Page 1 of 16 | First Preboards
ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)
MAY 2023 BATCH
REO CPA REVIEW
ADVANCED FINANCIAL ACCOUNTING AND REPORTING
FIRST PREBOARDS – MAY 2023 BATCH
1.
In a partnership liquidation, which of the following can share in the capital
deficiency (i.e., negative capital balance) of an insolvent partner?
I. General partner with positive capital balance
II. Limited partner with positive capital balance and personally solvent
III. General partner with negative capital balance but personally solvent
IV. General partner with negative capital balance and personally insolvent
V. Limited partner with positive capital balance and personally insolvent
a. I only
b. I, II, III and V only
c. I, III and V only
d. I, II and III only
Assuming goodwill is recorded by the partnership, which of the following scenarios
will not result into write-off of goodwill?
a. In accounting for partnership liquidation
b. In comparing which is preferable between bonus and goodwill method
c. In converting the ‘internal’ report of the partnership to one which conforms
with PFRS
d. When the partnerships intangible asset is impaired
3.
What is the proper disposition of a partnership loan that was made from a partner
who has a debit balance in the capital account?
a. The loan is offset against the debit balance in the capital account.
b. The loan is charged off to the capital accounts of all the partners in their
profit and loss sharing ratios.
c. The loan is ignored in liquidation.
d. The loan is held for payment after all other capital accounts are covered.
4.
In relation to partnership liquidation, which of the following statements is/are
correct?
I. All cash withheld are considered as assumed or theoretical loss in an
installment liquidation.
II. In preparing a cash priority program, the profit-sharing ratio is preferred
over the loss sharing ratio.
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2.
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a. I only
b. II only
c. Both I and II
d. Neither I nor II
5.
In relation to partnership liquidation, which of the following statements is/are
correct?
I. The cash priority program can be used to distribute noncash assets, so long
as the priority is followed.
II. In an installment liquidation, the safe payment schedule will also show the
most vulnerable partner in the event of liquidation.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
6.
Anna and Bess share partnership profits and losses at 60% and 40% respectively.
The partners agree to admit Cal into the partnership for 50% interest in capital
and earnings. Capital accounts immediately before the admission of Cal are:
REO CPA REVIEW
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MAY 2023 BATCH
ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)
Anna (60%)
Bess (40%)
Total
₱300,000
300,000
₱600,000
Cal invested ₱400,000 for the ownership interest, and that this is a fair price
for that share of the partnership to be acquired. Cal paid the money directly to
Anna and to Bess for 50% of each of their respective capital interests. The
partnership records goodwill. After recording the admission of Cal, how much will
be the respective capital balances of Anna and Bess?
a. ₱120,000; ₱80,000
b. ₱210,000; ₱190,000
c. ₱190,000; ₱210,000
d. ₱80,000 ₱120,000
7.
In relation to installment partnership liquidation, the difference of partners’
total interest or equity (TI/TE) and cash available for distribution to partners
(CAFD) is equal to?
I. Actual loss and expense.
II. Assumed loss and expense.
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a. I only
b. II only
c. Both I and II
d. Neither I nor II
Which of the following is the most valid reason why a retiring partner was paid
more than his/her interest in the partnership?
a. Bonus to retiring partner
b. Goodwill recognized and divided by all partners
c. Revaluation of assets divided by all partners
d. Bonus to remaining partner
9.
Apple, Baby and Carrie formed a partnership on August 1 with the following assets
contributed by each partner measured at their fair values:
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8.
Baby
45,000
13,125
Carrie
₱ 112,500
9,375
105,000
19,125
-
₱
₱ 182,250
Apple
37,500
-
₱
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Cash
Merchandise
Inventory
Office Equipment
Furniture
and
Fixture
Total
562,500
31,875
631,875
₱
₱ 121,875
The office equipment contributed by Apple has a mortgage note of ₱337,500 and the
partnership is to assume responsibility for the loan. The partners agree to
equalize their interest. Cash settlements among the partners are to be made
outside the partnership using the bonus method as follows:
a. Baby should pay Apple, ₱94,875 and Carrie, ₱77,625.
b. Carrie should pay Apple, ₱94,875 and Baby, ₱17,250.
c. Apple should pay Baby and Carrie, ₱94,875 each.
d. Baby and Carrie should pay Apple, ₱17,250 and ₱77,625 respectively.
10. During 20x1, Rebecca and Ramsay formed a partnership and agreed to share profits
and losses equally by providing themselves annual salaries of ₱200,000 and
₱300,000, respectively, and a bonus of 10% on operating profit to Rebecca. Their
statement of comprehensive income for the 6 months period ended December 31, 20x1
is shown below:
Sales
Less: Cost of sales
Gross profit
Add: Other income
Less: Expenses
Profit
₱ 4,000,000
3,000,000
₱ 1,000,000
20,000
940,000
₱
80,000
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MAY 2023 BATCH
ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)
Compute for Rebecca’s profit sharing if the partnership expenses already include
the salaries.
a. ₱ 156,500
b. ₱ 311,000
c. ₱ 269,000
d. ₱ 336,000
11. Mark, Conrad and Jason have been partners throughout the year 20x1. Their average
balances for the year and their balances at the end of the year before closing the
nominal accounts are as follows:
Partner
Mark
Conrad
Jason
Average Balances
(Cr)
₱450,000.00
(Cr)
15,000.00
(Cr)
35,000.00
Balances, 12/31/20x1
(Cr)
₱300,000.00
(Dr)
5,000.00
(Cr)
50,000.00
The profit for 20x1 is ₱375,000 before charging partners’ drawing, allowances and
before interest on average balances at the agreed rate of 4% per annum. Mark is
entitled to a drawing account credit of ₱50,000, Conrad of ₱35,000, and Jason of
₱25,000 per annum. The balance of the profit is to be distributed at the rate of
60% to Mark, 30% to Conrad, and 10% to Jason.
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The partners agreed that, after credits distribution as indicated in the preceding
paragraph, it is intended to adjust the capital accounts of the partners by
investing the highest amount of cash, so that, the balance in the partners’
accounts will be proportionate to their profit-sharing ratios. None of the
partners will withdrew cash from the partnership.
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What amount of investment must be made by each partner?
a. Mark, None; Conrad, ₱289,000; Jason, None
b. Mark, ₱90,400; Conrad, ₱198,600; Jason, None
c. Mark, None; Conrad, ₱148,400; Jason, None
d. Mark, None; Conrad, ₱148,400; Jason, (₱15,066.50)
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12. Partners H, I and J invested ₱2,000,000, ₱2,000,000 and ₱1,000,000, respectively
and agreed to share in the profit in the ratio of 4:4:2, respectively after
providing for the following:
a. Salaries of ₱500,000 and ₱400,000 to H and J, respectively
b. 20% bonus to I on net income after salaries and bonus
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H and J withdrew ₱400,000 and ₱200,000, respectively, in anticipation of profits.
The partners agreed to re-align their capital balances at the end of every period
to their profit-sharing ratio. The partnership made ₱800,000 net income during the
year. If the original capital balance is to be maintained and the re-alignment is
to be made by additional re-investment or cash withdrawals by the partner, which
is correct?
a. J shall withdraw ₱180,000.
c. H shall invest ₱60,000.
b. I shall withdraw ₱40,000.
d. H shall withdraw ₱40,000.
13. Vincenzo and Cassano are partners. They have shared profits and losses 65/35 for a
number of years. Vincenzo has indicated that he is going to reduce his involvement
in the partnership so the profit and loss ratio is being modified to 45/55. At the
date of the change in the profit and loss ratio, the partnership owns vacant land
with a market value of ₱300,000, and a book value of ₱100,000. Vincenzo and
Cassano compile a list of assets with market and book value differences. Two years
after the change in the profit and loss ratios, the land is sold for ₱450,000. How
much of the gain is allocated to Cassano?
a. ₱122,500
b. ₱152,500
c. ₱192,500
d. ₱262,500
14. E, F and G invest ₱40,000; ₱30,000; and ₱25,000 respectively in a partnership on
June 30, 20x0. They agree to divide net income or loss as follows:
• Interest at 10% on beginning capital account balances
• Annual salaries of ₱10,000; ₱8,000; and ₱6,000 respectively to E, F and G
• Remaining net income or loss divided equally
• A minimum of ₱18,000 of income guaranteed to G
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MAY 2023 BATCH
ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)
If the amount credited to E is ₱17,500, the amount of the net income for the
period is:
a. ₱44,000
b. ₱46,167
c. ₱51,500
d. ₱55,100
15. Partners Amigo and Butangen agreed to share profits in the following order of
distribution:
a. Interest of 10% on weighted average capital
b. Salaries of ₱600,000 to Amigo and ₱400,000 to Butangen
c. Residual profit, equally
Loss is shared by Amigo and Butangen 40:60. Details of the capital accounts of
Amigo and Butangen is shown as follows:
Amigo
January 1
March 30
April 30
July 1
September 30
November 1
December 30
₱
200,000
300,000
-
₱
Credit
2,400,000
400,000
800,000
-
Butangen
Credit
₱ 3,600,000
200,000
180,000
210,000
600,000
300,000
-
Debit
₱
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The partnership made ₱1,600,000 net income. Butangen’s share in the profit is
a. ₱843,750
b. ₱855,500
c. ₱844,500
d. ₱743,250
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16. LL and QQ are partners with capital balances of ₱50,000 and ₱70,000, respectively,
and they share profits and losses equally. The partners agree to take DD into the
partnership for a 40% interest in capital and profits, while LL and QQ each retain
30% interest. DD pays ₱60,000 cash directly to LL and QQ for his 40% interest, and
total revaluation of asset (or goodwill implied) by DD’s payment is recognized on
the partnership books. If LL and QQ transfer equal amounts of capital to DD, the
capital balances after DD’s admittance will be:
a. LL, ₱35,000; QQ, ₱55,000; DD, ₱60,000.
b. LL, ₱45,000; QQ, ₱45,000; DD, ₱60,000.
c. LL, ₱36,000; QQ, ₱36,000; DD, ₱48,000.
d. LL, ₱26,000; QQ, ₱46,000; DD, ₱48,000.
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17. Ana and Lyn, partners in Ana & Lyn Partnership who share net income and losses
equally, had capital account balances of ₱120,000 and ₱180,000, respectively. On
September 25, 20x1, on which date the following journal entry was prepared for the
partnership:
Cash
Goodwill [(₱186,000 x 3) - (₱300,000 + ₱186,000)]
Ana, Capital (₱72,000 x 0.50)
Lyn, Capital (₱72,000 x 0.50)
Cath, Capital
₱ 186,000
72,000
₱
36,000
36,000
186,000
To record investment by Cath for a one-third interest in capital with goodwill of
₱72,000 divided equally between Ana and Lyn.
The foregoing journal entry:
a. Is acceptable.
b. Should be replaced by an entry allocating an ₱24,000 bonus equally to Ana and
to Lyn.
c. Should be replaced by an entry allocating a ₱72,000 bonus equally to Ana and
to Lyn.
d. Should not reflect either a bonus or goodwill.
18. The partnership of Axe, Bane and Chen was dissolved on June 30, 20x1 account
balances after non-cash assets were converted into cash on September 1, 20x1 are:
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MAY 2023 BATCH
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Cash
₱50,000
Accounts payable
Axe, capital
Bane, capital
Chen, capital
₱120,000
90,000
(60,000)
(100,000)
Personal assets and Liabilities of the partners on September 1, 20x1 are:
Personal
Assets
₱80,000
100,000
192,000
Axe
Bane
Chen
Personal
Liabilities
₱90,000
61,000
80,000
If Chen contributes ₱70,000 to the partnership to provide cash to pay the
creditors, what amount of Axe’s ₱90,000 partnership equity would appear to be
recoverable?
a. ₱90,000
b. ₱81,000
c. ₱79,000
d. None
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19. Gains and losses incurred at liquidation are distributed to the partners using the
residual profit and loss sharing ratios because
a. Using ownership percentages would permit solvent partners to not share profits
with insolvent partners.
b. Using the established profit and loss sharing ratios is not permitted.
c. The residual profit and loss ratios represent the ownership percentages.
d. These amounts represent profits and losses from prior periods that would have
been shared using the residual profit and loss ratios.
₱4,000
26,000
2,000
Total Assets
₱32,000
Liabilities
Loan from Addy
Addy, Capital (20%)
Bess, Capital (40%)
Clara Capital (40%)
Total liab./equity
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Cash
Other Assets
Loan to Clara
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20. The balance sheet of the Addy, Bess, and Clara partnership on January 1, 20x1 (the
date of partnership dissolution) was as follows:
₱8,000
1,000
2,000
9,000
12,000
₱32,000
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In January, other assets with a book value of ₱16,000 were sold for ₱10,000 in
cash. Using a safe payments schedule, how much will each partner receive as cash
distribution after the liabilities had been paid?
a. Addy - ₱1,200; Bess - ₱1,800; Clara - ₱3,000
b. Addy – ₱0; Bess - ₱2,500; Clara - ₱3,500
c. Addy - ₱1,800; Bess - ₱1,800; Clara - ₱2,400
d. Addy – ₱0; Bess - ₱2,000; Clara - ₱4,000
21. The PQR Partnership is being dissolved. All liabilities have been paid and the
remaining assets are being realized gradually. The equity of the partnership is as
follows:
Partners’
Patar
Qatar
Ratan
Accounts
Loans to
(from)
Partnership
₱240,000
₱360,000
₱600,000
₱60,000
(₱100,000)
Profit
and
Loss
Ratio
3
3
4
The second cash payment to any Partner (s) under a program of priorities shall be
made:
a. To Ratan ₱20,000
b. To Ratan ₱80,000
c. To Qatar ₱60,000
d. To Qatar ₱60,000 & Ratan ₱80,000
22. When a secured claim is not fully settled by the selling of the underlying
collateral the remaining portion _____________.
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a. of the claim cannot be collected by the creditor.
b. is classified as an unsecured with priority claim.
c. remains as a secured claim
d. is classified as an unsecured without priority claim.
23. Which of the following is not a general objective of bankruptcy procedures?
a. Assurance of an equitable distribution of the debtor’s property among
creditors.
b. Assurance that all obligations of the debtor will be satisfied completely.
c. Protect the interest of the company.
d. Attempt to give the debtor a fresh start.
24. Butuan Company is bankrupt and has undergone corporate liquidation. Presented
below is its statement of financial position before the start of liquidation:
Accounts Payable
Salaries Payable
Income tax Payable
Loan Payable
Mortgage payable
Contributed capital
Deficit
100,000
200,000
300,000
400,000
500,000
800,000
300,000
Liquidation expenses amounting to ₱600,000 were paid.
The loan payable is secured by the machinery with fair value of ₱300,000.
The mortgage payable is secured by the building.
At the end of liquidation, the holder of loan payable received ₱340,000.
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✓
✓
✓
300,000
500,000
1,200,000
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Cash
Machinery
Building
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What is the amount to be received by the holder of accounts payable at the end of
liquidation?
a. ₱60,000
b. ₱85,000
c. ₱40,000
d. ₱15,000
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25. In which of the following ways can debt be restructured?
I. Assets can be transferred to the creditor.
II. An equity interest can be granted to the creditor.
III. The terms of the debt can be modified.
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a. I and III only
b. II and III only
c. I and II only
d. I, II, and III
26. All of the following items
liquidation except:
a. Cash
b. Depreciable assets (net)
are
reported
c.
d.
in
a
statement
of
realization
and
Prepaid assets
Receiver's expenses
27. The following information is available concerning Angara Inc. on the date the
company entered bankruptcy proceeding:
Account
Cash
Accounts receivable
Inventory
Prepaid expenses
Buildings, net
Equipment, net
Goodwill
Wages payable
Taxes payable
Accounts payable
Notes payable
Common stock
Retained earnings, Deficit
Balance per Books
₱ 2,860
52,260
28,000
4,300
59,000
5,600
7,650
(2,500)
(1,810)
(79,000)
(15,150)
(72,000)
10,790
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MAY 2023 BATCH
ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)
Inventory with a book value of ₱20,000 is security for notes of ₱10,100. The
equipment secures the other notes. Expected realizable values of the assets are:
Accounts receivable
Inventory
Buildings
Equipment
₱44,100
18,500
22,500
2,000
What is the expected amount of cash partially secured creditors will receive?
a. ₱ 9,000
b. ₱4,734
c. ₱2,734
d. ₱5,050
28. The following data were taken from the statement of realization and liquidation of
XYZ Corporation for the quarter ended September 30:
₱ 330,000
468,000
360,000
510,000
420,000
Assets not realized
Liabilities liquidated
Liabilities to be liquidated
Liabilities assumed
Liabilities not liquidated
₱ 150,000
360,000
540,000
180,000
450,000
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Assets to be realized
Supplementary Charges
Assets acquired
Supplementary Credits
Assets Realized
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The ending balances of capital stock and retained earnings are ₱300,000 and
₱120,000, respectively. What is the net income (loss) for the period? How much is
the ending balance of cash?
a. ₱168,000; ₱720,000
c. ₱(210,000); ₱560,000
b. ₱(168,000); ₱720,000
d. ₱42,000; ₱560,000
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29. Under PFRS 15, an asset is transferred to the customer when the it obtains
_________.
a. Satisfaction
b. Possession
c. Control
d. Recognition
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30. In a repurchase agreement (repo) in which the seller has a call option, if the
repurchase price is greater than the original selling price, the transaction is
accounted as
a. Sales
b. Sale with right of return
c. Financing agreement
d. Lease
31. Identify the following statements whether these are true or false.
Statement 1: A contract must create enforceable rights and obligations to fall
within the scope of PFRS 15.
Statement 2: The contact referred to in Statement 1 must be in writing for it to
fall under the scope of PFRS 15.
a. Statement 1 is true; Statement 2 is false.
b. Statements 1 and 2 are all false.
c. Statement 1 is false; Statement 2 is true
d. Statements 1 and 2 are all true.
32. On 1 January 20x1, a vendor enters into a contract with a customer to build an
item of specialized equipment, for delivery on 30 April 20x1. However, the exact
delivery date is hard to estimate. The amount of consideration specified in the
contract is ₱300,000, but that amount will be decreased or increased by ₱500 for
each day, depending on whether the actual delivery date is before or after 30
April 20x1. How should a vendor determine a transaction price for this contract?
a. A vendor needs to apply the most likely amount method in order to predict the
amount of consideration, because there is a range of possible outcomes
b. A vendor needs to apply expected value method in order to predict the amount
of consideration, because there is a range of possible outcomes
c. The transaction price for this contract should be the same as specified in the
contract with a customer, which is ₱300,000
d. The transaction price may only be calculated when the equipment is delivered
and exact amount of consideration is known
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33. Alpha sells a product to a customer for ₱121,000 that is payable 24 months after
delivery. The customer obtains control of the product at contract inception. The
contract permits the customer to return the product within 90 days. The product is
new, and Alpha has no relevant historical evidence of product returns or any
available market evidence.
The cash selling price of the product is ₱100,000, which represents the amount
that the customers would pay upon delivery for the same product sold under
otherwise identical terms and conditions as at contract inception. The cost of
product is ₱80,000.
What is amount of the revenue that shall be recognized when control of the product
transfers to the customer?
a. ₱100,000
b. ₱5,042
c. ₱121,000
d. ₱0
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34. The cable company Z wishes to enter the new market and launches a promotion
campaign. It offers to reimburse the customer’s penalty paid to old TV provider
for early termination of the contract when the customer decides to sign up for 12month of cable TV services with Z. How shall Z account for the reimbursement of
penalty?
a. As for the reduction in the transaction price.
b. As for the prepaid expenses.
c. As for the purchases of inventories.
d. As for the distinct performance obligation.
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35. The following are the contract revenues and costs transaction of Charlie Builders
Corp. as of December 31, 20x0. The project duration is from July 1, 20x0 until
June 30, 20x1 with a total contract cost of ₱5,000,000. It was agreed further that
the initial contract be revised with an increase by 15%.
₱ 7,000,000
200,000
50,000
20,000
Cost and expenses:
Direct labor
Cost of materials
Depreciation of plant equipment
Contract design and technical assistance
Administrative expenses
Selling expenses
₱1,000,000
2,000,000
300,000
150,000
100,000
50,000
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Revenues:
Initial amount of contract
Additional incentives
Other contract claims
Incidental income directly related to the project
Using the stage of completion measured by the proportion that contract costs
incurred for work performed to-date bear to the estimated total contract costs,
compute the amount of revenues for the year ended December 31, 20x0.
a. ₱5,727,000
b. ₱5,250,000
c. ₱5,693,800
d. ₱5,719,182
36. Jolina Construction Company entered into a contract with Kiko Hotel for
constructing and installing a standard designed gym for a fixed price of ₱400,000.
Nonrefundable progress payments are made on a monthly basis for work completed
during the month. Legal title to the gym passes to Kiko Hotel upon completion of
the building process. If Kiko cancels the contract before the gym construction is
completed, Jolina Construction Company removes all the installed equipment and
Kiko Hotel must compensate Jolina for any loss of profit on sale of the gym to
another customer. When should revenue be recognized?
a. Any time
c. Point in time
b. Upon transfer of legal title
d. Over time
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37. A contract modification in which the remaining goods or services are not distinct
and, therefore, form part of a single performance obligation that is partially
satisfied at the date of the contract modification is accounted as
a. A separate contract
b. Retroactive adjustment of the existing contract
c. A termination of the existing contract and the creation of a new contract
d. No such thing
38. Applying PFRS 15, any expected loss on the construction contract is
a. Recognized as an expense immediately as an adjustment to the revenue already
recognized.
b. Recognized as an expense immediately regardless of the work done or percentage
of completion.
c. Recognized as an expense immediately with a corresponding provision for an
onerous contract.
d. Recognized as an impairment loss of contract cost recognized as an asset.
39. On 1 January 20x1, a construction company entered into a contract that has a fixed
price contract for ₱100,000 to construct a building (the project).
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The contractor's initial estímate of total contract costs is ₱60,000. It will take
two years to construct the building.
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As of 31 December 20x1, the contractor has incurred costs of ₱20,000 on the
contract, including ₱2,000 customized materials that is not yet installed. The
entity's estimate of total contract costs has stayed the same.
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If the contractor determines the stage of completion of the construction contract
by reference to the proportion that costs incurred for work performed to date bear
to the estimated total costs, how much is the revenue, expenses, and profit for
the year 20x1:
Revenue
Expenses
Profit
a. ₱30,000
₱18,000
₱12,000
b. ₱32,000
₱20,000
₱12,000
c. ₱31,333
₱18,000
₱13,333
d. ₱33,333
₱20,000
₱13,333
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40. On January 1, 20x1, Pentheraphobia Inc. entered into a construction contract with
an owner to build an oil refinery. The contract has the following characteristics.
The oil refinery is highly customized to the owner’s specifications and changes to
these specifications by the owner are expected over the contract term. The oil
refinery does not have an alternative use to the contractor. Non-refundable,
interim progress payments are required as a mechanism to finance the contract. The
owner can cancel the contract at any time (with a termination penalty); any work
in process is the property of the owner. As a result, another entity would not
need to reperform the tasks performed to date. Physical possession and title do
not pass until completion of the contract. The contractor preponderance of
evidence suggests that the contractor’s performance creates an asset that the
customer controls and control is being transferred over time. Pentheraphobia Inc.
concludes that input method (cost to cost method) instead of output method is a
more reasonable method for measuring the progress toward satisfying its
performance obligation.
The contract duration is 3 years with total estimated contract revenue of ₱300M.
The total estimated contract cost as of December 31, 20x1 is ₱200M. The cost
incurred during year 20x1 is ₱120M including ₱20M related to contractor-caused
inefficiencies which do not represent/depict the transfer of goods or services to
the customer. As of December 31, 20x2, the total estimated contract cost becomes
₱250M due to increase in cost of raw materials. The cost incurred during year 20x2
is ₱105M including ₱5M related to contractor-caused inefficiencies which do not
represent/depict the transfer of goods or services to the customer.
Applying PFRS 15, how much is the net income/(net loss) to be reported by
Pentheraphobia Inc. for the years ended December 31, 20x1 and 20x2, respectively?
a. ₱30M and (₱15M)
c. ₱60M and (₱15M)
b. ₱50M and (₱10M)
d. ₱40M and (₱5M)
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41. If a promise to grant license is distinct, revenue recognition depends on whether
the right granted is right to access or right to use. Which of the following
appropriately describes revenue recognition of right to access or right to use?
Right to Access
Right to Use
a.
Over time
Point in time
b.
Over time
Over time
c.
Point in time
Over time
d.
Point in time
Point in time
42. Dakyung Diners Inc. charges an initial franchise fee of ₱90,000 broken down as
follows:
Rights to trade name, market area, and proprietary know-how
Training services
Equipment (cost of ₱10,800)
Total initial franchise fee
₱40,000
11,500
38,500
₱90,000
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Upon signing of the agreement, payment of the ₱90,000 is required. The franchise
agreement is signed on August 1, 20x1. Training was completed and the equipment
was installed on November 1, 20x1 and the franchise commences operation on
November 1, 20x1. Assume that the license is right to use and the total training
fees includes training services for the period leading up to the franchise opening
(₱5,500 value) and for 3 months following opening. The journal entry on August 1,
20x1 would include
a. A credit to Contract Liability - Services for ₱11,500.
b. A credit to Contract Liability - Services for ₱6,000.
c. A debit to Sales Revenue for ₱38,500.
d. A debit to Contract Liability -Franchise for ₱40,000.
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43. Paeng Computers manufactures and sells wireless headset which include a 180-day
warranty on product defects. It also sells an extended warranty which provides an
additional two years of protection. On May 10, it sold a headset for ₱3,850 and an
extended warranty for another ₱1,200. The journal entry to record this transaction
would include
a. A credit to Service Revenue of ₱5,050.
b. A credit to Service Revenue of ₱1,200
c. A credit to Sales of ₱3,850 and a credit to Service Revenue of ₱1,200
d. A credit to Contract Liability of ₱1,200.
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44. What is the main characteristic of bill-and-hold sales?
a. The sale is delayed by the seller, not by the buyer
b. The costs incurred can be measured reliably
c. The sale is delayed by the buyer, not by the seller
d. It is probable that delivery will be made
45. On May 31, Papasa Din Ako consigned 10 stereo units for Toyota Hilux to Akala Mo
Lang Iyon on which the latter paid ₱2,400 for the cost of freight. Papasa recorded
the shipment as a debit to Accounts Receivable and as a credit to Sales at ₱4,500
per unit, to allow recognition of gross profit of 25% on cost. After a month,
Akala reported the sale of six units and remitted ₱30,600 as full settlement of
the amount due to the consignor, after deducting the following additional items:
cartage in, ₱300; advertising at 10% of commission; delivery expenses of ₱1,770
and a 15% commission on the sales price. The consignor’s profit to date is:
a. ₱9,960
b. ₱10,080
c. ₱11,205
d. ₱12,250
46. The following accounts appeared in the accounting records of Zika:
Installment Accts Receivable – 20x1
Installment Accts Receivable – 20x2
Inventory, December 31, 20x1
Purchases
Additional information:
₱
15,000
200,000
70,000
555,000
Repossessions
Installment sales
Regular sales
Deferred gross profit
₱
3,000
425,000
385,000
54,000
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Installment accounts receivable – 20x1, January 1, 20x2
Inventory of new and repossessed merchandise, December 31, 20x2
Gross profit rate on regular sales
₱ 120,000
95,000
30%
Repossession was made during the year 20x2. It was a 20x1 sale and
corresponding uncollected balance at the time of repossession was ₱7,200.
the
Compute the (1) total realized profit and (2) loss on repossession.
a. ₱129,150; ₱960 b. ₱129,150; ₱1,464 c. ₱245,010; ₱960 d. ₱85,500; ₱1,464
47. On August 31, 20x1, KFC entered into franchise agreements with two franchisees.
The agreement requires an initial franchise fee payment of ₱700,000 plus four
₱300,000 payments due every four months. The first payment is due on December 31,
20x1. The market interest rate is 12%. The initial deposit is refundable until
substantial performance has been completed. The following data on December 31,
20x1 described each agreement:
Probability of
Full Collection
Likely
Doubtful
Services Performed
by Franchisor
Substantially
25%
Total Costs
Incurred
₱ 700,000
N/A
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Franchisee
Jak’s Barbie
Barbie’s Jak
The present and future value tables at 4% for four periods were as follows:
0.8548
3.6299
1.1699
4.2465
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Present Value of ₱1
Present Value of an annuity of ₱1
Future Value of ₱1
Future Value of an annuity of ₱1
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What amount of net income is to be reported by KFC in 20x1, assuming ₱1,000,000
was received from each franchisee during the year for Jak’s Barbie and Barbie’s
Jak, respectively?
a. ₱1,088,970; Nil
c. ₱1,788,970; Nil
b. ₱1,132,529; Nil
d. ₱1,132,529; ₱43,559
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48. The difference between the true branch net income and the branch reported net
income is otherwise known as
a. Realized gross sales.
b. Understatement in the branch’s cost of goods sold.
c. Understatement in the branch’s net income.
d. Overstatement in the branch’s beginning and ending inventory.
49. Virtuose has a sales agency in Cebu. Agency revenues and expenses are recorded in
separate agency accounts, with the operating results of both the agency and the
home office generated at each month-end. For the month of October, the home office
paid ₱10,000 for advertising costs on behalf of the agency and recorded this as
follows:
a.Cash agency
Cash
10,000
b.Advertising expense
Cash
10,000
c.Accounts receivable - Cebu Agency
Cash
10,000
d.Advertising expense – Cebu Agency
Cash
10,000
10,000
10,000
10,000
10,000
50. On February 14, 20x1, Gerald Company established a sales agency in Secret Place.
Upon establishment of the sales agency, the home office sent samples costing
₱8,000 and a working fund of ₱3,000 to be maintained on the imprest basis. During
the six months period, the sales agency reported to the home office sales orders.
These were billed at ₱70,000 of which of ₱40,000 was collected. The sales agency
paid expenses of ₱5,800 but was reimbursed by the home office.
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On August 15, 20x1, the sales agency samples were valued at ₱2,000. It was
estimated that the gross profit on goods shipped to fill sales order averaged 40%
of cost.
The cost of sales of the sales agency for the six months period is
a. ₱20,000
b. ₱48,000
c. ₱44,000
d. ₱50,000
51. If the home office receives credit memo from the branch, the home office shall
record in its separate statement of financial position by
a. Decreasing the branch current account
b. Crediting the branch current account
c. Debiting the branch current account
d. Disclosure
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52. Durable Textile Company has a single branch in Bohol. On March 1, 20x1, the home
office accounting records included an Allowance for Overvaluation of Inventories –
Bohol Branch ledger account with a credit balance of ₱32,000. During March,
merchandise costing ₱36,000 was shipped to the Bohol Branch and billed at a price
representing a 40% markup on the billed price. On March 31, 20x1, the branch
prepared an income statement indicating a net loss of ₱11,500 for March and ending
inventories at billed prices of ₱25,000. What is the amount of adjustment for
allowance for Overvaluation of Inventories to reflect the true branch net income?
a. ₱39,257 debit
b. ₱39,333 debit c. ₱46,000 credit
d. ₱46,000 debit
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53. PTT Corporation retails merchandise through its home office store and through a
branch store in a distant city. Separate ledgers are maintained by the home office
and the branch. The branch store purchases merchandise from the home office (at
120% of home office cost), as well as from outside suppliers. Selected information
from the December 31, 20x1 trial balances of the home office and branch is as
follows:
Branch
60,000
11,000
30,000
19,200
12,000
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Home
Office
Sales
₱ 120,000 ₱
Shipments to branch
16,000
Purchases
70,000
Inventory, January 1, 20x1
40,000
Shipments from home office
Expenses
28,000
Unrealized profit in branch inventory
7,200
Additional information:
• The entire difference between the shipment accounts is due to the practice of
billing the branch at cost plus 20%.
• The December 31, 20x1 inventories are ₱40,000 and ₱20,000 for the home office
and the branch, respectively. (The branch purchased 16% of its ending inventory
from outside suppliers.)
• Branch beginning and ending inventories include merchandise acquired from home
office and is inventoried at 120% of home office cost.
Compute for the
Overvaluation
of Cost of
Goods Sold
a. ₱
4,400
₱
b.
2,800
c.
7,200
d.
4,400
Adjusted
Branch Net
Income
50,200
10,600
15,000
12,200
54. The unadjusted balance in the Allowance, for overvaluation account at year-end
represents ______________.
a. The mark-up on the merchandise available for sale by the branch for the year.
b. The mark-up on the merchandise shipped to the branch during the year.
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c. The mark-up on merchandise shipped to the branch during the year less the
mark-up on the merchandise returned by the branch during the year.
d. The mark-up on the cost of goods sold by the branch for the year.
55. The following data pertains to the shipments of merchandise from Home Office to
Branch during 20x1:
Home office’s cost of merchandise
Inter-office billings
Sales by branch to outsiders
Merchandise inventory on December 31, 20x1
₱350,000
420,000
520,000
50,000
In the combined income statement of the Home Office and the Branch for the year
ended December 31, 20x1, what amount of the above transactions should be included
as sales?
a. ₱570,000
b. ₱520,000
c. ₱470,000
d. ₱350,000
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56. The home office in Makati shipped merchandise costing ₱55,500 to Pasig Branch,
prepaid the freight amounting to ₱4,200. The home office transfers inventory to
the branch at a 20% markup above cost. Pasig Branch was subsequently instructed by
the home office to transfer the merchandise to Alabang Branch wherein the latter
paid freight of ₱2,800. The freight cost would have been ₱8,250 if the shipment
was made directly from Makati to Alabang. Which of the following statements is
incorrect?
a. The home office will credit savings amounting to ₱1,250 on interbranch
shipments.
b. In relation to the interbranch transfer, Pasig Branch and Alabang will prepare
journal entries as if they are transacting with the home office.
c. Alabang Branch will debit Freight-in amounting to ₱7,000 on the interbranch
transfers.
d. The home office will debit Branch Current – Alabang amounting to ₱70,800.
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57. On January 1, 20x1, Star Company established a branch in a nearby city. At the
close of the calendar year ended December 31, 20x1, the investment in branch
account on the books of the home office had a balance of ₱66,000. The branch books
reflected another amount thus the difference in, the reciprocal account is due to
the following data:
✓ Cash of ₱10,000 forwarded to the home office by the branch is in transit and
has not been recorded o the home office books.
✓ Merchandise costing the home office ₱8,000 was transferred to the branch at a
billing price of ₱9,000. The merchandise is in transit and has not been
recorded on the branch books.
✓ Notification sent by the home office to the branch, informing the branch of
₱5,000 of operating expenses that the home office paid on behalf of the
branch, has not been received by the branch and thus has not been recorded by
the branch.
✓ Cash of ₱2,000 received by the branch from the home office was erroneously
recorded by the branch as ₱20,000.
✓ The branch purchased, for cash ₱15,000 of equipment for its use; fixed asset
accounts of the branch are maintained at the home office. Notification sent to
the home office by the branch, informing the home office of the branch's
action has not been received, by the home office and thus has not been
recorded by the home office.
How much is the unadjusted balance of home office account on branch's books?
a. ₱87,000
b. ₱41,000
c. ₱62,000
d. ₱45,000
58. Identify the following statements if these are TRUE or FALSE.
Statement 1: If a joint venturer loses joint control but retains an interest in an
associate, it would continue to apply the equity method.
Statement 2: An entity has to remeasure its retained interest in an associate when
it loses joint control over a joint venture.
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a. Statements 1 and 2 are all true.
b. Statement 1 is false; Statement 2 is true.
c. Statement 1 is true; Statement 2 is false.
d. Statements 1 and 2 are all false.
59. The requirement to have unanimous consent ensures that in a joint arrangement, no
single party controls the arrangement. A party with joint control of an
arrangement can prevent any of the other parties, or a group of the parties, from
controlling the arrangement. In some cases, a contractual arrangement may require
a minimum proportion of the voting rights to make decisions. Consider the
following information:
Minimum voting
requirement
75% vote to direct
relevant activities
Party A
Party B
Party C
Total
50%
34%
16%
100%
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Using the above information, which of the following statements is correct?
a. There is no joint control since the parties have no equal votes.
b. There is a joint control between A, B and C.
c. There is a joint control by A and B since their combined votes meets the
requirement.
d. There is no joint control by A B, and C since multiple combinations of parties
could collectively control the arrangement
C
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60. Reyes and Santos formed a joint arrangement to acquire and sell a particular lot
of merchandise. Reyes was to manage the arrangement and to furnish the capital,
and the operators were to share equal in any gain or loss. On June 10, 20x1,
Santos sent Reyes ₱10,000 cash, which was immediately used to purchase merchandise
which cost ₱10,000. Reyes paid freight of ₱240 on the merchandise purchased. On
June 24, one half of the merchandise was sold for ₱7,200 cash. Reyes paid the cost
of delivering merchandise to customers, which amounted to ₱260. No further
transactions occurred on June 30, 20x1.
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On June 30, 20x1 after recognizing the profit (loss) on the uncompleted joint
arrangement the account of Santos on the books of Reyes will show a debit (credit)
balance of:
a. (₱10,910)
b. (₱10,975)
c. ₱10,850
d. Some other answer
61. Sweet Company and Heart Company formed a merchandising joint venture, the
Sweetheart Company. Summarized transactions of the joint venture for the year 20x1
are as follows:
Cash investments by the venturers:
Sweet Company (60% interest)
Heart Company (40% interest)
Purchase of merchandise on account
Expenses paid
Sales on account (25% above cost)
₱120,000
80,000
150,000
10,000
150,800
The contractual arrangement includes profit and loss ratio of 6:4 to Sweet and
Heart respectively.
Under the equity method, what is the balance of the Investment in Joint Venture
account in the books of Heart on December 31, 20x1?
a. ₱80,000
b. ₱80,064
c. ₱88,064
d. ₱88,000
62. Applying PFRS for SME, this form of joint venture involves the use of assets and
other resources of the venturers rather than the establishment of a separate
entity
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a. Jointly controlled operations
b. Jointly controlled entities
c. Jointly controlled assets
d. All of the choices
63. On December 31, 20x1 Entity A acquired 30 per cent of the ordinary shares that
carry voting rights of entity B for ₱100,000. Entity A incurred transaction costs
of ₱1,000 in acquiring these shares.
Entity A has significant influence over entity B. Entity A uses the cost model to
account for its investments in associates.
In January 20x2 Entity B declared and paid a dividend of ₱20,000 out of profits
earned in 20x1. No further dividends were paid in 20x2, 20x3 or 20x4.
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A published price quotation does not exist for entity B. At December 31, 20x1,
20x2 and 20x3, in accordance with Section 27 Impairment of Assets, management
assessed the fair values of its investment in entity B as ₱102,000, ₱110,000 and
₱90,000 respectively. Costs to sell are estimated at ₱4,000 throughout. Entity A
measures its investment in entity B on December 31, 20x1, 20x2 and 20x3
respectively at:
a. ₱100,000, ₱100,000, ₱100,000.
c. ₱95,000, ₱95,000, ₱86,000.
b. ₱98,000, ₱106,000, ₱86,000.
d. ₱98,000, ₱101,000, ₱86,000.
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64. On June 1, 20x1, Puell Company acquired 100% of the stock of Sorrell Inc. On this
date, Puell had Retained Earnings of ₱100,000 and Sorrell had Retained Earnings of
₱50,000. On December 31, 20x1, Puell had Retained Earnings of ₱120,000 and Sorrell
had Retained Earnings of ₱60,000. What is the amount of Retained Earnings that
would appear in the December 31, 20x1 consolidated balance sheet?
a. ₱170,000.
b. ₱130,000.
c. ₱120,000.
d. ₱180,000.
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65. A business merger differs from a business consolidation because ______________.
a. A consolidation is creäted when two entities join, but a merger is created
when more than two entities join.
b. A consolidation dissolves all but one of the prior entities, but a merger
dissolves all of the prior entities.
c. A merger dissolves all but one of the prior entities, but a consolidation
dissolves all of the prior entities and forms a new corporation.
d. A merger is created when two entities join, but a consolidation is created
when more than two entities join.
66. On October 4, 20x0, Sooty Corporation, a US firm, borrowed 250,000 British pounds
from a London bank, evidenced by an interest-bearing note payable due in one year.
The note was payable in pounds. Exchange rates for pounds were:
October 4, 20x0
December 31, 20x0
October 4, 20x1
$1.59
$1.55
$1.61
What is the final amount of the loan payable that Sooty repaid?
a. $287,500
b. $402,500
c. $397,500
d. $250,000
67. Pacman Corporation purchased a 10% interest in Spence Company on January 2, 20x0
to be classified as FVTOCI for a price of ₱80,000.
On January 2, 20x1, Pacman purchases 7,000 additional shares of Spence from
existing shareholders for ₱630,000. The purchases raised Pacman’s interest to 80%.
Spence Company had the following statement of financial position just prior to
Pacman’s second purchase:
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Assets
Current assets
Land and building (net)
Equipment (net)
Total
₱330,000
280,000
200,000
₱800,000
Liabilities and Equity
Liabilities
Ordinary shares, ₱20 par
Accumulated profits
Total
P130,000
200,000
480,000
P800,000
On the date of the second purchase, Pacman determines that Spence equipment was
undervalued by ₱100,000 and had a 5-year remaining life. All other book values
approximate fair values. Any remaining excess is attributable to goodwill.
What is the amount of goodwill to be reported in the consolidated statement of
financial position?
a. ₱110,000
b. ₱120,000
c. ₱60,000
d. ₱53,750
Current assets
Land
Building
Equipment
Total Assets
₱
32,500
220,000
110,000
87,500
₱ 450,000
Liabilities
Capital stock, ₱5 par
Additional paid in capital
Retained earnings
Total equities
₱
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87,500
150,000
137,500
75,000
₱ 450,000
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68. The Statement of Financial Position of Lancer Corporation on June 30 is presented
below:
PA
All the assets and liabilities of Lancer assumed to approximate their fair values
except for land and building. It is estimated that the land has a fair value of
₱350,000 and the fair value of the building increased by ₱80,000.
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Phantom Corporation acquired 80% of Lancer’s capital stock for ₱500,000.
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Assuming the consideration paid includes control premium of ₱142,000, how much is
the goodwill/(gain on acquisition) on the consolidated financial statement?
a. ₱60,000
b. ₱48,000
c. ₱42,000
d. ₱50,000
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69. Which of the following factors would guide you in classifying a product as a main
product or byproduct?
a. Weight or volume of outputs per period
b. Number of units per processing period
c. Joint costs incurred up to the split-off point
d. Percentage of total sales value
70. What is the authorization issued by the DBM to NGAs to incur obligations for
specified amounts contained in a legislative appropriation in the form of budget
release documents?
a. Appropriations
b. Approved Budget
c. Allotment
d. Automatic Appropriations
--“Success comes to the person who makes the best use of today.”
--“No one experiences an extraordinary life through procrastination.”
“Some people succeed because they are destined to, but most people succeed because
they are determined to.”
☺ -- END OF PREBOARD -- ☺