CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING PREWEEK LECTURE
1. Aye Company provided the following trial balance on December 31, 2021 which has been adjusted
except for income tax expense:
Cash 3,600,000
Accounts receivable, net of allowance doubtful accounts 3,500,000
Cost in excess of billings on long-term contracts 1,500,000
Billings in excess of cost on long-term contracts 700,000
Prepaid taxes 800,000
Property, plant and equipment, net 4,000,000
Note payable – 6% due June 30, 2022 1,500,000
Note payable – 8% due October 31, 2022 2,000,000
Share capital 2,000,000
Share premium 800,000
Retained earnings unappropriated 1,400,000
Retained earnings restricted 1,000,000
Earnings from long-term contracts 9,000,000
Costs and expenses 5,000,000
During the current year, estimated tax payments of P800,000 were charged to prepaid taxes. The
entity has not recorded income tax expense. The income tax rate is 25%. The 6%, note payable was
refinanced on January 31, 2022 before the issuance of the 2021 financial statements on a long-term
basis. On December 31, 2021, the entity had an existing right to defer the settlement of the 8% note
payable on a long-term basis.
1. What amount should Aye report as current assets?
a. 9,400,000
b. 7,900,000
c. 7,100,000
d. 8,600,000
2. What amount should Aye report as current liabilities?
a. 2,200,000
b. 1,700,000
c. 2,400,000
d. 4,200,000
3. What amount should Aye report as retained earnings on December 31, 2021?
a. 5,400,000
b. 6,400,000
c. 4,400,000
d. 2,400,000
2. Brite Company provided the following information on December 31, 2021:
Accounts payable 550,000
Note payable, 8% unsecured, due July 1, 2023 1,000,000
Accrued expenses 350,000
Contingent liability 450,000
Deferred tax liability 250,000
Bonds payable, 7%, due March 31, 2022 5,000,000
Premium on bonds payable 500,000
The contingent liability is an accrual for possible loss on a P1,000,000 lawsuit filed against the entity.
The legal counsel expects the suit to be settled in 2022 and has estimated that the entity will be liable
for damages in the range of P450,000 to P750,000. The deferred tax liability is not related to an asset
for financial reporting and is expected to reverse in 2022. What amount should be reported as current
liabilities on December 31, 2021?
a. 4,900,000
b. 5,350,000
c. 6,400,000
d. 6,850,000

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3. Dee Company made the following remuneration and other payments to the chief executive officer
during the current year:
Annual salary 2,000,000
Share options and other share-based payments 1,000,000
Contributions to retirement benefit plan 500,000
Reimbursement of travel expenses for business trips 1,200,000
What should be disclosed by Dee as compensation to key management personnel?
a. 3,500,000
b. 4,700,000
c. 3,000,000
d. 2,500,000

4. During 2021, Marian Company was sued by a competitor for P5,000,000 for infringement of a patent.
Based on the advice of the legal counsel, the entity accrued the sum of P3,000,000 as provision on
December 31, 2021. Subsequently, on March 15, 2022, the Supreme Court decided in favor of the
party alleging infringement of the patent and ordered the defendant to pay the aggrieved party a sum
of P4,000,000. The financial statements were prepared by management on February 15, 2022 and
approved by the board of directors on March 31, 2022. What amount should be adjusted on December
31, 2021 in relation to this event?
a. 1,500,000
b. 3,000,000
c. 1,000,000
d. 4,000,000

5. Sarita Company provided the following information on December 31, 2021:

Credit memo for November recorded in December 600,000
Credit memo for December not yet recorded 800,000
Deposit in transit – December 31 1,500,000
Erroneous bank charge in December corrected by bank in December 200,000
Erroneous receipt by Sarita in December not corrected until the following year 100,000
Total company receipts for December 8,500,000
Total bank credits in December 8,000,000
What is the deposit in transit on November 30, 2021?
a. 600,000
b. 500,000
c. 700,000
d. 900,000

6. Jimena Company provided the following information for October and November:
Checks and charges recorded by bank in November, including a November service
charge of P5,000 and NSF customer check of P20,000 550,000
Service charge made by bank in October and recorded by depositor in November 10,000
Total credits to cash in all journals during November 620,000
Customer NSF check returned in October and redeposited in November but no entry
made by depositor in either October or November 40,000
Outstanding checks on October 31 that cleared in November 230,000
What is the amount of outstanding checks on November 30?
a. 275,000
b. 300,000
c. 315,000
d. 290,000

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7. Norma Company provided the following information on December 31, 2021:

Checking account at Bank A (overdraft) ( 500,000)
Checking account at Bank B 3,000,000
Employee’s postdated check 120,000
Foreign bank account unrestricted and in equivalent pesos 2,500,000
IOU from company president 500,000
Money order 250,000
NSF customer check 100,000
Payroll account 1,000,000
Petty cash fund, expense receipts P40,000 50,000
Postage stamps 10,000
Traveler’s check 600,000
Treasury bonds 500,000
Value added tax account 1,500,000
What amount should be reported as unrestricted cash on December 31, 2021?
a. 9,360,000
b. 8,900,000
c. 8,860,000
d. 7,360,000

8. On December 1, 2021, Violet Company established a petty cash fund of P50,000. On December 31,
2021, the petty cash fund was examined and revealed expenses amounting to P46,000. In addition,
there was cash amounting to P6,000. What entry should Violet make on December 31, 2021 to record
the replenishment of petty cash fund?
a. Debit petty cash and credit cash P46,000
b. Debit expenses and credit cash P46,000
c. Debit expenses P46,000 and credit cash P44,000, credit cash short or over P2,000
d. Debit petty cash and credit cash P44,000

9. Security Bank granted a 10-year loan to borrower in the amount of P1,500,000 with stated interest
rate of 6%. Payments are due monthly and are computed to be P16,650. The bank incurred P40,000
direct loan origination cost and P20,000 of indirect loan origination cost. The bank charged the
borrower a 4-point nonrefundable loan origination fee.
1. What is the carrying amount of the loan receivable to be reported initially by Security Bank?
a. 1,440,000
b. 1,480,000
c. 1,500,000
d. 1,550,000
2. What is the carrying amount of the loan payable to be reported initially by the borrower?
a. 1,500,000
b. 1,440,000
c. 1,560,000
d. 1,590,000

10. Ruth Company used the net price method of accounting for cash discounts. In one of its transactions
on December 26, 2021, the entity sold merchandise with a list price of P5,000,000 to a customer who
was given a trade discount of 20%, 10% and 5%. Credit terms were 2/10, n/30. The goods were
shipped FOB destination, freight collect. Total freight charge paid by the customer was P125,000.
On December 27, 2021, the client returned damaged goods originally billed at P500,000. What is the
net realizable value of the accounts receivable on December 31, 2021?
a. 2,861,600
b. 2,920,000
c. 2,736,600
d. 3,351,600

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11. Sky Company provided the following information at year-end:

2022 2021
Accounts receivable 880,000 800,000
Allowance for doubtful accounts ( 10,000) ( 15,000)
Allowance for sales returns ( 20,000) ( 25,000)
Net realizable value 850,000 760,000
The entity reported doubtful accounts expense in 2022 of P30,000 and had products returned for
credits totaling P15,000 at sales price. Gross sales for 2022 amounted to P6,150,000. What amount
was collected from customers during 2022?
a. 6,035,000
b. 6,070,000
c. 6,020,000
d. 6,100,000

12. Green Company reported accounts payable on December 31, 2021 at P900,000 before any necessary
year-end adjustments relating to the following:
• Goods were in transit from a vendor on December 31, 2021. The invoice cost was P50,000, and the
goods were shipped FOB shipping point on December 29, 2021. The goods were received on January
4, 2022.
• Goods shipped FOB shipping point on December 20, 2021 from a vendor were lost in transit. The
invoice cost was P25,000. On January 5, 2022, the entity filed a P25,000 claim against the common
carrier.
• Goods shipped FOB destination on December 21, 2021 from a vendor were received on January 6,
2022. The invoice cost was P15,000.
What amount should Green Company report as accounts payable on December 31, 2021?
a. 925,000
b. 940,000
c. 950,000
d. 975,000

13. During a move to a new location, the inventory records of East Company were misplaced. The
bookkeeper has been able to gather some data for the July purchases.
Units Unit cost Total cost
July 5 10,000 65 650,000
10 12,000 70 840,000
15 15,000 60 900,000
25 14,000 55 770,000
On July 31, 17,000 units were on hand. The sales for July amounted to P6,000,000 or 60,000 units
at P100 per unit at 40% gross profit. The entity used a perpetual FIFO inventory costing. What
amount was reported as cost of inventory by East on July 1?
a. 1,390,000
b. 2,400,000
c. 900,000
d. 760,000

14. On July 1, 2021, Loveluck Company, a manufacturer of office furniture, supplied goods to Kaye
Company for P1,200,000 on condition that this amount is paid in full on July 1, 2022. Kaye Company
had earlier rejected an alternative offer from Loveluck Company whereby it could have bought the
same goods by paying cash of P1,080,000 on July 1, 2021. What amount should Loveluck Company
recognize as sales revenue on July 1, 2021 and interest income for 2021 respectively?
a. 1,080,000 and 120,000
b. 1,200,000 and 0
c. 1,080,000 and 60,000
d. 1,200,000 and 120,000

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15. On July 1, 2021, Blue Company handed over to a client a new computer system. The contract price
for both the supply of the system and after sales support for 12 months was P800,000. The entity
estimated the cost of the after-sales support at P120,000 and it marked up such cost by 50% when
tendering for support contracts. What amount of total revenue should Blue Company recognize for
2021?
a. 620,000
b. 800,000
c. 710,000
d. 0
16. On December 15, 2021, Orange Company sold 20,000 units at P250 per unit or a total of P5,000,000.
The entity granted the customers a right to return within 30 days if not satisfied and will receive
either a full refund if cash was already paid or a full credit for the amount owed to the entity. It
estimated that 6% of the units sold will be returned within 30-day period. The cost for each unit is
P175. The entity uses the perpetual method.
1. What amount of sales revenue should Orange Company recognize on December 15, 2021?
a. 4,700,000
b. 5,000,000
c. 2,500,000
d. 0
2. What amount should Orange Company recognize as refund liability on December 15, 2021?
a. 300,000
b. 150,000
c. 100,000
d. 0
17. Eva Company regularly buys shirts and is allowed trade discount of 20% and 10% from the list price.
The entity purchased shirts on December 31, 2021 and received an invoice with a list price of
P5,000,000 and payment terms of 2/10, n/30. The entity paid freight charge of P100,000 and used
the net method to record purchases. What amount should be recorded as cost of purchases?
a. 3,528,000
b. 3,628,000
c. 3,428,000
d. 3,600,000
18. Aroma Company insured the life of its president for P5,000,000. The entity is beneficiary of the
ordinary insurance policy. The premium is P300,000. The policy is dated January 1, 2017. The cash
surrender values on December 31, 2020 and 2021 are P100,000 and P120,000, respectively. The
entity follows the calendar year. The president died on October 1, 2021 and the policy was collected
on December 31, 2021. No premium was refunded on the insurance settlement. What amount should
Aroma report as gain on life insurance settlement?
a. 4,825,000
b. 4,805,000
c. 4,660,000
d. 4,900,000
19. On January 1, 2021, Santana Company purchased equity securities to be held at fair value through
other comprehensive income. On December 31, 2021, the cost and market value were:
Cost Market
Security X 2,000,000 2,400,000
Security Y 3,000,000 3,500,000
Security Z 5,000,000 4,900,000
On December 31, 2022, the entity sold Security X for P2,500,000. What amount should Santana
recognize directly in retained earnings as a result of sale of financial asset in 2022?
a. 500,000
b. 100,000
c. 400,000
d. 0
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20. Rainbow Company acquired 40% of an investee on January 1, 2021 for P15,000,000. The investee’s
assets and liabilities at that date were:
Carrying amount Fair value
Cash 1,000,000 1,000,000
Accounts receivable 4,000,000 4,000,000
Inventory – FIFO 8,000,000 9,000,000
Land 5,500,000 7,000,000
Plant and equipment – net 14,000,000 22,000,000
Liabilities 7,000,000 7,000,000
The plant and equipment have a 10-year remaining useful life. The inventory was all sold in 2022.
The entity sold the land in 2021 for P8,000,000 and reported a gain of P2,500,000. The investee
reported net income of P9,000,000 for 2021 and paid P2,000,000 cash dividend on December 31,
2021.
1. What amount should Rainbow report as investment income for 2021?
a. 2,680,000
b. 3,000,000
c. 3,280,000
d. 3,080,000
2. What is the carrying amount of the investment in associate on December 31, 2021?
a. 16,880,000
b. 17,600,000
c. 18,080,000
d. 17,680,000
21. On January 1, 2021, Moon Company purchased a large quantity of personal computers. The cost of
these computers was P6,000,000. On the date of purchase, the management estimated that the
computers would last approximately 4 years and would have a residual value of P600,000. The entity
used the double declining balance method. During January 2022, the management realized that
technological advancements had made the computers virtually obsolete and that they would have to
be replaced. The residual value did not change. Management proposed changing the remaining life
of the computers to 2 years. What amount should Moon report a depreciation for 2022?
a. 3,000,000
b. 2,400,000
c. 1,500,000
d. 1,200,000
22. At the beginning of the current year, West Company purchased two machines for P1,000,000 each.
The machines were put into use immediately. Machine A has useful life 5 years and can be used only
in one research project. Machine B will be used for 2 years on a research and development project
and then used by the production division for an additional 8 years. The entity used the straight line
method of depreciation. What amount should West recognize as research and development expense
for the current year?
a. 2,000,000
b. 1,500,000
c. 1,100,000
d. 1,200,000
23. On January 1, 2021, Kent Company purchased a machine for P5,000,000. The entity paid shipping
expenses P50,000 as well as installation cost of P120,000. The machine was estimated to have useful
life of 10 years, an estimated residual value of P300,000 and the straight line method is used. In
January 2022, additions costing P360,000 were made to the machine in order to comply with
pollution control ordinances. These additions neither prolonged the life of the machine nor did they
have any residual value. What amount should Kent record as depreciation for 2022?
a. 557,000
b. 517,000
c. 487,000
d. 527,000

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24. Libia Company reported an impairment loss of P3,000,000 in 2021. This loss was related to an
equipment acquired on January 1, 2017 for P20,000,000 with no residual value. Straight line
depreciation was recorded at P1,000,000 until 2021. Depreciation for 2022 was computed based on
the recoverable amount of the equipment on December 21, 2021. The entity decided to measure the
equipment using the revaluation model on December 31, 2023. On such date, the asset had a fair
value of P18,000,000.
1. What amount of gain on reversal of impairment should be recognized in 2023?
a. 1,000,000
b. 7,600,000
c. 2,600,000
d. 0
2. What amount of revaluation surplus should be recognized in 2023?
a. 5,000,000
b. 3,000,000
c. 2,000,000
d. 0
25. Riverdale Company commenced construction of a building on March 1, 2021. The construction was
completed on September 1, 2021. The cost of the building P30,000,000 was paid in full to the
contractor on March 1, 2021. The entity had outstanding during 2021 P16,000,000 note payable
bearing interest at 10% and P20,000,000 note payable bearing interest at 5.5%. None of the
borrowings were specified for the construction of the building. What amount of interest should be
capitalized for 2021?
a. 1,125,000
b. 2,250,000
c. 2,700,000
d. 1,350,000
26. Gabriela Company made the following expenditures relating to a certain product development:
Legal cost to file a patent on the product. Production of the finished product
would not have been undertaken without patent 100,000
Special equipment to be used solely for development of the product. The
equipment has no other use and has an estimated useful life of four years 600,000
Labor and material costs incurred in producing a prototype model 2,000,000
Cost of testing the prototype 800,000
What total amount of costs should be expensed when incurred?
a. 2,800,000
b. 2,950,000
c. 3,400,000
d. 3,500,000
27. Wall Company leased office premises to Fox Company for five-year term beginning January 1, 2021.
Under the terms of the operating lease, rent for the first year is P1,000,000 and rent for next 2 years
is P1,250,000 per annum and the last 2 years P2,000,000 per year. However, as an inducement to
enter the lease, Wall granted Fox the first six months of the lease rent-free. What amount should
Wall Company report as rental income for 2021?
a. 1,400,000
b. 1,500,000
c. 700,000
d. 500,000
28. After three profitable years, Cairo Company decided to offer a bonus to the branch manager of 20%
of income over P1,000,000 earned by the branch. The income for the branch was P1,600,000 before
tax and before bonus for the current year. The bonus is computed on income in excess of P1,000,000
after deducting the bonus but before deducting tax of 25%?
a. 120,000
b. 100,000
c. 200,000
d. 150,000

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29. On December 31, 2021, Glimmer Company had outstanding P3,000,000, 8% convertible bonds that
mature on December 31, 2023. Interest is payable annually every December 31 and each P1,000
bond is convertible into 30 ordinary shares with a P20 par value per share. The unamortized premium
was P300,000 and the equity component when the bonds were sold was P700,000. On the same date,
1,200 bonds were converted when the fair value of Glimmer’s share was P40. What amount of share
premium should Glimmer recognize as a result of the conversion?
a. 640,000
b. 880,000
c. 600,000
d. 760,000

30. During 2021, Davao Company filed suit against another entity seeking P1,900,000 damages for
patent infringement. A court verdict in later part of the year awarded the entity P1,500,000 in
damages but the defendant appealed the verdict and appeal is not expected to be decided until next
year. It is probable that the entity will be successful against the defendant for an estimated amount
in the range between P800,000 and P1,100,000 with P1,000,000 considered the most likely amount.
What amount should Davao Company record as income from lawsuit for 2021?
a. 1,500,000
b. 1,100,000
c. 1,000,000
d. 0

31. During the current year, Cebu Company is a defendant in a lawsuit disputing the validity of copyright
held by the entity. On December 31, 2021, the entity determined that the plaintiff would probably be
successful against the entity for an estimated amount of P2,000,000. Appropriately, a P2,000,000
loss was accrued by a charge to income for 2021. On December 31, 2022, Cebu Company and
plaintiff agreed to a settlement providing for cash payment of P1,250,000 by the entity and transfer
of the copyright to plaintiff. The carrying amount of the copyright was P250,000. What would be the
effect of the settlement of the copyright case on Cebu Company’s income before tax in 2022?
a. 750,000 increase
b. 750,000 decrease
c. 500,000 increase
d. 250,000 decrease

32. Dumaguete Company leased equipment to a lessee on January 1, 2021 for an eight-year period. Equal
payments under the lease are P500,000 and are due on January 1 of each year. The first payment was
made on January 1, 2021. The selling price of the equipment is P2,900,000 and the carrying amount
is P2,000,000. The lease is appropriately accounted for as a sales type lease. The lessor incurred an
initial direct cost of P100,000. The present value of the lease payments at an implicit interest rate of
12% is P2,780,000.
1. What amount of gross profit should be reported in 2021?
a. 900,000
b. 780,000
c. 680,000
d. 800,000
2. What is the interest revenue for 2021?
a. 333,600
b. 348,000
c. 273,600
d. 288,000

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33. Boom Company prepared the following reconciliation of financial income and taxable income for
2021:
Pretax financial income 6,000,000
Permanent difference ( 500,000)
Temporary difference-capitalized interest for book and expensed for tax ( 200,000)
Taxable income 5,300,000
Cumulative temporary differences amounted to P300,000 and P500,000, respectively on December
31, 2020 and December 31, 2021. The income tax rate is 25%. What amount should Boom report as
deferred tax liability on December 31, 2021?
a. 125,000
b. 200,000
c. 75,000
d. 50,000

34. Cagayan Company provided the following information for the current year:
January 1 Benefit obligation 3,500,000
During the year Pension benefits paid to retired employees 250,000
Past service cost 500,000
Actuarial gain 200,000
Current service cost 700,000
Discount rate 10%
What amount was reported by Cagayan as benefit obligation on December 31?
a. 4,600,000
b. 5,000,000
c. 4,250,000
d. 4,650,000

35. Jolo Company which began operations on January 1, 2021 has elected to use cash basis accounting
for tax purposes and accrual basis accounting for the financial statements.
The entity reported sales of P7,000,000 and P4,000,000 in the tax returns for the years ended
December 31, 2022 and 2021, respectively.
The entity reported accounts receivable of P1,500,000 and P500,000 on December 31, 2022 and
2021, respectively. During 2022, accounts writtenoff amounted to P100,000. The entity issued credit
memo for sales returns of P300,000 and granted sales discounts of P600,000. Cash paid to customers
for goods returned of P200,000 was debited to accounts receivable.
What amount should be reported as gross sales for 2022 under accrual basis?
a. 9,000,000
b. 8,800,000
c. 9,200,000
d. 5,800,000

36. Java Company had a balance of P1,500,000 in the professional fees expense account on December
31, 2021, before considering year-end adjustments relating to the following:
• Consultants were hired for a special report at a total fee not to exceed P650,000. The entity
had recorded P550,000 of this fee based on billings for work performed in 2021.
• The attorney’s letter requested by the auditors dated January 31, 2022 indicated that legal
fees of P50,000 were billed on January 15, 2022 for work performed in November 2021 and
unbilled fees for December 2021 were P100,000.
What amount should be reported for professional fees expense for 2021?
a. 1,750,000
b. 1,650,000
c. 1,550,000
d. 1,700,000

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37. At the beginning of the current year, Holt Company was authorized to issue 100,000 shares with a
P50 par value. The entity had the following share capital transactions during the year:
January 1 Sold 80,000 shares at P60 per share.
April 1 Reacquired 4,000 treasury shares at P75 per share.
May 1 Approved a 5-for-1 share split.
September 30 Issued a 10% share dividend when the market value of a share was P30.
November 30 Reissued 4,000 treasury shares at P40 per share.
December 31 Net income for the year was P4,000,000.
1. What amount should Holt report as additional paid in capital?
a. 1,560,000
b. 1,660,000
c. 1,420,000
d. 1,700,000
2. What amount of unrestricted retained earnings should Holt report on December 31?
a. 2,800,000
b. 2,560,000
c. 2,620,000
d. 2,860,000
3. What amount should be reported as total shareholders’ equity on December 31?
a. 8,660,000
b. 7,520,000
c. 7,280,000
d. 8,800,000

38. On January 1, 2021, Hagar Company had 200,000 ordinary shares outstanding. The following
transactions occurred during the year:
March 1 120,000 ordinary shares were issued.
May 1 6,000 ordinary shares were reacquired as treasury.
October 1 100,000 cumulative preference shares were issued. Each preference shares can be
converted into 3 ordinary shares. The preference dividend per share is P5.
November 1 A 10% bonus issue on the ordinary shares was distributed.
December 31 Net income for the year is P3,500,000.
1. What amount of basic EPS should Hagar present on December 31, 2021?
a. 10.71
b. 10.13
c. 8.69
d. 9.21
2. What amount of diluted EPS should Hagar present on December 31, 2021?
a. 7.35
b. 8.58
c. 8.74
d. 5.34

39. Baguio Company had retained earnings of P3,300,000 at the beginning of 2021. Throughout 2021,
the entity had 20,000 ordinary shares of P100 par value that are issued and outstanding. During 2021,
the entity reported net income of P5,500,000, purchased treasury shares for P600,000, declared cash
dividends of P1,800,000, reissued all treasury shares at a gain of P150,000, and declared and issued
a 10% ordinary share bonus issue when the market value was P150 per share. What amount should
be reported as retained earnings on December 31, 2021?
a. 7,150,000
b. 6,750,000
c. 6,800,000
d. 6,700,000

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40. At the end of 2021, Bohol Company had a deferred tax asset of P2,000,000 attributable to a
temporary book-tax difference of P8,000,000 in a liability for estimated expenses. At the end of
2022, the temporary difference is P7,000,000. The entity had no other temporary differences. Taxable
income for 2022 is P20,000,000 and the tax rate is 25%. At the beginning of 2022, the entity had a
valuation allowance P150,000 for the deferred tax asset. At the end of 2022, it was determined that
it is more likely than not that the deferred tax asset will be realized.
1. What is the current tax expense for 2022?
a. 5,000,000
b. 3,000,000
c. 2,000,000
d. 1,750,000
2. What is the total tax expense for 2022?
a. 5,250,000
b. 5,100,000
c. 4,750,000
d. 5,400,000

41. Covelandia Company issued on December 31, 2021 20-year bonds of P5,000,000 for P5,426,000 to
yield 10%. Interest is payable annually on December 31 at 11%. On June 30, 2023, Covelandia
retired 2,000 bonds with P1,000 face amount per bond at 96 plus accrued interest. The accounting
period is the calendar year.
1. What is the gain or loss on retirement of bonds in 2023?
a. 245,812 gain
b. 245,812 loss
c. 80,000 gain
d. 80,000 loss
2. What is the carrying amount of the remaining bonds on December 31, 2023?
a. 3,255,600
b. 3,246,276
c. 3,251,160
d. 3,000,000

42. On January 1, 2021, Adora Company issued share appreciation rights to its president exercisable for
one year beginning January 1, 2023 provided that the president is still in the employ of the company
at that date of exercise. Each right provides for a cash payment equal to the excess of the entity’s
share price over P50. The equivalent number of shares for share appreciation rights will be based on
the level of sales at the date of exercise. The number of equivalent shares is 20,000 if the level of
sales is P4,000,000 to P6,000,000 and 30,000 shares if the level of sales is over P6,000,000. The
actual sales achieved totaled P5,000,000 in 2021 and P7,000,000 in 2022. The share prices are P90
in 2021 and P85 in 2022.
1. What is the compensation expense for 2021?
a. 800,000
b. 400,000
c. 200,000
d. 450,000
2. What is the compensation expense for 2022?
a. 250,000
b. 650,000
c. 525,000
d. 850,000

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43. Zoe Company provided the following data:

December 31, 2020 December 31, 2021
Accounts receivable, net of allowance 840,000 780,000
Inventory 1,500,000 1,400,000
Accounts payable 950,000 980,000
Total sales were P12,000,000 for 2021 and P11,000,000 for 2020. Cash sales were 20% of total sales
each year. Cost of goods sold was P8,400,000 for 2021. Variable general and administrative expenses
for 2021 were P1,200,000. The variable expenses have varied in proportion to sales. Variable
expenses have been paid 50% in the year incurred and 50% the following year. Fixed expenses,
including P350,000 depreciation and P50,000 bad debt expense, totaled P1,000,000 each year.
Eighty percent of fixed expenses involving cash were paid in the year incurred and 20% the following
year. Each year there was a P50,000 bad debt estimate and a P50,000 writeoff.
1. What amount was collected by Zoe from customers during 2021?
a. 12,010,000
b. 12,060,000
c. 11,960,000
d. 11,890,000
2. What amount was disbursed by Zoe for purchases during 2021?
a. 8,500,000
b. 8,270,000
c. 8,300,000
d. 8,200,000
3. What total amount was disbursed by Zoe for fixed and variable expenses during 2021?
a. 2,200,000
b. 2,500,000
c. 1,750,000
d. 2,250,000

44. On January 1, 2018, SME acquired a trademark of a line herbal products for P4,500,000. The SME
expects to continue marketing the products using the trademark indefinitely. An analysis provides
evidence that the line of trademark products may generate net cash inflows for an indefinite period.
An estimate of the useful life of the trademark is not possible. A competitor developed a
technological breakthrough in 2021 expected to result in a product that will reverse the demand for
SME’s patented product line. At December 31, 2021, the recoverable amount of the trademark was
P800,000. It is expected that the demand for SME’s product line will remain until December 31,
2023, when the competitor launches the new product. The SME intended to continue manufacturing
the patented products until December 31, 2023.
1. What amount should be recorded as amortization of trademark for 2018?
a. 450,000
b. 225,000
c. 150,000
d. 0
2. What amount should be recorded as amortization of trademark for 2021?
a. 1,050,000
b. 3,150,000
c. 1,850,000
d. 0
3. What amount should be recognized as impairment loss for 2021?
a. 1,300,000
b. 2,100,000
c. 3,700,000
d. 0

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Some Computations

Problem 20
Acquisition cost 15,000,000
Carrying amount of net assets acquired (40% x 25,500,000) 10,200,000
Excess of cost 4,800,000
Attributable to inventory (40% x 1,000,000) ( 400,000)
Attributable to land (40% x 1,500,000) ( 600,000)
Attributable to plant and equipment (40% x 8,000,000) ( 3,200,000)
Implied goodwill 600,000

Problem 24
Acquisition cost – January 1, 2017 20,000,000
Accumulated depreciation – December 31, 2021 (1,000,000 x 5 years) ( 5,000,000)
Carrying amount – December 31, 2021 15,000,000
Impairment loss in 2021 ( 3,000,000)
Recoverable amount – December 31, 2021 12,000,000
Depreciation for 2022 and 2023 (12,000,000 / 15 years remaining x 2) ( 1,600,000)
Carrying amount per book – December 31, 2023 10,400,000

Acquisition cost – January 1, 2017 20,000,000

Accumulated depreciation – December 31, 2023 (1,000,000 x 7 years) ( 7,000,000)
Carrying amount – December 31, 2023, no impairment 13,000,000

Problem 37 – Journal entries

Jan. 1 Cash 4,800,000
Share capital 4,000,000
Share premium 800,000
Apr. 1 Treasury shares 300,000
Cash 300,000
May 1 Issued (80,000 x 5) 400,000
Treasury (4,000 x 5) ( 20,000)
Outstanding 380,000
Sept. 30 Retained earnings (10% x 380,000 x P30) 1,140,000
Share capital (38,000 x P10) 380,000
Share premium 760,000
Nov. 30 Cash (4,000 x P40) 160,000
Treasury shares (4,000 x 15) 60,000
Share premium – treasury 100,000
Dec. 31 Income summary 4,000,000
Retained earnings 4,000,000

Problem 38

Jan. 1 (200,000 x 1.10) 220,000

Mar. 1 (120,000 x 1.10 x 10/12) 110,000
May 1 (6,000 x 1.10 x 8/12) ( 4,400)
Average shares – basis EPS 325,600
Oct. 1 (300,000 x 1.10 x 3/12) 82,500
Average shares – diluted EPS 408,100

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Problem 41

Bonds retired (2,000 / 5,000 x 5,426,000) 2,170,400

(11%) (10%)
Date Interest paid Interest expense Amortization Carrying amount
12/31/21 2,170,400
12/31/22 220,000 217,040 2,960 2,167,440
6/30/23 110,000 108,372 1,628 2,165,812

Remaining bonds (3,000 / 5,000 x 5,426,000) 3,255,600

(11%) (10%)
Date Interest paid Interest expense Amortization Carrying amount
12/31/21 3,255,600
12/31/22 330,000 325,560 4,440 3,251,160
12/31/23 330,000 325,116 4,884 3,246,276

E N D

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