DIVINE WORD COLLEGE OF LAOAG

School of Business and Accountancy

FINAL PREBOARD EXAMINATION Ms. Erika Joy Placido

PRACTICAL ACCOUNTING 2

Multiple Choice. Choose the best possible answer and write your answers before the number. STRICTLY NO
ERASURES AND ALTERATIONS ALLOWED. (TIME 3h)
1. On September 24, 2007, Bureau of Internal Revenue (BIR) collected taxes from individual taxpayers in the
amount of P875,000. The BIR has no authority to use these collections in their operation and therefore
deposited it to the Bureau of Treasury. What is the journal entry to record the collections in the National
government Books?
a. Cash-National Treasury-MDS 875,000
Subsidy Income from NG 875,000
b. Cash-Collecting Officer 875,000
Income taxes-Individuals 875,000
c. Cash-Collecting Officer 875,000
Contributions Revenue 875,000
d. Cash-National Treasury-MDS 875,000
Income taxes-Individuals 875,000
2. Agency S issued a purchase order for the acquisition of office equipment costing P75,000. The equipment
was received with the charged invoice and was paid by check after withholding tax of 10%. Agency S remitted
the tax withheld to BIR thru a government depository bank. What is the entry of Agency S to record the
payment?
a. Accounts payable 75,000
Due to BIR 7,500
Cash-National Treasury-MDS 67,500
b. Office equipment 75,000
Cash-National Treasury-MDS 75,000
c. Office equipment 75,000
Due to BIR 7,500
Cash-National Treasury-MDS 67,500
d. Accounts payable 75,000
Cash-National Treasury-MDS 67,500
3. ABC College, a private not-for profit college received P80,000 from Ms. X on May 25, 2007. Ms X stipulated
that her contribution to support faculty development seminars during the fiscal year beginning on July 1,
2007. On July 15, 2007, administrators of ABC awarded seminar and training grants totaling P65,000 to
several faculty members in accordance with the wishes of Ms. X. For the year ended June 30, 2007. ABC
should report the P80,000 contribution as
a. Temporarily restricted revenues on the statement of activities
b. Unrestricted revenue on the statement of activities
c. Temporarily restricted deferred revenues on the statement of activities
d. An increase in fund balance on the statement of financial position
4. XYZ University, a private not-for-profit university, had the following cash inflows during the year ended June
30, 2007:
I. 800,000 from students for tuition
II. 450,000 from a donor who stipulated that the money be invested indefinitely
III. 280,000 from a donor who stipulated that the money be spent in accordance with the
wishes of XYZ’s governing board.
On XYZ University’s statement of cash flows for the year ended June 30, 2007, what amount of these cash
flows should be reported as financing activities?
a. 280,000
b. 730,000
c. 1,080,000
d. 450,000
5. Wild Life Park, a private not-for-profit zoological society, received contributions restricted for research
totaling P175,000 in 2007. None of the contributions were spent on research in 2007. In 2008, P122500 of
the contributions were used to support the research activities of the society. The net effect on the statement
of activities for the year ended December 31, 2008, for Wild Life park would be a
a. P52,500 increase in temporarily restricted net assets.
b. P122,500 decrease in temporarily restricted net assets.
c. P122,500 increase in temporarily restricted net assets.
d. P122,500 decrease in temporarily restricted net assets.
6. The Home Office in Makati shipped merchandise costing P200,000 to Manila branch and paid for the freight
charges of P1,500. The home office bills the branch at 125% of cost. Manila branch was subsequently
 instructed to transfer one-half of the merchandise to Quezon City branch wherein Manila branch paid for 500
freight. If the shipment was made directly from Makati to Quezon City, the freight cost would have been
P1,000. By how much will Manila Branch charge the Home Office account?
a. 125,750
b. 126,500
c. 126,250
d. 128,250
7. On January 1, 2007, Mr. CV entered into a franchise agreement with GBX to market their products. The
agreement provides for an initial fee of 2.5M payable as follows: P700,000 to be paid upon signing of the
contract and the balance in five annual payments every end of the year starting December 31, 2007. Mr. CV
signs a non-interest bearing note for the balance. His credit rating indicates that he can borrow at 15%
interest for a loan this type. The present value of an annuity of P1 at 15% for 5 periods is 3.352.
The agreement further provides that the franchisee must pay a continuing franchise fee equal to 3% of the
monthly gross sales. On August 31, the franchiser completed the initial services required in the contract at a
cost of P858,024 and incurred indirect cost of P50,000. The franchisee commenced business operations on
November 30, 2007. The gross sales reported to the franchiser were P360,000 for December 2007. The first
installment payment was made in due date. Assume the collectability of the note is not reasonably assured,
the net income for the year ended, December 31, 2007.
a. 483,446
b. 444,246
c. 625,254
d. 614,454
8. On august 1, 2007, KLM Marketing Co. sold a piece of land costing P540,000 at a gross margin of 66 2/3
above cost. The buyer paid a 20% down payment and made four installments of P36,000 each during the
same year. Using the installment method of accounting, how much is the realized gross margin in 2007?
a. 72,000
b. 86,400
c. 194,400
d. 129,600
9. DEF Construction Company started work on three job sites during the current year. Any costs incurred are
expected to be recoverable. Data relating to the three jobs are given below:
Site Contract Price Costs incurred Estimated costs Billings on Collections
to complete contract on contract
Ilocos 500,000 425,000 500,000 500,000
Cagayan 700,000 200,000 300,000 100,000 100,000
Isabela 370,000 150,000 150,000 150,000 100,000
What would be the amount of Construction in Progress, net of progress billings, to be reported on the year-
end balance sheet if the percentage of completion method is used?
a. 215,000 Current assets
b. 215,000 Current liabilities
c. 140,000 Current assets
d. 140,000 Current liabilities
10. B Computer Store started its operation in January 1, 2007. During the year, it had cash sales of P6,875,000
and installment sales of P16,500,000. B imposes a mark up on cost of 25% for cash sales and 50% for
installment sales. During 2007, installment receivable balance amounted to P6,600,000. How much is the
realized gross profit for 2007?
a. 3,300,000
b. 4,950,000
c. 5,500,000
d. 4,675,000
11. The following information came from the books and records of the Home Office and its Pasig Branch. The
following balances are as of December 31, 2007, the fourth year of the corporation’s existence
Home Office Branch
Sales 1,500,000 850,000
Shipments to Branch 240,000
Shipments from Home Office 360,000
Purchases 600,000 180,000
Operating Expenses 400,000 160,000
Inventory, January 1, 2007 250,000 72,000
Unrealized Profit in Branch Inventory 136,000
There are no shipments in transit between the home office and the branch. Both shipment accounts are
properly recorded. The closing inventory of the branch at billed price include merchandise acquired from the
home office in the amount of 54,000; 30,000 acquired from vendors for a total of 84,000. While the closing
inventory of the home office is 90,000. How much is the net income of the branch in so far as the home office
is concerned?
 a. 162,000
b. 180,000
c. 118,000
d. 208,000
12. On September 1, 2007, The R Company established an agency in San Juan, sending its merchandise samples
costing 42,000 and a working fund of 50,000 to be maintained on the imprest basis. During the month of
September, the agency transmitted to the home office sales order that cost at 360,000. However, the home
office was able to fill-up only 70% of the orders. Total cash of P215,000 was collected from the customers. A
home office disbursement chargeable to the sales agency includes the acquisition of furniture and fixtures for
San Juan, 90,000 to be depreciated at 25% per annum. The agency paid expenses of 54,100 and received
replenishment thereof from the home office. The agency samples are good until November 30, 2007. It was
estimated that the gross profit in goods shipped to bill agency sales orders averages 40%. Net income of the
agency for the month ended September 30, 2007
a. 98,025
b. 77,400
c. 30,825
d. 182,025
13. The GRC Trading Co. operates a branch at Trinoma Center. A close of business on December 31, 2007, Home
Office Account in the branch books showed a credit balance of 235,900. The interoffice accounts were in
agreement at the beginning of the year. For purposes of reconciling the interoffice accounts, the following
information were obtained:
 Merchandise shipments of P250,000 made by the home office on December 28, 2007 were received
by Trinoma Center on January 4, 2008. However, only seventy percent of the shipment was charged
by the home office to Trinoma Center; the balance was debited to the account of Rockwell branch.
 Branch collections of P150,000 were deposited for the account of the home office on December 29,
2007, eighty percent was credited on the home office bank account as of January 9, 2008 and the
balance was returned to the depositor marked NSF.
 The branch received a cash transfer amounting to P80,000 from the home office on January 3, 2008.
The home office elected the fund transfer last December 30, 2007 but it was inadvertently charged
to Advances to Officers account
 The branch reported a net income of P40,000 which was taken up by the home office as P4,000 loss.
The unadjusted balance of the Investment in Branch account
a. P595,900
b. P674,900
c. 516,900
d. 556,900
14. A and B formed a partnership in 2007 and made the following investments and withdrawals during the Year:
A B
Investment Withdrawal Investment Withdrawal
January 1 72,000 84,000
June 1 36,000 54,000
August 1 9,000 18,000
December 1 27,000
The partnership profits and loss agreement provides for a monthly salary of P15,000 for each partner. A is to
receive a bonus of 25% on net income after salaries and bonus. The partners are also to receive interest of
5% on average capital balances. Any remainder are to be allocated based on their ending capital balances.
Assuming the income summary has a credit balance of P480,000. Determine which of the following is
incorrect in the partnership operation:
a. A is to receive a bonus of p24,000
b. B has a share of 40% in the P91, 125 remainder or balance
c. A, Capital account will increase by P261, 300
d. B will receive P2,625 interest on average capital balance
15. The partnership of X and Y provides for 3:2 sharing in profits and losses. Prior to the admission of a third
partner (Z), the capital accounts are X, P420,000 and Y P280,000. Z invests P175,000 for a P140,000 interest
and partners agreed that the net assets of the new partnership would be P1,050,000. Which of the following
is not correct upon the admission of the new partner?
a. the bonus from the new partner to X is P21,000
b. the goodwill to old partners is P210,000
c. The capital of Y will increase by P84,000 after admission of Z
d. The capital of Z is to be credited at P140,000
16. On September 30, 2007, M admits V for an interest in his business. On this date, M capital account shows a
balance of P452,500. The following were agreed upon before the formation of the partnership:
1. Prepaid expenses of P25,750 and accrued expenses of P17,500 are to be recognized.
2. 8% of the outstanding accounts receivable of M amounting to P375,000 is to be recognized as
uncollectible.
 3. V invested P260,000 worth of merchandise and is to be credited with a one-third interest in the
partnership. V is to invest or withdraw cash to earn his interest.
Which of the following is true regarding the partnership formation?
a. The total agreed capital upon formation is P690,750
b. The total contributed capital of the partnership is P430,750
c. V will invest P44,625 to earn his interest in the partnership
d. A net debit adjustment of P21, 750 affected the capital balance of M upon formation.
17. D, E and F decided to dissolve the partnership on July 31, 2007. Their capital balances and profit ratio on this
date follow:
Capital balances Profit ratio
D 56,000 45%
E 72,000 25%
F 32,000 30%
The net income from January 1 to July 31, 2007 is P12, 000. Also, on this date, cash and liabilities are P42,000
and P58,000 respectively. If F received P41, 600 in full settlement of his interest in the firm, which of the
following is true;
a. D received P70,400 in full settlement of his interest
b. The proceeds from sale of non cash assets is p192, 000
c. P208,000 was a total distribution to the outsiders and to the partners
d. E’s share in the loss on realization is P5,000
18. A review of the assets and liabilities of J. Company in bankruptcy on November 30, 2007 discloses the ff:
 A mortgage payable of P81, 000 is secured by building valued at P18,000 more than its book value of
P70,000.
 Notes payable of P43,000 is secured by furniture and equipment with a book value of P48,000 that is
¾ realizable.
 Assets other than those referred to have an estimated value o0f P22,000 an amount that is P5,000
above its book value
 Liabilities other than those referred to total P35,000 which excluded claims with priority of P12,000
Which of the following is true?
a. Total free assets is P17,000
b. Unsecured and non-priority claims amount of P54, 000
c. Recovery percentage is 40%
d. Estate deficit at the end is P25,000
19. R, S and T formed a joint venture on May 1, 2007 R was designated as the manager and was able to record
the joint venture’s transactions in his own books. As manager, R was to be allowed a salary of p9,000; the
remaining profit and loss was to be divided equally. The following balances appeared at the end of 2007
before adjustment for venture inventory and profit:
Debit Credit
Joint venture cash 36,000
Joint venture 11,250
S, capital 750
T, capital 20,250
Unsold merchandise amounts to P7,875 which was taken by T. In the final settlement to venturers, how
much did T receive?
a. P23,625
b. 15, 750
c. 20,250
d. 7,875
20. On November 2, 2007, Pasig Company enters into a 90 day forward contract with International Exchange
Bank to sell 3,600 Yen when the forward contract rate for 90 day is P39. The spot rate for the Yen on
November 2 is P41. Exchange rates at December 31, 2007 and January 31, 2008 as follows
12/31/07 1/31/08
30 day forward rate P42 P45
Spot rate P43 P45
How much is the FOREX gain or loss on the forward contact on December 31, 2007?
a. P10,800 gain
b. P10,800 loss
c. P7,200 loss
d. P7,200 gain
21. On November 15, 2007 Pasay Corporation purchased goods on account from a Japanese Corporation for
2,500 Yen. The billing date for the sale is December 1, 2007, and payment is due in 60 days on January 30,
2008. Pasay Corporation enters into a forward contract to buy 2,500 yen from Asian Bank in 60 days. The
relevant exchange rates were as follows:
12/1/107 12/31/07 1/30/08
Spot rate P37 P40 P45
 Forward rate P39 P41 P45
How much is the net FOREX gain or loss on December 31, 2007?
a. P2500 gain
b. P7500 loss
c. P5000 gain
d. P2500 loss
22. On December 1, 2007, Pateros Corporation sold furnitures to Singapore Company. The selling price of 4000
Sing dollars is to be settled in Sing Dollars on March 1, 2008. The following exchange rate applied: Pateros
Company engaged in a forward contract with CitiBank to sell the4,000 Sing Dollars in 90 days.
Spot rate Forward rate
12/1/07 P26 P22 (90 day)
12/31/07 P24 P23 (60 day)
3/1/08 P21 P21
How much is the balance of the Forward Contract payable on December 31, 2007?
a. P88,000
b. P96,000
c. P92,000
d. P104,000
23. On November 2, 2007, Pampanga Corporation entered into a firm commitment with a Japanese firm to
acquire an equipment, delivery and passage of title on March 31, 2008 at a price of 5000 Yen. On the same
date, to hedge against unfavorable changes in the exchange rate of the Yen, Pampanga Corporation entered
into a 150 day forward contract with China Bank for 5,000 Yen. The relevant exchange rates were as follows:
11/2/07 12/31/07 3/31/08
Spot rate P37 P38 P35
Forward rate P40 P33 P35
How much is the amount debited to the Equipment account on the date of (?)
a. P200,000; 11/02/07
b. P200,000; 3/31/08
c. P185,000; 11/2/07
d. P175,000; 3/31/08
24. On December 1, 2007, Sea Oil Philippines took delivery from a Japanese firm of inventory costing 2000 yen.
Payment is due on February 28, 2008. On the same date, Sea Oil Philippines paid P2,400 cash to acquire a 90-
day call option for 2000 yen.
12/7/07 12/31/07 2/28/08
Spot rate P11 P14 P15
Strike price P11 P11 P11
Fair value of call option P2,400 P4,700 P7,200
How much is the net foreign gain or loss on December 31, 2007? (Assume the option was exercised on that
date)
a. P2400 net loss
b. P3700 net loss
c. P1300 net gain
d. P2300 net gain
25. On December 12, 2007 Uni Oil sold merchandise to Thai Company. 3000 Baht is due on February 10, 2008.
On the same date Uni Oil paid P4000 cash to acquire a 60 day put option for 3000 baht
12/12/07 12/31/07 2/10/08
Spot rate P14 P1 P12
Strike price P14 P14 P14
Fair value of call option P4000 P5000 P5500
How much is the net/total foreign exchange gain or loss on December 31, 2007? (Assume the option was
exercised on that date)
a. 3000 gain
b. 1000 gain
c. 4000 gain
d. 2000 gain
26. On December 31, 2007 a foreign subsidiary in Hongkong submitted the following balance sheet stated in
foreign Currency:
Hongkong dollar
Total Assets 140,000
Total Liabilities 28,000
Common Stock 70,000
Retained Earnings, 12/31 42,000
The exchange rates are:
Current rate P7.40
Historical rate P7.10
 Weighted average rate P7
Assuming that the retained earnings of the subsidiary on January 1, 2008 translated to Philippine Peso is
P296,800. What amount of Cumulative Translation Adjustment is to be reported in the Consolidated Balance
Sheet on Decembers 31, 2007?
a. 35,000
b. 30,800
c. 2,800
d. 28,000
27. ABC Corporation has a job order cost system. The following debit (credits) appeared in Work in Progress for
the month of July
July 1, balance P36,000
July 31, direct materials P120,000
July 31, direct labor P90,000
July 31, factory overhead P81,000
July 31, to finished goods (300,000)
ABC applies overhead to production at a predetermined rate of 90% based on the direct labor cost. Job 1040,
the only job still in process at the end of July, has been charged with factory overhead of P6,750. What was
the amount of direct materials charged to Job 1040?
a. P7500
b. P12,750
c. P20,250
d. P6,750
28. KLM Company has the following information for September:
Units started 100,000 units
BWIP (65% incomplete) 20,000 units
Normal spoilage 3,500 units
Abnormal spoilage 5,000 units
EWIP (30% incomplete) 14,500 units
Transferred out 97,000
Beginning Work in Process Costs
Material 15,000
Conversion 10,000
All materials are added at the start of the production process. KLM Company inspects goods at 75 percent
completion as to conversion. Assume that the costs per EUP for material and conversion are P1.0 and P1.50,
respectively. Using FIFO, what is the total cost assigned to the transferred out units (rounded to the nearest
peso)?
a. 224,938
b. 245,750
c. 237,000
d. 244,438
29. the following September information is OPQ Company:
Standards
Material 3.0 feet per unit @P4.20 per feet
Labor 2.5 hours per unit @7.50 per hour
Actual:
Production 2750 units produced during the month
Material 8700 feet used; 9000 feet purchased @4.50 per foot
Labor 7000 direct labor hours @7.90 per hour
What is the material price variance (calculated at point of purchase)? What is the labor efficiency variance?
a. P2700 U: P938 U
b. P2700 F: P938 F
c. P2610F; P1,875F
d. P2610U; P1,875U
30. EFG Company has developed standard overhead costs based on a capacity of 180,000 machine hours as
follows:
Standard cost per unit:
Variable portion 2 hours @P3=6
Fixed portion 2 hours @P5=10
16
During September, 85,000 units were scheduled for production, but only 80,000 units were actually
produced. The following data relate to September:
Actual machine hours used were 165,000
Actual overhead incurred totaled P1,378,000 (P518,000 variable plus P860,000 fixed).
All inventories are carried at standard cost.
The variable overhead spending variance for September was; The fixed overhead volume variance for
September was
a. P15,000 U; 60,000 U
b. P38,000F; P60,000F
c. P38,000, P100,000F
d. P23,000 U, P100,000 U