ADVANCED FINANCIAL ACCOUNTING

AND REPORTING DE LEON/DE LEON/ALENTON

FIRST PRE-BOARD EXAMINATION February 22, 2022

Multiple Choice. Select the letter that corresponds to the best answer. This examination consists of
70 items only. (Please ignore the extra answer options in the answer sheet after number 70.) The exam
is good for three (3) hours. Good luck!

1. Partnership net income is defined as

a. the interest allocation to the partners, based on weighted average invested capital
b. partnership income after deducting partner salaries and interest.
c. partnership income after deducting partner salaries.
d. partnership income before deducting salaries and interest.

2. When can the bonus method be applied?

a. When a partnership is formed
b. When a new partner is added to the partnership
c. When an existing partner retires from the partnership
d. The bonus method can be applied in all three of the above circumstances

3. Which of the following interest component calculation bases is least susceptible to manipulation when allocating
profits and losses to partners?
a. Beginning capital account balance
b. Average of beginning and ending capital account balances
c. Weighted average capital account balance
d. Ending capital account balance

4. Which of the following forms of new partner admission will not result in a change in the partnership's net assets?
a. Purchase of an ownership interest directly from the partnership
b. Purchase of an ownership interest directly from an existing partner
c. Either of the above
d. Neither of the above

5. In what manner do the remaining partners share in the bonus paid to a withdrawing partner?
a. In proportion to, their residual profit and loss ratios
b. Equally
c. In proportion to their capital account balances
d. The partner with the greatest capital account is assigned the bonus

The following balance sheet for the partnership of ALBERT, BERNARD, and CARLO was taken from the books on
December 31, 2021.

Assets Liabilities and Capital

Cash P 32,000 Liabilities P 80,000
Other Assets 288,000 A, Capital (40%) 59,200
B, Capital (40%) 104,000
C, Capital (20%) 76,800
Total Assets P 320,000 Total Liab & Cap P 320,000

6. If the firm is dissolved and liquidates by installment, the first sale of the other assets having book value of P144,000
realized P64,000 and all cash available are distributed, the amount to be received by Albert, Bernard, and Carlo
respectively would be

A B C
a. P 0 P18,000 P40,000
b.P 0 P80,000 P20,000
c. P20,000 P 0 P 0
d.P 0 P 0 P16,000

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7. If the firm is dissolved and liquidates and Albert receives a total of P2,400 in full settlement of his interest, then
Carlo would have received a total of
a. P56,000 c. P 48,400
b. P 31,000 d. P 59,000

8. The accounts of the partnership of PBA at December 31, 2021 are as follows:

Cash P 105,600 Liabilities P 80,000

Non-cash assets 932,800 Loan from B 25,600
Loan to P 19,200 P, capital 264,000
B, capital 468,800
A, capital 219,200
Total P1,057,600 Total P1,057,600

They divide profits and losses 3:5:2 to P, B, and A respectively. They have decided to liquidate the partnership at
this date.

Determine the amount payable to Partner A if cash is paid just before the start of liquidation on December 31,
2021.
a. P 22,629 c. P 28,286
b. P 2,971 d. P 28,096

9. The following condensed balance sheet is presented for the partnership of Art and Bart, who share profits and
losses in the ratio of 60:40, respectively:
Cash P 45,000 Accounts payable P 120,000
Other assets 625,000 Art, capital 348,000
Bart, loan 30,000 Bart, capital 232,000
Total P 700,000 Total P 700,000

The assets and liabilities are fairly valued on the balance sheet. Art and Bart decide to admit Ces as a new
partner with 20% interest.

What amount should Ces contribute in cash or other assets?

a. P110,000 c. P140,000
b. P116,000 d. P145,000

10. The non-cash assets were sold in installment. Available cash were distributed to partners in every sale of non-cash
assets. After the second sale of non-cash assets, the partners received the same amount of cash in the distribution.
And from the third sale of non-cash assets, cash available for distribution amounts to P 28,000, and non-cash
assets has a book value of P 12,500. Using cash priority program, what amount did C received in the third
installment of cash?
a. P 11,600
b. 8,000
c. 5,600
d. 0

11. Which one of the following assets of a corporation is most likely to realize the smallest percentage of its book
value in bankruptcy?
a. accounts receivable
b. Plant &equipment
c. Goodwill
d. Inventories

12. Which of the following is not included in the category of unsecured liabilities with priority in a liquidation case?
a. unpaid wages
b. amounts due to the BIR
c. amounts due to suppliers
d. administrative expenses of the trustee

13. Which of the following statements is true?

a. Certain debts are not dischargeable.
b. The goal of liquidation is to give the company a new start
c. All secured claims are paid in full.
d. The expenses to administer the estate are paid last because they are unsecured
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CLARET CORPORATION, a financially distressed company, is to be liquidated and has the following liabilities:

Income taxes P 12,800

Notes payable, secured by land 192,000
Accounts payable 132,800
Salary payable, evenly to two employees 9,600
Bonds payable 112,000
Administrative expenses for liquidation 32,000

The said company has the following assets:

Book value Fair value

Current assets P 102,400 P 54,080
Land 128,000 144,000
Building and equipment 128,000 176,000

14. How much will the holders of notes payable collect following the liquidation?
a. P172,800 c. P132,800
b. P144,000 d. P192,000

RICAFORT Co. is undergoing liquidation. Relevant information follows:

Carrying amount Realizable value

Assets pledged with partially secured creditors 100,000 50,000
Free assets 220,000 160,000

Expected settlement amount Amount unsecured

Liabilities with priority 16,000 -
Partially secured creditors 75,000 25,000
Unsecured creditors 155,000 155,000

15. What is the total amount available for payment of claims of unsecured creditors?
a. 210,000 c. 144,000
b. 160,000 d. 0

16. What is the estimated amount of recovery per peso claim?

a. 1.17 c. 0.88
b. 1.03 d. 0.80

17. What is the estimated amount of deficiency to creditors?

a. 36,000
b. 144,000
c. 160,000
d. 180,000

18. A home office, month-end allocation of previously recorded advertising expenses to a branch requires the following
entry on the home office's books:
Debit Credit
a. Investment in Branch Advertising Expense
b. Home Office Capital Advertising Expense
c. Investment in Branch Accrued Liabilities
d. Branch Income Home Office Capital

19. The Shipments to Branch ledger account in the accounting records of the home office of a business enterprise:
a. Is an asset valuation account
b. Indicates thot the home office uses the periodic inventory system
c. Is adjusted at the end of the accounting period to equal the unrealized profit in the branch's ending inventories
d. Is not displayed in the home office's separate financial statement

20. If at the end of an accounting period the balance of the Investment in Branch ledger account in the accounting
records of the home office is P20, 000 and the balance of the Home Office account in the accounting records of the
branch (after the branch recorded closing entries) is P25.500, the most likely explanation for the discrepancy of
P5,500 is a:
a. Remittance of cash to the branch not recorded by the home office
b. Net income of branch not recorded by the home office
c. Net loss of branch not recorded by the home office
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 d. Collection by the home office of a branch note receivable not recorded by the branch

21. Statement 1 (S1): A home office records shipments to its branch at billing prices and adjusts the loading account
(deferred profit) at year-end. When this approach is used, the loading account during the period will always be
zero.
Statement 2 (S2): If a "loading" account is used, the "shipments to branch" account on the home office books is
created for the actual cost of shipments made to the branch whereas the "shipments from the home office" on the
branch's books includes any initial unrealized profit
a. S1 - True; S2 - True
b. S1 - True; S2 - False
c. S1 - False: S2 - True
d. S1 - False: S2 - False

Home office bills its branch for merchandise shipments at 30% above cost.
The following are some of the account balances on the books of home office and its branch as of December 31, 20X0:
Home Office Books Branch Books
Inventory, January 1 35,000 101,500
Shipments from Home Office 263,900
Purchases 1,575,000 350,000
Shipments to Branch 253,750
Branch Inventory Allowance 91,875
Sales 2,100,000 1,260,000
Operating Expenses 507,500 192,500

Per physical count, the ending inventory of the branch is P73,500 including goods from outside purchases of
P48,475; the ending inventory of the home office is P210,000.

22. What is cost of goods available for sale on the books of the branch?
a. P715,400
b. P781,375
c. P689,500
d. P638,750

23. What is the total ending inventory to be shown on the combined financial statements?
a. P118,475
b. P277,725
c. P328,475
d. P280,000
.
24. What is the combined net income for the year?
a. P957,950
b. P871,850
c. P891,975
d. P942,725

25. On December 31, the Investment in Branch account on the home office books of the Unlimited Company shows a
balance of P168,000. The following are some of the transactions between the home office and the branch:
a. Merchandise billed at P12,300 was shipped by the home office to the branch on December 28. The
merchandise is in transit and has not been recognized on the books of the branch.
b. The branch collected a home office accounts receivable of P50,000 but failed to notify the home office of this
collection.
c. The home office was charged P12,800 when the branch returned merchandise to the home office on
December 31. The merchandise is in transit.
d. The home office recorded incorrectly the branch net income for November at P22,500. The branch reported
net income of P25,200.

The unadjusted balance of the Home Office account was:

a. P180,300
b. P168,000
c. P220,200
d. P195,600

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26. Ara and Beth are partners with capital of P60,000 and P20,000, respectively. Profits and losses are divided in the
ratio of 60:40. Ara and Beth decided to form a new partnership with Coco, who invested land valued at P15,000
for a 20% capital interest in the new partnership. Coco’s cost of the land was P12,000 the partnership elected to
use the bonus method to record the admission of Coco into the relationship. Coco’s capital account should be
credited for
a. P12,000 c. P16,000
b. P15,000 d. P19,000

27. A, B and C are partners with capital balance of P 350,000, P 250,000 and P 350,000 and sharing profits 30%,
20% and 50% respectively. Partners agree to dissolve the business and upon liquidation, all of the partnership
assets are sold and sufficient cash is realized to pay all the claims except for P50,000. C is personally insolvent,
but the other two partners are able to meet any indebtedness to the firm. On the remaining claim against the
partnership, A is to absorb.
a. P 40,000
b. P 15,000
c. P 30,000
d. P 25,000

28. Mawet and Len share partnership profits and losses in a 7:3 ratio. Their post-closing trial balance on January 31
show before liquidation:

Cash……………………………………………………P 30,000
Accounts receivable, net………….……... 380,000
Inventory………………………………………….. 260,000
Furniture, net……………………………………. 120,000
Accounts payable…………………………………………………P165,000
A, capital………………………………………………………………..350,000
B, capital………………………………………………………………..275,000

Richie offered to buy for P760,000 the partnership assets including liabilities but excluding cash and after
certain assets are to be restated at their fair values as follows:

Accounts receivable ……………………………………………P350,000

Inventory ……………………………………………………………… 250,000
Furniture ……………………………………………………………… 135,000

How much will Mawet and Len receive as final settlement of their partnership interest?

a. P 570, 000 c. P790, 000

b. 760, 000 d. 625, 000

29. Donna and Blanche partnership’s balance sheet at December 31, 2009, reported the following:
Total Assets P 100,000
Total liabilities 20,000
Donna, capital 40,000
Blanche, capital 40,000

On January 2, 2010, Donna and Blanche dissolved their partnership and transferred all assets and liabilities to a
newly formed corporation. At the date of incorporation, the fair value of the net assets was P12,000 more than the
carrying amount in the partnership’s books, which was assigned to tangible assets. Donna and Blanche were each
issued 5,000 shares of the corporation’s P1 par value common stock. Immediately following incorporation, additional
paid-in capital in excess of par should be credited for
a. P68,000 c. P77,000
b. P70,000 d. P82,000

30. Mr. Roman and Mr. David formed a partnership and agreed to divide the initial capital equally even though Mr.
Roman contributed ₱100,000 and Mr. David contributed ₱84,000 in identifiable assets. The partners agree that the
difference in the amount of contribution and the amount of credit to the partner’s capital shall be treated as
compensation for the expertise that the partner will be bringing to the partnership. How much is the correct
valuation of Roman’s capital immediately after the partnership formation?
a. 84,000
b. 92,000
c. 100,000
d. 108,000

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31. Helen, Irene, and Jessie were partners with capital balances on January 2, 2019 of P560,000, P672,000, and
P496,000 respectively. Their profit and loss ratio is 3:5:2. On August 1, 2019, Helen retires from the partnership.
On the date of retirement, the partnership net loss from January 2 is P384,000; and the partners agreed to revalue
inventories to P296,000 from P272,000. The payment to Helen for her interest is to be P454,800. Upon retirement
of Helen, which of the following will result?
a. Bonus to Irene of P2,000
b. Goodwill to Jessie of P2,800
c. Bonus to Jessie of P800
d. Irene’s capital is P66,800 more than Jessie’s.

32. Amounts related to the statement of affairs of Distressed Company as of April 30, 2022 follow:
Assets pledged for fully secured liabilities P 80,000
Assets pledged for partially secured liabilities 50,000
Free assets 272,000
Fully secured liabilities 60,000
Partially secured liabilities 80,000
Unsecured liabilities with priority 40,000
Unsecured liabilities without priority 330,000

Calculate the expected amount recoverable by partially secured creditors in the event of liquidation.
a. P71,000 c. P69,500
b. P50,000 d. P80,000

33. In a statement of affairs, assets pledged for partially secured creditors are
a. Included with assets pledged for fully secured creditors
b. Offset against partially secured creditors
c. Included with free assets
d. Disregarded

The Statement of Affairs of RBD Enterprises show the following balances

Estimate gains on realization of assets P 945,000

Estimated losses on realization of assets 1,695,000
Contingent assets 750,000
Current assets 100,000
Other assets 1,200,000
Liabilities 400,000
Contingent liabilities 225,000
Capital stock 1,500,000
Retained earnings, deficit (600,000)

34. Determine the amount the stockholders may recover in the event of liquidation.
a. P0 c. P125,000
b. P675,000 d. P600,000

35. Determine the estimated deficiency to unsecured creditors

a. P0 c. P225,000
b. P875,000 d. P600,000

Selected items from the records of the ALBAY Home Office and its OAS Branch Office for 2022 follow:

ALBAY Ho OAS Branch

Inventory, January 1 P 12,000 P ?
Purchases 150,000 30,000
Shipment from Home Office 93,750
Shipment to Branch Office 75,000
Allowance for overvaluation of BI 19,750
Operating expenses 20,000 15,000
Inventory, December 31 14,000 10,875
Sales 200,000 150,000

There are no shipments in transit at December 31. Forty percent (40%) of the branch inventory at year-end is
acquired from other vendors. The beginning inventory in the branch from the Home Office at actual cost is P5,000
and the beginning inventory in the branch from other vendors was P2,000.

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36. The amount of inter-office inventory profit realized from branch sales to outsiders in 2022 is
a. P17,430 c. P18.205
b. P18,445 d. P18,545

37. The combined net income to be reported for 2022 will be

a. P193,750 c. P139,750
b. P319,750 d. P139,570

GREENPEACE ENTERPRISES operates a number of branches nationwide. The Home Office is currently performing a
reconciliation between the PRTC Branch Account In the books of the Home Office and the Home Office account in the
books of PRTC Branch. The branch account in the Home Office books has an unadjusted balance of P49,600 at December
31, 2014.

The following information will be relevant:

• Collection of branch account receivable by the Home Office, P800. The branch has not been notified.
• Merchandise shipment in transit to branch, P3,200.
• Acquisition of branch furniture by branch, P1,200, in the late afternoon of December 31, 2014. It is Home Office
policy to account for all company fixed assets in the Home Office books
• A return of excess merchandise by the branch, P1,500 but not recorded yet by Home Office.
• Cash remittance in transit by the branch, P500.

38. Calculate the balance of the Home Office account in the books of PRTC Branch, before adjustment, at December
31, 2014.
a. P 47,200 c. P 46,400
b. P 47,400 d. P44,000

Perfect Corporation has two branches to which merchandise is transferred at cost plus 20%, plus freight charges. Freight
charges are paid at shipping point and are inventoriable. On November 30, 2021, Perfect shipped merchandise that cost
P5,500 to its Angeles City Branch, and the P200 shipping charges were paid by Perfect. On December 15, 2021, the
Cabanatuan City branch encountered an inventory shortage, and the Angeles City branch shipped the merchandise to
the Cabanatuan City branch at a freight cost of P160 paid by the Angeles City branch. Shipping charges from the HO
to the Cabanatuan City branch would have been P175.

39. Perfect will record the P5,500 shipment to the Angeles City branch, together with the P200 shipping charge in a
journal entry that includes the following:
a. Shipments from home office, P5,600
b. Shipment to Angeles City branch, P5,700
c. Unrealized profit- branch inventory, P1,100
d. Investment in Angeles branch, P5,700

40. Angeles City branch should record the transfer of merchandise to the Cabanatuan City branch by either a debit or
credit entry that includes the following:
a. Shipment from home office, P5,500
b. Cabanatuan City branch, P6,975
c. Home office, P6,960
d. Inventory, P5,660

41. If the merchandise is unsold at year-end, the Cabanatuan City branch will report the merchandise at
a. P6,000 c. P6,760
b. P6,975 d. P6,775

42. If the merchandise is unsold at year-end, Perfect Corporation will include it as an asset in the Annual Report to
Stockholders in the amount of
a. P5,500 c. P5,675
b. P5,660 d. P5,875

The following data were taken from the records of ASHTON Corporation of Manila and its Bulacan branch for 2021:
Manila HO Bulacan Branch
Sales P 424,000 P 126,000
Inventory, 1/1 46,000 17,800
Purchases 328,000 -
Shipment to Branch 84,000
Shipment from HO 105,000
Inventory, 12/31 57,000 23,400
Expenses 152,800 40,600

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 The home office consistently bills the branch for merchandise shipments; there are no shipments of merchandise in
transit at December 31, 2021.

43. Calculate the overstatement of the branch cost of sales arising from the home office billing policy.
a. P19,880 c. P18,980
b. P19,808 d. P18,890

44. Calculate the combined cost of sales for the home office and its branch for 2021
a. P312,520 c. P321,250
b. P322,510 d. P312,250

45. Goodwill is attributed to both the owners of the parent and non-controlling interests (NCI) if
a. the NCI is measured at 'proportionate share.
b. the NCI is measured at 'fair value'.
c. in both a and b
d. the goodwill is big

46. A company owning a majority (but less than 100%) of another's voting shares on the date of acquisition should
account for its subsidiary
a. by including only its share of the fair market values of the subsidiary's net assets
b. by including only its share of the book values of the subsidiary's net assets
c. by including 100% of the fair market values of the subsidiary's net assets.
d. by including 100% of the fair market values or the subsidiary's net assets and accounting for any unowned
portion or the subsidiary's voting shares using the Non-Controlling interest account

47. Which of the following is not an intercompany transaction?

a. The parent company acquires inventory from the subsidiary
b. The subsidiary purchases a machine from another subsidiary
c. The parent purchases inventory from a supplier
d. The subsidiary purchases the parent’s bond payable from an independent investor

48. The parent acquires inventory from a subsidiary. On whose financial records is this intercompany transaction
recorded?
a. The books of the subsidiary only because the subsidiary made the sole and the g. consolidated financial
statements are prepared for the parent company stockholders
b. The books of the parent only because the parent knows the subsidiary's identity so the parent knows it is an
intercompany transaction
c. Neither the parent nor the subsidiary would record the transaction because it is an intercompany transaction
d. The parent and the subsidiary both record the transaction and it is eliminated during the consolidation process.

Separate balance sheets for Pedro Company and Selya Company on December 31, 2021 are as follows:
P COMPANY S COMPANY
Cash P 150,000 20,000
Other current assets 150,000 80,000
Land 300,000 50,000
Buildings 400,000 150,000
Current liabilities 200,000 50,000
Common stock, P 10 par 600,000 100,000
Additional paid-in capital 60,000 75,000
Retained earnings 140,000 75,000

Company issued 20,000 shares of its own common stock with a market value of P250,000 on January 1, 2022 in
exchange for 80% of Selya Company’s outstanding stock. All of the excess differential is attributable 25% to land and
the balance to the buildings. The following out of pocket costs were paid by P Company
Finder’s fees 25,000
Fees paid to company accountants 5,000
Cost to register and issue stocks 30,000
Cost of printing the stock certificates 25,000
Legal fees paid 5,000
Direct acquisition cost 20,000
Indirect cost 10,000

49. Total amount of land on the consolidated balance sheet

a. P 428,125 c. P 375,000
b. P 350,000 d. P 365,625

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50. Total amount of buildings on the consolidated balance sheet
a. P 550,000 c. P 596,875
b. P 400,000 d. P 592, 350

51. Total assets on the consolidated balance sheet

a. P 1,362,000 c. P 1, 362,500
b. P 1,000,000 d. P 1,242,500

52. Total common stock on the consolidated balance sheet

a. P 800,000 c. P 600,000
b. P 850,000 d. P 900,000

53. Non-controlling interest as of January 1, 2022

a. P 62,500 c. P 50,000
b. P 60,000 d. P 55,000

Parent Corporation regularly sells merchandise to its 80%-owned subsidiary, LEN Enterprises. In 2020, Parent sold
merchandise that cost P64,000 to LEN for P80,000. Half of this merchandise remained in LEN’s December 31, 2020
inventory. During 2021, Parent sold merchandise that cost P100,000 to LEN for P125,000. Forty percent of this
merchandise inventory remained in LEN’s December 31, 2021 inventory. Selected income statement information for the
two affiliates for the year 2021 is as follows:

Parent Company RBD Enterprises

Sales revenue P 600,000 P 300,000
Cost of goods sold 480,000 250,000
Gross profit P 120,000 P 50,000

54. Consolidated sales revenue for Parent and Subsidiary for 2021 are:
a. P775,000 c. P855,000
b. P800,000 d. P900,000

55. Consolidated cost of goods sold for Parent and Subsidiary for 2021 are:
a. P603,000 c. P615,000
b. P607,000 d. P732,000

DAVIDSON Corporation issued 100,000 shares of P28.50 par ordinary shares for all the outstanding shares of Picollo
Enterprises on August 5, 2021. It also paid cash of P30,000 at the acquisition date and transferred used equipment
with a carrying value of P50,000 and a current value of 70% thereof. Davidson’s ordinary stock was selling at P30 when
the business combination was consummated. Picollo Enterprises was to be liquidated.
Out of pocket costs for the acquisition follows:

Finder’s fee P 50,000

Accountants’ fee (advisory) 10,000
Legal fees (advisory) 20,000
Indirect acquisition costs 5,000
SEC registration costs and fees 12,000

56. If Davidson Corporation is a non-SME, the acquisition cost of the combination will be:
a. P3,080,000 c. P3,065,000
b. P3,145,000 d. P3,162,000

57. If Davidson Corporation is an SME, the acquisition cost of the combination will be:
a. P3,080,000 c. P3,065,000
b. P3,145,000 d. P3,162,000

58. Foreign currency gains and losses on cash flow hedges are
a. Always reported currently in earnings.
b. Initially reported in earnings and later reclassified to other comprehensive income.
c. Initially reported in other comprehensive income and later reclassified to earnings.
d. Initially deferred as assets and liabilities.

59. Foreign exchange gains and losses on accounts receivable and payable are denominated in a foreign currency are:
a. Accumulated and reported upon settlement
b. Deferred and treated as transaction price adjustment
c. Reported as equity adjustments from translation
d. Recognized in the period in which the exchange rates change

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60. Which of the following statements is correct
a. In Philippines, the cost of a unit of foreign currency in Philippine pesos is a direct quotation, while the cost
in that foreign currency of purchasing one in Philippine pesos is referred to as an indirect quotation.
b. In Philippines, the cost of a unit of foreign currency in in Philippine pesos is an indirect quotation, while
the cost in that foreign currency of purchasing one in Philippine pesos is referred to as a direct quotation.
c. In Philippines, the cost of a unit of foreign currency in in Philippine pesos is a direct quotation, and the
cost in that foreign currency of purchasing one in Philippine pesos is also referred to as a direct quotation.
d. In Philippines, the cost of a unit of foreign currency in in Philippine pesos is an indirect quotation, while
the cost in that foreign currency of purchasing one in Philippine pesos is also referred to as an indirect
quotation.

61. The exchange rates between the US dollars and the Philippine peso were as follows:

November 1, 2018 $1 = P46.50

December 1, 2018 $1 = P47.16
January 1, 2019 $1 = P48.65
February 1, 2019 $1 = P49.35
March 1, 2019 $1 = P50.05

Interpret the above chart in connection with importation of goods by Filipinos from the United States of America.
a. This chart shows a strengthening of the US dollars which makes it less expensive for Filipinos to buy
American goods.
b. The chart shows a weakening of the US dollars which makes it less expensive for Filipinos to buy American
goods.
c. The chart shows a strengthening of the US dollar which makes it more expensive for Filipinos to buy
American goods.
d. This chart shows a weakening US dollar which makes it more expensive for Filipinos to buy American goods.

The following assets of Manila Corporation’s South Korean subsidiary have been converted into Philippine pesos at the
following exchange rates:

Current Rates Historical Rates

Accounts receivable P 850,000 P 875,000
Inventories 600,000 575,000
Plant assets 1,200,000 900,000
Totals P2,650,000 P2,350,000

62. If the South Korean subsidiary maintains an integrated operations with the Philippine parent’s operations, the assets
should be reported in the consolidated financial statements of Manila Corporation and subsidiary in the total amount
of
a. P2,650,000 c. P2,350,000
b. P2,325,000 d. P2,320,000

63. If the South Korean subsidiary maintains a stand-alone operations fully independent from the parent’s operations,
the assets should be reported in the consolidated financial statements of Manila Corporation an subsidiary in the
total amount of
a. P2,320,000 c. P2,350,000
b. P2,325,000 d. P2,650,000

64. A Philippine Corporation has a subsidiary in Japan, Anime Inc. whose functional currency is the Japanese yen. At
December 31, 2021, Anime has an account receivable denominated in Japanese yen. Which one of the following
statements is true?
a. Because all accounts of the subsidiary are translated into Philippine peso at the current rate, the account
receivable is not adjusted on the subsidiary’s books before translation.
b. The account receivable is remeasured into the functional currency and remeasurement obviates translation.
c. The account receivable is first adjusted to reflect the current exchange rates in Japanese yen and then
translated at the current rate into pesos.
d. The account receivable is adjusted to yen at the current exchange rate and any resulting gain or loss is
included as a translation adjustment in the stockholders’ equity section of the subsidiary’s separate balance
sheet.

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Pilipinas Company, a Philippine entity, delivers goods to a foreign buyer for FC1,000,000 on December 1, 2021. Payment
is due on March 1, 2022. Pinoy enters into a forward contract to mitigate the probability of huge losses in foreign
currency. It was designated as a fair value hedge. Pinoy’s incremental borrowing rate is 12% per year.

Other relevant data regarding spot and forward rates follow:

Forward Rates
Sales Forward Purchase Forward
Date Spot Rate
12/01/21 P0.320 P0.305 P0.333 to 3/01/22
12/31/21 0.330 0.316 0.340 to 3/01/22
03/01/22 0.300 0.300 0.300 Expiry

65. Calculate the hedging cost recognized by Pilipinas in 2021.

a. P5,000 c. P10,000
b. P 783 d. P15,000

On December 31, 2020 a foreign subsidiary of ARTS-PRTC COMPANY, a Philippine corporation, submitted the following
balance sheet measured in its local currency.
Monetary assets FC 200,000 Monetary liabilities FC 180,000
Non monetary assets 800,000 Non monetary liabilities 20,000
Share capital 400,000
Share premium 100,000
Retained earnings 300,000
Total FC 1,000,000 Total FC 1,000,000

The relevant exchange rates for one (1) unit of the FC are as follows:
Current rate - P0.34 Historical rate – P0.31 Average rate – P0.30

66. Assuming the Retained Earnings of the subsidiary on December 31, 2020 translated to Philippine pesos is P91,525,
what amount of cumulative translation adjustment must be reported in the consolidated balance sheet presented in
Philippine pesos on December 31, 2020?
a. P25,000 c. P24,525
b. P24,2 55 d. P25,475

67. How much will be the Philippine peso retained earnings of the foreign subsidiary on December 31, 2020 if the
functional currency of the foreign subsidiary is also the Philippine peso rather than the local currency?
a. P 92,000 c. P 94,100
b. P 93,600 d. P 91,525

On October 2, 2021, Mawet, Inc. ordered a custom-built passenger van from a Japanese firm. The purchase order is
noncancelable. The purchase price is 1,000,000 yens with delivery and payment to be on March 31, 2022. On October
2, 2021, Mawet, Inc. entered into a forward contract to buy 1,000,000 yens on March 31, 2022 for P 0.57. On March
31, 2022, the custom-built passenger van was delivered.
10/2/21 12/31/21 3/31 /22
Spot rate P.50 P.56 P.57
Forward rate .53 .58 .57

68. The value of the equipment on March 31, 2022 amounted to

a. 500,000
b. 530,000
c. 570,000
d. 0

69. Using the same information but this time it is accounted for as cash flow hedge, the Firm Commitment account
balance on March 31, 2022 amounted to:
a. 500,000
b. 530,000
c. 570,000
d. 0

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70. On December 15, 2021, MMM Co. purchased goods from a Korean firm for 40,000 wons. MMM Co. was concerned
about the fluctuation in the Korean won, so on this date, MMM Co. entered into a 30-day forward contract to buy
40,000 wons for ₱49,600 from a bank at the forward rate of ₱1.24.

Relevant rates are shown below:

Dec. 15, 2021 Dec. 31, 2021 Jan. 15, 2022
Spot rate 1.20 1.26 1.30
Forward rate 1.24 1.27 1.30

The total net effect of the two contracts on profit or loss in 2022 is
a. (1,600)
b. (400)
c. 1,200
d. 0

End of Examination

(Pleases ignore the extra answer options in the answer sheet after number 70)

Thank you for participating in

Team PRTC Nationwide Online Open First Pre-Board Examination for May 2022 LECPA!

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