First Pre-board Examination-Prac2

PRE-WEEK LECTURE EXERCISES – PRACTICAL ACCOUNTING PROB. 2

A. On January 2, 2007 Moon Company entered into franchise agreement with Light
Products, Inc. for an initial franchise fee of P2,812,500 payable as follows: P787,500
cash down payment upon signing of the contract and the balance payable in five equal
annual payments every December 31, starting on December 31, 2007. Moon signs a
15% interest bearing note for the balance. The agreement further provides that the
franchisee must pay a continuing franchise fee equal to 5% of its monthly gross sales.
On October 31, the franchisor completed the initial services at a cost of P900,000 and
incurred indirect cost of P180,000. The franchisee commenced business operations on
November 3. The gross sales reported to the franchisor by the franchisee are for
November sales, P92,250 and for December sales, P106,875. The first installment
payment was made on due date. Assume collection for the note is reasonably assured.
1
. In its income statement for the year ended December 31, 2007, how much is the
net income?
a. P2,046,206
b. P1,640,856
c.P847,406
d. P944,606

B. The Brite Sales Corporation maintains several branches throughout the Philippines. As
of December 31, 2006 a discrepancy was noted between the Paniqui branch account
balance of P93,172 in the Home office Books and that of the Home Office account
balance in the Books of Paniqui branch. A summary of the two accounts follow:

Paniqui Branch Current______________________

Dec. 1 Balance 43,617 Dec. 12 Remittance 6,300
7 Shipment to Branch 16,720 26 Remittance 11,100
10 Freight on Shipment 235
14 Shipment to Branch 27,150
28 Shipment to Branch 18,800
31 Advertising 2,100
31 Rent 1,950

Home Office Current________________________

Dec. 11 Remittance 6,300 Dec. 1 Balance 43,617
23 Remittance 11,100 10 Shipment
from HO 16,720
31 Remittance 9,600 18 Shipment
from HO 27,150

An examination of the records disclosed the following information:

(1) Merchandise has been billed to all branches at cost.
(2) The freight charged to the Paniqui Branch on December 10 was recorded in error; it
should have been charged to Baliwag Branch.
(3) Advertising and rent charged to Paniqui on December 31 represent allocated
portions of Home Office expenses chargeable to branch operations.
2
. Calculate the unadjusted balance of the Home Office account in the books of
Paniqui at December 31, 2006.
a. P60,487
b. P62,587
c. P64,387
d. P64,687

C. Marco Corporation has arranged for Polo Corporation to acquire it as a means of

obtaining a stock exchange listing. Polo issues 15 million shares to acquire the whole of
the share capital of Marco (6 million shares). The fair value of the net assets of Marco
and Polo are P30 million and P18 million, respectively. The fair value of each of the
shares of Marco is P6 and the quoted market price for Polo’s shares is P2. The share
capital of Polo is 25 million shares after the acquisition.

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3
. Calculate the value of goodwill in the above acquisition.
a. P16 million
b. P12 million
c.P10 million
d. P6 million

D. Company A purchases 30% of the ordinary share capital of Company B for 10 million on
January 1, 2006. The fair value of the assets of Company B at that date was P20 million.
On January 1, 2007, Company A purchases a further 40% of Company B for P15 million,
when the fair value of Company B’s assets was P25 million. On January 1, 2006,
Company A does not have significance influence over Company B.
4
. What would be recognized goodwill (before any impairment test) in the
consolidated financial statements of Company A for the year ended December 31,
2007?
a. P11 million
b. P7.5 million
c.P9 million
d. P14 million

E. Char Corporation has acquired 100% of Coal Company on January 1, 2007. The fair
value of the purchase consideration was P10 million ordinary shares of P1 of Char, and
the fair value of the net assets acquired was P7 million. At the time of acquisition, the
value of the ordinary shares of Char and the net assets of Coal were only provisionally
determined. The value of the shares of Char (P11 million) and the net assets of Coal
(P7.5 million) on January 1, 2007, were finally determined on November 30, 2007.
However, the directors of Char have seen the value of the company decline since
January 1, 2007, and as of February 1, 2008, wish to change the value of the purchase
consideration to P9 million.
5
. What value should be placed on the purchase consideration and net assets of Coal
as at the date of acquisition?
a. Purchase consideration P10 million; net asset value P7 million
b. Purchase consideration P11 million; net asset value P7.5 million
c.Purchase consideration P9 million; net asset value P7.5 million
d. Purchase consideration P11 million; net asset value P7 million

F. Following is the balance sheet of ABCD Partnership at March 31, 2007 when the
partnership is to be liquidated:

Cash P 15,000 Accounts Payable P 31,000

D, Loan 10,000 A, Loan 30,000
Non-cash assets 315,000 B, Loan 36,000
C, Loan 24,000
A, Capital (25%) 40,500
B, Capital (25%) 30,000
C, Capital (25%) 44,250
D, Capital (25%) 104,250
Total P340,000 Total P340,000

During the month of April 2007, assets having a book value of P45,000 are sold at a loss
of P6,000. Liquidation expenses of P1,500 are paid as well as P18,000 of the liabilities.
Of the liabilities shown in the balance sheet, P600 represents salary payable to C and
P400 represents salary payable to D.
6
. Calculate the cash distribution to each partner by the Partnership on April 30, 2007.
Partner A Partner B Partner C Partner D
a. - - - P 22,500
b. P 4,875 P 4,875 P 4,875 P 4,875
c. - - - P 4,875
d. - - P 22,500 -

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G. A balance sheet of QRS Partnership which shares profits and losses in the ratio of 5:3:2
shows the following balances just before liquidation.

Cash P 30,000
Other Assets 148,750
Liabilities 50,000
Q, Capital 55,000
R, Capital 38,750
S, Capital 35,000

On the first month of liquidation, certain assets are sold for P80,000. Liquidation
expenses of P2,500 are paid, and additional expenses are anticipated. Liabilities are
paid amounting to P13,500, and sufficient cash is retained to insure the payment to
creditors before making payment to partners. On the payment of partners, Q receives
P15,625.
7
. Calculate the amount of cash withheld for anticipated liquidation expenses.
a. P0
b. P7,500
c. P3,000
d. P4,500

H. The December 31, 2007 balance sheet of the ABC Partnership follows:

Cash P 100,000 B, Loan P 100,000

Non cash assets 500,000 A, Capital 100,000
B, Capital 200,000
C, Capital 200,000
Total P 600,000 Total P 600,000

The partners share profits and losses as follows: A, 20%; B, 30%; C, 50%.
B is retiring from the partnership and the partners have agreed that the non–cash assets
should be adjusted to fair value of P600,000 at December 31, 2007. They further agreed
that B will receive P344,000 cash for his total partnership interest and that no goodwill
implied by B’s payment will be recorded.
8
. After B’s retirement, the capital balances of A and C, respectively, will be:
a. P116,000 and P240,000
b. P101,714 and P254,286
c. P100,000 and P200,000
d. P 73,143 and P182,857

I. The A and B Partnership was organized and began operations on March 1, 2006. On
that date, A invested P240,000 and B invested land and building with current fair value of
P128,000 and P160,000, respectively. B also invested P96,000 in the partnership on
November 1, 2006. The partnership contract includes the following income-sharing plan.

A B
Annual Salary P28,800 P38,400

Annual interest on Average Capital 10% 10%

Remainder 50% 50%

The annual salary may be withdrawn by each partner in 12 monthly installments. During
the year ended February 28, 2007, the net income of the partnership was P192,000.
Each partners has monthly cash drawings in accordance with the partnership contract.
9
. The capital balances of A and B, respectively, on the February 28, 2007 balance
sheet is:
a. P298,400 and P450,000
b. P 8,000 and P400,000
c. P327,200 and P488,800

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d. P320,800 and P480,000

J. Andy, Boni, Charles, and Danny are partners sharing profits and losses in the ratio of
40%, 30%, 15% and 15%. Their capital accounts are P95,000, P140,000, P110,500, and
P104,500, respectively. Edgar acquires one fifth interest in the business by paying the
partners a total of P95,000, implied goodwill was to be recognized prior to his admission.
All partners have equal interests in both capital and profits.
10
. Calculate the distribution of cash among the partners, assuming that the old
partners agree that the cash is to be divided according to the capital transferred
Andy Boni Charles Danny
a. P13,250 P19,250 P52,500 P10,000
b. P10,000 P13,250 P19,250 P52,500
c. P52,500 P10,000 P13,250 P19,250
d. P10,000 P52,500 P19,250 P13,250

K. The Twin City Corporation established its Davao Branch in January, 2007. During its first
year of operations, home office shipped to its Davao Branch merchandise worth
P130,000 which included a mark up of 15% of cost. Sales on account totaled P250,000
while cash sales amounted to P80,000. Davao branch reported expenses of P18,000
and an ending inventory of P15,000, at billed price.
11
. In so far as the home office is concerned, the real net income of Davao branch:
a. P177,000
b. P147,000
c.P192,000
d. P212,000

L. Tyron Company shipments to its Olongapo City branch are billed at 120% of cost. On
December 31, Olongapo branch reported the following data: Inventory – January 1 of
P33,600, shipments received from home office of P840,000 and inventory - end of
P36,000.
12
. What is the balance of the allowance for over valuation on December 31 before
adjustment?
a. P 5,600
b. P 6,000
c.P137,600
d. P145,600

M. When Pasig Company filed for liquidation with the Securities and Exchange
Commission, it prepared the following balance sheet.

Current Assets, net realizable value, P50,000 P 80,000

Land and Buildings, fair value, P240,000 200,000
Goodwill, fair value, P0 40,000
Total Assets P 320,000

Accounts Payable P 160,000

Mortgage Payable, secured by land and building 200,000
Common stock 100,000
Retained Earnings, deficit (140,000)
Total Equities P 320,000
13
. What is the estimated deficiency to unsecured creditors?
a. P 70,000
b. P120,000
c.P 90,000
d. P140,000

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N. A distressed corporation is to be liquidated and has the following liabilities:

Income taxes P 8,000

Notes Payable, secured by land 120,000
Accounts Payable 83,000
Salary Payable, evenly to two employees 6,000
Bonds Payable 70,000
Administrative Expenses for liquidation 20,000

The said company has the following assets: Book Value Fair Value
Current Assets P 80,000 P 33,000
Land 100,000 90,000
Building and Equipment 100,000 110,000
14
. How much will the holders of the notes payable collect following the liquidation?
a. P108,000
b. P 83,000
c.P 90,000
d. P120,000

O. The Moon Company has the following data in connection to its bankruptcy petition with
the Securities and Exchange Commission.

Unsecured creditors P 230,000

Liabilities with priority 110,000
Secured Liabilities:
Debt 1, P210,000; value of pledged asset 180,000
Debt 2, P170,000; value of pledged asset 100,000
Debt 2, P120,000; value of pledged asset 140,000

The Company also has a number of other assets that are not pledged in any way. The
creditors holding Debt 2 want to receive at least P142,000.
15
. For how much do these free assets have to be sold so that Debt 2 would receive
exactly P142,000?
a. P308,000
b. P340,000
c.P198,000
d. P288,000

P. On January 2, 2007, Cavite Construction Company entered into a contract to construct

two projects. The following data relate to the construction period.

Project 7 Project 8
Contract Price P945,000 P675,000
Cost incurred during 2007 540,000 630,000
Estimated Cost to complete 270,000 157,500
Billings to Customer 337,500 607,500
16
. What amount of gross profit should Cavite Construction Company report in its 2007
income statement under the following methods?

Percentage of Completion Method Zero Profit Method

a. P 0 P(90,000)
b. P(112,500) P(22,500)
c.P( 22,500) P 0
d. P( 22,500) P(112,500)

Q. Aklan Company began its operations on January 2, 2007. During the year, the company
entered into a contract with TEAM Company to construct a manufacturing facility. At that
time Aklan estimated that it would take five years to complete the facility at a cost of

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P3,937,500. The total contract price for the construction of the facility is P5,468,750.
During the year, the company incurred P962,500 in construction costs related to the
construction project. The estimated cost to complete the contract is P3,412,500. TEAM
billed and paid 30% of the contract price subject to a 10% retention.
17
. Using the percentage of completion method, how much is the excess of the
Construction in Progress over Contract Billings or Contract Billings over
Construction in Progress?
a. P273,437.50 (Current Liability)
b. P273,437.50 (Current Asset)
c.P437,500 (Current Asset)
d. P437,500 (Current Liability)

R. Alonzo Construction Company uses the Percentage of Completion of accounting. The

company started work on two job sites in the year 2006. Data relating to the two jobs are
given below:
Actual Cost Est. cost to

Contract Price December 31, 2006 Complete

Contract 1 P 600,000 P 150,000 P 150,000
Contract 2 450,000 87,500 162,500

In 2007, Contract 3 was started with a contract price of P900,000. As of December 31,
2007, the following data are given.

Actual Cost 12/31/07 Est. cost to Complete

Contract 1 P 280,000 P 70,000
Contract 2 180,000 120,000
Contract 3 180,000 320,000
18
. As of December 31, 2007, the balance of Construction in Progress account is:
a. P 640,000
b. P 854,000
c.P1,074,000
d. P1,314,000

S. The following information pertains to a river – control project Bilisgawa Inc. in Santiago,
Isabela which was started in 2006 and completed the following year:

Cost incurred to date:

At December 31, 2006 P 9,750,000
At December 31, 2007 15,750,000
Estimated total cost at completion:
At December 31, 2006 19,500,000
At December 31, 2007 20,250,000

The project is a P22,500,000 fixed price construction contract and Bilisgawa uses the
percentage-of-completion method of accounting.
19
. What is the income reported by Bilisgawa on its Isabela Project on December 31,
2007?
a. P 750,000
b. P1,500,000
c.P1,750,000
d. P 250,000

T. P Corporation acquired 70% of the voting common stock of S Company at a time when
S Company’s book values and fair values were equal. Separate incomes of P
Corporation and S Company for 2007 are as follows:

P Corporation S Company
Sales 792,000 438,000

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Cost of Goods Sold 480,000 240,000

Operating Expenses 144,000 120,000
Separate income from own operations 168,000 78,000

Intercompany sales from P to S for 2006 and 2007 are summarized as follows:

Cost Selling price Unsold at year end

Intercompany sales – 2006 300,000 468,000 30%
Intercompany sales – 2007 210,000 330,000 40%
20
. The 2007 consolidated income statement will show cost of goods sold of:
a. P387,600
b. P720,000
c. P480,000
d. P240,000

U. The balance sheet of Street Company at January 1, 2007 follows:

Assets (Fair value, P80,500) P69,500

Accounts payable 4,000

Debentures 8,000
Share capital
Preference – 6,000 fully paid shares 6,000
Ordinary – 30,000 fully paid shares 30,000
Retained earnings 21,500
Total P69,500

On this date, Street Company merged into Park Company under the following terms:

(1) Park Company is to take over all assets as well as the accounts payable of Street
Company.
(2) Cost of Liquidation of P350 are to be paid by Street with funds supplied by park.
(3) Preference shareholders of Street are to receive two fully paid shares in Park for
every share held or, alternatively, P1 per share in cash payable at exchange date.
(4) Ordinary shareholders of Street are to receive fully paid shares in Park for every
share held or, alternatively, P2.50 in cash, payable half at the exchange date and
half in one year’s time (use present value factor of 0.909091 for the cash payable
in one year’s time discounted at 10% per annum).
(5) Debenture bonds of Street are to be paid in cash out of funds provided by Park.
These debentures have a fair market value of P102 per P100 debenture.
(6) Shares of Park being issued have a fair value of P1.10 per share. Holders of 3,000
preference shares and 5,000 ordinary shares elect to receive the cash.
(7) Cost of issuing and registering the shares issued by Park amount to P40 for the
preference shares and P100 for the ordinary shares.
(8) Cost expected to be incurred in delivering and installing the acquired assets
amount to P1,000.
21
. The cash component (either paid now or later) of the cost of combination is:
a. P19,362
b. P20,362
c.P16,282
d. P15,282
22
. The shares – issued component of the cost of combination is:
a. P52,000
b. P51,860
c.P57,200
d. P57,060
23
. The amount of goodwill/(income from combination) recorded by Park is:
a. P(1,000)
b. P 938

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c. P1,062
d. P 38
V. On December 31, 2006, Sand Corporation merged into Stone Company. Stone issued
135,000 shares of its P84 par common stocks, with a market price of P111 at the date of
acquisition. Net asset fair values agree with book values except for inventory which is
overstated by P5,000. Additional out-of-the-pocket costs by Stone are direct acquisition
costs, P108,000; SEC registration and issue costs, P82,500; and indirect acquisition
costs of P15,000.

The stockholders’ equity of each company’s balance sheet before the combination were:

Sand Co. Stone Co.

Common Stocks P 6,570,000 P 21,450,000
APIC 3,030,000 8,850,000
Retained Earnings 6,930,000 (3,120,000)
24
. Determine the stockholders’ equity in the books of the surviving company
immediately following the business combination.
a. P43,519,500
b. P43,514,500
c.P43,524,500
d. P43,499,500

W. On January 1, 2007, Break Corporation purchased 75% of the common stocks of Fast
Company. Separate balance sheets for the companies at combination date are as
follows:
Break Corp. Fast Co.
Cash P 12,000 P103,000
Accounts receivable 72,000 13,000
Inventory 66,000 19,000
Plant assets, net 230,000 120,000
Investment in Fast 196,000
Total assets P 615,000 P271,000

Accounts payable P 103,000 P 71,000

Capital stock 400,000 150,000
Retained earnings 112,000 50,000
Total equities P 615,000 P271,000

At the date of combination the of values of Fast Company’s net assets was equal to fair
values except for inventory which is understated by P11,000.
25
. At what amount will the total stockholders’ equity be reported in the consolidated
balance sheet at the date of acquisition?
a. P512,000
b. P712,000
c. P662,000
d. P564,750

X. Take Company issued 240,000 shares of its P25 par ordinary shares for all the
outstanding shares of Out Company in a merger completed on March 1, 2007. The
market price of Take Company and Out Company’s shares are P40 and P35 per share,
respectively. Take Company and Out Company’s net assets are worth P10,000,000 and
P7,600,000 respectively. Out of the pocket costs of the business combination were as
follows:

Legal fees P52,000

Contingent Consideration (reasonable and measurable) 36,180
Printing cost of stock certificates 16,000
Finder fees 54,000
Professional fees paid to a CPA 42,000
Fees paid to Company lawyer 20,000

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Fees paid to company accountants 30,000

26
. The goodwill from the combination is:
a. P2,000,000
b. P2,250,000
c.P2,200,000
d. P2,148,000

Y. Summary information is given for P Company and S Company at July 1, 2007. The
quoted market price of P Co. shares on this date is P40 per share.

S Company P Company
Book Value Fair Value Book Value Fair Value
Current assets P 8,000,000 P 9,000,000 P24,000,000 P24,000,000
Plant assets 22,000,000 26,000,000 26,000,000 25,000,000
Totals P30,000,000 P35,000,000 P50,000,000 P49,000,000

Liabilities P 5,000,000 P 5,000,000 P15,000,000 P15,500,000

Ordinary shares* 10,000,000 20,000,000
APIC 1,000,000 1,000,000
Retained earnings 14,000,000 14,000,000
Totals P30,000,000 P50,000,000

P Company acquires all the net assets of S Company by issuing 1,000,000 shares of its
own shares. S Company shares are selling in the market at P36. P Company incurred
the following costs:

Legal fees to arrange the business combination P25,000

Cost of SEC registration 12,000
Cost of printing and issuing new stock certificates 3,000
Indirect cost of combination 20,000
27
. The goodwill from the business combination is:
a. P10,000,000
b. P10,025,000
c.P10,040,000
d. P10,060,000
28
. The total retained earnings of the surviving company after the combination is:
a. P13,980,000
b. P14,000,000
c.P27,980,000
d. P28,000,000

Z. Primary Enterprises purchased 75% of the capital of Secondary Company for P250,000
on July 1, 2007. At this date the equity of Secondary Company was:

Share Capital P100,000

APIC 60,000
Retained Earnings 40,000

At this date, Secondary has not recorded any goodwill, and all identifiable assets and
liabilities were recorded at fair value except for the following assets:

Book Value Fair Value

Inventory P 70,000 P100,000
Plant assets 190,000 150,000
Land 100,000 50,000

The plant assets have a remaining life of ten years. There is no impairment loss on
goodwill as of December 31, 2007.

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29
. Determine the minority interest in net assets in the July 1, 2007 consolidated
balance sheet.
a. P35,000
b. P50,000
c.P65,000
d. P45,000

AA.On January 1, 2007, Silver Company signed an agreement to operate as a franchisee of

Golden Products, Inc. for an initial franchise fee of P3,125,000 for 10 years. Of this
amount, 50% was paid when the agreement was signed and the balance payable in
four semi annual payments starting on June 30, 2007. Silver Company singed a non
interest bearing note for the balance. Silver’s credit rating indicates that it can borrow
money at 24% on a loan of this type. (Use 3.04 as your P.V factor). Assume that
substantial services amounting to P770,000 had already been rendered by Gold
Products, Inc. by year-end 2007. Although the first two semi annual installments on the
note was paid by Silver Company, further collection on the note is not now reasonably
assured.
30
. The realized gross profit by Gold Products from the initial franchise fee is:
a. P1,503,738
b. P1,202,650
c.P1,338,307
d. P1,101,070

BB.Ulysses, Vernon, and Waldo are in a partnership, with capital account balances and
profit and loss ratios as follows:
Ulysses P 91,000 50%
Vernon 35,000 30%
Waldo 10,500 20%
The partners agree to liquidate the partnership. The assets are sold, the liabilities of
P104,800 are paid, and the remaining cash of P63,000 is distributed to partners. If
necessary, assume that any capital deficiency is uncollectible
31
. Calculate the cash distributed to Ulysses, Vernon, and Waldo, respectively:
a. P23,000, P20,000 and P20,000
b. P0, P51,625 and P11,375
c.P51,625, P11,625 and P0
d. P11,375, P51,525 and P0

CC. Carol and Myra had the following clause in their partnership agreement. “The partners
are to be allowed salaries as follows: Carol, P90,000 and Myra, P72,000, and these
salaries are to be charged against the earnings of the business. In addition Carol is to
be allowed a bonus of 20% of the net income after salaries and interest have been
deducted and this bonus is to be considered as an expense of the business. Any
remainder is to be divided equally”
32
. If the net income after the partners’ salaries, interest and bonus amounts to
P397,500, and the interest on Carol’s capital account is P37,280 and on Myra’s
capital account is P65,560, how much must be the share of Carol on the
partnership net income?
a. P491,610
b. P204,670
c.P425,405
d. P405,530
33
. If E is the total capital of a partnership before admission of a new partner, F is the
total capital of the partnership after the admission of a new partner, G is the
amount of new partners’ investment, and H is the amount of capital credited to the
new partner, then there is:
a. Goodwill to the new partner if F is larger than (E+G) and H is less than G.

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b. Goodwill to the existing partners if F = E+G and H is larger than G.

c.A bonus to the new partner if F = E+G and H is larger than G.
d. Neither a bonus nor a goodwill if F is larger than (E+G) and H is larger than G.

DD. The following balance sheet for the balance sheet for the partnership of Abner,
Norman, and Jhun were taken from the books on September 30, 2007:

Assets Liabilities & Capital

Cash 40,000 Liabilities 100,000
360,00
Other assets 0 Abner, Capital 74,000
Norman, Capital 130,000
Jhun, Capital 96,000
400,00
Total assets 0 Total Liabilities & Capital 400,000

The partners agreed to distribute profits as follows:

(1) Annual salaries to Abner and Norman of P3,000 each;
(2) Allow interest of 6% on beginning capital;
(3) Allow a bonus of 10% to Norman, the bonus to be treated as an expense after
salaries and interest;
(4) Remaining, 40% to Abner, 40% to Norman, and 20% to Jhun.
34
. If Jhun receives as his share in net income P3,440 for the three month period
ending December 31, 2005, the total net income realized by the partnership for the
same period before salaries, interest and bonus was:
a. P20,000
b. P50,000
c.P25,000
d. P17,000

EE.The balance sheet of the partnership L, M and N at April 30, 2005 are as follows:

The partners share profits and losses in the ratio 2:2:6 respectively.

Assets Liabilities & Capital

100,00
Other assets 0 L, Loan 9,000
L, Capital 15,000
M, Capital 31,000
N, Capital 45,000
100,00
0 100,000

L is retiring from the partnership. By mutual agreement, the assets are to be adjusted to
the fair value of P130,000. M and N agree that the partnership will pay L P37,000 cash
for his partnership interest, exclusive of his loan which is to be paid in full separately.
35
. If goodwill is to be recorded, the balance of N’s capital after L’s retirement
a. P51,000
b. P50,000
c. P53,400
d. P63,000

FF. Teardrops Corporation stared operations on January 1, 2006 selling home appliances
and furniture on installment basis. For 2006 and 2007, the following were presented:

2006 2007
Installment sales P1,200,000 P1,500,000
Cost of installment sales 720,000 1,050,000

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 First Pre-board Examination-Prac2

Collections on installment sales:

2006 sales 630,000 450,000
2007 sales 0 900,000

On January 2007, an installment sale account in 2006 defaulted and the merchandise
with a market value of P15,000 was repossessed. The related installment receivable
balances as of date of defaults and repossession was P24,000.
36
. The balance of the unrealized gross profit as of the end of 2007 was
a. P228,000
b. P360,000
c.P218,400
d. P275,000

GG. The following selected accounts were taken from the trial balance on December 31,
2007 of Mabini Company.
Debit Credit
Accounts Receivable 75,000
Installment Receivable-2005 15,000
Installment Receivable-2006 45,000
Installment Receivable-2007 270,000
Merchandise Inventory 52,500
Purchases 390,000
Freight in 3,000
Repossessed Merchandise 15,000
Repossession Loss 24,000
Cash sales 90,000
Charge sales 180,000
Installment sales 446,400
Deferred Gross Profit-2005 22,200
Deferred Gross Profit-2006 39,360

Additional information:
a. Gross profit rate on 2005 installment sales was 30% and for 2006, the rate was 32%.
b. Installment sales prices by 24%, while charge sales price exceed cash sales prices
by 20%.
c. The entry for repossessed goods was:
Repossessed Merchandise 15,000
Repossession Loss 24,000
Installment receivable-2005 18,000
Installment receivable-2006 21,000

d. Merchandise on hand at the end of 2007 (new and repossessed) was P70,500.
37
. How much is the cost of goods sold on installment sales in 2007?
a. P234,000
b. P272,160
c.P267,264
d. P390,000
38
. The cash collections on installment sales are:

2005 2006 2007

a. P 89,000 P 160,000 P 176,400
b. 74,000 123,000 176,400
c. 41,000 57,000 176,400
d. 33,000 66,000 176,400

HH. Four Aces Company sold goods on installment. For the year just ended the following
were reported.

Installment sales P3,000,000

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 First Pre-board Examination-Prac2

Cost of installment sales 2,025,000

Collections on installment sales 1,800,000
Repossessed accounts 200,000
Fair market value of repossessions 120,000

39
. The loss on repossession resulted to:
a. Loss of P15,000
b. Loss of P80,000
c.No gain, no loss
d. Gain of P5,000

II. The Angeles City Branch of Alejandro Company was billed for the merchandise
shipments from the home office at cost plus 25% in 2006 and cost plus 20% in 2007.
Other pertinent data for 2007 show:

Angeles Branch Home office

Sales P 63,000 P 212,000
Inventory, beginning 8,900 23,000
Purchases 164,000
Shipments from home office 50,400
Shipments to Branch 42,000 42,000
Inventory, end 11,700 28,500
Expenses 20,300 76,400
40
. The merchandise inventory, end on the combined income statement is:
a. P28,500
b. P38,250
c.P37,860
d. P40,200

 Time is up ! ! !

ANSWER KEY – PRACTICAL ACCOUNTING PROBLEMS 2

01. 21.
02. 22.
03. 23.
04. 24.
05. 25.
06. 26.
07. 27.
08. 28.
09. 29.
10. 30.
11. 31.
12. 32.
13. 33.
14. 34.
15. 35.
16. 36.
17. 37.
18. 38.
19. 39.
20. 40.

Page 13 of 15
 First Pre-board Examination-Prac2

KEY ANSWERS – PRACTICAL ACCOUNTING PROBLEMS 2

Page 14 of 15
1
. A
2
. A
3
. D
4
. C
5
. B
6
. A
7
. B
8
. A
9
. A
10
. D
11
. D
12
. C
13
. A
14
. A
15
. D
16
. C
17
. D
18
. C
19
. D
20
. A
21
. B
22
. C
23
. C
24
. D
25
. D
26
. D
27
. B
28
. A
29
. A
30
. A
31
. C
32
. D
33
. C
34
. D
35
. D
36
. A
37
. A
38
. C
39
. A
40
. B