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ACCOUNTING 15
QUIZ 3

TEST 1 ( PROBLEM-SOLVING) (60%) (Estimated completion time = 60 to 65 minutes)

INSTRUCTION: On the space provided in your Official Answer Sheet, write your FINAL ANSWER for
each of the numbered requirement enumerated below. No credit shall be given for any correct
answer with erasures. Submit your OFFICIAL ANSWER SHEET together with the work sheets
containing your supporting computations.

Numbers 1 and 2 are based on the following information:

Promenade Company is calculating the amount of pretax accounting income per book for 2015 by making
adjustments to taxable income from the income tax return which showed a taxable income of P7,200,000 on
which the tax liability P2,160,000 has been recognized.

The entity provided the following items that may be required to determine the pretax accounting income from
the amount of taxable income:
 Annual premium on life insurance policy of the entity’s CEO was not included in the income tax
return as allowable deduction amounting to P240,000.
 Rentals collected in advance, P800,000.
 Tax depreciation on a machinery was P300,000 while its straight-line financial depreciation was
P180,000.
 Interest income on tax-exempt government bonds, P60,000.
 Estimated future warranty cost to be paid in 2016 and 2017, P200,000.
 Goodwill impairment loss of P500,000 was not included as allowable deduction in the tax return
but recognized in the income statement.
 Fines, penalties, and surcharges incurred and paid to the BIR, P50,000 recognized in the entity’s
income statement.

REQUIRED:

1. Calculate the pretax accounting income per book for the 2015. _____________.

2. Calculate the income tax expense for 2015 assuming the there has been no change in the income tax
rate for 2016 and 2017. _____________

3. Beauna Corporation’s income statement for the year ended December 31, 2015 shows pretax
income of P1,000,000. The following items are treated differently on the tax returns and in the
accounting records:

Tax return Accounting record

Rent income 70,000 120,000
Depreciation expense 280,000 220,000
Premiums on officers’ life insurance 90,000

Beauna’s tax rate for 2015 is 35%. What is the amount of income tax payable for 2015? __________.

4. A reconciliation of the financial statement and taxable income for 2015 of Minnie Company follows:

Pretax financial income 6,000,000

Permanent difference (500,000)
Accounting income subject to tax 5,500,000
Temporary difference-capitalized interest for book; expensed for tax (200,000)
Taxable income 5,300,000
=======

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Cumulative temporary difference (future taxable amount) as at December 31, 2014 is P300,000 and
as at December 31, 2015 is P500,000. The tax rate was 35%. What amount should Minnie report as
deferred tax liability in its December 31, 2015 statement of financial position? ___________.

Numbers 5-A and 5-B are based on the following information:

5. Forrest Gump Corporation, while it applies PAS 41-Agriculture in accounting for its biological assets,
has opted to adopt the new accounting treatment for “bearer” plants early. It has reclassified certain
assets to conform to the new accounting standard for the financial period 2015. As at December 31,
2015, the entity has a total value of P152 million of forest and farm assets which consist of the
following:

Freestanding Red Lauan trees ( timber will be supplied to major

lumber yards in the next 5 years) P70,000,000
Fruit-bearing trees (their fresh fruits are being exported to Asian 20,000,
countries) 000
Land under trees 25,000,000
18,00
Farm animals for breeding 0,000
Farm building 9,000,000
Agricultural produce (at fair value less point-of-harvest cost) 3,000,000
Private roads and pavements going to farm and forest plantation 5,000,000
Animal feeds and veterinary supplies inventory 2,000,000

REQUIRED:

5-A ) At what amount should biological assets be presented in the statement of financial position as
at December 31, 2015? ________________ (2 points)

5-B) What is the balance of the plant, property & equipment to be presented in the statement of
financial position as at December 31, 2015? _______________. (2 points)

Use the following information for questions 6 and 7:

On January 1, 2015, XYZ (SME) has the following data presented below:
 Investment property (A) at cost P1,000,000 ( useful life 10 years)
 Investment property (B) at cost P10,000,000 (useful life 10 years) and has a fair value of
P12,000,000
 Research cost P100,000
 Development cost P200,000 ( useful life 10 years)

6. What should be the carrying amount of the investment property as of December 31, 2015?

7. What should be the carrying value of total assets as of December 31, 2015?

8. On January 1, 2014, Magdalena, an SME, purchased Victoria Company at a cost that resulted in
recognition of goodwill of P5,000,000. During January 2, 2015, Magdalena spent an additional
P2,000,000 on expenditures designed to maintain goodwill. Due to these expenditures, at December
31, 2015, Magdalena estimated that the benefit period of goodwill was indefinite. In its December 31,
2015 statement of financial position, what amount should Magdalena report as goodwill?

9. On January 1, 2015 entities X and Y each acquired 25 percent of the ordinary shares that carry
voting rights at a general meeting of shareholders of entity C for P5,250,000. Entities X and Y
immediately agreed to share control over entity C. For the year ended December 31, 2015 entity C
recognized a profit of P7,000,000. On December 31, 2015 entity C declared and paid a dividend of
P2,625,000 for the year 2012. On December 31, 2015 the fair value of each venturers’ investment in
entity C is P7,437,500. However, there is a published price quotation for entity C. Assuming Entity X
uses the cost model to account for its investment in entity C, Under the PFRS for SMES how much is
the investment in December 31, 2015?

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10. On 1 January 2015 an entity acquired a building for P100,000. At 31 December 2015 management:
 assessed the building’s useful life as 40 years from the date of acquisition
 assessed the building’s residual value as P20,000
 assessed the entity will consume the building’s future economic benefits evenly over 40 years from
the date of acquisition
 assessed the fair value of the building at P130,000.
 The building is occupied by the entity’s sales staff.

At what amount should the entity measure the carrying amount of the building on 31 December 2015?

11. JANESSA Company had loans outstanding for the entire year 2015.
General loan P40M 12%
The loan was used in the construction of the building.
The entity began the self-construction of the building on January 1, 2015 and the building was
completed on December 31, 2015. The following expenditures were made during the current
year:
January 1 2,000,000
July 1 4,000,000
November 1 6,000,000

Required: Cost of the new building

12. At the beginning of the current year, Hector Company has the following property plant and
equipment transactions:
A. Exchanged an old machine, with a carrying amount of P780,000 and a fair value of
of P700,000, and paid P200,000 cash for another used machine having a list price of
P1,000,000.
B Traded in an old machine having a carrying amount of P3,360,000 and paid a cash
difference of P320,000. The fair value of the old packaging machine was determined
to be P1,400,000.
C. Purchased equipment by making a down payment of P800,000 and issuing a note payable
for P3,600,000. A payment of P1,200,000 is to be made at the end of each year for three
years. The applicable rate of interest is 8%. The present value of an ordinary annuity of
1 for three years at 8% is 2.58, and the present value for the future amount of a single
sum for three years at 8% is .735. Shipping charge for the equipment of P400,000 and
the installation cost of P700,000 were incurred.
D. The entity owns shares in another entity costing P2M. The entity exchanged the 20,000
shares for a transportation equipment. At the time of the exchange, the share is quoted
P2.4M and the equipment has a list price of P2,720,000. Motor vehicle registration was
paid in the amount of P5,000.
E. Exchanged an old machine which cost P960,000 and was 50% depreciated, for new
machine and paid a cash difference of P120,000. The fair value of the old packaging
machine is determined to be P440,000 and the list price of the new machine is P600,000.
The entity incurred shipping cost of P5,000, delivery and installation of P2,000. The
employee working on the old machine that was retired was given a gratuity pay of
P10,000.
F. The entity traded a used equipment for a newer model with a dealer.
Old equipment:
Original cost P4.0M
Accumulated depreciation P2.4M
Fair value unknown
New equipment:
List price P6.4M
Cash price without trade in P4.8M
Cash price with trade in 3,920,000

Required: Total Cost of property purchased

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Numbers 13 and 14 are based on the following information:

Candy Soda Company has the following information on January 1, 2015 relating to its property,
plant, and equipment.
Land 7,500,000
Building 75,000,000
Accumulated depreciation (9,375,000)
Machinery 100,000,000
Accumulated depreciation (25,000,000)
There were no additions or disposals during 2015. Depreciation is computed using straight
line over 20 years for building and 10 years for machinery. On June 30, 2015, all of the
property, plant and equipment were revalued as follows:
Replacement cost Sound value
Land 10,000,000 10,000,000
Building 125.000.000 106,250,000
Machinery 162.500,000 113,750,000

Required: 13. Total Depreciation for 2015

14. Revaluation Surplus on December 31, 2015
15. In January 2015, Hukay-Hukay Company purchased a mine for P9,000,000 with removable
ore estimated by geological survey at 540,000 tons. The property has an estimated
540,000 tons. The property has an estimated value of P900,000 after the ore has been
extracted . Hukay-Hukay incurred P2,700,000 of development cost preparing the property
for the extraction of ore. During 2015, 67,500 tons were removed and 60,000 tons were
sold.
Required: Depletion included in cost of goods sold on December 31, 2015

TEST 2 ( MULTIPLE CHOICE THEORY) (40%) (Estimated completion time = 15 to 20 minutes)

INSTRUCTION: On the space provided in your Official Answer Sheet, write the letter (in capital letter)
corresponding to the best answer for each numbered item given below. No credit shall be given to
any correct answer with erasures.

1. Interperiod income tax allocation procedures are appropriate when

a. an extraordinary loss will cause the amount of income tax expense to be less than the tax on
ordinary net income.
b. an extraordinary gain will cause the amount of income tax expense to be greater than the tax on
ordinary net income.
c. differences between net income for tax purposes and financial reporting occur because tax laws
and financial accounting principles do not concur on the items to be recognized as revenue and
expense.
d. differences between net income for tax purposes and financial reporting occur because, even
though financial accounting principles and tax laws concur on the item to be recognized as
revenues and expenses, they don't concur on the timing of the recognition.

2. Which of the following differences would result in future taxable amounts?

a. Expenses or losses that are tax deductible after they are recognized in financial income.
b. Revenues or gains that are taxable before they are recognized in financial income.
c. Revenues or gains that are recognized in financial income but are never included in taxable
income.
d. Expenses or losses that are tax deductible before they are recognized in financial income.

3. The following statements are based on PFRS for SMEs:

Statement I: SMEs are entities that do not have public accountability.
Statement II: SMEs are entities that publish general purpose financial statements for external users.
Statement III: SMEs are entities that publish special purpose financial statements for internal users.
a. Only statement I is true c. Only statement III is false
b. Only statement II is true d. Only statement I is false

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4. The following statements are based on PFRS for SMEs:

Statement I: An entity has a public accountability if its debt or equity instruments are traded in a public
market.
Statement II: An entity has a public accountability if it is in the process of issuing debt or equity
instruments
for trading in a public market.
Statement III: An entity has a public accountability if it holds assets in a fiduciary capacity for a broad
group
of outsiders as one of its primary businesses.
a. True, true, true c. True, false, true
b. True, true, false d. True, false, false

5. Based in Philippine SEC rules, which of the following entities would not qualify as SMEs?
a. Entities with total assets between P 3 million and p 350 million
b. Entities with total liabilities between p 3 million and p 250 million
c. Entities that are not in the process of filing FS for the purposes of issuing any class of instrument in a
public market
d. Public utility companies or holders of secondary licenses issued by a regulatory agency

6. Which of the following is not among the qualitative characteristics of information is the FS of SMEs?
a. Prudence c. Materiality
b. Consistency d. Balance between benefit and cost

7. Which is not considered as Other Comprehensive Income (OCI) for SMEs?

a. Some actuarial gains and losses
b. Some foreign exchange translation gains and losses
c. Some changes in fair values of hedging instruments
d. Some gains and losses on available-for-sale securities

8. Investments in associates must be tested for impairment if the entity uses

a. The cost model or the equity method
b. The cost model or the fair value model
c. The equity method or the fair value model
d. The cost model, equity method or fair value model

9. Consolidated financial statements of SMEs must include the financial statements of the entity and its
a. Associates c. Controlled special purpose entities
b. Subsidiaries d. Subsidiaries and controlled special purpose entities

10.Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the
balance sheet if
a. it is probable that a future tax rate change will occur.
b. it appears likely that a future tax rate will be greater than the current tax rate.
c. the future tax rates have been enacted into law.
d. it appears likely that a future tax rate will be less than the current tax rate.

11.Recognition of tax benefits in the loss year due to a loss carryforward requires
a. the establishment of a deferred tax asset.
b. the establishment of a deferred tax liability.
c. the establishment of an income tax refund receivable.
d. only a note to the financial statements.

12. Under PAS 12 Incomes Taxes, deferred tax assets and liabilities are measured at the tax rates that:

a. applied at the beginning of the reporting period;

b. at the end of the reporting period;
c. at the rates that prevail at the reporting date;
d. are expected to apply when the asset or liability is settled.

13. Which of the following is true about biological assets under IFRS?

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a. Biological assets are only found in Biotech companies.

b. Biological assets are living animals or plants and must be disclosed as a separate item on the statement
of financial position.
c. Biological assets must be valued at cost.
d. Biological assets do not generally have future economic benefits.

14. The following provides examples of biological assets, agricultural produce and products that are the
result of processing after harvest. Which is an incorrect combination?
Biological Asset Agricultural Produce Product After Harvest
a Cattles Fresh milk Low-fat powdered milk
b Grape vines Grapes Wines
c Swines Carcass Canned meat
d Ocean fish Fish meat Packed smoked fish for export

15. Where the fair value of the biological asset cannot be determined reliably, the biological asset should be
measured at
a. Cost
b. Cost less accumulated depreciation and accumulated impairment losses.
c. Discounted cash flow value
d. Net realizable value

16. All of the following factors are considered in determining the useful life of an asset,
except
A. Expected usage of the asset
B. Expected physical wear and tear
C. Technical obsolescence
D. Residual value

17. Borrowing costs are interest and other costs that an entity incurs in connection with borrowing
funds. Borrowing costs include (choose the incorrect one)
A. Interest expense on borrowings calculated using the effective interest method
B. Interest expense on borrowings calculated using the straight line method
C. Finance charge with respect to a finance lease
D. Exchange difference arising from foreign currency borrowing that is regarded as an
adjustment to the interest cost.

18. Which is not an essential characteristic of property, plant and equipment?

A. The property, plant and equipment are tangible assets
B. The property, plant and equipment are used in production or supply of goods and services,
for rental purposes and for administrative purposes
C. The property, plant and equipment are expected to be used over a period of more than
one year.
D. The property, plant and equipment are subject to depreciation.

19. Under the cost model, subsequent to initial recognition as an asset, an item of property, plant
shall be carried at
A. Cost
B. Revalued amount
C. Cost less accumulated depreciation and any accumulated impairment loss
D. Revalued amount less accumulated depreciation and any accumulated impairment loss

20. The production method of depreciation results in

A. Constant charge over the life of the asset
B. Decreasing charge over the life of the asset
C. Increasing charge over the life of the asset
D. Charge based on the expected use or output of the asset

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END OF QUIZ

ACCOUNTING 15
FINAL EXAMINATION

TEST 1 ( MULTIPLE CHOICE PRACTICE) (80%)

INSTRUCTION: On the space provided in your Official Answer Sheet, write the LETTER OF YOUR
CHOICE (in capital letter) for each of the numbered item enumerated below. No credit shall be given
for any correct answer with erasures. Submit your OFFICIAL ANSWER SHEET together with the
work sheets containing your supporting computations.
______________________________________________________________________________________

1. The GAWAD KALINGA a not for profit organization is in need of the services of a CPA and a Lawyer.
Mr. Abo, a CPA-Lawyer performed the audit of GAWAD KALINGA’s financial statements at no charge
was valued at P30,000, and those of legal services to the organization at no charge had a value of
P12,000. The value of services to be recorded is

a. P30,000 b. P12,000 c. P42,000 d. P0

2. The records of TMT Hospital, a non-profit organization, had the following amounts on June 30, 2015:

Premium fees (revenue) P 80,000

Contractual adjustments 160,000
Patient service revenues (gross) 1,240,000
Provision for doubtful accounts 140,000

Net patient service revenues for TMT Hospital for the year ended June 30, 2015 amounts to:
a. P1,160,000 b. P1,100,000 c. P1,000,000 d. P1,080,000

3. Department XX issued a purchase order (PO) for the acquisition of office equipment costing P150,000.
The same was paid by check after withholding tax of 10%.

The obligation of P150,000 is recorded in the Registry of Allotment and Obligation, Capital Outlay (RAOCO).
The entry to record the payment is:

a. Accounts Payable 150,000

Due to BIR 15,000
Cash, National Treasury – MDS 135,000

b. Office Equipment 150,000

Cash, National Treasury – MDS 150,000

c. Accounts Payable 150,000

Cash, National Treasury – MDS 150,000

d. Office Equipment 150,000

Withholding Tax Payable 15,000
Cash Check Disbursement 135,000

4. The following excerpt from the post closing trial balance of UNDERLINE, HIGHLIGHT, ENCIRCLE THE
WORD Company (An SME - for its first year of operation) has been presented to you for the period
ended December 31, 2015:

Property and equipment ( Note 1) P5,250,000

Note 1- Property and equipment comprise of the following items:

Land held for speculative purpose at cost P1,300,000
Land, selling and administrative offices site at cost 1,100,000
Building, 25 years useful life acquired on Jan. 1 at cost (includes 1,500,000
borrowing
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cost – qualifying asset of P100,000)

Building acquired in a business combination on June 30, 15 year  
remaining life at fair value upon acquisition 900,000
Equipment, 10 year useful life acquired in January at cost 450,000

 The land held for speculative use had a fair value of P1,400,000 on December 31, 2015.
 The land, selling and administrative office site was revalued at P2,500,000, the company
management believe this will be the probable and reasonable amount to be presented in the
statement of financial position and the Controller of the company asked you to prepare the necessary
adjusting entry to record at the revalued amount.
 Depreciation is yet to be provided by the client. It was ascertained that straight line method should be
used with no residual value.

Required: How much is the carrying amount of property and equipment as of December 31, 2015?
a. P3,719,000 b. P3,917,000 c. P3,179,000 d. P3,791,000

5. MALAPIT NA Corporation acquired a 80% interest in nectar corporation on January 1, 2010 at a

cost equal to book value and fair value. In the same year nectar sold land costing P30,000 to
MALAPIT NA for P50,000. On July 1, 2015, MALAPIT NA sold the land to an unrelated party for
P110,000 what was the gain on consolidated income statement?
a. P48,000 b. P60,000 c. P64,000 d. P80,000

Items 6 through 7 are based on the following information

Saul is a 90% owned subsidiary of Paul Corporation, acquired at book value several years ago. Comparative
separate company income statements for these affiliated corporations for 2015 are as follows:

Paul Corporation Saul Corporation

Sales ------------------------------------ P 1,500,000 P 700,000

Dividend income -------------------- 108,000 ---
Gain on building --------------------- 30,000 ------
Income credits ----------------------- P 1,638,000 P 700,000
Cost of Sales ------------------------ P 1,000,000 P 400,000
Operating Expenses -------------- 300,000 150,000
Income debits ---------------------- P 1,300,000 P 550,000
Net Income ------------------------- P 338,000 P 150,000

On January 5, 2015 Paul sold a building with a 10 year remaining useful life to Saul as a gain of P30,000.
Saul paid dividends of P 120,000 during 2015.

6. The profit attributable to equity holders of parent or CNI attributable to Controlling interests for
2015:
a. P 342,000 b. P 340,700 c. P 338,000 d. P 335,000

7. The consolidated/group net income for 2015 should be:

a. P 338,000 b. P 353,000 c. P 380,000 d. P 443,000

8. Washington Corp. acquired 70% of the voting common stock of George Co. at the time when George
Corp.’s book values and fair values were equal. Separate incomes of Washington and George Co. for
2014 are as follows:

Washington Corp George Co.

Sales P700,000 P400,000
COGS 400,000 200,000
OPEX 120,000 100,000
Separate Income 180,000 100,000

Intercompany sales from Washington to George for 2013 and 2014 summarized as follows:
Intercompany sales – 2013 P250,000 (unsold 1/5) gross profit 40% (based on sales)
Intercompany sales – 2014 175,000 (unsold 1/2) gross profit 40% (based on cost)

The consolidated income statement will show COGS of:

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a. P 350,000 b. P 319,000 c. P 340,000 d. P440,000

9. Turner Corporation had the following information in its financial statements for the year ended 2015:

Cash dividends for the year 2015 P 15,000

Net income for the year ended 2015 124,000
Market price of shares, 12/31/15 24
Ordinary shareholders’ equity, 12/31/15 ?
Outstanding shares, 12/31/15 120,000
Book value per share P20

What is the ordinary shareholders’ equity on December 31, 2015?

a. P2,200,000 b. P2,400,000 c. P2,300,000 d. P2,500,000

10.Fugate Company had 500,000 ordinary shares issued and outstanding at December 31, 2014. On July 1,
2015 an additional 500,000 shares were issued for cash. Fugate also had share options outstanding at
the beginning and end of 2015 which allow the holders to purchase 150,000 ordinary shares at P20 per
share. The average market price of Fugate's ordinary shares was P25 during 2015. What is the number
of shares that should be used in computing diluted earnings per share for the year ended December 31,
2015?
a. 1,030,000 b. 870,000 c. 787,500 d. 780,000

11.Amos Company adopt the current cost accounting, presented below are additional information:

Cost of goods sold P1,000,000

Average Replacement Cost of goods sold P1,500,000
Ending inventory at cost P2,000,000
Ending inventory at replacement cost P3,000,000
Land at cost P5,000,000
Land at replacement cost P8,000,000

Total realized holding gain

a. P500,000 b. P3,500,000 c. P4,000,000 d. P5,000,000

12. The following information pertains to Haggai Company for the year ended December 31, 2015:

Net monetary assets – January 1 P880,000

Sales 3,900,000
Purchases 2,340,000
Expenses 975,000
Income tax 585,000
Cash dividend paid on December 31,2015 200,000
The sales, purchases, expenses and income tax accrued evenly during the year. Selected general price
index numbers for 2015 are:
January 1 110
December 31 280
Average for the year 195

What is the loss on purchasing power for 2015?

a. P1,460,000 b. P1,360,000 c. P200,000 d. P240,000

Numbers 13 and 14 are based on the following information:

On November 1, 2015, Rowie International enters into a 90-day forward contract to purchase 10,000 Euro
currency when the current quotation for 90-day forward in Euro currency is P65.00. The spot rate for Euro
currency on November 1, 2015 is P65.40. Exchange rates are December 31, 2015 and January 30, 2016 are
as follows:
December 31, 2015 January 30, 2016
30 day futures P65.50 P65.80
Spot rate 66.00 65.30

13. The exchange gain/(loss) on December 31, 2015 is

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A. P6,000 B. P5,000 C. P10,000 D. P1,000

14. The cash received by Rowie International on January 30, 2016 is
A. P658,000 B. P660,000 C. P655,000 D. P653,000

15. For the year ended December 31, 2015, its first year of operations after its establishment by its parent
company, Japan Corporation, wholly owned foreign subsidiary had the following financial statement
amounts. ____________________________________________________

Total revenue ¥ 800,000

Total expenses 600,000
Total assets 900,000
Total liabilities 500,000
Stockholders’ equity:
Common stock, ¥ 1 par 200,000
Retained earnings (no dividends paid) 200,000
Exchange rates for the Yen were as follows:
January 2, 2015 (date Japan was established) ¥1 = P0.44
December 31, 2015 ¥1 = P0.48
Average for 2015 ¥1 = P0.46_

What is the amount of the OCI – translation adjustment on translating foreign operations on December 31,
2015?
a. P12,000 credit b. P10,000 debit c. P20,000 credit d. P12,500 debit

16. Great Corporation had the following foreign currency transactions during 2015:
 Merchandise was purchase from a foreign supplier on January 10, 2015, for the Philippine peso
equivalent of P600,000. The invoice was paid on April 20, 2015, at peso equivalent of P608,000.
 On September 1, 2015, Great corporation borrowed the Philippine peso equivalent of P3,000,000
evidenced by note that was payable in the lender’s local currency on September 1, 2015. On
December 31, 2015, the Philippine peso equivalent of the principal amount and accrued interest were
P3,200,000 and P120,000, respectively. Interest on the note is 10% per annum.

In Great’s 2015 statement of comprehensive income, what amount should be included as a forex loss?
a. P 40,000 b. P200,000 c. P228,000 d. P300,000

17. Tom Company incurred the following computer software costs for the development and sale of software
programs during the current year:

Planning costs P1,000,000

Design costs of the software 3,000,000
Substantial testing of the project’s initial stages 1,500,000
Production and packaging costs for the first month’s sales 10,000,000
Costs of producing product masters after technology feasibility was established 4,000,000
Advertising costs to promote the software 2,000,000

The project was not under any contractual arrangement when these expenditures were incurred. What
amount should be reported as research and development expense for the current year?

a. 5,500,000 b. 19,500,000 c. 4,000,000 d. 21,500,000

18. On October 1, 2014, Steve Company leased office space at a monthly rental of P350,000 for ten years
expiring on September 30, 2024. Payment is made at the beginning of every month. As an inducement to
enter into the lease, the lessor permitted the lessee to occupy the premises rent-free from October 1,
2014 to December 31, 2014. On December 31, 2015, what amount should be recognized as accrued rent
payable?

a. Zero b. 918,750 c. 1,023,750 d. 4,095,000

19. Rick Company reported current tax expense of P15,000,000 for 2016. The changes in assets and
liabilities are as follows:
December 31, 2015 December 31, 2016
Deferred tax asset P2,400,000 P3,000,000
Deferred tax liability 1,800,000 1,350,000

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Income tax payable 600,000 1,500,000

The deferred tax liability was caused by accelerated depreciation and the deferred tax asset is for rentals
received in advance. What amount of total tax expense should be recognized in 2016?

a. 16,950,000 b. 16,050,000 c. 14,850,000 d. 13,950,000

20. Cris Company acquired a herd of 5 four-year old cows on January 1, 2015. On July 1, 2015, a 4 ½-year
old cow was acquired. The fair values less estimated point of sale costs were as follows: 4-year old cow
at January 1, 2015, P15,000; 4 ½ year old cow at July 1, 2015, P15,900; 5-year old cow at December
2015, P17,250. What amount should the company recognize in its December 31, 2015 statement of
comprehensive income related to the cows as a result of the change in their fair market values?

a. P28,500 b. P15,900 c. P12,600 d. P10,000

21. The August Company leased a canning machine with a fair value of P165,000 for a period of 5 years
under a finance lease. The initial direct costs included in negotiating the lease were P1,250. The present
value of the minimum lease payments discounted at the rate implicit in the lease is P158,400. Under the
requirements of PAS 17 Leases, at what amount should the machine be recognized in August’s financial
statements?

a. P166,250 b. P165,000 c. P159,650 d. P158,400

22. The Rowie Company has a defined benefit retirement plan for its employees. The following information
pertains to the retirement plan:

Fair value of retirement plan assets, December 31, 2015 P2,608,500

Projected benefit obligation, December 31, 2015 2,520,000
Prepaid/ Accrued retirement benefit cost (debit balance at
December 31, 2014) 76,950

The December 31, 2015 adjusting journal entry relative to the plan includes a:
a. Debit to Net Remeasurement Loss-Other Comprehensive Income, P11,550.
b. Debit to Prepaid/Accrued Retirement Benefit Cost, P11,550.
c. Credit to Net Remeasurement Gain-Other Comprehensive Income, P165,450.
d. Credit to Prepaid/Accrued Retirement Benefit Cost, P165,450.

23. Ma-ann Company provided the following information on December 31, 2015:
Current service cost 520,000
Actual return on plan assets 810,000
Interest expense on projected benefit obligation 590,000
Interest income on plan assets 150,000
Loss on plan settlement 240,000
Past service cost during the year 360,000
Contribution to the retirement fund 950,000

Based on PAS 19R- Employee Benefits, what is the net pension expense for 2015?
a. 1,710,000 b. 1,470,000 c. 1,350,000 d. 1,560,000

24. Beagle Company computed a pretax accounting income of P5,000,000 for its first year of operations
ended December 31, 2015. In preparing the income tax return for 2015, the following differences are
noted between accounting income and taxable income:

Non-deductible expenses 200,000

Nontaxable revenue 500,000
Gross income on installment sales reported in accounting
But not in taxable income (expected to reverse in 2016) 1,000,000
Provision for doubtful accounts 100,000
Income tax rate 30%

What is the current tax expense for 2015?

a. P1,140,000 b. P1,410,000 c. P1,110,000 d. P1,500,000

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25. On December 31, 2015, Exodus Company leased a new machine from Parr with the following pertinent
information:
Lease term 6 years
Annual rental payable at beginning of each year P50,000
Useful life of machine 8 years
Day’s incremental borrowing rate 15%
Implicit interest rate in lease (known by Exodus) 12%
Present value of annuity of 1 in advance for 6 periods at
12% 4.61
15% 4.35

The lease is not renewable, and the machine reverts to Parr at the termination of the lease. The cost of the
machine on Parr’s accounting records is P375,500. At the beginning of the lease term, Exodus should record
a lease liability of

a. P375,500 b. P217,500 c. P230,500 d. P0

26. Timothy Company has granted share options to employees. The total compensation expense to the
vesting date of December 31, 2016 has been calculated at P8,000,000. The entity has decided to settle
the award early on December 31, 2015. The compensation expense charged since the date of grant on
January 1, 2013 was P2,000,000 for 2013 and P2,100,000 for 2014. The compensation expense that
would have been charged in the year 2015 was P2,200,000. What would be the compensation expense
for 2015 if the share options are not exercised but instead the entity paid P7,500,000 to the employees?

a. 2,200,000 b. 3,900,000 c. 3,400,000 d. 7,500,000

27. Stephen Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining
industry. The following information pertains to operations for the month of May 2015:
Units
Beginning work in process inventory, May 1 16,000
Started in production during May 100,000
Completed production during May 92,000
Ending work in process inventory, May 31 24,000

The beginning inventory was 60% complete for materials and 20% complete for conversion costs. The
ending inventory was 90% complete for materials and 40% complete for conversion costs. Costs pertaining
to the month of May are as follows:

• The beginning inventory costs are: materials, P54,560; direct labor, P20,320; and factory overhead,
P15,240.
• Costs incurred during May are: materials used, P468,000; direct labor, P182,880; and factory overhead,
P391,160.

Using the FIFO method, the total cost of units in the ending work in process inventory at May 31 is
a. P153,168 b. P145,800 c. P155,328 d. P156,960

28. Matthew Corporation accumulated the following cost information for its two products, A and B:
A B Total
Production volume 2,000 1,000
Total direct man. labor hrs. 5,000 20,000 25,000
Setup cost per batch P 1,000 P 2,000
Batch size 100 50
Total setup costs incurred P20,000 P40,000 P60,000
DMLH per unit 2 1

A traditional costing system would allocate setup costs on the basis of DMLH. An ABC system would
trace costs by spreading the costs per batch over the units in a batch. What is the setup cost per unit of
product A under each costing system?
Traditional ABC
a. P4.80 P20.00
b. P 2.40 P10.00
c. P40.00 P200.00
d. P4.80 P10.00

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29. Wiki Manufacturing Company uses a job-order costing system and started the month of October with a
zero balance in its work in process and finished goods inventory accounts. During October, Pampanga
worked on three jobs and incurred the following direct costs on those jobs:

Job B18 Job B19 Job C11

Direct materials ............................. P12,000 P25,000 P18,000
Direct labor .................................... P 8,000 10,000 P5,000

Wiki applies manufacturing overhead at a rate of 150% of direct labor cost. During October, Wiki completed
Jobs B18 and B19 and sold Job B19.

What is Wiki's cost of goods manufactured for October?

a. P 50,000 b. P 55,000 c. P 78,000 d. P 82,000

30. The following information is made available in relation to the defined benefit plan of Gerry Company for
the year 2015:
January 1 December 31
Fair value of plan assets 10,000,000 12,300,000
Defined benefit obligation 9,000,000 11,000,000
Asset ceiling 700,000 850,000

Other relevant information for 2015 is as follows:

Current service cost 1,000,000
Contribution to the plan 2,000,000
Discount rate 10%
Benefits paid 600,000

What amount of defined benefit cost should be reported in profit or loss?

a. 900,000 b. 930,000 c. 1,850,000 d. 920,000

31. JJJ Restaurant Inc., sold a fastfood restaurant franchise to Carlo. The sale agreement,
signed on January 2, 2014, called for a P60,000 down payment plus two P20,000 annual
payments, representing the value of initial franchise services rendered by JJJ Restaurant.
In addition, the agreement required the franchisee to pay 5% of its gross revenues to the
franchisor, this was deemed sufficient to cover the cost and provide a reasonable profit
margin on continuing franchise services to be performed by JJJ Restaurant. The
restaurant opened early in 2014, and its sales for the year amounted to P1,000,000.

Required: Assuming a 10% interest rate is appropriate, what will be JJJ Restaurant's
2014 total revenue (the present value of an annuity of P1 at 10% for 2
periods is 1.7355)?
a. 60,000 c. 144,710
b. 94,710 d. 148,180

Numbers 32 and 33 are based on the following information:

Arirang Electronics makes all of its sales on credit and accounts for them using the
installment sales method. For simplicity, assume that all sales occur on the first day of
the year and that all cash collections are made on the last day of the year. Arirang
Electronics charges 18% interest on the unpaid installment balance. Data for 2013
and 2014 are as follows:
2013 2014
Sales 200,000 240,000
Cost of goods sold 120,000 160,000
Cash collections (principal and interest)
2013 sales 80,000 100,000
2014 sales 180,000

Required: 32. The interest income recognized in 2014 amounted to:

a. 28,080 c. 71,280
b. 43,200 d. 99,400

33. Compute the realized gross profit in 2014

a. 28,768 c. 74,368
b. 45,600 d. 79,200

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34. The Davao branch of a home office in Manila is billed for merchandise it receives at 125% of
cost. The branch turns around and sells them at 25% of billed price. On March 15, all branch's
merchandise was destroyed by fire. The branch's records recovered shows the following:
Inventory, January 1 (at billed price) 330,000
Shipments, January 1 to the date of fire (at billed price) 220,000
Purchases (at cost) from outsiders all resold at markup
of 20% 15,000
Sales 338,000
Sales returns and allowances 7,500
Required: Cost of merchandise destroyed by fire
A. 240,480 C. 260,000
B. 240,000 D. 280,000
35. In 2010, LBH Builders was contracted to build the private road network of Korean Subd.
for P100 million. The project was expected to be finished in 2 years, and the contract
provided for:
- A five percent mobilization fee (to be deducted from the last billing), payable
within 15 days from the contract signing.
- A retention provision of ten percent on all billings, payable with the final bill after
the completed project is accepted.
- Payment of progress billings within 7 days from acceptance.
LBH Builders, which uses the percentage-of-completion method of accounting for
income, estimated a 25% gross margin on the project. By the end of the year, LBH
Builders had presented progress billings to Korean Subd. Corresponding to 50%
completion. Korean Subd. accepted all the bills presented, except one for 10% which
was accepted on Jan. 5 of the next year. With the exception of the second to the last
billing for 8% which was due Jan 3 of the next year, all accepted billings were settled.

Required: In 2010, LBH Builders realized gross profit from the project the amount of:
a. 15,000,000 c. 25,000,000
b. 20,000,000 d. 12,500,000

Numbers 36 and 37 are based on the following information:

On January 1, 2012, Miclos Company purchased 5 year bonds with face value of P16M and
stated interest of 10% per year payable semiannually January 1 and July 1. The bonds were
acquired to yield 8%. Present value factors are:
Present value of an annuity of 1 for 10 periods at 5% 7.72
Present value of an annuity of 1 for 10 periods at 4% 8.11
Present value of 1 for 10 periods at 4% 0.6756

Required: 36. Purchase price of the bonds

A. 14,764,800 C. 17,297,600
B. 17,235,200 D. 14,702,400

37. Carrying value of bond investment on December 31, 2012

A. 17,189,504 C. 17,077,084
B. 17,081,408 D. 16,605,696

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38. KELLY and LOLLY, partners who share profits and losses equally decided to liquidate their
partnership business in installment. The balance sheet showed Cash, P70,000;Liabilities,
P40,000; Kelly, Capital, P142,000; and Lolly, Capital, P108,000. Anticipated liquidation expenses
amounts to P20,000. How much cash can be distributed safely to each partner at this point?

Required: How much cash can be distributed safely to each partner at this point?
KELLY LOLLY KELLY LOLLY
A. P10,000 P -0- C. P6,000 P -0-
B. P10,000 P 1,000 D. P10,000P 2,000

39. Whirlhouse consigned ten one-horsepower air conditioning units to CROWN Trading and paid
P4,000 for the freight out. The consignee is allowed a commission of 5% on sales.
CROWN Trading submitted an account sales on its transactions for the month of December
2012, as follows:
Sales (6 units, including 12.5% gross profit) 144,000
Less: Advances to consignor 20,000
Selling expenses 1,600
Installation and delivery 2,400
Commission 14,400 38,400
Net remittance 105,600

Required: How much was the net profit or loss of Westinghouse on the consignment?
A. 105,600 profit C. 4,400 profit
B. 15,600 loss D. 2,800 loss

40. At the beginning of the current year, Chaz Company purchased a gold mine for P18,000,000
with removable ore estimated by geological survey at 1,080,000 tons. The property has an
estimated value of P1,800,000 after the ore has been extracted. The entity incurred
P5,400,000 of development costs preparing the property for the extraction of gold. During
the current year, 135,000 tons were removed and 120,000 tons were sold.

Required: Depletion included in the cost of goods sold

A. 1,800,000 C. 2,400,000
B. 2,025,000 D. 2,700,000

TEST 2 ( MULTIPLE CHOICE THEORY) (20%)

INSTRUCTION: On the space provided in your Official Answer Sheet, write the letter (in capital letter)
corresponding to the best answer for each numbered item given below. No credit shall be given to
any correct answer with erasures.

1. A large not for profit organization’s statement of activities should report the net change for net
assets that are:
Unrestricted Permanently restricted
a. Yes Yes
b. No No
c. No Yes
d. Yes No

2. Under the cost method, the investment account is reduced when

a. There is a liquidating dividend.
b. The subsidiary declares a cash dividend.
c. The subsidiary incurs a net loss.
d. None of these.

3. The appropriate exchange rate for translating a plant asset in the balance sheet of a foreign
subsidiary in which the functional currency is the peso is the:
a. Current exchange rate
b. Average exchange rate for the current year
c. Historical exchange rate in effect when the plant asset was acquired or the date of acquisition, whichever
is later
d. Forward rate

4. Under hyperinflationary economy accounting, the sales account will be translated at___
a. Closing rate b. Average rate c. Spot rate d. Forward rate

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5.Recognition of tax benefits in the loss year due to a loss carryforward requires
a. the establishment of a deferred tax liability.
b. the establishment of a deferred tax asset.
c. the establishment of an income tax refund receivable.
d. only a note to the financial statements.

6. The FIFO process costing method will produce the same cost of goods manufactured as the
average method if
a. There are no lost units.
b. The goods produced are homogeneous in nature.
c. Beginning and ending inventories are equal.
d. There is no beginning inventory.

7. An entity experienced scrap, normal spoilage and abnormal spoilage in its manufacturing
process. The cost of units produced includes
a. Scrap, normal spoilage and abnormal spoilage.
b. Scrap but not spoilage.
c. Normal spoilage but neither scrap nor abnormal spoilage.
d. Scrap and normal spoilage but not abnormal spoilage.

8. According to PAS 41 (Agriculture), which of the following criteria must be satisfied before a
biological asset can be recognized in an entity’s financial statements?
I. The entity controls the asset as a result of past events.
II. It is probable that economic benefits relating to the asset will flow to the entity.
III. An active market for the asset exists.
IV. The asset comes from a homogeneous biological group.

a. I, II and IV only b. I, II, and III only c. I and II only d. II and III only.

9. The classification of a lease as either operating lease or finance lease is based on

a. The length of the lease.
b. The economic life of the asset.
c. The transfer of the risks and rewards of ownership.
d. The minimum lease payments being at least 75% of the fair value of the leased asset.

10. Which of the following is a criterion that must be met in order for an item to be recognized as an
intangible asset other than goodwill?
a. The item is identifiable and lacks physical substance.
b. The item’s fair value can be measured reliably.
c. The item is part of the entity’s activities aimed at gaining new scientific or technical
knowledge.
d. The item is expected to be used in the production or supply of goods or services.

11. When an asset is transferred to a branch from the home office, which of the
following occurs?
A. Only a memo entry is made
B. A credit to Home Office account
C. A debit to Home Office account
D. A credit to Investment in Branch account

12. When a home office pays the expenses of a branch and notifies the branch of
the expenditure, the following accounts increase:
Home Office Investment in Branch
A. Yes Yes
B. Yes No
C. No Yes
D. No No

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13. A home office's Investment in Branch account is a :

A. Asset C. Unrealized income
B. Contra liability D. Liability

14. Which of the following should be expensed as incurred by the franchisee for a franchise
with an estimated useful life of 10 years?
a. Amount paid to the franchisor for the franchise
b. Periodic payments to a company, other than the franchisor, for that company's
franchise
c. Legal fees paid to the franchisee's lawyers to obtain the franchise
d. Periodic payments to the franchisor based on the franchisee's revenues

15. In a liquidation proceeding, if the proceeds on the realization of an asset exceed

the lien against that asset, the excess is assigned to
A. The holder of the lien
B. Other lien holders whose asset will not realize a sufficient amount to
cover their liens.
C. Meet the claims of the unsecured creditors.
D. The shareholders of the corporation

16. Goods on consignment should be included in the inventory of

A. The consignor but not the consignee
B. Both the consignor and consignee
C. The consignee but not the consignor
D. Neither the consignor nor the consignee

17. Upon signing of the franchise contract, the franchisee is required to pay the:
A. Continuing franchise fee C. Initial franchise fee
B. Professional fee D. Brokers fee

18. The initial franchise fee received by the franchisor should first be
A. Recognize as revenue C. Recognize as asset
B. Deferred D. Recognize as other income

19. In accounting for a long term construction contract for which there is a projected profit,
the balance in the appropriate asset accounts at the end of the first year of work using
the hybrid contract method would be:
A. Zero
B. The same as the percentage of completion method
C. Higher than the percentage of completion method
D. Lower than the percentage of completion method

20. Under the cost recovery method, revenue is recognized until

A. Collections are equal to the amount of cost of goods sold
B. Collections are more than the cost of goods sold
C. Collections are less than the cost of goods sold
D. The selling price is collected

END OF FINAL EXAMINATION

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ACCOUNTING 15
QUIZ 2
TEST 1 ( PROBLEM-SOLVING) (60%) (Estimated completion time = 60 to 65 minutes)

INSTRUCTION: On the space provided in your Official Answer Sheet, write your FINAL ANSWER for
each of the numbered requirement enumerated below. No credit shall be given for any correct
answer with erasures. Submit your OFFICIAL ANSWER SHEET together with the work sheets
containing your supporting computations.

1. Maranatha Corporation has provided the following data from its activity-based costing system:

Activity Cost Pool Total Cost Total Activity

Assembly ..................... P436,240 28,000 machine-hours
Processing orders ......... P60,896 1,600 orders
Inspection .................... P82,767 1,410 inspection-hours

The company makes 230 units of product F7N a year, requiring a total of 480 machine-hours, 50 orders, and
30 inspection-hours per year. The product's direct materials cost is P12.70 per unit and its direct labor cost is
P45.93 per unit. The product sells for P126.60 per unit.

According to the activity-based costing system, what is product F7N’s gross margin per unit?

NUMBERS 2 and 3 are based on the following information:

Olives ,Inc. uses the weighted-average method in its process costing system. The following data concern the
operations of the company's first processing department for a recent month.

Work in process, beginning:

Units in process .......................................................... 100
Stage of completion with respect to materials ............ 70%
Stage of completion with respect to conversion.......... 90%

Costs in the beginning inventory:

Materials cost ........................................................... P 182
Conversion cost ........................................................ P3,429

Units started into production during the month ............10,000

Units completed and transferred out ........................... 9,700

Costs added to production during the month:

Materials cost .............................................................. P 27,986
Conversion cost ........................................................... P373,815

Work in process, ending:

Units in process ........................................................... 400
Stage of completion with respect to materials ............ 90%
Stage of completion with respect to conversion.......... 70%

Required:
Using the weighted-average method:

2. Determine the cost of units transferred out of the department during the month.
3. Determine the cost of ending work in process inventory in the department.

4. Jezreel Company has the following information for July:

Units started 100,000 units

Beginning Work in Process: (35% complete) 20,000 units
Normal spoilage 3,500 units
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Abnormal spoilage 5,000 units

Ending Work in Process: (70% complete) 14,500 units
Transferred out 97,000 units
Beginning Work in Process Costs:
Material P15,000
Conversion 10,000

All materials are added at the start of the production process. Jezreel Co. inspects goods at 75 percent
completion as to conversion.

What are equivalent units of production for material, assuming FIFO?

5. Faith Manufacturing Company uses a job order cost system. At the beginning of February, Faith only had
one job in process, Job #594. The direct costs assigned to this job at that time were P800 of materials
and P650 of labor. Job #594 was finished during February incurring additional direct costs of P120 for
materials and P370 for labor. Job #595 was started and finished during February. The direct costs
assigned to this job were P310 for materials and P190 for labor. Job #596 was started during February
but was not finished by the end of the month. The direct costs assigned to this job were P740 for
materials and P300 for labor. Faith applies manufacturing overhead to its products at a rate of 200% of
direct labor cost. What is Faith's cost of goods manufactured for February?

6. On July 1, 2015 the YOU CAN DO IT company paid P800,000 for the net asset of Ann
corporation in a transaction properly accounted for as a purchase. The recorded asset and
liabilities of Ann Corporation on July 1, 2015 as follow:
Cash P 80,000
Inventory 240,000
Property and equipment, net 480,000
Goodwill 100,000
Liabilities 180,000

On July 1, 2015 it was determined that the inventory of Ann had a fair value of P190,000 and the
property and equipment (net) had a fair value of P560,000. What is the amount of goodwill that will
be reported in the books of YOU CAN DO IT?

7. Goal corporation acquired 60% interest in LAPIT NA Corp on January 1, 2015, when LAPIT
NA’s book values and fair values were equivalent. On January 1, 2015, LAPIT NA sold a
building with book value of P600,000 to goal for P700,000 . The building had a remaining life of
10 years, no salvage value, and was depreciated by the straight line method. LAPIT NA reported
net income of P2,000,000 for 2015. What was the noncontrolling interest in net income for
2015?

8. On December 31,2014, Frail Corp was merged into Strong Inc. Strong issued 200,000 shares of its P10
per ordinary shares with a market price of P12 per share, for all of Frail’s net assets. The stockholders
equity of each entity is shown below:
Strong Inc. Frail Corp
Ordinary shares P2,500,000 P1,500,000
Additional paid-in capital 800,000 150,000
Retained earnings 1,500,000 850,000
P4,800,000 P2,500,000

The Following out-of-pocket costs are also paid by Strong Inc in connection with Frail’s acquisition:
Direct acquisition cost P20,000
Indirect acquisition cost 5,000
Issuance and registration cost of shares 15,000

The fair value of Strong’s net assets at the date of acquisition was approximated at P4,000,000 while the
book and fair values of the net assets of Frail on the same date were close to each other, except for a
liability, item that was understated by P3,000. What was the total stockholders’ equity of Strong reported on
its balance sheet at December 31, 2014?
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Questions 9 thru 10 are based on the following information:

TUMAMA NA BA CORP. acquired 80% ownership of KITA MO incorporated, at a time when

TUMAMA NA BA CORP’s investment and KITA MO’s book values were equal. During 2014,
TUMAMA NA BA CORP. sold goods to KITA MO for P200,000 making a gross profit percentage of
20%. Half of these goods remained unsold in KITA MO’s inventory at the end of the year. Income
statement information for TUMAMA NA BA CORP and KITA MO for 2014 were as follows:
TUMAMA NA BA CORP KITA MO
Sales revenue P1,000,000 P600,000
Cost of goods sold 500,000 400,000

9. At what amount was the cost of goods sold presented on the 2014 consolidated income
statement?

10. At what amount was sales revenue presented on the 2014 consolidated income statement?

11. Assume Daniel has the following information regarding a property recently destroyed by fire:
Face of policy 1,400,000
Fire loss 1,000,000

Required: Amount recoverable from insurance company

12. Cherry Lynn Company is engaged in merchandising both at its Home Office in Manila and at its
branch in Subic. Selected accounts taken from the trial balances of the Home Office and the
Branch as of December 31, 2015 follows:
Cherry Lynn BRANCH
Debits: Inventory, January 1, 2015…………………………………. 138,000 69,300
Investment in Subic Branch………………………. 349,800
Purchases………………………………………………….. 1,140,000 630,000
Freight in from Home Office………………………………. 33,000
Sundry expenses…………………………………………… 312,000 168,000

Credits: Home Office Current………………………………………. 319,800

Sales……………………………………………………… 930,000 840,000
Sales to branch…………………………………………….. 660,000
Allowance for overvaluation of branch inventory
at January 1, 2015………………………………………. 6,000

Additional information:
A. The Subic Branch gets all of its merchandise from the home office. The home office bills the
goods at cost plus a 10% mark-up. At December 31, 2015, a shipment with a billed value of
P30,000 was still in transit. Freight on this shipment was P1,500 and is to be treated as part
of the inventory.
B. Inventories on December 31, 2015, excluding the shipment in transit, follow:
Home office, at cost………………………………………………………180,000
Branch, at billed price (excluding freight of P3,120)………………….. 62,400

Required: Correct Net income of the branch

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13. Partners Resty, Sheryl, and Teddy, who share income and loss in the ratio of 3:5:2, respectively,
have decided to liquidate their partnership. At the time of liquidation, the statement of financial
position of the partnership consisted of the following:

Assets Liabilities and Capital

Cash 120,000 Accouts payable 93,000

Other assets 360,000 Loan from Sheryl 30,000
Resty, Capital 108,000
Sheryl, Capital 120,000
Teddy, Capital 129,000
Total assets 480,000 Total liabilities and capital 480,000

The partners desire to prepare an installment distribution schedule showing how cash would be distributed
to partners as assets are realized.
* The first sale of other assets having book value of P150,000 realized P45,000 and all
available cash is distributed to the partners.

* The second sale of other assets having book value of P90,000 realized P120,000 and all
available cash is distributed to the partners.

Required: Capital balance of Partner Sheryl after the distributing cash from the second sale of
assets

14. The shareholders' equity of DARIUS Company prior to quasi- reorganization follows:
Share capital, P100 par, 750,000 shares 18,750,000
Share premium 1,875,000
Retained earnings (Deficit) (3,000,000)
The shareholders approved the quasi-reorganization to be accomplished by:
A. A reduction in inventory of P750,000
B. A reduction in property and equipment of P1.500,000
C. Write-off of goodwill of P375,000
D. Appropriate adjustment to the capital structure against share premium first and any remaining deficit
against the share capital account.

Required: Shareholders'equity

15. The review of the assets and liabilities of the Krazny Company, in bankruptcy on November 30,
2015, discloses the following:
A. A mortgage payable of P400,000 is secured by land and buildings valued at P640,000.
B. Notes payable of P200,000 are secured by furniture and equipment valued at P160,000.
C. Assets other than those referred to have an estimated value of P180,000.
D. Liabilities other than those referred to total P521,200, which included claims with priority of
P61,200.

Required: Total amount payable to creditors

TEST 2 ( MULTIPLE CHOICE THEORY) (40%) (Estimated completion time = 15 to 20 minutes)

INSTRUCTION: On the space provided in your Official Answer Sheet, write the letter (in capital letter)
corresponding to the best answer for each numbered item given below. No credit shall be given to
any correct answer with erasures.

1. Machining a part for a product is an example of a:

A. Unit-level activity.
B. Batch-level activity.
C. Product-level activity.
D. Organization-sustaining activity.

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2. The operations of Kalispell Company resulted in overapplied overhead for the month just completed.
Which of the following journal entries can be correct if Kalispell allocates under- or overapplied overhead
among accounts?

A. Cost of Goods Sold ................................. XXX

Manufacturing Overhead ............... XXX

B. Manufacturing Overhead ........................ XXX

Cost of Goods Sold ........................ XXX

C. Work in Process ...................................... XXX

Finished Goods ....................................... XXX
Cost of Goods Sold ........................ XXX
Manufacturing Overhead ............... XXX

D. Manufacturing Overhead ........................ XXX

Work in Process ............................. XXX
Finished Goods .............................. XXX
Cost of Goods Sold ........................ XXX

3. In job order costing, what journal entry should be made for the return to the storekeeper of direct
materials previously issued to the factory for use on a particular job?
a. Debit materials and credit factory overhead
b. Debit materials and credit work in process
c. Debit purchase returns and credit work in process
d. Debit work in process and credit materials

4. An actual cost system may be used in:

a. Neither process costing nor job order costing
b. Process costing but not job order costing
c. Job order costing but not process costing
d. Both job order costing and process costing

5. Material is added at the beginning of a process in a process costing system. The beginning Work in
Process Inventory for the process was 30 percent complete as to conversion costs. Using the FIFO
method of costing, the number of equivalent units of material for the process during this period is equal to
the
A. beginning inventory this period for the process.
B. units started this period in the process.
C. units started this period in the process plus the beginning Work in Process Inventory.
D. units started and completed this period plus the units in ending Work in Process Inventory.

6. Airstream builds recreational motor homes. All of the following activities add value to the finished product
except:
A. installation of carpet.
B. assembly of the frame to the chassis.
C. storage of the vehicle in the sales area.
D. addition of exterior lights.
E. final painting and polishing.

7. If normal spoilage is detected at an inspection point within the process (rather than at the end), the cost
of that spoilage should be
A. included with the cost of the units sold during the period.
B. included with the cost of the units completed in that department during the period.
C. allocated to ending work in process units and units transferred out based on their relative values.
D. allocated to the good units that have passed the inspection point.

8. Companies that use a process-cost accounting system would:

A. establish a separate Work-in-Process Inventory account for each manufacturing department.
B. establish a separate Finished-Goods Inventory account for each manufacturing department.

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C. pass completed production directly to Cost of Goods Sold.

D. charge goods produced with actual overhead amounts rather than applied overhead amounts.
E. eliminate the need for the Finished-Goods Inventory account.

9. An investor adjusts the investment account for the amortization of any difference between cost and book
value under the
a. Cost method.
b. Complete equity method.
c. Partial equity method.
d. Complete and partial equity methods.

10. The working paper entry for the prior period adjustments
a. Debits Preference shares – S Company.
b. Credits Share premium – S Company.
c. Debits Retained Earnings – S Company.
d. Credits Ordinary shares – P Company.

11. In years subsequent to the year of acquisition, an entry to establish reciprocity is made under the
a. Complete equity method.
b. Cost method.
c. Partial equity method.
d. Complete and partial equity methods.

12. A parent company received dividends in excess of the parent company’s share of the subsidiary’s
earnings subsequent to the date of the investment. How will the parent company’s investment account be
affected by those dividends under each of the following accounting methods?
Cost Method Fair Value Model
a. No effect Decrease
b. Decrease No effect
c. No effect No effect
d. Decrease Decrease

13. Consolidated net income for a parent company and its partially owned subsidiary is best defined as the
parent company’s
a. Recorded net income.
b. Recorded net income plus the subsidiary’s recorded net income.
c. Recorded net income plus the subsidiary’s recorded net income.
d. Income from the independent operations plus subsidiary’s income resulting from transactions with outside
parties.

14. In the preparation of a consolidated statements work paper, dividend income recognized by a parent
company for dividends distributed by its subsidiary is
a. Included with parent company income from other sources to constitute consolidated net income.
b. Assigned as a component of the non-controlling interest.
c. Allocated proportionately to consolidated net income and the non-controlling interest.
d. Eliminated.

15. In the preparation of a consolidated statement of cash flows using the indirect method of presenting cash
flows from operating activities, the amount of the non-controlling interest in consolidated income is
a. Combined with the controlling interest in consolidated net income.
b. Deducted from the controlling interest in consolidated net income.
c. Reported as a significant noncash investing and financing activity in the notes.
d. Reported as a component of cash flows from financing activities.

16. In the liquidation of a partnership in installments, the profit and loss ratio is used for cash
payments to partners:
A. At no time
B. Throughout the course of the liquidation.
C. Once the partners capital account balances have been reduced
to the profit and loss ratio
D. Only for asset realizations that result in gain

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17. In a partnership liquidation, the final cash distribution to the partners should
be made in accordance with the
A. Partners' profit and loss ratio
B. Balances of the partners' loan and capital accounts
C. Ratio of capital contributions by the partners
D. Ratio of capital contribution less withdrawals by the partners

18. Which represents the proper journal entry for a periodic inventory system that
should be made on the books of the home office when goods that cost the home
office P100,000 to manufacture are shipped to a branch at a transfer price of
P125,000 and the billed price is not recorded in the shipments to branch account?
A. Investment in branch 100,000
Shipments to branch 100,000

B. Investment in branch 125,000

Shipments to branch 125,000

C. Investment in branch 125,000

Shipments to branch 100,000
Allowance for overvaluation
of branch inventory 25,000

D. Shipments to branch 100,000

Allowance for overvaluation
of branch inventory 25,000
Shipments from home office 125,000

19. If the value of the pledged property is lesser than the obligation, what is the
treatment of the liability?
A. Partially secured C. Collateralized
B. Fully secured D. Unsecured

20. The primary difference between a statement of financial position and a statement
of affairs is that:
A. A statement of financial position reflects book values, while a statement
affairs emphasizes realization values.
B. Assets are arranged in a different sequence.
C. Liabilities are arranged in a different sequence
D. Owners' equity is not considered in the statement of affairs

END OF QUIZ 2

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