PRACTICAL ACCOUNTING II

1. Kroger Corporation acquired a 60% interest in Food Lion Corporation on January 1, 2008, when
Food Lion’s book values and fair values were equal. In July 1, 2008, Kroger sold a building with a
book value of P300,000 to Food Lion for P375,000. The building has a remaining life of 15 years,
no salvage value, and depreciation using the straight-line method. Food Lion reports net income of
P160,000 for 2008. The 2008 consolidated net income amounted to:
a. P87,500 b. P23,500 c. P21,000 d. P18,000

2. AA, Inc. and BB, Inc. agree to combine. AA acquires the net assets of BB in exchange for 3,125
shares of AA capital stock (P1,000 par). AA shares on this day have a market value of P1,300 per
share. The condensed balance sheet of BB prior to combination show:
Current assets P1,525,000
Plant and equipment 2,300,000
Goodwill 250,000
Total Assets P4,075,000

Liabilities P 950,000
Capital stock 2,000,000
Additional paid – in capital 650,000
Retained Earnings 475,000
Total liabilities and stockholders’ equity P 4,075,000

An appraisal was made by an independent appraiser indicated that the fair value of BB assets are
P1,125,000 for current assets and P2,500,000 for plant and equipment. How should the difference
between the fair value of BB’s net assets and the fair value of share issued by AA is taken up in
AA’s books. Shows as (1) goodwill, and/or (2) premium on stocks:
a. (1) P1,137,500; (2) P937,500 c. (1) P1,387,500; (2) P -0-
b. (1) P1,137,500; (2) P -0- d. (1) P1,387,500; (2) P937,500

3. Connie Corporation had a realized foreign exchange loss of P15,000 for the year ended December
31, 2008 and must also determine whether the following items will require year-end adjustment:
 Connie had an P8,000 loss resulting from the translation of the accounts of its wholly-
owned foreign subsidiary for the year ended December 31, 2008.
 Connie had an account payable to an unrelated foreign supplier payable in the supplier’s
local currency. The Philippines peso equivalent of the payable was P64,000 on the October
31, 2008 invoice date, and it was P60,000 on December 31, 2008. The invoice is payable on
January 30, 2007.

In Connie’s 2008 consolidated income statement, what amount should be included as foreign
exchange loss?
a. P11,000q b. P15,000 c. P19,000 d. P23,000

4. On September 1, 2008, Brady Corporation entered into a foreign exchange contract for speculative
purposes by purchasing 50,000 foreign currencies for delivery in 60 days. The rates to exchange
follow:
9 / 1 / 2008 9 / 30 / 2008
Spot-rate P21.00 P21.50
30 – day forward rate 20.98 20.00
60 – day forward rate 20.99 22.10

In its September 30, 2008 income statement, what amount should Brady report as foreign exchange
transaction gain (loss)
a. P(49,000) b. P55,500 c. P27,500 d. P(49,500)

5. Cebu Enterprises is a Philippine exporter of souvenir items manufactured in the capital city of
Cagayan. The following overhead cost data have been accumulated:
Activity Center Cost Driver Amount of Center Cost
 Activity
Materials Handling Grams handled 100,000 grams P50,000
Painting Unites painted 50,000 units 200,000
Assembly Labor hours 4,000 hours 120,000
Job 1234 contains 3,000 units. It weighs 10,000 grams and uses 300 hours of labor.

Compute the total overhead costs that should be assigned to Job 1234.
a. P31,955 b. P27,750 c. P26,000 d. P32,000

6. Some units of output failed to pass final inspection at the end of the manufacturing process. The
production and inspection supervisors determined that the incremental revenue from reworking the
units exceeded the cost of rework. The rework of the defective units was authorized, and the
following costs were incurred in reworking the units:

Materials requisitioned from stores:

Direct materials ……………………………………………….P 5,000
Miscellaneous supplies…………………………………… 300
Direct labor………………………………………………………………….. 14,000

The manufacturing overhead budget includes an allowance for rework. The predetermined
manufacturing overhead rate is 150% of direct labor cost. The accounts(s) to be charged and the
appropriate charges for the rework costs would be:
a. Work-in-process inventory control for P19,000.
b. Work-in-process inventory control for P5,000 and factory overhead control for P35,300.
c. Factory overhead control for P19,300.
d. Factory overhead control for P40,300.

7. On 1 July 2008, Norlisk Ltd. acquire 90% of the capital of Rudny Ltd. for P290,160. The equity of
Rudny Ltd. at this date consisted of:
Share capital P 200,000
Retained earnings 80,000

The carrying amounts and fair values of the assets and liabilities recorded by Rudny Ltd. at 1 July
2008 were as follows:
Carrying Fair
Amount Value
Fittings P 20,000 P 20,000
Land 90,000 100,000
Inventory 10,000 12,000
Machinery (net) 200,000 220,000
Liabilities 40,000 40,000

The machinery and fitting have a further ten-year life, benefits to have received evenly over this
period. Differences between carrying amounts and fair values are recognized on consolidation.

The tax rate is 30%. All inventory on hand at 1 July 2008 is sold by 30 June 2009.

The amount of goodwill (gain on acquisition / discount on acquisition) on 1 July 2008 consolidated
statements:
a. P9,360 b. P18,000 c. P20,000 d. P(12,240)

8. A chemical company manufactures joint products Pep and Vi, and by product, Zest. Cost are
assigned to the joint products by the market value method, which considers further processing costs
in subsequent operations. For allocating costs to the by-product, the market value of reversal cost
method is used.

The total manufacturing costs for 10,000 units were P172,000 during the quarter. Production and
costs data follow:
 Pep Vim Zest
Unit produced 5,000 4,000 1,000
Sales price per unit P50 P40 P5
Further process cost per unit 10 5 -
Selling and administrative exp. per 2
unit
Operating profit per unit 1
The gross profit for Pep amounted to:
a. P 0 b. P70,000 c. P80,000 d. P100,000

9. Alba, Bana, and Cada form a partnership and agree to maintain average investments of P100,000,
P50,000, and P50,000 respectively. Interest on an excess or on a deficiency in capital contribution
is to be computed at 6%. After the interest allowances, Alba, Bana, and Cada are to share any
balance in the ratio of 5:3:2. Average amounts invested during the first six months were as follows:
Alba, P120,000;Bana, P55,000; Cada P40,000. A loss from operations of P2,500 was incurred for
the first six months. How is this loss be distributed among the partners?
Alba Bana Cada
a. P 500 P720 P1,280
b. P 875 P735 P 890
c. P1,250 P750 P 500
d. P1,475 P885 P 590

10. Katherine Inc, of Cebu Ltd has decided to institute a pilot activity-based costing project in its five-
person purchasing departmental costs are P473,500. Because of finding the best supplier takes the
majority of effort in the department, most of the costs are allocated to this area.

Activity Allocation Measure Number of People Total

Costs
Find best suppliers Number of telephone 3 P300,000
calls
Issue purchase orders Number of purchase 1 P100,000
orders
Review receiving reports Number of receiving 1 P73,500
reports

During the year, the purchasing department made 150,000 telephone calls, issued 10,000 purchase
orders, and reviewed 7,000 receiving reports. Many purchase orders are received in a single
shipment.

One product manufactured by Cebu Ltd. required the following purchasing department activities:
125 telephone calls, 60 purchase orders, and 15 receipts.

What would be the purchasing department costs per unit would be if 200 units of the product are
manufactured during the year?
a. P2.00 b. P5.04 c. P10.00 d. P10.50

11. In October 2008, United Corporation obtained a loan amounting to US $120,000 for the purchase
of machinery and equipment. By the end of the year, one-half of the loans were still unpaid and a
ten-percent decrease has take place. If the foreign loan payable account is correctly reported in the
balance sheet at P1,848,000, the rate of exchange at the time the loan was obtained must have been:
a. $1.00 = P27.00 c. $1.00 = P29.00
b. $1.00 = P28.00 d. $1.00 = P30.00

12. On January 3, 2008, PP Services, Inc. signed an agreement authorizing CC Company to operate as
a franchisee over a 20-year period for an initial franchise fee of P50,000 received when the
agreement was signed. CC commenced operations on July 1, 2008, at which date all of the initial
services required of PP had been performed. The agreement also provides that CC must pay
annually to PP a continuing franchise fee equal to 5% of the revenue from the franchise. CC’s
 franchise revenue for 2008 was P400,000. For the year ended December 31, 2008, how much
should PP record as revenue from franchise fees in respect of the CC’s franchise?
a. P70,000 b. P50,000 c. P45,000 d. P22,500

13. On March 1, 2008, PP and QQ decides to combine their businesses and form a partnership. their
balance sheets on March 1, before adjustments, showed the following:

PP QQ
Cash P 9,000 P 3, 750
Accounts receivable 18,500 13,500
Inventories 30,000 19,500
Furniture and fixtures (net) 30,000 9,000
Office equipment (net) 11,500 2,750
Prepaid expenses 6,375 3,000
Total P105,375 P 51,500

Accounts payable P 45,750 P18,000

Capital 59,625 33,500
Total P105,375 P 51,500

They agreed to have the following items recorded in their books:

1. Provide a 2% allowance for doubtful accounts.
2. PP’s furniture and fixtures should be P31,000, while QQ’s office equipment is under-
depreciated by P250.
3. Rent expense incurred previously by PP was not yet recorded amounting to P1,000, while
salary expense incurred by QQ was not also recorded amounting to P800.
4. The fair market value of inventory amounted to:
For PP …………………………………………………………… P29,500
For QQ………………………………………………………….. 21,000

Compute the net (debit) credit adjustment for PP and QQ:

PP QQ PP QQ
a. P2,870 P2,820 c. P(870) P180
b. (2,870) (2,820) d. 870 (180)

14. The following information’s are extracted from the books and records of Rona Company and its
branch. The balances are at December 31, 2008 of the company’s operations.
Home Branch
Office
Sales P260,000
Shipments to branch P78,000
Shipments from home office 104,000
Purchases 39,000
Expenses 78,000
Inventory, January 1, 2008 26,000
Allowance for overvaluation of branch 31,200
inventory

However, no shipments in transit between the home office and the branch were made. Both
shipments accounts are properly recorded. The ending inventory includes merchandise acquired
from the home office in the amount of P26,000 and P7,800 acquired from outsiders for a total of
P33,800.

Compute the (1) realized inventory profit of home office from sales made by the branch, and (2)
the amount of branch merchandise beginning inventory that was acquired from the home office?
a. (1) P24,700; (2) P15,600 c. (1) P22,533; (2) P15,600
b. (1) P31,200; (2) P20,800 d. (1) P24,700; (2) P20,800
15. On January 1, 2003, Brownie Delight, Inc. entered into a franchise agreement with a company
allowing the company to do business under Brownie Delight’s name. Brownie Delight had
performed substantially all required services by January 1, 2003, and the franchisee paid the initial
franchise fee of P70,000 in full on that date. The franchise agreement specifies that the franchisee
must pay a continuing franchise fee of P6,000 annually, of which 20% must be spent on advertising
by Brownie Delight. What entry should Brownie Delight make on January 1, 2003 to record the
receipt of the initial franchise fee and the continuing franchise fee for 2003?
Cash………………………………………………
a. …………………………. 76,000
Franch
ise Fee
Reven
ue……
……
……
……
……
….... 70,000
Reven
ue
from
Contin
uing
Franch
ise
Fee…
… 6,000

b Cash………………………………………………
. ………………………… 76,000
Unearn
ed
Franch
ise
Fees…
……
……
……
……
……. 76,000

Cash………………………………………………
c. ………………………… 76,000
Franch
ise Fee
Reven
ue……
……
……
……
……
…….. 70,000
Reven 4,800
ue
from
Contin
uing
Franch
ise
 Fee…
….
Unearn
ed
Franch
ise
Fee…
……
……
……
……
……
… 1,200

d Prepaid Advertising
. ……………………………………………… 1,200
Cash
……
……
……
……
……
……
……
……
……
……
……
…… 76,000
Franch
ise Fee
Reven
ue……
……
……
……
……
…….. 70,000
Reven
ue
from
Contin
uing
Franch
ise
Fee…
…. 6,000
Unearned Franchise
Fee…………………………………………… 1,200

16. CC and DD are partners who share profits and losses in the ratio of 7:3, respectively. On October
21, 2008, their respective capital accounts were as follows:
CC P35,000
DD 30,000
P65,000

On that date, they agreed to admit EE as anew partner with a 1/3 interest in the capital and profits
and losses, and losses, and upon investment of P25,000. The new partnership will begin a total of
 P90,000. Immediately after EE’s admission, what are the capital balances of CC,DD, and DD, and
EE respectively?
a. P30,000; P30,000; P30,000 c. P31,667; P28,333; P30,000
b. P31,500; P28,500; P30,000 d. P35,000; P30,000; P25,000

Items 17 and 18 are based on the following information:

On September 1, Ramus Company purchased machine parts from Jacky Chan Company for 6,000,000
Hong Kong dollars to be paid on January 1, 2009. The exchange rate on September 1 is HK $7.7 = P1.
On the same date, Ramus enters into a forward contract and agrees to purchase HK $6,000,000on
January 1, 2009, at the rate of HK $7.7 = P1. On December 31, 2008 and on January 1, 2009, the
exchange rate is HK $8.0 = P1.

17. What is the fair value of the forward contract on December 31, 2008?
a. P0 b. P29,221 c. P750,000 d. P779,221

18. What is the initial value of forward contract on December at the date of
a. P0 b. P29,221 c. P750,000 d. P779,221

19. Jamie Corporation’s home office and branch pre-closing trial balances on December 31, 2008,
contained the following accounts and amounts:

Home Office Branch

Books Books
Branch P95,000
Home Office P73,400
Shipments to branch 90,000
Shipments from home office 75,000

Additional information:
1. On December 31, 2008, Jamie’s home office sent a P5,000 check to its branch to replenish
working capital.
2. The home office credits the shipments to branch account at cost without a loading (profit)
factor.
3. The branch had transmitted P1,600 in cash to the home office which was not received until
January 3, 2008.

Compute the correct balance of the branch account on Jamie’s home office books:
a. P88,400 b. P95,000 c. P78,400 d. P93,400

20. The Brooke Corporation has two branches, Branch P and Branch Q. The home office shipped
P80,000 in merchandise to Branch P and prepaid the freight changes of P500. A short time
thereafter, Brach P was instructed to ship this merchandise to Branch Q at a prepaid freight cost of
P700. Freight charges for this merchandise normally cost P800 when shipped from the home office
directly to Branch Q.

Compute the excess freight on transfers of merchandise:

a. P700 b. P800 c. P78,400 d. P93,400

21. On October 1, 2008, Carsavers Company sold article “A” costing P27,000, for P40,000. Article
“B”, used article, was accepted as a down payment, with the balance payable in monthly
installments of P2,000 starting November 1, 2008, P12,000 was allowed on the article trade-in. the
company estimated the reconditioning cost of this article at P800 and a selling price of P11,000
after such reconditioning costs. the company normally makes a 20% gross profit on the sale of used
articles. The company employs the perpetual inventory method.

The amount of realized gross profit in 2008 was:

a. P3,000 b. P3,150 c. P3,500 d. P4,000
22. On June 30,2008, the balance sheet for the partnership of C, M, and P, together with their
respective profit and loss ratios were as follows:

Assets, at cost P 180,000

C, loan P 9,000
C, capital (20%) 42,000
M, capital (20%) 39,000
P, capital (60%) 90,000
P 180,000

C has decided to retire from the partnership. By mutual agreement, the assets are to be adjusted to
their fair value of P216,000 at June 30, 2008. It was agreed that the partnership would pay C
P61,200 for C’s partnership interest, including C’s loan which is to be repaid in full. No goodwill
is to be recorded. After C’s retirement, what is the balance of M’s capital account?
a. P36,450 b. P39,000 c. P45,450 d. P46,200

23. Pistahan Corporation is a manufacturing company engaged in the production of a single special
product known as “Marvel”. Production costs are accumulated with the use of a job order costing
system.

The following information is available as of June 1, 2008:

Work – in – process P10,710
Direct materials inventory 48,600

In analysis the job order cost sheets, the records disclosed that the composition of the work-in-
process inventory on June 1, 2008 were as follows:
Direct materials used P 3,960
Direct labor (900 hours) 4,500
Factory overhead applied 2,250
P10,710

The following manufacturing activity occurred during the month of June 2008:]
Purchased direct materials costing, P60,000.
Direct labor worked 9,900 hours at P5 per hour was applied to production.
Factory overhead of P2.50 per direct labor hour was applied to production.
At the end of June 2008: The following information was gathered in connection with the
inventories:
Inventory of work-in-process:
Direct materials used P12,960
Direct labor (1,500 hours) 7,500
Factory overhead applied 3,750
P24,210
Inventory of direct materials P51,000

Compute the cost of goods manufactured:

a. P142,560 b. P118,350 c. P131,850 d. P108,600

24. The trustee for Ardolio, Inc. prepares a statement of affairs which shows that unsecured creditors
whose claims total P60,000 may expect to receive approximately P36,000 if assets are sold for the
benefit of creditors.
• Michael is an employee who is owed P150.
• Meldcan holds a note for P1,000 on which interest of P50 is accrued; nothing has been
pledged on the note.
• Compboy holds a note of P6,000 on which interest of P300 is accrued; securities with a
book value of P6,500 and a present market value of P5,000 are pledged on the note.
• Ropres holds a note for P2,500 on which interest of P150 is accrued; properly with a book
value of P2,000 and a present market value of P3,000 is pledged on the note.
 How much may each of the following creditors hope to receive?
Michael Meldcan Compboy Ropres
a. P 0 P 0 P 0 P 0
b. 90 0 6,300 2,390
c. 150 1,050 5,780 0
d. 150 630 5,780 2,650

25. McKee and Nelson enter into a contract to speculate on the stock market, each using approximately
P5,000 of personal cash. The earnings are to be divided equally and settlement is to be made at the
end of the year after all securities have been sold. A summary of the monthly brokerage statements
for the year follows:
McKee Nelson
Total of all purchase confirmations P45,000 P18,000
Total of all sales confirmations 48,700 16,800
Interest charge on margin accounts 80 50
Dividends credited to accounts 40 100

Final settlement will require payment as follows:

a. McKee pays Nelson P2,405 c. McKee receives from Nelson P1,150
b. McKee and Nelson receive P1,255 each d. None

26. Hartwell Company distributes the service department overhead costs to producing departments and
the following information for the month of January is presented as follows:

Maintenance Utilities
Overhead costs incurred P18,700 P9,000
Service provided to:
Maintenance department - 10%
Utilities department 20% -
Producing department A 40% 30%
Producing department B 40% 60%

The company distributes service department costs based on the reciprocal method, what would be
the formula to determine the total maintenance costs?
a. M = P18,700 + .10U c. M = P18,700 + .30U + .40A +.40B
b. M = P9,000 + .20U d. M = P27,700 + .40A + .40B

27. YDR Builders Construction has engaged into a contract for various vertical projects, currently tow
jobs has an existing status as of December 31, 2008:

Building 1 Building 2
Contract price P420,000 P300,000
Costs incurred during 2008 240,000 280,000
Estimated costs to complete 120,000 70,000
Billed to customers during 2008 250,000 290,000
Received from customers 245,000 285,000
General and administrative expenses 20,000 10,000
Interest income 5,000 8,000
The contractor further estimated that any costs incurred are expected to be recoverable.

The amount of net income (loss) for YDR Builders Construction in its income statement for 2008
would amount to:
Percentage of completion Cost Recovery Method of
Method Construction Accounting
a. P -0- P -0-
b. (17,000) (57,000)
c. (40,000) (80,000)
d. (27,000) (67,000)
28. The assets and equities and Queenie, Rose, and Sarah partnership at the end of its fiscal year on
October 31, 2008 are as follows:
Assets Equities
Cash P 15,000 Liabilities P 50,000
Receivables – net 20,000 Loan from Sarah 10,000
Inventory 40,000 Queenie, cap – 30% 45,000
Plant assets – net 70,000 Rose, capital – 50% 30,000
Loan to Rose 5,000 Sarah, capital – 20% 15,000
P150,000 P150,000

If the total amount of P7,500 is available for distribution to partners after all non-partner liabilities
are paid, it should paid as follows:
Queenie Rose Sarah
a. P7,500 P 0- P -0-
b. -0- 3,750 3,750
c. 2,250 3,750 1,500
d. 2,500 2,500 2,500

29. Chicane Builders, Inc. employs the cost –to-cost method of determining the percentage of
completion method for revenue recognition. The company’s records show the following
information on a recently completed project for a contract price of P5,000,000.
2006 2007 2008
Cost incurred to date P900,000 P2,550,00 P ?
0
Gross profit (loss) 100,000 350,000 (50,000
)

Compute the (1) estimated costs to complete the project at December 31, 2007, and (2) the actual
cost incurred during the year 2008.
a. (1) P1,700,000; (2) P2,550,000 c. (1) P 850,000; (2) P2,050,000
b. (1) P1,700,000; (2) P2 050,000 d. (1) P1,700,000; (2) P2,200,000

30. VAT Corporation manufactures rattan furniture sets for export and uses job order costing system in
accounting for its costs. you obtained from the corporation’s books and records the following
information for the year ended December 31, 2008:
 The work-in-process inventory on January 1 was 25% less than the work-in-process
inventory on December 31.
 The total manufacturing costs ended during 2008 was P900,000 based on actual direct
materials and direct labor but with manufacturing overhead applied on actual direct labor
pesos.
 The manufacturing overhead applied to process was 72% of the direct labor pesos, and it
was equal to 25% of the total manufacturing costs.
 The cost of goods manufactured, also based on actual direct materials, actual direct labor
and applied manufacturing overhead was P850,000.

The cost of direct materials used and the work-in-process inventory on December 31, 2008:
Direct Materials, Work-in-process Inventory,
Used 12/31/2008
a. P1,075,000 P 200,000
b. 362,500 250,000
c. 312,500 250,000
d. 312,500 275,000
31. St. Luke’s Hospital, a nonprofit hospital affiliated with St. Luke’s University, received the
following cash contribution from donors during the year ended December 31, 2007:
Contribution restricted by donors for research………………………………………..P 50,000
Contributions restricted by donors for capital acquisition……………………….. 250,000
 Neither of the contributions was spent during 2007; however, during 2008, the hospital spent the
entire P50,000 contribution on research and the entire P250,000 contribution on a capital asset
which was placed into service during the year. On the hospital’s statement of operations for the year
ended December 31, 2008, what total amount should be reported for “net assets released from
restriction”?
a. P 0 b. P50,000 c. P250,000 d. P300,000

32. Which of the following transactions would result in an increase in unrestricted net assets for the
year ended December 31, 2007?
I. A private, not-for-profit hospital earned interest on investments which were board
designated.
II. A voluntary health and welfare organization received unconditional promises to give
(pledges) which will not be received until the beginning of 2008. The donors placed no
restrictions on their donations.

a. Both I and II b. I only c. II only d. Neither I nor II

33. Air, Inc. uses a standard cost system. Overhead cost information for Product CO for the month of
October is as follows:
Total actual overhead incurred ……………………………………………..P12, 600
Fixed overhead budgeted ……………………………………………………..P 3,000
Total standard overhead rate per DLH …………………………………..P 4
Variable overhead rate per DLH ………………………………………….…P 3
Standard hours allowed for actual production ……………………….P 3,500

What is the overall or net overhead variance?

a. P1,200 favorable c. P1,400 favorable
b. P1,200 unfavorable d. P1,400 unfavorable

34. Jayella Restaurant Inc., sold a fast food restaurant franchise to Jayda. The sale agreement, signed
on January 2 2008, called for a P30,000 down payment plus two P10,000 annual payments,
representing the value of initial franchise services rendered by Jayella Restaurant. In addition, the
agreement required the franchisee to pay 5% of its gross revenues to the franchisor’ this was
deemed sufficient to cover the cost and provide a reasonable profit margin on continuing franchise
services to be performed by Jayella Restaurant. The restaurant opened early in 2008, and its sales
for the year amounted to P500,000. Assuming a 10% interest rate is appropriate, Jayella
Restaurant’s total revenue (including interest) will be (the present value of and annuity of P1 at
10% for 2 periods is 1.7355).
a. P30,000 b. P47,355 c. P72,355 d. P74,090

35. On December 30, 2008, Leigh Museum, a not-for-profit organization received a P7,000,000
donation of Day Corporation with donor-stipulated requirement as follows:

 Shares value at P5,000,000 are to be sold, with the proceeds used to erect a public viewing
building.
 Shares valued at P2,000,000 are to be retained indefinitely, with the dividends used to
support current operations.

As a consequence of the receipt of the Day shares, how much should Leigh report as temporarily
restricted net assets on its 2008 statement of financial position (balance)?
a. P 0 b. P2,000,000 c. PP5,000,000 d. P7,000,000

36. Bergen Productions produced two different movies from the same original footage (joint products).
The company also generated revenue from admissions paid by fans touring the movie production
set. Bergen regards the net income from tours as a by-product of movie production. The firm
accounts for this income as a reduction in the joint cost before that joint cost is allocated to movies.
The following information pertains to the two movies:

Products Total Receipts Separate

 Costs
Movie 1 P4,000,000 P2,400,000
Movie 2 27,000,000 18,600,000
Tours 300,000 140,000

The joint costs incurred to produce the two movies was P8,000,000. Joint cost is allocated based on
net realizable value.

How much profit was generated by each movie?

Movie 1 Movie 2
a. P 320,000 P1,680,000
b. P1,600,000 P 400,000
c. 0 0
d. P 345,600 P1,814,400

37. Perry Corporation acquired 70% of the outstanding common stock of Sarah Corporation:
Peery Sarah Sarah
Book Book fair
value Value Value
Assets
P20,00
Cash P32,000 P20,000 0
Receivable - net 80,000 30,000 30,000
Inventories 70,000 30,000 50,000
Land 100,000 50,000 60,000
Buildings - net 110,000 70,000 90,000
Equipment - net 80,000 40,000 30,000
Investment in Sarah 178,000 0
P650,00 P240,00
Total 0 0

Liabilities and Equity

P80,00
Accounts payable P90,000 P80,000 0
Other Liabilities 10,000 50,000 40,000
Capital stock, P10 par 500,000 100,000
Retained earnings 50,000 10,000
P650,00 P240,00
Total 0 0

Compute the consolidated total assets on January 1, 2008:

a. P712,000 b. P813,000 c. P818,000 d. P930,000

38. Using the same information in No. 37, compute the Minority Interest on January 1, 2008:
a. P33,000 b. P45,000 c. P48,000 d. P72,000

39. Gloria Corporation started operations on January 1, 2007 selling home appliance and furniture sets
both for cash and on installment basis. Data on the installment sales operations of the company
gathered for the years ending December 31, 2007 and 2008 where as follows :
2007 2008
Installment sales P400,000 P500,000
Cost of installment sales 240,000 350,000
Cash collected on installment sales:
2007 Installment Contracts 210,000 150,000
2008 Installment Contracts 300,000

Additional information:
 On January 5, 2009, and installment sale in 2007 was defaulted and the merchandise
with an appraised value of P5,000 was repossessed. Related installment receivable
balance on January 5, 2009 was P8,000.

The balance of Deferred Gross Profit on December 31, 2008 amounted to:
a. P130,000 b. P76,000 c. P16,000 d. P60,000
40. Garden Company had a beginning inventory of 6,000 units, 60% complete, and ending inventory
of 6,000 units, 80% complete. Transferred out 55,000 units. FIFO unit costs were P2.15 for
materials, P1.25 for conversion costs. All materials are added at the start of the process. Beginning
inventory costs P9,400. The cost of ending inventory is:
a. P18,900 b. P20,400 c. P34,000 d. P26,320

41. Kutchen Manufacturing uses backflush costing to account for an electronic meter it makes. During
August 2008, the firm produced 16,000 meters of which is sold 15,800. The standard cost for each
meter is:
Direct material P 20
Conversion costs 44
Total P 64
Assume that the company had no inventory on August 1. The following event took place in August:
1. Purchased P320,000 of direct materials.
2. Incurred P708,000 of conversion costs.
3. Applied P704,000 of conversion costs to Raw and In Process Inventory.
4. Finished 16,000 meters.
5. Sold 15,800 meters for P100 each.

Compute the Finished Goods, ending and the amount of Cost of Goods Sold after the adjustment of
over-under applied conversion cost:
Finished Goods, ending Cost of Goods Sold as adjusted
a. P–0- P1,015,200
b. P12,800 P1,011,200
c. P-0- P1,024,000
d. P12,800 P1,015,200

42. A 55%-owned subsidiary makes the following entry to record a sale of merchandise to its parent:
Accounts receivable…………………………………………..120,000
Sales revenue……………………………………………………………..120,000
All sales made by the subsidiary are at 125% of cost. One-third of this merchandise remains the
parent’s inventory at year-end. A working paper entry to eliminate unrealized profits from
consolidated inventory would include a credit to inventory in the amount of:
a. P24,000 b. P12,000 c. P8,000 d. P10,000

43. Clark Textiles Company manufactures various wood products that, yield sawdust as a by-product.
The only costs associated with the sawdust are selling costs of P6 per ton sold. The company
accounts for sales of sawdust by deducting sawdust’s net realizable value from the major product’s
cost of goods sold. Sawdust sales in 2008 were 12,000 tons at P40 each. If Clark Textiles changes
its method of accounting for sawdust sales to show the net realizable as other revenue (presented at
the bottom of the income statement), how would its gross margin and net income be affected?
Gross Profit Net Income
a. None None
b. P408,000 decrease P408,000 decrease
c. P408,000 increase None
d. P408,000 decrease None

44. Lisa Company makes fabric covered hat boxes. The company began August with 500 boxes in
process that were 100% complete as to cardboard, 80% complete as to cloth and 60% complete as
to conversion cost. During the month, 3,300 boxes were started. On August 31, 350 boxes were in
process (100% complete as to cardboard, 70% complete as to cloth, and 55% complete as to
conversion cost). Compute the equivalent units for cloth and conversion cost, under:
Average FIFO
 Clot Clot
h Conversion Cost h Conversion Cost
a. 3,29 3,69
5 3,642.50 5 3,642.50
b. 3,69 3,69
5 3,642.50 5 3,642.50
c. 3,29 3,29
5 3,342.50 5 3,342.50
d. 3,69 3,29
5 3,642.50 5 3,342.50

45. Sullivan Corporation’s direct labor costs for the month of March were as follows:

Standard direct labor hours…………………………………………………………. 42,000

Actual direct labor hours……………………………………………………………… 40,000
Direct labor rate variance – favorable………………………………………….P 8,400
Standard direct labor rate per hour…………………………………………….P 6.30

What was Sullivan’s total direct labor payroll for the month of March?
a. P243,600 b. P252,000 c. P264,600 d. P260,400

Items 46 and 47 are based on the following information:

Son is a 75% - owned subsidiary of Papa Corporation acquired at book value (also fair value) on
January 2, 2006. Comparative income statement for Papa and son for 2008 are as follows:

Papa Son
Net sales P500,000 P200,000
Cost of sales 300,000 120,000
Gross profit P200,000 P80,000
Operating expenses 60,000 30,000
Operating income P140,000 P50,000
Dividend income 37,500
Net income P177,500 P50,000

Additional information:
1. Son made sales to Papa of P60,000 in 2007 and P100,000 in 2008.
2. Papa’s inventories at December 31, 2007 and December 31, 2008 included merchandise on
which Son reported profit of P15,000 and P24,000 during 2007 and 2008, respectively.
3. Papa has not eliminated the effect of intercompany profits in accounting for its investment in
Son.

46. The Consolidated cost of sales for 2008 amounted to:

a. P420,000 b. P344,000 c. P329,000 d. P305,000

47. The profit attributable to equity holders of Parent for 2008 amounted to:
a. P170,750 b. P177,500 c. P188,750 d. P190,000

48. Cobb Company’s current receivables from affiliated companies at December 31, 2008 are:
 A P75,000 cash advance to Hill Corporation (Cobb owns 30% of the voting stock of Hill
and accounts for the investments in equity method),
 A receivable of P260,000 from Vick Corporation for administrative and selling services
(Vick is 100% owned by Cobb and is included in Cobb’s consolidated financial statement),
and
 A receivable of P200,000 from Ward Corporation for merchandise sales on credit (Ward is
90% - owned, unconsolidated subsidiary of Cobb accounted for by the equity method).
 In the current assets section of its December 31, 2008 consolidated balance sheet, Cobb should
report accounts receivable from investees in the amount of:
a. P180,000 b. P225,000 c. P265,000 d. P305,000

49. MM is trying to decide whether to accept a salary of P40,000 or a salary of P25,000 plus bonus of
10% of net income after salaries and bonus as a means of allocating profit among the partners.
Salaries traceable to the other partners are estimated to be P100,000. What amount of income
would be necessary so that MM would consider the choices to be equal?
a. P165,000 b. P290,000 c. P265,000 d. P305,000

50. Clark Company had the following transactions with affiliated parties during 2008:
• Sales of P60,000 to Dean, with P20,000 gross profit. Dean had P15,000 of this inventory on
hand at year-end. Clark owns a 15% interest in Dean and does not exert significant
influence.
• Purchases of raw materials totaling P240,000 from Kent Corporation, a wholly owned
subsidiary. Kent’s gross profit on the sale was P48,000. Clark had P60,000 of this inventory
remaining on December 31, 2008.

Before eliminating entries, Clark had consolidated current assets of 320,000. What amount should
Clark report in its December 31, 2008, consolidated balance sheet for current assets?
a. P320,000 b. P317,000 c. P308,000 d. P303,000

51. Agency 007 received a request for replenishment of petty cash fund for the following expenses:

Office supplies P500

Transportation fares 100
Repair of aircon 200
JRS mail 160

The entry for this transaction would be:

a. No entry

b. Memorandum entry to the RAOMO

c. Office supplies expense…………………………………………………. 500

Traveling expense…………………………………………………………… 100
Repairs and maintenance……………………………………………….. 200
Other maintenance and operating expenses…………………. 160
Cash – National Treasury, MDS………………………….. 960
d. Office supplies expense…………………………………………………. 500
Traveling expense…………………………………………………………… 100
Repairs and maintenance……………………………………………….. 200
Other maintenance and operating expenses…………………. 160
Petty cash Fund……………………..………………………….. 960
52. At December 31, 2008, Grey, Inc owned 90% of Win Corp., a consolidated subsidiary, and 20% of
Carr Corp., an investee ov3er which Grey cannot exercise significant influence. On the same date,
Grey had receivables of P300,000 from Winn and P200,000 from Carr. In its December 31, 2008
consolidated balance sheet, Grey should report accounts receivable from affiliates of:
a. P500,000 b. P340,000 c. P230,000 d. P200,000

Items 53 and 54 are based on the following information:

The income statement submitted by the Tarlac Branch to the Home Office for the month of December
31, 2008 follows:
Sales P600,000
Cost
of
Sales
:
Inve
ntory
,
Dece
mber
1, P80,
2008 000
Ship
ment
s
from
home
offic 350,0
e 00
Purc
hases
locall
y by
branc 30,00
h 0
P460
Total ,000
Inve
ntory
,
Dece
mber
31, 100,0
2008 00 360,000
Gros
s
marg
in P240,000
Oper
ating
expe
nses 180,000
P60,000
Net income for the month 0

The branch inventories consisted of:

12/1/2008 12/31/200
8
Merchandise from home office P 70,000 P 84,000
Local purchases 10,000 16,000
Total P80,000 P100,000

After affecting the necessary adjustments, the Home Office ascertained the true net income of the true
net income of the Branch to be P156,000.

53. At what percentage of cost did the Home Office bill the Branch for merchandise shipped to it?
a. 100% b. 120% c. 140% d. 150%

54. What is the balance of the Allowance for Overvaluation in the Branch Inventory at December 31,
2006?
a. P10,000 b. P16,000 c. P24,000 d. P34,000
55. Agency MMM paid the bill for the construction of the building as follows:
Accounts payable P5,950,000
Less: 10% retention (7,000,000 x 10%) 700,000
Withholding tax (7,000,000 x 10%) 700,000
Net amount P4,550,000

The entry to record this transaction would be:

a. Accounts payable ……………………………………………….. 5,950,000
Due to National Gov’t. Agency………………. 1,400,000
Cash – National Treasury, MDS …………….. 4,550,000

b. Accounts payable ………………………………………………. 4,550,000

Cash – National Treasury, MDS…………….. 4,550,000

c. Accounts payable………………………………………………. 5,950,000

Other payables…………………………………….. 700,000
Withholding tax payable………………………. 700,000
Cash-Disbursing officer………………………… 4,550,000

d. Accounts payable…………………………………………….. 5,950,000

Other payables…………………………………….. 700,000
Withholding tax payable………………………. 700,000
Cash – National Treasury, MDS…………… 4,550,000

56. An entity is trying to determine which assets and which liabilities are monetary and nonmonetary.
Which of the following assets or liabilities are nonmonetary?
a. Trade receivables c. Accrued expenses
b. Deferred tax liabilities d. Taxes payable

57. Agency DDD’s obligation for (3) years amounted to P90,000. The entry to record this transaction
would be:
a. Rent expense …………………………………………………. 90,000
Cash – national Treasury, MDS……………. 90,000

b. Prepaid Rent…………………………………………………….. 90,000

Cash – National Treasury, MDS…………… 90,000

c. Rent expense…………………………………………………… 30,000

Cash – National Treasury, MDS…………… 30,000

d. Memorandum entry in RAOMO

58. Property was purchased on December 31, 2004 for 20 million baht. The general price index in the
country was 60.1 on that date. On December 31, 2007, the general price index had risen to 240.4. if
the entity operates in a hyperinflationary economy, what would be the carrying amount in the
financial statements of the property after restatement?
a. 20 million baht c. 80 million baht
b. 1,200.2 million baht d. 4.808 million baht

59. St. Paul’s Hospital, a nonprofit hospital affiliated with St. Paul’s University had the following cash
receipts for the year ended December 31, 2008:

Collection of health care receivables………………………………………………..…………..

750,000
Contributions from donor establish a term endowment……………………………...
250,000
Tuition from nursing school……………………………………………………………….
………….. 50,000
Dividends received from investments in permanent endowment………………. 80,000
 The dividends received are restricted by the donor for hospital building improvements. No
improvements were made during 2008. On the hospital’s statement of cash flows for the year ended
December 31, 2004, what amount of these cash receipts would be included in the amount reported
for net cash provided (used) by operating activities?
a. P880,000 b. P800,000 c. P1,050,000 d. P750,000

60. On December 16, 2008, Gumamela Conrading sold flowers to a Venezuela firm. Payment of
1,000,000 Venezuela Bolivar is due on February 14, 2009. Concurrently, Gumamela Conrading
paid P4,000 cash to acquire a 60-day put option for 1,000,000 Venezuela Bolivar. Conrading
follows calendar basis of reporting.

12/16/2008 12/31/2008 2/14/2009

Spot rate (market price) P.16 P.15 P.147
Strike price (exercise price) .16 .16 .16
Fair value of call option P4,000 P13,300 P13,000

The December 31, 2008 net foreign exchange gain or loss amounted to:
a. P700 loss – equity c. P700 loss – current earnings
b. P1,000 loss – current earnings d. P700 gain – current earnings