Problem 1.

The balance sheet of PX and SV Corporations at year end 2007 are

summarized as follows:
PX Corporation
P8,750,000
2,625,000
4,375,000
1,750,000

Assets
Liabilities
Capital Stock
Retained Earnings

SV Corporation
P3,500,000
875,000
1,750,000
875,000

On January 1, 2008, PX corporation purchased 90% of SV Corporation outstanding

shares for P3,500,000 when the fair value of S Corporations assets was P3,850,000. If
a consolidated balance sheet is prepared immediately after the business combination,
the consolidated stockholders equity, will be
A.
P6,125,000
C. P6,510,000
B.
P6,422,500
D. P6,387,500

Problem 2. GHI Company is contemplating the purchase of 6,305 shares of the

outstanding stock of DEF Company which just prior to acquisition has the following
items in the balance sheet:
Cash
Inventory
Plant & equipment (net)
Patent

49,000
218,000
379,000
92,000

Current liabilities
Common stock, P12 par
Additional paid-in capital
Retained Earnings

173,000
116,400
148,000
300,600

GHI Company believes that the inventory has a market value of P197,000 and that the
plant and equipment is worth P391,000. Assuming the cost of investment is P359,750
and the acquisition is to be accounted for as a purchase. How much is the total
goodwill (income from acquisition) to be reported in the consolidated balance sheet?
A. P(196,250)
C. P196,250
B. P1,650
D. P(1,650)

Problem 3.
PJ CORPORATION AND SQ COMPANY
Balance Sheets
December 31, 2007
Assets
Cash
Inventories
Plant Assets (net)
Total Assets

PJ CORPORATION
P1,312,500
875,000
2,187,500
P4,375,000

Liabilities and Stockholders Equity

Current Liabilities
P 262,500
Common Stock, P100 par
437,500
APIC
1,312,500
Retained Earnings
2,362,500
Total Liabilities and Stockholders Equity
P4,375,000
* The Current fair market value on December 31, 2007 is P656,250.

SQ COMPANY
P43,750
87,500
306,250*
P437,500
P 43,750
43,750
87,500
262,500
P437,500

Assuming PJ Corporation acquired all the outstanding common stock of SS Company

for P700,000 cash, the amount of plant assets that should appear in the consolidated
balance sheet is.
A. P2,843,750
C. P2,493,750
B. P2,187,500
D. P 656,250

Problem 4. The Rockwell Company of Makati opened a branch at Cebu on January 1,

2008 to expand the market of its product. Merchandise shipped during 2008 to the
Cebu branch totaled P59,000, and this included a profit of 25% based on cost. At the
end of the year, the inventory was P6,000 at billed price. Sales on account, P72,500;
expenses, P16,500, of which P1,200 were unpaid on December 31, 2008; cash
received from customers on account, P40,000, after allowing cash discounts of P1,470;
cash remitted to the home office during the year, P33,000. What is the income or loss
of the branch during 2008 insofar as the home office is concerned?
A.
P13,600
C. P1,530
B.
P 3,000
D. P12,130

Problem 5. AX Company sold goods on installment. For the year just ended, the
following were reported:
Installment sales
P600,000
Account defaulted
P53,600
Cost of installment sales
405,000
Fair value of repossessed
Reconditioning cost
4,400
merchandise
30,400
What is the amount of loss on repossession?
A. P 5,870
B. P10,180

C. P5,780
D. P9,820

Problem 6. On January 2, 2008, RST Company signed an agreement to operate as a

franchisee of UVW Products, inc., for an initial franchise fee of P2,500,000 for 10 years.
Of this amount, P500,000 was paid when the agreement was signed and the balance
payable in four annual payments beginning on December 30, 2008. RST signed a noninterest bearing note for the balance. RSTs rating indicates that he can borrow money
at 24% for the loan of this type. Present value of an annuity of 1 for 4 periods at 24% is
2.40. Assume that substantial services amounting to P255,000 had already been
rendered by UVW Products and that additional indirect franchise cost of P68,000 was
also incurred. If the collection of the note is not reasonably assured, the realized gross
profit for the year ended December 31, 2007 is
A. P605,200
C. P537,200
B. P1,445,000
D. P1,377,000

Problem 7. X is trying to decide whether to accept a salary of P140,000 or a salary of

P87,500 plus a bonus of 10% of net income after salaries and bonus as a means of
allocating profit among the partners. Salaries traceable to the other partners are
estimated to be P350,000. What amount of income would be necessary so that X
would consider the choices to be equal?
A. P1,067,500
C. P577,500
B. P1,015,000
D. P927,500

Problem 8. Y and Z are CPAs who have been operating their own separate practices
as sole proprietors. They decided to combine the two firms as a partnership on January
3, 2008. The following assets were contributed by each:
Y
Z
Cash
P 700,000
P 700,000
Trade receivables
1,575,000
1,330,000
Equipment
245,000
266,000
Fixtures
322,000
The partners agreed to split profits on the basis of gross cash collections from billing
generated from clients. During 2008, Ys clients paid the firm a total of P10,500,000 and
Zs clients paid P11,375,000. Expenses for the year were P7,560,000 of which
P3,360,000 were attributable to Y and the balance to Z. During 2008 Z withdrew
P5,250,000 cash for personal needs and contributed an additional computer valued at
P154,000. What is the capital balance of Z at December 31, 2008?
A. P6,225,800
C. P4,032,000
B. P5,875,800
D. P4,965,800

Problem 9. The home office bills NOP branch at a mark-up above cost. During the
year 2008 goods costing P825,000 were shipped to the branch. The account Allowance
for Overvaluation has a balance of P330,000 before adjustment. The net income of the
branch is understated by P82,000. How much is the ending inventory in the books of
the branch?
A. P205,000
C. P868,000
B. P620,000
D. P287,000

Problem 10. AB partnership begins its first year of operations with the following capital
balances:
A, Capital
P80,000
B, Capital
40,000
According to the partnership agreement, all profits will be distributed as follows:
(a) A will be allowed a monthly salary of P8,000 with P4,000 assigned to B.
(b) The partners will be allowed with interest equal to 10% of the capital balance as
of the first day of the year.
(c) A will be allowed a bonus of 10% of the net income after bonus.
(d) The remainder will be divided on the basis of the beginning capital for the first
year and equally for the second year.
(e) Each partner is allowed to withdraw up to P4,000 a year.
Assume that the net loss for the first year of operations is P6,000 with net income of
P22,000 in the following year. Assume further that each partner withdraws the
maximum amount from the business each period. What is the balance of As capital
account at the end of the second year?
A. P105,900
C. P113,900
B. P73,900
D. P72,000

Problem 11. A home office transfers inventory to its branch at a 40% markup. During
2008, shipments to branch account is P1,312,500. At year-end, the home office adjusted
its Allowance for Overvaluation account downward by P325,000. The branch's balance
sheet at the beginning of the year shows P428,750 of inventory acquired from the home
office. How much is the ending inventory per branch books?
A. P806,250
C. P2,266,250
B. P1,137,500
D. P1,128,750

Problem 12. A, B and C formed a partnership on August 1, 2008 with the following
assets contributed by each partner, measured at their fair values.
Cash
Merchandise inventory
Machinery and equipment
Furniture and fixtures
Totals

A
P37,500
562,500
31,875
P631,875

B
P45,000
13,125
105,000
19,125
P182,250

C
P112,500
9,375
-____
P121,875

Although C has contributed the largest amount of cash to the partnership, he did not
have the full amount of P112,500 available and was forced to borrow P75,000. The
Machinery and equipment contributed by A has a mortgage of P337,500 and the
partnership is to assume responsibility for the loan. The partners agree to equalize their
interest. Cash settlement among the partners are to be made outside the partnership.
Using the bonus method:
A. B should pay A, P94,875 and C, P77,625.
B. C should pay A, P94,875 and B, P17,250.
C. B and C should pay A, P17,250 and P77,625 respectively.
D. A should pay B and C, P94,875.

Problem 13. D, E and F are partners sharing earnings in the ratio of 5:3:2 respectively.
As of December 31, 2007, their capital balance showed P237,500 for D, P200,000 for E
and P150,000 for F. On January 1, 2008 the partnership admitted G as a new partner
and according to the partnership agreement, G will contribute P200,000 in cash to the
partnership and will also pay P25,000 for 15% of Es share. G will share 20% in the
earnings while the ratio of the original partners will remain proportionately the same as
before the admission of G. After Gs admission, the total capital of the partnership will
be P825,000 while Gs capital account will be P175,000. The balance of Es capital
account after the admission of G would be:
A. P181,500
C. P186,500
B. P197,750
D. P202,750

Problem 14. On October 31, 2008, QRS Co. sold for P468,750 property that had a
cost of P375,000. QRS received a P125,000 down, the balance is payable in monthly
installments, with the first payment due at the end of November. QRS decides to report
the profit on the sale on the installment basis. Assume the monthly payments are sums
consisting of P3,750 to apply against the principal plus interest on the unpaid balance of
12% . How much is the realized gross profit for 2008?
A. P125,000
C. P132,500
B. P26,500
D. P25,126

Problem 15. H, I and J are partners with present capital balances of P225,000,
P270,000 and P 90,000, respectively. The partners share profits and losses according
to the following percentages; 60% for H, 20% for I and 20% for J, K is to join the
partnership upon contributing P90,000 cash, plus an equipment with a fair market value
of P180,000 to the partnership in exchange for a 25% interest in the capital and a 20%
interest in the profits and losses. The existing assets of the original partnership are
undervalued by P55,000. The original partners will share the balance of profits and
losses in their original ratios. Calculate the capital balances of each partner in the new
partnership using goodwill method.
H
I
J
K
A.
P303,300
P296,100
P116,100
P238,500
B.
225,000
270,000
90,000
270,000
C.
360,000
315,000
135,000
270,000
D.
360,000
315,000
90,000
90,000

Problem 16. The following amounts were taken from the statement of affairs for ABC
Company:
Unsecured liabilities with priority
P 70,000
Stockholders equity
252,000
Estimated liquidation expenses that have not been entered
in the accounting records
31,500
Unsecured liabilities without priority
630,000
Loss on realization of assets
315,000
How much is the total free assets?
A. P605,500
B. P567,000

C. P544,900
D. P535,500

Problem 17. The home office of XYZ Company which uses perpetual inventory
system, bills shipments of merchandise to the QRS branch at a mark-up of 25% on the
billed price. On August 31, 2008, the credit balance in the Home Offices Branch
Inventory Allowance account was P420,000. In September, the home office shipped
merchandise to the branch at a cost of P2,100,000. The branch reported an ending
inventory at billed price of P1,120,000 on September 30,2008. How much is the
realized inter-office inventory profit during September?
A. P1,680,000
C. P700,000
B. P721,000
D. P840,000

Problem 18. Partners OO and PP share profits 3:1 after annual salary allowances of
P36,000 and P54,000, respectively; however, if profits are not adequate to meet the
salary allowances, the entire profit is to be divided in the salary ratio. Profits of P81,000
were reported for the year 2007. In 2008 it was ascertained that in calculating net
income for the year ended December 31, 2007, depreciation was overstated by
P39,600. How much is the amount of the net adjustments in the books of OO and PP?
A. OO, P(26,640); PP, P(13,050)
B. OO, P26,550 ; PP, P13,050
C. OO, P58,950 ; PP, P61,650
D. OO, P16,560 ; PP, P24,840

Problem 19. KLM Construction Company recognized gross profit of P126,000 on its
long-term project which has accumulated costs of P245,000. To finish the project, the
company estimates that it has to incur additional cost of P490,000. The contract price
is:
A. P742,000
C. P980,000
B. P1,113,000
D. P1,400,000

Problem 20. NOP Corporation recently paid P3,925,000 for the net assets of TUV
Company which have a total book value of P3,800,000. Book values of assets and
liabilities approximate their fair values, except as noted below:
Book Value
Fair Value
Inventory
P 400,000
P 436,000
Land
300,000
395,000
Buildings and Equipment 1,400,000
1,510,000
Patents
150,000
108,000
Long-term debt
(550,000)
(420,000)
How much is the goodwill (income from acquisition) as a result of the business
combination?
A. P(1,896,000)
C. P1,896,000
B. P204,000
D. P(204,000)

Problem 21. The condensed balance sheets of the companies joining in a stock
acquisition are as follows:

In thousand pesos
Assets
Liabilities
Common stock, P10 par
Additional paid-in capital
Retained earnings
Total equities

XX
P9,600

YY
P13,200

ZZ
P1,200

P6,840

P 3,600

P 420

3,600
-0(840)
P9,600

2,400
960
6,240
P13,200

600
300
(120)
P1,200

XX's shares are quoted at P12 while those of YY and ZZ being held closely, have no
known market value. XX acquired all of the stocks outstanding of YY and ZZ in
exchange for 720,000 and 60,000 shares respectively of its common stock.
Immediately after the stock acquisition, the consolidated retained earnings (deficit)
would amount to:
A. P180,000
C.
-0B. P(840,000)
D. P5,280,000

Problem 22. PM Corporation acquired an 80% interest in SD Company on January 2,

2008 for P700,000. On this date, the capital stock and retained earnings of the two
companies were as follows:
PM Corp.
SD Co.
Capital stock
P1,800,000
P 500,000
Retained earnings
800,000
100,000
The assets and liabilities of SD were stated at their fair values when PM Corporation
acquired its 80% interest. PM uses the cost method of accounting to account for its
Investment in SD. Net Income and dividends for 2008 for the affiliated companies
were:
PM Corp.
SD Co.
Net income
P300,000
P90,000
Dividend declared
180,000
50,000
Dividend payable 12/31/2006
90,000
25,000
Compute the following amounts: (1) retained earnings, and (2) minority interests that
should appear in the consolidated balance sheet on December 31, 2008:
A. (1) P1,100,000; (2) P138,000
B. (1) P 952,000 ; (2) P128,000
C. (1) P 640,000 ; (2) P120,000
D. (1) P 92,000 ; (2) P128.000

Problem 23. PR Corporation paid P900,000 for a 60% interest in SK Corporation on

January 1, 2008 at a price P30,000 in excess of underlying book value. The excess
was allocated P12,000 to undervalued equipment with a five-year remaining useful life
and P18,000 to goodwill. The income statements of PR and SK for 2008 are given
below:
PR
SK
Sales
P 2,000,000
P 800,000
Cost of sales
(1,000,000)
(400,000)
Depreciation expense
(200,000)
(120,000)
Other expense
(400,000)
(180,000)
Net income
P 400,000
P 100,000
Determine the consolidated net income attributable to parents shareholders equity for
2008?
A. P488,200
C. P457,600
B. P490,000
D. P484,200

Problem 24. EFG Inc., franchiser, entered into franchise agreement with HIJ Inc.,
franchise on July 1, 2008. The total franchisee fees agreed upon is P550,000, of which
P50,000 is payable upon signing and the balance to be covered by a non-interest
bearing note payable in four equal annual installments. It was agreed that the down
payment is not refundable, notwithstanding lack of substantial performance of services
by franchiser. The direct franchise cost incurred was P325,000. Indirect franchise
expense of P31,250 was also incurred. The management of HIJ has estimated that
they can borrow loan at the rate of 12%. The franchisee commenced its operations on
July 31, 2008. When EFG prepares its financial statements on July 31, 2008, how
much is the net income to be reported? PV factor is 3.04
A. P77,550
C. P73,750
B. P119,350
D. P108,800

Problem 25. LMNs partnership provided for the following distribution of profits and
losses; (1) L is to receive 10% of the net income up to P1,750,000 and 20% on the
amount of excess thereof; (2) M and N each, are to receive 5% of the remaining
income in excess of P2,625,000 after Ls share as per above and the balance to be
divided equally among the partners. For the year just ended, the partnership realized a
net income of P4,375,000 before distribution to partners. The share of L is:
A. P2,275,000
C. P1,750,000
B. P1,925,000
D. P1,890,000

Problem 26. Q, R and S are partners sharing profit on a 7:2:1 ratio. On January 1,
2008, T was admitted into the partnership with 15% share in profits. The old partners
continue to participate in profits in their original ratios. For the year 2008, the
partnership showed a profit of P120,000. However, it was discovered that the following
items were omitted in the firms book:
Unrecorded at year end
Accrued income
Unearned income
Accrued expense
Prepaid expense

2007

2008
P7,000

P 9,800
8,400
11,200

The share of partner R in the 2008 net income is:

A. P25,198
C. P17,580
B. P19,924
D. P23,440

Problem 27. On December 31, 2007, ABC Co. sold construction to XYZ, Inc. for
P6,750,000. The equipment had a carrying amount of P4,387,500. ABC Co.paid
P1,125,000 cash on December 31, 2007 and signed a P5,625,000 note bearing interest
at 10% payable in five annual installments of P1,125,000. ABC Co. appropriately
accounts for the sale under the installment method. On December 31, 2008, XYZ paid
P1,125,000 principal and P562,500 interest. For the year ended December 31, 2008,

what total amount of revenue should ABC recognize from the construction equipment
sale and financing?
A. P787,500
C. P956,250
B. P393,750
D. P1,350,000

Problem 28. A home office ships inventory to its branch at 125% of cost. The required
balance of the Unrealized intercompany profit account is P236,250. During the year, the
home office sent merchandise to the branch costing P2,352,000. At the start of the year,
the branch's balance sheet shows P945,000 of inventory on hand that was acquired from
the home office. By what amount is the cost of goods sold overstated?
A. P236,250
C. P777,000
B. P540,750
D. P189,000

Problem 29. The Eastwood head office opened its Magallanes branch on August 1.
Merchandise shipments to the branch during the month, billed at 125% of cost, is
P1,680,000. Branch returned damaged merchandise worth P189,000. On August 30, the
branch reported a net loss of P120,855 and an inventory of P336,000. How much is the
true income (loss) of the branch?
A. P231,000
C. P110,145
B. P351,855
D. P147,945

Problem 30. MNO Company filed a voluntary bankruptcy petition on July 30, 2008 and
the statement affairs reflects the following amounts:
Book
Estimated
Carrying Amount
Current Value
Assets
Assets pledged with fully
secured creditors
P 520,000
P 617,500
Assets pledged with partially
secured creditors
292,500
195,000
Free assets
650,000
455,000
Liabilities

Liabilities with priority

Fully secured creditors
Partially secured creditors
Unsecured creditors

65,000
422,500
325,000
845,000

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. P 273,000
C. P 195,000
B. P 292,500
D. P 325,000

Problem 31. Partners A, B and C share profits and losses in the ratio of 5:3:2. At the
end of a very unprofitable year, they decided to liquidate the firm. The partner's capital
account balances at this time are as follows:
A
P616,000
B
697,200
C
420,000
The liabilities accumulate to P840,000, including a loan of P280,000 from A. The cash
balance is P168,000. All the partners are personally solvent. The partners plan to sell
the assets in installment. If B received P100,800 from the first distribution of cash, how
much did C receive at that time?
A. P56,000
C. P22,400
B. P33,600
D. P61,600

Problem 32. The following transactions pertain to a branchs first months operations:
a. The home office sent P11,000 cash to the branch.
b. The home office shipped inventory costing P36,000 to the branch; the mark-up
on cost is 25%.
c. Branch inventory purchases from outside vendors totaled P14,000.
d. Branch sales on account were P73,000. Cash sales amounted to P9,000.
e. The home office allocated P5,000 in advertising expense to the branch.
f. The home office received defective merchandise costing P7,000 from the branch.
g. Branch collections on accounts receivable were P32,000.
h. The home office collected P2,000 from a customer of the branch.

i. Branch operating expenses of P10,500 were incurred, none of which were paid
at month-end.
j. The branch remitted P13,000 to the home office.
k. The branchs ending inventory (as reported in its balance sheet) is composed of:
Acquired from outside vendors
P 9,000
Acquired from home office (at billing price)
12,000
What is the adjusted balance of the Home Office Current account in the books of the
branch based from all transactions above?
A. P67,250
C. P79,500
B. P37,250
D. P74,500

Problem 33. The Tommy Store began operations by selling wholesale merchandise on
an installment basis and uses the installment method of accounting. Terms include
downpayment of 20% and balance payable in three years; 50% in the year of sale; 30%
in the year after; and 20% in the third year. Tommy includes a 25% mark-up on cost for
its selling price. Installment sales reported by Tommy are P550,000 in 2007, P770,000
in 2008, and P908,000 in 2009. How much is the installment accounts receivable at the
end of 2009 and unrealized gross profit at the end of 2009?
A. 486,400 / 97,280
C. 486,400 / 121,600
B. 574,400 / 121600
D. 574,400 / 97,280

Problem 34. Colt Construction Company entered into two construction jobs which both
commenced in 2008.
Project 1
Project 2
Contract Price
P525,000
P375,000
Costs incurred during 2008
300,000
350,000
Estimated Cost to Complete
150,000
87,000
General and administrative
Expenses
25,000
12,500

Billings for clients during 2008

Collections during 2008

315,000
280,000

300,000
250,000

Based on the information given, how much is the gross profit would Colt report in its
2008 income statement?
Percentage of completion
Zero profit
A.
(62,000)
(12,000)
B.
50,000
(62,000)
C.
(12,000)
(62,000)
D.
13,000
(12,000)

Problem 35. Examination of the reciprocal accounts between Manila Home office and
Cebu Branch shows the following:
a. P10,000 advertising expense of another branch was erroneously charged
by the Home Office to Cebu Branch.
b. Cebu recorded shipments of merchandise from Home Office amounting to
P75,000 twice.
c. Home Office recorded cash transfer of P65,700 from Cebu Branch as
coming from Davao Branch.
d. Transfer of equipment from Home Office amounting to P53,000 was not
recorded by the branch.
e. Cebu recorded a debit memo from Home Office of P5,540 as P5,450.
How much is the net adjustments to Cebu Branch Current Account and to the Home
Office Current Account?
Cebu Branch
Home Office Account
Current Account
A.
(75,700)
21,910
B.
(75,700)
(21,910)
C.
75,700
(21,910)
D.
(65,700)
22,000

-End of Examination-