1. Rodrigo Company had purchased an equipment on January 1, 2012 for P2,400,000.

The entity used

the straight line depreciation based on ten-year useful life with no residual value. During 2015, the
entity decided that the equipment would be used only three more years.

What entry should be made on January 1, 2015 to reflect this accounting change?

a. No entry
b. Debit other comprehensive income and credit accumulated depreciation P480,000.
c. Debit retained earnings and credit accumulated P480,000.
d. Debit depreciation and credit accumulated depreciation P560,000.

2. On January 1, 2013, Brazilia Company purchased for P4,800,000 a machine with useful life of ten
years and a residual value of P200,000.

The machine was depreciated by the double declining balance and carrying amount of the machine
was P3,072,000 on December 31, 2014.

The entity changed to the straight line method on January 1, 2015. The residual value did not
change.

What is the depreciation expense on this machine for the year ended December 31, 2015?

a. 287,200
b. 384,000
c. 460,000
d. 359,000

3. On January 1, 2014, Miller Company purchased a machine for P2,750,000. The machine was
depreciated using the sum of years digits method based on a useful life of 10 years with no residual
value. On January 1,2015, the entity change to the straight line method of depreciation. The entity
can justify the change.

What is the carrying amount of the machine on January 1, 2015?

a. 2,750,000.
b. 2,250,000.
c. 2,475,000.
d. 1,800,000.

4. What is the depreciation for 2015?

a. 180,000.
b. 220,000.
c. 250,000.
d. 275,000.

5. Xavier Company purchased a machinery on January 1, 2012 for P7,200,000. The machinery had
useful life of 10 years with no residual value and was depreciated using the straight line method.

In 2015, a decision was made to change the depreciation method from straight line to sum of years
digits method. The useful life and residual value remained unchanged.

What is the carrying amount of the machinery on January 1, 2015?

a. 7,200,000.
b. 5,040,000.
c. 5,760,000
d. 6,480,000.

6. What is the depreciation for 2015

a. 1,260,000
b. 1,440,000
 c. 916,000
d. 720,000

7. On January 1, 2009, Paragon Company paid P6,000,000 to acquire a new barge. In the belief that it
was entitled to a refund of purchase taxes on the acquisition of the barge, the entity claimed and
was refunded P600,000 by the local government.

However, in late 2015 the entity repaid the refund when it became apparent that it had made an
error in making the claim from the local government as it had not been entitled to the refund of
purchases taxes an acquisition of the barge.

The useful life of the barge is 15 years from the date of acquisition. The residual value of the barge
is NIL

In 2015, the period over which the barge is expected to be economically usable increased from 15
to 26 years.

However the entity expected to dispose of the barge after using it for 20 years from the date of
acquisition

On December 31, 2015, the entity assessed the residual value of the barge at 800,000

What is the carrying amount of the barge on December 31, 2015?

a. 3,600,000
b. 3,400,000
c. 3,460,00
d. 3,420,000

8. In the past, Peru Company has depreciated its computer hardware using the straight line method.
The computer hardware has a 10% salvage value and an estimated useful life of 5 years. As a result
of the rapid advancement in information technology, management of Peru has determined that it
receives most of the benefits from its computer facilities in the first few years of ownership. Hence,
as of January 1, 2016, Peru propose changing to the sum-of-the-years’ digits method for
depreciating its computer hardware. The following computer purchases were made by Peru at the
beginning of each year.

2013 90,000

2014 50,000

2015 60,000

How much depreciation expense was recorded by Peru in 2013, 2014, and 2015?

2013 2014 2015

a. 18,000 28,000 40,000
b. 36,000 36,000 36,000
c. 16,200 36,000 36,000
d. 16,200 25,200 36,000

9. The amount of depreciation expense that should be recognized in 2016 is

a. 21,240 c. 52,380

b. 63,280 d. 34,200

10. What journal entry, if any, should be prepared on January 1, 2016, to adjust the accounts?

a. Retained Earnings 32,400

Accumulated Depreciation 32,400
b. Accumulated Depreciation 32,400
Retained Earnings 32,400
 c. Depreciation expense 32,400
Accumulated Depreciation 32,400
d. No entry is necessary

The following information pertains to VANUATA COMPANY’s depreciable assets:

Machine X was purchased for P150,000 on January 1, 2011. The entire cost was expensed in the
year of acquisition. The estimated useful life of this machine is 15 years with no residual value.

Machine Y costs P525,000 and was acquired on January 1, 2012. On the acquisition date, the
expected useful life was 12 years with no residual value. The straight line method was used. On
January 2, 2016, it was estimated that the remaining useful life of the asset would be 4 years and
that there would be a 25,000 residual value.

A building was purchased on January 3, 2013 for 3,000,000. The building was expected to have a
useful life of 20 years with no residual value. The straight line depreciation method was used. On
January 1, 2016, a change was made to the sum-of-the-years’ digits method of depreciation. No
change was made to the estimated useful life and residual value of the building.

11. The adjusting entry on January 1, 2016, relative to machine X should include a credit to.

A. Accumulated depreciation of P60, 000

B. Retained earnings of P100, 000
C. Machinery of P150, 000
D. No adjusting entry is necessary

12. What is the carrying value of machine Y on January 1, 2016?

A. P350, 000
B. P325, 000
C. P306, 250
D. P525, 000

13. What is the depreciation expense on machine Y for 2016?

A. P87, 000 C. P81, 250

B. P77, 083 D. P41, 667

14. What is the book value of the building at december 31, 2015?

A. P2, 185, 714 B. P1, 942, 857 C. P2, 550, 000 D. P2, 266, 667

15. What is the book value of the building on December 31, 2016?

A. P2, 185, 714 B. P1, 942, 857 C. P2, 550, 000 D. P2, 266, 667

16. The audited income statement of URUGUAY CO. shows a net income of P175, 000 for the year
ended December 31, 2016. Adjustment were made for the following errors.

1. December 31, 2015, inventory overstated by P22, 500

2. December 31, 2016, inventory understated by P37, 500
3. A P100, 000 customer’s deposit received in December 2016, was credited to sales in 2016.
The goods were actually shipped in January 2017

What is the unadjusted net income of Uruguay Co. for the year ended December 31, 2016

A. 234, 000 C. P170, 000

B. P125, 000 D. P200, 000

17. Tamtrum Company began operation at the beginning of the current year. At the end of the first
year of operations, the entity reported P6, 000, 000 income before income tax in the income
 statement but only P5, 100, 000 taxable income in the tax return. Analysis of the P900, 000
difference revealed that P500, 000 was a permanent difference and P400, 000 was a temporary tax
liability difference related to a current asset. The enacted tax rate for the current year and future
years is 30%

What is the total income tax expense to be reported in the income statement for the current year?

a. 1,800,000
b. 1,530,000
c. 1,650,000
d. 1,950,000

18. In 2015, Tiger Comoany reported pretax financial in come of P5,000,000. Included in the pretax
financial income are P900,000 of non taxable life insurance proceeds received as a result of the
death of an officer, P1,200,000 of estimated warranty expense accrued on December 31, 2015, and
P200, 000 of life insurance premiums or a policy for an officer. No income tax was previously paid
during the year and the income tax rate is 30%

What is the income tax payable on December 31, 2015?

a. 1,500,000
b. 1,230,000
c. 1,290,000
d. 1,650,000

19. Viking Company reported in the income statement for the year ended December 31, 2015 pretax
income of P1,000,000.
Tax return Accounting record
Rent income 70,000 120,000
Depreciation 280,000 220,000
Premiums on officer’s life insurance 90,000
Income tax rate 30%

What is the current provision for income tax for 2015?

a. 360,000 c. 294,000
b. 300,000 d. 372,000

Huskie Company reported in the income statement for the current year pretax income of P400,000.
The following items are treated differently per tax return per book:
Tax return Book
Royalty income 20,000 40,000
Depreciation expense 125,000 100,000
Payment of a penalty none 15,000
Income tax rate 30%

20. What amount should be reported as current portion of income tax expense?
a. 111,000 c. 138,000
b. 106,500 d. 114,000
21. What is the total tax expense?
a. 120,000 c. 138,000
b. 124,500 d. 117,000

22. Aris Company computed a pretax accounting income P5,000,000 for the first year of operations.

Nondeductible expenses 200,000

Nontaxable revenue 500,000
Gross income on installment sales reported in
Acounting income but not in taxable income 1,000,000
Provision for doubtful accounts 100,000
Income tax rate 30%

What is the current tax expense?

a. 1,140,000 c. 1,500,000
 b. 1,410,000 d. 1,110,000

TONGA COMPANY decided on January 2, 2016, to review its accounting practices. This is due to
changing economic conditions and to make its financial statements more comparable to those of
other companies in its industry.

The following changes will be effective as of January 1, 2016:

 Tonga decided to change its allowance for bad debts from 2% to 4% of its outstanding
receivables balance. Tonga’s receivable balance at December 31, 2016 was P690,000.
Allowance for bad debts and a debit balance of 2,000 before adjustments.
 Tonga decided to use the straight-line method of depreciation on its equipment instead of
the sum-of-the-years-digits method. It was also decided that this asset has 10 more years of
useful life as of January 2, 2016. The equipment was purchased on January 1, 2006 at a cost
of 1,100,000. On the acquisition date, it was estimated that the equipment would have a
15-year useful life with no residual value.

23. The entry to record the current year provision for bad debts is

a. Bad debt expense 29,600

Allowance for bad debts 29,600
b. Allowance for bad debts 29,600
Bad debt expense 29,600
c. Bad debt expense 25,600
Allowance for bad debts 25,600
d. Allowance for bad debts 25,600
Bad debt expense 25,600

24. What is the amount of depreciation on equipment for the current year?
a. 45,833 c. 13,750
b. 9,167 d. 32,083

25. A depreciable asset has an estimated 15% residual value. At the end of the estimated useful life,
the accumulated depreciation would equal the original cost of the asset under which of the
following methods?
a. Straight line
b. Output method
c. Double declining balance
d. None of these

26. A machine with five year estimated useful life and an estimated 10% residual value was acquired at
the beginning of the current year. At the end of the fourth year, accumulated depreciation using
the SYD would be?
a. Original cost less residual value multiplied by 1/15
b. Original cost less residual value multiplied by 14/15
c. Original cost multiplied by 14/15
d. Original cost multiplied by 1/15

27. A machine with a four year estimated useful life and an estimated 15% residual value was acquired
at the beginning of the current year. The increase in the accumulated depreciation for the second
year using the double declining balance method would be?
a. Original cost x 85% x 50%
b. Original cost x 50%
c. Original cost x 85% x 50% x 50%
d. Original cost x 50% x 50%

28. The composite method depreciation

a. Is applied to a group of homogeneous assets
b. Is an accelerated method of depreciation
c. Does not recognize gain or loss on the retirement of a single asset in the group
d. Excludes residual value from the base of the depreciation calculation
29. Which of the following statements is the assumption on which the straight line depreciation is
based?
a. The operating efficiency of the asset deceases in the later years.
b. Service value declines as a function of time than use
c. Service value declines as a function of obsolescence rather than time
d. Physical wear and tear are more important than the economic substance

30. A principal objection to the straight line method of depreciation is that it

a. Provides for the declining productivity of an aging asset
b. Ignores variation in the rate of asset use
c. Tends to result in a constant rate of return on a diminishing investment base
d. Gives a smaller periodic writeoff than a decreasing charge method.