Question 1

An entity acquired a new processing machine on June 30, 2020. Details of the acquisition were:

Invoice cost

3,200,000

Cost of transportation to the entity's factory

100,000

Cost of installation:

Labor paid

70,000

Materials used

30,000

Payment for strengthening the floor to support the weight of the new machine

160,000

The terms of the acquisition include a 3% discount if payment is made in 10 days. The entity paid on July 21, 2020. The entity's chief engineer spent two-thirds of his time during trial run of the new machine. The monthly salary is P120,000.

On August 1, 2020, the entity requested an allowance from the supplier because the machine proved to be of less than standard performance capability. The supplier granted cash allowance of P200,000. The cost of removing the old machine before the new machine was acquired amounted to P20,000. The operator of the old machine who was laid off due to the acquisition of the new machine was paid a gratuity of P60,000.

What is the correct cost of the new machine?

Group of answer choices

3,280,000

3,244,000

3,184,000

3,104,000

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Question 2

On January 1, 2020, an entity receives a grant of P30 million from the Australian government in order to defray safety and environmental costs within the area where the entity is located. The safety and environmental costs are expected to be incurred over 4 years, respectively, P2 million, P4 million, P6 million and P8 million.

At the end of December 31, 2020, how much is the net revenue to be recognized for 2020 as a result of this transaction?

Group of answer choices

7,500,000

1,000,000

3,000,000

2,000,000

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Question 3

During 2020, an entity constructed an asset costing P8,430,000. The weighted average accumulated expenditures during 2020 totaled P7,800,000. The entity borrowed P4,000,000 at 7.5% on January 1, 2020. Funds not needed for construction were temporarily invested in short-term securities, and earned P118,000 in interest revenue. In addition to the construction loan, the entity had two other notes outstanding during the year, a P3,000,000, 10-year, 10% note payable dated October 1, 2018, and a P2,000,000, 8% note payable dated November 2, 2019. Construction was completed on December 31, 2020.

What amount should be capitalized as borrowing cost on December 31, 2020?

Group of answer choices

642,000

531,600

649,600

589,560

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Question 4

An entity both purchases and constructs equipment for use in its operations. The following items for two different types of equipment were recorded in random order during the calendar year 2020:

Purchases

Cash paid for equipment, including VAT of P10,000

110,000

Freight & insurance cost while in transit

2,000

Cost of moving equipment into place at factory

3,100

Wage cost for technicians to test equipment

4,000

Insurance premium paid during 1st year of operation on this equipment

1,500

Special plumbing fixtures required for new equipment

8,000

Repair cost incurred in 1st year of operation related to this equipment

1,300

Construction

Material & purchased parts (gross cost P200,000; failed to

take 2% cash discount)

200,000

Imputed interest on funds used during construction (stock financing)

14,000

Labor costs

190,000

Overhead costs (fixed-P20,000; variable-P30,000)

50,000

Profit on self-construction

30,000

Cost of installing equipment

4,400

What is the correct cost of each equipment (purchased and constructed, respectively) an entity should report?

Group of answer choices

P120,600 and P454,400

P123,400 and P410,000

P122,100 and P440,400

P117,100 and P440,400

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Question 5

On July 1, 2020, an entity purchased an 8%, 4-year, P4,000,000 face value bonds for P3,746,400. The bonds are dated July 1, 2020 and pays interest every June 30. Effective rate of the bonds is 10% and to be held as financial assets at amortized cost. The entity used the effective interest method.

What amount should be reported as interest income for 2021?

Group of answer choices

320,000

380,000

374,640

377,372

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Question 6

On September 30, 2020, an entity purchased as a long-term investment in another entity's ten-year 12% bonds with a face amount of P5,000,000 for P5,503,400 including accrued interest of P150,000. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2025. The entity used the straight-line method of amortization.

What amount of interest income should be reported in the income statement for the year ended December 31, 2020?

Group of answer choices

131,400

281,400

123,504

168,600

Question 8

On January 2, 2020, Senior Company invested in a 4-year 10% bond with a face value of P6,000,000 in which interest is to be paid every December 31. The bonds has an effective interest rate of 9% and was acquired for P6,194,220.

During December 2021, the management of Senior Company decided to dispose P4,000,000 face value debt instrument which will be used to settle an obligation and to finance some of its operating costs.

The company has a business model of collecting the contractual cash flows for all their debt security investment, however due to frequent sale and disposal of investments the management has decided that the business model is no longer appropriate.

On December 31, 2021, the four million face value debt instrument was disposed of when the market rate of similar instrument was 11%. The PV factor of 1 at 11% after 2 years is 0.8116 and the PV factor of ordinary annuity of 1 at 11% after 2 years is 1.7125.

What is the amount of gain or loss should the company recognize in its 2021 profit or loss as a result of the reclassification?

Group of answer choices

None (0)

69,418

78,134

96,330

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Question 9

An entity purchased for cash a new building on January 1, 2020 for P2,100,000. The building has an estimated useful life of 25 years with no residual value. Depreciation is computed each December 31 on a straight line basis.

On January 1, 2022, the company replaced the old roof with a permanent tile roof costing P1,187,900. The cost of the old roof was P675,000. The new roof resulted to a residual value of P 100,000 and considered a betterment.

What is the depreciation charged for 2022?

Group of answer choices

108,648

96,996

104,516

104,300

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Question 10

Princess Company agreed with another company to exchange an old tractor trailer with a cost P1,000,000, was 40% depreciated and a fair value of P800,000 for another tractor trailer and a cash of P550,000 which is the difference in fair value. The tractor trailer received had a carrying cost of P100,000 and fair value P250,000.

What amount should Princess Company record as cost of the asset received in exchange?

Group of answer choices

250,000

1,350,000

1,400,000

800,000

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Question 11

On January 1, 2020, an entity borrowed P6,000,000 at an annual interest rate of 10% to finance specifically the cost of building an electric generating plant. Construction commenced on January 1, 2020 with a cost P6,000,000. Not all the cash borrowed was used immediately, so interest income of P80,000 was generated by temporarily investing some of the borrowed funds prior to use. The project was completed on December 1, 2020.

What is the capitalizable borrowing cost?

Group of answer choices

600,000

470,000

550,000

520,000

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Question 12

An entity purchased a varnishing machine for P3,600,000 on January 1, 2020. The entity received a government grant of P324,000 in respect of this asset. The accounting policy is to depreciate the asset over 4 years on a straight line basis and to treat the grant as deferred income.

What should be reported as carrying amount of the machine and deferred income, respectively, on December 31, 2021?

Group of answer choices

1,800,000 and 162,000

2,700,000 and 243,000

1,962,000 and 162,000

1,800,000 and 324,000

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Question 13

An entity has in its records:

Land held for long term capital appreciation, P2,000,000;

Land held for undetermined use, P2,000,000;

Property rented by employee (the employee pay rent), P2,000,000;

Owner occupied property awaiting disposal, P2,000,000;

Building that is vacant but is held to be leased out under operating lease, P2,000,000;

Property being constructed on behalf of third parties, P2,000,000;

Property leased to another entity under finance lease, P2,000,000;

Property that is being constructed for future use owner occupied property, P2,000,000.

How much is the total investment property?

Group of answer choices

8,000,000

10,000,000

6,000,000

12,000,000

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Question 14

An entity insured the life of its president for P1,000,000, the entity being the beneficiary of an ordinary life insurance policy. The annual premium is P40,000 and the policy is dated January 1, 2020. The cash surrender value are P7,500 on December 31, 2022 and P9,500 on December 31, 2023. The entity follows the calendar year as its fiscal period. The president died on October 1, 2023 and the policy is settled on December 31, 2023?

What is the gain on life insurance settlement?

Group of answer choices

980,500

1,000,000

990,500

981,000