PA1 Mock Exam

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

1. Seattle Company is part of a major industrial group and is known to accurately disclose related party transactions in its financial statements. Remuneration and other payments made to the entity’s chief executive officer during 2012 were: Annual salary Share options and other share-based payments Contributions to retirement benefit plan Reimbursement of travel expenses for business trips

2,000,000 1,000,000 500,000 1,200,000

What is the total amount that should be disclosed as “compensation” to key management personnel to conform to related party disclosures required by the standard? a. 3,500,000 c. 3,000,000 b. 4,700,000 d. 2,500,000 2. Martha Company reported the following selected balances on its financial statements for each of the three years 2010 – 2012: Market adjustment – Trading securities Market adjustment – Available-for-sale securities

2010 5,500,000 (1,300,000)

2011 3,750,000 900,000

2012 (1,200,000) 1,350,0000

How much net unrealized loss should be shown in the 2012 income statement? a. 1,200,000 b. 4,500,000 c. 4,950,000 d. 3,600,000 Mills Company completed leasehold improvements costing P480,000 on December 31, 2008. The improvements had an estimated useful life of 10 years. The related lease, which would have terminated on December 31, 2016, was renewable for an additional four-year term. On March 10, 2012 Mills exercised the renewal option. 3. The accumulated amortization at December 31, 2011 should be a. 145,000 b. 120,000 c. 144,000 d. 180,000 4. The amortization expense for 2012 should be (rounded) a. 34,286 b. 40,000 c. 48,000 d. 42,857 5. The accumulated amortization at December 31, 2012 should be a. 213,333 b. 222,857 c. 160,000 d. 192,000 6. The following information relate to Merck Company. Company Merck’s balance sheet date is December 31, 2012. Assume that company Merck’s financial statements are authorized for issue on March 31, 2013. a. b. c. d. e.

An amount of P350,000 owing to Company Z for services rendered during December, 2012. Long-service leave, estimated to be P5,000,000, owing to employees in respect of past services. Costs of P2,300,000 estimated to be incurred for relocating an employee from Merck’s head office location to another city. The staff member will physically relocate during January 2013. Provision of P200,000 for the overhaul of a machine. The overhaul is needed every five years and the machine was five years old as at December 31, 2012. Damages awarded against Merck Company resulting from a court case decided on December 20, 2012. The judge has announced that the amount of damages will be set at a future date, expected to be in April 2015. Merck Company has received advice from its lawyers that the amount of the damages could be anything between P4,000,000 and P5,000,000

How much is Merck Company’s provision in its December 31, 2012 balance sheet? a. 4,500,000 b. 9,500,000 c. 9,850,000 d. 12,000,000

for review and practice purposes only (Not to be assumed as actual examination)

1

MOCK CPA EXAMINATION OCTOBER 2012 7.

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

During 2012, Garber Corporation, which uses the allowance method of accounting for doubtful accounts, recorded a provision for bad debt expense of 10,000 and in addition it wrote off, as uncollectible, accounts receivable of 4,000. As a result of these transactions, net cash flows from operating activities would be calculated (indirect method) by adjusting net income with a a. 10,000 increase. b. 4,000 increase. c. 6,000 increase. d. 6,000 decrease.

On January 1, 2011, Manning Company, established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of 20 on 50,000 SARs. Current market prices of the stock are as follows: January 1, 2011 35 per share December 31, 2011 38 per share December 31, 2012 30 per share December 31, 2013 33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2011. 8.

What amount of compensation expense should Manning recognize for the year ended December 31, 2011? a. 150,000. b. 225,000. c. 187,500. d. 900,000.

9.

What amount of compensation expense should Manning recognize for the year ended December 31, 2012? a. 0. b. 25,000. c. 250,000. d. 125,000.

10. On December 31, 2013, 8,000 SARs are exercised by executives. What amount of compensation expense should Manning recognize for the year ended December 31, 2013? a. 237,500. b. 162,500. c. 487,500. d. 65,000. Sloan Company, a wholesaler, budgeted the following sales for the indicated months: June July Sales on account 2,790,000 2,860,000 Cash sales 180,000 200,000 Total sales 2,970,000 3,060,000

August 2,980,000 260,000 3,240,000

All merchandise is marked up to sell at its invoice cost plus 20%. Merchandise inventories at the beginning of each month are at 30% of that month's projected cost of goods sold. 11.

The cost of goods sold for the month of June is anticipated to be a. 2,232,000. b. 2,325,000. c. 2,356,000. d. 2,475,000.

12.

Merchandise purchases for July are anticipated to be a. 2,448,000. b. 3,114,000. c. 2,550,000. d. 2,595,000.

13. Holler Company uses the straight-line depreciation for its property plant and equipment. The related balances were: Property, plant and equipment Accumulated depreciation

December 31, 2012 60,000,000 19,000,000

December 31, 2011 65,000,000 15,000,000

Holler purchased land during 2012 for P5,000,000 and sold machinery for P7,000,000 at a gain of P500,000. Depreciation expense for 2012 is a. 6,500,000 c. 6,000,000 b. 7,500,000 d. 7,000,000

for review and practice purposes only (Not to be assumed as actual examination)

2

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

14. RAPC Company employs 5 people. Each employee is entitled to two weeks paid vacation every year the employee works for the company. The conditions of the paid vacation are (a) for each full year of work, an employee will receive two weeks of paid vacation (no vacation accrues for a portion of a year), (b) each employee will receive the same pay for vacation time as the regular pay in the year taken, and (c) unused vacation pay can be carried forward. Employee Brianna Lim Tricia Lopez Crissy German Jackielou De Vera Paula De Jesus

Starting Cumulative vacations taken date As of December 31, 2012 December 1, 2012 2 weeks August 1, 2010 1 week December 1, 2005 10 weeks March 31, 2011 None March 1, 2012 3 weeks

Weekly salary 3,500 3,000 5,000 2,500 4,000

What is the liability for vacation pay of RAPC Company on December 31, 2012? a. 60,000 c. 58,500 b. 65,000 d. 63,000 Pinson Company is considering acquiring Gagne Company. The following information relates to Gagne Company: Net tangible assets at cost Net tangible assets at fair market value Average net income for the past four years Normal rate of return for the industry

5,000,000 5,500,000 475,000 8%

____

15. What is the amount of goodwill if average excess earnings for the past four years are to be capitalized at the normal rate of return for the industry? a. 400,000. b. 437,500. c. 440,000. d. 500,000.

____

16. What is the total amount that Pinson should be willing to pay for Gagne if average excess earnings for the past four years are to be capitalized at 14%? a. 5,750,000. b. 5,700,000. c. 4,600,000. d. 5,250,000.

Crosby Corporation sold one of its high-rise buildings on January 1, 2010 for P10,000,000. Crosby received a cash down payment of P2,000,000 and a 5-year, interest bearing promissory note for the balance. The note states that the balance is payable in equal annual payments of principal and interest of P2,219,278, to be paid on December 31 of each year starting December 31, 2010 and every December 31 thereafter. The payments where received as scheduled on December 31, 2010 and December 31, 2011. 17. What was the stated interest rate on the promissory note? a. 10% b. 11% c. 12% d. 14% 18. What is the balance of the note payable in the December 31, 2011 statement of financial position? a. 3,561,444 b. 7,839,131 c. 5,330,331 d. 5,481,444 Gott Company was organized on January 1, 2012, with 300,000 shares of common stock with a 6 par value authorized. During 2012, Gott had the following stock transactions: Jan. 4 Mar. 8 May 17 July 6 Aug. 27

Issued 120,000 shares at 10 per share. Issued 40,000 shares at 11 per share. Purchased 15,000 shares at 12 per share. Issued 30,000 shares at 13 per share. Sold 10,000 treasury shares at 14 per share.

Gott uses the FIFO method for purchase-sale purposes. 19.

If Gott uses the par value method to record treasury stock transactions, the total amount of additional paid-in capital at December 31, 2012 is a. 890,000. b. 910,000. c. 930,000. d. 970,000.

for review and practice purposes only (Not to be assumed as actual examination)

3

MOCK CPA EXAMINATION OCTOBER 2012 20.

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

If Gott uses the cost method to record treasury stock transactions, the total amount of additional paid-in capital at December 31, 2012 is a. 890,000. b. 910,000. c. 930,000. d. 970,000.

21. Ponce Company sells merchandise on a consignment basis to dealers. The selling price of the merchandise averages 25% above cost of the merchandise. The dealer is paid a 10% commission of the sales price for all sales made. All dealer sales are made on a cash basis. The following consignment sales activities occurred during 2012: Manufacturing cost of goods shipped on consignment Sale price of merchandise sold by dealers Payments remitted by dealers after deducting commission

8,800,000 9,600,000 6,300,000

How much is the gross profit on sales? a. 2,400,000 b. 1,920,000 c. 1,700,000 d. 1,220,000 22.Sommet, Inc. disclosed the following information as of and for the year ended December 31, 2012: Net cash sales 200,000 Net credit sales 300,000 Inventory at beginning 100,000 Inventory at end 150,000 Net income 30,000 Accounts receivable at beginning of year 110,000 Accounts receivable at end of year 130,000 Sommet’s receivables turnover is a. 2.4 to 1. b. 2.5 to 1. c. 4.17 to 1. d. 4.0 to 1. 23. A reconciliation of Reagan Company’s bank account at November 30, 2012 revealed the following items: Balance per bank statement Deposits in transit Checks outstanding Correct cash balance

2,600,000 300,000 ( 100,000) 2,800,000

Balance per books Bank service charge Correct cash balance

(

2,810,000 10,000) 2,800,000

December data are as follows: Deposits recorded Checks recorded Service charges recorded Collection by the bank, P500,000 note plus interest NSF check returned with December 31 statement Balances

Bank 1,600,000 2,200,000 50,000 550,000 100,000 2,400,000

Book 1,800,000 2,500,000 2,110,000

What is the amount of outstanding checks on December 31, 2012? a. 540,000 b. 400,000 c. 340,000 d. 390,000 On January 1, 2012, Garnett Company (as lessor) entered into a noncancelable lease agreement with Rush Company for machinery which was carried on the accounting records of Garnett at 2,265,000 and had a market value of 2,400,000. Minimum lease payments under the lease agreement which expires on December 31, 2021, total 3,550,000. Payments of 355,000 are due each January 1. The first payment was made on January 1, 2012 when the lease agreement was finalized. The interest rate of 10% which was stipulated in the lease agreement is the implicit rate set by the lessor. The effective interest method of amortization is being used. Rush expects the machine to have a ten-year life with no salvage value, and be depreciated on a straight-line basis. Collectibility of the rentals is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor.

for review and practice purposes only (Not to be assumed as actual examination)

4

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

24. What should be the income before income taxes derived by Garnett from the lease for the year ended December 31, 2012? a. 375,000 b. 339,500 c. 204,500 d. 240,000 25. Ignoring income taxes, what should be the expenses incurred by Rush from this lease for the year ended December 31, 2012? a. 240,000 b. 204,500 c. 444,500 d. 375,000 26. What is the finance lease liability in the balance sheet of Rush Company on December 31, 2012? a. 2,400,000 b. 2,285,000 c. 1,894,500 d. 2,045,000 27. What is the carrying amount of the lease receivable on the balance sheet of Garnett Company on January 1, 2012? a. 3,195,000 b. 2,045,000 c. 2,249,500 d. 2,400,000 28. Dalton Company’s accounting records provided the following information for the year 2012: Current assets Property, plant and equipment Current liabilities Long-term liabilities

January 1 800,000 3,200,000

December 31 3,000,000 600,000

900,000

Working capital of P300,000 remained unchanged from January 1 to December 31, 2012. Net income for 2012 was P500,000. No dividends were declared during 2012 and there were no other changes in equity. What is amount of long-term liabilities on December 31, 2012? a. 200,000 b. 300,000 c. 500,000 d. 900,000 29.

Denny Company sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to Unearned Service Revenues. This account had a balance of 900,000 at December 31, 2012 before year-end adjustment. Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of 225,000 at December 31, 2012. Service contracts still outstanding at December 31, 2012 expire as follows: During 2013 During 2014 During 2015

190,000 285,000 125,000

What amount should be reported as Unearned Service Revenues in Denny's December 31, 2012 balance sheet? a. 675,000. b. 600,000. c. 375,000. d. 300,000. 30. On July 1, Wanda Company sold to Winn Company a new computer software system. The contract price for both the system and the after-sales service for updates and eliminating viruses for a period of 12 months was P2,000,000. Wanda estimates the cost of the after-sales service at P400,000 and it normally marks up such costs by 50% when tendering for after-sales contracts. What amount of revenue shall Wanda recognize in its statement of comprehensive income for the year ended December 31, 2012? a. 1,700,000 b. 2,000,000 c. 1,600,000 d. 2,600,000

for review and practice purposes only (Not to be assumed as actual examination)

5

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

31. The inventory control account balance of Emmy Company at December 31, 2012 was P2,780,000 using the perpetual inventory system. A physical count conducted on that day found inventory on hand worth P2,300,000. Net realizable value for each inventory item held for sale exceeded cost. An investigation of the discrepancy revealed the following: a.

Goods worth P60,000 held on consignment for Genie Accessories had been included in the physical count. Goods costing P120,000 were purchased on credit from Romano Company on December 27, 2012 on FOB shipping terms. The goods were shipped on December 28, 2012 but, as they had not arrived by December 31, 2012, were not included in the physical count. The purchase invoice was received and processed on December 31, 2012. Goods costing P240,000 were sold on credit to Alfonso Company for P300,000 on December 28, 2012 on FOB destination terms. The goods were still in transit on December 31, 2012. The sales invoice was raised and processed on December 31, 2012. Goods costing P270,000 were purchased on credit (FOB destination) from Melissa Company on December 29, 2012. The goods were received on December 30, 2012 and included in the physical count. The purchase invoice was received on January 2, 2013. On December 31, 2012, Emmys Company sold goods costing P650,000 on credit (FOB shipping) terms to Hamilton’s Boutique for P900,000. The goods were dispatched from the warehouse on December 31, 2012 but the sales invoice had not been raised at that date. Damaged inventory items valued P40,000 were discovered during the physical count. These items were still recorded on December 31, 2012 but were omitted from the physical count records pending their writeoff.

b.

c.

d.

e.

f.

What is Emmy Company’s adjusted inventory amount? a. 2,360,000 b. 2,600,000 c. 2,660,000 d. 3,000,000 ____ 32.

Certain information relative to the 2012 operations of Thomas Company follows: Accounts receivable, January 1, 2012 Accounts receivable collected during 2012 Cash sales during 2012 Inventory, January 1, 2012 Inventory, December 31, 2012 Purchases of inventory during 2012 Gross margin on sales

34,000 46,000 12,000 18,000 16,500 40,000 13,500

What is Thomas's accounts receivable balance at December 31, 2012? a. 28,000. b. 31,000. c. 34,000. d. 43,000. 33. On December 31, 2010, Marsh Company entered into a debt restructuring agreement with Saxe Company which was experiencing financial difficulties. Marsh restructured a P1,000,000 note receivable as follows: * * * *

Reduced the principal obligation to P700,000 Forgave P120,000 of accrued interest Extended the maturity date from December 31, 2010 to December 31, 2012 Reduced the interest rate from 12% to 8%. Interest was payable annually on December 31, 2011 and 2012.

In accordance with the agreement, Saxe made payments to Marsh on December 31, 2011 and 2012. How much interest income should Marsh report for the year ended December 31, 2012? a. 112,000 c. 56,000 b. 84,000 d. 0 (US GAAP) 34. Altis Company had 100,000 ordinary shares outstanding on January 1. In addition, as of January 1, the company had issued share options that allowed employees to purchase 40,000 ordinary shares. The option exercise price is P10 per share. The options were exercised on April 1. The average share price for the year was P20. The share price on the option exercise date on April 1 was P16. The company has no other potentially dilutive securities. Net income for the year was P2,000,000. What is the amount of basic earnings per share? a. 20.00 b. 15.38 c. 14.95 d. 16.67

for review and practice purposes only (Not to be assumed as actual examination)

6

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

35. The cash account of Maria Company disclosed a balance of P3,450,000 on December 31, 2012. The bank statement as of December 31, showed a balance of P2,735,000. Upon comparing the statement with the cash records, the following facts were developed. a. Maria’s account was charged on December 27 for a customer’s uncollectible check amounting to P150,000. b. A 4-month, 10% P300,000 customer’s note dated August 20, 2012, discounted on September 30, 2012, was dishonored December 21 and the bank charged Maria P315,000, which include a protest fee of P5,000. c. A customer’s check for P150,000 was entered as P105,000 by Maria Company. d. Check no. 777 for P210,000 was entered in the cash disbursements journal at P120,000 and check No. 780 for P33,000 was entered as P3,300. e. Bank service charges of P4,300 for December were not yet recorded on the books. f. A bank memo stated that Ana Company’s note for P200,000 and interest of P20,000 had been collected on December 29, and the bank charged P6,000. (no entry has been made on the books) g. Receipts on December 29, 2012 for P880,000 were deposited January 2, 2013. h. Maria issued a total of P1,200,000 checks in December. The following canceled checks were included in the December bank statement: No. No. No. No.

777 778 780 781

P 210,000 120,000 33,000 80,000

No. No. No. No.

782 785 786 790

P

50,000 77,000 90,000 45,000

What is the correct amount of cash to be shown in Maria’s December 31, 2012 balance sheet? a. 3,120,000 b. 2,910,000 c. 2,240,000 d. 3,435,000 36. Information concerning the debt of Cannell Company is as follows: Short-term borrowings: Balance at December 31, 2012 Proceeds from borrowings in 2013 Payments made in 2013 Balance at December 31, 2013 Current portion of long-term debt: Balance at December 31, 2012 Transfers from caption "Long-Term Debt" Payments made in 2013 Balance at December 31, 2013 Long-term debt: Balance at December 31, 2012 Proceeds from borrowings in 2013 Transfers to caption "Current Portion of Long-Term Debt" Payments made in 2013 Balance at December 31, 2013

1,050,000 650,000 (900,000) 800,000 3,250,000 1,000,000 (2,450,000) 1,800,000 18,000,000 4,500,000 (1,000,000) (3,000,000) 18,500,000

In preparing a statement of cash flows for the year ended December 31, 2013, for Cannell Company, cash flows from financing activities would reflect Inflow Outflow a. 4,000,000 4,000,000 b. 4,500,000 4,500,000 c. 5,300,000 5,150,000 d. 5,150,000 6,350,000 On December 31, 2011 Long Corporation sold some of its product to Doane Company, accepting a 3%, four-year promissory note having a maturity value of 400,000 (interest payable annually on December 31). Long Corporation pays 6% for its borrowed funds. Doane Company, however, pays 8% for its borrowed funds. The product sold is carried on the books of Long at a manufactured cost of 255,000. Long uses a perpetual inventory system. ____

37. What is the amount of sales to be recorded in 2011? a. 400,000. b. 333,758. c. 294,012. d. 358,317.

____

38. What is the total amount of interest revenue to be recorded in 2013? a. 27,877. b. 26,701. c. 22,069. d. 39,877.

for review and practice purposes only (Not to be assumed as actual examination)

7

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

39. Angola Company was organized on January 1, 2012, 25,000 shares of P100 par value common stock being issued in exchange for property, plant and equipment valued at P3,000,000 and cash of P1,000,000. The following data summarize activities for 2012:   

Net income for the period ending December 31, 2012 was P1,000,000. Raw materials on hand on December 31, were equal to 25% of raw materials purchased. Manufacturing costs were distributed as follows: Materials used Direct labor Factory overhead

     

50% 30% 20% (includes depreciation of 200,000)

Goods in process remaining in the factory on December 31 were equal to 33 1/3% of the goods finished and transferred to stock. Finished goods remaining in stock were equal to 25% of the cost of goods sold. Operating expenses were 30% of sales Cost of goods sold was 150% of total operating expenses. Ninety percent of sales were collected. The balance was considered to be collectible. Seventy five percent of the raw materials purchased were paid for. There were no expense accruals or prepayments at the end of the year.

Raw materials purchases for the year amounted to a. 1,500,000 b. 1,750,000 c. 2,000,000 d. 2,250,000 40. Robin Company has an incentive compensation plan under which the sales manager receives a bonus equal to 10 percent of the company's income after deductions for bonus and income taxes. Income before bonus and income taxes is P8,520,000. The effective income tax rate is 35 percent. How much is the bonus (rounded)? a. 852,000 b. 630,000 c. 553,800 d. 520,000 41. Weston Company purchased a tooling machine on January 3, 2005 for 600,000. The machine was being depreciated on the straight-line method over an estimated useful life of 10 years, with no salvage value. At the beginning of 2012, the company paid 150,000 to overhaul the machine. As a result of this improvement, the company estimated that the useful life of the machine would be extended an additional 5 years (15 years total). What should be the depreciation expense recorded for the machine in 2012? a. 41,250 b. 50,000 c. 60,000 d. 66,000 42. On April 13, 2012, Foley Co. purchased machinery for 240,000. Salvage value was estimated to be 10,000. The machinery will be depreciated over ten years using the double-declining balance method. If depreciation is computed on the basis of the nearest full month, Foley should record depreciation expense for 2013 on this machinery of a. 41,600. b. 40,800. c. 41,100. d. 41,866. On January 1, 2010, Freetown Company granted to an employee the right to choose either shares or a cash payment. The choices are as follows: * *

Share alternative – equal to 20,000 shares with a par value of P30. Cash alternative – cash payment equal to the market value of 25,000 “phantom” shares.

The grant is conditional upon the completion of three years service. On grant date, on January 1, 2010, the share price is P35. After taking into account the effect of vesting restrictions, Freetown Company has estimated that the fair value of the share alternative to be P55. 43. What is the total fair value of the equity component on January 1, 2010 as a result of the share and cash alternative? a. 225,000 c. 200,000 b. 125,000 d. 220,000

for review and practice purposes only (Not to be assumed as actual examination)

8

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

44. What is the compensation expense for the year 2010 if the share price on December 31, 2010 is P42? a. 1,050,000 c. 350,000 b. 425,000 d. 405,000 45. What is the compensation expense for the year 2011 if the share price on December 31, 2011 is P57? a. 950,000 c. 600,000 b. 675,000 d. 525,000 46. What is the compensation expense for the year 2012 if the share price on December 31, 2012 is P65? a. 525,000 c. 675,000 b. 600,000 d. 750,000 47. If the employees choose the cash alternative, what is the cash payment to be made on December 31, 2012? a. 1,625,000 c. 1,500,000 b. 1,350,000 d. 1,325,000 48. If the employees choose the share alternative, what is the amount of share premium to be credited from the issuance of shares? a. 1,250,000 c. 1,100,000 b. 1,025,000 d. 325,000 49.

Nolte Corp.'s 2012 income statement had pretax financial income of 100,000 in its first year of operations. Nolte uses an accelerated cost recovery method on its tax return and straight-line depreciation for financial reporting. The differences between the book and tax deductions for depreciation over the five-year life of the assets acquired in 2012, and the enacted tax rates for 2012 to 2016 are as follows: 2012 2013 2014 2015 2016

Book Over (Under) Tax (20,000) (26,000) (6,000) 24,000 28,000

Tax Rates 35% 30% 30% 30% 30%

There are no other temporary differences. In Nolte's December 31, 2012 balance sheet, the noncurrent deferred income tax liability and the income taxes currently payable should be Noncurrent Deferred Income Taxes Income Tax Liability Currently Payable a. 15,600 20,000 b. 15,600 28,000 c. 6,000 24,000 d. 6,000 28,000 50. Manchester Company provided the following information for the year ended December 31, 2012: Net income Total assets Share capital Share premium Dividends declared Prior period adjustment for 2011 overdepreciation

2,000,000 14,950,000 5,600,000 2,400,000 1,200,000 500,000

The debt to equity ratio is 30% at December 31, 2012. What was the retained earnings balance on January 1, 2012? a. 1,165,000 b. 2,165,000 c. 3,200,000 d. 2,200,000 51.At a lump-sum cost of 36,000, Sealy Company recently purchased the following items for resale: Item No. of Items Purchased Resale Price Per Unit M 4,000 2.50 N 2,000 8.00 O 6,000 4.00 The appropriate cost per unit of inventory is: M N O a. 2.50 8.00 4.00 b. 1.55 9.93 1.66 c. 1.80 5.76 2.88 d. 3.00 3.00 3.00

for review and practice purposes only (Not to be assumed as actual examination)

9

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

Assume that the following data relate to Bass, Inc. for the year 2012: Net income (30% tax rate) Average common shares outstanding 2012 10% cumulative convertible preferred stock: Convertible into 80,000 shares of common 8% convertible bonds; convertible into 75,000 shares of common Stock options: Exercisable at the option price of 25 per share; average market price in 2012, 30 ____

52. What is the amount of basic earnings per share? a. 3.34. b. 3.50. c. 2.29. d. 3.20.

____

53. What is the amount of diluted earnings per share? a. 2.92. b. 3.11. c. 3.16. d. 2.97.

3,500,000 1,000,000

shares

1,600,000 2,500,000 90,000

shares

54. At December 31, 2012, Maye’s stockholders’ equity was P4,500,000, while total assets was P500,000 larger than at the beginning of the year. Total liabilities on January 1, 2012 and December 31, 2012 were P1,400,000 and P1,200,000 respectively. If the dividend declaration during 2012 exceeded the proceeds from the issuance of ordinary shares by P250,000, how much is the net income or loss for 2012? a. 950,000 net income b. 50,000 net loss c. 550,000 net income d. 450,000 net income 55.Baker Corp.'s liability account balances at June 30, 2013 included a 10% note payable in the amount of 1,500,000. The note is dated October 1, 2011 and is payable in three equal annual payments of 500,000 plus interest. The first interest and principal payment was made on October 1, 2012. In Baker's June 30, 2013 balance sheet, what amount should be reported as accrued interest payable for this note? a. 112,500. b. 75,000. c. 37,500. d. 25,000. 56. Sachi Corporation is considering the purchase of Adorable Company, whose balance sheet as of December 31, 2012 is summarized as follows: Current assets Fixed assets (net) Other assets Total

800,000 1,100,000 700,000 2,600,000

Current liabilities Long-term liabilities Common stock Retained earnings Total

600,000 700,000 850,000 450,000 2,600,000

The fair market value of the current assets is P1,100,000 because of the undervaluation of inventory. The normal rate of return on the net assets for the industry is 15% and the average expected annual earnings for Adorable Company is P300,000. Assuming that the excess earnings continue for the next five years and Sachi follows the “years multiple of excess earnings” approach of computing goodwill, how much would Sachi be willing to pay for the net assets of Adorable? a. 2,125,000 b. 1,900,000 c. 2,000,000 d. 2,300,000 57. On December 31, 2012 Bobby Company had 50,000 shares of P100 par value ordinary share capital outstanding and 30,000 shares of P100 par value 10% noncumulative preference shares. The total shareholders’ equity on December 31, 2012 amounted to P12,000,000. The preference shareholders have a liquidation value of P120 per share and preference dividends have been paid up to December 31, 2012. The book value per share of ordinary share capital on December 31, 2012 should be a. 168 b. 180 c. 162 d. 240

for review and practice purposes only (Not to be assumed as actual examination)

10

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

Lange Company books and records disclosed following information: a. Prior to any adjustments, the Retained Earnings account is reproduced below: RETAINED EARNINGS Date 2010 Jan. 1 Dec. 31 2011 Jan. 31 Apr. 3 Aug. 30 Dec. 31 2012 Jan. 31 Dec. 31

Particulars

Debit

Balance Net income for the year Dividends paid Paid in capital in excess of par Gain on retirement of preferred stock at less than issue price Net loss for the year

140,000

Dividends paid Net loss for the year

100,000 165,500

205,000

Credit

Balance

310,000

P580,000 890,000

90,000

750,000 840,000

64,500

904,500 699,500 599,500 P434,000

b. The company failed to properly recognize accruals and prepayments. Selected accounts revealed the following information: 1. 2. 3. 4. c.

Prepaid expenses Accrued expenses Unearned income Accrued income

2009 P8,500 5,400 6,900 4,700

2010 P6,200 7,300 7,800 5,600

2011 P7,400 8,700 8,900 6,200

2012 P9,500 9,000 9,600 7,800

Dividends had been declared on December 31 in 2010 and 2011 but had not been entered in the books until paid.

d. The company purchased a machine worth P270,000 on April 30, 2009. The company charged the purchase to expense. The machine has an estimated useful life of 3 years. The company uses the straight-line method and residual values are deemed immaterial. e. The company received transportation equipment as donation from one of its stockholders on September 30, 2011. The equipment was used to deliver goods to customers. The equipment costs P750,000 and has a remaining life of 3 years on the date of donation. The equipment has a fair value of P240,000 and P30,000 was incurred for registering the transfer of ownership. The company did not record the donation on its books. The expenses paid related to the donated equipment were charged to expense. f.

The physical inventory of merchandise had been understated by P64,000 and by P44,500 at the end of 2010 and 2012, respectively.

g. The merchandise inventories at the end of 2011 and 2012 did not include merchandise that was then in transit shipped FOB shipping point. These shipments of P43,400 and P32,600 were recorded as purchases in January 2012 and 2013, respectively. Determine the corrected balances of the following: 58. Retained earnings, 12/31/09 a. 580,900 b. 850,900 c. 790,900 d. 760,900 59. Retained earnings, 12/31/10 a. 976,700 b. 860,700 c. 930,700 d. 720,700 60. Retained earnings, 12/31/11 a. 481,000 b. 411,000 c. 341,000 d. 241,000 61. Retained earnings, 12/31/12 a. 302,700 b. 362,700 c. 252,700 d. 332,700

for review and practice purposes only (Not to be assumed as actual examination)

11

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

62. Lane Corporation has an incentive commission plan for its salesmen, entitling them to an additional sales commission when actual quarterly sales exceed budgeted estimates. An analysis of the account "incentive commission expense" for the year ended December 31, 2012, follows: Amount 42,000 36,000 39,000 43,000

For Quarter Ended December 31, 2011 March 31, 2012 June 30, 2012 September 30, 2012

Date Paid January 23, 2012 April 24, 2012 July 19, 2012 October 22, 2012

The incentive commission for the quarter ended December 31, 2012, was 35,000. This amount was recorded and paid in January 2013. What amount should Lane report as incentive commission expense for 2012? a. 160,000. b. 118,000. c. 153,000. d. 195,000. In 2012, the initial year of its existence, Hyland Company's accountant, in preparing both the income statement and the tax return, developed the following list of items causing differences between accounting and taxable income: 1. The company sells its merchandise on an installment contract basis. In 2012, Hyland elected, for tax purposes, to report the gross profit from these sales in the years the receivables are collected. However, for financial statement purposes, the company recognized all the gross profit in 2012. These procedures created a 240,000 difference between book and taxable incomes. The future collection of the installment contracts receivables are expected to result in taxable amounts of 120,000 in each of the next two years. (Note: the company treats installment contracts receivable as a current asset on its balance sheet.) 2. The company has also chosen to depreciate all of its depreciable assets on an accelerated basis for tax purposes but on a straight-line basis for accounting purposes. These procedures resulted in 42,000 excess depreciation for tax purposes over accounting depreciation. The temporary difference due to excess tax depreciation will reverse equally over the three year period from 2013-2015. 3. Hyland leased some of its property to Simms Company on July 1, 2012. The lease was to expire on July 1, 2014 and the monthly rentals were to be 30,000. Simms, however, paid the first year's rent in advance and Hyland reported this entire amount on its tax return. These procedures resulted in a 180,000 difference between book and taxable incomes. (Note: this lease was an operating lease and Hyland classified the unearned rent as a current liability on its balance sheet.) 4. Hyland owns 150,000 of bonds issued by the DOT upon which 6% interest is paid annually. In 2012, Hyland showed 9,000 of income from the bonds on its income statement but did not show any of this amount on its tax return. (Note: these bonds are classified as long-term investments on Hyland's balance sheet.) 5. In 2012, Hyland insured the lives of its chief executives. The premiums paid amounted to 12,000 and this amount was shown as an expense on the income statement. However, this amount was not deducted on the tax return. The company is the beneficiary. Hyland Company showed income before income taxes of 900,000. The enacted tax rates are 40% for all years; and that no other differences between book and taxable incomes existed, except for those mentioned above: 63. What is the income tax payable? a. 176,400 b. 319,200 c. 361,200 d. 320,400 64. What is the deferred tax liability at the end of 2012? a. 72,000 b. 112,800 c. 116,400 d. 40,800 65. What is the net deferred tax expense (benefit) for 2012? a. 72,000 b. 112,800 c. 116,400 d. 40,800

for review and practice purposes only (Not to be assumed as actual examination)

12

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

66. Authentic Book Company obtained the copyright to a textbook written by renowned author Atty. Jack De Vera, on June 1, 2010. This textbook is one of the most popular and effective reviewers used by CPA board exam candidates in taxation. The royalty agreement with between Authentic and Atty. Jack De Vera stipulates for payments of royalties at 20% of future sales of the book, to be paid twice a year on April 1 for sales in May to October of the preceding year, and on November 1 for sales in November from the previous year to April of the same year. Authentic made royalty payments of P500,000 and P700,000 on April 1, 2011 and November 1, 2011, respectively; and P600,000 and P800,000 on April 1, 2012 and November 1, 2012, respectively. Atty. Jack De Vera’s book registered sales for the months of May to October 2012 of P3,000,000 and for November to December 2012, of P800,000. It was also determined that 50% of the books sold occur in the first two months of the 6-month period. What is the royalty expense of Authentic Books for the year ended December 31, 2012? a. 1,400,000 b. 760,000 c. 1,160,000 d. 1,560,000 ____ 67.

A company has been using the FIFO cost method of inventory valuation since it was started 10 years ago. Its 2012 ending inventory was 90,000, but it would have been 70,000 if LIFO had been used. Thus, if LIFO had been used, this company's income before taxes would have been a. 20,000 less in 2012. b. 20,000 less over the 10-year period. c. 20,000 greater over the 10-year period. d. 20,000 greater in 2012.

68. Kirsten Company purchased machinery that cost P1,200,000 on January 4, 2009. The entire cost was recorded as an expense. The machinery has a ten-year life and a P150,000 residual value. The error was discovered on December 20, 2012. Ignoring income tax considerations and before the correction was made and books were closed on December 31, 2012, Kirsten Company’s retained earnings was understated by a. 885,000 b. 780,000 c. 1,200,000 d. 420,000 69.

The following information was extracted from the accounts of Claw Corporation at December 31, 2012: CR(DR) Total reported income since incorporation 1,500,000 Total cash dividends paid (800,000) Cumulative effect of changes in accounting principle (120,000) Total stock dividends distributed (200,000) Prior period adjustment, recorded January 1, 2012 66,000 What should be the balance of retained earnings at December 31, 2012? a. 446,000. b. 500,000. c. 380,000. d. 566,000.

70. Vera Company has a herd of 100 three year-old oxen on January 1, 2012. During 2012, 50 fouryear-old male oxen were purchased on July 1 for P150,000 each while 20 three and three quarters year-old oxen were sold on October 1. The fair value less cost to sell regarding oxen for 2012 is as follows: Three – year old ox on January 1, 2012 Four – year old ox on July 1, 2012 Three and three quarters – year old ox on October 1, 2012 Three – year old ox on December 31, 2012 Four – year old ox on December 31, 2012 Four and a half – year old ox on December 31, 2012

120,000 150,000 130,000 135,000 160,000 170,000

What is the gain from price and physical change that shall be recognized by Vera Company in the 2012 statement of comprehensive income? a. 2,500,000 and 1,700,000 b. 1,700,000 and 2,500,000 c. 2,000,000 and 3,000,000 d. 3,000,000 and 2,000,000

for review and practice purposes only (Not to be assumed as actual examination)

13

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

71.

On January 1, 2012, Olin Company borrows 2,000,000 from National Bank at 12% annual interest. In addition, Olin is required to keep a compensatory balance of 200,000 on deposit at National Bank which will earn interest at 4%. The effective interest that Olin pays on its 2,000,000 loan is a. 10.0%. b. 11.6%. c. 12.0%. d. 12.8%.

72.

If a company purchases merchandise on terms of 2/10, n/30, the cash discount available is equivalent to what effective annual rate of interest (assuming a 360-day year)? a. 2% b. 24% c. 36% d. 72%

73. The expenses other than interest expense of Regular Company for the current year is 40% of cost of sales but only 20% of sales. Interest expense is 5% of sales. The amount of purchases equals 80% of cost of sales. Ending inventory is 120% as much as the beginning inventory. The income after tax of 30% for the current year is P420,000. What is the amount of sales for the year? a. 1,200,000 b. 2,400,000 c. 2,500,000 d. 1,680,000 74. Cole Co. pays all salaried employees on a biweekly basis. Overtime pay, however, is paid in the next biweekly period. Cole accrues salaries expense only at its December 31 year-end. Data relating to salaries earned in December 2012 are as follows:    

Last payroll was paid on 12/26/12, for the 2-week period ended 12/26/12. Overtime pay earned in the 2-week period ended 12/26/12 was 5,000. Remaining work days in 2012 were December 29, 30, 31, on which days there was no overtime. The recurring biweekly salaries total 80,000.

Assuming a five-day work week, Cole should record a liability at December 31, 2012 for accrued salaries of a. 24,000. b. 29,000. c. 48,000. d. 53,000. 75. In 2010, Timmy Mining Company purchased property with natural resources for P50,000,000. The property was relatively close to a large city and had an expected residual value of P5,000,000. Development cost, tonnage mined and estimated remaining tons for the years 2010 to 2014 are as follows: Year 2010 2011 2012 2013 2014

Development Cost 4,000,000 6,000,000 5,000,000 2,000,000 0

Tons Extracted

0 1,000,000 2,500,000 1,700,000 300,000

Estimated Tons Remaining 5,000,000 4,000,000 1,000,000 300,000 0

How much is the depletion in 2012? a. 30,000,000 b. 27,500,000 c. 35,000,000 d. 34,375,000 76. Disney Company finished construction of its building on January 1, 2002 at a total cost of P25,000,000. The building was depreciated over its estimated useful life of 20 years using the straight-line method with no residual value. The building was subsequently revalued on January 1, 2010 and the revaluation report showed that the asset had a replacement cost of P32,000,000 and was determined to have no change in its useful life. On January 1, 2012 the building was tested for recoverability and the fair value was ascertained to be P10,000,000 on this date, with no change on its remaining useful life. What is the impairment loss to be recognized by Disney in 2012? a. 1,800,000 c. 2,850,000 b. 6,000,000 d. 2,500,000

for review and practice purposes only (Not to be assumed as actual examination)

14

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

The following information relates to the pension plan for the employees of Mauro Company: Accum. benefit obligation Projected benefit obligation Fair value of plan assets Market-related value of assets Unrecognized net (gain) or loss Settlement rate (for year) Expected rate of return (for year)

1/1/10 2,200,000 2,325,000 2,125,000 2,050,000 -0-

12/31/11 2,300,000 2,490,000 2,600,000 2,580,000 (360,000) 11% 8%

12/31/12 3,000,000 3,335,000 2,870,000 2,825,000 (400,000) 11% 7%

Mauro estimates that the average remaining service life is 16 years. Mauro's contribution was 315,000 in 2012 and benefits paid were 235,000. 77. The interest cost for 2012 is a. 224,100. b. 253,000. c. 273,900. d. 366,850. 78. The actual return on plan assets in 2012 is a. 170,000. b. 190,000. c. 245,000. d. 270,000. 79. Yanina Corporation has the following equity accounts: Accumulated profits Asset revaluation reserve Share capital Contra equity reserve Appropriation reserve Share premium Foreign translation reserve - credit Treasury shares at cost

2,500,000 1,000,000 5,000,000 500,000 1,500,000 3,000,000 800,000 400,000

What is Yanina’s shareholders’ equity? a. 12,900,000 b. 13,900,000 c. 10,100,000 d. 13,300,000 80. At December 31, 2012, Ann’s Boutique had 1,000 gift certificates outstanding, which had been sold to customers during 2012 for 50 each. Ann’s operates on a gross margin of 60% of its sales. What amount of revenue pertaining to the 1,000 outstanding gift certificates should be deferred at December 31, 2012? a. 0. b. 20,000. c. 30,000. d. 50,000. 81. What amount should an individual have in a bank account today before withdrawal if 10,000 is needed each year for four years with the first withdrawal to be made today and each subsequent withdrawal at one-year intervals based on 10% interest compounded annually? (The balance in the bank account should be zero after the fourth withdrawal.) a. 10,000 + (10,000 × 0.909) + (10,000 × 0.826) + (10,000 × 0.751) b. 10,000 ÷ 0.683 × 4 c. (10,000 × 0.909) + (10,000 × 0.826) + (10,000 × 0.751) + (10,000 × 0.683) d. 10,000 ÷ 0.909 × 4 82. Kelvin Company uses the composite method of depreciation on its property, plant and equipment based on a composite rate of 20%. At the beginning of 2012, the total cost of Kelvin’s depreciable assets was P5,000,000 and had accumulated depreciation of P2,000,000. Kelvin has always maintained a 10% residual value for all depreciable assets. During 2012, Kelvin sold fixed assets with an original cost of P800,000 for P500,000 and acquired assets as replacements with a total cost of P1,500,000. What is the balance of the accumulated depreciation account of Kelvin on December 31, 2012? a. 2,726,000 b. 3,140,000 c. 2,840,000 d. 2,600,000

for review and practice purposes only (Not to be assumed as actual examination)

15

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

83. The following is the shareholders’ equity section of Benny Corporation at December 31, 2012: 12% fully participating, cumulative preference shares, P50 par; authorized 100,000 shares: 15,000 shares issued Ordinary shares, P20 par; 90,000 shares issued Share premium Total paid in capital Retained earnings Less: Cost of 3,000 preference treasury shares Total shareholders’ equity

750,000 1,800,000 2,450,000 5,000,000 4,000,000 1,000,000 10,000,000

Dividends have not been paid since 2010. On December 31, 2012, Benny wants to pay a cash dividend of P3.50 a share to ordinary shareholders. How much should be the total amount of cash dividend to be declared? a. 564,000 c. 600,000 b. 690,750 d. 615,250 Isaac Co. assigned 500,000 of accounts receivable to Dixon Finance Co. as security for a loan of 420,000. Dixon charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During the first month, Isaac collected 110,000 on assigned accounts after deducting 380 of discounts. Isaac accepted returns worth 1,350 and wrote off assigned accounts totaling 3,700. 84.

The amount of cash Isaac received from Dixon at the time of the transfer was a. 378,000. b. 410,000. c. 411,600. d. 420,000.

85.

Entries during the first month would include a a. debit to Cash of 110,380. b. debit to Bad Debts Expense of 3,700. c. debit to Allowance for Doubtful Accounts of 3,700. d. debit to Accounts Receivable of 115,430.

86. On January 1, 2012 Carmelo Company purchased investment securities for P1,500,000. The securities are classified as trading. By December 31, 2012, the securities had a fair value of P2,100,000 but had not yet been sold. The company also recognized a P400,000 restructuring charge during the year. The restructuring charge is composed of an impairment write-down on a manufacturing facility. Tax rules do not allow a deduction for the write-down unless the facility is actually sold; the facility was not sold by the end of the year. Excluding the trading securities and the restructuring the charge, income before taxes for the year was P5,000,000. The income tax rate for the current year and future years is 30%. What is Carmelo’s deferred tax expense? a. 60,000 c. 120,000 b. 300,000 d. 180,000 87. On April 7, 2012, Kaiser Corporation sold a 2,000,000 twenty-year, 8 percent bond issue for 2,120,000. Each 1,000 bond has two detachable warrants, each of which permits the purchase of one share of the corporation's common stock for 30. The stock has a par value of 25 per share. Immediately after the sale of the bonds, the corporation's securities had the following market values: 8% bond without warrants Warrants Common stock

1,008 21 28

What accounts should Kaiser credit to record the sale of the bonds? a. Bonds Payable 2,000,000 Premium on Bonds Payable 77,600 Paid-in Capital—Stock Warrants 42,400 b. Bonds Payable 2,000,000 Premium on Bonds Payable 16,000 Paid-in-Capital—Stock Warrants 84,000 c. Bonds Payable 2,000,000 Premium on Bonds Payable 35,200 Paid-in Capital—Stock Warrants 84,800 d. Bonds Payable 2,000,000 Premiums on Bonds Payable 120,000

for review and practice purposes only (Not to be assumed as actual examination)

16

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

88. Nevada Company has 40 employees who work 8-hour days and are paid hourly. On January 1, 2010, the company began a program of granting its employees 10 days' paid vacation each year. Vacation days earned in 2010 may first be taken on January 1, 2011. Information relative to these employees is as follows: Year 2010 2011 2012

Hourly Wages P50.00 55.00 60.00

Vacation Days Earned by Each Employee 10 10 10

Vacation Days Used by Each Employee 0 8 7

Nevada has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned. What is the amount of the accrued liability for compensated absences that should be reported at December 31, 2012? a. 280,000 b. 288,000 c. 252,800 d. 276,800 89. Steven Company started its business on January 1, 2012. After considering the collection experience of other companies in the industry, Steven established an allowance for doubtful accounts estimated at 5% of credit sales. Outstanding accounts receivable recoded on December 31, 2012 totaled P460,000, while the allowance for doubtful accounts has a credit balance of P50,000 after recording estimated doubtful accounts expense for December and after writing off P10,000 of uncollectible accounts. Further analysis of the company’s accounts showed that merchandise purchased in 2012 amounted to P1,800,000 and ending merchandise inventory was P300,000. Goods were sold at 40% above cost. 80% of total sales were on account. Total collections from customers, on the other hand, excluding proceeds from cash sales, amounted to P1,200,000. Considering the given data, the accounts receivable and allowance for doubtful accounts are Accounts Receivable Allowance for Doubtful Accounts a. 10,000 understated 24,000 understated b. 10,000 understated 34,000 understated c. 20,000 understated 24,000 understated d. 20,000 understated 34,000 understated 90.Oswald Corporation's partial income statement after its first year of operations is as follows: Income before income taxes Income tax expense Current Deferred Net income

1,750,000 483,000 42,000

525,000 1,225,000

Oswald uses the straight-line method of depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The amount charged to depreciation expense on its books this year was 700,000. No other differences existed between book income and taxable income except for the amount of depreciation. Assuming a 30% tax rate, what amount was deducted for depreciation on the corporation's tax return for the current year? a. 560,000. b. 665,000. c. 700,000. d. 840,000. Mississippi Company decides to enter the leasing business. The company acquires a specialized packaging machine for P3,000,000 cash and leases it for a period of six years, after which the machine is to be returned to Mississippi Company for disposition. The expected guaranteed residual value of the machine is P200,000. The lease terms are arranged so that Mississippi Company earns a return of 12%. The present value of 1 at 12% for six periods is .51, and the present value of annuity advance of 1 at 12% for six periods is 4.60. 91. What is the annual lease payment payable in advance required yielding the desired return? a. 645,000 b. 630,000 c. 652,174 d. 732,000 92. What is the gross investment in the lease? a. 3,780,000 b. 3,913,044 c. 3,580,000 d. 3,980,000

for review and practice purposes only (Not to be assumed as actual examination)

17

MOCK CPA EXAMINATION OCTOBER 2012

PRACTICAL ACCOUNTING PROBLEMS I (100 ITEMS, 18 PAGES)

93. What is the amount of interest revenue to be recorded in the first year of the lease? a. 284,400 b. 360,000 c. 347,760 d. 402,000 94.Presented below is information related to Molson, Inc.:

Common stock 6% Preferred stock Retained earnings (includes net income for current year) Net income for year

December 31, 2012 75,000 350,000 90,000 60,000

2011 60,000 350,000 75,000 32,000

What is Molson’s rate of return on common stock equity for 2012? a. 48.8% c. 25% b. 26% d. 22.4% 95. In 2010, Minton Company purchased a tract of land as a possible future plant site. In January, 2012, valuable sulfur deposits were discovered on adjoining property and Minton Company immediately began explorations on its property. In December, 2012, after incurring 500,000 in exploration costs, which were accumulated in an expense account, Minton discovered sulfur deposits appraised at 2,500,000 more than the value of the land. To record the discovery of the deposits, Minton should a. Make no entry. b. Debit 500,000 to an asset account. c. Debit 2,500,000 to an asset account. d. Debit 3,000,000 to an asset account. 96. Deltoid Company signed a three-month, zero-interest-bearing note on November 1, 2012 for the purchase of 40,000 of inventory. The face value of the note was 40,588. Assuming Deltoid used a “Discount on Note Payable” account to initially record the note and that the discount will be amortized equally over the 3-month period, the adjusting entry made at December 31, 2012 will include a a. Debit to Discount on Note Payable for 196. b. Debit to Interest Expense for 392. c. Credit to Discount on Note Payable for 196. d. Credit to Interest Expense for 392. 97. Edwards Corporation purchased a new machine on October 31, 2012. A 700 down payment was made and three monthly installments of 2,100 each are to be made beginning on November 30, 2012. The cash price would have been 6,400. Edwards paid no installation charges under the monthly payment plan but a 100 installation charge would have been incurred with a cash purchase. The amount to be capitalized as the cost of the machine on October 31, 2012 would be a. 7,100. b. 7,000. c. 6,500. d. 6,400. On January 1, 2012, Gregg Company purchased land for an office site by paying 80,000 cash. Gregg began construction on the office building on January 1. The following expenditures were incurred for construction: Date January 1, 2012 April 1, 2012 May 1, 2012 July 1, 2012

Expenditures 120,000 50,000 90,000 111,000

The office was completed and ready for occupancy on December 31. To help pay for construction, 360,000 was borrowed on January 1, 2012 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2012 was a 150,000, 12%, 6-year note payable dated January 1, 2011. 98. The weighted-average accumulated expenditures on the construction project during 2012 were a. 192,000. c. 156,000. b. 1,467,000. d. 348,000. 99. The actual interest cost incurred during 2012 was a. 45,000. c. 25,200. b. 50,400. d. 42,000. 100.Assume the weighted-average accumulated expenditures for the construction project are 435,000. The amount of interest cost to be capitalized during 2012 is a. 39,150. c. 45,000. b. 41,400. d. 50,400.

for review and practice purposes only (Not to be assumed as actual examination)

18