ppl cup difficult and clincher, Exercises of Financial Accounting

DIFFICULT

1. The Fitness Health Spa charges a non refundable annual membership fee of P 6,000 for

its services. For this fee, each member receives a fitness evaluation (value P 1,000 ), a

monthly magazine (annual value P 320), and 2 hours use of the equipment each week

(annual value P 7,000) . Each of the three elements of the annual membership can be

purchased separately. The initial direct costs to obtain the membership are P1,200. The

direct cost of the fitness evaluation is P 500, and the monthly direct costs to provide the

other services are estimated to be P 150 per person. A membership was sold to a

par. The bonds are redeemable at a premium of 10% on December 31, 2012 or it may be

converted into ordinary shares on the basis of 50 shares for each P 1,000 bond at the

option of the holder. The interest rate of the equivalent bond without the conversion

rights would have been 10%. The issuance of convertible bonds on January 1, 2009

increased the entity’s equity by (Round-off present value factors to four decimal places)

a. P 175, 518 b. P 380, 418 c. P 73,068 d. P 0

3. Detroit Corp. sells equipment with a carrying amount P 150,000 to Pistons Corp. for

P170,000 when the equipments fair value is P 100,000 and then enters into a cancelable

operating lease agreement to use the equipment for two years. In the current year, how

much profit would Detroit Corp. record on the sale of the equipment.

Annual leave expense 5,600

Rent revenue 12,000

For the tax purposes the following applied:

Annual leave paid P 6,500

Rent receive 10,000

Depreciation rate for machinery 25%

Income tax rate 35%