1st Midterm Departmental Examinations Reviewer

A.Y. 2022-2023

Subject Code: ACCO 30013

Course Subject: ACCOUNTING FOR SPECIAL TRANSACTIONS

1. When recording the contributions in the partnership, the partners are

credited based on the?
a) value of non-cash contributions
b) assets plus liabilities assumed by the partnership
c) value of assets contributed only
d) net assets contributed

2. Statement 1: Cash contributions, including cash deposited in a closed bank,

are valued at their face value.
Statement 2: Accounts receivable transferred to the partnership are to be
recorded net of its corresponding allowance for bad debts.
a) Only statement 1 is true.
b) Only statement 2 is true.
c) Both statements are true.
d) Both statements are false.

3. During the formation of the partnership, the partners are credited based on
their agreed ratio which is different from their contribution ratio. What
method of the partnership was applied?
a) Full investment method
b) Transfer of capital method
c) Goodwill
d) Net investment method

4. Statement 1: If only the division of profits is agreed upon, the division of

losses will be the same as the agreement on the division of profits.
Statement 2: If only the division of losses is agreed upon, the division of
profits will be the same as the agreement on the division of losses.
a) Only statement 1 is true.
b) Only statement 2 is true.
 c) Both statements are true.
d) Both statements are false.

5. If there is a provision for interest in the profit distribution agreement, who

among the partners will receive the highest interest share?
a) Industrial partner
b) Partner who helps manage the business
c) Partner with the highest capital
d) Partner who contributes expertise

6. If the partnership has a loss to allocate, generally, which of the following

procedures would be applied?
a) Any salary allocation criteria would not be use.
b) The loss would be absorbed by the industrial partner.
c) The loss would not be distributed.
d) A bonus criteria would not be used.

7. Statement 1: Counterbalancing errors are errors that if undetected will offset

or correct themselves after two reporting periods.
Statement 2: A correction is necessary, only for non-counterbalancing errors,
to reflect the correct amount of income or loss.
a) Only statement 1 is true.
b) Only statement 2 is true.
c) Both statements are true.
d) Both statements are false.

8. When Alpha retired from the partnership of Alpha, Bravo, and Charlie, the
final settlement of Alpha’s interest is less than his capital balance. Under the
bonus method, the excess would:
a) Reduce the capital balances of Bravo and Charlie
b) Increase the capital balances of Bravo and Charlie
c) Be recorded as an expense
d) Had no effect on the capital of Bravo and Charlie

9. Statement I: The retirement of one of the partners automatically dissolves

 the partnership.
Statement II: Withdrawal by a partner at less than book value of his capital
interest results in loss to the other partners allocated according to their
profit and loss ratio.
a) Both statements are true.
b) Both statements are false.
c) Only statement I is true.
d) Only statement I is false.

10. Which of the following is incorrect about dissolution?

a) The admission of a new partner in an existing partnership dissolves the old
partnership.
b) Asset revaluation may be recorded upon the admission of a new partner whether
by purchase or by investment.
c) A partnership dissolution will always lead to a partnership liquidation.
d) If the agreed capital exceeds total contributed capital, the difference may be
positive asset revaluation.

11. In case of admission of a new partner in an existing partnership through

investment to the partnership, which of the following scenarios will result in
bonus to new partner and asset revaluation?
a) The total contributed capital of all partners is equal to the total agreed capital of
the new partnership while the agreed capital of the new partner is higher than
the amount he has contributed.
b) The total contributed capital of all partners is more than the total agreed capital
of the new partnership while the agreed capital of the new partner is lower than
the amount he has contributed.
c) The total contributed capital of all partners is less than the total agreed capital of
the new partnership while the agreed capital of the new partner is higher than
the amount he has contributed.
d) The total contributed capital of all partners is more than the total agreed capital
of new partnership while the agreed capital of old partners is equal to the amount
they contributed.

12. Statement of Affairs is a report designed to show

 a) an estimated amount that would be received by each class of creditor's claims in
the event of liquidation.
b) a balance sheet prepared on the going-concern assumption.
c) assets and liabilities classified as current and noncurrent.
d) assets and liabilities reported at their current book values.

13. Statement I: Debit balances in capital and potential capital deficiency are
assumed to be collectible.
Statement II: Cash priority program is prepared prior to liquidation before
cash becomes available for distribution.
Statement III: The loss absorption capacity is the maximum amount of loss
that a partner may absorb and may eliminate any partner in any cash
distribution.
a) All of the statements are true
b) Only Statement I is false
c) Only statement II is false
d) Only statement III is true

14. In a partnership liquidation, the final cash liquidation to the partners should
be made in accordance with the:
a) partners' profit and loss sharing ratio.
b) balances of the partners' capital accounts.
c) ratio of the capital contributions by the partners.
d) ratio of the capital contributions less withdrawals by the partners.

15. Which statement is false concerning the statement of affairs?

a) Total unsecured liabilities do not include unsecured debts with priority.
b) Unsecured liabilities consist of debts for which no assets are pledged as security,
as well as debts in excess of the liquidation value of assets pledged.
c) Net free assets are the excess of liquidation value of assets pledged to fully
secured creditors over the amount of fully secured liabilities plus free assets less
unsecured liabilities with priority.
d) The estimated deficiency to unsecured creditors is total unsecured liabilities less
total free assets.
16. Which of the following statement 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.

17. The Statement of Realization and Liquidation differs from the Statement of
Affairs because
a) The Statement of Realization and Affairs reports estimated realizable values
rather than actual liquidation results.
b) The Statement of Realization and Affairs is summary of secured debt activity only.
c) The Statement of Realization and Affairs is prepared only at final completion of
the liquidation process.
d) The Statement of Realization and Affairs reports actual liquidation results rather
than estimated realizable values.

18. S1: An expense item allocated by the home office to a branch is recorded by
the branch by a debit to an expense ledger account and a credit to the Home
Office account.
S2: A debit to the Home Office ledger account and a credit to the Trade
Accounts Receivable account in the accounting records of a branch indicate
that the home office collected accounts receivable of the branch.

a) S1 – True; S2 – True
b) S1 – True; S2 – False
c) S1 – False; S2 – True
d) S1 – False; S2 – False

19. In preparing combined financial statements, which of the following accounts

are eliminated (brought to a zero balance) in the combining process?
Branch Income or Loss Home Office Capital
a) Yes Yes
b) No Yes
c) No No
d) Yes No
20. The Shipment to Branch ledger account in the accounting records of the
home office of a business enterprise:
a) Is an asset valuation account.
b) Indicates that the home office uses the periodic inventory system.
c) 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 statements.

21. Black and Bulls are partners who share profits equally and losses in a 2:1
ratio. If they have beginning capital balances of P200,000 and P160,000
respectively, made no additional investments nor withdrawals, and suffered
an unprofitable year with a loss of P39,000, their capital balances will be?
a) Black- 180,500; Bulls- 140,500
b) Black- 147,000; Bulls- 174,000
c) Black- 174,000; Bulls- 147,000
d) Black- 219,500; Bulls- 179,500

22. Grey and Gauche form a partnership with Grey contributing cash of P40,000
and machinery with a fair value of P60,000. Gauche contributed equipment
with a fair value of P120,000 and enough cash to have capital participation of
60%. How much is the total cash of the partnership upon formation?
a) P30,000
b) P170,000
c) P130,000
d) P70,000

For items 23-25

On January 2, 2022, Finral, Luck, and Magna formed a partnership

combining their businesses. Finral contributed cash of P240,000. Luck
contributed property with a carrying amount of P280,000, original cost
of P360,000, and a fair value of P400,000. The P50,000 mortgage
attached to the property became the partnership’s responsibility. Magna
contributed equipment with a carrying amount of P110,000, an original
 cost of P190,000, and a fair market value of P250,000. The partners
agreed to share profits and losses equally.

23. How much is the investment of Luck?

a) P280,000
b) P400,000
c) P450,000
d) P350,000

24. How much are the total assets of the partnership?

a) P890,000
b) P600,000
c) P840,000
d) P630,000

25. How much is the implied bonus to Finral if the profit and loss ratio were to
also apply to the partner’s capital interest?
a) P60,000
b) P40,000
c) P20,000
d) P0

26. Vanessa and Charmy have just formed a partnership. Vanessa contributed
cash of P164,000 and office equipment that cost P75,000. The equipment
had been used in her sole proprietorship and had been depreciated, the
current value of the equipment is P54,000. Vanessa also contributed a note
payable of P20,000 to be assumed by the partnership. Vanessa is to have a
30% interest in the partnership. If Charmy contributed land with P260,000
fair market value, how much more cash should she invest?
a) P366,000
b) P220,000
c) P202,000
d) P360,000

27. A business owned by Asta was short and he decided to form a partnership
 with Nero and Noelle. Nero was able to contribute cash thrice the interest of
Asta while Noelle was able to contribute cash twice the interest of Nero in
the partnership. The assets contributed by Asta were as follows: Cash-
P14,300; Accounts Receivable (net)- P200,000; Inventory- P500,000; and
Equipment of P250,000 with accumulated depreciation of P30,000 but with a
fair market value of P190,000. If the partners agreed that the Accounts
Receivable was impaired by an additional amount of P6,000, the total cash of
the partnership would be?
a) P128,700
b) P8,099,000
c) P143,000
d) P8,084,700

28. Yami and Nacht formed a partnership in the year 2022. The partnership
agreement provides for annual salaries of P144,000 for Yami and P120,000
for Nacht. The partners share profits equally and losses in a 3:2 ratio. The
partnership had a profit of P240,000 for the year 2021 before any salaries to
partners. What amount should be credited to Yami as a result of the
distribution of the partnership profit?
a) P129,600
b) P132,000
c) P120,000
d) P158,400

29. Zora, Henry, and Gordon share profits and losses in the ratio of 3:3:4,
respectively. Their partnership realized a profit of P1,230,000 during the
year. Henry, with a beginning capital balance of P800,000, withdrew
P110,000 during the year. Henry’s ending capital balance is
a) P1,169,000
b) P369,000
c) P1,059,000
d) P690,000

30. Golden Dawn Partnership was formed on April 3, 2022. During its first year of
operation, it suffered a loss. Yuno, Klaus, and Mimosa have capital balances
 of P180,000, P190,000, and P210,000, respectively. The partnership
agreement provides for the following P/L sharing provisions:
10% interest on partners’ capital balances.
Annual salary of P60,000 will be given to Klaus.
Any remainder is allocated in a 3:4:3 ratio.
If the share of Klaus in the loss is P4,998, how much is the net loss for the
period ended December 31, 2022?
a) P12,495
b) P72,120
c) P47,130
d) P160,620

For items 31-32

Clover, Heart, and Diamond operate a partnership with a complex profit

and loss sharing agreement. The average capital balance for each
partner on December 31, 2022, is P270,000 for Clover, P245,000 for
Heart, and P220,000 for Diamond. A 10% interest allocation is provided
to each partner. Clover and Heart receive salary allocations of P15,000
and P10,000, respectively. If the partnership net income is above
P30,000, after the salary allocations are considered (but before the
interest allocations are considered), Diamond will receive a bonus of
10% of the original amount of net income. All residual income is
allocated in the ratios of 4:3:3 to Clover, Heart, and Diamond,
respectively.

31. How much is the share of Clover if the partnership’s net income amounted to
P250,000?
a) P84,950
b) P92,600
c) P102,600
d) P104,950

32. How much is the share of Diamond if the partnership’s net income amounted
to P51,000?
 a) P23,000
b) P11,320
c) P10,231
d) P7,750

33. For the year 2020, the partnership books of Charlotte and Sol showed a profit
of P860,000. It was disclosed, however, that the following errors were made.
Determine the new profit or loss of the partnership.

2021 2022
Accrued expenses not recorded at year-end P32,000
Inventory overstatement P106,000
Purchases not recorded 43,000
Income received in advance, not recorded 24,000
Unused supplies not adjusted at year-end 22,000

a) P789,000
b) P975,000
c) P811,000
d) P795,000

For items 34-35

Anna, Maeve, and Finn were partners with capital balances on January 2,
2023 of P300,000, P200,000 and P100,000, respectively. On July 1,
2023 Anna retired from the partnership. On the date of
retirement, the partnership net loss is P60,000 and the partners
agreed that a certain asset is to be revalued at P80,000 from
its original cost of P50,000. The partners agreed further to
pay Anna P225,000 in settlement of her interest. The remaining
partners continue to operate under a new partnership, Mainn
Partnership.

34. How much is the capital balance of Maeve after the retirement of Anna?
a) P230,000
 b) P250,700
c) P330,000
d) P254,000

35. How much is the total capital of the new partnership after the retirement of
Anna?
a) P110,000
b) P172,700
c) P345,000
d) P124,000

36. Remi, Amaya, and Kayden are partners sharing profits and losses in the ratio
of 4:3:3, respectively. The condensed statement of financial position of their
partnership as of December 1, 2022 is presented below:

Cash P100,000 Liabilities P80,000

Other Assets 260,000 Remi, Capital 120,000
Amaya, Capital 80,000
Kayden, Capital 80,000
Total Assets P360,000 Total Liabilities and Capital P360,000

All the partners agree to admit Mia as 1/6 partner in the partnership without
any asset revaluation nor bonus. Mia shall contribute assets amounting to

a) P50,000
b) P56,000
c) P60,000
d) P54,000

For items 37-39

Luca, Ezra, and Kai are partners whose capital balances and share in
profits are as follows:
Luca P250,000 50%
Ezra 150,000 25%
 Kai 100,000 25%

Nova is admitted into the partnership by paying P60,000 for 1/3 of the
share in equity of Ezra and by contributing P200,000. The partners agree
to the total capitalization to P750,000, 1/3 of which is Nova’s capital
credit. Nova’s share in net income is also 1/3 and the old partners are to
divide net income in the old ratio among themselves.

37. The profit and loss sharing ratio among Luca, Ezra, and Kai after the
admission of Nova is
a) 50%, 25%, 25%
b) 30%, 15%, 15%
c) 2/6, 1/6, 1/6
d) 1/3, 1/3, 1/3

38. The amount of asset revaluation is equal to?

a) P56,000
b) P50,000
c) P60,000
d) P64,000

39. How much is the capital balance of Kai after the admission of Nova?
a) P275,000
b) P100,000
c) P118,000
d) P112,500

40. As of December 31, 2022, the books of LEG Partnership showed capital
balances of Lily, P40,000; Ellie, P25,000, and Grace, P5,000. The partners’
profit and loss ratio were 3:2:1, respectively. The partners decided to
liquidate, and they sold all non-cash assets for P37,000. After settlement of
all liabilities amounting P12,000, they still have cash of P28,000 left for
distribution. Assuming that any debit balance is uncollectible, the share of
Lily in the distribution of P28,000 cash would be:
a) P18,700
 b) P17,800
c) P20,000
d) P17,000

41. Zoe, Victoria and Leah, who divide profits and losses, 50% 30% and 20%
respectively, have the following October 31, 2022 account balances:

Zoe, drawing Dr. P12,000

Leah, drawing Cr. 4,800
Accounts receivable-Zoe 7,200
Loans payable-Victoria 14,000
Zoe, capital 59,400
Victoria, capital 44,400
Leah, capital 39,000

The partnership is liquidated and Leah receives P33, 000 in final settlement.
How much is the total loss on realization?
a) P54,000
b) P30,200
c) P45,000
d) P64,200

For items 42-43

The Elena, Naomi, and Maya partnership had the following balance
sheet just before entering liquidation: (Missing Balance Sheet)

Elena, Naomi, and Maya share profits and losses in a ratio of 2:4:4. Non-
cash assets were sold for P180,000. Liquidation expenses were
P10,000. Assume that Elena was personally insolvent with assets of
P8,000 and liabilities of P60,000. Naomi and Maya were both
solvent and able to cover deficits in their capital accounts, if any.

42. What amount of cash could Elena’s personal creditors have expected to
receive from partnership assets?
a) P0
 b) P26,000
c) P30,000
d) P34,000

43. What amount of cash could Maya’s personal creditors have expected to
receive from partnership assets?
a) P15,000
b) P28,000
c) P38,000
d) P24,000

44. When Kinsley and Ruby, partners who share earnings equally, were
incapacitated in an airplane accident, a liquidator was appointed to wind up
their business. The accounts showed cash, P35,000 other assets
P100,000; Liabilities, P20,000; Kinsley, capital, P71,000 and Ruby,
capital, P44,000. Because of the highly specialized nature of the non-
cash assets, the liquidator anticipated that considerable time would be
required to dispose of them. The expenses of liquidating the business
(advertising, rent, travel, etc.) are estimated as P10,000. How much cash
can be distributed safely to each partner at this point?
a) P5,000 to Kinsley and P0 to Ruby
b) P5,000 to Kinsley and P500 to Ruby
c) P2,000 to Kinsley and P0 to Ruby
d) P2,000 to Kinsley and P500 to Ruby

For items 45-46

A balance sheet for the partnership Hailey, Quinn, and Jade, who share
profits 2:1:1 respectively, shows the following balances just before
liquidation:

Cash P48,000

Other Assets P238,000

 Liabilities P80,000

Hailey, Capital P88,000

Quinn, Capital P62,000

Jade, Capital P56,000

In the first month of liquidation, P128,000 was received on the sale of

certain assets. Liquidation expenses of P4,000 were paid and additional
liquidation expenses of P3,200 are anticipated before liquidation is
completed. Creditors were paid P22,400. The available cash was
distributed to the partners.

45. Based on the above data, how much cash will be received by Hailey?
a) P21,900
b) P36,000
c) P20,000
d) P29,400

46. How much cash will be received by Jade?

a) P27,800
b) P26,700
c) P30,000
d) P34,000

47. What is the Gain (Loss) on Realization?

Below is the summary accounts appearing in the Statement of Realization
and Liquidation of BARS Company:
Assets to be realized 5,000,000 Liabilities not liquidated 1,900,000
Assets not realized 2,500,000 Liabilities assumed 1,200,000
Assets realized 3,500,000 Liabilities liquidated 2,500,000
Asset acquired 1,800,000 Supplementary charges 750,000
Liabilities to be liquidated 4,250,000 Supplementary credits 600,000
 a) P200,000
b) (P200,000)
c) P100,000
d) (P100,000)

48. Strawhats Corporation is in bankruptcy and is being liquidated by a court-

appointed trustees. The financial report that follow was prepared by the
trustee just before the final cash distribution:
Assets:
Cash…………………………………………………………. P120,000
Approved Claims:
Mortgage payable (secured by property
that was sold for P50,000) ………………………. P80,000
Accounts payable, unsecured ……………………….. 50,000
Administrative expenses payable,
unsecured ……………………………………………. 8,000
Salaries payable, unsecured …………………………. 2,000
P140,000
The administrative expenses were for trustees and other costs of
administering the debtor corporation’s estate. How should the P120,000 be
distributed to the following creditors?
Unsecured Partially Unsecured
Creditors with Secured Creditors without
Priority Creditors Priority
a) P - P80,000 P20,000
b) 10,000 72,000 37,500
c) 5,000 72,000 25,000
d) 10,000 72,500 37,500

49. A statement of affairs shows P25,500 of assets pledged to partially secured

creditors liabilities of P65,000 to partially secured creditors. P25,000 to
unsecured creditors with priority, and P90,000 to other unsecured creditors.
If deficiency to unsecured creditors is P35,000, what is the amount of net
free assets?
a) P50,000
 b) P85,000
c) P94,500
d) P119,500

50. Sanji Co. is insolvent, and its statement of affairs shows the following
information:
Estimated gains on realization of assets …………………… P1,460,000
Estimated losses in realization of assets …………………… 2,100,000
Additional assets ………………………………………..……….. 1,280,000
Additional Liabilities …………………………………………….. 860,000
Capital stock ………………………………………………………. 2,000,000
Deficit ……………………………………………………………….. 1,200,000

The pro-rate payment on the peso to stockholders (estimated amount to be

recovered by stockholders) is:

a) P .30
b) P .43
c) P .57
d) P .73

For items 51-52

Yamato Corp. has been undergoing liquidation since January 1. As of
March 31, its condensed statement of realization and liquidation is
presented below:
Assets:
Assets to be realized ………………………………….. P1,375,000
Assets acquired …………………………………………
750,000
Assets realized ………………………………………….
1,200,000
Assets not realized ……………………………………..
1,375,000
Liabilities:
Liabilities liquidated …………………………………. P1,875,000
 Liabilities not liquidated ……………………………. 1,700,000
Liabilities to be liquidated …………………………. 2,250,000
Liabilities assumed …………………………………... 1,625,000
Revenues and Expenses
Supplementary charges …………………………….. P3,125,000
Supplementary credits ………………………………. 2,800,000

51. The net gain (loss) for the three-month period ending March 31 is:

a) P250,000
b) P425,000
c) (P325,000)
d) P750,000

52. Using the same information on No.51, compute the ending cash balance of
cash account assuming that common stock and deficits are P1,500,000 and
P500,000, respectively
a) P1,325,000
b) P575,000
c) P425,000
d) P1,375,000

53. Shanks, Inc. signed a note payable to its bank for P10,000. Accrued interest
on the note on February 28, 2023 amounts to P250. The note is secured by
inventory with a book value of P12,000. The inventory is sold for P8,000 and
unsecured creditors receive 30 percent of their claims. The bank should
receive the following amount in settlement of the note and interest:
a) P10,250
b) P8,675
c) P10,000
d) P8,000

54. Zoro Company opened its Sta. Mesa Branch on January 1, Merchandise
shipments from home office during the month, billed at 120% of cost, is
P125,000. Branch returned damaged merchandise worth P15,630. On
 January 31, the branch reported a net loss of P2,250 and an inventory of
P84,000. What is the net income (loss) of the branch to be taken up in the
books of the Home Office?
a) (P1,690)
b) P6,500
c) (P2,270)
d) P1,978

55. SWORD Philippines has two merchandise outlets, its main store in Manila and
its Cebu City branch. For control, purposes, all purchases are made by the
main store, and shipments to the Cebu City branch are at cost plus 10%. On
January 1, 2023, the inventories of the main store and the Cebu City branch
were P13,600 and P3,960, respectively. During 2023, the main store
purchased merchandise costing P40,000 and shipped 40% of these to the
Cebu City branch.
At December 31, 2023, the following journal entry was made to prepare the
Cebu City branch books for the next accounting period:
Sales ……………………………………………………… 32,000
Inventory ………………………………………………. 4,840
Inventory …………………………………………………. 3,960
Shipment from main store ………………………..….. 17,600
Expenses ………………………………………………….. 10,480
Main store ………………………………………………… 4,800
(1) What was the actual branch income of 2023 on a cost basis, assuming the
use of the provisions of the PAS, and (2) If the main store has P11,200 worth
of inventory on hand at the end of 2023, the total inventory that should
appear on the combined balance sheet at December 31, 2023?

a) (1) P4,800; (2) P15,600

b) (1) P6,320; (2) P15,160
c) (1) P6,320; (2) P15,600
d) (1) P6,480; (2) P16,040

56. The Manila branch of the OP Company is billed for merchandise by the home
office at 20% above cost, The branch in turn prices merchandise for sales
 purpose at 25% above the billed price. On February 16 all of the branch
merchandise is destroyed by fire. No insurance was maintained. Branch
accounts show the following information:
Merchandise inventory, January 1
(at billed price) ………………………………………………… P25,200
Shipments from home office (01/01 – 04/16) …………………
P20,000
Sales ……………………………………………………………………… P15,000
Sales return …………………………………………………………….. P 2,000
Sales allowances ……………………………………………………… P 1,000
What was the cost of the merchandise destroyed by fire?
a) P29,000
b) P30,667
c) P36,800
d) P30,000

57. Wano Trading bills its Iloilo City branch for shipments of goods at 25% above
cost. At the close of business on October 31, 2022 a fire gutted the branch
warehouse and destroyed 60% of the merchandise stock stored therein.
Thereafter, the following data were gathered:
January 1 inventory, at billed price ……………………………. P 50,000
Shipments from home office to Oct. 31 ………………………. 130,000
Net sales to October 31 …………………………………………… 225,000
If undamaged merchandise recovered are marked to sell for P30,000, the
estimated cost of the merchandise destroyed by the fire was:
a) P14,400
b) P21,600
c) P24,000
d) P27,500

58. The income statement submitted by the Pampanga Branch to the Home
Office for the month of December 2022 is shown below. After affecting the
necessary adjustments the true net income of the Branch was ascertained to
be P156,000.
Sales ……………………………………………………………………… P600,000
 Cost of Sales:
Inventory, December 1 ……………………. P 80,000
Shipments from home office …………….. 350,000
Local purchases ……………………………… 30,000
Total available for sale …………………….. 460,000
Inventory, December 31 ………………….. 100,000 360,000
Gross Margin ……………………………………… P240,000
Operating expenses …………………………….. 180,000
Net income for December 2022 P 60,000
The Branch inventories were:
12/01/2022 12/31/22
Merchandise from home office ……………….. P 70,500 P 84,000
Local Purchases …………………………………... 10,000 16,000
Total …………………………………………………. P 80,000 P100,000
(1) The billing price based on cost imposed by the home office to the branch,
and (2) The balance of allowance for overvaluation of branch December 31,
2022 after adjustment.

a) (1) 140%; (2) P10,000

b) (1) 140%; (2) P24,000
c) (1) 40%; (2) P24,000
d) (1) 40%; (2) P16,000

59. Best Buy Ventures operates a branch in Cebu City. Selected accounts taken
from the May 31, 2023 statements of Best Buy and its branch follow:
H/Office Branch
Sales ………………………………………….. P380,000 P353,000
Shipments to branch …………………..…. 150,000 -
Shipment to branch – loading ………….. 39,500 -
Inventory, June 1, 2022 …………………. 24,000 16,000
Purchases ……………………………………. 300,000 60,000
Shipments from home office ……………. - 187,500
Inventory, May 31, 2023 …………………. 28,000 20,700
The branch ending inventory included items costing P8,700 that were
acquired from outside suppliers. The realized markup on branch merchandise
 that would be recognized by the home office is:
a) P36,000
b) P36,700
c) P37,500
d) P37,100

60. The Nakama Corporation operates a branch in Naga City. The information
from the December 31, 2023 trial balance are as follows:
Home Office Naga Branch
Sales ………………………………… P840,000 P420,000
Shipments to branch ………….... 280,000
Purchases ………………………….. 490,000
Shipments from home office …. 350,000
Inventory, January 1, 2023 …... 140,000 56,000
Inventory at December 31, Home Office P42,000; Branch, P84,500
Compute the realized inventory profit of home office from sales made by the
branch (the overvaluation of cost of goods sold)?

a) P56,000
b) P63,300
c) P120,300
d) P80,000
 Summary of Answers

1. D 36. B
2. D 37. C
3. B 38. B
4. A 39. D
5. C 40. B
6. D 41. A
7. A 42. D
8. B 43. B
9. C 44. A
10. C 45. D
11. C 46. B
12. A 47. C
13. B 48. D
14. B 49. C
15. D 50. D
16. A 51. B
17. D 52. A
18. A 53. B
19. A 54. D
20. B 55. C
21. C 56. A
22. D 57. B
23. D 58. B
24. A 59. D
25. B 60. B
26. C
27. B
28. A
29. C
30. B
31. B
32. D
 33. A
34. A
35. C

Summary of Answers – Explained

1. (D)
2. (D) Cash deposited in a closed bank is valued at its recoverable amount. Accounts
receivables are recorded at the gross amount.
3. (B) Bonus method is known as transfer of capital method.
4. (A) If only the division of losses is agreed upon, profit will be distributed using the capital
ratio.
5. (C) Interest in the allocation of profit is based on the capital contributed by the partners,
thus the partner who has the highest capital will receive the highest interest.
6. (D) Bonus is only given when the partnership earns a proift.
7. (A) A correction is necessary for both counterbalancing and non-counterbalancing errors.
8. (B)
9. (C) Statement II is false because settlement less than the capital interest of the retiring
partner is a bonus to the remaining partners and asset revaluation reduces the capital accounts
of all partners.
10. (C) Dissolution does not always result in liquidation but liquidation is always preceded by
dissolution.
11. (C)
12. (A)
13. (B) Statement I is false. Capital deficiencies and potential capital deficiencies are under
restricted interest because they are assumed uncollectible.
14. (B)
15. (D)
16. (A)
17. (D)
18. (A)
19. (A)
20. (B)
21. (C)
Killua (2) Gon (1)
 Beg. Capital P200,000 P160,000
Less: Losses (39,000) (26,000) (13,000)
Adjusted Capital Balance P174,000 P147,000

22. (D)
Grey (40%) Gauche (60%) Total
Cash P40,000 P30,000 P70,000
Other Assets 60,000 120,000 180,000
Total 100,000 150,000 P250,000

23. (D)

Properties or non-cash contributions invested in the partnership are recorded at fair

market value. Thus, Luck’s property investment is recorded as P400,000. For Luck’s
capital contribution, the mortgage payable attached to the property will be deducted
because asset is liability plus capital.
Luck’s Property Investment P400,000
Less: Mortgage attached to the property (50,000)
Luck’s Capital Interest P350,000

24. (A)

Total assets would not include the deduction of the mortgage payable.
Cash P240,000
Property 400,000
Equipment 250,000
Total Assets of the Partnership P890,000

25. (B)

Total capital contribution will be divided, not the total assets of the partnership.
 Total Assets of the Partnership P890,000
Less: Mortgage Payable (50,000)
Total Capital of the Partnership P840,000
Divided equally (by 3 partners) /3
Capital Interest per Partner P280,000
Less: Finral Capital Contribution (240,000)
Implied Bonus to Finral P40,000

26. (C)

Vanessa (30%) Charmy (70%) Total

Cash P164,000 P202,000 P366,000
Other Assets 54,000 260,000 314,000
Liability (20,000) 0 (20,000)
Total 198,000 462,000 P660,000

27. (B)
Asta, Cash P14,300
Accounts Receivable 200,000
Impairment (6,000)
Inventory 500,000
Equipment 190,000
Asta, Capital 898,300

Nero, Cash (thrice) 2,694,900

Noelle, Cash 5,389,800
Asta, Cash 14,300
Total Cash 8,099,000

28. (A)
Yami Nacht Total
Salaries P144,000 P120,000 P264,000
Remainder (14,400) (9,600) (24,000)
 Net Income P129,600 P110,400 P240,000

29. (C)
Beg. Capital P800,000
Share on Profit (30%) 369,000
Drawings (110,000)
Ending Balance P1,059,000

30. (B)
Yuno Klaus Mimosa Total
Interest (9 months) P13,500 P14,250 P15,750 P43,500
Salary (9 months) 45,000 45,000
Remainder- 3:4:3 (48,186) (64,248) (48,186) (160,620)
Net Loss (P34,686) (P4,998) (P32,436) (P72,120)

31. (B)
Clover Heart Diamond Total
Salaries P15,000 P10,000 P25,000
Interest 27,000 24,500 22,000 73,500
Bonus 25,000 25,000
Remainder (4:3:3) 50,600 37,950 37,950 126,500
Net Income P92,600 P72,450 P84,950 P250,000

32. (D)
Clover Heart Diamond Total
Salaries P15,000 P10,000 P25,000
Interest 27,000 24,500 22,000 73,500
Bonus 0 0
Remainder (4:3:3) (19,000) (14,250) (14,250) (47,500)
Net Income P23,000 P20,250 P7,750 P51,000
33. (A)
Profit P860,000
Add: Unrecorded Accrued Expenses P32,000
Unrecorded Unearned Income 24,000
Unrecorded Prepaid Expenses 22,000 P78,000
Less: Overstatement of Inventory 106,000
Understatement of Purchases 43,000 (P149,000)
Adjusted Profit P789,000

34. (A)
35. (C)
Solution for items 34-35

Anna Maeve Finn

Capital balances P300,000 P200,000 P100,000

Net loss (30,000) (20,000) (10,000)

Undervaluation of asset, P30,000 15,000 10,000 5,000

Total 285,000 190,000 95,000

Settlement (225,000)

Bonus to Maeve and Finn, 2:1 (60,000) 40,000 20,000

Capital balances - P230,000 P115,000

Total capital (P230,000+P115,000) P345,000

36. (B)
 Total partnership capital before the admission of Mia P280,000

Fraction of interest of old partners ÷ 5/6

Total partnership capital after the admission of Mia P336,000

Fraction of interest of Mia x 1/6

Required contribution of Mia P56,000

37. (C)

Luca = ½ x 2/3 2/6

Ezra = 1/4 x 2/3 1/6

Kai = 1/4 x 2/3 1/6

38. (B)

Agreed capital P750,000

Contributed capital (P500,000+P200,000) 700,000

Asset Revaluation P50,000

39. (D)

Luca Ezra Kai Nova Total

Capital bal. before the P250,000 P150,000 P100,000 P500,000

admission of Nova

Transfer of 1/3 interest (50,000) P50,000

Investment of Nova 200,000 200,000

Asset Revaluation 25,000 12,500 12,500 _______ 50,000

 Capital bal. after the admission P275,000 P112,500 P112,500 P250,000 P750,000
of Nova

40. (B)

Lily Ellie Grace Total

Balances before Liquidation 40,000 25,000 5,000 70,000

Less: Loss on Realization

Lily (P28,000 – P70,000) x 3/6 (21,000)

Ellie (P28,000 – P70,000) x 2/6 (14,000)

Grace (P28,000–P70,000)x1/6 ______ ______ (7,000) 42,000

Balances 19,000 11,000 (2,000) 28,000

Less: Loss on Insolvency of Grace

Lily (P2,000 x 3/5) (1,200)

Ellie (P2,000 x 2/5) ______ (800) (2,000) -

Cash Received 17,800 10,200 0 28,000

41. (A)

Total interests of Leah

Capital P 39, 000

Drawings 4,800 P43,800

Less: Cash received in Final settlement (33,000)

 Share in loss on realization P10, 800

Divide by: Profit and loss ratio of Leah 20%__

Loss on realization P54, 000

42. (D)

43. (B)

Solution for Items 42-43

Elena Naomi Maya Total

Balances before liquidation P60,000 P40,000 P80,000 P180,000

Liquidation expenses (2:4:4) (2,000) (4,000) (4,000) (10,000)

Loss on realization – 2:4:4 (P180,000 – (24,000) (48,000) (48,000) (120,000)

P300,000)

Balances P34,000 (P12,000) P28,000 P50,000

Additional investment _______ 12,000 _______ 12,000

Payment to partners P34,000 -0- P28,000 P62,000

44. (A)
Kinsley Ruby Total

Balances before liquidation P 71, 000 P54, 000 P125, 000

Loss on possible realization at non-cash (55, 000) (55, 000) (110, 000)
assets (equally)

Balances P16, 000 (P 1, 000) P 15, 000

 Liquidation expenses (equally) (5, 000) (5, 000) 10, 000

Balances P11, 000 (6, 000) 5, 000

Loss for possible insolvency of Ruby (6, 000) 6, 000 -_____

Cash received P 5, 000 0 P5, 000

45. (D)

46. (B)

Solution for Items 45-46

Hailey Quinn Jade Total

Balances before liquidation P88,000 P62,000 P56,000 P206,000

Loss on realization 2:1:1 (55,000) (27,500) (27,500) (110,000)

(P128,000-P238,000)

Balances P33,000 P34,500 P28,500 P96,000

Payment of liquidation expenses (2,000) (1,000) (1,000) (4,000)

Balance P31,000 P33,500 P27,500 P92,000

Anticipated liquidation Expenses (P1,600) (P800) (P800) (P3,200)

P29,400 P32,700 P26,700 P88,880

47. (C)
Debit Credit
Assets to be realized P5,000,000
Assets not realized P2,500,000
 Assets realized 3,500,000
Assets acquired 1,800,000
Liabilities to be liquidated 4,250,000
Liabilities not liquidated 1,900,000
Liabilities assumed 1,200,000
Liabilities liquidated 2,500,000
Supplementary Charges 750,000
Supplementary Credit 600,000
Total P11,950,000 P12,050,000

Total Credit P12,050,000

Total Debit 11,950,000
Gain on Realization P 100,000

48. (D)
Cash Available P 120,000
Less: Mortgage payable secure by property 50,000
Amount available to unsecured creditors P 70,000
Less: Unsecured creditors with priority
Administrative expenses P 8,000
Salaries payable 2,000 10,000
Net free assets or amount available to unsecured P 60,000
creditors without priority

Expected recovery percentage of unsecured creditors 75%

P40,000 / (P80,000-P50,000) + P50,000

Cash is distributed as follows:

Unsecured creditors with priority P 10,000
Partially secured creditors:
Property at Selling Price
Add: Portion of free assets used P50,000
to pay the unsecured amount 22,500 72,500
(P80,000-P50,000) x 50%
Unsecured creditors without priority
P50,000 x 50% 37,500
` P 120,000
49. (C)
Partially secured creditors P65,000
Less: Assets pledged to partially secured creditors 25,500 P 39,500
Unsecured creditors 90,000

Total unsecured liabilities P129,500

Total free assets P119,500 (squeezed)

Less: Unsecured liabilities with priority (25,000)
Net Free assets P94,500
Estimated deficiency to unsecured creditors 35,000
Total unsecured liabilities P129,500

50. (D)
Estimated losses on realization of assets P 2,100,000
Less: Estimated gains on realization of assets P 1,460,000
Additional assets* 1,280,000 2,740,000
Estimated net gain or (loss) in assets realization P (640,000)
Add: Additional Liabilities** 860,000
Estimated net gain or (loss) P 220,000
Less: Stockholders' Equity:
Capital Stock P 2,000,000
Deficit 1,200,000 800,000
Estimated amount to be recovered by stockholders P (580,000)

Pro-rate payment on the peso is:

Estimated amount to be recovered by stockholders P 580,000
Divide: Stockholders' Equity 800,000
P 0.73

51. (B)
Statement of Realization and Liquidation Credits:

Assets realized P 1,200,000

Assets not realized 1,375,000
Liabilities to be liquidated 2,250,000
Liabilities assumed 1,625,000
Supplementary credits 2,800,000
 Total Credits P 9,250,000

Statement of Realization and Liquidation Debits

Assets to be realized P 1,375,000

Assets acquired 750,000
Liabilities liquidated 1,875,000
Liabilities not liquidated 1,700,000
Supplementary charge 3,125,000
Total Debits P 8,825,000

Net Gain for the three (3) month period P425,000

52. (A)
Common stock P 1,500,000
Deficits (500,000)
Stockholders' Equity P 1,000,000
Add: Liabilities not liquidated 1,700,000
Total Liabilities and SHE P 2,700,000
Less: Assets not realized (or end) (1,375,000)
Cash balance, ending P 1,325,000

53. (B)
Inventory, at selling price P 8,000
Add: Portion free assets used to pay
the unsecured amount
(P10,250-8,000) x 30% 675
P 8,675

54. (D)
Net income (loss) per branch books (P2,250)
Add: Realized profit from sales made by branch/

Overvaluation of cost of goods sold:

Beginning inventory P-
Add: Shipments 125,000
Less: Returns (15,630)
Cost of goods available for sale at billed price 109,370
Less: Ending Inventory, at billed price (84,000)
 Cost of goods sold at billed price 25,370
Multiplied by: Mark-up 20/120 4,228
Adjusted branch net income P1,978

55. (C)
(1) Actual Branch Income:
Sales P 32,000
Less: Cost of goods sold
Inventory, January 1, at billed price 3,960
Shipments from Main Store, at billed price 17,600
Cost of goods available for sale, at billed price 21,560
Less: Inventory, December 31, at billed price (4,840)
Cost of goods sold at billed price 16,720
Multiplied by: Cost Ratio 100/110 15,200
Gross Profit 16,800
Less: Expenses (10,480)
True Branch Net Income P 6,320

(2) Ending Inventory at Cost:

Home Office P 11,200
Branch (P4,840 x 100/110) 4,400
Combined ending inventory at cost P15,600

56. (A)
Merchandise Inventory, January 1, at billed price P 25,200
Shipments from home office at billed price 20,000
Cost of goods available for sale, at billed price P 45,200
Less: Cost of goods sold, at billed price (10,400)
Merchandise Inventory, February 16, at billed price P 34,800
Multiplied by: Cost Ration 100/120
Merchandise Inventory destroyed by fire, at cost P 29,000

57. (B)
Inventory, January 1 at billed price P 50,000
Add: Shipments from home office, at billed price 130,000
Cost of goods available for sale, at billed price P 180,000
Divided by: Cost of goods available for sale at sales price
Net Sales P 225,000
Add: Inventory before the fire:
 Undamaged merchandise P30,000
Divided by: Recovery % 40% 75,000 300,000
Percentage of Billing Price to Selling Price 60%

*Since 60% of the inventory was destroyed by fire, 40% was recovered

Estimated cost of merchandise destroyed by fire

Inventory before the fire at selling price (P30,000 / 40%) P 75,000

Multiplied by: % of damaged merchandise 60%
Damaged merchandise of selling price P 45,000
Multiplied by: % of Billing Price to Selling price 60%
Damaged merchandise of billed price P 27,000
Multiplied by: Cost Ratio 100/125
Cost of merchandise destroyed by fire P 21,600
58. (B)
True Branch Net Income P156,000
Less: Branch Net Income as reported (by the Branch) (60,000)
Overvaluation of Cost of goods sold P 96,000
Less: Cost of goods sold from home office at billed price:

Inventory, December 1 P70,500

Shipments from home office 350,000
Cost of goods from home office
available for sale P420,500
Less: Inventory, December 31 (84,000) 336,500
Cost of goods sold from home office, at cost P240,500

(1) Billed Price: (P336,000/P240,000) 140%

(2) Allowance for overvaluation after adjustment: P24,000
P84,000 x 40/140

59. (D)
Shipments to branch- loading/allowance for overvaluation

of merchandise before adjustments P 39,500

Less: Allowance for overvouchers of ending inventory

(after adjustments): (P20,700-P8,700) x 25/125 2,400

Realized mark-up on branch merchandise P 37,100
60. (B)
Inventory, January 1, 2023 P 56,000
Add: Shipments from home office 350,000
Cost of goods available for sale 406,000
Less: Inventory, December 31, 2023 (84,500)
Cost of goods sold at billed price 321,500
Divided by: Billed Price Rate
P350,000/P280,000 125%
Cost of goods sold at cost 257,200
Multiplied by: Mark up on cost (125%-100%) 25%
Overvaluation of cost of goods sold P 64,300