You correctly answered16out of30questions with an accuracy of53.33%.You gained460experience points!Question 1Resorts Corporation operates a branch operation in a foreign country. Although this branch deals in foreign currency (FC), the peso is viewed as its functional currency. Thus, a remeasurement is necessary to produce financial information for external reporting purposes. The branch began the year with 100,000 FCs in cash and no other assets or liabilities. However, the branch immediately used 60,000 FCs to acquire equipment. On May 1, it purchased inventory costing 30,000 FCs for cash and its sold on July 1 for 50,000 FCs cash, The branch transferred 10,000 FCs to the parent on October 1 and recorded depreciation on the equipment of 6,000 FCs for the year. Currency exchange rates for 1 FC follows:January 10.16

May 10.18

July 10.20

October 10.21

December 310.22

Average for the year0.19

Which of the following items is not remeasurement using historical exchange rate under the temporal or remeasurement method?Retained earningsCost of goods soldAccumulated depreciation on equipmentMarketable equity securitiesSOLUTION:Marketable equity securities are carried at market value and therefore translated at the current exchange rate under temporal method or remeasurement methodPractical Accounting 2 - Foreign Currency Transactions and Translations (Difficult)Question 2The AA, BB and CC Partnership was formed on January 2, 2011. The original cash investments were as follows:AA96,000

BB144,000

CC216,000

According to the general partnership contract, the partners were to be renumerated as follows:Salaries of P14,400 for AA, P12,000 for BB and P13,600 for CC.

Interest at 12% on the average capital account balances during the year.

Remainder divided 40% to AA, 30% to BB and 30% for CC

Income before partners salaries for the year ended December 31, 2011 was P92,080. AA invested an additional P24,000 in the partnership on July 1; CC withdrew P36,000 from the partnership on October 1; and as authorized by the partnership contract, AA, BB and CC each withdrew P750 monthly against their shares of net income for the year.If the salaries to partners are to be recognized as operating expenses by the partnership, the capital balance of CC on December 31, 2011 is?194,940217,540200,224208,540SOLUTION:AA, 122,760; BB, 151,380, CC, 194,940AABBCCTotal

Capital, January 2, 201196,000144,000216,000456,000

Additional investments (withdrawals)24,000-(36,000)(12,000)

Net income11,76016,38023,94052,080

Personal withdrawals(9,000)(9,000)(9,000)(27,000)

Capital, December 31, 2011122,760151,380194,940469,080

Practical Accounting 2 - Partnership (Average)Question 3How is the disposition of the remeasurement gain or loss reported on the parent company's financial statements?Retained earningsCumulative translation adjustment as a deferred assetCumulative translation adjustment as a deferred liabilityNet income/loss on the income statementPractical Accounting 2 - Foreign Currency Transactions and Translations (Average)Question 4Ricky Company operates a branch in Naga City. In December 31, 2014, the Naga branch in the home office books showed a debit balance of P 522,110. The interoffice accounts were in agreement at the beginning of the year. For purposes of reconciling the interoffice accounts, the following facts were given:Shipments from home office to Naga branch costing P 72,500 were in transit as of year-end. Naga recorded the said transfer twice at cost: one in December 31,2014 and the other on January 1,2015

The home office allocated to the Naga branch 3/4 of the rent expenses it paid for the year ended 2014. The rent expense was P 24,000. The home office sent a debit memo to Naga for the allocated amount, but the branch recorded the said debit memo by debiting the home office - current account and crediting rent payable

The branch wrote-off uncollectible accounts amounting to P 10,120. The allowance for doubtful accounts is maintained in the books of the home office. The home office recorded the write-off as a write-off of its own accounts receivable

The branch collected accounts receivable from home office's customers amounting toP52,920, net of 2% cash discount. The branch treated the same transaction as if it was a collection from its own customers. The home office was not yet notified of the said collection

It is the policy of the home office to bill its branches at 20% above cost. What is the unadjusted balance of the home office-current in the books if Naga branch in December 31, 2014?463,650459,070475,990461,490SOLUTION:Branch Current- NagaHome Office Current

Unadjusted balance522,110461,490

a.-14,500

b.-36,000

c.(10,120)-

d.52,92052,920

Adjusted balance564,910564,910

Practical Accounting 2 - Home Office & Branch Accounting (Difficult)Question 5Ace purchased inventory on December 1, 2014. Payment of 200,000 foreign currencies was to be made in sixty days. Also on December 1, Ace signed a contract to purchase 200,000 foreign currencies in sixty days. The exchange rate P1= 2.80 FC and the 60-day forward rate was P1=2.60 FC. On December 31, the exchange rate was P1=2.90 FC and the 30-day forward rate was P1=2.62 FC. Assume an annual interest rate of 12% and a fair value hedge. The present value for one month at 12% is .9901.In the journal entry to record the establishment of a forward exchange contract, at what amount should the Forward Contract account be recorded on December 1?76,923.0805,549.5171,428.57SOLUTION:P0, since there is no cost, there is no value for the contract at this datePractical Accounting 2 - Derivatives (Difficult)Question 6DD and EE was organized and began operations on March 1, 2011. On that date, DD invested P150,000 and EE invested land and building with current fair value of P80,000 and P100,000, respectively. EE also invested P60,000 in the partnership on November 1, 2011 because of its shortage of cash. The partnership contract includes the following remuneration plan:DDEE

Annual salary18,00024,000

Annual interest on average capital balances10%10%

Remainder60%40%

The annual salary was to be withdrawn by each partner in 12 monthly installments. During the fiscal year ended, February 28, 2012, DD and EE had net sales of P500,000, cost of goods sold of P280,000 and total operating expenses of P100,000 (excluding partners salaries and interest on average capital account balances). Each partner made monthly cash drawings in accordance with their partnership contract.The share of partner DD in the net income46,80072,00066,00058,800SOLUTION:DD, 58,800; EE, 61,200DDEETotal

Salaries18,00024,00042,000

Interest, 10% of ave. capital15,00020,00035,000

Balance (60%:40%)25,80017,20043,000

Share in net income58,80061,200120,000

Practical Accounting 2 - Partnership (Average)Question 7As of July 1, 2011, FF and GG decided to form a partnership. Their balance sheets on this date are:FFGG

Cash15,00037,500

Accounts receivable540,000225,000

Inventory-202,500

Machinery & equipment150,000270,000

Total705,000735,000

Accounts payable240,000

FF, capital-

GG, capital495,000

Total735,000

The partners agreed that the machinery and equipment of FF is underdepreciated by P15,000 and that GG by P45,000. Allowance for doubtful accounts is to be set up amounting to P120,000 for FF and P45,000 for GG. The partnership agreement provides for a profit and loss ratio and capital interest of 60% to FF and 40% to GG. How much cash must FF invest to bring the partners capital balances proportionate to their profit and loss ratio?142,50052,500102,500172,500SOLUTION:FFGG

Unadjusted capital570,000495,000

Accumulated depreciation(15,000)(45,000)

Allowance for doubtful accounts(120,000)(45,000)

Adjusted contributed capital435,000405,000

GG adjusted capital405,000

Divided by GG P&L %40%

Total agreed capital1,012,500

Multiplied by FF P&L %60%

FFs agreed capital607,500

Less: FFs adjusted capital435,000

Additional cash to be invested by FF172,500

Practical Accounting 2 - Partnership (Difficult)Question 8Jason Company, a Philippine Corporation, sold inventory on credit to a Japanese Company on April 8, 2014. Jason receives payment of 35,000 yens on May 8, 2014. The exchange rate was P1 = Y0.65 on April 8 and P1 = Y0.70 on May 8. What amount of foreign exchange gain or loss should be recognized? (rounded to the nearest peso)P3,846 lossP1,750 lossP10,500 lossP10,500 gainSOLUTION:(35,000 yens / .65) - (35,000 yens / .70) = P3,486 loss.Practical Accounting 2 - Foreign Currency Transactions and Translations (Average)Question 9On its balance sheet, a company undergoing reorganization shouldreport its assets at current replacement costreport its assets at fair market value, so that financial statement users can estimate whether creditors' claims will be metcontinue to report its assets at book valuereport its assets at net realizable value because there is reason to doubt that the organization is a going concernPractical Accounting 2 - Corporate Liquidation (Difficult)Question 10The PQR Partnership is being dissolved. All liabilities have been paid and the remaining assets are being realized gradually. The equity of the partners is as follows:Partners AccountsLoans to (from) partnershipProfit & Loss ratio

P24,0006,0003

Q36,000-3

R60,000(10,000)4

The second cash payment to any partners under a program of priorities shall be made thus:To Q P6,000 and R P8,000To R P8,000To R P2,000To Q P6,000SOLUTION:PQRPQRTotal

Loans6,000(10,000)

Capital24,00036,00060,000

Total interests30,00036,00050,000

Divide by PL ratio3/103/104/10

Loss absorption facility100,000120,000125,000

Priority 1(5,000)2,0002,000

100,000120,000120,000

Priority 11(20,000)(20,000)8,0006,00014,000

100,000100,000100,000-6,00010,00016,000

Practical Accounting 2 - Partnership (Difficult)Question 11Lawyer's fees incurred during a reorganization are accounted for with a debit toan expenseadditional paid-in capitala liabilityan intangible asset, Reorganization Cost, which would normally be amortized over a five-year periodPractical Accounting 2 - Corporate Liquidation (Difficult)Question 12On September 1, 2014, Ricky Company established two branches: Naga and Cebu City branches. The home office transferred P80,000 worth of cash and P 350,000 worth of inventory to its Naga branch and instructed Naga to transfer 3/4 of the goods and cash received to Cebu City. In addition, on November 1, 2014, shipments from home office were received by Naga amounting to P125,000 and the branch paid freight costs amounting to P6,500. 3/5 of the said shipments were sold to outsiders. On December 1, 2014, Naga transferred half of the remaining November shipments from the home office to Cebu City, with Cebu City branch paying freight costs of P 2,500. Had the merchandise been shipped from the home office to Cebu City branch, only P 1,900 worth of freight would have been incurred. How much is the balance of the Cebu City branch account in the home office books?346,900348,800349,400206,200SOLUTION:Branch Current - Naga

9/1430,000

9/1(322,500)

11/1125,000

12/1(26,300)

Balance206,200

Branch Current - Cebu, City

9/1322,500

12/124,400

Balance346,900

Practical Accounting 2 - Home Office & Branch Accounting (Difficult)Question 13USC, a nonprofit university, received the following cash contributions from donors during the year 2014:Unrestricted contributions250,000

Contributions restricted by donors for scholarship programs100,000

Contributions from a donor who stipulated that the money be spent inaccordance to the wishes of the hospitals board of trustees75,000

Contributions restricted by donors for equipment acquisitions125,000

Assuming the university spent P 75,000 of the donors' contributions for scholarship programs on financing this year' scholars, how much should be included in its current funds revenue for the year ended December 31, 2014?400,000250,000350,000325,000SOLUTION:Unrestricted contributions250,000

Contributions from a donor who stipulated that the money be spent in accordance to he wishes to the hospitals board of trustees75,000

Contributions used for scholarship75,000

Current fund revenue400,000

Practical Accounting 2 - Not for Profit Organizations (Difficult)Question 14What information is conveyed by the Statement of Realization and Liquidation?Account balances reported by the company at the date of the filing of the bankruptcy petitionRecognition of recorded liabilitiesCash receipts generated by the sale of the debtor's propertyWrite up of assetsPractical Accounting 2 - Corporate Liquidation (Difficult)Question 15Assuming all of the following expenses have priority, in what order are they prioritized?Unpaid taxes, administrative expenses, employee claims for wages, return of customer depositsUnpaid taxes, return of customer deposits, employee claims for wages, administrative expensesEmployee claims for wages, unpaid taxes, administrative expenses, claims for the return of customer depositsAdministrative expenses, employee claims for wages, claims for the return of customer deposits, unpaid taxesPractical Accounting 2 - Corporate Liquidation (Difficult)Question 16Henry Company had the following amounts for its assets, liabilities, and stockholders' equity accounts just before filing a bankruptcy petition and requesting liquidation:Book valueNet realizable value

Cash10,00010,000

Accounts receivable100,00060.000

Inventory350,000350,000

Land110,00075,000

Building and equipment700,000300,000

Accounts payable100,000-

Salaries payable75,000-

Notes payable (secured by inventory)300,000-

Employees claims for contributions to pension plans10,000-

Taxes payable80,000-

Liability for accrued expenses20,000-

Bonds payable500,000-

Common stock200,000-

Additional paid-in capital100,000-

Retained earnings (deficit)(115,000)-

Of the salaries payable, P35,000 was owed to an officer of the company. The remaining amount was owed to salaried employees who had not been paid within the previous 80 days: John Webb was owed P10,600, Samantha Jones was owed P15,000, Sandra Johnson was owed P11,900, and Dennis Roberts was owed P2,500. The maximum owed for any one employee's claims for contributions to benefit plans was P800. Estimated expense for administering the liquidation amounted to P40,000.What amount would the company would have been expected to pay for every dollar of unsecured liability without priority?.40.60.75.50SOLUTION:Free assets P495,000 Priority claims P165,000 = Free assets available P330,000. P330,000/P660,000 unsecured liab. = P.50Practical Accounting 2 - Corporate Liquidation (Difficult)Question 17TD decided to withdraw from his partnership with SM and MR. Before his withdrawal, TD's capital balance was P 58,000, while SM's was P64,000 and MR's was P77,000. Also, the partnership's total assets amounted to P 450,000, but the partners agreed that a fixed asset was under depreciated by P15,000. TD, SM and MR share profits and losses in the ratio of 2:4:4, respectively. If TD was paid P53,200 upon his retirement, how much is the remaining partnership net assets after TD's withdrawal?182,800197,800160,800130,800SOLUTION:Net assets before TDs withdrawal (450,000 - 251,000)199,000

Adjustment for depreciation(15,000)

Net assets, adjusted184,000

Payment to TD(53,200)

Share in profit130,800

Practical Accounting 2 - Partnership (Difficult)Question 18John Corporation owned a subsidiary in France. John concluded that the subsidiary's functional currency was the U.S. dollar.Which one of the following statements would justify this conclusion?John's functional currency is the dollar and John is the parentJohn's other subsidiaries all had the dollar as their functional currencyMost of the subsidiary's sales and purchases were with companies in the U.SGenerally accepted accounting principles require that the subsidiary's functional currency must be the dollar if consolidated financial statements are to be preparedPractical Accounting 2 - Foreign Currency Transactions and Translations (Difficult)Question 19The home office in Mandaluyong shipped merchandise costing P21,690 to Caloocan branch and paid for the freight charges of P3,980. Caloocan branch was subsequently instructed to transfer the merchandise to Manila Branch wherein Manila branch paid for P1,250 freight. If the shipment was made directly from Mandaluyong to Manila, the freight cost would have been P5,500.As a result of the interbranch transfer of merchandise, which of the following statements is wrong?The Home Office will debit excess freight of P270The Caloocan branch will debit the amount of P25,670 to Home Office Current accountThe Manila branch will debit freight-in amounting toP5,500The Manila branch will credit the amount of P25,940 to Home Office Current accountPractical Accounting 2 - Home Office & Branch Accounting (Average)Question 20The Kareen Company owns 75% of The Goldy Company. The following figures are from their separate financial statement:KareenTrade receivable P 1,040,000, including P 30,000 due from Goldy.

GoldyTrade receivable P 215,000, including P 40,000 due from Kareen.

Under PAS 27 Consolidated and separate financial statements, what figure should appear for trade receivables in Kareens consolidated statement of financial position?1,215,0001,185,0001,235,0001,255,000SOLUTION:Kareens trade receivable1,040,000

Goldys trade receivable215,000

Total1,225,000

Less: Intercompany receivable (due from Goldy)(30,000)

Intercompany receivable (due from Kareen)(40,000)

Consolidated trade receivables1,185,000

Practical Accounting 2 - Consolidation After Acquisition (Difficult)Question 21The Brown Company acquired 80% of the Ayannah Company for a consideration transferred of P100 million. The consideration was estimated to include a control premium of P24 million. Ayannahs net assets were P85 million at the acquisition date. Are the following statements true of false, according to PFRS 3 Business Combinations?Goodwill should be measured at P32 million if the non-controlling interest is measured at its share of Locals net assets

Goodwill should be measured at P34 million if the non-controlling interest is measures at fair value?

False, TrueTrue, TrueTrue, FalseFalse, FalseSOLUTION:1NCI measured at its share of net assets (partial Goodwill)

Consideration transferred100,000,000

Less: FV of identifiable net assets of Ayannah (80% x P85 million)68,000,000

Goodwill (partial)32,000,000

2NCI measured at its fair value (Full Goodwill)

Consideration transferred100,000,000

FV of NCI [(P100 million - P24 million = P76 million /80% = P95million] x 20%19,000,000

Fair value of Subsidiary119,000,000

Less: FV of identifiable net assets of Oak85,000,000

Goodwill (full)34,000,000

Under PFRS 3 par. 32, Goodwill is measured at the consideration transferred plus the non-controlling interest (however measured) less net assets acquired. The non-controlling interest may be measured at its share of net assets or fair value, per PFRS S3 par 19Practical Accounting 2 - Business Combination (Difficult)Question 22Spiralling crude oil prices prompted Bryan Company to purchase call options on oil as a price-risk-hedging device to hedge the expected increase in prices on an anticipated purchase of oil. On November 30, 2014, Bryan purchases call options for 20,000 barrels of oil at P100 per barrel at a premium of P4 per barrel, with a February 1, 2015, call date. The following is the pricing information for the term of the call:exchange pricefuture price (Feb.1, 2015)

November 30, 2014100101

December 31, 2014105106

February 1, 2015110-

Time ValueIntrinsic ValueFair Value

November 30, 201480,000-80,000

December 31, 201480,000100,000130,000

February 1, 2015-200,000200,000

On February 1, 2015, Bryan sells the options at their value on that date and acquires 20,000 barrels of oil at the exchange price. On April 1, 2015. Bryan sells the oil for P112 per barrel.Which of the following adjusting entries would be required on December 31, 2014?Loss on hedge activity (30,000); Purchase call options (30,000)Loss on hedge activity (100,000); Purchase call options (100,000)Loss on hedge activity (50,000); Purchase call options (50,000)Loss on hedge activity (80,000); Purchase call options (80,000)SOLUTION:change in time value: P80,000 - P30,000 = P50,000Practical Accounting 2 - Derivatives (Difficult)Question 23A net asset balance sheet exposure exists and the foreign currency depreciates. Which of the following statements is true?There is a transaction gainThere is a positive translation adjustmentThere is no translation adjustmentThere is a negative translation adjustmentPractical Accounting 2 - Foreign Currency Transactions and Translations (Average)Question 24How should a company undergoing reorganization report the gains and losses resulting from the reorganization?on the income statement, combined with the gains and losses from operationson the income statement, separate from other gains and losseson the statement of retained earningson the statement of cash flowsPractical Accounting 2 - Corporate Liquidation (Difficult)Question 25Jason Corporation about to be liquidated, has the following amounts for its assets and liabilities:Book valueNet realizable value

Current assets200,000140,000

Land70,000100,000

Building500,000350,000

Equipment300,000160,000

Accounts payable240,000-

Income taxes payable60,000-

Mortgage payments510,000-

Note payable80,000-

The mortgage is secured by the land and building, and the note payable is secured by the equipment. Jason expects that the expenses of administering the liquidation will total P40,000How much should Jason expect to pay on the accounts payable?128,000120,000240,00096,000SOLUTION:Free assets P220,000 - priority claims P100,000 = P120,000 P120,000/P300,000 unsecured = payment of 40% on unsecured dollars. 40% x P240,000 A/P = P96,000Practical Accounting 2 - Corporate Liquidation (Difficult)Question 26The Joanne Company own 65% of The Mary Company. On December 31, 2012, the last day of the accounting period, Joanne sold to Mary a noncurrent asset for P1,000. The assets original cost was P2,500 and on December 31, 2012 its carrying amount in Joannes book was P800. The groups consolidated statement of financial position has been drafted without any adjustments in relation to this non-current asset.Under PAS 27 Consolidated and Separate Financial Statements, what adjustments should be made to the consolidated statement of financial position figures for non-current assets and non-controlling interest?Non-current assets (increase by P1,500); Non-controlling Interest (no change)Non-current assets (reduced by P200); Non-controlling Interest (no change)Non-current assets (increase by P1,500); Non-controlling Interest (reduce by P70)Non-current assets (increase by P1,500); Non-controlling Interest (increase by P525)SOLUTION:Downstream sales:

Selling price of non-current asset1,000

Less: Book/ carrying value, date of sale800

Gain on intercompany sale200

Incidentally, the eliminating entry (assuming books are already closed) would be as follows:Retained earnings - Parent (100% x 200)200

Non-current asset200

Practical Accounting 2 - Consolidation After Acquisition (Difficult)Question 27Hamon, Ltd. is a Thailand subsidiary of a Philippines Company. Hamons functional currency is not the currency of a hyperinflationary economy (or using the current rate method). The following exchange rates were in effect during 2014:January 1.625 baht

June 30.610 baht

December 31.620 baht

Weighted average rate for the year.630 baht

Hamon reported sales of 1,500,000 baht during 2014. What amount (rounded) would have been included for this subsidiary in calculating consolidated sales?2,380,9522,429,1502,400,0002,419,355SOLUTION:1,500,000 baht / .630 baht, the average rate (historical rate is not practicable because the data of sales per transaction were not given) = P2,380,952Practical Accounting 2 - Foreign Currency Transactions and Translations (Difficult)Question 28Which of the following are given as reasons for the high level of merger activity in the world?Reduction in competition resulting from mergersAttempts to stabilize earnings by diversifyingSynergistic benefits arising from mergersReduction in competition resulting from mergers and Synergistic benefits arising from mergers are correctPractical Accounting 2 - Business Combination (Difficult)Question 29Ven issues common stock to acquire all the assets of the Dennis Company on January 1, 20X5. There is a contingent share agreement, which states that if the income of the Dennis Division exceeds a certain level during 20X5 and 20X6, additional shares will be issued on January 1, 20X7. The impact of issuing the additional shares is torecord additional goodwillhave no effect on asset values, but to reassign the amounts assigned to equity accounts.reduce retained earningsincrease the price assigned to fixed assets.Practical Accounting 2 - Business Combination (Difficult)Question 30The AA, BB and CC Partnership was formed on January 2, 2011. The original cash investments were as follows:AA96,000

BB144,000

CC216,000

According to the general partnership contract, the partners were to be renumerated as follows:Salaries of P14,400 for AA, P12,000 for BB and P13,600 for CC.

Interest at 12% on the average capital account balances during the year.

Remainder divided 40% to AA, 30% to BB and 30% for CC

Income before partners salaries for the year ended December 31, 2011 was P92,080. AA invested an additional P24,000 in the partnership on July 1; CC withdrew P36,000 from the partnership on October 1; and as authorized by the partnership contract, AA, BB and CC each withdrew P750 monthly against their shares of net income for the year.The capital balance of CC on December 31, 2011200,224198,624208,540217,540SOLUTION:AA, 26, 160; BB, 28,380, CC, 37,540AABBCCTotal

Salaries14,40012,00013,60040,000

Interest 12% of ave. capital12,96017,28024,84055,080

Balance (4:3:3)(1,200)(900)(900)(3,000)

Share in net income26,16028,38037,54092,080

Practical Accounting 2 - Partnership (Average)