AC 503 Finals Reviewer Questions&Answers 100%correct LATEST UPDATE, Exams of Nursing

Download AC 503 Finals Reviewer Questions&Answers 100%correct LATEST UPDATE and more Exams Nursing in PDF only on Docsity! Page 1 of 23 AC 503 Finals Reviewer THEORY 1. Which statement is correct concerning the recognition principles? a. An asset is recognized when it is probable that future economic benefits will flow to the enterprise and the asset has a cost or value that can be measured reliably. b. A liability is recognized when it is possible that an outflow of resources embodying economic benefits will result from the settlement of a present obligation that can measured reliably. c. Income is recognized when an increase in future economic benefits related to a decrease in asset or a increase in liability has arisen that can be measured reliably. d. Expenses are recognized when a decrease in future economic benefits related to an increase in asset or a decrease in liability has arisen that can be measured reliably. 2. The following statements pertain to the concept of income and expenses. Which statement is correct? a. The definition of expenses encompasses only those expenses that arise in the course of the ordinary activities of the enterprise. b. Losses represent other items that meet the definition of expenses and may or may not arise in the course of the ordinary activities of the enterprise. c. The definition of revenue encompasses both income and gains. d. Revenue represent other items that meet the definition of income and may or may not arise in the course of the ordinary activities of an enterprise. 3. Financial accounting a. Is the examination of financial statements by an independent CPA for the purpose of expressing an opinion as to the fairness of the financial statements. b. Focuses on the preparation and presentation of general purpose reports known as financial statements. c. Has no precise coverage but is used generally to refer to services to clients on matters of accounting, finance, business policies, organization procedures, product costs, distribution and many other phases of business conduct and operations. d. Is the preparation of annual income tax returns and determination of tax consequences of certain proposed business venture. 4. Which of the following statements is true? a. All items included in cash constitute legal tender. b. Cash may be offset against a liability if the deposit of funds in restricted account clearly constitutes the legal discharge of the liability. c. Legally restricted bank deposit held as compensating balances should not be segregated from the cash account and reported under a separate caption. d. One-year BSP treasury bills with remaining maturity of three months on balance sheet date may be shown as part of “cash and cash equivalents” provided this is disclosed. Page 2 of 23 5. Which of the following items would be added to the book balance on a bank reconciliation? a. Outstanding checks b. A check written for P162,000 entered as P126,000 in the accounting records c. Interest paid by the bank d. Deposits in transit 6. If the cash balance in a company’s bank statement is less than the correct cash balance and neither the company nor the bank has made any errors, there must be a. Deposits credited by the bank but not yet recorded by the company b. Outstanding checks c. Bank charges not yet recorded by the company d. Deposits in transit 7. A cash over or short account a. Is not generally accepted b. Is debited when the petty cash fund proves out over c. Is debited when the petty cash fund proves out short d. Is a contra account to cash 8. When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of an account previously written off would a. Have no effect on the allowance for doubtful accounts b. Have no effect on net income c. Decrease the allowance for doubtful accounts d. Increase net income 9. A method of estimating doubtful accounts that emphasizes asset valuation rather than income measurement is the allowance method based on a. Aging of receivables b. Direct writeoff c. Gross sales d. Credit sales less sales returns and allowances 10. Notes receivable discounted with recourse should be a. Included in total receivables with disclosure of contingent liability b. Included in total receivables without disclosure of contingent liability c. Excluded from total receivables with disclosure of contingent liability d. Excluded from total receivables without disclosure of contingent liability 11. Credit balances in accounts receivable should be classified as a. Current liability b. Part of accounts payable c. Noncurrent liability d. Deduction from accounts receivable Page 5 of 23 24. What is the effect of split up? a. Increase in number of shares and decrease in cost per share. b. Decrease in number of shares and decrease in cost per share. c. Increase in number of shares and increase in cost per share. d. Decrease in number of shares and increase in cost per share. 25. Bonds usually sell at a premium a. When the market rate of interest is greater than the stated rate of interest on the bonds. b. When the stated rate of interest on the bonds is greater than the market rate of interest. c. When the price of the bonds is greater than the market rate of interest. d. In none of the above cases. 26. Investment property includes a. Property that is being constructed or developed for use as an investment property. b. Property that is being redeveloped for continuing use as investment property. c. Property being constructed or developed on behalf of third parties. d. Property leased to another entity under a finance lease. 27. Which statement is incorrect regarding recognition of PPE? a. Items of PPE should be recognized as assets when it is probable that the future economic benefits associated with the asset will flow to the enterprise and the cost of the asset can be measured reliably. b. Recognition principle is applied to all property, plant, and equipment costs at the time they are incurred. c. PPE costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. d. If the cost model is used, each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item need not be depreciated separately. 28. The cost of an item of property, plant and equipment acquired in exchange for a nonmonetary asset or a combination of monetary and nonmonetary asset is measured at a. Fair value of asset given plus cash payment b. Fair value of asset received plus cash payment c. Book value of asset given plus cash payment d. Book value of asset received plus cash payment 29. The cost of an item of property, plant and equipment includes all of the following, except a. Trade discount and rebates b. Purchase price c. Import duties and nonrefundable purchase taxes d. Directly attributable costs of bringing the asset to working condition for its intended use. Page 6 of 23 30. Which is correct concerning measurement of property, plant and equipment? I. An entity shall choose either the cost model or the revaluation model as its accounting policy and shall apply that policy to an entire class of property, plant and equipment. II. The revaluation model means that property, plant and equipment are carried at cost less any accumulated depreciation and any accumulated impairment loss. III. The cost model means that property, plant and equipment are carried at revalued amount, being the fair value at date of revaluation less any accumulated depreciation and subsequent accumulated impairment loss. a. I, II and III b. I only c. II and III only d. II only 31. Which is correct concerning depreciation of PPE? a. The depreciation method used should not reflect the pattern in which the asset's economic benefits are consumed by the enterprise. b. The depreciation method should be reviewed at least annually and, if the pattern of consumption of benefits has changed, the depreciation method should be changed retrospectively as a change in policy. c. Depreciation should be charged to the income statement, unless it is included in the carrying amount of another asset. d. Depreciation begins when the asset is available for use and continues until the asset is derecognized and became idle. 32. Which is incorrect concerning residual value of PPE? a. The residual value of an asset is the estimated amount an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. b. The residual value and the useful life of an asset should be reviewed at least at each financial year-end and, if expectations differ from previous estimates, any change is accounted for prospectively as a change in estimate. c. Depreciation is not recognized if the fair value of the asset exceeds its carrying amount, even if the asset’s residual value does not exceed its carrying amount. d. The residual value of an asset may increase to an amount equal to or greater than the asset’s carrying amount. 33. The period of time during which interest must be capitalized ends when a. The asset is substantially complete and ready for its intended use. b. No further interest cost is being incurred. c. The asset is abandoned, sold or fully depreciated. d. The activities that are necessary to get the asset for its intended use have begun. 34. Which statement is incorrect concerning government grants? a. Grants in recognition of specific expenses should be recognized as income over the period of the related expense. b. Grants related to depreciable assets should be recognized as income over the periods and in proportion to the depreciation of the related assets. c. Grants related to nondepreciable assets requiring fulfillment of certain conditions should be recognized as income immediately. Page 7 of 23 d. Grants that become receivable as compensation for expenses or losses already incurred should be recognized as income of the period in which the grants become receivable. 35. Technical obsolescence arises from a. Expected usage of the asset b. Expected physical wear and tear c. Expiry date of related lease of the asset d. Change or improvements in production or change in the market demand for the product output of the asset. 36. Dividends representing a return of capital to stockholders are not uncommon among enterprises which a. Use accelerated depreciation b. Use straight line depreciation c. Recognize both functional and physical factors in depreciation d. Do not expect to purchase additional property after depleting existing property. 37. Which statement is incorrect concerning revaluation of property, plant and equipment? a. When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of revaluation is restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation should equal its revalued amount, or eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset. b. Any revaluation increase should be credited to equity as revaluation surplus. c. The revaluation surplus included in equity may be transferred directly to retained earnings when the surplus is realized. d. Any revaluation decrease should be debited to revaluation loss, a contra equity account. 38. An asset is impaired when a. Its recoverable amount exceeds its carrying amount. b. Its carrying amount exceeds its recoverable amount. c. Its fair value less costs to sell is less than its value in use. d. Its net selling price is less than its value in use. 39. The following are external indicators of impairment, except a. Market value declines. b. Negative changes in technology, markets, economy, or laws. c. Increases in market interest rates. d. Worse economic performance than expected. 40. What is the benchmark treatment of the measurement of an intangible asset subsequent to initial recognition? a. Cost b. Fair value c. Fair value less any accumulated amortization and accumulated impairment loss d. Cost less any accumulated amortization and accumulated impairment loss Page 10 of 23 PROBLEMS 1. The following data pertain to Angat Corporation on December 31, 2005: Metrobank current account no. 1 P2,000,000 Metrobank current account no. 2 (100,000) Payroll account 500,000 Foreign bank account – restricted (in equivalent pesos) 1,000,000 Postage stamps 1,000 Employee’s post dated check 4,000 IOU from controller’s sister 10,000 Credit memo from a vendor for a purchase return 20,000 Traveler’s check 50,000 Not-sufficient-funds check 15,000 Money order 30,000 Petty cash fund (P4,000 in currency and expense receipts for P6,000) 10,000 Treasury bills, due 3/31/06 (purchased 12/01/05) 200,000 Treasury bills, due 1/31/06 (purchased 1/1/05) 300,000 Based on the above information, compute for the cash and cash equivalent that would be reported on the December 31, 2005 balance sheet. a. P2,784,000 c. P2,684,000 b. P2,484,000 d. P2,704,000 2. Warn Company was incorporated on January 1, 2005 by issuing common stock with a par value of P50,000,000 for P60,000,000. The other transactions that affected the cash account during January were:  Land and building were purchased for P25,000,000 with a down payment of P10,000,000. A note was signed for the remainder, the property being given as collateral to the note due in six months time only.  Bonds with a face amount of P5,000,000 were issued at 120 for additional working capital requirements.  A check was written for P7,500,000 to pay for computers and other equipment.  A check in the amount of P1,500,000 was written to acquire software technology.  A computer unit which did not fit the company’s requirements was sold at its original sales price of P2,000,000 and the cash was deposited in the company’s checking account. What is the balance of the checking account on January 31, 2005? a. P34,000,000 c. P48,000,000 b. P43,000,000 d. P49,000,000 3. Bulacan Corporation's checkbook balance on December 31, 2005, was P800,000. In addition, Bulacan held the following items in its safe on December 31: Check payable to Bulacan Corporation, dated January 2, 2006, not included in December 31 checkbook balance P200,000 Check payable to Bulacan Corporation, deposited December 20, and Page 11 of 23 included in December 31 checkbook balance, but returned by bank on December 30, stamped "NSF." The check was redeposited January 2, 2006, and cleared January 7 40,000 Post-dated checks 15,000 Check drawn on Bulacan Corporation's account, payable to a vendor, dated and recorded December 31, but not mailed until January 15, 2006 100,000 The proper amount to be shown as cash on Bulacan's balance sheet at December 31, 2005, is a. P760,000 c. P860,000 b. P800,000 d. P975,000 4. The following information pertains to Bustos Company as of December 31, 2005: Cash balance per general ledger P15,000,000 Cash balance per bank statement 14,550,000 Checks outstanding (including certified check of P100,000) 1,000,000 Bank service charge shown in December bank statement Error made by Bustos in recording a check that cleared the bank in December (check was drawn in December for P500,000 but recorded at P700,000) 50,000 200,000 Deposit in transit 1,500,000 At the December 31, 2005 balance sheet cash in bank should be a. P15,150,000 c. P14,250,000 b. P14,650,000 d. P14,550,000 5. The petty cash fund of Guiguinto Company on December 31, 2005 is composed of the following: Coins and currencies P14,000 Petty cash vouchers: Gasoline payments 3,000 Supplies 1,000 Cash advances to employees 2,000 Employee’s check returned by bank marked NSF 5,000 Check drawn by the company payable to the order of Kristine Anson, petty cash custodian, representing her salary 20,000 A sheet of paper with names of employees together with contribution for a birthday gift of a co-employee in the amount of 8,000 Total P53,000 The petty cash ledger account has an imprest balance of P50,000. What is the correct amount of petty cash on December 31, 2005? a. P34,000 b. P39,000 c. P14,000 d. P42,000 Page 12 of 23 6. Dahlgren Company began operations on January 1, 2004. On December 31, 2004, Dahlgren provided for uncollectible accounts based on 5% of annual credit sales. On January 1, 2005, Dahlgren changed its method of determining its allowance for uncollectible accounts to the percentage of accounts receivable. The rate of uncollectible accounts was determined to be 15% of the ending accounts receivable balance. In addition, Dahlgren wrote off all accounts receivable that were over 1 year old. The following additional information relates to the years ended December 31, 2004 and 2005. 2005 2004 Credit sales 8,000,000 6,000,000 Collections (including collections on recovery) 6,950,000 4,500,000 Accounts written off 70,000 none Recovery in accounts previously written off 20,000 none How much is the provision for uncollectible accounts for the year ended December 31, 2005? a. P125,000 c. P400,000 b. P122,000 d. P 72,000 7. On December 31, 2005, Dad Company received two P5,000,000 notes receivable from customers in exchanged for consulting services rendered. On both notes, interest is calculated on the outstanding principal balance at the annual rate of 4% and payable at maturity. The note from Harry Corporation, made under customary trade terms, is due on October 1, 2006and the note from Larry Corporation is due on December 31, 2010. The market interest rate for similar notes on December 31, 2005 was 10%. The compound interest factors to convert future value into present value at 10% follow: present value of 1 due in nine months, 0.93, and present value of 1 due in five years, 0.62. At what amounts should these two notes receivable be reported in Dad’s December 31, 2005 balance sheet? Harry Larry a. 4,650,000 3,100,000 b. 5,000,000 3,720,000 c. 5,000,000 3,100,000 d. 4,836,000 3,720,000 8. On January 1, 2005, the balance of accounts receivable of Manaoag Company was P5,000,000 and the allowance for doubtful accounts on same date was P800,000. The following data were gathered: Credit sales Writeoffs Recoveries 2002 P10,000,000 P250,000 P20,000 2003 14,000,000 400,000 30,000 2004 16,000,000 650,000 50,000 2005 25,000,000 1,100,000 145,000 Doubtful accounts are provided for as percentage of credit sales. The accountant calculates the percentage annually by using the experience of the three years prior to the current year. How much should be reported as allowance for doubtful accounts as of December 31, 2005? Page 15 of 23 A physical inventory taken on December 31, 2005 resulted in an ending inventory of P4,500,000. The gross profit on sales remained constant at 30% in recent years. Benguet suspects some inventory may have been taken by a new employee. At December 31, 2005 what is the estimated cost of missing inventory? a. P5,000,000 c. P500,000 b. P4,500,000 d. P 0 16. The records of May’s Department Store report the following data for the month of January 2005: Sales 7,100,000 Mark down 600,000 Sales allowance 100,000 Mark down cancelations 100,000 Sales returns 500,000 Freight on purchases 100,000 Employee discounts 200,000 Purchases at cost 4,500,000 Theft and other losses 100,000 Purchase returns at cost 240,000 Initial markup on purchases 2,900,000 Purchase returns at sales price 350,000 Additional mark up 250,000 Beginning inventory at cost 440,000 Mark up cancelations 100,000 Beginning inventory at sales price 800,000 Using the conventional retail inventory method, May’s ending inventory is a. P360,000 c. P384,000 b. P420,000 d. P448,000 17. On January 1, 2013, Sheen Company purchased marketable equity securities to be held as “trading” for P5,000,000. The entity also paid commission, taxes and other transaction costs amounting to P200,000. The securities had a market value of P5,500,000 on December 31, 2013. No securities were sold during 2013. The transaction costs that would be incurred on the disposal of the investment are estimated at P100,000. What amount of unrealized gain or loss on these securities should be reported in the 2013 income statement? a. P500,000 unrealized loss c. P400,000 unrealized loss b. P500,000 unrealized gain d. P400,000 unrealized gain 18. On January 2, 2005, Narvacan Company acquired 100,000 shares of ABC Company common stock for a total consideration of P6,000,000. On October 1, 2005, Narvacan received from ABC a preferred stock dividend of one share for every 10 common shares held. On this date, the market price of ABC common is P75 per share and the ABC preferred, P50 per share. Narvacan Company should report its investment in ABC Company preferred stock at a. P500,000 c. P750,000 b. P375,000 d. P 0 19. On January 1, 2005, Blast company purchased as a long-term investment P10,000,000 face amount, 8% bonds of Jam Corporation for P9,230,000 to yield 10% per year. The bonds pay interest semiannually on June 30 and December 31. In its December 31, 2005 balance sheet, the book value of Blast Company’s investment in bonds should be ( rounded to the nearest thousand) a. P9,488,000 c. P9,353,000 b. P9,356,000 d. P9,307,000 Page 16 of 23 20. On July 1, 2005, Cagayan Company paid P9,585,000 for 10% bonds with a face amount of P8,000,000. Interest is paid on June 30 and December 31. The bonds were purchased to yield 8%. Cagayan uses the effective interest method to recognize interest income from this investment. What should be reported as the carrying amount of the bonds in the December 31, 2005, balance sheet? a. P9,568,400 c. P9,601,600 b. P9,551,800 d. P9,618,200 21. Candon Company owns 100,000 shares of the outstanding common stock of Bantay Company which has several hundred thousand shares publicly traded. These 100,000 shares were purchased in 2002 for P100 per share. On December 1, 2005, Bantay Company distributed 100,000 rights to Candon. Candon was entitled to buy one new share of Bantay common stock for P100 and five of these rights. On December 1, 2005, each share of stock had a market value of P135 ex-right and each right had market value of P15. On December 31, 2005, Candon exercised all rights. What cost should be recorded for each new share that Candon acquired by exercising the rights? a. P150 c. P100 b. P135 d. P 15 22. On July 1, 2005, Solana Company purchased Amulong Company’s 10-year, 8% bonds with face amount of P8,000,000 for P6,720,000. The bonds mature on June 30, 2013 and pay interest semiannually on June 30 and December 31. Using the interest method, Solana recorded bond discount amortization of P28,800 for six months ended December 31, 2005. From this long-term investment, Solana should report 2005 income of a. P348,800 c. P291,200 b. P320,000 d. P384,000 Calendar Company ventured into construction of a condominium in Makati which is rated as the largest state-of-the-art structure. The entity’s board of directors decided that instead of selling the condominium, the entity would hold this property for the purpose of earning rentals by letting out space to business executives in the area. The construction of the condominium was completed and the property was placed in service on January 1, 2013. The cost of the construction was P50,000,000. The useful life of the condominium is 25 years and its residual value is P5,000,000. An independent valuation expert provided the following fair value at each subsequent year- end: December 31, 2013 55,000,000 December 31, 2014 53,000,000 December 31, 2015 60,000,000 23. Under the cost model, what amount should Calendar Company report as depreciation of investment property for 2013? a. P1,800,000 c. P2,200,000 b. P2,000,000 d. P 0 Page 17 of 23 24. Under the fair value model, what amount should Calendar Company recognize as gain from change in fair value in 2015? a. P5,000,000 c. P7,000,000 b. P3,000,000 d. P 0 25. Omega Company purchased an investment property on January 1, 2009 for P2,200,000. The property had a useful life of 40 years and on December 31, 2011 had a fair value of P3,000,000. On January 1, 2012, the property was sold for net proceeds of P2,900,000. Omega uses the cost model to account for the investment property. What is the gain or loss to be recognized for the year ended December 31, 2012 regarding the disposal of the property? a. P865,000 gain c. P100,000 loss b. P810,000 gain d. P700,000 gain 26. Maragondon Company had the following borrowings during 2005. The borrowings were made for general purposes but the proceeds were used in part to finance the construction of a new building: Principal Interest 12% bank loan 10,000,000 1,200,000 15% long-term loan 20,000,000 3,000,000 The construction began on January 1, 2005 and was completed on December 31, 2005. Expenditures on the building were made as follows: January 2 8,000,000 July 1 8,000,000 December 31 4,000,000 Following the alternative treatment, the capitalizable borrowing cost should be a. P1,620,000 c. P1,400,000 b. P1,680,000 d. P4,200,000 27. On July 1, 2004, the national government granted a parcel of land located in Baliuag, Bulacan to Black. On the date of grant, the land had a fair value of P2,000,000. The grant required Black to construct a cold storage building on the site. Black finished the construction of the building, which costs P4,000,000 and has an estimated useful life of 25 years, on January 2, 2005. How much income from the government grant should be recognized in 2005? a. P2,000,000 c. P160,000 b. P 80,000 d. P 0 28. On April 1, 2004, Batangas Company bought machinery under a contract that required a down payment of P500,000 plus 24 monthly payments of P300,000 for total payments of P7,700,000. The cash price of the machinery was P6,500,000. The machinery has an estimated useful life of four years and estimated residual value of P500,000. Batangas uses SYD method of depreciation. The carrying amount of this machine at December 31, 2005 is a. P4,550,000 c. P1,950,000 b. P2,250,000 d. P2,750,000 Page 20 of 23 37. During 2005 Dasmariñas Company installed a production assembly line to manufacture furniture. In 2005 Dasmariñas purchased a new machine and rearranged the assembly line to install this machine. The rearrangement did not increase the estimated useful life of the assembly line but it did result in significantly more efficient production. The following expenditures were incurred in connection with this project: Machine 5,000,000 Labor to install new machine 400,000 Parts added in rearranging the assembly line to provide future benefits 2,000,000 Labor and overhead to rearrange the assembly line 600,000 What amount of the above expenditures should be capitalized in 2005? a. P8,000,000 c. P5,400,000 b. P7,400,000 d. P2,600,000 38. Lian Company acquired a building on January 1, 2001 at a cost of P50,000,000. The building has an estimated life of 10 years and residual value of P5,000,000. The building was revalued on January 1, 2005 and the revaluation revealed replacement cost of P80,000,000, residual value of P2,000,000 and revised life of 12 years. What is the revaluation surplus on December 31, 2005? a. P30,000,000 c. P26,250,000 b. P16,800,000 d. P14,700,000 39. Lobo Company reported an impairment loss of P4,000,000 in its income statement for the year 2004. This loss was related to an item of property, plant and equipment which was acquired on January 1, 2003 with cost of P25,000,000, useful life of 10 years and no residual value. On December 31, 2004 balance sheet, Lobo reported this asset at P16,000,000 which is the fair value on such date. On December 31, 2005, Lobo determined that the fair value of its impaired asset had increased to P19,000,000. The straight line method is used in recording depreciation of this asset. What amount of gain on impairment recovery should Lobo report in its 2005 income statement? a. P5,000,000 c. P3,500,000 b. P1,500,000 d. P 0 40. During December 2005, Talisay Company determined that there had been a significant decrease in market value of its equipment. At December the following information concerning the equipment: 31, 2005, Talisay compiled Original cost 20,000,000 Accumulated depreciation 12,000,000 Expected undiscounted net future cash inflows from the continued use and eventual disposal 7,000,000 Expected discounted net future cash inflows from the continued use and eventual disposal 5,000,000 Fair value less cost to sell 6,500,000 What is the impairment loss that should be reported in the 2005 income statement? a. P1,000,000 c. P2,000,000 b. P1,500,000 d. P 0 Page 21 of 23 41. Liliw Company engaged your services to compute the goodwill in the purchase of Calauan Company which provided the following: Net income Net assets 2002 1,400,000 6,000,000 2003 1,600,000 8,000,000 2004 2,000,000 8,800,000 2005 2,200,000 9,200,000 It is agreed that goodwill is measured by capitalizing excess earnings at 20% with normal return on average net assets at 10%. How much is the purchase price for Calauan Company? a. P14,200,000 c. P13,000,000 b. P18,200,000 d. P17,000,000 42. On January 1, 2002, Manila Company after incurring P5,000,000 worth of extensive research and development for their new product line, registered Patent A at a cost of P800,000. Due to the competitive nature of Manila’s industry, it was assessed that the useful life of the patent was only eight years. Since that time, Manila’s competitors had taken strides in developing product lines that would equal Manila’s breakthrough. It was only on December 31, 2004 that Manila took action to protect itself and purchased Patent B, the most immediate threat to Patent A’s survival at a cost of P2,000,000. The value of Patent B was evident because Manila’s product engineers estimated that the remaining useful life of Patent B was ten years from the date of acquisition. The amortization to be recorded by Manila on its patents for the year ended December 31, 2005 is a. P500,000 c. P 300,000 b. P250,000 d. P1,125,000 43. Kuyab Company incurred P900,000 of research and development cost to develop a product for which a patent was granted on January 2, 2005. Legal fees and other costs associated with the registration of the patent totaled P200,000. On July 31, 2005, Kuyab paid P400,000 for legal fees in a successful defense of the patent. The total amount capitalized for this patent through July 31, 2005 should be a. P1,500,000 c. P1,100,000 b. P 600,000 d. P 200,000 44. Nagcarlan Company purchased a patent on January 1, 2002, for P3,570,000. The patent was being amortized over its remaining legal life of 15 years expiring on January 1, 2017. During 2005 Nagcarlan determined that the economic benefits of the patent would not last longer than ten years from the date of acquisition. What amount should be reported in the balance sheet as patent, net of accumulated amortization, at December 31, 2005? a. P2,618,000 c. P2,520,000 b. P2,448,000 d. P2,142,000 45. On January 1, 2005, Mambusao Company bought a trademark from Panitan Company for P6,000,000. Mambusao retained an independent consultant who estimated the trademark’s life to be indefinite. Its carrying amount in Panitan’s accounting records Page 22 of 23 was P4,000,000. In Mambusao’s December 31, 2005 balance sheet, what amount should be reported as trademark? a. P6,000,000 c. P5,700,000 b. P3,800,000 d. P3,600,000 46. Sta. Rosa Company has been experiencing significant losses in prior years. On December 31, 2005, the assets and liabilities are: Cash 10,000,000 Accounts receivable 20,000,000 Inventory 30,000,000 Property, plant and equipment 50,000,000 Goodwill 5,000,000 Liabilities 40,000,000 On December 31, 2005, the fair value of the net assets of Sta. Rosa is P62,000,000. How much is the impairment loss applicable to goodwill? a. P13,000,000 c. P8,000,000 b. P 5,000,000 d. P 0 47. Maayon Company begins construction of a new facility. Following are some of the costs incurred in conjunction with the start up activities of the new facility: Production equipment 1,500,000 Travel costs of salaried employees 400,000 License fees 50,000 Training of local employees for production and maintenance operations 1,300,000 Advertising costs 100,000 What portion of the organizational costs will be expensed? a. P1,700,000 c. P1,850,000 b. P3,350,000 d. P1,300,000 48. Siniloan Company incurred research and development costs in 2005 as follows: Equipment acquired for use in various R&D projects 6,000,000 Depreciation on the above equipment 1,200,000 Materials used 3,000,000 Compensation costs of personnel 4,000,000 Outside consulting fees 1,500,000 Indirect costs appropriately allocated The 2005 total research and development expense should be 1,300,000 a. P11,000,000 c. P15,800,000 b. P 9,700,000 d. P 9,800,000