Name: Score:

Course/Year & Section: Date:

MIDTERM EXAMINATION

1. The following are the balance sheets of P CO. and S CO. as of December 31, 2020

P CO. S CO.
Cash P 250,000 P 50,000
Receivable 175,000 37,500
Inventories 200,000 62,500
Land 187,500
250,000
Building (net) 800,000 250,000
Equipment (net) 625,000 600,000
Total Assets P 2,237,500 P 1,250,000

Accounts Payable P 462,500 P 150,000

Ordinary Shares 1,250,000 500,000
Share Premium 125,000 350,000
Retained Earnings 400,000 250,000
Total Liabilities and Equity P 2,237,500 P 1,250,000

P CO. decided to acquire 17,000 outstanding shares of S CO. on January 1, 2021. P CO will issue 25,500 ordinary shares
with a market value of P 30 per share in exchange for the 17,000 outstanding share of S. P CO and S CO both have a par
value of P 25 per share. The book values reflect fair values except for building of P CO, which has a net realizable value of
P 1,050,000 and inventories and land of S CO which have a net realizable value of P 87,500 and P 325,000 respectively. P
CO also paid for costs of registering and issuing securities amounting to P 30,000 and direct costs of combination
amounting to P 62,500.

How much is the consolidated shareholder’s equity after the combination?

a. P 2,627,500 c. P 2,882,500
b. P 2,702,500 d. P 2,927,500

2. On December 1, Puring Company opened a branch in Cebu to which merchandise billed at P30,000 was shipped.
During the month, additional shipments were made at billed prices of P12,000. During December, Cebu branch
returned merchandise that was defective and received credits of P750 on the returns. At the end of the month,
the branch record its inventory at P 18,500, which is from the following sources;

Merchandise acquired from HO at Billed price---------------------------------------------P 16,500

Merchandise acquired from outsiders-------------------------------------------------------- 2,000
Total inventory--------------------------------------------------------------------------------------P 18,500

A branch loss for December is calculated at P 2,600. The home office has followed the practice of billing the branch at
20% above cost.
Compute (1) the balance of the allowance for overvaluation of branch inventory at December 31 before adjustments
and (2) the net income (loss) of the branch as far as HO is concerned:

a. (1)P 4,125;(2)P (2,600) c. (1) P 7,000;(2) P 1,525

b. (1)P 6,875;(2)P P1,525 d. (1) P 6,875;(2) P 2,600

3. Batangas company transfer inventory to its Laguna Branch at 120% above cost. During 2020, the reciprocal
account in the income statement of Laguna amounts to P825,000. The branch’s balance sheet at the beginning
of the year shows the balance of inventory at billed price of P 384,000, P 330,000 of which came from the HO.
Purchases from outsider during the amounted to P194,000, 45% of which remain unsold as of year-end. The HO
debited its deferred profit account in the amount of P464,400 at year-end.

How much is the ending inventory per branch books?

a. P390,900 c. P 462,300
b. P 303,600 d. P 410,300

4. During May 2021 the home office in Manila establishes a branch in Cebu act as a Sales agency. The following
assets are sent to the agency on May 1:

Cash ( for the working fund to be operated under the imprest system)--------P 100,000
Samples from the merchandise stock----------------------------------------------------- 240,000

During the month, the sales agency submits sales on account of P 1,500,000 duly approved by the home office. Cost of
merchandise shipped t o fill the orders from customers obtained by the sales agency is P800,000. Home office
disbursements chargeable to the sales agency are as follows: furniture and fixtures P150,000: manager’s and salesmen’s
salaries, P88,000:and rent for two months,P70,000. On May 15, the sales agency fund was replenished; paid vouchers
submitted by the agency amounted to P42,000. Sales agency samples are useful up to December 31 2021, which at this
time are believed to have a salvage value of 15% of its cost. Furniture and fixtures is depreciated at 30% per annum.

What is the net income of the sales agency for the month of May 2021?

a. P 505,750 c. P 327,250
b. P 470,750 d. P 292,250

5. Candy Co. purchased the net assets of Crush Co. for P 160,000. On the date of purchase, Crush had no long term
investments in marketable securities. The liabilities of the corporation amounted to P20,000. The market values
of its asset were :

Current Asset---------------P 80,000 Non-current assets----------P120,000

The non-current assets and goodwill ( income from acquisition) acquired should be recorded at

a. NCA—P120,000;GW(Income)----- P(20,000) c. NCA—P140,000;GW(Income)----- P20,000

b. NCA—P100,000;GW(Income)----- P(100,000) d. NCA—P150,000;GW(Income)----- P100,000
 6. Comparative trial balances of the home office TEA CORP. and its two branches at December 31, 2020 were as
follows:
HOME OFFICE NA BRANCH BOY BRANCH

Cash P 5,000 P 15,000 P 22, 000

Accounts Receivable 80,000 30,000 40,000
Inventories 150,000 60,000 48,000
NA Branch 170,000
BOY Branch 165,000
Plant Asset 730,000 250,000 200,000
Purchases 900,000
Shipments from HO 300,000 240,000
Expenses 300,000 75,000 50,000
Totals P2,500,000 P 730,000 P 600,000

Accounts payable P 100,000 P 45,000 P 30,000

Other liabilities 80,000 15,000 5,000
Loading in Branch Inventories 108,000
Share Capital @ P10par 500,000
Retained Earnings 262,000
Home Office 170,000
165,000
Sales 1,000,000 500,000 400,000
Shipment to Branches 450,000 - -
Totals P2,500,000 P 730,000 P 600,000

Additional information:
Home Office and branch inventories at December 31, 2020 were:

HO-------P 120,000; NA BRANCH@ billed price-------P 72,000 BOY BRANCH@ billed price------P 96,000

How much beginning inventory will TEA CORP report?

a. P150,000 c. P240,000
b. P258,000 d. P108,000

7. From above information, how much net incomes will TEA corp. report for the year ended 2020?

a. P260,000 c. P220,000
b. P122,000 d. P595,000

8. MIKMIK Enterprise operates a branch in BERBER. At close of business on December 31, 2020, BERBER BRANCH
account in the HO books showed a debit balance of P 200,000. The inter-office accounts were in agreement at
the beginning of the year. For the purposes of reconciling the inter-office accounts, the following facts were
ascertained:
A. A machinery costing the HO P 17,500 was picked by the branch as P 1,750.
B. The branch did not take up insurance premium of P2,000 charged by the HO
C. Freight charged on merchandise made by the HO for P 9,800 was recorded in the branch books as P 8,900.
D. HO credit memo representing a discount on merchandise for P1,500 was taken up twice by the branch.
E. The branch failed to take up P2,000 debit memo from the HO for the share in advertising.
F. A remittance of P15,000 from the EPAL branch was inadvertedly taken up in the BERBER branch account but
was corrected before year end.
 G. The HO erroneously recorded a remittance for P 13,500 from its YOY branch as remittance from BERBER
branch.
Determine the balance in the branch books of the HO account (before adjustment) as of December 31, 2020.

a. P191,350 c. P198,350
b. P164,350 d. P209,350

9. OYGA Corp. exchanges 150,000 shares of newly issued P1 par value common stock with a fair value of P25 per
share for all the outstanding P5 par value common stock of GER INC. which GER will be dissolved. OYGA paid the
following costs and expenses related to the business combination:
Costs of special shareholder’s meeting to vote on the merger---------------------------P13,000
Registering and issuing securities------------------------------------------------------- ---------- 14,000
Accounting and legal fees----------------------------------------------------------------- --------- 9,000
Salaries of OYGA’s employees assigned to the implementation of the merger--------15,000
Cost of closing duplicate facilities-----------------------------------------------------------------11, 000

In the business combination of OYGA and GER;

a. The costs of registering and issuing the securities are included as part of the purchase price for GER.
b. Only the salaries of OYGA’s employees assigned to the merger are treated as expense
c. All of the costs except those of registering and issuing the securities are included in the purchase price of GER
d. None is included in the purchase price of GER

10. On January 1, 2020 Finch Corp. purchased 75%of the common stock of Grass Co.. Separate balance sheet data
for the companies at the combination date are given below:
FINCH GRASS
Cash p 24,000 P 206,000
Accounts Receivable 144,000 26, 000
Inventory 132,000 38, 000
Land 68, 000 32, 000
Plant assets 700,000 300,000
Accum. Depreciation (240,000) (60,000)
Investment in Grass 392,000
Total Assets 1,230,000 542,000
Account Payable 206,000 142,000
Capital Stock 800,000 300,000
Retained earnings 224,000 100,000
Total Liabilities and equities 1,230,000 542,000

At the date of combination, the book values of Grass’s net assets were equal to its fair value except its Inventory with a
fair value of P60,000. The fair value of non-controlling interest at date of combination is P130,000.
What amount of goodwill will be shown on the consolidated balance sheet at the date of acquisition?

a. P75,500 c. P420,000
b. P200,000 d. P100,000
 11. ABS INC. established a branch in Jolo to distribute part of the goods purchased by the HO. The HO prices
inventory shipped to the branch at 20% above cost. The following account balances were taken from the ledger
maintained by the HO and the branch:
ABS INC. JOLO BRANCH
Sales P 600,000 P 210,000
Beginning Inventory 120,000 60,000
Purchases 500,000
Shipment to branch 130,000
Shipment from HO 156,000
Operating expenses 72,000 36,000
Ending inventory 98,000 48,000

All of the branch inventory are acquired from the HO. The combined net income of the HO and the branch is:
a. P170,000 c. P 278,000
b. P70,000 d. P 132,000

12. The following data were taken from the records of STAR CORP. of Manila and its Bulacan Branch for 2020:

MANILA. BULACAN
Sales P 530,000 P 157,500
Beginning Inventory 57,500 22,250
Purchases 410,000
Shipment to branch 105,000
Shipment from HO 126,000
Ending inventory 71,250 29,250
Operating expenses 191,000 50,750

In 2020 HO billed the branch @120% of cost which was lower by 5% than last year’s. The combined net income of the
HO and branch for the year was:

a. P48,325 c. P49,850
b. P48,575 d. P56,075

13. BUCTON Corporation is maintaining a branch in MALABON. During the year the HO shipped goods to the branch
at a cost of P120,000. The branch submitted to the HO the following report summarizing its operations for the
period ended December 31, 2021.

Sales(30% on account)—P196,000; Expenses (50% unpaid)—P50,000; Purchases—P25,000; Shipments from HO—

P150,000; Inventory Beg(30% from Outsider)—P30,000; Inventory End(40% from HO)—P90,000; Remittance to HO
P60,000.
The branch Cost of Sales as far as HO is concerned and the required balance of the allowance for overvaluation of
account are:

a. P88,000; P 27,000 c. P88,000; P 7,200

b. P92,000; P34,200 d. P83,000; P27,000
 14. KAWAWA Trading bills its ILOILO City branch for the shipments of goods @25%above cost. At the closeof
business on Oct 31 2020, a fire gutted the branch warehouse and destroyed 60% of the merchandise stock
stored therein. Thereafter, the following data were gathered:
1/1 inventory@ billed price---------------------------------------P 50,000
Shipments from HO up to Oct 31---------------------------------130,000
Net sales up to Oct 31-----------------------------------------------225,000
If the undamaged merchandise recovered are mark to sell for P30,000, the estimated cost of the merchandise destroyed
by fire was:

a. P14,400 c. P24,000
b. 21,600 d. 27,500

15. The BAD CO. bills merchandise shipments in its CAVITE city branch at 125% of cost. The branch, in turn sells the
merchandise it receives from the HO at 25% above its billing price. On august 1,2020 all of the branch’s
merchandise was destroyed by fire. The records of branch were recovered showed the following:

Inventory 1/1/2020@ billed price-------------------------------------------P 165,000

Shipments from HO from JAN-JUL-------------------------------------------- 110,000
Purchases @ cost from outside sources all resold @ 20% mark up----7,500
Sales-----------------------------------------------------------------------------------69,000
Sales Returns and allowances--------------------------------------------------- 3,750

The BAD CO will file for insurance claim. How much is the estimated cost of the merchandise destroyed by fire?

a. P120,000 c. P140,000
b. P130,000 d. P150,000

16. The home office of Glen Co., which uses the perpetual inventory system, ships merchandise to the Rose branch
at a 25% on billed price. August 31, 2020, the credit balance of the HO’s allowance for overvaluation of
inventories-Rose Branch was P60,000.

On September 17, 2020, the HO shipped merchandise to the branch @ billed price of P 400,000. The branch reported an
ending inventory @billed price of P160,000 on September 30, 2020. Compute the realized gross profit.

a. P108,000 c. P 120,000
b. 20,000 d. 28,000

17. BURAOT CO. has a single branch in MALATE. On March 1, 2021, the HO accounting records included an
Allowance for Over valuation of inventories with a balance of P32,000. During March, merchandise costing P
36,000 was shipped to the MALATE branch and billed at price representing a 40% mark up on billed price. On
March 31, 2021 the branch prepared an income statement indicating a net loss of P 11,500 for March and
ending inventories at billed price of P25,000. What is the amount of adjustment for Allowance for Overvaluation
of Inventories to reflect the true branch net income?

a. P39,257 debit c. P39,333 debit

b. P46,000 credit d. P46,000 debit
 18. WEH INC. has its first branch on May 1, 2021. During the first month of operation, the home office shipped
merchandise to the branch worth P138,000 which included a mark-up of 15% cost. Sales for cash were P 80,000
while sales on account were P250,000. At month’s end, the branch reported operating expenses of P38,000 and
a closing inventory of P23,000 at billed price. As far as the home office is concern, the true branch net income
for May 2021 is:

a. P82,000 c. P177,000
b. P147,000 d. P 192,000

19. YOBAB CO. had these accounts at the time it was acquired by TING2 INC.

Cash-----------------------------P36,000 Accounts receivable------------------------P457,000

Inventories-------------------120,000 Plant,Property,and Equipment-----------696,000
Accounts Payable----------350,800.

TING2 paid P1,400,000 for net assets of YOBAB CO. It was determined that the fair market value of inventories and
plant,property,equipment were P133,000 and P900,000 respectively.

An assume contingent liability with a fair value amounting to P10,000 and such amount is considered a reliable
measurement. Also a P25,000 future losses or reorganization/restructuring costs are expected to be incurred as a result
of the business combination.

In the books of TING2 CO., this transaction resulted in:

a. Goodwill of P441,400 c. Goodwill of P234,800

b. Goodwill of P224,800 d. Current asset increase by P234,800

20. GM Co.’s branch in Malate began on January 1, 2021. During the first of operations, the home office shipped
merchandise to the Malate branch that cost P250,000 at a billed price od P300,000. One fourth of the
merchandise remained unsold at the end of 2021. The home office records shipments to the branch at P300,00
billed price at the time the shipment are made.

Freight-in of P2,000 on the adjustments from HO was paid by the branch. The HO should make an adjusting entry for the
freight-in as :

a. A year-end AJE debiting the branch account for P500 c. A year-end AJE crediiting the branch account for P500
b. A year-end AJE debiting the branch account for P2,500 d. no year-end AJE for the freight

21. LECHE Co started operating branch on May 1, 2021 with a shipment of merchandise billed at P250,000.
Additional shipments during the month were billed at P125,000. The branch returned damage merchandise orth
P10,000. Inter-office shipments are billed at 125% of cost uniformly. On May 31, 2021, the branch reported a net
loss of P52,500 and an inventory of P150,000. What is the branch’s net income on the combined income
statement for May 2021?

a. P(9,500) c. P(52,500)
b. P 43,000 d. P95,000

22. lLUVU Co.has a branch in Antipolo City. During the year, the HO shipped to branch merchandise billed at
P150,000 including a markup of 20% of cost. The branch reports opening and closing inventories of P90,000 and
P120,000,respectively, while the HO has a closing inventories of P210,000 which includes merchandise held for
consignment valued at P10,000. Both location use the periodic inventory system for inventory. What closing
inventory would be reported in the combined income statement for the current year?
 a. P296,000 c. P320,000
b. P300,000 d. P330,000

23. MAHAL Corp.’s shipments to and from its KITA Branch are billed at 120% of cost. On December 31, KITA
reported the following data at billed price INVENTORY beg-------P33,600; SHIPMENTS FROM HO—P840,000;
SHIPMENTS RETURN---P48,000; INVENTORY END------P36,000. What is the balance of allowance for over
valuation of branch inventory on December before the adjustments?

a. P 5,600 c. P6,000
b. P 137,600 d. P 145,600

24. On July 1, 2023, Mogao Inc. acquired most of the outstanding ordinary stock of Jewel Company for cash. The incomplete
working paper elimination entries on that date for the consolidated statement of financial position of Mogao Inc. and its
subsidiary are shown below:

Stockholders' equity- Jewel 2,437,500

Investment in Jewel 1,584,375
Non-controlling interest 853,125

Inventories 62,500
Equipment 312,500
Patent 61,250
Goodwill ?
Investment in Jewel 468,750
Non-controlling interest ?

Included in the purchase price is a control premium of P68,750.

Assuming non-controlling interest is measured at fair value. The amount of goodwill to be reported in the consolidated
statement of financial position on July 1, 2023 is?

a. P179,135

b. P284,904

c. P247,885

d. P185,188

25. Assuming non-controlling interest is measured at fair value. The fair value of the non-controlling interest is P1,150,000
The amount of goodwill to be reported in the consolidated statement of financial position on July 1, 2023 is?

a. P260,625

b. P398,125

c. P329,375

d. P260,625
LONG PROBLEM (15 points)

The following summarized balance sheets wee prepared for the TOOK and MOLE Corporation on DEC. 31, 2021

ASSETS TOOK MOLE

CURRENT ASSETS P 350,000 P 185,000

LAND 80,000 25,000
BUILDING 325,000 250,000
GOODWILL 120,000 100,000
TOTAL P 875, 000 P 560,000

LIABILITIES AND EQUITY

ACCOUNTS PAYABLE P 115,000 P 85,000

BONDS PAYABLE 170,000 150,000
COMMON STOCK P10 PAR 150,000 75,000
APIC 200,000 40,000
RETAINED EARNINGS 240, 000 210,000
TOTAL P 875, 000 P 560,000

The appraised values of the MOLE Co. land and building are P50,000 and P350,000 respectively. TOOK will issue 15,250
shares of its P10 par common stock with market value of P20 each for the net assets of MOLE co. TOOK will also pay
P3,000 in cash for indirect expenses and P2,000 for the stock issuance costs.

Required compute for the following Accounts after the combination.

CURRENT ASSETS________________

GOODWILL (if any)_______________

GOODWILL OR (GAIN) ON BUSINESS COMBINATION if any_________________

COMMON STOCK________________

APIC__________________

RETAINED EANINGS_________________________

LAND__________________

BUILDINGS_________________

ACCOUNTS PAYABLE____________
BONDS PAYABLE_______________

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