Review 105-----------Day 5THEORY OF ACCOUNTS1. Cash equivalents area. Short-term and highly liquid investments that are readily convertible into cash.b. Short-term and highly liquid investments that are readily convertible into cash with remaining maturity of three months.c. Short-term and highly liquid investments that are readily convertible into cash and so near their maturity that they represent insignificant risk of changes in value because of changes in interest rates.d. Short term and highly liquid marketable equity securities.

2. Which of the following statements is false?a. Not all items included in cash constitute legal tender.b. Cash may be offset against a liability if the deposit of funds in restricted account clearly constitutes the legal discharge of the liability.c. Legally restricted bank deposit held as compensating balances should be segregated from the cash account and reported under a separate caption.d. One-year BSP treasury bills with remaining maturity of three months on balance sheet date may be shown as part of cash and cash equivalents provided this is disclosed.

3. All cash receipts are deposited intact and all cash disbursements are made by means of check. This internal control is known asa. Administrative controlb. Imprest systemc. Accounting controld. Auditing control

4. Entries to record the replenishment of petty cash fund result in a debit to various expense accounts and a credit to cash in bank. This accounting procedure typically exemplifies thea. Imprest petty cash systemb. Fluctuating petty cash systemc. Internal controld. Administrative control

5. What is the major purpose of an imprest petty cash fund?a. To effectively plan cash inflows and outflowsb. To ease the payment of cash to vendorsc. To determine the honesty of the employees d. To effectively control cash disbursements

6. A cash over or short accounta. Is not generally acceptedb. Is debited when the petty cash fund proves out overc. Is debited when the petty cash fund proves out shortd. Is a contra account to cash

7. The payments of accounts payable made subsequent to the close of the accounting period are recorded as if they were made at the end of the current period.a. Window dressingb. Kitingc. Lapping d. Imprest system

8. Bank reconciliation a. Is the process of transferring money in or out of a bank account.b. Requires that every transaction which will result in a cash payment be verified, approved and recorded before a bank check is prepared.c. Is an analysis that reflects the bank transactions made by a depositor.d. Explains the difference between the bank balance and the balance shown in the depositors records.

9. If the cash balance shown in a companys accounting records is less than the correct cash balance and neither the company nor the bank has made any errors, there must bea. Deposits credited by the bank but not yet recorded by the companyb. Deposits in transitc. Outstanding checksd. Bank charges not yet recorded by the company

10. Which of the following cash flows does not appear in a cash flow statement using indirect method?a. Net cash flow from operating activitiesb. Cash received from customersc. Cash inflow from sale of equipment d. Cash outflow for dividend payment

11. In a cash flow statement using the indirect approach for operating activities, an increase in inventory should be presented as a. Outflow of cash b. Addition to net income c. Inflow and outflow of cash d. Deduction from net income

12. Which should not be disclosed in the cash flow statement using the indirect method?a. Interest paid, net of amounts capitalizedb. Income taxes paidc. Cash flow per shared. Dividends paid on preferred stock

13. How should a gain from the sale of used equipment for cash be reported in a cash flow statement using the indirect method?a. In investing activities as a reduction of the cash inflow from the saleb. In investment activities as a cash outflowa. In operating activities as a deduction from incomeb. In operating activities as an addition to income 14. In a cash flow statement, if used equipment is sold at a gain, the amount shown as a cash flow from investing activities equals the carrying amount of the equipmenta. Plus the gainb. Plus the gain and less the amount of tax attributable to the gainc. Plus both the gain and the amount of tax attributable to the gaind. With no addition or subtraction

15. If the cash balance in a companys bank statement is less than the correct cash balance and neither the company nor the bank has made any errors, there must bea. Deposits credited by the bank but not yet recorded by the companyb. Outstanding checksc. Bank charges not yet recorded by the companyd. Deposits in transitP11. On January 1, 2005, Corregidor Company is granted a large tract of land in the Cordillera region by the Philippine government. The fair value of the land is P10 million. Corregidor Company is required by the grant to construct chemical research facility and employ only personnel residing in the Cordillera region. The estimated cost of the facility is P50 million with useful life of 20 years. Corregidor Company should recognize in 2005 an income from government grant ata. 10,000,000b. 2,500,000c. 500,000d. 0

2. On April 1, 2004, Batangas Company bought machinery under a contract that required a down payment of P500,000 plus 24 monthly payments of P300,000 for total payments of P7,700,000. The cash price of the machinery was P6,500,000. The machinery has an estimated useful life of four years and estimated residual value of P500,000. Batangas uses SYD method of depreciation. In its 2005 income statement, what amount should Batangas report as depreciation for this machinery?a. 2,400,000b. 1,800,000c. 1,950,000d. 2,275,000

3. A schedule of plant assets owned by Bauan Company is presented below.

CostScrapDepreciablecostLifeAnnual dep

Building8,800,000800,000 20 years

Machinery3,200,000320,00015 years

Equipment 640,000 5 years

Bauan computes depreciation on the straight line method. The composite life of the assets should bea. 19.8b. 13.3c. 18.0d. 16.0

4. Alitagtag Company purchased factory equipment which was installed and put into service July 1, 2004 at a total cost of P9,000,000. Residual value was estimated at P1,000,000. The equipment is being depreciated over 10 years by the double declining balance method. For the year 2005 how much depreciation expense should Alitagtag record on this equipment?a. 1,620,000b. 1,440,000c. 2,220,000d. 1,280,000

5. On January 1, 2004, Taal Company acquired equipment to be used in its manufacturing operations. The equipment has an estimated useful life of 5 years and residual value of P3,000,000. The depreciation applicable to this equipment was P3,200,000 for 2005 computed under the sum of years digits method. What was the acquisition cost of the equipment?a. 12,000,000b. 15,000,000c. 12,600,000d. 19,000,000

6. Lemery Company acquired property in 2005 which contains mineral deposit. The acquisition cost of the property was P20,000,000. Geological estimates indicate that 5,000,000 tons of mineral may be extracted. It is further estimated that the property can be sold for P5,000,000 following mineral extraction. For P2,000,000, Lemery is legally required to restore the land to a condition appropriate for resale. After acquisition, the following costs were incurred:

Exploration cost13,000,000

Development cost related to drilling of wells10,000,000

Development cost related to production equipment15,000,000

The company extracted 600,000 tons of the mineral in 2005 and sold 450,000 tons. In the 2005 income statement, what amount of depletion is included in cost of sales?a. 4,800,000b. 3,600,000c. 5,400,000d. 4,050,000

7. Calaca Company quaries limestone, crushes it and sells it to be used in road building. Calaca paid P20,000,000 for a certain quarry on January 1, 2004. The property can be sold for P4,000,000 after production ceases. The original total estimated reserves totaled 5,000,000 tons. Calaca quarried 500,000 tons in 2004 and 1,500,000 tons in 2005. An engineering study performed in 2005 indicated that as of December 31, 2005, 4,500,000 tons were available. Calaca Company should record 2005 depletion ata. 3,600,000b, 4,800,000c. 6,000,000d. 4,500,000

8. On July 1, 2005 Balayan Company purchased rights to a mine. The total purchase price was P50,000,000 of which P5,000,000 was allocated to the land. Estimated reserves were 6,000,000. Balayan expects to extract and sell 100,000 tons per month. Balayan Company purchased new equipment on July 1, 2005 for P21,000,000 with estimated life of 8 years. However, after all the resource is removed, the equipment will be of no use and will be sold for P3,000,000. What is the depreciation of the equipment for 2005?a. 1,800,000b. 2,100,000c. 1,125,000d. 3,600,000

9. Calatagan Company provides the following balances at the end of 2005:

Wasting asset, at cost100,000,000

Accumulated depletion 30,000,000

Capital liquidated 10,000,000

Retained earnings 15,000,000

Depletion based on 250,000 units extracted at P50 per unit 12,500,000

Inventory of resource deposit (50,000 units) 6,000,000

Calatagan can declare maximum dividend on December 31, 2005 ofa. 32,500,000b. 45,000,000c. 29,000,000d. 15,000,000

10. Lian Company acquired a building on January 1, 2001 at a cost of P50,000,000. The building has an estimated life of 10 years and residual value of P5,000,000. The building was revalued on January 1, 2005 and the revaluation revealed replacement cost of P80,000,000, residual value of P2,000,000 and revised life of 12 years. What is the revaluation surplus on December 31, 2005?a. 30,000,000b. 26,250,000c. 16,800,000d. 14,700,00011. On January 1, 2005, the historical balances of the land and building of Lipa Company are:

CostAccumulated depreciation

Land 50,000,000

Building300,000,00090,000,000

The land and building were appraised on same date and the revaluation revealed the following:

Sound valueLand 80,000,000Building 350,000,000

There were no additions or disposals during 2005. Depreciation is computed on the straight line. The estimated life of the building is 20 years. The depreciation of the building for the year ended December 31, 2005 should bea. 25,000,000b. 10,000,000c. 15,000,000d. 17,500,000

Capiz Company has the following information on January 1, 2005 relating to its land and building.

Land 20,000,000

Building 450,000,000

Accumulated depreciation 75,000,000

There were no additions or disposals during 2005. Depreciation is computed using straight line over 15 years for building. On June 30, 2005, the land and building were revalued as follows:

Replacement costSound value

Land 35,000,000 35,000,000

Building600,000,000 480,000,000

12. What is the depreciation of the building for 2005? a. 30,000,000 b. 35,000,000 c. 40,000,000 d. 32,000,000

13. What is the revaluation surplus on June 30, 2005?a. 135,000,000b. 125,000,000c. 120,000,000d. 160,000,000

14. What is the revaluation surplus on December 31, 2005?a. 125,000,000b. 130,000,000c. 123,750,000d. 115,000,000

15. During December 2005, Talisay Company determined that there had been a significant decrease in market value of its equipment. At December 31, 2005, Talisay compiled the following information concerning the equipment:

Original cost 20,000,000

Accumulated depreciation12,000,000

Expected undiscounted net future cash inflows from the continued use and eventual disposal 7,000,000

Expected discounted net future cash inflows from the continued use and eventual disposal 5,000,000

Fair value less cost to sell 6,500,000

What is the impairment loss that should be reported in the 2005 income statement?a. 1,000,000b. 2,000,000c. 1,500,000d. 0

MAS1. Sarah Company is planning to purchase a new machine for P600,000. Depreciation for tax purposes will be P100,000 annually for six years. The new machine is expected to produce cash flow from operations, net of income taxes, of P150,000 a year in each of the next six years. The accounting (book value) rate of return on the initial investment is expected to beA.8.3%C.16.7%B.12.0%D.25.0%

2. Investors Inc. uses a 12% hurdle rate for all capital expenditures and has done the following analysis for four projects for the upcoming year.Project 1Project 2Project 3Project 4

Initial cash outlayP200,000P298,000P248,000P272,000

Annual net cash inflows

Year 1P 65,000P100,000P 80,000P 95,000

Year 270,000135,00095,000125,000

Year 380,00090,00090,00090,000

Year 440,00065,00080,00060,000

Net present value( 3,798)4,27614,06414,662

Profitability index98%101%106%105%

Internal rate of return11%13%14%15%

Which project(s) should Investors, Inc. select during the upcoming year under each budgeted amount of funds?No Budget RestrictionP600,000 Available FundsP300,000Available Funds

A.Projects 2, 3 & 4Projects 3 & 4Project 3

B.Projects 1, 2 & 3Projects 2, 3 & 4Projects 3 & 4

C.Projects 1, 3 & 4Projects 2 & 3Project 2

D.Projects 3 & 4Projects 2 & 4Projects 2 & 4

3.If the North Division of Alliance Products Company had an operating asset turnover of 4.2 and an operating income margin of 0.10, the return on investment would beA.23.8%C.42.0%B.420.0%D.4.2%

4. The sales director of Lloyd Company suggested that certain credit terms be modified. He estimates the following effects: Sales will increase by at least 20% Accounts receivable turnover will be reduced to 8 times from the present turnover of 10 times Bad debts, now at 1% of sales will increase to 1.5%Sales before the proposed changes is at P900,000. Variable cost ratio is 55% and the desired rate of return is 20%. Fixed expenses amount to P150,000.Should the company allow revision of its credit terms?A.Yes, because income will increase by P64,800B.Yes, because losses will be reduced by P73,800C.No, because income will be reduced by P13,000D.No, because losses will be increased by P28,000

5. Bye Company borrows from a bank a certain loan at a stated discount rate of 12 percent per annum. The bank requires 10 percent of loan as compensating balance in its new checking account. The loan is payable at the end of 6 months. The effective interest rate of this loan isA.28.21 percentC.27.27 percent B.14.29 percentD.15.38 percent

6.Which of the following is not a major function in cash management? a.Cash flow controlc.Maximizing salesb.Cash surplus investmentd.Obtaining financing services

7.A precautionary motive for holding excess cash is a.To enable a company to meet the cash demands from the normal flow of business activity.b.To enable a company to avail itself of a special inventory purchase before prices rise to higher levels.c.To enable a company to have cash to meet emergencies that may arise periodically.d.To avoid having to use the various types of lending arrangements available to cover projected cash deficits.

8.The amount of cash that a firm keeps on hand in order to take advantage of any bargain purchases that may arise is referred to as its A. Transactions balance. C. Precautionary balance.B. Compensating balance. D. Speculative balance.

9.All of the following are valid reasons for a business to hold cash and marketable securities except to A. Satisfy compensating balance requirements. B. Maintain adequate cash needed for transactions. C. Meet future needs. D. Earn maximum returns on investment assets.

10.Which of the following actions would not be consistent with good management? a.Increased synchronization of cash flows.b.Minimize the use of float.c.Maintaining an average cash balance equal to that required as a compensating balance or that which minimizes total cost.d.Use of checks and drafts in disbursing funds.

11.When managing cash and short-term investments, a corporate treasurer is primarily concerned with A. Maximizing rate of return. B. Minimizing taxes. C. Investing in Treasury bonds since they have no default risk. D. Liquidity and safety.

12.The economic order quantity (EOQ) formula can be adapted in order for a firm to determine the optimal mix between cash and marketable securities. The EOQ model assumes all of the following excepta.The cost of a transaction is independent of the dollar amount of the transaction and interest rates are constant over the short run.b.An opportunity cost is associated with holding cash, beginning with the first dollar.c.The total demand for cash is known with certainty.d.Cash flow requirements are random.

13.The following are desirable in cash management except: a.Cash is collected at the earliest time possible.b.Most sales are on cash basis and receivables are aged currentc.Post-dated checks are not deposited on time upon maturity.d.All sales are properly receipted and promptly deposited intact.

14.The one item listed below that would warrant the least amount of consideration in credit and collection policy decisions is the A. Quality of accounts accepted. C. Cash discount given.B. Quantity discount given. D. Level of collection expenditures.

15.Which of the following investments is not likely to be a proper investment for temporary idle cash? a.Initial public offering of an established profitable conglomerate.b.Commercial paper. c.Treasury bills.d.Treasury bonds due within one year.

P21. In an 80% purchase accounted for as a tax-free exchange, the excess ofcost over book value is 200,000. The equipment's book value for taxpurposes is 100,000 and its fair value is 150,000. All otheridentifiable assets and liabilities have fair values equal to their bookvalues. The tax rate is 30%. What is the total deferred tax liabilitythat should be recognized on the consolidated balance sheet on the dateof purchase?a. 12,000b. 60,000c. 72,857d. 85,7142. Paro Company purchased 80% of the voting common stock of Sabon Companyfor 900,000. There are no liabilities. The following book and fairvalues are available:Book Value Fair ValueCurrent assets...................... 100,000 200,000Land and building................... 200,000 200,000Machinery........................... 300,000 600,000Goodwill............................ 100,000 ?Using the parent company concept, the machinery will appear on theconsolidated balance sheet at __________.a. 600,000b. 540,000c. 480,000d. 300,0003. On January 1, 20X1, Rabb Corp. purchased 80% of Sunny Corp.'s 10 parcommon stock for 975,000. On this date, the carrying amount of Sunny'snet assets was 1,000,000. The fair values of Sunny's identifiableassets and liabilities were the same as their carrying amounts exceptfor plant assets (net), which were 100,000 in excess of the carryingamount.In the January 1, 20X1, consolidated balance sheet, goodwill should bereported at _______.a. 0b. 75,000c. 95,000d. 175,0004. Patti Corp. has several subsidiaries (Aeta, Beta, and Gaeta) that areincluded in its consolidated financial statements. In its 12/31/X1separate balance sheet, Patti had the following intercompany balancesbefore eliminations:Debit CreditCurrent Receivable due from Aeta..... 40,000Noncurrent Receivable due from Beta... 100,000Cash Advance to Beta.................. 26,000Cash Advance from Gaeta............... 75,000Intercompany Payable to Gaeta......... 40,000In its 12/31/X1 consolidated balance sheet, what amount should Pattireport as intercompany receivables?a. 166,000b. 51,000c. 26,000d. 0

5. Pease Corporation owns 100% of Sade Corporation common stock. On January2, 20X6, Pease sold machinery with a carrying amount of 30,000 to Sadefor 50,000. Sade is depreciating the acquired machinery over a 5-yearlife using the straight-line method. The net adjustments to compute the20X6 and 20X7 consolidated income before income tax would be an increase(decrease) of20X6 20X7a. (16,000) 4,000b. (16,000) 0c. (20,000) 4,000d. (20,000) 0

6. Ponti Company purchased the net assets of the Sorri Company for800,000. The net assets of Sorri Company were recorded as follows onthe acquisition date:Cash............................................. 50,000Inventory........................................ 150,000Land............................................. 150,000Building (net)................................... 400,000Liabilities...................................... (200,000)Net assets..................................... 550,000=========The market values were as follows: Inventory, 160,000; Land, 170,000;Building, 450,000. The excess purchase price is allocated to goodwill.What is the amount that will appear as cash applied to investing as aresult of this purchase?a. 800,000b. 720,000c. 750,000d. 670,0007. Company P purchased an 80% interest in Company S on January 1, 20X3, for700,000. On the purchase date, Company S stockholders' equity was800,000. Any excess of cost over book value was attributed to a patentwith a 15-year life. In 20X3, Company P reported internally generatednet income before taxes of 80,000. Company S reported a net incomebefore taxes of 40,000. The firms file separate tax returns at a 30%tax rate. Assume an 80% dividend exclusion rate on intercompanydividends. The controlling share of consolidated net income is__________.a. 81,200b. 79,280c. 78,480d. 74,2568. Company P owns a 30% interest in Company S and accounts for theinvestment under the sophisticated equity method. The investment waspurchased at underlying book value, and there is no excess of cost orbook value. Company S sells merchandise to Company P at cost plus 25%.Intercompany sales during 20X1 were 100,000. There were 20,000 worthof such goods in Company P's beginning inventory and 30,000 worth ofsuch goods in Company P's ending inventory. Company S's reported incomefor 20X1 is 40,000, and no dividends were paid. What amount willCompany P record as investment income in 20X1?a. 12,000b. 11,400c. 9,750d. 4,500

9. Pine Company purchased a 55% interest in the Sent Company on January 1,20X1 for 350,000. On that date, the stockholders' equity of SentCompany was 450,000. Any excess cost was attributable to the fair valueincrease of equipment with a 10-year life. Pine purchased another 20%interest on January 1, 20X5 for 200,000. On January 1, 20X5, SentCompany's stockholders' equity was 700,000, the entire increase due toretained earnings. Any excess cost was again attributed to the fairvalue increase of equipment with a 6-year life. The additional expenseon the December 31, 20X5, income statement is __________.a. 10,250b. 20,250c. 10,000d. 16,250

10. Prior to January 1, 20X4, Parts Inc. owned a 60% controlling interest inSorter Company. On July 1, 20X4, Parts Inc. purchased an additional 20%interest in Sorter for 150,000. Sorter's stockholders' equity was600,000 on January 1, 20X4. Any excess was attributed to goodwill. OnJuly 1, 20X4, there was intercompany inventory owned by Parts Inc. thathad been purchased from Sorter. Sorter's profit on the inventory was5,000. Parts Inc. sold the inventory during the latter half of 20X4.Sorter's net income for 20X4 was 60,000, earned evenly during the year.Goodwill arising from the second acquisition is __________.a. 30,000b. 29,500c. 25,000d. 23,500

11. Palto Inc. purchased a 10% interest in the Sauer Company for 50,000 onJanuary 1, 20X1. On that date, Sauer's stockholders' equity was400,000. Any excess would have been attributed to a patent with a 10-year life. On January 1, 20X3, Palto purchased another 60% interest for500,000 when Sauer's stockholders' equity was 700,000. Again, anyexcess was attributed to the patent with an 8-year life. The SauerCompany earned $50,000 during 20X3. The patent on the December 31, 20X3,consolidated balance sheet will be __________.a. 90,000b. 77,000c. 80,000d. 10,000

12. Company P purchased the outstanding common stock of Company S asfollows:15%, January 1, 20X120%, June 1, 20X130%, August 1, 20X135%, September 30, 20X1The fiscal year of both firms ends on December 31. S's stock wasacquired by P at book value. The controlling interest in consolidatednet earnings for the fiscal year ended December 31, 20X1, would includewhich of the following earnings of the subsidiary?a. 100%, January-December 20X1b. 15%, January-May 20X1; 20%, June-July 20X1; and 30%, August-September 20X1c. 15%, January-May 20X1; 35%, June-July 20X1; 65%, August-October20X1; and 100%, September - Decemberd. 15%, January-May 20X1; 35%, June-July 20X1; 65%, August-September20X1; and 100%, November December

13. Paris LTD. owned a 75% interest in Scott Company prior to January 1,20X3. On January 1, 20X1, Paris LTD. paid 600,000 for its interest whenScott Company had total equity of 550,000. On January 1, 20X3, ScottCompany had the following stockholders' equity:Common stock, 10 par............... 100,000Other paid-in capital............... 200,000Retained earnings................... 350,000On January 2, 20X3, Scott Company sold 2,500 additional shares of stockfor 35 each in a public offering to noncontrolling shareholders. As aresult of this sale, which of the following changes would appear in the20X3 consolidated statements?a. 45,000 lossb. 21,875 lossc. 45,000 decrease in controlling paid-in capitald. 21,875 decrease in controlling paid-in capita

14.Apple Inc. owns a 90% interest in Banana Company. Banana Company, inturn, owns a 80% interest in Carrot Company. During 20X4, Carrot Companysold $50,000 of merchandise to Apple Inc. at cost plus 25%. Of thismerchandise, $10,000 was still unsold by Apple Inc. at year end. Theadjustment to the controlling interest in consolidated net income for20X4 is __________.a. 560b. 1,440c. 1,600d. 1,800

15. A owns 80% of B and 20% of C. B owns 32% of C, and C owns 10% of A.Which interest will not be included in the consolidated balance sheet?a. 10% of Ab. 100% of Cc. 10% of A and 48% of Cd. 20% of B and 48% of C

APOn January 1, 2007 KUNG FU KIDS CORP. issued 3-year, 4,000 convertible bonds at face value of P1,000 per bond. Interest is to be paid annually in arrears at the stated coupon rate of 6%. Each bond is convertible, at the holders option, into 40 P10 par value ordinary shares at any time up to maturity. On the date of issuance, the prevailing market interest rate for similar debt without the conversion privilege was 9%. On the same date, the market price of one common share was P12.1. What is the equity component of the compound instrument?a. 110,091b. 211,093c. 303,755d. 388,7662. What is the interest expense to be reported on Kung Fu Kids Corp.s income statement for the year ended December 31, 2008?a. 303,113b. 332,662c. 341,002d. 350,092

3. What is the credit to share premium account assuming that 3,000 of the bonds were converted on January 1, 2009?a. 1,717,432b. 1,928,525c. 2,017,432d. 2,289,908

4. Assuming that on the issuance date, the company paid transactions costs totaling to P151,469, and as a result the yield rate increased by 1.5%, what is the equity component of the compound instrument?a. 292,253b. 303,755c. 443,722d. 315,257

5. Using the assumption in number 34, and assuming all the 4,000 bonds were retired on January 1, 2009 when the prevailing yield rate on the bonds was at 9%, at P4,000,000, what is the loss to be reported in the income statement?a. 0b. 52,804c. 162,895d. 330,275

The long-lived assets and related accounts of BANDILA INC. had the following balances as of January 1, 2007:PPECostAccumulated DepreciationLand 700,000Land Improvements, straight line, 15yrs. 360,000120,000Building, 150%declining balance, 20yrs. 9,000,000 2,905,316Machinery and equipment, SYD, 10yrs. 2,320,000 1,434,182Automobiles, 150% declining balance, 3yrs. 1,800,000 900,000

INTANGIBLESCostAccumulated DepreciationPatent 960,000120,000

Review of transactions during the period revealed the following information:a. The patent was purchased for 960,000 on January 1, 2005, incurring additional license-transfer processing fees charged to operations amounting to 40,000. On the acquisition date the remaining legal life was 16 years. On January 1, 2007, the company determined that the useful life of the patent was only ten years from the date of acquisition.b. On January 5, 2007, Bandila acquired a tract of land with an existing building in exchange for 50,000 shares of Bandilas P10 par value share capital that had a market price of P18 per share on this date and a 5 year, P500,000, 10% face value bonds which currently yields 12% in the market. Shortly after the acquisition, the building was razed at a cost of 45,000 in anticipation of new building construction within the year. The property was appraised by an independent appraiser at 1,200,000.c. On April 5, 2007, a machine purchased for 520,000 on January 1, 2003, was sold for 120,000.d. On June 2, 2007, the company purchased a new automobile for 920,000 cash and trade-in of an automobile purchased for 1,080,000 on January 1, 2006. The old automobile has a trade in value of 220,000.e. An extensive work was done to the five-year old building during the year end was completed by the end of August. The total cost of the work done amounted to 500,000 which consisted the following:Repainting of ceilings and walls50,000Routinary repairs150,000Major electrical work300,000Audit note: It is the companys policy to provide full years depreciation on the year of acquisition/addition and no depreciation on the year of disposal.6. What is the credit to the share premium account related to the acquisition of land on January 5?a. 191,048b. 236,048c. 281,048d. 400,000

7. What is the gain or loss on disposal of machinery and equipment on April 5?a. 64, 363b. 78, 545c. 201,455d. 215,636

8. How much is the carrying value of the Automobiles as of 2007?a. 180,000b. 360,000c. 640,000d. 750,000

9. What is the depreciation expense on the buildings for 2007?a. 457,100b. 469,101c. 487,101d. 492,101

10. What is the total amortization expense on the patent for the year?a. 87,500b. 105,000c. 109,375d. 102,735

You were assigned to audit the financial statements of NORTHERN LUZON MINING CORP. for the year ended December 31, 2007. The company started its operation in 2005 when it acquired an undeveloped mine property at a total acquisition price of P15,000,000, P1,500,000 of which was attributed to the land. The company incurred exploration and evaluation costs necessary to prove technical feasibility and viability of commercially extracting and producing minerals totaling to 4,800,000. Technical feasibility of the operations was established midyear of 2005, thus the company started developing the property and preparing it for mine extraction. The company incurred the following development costs which were accounted for as separate depreciable property and equipment:Buildings4,500,000Developmental excavation1,200,000Mining equipment6,000,000It was estimated that the property contains 10M tons of mineral reserves after which P800,000 is expected to be incurred to restore the land to a sellable condition (it is the companys practice to deduct this amount from the residual value of the mine property in computing for the depletion).The company reported the following information in its 2006 financial statements after 1 year of mine operations:Mine inventory, 200,000 tons1,916,667Mine property19,800,000Accumulated depletion1,719,000Property and equipment11,700,000Accumulated depreciation- building300,000Accumulated depreciation- developmental excavation120,000Accumulated depreciation- mining equipment1,000,000Accumulated profits4,256,667

The company carries its inventories on a first in-first out basis. Depletion on the mine property was made under the output method while depreciation was made based on the assumed useful lives of the property and equipment. The depreciation on the building is allocated 60:40 to production and other operations, respectively, while depreciation on the other properties are entirely charged to production. The company is yet to declare or distribute any dividends to shareholders.The operations of the company for the current year are summarized as follows:Tons mined940,000 tonsTons sold952,000 tonsSelling price per tonP15.00/tonDirect laborP3,675,000Overhead costs, excluding depreciationP3,150,000Other operating expenses, excluding depreciationP1,575,000Using the information above and as a result of your audit, answer the following:11. What is the correct depletion on 2006?a. 1,719,000b. 1,827,000c. 1,910,000d. 2,100,000

12. What is the correct net income in 2006?a. 4,136,000b. 4,152,667c. 4,175,000d. 4,210,667

13. What is the correct inventory at the beginning of 2007?a. 1,950,667b. 1,936,667c. 1,928,000d. 1,924,000

14. What is the correct net income in 2007?a. 4,261,400b. 4,092,200c. 3,718,800d. 2,618,200

15. What is the maximum dividends the company can distribute in 2007?a. 11,620,760b. 11,247,360c. 10,456,500d. 10,146,760BLT1. A offered 20 Tamiya cars to B for P1,000.00 each. B answered by letter that he was willing to purchase not 20 but 30 pieces at said price of P1,000.00 each. Is the contract perfected?1. No, because there is qualified acceptance which constitutes an offer by the buyer.1. Yes, there is perfected sale because the number of pieces is only incidental matter in the sale.1. Yes, because the letter of acceptance was already sent by the offeree.1. No, because there is no offer yet of A that is certain.

1. Statements:If one of the parties at the time of making the offer or acceptance was already was already insane the contract is voidable.If before the acceptance is conveyed to the offerer, either of the parties becomes insane, the contract is void, that is, the offer is noneffective.1. Both statements are incorrect.1. Both are correct.1. First is correct, second is incorrect.1. Second is correct, first is incorrect.

1. A, a minor sold to B a parcel of land registered in his name misrepresenting to the latter that he is of legal age. Having been misled as to the true age of A, B entered into the contract. Is the contract voidable?1. It is voidable because the seller is a person incapable of giving consent to a contract being a minor.1. It is voidable because of mistake on the part of B when he thought that A was of legal age.1. It is not voidable but rather void because of lack of consent of A who is onli a minor without capacity to enter into contracts.1. It is not voidable because of the fraud committed by the minor seller and the buyer being in good faith.

1. A, a director of X corporation , through an agent bought the shares of stocks of another stockholder without revealing to the seller stockholder that negotiations were in progress to enhance the value of the shares. The sale is defective contract being:1. Void, because of fraud committed by A against the other stockholder.1. Voidable because the mistake on the part of the seller-stockholder.1. Rescissible because of the damage suffered by the seller.1. Voidable due to the fraud concealment by A against a fellow stockholder.

1. While his father was still alive, A sold to B the property he (A) expected to receive from his father. Is the contract defective?1. It is completely valid contract because the seller is compulsory heir.1. It is valid for there can be sale of future things and what A sold is future property.1. It is voidable sale if he fails to receive the property he expected to receive from his father.1. It is void for future inheritance cannot be sold.

1. A promised to give B a car reward after B has killed C. later, after the killing, the contract was changed to a lease of a big house for a certain period.The contract of lease is:1. Void1. Unenforceable1. Voidable1. Rescissible

1. S orally sold to B a parcel of land for which the latter paid P1M. B now wants to register the sale so that he can have a Transfer Certificate of Title in his name. Decide.1. S cannot be compelled to execute the public document of sale 1. S can be compelled to execute the public the public document of sale because the sale is enforceable.1. The sale is void and therefore cannot be registered.1. S cannot be compelled to execute the public document of sale because the sale is voidable.

1. S orally leased to R his parcel of land for a term of two years. The contract is:1. Rescissible1. Voidable1. Unenforceable1. Void

1. Statement 1. A person , refuse to pay on the ground that he will not receive a benefit from the tax.Statement 2. A person may not refuse to pay a tax on the ground that it is confiscatory of his property.a.The first statement is true while the second statement is false;b.The first statement is false while the second statement is true:c.Both statements are true;d.Both statements are false.

1. Taxes must be for public purpose means that:a. Taxes must be raised from the public;b. Taxes should be used for recognized public needs benefiting a community;c. Power of taxation should government be exercised by the legislature;d. Relationship of the government and the governed must be transparent and democratic.

1. Exemption from tax is a privilege, which is being looked upon by law with disfavor because everyone should be sharing the burden of taxation. On account of this view, exemption from tax is construed strictly against the taxpayer, except in certain situation like:10. Exemption is granted to the impoverished sector in certain situation like;10. Exemption relates to a public officials;10. Exemption refers to a public property;10. All of the above.

1. First Statement: A mere request by the taxpayer for reinvestigation without the corresponding action of the part of the Bureau of Internal Revenue Commissioner does not interrupt the running of the prescriptive period;

Second Statement: A warrant of distraint and levy which is merely issued does not suspend the running of the prescriptive period for collection unless said warrant is duly served.a. Both statements are false;b. First statement is true, second statement is false;c. First statement is false, second statement is true;d. Both statements are true.

1. Penalties imposed under the Tax Code for failure of a taxpayer to file or pay taxes, except one:a. Interest on deficiency tax or on delinquency;b. Civil penalties in the form of surcharges;c. Fine and/or imprisonment;d. Subsidiary imprisonment in case of failure to pay fines.

1. Bogok, Manager of Tongek Co., receives a monthly salary of P120,000. On January 15, 2008, Bogok received a bonus for services rendered in 2007 in the form of 200 shares of stock of Tongek Co. Said shares have a par value of P120 per share and a fair market value of P240 per share at the time of receipt on January 15, 2008. Its fair market value in 2007 was P210 per share.Bogok shall report income from bonus in the amount of:a.P48,000 b. P42,000 c. P24,000 d. None of the above

1. Mabagal Transportation Company is a holder of a franchise to operate twelve (12) units of buses in the Ilocos Region. It also owns a gas station, which is used exclusively to load its own buses although in very rare instances it is accepting repair jobs from outsiders. During the month of December 2008, it had the following gross receipts.From the buses P280,000From the gas station 300,000From the garage 12,000

How much is the common carriers tax payable?a. 17, 760 b. P 8,400 c. P8,760d. P17,400