CPA REVIEW SCHOOL OF THE PHILIPPINES Manila PRACTICAL ACCOUNTING PROBLEMS 11 First Preboard Examination Sunday, February 15,

2009 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 partnerships 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 partnerships non-cash assets? a. P 63,000 b. 211,000
Solution: Cash 40 Non-cash 180 44 = = = = = (224) = = Liabilities 90 4 a 50 18 3 b 60 13 3 c 20 13 10

c. 81,000 d. 193,000

Balance Adj Assets Adj Liabilities NI/NL Sale of Assets Liq. Expenses Pay Creditors Bal B4 Sett'nt

193

(12)

(9)

(9)

55

2. On May 1, 2009, the business assets of Oliver and Twist were as follows: Oliver Twist Cash P11,000 P22,354 Accounts Receivable 234,536 567,890 Inventories 120,035 260,102 Land 603,000 Building 428,267 Furniture and fixtures 50,345 34,789 Other assets 2,000 3,600 ______________________________________________________________________ Total P1,020,916 P1,317,002 Accounts payable P178,940 P243,650 Notes payable 200,000 345,000 Oliver, 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 Olivers books and P35,000 in Twists books are uncollectible b. Inventories of P5,500 and P6,700 are worthless in Olivers and Twists 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 contributed a. P330,870 c. P344,237 b. P337,487 d. P324,382
Solution: 80% O & T 20% P Total ICC 1,297,528 1,297,528 Ad'L Inv/With FCC 1,297,528 324,382 1,621,910 Bonus GW AC 1,297,528 324,382 1,621,910

3. Tom, a partner in TJ Partnership, has a 30% share in the partnerships 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. P350,000 b. P233,333 d. P550,000
Solution: Beg, assumed investment 30% of Net Income (Squeeze) End, should be zero Tom, Capital 60,000 25,000 130,000 45,000 Share of Tom Withdrawal Total NI 45,000 30% 150,000

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 Michaels admission, Michelle capital would be a. P37,500 c. P81,250 b. P56,250 d. P100,000
Solution: 50% Mark & Mich 50% Michael Total 3 1 Mark Mich ICC 300,000 150,000 450,000 FCC 200,000 100,000 300,000 Ad'L Inv/With Bonus (56,250) (18,750) (75,000) FCC 300,000 150,000 450,000 AC 143,750 81,250 225,000 Bonus (75,000) 75,000 GW AC 225,000 225,000 450,000

5. Sunlight Co. Started operations on January 1, 2008, selling home appliances on instalment basis. For 2008 and 2009, the following information are available: Installment Sales Cost of Installment sales Collections For 2008 sales For 2009 sales 2008 P1,200,000 720,000 630,000 2009 P1,500,000 1,050,000 450,000 900,000

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 was a. 214,800 c. 275,000 b. 228,000 d. 450,000
Solution: AR from sales of 2008 AR from sales of 2009 as of 2009 120 600 GPR 40% 30% DGP 48 180 228

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. P43,450 b. P23,600 d. P59,333
Solution: Sales Over/under allowance Net sales COS DGP 330,000 (30,000) 300,000 (240,000) 60,000 Cash NRV Collection 20% RGP 28,000 90,000 118,000 23,600

7. ABC Enterprises started operations on October 1, 2006. The following information are summarized for the first three months: Installment Receivable, Dec. 31 P1,500,000 Deferred gross profit, Dec. 31 unadjusted 1,050,000 Gross profit on sales 25% The realized gross profit on instalment sales during the first three months amounted to a. 675,000 c. 1,125,000 b. 810,000 d. 1,350,000
Solution: DGP 1,050,000 675,000 Req'd End (1500*25%) 375,000 RGP (Squeeze)

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-allowance b. 150 under allowance d. 500 under allowance
Solution: Trade allowance NRV of used batteries Over allowance 2,500 2,350 150 =(3250*80%)-250

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. 3,575 b. 3,300 d. 3,850
Solution: Gross Sales COS DGP Collection RGP 27,400 (14,300) 13,100

48% 6,875 3,300

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 Cost to complete Progress Billings

2003 2004 2005

P1,350,000 2,100,000 1,400,000

P3,150,000 1,150,000 -

P1,500,000 2,800,000 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. P600,000 b. P450,000 d. P1,150,000
Solution: RGP YTD 2005 RGP YTD 2004

1,150 1,050 100

=6000-1400-2100-1350 =((1350+2100)/(1350+2100+1150))*(6000-(1350+2100+1150))

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 companys records show the following information on a recently completed project for a contract price of P5,000,000 2004 2005 2006 Cost 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. P1,700,000 b. P1,600,000 d. P1,800,000
Solution: CIP YTD 2005 = 3,000 = % of Completion = 60% = % of Completion = 60% = RGP YTD 2005 450 CIP YTD 2005 3,000 Cost Incurred YTD 2005 2,550 Estimated Cost to Complete + + / / / / Cost Incurred YTD 2005 2,550 Contract Price 5,000 ETC 4,250 1,700

12. How much was the actual cost incurred during the year 2006? a. P1,750,000 c. P2,050,000 b. P1,900,000 d. P2,200,00
Solution: RGP YTD Contract Price Estimated Total Cost Cost Incurred YTD 2005 Cost Incurred 2006 400 5,000 4,600 2,550 2,050 =-50+50+100

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 26, a summary of the companys cost data follows: Cost incurred to date Estimated cost to complete Total estimated cost 2005 P1,125,000 3,375,000 P4,500,000 2006 P3,825,000 1,275,000 P5,100,00

In its income statement for the year 2006, the company would recognize a gross profit(loss) of a. (P100,000) c. (P200,000) b. P125,000 d. (P225,000)
Solution: RGP YTD 2006 RGP YTD 2005 RGP 2006 (100) =5000-5100 125 =(1125/4500)*(5000-4500) (225)

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 NTCs June 30, 2006 financial statements, the franchise fee revenue to be reported is a. P0 c. P400,000 b. 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. 175,000 b. 1,000,000 d. 250,000 Questions 16-17 are based on the following information The 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 Branchs 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 Branchs books of its Home Office Current Account must be a. P92,336 c. P104,500 b. P98,230 d. P111,170 17. The adjusted balance of the reciprocal account is a. P84,807 c. P99,200 b. P90,220 d. P109,120
Solution: Butuan Branch Act 165,920 10,000 65,700 90,220 b d c 75,000 90 90,220 e HO Account 111,170 53,960

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 customers 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 office d. 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. P319,000 b. P314,000 d. P323,000
Solution: Branch Act 300,000 21,000 2,000 319,000 d

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 Shipments from home office to May 31 Sales Sales returns Sales allowances P 60,000 240,000 275,000 25,000 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. P90,000 b. P78,000 d. P93,000
Solution: Beg Inventory Shipments from HO Sales Sales Returns 48,000 =60000/1.25 192,000 =240000/1.25 (165,000) =-275000/1.33333333333333/1.25 15,000 =25000/1.33333333333333/1.25 90,000 Sales Allowances are not added back because it does not involve actual movement in the Quantity of Physical Inventory (P1)

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 P380,000 150,000 39,500 24,000 300,000 28,000 Branch P353,000 16,000 60,000 187,500 20,700

Sales Shipments to branch Branch merchandise markup Inventory, June 1, 2005 Purchases Shipments from home office Inventory, May 31, 2006

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. P37,100 b. P36,700 d. P37,500
Solution: Amt BI Shipments CGAS EI COS 187,500 12,000 BP % 125% Amt 150,000 COST % 100% MarkUp Amt % 37,500 39,500 2,400 37,100 25%

25%

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
Solution: Amt BI Shipments CGAS EI COS 365,000 365,000 150,000 215,000 BP % 125% Amt COST % MarkUp Amt %

43,000 (52,500) (9,500)

25%

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: Joint venture Participant Cilly Participant Dilly Debit 5,000 Credit 12,000 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 ventures income (loss)? a. (P5,000) c. (6,000) b. 11,000 d. 6,000
Solution: JV Unadj NI 5,000 11,000 6,000 Unsold Merch

Nos. 23 and 24 are based on the following information On 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 , 5,200 b. 8,000 , 4,800 , 3,200 d. 6,750 , 4,050, 2,700
Solution: Cash Balance Adj Assets Adj Liabilities NI/NL Sale of Assets Liq. Expenses Pay Creditors Bal B4 Sett'nt Non-cash 40 = = = = = = = = Liabilities 5 c 3 p 2 a 10 jv (24) 40 3.2 (16)

8.0

4.8

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

On April 1, 2007, Johns 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. 50,000 b. 120,000 d. 20,000
Solution: Assets - Subs GW Liab-Subs Investment in Stock MI Bargain Purchase Gain # 590 150 120 620 -

Questions number 26 & 27 are based on the following information On July 1, 2007, the balance sheet of Maz and Da are as follows: Maz Co. Assets P4,000,000 Liabilities 1,500,000 Capital stock, no par 2,000,000 Capital stock, P100 par Additional paid in capital 700,000 Retained earnings ( 200,000)

Da Co. P2,500,000 800,000 1,000,000 300,000 400,000

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 stockholders equity of Maz Co. Reflecting the combination is: a. 6,800,000 c. 6,200,000 b. 6,500,000 d. 6,000,000 27. The capital stock reflecting the combination under purchase method is: a. 3,000,000 c. 3,500,000 b. 3,300,000 d. 4,000,000
Solution: Assets - Subs GW Liab-Subs C/S Bargain Purchase Gain # Maz Liab Maz SHE Acq entry Combined Bal 1,500 2,500 2,800 6,800 2,800 800 2,000 -

Maz Cap Acq entry

2,000 2,000 4,000

Question number 28 to 30 is based on the following situation San Migz Corporation filed a bankruptcy petition on January 2009. On March 1, 2009, the trustee provided the following information about the corporations financial affairs: Assets Cash Accounts receivable-net Inventories Book value P40,000 200,000 300,000 Realizable Value P40,000 150,000 140,000

Plant assets-net Total Assets Liabilities Liabilities for priority claims Accounts payable-unsecured Notes payable, secured by Accounts receivable Mortgage payable, secured by all Plant assets Total Liabilities

500,000 P1,040,000 P160,000 300,000 200,000 440,000 P1,100,000

560,000

28. The amount expected to be available for unsecured claims without priority a. P300,000 c. P140,000 b. 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 creditors a. P730,000 b. 45,000
Solution: APFSC-FSC Unpledged Assets Free Assets 120 40 140 300 = PSC-APPSC Unsec Cr Pr. Cr Unsec Cr Priority Cr Est Def 50 300 160 350 160 (210)

c. P770,000 d. 890,000

Available Assets Rec. Rate Estimated Payment

140 =300-160 40% =140/350 890 =150+160+440+(350*40%)

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. P55,000 b. P40,000 d. P65,000
Solution: PSC = APPSC + ((PSC-APPSC)*RR) 55 =25+((100-25)*40%)

32. DKY company filed a voluntary bankruptcy petition on September 30, 2009 and the statement of affairs reflects the following amounts: Book Carrying amount Assets Assets pledged with Fully secured creditors Assets pledged with Partially secured creditor Free Assets Liabilities P910,000 511,875 1,137,500 P1,080,625 341,250 796,250 Estimated Current Value

Liabilities with priority Fully secured creditors Partially secured creditors Unsecured creditors

113,750 739,375 568,750 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
Solution: APFSC-FSC Unpledged Assets Free Assets 341,250 796,250 1,137,500 Available Assets Rec. Rate PSC = PSC-APPSC Unsec Cr Pr. Cr Unsec Cr 227,500 1,478,750 1,706,250 Priority Cr Est Def

113,750 113,750

(682,500)

1,023,750 60% 477,750 PSC=APPSC+((PSC-APPSC)xRR) =341250+((568750-341250)*60%)

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) Expenses (50% of which is unpaid) Purchases Shipments from home office Inventory, 1/1/2009 (30% from outsiders) Inventory, 12/31/2009 (40% from Home Office) Remittance to home office P196,000 50,000 25,000 150,000 30,000 90,000 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 , 54,000 b. 92,000 , 54,000 d. 83,000 , 58,000
Solution: Amt BI Shipments CGAS EI COS BP % Amt 120 21 150 125% 171 36 135 COS from Outsider COST % MarkUp Amt %

108 (20) 88

Unadjusted NI

27 31 58

25%

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

Solution: B1 B2 B3 Total

ICC/FCC/AC 195 120 90 405 Irrelevant Capital Interest

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 monthly b. Each partner is to be allowed interest at 15% on ending capital c. 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) b. 412,750, 484,920 , 77,330
Solution: Salaries Interest Balance Beg Inv't Withdrwl End A 56 (20) 37 280 96 413

c. 316,750 , 514,920 , 149,330 d. 398,750 , 412,500 , 87,250

B 198 41 (24) 215 300 60 (90) 485 C 15 (35) (21) 170 (72) 77 Total 198 112 (79) 231 =975-280-300-170-96-60+90+72

975

E N D