BFJPIA

CUP 2 – PRACTICAL ACCOUNTING 1

EASY
1. A chain of bicycle shops holds bicycles for short-term hire and for sale. The bicycles available for hire are used for
two or three years and then sold by the shops as second-hand models. All shops sell both new and second-hand
bicycles.
The entity sold a new bicycle for P5,000 (cost P4,000) and a second-hand bicycle for P1,000 (carrying amount P500).
The entity should recognize sales revenue of
a. P6,000 c. P5,000
b. P5,500 d. P1,500

2. On 1 January 2015, Adventure Company signs a four-year fixed-price contract to provide services for a customer. The
contract value is P550,000. At 31 December 2015 the contract is thought to be 30% complete. Costs to complete the
contract cannot be reliably estimated and costs incurred to date of P152,000 are recoverable from the customer. What
is the revenue to be recognized in profit or loss for the year ended 31 December 2015?
a. P 13,000 c. P137,500
b. P152,000 d. P165,000

3. On January 1, 2011, Cherry Bomb Co. purchased a machine for P528,000 and depreciated it by the straight-line
method using an estimated useful life of eight years with no salvage value. On January 1, 2014, Cherry Bomb
determined that the machine had a useful life of six years from the date of acquisition and will have a residual value
of P48,000. An accounting change was made in 2014 to reflect these additional data. The accumulated depreciation
for this machine should have a balance at December 31, 2014, of
a. P292,000 c. P320,000
b. P308,000 d. P352,000

4. Lane Company acquires copyrights from authors, paying advance royalties in some cases, and in others, paying
royalties within 30 days of year-end. Lane reported royalty expense of P375,000 for the current year ended
December 31. The following data are included in Lane’s balance sheets .
January 1 December 31
Prepaid royalties P60,000 P50,000
Royalties payable 75,000 90,000
During the year, Lane made royalty payments totaling
a. P350,000 c. P380,000
b. P370,000 d. P400,000

5. The balance sheet of Lai Company showed the following on January 1 and December 31 of the current year:
January 1 December 31
Total assets 10,000,000 15,000,000
Total liabilities 3,000,000 4,000,000
Contributed capital 5,000,000
During the year, Lai issued ordinary shares with par value of P2,000,000 at a premium of P1,000,000. On December
31, Lai paid dividends of P2,500,000. What was the net income for the current year?
a. P3,500,000 c. P4,000,000
b. P4,500,000 d. P5,500,000

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6. Cuyapo Company purchased a machine on January 2, 2012, for P500,000. The machine has an estimated useful life
of eight years and a salvage value of P50,000. Depreciation was computed by the 200% declining-balance method.
What should be the depreciation charge for the year ended 31 December 2015?
a. P70,313 c. P47,461
b. P52,734 d. P41,870

7. Pops Co. established a P3,000 petty cash fund. You found the following items in the fund:
Cash and currency P1,683.80
Expense vouchers 829.80
Advance to salesman 200.00
IOU from employee 300.00

In the entry to replenish the fund, what amount should be debited to Cash Short and Over?
a. P500.00 c. P13.60
b. P300.00 d. P 0

8. On December 31, 2014, Sadanga Company finished consultation services and accepted in exchange a promissory
note with a face value of P300,000, a due date of December 31, 2017, and a stated rate of 5%, with interest
receivable at the end of each year. The fair value of the services is not readily determinable and the note is not
readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest
of 10%.
The carrying amount of the note receivable as of December 31, 2015 is
a. P300,000 c. P262,694
b. P273,963 d. P247,920

9. Pythagoras Co. must determine the December 31, 2014 year-end accruals for advertising and rent expenses. A
P2,000 advertising bill was received January 7, 2015. It related to costs of P1,500 for advertisements in December
2014 issues and P500 for advertisements in January 2, 2015 issues of the newspaper. A store lease, effective
December 16, 2013, calls for fixed rent of P4,800 per month payable 1 month from the effective date and monthly
thereafter. In addition, rent equal to 5% of net sales over P1,200,000 per calendar year is payable on January 31 of
the following year. Net sales for 2014 were P2,200,000. In its December 31, 2014 statement of financial position,
Pythagoras should report accrued liabilities of
a. P56,800 c. P56,300
b. P51,500 d. P53,900

10. On September 1, 2013, Little Rock Co. borrowed on a P1,350,000 note payable from Dilly Bank. The note bears
interest at 12% and is payable in three equal annual principal payments of P450,000. On this date, the bank’s prime
rate was 11%. The first annual payment for interest and principal was made on September 1, 2014. At December
31, 2014, what amount should Little Rock report as accrued interest payable?
a. P49,500 c. P54,000
b. P33,000 d. P36,000

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AVERAGE

1. Using the data given below, compute for the total amount considered as financial liabilities
Bank overdraft P 100,000
Accounts payable 1,200,000
Notes payable 500,000
Loans payable 1,800,000
Income tax payable 120,000
Warranty obligations 180,000
Deferred revenue 240,000
Cumulative, redeemable preference
shares at the option of the holder 1,000,000
Non-cumulative, non-redeemable 2,000,000
preference shares
a. P4,900,000 c. P4,600,000
b. P3,620,000 d. P4,500,000

2. The balance sheet of Lai Company showed the following on January 1 and December 31, 2014:
January 1 December 31
Total assets 10,000,000 15,000,000
Total liabilities 3,000,000 4,000,000
Contributed capital 5,000,000
During the year 2014, Lai issued ordinary shares with par value of P2,000,000 at a premium of P1,000,000. On
December 31, 2014, Lai paid dividends of P2,500,000. What was the net income for 2014?
a. P3,500,000 c. P4,000,000
b. P4,500,000 d. P5,500,000

3. Buyer Co. regularly buys shirts from Vendor Company and is allowed trade discounts of 20% and 10% from the list
price. Buyer purchased shirts from Vendor on May 27 and received an invoice with a list price of P100,000 and
payment terms 2/10, n/30. If Buyer uses the net method of recording purchases, the journal entry to record the
payment on June 8 will include
a. A debit to Accounts payable of P72,000.
b. A debit to Purchase Discounts Lost of P1,440.
c. A credit to Purchase Discounts of P1,440.
d. A credit to Cash of P70,560.

4. The Chemsee Company leased a canning machine with a fair value of P165,000. The initial direct costs included in
negotiating the lease were P1,250. The present value of the minimum lease payments discounted at the rate implicit in
the lease is P158,400. The asset has a useful life of 5 years and the lease is for a period of 4 years, after which the
asset can be acquired for a near zero cost, which is substantially below the expected value of the asset at that date.
The asset is depreciated on a straight line basis. According to PAS17 Leases, what amount should be the annual
depreciation expense?
a. P39,912 c. P39,600
b. P31,930 d. P31,680

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5. The balance in Iwig Co.'s accounts payable account at December 31, 2014 was P400,000 before any necessary year-
end adjustments relating to the following:
 On December 28, 2014, Iwig purchased and received goods for P40,000, terms 2/10, n/30. Iwig records
purchases and accounts payable at net amounts. The invoice was recorded and paid January 3, 2015.
 Goods were in transit to Iwig from a vendor on December 31, 2014. The invoice cost was P50,000. The goods
were shipped f.o.b. shipping point on December 29, 2014 and were received on January 4, 2015.
 Goods shipped f.o.b. destination on December 21, 2014 from a vendor to Iwig were received on January 6, 2015.
The invoice cost was P25,000.
 Goods shipped to Iwig, f.o.b. shipping point on December 20, 2014, from a vendor were lost in transit. The
invoice price was P20,000. On January 5, 2015, Iwig filed a P20,000 claim against the common carrier.
In Iwig's December 31, 2014 statement of financial position, the accounts payable should be
a. P439,200 c. P509,200
b. P489,200 d. P534,200

6. The Verba Company accounts for non-current assets using the revaluation model. On 30 June 2014 Verba classified a
freehold property as held for sale in accordance with PFRS5. At that date the property's carrying amount was P290,000
and the balance on the revaluation reserve was P20,000. At that date its fair value was estimated at P330,000 and the
costs to sell at P20,000. At 31 December 2014 the property's fair value was estimated at P325,000 and the costs to sell
at P25,000.
What amount should be included as an impairment loss in Delap's statement of comprehensive income for the year
ended 31 December 2014?
a. P30,000 c. P5,000
b. P10,000 d. Nil

7. The following information was included in the bank reconciliation for Ryan, Inc. for June. Assume all other reconciling
items are listed.
Checks and charges recorded by bank in
June, including a June service charge
of P600 P344,200
Service charge made by bank in May and
recorded in the books in June 400
Total of credits to Cash in all journals
during June 396,040
Customer’s NSF check returned as a bank
charge in June (no entry made on
books) 2,000
Customer’s NSF check returned in May and
redeposited in June (no entry made on
books in either May or June) 5,000
Outstanding checks at June 30 265,200
Deposits in transit at June 30 12,000
What was the total of outstanding checks at the beginning of June?
a. P319,240 c. P219,360
b. P211,160 d. P213,160

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8. Quirino, Inc. and its subsidiaries have provided you, their PFRS specialist, with a list of the properties they own:
 Land held by Quirino, Inc. for undetermined future use, P5,000,000.
 A vacant building owned by Quirino, Inc. and to be leased out under an operating lease, P20,000,000.
 Property held by a subsidiary of Quirino, Inc., a real estate firm, in the ordinary course of its business,
P30,000,000.
 Property held by Quirino, Inc. for use in production, P1,000,000.
 A hotel owned by Sugo, Inc., a subsidiary of Quirino, Inc., and for which Sugo, Inc. provides security services for
its guests’ belongings, P50,000,000.
 A building owned by Quirino, Inc. being leased out to Status, Inc, a subsidiary of Quirino, Inc., P20,000,000.
How much will be reported as investment properties in Quirino, Inc. and its subsidiaries consolidated financial
statements?
a. P75,000,000 c. P95,000,000
b. P25,000,000 d. P45,000,000

9. Nadine Company received a P1,800,000 subsidy from the government to purchase manufacturing equipment on
January, 2, 2013. The equipment has a cost of P3,000,000, a useful life a six years, and no salvage value. Nadine
depreciates the equipment on a straight-line basis.
If Nadine chooses to account for the grant as deferred income, the grant income to be recognized in 2013 is
a. Nil c. P 500,000
b. P300,000 d. P1,800,000

10. On December 31, 2014, Park Company purchased equipment from Ott Corp. and issued a noninterest-bearing note
requiring payment of P50,000 annually for ten years. The first payment is due December 31, 2014, and the
prevailing rate of interest for this type of note at date of issuance is 12%. The interest expense to be reported by
Park in its 2015 income statement is
a. P37,969 c. P30,301
b. P31,969 d. P27,901

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DIFFICULT

1. Open Sesame Company undertakes an IPO for the listing and issuance of 700,000 new shares and 300,000 existing
shares. In relation to this, the company incurred the following costs:

Documentary stamp tax P 25,000

Fairness opinion and valuation report 125,000
Tax opinion 75,000
Newspaper publication 200,000
Listing fee 300,000
Other joint costs 275,000
P1,0000,000
Which statement is incorrect?
a. The company will recognize the listing fee of P300,000 immediately to profit or loss.
b. The documentary stamp tax and newspaper publication fee amounting to P25,000 and P200,000, respectively,
will be recognized as a deduction to equity.
c. Joint costs, which include fee for fairness opinion and valuation report, tax opinion cost and other joint costs,
amounting to P475,000 will be allocated using the proportion of newly sold shares to the total number of shares
outstanding immediately after the new share issuance.
d. The total costs incurred of P1,000,000 will be treated as a contra shareholders’ equity account.

2. Cute Corporation owns the following properties at 1 January 2014:

Property A
An office building used by Cute for administrative purposes with a depreciated historical cost of P2 million. At 1
January 2014 it had a remaining life of 20 years. After a re-organization on 1 July 2014, the property was leased to
a third party and reclassified as an investment property applying Cute’s policy of the fair value model. An
independent valuer assessed the property to have a fair value of P2.3 million at 1 July 2014, which had risen to P2.34
million at 31 December 2014.

Property B
Another office building sub-leased to a subsidiary of Cute. At 1 January 2014, it had a fair value of P1.5 million which
had risen to P1.65 million at 31 December 2014. At 1 January 2014 it had a remaining life of 15 years.

Determine the net amount that should be recognized by the entity in its separate statements of profit or loss and
other comprehensive income in respect of these properties for the year ended December 31, 2014.

a. P540,000 c. P190,000
b. P490,000 d. P140,000

3. On July 1, 2014, Shaw Co. sold a machine costing P500,000 with accumulated depreciation of P380,000 on the date
of sale. Shaw received as consideration for the sale, a P300,000 noninterest-bearing note, due July 1, 2017. There
was no established exchange price for the equipment and the note had no ready market. The prevailing rate of
interest for a note of this type at July 1, 2014 was 12% and 13% on December 31, 2014. In relation to this
transaction, the total income to be recognized in Shaw’s 2014 profit or loss is (Round off present value factors to four
decimal places)
a. P180,000 c. P101,445
b. P119,165 d. P106,352

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4. On January 1, 2014, Alaska Corporation purchased P1,000,000 10% bonds for P1,051,510 (including broker’s
commission of P20,000). Interest is payable annually every December 31. The bonds mature on December 31,
2016. The prevailing market rate for the bonds is 9% at December 31, 2014. (Round off present value factors to
four decimal places)
If the bonds are classified as held for trading, the amount to be recognized as fair value adjustment loss in its 2014
profit or loss?
a. P33,900 c. P13,900
b. P26,180 d. P 6,180

5. On December 28, 2014, Anne Company commits itself to purchase a financial asset to be classified as held for
trading for P800,000, its fair value on commitment (trade) date. This security has a fair value of P801,000 and
P802,500 on December 31, 2014 (Anne's financial year-end), and January 5, 2015 (settlement date), respectively.
If Anne applies the settlement date accounting method to account for regular-way purchases of its securities, how
much gain should be recognized on January 5, 2015?
a. P2,500 c. P1,000
b. P1,500 d. Nil

6. Santo, Inc. acquired 30% of Nino Corp.'s voting stock on January 1, 2013 for P360,000. During 2013, Nino earned
P150,000 and paid dividends of P90,000. Santo's 30% interest in Nino gives Santo the ability to exercise significant
influence over Nino's operating and financial policies. During 2014, Nino earned P180,000 and paid dividends of
P60,000 on April 1 and P60,000 on October 1.
On July 1, 2014, Santo sold half of its stock in Nino for its fair value of P237,000. Thereafter, Santo, Inc. designated
the investment as available-for-sale. The remaining shares of Nino Corp. held by Santo, Inc. have a fair value of
P220,000 at December 31, 2014.
How much is the total amount to be recognized in Santo, Inc.’s 2014 profit or loss related to this investment?
a. P 87,000 c. P123,000
b. P114,000 d. P158,500

7. In a cash flow hedge, the gain on the hedging instrument in the first period after designation is P900,000 and the
loss on the hedged item is P1,000,000. How much will be recognized in profit or loss?
a. P1,000,000 c. P100,000
b. P 900,000 d. P 0

8. On 1 January 2009, Entity A issued a 10 per cent convertible debenture with a face value of P10,000,000 maturing
on 31 December 2018. The debenture is convertible into ordinary shares of Entity A at a conversion price of P25 per
share. Interest is payable half-yearly in cash. At the date of issue, Entity A could have issued nonconvertible debt
with a ten-year term bearing a coupon interest rate of 11 per cent.

On 1 January 2014, the convertible debenture has a fair value of P11,200,000. Entity A makes a tender offer to the
holder of the debenture to repurchase the debenture for P11,200,000, which the holder accepts. At the date of
repurchase, Entity A could have issued non-convertible debt with a five-year term bearing a coupon interest rate of 8
per cent.

Compute the amount to be recognized in profit or loss as a result of the repurchase of the debenture.
a. P1,577,200 c. P1,188,650
b. P1,200,000 d. Nil

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9. On January 1, Lessor Company signed a 1-year rental with quarterly payments of P100,000 due at the end of each
quarter. In addition, the lessee must pay contingent rent of 5% of all sales in excess of P10,000,000. The
contingent rent is paid in one payment on December 31. The same lessee has used the building for the past 5 years,
and in each of those years the lessee reached the contingent rent threshold of P10,000,000 in sales. Sales of the
lessee for the first two quarters are as follows:
Quarter ended Amount
March 31 P3,200,000
June 30 3,000,000

What amount of rent expense should be reflected in Lessee’s quarterly income statement for the three months ended
June 30?
a. P100,000 c. P130,000
b. P125,000 d. P160,000

10. Entity B’s profit available for ordinary shareholders’ for the year ended December 31, 2013 and 2014 were
P2,100,000 and P3,500,000, respectively.
The ordinary shares in issue on January 1, 2014 were 800,000.
Entity B offered existing shareholders’ a rights issue of one for five shares at a price of P6 per share to be exercised
on April 1, 2014. The market value of Entity B’s shares on that date was P10 per share.
What amounts should Entity B report as basic earnings per share in its 2014 and 2013 comparative income
statements?
2014 2013
a. P7.80 P2.63
b. P3.75 P2.45
c. P7.80 P2.45
d. P3.75 P2.63

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TIE BREAKER

1. An entity prepares quarterly interim financial reports in accordance with PAS 34. The entity sells electrical goods,
and normally 5% of customers claim on their warranty. The provision in the first quarter was calculated as 5% of
sales to date, which was P20,000,000. However, in the second quarter, a design fault was found and warranty
claims were expected to be 10% for the whole year. Sales in the second quarter were P30,000,000. What would be
the provision charged in the second quarter’s interim income statement?
a. P3,000,000 c. P2,250,000
b. P4,000,000 d. P5,000,000

2. Peak Company borrows money under various loan agreement involving notes discounted and notes requiring interest
payments at maturity. During the year ended December 31, 2011, Peak paid interest totaling P5,000,000. The
balance sheets included the following:
12/31/2011 12/31/2010
Interest payable P2,500,000 P2,000,000
Prepaid interest 1,500,000 500,000
How much interest expense should Peak report for 2011?
a. P4,500,000 c. P3,500,000
b. P6,500,000 d. P5,500,000

3. On January 1, 2008, Cherry Bomb Co. purchased a machine for P528,000 and depreciated it by the straight-line
method using an estimated useful life of eight years with no salvage value. On January 1, 2011, Cherry Bomb
determined that the machine had a useful life of six years from the date of acquisition and will have a residual value
of P48,000. An accounting change was made in 2011 to reflect these additional data. The accumulated depreciation
for this machine should have a balance at December 31, 2011, of
a. P292,000 c. P320,000
b. P308,000 d. P352,000

4. Warner Limited had the following cash flows during a reporting period:
 Acquisition of subsidiary, net of cash flows P250,000
 Dividends paid P65,000
 Repayment of borrowings P90,000
 Interest paid on borrowings P57,000
 Proceeds from sale of plant P215,000
What is the amount of the cash flows in relation to financing activities of Warner Limited for the reporting period?
a. Net cash inflow P155,000
b. net cash inflow P212,000
c. Net cash outflow P155,000
d. net cash outflow P212,000

5. On January 1, 2011, Sunflower Company purchased for P240,000 a machine with a useful life of ten years and no
salvage value. The machine was depreciated by the double-declining balance method and the carrying amount of the
machine was P153,600 on December 31, 2012. Sunflower changed to the straight-line method on January 1, 2013.
Sunflower can justify the change. What should be the depreciation expense on this machine for the year ended
December 31, 2013?
a. P15,360 c. P24,000
b. P19,200 d. P30,720

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6. In your review of Hug Company, you find that a physical inventory on December 31, 2013, showed merchandise with
a cost of P441,000 was on hand at that date. You also discover the following items were all excluded from the
P441,000.
a. Merchandise of P61,000 which is held by Hug on consignment. The consignor is Kisses Company.
b. Merchandise costing P38,000 which was shipped by Hug f.o.b. destination to a customer on December 31, 2013.
The customer was scheduled to receive the merchandise on January 2, 2014.
c. Merchandise costing P46,000 which was shipped by Hug f.o.b. shipping point to a customer on December 29,
2013. The customer was scheduled to receive the merchandise on January 2, 2014.
d. Merchandise costing P83,000 shipped by a vendor f.o.b. destination on December 30, 2013, and received by Hug
on January 4, 2014.
e. Merchandise costing P51,000 shipped by a vendor f.o.b. seller on December 31, 2013, and received by Hug on
January 5, 2014.
Based on the above information calculate the amount that should appear on the Hug’s statement of financial position
at December 31, 2013, for inventory.
a. P538,000 c. P479,000
b. P530,000 d. P441,000

7. In January 2013, Rangoon Mine Co. purchased a mineral mine for P2,640,000 with removable ore estimated at
1,200,000 tons. After it has extracted all the ore, Rangoon Mine will be required by law to restore the land to its
original condition at an estimated cost of P220,000. The present value of the estimated restoration costs is
P180,000. Rangoon Mine believes it will be able to sell the property afterwards for P300,000. During 2013, Rangoon
Mine incurred P360,000 of development costs preparing the mine for production and removed and sold 60,000 tons
of ore. In its 2013 statement of comprehensive income, what amount should Rangoon Mine report as depletion?
a. P135,000 c. P150,000
b. P144,000 d. P159,000

8. On December 31, 2012, Maxisoft Co. had capitalized costs for a new computer software product with an economic life
of 5 years. Sales for 2013 were 30% of expected total sales of the software, which can be determined reliably. At
December 31, 2013, the software had a net realizable value equal to 90% of the capitalized cost. What percentage
of the original capitalized cost should be reported as the net amount on Maxisoft’s December 31, 2013 statement of
financial position?
a. 70% c. 80%
b. 72% d. 90%

9. Connie Corp. has an outstanding 10% note payable dated October 1, 2011 and is payable in three equal annual
payments of P600,000 plus interest. The first interest and principal payment was made on October 1, 2012. In
Connie's June 30, 2013 statement of financial position, what amount should be reported as accrued interest payable
for this note?
a. P135,000 c. P90,000
b. P 45,000 d. P30,000

10. On July 1, 2007 Ecclesiastes Corporation issued for P960,000 one thousand of its 9 percent, P1,000 callable bonds.
The bonds are dated July 1, 2007, and mature on July 1, 2017. Interest is payable semiannually on January 1 and
July 1. Ecclesiastes uses the straight-line method of amortizing bond discount. The bonds can be called by the
issuer at 101 at any time after June 30, 2012. On July 1, 2013, Ecclesiastes called in all of the bonds and retired
them. Ignoring income taxes, how much loss should Ecclesiastes report on this early extinguishment of debt for the
year ended December 31, 2013?
a. P50,000 c. P26,000
b. P34,000 d. P10,000

- end -

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