Final Examination Advanced Accounting 1 & 2 Part I. Choose The Letter of The Best Answer. (1 Point Each)

FINAL EXAMINATION
ADVANCED ACCOUNTING 1 & 2
Part I. Choose the letter of the best answer. (1 point each)
1. Which of the following statements concerning partnership is true?
a. A partnership is a legal entity, separate and distinct from the individual partners.
b. Individual partners are jointly liable for the debts and obligations of a partnership.
c. Income tax is levied on the individual partners’ shares of the net income of a
partnership and is separated in their personal tax returns.
d. All of the above is true.
2. On July 1, 2016, Long and Short formed a partnership. Long contributed cash. Short,
previously a sole proprietor, contributed property other than cash, including realty
subject to a mortgage, which the partnership assumed. Short’s capital account of July 1,
2016, should be recorded at:
a. Short’s book value of the property at July 1, 2016.

b. Short’s book value of the property less mortgage payable at July 1, 2016.
c. The fair value of the property less the mortgage payable at July 1, 2016.
d. The fair value of the property at July 1, 2016.
3. On April 30, 2016, Apple, Berry and Cherry formed partnership by combining their
separate business proprietorships. Apple contributed P50,000 cash, Berry contributed
property with a P36,000 book value, a P40,000 original cost, and P80,000 fair value. The
partnership assumed the P35,000 mortgage attached to the property. Cherry contributed
equipment with a P30,000 carrying amount, a P75,000 original cost, and P55,000 fair
value. The partnership agreement specifies that profits and losses are shared equally
but is silent regarding capital contributions.
Which partner has the largest April 30, 2016, capital account balance?
a. Apple
b. Berry
c. Cherry
d. All capital account balances are equal.
4. A joint venture is:
a. An arrangement of which two or more parties have joint control

b. A contractual arrangement whereby two or more parties undertake an economic
activity which is subject to a joint control.
c. A business entity owned and jointly controlled by a small group of investors
organized for the mutual benefit of the ownership group.
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d. Short term associations of two or more parties to fulfill a specific project.
5. A joint arrangement whereby the parties that have joint control of the arrangement have
rights to the net assets of the arrangement.
a. Joint venture
b. Joint operation
c. Jointly controlled asset
d. Jointly controlled entity
6. Two entities enter into a contractual arrangement to exercise joint control of a property,
each taking a share of the rents received and bearing a share of the expenses. The
entities are the registered joint owners of the property.
The two entities have:
a. A jointly controlled asset

b. A jointly controlled operation
c. A jointly controlled entity
d. None of the above
7. Investments in jointly controlled entities must be tested for impairment, if the entity uses:
a. The cost model, equity model or fair value model

b. The cost model or the equity model
c. The cost model or the fair value model
d. The equity model or the fair value model
8. When is partnership legally insolvent?
a. When the partnership assets are insufficient to meet partnership liabilities.

b. When the partnership assets are insufficient to meet the partnership liabilities and at
least one partner is personally insolvent.
c. When all the partners are personally insolvent.
d. When the assets of the partnership plus the assets of all the partners are insufficient
to meet the partnership plus the individual partners’ liabilities.
9. In which order are partnership assets distributed to partners under the Partnership Law?
a. Capital balances, loans, profits

b. Loans, profits, capital balances
c. Loans, capital balances, profits
d. Profits, capital balances, loans
10. What is the rule of offset?
a. Receivables from partners should offset against their debit capital balances before
they receive any cash distributions.
b. Loans to partners should offset against their debit capital balances before they
receive any cash distributions.
c. Loans from partners should offset against their credit capital balances before they
d. Loans from partners should offset against their debit capital balances before they
11. If cash payments to partners of a partnership in liquidation are delayed until all noncash
assets have been realized, any cash remaining after all partnership creditors have been
paid is distributed:
a. According to the liquidator’s best judgment

b. In the ratio for sharing net income and losses
c. In the amounts equal to the partners’ loan and capital account balances
d. In some other manner
12. Under the cost recovery method, revenue is recognized until:
a. Collections are equal to the amount of cost of goods sold

b. Collections are more than the cost of goods sold
c. Collections are less than the cost of goods sold
d. The selling price is collected
13. Under this method, cash collection is regarded s partial recovery of cost and a partial
realization of profit
a. Cost recovery method

b. Gross profit realization method
c. Installment method
d. None of the above
14. At the time of repossession, repossessed merchandise is debited at its:
a. Original cost
b. Unrecovered cost
c. Fair value after reconditioning cost
d. Fair value before reconditioning cost
15. In the statement of financial position, deferred gross profit account is classified as:
a. Current asset
b. Deferred credits
c. Current liability
d. Long-term liability
16. In the cash distribution plan which partner gets the first cash distribution?
a. The partner with the largest loan balance

b. The partner with the largest loss absorption potential
c. The partner with the largest capital balance
d. The partner with the largest profit and loss ration
17. In calculating safe payments, you assume:
a. Partnership liabilities have been paid

b. No liquidation expenses will be paid
c. All non-cash assets are worthless
d. Cash on hand can be fully distributed
18. Assuming no loans from partners, how is a partners’ loss absorption potential
computed?
a. Multiply pre-liquidation capital balance by profit and loss ratio

b. Multiply pre-liquidation capital balance by fractional share of profits and losses
c. Divide pre-liquidation capital balance by profit and loss ratio
d. Divide profit and loss ration by pre-liquidation capital balance
19. The partnership contract provides that “net income or losses are to be distributed in the
ratio of partners’ capital account balances.” The appropriate interpretation of this
provision is that net income or losses should be distributed in:
a. The ratio of beginning capital account balances

b. The ratio of average capital account balances
c. The ratio of ending capital account balances
d. The ratio of original capital account balances
20. A partners’ withdrawal of assets from a partnership that is considered a permanent

reduction in that partners’ equity is debited to the partners’:
a. Drawing accounts
b. Retained earnings account
c. Capital account
d. Loan receivable account
21. If there is a provision for division of profits but not losses in the partnership agreement, it
is concluded that:
a. Losses should not be divided to the capital accounts, but matched against future
earnings.
b. Losses should be divided using the same approach as division of profits.
c. Losses should be divided equally.
d. Losses should be allocated according to the ratio of capital account balances.
22. If the partnership agreement provides for the division of losses only, profits should be
divided:
a. Equally
b. According to beginning capital ratio
c. According to ending capital ratio
d. According to average capital ratio
23. In accounting for a long term construction contract using the percentage of completion
method, the progress billings on contract account is a:
a. Contra current asset account

b. Contra non-current asset account
c. Non-current liability account
d. Revenue account
24. The computation of the income recognized in the second year of a four-year construction
contract which is accounted for using the percentage of completion method is based on
the:
a. Cumulative actual costs incurred only

b. Incremental cost for the second year only
c. Latest available estimated costs
d. Estimated costs at the inception of the contract
25. In computing the percentage of completion ratio under the cost to cost method, actual
costs incurred should exclude:
a. Costs of material used in construction

b. Costs of hiring equipment
c. Costs of design and technical assistance
d. Costs of material purchased in advance
26. The excess of Contract Billings over the Construction in Progress account is treated as:
a. Current liability
b. Current asset
c. Other asset
d. Non-current liability
27. Before the year of completion, under the percentage of completion method, the year-
end balance of the Construction in Progress account equal to:
a. Cost incurred to date

b. Cost incurred this year
c. Cost incurred to date plus gross profit earned to date
d. Gross profit earned to date
28. Which of the following conditions constitutes a legal dissolution of a partnership?
a. Death of a partner
b. Retirement of a partner
c. Admission of a partner
d. All of the above
29. When the investment of a new partner exceeds the new partners’ initial capital balance
and goodwill is not recorded, who will receive the bonus?
a. The new partner

b. The old partners in their old profit and loss ratio
c. The old partners in their new profit and loss ratio
d. The old and new partners in their new profit and loss ratio
30. When Jill retired from the partnership of Jill, Bill and Hill, the final settlement of her
interest exceeded her capital balance. Under the bonus method, the excess:
a. Was recorded as goodwill

b. Was recorded as an expense
c. Reduced the capital balances of Bill and Hill
d. Had no effect on the capital balances of Bill and Hill
Part II. Choose the letter of the best answer. Provide computations to support your answer.
(2 points each)
31. Swift Corporation, operates a number of branches in Metro Manila. On June 20, 2017,
its San Lorenzo branch showed a Home Office account balance of P27,350 and the
home office books showed a San Lorenzo branch account balance of P25,550. The
following information may help in reconciling both accounts:
 A P12,000 shipment, charged by home office to San Lorenzo branch, was

actually sent to and retained by Sto. Tomas branch.
 A P15,000 shipment, intended and charged to San Jose branch was shipped
to San Lorenzo branch and retained by the latter.
 A P2,000 emergency cash transfer from Sto. Tomas branch was not taken up
in the home office books.
 Home office collects a San Lorenzo branch accounts receivable of P3,600
and fails to notify the branch.
 Home office was charged for P1,200 for merchandise returned by San
Lorenzo branch on June 28. The merchandise is in transit.
Home office erroneously recorded San Lorenzo’s net income for May 2016 at P16,275.
The branch reported a net income of P12,675.
What is the reconciled amount of the home office and San Lorenzo branch reciprocal
accounts?
a. P21,750
b. P23,750
c. P27,350
d. P20,150
32. On September 30, 2016, Heat Computers consigned 30 apple computer units costing
P80,000 each to Abet, Inc. The units were to be sold on either cash or credit basis at a
commission of 15% of net sales. The consignor paid freight of P18,000 on the shipment.
On September 11, the consignee received the goods. Sales were made as follows:
 September 15: 10 units for cash at P130,000 each

 September 27: 12 units on account at P140,000 each
On September 30, 2016, a sales allowance of P20,000 was given to a charge customer
for a defective unit. On October 10, 2016, a receivable balance of P70,000 was
determined to be uncollectible. On October 11, 2016, the consignee made the proper
remittance.
The amount due from Abet, Inc. is:
a. P2,980,000
b. P2,890,000
c. P2,536,000
d. P2,446,000
33. Using the same information is No. 32, the consignment profit (loss) is:
a. P464,000
b. P484,000
c. P554,000
d. P672,800
34. The cost of inventory on consignment is:
a. P640,000
b. P644,800
c. P664,800
d. P708,000
35. On January 1, 2016 Entities A and B each acquired 30% of the ordinary shares that can
carry voting rights at a general meeting of shareholders of entity Z for P300,000. Entities
A and B immediately agreed to share control over entity Z. For the year ended
December 31, 2016, entity Z recognized a profit of P400,000.
On December 30, 2016, entity Z declared and paid a dividend of P150,000 for the year
2016. At December 31, 2016, the fair value of each venturer’s investment in entity Z is
P425,000. However, there is no published price quotation for entity Z.
Using cost model, Entities A and B must each recognize dividend income for the year
2016 amounting to:
a. Nil or zero
b. P45,00
c. P75,000
d. P120,000
36. The same information in No. 35, at December 31, 2016 the venturers must report their
Investments in Entity Z amounting to:
a. P400,000
b. P375,000
c. P300,000
d. P255,000
37. The same information in No. 35 and using equity method, Entities A and B share in
income of Entity Z amounting to:
a. Nil or zero
b. P45,000
c. P75,000
d. P120,000
38. The same information in No. 35 and using equity method, at December 31, 2016 Entities
A and B must each report their Investment in Entity Z amounting to:
a. P400,000
b. P375,000
c. P300,000
d. P255,000
39. The same information in No. 35 and using fair value model, Entities A and B must each
recognize dividend income for the year 2016 amounting to:
a. Nil or zero
b. P45,00
c. P75,000
d. P120,000
40. The same information in No. 35 and using fair value model, at December 31, 2016
Entities A and B must each report their Investment in Entity Z amounting to:
e. P425,000
f. P400,000
g. P300,000
h. P255,000
-END-
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FINAL EXAMINATION

ADVANCED ACCOUNTING 1 & 2

Part I. Choose the letter of the best answer. (1 point each)

1. Which of the following statements concerning partnership is true?

a. Short’s book value of the property at July 1, 2016.

4. A joint venture is:

a. An arrangement of which two or more parties have joint control

a. A jointly controlled asset

a. The cost model, equity model or fair value model

8. When is partnership legally insolvent?

a. When the partnership assets are insufficient to meet partnership liabilities.

a. Capital balances, loans, profits

a. According to the liquidator’s best judgment

12. Under the cost recovery method, revenue is recognized until:

a. Collections are equal to the amount of cost of goods sold

a. Cost recovery method

14. At the time of repossession, repossessed merchandise is debited at its:

a. The partner with the largest loan balance

17. In calculating safe payments, you assume:

a. Partnership liabilities have been paid

a. Multiply pre-liquidation capital balance by profit and loss ratio

a. The ratio of beginning capital account balances

20. A partners’ withdrawal of assets from a partnership that is considered a permanent

a. Contra current asset account

a. Cumulative actual costs incurred only

a. Costs of material used in construction

a. Cost incurred to date

28. Which of the following conditions constitutes a legal dissolution of a partnership?

a. The new partner

a. Was recorded as goodwill

 A P12,000 shipment, charged by home office to San Lorenzo branch, was

 September 15: 10 units for cash at P130,000 each

The amount due from Abet, Inc. is:

34. The cost of inventory on consignment is:

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