Financial Accounting and Reporting Long Exams II

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1. The Goods in Process Inventory account of a manufacturing company that uses an overhead rate based on direct labor cost has a
$4,400 debit balance after all posting is completed. The cost sheet of the one job still in process shows direct material cost of
$2,000 and direct labor cost of $800. Therefore, the company's overhead application rate is:
A. 40%. B. 50%. C. 80%. D. 200%.
2. The Goods in Process Inventory account for AB Manufacturing follows. Compute the cost of jobs completed and transferred to
Finished Goods Inventory. The cost of units transferred to finished goods is:

A. $97,000. B. $105,900. C. $88,100. D. $95,200.

3. A company's overhead rate is 60% of direct labor cost. Using the following incomplete accounts, determine the cost of direct
materials used.

A. $106,400. B. $113,120. C. $30,240. D. $211,680.

4. Labor costs in production can be:
A. Direct or indirect. B. Indirect or sunk. C. Direct or sunk. D. Indirect or payroll.
5. A company has an overhead application rate of 125% of direct labor costs. How much overhead would be allocated to a job if it
required total labor costing $20,000?
A. $5,000. B. $16,000. C. $25,000. D. $125,000.
6. The R&R Company's production costs for August are: direct labor, $13,000; indirect labor, $6,500; direct materials, $15,000;
property taxes on production equipment, $800; heat, lights and power, $1,000; and insurance on plant and equipment, $200. R&R
Company's factory overhead incurred for August is:
A. $2,000. B. $6,500. C. $8,500. D. $21,500.
7. Deltan Corp. allocates overhead to production on the basis of direct labor costs. Deltan's total estimated overhead is $450,000 and
estimated direct labor is $180,000. Determine the amount of overhead to be allocated to finished goods inventory if there is
$20,000 of total direct labor cost in the jobs in the finished goods inventory.
A. $8,000. B. $20,000. C. $70,000. D. $50,000.
8. If one unit of Product X used $2.50 of direct materials and $3.00 of direct labor, sold for $8.00, and was assigned overhead at the
rate of 30% of direct labor costs, how much gross profit was realized from this sale?
A. $8.00. B. $5.50. C. $2.50. D. $1.60.
9. Payne Company developed the following data for the current year. How much is Payne Company's ending work in process
inventory for the year?
Beginning work in process inventory $34,000 Overhead applied 46,000
Direct materials used 52,000 Cost of goods manufactured 225,000
Actual overhead 44,000 Total manufacturing costs 214,000
A. $23,000 B. $121,000 C. $21,000 D. $93,000
10. Gannon Company had the following information at December 31:
Finished goods inventory, January 1………..$ 50,000 Finished goods inventory, December 31……….150,000
If the cost of goods manufactured during the year amounted to $2,100,000 and annual sales were $2,750,000, the amount of gross
profit for the year is
A. $650,000. B. $2,000,000. C. $750,000. D. $550,000.
11. Manufacturing costs that cannot be classified as either direct materials or direct labor are known as
A. period costs. C. selling and administrative expenses.
B . nonmanufacturing costs. D. manufacturing overhead.
12. Which one of the following is an example of a period cost?
A. A change in benefits for the union workers who work in the New York plant of a Fortune 1000 manufacturer
B. Workers' compensation insurance on factory workers' wages allocated to the factory
C. A box cost associated with computers

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Financial Accounting and Reporting Long Exams II
D. A manager's salary for work that is done in the corporate head office
13. The product cost that is most difficult to associate with a product is
A. direct materials. B. direct labor. C. manufacturing overhead. D. advertising.
14. The inventory accounts that show the cost of completed goods on hand and the costs applicable to production that is only
partially completed are, respectively
A. Work in Process Inventory & Raw Materials Inventory. C. Finished Goods Inventory &Work in Process Inventory.
B. Finished Goods Inventory & Raw Materials Inventory. D. Raw Materials Inventory & Work in Process Inventory.
15. On the costs of goods manufactured schedule, the item raw materials inventory (ending) appears as a(n)
A. addition to raw materials purchases. C. subtraction from raw materials available for use.
B. addition to raw materials available for use. D. subtraction from raw materials purchases.
16. Which of the following is NOT a characteristic of the proprietary theory that influences accounting for partnerships?
a. Partners' salaries are viewed as a distribution of income rather than a component of net income.
b. A partnership is not viewed as a distinct, taxable entity.
c. A partnership is characterized by limited liability.
d. Changes in the ownership structure of a partnership result in the dissolution of the partnership.
17. Don and Key form a partnership. Don contributes into the partnership a personal computer that he has used at home in
nonbusiness related activities. Don had paid $10,000 for the computer 2 years ago. The current market value of the computer
is $9,000. The partners, after reviewing IRS rules, assigned the computer a useful life of 5 years. For financial reporting
purposes, at what amount should the computer be recorded in the partnership ledger?
a. $10,000 b. $9,000 c. $7,500 d. $6,000
18. Which of the following accounts could be found in the PQ partnership's general ledger?
I. Due from P
II. P, Drawing
III. Loan Payable to Q
a. I, II b. I, III c. II, III d. I, II, and III
19. CB and AD have just formed a partnership. CB contributed cash of P126,000 and computer equipment that cost P54,000. The
computer had been used in his sole proprietorship and had been depreciated to P24,000. The fair value of the equipment is
P36,000. CB also contributed a note payable of P12,000 to be assumed by the partnership. CB is to have 60% interest in the
partnership. AD contributed only P90,000 cash. CB should make an additional investment (withdrawal) of?
a. 96,000 b. 84,000 c. (76,800) d. (15,000)
20. On December 1, 2023, EC and IF formed a partnership, agreeing to share for profits and losses in the ratio of 2:3, respectively.
EE invested a parcel of land that cost him P25,000. IF invested P30,000 cash. The land was sold for P50,000 on the same date,
three hours after formation of the partnership. How much should be the capital balance of EE right after formation?
a. P25,000 b. P60,000 c. 30,000 d. 50,000
21. On March 1, 2023, II and JJ formed a partnership with each contributing the following assets:
II JJ
Cash P300,000 P 700,000
Machinery and equipment 250,000 750,000
Building - 2,250,000
Furniture and fixtures 100,000
The building is subject to mortgage loan of P800,000, which is to be assumed by the partnership agreement provides that II and
JJ share profits and losses 30% and 70%, respectively. On March 1, 2023, the balance in JJ's capital account should be:
a. P3,700,000 b. P3,050,000 c. 3,140,000 d. 2,900,000
22. The same information in preceding number, except that the mortgage loan is not assumed by the partnership. On. March 1,
2023, the balance in JJ's capital account should be:
a. P3,700,000 b. P3,050,000 c. 3,140,000 d. 2,900,000
23. As of July 1, 2023, FF and GG decided to form a partnership. Their balance sheets on this date are:
FF GG FF GG
Cash PHP 15,000 PHP 37,500 Accounts payable PHP 135,000 PHP 240,000
Accounts receivable 540,000 225,000 GG, Capital 570,000 495,000
Merchandise Inventory - 202,500 FF, Capital
Machinery and equipment 150,000 270,000
Total PHP 705,000 PHP 735,000 Total PHP 705,000 PHP 735,000
The partners agreed that the machinery and equipment of FF is underdepreciated by P15,000 and that.of GG by P45,000. Allowance
for doubtful accounts is to be set up amounting to P 120,000 for FF and P45,000 for GG. The partnership agreement provides for a
profit and loss ratio and capital interest of 60% to FF and 40% to GG. How much cash must FF invest to bring the partners' capital
balances proportionate to their profit and loss ratio?
a. P142,500 b. 52,500 c. P172,500 d. 102,500

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24. On August 1, AA and BB pooled their assets to form a partnership, with the firm to take over their business assets and assume
the liabilities. Partners capitals are to be based on net assets transferred after the following adjustments. (Profit and loss are
allocated equally.) BB's inventory is to be increased by P4,000; an allowance for doubtful accounts of P1,000 and P 1,500 are
to be set up in the books of AA and BB, respectively; and accounts payable of P4,000 is to be recognized in AA's books. The
individual trial balances on August 1, before adjustments, follow:
AA BB
Assets P75,000 P113,000
Liabilities 5,000 34,500
What is the capital of AA and BB after the above adjustments?
a. AA, P68,750; BB, P77,250 c. AA, P65,000; BB, P76,000
b. AA, P75,000; BB, P81,000 d. AA; P65,000; BB, P81,000
25. CC admits DD as a partner in business. Accounts in the ledger for CC on November 30, 2023, just before the admission of DD,
show the following balances:
Cash P 6,800 Accounts payable 8,000
Accounts receivable 14,200 CC, Capital 33,000
Merchandise Inventory 20,000
It is agreed that for purposes of establishing CC's interest, the following adjustments shall be made:
(a) An allowance for doubtful accounts of 3% of accounts receivable Is to be established.
(b) The merchandise inventory is to be valued at P23,000.
(c) Prepaid salary expenses of P600 and accrued rent expense of P800 are to be recognized.
DD is to invest sufficient cash to obtain a 1/3 interest in the partnership. Compute for:
(1) CC's adjusted capital before the admission of DD; and (2) the amount of cash investment by DD:
a. (1) P35,347; (2) P11,971 c. (1) P35,374; (2) P17,687
b. (1) 36,374; (2) 18,487 d. (1) 28,174; (2) 14,087
26. On January 1, 2021, LR and AZ had capital balances of P20,000 and P16,000 respectively. On July 1, 2021 LR invested an
additional P4,000 and AZ withdrew P1,600. Profits and losses are divided as follows: AZ is the managing partner and as such
shall receive P16,000 salary and LR shall receive P7,200; both partners shall receive interest of 10% on their beginning capital
balances to offset whatever difference in capital investments they have and any remainder shall be divided equally. Income of
their partnership for the year 2021 is P9,600. LR’s share in the Net Income is
a. 9,200 b. 880 c. 24,600 d. 600
27. In its first year of operations, AJ and Company, a partnership, made a net income of P20,000 before providing for salaries of
P5,000 and P3,000 per annum for AJ and PF, respectively, as stipulated in the partnership agreement. Capital contributions are
as follows: AJ, P30,000; PF, 20,000; AX, 10,000.
Assuming that no profit and loss ratios are provided in the partnership agreement and that there had been no change in the capital
contributions during the year, how much profit share would AJ be entitled to receive?
a. 10,000 b.5,000 c. 11,000 d. 15,000
28. Which of the following best describes the use of interest on invested capital as a means of allocating profits?
a. If interest on invested capital is used, it must be used for all partners.
b. Interest is allocated only if there is partnership net profit.
c. Invested capital balances are never affected by drawings of the partnerships.
d. Use of beginning or ending measures of invested capital may be subject to manipulation that distorts the measure of invested
capital.
29. A partnership agreement calls for allocation of profits and losses by salary allocations, a bonus allocation, interest on capital,
with any remainder to be allocated by preset ratios. If a partnership has a loss to allocate, generally which of the following
procedures would be applied?
a. Any loss would be allocated equally to all partners.
b. Any salary allocation criteria would not be used.
c. The bonus criteria would not be used.
d. The loss would be allocated using the profit and loss ratios, only.
30. Which of the following would be least likely to be used as a means of allocating profits among partners who are active in the
management of the partnership?
a. Salaries c. Bonus as a % of sales in excess of a targeted amount
b. Bonus as a percentage of net income before the bonus d. Interest on average capital balances
31. Ace & Barnes partnership has income of $110,000 and Partner A is to be allocated a bonus of 10% of income after the bonus,
Partner A's bonus would be ______________.
a. $11,000 b. $10,000 c. $9,091 d. $9,000
32. Partner Alta had a capital balance on January 1, 20X5 of $45,000 and made additional capital contributions during 20X5 totaling
$50,000. During the year 20X5, Alta withdrew $8,000 per month. Alta’s postclosing capital balance on December 31, 20X5 is
$30,000. Alta’s share of 20X5 partnership income is _________________.
a. $96,000 b. $50,000 c. $31,000 d. $8,000
33. The APB partnership agreement specifies that partnership net income be allocated as follows:

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Financial Accounting and Reporting Long Exams II
Partner A Partner P Partner B
Salary allowance $ 30,000 $ 10,000 $ 40,000
Interest on average capital balances 10% 10% 10%
Remainder 40% 40% 20%
Average capital balances for the current year were $50,000 for A, $30,000 for P, and $20,000 for B.. Assuming a current year
net income of $50,000, what amount should be allocated to each partner?
Partner A Partner P Partner B Partner A Partner P Partner B
a. $ 20,000 $ 20,000 $ 10,000 c. $ 19,000 $ (3,000) $ 34,000
b. $ 16,000 $ 16,000 $ 8,000 d. $ 17,000 $ - $ 33,000
34. Partners A and B have a profit and loss agreement with the following provisions: salaries of $20,000 and $25,000 for A and B,
respectively; a bonus to A of 10% of net income after bonus; and interest of 20% on average capital balances of $40,000 and
$50,000 for A and B, respectively. Any remainder is split equally. If the partnership had net income of $88,000, how much
should be allocated to Partner A?
a. $36,000 b. $44,500 c. $50,000 d. $43,500
35. Partners A and B have a profit and loss agreement with the following provisions: salaries of $40,000 and $45,000 for A and B,
respectively; a bonus to A of 10% of net income after salaries and bonus; and interest of 15% on average capital balances of
$40,000 and $60,000 for A and B, respectively. One-third of any remaining profits or losses are allocated to B and the balance
to A. If the partnership had net income of $52,000, how much should be allocated to Partner A?
a. $14,000 b. $30,000 c. $38,000 d. None of the above
36. Partners Acker, Becker & Checker have the following profit and loss agreement:
(1) Acker & Becker receive salaries of $40,000 each
(2) Checker gets a bonus of 10 percent of net income after salaries and bonus (the bonus is zero if salaries exhaust net income)
(3) Remaining profits are shared by Acker, Becker & Checker in the following ratios respectively: 3:4:3.
The partnership had a net income of $91,000. How much should be allocated to Checker?
a. $3,300 b. $10,300 c. $1,000 d. $4,000
37. Pete and Rico share profits after the provision of annual salary allowances of P14,400 and P13,200, respectively in the ratio of
3:2. However, if partnership's net income is insufficient to provide for said allowances in full amount, the net income shall be
divided equally between the partners. In 2023, the following errors were discovered: Depreciation for 2023 is understated by
P2,100, and the inventory on December 31, 2023 is overstated by P11,400. The partnership net income for 2023 was reported
to be P19,500. The capital accounts of the partners should be increased (decreased) by:
a. Pete, P6,540; Rico, P (6,960) c. Pete, (6,750); Rico, (6,750)
b. Pete, (6,540); Rico, 6,960 d. Pete, (6,960); Rico, 6,540.
38. Mike and Tyson are partners in a trading company. During 2016, they withdrew their salary allowances of P200,000 and
P300,000, respectively. Profits and losses are shared in the ratio of 3:2. The income summary account before any profit
allocation has a credit balance of P600,000. The partner's capital accounts show the following:
Mike Tyson
Beginning balances P 600,000 P 400,000
Additional Investments 100,000 200,000
Withdrawals other than salary allowances - 200,000 - 100,000
What are the capital balances of the partners for the year 2016 after closing Income Summary and the Withdrawals accounts?
a. Mike, P560,000; Tyson, P540,000. c. Mike, P460,000; Tyson, P340,000.
b. Mike, P360,000; Tyson, P240,000. d. Mike, P760,000; Tyson, P840,000.
39. DV, JE and FR form a partnership and agree to maintain average investments of P2,500,000, P1,250,000, and P1,250,000
respectively. The partners agree to divide profits and losses as follows:
1. Interest of 6 percent on the excess or deficiency in the capital investments.
2. Remainder to share in the ratio of 5:3:2 to DV, JE and FR respectively.
Average investments made during the first six months were as follows: DV, P3,000,000; JE, P1,375,000; FR, P1,000,000. A loss
from operations of P62,500 was incurred for the first six months. How is this loss distributed among the partners?
DV JE FR DV JE FR
a. P 21,875 P 18,375 P 22,250 c. P 31,250 P 18,750 P 12,500
b. P 12,500 P 10,000 P 48,500 d. P 18,375 P 21,875 P 22,250
40. The partnership of Perez and Reyes was formed on March 31, 2016. At that date, Perez invested P50,000 cash and office
equipment valued at P30,000. Reyes invested P70,000 cash, merchandise valued at P110,000, and furnitures valued at P100,000,
subject to a notes payable of P50,000 (which the partnership assumes). The partnership provides that Perez and Reyes share
profits and losses 25:75, respectively. The agreement further provides that the partners should initially have, an equal interest
in the partnership capital. Under the bonus method, what is the total capital of the partners after the formation?
а. P310,000 b.P360,000 c. P300,000 d.P350,000

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