practical accounting 11

8/11/2019 Practical Accounting 11

1/17

Practical Accounting 1 Reviewer

1. When an economy ceases to be hyperinflationary, an entityshall discontinue the preparation and presentation of

financial statements under a condition of hyperinflationary

economy. Thus the amount expressed in the measuring unitcurrent at the end of the previous reporting period shall be

thea. the present alue amount in the subse!uent

financial statement.

b. the carrying amount in the subse!uent financial

statement.c. the fairvalue amount in the subse!uent financial

statement.d. the historical alue amount in the subse!uent

financial statement.

". #rrespective of whether there is any indication ofimpairment , an entity shall test a not tangible asset with an

indefinite useful life or an intangible asset not yet available

for use for impairment$a. every three years$

b. annuallyc. intangible assets not yet available for use,

annually and not tangible assets every three years

d. intangible assets not yet available for use, every

three years and not tangible assets Annually%. &epreciation of an asset begins when

a. #t was ac!uiredb. #t is available for use

c. #t was assembled in its location

d. When the management decides to do so.'. the initial direct cost in a direct financing lease are added to

the carrying amount of the leased asset and this wouldeffectively spread the initial direct cost over the lease term

and reduce the amount of

a. interest expenseb. interest income

c. lease expense

d. lease income(. this is the recognition of a deferred tax asset or deferred tax

liabilitya. intraperiod tax allocation

b. #nterperiod tax allocation

c. )one

d. both*. The present value of the defined benefit obligation is the

present value, without deducting any plan assets, f expectedfuture payments re!uired to settle the obligation resulting

from employee service in the

a. +urrent periodsb. +urrent and prior periods

c. +urrent or prior periods

d. Prior periods. it is said that no entry is re!uired when share warrants are

issued to existing shareholders because these warrants are

issued usuallya. with consideration

b. without consideration

c. as bonusd. as stoc- dividends

. treasury shares may be reissued as dividends, in whichcase the ///// of the shares be charged to retained earnings

a. historical value

b. costc. fair value

d. selling price

0. ordinary shares issued as a result of the conversion of adebt instrument to ordinary shares are incuded from the

date

a. it was converted

b. interest ceases to accrue

c. as of the balance sheetd. prior to the date of the balance sheet

1. in computation of cost of sales the basic rule is 2Al

increases are added and all decreases are deducted exceptthe changes in

a. earned incomeb. unearned income

c. withdrawals

d. expenses

11. PA3 provides that an entity shall correct material prioperiod errors retrospectively in the first set of financia

statements authori4ed for issue after the discovery bya. Restating the comparative amounts for the lates

period presented in which the error wa

discovered.b. Restating the opening balances of asset liabilitie

and e!uity for all prior period presented if the

error occurred before the earliest period presentedc. Restating the comparative amounts for the lates

period presented in which the error wa+orrected

d. Restating the opening balances of asset, liability

and e!uity for the earliest period presented if the

error occurred before the earliest period presented1". preferred shares with specific redemption date and

ac!uired before the balance sheet date can !ualify as cashe!uivalents

a. True

b. 5alse, if cannot !ualify as cash e!uivalentsc. 5alse, it should be ac!uired three months before

the balance sheet dated. 5alse, it should be ac!uired three months before

the redemption date

1%. in which circumstances that a ban- overdraft is include ascomponent of cash and cash e!uivalent

a. when it s repayable on demand

b. when it is repayable on demand or form anintegral part of an entity6s cash management

c. when it is repayable on demand and form anintegral part in the entity6s cash financiastatement

d. when it is repayable on demand and form an

integral part of an entity6s cash management1'. if the containers are not returnable, they are

a. +harged to lossb. +harged to gain

c. +harged to the cost of the product

d. +harged as an out right expense1(. developed goodwill is

a. recorded at fair value

b. recorded at historical valuec. recorded at present value

d. not recorded

1*. in a warranty liability any difference between estimate andactual cost is a change in

a. accounting procedure

b. accounting principlec. accounting entity

d. accounting estimate1. under the effective interest method, bond issue cots must be

lumped with the discount on bonds payable and netted

against thea. selling price of the bond

b. present value of the bond

c. mar-et value of the bondd. premium on bonds payable


2/17

1. in the boo-s of the lessor, using a direct financing lease, the

net investment is e!ual to the

a. cost of the leaseb. fairvalue of the lease

c. fairvalue of the asset

d. cost of the asset10. under the defined benefit plan the obligation of the entity is

to provide thea. benefits to current employees

b. the benefits to current and former employees

c. the agreed benefit to current employees

d. the agreed benefit to current and formeremployees.

". the revalued asset can only be carried at revalued amountif there is

a. An inflation in the economy

b. A deflation in the economyc. An mar-et value for the asset$

d. An active mar-et for the asset

"1. in tangible assets wth indefinite life area. Amorti4ed for its useful li-e

b. Amorti4ed for its legal lifec. )ot amorti4ed and not impaired

d. )ot amorti4ed but tested for impairment

"". in a patent, if the litigation is unsuccessful, the legal cost

and the remaining cost of the patent should be written offas

a. expense

b. a deduction from the other patent

c. outright incomed. loss

"%. the immaterial cost of the leasehold shall be amorti4ed ove

the lifea. of the lease

b. of the leasehold or lease which ever is shorterc. of the leasehold

d. of none, it is charged to outright expense

"'. the basis of normal rate return is based on net asset

meaninga. the exces of the total assets including goodwil

over total liabilitiesb. the e!uity of the entity

c. the e!uity of the entity plus subsidiaries

d. total assets minus total liabilities minus goodwill"(. if there is an indication that goodwill may be impaired

recoverable amount is determined for the cash generating

unit to whicha. the impairement can be written off

b. the goodwill can be written offc. the impairment belongs

d. the goodwill belongs


3/17

Selected records from the accounting records of Malakas Company are as follows:Net accounts receivable at Dec. 3! "##$ !%##!###Net accounts receivable at Dec. 3! "##& !###!###'ccount receivable turnover $:(nventory at Dec. 3! "##$ !##!###(nventory at Dec.3! "##& !"##!###(nventory turnover ):*hat is the amount of gross margin+a. $!###!### c.$!"##!###b. $!$#!### d.$!3##!###

. ,he following information for "##& is provided by -uam Company: Sales $#!###!### Cost of Sales 3#!###!### Selling /penses $!###!### -eneral and 'dministrative /penses )!###!### (nterest /pense "!###!### -ain on early e/tinguishment of long term debt $##!###

Correction of (nventory error! net of income ta/0credit !###!###(nvestment (ncome0e1uity method 3!###!###-ain on e/propriation "!###!###(ncome ta/ e/pense $!###!###Dividends declared "!$##!###

*hat is the amount of 2nance cost+

a. !"##!### c. !$##!###b. "!###!### d. !##!###

". Dakak Company issued bonds with a face value of 4)! ###!### and with a stated interest rate of #5 on 6an. #"##. ,he interest is payable semiannually on 6une 3# and December 3. ,he bonds mature on every December3 at a rate of 4"! ###!### per year for " years. ,he prevailing rate for the bonds is 5. ,he present value of at)5 is as follows:

7ne period #.%&$ ,wo periods #.%)"& ,hree periods #.%%# 8our periods #.$)*hat is the present value of the bonds on 6anuary ! "##+a. )!!)## c.)!#%%!#b. )!"&3!)## d.)!"$"!$#

3. 7n 6anuary ! "##)! 9oyal Company purchased an e1uipment for 4! ###!###. ,he e1uipment is depreciated usingstraight line method based on a useful life of years with no residual value. 7n 6anuary ! "##! after 3 years! thee1uipment was revalued at a replacement cost of "!###!### with no change in residual value. 7n 6une 3#! "##the e1uipment was sold for #!###!###. *hat is the e;ect of the 6une 3#! "## transaction to the retainedearnings+

a."! $##!### increase c. $!###!### increase b.3!"$#!### increase d. $!$#!### increase

). ' natural resources property was purchased by Nge *ang Company for &!###!###. ,he output was estimated to be!$##!### tons. Nge *ang Company purchased a mining e1uipment at a cost of !###!### and has a useful life of# years but is capable of e/hausting the resource in years. 4roduction is as follows:

st


4/17

*hat will be the ad>usted Net (ncome during "##+ a."! ##!### c.."! $#!### b.3!$#!### d."!#!###

&. 9athan Company was organi=ed on 6anuary !"##& with the following capital structures: "5Cumulative preference share!4## par !with li1uidation value of 4"#!$#!### shares authori=ed! issued

and outstanding "#!### shares!4"!$##!###. 7rdinary Share Capital! par value 4$#! authori=ed #!### shares! issued and outstanding "#!### shares! 4!

"##!###.,he net income for the years December 3! "##& and December 3! "## were 4"! ###!### and 3!###!###

respectively. No dividends were declared. *hat is the December 3! "## book value per ordinary share+ a."$& c." c."% d."$

. Menin1iu= Company provided the following information for the "##:,otal 'ssets at December 3 )!$##!###Share Capital at December 3 "!###!###Share 4remium at December 3 "##!###,reasury Stock ?at cost@ 3##!###,he debt0to0e1uity ratio is "$5 at December 3! "##. *hat is the retained earnings unappropriated on December 3

"##+ a.! )##!### c."! 3##!### b.! ##!### d.! ##!###

. 8elicia Co. owns "#5 royalty interest in an oil well. 8elicia receives royalty payments on 6anuary 3 for the oil soldbetween 6une and November 3#! and 6uly 3# for oil sold between December and May 3 4roduction reportshows the following sales:

6une ! "##&0November 3#! "##& )!#$#!### December! "##&0December 3! "##& &$!### December ! "##&0may 3! "## $!)##!### 6une ! "##0November 3#! "## )!3!$## December ! "##0December3! "## %)$!###*hat amount should 8elicia report as royalty revenue for "##+ a.! %#!### c."! #!$## b.! %))!### d."! )&!###

%. 'ssume the following balances at the end of the current year: Capital 9i1uidated !##!### 'ccumulated Depletion "!$##!### Aetained arnings !$##!### Depletion based on $#!### units e/tracted B4"# per unit !###!### (nventory of resource deposit $!### units*hat is the ma/imum dividend that can be declared by the company+

a. "!##!### c."! "##!### b."! ###!### d.! $##!###

#. Marie Company sells gift certi2cates redeemable only when merchandise is purchased. ,hese gift certi2cates have

an e/piration date of two years after issuance date. pon redemption or e/piration! Marie recogni=es the unearnedrevenue as reali=ed. (nformation for "## as follows:

-ift certi2cate payable "3"##& $"#!### -ift certi2cate payable "3"## !### -ift certi2cate redeemed !$!### /pired gift certi2cates #!### +ost of goods sold 7Eow much -ift certi2cates sold during the year+a. !##!### c.. !&)# !###b. !$##!### d. !!###

. Fee Company provided the following informations concerning its de2ned bene2t plan in its memorandum recordson 6anuary ! "##.

8air Galue of plant assets $!##!### namorti=ed past service cost "#!###


5/17

nrecogni=ed 'ctuarial 9oss !### 4ro>ected Hene2t 7bligation ?)!$##!###@ 4repaid'ccrued bene2t cost !)#!###During the current year! the entity determined that its Current service cost was #!### and the interest cost is #5

,he e/pected return was #5 but the actual return was "5. 4ast service cost and any actuarial gain or lossshould be amorti=ed over # years. 7ther related information is as follows:

Contribution to the plan "#!### Hene2ts paid to retirees %##!### &ecrease in P89 due to changes in actuarial assumptions 1",*hat is the balance of prepaid accrue bene2t cost account on December 3! "##+a. !$3#!### c. !#!###b. 1,(*, d. !!###

". 4AC Company began selling a new calculator that carried a two year warranty against defects in "##.4AC pro>ected the estimated warranty cost ?as a percent of sales@ as follows:

8irst year warranty )5 Second year warranty #5Sales and actual warranty repairs were: "## "##

Sales $!###!### %!###!###'ctual warranty repairs 3%#!### %##!###

*hat is the estimated warranty liability on December 3! "##+a. !### c. ##!###b. %#!### d. &$#!###

3. 7n December 3! "## Colt Company is e/periencing e/treme 2nancial pressure and is in default in meetinginterest payment on its long term note of 4&! ###!### due on December 3! "##%. ,he interest rate is "5payable every December 3.

(n an agreement with the creditor! Colt obtained the following changes in the terms of note:a. ,he accrued interest on December 3! "## is forgiven.b. ,he principal is reduced by $##!###.c. ,he new interest rate is 5.d. ,he new date of maturity is December 3! "#.

,he present value of at"5 for four periods is #.&3$$ and the present value of an ordinary annuity of at "5 forfour periods is 3.#33.

Eow much is the gain or loss on e/tinguishment+a. "!$#)!$# c. !!33b. !&!33 d. #

). ast Company leased machinery from Chin Company on 6anuary ! "## for a #0year period ?useful life of "#years@

1ual annual payments under the lease are 4"##!### and are due on 6anuary of each year starting 6anuary ! "##.,he present value at 6anuary ! "## of the lease payments over the lease term discounted at #5 was !3$"!###

,he lease was appropriately accounted for as 2nance lease by ast because there is a very nominal bargainpurchase option.

*hat is interest e/pense for "##+a. #&!"# c. "##!###b. $!"## d. #

$. ,he Cloak Corporation received the following report from its actuary at the end of the year:

1:1:* 1:%1:*

;nrecogni4ed past service cost (, '(,

Accumulated benefit obligation *,, *,', 5air alue of pension plan assets (,, *,"*,

Actuarial net gain , uly " #ssued 1(, shares at P1% per share.

August 1 3old (, treasury shares at P1' per share.

5rancisco uses the 5#59 method for purchase@sale purposes.

#f 5rancisco uses the cost method to record treasury stoc- transactions, how much would be the 3hare Premium at &ecember %1,"*anuary , ", Pagod +orp. established a noncontributory defined benefit plan covering all employees and contributed P 1,, to the

plan. At &ecember %1, ", Pagod determined that the " service and interest costs on the plan were P *",. The expected and the actual

rate of return on plan assets for " was 17. There are no other components of Pagod pension expense. What amount should Pagod report inits &ecember %1, %, balance sheet as prepaid pension costuly 1, ", after recording interest and amorti4ation, )ah +o. converted P ",, of its 1"7 convertible bonds into (, shares of P"

par value common stoc-. 9n the conversion date the carrying value of the bonds was P ",,, and )ah common stoc- was publicly tradingat P* per share. ;sing the boo- value method, what amount of additional paid in capital should )ah record as a result of the conversion. (@0

from Cuis hidalgo

%'. The notes to an +orp.6s financial statements recently reported the following data on 3eptember %, Iear 1 Jthe end of fiscal yearKE

Cong@Term debt at 3eptember %, Iear 1, included the followingE*7 debentures due year " with an effective interest rate of 0.**7, net of unamorti4ed discount of

P(,*0(,LLLLLLLLLLLLLLLLLLLLLL..P1**,%(,

9ther indebtedness with an interest rate of .%7, due P1",1, in year ( and P10,(", in year*LLLLLLLLLLLLLLLLLLLLLLLLLL.P%1,%*(,

an amorti4es discount by the effective interest method. What should be the bond6s carrying amount< Darrison F Dorgren

%(. Huyaw +orp. entered into a 0 year lease on a warehouse on &ecember %1, ". Cease payments of P(",, which includes real estate taxes of

P", are due annually beginning on &ecember %1, ", and every &ecember %1 thereafter. Huyaw does not -now the implicit rate in the

lease. Huyaw6s incremental borrowing rate is 07. The rounded present value if an ordinary annuity for nine years at 07 is (.*. What amountshould -uyaw report as capitali4ed lease liability at &ecember %1, "


9/17

%*. 9n >une 1, "(, ?ardhex, #nc. issued P(, of 17, 1(@year bonds at par. #nterest is payable semiannually on >une 1 and &ecember 1

8ond issue costs were P*,. 9n >une 1, "1. ?ardhex retired half of the bonds at 0. What is the net amount that ?ardhex should use incomputing the gain or loss on retirement debtanuary ", ", ?arcfe +o. sold a used machine to ?ardhex #nc. for P0,, resulting in a gain of P",. 9n that date, ?ardhex paid

P1(, cash and signed a P(, note bearing interest at 17. The note was payable in three annual installments of P"(, beginning on>anuary ", "0. ?arcfe appropriately accounted for the sale under the installment method. ?ardhex made a timely payment of the first

installment on >anuary ", "0, of P%"(,, which included accrued interest of P(,. What amount of deferred gross profit should ?arcfe

report at &ecember %1, "0anuary , ".

oods shipped 598 shipping point on &ecember ", ", from a vendor to +oca were received on >anuary ', ". The invoice cost was

P*,

What amount should +oca report as inventory in its &ecember %1, " balance sheet

practical accounting 11

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