TECHNOLOGICAL INSTITUTE OF THE PHILIPPINES

938 Aurora Boulevard, Cubao, Quezon City

ACCOUNTANCY INTEGRATED REVIEW

PRACTICAL ACCOUNTING 1 FIRST PREBOARD EXAMINATION Dec. 12, 2012 3:00-5:00PM

INSTRUCTIONS: Mark with Pencil No. 2 the letter of your choice on the answer sheet provided. Erasures are strictly not allowed. 1. On December 31, 2011, CINDY COMPANYs cash account balance per books of P3,600,000 includes the following: Demand deposit P1,540,000 Time deposit, 30 days 500,000 NSF check from customer 20,000 Trading securities ( due June 30, 2012 ) 1,000,000 Savings deposit ( in a closed bank ) 50,000 IOU from employee 30,000 Pension fund 360,000 Petty cash fund 10,000 Customer check dated January 31, 2012 60,000 Customer check outstanding for 18 months 30,000 P3,600,000 Additional information: Check of P100,000 in payment of accounts payable was dated and recorded on December 31, 2011, but mailed to creditors on January 15, 2012. Check of P50,000 dated January 31, 2012 in payments of accounts payable was recorded and mailed on December 31, 2011. The company uses the calendar year. The cash receipts journal was held open until January 15, 2012, during which time P200,000 was collected and recorded on December 31, 2011. How much is the correct cash & cash equivalents as of December 31, 2011? A. 2,000,000 B. 2,050,000 C. 2,090,000 D. 4,000,000 2. STELLA COMPANYs bank statement for the month of December, 2011 included the following information: December 31, 2011 balance Bank service charge for December Interest credited to the account of Stella by the bank for December P5,600,000 24,000 20,000

In comparing the bank statement to its own records, Stella found the following: Deposits made but not yet recorded by the bank Checks written and mailed to payees but not yet recorded by the bank 700,000 1,300,000

In addition, Stella Company discovered that it had drawn and erroneously recorded a check for P92,000 that should have been recorded at its correct amount of P128,000. The cash balance per ledger is A. 5,000,000 B. 5,040,000 C. 5,080,000 D. 5,600,000

3. The following information was included in the bank reconciliation for FRIDA COMPANY: Checks and charges returned by bank in June, including a P100,000 service charge for June, 2011 Service charge made by the bank in May, 2011 and recorded by Frida in June Total credits to cash in all journals of Frida during June Customers NSF check returned as a bank charge in June ( no entry in Fridas books ) Customers NSF check returned in May and re-deposited in June ( no entry made in the books in either May or June ) Outstanding checks, May 31 The amount of outstanding checks on June 30, 2011 is A. 7,900,000 B. 8,000,000 C. 9,900,000 P16,000,000 200,000 18,000,000 2,000,000 1,000,000 6,000,000 D. 10,900,000

4. ROSENDA COMPANY had the following information for 2011 relating to its accounts receivable: Accounts receivable, January 1 P 2,600,000 Credit sales 10,800,000 Collections from customers, excluding recoveries 9,500,000 Accounts written off 250,000 Collection of accounts written off in prior years ( customer credit was not re-established ) 50,000 Estimated uncollectible receivables per aging at December 31 330,000 The balance of accounts receivable, before allowance for doubtful accounts, on December 31, 2011 is A. 3,650,000 B. 3,700,000 C. 3,900,000 D. 3,980,000 For questions 5 to 6 JANE BANK loaned P18,000,000 to a borrower on January 1, 2009. The terms of the loan were payment in full on January 1, 2014, plus annual interest payment at 12%. The interest payment was made as scheduled on January 1, 2010. However, due to financial setbacks, the borrower was unable to make its 2011 interest payment. Jane considered the loan impaired and projected the cash flows from the loan on December 31, 2011. The bank has accrued the interest on December 31, 2010, but did not continue to accrue interest for 2011 due to the impairment of the loan. The projected cash flows are: Date of Cash Flow December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 Amount Projected on 12/31/2011 P3,000,000 4,000,000 5,000,000 6,000,000

5. The loan impairment loss to be recognized on December 31, 2011 is

A.

4,740,000

B. 4,900,000

C. 6,900,000

D. 13,260,000

6. The interest income to be reported by Jane Bank in 2012 is A. 0 B. 360,000 C. 1,591,200 D. 1,800,000 7. ESTER CORPORATIONs accounting records indicated the following information for 2011: Inventory, January 1 P1,300,000 Purchases 4,600,000 Purchase returns 160,000 Freight in 120,000 Sales 6,800,000 Sales discounts 40,000 Sales returns 60,000 A physical inventory taken on December 31, 2011 resulted in an ending inventory of P840,000. Esters gross profit on sales has remained constant at 30% in recent years. Ester suspects some inventories may have been taken by a new employee. On December 31, 2011, the estimated cost of the missing inventory is A. 302,000 B. 330,000 C. 840,000 D. 1,170,000 8. CLAIRE COMPANYs inventory records showed the following information on December 31, 2011: Cost Retail Inventory, January 1 P 560,000 P 1,400,000 Sales 10,000,000 Purchases 4,960,000 10,320,000 Freight in 150,000 Markup 1,000,000 Markup cancellation 120,000 Markdown 500,000 Markdown cancellation 100,000 Estimated normal shrinkage is 2% of sales. The estimated cost of inventory on December 31, 2011 at approximate lower of average cost or market retail is A. 900,000 B. 920,000 C. 990,000 D. 1,012,000 9. On January 2, 2011, ALEX COMPANY purchased marketable security securities to be held as trading for P5,000,000. The entity also paid commissions, taxes and other transportation costs amounting to P200,000. The securities had a market value of P5,400,000 on December 31, 2011. No securities were disposed of during the year. The unrealized gain/(loss) to be reported in the 2011 income statement is A. 400,000 B. (400,000) C. 600,000 D. (600,000) 10. On January 2, 2011, RANDY COMPANY acquired P8,000,000 of 12% face value bonds for P7,534,000 to be held as financial assets at amortized cost with a 14% effective yield. Interest on bonds is payable annually on December 31 and the bonds mature on January 1, 2015. The effective interest method of amortization is used. The carrying value of the investment on December 31, 2011 is A. 7,534,000 B. 7,439,240 C. 7,628,760 D. 8,000,000

11. MANTRADE COMPANY purchased 50,000 ordinary shares of Chris Company on March 1, 2011 for P720,000. Mantrade received a P150,000 cash dividend from Chris on July 1, 2011. Chris declared a 10% stock dividend on December 1, 2011 to shareholders of record as of December 31, 2011. The dividends were distributed on January 31, 2012. The market prices of the share were P38 on December 1, 2011, P40 on December 31, 2011, and P42 on January 31, 2012. The amount of Mantrades dividend income for 2011 is A. 150,000 B. 176,000 C. 180,000 D. 184,000

12. During 2010, PALAWAN COMPANY bought the shares of Burd Company as follows: June 1 20,000 shares @ P100 P2,000,000 Dec. 1 30,000 shares @ P120 3,600,000 Transactions for 2011 are as follows: Jan. 10 Jan. 20 Dec. 10 Received a cash dividend of P10 per share. Received a 20% stock dividend. Sold 30,000 shares at P130 per share

Using FIFO approach, the gain on sale of the investment on December 10 is A. 300,000 B. 700,000 C. 1,150,000 D. 1,300,000 13. On July 1, 2010, BARRY COMPANY purchased 20% of the outstanding ordinary shares of Asia Company for P6,000,000, when the fair value of Asias net assets was P30,000,000. Barkley has the ability to exercise significant influence over the operating and financial policies of Asia. The following data are available for 2011. 12 months ended 6 months ended Net income P4,500,000 P2,400,000 Dividends declared/paid 2,850,000 1,500,000 In its 2011 income statement, the income to be reported by Barry from this investment is A. 300,000 B. 480,000 C. 500,000 D. 900,000 14. On January 2, 2007, BART CORPORATION purchased a P10,000,000 ordinary life insurance policy for its president. The policy year and the companys accounting year coincide. Additional data are available for the year ended December 31, 2011: Cash surrender value, January 1 P500,000 Cash surrender value, December 31 540,000 Annual advanced premium paid, January 2 200,000 Dividends received, July 1 30,000 Bart is the beneficiary under the policy. The president died on January 3, 2012 after the payment of annual premium of P200,000 on January 2, 2012. How much is the life insurance expense for 2011? A. 130,000 B. 160,000 C. 180,000 D. 200,000

15. SONIA COMPANY owns three properties which are classified as investment properties. Details of the properties are as follows: Fair Value Fair Value Initial Cost 12/31/2010 12/31/2011 Property I P2,700,000 P3,200,000 P3,500,000 Property 2 3,450,000 3,050,000 2,850,000 Property 3 3,300,000 3,850,000 3,600,000 Each property was acquired in 2007 with a useful life of 25 years. The entitys accounting policy is to use the fair value model for investment properties. The gain or loss to be recognized by Sonia for the year ended Dec. 31, 2011 is A. 150,000 loss B. 189,000 loss C. 300,000 gain D. 450,000 loss 16. On August 1, 2011, ARAMCO COMPANY purchased a new machine on a deferred payment basis. A down payment of P200,000 was made and 4 monthly installments of P500,000 each are to be made beginning September 1, 2011. The cash equivalent price of the machine was P1,900,000. Aramco incurred and paid installation costs amounting to P60,000. The capitalized cost of the machine is A. 1,900,000 B. 1,960,000 C. 2,200,000 D. 2,260,000

17. On April 1, 2011, DOROTHY COMPANY purchased new machinery for P3,000,000. The machinery has an estimated useful life of 5 years and depreciation is computed by the SYD method. The accumulated depreciation of the machinery n March 31, 2013 is A. 1,000,000 B. 1,200,000 C. 1,800,000 D. 1,920,000 18. In January 2011, OLIVA COMPANY purchased a mineral mine for P52,800,000 with removable ore estimated at 1,200,000 tons. After it has extracted all the ore, Oliva is required by law to restore the land to its original condition at a discounted amount of P3,600,000. Oliva believed it will be able to sell the property afterwards for P6,000,000. During 2011, Oliva incurred P7,200,000 of development costs preparing the mine for production and removed and sold 60,000 tons of ore. In its 2011 income statement, Oliva is to report depletion expense of A.2,700,000 B. 2,880,000 C. 3,000,000 D. 3,180,000 19. The account balance relating to property, plant, & equipment of AA COMPANY on January 1, 2011 are as follows: Land P 4,000,000 Building 30,000,000 Accumulated depreciation building 7,500,000 Machinery 6,000,000 Accumulated depreciation machinery 3,000,000 Assets have been carried at cost since their acquisition. All assets were acquired on January 1, 2006. The straight line method is used. On January 1, 2011, the entity decided to show PPE at revalued amount. On such date, competent appraisers submitted the replacement costs for the following : Land P10,000,000 Building 50,000,000 Machinery 10,000,000

The revaluation surplus on the date of revaluation is A. 17,000,000 B. 23,000,000 C. 30,000,000

D. 60,000,000

20. On January 2, 2011, GG COMPANY owned a machine having a carrying value of P4,800,000. The machine was purchased 4 years earlier for P8,000,000. GG uses straight line depreciation. During December, 2011, GG determined that the machine suffered permanent impairment of its operational value and will not be economically useful in its production process after December 31, 2011. GG sold the machine for P1,300,000 on January 4, 2012. In the income statement for the year ended December 31, 2011, what amount should be recognized as impairment loss? A. 0 B. 2,700,000 C. 3,500,000 D. 4,000,000 21. The following bank reconciliation is presented for Puma Company for the month of November of the current year: Balance per bank statement, Nov. 30 Add: Deposit-in-transit Less: Outstanding checks P2,400,000 Bank credit recorded in error 400,000 Balance per books P7,200,000 1,600,000 P8,800,000

2,800,000 P6,000,000 ======== Data per bank statement for the month of December are as follows: December deposits ( including note collected of P2,000,000 for Puma ) December disbursements ( including NSF check of P700,000 and service charge of P100,000 ) P11,000,000 8,800,000

All items that were outstanding as of November 30 cleared through the bank in December, including the bank credit. In addition, P1,000,000 in checks were outstanding and deposits of P1,400,000 were in transit as of December 31. The balance per ledger on December 31 is A. 8,200,000 B. 8,600,000 C. 9,400,000 D. 9,800,000

22. Rodriguez Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities. The total cots of 5,000 pounds of the metal held in inventory is P150,000. the total selling price is P350,000, and estimated cost of disposal is P5,000. At what amount should the inventory of 5,000 pounds be reported in the statement of financial position? A. 145,000 B. 150,000 C. 345,000 D. 350,000 23. On the night of June 30, 2011, a fire destroyed most of the merchandise inventory of Prieto Company. All goods were completely destroyed except for partially damaged goods that normally sell for P200,000 and that had an estimated net realizable value of P50,000 and undamaged goods that normally sell for P500,000. Inventory, January 1, 2011 Net purchase, January 1 to June 30, 2011 Net sales, January 1 to June 30, 2011 P 700,000 4,300,000 5,200,000

2008 2009 2010

Net Sales P1,000,000 3,000,000 5,000,000

Cost of Sales P 700,000 2,200,000 3,850,000 C. 675,000 D. 750,000

What is the estimated amount of fire loss? A. 550,000 B. 650,000

24. Goren Corporation has the following amounts, all at retail prices: Beginning inventory P3,600 Purchase returns 6,000 Abnormal shortage 4,000 Sales 72,000 Employee discounts 1,600 Purchases Net markups Net markdowns Sales returns Normal shortage P100,000 18,000 2,800 1,800 2,600 D. 38,400

What is Goren;s ending inventory at retail? A. 34,400 B. 36,000 C. 37,600

25. Confectioners Inc. a chain of candy stores, purchase its candy in bulk from its suppliers. For a recent shipment, the company paid P3,000 and received 8,500 pieces of candy that are allocated among three groups. Group 1 consists of 2,500 pieces that are expected to sell for P0.25 each; Group 2 consists of 5,500 pieces that are expected to sell for P0.60 each; and Group 3 consists of 500 pieces that are expected to sell for P1.20 each. Using the relative sales value method, what is the cost per item in Group 1? A. 0.0375 B. 0.166 C. 0.200 D. 0.250 26. Debbie Company has reported the following investments before the preparation of its December 31, 2011 statement of financial position: Equity investments, to profit or loss P 500,000 Equity investments, to other comprehensive income 2,500,000 Debt investments, to other comprehensive income 3,500,000 Debt investments, at amortized cost 4,000,000 Included in the debt investments at amortized cost is a convertible bonds acquired by the entity of P2,000,000 ( which has been separated with the conversion option ) has current fair value of P2,400,000 on December 31, 2011. What amount of investment, in other comprehensive income, should the company report in its December 31, 2011 statement of financial position? A. 2,500,000 B. 3,500,000 C. 6,000,000 D. 8,400,00 27. During 2010, Rex Company purchased marketable equity securities as short-term investment to be measured at fair value thru other comprehensive income. The cost and market values at December 31, 2010 were as follows: Security A ( 1,000 shares ) B ( 10,000 shares ) C ( 20,000 shares ) Cost P 300,000 1,700,000 3,150,000 Market Value P 350,000 1,550,000 2,950,000

Rex sold 10,000 shares of Company B on January 4, 2011 for P150 per share, incurring P50,000 in brokerage commission and taxes.

The loss on sale of the equity securities is A. 50,000 B. 100,000

C. 200,000

D. 250,000

28. Hardin Company received P40,000 in cash and a used computer with a fair value of P120,000 from Page Corporation for Hardins existing computer having a fair value of P160,000and an undepreciated cost of P150,000. The transaction has no commercial substance. How much gain should Hardin recognize on this exchange, and at what amount should the acquired computer be recorded, respectively? A. 0 and 110,000 C. 10,000 and 120,000 B. 769 and 110,769 D. 40,000 and 150,000 29. Storm Corporation purchased a new machine on October 31, 2011. A P1,200 down payment was made and three monthly installments of P3,600 each are to be made beginning November 30, 2011. The cash price of the machine should have been P11,600. Storm paid no installation charges under the monthly payment plan., but a P200 installation charge would have been incurred with a cash purchase. The amount to be capitalized as the cost of the machine on October 31, 2011 is A. 11,600 B. 11,800 C. 12,000 D. 12,200 30. SR Company purchased a machine on December 1, 2010 at an invoice price of P4,500,000 with terms 2/10, n/30. On December 10, 2010, SR paid the required amount for the machine. On December 1, 2010, SR paid 80,000 for the delivery of the machine and on December 31, 2010, it paid 310,000 for the installation and testing of the machine. The machine was ready for use on January 1, 2011. It was estimated that the machine would have a residual value of 5 years, and a residual value of P800,000. Engineering estimates indicated that the useful life in productive units was 200,000. Units actually produced during the first 2 years were 30,000 in 2011 and 48,000 in 2012. SR decided to use the output method of depreciation. The depreciation of the machine for 2011 is A.600,000 B. 720,000 C. 960,000 END OF EXAMINATION, GOOD LUCK D. 1,560,000

KEY ANSWERS PRAC 1 FIRST PREBOARD EXAMINATION December 12, 2012 1. A 2. B 3. C 4. A 5. C 6. C 7. A 8. B 9. A 10.C 11.A 12.D 13.B 14.A 15.A 16.B 17.C 18.B 19.B 20.B 21.B 22.C 23.C 24.A 25.B 26.D 27.B 28.A 29.B 30.A