Final Preboard Exam-Prac2

PRE-WEEK LECTURE EXERCISES – PRACTICAL ACCOUNTING PROB. 2

A. On October 17, 2008, Lee Inc. purchased from a Thailand firm an inventory costing
10,000 baht. Payment is due on January 15, 2009. Also on October 17, Lee entered into
a foreign exchange forward to buy 10,000 baht on January 15, 2009. The following
exchange rates are available on various dates:

10/17/08 12/31/08 1/15/09

Spot rate (baht) P1.30 P1.42 P1.40
Forward rate (baht) P1.36 P1.43 P1.40

1
. In the profit and loss statement, foreign exchange gain or loss due to forward
contract amounted to:

2008 2009
a. P -0- P-0-
b. P1,200 loss P200 gain
c.P700 loss P300 gain
d. P700 gain P300 loss 9 (FOREX)

B. The income statement submitted by Tarlac Branch to the Home Office for the month of
December 31, 2006 follows:

Sales P600,000
Cost of Sales:
Inventory, December 31, 2006 P80,000
Shipments from Home office 350,000
Purchased locally by branch 30,000
Total P460,000
Inventory, December 31, 2006 100,000 360,000
Gross Margin P240,000
Operating Expenses 180,000
Net Income for the month P 60,000

The Branch inventories consisted of:

12/1/2005 12/31/2005
Merchandise purchased from home P70,000 P84,000
Local purchases P10,000 P16,000
Total P80,000 P100,000

After effecting the necessary adjustments, the Home Office ascertained the true net
income of the Branch to be P156,000.
2
. At what percentage of cost did the home office bill the branch for merchandise
shipped to it?
a. 100%
b. 120%
c. 140%
d. 150%
3
. What is the balance of the Allowance for Overvaluation in the branch inventory at
December 31, 2006?
a. P10,000
b. P16,000
c. P24,000
d. P34,000

C. All the issued and outstanding common stock of Manila Company were bought by
Makati Company on October 1, 2006 for P700,000. The assets and liabilities of Manila
Company on the date of purchase were:

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Cash P 50,000
Accounts Receivable (net of allowance for doubtful accounts) 250,000
Inventory 150,000
Property & Equipment (net of P100,000 allowance for depreciation) 300,000
Liabilities 150,000

On October 1, 2006 the fair value of the following assets were as follows:
Accounts Receivable (net) P 235,000
Inventory 130,000
Property & Equipment (net) 400,000
4
. The amount recorded on the books of Makati Company as goodwill as a result of
business combination should be:
a. P35,000
b. P65,000
c.P100,000
d. None

D. On April 1, 2006, the Jaja Company paid P800,000 of all the issued and outstanding
common stock of Ann Corporation in a transaction properly accounted for as a purchase.
The recorded assets and liabilities of Ann Corporation of April 1, 2006 follow:

Cash P 80,000
Inventory 240,000
Property & Equipment (net of Accumulated depreciation of P320,000) 480,000
Liabilities (180,000)

On April 1, 2006, 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.
5
. What is the amount of goodwill resulting from the business combination?
a. P0
b. P50,000
c.P150,000
d. P180,000

E. The joint venture accounts in the books of the participants, M, N, and O, show the
balances below, upon termination of the joint venture and distribution of the profits:

Books of
Accounts M N O
With Dr Cr Dr Cr Dr. Cr.
M P900 P900
N P750 P750
O P1,650 P1,650

6
. Final settlement of the joint venture will require payments as follows:
a. M pays P900 to and N pays P750 to O
b. O pays P900 to M and P750 to N
c.N pays P1,650 to M and M pays P900 to N
d. M pays P900 to N pays P750 to O

F. ABC Company manufactures product X. It adds materials at the end of the process in
Department A, which is the first of the two stages of its production cycle. The following
are the information concerning the materials used in Department A in September 2005:

Units Material Costs

Work in process, September 1, 2005 4,000 P2,000
Units started during September 48,000 23,480
Units completed and transferred to next Department B

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during September 30,000

7
. Using the weighted average method, the materials cost of the work in process in
the September 30, 2005 is:
a. P5,390
b. P10,780
c.P11,000
d. P14,700

G. Novgorod Ltd purchased 75% of the capital of Gomel Ltd. For P250,000 on July 1, 2000.

On this date the equity of Gomel Ltd was:

Share Capital P 100,000

General Reserve 60,000
Retained Earnings 40,000

On this date, Gomel Ltd had not recorded any goodwill, and all identifiable assets and
liabilities were recorded at fair values except for the following assets:

Carrying Value Fair Value

Inventory P 70,000 P 100,000
Plant (cost, P170,000) 150,000 190,000
Land 50,000 100,000

The plant has a remaining useful life of ten years. As a result of an impairment test, all
goodwill has written off in 2003. All the inventory on hand at July 1, 2000 was sold by
June 30, 2001. Differences between carrying amount and fair values are recognized on
consolidation. The tax rate is 30%.

The trial balances of Novgorod Ltd and Gomel Ltd at June 30 2006 are:

Novgorod Ltd Gomel Ltd

Shares in Gomel Ltd (Investment in Subsidiary) P250,000
Plant 425,500 P190,000
Land 110,000 50,000
Current Assets 162,000 84,000
Cost of Sales 225,000 35,000
Other Expenses 65,000 7,000
Income tax expenses 50,000 5,000
P1,287,500 P371,000
Share capital P400,000 P100,000
General reserve 60,000 80,000
Retained Earnings, 1/7/05 120,000 75,000
Sales revenue 510,600 80,000
Payables 72,900 12,000
Accumulated depreciation (plant) 124,000 24,000
P1,287,500 P371,000

8
. Minority interest in Net Income on June 30, 2006:
a. P8,250
b. P7,550
c. P2,300
d. Zero
9
. Consolidated Net Income on June 30, 2006:
a. P200,800
b. P193,250
c. P177,500
d. P140,500

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H. The balance sheet as of June 30, 2006 for the partnership of Dom, Joe, and Rey show
the following information:

Total Assets (at cost) P 360,000

Dom, Loan P 20,000

Dom, Capital 83,000
Joe, Capital 77,000
Rey, Capital 180,000
Total P 360,000

It was agreed among partners that Dom retires from the partnership and it was further
agreed that the assets will be adjusted to their fair values of P408,000 as pf June 30,
2006. The partnership would pay Dom P121,000 cash for Dom’s partnership interest and
includes the payment of loan to Dom. No goodwill is to be recorded.

Dom, Joe and Rey share profits and losses: 25%, 25% and 50% respectively.
10
. After Dom’s retirement, what is the balance of Rey’s capital account?
a. P180,000
b. P204,000
c. P200,000
d. Zero

I. Lazy Builders, Inc. has incurred the following contract costs in the first year on a two
year fixed price contract for P4.0 million to construct a bridge:

 Material cost = P2.0 million

 Other contract costs (including site labor costs) = P1.0 million
 Cost to complete = P2.0 million
11
. How much profit or loss should Lazy Inc. recognize in the first year of the three
year construction contract?
a. Loss of 0.5 million pro rated over two years.
b. Loss of P1.0 million (expensed immediately).
c. No profit or loss in the first year and deferring it to second year.
d. Since 60% is the percentage of completion, recognize 60% of loss (i.e, P0.6
million)

J. Brilliant Inc. is constructing a skyscraper in the heart of Recto, Manila had has signed a
fixed price two year contract for P21.0 million with the local authorities. It has incurred
the following cost relating to the contract by the end of first year:

 Material Cost = P5.0 million

 Labor cost = P2.0 million
 Construction overhead = P2.0 million
 Marketing costs = P0.5 million
 Depreciation of idle plant and equipment = P0.5 million

At the end of first year, if has estimated cost to complete the contract = P9.0 million.
12
. What gross profit or loss from the contract should Brilliant Inc. recognize at the end
of first year?
a. P1.5 million (9/18 x 3.0)
b. P1.0 million (9/18 x 2.0)
c. P1.05 million (10/19 x 2.0)
d. P1.28 million (9.5/18.5 x 2.5)

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K. Partners X, Y, and Z formed a partnership on January 1, 2007 and had the following
initial investment:

X P 100,000
Y 150,000
Z 225,000

The partnership agreement states that the profits and losses are to be shared equally by
the partners after consideration is made for the following:

- Salaries allowed to partners: P60,000 for X; P48,000 for Y; and

P36,000 for Z.
- Average partner’s capital balances during the year shall be allowed 10%.

Additional information:
- On June 30, 2007, X invested an additional P60,000.
- ZZ withdrew P70,000 from the partnership on September 30,
2007.
- Share of the remaining partnership profit was P5,000 for each
partner.
13
. Interest on average capital balances of each partners totaled:
a. P48,750
b. P53,750
c.P57,625
d. P60,625
14
. Partnership net profit at December 31, 2004 before salaries, interests and partner’s
share on the remainder was:
a. P199,750
b. P207,750
c. P211,625
d. P222,750

L. Parolari Corporation sold an equipment with a remaining three-year useful life and a
book value of P14,500 to its 80% owned subsidiary, Sarafin Corporation, for P16,000 on
January 2, 2005.
15
. A consolidated working paper entry on December 31, 2005 to eliminate the
unrealized profits from the intercompany sale of equipment will include:
a. A debit to gain on sale of equipment P1,000
b. A debit to gain on sale of equipment P1,500
c.A debit to depreciation expense for P1,500
d. A debit to machinery for P1,500

M. On January 1, 2005, Satin Corporation, a 60% owned subsidiary of Pollyparts Company,

sells a building with a book value of P300,000 to its parent for P350,000. At the time of
sale, the building has a remaining useful life of 10 years with no salvage value.
Pollyparts uses straight line depreciation.
16
. If Satin reports net income of P1,000,000 for 2005, minority interest income will be:
a. P450,000
b. P400,000
c.P382,000
d. P355,000

N. The data below are taken from the records of Jess Appliance Co. which sells appliance
exclusively on the installment basis:

2003 2004 2005

Installment sales P365,500 P417,800 P610,750
Gross profit rate 36% 39% 40%

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The balances on the Installment Accounts Receivable controlling accounts at the

beginning and end of 2005 were:

2005
From sales made in: January 1 December 31
2003 P17,400
2004 205,400 P25,800
2005 305,520

There was one repossession recorded during 2005. It related to a 2004 sale. Thereafter,
the repossessed appliance was sold for P200, which equaled the uncollected balance in
the customer’s installment accounts receivable.
17
. For the year ended December 31, 2005, the Cost of Goods Sold for the Jess
Appliance Company amounted to:
a. P205,400
b. P244,300
c.P305,520
d. P366,450
18
. The unrealized gross profit for 2005 sales on December 31, 2005:
a. P15,480
b. P17,400
c. P122,092
d. P122,208

O. The Diamond Company uses the job order cost accounting system. Overhead applied to
production is applied at a predetermined rate of 80% based on direct labor costs. The
following posting appear on the ledger accounts of the company for the month of
September 2006:
Debit
Work in Process, September 1 P 30,000
Direct materials 60,000
Direct labor 50,000
Factory overhead 45,000

On September 30, 2006, finished goods completed for the work in process costing
P160,000. Job 327 was the only job not completed in September and has been charged
P4,600 for factory overhead.
19
. Direct materials charged to Job No. 327 was:
a. P10,350
b. P14,650
c.P20,000
d. P25,000

P. The Ilang ilang Corporation engaged on manufacturing business uses process costing
and gave us the following production data from three different situations. Stages of
completion inventories apply to all cost elements:
(1) Started in process, 6,500 units; transferred 5,500 units; in process, 400
units, 50% complete and 600 units 25% complete.
(2) Beginning inventory, 6,250 units, 40% completed; started in process,
25,000 units transferred, 26,250; in process at the end of the period, 3,000 units,
50% completed and 2,000 units, 25% completed.
Beginning inventory, 6,000 units, 30% completed; started in process, 13,000 units, lost
in processing, 500 units from production started this period (loss was normal and
occurred throughout the production process); transferred 14,000 in process at the end of
the period, 3,000 units, 50% completed and 1,500 units, 75% completed.
20
. Using FIFO costing, the equivalent production figures are:
a. (1) 5,580; (2) 27,550; (3) 18,425

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b. (1) 5,850; (2) 25,750; (3) 14,825

c.(1) 8,550; (2) 20,575; (3) 15,428
d. (1) 5,058; (2) 20,775; (3) 12,524
21
. Using the same data in No. 20, the equivalent production figures under Average
costing are:
a. (1) 5,580; (2) 22,850; (3) 15,662
b. (1) 5,085; (2) 25,580; (3) 12,665
c. (1) 5,508; (2) 28,025; (3) 16,265
d. (1) 5,850; (2) 28,250; (3) 16,625

Q. Arthur, Baker, and Carter are partners on textile distribution business, sharing profits and
losses equally. On December 31, 2006, the partnership capital and partners drawings
were as follows:

Arthur Baker Carter Total

Capital P100,000 P80,000 P300,000 P480,000
Drawing 60,000 40,000 20,000 120,000

The partnership was unable to collect on trade receivables and was forced to liquidate.
Operating profit in 2006 amounted to P72,000 which was all exhausted including the
partnership assets. Unsettled creditors’ claims at December 31, 2006 totaled P84,000.
Baker and Carter have substantial private resources but Arthur has no personal assets.
22
. Loss on Liquidation was:
a. P360,000
b. P432,000
c. P480,000
d. P516,000
23
. Final cash distribution to Carter was:
a. P78,000
b. P84,000
c. P108,000
d. P162,000

R. On January 1, 2005, A, B, and C formed a Bekha Trading Co., a Partnership with capital
contributions as follows: A – P50,000; B – P25,000; C – P25,000; and D – P20,000. The
partnership agreement stipulates that each partner shall receive a 5% interest on capital
contributed and that A and B shall receive salaries of P5,000 and P3,000, respectively.
The agreement further provides that C shall receive a minimum of P2,500 per annum
and D a minimum of P6,000 which is inclusive of amounts representing interest and their
respective shares in partnership profits. The balance of the profits shall be distributed
among A, B, C, and D in the ratio of 3:3:2:2.
24
. What amount must be earned by the partnership in 2005, before any charges for
interest and partners’ salaries in order that A may receive an aggregate amount of
P12,500 including interest, salary and share of profits?
a. P30,667
b. P32,334
c. P16,667
d. P30,000

S. In 2004, PJD Construction Corporation began construction work under a three-year

contract. The contract price was P800,000. PJD uses the percentage of completion
method for financial accounting purposes. The income to be recognized each year is
based on the proportion of cost incurred to total estimated cost of completing the
contract. The financial statement presentation relating to this contract at December 31,
2004 were as follows:
Balance Sheet

Accounts Receivable- construction contract billings P 17,200

Construction in progress P 52,000

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Less: Contract billings 49,200

Cost of uncompleted contract in excess of billings 2,800

Income Statement

Gross profit (before tax) recognized in 2004 P 14,560

25
. What was the estimated gross profit before tax on this contract?
a. P52,000
b. P224,000
c. 576,000
d. P800,000

T. Penny Company paid P88,000 for an 80% interest in Sesi Company on January 5, 2006,
when Sesi capital stock was P60,000 and its retained earnings is P40,000. trial balances
for the companies at December 31, 2006 are as follows:

Penny Sesi
Cash P 2,500 P 15,000
Accounts Receivable 15,000 25,000
Other Assets 120,000 100,000
Investment on Sesi 88,000
Cost of Goods sold 50,000 30,000
Operating expenses 25,000 40,000
Dividends 20,000 10,000
P 320,500 P 20,000

Liabilities P 80,000 P 30,000

Capital Stock 100,000 60,000
Paid in capital in excess of par 10,000
Retained earnings 22,500 40,000
Sales 100,000 90,000
Dividend income 8,000 ________
P 320,500 P 220,000

The only two entries that Penny Company made in regard to the investment in Sesi
Company are as follows:

January 5, 2006:
Investment in Sesi 88,000
Cash 88,000

November 15, 2006:

Cash 8,000
Dividend Income 8,000

Goodwill is impaired amounting to P800 per year. Assets and liabilities of Sesi are stated
at their fair values.
26
. Compute the Minority interest at December 31, 2006:
a. P12,000
b. P20,000
c. P22,000
d. P24,000
27
. Using the same information in No. 26, compute the consolidated net income for
2006:
a. P40,200
b. P40,360
c. P41,000
d. P44,200

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U. Joint venture activities for M, N, and O having proved to be unprofitable, the parties
agree to dissolve the venture. Accounts with the venture and venturers on the books of
M, the managing partner, are as follows before dissolution and liquidation:
Debit Credit
Joint venture cash P 12,000
Joint venture 6,500
N, capital P 14,500
O, capital 6,500
The balance of the joint venture assets on hand is sold for P3,500. M, is allowed special
compensation (salary) of P300 for winding up the venture; remaining profits or loss is
distributed equally.
28
. The joint venture profit (loss) is:
a. P3,000
b. P10,000
c. P(3,000)
d. Zero
29
. In the final settlement, N and O received:
a. N, P13,400; O, P5,400
b. N, P10,500; O, P3,500
c. N, P15,850; O, P7,850
d. None

V. On January 1, 2005, the Jonas Company sold equipment to its wholly owned subsidiary,
Neptune Company for P1,800,000. The equipment cost Jonas P2,000,000; accumulated
depreciation at the time of sale was P500,000. Jonas was depreciating the equipment on
the straight line method over twenty years with no salvage value, a procedure that
Neptune continued.
30
. On the consolidated balance sheet at December 31, 2005, the cost and
accumulated depreciation, respectively should be:
a. P1,500,00 and P600,000
b. P1,800,000 and P100,000
c. P1,800,000 and P500,000
d. P2,000,000 and P600,000

W. Narra Company owns 80% interest in Guijo Corporation. In the year 2005, the two firms
reported net income as follows:
Narra Company P 45,000
Guijo Company 37,500
Records show that Narra shipped merchandise and billed Guijo Corp for P180,000; the
cost is P150,000, 20% of these goods are not yet sold as of December 31, 2005.
Guijo Corporation constructed a warehouse for Narra Company at a cost of P60,000 and
billed the latter for P75,000 on January 1, 2005. The asset has an estimated useful life of
five (5) years.
31
. How much is the consolidated net income at the end of 2005?
a. P82,500
b. P70,500
c. P64,500
d. P59,400

X. On March 1, 2006 Evan and Helen decide to combine their business and form a
partnership. The balance sheet of Evan and Helen on March 1, 2006 before adjustments
show the following:
Evan Helen
Cash P9,000 P3,750
Accounts Receivable 18,500 13,500
Inventories 30,000 19,500

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Furniture and fixtures (net) 30,000 9,000

Office equipment (net) 11,500 2,750
Prepaid expenses 6,375 3,000
P105,375 P51,500
Accounts Payable P45,750 P18,000
Evan, Capital 59,625
Helen, Capital ________ 33,500
P105,375 P51,500

They agreed to provide 3% for doubtful accounts receivables and found Helen’s furniture
and fixtures to be under depreciated by P900.
32
. If each partner’s share in equity is to be equal to the net assets invested, the capital
accounts of Evan and Helen would be:
a. P58,170 and P33,095, respectively
b. P58,320 and P32,495, respectively
c. P59,070 and P32,195, respectively
d. P104,820 and P50,195, respectively

Y. Components of the December 17, 2004, statement of affairs of Liquo Company, which
was undergoing liquidation, included the following:

Assets pledged to fully secured creditors, at current fair value P 150,000

Assets pledged to partially secured creditors, at current fair value 104,000
Free assets, at current fair value 80,000
Fully secured liabilities 60,000
Partially secured liabilities 120,000
Unsecured liabilities with priority 14,000
Unsecured liabilities without priority 224,000
33
. Determine the estimated payment to secured liabilities.
a. P78,000
b. P114,400
c. P115,333
d. P115,143

Z. Following data pertain to Matiisin Company which sells the appliances on the installment
basis:

2003 2004 2005

Installment Sales P390,000 P420,000 P480,000
Cost of sales 237,900 243,600 288,000
From sales made in
Installments Accounts Receivable 2003 2004 2005
January 1, 2005 P24,000 P300,000
December 31, 2005 60,000 P320,000
Repossessions on defaulted accounts
were made during 2005, as follows:
From sales made in
2004 2005
Account balance P10,000 P5,000
Net fair market value of repossessed P4,500 P3,500
merchandise
34
. The net gain (loss) on repossessions on defaulted sales of 2004 and 2005 was:
a. P500
b. P(800)
c. P800
d. P(1,300)

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AA.Parcon Corporation owns an 80% in Shelly Corporation acquired several years ago.
Shelly Corporation regularly sells merchandise to its parent at 125% of Shelly’s cost.

Gross profit data of Parcon and Shelly for the year 2005 are as follows:

Parcon Shelly
Sales P1,000,000 P800,000
Cost of Goods Sold 800,000 640,000
Gross profit P200,000 P160,000

During 2005, Parcon purchased inventory items at a transfer price of P400,000.

Parcon’s December 31, 2004 and 2005 inventories included goods acquired from Shelly
of P100,000 and P125,000, respectively.
35
. The unrealized profits in the year end 2004 and 2005 inventories were:
a. P100,000 and P125,000, respectively
b. P80,000 and P100,000, respectively
c. P20,000 and P25,000, respectively
d. P16,000 and P20,000, respectively
36
. Consolidated cost of goods sold of Parcon Corporation and Subsidiary for 2005 was:
a. P1,024,000
b. P1,045,000
c. P1,052,800
d. P1,056,000

BB.Wilson Company produces product X in a production cycle which begins in the Grinding
Department. Conversion costs for this department were 80% complete as to the
beginning work in process and 50% complete as to the ending work in process. Data
as to conversion costs in the Grinding Department for December 2005 are as follows:

Units Conversion costs

Work in process, December 1, 2005 20,000 P17,600
Units started and cost incurred during the
month 108,000 114,400
Units completed and transferred to the Mixing
Department in January 80,000
37
. Using the FIFO method, what was the conversion costs of the work in process in the
Grinding Department at December 31, 2005?
a. P36,000
b. P31,200
c. P30,480
d. P26,400

CC. Wright Corp has several subsidiaries that are included in its consolidated financial
statements. In its December 31, 2005 trial balance, Wright has the following
intercompany balances before eliminations:

Debit Credit
Current Receivable due from Main Co. P32,000
Non current receivable from Main 114,000
Cash advance from Corn Corp 6,000
Cash advance from King Co. P15,000
Intercompany payable to King 101,000
38
. In its December 31, 2005 consolidated balance sheet, what amount should Wroght
report as intercompany receivables?
a. P152,000
b. P146,000
c. P36,000

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d. -0-

DD. A company has identified the following overhead costs and cost drivers for the coming
year:

Overhead Item Cost Driver Budgeted Cost Budgeted Activity Level

Machine Set up Number of set up P20,000 200
Inspection Number of
inspections P130,000 6,500
Material handling Number of
material moves P180,000 8,000
Engineering Engineering
hours P50,000 1,000
P280,000

The following information was allocated on the three jobs that were completed during
the year:
Job 101 Job 102 Job 103
Direct materials P5,000 P12,000 P8,000
Direct labor P2,000 P2,000 P4,000
Units completed 100 50 200
Number of set ups 1 2 4
Number of inspections 20 10 30
Number of material moves 30 10 50
Engineering hours 10 50 10

Budgeted direct labor cost was P100,000 and budgeted direct material cost was
P280,000.
39
. Compute the cost of each unit of Job 102 using Activity Based Costing:
a. P340
b. P392
c. P440
d. P520

EE.The Molino Furniture Company appropriately issued the installment sales method in
accounting for the following installment sale. During 2004, Molino sold furniture to an
individual for P3,000 for a gross profit of P1,200. On June 1, 2004, this installment
Accounts Receivable had a balance of P2,200 and it was determined that no other
further collections would be made. Molino being worth only P1,000. In order to improve
its salability, Bengal incurred costs of P100 for reconditioning. Normal profit on resale
is P200.
40
. What should be the loss on repossession attributable to this merchandise?
a. P220
b. P620
c. P320
d. P880

FF. Peggy Corporation owns a 70% interest in Sandy Corporation, acquired several years
ago at a book value. On December 31, 2005, Sandy mailed a check for P10,000 to
Peggy in part payment of a P20,000 account with Peggy. Peggy has not received the
check when its books were closed on December 31. Peggy Corporation had accounts
receivable of P150,000 (including the P20,000 from Sandy), and Sandy has accounts
receivable of P220,000 at year end.
41
. In the consolidated balance sheet of Peggy Corporation and Subsidiary at December
31, 2005, accounts receivable will be shown in the amount of:
a. P370,000
b. P360,000

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 Final Preboard Exam-Prac2

c. P350,000
d. P304,000

GG. Cherry, Inc. charges an initial franchise fee of P115,000, with P25,000 paid when the
agreement was signed and the balance in five annual payments. The present value of
the future payments, discounted at 10% is P68,234. The franchisee has the option to
purchase P15,000 of equipment for P12,000. Cherry has substantially provided all
initial services required and collectibility of the payments is reasonably assured.
42
. The amount of revenue from franchise fees is:
a. P25,000
b. P90,234
c.P93,234
d. P115,000

HH. Some units of output failed to pass final inspection at the end of the manufacturing
process. The production and inspection supervisors determined that incremental
revenue from reworking the units exceeded the cost of rework. The rework of the
defective units was authorized, and the following costs were incurred in reworking the
units:

Materials requisitioned from stores:

Direct materials P5,000
Miscellaneous supplies 300
Direct labor 14,000
43
. The manufacturing overhead budget includes an allowance for rework. The
predetermined manufacturing overhead rate is 150% of direct labor cost. The
account(s) to be charged and the appropriate charges for the rework cost would
be:
a. Work-in-process inventory control for P19,000
b. Work-in-process inventory control for P5,000 and factory overhead control for
P35,300
c. Factory overhead control for P19,300
d. Factory overhead control for P40,300

II. Janairo Corporation manufactures rattan furniture sets for export and uses job order
costing system in accounting for its costs. You obtained from the corporation’s books
and records the following information for the year ended December 31, 2006:

 The work in process inventory on January 1 was 20% less than the work in
process inventory on December 31.
 The total manufacturing costs added during 2006 was P900,000 based on actual
direct materials and direct labor but with manufacturing overhead applied on actual
direct labor pesos.
 The manufacturing overhead applied to process was 72% of the direct labor pesos,
and it was equal to 25% of the total manufacturing costs.
 The cost of goods manufactured, also based on actual direct materials, actual
direct labor and applied manufacturing overhead was P850,000.
44
. Direct materials used was:
a. P212,500
b. P225,500
c. P312,500
d. P362,500
45
. Using the same information given for the preceding number, the total work placed
in process (work in process, January 1 plus total manufacturing costs added in
2006) was:
a. P1,075,000
b. P1,100,000
c. P1,260,000

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 Final Preboard Exam-Prac2

d. P1,498,000

JJ. The Porthos Manufacturing Company has a cycle of 3 days, uses a raw and in process
(RIP) account, and charges all conversion costs to Costs of Goods Sold. At the end of
the month, all inventories are counted, their conversion cost components are
estimated and inventory account balances are adjusted. Raw material cost is back
flushed from RIP to Finished Goods.
The following information is available for the month of June:
Beginning balance of RIP account,
including P2,000 of conversion cost
P15,000
Beginning balance of finished goods
account, including P3,000 of conversion
cost
23,000
Raw materials purchased on account
500,000
Ending RIP inventory per physical count,
including P2,500 conversion cost
estimate
22,500
Ending finished good inventory per
physical count, including P1,000
conversion cost estimate
16,000
46
. Compute the amount of materials to be backflushed from finished goods to Cost of
Goods Sold:
a. P499,500
b. P493,000
c. P498,000
d. P500,000

KK.Aguilar Sweets Factory manufactures a coconut candy, Coco, which is sold for P5.00 a
box. The manufacturing process also results in a by-product Soloc. Without further
processing, Soloc sells for P1.00 per pack, with further processing, it sells for P3.00
per pack.
During the month of April, the total joint manufacturing costs up to the point of
separation consisted of the following charges to work in process:
Raw materials P225,000
Direct labor 100,000
Factory overhead 45,000
During the month, production of the two products was as follows: Coco, 591,000
boxes; Soloc, 45,000 packs.
The following additional costs are necessary to complete and sell Soloc at a price of
P3.00 per pack, during the month of April:
Raw materials P30,000
Direct labor 22,500
Factory overhead 7,500
47
. Assuming that the by-product Soloc, is further processed and then transferred to
the stockroom at net realizable value with a corresponding reduction of Coco’s
manufacturing costs, the journal entry required to record the transfer would be:
a. By-product inventory – Soloc 45,000
Work in process 45,000
b. By-product inventory – Soloc 135,000
Raw materials 30,000
Direct labor 22,500

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 Final Preboard Exam-Prac2

Factory overhead 7,500

Work in process – Coco 75,000
c. Work in process – Soloc 6,750
Work in process – Coco 6,750
d. Work in process – Soloc 60,000
Raw materials 30,000
Direct labor 22,500
Factory overhead 7,500
LL. The Glant 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:

Contract Costs Estimated Costs Billings Collections

Contract Price Incurred to Complete on Contract on contract
Batanes P500,000 P375,000 P -0- P500,000 P500,000
Lanao 700,000 100,000 400,000 100,000 100,000
Manila 250,000 100,000 100,000 150,000 100,000
48
. What amount would be reported for Construction In Progress account in the year-
end balance sheet?

Percentage Cost Recovery

of completion Method
a. P765,000 P700,000
b. P765,000 P765,000
c. P265,000 P265,000
d. P265,000 P200,000

MM. SSR Restaurant, sold a fastfood restaurant franchise to Shar. The sale agreement,
signed on January 2, 2005, called for a P30,000 down payment plus two P10,000
annual payments, representing the value of the initial franchise services rendered by
SSR 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 margin on continuing franchise services to be performed by SSR
Restaurant. The restaurant opened early in 2005, and its sales for the year amounted
to P500,000.
49
. Assuming a 10% interest rate is appropriate (the present value of an annuity of P1
at 10% for 2 periods is 1.7355), SSR Restaurant’s 2005 total revenue will be:
a. P30,000
b. P47,355
c.P72,355
d. P74,090

NN. A chemical company manufactures joint products Pep and Vim, and a by-product,
Zest. Costs are assigned to the joint products using the market value method, which
considers further processing costs in subsequent operations. For allocating joint costs
to the by-product, the market value or reversal cost method is used.

The total manufacturing costs for 10,000 units were P172,000 during the quarter.
Production and cost data follow:

Pep Vim Zest

Units produced 5,000 4,000 1,000
Sales price per unit P50 P40 P5
Further processing cost per unit P10 P5 -
Selling and administrative expense per unit P2
Operating profit per unit P1

50
. The value of Zest to be deducted from Pep amounted to:
a. P5,000

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 Final Preboard Exam-Prac2

b. P3,000
c.P2,000
d. P-0-

- End --

ANSWER KEY – PRACTICAL ACCOUNTING PROBLEMS 2

FINAL PRE-BOARD EXAMINATION - RESA

1. D 26. C
2. C 27. A
3. C 28. C
4. D 29. A
5. C 30. D
6. A 3. D
7. B 32. C
8. B 33. B
9. B 34. B
0. C 35. C
1. B 36. B
2. A 37. B
3. A 38. D
4. B 39. A
5. B 40. C
6. C 4. C
7. D 42. B
8. C 43. D
9. B 44. D
20. B 45. B
2. D 46. B
22. D 47. B
23. A 48. D
24. B 49. D
25. B 50. C

KEY ANSWERS – PRACTICAL ACCOUNTING PROBLEMS 2 - RESA

Page 16 of 17
1
. D
2
. C
3
. C
4
. D
5
. C
6
. A
7
. B
8
. B
9
. B
10
. C
11
. B
12
. A
13
. A
14
. B
15
. B
16
. C
17
. D
18
. C
19
. B
20
. B
21
. D
22
. D
23
. A
24
. B
25
. B
26
. C
27
. A
28
. C
29
. A
30
. D
31
. D
32
. C
33
. B
34
. B
35
. C
36
. B
37
. B
38
. D
39
. A
40
. C
41
. C
42
. B
43
. D
44
. D
45
. B
46
. B
47
. B
48
. D
49
. D
50
. C