: ca 9031 Main: 3F C. Villaroman Bldg. 873 P. Campa St. cor Espana, Sampatoc, Manila (02) raat 1738 “granch: Rudel Bldg. V, Lower Mabini cor Diego Silang, Baguio City ® (074)42? ‘email add: [email protected] 4 BATCH PRACTICAL ACCOUNTING 2 ani. vt 2044 Anat FIRST PRE-BOARD EXAMINATION <3 EC I> EB JAN.31, 2014; Mark only one Select the correct answer for each of the following questions. rT ETTONS: tem by SHADING corresponding letter of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use Pencil No. 2 only. t between the balance in LAs jn to audit the books of the FIL-EM Company, you notice a discrepancy teyTcenent in Branch (136,020 Dr.) and the Home Office (P175,400 Cr.) accounts. The folowing Information is available: 1, The home office bills goods shipped to the branch at 150% of cost. At the Beginning of the yor, branch Inventory was stated at P75,000 after the annual physical count, and the heme ore Unrealized profit account had a credit balance of P5,000. You find that a shipment with a Te ‘value of P60,000 made toward the end of the prior year had not been recorded By the home Cf /ce 2. On December 31 of the year under review, the branch mailed to the home office @ check i 725,000 and a notice thatthe bronch had collected P4,380 on a home office account r These items had not been recorded by the home office. 3. The branch was opened during the preceding year and its operating loss of P42,800 for the year was capitalized by the branch as a start-up costs by the following entry: Start-up Cost (Intangible Asset) 42,800 Income Summary * 42,800 " ‘The account is not being amortized by the branch, and no entry was made by the home office to reco the net loss. How much must be the adjusted balance of reciprocal accounts? A. P175,400 B. P192,600 . P115,400 132,600 Questions 2 and 3 are based on the following: Ryan Retail Company sells goods for cash, on normal credit (2/10, n/30). However, on July 1, 2014, 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: (2) collections on the instalment receivable during 2014 were P3,000 and during 2015 were 2,000, and (b) on Decemter 1, 2015, Ryan Retail repossessed the computer (estimated net realizable value, P7,000). 2. Determine the realized gross profit on instalment saies for the year 2014. A, P 1,600 B. P 4,000 C. P2,400 D. P 5,600 3, Determine the gain or loss on repossession recognized in 2015. ‘A. P3,000 loss B. P3,000 gain . 4,000 loss D. 4,000 gein Questions 4 and 5 are based on the following: Partners A, B, C, and D have been operating ABCD Partnership for ten years. Due to a significant reduction In the demand for their product over recent years, the partners have agreed to liquidate the partnership. At the time of liquidation, balance sheet accounts consisted of cash, P103,500; noncash assets, P300,000; liabilities to outsiders, P60,000; capital credit balances for partners A, B, and C, P90,009, P150,000, and 120,000, respectively; and a debit capital balance for partner D of P16,500. Partners share equally in income and loss. It is estimated that the administrative cost of liquidation will total P4,50C. While preparing for liquidation, an unrecorded liability of P7,500 was discovered. ‘Assuming the available cash of P103,500 was distributed, how much must be the share of artner B? A, 31,500 B. P 30,750 C. P 65,167 D. none For how much must the noncash assets be sold for partner D to received at least P5,000? ‘A. 429,500 B. P501,500 C. P398,000 D. P386,000 ‘On January 1, 2014, REH sells 20 acres of farmland for P12,000,000 taking in exchar : 9,000, Inge a 12% Interest bearing note, REH purchased the farmland in 1999 at a cost of P8,000,000. The note will be paid in three (3) equal annual payments inclusive of 12% interest each December 31, 2014, 2015 and 2016. How much ‘must be the realized gross profit for the year 2014 under the instalment method of recognizing revenue? ‘A. P3,556,253 B. P 1,185,418 ©, P 1,333,333, D. 2,814,582 EE w=(CRC-ACE/PA2: First Pre-board Exams (May 2014 batch) Page 2 of 10 7. Civank Company which began operations on January 1, 2014, approprately uses the instalment method (of accounting to record revenues. The following information is available for the years ended December 31, 2014 and 2015: 2014 2015 Sales 1,000,000 2,000,000 Gross profit realized on sales made in: 2014 150,000 90,000 2015 - 200,000 */ Gross profit percentages 30% 40% What amount of instalment accounts receivable should Citibank report in its Dec 31, 2015, balance sheet? A. P1,225,000 . P1,300,000, ¢.P1,700,000 . P1,775,000 8. Rachel Corporation contracted to build a building for Cecil Company, The contract price was PS,000,000 and Rachel estimated that construction costs would total P4,200,000. The construction period lasted until September 1, 2016. Costs during each period, estimated total cost of the product at the end of the year, billings and cash collected during the year were as follows: 2014 2015 2016 Costs during period 1,050,000 P1,950,000 1,250,000 Estimated or Actual Total Costs 4,200,000 4,250,000 4,250,000 Bitings during the period 1,000,000 1,500,000 2,500,000 Cash collected during period ‘800,000 1,400,000 2,600,000 ‘The amount of gross profit recognized in 2015 using the percentage of completion method must be: ‘A. P8DC,000 8B. P-200,000 C. 365,000 D. P 329,412 9. The foiiowing information pertain to the building contract of Emerald Construction Company, wherein the fixed contract price fs P80 milion, 2014 2015 2016 Estimated costs, 20.1 million 30.15 million 16.75 mition Progress billings 10 mition 25 milion 45 milion Cash collection 8 mition 23 million 49 million Assume that all costs are incurred, all billings to customers are made, and all collections from customers ‘are received within 30 days of biling, as planned. Under the percentage-of- completion method of revenue. recognition is used, how much is the income from construction for the year 2016? ‘A. P 3,900,000 B. 3,250,000 . P9,750,000 D. 5,850,000 10. Shakeys Pizza charges initial franchise fee of 500,000 for the right to operate as a franchisee of Shakeys Pizza. Of this amount, P100,000 is payable when the arrangement is signed and the balance is payable in five annual payments of P&0,000 each. In retum for the initial franchise fee, the franchisor will help locate the site, negotiate the lease or purchase of the site, supervise the construction activity, and provide the bookkeeping services. The credit rating of the franchisee indicates that money can be borrowed at 8%. The present value of an ordinary annuity of five annual receipts of PB0,000 each discounted at 8% is 319,416.60. Assuming that there is reasonable expectation that the down payment may be refunded and substantial future services remain to be performed, how much Is the unearned franchise revenue? APO 8. P500,000 . P319,416.80 D. Pa19,416.80 11. Anthony Company sells a franchise with initial franchise fee of P70,000. A down payment of P20,000 cash 's required, with the balance payable In five equal annual installments. The implicit rate of interest for such kind of borrowing is 10%. Jf none of the material services have been substantially performed but collectibilty of note is reasonably assured, how much is the amount of earned franchise revenue? APO 8. P52,300 ¢. P 20,000 D. P57,900 12. CRC acquired on January 1, 2014 all the issued and outstanding common shares of ACE for P310,000. On this day, the net assets of ACE, amounts to P270,000 including goodwill of P50,000. Per appraisal, plant 2nd equipment and merchandise inventory were undervalued by P30,000 and overvalued by P15,000, respectively, ‘What is the amount of goodwill resulting from this transaction? A. P 125,000 8. P 25,000 C. P75,000 D. PO - RENE sn NR PEy CRC-ACE/PA2: First Pre-board Exams (May 2014 batch) Page 3 of 10 13. Robertson and Lioyd are partners. Thei Robertson, Capital! Debit caantal accounts during 2014 were as folovs: Debit Credit Lloyd, Capital: Debit Credit January 1 40,000 "Serum 1 60,009 April 3 8,000 March § 9,000 ‘August 28 6,000 July 6 7,000 __ October 31 3,000 October 7 5,000 Het income of the partnership is P40,000 forthe year. The partnership agreement provides for the division of income as follows: a. Each partner is to be credited 10 percent interest on his average capital. b. Any remaining income or loss ist soning to be divided based on the beginning capital ratio. Determine the share of Lloyd on the net income of 2014, (Assume that changes in the capital accounts the ee ene frst half of the month are considered changes at the beginning of the month aed changes at .-P21,000 c. Pis,900 D. P 24,100 ‘Questions 14 and 15 are based on the following: ekieral years ago Roel and Jek formed RY Partnership. The partnership agreement states that each partner ematnaer 2 $2127 Of P10,000 per month and 5% Interest on begining. ofthe year capital baloretey ony remainder would be divided between Roel and Jek in the ratio 2:3, vely. The unadjusted trial balance of RY Partnership as of December 31, 2014, y Srosnial Team appears 23 folows: Debits Credits Cash P 500,000 Accounts payable 350,000 Accounts receivable 300,000 Notes payable 200,000 Inventory, January 1, 2014 400,000 Roel, capital 750,000 Furniture & fixtures, net 150,000 —_Jek, capital 620,000 Building, net 300,000 * Sales 800,000 Roel, drawing 100,000 Jek, drawing 120,000 Purchases 600,000 Operating expenses 250.000 Total 22.720.000 Total i 2.720.000 Additional information: 4. December 31, 2014, inventory was 550,000. 2014 purchases of P600,000 were recorded using the periodic inventory method, 2. Depreciation for 2014 on furniture and fixtures and building is determined to be 10% and 20% respectively, of net valuation. 3. On July 1, 2014, the partnership recorded a P100,000 additional capital contribution by Jek. Roc! ‘made pio additional capital contributions during the year. 14, Determine the share of partner Roel on the net income of 2014, A. 46,100 8. (P21,100) c (P19,100) D- P 44,100 15, Determine the ending capital balance of partner Jek on December 31, 2014, ‘A. P480,100 B. P521,100 C. P478,900 D. P694,100 46, On January 1, 2014, Turner Inc., reports net assets of P480,000 although a building (with a 10-year life) hraving a book valve of P260,000 is now warth P310,000. Plaster Corporation pays P400,000 on that date for @ 70 percent ownership in Turner, On December 31, 2016, Turner reports a Building account of P245,000 while Plaster reports a Bullding account of P510,000. What is the consolidated balance of the Building account? ‘A. P779,500 8. P783,500 = C. P790,000 D. 805,000 Questions 17 and 18 are based on the fallowing: ; The Walker, Wilson, and Winston Partnership is being liquidated. All liabiities have been paid. The balance of assets on hand is being realized gradually. The following are details of partners’ accounts: Capital Account Drawing Account ——Leans to PIL + Balances Balances Partnership Ratio Walker 200,000 15,000 Cr. 150,000 5 Wilson 250,000 20,000 Dr. = 2 Winston 100,000 30,000 Cr. 50,000 3 17. If you are to rank the partners from the most vulnerable to the least vulnerable, the ranking will be as follows: ‘A. Walker, Wilson, and Winston, respectively. C. Winston, Wilson and Walker, respectively 8. Wilson, Walker, and Winston, respectively, D, Winston, Walker and Wilson, respectively. SET‘CRC-ACE/PA2: First Pre-board Exams (May 2014 batch) 18. 19, 20. 2. Page 4 of 10 If partner Walker receives P150,000, how much partner Wilson receives? A. P 144,000 B, P51,000 C. P 86,000 D. P 129,000 The following balance sheet is for @ local partnership in which the partners have become very unhappy ‘with each other. To avoid further conflict, they have decided to cease operations and sell all assets, Cash P 40,000 Liabilities P 30,000 Land 130,000 Michel, capital 80,000 Building 120,000 Fernando, capital 30,000 Alvin, capital 60,000 AL, capital 90.000 £220,000 280,009 Assume that profits and losses are allocated on a 1:3:4:2 basis, respectively. How much money must be ‘received from selling the land and building to assure that all partners receives cash? ‘A, More than P50,000 C. More than P100,000 B. More than P150,000 D. More than P250,000 A, 8, C, and D are partners, shari Profits and losses 30%; 30%; 20%; 20%, respectively. After sale of firm assets and payment of the available cash to the partnership creditors, @ partnership tral balance and the personal status of each partner are as follows: Personal Status Trial Balance Exclusive of Partnership Interest Debit Credit Partner Asset Liabilities Creditors, P 20,000 A, capital 5,000 A P150,000 100,000 : B, capital 75,000 8 80,000 200,000 capital 69,000 c 150,000 40,000 D, capital 40,000 D 60,000 80,000 . 100,000 ‘Assuming that A pays the partnership creditors, how much B can stil recover from the partnership? ‘A. P75,000 B. P54,000 C. P60,000 D. PO ‘The after closing trial balances of the Cedrick, Denise and Ferdinand partnership at December 31, 2014 inciuded the following accounts and balances Assets Cash P 120,000 Accounts receivable-net 140,000 Loan to Ferdinand 20,000 Inventory 200,000 Plant assets-net 200,000 Trademarks 20,000 Total debits, 700,000 Equities ‘Accounts payable P 150,000 Notes payable 100,000 Loan from Denise 10,000 Cedrick capital (50%) 170,000" * Denise capital (30%) 170,000 Ferdinand capital (20%) 100,000 Total credits P.700,000 ‘The partnership Is to be liquidated as soon as possible and all available cash except for a P10, 000 contingency balance is to be distributed at the end of each month prior to the time that all assets are converted into cash, During January 2015, P 100,000 was collected from accounts receivable, inventory items with a book value of P 80,000 were sold for P 100,000, and available cash was distributed During February 2015, Cedrick received plant assets with @ book value of P 60,000 and a fair value of P 50,000 in partial settlement of her equity in the partnership. Also during February, the remaining inventory items were sold for P 60,000, liquidation expenses of P 2,000 were paid, and a lability of P 8,000 was discovered, Cash was distributed on February 28. ITP ER5 CRC-ACE/PA2: First Pre-board Exams (May 2014 batch) Page 5 of 10 During March 2015 the plant assets were sold for P 110,000 the remaining non cash sets were written off final liquidation expenses of P 5,000 were paid and cash was distributed. The dissolution of the partnership was completed on March 31, 2015. ‘The amount of cash to be received by Ferdinand for the month of March A PO B, P23,000 c. P.29,000 D. 60,000 ‘ACE Company has a single branch in Bulacan. On March 2, 2009 the home office accounting records Included an Allowance fer Overvaluation of Inventories-Bulacan branch ledger account with a credit balance of P 32,000. During March, merchandise costing P 36,000 was shipped to the Bulacan Branch and billed at a price representing @ 40% markup on the billed price. On March 31, 2009, the branch prepared {an income statement indicating a net loss of P 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. P 39,257 debit B, P 46,000 credit C. P39,333 debit D. P-46,000 debit Questions 23 and 24 are based on the following: 23. 24. 25. ‘The following information came from the books and records of Golden Tree Corporation and its branch. The balances are as of December 31, 2014, the fourth year of the corporation's existence. Home office Branch _ Dr (Cr) Dr. (Cr) Sales (850,000) Shipments to branch (240,000) Shipments from home office 360,000 Purchases 180,000 Expenses 160,000 Inventory, January 1, 2014 72,000 Unreatized profit in branch inventory (136,000) ‘There are no shipments in transit between the home office and the branch, Both Shipments accounts are properly recorded. The closing inventory at billed prices includes merchandise acquired from the home office in the amount of P54,000 and P30,000 acquired from vendors for a total of PB4,000. How much of the beginning Inventory of the branch was acquired from “outsiders”? A. P24,000 'B. P40,000 C. 56,000 D. P32,000 How much is the correct net income of the branch? ‘A. P162,000 B. P280,000 C. 274,000 . P160,000 ‘The Ray Company was organized in 2014. Shortly after opening Its doors to the public at the main store, Ray Company established a branch in another city. At the end of the second year of operations, the home office received the following condensed income statement from the branch: Revenues 140,000 Cost of goods sold 110,000 Gross margin 30,000 Selling and administrative expenses 25,000 Net income 28.000 ‘The management at the home office questioned the accuracy of these figures and assigned you the task of verifying the branch data. Your review of the records uncovered the following facts: 1. The beginning of year balance in Unrealized Prof to Branch was P6,000. 2. During the period, the home office shipped goods to the branch that had cost the main store 75,000. However, your review of the branch recelving reports revealed that a number of shipments from the home office had been recorded twice by the branch accountant. 3, The branch is billed a uniform 25% above cost and recelves Inventory only from the home office. ‘4. The branch ending inventory was correctly reported at a billed price of P21,750. 5. When reconciling reciprocal accounts, you found that the branch had not recorded P2,000 of services performed by the home office and billed to the branch. All other selling and administrative ‘expenses were correctly reported by the branch. ‘Compute the correct net income of the branch, A. 31,400 B. P33,400 ©. 25,400 D. P11,000 SET B“S ‘CRC-ACE/PAD: First Pre-board Exams (May 2014 batch) 27. Assume that Arlington pays cash of P2.0 million. No stock Is issued. An additional 40,000 is pa Page 6 of 10 Questions 26 and 27 are based on the following: ‘Winston has the following account balances as of February 1, 201 Inventory P 600,000 Common stock (P10 par value) P 800,000 land '500,000° Retained earnings, Jan. 1,2014 1,100,000 Buildings (net) (fair value P1,000,000) 900,000 Revenues ‘600,000 Expenses 500,000 Arington pays Pi.4 million cash and issues 10,000 shares of its P30 par value common stock (valued at P80 Per share) for all of Winston's outstanding stock and Winston is dissolved, Stock issuance costs amount to 30,000. Prior to recording these newly issued shares, Arlington reports a Common Stock account of 900,000 and Additional Paid-in Capital of 500,000, 26, Determine the goodwill that would be included in the February 1, 2014, financial statement of Arlington, ‘A. P200,000 8. P230,000 C. P100,000 D. P130,000 direct Combination costs, determine the net gain from business combination. A. P100,000 8. P200,000 . 260,000 D. P60,000 28. ‘The Gorgeous Company will issue share at P10 par value common stock for all the net assets of the Mundane Company. Gorgeous’ common has current market value of P40 per share. Mundane’s balance sheet accounts are: Current assets, P320,000; Property and equipment, P880,000; Liabilities, P400,000; paD00. PP Per 80,000; Adetional paid-in capital, P320,000; and Retained earings, 400,000, The fair value of current assets 1s P400,000 while that of property and equipment is P1,600,000. All the labllties are correctly stated. Gorgeous issued sufficient shares so that the fair market value of the stock equals the fair market value of Mundane’s net assets. How many shares must Gorgeous Co. issue? ‘A, 40,000 8. 20,000 , 80,000 D. 160,000 'S. Western Company, buys all of the outstanding stock of Abenson Company on January 1, 2014. Annual excess amortization of P12,000 results from this purchase transaction. On the date of the takeover, Wester reported retained earnings of P400,000 while Abenson reported a P200,000 balance. Western feported income of P40,000 in 2014 and P50,000 in 2015 and aid P10,000 in dividends each year. Abenson reported net income of P20,000 in 2014 and P30,000 In 2015 and paid P5,000 in dividends each yeer. ‘Assume that Western's reported income does include Income derived from the subsidiary. If the parent uses the cost method of accounting investment in subsidiary, what are the consolidated retained earnings on December 31, 20157 A. P-470,000 B. P510,000 c P446,000 D. 486,000 30. Asia Star Company purchased in the open market 60 percent of the capital stock of The Golden Tree Company on January 1, 2012, at P100,000 more than 60 percent of its book value. The differential was allocated P40,000 to plant and equipment (net) and P60,000 to goodwill, The plant and equipment had an estimated remaining life of 10 years, and the goodwill is not amortized. The Golden Tree reported net income of P60,000 in 2012, P50,000 in 2013 and P75,000 in 2014. Fifty percent of the net income was declared as dividends. . ‘On January 1, 2016, minority shareholders in The Golden Tree Company have an equity of P96,000 in the net assets of the company. Determine the January 1, 2012, cost of investment. ‘A. P223,000 8, P188,500 C. 247,500 D. P167,500 31. DMCI Company acquired 80% capital interest of STONERICH Company. DMCT paid P1,240,000 for the 80% interest and paid P88,000 for legal assistance (related to the acquisition), STONERICH net assets Valued at P1,200,000 composed of capital stock, P600,000; additional paid-in capital of P180,000 and retained eamings of P420,000. At the time of acquisition, STONERICH building is undervalued by P100,000 and has still a remaining life of 30 years. Any other excess is allocated to goodwill. STONERICH Company ‘reported net income of P140,000 and pald dividends of P20,000 during the year. How muci is the income from investment under the equity method? A. P 109,333, B. P-112,000 C. P99,733 D. P 108,667 sET BCRC-ACE/PA2: First Pre-board Exams (May 2014 batch) Page ? of 10 32, Peter Corporation owns 70 percent of John Company's common stock, acquired January 1. 2015. Goodwill from the investment is not amortized, John regularly sells merchandise to Peter at 150 percent of John’s cost. Peter's December 31, 2015 and 2016 inventories include goods purchased intercompany of P112,500 ‘and P33,000, respectively. The separate Incomes (do not include Investment income) of Peter and John for 2016 are summarized as fotlowst Peter John Sales 1,200,000 800,000 Cost of sales ( "600,000) ( 500,000) Other expenses 400,000) 90,000) Separate income 2.200000 200,000 Total consolidated income should be allocated to net income to retained earnings and minority interest Income in the amounts of: 33. Selected information from the separate and consol Jne,, and its subsidiary, Success Co., as of Dec. 31, 2014, and for the year then ended is as follows: ‘A, P358,550 and P67,950, respectively CC. P366,500 and P60,000, respectively. B. P378,550 and P60,000, respectively D. 366,500 and P67,950, respectively. Pass,Inc. SuccessCo. Consolidated Balance sheet accounts lidated balance sheets and income statements of Pass, ‘Accounts receivable 52,000 P3800 «=P. 78,000 Inventory 60,000 50,000 104,000 Income statement accounts Revenues 400,000 280,000 ——P616,000 Cost of goods sold -300,000 220,000 462,000 Gross profit Pi00,000 PF 60,000 PA54,000 Additional information: During 2014, Pass sold goods to Success at the Same mark-up on cost that Pass uses for all sales. How ‘much is the correct cost of the merchandise acquired by Success from Pass? A. 64,000 B. P.48,000 cc. P24,000 D. P 18,000 |. Monica purchased equipment from its 85% owned subsidiary, Eloisa Company for P150,000 on January 1, 2015 and the equipment and Its accumulated depreciation were carried on the books of Eloisa at P200,000 ‘and P100,000, respectively. Monica estimates a remaining life of the equipment to be 5 years, ‘at which time no salvage value fs expected to exist. Straight-line depreciation is used. Eloisa reported a net income for 2015 of P150,000. What portion of the depreciation recorded by Monica must be eliminated for consolidation purpose? ‘A. 20% of the gain on sale C, 33-1/3% of the gain on sale B. 40% of the gain on sale D. 66-2/3% of the gain on sale 35. Montero Company Is contemplating the purchase of the net assets of Toyota Company for P800,000 cash. “To complete the transaction, direct acquisition costs are P15,000. The balance sheet of Toyota Company ‘on the purchase date Is as follows: Toyota Company Balance Sheet December 31, 2014 Assets Liabilities & Equity Current assets P 80,000 abilities 100,000 Land 50,000, Common stock, P10 par 100,000 Building 450,000. Paid-in capital in excess of par 150,000 ‘Accumulated depreciation (200,000) _—Retained earnings 230,000 Equipment 300,000 Accumulated depreciation 499,000) —— Total 580,000 ‘Total ‘P580,000 ‘The following fair values were obtained for Toyota's assets and liabilities: ‘Current assets 'P300,000 Equipment 275,000 Land 75,000 Liabilities 102,900 Bullding 300,000 Determine the increase in assets that resulted from the business combination, A. P 887,600 B, P-902,000 C. P-917,000 D. P 747,000 36, A subsidiary company sells equipment with a four-year remaining useful life to its parent at @ P12,000 gain con December 31, 2014, The effect of this intercompany transaction on the parent’s retained earnings for 2014 will be: A. Addecrease of P'12,000 ff the subsidiary is 100 percent owned, B, An increase of P9,000 if the subsidiary Is 100 percent owned. A decrease of P9,000 if the subsidiary Is 100 percent owned. D, A decrease of P3,600 if the subsidiary Is 60 percent owned. sET BCRC-ACE/PA2; First Pre-board Exams (May 2014 batch) Page 8 of 10 37. Jollibee Inc. charges an Initial franchise fee of 500,000 for the right to operate as a franchisee of Greenwich. OF this amount, P100,000 is payable when the agreement is signed, and the balance is payable in five annual payments of P80,000 each, In return for the intial franchise fee, the franchisor will help locate the site, negotiate the lease or purchase of the site, supervise the construction activity, and provide the bookkeeping services. The credit rating of the franchisee Indicates that money can be borrowed at 12 percent. If the probabilty of refunding the initial franchise fee is extremely low, the ‘amount of future services to be provided to the franchisee is minimal, collectibility of the note is reasonably assured, and substantial performance has occurred. Determine the uneamed franchise fee. AL P 368,382 8. P 500,000 c. P 412,382 D. PO 38. The folowing summarized information relates to the instalment sales activity of SM Appliances. for the year 2014: Installment sales during 2014 500,000 Costs of goods sold on installment basis 330,000 Collections from customers 200,000 7 Unpaid balances on merchandise repossessed 24,000 u Estimated value of merchandise repossessed 9,200 How much of the total gross profit was realized during the year? A. P62,968 8. P71,128 C. P59,840 D. 68,000 39. The partnership of Francis, Johnter, and Lito have asked you to assist it in winding up the affairs of the business. You compile the following information. ‘@. The trial balance of the partnership on June 30, 2014, is: Debit Credit cash P 6,000 Accounts receivable (net) 22,000 Inventory 44,000 Plant and equipment (net) 99,000 Loan to Francis 32,000 Loan to Lito 7,500 Accounts payable P 17,000 Francis, capital 67,000 Johnter, capital 45,000 Lito, capital ——__ —___31500 Total P160,500 P460,500 b. The partners share profits and losses as follows: Francis, 50%; Johnter, 30%, and Lito, 20%. © The partners decided to liquidate their partnership by instalments. Cash is distributed to the partners at the end of each month. No interest on partners’ joans accrues during liquidetion. A sumimary of the July liquidation transactions follows: 16,500 collected on accounts recelvable; balance is uncollectble, 10,000 received for the entire inventory. 1,000 liquidation expense paid, P17,000 paid to outside creditors. 8,000 cash retained in the business at the end of the month, Determine the share of Johnter on the July cash distribution. A, P6,500 8. P 4,000 C. P 26,400 D. PO , 40. Diaz Enterprises, @ franchisor, charges franchisees @ “franchise fee” of P 500,000of this amount, @ onrefundable P 200,000 is paid upon installments after each year thereafter. Diaz wil assist in locating a suitable business site, conduct @ market study, oversee the construction of facilities and provide Initial training for employees, On December 1, 2014, Diaz signed a franchising agreement for the U-belt area. By the end of 2014, it was determined that the substantial performance of the initial services had cost Diaz a total of P 150,000 and that collection of the balance of the franchisee has been reasonably assured. In its 2014 income statement, Diaz should report franchisee revenue and net income Franchise Revenue —_Net Income ‘A. P'500,000 350,000 B, P-500,000 500,000. c PO PO 0. P-350,000 350,000 SET* sCACE/PA2: First Pre-board Exams (May 2014 batch) Page 9 of 10 2014, when the partnership is to be ‘41. Following isthe bata i quae, ince sheet of the WXYZ Partnership at March 34, Cash P 6,000 Other assets ‘000 abilities P 12,400 W, Joan 12,000 % loan 19,400 2, loan 91800 Wi, capital ~ 259% 16,200 X, capital ~ 259% 12,000 ¥, capital ~ 2596 37.700 Z capital — 25% 17,700 Uquidk 1 assets having a book value of P 18,000 are sold at a loss of P 2,400, he lation expenses of P600 are paid as Well as P 7,200 of the lablities. OF the Nabilities shown in the lance sheet, P240 represents salary payable to Z and P160 represents salary payable to Y, On Ari 30, 2014 cash to be distributed to W, x ¥ and Z a6 follows: x ¥ z A PO Po Po 9,000 B. P1950 Pp 1,959 P1950 P 1,950 : c& po Po Po P 1,950 Dd. Po Po P 9,000 Po 42. The Wesley Company acquired the net assets of the Sylene Company on January 1, 2012, and made the following entry to record the purchase Current assets 100,000 Equipment 150,000 land 50,000 Buildings 300,000 Goodwill 100,000 Uabliities 80,000 ‘Common stock, Pi par 100,000 Paid in capital in excess of par 520,000 Paruming that additional shares on January 1, 2014 would be issued on that date to compensate for any fall in the value of Wesley common stock below P16 per share, the settlement would be to cure the deficiency by issuing added shares based on thelr falr value on January 1, 2014. The fair price of the shares on January 1, 2014 was P10, What is the additional number of shares issued on January 1, 2014 to compensate for any fall in the value of the stock? A. 10,000 B. 60,000 © 100,000 D. 460,000 43. The after closing balances of Denise Corporation’s home office and its branch at January 1, 2014 were as follows Home Office Branch Cash P 7,000 P 2,000 Accounts receivable-net : 10,000 3,500 Inventory 15,000 5,500 Z Plant assets net 45,000 20,000 Branch 28,000 = Total assets 2.405.000 ‘31,000 ‘Accounts Payable P 4,500 P 2,500 Other Liabilities 3,000 500 Unrealized profit-branch inv, 500 = Home Office = 28,000 Capital stock oy i Retained Earnings . Total Equities 2.105.000 P.31.000 SET B‘CRC-ACE/PA2: First Pre-board Exams (May 2014 batch) Page 10 of 10 » vvyvy vv teh/ede ‘A surnmary of the operations of the home office and branch for 2014 follows: Home Office sales: ® 100,000, Including P 33,000 to the branch. A standard 10% mark up on cost applies to all sales to the branch. Branch sales to its customers totaled P 50,000, Purchases from outside entities: Home Office, P 50,000; Branch P 7,000 Collections from sales: Home Office P 98,000 (Including P 30,000 from branch); Branch Collections; P.51,000 Payments on account; Home Office, P $1,500; Branch P 4,000 Operating Expenses paid; Home Office , P 20,000; Branch P 6,000 Depreciation on Plant assets; Home Office , P 4,000; Branch P 1,000 Home Office operating expenses allocated to the branch, P 2,000 At December 3, 2014, the Home Office inventory is P 11,000 and the Branch Inventory is P 13,000 ‘and the Branch inventory is P 6,000 of which P 1,050 was acquired from outside suppliers ‘The combined net income amounted to: APO B.P 4,550 cP 21,000 D. 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Villaroman Bldg. 873 P. Campa St. cor Espana, Sampaloc, Manila MF (02) 735 8901 / 735 9031 ‘Branch: Rudel Bldg. V, Lower Mabini cor Diego Silang, Baguio City ® (074)4221440 ‘email add: [email protected] 9 PRACTICAL ACCOUNTING 2 MAY 2014 BATCH SOLUTION TO FINAL PRE-BOARD EXAMS SET A/B 1/35 A Fair value of assets acquired 750,000 ‘Goodwill (800,000 - 648,000) 152,000 orc (15,000) Tcrease in Assets 887,000 2/37 D If the probability of refunding is extremely low, which means that the down payment is no longer refundable, the amount of future services to be provided is minimal, which means that the services were substantially performed and the collectibility of the note Is reasonably assured, then the entire franchise fee is considered earned, therefore the answer must be zero. 3/38 D Total collections from customers 200,000 Gross profit rate (500 — 330/500) x__34% Gross profit realized 268,000 . 4/39 A Available cash to partners: Beginning cash P 6,000 ‘Add: Collected accounts receivable 16,500 Inventory sold 10.000 Total 32,500 Less: Liquidation expenses (1,000) ‘Accounts payable paid (47,000) Cash retained (8,000) Available for distribution P.6,500 Francs Johnter Lito Total Equity balances 55,000 45,000. 24,000 P 124,000 Loss on liquidation (58,750) ( 35,250) (23,500) (417,500) Deficiency of Francis 3780 (2,250) (1,500) Deficiency of Lito (1000) ‘000 Cash distribution 0 £5,500 O- P6500 5/14 A Net income during the year: Sales ‘800,000 Cost of sales: Inventory, beginning 400,000 ‘Add: Purchases 600,000 Less: Inventory, end (550,000) (450,000) Operating expenses (250,000) Depreciation (P15,000 + P60,000) <75.000) Net income 228,000 Roel Jek Total ‘Salaries (10,000 x 12) 120,000 120,000 240,000 Interest ‘5% x 750,000 37,500 5% x 520,000 26,000 63,500 Balance 2:3 (411400) 487.100) (278.500) Share of each partner -« B.46,200 (21.100) B.25,000“2/SOLUTION TO FIRST PRE-BOARD EXAMS (May 2014 batch) L Page 2 of 7 6/15 Cc Capital before net income and drawings 620,000 ‘Add: Share in the net income { 21,100) Less: Drawings (420,000) Capital ending 478,900 Nase . ‘Weighted average capital of Robertson: Weighted average capital of Lloyd: January 1 (40,000 x 12/12) 40,000 January 1 (60,000 x 12/12) 60,000 April 1 (8,000 x 9/12) (6,000) March 1 (9,000 x 10/12) (7,500) ‘September 1 (6,000 x 4/12) (2,000 July 1 (7,000 x 6/12) 3,500 November 1 (3,000 x 2/12) —500 October 1 (5,000 x 3/12) 1.250 36,500 250 Robertson Lloyd Total Interest of 10% on average capital P 3,650 P 5,725 P9375 Balance 40:60 12250 18.375 = _30,625 Total share of each partner as,00 P24ag0 40,000 8/4 B Available to owners: Cash balance 103,500 Less: Liabilities (60,000 + 7,500) (67,500) Anticipated expenses 4.500) Available to owners £31,500 A B c D Total Equity balances 90,000 ‘P150,000 120,000 (P 16,500) 343,500 Liquidation toss (78,000) (78,000) (78,000) + ( 78,000) (342,000) Deficiency of D 0) (31,500) ( 31,500) _94,500 Deficiency of A 19,500 (9750) ¢__9,750) Cash distribution B30750 PB __750 31,500 9/5 ‘Total equity of partners P343,500 ‘Add total liquidation gain: Capital balance of partner D (P 16,500) ‘Add share of partner D —5,000 ‘Total share on liquidation gain P 21,500 Profit share of partner D zw — 86,000 Total cash available to owners 429,500 Adq liabilities to be paid (60,000 -- 7,500) 67,500 Add: Liquidation expenses 4,500 Less: Beginning cash (203,500) Total selling price of non cash assets 398,000 10/17 _D ‘Loss absorption capacity of partners: Walker = 365,000/50% 'P730,000 Wilson = 230,000/20% B1.150,000 Winston = 180,000/30% 00,000 The partner who has the lowest loss absorption capacity is considered the most vulnerable and the partner who has the highest loss absorption capacity is considered the least vulnerable, therefore, the ranking must be Winston, Walker and Wilson respectively. D 11/18 A Equity balance of Walker 365,000 Cash received by Walker sao Assumed share of liquidation loss 3000 = Pam o00 ‘Share of Wilson on the liquidation loss 46 Equity balance of Wilson 230,000 Cash received by Wilson 144.000A2/SOLUTION TO FIRST PRE-BOARD EXAMS (May 2014 batch) oR Priority Program: Priority 1 to Wilson (1,150,000 - 730,000) x 20% = P84,000 Priority 2 to Wilson (730,000 ~ 600,000) x 20% = P26,000 to Walker (730,000 ~ 600,000) x 50% = P65,000 Priority 3 to all 5:2:3. Cash distribution: Walker Wilson Priory 1 84,000 Priority 2 P 65,000 26,000 Priority 3 - 5:2 85,000 34,000 Total P150,000 P144,000 12/19 iB Loss absorption capacity of euch partner: ‘Michael = 80,000/10% = P800,000 Femando = 30,000/30% = P100,000 ‘Alvin = 60,000/40% = P150,000 JL = 90,000/20% = F450,000 Page 3 of 7 Fernando has the lowest loss absorption capacity which means that any loss greater than P100,000 will result in a capital deficiency to Fernando, thus no cash will be given to him. Therefore, the maximum loss should not be greater or equal to P100,000. Book value of land and building 250,000 Loss lower than 400,900) Selling prince must be more than 150,000 13/20 A B c D Total Capital balances 5,000 75,000 (60,000) (40,000) (20,000) Creditors paid by A 20,000 20,000 Deficiency of D 3:3:2 (15,060) (15,000) (10,000) _40,000 - Contributions of C 29,000 70,000 Cash distribution 10.009 60,000 = - (79,000) 14/23, A Total beginning inventory of the tranch reported 72,000 Less: From the home office (136,000 ~120,000) x 3 48,000 From outsider 24,000 Unrealized profit unadjusted balance reported 136,000 Less: Unrealized profit on current shipments (360,000 - 240,000) _120,000 Unrealized profit on beginning inventory of the branch B.16,000 Mark-up rate based on the current shipment is 50% of cost or 1/3 of billed price. Based on cost = 120,000/240,000 or 50% Based on billed price = 120,000/360,000 or 1/3 15/24 B Sales 850,000 Cost of sales: Beginning inventory (72,000 ~- 16,000) P 56,000 ‘Add: Purchases from outsiders 180,000 Shipments from home office at cost 240,000 ‘Available for sale at cost 476,000 Less: Ending inventory: From outsider at cost 30,000 From home office at cost (54,000/150%) _36,000 (66,000) _410,000 Gross profit 440,000 Less: Expenses 160,000 Net income of the branch ~ correct P280,000_ Tiree rswns 11am ot PRE-DURKU EXAMS (May 2014 batch) Page 4 of 7 16/25 A Correct net incom Revenues Cost of goods sold: rasninoo. inning inventory at cost (6,000/25% P24, ‘Add: Shipments at cost » 75000 rote SS* Ending inventory at cost (21,750/125%) (47.400) (_81.600) Gross margin 58,400 Seling and administrative expenses (25,000 + 2,000) 27.000) Net income 31.400 17/1 D Investment in Branch Home Office Unreconcited balance 136,020 175,400 : 1) Unrecorded shipment 60,000 2) Unrecorded remittance ( 25,000) 2) Accounts collected 4,380 3) Net 42,800) 42,800) Adjusted balance ‘zen ‘qask.eon 18/2 B Total collections made in 2014: Downpayment 2,000 Installment 3.000 5,000 Gross profit rate (22,000 ~ 4,400/22,000) x_80% Gross profit realized P.4,000 19/3 D Recovered value equal to net realizable value 7,000 Unrecovered costs: Selling price 22,000 Less: collections ‘ Downpayment 2,000 Installments 5.000 7.000) Balance Pi5,000 Cost ratio (100% - 80%) x 20% (3,000) Gain from repossession 24,000 20/7 ¢ Installment receivable balance, 2014 sales: Gross profit on 2014 sales (1,000,000 x 30%) 300,000 Less: Gross profit realized (159,000 + 90,000) 240,000 Unrealized gross profit balance P 60,000 Gross profit rate 430% — P 200,000 Installment receivable balance, 2015 sales: Gross profit on 2015 sales (2,000,000 x 40%) 800,000 Less: Gross profit realized (200,000) Unrealized gross profit balance 600,000 Gross profit rate 40% — _1,500,000 Total installment accounts receivasle balance 1,700,000 21/6 B Equal annual payments: 12,000,000 / Present value of an annuity of 1 for 3 periods at 12% 12,000,000 / 2.4018 = 4,995,253 Collection 2014 4,996,253 Less: Interest for 2014 (12,009,000 x 12%) a: Amount applicable to principal 3,556,253 Gross profit rate ( 4,000,000 / 12,000,000) = 1/3 or XC 33-113% Realized gross profit for 2014 P1385,418 22/8 D Contract price (fixed) 5,000,000 Total estimated costs 4,250,000 Estimated gross profit P 750,000 Percentage of completion (1,050,C00 + 1,950,000/4,250,000) x_70.59% Gross profit realized to date P 529,412Less: Gross profit realized prior year: ‘Gace oe rior year: cere re Pon Pere oes ork Prior year P 800,000 spree competion (1,050,000/4200,000) x 35% (200,000 Gross profit realized 2015 © °° ” } 23/9 = - ‘Total Contract Price Jor eratae Pica 80,000,000 2014 P20, 10u,000 a 30,150,000 ; 6,750,000 _67,000,000 Estimated gross profit 13,000,000 2016 gross profit: - 16,750,000/67,000,000 x 13,000,000 = p3,250,000 24/10 Present value of installments P319,416.80 Downpayment 100,000.00 Total unearned franchise fee 419,416.80 25/11 A _ If none of the materal services have been performed the franchise fee is considered unearned. 26/26 ¢ Cost of acquiring Winston Cash 1,400,000 Shares of stocks (10,000 x 80) 800,000 2,200,000 Fair value of net assets acquired Inventory P 600,000 Land 500,000 Building 1,000,000 _2,100,000 Goodwit! P_100,000 7 OD = gain from business combination must be P60,000. Cost of acquiring Winston 2,000,000 air value of net assets acquired 2,100,000 c 40,000) 1 from business combination P_60,000 \ f the net assets of Mundane Company: resets P 400,000 ‘nd equipment 41,600,000 400,000) 1,600,000 share for Gorgeous +49 ' —40,000 310,000 vets of ACE 270,000 (50,000) * & equpment 30,000 1" 15,000) 235,000 ‘nation P.Z5,000 P 245,000 510,000 7/10) 35.000 +31, 2016 220,000we eanarns (May 2014 batch) go Page 6 of 7 Western's retained earnings at the keover Add: Reported net income of Westen sont 0 000 Less: Dividends paid for 2 x2 st Years (10,000 x 2) ‘Akt Undstributed net income of Abenson for2 years; 22000) 900 + 30,000 ~ 5,000 ~ 5,000) ‘ 40,000 Annual excess aiortization for 2 years (22,000 x 2) c a ra cemetONs3) 32/30 B Total SHE of The Golden Tree, Januar teen ee mY MEOH) ray Add dividends (2012 - 2014) 50% of 185,000 921500 SHE of The Golden Tiee, January 1, 2012 147,500 Percent of control x_60% Book value of investment, January 1, 2012 P 88,500 ‘Add excess of cost 00.000 Cost of investment, January 1, 2012 Bise,500 33/31 A Cost of investment (1,240,000 + 88,000) 1,328,000 Book value of investment (1,200,000 x 80%) 960,000 Excess of cost over book value 2368.00 Income from investment: Share (140,000 x 80%) P 112,000 Amortization of excess allocated to building (100,000 x 80%/ 30 yrs.) __2.667 P.109,333 34/32 A Separate income (200,000 + 200,000) 400,000 ‘Add: Realized mark up on beginning inventory (112,500 x 1/3) 37,500 Less: Unrealized mark up on ending inventory (33,000 x 1/3) 11.000) Consolidated net income P°426,500 Minority interest income (200,000 + 37,500 ~ 11,000) x 30% 67,950 Net income to retained earnings 358,550 35/33 B Tntercompany sale Total sales (400,000 + 280,000) 680,000 Consolidated sales ~816,000 _P 64,000 Less: Mark up (1/4 x 64,000) 16,000) Cost of merchandise transferred B.48,000 36/34 A Intercompany selfing price 150,000 Nat book value carried on the bocks of Etoisa Company 100,000 Intercompany gain on sale P_50,000 ‘Amortized for 5 years the remaining life (50,000/5 years) 10,000 Portion of the gain eliminated frotn depreciation (10/50) 20% 37/36 A The gain is considered unrealized thus, it will decrease the net income or retained earnings of the parent if itis a 190% owned subsidiary. 38/41 D w x x z Total TE 28.2 26.4 377 27.3 119.6 SAL. “160 240 4 Loss (22,750) (22,750) (22,750) ain ‘CAPD 450 (1350) 10,110 (210) 9 (780) 41,350 (780) 210 I hag 330, Zo DIST. Q Q 2.000 Qpor / reh/ede f ie “{eoustTION TO FIRST PRE-BOARD EXAMS (May 2014 batch) “9/42 B yf 30 Guaranteed FV . 16 FV at end of Contingency period 10 pede inFV eames 6 Betine in FV 600,000 D , r Additional Shares to issue 60,000 40/40 A FR is 500,000 as itis earned. NI is 350,000 (500,000 ~ 150,000) 412 oc TE 170 180 80 a0 (0) eo 6) 9 2 (10) (130 52) 260) DIST. (15) 3) 10 15 (9) (6) % 90. 20 110 FINAL 170 180 80 430 (30) (50) () @) @ (ao) (75) (4.5) G) (as) (65) 9) (25)—(130) CAFD 42.5 1335 49 225 DIST. IN JAN/FEB 0 $0 __20_iig DIS. IN MARCH 425 a5 28 us 42/22 D UP on Br Inv, 32 Realized 46 24. (36/.6 x 40%) 56 10 (25x 40%) 42/43 -D Sales 117,000 COS 20 +57 - 16,550 GP 56,550 OE (26 +5) 31.000 C.Nr 25,550 Page 7 of 7