ReSA -The Review School of Accountancy Advanced Financial

Accounting and Reporting

MAY 2023 Batch
AFAR Quiz 1
Items 1 to 3 are based on the following information:
On May 1, 2019, the business assets XX and YY were as summarized below:
XX YY
Cash P 11,000 P 22,354
Accounts Receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000 -0-
Building -0- 428,267
Furniture and Fixtures 50,345 34,789
Other Assets 2,000 3,600
Total P1,020,916 P1,317,002

Accounts payable P 178,940 P 243,650

Notes payable 200,000 345,000
XX, capital 641,976 -0-
YY, capital ___-0-___ 728,352
Total P1,020,916 P1,317,002
XX and YY agreed to form a partnership, contributing their respective assets and equities subject
to the following adjustments:
• Accounts receivable of P20,000 in the books of XX and P35,000 in YY’s books are
uncollectible.
• Inventories of P5,500 and P6,700 are worthless in books of XX and YY, respectively.
• Other assets of P2,000 and P3,600 in the respective books of XX and YY are to be written-
off.
1. How much assets does the partnership have?
A. P2,337,918 C. P2,265,118
B. 2,237,918 D. 2,365,218
2. ZZ offered to invest sufficient cash to give him a 20% interest in the firm. How much cash should ZZ
contribute?
A. P330,870 C. P344,237
B. 337,487 D. 324,382
3. Using the same information in No. 3, after ZZ’s admission, the profit and loss sharing ratio was
agreed to be 4:4:2 based on capital credits. How much should the cash settlement be between
XX and YY?
A. P33,602 C. P32,272
B. 32,930 D. 34,288

Items 4 to 8 are based on the following information:

In 2014, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC
uses the percentage-of-completion method to account for such projects and provides you with the
following information (pesos in millions):
Accounts receivable (from construction progress billings) P 37.5
Actual construction costs incurred in 2014 P135.0
Cash collected on project during 2014 P105.0
Construction in progress P207.0
Estimated percentage of completion during 2014 60%
4. What is the amount of gross profit on the project recognized by CCC during 2014 in millions (M)?
A. P160 M C. P48 M
B. P 72 M D. Incomplete data
5. What are CCC's estimated remaining construction costs on the project at the end of 2014 in
millions (M)?
A. P 90 M C. P225 M
B. P135 M D. None of the above
6. What is the fixed contract price for CCC's project in millions (M)?
A. P 25 M C. P345 M
B. P120 M D. None of the above
7. What were the construction billings by CCC during 2014 in millions (M)?
A. P142.5 M C. P37.5 M
B. P 67.5 M D. None of the above

Page 1 of 13 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 45 – May 2023 Batch)
8. How much cash remains to be collected by CCC on the project in millions (M)?
A. P 70.00 M C. P240.00 M
B. P202.50 M D. Incomplete data
Items 9 and 10 re based on the following information:
Account balances for the Ral, Tom, and Vic partnership on October 1, 2008 are as follows:
Cash P 21,000 Accounts payable P 80,000
Accounts receivable 63,000 Notes payable 50,000
Inventory 120,000 Ral, capital (30%) 43,600
Equipment 150,000 Tom, capital (50%) 150,000
Ral loan 15,000 Vic, capital (20%) 45,400
The partners have decided to liquidate the business. Activities for October and November are as
follows:
October
• Ral is short of funds and the partners agree to charge her loan to her capital account.
• P40,000 is collected on the accounts receivable; P4,000 is written off as uncollectible.
• Half the inventory is sold for P50,000.
• Equipment with a book value of P55,000 is sold for P60,000.
• The P50,000 bank note plus P600 accrued interest is paid in full.
• The accounts payable are paid.
• Liquidation expenses of P2,000 are paid.
• Except for a P5,000 contingency fund, all available cash is distributed to partners at the
end of October.
November
• The remaining equipment is sold for P38,000.
• Vic accepts inventory with a book value of P20,000 and a fair value of P10,000 as
payment for part of her capital balance. The rest of the inventory is written off.
• Accounts receivable of P10,000 are collected. The remaining receivables are written off.
• Liquidation expenses of P800 are paid.
• Remaining cash, including the contingency fund, is distributed to the partners.
9. How much would Tom receive for the month of October?
A. P16,700 C. P34,286
B. P33,400 D. P35,400
10. How much cash would Vic receive for the month of November?
A. P 6,886 C. P10,400
B. P 9,720 D. P35,400
Items 11 and 12 are bsed on the following information:
The following data were taken from the statement of affairs for Liquo Company:
Asset pledged for fully secured liabilities
(fair value, P75,000)…………………………………………………… P90,000
Asset pledged to partially secured liabilities
(fair value, P52,000)…………………………………………………… 74,000
Free assets (fair value, P40,000)………………………………………… 70,000
Unsecured Liabilities with priority………………………………………. 7,000
Fully secured liabilities…………………………………………………… 30,000
Partially secured liabilities……………………………………………… 60,000
Unsecured liabilities without priority…………………………………… 112,000

11. Total estimated deficiency to unsecured creditors amounted to:

A. P27,000 C. P35,000
B. P34,000 D. P42,000
12. The expected recovery per peso of unsecured claims amounted to:
A. P.35 C. P.70
B. P.65 D. P.71
13. Zero Na Corp. has been undergoing liquidation since January 1. As of March 31, its condensed
statement of realization and liquidation is presented below:

Assets:
Assets to be realized………………………………………………P 95,000
Assets acquired………………………………………………… 5,000
Assets realized…………………………………………………… 30,000
Assets not realized……………………………………………… 42,000

Page 2 of 13 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 45 – May 2023 Batch)
Liabilities:
Liabilities liquidated……………………………………………. 35,000
Liabilities not liquidated………………………………………. 31,850
Liabilities to be liquidated…………………………………….. 65,000
Liabilities assumed……………………………………………… 1,500
Revenues and Expenses:
Sales on account……………………………………………… 5,000
Purchases………………………………………………………… 1,500
Payment of expenses of trustee…………………………….. 7,500
Sales for cash…………………………………………………… 25,000
Interest on marketable securities……………………………. 150
The net gain (loss) for the three-month period ending March 31 is:
A. P 7,200 C. P 49,500
B. (7,200) D. (17,500)
14. AJD Company recognizes construction revenue and expenses using the percentage of
completion method. During 20x4, a single long-term project was begun which continued
through 2005. Information on the project were as follows:
20x4 20x5
Accounts Receivable from
P 200,000 P 600,000
construction contract . . . . . . . . . . . . . .
Construction expenses . . . . . . . . . . . . . 210,000 384,000
Construction in progress . . . . . . . . . . . . 244,000 728,000
Partial billings on contract . . . . . . . . . . 200,000 840,000
The profit recognize from the long-term construction contract should amount to:
20x4 20x5 20x4 20x5
A. P 44,000 P456,000 C. 34,000 256,000
B. 44,000 200,000 D. 34,000 100,000
Use the following information for questions 15 and 16:
Chicane Builders, Inc. employs the cost-to-cost method in determining the percentage-of-
completion for revenue recognition. The company’s records show the following information on a
recently completed project for a contract price of P5,000,000
20x4 20x5 20x6
Costs incurred to date . . . . . . . . . . . . . . . . P 900,000 P2,550,000 P ?
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . 100,000 350,000 ( 50,000)

15. The estimated costs to complete the project at December 31, 20x5:
A. P 850,000 C. P2,300,000
B. P1,700,000 D. P2,550,000
16. The actual costs incurred during the year 20x6.
A. P2,550,000 C. P2,200,000
B. P2,300,000 D. P2,050,000
17. The condensed balance sheet of the partnership of China and Japan as of December 31, 2019
showed the following:
Total assets…………………………………… P200,000
Total liabilities……………………………….. 40,000
China, capital………………………………. 80,000
Japan, capital……………………………… 80,000
On this date, the partnership was dissolved and its net assets were transferred to a newly- formed
corporation. The fair value of the assets was P24,000 more than the carrying value on the firm’s
books. Each of the partners was issued 10,000 shares of the corporation’s P1 par common stock.
Immediately after affecting the transfer of the net assets, and the issuance of stocks, the
corporation’s additional paid-in capital account would be credited for:
A. P136,000 C. P154,000
B. 140,000 D. 164,000
18. 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:
Loans to
Partners’ (from) Profit and
Accounts Partnership Loss Ratio
P P24,000 P 6,000 3
Q 36,000 - 3
R 60,000 (10,000) 4
Page 3 of 13 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 45 – May 2023 Batch)

The second cash payment to any Partner (s) under a program of priorities shall be made thus:
A. To R P2,000 C. To R P8,000
B. To Q P6,000 D. To Q P6,000 & R P8,000
19. The MSB Partnership has the following amounts:
• Sales, P84,000
• Cost of goods sold, P48,000
• Operating expenses, P12,000
• Salary allocations to partners, P15,600
• Interest paid to banks, P2,400
• Partners’ withdrawals, P9,600
Compute the partnership net income (loss):
A. P24,000 C. P 6,000
B. 21,600 D. ( 3,600)

Use the following information for questions 20 and 21:

The assets and equities of the QQ, RR, and SS partnership at the end of its fiscal year on October 31,
2019 are as follows:
Cash P 15,000 Liabilities P 50,000
Receivables, net 20,000 Loan from SS 10,000
Inventory 40,000 QQ, capital (30%) 45,000
Plant assets – net 70,000 RR, capital (50%) 30,000
Loan to RR 5,000 SS, capital (20%) 15,000
P150,000 P 150,000
The partners decide to liquidate the partnership. They estimate that the non-cash assets, other than
the loan to RR, can be converted into P100,000 cash over the two-month period ending December
31, 2019. Cash is to be distributed to the appropriate parties as it becomes available during the
liquidation process.
20. The partner most vulnerable to partnership losses on liquidation:
A. QQ C. QQ and RR equally
B. RR D. SS
21. Assume that P65,000 cash is available for the first distribution, it should be paid to:
Priority Creditors QQ RR SS
A. P60,000 P 5,000 P -0- P -0-
B. 60,000 1,500 2,500 1,000
C. 50,000 5,000 -0- 10,000
D. 50,000 12,000 -0- 3,000
22. Remington Construction Company uses the percentage-of-completion method. During 20x4, the
company entered into a fixed-price contract to construct a building for Sherman Company for
P30,000,000. The following details pertain to the contract:
At December 31, 20x4 At December 31, 20x5
Percentage of completion . . . . . . . . 25% 60%
Estimated total cost of contract . . . P22,500,000 P25,000,000
Gross profit recognized to date . . . . 1,875,000 3,000,000
The amount of construction costs incurred during 20x5 was
A. P15,000,000 C. P5,625,000
B. P9,375,000 D. P2,500,000

Use the following information for 23 and 24:

Partners Dennis and Lilly have decided to liquidate their business. The following information is
available:
Cash . . . . . . . . . . . . . P 100,000 Accounts Payable . . P 100,000
Inventory . . . . . . . . . . 200,000 Dennis, Capital . . . . 120,000
Lilly, Capital . . . . . . . . __80,000
Total . . . . . . . . . . . . . . P 300,000 Total . . . . . . . . . . . . . . . P300,000

Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of liquidation, half the
inventory is sold for P60,000, and P60,000 of the accounts payable is paid. During the second month,
the rest of the inventory is sold for P45,000, and the remaining accounts payable are paid. Cash is
distributed at the end of each month, and the liquidation is completed at the end of the second
month.

Page 4 of 13 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 45 – May 2023 Batch)
23. Using a safe payments schedule, how much cash will be distributed to Dennis at the end of the
first month?
A. P 64,000 C. P 24,000
B. P 60,000 D. P 36,000
24. Assume instead that the remaining inventory was sold for P10,000 in the second month. What
payments will be made to Dennis and Lilly at the end of the second month?
Dennis Lilly Dennis Lilly
A. P 0 P 0 C. P 5,000 P 5,000
B. P 10,000 P 0 D. P 6,000 P 4,000

25. A construction contract has a fixed price contract for P100,000 to construct a building of a design
that has never before been constructed and using materials that have never before been used
in the construction of building (the project).
The contractor began construction of the building in 2019 and expects that construction will take
at least five years. In 2019 the contractor incurred P5,000 contract costs on the project.
At the end of 2019 the contractor cannot estimate the outcome of the contract with sufficient
reliability to estimate the project’s percentage of completion (i.e., because of the uncertainties
arising from the new design and new materials the entity cannot estimate total expected
contract costs with sufficient reliability). It is highly likely that the contract price will be received
from the customer.
At the end of 2019 the contractor must recognize revenue of:
A. Nil or zero C. P100,000
B. P 5,000 D. Incomplete data

26. The capital accounts of the partnership of NN, SS, and JJ on June 1, 2023 are presented along
with their respective profit and loss ratios:
NN P278,400 ½
SS 417,600 1/3
JJ 192,000 1/6

On June 1, 2023, KK was admitted to the partnership when he purchased for P264,000, a
proportionate interest from NN and SS in the net assets and profits of the partnership. As a result of
this transaction, KK acquired one-fifth (1/5) interest in the net assets and profits of the firm.
Assuming that implied goodwill is not to be recorded, what is the combined gain realized by NN
and SS upon the sale of a portion of their interests in the partnership to KK?
A. P -0- C. P124,800
B. 86,400 D. 164,000
27. XX, YY and ZZ formed a partnership on January 1, 2023. Each contributed P120,000. Salaries were
to be allocated as follows:
XX………………………………………………………………………………..P 30,000
YY……………………………………………………………………………….. 30,000
ZZ…………………………..…………………………………………………… 45,000
Drawings were equal to salaries and be taken out evenly throughout the year. With sufficient
partnership net income, XX and YY could split a bonus equal to 25% of partnership net income
after salaries and bonus (in no event could the bonus go below zero). Remaining profits were to
be split as follows: 30% for XX; 30% for YY; and 40% for ZZ. For the year, partnership net income
was P120,000. Compute the ending capital for each partner:
A. XX, P155,100; YY, P155,100; ZZ, P169,800
B. XX, P126,000; YY, P126,000; ZZ, P124,500
C. XX, P125,100; YY, P125,100; ZZ, P124,800
D. XX, P125,500; YY, P125,500; ZZ, P124,000
Items 28 to 30 are based on the following information:
AL Company consigned five calculators, with cost of P800 each, to the OO Company which was to
sell these goods for the account and ink of the former for a commission of 15% of selling price. The AL
Company paid shipping costs of P200 on the shipment. Correspondingly, OO Company paid P320 on
the freight of the shipment.
On the last day of the year, OO Company reported that it had sold three of the calculators, two for
cash at P1,500 each and one on credit at P1,800, of which 25% was collected as down payment. OO
Company remitted all the cash due.

Page 5 of 13 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 45 – May 2023 Batch)
28. The amount of cash remitted by OO Company is:
A. P3,760 C. P1,350
B. P2,410 D. None of the above
29. The consignment profit (loss) is:
A. P1,368 C. P1,040
b. P1,160 D. None of the above
30. The amount of inventory on consignment of AL Company is:
A. P1,720 C. P2,712
B. P1,808 D. None of the above
31. Maxwell is trying to decide whether to accept a salary of P60,000 or a salary of P25,000 plus a
bonus of 20% of net income after the bonus as a means of allocating profit among the partners.
What amount of income would be necessary so that Maxwell would consider the choices to be
equal?
a. P35,000 c. P140,000
b. P85,000 d. P210,000
32. Maxwell is a partner and has an annual salary of P30,000 per year, but he actually draws P3,000
per month. The other partner in the partnership has an annual salary of P40,000 and draws P4,000
per month. What is the total annual salary that should be used to allocate annual net income
among the partners?
a. P14,000 c. P70,000
b. P50,000 d. P84,000

Items 33 to 35 are based on the following information:

On January 1, 20x5, Lesley Benjamin signed an agreement (covering 5 years) to operate as a
franchisee of Campbell Inc. for an initial franchise fee of P50,000. The amount of P10,000 was paid
when the agreement was signed, and the balance is payable in five annual payments of P8,000
each, beginning January 1, 20x6. The agreement provides that the down payment is non-refundable
and that no future services are required of the franchisor once the franchise commences operations
on April 1, 20x5. Lesley Benjamin’s credit rating indicates that she can borrow money at 11% for a loan
of this type.
33. The amount of franchise revenue on January 1, 20x5:
A. Zero. C. P39,567
B. P10,433 D. P50,000
34. The amount of franchise revenue on April 1, 20x5:
A. Zero. C. P39,567
B. P10,433 D. P50,000
35. For Campbell’s 20x5-related revenue for this franchise arrangement, assuming that in addition to
the franchise rights, Campbell also provides 1 year of operational consulting and training services,
beginning on the signing date. These services have a value of P3,600. The amount of franchise
and service revenue on January 1, 20x5 amounted to
A. Zero. C. P39,567
B. P10,433 D. P50,000
36. AA Computers licenses customer-relationship software to ABS Company. In addition to providing
the software itself, AA Computers promises to provide consulting services by extensively
customizing the software to ABS’s information technology environment, for a total consideration
of P3,456,000. In this case, AA Computers is providing a significant service by integrating the
goods and services (the license and the consulting service) into one combined item for which
ABS has contracted. In addition, the software is significantly customized by AA Computers in
accordance with specifications negotiated by ABS. How many performance obligations exist in
the contract?
a. 0 c. 2
b. 1 d. 3
37. Ronella Ocampo sells hairstyling franchises. Ronella Ocampo receives P50,000 from a new
franchisee for providing initial training, equipment and furnishings that have a stand-alone selling
price of P50,000. Ronella Ocampo also receives P30,000 per year for use of the Ronella Ocampo
name and for ongoing consulting services (starting on the date the franchise is purchased).
Carlos became a Ronella Ocampo franchisee on July 1, 20x6, and on August 1, 20x6, had
completed training and was open for business. How much revenue in 20x6 will Ronella Ocampo
recognize for its arrangement with Carlos?
a. Zero c. P65,000
b. P10,000 d. P70,000

Page 6 of 13 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 45 – May 2023 Batch)
38. On 31 March DT received an order from a customer, XX, for products with a sales value of
P900,000. XX enclosed a deposit with the order of P90,000. On March 31, DT had not obtained
credit references of XX and has not determined if it will meet this order. According to PFRS 15
Revenue from Contract with Customers, how should DT record this transaction in its financial
statements for the year ended March 31?
(1) Include P900,000 as revenue for the year
(2) Include P90,000 as revenue for the year
(3) Do not include anything as revenue for the year
(4) Create a trade receivable for P810,000
(5) Create a trade payable for P90,000
a. 1 and 4 c. 3 and 4
b. 2 and 5 d. 3 and 5

39. D and R Computer Inc. manufactures and sells computers that include a warranty to make good
on any defect in its computers for 120 days (often referred to as an assurance warranty). In
addition, it sells separately an extended warranty, which provides protection from defects for
three years beyond the 120 days (often referred to as a service warranty). How many
performance obligations exist in this contract?
a. None c. Two
b. One d. Three

40. On November 1, 20x5, Green Valley Farm entered into a contract to buy a P75,000 harvester from
John Deere. The contract required Green Valley Farm to pay P75,000 in advance on November 1,
20x5. The harvester (cost of P55,000) was delivered on November 30, 20x5. The journal entry for
John Deere to record the contract on November 1, 20x5 includes a
a. credit to Accounts Receivable for P75,000.
b. credit to Sales Revenue for P75,000.
c. credit to Unearned Sales Revenue for P75,000.
d. debit to Unearned Sales Revenue for P75,000.
End of Examination – Good luck and GOD BLESS!!!
Once in a Long While
*************************
Once in a long while, someone special walks into your life and really makes a difference.
They take the time to show you so many little ways that you matter,
They see and hear the worst in you and ugliest in you, but they don’t walk away in fact,
they may care about you.
Their heart break with yours, their tears fall with yours, their laughter is shared with yours.
Once in a long while, somebody special walks into your life and then has to go and separate ways.
Every time you see a certain gesture, hear a certain laugh or phrase or return to a certain place,
it reminds you of them.
Your eyes filled with tears, and a big smile comes across your face,
and then you thank GOD that someone can still touch your heart so deeply.
You remember their words, their looks, their expressions, you remember how much of themselves they gave
– not just to you, but to all.
You remember the strength that amazed you, the courage that impressed you, and the love that touched you…
**Don’t think that there’s so much darkness, that it’s no use to have a small light,
because even one candle can be seen even a far away when it’s dark.**
- Nothing great was ever achieved without determination.
- Don’t be discouraged; everyone who got where he is, started where he was.
- Impossibilities vanish when a man and his GOD confront a mountain.
- The secret of life is not just to live, but to have something worthwhile to live for.
- Great achievements are not done by strength but by perseverance
*No one knows what he can do, until he tries*
*Not knowing when the dawn will come, Open every door*
*The great thing in the world is not so much where you are but in what direction you are going*
End of Examination – Good luck and GOD BLESS!!!
The only thing that stands between a man and what he wants from life is often merely the will to try it and the faith to believe that
it is possible.

Page 7 of 13 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 45 – May 2023 Batch)

Suggested Answers/Solutions

1. C
Unadjusted total assets (P1,020,916 + P1,317,002)……………………… P2,337,918
Less: Adjustments:
Accounts Receivable Uncollectible (P20,000 + P35,000)………… 55,000
Inventories Written-off (P5,500 + P6,700)………………………….. 12,200
Other Assets Written-off (P2,000 + P3,600)……………………….. 5,600
Adjusted Total Assets…………………………………………………………………. P2,265,118
2. D
Unadjusted capital (P641,976 + P728,352)…………………………………… P1,370,328
Less: Adjustments (P55,000 + P12,200 + P5,600)……………………….. 72,800
Adjusted capital of XX and YY before ZZ’s admission……………………... P1,297,528
Divided by: Interest of XX and YY after the admission
of ZZ (100% - 20%)………………………………………………… 80%
Total agreed capital after admission of ZZ…………………………………….. P1,621,910
Less: Adjusted capital of XX and YY before ZZ’s admission……………. 1,297,528
Cash Investment of ZZ……………………………………………………………….. P 324,382
Or, alternatively:
Total Agreed Capital………………………………………………………….. P1,621,910
Multiplied by: Interest acquired by ZZ…………………………………. 20%
Cash Investment by ZZ……………………………………………………… P 324,382
3. D
XX YY ZZ Total
Unadjusted Capital………………… P641,976 P728,352 - P1,370,328
Less: Adjustments
Accounts Receivable Uncoll. 20,000 35,000 55,000
Inventories written-off……… 5,500 6,700 12,200
Other assets written-off……. 2,000 3,600 5,600
Adjusted capital……………………. P614,476 P683,052 P1,297,528
Investment by ZZ………………….. ________ ________ P324,382 324,382
Total contributed capital………….. P614,476 P683,052 P324,386 P1,621,910
Less: Total agreed capital
(40%; 40%; 20% P&L ratio)….… 648,764 648,764 324,382 1,621,910
Cash Settlement…………………… P 34,288 P (34,288) P -0- P -0- .

Therefore, XX will pay YY, P34,288. Incidentally, the entry for cash settlement would be:
YY, Capital………………………………………………….. 34,288
XX, Capital………………………………………….. 34,288
Or, alternatively; the cash settlement may also be computed by simply focusing on the capital balances of
XX and YY, thus:
XX YY Total
Total contributed / Adjusted capital…………….. P614,476 P683,052 P1,297,528
Less: Total agreed capital (4:4 or equally)…… 648,764 648,764 1,297,528
Cash Settlement…………………………………. P 34,288 P (34,288) P -0- .
Use the table and T-account and workback
4. B- (P207 – P135)
5. A- (P135/.60) – (P72/.60)
6. C- (P72 / .60) + (P135/.60)
7. A- P105 + P37.50
8. C- P345 – P105
9. B
OCTOBER RAL TOM VIC TOTAL
BALANCES BEFORE REALIZATION:
LOANS (TO) FROM (15,000) (15,000)
CAPITALS 43,600 150,000 45,400 239,000
TOTAL INTEREST FOR OCTOBER 28,600 150,000 45,400 224,000
REDUCTION IN INTEREST (57,180) (95,300) (38,120) (190,400)
BALANCES ( 28,580) 54,700 7,280 *33,400
POSSIBLE LOSS DUE TO INSOLVENCY (5:2) 28,580 (20,414) (8,166) - 0-
BALANCES 34,286 (886) 33,400
POSSIBLE LOSS DUE TO INSOLVENCY __( 886) __886 -0-
BALANCES _33,400 _33,400
Page 8 of 13 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 45 – May 2023 Batch)
*OCTOBER: PAYMENT TO PARTNERS, COMPUTED AS FOLLOWS:
CASH, BEGINNING……………………………………………………………………P 21,000
PROCEED S (P40,000 + P50,000 + P60,000).…………………………….. 150,000
PAYMENT OF BANK NOTE (P50,000 + P600)…………………………………( 50,600)
PAYMENT OF LIQUIDATION EXPENSES…………………………………………… ( 2,000)
PAYMENT OF ACCOUNTS PAYABLE…………………………………………………( 80,000)
CASH WITHHELD……………………………………………………………………… ( 5,000)
PAYMENT TO PARTNERS……………………………………………………………..P 33,400

10. A
NOVEMBER RAL TOM VIC TOTAL
TOTAL INTERESTS FOR OCTOBER 28,600 150,000 45,400 224,000
LESS: PAYMENT TO PARTNERS (REFER TO NO. 9) _______ (33,400) _______ (33,400)
28,600 116,600 45,400 190,600
LESS: ACCEPT INVENTORY AT FAIR VALUE _______ _______ ( 10,000) ( 10,000)
TOTAL INTEREST 28,600 116,600 35,400 180,600
REDUCTION IN INTEREST (38,520) (64,200) (25,680) (128,400)
BALANCES ( 9,920) 52,400 9,720 *52,200
POSSIBLE LOSS DUE TO INSOLVENCY (5:2) 9,920 (7,086) (2,834) - 0-
BALANCES 45,314 6,886 52,200
*NOVEMBER: PAYMENT TO PARTNERS, COMPUTED AS FOLLOWS:
CASH, BEGINNING (WITHHELD OF LAST MONTH)…..……………………………P 5,000
PROCEEDS (P38,000 + P10,000)….………………………………………….. 48,000
PAYMENT OF LIQUIDATION EXPENSES…………………………………………… ( 800)
PAYMENT TO PARTNERS……………………………………………………………..P 52,200

11. D
FREE ASSETS ON ASSETS PLEDGED TO FULLY SECURED ASSETS (P75,000 – P30,000)..…………P 45,000
FREE ASSETS……………………………………………………………………………………………………… 40,000
TOTAL FREE ASSETS/TOTAL AMOUNT EXPECTED TO BE AVAILABLE FOR ALL CLAIMS……….…………P 85,000
LESS: UNSECURED CREDITORS WITH PRIORITY…………………………………………………………….. 7,000
NET FREE ASSETS/EXPECTED TO BE AVAILABLE FOR UNSECURED NONPRIORITY CLAIMS……………..P 78,000
UNSECURED CREDITORS:
PARTIALLY SECURED CREDITORS (P 60,000 – P52,000)……………………………….P 8,000
UNSECURED CREDITORS WITHOUT PRIORITY………………………………………………. 112,000 120,000
ESTIMATED DEFICIENCY TO UNSECURED CREDITORS……………………………………………………….P 42,000

12. B
EXPECTED RECOVERY PER PESO OF UNSECURED CREDITORS:
NET FREE ASSETS / TOTAL UNSECURED CREDITORS:
P 78,000 / P 120,000 …………………….………………………………………… P .65

13. B
Statement of Realization and Liquidation

Assets to be Realized………..P 95,000 Assets Realized……………..P 30,000

Assets Acquired………………. 5,000 Assets Not Realized……….. 40,000
Liabilities Liquidated…………. 35,000 Liabilities to be Liquidated… 65,000
Liabilities Not Liquidated……. 31,850 Liabilities Assumed………… 1,500
Supplementary charges/debits Supplementary credits:
Purchases…………………. 1,500 Sales…………………….. 5,000
Payment of expenses……. 7,500 Cash sales……………….. 25,000
Interest on M/S…………… 150

P 175,850 P 168,650
Net Loss P 7,200

14. D - Under the percentage of completion method, the Construction-In-Progress account is used for
cost incurred during the year and any realized gross profit (loss). The following T-account is
prepared:

Page 9 of 13 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 45 – May 2023 Batch)

Construction-In-Progress
CI in 20x4 210,000
RGP in 20x4 (?) 34,000
End of 20x4 244,000
CI in 20x5 384,000
RGP in 20x5 (?) 100,000

End of 20x5 728,000

15. B
20x4 20x5 20x6
Contract price………………………….. P5,000,000 P5,000,000 P5,000,000
Cost incurred each year………………. P2,050,000
Add: Cost incurred in prior year……… __900,000 2,550,000
Costs incurred to date………………… P 900,000 P2,550,000 P4,600,000
Add: Estimated costs to complete 3,600,000 1,700,000 _______-0-
Total estimated costs…………………. 4,500,000 P4,250,000 P4,600,000
Estimated gross profit………………… P 500,000 P 750,000 P 400,000
Multiply by: percentage of completion. _____20% 60% 100%
Recognized gross profit to date……… P 100,000 P 450,000 P 400,000
Less: Recognized gross profit in prior years -0- 100,000 450,000
Recognized gross profit each year…. P 100,000 P 350,000 P( 50,000)
16. D – refer to No. 15
17. D
Unadjusted capital (P80,000 + P80,000) or (P200,000 – P40,000)…………………..P 160,000
Add: Excess of fair value over book value…………………………………………… 24,000
Adjusted capital…………………………………………………………………………….P 184,000
Less: Shares issued at par value (10,000 x 2 x P1)…………………………..………… 20,000
Additional paid-in capital…………………………………………………….…………..P 164,000
18. D
INTERESTS PAYMENTS______
P Q R P Q R Total
Balances before realization
Loans………………….. P 6,000 P(10,000)
Capital………………... 24,000 P 36,000 60,000
Total interests………... P 30,000 P 36,000 P 50,000
Divided by: P&L ratio…… 3/10 3/10 4/10
Loss absorption abilities… P100,000 P120,000 P125,000
Priority I……………………… - - (5,000) P2,000 P2,000
P100,000 P120,000 P120,000
Priority II…………………… - (20,000) (20,000) P6,000 8,000 14,000
P100,000 P100,000 P100,000 P – P6,000 P10,000 P16,000
19. B
Sales………………………………………………………………………………………. P84,000
Less: Cost of good sold……………………………………………………………. 48,000
Operating expenses…………………………………………………………. 12,000
Interest (expense) paid to bank…………………………………………… 2,400
Net Income……………………………………………………………………………… P21,600
Salary allocations to partner’s is considered as a distribution (or allocation) of net income rather
than as a determinant of net income. In other words, salaries to partners are not treated as an
expense in computing net income.
Partner’s withdrawal affects capital balance but not net income.
20. B
QQ RR SS
Loan………………………………. (5,000) 10,000
Capital……………………………. 45,000 30,000 15,000
Total interest………………… 45,000 25,000 25,000
Divided by P&L ratio………….. 30% 50% 20%
Loss absorption ability…………. 150,000 50,000 125,000

Page 10 of 13 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 45 – May 2023 Batch)
Since RR had the lowest absorption ability, therefore, partner RR would be the last partner to
receive cash after satisfying the amount of priority allotted to GG and SS which is also an
indication that RR would be first to suffer partnership losses.
21. D
QQ RR SS Total
Total Interest (refer to no. 19) 45,000 25,000 25,000 95,000
Loss (3:5:2)…………………….. (24,000) (40,000) (16,000) (80,000)
21,000 (15,000) 9,000 15,000*
Possible insolvency (3:2)…… (9,000) 15,000 (6,000) - .
Payments to partners……… 12,000 3,000 15,000
*Cash available………………………………….. P 65,000
Less: Payment of liabilities……………………. 50,000
Payment to partners……………………………. P 15,000
22. B - (P25,000,000 × .60) – (P22,500,000 × .25) = P9,375,000.

23. D
Dennis Lily Total
Capital before realization 120,000 80,000 200,000
Reduction in capital (3:2) ( 84,000) ( 56,000) (140,000)
Payment to partners 36,000 24,000 60,000*
*Payment to partners:
Cash, beginning………………………………………………………………………………P100,000
Proceeds……………………………………………………………………………………….. 60,000
Payment of liabilities – to be conservative – it should be in full……………………..( 100,000)
Payment to partners…………………………………………………………………………..P 60,000
24. D
Dennis Lily Total__
Capital before realization – refer to no. 32 84,000 56,000 140,000
Reduction in capital (3:2) (78,000) ( 52,000) (130,000)
Payment to partners 6,000 4,000 10,000*
*since cash was fully distributed last month, only the proceeds of P10,000 for the second remains to
be distributed.
25. B – Cost recovery method (Zero-profit approach)/Point in Time should be applied since the
outcome of the construction contract cannot be reliably measurable. At the end of 2019 the
contractor must recognized only to the extent of recoverable contract costs incurred (i.e., P5,000
contract revenue and P5,000 construction costs/expenses).
26. B
Amount paid……………………………………………………………………….. P 264,000
Less: Book value of interest acquired (P888,000 x 1/5)…………………… 177,600
Gain realized by NN and SS…………………………………………………….. P 86,400

The interest acquired was based on the net assets or capital of the partnership not the capital
balances of NN and SS only.
27. C
XX YY ZZ Total
Capital, beginning balances P120,000 P120,000 P120,000 P360,000
Add: Net income……………... 35,100 35,100 49,800 120,000
Less: Personal withdrawals….. 30,000 30,000 45,000 105,000
Capital, ending balances… P125,100 P125,100 P124,800 P375,000
Allocation of Net Income:
XX YY ZZ Total
Salaries…………………………. P30,000 P30,000 P45,000 P360,000
Bonus…………………………… 1,500 1,500 - 3,000
Balance (30%; 30%; 40%)…… 3,600 3,600 4,800 12,000
P35,100 P35,100 P49,800 P120,000
Bonus computation:
Bonus = .25 (NI – salaries – B)
B = .25 (120,000 – 105,000 – B)
B = 3,750 - .25 B
1.25 B = 3,750
B = P3,000
Page 11 of 13 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 45 – May 2023 Batch)

28. B
Collection made:
Cash sale (P1,500 x 2) P 3,000
Credit sale (P1,800 x 25%) ___450
Total P3,450
Less: Charges
Freight P 320
Commission [(P3,000 + P1,800) x 15%] __720 __1,040
Amount remitted P 2,410
29. A
Charges Related to
Total Consignment Inventory on
Charges Sales Consignment
(5) (3) (2)
Consignor’s charges:
Cost P4,000 P 2,400 P 1,600
Freight 200 120 80
Consignee’s charges:
Freight 320 192 128
Commission 720 720 ______
Total P5,240 P 3,432 P1,808
Sales price 4,800
Profit on Consignment P 1,368
30. B – P1,808 – refer to No. 29 for computation

31. D
P60,000, salary = P25,000, salary + [.20 (NI – B)]
P60,000 = P25,000 + P35,000, bonus
Therefore, bonus would be P35,000
B = .20 (NI – B)
P35,000 =. 20 (NI – P35,000)
P35,000 = .20NI – P7,000
P35,000 + P7,000 = .20NI
P42,000 = .20NI
NI = P210,000

32. C - P30,000 + P40,000 = P70,000, annual salary to allocate net income.

33. A
January 1, 20x5: (Date of Signing)
Cash………………………………………………………………………………………… 10,000
Notes Receivable………………………………………………………………………… 40,000
Unearned Interest Income/Discount on Notes Receivable……………… 10,433
Unearned Franchise Revenue (P10,000 + P29,567)………………………… 39,567*
*Down payment made on 4/1/x5……………………………...P10,000.00
Present value of an ordinary annuity (P8,000 x 3.69590).. 29,567.20
Total revenue recorded by Campbell and total
acquisition cost recorded by Lesley Benjamin…………P39,567.20
34. C
April 1, 20x5 (Date of Opening)
Unearned Franchise Revenue…………………………………………………………… 39,567
Franchise Revenue………………………………………………………………… 39,567
35. A – refer to No. 34 for further computation
January 1, 20x5 (Date of Signing)
Cash……………………………………………………………………………………………10,000
Notes Receivable……………………………………………………………………………40,000
Unearned Interest Income/Discount on Notes Receivable……………………. 10,433
Unearned Service Revenue (Training)……………………………………………… 3,600
Unearned Franchise Revenue (P10,000 + P29,567-P3,600)………………….. 35,967*

Page 12 of 13 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 45 – May 2023 Batch)
36. B – note: “integrating the goods and services (the license and the consulting service) into one
combined item means only one Performance Obligation.

37. C –
Because Carlos had completed training and was open for business on August 1, 20x6, Ronella
apparently has satisfied its performance obligation with respect to the initial training, equipment
and furnishings, so it would recognize P50,000 of revenue in 20x6. In addition, since Carlos was a
franchisee for the last six months of 20x6 (starting July 1), Ronella should recognize 6 ÷ 12 = 50% of a
yearly fee of P30,000, or P15,000. In total, Ronella recognizes revenue from Carlos of P50,000 +
P15,000 = P65,000 in 20x6.

38. D - The criteria for revenue recognition have not yet been met and so the payment is an
advanced payments and should be presented in current liabilities.

39. C - Number of performance obligations in the contract: 2 - In this case, two performance
obligations exist, one related to the sale of the computer and the assurance warranty, and the other
to the extended warranty (service warranty). The sale of the computer and related assurance
warranty are one performance obligation as they are interdependent and interrelated with each
other. However, the extended warranty is separately sold and is not interdependent.

40. C
11/1: Advance payment:
Cash………………………………………………………………………………… 75,000
Contract Liability/Unearned Sales Revenue….…………………………. 75,000

?_ Date of Delivery:
Contract Liability/Unearned Sales Revenue….……………………………. 75,000
Sales Revenue………………………………………………………………… 75,000

Page 13 of 13 pages