COMPREHENSIVE EXAMINATION

Practical Accounting Problem I Page 1 of 13

Comprehensive Examination
In
PRACTICAL ACCOUNTING PROBLEM I

INSTRUCTION: This examination contains fifty (50) multiple-choices examination allocates in

different areas of Financial Accounting and Reporting. Choose the best answer and encircle the
letter. It is good only for three (3) hours. GOOD LUCK!!!

1. Given the following information regarding a companys insurance transactions:

2007 2008
Prepaid insurance (end of year) P 1,000 P 2,000
Insurance payable (end of year) 6,000 4,000
Insurance payments paid in cash (during year) 16,000 10,000

What amount of insurance expense should be shown on 2008 income statement?

a. P13,000 c. P 7,000
b. P10,000 d. P11,000

2. A corporations accounting records provided the following information:

2007 2008
Current assets P 240,000 P ?
Property, plant and equipment 1,600,000 1,500,000
Current liabilities ? 130,000
Long-term liabilities 580,000 ?

All asset and liabilities of the firm are reported in the schedule shown on above. Working
capital of P92,000 remained unchanged from 2007 to 2008. Net income of 2008 was
P88,000. No dividends were declared during 2008 and there were no other changes in equity.
Total long-term liabilities at the end of 2008 would be:
a. P568,000 c. P480,000
b. P616,000 d. P392,000

3. A company reported a net loss of P5,600 in its income statement. Accrued rent revenues that
year amounted to P12,000 and unearned rent revenues were P8,000. Total sales revenues
were P72,000. The expense for the year were:
a. P77,600 c. P65,600
b. P81,600 d. P89,600

4. A corporation had the following account balances on its December 31, 2007, post closing trial
balance:

Ordinary shares P1,000,000

Premium shares 600,000
Premium on preference shares 160,000
Reserve for future plant expansion 200,000
Unappropriated retained earnings 100,000
Bond sinking fund 80,000
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Additional information:
During the year, a P50,000 cash dividend on preferences shares and a P50,000 cash dividend
on ordinary shares was declared.

At December 31, 2007, total equity is

a. P2,140,000 c. P2,040,000
b. P2,060,000 d. P1,940,000

5. A corporation was organized on January 1. At the time, 10,000 ordinary shares were sold and
issued at P10.00 per share each. P20,000 of the proceeds were used to purchase equipment.
The corporation had 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 a severe cash
shortage, the corporation declared a scrip dividend rather than an immediate cash dividend.
If no other transaction occurred which would affect accumulated profits, the corporation
should report on December 31, accumulated profits of:
a. P160,000 c. P60,000
b. P 40,000 d. P20,000

6. On the December 31, balance sheet of a company, current assets were comprised of the
following items:

Cash P140,000
Accounts receivable 243,000
Inventories 120,000
P503,000

An examination of the accounts revealed that accounts receivable was composed of the
following items:

Trade accounts P186,000

Allowance for uncollectible accounts (4,000)
Claims against shipper for goods lost in transit
(November) 6,000
Selling price of unsold goods sent by the
Company on consignment at 125% of cost
(and not included in ending inventory) 55,000
P243,000

What is the correct amount of current assets as of December 31?

a. P503,000 c. P448,000
b. P497,000 d. P492,000

7. The following information is available for Cabral Corporation for the current year:

Sales P500,000
Beginning inventory 180,000
Ending inventory 95,000
Freight-out 45,000
Purchases 215,000
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How much is the cost of good sold?

a. P200,000 c. P345,000
b. P300,000 d. P440,000

8. The Isleta Valley Angels is a minor league basketball team. The team has 60 home games
during a season and sells season tickets for P500 each. For the most recent season, the
Angels sold 2,000 season tickets. The total initial direct cost (in cash) related to the season
tickets (including product giveaways for signing up early, cost of processing the transactions,
and so forth) were P150,000. Direct costs (in cash) are P2 per customer per game. The
teamss fiscal year ends on June 30. As of date, 23 of the home fames have been played.

The journal entry necessary to record the recognition of all season ticket revenues and
expenses for the fiscal year will require
a. a credit to Season Ticket Revenue of P1,000,000.
b. a debit of Unearned Season Ticket Revenue of P383,333.
c. a debit to Deferred Initial Season Ticket Costs of P57,500.
d. a credit to Season Ticket Game Costs of P92,000.

9. When a companys bookkeeper started to prepare the monthly bank reconciliation, the cash
account showed a balance of P528,600. At the end of the month, the following information
was available from the company records and the monthly bank statement:

Customer NSF checks listed on the bank statement P 40,800

Bank service charges listed on the bank statement 2,400
Checks outstanding at the end of the month,
determined by the bookkeeper 178,000
A deposit for P45,000 was recorded incorrectly on
the bank statement as 54,000
The company wrote a check for P1,700 (the correct amount)
but recorded in cash account as 7,100
Customer defaults on accounts receivable were
determined by the bookkeeper to be 12,600

The correct cash balance shown on the bank reconciliation should be:
a. P572,400 c. P581,400
b. P490,800 d. P561,600

10. The following bank reconciliation is presented for the Manarang Company for the month of
November 2007:

Balance per bank statement, 11/30/2007 P18,040

Add: Deposit in Transit 4,150
22,190
Less: Outstanding checks P6,300
Bank credit recorded in error 20 (6,320)
Balance per books, 11/30/2007 P15,870

Data for the month of December 2007 follow:

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Per Bank
December deposits P26,100
December disbursements 22,420
Balance, 12/31/07 21,720

All items that were outstanding as of November 30 cleared through the bank in December,
including the bank credit. In addition, P2,500 in checks were outstanding as of December 31,
2007. What is the balance of cash per books at December 31, 2007?
a. P19,220 c. P21,720
b. P19,240 d. P24,220

11. Boco Companys banks statement for the month of March included the following
information:

Ending balance, March 31 P28,046

Bank service charge for March 130
Interest paid by bank to Boco for March 107

In comparing the bank statement to its own cash records, Sternum found the following:

Deposit made by not yet recorded by the bank P3,689

Checks written and mailed but not yet recorded by the bank 6,530

In addition, Boco discovered that it had erroneously recorded a check for P46 that should
have been recorded for P64. What is Bocos correct Cash balance at March 31?
a. P28,046 c. P28,069
b. P25,205 d. P28,406

12. Pundan Inc. had accounts receivable of P200,000 and an allowance for doubtful accounts of
P8,500. The amortized cost of the accounts receivable was:
a. P191,500 c. P200,000
b. P192,500 d. P208,500

13. Based on the information:

Credit sales P172,000 credit

Collection on accounts receivable during the year 170,000 credit
Cash sales 810,000 credit
Unadjusted balance in Allowance for doubtful accounts 50 debit
Sales return and allowances for credit sales 4,000 debit
Accounts receivable, beginning of the year 14,000 debit

If bad debts are estimated to be 1 % of ending accounts receivable, in the adjusting entry to
recognize bad debts, you would debit bad debt expense for
a. P230 c. P130
b. P190 d. P180

14. On June 11, Barbecho, Inc., accepted a P7,000, 6% 60-day note from a customer. On June
26, the company discounted the note at the bank at 8%. The proceeds amounted to:
a. P7,046.43 b. P6,999,30
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c. P6,976.67 d. P7,000.00

15. The following information pertains to equipment constructed by a firm for its own use. The
construction is finished.

Materials used in construction P400,000

Labor cost during construction 170,000
Fringe benefits on above labor 60,000
Incremental overhead due to construction 80,000
Interest expense on debt during construction;
assume this meets the requirements for
interest capitalization 20,000

The market value of the equipment immediately after the construction was completed was
P650,000. What is the loss on construction incurred by the firm?
a. P0 c. P80,000
b. P60,000 d. P20,000

16. Dancel Associates sold office furniture for cash of P27,000. The accumulated depreciation at
date of sale amounted to P23,000, and a gain of P9,000 was recognized on the sale. The
original cost of the asset must have been
a. P18,000 c. P59,000
b. P41,000 d. P32,000

17. On January 1, 2007, Ola purchased a machine that had a list price of P46,320. Ola paid cash
of P18,000 and executed a one-year non-interest bearing note for the balance. The going rate
of interest was 18 percent. The machine has a 6-year life and no residual value. Depreciation
expense on the SYD basis at the end of 2007 is
a. P 8,092 c. P13,234
b. P12,000 d. P14,690

18. Garces Company acquired a tract of land containing an extractable natural resource. Garces
is required by the purchase contract to restore the land to a condition suitable for recreational
use after it has extracted the natural resource. Geological surveys estimate that the land will
have a value of P1,000,000 after restoration. Relevant cost information follows:

Land P9,000,000
Estimated restoration costs 1,500,000

If Garces maintains no inventories of extracted material, what should be the depletion

expense per ton of extracted material?
a. P2.10 c. P1.80
b. P1.90 d. P1.60

19. On April 1, 2007, Mangundayao Corporation purchased all the assets and assumed all the
liabilities of Monteagudo Company for P140,000 cash. Monteagudos total identifiable asset
values as follows: Monteagudos book value, P200,000; estimated market value, P230,000.
Monteagudos total liabilities were P105,000. The amount of goodwill purchased by
Mangundayao Corporation was
a. P75,000 b. P45,000
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c. P30,000 d. P15,000

20. Lymuel acquired a fast food franchise for a P50,000 cash down payment and in addition gave
a P150,000, one-year, non-interest bearing note payable. The implicit interest rate is 12
percent. Lymuel also agreed to pay the franchiser P100,000 per year for the next 10 years for
promotional campaigns, accounting, and related services by the franchiser. Lymuel should
record the cost of the franchise as
a. P 183,930 c. P 950,000
b. P 933,930 d. P1,183,930

21. We purchased all the outstanding ordinary shares of Diokno Travel Corporation, Diokno has
one asset whose market value exceeds its book value by P10,000. Dioknos Equity is
P80,000. We agreed with Diokno that its excess earnings would last for 10 years and we
were granted a 10% return on our investment. Dioknos average income for negotiation
purposes is P40,000 and the industry average rate of return is 30% on market value of net
assets. Using the present value of excess earnings approach to the calculation of goodwill,
what is the purchase price for Diokno?
a. P335,782 c. P220,000
b. P 79,880 d. P169,889

22. On its December 31, 2007 balance sheet, Montermoso Company appropriately reported a
P2,000 credit balance on its Allowance for Change in Value of Investment. There was no
change during 2008 in the composition of Montermosos portfolio of marketable equity
securities held as available for sale. Pertinent data are as follows

Market value
Securities Cost at 12/31/08
A P60,000 P63,000
B 45,000 40,000
C 80,000 78,000

What amount of loss on these securities should be included in Montermosos income

statement for the year ended December 31, 2008?
a. P0 c. P3,500
b. P1,500 d. P5,500

23. On July 1, 2007, Agnes Company lent P360,000 in a foreign supplier, evidence by an interest
bearing note due on July 1, 2008. The note is denominated in the currency of the borrower
and was equivalent to 2,520,000 local currency units (LCU) on the loan date. The note
principal was appropriately included at P360,000 in the receivables section of Agnes
December 31, 2006 balance sheet. The note principal was repaid to Agnes on the July 1,
2008 due date when the exchange rate was 8 LCU to P1. In its income statement for the year
ended December 31, 2006, what amount should Agnes include as a foreign currency
transaction gain or loss?
a. P0 c. P45,000 gain
b. P45,000 loss d. P105,00 loss

24. Manimtim Foods purchased a P400,000 life insurance policy on the company president. The
premium that was paid on January 1 amounted to P9,600. In the first year, cash surrender
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value increased by P700 and dividend received by Manimtim from the insurance company for
the year amounted to P150. What was the amount of insurance expense for the first year?
a. P 8,750 c. P 9,050
b. P10,150 d. P 8,900

25. Diaz Park has life insurance policies on its officers lives. Annual premiums amount to
P5,000. At the end of 2005, cash surrender value of the policies totalled P18,200. Dividends
received b Diaz from the insurance company amounted to P500 in 2007. The insurance
expense recognized by Diaz Park in 2007 was P3,500. What was the amount of cash
surrender value of these policies on January 1, 2007?
a. P17,200 c. P16,200
b. P14,200 d. P10,200

26. On September 1, 2007, Baldivia Company signed a P7,392, two-year non-interest bearing
note payable in full on August 31, 2009. Baldivia Company received P6,000 cash. What was
the yield or effective rate of interest?
a. 11% c. 18%
b. 14% d. 23%

27. Buno Company pays all salaried employee on a biweekly basis. Overtime pay, is paid in the
next biweekly period. Buno accrues salaries expense only at its December 31 year end. Data
relating to salaries earned in December 2007 are:

Last payroll was paid on December 26, 2007, for the two-week period ended on that day.
Overtime pay earned in the two-week period ended December 26, 2007 was P8,400.
Remaining work days in 2005 were December 29, 30, and 31, on which days there was
no overtime.
The recurring biweekly salaries total P150,000.

Assuming a five-day workweek, Buno should record a liability at December 31, 2007, for
accrued salaries of
a. P45,000 c. P90,000
b. P53,400 d. P98,400

28. Gallardo Company is the defendant in a lawsuit filed by Arceo in 2007 disputing the validity
of a copyright held by Gallardo. At December 31, 2007, Gallardo determined that Arceo
would probably be successful against Gallardo for an estimated amount of P800,000.
Appropriately, an P800,000 loss was accrued by a charge to income for the year ended
December 31, 2007. On December 15, 2008, Gallardo and Arceo agreed to a settlement
providing for cash payment of P500,000 by Gallardo to Arceo and transfer of Gallardos
copyright to Arceo. The carrying amount of copyright on Gallardos accounting record was
P120,000 at December 15, 2008. What would be the effect of the settlement of this liability
on Gallardos income before income tax in 2008.
a. No effect c. P180,000 increase
b. P120,000 decrease d. P300,000 increase

29. The Lambarte Plus Company is affected by the following contingencies at end of 2007:

Lambarte Plus legal counsel has concluded that it is probable that the company will be
required to pay damages of P600,000 in a lawsuit.
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Expropriation of Lambarte Plus foreign assets, valued at P4,000,000, appears reasonably

possible.
Lambarte Plus controller estimates that P40,000 of the companys receivables are likely
to be uncollectible, and will require Lambarte Plus to honor the amounts.
It appears remotely possible that a major customer will be unable to repay a note to
Lambarte Plus for P200,000.

What total amount should Lambarte Plus accrue for loss contingencies in 2007?
a. P 640,000 c. P4,640,000
b. P4,600,000 d. P4,840,000

30. On July 1, 2007, Allyson called for redemption all of its P1,000,000 face amount bonds
payable outstanding at the call price of P105. As of June 30, 2007, the unamortized discount
was P50,000 and the unamortized bond issue cost were P30,000. The market value of the
bond was P1,060,000 on July 1, 2007. Allysons effective income tax rate was 40% for 2007.
In its income statement for the year ended December 31, 2007, what amount should Allyson
report as gain or loss from the bond redemption?
a. P78,000 c. P30,000
b. P60,000 d. P0

31. Legarte owes a P200,000, 10%, five-year note payable dated January 1, 2007. It is the end of
the year 2007, and instead of making the interest payment now due, Legarte has made
arrangements to pay the debt and the 2007 interest payment in four equal annual instalments
based on the same interest rate. The first payment is to be made on January 1, 2008. The
amount of the equal annual payment is (rounded to the nearest peso):
a. P54,000 c. P60,384
b. P57,358 d. P63,094

32. On January 1, 2007, Daniel executed a P40,000, 5-year, 4%, note payable. The interest is
payable each December 31. The market or going interest rate for this debt was 12%. The net
liability that Daniel should record on January 1, 2007 is:
a. P29,820 c. P40,000
b. P28,465 d. P64,000

33. A company became a lessee by leasing equipment on January 1, 2007 from a lessor. The
lease has the following characteristics:

Original Useful life of asset 14 years

Both lessor and lessee uses 10% of lease capitalization
Market value of equipment at lease inception P200,000
Book value of equipment at the lease inception P150,000
Remaining useful life of equipment at inception 10 years
A third party guarantees the entire residual value of P31,887
Six end-of-year lease payments are due beginning
December 31, 2007 in the amount of P 41.788

The lease term ends December 21, 2012. Assume this is a finance lease for both parties.
What is the present value of minimum lease payments for the lessee?
a. P200,000 c. P180,000
b. P181,998 d. P194,566
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34. Dimaano entered into a sales-type lease to lease Asejo an asset that cost Dimaano P120,000.
The lease agreement requires five annual year-end rentals of P40,000 each. Dimaano used a
15% interest rate to compute the rentals. The dealers profit (or loss) that Dimaano
recognized was:
a. P14,086 loss c. P18,000 gain
b. P14,086 gain d. P80,000 gain

35. The following information pertains to Jervy Corporations defined benefit plan for 2007:

Service Cost P160,000

Actual and expected gain on plan assets 35,000
Unexpected increase in PBO incurred during 2005 40,000
Amortization of unrecognized prior service cost 5,000
Annual interest on pension obligation 50,000

What amount should Jervy report as pension expense in its 2007 income statement?
a. P250,000 c. P210,000
b. P220,000 d. P180,000

36. Gunay had pretax accounting income of P1,400 during 2007. Gunay used accelerated
depreciation for tax purposes (P1,000) and straight-line depreciation for financial accounting
purposes (P200). During 2007, Gunay accrued warranty expenses of P1,700 and paid cash to
honor warranties of P500. Gunays taxable income for 2007 would be:
a. P 200 c. P1,800
b. P1,000 d. P2,300

37. Bodie had a P5,400 temporary tax difference resulting using an accelerated depreciation
method for tax purposes at the end of 2007. This temporary difference will reverse equally
during 2008, 2009, 2010. The currently enacted tax rates are: 2007 25%; 2008 30%;
2009 26%; and 2010 25%. The related deferred tax liability at the end of 2007 would be:
a. P1,350 c. P1,431
b. P1,404 d. P1,458

38. The following owners equity section of a firms balance sheet relates to the current year
(end-of-year data):

8%, P100 par cumulative preference shares P10,000

P5 par ordinary shares 40,000
Share Premium preference shares 5,000
Share Premium ordinary shares 20,000
Accumulated profits 60,000
Treasury shares (10,000)
Total Shareholders Equity P125,000

There were 2 years of preference share dividends in arrears as of the beginning of current
year, and the firm uses the cost method to account for treasury shares. If the firm pays the
maximum allowable dividend at the end of the current year, how much do the ordinary
shareholders receive?
a. P57,600 b. P47,600
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Practical Accounting Problem I Page 10 of 13

c. P48,400 d. P36,400

39. The increases in account balances of Jenerson during 2007 are presented below:

Assets P456,000 Share Capital P240,000

Liabilities 148,000 Share Premium 24,000

Assuming the only debit to accumulated profits was for a dividend of P24,000, net income
for 2007 was:
a. P 8,000 c. P 44,000
b. P 68,000 d. P116,000

40. Blessy was incorporated on 1/1/07, with the following authorized capitalization: 20,000
ordinary shares, no par value, stated value P40 per share; and 5,000 shares of 5% cumulative
preferences shares, par value of P10 per share. During 2007, Blessy issued 12,000 ordinary
shares for P500,000 and 3,000 preferences shares at P16 per share. In addition, on 12/20/07,
subscriptions for 1,000 preference shares were taken at P17. These subscribed shares were
paid for on 1/2/08. What amount should Blessy report as total contributed capital on its
12/31/07 balance sheet?
a. P420,000 c. P565,000
b. P548,000 d. P750,000

41. On January 1, 2007, Dennis reported the following shareholders equity:

Ordinary shares, par P300, 40,000 shares

outstanding (market, P350) P120,000
Contributed capital in excess of par, ordinary 8,000
Accumulated profits 205,000

On February 1, 2007, the Board of Directors declared (issued) a 50 percent share dividend.
Then, on December 1, 2007, they approved and implemented a 100 percent share split.
Immediately after the share split was implemented the account balances in shareholders
equity were:
Ordinary Share Accumulated
Shares Premium Profit
a. P190,000 P 8,000 P135,000
b. P 90,000 P18,000 P165,000
c. P180,000 P 8,000 P145,000
d. P 88,000 P 8,000 P177,000

42. At the end of the accounting year, December 31, 2007, Sallans record reflected the
following:

Ordinary shares, no par, 5,000 shares issued, issue price P12 per share.
Preference shares, par P5, 1,000 shares issued and outstanding; issue price, P15 per share.
Unrealized gain, securities available for sale, P18,000.
Accumulated Profits, P20,000 (unappropriated).
Preference shares, par P5, subscribed (not yet issued), 400 shares; subscription price P20
per share.
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Subscription receivables on the preference shares P5,000 to be collected on January 1,

2008.
Reserve for bond sinking fund, P15,000.
Treasury shares, ordinary shares, 1,000 shares, cost P10 per share.

Total shareholders equity is

a. P120,000 c. P125,000
b. P121,000 d. P126,000

43. On January 1, 1991, the Casanova Company purchased for P85,000 a building that was
expected to have a 25-year useful life with no residual value at the end of its useful life. The
straight-line method of depreciation was used. On January 1, 2007, Casanova Company
determined the remaining life of the building was four years, and there was no change in
residual value. What is the balance in the Accumulated Depreciation account at December
31, 2007, assuming that the Casanova Company properly accounted for changes?
a. P62,050 c. P68,809
b. P57,800 d. P72,250

44. The following errors were discovered during March in a company which uses a periodic
inventory system:

January February
Inventory overstated P1,000 P 800
Unearned (collected in advance)
interest revenue not deferred 800 1,200
Accrued salaries payable no recorded 1,600 1,000

As a result of the above errors, reported income before income taxes for the month of
February was
a. understated by P200 c. overstated by P200
b. understated by P400 d. overstated by P400

45. The following condensed income statement of Renz Corporation is presented for the two
years ended December 31,, 2008 and 2007:

2008 2007
Net sales P10,000,000 P9,000,000
Cost of sales 6,000,000 6,000,000
Gross profit P4,000,000 P3,000,000
Operating expenses 2,500,000 2,000,000
Operating income 1,500,000 P1,000,000
Gain on a sale of a segment 900,000
P2,400,000 P1,000,000
Income tax expense 720,000 300,000
Net income P1,680,000 P700,000

On January 1, 2008, Renz entered into an agreement to sell for P2,000,000 one of its separate
operating divisions. The sale resulted in a gain on disposition of P900,000 on November 12,
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Practical Accounting Problem I Page 12 of 13

2008, and qualifies as a discontinued segment. This divisions contribution to Renz reported
net income before income taxes for each year was as follows:

2008 P(700,000) loss

2007 P(400,000) loss

Assume an income tax rate of 30%

In preparation of a revised comparative income statement, Renz should report under the
caption Discontinued Operation for 2008 and 2007, respectively.
a. income of P140,000 and a loss of P280,000.
b. income of P140,000 and a loss of P0.
c. income of P200,000 and a loss of P400,000
d. a loss of P700,000 and a loss of P400,000

46. Reden has five manufacturing divisions, each of which has bee determined to be a reportable
segment. Common costs are appropriately allocated on the basis of each divisions sales in
relation to Redens aggregate sales. Redens Division 1 had 40% of Redens total sales of
P4,000 and traceable cost of P2,400. In 2007, Reden incurred operating expenses of P400
that were not directly traceable to any of the five divisions. In addition, Reden incurred
interest expense of P160 in 2007. In operating supplementary segment information, how
much should be shown as Division 1s operating income for 2007?
a. P1,200 c. P1,440
b. P1,312 d. P1,600

47. The Valix Company uses the accrual basis of accounting. Valix Companys wages expenses
account had a P510,000 balance at the end of the year. The wages payable account had a
P23,000 balance at the beginning of the year and a P45,000 balance at the end of the year.
How much cash was paid for wages during the year?
a. P488,000 c. P532,000
b. P510,000 d. P555,000

48. A corporation has 30,000 ordinary shares outstanding during the year. In addition, there were
compensatory share options to purchase 5,000 ordinary shares at P23 a share outstanding the
entire year. The average market price for the ordinary shares during the year was P36 a share.
The unrecognized compensation cost (net of tax) relating to these option was P4 a share. The
denominator for the diluted earnings per share was
a. 31,250 c. 30,833
b. 35,000 d. 33,750

49. The following information was taken from the accounting records of LCAS Corporation for
2007:

Proceeds from issuance of preferences shares P4,000,000

Dividend paid on preference shares 400,000
Bonds payable converted to ordinary shares 2,000,000
Payment for purchase of machinery 500,000
Proceeds from sale of plant building 1,200,000
2% share dividend on ordinary shares 300,000
Gain on sale of plant building 200,000
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LCAS statement of cash flows for the year ended December 31, 2007 should shown the
following amounts for investing and financing activities, based on the preceding information:
Net Cash Flows From Net Cash Flows From
Investing Activities Financing activities
a. P700,000 P3,600,000
b. P700,000 P3,900,000
c. P900,000 P3,900,000
d. P900,000 P5,600,000

50. On January 1, 2007, Michael Company acquired inventory for P20,000. The inventory
consisted of P10,000 identical units. The current cost of the inventory was P30,000 on July
1, 2007; on the date Michael Company sold three-fourths of the inventory for P28,000. On
December 31, 2007, the current cost of the inventory on hand was P7,500. The CPI-U on
various dates is as follows:

January 1, 2007 110.0

July 1, 2007 121.0
December 31, 2007 133.1

Assume that cost of good sold is Michael Companys only expense and that no purchasing
power gain or loss exists.

The net income for 2005 under current cost/constant peso basis would be
a. P14,100 c. P15,500
b. P14,000 d. P18,000