8/13/2019 Prac1 12.02.13

1/7

La Consolacion University Philippines(formerly University of Regina Carmeli)

Catmon, City of MalolosCollege of Business Administration

Practical Accounting 1

Name: __________________________________ Date: _______________

MULTIPLE CHOICE . Write te letter of you ans!er in te s"a#e "ro$ided %efore tenum%er.

&. On 'anuary &,()&* +yriel Co. signed a &)year o"erating lease for offi#e s"a#e at

P-/,))) "er year. Te lease in#luded a "ro$ision for additional rent of -0 annual

#om"any sales in e1#ess of P*,))),))). +yriel2s sales for te year ended

3e#em%er *&, ()&* !ere P*,/)),))). U"on e1e#ution of te lease, +yriel "aidP&44,))) as a %onus for te lease. Ho! mu# sould %e +yriel2s rent e1"ense for

te year ended 3e#em%er *&, ()&*5

a. P-6),4)) #. P-),)))

%. P/)/,))) d. P/(),4))

(. Batman Co. leased a ne! ma#ine to Cat!oman Co. on 'anuary &, ()&*. Te lease

e1"ires on 'anuary &, ()&7. Te annual rental is P&)7,))). Additionally, on 'anuary

&, ()&*, Cat!oman Co. "aid P/),))) to Batman Co. as a lease %onus and P*),)))

as a se#urity de"osit to %e refunded u"on e1"iration of te lease. In Batman2s ()&*

in#ome statement, o! mu# sould %e te rental re$enue5

a. P&)7,))) #. P&(),)))

%. P&-),))) d. P&/7,)))

*. 8u9i Co., a lessor of offi#e ma#ines, "ur#ased a ne! ma#ine for P/)),))) on

'anuary &, ()&* !i# !as leased te same day to Boo. Te ma#ine !ill %e

de"re#iated at P--,))) "er year. Te lease is for a fouryear "eriod e1"iring 'anuary

&, ()& and "ro$ides for annual rental "ayments of P&)),))) %eginning 'anuary &,

()&*. In addition Boo "aid P/4,))) to 8u9i Co. as a lease %onus. In its ()&* in#ome

statement, !at amount of re$enue and e1"ense sould 8u9i Co. re"ort on tis

leased asset5

:e$enue E1"ense

a. &)),))) )

%. &&/,))) --,)))

#. &&/,))) )

d. &/4,))) --,)))

4. 3lora Co. leased offi#e "remises to Lora# In#. for a -year term %eginning 'anuary

(, ()&*. Under te terms of te o"erating lease, rent for te first year is P&-),)))

and rent for years ( troug - is &7,-)) "er annum. Ho!e$er, as an indu#ement to

8/13/2019 Prac1 12.02.13

2/7

enter te lease 3lora granted Lora# te first / monts of te lease rentfree and

"ro$ided an allo!an#e of P7,))) as an additional in#enti$e. In its 3e#em%er *&,

()&* in#ome statement, !at amount sould 3lora re"ort as rental in#ome5

a. P&/*,4)) #. P&/-,)))

%. P&-),))) d. P&//,/))

-. On 'anuary (, ()&*, 'ellyC ;lessee< entered into a -year lease for drilling

e=ui"ment. 'ellyC a##ounted for te a#=uisition as a finan#e lease for P(,4)),))),

!i# in#ludes a P&)),))) %argain "ur#ase o"tion. 'ellyC estimates tat te

e=ui"ment2s fair $alue !ill %e P()),))) at te end of its 7year e#onomi# life. 'ellyC

regularly uses straigtline de"re#iation on similar e=ui"ment. >or te year ended

3e#em%er *&, ()&*, !at amount sould 'ellyC re#ogni?e as de"re#iation e1"ense

on te leased asset5

a. P(-,))) #. P4/),)))

%. P*)),))) d. P47),)))

/. :eg Co. leased a ne! ma#ine from Bam Cor". on May &, ()&* under a lease

!it te follo!ing information@

Annual rental "aya%le at %eginning of ea# lease year 4)),)))Lease term &) yearsE#onomi# life of ma#ine &( yearsIm"li#it interest rate &40P of an annuity "f & in ad$an#e for &) "eriods at &40 -.6-P of & for &) "eriods at &40 ).(

:eg as te o"tion to "ur#ase te ma#ine on May &, ()(* %y "aying P-)),))),

!i# a""ro1imates te e1"e#ted fair $alue of te ma#ine on te o"tion e1er#ise

date. On May &, ()&*, o! mu# sould :eg re#ord te leased asset5

a. P&,67),))) #. P(,(4-,)))

%. P(,*7),))) d. P(,-&-,)))

. Maya In#. leases #om"uter e=ui"ment to #ustomers under dire#t finan#ing leases.

Te e=ui"ment as no residual $alue at te end of te lease and te leases do not#ontain %argain "ur#ase o"tions. Maya In#. !ises to earn 70 interest on a -year

lease of e=ui"ment !it a fair $alue of P*(*,4)). Te "resent $alue of an annuity

due of & at 70 for - years is 4.*&(. Wat is te total amount of interest re$enue tat

Maya !ill earn o$er te term of te lease5

a. P&(6,*/) #. P-&,/))

8/13/2019 Prac1 12.02.13

3/7

%. P-,))) d. P&*6,4-)

7. 3addy :o%2s Co. leased e=ui"ment from Mommy 32s Cor". on 'uly &, ()&* for an 7

year "eriod e1"iring 'une *), ()(&. E=ual "ayments under te lease are P/)),)))and are due on 'uly & of ea# year. Te first "ayment !as made on 'uly &, ()&*.

Te rate of interest #ontem"lated %y 3addy :o%2s Co. and Mommy 32s Cor". is

&)0. Te #as selling "ri#e of te e=ui"ment is P*,-(),))), and te #ost of te

e=ui"ment on Mommy 32s Cor". a##ounting re#ords is P(,7)),))). Te lease is

a""ro"riately re#orded as a salesty"e lease. Wat is te amount of "rofit on te

sale and interest re$enue tat Mommy 32s Cor". sould re#ord for te year ended

3e#em%er *&, ()&*5

Profit on +ale Interest :e$enue

a. 4-,))) &4/,)))

%. 4-,))) &/,)))

#. (),))) &/,)))

d. (),))) &4/,)))

6. On 'une *), ()&*, +na$$y Co. sold e=ui"ment !it an estimated e#onomi# life of

ten years and immediately leased it %a#9 for 7 years. Te e=ui"ment2s #arrying

amount !as P4-),))) te sales "ri#e !as P4*),))) and te "resent $alue of te

lease "ayments. Wat amount sould +na$$y Co re"ort as deferred loss on its 'une

*), ()&* %alan#e seet5

a. one #. P(),)))

%. P&-,))) d. P*-,)))

&). Te follo!ing information "ertains to a sale and o"erating lease%a#9 of e=ui"ment

%y Aritina Cor". on 3e#em%er *&, ()&*@

+ales "ri#e /4),)))Carrying amount -)),)))Montly lease "ayment (-,4-Estimated remaining life (- yearsLease term ( yearsIm"li#it rate &(0>air $alue -4), 7))

Wat amount of deferred gain on te sale sould Aritina re"ort at 3e#em%er *&,

()&*5

a. one #. P66,())

8/13/2019 Prac1 12.02.13

4/7

%. P4),7)) d. P&4),)))

&&. In A"ril ()&(, Dyle Com"any %e#ame in$ol$ed in litigation. In 3e#em%er ()&(,te #ourt assessed a udgement forP(,*)),))) against Dyle Com"any. Dyle

Com"any is a""ealing te amount of te udgement. Dyle2s attorneys %elie$e it is"ro%a%le tat tey #an redu#e te assessment on a""eal %y *-0.

In o$em%er ()&(, Paom%ong City %rougt a#tion against Dyle for "olluting teri$er !it its !aste "rodu#ts. It is "ro%a%le tat Dyle migt lose te #ase and !ill"ay not e1#eeding (,)),))). Wat amount sall %e a##rued as "ro$ision on3e#em%er *&, ()&(5

a. )%. (,)),)))

#. *,-)-,)))

d. 4,&6-,)))

&(. Tra#y Com"any determined tat, due to o%soles#en#e, e=ui"ment !itan original #ost of ,()),))) and remaining useful life of years as of 'uly &,()&( ad suffered "ermanent im"airment. Its 3e#em%er *&, ()&( %oo9 $alue is&0 of its #arrying $alue !it im"airment. After adustments, its ()&( finan#ial"osition re$ealed e=ui"ment;net< is $alued at 4,))),))). Wat is te Im"airmentloss5

a. *,()),)))%. (,-(),)))

#. &,)4),)))d. /7),)))

&*.On 'anuary &,()&( :ui? Com"any as se$eral #ontingent lia%ility as follo!s@

Case & P -),)))

Case ( P&,))),)))

Case * P 6-),)))

:ui?2 attorneys found out tat Case & and * is no! #onsidered "ro%a%le %y -)0and /-0 res"e#ti$ely. Case ( is #onsidered remote o%ligation. Ho! mu#"ro$ision sould %e re#ogni?ed on 3e#em%er *&, ()&(5

a. 6-),)))%. 6)(,-))#. /&,-))d. )

&4.On 3e#em%er *&, ()&( Lili! Com"any so!ed te follo!ing intangi%le assets@

Trademar9 /,))),)))

Patent *,))),)))

Te trademar9 as 7years remaining in its legal life. Ho!e$er, it is anti#i"atedtat te trademar9 !ill routinely rene!ed in te future. Tus, te trademar9 is#onsidered to a$e an indefinite life.

8/13/2019 Prac1 12.02.13

5/7

Be#ause of an inflationary e#onomy, te trademar9 is e1"e#ted to generate #asflo!s of ()),))) "er year. Te a""ro"riate dis#ount rate is &)0. Matemati#ally,te dis#ounted $alue of a stream of indefinite annual #as flo!s is sim"ly#om"uted %y di$iding te annual #as flo! %u te dis#ount rate.

Te "atent as a remaining e#onomi# life of - years %e#ause of te mar9et#onditions. It e1"e#ted tat te "atent !ill generate #as flo!s of -)),))) "eryear. Te a""ro"riate dis#ount rate is also &)0. Te "resent $alue of an ordinaryannuity of & at &)0 foe - "eriods is *.6.

Wat total amount sould %e re#ogni?ed as im"airment loss in ()&(5

a. &,&)-,)))%. -,&)-,)))#. 4,))),)))d. )

&-.Teada Com"any re"orted an im"airment loss of (,))),))) in its in#omestatement for ()&&. Tis loss !as related to an item of "ro"erty, "lant ande=ui"ment !i# !as a#=uired on 'anuary &, ()&) !it #ost of P&),))),))),useful life of &) years and no residual $alue. On 3e#em%er *&, ()&&, Teadare"orted tis asset at /,))),))) !i# is te fair $alue on su# date. On3e#em%er ()&(, Teada determined te fair $alue on its im"aired asset adin#reased to ,-)),))). Te straigt line metod is used for de"re#iation.

Wat amount of gain on re$ersal of im"airment sould Teada re"ort in ()&(in#ome statement5

a. (,(-),)))%. &,-),)))#. &,-)),)))d. )

&/.On o$em%er (*, ()&&, an e1"losion o##urred at a Dar Com"any "lant #ausinge1tensi$e "ro"erty damage to area %uildings. By Mar# &), ()&(, #laims ad%een asserted against Dar. Dar2s management and #ounsel #on#luded tat it is"ro%a%le Dar !ill %e res"onsi%le for damages, and tat *,-)),))) !ould %e areasona%le estimate of its lia%ility. Dar2s &),))),))) #om"reensi$e "u%li#lia%ility as a -)),))) dedu#ti%le #lause. Wat sould %e re"orted in 3e#em%er

*&, ()&& finan#ial statements, issued on A"ril (, ()&(, in relation to tis item5a. A dis#losure indi#ating te "ro%a%le loss of *,-)),))).%. An a##rued lia%ility of *,-)),))).#. An a##rued lia%ility of -)),))).d. A footnote dis#losure indi#ating te "ro%a%le loss of -)),))).

&.:eyes Com"any re$ealed tis follo!ing information on 3e#em%er *&, ()&(@

Ma#inery 7,))),)))et +elling Pri#e *,-)),)))alue in use *,--),)))

A#=usition date 'an &,())7:emaining life -years

3ue to "ysi#al damage, te ma#inery is found to %e im"aired. Wat is te%alan#e of a##umulated de"re#iationma#inery for ()&(5

a. -,))),)))%. 4,4-),)))

8/13/2019 Prac1 12.02.13

6/7

#. 4,&-),)))d. *,-)),)))

&7.>ly Bla9e Com"any "ur#ased a %uilding on 'anuary &, ())6 for &),))),))).Te %uilding gas %een de"re#iated using te straigt line metod !it a (-year

useful life and no residual $alue. On 3e#em%er *&,()&(, >ly Bla9e is e$aluatingte %uilding f"r "ossi%le im"airment. Te %uilding as a remaining useful life of F-years and e1"e#ted to generate #as inflo!s of )),))) "er year. Te a""li#a%ledis#ount rate is 70. :ound off "resent $alue fa#tor to t!o de#imal "la#es. Tefair $alue of te %uilding on 3e#em%er *&, ()&( is -,*)),))).

Wat amount sould %e re#ogni?ed as im"airment loss for ()&(5

a. (,4)7,)))%. *,&)),)))#. 4,)),)))

d. )

&6.In May ()&(, Ui Com"any filed suit against Wi Com"any see9ing &,6)),)))damages for "atent infringement. A #ourt $erdi#t in o$em%er ()&( a!arded Ui&,-)),))) in damages, %ut Wi2s a""eal is not e1"e#ted to %e de#ided %efore()&*. Ui2s #ounsel %elie$ed it is "ro%a%le tat Ui !ill %e su##essful against Wi foran estimated amount in te range %et!een 7)),))) and &,&)),))). Wit&,))),))) #onsidered is te most li9ely amount. Wat amount sould Ui re#ordas in#ome from te la!suit for te year ended 3e#em%er *&, ()&(5

a. )

%. &,))),)))#. &,&)),)))d. &,-)),)))

().3uring ()&(, In Com"any filed suit against Out Com"any see9ing damages fordis"uting te $alidity of #o"yrigt eld %y Out Com"any. On de#eme%r *&, ()&(,In Com"any2s Legal #ounsel %elie$ed tat it !as "ro%a%le tat In Com"any!ould %e su##essful tan Out Com"any for an estimated amount of &,-)),))). InMar# ()&*, In Com"any !as a!arded &,))),))) and re#ei$ed full "aymenttereof. In te ()&( In Com"any finan#ial statements issued >e%ruary ()&*, o!sould tis a!ard re"orted5

a. As a re#ei$a%le and re$enue of &,))),)))%. As a re#ei$a%le and deferred re$enue of &,-)),)))#. As a dis#losure of a #ontingent asset of &,-)),)))d. As a dis#losure of a #ontingent asset of &,))),)))

(&.I#e%erg Com"any "ur#ased a "atent on 'anuary &, ())4 for P/,))),))). Teoriginal useful life !as estimated to %e &- years. Ho!e$er, in 3e#em%er ())6,I#e%erg2s #ontroller re#ei$ed information "ro$iding #on#lusi$ely tat te "rodu#t"rote#ted %y te I#e%erg "atent !ould %e o%solete !itin four years. A##ordingly,te entity de#ided to !rite off te unamorti?ed "ortion of te "atent #ost o$er fi$eyears %eginning in ())6. Ho! mu# !ould %e te "atent amorti?ation for ())65

a. &,()),)))%. &,))),)))#. 7)),)))..d. 4)),)))

((.On 'anuary &, ())/, Taft Com"any "ur#ased a "atent for P,&4),))). Te"atent is %eing amorti?ed o$er its remaining legal life of &- years e1"iring on

8/13/2019 Prac1 12.02.13

7/7

'anuary &, ()(&. 3uring ())6, Taft determined tat te e#onomi# %enefits of te"atent !ould not last longer tan ten years from te date of a#=uisition. Watamount sould %e re"orted in te statement of finan#ial "osition for te "atent,net of a##umulated amorti?ation, at 3e#em%er *&, ())65a. 4,(74,)))

%. 4,76/,)))#. -,)-),)))d. -,(*/,)))

(*.On 'anuary &, ())6, Paye Com"any "ur#ased Ce Com"any at a #ost tat Iresulted in re#ognition of good!ill of P(,))),))). 3uring te first =uarter of ())6,Paye s"ent additional P7)),))) on e1"enditures designed to de$elo" andmaintain good!ill %y training and iring ne! em"loyees. 3ue to tesee1"enditures, at 3e#em%er *&, ())6, Paye estimated tat te %enefit "eriod ofgood!ill !as indefinite. In its 3e#em%er *&, ())6, statement of finan#ial "osition,!at amount sould Paye re"ort as Good!ill5

a. &,7)),)))%. &,6)),)))#. (,))),)))d. (,//),)))

(4.Mayer Com"any "ur#ased Tara Com"any for P7,))),))) #as. Tara #om"anyad total lia%ilities of P*,))),))). Mayer Com"any2s assessment of te fair $alueit o%tained !en it "ur#ased Tara Com"any is as follo!s@

Cas &,))),)))In$entory -)),)))InPro#ess :esear# and de$elo"ment -,))),)))

Assem%led Wor9for#e &,()),)))

Wat is te good!ill arising from te a#=uisition5a. 4,-)),)))%. *,*)),)))#. &,-)),)))d. *)),)))

(-.Trisa Com"any, a maor !inery, %egins #onstru#tion of a ne! fa#ility inMindanao. Te follo!ing #osts are in#urred in #onun#tion !it te startu"a#ti$ities of te ne! fa#ility@

Produ#tion e=ui"ment 7,&-),)))Tra$el Costs of +alaried em"loyees 4)),)))Training of Lo#al Em"loyees for "rodu#tion

And maintenan#e o"erations &,()),)))Li#ense fee &4),)))

Ad$ertising #osts 7-),)))

Wat "ortion of te organi?ation #osts sould %e e1"ensed5a. 6,-),)))%. &,/)),)))#. &,*6),)))d. )