EXAM...QUIZBOWLERS

8/3/2019 EXAM...QUIZBOWLERS

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Professor Devzon Uy Porras, CPAQuizbowlers Entrance Examination

College of Accountancy

Problem 1.You have been assigned to the audit of Edgar Company, a manufacturing company.

You have been asked to summarize the transactions for the year-ended December31, 2009, affecting shareholders equity and other related accounts. Theshareholders equity section of Edgars December 31, 2008, balance sheet follows:

Ordinary shares, P2 par value, 1,000,000 shares authorized,180,000 shares issued, 177,580 shares outstanding 360,000

Share premium in excess of par 3,640,000Share premium from treasury shares 45,000

Retained earnings 649,378Cost of 2,420 share of treasury (145,200)

Total shareholders equity 4,549,178

You have extracted the following information from the accounting records and audit

working papers for 2009.

Jan. 15

Edgar reissued 1,300 shares of treasury for P40 per share. The 2,420 shares oftreasury on hand at Dec. 31, 2008, were purchased in one block in 2007.

Feb. 1

Sold 180, P1,000, 9% bonds due February 1, 2019, at 103 with one detachableshare warrants attached to each bond. Interest is payable annually on February 1.

The fair market value of the bonds without the share warrants is 95. The detachablewarrants have a fair market value of P50 each and expire on February 1, 2010. Each

warrant entitles the holder to purchase 10 shares of ordinary shares at P40 per

share.

Mar. 62,800 shares of ordinary shares were subscribed for at P44 per share. 40% of the

subscription was collected.

Mar. 20

The balance due on 2,400 shares was received and those shares were issued.

Nov. 1There were 110 share warrants detached from the bonds and exercised.

Edgars net income for 2009 is P950,000.

Questions: Based on the preceding information, determine the correct December 31,

2009, balance of each of the following:

1. Ordinary share

2. Share premium in excess of par

3. Share premium from treasury shares


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The amount of cash dividends declared and paid to shareholders for each of the

following years:

10.2005

11.2006

12.2007

Problem 3Darwin Music Emporium carries a wide variety of musical instruments, sound

reproduction equipment, recorded music, and sheet music. To promote the sale ofits products, Darwin uses tow promotion techniques premiums and warranties.

Premiums

The premium is offered on the recorded and sheet music. Customers received acoupon for each P10 spend on recorded music and sheet music. Customers may

exchange 200 coupons and P200 for a CD player. Darwin pays P340 for each CD

player and estimates that 60% of the coupons given to customers will be redeemed.A total of 6,500 CD players used in the premium program were purchased during theyear and there were 1,200,000 coupons redeemed in 2007.

Warranties

Musical instruments and sound reproduction equipment are sold with a one-yearwarranty for replacement of parts and labor. The estimated warranty cost, based on

past experience, is 2% of sales. Replacement parts and labor for warranty worktotaled P1,640,000 during 2007.

Darwin uses the accrual method to account for the warranty and premium costs for

financial reporting purposes. Darwins sales for 2007 totaled P72,000,000

P54,000,000 from musical instruments and sound reproduction equipment andP18,000,000 from recorded music and sheet music. The balances in the accounts

related to warranties and premiums on January 1, 2007, were as shown below:

Inventory of premium CD players 399,500Estimated premiums claims outstanding 448,000

Estimated liability from warranties 1,360,000

Question: Based on the preceding information, determine the amounts that will be

shown on the 2007 financial statements for the following:

13.Warranty expense

14.Estimated liability from warranties

15.Premium expense

16. Inventory of premium CD players

17.Estimated premium claims outstanding


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Problem 4.

Joy Company issued 10-year bonds on January 1, 201. The companys year-end isDecember 31, and financial statements are prepared annually. The amortization and

interest schedule below reflects the bonds issuance and the subsequent interestpayments and charges.

Amortization ScheduleDate Interest Interest Amount Carrying

Paid Expense Unamortized Value

1/1/01 - - 28,253 471,74712/31/01 55,000 56,610 26,643 473,357

12/31/02 55,000 56,803 24,840 475,16012/31/03 55,000 57,019 22,821 477,179

12/31/04 55,000 57,261 20,560 479,44012/31/05 55,000 57,533 18,027 481,973

12/31/06 55,000 57,837 15,190 484,81012/31/07 55,000 58,177 12,013 487,987

12/31/08 55,000 58,558 8,455 491,545

12/31/09 55,000 58,985 4,470 495,53012/31/10 55,000 59,470* - 500,000

Questions:18.The bonds were issued at

19.What amortization method is used in the amortization schedule presented?

20.What is the nominal interest rate of the bonds issued on January 1, 2001?

21.What is the effective interest rate of the bonds issued on January 1, 2001?

21.On the basis of the schedule presented, what is the journal entry to record

the issuance of the bonds on January 1, 2001?

On January 1, 2007, Charmaine Company issued 3-year, 4,000 convertible bonds at

face value of P1,000 per bond. Interest is to be paid annually in arrears at thestated coupon rate of 6%. Each bond is convertible, at the holders option, into 200

P2 par value ordinary shares at any time up to maturity. On the dates of issuance,the prevailing market interest rate for similar debt without the conversion privilege

was 9%. On the same date, the market price of one share was P3. The bonds wereconverted on December 31, 2008.

Questions:

22.The liability component of the convertible debt isa. P 1,600,000 b. P 3,696,232 c. P 3,730,242 d. P

4,000,000

23.The equity component of the convertible debt isa. P 303,768 b. P 1,600,000 c. P 1,973,621 d. P

2,400,000


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24.The interest expense to be reported on Charmaines income statement for the

year ended December 31, 2008 isa. P 101,000 b. P 110,107 c. P 240,000 d. P 341,000

25.The entry to record the bond conversion on December 31, 2008, should

include a credit to share premium ofa. P 0 b. P 2,289,893 c. P 2,400,000 d. P2,593,661

Problem 5The following data pertain to Princess Joy Corporations property, plant, and

equipment for 2007.

Audited balances at December 31, 2006:Debit Credit

Land 7,500,000Buildings 60,000,000

Accumulated depreciation buildings

13,155,000Machinery and equipment 45,000,000Accumulated depreciation mach. & equip.

12,500,000Delivery equipment 5,750,000

Accumulated deprecation delivery equipment4,230,000

Depreciation data:

Buildings - 150% declining balance; 25 yearsMachinery and equipment - SLM; 10 years

Delivery equipment - SYD; 4 years

Leasehold improvements - SLM

Transactions during 2007 and other information are as follows:

a. On January 2, 2007, Princess Joy purchased a new truck for P1,000,000 cash

and trade-in of a 2-year old truck with a cost of P900,000 and a book value of

P270,000. The new truck has a cash price of P1,200,000; the market value ofthe trade-in is not known.

b. On April 1, 2007, a machine purchased for P1,150,000 on April 1, 2002, was

stolen. Princess Joy recovered P775,000 from its insurance company.

c. On May 1, 2007, costs of P8,400,000 were incurred to improve leased officepremises. The leasehold improvements have a useful life of 8 years. The related

lease terminates on December 31, 2013.

d. On July 1, 2007, machinery and equipment were purchased at a total invoicecost of P14,000,000; additional costs of P250,000 for freight and P1,250,000 for

installation were incurred.


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e. Princess Joy determined that the delivery equipment comprising theP5,750,000 balance at January 1, 2007, would have been depreciated at a total

amount of P900,000 for the year ended December 31, 2007.

Questions: Based on the preceding information, determine the correct December 31,2009, balance of each of the following:

26.Depreciation expense for 2007 on machinery and equipmenta. P 5,188,750 b. P 5,275,000 c. P 5,303,750 d. P

5,303,750

27.Depreciation expense for 2007 on Delivery equipment

a. P 1,020,000 b. P 1,110,000 c. P 1,200,000 d. P1,380,000

28.Depreciation expense for 2007 on Leasehold Improvements

a. P 700,000 b. P 840,000 c. P 933,333 d. P1,050,000

29.Accumulated depreciation buildings, December 31, 2007a. P 15,014,000 b. P 15,555,000 c. P 15,965,700 d. P17,200,000

30.Accumulated depreciation machinery and equipment, December 31, 2007

a. P 17,113,750 b. P 17,200,000 c. P 17,288,750 d. P17,688,750

31.Accumulated depreciation delivery equipment, December 31, 2007

a. P 4,710,000 b. P 4,620,000 c. P 4,800,000 d. P5,430,000

32.Gain (loss) on trade-in of truck on January 2, 2007.a. P (200,000) b. P 200,000 c. P (70,000) d. P 70,000

33. Gain from compensation received from the insurance company.

a. P 0 b. P 200,000 c. P 575,000 d. P 775,000

34. Loss on derecognition of the stolen machinery

a. P 0 b. P 200,000 c. P 575,000 d. P 775,000


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Test 2Identify the principle, concept or assumption that is most clearly violated by the

accounting practice described in each statement below. Do not use any answer morethan once.

1. A company charges the cost of the new office equipment to expense in the

year of purchase although the equipment is expected to help produce revenuefor many years.

2. A company changes from weighted average method to FIFO when accounting

for inventory.

3. A company that reports in the currency of a hyperinflationary economyprepared financial statements in pesos that have the same amount of

purchasing power.4. A company records sales after inventory has been produced but before it is

sold.5. A company decides to publish financial statements only in years when it has

good news to report.6. A company reports inventory, property, plant and equipment, and intangible

assets at current cost on balance sheet date.

7. An electronics company owned by Sony enterprises reports the cost of Sonysswimming pool as an asset on the balance sheet date.

8. A company having 200 accounts payable list each account among the

liabilities on the balance sheet.9. A company does not report the major details about its stockholders equity.

10.A company follows a policy of recording an item as an asset when thecompany is in doubt whether the item is an asset or expense of the current

period.

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