.5 year old animal at 31 December 20X1 8,000
2 year old animal at 31 December 20X1 10,500
2.5 year old animal at 31 December 20X1 11,100
3 year old animal at 31 December 20X1 12,000

46. How much is the change in FVLCS attributable to price change?


a. 4,000
b. 19,200
c. 3,000
d. 20,200

47. How much is the change in FVLCS attributable to physical change?


a. 4,000
b. 19,200
c. 3,000
d. 20,200

48. In 20x1, ABC Co. acquired land to be used to mine coal. Total costs of acquisition, exploration, and
intangible development amounted to P10,000,000. It was estimated that total recoverable reserves is
50,000,000 units. Total units extracted from 20x1 through 20x4 totaled 30,000,000 units. In 20x5,
after extracting 5,000,000 units, it was estimated that the remaining recoverable reserves is
20,000,000 units. Depletion in 20x5 is
a. 800,000
b. 750,000
c. 700,000
d. 650,000

49. On January 1, 20x1, the building of ABC Co. with a historical cost of P20,000,000 purchased 4 years
ago with an estimated useful life of 20 years and estimated residual value of P2,000,000 has been
estimated to have a replacement cost of P30,000,000 and a new residual value of P3,000,000. The
building is also estimated to have a remaining useful life of 25 years as of January 1, 20x1.
Depreciation is computed using the straight line method. Income tax rate is 30%. Compute for the
revaluation surplus to be recognized on January 1, 20x1.
a. 5,230,000
b. 2,820,000
c. 3,480,000
d. 5,320,000

50. ABC Co. started construction of a qualifying asset for XYZ, Inc. on January 1, 20x1. The following
were expenditures incurred on construction.
Date Expenditures
January 1, 20x1 1,000,000
May 1, 20x1 450,000
December 1, 20x1 720,000
January 1, 20x2 900,000
August 30, 20x2 300,000
July 1, 20x3 600,000

ABC Co. determined the capitalization rate to be 10%. The construction of the qualifying asset was
substantially completed on September 30, 20x3. How much is the capitalizable borrowing cost in 20x3?
a. 409,650
b. 430,335
c. 410,630
d. 400,965

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