POLYTECHNIC UNIVERSITY OF THE PHILIPPINES COLLEGE OF ACCOUNTANCY Sta. Mesa, Manila
Junior Philippine Institute of Accountants
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1. Mari Company’s December 31, 2011 unadjusted current assets and stockholders’ equity are as follows. Cash 500,000 Marketable equity securities (Including P 1,000,000 of Mari Common stock) 4,000,000 Trade accounts receivable 3,500,000 Inventories 1,000,000 Common Stock 5,000,000 Retained earnings 2,000,000 In its 2011 statement of changes in equity, the total amount of equity at December 31, 2011 is. a. 7,000,000 b. 8,000,000 c. 6,000,000 d. 9,000,000 C
5M+2M-1M
2. On January 1, 2011, Ward Corporation issued its 9% bonds in the face amount of P 2,000,000, which mature on January 1, 2011. The bonds were issued for P 1,878,000 to yield 10% resulting in bond discount of P 122,000. Ward uses the interest interest method of amortizing bond discount, interest interest is payable annually on December December 31. At December December 31, 2011, 2011 , Ward’s unamortized bond discount should be a. P 114,200 b. P 104,000 c. P 103,220 d. P 102,000 A
1,878,000X1.1-(2MX9%)=1,8 1,878,000X1.1-(2MX9%)=1,885,800; 85,800; 2,000,000-1,885,800=114, 2,000,000-1,885,800=114,200 200 3. Fores Company has an agreement to pay its sales manager a bonu s of 5% of the company’s earnings. The income for the year before bonus and tax is 5,000,000. Income tax rate is 32% of income after bonus. The bonus is computed after deduction for both bonus and tax. What is the amount of bonus for the year (round of to the nearest peso)? peso)? a. 250,000 b. 164,410 c. 241,780 d. 172,630
B
5%X(1-32%)=3.4%; 5%X(1-32%)=3 .4%; 5MX3.4/(100+3.4)=164,41 5MX3.4/(100+ 3.4)=164,410 0 4. On January 1, 2011, Doro Corporation granted an employee an option to purchase 3,000 shares of Doro’s P5 par value common stock at P20 per share. The option became exercisable on December 31, 2012, after the employee completed completed two years of service. The option was exercised on January 10, 2013. The market prices of stock were as follows: January 1, 2011 December 31, 2011
30 50
January 10, 2013 For 2011, Doro should recognize compensations expense of a. 45,000 b. 37,500 c. 15,000 C
45 d. 0
(50-20)X3,000/2 5. Ryan Company sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to unearned service contract revenue. This account had a balance of P720,000 at December 31, 2011 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of P180,000 at December 31, 2011. Outstanding service contracts at December 31, 2011 expires as follows: During 2012 150,000 During 2013 225,000 During 2014 100,000 What amount should be reported as unearned service contract revenue in Ryan’s Decembe r 31, 2011 balance sheet? a. 540,000 b. 475,000 c. 295,000 d. 245,000
B
150,000+225,000+100,000 6. On January 1, 2011, Ward Corporation issued it 9% bonds in face amount of P4,000,000, which mature on January 1, 2021. The bonds were issued for P3,756,000 to yield 10%, resulting in bond discount of P244,000. Ward uses the interest method of amortizing bond discount. Interest is payable annually on December 31. At December 2011, Ward’s unamortized bond discount should be a.228,400 b. 208,000 c. 206,440 d. 204,000
A
3,756,000X1.1-360,000=3,771,600; 4,000,000-3,771,600=228,400 7. On July 1, 2011, Alto Corporation declared a 1 for 5 reverse stock split, when the market value of stock was P100 per share. Prior to the split, alto had 10,000 shares of P10 par value common stock issued and outstanding. After the split, the par value of the stock is a. 10 b. 20 c. 50 d. 2
C
10X5 8. On December 31, 2011, XYZ Company showed stockholders equity of P4,000,000. During 2011, the stockholders equity was affected by: An adjustment to retained earnings for overstatement of inventory on December 31, 2010 in the amount of P200,000. Declared dividend of P400,000 of which P300,000 was paid in 2011. The corporation’s common stock was split five for one. Net income for 2011 amounted to P700,000. The common stock balance of P3,000,000 remained unchanged during 2011. What was the retained earnings balance on January 1, 2011? a. 1,000,000 b. 900,000 c. 800,000 d. 500,000
B
4M-3M+200,000+400,000-700,000
9. Losses which are expected to arise from firm and non-cancellable commitments for the future purchase of inventory items, if material should be a. Recognized in the accounts by debiting loss on purchase commitments and crediting estimated liability for loss on purchase commitments b. Disclosed in the notes c. Ignored d. Charged to retained earnings A 10. A company acquired some of its own common shares at a price greater than both their par value and original issue price but less than their book value. The company uses the cost method of accounting for treasury stock. What is the impact of this acquisiti on on total stockholders’ equity (TSE), and the net book value (NBV) per common share? a. SE – decrease ; NBV – increase c. SE – decrease; NBV – decrease b. SE – increase ; NBV – decrease d. SE – increase; NBV - increase A 11. Long-term liabilities are distinguished from current liabilities on the basis of: a. Whether the liability is to be paid within the operating cycle or one year, whichever is longer. b. Whether the liability is to be paid out of current assets within the operating cycle or one year, whichever is longer. c. Whether the liability is to be paid within one year or less. d. Whether the liability is to be paid within the operating cycle of the business, if it is less than one year. B 12. A corporation had the following account balances on its December 31, year 1 (in 000’s): Common stock P1,000 Preferred stock 600 Premium on preferred stock 160 Reserve for future plant expansion 200 Unappropriated retained earnings 100 Bond sinking fund 80 Additional information (in 000’s): During the year, a P50 cash dividend on preferred stock and a P50 cash dividend on common stock were declared. At December 31, year 1, total stockholder’s equity is: a. P2,140 b. P2,060 c. P2,040 d. P1,940 C
1,000+600+160+200+100+80-50-50 13. A corporation was organized on January 1. At that time, 10,000 shares of common stock were sold and issued at P10,000 per share each P20,000 of the proceeds were used to purchase equipment. The corporation has promised to pay P2.00 per share in dividends during the year if income exceeded P40,000. As it turned out, income was P60,000. However, due to severe cash shortage, the corporation declared a scrip dividend rather than an immediate cash dividend. If no other
transaction occurred which would affect retained earnings, the corporation should report on December 31, retained earnings of: a. P160,000 b. P40,000 c. P60,000 d. P20,000 B
60,000-(2X10,000) 14. On Dec. 31, 2007, GOSSIP GIRL issued 5-year bonds with face value of P 1 million. The bonds carry a stated rate of 10 % and were sold at par. Interest is payable semiannually on Dec. 31. According to the provisions of the bond indenture, GOSSIP GIRL was to make annual deposit into a bond sinking fund (beginning Dec. 31, 2008) to accumulate the amounts necessary to retire the bonds at their maturity. On Dec. 31, 2011, all required interest payments and sinking fund payments due to date had been made on schedule. If the sinking fund assets are properly classified as noncurrent, how should the balance of bonds payable be classified on Dec. 31, 2011? A. Current liability C. Contra to long-term investments B. Noncurrent liability D. Deferred credit
B 15. A cable television company receives deposits from customers, which are refunded when service is terminated. The average customer stays with the company for eight years. How would these deposits be shown on financial statements? A. Operating revenue C. Paid-in capital B. Other revenue D. Liability D 16. When an entity breaches an undertaking under long-term loan agreement on or before the balance sheet date with the effect that the liability becomes payable on demand, the liability is classified as current A. When the lender has agreed after the balance sheet date and before issuance of financial statements not to demand payment as a consequence of the breach B. When the lender has agreed on or before the balance sheet date to provide a grace period for at least twelve months after balance sheet date within which to rectify the breach C. Under all circumstances D. When the lender has agreed to refinance on a long-term basis on or before balance sheet date and before issuance of financial statements A 17. It is a program that is planned and controlled by management, and materially changes either the scope of a business undertaken by an entity or the manner in which that business is conducted. A. Business plan C. Benefit plan B. Early retirement program D. Restructuring D 18. These are recognized as liabilities (assuming that a reliable estimate can be made) because they are present obligations and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. A. Trade payables C. Provisions B. Accruals D. Unearned revenue
C 19. It describes viability of outcome. A. Uncertainty B. Fortuitous event
C. D.
Calamity Risk
A 20. Provisions shall be reviewed at _____ and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision shall be reversed. Where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. A. Each reporting dates C. Each interim date B. Each balance sheet date D. Each annual date B 21. What is the effect of split up? A. Increase in number of shares and increase in cost per share B. Decrease in number of shares and decrease in cost per share C. Increase in number of shares and decrease in cost per share D. Decrease in number of shares and increase in cost per share C 22. What is the effect of stock dividend of the same class? A. Increase in investment account and increase in cost per share B. Decrease in investment account and decrease in cost per share C. No effect on investment account but decrease in cost per share D. No effect on investment account but increase in cost per share C 23. Shares received in lieu of cash dividend are recorded as A Income at fair value of the shares received B. Income at par value of the shares received C. Income at the cash dividend that would have been received D. Stock dividends A 24. Cash received in lieu of stock dividends is accounted for as A. Dividend income B. Return of investment C. Partly dividend income and partly return of investment D. If the stock dividend are received and subsequently sold and gain or loss is recognized D 25. When stock dividends of different class are received. A. No formal entry is made but only a memorandum
B. C. D.
Cash is debited and dividend income is credited A new investment account is debited and dividend income is credited A new investment account is debited and the original investment account is credited
C 26. On Dec. 31, 2010, the liability section of TAN Co. balance sheet included bonds payable of P 10 million and unamortized premium on bonds payable of P 1,800,000. Further verification revealed that these bonds were issued on Dec. 31, 2009 and will become due on Dec. 31, 2019. Interest of 12% is payable on June 30, and Dec. 31 of each year. On Apr. 1, 2011, TAN retired P 4 million of these bonds at 97 plus accrued interest. The total amount of cash paid for the retirement of bonds on Apr. 1, 2011 was A. P 3,950,000 C. P 4,040,000 B. P 4,000,000 D. P 3,880,000 B
4MX97%+4MX12%X3/12 27. NGO Co. issued P 1 million, 12 % 20-year bonds at 102 plus accrued interest on Feb. 1, 2011. The bonds are dated Jan. 1, 2011 and pay interest semiannually every June 30 and December 31. The premium is to be amortized using effective interest method over the period during which the bonds are outstanding. Bond issue costs totaled P 50,000. The accrued interest on the bonds issuance date is __. A. P 10,000 B. P 20,000
A
C. D.
P 30,000 P 50,000
1MX12%X1/12 28. EMIL Co. has outstanding 7% 10-year, P 2,000,000 face value bond. The bond was originally sold to yield 6% annual interest. EMIL uses the effective interest method to amortize bond premium. On June 30, 2010, the carrying amount of the outstanding bond was P 2,100,000. What was the amount of unamortized premium on bond should EMIL Co. report in its June 30, 2011 balance sheet? A. P 86,000 C. P 126,000 B. P 114,000 D. P 140,000
A
2.1MX1.06-(2MX7%)-2M 29. The TESORO Co. launched a new sales promotional program on their milk products. Each box of milk has a special mark coupon. For every ten special mark coupons returned to the company, customers receive an attractive price. The company estimates that 40% of the special mark coupons reaching the consumer mart will not be redeemed. Additional information follows: Units Amount Sales of milk (in boxes) 3,000,000 P 3,600,000 Purchase of prizes by company 80,000 P 40,000 Prizes distributed to customers 42,000 At the end of the year, the company recognized a liability equal to the estimated cost of potential prizes outstanding. What is the amount of this liability? A. P 69,000 C. P 39,000 B. P 49,000 D. P 21,000
A
3MX60%/10X.5-21,000 30. JP Co. inaugurated a sales promotional campaign on July 31, 2011 in its desire to improve sales. The company placed a coupon redeemable for a premium in each box of oatmeal sold. Each premium costs the company P 20 and five coupons must be presented by a customer to receive a premium. The company estimated that only 70% of the coupons issued would be redeemed. For the five months ended Dec. 31, 2011, the following information is available: Boxes of oatmeal sold P 400,000 Premiums purchased P 30,000 Coupons redeemed P 100,000 How much is the liability for premium claims outstanding at Dec. 31, 2011? A. P 720,000 C. P 1,800,000 B. P 1,020,000 D. P 3,600,000
A
(400,000X70%-100,000)/5X20
Nos. 33 and 34 pertain to the following: JUNIOR FINEST Co. grants to an employee the right to choose either 1,200 shares or a right to a cash payment equal to the value of 1,000 shares. The grant is conditional upon the completion of three years’ service. If the employee chooses the share alternative, the share must be held three years after the vesting date. At grant date, the JUNIOR FINEST’s share price is P 50 per share. At the end of years 1, 2 and 3, the share price is P 52, P 55 and P 60 respectively. The entity does not expect to pay dividends in the next three years. After taking into account the effects of the post-vesting transfer restrictions, the JUNIOR FINEST estimates that the grant date fair value of the share alternative is P 48 per share. 31. Compute for the amount to be recognized as compensation expense in Year 2? A. P 17,333 C. P 19,333 B. P 19,866 D. P 21,866 D
(1,200X48)-(1,000X50)=7600/3=2,533 (1,000X55X2/3)-(1,000X52X1/3)+2,533 32. Compute for the amount to be recognized as liability in Year 2? A. P 17,333 C. B. P 23,334 D.
C
P 19,333 P 19,866
(1,000X55X2/3)-(1,000X52X1/3) 33. MARVIN INC. introduced a new product that carries a 2-year warranty against defects. It estimates that warranty costs will be of 2% of sales in the year of sale and 3% of sales in the year following the year of sale. Sales in Year 1 and Year 2 were P5 million and P7 million, respectively. Actual costs of servicing warranty in Year 1 and 2 were P110,000 and P260,000, respectively. What provision for warranty costs must the MARVIN recognize in Year 2? A. P 260,000 C P 350,000 B. P 290,000 D. P 370,000
C
7MX(2%+3%)
34. LEOMAR ENTERPRISE issues 10-year bonds with a face value of P1 million, dated January 1, 2011 and bearing interest at an annual rate of 12% payable semiannually on January 1 and July. The full interest amount will be paid at each due date. The market rate of interest on bonds of similar risk and maturity, with the same schedule of interest payments is also 12%. If the bonds are issued on February 1, 2011, the amount LEOMAR receives from the buyers of the bonds on that date is __. A. P 990,000 C P 1,010,000. B. P 1,000,000 D. P 1,020,000 C
1MX12%X1/12+1M 35. At December 31, 2008, an VELEZ Corporation had the following obligations that were expected to be refinanced: 17% note payable 15% note payable
P 140,000 P 200,000
The 17% note payable was issued on October 1, 2010 and matures on July 1, 2012. The 15% note payable was issued on May 1, 2010 and matures on May 1, 2012. On February 1, 2012, the entire P 140,000 balance of the 17% note payable was refinanced by issuance of a long-term debt instrument. On February 7, 2012, VELEZ entered a noncancelable agreement with a lender to refinance the 15% note payable on a long-term basis. The financial statements were authorized to be issued on March 1, 2012. The total amount of the obligations that may be properly excluded from current liabilit ies on LEOMAR’s December 31, 2011 balance sheet is __. A. P 0 C P 200,000. B. P 140,000 D. P 340,000 A 36. JENNY LYN Company granted 10,000 share options to each of its five directors on Jan. 1, 2011. The options vest on Jan. 1, 2015. The fair value of each option on Jan. 1, 2011 is P 50 and it is anticipated that all of the shares will vest on Jan. 1, 2015. What will be the increase in expense and equity for the year ended Dec. 31, 2011? A. P 2,500,000 C. P 625,000 B. P 500,000 D. P 125,000 C
10,000X5X50/4
Nos. 39 and 40 pertain to the following: The capital accounts of GULINAO Co. on Dec. 31, 2010 were as follows: Preference Share, P20 par, 20,000 shares Share Premium-Preference Ordinary Share, P 80 par, 50,000 shares Share Premium-Ordinary Retained Earnings
P 400,000 P 160,000 P 4,000,000 P 600,000 P 360,000
During the year ending Dec. 31, 2011, the following summarizes the transactions affecting the shareholder’s equity: Apr. 30 1,000 preference shares were retired at P 25 per share June 15 2,000 shares of treasury shares were purchased as P 85 per share
June 30 July 31 Dec. 31
A 2-for-1 share split of the company’s ordinary share was declared 800 treasury shares were reissued at P 50 per share Net income for 2011 was P 900,000
37. What was the total shareholder’s equity on Dec. 31, 2011? A. P 6,294,000 C. P 6,265,000 B. P 6,270,000 D. P 5,520,000 C
400,000+160,000+4,000,000+600,000+360,000-(1,000X25)-(2,000X85)+(800X50)+900,000 38. How much was the remaining cost of treasury shares on Dec. 31, 2011? A. P 136,000 C. P 96,000 B. P 102,000 D. P 51,000
A
(2,000-800/2)X85 39. CLAIRE Company has granted 100 share appreciation rights to each of its 1,000 employees on Jan. 1, 2011. The management feels that as of Dec. 31, 2011, 90% of the awards will vest on Dec. 31, 2013. The fair value of each share appreciation right on Dec. 31, 2011 is P 10. What is the fair value of the liability for the appreciation rights on Dec. 31, 2011? A. P 1,000,000 C. P 300,000 B. P 900,000 D. P 450,000
C
100X1,000X10X90%/3 40. ESTEBAN Co. grants 100 share options to each of its 500 employees. Each grant is conditional upon the employee working for the entity over the next three years. ESTEBAN estimates that the fair value of each share option is P 15. On the basis of a weighted average probability, ESTEBAN estimates that 20%of employees will leave during the 3-year period and therefore forfeit their rights to the share options. During Year 1, 20 employees leave. ESTEBAN revises its estimate of total employee departures over 3year period from 20% (100 employees) to 15 % (75 employees). During Year 2, a further 22 employees leave. ESTEBAN revises its estimate of total employee departures over the 3-year period from 15 % to 12%(60 employees). During Year 3, a further 15 employees leave. Hence, a total of 57 employees forfeited their rights to the share options during the 3-year period, and a total of 44,300 share options vested at the end of Year 3. Compute for the amounts to be recognized as compensation expense in Year 2. A. P 212,500 C. P 227,500 B. P 224,500 D. P 220,000
C
(500-60)X100X15X2/3-(500-75)X100x15X1/3 41. it is said that no entry is required when share warrants are issued to existing shareholders because these warrants are issued usually a. with consideration b. without consideration c. as bonus d. as stock dividends
B
42. treasury shares may be reissued as dividends, in which case the _____ of the shares be charged to retained earnings a. historical value b. cost c. fair value d. selling price B 43. ordinary shares issued as a result of the conversion of a debt instrument to ordinary shares are included from the date a. it was converted b. interest ceases to accrue c. as of the balance sheet d. prior to the date of the balance sheet B 44. if the containers are not returnable, they are a. Charged to loss b. Charged to gain c. Charged to the cost of the product d. Charged as an outright expense D 45. in a warranty liability any difference between estimate and actual cost is a change in a. accounting procedure b. accounting principle c. accounting entity d. accounting estimate D 46. under the effective interest method, bond issue cots must be lumped with the discount on bonds payable and netted against the a. selling price of the bond b. present value of the bond c. market value of the bond d. premium on bonds payable D 47. Dakak Company issued bonds with a face value of P4, 000,000 and with a stated interest rate of 10% on Jan. 01, 2011. The interest is payable semiannually on June 30 and December 31. The bonds mature on every December 31 at a rate of P2, 000,000 per year for 2 years. The prevailing rate for the bonds is 8%. The present value of 1 at 4% is as follows: One period 0.9615 Two periods 0.9426 Three periods 0.8990
Four periods What is the present value of the bonds on January 1, 2011? a. 4,111,400 b. 4,263,400 A (4,000,000 x 10%)/2 = 200,000 x 0.9615 = 2,000,000 + (4,000,000 x 10%)/2 = 2,200,000 x 0.9246= (2,000,000 x 10%)/2 = 100,000 x 0.8990 = 2,000,000 + (2,000,000 x 10%)/2 = 2,100,000 x 0.8548 =
0.8548 c.4,099,600 d.4,252,580
192,300 2,043,120 89,900 1,795,080 4,111,400
48. On January 1, 2008, Loyal Company purchased equipment for P8,000,000. The equipment is depreciated using straight line method based on a useful life of 8 years with no residual value. On January 1, 2011, after 3 years, the equipment was revalued at a replacement cost of 12,000,000 with no change in residual value. On June 30, 2011, the equipment was sold for 10,000,000. What is the effect of the June 30, 2011 transaction to the retained earnings? a.2, 500,000 increase c. 5,000,000 increase b.3, 250,000 increase d. 5,750,000 increase C Cost 8,000,000 x 3/8 = Replacement cost 12,000,000 x 3/8 = Revaluation Surplus Depreciation
8,000,000 (300,000) 12,000,000 (4,500,000)
5,000,000 7,500,000 2,500,000
7,500,000/5 x 6/12 = 750,000
10,000,000 – 6,750,000 =
2,500,000 3,250,000 5,750,000 (750,000) 5,000,000
49. Lathan Company was organized on January 1,2009 with the following capital structures: 12%Cumulative preference share,P100 par ,with liquidation value of P120,50,000 shares authorized, issued and outstanding 20,000 shares,P2,500,000. Ordinary Share Capital, par value P50, authorized 80,000 shares, issued and outstanding 20,000 shares, P1, 200,000. The net income for the years December 31, 2009 and December 31, 2010 were P2, 000,000 and 3,000,000, respectively. No dividends were declared. What is the December 31, 2011 book value per ordinary share? a.256 c.260 c.291 d.285 B Excess R/E 5,000,00 SP 700,000 (2,000,000 x 12% x 2)
Preference 2,000,000 (480,000)
Ordinary 1,000,000 480,000
(20,000 x 20)
(400,000) (4,820,000) 0
4,820,000 5,820,000/20,000 = P 291 =====
50. Felicia Co. owns 20% royalty interest in an oil well. Felicia receives royalty payments on January 31 for the oil sold between June 1 and November 30, and July 30 for oil sold between December 1 and May 31 Production report shows the following sales: June 1, 2010-November 30, 2010 4,050,000 December1, 2010-December 31, 2010 675,000 December 1, 2010-may 31, 2011 5,400,000 June 1, 2011-November 30, 2011 4,387,500 December 1, 2011-December31, 2011 945,000 What amount should Felicia report as royalty revenue for 2011? a.1,890,000 c.2,011,500 b.1,944,000 d.2,146,000 C (5,400,000-675,00) x 20% = 945,000 (4,387,500+945,000 x 20% = 1,066,500 2,011,500 51. Assume the following balances at the end of the current year: Capital Liquidated Accumulated Depletion Retained Earnings Depletion based on 50,000 units extracted @P20 per unit Inventory of resource deposit 5,000 units What is the maximum dividend that can be declared by the company? b. 2,100,000 c. 2,200,000 c. 2,000,000 d. 1,500,000
A Retained Earnings Accum. Depletion Less: Capital Liquidated Inventory (15,000 x 20)
1,800,000 2,500,000 1,500,000 1,000,000
1,500,000 2,500,000 4,000,000 (1,800,000) (100,000) 2,100,000
52. Marie Company sells gift certificates redeemable only when merchandise is purchased. These gift certificates have an expiration date of two years after issuance date. Upon redemption or expiration, Marie recognizes the unearned revenue as realized. Information for 2011 as follows: Gift certificate payable 12/31/2010 520,000 Gift certificate payable 12/31/2011 680,000 Gift certificate redeemed 1,560,000 Expired gift certificates 80,000 Cost of goods sold 80% How much Gift certificates sold during the year?
a. b.
1,800,000 1,500,000
A Gift Certificate Payable, end Certificates Redeemed Expired Certificates Gift Certificates, beg. Gift Certificates Sold
c. 1,640 ,000 d. 1,760,000
680,000 1,560,000 80,000 ( 520,000) 1,800,000
53. PRC Company began selling a new calculator that carried a two year warranty against defects in 2011. PRC projected the estimated warranty cost (as a percent of sales) as follows: First year warranty 4% Second year warranty 10% Sales and actual warranty repairs were: 2011 2012 Sales 5,000,000 9,000,000 Actual warranty repairs 390,000 900,000 What is the estimated warranty liability on December 31, 2011? a. 670,000 c. 700,000 b. 790,000 d. 650,000 A ( 5,000,000 + 9,000,0000) 14,000,0000 x 14%
14,000,000 1,960,000 ( 390,000) ( 900,000) 670,000
54. On December 31, 2011 Colt Company is experiencing extreme financial pressure and is in default in meeting interest payment on its long term note of P6, 000,000 due on December 31, 2013. The interest rate is 12% payable every December 31. In an agreement with the creditor, Colt obtained the following changes in the terms of note: a. The accrued interest on December 31, 2011 is forgiven. b. The principal is reduced by 500,000. c. The new interest rate is 8%. d. The new date of maturity is December 31, 2015. The present value of 1 at12% for four periods is 0.6355 and the present value of an ordinary annuity of 1 at 12% for four periods is 3.0373. How much is the gain or loss on extinguishment? a. 2,504,750 c. 1,888,338 b. 1,168,338 d. 0 C 5,500,000 x 0.6355 = (5,500,000 x 8%) = 440,000x 3.0373= PV of restructured liability
3,495,250 1,336,412 4,831,662 6,000,000 720,000
6,720,000 (4,831,662) 1,888,338 55. Francisco Company was organized on January 2, 2011 with 300,000 ordinary shares with a P6 par value authorized. During 2011, Francisco had the following stock transactions: January 2 March 8 May 9 July 2 August 17
Issued 60,000 shares at P10 per share Issued 20,000 shares at P11 per share. Purchased 7,500 shares at P12 per share. Issued 15,000 shares at P13 per share. Sold 5,000 treasury shares at P14 per share.
Francisco uses the FIFO method for purchase-sale purposes. If Francisco uses the cost method to record treasury stock transactions, how much would be the Share Premium at December 31, 2011? a. 445,000 b. 455,000 B January 2 [60,000 x (P10 – P6)] March 8 [20,000 x (P11 – P6)] July 2 [15,000 x (P13 – P6)] August 17 [15,000 x (P14 – P12)] Total Share Premium
c. 465,000 d. 485,000
240,000 100,000 105,000 10,000 P 455,000
56. Genius Company reported an Accumulated Profits balance of P300,000 at December 31,2010. In June 2011, Genius discovered that merchandise costing P100,000 had not been included in the inventory in its 2010 financial statements. Assume Genius has 35% tax rate. What amount should Genius report as adjusted beginning Accumulated Profits and Losses on January 1, 2011? a. 235,000 b. 365,000 C Accumulated Profits Understatement in Inventory for 2005 100,000 x 65% Adjusted January 1 2006 Accumulated Profits
c. 300,000 d. 400,000
P300,000 65,0000 P365,000
57. In 2009, Power Designs Corporation sold a layout design to Mass, Inc. and will receive royalties of future revenues associated with the said layout design. On December 31, 2010, Power Designs reported royalties receivable of P75,000 from Mass, Inc. During 2011, Power Designs received royalty payments of P200,000. Mass, Inc. reported revenues of P1,500,000 in 2011 from the layout design. In its 2011 Income Statement, what amount should Power Designs report as royalty revenue?
a. 125,000 b. 175,000 D 1,500,000 x 20%
c. 200,000 d. 300,000
P300,000
58. The Puncher Co. launched a sales promotional campaign on June 30, 2011. For every ten empty packs returned to Puncher, customers will receive an attractive food container. The company estimates that only 30% of the packs reaching the market will be redeemed. Additional information are as follows:
Sales of food packs Food containers purchased Prizes distributed to customers
Units 3,000,000 60,000 37,000
Amount P9,000,000 180,000
At the end of the year, Puncher recognized a liability equal to the estimated cost of potential prizes outstanding. What is the amount of this estimated liability? a. 69,000 b. 90,000
c. 159,000 d. 180,000
C Estimated no. of packs to be redeemed 3,000,000 x 30%= 900,000/10 = 90,000 -37,000 53,000 X P3 159,000 59. The Goat Corp. is authorized to issue 100,000 shares at P20 par ordinary share. At the beginning of 2011, 18,000 ordinary shares were issued and outstanding. These shares had been issued at P27 per share. During 2006, the company entered into the following transactions: January 4 March 19
Issued 1,300 ordinary shares at P28 per share Exchanged 12,000 ordinary shares for a machine
The ordinary shares was selling at P30 per share. May 9 Reacquired 500 ordinary shares at P29 per share. July 19 Accepted subscriptions for 1,000 ordinary shares at P31 per share. The contract called for 10% down payment with the balance due on December 1. September 4 Sold 500 of treasury share at P32 per share. December 1 Collected the balance due on July 1 subscriptions and issued the stock certificate. How much is the contributed capital for December 31, 2011? 914,900 (18,000X27)+(1,300X28)+(12,000X30)+(1,000X31)+(32-29)X500
60. The shareholders’ equity section of Bless Corp’s ba lance sheet at December 31, 2010 was as follows: Ordinary share (P10 par value, authorized 1,000,000 shares issued and outstanding 900,000 shares) Share premium Accumulated Profits and losses Total shareholders' equity
9,000,000 2,700,000 1,300,000 13,000,000
On January 2, 2011, Bless purchased and retired 100,000 shares of its stock for P1,800,000. Immediately after retirement of these 100,000 shares, how much is the balance in the Share Premium and Accumulated Profits? (Share premium 2,400,000; Accumulated Profit 800,000) 2,700,000X1M/9M=300,000; 2,700,000-300,000=2,400,000 800,000-300,000=500,000; 1,300,000-500,000=800,000
61. Salvation Corporation had two issues of securities outstanding – ordinary share and an 8% convertible bond issue with a face amount of P16,000,000. Interest payment dates of the bond issue are June 30 and December 31. The conversion clause in the bond indenture entitles the bondholders to receive forty share of P20 par value ordinary share in exchange for each P1,000 bond. On June 30, 2011, the holders of P2,400,000 face value bonds exercised the conversion privilege. The equity component of the convertible debt at the time of issue is P950,000. The market price of the bonds on that date was P1,100 and the market price of the ordinary share was P35. The total unamortized bond discount at the date of the conversion was P1,000,000. In applying the book value method, what amount should Salvation credit to the “share premium in excess of par’ account as a result of this conversion? (472,500) (16M-1M+950,000)X2.4/16-2,400X40X20 62. On January 1, 2007, Elle Company granted 5,000 share options with a ten-year life to each of ten executives. The share option will vest and become exercisable immediately if and when the company’s share price increases from P50 to P70 and provided that the executives remain in service until the share target is achieved. The company applies the binomial option model, which takes into account the possibility that the target share price will not be achieved. The company estimates that the fair value of the options at grant date is P25 per option. From the option – pricing model, the company determines that the mode of the distribution of possible vesting date is five years. The most likely outcome of the market condition is that the share price target will be achieved at the end of 2011. Therefore, Elle estimates that the expected vesting period is five years. Elle also estimates that two executives will have left by the end of 2011 and therefore expects that 40,000 share options will vest at the end of 2011. Throughout 2007 to 2010, Elle continues to estimate that a total of two executives will leave by end of 2011. However, in total, three executives had left, one each in 2009, 2010 and 2011. Another executive left in 2012 before the share price target is achieved.
What amount of remuneration expense should the company recognize in its December 31, 2011 income statement? (75,000) (7X5,000X25)-(8X5,000X25X4/5) 63. The shareholders’ equity of the Albert co. on June 30, 2011 was as follows: Contributed capital: 5% preference shares,P50 par, cumulative, 30,000 shares issued, dividends 5 years in arrears Ordinary shares, P30 par, 100,000 shares issued Deficits from operations Total shareholders' equity
1,500,000 3,000,000 4,500,000 (600,000) 3,900,000
On July 1, the following actions were taken: a. Ordinary shareholders turned in their old ordinary shares and received in exchange new ordinary shares, 1 share of the new share being exchanged for every 4 shares of the old. New ordinary share was given a stated value of P60 per share. b. One-half share of the new ordinary share was issued on each share of preference share outstanding in liquidation of dividends in arrears on preference share. c. The deficit from operations was applied against the share premium arising from the ordinary share restatement. Transactions for the remainder of 2011 affecting the shareholders’ equity were as follows: October 1 November 10 December 31
10,000 preference shares were called at P55 plus dividends for 3 months at 5%. Share was formally retired. 60,000 new ordinary shares were sold at P65. Net income for the 6 months ended on this date, was P400,000 (Assume that revenues and expenses were closed to a temporary account, Income Summary. Use this account to complete the closing process). The semi-annual dividend was declared on preference shares, and a P0.75 dividend was declared on ordinary shares, dividends being payable January 2, 2012.
What would be the total Shareholders’ Equity as of December 31, 2011? (7,543,750) 3,900,000-(10,000X55)-(10,000X50X5%X3/12)+(60,000X65)+400,000(20,000X50X5%X6/12)-(100,000/4+30,000/2+60,000)X.75 64. In 2010, Wyatt Corporation issued for P110 per share, 15,000 shares of P100 par value convertible preferred stock. One share of preferred stock may be converted into three shares of Wyatt's P25 par value common stock at the option of the preferred shareholder. On December 31, 2011, all of the preferred stock was converted into common stock. The market value of the common stock at the conversion date was P40 per share. What amount should be credited to the common stock account on December 31, 2011? (1,125,000)
3X15,000X25 65. Beldon Co. was organized on January 2, 2014, with the following capital structure: 10 percent cumulative preferred stock, par value P100, and liquidation value P105; issued and outstanding 2,000 shares ........................................ P200,000 Common stock, par value P25; authorized 100,000 shares; issued and outstanding 20,000 shares ................ 500,000 Beldon's net income for the year ended December 31, 2014, was P900,000, but no dividends were declared. Beldon's balance sheet would report Dividends Payable at December 31, 2011, of (-0-)
66. The accounts and balances shown below were gathered from Paynter Corporation's trial balance on December 31, 2011. All adjusting entries have been made. Wages Payable ........................................... Cash .................................................... Mortgage Payable ........................................ Dividends Payable ....................................... Prepaid Rent ............................................ Inventory ............................................... Sinking Fund Assets ..................................... Short-Term Investments .................................. Premium on Bonds Payable ................................ Stock Investment in Subsidiary .......................... Taxes Payable ........................................... Accounts Payable ........................................ Accounts Receivable .....................................
P 25,600 17,700 151,600 14,000 13,600 81,800 52,400 15,200 4,600 102,400 22,800 24,800 36,600
The amount that should be reported as current liabilities on Paynter Corporation's balance sheet is (87,200) 25,600+14,000+22,800+24,800 67. Maryk Electronics Inc. reported the following items on its December 31, 2011, trial balance: Accounts Payable ........................................ Advances to Employees ................................... Unearned Rent Revenue ................................... Estimated Liability Under Warranties .................... Cash Surrender Value of Officers' Life Insurance ........ Bonds Payable ........................................... Discount on Bonds Payable ............................... Trademarks .............................................. The amount that should be recorded on Maryk's balance sheet as total liabilities is? (696,000) 108,900+28,800+25,800+555,000-22,500
P108,900 4,500 28,800 25,800 7,500 555,000 22,500 3,900
68. Eagle Co. prepared a draft of its 2011 balance sheet. The draft statement reported current liabilities totaling P200,000. However, none of the following items were included in this preliminary total at December 31, 2011: Accounts payable ........................................ Bonds payable, due 2012 ................................. Discount on bonds payable, due 2012 ..................... Dividends payable on January 31, 2012 ................... Notes payable, due 2013 .................................
P30,000 50,000 6,000 16,000 40,000
At which amount should Eagle's current liabilities be correctly reported in the December 31, 2011, balance sheet? (290,000) 200,000+30,000+50,000-6,000+16,000 69. The December 31, 2010, balance sheet of Madden Inc., reported total assets of P1,050,000 and total liabilities of P680,000. The following information relates to the year 2011: • • • •
Madden Inc. issued an additional 5,000 shares of common stock at P25 per share on July 1, 2011. Madden Inc. paid dividends totaling P80,000. Net income for 2011 was P110,000. No other changes occurred in stockholders' equity during 2011.
The stockholders' equity section of the December 31, 2011, balance sheet would report a balance of? (525,000) 1,050,000-680,000+(5,000X25)-80,000+110,000 70. Seahawk Company's adjusted trial balance at December 31, 2011, includes the following account balances: Common Stock, P3 par .................................... Additional Paid-In Capital .............................. Treasury Stock, at cost ................................. Net Unrealized Holding Loss on Available-For-Sale Securities ............................................ Retained Earnings--Appropriated for Uninsured Earthquake Losses ................................................ Retained Earnings--Unappropriated .......................
P300,000 400,000 25,000 10,000 75,000 100,000
What amount should Seahawk report as total owners' equity in its December 31, 2011, balance sheet? (840,000) 300,000+400,000-25,000-10,000+75,000+100,000
