\ CPA REVIEW SCHOOL OF THE PHILIPPINES Manila ADVANCED FINANCIAL ACCOUNTING AND REPORTING PREWEEK LECTURE Numbers 1, 2, and 3 Case On January 1, 2020, A, B and C entered into articles of co-partnership for the operation of ABC Laundry Shop. A contributed building with assessed value of P850,000 subject to mortgage payable of P150,000 to be paid personally by A. B contributed laundry equipment with cost of P300,000 with accumulated depreciation of P100,000. The fair market value of the laundry equipment is P150,000. On January 2, 2020, ABC partnership was able to sell the building for P900,000. Case IL On January 1, 2020, A, B and C organized ABC parinership by investing P15,000,000, P6,000,000 and 9,000,000 for capital i tio ly. C has been appointed as managing partner. During year 2020, ABC partnership reported net income of P9,000,000. Their profit/loss distribution and crawing agreement are presented below: i. 20% interest on beginning capital ii, P30,000, P60,000 and P150,000 monthly salary, respectively iii, 25% bonus to the managing partner of net income after interest and salary iv. The remainder will be divided equally among the partners. vy. The partners must withdraw at the end of the year 50% of their share in net ineome for the period, Case HIT On December 31, 2020, the capital balance of partners C, P and A of CPA Partnership are 1,000,000, 3,000,000 and P6,000,000, respectively with profit or loss agreement ratio of 4:1:5. On January 1, 2021, C decided to retire and received P400,000 from the partnership. 1, Under Case I, how much cash shall be contributed by C if the anicles of co-partnership provide that A will have 60% interest in the partnership? a. 600,000 b. 350,000 2 450,000 4. 300,000 2. Under Case II, what is the capital balance of C on Decesaber 31, 20207 = 4,230,000 co Ree Wo b. 4,510,000 1% Le je ©, 7,610,000 (238 Spal: 4. 3,410,000 0 470 2D 3. Under Case If, if the assets of the partnership are not properly valued at the time of retirement, how much is the capital balance of P after the retirement of C? a. 2,900,000 -b-- 2,850,000 ae ©. 3,100,000 Ce) 4. 3,150,000 2a Number 4 How shall the net profit or net loss of the parmership be divided among the partners, whether capitalist or industrial? a._In accordance with their capital contribution rato. #5“ In accordance with just and equitable sharing taking into account the circumstances of the partnership. c. ‘Equally 4. In accordance with the partnership agreement,Page 2 Number 5 At the time of retirement, a retiring partner receives more than the amount of his capital contribution while the remaining partners capital increase after the retirement. Which is the most valid reason? a, Goodwill during retirement is recognized. Er Asset revaluation upward is recognized. ©. Bonus is given by retiring partner to remaining partners. 4d. Bonus is given by the remaining partners to retiring partner. Numbers 6 and 7 ‘On December 31, 2020, the Statement of Financial Position of ABC Partnership with profit or loss tatio Te of 4:5:1 is presented below: Cash 1,000,000 Liability to third person —_—2,000,000 Advances to A 5,000,000 Advances from B 1,000,000 Noncash asset 9,000,000 Advances from C 2,000,000 A, Capital 6,000,000 B, Capital 3,000,000 C, Capital 1,000,000 On January 1, 2021, ABC partnership is liquidated wherein liquidation expenses amounting to P400,000 has been incmred. 6. Ifpartner B receives P1,000,000, what is the amount received by C at the time of liquidation? Az 2,400,000 b. 1,000,000 ae ooo ae ©. 2,000,000 d. None cleo) (ea) 40) Wwe 7. What is the net proceeds from the sale of noncash asset? 8Y0 26? eo a. 3,000,000 b. 4,400,000 Gove a) (8) <= 4,800,000 Deo aye 4. 4,200,000 oe wo ¥= loss, 4 2000 = hy t E(-p-0#) Numbers 8 and 9 w= Jaen During the liquidation, the sale of all the assets of liquidated corporation resulted to net proceeds of P500,000. Liquidation expense amounting to P30,000 has been paid at the start of liquidation from the net proceeds of disposal of all assets. Before the liquidation; the following data are provided concerning the financial position of the said financially distressed corporation: Sek {122 > The corporation has total assets with book value of P1,000,000 and deficiency amounting to CM) 170,000.) (m)> An investment property with book value of P250,000 and realizable value of P150,000 secured a loan GP)__ payable amounting to P50,000 FAzio0 @)> Inventory with book value of P500,000 and realizable value of P50,000 secured a note payable amounting to P100,000. psu Sow 4 S00x 50 > Salaries payable and income tax payable amounted to P50,000 and 20,000, respectively. os 8. What is the amount received by partially secured creditor? mg = 20% 2. 40,000 b. 60,000 SD + HW = OT c. 70,000 _& 65,000 9. What is the amount received by purS)unsecured creditors without priority? : a. 580,000 WER © 30 “Fr 285000 Gy a0 wee? 400,000 4. 300,000Page 3 Numbers 10 and 11 On December 1, 2020, a NPO received P1,000,000 fund from a philanthropist who provided a restriction that the said fund shall only be used fos-the-reseamh project of the organization, On December 31, 2021, Caritas used P100,000 of the said fimd for the research project. 10, What is the effect of the transaction to net assets of NPO for the year ended December 31, 2021? a. Increase in unrestricted net asset by P100,000 . _%- Decrease in temporarily réstricted net asset by P100,000 - Uiwa 22 Ppa c. No effect on net asset pa4 “joo ero d. Decrease in unrestricted net asset by P100,000 on UH) OM 11, Expenses of nonprofit organization shall be recorded only as reduction OR! 8 YP a. Temporarily restricted net assets AS Unrestricted net assets ~ c. Permanently restricted net assets, dd. Current liability ‘Numbers 12, 13,14,and15 jy Yel == On January 1, 2020, Entity A and Entity B established Entity C. for the operation of subway station in Metro Manila. The contractual arrangement between Entity A and Entity B provides that the relevant activities of Entity C will require unanimous vote of the said parties, Entity will have ownership over the assets of the operation and will answer for the liabilities of the said operation. Entity A and Entity B will only have right to the net assets of the subway operation. Entity A and Entity B invested P10,000,000 and 15,000,000, respectively, for 40:60 interest in the said established corporation. The financial statements of Entity 3 for the 3 years of operation provided for the following data: Year Net income/(Net loss) Dividends declared 2020 5,000,000 1,000,000 2021 (30,000,000) Fl 2022 40,000,000 5,000,000 On December 31, 2022, fair value less cost of disposal of the Investment by A and Investment by B is determined to be P13,000,000 and P20,500,000, respectively. 12. What is the book value of Investment to be reported by Entity B on December 31,,2020? a. 18,500,000 617,400,000 - Se e. 13,200,000 os d. 15,000,000 alee no 13. What is the investment loss to be reported by Entity A for the year ended December 31, 20217 a. 12,000,000 joes as ¥11,600,000- 2 et c. 12,400,000 (iw? —_—_— 4, 10,000,000 Tit 16 han 14, What is the book value of Investment to be reported by Entity A on December 31, 2022? Ae 13,000,000 dane (qe) [Teo “74 Puesed 4, b. 13,200,000 ye Igoe (ea) eerste 14,000,000 ay ee gmk ay oop -\L d, 12,000,000 fosw 7s [Puro %). (Zoro 15. What is the book value of Investment to be reported by Entity B on December 31, 20227 —— 22,000,000 —onNM“ er 20,400,000 ee ie) 2h $ Oba fr topes e, 20,600,000 Le ) ea Or) d. 20,800,000 C GAS sain TejonPage 4 Numbers 16, 17, 18, and 19 On January 1, 2020, ABC Inc., a small and medium enterprise, invested P600,000 in a jointly controlled entity named DEF Inc. and incufred transaction cost of P50,000. ABC Inc. owns 50% interest in the said corporation, For the year ended December 31, 2020, DEF Inc. reported net income in the amount of 200,000 and declared dividends in the amount of P40,000. On December 31, 2020, ABC Inc. determined that the fair value of its Investment in DEF Inc. is P800,000. The cost to sell of the investment is 10% of its fair value. The value in use of the investment cannot be determined reliably. 16, What is the book value of the Investment on December 31, 2020 to be reported by ABC Inc. under fair value model? a 800,000 bor ye Oro b. 650,000 c.” 720,000 a. 730,000 17. What is the book value of the Investment on December 31, 2020 to be reported by ABC under cost model? aa ar 650,000 — ee on. pe 600,000 eal or c. 550,000 un PAD 4. 720,000 sueeD 18, What is the book value of the Investment on December 31, 2020 to be reported by ABC under equity method? a a. 800,000 © i b. 650,000 er ies 2 720,000 730,000 eee eaceaailite pe MY 70 —_——s 19. What is the net effect on eamings of ABC Inc. in relation to this investment for the year ended December 31, 2020 under fair value model? 170,000 increase b. 100,000 increase aa ©. _ 90,000 increase 5; d, 200,000 decrease (se pe Ff 4p Numbers 20 and 21 On January 1, 2020, the Department of Agriculture (DA) received a P10,000,000 appropriation from the national government for the acquisition of construction machinery. On February 1, 2020, DA received the GAM slotment from the Department of Budget and Management. On March 1, 2020, DA entered into a contract with Entity A for the acquisition of the machinery with a price of P8,000,000. On April 1, 2020, DA received the Notice of Cash Allocation from Department of Budget and Management net of 1% withholding tax for income tax of supplier and 5% withholding of Final Tax on VAT of supplier. On May 1, 2020, Entity A delivered the machinery to DA. On June 1, 2020, DA paid the obligation to Entity A. On July 1, 2020, DA remitted the withheld income tax and final VAT to BIR. 20. What is the joumal entry on July 1, 2020? ale 1 a Debit Cash- hae Resulary ‘7,520,000 and Credit Subsidy Income from National Government 7,520,000. r[0 v. Debit Machinery P8,000,000 and Credit Accounts Payable P8,000,000 gyfe! & Debit Accounts Payable P8,000,000 and Credit Due to BIR P480,000 and Cash-MDS, Regular 7,520,000. fold Debit Due to BIR P480,000 and Credit Subsidy Income from National Government P480,000. 21, The, of notice of cash allocation by a national govemment agency shell credited to a. Cash ~ Modified Disbursement System — Regular b. Cash Treasury/Agency Deposit Regular _# Subsidy income from national government “a. Advances from national goverment