32.

On December 31, 2008, Prince Company appropriately changed to the FIFO cost method from the weightedaverage cost method for financial statement and income tax purposes. The change will result in a
$700,000 increase in the beginning inventory at January 1, 2008. Assuming a 40 percent income tax rate
and that no comparative financial statements for prior years are reported, the cumulative effect of this
accounting change reported for the year that no comparative financial statements for prior years are
reported, the cumulative effect of this accounting change reported for the year that no comparative
financial statements for prior years are reported, the cumulative effect of this accounting change reported
for the year that no comparative financial statements for prior years are reported, the cumulative effect of
this accounting change reported for the year ended December 31, 2008, is
a. $700,000.
years are reported, the cumulative effect of this accounting change reported for the year that no comparative
financial statements for prior years are reported, the cumulative effect of this accounting change reported
for the year ended December 31, 2008, is
a. $700,000.
years are reported, the cumulative effect of this accounting change reported for the year that no comparative
financial statements for prior years are reported, the cumulative effect of this accounting change reported
for the year ended December 31, 2008, is
a. $700,000.
years are reported, the cumulative effect of this accounting change reported for the year that no comparative
financial statements for prior years are reported, the cumulative effect of this accounting change reported
for the year ended December 31, 2008, is
a. $700,000.
b. $350,000.
c. $420,000.
Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported,
the cumulative effect of this accounting change reported for the year ended December 31, 2008, is
a. $700,000.
rate and that no comparative financial statements for prior years are reported, the cumulative effect of this
accounting change reported for the year ended December 31, 2008, is
a. $700,000.
rate and that no comparative financial statements for prior years are reported, the cumulative effect of this
accounting change reported for the year ended December 31, 2008, is
a. $700,000.
rate and that no comparative financial statements for prior years are reported, the cumulative effect of this
accounting change reported for the year ended December 31, 2008, is
a. $700,000.
b. $350,000.
c. $420,000.
Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported,
the cumulative effect of this accounting change reported for the year ended December 31, 2008, is
a. $700,000.
increase in the beginning inventory at January 1, 2008. Assuming a 40 percent income tax rate and that no
comparative financial statements for prior years are reported, the cumulative effect of this accounting
change reported for the year ended December 31, 2008, is
a. $700,000.
b. $350,000.
c. $420,000.
Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported,
the cumulative effect of this accounting change reported for the year ended December 31, 2008, is
a. $700,000.
b. $350,000.

c. $420,000.
Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported,
the cumulative effect of this accounting change reported for the year ended December 31, 2008, is
a. $700,000.
increase in the beginning inventory at January 1, 2008. Assuming a 40 percent income tax rate and that no
comparative financial statements for prior years are reported, the cumulative effect of this accounting
change reported for the year ended December 31, 2008, is
a. $700,000.
b. $350,000.
c. $420,000.
Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported,
the cumulative effect of this accounting change reported for the year ended December 31, 2008, is
a. $700,000.
b. $350,000.
c. $420,000.
Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported,
the cumulative effect of this accounting change reported for the year ended December 31, 2008, is
a. $700,000.
increase in the beginning inventory at January 1, 2008. Assuming a 40 percent income tax rate and that no
comparative financial statements for prior years are reported, the cumulative effect of this accounting
change reported for the year ended December 31, 2008, is
a. $700,000.
b. $350,000.
c. $420,000.
Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported,
the cumulative effect of this accounting change reported for the year ended December 31, 2008, is
a. $700,000.
b. $350,000.
c. $420,000.
Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported,
the cumulative effect of this accounting change reported for the year ended December 31, 2008, is
a. $700,000.
increase in the beginning inventory at January 1, 2008. Assuming a 40 percent income tax rate and that no
comparative financial statements for prior years are reported, the cumulative effect of this accounting
change reported for the year ended December 31, 2008, is
a. $700,000.
b. $350,000.
c. $420,000.
Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported,
the cumulative effect of this accounting change reported for the year ended December 31, 2008, is
a. $700,000.
b. $350,000.
c. $420,000.
Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported,
the cumulative effect of this accounting change reported for the year ended December 31, 2008, is
a. $700,000.
b. $350,000.
c. $420,000.
Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported,
the cumulative effect of this accounting change reported for the year ended December 31, 2008, is
a. $700,000.

b. $350,000.
c. $420,000.
Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported,
the cumulative effect of this accounting change reported for the year ended December 31, 2008, is
a. $700,000.
b. $350,000.
c. $420,000.
d. $280,000.
ANS: C
DIF: Medium
TOP: AICPA FN-Measurement

OBJ: LO 3
MSC: AACSB Analytic

33. On January 2, 2006, McKell Company acquired machinery at a cost of $640,000. This machinery was
being depreciated by the double-declining-balance method over an estimated useful life of eight years,
with no residual value. At the beginning of 2008, McKell decided to change to the straight-line method of
depreciation. Ignoring income tax considerations, the cumulative effect of this accounting change is
a. $0.
b. $120,000.
c. $130,000.
d. $280,000.
ANS: A
DIF: Medium
TOP: AICPA FN-Reporting

OBJ: LO 3
MSC: AACSB Reflective Thinking

34. On January 1, 2005, Grayson Company purchased for $240,000 a machine with a useful life of ten years
and no salvage value. The machine was depreciated by the double-declining-balance method, and the
carrying amount of the machine was $153,600 on December 31, 2006. Grayson changed to the straightline method on January 1, 2007. Grayson can justify the change. What should be the depreciation expense
on this machine for the year ended December 31, 2008?
a. $15,360
b. $19,200
c. $24,000
d. $30,720
ANS: B
DIF: Medium
TOP: AICPA FN-Measurement

OBJ: LO 2
MSC: AACSB Analytic

35. Tyson Company bought a machine on January 1, 2006, for $24,000, at which time it had an estimated
useful life of eight years, with no residual value. Straight-line depreciation is used for all of Tyson's
depreciable assets. On January 1, 2008, the machine's estimated useful life was determined to be only six
years from the acquisition date. Accordingly, the appropriate accounting change was made in 2008.
Tyson's income tax rate was 40 percent in all the affected years. In Tyson's 2005 financial statements, how
much should be reported as the cumulative effect on prior years because of the change in the estimated
useful life of the machine?
a. $0
b. $1,200
c. $2,000
d. $2,800
ANS: A
DIF: Medium
TOP: AICPA FN-Reporting

OBJ: LO 2
MSC: AACSB Reflective Thinking

machine was depreciated by the double-declining-balance method, and the carrying amount of the machine was
$153,600 on December 31, 2006. Grayson changed to the straight-line method on January 1, 2007.
Grayson can justify the change. What should be the depreciation expense on this machine for the year
ended December 31, 2008?
a. $15,360
b. $19,200
c. $24,000
d. $30,720
ANS: B
DIF: Medium
TOP: AICPA FN-Measurement

OBJ: LO 2
MSC: AACSB Analytic

35. Tyson Company bought a machine on January 1, 2006, for $24,000, at which time it had an estimated
useful life of eight years, with no residual value. Straight-line depreciation is used for all of Tyson's
depreciable assets. On January 1, 2008, the machine's estimated useful life was determined to be only six
years from the acquisition date. Accordingly, the appropriate accounting change was made in 2008.
Tyson's income tax rate was 40 percent in all the affected years. In Tyson's 2005 financial statements, how
much should be reported as the cumulative effect on prior years because of the change in the estimated
useful life of the machine?
a. $0
b. $1,200
c. $2,000
d. $2,800
ANS: A
DIF: Medium
TOP: AICPA FN-Reporting

OBJ: LO 2
MSC: AACSB Reflective Thinking

machine was depreciated by the double-declining-balance method, and the carrying amount of the machine was
$153,600 on December 31, 2006. Grayson changed to the straight-line method on January 1, 2007.
Grayson can justify the change. What should be the depreciation expense on this machine for the year
ended December 31, 2008?
a. $15,360
b. $19,200
c. $24,000
d. $30,720
ANS: B
DIF: Medium
TOP: AICPA FN-Measurement

OBJ: LO 2
MSC: AACSB Analytic

35. Tyson Company bought a machine on January 1, 2006, for $24,000, at which time it had an estimated
useful life of eight years, with no residual value. Straight-line depreciation is used for all of Tyson's
depreciable assets. On January 1, 2008, the machine's estimated useful life was determined to be only six
years from the acquisition date. Accordingly, the appropriate accounting change was made in 2008.
Tyson's income tax rate was 40 percent in all the affected years. In Tyson's 2005 financial statements, how
much should be reported as the cumulative effect on prior years because of the change in the estimated
useful life of the machine?
a. $0
b. $1,200
c. $2,000
d. $2,800

ANS: A
DIF: Medium
TOP: AICPA FN-Reporting

OBJ: LO 2
MSC: AACSB Reflective Thinking

machine was depreciated by the double-declining-balance method, and the carrying amount of the machine was
$153,600 on December 31, 2006. Grayson changed to the straight-line method on January 1, 2007.
Grayson can justify the change. What should be the depreciation expense on this machine for the year
ended December 31, 2008?
a. $15,360
b. $19,200
c. $24,000
d. $30,720
ANS: B
DIF: Medium
TOP: AICPA FN-Measurement

OBJ: LO 2
MSC: AACSB Analytic

35. Tyson Company bought a machine on January 1, 2006, for $24,000, at which time it had an estimated
useful life of eight years, with no residual value. Straight-line depreciation is used for all of Tyson's
depreciable assets. On January 1, 2008, the machine's estimated useful life was determined to be only six
years from the acquisition date. Accordingly, the appropriate accounting change was made in 2008.
Tyson's income tax rate was 40 percent in all the affected years. In Tyson's 2005 financial statements, how
much should be reported as the cumulative effect on prior years because of the change in the estimated
useful life of the machine?
a. $0
b. $1,200
c. $2,000
d. $2,800
ANS: A
DIF: Medium
TOP: AICPA FN-Reporting

OBJ: LO 2
MSC: AACSB Reflective Thinking

machine was depreciated by the double-declining-balance method, and the carrying amount of the machine was
$153,600 on December 31, 2006. Grayson changed to the straight-line method on January 1, 2007.
Grayson can justify the change. What should be the depreciation expense on this machine for the year
ended December 31, 2008?
a. $15,360
b. $19,200
c. $24,000
d. $30,720
ANS: B
DIF: Medium
TOP: AICPA FN-Measurement

OBJ: LO 2
MSC: AACSB Analytic

35. Tyson Company bought a machine on January 1, 2006, for $24,000, at which time it had an estimated
useful life of eight years, with no residual value. Straight-line depreciation is used for all of Tyson's
depreciable assets. On January 1, 2008, the machine's estimated useful life was determined to be only six
years from the acquisition date. Accordingly, the appropriate accounting change was made in 2008.
Tyson's income tax rate was 40 percent in all the affected years. In Tyson's 2005 financial statements, how
much should be reported as the cumulative effect on prior years because of the change in the estimated
useful life of the machine?
a. $0

b. $1,200
c. $2,000
d. $2,800
ANS: A
DIF: Medium
TOP: AICPA FN-Reporting

OBJ: LO 2
MSC: AACSB Reflective Thinking

machine was depreciated by the double-declining-balance method, and the carrying amount of the machine was
$153,600 on December 31, 2006. Grayson changed to the straight-line method on January 1, 2007.
Grayson can justify the change. What should be the depreciation expense on this machine for the year
ended December 31, 2008?
a. $15,360
b. $19,200
c. $24,000
d. $30,720
ANS: B
DIF: Medium
TOP: AICPA FN-Measurement

OBJ: LO 2
MSC: AACSB Analytic

35. Tyson Company bought a machine on January 1, 2006, for $24,000, at which time it had an estimated
useful life of eight years, with no residual value. Straight-line depreciation is used for all of Tyson's
depreciable assets. On January 1, 2008, the machine's estimated useful life was determined to be only six
years from the acquisition date. Accordingly, the appropriate accounting change was made in 2008.
Tyson's income tax rate was 40 percent in all the affected years. In Tyson's 2005 financial statements, how
much should be reported as the cumulative effect on prior years because of the change in the estimated
useful life of the machine?
a. $0
b. $1,200
c. $2,000
d. $2,800
ANS: A
DIF: Medium
TOP: AICPA FN-Reporting

OBJ: LO 2
MSC: AACSB Reflective Thinking

machine was depreciated by the double-declining-balance method, and the carrying amount of the machine was
$153,600 on December 31, 2006. Grayson changed to the straight-line method on January 1, 2007.
Grayson can justify the change. What should be the depreciation expense on this machine for the year
ended December 31, 2008?
a. $15,360
b. $19,200
c. $24,000
d. $30,720
ANS: B
DIF: Medium
TOP: AICPA FN-Measurement

OBJ: LO 2
MSC: AACSB Analytic

35. Tyson Company bought a machine on January 1, 2006, for $24,000, at which time it had an estimated
useful life of eight years, with no residual value. Straight-line depreciation is used for all of Tyson's
depreciable assets. On January 1, 2008, the machine's estimated useful life was determined to be only six
years from the acquisition date. Accordingly, the appropriate accounting change was made in 2008.
Tyson's income tax rate was 40 percent in all the affected years. In Tyson's 2005 financial statements, how
much should be reported as the cumulative effect on prior years because of the change in the estimated
useful life of the machine?
a. $0
b. $1,200
c. $2,000
d. $2,800
ANS: A
DIF: Medium
TOP: AICPA FN-Reporting

OBJ: LO 2
MSC: AACSB Reflective Thinking

machine was depreciated by the double-declining-balance method, and the carrying amount of the machine was
$153,600 on December 31, 2006. Grayson changed to the straight-line method on January 1, 2007.
Grayson can justify the change. What should be the depreciation expense on this machine for the year
ended December 31, 2008?
a. $15,360
b. $19,200
c. $24,000
d. $30,720
ANS: B
DIF: Medium
TOP: AICPA FN-Measurement

OBJ: LO 2
MSC: AACSB Analytic

35. Tyson Company bought a machine on January 1, 2006, for $24,000, at which time it had an estimated
useful life of eight years, with no residual value. Straight-line depreciation is used for all of Tyson's
depreciable assets. On January 1, 2008, the machine's estimated useful life was determined to be only six
years from the acquisition date. Accordingly, the appropriate accounting change was made in 2008.
Tyson's income tax rate was 40 percent in all the affected years. In Tyson's 2005 financial statements, how
much should be reported as the cumulative effect on prior years because of the change in the estimated
useful life of the machine?
a. $0
b. $1,200
c. $2,000
d. $2,800
ANS: A
DIF: Medium
TOP: AICPA FN-Reporting

OBJ: LO 2
MSC: AACSB Reflective Thinking

machine was depreciated by the double-declining-balance method, and the carrying amount of the machine was
$153,600 on December 31, 2006. Grayson changed to the straight-line method on January 1, 2007.
Grayson can justify the change. What should be the depreciation expense on this machine for the year
ended December 31, 2008?
a. $15,360
b. $19,200
c. $24,000
d. $30,720

ANS: B
DIF: Medium
TOP: AICPA FN-Measurement

OBJ: LO 2
MSC: AACSB Analytic

35. Tyson Company bought a machine on January 1, 2006, for $24,000, at which time it had an estimated
useful life of eight years, with no residual value. Straight-line depreciation is used for all of Tyson's
depreciable assets. On January 1, 2008, the machine's estimated useful life was determined to be only six
years from the acquisition date. Accordingly, the appropriate accounting change was made in 2008.
Tyson's income tax rate was 40 percent in all the affected years. In Tyson's 2005 financial statements, how
much should be reported as the cumulative effect on prior years because of the change in the estimated
useful life of the machine?
a. $0
b. $1,200
c. $2,000
d. $2,800
ANS: A
DIF: Medium
TOP: AICPA FN-Reporting

OBJ: LO 2
MSC: AACSB Reflective Thinking

machine was depreciated by the double-declining-balance method, and the carrying amount of the machine was
$153,600 on December 31, 2006. Grayson changed to the straight-line method on January 1, 2007.
Grayson can justify the change. What should be the depreciation expense on this machine for the year
ended December 31, 2008?
a. $15,360
b. $19,200
c. $24,000
d. $30,720
ANS: B
DIF: Medium
TOP: AICPA FN-Measurement

OBJ: LO 2
MSC: AACSB Analytic

35. Tyson Company bought a machine on January 1, 2006, for $24,000, at which time it had an estimated
useful life of eight years, with no residual value. Straight-line depreciation is used for all of Tyson's
depreciable assets. On January 1, 2008, the machine's estimated useful life was determined to be only six
years from the acquisition date. Accordingly, the appropriate accounting change was made in 2008.
Tyson's income tax rate was 40 percent in all the affected years. In Tyson's 2005 financial statements, how
much should be reported as the cumulative effect on prior years because of the change in the estimated
useful life of the machine?
a. $0
b. $1,200
c. $2,000
d. $2,800
ANS: A
DIF: Medium
TOP: AICPA FN-Reporting

OBJ: LO 2
MSC: AACSB Reflective Thinking

machine was depreciated by the double-declining-balance method, and the carrying amount of the machine was
$153,600 on December 31, 2006. Grayson changed to the straight-line method on January 1, 2007.
Grayson can justify the change. What should be the depreciation expense on this machine for the year
ended December 31, 2008?

a.
b.
c.
d.

$15,360
$19,200
$24,000
$30,720

ANS: B
DIF: Medium
TOP: AICPA FN-Measurement

OBJ: LO 2
MSC: AACSB Analytic

35. Tyson Company bought a machine on January 1, 2006, for $24,000, at which time it had an estimated
useful life of eight years, with no residual value. Straight-line depreciation is used for all of Tyson's
depreciable assets. On January 1, 2008, the machine's estimated useful life was determined to be only six
years from the acquisition date. Accordingly, the appropriate accounting change was made in 2008.
Tyson's income tax rate was 40 percent in all the affected years. In Tyson's 2005 financial statements, how
much should be reported as the cumulative effect on prior years because of the change in the estimated
useful life of the machine?
a. $0
b. $1,200
c. $2,000
d. $2,800
ANS: A
DIF: Medium
TOP: AICPA FN-Reporting

OBJ: LO 2
MSC: AACSB Reflective Thinking

machine was depreciated by the double-declining-balance method, and the carrying amount of the machine was
$153,600 on December 31, 2006. Grayson changed to the straight-line method on January 1, 2007.
Grayson can justify the change. What should be the depreciation expense on this machine for the year
ended December 31, 2008?
a. $15,360
b. $19,200
c. $24,000
d. $30,720
ANS: B
DIF: Medium
TOP: AICPA FN-Measurement

OBJ: LO 2
MSC: AACSB Analytic

35. Tyson Company bought a machine on January 1, 2006, for $24,000, at which time it had an estimated
useful life of eight years, with no residual value. Straight-line depreciation is used for all of Tyson's
depreciable assets. On January 1, 2008, the machine's estimated useful life was determined to be only six
years from the acquisition date. Accordingly, the appropriate accounting change was made in 2008.
Tyson's income tax rate was 40 percent in all the affected years. In Tyson's 2005 financial statements, how
much should be reported as the cumulative effect on prior years because of the change in the estimated
useful life of the machine?
a. $0
b. $1,200
c. $2,000
d. $2,800
ANS: A
DIF: Medium
TOP: AICPA FN-Reporting

OBJ: LO 2
MSC: AACSB Reflective Thinking

machine was depreciated by the double-declining-balance method, and the carrying amount of the machine was
$153,600 on December 31, 2006. Grayson changed to the straight-line method on January 1, 2007.
Grayson can justify the change. What should be the depreciation expense on this machine for the year
ended December 31, 2008?
a. $15,360
b. $19,200
c. $24,000
d. $30,720
ANS: B
DIF: Medium
TOP: AICPA FN-Measurement

OBJ: LO 2
MSC: AACSB Analytic

35. Tyson Company bought a machine on January 1, 2006, for $24,000, at which time it had an estimated
useful life of eight years, with no residual value. Straight-line depreciation is used for all of Tyson's
depreciable assets. On January 1, 2008, the machine's estimated useful life was determined to be only six
years from the acquisition date. Accordingly, the appropriate accounting change was made in 2008.
Tyson's income tax rate was 40 percent in all the affected years. In Tyson's 2005 financial statements, how
much should be reported as the cumulative effect on prior years because of the change in the estimated
useful life of the machine?
a. $0
b. $1,200
c. $2,000
d. $2,800
ANS: A
DIF: Medium
TOP: AICPA FN-Reporting

OBJ: LO 2
MSC: AACSB Reflective Thinking

1 East Company leased machinery from Chin Company on January 1, 2007

for a 10-year period (useful life of 20 years)
Equal annual payments under the lease are P200,000 and are due on January
1 of each year starting January 1, 2007.
The present value at January 1, 2007 of the lease payments over the lease
term discounted at 10% was 1,352,000. The lease was appropriately
accounted for as finance lease by East because there is a very nominal
bargain purchase option.
What is interest expense for 2008?
a. 106,720
c. 200,000
b. 115,200
d. 0
2 The Cloak Corporation received the following report from its actuary at the
end of the year:
01/01/06
Unrecognized past service cost
Accumulated benefit obligation
Fair Value of pension plan assets

500,000
6,000,000
5,800,000

01/31/06
450,000
6,400,000
6,276,000

Actuarial net gain

Benefits paid during the year
Contribution made during the year
Current service cost
Expected rate of return
Settlement rate
Ave. working lives of employees

800,000

?
680,000
520,000
495,000
10%
12%
20 years

What is the amount of net benefit expense to be charged against income for the year 2006?
a. 675,000
b. 685,000

c. 716,000
d. 875,000

3 Francisco Company was organized on January 2, 2006 with 300,000

ordinary shares with a P6 par value authorized. During 2006, Francisco
had the following stock transactions:
January 2
Issued 60,000 shares at P10 per share
March 8 Issued 20,000 shares at P11 per share.
May 9
Purchased 7,500 shares at P12 per share.
July 2
Issued 15,000 shares at P13 per share.
August 17 Sold 5,000 treasury shares at P14 per share.
Francisco uses the FIFO method for purchase-sale purposes.
If Francisco uses the cost method to record treasury stock transactions, how much would be the
Share Premium at December 31,2006?
a. 445,000
b. 455,000

c. 465,000
d. 485,000

4 Genius Company reported an Accumulated Profits balance of P300,000at

December 31,2005. In June 2006, Genius discovered that merchandise
costing P100,000 had not been included in the inventory in its 2005
financial statements. Assume Genius has 35% tax rate.
What amount should Genius report as adjusted beginning Accumulated Profits and Losses on
January 1, 2006?
a. 235,000
b. 365,000

c. 300,000
d. 400,000

5 In 2004, Power Designs Corporation sold a layout design to Mass,Inc. and

will receive royalties of future revenues associated with the said layout
design. On December 31,2005, Power Designs reported royalties
receivable of P75,000 from Mass, Inc. During 2006, Power Designs
received royalty payments of P200,000. Mass,Inc. reported revenues of
P1,500,000 in 2006 from the layout design.
In its 2006 Income Statement, what amount should Power Designs report as royalty revenue?
a. 125,000
b. 175,000

c. 200,000
d. 300,000

6 The following pertains to an operating sale and leaseback of equipment

by Harbor Co. on December 31,2005:
Sales price
420,000
Carrying amount
520,000
Monthly lease payment
37,334
Present value of lease payments/Fair Market Value
420,000
Estimated remaining life
12 years
Lease term
1 year
Implicit rate
12%
What amount of deferred loss should Harbor report at December 31, 2005?
a. 0
b. 37,334

c. 100,000
d. 200,000

7 The Puncher Co. launched a sales promotional campaign on June 30,

2006. For every ten empty packs returned to Puncher, customers will
receive an attractive food container. The company estimates that only
30% of the packs reaching the market will be redeemed. Additional
information are as follows:
Sales of food packs
Food containers purchased
Prizes distributed to customers

Units
3,000,000
60,000
37,000

Amount
P9,000,000
180,000

At the end of the year, Puncher recognized a liability equal to the estimated cost of potential
prizes outstanding.
What is the amount of this estimated liability?
a. 69,000

c. 159,000

b. 90,000

d. 180,000

8 Green Company has 2,000,000 shares of ordinary shares outstanding on

DecemberEast Company leased machinery from Chin Company on
January 1, 2007 for a 10-year period (useful life of 20 years)
Equal annual payments under the lease are P200,000 and are due on January
1 of each year starting January 1, 2007.
The present value at January 1, 2007 of the lease payments over the lease
term discounted at 10% was 1,352,000. The lease was appropriately
accounted for as finance lease by East because there is a very nominal
bargain purchase option.
What is interest expense for 2008?
a. 106,720
c. 200,000
b. 115,200
d. 0
9 The Cloak Corporation received the following report from its actuary at the
end of the year:
01/01/06
Unrecognized past service cost
Accumulated benefit obligation
Fair Value of pension plan assets
Actuarial net gain
Benefits paid during the year
Contribution made during the year
Current service cost
Expected rate of return
Settlement rate
Ave. working lives of employees

01/31/06

500,000
6,000,000
5,800,000
800,000

450,000
6,400,000
6,276,000
?
680,000
520,000
495,000
10%
12%
20 years

What is the amount of net benefit expense to be charged against income for the year 2006?
a. 675,000
b. 685,000

c. 716,000
d. 875,000

10 Francisco Company was organized on January 2, 2006 with 300,000

ordinary shares with a P6 par value authorized. During 2006, Francisco
had the following stock transactions:
January 2
Issued 60,000 shares at P10 per share
March 8 Issued 20,000 shares at P11 per share.
May 9
Purchased 7,500 shares at P12 per share.

July 2
Issued 15,000 shares at P13 per share.
August 17 Sold 5,000 treasury shares at P14 per share.
Francisco uses the FIFO method for purchase-sale purposes.
If Francisco uses the cost method to record treasury stock transactions, how much would be the
Share Premium at December 31,2006?
a. 445,000
b. 455,000

c. 465,000
d. 485,000

11 Genius Company reported an Accumulated Profits balance of P300,000at

December 31,2005. In June 2006, Genius discovered that merchandise
costing P100,000 had not been included in the inventory in its 2005
financial statements. Assume Genius has 35% tax rate.
What amount should Genius report as adjusted beginning Accumulated Profits and Losses on
January 1, 2006?
a. 235,000
b. 365,000

c. 300,000
d. 400,000

12 In 2004, Power Designs Corporation sold a layout design to Mass,Inc. and

will receive royalties of future revenues associated with the said layout
design. On December 31,2005, Power Designs reported royalties
receivable of P75,000 from Mass, Inc. During 2006, Power Designs
received royalty payments of P200,000. Mass,Inc. reported revenues of
P1,500,000 in 2006 from the layout design.
In its 2006 Income Statement, what amount should Power Designs report as royalty revenue?
a. 125,000
b. 175,000

c. 200,000
d. 300,000

13 The following pertains to an operating sale and leaseback of equipment

by Harbor Co. on December 31,2005:
Sales price
420,000
Carrying amount
520,000
Monthly lease payment
37,334
Present value of lease payments/Fair Market Value
420,000
Estimated remaining life
12 years
Lease term
1 year

Implicit rate

12%

What amount of deferred loss should Harbor report at December 31, 2005?
a. 0
b. 37,334

c. 100,000
d. 200,000

14 The Puncher Co. launched a sales promotional campaign on June 30,

2006. For every ten empty packs returned to Puncher, customers will
receive an attractive food container. The company estimates that only
30% of the packs reaching the market will be redeemed. Additional
information are as follows:
Sales of food packs
Food containers purchased
Prizes distributed to customers

Units
3,000,000
60,000
37,000

Amount
P9,000,000
180,000

At the end of the year, Puncher recognized a liability equal to the estimated cost of potential
prizes outstanding.
What is the amount of this estimated liability?
a. 69,000
b. 90,000

c. 159,000
d. 180,000

Green Company has 2,000,000 shares of ordinary s On January 2, 2006, McKell Company
acquired machinery at a cost of $640,000. This machinery was being depreciated by the double-decliningbalance method over an estimated useful life of eight years, with no residual value. At the beginning of
2008, McKell decided to change to the straight-line method of depreciation. Ignoring income tax
considerations, the cumulative effect of this accounting change is
a. $0.
b. $120,000.
c. $130,000.
d. $280,000.
On January 2, 2006, McKell Company acquired machinery at a cost of $640,000. This machinery was being
depreciated by the double-declining-balance method over an estimated useful life of eight years, with no
residual value. At the beginning of 2008, McKell decided to change to the straight-line method of
depreciation. Ignoring income tax considerations, the cumulative effect of this accounting change is
a. $0.
b. $120,000.
c. $130,000.
d. $280,000.

hares outstanding on December