Second Examination- Suggested Answers
ACP 311- Accounting for Special Transactions
JMF, CPA
Theories
1. Which of the following is NOT correct with respect to an installment liquidation of a partnership?
a. All remaining liquidation expenses are anticipated.
b. All non-cash assets are assumed to be worthless.
c. Distributions to partners are always made according to their profit sharing percentages.
d. Partners with the greatest ability to absorb losses and expenses are the first to receive installment
distributions.
Suggested Answer: C
2. In calculating the safe payment, you assume:
a. Partnership liabilities have been paid
b. No liquidation expenses will be paid
Suggested Answer: C
c. All noncash assets are worthless
d. Cash on hand can be fully distributed
3. The method most commonly used to report defaults and repossessions is
a. Provide no basis for the repossessed asset thereby recognizing a loss.
b. Record the repossessed merchandise at fair value, recording a gain or loss if appropriate.
c. Record the repossessed merchandise at book value, recording no gain or loss.
d. None of these.
Suggested Answer: B
4. Leopard Co. uses the installment sales method to recognize revenue. Customers pay the installment
notes in 24 equal monthly amounts, which include 12% interest. What is the balance of an installment
note receivable 6 months after the sale? Punzalan 2014
a. 75% of the original sales price.
b. Less than 75% of the original sales price.
c. The present value of the remaining monthly payments discounted at 12%.
d. Less than the present value of the remaining monthly payments discounted at 12%.
Suggested Answer: C
5. When using the installment sales method,
a. gross profit is deferred until all cash is received, but revenues and costs are recognized in
proportion to the cash collected from the sale.
b. gross profit is recognized only after the amount of cash collected exceeds the cost of theitem sold.
c. revenue, costs, and gross profit are recognized proportionally as the cash is received fromthe sale
of product.
d. total revenues and costs are recognized at the point of sale, but gross profit is deferred inproportion
to the cash that is uncollected from the sale.
Suggested Answer: D
6. A category of assets that typically has zero in the Free Assets column of a statement of affairs is:
a. Factory Supplies Inventory
c. Short-Term Prepayments
b. Tools
d. None of the above
Suggested Answer: C
7. In accounting for corporate liquidation, which of the following is incorrect?
a. Fully secured creditors no longer share in the remaining free assets after payment of unsecured
liabilities without priority.
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b. Assets used as security for partially secured liabilities are offsetted to their secured debts and can
no longer be used to pay unsecured liabilities.
c. Unsecured credits with priority such as liabilities to employees and taxes due to government can
always be fully recovered by the said creditors in every corporate liquidation.
d. The unsecured portion of the liabilities to partially secured creditors are added to unsecured
credits without priority in the computation of recovery percentage of the unsecured creditors
without priority.
Suggested Answer: C
Problems
A statement of financial position for the partnership of Dy, Sy and Lee, who share profits and losses in the
ratio of 2:1:1, shows the following balances just before liquidation:
Cash
Other Assets
Liabilities
P12,000
59,500
20,000
Dy, Capital
Sy, Capital
Lee, Capital
P22,000
15,500
14,000
On the first month of the liquidation, certain assets are sold for P32,000. Liquidation expenses of P1,000
are paid, and additional liquidation expenses are anticipated. Liabilities are paid amounting to P5,400, and
sufficient cash is retained to insure the payment to creditors before making payments to partners. On the
first payment to partners, Dy receives P6,250.
8. The total cash distributed to the partners in the first installment is:
Suggested Answer: 20, 000
On August 30, 2014, Robert Alat, Roy Anghang, and JayR Tamis who share earnings at 5:3:2, respectively,
decided to liquidate their partnership. At this time, their condensed balance sheet
follows:
Cash
P 62,500
Accounts payable
P 75,000
Non-cash assets
312,500
Robert Alat, capital
100,000
Roy Anghang, capital 112,500
.
JayR Tamis, capital
87,500
Total
P375,000
Total
P 375,000
The first sale of assets with a carrying value of P187,500 realized only P150,000. Roy Anghang received
P60,000 from the initial cash distribution to partners.
9. Compute the amount of expected liquidation expenses retained from the cash distribution.
Suggested Answer: 12, 500
Claudia, Petra, Mona, and Hilda are partners who share profits and losses at 40%, 30%, 20%, and 10%,
respectively. Since two of them have given intention to withdraw, they have decided to liquidate the
partnership instead. At this point, the capital balances of the partners are as follows:
Claudia
P48,000
Petra
21,600
Mona
34,400
Hilda
16,000
10. Which of the following statements is true?
A.
The first available P1,600 will go to Hilda.
B.
The first available P2,400 will go to Mona.
C.
Claudia will be the last partner to receive any available cash.
D.
Claudia will collect a portion of any available cash before Hilda receives anything.
Suggested Answer: B
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GREEN BERET, INC. is very financially distressed and the Securities and Exchange Commission ordered its
prompt liquidation. The company has the following assets at this point:
Book Value
Fair Value
Current assets
P64,000
P28,000
Land
80,000
72,000
Buildings
56,000
61,600
Equipment
24,000
26,400
The company's liabilities at the same date are as follows:
Income taxes
P 6,400
Notes payable, secured by land
96,000
Accounts payable
68,000
Salaries payable
4,800
Bonds payable
56,000
Administrative expenses for liquidation
16,000
11. Calculate the estimated net amount available for the payment of all unsecured creditors
Suggested Answer: 88, 800
12. Calculate the amount of estimated payment to holders of note payable in the event of liquidation.
Suggested Answer: 86, 400
The following data were taken from the statement of realization and liquidation of Bagsak Corporation for
the three months period ended December 31, 2020:
Assets to be realized
P1,375,000
Assets acquired
750,000
Assets realized
1,200,000
Assets not realized
1,375,000
Liabilities assumed
1,625,000
Liabilities liquidated
1,875,000
Liabilities not liquidated
1,700,000
Supplementary credits
2,800,000
Supplementary charges
3,125,000
Net Gain
425, 000
13. What is the amount of the liabilities to be liquidated for the period?
Suggested Answer: 2, 250, 000
EVERGREEN COMPANY started operations on January 2, selling its merchandise on regular and on
installment plans. The following data are available for its first two years operation.
2013
2014
Regular Installment Regular Installment
Sales
P400,000 P320,000 P500,000 P400,00
Cost of sales
260,000 192,000 325,000
280,00
Cash collections during the year
2013 Regular sales
100,000
150,000
2014 Regular sales
200,000
2013 Installment sales
168,000
120,000
2014 Installment sales
240,000
14. Calculate the realized gross profit recognized in EVERGREEN'S income statement for 2014
Suggested Answer: 295, 000
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Octopus Retail Company sells goods for cash, on normal credit (2/10, n/30). However, on July 1, 20x4, the
company sold a used computer for P22,000; the inventory carrying value was P4,400. The company
collected P2,000 cash and agreed to let the customer make payments on the P20,000 whenever possible
during the next 12 months. The company management stated that it had no reliable basis for estimating
the probability of default. The following additional data are available: (a) collections on the installment
receivable during 20x4 were P3,000 and during 20x5 were P2,000, and (b) on December 1, 20x5, Octopus
Retail repossessed the computer (estimated net realizable value, P7,000).
15. Determine the realized gross profit on instalment sales for the year 20x4.
Suggested Answer: 4, 000
Maranan Motors Sales cars on the installment basis. Presented below are data for the past three years:
Installment sales
Cost of sales
Collection on:
2019 installment sales
2018 installment sales
2017 installment sales
2019
P2,880,000
1,728,000
2018
P2,304,000
1,440,000
2017
P1,543,000
1,002,950
1,008,000
391,000
478,000
921,000
462,000
578,000
Repossessions on defaulted accounts included one made on a 2017 sale for which the unpaid balance
amounted to P20,000. The depreciated value of the car repossessed was P10,000.
16. The unrecovered cost of the car in 2017 and repossessed in 2019 is :
Suggested Answer: 13, 000
The following selected accounts appeared in the trail balance of Valentine’s Company as of December 31,
2019:
Installment receivable – 2018 sales
P15,000
Repossessions
P
3,000
Installment receivable – 2019 sales
200,000
Installment sales
425,000
Inventory, December 31, 2018
70,000
Regular sales
385,000
Purchases
555,000
Deferred gross profit – 2018 54,000
Operating expenses
92,000
Additional information:
 Installment receivable – 2018 sales, December as of December 31, 2018 is 120, 000
 Inventory of new and repossessed merchandise as of December 31, 2019 is 95, 000
 Gross profit percentage on regular sales in 2019 is 30% on sales.
 Repossessions were made during the year and were recorded correctly. It was a 2018 sale and the
corresponding uncollected account at the time of repossession was P6,200.
17. What is the net income for 2019
Suggested Answer: 152, 352.5
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Comprehensive Problems
The following selected accounts were taken from the trial balance on Dec. 31, 2020 of Antigo Company:
Accounts Receivable – charge sales
Installment Receivable - 2018
Installment Receivable – 2019
Installment Receivable – 2020
Merchandise Inventory
Purchases
Freight-in
Repossessed Merchandise
Repossessed Loss
Cash Sales
Charge Sales
Installment Sales
Deferred Gross Profit-2018
Deferred Gross Profit -2019
75,000
15,000
45,000
270,000
52,500
390,000
3,000
15,000
24,000
90,000
180,000
446,400
22,200
39,360
The following additional information were also taken from the records of Antigo Company:
 Gross profit rate on 2018 installment sales was 30% and for 2019, the rate was 32%
 Installment sales exceed cash sales price by 24%, while charge sales prices exceed cash sales
prices by 20%.
 The entry for repossessed goods was
Repossessed Merchandise
Repossessed loss
Installment Receivable – 2018
Installment Receivable – 2019

15,000
24,000
18,000
21,000
Merchandise on hand at the end of 2020 (new and repossessed) was P70,500
Required:
a. Realized Gross Profit
Suggested Answer: 114, 471
b. How much is the cost of goods sold on installment sales in 2020?
Suggested Answer: 234, 000
c. The cash collections on installment sales for 2018, 2019 and 2020?
Suggested Answer: 41, 000, 57, 000 and 176, 400 respectively.
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The partnership of Rent-A-Pet find it financial feasible to continue operations and have agreed to liquidate
the partnership. The balance sheet just prior to the start of liquidation appears as follows: Partners Bryan,
Donelle, and Christopher share income and loss in the ratio 5:3:2, respectively.
Assets
Cash
P 200,000
Noncash assets 1,300,000
P1,500,000
Liabilities and Capital
Accounts payable
P 300,000
Loan from Bryan
50,000
Bryan, capital
350,000
Donelle, capital
600,000
Christopher, capital 200,000
P1,500,000
a. Second priority using Cash distribution program
Suggested Answer: Donelle and Christopher
b. If the first sale of noncash assets having a book value of P750,000 realizes P500,000 and all
available cash is distributed, determine the amount of cash distributed to Bryan.
Suggested Answer: 0
c. If each partner properly received some cash in the distribution after the second sale, the cash to be
distributed amounts to P120,000 from the third sale, and unsold assets with an P80,000 book value
remain, the share of Donelle must be:
Suggested Answer: 36, 000
The following data were presented in the statement of affairs for Dubidubidapdap Company
Unsecured liabilities without priority
P900,000
Stockholder’s equity
360,000
Loss on realization of assets
450,000
Estimated administrative expenses that have not been recorded
45,000
Unsecured liabilities with priority
100,000
Based on the foregoing data, what percentage of their claims should unsecured, without priority
creditors expect on the liquidation of Dubidubidapdap Company?
Suggested Answer: 90%
End of Second Exam
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