FINANCIAL ACCOUNTING
TEST BANK
PPE ACQUISITION
1. On October 1, 2005, Bitoy Company purchased a machine for P250,000 that was
placed in service on November 30, 2005. Bitoy incurred additional costs for this
machine, as follows:
Shipping 10,000
Installation 15,000
Testing 35,000
In Bitoy’s December 31, 2005 balance sheet, the machine’s cost should be
reported at
a. 250000
b. 295,000
c. 300,000
d. 310,000
2. On August 1, 2006, Bamco purchased a new machine on a deferred payment
basis. A down payment of P100,000 was made and the balance is payable in
P100,000 annually for 4 years. The current interest is 12%.The present value of an
annuity at 12% for 5 years is 3.04 and the present value of an amount at the end of
5th year at 12% is .064.
The same machine could be acquired on cash basis at P400,000.
Bamco should record the machine at
a. 500,000 b. 400,000 c. 403,735 d. 303,735
EXCHANGE
1. To save transportation costs, X acquired its needed equipment in exchange of its
inventory located in the supplier’s business place. The equipment acquired has
cash price of P650,000. The inventory of X has cost of P550,000, and X paid
P80,000 cash for the difference in fair value of the two assets in exchange.
In the books of X, the exchange is to be accounted as resulting to
a. gain of P20,000
b. loss of P20,000
c. gain of P30,000
d. loss of P30,000
2. X issued 100,000 of its common shares in the treasury stocks, in exchange for a
delivery truck. The treasury stocks with P10 par were selling at P12 at date of
exchange. The treasury shares were previously acquired at cost of P11/share. The
delivery truck has cash price of P1,250,000.
In the books of X, the exchange will result to
a. gain of P150,000 b. loss of P50,000 c. gain of P50,000 d. no gain/no loss
3. A P5,000,000 face value bonds were issued to acquire a building. At the time of
acquisition, the fair value of the building is properly determined at P5,300,000
and the bonds are quoted at 110.
The building is depreciated under the double declining method of depreciation with
estimated economic life of 25 years and scrap value of P200,000.
This was sold for P4,500,000 at end of its 2nd year . The gain (loss ) from sale is
a. 14,080 b. 268,000 c. 183,360 d. (155,200)
BORROWING COST
1. Mozely Company borrowed P400, 000 on a 10 percent note payable to finance a new
warehouse Mozely is constructing for its own use. The only other debt on Monzely’s
books is a P600, 000, 12 percent mortgage payable on an office building. At the end of
the current year, average accumulated expenditures on the new warehouse totaled P475,
000. Mozely should capitalize interest for the current year in the amount of (use 2
decimal palaces)
a. P40, 000 b. P47, 500 c. P49, 000 d. P380, 000
2. X constructed its own building at a total labor, materials and overhead costs of
P5,000,000, which was started January 1 and completed December 31 of the same
year.
During construction, the following loans are outstanding during the year, which are
partly used in construction and partly used in regular operation:
Principal amount Interest Rate
P1,000,000 10%
Construction costs for the year are as follows:
Principal amount Date taken
P2,000,000 Jan.1
1,000,000 April 1
1,000,000 July 1
1,000,000 Oct. 1
The capitalized borrowing costs as part of building cost is
a. 350,000 b. 240,000 c. 140,000 d. 100,000
DONATION
1. BoyD Company received Land as donation from its shareholder. At date of donation,
the land has fair value of P1,000,000. The legal and documentation expenses to transfer
the title amounted to P25,000 at the expense of BoyD Company. The land was previously
acquired by the donor stockholder at P750,000.
BoyD should record the land at
a. 1,025,000 b. 1,000,000 c. 775,000 d. 750,000
2. An enterprise receives grant of P15,000,000 from the government as subsidy to defray
safety and environmental costs within the area where the enterprise is located. The safety
and environmental costs are expected to be incurred over four years as follows:
Year 1 P 2,000,000
Year 2 4,000,000
Year 3 6,000,000
Year 4 8,000,000
The amount to be reported as in year 1 Income Statement as other Income from
government grant is
a. 1,500,000 b. 2,000,000 c. 3,750,000 d. 15,000,000
PPE SUBSEQUENT EXPENDITURES
1. During 2006, Kiyen Company made the following expenditures relating to its
plant building:
Repainted the plant building 110,000
Major improvements in the electrical wiring 100,000
Partial replacement of roof tiles 80,000
Continuing and frequent repairs 200,000
How much should be capitalized in the above expenditures
a. 490,000
b. 290,000
c. 180,000
d. 100,000
2. A machine of X is overhauled at cost of 1,600,000. The overhauling resulted to
increase in production capacity of the machine. The machine was originally acquired at
cost of P7,000,000 and the depreciated book value before overhauling was P5,600,000. If
new similar machine would be purchased, it would have a cash price of 3,500,000.
What amount should X recognized as retirement loss?
a. 1,280,000 b. 1,600,000 c. 1,900,000 d. 2,100,000
DEPRECIATION
1. On January 1, year 1, the firm purchased for P2,400,000 a machine with useful life of
10 years, no scrap value. The machine was depreciated by the double declining balance
method and the carrying amount of the machine was P1,536,000 on December 31, year 2.
The firm can justify the change to straight line method of depreciation effective January
1, year 3. What would be the depreciation expense for year 3?
a. 307,200 b. 240,000 c. 192,000 d. 153,600
2. Debergen Company purchased factory equipment which was installed and put into
service January 3, 2000 at a total cost of P1,280,000. Salvage value was estimated at
P80,000. The equipment is being depreciated over eight years by the double declining
balance method. For the year 2000 how much depreciation expense should Debergen
record on this equipment.
a. 225,000 c. 300,000
b. 240,000 d. 320,000
3. On January 1, 2000, Flax Company purchased a machine for P528,000 and depreciated
it by the straight-line method using an estimated useful life of eight years with no salvage
value. On January 1, 2003, Flax determined that the machine had a useful life of six
years from the date of acquisition with no salvage value. An accounting change was
made in 2003 to reflect these additional data. The depreciation for this machine on
December 31, 2003 would be
c. 110,000 c. 320,000
d. 308,000 d. 352,000
4. On April 1, 2007, Wang Manufacturing Company bought a new equipment for
P800,000. The equipment has an estimated salvage value of P20,000 and useful life of 12
years. Depreciation is computed using the sum-of-the-years digits method.
How much is the amount of depreciation for 2007?
a. P60,000
b. P75,000
c. P90,000
d. P20,000
5. In January, Hunter Corporation entered into a contract to acquire a new machine for its
factory. The machine, which had a cash price of P300, 000, was paid for as follows:
Down payment P30, 000
Note payable in 10 equal monthly installments 240, 000
1, 000 shares of Hunter common stock with an
agreed value of P50 per share 50, 000
total P320, 000
Prior to the machine’s use, installation costs of P80,000 were incurred. The machine
has an estimated useful life of ten years and an estimated salvage value of P10, 000.
What should Hunter record as depreciation expense for the first year under the
straight-line method?
a. P29, 800 b. P30, 000 c. P31, 000 d. P31, 800
6. The Bucol Company purchased a tooling machine in 1992 for P120, 000. The machine
was being depreciated on the straight-line method over an estimated useful life of 20
years, with no salvage value. At the beginning of 2002. When the machine had been in
use for ten years, the company estimated that the useful life of the machine would be
extended an additional five years. What would be the depreciation expense recorded for
the above machine in 2002?
a. P4, 000 b. P5, 333 c. P6, 000 d. P7, 333
DEPLETION
1. The mining property was acquired at cost of P12,000,000. It has estimated life of 5
years. After exploration cost of P1,000,000, it was developed at cost of P1,500,000
(intangible). AT the end of its life, the property could be sold for P3,000,000 after
restoration cost of P500,000. Confirmed deposit is at 40,000,000 units. For its 1st year of
operation, 7,500,000 units were produced at production cost of P5,250,000. 7,125,000 of
production were sold during the year.
The depletion cost in the inventory is
a. 112,500 b. 140,625 c. 262,500 d. 2,137,500
2. On July 1, 2000, Kinanto Company, a calendar year corporation, purchased the rights
to a mine. The total purchase price was P13,200,000 of which P400,000 was
allocable to the land. Estimated reserves were 1,600,000 tons. Kinanto expects to
extract and sell 15,000 tons per month.
If sales and production conform to expectations, what is the depletion for 2000?
a. 1,200,000 c. 2,400,000
b. 720,000 d. 1,237,500
3. A wasting asset corporation has established its depletion cost at P1.20 per unit.
At the start of the year, it has beginning inventory of 100,000 units; during the
year it produced 1,500,000 units; and during the year, It was able to sell
1,400,000 units.
At the end of the year, how much is its depletion cost in the Inventory?
a. P1,800,000 b. P1,680,000 c.
P240,000
d. 120,000
4. The depletion rate of the entity is P15/ton. During the year, 50,000 tons were
produced and at the end of the year, 5,000 tons are unsold. If the total production cost
is P85/ton before depletion cost, how much is the total cost of sale for the year?
a. 5,000,000 b.4,500,000 c. 3,825,000 d. 675,000
5. The total original depletable costs of the mining entity was P10,525,000. Its original
deposit was 42,100,000 tons. After producing 15,000,000 tons, additional reserves are
discovered at cost of P4,225,000 . The additional reserves discovered is equal to
22,900,000. What is the depletion cost for the year after adjustment on depletion rate,
if the production for the year is 6,000,000 tons?
a. 1,200,000 b. 1,320,000 c. 1,500,000 d. 1,770,000
DISPOSAL
1. A P5,000,000 face value bonds were issued to acquire a building. At the time of
acquisition, the fair value of the building is properly determined at P5,300,000 and
the bonds are quoted at 110.
The building is depreciated under the double declining method of depreciation with
estimated economic life of 25 years and scrap value of P200,000.
This was sold for P4,500,000 at end of its 2nd year . The gain (loss ) from sale is
a. 14,080 b. 183,360 c. 268,000 d. (155,200)
2. The equipment with estimated life of 12 years is being depreciated under SYD
method of depreciation. It was acquired in June 15, 1994 at cost of P2,500,000 and it
has estimated salvage value of P160,000.
In June 15, 2006, the equipment was sold at P200,000.
The sale will result to
a. gain of P40,000 b. loss of P40,000 c. loss of P70,000 d. gain of P10,000
REVALUATION
1. The building was constructed at cost of P12,000,000. It has original estimated life
of 24 years, zero scrap value. At the end of its 8th year, it is estimated that same
could be constructed at present price level for the amount of P15,000,000, 100%
condition.
If it will shift to revaluation model, the amount to be credited to revaluation
surplus should be
a. P7,000,000 b. P3,000,000 c.
P2,000,000
d. P1,500,000
On January 1, 2003, a new building was purchased at a cost of P3,000,000. Depreciation
was regularly provided at 2% per year. On January 1, 2013, the building was appraised
by an independent appraiser at P4,500,000 and a condition percent of 75. The business
shifted to revalued amount.
The annual depreciation subsequent to appraisal should be
a. 112, 500 b. 150,000 c. 90,000 d. 60,000
PPE IMPAIRMENT
1. Simon Company, a clothing manufacturer, purchased a sewing machine for P2,000,000
on July 1, 2003. The machine had a 10-year life, a P100,000 residual value, and was
depreciated using the straight line method. On January 1, 2006 a test for impairment
indicated that the undiscounted cash flows from the sewing machine are less than its
carrying value. The machine’s fair value on January 1, 2006 is P600,000. What is the loss
on impairment?
a. 830,000
b. 925,000
c. 950,000
d. 1,300,000
2. The Equipment was acquired at cost of P6,000,000. This is being depreciated at rate of
5% per year, without scrap. At the end of its 4th year, an independent appraiser valued it
at depreciated amount of P6,120,000 , without scrap value.
What amount should be credited to revaluation surplus to record the revaluation.?
a. 240,000 b. 420,000 c. 1,320,000 d. 1,740,000
3. On January 2, 2000 a machine was purchased for P800,000. It is being
depreciated on straight line method for 8 years with P160,000 scrap value. At the end
of its 4th year, it is observed that this suffered permanent impairment and estimated
that P200,000 is a reasonable amount to be recovered through its use for the rest of its
life. In its December 31, 2004, what amount should be reported as net book value of
the machine?
a. 320,000 b. 200,000 c. 150,000 d. 100,000
4. Crane Company reported an impairment loss of P2,200,000 in its income statement
for the year then ended December 31, 2005. This loss was related to an item of PPE
acquired on January 1, 2004 with useful life of 10 years and residual value of
