You are on page 1of 14

# Problem A = On September 1, 2015, Shake-It Company entered into franchise agreement with

three franchises. The agreement required an initial fee payment of P1,400,000 plus four equal
payment of 600,000, the first payment due December 31, 2015. The interest rate is 12%. The
initial deposit is refundable until substantial performance has been completed. The table below
describes each agreement:
Service Performed by
Probability of Full Total Cost Incurred to
Franchisee Franchisor at December
Collection December 31, 2015
31, 2015
Cleveland Reasonably assured Substantially P1,400,000
Boston Doubtful 25% 400,000
Detroit Doubtful Substantially 2,000,000

Shake it all received P2,000,000 from each franchisee during the year.

## For the year ended 2015, determine the following:

1. Total Franchise revenue (all franchisee)
a. P5,490,820 b. P3,577,937 c. P7,403,702 d. P1,912,883
2. Total Realized gross profit from franchises
a. P843,617 b. P3,021,554 c. P2,177,937 d. P3,865,171
3. Net income (all franchisee)
a. P2,177,937 b. P3,195,789 c. P2,265,055 d. P3,282,907

PROBLEM B = CD partnership begins its first year of operations with the following capital
balances: C, Capital, P224,000; D, Capital, P112,000. According to the partnership agreement,
all profits will be distributed as follows: C will be allowed an salary of P268,800 and P134,400 to
D. The partners will be allowed with interest equal to 10% of the beginning capital balance of the
year. C will be allowed a bonus of 10% of the net income after bonus. The remainder will be
divided on the basis of the beginning capital for the first year and equally for the second year.
Each partner is allowed to withdraw up to P11,200 per year. Assume that the income summary
has a debit balance of P16,800 on the first year and a credit balance of P61,600 on the second
year. Assume further that each partner withdraws the maximum amount from the business each
period.
4. What is the balance of D’s capital account at the end of the second year?
a. P95,000 b. P39,480 c. P296,520 d. P201,600

PROBLEM C = A,B, and C formed a partnership on January 1, 2010 with initial capital
contribution of P450,000, P562,500, and P675,000 respectively. The partnerships agreement
provides that income be shared among the partners as follows: Salaries are to be provided for
A, B, and C amounting P67,500, P54,000, and P40,500 respectively. Interest of 12% on the
average capital during 2010 are to be given to A, B ,and C. Bonus of 5% of the net income
before salaries and interests is to be given to A. Any remainder is to be divided among the
partners using the ratio 1:2:2 respectively.

The partnership treats the partners’ salaries as part of their operating expenses. The net income
reported for the year ending December 31, 2010 amounted to P234,000. A contributed
additional capital of P67,500 on July 1 and made a withdrawal of P22,500 on Oct. 1; B
contributed additional capital of P45,000 on Aug. 1 and made a withdrawal of P22,500 on Oct.1;
and C made a withdrawal of P67,500 on Nov.1
5. Compute for the amount of income allocated to each partner.
A B C
a. P139,815 P129,555 P126,630
b. P140,940 P128,430 P126,630
c. P98,055 P69,435 P66,510
d. P146,295 P126,315 P123,390

PROBLEM D = On August 1, 2010, Marie and Paz formed a partnership. Marie contributed
Inventory of P500,000 with a fair value of P300,000 while Paz contributed cash of P250,000 and
a land valued that cost her P900,000 with a carrying amount of P1,000,00 and a fair value of
P1,250,000. The partnership did not assumed the mortgage attached to the property worth
P250,000.

## The partners agree to allocate profits and losses as follows:

1. Each partner shall receive 5% interest on the amount of his beginning capital.
2. Marie will received a salary of P8,000 per month.
3. The remainder will be divided equally on the first year of operation and 60% and 40% on
subsequent years.
4. Marie and Paz is allowed to withdraw P5,000 per month. Any withdrawal is treated as
direct reduction of capital.
In 2010 the partnership has a credit balance of income summary of P100,000. On July 1, 2011,
Ivonne was admitted in the partnership by investing P800,000 for a 25% interest goodwill is to
recorded.

## After admission of Ivonne, the partners agreed to divide profits as follows:

1. Each partner shall receive 5% interest on the amount of his beginning capital.
2. All partners will received a salary of P2,000 per month.
3. The balance to be divided 45% to Marie, 30% to Paz and 25% to Ivonne.
4. Each partner is allowed to withdraw P2,000 per month. Any withdrawal is treated as a
direct reduction of capital.

6. In 2011, the partnership earned a profit of P300,000 evenly throughout the year. How much
is the capital balance of Marie at the end of December 31, 2011?
a. P707,623.44 2. P700,269.06 3. P670,652.97 4. P705,586.25

PROBLEM E = James, Wade, Allen and Bosh are partners sharing profits and losses equally.
The partnership is insolvent and is to be liquidated. The status of the partnership and each partner
is presented below:

## James Wade Allen Bosh

Partnership capital balance 150,000 100,000 (200,000) (300,000)
Personal assets (exclusive of
partnership interest) 1,000,000 300,000 800,000 10,000
Personal liabilities (exclusive
of partnership interest) 400,000 600,000 50,000 280,000
7. Which of the following statement is true with regards to partnership creditors?
a. Must first seek recovery against Allen because he is personally solvent and he has a
negative capital balance.
b. Will not be paid in full regardless of how they agreed legally because the partnership
assets are less than partnership liabilities.
c. Will have to share Wade’s interest in the partnership on a pro-rata basis with Wade’
personal creditors.
d. Have first claims to partnership assets before any partner’s personal creditors have
rights to the partnership assets

## 8. The partnership creditors may obtain recovery of their claims

a. In the amount of P62,500 from each partner
b. From the personal assets of either James or Wade
c. From the personal assets of either Allen or Bosh
d. From the personal assets of either James or Allen for some or all of their claims.

9. How much will be the partnership creditors’ total recovery in liquidating the partnership?
a. P250,000 b. P150,000 c. P100,000 d. P0

10. What are the personal net worth of James and Allen after liquidation?
James Allen
a. P600,000 P750,000
b. P650,000 P750,000
c. P600,000 P450,000
d. P650,000 P450,000

PROBLEM F = Dissolved Corporation filed a voluntary petition for bankruptcy on January 2014.
On March 31, 2014, the trustee provided the following information about the corporation‘s financial
affairs:

Estimated
Book Value
Realizable Value
Cash 80,000 80,000
Accounts receivable – net 400,000 300,000
Inventories 600,000 280,000
Plant assets – net 1,000,000 1,120,000
Prepaid expenses 20,000 0
Total assets 2,100,000

## Accounts payable 180,000

Accrued salaries 80,000
Taxes payable 140,000
Notes payable 400,000
Mortgage payable 880,000
Bonds payable 420,000
Total liabilities 2,100,000

Additional information:
 The notes payable is secured by accounts receivable.
 All plants assets were pledged to mortgage payable.
 The trustee fees and other cost of liquidating the estate are estimated to be P100,000.

## 11. Determine the amount expected to be available for unsecured claims:

a. P600,000 b. P1,160,000 c. P280,000 d. P380,000

## 12. Determine the expected recovery per peso of unsecured creditors:

a. P0.86 b. P0.89 c. P0.40 d. P0.54

## 13. Determine the estimated payments to creditors:

a. P1,460,000 b. P900,000 c. P1,540,000 d. P1,780,000

PROBLEM G = The Boston Company makes all of its sales on installment contracts and
accordingly reports its income on the installment basis. Installment contracts receivables are
accounted for by years. Defaulted contracts are recorded by debiting the Loss on Repossession
account and crediting the appropriate Installment Contract Receivable account for the unpaid
balance at the time of default. All repossessions and trade in are recorded at realizable values.
The following data relate to the transactions during 2014 and 2015.
2014 2015
Installment sales P150,000 P198,500
Installment contract receivable, December 31
2014 sales 80,000 25,000
2015 sales 95,000
Purchases 100,000 120,000
New merchandise inventory, December 31 (at cost) 10,000 26,000
Loss on repossessions 6,000
In 2015, the company auditor ascertained that the inventory taken on December 31, 2015 does
not include certain merchandise received as trade in on December 2, 2015 for which an allowance
was given. The realizable value of the merchandise was P1,500 which was also the allowance
for trade in. No entry was made to record this merchandise on the books at the time it was
received.

Furthermore, a 2014 contract was defaulted and the merchandise was repossessed. The
repossessed merchandise had a realizable value of P 2,500. The repossessed merchandise was
neither recorded nor included in the physical inventory on December 31, 2015.

## 14. The gross profit rate in 2015 after adjustment is?

a. 40% b. 48% c. 47.50% d. 45%
15. The balance of deferred gross profit in 2014 as of December 31, 2015 is?
a. P55,600 b. P10,000 c. P57,500 d. P28,000
16. The total realized gross profit to be reported for 2015 is?
a. P72,400 b. P70,000 c. P72,100 d. P99,400
17. The adjusted loss (gain) on repossession is?
a. P3,500 b. (P100) c. P1,100 d. P2,500

## Problem H= P Company acquired 80% of the outstanding common stock of S Company on

January 2, 2012, by issuing 8,000 of its shares to the stockholders of S Company.

In connection with this combination, the following costs were incurred and paid by P Company:
Finder’s fee 10,000
Accountant’s fee for pre-acquisition audit 20,000
Legal fee for contract of business combination 30,000
Legal and accounting fees for SEC registration 30,000
Printing cost of stocks certificates issued to S Company
shareholders 10,000

Trial balance of the companies on that date and with other pertinent information, are:
P Company S Company
Book Value Book Value Fair Value
Cash 400,000 320,000 320,000
Accounts receivable 200,000 150,000 150,000
Inventory 150,000 90,000 100,000
Land 50,000 110,000 135,000
Equipment – net 300,000 220,000 200,000
Patent 200,000 0 0
Long-term investment 100,000 125,000 130,000
Goodwill 42,000
Total 1,442,000 1015,000

## Accounts payable 175,000 115,000 115,000

Ordinary shares – P Company (P50 par) 400,000
Ordinary shares – S Company (P10 par) 100,000
Premium on ordinary shares 200,000 270,000
Retained earnings 667,000 530,000
Total 1,442,000 1,015,000

P Company will pay an additional P100,000 in cash if the combined income of P Company and S
Company in 2012 exceeds P1M.

Information as at date of acquisition indicates that it is probable that the combined income will be
over 1 million and it can be measured reliably and as such the contingent consideration is valued
at P75,000 on acquisition date.

## Assuming the non-controlling interest is measured on a market based, assuming that S

Company’s ordinary shares are at P100 per share. The control premium paid was P160,000.

## Under parent’s book.

Determine the following:
18. Increase in total asset
a. P1,035,000 b. P960,000 c. P935,000 d. P900,000
19. Increase in total stockholders’ equity
a. P1,480,000 b. P920,000 c. P900,000 d. P860,000

## Under consolidated financial statement

Determine the following:
20. Acquisition cost
a. P1,235,000 b. P1,160,000 c. P1,035,000 d. P960,000

## 21. Goodwill attributable to parent

a. P600,000 b. P299,000 c. P224,000 d. P184,000

## 22. Goodwill attributable to non-controlling interest

a. P16,000 b. P12,000 c. P10,000 d. P0

## 23. Consolidated total assets after acquisition

a. P2,792,000 b. P2,692,000 c. P2,377,000 d. P1,657,000

## 24. Consolidated total stockholders’ equity after acquisition

a. P2,327,000 b. P2,127,000 c. P2,237,000 d. P2,217,000

## Problem I = P Company purchased 20% interest in S Company for P100,000 on January 1,

2010 when S Company had ordinary shares of P220,000 and retained earnings of P200,000.
Any difference between the cost of investment and book value acquired is due to undervalued
equipment with remaining useful life of 3 years.

## For the years 2010 to 2012 S Company reported the following:

Net income Dividend Declared
2010 120,000 40,000
2011 150,000 40,000
2012 180,000 40,000
P Company purchased additional 60% of S Company on January 1, 2013 for P585,000.
Assuming that the 20% investment acquire in 2010 is now with a fair value of 10% above the
carrying value which representing 20% of Subsidiary net assets fair value on that date –
difference attributable to building and land). NCI fair value is P175,000.

## Determine the following:

25. Acquisition cost
a. P925,000 b. P950,000 c. P930,000 d. P960,000

## 26. Goodwill attributable to parent

a. P100,000 b. P90,000 c. P80,000 d. P60,000

## 27. Goodwill attributable to NCI

a. P10,000 b. P50,000 c. P30,000 d. P60,000

Problem J = ABC Company had an agency in XYZ. During the 2010, the transactions of the
agency are summarized below:
Cash – XYZ Agency
Sales 525,000 Purchases 500,000
Salaries and commission 110,000
Rent 50,000
Advertising supplies 30,000
Working fund 15,000
Other expense 5,000

The agency had P200,000 receivables and P100,000 accounts payables (on purchases made)
as of the end of the period. Also, they were inventories on hand of P70,000, unused advertising
supplies of P2,500 and unpaid salaries and commissions of P15,000. The agency is holding a
working fund accounted under imprest system in which includes unreplenished voucher of
P8,750.

## 28. Determine the net loss in the operation of XYZ Agency.

a. P21,250 b. P12,500 c. P91,250 d. P82,500

Problem K = The trial balance of the Home Office and Branch office of the Triple M. Co. as at
December 31, 2012, appear below:

## Home Office Branch

DEBITS:
Cash 920,000 30,000
Petty cash fund 10,000
Accounts receivable 250,000 212,000

## Property, Plant and Equipment 2,000,000 484,500

Inventory, January 1, 2012 326,000 165,500
Investment in Branch 600,000
Purchases 1,900,000 120,000
Shipment from Home Office 1,138,000
Freight-in from Home Office 52,500
Expenses 420,000 243,000

## TOTAL 6,416,000 2,455,500

CREDITS:
Accounts liabilities 350,000 290,500
Home Office Equity 515,000
Capital Stock 2,000,000
Retained Earnings 1,060,000
Sales 1,896,000 1,650,000
Shipment to Branch 1,100,000
Allowance for overvaluation in Branch's
Inventory 10,000
TOTAL 6,416,000 2,455,500

## The audit at December 31, 2012 disclosed the following:

a. The Branch Office deposits all cash receipts in a local bank for the account of the Home
Office. The audit working papers for the cash cutoff revealed the following information:
Deposited by Branch Recorded by Home Amount
Office
December 27, 2012 December 31, 2012 P 150,000
December 30, 2012 January 2, 2013 42,000
December 31, 2012 January 3, 2013 40,000
January 2, 2013 January 6, 2013 30,000

b. Returned check by the Bank to Home Office marked NSF amounted to P13,900 was
identified Branch’s customer checks included on deposits made December 27, 2012. The
Home office made the necessary adjustment but failed to inform the Branch about it.
c. The petty cash fund has an imprest amount of P10, 000 and is composed of the following:

## Currencies and coins 3,500

Unreplenished vouchers 3,000
Employee’s check dated Jan. 31, 2012 2,500
Currency in an envelope marked “collections for a wedding gift” 1,500
Total 10,500
Note: Cash shortage is to be charged to the petty cashier while cash overage is to be
credited to miscellaneous income.

d. The Home Office bills the goods at cost plus mark up of 10% of cost. At December 31, a
shipment with a billing value of P50,000 was in transit to the Branch. Freight costs are
typically 5% of billed values and the Home Office makes the payment.

## e. Purchases made by branch are free of freight charges.

f. It was discovered that the total merchandise shipped by the Home Office during the year to
the branch were all credited to Shipment to Branch except for P88,000 that was shipped
month of October of the same year it was erroneously credited to Sales and freight paid was
debited to expense.

## g. The inventories at December 31, excluding the shipment in transit, are:

Home Office P300,000

## Branch P104,000 – from Home Office

30,000 - from Outsider

h. Home Office collected a Branch’s accounts receivable of P80,000 less 2% discount. The
Home Office failed to notify the branch.

i. Branch paid advertising expense of P25,000, of this amount paid, 60% is for Home office
the rest is for Branch. The Branch made the proper entry but failed to notify the Home
Office.

## Determine the following:

29. Branch inventory acquired from outsider – January 1, 2012.
a. P50,000 b. P55,500 c. P60,000 d. P65,500

30. Reconciled balance of Home Office and Investment in Branch account. (before closing
entries)
a. P519,400 b. P589,400 c. P503,000 d. P507,400

31. Branch net income or net loss from its own operation.
a. P61,200 b. P65,600 c. P56,800 d. P62,100

## 32. Combined cost of goods sold

a. P2,090,900 b. P2,390,900 c. P2,083,200 d. P2,093,200

## 33. Branch true net income.

a. P162,500 b. P165,200 c. P156,200 d. P152,500

34. Reconciled adjusted balance of Home Office and Investment in Branch account. (after
closing entries)
a. P568,600 b. P566,800 c. P586,600 d. P568,800

## 35. Combined net income

a. P693,900 b. P696,600 c. P687,600 d. P683,900

PROBLEM L = Dorie Co. had the following production for the month of June:

Units
Work in process at June 1 10,000
Started during June 40,000
Completed and transferred to finished goods during June 33,000
Abnormal spoilage incurred 2,000
Work in process at June 30 15,000
Materials are added at the beginning of the process. As to conversion cost, the beginning work
in process was 70% completed, and the ending work in process was 60% completed. Spoilage
is detected at the end of the process.

36. Using the weighted-average method, the equivalent units for June, with respect to
conversion costs.
a. 42,000 b. 44,000 c. 45,000 d. 50,000

## PROBLEM M = A company manufactures a product that passes through two production

departments, molding and assembly. Direct materials are added in the assembly department
when conversion is 50% complete. Conversion costs are incurred uniformly. The activity in units
for the assembly department during April is as follows:
Units
Work in process inventory, April 1 (60% complete as to conversion
costs 5,000
Transferred in from molding department 32,000
Defective at final inspection (within normal limits) 2,500
Transferred out to finished goods inventory 28,500
Work in process inventory, April 30 (40% complete as conversion 6,000
costs)

37. The number of equivalent units for direct materials in the assembly department for April
calculate on the weighted-average basis is
a. 26,000 units b. 31,000 units c. 34,000 units d. 37,000 units

PROBLEM N = Lea Company adds materials in the beginning of the process in the Forming
Department, which is the first of twp stages of its production cycle. Information concerning the
materials used in the Forming Department in October 2003 is as follows:

Materials
Units Cost
Work in process at October 1,2003 6,000 3,000
Units started during October 50,000 25,000
Units completed and transferred to
next Department during October 44,000

38. Using the weighted-average method, what was the materials costs of work in process at
October 31, 2003?
a. 3,060 b. 5,520 c. 6,000 d. 6,120

## PROBLEM O = Information concerning Department B of the Loren Company is as follows:

Units Costs
Beginning work in process 5,000 6,300
Units transferred 35,000 58,000
40,000 64,300
Units completed 37,000
Ending work in process 3,000

Costs
Transferred Materials Conversion Total costs
Beginning work in 2,900 3,400 6,300
process
Units transferred in 17,500 25,500 15,000 58,000
20,400 25,500 18,400 64,300

Conversion costs were 20% complete as to the beginning work in process and 40%
complete as to the ending work in process. All materials are added at the end of the
process. Loren uses the weighted-average method.
39. How much is the portion of the total cost of ending work in process attributable to transferred
in cost?
a. 0 b. 1,500 c. 1,530 d. 1,650

## PROBLEM P = Roy Company manufactures product X in a two-stage production cycle in

Department A and B. Materials are added at the beginning of the process in Department B. Roy
used the weighted-average method. Conversion costs for Department B were 50% complete as
to the 6,000 units in the beginning work in process and 75% complete as to the 8,000 units in
the ending work in process. 12,000 units were completed and transferred out of Department B
during February 2003. An analysis of the relating to work in process (WIP) and production
activity in Department B for February 2003 is as follows:

Cost
Transferred in Materials Conversion
WIP, February 1: Costs 12,000 2,500 1,000
attached
February activity: Costs 29,000 5,500 5,000
added

40. The total cost per equivalent unit transferred out for February 2003 of product X, rounded to
the nearest centavo, was
1. 2.75 2. 2.78 3. 2.82 4. 2.85
PROBLEM Q = Information for the month of May concerning Department A, the first stage of
Leo Corporation’s production cycle, is as follows:

## Materials Conversion Costs

Work in process, beginning 4,000 3,000
Current costs 20,000 16,000
Total Costs 24,000 19,000
Equivalent units based on weighted-
average method 100,000 95,000
Average unit costs 0.24 0.20
Goods completed 90,000 units
Work in process, end 10,000 units

Materials costs are added at the beginning of the process. The ending work in process is
50% complete as to conversion costs.

41. How would the total cost accounted for the distributed, using the weighted-average method?
Goods Completed Work-in-process, end
a. 39,600 3,400
b. 39,600 4,400
c. 13,000 0
d. 44,000 3,400

PROBLEM R = Tiger Mfg. Co. makes a single product in two departments. The production data
for Department 2 for May 2011 follows:
Quantities:
In process, May 1 (40% done) 4,000 units
Received from Dept 1 30,000 units
Completed and transferred 25,000 units
In process, May 31 (60% done) 6,000 units

Production Costs:
Transferred in 16,300 89,100
Materials 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.

42. How much is the cost of the ending work in process inventory using average method?
a. P44,640 b. P44,460 c. P45,600 d. P46,800
43. How much is the total cost of goods manufactured using FIFO method?
a. P214,080 b. P214,040 c. P184,800 d. P193,040

## PROBLEM S = Given for a certain process:

Beginning work in process, 2/5 completed 500 units
Transferred in 2,000 units
Normal Spoilage 200 units
Abnormal Spoilage 300 units
Goods completed and transferred out 1,700 units
Ending work in process, 1/3 completed 300 units
Conversion costs in beginning inventory P610
Current period conversion costs P3,990
All spoilage occurs at the end of the process.
44. The conversion cost per equivalent unit amounted to:
FIFO Method Average
Method
a. 1.90 1.73
b. 2.19 2.00
c. 2.00 1.90
d. 1.90 2.00

## 45. The conversion cost components of normal spoilage:

FIFO Method Average
Method
a. P438 P400
b. P380 P346
c. P400 P380
d. P380 P400

## 46. The conversion cost components of abnormal spoilage:

FIFO Method Average
Method
a. P570 P519
b. P657 P600
c. P570 P600
d. P600 P570

## PROBLEM T = Catherine College, a private nonprofit college, received the following

contributions during 2013:

I. P5,000,000 from alumni for construction of a new wing on the science building to
be constructed in 2013
II. P1,000,000 from a donor who stipulated that the contribution be invested
indefinitely and that the earnings be used for scholarships. As of December 31,
2013, earnings from investments amounted to P50,000

47. For the year ended December 31, 2013, what amount of these contributions should be
reported as temporarily restricted revenues on the statement of activities?

a. P50,000 c. P5,000,000
b. P5,050,000 d. P6,050,000

PROBLEM U = GHI, a national government agency unit incurs an obligation for the purchase of
garbage truck for P450,000 on March 15, 2013. The dump truck is to be delivered on March 31,
2013 and the motor form has agreed for a 30-day, interest free-delayed payment. i.e. payable
on April 30, 2013. Assume a 12% tax on the purchase covered by TRA:

48. On March 15, 2013, the entry to be recorded by GHI will be:
a. Equipment 450,000
Accounts payable 450,000
b. Equipment 450,000
Accounts payable 396,000
Subsidy income for NG 54,000
c. Equipment 450,000
Accounts payable 396,000
Due to BIR 54,000
d. Memorandum entry in RAOCO

49. On March 31, 2013, the entry to be recorded by GHI will be:

a. Equipment 450,000
Accounts payable 450,000
b. Equipment 450,000
Accounts payable 396,000
Subsidy income for NG 54,000
c. Equipment 450,000
Accounts payable 396,000
Due to BIR 54,000
d. Memorandum entry in RAOCO

50. On April 30, 2013, the entry to be recorded by GHI will be:

## a. Accounts payable 450,000

Cash – NT – MDS 450,000
b. Accounts payable 396,000
Due to BIR 54,000
Cash – NT – MDS 450,000
c. Accounts payable 450,000
Cash – NT – MDS 396,000
Due to BIR 54,000
d. Accounts payable 396,000
Due to BIR 54,000
Cash – NT – MDS 396,000
Subsidy income from NG 54,000

51. The entry by GHI to record subsequent disposal of the withheld tax will be:

## a. Due to BIR 54,000

Cash – NT – MDS 54,000
b. Due to BIR 54,000
Withholding tax payable 54,000
c. Due to BIR 54,000
Subsidy income from NG 54,000
d. Memorandum income from RAOFE

## PROBLEM V = On October 1, 2012, Wild Company, a Philippine company, purchased

machinery from ABC Company, a US company with payment due on April 1, 2013.
52. If Wild’s 2012 net income included no foreign exchange translaction gain or loss,
then the transaction could have
A. Resulted in a gain that is directly credited to retained earnings
B. Been denominated in Philippine pesos
C. Caused a foreign currency gain to be reported as a contra account against
machinery
D. Caused a foreign currency translation gain to be reported in equity

PROBLEM W = The functional currency of Nash Company’s foreign subsidiary is the US dollar.
Nash borrowed US dollars as a partial hedge of its investment in subsidiary. In preparing
consolidated financial statements, Nash’s translation loss on its investment in the subsidiary
exceeded its exchange gain on borrowing.

53. How should the effects of the loss and gain be reported in Nash’s consolidated
financial statements?
A. The translation loss less the exchange gain is reported in equity
B. The translation loss less the exchange gain is reported in income
C. The translation loss is reported in equity and the exchange gain is reported in
income
D. The translation loss is reported in income and the exchange gain is reported in
equity

## PROBLEM X = On November 19, 2011, RST Company, a Philippine Company ordered

merchandise from Sweden Company for 31,800 Swedish Kronor. The merchandise was
delivered on December 18, 2011. The invoice was dated December 2, 2011, the shipping date
(FOB Shipping point). RST Company paid the invoice on January 28, 2012. The spot rates for
Swedish Kronor on the respective dates were:

## November 19, 2011 P76.90

December 2, 2011 76.15
December 18, 2011 75.75
December 31, 2011 72.35
January 28, 2012 73.15

## 54. How much purchase should be recorded in 2011?

a.) P2,421,570 b.) P2,408,850 c.) P2,300,730 d.) P2,326,170

55. What amount of liability should the company report on its Statement of Financial
Position as of December 31, 2011?
a.) P2,421,570 b.) P2,408,850 c.) P2,300,730 d.) P0

## 56. What is the foreign exchange gain/loss to be reported in 2012?

a.) P120,840 b. 25,440 loss c.) P108,120 gain d.) P95,400 gain
gain