Afar 2

ADVANCED FINANCIAL ACCOUNTING & REPORTING

OCTOBER 2018 BATCH

1. The non-controlling interests shall be presented in the consolidated statement of financial position.

a. b. c. d.

As part of the parent shareholder’s equity Within equity, separately from the equity of the owners of the parent As part of noncurrent liabilities As part of current liabilities

2. In a Business combination, goodwill is measured as the excess of a. The total of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of previously held interest in the acquiree over the identifiable net assets acquired. b. The consideration transferred over the identifiable net assets acquired. c. The total of the consideration received and the fair value of the previously held interest in the acquiree over the identifiable net assets acquired. d. The total of the consideration transferred and the amount of any non-controlling interest in the acquiree over the identifiable net assets acquired. 3. What is the initial measurement of an investment in subsidiary retained by the investor when control is lost? a. Fair value at the beginning of the reporting period b. Carrying amount at the date when control is lost c. Carrying amount at the beginning of the reporting period d. Fair value at the date when control is lost 4. It is a transaction or other event in which an acquirer obtains control of one or more businesses. a. Business combination b. Merger c. Consolidation d. Controlling interest 5. Control exist even if the parent owns half or less of the voting power of an entity where there is (choose the incorrect one) a. Power over more than half of the voting rights by virtue of a contractual agreement with other investors. b. Power to govern the financial and operating policies of the entity under a statue. c. Power to appoint or remove the employees of the entity. d. Power to cast the majority of votes at meetings of the board of directors or equivalent governing body. 6. In a business combination, any “gain on bargain purchase” shall a. Be recognized in profit or loss. b. Be recognized in other comprehensive income. c. Be recognized in retained earnings d. Not be recognized. 7. Control is presumed to exist when the parent owns directly or indirectly through subsidiaries a. More than half of the voting power of an entity. b. More than half of the equity of an entity. c. More than half of the ordinary shares of an entity. d. More than half of the preference and ordinary shares of an entity. 8. This is defined as “the financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic unit”. a. Consolidated financial statements b. General purpose financial statements c. Separate financial statements d. Group financial statements

9. Which of the following is not a valid condition that will exempt an entity from preparing consolidated financial statements? a. The parent entity is a wholly owned subsidiary of another entity. b. The parent entity’s debt or equity capital is not traded in the stock exchange. c. The ultimate parent entity produces consolidated financial statements available for public use that comply with PFRS. d. The parent entity is in the process of filing its financial statements with a securities commission for the purpose of issuing any class of instruments in a public market.

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10. A “group” for consolidation purposes is a. A parent and all its subsidiaries. b. An entity that has one or more subsidiaries. c. An entity, including an unincorporated entity such as partnership that is controlled by another entity. d. An entity that obtains control over entities or businesses. 11. On June 30, 2012, Wendy Corporation issued 100,000 shares of its P20 par value common stock for the net assets of Ben Company. The market value of Wendy’s common stock on June 30 was P36 per share. Wendy paid a fee of P 100,000 to the broker who arranged this acquisition. Costs of SEC registration and issuance of the equity securities to P 50,000. Contingent consideration determined to be paid after acquisition amounts to P 120,000. What amount should Wendy capitalize as the cost of acquiring Ben’s net assets? a. P 3,720, 000 b. P 3,750,000 c. P 3,650,000 d. P 3,700, 000 12. Mila Company acquired all of Mark Corporation’s assets and liabilities on January 2, 2012, in a business combination at that date, Mark reported assets with a book value of P 624,000 and liabilities of P 356,000. Mila noted that Mark had P40, 000 of research and development costs on its books at the acquisition date that did not appear to be of value. Mila also determined that patents developed by Mark had a fair value of P 120,000 but had not been recorded by Mark. Except for building and equipment, Mila determined the fair value of all other assets and liabilities reported by Mark approximated the recorded amounts. In recording the transfer of assets and liabilities to its books, Mila recorded goodwill of P 93,000. Mila paid P 517,000 to acquire Mark’s assets and liabilities If the book value of Mark’s buildings and equipment was P 341,000 at the date of acquisition, what was their fair value? a. P 341,000 b. P 417,000 c. P 417,500 d. P 441,000 13. When Roxanne Company acquired Regine Company’s net assets by issuing its own capital stock, it had the following expenditures: Broker’s fee P 50,000 Pre-acquisition audit fee 40,000 Legal fees for merger agreement 47,000 Audit fee for SEC registration of stock issue 46,000 Printing of stock certificates 11,000 Under IFRS-3 (2009), the expenditures that should be debited to Additional Paid in Capital (APIC) account is: c. P 57,000 A. P 0 b. P 46,000 d. P 137,000 Items 14 to 16 are based on the following information: Peter Corporation issued 120,000 shares of P10 par common stock with a fair value of P 2,550,000 for all the outstanding stock of Mya Company. In addition, Peter incurred the following costs: Professional fees to arrange the business combination P 27,000 Cost of SEC registration 12,000 Cost of printing and issuing stock certificates 3,000 Immediately before the business combination in which Mya Company was dissolved, Mya’s assets and equities were as follows (in thousands) Book value Fair value Current assets P 1,000 P 1,100 Plant assets 1,500 2,200 Liabilities 300 300 Common stock 2,000 Retained earnings 200 14. Using the data above, how much additional paid in capital is recorded by Peter? a. P 1,330,000 b. P 1,335,000 c. P 1,350,000 d. P 1,365,000 15. Using the data above, Peter should recognize expense of a. P 12,000

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b. P 15,000 c. P 27,000 d. P 32,000 16. Using the data above, the net increase (decrease) in the retained earnings of Peter is a. (P 27, 000) b. P 423,000 c. P 408,000 d. (P 42,000) 17. On May 31, 2012, Cecile Company has assets and liabilities with the following fair values: Current assets P 180,000 Noncurrent assets 220,000 Liabilities 40,000 June 1, 2012, Rachel Corporation purchases the net assets of Cecil Company for P 310,000 cash In the books of Rachel Corporation, the acquisition resulted in: a. Negative goodwill of P 50,000 b. Income from acquisition of P 50,000 c. Reduction from current assets of P 50,000 d. Deduction from noncurrent assets of P 50,000 18. Diggle Corporation will issue common shares with a par value P10 for the net assets of Oliver Company. Diggle’s common stock has a current market value of P40 per share. Oliver’s statement of financial position on the date of acquisition follow Current assets P 320,000 Property and equipment 880,000 Liabilities 400,000 Common stock, P5 par P 80,000 Additional paid in capital 320,000 Retained earnings 400,000 Oliver’s current assets are appraised at P 400,000 and the property and equipment was also appraised at P 1,600,000. Its liabilities are fairly valued. Accordingly, Diggle Corporation issued shares of its common stock with a total market value equal to that of Oliver’s net assets including goodwill. To recognize goodwill of P 200,000, how many shares were to be issued by Diggle? B. P 45,000 A. P 40,000 C. P 50,000 D. P 55,000 19. Pearl Corporation and Sammie Company agreed to combine their businesses, with Pearl Corporation as the surviving entity. Pearl will issue 48,000 shares of its capital stock, with a par value of P100 per share, and a fair market value of P175 per share. Pearl incurred the following additional acquisition related costs. Professional fees P 120,000 Broker’s fees 80,000 Costs to register and issue stock 50,000 Before combination, their respective statement of financial position showed stockholder’s equity account as follows: Pearl Sammie Capital stock P 7,200,000 P 3,600,000 Additional paid in capital 3,120,000 360,000 Retained earnings 6,000,000 2,040,000 The total stockholder’s equity of Pearl Corporation after the combination is a. P 24,470,000 b. P 24,670,000 c. P 24,720,000 d. P 24,890,000 20. The stockholders equities of Melay Corporation and Jason Company at July 1, 2012 were as follows: Melay Jason Capital stock, P100 par P P 8,000,000 Additional paid in capital 15,000,000 4,000,000 Retained earnings 2,000,000 3,000,000 6,000,000

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On July 2, 2012, Melay issued 150,000 of its shares with a market value of P120 per share for the assets and liabilities of Jason, and Jason was dissolved. On the sammiee day, Melay paid P 50,000 for professional fees and P 100,000 for SEC registration of equity securities. After the combination, what is the total stockholders’ equity of Melay Corporation? A. P 40,850 B. P 40,900,000 C. P 41,000,000 D. 41,150,000

Items 1 and 2 are based on the following information: The accounts of the partnership of Bernard, David and Melvin at the end of the fiscal year on September 30, 2018 are as follows: Cash 36,000 Loan from Melvin 18,000 Other Assets 225,000 Bernard, Capital (30%) 81,000 Loan to David 9,000 David, Capital (50%) 54,000 Liabilities 90,000 Melvin, Capital (20%) 27,000 Melvin received 16,200 on the first distribution of cash. 1. What was the cash realized from the initial sale of assets? A. 18,000 B. 108,000 C. 180,000 D. 120,000 2.

What is the loss from the initial sale of the Non-cash Assets? A. 144,000 B. 54,000 C. 117,000 D. 134,000

3.

The partnership of One, Two, Three and Four share profits and losses in the ratio of 20:20:20:40 each, respectively. The capital balances of each partner on September 1, 2014 are: One, P60,000; Two, P80,000; Three, P70,000 and Four, P40,000. On September 1, 2014, with the consent of One, Two and Four; Three retires from the partnership and was Paid P50,000 cash in full settlement of his interest in the partnership and Five was admitted to the partnership with a P20,000 cash investment for a 10% interest in the net assets of One, Two and Four. How much is the capital account to be credited to Five in the new partnership? A. 25,000 C. 27,000 B. 22,000 D. 20,000

4.

Mike and Mark enter into a partnership agreement in which Mike is to have a 55% interest in the partnership and 35% in the profits and losses, while Mark will have a 45% interest in the partnership and 65% in the profits and losses. Mike contributes the following: Cost Fair Value Building 235,000 255,000 Equipment 168,000 156,000 Land 500,000 525,000 The building and the equipment has a mortgage of P50,000 and P35,000 respectively. Mark is to invest P150,000 cash and an equipment. The partners agreed that only the building mortgage will be assumed by the partnership. How much is the fair market value of the equipment which Mark contributed? A. 615,818 B. 989,143 C. 574,909 D. 546,273

5.

How much is the total assets of the partnership upon formation? A. 1,660,909 B. 1,701,818 C. 1,892,143 D. 1,632,273

6.

May, a partner in a law firm, decided to withdraw from the partnership. May’s share of the partnership profits and losses was 20%. Upon withdrawing from the partnership he was paid cash in

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final settlement for his interest. The total of the partners’ capital accounts before recognition of partnership goodwill prior to May’s withdrawal was P210,000. After his withdrawal the remaining partners’ capital accounts, excluding their share of goodwill, totaled P160,000, but including their share of goodwill, totaled P256,000. The total amount of cash paid to May must be: a. P50,000 b. P96,000 c. P74,000 d. P120,000 7.

T, M and I, decide to form a partnership and agree to distribute profits in the ratio of 5:3:2. It is agreed however, that T and M shall guarantee income from their customers of P600,000 and P500,000, respectively, that any deficiency is to be charged directly against the account of the partner failing to meet the guarantee, and that any excess is to be credited directly to the account of the partner with income exceeding the guarantee. Income earned during 19x4 are classified as follows: Customers of T, P1,000,000; customers of M, P400,000; and customers of I, P100,000. Operating expenses for 19x4 are P200,000. The effect on the final capital balances of T, M, and I, respectively will be: a. Increase of P500,000; P300,000; and P200,000 b. Increase of P900,000; P300,000; and P200,000. c. Increase of P900,000; P200,000 and P200,000 d. Increase of P650,000; P390,000 and P260,000

8.

Maria, Magdalena, and Lucila are partners with capital accounts of P70,000, P120,000, and P90,000, respectively. They share income and losses a 2:3:4 ratio. Although she believes the asset of the partnership are fairly valued, Lucila is so anxious to retire that she accepts P80,000 cash as payment in full for her equity. What is the capital balance of Magdalena after Lucila’s retirement? a. P123,333 b. P123,000 c. P124,000 d. P126,000

9.

N, S and G form a partnership on January 1, 2014, investing P150,000, P100,000 and P100,000, respectively. Profits and losses are to be shared in the ratio 2:1:1, respectively. It is agreed that 6% (1/2 of 1% per month) is to be charged on withdrawals that decrease capital below the original investments. On March 1, N withdraws P50,000. Business is unsatisfactory and it is decided to dissolve partnership. Partnership assets realized P50,000 and the accountant distributes this cash to the proper parties on November 1, 2014. All parties are solvent, and proper settlement is made among partners the same day. The final cash settlement among partners will involve: A. N paying S, P13,000 and G, P13,000. B. N paying S, P12,500 and G, P12,500 C. N receiving from S, P13,000 and from G, P13,000 D. No settlement is required.

10.

Emilio, a senior partner in an accounting firm, has a profit share of 25% and 30% interest in 2018. During 2018, Emilio withdrew P260,000 against his capital but invested property with a fair value of P50,000. If Emilio’s ending capital is P120,000 lesser than his capital beginning, how much is the partnership net income or net loss for 2018? a. P360,000 b. P300,000 c. P480,000 d. P400,000

11.

At the date of partnership formation XYZ partnership, the amounted credited to X’s capital is less than the fair market value of the property he contributed. Which of the following is the most valid reason? A. The property contributed by A is impaired. B. The property contributed by A has been subjected to positive asset revaluation. C. Bonus has been given a partner A to the other partners. D. Goodwill arising from partnership formation has been recognized

12.

At the time of retirement, a retiring partner receives more than the amount of his capital contribution while the remaining partners capital increase after the retirement. Which of the following is most valid reason? A. Goodwill during retirement is recognized. B. Asset revaluation is recognized C. Bonus is given by retiring partner to remaining partners

QUIZ – AFAR D. 13.

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Bonus is given by the remaining partners to retiring partners

At the time of partnership liquidation, which credits shall be settled first? A. Those amount owing to third persons B. Those amount owing to partners other than capital contribution and share in profit C. Those amount owing to partners with respect to capital contribution D. Those amount owing to partners with respect to share in profit. Items 14 to 17 are based on the following information: ACE Marketing Co. started operations in 2018, selling exclusively on installment basis. Data for the first two years follows: 2018 2019 Installment sales P 400,000 P 500,000 Cost of installment sales 240,000 350,000 Collection on 2018 accounts 210,000 150,000 Collection on 2019 accounts 300,000 Defaulted account balances 15,000 The default related to a 2018 sale, and the appliance which the company estimated to have a resale value of P10,000 after reconditioning at a cost of P300 was repossessed.

14.

15.

16.

17.

The deferred gross profit at the end of 2018 was: B. P76,000 A. P70,000 C. P114,000

D. P130,000

The deferred gross profit at the end of 2019 was: C. P70,000 A. P45,000 B. P60,000

D. P114,000

The realized gross profit during the year 2019 was: C. P150,000 A. P60,000 B. P90,000

D. P200,000

The default and related repossession resulted in a: B. P700 gain A. No gain/loss C. P2,000 loss

D. P2,300 loss

18.

If the sale transaction provides for periodic installments over an extended period of time and the collectability of the sales price cannot be reasonably estimated, what method of revenue recognition is the most appropriate? A. Cost recovery method C. Installment method B. Accrual basis D. Cash basis

19.

On Dec. 29, 2018, Sigay signed a franchising agreement for the operation of an outlet in Dagupan City by Dagupena Corp. The franchising agreement required the franchisee, Dagupena Corp., to make an initial payment of P200,000 upon signing of the contract and three payments each of P100,000 beginning one year from the agreement date and yearly thereafter. The franchisor agrees to prepare market studies, find a suitable location, train employees, and perform some other related services. The location, train employees, and perform some other related services. The initial payment is refundable until substantial performance is affected. In 2018, SIGAY should report franchise fee revenue of: B. P200,000 A. P-0C. P125,000 D. P500,000

20.

Jollibee, franchisor, entered into a franchising agreement with Jo Levy, franchisee, on October 31, 2018. The total franchise fee is P500,000, of which P100,000 is payable upon signing of the agreement with the balance payable in four equal annual installments. The down payment is refundable in the event the franchisor fails to render stipulated services and, thus far, none has been performed. When Jollibee prepares its October 31, 2018 financial statements, the franchise fee revenue to be reported is: D. P500,000 A. - 0 B. P400,000 C. P100,000 Items 21 & 22 are based on the following information: On January 1, 2018, an entity granted a franchise agreement to a franchisee. The contract provided that the franchisee shall pay an initial franchise fee of P 500,000 and on-going payments of royalties equivalent to 8% of the sales of the franchisee.

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On January 1, 2018 the franchisee paid downpayment of P 200,000 and issued 3-year noninterest bearing note for the balance payable in three equal annual installments starting December 31, 2018. The note has present value of P 240,183 with effective interest rate of 12%. On June 30, 2018, the entity completed the performance obligation of the franchise at a cost of P352,146. Aside from that, the entity incurred indirect cost of P22,009. The franchisee started operation on July 1, 2018 and reported sales revenue amount to P 50,000 for the year ended December 31, 2018. The franchisee paid the first installment on its due date. 21.

If the collection of the note receivable is reasonably assured, what is the gross profit to be recognized by the entity for the year ended December 31, 2018 in relation to the initial franchise fee? A. P 66,028 B. 44,014 C. 22,009 D. 88,037

22.

If the collection of the note receivable is reasonably assured, what is the net income to be reported by the entity for the year ended December 31, 2018? A. 98,850 B. 94,850 C. 70,028 D. 92,037

23.

JPC Company entered into a construction agreement in 2017 for the rip-rapping of Pier 4. The original contract price was P9,600,000 but a change order was issued in 2018 increasing the contract price by P480,000. D uses the percentage of completion method of revenue recognition on long-term construction contracts. The following information are obtained on the project of 2017 and 2018. 2017 2018 Cost incurred to date P4,920,000 P8,640,000 Estimated costs to complete 4,920,000 2,160,000 Billings made 5,280,000 8,520,000 Cash collections 4,380,000 7,500,000 What is the gross profit (loss) of JPC on the project for 2018? A. (P960,000) B. (P480,000) C. (P1,080,000) D. (P840,000)

24.

When it is probable that total contract costs will exceed total contract revenue, how shall the longterm contract account for the difference? A. The expected loss shall be recognized as an expense immediately. B. The expected profit shall be recognized as a profit immediately C. The expected loss shall be recognized as an expense taking into account the percentage of completion as of the end of the period. D. The expected loss shall be recognized as a profit taking into account the percentage of completion as of the end of the period

Items 25 to 26 are based on the following: Platinum Builders Inc. recently acquired the Golden Builders Company. Golden has incomplete accounting records. On one particular project, only the information below is given. Because the information is incomplete, you are asked the following questions assuming the percentage of completion method is used and an output measure is used to estimate the percentage completed, and revenue is recorded using the costs actually incurred. 2017 2018 2019 Costs incurred during year P2,000,000 P2,500,000 ? Estimated cost to complete 4,500,000 1,900,000 -0Contract revenue 2,500,000 ? ? Gross profit on contract ? 100,000 P(200,000) Contract price P7,000,000 25. How much is the total cost of the contract? A. P2,100,000 B. P6,600,000 C. P6,900,000 D. P6,800,000 26.

What would be the gross profit for 2018 if the cost to cost percentage of completion method were used? Ignore the revenue amount for 2017 and gross profit amount for 2018? A. P268,029 B. P422,600 C. P100,000 D. P(77,600)

Items 27 to 29 are based on the following information: Comparative trial balances of the home office and the two branches of UKAY-UKAY Corporation at December 31, 2018 were as follows: Home office Branch A Branch B

QUIZ – AFAR Cash P 5,000 Accounts receivable (net) 80,000 Inventories 150,000 Branch No. 1 170,000 Branch No. 2 165,000 Plant assets (net) 730,000 Purchases 900,000 Shipments from home office Expenses 300,000 Total P2,500,000

Page 9 P 15,000 30,000 60,000

P 22,000 40,000 48,000

250,000

200,000

300,000 75,000 P730,000

240,000 50,000 P 600,000

Accounts payable P 100,000 P 45,000 P 30,000 Other liabilities 80,000 15,000 5,000 Loading in branch inventories 108,000 Capital stock, P10 par 500,000 Retained earnings 262,000 Home office 170,000 165,000 Sales 1,000,000 500,000 400,000 Shipments to branches 450,000 0 0 Total P 2,500,000 P 730,000 P600,000 Additional information: Home office and Branch inventories at December 31, 2018 were: Home office (at cost) P120,000 Branch No. A (at billed price) 72,000 Branch No. B (at billed price) 96,000 27.

What is the mark-up rate on merchandise transfers to branch? A. 20 percent of billed price C. 16-2/3 percent of billed price B. 25 percent of cost. D. 25 percent of billed price

28.

How much is the beginning inventory of UKAY-UKAY Corporation? A. P150,000 B. P258,000 C. P240,000 D. P90,000

29.

How much is the correct net income of Branch No. 2 as far as home office is concerned? A. P190,000 B. P158,000 C. P185,000 D. P94,000

30.

An operator build a road at a cost of P100 M that fair value her of construction services is P110 M, the total operating costs of the road are P70 M and total cash inflows over the life of the concession are P200 M. Applying IFRIC 12, Service Concession Arrangement, by intangible asset model higher or lower than the total revenue life of the concession? C. A. No difference B. P10 M D.

how much is total revenue under the under the financial asset model over the P110 M (P110M)

31.

ANDROMEDA Construction was recently awarded a P6,730,000 contract a trade center for Ayala Inc. ANDROMEDA Construction estimates it will take 46 months to complete the contract. The company uses the percentage of completion method to estimate profits. (use two decimal places for the percentage of completion) Example 62.48% The following information details the actual estimated costs for the year 2014-2017: Year Actual Cost Each Year Estimated Cost to Complete 2014 P3,120,000 P3,264,000 2015 1,584,000 1,800,000 2016 1,152,000 912,000 2017 1,080,000 How much is the balance of Construction in Progress account as of 2016? A. P5,800,000 B. P5,808,000 C. P5,818,000 D. P5,856,000

32.

Home office XYZ shipped merchandise costing P18,840 to XX branch and paid for the freight charges of P3,000 XX branch was subsequently instructed to YY branch wherein XX branch paid P2,400 freight.

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If the shipment was made directly from XYZ to YY, the freight cost would have been P4,500. Which of the following is incorrect? A. Upon transfer of merchandise by XX to YY, XX debits Home office account by P24,240 B. Upon transfer of merchandise by XYZ to XX, XYZ debits Investment in Branch XX account by P21,840 C. Upon transfer of merchandise by XX to YY, XYZ debits Investment in Branch XX account by P23,340 D. Upon receipt of merchandise by YY from XX, YY credits Home office account by P23,340 33.

Music Box and Company has several branches located in the cities in the south namely, Davao, Tacloban, Cebu, Bacolod, and Cagayan de Oro. It authorizes transfers of cash and inventories among branches. The head office ships goods P100,000 cost to Davao branch paying freight charges for P6,000. The home office authorizes the transfer of goods from Davao Branch to Cebu Branch where the latter is charged for the cost of the goods, P100,000 and freight charges of P2,000 for the transfer. If the shipment had been made by the head office to the Cebu Branch, the freight charges would have been P9,000. The transfers resulted to difference in freight charge which should be disposed of as follows: A. P1,000 charge to Cebu branch by Davao branch. B. P1,000 charge to Cebu branch by Head office C. P1,000 to be equally charge among Head office, Davao branch, and Cebu branch. D. P1,000 savings

34.

What is the main reason for the difference between the branch’s net income reported by the branch and the true branch’s net income computed by the home office? A. Because of overstatement of branch’s cost of sales for goods coming from outsiders B. Because of overstatement of branch’s cost of sales for goods coming from home office C. Because of overstatement of total goods available for sale coming from home office D. Because of overstatement of branch’s ending inventory coming from home office

35.

On December 31, 2018, Yabu Corp. signed an agreement authorizing Cecille Company to operate as a franchise for an initial franchise fee of P50,000. Of this amount, P20,000 was received upon signing of the agreement and the balance is due in three annual payment of P10,000 each, beginning December 31, 2019. No future services are required to be performed. Cecille Company’s credit rating is such that collection of the note is reasonably assured. The present value at December 31, 8 of the three annual payments discounted at 14% (the implicit rate for a loan of this type) is P23,220. On December 31, 2018, Yabu should record earned franchise fees of: C. P30,000 A. P23,220 B. P43,220 D. P 0

ADVANCED FINANCIAL ACCOUNTING and REPORTING Average 1.

Assume that C has a P50,000 equity in the partnership of “A, B, and C.” Partner C arranges to sell his entire interest to D for P80,000 Cash. Partners A and B agree to the admission of D. At what amount will the equity of the incoming partner, D, be shown in the balance sheet? A. at P50,000. B. at P50,000 and the P30,000 will be divided equally among the original partners. C. at P80,000 D. at P80,000 and the P30,000 will represent Goodwill which will be apportioned between the existing equities of A and B.

2.

During 2018, Young and Zinc maintained average capital balances in their partnership of P160,000 and P100,000 respectively. The partners receive 10% interest on average capital balances, and residual profit or loss is divided equally. Partnership profit before interest was P4,000. By what amount should Zinc’s capital account change for the year? a. P1,000 decrease. c. P11,000 decrease. b. P2,000 increase.

d.

P12,000 increase.

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3.

VERDI, Inc. has several branches. Goods costing P10,000 were transferred by the head office to Cebu Branch with the latter paying P600 for freight cost. Subsequently, the head office authorized Cebu Branch to transfer the goods to Davao Branch for which the latter was billed for the P10,000 cost of the goods and freight charge of P200 for the transfer. If the head office had shipped the goods directly to Davao Branch, the freight charge would have been P700. The P100 difference in freight cost would be disposed of as follows: a. Considered as savings. c. Charged to Davao Branch. b. Charged to Cebu Branch.

4.

d.

Charged to the Head Office.

Which represents the proper journal entry for a periodic inventory system that should be made on the books of the home office when goods that cost the home office P100,000 to manufacture are shipped to a branch at a transfer price of P125,000 and the billed price is not recorded in the shipments to branch account? A. Branch office P100,000 Shipments to branch B.

Branch office

P100,000 P125,000

Shipments to branch C.

Branch office

P125,000 P125,000

Shipments to branch

P100,000

Unrealized profit D.

Shipment to branch Unrealized profit

25,000 P100,000 25,000

Shipments from home office

5.

P125,000

Which represents the proper journal entry for a periodic inventory system that should be made on the books of the branch when goods that cost the home office P100,000 to manufacture are shipped to the branch at a price of P125,000? A. Shipments from home office P100,000 Home office B.

Shipments from home office

P100,000 P125,000

Home office C.

Shipments from home office

P125,000 P125,000

Unrealized profit

P 25,000

Home office D.

Shipments to branch Unrealized profit Shipments from home office

100,000 P100,000 25,000 P125,000

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6.

On January 1, 2018, Hood Company sold specialized computers costing P760,000 to Crater, Inc. for P990,000. Hood Company’s technicians must complete the installation, and Hood Company’s trainers present numerous training sessions for Crater’s employees during the installation period. Carter made a 50% down payment, with the balance due upon completion of installation. How much revenue should Hood Company recognize on its books on January 1, 2018? a. P-0b. P760,000. c. P495,000. d. P990,000.

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Use the following information for questions 7 and 8. In 2018, Fargo Corporation began construction work under a three-year contract. The contract price is P2,400,000. Fargo uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2018, follow: Statement of Financial Position Accounts receivable—construction contract billings Construction in progress Less contract billings

P100,000 P300,000 240,000

Costs and recognized profit in excess of billings

60,000

Income Statement Income (before tax) on the contract recognized in 2018

P60,000

7.

How much cash was collected in 2018 on this contract? a. P100,000 b. P140,000 c. P20,000 d. P240,000

8.

What was the initial estimated total income before tax on this contract? a. P300,000 b. P320,000 c. P400,000 d. P480,000

9.

On April 1, 2018 Weston, Inc. entered into a franchise agreement with a local business-man. The franchisee paid P240,000 and gave a P160,000, 8%, 3-year note payable with interest due annually on March 31. Weston recorded the P400,000 initial franchise fee as revenue on April 1, 2012. On December 30, 2018, the franchisee decided not to open an outlet under Weston's name. Weston canceled the franchisee's note and refunded P128,000, less accrued interest on the note, of the P240,000 paid on April 1. What entry should Weston make on December 30, 2018? a. Loss on Repossessed Franchise ..................................................

128,000

Cash ................................................................................. b. Loss on Repossessed Franchise ..................................................

128,000 118,400

Cash ................................................................................. c.

Loss on Repossessed Franchise ..................................................

118,400 278,400

Cash .................................................................................

118,400

Note Receivable ...............................................................

160,000

d. Revenue from Franchise Fees ...................................................

400,000

Interest Income ...............................................................

9,600

Cash .................................................................................

118,400

Note Receivable ..............................................................

160,000

Revenue from Repossessed Franchise .......................

112,000

Page 14

10.

On December 31, 2018, the home office of Berry Company recorded a shipment of merchandise to its Calamba branch as follows: Calamba branch 30,000 Shipment to Calamba branch 25,000 Unrealized profit in branch inventory 4,000 Cash (for freight charges) 1,000 The Calamba branch sells 40% of the merchandise to outside entities during the rest of December, 2018. The books of the home office and Calamba branch are closed on December 31 of each year. At what amounts should the 60% of the merchandise remaining unsold at December 31, 2018 should be included in the published statement of financial position of Berry Company at December 31, 2018? a. 15,600 b. 15,000 c. 18,000 d.18,600

The Professional CPA Review School

2nd

Main: 3F C. Villaroman Bldg. 873 P. Campa St. cor Espana, Sampaloc, Manila  (02) 735 8901 / 735 9031 / 0922 861 0191 email add: [email protected] Baguio Davao Flr. #12 CURAMED BLDG. MARCOS HIGHWAY, BC 3/F GCAM Bldg. Monteverde St. Davao City  (074)246-8329/ 0922-8499196  (082) 285-8805 / 0917-1491150

ADVANCED FINANCIAL ACCOUNTING & REPORTING FIRST PRE-BOARD EXAMINATION

MAY 2019 BATCH FEB 10, 2019; 3:00 – 6:000PM

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for each item by writing a SHADING corresponding to the letter of your choice on the answer sheet.

Items 1 and 2 are based on the following: On December 31, 2019, Galaxy acquired all the net assets of Milkway through an exchange of common stock. Galaxy is to issue two shares of its common stock for each of the common shares of Milkway. The common stock of Galaxy has an established market value of P35 per share. The financial statements of each of the companies immediately prior to the business combination on December 31, 2019, the last date of their fiscal year, are presented below; the balance sheet for Milkway shows fair values as well as book values. Galaxy Milkway Income statement Sales P40,000 P15,000 Cost of goods sold 12,000 4,000 Gross margin 28,000 11,000 Expenses 8,000 5,000 Net income P20,000 P 6,000 Galaxy Balance sheets Cash Inventories Plant and equipment Accumulated depreciation Patents Total assets Accounts payable Common stock (P13 par) Common stock (P20 par) Excess over par Retained earnings Total liabilities and SHE

P 3,500 7,500 70,000 ( 14,000) 20,000 P87,000 P 5,000 50,000 1,200 30,800 P87,000

Milkway Book value Fair value P

500 2,500 22,500 ( 7,000) 8,000 P26,000 P 4,000

P

500 3,100 30,000 (12,000) 11,000 P32,600 P 4,000

9,000 1,000 12,000 P26,000

Additional information: a) Galaxy incurred the following costs associated with the combination; these costs have been paid by Galaxy but not yet recorded. Finder’s and consultants’ fees P 1,900 Cost to register securities with the SEC 1,100 b) The combination is to be treated as a statutory merger with Milkway liquidating and Galaxy assuming the liabilities of Milkway. 1.

In the income statement of Galaxy Corporation prepared immediately after the business combination, how much is the total net income? A. P20,000 B. P16,000 C. P18,100 D. P24,900

Page 15

2.

Determine the goodwill resulting from the business combination. A. P2,900 B. P4,800 C. P5,900

D. P0

Items 3 and 5 are based on the following information: The following Statement of Financial Position were prepared for MOLDEX and CROWN Company on January 1, 2019 just before they entered into business combination: MOLDEX Company CROWN Company Book Value Fair Value Book Value Fair Value Cash and Receivables 450,000 500,000 225,000 250,000 Inventory 900,000 1,000,000 150,000 250,000 Building and Equipment 1,687,500 1,500,000 450,000 525,000 Accounts Payable 225,000 200,000 60,000 45,000 Bonds payable 675,000 450,000 75,000 105,000 Common Stocks P 20 par value 1,200,000 P 10 par value 300,000 Additional paid in capital 225,000 75,000 Retained Earnings 712,500 315,000 MOLDEX Company acquired CROWN Company by issuing 15,000 shares of common stocks and paying Cash amounting to P450,000. In additional, the following were incurred;’ Legal fees, Cost of SEC registration, Cost of issuing stock certificates and General administrative costs were incurred and paid costing the MOLDEX Company of P37,500; P37,500, P15,000 and P22,500 respectively. If the market stock price of the MOLDEX and CROWN Company are P 25 and P 14, respectively at the time of acquisition, 3.

How much is the Goodwill or Gain from Acquisition? A. P 25,000 B. (P25,000) C. P 50,000 D. (P50,000

4.

How much is the Total Retained Earnings after the acquisition? A. P 625,500 B. P 702,500 C. P 712,500 D. P 1,027,500

5.

How much is the Total Assets after the acquisition? A. P 3,037,000 B. P 3,500,000 C. P 3,525,000 D. P 3,550,000

Items 6 and 8 are based on the following information: On January 1, 2019, SONY Corporation and JVC Company decided to enter into enter into a business combination. SONY Corporation’s book shows assets and liabilities amounting to P1,350,000 and P 300,000, respectively. The shareholder’s equity is composed of P300,000 common stock (P10par); P 150,000 APIC and P 600,000 retained earnings. The book value asset for SONY is understated by P 150,000 while its liability is overstated by P 75,000. JVC Company assets inclusive of P15,000 goodwill amounted to P500,000 while its liabilities amounted to P150,000. The shareholder’s equity is composed of P120,000 common stocks (P10 par); P 105,000 APIC and P 125,000 retained earnings. The fair value assets without goodwill and liabilities should be reduced both by P75,000. SONY Company required the net assets of JVC Company by issuing 25,000 shares and cash of P 10,000. Moreover, a contingent consideration of P80,000 will be paid when the market price per share exceeded P15 or the average income for 2 years will amount to P1,500,000. The determinable amount of the said contingent consideration at the date of combination amounted to P50,000. The current market price of SONY stock is traded at P 12 per share.

Page 16

SONY Corporation paid the following as a result of business combination: Finder’s fee P 50,000 Legal, accounting and other consulting fees P 50,000 Cost of stockholder’s meeting to vote on the acquisition P 20,000 SEC Registration of the business combination P 15,000 General administrative cost P 15,000 Cost printing stock certificates P 10,000 Accountants fee related to the stock issuance P 20,000 SEC Registration P 20,000 Stock listing application fees P 10,000 Under writing cost . P 10,000 6.

How much is the result of the combination on January 1, 2019? A. 10,000 goodwill C. 25,000 goodwill B. (10,000) income D. (25,000) income

7.

How much is the Combined total Assets? A. 1,330,000 B. 1,550,000

C. D.

1,555,000 1,575,000

How much is the Stockholders’ Equity? A. 1,130,000 B. 1,422,500

C. D.

1,110,000 1,040,000

8.

Items 9 and 10 are based on the following data: The following selected accounts appeared in the trial balance of MAGIC as of December 31, 2020. Debit Credit Installment Receivable – 2019 sales P 15,000 P Installment Receivable – 2020 sales 200,000 Inventory, December 31, 2018 70,000 Purchases 555,000 Repossession 3,000 Installment Sales 425,000 Sales 385,000 Unrealized Gross Profit 2019 54,000 Additional information: Installment Receivable – 2019 sales, as of 2/ 31/ 2019 P 120,000 Inventory of new and repossessed merchandise as of 12/31/2020 95,000 Gross Profit percentage on regular sales during the year 30% on sales Repossession was made during the year. It was a 2019 sale and the corresponding uncollected account at the time of repossession was P 7,750. 9. The gross profit realized on collections for installment sales in 2019 was: A. P 47,250 B. P 50,737.50 C. P 43,762.50 D. answer not given 10.

The gross profit realized on collection for installment sales in 2020 was: A. P 87,075 B. P 88,672.50 C. P 85,500 D. answer not given

11.

The loss on repossession made on a 2019 sale was: A. P 1,262.50 B. P 487.50 C. P 1,805

12.

D. answer not given

SUN Realty bought two adjoining lots (Lot A and B) with a total area of 1,600 sq. m. Lot A was bought for P 160,000 in 2014 and Lot B was bought for P 240,000 in 2015. SUN Realty resubdivided the two lots and made a 400 sq. m. lot out of the original two lots by taking 200 sq. m. from each to make Lot C. The cost of Lot C was by allocating a portion of the cost of the original two lots. SUN Realty build a house on Lot C at a cost of P 152,000. It was completed on June 30, 2019, and had an estimated useful life of 20 years. The three lots and house were sold during 2019 on the following terms: Lot Date of Sale Sale Price Down Payment Balance Lot A March 31 P 171,428 P 51,428 P 120,000 Lot B Oct 31 240,000 80,000 160,000 Lot C & House June 30 420,000 180,000 420,000

Lot A

Balance, payable in Equal Installments P 12,000 every 3 months

Page 17

Lot B Lot C

20,000 every 2 months 40,000 every 6 months

Installment payment is to be applied first to accrued interest on the balance to a reduction of principal. The rate of interest is 10% p.a. on the carrying balance of the principal. After repeated demand from the buyer of Lot C and house he failed to meet the installment due on June 30, 2020 and the property was repossessed: The realized gross profit from the sale of the lots and house on December 31, 2019 are: Lot A Lot B Lot C & House Total A. P 23,733.33 P 25,333.33 P 78,300 P 127,366.66 B. P 24,333.33 P 24,533.33 86,700 135,566.66 C. P 23,732.58 P 24,333.33 83,200 131,265.91 D. P 24,733.33 P 25,333.33 86,500 136,566.66 13.

On January 1, 2019 Belgian Waffles entered into a franchise agreement with Diaz, Inc. to sell specialty items. The agreement provides for an initial franchise fee of P2,500,000, payable as follows: P500,000 cash to be paid upon signing of the contract, and the balance in five annual payments every December 31, starting December, starting December 31, 2019. Belgian Waffles sign a 12% interest-bearing note for the balance. The agreement further provides for a continuing franchise fee equal to 5% of its monthly gross sales. On October, the franchisor completed the initial services required in the contract at a cost of P637,500 and incurred expenses of P82,900. The franchisee commenced operations on November 2019 and was able to generate gross sales amounting to P181,500 and P221,500 for the month of November and December. Assuming the collections of the note is not reasonably assured, what is the amount of net income to be reported in the income statement for the year ended December 31, 2019? A. P767,750 B. P847,750 C. P549,750 D. P784,250

Items 13 and 14 are based on the following data: IBM Company sells a franchise that requires an initial franchise fee of P7,000,000. A down payment of P2,000,000 cash is required with the balance covered by the issuance of a P5,000,000, 10% note, payable by the franchisee in 5 equal annual installments. How much must be the franchise revenue earned under the following assumptions: 14. If all material services have been substantially performed by the franchisor, the refund period has expired, and the collectibility of the note is reasonably assured. A. P7,000,000 B. P5,790,000 C. P2,000,000 D. P0 15.

If the refund period has expired and the collectibility of the note is reasonably assured, but all material services have not been substantially performed by the franchisor. A. P7,000,000 B. P5,790,000 C. P2,000,000 D. P0

16.

If all material services have been substantially performed by the franchisor and the collectibility of the note is reasonably assured, but the refund period has not expired. A. P7,000,000 B. P5,790,000 C. P2,000,000 D. P0

17.

Company Z engages in long-term construction contracts and uses the percentage of completion method to recognize gross profits. The company started contract 1 in 2017, contract 2 in 2018, and contract 3 in 2019. The total gross profit (estimated and actual) and the percentage complete for each contract at the end of 2018 through 2020 are: Contract 1 * Contract 2 Contract 3 Gross profit P800,000 P350,000 P600,000 % complete at the end of: 2018 75% 50% 2019 100% 70% 35% 2020 100% 90% * 30% was complete at the end of 2017. The gross profit from construction for 2018, 2019 and 2020, respectively must be: A. P535,000; P480,000; P435,000 C. P775,000; P480,000; P435,000 B. P775,000; P655,000; P435,000 D. P535,000; P655,000; P890,000

18.

The following information pertains to a river-control project of SMDC Construction Inc. in Taguig which was commenced in 2019 and completed the following the year: Costs incurred to-date at June 30, 2019 P 9,750,000 at June 30, 2020 15,750,000 Estimated total cost at completion at June 30, 2019 19,500,000

Page 18

at June 30, 2020

20,250,000

The project is a P22,500,000 fixed-price construction contract and SMDC uses the percentage-ofcompletion method of accounting. What is the income reported by SMDC on its Taguig project on June 30, 2020? A. P750,000 B. P1,500,000 C. P1,750,000 D. P250,000 19. DMCI Corporation is executing a gigantic project of constructing the tallest boarding house in the country. The project is expected to take three years to complete. The company has signed a fixed price contract of P24,000,000 for the construction of this prestigious boarding house. The details of the costs incurred to date in 2019 are: Site labor costs Costs of construction material Depreciation of special plant and equipment used in constructing to build the boarding house Marketing and selling costs to get the boarding house in the country the right exposure Total Total contract cost estimated to complete

P2,000,000 6,000,000 1,000,000 2,000,000 P10,000,000 P11,000,000

Calculate the revenue costs and profit to be recognized in 2019: Revenue Costs Gross Profit (loss) A. P 10,800,0000 P 9,000,000 P1,800,000 B. 10,800,000 11,000,000 (200,000) C. 12,000,000 9,000,000 3,000,000 D. 12,000,000 11,000,000 1,800,000 20.

REH Company opened a Davao branch in January 2019. During 2019, REH recorded merchandise transfers to the branch and merchandise returns from the branch with the following entries: Branch Current 156,000 Sales 156,000 Sales Returns 3,900 Branch Current 3,900 Transfers to and from the branch were recorded by REH at 130 percent of Edward’s cost. The Davao branch reported to the home office a net loss of P12,000 for 2019. In addition, the branch reported a closing inventory of P65,000, all of which was acquired from the home office. As a result of the above information: A. The correct result of operation of the branch will be a net income of P8,100. B. The balance of unrealized profit on branch inventory account on the home office books must be P19,500. C. The combined net income will be overstated by P39,000. D. The correcting entry will reduce branch current account by P152,100.

Items 21 to 23 are based on the following: At the beginning of the year, San Miguel Company establishes branches in Makati and Cebu. The following transactions occur during the year.  The home office purchases equipment on account for P40,000 and immediately transfers half to each of the two branches at cost.  The home office transfers cash of P3,000 to the Makati branch and P5,000 to the Cebu branch.  The company sells inventory to unrelated parties at a 40 percent gross profit and transfers inventory to its branches at a 20 percent gross profit. During the year, the home office has sales of P175,000 to unrelated parties and transfers inventory to the Makati branch at a P140,000 price and to the Cebu branch at a P150,000 price.  The branches sell their inventory, all acquired from the home office, at a 25 percent gross profit. During the year, the Makati branch has sales of P136,000, and the Cebu branch has sales of P152,000.  Operating expenses during the year, excluding cost of goods sold and depreciation, total P85,000 for the home office, P13,000 for the Makati branch, and P11,000 for the Cebu branch.  Selected balance sheet accounts at the end of the year are as follows: Home office Makati branch Cebu branch Accounts receivable P28,000 P11,000 P14,000 Inventory 45,000 38,000 36,000 Accounts payable 20,000 1,000 2,000 Notes payable 30,000 35,000 40,000 Accumulated depreciation 28,000 4,000 4,000  During the year, the Makati branch transfers P135,000 of cash to the home office and the Cebu branch transfers P151,000.

21.

The correct net income of Makati branch must be: A.

P21,000

B. P41,400

C. P37,400

D. P34,000

Page 19

22.

The correct net income of Cebu branch must be: A.

23.

P 45,800

C. P42,000

D. P23,000

The adjusted balance of Makati branch account must be: A. P28,000

24.

B. P49,800

B. P65,400

C. P24,000

D. P45,000

The account balances shown below were taken from the trial balances submitted to CDE Corporation by its La Union Branch. 2019 2020 Petty cash fund 1,500 1,500 Accounts receivable 43,800 49,140 Inventory 37,170 Sales 173,180 195,120 Shipments from Home Office (140% of Cost) 107,450 136,080 Expenses 51,260 57,930 Accounts written off 1,220 1,920 All branch collections are remitted to the home office. All branch expenses are paid out of the petty cash fund. When the petty cash fund is replenished, the branch debits appropriate expense accounts and credits Home Office Current. The petty cash is counted every December 31, and its composition was as follows: 12/31/19 12/31/20 Currency and coins 580 860 Expense vouchers 920 640 The branch inventory on December 31, 2019 was 41,370. What is the correct branch net income for 2020? A. 3,390 B. 41,350 C. 3,670 D. 41,070

25.

26.

The following balance sheet was prepared for the X, Y and Z Partnership on March 31, 2019: Assets Liabilities and Capital Cash P 25,000 Liabilities P 52,000 Other Assets 180,000 X, capital (40%) 40,000 Y, capital (40%) 65,000 _________ Z, capital (20%) 48,000 Total Assets P 205,000 Total liabilities and capital P 205,000 The partnership is being liquidated by the sale of assets in installments. The first sale of non-cash assets having a book value of P 90,000 realizes P 50,000. Assume that each partner properly received some cash after the second sale of assets. The cash to be distributed amount to P 14,000 from the third sale of assets, and unsold assets with a P 6,000 book value remain. How should the P 14,000 be distributed to X, Y and Z respectively. A. P 5,600; P 6,500; P 2,800 C. P 0 ; P 11,200; P 2,800 B. P 5,000; P 5,000; P 4,000 D. P 5,600; P 5,600; P 2,800 The J, K and L Partnership shows the following profit and loss ratios and capital balances: J, Capital 60% P 252,000 K, Capital 30% 126,000 L, Capital 10% 42,000 The partners decided to sell to M 20% of their respective capital and profit and loss interests for a total payment of P 90,000. M will pay the money directly to the other partners. How much cash should J, K, and L receive, respectively from M? A. P 50,400, P 25,200, and P 8,400, if and only if no goodwill is recorded B. P 50,400, P 25,200, and P 8,400, whether or not goodwill is recorded C. P 54,000, P 27,000, and P 9,000, if and only if goodwill is recorded D. P 54,000, P 27,000, and P 9,000, whether or not goodwill is recorded

27.

On December 31, 2018, Larry Inc. signed an agreement authorizing Lino Company to operate as a franchisee for an initial franchisee fee of P 50,000. Of this amount, P20,000 was received upon signing of the agreement and the balance is due in three annual payments of P10,000 each beginning December 2019. The agreement provides that the down payment (representing a fair measure of the services already performed by Nike, Inc.) is not refundable and substantial services are required of Larry. Lino Company’s credit rating is such that collection of the note is reasonably assured. The present value at December 31, 2018 of the three annual payments discounted at 14% (the implicit rate for a loan of this type) is P 23,220. On December 31, 2018, Lino Company should record unearned franchise fees of: A. P 0 B. P 50,000 C. P 43,220 D. P 23,220

Page 20

28.

Santiago, Juan, and Manuel invest P 40,000, P 30,000, and P 25,000, respectively, in a partnership on June 30, 2018. They agree to divide net income or loss as follows: 1) Interest at 10% on beginning capital account balances 2) Salaries of P 10,000, P 8,000, and P 6,000, respectively, to Santiago, Juan, and Manuel. 3) Remaining net income or loss divided equally 4) A minimum of P 15,000 of income guaranteed to Manuel. If the net income for the year ended June 30, 2019, before interest and salary allowances to partners, was P 44,000, the net income credited to Santiago is: A. P 17,500 B. P 16,500 C. P 16,000 D. P 14,000

29.

On December 1, CRCACE Company opened a branch in Cebu to which merchandise billed at P 30,000 was shipped. During the month, additional shipments were made at billed prices of P 12,000. During December, Cebu branch returned merchandise that was defective and received credits of P 750 on the returns. At the end of the month, the branch record its inventory at P 18,500, which is from the following sources: Merchandise acquired from home office at billed price P 16,500 Merchandise acquired from outsiders 2,000 Total inventory P 18,500 A branch loss for December is calculated at P2,600. The home office has followed the practice of billing the branch at 20% above merchandise cost. Compute: 1) the balance of the allowance for overvaluation of branch inventory at December 31, before adjustments, and 2) the net income (loss) of the branch in so far as the home office is concerned: A. (1) P 4,125; (2) P (2,600) C. (1) P 7,000; (2) P 1,525 B. (1) P 6,875; (2) P 1,525 D. (1) P 6,875; (2) (P2,600)

30.

Ellen, Juliet and Marian were partners with capital balances on January 2, 2019 of P 560,000, P 672,000, and P 496,000, respectively. Their profit and loss ratio is 3:5:2. On August 1, 2019, Ellen retires from the partnership. On the date of retirement, the partnership net loss from January 2 is P 384,000; and the partners agreed to revalue inventories to P 296,000 (from the carrying amount of P 272,000). The payment to Ellen in settlement of her interest is to be P 454,800. Upon the retirement of Ellen, which of the following will result? A. Bonus to Juliet of P 2,000 B. Bonus to Marian of P 800 C. Goodwill to Marian of P 2,800 D. Juliet capital is P 66,800 more than Marian’s.

31.

Andy and Brenan have just formed a partnership. Andy contributed cash of P 782,000 and office equipment that cost P 390,000. The equipment had been used in his sole proprietorship and had been 80% depreciated. The current fair value of the equipment is P 252,000. An unpaid mortgage loan on the equipment of P 84,000 will be assumed by the partnership. Andy is to have a 60% interest in the partnership net assets. Brenan is to contribute, only, merchandise with a fair value of P 630,000. Both partners agreed on a profit and loss ratio of 55% to Andy and the balance to Brenan. To finalize the partnership agreement, Andy should make additional investment (withdrawal) of cash in the amount of A. P(12,000) B. P(180,000) C. P 88,000 D. P ( 5,000)

32.

Claudine, Ella, and Joy decided to liquidate their partnership on July 31, 2019. Their capital balances and profit and loss ratios on this date, before liquidation, are: Capital P & L Ratio Claudine P 224,000 25% Ella 288,000 30% Joy 128,000 45% The net loss from January 1 to July 31, 2019 is P 48,000. Also, on this date, cash and liabilities are P 136,000 and P 232,000, respectively. Which of the following is inconsistent with the result of liquidation if Ella received P 247,200 in full settlement of her interest in the firm? A. Total cash paid to partners, P 736,000 B. Non-cash assets were sold for P 600,000 C. Joy received P 66,800 D. Claudine’s share in loss, P 22,000

Page 21

33.

On September 2, 2019, Nino, Olan, and Pete formed a partnership investing cash of P 945,000, P 850,500, and P 264,600., respectively. The partners share profits and losses in the ratio of 3:2:2 and on October 31, 2019 the firm has cash of P 63,000, other assets of P 2,992,500, and liabilities of P 1,612,800. On this date they decided to go out of business and sell all the assets for P 1,890,000. Pete has personal assets of P 94,500 that may, if necessary, be used to meet partnership obligations. Loss from operations was P 617,400. How much should be distributed to Olan upon liquidation of the partnership? A. P 128,520 C. P 0 B. P 306,180 D. P 268,380

34.

A, B, and C agree to liquidate their consulting practice as soon as possible after the close of business on July 31, 2019. The trial balance on that date shows the following account balances. Cash P 130,000 Accounts payable P 60,000 Accounts receivable 120,000 Loan to A 40,000 Furniture and fixtures 350,000 A, capital 200,000 B, capital 150,000 C, capital 150,000 P 600,000 P 600,000 The partners share profits and losses 50%, 20%, and 30% to A, B, and C, respectively, after C is allowed a monthly salary of P 40,000. August transactions and events are as follows: 1. The accounts payable are paid. 2. Accounts receivable of P 80,000 are collected in full. C accepts accounts receivable with a face value and fair value of P 30,000 in partial satisfaction of his capital balance. The remaining accounts receivable are written off as uncollectible. 3. Furniture with a book value of P 250,000 is sold for P 150,000. 4. Furniture with a book value of P 40,000 and an agreed upon fair value of P 10,000 is taken by B in partial settlement of his capital balance. The remaining furniture and fixtures are donated to Goodwill Industries. 5. Liquidation expenses of P 30,000 are paid. 6. Available cash is distributed to partners on August 31. How much of B’s equity was recovered from the partnership liquidation? A. P 25,000 B. P 94,000 C. P 51,000 D. none

35.

The Carlos, Apollo, and Warlito Partnership has not been successful. Hence, the partners have sadly concluded that operations must be terminated and their partnership liquidated. Profits and losses are shared as follows: Carlos, 45 percent; Apollo, 35 percent; and Warlito, 20 percent. As the accountant placed in charge of this partnership, you have responsibility for the liquidation and distribution of assets. When you assume your responsibilities, the partnership balance sheet is as follows: Cash P 180,000 Liabilities P 120,000 Other assets

540,000

Loan from Carlos Carlos, capital Apollo, capital Warlito, capital

180,000 60,000 300,000 60,000 P 720,000

P 720,000 During the first two months of your duties, the following events occur: 1. Assets having a book value of P 400,000 are sold for P 120,000 cash. 2. Previously unrecorded liabilities of P 10,000 are recognized. 3. Before distributing available cash balances to creditors and partners, you conclude that a cash reserve of P 10,000 should be set aside for future potential expenses. 4. Remaining cash balances are distributed to creditors and partners. How much cash Carlos should receive? A. P 180,000 B. P 42,000 C. P 26,250 D. P 31,875 Items 36 and 37 are based on the following: Tiyago and Marcial are partners with capital balances of P32,000 and P68,000, respectively, as of July 1, 2019. Tiyago has a 30% interest in profits and losses. All assets of the partnership are at fair market value except as follows: Book value Market value Book value Market value Equipment P150,000 P142,000 Building P274,000 P250,000 Inventory 43,000 50,000 Land 60,000 105,000 The partnership has decided to admit Corazon and Amanda as new partners. Corazon contributes cash of P55,000 for a 20% interest in capital and a 30% interest in profits and losses. Amanda contributes cash of P10,000 and equipment with a fair market value of P50,000 for a 25% interest in capital and a 35% interest in profits and losses. Amanda is also bringing special expertise and client contacts to the new partnership.

Page 22

36.

The capital balance of Tiyago after Corazon and Amanda’s admission under the bonus method is: A. P40,775 B. P34,775 C. P38,000 D. P70,500

37.

The method (bonus or goodwill) advantageous to Corazon and Amanda and the total amount of advantage is: A. Bonus method for an advantage of P 2,055 B. Bonus method for an advantage of P 5,944 C. Bonus method for an advantage of P 12,750 D. Bonus method for an advantage of P 4,111.

38.

Vendetta Construction Company has used the cost-to-cost percentage of completion method of recognizing profits. Cardo Dalisay assumed leadership of the business after the recent death of his father, Juan Dalisay In reviewing the records, Cardo Dalisay finds the following information regarding a recently completed building project for which the total contract price was P 5,000,000. Construction in progress account balance 2017 P 1,000,000 Construction cost incurred during 2019 2,050,000 Gross profit (loss) recognized in 2017 100,000 Gross profit (loss) recognized in 2018 350,000 Gross profit (loss) recognized in 2019 ( 50,000) How much cost was incurred in 2018? A. P 1,650,000 B. P 2,550,000

39.

c. P 900,000

d. P 4,600,000

Congestions have always been a way of life most specially in Metro Manila. One way to decongest traffic and minimize use of gasoline is to phase out the internationally known jeepneys as well as the use of dilapidated, smoke-belching and fully depreciated buses. To partially solve the problem as well as to motivate car owners to use public transportation, an underground monorail system similar to that of Hongkong was the solution. The system covered the stretch of the famous Edsa, from Roxas Boulevard to Bonifacio Monument and would go as far as the area of Malabon as well as Navotas, a thickly populated fishermen’s village. The project covers several stages and was awarded to different contractors here and abroad. Competitive bids were held for stage one of the project. The bids are: Northern City Construction P560 billion Hongkong Systems 392 billion JJ Ram Construction Company 400 billion A project that undergoes competitive bid is normally awarded to the lowest bidder. However, the government reserves the right to reject any and all bids after a careful review of the track record of the bidders. Even though JJ Ram Construction Company had the second lowest bid. Stage one of the project was awarded to them. The contract price was P400 billion pesos which was covered by a two-year construction contract. The following data were available from the records for the years 2018 and 2019: 2018 2019 (In billion of pesos) Costs incurred P 120 P 216 Progress billings 100 300 Cash collections on billings 96 304 Estimated costs to complete 216 How much is the income from construction in 2019, using the cost to cost percentage of completion method? A. P41.143 billion B. P64 billion C. P22.857 billion D. P161.143 billion Items 40 and 41 are based on the following: Comparison between the interoffice account of the DR Wholesale Company with its suburban branch and the corresponding account carried on the latter’s books shows the following discrepancies at the close of business on September 30, 2019: (a) A charge of P8,700 (Office Furniture) on the home office books is taken up by the branch as P7,800. (b) A credit by the home office for P3,000 (Merchandise Allowances) is taken up by the branch as P3,500. (c) The home office charges the branch P3,250 for interest on open account, which the branch fails to take up in full; instead, the branch sends to the home office an incorrect adjusting memo, reducing the charge by P750, and sets up a liability for the net amount. (d) A charge of labor by the home office, P4,330, is taken up twice by the branch. (e) A charge of P7,850 is made by the home office for freight on merchandise, but the amount is entered by the branch as P785.

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(f) The branch incorrectly sends the home office a debit note for P2,930, representing its proportion of a bill for truck repairs; the home office does not record it. (g) The home office receives P4,750 from the sale of a truck, which it erroneously credits to the branch; the branch does not charge the home office therewith. (h) The branch accidentally receives a copy of the home office entry dated October 10, 2019, correcting item (g), and enters a credit in favor of the home office as of September 30, 2019. The balance of the account with the branch on the home office books shows P1,316,900 receivable from the branch at September 30, 2019. The interoffice accounts were in balance at the beginning of the year. 40.

41.

The correct amount of interoffice accounts is: A. P1,321,650 B. P1,316,900 C. P1,316,085

D. P1,330,750

The balance of home office account per branch books before adjustments is: A. P1,316,085 B. P1,316,900 C. P1,300,520 D. P1,321,650

Items 42 and 43 are based on the following: Mark, Louie and Christopher operate a local accounting firm as a partnership. After working together for several years, they have decided to liquidate the partnership’s property. The partners have presented the following sheet: Cash P 200,000 Liabilities P 400,000 Mark, loan 80,000 Louie, loan 100,000 Noncash assets 1,620,000 Mark, capital (10%) 900,000 Louie, capital (50%) 300,000 Christopher, capital (40%) 200,000 Total P1,900,000 Total P1,900,000 The noncash assets are sold for P 800,000, with P 210,000 of this amount being used to pay liquidation expenses. All three of these partners are personally insolvent. 42.

How much of the cash must Mark receive? A. P 261,667 B. P 305,000 C.

P 128,333

D.

P 390,000

43.

Assuming the total cash received by Louie is P 300,000 how much is the selling price of noncash assets? A. P 1,220,000 B. P 1,430,000 C. P 1,630,000 D. P 1,830,000

44.

ABS and GMA entered into a partnership as of March 1, 2019 by investing P 125,000 and P 75,000, respectively. They agreed that ABS, as the managing partner, was to receive a salary of P 30,000 per year and a bonus computed at 10% of the net profit after adjustment for the salary; the balance of the profit was to be distributed in the ratio of their original capital balances. On December 31, 2019, account balances were as follows: Cash P 70,000 Account payable P 60,000 Account Receivable 67,000 ABS, capital 125,000 Fur. and fixtures 45,000 GMA, capital 75,000 Sales returns 5,000 ABS, drawing (20,000) Purchases 196,000 GMA, drawing (30,000) Operating expenses 60,000 Sales 233,000 Inventories on December 31, 2019 were as follows: supplies, P 2,500; merchandise, P 73,000. Prepaid insurance was P950 while accrued expenses were P 1,550. Depreciation rate was 20% per year. The partner’s capital balances on December 31, 2019, after closing the net profit and drawing accounts were: ABS GMA A. P 135,940 P 47,960 B. P 139,540 P 49,860 C. P 139,680 P 48,680 D. P 142,350 P 47,670

45.

As of December 31, 2019, the books of MERCEDEZ Partnership showed capital balances of Menandro-P25,000; Elliot-P25,000; Romeo-P5,000. The Partners’ profit and loss ratio was 3.2.1. respectively. The Partners decided to dissolve and liquidate. They sold all the non-cash assets for P

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37,000 cash. After settlement of all liabilities amount to P 12,000, they still have P 28,000 cash left for distribution. Assuming that any debit balance of partners’ capital is uncollectible, the share of Menandro on 28,000 cash for distribution was: A. P 19,000 B. P 17,800 C. P 18,000 D. Answer not given

/cde

P