ACC 221

Supplemental Material
Reviewer – 4th Exam (1st Part)

Beloved Corporation’s trial balance contained the following account balances as December 31, 2014:
Investment to profit or loss securities P 150,000
Prepaid insurance 30,000
Cash and cash equivalents 330,000
Inventory 900,000
Equipment and furniture, net 990,000
Patent, net 120,000
Accounts receivable 480,000
Land (held for capital appreciation) 1,200,000

1. How much is the total current assets in Beloved’s December 31, 2014 Statement of Financial Position?
a. P1,890,000 c. P2,190,000
b. P2,010,000 d. P2,430,000

Halo Inc. reported the following items in its December 31, 2014 trial balance:
Accounts payable P1,089,000
Advances to employees 45,000
Unearned rent revenue 288,000
Estimated liability under warranties 258,000
Cash surrender value of officers’ life insurance 75,000
Bonds payable 5,000,000
Discount on bonds payable 225,000
Trademark 390,000

2. How much should Halo report as total liabilities in its December 31, 2014 statement of financial position?
a. P6,410,000 c. P6,845,000
b. P6,800,000 d. P7,410,000

Head Company prepared a draft of its 2014 statement of financial position. The draft statement reported current
liabilities totaling P2,000,000. However, none of the following items were included in this preliminary total at December
31, 2014:
Accounts payable P 300,000
Bonds payable, due 2015 500,000
Unamortized Discounts on Bonds Payable 60,000
Dividends payable – January 31, 2015 160,000
Notes Payable due 2016 400,000
Unamortized bond issue costs 20,000

3. At which amount should Head’s current liabilities be correctly reported in the December 31, 2014 statement
of financial position?
a. P2,880,000 c. P2,960,000
b. P2,900,000 d. P3,020,000

Perry Company had the following items at December 31, 2014:

Accounts payable P 500,000
8% Notes payable, First Bank, Due 07/01/2015 1,000,000
Accrued expenses 600,000
9% Bonds payable, due 03/31/2018 5,000,000

The company entered into a loan facility arrangement with Second Bank. The committed facility where in the bank
cannot unilaterally and the scheduled maturity is three years from the balance sheet date.

Perry intends to take a loan of P1,000,000 through a three-year facility arrangement to finance the maturing loan to
First Bank.

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 4. What amount of current liabilities should Perry Company report in its December 31, 2014 statement of
financial position?
a. P1,100,000 c. P1,600,000
b. P1,500,000 d. P2,100,000

At December 31, 2014, Expedition Company had a note payable of P2,500,000, due on April 15, 2015. Expedition
expects to retire the debt with proceeds from the sale of 100,000 shares of its ordinary shares. The shares were sold
for P15 per share on March 2, 2015 prior to the issuance of year-end financial statements.

5. In Expedition’s December 31, 2014, statement of financial position, what amount of notes payable should be
excluded from current liabilities?
a. None c. P1,500,000
b. P1,000,000 d. P2,500,000

Ortiz Co. had the following account balances:

Sales, P1,200,000; Cost of Goods Sold, P600,000; Salary expense, P100,000; Depreciation expense,
P200,000; Dividend income, P40,000; Utilities expense, P80,000; Rental revenue, P200,000; Interest
expense, P120,000; Sales returns, P110,000 and Advertising expense, P130,000.

6. What would Ortiz report as total expenses if the company uses the natural presentation?
a. P630,000 c. P1,270,000
b. P1,230,000 d. P1,340,000

Pristine Company reported the following information for 2014:

Sales revenue P500,000
Cost of goods sold 350,000
Operating expenses 55,000
Unrealized translation gain 20,000
Cash dividends received on the securities 2,000

7. Ignore income tax, for 2014, Pristine Company would report comprehensive income of
a. P117,000 c. P97,000
b. P115,000 d. P20,000

Presented below are certain account balances of Home Products Company:

Ending inventory 48,000
Rental income 6,500
Interest expense 12,700
Purchase returns and allowances 10,500
Beginning accumulated profits 114,400
Ending accumulated profits 134,000
Freight-in 10,100
Dividends income 71,000
Sales returns 12,400
Sales discounts 7,800
Selling expenses 99,400
Sales 390,000
Income tax 21,856
Beginning inventory 45,300
Purchases 190,000
Purchase discounts 2,500
Administrative expenses 82,500

8. Based on the data given above, how much should be the net income during the current year?
a. P46,444 c. P50,320
b. P48,400 d. P68,000

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On January 2, 2012, Power Company provides a lump sum benefit payable upon termination of service that is equal
to 10% of final salary for each year of service. The salary in 2012 is P400,000 and is assumed to increase 5%
compounded each year. The discount rate to be used is 10% per annum.

Power Company believes that the employee will not leave the company before the expected retirement date of
December 31, 2015. Also, Power Company believes that there are no changes in actuarial assumptions in future
years.
9. What is the amount of service cost Power Company should include in its pension expense in year 2014?
a. P34,789 c. P42,095
b. P38,268 d. P46,305
10. What is the present value of the defined benefit obligation as of December 31, 2014?
a. P34,789 c. P126,287
b. P76,536 d. P185,220
11. Assume in 2014, the salary of the employee was increased to P460,000 and its estimated salary in 2015 is
P480,000. What is the amount of actuarial gain or loss as of 2014 on the benefit obligation due to change in
estimate?
a. None c. P4,620
b. P2,805 d. P6,780

Steam Company disclosed the following information for the year ended December 31, 2014:

Bonds payable P 300,000

Share premium on ordinary share 50,000
Donated capital 40,000
Treasury share at cost 20,000
Ordinary share capital, par P100 500,000
Ordinary share option warrants 100,000
Investment in AFS 70,000
Share premium from Treasury Shares 15,000
Accumulated profits and losses 135,000

12. What is the total shareholders’ equity of Steam Company for the year ended December 31, 2014?
a. P720,000 c. P820,000
b. P760,000 d. P860,000

Hallway Company issued 20,000 shares of its P10 par value ordinary share and 40,000 shares of its P10 par value
convertible preference share for a total amount of P1,800,000. At this date, Hallway’s ordinary share was selling P20
per share and the convertible preference share was selling for P30 per share.

13. What amount of the proceeds should be allocated to the ordinary share?
a. P400,000 c. P600,000
b. P450,000 d. P1,350,000

On January 2, 2011, Simmer Company offered its top management share appreciation rights with the following
terms:
Number of Shares 50,000
Service period 3 years
Exercise date 12/31/2013
The share appreciation is to be paid upon exercise. The share appreciation right is to be exercised on December 31,
2013.

The company estimates the fair value of the share appreciation rights as follows:
2011 2012 2013
Fair value P24 P60 P70

14. What amount should Simmer Company charge to compensation expense for the year ended December 31,
2013 as a result of the share appreciation right?
a. None c. P1,500,000
b. P500,000 d. P3,500,000
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On January 1, 2011, COU, Inc 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 liability exists are as follows:
2011 2012 2013
Fair value P15 P18 P20

Compensation expense relating to the plan is to be recorded over a three-year period beginning 01/01/2011.

15. What amount of compensation expense should COU recognize for the year ended December 31, 2011?
a. P240,000 c. P400,000
b. P300,000 d. P1,440,000

Screensaver Corporation’s Accumulated Profits and Losses at December 31, 2014 amounted to P2,000,000. On that
date, Screensaver declared and distributed its investment property that was carried under the fair value model as
property dividend. The investment property which was acquired at a historical cost of P300,000 has a fair market
value of P450,000 on Dec. 31, 2014.

16. On the date of declaration and distribution, by what amount should Accumulated Profits and Losses be
charged?
a. Nil c. P300,000
b. P150,000 d. P450,000

The following information pertains to Martial Corporation:

• Dividends on its 1,000 shares of 6%, P10 par value cumulative preference shares have not been declared
or paid for 3 years.
• Treasury shares that cost P15,000 were issued for P8,000.

17. What amount of accumulated profits should be appropriated as a result of these items?
a. Nil c. P7,000
b. P1,800 d. P8,800

Expand Corporation’s current statement of financial position reports the following shareholders’ equity”
5% Cumulative preference share, P100 par value per share, 5,000 shares issued
and outstanding P500,000
Ordinary share, P10 par value, 50,000 shares issued and outstanding 500,000
Share premium 300,000
Accumulated profits 700,000
Dividends in arrears on the preference share amount to P50,000. If Expand were to be liquidated, the preference
shareholders would receive a par value plus premium of P10 per share.

18. How much should be the book value per share on ordinary share?
a. P24 c. P29
b. P28 d. P30

Night Company had 500,000 ordinary shares issued and outstanding at December 31, 2013. During 2014, no
additional ordinary shares was issued. On January 1, 2014, Night issued 400,000 nonconvertible preference shares.
During 2014, Night declared and paid P180,000 cash dividends on the ordinary shares and P150,000 on the
convertible shares. Net income for the year ended December 31, 2014 was P960,000.

19. What should be the 2014 earnings per share of Night Company?
a. P0.90 c. P1.62
b. P1.26 d. P1.92

Monitor Company had 120,000 shares issued and outstanding at January 1, 2014. On January 2 of the same year,
the company issued 80,000 preference shares. During the year, the company declared and paid P420,000 cash
dividend on the ordinary shares and P240,000 on the preference shares. Net income for the year was P1,500,000.
20. What should be the basic earnings per share on 2014?
a. P9.00 c. P12.50
b. P10.50 d. P15.75
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