PHINMA – University of Pangasinan ACC 107 Intermediate Accounting 2

Series of 2023
NAME: _________________________________________ YEAR/BLOCK: ________________________
STUDENT NUMBER: _____________________________ DATE: _______________________________
FIRST PERIODICAL EXAMINATION SET A
Multiple Choice Choose the best answer for each of the following questions and indicate the letter in your answer
sheet. Use CAPITAL LETTERS ONLY.

Problem 1.
On January 1, 2022, the records of STRAY KIDS Company showed the following accounts and balances in its property, plant, and
equipment category:
 Land – P350,000
 Land improvements – P20,000
 Buildings – P900,000

During 2022, the following data were gathered from an analysis of the accounts:
A. Cash paid on purchase of land and old building, P1,250,000 (value of old building is deemed insignificant).
B. 15% mortgage payable assumed on purchase of property, P2,000,000.
C. Realtor’s commission, P150,000.
D. Legal fees, realty taxes and documentation expenses, P25,000.
E. Payment to persons squatting on the property to relocate them, P50,000.
F. An old building on the land was shortly torn down at a cost of P60,000.
G. Recovery from the salvage of the building demolished, P45,000.
H. Cost of fencing the property, P55,000.
I. Payment to contractor for building constructed, P1,000,000.
J. Building permit fees, P10,000.
K. Excavation expenses, P25,000.
L. Architect’s fees, P25,000.
M. Interest that could have been incurred if the money used for the building construction were borrowed at the prevailing interest
rate of 12%, P120,000.

1. What are the initially recognized amounts of Land, Land Improvements, and Building, respectively?
A.
B. P3,840,000; P75,000; P1,960,000
C. P3,775,000; P75,000; P1,960,000
D. P3,840,000; P75,000; P2,080,000
E. P3,775,000; P75,000; P2,025,000

Problem 2.
ITZY Company exchanged a car from its inventory for a computer system to be used in its technological upgrading project. The
following information relates to this exchange that took place on July 16, 2023.

Listed selling price of the car P900,000

Fair value of the computer system 860,000
Carrying amount of the car 600,000
Cash difference paid by ITZY 100,000

2. What is the cost of the newly acquired computer system?

A.
B. P600,000
C. P700,000
D. P860,000
E. P960,000

3. How much is ITZY’s gain on the exchange?

A.
B. Nil
C. P120,000
D. P160,000
E. P260,000

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ACC 107 FIRST PERIODICAL EXAMINATION SET A Series of 2023
PHINMA – University of Pangasinan ACC 107 Intermediate Accounting 2
Series of 2023
Problem 3.
Assume the following transactions of TWICE Inc:
A. At the beginning of the year, TWICE issued a check for P400,000 as payment for a piece of land. Along with the purchase of
the land includes a liability for unpaid taxes in arrears for the previous years not assumed by TWICE, P10,000, and those assessed for
the current year, P9,000.
B. TWICE issued 14,000 ordinary shares (P50 par) with a market value of P60 per share (based upon a recent sale of 100
shares) for the land. The land was recently appraised at P800,000 by independent and competent appraisers.
C. TWICE rejected an offer to purchase the land for P8,000,000 cash two years ago. Instead, the company issued 100,000
ordinary shares for the land (market value of the ordinary share, P78 each based on several recent large transactions and normal
weekly stock trading volume).

4. How much is the total cost of land acquired?

A.
B. P9,000,000
C. P9,010,000
D. P9,100,000
E. P9,200,000

Problem 4.
DAY6 Corp. acquired a tract of land with a building for P6,000,000. The closing statement indicated that the land value was P5,000,000
and the building value was P5,000. Shortly after acquisition, the building was demolished at a cost of P200,000.

A new building was constructed for P3,000,000 plus the following costs:
 Excavation fees – P120,000
 Architectural design fees – P160,000
 Building permit fee – P60,000
 Payment for insurance premium during the construction period – P75,000

Per company’s policy, anything below P50,000 is not significant to be capitalized as property, plant, and equipment.
5. What are the costs of the land and new building respectively?
A.
B. P5,995,000; P3,615,000
C. P5,995,000; P3,540,000
D. P6,000,000; P3,615,000
E. P6,000,000; P3,540,000

Problem 5.
The following data relate to a piece of equipment owned by ZELDA Company:

 Acquisition date – August 1, 2023
 Cost – P250,000
 Estimated residual value – P15,000
 Estimated service life – 12 years
 Estimated service hours – 10,000
 Estimated productive output in units – 24,000

6. Under the sum-of-the-years digits method, how much is the carrying amount of the equipment as of the fiscal year-ended June
30, 2024? Round the final answer to the nearest whole number.
A.
B. P201,859
C. P214,743
D. P216,859
E. P217,949

Problem 6.
The Jessica Company acquired a drilling machine on October 1, 2020 at a cost of P300,000 and depreciated it at 25% per annum on a
straight-line basis. On October 1, 2022, P60,000 was spent on an upgrade to the machine in order to improve its efficiency and
increase the flow of economic benefits over the machine’s remaining life.

7. According to PAS 16, what depreciation expense should be recognized in profit or loss for the year December 31, 2023?

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ACC 107 FIRST PERIODICAL EXAMINATION SET A Series of 2023
PHINMA – University of Pangasinan ACC 107 Intermediate Accounting 2
Series of 2023
A. P75,000
B. P82,500
C. P90,000
D. P105,000

Problem 7.
On January 1, 2018, Davidoff Corporation acquired a building at a cost of P22,000,000. The building has been depreciated using
straight-line method on the basis of a 20-year life, with a residual value of P2,000,000.

On January 1, 2023, an appraisal of the building by professional and competent appraisers reported a fair value of P20,000,000, with
an estimated residual value of P3,000,000 and a remaining useful life of 10 years. It is the company’s policy to transfer a portion of the
revaluation surplus to retained earnings while the asset is being used by the company.

Assume that the accumulated depreciation of the revalued asset is restated proportionately with the change in
the gross carrying amount of the asset.

8. What is the revaluation surplus recognized in the accounts at January 1, 2023?

A.
B. P2,700,000
C. P3,000,000
D. P4,000,000
E. P5,000,000

9. What is the annual depreciation for the building after the revaluation?
A. P1,000,000
B. P1,700,000
C. P2,000,000
D. P2,700,000

10. Assuming no further revaluation was recorded and the asset was sold on January 1, 2027 for P13,500,000, what is the gain or
loss recognized by Davidoff upon the disposal of the asset?
A.
B. P300,000
gain
C. P300,000
loss
D. P2,000,000
gain
E. P2,000,000
loss

Problem 8.
11. A company's old machine that cost P40,000 and had accumulated depreciation of P30,000 was traded in on a new machine
having an estimated 20-year life with an invoice price of P50,000. The company also paid P43,000 cash, along with its old
machine to acquire the new machine. If this transaction has commercial substance, the new machine should be recorded at:
A. 47,000
B. 53,000
C. 40,000
D. 50,000
Problem 9.
12. On January 1, 2022, CHINITO Co. paid cash down payment of P500,000 and issued a noninterest bearing note of
P2,500,000 in exchange for a piece of land. The note is due in five equal annual installments every December 31. The fair
value of the land cannot be determined reliably. The prevailing market rate of interest for similar debt instruments is 10%.
What is the initial cost of the land?
A.
B. 2,677,630
C. 1,895,393
D. 2,395,393
E. 2,177,630

Problem 10.
13. MR. KUPIDO Co. acquired land with fair value of P3,250,000 by issuing 150,000 shares with par value of P10 per share and
quoted price of P50 per share. What is the initial cost of the land?

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ACC 107 FIRST PERIODICAL EXAMINATION SET A Series of 2023
PHINMA – University of Pangasinan ACC 107 Intermediate Accounting 2
Series of 2023
A.
B. 1,500,000
C. 3,250,000
D. 7,500,000
E. 6,000,000

Problem 11.
14. MS. MARGARETH Co. a VAT-registered business, acquired a piece of equipment for P84,000 on account. The purchase is
inclusive of 12% VAT. The credit term for this transaction is 2/10, n30, but MS. MARGARETH Co. did not avail of the discount.
MS. MARGARETH Co. also incurred P45,000 cost of training the personnel who will be operating the equipment and
installation cost worth P5,000. After one month, MS. MARGARETH Co. decided to redeploy the equipment to another location.
MS. MARGARETH Co. incurred P15,000 in the relocation and reinstallation. The cost of the equipment is
A. 73,500
B. 73,320
C. 123,320
D. 78,320

Problem 12.
15. Endor Fishing Company exchanged an old boat for a new one. The old boat had a cost of P260,000 and accumulated
depreciation of P200,000. The new boat had an invoice price of P400,000. Endor received a trade in allowance of P100,000
on the old boat, which meant the company paid P300,000 in addition to the old boat to acquire the new boat. If this transaction
lacks commercial substance, what amount of gain or loss should be recorded on this exchange?
A.
B. 100,000 loss
C. 40,000 gain
D. 60,000 loss
E. 0

Problem 13.
16. On April 8, 2019, Jupitor Corp. acquired equipment at a cost of P480,000. The equipment is to be depreciated by the straight-
line method over six years with no provision for salvage value. Depreciation for fractional years is computed by rounding the
ownership period to the nearest month. Depreciation expense recognized in 2019 will be:
A.
B. 80,000
C. 53,333
D. 60,000
E. 66,667

Problem 14.
17. When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost P23,000 and its estimated
salvage value is P1,500. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8
years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals:
A. 5,375
B. 5,543.75
C. 2,856.25
D. 10,750

Problem 15.
18. Machinery acquired new on January 1 at a cost of P80,000 was estimated to have a useful life of 10 years and a residual
salvage value of P20,000. Straight-line depreciation was used. On January 1, following six full years of use of the machinery,
management decided that the estimate of useful life had been too long and that the machinery would have to be retired after
three years, that is, at the end of the ninth year of service. Under this revised estimate, the depreciation expense for the
seventh year of use would be:
A. 13,000
B. 10,000
C. 24,000
D. 8,000

Problem 16.
19. A company purchased a rope braiding machine for P190,000. The machine has a useful life of 8 years and a residual value of
P10,000. It is estimated that the machine could produce 750,000 units of climbing rope over its useful life. In the first year,
105,000 units were produced. In the second year, production increased to 109,000 units. Using the units-of-production
method, what is the amount of depreciation that should be recorded for the second year?

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ACC 107 FIRST PERIODICAL EXAMINATION SET A Series of 2023
PHINMA – University of Pangasinan ACC 107 Intermediate Accounting 2
Series of 2023
A. 53,160
B. 27,613
C. 26,160
D. 25,200

Problem 17.
20. BB Company purchased equipment in January of 2012 for P150,000. The equipment was being depreciated on the straight-
line method over an estimated useful life of 20 years, with no salvage value. At the beginning of 2022, when the equipment
had been in use for 10 years, the company paid P25,000 to overhaul the equipment. As a result of this improvement, the
company estimated that the useful life of the equipment would be extended an additional 5 years. What should be the
depreciation expense recorded for this equipment in 2022?
A.
B. 6,667
C. 8,750
D. 10,000
E. 11,667

Theories
21. Statement 1: Land held for a currently undecided future use or for speculation should be reported in the property, plant, and
equipment, and equipment section of the statement of the financial position.

Statement 2: A PPE acquired from donation is initially recognized at the fair value of the asset given up.
A.
B. Only Statement 1 is true.
C. Only Statement 2 is true.
D. Both statements are true.
E. Neither of the statements is true.

22. Statement 1: According to PAS 16, an item of PPE acquired through purchase is initially recognized at fair value.
Statement 2: PPE acquired by issuing securities are always recognized at the fair value of the securities issued.
A. Only Statement 1 is true.
B. Only Statement 2 is true.
C. Both statements are true.
D. Neither of the statements is true.

23. A company purchased land to be used as the site for the construction of a plant. Timber was cut from the building site so that
construction of the plant could begin. The proceeds from the sale of the timber should be
A.
B. classified as other income.
C. netted against the costs to clear the land and
expensed as incurred.
D. deducted from the cost of the plant.
E. deducted from the cost of the land.

24. The debit for a non-refundable sales tax properly levied and paid on the purchase of machinery preferably would be a charge
A.
B. to the machinery account.
C. to a separate deferred charge account.
D. to miscellaneous tax expense (which includes all
taxes other than those on income).
E. to accumulated depreciation--machinery.

25. Which of these is not a major characteristic of a PPE?

A.
B. Possesses physical substance
C. Acquired for use in operations
D. Yields services over a number of years
E. All of these are major characteristics of a
PPE.

26. A cost may be capitalized (capital expenditure) if

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ACC 107 FIRST PERIODICAL EXAMINATION SET A Series of 2023
PHINMA – University of Pangasinan ACC 107 Intermediate Accounting 2
Series of 2023
A.
B. it clearly increases the useful life of an asset.
C. it increases the quantity of an asset.
D. it clearly increases the quality of an asset beyond
its original state.
E. Any of these

27. Cotton Hotel Corporation recently purchased Holiday Hotel and the land on which it is located with the plan to tear down the
Holiday Hotel and build a new luxury hotel on the site. The demolition costs of the Holiday Hotel should be
A. depreciated over the period from acquisition to the date the hotel is scheduled to be torn down.
B. written off as an extraordinary loss in the year the hotel is torn down.
C. capitalized as part of the cost of the land.
D. capitalized as part of the cost of the new hotel.

28. The carrying amount of an item of property, plant and equipment that is subsequently accounted for under the revaluation
model is equal to
A. the historical cost less any accumulated depreciation.
B. the fair value less any accumulated depreciation.
C. the historical cost less any accumulated depreciation and any accumulated impairment loss.
D. the fair value less any accumulated depreciation and any accumulated impairment loss.

29. Which of the following is considered when depreciating an asset under the cost model?
A.
B. The cost of the asset.
C. The useful life of the asset.
D. The change in the fair value of the asset.
E. Both a and b.

30. Which of the following depreciation methods will most likely result in the highest amount of reported profit in the early years of
an asset’s useful life?
a.
A. Straight line
B. Double declining balance
C. 150% declining balance
D. Sum-of-the-years’ digits

31. Statement 1: PAS 16 defines depreciation as “the decrease in the value of an asset.”
Statement 2: A change in the depreciation method, useful life or residual value of a PPE is accounted for prospectively.
A.
B. Only Statement 1 is true.
C. Only Statement 2 is true.
D. Both statements are true.
E. Neither of the statements is true.

32. Statement 1: According to PAS 16, items of PPE are initially measured at cost and subsequently measured using either the
cost model or revaluation model.
Statement 2: An entity acquires an asset for P120k. The asset is estimated to have a useful life of 10 years and a residual
value of P20k. The straight line depreciation rate based on depreciable amount is 10%.
A. Only Statement 1 is true.
B. Only Statement 2 is true.
C. Both statements are true.
D. Neither of the statements is true.

33. Depreciation of noncurrent operating assets is an accounting process for the purpose of
A. reporting declining asset values on the balance sheet.
B. allocating asset costs over the periods benefited by use of the assets.
C. accounting for costs to reflect the change in general price levels.
D. setting aside funds to replace assets when their economic usefulness expires.

34. Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expenses
with revenues?
A.

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ACC 107 FIRST PERIODICAL EXAMINATION SET A Series of 2023
PHINMA – University of Pangasinan ACC 107 Intermediate Accounting 2
Series of 2023
B. Partial recognition
C. Immediate recognition
D. Systematic and rational allocation
E. Associating cause and effect

35. Which of the following statements is the assumption on which straight-line depreciation is based?
A. The operating efficiency of the asset decreases in later years.
B. Service value declines as a function of time rather than use.
C. Service value declines as a function of obsolescence rather than time.
D. Physical wear and tear are more important than economic obsolescence.

36. Which of the following is not classified as property, plant and equipment?
A.
B. Land held for future plant site
C. Building used in business
D. Equipment held for environmental and safety reasons
E. Minor spare parts and short lived stand-by equipment

37. The depreciation method prescribed by PAS 16 is

A. straight-line
B. double declining balance
C. units of production
D. none.

38. Which of the following items of PPE is most likely to be derecognized?

A. A fully depreciated PPE
B. A PPE that is donated to an external party.
C. A damaged PPE with a scrap value
D. A PPE that is idle and withdrawn from active use

39. Which of the following does not form part of the initial cost of an item of PPE?
A.
B. Purchase price, gross of trade discounts and
rebates
C. Freight costs
D. Installation and testing costs
E. Restoration costs

40. PPE acquired in an exchange lacks commercial substance is measured at the

A. fair value of the asset given up
B. fair value of the asset received
C. carrying amount of the asset given up
D. carrying amount of the asset received

41. The application of the matching principle to depreciation of plant and equipment can best be described as:
A. The matching of the depreciation expense reported in the income statement for an accounting period with the
accumulated depreciation reported in the balance sheet.
B. Offsetting the revenue of an accounting period with the estimated decline in value of plant and equipment during the
accounting period.
C. Offsetting revenue of an accounting period with the portion of the cost of plant and equipment estimated to have
been used up during the accounting period.
D. The matching of the book value of an asset with its market value.

42. Which of the following is a capital expenditure?

A. Research and development costs.
B. Sales tax paid in conjunction with the purchase of office equipment.
C. Small expenditures to acquire long-lived assets, such as $13 to purchase a wastebasket.
D. Monthly rent of a delivery truck.

43. Which of the following should not be treated as a revenue expenditure?

A. Delivery costs on newly purchased equipment.
B. Repair to an elevator of a five year old building.

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ACC 107 FIRST PERIODICAL EXAMINATION SET A Series of 2023
PHINMA – University of Pangasinan ACC 107 Intermediate Accounting 2
Series of 2023
C. The purchase of a pencil sharpener for $10 used in an office.
D. Annual fire insurance premiums on plant and equipment.

44. When comparing the units-of-output method of depreciation with straight-line depreciation:
A. The depreciation expense in the first year will always be less under the units-of-output method.
B. The depreciation expense in the first year will always be the same.
C. The depreciation expense in the first year will always be greater under units-of-output method.
D. The depreciation expense in the first year may be greater than, equal to, or less under the units-of-output
method.

45. Armstrong Company recently acquired a new computer system. Which of the following costs associated with the computer
should not be debited to the Equipment account?
A. Wages paid to system programmers hired to prepare the new computer for use.
B. Installation of new electrical power supplies required for the computer.
C. Insurance coverage purchased by United to cover the computer during shipment from the manufacturer.
D. Replacement of several circuit boards damaged during installation.

46. Which of the following statements is correct?

A. Depreciation should be recorded on the date an asset is purchased.
B. Depreciation measures the actual decline in market value of an asset.
C. A plant asset's useful life might not be the same as its productive life.
D. It is not necessary to report both the cost and the accumulated depreciation of plant assets in the financial statements

47. All of the following statements are true, EXCEPT

A. Depreciation expense is calculated using estimates of an asset's salvage value and useful life.
B. Accumulated depreciation represents funds set aside to buy new assets when the assets currently owned are
replaced.
C. When an asset is purchased (or disposed of) at a time other than the beginning or the end of an accounting period,
depreciation is recorded for part of a year so that the year of purchase or the year of disposal is charged with its share of
the asset's depreciation.
D. Total depreciation expense over an asset's useful life will be identical under all methods of depreciation.

48. I. The book value of an asset when using double-declining-balance depreciation is always greater than the book value from
using straight-line depreciation, except at the beginning and the end of the asset's useful life, when it is the same.
II. An asset's cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its
intended use.
III. If a machine is damaged during unpacking, the repairs are added to its cost.
IV. An expenditure must be normal, reasonable, and necessary in preparing an asset for its intended use to be charged to and
reported as part of the cost of a plant asset.
A.
B. Only I and II are correct
C. Only I and III are correct
D. Only II and IV are correct
E. Only II, III and IV are correct

49. An improvement made to a machine increased its fair value and its production capacity by 25% without extending the
machine's useful life. The cost of the improvement should be
A. expensed.
B. allocated between accumulated depreciation and the machine account.
C. capitalized in the machine account.
D. debited to accumulated depreciation.

50. The straight-line depreciation method and the double-declining-balance depreciation method:
A. Are acceptable for tax purposes only.
B. Produce the same depreciation expense each year.
C. Are the only acceptable methods of depreciation for financial reporting.
D. Produce the same total depreciation over an asset's useful life.

*****END OF EXAMINATION*****

“It does not matter how slowly you go as long as you do not stop.”

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ACC 107 FIRST PERIODICAL EXAMINATION SET A Series of 2023
PHINMA – University of Pangasinan ACC 107 Intermediate Accounting 2
Series of 2023
– Confucius

NAME: _________________________________________ YEAR/BLOCK: ________________________

STUDENT NUMBER: _____________________________ DATE: _______________________________
FIRST PERIODICAL EXAMINATION SET A
ANSWER SHEET

General Instructions
1. Strictly, no cell phone is allowed during the examination.
2. Borrowing, lending, and substitution/replacement of calculators while the examination is in progress are strictly
prohibited.
3. Use black ballpen only. Avoid using correction tape and friction pen. Strictly, no erasure.
4. Use CAPITAL LETTERS ONLY.
5. Your writing should be good and legible; it does not mean your writing has to be beautiful but it should be legible
(clear enough to read) with a neat and clean copy. Students who get good marks have good writing with a neat
and clean copy. Students who fail have a dirty copy with poor and illegible writing. Don’t try to fill pages
unnecessarily and write fast with illegible writing.
6. Strictly no cheating.
SCORE:

1 11 21 31 41
2 12 22 32 42
3 13 23 33 43
4 14 24 34 44
5 15 25 35 45
6 16 26 36 46
7 17 27 37 47
8 18 28 38 48
9 19 29 39 49
10 20 30 40 50

Checked by:

____________________________________

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ACC 107 FIRST PERIODICAL EXAMINATION SET A Series of 2023