1. The data below are from the records of ALMANOR, Inc.

on December 31, 2019:

Accounts payable 680,000

Cash balance, ABC Bank 1,240,000
Cash overdraft with XYZ Bank 80,000
Customers’ accounts with credit balances 25,000
Dividends in arrears on preference shares 400,000
Employees’ income tax payable 100,000
Estimated warranty payable 50,000
Estimated premium claims outstanding 90,000
Income tax payable 400,000
Notes payable (issued in 2019 maturing in 20 4,000,000
semi-annual installments beginning on
April 1, 2020
Salaries payable 400,000

The amount to be shown as total current liabilities on Almanor’s statement of financial position at
December 31, 2019?
a. 2,225,000 c. 2,625,000
b. 2,025,000 d. 2,145,000

2. Charlene Company includes one coupon in each ox of laundry soap it sells. A towel is offered as
a premium to customers who send in 10 coupons and a remittance of P10.

Distribution cost of premium is P5. Experience indicates that only 30% of the coupons will be
redeemed.

2018 2019
Boxes of soap sold 2,000,000 2,500,000
Number of towels purchased at P50 each 50,000 80,000
Coupons redeemed 400,000 700,000

Question 1: What is the premium expense for 2018?

b. 2,500,000 d. 1,800,000
c. 2,400,000 e. 2,700,000

Question 2: What is the estimated premium liability on December 31, 2019?

a. 1,000,000 c. 800,000
b. 1,100,000 d. 900,000

Question 3: What is the premium expense for 2019?

a. 3,000,000 c. 3,375,000
b. 3,750,000 d. 4,000,000

Question 4: What is the estimated premium liability on December 31, 2019?

a. 1,000,000 c. 1,125,000
b. 1,250,000 d. 1,375,000

3. During 2018, NAM Company introduced a new product carrying a two-year warranty against
defects.

The estimated warranty costs related to peso sales are 4% within 12 months following sale and
6% in the second 12 months following sale.

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 The entity reported sales of P5,000,000 for 2018 and P6,000,000 for 2019.

The actual expenditures incurred amounted to P150,000 for 2018 and P550,000 for 2019.

Question 1: What is the warranty expense for 2018

a. 500,000 c. 250,000
b. 200,000 d. 300,000

Question 2: What is the estimated warranty liability on December 31, 2018?

a. 350,000 c. 100,000
b. 150,000 d. 50,000

Question 3: What is the warranty expense for 2019?

a. 650,000 c. 500,000
b. 600,000 d. 550,000

Question 4: : What is the estimated warranty liability on December 31, 2019?

a. 360,000 c. 240,000
b. 400,000 d. 100,000

4. Love Company sells subscriptions to a specialized directory that is published semiannually and
shipped to subscribers on April 15 and October 15. Subscriptions received after the March 31 and
September 30 cut-off dates are held for the next publication.

Cash from subscribers is received evenly during the year and is credited to deferred revenue
from subscriptions. Data relating to the current are as follows:

Deferred revenue from subscriptions – January 1, 2019 1,500,000

ash receipts from subscribers 7,200,000

Question 1: On December 31, 2019, what amount should be reported as deferred revenue from
subscription?
a. 1,800,000 c. 3,600,000
b. 3,300,000 d. 5,400,000

Question 2: What is the subscription revenue from 2019?

a. 7,200,000 c. 8,700,000
b. 6,900,000 d. 5,100,000

5. After three profitable years, CCC Company decided to offer a bonus to the branch manager of
25% of income over P1,000,000 earned by the branch, The income for the branch was
P1,600,000 before tax and before bonus for the current year.

The bonus is computed on income in excess of P1,000,000 after deducting the bonus but before
deducting tax.

What is the bonus of the branch manager for the current year?
a. 120,000 c. 250,000
b. 150,000 d. 320,000

6. The bonus agreement of ABC Company provides that the general manager shall receive an
annual bonus of 10% of the net income after bonus and tax. The income tax rate is 30%. The
general manager received P280,000 for the current year as bonus.

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 What is the income before bonus and tax?
a. 4,280,000 c. 2,800,000
b. 4,000,000 d. 3,720,000

7. COCO Company has an agreement to pay its sales manager a bonus of 5% of the income after
bonus and after tax. The income for the year before bonus and tax is P5,250,000. The income tax
rate is 30% of income after bonus.

What is the bonus for the year?

a. 262,500 c. 177,536
b. 250,000 d. 186,548

8. Niana Company is involved in litigation regarding a faulty product sold in a prior year. The entity
has consulted with an attorney and determined that it is possible that the entity may lose the
case. The attorney estimated that there is 40% chance of losing. If this is the case, the attorney
estimated that the amount of any payment would P5,000,000.

What is the required journal entry as a result of this litigation?

a. Debit litigation expense and credit litigation liability P5,000,000.
b. No journal entry is required.
c. Debit litigation expense and credit litigation liability P2,000,000.
d. Debit litigation expense and credit litigation liability P3,000,000.

9. On November 25, 2018, an explosion occurred at a Rex Company plant causing extensive
property damage to area buildings. By march 10, 2019, claims had been asserted against the
entity. The management and counsel concluded that it is probable that the entity would be
responsible from damages, and that is P3,500,000 is reasonable estimate of the liability. Rex’s
P10,000,000 comprehensive public liability policy has a P500,000 deductible clause. The
financial statements were issued on March 31, 2019.

Question 1: What amount of loss from lawsuit should be reported for 2018?
a. 3,500,000 c. 500,000
b. 3,000,000 d. 0

Question 2: What amount of liability from lawsuit should be reported on December 31, 2018?
a. 3,500,000 c. 500,000
b. 3,000,000 d. 0

10. On December 31, 2018, Boston Company purchased a machine from Helix Company in
exchange for a noninterest bearing note requiring eight payments of P200,000. The first payment
was made on December 31, 2018 and the others are due annually on December 31.

At date of issuance, the prevailing rate of interest for this type of note was 11%. The PV of an
ordinary annuity of 1 at 11% for 8 periods is 5.146, and the PV of an annuity of 1 in advance at
11% for 8 periods is 5.712.

Question 1: On December 31, 2018, what is the carrying amount of the note payable?
a. 1,142,400 c. 1,046,200
b. 1,029,200 d. 942,400

Question 2: What is the interest expense for 2019?

a. 125,664 c. 176,000

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 b. 103,664 d. 154,000

11. On July 1, 2019, John Company borrowed P1,000,000 on a 10% five-year note payables.

On December 31, 2019, the fair value of the note is determined to be P95,000 based on market
and interest rate factors.

The entity has elected the fair value option for reporting the financial liability.

Question 1: What amount should be reported as interest expense for 2019?

a. 100,000 c. 50,000
b. 97,500 d. 48,750

Question 2: What is the carrying amount of the note payable in December 31, 2019?
a. 1,000,000 c. 500,000
b. 975,000 d. 900,000

Question 3: What is the gain or loss to be recognized in 2019 as a result of the fair value option?
a. 25,000 gain c. 12,500 gain
b. 25,000 loss d. 0

12. Sean Company is experiencing financial difficulty and is negotitating a debt restructuring with its
creditor to relieve its financial stress. Seal has a P2,500,000 note payable to United Bank.

The bank accepted an equity interest in Seal Company in the form of 200,000 ordinary shares
quoted at P12 per share. The par value is P10 per share.

The fair value of the note payable on the date of restructuring is P2,200,000.

Question 1: What amount should be recognized as gain from debt extinguishment as a result of
“equity swap”?
a. 400,000 c. 500,000
b. 100,000 d. 200,000

Question 2: What amount should be recognized as share premium from the issuance of the
shares?
a. 500,000 c. 400,000
b. 100,000 d. 200,000

Question 3: If the shares have no fair value, what amount should be recognized as gain on
extinguishment?
a. 200,000 c. 400,000
b. 300,000 d. 500,000

13. GEF Company had an overdue 8% note payable to First Bank at P8,000,000 and accrued
interest of P640,000.

As a result of a restructuring agreement on January 1, 2019, First Bank agreed to the following
provisions:

 The principal obligation is reduced to P7,000,000.

 The accrued interest of P640,000 is forgiven.

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  The date of maturirty is extended to December 31, 2019
 Annual interest of 10% is to be paid for 4 years every December 31.

The present value of 1 at 8% for 4 periods is 0.735 and the present value of an ordinary annuity
of 1 at 8% for 4 periods is 3.31.

Question 1: What is the gain on extinguishment to be recognized for 2019?

a. 200,000 c. 400,000
b. 300,000 d. 500,000

Question 2: What is the interest expense to be recognized for 2019?

a. 200,000 c. 400,000
b. 300,000 d. 500,000

14. Glad Company had the following long-term debt:

Sinking fund bonds, maturing in installments 2,200,000

Industrial revenue bonds, maturing in installments 1,800,000
Subordinated bonds, maturing on a single date 3,000,000
What is the amount of serial bonds?
a. 3,000,000 c. 4,800,000
b. 4,000,000 d. 7,000,000

15. Jojo Company had the following long-term debt

Bonds maturing in installments, secured by 1,000,000

machinery
Bonds maturing on a signle date, secured by realty 1,800,000
Collateral trust bonds 2,000,000

What is the total amount of debenture bonds?

a. 2,000,000 c. 1,800,000
b. 1,000,000 d. 0

16. Pink Company reported the following long-term debt on December 31, 2019:

9% registered debentures, callable in 2018, due in 2019 3,500,000

11% collateral bonds, convertible into ordinary shares
beginning in 2018, due in 2019 3,000,000
10% subordinated debentures, P500,000 maturing
Annually beginning in 2019 1,500,000

What is the total amount of term bonds?

a. 3,000,000 c. 5,000,000
b. 3,500,000 d. 6,500,000

17. On March 1, 2019, ABC Company issued at 103 plus accrued interest 4,000 of 9%, P1,000 face
value bonds. The bonds are dated January 1, 2019 and mature on January 1, 2029.

Interest is payable semiannually on January 1 and July 1. The entity paid bond issue cost of
P200,000.

What is the net cash received from the bond issuance?

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 a. 4,320,000 c. 4,120,000
b. 4,180,000 d. 3,980,000

18. At the beginning of 2019, Wallace Corporation issued 10% bonds with a face value P900,000.
These bonds mature in five years, and interest is paid semi-annually on June 30 and December
31. The bonds were sold for 833,760 to yield 12%. Wallace uses a calendar-year reporting
period. Using the effective interest method of amortization, what amount of interest expense
should be reported for 2019?
a. 99,750 c. 100,353
b. 100,750 d. 103,248

19. On January 1, 2017, Monterey Company issues 100 million unsecured bonds at an issue price of
95 cents per unit. Transaction costs, that include underwriting fee amount to P500,000. The bond
pay interest of 4% at the end of the first year and thereafter interest payment increases at 1% per
year. The bond mature on December 31, 2021 are redeemable at the nominal value of P1 each.
At the date of issue, Monterey Company has a credit rating of “ABB: and its market interest if
7.09%. But due to the imputation of transaction cost, the effective rate of the debt is 7.21%. What
is the amortized cost of the debt as of December 31, 2019?

a. 97,313,462 c. 100,491,439
b. 99,329,763 d. 100,736,871

20. On January 1, 2017, Trader Company issued its 8%, 4-year convertible debt instrument with a
face amount of P6,000,000 for P5,900,000. Interest is payable every December 31 of each year.
The debt instrument is convertible into 50,000 ordinary shares with a par value of P100. When
the debt instruments were issued, the prevailing market rate of interest for similar debt without
conversion option is 10%.

PV of 10% for an ordinary annuity of P1 after 4 periods 3.1698965

PV of 10% after 4 interest periods .683013

What is the amortized cost of the debt as of December 31, 2019?

a. 5,619,616 c. 5,791,735
b. 5,701,758 d. 5,890,909

21. On January 1, 2017, Shredder Company issued its 10%, 4-year convertible debt instrument with
a face amount of P3,000,000 for P3,500,000. Interest is payable every December 31 of each
year. The debt instrument is convertible into 30,000 ordinary shares with a par value of P100. The
debt instrument is convertible into equity from the time of issue until maturity. When the debt
instruments were issued, the prevailing market rate of interest for similar debt without conversion
option is 8%.

PV of 8% for an ordinary annuity of P1 after 4 periods 3.3121268

PV of 8% after 4 interest periods .7350298

On December 31, 2019, Shredder Company converted all the debt instruments by issuing 30,000
ordinary shares.

What is the carrying value of the compound instruments as of December 31, 2019?
a. 3,356,829 c. 3,455,899
b. 3,408,269 d. 3,500,000

6
22. On January 1, 2017, Faith Company issued its 8%, 5-year convertible debt instrument with a face
amount of P8,000,000 for P7,700,000. Interest is payable every December 31 of each year. The
debt instrument si convertible into 50,000 ordinary shares with a par value of P100. When the
debt instruments were issued, the prevailing market rate of interest for similar debt without
conversion option is 10%.

On December 31, 2019, all the convertible debt instruments were retired for P8,000,000. The
prevailing rate of interest on a similar debt instrument as of December 31, 2019 is 9% without the
conversion option.

Question 1: What is the carrying value of the debt instruments as of December 31, 2019?
a. 7,393,473 c. 7,602,102
b. 7,492,820 d. 7,722,314

Question 2: On the date of retirement, what amount of the payments represents the equity
component?
a. 136,878 c. 165,760
b. 140,729 d. 305,760

Question 3: What amount of gain or loss that should be reported in the profit or loss on the
retirement of the convertible debt instruments?
a. 136,957 c. 165,797
b. 138,420 d. 305,760

Question 4: What amount of gain or loss that should be reported directly in the shareholder’s
equity on the retirement of the convertible debt instrument?
a. 136,957 c. 165,797
b. 138,420 d. 305,760

23. On December 31, 2016, BAIKAL Company acquired a piece of equipment from Seller Company
by issuing a P1,200,000 note, payable in full on December 31, 2020. Baikal’s credit rating permits
it to borrow funds from its several lines of credit at 10%. The equipment is expected to have a 5-
year useful life and a P150,000 salvage value. The present value of 1 at 10% for 4 periods is
0.68301.

Question 1 What is the equipment’s book value on December 31, 2018?:

a. 551,767 c. 491,767
b. 630,000 d. 341,767

Question 2: What is the carrying value of the note at December 31, 2018?
a. 1,090,903 c. 1,200,000
b. 991,730 d. 819,612

24. OHRID Company purchased machinery on December 31, 2019, paying 80,000 down and
agreeing to pay the balance in four equal installments of P60,000 payable each December 31.
Implicit in the purchase price is an assumed interest at 12%.

The following data are abstracted from the present value tables:

Present value of 1 at 12% for 4 periods 0.63552

Present value of an ordinary annuity of 1 at 12% for
4 periods 3.03735

7
8
 Question 1: What is the cost of the machinery purchased on December 31, 2019?
a. 233,083 c. 262,241
b. 320,000 d. 290,842

Question 2: How much interest expense should be reported in Ohrid’s income statement for the
year ended December 31, 2020?
a. 38,131 c. 17,293
b. 21,869 d. 42,707

25. On January 1, 2019, Glen Company leased a building to Dix Company for a ten-year term at an
annual rental of P500,000.

At inception of the lease< Glen received P2,000,000 covering the first two years’ rent of
P1,000,000 an a security deposit of P1,000,000.

This deposit will not be returned to Dix upon expiration of the lease but will be applied to payment
of rent for the last two years of the lease.

Question 1: What portion of P2,000,000 should be reported as current liability on December 31,
2019?
a. 1,500,000 c. 500,000
b. 1,000,000 d. 0

Question 2: What portion of the P2,000,000 should be reported as noncurrent liability on

December 31, 2019?
a. 2,000,000 c. 1,500,000
b. 1,000,000 d. 0

26. On January 1, 2016, Simplex Company leased a machine to another entity for a four-year period.
The annual rentals will be paid by the lessee beginning December 31, 2016.

The lease agreement called for a 10% increase in annual rental per annum. The rental due on
December 31, 2019 was P133,100.

Question 1: What is the rental payment due on December 31, 2017?

a. 100,000 c. 110,000
b. 121,000 d. 90,909

Question 2: What is the rental income for the year ended December 31, 2016?
a. 100,000 c. 105,477
b. 116,025 d. 110,000

27. Easter Company leased equipment to Faye Company on January 1, 2019. The lease is for an
eight-year period expiring December 31, 2026. The first of eight equal annual payments of
P900,000 was made on January 1, 2019. The entity had purchased the equipment on December
29, 2018 for P4,800,000. The lease is appropriately accounted for as a sales type lease. The
present value on January 1, 2019 of all rent payments over the lease term discounted at a 10%
interest rate was P5,280,000.

Question 1: What is the gross profit on sale for 2019?

a. 1,920,000 d. 480,000
b. 2,400,000 e. 240,000

9
 Question 2: What amount of interest revenue should be recorded in 2020?
a. 490,000 c. 438,000
b. 480,000 d. 391,800

28. On January 1, 2019, Gallant Company entered into a lease agreement with Blacksheep
Company for a machine which was carried in the accounting records of Gallant at P2,000,000.

Total payments under the lease which expires on December 31, 2028, aggregate P3,550,800 of
which P2,400,000 represents cost of the machine to Blacksheep.

Payments of P355,080 are due each January 1 of each year.

The interest rate of 10% which was stipulated in the lease is considered fair and adequate
compensation to Gallant for the use of its funds.

Blacksheep expects the machine to have a 10-year life, no residual value and be depreciated on
a straight line basis. The lease is conceived as a sales type lease.

Question 1: What amount should be recognized by Gallant as profit from sale for the year ended
December 31, 2019?
a. 1,150,800 c. 400,000
b. 1,550,800 d. 355,080

Question 2: What is the interest income that should be recognized by Gallant for the year ended
December 31, 2019?
a. 244,080 c. 204,492
b. 200,000 d. 240,000

Question 3: What is the total income before income tax derived by Gallant from the lease for the
year ended December 31, 2019?
a. 204,492 c. 355,080
b. 604,492 d. 755,080

29, At the beginning of current year, Lessor Company leased a machine to Lessee Company. The
machine had an original cost of P6,000,000. The lease term was five years and the implicit
interest rate on the lease was 15%.

The lease is properly classified as a direct financing lease. The annual lease payments of
P1,730,541 are made each December 31.

The machine reverts to Lessor at the end of the lease term, at which time the residual value of
the machine will be P400,000. The residual value is unguaranteed.

The PV of 1 at 15% for 5 periods is.4972, and the PV of an ordinary annuity of 1 at 15% for 5
periods is 3.3522.

Question 1: At the commencement of the lease, what would be the net lease receivable on the
part of the lessor?
a. 6,400,000 c. 6,000,000
b. 5,801,120 d. 5,600,000

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 Question 2: What is the gross investment in the lease?
a. 8,652,705 c. 6,000,000
b. 9,052,705 d. 8,252,705

Question 3: What is the total unearned interest income?

a. 3,052,705 c. 2,252,705
b. 2,652,705 d. 6,000,000

Question 4: What is the interest income for 2019?

a. 1,297,705 c. 900,000
b. 1,357,905 d. 870,168

29. In an attempt to alleviate liquidity problems. Banco Company entered into an agreement on
January 1. 2019 to sell the processing plant to another entity for P3,500,000 which is the fair
value of the plant. At the date of sale, the plant had a carrying amount of P2,750,000. The entity
immediately leased the processing plant back from the buyer. The terms of the lease agreement
were:

Annual payment in arrears, commencing December 31, 2019 700,000

Reimbursement to the lessor for maintenance cost included
in
the annual payment 35,000
Lease term 6 years
Economic life of plant 8 years

Question 1: What is the deferred gain on the sale and leaseback on December 31, 2019?
a. 750,000 c. 656,250
b. 625,000 d. 0

Question 2: What is the total finance charge over the lease term?
a. 1,240,000 c. 700,000
b. 1,820,000 d. 490,000

30. The following date relate to the defined benefit plan of Bronson Company fro the year ended
December 31, 2019:

Present value of benefit obligation, January 1, 2019 15,000,000

Current service cost 800,000
Benefits paid during the year 1,500,000
Discount rate 6%
Present value of benefit obligation, December 31, 2019 17,410,000

Ignore income tax, what amount of remeasurement gain or loss that should be included in the
other comprehensive income?
a. None c. 1,700,000
b. 900,000 d. 2,210,000

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31. The following information relates to ABC Company’s pension plan:

Plan asset, January 1, 2019 950,000

Defined benefit obligation, January 1 , 2019 1,000,000
Average remaining working life of employees as at
January 1, 2019 10 years
Service cost for 2019 90,000
Discount rate on January 1, 2019 10%
Expected return on plan assets at January 1, 2019 100,000
Remeasurement loss arising in 2019 15,000
Past service cost 30,000
Vesting period for past service cost 3 years

What amount of defined benefit cost should be recognized during 2019?

a. 115,000 c. 125,000
b. 120,000 d. 140,000

32. The following information is made available involving the defined benefit pension plan of Princess
Company for the year 2019:

Fair value of plan asset, 1/1/19 3,500,000

Present value of benefit obligation, 1/1/19 3,750,000
Current service cost 700,000
Actual return on plan asset 420,000
Contribution to the plan 600,000
Benefits paid to retirees 750,000
Decrease in the present value of benefit obligation due to
change in actuarial assumptions 100,000
Present value of defined benefit obligation settled 250,000
Settlement price of defined benefit obligation settled 200,000
Discount rate 10%

Question 1: What amount of employee benefit cost should be reported in the profit or loss?
a. 675,000 c. 1,025,000
b. 725,000 d. 1,075,000

Question 2: What is the net amount of the remeasurements for the year 2019?
a. 50,000 c. 100,000
b. 75,000 d. 170,000

Question 3: What is the fair value of the plan asset as of December 31, 2019?
a. 3,500,000 c. 3,770,000
b. 3,570,000 d. 4,100,000

Question 4: What is the present value of benefit obligation as of December 31, 2019?
a. 3,725,000 c. 3,770,000
b. 3,825,000 d. 4,825,000

Question 5: What is the balance of the prepaid or accrued pension as of December 31, 2019?
a. Premium pension 155,000 c. Prepaid pension, 325,000
b. Accrued pension, 155,000 d. Accrued pension, 325,000

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33. The following information relates to the defined benefit pension plan for the Citywide Company for
the year ending December 31, 2019:

Present value of benefit obligation, January 1 6,900,000

Present value of benefit obligation, December 31 7,793,500
Fair value of plan assets, January 1 7,552,500
Fair value of plan assets, December 31 8,347,500
Employer contributions 637,500
Benefits paid to retirees 585,000
Settlement rate 10%
Ceiling rate – January 1 300,000

How much would be the net pension cost for the year 2019?
a. 687,250 c. 784,750
b. 758,800 d. 788,500

34. Jheremae Corporation reported a pretax financial income of P5,000,000 for the year ended
December 31, 2019. The following items are included in the determination of financial income:

Provision for litigation loss which will become tax deductible when settled in the future, P300,000;
Realized revenue that has yet to be received P400,000; Other unearned revenue, P150,000;
Dividend received, P100,000

If the income tax rate is 32% for all years, what amount of total expense and current tax expense
should Jheremae Company report, respectively?
a. 1,568,000 and 1,548,000 c. 1,600,000 and 1,568,000
b. 1,568,000 and 1,600,000 d. 1,548,000 and 1,568,000

35. Joy Corporation computed a pretax financial income of P6,000,000 for the year ended December
31, 2019. In preparing tax return, the following differences are noted between financial income
and taxable income:

Nontaxable revenue, 600,000; Nondeductible expense, 200,000; Provision for warranty that was
recognized as expense in 2019 but deductible for tax when paid 300,000; Excess tax
depreciation over financial depreciation, 250,000; Excess of financial revenue over tax
revenue,200,000.

What is the total tax expense assuming the tax rate for 2019 is 32% and 2018 is 30%?
a. 1,699,000 c. 1,789,000
b. 1,744,000 d. 1,792,000

36. Berry Corporation has 50,000 shares of P10 par ordinary shares authorized. The following
transactions took place during 2019, the first year of the corporation’s existence:

Sold 5,000 ordinary shares for P18 per share

Issued 5,000 ordinary shares in exchange for a patent valued at P100,000

At the end of the Berry’s first year, total contributed capital amounted to
a. 40,000 c. 100,000
b. 90,000 d. 190,000

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37. Ribbon Company issued 10,000 of its 6% preference shares, par P100 at P125 per share. Each
share carried a detachable share warrant for one share of Ribbon’s ordinary share, P40 par, at a
specified option price of P50 per share. Immediately after issuance, the market value of Ribbon’s
preference share was P1,140,000 and the warrants was P60,000. What portion of the proceeds
should be credited to ordinary share warrants outstanding?
a. None c. 62,599
b. 60,000 d. 250,000

38. Pember Corporation started business in 2013 by issuing 200,000 shares of P20 par ordinary
shares for _36 each. In 2018, 20,000 of these shares were purchased for P52 per share by
Pember Corporation and held as treasury shares. On June 15, 2019, these 20,000 shares were
exchanged as part payment for a piece of property that had a market based value of P1,310,000.
Pember’s shares are actively traded and had a fair price of P60 on June 15, 2019. The cost
method is used to account for treasury shares. The amount of share premium – treasury resulting
from the above events would be
a. 160,000 c. 480,000
b. 390,000 d. 800,000

39. On August 1, 2019, Comical Company issued rights to shareholders to subscribe to additional
share of its ordinary share. A shareholder can buy one new share for every 10 rights plus P20
cash. The rights will expire on October 1, 2019. On July 31, 2019, the market price of a share
with the right attached was P40, while the market price of the right alone was P4. Comical’s
equity on July 31, 2019, comprised of the following:

Ordinary share capital, P10 par 3,000,000

Share premium reserve 600,000
Accumulated profits 200,000

What is the effect on the shareholders’ equity if all rights were exercised?
a. 1,200,000 increase c. 120,000 increase
b. 600,000 increase d. No change

40. On January 1, 2018, Color Company granted 80,000 cash shares appreciation rights to the
executives on condition that the executives remain in its employ for the next three years. The
entity estimates that the fair value of the share appreciation rights at the end of each year in
which a liability exists are as follows:

Year Fair Value

2018 P15
2019 P18
2020 P20

Compensation expense relating to the plan is to be recorded over a three-year period beginning
January 1, 2018. What amount of compensation expense should Color Company recognize for
the year ended December 31, 2019?
a. None c. 560,000
b. 400,000 d. 960,000

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41. The equity section of Hunter Corporation as of December 31, 2018 was as follows:

Share capital – ordinary, par value P2; authorized 20,000

shares; issued and outstanding 10,000 shares 20,000
Share premium – ordinary 30,000
Retained earnings 75,000
125,000

On March 1, 2019, the board of directors declared a 15% share dividends, and accordingly 1,500
additional shares were issued. On March 1, 2019, the fair value of the shares was P6 per share.
For the two months ended February 28 2019. Hunter sustained a net loss of P10,000. What
amount should Hunter report as retained earnings as of March 1, 2019?
a. 56,000 c. 69,000
b. 65,000 d. 72,000

42. Purple Company had sufficient accumulated profits in 2018 as a basis for dividends but was
temporarily short of cash. Purple declared a P200 dividend on May 1, 2018 and issued a
promissory notes to its shareholders in lieu of cash. The notes which are dated May 1, 2018 had
a maturity of April 30, 2019 and a 12% interest rate. How should purple account for the scrip
dividend and related interest?
a. Debit accumulated profits for P224,000 on December 31, 2018.
b. Debit accumulated profit for P224,000 on April 30, 2019.
c. Debit accumulated profits for P200,000 on May 1, 2018 and debit interest exense for
P16,000 on December 31, 2018.
d. Debit accumulated profits for P200,000 on April 30, 2019 and debit interest expense for
P16,000 on December 31, 2018.

43. Croissant Company has incurred losses from operations for years. At the recommendation of the
newly hired president, the board of directors voted to implement quasi-reorganization on June 30,
2019. Croissant’s balance sheet is shown below:

Current Assets 5,500,000 Current liabilities 4,000,000

Property, Plant & Non-current liabilities 2,000,000
Equipment 13,500,000
Other Assets 2,000,000 Share capital, par P10 16,000,000
Share premium reserve 3,000,000
Deficit (4,000,000)
Total Assets 21,000,000 Total Equities 21,000,000

The stockholders approved the quasi-reorganization effective July 1, 2019 to be accomplished by

a reduction in property, plant and equipment in the amount of P3,500,000; a reduction in other
assets of P1,500,000 and a reduction in the par value by P5 per share. What is the balance of the
shareholder’s equity after the quasi-reorganization?
a. 8,000,000 c. 16,000,000
b. 10,000,000 d. 19,000,000

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44. Blue Corporation’s December 31, 2019 balance sheet reports the following shareholders; equity:

10% Cumulative Preference share capital, P100 par value

per share, 15,000 shares 1,500,000
Ordinary share capital, P100 par value, 50,000 shares issued 5,000,000
Share premium reserve 600,000
Treasury stock (ordinary) 5,000 shares at cost 650,000
Retained Earnings 2,100,000

The last payment of dividend on preference was in December 31, 2017. If Blue were to be
liquidated, the preference shareholders would receive par value plus a premium of P10 per share.

Question 1: What is the book value per share on ordinary share?

a. 132 c. 146.67
b. 133 d. 147.70

Question 2: If the preference share is participating, what is the book value per share on ordinary
share?
a. 126 c. 140
b. 137.50 d. 146

45. The shareholders’ equity of Orange Company shows the following balances on December 31,
2019:

10% Preference share capital, cumulative and

nonparticipating, P100 par with a liquidation
value of P110, 20,000 shares 2,000,000
Ordinary share capital, P100 par, 30,000 shares 3,000,000
Subscribed ordinary shares 1,000,000
Subscription receivable 600,000
Treasury stock, 5,000 shares, at cost (common) 400,000
Share premium reserve 660,000
Retained earnings 1,360,000

What is the book value per share of ordinary share, assuming preference dividends are in arrears
since 2016?
a. 115.50 c. 154
b. 132 d. 184.80

46. The following share capital transactions pertain to Karma Corporation for the year 2019:

January 1 Shares outstanding 44,000

February 1 Shares issued for cash 56,000
May 1 Shares reacquired 25,000
August 1 Receipt of 25% share dividends
September 1 Resold part of treasury share 10,000
November 1 Issued 2-for-1 share split

What is the weighted average ordinary share outstanding?

a. 187,500 c. 207,500
b. 203,333 d. 250,000

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47. Red Company had 120,000 shares of ordinary share issued and outstanding at January 1, 2019.
On January 2, 2019, the Company issued 80,000 of preferred stock. During the year, the
Company declared and paid P420,000 cash dividend on ordinary and P240,000 on the
preference.

Net income for the year was P1,500,000. What should be the basic earnings per share in 2019?
a. 9 c. 12.50
b. 10.50 d. 15.75

48. Brown Company had 200,000 shares of P20 par ordinary and 20,000 shares of P100 par, 6%
cumulative, convertible preference share outstanding for the entire year ended December 31,
2019. Each preference shares are convertible into 5 shares of ordinary. The Company reported
net income during the year in the amount of P840,000. What is the diluted earnings per share for
the year ended December 31, 2019.
a. 2.40 c. 3.60
b. 2.80 d. 4.20

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