CPA REVIEW SCHOOL OF THE PHILIPPINESM a n i l a

PRACTICAL ACCOUNTING PROBLEMS 11 Sunday, February 15, 2009 First Preboard Examination 3:00 p.m. to 5:00 p.m.

MULTIPLE CHOICE - MARK FULLY with Pencil No. 2 the letter of your choice on the answer sheet provided. Make the mark DARK but do not use too much pressure. ERASURES ARE STRICTLY NOT ALLOWED.

1. Aba, Baba and Caca decided to dissolve their partnership on May 31, 2009. On this date, their capital balances and profit-sharing percent were as follows

Aba P50,000 40%Baba 60,000 30%Caca 20,000 30%

The net income from January 1 to May 31, 2009 was P44,000. Also, on May 31, 2009, the partnership’s cash and liabilities, respectively, were P40,000 and P90,000. For Aba to receive P55,200 in full settlement of his interest in the partnership, how much must be realized from the sale of the partnership’s non-cash assets?

a. P 63,000 c. 81,000b. 211,000 d. 193,000

2. On May 1, 2009, the business assets of Oliver and Twist were as follows:

Oliver TwistCash P11,000 P22,354Accounts Receivable 234,536 567,890Inventories 120,035 260,102Land 603,000 -Building - 428,267Furniture and fixtures 50,345 34,789Other assets 2,000 3,600______________________________________________________________________Total P1,020,916 P1,317,002

Accounts payable P178,940 P243,650Notes payable 200,000 345,000Oliver, Capital 641,976 -Twist, Capital - 728,352_____________________________________________________________________Total P1,020,916 P1,317,002

Oliver and Twist agreed to form a partnership contributing their respective assets and equities subject to the following adjustments:

a. Accounts receivable of P20,000 in Oliver’s books and P35,000 in Twist’s books are uncollectibleb. Inventories of P5,500 and P6,700 are worthless in Oliver’s and Twist’s books respectively.

c. Other assets of P2,000 and P3,600 in the respective books of Oliver and Twist are to be written off

Peter offered to join for a 20% interest in the firm. How much cash should be contributeda. P330,870 c. P344,237b. P337,487 d. P324,382

3. Tom, a partner in TJ Partnership, has a 30% share in the partnership’s profit and loss. His capital account had a net decrease of P60,000 in year 2. In year 2, he withdrew P130,000 from the partnership against his capital and invested property, valued at P25,000, in the partnership. The net income of the partnership in year 2 is

a. P150,000 c. P350,000b. P233,333 d. P550,000

4. Mark and Michelle are partners with capitals of P200,000 and P100,000 and sharing profits and losses at 3:1 respectively. They decided to admit Michael as a new partner with a 50% interest in the firm. Michael invested cash of P150,000 and Mark and Michele transferred portions of capitals as a bonus to MMM. After Michael’s admission, Michelle capital would be

a. P37,500 c. P81,250b. P56,250 d. P100,000

5. Sunlight Co. Started operations on January 1, 2008, selling home appliances on instalment basis. For 2008 and 2009, the following information are available:

2008 2009Installment Sales P1,200,000 P1,500,000Cost of Installment sales 720,000 1,050,000Collections

For 2008 sales 630,000 450,000For 2009 sales 900,000

On January 6, 2010, an instalment sales account balance of 2008 was defaulted and the merchandise, with current market value of P15,000, was repossessed. The account balance defaulted was P24,000.

The balance of the unrealized gross profit account as at the end of 2009 wasa. 214,800 c. 275,000b. 228,000 d. 450,000

6. YAMAHO Motor Co. Sells both new and used cars. On October 1, 2005, a new car which cost P240,000, was sold for P330,000. A used car was accepted as down payment for a trade-in allowance of P120,000, the balance payable in fifteen equal monthly instalments starting November 1, 2005. The company anticipated a resale price of P140,000 on the used car after reconditioning costs of P15,000 (used car sales are set to yield a gross profit of 25%). During 2005, all instalments were collected. Assuming revenue is recognized by the instalment method of accounting, the total gross profit realized in 2005 is

a. P20,000 c. P43,450b. P23,600 d. P59,333

7. ABC Enterprises started operations on October 1, 2006. The following information are summarized for the first three months:

Installment Receivable, Dec. 31 P1,500,000Deferred gross profit, Dec. 31 unadjusted 1,050,000Gross profit on sales 25%

The realized gross profit on instalment sales during the first three months amounted toa. 675,000 c. 1,125,000b. 810,000 d. 1,350,000

8. Santos Co. Sells heavy duty batteries, which cost P7,000 at a total instalment price of P12,000. A regular customer buys a unit and trades in his old unit for an allowance of P2,500. Santos spends P250 to recondition each unit traded in and then sells them at P3,250 each. A profit of 20% results from the sale of used batteries. What was the trade-in over(under) allowance granted to the customer?

a. 150 over-allowance c. 500 over-allowanceb. 150 under allowance d. 500 under allowance

9. MOTOYAMA Motors, a dealer of motorcycles, sells exclusively on instalment basis. One of its customers, Mr. Sikat, purchased a motorcycle for P45,375. The cost to MOTOYAMA was P25,410. After making an initial payment of P6,050. MR. Sikat defaulted on subsequent payments. MOTOYAMA lost no time in repossessing the motorcycle which by this time, was appraised at a value of P12,650. MOTOYAMA had to incur additional cost of repair/remodelling of P1,650 before the motorcycle was subsequently resold for P27,400 to Mr. Laos who made an initial payment of P6,875. How much gross profit was realized on the sale to Mr. Laos?

a. 3,025 c. 3,575b. 3,300 d. 3,850

10. In October 2003, bids were submitted for a construction project to build a warehouse. The winning bid of P6,000,000 was submitted by Buy More Builders, Inc. The activities on this project are summarized below:

Year Cost incurred Estimated Progress Billings Cost to complete

2003 P1,350,000 P3,150,000 P1,500,0002004 2,100,000 1,150,000 2,800,0002005 1,400,000 - 1,700,000

Buy More Builders uses the cost-to-cost percentage of completion method of revenue recognition. The gross profit recognized in 2005 was

a. P100,000 c. P600,000b. P450,000 d. P1,150,000

Questions no 11 and 12 are based on the following information.Sigma Inc. Employs the cost-to-cost basis in determining the percentage of completion for revenue recognition. The company’s records show the following information on a recently completed project for a contract price of P5,000,000

2004 2005 2006Cost incurred to date P900,000 P2,550,000 ?Gross profit 100,000 350,000 (50,000)

11. How much was the estimated cost to complete the project at December 31, 2005?a. P1,500,000 c. P1,700,000b. P1,600,000 d. P1,800,000

12. How much was the actual cost incurred during the year 2006?a. P1,750,000 c. P2,050,000b. P1,900,000 d. P2,200,00

13. Alpha Co., uses the percentage of completion method. In May 2005, the company began work on a project that has a contract price of P5,000,000. At the end of 2—6, a summary of the company’s cost data follows:

2005 2006Cost incurred to date P1,125,000 P3,825,000Estimated cost to complete 3,375,000 1,275,000Total estimated cost P4,500,000 P5,100,00

In its income statement for the year 2006, the company would recognize a gross profit(loss) ofa. (P100,000) c. (P200,000)b. P125,000 d. (P225,000)

14. NTC entered into a franchising agreement with ZTE on June 30, 2006 for a franchise fee of P500,000, payable P100,000 on the agreement date and the balance in four equal annual instalments. Per agreement, the down payment is refundable in the event that the franchisor is unable to render certain stipulated services and, so far none have been rendered. In NTC’s June 30, 2006 financial statements, the franchise fee revenue to be reported is

a. P0 c. P400,000b. P100,000 d. P500,000

15. On September 1, 2008, Ace Enterprise, a franchisor, entered into a franchising agreement with Base Co. Charging Base a franchise fee of P1,000,000. Upon signing the contract, a non-refundable downpayment of P250,000 is paid with the balance payable in three equal annual instalments starting 2009. Ace had already performed 95% of the services as of February 1, 2009 at a total cost of P300,000. Ace was able to collect the first instalment in 2009 but the collectability of the remaining balance is still doubtful. In its 2009 income statement, Ace should recognize a profit (should be Revenue) of:

a. 350,000 c. 175,000b. 1,000,000 d. 250,000

Questions 16-17 are based on the following informationThe following were found in your examination of the inter-branch accounts between the Home Office and Butuan Branch:

a. Transfer of fixed assets from home office in the amount of P53,960 was not recorded by the Butuan Branch

b. P10,000 covering marketing expenses of the Davao Branch was charged by the Home Office to the Butuan Branch

c. Butuan Branch recorded a debit note on inventory transfers from Home Office of P75,000 twice.

d. Home Office recorded a cash transfer of P65,7000 from the Butuan Branch as coming from the Davao Branch

e. Butuan Branch reversed a previous debit memo from Cagayan de Oro Branch amounting to P10,500, which home office decided is appropriately Davao Branch’s cost

f. Butuan Branch recorded a debit memo from Home Office of P4,650 as P4,560.

16. Before the above discrepancies were given effect, the balance in the Home Office books of the Butuan Branch Current Account was P165,920. The unadjusted balance in Butuan Branch’s books of its Home Office Current Account must be

a. P92,336 c. P104,500b. P98,230 d. P111,170

17. The adjusted balance of the reciprocal account isa. P84,807 c. P99,200b. P90,220 d. P109,120

18. APC Marketing operates a branch in Makati. On October 31, 2005, the branch current account had a balance of P300,000. In the process of reconciling current accounts, the following items that follow were noted:

a. The home office had billed the branch P75,000 for merchandise shipment still in transit as of October 31.

b. The home office customer’s account for P21,000 collected by the branch on October 26 has not been reported to the home office.

c. The branch failed to recognize its 5,000 share of advertising expense paid for by the home officed. The branch reported a net income of P43,500 during the fiscal period then ended; this was erroneously

taken up as P45,500 by the home office

Assuming that all other transactions related to the home office and its branch are correctly recorded, the adjusted balance of the reciprocal current accounts as of October 31, 2005 was

a. P300,000 c. P319,000b. P314,000 d. P323,000

19. Ruby Co. Bills its branch for merchandise shipments at 25% above cost. The branch in turn sells merchandise at 33-1/3% above the billing price. On May 31, 2006, a fire destroyed all of the merchandise stock of the branch. The branch records show the following:

January 1 inventory, at billing price P 60,000Shipments from home office to May 31 240,000Sales 275,000Sales returns 25,000Sales allowances 5,000

The branch has a P100,000 fire insurance policy on its merchandise. The estimated cost of the merchandise stock burned was

a. P75,000 c. P90,000b. P78,000 d. P93,000

20. Bokia Ventures operates a branch in Cebu City. Selected accounts taken from the May 31, 2006 statements of Bokia and its branch follow:

Head Office BranchSales P380,000 P353,000Shipments to branch 150,000 -Branch merchandise markup 39,500 -Inventory, June 1, 2005 24,000 16,000Purchases 300,000 60,000Shipments from home office - 187,500Inventory, May 31, 2006 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 recognized by the home office is

a. P36,000 c. P37,100b. P36,700 d. P37,500

21. CITY Corporation started operating a branch on May 1, 2007 with a shipment of merchandise billed at P250,000. Additional shipments during the month were billed at P125,000. The branch returned damage merchandise worth P10,000. Inter-office shipments are billed uniformly at 125% of cost. On May 31, 2007, the branch reported a net loss of P52,500 and an inventory of P150,000. What is the branch net income (loss) reflected in the combined income statement for May, 2007?

a. (9,500) c. (52,500)b. 43,000 d. 95,500

22. Billy is the manager of the joint venture of BCD Ventures Inc., which they decided to liquidate. Before dissolution and liquidation, the following accounts appear in the books of Billy:

Debit CreditJoint venture 5,000Participant Cilly 12,000Participant Dilly 4,000

All the remaining merchandise and supplies of the joint venture were bought and paid by Billy for P11,000. The resulting income were shared equally by the participants. How is the joint venture’s income (loss)?

a. (P5,000) c. (6,000)b. 11,000 d. 6,000

Nos. 23 and 24 are based on the following informationOn October 1, 2005, C, P and A entered into a joint venture business. They were to market a special cellphone device. The venture profits and losses were to be shared into 5:5:2 ratio respectively. On Decmeber 31, 2005 while the joint venture is still uncompleted, the three participants decided to recognize the profits and losses for the three months period. The inventory is listed 25% above cost at P50,000. The joint venture account has a debit balance of P24,000. No separate books are maintained for the joint venture.

23. What was the joint venture profits (losses) for the three months period?a. P16,000 c. (24,000)b. 26,000 d. 13,500

24. What were the shares of C,P and A in the profits (losses)?a. (12,000) , (7,200) , (4,800) c. 13,000 , 7,800 , 5,200b. 8,000 , 4,800 , 3,200 d. 6,750 , 4,050, 2,700

25. On April 7, 2007, Steve Co. Paid P620,000 for all common stock of John Corp. In a transaction properly accounted under purchase method. The recorded assets and liabilities of John Corp. On April 1, 2007 are:

Cash P 60,000Inventory 180,000Property, plant and equipment 320,000 (net of accumulated depreciation P220,000) Goodwill 100,000Liabilities (120,000) Net Assets P540,000

On April 1, 2007, John’s inventory had a fair value of P150,000 and the property and equipment (net) had a fair value of P380,000. What is the amount of goodwill resulting from the business combination?

a. 150,000 c. 50,000b. 120,000 d. 20,000

Questions number 26 & 27 are based on the following informationOn July 1, 2007, the balance sheet of Maz and Da are as follows:

Maz Co. Da Co.Assets P4,000,000 P2,500,000Liabilities 1,500,000 800,000Capital stock, no par 2,000,000Capital stock, P100 par 1,000,000Additional paid in capital 700,000 300,000Retained earnings ( 200,000) 400,000

Maz Co. On this date, agreed to acquire all the assets and assume all the liabilities of Da Co. In exchange for shares of stock that it will issue. The stock of Maz Co. Is selling in the market at P50 per share. The assets of Da Co. Are to be appraised and Maz Co. Is to issue shares of its stock with a market value equal to that of the net assets transferred by Da Co. The value of the assets of Da Co., per appraisal, increased by P300,000.

26. On the assumption that the “purchase” method is applied, the total liabilities and stockholder’s equity of Maz Co. Reflecting the combination is:

a. 6,800,000 c. 6,200,000b. 6,500,000 d. 6,000,000

27. The capital stock reflecting the combination under purchase method is:a. 3,000,000 c. 3,500,000b. 3,300,000 d. 4,000,000

Question number 28 to 30 is based on the following situationSan Migz Corporation filed a bankruptcy petition on January 2009. On March 1, 2009, the trustee provided the following information about the corporation’s financial affairs:

Assets Book value Realizable ValueCash P40,000 P40,000Accounts receivable-net 200,000 150,000Inventories 300,000 140,000

Plant assets-net 500,000 560,000Total Assets P1,040,000

LiabilitiesLiabilities for priority claims P160,000Accounts payable-unsecured 300,000Notes payable, secured by

Accounts receivable 200,000Mortgage payable, secured by all

Plant assets 440,000Total Liabilities P1,100,000

28. The amount expected to be available for unsecured claims without prioritya. P300,000 c. P140,000b. 580,000 d. 310,000

29. The expected recovery percentage of unsecured creditors:a. 21.5% c. 41.5%b. 22.3% d. 40.0%

30. The estimated payment to creditorsa. P730,000 c. P770,000b. 45,000 d. 890,000

31. Justin Inc. Has forced into bankruptcy and has begun to liquidate. Unsecured claims will be paid at the rate of 40 cents on the peso. Kylie Co. Holds a non-interest bearing note receivable from Justin in the amount of P100,000, collateralized by equipment with a liquidation value of P25,000. The total amount to be realized by Kylie Co. On this note receivable is

a. P25,000 c. P55,000b. P40,000 d. P65,000

32. DKY company filed a voluntary bankruptcy petition on September 30, 2009 and the statement of affairs reflects the following amounts:

Book EstimatedCarrying amount Current Value

AssetsAssets pledged withFully secured creditors P910,000 P1,080,625Assets pledged with Partially secured creditor 511,875 341,250Free Assets 1,137,500 796,250

Liabilities

Liabilities with priority 113,750Fully secured creditors 739,375Partially secured creditors 568,750Unsecured creditors 1,478,750

Assume that the assets are converted into cash at the estimated current values and the business is liquidated. What total amount of cash should partially secured creditors receive?

a. 341,250 c. P477,750 b. P511,875 d. P568,750

33. The VGS Corp. is maintaining a branch in Makati. During the year, the home office shipped goods to the branch at a cost of P120,000. The branch submitted to the home office the following report summarizing its operations for the period ended December 31, 2009.

Sales (30% on account) P196,000Expenses (50% of which is unpaid) 50,000Purchases 25,000Shipments from home office 150,000Inventory, 1/1/2009 (30% from outsiders) 30,000Inventory, 12/31/2009 (40% from Home Office) 90,000Remittance to home office 60,000

The branch Cost of Sales and Net Income/Loss in as far as the home office is concerned are:a. 88,000 , 58,000 c. 88,000 , 54,000b. 92,000 , 54,000 d. 83,000 , 58,000

34. B1, B2 and B3 decided to form a partnership. B1 is to invest cash of P150,000 and a machinery originally costing P80,000 but has a market value of P45,000. B2 is to invest cash amounting to P120,000. While B3, whose family is engaged in computer dealership, is to invest three computer units with a regular price of P30,000 each but which cost their family’s business P20,000 for each unit. Partners agree to share profits according to their capital contribution. The capital balances of B1, B2 and B3 respectively upon formation are:

a. 230,000 / 120,000 / 60,000 c. 195,000 / 120,000 / 30,000b. 195,000 / 120,000 / 90,000 d. 230,000 / 120,000 / 90,000

35. The partnership agreement of A,B and C provides for the division of net income as follows:a. Y, who manages the partnership is to receive a salary of P16,500 monthlyb. Each partner is to be allowed interest at 15% on ending capitalc. Balance is to be divided 25:30:45

During 2009, A invested an additional P96,000 in the partnership. B made an additional investment of P60,000 and withdrew P90,000 and C withdrew P72,000. No other investments or withdrawals were made during 2009. On January 1, 2009, the capital balances were A P280,000, B, P300,000 and C, P170,000. Total capital at year-end was P975,000. What are the capital balances of A, B and C respectively at year-end?

a. 36,750, 214,920 , (20,670) c. 316,750 , 514,920 , 149,330 b. 412,750, 484,920 , 77,330 d. 398,750 , 412,500 , 87,250

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