P2 Reviewer PDF

P2
1. Which of the following observations concerning interfund transfers is true?

A. They are expected to be repaid.
B. They are classified as fund revenues or expenditures.
C. The receiving fund recognizes these transfers as revenue.
D. These transfers are classified under "Other Financing Sources or Uses."
2. Shue, a partner in the Financial Brokers Partnership, has a 30 percent share in

partnership profits and losses. Shue's capital account had a net decrease of 100,000
during 2008. During 2008, Shue withdrew 240,000 as withdrawals and contributed
equipment valued at $50,000 to the partnership. What was the net income of the
Financial Brokers Partnership for 2008?
A. 633,334
B. 466,666
C. 300,000
D. 190,000
3. The JPB partnership reported net income of 160,000 for the year ended December 31,
2008. According to the partnership agreement, partnership profits and losses are to be
distributed as follows:
How should partnership net income for 2008 be allocated to J, P, and B?
A. Option A
B. Option B
C. Option C
D. Option D
4. Refer to the above information. What is each partner's tax basis in the Jones and Smith
partnership?
A. Option A
B. Option B
C. Option C
D. Option D
5. Windsor Corporation owns 75 percent of Elven Corporation's outstanding common

stock. Elven, in turn, owns 15 percent of Windsor's outstanding common stock. What
percent of the dividends paid by Windsor is reported as dividends declared in the
consolidated retained earnings statement?
A. None
B. 100 percent
C. 85 percent
D. 75 percent
6. Parent Corporation owns 90 percent of Subsidiary 1 Company's stock and 75 percent of

Subsidiary 2 Company's stock. During 2008, Parent sold inventory purchased in 2007 for
$48,000 to Subsidiary 1 for $60,000. Subsidiary 1 then sold the inventory at its cost of
$60,000 to Subsidiary 2. Prior to December 31, 2008, Subsidiary 2 sold $45,000 of
inventory to a nonaffiliate for $67,000 and held $15,000 in inventory at December 31,
2008.
Based on the information given above, what amount should be reported in the 2008
consolidated income statement as cost of goods sold?
A. $36,000
B. $12,000
C. $48,000
D. $45,000
7. Consolidated net income may include the parent's separate operating income plus the
parent's share of the subsidiary's reported net income:
A. plus the unrealized profit on upstream intercompany sales of inventory made during
the current year.
B. plus the profit realized this year from upstream intercompany sales of inventory made
last year.
C. plus unrealized profit on downstream intercompany sales of inventory made during
the current year.
D. minus the parent's share of profit realized this year from upstream intercompany sales
of inventory made last year.
8. Xing Corporation owns 80 percent of the voting common shares of Adams Corporation.
Noncontrolling interest was assigned $24,000 of income in the 2009 consolidated
income statement. What amount of net income did Adams Corporation report for the
year?
A. $150,000
B. $96,000
C. $120,000
D. $30,000
9. On January 1, 2008, Zeta Company acquired 85 percent of Theta Company's common

stock for $100,000 cash. The fair value of the noncontrolling interest was determined to
be 15 percent of the book value of Theta at that date. What portion of the retained
earnings reported in the consolidated balance sheet prepared immediately after the
business combination is assigned to the noncontrolling interest?
A. Nil
B. 15 %
C. 100 %
D. Cannot be determined
10. On September 30, 2008, Wilfred Company sold inventory to Jackson Corporation, its
Canadian subsidiary. The goods cost Wilfred $30,000 and were sold to Jackson for
$40,000, payable in Canadian dollars. The goods are still on hand at the end of the year
on December 31. The Canadian dollar (C$) is the functional currency of the Canadian
subsidiary. The exchange rates follow:
Based on the preceding information, at what dollar amount is the ending inventory
shown in the trial balance of the consolidated workpaper?
A. $45,000
B. $50,000
C. $40,000
D. $35,000
11. Wakefield Company uses a perpetual inventory system. In August, it sold 2,000 units
from its LIFO-base inventory, which had originally cost $35 per unit. The replacement cost
is expected to be $45 per unit. The company is planning to reduce its inventory and
expects to replace only 1,500 of these units by December 31, the end of its fiscal year. The
company replaced 1,500 units in November at an actual cost of $50 per unit.
Based on the preceding information, in the entry in August to record the sale of the 2,000
units:
A. Cost of Goods Sold will be debited for $70,000.
B. Inventory will be credited for $85,000.
C. Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be credited for
$15,000.
D. Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be credited for
$67,000.
12. On December 31, 2009, Rudd Company acquired 80 percent of the common stock of
Wilton Company. At the time, Rudd held land with a book value of $100,000 and a fair value
of $260,000; Wilton held land with a book value of $50,000 and fair value of $600,000.
Using the parent company theory, at what amount would land be reported in a consolidated
balance sheet prepared immediately after the combination?
A. $550,000
B. $590,000
C. $700,000
D. $860,000
13. Princeton Company acquired 75 percent of the common stock of Sheffield Corporation
on December 31, 2009. On the date of acquisition, Princeton held land with a book value of
$150,000 and a fair value of $300,000; Sheffield held land with a book value of $100,000
and fair value of $500,000. Using the entity theory, at what amount would land be reported in
a consolidated balance sheet prepared immediately after the combination?
A. $650,000
B. $500,000
C. $550,000
D. $375,000
14. If Push Company owned 51 percent of the outstanding common stock of Shove
Company, which reporting method would be appropriate?
A. Cost method
B. Consolidation
C. Equity method
D. Merger method
15. Goodwill under the parent theory:

A. exceeds goodwill under the proprietary theory.
B. exceeds goodwill under the entity theory.
C. is less than goodwill under the entity theory.
D. is less than goodwill under the proprietary theory.
1. Acme Co. is preparing a pro-forma set of financial statements after anacquisition of

Coyote Co. The purchase price is less than the fairvalue of the assets acquired. However, the
purchase price is greaterthan net book value of the acquired company.
a. Acme's goodwill will decrease over time.
b. Acme's amortization of intangible assets will increase over time.
c. Depreciation expense will be greater than Coyote Company's
expense.
d. Coyote's loss on the sale of the assets will create a net loss
2. Balter Inc. acquired Jersey Company on January 1, 20X5. When the

purchase occurred Jersey Company had the following information related
to fixed assets:
Land $ 80,000
Building 200,000
Accumulated Depreciation (100,000)
Equipment 100,000
The building has a 10-year remaining useful life and the equipment has
a 5-year remaining useful life. The fair value of the assets on that
date were:
Land $100,000
Building 130,000
Equipment 75,000
What is the 20X5 depreciation expense Balter will record related to
purchasing Jersey Company?
a. $8,000
b. $15,000
c. $28,000
d. $30,000
3. ACME Co. paid $110,000 for the net assets of Comb Corp. At the time of
the acquisition the following information was available related to
Comb's balance sheet:
Book Value Fair Value
Current Assets $50,000 $ 50,000
Building 80,000 100,000
Equipment 40,000 50,000
Liabilities 30,000 30,000
What is the amount recorded by ACME for the Building?
a. $40,000
b. $60,000
c. $80,000
d. $100,000
4. Which of the following business combination expenses would NOT qualify

as a direct acquisition expense for a purchase?
a. Fees for purchase audit
b. Outside legal fees
c. Stock issuance fees
d. All are direct acquisition expenses.
5. On April 1, 20X1, Paape Company paid $950,000 for all the issued and
outstanding stock of Simon Corporation in a transaction properly
recorded as a purchase. The recorded assets and liabilities of the Prime
Corporation on April 1, 20X1, follow:
Cash............................................. $ 80,000
Inventory........................................ 240,000
Property and equipment
(net of accumulated depreciation
of $320,000).................................. 480,000
Liabilities...................................... (180,000)
On April 1, 20X1, it was determined that the inventory of Paape had a
fair value of $190,000, and the property and equipment (net) had a fair
value of $560,000. What is the amount of goodwill resulting from the
business combination?
a. $0
b. $120,000
c. $300,000
d. $230,000
6. Paro Company purchased 80% of the voting common stock of Sabon Company
for $900,000. There are no liabilities. The following book and fair
values are available:
Current assets...................... $100,000 $200,000
Land and building................... 200,000 200,000
Machinery........................... 300,000 600,000
Goodwill............................ 100,000 ?
Using the parent company concept, the machinery will appear on the
consolidated balance sheet at __________.
a. $600,000
b. $540,000
c. $480,000
d. $300,000
7. When a company purchases another company that has existing goodwill andthe transaction
is accounted for as a stock acquisition, the goodwillshould be treated in the following manner.
a. Goodwill on the books of an acquired company should be
disregarded.
b. Goodwill is recorded prior to recording fixed assets.
c. Goodwill is not recorded until all assets are stated at full fair
value.
d. Goodwill is treated consistent with other tangible assets.
8. Partners Thomas, Adams and Jones have capital balances of $24,000,

$45,000, and $90,000 respectively. They split profits in the ratio of
3:3:4, respectively. Under a predistribution plan, one of the partners
will get the following total amount in liquidation before any other
partners get anything:
a. $22,500
b. $30,000
c. $40,000
d. $75,000
9. Partner T is personally insolvent, owing $400,000. Personal assets will

only bring $150,000 when liquidated. At the same time, T has a credit
capital balance in the partnership of $85,000. The capital amounts of
the other partners total a (credit) balance of $200,000. Under the
doctrine of marshaling of assets, the personal creditors of T can
collect up to __________.
a. $150,000
b. $235,000
c. $400,000
d. $435,000
10. Assume that a partnership had assets with a book value of $240,000 anda market value of
$195,000, outside liabilities of $70,000, loans
payable to partner Able of $20,000, and capital balances for partners
Able, Baker, and Chapman of $70,000, $30,000, and $50,000. How would
the first $100,000 of available assets be distributed assuming profits
and losses are allocated equally?
a. $70,000 to outside liabilities, $20,000 to Able, and the balance
equally among the partners
b. $70,000 to outside liabilities and $30,000 to Able
c. $70,000 to outside liabilities, $25,000 to Able, and $5,000 to
Chapman
d. $40,000 to Able, $20,000 to Chapman, and the balance equally among
the partners
11. Assume that a partnership had assets with a book value of $240,000 and
a market value of $195,000, outside liabilities of $70,000, loans
payable to partner Able of $20,000, and capital balances for partners
Able, Baker, and Chapman of $70,000, $30,000, and $50,000. If all
outside creditors and loans to partners had been paid, how would the
balance of the assets be distributed assuming that Chapman had already
received assets with a value of $30,000 assuming profits and losses are
allocated equally?
a. Each of the partners would receive $25,000.
b. Each of the partners would receive $40,000.
c. Able: $70,000, Baker: $30,000, Chapman: $20,000
d. Able: $55,000, Baker: $15,000, Chapman: $5,000
12. Which one of the following equations will yield the unobligated balance
in an expenditure subsidiary ledger account? Unobligated Balance =
a. Appropriations - Expenditures total
b. Appropriations - Encumbrances balance
c. Appropriations - Expenditures total - Encumbrances balance
d. Appropriations - Expenditures total + Encumbrances balance
13. Which of the following accounts would not be found in the year-end
General Fund balance sheet of a city?
a. Cash
b. Allowance for Uncollectible Taxes
c. Land--Parks
d. Fund Balance--Reserved for Encumbrances
14. When recording the acquisition of a fixed asset in a city's General

Fixed Asset Account Group (GFAAG), the debit entry should be selected
from one of the following accounts except
a. Land
b. Expenditures
c. Machinery and Equipment
d. Construction in Progress
15.If the police department purchases a police car for $20,000 and trades
in the old car for $6,000 paying a net cash payment of $14,000, the
entry in the General Fund would
a. debit Automobiles for $14,000.
b. debit Expenditures for $14,000.
c. credit Automobiles for $6,000.
d. debit Expenditures for $20,000.
1. Paris LTD. owned a 75% interest in Scott Company prior to January 1,

20X3. On January 1, 20X1, Paris LTD. paid $600,000 for its interest when
Scott Company had total equity of $550,000. On January 1, 20X3, Scott
Company had the following stockholders' equity:
Common stock, $10 par............... $100,000
Other paid-in capital............... 200,000
Retained earnings................... 350,000
On January 2, 20X3, Scott Company sold 2,500 additional shares of stock
for $80 each in a private offering to noncontrolling shareholders. As a
result of this sale, which of the following changes would appear in the
20X3 consolidated statements?
a. $50,000 gain
b. $22,500 gain
c. $50,000 increase in controlling paid-in capital
d. $22,500 increase in controlling paid-in capital

20X3. On January 1, 20X1, Paris LTD. paid $600,000 for its interest when
Scott Company had total equity of $550,000. On January 1, 20X3, Scott
Common stock, $10 par............... $100,000
for $35 each in a public offering to noncontrolling shareholders. As a
a. $45,000 loss
b. $21,875 loss
c. $45,000 decrease in controlling paid-in capital
d. $21,875 decrease in controlling paid-in capital
3. When a parent purchases a portion of the newly issued stock of its

subsidiary and the ownership interest remains the same,
a. any difference between the change in equity and the price paid is
the excess of cost or book value attributable to the new block.
b. any difference between the change in equity and the price paid is
viewed as a gain or loss on the sale of an interest.
c. any difference between the change in equity and the price paid is
viewed as a change in paid-in capital or retained earnings.
d. there will be no adjustment.
4. Apple Inc. owns a 90% interest in Banana Company. Banana Company, in

turn, owns a 80% interest in Carrot Company. During 20X4, Carrot Company
sold $50,000 of merchandise to Apple Inc. at cost plus 25%. Of this
merchandise, $10,000 was still unsold by Apple Inc. at year end. The
adjustment to the controlling interest in consolidated net income for
20X4 is __________.
a. $560
b. $1,440
c. $1,600
d. $1,800
5. Phelps Co. uses the sophisticated equity method to account for the 80% investment
in its subsidiary Shore Corp. Based upon the following
information what amount does Phelps Co. record as subsidiary income?
Phelps internally generated income: $250,000
Shore internally generated income: $ 50,000
Intercompany profit on Shore beginning inventory: $ 10,000
Intercompany profit on Shore ending inventory: $ 15,000
a. $50,000
b. $44,000
c. $40,000
d. $36,000
6. Stroud Corporation is an 80%-owned subsidiary of Pennie, Inc., acquiredby Pennie

several years ago. On January 1, 20X2, Pennie sold land with a book value of $60,000
to Stroud for $90,000. Stroud resold the land to an unrelated party for $100,000 on
September 26, 20X3. The gain from sale of land that will appear in the consolidated
income statements for 20X2 and 20X3, respectively, is _______.
a. $0 and $10,000
b. $0 and $40,000
c. $30,000 and $10,000
d. $30,000 and $40,000
7. On 1/1/X1 Peck sells a machine with a $20,000 book value to its

subsidiary Shea for $30,000. Shea intends to use the machine for 4
years. On 12/31/X2 Shea sells the machine to an outside party for
$14,000. What amount of gain or (loss) for the sale of assets is
reported on the consolidated financial statements?
a. loss of $6,000
b. loss of $1,000
c. gain of $4,000
d. gain of $14,000
8. Pease Corporation owns 100% of Sade Corporation common stock. On January 2,

20X6, Pease sold machinery with a carrying amount of $30,000 to Sade for $50,000.
Sade is depreciating the acquired machinery over a 5-year life using the straight-line
method. The net adjustments to compute the 20X6 and 20X7 consolidated income
before income tax would be an increase (decrease) of
20X6 20X7
a. $(16,000) $4,000
b. $(16,000) $0
c. $(20,000) $4,000
d. $(20,000) $0
9. Company S is a 100%-owned subsidiary of Company P. On January 1, 20X9,

Company S has $100,000 of 8% face rate bonds outstanding. The bonds had 5 years to
maturity on January 1, 20X9, and had an amortized discount of $5,000. On that date,
Company P purchased the bonds for $99,000. The net adjustment needed to
consolidate retained earnings on December 31, 20X9
is __________.
a. $(4,000)
b. $(3,200)
c. $(800)
d. $0
10. Sun Company is a 100%-owned subsidiary of Peter Company. On January 1, 20X1,
Sun Company has $500,000 of 8% face rate bonds outstanding, with an unamortized
discount of $5,000 which is being amortized over a 5 year remaining life to maturity. On
that date, Peter Company purchased the bonds for $497,000. The adjustment to the
consolidated income of the two companies needed in the consolidation process for
20X2 (the following
year) is __________.
a. $2,800
b. $(400)
c. $400
d. $(2,800)
11. Company S is a 100%-owned subsidiary of Company P. Company P purchased all

the outstanding bonds of Company S at a discount. The bonds had a remaining
issuance premium at the time of Company P's purchase. The bonds have 5 years to
maturity. At the end of 5 years, retained earnings:
a. is greater as a result of the purchase.
b. is less as a result of the purchase.
c. is not affected by the purchase.
d. cannot be determined from the information provided.
12. Company P owns 80% of Company S. On January 1, 20X9 Company S has

outstanding 6% bonds with a face value of $200,000 and an unamortized
discount of $3,000, which is being amortized on a straight-line basis
over a remaining term of 10 years. On January 1, 20X9, Company P
purchased all the bonds for $205,000. The premium also is amortized on a straight-line
basis. The net impact of the purchase on the
noncontrolling interest as of December 31, 20X9, is __________.
a. $(8,000)
b. $(1,600)
c. $(1,440)
d. $(1,200)
13. The purchase of outstanding subsidiary bonds by the parent company has the same
impact on consolidated statements as:
a. the subsidiary retiring its own debt with the proceeds of new debt
issued to outside parties.
b. the subsidiary retiring the debt with the proceeds of a loan from
the parent.
c. the subsidiary retiring the debt with the proceeds of a new stock
issue.
d. allowing the bonds to continue to be held by outside interests.
14. Powell Company owns an 80% interest in Sauter, Inc. On January 1, 20X1, Sauter
issued $400,000 of 10-year, 12% bonds at a premium of $25,000. On December 31,
20X5, 5 years after original issuance, Powell purchased all of the outstanding bonds for
$390,000. Both firms use the straight-line method of amortization.
What is the extraordinary gain on retirement on the 20X5 consolidatedincome
statement?
a. $12,500
b. $22,500
c. $10,000
d. $35,000
15. If a city issues a term bond to purchase property for a city park,which of the
following entries would be made?
a. Other Financing Sources would be credited in a Capital Projects
Fund.
b. Cash would be debited in the General Long-Term Capital Debt
Account Group.
c. Term Bonds Payable would be credited in the General Fund.
d. All of these entries would be made.
1. An economic advantage of a business combination includes
a. Utilizing duplicative assets.
b. Creating separate management teams.
c. Coordinated marketing campaigns.
d. Horizontally combining levels within the marketing chain.
2. A tax advantage of business combination can occur when the existing

owner of a company sells out and receives:
a. cash to defer the taxable gain as a "tax-free reorganization."
b. stock to defer the taxable gain as a "tax-free reorganization."
c. cash to create a taxable gain.
d. stock to create a taxable gain.
3. A controlling interest in a company implies that the parent company

a. owns all of the subsidiary's stock.
b. has influence over a majority of the subsidiary's assets.
c. has paid cash for a majority of the subsidiary's stock.
d. has transferred common stock for a majority of the subsidiary's
outstanding bonds and debentures.
4. Which of the following is a potential abuse that may arise when a

business combination is accounted for as a pooling of interests?
a. Assets of the buyer may be overvalued when the price paid by the
investor is allocated among specific assets.
b. Earnings of the pooled entity may be increased because of the
combination only and not as a result of efficient operations.
c. Liabilities may be undervalued when the price paid by the investor
is allocated to specific liabilities.
d. An undue amount of cost may be assigned to goodwill, thus
potentially allowing an understatement of pooled earnings.
5. Company B acquired the assets (net of liabilities) of Company S in

exchange for cash. The acquisition price exceeds the fair value of the
net assets acquired. How should Company B determine the amounts to be
reported for the plant and equipment, and for long-term debt of the
acquired Company S?
Plant and Equipment Long-Term Debt
a. Fair value S's carrying amount
b. Fair value Fair value
c. S's carrying amount Fair value
d. S's carrying amount S's carrying amount
6. Publics Company acquired the net assets of Citizen Company during 20X5.
The purchase price was $800,000. On the date of the transaction,
Citizen had no long-term investments in marketable equity securities
and $400,000 in liabilities. The fair value of Citizen assets on the
acquisition date was as follows:
Current assets................................. $ 800,000
Noncurrent assets.............................. 600,000
$1,400,000
==========
How should Publics account for the $200,000 difference between the fair
value of the net assets acquired, $1,000,000, and the cost, $800,000?
a. Retained earnings should be reduced by $200,000.
b. Current assets should be recorded at $685,000 and noncurrent
assets recorded at $515,000.
c. The noncurrent assets should be recorded at $400,000.
d. A deferred credit of $200,000 should be set up and subsequently
amortized to future net income over a period not to exceed 40
years.
ANS: C DIF: M OBJ: 4
7. ABC Co. is acquiring XYZ Inc. XYZ has the following Intangible assets:
Patent on a product that is deemed to have no useful life $10,000.
Customer List with an observable fair value of $50,000.
A 5-year operating lease with favorable terms with a discounted
present value of $8,000.
Identifiable R & D of $100,000.
ABC will record how much for acquired Intangible Assets from the
Purchase of XYZ Inc?
a. $168,000
b. $58,000
c. $158,000
d. $150,000
ANS: B DIF: D OBJ: 4
8. Vibe Company purchased the net assets of Atlantic Company in a business

combination accounted for as a purchase. As a result, goodwill was
recorded. For tax purposes, this combination was considered to be a
tax-free merger. Included in the assets is a building with an appraised
value of $210,000 on the date of the business combination. This asset
had a net book value of $70,000, based on the use of accelerated
depreciation for accounting purposes. The building had an adjusted tax
basis to Atlantic (and to Vibe as a result of the merger) of $120,000.
Assuming a 36% income tax rate, at what amount should Vibe record this
building on its books after the purchase?
a. $120,000
b. $134,400
c. $140,000
d. $210,000
ANS: D DIF: M OBJ: 4
9. Goodwill represents the excess cost of an acquisition over the

a. sum of the fair values assigned to intangible assets less
liabilities assumed.
b. sum of the fair values assigned to tangible and intangible assets
acquired less liabilities assumed.
c. sum of the fair values assigned to intangibles acquired less
liabilities assumed.
d. book value of an acquired company.
ANS: B DIF: M OBJ: 5
10. When purchasing a company occurs, FASB recommends disclosing all of the
following EXCEPT:
a. goodwill related to each reporting segment.
b. contingent payment agreements, options, or commitments included in
the purchase agreement, including accounting methods to be
followed.
c. results of operations for the current period if both companies had
remained separate.
d. amount of in-process R&D purchased and written-off during the
period.
11. Cozzi Company is being purchased and has the following balance sheet as
of the purchase date:
Current assets.......... $200,000 Liabilities.... $ 90,000
Fixed assets............ 180,000 Equity......... 290,000
Total................. $380,000 Total........ $380,000
======== ========
The price paid for Cozzi's net assets (the purchaser assumes the
liabilities) is $500,000. The fixed assets have a fair value of
$220,000, and the liabilities have a fair value of $110,000. The amount
of goodwill to be recorded in the purchase is __________.
a. $0
b. $50,000
c. $70,000
d. $90,000

12. Separately identified intangible assets are accounted for by
amortizing:
a. exclusively by using impairment testing.
b. based upon a pattern that reflects the benefits conveyed by the
asset.
c. over the useful economic life less residual value using only the
straight-line method.
d. amortizing over a period not to exceed a maximum of 40 years.
ANS: B DIF: E OBJ: 6
13. Acme Co. is preparing a pro-forma set of financial statements after an
acquisition of Coyote Co. The purchase price is less than the fair
value of the assets acquired. However, the purchase price is greater
than net book value of the acquired company.
a. Acme's goodwill will decrease over time.
b. Acme's amortization of intangible assets will increase over time.
c. Depreciation expense will be greater than Coyote Company's
expense.
d. Coyote's loss on the sale of the assets will create a net loss
carryforward.
ANS: C DIF: D OBJ: 6
14. Which of the following income factors should not be factored into a
calculation of goodwill?
a. sales for the period
b. income tax expense
c. extraordinary items
d. cost of goods sold
15. Pagach Company purchased 100% of the voting common stock of Rage Company
for $1,800,000. The following book and fair values are available:
Current assets...................... $ 150,000 $300,000
Machinery........................... 400,000 700,000
Bonds payable....................... (300,000) (250,000)
Goodwill............................ 150,000 ?
The bonds payable will appear on the consolidated balance sheet
a. at $300,000 (with no premium or discount shown).
b. at $300,000 less a discount of $50,000.
c. at $0; assets are recorded net of liabilities.
d. under a net amount of $250,000 since it is a bargain purchase.
1. In an 80% purchase accounted for as a tax-free exchange, the excess of

cost over book value is 200,000. The equipment's book value for tax
purposes is 100,000 and its fair value is 150,000. All other
identifiable assets and liabilities have fair values equal to their book
values. The tax rate is 30%. What is the total deferred tax liability
that should be recognized on the consolidated balance sheet on the date
of purchase?
a. 12,000
b. 60,000
c. 72,857
d. 85,714
2. Paro Company purchased 80% of the voting common stock of Sabon Company
for 900,000. There are no liabilities. The following book and fair
values are available:
Current assets...................... 100,000 200,000
Machinery........................... 300,000 600,000
Goodwill............................ 100,000 ?
Using the parent company concept, the machinery will appear on the
consolidated balance sheet at __________.
a. 600,000
b. 540,000
c. 480,000
d. 300,000
3. On January 1, 20X1, Rabb Corp. purchased 80% of Sunny Corp.'s 10 par

common stock for 975,000. On this date, the carrying amount of Sunny's
net assets was 1,000,000. The fair values of Sunny's identifiable
assets and liabilities were the same as their carrying amounts except
for plant assets (net), which were 100,000 in excess of the carrying
amount.
In the January 1, 20X1, consolidated balance sheet, goodwill should be
reported at _______.
a. 0
b. 75,000
c. 95,000
d. 175,000
4. Patti Corp. has several subsidiaries (Aeta, Beta, and Gaeta) that are
included in its consolidated financial statements. In its 12/31/X1
separate balance sheet, Patti had the following intercompany balances
before eliminations:
Debit Credit
Current Receivable due from Aeta..... 40,000
Noncurrent Receivable due from Beta... 100,000
Cash Advance to Beta.................. 26,000
Cash Advance from Gaeta............... 75,000
Intercompany Payable to Gaeta......... 40,000
In its 12/31/X1 consolidated balance sheet, what amount should Patti
report as intercompany receivables?
a. 166,000
b. 51,000
c. 26,000
d. 0
5. Pease Corporation owns 100% of Sade Corporation common stock. On January

2, 20X6, Pease sold machinery with a carrying amount of 30,000 to Sade
for 50,000. Sade is depreciating the acquired machinery over a 5-year
life using the straight-line method. The net adjustments to compute the
20X6 and 20X7 consolidated income before income tax would be an increase
(decrease) of
20X6 20X7
a. (16,000) 4,000
b. (16,000) 0
c. (20,000) 4,000
d. (20,000) 0
6. Ponti Company purchased the net assets of the Sorri Company for
800,000. The net assets of Sorri Company were recorded as follows on
the acquisition date:
Cash............................................. 50,000
Inventory........................................ 150,000
Land............................................. 150,000
Building (net)................................... 400,000
Liabilities...................................... (200,000)
Net assets..................................... 550,000
=========
The market values were as follows: Inventory, 160,000; Land, 170,000;
Building, 450,000. The excess purchase price is allocated to goodwill.
What is the amount that will appear as cash applied to investing as a
result of this purchase?
a. 800,000
b. 720,000
c. 750,000
d. 670,000
7. Company P purchased an 80% interest in Company S on January 1, 20X3, for
700,000. On the purchase date, Company S stockholders' equity was
800,000. Any excess of cost over book value was attributed to a patent
with a 15-year life. In 20X3, Company P reported internally generated
net income before taxes of 80,000. Company S reported a net income
before taxes of 40,000. The firms file separate tax returns at a 30%
tax rate. Assume an 80% dividend exclusion rate on intercompany
dividends. The controlling share of consolidated net income is
__________.
a. 81,200
b. 79,280
c. 78,480
d. 74,256
8. Company P owns a 30% interest in Company S and accounts for the

investment under the sophisticated equity method. The investment was
purchased at underlying book value, and there is no excess of cost or
book value. Company S sells merchandise to Company P at cost plus 25%.
Intercompany sales during 20X1 were 100,000. There were 20,000 worth
of such goods in Company P's beginning inventory and 30,000 worth of
such goods in Company P's ending inventory. Company S's reported income
for 20X1 is 40,000, and no dividends were paid. What amount will
Company P record as investment income in 20X1?
a. 12,000
b. 11,400
c. 9,750
d. 4,500
9. Pine Company purchased a 55% interest in the Sent Company on January 1,

20X1 for 350,000. On that date, the stockholders' equity of Sent
Company was 450,000. Any excess cost was attributable to the fair value
increase of equipment with a 10-year life. Pine purchased another 20%
interest on January 1, 20X5 for 200,000. On January 1, 20X5, Sent
Company's stockholders' equity was 700,000, the entire increase due to
retained earnings. Any excess cost was again attributed to the fair
value increase of equipment with a 6-year life. The additional expense
on the December 31, 20X5, income statement is __________.
a. 10,250
b. 20,250
c. 10,000
d. 16,250
10. Prior to January 1, 20X4, Parts Inc. owned a 60% controlling interest in
Sorter Company. On July 1, 20X4, Parts Inc. purchased an additional 20%
interest in Sorter for 150,000. Sorter's stockholders' equity was
600,000 on January 1, 20X4. Any excess was attributed to goodwill. On
July 1, 20X4, there was intercompany inventory owned by Parts Inc. that
had been purchased from Sorter. Sorter's profit on the inventory was
5,000. Parts Inc. sold the inventory during the latter half of 20X4.
Sorter's net income for 20X4 was 60,000, earned evenly during the year.
Goodwill arising from the second acquisition is __________.
a. 30,000
b. 29,500
c. 25,000
d. 23,500
11. Palto Inc. purchased a 10% interest in the Sauer Company for 50,000 on
January 1, 20X1. On that date, Sauer's stockholders' equity was
400,000. Any excess would have been attributed to a patent with a 10-
year life. On January 1, 20X3, Palto purchased another 60% interest for
500,000 when Sauer's stockholders' equity was 700,000. Again, any
excess was attributed to the patent with an 8-year life. The Sauer
Company earned $50,000 during 20X3. The patent on the December 31, 20X3,
consolidated balance sheet will be __________.
a. 90,000
b. 77,000
c. 80,000
d. 10,000
12. Company P purchased the outstanding common stock of Company S as

follows:
15%, January 1, 20X1
20%, June 1, 20X1
30%, August 1, 20X1
35%, September 30, 20X1
The fiscal year of both firms ends on December 31. S's stock was
acquired by P at book value. The controlling interest in consolidated
net earnings for the fiscal year ended December 31, 20X1, would include
which of the following earnings of the subsidiary?
a. 100%, January-December 20X1
b. 15%, January-May 20X1; 20%, June-July 20X1; and 30%, August-
September 20X1
c. 15%, January-May 20X1; 35%, June-July 20X1; 65%, August-October
20X1; and 100%, September - December
d. 15%, January-May 20X1; 35%, June-July 20X1; 65%, August-September
20X1; and 100%, November – December
20X3. On January 1, 20X1, Paris LTD. paid 600,000 for its interest when
Scott Company had total equity of 550,000. On January 1, 20X3, Scott
Common stock, 10 par............... 100,000
for 35 each in a public offering to noncontrolling shareholders. As a
a. 45,000 loss
b. 21,875 loss
c. 45,000 decrease in controlling paid-in capital
d. 21,875 decrease in controlling paid-in capita
14.Apple Inc. owns a 90% interest in Banana Company. Banana Company, in

turn, owns a 80% interest in Carrot Company. During 20X4, Carrot Company
sold $50,000 of merchandise to Apple Inc. at cost plus 25%. Of this
merchandise, $10,000 was still unsold by Apple Inc. at year end. The
adjustment to the controlling interest in consolidated net income for
20X4 is __________.
a. 560
b. 1,440
c. 1,600
d. 1,800
15. A owns 80% of B and 20% of C. B owns 32% of C, and C owns 10% of A.
Which interest will not be included in the consolidated balance sheet?
a. 10% of A
b. 100% of C
c. 10% of A and 48% of C
d. 20% of B and 48% of C
P2
1.Manke Company owns a 90% interest in Neske Company. Neske, in turn, owns
a 10% interest in Manke. Neske has 10,000 common stock shares
outstanding, and Manke has 20,000 common stock shares outstanding. How
many shares would each firm show as outstanding in the consolidated
balance sheet, under the treasury stock method?
a. Manke, 20,000
b. Manke, 20,000; Neske, 1,000
c. Manke, 18,000; Neske, 1,000
d. Manke, 18,000
2. Cattle Company sold inventory with a cost of 40,000 to its 90%-owned subsidiary, Range Corp., for
100,000 in 20X1. Range resold 75,000 of this inventory for 100,000 in 20X1. Based on this information,
the amount of inventory reported on the consolidated financial statements at the end of 20X1 is ____.
a. 10,000
b. 18,000
c. 21,000
d. 30,000
3. Partners A and B have a profit and loss agreement with the following provisions: salaries of 30,000 and
45,000 for A and B, respectively; a bonus to A of 12% of net income after salaries and bonus; and interest
of 10% on average capital balances of 50,000 and 65,000 for A and B, respectively. One-fourth of any
remaining profits are allocated to A and the balance to B. If the partnership had net income of 108,600,
how much should be allocated to Partner A?
a. 43,225
b. 43,816
c. 47,850
d. 65,375
4. Under the bonus method, when a new partner is admitted to the partnership, the total capital of the new
partnership is equal to:
a. the book value of the previous partnership plus the fair market value of the consideration paid to
the existing partnership by the incoming partner
b. the book value of the previous partnership plus any necessary asset write ups from book value to
market value plus the fair market value of the consideration paid to the existing partnership by the
incoming partner
c. the book value of the previous partnership minus any asset write downs from book to market
value plus the fair market value of the consideration paid to the existing partnership by the incoming
partner
d. the fair market value of the new partnership as implied by the value of the incoming partner's
consideration in exchange for an ownership percentage in the new partnership
5. Partners Able, Baker, and Chapman have the following personal assets, personal liabilities, and
partnership capital balances:
Able Baker Chapman

Personal assets 30,000 80,000 60,000
Personal liabilities 25,000 50,000 72,000
Capital balances 50,000 (32,000) 70,000
Assume profits and losses are allocated equally.
After applying the doctrine of marshaling of assets, the capital balances for Able, Baker, and Chapman,
respectively, would be
a. 50,000, (2,000), and 58,000.
b. 48,000, 0, and 58,000.
c. 49,000, 0, and 57,000.
d. 34,000, 0, and 54,000.
6. In order to generate interim financial reports that contain a reasonable portion of annual
expenses, which of the following statements is true?
a. an allocation of a portion of an annual bonus would be made as an interim adjustment
b. any adjustments for inventory shrinkage would be deferred to year end
c. the allowance for uncollectible accounts receivable will be revised at year end
d. None of the above are true
7. Ansfield, Inc. has several potentially reportable segments. The following financial information has been
determined for the current fiscal year:
Consolidated net income 1,000,000
Operating income before taxes 1,500,000
Net operating income of all segments 1,350,000
Total consolidated revenue 8,000,000
Total revenue of all segments,
excluding intersegments sales 7,000,000
Total intersegment sales1,200,000
Consolidated total assets 50,000,000
Total assets of all segments 45,000,000
The minimum amount of revenues a segment must have to qualify as reportable is ____.
a. 700,000
b. 800,000
c. 820,000
d. The answer cannot be determined from the information given.
8. Which of the following statements is not true regarding forward contracts that cover periods of time
different from the settlement period (transaction date to the settlement date)?
a. If the forward contract expires before the settlement date, the gain or loss will partially offset the
gain or loss on the foreign currency transaction.
b. If the forward contract expires after the settlement date, post-settlement date gains and losses
are not recognized as components of current operating income.
c. Premium and discount are amortized over the life of the contract.
d. All of these statements are true.
9. Which of the following statements is true concerning forward contracts classified as hedges of an
identifiable foreign currency commitment?
a. Forward contracts used as hedges cannot exceed the foreign currency commitment.
b. Forward contracts cannot extend for a time period after the transaction date of the commitment.
c. The gain or loss traceable to the time period after the transaction date of the commitment should
not be deferred.
d. None of these statements is true.
10. A foreign subsidiary of Dallas Jeans Corp. (a U.S. firm) has certain balance sheet accounts on
December 31, 20X9. The functional currency is the U.S. dollar and currency of record is the peso and the
parent's books are kept in U.S. dollars. Information relating to these accounts in U.S. dollars is as follows:
Remeasured at
Current Rate Historical Rate
Accounts Receivable 175,000 190,000
Inventories 400,000 450,000
Prepaid Insurance 40,000 45,000
Land 30,000 100,000
What amount should be included as total assets on Dallas Jean's balance sheet on December 31, 20X9
as the result of the above information?
a. 645,000
b. 765,000
c. 770,000
d. 785,000
11. Equipment with a fair value of 65,000 and a cost basis of 60,000 is transferred to a creditor in partial
settlement of a debt of $150,000 plus accrued interest of 7,500. The balance of the debt will be satisfied
by 3 equal payments of 30,000 over the next three years. Which of the following journal entries best
records the restructure?
a. Loan Payable 150,000
Interest Payable 7,500
Equipment 60,000
Restructured Debt 90,000
Gain on Restructure 7,500
b. Loan Payable 150,000

Loss on Restructure 5,000
Equipment 60,000
Gain on Transfer of Equipment 5,000
c. Loan Payable 150,000

Equipment 60,000
Gain on Transfer of Equipment 5,000
d. Loan Payable 150,000

Equipment 65,000
12. Lakeside Bank holds a 100,000 note secured by a building owned by Fly-By-Night Manufacturing,
which has filed for bankruptcy under Chapter 7 of the Bankruptcy Code. If the property has a book value
of 120,000 and a fair market value of 90,000, what is the best way to describe the note held by Second
City Bank? The bank has a(n)
a. secured claim of 100,000.
b. unsecured claim of 100,000.
c. secured claim of 90,000 and an unsecured claim of 10,000.
d. secured claim of 100,000 and an unsecured claim of 20,000.
13. Which of the following is NOT a required characteristic of a private not-for-profit organization per the
definition given by the AICPA?
a. no owners or shareholders
b. an operating purpose other than making a profit
c. an organization dedicated to service of the public good
d. Significant contributions from providers who do not expect reciprocal goods or services in return
14. A voluntary welfare organization is permitted to use building facilities rent free. This should be
recorded as:
a. a footnote in the financial statements disclosing the rent-free arrangement.
b. a contribution.
c. rent expense at the fair market value.
d. both b and c are correct.
15. On January 1, 20X1, Rabb Corp. purchased 80% of Sunny Corp.'s 10 par common stock for 975,000.
On this date, the carrying amount of Sunny's net assets was 1,000,000. The fair values of Sunny's
identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net),
which were 100,000 in excess of the carrying amount.
In the January 1, 20X1, consolidated balance sheet, goodwill should be reported at ____.
a. 0
b. 75,750
c. 95,000
d. 118,750
The ABC partnership has assets with book value of P240,000 and a market value of P195,000, outside
liabilities of P70,000, loans payable to Partner Able of P20,000, and a capital balances for Partner Able,
Baker, and Chapman of P70,000, P30,000, and P50,000, respectively. The partners share profits and
losses equally.
1. How would the first P100,000 of available assets be distributed?

A. P70,000 to outside liabilities, P20,000 to Able, and the balance equally among partners.
B. P70,000 to outside liabilities, and P30,000 to Able
C. P70,000 to outside liabilities, P25,000 to Able, and P5,000 to Chapman
D. P40,000 o Able, P20,000 to Chapman, and balance equally among partners.
2. If all outside creditors and loans to partners had been paid. How would the balance of the assets
be distributed assuming Chapman had already received assets with a value P30,000?
A. Each of the partners would receive P25,000.
B. Each of the partners would receive P40,000.
C. Able:P70,000, Baker: P15,000, Chapman:P20,000
D. Able:P55,000, Baker: P15,000, Chapman:P5,000
Mac and Jolly, in a joint venture, contributed P150,000 each in order to purchase canned goods which are
sold by lots at a “closing-out” sale. They agreed to divide their profits equally and each shall record his
purchases, sales, and expenses in his own books. After sellingalmost all of the canned goods, they wind
up their venture. The ff data relate to the venture transactions:
 Joint venture credit balance of Mac was P120,000, and Jolly wasP105,000.
 Expenses pais fromthe joint venture cashwas P150,000 by Mac and P19500
 Cost of unsold canned goods, which Mac and Jolly agreed to assume were, P4,500 and P7,000,
respectively.
3. What was the total sales of the joint venture?
A. 559,500
B. 536,500
C. 525,000
D. 334,500
4. What was the joint venture gain or loss?
A. 202,000
B. 213,500
C. 224,000
D. 236,500
5. In the final settlement, what was the total amount due to Mac including his investment?
A. 256,500
B. 258,000
C. 263,750
D. 268,250
The ff were found in your examination of the interplant accounts between the Home Office and the Butuan
Branch:
a. Transfer of fixed assets from Home Office amounting to P53,960 was not booked by the branch.
b. P10,000covering marketing expense of another branch was charged by the Home Office to
Butuan.
c. Butuan recorded a debit note oninventory transfers fromHome Office of P75,000 twice.
d. Home Office recorded cash transfer of P65,700 from Butuan Branch as coming from Davao
Branch.
e. Butuan reversed a previous debit memo from Cagayan de Oro Branch amounting to P10,500.
Home Office decided that this charge is appropriately Davao Branch’s cost.
f. Butuan recorded a debit memo from Home Office of P4,650 as P4,560.
6. The net adjustment in the home office books related to the Butuan Branch Current account is:
A. 75,700
B. 65,700
C. 86,200
D. 94,820
7. The net adjustment in Butuan’s books related to the home office account is:
A. 33,335
B. 31,450
C. 20,950
D. 10,450
8. Before the above discrepancies were given effect, the balance in the home office books of its
Butuan Branch Current account wasdebit balance f P165,920. The unadjusted balance in the
Butuan Branch books of its Home Office Current account must be:
A. 92,336
B. 98,230
C. 104,500
D. 111,170
9. The adjusted balance of the reciprocal accounts is:
A. 84,807
B. 90,220
C. 99,200
D. 109,120
The data pertain to instalment sales of Mickey’s store:
 Down payment, 20%.

 Instalment sales: P545,000 in Year 1; P785,000 in Year 2; and P968,000 in Year 3.
 Mark-up on cost, 35%.
 Collections after down payment: 40% in the year of sale, 35% in the year after sale, and 25% in
the third year.
10. The realized gross profit in year 1 is:
A. 109,357
B. 73,474
C. 99,190
D. 114,825
11. The unrealized gross profit for instalment sales made during Year 2, as of the end of Year 2 is:
A. 97,689
B. 131,880
C. 141,112
D. 114,063
12. The instalment account receivables at the end of year 3 is:
A. 652,722
B. 621,640
C. 602,991
D. 685,358
13. The unrealized gross profit at the end of year 3 is:
A. 211,047
B. 161,166
C. 198,574
D. 217,574
14. Shake’s Inc., franchisor, enters into a franchising agreement with Sha, franchisee, on June
30,2011. The agreement calls for a total franchise fee of P1,000,000 of which P100,000 is
payable upon signing of the contract and the balance in four equal semi-annual installments. It is
agreed that the down payment is non-refundable notwithstanding lack of substancial performance
of services by the franchisor.
When Shake’s Inc. prepares its financial statements as of June 30,2011, the unearned franchise
fee to be reported is:
a.P0 b.P100,000 c.P900,000 d.P1,000,000
15. Trial balances for the home office and the branch of the Tony co. show the following accounts
before adjustment, on December 31, 2011. The home office policy of billing the branch for the
merchandise is 20% above cost.
Home office Branch
Unrealized intercompany inventory profit P10,800
Shipments to branch 24,000
Purchase (outsiders) P7,500
Shipments from home office 28,800
Merchandise inventory, December 1, 2011 45,000
What part of the branch inventory as of December 1,2100 represent purchase from outsiders and
what part represents goods acquired from the home office:
Outsiders Home office
a.P12,000 P33,000
b. 16,500 28,500
c. 15,000 30,000
d. 9.000 36,000
Selected cost data concerning the past fiscal year’s operations of the Moscow Manufacturing Co. Are
presented below:
Inventories
Beginning Ending
Materials P 75,000 P 85,000
Work in process 80,000 30,000
Finished goods 90,000 110,000
Materials used, P326,000. Total manufacturing costs charged to production during the year ( including
direct materials, direct labor, and factory overhead applied at the rate of 60% of direct labor cost), P
686,000. Cost of goods available for sale, P826,000. Selling and general expenses, P25,000.
1. What is the amount of direct materials purchased during the year?
A. 360,000
B. 316,000
C. 336,000
D. 411,000
2. What is the direct labor cost charged to production during the year?
A. 216,000
B. 135,000
C. 225,000
D. 360,000
3. What is the cost of goods manufactured during the year?
A. 736,000
B. 716,000
C. 636,000
D. 766,000
4. What is the cost of goods sold during the year?
A. 716,000
B. 691,000
C. 801,000
D. 736,000
Kimbeth manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining
industry. The ff information pertains to operations for the month of May:
Units
Beginning work in process inventory, May 1 16,000
Started in production during May 100,000
Completed production during May 92,000
Ending work in process inventory, May 31 24,000
The beginning inventory was 60% complete for materials and 20% complete for conversion costs. The
ending inventory was 90% complete for materials and 40% complete for conversion costs.
Costs pertaining to the month of May are as follows:
 Beginning inventory costs are: materials, P54,560; direct labor, P20,320; and factory overhead,
P15,240.
 Cost incurred during May are: materials used, P468,000; direct labor, P182,880; and factory
overhead, P391,160.
5. Using the First- In, First-Out (FIFO) method, the equivalent units of production (EUP) for materials are
A. 97,600 units
B. 104,000 units
C. 108,000 units
D. 107,200 units
E. 113,600 units
6. Using the FIFO method, the equivalent units of production for conversion costs are
A. 85,600 units
B. 88,800 units
C. 95,200 units
D. 98,400 units
E. 101,600 units
7. Using the FIFO method, the equivalent unit cost of materials for May is
A . 4.12
B. 4.50
C. 4.60
D. 4.80
E. 5.02
8. Using the FIFO method, the equivalent unit conversion cost for May is
A. 5.65
B. 5.83
C. 6.00
D. 6.20
E. 6.63
9. Using the FIFO method, the total cost of units in the ending work in process inventory at May is
A. 153, 168
B. 154,800
C. 155,328
D. 156,960
E. 158,880
10.. Using the weighted average method, the equivalent unit cost of materials for May is
A. 4.12
B. 4.50
C. 4.60
D. 5.02
E. 5.68
11. Using the weighted average method, the equivalent unit cost for May is
A.5.65
B. 5.83
C. 6.00
D. 6.20
E. 6.63
12. Using the weighted average method, the total cost of the units in the ending work in process inventory
at May is
A. 99,360
B. 153,168
C. 154,800
D. 155,328
E. 156,960
Major Corporation acquired Problem Company through an exchange of common shares. All of Problem’s
assets and liabilities were immediately transferred to Major. Major’s common stock was trading at P20 per
share at the time of exchange. Following selected information is also available.
Before Acquisition After acquisition
Par value of shares outstanding P200,000 P250,000
Additional paid in capital 350,000 550,000
13. Based on the proceeding information, what number of shares eas issued at the time of the exchange?
a.P5,000 b.P10,000 c.P12,500 d.P17,500
14. Using the same information above, what is the par value of major’s common stock?
a.P10 b.P5 c.P4 d.P1
15. Using the same information above, what is the fair value of problem’s net assets, if goodwill of
P56,000 is recorded?
a.P194,000 b.244,000 c.P300,000 d.P306,000
The assets and equities of the Queen, Reed, and Stac Partnership at the end of its fiscal year on October
31,2011 are as follows:
Assets
Cash P15,000
Receivables-net 20,000
Inventory 40,000
Plant assets-net 70,000
Loan to Reed 5,000
Total assets P150,000
Liabilities and Equity
Liabilities P50,000
Loan from Stac 10,000
Queen, capital-30% 45,000
Reed, capital-50% 30,000
Stac, capital-20% 15,000
Total liab. & equity P150,000
The patners decide to liquidate the partnership. They estimate that the noncash assets, other than the
loan to Reed, can be converted into P100,000 cash over the two-months period ending December
31,2011. Cash is to be distributed to the appropriate parties as it becomes available during the liquidation
process.
1. The partner most vulnerable to partnership losses on liquidation is:
a.Queen c.Reed and Queen equally
b.Reed d.Stac
2. Using the same information, and P65,000 is available for first distribution, it should be paid to:
Priority creditors Queen Reed Stac
a. P60,000 P5,000 P0 P0
b. 60,000 1,500 2500 1,000
c. 50,000 5,000 0 10,000
d. 50,000 12,000 0 3,000
The following data are provided by the Troubled Company:
Assets at the book value P150,000
Assets at net realizable value 105,000
Liabilities at book value:
Fully secured mortgage 60,000
Unsecured accounts and notes payable 70,000
Unrecorded liabilities:
Interest on bank notes 500
Estimated cost of administering estates 6,000
The court has appointed a trustee to liquidate the company:
1.The journal entry made by the trustee to record the assets and liabilities should include an estate deficit
of:
a.P31,500 c.P25,500
b. 31,000 d. 25,000
2.Using the same information above, the statement of affairs prepared by the trustee at this time should
include an estimated deficiency to unsecured creditors of:
a. P45,000 c.P31,500
b. 39,000 d. 25,000
Anson and Baylon formed a joint venture. Their capital contributions, and profit and loss ratio are
presented below:
Contributions Profit and

Cash Merchandise Loss ratio
Anson P5,000 P8,000 50%
Baylon - 6,000 50%
A summary of the joint venture activities is presented below:
Purchase of merchandise by Baylon P4,000
Expenses paid by Baylon:
Mayor’s permit 400
Freight on merchandise contributed by Anson 300
Delivery expenses of merchandise sold 200
Sales (all of the merchandise contributed and purchased by Baylon
and one-half of those contributed by Anson)-Selling price 14,000
1. The balance of the joint venture account before profit or loss distribution is:
a. P4,900 b.P14,000 c.P14,000 d.none
2. Using the same information above, the profit(loss) of the joint venture is:
a. P(450) b.P750 c. P(750) d. P450
3. Using the same information above, how much would Anson receive in the final settlement assuming he
took the unsold merchandise of cost?
a. P13,000 b. P12,625 c.P8,475 d.P8,515
Johnson Enterprises uses the cost recovery method for all installment sales:
Complete the following table:
2010 2011 2012
Installment sales P80,000 P95,000 P?
Cost of installment sales ? 56,050 68,250
Gross profit percentage 38% ? 35%
Cash collections:
2010 sales 25,600 46,400 5,600
2011 sales 22,800 ?
2012 sales 32,550
Realized gross profit on installment sales ? ? 16,050
4.The installment sales in 2012:

a.P92,137.50 b.P105,000 c.P112,612.50 d.P195,000
5..Using the same information,the cost of installment sales in 2010:

a.zero b.P30,400 c.P47,619 d.P49,600
6.. Using the same information above, the cost of installment sales in 2010:
a.29% b.41% c.59% d.cannot be determined
7.. Using the same information above, the collection in 2012 for 2011 sales:
a.P10,400 b.P33,250 c.P43,700 d.48,600
8.. Using the same information above, the realized gross profit on installment sales in 2010:
a.P9,728 b.P7,049 c.P4,800 d. zero
a.P8,664 b.P9,348 c.P18,012 d.P22,400
TM partnership begins its first year of operations with the following capital balances:
Tray Capital P200,000

May Capital P100,000
According to the partnership agreement. All profits will be distributed as follows:
a. Tan will be allowed a monthly salary of P20,000 with P10,000 assigned to May.
b. The partners will be allowed with interest equal to 10 percent of the capital balance as of the first day of
the year.
c. Tan will be allowed a bonus of 10 percent of the net profit after bonus.
d. The remainder will be divided o the basis of the beginning capital for the first year and equally for the
second year.
e. Each partner is allowed to withdraw up to P10,000n a year.
Assume that the net loss for the first year of operations is P15,000 with net income of P55,000 in the
subsequent year. Assume further hat each partner withdraws the maximum amount from the businesses
each period.
10. What is the balance of Tan’s capital account at the end of the second year?
a. P264,750
b. P284,750
c. P180,000
d. P184,750
11. Jaime Dizon, a partner in an accounting firm, decided to withdraw from the partnership. Dizon’s share
of the partnership profits and losses was 20%. Upon withdrawing from the partnership, he was paid
P74,000 in final settlement for his interest. The total of the partners’ capital accounts before recognition of
partnership goodwill prior to Dizon’s withdrawal was P210,000. After his withdrawal, the remaining
partners’ capital accounts, excluding their share of goodwill, totalled P160,000. The implied goodwill of the
firm was:
a. P120,000
b. P140,000
c. P160,000
d. P250,000
The accountant of Holy company under liquidated provided the following data:
Assets at book value P100,000

Fully secured mortgage payable 40,000
Unrecorded Liabilities:
Administrative Expenses 4,000
A trustee is appointed tp liquidate the company.
12. The entry made by the trustee to record the assets and liabilities should include estate equity of:
a. P14,250
b. P14,000
c. P10,250
d. P10,520
13. Using the data above, what is the estimated deficiency to unsecured creditors?
a. P35,000
b. P31,000
c. P14,250
d. P10,000
Al tan and Rey Lee formed a joint venture on January 1, 2008 to operate two stores to be managed by
each venture. They agreed to contribute cash as follows:
Tan P30,000
Lee P20,000
Profits and losses are to be divided in the capital ratio. All the venture transactions are for cash, and the
cash receipts and disbursements of the venture during the four-month period, handled through the
venturer’s bank accounts, are as follows:
Tan Lee
Cash receipts P78,920 P65,425
Cash disbursements 62,275 70,695’
The remaining assets are sold for P60,000.
14. What is the joint venture profit (loss) after selling the remaining non-cash assets?
a. P11,375
b. P21,375
c. P(31,375)
d. 31,375
15. The P60,000 cash should be divided between the venturers as follows:
Tan Lee
a. P 16,180 P43,820
b. P 21,905 P38,095
c. P 26,180 P33,820
d. P48,095 P11,905
Assets
Cash P15,000
Inventory 40,000
Loan to Reed 5,000
Liabilities P50,000
process.
b.Reed d.Stac
a. P60,000 P5,000 P0 P0
b. 60,000 1,500 2500 1,000
c. 50,000 5,000 0 10,000
d. 50,000 12,000 0 3,000
of:
a.P31,500 c.P25,500
b. 31,000 d. 25,000
a. P45,000 c.P31,500
b. 39,000 d. 25,000
presented below:

Anson P5,000 P8,000 50%
Baylon - 6,000 50%
a. P4,900 b.P14,000 c.P14,000 d.none
a. P(450) b.P750 c. P(750) d. P450
a. P13,000 b. P12,625 c.P8,475 d.P8,515
2010 2011 2012
Cash collections:
2010 sales 25,600 46,400 5,600
2011 sales 22,800 ?
2012 sales 32,550

a.P92,137.50 b.P105,000 c.P112,612.50 d.P195,000

a.zero b.P30,400 c.P47,619 d.P49,600
a.P10,400 b.P33,250 c.P43,700 d.48,600
a.P9,728 b.P7,049 c.P4,800 d. zero
a.P8,664 b.P9,348 c.P18,012 d.P22,400

the year.
second year.
each period.
a. P264,750
b. P284,750
c. P180,000
d. P184,750
firm was:
a. P120,000
b. P140,000
c. P160,000
d. P250,000

a. P14,250
b. P14,000
c. P10,250
d. P10,520
a. P35,000
b. P31,000
c. P14,250
d. P10,000
Tan P30,000
Lee P20,000
Tan Lee
a. P11,375
b. P21,375
c. P(31,375)
d. 31,375
Tan Lee
a. P 16,180 P43,820
b. P 21,905 P38,095
c. P 26,180 P33,820
d. P48,095 P11,905
Assets
Cash P15,000
Inventory 40,000
Loan to Reed 5,000
Liabilities P50,000
process.
b.Reed d.Stac
a. P60,000 P5,000 P0 P0
b. 60,000 1,500 2500 1,000
c. 50,000 5,000 0 10,000
d. 50,000 12,000 0 3,000
of:
a.P31,500 c.P25,500
b. 31,000 d. 25,000
a. P45,000 c.P31,500
b. 39,000 d. 25,000
presented below:

Anson P5,000 P8,000 50%
Baylon - 6,000 50%
a. P4,900 b.P14,000 c.P14,000 d.none
a. P(450) b.P750 c. P(750) d. P450
a. P13,000 b. P12,625 c.P8,475 d.P8,515
2010 2011 2012
Cash collections:
2010 sales 25,600 46,400 5,600
2011 sales 22,800 ?
2012 sales 32,550

a.P92,137.50 b.P105,000 c.P112,612.50 d.P195,000

a.zero b.P30,400 c.P47,619 d.P49,600
a.P10,400 b.P33,250 c.P43,700 d.48,600
a.P9,728 b.P7,049 c.P4,800 d. zero
a.P8,664 b.P9,348 c.P18,012 d.P22,400

the year.
second year.
each period.
a. P264,750
b. P284,750
c. P180,000
d. P184,750
firm was:
a. P120,000
b. P140,000
c. P160,000
d. P250,000

a. P14,250
b. P14,000
c. P10,250
d. P10,520
a. P35,000
b. P31,000
c. P14,250
d. P10,000
Tan P30,000
Lee P20,000
Tan Lee
a. P11,375
b. P21,375
c. P(31,375)
d. 31,375
Tan Lee
a. P 16,180 P43,820
b. P 21,905 P38,095
c. P 26,180 P33,820
d. P48,095 P11,905
1. Vibe Company purchased the net assets of Atlantic Company in a business combination accounted for as a
purchase. As a result, goodwill was recorded. For tax purposes, this combination was considered to be a
tax-free merger. Included in the assets is a building with an appraised value of 210,000 on the date of the
business combination. This asset had a net book value of 70,000, based on the use of accelerated
depreciation for accounting purposes. The building had an adjusted tax basis to Atlantic (and to Vibe as a
result of the merger) of 120,000. Assuming a 36% income tax rate, at what amount should Vibe record
this building on its books after the purchase?
a. 120,000
b. 134,400
c. 140,000
d. 210,000
2. Goodwill represents the excess cost of an acquisition over the
a. sum of the fair values assigned to intangible assets less liabilities assumed.
b. sum of the fair values assigned to tangible and identifiable intangible assets
acquired less liabilities assumed.
c. sum of the fair values assigned to intangibles acquired less liabilities assumed.
d. book value of an acquired company.
3. Cozzi Company is being purchased and has the following balance sheet as of the purchase date:
Current assets 200,000 Liabilities 90,000

Fixed assets 180,000 Equity 290,000
Total 380,000 Total 380,000
The price paid for Cozzi's net assets is 500,000. The fixed assets have a fair value of 220,000, and the
liabilities have a fair value of 110,000. The amount of goodwill to be recorded in the purchase is ____.
a. 0
b. 150,000
c. 170,000
d. 190,000
4. Separately identified intangible assets are accounted for by amortizing:
a. exclusively by using impairment testing.

b. based upon a pattern that reflects the benefits conveyed by the asset.
c. over the useful economic life less residual value using only the straight-line method.
d. over a period not to exceed a maximum of 40 years.
5. Balter Inc. acquired Jersey Company on January 1, 20X5. When the purchase occurred Jersey
Company had the following information related to fixed assets:
Land $ 80,000
Building 200,000
Equipment 100,000
The building has a 10-year remaining useful life and the equipment has a 5-year remaining useful life.
The fair value of the assets on that date were:
Land 100,000
Building 130,000
Equipment 75,000
What is the 20X5 depreciation expense Balter will record related to purchasing Jersey Company?
a. 8,000
b. 15,000
c. 28,000
d. 30,000
6. In performing impairment test for goodwill, the company had the following
20X6 and 20X7 information available.
20X6 20X7
Fair value of the reporting unit 350,000 400,000
Net book value (including $50,000 goodwill) 360,000 380,000
Assume that the carry value of the identifiable assets are a reasonable approximation of their fair values.
Based upon this information what are the 20X6 and 20X7 adjustment to goodwill, if any?
20X620X7
a. no adjustment 20,000 decrease

b. 10,000 increase 20,000 decrease
c. 10,000 decrease 20,000 decrease
d. 10,000 decrease no adjustment
7. Polk issues common stock to acquire all the assets of the Sam Company on January 1, 20X5.
There is a contingent share agreement, which states that if the income of the Sam Division exceeds a
certain level during 20X5 and 20X6, additional shares will be issued on January 1, 20X7. The impact of
issuing the additional shares is to
a. increase the price assigned to fixed assets.

b. have no effect on asset values, but to reassign the amounts assigned to equity
accounts.
c. reduce retained earnings.
d. record additional goodwill.
8. Which of the following income factors should not be factored into an estimation of goodwill?
a. sales for the period

b. income tax expense
c. extraordinary items
d. cost of goods sold
9. Acquisition costs such as the fees of accountants and lawyers that were necessary to negotiate
and consummate the purchase are
a. recorded as a deferred asset and amortized over a period not to exceed 15 years
b. expensed if immaterial but capitalized and amortized if over 2% of the acquisition price
c. expensed in the period of the purchase
d. included as part of the price paid for the company purchased
10.
Account Investor Investee

Sales 500,000 300,000
Cost of Goods Sold 230,000 170,000
Gross Profit 270,000 130,000
Selling & Admin. Expenses 120,000 100,000
Net Income 150,000 30,000
Dividends paid 50,000 10,000
Assuming Investor owns 70% of Investee. What is the amount that will be recorded as Net Income for the
Controlling Interest?
a. 164,000
b. 171,000
c. 178,000
d. 180,000
11. Consolidated financial statements are designed to provide:
a. informative information to all shareholders.

b. the results of operations, cash flow, and the balance sheet in an understandable and
informative manner for creditors.
c. the results of operations, cash flow, and the balance sheet as if the parent and
subsidiary were a single entity.
d. subsidiary information for the subsidiary shareholders.
12.The goal of the consolidation process is for:
a. asset acquisitions and 100% stock acquisitions to result in the same balance sheet.
b. goodwill to appear on the balance sheet of the consolidated entity.
c. the assets of the noncontrolling interest to be predominately displayed on the balance
sheet.
d. the investment in the subsidiary to be properly valued on the consolidated balance sheet.
13. A subsidiary was acquired for cash in a business combination on December 31, 20X1. The purchase
price exceeded the fair value of identifiable net assets. The acquired company owned equipment with a
fair value in excess of the book value as of the date of the combination. A consolidated balance sheet
prepared on December 31, 20X1, would
a. report the excess of the fair value over the book value of the equipment as part of
goodwill.
b. report the excess of the fair value over the book value of the equipment as part of
the plant and equipment account.
c. reduce retained earnings for the excess of the fair value of the equipment over its book
value.
d. make no adjustment for the excess of the fair value of the equipment over book value.
Instead, it is an adjustment to expense over the life of the equipment.
14. When it purchased Sutton, Inc. on January 1, 20X1, Pavin Corporation issued
500,000 shares of its 5 par voting common stock. On that date the fair value of
those shares totaled 4,200,000. Related to the acquisition, Pavin had payments to
the attorneys and accountants of 200,000, and stock issuance fees of 100,000.
Immediately prior to the purchase, the equity sections of the two firms appeared as
follows:
Pavin Sutton
Common stock 4,000,000 700,000
Paid-in capital in excess of par 7,500,000 900,000
Retained earnings 5,500,000 500,000
Total 17,000,000 2,100,000
Immediately after the purchase, the consolidated balance sheet should report paid-in capital in excess of
par of
a. 8,900,000
b. 9,100,000
c. 9,200,000
d. 9,300,000
15.Judd Company issued nonvoting preferred stock with a fair value of 1,500,000 in exchange for all the
outstanding common stock of the Bath Corporation. On the date of the exchange, Bath had tangible net
assets with a book value of 900,000 and a fair value of 1,400,000. In addition, Judd issued preferred
stock valued at 100,000 to an individual as a finder's fee for arranging the transaction. As a result of these
transactions, Judd should report an increase in net assets of ____.
a. 900,000
b. 1,400,000
c. 1,500,000
1. The following data were taken from the Statement of Affairs of ABC Company:
Assets pledged for fully secured liabilities P125,000
Assets pledged for partially secured liabilities 90,000
Free assets 87,000
Fully secured liabilities 100,000
Partially secured liabilities 110,000
Unsecured liabilities without priority 90,000
Unsecured liabilities with priority 13,000
Which of the following is correct?
Types of Liabilities Estimated amount to be paid
a. Fully secured liabilities P125,000
b. Partially secured liabilities 110,000
c. Unsecured liabilities with priority 11,700
d. Unsecured liabilities without priority 81,000
Problem 2. D, E and F formed a joint venture. F is to act as a manager and is designated to record the
joint venture transactions in his books. As a manager, he is allowed a salary of P17,000. Remaining profit
(loss) is to be divided equally.
The following balances appear the end of 2008 before adjustment for venture inventory and profit.
Debit Credit
Joint venture cash P50,000
D, capital P30,000
E, capital 4,000
The venture is to terminate on December 31, 2008 with unsold merchandise costing P14,100.
Assuming the joint venture loss is P7,200, what is the balance of the joint venture account before
distribution of profit?
a. P6,900 (debit) b. P21,300 (debit) c. P38,300 (debit) d. P6,900 (credit)
Problem 3. During the year 2008, I has been the manager of a joint venture with G and H. It was agreed
that on the completion of the joint venture, I will receive a fee of 12% of the venture gain after the
deduction of the fee as an expense. The venture is terminated on November 30, 2008. On this date, I’s
trial balance contains the following account balances.
Debit Credit
Joint venture P8,400
G, capital 2,900
H, capital P700
The net profit after the deduction of the fee has been agreed to be divided as follows: 25% to G, 40% to H
and 35% to I. Which of the following is not correct?
a. The net profit of the venture after the fee to I is P7,500
b. The fee of I is P900
c. Total income earned by H is P2,300
d. Cash settlement received by G is P4,775
Problem 4. J, K and L formed a joint venture in 2008 and agreed to divide profits equally. K is designated
to act as the manager. The venture is terminated on December 31, 2008 even though there is still unsold
merchandise. On this date, K’s trial balance shows the following account balances before profit or loss
distribution.
Debit Credit
Joint venture cash P45,000
Joint venture P9,000
J, capital 8,000
L, capital 9,000
K receives P7,000 for his share in the venture profit. Furthermore, he agrees to be charged for the unsold
merchandise as of December 31, 2008. Determine which of the following is correct
a. Cost of unsold merchandise charged to K is P7,000
b. Net profit of the venture is P9,000
c. Amount due to K in the final settlement is P14,000
d. Total income earned by J is P15,000
Problem 5. On December 1, 2008, M company made a credit sale to N company. The amount of sale
was 200,000 Korean won. M will collect the account on January 01, 2009. On December 1, the spot rate
was 25 Korean won for one Philippine peso. Also on December 1, M entered into a futures contract to sell
200,000 Korean won on January 01, 2009 at a forward rate of 50 Korean won for one Philippine peso. If
the spot rate and forward rate for one Philippine peso on December 31, 2008 is 40 Korean won, how
much is the foreign exchange gain or loss on hedging instrument – forward contract?
a. P3,000 gain b. P3,000 loss c. P1,000 gain d. P1,000 loss
Problem 6. O company purchased merchandise for 150,000 pounds from a vendor in London on
November 01, 2008. Payment in British pounds was due on January 30, 2009. On the same date, O
entered into a 90 day futures contract to buy 150,000 pounds from a bank. Exchange rate for pound on
different dates are as follows:
Nov. 1 Dec. 31 Jan. 31
Spot rate P71.0 P73.0 P72.2
30 day futures 72.0 71.9 73.2
60 day futures 71.8 72.8 72.6
90 day futures 70.9 72.9 73.1
How much is the net forex gain or loss on January 30, 2009?
a. P165,000 loss b. P165,000 gain c. P150,000 loss d. P150,000 gain
Problem 7. On November 1, 2008, P company sold goods on account to a Thai corporation for 5,000
Baht. The billing date is December 1, 2008 and payment is due on January 30, 2009. Exchange rates
were as follows:
BID rate OFFER rate
Nov. 01, 2008 P38 P36
Dec. 01, 2008 39 38
Dec 31, 2008 42 40
Jan. 30, 2009 41 39
How much is the forex gain or loss to be recognized on December 31, 2008?
a. P15,000 gain b. P10,000 gain c. P10,000 loss d. P20,000 gain
Problem 8. On December 1, Q company took merchandise worth 10,000 Swiss francs. Payment is due
on January 30, 2009. On the same date, Q paid P5,000 cash to acquire a 60 day call option for 10,000
Swiss francs.
Spot Rate Strike Price Fair value of Option Forward Rate
12/01/08 P23 P23 P 5,000 P24
12/31/08 27 23 8,000 26
01/30/09 25 23 10,000 25
How much is the forex gain or loss upon exercising the call option? (Assume the option was exercised on
December 31, 2008)
a. P5,000 loss b. P32,000 gain c. P48,000 loss d. P35,000 gain
Problem 9. On October 1, 2008, R corporation purchased goods from a U.S. based corporation worth
$2,500. Payment is due in 120 days on January 30, 2009. In view of the sale, R corporation enters into a
forward contract to buy $2,500 from Philippine National Bank (PNB) in 120 days. The relevant exchange
rates are as follows:
10/01/08 12/31/08 01/30/09
Spot Rate P43 P47 P50
Forward Rate 44 46 50
Which of the following is correct?
a. Forward Contract Receivable on Dec. 31, 2008 is P110,000
b. Net forex loss on settlement date is P2,500
c. Forex gain on the forward contract on the transaction date is P5,000
d. Forex loss on the purchase transaction on the Balance Sheet date is P10,000
Problem 10. On November 1, S company entered into a firm commitment to acquire a machinery.
Delivery and passage of title would be on February 28, 2009 at the price of HK$2,000. On the same date,
to hedge against unfavorable changes in the exchange rate, S entered into a 120 day forward contract
with China bank for HK$2,000. Exchange rate were as follows:
Spot Rate Forward Rate

Nov. 01, 2008 P26 P24
Dec. 31, 2008 28 26
Feb. 28, 2008 29 29
How much is the forex gain or loss recognized by the S company on the firm commitment?
a. P6,000 gain b. P10,000 loss c. P6,000 loss d. P10,000 gain
Problem 11. The following are taken from the records of T Company, a foreign subsidiary in New
Zealand.
NZ dollar
Total Assets 12/31/08 146,000
Total Liabilities 12/31/08 45,000
Common Stock 12/31/08 60,000
Retained Earnings 01/01/08 29,000
Net Income 2008 15,000
Dividends paid 12/31/08 3,000
Exchange rates:
Current rate P10
Historical rate 11
Weighted Average Rate 12
The peso balance of retained earnings on December 31, 2007 is P325,000.
What amount of Cumulative Translation Adjustment is to be reported in the Consolidated Balance Sheet
on December 31, 2008?
a. P119,000 debit b. P119,000 credit c. P125,000 debit d. P125,000 credit
Problem 12. The approved appropriation of Department U for 2008 is P15,000,000. Eighty five percent of
this appropriation was released by the Department of Budget and Management (DBM) accompanied by
Notice of Cash allocation (NCA). During the year, the amount of obligations incurred was equivalent to
ninety percent of the NCA but only seventy percent of these obligations were paid by checks. Determine
which of the following is incorrect
a. Department U records the receipt of NCA by debiting an amount equivalent to P12,750,000
b. The receipt of the allotment is recorded by means of a memorandum entry
c. At the end of the year, Subsidy Income from National Government would be credited by
P6,967,500
d. None of the above
Problem 13. Bank charges per bank statement, P1,500

Interest expense upon receipt of Bill, P2,000
Based on the given information, which of the following is not correct?
a. Entry to record the bank charges in the regular agency books would include a credit to
Cash – NT – MDS
b. Receipt of bill for interest is entered in the RAOFE
c. Payment of interest expense would include a credit to Cash – NT –MDS
d. Agency enters the obligation for bank charges in the RAOFE
Problem 14. Which of the following would be included in an entry to record the remittance of income
taxes to the Bureau of Treasury (BTR) collected by the Bureau of Internal Revenue (BIR)? The BIR has
no authority to use the collections.
a. Debit to Cash – Collecting officer
b. Debit to Cash – NT – MDS
c. Credit to Cash – Collecting officer
d. Credit to Cash – NT – MDS
Problem 15. Agency V collected cash of P50,000 for services rendered. The collection was deposited to
the Bank of the Philippine Islands (BPI). What is the entry to record the deposit?
a. Debit, Cash in Bank –LCCA and Credit, Cash – Disbursing officer for P50,000
b. Debit, Cash - NT - MDS and Credit, Cash – Collecting officer for P50,000
c. Debit, Cash in Bank –LCCA and Credit, Cash – Collecting officer for P50,000
d. Debit, Cash – NT – MDS and Credit, Cash – Disbursing officer for P50,000
Problem 1. During 2008, Agency W transferred cash of P1,000 to Agency X for a land beautification
project. Subsequently, Agency W received a report from Agency X about the project. Which of the
following is incorrect?
a. The obligation of P1,000 is entered in the RAOCO
b. Source Agency debits Due from NGA upon transfer of cash
c. Receiving Agency credits Cash – NT – MDS upon receipt of cash
d. Source Agency credits Cash – NT – MDS upon transfer of cash
Problem 2. Y hospital, a Not for Profit hospital affiliated with a religious group, reported the following
information for the year ended December 31, 2008:
Gross patient service revenue P2,400,000
Bad debts expense 50,000
Contractual adjustments with third party payors 200,000
Charity care 150,000
Allowance for discounts to hospital employees 90,000
Net patient service revenues for Y hospital for the year ended December 31, 2008 is
a. P2,250,000 b. P2,110,000 c. P1,960,000 d. P1,910,000
Problem 3. During 2008, Z Hospital purchased medicines for hospital use totaling P1,000,000. Included
in the P1,000,000 was an invoice of P100,000 that was canceled in 2008 by the vendor because the
vendor wished to donate this medicine to Z. The donation should be recorded as
a. An increase of P100,000 to Patient Service Revenue
b. An increase of P100,000 to Other Non - Operating Revenue
c. An increase of P100,000 to Other Operating Revenue
d. A decrease of P100,000 to Other Non – Operating Revenue
Problem 4. AA Hospital had the following cash receipts for the year ended December 31, 2008:
Collections of Receivables P500,000
Contribution for an establishment of 100,000
term endowment
Tuition from nursing school 200,000
Interest received from investment in 35,000
permanent endowments
Dividends received from investment in 40,000
term endowments
Payment of supporting expenses 150,000
Payment of program expenses 215,000
How much is the net cash provided by operating activities?
a. P335,000 b.P510,000 c. P410,000 d. P435,000
Problem 5. D, T and M Partnership became insolvent on December 31, 2008 and is to be liquidated. D, T
and M has the following balances respectively, P65,000, (P30,000), (P4,000). After paying their personal
liabilities, D has still P10,000 while T has P15,000 of their personal assets. However, M has still unpaid
personal liabilities amounting to P40,000 and his personal assets amounted only to P30,000. The
partners share profits and losses equally. How much is the maximum amount that D can expect to receive
from the partnership?
a. P31,000 b. P61,000 c. P35,000 d. P46,000
Problem 6. The following Balance Sheet for the partnership of C, I and G were taken from the books on
October 1, 2008.
Assets Liabilities and Capital
Cash P100,000 Liabilities P200,000
Other Assets 400,000 C, Capital 120,000
I, Capital 95,000
_________ G, Capital 85,000
Total Assets 500,000 Total Liabilities and Capital 500,000
The partners agreed to distribute profits as follows:

1. Annual salaries to C and I of P5,000 each
2. Annual interest of 5% on beginning capital
3. Bonus of 15% to C based on income after salaries, interest and bonus
4. Remaining profit: 25% to C, 35% to I and 40% to G
The partnership began its operations on Oct. 1, 2008 and net income as of Dec. 31, 2008 is P69,500.
Which of the following is true?
a. The bonus to C is P5,804
b. Net Income after salaries, interest and bonus is P38,696
c. I’s total share in the net income is P21,688
d. G’s share on the profit after salaries, interest and bonus is P13,543
Problem 7. The partnership of Y,E and S provides for 3 : 3: 4 sharing in profits and losses respectively. S
is retiring from the partnership and by mutual agreement the assets are to be adjusted to their fair values
which is P30,000 higher than their carrying amount. Y and E agree that the partnership will pay P87,000
to S for his partnership interest, exclusive of his loan which is to be paid in full separately. Before the
retirement of S, Total Assets, S loan, Y capital, E capital and S capital has the following balances
respectively: P200,000, P20,000, P50,000, P60,000 and P70,000. Which of the following is not correct?
a. If partial goodwill is recorded, total amount paid to S including his loan is P107,000
b. If no goodwill is recorded, the balance of Y’s capital after S’s retirement is P56,500
c. If partial goodwill is recorded, total assets after retirement is P123,000
d. If no goodwill is recorded, the share of E in the excess payment to S is P2,500
Problem 8. C and D shares profits and losses equally. E is to be admitted as a partner by contributing
cash to the firm. The capital balances of C and D are both P30,000 before the admission of E. E invests
P25,000 for a one third interest in the firm. Which of the following is incorrect upon admission of the new
partner?
a. If total agreed capitalization is P90,000, goodwill to new partner is P5,000
b. If total agreed capitalization is P85,000, no goodwill or bonus will be recorded
c. If total agreed capitalization is P75,000, withdrawal of P10,000 from the old partners is necessary
d. If total agreed capitalization is P90,000, no bonus would be recorded
Problem 9. The accounts of the partnership of R, S and T at the end of its fiscal year on November 30,
2008 are as follows:
Cash P103,750 Loan from S P 20,000
Other Non cash assets 707,500 R, Capital (30%) 266,250
Loan to R 15,000 S, Capital (50%) 136,250
Liabilities 262,500 T, Capital (20%) 141,250
If in the first distribution, S received P50,000, which of the following is incorrect?
a. Total amount distributed to partners is P336,250
b. Total amount paid to creditors is P262,500
c. Total amount realized from the non–cash assets is P598,750
d. R received an amount equal to P187,500
Problem 10. VG Construction Company has consistently used the percentage of completion method of
recognizing income. During 2007, VG entered into a fixed price contract to construct an office building at
P15,000,000. Information relating to the contract are as follows:
Dec. 31, 2007 Dec. 31, 2008
Percentage of Completion 20% 60%
Estimated costs of completion P11,250,000 P12,000,000
Income recognized 750,000 1,050,000
Contract costs incurred during 2008 were
a. P4,800,000 b. P7,200,000 c. P4,950,000 d. P4,500,000
Problem 11. M Construction company began operations on January 2008. During the year, the company
entered into a contract with G company to construct a manufacturing facility. At that time, M estimate that
it would take 10 years to complete the facility at a total cost of P3,000,000. The total contract price for the
construction of the facility is P5,000,000. During the year, the company incurred P850,000 in construction
costs related to the project. The estimated cost to complete the contract is P2,550,000. G company was
billed 30% and paid 27% of the contract price. Using the percentage of completion method, how much is
the excess of Construction in Progress over Contract billings or Contract billings over Construction in
Progress?
a. P250,000 current asset c. P100,000 current asset
b. P250,000 current liability d. P100,000 current liability
Problem 12. T restaurant sold a fastfood restaurant franchise to I. The sale agreement, signed on
January 2008 called for a P100,000 down payment plus two P50,000 annual payments representing the
value of initial franchise services rendered by T restaurant. In addition, the agreement required the
franchisee to pay 8% of its gross revenues to the franchisor. The restaurant opened early in 2008 and its
sales for the year amounted to P750,000. Assuming a 12% interest rate is appropriate, T’s 2008 total
revenue will be (PV of annuity of P1 at 12% for two periods is 1.6901)
a. P84,505 b. P244,505 c. P254,646 d. P266,646
Problem 13. LL Incorporated which began operating on January 2008 appropriately uses the installment
method of accounting. The following information pertains to LL’s operations in 2008.
Installment sales P600,000
Regular sales 800,000
Cost of Installment sales 270,000
Cost of Regular sales 440,000
Operating expenses 200,000
Collections on installment sales 150,000
Collections on regular sales 200,000
How much is the Realized Gross Profit in 2008?
a. P690,000 b. P242,500 c. P82,500 d. P442,500
Problem 14. HH company began operating at 2006 and using the installment method of accounting,
presented the following data for its installment sales:
Down payment is 30%
Installment sales: P600,000 in 2006; P762,500 in 2007; P981,250 in 2008
Mark up on cost is 25%
Collections after down payment,: 25% in the year of sale, 30% in the year after and 45% in the
third year
Which of the following is true?
a. IAR at the end of 2007 is P400,313
b. DGP for 2007 sales at the end of 2008 is P80,063
c. RGP from 2006 and 2007 sales at 2008 is P85,838
d. Total Unrealized Gross Profit at the end of 2008 is P151,069
Problem 15. DD Company uses a Raw and In process (RIP) account and charges all conversion cost to
Cost of Goods Sold (CGS). At the end of each month, all inventories are counted, their conversion cost
components are estimated and inventory account balances are adjusted. Raw material cost is
backflushed form RIP to finish goods. The following information is for the month of July:
Beginning balance of RIP account P 50,000
Beginning balance of Finished Goods account, including 78,000
P12,500 of conversion cost
Raw materials received on credit 700,000
Ending balance of RIP account 60,000
Ending balance of Finished Goods account, including 75,000
P10,000 of conversion cost
How much is the material cost of the units completed?
a. P690,500 b. P693,000 c. P690,000 d. P700,000
1. EE company produces chemical H and I. The processing also yields by product X, another chemical.
The joint costs of processing is reduced by the NRV of X. Joint costs for the month of May were
P2,900,000. Below are additional data:
Product Units Market Value
H 1,000 P5,000,000
I 2,000 2,500,000
X 500 500,000
An additional P120,000 were spent to complete the processing of X. The company uses the NRV method
of allocating joint costs. How much is the amount of joint cost allocated to I?
a. P1,260,000 b. P840,000 c. P1,680,000 d. P1,600,000
2. MM company produces joint products A and B together with by product C. A is sold at split off but B and
C undergo additional processing. Production data pertaining to these products for year ended December
31, 2008 are as follows:
A B C Total
Joint Costs P1,200,000
Separable costs P435,000 P56,000 P 491,000
Production in pounds 100,000 150,000 40,000 290,000
Sales price per pound P5 P9 P2.5
There are no beginning or ending inventories. No materials are spoiled in production. Joint costs are
allocated to joint products to achieve the same gross profit rate for each joint product. Net revenue from
by product is deducted from joint production costs of the main product. How much is the share of B in the
joint cost?
a. P843,658 b. P747,520 c. P430,000 d. P726,000
3. RR company makes two products Y and Z. They are initially processed from the same materials and
then after split off, further processed separately. Additional information is as follows:
Y Z Total
Final sales value P40,500 P49,500 P90,000
Sales value at split off 33,000 47,000 80,000
Cost beyond split off 9,000 11,000 20,000
Joint cost prior to split off 15,000
Using the Net Realizable Value approach, how much is the joint cost assigned to Y and Z?
a. P6,000 and P9,000 c. P6,188 and P8,813
b. P6,750 and P8,250 d. P7,500 and P7,500
4. W company has overapplied overhead of P60,000 for the year. Before disposition of overapplied
overhead, selected year end balances from W’s accounting records were…
Sales P1,000,000
Cost of Goods Sold 750,000
Direct Materials Inventory 50,000
Work in Process Inventory 180,000
Finished Goods Inventory 270,000
Under W’s accounting system, over or under applied overhead is allocated to appropriate inventories and
CGS based on year end balances. In its year end income statement, W should report CGS of
a. P712,500 b. P714,000 c. P730,000 d. P787,500
5. N Machine shop manufactures lifting equipment. One order from O company for 3000 lifting equipment
showed the following costs per unit; materials P3.5; labor P2; FOH applied at 150% of direct labor cost
(125% in cases in which any defective unit costs are to be charged to a specific order or a 25% allowance
for reworking defective units). Final inspection showed that 250 units were not properly produced.
Correction of each defective unit requires P.35 for materials, P.40 for labor and FOH at the appropriate
rate. Assuming the defective units are the result of an internal failure how much is the unit cost for each
unit manufactured?
a. P8.10 b. P8.61 c. P8.50 d. P8.00
6. GD uses a job order system. Per company records, the total charges to Work in Process in June 2008
were as follows:
Direct Materials P210,000
Direct Labor 180,000
Factory Overhead 153,000
No jobs were in process at the beginning of the month. During the month, Work in Process in the amount
of P478,000 were charged to Finished Goods. On June 30, 2008, the only job remaining was Job no. 101
with direct labor cost of P12,000. How much is the cost Direct Materials charged to Job 101?
a. P53,000 b. P42,800 c. P52,800 d. P54,800
7. ZZ Company produces wooden chairs. Three percent of normal input is expected to be spoiled in the
process. Inspection occurs at the end of the process and rejected units are disposed of as scrap with no
cost recovery. In a recent period, the following data were obtained.
Units
Total Units Started 1,000,000
Defective units rejected 50,000
Cost
Materials P 75,000
Conversion 43,000
Total 118,000
How much is the cost for the units transferred to Finished Goods during this 24 hour period, assuming no
ending Work In Process?
a. P112,100 b. P114,460 c. P115,640 d. P118,000
8. Vex, general manager of AB corporation, provided the following information for transactions that
occurred during March. The corporation uses JIT costing system.
a. Raw materials purchased and requisitioned for product were P84,000
b. Direct Labor costs of P78,000 were incurred
c. Actual factory overhead costs amounted to P250,000
d. Applied conversion costs totaled P340,000.This included P78,000 of direct labor
e. All units were completed
How much is the balance in Finished Goods account in March 31?
a. P412,000 debit c. P424,000 debit
b. P412,000 credit d. P424,000 credit
9. GH company produces a small standard component in a process operation. There is a quality control
check at the end of processing. Items which fail this check are sold off as scrap for P3 per unit, the
expected rate of rejection is 15%. Normal loss is not given a cost except that whatever scrap value it has
is credited to the process account. The cost/value of the abnormal loss, net of scrap, is written off to the
profit/loss account. Data for October are as follows:
Units Cost
Materials input 1,500 P14,500
Conversion Cost 1,475
Output to finished goods 1,200
How much is the cost for the units transferred to Finished Goods?
a. P15,975 b. P15,300 c. P15,075 d. P14,400
10. UR company uses a FIFO process costing system. The company had 10,000 units that were 40%
percent incomplete as to conversion costs at the beginning of the month. The company started 30,000
units this period and had 9,000 units in ending Work In Process inventory that were 50% complete as to
conversion costs. What are the equivalent units for conversion costs?
a. 35,500 b. 31,500 c. 29,500 d. 25,500
11. Baby corporation issues 35,000 shares of previously unissued P15 par value common stock with a fair
market value of P40 per share for net assets of Daddy corporation. Baby pays the following out of pocket
costs related to the business combination.
Registering and issuing securities P 5,000
CPA and legal fees 40,000
Salaries of Baby’s employees assigned to the 13,000
implementation of the merger
Cost of closing duplicate facilities 19,000
Cost of shareholder’s meeting to vote on the merger 25,000
Printing fees of stock certificates 3,000
Finder’s fee 24,000
How much is the amount charged to profit and loss for the period?
a. P64,000 b. P57,000 c. P65,000 d. P60,000
12. Home office EE shipped merchandise costing P94,200 to XX branch and paid for the freight charges
of P15,000. XX branch was subsequently instructed to transfer the merchandise to YY branch wherein XX
branch paid P12,000 freight. If the shipment was made directly from EE to YY, the freight cost would have
been P22,500. Which of the following is incorrect?
a. Upon transfer of merchandise by XX to YY, XX debits Home office account by P121,200
b. Upon transfer of merchandise by EE to XX, EE debits Investment in Branch XX account by
P109,200
c. Upon transfer of merchandise by XX to YY, EE debits Investment in Branch XX account by
P116,700
d. Upon receipt of merchandise by YY from XX, YY credits Home office account by P116,700
13. BG corporation maintains a branch in Pampanga. Selected account balances taken from the books of
the Home office and its branch as of December 31, 2008 are as follows:
Home Office Pampanga branch

Sales P1,200,000 P540,000
Inventory, January 1 350,000 157,500
Purchases 500,000
Shipments to branch 315,000
Shipments from Home Office 346,500
Inventory, December 31 80,000 122,100
Expenses 113,000 89,000
In 2007, the Home office billed its branch at 120% of cost which was higher by 5% than the previous year.
All of the units in the beginning inventory of the branch were acquired from the home office in 2007. The
combined net income of the Home office and the branch is
a. P732,793 b. P747,750 c. P743,750 d. P738,500
14. On January 1, 2008, DC corporation purchased interest in GM company. (95% ownership,

P1,400,000 cost of investment). On this date, the book values and fair values of GM were as follows:
Cash P 400,000 P400,000
Accounts receivable 500,000 450,000
Inventory 825,000 900,000
Property, Plant and Equipment(net) 1,050,000 950,000
Current Liabilities 315,000 300,000
Non – current Liabilities 720,000 800,000
Common Stock 500,000
Additional Paid in Capital 100,000
Retained Earnings 1,140,000
If DC’s total assets in its separate books is P10,000,000, how much is total consolidated assets on date of
acquisition?
a. P12,700,000 b. P12,820,000 c. P11,300,000 d. P11,420,000
15. Q company owns 80% of the stock of R corporation and 50% of S corporation. During 2008, Q sold
inventories purchased in 2007 from outsiders at P500,000 to R for P600,000. R then sold the inventories
to S for P750,000. Prior to December 31, 2008, S sold P450,000 of the inventories to a non affiliate for
P510,000 and held the remaining units at December 31, 2008. What amount should be reported in the
Dec. 31, 2008 Consolidated balance sheet as inventory?
a. P0 b. P200,000 c P300,000
Problem 46. On July 31, 2008, YES Corporation issued 150,000 shares of its P22 par value
common stock in exchange for the P4.3 million net identifiable assets of YUP Company. The
market value of YES’s common stock on July 31 was P25 per share. YES paid a fee of
P200,000 to the consultant who arranged the acquisition. Costs of issuing the securities
amounted to P90,000. Additional costs were incurred directly attributable to the acquisition.
Income from acquisition of P200,000 was involved in the purchase. How much is the cost of
acquisition?
a. P4,100,000 b. P3,950,000 c. P4,040,000 d. P4,500,000
Problem 47. On April 1, 2008, the AA Company established an agency in Bulacan, sending its
merchandise samples costing P82,500 and a working fund of P65,000 to be maintained on the
imprest basis. During the month of April, the agency transmitted to the home office sales orders
that cost at P468,750. However, the home office was able to fill-up only 80% of the orders. Total
cash of P250,000 was collected from the customers. A home office disbursement chargeable to
the sales agency includes the acquisition of equipment for Bulacan, P180,000 to be depreciated
at 10% per annum. The agency paid expenses of P43,700 and received replenishment thereof
from the home office. The agency samples are good until February 28, 2009. It was estimated
that the gross profit on goods shipped to bill agency sales orders averages 25%. Net income
(loss) for the month ended April 30, 2008 is
a. (P19,200) b. P72,300 c. (P2,700) d. P55,800
Problem 48. On January 01, 2008, P Company acquired 75% interest in S Company for
P4,700,000 cash. The shareholder’s equity of S at the time of acquisition is P5,200,000. The
excess of cost over book value of interest acquired is allocated to the following: Inventories
P350,000 (sold in 2008), Building P250,000 ( 4 year remaining life), Goodwill P200,000 (not
amortized). During 2008, S company reported Net income of P800,000 and paid dividends of
P200,000. Retained earnings of parent on January 1,2008 is P1,000,000, Common stock is
P2,000,000 and additional paid in capital is P500,000. Net income from own operations and
dividends paid by P during 2008 are P950,000 and P400,000 respectively. Determine the
consolidated Retained earnings as of December 31, 2008:
a. P1,737,500 b. P1,587,500 c. P1,840,625 d. P1,690,625
Problem 49. EFG Corporation’s shipments to and from its Quezon City branch are billed at
125% of cost. On December 31, 2008, QC branch reported the following data at billed price:
Inventory January 1, P56,250; shipments received from home office, P1,156,250; shipments
returned P156,250; and Inventory December 31, P306,250. What is the balance of the
allowance for over- valuation of branch inventory on December 31 before adjustments?
a. P150,000 b. P211,250 c. P231,250 d. P242,500
Problem 50. UVW Corporation and its branch in Manila maintain their respective books of
accounts. At close of books on December 31, 2008, Manila branch account in the home office
books showed a balance of P142,500. The interoffice accounts were in agreement at the
beginning of the year. For purposes of reconciling the interoffice accounts, the following were
ascertained:
a. Merchandise billed at P50,000 was shipped by the home office to the branch on
December 27. The goods were in transit as of the end of the year and the branch
did not recognize the transfer in its books.
b. The branch collected a home office account receivable of P35,000 but such
transaction is not known to the home office.
c. The home office recorded in error the branch net income at P119,000. It should
have been P191,000.
d. The home office is charged P83,000 by the branch due to returned merchandise
to home office on December 28 which was in transit as of December 31.
e. Home office credit memo for P5,400 is recorded twice by the branch.
Determine the balance in the home office books of the branch account before adjustments as of
December 31,2008:
a. P166,500 b. P111,100 c. P221,900 d. P142,500
1. A
2. B
3. A
4. B
5. D
1. During 2003, an alumnus of Smith College, a private not-for-profit college, transferred 100,000 to the
college with the stipulation that it be spent for library acquisitions. However, the alumnus specified that
none of the cash transferred could be spent until the college had matched the entire amount transferred
with donations from other alumni by December 31, 2004. As of December 31, 2003, the college had
received matching cash donations of only 5,000 from other alumni, and the college estimated that it was
reasonably possible that it would not reach the goal of 100,000 by December 31, 2004. If the funds are
not matched by December 31, 2004, the cash will be returned to the alumnus.
On the college’s statement of financial position at December 31, 2003, the cash transfer of 100,000 would
be included in the amount reported for
a. Liabilities.
b. Unrestricted net assets.
c. Temporarily restricted net assets.
d. Permanently restricted net assets.
2. During the year ended December 31, 2003, a not-forprofit performing arts entity received the following
donorrestricted contribution and investment income:
I. Cash contribution of 100,000 to be permanently invested.
II. Cash dividends and interest of 6,000 to be used for the acquisition of theater equipment.
As a result of these cash receipts, the statement of cash flows for the year ended December 31, 2003,
would report an increase of
a. 106,000 from operating activities.
b. 106,000 from financing activities.
c. 6,000 from operating activities and an increase of 100,000 from financing activities.
d. 100,000 from operating activities and an increase of 6,000 from financing activities.
3. Sea Lion Park, a private not-for-profit zoological society, received contributions restricted for research
totaling 50,000 in 2003. None of the contributions were spent on research in 2003. In 2004, 35,000 of the
contributions
were used to support the research activities of the society. The net effect on the statement of activities for
the year ended December 31, 2004, for Sea Lion Park would be a
a. 15,000 increase in temporarily restricted net assets.
b. 35,000 decrease in temporarily restricted net assets.
c.35,000 increase in unrestricted net assets.
d. 35,000 decrease in unrestricted net assets.
4. Clara Hospital, a private not-for-profit hospital, earned 250,000 of gift shop revenues and spent 50,000
on research during the year ended December 31, 2003. The 50,000 spent on research was part of a
75,000 contribution received during December of 2002 from a donor who stipulated that the donation be
used for medical research. Assume none of the gift shop revenues were spent in 2003. For the year
ended December 31, 2003, what was the increase in unrestricted net assets from the events occurring
during 2003?
a. 300,000 b. 200,000 c. 250,000 d. 275,000
5. Which of the following transactions of a private notfor- profit voluntary health and welfare organization
would increase temporarily restricted net assets on the statement of activities for the year ended June 30,
2003?
I. Received a contribution of 10,000 from a donor on May 15, 2003, who stipulated that the donation not
be spent until August of 2003.
II. Spent 25,000 for fund-raising on June 20, 2003. The amount expended came from a 25,000
contribution on March 12, 2003. The donor stipulated that the contribution be used for fund-raising
activities.
a. Both I and II. b. Neither I nor II. c. I only. d. II only.

6. Catherine College, a private not-for-profit college, received the following contributions during 2003:
I. 5,000,000 from alumni for construction of a new wing on the science building to be constructed in 2003.
II. 4,000,000 from a donor who stipulated that the contribution be invested indefinitely and that the
earnings be used for scholarships. As of December 31, 2003, earnings from investments amounted to
50,000.
For the year ended December 31, 2003, what amount of these contributions should be reported as
temporarily restricted revenues on the statement of activities?
a. 50,000 b. 5,050,000 c. 5,000,000 d. 6,050,000
7. PJD Enterprises, a franchisor charges franchisees a “franchise fee” of P500,000. Of this amount, a
non-refundable P200,000 is paid upon the signing of the contract with the balance payable in three equal
annual installments after each year thereafter starting 2012; PJD will assist in locating a suitable business
site, conduct a market study, oversee the construction of facilities, and provide initial training for
employees.
On October 1, 2011, PJD entered into a franchising agreement to cover an entirely new and untested
area. By december 31, 2011, PJD has substantially completed and rendered appropriate services at a
total cosr of P150,000, but has somehow, has raised some doubts on the collectibility of the balance of
the franchise fee. In its 2011 income statement, PJD Enterprises should recognize a profit of:
A.P50,000 B. P140,000 C. P200,000 D. P350,000
8. Ruby Company charges new franchisees an initial fee of P2,500,000. Of this amount, P1,000,000 is
payable in cash when the agreement is signed, and the remainder is to be paid in three annual
installments, which are evidenced by an interest bearing promissory notes. In consideration therefore,
Ruby Company will assist in locating the business site, conduct a market study to estimate the earnings
potential, supervise construction of a building, and provide initial training to employees.
On December 31, 2011, Ruby Company entered into a franchise agreement with Jade, Inc. by the end of
the year. Ruby Company has completed about 25% of the initial services at a cost of P150,000 and it has
ascertained that collection of the notes is reasonably assured. For 2011, Ruby Company should
recognize franchise revenue of:
A.P0 B. P850,000 C. P1,000,000 D.P2,500,000

9. On January 2, 2009, SD Company signed an agreement to operate as a franchisee of TQ Products,
Icn., for an initial franchise fee of P937,500 for 7 years. Of this amount, P175,000 was paid when the
agreement was signed and the balance payable in four annual payments beginning on December 31,
2009 . SD signed a non interest bearing note for the balance. SD's rating indicates that he can borrow
money at 16% for the loan of this type. Assume that substantial services amounting to P283,500 had
already been rendered by TQ Products and that additional indirect franchise cost of P25,500 was also
incurrred. PV factor is 2.80
If the collection of the note is not reasonably assured, the net income for the year ended December 31,
2009 is
A. P313,435 B. P228,035 C. P168,135 D.P253,535
10. oN November 30, 2009, Loveless Company authorized NBSB Corp. to operate as a frachisee for an
initial franchise fee of P1,950,000. Of this amount, P750,000 was received upon signing the agreement
and the balance, represented by a note, is due in four annual payments starting November 30, 2010. PV
of P1 at 12% for 4 periods is .06355.Present Value of an ordinary annuity of P1 at 12% for 4 periods is
3.0374 The period of refund will elapsed on January 31, 2010. The franchisor has performed substantially
all of the initial services but the operations of the store have yet to start. Collectibility of the note is
reasonably certain. How much is the unearned franchise fee on the year ended December 31, 2009?
A. P1,661,220 B.P750,000 C.P911,220 D, P0
11. Forever, Inc granted a franchise to Hopeless Romantic for the Manila area. The franchisee was to pay
a franchise fee of P250000, payable in five equal installments starting with the payment upon signing of
the agreement. The franchise was to pay monthly 3% of gross sales of the preceding month. Should the
operations of the outlet prove to be unprofitable, the franchise may be cancelled with whatever obligations
owing Forever, Inc. in connection with the P250,000 franchise fee waived. The prevailing interest rate for
a non- interest bearing note is 14%. The first year generated a gross sales of P1,250,000. What is the
amount of unearned franchise fee after the first year of operations?
A.P287,500 B.P145700 C. P195,700 D.P250,000
12. AAA,Inc.awarded its franchise for Davao City to Savory Foods for a total fee of P250,000 , payable
P50,000 at the time the contract is signed and the balance in two equal installments after each year
following the signing date. The agreement was signed at the beginning of 2008 and it provided among
others, that in the event the first year of operations prove to be uncollectible the franchise agreement may
be voided with no need for the franchisor to return any amount already paid nor the franchisee to pay any
balance still unpaid. Indeed, the first year proved to be unprofitable . In 2008 AAA, Inc. would report
franchise fee revenue of :
A. P0 C. P150,000
B P50,000 D. P250,000
13. On December 29,2008, Fiesta Hat signed a franchising agreement for the operation of an outlet in
Dagupan City by Sombrero Company. The franchising agreement required the franchisee, Sombrero
Company to make an initial payment of P200,000 upon signing of the contract and three payments each
of P100,000 beginning one year from the agreement date and yearly thereafter. The franchisor agrees to
make market studies, find a suitable location, train employees and perform some other related services.
The initial payment is refundable until substantial performance is effected. At the end of 2008 , Fiesta Hat
should report franchise fee revenue of:
A. P0 C. P200,000
B. P125,000 D. P500,000

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P2

1. Which of the following observations concerning interfund transfers is true?

2. Shue, a partner in the Financial Brokers Partnership, has a 30 percent share in

How should partnership net income for 2008 be allocated to J, P, and B?

5. Windsor Corporation owns 75 percent of Elven Corporation's outstanding common

6. Parent Corporation owns 90 percent of Subsidiary 1 Company's stock and 75 percent of

9. On January 1, 2008, Zeta Company acquired 85 percent of Theta Company's common

15. Goodwill under the parent theory:

1. Acme Co. is preparing a pro-forma set of financial statements after anacquisition of

2. Balter Inc. acquired Jersey Company on January 1, 20X5. When the

4. Which of the following business combination expenses would NOT qualify

8. Partners Thomas, Adams and Jones have capital balances of $24,000,

9. Partner T is personally insolvent, owing $400,000. Personal assets will

14. When recording the acquisition of a fixed asset in a city's General

1. Paris LTD. owned a 75% interest in Scott Company prior to January 1,

2. Paris LTD. owned a 75% interest in Scott Company prior to January 1,

3. When a parent purchases a portion of the newly issued stock of its

4. Apple Inc. owns a 90% interest in Banana Company. Banana Company, in

6. Stroud Corporation is an 80%-owned subsidiary of Pennie, Inc., acquiredby Pennie

7. On 1/1/X1 Peck sells a machine with a $20,000 book value to its

8. Pease Corporation owns 100% of Sade Corporation common stock. On January 2,

9. Company S is a 100%-owned subsidiary of Company P. On January 1, 20X9,

11. Company S is a 100%-owned subsidiary of Company P. Company P purchased all

12. Company P owns 80% of Company S. On January 1, 20X9 Company S has

2. A tax advantage of business combination can occur when the existing

3. A controlling interest in a company implies that the parent company

4. Which of the following is a potential abuse that may arise when a

5. Company B acquired the assets (net of liabilities) of Company S in

8. Vibe Company purchased the net assets of Atlantic Company in a business

9. Goodwill represents the excess cost of an acquisition over the

ANS: C DIF: M OBJ: 6

1. In an 80% purchase accounted for as a tax-free exchange, the excess of

3. On January 1, 20X1, Rabb Corp. purchased 80% of Sunny Corp.'s 10 par

5. Pease Corporation owns 100% of Sade Corporation common stock. On January

8. Company P owns a 30% interest in Company S and accounts for the

9. Pine Company purchased a 55% interest in the Sent Company on January 1,

12. Company P purchased the outstanding common stock of Company S as

14.Apple Inc. owns a 90% interest in Banana Company. Banana Company, in

Able Baker Chapman

Assume profits and losses are allocated equally.

b. Loan Payable 150,000

c. Loan Payable 150,000

d. Loan Payable 150,000

1. How would the first P100,000 of available assets be distributed?

The data pertain to instalment sales of Mickey’s store:

 Down payment, 20%.

1. What is the amount of direct materials purchased during the year?

3. What is the cost of goods manufactured during the year?

4. What is the cost of goods sold during the year?

Costs pertaining to the month of May are as follows:

Contributions Profit and

4.The installment sales in 2012:

5..Using the same information,the cost of installment sales in 2010:

Tray Capital P200,000

According to the partnership agreement. All profits will be distributed as follows:

Assets at book value P100,000

A trustee is appointed tp liquidate the company.

The remaining assets are sold for P60,000.