Cluster 1 Financial Accounting 1 The accounting process is correctly sequenced as a. identification, communication, recording. b. recording, communication, identification. c.

. identification, recording, communication. d. communication, recording, identification. Norling Corporation reports the following information: Net income Dividends on common stock Dividends on preferred stock Weighted average common shares outstanding Norling should report earnings per share of a. P1.50. b. P1.80 c. P2.20. d. P2.50. 3 Anders, Inc., has 5,000 shares of 5%, P100 par value, cumulative preferred stock and 20,000 shares of P1 par value common stock outstanding at December 31, 2011. There were no dividends declared in 2009. The board of directors declares and pays a P45,000 dividend in 2010 and in 2011. What is the amount of dividends received by the common stockholders in 2011? a. P15,000 b. P25,000 c. P45,000 d. P0 Goren Corporation had the following amounts, all at retail: Beginning inventory Purchase returns Abnormal shortage Sales Employee discounts What is Gorens ending inventory at retail? a. P34,400. b. P36,000. c. P37,600. d. P38,400 5 Pastel Co. purchased a patent on January 1, 1999, for P714, 000. The patent was being amortized over its remaining legal life of 15 years expiring on January 1, 2008. During 2002, Pastel determined that the economic benefits of the patent would not last longer than 10 years from the date of acquisition. What amount should be charged to patent amortization expense for the year ended December 31, 2002? a. P47,600 b. P68,000 c. P81,600 d. P142,800 Logan Corp., a company whose stock is publicly traded, provides a non-contributory defined-benefit pension plan for its employees. The company's actuary has provided the following information for the year ended December 31, 2011: Projected benefit obligation P600,000 Accumulated benefit obligation 525,000 Fair value of plan assets 825,000 Service cost 240,000 B P 3,600 6,000 4,000 72,000 1,600 Purchases Net markups Net markdowns Sales returns Normal shortage P100,000 18,000 2,800 1,800 2,600 A P500,000 140,000 60,000 200,000 C

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Cluster 1 Financial Accounting Interest on projected benefit obligation Amortization of prior service cost Expected and actual return on plan assets 24,000 60,000 82,500

The market-related asset value equals the fair value of plan assets. No contributions have been made for 2011 pension cost. In its December 31, 2011 balance sheet, Logan should report a pension asset / liability of a. Pension liability of P600,000 b. Pension asset of P824,000 c. Pension asset of P225,000 d. Pension liability of P525,000 7 Which of the following facts concerning plant assets should be included in the summary of significant accounting policies? a. b. c. d. 8 Depreciation Method No Yes Yes No Composition Yes Yes No No D C

On January 1, 2006, Goll Corp. issued 1,000 of its 10%, P1,000 bonds for P1,040,000. These bonds were to mature on January 1, 2016 but were callable at 101 any time after December 31, 2009. Interest was payable semi-annually on July 1 and January 1. On July 1, 2011, Goll called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Goll's gain or loss in 2011 on this early extinguishment of debt was a. P30,000 gain. b. P12,000 gain. c. P10,000 loss. d. P8,000 gain. On January 1, 2010, Culver Corporation had 110,000 shares of its P5 par value common stock outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held in the treasury. On December 1, when the market price of the stock was P8, the corporation declared a 10% stock dividend to be issued to stockholders of record on December 16, 2010. What was the impact of the 10% stock dividend on the balance of the retained earnings account? a. P50,000 decrease b. P80,000 decrease c. P88,000 decrease d. No effect Tender Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be P500,000. What is the required journal entry as a result of this litigation? a. Debit Litigation Expense for P500,000 and credit Litigation liability for P500,000. b. No journal entry is required. c. Debit Litigation Expense for P200,000 and credit Litigation Liability for P200,000. d. Debit Litigation Expense for P300,000 and credit Litigation Liability for P300,000. In its 2010 income statement, Cohen Corp. reported depreciation of P1,110,000 and interest revenue on municipal obligations of P210,000. Cohen reported depreciation of P1,650,000 on its 2010 income tax return. The difference in depreciation is the only temporary difference, and it will reverse equally over the next three years. Cohen's enacted income tax rates are 35% for 2010, 30% for 2011, and 25% for 2012 and 2013. What amount should be included in the deferred income tax liability in Hertz's December 31, 2010 balance sheet? a. P144,000 b. P186,000 c. P225,000 d. P262,500

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Cluster 1 Financial Accounting 12 The following trial balance of Reese Corp. at December 31, 2010 has been properly adjusted except for the income tax expense adjustment. Reese Corp. Trial Balance December 31, 2010 Dr. Cr. Cash P 775,000 Accounts receivable (net) 2,695,000 Inventory 2,085,000 Property, plant, and equipment (net) 7,366,000 Accounts payable and accrued liabilities P 1,701,000 Income taxes payable 654,000 Deferred income tax liability 85,000 Common stock 2,350,000 Additional paid-in capital 3,680,000 Retained earnings, 1/1/10 3,450,000 Net sales and other revenues 13,360,000 Costs and expenses 11,180,000 Income tax expenses 1,179,000 P25,280,000 P25,280,000 Other financial data for the year ended December 31, 2010: Included in accounts receivable is P1,200,000 due from a customer and payable in quarterly installments of P150,000. The last payment is due December 29, 2012. The balance in the Deferred Income Tax Liability account pertains to a temporary difference that arose in a prior year, of which P20,000 is classified as a current liability. During the year, estimated tax payments of P525,000 were charged to income tax expense. The current and future tax rate on all types of income is 30%. D

In Reese's December 31, 2010 balance sheet, the current assets total is a. P6,080,000. b. P5,555,000. c. P5,405,000. d. P4,955,000. 13 Honey Company has a herd of 10 2-year old animals on January 1, 2010. One animal aged 2.5 years was purchased on July 1, 2010 for P108, and one animal was born on July 1, 2010. No animals were sold or disposed of during the year. The fair value less cost to sell per unit is as follows: 2-year old animal on January 1 2.5-year old animal on July 1 New born animal on July 1 2- year old animal on December 31 2.5 year old on December 31 Newborn on December 31 3 year old on December 31 .5 year old on December 31 100 108 70 105 111 72 120 80 B

What is the gain from change in fair value of biological assets that should be recognized in 2010? a. 222 b. 292 c. 300 d. 332 14 Oscar Trading does not maintain complete set of books. As a result, it only determines its income from its operations C

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Cluster 1 Financial Accounting by comparing the net assets at the beginning and end of the year. You gathered the following data: Net assets, beg Withdrawals during the year Additional Investments Net assets, end P 500,000 150,000 200,000 750,000

How much was the income of Oscar Trading during the year using the capital maintenance approach? a. 650,000 b. 750,000 c. 700,000 d. 600,000 15 Madsen Company reported the following information for 2010: Sales revenue Cost of goods sold Operating expenses Unrealized holding gain on available-for-sale securities Cash dividends received on the securities For 2010, Madsen would report other comprehensive income of a. P137,000. b. P135,000. c. P42,000. d. P40,000. 16 Gross billings for merchandise sold by Lang Company to its customers last year amounted to P15,720,000; sales returns and allowances were P370,000, sales discounts were P175,000, and freight-out was P140,000. Net sales last year for Lang Company were a. P15,720,000. b. P15,350,000. c. P15,175,000. d. P15,035,000. On January 15, 2011, Vancey Company paid property taxes on its factory building for the calendar year 2011 in the amount of P560,000. In the first week of April 2011, Vancey made unanticipated major repairs to its plant equipment at a cost of P1,400,000. These repairs will benefit operations for the remainder of the calendar year. How should these expenses be reflected in Vancey's quarterly income statements? Three Months Ended 3/31/11 6/30/11 9/30/11 12/31/11 a. P140,000 P606,667 P606,667 P606,667 b. P140,000 P1,540,000 P140,000 P140,000 c. P560,000 P1,400,000 P -0P -0d. P490,000 P490,000 P490,000 P490,000 In March 2011, an explosion occurred at Kirk Co.'s plant, causing damage to area properties. By May 2011, no claims had yet been asserted against Kirk. However, Kirk's management and legal counsel concluded that it was reasonably possible that Kirk would be held responsible for negligence, and that P4,000,000 would be a reasonable estimate of the damages. Kirk's P5,000,000 comprehensive public liability policy contains a P400,000 deductible clause. In Kirk's December 31, 2010 financial statements, for which the auditor's fieldwork was completed in April 2011, how should this casualty be reported? a. As a note disclosing a possible liability of P4,000,000. b. As an accrued liability of P400,000. c. As a note disclosing a possible liability of P400,000. d. No note disclosure of accrual is required for 2010 because the event occurred in 2011. C P510,000 350,000 55,000 40,000 2,000 D

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Cluster 1 Financial Accounting 19 Turner Corporation had the following information in its financial statements for the year ended 2010 and 2011: Cash dividends for the year 2011 Net income for the year ended 2011 Market price of stock, 12/31/11 Common stockholders equity, 12/31/10 Common stockholders equity, 12/31/11 Outstanding shares, 12/31/11 Preferred dividends for the year ended 2011 P 15,000 124,000 24 2,200,000 2,400,000 120,000 30,000 B

What is the book value per share for Turner Corporation for the year ended 2011? a. P19.17 b. P20.00 c. P10.43 d. P24.00 20 Which of the following post-balance-sheet events would generally require disclosure, but no adjustment of the financial statements? a. Retirement of the company president b. Settlement of litigation when the event that gave rise to the litigation occurred prior to the balance sheet date. c. Employee strikes d. Issue of a large amount of capital stock Korte Company reported the following information for 2010: Sales revenue Cost of goods sold Operating expenses Unrealized holding gain on available-for-sale securities Cash dividends received on the securities For 2010, Korte would report comprehensive income of a. P117,000. b. P115,000. c. P97,000. d. P20,000. 22 On January 1, 2011, M Company granted 90,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2013 and expire on January 1, 2017. Each option can be exercised to acquire one share of P1 par common stock for P12. An option-pricing model estimates the fair value of the options to be P5 on the date of grant. If unexpected turnover in 2012 caused the company to estimate that 10% of the options would be forfeited, what amount should M recognize as compensation expense for 2012? A. P30,000 B. P60,000 C. P120,000 D. P150,000 23 A segment of a business enterprise is to be reported separately when the revenues of the segment exceed 10 percent of the a. total combined revenues of all segments reporting profits. b. total revenues of all the enterprise's industry segments. c. total export and foreign sales. d. combined net income of all segments reporting profits. C C P500,000 350,000 55,000 20,000 2,000 D

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Cluster 1 Financial Accounting 24 In 2010, Benfer Corporation reported net income of P350,000. It declared and paid common stock dividends of P40,000 and had a weighted average of 70,000 common shares outstanding. Compute the earnings per share to the nearest cent. a. P4.43 b. P3.50 c. P4.50 d. P5.00 For the year ended December 31, 2010, Dent Co. estimated its allowance for uncollectible accounts using the year-end aging of accounts receivable. The following data are available: Allowance for uncollectible accounts, 1/1/10 Provision for uncollectible accounts during 2010 (2% on credit sales of P2,000,000) Uncollectible accounts written off, 11/30/10 Estimated uncollectible accounts per aging, 12/31/10 After year-end adjustment, the uncollectible accounts expense for 2010 should be a. P46,000. b. P62,000. c. P69,000. d. P59,000. 26 P56,000 40,000 46,000 69,000 D

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Edge Companys salaried employees are paid biweekly. Occasionally, advances made to employees are paid back by payroll deductions. Information relating to salaries for the calendar year 2011 is as follows: 12/31/10 12/31/11 Employee advances P12,000 P 18,000 Accrued salaries payable 65,000 ? Salaries expense during the year 650,000 Salaries paid during the year (gross) 625,000 At December 31, 2011, what amount should Edge report for accrued salaries payable? a. P90,000. b. P84,000. c. P72,000. d. P25,000.

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Enron Company decided on August 1, 2010 to dispose of a component of its business. The component was sold on November 30, 2010. Enrons income for 2010 included income of P5,000,000 from operating the discontinued segment from January 1 to the sale date. Enron incurred a loss on the November 30 sale of P4,500,000. Ignoring income tax, what amount should be reported in the 2010 income statement as income or loss under discontinued operation? a. 4,500,000 loss b. 5,000,000 loss c. 500,000 loss d. 500,000 income e. For the year ended December 31, 2010, Transformers Inc. reported the following: Net income Preferred dividends declared Common dividend declared Unrealized holding loss, net of tax Retained earnings, beginning balance Common stock Accumulated Other Comprehensive Income, Beginning Balance P 60,000 10,000 2,000 1,000 80,000 40,000 5,000

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Cluster 1 Financial Accounting What would Transformers report as total stockholders' equity? a. P172,000 b. P168,000 c. P128,000 d. P120,000 29 Included in Vernon Corp.'s liability account balances at December 31, 2010, were the following: 7% note payable issued October 1, 2010, maturing September 30, 2011 8% note payable issued April 1, 2010, payable in six equal annual installments of P150,000 beginning April 1, 2011 P250,000 600,000 D

Vernon's December 31, 2010 financial statements were issued on March 31, 2011. On January 15, 2011, the entire P600,000 balance of the 8% note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on March 10, 2011, Vernon consummated a noncancelable agreement with the lender to refinance the 7%, P250,000 note on a long-term basis, on readily determinable terms that have not yet been implemented. On the December 31, 2010 balance sheet, the amount of the notes payable that Vernon should classify as short-term obligations is a. P175,000. b. P125,000. c. P50,000. d. P0. 30 Larsen Corporation reported P100,000 in revenues in its 2010 financial statements, of which P44,000 will not be included in the tax return until 2011. The enacted tax rate is 40% for 2010 and 35% for 2011. What amount should Larsen report for deferred income tax liability in its balance sheet at December 31, 2010? a. P15,400 b. P17,600 c. P19,600 d. P22,400 During 2010, Eaton Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to peso sales are 2% within 12 months following sale and 4% in the second 12 months following sale. Sales and actual warranty expenditures for the years ended December 31, 2010 and 2011 are as follows: Sales P 800,000 1,000,000 P1,800,000 Actual Warranty Expenditures P12,000 30,000 P42,000 A

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2010 2011

At December 31, 2011, Eaton should report an estimated warranty liability of a. P0. b. P10,000. c. P30,000. d. P66,000. 32 Ventura Corporation purchased machinery on January 1, 2009 for P630,000. The company used the sum-of-theyears-digits method and no salvage value to depreciate the asset for the first two years of its estimated six-year life. In 2010, Ventura changed to the straight-line depreciation method for this asset. The following facts pertain: 2009 2010 Straight-line P105,000 P105,000 Sum-of-the-years-digits 180,000 150,000 The amount that Ventura should report for depreciation expense on its 2011 income statement is a. P120,000. b. P105,000. c. P75,000. C

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Cluster 1 Financial Accounting d. none of the above. 33 During 2010 the DLD Company had a net income of P50,000. In addition, selected accounts showed the following changes: Accounts Receivable P3,000 increase Accounts Payable 1,000 increase Building 4,000 decrease Depreciation Expense 1,500 increase Bonds Payable 8,000 increase What was the amount of cash provided by operating activities? a. P49,500 b. P50,000 c. P51,500 d. P59,500 Tresh, Inc. had the following bank reconciliation at March 31, 2010: Balance per bank statement, 3/31/10 Add: Deposit in transit Less: Outstanding checks Balance per books, 3/31/10 Data per bank for the month of April 2010 follow: Deposits Disbursements P37,200 10,300 47,500 12,600 P34,900 P46,700 49,700 A

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All reconciling items at March 31, 2010 cleared the bank in April. Outstanding checks at April 30, 2010 totaled P6,000. There were no deposits in transit at April 30, 2010. What is the cash balance per books at April 30, 2010? a. P28,200 b. P31,900 c. P34,200 d. P38,500 35 In a quasi-reorganization, a debit balance in Retained Earnings (a deficit) is eliminated by a. reducing paid-in capital or reorganization capital. b. reducing future depreciation charges. c. issuing more capital stock. d. writing down assets to lower, but fair, values. Consider the following: Cash in Bank checking account of P13,500, Cash on hand of P500, Post-dated checks received totaling P3,500, and Certificates of deposit totaling P124,000. How much should be reported as cash in the balance sheet? a. P 13,500. b. P 14,000. c. P 17,500. d. P131,500 . On December 1, 2010, Hogan Co. purchased a tract of land as a factory site for P800,000. The old building on the Property was razed, and salvaged materials resulting from demolition were sold. Additional costs incurred and salvage proceeds realized during December 2010 were as follows: Cost to raze old building Legal fees for purchase contract and to record ownership Title guarantee insurance Proceeds from sale of salvaged materials In Hogan 's December 31, 2010 balance sheet, what amount should be reported as land? Page | 8 P70,000 10,000 16,000 8,000 A

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Cluster 1 Financial Accounting a. b. c. d. 38 P826,000. P862,000. P888,000. P896,000. A

The assets appear on the statement of financial position of Gardenia Company: Cash in bank Accounts Receivable Inventory Financial Assets @ FV Patent Advances to employees Advances to suppliers Prepaid Expenses P 2,000,000 4,000,000 1,500,000 500,000 1,000,000 200,000 400,000 100,000

How much should the entity classify as monetary assets? a. 6,200,000 b. 6,600,000 c. 6,700,000 d. 7,700,000 39 Long Co. issued 100,000 shares of P10 par common stock for P1,200,000. Long acquired 8,000 shares of its own common stock at P15 per share. Three months later Long sold 4,000 of these shares at P19 per share. If the cost method is used to record treasury stock transactions, to record the sale of the 4,000 treasury shares, Long should credit a. Treasury Stock for P76,000. b. Treasury Stock for P40,000 and Paid-in Capital from Treasury Stock for P36,000. c. Treasury Stock for P60,000 and Paid-in Capital from Treasury Stock for P16,000. d. Treasury Stock for P60,000 and Paid-in Capital in Excess of Par for P16,000. Jim Yount, M.D., keeps his accounting records on the cash basis. During 2011, Dr. Yount collected P360,000 from his patients. At December 31, 2010, Dr. Yount had accounts receivable of P50,000. At December 31, 2011, Dr. Yount had accounts receivable of P70,000 and unearned revenue of P10,000. On the accrual basis, how much was Dr. Yount's patient service revenue for 2011? a. P310,000. b. P370,000. c. P380,000. d. P390,000. Langley Company's December 31 year-end financial statements contained the following errors: Dec. 31, 2010 Dec. 31, 2011 Ending inventory P7,500 understated P11,000 overstated Depreciation expense 2,000 understated An insurance premium of P18,000 was prepaid in 2010 covering the years 2010, 2011, and 2012. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2011, fully depreciated machinery was sold for P9,500 cash, but the sale was not recorded until 2012. There were no other errors during 2011 or 2012 and no corrections have been made for any of the errors. Ignore income tax considerations. What is the total net effect of the errors on the amount of Langley's working capital at December 31, 2011? a. Working capital overstated by P5,000 b. Working capital overstated by P1,500 c. Working capital understated by P4,500 d. Working capital understated by P12,000 Page | 9 C

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On July 1, 2010, Nall Co. issued 2,500 shares of its P10 par common stock and 5,000 shares of its P10 par convertible preferred stock for a lump sum of P125,000. At this date Nall's common stock was selling for P24 per share and the convertible preferred stock for P18 per share. The amount of the proceeds allocated to Nall's preferred stock should be a. P62,500. b. P75,000. c. P90,000. d. P68,750. On June 1, 2010, Nott Corp. loaned Horn P400,000 on a 12% note, payable in five annual installments of P80,000 beginning January 2, 2011. In connection with this loan, Horn was required to deposit P5,000 in a noninterestbearing escrow account. The amount held in escrow is to be returned to Horn after all principal and interest payments have been made. Interest on the note is payable on the first day of each month beginning July 1, 2010. Horn made timely payments through November 1, 2010. On January 2, 2011, Nott received payment of the first principal installment plus all interest due. At December 31, 2010, Nott's interest receivable on the loan to Horn should be a. P0. b. P4,000. c. P8,000. d. P12,000. Torrey Co. manufactures equipment that is sold or leased. On December 31, 2011, Torrey leased equipment to Dalton for a five-year period ending December 31, 2016, at which date ownership of the leased asset will be transferred to Dalton. Equal payments under the lease are P220,000 (including P20,000 executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2011. Collectibility of the remaining lease payments is reasonably assured, and Torrey has no material cost uncertainties. The normal sales price of the equipment is P770,000, and cost is P600,000. For the year ended December 31, 2011, what amount of income should Torrey realize from the lease transaction? a. P170,000 b. P220,000 c. P230,000 d. P330,000 An enterprise receives grant of P15,000,000 from the government as subsidy to defray safety and environmental costs within the area where the enterprise is located. The safety and environmental costs are expected to be incurred over four years as follows: Year 1 P 2,000,000 Year 2 4,000,000 Year 3 6,000,000 Year 4 8,000,000 The amount to be reported as in year 1 Income Statement as other Income from government grant is a. 1,500,000 b. 2,000,000 c. 3,750,000 d. 15,000,000

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Robertson Inc. bought a machine on January 1, 2000 for P300,000. The machine had an expected life of 20 years and was expected to have a salvage value of P30,000. On July 1, 2010, the company reviewed the potential of the machine and determined that its undiscounted future net cash flows totaled P150,000 and its discounted future net cash flows totaled P105,000. If no active market exists for the machine and the company does not plan to dispose of it, what should Robertson record as an impairment loss on July 1, 2010? a. P 0 b. P 8,250 c. P15,000

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Cluster 1 Financial Accounting d. P53,250 47 Percy Corporation was organized on January 1, 2010, with an authorization of 1,200,000 shares of common stock with a par value of P6 per share. During 2010, the corporation had the following capital transactions: January 5 July 28 December 31 issued 675,000 shares @ P10 per share purchased 90,000 shares @ P11 per share sold the 90,000 shares held in treasury @ P18 per share D

Percy used the cost method to record the purchase and reissuance of the treasury shares. What is the total amount of additional paid-in capital as of December 31, 2010? a. P-0-. b. P2,070,000. c. P2,700,000. d. P3,330,000. 48 Presented below are four segments that have been identified by Haley Productions: Segments A B C D Total Revenue (Unaffiliated) P255,000 600,000 225,000 90,000 Operating Profit (Loss) P30,000 (55,000) 6,000 4,000 Identifiable Assets P900,000 800,000 450,000 225,000 B

For which of the segments would information have to be disclosed in accordance with professional pronouncements? a. Segments A, B, C, and D b. Segments A, B, and C c. Segments A and B d. Segments A and D 49 Rich, Inc. acquired 30% of Doane Corp.'s voting stock on January 1, 2010 for P400,000. During 2010, Doane earned P160,000 and paid dividends of P100,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2011, Doane earned P200,000 and paid dividends of P60,000 on April 1 and P60,000 on October 1. On July 1, 2011, Rich sold half of its stock in Doane for P264,000 cash. The carrying amount of this investment in Rich's December 31, 2010 balance sheet should be a. P400,000. b. P418,000. c. P448,000. d. P460,000. 50 Eddy Co. is indebted to Cole under a P400,000, 12%, three-year note dated December 31, 2009. Because of Eddy's financial difficulties developing in 2011, Eddy owed accrued interest of P48,000 on the note at December 31, 2011. Under a troubled debt restructuring, on December 31, 2011, Cole agreed to settle the note and accrued interest for a tract of land having a fair value of P360,000. Eddy's acquisition cost of the land is P290,000. Ignoring income taxes, on its 2011 income statement Eddy should report as a result of the troubled debt restructuring Gain on Disposal Restructuring Gain a. P158,000 P0 b. P110,000 P0 c. P70,000 P40,000 d. P70,000 P88,000 D B

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