ADVANCED FINANCIAL ACCOUNTING & REPORTING REVIEW
Midterm Examination
1. The condensed balance sheet of A, B and C who share profits and losses in the ratio of 2:1:1 follows:
Cash
Other assets
P
112,000
1,060,000
Total
P 1,172,000
Liabilities
A, Capital
B, Capital
C, Capital
Total
P 192,000
380,000
320,000
280,000
P 1,172,000
The partners voted to dissolve their partnership. The amount of P260,000 was realized on the sale of other assets.
How much did B receive assuming any deficient partner is insolvent?
A. 120,000
B. 80,000
C. 110,000
D. 0
Numbers 2-3
The following information is taken from the Statement of Affairs of XYZ Corp.:
Assets pledged with fully secured liabilities (fair market value P164,000)
Assets pledged with partially sec. Liabilities (fair market value P100,000)
Free assets (current fair value P90,000)
Unsecured liabilities with priority
Fully secured liabilities
Partially secured liabilities
Unsecured liabilities without priority
P180,000
148,000
140,000
14,000
60,000
120,000
220,000
2. The estimated net free assets are (available to unsecured claims)
A. 210,000
B. 260,000
C. 180,000
D. 246,000
3. The estimated amount payable to partially secured creditors is:
A. 117,500
B. 115,000
C. 165,000
D. 107,500
4. The following data were taken from the statement of realization and liquidation of Light Company for the quarter ended
September 30, 2018.
Liabilities to be liquidated
P1,425,000
Supplementary charges
845,500
Liabilities not liquidated
1,050,000
Supplementary credits
962,500
Assets acquired
680,000
Liabilities liquidated
790,000
Assets to be realized
537,500
Assets realized
875,000
Liabilities assumed
415,000
The beginning balances of ordinary shares and retained earnings are P510,000 and P148,000, respectively. The net
income for the period is P437,000. How much is the ending cash balance?
A. 1,545,500
B. 1,482,500
C. 1,045,500
D. 1,465,000
5. Firm Corp. enters into a contract with Quest Co. to construct a 12-storey building for P3,600,000. The following data
were taken from the company’s records: Cost incurred in 2019, P1,460,000; Percentage of completion in 2019, 75%;
Estimated cost to complete in 2018, P2,040,000 while in 2019, P840,000; Income recognized to date in 2018, P175,000
while in 2019, P180,000. What is the percentage of completion in 2018 for this contract?
A. 20%
B. 35%
C. 40%
D. 25%
6. Love Inc. recognizes construction revenue and expenses using the percentage of completion method. During 2018,
Love entered into a fixed-price contract to construct an office building for P10,000,000. Information relating to the
contract is as follows:
At December 31
2018
Percentage of completion
Estimated total cost at completion
Income recognized to date
2019
20%
60%
7,500,000
8,000,000
500,000
1,200,000
Contract cost incurred in 2019 were
A. 3,200,000
B. 3,500,000
C. 4,800,000
D. 3,300,000
7. A, B and C decided to dissolve the partnership on November 30, 2018. Their capital balances and profit ratio on this date
follows: A, P50,000 (40%); B, P60,000 (30%); C, P20,000 (30%). The net income from January 1 to November 30, 2018 is
P44,000. Also, on this date, cash and liabilities are P40,000 and P90,000, respectively. For A to receive P55,200 in full
settlement of his interest in the firm, how much must be realized from the sale of the firm’s non-cash assets?
A. 177,000
B. 187,000
C. 193,000
D. 196,000
8. The following information is taken from the Statement of Affairs of XYZ Corp.:
Assets pledged with fully secured liabilities (fair market value P75,000)
Assets pledged with partially sec. Liabilities (fair market value P52,000)
Free assets (current fair value P40,000)
Unsecured liabilities with priority
Fully secured liabilities
Partially secured liabilities
Unsecured liabilities without priority
The estimated amount payable to unsecured creditors without priority is:
A. 78,200
B. 70,800
C. 57,200
D. 72,800
P90,000
74,000
70,000
7,000
30,000
60,000
112,000
9. Miley admits Claire as a partner in business. Just before the partnership’s formation, Miley’s books
showed the following:
Cash
Accounts receivable
Inventories
Accounts payable
Miley, Capital
P
2,600
12,000
18,000
6,200
26,400
It was agreed that, for establishing Miley’s investment in the firm, the following adjustments shall be reflected:
• Allowance for bad debts of 2% should be set up.
• Merchandise inventory should be valued at P20,000.
• Prepaid expense of P350 and accrued expense of P400 should be recognized.
How much cash should Claire invest to secure a one-third interest in the partnership?
A. 14,155
B. 9,437
C. 17,600
D. 14,205
10. Drew Arellano Construction Company has used the cost-to-cost percentage of completion method of recognizing
revenue. Total contract price was P10,000,000.
Realized gross profit (loss)
Cost incurred each year
2017
2018
2019
P200,000
1,800,000
P700,000
?
(P100,000)
4,100,000
How much is the total estimated cost to complete by the end of 2018?
A. 2,800,000
B. 3,000,000
C. 3,400,000
D. 3,500,000
11. Miya Vilonia’s construction company, successfully bid in a contract for factory building at a price of P13,000,000. The
company uses the percentage of completion method, and the following data are summarized for this project:
Estimated total cost at completion
Income recognized to date
12/31/2018
P9,750,000
650,000
12/31/2019
P10,400,000
1,560,000
What is the contract cost incurred in 2019, assuming the cost incurred was used to measure the extent of progress
towards the project’s completion?
A. 4,550,000
B. 4,160,000
C. 4,290,000
D. 4,740,000
12. Andres, Tomas and Moises are partners of ATM partnership. They decided to liquidate on March 31 of the current year.
On this date, they have non- cash assets of P530,000 and liabilities of P250, 000, including loan from Moises of P50,000.
Andres, Tomas and Moises have capital balances of P80,000, P130,000 and P90,000, respectively. Profits and loss are
shared 3:3:4 for Andres, Tomas and Moises. All partners are solvent. Determine the total loss on realization if Moises
received P25,000 in final settlement.
A. 185,000
B. 262,500
C. 387,500
D. 287,500
13. The following are the data presented by Paulette Company:
Assets at book value
Assets at net realizable value
Liabilities at book value:
Fully secured mortgage
Unsecured accounts and notes payable
Unrecorded liabilities:
Interest on bank notes
Accrued salaries
1,250,000
937,500
500,000
562,500
3,125
50,000
How much is the estimated deficiency to unsecured claims?
A. 437,500
B. 125,000
C. 178,125
D. 387,500
Numbers 14-15
The balance sheet accounts of partners Coleen, Kim and Gerald before liquidation are the following: Cash, P360,000; NonCash Assets, P1,790,000; Liabilities, P1,000,000; Coleen, Capital (50%), P460,000; Kim, Capital (30%), P370,000 and Gerald,
Capital (20%), P320,000. On the first month of liquidation, assets with a book value of P1,400,000 are sold for P1,060,000.
Liquidation expenses of P40,000 are paid and additional expenses are anticipated. Liabilities are paid amounting to
P362,000, and sufficient cash is retained to insure the payment to creditors before making payment to partners.
14. In the first payment of cash to partners, Kim received P100,000. The cash withheld for future liquidation expenses
amounted to:
A. 130,000
B. 35,000
C. 118,000
D. 768,000
15. How much was distributed to Gerald?
A. 10,000
B. 66,667
C. 180,000
D. 140,000
16. The following data were taken from the Statement of Affairs of Infinity Wars Company:
Shareholders’ equity
Bonds Payable without security
Salaries Payable
Loss on realization of assets
Accounts payable without security
Taxes
Liquidation expenses
The estimated net free assets (available to unsecured non-priority):
A. 1,114,750
B. 937,125
C.
992,250
D. 953,575
P 441,000
735,000
50,000
551,250
367,500
72,500
55,125
Numbers 17-18
A Statement of Financial Position for the partnership of John, Paul and Ryan, who share profits in the ratio of 2:1:1, shows
the following balances just before liquidation:
Assets
Cash
Other assets
P
144,000
714,000
Liabilities and Equity
Liabilities
John, capital
Paul, capital
Ryan, capital
P
240,000
264,000
186,000
168,000
In the first month of liquidation, certain assets are sold for P384,000. Liquidation expenses of P12,000 are paid, and
additional expenses are anticipated. Liabilities of P64,800 are paid and sufficient cash is retained for the anticipated
liquidation expenses. In the first payment to partners, John receives P75,000.
17. The amount of cash withheld for the anticipated liquidation expenses is:
A. 211,200
B. 48,000
C. 175,000
D. 36,000
18. How much did Ryan receive?
A. 91,500
B. 60,000
C. 73,500
D. 0
19. On January 1, 2020, Tonie, Abbie and JM entered into articles of co-partnership for the operation of TAJ computer shop.
Toni contributed investment property with assessed value of P1,700,000 subject to mortgage payable of P500,000 to be
assumed by the partnership. Abbie contributed computer equipment with cost of P600,000 with accumulated
depreciation of P200,000. The fair market value of the computer equipment is P300,000. On January 2, 2020, the
partnership was able to sell the investment property for P2,000,000. How much cash shall be contributed by JM if the
articles of co-partnership provide that Toni will have 60% interest in the partnership?
A. 700,000
B. 600,000
C. 800,000
D. 500,000
20. On January 1,2031, Kobe, Lebron and Michael formed a partnership with respective capital contribution of P2,000,000,
P5,000,000 and P3,000,000. The articles of co-partnership provide that profit or loss shall be distributed accordingly:
Ø 20% interest on original capital contribution.
Ø P30,000 monthly salary for Kobe and P50,000 monthly salary for Michael.
Ø The remainder shall be distributed on the basis of original capital contribution ratio.
On December 31, 2031, Kobe and Lebron made withdrawals of P500,000 and P1,000,000 respectively. The statement of
financial position of the partnerships shows that Lebron’s capital on December 31,2031 is P6,500,000. What is the
capital balance of Kobe on December 31, 2031?
A. 2,360,000
B. 2,100,000
C. 2,860,000
D. 3,260,000
21. Xian Company filed a voluntary bankruptcy petition on April 30, 2018 and the statement of affairs reflects the following
amounts:
Book value
Current value
Assets pledged with fully secured creditors
P 910,000
P1,080,625
Assets pledged with partially secured creditors
511,875
341,250
Free assets
1,137,500
796,250
Liabilities with priority
113,750
Fully secured creditors
739,375
Partially secured creditors
568,750
Unsecured creditors
1,478,750
Assume that the assets are converted into cash at the estimated current values and the business is liquidated. What
total amount of cash should partially secured creditors receive?
A. 477,750
B. 511,875
C. 341,250
D. 568,750
22. On July 1, 2017, Great Corp. obtained a contract to construct a building. The building was estimated to be built at a total
of P5,250,000 and is scheduled for completion on October 2019. The construct contains a penalty clause to the effect that
the other party was to deduct P17,500 from the contract price each week of delay. Completion was delayed for three
weeks. Below are the data pertaining to the construction period. In 2018, there was an increase in the contract price in
the amount of P200,000 per cost escalation clause. Great Corp. uses percentage of completion method.
Costs incurred
Estimated costs to complete
Billings to customers
2017
P 525,000
2,100,000
420,000
2018
P 1,932,000
273,000
4,567,500
2019
P 325,500
1,260,000
How much is the excess of construction in progress over progress billings (current asset) in 2017?
A. 630,000
B. 800,000
C. 840,000
D. 682,500
Numbers 23-24
On January 1, 2018, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C which has its fiscal and
operational autonomy. The contractual agreement of the incorporating entities provided that the decisions on relevant
activities of Entity C will require the unanimous consent of both entities. Entity A and Entity B will have rights to the net
assets of Entity C. Entity A and Entity B invested P1,000,000 and P1,500,000, respectively, equivalent to 40:60 capital interest
of Entity C. The financial statements of Entity C provided the following data for its two-year operation:
2018
2019
Net income (loss)
200,000
(2,000,000)
Dividends declared
100,000
-
23. What is the balance of Investment in Entity C to be reported by Entity A in its Statement of Financial Position on
December 31, 2019?
A. 1,080,000
B. 1,040,000
C.
240,000
D. 200,000
24. What is the balance of Investment in Entity C to be reported by Entity B in its Statement of Financial Position on
December 31, 2019?
A. 1,500,000
B. 1,620,000
C.
360,000
D. 900,000
Numbers 25-26
On January 1, 2018, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C by investing P3,000,000 and
P2,000,000 for capital interest ratio of 60:40. The contractual agreement of the incorporating entities provided that the
decisions on relevant activities of Entity C will require the unanimous consent of both entities. Entity A and Entity B will have
rights to the net assets of Entity C.
The financial statements of Entity C provided the following data for 2018:
•
Entity C reported net income of P1,000,000 for 2018 and paid cash dividends of P400,000 on December 31, 2018.
•
During 2018, Entity C sold inventory to Entity A with gross profit of P50,000. Eighty percent of those inventories
were resold by Entity A to third persons during 2018 and the remainder was resold to third persons during 2019.
•
On July 1, 2018, Entity C sold a machinery to Entity B at a loss of P20,000. At the time of sale, the machinery has
remaining useful life of 2 years.
25. What is the investment income to be reported by Entity A for the year ended December 31, 2018?
A. 603,000
B. 606,000
C. 594,000
D. 597,000
26. What is the balance of Investment in Entity C to be reported by Entity B on December 31, 2018?
A. 2,242,000
B. 2,241,000
C. 2,238,000
D. 2,248,000
Numbers 27-28
On January 1, 2018, Entity A and Entity B, both SMEs, incorporated Entity C, a jointly controlled entity by investing P500,000
each in exchange for 10,000 ordinary shares each of Entity C. Entity A and Entity B each incurred P20,000 transaction costs.
The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will
require the unanimous consent of both entities. Entity A and Entity B will have rights to the net assets of Entity C.
For the year ended December 31, 2018, Entity C reported net income of P100,000 and declared dividends in the amount of
P30,000. On December 31, 2018, the ordinary shares of Entity C are quoted at P56.
27. If Entity A elected fair value model to account its investment in Entity C, what is the net effect on Entity A’s profit or loss
for the year ended December 31, 2018?
A. 55,000 net profit
B. 60,000 net profit
C. 15,000 net profit
D. 40,000 net profit
28. If Entity B elected equity method to account its investment in Entity C, what is the carrying amount of Entity B’s
Investment in Entity C on December 31, 2018?
A. 520,000
B. 540,000
C. 535,000
D. 555,000
Numbers 29-30
On January 1, 2018, Entity A and Entity B, both SMEs, incorporated Entity C, a jointly controlled entity by investing P200,000
each in exchange for 20,000 ordinary shares each of Entity C. Entity A and Entity B each incurred P10,000 transaction costs.
The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will
require the unanimous consent of both entities. Entity A and Entity B will have rights to the net assets of Entity C.
For the year ended December 31, 2018, Entity C reported net income of P50,000 and declared dividends in the amount of
P10,000. On December 31, 2018, the investment in Entity C has value in use of P215,000.
29. If Entity A elected cost method to account its Investment in Entity C, what is the carrying amount of Entity A’s Investment
in Entity C on December 31, 2018?
A. 210,000
B. 215,000
C. 230,000
D. 200,000
30. If Entity B elected equity method to account its Investment in Entity C, what is the net effect in Entity B’s profit or loss
for the year ended December 31, 2018?
A. 25,000 profit
B. 5,000 profit
C. 10,000 profit
D. 15,000 profit
Numbers 31-32
A, B and C decided to form ABC Partnership. It was agreed that A will contribute an equipment with assessed value of
P100,000 with historical cost of P800,000 and accumulated depreciation of P600,000. A day after the partnership formation,
the equipment was sold for P 300,000.
B will contribute a land and building with carrying amount of P1,200,000 and fair value of P1,500,000. The land and building
are subject to a mortgage payable amounting to P300,000 to be assumed by the partnership. The partners agreed that B
will have 60% capital interest in the partnership. The partners also agreed that C will contribute sufficient cash to the
partnership.
31. What is the total agreed capitalization of the ABC Partnership?
A. 1,500,000
B. 2,000,000
C. 2,500,000
D. 3,000,000
32. What is the cash to be contributed by C in the ABC Partnership?
A. 500,000
B. 600,000
C. 700,000
D. 800,000
Numbers 31-32
On January 1, 2018, A, B and C formed ABC Partnership with total agreed capitalization of P1,000,000. The capital interest
ratio of the ABC Partnership is 5:1:4 while the profit or loss ratio is 3:2:5, respectively for A, B and C. During 2018, A and B
made additional investments of P200,000 and P500,000, respectively. At the end of 2018, B and C made drawings of P300,000
and P100,000, respectively. On December 31, 2018, the capital balance of B is reported at P200,000.
33. What is the net income or net loss of ABC Partnership for the year ended December 31, 2018?
A. 500,000 loss
B. 1,000,000 loss
C.
800,000 income
D. 1,200,000 income
34. What is the capital balance of C on December 31, 2018?
A. 150,000
B. 50,000
C. 200,000
D. 250,000
Numbers 35-37
On January 1, 2018, A, B and C formed ABC Partnership with original capital contribution of P300,000, P500,000 and
P200,000. A is appointed as managing partner. During 2018, A, B and C made additional investments of P500,000, P200,000
and P300,000, respectively. At the end of 2018, A, B and C made drawings of P200,000, P100,000 and P400,000, respectively.
At the end of 2018, the capital balance of C is reported at P320,000. The profit or loss agreement of the partners is as follows:
•
•
•
•
10% interest on original capital contribution of the partners.
Quarterly salary of P40,000 and P10,000 for A and B, respectively.
Bonus to A equivalent to 20% of Net Income after interest and salary to all partners
Remainder is to be distributed equally among the partners.
35. What is the partnership profit for the year ended December 31, 2018?
A. 900,000
B. 1,020,000
C. 1,050,000
D. 960,000
36. What is A’s share in partnership profit for 2018?
A. 190,000
B. 340,000
C. 540,000
D. 200,000
37. What is B’s share in partnership profit for 2018?
A. 200,000
B. 290,000
C. 50,000
D. 90,000
38. On December 31, 2018, the Statement of Financial Position of ABC Partnership provided the following data with profit
or loss ratio of 1:6:3:
Current Assets
Noncurrent Assets
1,000,000
2,000,000
Total Liabilities
A, Capital
B, Capital
C, Capital
600,000
900,000
800,000
700,000
On January 1, 2019, D is admitted to the partnership by purchasing 40% of the capital interest of B at a price of P500,000.
What is the capital balance of B after the admission of D on January 1, 2019?
A. 540,000
B. 480,000
C. 420,000
D. 300,000
39. On December 31, 2018, ABC Partnership’s Statement of Financial Positions shows that A, B and C have capital balances
of P500,000, P300,000 and P200,000 with profit or loss ratio of 1:3:6. On January 1, 2019, C retired from the partnership
and received P350,000. At the time of C’s retirement, an asset of the partnership is undervalued. What is the capital
balance of A after the retirement of C?
A. 462,500
B. 537,500
C. 562,500
D. 525,000
40. On December 31, 2018, ABC Partnership’s Statement of Financial Position shows that A, B and C have capital balances
of P400,000, P300,000 and P100,000 with profit or loss ratio of 1:4:5. On January 1, 2019, C retired from the partnership
and received P80,000. At the time of C’s retirement, the assets and liabilities of the partnership are properly valued.
What is the capital balance of B after the retirement of C?
A. 284,000
B. 308,000
C. 316,000
D. 320,000