CPA Review School of the Philippines

Manila
Practical Accounting Problems 1
First Pre-board Examination
Multiple choices: mark fully with pencil no. 2 the letter of your choice on the answer sheet provided.
Make the mark Dark but do not use too much pressure. Erasures are strictly not allowed.
1. On December 31, 2011, the current receivables of Marty company consisted of the following:
Trade accounts receivable
Allowance for uncollectible accounts
Claim against shipper for goods lost in transit (November 2011)
Selling price of unsold goods sent by Marty on Consignment at 125%
Of cost (not included in Martys ending inventory)
Security deposit on lease of warehouse used for storing some inventories

1, 200,000
(100, 000)
50, 000
300, 000
200, 000

What is the correct total of current net receivables on December 31, 2011?
a. 1, 150, 000
b. 1, 390, 000
c. 1, 350, 000
d. 1, 650, 000
2. Farmville company had sales of P2, 500, 000 during December 2011. Experience has shown that
merchandise equalling 6% of sales will be returned within thirty days and an additional 4% will
be returned within ninety days. Returned merchandise is readily resalable in addition
merchandise equalling 15% of sales will be exchanged for merchandise of equal or greater value.
What amount should Farmville report for net sales in its statements of comprehensive income
for the month of December 2011?
a. 2, 125, 000
b. 1, 875, 000
c. 2, 250, 000
d. 2, 025, 000
3. On December 1, 2011, Mandela company gave Mosgov company a P2, 000, 000, 12% loan
Mosgov received proceeds of P1, 940, 000 after the deduction of a P60, 000 non-refundable
loan origination fee. Principal and interest are due in sixty monthly instalments of P44, 500
beginning January 1, 2012. The payment yield an effective interest rate of 12% at a present
value of P2, 000, 000 and 13.4% at a present value of P1, 940, 000. What amount of accrued
interest receivables should Mandela report on December 31, 2011?
a. 20, 000
b. 21, 663
c. 22, 333

d. 19, 400
4. Rogers Company factored P3, 000, 000 of accounts receivable to Musburger company on August
1, 2011. Control was surrendered by Rogers. Musburger accepted the receivables subject to
recourse for non-payment. Musburger assessed a fee of 2% and retains a holdback equal to 5%
of the accounts receivable. In addition. Musburger charged 15% interest computed on a
weighted average time to maturity of the receivables of forty days. The fair value of the
recourse obligation is P300, 000. Assuming all receivables are collected what is the cost of
factoring the receivables?
a. 110, 000
b. 260, 000
c. 259, 315
d. 109, 315
5. Indira Company offers a three year warranty on its product. Indira previously estimated
Warranty cost to the 5% of sales. Due to a technological advancement in production at the
beginning of 2011, Indira now believed 4% of sales to be a better estimate of warranty costs
warranty costs of P300, 000 and P400, 000 were reported n 2009 and 2010 respectively. Sales
for 2011 were P9, 000, 000. What should be reported as warranty expenses for 2011?
a. 360, 000
b. 500, 000
c. 220, 000
d. 450, 000
6. Fidel Company began operations on January 1, 2010 and used the FIFO method of inventory
costing. Management is contemplating a change to the average method to be consistent with
Fidels parent company. The following information has been developed
2010
2011
Ending inventory:
FIFO
150, 000
400, 000
Average
300, 000
200, 000
Income under FIFO
2, 500, 000
3, 000, 000
What is the income after a change to the average method?
a. 3, 200, 000
b. 2, 950, 000
c. 2, 650, 000
d. 3, 050, 000
7. Adolph company provided the following information for 2011:
Gross profit
Cost of goods manufactured

500, 000
2,800, 000

Beginning inventories:
Goods in process

350, 000

Finished goods
520, 000
Ending inventories:
Goods in process
230, 000
Finished goods
150, 000
How much was the amount of sales for 2011?
a. 3, 050, 000
b. 3, 670, 000
c. 3, 790, 000
d. 2, 810, 000
8. Marilyn Company regularly buys sweaters from Marcus Company and is allowed trade discount
of 20% and 10% from the list price. Marilyn made a purchase on March 20 and received an
invoice with a list price of P1, 200, 000 under terms of 2/10, n/30 and a freight charge of P50,
000. Marilyn uses the net method of recording purchases. What is the amount of inventory from
his purchases assuming payment was made on April 1, 2011?
a. P914, 000
b. 890, 000
c. 896, 720
d. 873, 200
9. Ronald Company specializes in the sale of apple accessories and software packages. Ronald had
the following transaction with one of its suppliers:
Purchases of accessories
3, 000, 000
Purchases of software packages
2, 500, 000
Returns and allowances
200, 000
Purchase discounts taken
160, 000
Purchases were made throughout the year on terms 5/10, n/30 all returns and allowances took
place within 5 days of purchases and prior to any payment on the account. What is the amount
of discounts lost for the purchases?
a. 115, 000
b. 105, 000
c. 120, 000
d. 100, 000
10. Edison Company began the year with 500 units of its inventory. The sale price of each unit
varied throughout the month of January. During January, Edison completed the following
inventory transactions:

January

3 purchases
10 sales
14 sales
20 purchase
22 Sale

Unit
200
400
100
400
500

unit cost
P3, 000

unit sale price

P4, 000
4, 200

3, 200
4, 500

30 purchase
200
3, 300
Edison used the periodic average method of inventory costing. What is the total cost of the
beginning inventory if the gross profit in the month of January was P1, 470, 000?
a. P1, 100, 000
b. P1, 210, 000
c. P1, 400, 000
d. P1, 300, 000
11. The following information pertains to Lech company for the current year:
Cash sales
750, 000
Cash collected on accounts receivable 4, 800, 000
Accounts receivables, January 1
400, 000
Accounts receivable, December 31
850, 000
Bad debts written off
100, 000
Purchases
4, 000, 000
Inventory, December 31
620, 000
Gross profit on sales
30%
What was the cost of goods sold for the current year?
a. 3, 640, 000
b. 3, 745, 000
c. 4, 200, 000
d. 4, 270, 000
12. Evington Company sells new equipment with P880, 000 list prices at a mark-up of 20% on selling
price. A dissatisfied customer returned a piece of equipment. Evington Company determined
that the returned equipment can be sold if it is reconditioned. The estimated sales price of the
reconditioned equipment is P800, 000. The reconditions cost is estimated to be P50, 000 and
estimated cost to sell is 10% of the selling price. What is the equipment net realizable value?
a. 742, 000
b. 670, 000
c. 510, 000
d. 566, 000
13. The records for Thurgoods discount store are summarized below for the month of July
Inventory. July 1 at retail P450, 000; at cost P300, 000
Purchases in July-at retail P5, 400; at cost P3, 500, 000; freight in P75, 000
Purchase return-at retail P225, 000; at cost P125, 000; purchase allowance
P25, 000 transfers in from suburb branch-at retail P300, 000; at cost P235, 000
Net mark-ups P675, 000; net markdowns P600, 000
Inventory losses due to normal breakage-at retail P150, 000
Employee discounts-P100, 000 sales P5, 000, 000 sales returns P250, 000; sales
Allowance P50, 000; sales discounts P25, 000

Using the average retail inventory method, what is the estimated cost of sales?
a. 3, 250, 500
b. 3, 151, 500
c. 3, 400, 000
d. 3, 300, 000
14. Information regarding marshal company portfolio of available for sale securities is as follows:
Aggregate cost on December 31, 2011
1, 500, 000
Unrealized gains on December 31, 2011
50, 000
Unrealized losses on December 31, 2011
200, 000
Net realized gains during 2011
70, 000
On December 31, 2010, marshal reported an unrealized loss of P60, 000 in other comprehensive
income to reduce these securities to market value. What amount of unrealized loss on available
for sale securities should be reported as other comprehensive income in the shareholders equity
on December 31, 2011?
a. 200, 000
b. 150, 000
c. 90, 000
d. 80, 000
15. Guevara company statements of comprehensive income for the year ended December 31, 2011
reported income before taxes of P3, 000, 000. The auditor questioned the following amounts
that had been included in income:
Unrealized gain on available for sale investment
Equity in earnings of James Company
Dividends received from James

250, 000
400, 000
150, 000

Guevara owns 30% of James preferences shares but has no interest in ordinary shares, what
should be reported as income before taxes?
a. 2, 750, 000
b. 2,600, 000
c. 2, 350, 000
d. 2, 050, 000
16. On January 1, 2011, Stallone company purchased held to maturity bonds with face value of P5,
000, 000 for P4, 682, 600 including transactions cost of P82, 600 the bonds are purchased to
yield 10% interest. The nominal interest rate on the bonds is 8% payable annually every
December 31. Stallone appropriately used the effective interest method of amortization. The
market value of the bonds on December 31, 2011 is 105. What is the carrying amount of the
investment on December 31, 2011?
a. 4, 750, 860
b. 4, 682, 600
c. 5, 250, 000

d. 4, 614, 340
17. On December 31, 2011. Siefert Company purchased 12, 000 ordinary shares of Alexander
Company with P100 par value for P1, 650, 000 to be held as available for sale. On March 1, 212.
Seifert received a 10% stock dividend from Alexander company. On this date: Alexanders
ordinary share is selling for P140. On June 1, 2012, Seifert sold all the stock dividends that were
received on March 1, 2012 at P150 per share. What is the total amount of income to be
recorded by Seifert in 2012 from its investment in Alexander?
a. 198, 000
b. 183, 000
c. 30, 000
d. 15, 000
18. On July 1, 2011 Aguilera Company purchased bonds with face value of P5, 000, 000 to be held a
available for sale. The entity paid P4, 600, 000 plus transactions cost of P142, 000 and accrued
interest of P150, 000. The bonds pay 6% interest annually on December 31 of each year with an
8% effective yield. The transaction cost was appropriately included in the carrying amount of the
investment while payment for the interest was recorded as interest receivable. The bonds are
quoted at 105 on December 31, 2011. What is the amount of interest that was received on
December 31, 2011?
a. 184, 000
b. 150, 000
c. 300, 900
d. 189, 680
19. Winston Company has seven operating segments, five of which are reportable. A reconciliation
prepared by the chief financial officer with regards to the reportable and not reportable
operating segments is as follows
Reportable operating segments
Sales from external customers
Intersegment sales
Intersegment transfers
Total segment expenses
Total segment asset
Total segment liability
All other segments
Sales from external customers
Intersegment sales
Intersegment transfers
Total segments expenses
Total segment asset
Total segment liabilities

25, 000, 000

5, 000, 000
3, 000, 000
10, 000, 000
75, 000, 000
18, 000, 000

3, 000, 000
500, 000
200, 000
700, 000
5, 000, 000
1, 200, 000

What is the minimum revenue from a customer to qualify as a major customer?

a. 2, 500, 000
b. 2, 800, 000
c. 3, 300, 000
d. 3, 670, 000
20. Benazir Company prepares quarterly interim financial reports, the entity sells it products
through agents who are paid a fixed monthly salary and a commission of 5% that is paid at year
end. Sales for the first quarter were P10, 000, 000.however, in the second quarter the
employees union negotiated that agents commission should be increased to 8% and to be
applied as of the beginning o the current year. Sales in the second quarter were P15, 000, 000.
What would be the sale commission expense charged in the second quarters interim financial
statements?
a. 1, 500, 000
b. 1, 200, 000
c. 1, 700, 000
d. 2, 000, 000
21. On January 1, 2011, Wallace Company acquired 100, 000 ordinary shares of milestones company
for P5, 000, 000 at the time of purchase milestones company had 500, 000 outstanding shares
with a fair value and book value of P25 million for the year ended December 31, 2011. The
following events took place:
Milestone reported net income of P1, 800, 000 for the calendar year 2011
Wallace received from Milestone a dividend of P2.50 per ordinary share
Milestone recognized unrealized gains of P600, 000 on its investment on available for sale
securities as other comprehensive income
Wallace does have significant influence over Milestone. What is the carrying amount of the
investment on December 31, 2011?
a. 4, 500, 000
b. 5, 230, 000
c. 5, 110, 000
d. 5, 000, 000
22. The audit of Benoit Company for the year ended December 31, 2011 was completed on March
1, 2012. The financial statements were signed by the managing director on March 15, 2012 and
approved by the shareholders on March 31, 2012. The following events have occurred before
march 31, 2012:
On January 14, 2012 a customer owing P900, 000 to Benoit Field for Bankruptcy. The
financial statements include an allowance for doubtful debts pertaining to this customer of
P100, 000.
An asset acquired in December 2011 was recorded at a cost of P600, 000. It was determined
on February 15, 2012 that the total cost of asset is P1, 600, 000

Benoit company discovered errors on march 10, 2012 that showed that the correct cash
balance should be P1, 200, 000 instead of the previous balance of P1, 000, 000
A noncurrent asset with a carrying amount of P2, 000, 000 was classified as held for sale on
March 13, 2012. The recoverable amount of the noncurrent asset was determined to be P1,
500, 000.

What is the net increase or net decrease in the total asset to be reported by Benoit Company on
December 31, 2011 as a result of events after the reporting period?
a. 100, 000 decrease
b. 400, 000 increase
c. 1, 100, 000 decrease
d. 300, 000 decrease
23. On December 1, 2011, Landsman Company purchased for P3, 000, 000 a tract of land as a
factory site. Landsman razed an old building on the property and used the materials it salvaged
from the demolition for the new factory. Landsman incurred additional costs and realized
salvage proceeds during December 2011 as follows:
Demolition of old building
Legal fees for purchase contract and recording ownership
Filling, grading and levelling
Title guarantee insurance
Salvaged materials

300, 000
20, 000
50, 000
30, 000
100, 000

What is the total cost of the land?

a. 3, 300, 000
b. 3, 250, 000
c. 3, 400, 000
d. 3, 350, 000
24. Kennedy Company reported an impairment loss of P200, 000 in its statements of comprehensive
income for the year ended December 31, 2010. This loss was related to noncurrent asset which
Kennedy currently used in its operations on the December 31, 2010. Kennedy reported the
noncurrent asset after impairment at P1, 000, 000 and estimated that the noncurrent asset
would be used for another five years regardless whether the impairment was recognized or not.
Kennedy used the straight line depreciation with no residual value. On December 31, 2011.
Kennedy used the straight line depreciation with no impaired noncurrent asset had increase by
P50, 000 over its fair value on December 31, 2010. In the 2011 statements of comprehensive
income. What amount should be reported as gain on the reserve of the impairment loss/
a. 250, 000
b. 160, 000
c. 50, 000
d. 0

25. Mikhail Company started construction of a building on January 1, 2011 and completed
construction on December 31, 2012. Mikhail had two interest bearing notes outstanding during
both years and all of the notes were outstanding for all 12 months of each year. The following
information is available:
8% note (specifically for the project)
2, 000, 000
10% long term note
8, 000, 000
2010 average accumulated expenditures
2010 ending balance in construction in progress
Before capitalization of interest
2010 expenditures which were incurred evenly

2, 800, 000
3, 600, 000
2, 000, 000

What is the total cost of the building on December 31, 2012?

a. 6, 282, 000
b. 5, 600, 000
c. 5, 920, 000
d. 7, 520, 000
26. On January 1, 2011. Truman Company acquired equipment to be used in its manufacturing
operations. The equipment has an estimated useful life of 8 years and an estimated residual
value of P300, 000. The depreciation applicable to his equipment was P900, 000 for 2012
computed under the 200% double declining balance method. What was the acquisition cost of
the equipment?
a. 3, 600, 000
b. 4, 500, 000
c. 4, 800, 000
d. 5, 100, 000
27. Luther Company has recently acquired a computer system for its central office in Makati Luther
provided the following information for the new computer
List price
Trade discount
Removal of old computer
Concrete slab poured as a base for the new computer
Insurance taken during delivery
Repairs incurred while in transit
Transportation cost
Purchase discount available on purchase (not Taken)
Computer software that is an integral part of the system

1, 000, 000
10%
20, 000
30, 000
20, 000
10, 000
50, 000
5%
95, 000

What is the total amount to be capitalized as cost of the computer system?

a. 1, 050, 000
b. 1, 070, 000

c. 1, 060, 000
d. 955, 000
28. Emmeline Companys check book balance on December 31, 2011 was P1, 500, 000. In addition,
Emmeline held the following items in its safe on December 31, 2011?
A post-dated check for P300, 000 from Lydia Company received December 1, 0211 and
dated December 30, 2011 which was not included in the check book balance
An NSF check from Steve Company in the amount of P100, 000 that had been deposited at
the bank on December 15, 2011 but was retuned for lack of sufficient fund on December 28,
2011. The check was redeposited on January 3, 2012. The original deposit has been included
in the December 31 check book balance
Coin and currency on hand amounted to P250, 000
What is the correct amount of cash to be reported on December 31, 2011?
a. 1, 650, 000
b. 2, 050, 000
c. 1, 700, 000
d. 1,950, 000
29. On march 1, 2011, Daniela Company classified anon current asset as held for sale that had a
carrying amount of P1, 500, 000. On this date, the noncurrent asset has a fair value of P1, 400,
000. Estimated disposal cost to be incurred for sale was P50, 000. By December 31, 2011. The
asset had not been sold but the sale is still considered to be highly probable and management
intention to sell has not changed. At the same time. Daniela managers estimated that because
of recent changes for the demand of the noncurrent asset and price increases the noncurrent
asset was now expected to be selling for P1, 600, 000 with the related disposal cost unchanged
at P50, 000. Depreciation from March 1, 2011 to December 31, 2011 was computed at P80, 000.
How much gain from the increase in fair value less cost to sell should be reported in 2011?
a. 150, 000
b. 250, 000
c. 230, 000
d. 200, 000
30. Carson corporation purchased a new machine on January 1, 2012 A P500, 000 down payments
was made and three quarterly instalments of P200, 000 each are to be made beginning on April
1, 2011 the cash price of the new machine would have been P1, 000, 000 if paid in full. Carson
paid no installation charges under the quarterly instalments plan but a P20, 000 installation
charge would have been incurred with a cash purchase. Delivery of P30, 000 was also incurred
with the purchase what is the amount to be capitalized as the cost of the new machine?
a. 1, 030, 000
b. 1, 100, 000
c. 1, 050, 000
d. 1, 150, 000
31. On January 1, 2011, Altidor Company received a 4 year variable interest rate loan of P4, 000, 000
with principal payment at maturity and annual interest payment at the end of each year. The

interest rate of fro 2011 is 10% and the rate in each succeeding year is equal to market interest
rate on January 1 of that year. In connection with the loan. Altidor company entered into an
interest rate swap agreement with another financial institution to the effect that altidor will
receive a swap payment i the interest rate on January 1 is more than 10% will make a swap
payment if the interest rate is less than 10%. The swap payments are made at the end of the
year on December 31. On January 1, 2012, the market rate of interest is 12% and on January 1,
2013, the market rate of interest is 14%.
What is the derivative or liability under the interest swap agreement on December 31, 2012?
(Round off PV factor to two decimal places)
a. 264, 000 asset
b. 264, 000 liability
c. 192, 000 asset
d. 192, 000 liability
32. The total debits and credits in selected accounts of Condor Company after closing entries were
posted on December 31, 2011 are given below:
Debits
credits
Materials
200, 000
800, 000
Goods in process
500, 000
700, 000
Material purchases
2, 000, 000
2, 000, 000
Purchases discount
80, 000
80, 000
Transportation in
150, 000
150, 000
Direct labor
1, 000, 000
1, 000, 000
Manufacturing overhead
500, 000
500, 000
Finished goods
250, 000
700, 000
What was the cost of goods sold for 2011?
a. 4, 820, 000
b. 4, 750, 000
c. 4, 520, 000
d. 4, 450, 000
33. The general ledger trial balance of Armani Company included the following accounts on
December 31, 2011:
Inventory including inventory expected in the ordinary course of
Operations to be sold beyond 12 months amounting to P700, 000
Trade receivables
Prepayments
Listed investment at fair value through profit or loss
Available for sale securities
Cash and cash equivalents
Deferred tax asset

1, 000, 000
1, 200, 000
50, 000
200, 000
800, 000
300, 000
150, 000

Asset of a disposal group

250, 000

What amount should be reported as total current asset on December 31, 2011?
a. 3, 000, 000
b. 2, 750, 000
c. 3, 550, 000
d. 2, 500, 000
34. Bankrupt bank has a 5 year loan receivable with a face value of P2, 000, 000 dated January 1,
2010 from a borrower that is due on December 31, 2014. Interest on the loan is payable at 10%
every December 31. The borrower paid the interest that was due on December 31, 2010 but
informed bankrupt on December 31, 2011 that interest accrued in 2011 and the interest for
2012 will be paid at maturity date. The borrower will also probably miss the two years for
interest payments because of financial difficulty. After that the borrower is expected to pay the
loan and accrued interest in 2011 and 2012 on December 31, 2014.what is the loan impairment
loss to be recognized on December 31, 2011? (round off present value factor to three decimal
places)
a. 97, 200
b. 397, 600
c. 597, 600
d. 197, 600
35. Blake Company used the composite method of depreciation based on a composite rate of 10%
at the beginning of 2011, the total cost of Blakes depreciable asset was P2, 500, 000 with a
total residual value of P300, 000. Accumulated depreciation was P750, 000 on the same date.
During 2011. Blake sold asset with an original cost of P500, 000 an d a residual value of P60, 000
for P150, 000 no gain or loss was recognized on the sale. Asset costing P1, 000, 000 with a
residual value of P120, 000 were also acquired during 2011 to replace asset sold within a year.
What is the balance of the accumulated depreciation on December 31, 2011?
a. 1, 050, 000
b. 664, 000
c. 700, 000
d. 850, 000
36. For the year ended December 31, 2011, Greenberg Company estimated its allowance for
uncollectible accounts using the year end aging of accounts receivable. The following data for
2011 are available:
Allowance for uncollectible accounts 1/1/11
Provision for uncollectible accounts during 2011 (2% on credit sales
Of P25, 000, 000)
Uncollectible accounts written off
Recovery accounts writeen off
Estimated uncollectible accounts per aging 12/13/11

How much doubtful accounts expenses should be reported for 2011?

a. 880, 000
b. 380, 000
c. 180, 000
d. 500, 000
37. Precious Company purchased 10% of an investee 100, 000 outstanding ordinary shares on
January 1, 2011 for P500, 000. On December 31, 2011. Precious purchased an additional 20, 000
shares of the investee for P1, 500,000. There was no goodwill as a result of either acquisition
and the investee had not issued any additional shares during 2011. The investee reported
earnings of P3, 000, 000 for 2011 what is the carrying amount of the investment on December
31, 2011?
a. 1, 700, 000
b. 2, 000, 000
c. 2, 300, 000
d. 2, 900, 000
38. During the current year. Aura Company incurred the following costs:
Research and development services performed by Amor Company for Aura
Design, construction and testing of preproduction prototypes and models
Testing in search for new product or process alternatives

150, 000
200, 000
175, 000

What should be reported as research and development expense?

a. 150, 000
b. 200, 000
c. 350, 000
d. 525, 000
39. Mariel Company acquired a trademark relating to the introduction of a new manufacturing
process. The cost incurred were as follows:
Cost of trademark
Expenditure on promoting the new product
Employee benefits relating to the testing of the proper functioning of the new
Process

3, 500, 000
50, 000
200, 000

What is the total cost that should be capitalized as intangible noncurrent asset in respect of the
new process?
a. 3, 750, 000
b. 3, 700, 000
c. 3, 500, 000
d. 3, 550, 000
40. In 2010, Vanna Company paid P1, 000, 000 to purchase land containing total estimated 160, 000
tons of extractable mineral deposits. The estimated value of the property after the mineral has

been removed is P200, 000. Extraction activities began in 2011 and by the end of the year, 20,
000 tons had been recovered and sold in 2012, geological studies indicated that the total
estimated tons extricable mineral deposits had been underestimated by 60, 000 tons. During
2012, 50, 000 tons were extracted and 48, 000 tons were sold. What is the depletion included in
cost of sales for 2012?
a. 175, 000
b. 168, 000
c. 200, 000
d. 192, 000