ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

QUALIFYING EXAMINATION FOR INCOMING FOURTH YEAR

SUBJECT CODE: AFAR / SET A

Name: _____________________________________________ Raw Score: ______/______ = _____%

INSTRUCTIONS: Choose the correct answer. Shade the letter of your choice on the answer sheet
provided. Any alterations and/or erasures on the letter of your choice will invalidate your answer. Use only
pens with permanent black or blue ink. No need to show your computation but you can write it in the
blank provided (erasures are allowed in computation). Any sign of detached paper will STRICLY
invalidate your exam.

PROBLEM 1
MAGARANGKOTSHE Co. is a leading producer of an infamous luxury car in the world called
Colampaghen. MAGARANGKOTSHE’s factory has five departments with the following breakdown:

Servicing Departments Producing Departments

Interior
Personnel Maintenance Assembly Design Detailing
Cost
incurred 3,200,000.00 1,800,000.00 2,000,000.00 3,500,000.00 1,800,000.00

Services by
Personnel 10% 40% 30% 20%
Services by
Maintenance 15% 25% 25% 35%

1. Using the direct method in distributing the cost of servicing department, how much should be the
total cost allocated to Assembly department?
a. 3,951,633.99
b. 5,096,078.43
c. 3,810,000.00
d. 4,990,000.00

2. Using the step method in distributing the cost of servicing department, how much should be the
total cost allocated to Interior Design department?
a. 3,903,529.41
b. 5,803,529.41
c. 4,970,588.24
d. 3,858,823.53

3. Using reciprocal method, how much should be the cost to be distributed by the Personnel
Department?
a. 3,522,842.64
b. 2,152,284.26
c. 3,540,816.33
d. 3,200,000.00

4. Using reciprocal method, how much should be the cost to be allocated to Detailing?
a. 3,257,868.02
b. 3,947,208.12
c. 3,954,846.94
d. 3,262,091.84
PROBLEM 2
The GAYLOA Co. uses the installment method. The following information was taken from the incomplete
records of the GAYLOA Co.:

Installment Sales 15,000,000.00 16,000,000.00 ?

Cost of Sales ? ? ?
Gross Profit ? ? ?
GP Rates ? ? 35%
Collections:
2016 Sales 6,000,000.00 4,500,000.00 4,500,000.00
2017 Sales 6,400,000.00 4,800,000.00
2018 Sales 5,800,000.00
Realized Gross Profit 1,920,000.00 ? 4,910,000.00

Using the above information, compute the following

5. Gross profit rate for 2016 installment sales:

a. 30%
b. 32%
c. 35%
d. 40%

6. Gross profit rate for 2017 installment sales:

a. 30%
b. 32%
c. 35%
d. 40%

7. Cost of Sales of 2016 installment sales:

a. 9,425,000
b. 10,200,000
c. 11,200,000
d. 14,500,000

8. Cost of Sales of 2017 installment sales:

a. 9,425,000
b. 10,200,000
c. 11,200,000
d. 14,500,000

9. Cost of Sales of 2018 installment sales:

a. 9,425,000
b. 10,200,000
c. 11,200,000
d. 14,500,000

PROBLEM 3
MENDOZA Inc. awarded its Cebu franchise to LOZANO Co. for a total fee of 100,000. Of the said
amount, 50,000 was payable upon the signing of the agreement and the balance in two equal annual
payments. The contract provided that in the event the first year would result in an operating loss, the
franchising agreement may be cancelled. No services had so far been rendered.

10. The entry to record the granting of the Cebu franchise by MENDOZA Inc. to LOZANO Co. is as
follows:
a. Dr. Cash Php50,000
Dr. Notes Receivables Php50,000
Cr. Revenue from Franchise fee Php100,000
b. Dr. Cash Php50,000
Dr. Notes Receivables Php50,000
Cr. Unearned Franchise fee Php100,000
c. No Entry

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 d. Dr. Cash Php50,000
Dr. Notes Receivables Php50,000
Cr. Revenue from Franchise fee Php50,000
Cr. Unearned Franchise fee Php50,000
11. Franchise fees received upon contract signing shall be recognized as income by the franchisor
when the following conditions are met, EXCEPT:
a. Substantial performance required under the contract is done.
b. Period of refund for any amount received under the contract has expired.
c. Franchise operations have earned considerable income to defray franchising
expenses.
d. Collectability of any promissory note arising from the franchising agreement is reasonably
assured.

12. A partner’s drawing account is, in substance,

a. a capital account
b. a contra-capital account
c. a salary expense account
d. a loan account ( a loan from partnership)

13. Under the cost recovery method of revenue recognition (assuming properly disclosed in the notes
to FS).
a. Income is recognized immediately.
b. Income is recognized on a proportionate basis as the cash is received on the sale of the
product.
c. Income is recognized when cash received from sale of the product is lower than the cost
of the product.
d. Income is recognized when cash received from sale of the product is higher than
the cost of the product.

14. In partnership liquidation, the final cash distribution to the partners should be made in accordance
with
a. Partners’ profit and loss ratio
b. Remaining balances of the partners’ capital accounts
c. Ratio of capital contributions by the partners
d. Ratio of capital contributions less withdrawals by the partners

PROBLEM 4
DELOS SANTOS. General Manager of AB Corporation, provided the following information for
transactions that occurred during April.

 Raw materials purchased and requisitioned for products were Php84,000.

 Direct labor costs of Php78,000 were incurred.
 Actual factory overhead costs amounted to Php250,000.
 Applied conversion costs totaled Php340,000. This includes Php78,000 of direct labor.
 All units were completed.

15. How much is the balance of Finished goods account in April 30?
a. Php412,000 debit
b. Php424,000 debit
c. Php412,000 credit
d. Php424,000 credit

PROBLEM 5
JUAN and ELSENIQUE executed a partnership agreement that lists the following assets contributed:

JUAN ELSENIQUE
Cash 20,000.00 30,000.00
Inventory 15,000.00
Building 40,000.00
Furniture and Fixture 15,000.00

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 16. The building is subject to a mortgage of Php10,000, which the partnership assumed. The
partnership agreement also specified that profits and losses are to be divided equally. What
amounts should be recorded as capital for JUAN and ELSENIQUE at the formation of
partnership, respectively?
a. 35,000 ; 85,000
b. 35,000 ; 75,000
c. 60,000 ; 60,000
d. 55,000 ; 55,000

17. Using the information above, assuming the partnership did not assume the mortgage, the capital
of JUAN and ELSENIQUE, respectively will be?
a. 35,000 ; 85,000
b. 35,000 ; 75,000
c. 60,000 ; 60,000
d. 55,000 ; 55,000

18. Using the information above, assuming that the partners agree that their capital after formation
should be equal to their profit or loss ratio, the capital of JUAN and ELSENIQUE after formation
will be?
a. 35,000 ; 85,000
b. 35,000 ; 75,000
c. 60,000 ; 60,000
d. 55,000 ; 55,000

PROBLEM 6
During 2016, ANDIZ started work on a Php3,000,000 fixed construction contract. Any costs incurred are
expected to be recoverable. The accounting records disclosed the following data for the year ended
December 31, 2016:

Cost incurred 930,000

Estimated cost to complete 2,170,000
Progress billing 1,100,000

19. How much loss should ANDIZ have to recognize in 2016?

a. 100,000
b. -0-
c. 30,000
d. 270,000

PROBLEM 7
Spiral Restaurant sold a fine dining restaurant franchise to Circles Hotel. The sale agreement signed on
January 1, 2014 called for a Php875,000 down payment plus three Php437,500 annual payments every
December 31 (covered by a non-interest bearing note and collection is reasonably assured) representing
the value of initial franchise services rendered by Spiral restaurant. In addition, the agreement required
the franchise to pay 6% of its gross sales to the franchisor. The restaurant opened in July and its sales for
the year amounted to Php6,562,500. Assuming a 15% interest rate is appropriate. PV of P1 at 15% for
three periods is 2.28. No direct cost incurred for IFF.

20. How much is the franchisor’s total revenue for the year ended 2014 income statement?
a. 2,266,250
b. 2,415,875
c. 2,022,125
d. 2,403,405

PROBLEM 8
On September 1, 2016 MANANGKIL Inc. and HISTORIADOR Corp. each acquired 30% of the ordinary
shares that carry voting rights at a general meeting of shareholders of CADAGAT Co. for Php1,010,000
each excluding transaction cost of Php17,500. MANANGKIL Inc. and HISTORIADOR Corp. immediately
agreed to share control over CADAGAT Co.. For the year ended, December 31, 2016, CADAGAT Co.
recognized a profit of Php1,200,000. On December 30, 2016, CADAGAT Co declared and paid a

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dividend of Php150,000 for the year 2016. At December 31, 2016 the fair value of each venturers’
investment in CADAGAT Co. is Php1,065,000 and cost to sell of Php18,000. However, there is no
published price quotation for CADAGAT Co.
21. The amount of profit or loss to be recorded by MANANGKIL Inc. using fair value method:
a. 64,500
b. 82,000
c. 82,500
d. 100,000

22. On the books of MANANGKIL Inc. at December 31, 2016, the balance of Investment in Joint
Venture account using equity value method:
a. 1,047,000
b. 1,065,000
c. 1,325,000
d. 1,342,500

23. The amount of profit or loss to be recorded by HISTORIADOR Corp. using cost method:
a. 45,000
b. 62,500
c. 64,500
d. 82,000

PROBLEM 9
CARILLO Corp. has the following statement of financial position:

ASSETS LIABILITIES and SHAREHOLDERS' EQUITY

Cash 5,000.00 Note Payable (short-term) 128,000.00

Marketable Securities 38,000.00 Accounts Payable 105,000.00
Accounts Receivable 55,000.00 Accrued expenses 58,000.00
Inventory 65,000.00 Note Payable (long-term) 288,000.00
Prepaid Expenses 3,500.00 Share Capital 55,000.00
Land 150,000.00 Retained Earnings (deficit) (86,500.00)
Building 125,000.00
Equipment 98,000.00
Intangible Assets 8,000.00

Total Assets 547,500.00 Total Liabilities and SHE 547,500.00

 The note payable (short-term) is secured by the inventory and the note payable (long-term) is
secured by the land and building
 Marketable securities have an estimated appreciated value of Php40,000
 Only Php25,000 can be collected from accounts receivable
 Inventory can only be sold at Php58,800
 Estimated fair value of the land is Php255,000 and building is Php110,000 and the estimated fair
value of the equipment is Php68,500
 Administrative expenses of Php51,500 are estimated as liquidation expenses
 Salaries of Php22,000 and payroll taxes of Php13,000 are accrued
 Interest on the note payable (both short-term and long-term) is 8% has not been accrued
 Other non-cash assets not mentioned above are considered worthless

24. How much is the estimated deficiency?

a. 68,200
b. 49,980
c. 101,480
d. 100,680

25. How much is the estimated recovery percentage?

a. 51.08%
b. 65.42%
c. 75.91%
d. 51.28%

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 26. How much are the estimated recovery and estimated recovery percentage for partially secured
creditors
a. Php113,330 and 80.53%
b. Php99,378 and 71.89%
c. Php110,770 and 80.13%
d. Php99,537 and 72.00%

27. How much is the estimated recovery for unsecured creditors without priority?
a. 83,738
b. 97,165
c. 65,638
d. 65,382

PROBLEM 10
Adverse financial and operating circumstances warrant that SATURNO Company undergo a quasi-
reorganization o n December 31, 2016.
 Inventory with fair value of Php1,000,000 is currently recorded in the accounts at cost of
Php1,500,000
 Plant assets with a fair value of Php3,000,000 are currently recorded at Php4,000,000 net of
accumulated depreciation
 Unrecorded accounts payable amount to Php300,000
 Individual shareholders contribute Php1,500,000 to create additional-paid-in capital to facilitate
the reorganization. No new shares are issued to the shareholders.
 The par value of the share capital is reduced from Php100 to Php50
 Immediately before these events, the entity reported the following shareholders’ equity:
Share Capital, Php100 par value,50,000 shares 5,000,000
Share premium 500,000
Retained Earnings (2,000,000)

28. After the quasi-reorganization, what is the total shareholders’ equity?

a. 3,200,000
b. 2,500,000
c. 1,700,000
d. 1,000,000

PROBLEM 11
ROMBAOA Company produces four products from same process: AFAR, FAR, MAS and BLT. Joint
product costs are Php9,000.

Sales price Disposal cost Further Final sales

per barrel per barrel processing price
Barrels at split-off at split-off cost per barrel
AFAR 750 ₱ 10.00 ₱ 6.50 ₱ 2.00 ₱ 13.50
FAR 1,000 8.00 4.00 2.50 10.00
MAS 1,400 11.00 7.00 4.00 15.50
BLT 2,000 15.00 9.50 4.50 19.50

29. Using a physical measurement method, what amount of joint processing cost is allocated to
FAR? Round your answer to the nearest peso.
a. 1,311
b. 1,748
c. 2,447
d. 3,495

30. Refer to ROMBAOA Company. Using sales value at split-off, what amount of joint processing
cost is allocated to product AFAR? Round your answer to the nearest peso.
a. 4,433
b. 2,276
c. 1,182
d. 1,108

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31. Refer to ROMBAOA Company. Using net realizable value at split-off, what amount of joint
processing cost is allocated to product MAS? Round your answer to the nearest peso.
a. 1,017
b. 1,550
c. 2,170
d. 4,263

32. Dissolution of a partnership is the change in the relation of partners caused by any partner
ceasing to be associated in the carrying on. Which of the following is NOT an automatic cause of
dissolution of the partnership?
a. Death of a partner
b. Admission of a new partner
c. Incurring partnership loss
d. Retirement of a partner

- END -

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