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Practical Accounting 2.1
Practical Accounting 2.1
Practical Accounting 2.1
PRACTICAL ACCOUNTING 2
OCTOBER 2007 BATCH
2nd PRE-BOARD EXAMS AUGUST 19,
2007 (Sun) 2:00-4:30
INSTRUCTIONS: Select the correct answer for each of the following questions.
Mark only one answer for each item by writing a VERTICAL LINE corresponding to
the letter of your choice on the answer sheet provided. STRICTLY NO ERASURES
ALLOWED. Use Pencil No. 1 or No. 2 only.
Additional Information:
1. Melon and Dalandan began the year with capital balances of P40,800 and
P112,000, respectively.
2. On April 1, Melon invested an additional P15,000 into the partnership and on
August 1, Dalandan invested an additional P20,000 into the partnership.
3. Throughout 2007, each partner withdrew P400 per week in anticipation of
partnership net income. The partners agreed that these withdrawals are not to
be included in the computation of average capital balances for purposes of
income distribution.
Melon and Dalandan have agreed to distribute partnership net income according
to the following plan:
MELON
DALANDAN
1. Interest on average capital balances 6%
6%
2. Bonus of net income before the bonus but after interest
on average capital balances 10%
3. Salaries P25,000
P30,000
4. Residual (if positive) 70%
30%
5. Residual (if negative) 50%
50%
1. The share of Melon and Dalandan on the net income, respectively is:
a. P40,473 and P39,527 c. P40,342 and P39,658
b. P40,282 and P39,718 d. P38,935 and P41,065
indirect cost and P5,000 direct cost. On that date, the assets and liabilities of S
Company had fair market values as indicated below. Balance sheets of the
companies on January 2, 2007, after acquisition are as follows:
P Company S Company
Book Fair value
Value
Cash P 80,000 P 14,000 P 14,000
Accounts Receivable 56,000 28,000 28,000
Inventory 56,000 22,000 28,000
Land 28,000 54,000 60,000
Building, net 163,000 72,000 98,000
Equipment, net 224,000 56,000 39,000
Investments in S Company 149,000
P 756,000 P 246,000
If the net income remains the same the following year, and if there is neither a
change in the partnership agreement nor any additional investments, how much
more or less will Roel’s total share of the net income be than it was this year?
a. More by P6.00 b. Less by P6.00 c. P27,648 d. P29,112
6. Partner’s Rachel, Cecil, and Arlene share profits and losses 5:3:2, respectively, and
their balance sheet on October 31, 2007 follows:
Cash P 240,000 Accounts P 600,000
Payable
CRC-ACE/PA2_2nd Preboard October 2007 Page 3 of 12
15. The following selected accounts appeared in the trial balance of Genius Sales as
of December 31, 2007:
Installment receivable- P 6,000 Repossessions P 1,200
2006 sales
Installment receivable- 80,000 Installment sales 170,000
2007 sales
Inventory, December 31, 28,000 Regular sales 154,000
2006
Purchases 222,000 Deferred gross profit – 21,600
2006
Operating Expenses 46,000
Additional information:
Installment receivable – 2006 sales, December 31, 2006 P
57,100
Inventory of new and repossessed merchandise as of December 31, 2007
38,000
Gross Profit percentage on installment sales in 2006 is 10% higher than the
gross profit percentage on regular sales in 2007
CRC-ACE/PA2_2nd Preboard October 2007 Page 5 of 12
Repossession was made during the year and was recorded correctly. It was a
2006 sales and the corresponding uncollected account at the time of repossession
was P3,100.
16. On January 1, 2007, M Products Corp. issues 12,000 shares of its P10 par stock to
acquire the net assets of L Steel Company. Underlying book value and fair value information for the
balance sheet of L Steel Company at the time of acquisition are as follows:
Balance sheet Items Book Fair value
value
Cash P60,00 P60,000
0
Accounts receivable 100,00 100,000
0
Inventory 60,00 115,000
0
Land 50,00 70,000
0
Building and Equipment 400,00 350,000
0
Less: Accumulated Depreciation (150,000
)
Total Assets P520,000
principal of the note to a balance of P2,000,000. The buyer defaulted on the note
at the beginning of 2009, and the property was repossessed. The property had an
appraised value of P1,150,000 at the time of repossession. Compute the gain (loss)
on repossession, assuming that:
Profit is recognized when the Gross profit is recognized in
sale is made (point of sale) proportion to periodic collection
a. P(850,000) P(450,000)
b. (850,000) (50,000)
c. 850,000 (450,000)
d. (50,000) 50,000
19. Abogado Company uses the installment method of reporting for
accounting purposes. The following data were obtained.
2004 2005 2006
Installment sales P600,000 P810,000 P990,000
Cost of installment _420,000 _486,000 _643,500
sales
Gross profit P180,000 P324,000 P346,500
Installment contract receivables, December 31:
2004 2005 2006
2004 sales P360,000 P270,000 P120,000
2005 sales 600,000 390,000
2006 sales 780,000
In 2006, one of the customers defaulted in his payment and the company
repossessed the merchandise with an estimated market value of P30,000. The
sales was in 2004 and the unpaid balance on the date of repossession was
P45,000.
Compute for 2006 (1) the gain (loss) on repossession; (2) total realized gross
profit, and (3) the deferred gross profit.
(1) (2) (3)
a. P P 189,000 P
(1,500) 451,500
b. 129,000 465,000
750
c. 189,000 465,000
(1,500)
d. 73,500 273,000
1,500
20. Lea Mae Stores sell appliances for cash and also on the installment plan. Entries to
record cost of sales are made monthly. The following information appears on the trial balance of the
company as of December 31, 2007.
Cash P153,00
0
Installment Accounts Receivable, 48,000
2006
Installment Accounts Receivable, 91,000
2007
Inventory – New Merchandise 123,200
Inventory – Repossessed 24,000
Merchandise
Accounts Payable P98,500
Deferred Gross Profit, 2006 45,600
Capital Stock 170,000
Retained Earnings 93,900
Sales 343,000
Installment Sales 200,000
Cost of Sales 255,000
Cost of Installment Sales 128,000
Gain or Loss on Repossession 800
Selling and Administrative Expenses _128,00 _______
0
CRC-ACE/PA2_2nd Preboard October 2007 Page 7 of 12
P951,00 P951,000
0
The accounting department has prepared the following analysis of cash receipts
for the year:
Cash sales (including repossessed P424,00
merchandise) 0
Installment accounts receivable, 2006 104,000
Installment accounts receivable, 2007 109,000
Other 36,000
Total P673,00
0
Repossessions recorded during the year are summarized as follows:
2006
Uncollected balance P8,000
Loss on repossession 800
Repossessed merchandise 4,800
How much must be the total realized gross profit net of loss from repossession in
2007?
a. P161,710 b. P157,640 c. P158,440 d. P73,710
21. Lily, Susan, and Yen agreed to invite Lucy to join the partnership. Lucy
was presently working as a marketing specialist of a dynamic firm and presently
receiving a salary of P35,000 per month. In order to encourage Lucy to join the
partnership, the partners agreed to the following profit distribution:
1) 12% interest on contributed capital is to be given to each partner.
2) Salaries of P20,000, P30,000, P40,000, and P35,000 per month is to be
given to Lily, Susan, Yen, and Lucy respectively.
3) Lucy is to receive a minimum guaranteed share equal to her present salary
and interest on her capital.
4) Lily is to receive an aggregate share of P300,000 per year.
5) Balance of profits is to be distributed in the ratio of 2:2:3:3 between Lily,
Susan, Yen, and Lucy respectively.
The partners’ capital contributions are: Lily, P200,000; Susan, P150,000; and Yen,
P100,000. Lucy is willing to invest sufficient cash so that her capital interest in the
partnership net assets will give her a ¼ interest.
How much must the partnership earned during the year so that Lily will receive
the agreed aggregate amount and Lucy to receive at least the minimum
guaranteed share?
a. P1,752,000 b. P1,698,000 c. P1,477,000 d. P1,521,000
Determine the gain/(loss) on repossession that Mystic must report in its financial
statement.
a. P2,972 b. P4,100 c. P4,880 d. (P2,420)
26. The Felix Contracting Co. uses the percentage of completion method
of recognizing profit. Data for a recently awarded project is given below:
Contract price P80,000,000
2006 2007 2008
Estimated costs per year P20,100,0 P30,150,0 P16,750,0
00 00 00
Progress billings per year 10,000,00 25,000,00 45,000,00
0 0 0
Cash collections 8,000,000 23,000,00 49,000,00
0 0
Using the data provided above, calculate Felix’s gross profit for 2007. Assume
that the estimated costs were actually incurred during the year.
a. P5,850,000 b. P3,900,000 c. P3,250,000 d. P9,750,000
and converted when the exchange rate was 3 LCU to P1. What journal entry
should Marvin make to record the collection of this receivable?
a. Cash 300,000
Accounts receivable 300,000
b. Cash 300,000
Transaction loss 15,000
Accounts receivable 315,000
c. Cash 300,000
Deferred transaction loss 15,000
Accounts receivable 315,000
d. Cash 315,000
Accounts receivable 315,000
28. On Nov. 15, 20X8, Celt, Inc. a Philippine company, ordered
merchandise FOB shipping point from a German company for 200,000 marks. The
merchandise was shipped and invoiced to Celt on Dec. 10, 20X8. Celt paid the
invoice on Jan. 10, 20X9. The spot rates for marks on the respective dates are as
follows:
Nov. 15, 20X8 P.4955
Dec. 10, 20X8 .4875
Dec. 31, 20X8 .4675
Jan. 10, 20X9 .4475
In Celt’s Dec. 31, 20X8 income statement, the foreign exchange gain is:
a. P9,600 b. P8,000 c. P4,000 d. P1,600
29. On April 1, 2007, Onawaki entered into franchise agreement with Lhyve to sell
their products. The agreement provides for an initial franchise fee of P4,218,750
payable as follows: P1,181,250 cash to be paid upon signing of the contract and
the balance in five equal annual payment every December 31, starting at the end
of 2007. Onawaki signs 12% interest bearing note for the balance. The
agreement further provides that the franchise must pay a continuing franchise fee
equal to 5% of its monthly gross sales. On August 30 the franchisor completed the
initial services required in the contract at a cost of P1,350,000 and incurred
indirect costs of P232,500. The franchise commenced business operations on
September 3, 2007. The gross sales reported to the franchisor are September
sales, P110,000; October sales, P125,000; November sales P138,000; and
December sales, P159,000. The first installment payment was made on due date.
Assume the collectibility of the note is reasonably assured. How much is the
income earned from the franchise agreement.
a. P2,868,750 b. P2,936,225 c. P2,895,350 d. P3,168,725
31. Candido Co. entered into a contract to build a small bridge for
Guagua. The contract price for the bridge was P7,500,000 and Candido estimated
a total costs of P6,900,000 in 2006. The company incurred P2,300,000 of cost
during 2006. By the end of 2007 it was apparent that Candido had underestimated
the real costs. The estimated total cost of project skyrocketed to P7,800,000.
Construction cost incurred in 2007 totaled P4,000,000. The project was completed
in 2008 at a final cost of P7,800,000. No progress billing were made under the
contract and no cash was selected by the end of 2008.
The amount of gross profit (loss) that must be recognized in 2007 must be:
a. P300,000 loss b. P200,000 profit c. P500,000 loss d. P100,000 loss
At this date REH is acquired by BNC with REH going into liquidation
Ordinary shareholders of REH Company are to receive 2 fully paid ordinary
shares in BNC for every share held or alternatively P2.50 in cash payable
half at the exchange date and half in one year thereafter.
Accounts Payable and cost of liquidation amounting to P5,000 were paid by
REH prior to turnover to BNC.
5,000 ordinary shares elect to receive cash
BNC shares are selling at P1.10
The incremental borrowing rate of BNC is 10% per annum.
On that date, the fair market value of Blink’s inventories and building and
equipment were P78,000 and P124,000 respectively, while bonds payable has a
fair value of P42,000. The fair values of all other asset and liabilities of Blink
(except for goodwill) were equal to their book values. Avril Corp. acquired the net
assets of Blink Co. by issuing 2,500 shares of its P30 par value common stock
(current fair value P36 per share) and purchase price in cash amounting to
P12,000. Contingent consideration that is determinable (probable and reasonably
estimated) amounted to P2,000 (discounted value). Additional cash payment made
by Avril Corp. in completing the acquisition were: Legal fee for contract of
business combination, P8,000; Accounting and legal fees for SEC registration,
P11,000; Printing costs of stock certificates, P6,000; Finder’s fee, P7,000; Indiret
cost, P5,000.
34. As a result of the business combination, the amount of total assets in the books
of Avril Company.
a. P1,016,000 b. P963,000 c. P967,000 d. P1,1012,000
35. As a result of the business combination, the amount of retained earnings in the
books of Avril Company.
a. P195,000 b.P193,000 c. P200,000 d.P240,000
36. On January 1, 2007, ABC Corporation purchased 75% of the common stock of
XYZ Company. Separate balance sheet data for the companies at the combination
date are given below:
ABC XYZ
Cash P 84,000 P 721,000
Trade Receivable 504,000 91,000
Merchandise Inventory 462,000 133,000
Land 273,000 112,000
Plant assets 2,450,000 1,050,000
Accumulated Depreciation (840,000) (210,000)
Investment in XYZ 1,372,000
Total Assets 4,305,000 P 1,897,000
On the date of combination the book values of XYZ’s net assets was equal to the
fair value of the net assets except for XYZ’s inventory which has a fair value of
P210,000.
CRC-ACE/PA2_2nd Preboard October 2007 Page 12 of 12
On the date of acquisition in the consolidated balance sheet, how much is the total
assets?
a. P3,533,250 b. P4,984,000 c. P6,543,250 d. P5,171,250
- End Examination –
PRACTICAL ACCOUNTING 2
1 A 11 C 21 A 31 C
2 B 12 B 22 B 32 D
3 B 13 A 23 A 33 A
4 C 14 C 24 A 34 C
5 B 15 C 25 A 35 B
6 D 16 C 26 A 36 D
7 C 17 A 27 B
8 B 18 A 28 C
9 C 19 C 29 B
10 A 20 B 30 B
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