ReSA B43 AFAR First PB Exam Questions, Answers & Solutions

ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY
CPA Review Batch 43  May 2022 CPALE  12 Feb 2022  6:00 PM – 9:00 PM
ADVANCED FINANCIAL ACCOUNTING & REPORTING FIRST PRE-BOARD EXAMINATION
INSTRUCTIONS: Select the correct answer for each of the questions. Mark only one
answer for each item by shading the box corresponding to the letter of your choice on
the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use pencil no. 2 only.
Items 1 to 5 are based on the following information:

In 2022, DJD Builders Construction began work on a three-year construction project to
build a new performing arts complex (the PAC). The PAC contract price is P150 million.
DJD Builders recognizes revenue on this contract over time according to percentage of
completion. At the end of 2022, the following financial statement information indicates
the results to date for the PAC (missing items denoted by letter):
Income Statement/Statement of Comprehensive Income:
Revenue P (w) million
Cost of construction __ 35 million
Gross profit P (x) million
Balance Sheet/Statement of Financial Position:

Accounts receivable from construction billings P 14 million
Construction in progress P 50 million
Less: Billings on construction __ (y)million
Net billings in excess of construction in
progress P (z)million
Statement of Cash Flow:

Cash collections P 46 million
Compute the following:

1. Total revenue recognized during 2022 (w):
B a. P 35 million
b. P 50 million
c. P100 million
d. P150 million
2. Gross profit recognized during 2022 (x):

A a. P 15 million
b. P 35 million
c. P 46 million
d. P 50 million
3. Billings on construction (y):

D a. P 14 million
b. P 46 million
c. P 50 million
d. P 60 million
4. Net billings in excess of construction in progress (z):

A a. P 10 million
b. P 15 million
c. P 50 million
d. P 60 million
5. Calculate the percentage of PAC that was completed during 2019:

B a. Zero
b. 33 1/3%
c. 65 %
d. 76 1/3%
Items 6 and 7 are based on the following information:

On May 15, 2022, Atlas Sales Company received a shipment of merchandise with a selling
price of P15,000 from Philco Company. The consignment agreement provided for a sale of
merchandise with a credit with terms of 2/10 n/30. The commission of 15% was to be
based on the accounts receivable
collected by the consignee. Cash discounts taken by customers, expenses applicable to
goods on consignment and any cash advanced to the consignor were deductible from the
remittance by the consignee.
Page 1 of 22 0915-2303213  [email protected]

ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 43 - May 2022 CPALE Batch
12 Feb 2022  6:00 PM to 9:00 PM AFAR First Pre-Board Exam
Atlas Sales Company advanced P6,000 to Philco Company upon receipt of the shipment.
Expenses of P800 were paid by Atlas. By June, 2022, 70% of the shipment had been sold,
and 80% of the resulting accounts receivable had been collected, all within the discount
period. Remittance of the amount due was made on June 30, 2022.
The consigned goods cost Philco Company P10,000 and freight charges of P120 had been
paid to ship it to Atlas Sales Company.
6. The cash remitted by Atlas Sales Company

A a. P172
b. P340
c. P2,230
d. P2,340
7. The cost of inventory on consignment amounted to:

C a. P1,500
b. P3,000
c. P3,036
d. P3,186
Use the following information for 8 to 10:

Netcom acquires all the assets of P570,000,000 and liabilities amounting to
P100,000,000 of Unicom by issuing 25,000,00 shares of no-par common stock valued at
P400,000,000 plus cash of P50,000,000 and records the acquisition as a statutory merger
acquisition. Included in the agreement is a contingency guaranteeing the former
shareholders of Unicom that Netcom's shares will be worth at least P350,000,000 after
one year. If not, Unicom will issue additional shares to bring the total value of
shares issued to P350,000,000. This contingency is valued at P20,000,000 at the date
of acquisition. At the end of the first year following the acquisition, the 25,000,000
shares of Netcom's stock held by the former shareholders of Unicom are worth P12/share.
8. The Netcom’s journal entry to initially record the acquisition.

B a. Investment in S. . . . . . . . . . . . . . . 470,000,000
Common stock . . . . . . . . . . . . . . 400,000,000
Cash . . . . . . . . . . . . . . . . . . 50,000,000
PIC – stock contingency. . . . . . . . . 20,000,000
b. Assets. . . . . . . . . . . . . . . . . . . 570,000,000
Liabilities . . . . . . . . . . . . . . 100,000,000
Common stock . . . . . . . . . . . . . . 400,000,000
Cash . . . . . . . . . . . . . . . . . . 50,000,000
PIC – stock contingency . . . . . . . . 20,000,000
c. Loss on stock contingency . . . . . . . . . 470,000,000
Common stock .. . . . . . . . . . . . . 400,000,000
Cash . . . . . . . . . . . . . . . . . . 50,000,000
PIC – stock contingency . . . . . . . . 20,000,000
d. No entry required.
9. How many additional shares must Netcom subsequently issue to the former
shareholders of Unicom?
B a. P25,000,000
b. P 4,166,667
c. 2,083,333
d. No additional shares
10. The Netcom’s journal entry to record the issuance of the additional shares in
the previous number should be:
C a. Loss on stock contingency. . . . . . . . . . 50,000,000
Common stock . . . . . . . . . . . . . . 50,000,000
b. PIC – stock contingency . . . . . . . . . . 20,000,000
Loss on stock contingency. . . . . . . . . . 30,000,000
Common stock . . . . . . . . . . . . . . 50,000,000
c. PIC – stock contingency. . . . . . . . . . . 20,000,000
PIC – others. . . . . . . . . . . . . . . . 30,000,000
Common Stock . . . . . . . . . . . . . . 50,000,000

11. The partnership of Dana, Elsie, Fe, and Gloria is being liquidated over the first
few months of 2022. The trial balance at January 1, 2022 is as follows:
Debits Credits
Cash P 200,000
Accounts receivable 56,000
Inventory 142,000
Equipment – net 300,000
Land 150,000
Loan to Dana 20,000
Accounts payable P 400,000
Dana, capital – 20% 170,000
Elsie, capital – 10% 80,000
Fe, capital – 50% 140,000
Gloria, capital – 20% _________ ___78,000
P 868,000 P 868,000
Additional information:
1. The partners agree to retain P20,000 cash on hand for contingencies and
distribute the rest of the available cash at the end of each month.
2. In January, half of the receivables were collected. Inventory that cost
P75,000 was liquidated for P45,000. The land was sold for P250,000.
3. The accounts payable was liquidated.
How much will each partner receive for the month of January 2022?
C a. Dana, P68,000; Elsie, P39,000; Fe, P -0-; Gloria, P -0-
b. Dana, P81,000; Elsie, P45,500; Fe, P -0-; Gloria, P 9,000
c. Dana, P65,333; Elsie, P37,667; Fe, P -0-; Gloria, P -0-
d. Dana, P103,000; Elsie, P -0-; Fe, P -0-; Gloria, P -0-
12. On July 1, 2022, Sayonara Company has the following balance sheet:
Assets Liabilities and Capital
Cash……………………………… P 20,400 Accounts Payable………………………………… P 38,400
Other Assets………… 219,600 Due to Palmer………………………………………… 14,400
Other liabilities……………………………… 84,000
Palmer, capital–50%……………………… 28,800
Larsen – 50%…………………………………………… 74,400
As of July 1, 2022, the partners have personal net worth as follows:
Palmer Larsen
Assets………………………………………… P 62,400 P 91,200
Liabilities…………………………… 56,400 122,400
The personal net worth of each partner does not include amounts due to or from the
partnership. Assume the other assets are sold for P123,600 after incurring
liquidation expenses of P4,800. How much should Larsen receive?
B a. P -0-
b. 22,800
c. 24,000
d. 16,800
13. Lipton Company had an agency in Antipolo. For the period just ended, the agency
transactions showed the following:
Receipt from sales . . . . . . . . . . . . . . . P350,000
Disbursements:
Purchases . . . . . . . . . . . . . . . . . 400,000
Salaries and commissions . . . . . . . . . . 70,000
Rent . . . . . . . . . . . . . . . . . . . . 20,000
Advertising supplies . . . . . . . . . . . . 10,000
Other expenses . . . . . . . . . . . . . . . 5,000
The agency had P 100,000 receivables and P 50,000 payables as of the end of the
period. Also, there were inventories on hand of P 90,000 and unused advertising
supplies of P 6,000. The agency was set up as an experiment for one period and
would be closed if losses were incurred. The agency should:

C a. Review again because it was a break even operation.
b. Close with the period’s operational loss of P 155,000.
c. Close with the period’s operational loss of P 9,000.
d. Continue with the period’s profit of P 25,000.
14. Amounts related to the statement of affairs of Windup Company, in bankruptcy
liquidation as of April 1, 2022, were as follows:
Assets pledged for fully secured liabilities……………………………P 80,000
Assets pledged for partially secured liabilities………………… 50,000
Free assets…………………………………………………………………………………………………………………… 272,000
Fully secured liabilities……………………………………………………………………………… 60,000
Partially secured liabilities…………………………………………………………………… 80,000
Unsecured liabilities with priority………………………………………………… 40,000
Unsecured liabilities without priority…………………………………………… 330,000
Compute the total estimated deficiency to unsecured creditors:
C a. P78,000
b. P90,000
c. P108,000
d. P158,000
15. Using the same information in No. 14, compute the cost per peso that unsecured
creditors may expect to receive from Windup Company:
B a. P.61
b. P.70
c. P.76
d. P.81
Items 16 through 18 are based on the following information:
Rome Corporation has one branch office, named Timber Branch. Rome is performing the
end-of-the-period reconciliation. The following items are unsettled at the end of the
accounting period (you may assume that the item has been reflected in the accounts of
the underlined entity):
(1) Rome has agreed to remove P750 of excess freight charges charged to Timber when
Rome shipped twice as much inventory as Timber requested.
(2) Timber mailed a check for P11,000 to Rome as a payment for merchandise shipped
from Rome to Timber. Rome has not yet received the check.
(3) Timber returned defective merchandise to Rome. The merchandise was billed to
Timber at P4,000 when its actual cost was P3,000.
(4) Advertising expenses attributable to the branch office was paid for by the home
office in the amount of P5,000.
16. Which of the following statements is correct:
D a. The Home Office account in Timber’s books is decreased for the P11,000
of cash in transit and is decreased for the P750 of excess freight
charges.
b. The Home Office account in Timber’s books is decreased for the P5,000
of advertising expense and decreased for the P750 of excess freight
charges.
c. The Home Office account in Timber’s books is increased for the P11,000
of cash payment to Rome and decreased by P4,000 for the billed cost
of the defective merchandise inventory.
d. The Home Office account in Timber’s books is decreased for the P750
of excessive freight charges and increased by the P5,000 of the
advertising expenditure.
17. Which of the following statements is correct:
C a. The Timber Branch account on Rome’s books is decreased for the P11,000
charges.
b. The Timber Branch account on Rome’s books is decreased for the P11,000
charges.
c. The Timber Branch account on Rome’s books is decreased for the P11,000
of cash in transit and is decreased for the P4,000 billed cost of the
defective merchandise.
d. The Timber Branch account on Rome’s books is increased for the P11,000
of cash in transit and is decreased for the P5,000 of allocated
advertising costs

18. If the adjusted balances for the Timber Branch Account and the Rome Home Office
accounts is P500,000, what unadjusted balance was listed in Rome’s Timber Branch
Account?
A a. P515,000
b. P510,250
c. P514,000
d. P504,000
19. Partners DD, EE, FF, and GG share profits 50%, 30%, 10% and 10%, respectively.
Accounts maintained with partners just prior to liquidation were as follows:
Advances Loans Capitals

(Dr. Balances) (Cr. Balances) (Cr. Balances)
DD P 5,000 P 40,000
EE 10,000 30,000
FF P 4,500 15,000
GG 2,500 25,000
At this point, cash of P18,000 is available for distribution to the partners.

How much of the P18,000 cash should be distributed to each partner?
D a. DD, P9,000; EE, P 5,400; FF, P1,800; GG, P 1,800
b. DD, P -0- ; EE, P18,000; FF, -0- ; GG, P -0-
c. DD, P -0- ; EE, -0-; FF, -0- ; GG, P 18,000
d. DD, P -0- ; EE, P 6,625; FF, -0- ; GG, P 11,375
20. The partnership of Monte and Carlo has the following provisions:
1. Monte, who is primarily responsible for obtaining new clients, is to receive
a 30% bonus on revenues in excess of P200,000.
2. Carlo, who is primarily responsible for administration, is to receive a 30%
bonus on profits in excess of 50% of revenues, as reflected in the general
ledger.
3. All remaining profits or losses are to be divided equally.
Revenues for the year P280,000
Operating expenses 120,000
The share of partner Monte in the net income should be:

B a. P92,000
b. P89,000
c. P71,000
d. P57,000
21. Cord and Stringer are partners who share profits and losses in the ratio of 3:2,
respectively. On August 31, 2022 their capital accounts are as follows:
Cord P70,000
Stringer 60,000
On that date, they agree to admit Twiner as a partner with a one-third interest
in the capital and profits and losses, for an investment of P50,000. The new
partnership will begin with a total capital of P180,000.
The capital balance of Cord after the admission of Twiner should be:
B a. P56,000
b. P64,000
c. P70,000
d. P76,000
22. On June 30, 2022, the balance sheet of the Oakley, Pine, and Woods partnership,
together with their respective profits and loss ratios was as follows:
Assets, at cost P180,000

Oakley, loan 9,000
Capital, Oakley (20%) 42,000
Capital, Pine (20%) 39,000
Capital, Woods (60%) 90,000

Oakley has decided to retire from the partnership. By mutual agreement, the
assets are to be adjusted to their current value of P216,000 and the partnership
is to pay Oakley P61,200 for her partnership interest, including her loan, which
is to be repaid in full.
Assuming that goodwill is not to be recorded on the partnership’s books, the
capital balance of Pine after the retirement of Oakley should be:
C a. P36,750
b. P38,250
c. P45,450
d. P49,200
Use the following for items 23, 24, and 25:

At the end of its fiscal year on June 30, 2022, the Ritz, Sally, and Tracy Partnership
had account balances as follows:
Cash P 20,000 Accounts payable P 35,000
Accounts receivable 30,000 Loan from Sally 25,000
Inventories 70,000 Ritz, capital (20%) 70,000
Plant assets, net 60,000 Sally, capital (30%) 50,000
Loan to Ritz __30,000 Tracy, capital (50%) __30,000
Total Assets P210,000 Total Liab. & Equity P210,000
The percentages shown are the residual profit sharing ratios. Tracy also gets a P12,000
annual salary allowance. The partners dissolved the partnership on July 1, 2022 and
began the liquidation process. During July the following events occurred:
• Receivables of P15,000 were collected.
• The inventory was sold for P20,000.
• All available cash was distributed on July 31, except for P10,000 of expected
expenses.
23. The book value of the partnership equity/interest (i.e., total equity/interest
of the partners) on June 30, 2022 is:
C a. P210,000
b. P150,000
c. P145,000
d. P120,000
24. The cash available for distribution to partners on July 31, 2022 is:
D a. P55,000
b. P35,000
c. P20,000
d. P10,000
25. Without bias on your part, assume that the cash available for distribution to
partners on July 31, 2022 is P10,000. Under this assumption Sally should receive:
A a. P10,000
b. P 6,000
c. P 3,000
d. Amount cannot be determined
26. Ann, Bee, and Kay are in the process of liquidating their partnership. Kay has
agreed to accept the inventories as part of her settlement. The inventories have
a fair value of P60,000 and a book value of P80,000. Account balances and profit
and loss sharing ratios are summarized as follows:
Cash P 198,000 Accounts payable P 149,000
Inventories 80,000 Ann, capital (40%) 79,000
Plant assets, net 230,000 Bee, capital (40%) 140,000
_________ Kay, capital (20%) 140,000
Total Assets P 508,000 Total Liab. & Equity P 508,000
If the partners agree to distribute the available cash:

A a. Kay will receive P23,000 of the cash distribution.
b. Bee will receive P40,667 of the cash distribution.
c. Immediately after the cash distribution of cash and inventory items,
Kay’s capital account balance will be P59,000.
d. Immediately after the cash distribution of cash and inventory items,
Kay’s capital account balance will be P30,000.
27. Which of the following procedures are acceptable for dealing with the negative
balance in a partner’s capital account during liquidation:
D a. The partner with the negative capital balance can contribute assets
to the partnership sufficient to bring the capital account up to
zero.
b. If the partner with the negative capital balance is personally
insolvent; the negative capital balance may be absorbed by those
partners having a positive capital balance according to the profit
and loss sharing ratios applying to all the partners.
c. If the partner with the negative capital balance is personally
insolvent, the negative capital balance may be absorbed by those
partners having a positive capital according to the profit and loss
sharing ratios applying to those partners having positive balances.
d. A and C are acceptable choices.
e. A, B, and C are acceptable.
28. What is the difference between the terms “the partners’ equity (or interest)
balances” and the partners’ capital account balances?”
D a. There is no difference in the terms; they can be used interchangeably.
b. The term “partners’ equity (or interest)” is the sum of the individual
partner’s capital accounts.
c. The term “partners’ equity (or interest)” is the sum of the individual
partner’s capital accounts as increased by partnership loans made to
the partner and reduced by a partner’s loans to the partnership.
d. The term “partners’ equity (or interest)” is the sum of the individual
partner’s capital accounts as decreased by partnership loans made to
the partner and increased by a partner’s loans to the partnership.
29. Patterson Company acquiring the net assets of Sheila Company by issuing 100,000
of its P1 par value shares of common stock. The shares have fair value of P15
each. Just prior to the acquisition, Sheila’s balance sheet was as follows:
Sheila Company
Balance Sheet
January 1, 2022
Assets Liabilities and Equity

Accounts receivable P100,000 Current liabilities . . P80,000
Inventory . . . . . 210,000 Bonds payable . . . . . 200,000 P280,000
Equipment (net) . . 100,000 Stockholders' equity:
Land . . . . . . . 200,000 Common stock (P1 par) P10,000
Building (net) . . 300,000 Retained earnings . . 620,000 630,000
Total liabilities and
Total assets . . . P910,000 equity . . . . . P910,000
Fair values agree with book value except for the building, which is appraised at
P450,000. The following additional information is available:
• The equipment will be sold for an estimated price of P80,000. A 10% commission
will be paid to a broker.
• A major R&D project is underway. The accumulated costs are P56,000, and the
estimated value of the work is P90,000.
• A warranty attaches to products sold in the past. The estimated future repair
costs under the warranty are P30,000.
• Sheila has a customer list that has value. It is estimated that the asset such
as this is valued at a 20% rate of return. The present value amounted to P210,650.
Determine the excess of total cost over fair value of net assets acquired (or
goodwill):
C a. P -0-
b. P469,350
c. P477,350
d. P519,350

30. Norton Corporation has agreed to acquire the net assets of Payco Corporation.
Just prior to the acquisition, Payco’s balance sheet was as follows:
Assets Liabilities and Equity

Accounts receivable P200,000 Current liabilities . P80,000
Inventory . . . . . 270,000 Bonds payable. . . . . 250,000 P330,000
Equipment (net) . . 100,000 Stockholders' equity:
Common stock (P1
par). . . . . P100,000
Retained earnings . . 140,000 240,000
Total liabilities and
Total assets . . . P570,000 equity. . . . . P570,000
Fair values agree with book values except for the equipment, which has an estimated
fair value of P40,000. Also, it has been determined that brand-name copyrights have
an estimated value of P15,000. Norton Corporation paid P25,000 in acquisition costs
to consummate the transaction.
The cash paid to acquire Payco Corporation was P160,000.
The gain on acquisition amounted to:

A a. P35,000
b. P20,000
c. P10,000
d. No gain
31. Trial balances for the home office and the branch of the Tony Co. show the
following accounts before adjustment, on December 31, 2022. The home office
policy of billing the branch for merchandise is 20% above cost.
Home
office Branch
Unrealized intercompany inventory profit P 10,800
Shipments to branch 24,000
Purchase (outsiders) P 7,500
Shipments from home office 28,800
Merchandise inventory, December 1, 2021 45,000
What part of the branch inventory as of December 1, 2022 represent purchases from
outsiders and what part represents goods acquired from the home office?
Outsiders Home Office
D a. P 12,000 P33,000
b. 16,500 28,500
c. 15,000 30,000
d. 9,000 36,000
Use the following information for 32 and 33:

Ping Company acquires all of Sun Corp. in an asset acquisition. Ping paid P1,000,000
more than Sun's book value, and this excess was attributed entirely to goodwill, as
all of Sun's assets and liabilities were carried at amounts equivalent to fair value.
At the time of the combination, a lawsuit was pending against Sun, which Sun had not
recorded on its books. It was felt at the time that Sun would win the lawsuit, so no
provision for it was made when Ping recorded the asset acquisition.
32. Six months after the acquisition, new information reveals that the expected
value of the lawsuit at the date of acquisition was P400,000. The appropriate
entry on Ping's books to record this new information.
C a. Retained earnings. . . . . . . . . . . . . . 400,000
Estimated lawsuit liability. . . . . . . 400,000
b. Loss on lawsuit. . . . . . . . . . . . . . . 400,000
c. Goodwill. . . . . . . . . . . . . . . . . . 400,000

33. Assume the same information as above, except that the value change is a result
of events occurring subsequent to acquisition. The appropriate entry on Ping's
books to record the new information.
B a. Retained earnings. . . . . . . . . . . . . . 400,000
b. Loss on lawsuit. . . . . . . . . . . . . . . 400,000
c. Goodwill. . . . . . . . . . . . . . . . . . 400,000
Items 34 through 36 are based on the following information:
DJ pays P5,000,000 in cash and issues 50,000 shares of stock with a par value of
P10/share and fair value of P40/share to acquire Builder’s assets and liabilities on
January 1, 2022. Balance sheets just prior to the acquisition are as follows:
DJ Builders
Book value Book value Fair value
Current assets P 7,000,000 P 1,000,000 P2,100,000
Property, plant & equipment, net 55,000,000 5,000,000 3,000,000
Identifiable intangible assets ____400,000 __2,000,000 7,000,000
Total assets P62,400,000 P 8,000,000
Current liabilities P 6,500,000 P 800,000 P1,000,000

Long-term debt 30,000,000 6,000,000 5,800,000
Common stock, par value 200,000 700,000
Additional paid-in capital 22,000,000 1,800,000
Retained earnings 4,000,000 4,000,000
Accumulated other comprehensive income 100,000 ( 500,000)
Treasury stock (_400,000) (4,800,000)
Total liabilities & equity P62,400,000 P 8,000,000
DJ’s consultants find these items that are not reported on Builder’s balance sheet:
Fair value
Potential contracts with new customers P 300,000
Advanced production technology 170,000
Future cost savings 100,000
Contractual obligations – long-term warranties 280,000
Non-competition agreements 70,000
Customer relationships – not contractual 100,000
Customer contract 50,000
Recent favorable press reports on a consulting firm 30,000
Long-time customer relationships 40,000
Outside consultants are paid P400,000 in cash, and registration fees to issue the new
stock are P200,000. To sweeten the deal, DJ agrees to pay the former shareholders of
Builders an additional cash amount of P4,000,000 million at the end of 2023 that
depends on the 2022-23 reported net income of Builders. DJ believes there is a 25%
chance that this payment will have to be made, and the appropriate discount rate for
the earn-out is 20% (present value factor of P1 @ 20% = .69444).
34. The total assets after the acquisition:

C a. P70,400,000
b. P71,284,440
c. P71,574,440
d. None of the above
35. The total liabilities after the acquisition:

B a. P43,300,000
b. P44,274,440
c. P44,554,440
36. The stockholders’/shareholders/equity holders of DJ after the acquisition:
B a. P25,900,000
b. P27,300,000
c. P27,900,000

37. Treadway Corporation acquires Hooker, Inc. The parent pays more for it than the
fair value of the subsidiary’s net assets. On the acquisition date, Treadway has
equipment with a book value of P420,000 and a fair value of P530,000. Hooker has
equipment with a book value of P330,000 and a fair value of P390,000. Hooker is
going to use push-down accounting. Immediately after the acquisition, what
amounts in the Equipment account appear on Hooker’s separate balance sheet and
on the consolidated balance sheet?
C a. P330,000 and P750,000
b. P330,000 and P860,000
c. P390,000 and P810,000
d. P390,000 and P920,000
Use the following information for questions 38 to 42:
On January 1, 2022, Park Corporation and Strand Corporation and their condensed balance
sheet are as follows:
Park Strand
Corp. Corp.
Current Assets . . . . . . . . . . . . . .P . 70,000 P 20,000
Non-current Assets . . . . . . . . . . . . . 90,000 40,000
Total Assets . . . . . . . . . . . . . . .P .160,000 P 60,000
Current Liabilities . . . . . . . . . . . P. 30,000 P 10,000

Long-term Debt . . . . . . . . . . . . . . . 50,000 -
Stockholders’ Equity . . . . . . . . . . . . 80,000 50,000
Total Liabilities and Equities . . . . . .P .160,000 P 60,000
On January 2, 2022, Park Corporation borrowed P60,000 and used the proceeds to obtain
80% of the outstanding common shares of Strand Corporation. The P60,000 debt is payable
in 10 equal annual principal payments, plus interest, beginning December 31, 2022. The
excess fair value of the investment over the underlying book value of the acquired net
assets is allocated to inventory (60%) and to goodwill (40%).
On a consolidated balance sheet as of January 2, 2022, what should be the amount for
each of the following?
38. The amount of goodwill using (1) proportionate basis (partial) and (2) full
fair value (full/gross-up) basis:
B a. (1) P 0; (2) P0
b. (1) P 8,000; (2) P10,000
c. (1) P10,000; (2) P 8,000
d. (1) P 0; (2) P20,000
39. Assuming NCI is measured at fair value, total Current assets should be:
A a. P105,000
b. P102,000
c. P100,000
d. P 90,000
40. Non-current asset using (1) proportionate basis (partial) and (2) full fair
value basis (full/gross-up) in computing goodwill should be:
C a. (1) P130,000; (2) P130,000
b. (1) P138,000; (2) P138,000
c. (1) P138,000; (2) P140,000
d. (1) P140,000; (2) P140,000
41. (1) Current liabilities and (2) non-current liabilities should be:
B a. (1) P50,000; (2) P110,000
b. (1) P46,000; (2) P104,000
c. (1) P40,000; (2) P104,000
d. (1) P46,000; (2) P 90,000
42. Stockholders’ equity using (1) proportionate basis (partial) and (2) full fair
value basis (full/gross-up) basis of determine non-controlling interest should
be:
B a. (1) P80,000; (2) P 95,000
b. (1) P93,000; (2) P 95,000
c. (1) P93,000; (2) P93,000
d. (1) P95,000; (2) P95,000
43. Anselmo Company operates retail hobby shops from the main store and a branch
store. Merchandise is shipped from the main store and to the branch and billed
to the branch at an arbitrary 10% markup. Trial balances of the main store and
branch as of December 31, 2022 are as follows:
Main Store Branch
Debits:
Cash . . . . . . . . . . . . . . . . . . . .P . 1,500 P 1,000
Accounts receivable – net . . . . . . . . . . 200 -
Inventory, December 31, 2022 . . . . . . . . . 3,500 2,500
Building – net . . . . . . . . . . . . . . . . 60,000 18,000
Equipment – net . . . . . . . . . . . . . . . 30,000 12,000
Branch store . . . . . . . . . . . . . . . . . 32,300 -
Purchases . . . . . . . . . . . . . . . . . . 240,000 11,000
Shipments from home office . . . . . . . . . . - 99,000
Other expenses . . . . . . . . . . . . . . . . 15,000 7,000
Total debits . . . . . . . . . . . . . . . . P. 382,500 P 150,500
Credits:
Accounts payable . . . . . . . . . . . .P 15,000 P 500
Unrealized inventory profit . . . . . . . 9,200 -
Main Store . . . . . . . . . . . . . . . - 30,000
Capital stock . . . . . . . . . . . . . . 50,000 -
Retained earnings . . . . . . . . . . . . 16,000 -
Sales . . . . . . . . . . . . . . . . . . 200,000 120,000
Shipments to branch . . . . . . . . . . . 90,000 -
Profit from branch . . . . . . . . . . . ____2,300 _________
Total credits . . . . . . . . . . . . . .P 382,500 P 150,500
Inventories on hand at December 31, 2022 at the main store and branch are P3,000
and P1,800, respectively. The December 31, 2021 branch inventory includes
merchandise purchased from outsiders of P300, and the December 31, 2022 branch
inventory includes P150 of merchandise purchased from outsiders. The combined
cost of goods sold amounted to:
D a. P 261,200
b. P 252,200
c. P 243,150
d. P 252,150
Items 44 and 45 are based on the following information:

On January 1, 2022, Lesley Benjamin signed an agreement (covering 5 years) to operate
as a franchisee of Campbell Inc. for an initial franchise fee of P50,000. The amount
of P10,000 was paid when the agreement was signed, and the balance is payable in five
annual payments of P8,000 each, beginning January 1, 2023. The agreement provides that
the down payment is non-refundable and that no future services are required of the
franchisor once the franchise commences operations on April 1, 2022. Lesley Benjamin’s
credit rating indicates that she can borrow money at 11% for a loan of this type.
For Campbell’s 2022-related revenue for this franchise arrangement, assuming that in
addition to the franchise rights, Campbell also provides 1 year of operational
consulting and training services, beginning on the signing date. These services have
a value of P3,600.
44. The amount of franchise revenue on January 1, 2022 assuming that Campbell must
provide services to Benjamin throughout the franchise period to maintain the
franchise value.
A a. Zero.
b. P10,433
c. P39,567
d. P50,000
45. In relation to No. 44, the amount of franchise revenue on December 31, 2022:
B a. Zero.
b. P7,913
c. P39,567
d. P50,000

46. On March 1, 2022, Giordano Company enters into a contract to transfer a product
to Hotter on July 31, 2022. The contract is structured such that Warmer is
required to pay the full contract price of P57,000 on August 31, 2022. The cost
of the goods transferred is P34,200. Giordano delivers the product to Hotter on
July 31, 2022. The contract exists on:
B a. March 1, 2022
b. July 31, 2022
c. August 31, 2022
d. Incomplete data
47. Meyer & Smith is a full-service technology company. They provide equipment, and
installation services as well as training. Customers can purchase any product or
service separately or as a bundled package. Container Corporation purchased
computer equipment, installation and training for a total cost of P120,000 on
March 15, 2022. Estimated standalone fair values of the equipment, installation,
and training are P75,000, P50,000, and P25,000 respectively. The transaction
price allocated to equipment, installation and training:
D a. P75,000, P50,000, P25,000 respectively
b. P40,000, P40,000, P40,000 respectively
c. P120,000 for the entire bundle
d. P60,000, P40,000 and P20,000 respectively
48. On July 31, O’Malley Company contracted to have two products built by Taylor
Manufacturing for a total of P185,000. The contract specifies that payment will
only occur after both products have been transferred to O’Malley Company.
O’Malley determines that the standalone prices are P100,000 for Product 1 and
P85,000 for Product 2. On August 1, when Product 1 has been transferred, the
journal entry to record this event include a:
D a. debit to Accounts Receivable for P100,000
b. debit to Accounts Receivable for P85,000
c. debit to Contract Assets for P85,000
d. debit to Contract Assets for P100,000
49. On January 1, Joey enters into a contract with Althea for the sale of an excavator
with unique specifications. Joey and Althea develop the specifications and Joey
contracts with a construction equipment manufacturer to produce the equipment.
The manufacturer will deliver the equipment to Althea when it is completed Joey
agrees to pay the manufacturer P42,000,000 upon delivery of the excavator to
Althea. Anderson and Althea agree to a selling price of P46,200,000 that will be
paid by Althea to Joey. Joey’s profit is P4,200,000 Joey’s contract with Althea
requires Althea to seek remedies for defects from the manufacturer, but Joey is
responsible for any corrections due to errors in specifications. The role of
Joey is a:
B a. Customer
b. Principal
c. Agent
d. No agreement at all
50. Maybelle Paulino Computers manufactures and sells computers that include a
warranty to make good on any defect in its computers for 150 days (often referred
to as an assurance warranty). In addition, it sells separately an extended
warranty, which provides protection from defects for three years beyond the 150
days (often referred to as a service warranty). How many performance obligations
are in the contract?
C a. 0
b. 1
c. 2
d. 3
Use the following information for questions 51 and 52: Variable Consideration
Billy Biotech enters into a licensing agreement with Paul Pharmaceutical for a drug
under development. Billy will receive a payment of P20,000,000 if the drug receives a
regulatory approval. Based on prior experience in the drug-approval process, Billy
determines it is 90% likely that the drug will gain approval and a 10% chance of
denial. Assuming that regulatory approval was granted on December 20, 2022, and that
Billy received the payment from Paul on January 15, 2023.

51. Determine the transaction price of the arrangement for Billy Biotech:
C a. Nil
b. P18,000,000
c. P20,000,000
d. No transaction at all
52. On December 20, 2022, license revenue amounted to
A a. Nil
b. P18,000,000
c. P20,000,000
d. No transaction at all
53. Horizontal business combinations occur when one entity purchases which of the
following?
C a. A supplier
b. A customer
c. A competitor
54. Under PFRS 3:

B a. both direct and indirect costs are to be capitalized.
b. both direct and indirect costs are to be expensed.
c. direct costs are to be capitalized and indirect costs are to be
expensed.
d. indirect costs are to be capitalized and direct costs are to be
expensed.
55. A business combination is accounted for properly as an acquisition. Which of

the following expenses related to effecting the business combination should enter
into the determination of net income of the combined corporation for the period
in which the expenses are incurred?
Security issue costs Overhead allocated to the merger
C a. Yes Yes
b. Yes No
c. No Yes
d. No No
56. Parental Company and Sub Company were combined in an acquisition transaction.
Parental was able to acquire Sub at a bargain price. The sum of the fair values
of identifiable assets acquired less the fair value of liabilities assumed
exceeded the cost to Parental. After eliminating previously recorded goodwill,
there was still some "negative goodwill." Proper accounting treatment by
Parental is to report the amount as
C a. paid-in capital.
b. a deferred credit, which is amortized.
c. an ordinary gain.
d. an extraordinary gain.
57. What is the theoretically preferred method of presenting a non-controlling
interest in a consolidated balance sheet?
D a. As a separate item within the liability section.
b. As a deduction from (contra to) goodwill from consolidation, if any.
c. By means of notes or footnotes to the balance sheet.
d. As a separate item within the stockholders’ equity section.
58. The investment in a subsidiary should be recorded on the parent's books at the
C a. underlying book value of the subsidiary’s net assets.
b. fair value of the subsidiary’s net identifiable assets.
c. fair value of the consideration given.
d. fair value of the consideration given plus an estimated value for
goodwill.
59. The second step in the process for revenue recognition is to

D a. allocate transaction price to the separate performance obligations.
b. determine the transaction price.
c. identify the contract with customers.
d. identify the separate performance obligations in the contract.

60. Partial satisfaction of a multiple performance obligation is reported on the
statement of financial position as
C a. contract liability.
b. receivable.
c. contract asset.
d. unearned service revenue.
61. Contract liability is a company’s obligations to transfer goods or services to

a customer for which the company has received consideration from the customer.
An example of a contract liability is
B a. Prepaid subscription.
b. Unearned magazine subscription.
c. Mortgage Payable.
d. Service Revenue.
62. If both the home office and the branch of a business enterprise use the perpetual
inventory system, a Shipment to Branch ledger account appears in the accounting
records of:
D a. The home office only
b. The branch only
c. Both the home office and the branch
d. Neither the home office nor the branch
63. In preparing the financial statements of the home office and its various branches:
D a. Nonreciprocal accounts are eliminated but reciprocal accounts are
combined
b. Both reciprocal and nonreciprocal accounts are eliminated
c. Both reciprocal and nonreciprocal accounts are combined
d. Reciprocal accounts are eliminated and nonreciprocal accounts are
combined
64. In the year end general ledger closing procedures,which accounts are closed in
arriving at Cost of Sales?
Purchases Sent to Branch Purchases from Home Office
A a. Yes Yes
b. No Yes
c. No No
d. Yes NO
65. How are anticipated administrative expenses reported on a statement of financial

affairs?
B a. As a footnote until actually incurred.
b. As a liability with priority
c. As a partially secured liability.
d. As an unsecured liability
66. The Statement of Realization and Liquidation differs from the Statement of
Affairs because
D a. The Statement of Realization and Affairs reports estimated realizable
values rather than actual liquidation results
b. The Statement of Realization and Affairs is a summary of secured debt
activity only
c. The Statement of Realization and Affairs is prepared only at final
completion of the liquidation process
d. The Statement of Realization and Affairs reports actual liquidation
results rather than estimated realizable values
67. Which of the following are recognized each period under the cost-recovery (point-
in-time) method?
C a. Costs only.
b. Revenues only.
c. Both costs and revenues.
d. None of these.

68. If the percentage-of-completion (overtime) method is used, what is the basis for
determining the gross profit to be recognized in the second year of a three-year
contract?
C a. Cumulative actual costs incurred only.
b. Incremental cost for the second year only.
c. Cumulative actual costs and estimated costs to complete.
d. No gross profit would be recognized in year 2.
69. All revenue for franchise companies is derived from

C a. assistance for site selection and negotiating lease.
b. bookkeeping and advisory services.
c. sale of initial franchise and continuing fees.
d. advertising and promotion.
70. Goods on consignment should be included in the inventory of:

A a. the consignor but not the consignee
b. both the consignor and the consignee
c. the consignee but not the consignor
d. neither the consignor nor the consignee
- END –
ANSWERS & SOLUTIONS/CLARIFICATIONS
1. Total revenue recognized during 2019 (w): P 50 million
CIP contains cost + gross profit* = revenue, so W = P50
* Note that the Income statement is in gross profit position, therefore, entries
recorded under CIP account pertain to both actual costs incurred and the RGP
(alternatively, the amount pertains to the amount debited to AR)
2. Gross profit recognized during 2022 (x): P50M Revenue - P35M cost = P15M GP P 15 million
3. Billings on construction (y):
AR billed ending balance of P14M + AR billed collected in 2022 P46M = P 60 million
P60M Recorded AR billed for 2022
4. Net billings in excess of construction in progress (z): P10 million
Billings of P60M – CIP of P50M (alternatively, this pertains to the net billed AR
(i.e., billed AR is higher than the amount of revenue recorded as unbilled AR)
5. Calculate the percentage of PAC that was completed during 2022: 33.33%
P50M revenue recognized/P150M Contract Price = 33.33%
6. Gross collection (P15,000 x 70% x 80%) P 8,400

Less: Cash discount taken by customer __168
(P8,400 x 2%)
Net collection P 8,232
Less Charges:
Expenses P 800
Commission (P8,400 x 15%) _1,260 __2,060
Due to Consignor P 6,172
Less: Advances _6,000
Amount remitted P 172
7. Charges Related to
Total Consignment Inventory on
Charges Sales Consignment
(100%) (70%) (30%)
Consignor’s charges:
Cost P10,000 P 7,000 P 3,000
Freight 120 84 36
Consignee’s charges:
Expenses 800 800
Commission (15% x 1,575 1,575
P10,500)
Cash discount (P10,500 x 168 168 ______
80% x 2%)
Total P12,663 P 9,627 P 3,036
Sales price (70% x P15,000) _10,500_
Profit on Consignment P 873
8. Assets 570,000,000
Liabilities 100,000,000
Capital stock 400,000,000
Cash 50,000,000
PIC-stock contingency 20,000,000
9. P350,000,000 – (P12 x 25,000,000) = P50,000,000/P12 = 4,166,667 additional shares
10. The contingency was originally recorded in equity at the amount of P20,000,000. However, changes in the
value of stock price contingencies do not affect the acquisition price or income. Any changes in value are
adjustments in equity.
PIC- stock contingency 20,000,000
PIC-other 30,000,000
Common stock 50,000,000
11. Dana Elsie Fe Gloria Total

Capital balances P 170, 000 P 80, 000 P 140, 000 P 78,000 P 468, 000
Loan to Dana (20, 000) (20, 000)
Total interest P 150, 000 P 80, 000 P 140,000 P 78,000 P 448, 000
Total reduction in interest (69,000) (34,500) (172,500) (69,000) (345,000)
CAFD P 81,000 P 45,500 P (32,500) P 9, 000 *P 103, 000
Possible loss (2:1:2) (13, 000) (6, 500) 32, 500 (13, 000) -
P 68, 000 P 39, 000 P (4, 000) P 103, 000
Possible loss (2:1) (2, 667) (1, 333) 4, 000 -
Cash received/distributed P 65, 333 P 37,667 P 103, 000
Payment to partners:
Cash, beginning…………………………………………………………………………… P 200,000
Add: Proceeds from -
Receivables (1/2 x P56, 000)…………………………………………………… 28,000
Inventory…………………………………………………………………………………. 45,000
Land ……………………………………………………………………………………….. 250,000
Less: Cash withheld………………………………………………………………. ( 20,000)
Payment of accounts payable…………………………………………………… (400,000)
Cash available for distribution (CAFD)………………………………. P 103,000
12. Palmer Larsen Total

Due to (from) P 14,400 P -0- P 14,400
Capital balances 28,800 74,400 103,200
Total Interests P 43,200 P 74,400 P117,600
Reduction in interests ( 50,400) ( 50,400) (100,800)
Cash available for distribution (CAFD) P( 7,200) P 24,000 P 16,800*
Additional investment (P62,400 – P56,400) 6,000 -0- 6,000
Balances P ( 1,200) P 24,000 P 22,800
Additional loss 1,200 ( 1,200) -0-
Payment P -0- P 22,800 P 22,800
Cash beginning……………………………………………………………………………….. P 20,400

Add: Proceeds…………………………………………………………………………………123,600
Less: Payment of liquidation expenses………………………………………………. (4,800)
Payment of liabilities:
Accounts Payable……………………………………………………………… ( 38,400)
Other liabilities………………………………………………………………… ( 84,000)
Cash available for distribution (CAFD)………………………………P 16,800*
13. Sales (P350,000 + P100,000)……………………………………………………… P 450,000

Less: Cost of goods sold:
Purchases (P400,000 + P50,000)………………………………P 450,000
Less: Inventory, end…………………………………………………… 90,000 360,000
Gross profit………………………………………………………………………………………….P 90,000
Less: Expenses –
Salaries and commissions…………………………………………P 70,000
Rent……………………………………………………………………………………20,000
Advertising supplies (P10,000 – P6,000)……… 4,000
Other expenses…………………………………………………………… 5,000 99,000
Net Loss………………………………………………………………………………………………P( 9,000)
14. Estimated deficiency to unsecured creditors:
Free Assets:
Assets pledged to fully secured liabilities (P80,000 – P60,000)……P 20,000
Free Assets…………………………………………………………………………… 272,000
Total Free Assets………………………………………………………………………… …… P292,000
Less: Unsecured liabilities with priority………………………………………… …….. 40,000
Net Free Assets.…………………………………………………………………………………….P252,000
Less: Unsecured Liabilities without priority:
Partially secured liabilities (P80,000 – P50,000)……………P 30,000
Add: Unsecured liabilities without priority……………………. 330,000 360,000
Estimated deficiency to unsecured liabilities..…………………………………….P108,000
15. Expected Recovery % of Unsecured Liabilities:
Net Free Assets / Unsecured liabilities without priority
P252,000/P360,000……………………………………………………………………70% or P.70
16, 17 & 18
Investment in Home Office
Branch
Unadjusted 515,000 495,750
Excess freight (750)
Remittance (11,000)
Returns (4,000)
Expense allocation 5,000
Adjusted 500,000 500,000
19. D E F G Total
Advances P( 4,500) P( 2,500) P( 7,000)
Loans P 5,000 P 10,000 15,000
Capitals 40,000 30,000 15,000 25,000 110,000
Total Interests P 45,000 P 40,000 P 10,500 P 22,500 P 118,000
Reduction in Interest (50,000) (30,000) (10,000) (10,000) ( 100,000)
(5:3:1:1)
CAFD P( 5,000) P 10,000 P 500 P 12,500 P 18,000*
Additional loss for possible
insolvency (3:1:1) 5,000 ( 3,000) ( 1,000) ( 1,000) -0-
Balances P 7,000 P( 500) P 11,500 P 18,000
Additional loss for possible
insolvency ( 3:1) ( 375) 500 ( 125) -0-
Balances P 6,625 P 11,375 P 18,000
20. Allocated to
Total Monte Carlo
Bonus:
30% of (P280,000 – P200,000) ..................... P 24,000 P24,000
30% of [P160,000 – (50% of P280,000)] ............... 6,000 P 6,000
Residual profit ..................................... P 30,000
Allocate 50:50 ..................................... 130,000 65,000 65,000
P160,000 P89,000 P71,000
21. Contributed Agreed

Capital Bonus Capital
Cord (3) P70,000 (6,000) 64,000
Stringer (2) 60,000 (4,000) 54,000
Twiner (new partner) 50,000 10,000 60,000*
Total P180,000 P -0- P180,000
* P180,000 x 1/3
** P10,000 x 3/5
*** P10,000 x 2/5
Agreed capital of Cord: P70,000 – P6,000 = P64,000

22. P45,450
A B C D=A+B
+/ (-) C
CC Revaluation Bonus AC
Allocated Allocated based
based on P/L on P/L ratio
ratio
Pine (20%) P39,000 7,200 (750)***** 45,450
Woods (60%) 90,000 21,600 (2,250)***** 109,350
Oakley (20%) – retiring partner) 51,000* 7,200 3,000**** 61,200***
Total P179,000 P36,000** P -0- P180,000
* P42,000 + P9,000
** P216,000 – 180,000
*** amount paid represents the agreed capital of the retiring partner
**** balancing figure
***** P3,000 x 2/8 and P3,000 x 6/8
Alternatively:
Amount paid P 61,200
Less: Book value of interest of Oakley (20%) * 58,200
Bonus to retiring partner P 3,000
*Total Interest of Oakley

Loans P 9,000
Capital P 42,000
Add: Share in adjustment of asset
(P216,000 – P180,000) x 20% 7,200 49,200
P58,200
Therefore, the capital balance of Pine should be:

= P39,000 + (P126,000 – P180,000) x 20% - (P3,000 x 2/8)
= P45,450
23. P145,000 = P70,000 + P50,000 + P30,000 + P25,000 – P30,000
24. P10,000* = P20,000 + P15,000 + P20,000 – P35,000 – P10,000
25. Ritz(20%) Sally(30%) Tracy (50%) Total

Total Interest 40,000 75,000 30,000 145,000
Reduction (27,000) (40,500) (67,500) (135,000)
Balance 13,000 34,500 (37,500) *10,000
Poss. Loss (2:3) (15,000) (22,500) 37,500 -0-
( 2,000) 12,000 -0- 10,000
Poss. Loss 2,000 ( 2,000) -0-
10,000 10,000
* refer to No. 24 for computation.
26. Ann (40%) Bee (40%) Kay (20%) Total

Total Interest 79,000 140,000 140,000 359,000
Share in inventory (8,000) (8,000) (4,000) (20,000)
revaluation decrease
(P60,000-P80,000)
Distribute inventory to (60,000)
Kay at fair value (60,000)
Adjusted Equity interest 71,000 132,000 76,000 279,000
Reduction (92,000) (92,000) (46,000) (230,000)
Balance ( 21,000) 40,000 90,000 *49,000
Poss. Loss (4:2) 21,000 (14,000) (7,000) -0-
0 16,000 23,000 49,000
*P198,000 – P149,000 = P49,000

29. Consideration Transferred:
Shares: Common stock (100,000 shares × P15) P1,500,000
Less: Fair value of net assets acquired:
Accounts receivable P 100,000
Inventory 210,000
Equipment for resale (P80,000 less 10%) 72,000
Land 200,000
Building 450,000
R&D project 90,000
Customer list (P100,000 payment
discounted 3 years at 20%) 210,650
Current liabilities ( 80,000)
Bonds payable (200,000)
Estimated liability under warranty (30,000)
Value of net identifiable assets acquired 1,022,650
Excess of total cost over FV of net assets (goodwill) P 477,350
30. Consideration Transferred:

Cash ..................................................................................... P160,000
Less: Fair value of net assets acquired:
Accounts receivable........................................................ P 200,000
Inventory ...................................................................... 270,000
Equipment .................................................................... 40,000
Brand-name copyright .................................................... 15,000
Current liabilities ............................................................ (80,000)
Mortgage payable .......................................................... (250,000)
Value of net identifiable assets acquired ................................. 195,000
Excess of total FV over cost of net assets (gain) ............................. P(35,000)
31. Unrealized Intercompany Inventory Profit/Allowance
for overvaluation of branch inventory before adjustments P10,800
Less: Allowance for overvaluation of shipments
(P28,800 - P24,000) (4,800)
Allow. for overvaluation of beginning inventory P6,000
Divided by: Mark-up on cost 20%
Merchandise inventory at cost, December 1, 2022 P30,000
Add: Allowance for overvaluation of beginning branch
Inventory 6,000
Merchandise inventory at BP, December 1, 2022 P36,000
Merch. inventory, December 1, 2022 per branch books P45,000

Less: Merchandise inventory at billed price 36,000
Merchandise inventory, December 1, 2022 -- outsiders P 9,000
32. note on the term “expected value (i.e., PV of the expected cash flow) …at the date…”,
“expected…at the” means it exists on the date of acquisition.
Goodwill 400,000
Estimated Lawsuit liability 400,000
33. note on the word “occurring subsequent”, it means it does not exist on the date of acquisition.
Loss on lawsuit 400,000
Estimated Lawsuit liability 400,000
34. Assets:
DJ: P62,400,000 + P2,100,000 + P3,000,0000 + P7,000,000 + P170,000 + P70,000
+ P50,000 + P2,384,440 – P400,000 (direct costs) – P200,000 (costs to
issue) – P5,000,000 (cash consideration) + ( unreported intangibles:
P170,000 + P70,000, + P50,000) – P290,000 cash paid for the unreported intangibles P71,574,440

Goodwill computation:
Consideration transferred:
Cash to former shareholders P 5,000,000
Market value of stock to former shareholders 2,000,000
Earnout (Prob. PV of Cash Contingent P4,000,000 x .25 x .69444 _____694,440
Consideration)
Consideration transferred/Total acquisition cost P 7,694,440
Less: MV
Current assets P 2,100,000
Property, plant & equipment 3,000,000
Identifiable intangibles on DJ’s books 7,000,000
Previously unreported intangibles- advanced
production technology 170,000
Noncompetition agreements 70,000
Customer contract 50,000
Current liabilities ( 1,000,000)
Long-term debt ( 5,800,000)
Previously unreported warranty contractual
Obligations ( 280,000) __5,310,000
Positive Excess: Goodwill P 2,384,440
35. Liabilities:
DJ: P6,500,000 + P30,000,000 + P1,000,000 + P5,800,000 + P280,000, contractual
Obligations + P694,440, PV of Cash Contingent Consideration P44,274,440
36. Stockholders’ Equity:

Common stock: (P200,000 + (50,000 shares x P10, par)] P 700,000
APIC (P22,000,000 + {50,000 shares x (P40 – P10]}) - P200,000, costs to issue 23,300,000
RE [P4,000,000 – P400,000, direct costs] 3,600,000
AOCI 100,000
Treasury stock ( 400,000)
P27,300,000
Therefore:
Asset (No. 36) P71,574,440
Liabilities (No. 37) P44.274,440
SHE (No. 38) 27,300,000
Total Liabilities and SHE = Total Assets P71,574,440
37. P60,000 allocation to equipment is "pushed-down" to subsidiary and increases balance from P330,000 to
P390,000. Consolidated balance is P420,000 plus P390,000.
38.
(1)
Consideration transferred .......................................................................... P60,000
Less: Strand's book value (P50,000 x 80%) .................................................. (40,000)
Fair value in excess of book value ............................................................... P20,000
Excess assigned to inventory (60%) ............................................... P12,000
Excess assigned to goodwill (40%) ................................................ P 8,000
(2)
Consideration transferred (P60,000 ÷ 80%) ................................................. P75,000
Less: Strand's book value .......................................................................... (50,000)
Fair value in excess of book value ............................................................... P25,000
Excess assigned to inventory (60%) ............................................... P15,000
Excess assigned to goodwill (40%) ................................................ P10,000
39. Park current assets ................................................................................ P 70,000

Strand current assets ............................................................................. 20,000
Excess inventory fair value ..................................................................................... 15,000
Consolidated current assets.................................................................................... P105,000

40.
(1)
Park noncurrent assets ............................................................................. P 90,000
Strand noncurrent assets .......................................................................... 40,000
Excess fair value to goodwill (partial) ......................................................... ___8,000
Consolidated noncurrent assets ................................................................. P138,000
(2)
Park noncurrent assets .............................................................................. P 90,000
Strand noncurrent assets ........................................................................... 40,000
Excess fair value to goodwill (full) ............................................................... __10,000
Consolidated noncurrent assets .................................................................. P140,000
41.
(1) Add the two book values and include 10% (the P6,000 current portion) of the loan taken out by Park
to acquire Strand.
(2) Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan taken out by
Polk to acquire Strand.
42.
(1)
Park stockholders' equity .......................................................................... P80,000
NCI (partial):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)……………….15,000
FV of SHE – S……………………………………………………………… P65,000
x: Multiplied by: NCI%................................................ 20% 13,000
Total stockholders' equity ......................................................................... P93,000
(2)
Park stockholders' equity ............................................................... …………. P80,000
NCI (full):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)……………. 15,000
FV of SHE – S……………………………………………………………………….P65,000
x: Multiplied by: NCI%............................................... 20%
NCI (partial)………………………………………………………………...P13,000
Add: NCI on full-goodwill (P10,,000 – P8,000)…………. 2,000
Non-controlling interest at fair value (20% × P75,000)………… 15,000
Total stockholders' equity P95,000
43. Combined Cost of Goods Sold:
Merchandise Inventory, 1/1/20X5:
Home Office, cost……………………………………………… P 3,500
Branch: Outsiders, ……………………………...........................P 300
From Home Office (P2,500 – P300)/110%.............. 2,000 2,300 P 5,800
Add Purchases (P240,000 + P11,000)…………………………….. 251,000
COGAS………………………………………………………………… P 256,800
Less: Merchandise Inventory, 12/31/20X5
Home Office, cost………………………………………………. P 3,000
Branch: Outsiders…………………………………………………………...P 150
From Home Office (P1,800 – P150)/110%............ 1,500 1,650 4,650
Cost of Goods Sold………………………………………………… P252,150
44. refer to AFAR-04 on discussion of Contract Liability
January 1, 20x5:
Cash……………………………………………………………………………………………………………………….10,000
Notes Receivable……………………………………………………………………………………………………40,000
Unearned Interest Income/Discount on Notes Receivable………………… 10,433
Contract Liability (P10,000 + P29,567)…………………………………………… 39,567*
*Down payment made on 4/1/x5…………………………………………..P10,000.00
Present value of an ordinary annuity (P8,000 x 3.69590).. 29,567.20
Total revenue recorded by Campbell and total
acquisition cost recorded by Lesley Benjamin……………..P39,567.20
45. December 31, 20x5: (P39,567 ÷ 5) = P7,913
46. No entry is required on March 1, 2022, because neither party has performed on the contract. That is, neither
party has an unconditional right as of March 1, 2022. On July 31, 2022, Giordano delivers the product and
therefore should recognize revenue as it received an unconditional right to consideration on that date. In
addition, Giordano satisfies its performance obligation by delivering the product to Hotter.
No entry – neither party has performed on March 1, 2022.

The entry on July 31, 2022, to record the sale and related cost of goods sold is as follows:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57,000.
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,000
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34,200

.
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,200
The entry to record the receipt of cash on August 31, 2022 is a follows:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57,000
.
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,000
A key attribute of the revenue arrangement is that the signing of the contract by the two parties is not
recorded until one or both of the parties perform under the contract. Until performance occurs, no net
asset or net liability occurs.
47. P75,000 + P50,000 + P25,000 = P150,000
P75,000/ P150,000  P120,000 = P60,000
P50,000/ P150,000  P120,000 = P40,000
P25,000/ P150,000  P120,000 = P20,000.
49. Joey is acting as principal in the contract based on the following indicators:
• Joey is responsible for fulfilling the contract because it is responsible for ensuring that the excavator
meets specifications
• Joey has inventory risk because it is responsible for correcting error in specifications, even though the
manufacturer has inventory risk during production
• Joey has discretion in establishing the selling pric
• Joey’s consideration is in the form of profit, not commission
• Joey has credit risk for the P46,200,000 receivable from Tanner
50. In this case, two performance obligations exist:
1. one related to the sale of the computer and the assurance warranty (it should be noted that quality-
assurance warranty is part of performance obligation), and
2. the other to the extended warranty (service warranty).
The sale of the computer and related assurance warranty (quality-assurance) are one performance
obligation as they are interdependent and interrelated with each other.
However, the extended warranty is separately sold and is not interdependent (or not connected).
51. Because the arrangement only has two possible outcomes (regulatory approval is achieved or not), Bai
determines the transaction price based on the most likely approach. Thus, the best measure for the
transaction price is P20,000,000.
52. December 20, 2022

No entry-neither party has performed.
January 15, 2023
Cash .................................................................10,000,000
License Revenue ......................................................... 10,000,000
**Don’t think that there’s so much darkness, that it’s no use to have a small light, because even one
candle can be seen a mile away when it’s dark.**
**When all else is lost, the future still remains.**
**The greatest mistake you can make is to continually fear making mistakes.**
We are never given guarantees in life. We are only given the opportunities and it is up to us to make the
BEST out of it.
The most difficult secret of a man to keep is the opinion he has of himself.
Nothing great was ever achieved without determination.
Don’t be discouraged; everyone who got where he is, started where he was.
Impossibilities vanish when a man and his GOD confront a mountain.

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

ADVANCED FINANCIAL ACCOUNTING & REPORTING FIRST PRE-BOARD EXAMINATION

Items 1 to 5 are based on the following information:

Balance Sheet/Statement of Financial Position:

Statement of Cash Flow:

Compute the following:

2. Gross profit recognized during 2022 (x):

3. Billings on construction (y):

4. Net billings in excess of construction in progress (z):

5. Calculate the percentage of PAC that was completed during 2019:

Items 6 and 7 are based on the following information:

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6. The cash remitted by Atlas Sales Company

7. The cost of inventory on consignment amounted to:

Use the following information for 8 to 10:

8. The Netcom’s journal entry to initially record the acquisition.

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Advances Loans Capitals

At this point, cash of P18,000 is available for distribution to the partners.

The share of partner Monte in the net income should be:

Assets, at cost P180,000

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Use the following for items 23, 24, and 25:

If the partners agree to distribute the available cash:

Assets Liabilities and Equity

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Assets Liabilities and Equity

The cash paid to acquire Payco Corporation was P160,000.

The gain on acquisition amounted to:

Use the following information for 32 and 33:

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Current liabilities P 6,500,000 P 800,000 P1,000,000

34. The total assets after the acquisition:

35. The total liabilities after the acquisition:

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Current Liabilities . . . . . . . . . . . P. 30,000 P 10,000

Items 44 and 45 are based on the following information:

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54. Under PFRS 3:

55. A business combination is accounted for properly as an acquisition. Which of

59. The second step in the process for revenue recognition is to

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61. Contract liability is a company’s obligations to transfer goods or services to

65. How are anticipated administrative expenses reported on a statement of financial

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69. All revenue for franchise companies is derived from

70. Goods on consignment should be included in the inventory of:

6. Gross collection (P15,000 x 70% x 80%) P 8,400

9. P350,000,000 – (P12 x 25,000,000) = P50,000,000/P12 = 4,166,667 additional shares

11. Dana Elsie Fe Gloria Total

12. Palmer Larsen Total

Cash beginning……………………………………………………………………………….. P 20,400

13. Sales (P350,000 + P100,000)……………………………………………………… P 450,000

21. Contributed Agreed

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*Total Interest of Oakley