You are on page 1of 28

PRACTICAL ACCOUNTING TWO REVIEWERS/ TESTBANKS

1. Jinky is trying to decide whether to accept a bonus of 25% of net income after salaries
and bonus or a salary of P97,500 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 P450,000. What amount of income would be necessary so that Jinky
would consider the choices to be equal?
a. P1,100,000 b. P1,197,500 c. P650,000 d. P1,262,500

2. Jamby and Minam just formed a partnership. Jamby contributed cash of P2,205,000 and
office equipment that cost P945,000. The equipment had been used in her sole proprietorship
and had been 70% depreciated, the appraised value of the equipment is P630,000. Jamby
also contributed a note payable of P210,000 to be assumed by the partnership. Jamby is to
have 60% interest in the partnership. Miriam contributed only P1,575,000 merchandise
inventory at fair market value. Assume the use of bonus method, the partners capital must be
in conformity with their profit and loss ratio upon formation.

In the formation of a partnership, which of the following is true?


a. The agreed capital of Jamby upon formation is P2,625,000
b. The total agreed capital of the partnership is P4,375,000
c. The capital of Miriam will increase by P105,000 as a result of the transfer of capital
d. There is either an investment or withdrawal of asset under the bonus method

3. Batanes Construction Company recognized gross loss of P42,000 on its long-term


project which has accumulated costs of P490,000. To finish the project, the company
estimates that it has to incur additional cost of P735,000. The contract price is:
a. P798,000 b. P1,330,000 c. P1,225,000 d. P1,183,000

4. Ester, Judith and Martha were partners with capital balances on January 2, 2009 of
P70,000, P84,000 and P62,000, respectively. Their loss sharing ratio is 3:5:2. On may 1,
2009, Ester retires form the partnership. On the date of retirement the partnership net profit
form operations is P48,000. The partners agreed further to pay Ester P76,560 in settlement of
her interest.

Upon retirement of Ester, which of the following will result?


a. Goodwill of Ester is P7,840
b. Judith capital after retirement of Ester is P36,400 higher than Martha.
c. Bonus from Ester is P9,440
d. Bonus to Judith is P5,600

5. The following selected accounts appeared in the trail balance of Valentines Company as
of December 31, 2009:

Installment receivable 2008 sales P 12,000 Repossessions P


2,400
Installment receivable 2009 sales 160,000 Installment sales
340,000
Inventory, December 31, 2008 56,000 Regular sales
308,000
Purchases 440,000 Deferred gross profit 2008
43,000
Operating expenses
92,000
Additional information:
Installment receivable 2008 sales, December as of December 31, 2008
Inventory of new and repossessed merchandise as of December 31, 2009
Gross profit percentage on installment sales in 2008 is 10% higher than the gross profit
percentage on regular sales in 2009.

Repossessions was made during the year and was recorded correctly. It was a 2008 sale and
the corresponding uncollected account at the time of repossession was P6,200.

What is the net income for 2009


a. P108,360 b. P13,480 c. P105,880 d. P107,200

6. On November 30, 2009, Loveless Company authorized NBSB Corp. to operate as a


franchisee for an initial franchise fee of P1,950,000. Of his amount, P750,000 was received
upon signing the agreement and the balance, represented by a note, is due in four annual
payments starting November 30, 2010. Present value of P1 at 12% for 4 periods is 0.6355.

Present value of an ordinary annuity of P1 at 12% for 4 periods is 3.0374. The period of
refund will elapsed on January 31, 2010. The franchisor has performed substantially all of the
initial services but the operations of the store have yet to start. Collectibility of the note is
reasonably certain. How much is the unearned franchise fee on the year ended December
31, 2009?

a. P1,661,220 b. P750,000 c. P991,220 d. P0

7. On April 30, 2009, the capital accounts of P, Q shows the following balances: P
P150,000, Q 75,000 and R P45,000. At this time, S is admitted to the firm when he
purchases a one-sixth interest in the firm for P27,5000. The old partners equalized their
capital investments. Afterwards, all the partners agree to divide profits and losses equally.
The new partnership closes its books on June 30, 2009 reporting a profit of P4,200 for two
months. The partners made the following withdrawals: P and R, P450 per month; Q and S
per month. On June 30, 2009, S invests enough cash to increase his capital to a one-third
interest in the partnership. How much cash is to be invested by S?

a. P108,025 b. P68,025 c. P67,425 d. P107,425

8. Forever, Inc. granted a franchise to Hopeless Romantic for the manila area. The
franchise was to pay a franchise fee of P250,000, payable in five equal annual installments
starting with the payment upon signing of the agreement. The franchise was to pay monthly
3% of gross sales of the preceding month. Should the operations of the outlet prove to be
unprofitable, the franchise may be canceled with whatever obligations owing Forever, Inc. in
interest bearing note is 14%. The first year generated a gross sales of P1,250,000. What is
the amount of unearned franchise fee after the first year of operations?

a. P287,500 b. P145,700 c. P195,700 d. P250,000

9. Lovebirds Corporation sells goods on the installment basis. For the year just ended, the
following were reported:

Cost of installment sales P 525,000


Loss on repossession 13,500
Fair value of repossessed merchandise 112,500
Account defaulted 180,000
Deferred gross profit, end 108,000

How much was the collections for the year?


a. P210,000 b. P264,000 c. P390,000 d. P415,715
10. DEF Company, which began operations on January 1, 2009 appropriately, uses the
instalment method of accounting. The following data pertain to DEFs operations for year
2009:

Instalment sales (Before adjustment) P450,000 Operating expenses (before write-off


And repossessions)
P36,000
Regular sales 187,500 Cash collections on instalment sales
Cost of regular sales 107,500 including interest of P12,000
156,000
Cost of instalment sale 315,000 Instalments receivables written-off
Due to defaults
22,000
FMV of repossessed
Merchandise 27,000 Repossessed accounts
50,000
Actual value of trade-in
Merchandise 40,000 trade-in allowance
70,000

How much is the deferred gross profit at December 31, 2009? What is the net income for the
year ended December 31, 2009?
a. P50,500 ; P65,000 c. P41,000 ; P63,000
b. P50,500 ; P91,500 d. P41,000 ; P75,000

11. The partnership agreement of X, Y and Z provides for the division of net income as
follows:

I. Y, who manages the partnership is to receive a salary of P16,500 monthly.


II. Each partner is to be allowed interest at 15% on ending capital.
III. Balance is to be divided 25:30:45.

During 2009, X invested an additional P96,000 in the partnership. Y made an additional


investment of P60,000 and withdrew P90,000, and Z withdrew P70,000. No other
investments or withdrawals were made during 2009. On January 1, 2009, the capital
balances were X, P280,000; Y, P300,000; and Z, P170,000. Total capital at year-end was
P975,000.

Compute the capital balance of each partner at year-end:


X Y Z
a. P 36,750 P214,920 P(20,670)
b. 412,750 484,920 77,330
c. 316,750 514,920 149,330
d. 398,750 412,500 87,250

12. The balance sheet as of September 30, 2009, for the partnership of D, E and F shows
the following information: Assets, P360,000; D, loan, P20,000; D, capital, P83,000; E, capital,
P77,000; F, capital, P180,000. 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 P345,000 as of September 30, 2009. Net loss prior to the retirement of D amount to
P70,000. The partnership is to pay D P62,000 cash for Ds 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 Ds retirement, how much would Fs capital balance be?


a. P66,000 c. P136,500
b. P147,000 d. P182,250

13. 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 partners capital account balances at
this time are as follows: A, P616,000; B, P697,200; C, P420,000. 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 instalment.

If B received P100,800 from the first distribution of cash, how much did C receive at that
time?
a. P56,000 c. P33,600
b. P22,400 d. P61,600

14. On July 1, 2007, NR Construction Corp. contracted to build an office building for FM, Inc.
for a total contract price of P12,875.
2007 2008 2009
Contract cost incurred P 9,375 P 65,625 P 56,250
Estimated costs to complete the contract 84,375 50,000 -
Billings to FM, Inc. 12,750 74,750 34,375

How much is the Construction in Progress account balance at December 31, 2008, using the
percentage of completion method? How much is the Construction in Progress, net of
Progress Billings at December 31, 2008, using the zero-profit method? How much is the
realized gross profit/(loss), using percentage of completion method in 2009?
a. P71,875; P2,875; P(9,375) c. P71,875; P15,625; P(9,375)
b. P74,687.50; P2,875; P(6,250) d. P71,875; P15,625; P(6,250)

15. On January 2, 2009, SD Company signed an agreement to operate as a franchisee of TQ


Products, inc. for an initial franchise fee of P937,500 for 7 years. Of this amount, P175,000
was paid when the agreement was signed and the balance payable in four annual payments
beginning on December 31, 2009. SD signed a non-interest bearing note for the balance.
SDs rating indicates that he can borrow money at 16% for the loan of this type. Assume that
substantial services amounting to P283,500 had already been rendered by TQ Products and
that additional indirect franchise cost of P25,500 was also incurred. PV factor is 2.80.

If the collection of the note is not reasonably assured, the net income for the year ended
December 31, 2009 is
a. P313,435 c. P168,135
b. P228,035 d. P253,535

16. Omega Inc. started a 4-year contract to build a dam. Activities commenced on February
1, 2007. The total contract price amounted to P12 million, and it was estimated that the
work would be completed at a total cost of P9.5 million. In the construction agreement the
customer agreed to accept increases in wage tariffs additional to the contract price.

The following information refers contract activities for the financial year ending December 31,
2007:
a. Costs for the year:
P000
Materials.. P1,400
Labor.. 800
Operating overheads. 150
Subcontractors.. 180

b. Current estimate of total contract costs indicates the following:


Materials are to be P180,000 higher than expected.
Total labor costs are to be P300,000 higher than expected. Of this amount, only
P240,000 would be brought about by increased wage tariffs. The other amount
would be due to inefficiencies.
A savings of P300,000 is expected on operating overheads.

c. During the current financial year the customer requested a variation to the original
contract and it was agreed that the contract price would be to increased by P900,000.
The total estimated cost of this extra work is P750,000.

d. By the end of 2007, certificates issued by quantity surveyors indicated a 25% stage of
completion.

17. Compute the amount of gross profit or loss to be recognized in 2007 using contract costs
in proportion to estimated contract costs (percentage of completion method):
a. P568,000 c. P610,000
b. P577,000 d. P755,000

18. Compute the amount of gross profit or loss to be recognized in 2007 using percentage of
the work certified (percentage of completion method output method using actual cost
approach):
a. P568,000 c. P610,000
b. P577,000 d. P755,000

19. Tams Pizza, Inc. charges an initial franchise fee of P50,000 for the right to operate as a
franchisee of Tams Pizza. Of this amount, P10,000 is payable when the agreement was
signed and the balance is payable in five annual payments of P8,000 each. In return for the
initial franchise fee, the franchiser will help locate the site, negotiate with the lease or
purchase of the site, supervise the construction activity, and provide the bookkeeping
services. The credit rating of the franchisee indicates that money can be borrowed at 8%. The
present value of an ordinary annuity of five receipts of P8,000 each discounted at 8% is
P31,941.68.

If the initial downpayment is not refundable and no future services are required by the
franchiser, but collection of the note is so uncertain that recognition of the note as an asset is
unwarranted, the entry should be:

a. Cash 10,000.00
Notes Receivable. 40,000.00
Discounts on Notes Receivable.
8,058.32
Unearned Franchise Fees.
41,941.68

b. Cash.. 10,000.00
Notes Receivable 40,000.00
Discounts on Notes Receivable.
8,058.32
Revenue from Franchise Fees..
41,941.68

c. Cash 10,000.00
Revenue from Franchise Fees.
10,000.00

d. Cash 10,000.00
Unearned Franchise Fees. 10,000.00

20. On April 1, 2004, Motorola, Inc. entered into a franchise agreement with a local
businessman. The franchisee paid P45,000 and gave a P30,000, 8%, 3 years notes payable
with interest due annually on March 31. Motorola recorded the P75,000 initial franchise fee as
revenue on April 1, 2004. On December 30, 2004, the franchisee decided not to open the
outlet under Motorolas name. Motorola cancelled the franchisees note and refunded
P24,000 less accrued interest on the note, of the P45,000 paid on April 1. What entry should
Motorola make on December 30, 2004?
a. Loss on Repossessed Franchise.. 24,000
Cash
24,000

b. Loss on Repossessed Franchise.. 22,200


Cash
22,200

c. Loss on Repossessed Franchise.. 52,000


Cash.. 22,200
Notes Receivable. 30,000

d. Revenue from Franchise Fees. 75,000


Interest Income 1,800
Cash 22,200
Notes Receivable.. 30,000
Revenue from Repossessed Franchise.. 21,000

21. Maranan Motors Sales cars on the installment basis. Presented below are data for the
past three years:

2007 2006 2005


Installment sales P2,880,000 P2,304,000 P1,543,000
Cost of sales 1,728,000 1,440,000 1,002,950
Collection on:
2007 installment sales 1,008,000
2006 installment sales 391,000 921,000
2005 installment sales 478,000 462,000 578,000

Repossessions on defaulted accounts included one made on a 2005 sale for which the
unpaid balance amounted to P20,000. The depreciated value of the car repossessed was
P10,000.

The unrecovered cost of the car in 2005 and repossessed in 2007 is :


a. P6,500 c. P10,000
b . 7,000 d. 13,000

22. Ondoy Company began operations on January 1, 2011 and appropriately uses the installment
method of accounting. The following data are available for 2011 and 2012

2011 2012

Installment sales 1,200,000 1,500,000


Cash collections from:
2007 sales 400,000 500,000
2008 sales 600,000
Gross profit on sales 30% 40%

The realized gross profit for 2012 is

a. 600,000
b. 240,000
c. 390,000
d. 440,000

23. On January 1, AwAw and BeBe pooled their assets to form a partnership, with the firm to take
over their business assets and assume the liabilities. Partners capitals are to be based on net
assets transferred after the following adjustments. (Profit and loss are allocated equally.)

BeBe's inventory is to be increased by P4,000; an allowance for doubtful of P 1,000 and Pl.500
are to be set up in books of AwAw and BeBe, respectively; and accounts payable of P4,000 is to
be recognized in AwAw's books. The individual trial balances on August, before adjustments,
follow:

AwAw BeBe
Assets P75.000 P113,000
Liabilities 5,000 34,500

What is the capital of AwAw and BeBe after the above adjustments?

a. AwAw, P65,000; BeBe, P76.000


b. AwAw, P65,000; BeBe, P81.000
c. AwAw, P68,750: BeBe, P77,250
d. AwAw, P75.000; BeBe, P81.000

24. The Partnership has the following balances in their trial balance:

(1) Sales = P70,000


(2) Cost of Goods Sold = P40,000
(3) Operating Expenses = P10,000
(4) Salary allocations to partners = P13,000
(5) Interest paid to banks = P2,000
(6) Partners' withdrawals = P8,000

The partnership net income (loss) is:

a. (3,000)
b. 18,000
c. 20.000
d. 5,000
25. The following data are provided by the Troubled Company:

Assets at book value 150.000


Assets at net realizable value 105,000
Liabilities at book value:
Fully secured mortgage 60,000
Unsecured accounts and notes payable 70,000
Unrecorded liabilities:
Interest on bank notes 500
Estimated cost of administering estate 6,000

The court has appointed a Trustee to liquidate the company.

When the Trustee records the assets and liabilities, it should include an estate deficit of:

a. 31,500
b. 25,000
c. 31,000
d. 25,500

26. Mimi, Jojo, and Kaka are forming a new partnership. Mimi is to invest cash of P100,000 and
stamping equipment originally costing P120.000 but has a second-hand value in the market at
P50,000. Jojo is to invest cash of P160,000, while Kaka, whose family is engaged in selling
stamping equipment, is to contribute cash of P50,000 and a brand new stamping equipment to be
used by the partnership with a regular price of P 120.000 but which cost their family's business
P100,000. Partners agree to share profits equally.

The capital balances upon formation are:

a. Mimi, P220,000; Jojo, P160,000; and Kaka, P150,000


b. Mimi, P176,666; Jojo, P176,666; and Kaka, P176,668
c. Mimi, P160,000; Jojo, P160,000; and Kaka, P160,000
d. Mimi, P150,000; Jojo, P160,000; and Kaka, P170,000

27. On June 30, 2012, Aida, Lorna and Fe formed a partnership by combining their separate
business proprietorship.

Aida contributed cash of P75.000. Lorna contributed property with a P54,000 carrying amount, a
P60.000 original cost, and P120.000 fair value. The partnership accepted responsibility for the
P52.500 mortgage attached to the property. Fe contributed equipment with a P45,000 carrying
amount, a P112,500 original cost, and P82.500 fair value. The partnership agreement specifies
that profits and losses are to be shared equally but is silent regarding capital contributions.

Who among the partners has the largest capital balance?

a. Lorna
b Fe
c. All capital account balances are equal
d. Aida
28. Dimagiba Company began operation at the beginning of 2012. During the year, it had cash
sales of 6,875,000 and sales on installment basis of 16,500,000. Dimagiba adds a markup on
cost of 25% on cash sales and 50% on installment sales. Installments receivable at the end of
2008 is 6,600,000.

The resulting realized gross profit for 2012 is:

a. 3,300,000
b. 1,375,000
c. 4,675,000
d. 3,575,000

29. On October 1, 2011, 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 P4,000,000 on the date of sale. The note was
payable in forty quarterly principal installments of 110,000 beginning January 2, 2012. Mario
appropriately accounts for the sale under the cost recovery method. On January 2, 2012, Diego
paid the first principal installment of 110,000 and interest of 132,000.

For the year ended December 31, 2012, 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. 0

30. Popoy has a dilemna. He is trying to decide whether to accept a salary of 40,000 or a salary
of 25,000 plus a bonus of 10% of net income after salary and bonus as a means of allocating
profit among the partners. Salaries traceable to the other partners are estimated to be 100,000.

What amount of income would be necessary so that Popoy would consider the choices to be
equal?

a. 165,000
b. 305,000
c. 265,000
d. 290,000

31. Nonoy and Mar are considering forming a partnership whereby profits will be allocated
through the use of salaries and bonuses. Bonuses will be 10% of net income after total salaries
and bonuses. Nonoy will receive a salary of P30.000 and a bonus. Mar has the option of
receiving a salary of P40,000 and a 10% bonus or simply receiving a salary of P52,000. Both
partners will receive the same amount of bonus.

Determine the level of net income that would be necessary so that Jo would be indifferent to the
profit sharing option selected.

a. 300,000
b. 240,000
c. 334,000
d 94,000
32. Batanes Construction Company recognized gross loss of P42,000 on its long-term
project which has accumulated costs of P490,000. To finish the project, the company
estimates that it has to incur additional cost of P735,000. The contract price is:
a. P798,000 b. P1,330,000 c. P1,225,000 d. P1,183,000

33. The following selected accounts appeared in the trail balance of Valentines Company as
of December 31, 2009:

Installment receivable 2008 sales P 12,000 Repossessions P


2,400
Installment receivable 2009 sales 160,000 Installment sales
340,000
Inventory, December 31, 2008 56,000 Regular sales
308,000
Purchases 440,000 Deferred gross profit 2008
43,000
Operating expenses
92,000
Additional information:
Installment receivable 2008 sales, December as of December 31, 2008
Inventory of new and repossessed merchandise as of December 31, 2009
Gross profit percentage on installment sales in 2008 is 10% higher than the gross profit
percentage on regular sales in 2009.

Repossessions was made during the year and was recorded correctly. It was a 2008 sale and
the corresponding uncollected account at the time of repossession was P6,200.

What is the net income for 2009


b. P108,360 b. P13,480 c. P105,880 d. P107,200

34. On November 30, 2009, Loveless Company authorized NBSB Corp. to operate as a
franchisee for an initial franchise fee of P1,950,000. Of his amount, P750,000 was received
upon signing the agreement and the balance, represented by a note, is due in four annual
payments starting November 30, 2010. Present value of P1 at 12% for 4 periods is 0.6355.

Present value of an ordinary annuity of P1 at 12% for 4 periods is 3.0374. The period of
refund will elapsed on January 31, 2010. The franchisor has performed substantially all of the
initial services but the operations of the store have yet to start. Collectibility of the note is
reasonably certain. How much is the unearned franchise fee on the year ended December
31, 2009?

a. P1,661,220 b. P750,000 c. P991,220 d. P0

35. Forever, Inc. granted a franchise to Hopeless Romantic for the manila area. The
franchise was to pay a franchise fee of P250,000, payable in five equal annual installments
starting with the payment upon signing of the agreement. The franchise was to pay monthly
3% of gross sales of the preceding month. Should the operations of the outlet prove to be
unprofitable, the franchise may be canceled with whatever obligations owing Forever, Inc. in
interest bearing note is 14%. The first year generated a gross sales of P1,250,000. What is
the amount of unearned franchise fee after the first year of operations?

a. P287,500 b. P145,700 c. P195,700 d. P250,000

36. Lovebirds Corporation sells goods on the installment basis. For the year just ended, the
following were reported:
Cost of installment sales P 525,000
Loss on repossession 13,500
Fair value of repossessed merchandise 112,500
Account defaulted 180,000
Deferred gross profit, end 108,000

How much was the collections for the year?


a. P210,000 b. P264,000 c. P390,000 d. P415,715

37. DEF Company, which began operations on January 1, 2009 appropriately, uses the
instalment method of accounting. The following data pertain to DEFs operations for year
2009:

Instalment sales (Before adjustment) P450,000 Operating expenses (before write-off


And repossessions)
P36,000
Regular sales 187,500 Cash collections on instalment sales
Cost of regular sales 107,500 including interest of P12,000
156,000
Cost of instalment sale 315,000 Instalments receivables written-off
Due to defaults
22,000
FMV of repossessed
Merchandise 27,000 Repossessed accounts
50,000
Actual value of trade-in
Merchandise 40,000 trade-in allowance
70,000

How much is the deferred gross profit at December 31, 2009? What is the net income for the
year ended December 31, 2009?
c. P50,500 ; P65,000 c. P41,000 ; P63,000
d. P50,500 ; P91,500 d. P41,000 ; P75,000

38. On July 1, 2007, NR Construction Corp. contracted to build an office building for FM, Inc.
for a total contract price of P12,875.
2007 2008 2009
Contract cost incurred P 9,375 P 65,625 P 56,250
Estimated costs to complete the contract 84,375 50,000 -
Billings to FM, Inc. 12,750 74,750 34,375

How much is the Construction in Progress account balance at December 31, 2008, using the
percentage of completion method? How much is the Construction in Progress, net of
Progress Billings at December 31, 2008, using the zero-profit method? How much is the
realized gross profit/(loss), using percentage of completion method in 2009?
c. P71,875; P2,875; P(9,375) c. P71,875; P15,625; P(9,375)
d. P74,687.50; P2,875; P(6,250) d. P71,875; P15,625; P(6,250)

39. On January 2, 2009, SD Company signed an agreement to operate as a franchisee of TQ


Products, inc. for an initial franchise fee of P937,500 for 7 years. Of this amount, P175,000
was paid when the agreement was signed and the balance payable in four annual payments
beginning on December 31, 2009. SD signed a non-interest bearing note for the balance.
SDs rating indicates that he can borrow money at 16% for the loan of this type. Assume that
substantial services amounting to P283,500 had already been rendered by TQ Products and
that additional indirect franchise cost of P25,500 was also incurred. PV factor is 2.80.
If the collection of the note is not reasonably assured, the net income for the year ended
December 31, 2009 is
a. P313,435 c. P168,135
b. P228,035 d. P253,535

Omega Inc. started a 4-year contract to build a dam. Activities commenced on February 1,
2007. The total contract price amounted to P12 million, and it was estimated that the work
would be completed at a total cost of P9.5 million. In the construction agreement the
customer agreed to accept increases in wage tariffs additional to the contract price.

The following information refers contract activities for the financial year ending December 31,
2007:
e. Costs for the year:
P000
Materials.. P1,400
Labor.. 800
Operating overheads. 150
Subcontractors.. 180

f. Current estimate of total contract costs indicates the following:


Materials are to be P180,000 higher than expected.
Total labor costs are to be P300,000 higher than expected. Of this amount, only
P240,000 would be brought about by increased wage tariffs. The other amount
would be due to inefficiencies.
A savings of P300,000 is expected on operating overheads.

g. During the current financial year the customer requested a variation to the original
contract and it was agreed that the contract price would be to increased by P900,000.
The total estimated cost of this extra work is P750,000.

h. By the end of 2007, certificates issued by quantity surveyors indicated a 25% stage of
completion.

40. Compute the amount of gross profit or loss to be recognized in 2007 using contract costs
in proportion to estimated contract costs (percentage of completion method):
c. P568,000 c. P610,000
d. P577,000 d. P755,000

41. Compute the amount of gross profit or loss to be recognized in 2007 using percentage of
the work certified (percentage of completion method output method using actual cost
approach):
a. P568,000 c. P610,000
b. P577,000 d. P755,000

42. Tams Pizza, Inc. charges an initial franchise fee of P50,000 for the right to operate as a
franchisee of Tams Pizza. Of this amount, P10,000 is payable when the agreement was
signed and the balance is payable in five annual payments of P8,000 each. In return for the
initial franchise fee, the franchiser will help locate the site, negotiate with the lease or
purchase of the site, supervise the construction activity, and provide the bookkeeping
services. The credit rating of the franchisee indicates that money can be borrowed at 8%. The
present value of an ordinary annuity of five receipts of P8,000 each discounted at 8% is
P31,941.68.
If the initial downpayment is not refundable and no future services are required by the
franchiser, but collection of the note is so uncertain that recognition of the note as an asset is
unwarranted, the entry should be:

a. Cash 10,000.00
Notes Receivable. 40,000.00
Discounts on Notes Receivable.
8,058.32
Unearned Franchise Fees.
41,941.68

b. Cash.. 10,000.00
Notes Receivable 40,000.00
Discounts on Notes Receivable.
8,058.32
Revenue from Franchise Fees..
41,941.68

c. Cash 10,000.00
Revenue from Franchise Fees.
10,000.00

d. Cash 10,000.00
Unearned Franchise Fees. 10,000.00

43. On April 1, 2004, Motorola, Inc. entered into a franchise agreement with a local
businessman. The franchisee paid P45,000 and gave a P30,000, 8%, 3 years notes payable
with interest due annually on March 31. Motorola recorded the P75,000 initial franchise fee as
revenue on April 1, 2004. On December 30, 2004, the franchisee decided not to open the
outlet under Motorolas name. Motorola cancelled the franchisees note and refunded
P24,000 less accrued interest on the note, of the P45,000 paid on April 1. What entry should
Motorola make on December 30, 2004?
a. Loss on Repossessed Franchise.. 24,000
Cash
24,000

b. Loss on Repossessed Franchise.. 22,200


Cash
22,200

c. Loss on Repossessed Franchise.. 52,000


Cash.. 22,200
Notes Receivable. 30,000

d. Revenue from Franchise Fees. 75,000


Interest Income 1,800
Cash 22,200
Notes Receivable.. 30,000
Revenue from Repossessed Franchise.. 21,000

44. Maranan Motors Sales cars on the installment basis. Presented below are data for the
past three years:

2007 2006 2005


Installment sales P2,880,000 P2,304,000 P1,543,000
Cost of sales 1,728,000 1,440,000 1,002,950
Collection on:
2007 installment sales 1,008,000
2006 installment sales 391,000 921,000
2005 installment sales 478,000 462,000 578,000

Repossessions on defaulted accounts included one made on a 2005 sale for which the
unpaid balance amounted to P20,000. The depreciated value of the car repossessed was
P10,000.

The unrecovered cost of the car in 2005 and repossessed in 2007 is :


a. P6,500 c. P10,000
b . 7,000 d. 13,000

Perez, Reyes and Suarez were partners with capital balances as of January 1, 2009 of
P100,000, P150,000 and P200,000 respectively. They share profits on a 5:3:2 ratio.

On July 1, 2009, Perez withdraw from the partnership. For the six month period ending June
30, 2009, the partnership generated a net income P140,000. Partners agreed that at the time
of withdrawal, certain inventory had to be revalued at P70,000 from its cost of P50,000.
Further, partners agreed to pay Perez P195,000 for his interest.

45. What are the capital balances of Reyes and Suarez after Perezs retirement?
Reyes Suarez
a. P217,000 P238,000
b. P189,000 P226,000
c. P177,000 P218,000
d. P187,500 P226,000

46. Assuming goodwill to Perez is recorded, what is the capital balance of Reyes after
Perezs retirement?
a. P232,000 b. P186,000 c. P189,000 d. P190,000

47. Assuming total goodwill of the partnership is to be recorded, what is the capital balance
of Suarez after Perezs retirement?
a. P238,000 b. P226,000 c. P234,000 d. P232,000

48. Perez, Que and Ramos are partners sharing earnings in the ratio of 5:3:2, respectively.
As of December 31, 2008, their capital balance showed P95,000 for Perez, P80,000 for Que,
and P60,000 for Ramos.

On January 1,2009 the partnership admitted Santos as a new partner and according to the
agreement, Santos will invest P80,000 in cash to the partnership and will also purchase 15%
of Ques interest for P10,000. SActos will share 20% in the earnings while the ratio of the
original partners will remain proportionately the as before Santos admission. After Santos
admission, the total capital of the partnership will be P330,000 while Santos capital account
will be P70,000.

What is the balance of Ques capital account after the admission of Santos?
a. P81,100 b. P79,100 c. P74,600 d. P72,600

49. On March 1, 2008, Alma and Betty formed a partnership with cash investments of Alma,
P480,000 and Betty, P240,000.

The partners agree to allocate profits and losses as follows:


1. Alma and Betty will be allowed a monthly salary of P48,000 and P24,000, respectively.
2. The partners will be allowed with interest of 10% of their capital balances at the beginning
of each year.
3. The remainder will be divided on the basis of their beginning capital for the year of
operation and equally for the subsequent years.
4. Each partner is allowed to withdraw up to P24,000 a year. Any withdrawal in excess of
the figure will be treated as a direct reduction from their capital balances.

In 2008 the partnership suffered a net loss of P36,000. But in 2009 they earned a profit of
P132,000. The partners withdraw the maximum amount each year. On January 2, 2010 a
new partner, Cora was admitted in the partnership for an investment of P400,000 for a 40%
interest. No revaluation of assets is to be recorded. After the admission of Cora, the partners
agreed to divide profits and losses, 4:2:4, to Alma, Betty and Cora, respectively.

On January 2, 2010, what is the entry to record the admission of Cora?


a. Cash P400,000
Alma, Capital 33,000
Betty, Capital 33,000
Cora, Capital P467,000

b. Cash P400,000
Cora, Capital P400,000

c. Cash P400,000
Alma, Capital 32,000
Betty, Capital 16,000
Cora, Capital P448,000

d. Cash P448,000
Cora, Capital P448,000

50. On January 1, 2009 Mr. X and Ms. Y formed a partnership engaged in selling compact
discs. Their capital accounts during the year show the following investments and withdrawals:

Mr. X Mr. Y
Investments Withdrawals Investments
Withdrawals
Beginning balance P36,000 P24,000
June 1 P14,400
P14,400
August 1 24,000
2,400
December 1 6,000

The partnerships profit and loss agreement provides for an annual salary of P36,000 for each
partner. Interest of 10% on average capital balances. Mr. X is also to receive a bonus of 5% on
net income after bonus.

Assuming a net income of P105,000 before any allocations, how much net income is allocated to
Mr. X?
a. P56,125 b. P58,408 c. P44, 710 d. P36,900

51. Mr. PP and Ms. KK are partners in a construction business located in Cebu City. The
profit and loss agreement contains the following provisions:

1. Salaries of P35,000 and P40,000 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 P20,000
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 2009 are as follows:

PP Capital PP Drawing KK Capital KK


Drawing
Beginning balance P120,000 P 0 P 60,000
P 0
April 1 20,000
June 1 15,000
20,000
September 1 30,000
November 1 15,000 40,000
Ending balance P170,000 P30,000 P100,000
P20,000

Assuming net income for 2009 of P132,00 before any allocations, how much profit should be
allocated to Mr. PP?
a. P69,660 b. P69,747 c. P72,774 d. P69,774

52. On January 2, 2009, Belo and Reyes formed a partnership. Belo contributed capital of
P350,000 and Reyes, P50,000. They agreed to share profits and losses 80% and 20%,
respectively. Reyes is given a salary of P10,000 a month; and interest of 5% of the beginning
capital of both partners and a bonus of 15% of net income before the salary, interest and
bonus. The income statement of the partnership for the year ended December 31, 2009 as
follows:

Revenues P1,750,000
Cost of goods sold 1,400,000
Gross profit 350,000
Expenses (including partners salary, interest and bonus) 286,000
Net profit P 64,000

What is the amount of bonus to Reyes in 2009?


a. P41,400 b. P32,912 c. P36,000 d. P26,800

Numbers 22 to 25 are based on the following data:


Arman Company has the following debit balances as of the year ended December 31, 2009:
Direct materials inventory P 90,000
Work in process inventory 207,000
Finished goods inventory 297,000
Under-applied factory overhead 24,000
Cost of goods sold 447,000
Additional information for 2009
Cost of direct materials purchased P246,000
Cost of direct materials requisitioned 282,000
Cost goods completed 612,000
Applied factory overhead (120% of direct labor cost) 288,000

53. What is the Direct Materials Inventory on January 1, 2009?


a. P180,000 b. P162,000 c. P126,000 d. P108,000
54. What the Work in Process Inventory on January 1, 2009?
a. P95,000 b. P90,000 c. P9,000 d. P8,000

55. What is the Finished Goods Inventory on January 1, 2009?


a. P150,000 b. P144,000 c. P132,000 d. P145,000

56. What is the actual factory overhead incurred during 2009?


a. P264,000 b. P280,000 c. P312,000 d. P321,000

Numbers 57 and 58 are based on the following data:


During August, Marlon Machine Company started production job orders 16,17 , and 18. Job order
15 was in process at the beginning of the month with direct material costs of P35,000, direct labor
cost of P21,000, and applied factory overhead of P25,300. During the month, direct materials
were requisitioned, and direct labor was identified with the job orders as follows:

Job Order No. Direct Materials Direct Labor


15 P - P26,000
16 39,000 45,000
17 53,000 47,000
18 47,000 16,000

Factory overhead is applied to the orders at 120% of direct labor cost. Job orders 18 was
incomplete on August 31.

57. What is the cost of goods manufactured for August?


a. P432,900 b. P376,600 c. P342,800 d. P358,600

58. What is the cost of work in process on August 31?


a. P138,000 b. P82,200 c. P18,400 d. P156,400

Questions 59 and 60 are based on the following data:


The data has been gathered from the records of Roque Manufacturing Company for April 2009:

Units
Work in process, April 1 (40% complete as to conversion costs) 5,000 units
Started in May 90,400 units
Work in process, April 30 (70% complete as to conversion costs) 4,000 units

Cost
Work in process, April 1 P 24,875
Materials cost incurred in April P433,920
Conversion costs incurred in April P115,250

The company uses the FIFO process costing method. Materials added at the beginning of
processing while conversion costs is evenly during the process.

59. What are the equivalent units of production of?


Materials Conversion Costs
a. 90,400 92,200
b. 95,400 91,200
c. 86,400 89,400
d. 92,400 90,600
60. What is the cost of units transferred out in April?
a. P551,345 b. P547,595 c. P522,720 d. P526,470

61. What is the cost of ending work in process?


a. P22,700 b. P23,700 c. P19,200 d. P22,000

Questions 31 and 33 are based on the following data:


Jimmy Company manufactures a highly sensitive smoke alarm and uses the FIFO method for
process costing. The total manufacturing costs for the month of June is P264,000 and 2,750 units
are completed during the month.

The inventories at the beginning of June are:


Units in process (80% complete) 1,250 units P128,000
Units on hand (complete) 600 units 76,800
The inventories at the end of June are:
Units in process (50% complete) 500 units
Units on hand (complete) 700 units

62. What is the equivalent unit of production?


a. 2,000 c. 2,200
b. 3,000 d. 1,750

63. What is the total cost of the units completed?


a. P92,400 c. P231,000
b. P79,200 d. P363,000

64. What is the total cost of units in process at the end?


a. P33,000 c. P32,000
b. P32,200 d. P66,000

EXERCISES / PRACTICE PROBLEMS:

65. Ron Sam and Tim decided to engage in a real estate venture as a partnership. Roy
invested P140,000 cash and Sam provided an office and furnishing value at P220,000.
(There is a P60,000 note payable remaining on furnishings to be assumed by the
partnership). Although Tim has no tangible assets to invest, both Roy and Sam believe
that Tims salesmanship provides an adequate investment. The partners agree to receive
an equal capital interest in the partnership. Using the bonus method, what is the capital
balance of Tim?
a. P50,000 b. Zero c. P140,000 d. P100,000

66. KA and LA are partners who share profits and losses equally. The capital accounts of KA
and LA have tripled in five years and at present have the following balances.

Ka, P90,000 LA, P60,000

MO desires to join the firm and offered to invest P50,000 for one-third interest. KA and LA
declined his offer but they extended a counter-offer to MO of P70,000 for a one-fourth interest
in the capital and profits and losses of the firm. If MO accepted their offer and bonus is
recorded, what should be the balances in the capital accounts of KA and LA after MOs
admission?
KA LA KA LA
a. P100,000 P70,000 c. P97,500 P67,500
b. P120,000 P90,000 d. P90,000 P60,000
67. Hannah and Ricardo are partners with capital of P100,000 and P140,000 respectively.
They share profits equally. Marlou invests P120,000 for a 25% interest in the partnership.
Hannah, Ricardo and Marlou agree that the combined capital is P360,000. The
agreement on the entry of Marlou brings about
a. Bonus of P60,000 c. Goodwill of P40,000
b. Goodwill of P60,000 d. Bonus of P30,000

AJ, BJ, and CJ are partners in an accounting firm. Their capital account balances at
December 31, 2005 were: AJ, P90,000; BJ, P110,000; CJ, P50,000. They share profits and
losses in a 4:4;2 ratio, after the following special terms:

a. Partner CJ is to receive a bonus of 10% of the net income after the bonus.
b. Interest of 10% shall be paid on that portion of partners capital in excess of
P100,000.
c. Salaries of P10,000 and P12,000 shall be paid to partners AJ and CJ respectively.

The income summary account for the year 2005 shows a credit balance of P44,000.

68. What is the profit share of partner CJ?


a. P19,400 b. P16,800 c. P17,800 d.
P19,800

69. A Partnership is currently holding P400,000 in asset and P234,000 in liabilities. The
partnership is to be liquidated and P20,000 is the best estimation of the expenses that
will be incurred during this process. The four partners share profit and losses as shown,
Capital balances at the start of the liquidation are as follows;

Kevin, capital (40%) P 59,000


Michael, capital (30%) 39,000
Brendo, capital (20%) 34,000
John, capital (10%) 34,000

The partners realize that John will be the first partner to start receiving cash. How much cash
will John receive before the other partner collect any cash?
a. P12,250 b. P14,750 c. P17,000 d. P19,500

70. Roxanne and Roxy begin a partnership on January 1, 2006. Roxanne invests P40,000
cash as well as inventory costing P15,000 but with a current appraised value of only
P12,000. Roxy contributes a building with a P40,000 book value and a P48,000 fair
market value. The partnership also accepts responsibility for a P10,000 note payable
owed in connection with this building. The partners agree to begin operations with equal
capital balances. The articles of partnership also provide that at the end of each year
profits and losses are allocated as follows:

a. For managing the business, Roxanne is credited with a bonus of 10 percent of


partnership income after subtracting the bonus. No bonus is accrued if the
partnership records a loss.
b. Both partners are entitled to interest equal to 10 percent of the average monthly
capital balance for the year without regard for the income or drawings of that year.
c. Any remaining profit or loss is divided 60 percent to Roxanne and 40 percent to Roxy.
d. Each partner is allowed to withdraw P800 per month in cash from the business.

On October 1, 2006, Roxanne invests an additional P12,000 cash in the business. For 2006,
the partnership reports income of P33,000. Rojanne, an employee, is allowed to join the
partnership on January 1, 2007. The new partner invests P66,000 directly into the business
for a one-third interest in the partnership property. The revised partnership agreement still
allows for both the bonus to Roxanne as well as the 10 percent interest, but all remaining
profits and losses are now split 40 percent each to Roxanne and Rojanne with the remaining
20 percent to Roxy. Rojanne is also entitled to P800 per month in drawings. Roxy chooses
to withdraw from the partnership a few years later. After negotiations, all parties agree that
Roxy should be paid a P90,000 settlement. The capital balances on that date were as
follows:

Roxanne, capital 88,000 Rojanne, capital 72,000


Roxy, capital 78,000

Assuming that the goodwill method is used exclusively by this partnership, what is the capital
balance of Roxanne after Rojannes admission to the partnership?
a. 74,780 b. 75,360 c. 75,800 d. 70,860

71. Enrelen, Jeanette, Julie and Janice were partners who decided to dissolve and liquidate
the affairs of the partnership. Prior to dissolution and liquidation, the condensed balance
sheet together with the profit and loss sharing ratio was derived as follows:

Cash P 50,000 Liabilities


P375,000
Other asses 900,000 Jeanette, loan
30,000
Janice, loan
25,000
Enrelen, capital (30%) 210,000
Jeanette, capital (30%) 157,500
Julie, capital (20%)
102,500
_______ Janice, capital (20%)
50,000
P950,000
P950,000

The other assets were sold for P600,000. Payments were made to creditors and final
distribution of cash was made to partners. The partner who got paid the most was:
a. Enrelen for capital at P210,000 c. Jeanette loan of P30,000 and
capital of P135,000
b. Jeanette loan of P30,000 and capital of P157,500 d. Enrelen for capital at P120,000

NTV Company began operation in January 1, 2009 appropriately uses the installment method
of accounting. The following data pertain to NTVs operations for the remainder of the year.

Installment sales P450,000 Operating expenses


P36,000
Regular sales 187,500 Collections on Installment sales
Cost of regular sales 107,500 (including interest of P12,000)
156,000
Cost of installment sales 315,000 Installment rec. written off due to
FMV of repossessed mdse. 27,000 default
22,000
Reconditioning costs 2,000 repossessed account
50,000

72. Calculate the total deferred gross profit at December 31, 2009
a. P66,600 b. P122,850 c. P70,200 d. P126,450
The following data were taken from the book of Five Jewel Company:

2008 2009
Installment sales P800,000
P900,000
Cost of installment sales 480,000
600,000
Collections
2008 Installment receivables 250,000 300,000
2009 Installment receivable -
360,000
Defaults and repossessions
Unpaid balance of prior years installment
Receivable defaulted 12,000
15,000
Value assigned to repossessed merchandise 7,000 8,000

73. The gain /(loss) on repossession on the defaulted 2008 contract was
a. P1,000 gain b. P1,000 loss c. P3,000 loss
d. P3,000 gain

Action, Inc. sold a fitness equipment on installment basis on October 1, 2009. The unit cost to
the company was P60,000 but the installment selling price was set at P85,000. Terms of
payment included the acceptance of a used equipment given a trade-in value of P30,000.
The cash of P5,000 was paid in addition to the trade-in equipment with the balance to be paid
in ten (10) monthly installments due at the end of each month commencing at the month of
sale. It would require P1,250 to recondition the used equipment so that it could be resold for
P25,000. A 15% gross profit rate was usual from the sale of used equipment.

74. The realized gross profit during 2009 as indicated from the foregoing information is
a. P4,000 b. P34,000 c. P10,000
d. P8,000

75. Sheraton Trading Company opened a branch in Binondo on January 1, 2009 to expand
the market for its products. Merchandise shipped to the branch during 2002, at 125% of
cost, were P104,000. Other transactions relating to the branch were as follows: Sales on
account, P117,000; Expenses, of which P1,500 are still unpaid a year-end, P20,000; cash
received from the customers accounts, net of discounts of 2%, P72,520; and, cash
remittance to the home office, P65,000. As of December 31, 2009, the branch inventory
was P12,500 at billed price. As far as the home office is concerned, the branch net
income for 2002 was:
a. P8,300 b. P22,320 c. P24,300 d. P24,320

76. Novell Bookstore has branches in key cities nationwide. Merchandise shipped to the
branches is billed at 25% above cost and are inventoried by the branches at billed price.
Fixed assets of the branches are carried in the home office books. All collections of the
branches are deposited in a bank account against which only the home office can draw.
Each branch, however, maintains an imprest fund of P4,000 which is reimbursed
periodically for expenses. Certain expenses, though, are paid by the home office and
subsequently charged against the branches. Presented below is a T-account of the 2009
Tagum branch current account:

Tagum Branch
Jan. balance P62,820 : Remittance
P180,640
Shipments to branch 128,000 :
Advertising and Promotion 6,400 :
Depreciation 2,400 :
Reimbursement of expenses 36,600 :
Net Income 9,260 :

The beginning inventory of this branch was P31,500, and it reported sales of P192,690 of
which P1,280 proved to be uncollectible. The ending inventory was P22,750. What is the net
income of Tagum branch in so far as the home office is concerned?
a. P9,260 b. P36,610 c. P45,860 d. P27,350

Blotik Company has two merchandise outlets, its main store and its Gaisano Mall branch. All
purchases are made by the main store and shipped to the Gaisano Mall branch at cost plus
10%. On January 1, 2008, the main store and Gaisano Mall inventories were P17,000 and
P4,950, respectively. During 2008, the main store purchased merchandise costing P50,000
and shipped 40% of it to Gaisano Mall. At December 31, 2008, Gaisano Mall made the
following closing entry:

Sales P40,000
Inventory, end 6,050
Inventory, beg. P 4,950
Shipments from main store 22,000
Expenses 13,100
Main store 6,000

77. If the main store inventory at December 31, 2008 is P14,000, the combined main store
and branch inventory that should appear in Blotik Companys December 31, 2008
balance sheet is:
a. P18,950 b. P18,500 c. P20,050 d.
P21,500

A branch operation buys most of its inventory from outside parties. However, this year the
home office transferred merchandise costing P50,000 to the branch for P80,000. At the end
of the year, 20 percent of this merchandise was still held by the branch. Although the
inventory was correctly counted and reported, the branch did not tell the home office that this
portion of the remaining goods came from transfers. Consequently, the home office assumed
that all of the transferred merchandise has been sold to outside parties.

78. What is the resulting impact on the net income reported for the company as a whole?
a. the net income figure would still be correctly calculated
b. the net income figure would be P6,000 overstated
c. the net income figure would be P30,000 overstated
d. the net income figure would be P30,000 understated

Konstruk Construction Company uses the percentage of completion method of accounting. In


2006, Konstruk began working under contract #1105A, which provided for a contract price of
P12,000,000. Other details were as follows:
2006 2007
Cost incurred during the year P1,800,000 P9,450,000
Estimated cost to complete 7,200,000 -
Billing during the year 2,760,000 9,240,000
Collections during the year 1,500,000 9,300,000

79. The portion of the total contract price to be recognized as revenue is 2006 is:
a. P1,920,000 b. P2,160,000 c. P2,400,000 d.
P1,200,000
Jakiro Co. uses the cost to cost percentage of completion in reporting earning; Jakiro
assumed leadership of the firm after the retirement of his father and in reviewing the firms
record, finds the following information on a recently completed project with a contract price of
P 2,500,000.

2007 2008 2009


Cost incurred to date P450,000 P1,275,000 ?
Gross Profit (loss) P50,000 P175,000 (25,000)

Mr. Jakiro wants to know how effectively the company operated during the past years on the
project and since he found that the information is incomplete, he has asked you to help by
answering:

80. How much was the estimated cost to complete at December 2009?
a. 1,100,000 b. 1,725,000 c.0 d. 1,075,000

In 2004, Builtrite Co. agreed to construct an apartment building at a price of P9,000,000.


Builtrite uses the percentage of completion method. The information relating to the costs and
billings for the contract were as follows:
2004 2005 2006
Cost incurred to date P2,520,000 P5,400,000
P7,065,000
Estimated cost yet to be incurred 4,680,000 1,800,000
-
Customer billing to date 1,350,000 3,600,000 9,000,000
Collection of billing to date 1,080,000 2,880,000
8,460,000

81. What is the balance of the construction in progress, net of contract billing account at
Builtrites December 31, 2004 Balance Sheet?
a. P3,150,000 b. P3,600,000 c. P1,800,000 d. P2,250,000

Dapecol manufacturing Company uses a raw and in process (RIP) inventory account and
expense all conversion cost to cost of goods sold account. At the end of each month, all
inventories are counted, their conversion cost components are estimated, and inventory
account balances are adjusted accordingly. Raw materials cost is backflushed from RIP to
finished goods. The following information is for the month of April:

RIP, beg. (Inclusive of P1,400 conversion cost) P31,000


Raw materials received on credit
367,000
RIP, ending, including P1,800 conversion cost 33,000

82. Compute the amount to be backflushed from RIP to cost of goods sold:
a. P365,000 b. P368,600 c. P367,000 d. P365,400

SAMS Manufacturing Company produces only for customer order and most work are shipped
within thirty-seven hours of the receipt of an order. SAMS Company uses raw and in process
(RIP) inventory account and expenses all conversion costs to the cost of sales account. Work
is shipped immediately upon completion, so there are no finished goods on hand. At the end
of each month, inventory is counted, its conversion cost is estimated, and RIP account
balance is adjusted accordingly. Raw materials cost is backflushed from RIP to Cost of Sales.
The Following information is for the month of May:

Beginning balance of RIP P12,300


Raw materials purchased 246,000
Ending balance of RIP 12,100

The beginning balance of RIP includes P1,300 conversion cost and ending balance also
includes P2,100 conversion cost estimates.
83. Compute the amount of cost of goods sold after all transactions and adjustments were
made:
a. P246,000 b. P246,200 c. P247,000 d. P245,000

Xerox Company is preparing its annual profit plan. As part of its analysis of the probability of
individual products, the controller estimates the amount of overheads that should be assigned
to the individual product lines from the information given as follows:

Ordinary copier Specialized copier


Units produced 25 25
Materials moves per
Product line 5 15
Direct labor hours per unit 200 200
Budgeted materials handling costs P50,000

84. Under activity based costing (ABC), the materials handling cost assigned to one unit of
ordinary copier would be
a. P1,000 b. P 500 c. P1,500 d. P5,000

2GO Corporation uses activity based costing to determine product costs for external
financial reports. The Company has provided the following data concerning its activity
based costing system:
Estimated
Activity cost pools (and activity measures) Overhead Cost
Machine related (machine hours) P81,600
Batch setup (setup) P387,000
General Factory (direct labor hours) P274,800

Expected Activity
Activity cost pools Total Product A Product C
Machine related 8,000 3,000 5,000
Batch setup 10,000 2,000 8,000
General factory 12,000 7,000 5,000

85. Assuming the actual activity are the same as expected, the total amount of overhead
costs allocated to product A would be closest to:
a. P371,700 b. P387,700 c. P268,300 d. P149,000

86. Graft Co. which produces joint products. A and B in department from a process which
also yield by product W. product A and By Product W are sold after separation, but
product B must be further processed in Department Two before it can be sold. The cost
assigned to the by product is its market value less P.40 per pound for delivery expense
(NRV method). Information relating to a batch produced in July is presented.

Product Production (in pound) Sales Price per pound


A 2,000 P4.50
B 4,000 9.00
W 500 1.50
Joint cost in department One P18,000
Product B additional process cost in Department Two was P10,000
For joint cost allocation purposes, what is the net realizable value at the split-off point of
Product B?
a. P9,000 c. P26,000
b. P35,000 d. P28,000

Kaloocan Manufacturing Company produces chemicals Kaw and Law. The processing also
yields a by-product Haw another chemical. The joint costs of processing are reduced by the
net realizable value of Haw. The Joint costs were registered at P3,840,000.

In Thousand
Product Production Market value
Kaw 2,000 3,000
Law 3,000 2,000
Haw* 1,000 420
* An additional P180,000 were spent to complete the processing of Haw.

Assuming that the company uses the net realizable value method for allocating joint costs,
the allocated costs to Kaw would amount to:
a. P2,160,000 b. P1,800,000 c. P2,208,000 d. P2,700,000

JobiMac Co.s materials purchased during 2001 are P25,590 and materials put into
production are indirect and direct materials, respectively, worth P18,500 and P7,090. The
total factory payroll is P74,000 of which P50,000 represents direct labor. Other factory
overhead costs amount to P32,000. The company applies the actual factory overhead cost to
the job. Cost of goods sold, and the cost of goods manufactured, are P135,000 and 128,000
respectively,.

87. By what amount did the companys closing goods, in process inventory exceed its
opening goods in process inventory?
a. P1,590 b. P3,590 c. P5,390 d. 10,590

Peters and Company currently has 30 full-time professionals on staff. Each professional is
allotted the following number of hours per year:

Budgeted billable time for clients 2,000 hours


Budgeted vacation time 200 hours
Budgeted professional development 175 hours
Budgeted unbillable time due to lack of demand 0 hours
Budgeted sick leave 125 hours

Consumer demand for the company's services is at 100 percent of time available. Each
professional receives a salary of P35,000 per year and fringe benefits of P10,000 per year.

88. What is the total budgeted direct -cost rate if management believes that clients should be
charged for the employees' benefits that Peters and Company has to pay?
a. P17.50 b. P18.00 c. P22.50 d. P 5.00

89. What is the budgeted direct-cost rate if the company does not want to charge clients
directly for employee vacation, sick leave, and professional development?
a. P14.00 b. P 4.00 c. P22.50 d. P18.00

90. Materials are added at the start of the process in Cedar Companys blending department,
the first stage of the production cycle. The following information is available for July:
Units
Work in process, July 1 (60% complete as to conversion costs) 60,000
Started in July 150,000
Transferred to the next department 110,000
Lost in production
30,000
Work in process, July 31 (50% complete as to conversion costs) 70,000

Under Cedars cost accounting system, the costs incurred on the lost units are absorbed by
the remaining good units. Using the weighted average method, what are the equivalent units
for the materials unit cost calculation?
a. 180,000 b. 145,000 c. 125,000 d. 210,000

A Company produces small pencil erasers. Two percent of normal inputs are expected to be
spoiled in the process. Inspection occurs at the end of the process and rejected units are
disposed of as scrap with no cost recovery. In a recent period, the following data were
obtained:

Units
Total units started
750,000
Defective units rejected (including normal and abnormal spoilage)
20,000
Costs
Materials
P14,750
Conversion
7,750
Total
P22,500

91. The cost for the units transferred to finished good during this 24hour period, assuming no
ending work-in progress, is
a. P21,900 b. P22,350 c. P22,050 d. P22,500

GAOGAO Mfg. Corp., makes single Product in two departments. The production data for
mixing department for May, 2008 follows:

Quantities:
In process, May 1 (40%) 4,000 units
Received from department 678 30,000 units
Completed and transferred 25,000 units
In process, May 31 (60%) 6,000 units

Production Costs: May 1 May 31


Transferred in P16,300 P89,100
Materials added 3,800 67,500
Conversion cost 1,940 81,000

Materials are added at the start of the process and losses normally occur during the early
stages of the operation.

92. Assuming average costing was used to account for the process, the closing work in
process was:
a. P44,640 b. P46,800 c. P45,600 d. P51,680

Markie Companys direct labor costs for the month of January 2003 were as follows:

Actual direct labor hours 20,000


Standard direct labor hours 21,000
Direct labor rate variance unfavorable P 3,000
Total payroll 126,000

93. What was direct labor efficiency variance?


a. 6,000 favorable c. 6,300 favorable
b. 6,150 favorable d. 6,450 unfavorable

Universal company uses a standard cost system and prepared the following budget at normal
capacity for the month of January:

Direct labor hours 24,000


Variable factory overhead 48,000
Fixed factory overhead 108,000
Total factory overhead per DLH 6.50

Actual data for January were as follows:


Direct labor hours worked 22,000
Total factory overhead 147,000
Standard DLH allowed for capacity attained 21,000

94. Using the two-way analysis of overhead variance, what is the budget (controllable)
variance for January?
a. 3,000 favorable c. 9,000 favorable
b. 13,500 unfavorable d. 10,500 unfavorable

The following information pertains to Maglulubi Company maker of cooking oil as follows:

Actual direct labor hours used 4,700


Units produced ... 1,500
Standard labor hours per unit produced . 3
Budgeted variable overhead per standard direct labor hour P 2
Actual variable overhead incurred . P 9,500

95. Compute the variable overhead efficiency variance


a. P100 unfavorable c. P400 favorable
b. P100 favorable d. P400 unfavorable

Dwarf Company applies overhead on the basis of direct labor hours. Two direct labor hours
are required for each product unit. Planned production for the period was set at 9,000 units.
Manufacturing overhead budgeted at P135,000 for the period, of which 20% of this costs is
fixed. The 17,200 hours worked during the period resulted in production of 8,500 units.
Variable manufacturing overhead cost incurred was P108,500 and fixed manufacturing
overhead cost was P28,000. Dwarf Company uses four way variance methods for analyzing
manufacturing overhead.

96. The fixed efficiency variance for the period is


a. P300 unfavorable c. P300 favorable
b. P1,200 unfavorable d. P1,200 favorable

97. Nenas Lechon, Inc. franchise, entered into franchise agreement with Aling Nene,
franchisee, on March 31, 2008. The total franchise fee is P500,000, of which P100,000 is
payable upon signing and the balance in four equal annual installments. The down-
payment is refundable in the event the franchiser fails to render services and none thus
far had been rendered. When Nenas prepares its financial statements on March 31,
2008, the franchise fee revenue to be reported is:
a. P 0 b. P100,000 c. P500,000 d. P400,000

98. On December 31, 2009, Peter Company signed an agreement to operate as franchise of
Wendys for a franchise fee of P80,000. Of this amount, P30,000 was paid upon signing
of the agreement and the balance is payable in five annual payments of P10,000 each
beginning December 31, 2010. The present value of the five payment, at an appropriate
rate of interest, is P56,000 at December 31, 2009. The agreement provides that the down
payment is not refundable and no future services are required of the franchisor. The
collection of the note receivable is reasonably certain. Wendys Company should report
unearned revenue from franchise fee in its December 31, 2009 balance sheet at:
a. 80,000 b. 30,000 c. 66,000 d. 0

99. Chick 2 Go, Inc. charges an initial franchise fee of P115,000, with P25,000 paid when the
agreement was signed and the balance in five annual payments. The prevailing interest
rate upon signing the contract was 10%. The Franchisee has the option to purchase
P15,000 of equipment for P12,000. Chick 2 Go has substantially provided all initial
services required and collectibility of the payment is reasonably assured. The amount of
revenue recognized from the franchise fee was:
a. P25,000 b. P90,234 c. P93,234 d. P115,000