Northern CPAR: Practical Accounting I – 2nd PRE-BOARD EXAMINATION

NORTHERN CPA REVIEW

th
4 Floor Pelizloy Centrum, Lower Session Road, Baguio City
Contact Nos. SMART : 09294891758; GLOBE : 09272128204
Email Add: ncpar@yahoo.com
ZEUS VERNON MILLAN, CPA
PRACTICAL ACCOUNTING 1
First Pre-Board Examination
INSTRUCTION: Select the best answer for each of the following questions.
Mark only the answer for each item by shading the box corresponding to the
letter of your choice on the answer sheet provided. STRICTLY NO ERASURES
ALLOWED. Use pencil No. 2 only.

1. Rex Adorable Co. prepared its unadjusted trial balance and determined
that the totals of debits and credits do not equal. Further investigation
revealed the following:

The debit posting for a cash sale was omitted. P

2,000
The balance of Inventory was listed as a credit 12,000
The balance of Insurance expense was listed as 3,000
Rent expense
The balance of Unearned interest income was 5,000
listed as a debit
Year-end depreciation not yet recorded 15,000

How much is the difference between total debits and total credits in the
unadjusted trial balance?
a. 16,000 excess of credits over debits
b. 9,000 excess of credits over debits
c. 16,000 excess of debits over credits
d. 9,000 excess of debits over credits

2. The credit total of a trial balance exceeds the debit total by P350. In
investigating the cause of the difference, the following errors were
determined:

a) a credit to accounts receivable of P550 was not posted;

b) a P5,000 debit to be made to the Purchases account was debited to

Accounts payable instead;

c) a P3,000 credit to be made to the Sales account was credited to the

Accounts receivable account instead;

d) the interest payable account balance of P4,500 was included in the

trial balance as P5,400.

How much is the correct balance of the trial balance?

a. 8,550 c. 7,450
b. 9,450 d. 9,550

3. The total credits in the statement of financial position columns of the

worksheet amounted P720,400 while the total debits in the income
statement columns is P246,800. If the total debits in the adjusted trial
balance is P990,000, how much is the profit/(loss) for the period?

a. 22,800 c. 266,000
b. (22,800) d. (266,000)

4. Darrell God-fearing, Inc. records all disbursements using nominal

accounts. On December 31, 20x1, ABC has total expenses of P1,000,000
before possible adjustment for the following:

NCPAR…driven for real excellence! P1by Zeus Vernon Millan, CPA P1-5th Batch – PB02 1
Northern CPAR: Practical Accounting I – 2nd PRE-BOARD EXAMINATION
a. Advertisement costs paid during December 31, 20x1 totaled P10,000.
The advertisement was aired on TV on January 5, 20x2.
b. A two-year insurance on assets was obtained on July 1, 20x1 for
P24,000.
c. On July 15, 20x1, ABC entered into an operating lease requiring
monthly payments of P60,000 starting on the date of the lease
contract and monthly thereafter.
d. Office supplies expense has a balance of P20,000. The physical
count of office supplies revealed a balance of P16,000.

The adjusted total expenses is

a. 938,000 c. 944,000
b. 926,000 d. 932,000

5. The inexperienced accountant of Raymund Achiever, Inc. prepared the following closing entry on
December 31, 20x1:
Dec. 31, Prepaid insurance 10,000
20x1 Accrued interest expense 2,000
Cost of goods sold 170,000
Interest income 20,000
Dividend income 30,000
Unrealized gain – OCI 5,000
Income summary 447,000
Dividends 12,000
Sales 450,000
Operating expenses 200,000
Finance cost 2,000
Accrued interest income 20,000
Dec. 31, Retained earnings 447,000
20x1 Income summary 447,000

How much is the correct amount of “Income summary” to be closed to

retained earnings?
a. 447,000 c. 146,000
b. 140,000 d. 128,000

6. On September 30, 20x1, Rhad Down2earth Co. issued a P1,000,000, 12%, 4-year note payable to
XYZ, Inc. Principal in equal annual installments and interest are payable every September 30. ABC
Co. records disbursements for expenses using nominal accounts. At December 31, 20x1, the
following adjusting entry was made to take up the accrued interest.

Dec. 31, 20x1 Interest expense (1M x 12% x 3 /12) 30,000

Interest payable 30,000

If no reversing entries were made, the adjusting entry on December 31,

20x2 to take up accrued interest will include
a. debit to interest expense of P22,500
b. credit to interest payable of P22,500
c. debit to interest expense of P7,500
d. debit to interest payable of P7,500

7. The following information shows the changes in the account balances of

Andrix Half man-half amazing, Inc. during 20x1.

Increase (Decrease)
Cash P 100,000
Accounts receivable (880,000)
Allowance for bad debts (120,000)
Inventory 800,000
Investment in associate 700,000
Property and equipment 1,100,000
Accumulated depreciation 400,000
Accounts payable 900,000
Bonds payable (700,000)
Discount on bonds payable (150,000)

NCPAR…driven for real excellence! P1by Zeus Vernon Millan, CPA P1-5th Batch – PB02 2
Northern CPAR: Practical Accounting I – 2nd PRE-BOARD EXAMINATION
Share capital 900,000
Share premium 100,000
Revaluation Surplus 900,000
Treasury shares 80,000

Cash dividends declared during 20x1 amounted to P100,000, stock dividends

declared amounted to P200,000, and appropriations of retained earnings
for the retirement of bonds amounted to P50,000. Profit (loss) for the
year is
a. 530,000 c. 280,000
b. (530,000) d. (280,000)

8. ABC Company is preparing its September 30, 20x1 bank reconciliation.

Relevant information is shown below:

Balance per books P1,740

Balance per bank statement 2,000
Collection on note by bank (including P50
Interest) 1,150
NSF check returned by bank 600
Bank service charges for December 20
Deposits in transit 780
Outstanding checks (including certified checks of P100) 1,000

 Collection on receivables of P450 was erroneously recorded by ABC as

P540. The actual amount deposited of P450 was correctly credited by the
bank in ABC’s bank account.

 Amortization of loan by AVC Company amounting to P300 was erroneously

debited by the bank from ABC Co.’s bank account.

The adjusted balance of cash is

a. 2,180 c. 1,480
b. 2,080 d. 1,580

9. ABC Company has the following information:

Balance per bank statement 400

Credit memos 210
Debit memos 150
Deposits in transit 130
Outstanding checks 80

The cash balance per books is

a. 450 b. 510 c. 390 d. 420

Use the following information for the next two questions:

Information from ABC Co. is shown below.

NCPAR…driven for real excellence! P1by Zeus Vernon Millan, CPA P1-5th Batch – PB02 3
Northern CPAR: Practical Accounting I – 2nd PRE-BOARD EXAMINATION
Excerpt from cash books.
Collections Deposit Checks
Date deposited slip # drawn Debits Credits Balance
Sept. 1 Bal. forwarded P 10
Sept. 3 CM from Aug. a P 120 130
Sept. 3 DM from Aug. b P 5 125
Sept. 3 Error correction c 10 135
Sept. 3 Error correction d 8 127
Sept. 4 134 100190 30 157
Sept. 13 Cash 103001 42 199
Sept. 14 201 30 169
Sept. 19 547 105004 100 269
Sept. 20 202 20 249
Sept. 21 203 10 239
Sept. 25 Cash 105057 60 299
Sept. 27 389 105100 50 349
Sept. 28 204 65 284
Sept. 29 987 106007 30 314
Sept. 30 768 108112 40 354
Sept. 30 205 90 P 264
P 482 P 228

a
The CM from August represents a receivable collected by the bank on behalf
of ABC.
b
The DM from August represents bank service charge in August.
c
This error correction pertains to a check issued and recorded in August at
P120 however the correct amount that cleared the bank is P110.
d
This error correction pertains to a collection on account in August of
P120 but was recorded as P128.

There were no deposits in transit or outstanding checks from August. The

bank statement for the month of September is shown below:
Piggy bank
Period covered: Sept. 1, 20x1 to Sept. 30, 20x1
Account No.: 0012345
Date Check # Checks Deposits Balance
Sept. 1 P 127
Sept. 2 40 CM 167
Sept. 4 134 30 197
Sept. 13 - 50 247
Sept. 15 201 30 217
Sept. 18 20 DM 197
Sept. 20 547 100 297
Sept. 21 297
Sept. 23 203 10 287
Sept. 25 - 60 347
Sept. 27 389 50 NSF 397
Sept. 28 389 50 NSF 347
Sept. 28 500 EC 500 EC 347
Sept. 29 5 SC 342
Sept. 30 987 30 372
Sept. 30 204 50 P 322
P 665 P 860

SC - Service charge NSF - No sufficient f und

EC - Error corrected DM - Debit memo
CM - Credit memo

10. How much is the deposits in transit?

a. 40 b. 125 c. 52 d. 60

11. How much is the outstanding checks?

a. 114 b. 110 c. 152 d. 15

NCPAR…driven for real excellence! P1by Zeus Vernon Millan, CPA P1-5th Batch – PB02 4
Northern CPAR: Practical Accounting I – 2nd PRE-BOARD EXAMINATION
Use the following information for the next two questions:
Taken from the records of ABC Co. are following:
Balance per bank statement, October 31 P 1,600
Balance per bank statement, November 30 800
Total Credits per bank statement, 1,500
November
Balance per books, October 31 700
Total Credits per books, November 1,900
Balance per books, November 30 900
Collection of note directly credited to 500
ABC’s account in October
Proceeds of loan directly credited to
ABC’s account in November 300
NSF checks returned during October. 900
NSF checks returned during Nov.- not yet
taken up in the books 200
Check from customer in October amounting
to P200 but was 1,800
taken up in the book as P2,000.
Check issued to supplier in November
amounting to P100 was 900
taken up erroneously in the books as
P1,000.
Collections in November for P1,300 was 1,000
recorded as P300
Checks properly drawn in October at
P1,900 was erroneously 1,710
recorded by the bank at P190
Deposits in November properly recorded
by ABC 1,350
as P1,500 but was recorded by the
bank as P150
Deposits in transit – October 31 800
Outstanding checks – October 31 2,190

12. How much is the deposits in transit as of November 30?

a. 580 b. 720 c. 810 d. 850

13. How much is the outstanding checks as of November 30?

a. 100 b. 120 c. 110 d. 150

14. The overdraft per bank statement of ABC Co. was P13,880 as of March
31, 20x1. The following information was gathered.

 Interest on overdraft for the quarter ended March 20x1 – P480 (not yet
entered in cash book)

 Check deposited in the bank, but not cleared – P1,800

 Check issued but not presented – P2,350

 A check for P1,000 which was discounted with the bank earlier was
dishonored. ABC Co. was not aware of the dishonor.

What will be the overdraft as per ABC’s cashbook on March 31, 20x1?
a. 12,950 b. (12,950) c. 13,910 d. (13,910)

15. Data concerning the cash records of ABC Company for the months of
November and December 20x1 are shown below:

NCPAR…driven for real excellence! P1by Zeus Vernon Millan, CPA P1-5th Batch – PB02 5
Northern CPAR: Practical Accounting I – 2nd PRE-BOARD EXAMINATION
November 30 December 31
Book balance 5,600 ?
Book debits 31,900
Book credits 28,200
Bank balance 15,000 20,400
Bank debits ?
Bank credits 27,300
Notes collected by bank 2,250 3,000
Bank service charge 20 100
NSF checks 880 1,400
Overstatement of check in payment
of salaries 1,900 1,200
Deposit in transit 6,000 11,250

Outstanding check 9,750 17,850

Deposit of 123 Corporation erroneously
credited to ABC Co.’s account 2,400 1,800

How much is the adjusted cash receipts in December?

a. 30,750 c. 34,550
b. 33,000 d. 34,350

16. Information from the records of ABC Company is shown below:

Accounts receivable - net of P10,000 credit balance in

customers' accounts P 50,000
Notes receivable (trade) 5,000
Notes receivable (non-trade), P5,000 collectible within one year 25,000
Dividends receivable 1,000
Subscriptions receivable 2,000
Advances to officers and employees (due in 12 months) 4,000
Accounts payable - net of P6,000 debit balance in
suppliers' accounts 3,000

Total trade receivables and total current receivables, respectively, are

a. 55,000 and 73,000 c. 56,000 and 72,000
b. 56,000 and 74,000 d. 55,000 and 75,000

17. On December 31, 20x1, ABC Co. sold goods costing P10,000 and with
sales price of P15,000 to XYZ, Inc. on account. To induce sale, ABC Co.
provides its buyers the right to return goods within 30 days upon
purchase if the buyer is not satisfied with the goods. ABC Co. estimates
that 20% of goods sold are returned within the agreed period of time. How
much is credited to the sales account on December 31, 20x1?

a. 15,000 c. 12,000
b. 10,000 d. 0

ABC Co. has the following information on December 31, 20x1 before any year-
end adjustments.
Allowance for doubtful accounts, Jan. 1 P 8,000
Write-offs 5,000
Recoveries 1,000
Sales (including cash sales of P100,000) 600,000
Sales returns and discounts
(including P1,000 sales returns on cash sales) 6,000
Accounts receivable, December 31 150,000
Percentage of credit sales 2%

How much is the net realizable value of accounts receivable on December

31, 20x1?
a. 140,100 c. 136,120
b. 136,100 d. 138,100

NCPAR…driven for real excellence! P1by Zeus Vernon Millan, CPA P1-5th Batch – PB02 6
Northern CPAR: Practical Accounting I – 2nd PRE-BOARD EXAMINATION
18. ABC Co. has the following information on December 31, 20x1 before any
year-end adjustments.

Accounts receivable, Jan. 1 P 80,000

Net credit sales 270,000
Collections from customers (excluding recoveries) 140,000

Allowance for doubtful accounts, Jan. 1 P 10,000

Write-offs 5,000
Recoveries 1,000
Percentage of receivables 5%

How much is net realizable value of accounts receivable on December 31,

20x1?
a. 202,000 c. 110,000
b. 119,100 d. 191,100

19. ABC Co. has the following information on December 31, 20x1 before any
year-end adjustments.

Net credit sales P,2,000,000

Accounts receivable, December 31 310,000
Allowance for doubtful accounts, Dec. 31
(before necessary year-end adjustments) 20,000
Percentage of credit sales 2%

The aging of receivables is shown below:

Days outstanding Receivable balances % uncollectible
0 - 60 P 120,000 1%
61 - 120 90,000 2%
Over 120 100,000 6%
Total accounts receivables P 310,000

ABC Co. uses the percentage of credit sales in determining bad debts in
monthly financial reports and the aging of receivables for its annual
financial statements. Accounts written-off during the year amounted to
P38,000 and accounts recovered amounted to P9,000. As of December 31, ABC
Co. determined that a P20,000 accounts receivable from a certain customer
included in the “61-120 days outstanding” group is 95% collectible and a
P10,000 account included in the “Over 120 days outstanding” group is
worthless and needs to be written-off. The year-end adjusting entry to bring
the unadjusted bad debts to its adjusted balance includes
a. a debit to allowance of P10,000 c. a credit to bad debts of P2,000
b. a debit to bad debts of P10,000 d. a credit to allowance of P2,000

20. On January 1, 20x1, ABC Bank extended a 10%, P1,000,000 loan to XYZ,
Inc. Principal is due on January 1, 20x4 but interests are due annually
starting January 1, 20x1. ABC Bank incurred direct loan origination costs
of P12,000 and indirect loan origination costs of P8,000. In addition,
ABC Bank charged XYZ, Inc. a 6-point nonrefundable loan origination fee.
The initial carrying amount of the loan in ABC’s books is

a. 988,000 c. 952,000
b. 1,000,000 d. 1,048,000

21. On January 1, 20x1, ABC Bank extended a P1,000,000 loan to XYZ, Inc.
Principal is due on December 31, 20x5 but 10% interest is due annually
starting December 31, 20x1. On December 31, 20x3, XYZ, Inc. was
delinquent and it was ascertained that the loan was impaired. ABC Bank
assessed that interests accruing on the loan will not be collected;
however, the principal is expected to be received in two equal annual
installments starting on December 31, 20x4. Interest accrued as of
December 31, 20x3 includes the unpaid interest for 20x2; accrued interest
for 20x3 was not yet recorded. The current market rate on December 31,

NCPAR…driven for real excellence! P1by Zeus Vernon Millan, CPA P1-5th Batch – PB02 7
Northern CPAR: Practical Accounting I – 2nd PRE-BOARD EXAMINATION
20x3 is 14%. How much is the balance in the allowance for impairment loss
on December 31, 20x3?

a. 232,231 debit c. 132,231 credit

b. 232,231 credit d. 132,231 debit

22. On January 1, 20x1, ABC Bank extended a 6-year, 10%, P1,000,000 loan
to XYZ, Inc. Net transaction costs incurred amounted to P92,458.
Principal is due on December 31, 20x5 but 10% interest is due every year-
end. The effective interest rate adjusted for transaction costs is 8%.

On December 31, 20x3, XYZ was delinquent and it was ascertained that the
loan was impaired. All accrued interests as of 20x3 were collected. The
present value remaining future cash flows is P773,129. Impairment loss of
P278,413 was recognized on December 31, 20x3.

On December 31, 20x4, XYZ’s credit rating has improved and the loan was then
again restructured. After collection of the scheduled payment on December
31, 20x4, the present value of the remaining cash flows on the newly
restructured loan is P1,069,959. How much is the gain on impairment loss
reversal recognized in profit or loss on December 31, 20x4?
a. 500,686 c. 34,294
b. 534,979 d. 534,980

23. ABC Co. transferred loans receivables with carrying amount and fair
value of P100,000 to XYZ, Inc. for cash amounting to P100,000. ABC Co. is
obligated under the terms of the transfer to repurchase any individual
loan but the aggregate amount of loans that could be repurchased could
not exceed P10,000. How much of the loans transferred is accounted for as
secured borrowing?

a. 90,000 c. 100,000
b. 10,000 d. none

Use the following information for the next two independent questions:
ABC Co. transfers loans receivables with a fair value of P300,000 and
carrying amount of P280,000. The transfer qualified for derecognition. ABC
Co. obtains an option to purchase similar loans and assumes a recourse
obligation to repurchase similar loans. ABC Co. also agrees to provide a
floating rate of interest to the transferee company. The assets and
liabilities received as consideration of the transfer are listed below:
Fair values
Cash proceeds P200,000
Interest rate swap 150,000
Call option 50,000
Recourse obligation (100,000)

24. How much is the gain (loss) on the transfer?

a. 20,000 b. (20,000) c. 120,000 d. (120,000)

25. Assuming further that ABC Co. agreed to service the loans without
explicitly stating the compensation and fair value of the service is
P15,000, the entry to record the transfer includes

a. a credit to gain on transfer of P105,000.

b. a debit to loss of P135,000.
c. a credit to gain of P5,000
d. a credit to recourse obligation of P115,000

26. ABC Co. sold a loan receivable with a fair value and a carrying amount
of P25,000 for P25,000 to XYZ, Co. The transaction includes a repurchase
agreement wherein ABC should repurchase the financial asset at P25,000
plus interest of 10% to be computed on an annual basis starting on the
date of sale. How much is the gain (loss) on the transfer?

NCPAR…driven for real excellence! P1by Zeus Vernon Millan, CPA P1-5th Batch – PB02 8
Northern CPAR: Practical Accounting I – 2nd PRE-BOARD EXAMINATION
a. 5,438 b. 1,967 c. 23,567 d. 0

Use the following information for the next two questions:

On December 31, 20x1, ABC Co. has balance of P160,000 in its inventory
account determined through physical count and a balance of P100,000 in its
accounts payable account. The balances were determined before any necessary
adjustment for the following:

a. Merchandise costing P10,000, shipped FOB shipping point from a vendor on

December 30, 20x1, was received and recorded on January 5, 20x2.

b. A package containing a product costing P50,000 was standing in the

shipping area when the physical inventory was conducted. This was not
included in the inventory because it was marked “Hold for shipping
instructions.” The purchase order was dated December 17 but the package
was shipped and the customer was billed January 3, 20x2.

c. Goods in the shipping area were included in inventory because shipment

was not made until January 4, 20x2. The goods, billed to the customer FOB
shipping point on December 30, 20x1, had a cost of P20,000.

d. Goods shipped F.O.B. destination on December 27, 20x1, from a vendor to

ABC Co. were received on January 6, 20x2. The invoice cost of P30,000 was
recorded on December 31, 20x1 and included in the count as “goods in-
transit.”

27. The adjusted balance of accounts payable is

a. 60,000 b. 80,000 c. 110,000 d. 130,000

28. The adjusted balance of inventory is

a. 190,000 b. 140,000 c. 120,000 d. 110,000

29. The records of ABC Co. show the following:

- Goods sold on an installment basis to XYZ, Inc., title to the goods is

retained by ABC until full payment is made
P 750,000
- Goods sold to Alpha Co., for which ABC Co. has signed an agreement
to repurchase the goods sold at a set price that covers all costs related
to the inventory 680,000
- Goods sold where large returns are predictable
270,000
- Goods received from Beta Co. for which an agreement was signed
requiring ABC Co. to replace such goods in the near future
580,000

How much of the items listed above will be included in ABC’s year-end
inventory
a. 1,260,000 b. 1,700,000 c. 2,280,000 d. 1,020,000

30. The following are taken from the records of ABC Co. as of year-end.

Cash and cash 13,000 Investment in 55,000

equivalents subsidiary
Accounts receivable 15,000 Shares of stocks 56,000
of ABC Co.
Allowance for bad (2,000) Investment in 12,000
debts bonds
Note receivable 5,000 Land 140,000
Interest receivable 2,000 Building 260,000
Claim for tax 12,000 Accumulated (65,000)
refund depreciation
Advances to 6, Investment 50,0
suppliers 000 property 00
Inventory 75,000 Biological assets 30,000
Prepaid expenses 5,000 Intangible assets 70,000

NCPAR…driven for real excellence! P1by Zeus Vernon Millan, CPA P1-5th Batch – PB02 9
Northern CPAR: Practical Accounting I – 2nd PRE-BOARD EXAMINATION
Prepaid interest 1,000 Deferred tax 60,0
assets 00
Investment in 13, Cash surrender 12,000
equity instruments 000 value
Investment in 20,000 Sinking fund 20,000
associate

How much is the total financial assets to be disclosed in the notes?

a. 165,000 b. 166,000 c. 226,000 d. 265,000

31. On January 1, 20x1, ABC Co. purchased P100,000 12% bonds at 98. The
bonds will mature on January 1, 20x5 and pays annual interest beginning
January 1, 20x2. Commission paid amounted to P10,000. The objective of
the ABC’s business model is to sell such bonds in the near term to take
advantage of fluctuations in fair values for short-term profit taking. On
December 31, 20x1, the investment is quoted at 102. How much is the
initial measurement of the investment?

a. 98,000 b. 108,000 c. 96,764 d. 106,764

32. ABC Co. purchased equity securities on January 1, 20x1 for a total
amount of P90,000. The shares did not qualify for recognition as held for
trading nor were they designated. On December 31, 20x1, the portfolio of
ABC Co. comprised the following.

Cost Fair value – 12/31/x1

Apple Co. preference shares P 50,000 P60,000
Boy Co. ordinary shares 40,000 15,000
Totals P 90,000 P75,000

How much is the unrealized gain (loss)?

a. 0
b. (15,000) in profit or loss
c. (15,000) in other comprehensive income
d. 10,000 gain in OCI and (25,000) in profit or loss

33. On January 1, 20x1, ABC Co. acquired 10%, P1,000,000 bonds for
P951,963. The principal is due on January 1, 20x4 but interest payments
are made annually starting December 31, 20x1. The yield rate on the bonds
is 12%. Interest income in 20x2 is

a. 114,236 c. 117,857
b. 115,944 d. 120,000

34. On January 1, 20x1, ABC Co. acquired 12%, P1,000,000 bonds for
P1,049,737. The principal is due on December 31, 20x3 but interest
payments are made annually starting December 31, 20x1. The effective
interest rate on the bonds is 10%. Premium amortization in 20x2 is

a. 15,026 c. 18,182
b. 16,529 d. 0

35. On January 1, 20x1, ABC Co. acquired 10%, P1,000,000 bonds for
P951,963. The principal is due on January 1, 20x4 but interest payments
are made annually starting December 31, 20x1. The yield rate on the bonds
is 12%. On January 1, 20x3, half of the bonds were sold at 110.
Commission paid to broker amounted to P10,000. How much is the gain
(loss) on the sale?

a. 117,857 c. 58,928
b. 104,662 d. 48,928

36. ABC Co. is contemplating on investing on 12%, 3-year, P1,000,000

bonds. Principal is due at maturity but interest is due annually at each
year-end. ABC determines that the current market rate on January 1, 20x1

NCPAR…driven for real excellence! P1by Zeus Vernon Millan, CPA P1-5th Batch – PB02 10
Northern CPAR: Practical Accounting I – 2nd PRE-BOARD EXAMINATION
is 10%. How much is the estimated total purchase price of the bonds
assuming ABC purchases bonds on April 1, 20x1?

a. 1,054,980 c. 1,045,980
b. 1,750,980 d. 1,075,980

37. On January 1, 20x1, ABC Co. purchased 5-year, 10%, P1,000,000 callable
bonds at 95. Transaction costs incurred amounted to P16,199. Principal is
due on December 31, 20x5 but interests are due annually at each year-end.
The bond indenture restricts the issuer to call the bonds within 2 years
from date of bonds. ABC’s business model’s objective is to hold
investments to collect the principal and interests thereon. How much is
the interest income in 20x1?

a. 93,345 b. 11,494 c. 98,993 d. 115,944

38. ABC Co. owns 15,000 shares out of the 100,000 outstanding shares of
XYZ, Inc. As of year-end, ABC holds 20,000 stock rights which enable it
to acquire additional shares from XYZ on a “2 rights for 1 share” basis.
The stock rights are exercisable immediately; however, management does
not intend to exercise the stock rights. XYZ does not have any other
stock rights outstanding aside from those held by ABC. XYZ reported year-
end profit of P1,000,000 and declared cash dividends of P100,000. How
much share in profit of associate will ABC Co. recognize for the year?

a. 150,000 b. 220,730 c. 15,000 d. none

39. ABC Co. owns 20% of XYZ Inc.’s ordinary shares. XYZ also has an
outstanding cumulative 6% redeemable preference shares of P2,000,000.
None of those preference shares is held by ABC. No cumulative preference
share dividends are in arrears as of the beginning and end of the year.
XYZ reported year-end profits of P1,000,000 and declared no dividends on
oridnary shares. How much is the share in the associate’s profit?

a. 200,000 b. 176,000 c. 189,000 d. 190,000

40. ABC Co. owns 30% of XYZ, Inc.’s ordinary shares. On July 1, 20x2, ABC
Co. sold half of its investment for P400,000. The adjusted balances of
the related accounts as of July 1, 20x2 immediately before the sale are:

 Investment in associate P1,200,000

 Cumulative share in associate’s other comprehensive income 500,000 Cr.

The remaining ownership of does not give ABC significant influence over
XYZ. The share in the profit of the associate during 20x2 should have
been reduced by
a. 250,000 b. 180,000 c. 150,000 d. 75,000

41. ABC Co. owns 20% of XYZ Inc. and uses the equity method because it has
significant influence. In 20x1, ABC sells inventory to XYZ for P100,000
with a 60% gross profit on the transaction. The inventory remains unsold
during 20x1 and was sold by XYZ to external parties only in 20x2. ABC’s
income tax rate is 30%. Assuming XYZ reports profit of P1,000,000 on
December 31, 20x1, the share in the profit of associate in 20x1 is

a. 140,000 b. 158,000 c. 191,600 d. 188,000

42. ABC Co. owns 20% of XYZ Inc. and uses the equity method because it has
significant influence. In 20x1, XYZ sells inventory to ABC for P100,000
with a 60% gross profit on the transaction. The inventory remains unsold
during 20x1 and was sold by ABC to external parties only in 20x2. ABC’s

NCPAR…driven for real excellence! P1by Zeus Vernon Millan, CPA P1-5th Batch – PB02 11
Northern CPAR: Practical Accounting I – 2nd PRE-BOARD EXAMINATION
income tax rate is 30%. Assuming XYZ reports profit of P1,000,000 on
December 31, 20x1, the share in the profit of associate in 20x1 is

a. 140,000 b. 158,000 c. 191,600 d. 188,000

43. ABC Co. owns 20% of XYZ, Inc.’s outstanding ordinary shares. On
January 1, 20x1, ABC sold an equipment with a carrying amount of P100,000
and a remaining useful life of 10 years to XYZ for P120,000. Gain of
P20,000 was recorded by ABC. Both ABC and XYZ uses the straight line
method of depreciation. Assuming XYZ reports profit of P1,000,000 on
December 31, 20x1, the share in the profit of associate in 20x1 is

a. 182,000 b. 180,000 c. 196,400 d. 196,000

44. ABC Co. owns 20% of the ordinary shares of XYZ, Inc. The records of
ABC as of December 31, 20x1 show the following information before any
necessary year-end adjustments.

Investment in associate P 200,000

Trade accounts receivable – XYZ 300,000
Investment in preference shares – XYZ 100,000
Advances to associate – XYZ 50,000
Loans receivable, secured - XYZ 120,000

XYZ reported losses of P1,400,000 and P500,000 in 20x1 and 20x2,

respectively. How much is the share in associate’s loss in 20x2?
a. 100,000 b. 75,000 c. 120,000 d. 0

Use the following information for the next two questions:

On January 1, 20x1, ABC Co. has ten 2-year old dairy cattle with per unit
FVLCS of P10,000 or a total of P100,000.

Transactions during the year were:

 One animal aged 2.5 years was purchased on July 1, 20X1 for P10,800.

 One animal was born on July 1, 20X1.

 Two animals from the January 1, 20x1 biological assets were sold for
P12,000 each on Sept. 1, 20x1.

 One animal from January 1, 20x1 biological assets died of “mad cow”
disease on November 1, 20x1.

Per-unit fair values less costs to sell are as follow:

Newborn animal at July 1, 20X1 P7,000
2.5 year old animal at July 1, 20X1 10,800

Newborn animal at 31 December 20X1 7,200

0.5 year old animal at 31 December 20X1 8,000
2 year old animal at 31 December 20X1 10,500
2.5 year old animal at 31 December 20X1 11,100
3 year old animal at 31 December 20X1 12,000

45. How much is the change in FVLCS attributable to price change?

a. 4,000 b. 19,200 c. 3,000 d. 20,200

46. How much is the change in FVLCS attributable to physical change?

a. 4,000 b. 19,200 c. 3,000 d. 20,200

47. In 20x1, ABC Co. acquired land to be used to mine coal. Total costs of
acquisition, exploration, and intangible development amounted to
P10,000,000. It was estimated that total recoverable reserves is
50,000,000 units. Total units extracted from 20x1 through 20x4 totaled

NCPAR…driven for real excellence! P1by Zeus Vernon Millan, CPA P1-5th Batch – PB02 12
Northern CPAR: Practical Accounting I – 2nd PRE-BOARD EXAMINATION
30,000,000 units. In 20x5, after extracting 5,000,000 units, it was
estimated that the remaining recoverable reserves is 20,000,000 units.
Depletion in 20x5 is

a. 800,000 b. 750,000 c. 700,000 d. 650,000

48. On January 1, 20x1, the building of ABC Co. with a historical cost of
P20,000,000 purchased 4 years ago with an estimated useful life of 20
years and estimated residual value of P2,000,000 has been estimated to
have a replacement cost of P30,000,000 and a new residual value of
P3,000,000. The building is also estimated to have a remaining useful
life of 25 years as of January 1, 20x1. Depreciation is computed using
the straight line method. Income tax rate is 30%. Compute for the
revaluation surplus to be recognized on January 1, 20x1.

a. 5,230,000 b. 2,820,000 c. 3,480,000 d. 5,320,000

49. ABC Co. started construction of a qualifying asset for XYZ, Inc. on
January 1, 20x1. The following were expenditures incurred on
construction.

Date Expenditures
January 1, 20x1 1,000,000
May 1, 20x1 450,000
December 1, 20x1 720,000
January 1, 20x2 900,000
August 30, 20x2 300,000
July 1, 20x3 600,000

ABC Co. determined the capitalization rate to be 10%. The construction

of the qualifying asset was substantially completed on September 30,
20x3. How much is the capitalizable borrowing cost in 20x3?
a. 409,650 b. 430,335 c. 410,630 d. 400,965

--- End of Pre-Board Examination ----

NCPAR…driven for real excellence! P1by Zeus Vernon Millan, CPA P1-5th Batch – PB02 13