Republic of the Philippines

Cagayan State University

Andrews Campus

COLLEGE OF BUSINESS, ENTREPRENEURSHIP and ACCOUNTANCY

ADVANCED ACCOUNTING II (Acctg68) – Final Examination

1st Semester SY 2012-2013

Use the following information to answer 1 to 5

P Company acquired 95 % interest from S company on January 2, 2009. The inventories acquired
from affiliate in 2010 are: Beginning inventory, P84,375; ending inventory,P168,750. Intercompany
sale of merchandise during the year amounts to P337,500 at a gross profit rate of 30%. In 2010 the
data relating to the operations of P Company and S Company are:
P company S company
Sales P2,325,000 P1,275,000
Cost of sales 1,087,500 667,500
Ending Inventory 230,000 210,000
Net income 843,750 506,250
Dividends Paid 337,500 168,750

1. Assuming downstream sale, what is the consolidated net income attributable to parent
shareholders?
a. P1,139,062.50 b. P1,140,328 c. P1,125,075 d. P1,162,800

2. Assuming upstream sale, what is the consolidated net income attributable to parent’s shareholders?
a. P1,139,062.50 b. P1,140,328 c. P1,125,075 d. P1,162,800

3. What is the consolidated sales?

a. P3,600,000 b. 3,262,500 c. P3,350,000 d. P3,512,500

4. What is the cost of sales?

a. P1,394,687.5 b. P1,417,500 c. P1,755,000 d. P1,442,812.5

5. What is the consolidated ending inventory?

a. P387,687.5 b. P425,125 c. P389,375 d. P390,000

6. A subsidiary’s functional currency is the local currency, which has not experienced significant
inflation. The appropriate exchange rate for translating the depreciation on plant assets in the
income statement of the foreign subsidiary is the
a. Exit exchange rate.
b. Historical exchange rate.
c. Weighted-average exchange rate over the economic life of each plant asset.
d. Weighted-average exchange rate for the current year.

7. A foreign subsidiary’s functional currency is its local currency, which has not experienced
significant inflation. The weighted-average exchange rate for the current year would be the
appropriate exchange rate for translating

1
 Wages expense Sales to customers

A. Yes No

B. Yes Yes

C. No Yes

D. No No

8. If one Singaporean dollar can be exchanged for 37 units of Phil. money, what fraction should be
used to compute the indirect quotation of the exchange rate expressed in Philippine peso?
a. 37/1 b. 1/37 c. 1/42 d. 42/1

9. The home office in Makati shipped merchandise costing P40,000 to Manila branch and paid for the
freight charges of P300. The home office bills the branch at 125% of cost. Manila branch was
subsequently instructed to transfer one-half of the merchandise to Quezon City branch wherein
Quezon City branch paid for P100 freight. If the shipment was made directly from Makati to
Quezon City, the freight cost would have been P200.

By how much will Manila Branch charge the Home Office account?
a. P25,650 b. P25,300 c. P25,150 d. P25,250

10. On December 31, 2009, ABC Corporation combined net income together with its Bacolod branch
amounted to P295,000. During the year, shipments of merchandise to the branch amounted to
P135,000. On June 30, 2009, the home office purchased and recorded fixed asset for the use of the
branch amounting to P200,000. Useful life is 5 years. Remittance of P70,000 was made during the
year to the home office. Purchases of merchandise from outside suppliers amounted to P125,000.
Ending inventories mounted to P80,000. Sales for the year was reported at P400,000. The branch
paid selling and administrative expenses amounting to P90,000.

How much is the separate income of the income office?

a. P245,000 b. P225,000 c. P185,000 d. P125,000

11. The home office bills GBC branch at 140% of cost in 2010. During the year 2010, goods billed at
P433,125 were shipped to the branch. The account Allowance for Overvaluation has a balance of
P153,000 before adjustment. The beginning inventory of the branch from the home office at a cost is
P117,000; the beginning inventory of the branch for the outsiders is P19,000; purchases from
outsiders is P163,125.

Cost of goods available for sale of the branch:

a. P779,050 b. P761,500 c. P608,500 d. P579,375

12. Reynald Corporation purchased 70% of Gelo Company’s outstanding stock on January 2, 2010 for
P346,500 cash. At that date, Gelo Co. reported book value of its net assets as P420,000. The excess is
allocated to a depreciable asset with a remaining life of 10 years. The companies reported the
following data for 2010:

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 Retained Earnings,
January 1 Net Income Dividends
Reynald Corp. P780,000 P180,000 P75,000
Gelo Co. 345,000 37,500 15,000

Non-controlling interest is measured at its estimated fair value. The following entry was included in
the eliminating entries to prepare the consolidated financial statements at December 31, 2010:

Retained Earnings-1/1-Gelo 31,500

Non-controlling Interest 31,500

What is the amount of retained earnings of Gelo Co. on January 2, 2010?

a. a. P232,500 b. P247,500 c. P240,000 d. P255,000

13. What is the consolidated retained earnings to be reported on January 2010?

a. P853,500 b. P885,000 c. P861,000 d. P1,125,000

14. On October 1, 20X8, Pepper Inc. acquired 100% of Salt Inc. for P275,000. On that date, the carrying
values of Salt Inc.'s assets and liabilities were P450,000 and P200,000, respectively. The fair values of
Salt's assets and liabilities were P550,000 and P200,000, respectively. Additionally, Salt had
identifiable intangible assets at the time of acquisition with a fair value of P60,000. What is the gain
to be reported on Pepper's December 31, 20X8 consolidated income statement?
a. P0 b. P25,000 c. P75,000 d. P135,000

15. In 2011, a depreciable asset is sold to an affiliate at a loss. What is the effect do the working paper
eliminating entries which defer or recognize the effect of this intercompany sale have on the
consolidated net income in 2011 and 2012?

2011 2012

a. Increase Increase
b. Increase Decrease
c. Decrease Increase
d. Decrease Decrease

16. A parent buys merchandise from its 90%-owned subsidiary above cost and does not resell it before
the year-end. What percent of the unrealized profit in the parent’s ending inventory should be
removed from the consolidated net income?

a. 90% b. 100% c. 10% d. None

17. Differences between current fair values and carrying amounts of the identifiable net assets of a
subsidiary on the date of the business combination are recognized in a

a. Working paper elimination

b. Subsidiary journal entry
c. Parent company journal entry

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 d. Note to the consolidated financial statement

18. A subsidiary was acquired for cash in a business combination on January 1, 2012. The purchase
price exceeded the fair value of the identifiable net assets. The acquired company owned equipment
with a market value in excess of the carrying amount as of the date of combination. A consolidated
balance sheet prepared on December 31, 2012 would

a. Report the unamortized portion of the excess of the market value over the carrying amount of the
equipment as part of the goodwill
b. Report the excess the market values over the carrying amount of the equipment as part of the plant
and equipment
c. Report the unamortized portion of the excess of the market value over the carrying amount of the
equipment as part of plant and equipment
d. Not report the excess the market value over the carrying amount of the equipment because it
would be expensed as incurred

19. The following statement of financial position were prepared for HIJ Corp. and NOP Co. on January
1, 2010, just before they entered into a business combination.
HIJ Corp. NOP Co.

Cash P210,000 P 5,000

Accounts receivable 75,000 20,000

Merchandise inventory 200, 000 50,000

Building and equipment 400,000 100,000

Accumulated depreciation (100,000) (25,000)

Goodwill _________ 50,000

Total Assets 785,000 200,000

Accounts payable 125,000 70,000

Bonds payable 200,000 30,000

Common stock

P30 par value 210,000

P20 par value 50,000

Additional paid-in capital 50,000 10,000

Retained earnings 200,000 40,000

Total Liabilities & Stockholders’ equity 785,000 200,000

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 On that date, the fair market value of NOP’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 market values
of all other assets and liabilities of NOP (except for goodwill) were equal to their book values. HIJ
Corp. acquired the net assets of NOP 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) amount to P2,000.
Additional cash payments made by HIJ Corp. in completing the acquisition were: Legal fees for
contract 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, Indirect cost, P5,000.

As a result of the business combination, the amount of total assets and total liabilities, respectively,
in the books of the surviving company
a. P1,016,000; P437,000 c. P963,000; P439,000
b. P963,000; P437,000 d. P1,016,000; P439,000

20. A condensed balance sheet at July 1, 2010 and the related current fair value data for DEF Company
are presented below:
Carrying value Fair value
Current assets P 184,000 P 202,250
Property and equipment 296,250 345,000
Patent 29,250 24,000
Total assets P 509,500

Current liabilities P 53,750 53,750

Non-current liabilities 140,000 148,750
Capital stock, P20 par value 105,000
Retained earnings 210,750
Total liabilities and stockholders’ equity P 509,500

On August 1, 2010, LMN Corporation issued 4,450 shares of its P29 par value common stock (fair
value, P45 per share) and P125,500 cash for the net assets of DEF Company. Of the P116,250
acquisition related costs paid by LMN Corporation on August 1, 2010, P20,000 were stock issuance
cost.
How much is the goodwill (gain on acquisition) to be recorded by LMN Corp,?

What is the net increase in the stockholders’ equity in the books of LMN Corp. as a result of the
business combination?
a. P139,500 b. P319,500 c. P127,000 d. P200,250

21. On October 1, 2009 the TUV Company acquired 100% of GHI Company when the fair value of G’s
net assets was P29M and their carrying amount was P30M. the consideration transferred
compromised of P50M in cash transferred at the acquisition date, plus another P15M in cash to be
transferred 11 months after the acquisition date if a specified profit target was met by GHI. At the
acquisition date there was only a low probability of the profit target being met, so the fair value of
the additional consideration liability was P2.5M. In the event, the target was met and the P15M cash
was transferred. What amount should TUV present for goodwill in its statement of consolidated
financial position at December 31, 2010?
a. P23.5M b. P20M c. P21M d. P36M

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22. On September 1, 2010, Faith Company purchased 75% of the outstanding shares of Superman at a
cost of P2,400,000. On that date, Superman had P2,500,000 of capital stock and P1,000,000 of
retained earnings. For 2010, Faith reported income from its separate operations of P1,525,000 and
paid dividends of P175,000, while Superman reported net income of P570,000 and paid dividends of
P105,000 on December 31, 2010. Income of Superman was evenly throughout the year.

On November 1, 2010, Faith purchased an equipment from Superman for P500,000. The book value
of the equipment was P620,000. The loss was reflected in the income of Superman in its books. The
equipment has a remaining life of 4 years from the date of the sale. In the December 31, 2010
consolidated financial statements, how much is the consolidated net income attributable to Faith?

a. Some other amount c. P1,675,000

b. P1,751,250 d. P1,976,250

23. On October 1, Company X acquired for cash all of the outstanding common stock of Company Y.
Both companies have a December 31 year-end and have been in business for many years.
Consolidated net income for the year ended December 31 should include net income of
a. Company X for 3 months and Company Y for 3 months.
b. Company X for 12 months and Company Y for 3 months.
c. Company X for 12 months and Company Y for 12 months.
d. Company X for 12 months; but no income from Company Y until Company Y distributes a
dividend.

24. Grant, Inc. has current receivables from affiliated companies at December 31, 2010, as follows:
 A P50,000 cash advance to Adams Corporation. Grant owns 30% of the voting stock of Adams and
accounts for the investment by the equity method.
 A receivable of P160,000 from Bullard Corporation for administrative and selling services. Bullard is
100% owned by Grant and is included in Grant's consolidated statements.
 A receivable of P100,000 from Carpenter Corporation for merchandise sales on open account.
Carpenter is a 90% owned, unconsolidated subsidiary of Grant.

In the current assets section of its December 31, 2010 consolidated balance sheet, Grant should
report accounts receivable from investees in the total amount of
a. P 90,000 b. P140,000 c. P150,000 d. P310,000

25. On January 1, 2010, Ritt Corp. purchased 50,000 shares of Shaw Corp. stock which represented 80%
of Shaw’s P10 par common stock for P19.50 per share. On the date of acquisition, the fair value of
the 12,500 shares representing the noncontrolling interest in Shaw was P18 per share. On this date,
the carrying amount of Shaw’s net assets was P1,000,000. The fair values of Shaw’s identifiable
assets and liabilities were the same as their carrying amounts. For the year ended December 31,
2010, Shaw had net income of P190,000 and paid cash dividends totaling P125,000. In the December
31, 2010, consolidated balance sheet, noncontrolling interest should be reported at
a. P200,000 b. P225,000 c. P233,000 d. P238,000

26. The Sun Trading Co. operates a branch at ATC. As the business was closed on December 31, 2010,
the Branch account in the home office booked showed a debit balance of P378,400. The interoffice
accounts were in agreement at the beginning of the year. For purposes of reconciling the interoffice
accounts, the following information were obtained:

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 i. Merchandise shipments of P180,000 made by the home office on December 28, 2010 were received by
ATC on January 4, 2011. However, only ninety percent of this shipment was charged by the home
office to ATC; the balance was debited to the account of FM branch.
ii. Branch collections of P75,000 were deposited for the account of the home office on December 29, 2010;
60% was credited on the home office bank account as of January 9, 2011; and the balance was returned
to the depositor marked NSF.
iii. The branch received a cash transfer amounting to P300,000 from the home office on January 3, 2011.
The home office effected the fund transfer last December 30, 2010 but it was inadvertently charged to
Advances to Officers account.
iv. The branch reported a net income of P40,000 which was taken up by the home office as P4,000 loss.

The unadjusted balance of the Home Office Current account:

a. P245,100 b. P185,400 c. P425,400 d. P311,400

27. The investment in QC branch account on the home office books has a balance of P120,000 on
December 31, 2009. A reconciliation of reciprocal accounts showed the following discrepancies:

i. The branch remittance of P15,000 to the home office on December 29,2009 was recorded on the home
office books on January 5, 2010.

ii. A branch receivable P16,000 was collected and recorded by the home office on December 28,2009 but
failed to notify the branch.

iii. Merchandise costing P25,000 sent to the branch by home office was recorded by the branch as
P13,000.

iv. Home office allocated P4,000 advertising expense to the branch. The branch forgot to record this
transaction.

v. A P15,000 collection from home office customer, Mr. Quezon was credited to the branch.

The adjusted balance of Investment in QC account on December 31, 2009 is

a. P120,000 b. P135,000 c. P105,000 d. P90,000

28. On January 2, 2010, Polo Corporation purchase 80% of Son Co.’s common stock for P324,000.
P15,000 of the excess is attributable to goodwill and the balance to a depreciable asset with an
economic life of 10 years. Non-controlling interest is measured at its fair value on the date of the
acquisition. On the date of acquisition, stockholder’s equity of the two companies are as follows:

Polo Corporation Son Company

Common Stock P525,000 P120,000
Retained Earnings 780,000 210,000

On December 31, 2010, Son Co. reported net income of P52,500 and paid dividends of P18,000 to
Polo. Polo reported earnings from its separate operations of P142,500 and paid dividends of
P69,000. Goodwill had been impaired and should be reported at P3,000 on December 31, 2010.

What is the consolidated net income on December 31, 2010?

a. P178,175 b. P177,000 c. P189,375 d. P180,000

29. What is the consolidated retained earnings on December 31, 2010?

a. P879,000 b. P878,700 c. P881,100 d. P1,039,875

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30. What is the NCI in net income of Son Company on December 31, 2010?

a. P9,375 b. P10,500 c. P9,300 d. P6,900

31. What amount of the NCI is to be presented in the consolidated balance sheet on December 31, 2010?

a. P82,125 b. P83,400 c. P77,250 d. P72,750

32. What is the consolidated net income attributable to parent’s stockholders on December 31, 2010?

a. P168,000 b. P170,100 c. P178,200 d. P180,000

33. Key Corp. issued 1,000 shares of its nonvoting preferred stock for all of Lev Corp.'s outstanding
common stock. At the date of the transaction, Key's nonvoting preferred stock had a market value
of P100 per share, and Lev's tangible net assets had a book value of P60,000. In addition, Key issued
100 shares of its nonvoting preferred stock to an individual as a finder's fee for arranging the
transaction. As a result of this capital transaction, Key's total net assets would increase by
a. P0 b. P 60,000 c. P100,000 d. P110,000

34. Which of these equations best describes statutory consolidation?

a. Bona Co. + Neo Co. = Bona Co
b. Bong Co. + Cris Co. = Cris Co.
c. Pappy Co. + Son Co. = Pappy Co. & Son Co.
d. Conra Co. + Daya Co. = Sweet Couple Co.

35. It is that part of the profit or loss and net assets of a subsidiary attributable equity interests that are
not owned, directly or indirectly through subsidiaries, by the parent.
a. Residual interest c. Controlling interest
b. Minority interest d. Bond interest

36. Which among the following is an incorrect way of allocating cost of business combination to
acquired assets?
a. Receivables at present value of amounts to be received less allowance for uncollectible
b. Raw materials at current replacement cost
c. Financial instruments traded in active market at current market value
d. Plant and equipment at the carrying amount in the books of acquire

37. An acquirer should at the acquisition date recognize goodwill acquired in a business combination
as an asset. Goodwill should be accounted for as follows:
a. Recognize as an intangible assets and amortize over its useful life
b. Write off against retained earnings
c. Recognize as an intangible asset and test for impairment when trigger event occurs
d. Recognize as an intangible asset and test regularly for impairment

38. Under the purchase method, when acquisition costs is LESS than the fair market values of net
identifiable assets acquired, the “excess of the acquirer’s interest in the net fair value of the
acquiree’s identifiable assets, liabilities and contingent liabilities recognized over cost of business
combination” is treated as

8
 a. A positive goodwill that shall be amortized for no more than 20 years
b. A positive goodwill that shall not be amortized but tested regularly for impairment
c. A negative goodwill that shall be recognized in profit or loss before reassessment
d. A negative goodwill that shall be recognized in profit or loss after reassessment

39. In year 2013, a 90 percent-owned subsidiary sold land to its parent at a gain. The parent still owns
the land. In the consolidated balance sheet at December 31, 2013, the minority interest in the
subsidiary should be shown at:

a. 10 percent of the subsidiary’s total equity.

b. 10 percent of the subsidiary’s total equity less 10 percent of the gain on the land sale.
c. 10 percent of the subsidiary’s total equity plus 10 percent of the gain on the land sale.
d. 10 percent of the subsidiary’s total equity less 100 percent of the gain on the land sale.

40. A December 15, 2012 purchase of goods was denominated in a currency other than the entity's
functional currency. The transaction resulted in a payable that was fixed in terms of the amount of
foreign currency, and was paid on the settlement date, January 20, 2013. The exchange rates
between the functional currency and the currency in which the transaction was denominated
changed between the transaction date and December 31, 2012, and again between December 31,
2012, and January 20, 2013. Both exchange rate changes resulted in gains. The amount of the gain
that should be included in the 2013 financial statements would be
a. The gain from December 31, 2012, to January 20, 2013.
b. The gain from December 15, 2012, to January 20, 2013.
c. The gain from December 15, 2012, to December 31, 2013.
d. Zero.

41. On July 1, 2012, Stone Company lent P120,000 to a foreign supplier, evidenced by an interest-
bearing note due on July 1, 2013. The note is denominated in the currency of the borrower and was
equivalent to 840,000 local currency units (LCU) on the loan date. The note principal was
appropriately included at P140,000 in the receivables section of Stone's December 31, 2012 balance
sheet. The note principal was repaid to Stone on the July 1, 2013 due date when the exchange rate
was 8 LCU to P1. In its income statement for the year ended December 31, 2013, what amount
should Stone include as a foreign currency transaction gain or loss?
a. P0. c. P15,000 gain.
b. P15,000 loss. d. P35,000 loss.

42. On November 15, 2012, Celt, Inc., a local company, ordered merchandise FOB shipping point from a
foreign company for 200,000 LCUs. The merchandise was shipped and invoiced to Celt on
December 10, 2012 but received January 2, 2013 due to some problems encountered during its
delivery. Celt paid the invoice on January 10, 2013. The spot rates for LCUs on the respective dates
are as follows:

November 15, 2012 P.4955

December 10, 2012 .4875
December 31, 2012 .4675
January 02, 2013 .4075
January 10, 2013 .4475

In Celt's December 31, 2012 income statement, the foreign exchange transaction gain(loss) is
a. P9,600 loss c. P4,000 gain

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 b. P8,000 gain d. P-0-

43. CPA Co.’s wholly owned subsidiary, BSAC Corporation maintains it accounting records in German
marks. Because all of BSAC’s branch offices are in Switzerland, its functional currency is the Swiss
francs. Remeasurement of its 2013 financial statement resulted in P3,800 gain and translation of its
financial statement resulted in P4,050 gain. What amount should CPA Co. report as foreign
exchange gain is included in the income statement for the year ended December 31, 2013?
a. P-0- b. P3,800 c. P4,050 d. P7,850

44. On November 15, 2010, Manila Company, a Philippine company ordered merchandise from the US
company for 3,500 US dollars. The merchandise was shipped and invoiced, on December 10, 2010.
Manila Company paid the invoice on January 10, 2011. The spot rates for US dollars on the
respective dates where:

Nov. 15, 2010 P49.85

Dec. 10, 2010 48.65
Dec. 31, 2010 45.25
Jan. 10, 2011 46.75

In Manila’s December 31, 2010 income statement, what is the foreign exchange gain (loss)?
a. P16,100 b. (P16,100) c. P11,900 d. (P11,900)

45. Abi Corporation received a promissory note denominated in foreign currency from the sales made
to a Singaporean customer. The following were the related transactions: (in Singaporean dollars) On
December 1, Abi Corporation sold merchandise to a Singaporean customer for 60-day, 15%
promissory note for $48,000, at a buying rate of $1 to P47.50. On December 31, the buying spot rate
is $1 to P46.85. On January 30, the buying spot rate is $1 to P47.75.

On the settlement date, how much is the forex gain or loss?

a. P43,740 loss c. P31,590 loss
b. P31,590 gain d. P43,740 gain

46. On December 1, 2013, M Company acquired goods on account from a Korean Company. The
amount of purchase was 370,000 Korean won. M will settle the account on January 2, 2014. On
December 1, the spot rate was 25 Korean won for one Philippine peso. Also on December 1, M
entered into a futures contract to purchase 370,000 Korean won on January 2, 2014 at a forward rate
of 50 Korean won for one Philippine peso. The spot rate and the forward rate for one Philippine
peso on December 31, 2013 is 40 Korean won.

How much is the foreign exchange gain or loss on hedging instrument - forward contract?
a. P1,850 gain b. P1,850 loss c. P5,550 loss d. P5,550 gain

47. A subsidiary’s functional currency is the local currency, which has not experienced significant
inflation. The appropriate exchange rate for translating the depreciation on plant assets in the
income statement of the foreign subsidiary is the
a. Exit exchange rate.
b. Historical exchange rate.
c. Weighted-average exchange rate over the economic life of each plant asset.

10
 d. Weighted-average exchange rate for the current year.

48. On September 22, 2009, Yumi Corp. purchased merchandise from an unaffiliated foreign company
for 10,000 units of the foreign company's local currency. On that date, the spot rate was P.55. Yumi
paid the bill in full on March 20, 2010, when the spot rate was P.65. The spot rate was P.70 on
December 31, 2009. What amount should Yumi report as a foreign currency transaction loss in its
income statement for the year ended December 31, 2009?
a. P0 c. P1,000
b. P 500 d. P1,500

49. Gains and losses of the effective portion of a hedging instrument will be recognized in current
earnings in each reporting period for which of the following?

Fair value hedge Cash flow hedge

A. Yes No
B. Yes Yes
C. No No
D. No Yes

50. A sale of goods, denominated in a currency other than the entity’s functional currency, resulted in a
receivable that was fixed in terms of the amount of foreign currency that would be received.
Exchange rates between the functional currency and the currency in which the transaction was
denominated changed. The resulting gain should be included as a
a. Translation gain reported as "other comprehensive income" and a separate component of
stockholders’ equity.
b. Translation gain reported as a component of income from continuing operations.
c. Transaction gain reported as "other comprehensive income" and a separate component of
stockholders’ equity.
d. Transaction gain reported as a component of income from continuing operations.

☺ End ☺

“Life has many ways of testing a person's will,

either by having nothing happen at all
or by having everything happen all at once.”
-Paulo Coelho

Prepared by:

ABIGAIL P. SERRANO, CPA

Instructor

Approved by:

11
WINSTON J. APALISOC, CPA, MBA
Department Chair

Noted by:

EMERITA P. GERON, PhD., MBA, CPA

College Dean

12
screening exam adv acctg2_1st sem sy2012-2013
Answer Section

MULTIPLE CHOICE

1. ANS: A PTS: 1

2. ANS: B PTS: 1

3. ANS: B PTS: 1

4. ANS: D PTS: 1

5. ANS: C PTS: 1

6. ANS: D
Answer A is incorrect because when the functional currency is the foreign currency, ASC Topic 830 requires the use of
current rates.
Answer B is incorrect because ASC Topic 830 states that when the functional currency is the foreign currency, the use of
current rates is required.
Answer C is incorrect because, although the weighted-average exchange rate can be used, it has to be for the period in
which the expense is recognized.
Answer D is correct because ASC Topic 830 specifies that when the functional currency is the foreign currency, exchange
rates for expenses should be those in effect at the time transactions are recorded during the current period. However, the
statement also says that weighted-average rates can be used for items occurring numerous times during the accounting
period. Such weighted-average rates may also be used for accounting allocations such as depreciation.

PTS: 1

7. ANS: B
Answer B is correct. The weighted-average exchange rate is used to translate revenues, expenses, gains, and losses from
the functional currency to the reporting currency. Both wages expense and sales to customers fall under this rule and
should be translated using the weighted-average exchange rate.

PTS: 1

8. ANS: A PTS: 1

9. ANS: C PTS: 1

10. ANS: C PTS: 1

11. ANS: B
bp costs overval.
beg invty 146,250.00 117,000.00 29,250.00

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Shpts 433,125.00 309,375.00 123,750.00
Gas 579,375.00 309,375.00 153,000.00
end invty
COS

purch-outside 163,125.00 163,125.00

beg-outsider 19,000.00 19,000.00
TGAS- br 761,500.00 491,500.00

PTS: 1 REF: 02-01-01-5

12. ANS: A PTS: 1

13. ANS: A PTS: 1

14. ANS: D
cost of 275,000 less fv of 410,000 = 135,000 gain on bargain purchase

PTS: 1

15. ANS: B PTS: 1

16. ANS: B PTS: 1

17. ANS: A PTS: 1

18. ANS: C PTS: 0

OBJ: Understanding the Acquisition method as an accounting for business combination
TOP: Business Combination- Concepts

19. ANS: C
TOTAL ASSETS TOTAL LIABILITIES
HIJ 773,000.00 325,000.00
NOP 227,000.00 112,000.00
contigent consideration 2,000.00
acq.costs (37,000.00)
963,000.00 439,000.00

costs 102,000.00
fv of inaa 115,000.00
goodwill (gain) (13,000.00)

PTS: 1 REF: cpar2010

14
 20. ANS: C
C/S(4450 x 45) 200,250
Gain on Acquisition 43,000
Acquisition-related costs (116,250)
Change in SHE-LMN Corp 127,000

PTS: 1 REF: cpar2010 NOT: see number 3

21. ANS: A
cash transferred P 50M
additional consideration 2.5M
total consideration P52.5M
FV of INA (29M)
goodwill P23.5M

PTS: 1

22. ANS: A
net inc.-superman ((570,000+120,000)/12*4) 230,000
realized loss on sale (5,000)
225,000
x % controlling interest 75%
Adjusted NI of subsidiary 168,750
gain on acquisition (2,400,000-(3,500,000*.75) 225,000
adjusted net inc.-Faith
net income 1,525,000
div. revenue (78,750) 1,446,250
CNI attributable to Faith 1,840,000

PTS: 1

23. ANS: B
Answer B is correct. In an acquisition treated as a purchase, the acquirer includes net income for the acquiree only from
the date of purchase (see ASC Topic 810).

PTS: 1

24. ANS: C

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Answer C is correct. The accounts receivable from investees to be reported on the balance sheet should only include the
receivables from investees considered unconsolidated subsidiaries. The receivables from the unconsolidated subsidiaries
(P50,000 + P100,000) would not be eliminated and, therefore, would be reported as receivables in the consolidated
balance sheet. However, the P160,000 receivable from the consolidated subsidiary would be eliminated on the
consolidated worksheet and thus not reported on the consolidated balance sheet.

PTS: 1

25. ANS: D
Answer D is correct. The percentage of the acquiree’s stockholders’ equity not owned by the acquirer company
represents the noncontrolling interest. The acquisition date noncontrolling interest is valued based on the fair value of
the shares, which is 12,500 (20% × 50,000) × P18 = P225,000. At 12/31/10 the noncontrolling interest is computed below

1/1/10 noncontrolling interest P225,000

2010 net income (20% × P190,000) 38,000
2010 dividends (20% × P125,000) (25,000)
Noncontrolling interest at 12/31/10 P238,000

PTS: 1

26. ANS: B

PTS: 1

27. ANS: A PTS: 1

28. ANS: B PTS: 1

29. ANS: C PTS: 1

30. ANS: D PTS: 1

31. ANS: B PTS: 1

32. ANS: B PTS: 1

33. ANS: C
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Answer C is correct. A business acquisition is accounted for using fair values; the net assets acquired are recorded at
their fair value or the fair value of the stock issued, whichever is more objectively determinable. In this case, the fair
value of the stock issued is a better measure of the value of the purchase (1,000 shares x P100 per share = P100,000). The
total cost of acquiring the net assets is the fair value of the preferred stock (P100,000). The finder's fee is treated as an
expense of the period.

PTS: 1

34. ANS: D PTS: 1

35. ANS: B PTS: 1

36. ANS: D PTS: 1

37. ANS: D PTS: 1

38. ANS: D PTS: 1

39. ANS: B PTS: 1

40. ANS: A
Answer A is correct. Foreign currency transactions (economic activities denominated in a currency other than the entity's
recording currency) must be translated into the currency used by the reporting company at each balance sheet date as
well as at the settlement date. The difference between the original payable and the translated amount is a foreign
exchange transaction gain or loss to be recognized in the period of the adjustment. Thus, the gain caused by exchange
rate fluctuations between 12/31/12 and 1/20/13 should be reported on the 2013 income statement.

PTS: 1

41. ANS: D
Answer D is correct. Since the rate is denominated in a foreign currency at a fixed 840,000 (LCU), fluctuations in the
exchange rates will produce foreign currency gains (losses). The increase (decrease) in expected functional currency cash
flows is a foreign currency transaction gain (loss) to be included in income in the period during which the exchange rate
changes. At December 31, 2012, changes in the exchange rates produce a recognized gain of P20,000 (P140,000 -
P120,000). At the repayment date (July 1, 2013) changes in the exchange rate resulted in a realized loss of P35,000
computed as follows:

Received from borrower 840,000 LCU ÷ 8 LCU for each P1 = P105,000

Note carrying value P 140,000

Cash received (105,000)
Translation loss P 35,000

PTS: 1

42. ANS: C

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Answer C is correct. No journal entry is prepared on 11/15/09 when the goods are ordered, so the spot rate for LCUs on
that date (P.4955) is not relevant to the solution of this problem. On 12/10/09, Celt would record the purchase and related
accounts payable at P97,500 (200,000 LCUs × P.4875). A foreign exchange transaction gain (loss) be recognized if the spot
rate on the settlement date (or any intervening balance sheet date) is different from the rate on the transaction date. At
12/31/09, the spot rate is P.4675, which means the account payable must be adjusted down to P93,500 (200,000 LCUs ×
P.4675), resulting in a gain of P4,000. A shortcut approach is to multiply the change in the exchange rate (P.4875 - P.4675
= P.02) by the payable balance in LCUs (P.02 × 200,000 LCUs = P4,000).

PTS: 1

43. ANS: A PTS: 1

44. ANS: C PTS: 1

45. ANS: D PTS: 1

46. ANS: A PTS: 1

47. ANS: D
Answer A is incorrect because when the functional currency is the foreign currency, ASC Topic 830 requires the use of
current rates.
Answer B is incorrect because ASC Topic 830 states that when the functional currency is the foreign currency, the use of
current rates is required.
Answer C is incorrect because, although the weighted-average exchange rate can be used, it has to be for the period in
which the expense is recognized.
Answer D is correct because ASC Topic 830 specifies that when the functional currency is the foreign currency, exchange
rates for expenses should be those in effect at the time transactions are recorded during the current period. However, the
statement also says that weighted-average rates can be used for items occurring numerous times during the accounting
period. Such weighted-average rates may also be used for accounting allocations such as depreciation.

PTS: 1

48. ANS: D
Answer D is correct. A transaction has occurred for which settlement will be made in a foreign currency. A foreign
exchange transaction gain (loss) will result if the spot rate on the settlement date is different than the rate on the
transaction date. A gain (loss) must be recognized at any intervening year-end date if there has been a rate change. Thus,
in 2009, Yumi would recognize a P1,500 foreign exchange transaction loss [10,000 × (P.70 - P.55)]. Yumi would recognize
a foreign exchange transaction gain of P500 in 2010 [10,000 × (P.65 - P.70)].

PTS: 1

49. ANS: A
Answer A is correct. Fair value hedges will recognize gains and losses for the effective portion of the hedging instrument
in current earnings for each reporting period. Cash flow hedges will recognize gains and losses for the effective portion
of the hedging instrument in other comprehensive income.

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PTS: 1

50. ANS: D
Answer A is incorrect because a translation gain results from the process of translating an entity's financial statements
into the reporting currency.
Answer B is incorrect because a translation adjustment results from the process of translating an entity's financial
statements into the reporting currency.
Answer D is correct because the standards states that the increase (decrease) in expected functional currency cash flows
is a foreign currency transaction gain (loss) that shall be included in determining net income for the period in which the
exchange rate changes. The gain (loss) is shown on the income statement under other income as part of income from
continuing operations.

PTS: 1

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