Pampanga Practical Accounting 2 Preweek

SUCCEED Review Center: Practical Accounting II Preweek October 6, 2015

of 12 Preweek Lecture by Mark Alyson B. Ngina, CMA, CPA

SUCCEED REVIEW CENTERBalanga, Bataan

Preweek

Cost Accounting

PRACTICAL ACCOUNTING II

1. Justine Company budgeted total variable overhead costs at ₱180,000 for the current period. In addition, they budgeted costs for factory rent at ₱215,000, costs for depreciation on office equipment at ₱12,000, costs for office rent at ₱92,000, and costs for depreciation of factory equipment at₱38,000. All these costs were based on the estimated machine hours of 80,000. Actual factory overhead for the period amounted to ₱387,875 and machine hours used totaled 74,000 hours. What was the over or underapplied factory overhead for the period?a. P12,650 overapplied c. ₱108,850 overappliedb. ₱12,650 underapplied d. ₱108,850 underapplied

The next two questions are based on the following data:Papasa Sana Ako Company’s Job 75 for the manufacture of 2,200 units was completed during September at the unit costs presented as follows: Direct Materials ₱20Direct Labor 18Factory overhead (includes an allowance of ₱1 spoiled rework) 18

Final inspection of Job 75 disclosed 200 spoiled units, which were sold for ₱6,000.

2. What would be the unit cost of good units if the spoilage loss is charged to all production during September?a. ₱56.00 b. ₱57.50 c. ₱57.00 d. ₱58.60

3. What would be the unit cost of good units if the spoilage is attributable to exacting specifications of Job 75?a. ₱55.00 b. ₱56.00 c. ₱57.57 d. ₱57.50

1. Bluebird Enterprises has two production departments (P1 and P2) and two service departments (S1 and S2). A breakdown of current period costs and service usage for each department is as follows:

P1 P2 S1 S2Costs ₱300,000 ₱400,000 ₱240,000 ₱200,000S1 services 50% 30% -0- 20%S2 services 40% 40% 20% -0-

If Bluebird uses the reciprocal method for allocating service costs, what are the total service costs allocated to the two production departments (P1 and P2) (rounding all numbers to the nearest dollar)?a. ₱25,000 to P1 and ₱19,000 to P2 c. ₱24,667 to P1 and ₱19,333 to P2b. ₱24,400 to P1 and ₱20,600 to P2 d. ₱24,917 to P1 and ₱19,083 to P2

4. Kimbeth Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining industry. The following information pertains to operations for the month of May:

UnitsBeginning work-in-process inventory, May 1 16,000Started in production during May 100,000Completed production during May 92,000Ending work-in-process inventory, May 31 24,000The beginning inventory was 60% complete for materials and 20% complete for conversion costs. The ending inventory was 90% complete for materials and 40% complete for conversion costs. Costs pertaining to the month of May are as follows: Beginning inventory costs are materials, ₱54,560; direct labor, ₱20,320; and factory overhead,

₱15,240. Costs incurred during May are materials used, ₱468,000; direct labor, ₱182,880; and factory

overhead, ₱391,160.

Using the first-in, first-out (FIFO) method, the equivalent units of production (EUP) for materials are a. 97,600 units. c. 104,000 units.b. 107,200 units. d. 108,000 units.

5. Using the FIFO method, the equivalent units of production for conversion costs are a. 85,600 units. c. 88,800 units.b. 95,200 units. d. 98,400 units.

6. Using the FIFO method, the equivalent unit cost of materials for May isa. ₱4.12 b. ₱4.50 c. ₱4.60 d. ₱4.80

7. Using the FIFO method, the equivalent unit conversion cost for May isa. ₱5.65 b. ₱5.83 c. ₱6.00 d. ₱6.20

8. Using the FIFO method, the total cost of units in the ending work-in-process inventory at May 31 is a. ₱153,168 b. ₱154,800 c. ₱155,328 d. ₱156,960



9. Using the weighted-average method, the equivalent unit cost of materials for May is a. ₱4.12 b. ₱4.50 c. ₱4.60 d. ₱5.02

10. Using the weighted-average method, the equivalent unit conversion cost for May is a. ₱5.65 b. ₱5.83 c. ₱6.00 d. ₱6.20

11. Using the weighted-average method, the total cost of the units in the ending work-in-process inventory at May 31 isa. ₱99,360 b. ₱153,168 c. ₱154,800 d. ₱156,960

12. A manufacturing firm has a normal spoilage rate of 4% of the units inspected; anything over this rate is considered abnormal spoilage. Final inspection occurs at the end of the manufacturing process. The firm employs the first-in, first-out (FIFO) method of inventory flow. The processing for the current month was as follows:

Beginning work-in-process inventory 24,600 unitsUnits entered into production 470,400 units Units completed and passing inspection (460,800) units Units failing final inspection (22,600) units Ending work-in-process inventory 11,600 units

The equivalent units assigned to normal and abnormal spoilage for the current month would beNormal Spoilage Abnormal Spoilage

a. 904 units 21,696 unitsb. 18,432 units 4,168 unitsc. 18,816 units 3,784 unitsd. 19,336 units 3,264 units

13. New-Rage Cosmetics has used a traditional cost accounting system to apply quality control costs uniformly to all products at a rate of 14.5 percent of direct labor cost. Monthly direct labor cost for Satin Sheen makeup is ₱27,500. In an attempt to more equitably distribute quality control costs, New-Rage is considering activity-based costing. The monthly data shown in the chart below have been gathered for Satin Sheen makeup.

Quantity for SatinActivity Cost Driver Cost Rates

Sheen

Incoming material inspection Type of material ₱11.50 per type 12 types In-process inspection Number of units ₱0.14 per unit 17,500 units Product certification Per order ₱77 per order 25 orders

The monthly quality control cost assigned to Satin Sheen makeup using activity-based costing is c. ₱8,500.50.d. ₱525.50 higher than the cost using the traditional system.e. ₱525.50 lower than the cost using the traditional system. f. ₱3,987.50.

14. Information on Divine’s direct material costs for May is as follows:

Actual quantity of direct materials purchased and used 30,000 lbs. Actualcost of direct materials ₱84,000Unfavorable direct materials usage variance ₱ 3,000Standard quantity of direct materials allowed for May production 29,000 lbs

For the month of May, Divine’s direct materials price variance was:a. ₱2,800 favorable c. ₱6,000 unfavorableb. ₱2,800 unfavorable d. ₱6,000 favorable

15. The following direct labor information pertains to the manufacture of Part BAE: Number of hours required to make a part 2.5 DLHNumber of Direct workers 75Number of total productive hours per week 3,000Weekly wages per worker ₱1,000Laborers’ fringe benefits treated as direct labor costs 25% of wages

What is the standard direct labor cost per unit of Part BAE?a. ₱62.500 b. ₱41.670 c. ₱78.125 d. ₱84.125

16. Burma, Inc. analyzes manufacturing overhead in the production of its only one product, Odds. The following set of information applies to the month of April, 2015:

Budgeted Actual Units produced 40,000 38,000Variable manufacturing overhead ₱4/DLH ₱16,400Fixed manufacturing overhead ₱20/DLH ₱88,000Direct labor hours 6 minutes/unit 4,200 hours

What are the fixed overhead spending and volume variances for the month of April?a. b. c. d.

Spending ₱4,000 F ₱8,000 U ₱4,000 F ₱8,000 UVolume ₱4,000 F ₱4,000 U ₱8,000 F ₱8,000 U



17. Using the information in the previous number, what are the variable overhead spending and efficiency variances for the month of April?

a. b. c. d.Spending ₱400F ₱400U ₱1,200F ₱1,200UEfficiency ₱1,600U ₱1,600U ₱ 800U ₱ 800F

18. The Batista Manufacturing Company uses Materials and in Process Inventory (MIP) account. At the end of each month all inventories are counted, their conversion costs components are estimated, and inventory account balances are adjusted accordingly. Direct materials used are backflushed from MIP account to Finished Goods account. The following data pertains to September operations:Beginning balance of MIP account ₱ 116,100Actual conversion costs incurred 14,400Materials purchased 2,040,000Conversion costs allocated 15,900Ending balance of MIP Account 125,700

What is the amount of direct materials and conversion costs to be backflushed to finished goods? a. ₱2,030,400 and ₱15,900, respectively.b. ₱2,040,000 and ₱14,400, respectively. c. ₱2,030,400 and ₱14,400, respectively. d. ₱2,040,000 and ₱15,900, respectively.

19. Versatile Company produces four solvents from the same process: C, D, E, and G. Joint product costs are ₱900,000. (Round all answers to the nearest hundreds.)

Sales priceDisposal

cost FurtherFinal sales

Barrelsper barrelat split-off

per barrelat split-off

processingcosts

priceper barrel

C 7,500 ₱10.00 ₱6.50 ₱2.00 ₱13.50D 10,000 8.00 4.00 2.50 10.00E 14,000 11.00 7.00 4.00 15.50G 20,000 15.00 9.50 4.50 19.50

If Versatile sells the products after further processing, the following disposal costs will be incurred: C,₱2.50; D, ₱1.00; E, ₱3.50; G, ₱6.00.

Using a physical measurement method, what amount of joint processing cost is allocated to Product D?a. ₱174,800 b. ₱244,700 c. ₱131,100 d. ₱349,500

20. Refer to Versatile Company. Using sales value at split-off, what amount of joint processing cost is allocated to Product C?a. ₱443,300 b. ₱227,600 c. ₱110,800 d. ₱118,200

21. Refer to Versatile Company. Using net realizable value at split-off, what amount of joint processing cost is allocated to Product E?a. ₱101,700 b. ₱155,000 c. ₱217,000 d. ₱426,300

Partnership22. On March 1, 2015, Jose and Kiko decide to combine their business to form a partnership. Their

balance sheets prior to any formation showed the following figures: Jose Kiko

Cash ₱ 18,000 ₱ 7,500Accounts Receivable 37,000 27,000Inventories 60,000 39,000Furniture and Fixtures, net 60,000 18,000Office Equipment, net 23,000 5,500Prepaid Expenses 12,750 6,000 Total ₱ 210,750 ₱ 103,000

Accounts Payable 91,500 36,000CapitalTotal

119,250 ₱ 210,750

67,000 ₱ 103,000

They agreed with the following terms and conditions: Two percent uncollectibility charges. Revaluation of furniture and fixtures: Jose, value set at ₱62,000 and Kiko, correction of

depreciation at ₱500. Acceptance of ₱2,000 as rent expense for Jose and claims voucher for salary amounting to

₱1,600 for Kiko. Value the inventories at market price for Jose of ₱59,000 and Kiko of ₱42,000.

The net (debit) credit adjustment to partner’s capital accounts are:Jose Kiko

a. (₱5,740) (₱5,640)b. ₱3,740 ₱5,640c. ₱1,740 (₱360)d. (₱1,740) ₱360



23. Total liabilities after formationa. ₱129,100 b. ₱127,500 c. ₱131,100 d. ₱127,900

24. Total assets after formationa. ₱315,970 b. ₱313,750 c. ₱321,530 d. ₱305,970

25. Mr. PP and Ms. KK are partners in a construction business located in Tabuk City. The profit and loss agreement contains the following provisions:1) Salaries of ₱35,000 and ₱40,000 for PP and KK, respectively.2) A bonus to PP equal to 10% of net income after the bonus.3) Interest on weighted average capital at the rate of 8%. Annual drawings in excess of ₱20,000 are

considered to be a reduction of capital for purposes of this calculation.4) Profit and loss percentage of 40% and 60% for PP and KK, respectively.

Capital and drawing activity of the partners for the year 2014 are as follows: PP Capital PP Drawing KK Capital KK Drawing Beginning balance ₱120,000 ₱ 0 ₱ 60,000 ₱ 0April 1 20,000June 1 15,000 20,000September 1 30,000November 1 15,000 40,000Ending balance ₱170,000 ₱30,000 ₱100,000 ₱20,000

Assuming net income for 2015 of ₱132,000 before any allocations, how much profit should beallocated to Mr. PP?a. ₱69,660 b. ₱69,747 c. ₱72,774 d. ₱69,774

26. The statement of financial position as of September 30, 2015, for the partnership of D, E and F shows the following information:

Assets ₱360,000 D, loan P20,000D, capital 83,000E, capital 77,000

Total . ₱360,000

F, capitalTotal

180,000 P360,000

It was agreed among the partners that D retires from the partnership, and it was also further agreed that the assets should be adjusted to their fair value of ₱345,000 as of September 30, 2015. Net loss prior to the retirement of D amount to ₱70,000. The partnership is to pay D ₱62,000 cash for D’s partnership interest, which would include the payment of his loan. No goodwill is to be recorded. D, E and F share profit 40%, 15% and 45% respectively. After D’s retirement, how much would F’s capital balance be?a. ₱66,000 b. ₱147,000 c. ₱136,500 d. ₱185,250

27. On June 30, 2015, the Dwayne, Wade, and Mark partnership had the following fiscal year-end statement of financial position:

Cash ₱40,000 Accounts payable ₱70,000Accounts receivable 60,000 Loan from Wade 50,000Inventory 140,000 Dwayne, capital(20%) 140,000Plant assets-net 120,000 Wade, capital(30%) 100,000Loan to DwayneTotal assets

60,000 ₱420,000

Mark, capital(50%)Total liab./equity

60,000 ₱420,000

The percentages shown are the residual profit and loss sharing ratios. The partners dissolved the partnership on July 1, 2015, and began the liquidation process. During July the following events occurred: Receivables of ₱30,000 were collected. The inventory was sold for ₱40,000. All available cash was distributed on July 31, except for ₱20,000 that was set aside for contingent

expenses.

The book value of the partnership equity (i.e., total equity of the partners) on June 30, 2015 is a. ₱600,000. b. ₱290,000. c. ₱300,000. d. ₱420,000.

28. The cash available for distribution to the partners on July 31, 2014 isa. ₱ 20,000. b. ₱ 40,000. c. ₱ 70,000. d. ₱110,000.

29. How much cash would Wade receive from the cash that is available for distribution on July 31? a. ₱ 0. b. ₱ 6,000. c. ₱10,000. d. ₱20,000.

Decentralized Operation: Home Office, Branch and Agency30. Gang Company had an agency in La Trinidad City which was established in July 2015. Upon

establishment, the home office sent samples costing ₱15,000 and ₱5,000 working fund to be maintained on an imprest basis. For that month, the sales agency forwarded sales orders to the home office (all of which were filed by the home office) with a billed price of ₱100,000. ₱70,000 of the sales was already collected. Also during that month the agency paid expenses of ₱8,000 but only ₱5,000 was reimbursed by the home office.

On July 31, 2015, the samples were already valued at ₱8,000. Gross profit of the company isestimated at 20% based on sales.



What is the net income of the sales agency for the month ended July 31, 2015?a. ₱12,000 b. ₱5,000 c. ₱8,000 d. ₱6,000

The following two questions are based on the following information:31. The following information were taken from the books of Clark Company and its branch. The balances

at December 31, 2015 follow: Home Office Branch

Sales ₱400,000Expenses 100,000Shipment to branch ₱200,000 Allowance for overvaluation 57,500

The branch acquired all of its merchandise from the home office. The home office ships the merchandise at 125% of cost. The ending inventory of the branch is ₱40,000 at billed price.

The beginning inventory of the branch at billed price isa. ₱30,000 b. ₱37,500 c. ₱22,500 d. ₱32,500

32. The true net income of the branch isa. ₱54,625 b. ₱102,000 c. ₱112,000 d. not given

The following two questions are based on the following information:33. The following were found in your examination of the inter-branch accounts between the Home Office

and Bakun Branch:a. Transfer of fixed assets from home office in the amount of ₱53,960 was not recorded by the

Bakun Branch.b. ₱10,000 covering marketing expenses of the Buguias Branch was charged by the Home Office to

the Bakun Branchc. Bakun Branch recorded a debit note on inventory transfers from Home Office of ₱75,000 twice.d. Home Office recorded a cash transfer of ₱65,700 from the Bakun Branch as coming from the

Davao Branch.e. Bakun Branch reversed a previous debit memo from Atok Branch amounting to ₱10,500, which

the home office decided that it is appropriately Buguias Branch’s cost.f. Bakun Branch recorded a debit memo from Home Office of ₱4,650 as ₱4,560.

Before the above discrepancies were given effect, the balance in the Home Office books of the Bakun Branch Current Account was ₱165,920. The unadjusted balance in Bakun Branch’s books of its Home Office Current Account must bea. ₱92,336 b. ₱104,500 c. ₱98,230 d. ₱111,170

34. The adjusted balance of the reciprocal account isa. ₱84,807 b. ₱90,220 c. ₱99,200 d. ₱109,120

Installment Sales AccountingThe following two questions are based on the following information:35. Vhong Corp. reported the following accounts for the year just ended:

Collection from installment sales of 2015 ₱ 210,000Collections from installment sales of 2014 560,000Deferred gross profit, 2014 350,000Deferred gross profit, 2015 840,000Regular sales 1,400,000Cost of regular sales 1,050,000

The gross profit rate on installment sales was 10% higher than regular sales. For 2015, the gross profit on installment sales was 3% lower than in 2014.

In computing the realized gross profit from collections of 2014 installment sales, the applicable gross profit rate wasa. 28% b. 38% c. 35% d. 32%

36. The total realized gross profit in 2015 isa. ₱252,700 b. ₱286,300 c. ₱602,700 d. ₱636,300

The following two questions are based on the following information:37. Sansu Company sold computer equipment by giving a trade discount of 10% to all its customers. On

May 1, 2015, five units of computer with a total list price of ₱100,000 and total cost of ₱59,800 were sold to Mr. Wadwadan, Sansu Company accepted used computer as trade in and granted an allowance of ₱10,000, the current market value of the computer is ₱12,000. The balance was payable as follows: 20% of the balance paid at the time of sale; the rest is payable in 10 months starting in June 1, 2015. After 6 months of paying, Mr. Wadwadan defaulted in the payment of December 1, 2015. The five units of computer equipment were repossessed and it would require ₱2,000 reconditioning cost for each computer before it could be resold for ₱6,000 each. A 15% gross profit rate was normal from the sale of used equipment. Operating expenses amounted to ₱5,380.

What is the realized gross profit for 2015?a. ₱23,240 b. ₱23,340 c. ₱19,040 d. ₱19,540

38. What is the net income for 2015?a. ₱16,720 b. ₱18,720 c. ₱17,860 d. ₱26,720



39. On October 1, 2014, Mario Corporation, a real estate developer, sold land to Diego Company for₱5,000,000. Diego paid cash of ₱600,000 and signed a ten-year ₱4,400,000 note bearing interest at 12%. The carrying amount of the land was ₱4,000,000 on the date of sale. The note was payable in forty quarterly principal installments of ₱110,000 beginning January 2, 2015. Mario appropriately accounts for the sale under the cost recovery method. On January 2, 2015, Diego paid the first principal installment of ₱110,000 and interest of ₱132,000.

For the year ended December 31, 2015, what total amount of income should Mario recognize from the land sale and the financing?a. ₱309,640 b. ₱508,200 c. ₱208,000 d. Nil

Long-Term Construction Contract40. A construction contractor builds a home under a contract with a fixed price of ₱1,000,000. The

contractor incurred contract costs of ₱10,000, ₱890,000 and ₱200,000 in 2013, 2014 and 2015 respectively. At the end of 2013 the outcome of the transaction cannot be estimated reliably however it is probable that the costs incurred in 2013 will be recoverable. At the end of 2014 the contractor can estimate the outcome of the contract reliably and estimates costs to complete the contract at₱200,000. The contract was completed in 2015.

The contractor determines the stage of completion of the construction contract by reference to the proportion that costs incurred for work performed to date bear to the estimated total costs. In 2014 the contractor must:a. Recognize contract revenue of ₱818,182 and contract costs of ₱900,000.b. Recognize contract revenue of ₱808,182 and contract costs of ₱890,000.c. Recognize contract revenue of ₱808,182 and contract costs of ₱908,182.d. Recognize contract revenue of ₱808,182 and contract costs of ₱900,000.

41. A construction contractor builds a home under a contract with a fixed price of ₱1,000,000. The contractor incurred contract costs of ₱200,000, ₱400,000 and ₱100,000 in 2013, 2014 and 2015 respectively. At the end of 2013 the contractor estimated (with sufficient reliability) the future costs to complete the contract as ₱400,000. At the end of 2014 the contractor estimated (with sufficient reliability) the future costs to complete the contract as ₱150,000. The contract was completed in 2015.

The contractor determines the stage of completion of the construction contract by reference to the proportion that costs incurred for work performed to date bear to the estimated total costs.

The contractor must recognize contract revenue at:a. ₱333,333 in 2013, ₱466,667 in 2014 and ₱200,000 in 2015.b. ₱1,000,000 in 2013, ₱0 in both 2014 and 2015.c. ₱0 in both 2013 and 2014 and ₱1,000,000 in 2015.d. ₱333,333 in 2013, ₱333,333 in 2014 and ₱333,333 in 2015.

42. Using the data in the previous question and assume that contract costs incurred at the end of 2014 included ₱50,000 prepaid wages. The contractor must recognize contract revenue at:a. ₱333,333 in 2013, ₱466,667 in 2014 and ₱200,000 in 2015.b. ₱333,333 in 2013, ₱400,000 in 2014 and ₱266,667 in 2015.c. ₱0 in 2013 and 2014 and ₱1,000,000 in 2015.d. ₱333,333 in 2013, ₱333,333 in 2014 and ₱333,333 in 2015.

The following three questions are based on the following information:On July 1, 2014, Pastillas Construction, Inc. contracted to build an office building for Yemma Inc. for a total contract price of ₱2,437,500. Data for the construction period are:

2014 2015 2016Cost incurred to dateEstimated costs to complete the project

₱ 187,5001,687,500

₱1,500,0001,000,000

₱2,625,000

Contract billings to Yemma 375,000 1,375,000 687,50043. Using the Percentage of Completion method, what is the balance of the Construction in Progress

account net of billings on December 31, 2015?a. ₱287,500 due from c. ₱312,500, current assetb. ₱287,500 due to d. ₱312,500, current liability

44. Using the Zero Profit method, what is the balance of the Construction in Progress account net of billings on December 31, 2014?a. ₱62,500 due from c. ₱187,500, current assetb. ₱62,500 due to d. ₱187,500, current liability

45. Using the percentage of completion method, what is the realized gross profit (loss) in 2016? a. ₱125,000 b. ₱187,500 c. ₱(125,000) d. ₱(187,500)

1The whole amount of the loss is recognized immediately, regardless of the percentage of completion.

2014 2015 2016Contract price ₱ 2,437,500 ₱ 2,437,500 ₱ 2,437,500Cost incurred to date 187,500 1,500,000 2,625,000Estimated cost to complete 1,687,500 1,000,000 0 Estimated gross profit 562,500 (62,500) (187,500)Multiply: % of completion 10% 100%1 100% Gross profit to date 56,250 (62,500) (187,500)Less: Gross profit recognized in previous year 0 56,250 (62,500) Gross profit this year ₱ 56,250 ₱ (118,750) ₱ (125,000)



Franchise Accounting46. On April 1, 2015, Rhady Rems Enterprises entered into a franchise agreement with San Jose

Manufacturing Company to sell their products. The agreement provides for an initial franchise fee of₱4,375,000, payable as follows: Upon signing the contract, ₱1,225,000 and balance in five equal payments every December 31, starting December 31, 2015. Rhady Rems signs a 10% interest bearing note for the balance. The agreement further provides that the franchisee must pay a continuing franchise fee equal to 5% of its monthly gross sales. On September 30, the franchisor completed the initial services required in the contract at a cost of ₱2,756,250 and incurred indirect costs of ₱180,000. The business started on October 2, 2015. The gross sales reported by Rhady Rems are October, ₱370,000; November, ₱423,500 and December, ₱516,500. The first installment was made on due date. Assuming collection is not reasonably assured, the reported net income will be:a. ₱808,100 b. ₱886,850 c. ₱988,100 d. ₱686,350

The following two questions are based on the following information:47. On January 1, 2015, DENIECE Co. granted franchise right to CEDRIC, Inc. for a non-refundable initial

franchise fee of ₱400,000, of which 20% was collected upon signing of the contract and the remaining 80% is represented by a note receivable in 4 equal annual installments starting December 31, 2015. The prevailing rate of interest on January 1, 2015 is 12%.

All of the initial services and conditions required under the franchise agreement were substantially performed and satisfied on March 1, 2015.

On July 1, 2015, CEDRIC, Inc. decided not to pursue the franchise business. Accordingly, DENIECE Co. repossessed the franchise and refunded 50% of collections received. The remaining balance of the note is forfeited. How much franchise revenue is recognized in 2015?a. ₱322,988 b. ₱162,988 c. ₱80,000 d. Nil

48. On July 1, 2015, CEDRIC, Inc. decided not to pursue the franchise business. Accordingly, DENIECE Co. repossessed the franchise. No refund was made of the collections received. The remaining balance of the note is forfeited. How much franchise revenue is recognized in 2015?a. ₱322,988 b. ₱162,988 c. ₱80,000 d. Nil

Corporate Liquidation49. Van Kraft Company recently petitioned for bankruptcy and is now in the process of preparing a

statement of affairs. The carrying values and estimated fair values of the assets of Van Kraft Company are as follows:

Carrying Value Fair ValueCash ₱ 200,000 ₱ 200,000Accounts Receivable 450,000 300,000Inventory 600,000 350,000Land 750,000 700,000Building (net) 1,800,000 1,000,000Equipment (net) 1,700,000 800,000

Debts of Van Kraft are as follows: Accounts payable ₱ 600,000Wages Payable (all have priority) 100,000Taxes Payable 100,000Notes Payable (secured by receivables and inventory) 1,200,000Interest on Notes Payable 60,000Bonds Payable (secured by land and building) 1,500,000Interest on Bonds Payable 70,000

Based on the preceding information, what is the total amount of unsecured claims?a. ₱1,130,000 b. ₱1,260,000 c. ₱930,000 d. ₱1,210,000

50. Based on the preceding information, what estimated amount will be available for general unsecured creditors upon liquidation?a. ₱280,000 b. ₱930,000 c. ₱1,130,000 d. ₱1,210,000

51. Based on the preceding information, what is the estimated dividend percentage?a. 23 percent b. 93 percent c. 77 percent d. 68 percent

Joint Arrangements and Investment in Associate52. The Blooming Company and The Crush Ko Tuloy Company own 60% and 40% respectively of the

equity of The Mabait Company. Blooming and Crush Ko Tuloy have signed an agreement whereby all the strategic decisions in respect of Mabait are to be taken with the agreement of them both. Are the following statements true or false, according to PAS27 Separate financial statements, PFRS 10 Consolidated financial statements, PFRS 11 Joint arrangements, PAS28 Investments in associates and joint ventures?(1) Blooming should classify its investment in Mabait as an investment in a subsidiary.(2) Crush Ko Tuloy should classify its investment in Mabait as an investment in an associate.

Statement (1) Statement (2)a. False Falseb. False Truec. True Falsed. True True



53. The requirement to have unanimous consent ensures that in a joint arrangement, no single party controls the arrangement. A party with joint control of an arrangement can prevent any of the other parties, or a group of the parties, from controlling the arrangement. In some cases, a contractual arrangement may require a minimum proportion of the voting rights to make decisions. Consider the following information:

Minimum voting requirement75% vote to direct relevant activities

Party A 50%Party B 25%Party C 25%

Using the above information, which of the following statements is correct?a. There is no joint control since the parties have no equal votes.b. There is a joint control between A, B and C.c. There is a joint control by A and B since their combined votes meets the requirement.d. There is no joint control by A B, and C since there multiple combinations of parties could

collectively control the arrangement

54. A, B and C enter into a joint arrangement to conduct an activity in entity Z. The contractual agreement between A and B states that they must agree to direct all of the activities of Z. The agreement of C is not required, except that C has the right to veto the issuance of debt or equity instruments by Z. The ability to veto the issuance of equity and debt instruments is deemed a protective right because the right is designed to protect C's interest without giving C the ability to direct the activities that most significantly affect Z's returns.

Based on PFRS 11 Joint Arrangements, which of the following is correct?a. Entity A, B and C has a joint control over entity Z.b. Entity A and B has joint control over entity Z but Entity C has a control to entity A and B.c. Entity A and B has joint control over entity Z.d. There is no joint control in this arrangement.

Use PFRS for SME to answer the next two questions:55. On December 31, 2013 Entity A acquired 30 per cent of the ordinary shares that carry voting rights of

entity B for ₱100,000. Entity A incurred transaction costs of ₱1,000 in acquiring these shares.

Entity A has significant influence over entity B. Entity A uses the cost model to account for its investments in associates.

In January 2014 Entity B declared and paid a dividend of ₱20,000 out of profits earned in 2013. Nofurther dividends were paid in 2014, 2015 or 2016.

A published price quotation does not exist for entity B. At December 31, 2013, 2014 and 2015, in accordance with Section 27 Impairment of Assets, management assessed the fair values of its investment in entity B as ₱102,000, ₱110,000 and ₱90,000 respectively. Costs to sell are estimated at ₱4,000 throughout. Entity A measures its investment in entity B on December 31, 2013, 2014 and 2015 respectively at:a. ₱100,000, ₱100,000, ₱100,000. c. ₱95,000, ₱95,000, ₱86,000.b. ₱98,000, ₱106,000, ₱86,000. d. ₱98,000, ₱101,000, ₱86,000.

56. The facts are the same as in the previous number. However, , a published price quotation exists for entity B. Entity A measures its investment in entity B on December 31, 2013, 2014 and 2015 respectively at:a. ₱100,000, ₱100,000, ₱100,000. c. ₱98,000, ₱106,000, ₱86,000.b. ₱98,000, ₱101,000, ₱86,000. d. ₱102,000, ₱110,000, ₱90,000.

Business Combination & Consolidation of FS57. A condensed statement of financial position at July 1, 2015 and the related current fair value data for

Dyosko Company are presented below: Carrying value Fair value

Current assets ₱ 736,000 ₱ 809,000Property and equipment 1,185,000 1,380,000Patent 117,000 96,000Total assets ₱ 2,038,000 112,000

Current liabilities ₱ 215,000 ₱ 215,000Non-current liabilities 560,000 595,000Share capital, ₱20 par value 420,000Accumulated profitsTotal liabilities and shareholder’s equity

843,000 ₱ 2,038,000

On August 1, 2015, Omaygad Corporation issued 17,800 shares of its ₱29 par value ordinary shares(fair value, ₱45 per share) and ₱502,000 cash for the net assets of Dyosko Company. Of the₱465,000 acquisition related costs paid by Omaygad Corporation on August 1, 2015, ₱80,000 wereshare issuance cost.

Assuming that Dyosko and Omaygad is a SME, how much is the goodwill (gain on acquisition) to be recorded by Omaygad Corporation?a. ₱213,000 b. ₱(213,000) c. ₱(172,000) d. ₱172,000



Use the following data to answer the next two questions:58. Entity A owns a 60 per cent voting interest in Entity B. Entity B owns a 70 per cent voting interest in

Entity C. How should Entity A account for its investment in Entity C in its consolidated financial statements?a. Consolidate Entity C.b. Account for its investment in Entity C using the equity method.c. Account for its investment in Entity C using the policy it has adopted to account for associates.d. Account for its investment in Entity C using fair value.

59. Determine the appropriate percentage for the attribution of post-acquisition increases in Entity C’s equity to Entity A.a. 70 per cent. b. 60 per cent. c. 42 per cent. d. 130 per cent.

60. Entity A owns a 60 per cent voting interest in Entity B and a 10 per cent voting interest in Entity C. Entity B owns a 50 per cent voting interest in Entity C. How should Entity A account for its investment in Entity C in its consolidated financial statements?a. As a subsidiary, because Entity A controls Entity C.b. As an associate.c. As an associate, if significant influence can be ascertained.d. As a joint venture.

61. The following amounts of profit after tax relate to the Alpha group of entities:Alpha Inc. ₱ 1,500,000Beta Inc. 400,000Charlie Inc. 250,000Delta Inc. 600,000Echo Inc. 800,000

Alpha Inc. owns 75 percent of the voting power in Beta Inc. and 30 percent of the voting power in Charlie Inc.

Beta Inc. also owns 30 percent of the voting power in Charlie Inc. and 25 percent of the voting power in Echo Inc.

Charlie Inc. owns 40 percent of the voting power in Delta Inc.

Which of the following is correct?a. Beta Inc. and Charlie Inc. are both subsidiaries of Alpha Incb. Beta Inc. is the only subsidiary of Alpha Inc.c. Charlie Inc. and Echo Inc. are deemed to be associates of Beta Inc.d. Delta Inc. is deemed to be an associate of Charlie Inc.

62. Duterte owns 100 per cent voting interest in ordinary shares that carry voting rights at a general meeting of shareholders of Duderte. Duderte sold inventory to Duterte (at a markup of 25 per cent on cost) for ₱125,000. Duterte is still holding the inventory at the end of its accounting period. At what amount should the cost of the inventory be measured in the group’s consolidated financial statements?a. ₱125,000 b. ₱100,000 c. ₱75,000 d. ₱150,000

63. The Man Company owns 65% of The Manny Company. On the last day of the accounting period Manny sold to Man a non-current asset for ₱200,000. The asset originally cost ₱500,000 and at the end of the reporting period its carrying amount in Manny's books was ₱160,000. The group's consolidated statement of financial position has been drafted without any adjustments in relation to this non-current asset. Under PFRS 10 Consolidated financial statements, what adjustments should be made to the consolidated statement of financial position figures for non-current assets and retained earnings?

Non-current assets Retained earnings Non-controlling interesta. Increase by ₱300,000 Increase by ₱195,000 Reduce by ₱40,000b. Reduce by ₱40,000 Reduce by ₱26,000 Reduce by ₱14,000c. Reduce by ₱40,000 Reduce by ₱40,000 Reduce by ₱14,000d. Increase by ₱300,000 Increase by ₱300,000 Reduce by ₱26,000

Foreign Exchange Accounting and Hyperinflation64. Vinz Corp. sold handicrafts goods to US firm for $100,000 in 2015. Pertinent information on exchange

rate follows: Buying Selling

Sept. 4, 2015Oct. 15, 2015

Receipt of order Date of shipment

₱45.8047.00

₱46.0048.00

Dec. 13, 2015 Date of balance sheet 47.20 48.50Jan. 6, 2016 Date of settlement 46.00 47.00

The sale would be appropriately recorded at:a. ₱4,700,000 b. ₱4,600,000 c. ₱4,580,000 d. ₱4,800,000



65. On December 31, 2015, a branch in Singapore submitted the following financial statement stated in the foreign currency:

Statement of Financial Position Income Statement and Retained EarningsMonetary assets $1,080,000 Sales $1,458,000Non-monetary assets 810,000 Expense 1,350,000 Monetary Liabilities 972,000 Net income $108,000Common stock 648,000 Retained earnings, beginning 162,000 Retained earnings, end 270,000 Retained earnings, end $ 270,000

The exchange rates are as follows:Current rate ₱50 Historical rate ₱46 Average rate ₱59

Assuming the current rate method was used and that the retained earnings on January 1, 2015 of the Singaporean Branch in Philippine Pesos is ₱1,790,000.

Translation gain or (loss) on December 31, 2015a. ₱5,630,000 b. ₱(5,630,000) c. ₱7,930,000 d. ₱(7,930,000)

66. On January 1, 2015 an entity purchased a tract of vacant land that is situated overseas for FCU90,000. The entity classified the land as an investment property. The fair value of the land at December 31, 2015 is FCU100,000. The entity’s functional currency is the Philippine peso (₱). Spot currency exchange rates: January 1, 2015: FCU1 = ₱2 Weighted average exchange rate in 2015: FCU1 = ₱2.04 December 31, 2015: FCU1 = ₱2.1.What is the carrying amount of the investment property at December 31, 2015 and what amount/s would be presented in profit or loss for the year ended December 31, 2015?a. Carrying amount of investment property = ₱210,000. Profit for the year includes ₱30,000

increase in the fair value of investment property.b. Carrying amount of investment property = ₱210,000. Profit for the year includes ₱20,400

increase in the fair value of investment property and ₱9,600 foreign exchange gain.c. Carrying amount of investment property = ₱180,000. Profit for the year includes no amount in

respect of the investment property.d. Carrying amount of investment property = ₱189,000. Profit for the year includes ₱9,000 foreign

exchange gain.

67. If the functional currency of an entity is that of a hyperinflationary economy, which of the following items are restated for the effects of general inflation (ie using a general price index)?a. Assets and liabilities linked by agreement to changes in prices.b. Assets and liabilities carried at fair value (fair value is determined at the end of the reporting

period).c. Non-monetary assets and non-monetary liabilities carried at cost (or cost less depreciation) and

all equity items.d. Monetary assets and monetary liabilities.

Use the following data to answer the next three questions:68. An entity was incorporated on December 31, 2014. It immediately issued equity instruments in

exchange for ₱1,000,000 cash. The entity did not enter into any other transactions in 2014 and 2015. The functional currency of the entity is the currency of a hyperinflationary economy. Inflation during 2015 is 40 per cent. In its financial statements at December 31, 2015 the entity must present cash at:a. ₱1,000,000 at December 31, 2015 and ₱1,000,000 at December 31, 2014.b. ₱1,000,000 at December 31, 2015 and ₱1,400,000 at December 31, 2014.c. ₱1,400,000 at December 31, 2015 and ₱1,000,000 at December 31, 2014.d. ₱1,400,000 at December 31, 2015 and ₱1,400,000 at December 31, 2014.

69. The gain or loss on the net monetary position for the year ended December 31, 2015 is: a. ₱400,000 loss.b. ₱400,000 gain.c. Zero.d. It is impossible to measure the amount of the gain or loss with the information provided.

70. Assume instead the entity received land (instead of cash) in exchange for the equity instruments issued. The entity classifies the land as property, plant and equipment. The gain or loss on the net monetary position for the year ended December 31, 2015 is:a. ₱400,000 loss. b. ₱400,000 gain.c. Zero.d. It is impossible to measure the amount of the gain or loss with the information provided.



Derivatives and Hedge Accounting71. On December 12, 2015, Ilocos Company entered two forward exchange contracts, each to purchase

1,000 euros in 90 days. The relevant exchange rates are as follows:Forward Rate for

Date Spot Rate

March 12, 2016

December 12, 2015 ₱88 ₱90December 31, 2015 98 93

Ilocos entered into the first forward contract to manage the foreign currency risk from a purchase of inventory in November 2015, payable in March 2016. At December 31, 2015, what amount of foreign exchange gain should Ilocos include in income from this forward contract?a. Nil b. ₱3,000 c. ₱5,000 d. ₱10,000

72. Ako Pow Company entered into a forward contract for speculation. On December 7, 2015, Ako Pow Company entered into a forward contract to purchase 48,000 FC (foreign currency) in 90 days. The relevant exchange rates are as follows:

Spot rate Forward rateDecember 7, 2015 ₱52.59 ₱52.65December 31, 2015 52.63 52.69March 7, 2016 52.70

At December 31, 2015, what amount of foreign exchange (forex) gain (loss) should Ako Pow Company include in the income statement from this forward contract?a. ₱(1,920) b. ₱1,920 c. ₱960 d. ₱(960)

73. The Murrie Company has hedged the cash flows relating to its interest rate risk by purchasing an interest rate cap. Interest rates have risen and the hedge has proved to be 90% effective based on the amount hedged. Additional interest charges up to the end of the financial year amount to₱240,000. In accordance with PFRS9 Financial instruments, what amount relating to the additional interest costs should be recognized in profit or loss?a. Nil b. ₱24,000 c. ₱216,000 d. ₱240,000

Government Accounting74. Which government body is responsible for the design, preparation and approval of accounting

systems of government agencies?a. Bureau of Treasury c. Department of Budget and Managementb. Commission on Audit d. Government Agencies

75. Once a government agency receives Notice of Cash Allocation (NCA), it shall debit “Cash – National Treasury” and credita. Subsidy income – Local Government c. Subsidy income – National Governmentb. NCA – Local Government d. NCA – National Government

76. A government agency issued a purchase order for the purchase of long-term office equipment’s. This should be taken up asa. A memo entry in the RAOCOb. A memo entry in the RAOMOc. Purchases xx

Accounts payable xxd. Office Equipment xx

Accounts payable xx

77. Which of the following would include in an entry to record the remittance of income taxes to the Bureau of Treasury (BTR) collected by the Bureau of Internal Revenue (BIR)? The BIR has no authority to use the collections.a. Debit to Cash – Collecting officer c. Debit to Cash – NT – MDSb. Credit to Cash – Collecting officer d. Credit to Cash – NT – MDS

78. Sept. Star issued purchase order for the acquisition of office equipment costing ₱300,000. The equipment was received with the charge invoice and was paid by check after withholding taxes of 10%. Sept. Star remitted a tax withheld to BIR thru a government depository bank.

What is the entry of Sept. Star to record the payment?a. Accounts payable

Cash – National Treasury – MDS270,000

270,000

b. Office EquipmentCash – National Treasury – MDS

300,000300,000

c. Office Equipment Due to BIR

300,00030,000

Cash – National Treasury – MDS 270,000

d. Accounts payable Due to BIR

300,00030,000

Cash – National Treasury – MDS 270,000

Not-for-Profit Organizations79. For Guiding Light, a nongovernment nonprofit religious organization, net assets that can be expended

in accordance with the wishes of the governing board of the organization shall be reported asa. Unrestricted c. Temporarily restrictedb. Permanently restricted d. Either unrestricted or temporarily restricted



80. On November 30, 2014, an alumnus of a private nonprofit high school contributed a certain amount to the school with the stipulation that the donation be used for faculty travel expenses in 2015. During 2015, the school spent the entire donation in accordance with the wishes of the donor. For the year ended December 31, 2015, what was the effect of the donation on unrestricted and temporarily restricted net assets?a. Increase in unrestricted net assets and decrease in temporarily restricted net assetsb. No effect on unrestricted net assets and decrease in temporarily restricted net assetsc. Increase in unrestricted net assets and no effect on temporarily restricted net assetsd. No effect on both unrestricted and temporarily restricted net assets

81. In April 2015, Delta Hospital purchased medicines from Field Pharmaceutical Co. at a cost of ₱50,000. However, Field notified Delta that the invoice was being canceled and that the medicines were being donated to Delta. Delta should record this donation of medicines as:a. A memorandum entry only.b. A ₱50,000 credit to nonoperating expenses.c. A ₱50,000 credit to operating expenses.d. Other operating revenue of ₱50,000.

82. Ellen’s Hospital, a Not for Profit hospital affiliated with a religious group, reported the following information for the year ended December 31, 2015:

Gross patient service revenue ₱2,400,000 Bad debts expense 50,000Contractual adjustments with third party payors 200,000 Charity care 150,000Allowance for discounts to hospital employees 90,000

Net patient service revenues for Ellen hospital for the year ended December 31, 2015 is a. ₱2,250,000 b. ₱2,110,000 c. ₱1,960,000 d. ₱1,910,000

83. Johnny College, a private not-for-profit college, received the following contributions during 2015:I. ₱1,250,000 from alumni for construction of a new wing on the science building to be constructed

in 2016.II. ₱250,000 from a donor who stipulated that the contribution be invested indefinitely and that the

earnings be used for scholarships. As of December 31, 2015, earnings from investment amounted to ₱12,500.

For the year ended December 31, 2015, what amount of these contributions should be reported as temporarily restricted revenues on the statement of activities?a. ₱12,5000 b. ₱1,262,500 c. ₱1,250,000 d. ₱1,512,500

84. Birdlovers, a community foundation, incurred ₱50,000 in management and general expenses during 2015. In Birdlovers' statement of activities for the year ended December 31, 2015, the ₱50,000 should be reported as:a. Part of program services. c. A contra account offsetting revenue and support.b. Part of supporting services. d. A direct reduction of fund balance.

PFRS 4 Insurance Contracts85. Which of the following types of insurance contracts would probably not be covered by PFRS 4?

a. Motor insurance. c. Life insurance.b. Medical insurance. d. Pension plan.

86. An entity should apply PFRS4 Insurance contracts to which of the following?a. Contingent consideration receivable in a business combinationb. Product warranties issued by an entity which is a manufacturerc. Employers' assets and liabilities under employment benefit plansd. Reinsurance contracts issued by the entity

87. An insurance contract can contain both deposit and insurance elements. An example might be a reinsurance contract where the cedent receives a repayment of the premiums at a future time if there are no claims under the contract. Effectively this constitutes a loan by the cedent that will be repaid in the future. PFRS 4 requires thata. Each payment by the cedent is accounted for as a loan advance and as a payment for insurance

cover.b. The insurance premium is accounted for as a revenue item in the income statement.c. The premium is accounted for under PAS 18.d. The premium paid is treated purely as a loan, and it is accounted for under PAS 39.

88. Entity A writes a single policy for ₱100,000 premium and expects claims to be made of ₱60,000 in 2017. At the time of writing the policy, there are commission costs of ₱20,000. Assume a discount rate of 3% risk-free. The entity says that is a provision for risk and uncertainty were to be made, it would amount to ₱25,000 and that the risk would expire evenly over years 2015, 2016 and 2017. Under the existing policies, the entity would spread the premiums, the claims expense and the commissioning costs over the first two years of the policy. Investment returns in years 2014 and 2015 are ₱2,000 and ₱4,000, respectively. What is the profit in year 2014 and 2015, using the matching and deferral approach in years 2014 and 2015?a. ₱12,000; ₱14,000 c. ₱10,000; ₱10,000b. ₱26,000; ₱0 d. ₱0; ₱26,000

“I can do all things through Christ who strengthens me.” (Philippians 4:13)

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Pampanga Practical Accounting 2 Preweek

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