CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

PRACTICAL ACCOUNTING PROBLEMS II

Final Pre-board Examination
MULTIPLE CHOICE: MARK FULLY with PENCIL No. 2 the letter of your choice on the answer sheet
provided. Make the mark DARK but do not use too much pressure. ERASURES ARE STRICTLY NOT
ALLOWED.

1. Agency W sold a 50% depreciated office equipment which had an original cost of P600,000 for
400,000. The proceeds shall be deemed automatically appropriated for the purchase of replacement
higher capacity equipment worth P1,000,000, net of applicable tax. The agency subsequently
received a Notice of Cash Allocation for P1,000,000 for the purchase of the said equipment. What is
the entry to record the receipt from the disposal of the motor vehicle?

A. Cash Collecting Officer 400,000

Accumulated Depreciation – Office Equipment 300,000
Office Equipment 600,000
Gain on Sale of Disposed Assets 100,000
B. Cash Collecting Officer 400,000
Gain on Sale of Disposed Assets 400,000
C. Cash Collecting Officer 400,000
Accumulated Depreciation – Office Equipment 300,000
Office Equipment 600,000
Due to BTr 100,000
D. Cash Collecting Officer 400,000
Due to BTr 400,000

2. Agency X have an obligation for equipment per purchase order amounting to P800,000.
Subsequently, the agency liquidates the equipment acquired in full. The entry to record this
transaction would be (ignore tax implication)

A. Memorandum entry in RAOCO

B. Accounts Payable 800,000
Cash – National Treasury, MDS 800,000
C. Subsidy Income from National Government 800,000
Cash – National Treasury, MDS 800,000
D. Obligation Liquidated 800,000
Cash - National Treasury, MDS 800,000
3. Assuming cash advances for salaries and wages that were granted in 2007 resulted to a refund of
P60,000, what would be the journal entry to be recorded in the books of the agency to record
remittance to the Bureau of Treasury in 2008?

A. Subsidy Income from National Government 60,000

Cash Collecting Officer 60,000
B. Subsidy Income from National Government 60,000
CashDisbursing Officer 60,000
C. Prior Years’s Adjustment 60,000
Cas Collecting Officer 60,000
D. Prior Years’s Adjustment 60,000
Cas Disbursing Officer 60,000

4. Total amounts billed during the year 2009 by Reyes Hospital, a non-profit organization consisted of
P1,250,000 for patient services,P250,000 for other nursing services, and P125,000 for other
professional services. The hospital estimated bad debts at 1 percent. It granted employees discounts
of P12,500 and allowances of P57,500 and P200,000 for charity cases and third-party payers,
respectively. Total operating expenses, including depreciation of P55,000, amounted to P1,250,000.
Net revenues for the year 2009 amounted to:
A. 1,608,750
B. 1,355,000
C. 1,596,250
D. 1,338,750

5. During the year ended December 31, 2009, a not-for-profit performing arts entity received the
following donor-restricted contribution and investment income:

Cash contribution of P500,000 to be permanently invested

Cash dividends and interest of P50,000 to be used for the acquisition of theater equipment

As a result of these cash receipts, the statement of cash flows for the year ended December 31,
2009, would report an increase of:
A. P550,000 from investing activities
B. P550,000 from financing activities
C. P50,000 from operating activities and an increase of P500,000 from financing activities.
D. P50,000 from investing activities and an increase of P500,000 from financing activities.

6. Becky Company uses process costing in accounting for its production department, which uses two
raw materials. Material Alpha is placed at the beginning of the process. Inspection is at 85%
completion stage. Material Beta is then added to the good units. Normal spoilage units amount ot
5% of good output. The company records contain the following information for April:
 Started during period 20,000 units
Material Alpha P26,800
Material Beta 22,500
Direct Labor Cost 75,115
Factory overhead 93,950
Transferred to finished goods 14,000
Work in process (95% complete), April 30 4,000

How much were the Material cost per equivalent unit for Alpha and Beta, respectively?
A. P1.34; P1.06 C. P1.34; P1.25
B. P1.40; P1.06 D. P1.40; P1.36

7. UCC Company has the following information for May:

Units started 100,000 units
Beginning work in process: (65% to be done) 20,000 units
Normal spoilage 3,500 units
Abnormal spoilage 5,000 units
Ending work in process: (30% incomplete) 14,500 units
Transferred out 97,000 units
Beginning work in process cost:
Material P15,000
Conversion 10,000

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

Assume that the costs per EUP for material and conversion are P1.00 and P1.50, respectively. Using
FIFO, what is the total cost assigned to the transferred-out units (rounded to the nearest peso)?
A. P237,000 B. P224,938 C. P244,438 D. P245,750

8. Virgo Company acquired 65% of the share capital of a foreign entity on August 31, 2009. The fair
value of the net assets of the foreign entity at that date was 8.24 million yen. This value was 2.64
million higher than the carrying value of the net assets of the foreign entity. The excess was due to
the increase in value of non-depreciable land. The functional currency of the entity is Philippine
Peso. The financial year-end of the company is December 31, 2009. The exchange rates at August
31, 2009 and December 31, 2009 were Yen 2 = Php 1 and Yen 1.25 = Php 1, respectively. What figure
for the fair value adjustment shouldbe included in the group financial statements for the year ended
December 31, 2009?
A. P4,284,800 B. P2,678,000 C. P2,112,000 D. P1,320,000

9. On July 1, 2009, Peru Company Purchased 1,000 shares of Lima Corp. common stock at a cost of P60
per share and classified it as an available for sale security. On October 1, Peru Company purchased
 an at-the-money put option on Lima Corp. at a premium of P14,000 with a strike price of P100 per
share and an expiration date of April 2010.

Peru Company specifies that only the intrinsic value of the option is to be used to measure
effectiveness. The following shows the fair value of the hedged item and hedging instrument.

10/1/09 12/31/09 3/3/10 4/17/10

Lima’s share price P 100 P 88 P 80 P 80

Intrinsic value 0 12,000 20,000 20,000

Time value 14,000 8,600 2,120 0

Fair Value 14,000 20,600 22,120 20,000

What is the cumulative effect on retained earnings of the hedge and sale?
A. P6,000 B. P26,000 C. P40,000 D. P46,000

10. Wisdom Corporation of Makati paid P960,000 for 40% interest in Knowledge Company of Taiwan on
January 1, 2009, when Knowledge’s net asset totaled 1,500,000 NT Dollar and the exchange rate for
NT Dollar was P1.60. A summary of changes in Siam’s net assets during 2008 is as follows:

NT Dollar Exchange Rates

Net assets, January 1 1,500,000 1.60
Net income for 2009 300,000 1.55
Dividends paid for 2009 100,000 1.54

Wisdom Corporation anticipated a strengthening of the Philippine peso against the NT Dollar during
the last half of 2009, and it borrowed 600,000 NT Dollar from a Taiwanese bank for one year at 10%
interest on July 1, 2009 to hedge its net investment in Knowledge. The loan was made when the
exchange rate for NT Dollar was P1.55. The loan was denominated in NT Dollar and the current
exchange rate at December 31, 2009 was P1.50.

The other comprehensive income – translation adjustment in 2009 is:

A. P94,400 B. P64,400 C. P34,400 D. P0

11. S Corp is a 90% owned subsidiary of P Corp., acquired at book valueseveral years ago. Comparative
income statement for these affiliated corporations for 2012 are as follows:

P Corp S Corp.
Sales 5,250,000 2,450,000
Dividend Income 378,000
 Gain on Building 105,000
Total 5,733,000 2,450,000
Cost of Sales 3,500,000 1,400,000
Operating expenses 1,050,000 525,000
Net income 1,183,000 525,000

On January 2, 2012P sold a building with 10 year life to S Corp as gain of P105,000, D pais dividend
of P378,000 to P during 2012.

The consolidated Net income Attributableto parent shareholders is:

a. 1,183,000 c. 1,172,500
b. 1,197,000 d. 1,192,450

12. The following data were taken from the statement of affairs for Willie Corp.
Assets Pledged for fully secured liabilities (fair value, P150,000) 180,000
Assets pledged for partially secured liabilities (fair value, P104,000) 148,000
Free assets (fair value, P80,000) 140,000
Unsecured liabilties with priority 14,000
Fully Secured liabilities 60,000
Partially secured liabilities 120,000
Unsecured liabilities without priority 230,000

The total estimated deficiency to unsecured creditors and the expected recoveryper peso of
unsecured claims.
a. 76,000 and .69 c. 90,000 and .65
b. 90,000 and .63 d. 74,000 and .68

13. The following balance sheet summary, together with residual profit and loss sharing ratios, was
developed. On August 1, 2010, when A,B and C partnership began liquidation:

Cash P140,000; Accounts Receivable P60,000; Inventories P85,000; Plant assets P200,000 Loan to A
25,000; Loan from B 20,000; Liabilities P60,000; A capital P75,000; B Capital P200,000; C Capital
155,000. A B and C share profit and loss 20%; 40% and 40%, respectively.

If available cash except for P5,000 contingency fund is distributed immediately A, B and C,
respactively, should receive:
a. 16,000; 32,000; and 32,000 c. 0; 80,000 and; 15,000
b. 0; 72,000; and 7,500 d. 0; 70,000 and; 5,000

14. The Home office shipped merchandise costing P21,960 to Manila branch and paid for the freight
charges of P3,960. Manila branch was subsequently instructed to transfer the merchandise to
 Caloocan wherein Caloocan branch paid for P1,250 freight. If the shipment was made directly from
Home office to Caloocan, the freight cost would have been P5,050.

How much is the amount of branch current to be debited in the books of the home office as result of
the inter branch transfer of merchandise?
a. 180 c. 416,850
b. 25,740 d. 26,740

15. On January 2, 2010, XX signed an agreement to operate as a franchisee to BB Inc. for an initial
franchise fee of P937,500 for 10 years. Of this amount P187,500 was paid when the agreement was
signed and the balance was payable in three annual payments beginning on December 31, 2010. XX
signed a non interest bearing note for the balance. XX’s rating indicates that he can borrow money
at 18% for a loan of this type. Assume that substantial services amounting to P292,000 had already
been rendered by BB and that indirect franchise cost of P25,500 was also incurred. PV is 2.17

If the collection of the note is not reasonably assured, the net income for the year ended Dec. 31,
2010 is:
a. 334,650 c. 178,410
b. 276,060 d. 237,000

16. Mara Clara Corp. has been undergoing liquidation since January 1. As of June 30, its condensed
statement of realization and liquidation is presented below:

Assets realized 105,000

Interest on investment 525
Purchases 5,250
Assets Acquired 17,500
Liabilities assumed 5,250
Payment of expenses of trustee 26,250
Liabilities to be liquidated 227,500
Sales on Account 17,500
Assets not realized 147,000
Liabilities not liquidated 111,475
Sales for cash 87,500
Assets to be realized 332,500
Liabilities liquidated 112,500

The net gain (loss) on realization and liquidation is:

a. 61,250 c.(25,200)
b. (61,250) d. 25,200
17. On December 31, 2010, the investment in branch account on the home office books has a balance of
P347,000. In analyzing the activity in each of these accounts for December, you find the following
differences:

 A P39,000 branch remittance to the home office initiated on Dec. 27, 2010, was recorded twice
by the home office in 2008
 A home office inventory shipment to the branch of P45,000 on December 29, 2010, was
recorded by the branch on Dec. 31, 2010 at P54,000. The home office transfers merchandise to
the branch at cost.
 The home office incurred P12,000 of advertising expenses and allocated 1/8 of this amount to
the branch on Dec. 21, 2010. The branch inadvertently recorded half of the advertising expenses
incurred by the home office during the year.
 A home office customer remitted P7,000 to branch. The branch recorded this cash collection on
Dec. 23, 2010. Meanwhile, back at the home office, no entry has been made yet.
 Inventory costing P11,500 was returned by the branch to the home office on December 19,
2010. The billing was at cost, but the home office recorded the transaction at P1,150.

Compute the unadjusted balance of the Home office current account as of Dec. 31, 2010?
a. 416,850 c. 461,850
b. 396,150 d. 369,150

18. A and B decided to form a partnership on May 1, 2010. Their balance sheets on this date are:
A B
Cash 37,500 93,750
Accounts Receivable 850,000 512,500
Merchandise Inventory 500,000 506,250
Equipment 375,000 725,000
Total 1,762,500 1,837,500

Accounts Payable 262,500 662,500

A, Capital 1,500,000
B, Capital 1,175,000
Total 1,762,500 1,837,500

They agreed to have the following adjustments shall be made:

 Equipment of A is underdepreciated by P50,000 and that B is overdepreciated by P75,000
 Allowance for doubtful accounts is to be set up amounting to P170,000 for A and P112,500 for B
 Inventories of P12,500 and P8,750 are worthless in A and B books respectively.
 The partnership agreement provides for a profit and loss ratio equally and capital interest 70%
to A and 30% to B.
 How much cash must A invest to bring the capital balnces proportionate to their profit and loss
ratio?
a. 1,267,500 c. 866,250
b. 2,366,250 d. 1,826,750

19. Q, R and S formed a joint venture in 2010 to sell particular merchandise. Q is designated as the
manager of the venture. The venturers agree to divide profit and losses equally. The venture is
terminated on Dec. 31, 2010 even though there is still unsold merchandise. On this date, Q’s trial
balance shows the following account balances before profit and loss distribution:

DR CR
Joint Venture cash 75,000
Joint Venture Account 15,000
R, capital 35,000
S, capital 40,000

Q receives P11,250 for his share in the venture profit. Furthermore, he agrees to be charged for the
unsold merchandise as of Dec. 31, 2010:

In the final settlement, what is the amount paid to Q:

a. 45,000 c. 97,500
b. 47,500 d. 33,750

20. JIDJ Construction entered into a fixed price contract with Ayala Land on July 1, 2009 to construct a
medium rise condominium. At that time JIDJ estimates that it would take between two to three
years to complete the project. The total contract price fro constructing the building is P4,500,000.
JIDJ accounts this contact under the percentage of completion method. The building was deemed
completed on December 31,2011. Estimated percentage of completion, accumulated contact costs
incurred, estimated costs to complete the contract and accumulated buildings under the contract
were as follows:

At 12/31/09 At 12/31/10 At 12/31/11

Percentage of completion 30% 60% 100%
Contract costs incurred P1,140,000 P2,820,000 P4,800,000
Estimated costs to complete 2,660,000 1,880,000 0
Progress billings 1,600,000 2,700,000 4,500,000

The amount of gross profit to appear on the income statement for the period ended 2011 is:
a. (P330,000) b. (P410,000) c. (P2,920,000) d. (P100,000)

21. On December 31,2010, G Corp., a small medium enterprise was merged into L Corp., a small meduim
enterprise. In the business combination, L issued 15,000 shares of its P45 par common stock, with a
 market price of P50 per share. Fair values agree with book values. Additional cash payments made
by L Corp. in completing the acquisition were brokers fee paid to firm that located G P10,000;
indirect acquisition costs P4,000 and stock registration fee for new shares of L P6,250. The
stockholders equity section of each company’s balance sheet immediately before the combination
was:

L G
Common stocks 987,500 430,000
APIC 320,000 235,000
Retained earnings 210,000 (95,000)

How much is the stockholders equity in the books of the surviving company immediately following
the business combination?
a. 2,267,500 c. 2,263,500
b. 2,247,500 d. 2,257,500

22. The following are the balance sheet of P and S Corporation as of December 31,2010:
P S
Cash 100,000 20,000
Receivables 70,000 15,000
Inventories 80,000 25,000
Land 75,000 100,000
Building (net) 320,000 100,000
Equipment (net) 250,000 240,000
Total Assets 895,000 500,000

Accounta Payable 185,000 60,000

Ordinary shares , P10 500,000 200,000
Share premium 50,000 140,000
Retained earnings 160,000 100,000
895,000 500,000

P decided to acquire all outsatnding shares of S on Jan.1,2011. P will issue 30,000 shares with
market value of P12 per shares for all outstanding shares of S and S will be dissolved. The book
values reflect their fair values except for building of P which has net realizable value of P420,000 and
inventories and land of S which have a net realizable value of P35,000 and P130,000 respectively. P
also paid cost of registering and issuing securities amounting to P12,000 and direct6 costs of
combination amounting to P25,000.

How much is the total assets after the combination?

a. 1,398,000 c. 1,423,000
 b. 1,468,000 d. 1,435,000

23. M Company purchased 70% ownership of V Company on January 1,2008, at underlying book value.
While each company has its own sales forces and independent product lines, there are substantial
intercorporate sales of inventory each period. The following intercorporate sales occurred during
2010

Year Seller Cost of Buyer Sales price Unsold at Year sold to

product sold year end outsiders
2009 M Co. 112,500 V Co. P160,000 35,000 2009
2010 V Co. 78,000 M Co. 120,000 19,250 2010
2010 M Co. 87,500 V Co. 109,375 15,750 2010

The following data summarized the results of their financial operations for the year ended,
December 31,2010:
M V
Sales 962,500 420,000
Gross profit 476,000 126,000
Operating expenses 192,500 70,000
Ending inventories 84,000 70,000
Dividend received from affiliate 31,500
Dividend received from non affiliate 17,500

The consolosdated sales and cost of goods sold

a. 1,153,125; 614,387.50 c. 1,153,125; 551,737.50
b. 1,153,125; 550,512.50 d. 1,382,500; 550,512.50

24. The consolidated net income attributable to parent shareholders equity

a. 325,333.75 c. 337,583.75
b. 369,083.75 d. 359,083.75

25. IRAm Corp. recognizes construction reveneu and cost using the percentage of completion method.
During 2009, a single long tern project begun which continued through 2010. Information on the
project follows:
2009 2010
Collections 200,000 600,000
Construction in Progress net of billings 44,000 current assets 112,000 current liability
Contract billings 200,000 840,000
Current year gross profit 34,000 100,000

How much is the cost incurred each year?

 a. 210,000; 684,000 c. 125,000; 356,000
b. 210,000; 384,000 d. 125,000; 796,000

26. On June 1,2010 XYZ sells a new car costing P545,280 for P1,360,800. A used car is accepted as down
payment, P192,000 being allowed on the trade in. the used car can be used resold for P291,600
after reconditioning cost of P38,880. The company expect to make a 20% gross profit on the sale of
used cars. During the period P104,000 cash was collected on the contract.

How much is the realized gross profit in 2010?

a. 179,040 c. 177,600
b. 115,200 d. 62,400

27. These pertains to installment sales of Ivonn Corp:

o Down payment of 20%
o Installment sales: P136,250 in 2007; P196,250 in 2008; and 242,000 in 2009
o Mark up on cost: 35%
o Collections after down payment: 40% in the year of sale; 35% in the year after
sale, and 25% in the thrid year

Compute the total unrealized gross profit at the end of 2008.

a. 40,291 c. 116,160
b. 155,410 d. 53,387

28. On January 1, 2008, PI Construction Company entered into an agreement with Noy Company to
construct a studio house. At that time, PI Construction Company estimated that it would take three
years and would cost them P7.2M to complete the project. The contract price is P9.2M. During
2008,Star Construction Company incurred P2,392,000 in construction costs but due to ring materials
and labor costs, the outcome of the contract cannot be estimated reliably in 2008. However, as of
the end of 2008, Engr. Richard was certain that the total costs of the project will not exceed P9.2M.
KC Company was billed 25% of the contract price in 2008.

The profit that should be recognized in 2008 is:

a. P664,444 b. (P92,000) c. P0 d. P2.3M

29. The partnership of Script Co. had the following condensed balance sheet:
Assets Liabilities and Capital
Cash 8,750 Liabilities 26,250
Non Cash Assets 113,750 A, capital (80%) 70,000
A, loan 8,750 B, Capital (20%) 35,000
Total assets 131,250 Total 131,250
 C purchases a 1/4 interest in the firm. ¼ of each partner’s capital is to be transferred to the new
partner. Z pays the partner P35,000, which is divided between them in proportion to the equities
given up.

The capital balances of A, B and C after admission is:

a. 52,500; 26,250; 32,812.50 c. 52,500; 26,250; 26,250
b. 43,750; 43,750; 43,750 d. 35,000; 35,000; 35,000

30. Using the data above, if revaluation in asset is recognized, the entry to admit C should be:

a. Assets 35,000 c. Assets 35,000

A, capital 28,000 A, capital 17,500
B, capital 7,000 B, capital 17,500
A, capital 24,500 A, capital 21,875
B, capital 10,500 B, capital 13,125
C, capital 35,000 C, capital 35,000

b. Assets 26,250 d. Assets 8,750

A, capital 21,000 A, capital 7,000
B, capital 5,250 B, capital 1,750
A, capital 22,750 A, capital 19,250
B, capital 10,062.50 B, capital 9,187.50
C, capital 32,462.50 C, capital 28,437.50

31. Partners A, B and C share profits and losses in the ratio of 5:3:2. At the end of a very unprofitable year,
they decided to liquidate the firm. The partners’ capital account balances at this time are as follows:
Partener A 123,200 Partner B 139,440 Partner C 84,000

The liabilities accumulate to P168,000, including a loan of P56,000 from A. the cash balance is P33,600.
All the partners are personally solvent. The partners plan to sell assets in installment.

If B received P20,160 from the first distribution of cash, how much did A received at that time?
a. 11,200 c. 6,720
b. 0 d. 4,480

32. Mara Clara Corp. began business on January 1, 2011, appropriately uses the installment sales method of
accounting. The following data are available:
Dec. 31, 2011 Dec. 31, 20112
Balance of Deferred Gross Profit
2011 300,000 120,000
2012 440,000
30% 40%
 The installment accounts receivable balance on Dec. 31, 2012 is:
a. c.
b. d.

33. Each of Jollibee Corp 21 new franchise contracted to pay an initial franchise fee of P105,000. By Dec. 31,
2011, each franchisee had paid a non refundable P35,000 fee and signed a note to pay P35,000principal
plus the market rate of interest on Dec. 31, 2012, and Dec. 31, 2013. Experience indicates that three
franchises will default on the additional payments. Services for the initial fee will be performed in 2012.
What amount of net unearned franchise fee would Jollibee report at Dec. 31, 2011?
a. 1,995,000 c. 2,205,000
b. 1,890,000 d. 2,135,000

34. The following are the trial balance before adjustments presented by the Home Office and Branch,
On December 31, 2010. The Home Office Policy of billing the branch for merchandise is 20% above
cost.

Home Office Branch

Merchandise inventory, Dec 31, 2010 337,500
Purchases (outsiders) 56,250
Shipment from Home Office 216,000
Shipment to Branch 180,000
Unrealized Intercompany inventory profit 81,000

What part of the branch inventory as of Dec. 31, 2010, represents purchase from outsider and what
part represents goods acquired from the home office:

Outsider Home Office

a. 90,000 247,500
b. 67,500 270,000
c. 112,500 225,000
d. 123,750 213,750

35. On 1 January 2011 entities A and B each acquired 30 per cent of the ordinary shares that carry
voting rights at a general meeting of shareholders of entity Z for P300,000. Entities A and B
immediately agreed to share control over entity Z.

For the year ended 31 December 2011 entity Z recognized a profit of P400,000. On 30 December
2011 entity Z declared and paid a dividend of P150,000 for the year 2011. At 31 December 2011 the
fair value of each venturers’ investment in entity Z is P425,000. However, there is no published price
quotation for entity Z.
 Assuming Entity A fair value method to account for its investment in entity Z, how much will the
Investment in Dec. 31, 2011
a. 300,000 c. 420,000
b. 425,000 d. 375,000

36. On 1 March 2011 entities A and B each acquired 30 per cent of the ordinary shares that carry voting
rights at a general meeting of shareholders of entity Z for P300,000. Entities A and B immediately
agreed to share control over entity Z. On 31 December 2011 entity Z declared a dividend of
P100,000 for the year 2011. Entity Z reported a profit of P80,000 for the year ended 31 December
2011. At 31 December 2011 the fair value of the investment is P293,000 and costs to sell P3,000.
There is no published price quotation for entity Z.

Assuming Entity B uses equity method to account for its investment. The amount of profit or loss to
be reported by Entity B is:
a. 24,000 c. 80,000
b. 20,000 d. 16,667

37. The partnership agreement of T and U allows the former to receive a 20% bonus on profits before
bonus and any residual profit/loss shall be divided 2:3, respectively. Which partner has an advantage
when the partnership earns a profit or when it incurs a loss?
a. T and T b. U and U c. T and U d. U and T
38. F,G and H are partners with average capital balances during 2005 of P120,000 and P60,000 and
P40,000, respectively. Partners receive 10% interest on their average capital balances. After
deducting salaries of P30,000 to F and P20,000 to H, the remaining profit or loss is divided equally. In
2003, the partnership sustained a P33,000 loss before interest and salaries to partners. By what
amount should F’s capital account change?
a. 7,000 increase c. 35,000 decrease
b. 11,000 decrease d. 42,000 increase

39. The intraoffice account between the home office of Ayala Corp. and its Central Luzon Branch was
adjusted to P25,730 on Dec. 31, 2009. The transactions between the home office and the branch for
the month of January 2010 are as follows:
Remittance by branch, P48,000 (P6,400 of which still in transit as of Jan. 31, 2010)
Shipment to branch, P175,000 (including goods still in transit as of Jan. 31, 2010, P19,000)
Branch expenses paid by home home office P7,100.
Branch payable pais by home office, P10,300.

The net adjustments to Branch account is:

a. Credit of 6,400 b. Debit of P144,400 c.Credit of P19,000 d. Debit of P150,800
40. Alexander Corp. issues 45,000 shares of previously unissued P10 par value common stock with a fair
value of P32 per share for net assets of Jaime Corp. Alexander pays the following costs and expenses
related to business combination:

Registering and issuing entity securities 15,000

Accountant and legal fees 8,000
Salaries of Alexander employees assigned to the implementation of the merger 16,000
Cost of maintaining an acquisition department 12,000
Pre acquisition audit fee 5,000

The expenses to be recorded under full PFRS and SME, respectively:

a. 41,000 ; 28,000 c. 56,000 ; 36,000
b. 41,000 ; 33,000 d. 56,000 ; 29,000

41. Victor Inc., manufactures specialized electronic equipmentS. In late March, Job Orders #201 and
#202 were started. Estimated materials cost were P450,000 for both order (60% for #201) while
direct labor hours were estimated at 700 for #201 and 400 for #202. Labor rate is P90 per hour while
variable overhead rate is P50 per hour. By the end of April, 75% of the required materials have been
issued to production in the amount of P450,000 and both job orders have been 50% converted with
360 hours charged to #201 and 180 hours charged to #202 at the respective hourly rates. The total
cost charged to Job #201 was:
A. P320,400 C. P229,000
B. P338,000 D. P261,750
42. Gamma Corpoation would have applied P65,000 of fixed factory overhead if capacity usage had
equaled the master budget. Given that amount, 4,000 standard hours (the normal volume) were
allowed for the actual output, the actual fixed factory overhead equaled the budget amount, and
that overhead was applied at a rate of P15 per hour, what is the journal entry to close the fixed
factory overhead accounts?
A. Work in process 60,000
Overhead price variance 5,000
Applied factory overhead (fixed) 65,000
B. Applied factory overhead (fixed) 60,000
Overhead volume variane 5,000
Factory overhead control (fixed) 65,000
C. Cost of goods sold 65,000
Factory overhead control (fixed) 65,000
D. Factory overhead control (fixed) 60,000
Overhead volume variance 5,000
Applied factory overhead (fixed) 65,000

43. Rhian Co. produces chemicals Marian and Lovi and incident to their production recovers a by-
product, Sweet. The joint costs of processing is reduced by the net realizable value of Sweet. For the
 month of June 2010, the joint costs of processing amounted to P960,000. Additional information are
shown below:
Product Production Market Value
Marian 500,000 P750,000
Lovi 750,000 500,000
Sweet 250,000 105,000

An additional P45,000 was spent to complete the processing of Sweet. Assuming that the company
uses the net realizable value method for allocating joint costs, the joint costs allocated to Marian
would be
A. P450,000 C. P552,000
B. P675,000 D. P540,000

44. German manufacturer of variety of GEMS. The owner Chris had recently decided to implement JIT
system. The following transactions occurred:

 Raw materials totaling P45,000 were purchased

 P40,000 materials were requisitioned for production
 Direct labor cost of P25,000 were incurred
 Indirect labor cost amounted to P120,000
 Utilities cost totaled P50,000
 Other actual factory overhead costs amounted to P100,000
 Applied conversion costs totaled P250,000. This includes the direct labor cost.
 All units were completed and sold

What was the overapplied or underapplied conversion cost and COGS before adjustment for over or
under applied conversion cost was:
A. 20,000 over; 290,000 C. 20,000 over; 295,000
B. 45,000 over; 295,000 d. 45,000 over; 290,000

45. Kimberly Corp. is estimating activity cost associated with producing disk drives, tapes drives and wire
drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost
(overhead item) and avtivity base information, along with the estimated acyivity-based information,
is provided below:
Activity Cost Activity Based
Procurement P 360,000 Number of Purchase orders
Scheduling 240,000 Number of production orders
Materials handling 480,000 Number of moves
Production development 720,000 Number of engineering changes
Production 1,420,000 Machine hours
 # of # of # of moves # of Machine # of units
purchase production engineering hours
order order changes
Disk drives 4,000 300 1,400 10 2,000 2,000
Tape drives 2,000 150 600 5 8,000 4,000
Wire drives 12,000 800 4,000 25,000 10,000 2,500

Determine the activity based cost for each disk drive unit.
A. P193.70 B. P192.00 C. P142.90 D. P285.80

46. On June 1, the company forecasted the purchase of 5,000 units of inventory from foreign vendor.
The purchase would probably occur on September 30 and require payment of 100,000 foreign
currency. It is anticipated that the inventory could be further processed and delivered to customers
by early October.

On June 1, the company purchased a call option to buy 100,000 FC at a strike price of 1 FC = P0.55
during September. An option premium of P900 was paid. Change in the time value of option will be
excluded from the assessment of hedge effectiveness (split accounting).

June 01, 2009 June 30(B/S date) September 30, 2009

Spot rate (market price) 0.53 0.552 0.56
Strike price (exercise price) 0.55 0.55 0.55
Fair value of call option P900 P1,300 P1,000

On Sept. 30, the company purchased 5,000 units of inventory at cost of 103,000 FC. The option was
settled/sold on Sept. 30, 2009 at its fair value of P1,000.
What is the foreign exchange gain or loss on option contract (hedging instrument) on Sept. 30?
Equity Earnings Equity Earnings
A. 1,000 (1,100) C. 1,100 (1,000)
B. 800 (1,100) D. 1,100 800

47. Mindanao Corporation, a Philippine importer, purchased merchandise from Phuket Company of
Thailand for 300,000 baht on March 1, 2010, when the spot rate for a baht was P1.630. The
accounts payable denominated in Baht was not due until May 30, 2010, so Mindanao immediately
entered into a 90-day forward contract to hedge the transaction against exchange rate changes. The
contract was made a forward exchange rate of P1.650. Mindanao settled the forward contract and
the accounts payable on May 30, when the spot rate for Baht was P1.600. on the settlement of the
forward contract on May 30, 2010, Mindanao should record a forex gain (loss) of:
A. P15,000 B. (P6,000) C. P6,000 D. (P15,000)
48. On March 1, Ace Company forecasted the purchase of 7,500 units of inventory from a foreign
supplier. The purchase would probably occur on June 1 and require the payment of 100,000 Foreign
Currencies. It is anticipated that the inventory could be further processed and delivered to
customers by early July. On March 1, Ace Company purchased a call option to buy 150,000 at a
strike price of P1.10 during June 1. An option premium of P1,800 was paid. Changes in the time
value of the option will be excluded from the assessment of hedge effectiveness. Spot rates, strike
price and option values are as follows:

March 1 March 31 April 30 June 1

Spot rate P1.06 P1.104 P1.14 1.15
Strike price 1.10 1.10 1.1 1.1
Fair value of the P900 1,350 2,400 2,600
option

On June 1, Ace purchased 5,000 units of inventory at a cost of P106,000 foreign currency. The option
was settled on June 1 at its fair value of P5,200. The foreign exchange gain or loss on the option
contract on March 31:
OCI P/L
A. 3,950 (4,400)
B. 4,400 (3,950)
C. 400 50
D. 50 400

49. On July 1, 2010, Rock Corporation lent P180,000 to a foreign supplier, evidenced by an interest
bearing note due on July 1, 2011. The note is denominated in the currency of the borrower and was
equivalent to 1,260,000 local currency units (LCU) on the loan date. The principal of the note was
appropriately included at P210,000 in the receivables section of Rock’s December 31, 2010
Statement of Financial Position. The principal was repaid to Rock on July 1, 2011 due date when the
exchange rate was 8 LCU for P1. In its statement of income for the year ended December 31, 2011,
what amount should Rock include as foreign currency gain (loss)?
A. P0 B. (P22,500) C.(P52,500) D.P 22,500

50. On January 1, 2010, William Corp (qualifies as SME) paid cash of P600,000 for all of the outstanding
shares of Kate Company. The carrying value of the assets and liabilities of Kate on January 1, 2010
follow:

Cash P60,000
Inventory 180,000
Plant and equipment (net of accumulated depreciation of P220,000) 320,000
Goodwill 100,000
Liabilities 120,000
 On January 1, 2010 Kate inventory had a Fair value of P150,000, and the plant and equipment (net)
had a fair value of P380,000.

The statement of income of William and Kate, for the year ended December 31, 2011 show the
following:

William Kate
Net Income P108,000 P20,000
Dividend Income 18,000

The following additional data apply:

 On July 1, 2010, Kate Company purchased a building, with a book value of P100,000 and an
estimated 20-year useful life from William for P180,000. The building was being depreciated
on a straight-line basis with no salvage value.
 On January 1, 2011, Kate Company sold a machine with a book value of P50,000 to William
Company for P60,000. The Machine had an expected life of 5 years and is being depreciated
on a straight-line basis with no salvage value. Kate Company is a dealer for the machine. On
December 31, 2011, what is the consolidated net income?
A. P102,000 B. P106,000 C. P93,000 D. P124,000

_______________________________END OF EXAMINATION___________________________________