P2

You correctly answered 16 out of 30 questions with an accuracy of 53.33%. You gained 460 experience points!

Question 1 Resorts Corporation operates a branch operation in a foreign country. Although this branch deals in foreign currency (FC), the peso is viewed as its functional currency. Thus, a remeasurement is necessary to produce financial information for external reporting purposes. The branch began the year with 100,000 FCs in cash and no other assets or liabilities. However, the branch immediately used 60,000 FCs to acquire equipment. On May 1, it purchased inventory costing 30,000 FCs for cash and its sold on July 1 for 50,000 FCs cash, The branch transferred 10,000 FCs to the parent on October 1 and recorded depreciation on the equipment of 6,000 FCs for the year. Currency exchange rates for 1 FC follows: January 1 May 1 July 1 October 1 December 31 Average for the year

0.16 0.18 0.20 0.21 0.22 0.19

Which of the following items is not remeasurement using historical exchange rate under the temporal or remeasurement method? Retained earnings Cost of goods sold Accumulated depreciation on equipment Marketable equity securities

SOLUTION: Marketable equity securities are carried at market value and therefore translated at the current exchange rate under temporal method or remeasurement method

Practical Accounting 2 - Foreign Currency Transactions and Translations (Difficult)

Question 2 The AA, BB and CC Partnership was formed on January 2, 2011. The original cash investments were as follows: AA BB CC

96,000 144,000 216,000

According to the general partnership contract, the partners were to be renumerated as follows: Salaries of P14,400 for AA, P12,000 for BB and P13,600 for CC. Interest at 12% on the average capital account balances during the year. Remainder divided 40% to AA, 30% to BB and 30% for CC Income before partners’ salaries for the year ended December 31, 2011 was P92,080. AA invested an additional P24,000 in the partnership on July 1; CC withdrew P36,000 from the partnership on October 1; and as authorized by the partnership contract, AA, BB and CC each withdrew P750 monthly against their shares of net income for the year. If the salaries to partners’ are to be recognized as operating expenses by the partnership, the capital balance of CC on December 31, 2011 is? 194,940 217,540 200,224 208,540

SOLUTION: AA, 122,760; BB, 151,380, CC, 194,940 Capital, January 2, 2011 Additional investments (withdrawals) Net income Personal withdrawals Capital, December 31, 2011

AA 96,000 24,000

BB 144,000 -

CC 216,000 (36,000)

Total 456,000 (12,000)

11,760 (9,000) 122,760

16,380 (9,000) 151,380

23,940 (9,000) 194,940

52,080 (27,000) 469,080

Practical Accounting 2 - Partnership (Average)

Question 3 How is the disposition of the remeasurement gain or loss reported on the parent company's financial statements? Retained earnings Cumulative translation adjustment as a deferred asset Cumulative translation adjustment as a deferred liability Net income/loss on the income statement Practical Accounting 2 - Foreign Currency Transactions and Translations (Average)

Question 4 Ricky Company operates a branch in Naga City. In December 31, 2014, the Naga branch in the home office books showed a debit balance of P 522,110. The interoffice accounts were in agreement at the beginning of the year. For purposes of reconciling the interoffice accounts, the following facts were given:  





Shipments from home office to Naga branch costing P 72,500 were in transit as of year-end. Naga recorded the said transfer twice at cost: one in December 31,2014 and the other on January 1,2015 The home office allocated to the Naga branch 3/4 of the rent expenses it paid for the year ended 2014. The rent expense was P 24,000. The home office sent a debit memo to Naga for the allocated amount, but the branch recorded the said debit memo by debiting the home office - current account and crediting rent payable The branch wrote-off uncollectible accounts amounting to P 10,120. The allowance for doubtful accounts is maintained in the books of the home office. The home office recorded the write-off as a write-off of its own accounts receivable The branch collected accounts receivable from home office's customers amounting to P52,920, net of 2% cash discount. The branch treated the same transaction as if it was a collection from its own customers. The home office was not yet notified of the said collection

It is the policy of the home office to bill its branches at 20% above cost. What is the unadjusted balance of the home office-current in the books if Naga branch in December 31, 2014? 463,650

459,070

475,990

461,490

SOLUTION: Branch Current- Naga Unadjusted balance a. b. c. d. Adjusted balance

Home Current

Office

522,110

461,490

(10,120) 52,920 564,910

14,500 36,000 52,920 564,910

Practical Accounting 2 - Home Office & Branch Accounting (Difficult)

Question 5 Ace purchased inventory on December 1, 2014. Payment of 200,000 foreign currencies was to be made in sixty days. Also on December 1, Ace signed a contract to purchase 200,000 foreign currencies in sixty days. The exchange rate P1= 2.80 FC and the 60day forward rate was P1=2.60 FC. On December 31, the exchange rate was P1=2.90 FC and the 30-day forward rate was P1=2.62 FC. Assume an annual interest rate of 12% and a fair value hedge. The present value for one month at 12% is .9901. In the journal entry to record the establishment of a forward exchange contract, at what amount should the Forward Contract account be recorded on December 1? 76,923.08 0 5,549.51 71,428.57

SOLUTION: P0, since there is no cost, there is no value for the contract at this date Practical Accounting 2 - Derivatives (Difficult)

Question 6

DD and EE was organized and began operations on March 1, 2011. On that date, DD invested P150,000 and EE invested land and building with current fair value of P80,000 and P100,000, respectively. EE also invested P60,000 in the partnership on November 1, 2011 because of its shortage of cash. The partnership contract includes the following remuneration plan: Annual salary Annual interest on average capital balances Remainder

DD 18,000 10%

EE 24,000 10%

60%

40%

The annual salary was to be withdrawn by each partner in 12 monthly installments. During the fiscal year ended, February 28, 2012, DD and EE had net sales of P500,000, cost of goods sold of P280,000 and total operating expenses of P100,000 (excluding partners’ salaries and interest on average capital account balances). Each partner made monthly cash drawings in accordance with their partnership contract. The share of partner DD in the net income 46,800 72,000 66,000 58,800

SOLUTION: DD, 58,800; EE, 61,200 Salaries Interest, 10% of ave. capital Balance (60%:40%) Share in net income

DD 18,000 15,000

EE 24,000 20,000

Total 42,000 35,000

25,800 58,800

17,200 61,200

43,000 120,000

Practical Accounting 2 - Partnership (Average)

Question 7 As of July 1, 2011, FF and GG decided to form a partnership. Their balance sheets on this date are: Cash

FF 15,000

GG 37,500

Accounts receivable Inventory Machinery & equipment Total Accounts payable FF, capital GG, capital Total

540,000 150,000 705,000

225,000 202,500 270,000 735,000 240,000 495,000 735,000

The partners agreed that the machinery and equipment of FF is underdepreciated by P15,000 and that GG by P45,000. Allowance for doubtful accounts is to be set up amounting to P120,000 for FF and P45,000 for GG. The partnership agreement provides for a profit and loss ratio and capital interest of 60% to FF and 40% to GG. How much cash must FF invest to bring the partners’ capital balances proportionate to their profit and loss ratio? 142,500 52,500 102,500

172,500

SOLUTION: Unadjusted capital Accumulated depreciation Allowance for doubtful accounts Adjusted contributed capital GG adjusted capital Divided by GG P&L % Total agreed capital Multiplied by FF P&L % FF’s agreed capital Less: FF’s adjusted capital Additional cash to be invested by FF

FF 570,000 (15,000) (120,000) 435,000 405,000 40% 1,012,500 60% 607,500 435,000 172,500

GG 495,000 (45,000) (45,000) 405,000

Practical Accounting 2 - Partnership (Difficult)

Question 8 Jason Company, a Philippine Corporation, sold inventory on credit to a Japanese Company on April 8, 2014. Jason receives payment of 35,000 yens on May 8, 2014.

The exchange rate was P1 = Y0.65 on April 8 and P1 = Y0.70 on May 8. What amount of foreign exchange gain or loss should be recognized? (rounded to the nearest peso) P3,846 loss P1,750 loss P10,500 loss P10,500 gain

SOLUTION: (35,000 yens / .65) - (35,000 yens / .70) = P3,486 loss. Practical Accounting 2 - Foreign Currency Transactions and Translations (Average)

Question 9 On its balance sheet, a company undergoing reorganization should report its assets at current replacement cost report its assets at fair market value, so that financial statement users can estimate whether creditors' claims will be met continue to report its assets at book value report its assets at net realizable value because there is reason to doubt that the organization is a going concern Practical Accounting 2 - Corporate Liquidation (Difficult)

Question 10 The PQR Partnership is being dissolved. All liabilities have been paid and the remaining assets are being realized gradually. The equity of the partners is as follows:

P Q R

Partners’ Accounts 24,000 36,000 60,000

Loans to (from) partnership 6,000 (10,000)

Profit & Loss ratio 3 3 4

The second cash payment to any partners under a program of priorities shall be made thus: To Q P6,000 and R P8,000

To R P8,000

To R P2,000

To Q P6,000

SOLUTION: Loans Capital Total interests Divide by PL ratio Loss absorption facility Priority 1

P 6,000 24,000 30,000 3/10 100,000

100,000 Priority 11 100,000

Q 36,000 36,000 3/10 120,000

120,000 (20,000 ) 100,000

R (10,000) 60,000 50,000 4/10 125,000

P

Q

(5,000) 120,000 (20,000) 100,000

-

R

Total

2,000

2,000

8,000

6,000

14,000

6,000

10,000

16,000

Practical Accounting 2 - Partnership (Difficult)

Question 11 Lawyer's fees incurred during a reorganization are accounted for with a debit to an expense additional paid-in capital a liability an intangible asset, Reorganization Cost, which would normally be amortized over a five-year period Practical Accounting 2 - Corporate Liquidation (Difficult)

Question 12 On September 1, 2014, Ricky Company established two branches: Naga and Cebu City branches. The home office transferred P80,000 worth of cash and P 350,000 worth of inventory to its Naga branch and instructed Naga to transfer 3/4 of the goods and cash received to Cebu City. In addition, on November 1, 2014, shipments from home office were received by Naga amounting to P125,000 and the branch paid freight costs amounting to P6,500. 3/5 of the said shipments were sold to outsiders. On December 1,

2014, Naga transferred half of the remaining November shipments from the home office to Cebu City, with Cebu City branch paying freight costs of P 2,500. Had the merchandise been shipped from the home office to Cebu City branch, only P 1,900 worth of freight would have been incurred. How much is the balance of the Cebu City branch account in the home office books? 346,900 348,800 349,400 206,200

SOLUTION: Branch Current - Naga 9/1 430,000 9/1 (322,500) 11/1 125,000 12/1 (26,300) Balance 206,200 Branch Current - Cebu, City 9/1 322,500 12/1 24,400 Balance 346,900 Practical Accounting 2 - Home Office & Branch Accounting (Difficult)

Question 13 USC, a nonprofit university, received the following cash contributions from donors during the year 2014: Unrestricted contributions Contributions restricted by donors for scholarship programs Contributions from a donor who stipulated that the money be spent in accordance to the wishes of the hospital’s board of trustees Contributions restricted by donors for equipment acquisitions

250,000 100,000 75,000 125,000

Assuming the university spent P 75,000 of the donors' contributions for scholarship programs on financing this year' scholars, how much should be included in its current funds revenue for the year ended December 31, 2014? 400,000 250,000 350,000 325,000

SOLUTION: Unrestricted contributions Contributions from a donor who stipulated that the money be spent in accordance to he wishes to the hospital’s board of trustees Contributions used for scholarship Current fund revenue

250,000 75,000 75,000 400,000

Practical Accounting 2 - Not for Profit Organizations (Difficult)

Question 14 What information is conveyed by the Statement of Realization and Liquidation? Account balances reported by the company at the date of the filing of the bankruptcy petition Recognition of recorded liabilities Cash receipts generated by the sale of the debtor's property Write up of assets Practical Accounting 2 - Corporate Liquidation (Difficult)

Question 15 Assuming all of the following expenses have priority, in what order are they prioritized? Unpaid taxes, administrative expenses, employee claims for wages, return of customer deposits Unpaid taxes, return of customer deposits, employee claims for wages, administrative expenses Employee claims for wages, unpaid taxes, administrative expenses, claims for the return of customer deposits Administrative expenses, employee claims for wages, claims for the return of customer deposits, unpaid taxes

Practical Accounting 2 - Corporate Liquidation (Difficult)

Question 16 Henry Company had the following amounts for its assets, liabilities, and stockholders' equity accounts just before filing a bankruptcy petition and requesting liquidation:

10,000 100,000 350,000 110,000 700,000 100,000 75,000 300,000 10,000

Net realizable value 10,000 60.000 350,000 75,000 300,000 -

80,000 20,000 500,000 200,000 100,000 (115,000)

-

Book value Cash Accounts receivable Inventory Land Building and equipment Accounts payable Salaries payable Notes payable (secured by inventory) Employees’ claims for contributions to pension plans Taxes payable Liability for accrued expenses Bonds payable Common stock Additional paid-in capital Retained earnings (deficit)

Of the salaries payable, P35,000 was owed to an officer of the company. The remaining amount was owed to salaried employees who had not been paid within the previous 80 days: John Webb was owed P10,600, Samantha Jones was owed P15,000, Sandra Johnson was owed P11,900, and Dennis Roberts was owed P2,500. The maximum owed for any one employee's claims for contributions to benefit plans was P800. Estimated expense for administering the liquidation amounted to P40,000. What amount would the company would have been expected to pay for every dollar of unsecured liability without priority? .40 .60 .75 .50

SOLUTION:

Free assets P495,000 – Priority claims P165,000 = Free assets available P330,000. P330,000/P660,000 unsecured liab. = P.50 Practical Accounting 2 - Corporate Liquidation (Difficult)

Question 17 TD decided to withdraw from his partnership with SM and MR. Before his withdrawal, TD's capital balance was P 58,000, while SM's was P64,000 and MR's was P77,000. Also, the partnership's total assets amounted to P 450,000, but the partners agreed that a fixed asset was under depreciated by P15,000. TD, SM and MR share profits and losses in the ratio of 2:4:4, respectively. If TD was paid P53,200 upon his retirement, how much is the remaining partnership net assets after TD's withdrawal? 182,800 197,800 160,800 130,800

SOLUTION: Net assets before TD’s withdrawal (450,000 251,000) Adjustment for depreciation Net assets, adjusted Payment to TD Share in profit

199,000 (15,000) 184,000 (53,200) 130,800

Practical Accounting 2 - Partnership (Difficult)

Question 18 John Corporation owned a subsidiary in France. John concluded that the subsidiary's functional currency was the U.S. dollar. Which one of the following statements would justify this conclusion? John's functional currency is the dollar and John is the parent John's other subsidiaries all had the dollar as their functional currency Most of the subsidiary's sales and purchases were with companies in the U.S

Generally accepted accounting principles require that the subsidiary's functional currency must be the dollar if consolidated financial statements are to be prepared Practical Accounting 2 - Foreign Currency Transactions and Translations (Difficult)

Question 19 The home office in Mandaluyong shipped merchandise costing P21,690 to Caloocan branch and paid for the freight charges of P3,980. Caloocan branch was subsequently instructed to transfer the merchandise to Manila Branch wherein Manila branch paid for P1,250 freight. If the shipment was made directly from Mandaluyong to Manila, the freight cost would have been P5,500. As a result of the interbranch transfer of merchandise, which of the following statements is wrong? The Home Office will debit excess freight of P270 The Caloocan branch will debit the amount of P25,670 to Home Office Current account The Manila branch will debit freight-in amounting toP5,500 The Manila branch will credit the amount of P25,940 to Home Office Current account Practical Accounting 2 - Home Office & Branch Accounting (Average)

Question 20 The Kareen Company owns 75% of The Goldy Company. The following figures are from their separate financial statement: Kareen Goldy

Trade receivable P 1,040,000, including P 30,000 due from Goldy. Trade receivable P 215,000, including P 40,000 due from Kareen.

Under PAS 27 Consolidated and separate financial statements, what figure should appear for trade receivables in Kareen’s consolidated statement of financial position?

1,215,000

1,185,000

1,235,000

1,255,000

SOLUTION: Kareen’s trade receivable Goldy’s trade receivable Total Less: Intercompany receivable (due from Goldy) Intercompany receivable (due from Kareen) Consolidated trade receivables

1,040,000 215,000 1,225,000 (30,000) (40,000) 1,185,000

Practical Accounting 2 - Consolidation After Acquisition (Difficult)

Question 21 The Brown Company acquired 80% of the Ayannah Company for a consideration transferred of P100 million. The consideration was estimated to include a control premium of P24 million. Ayannah’s net assets were P85 million at the acquisition date. Are the following statements true of false, according to PFRS 3 Business Combinations? Goodwill should be measured at P32 million if the non-controlling interest is measured at its share of Local’s net assets Goodwill should be measured at P34 million if the non-controlling interest is measures at fair value? False, True True, True True, False False, False

SOLUTION: 1

2

NCI measured at its share of net assets (partial Goodwill) Consideration transferred Less: FV of identifiable net assets of Ayannah (80% x P85 million) Goodwill (partial) NCI measured at its fair value (Full Goodwill) Consideration transferred FV of NCI [(P100 million - P24 million = P76 million /80% = P95million] x 20% Fair value of Subsidiary

100,000,000 68,000,000 32,000,000 100,000,000 19,000,000 119,000,000

Less: FV of identifiable net assets of Oak Goodwill (full)

85,000,000 34,000,000

Under PFRS 3 par. 32, Goodwill is measured at the consideration transferred plus the non-controlling interest (however measured) less net assets acquired. The noncontrolling interest may be measured at its share of net assets or fair value, per PFRS S3 par 19 Practical Accounting 2 - Business Combination (Difficult)

Question 22 Spiralling crude oil prices prompted Bryan Company to purchase call options on oil as a price-risk-hedging device to hedge the expected increase in prices on an anticipated purchase of oil. On November 30, 2014, Bryan purchases call options for 20,000 barrels of oil at P100 per barrel at a premium of P4 per barrel, with a February 1, 2015, call date. The following is the pricing information for the term of the call:

November 30, 2014 December 31, 2014 February 1, 2015 November 30, 2014 December 31, 2014 February 1, 2015

exchange future price (Feb.1, 2015) price 100 101 105 110 Time Value 80,000 80,000 -

106 Intrinsic Value 100,000 200,000

Fair Value 80,000 130,000 200,000

On February 1, 2015, Bryan sells the options at their value on that date and acquires 20,000 barrels of oil at the exchange price. On April 1, 2015. Bryan sells the oil for P112 per barrel. Which of the following adjusting entries would be required on December 31, 2014? Loss on hedge activity (30,000); Purchase call options (30,000) Loss on hedge activity (100,000); Purchase call options (100,000) Loss on hedge activity (50,000); Purchase call options (50,000)

Loss on hedge activity (80,000); Purchase call options (80,000)

SOLUTION: change in time value: P80,000 - P30,000 = P50,000 Practical Accounting 2 - Derivatives (Difficult)

Question 23 A net asset balance sheet exposure exists and the foreign currency depreciates. Which of the following statements is true? There is a transaction gain There is a positive translation adjustment There is no translation adjustment There is a negative translation adjustment Practical Accounting 2 - Foreign Currency Transactions and Translations (Average)

Question 24 How should a company undergoing reorganization report the gains and losses resulting from the reorganization? on the income statement, combined with the gains and losses from operations on the income statement, separate from other gains and losses on the statement of retained earnings on the statement of cash flows Practical Accounting 2 - Corporate Liquidation (Difficult)

Question 25

Jason Corporation about to be liquidated, has the following amounts for its assets and liabilities:

Current assets Land Building Equipment Accounts payable Income taxes payable Mortgage payments Note payable

Book value 200,000 70,000 500,000 300,000 240,000 60,000 510,000 80,000

Net realizable value 140,000 100,000 350,000 160,000 -

The mortgage is secured by the land and building, and the note payable is secured by the equipment. Jason expects that the expenses of administering the liquidation will total P40,000 How much should Jason expect to pay on the accounts payable? 128,000 120,000 240,000 96,000

SOLUTION: Free assets P220,000 - priority claims P100,000 = P120,000 P120,000/P300,000 unsecured = payment of 40% on unsecured dollars. 40% x P240,000 A/P = P96,000 Practical Accounting 2 - Corporate Liquidation (Difficult)

Question 26 The Joanne Company own 65% of The Mary Company. On December 31, 2012, the last day of the accounting period, Joanne sold to Mary a noncurrent asset for P1,000. The asset’s original cost was P2,500 and on December 31, 2012 its carrying amount in Joanne’s book was P800. The group’s consolidated statement of financial position has been drafted without any adjustments in relation to this non-current asset. Under PAS 27 Consolidated and Separate Financial Statements, what adjustments should be made to the consolidated statement of financial position figures for noncurrent assets and non-controlling interest?

Non-current assets (increase by P1,500); Non-controlling Interest (no change) Non-current assets (reduced by P200); Non-controlling Interest (no change) Non-current assets (increase by P1,500); Non-controlling Interest (reduce by P70) Non-current assets (increase by P1,500); Non-controlling Interest (increase by P525)

SOLUTION: Downstream sales: Selling price of non-current asset Less: Book/ carrying value, date of sale Gain on intercompany sale

1,000 800 200

Incidentally, the eliminating entry (assuming books are already closed) would be as follows: Retained earnings - Parent (100% x 200) Non-current asset

200 200

Practical Accounting 2 - Consolidation After Acquisition (Difficult)

Question 27 Hamon, Ltd. is a Thailand subsidiary of a Philippines Company. Hamon’s functional currency is not the currency of a hyperinflationary economy (or using the current rate method). The following exchange rates were in effect during 2014: January 1 June 30 December 31 Weighted average rate for the year

.625 baht .610 baht .620 baht .630 baht

Hamon reported sales of 1,500,000 baht during 2014. What amount (rounded) would have been included for this subsidiary in calculating consolidated sales? 2,380,952 2,429,150 2,400,000 2,419,355

SOLUTION:

1,500,000 baht / .630 baht, the average rate (historical rate is not practicable because the data of sales per transaction were not given) = P2,380,952 Practical Accounting 2 - Foreign Currency Transactions and Translations (Difficult)

Question 28 Which of the following are given as reasons for the high level of merger activity in the world? Reduction in competition resulting from mergers Attempts to stabilize earnings by diversifying Synergistic benefits arising from mergers Reduction in competition resulting from mergers and Synergistic benefits arising from mergers are correct Practical Accounting 2 - Business Combination (Difficult)

Question 29 Ven issues common stock to acquire all the assets of the Dennis Company on January 1, 20X5. There is a contingent share agreement, which states that if the income of the Dennis Division exceeds a certain level during 20X5 and 20X6, additional shares will be issued on January 1, 20X7. The impact of issuing the additional shares is to record additional goodwill have no effect on asset values, but to reassign the amounts assigned to equity accounts. reduce retained earnings increase the price assigned to fixed assets. Practical Accounting 2 - Business Combination (Difficult)

Question 30

The AA, BB and CC Partnership was formed on January 2, 2011. The original cash investments were as follows: AA BB CC

96,000 144,000 216,000

According to the general partnership contract, the partners were to be renumerated as follows: Salaries of P14,400 for AA, P12,000 for BB and P13,600 for CC. Interest at 12% on the average capital account balances during the year. Remainder divided 40% to AA, 30% to BB and 30% for CC Income before partners’ salaries for the year ended December 31, 2011 was P92,080. AA invested an additional P24,000 in the partnership on July 1; CC withdrew P36,000 from the partnership on October 1; and as authorized by the partnership contract, AA, BB and CC each withdrew P750 monthly against their shares of net income for the year. The capital balance of CC on December 31, 2011 200,224 198,624 208,540 217,540

SOLUTION: AA, 26, 160; BB, 28,380, CC, 37,540 Salaries Interest 12% of ave. capital Balance (4:3:3) Share in net income

AA 14,400 12,960

BB 12,000 17,280

CC 13,600 24,840

Total 40,000 55,080

(1,200) 26,160

(900) 28,380

(900) 37,540

(3,000) 92,080

Practical Accounting 2 - Partnership (Average)