1

Cagayan State University

Andrews Campus, Tuguegarao City
College of Business, Entrepreneurship and Accountancy
Advance Accounting 1 – Dept exams
Multiple Choice
Instructions: .Choose the BEST answer for each of the following items. Mark only one answer for each item on the
Special Answer Sheet provided. Any alteration or erasure is considered a wrong answer. Do not write on the
questionnaire. Submit questionnaire together with the answer sheet and supporting computations.
1. Items 1 and 2 are based on the following:
Dr. Por and Dr. Payb are partners with capital balances of P140,000 and P100,000, respectively, and they
share profits and losses equally. Dr. Siks is admitted to the partnership with a contribution of P100,000
cash for a one-third interest in the partnership capital and in future profits and losses.
If the goodwill is recognized in accounting for the admission of Dr. Siks, what amount of goodwill will be
recorded?
a. P 13,333 c. P 40,000
b. P 20,000 d. P120,000
2. If no goodwill is recognized, the capital balances of Dr. Por and Dr. Payb immediately after the admission
of Dr. Siks will be:
a. Por, P 70,000 and Payb, P180,000 c. Por,P135,000 and Payb, P195,000
b. Por, P133,333 and Payb, P 93,333 d. Por,P140,000 and Payb, P100,000
3. Items 3 to 5 are based on the following:
The assets and equities of the SHA Partnership at the end of its fiscal year on October 31, 2008 are as
follows:
A s s e t s E q u i t ie s
Cash P30,000 Liabilities P 100,000
Receivables - Net 40,000 Loan from Angel 20,000
Inventory 80,000 Sharon, capital (30%) 90,000
Plant Assets - net 140,000 Hilda, capital (50%) 60,000
Loan to Hilda 10,000 Angel, capital (20%) 30,000
P300,000 P300,000
======= =======
The partners decide to liquidate the partnership. They estimate that the non-cash assets, other than the
loan to Hilda can be converted into P200,000 cash over the two-month period ending December 31, 2004.
Cash is to be distributed to the appropriate parties as it becomes available during the liquidation process.
The partner most vulnerable to partnership losses on liquidation is:
a. Sharon c. Angel
b. Hilda d. Sharon and Hilda equally
4. If P 130,000 is available for the first distribution, it should be paid to:
Priority Creditors Sharon Hilda Angel
a. P 120,000 P 10,000 P - 0- P -0-
b. P 120,000 P 3,000 P 5,000 P 2,000
c. P 100,000 P 10,000 P -0- P 20,000
d. P 100,000 P 24,000 P -0- P 6,000
5. If a total amount of P15,000 is available for distribution to partners after all non-partner liabilities are
paid, it should be paid as follows:
Sharon Hilda Angel Sharon Hilda Angel
a. P15,000 P -0- P -0- c. P4,500 P 7,500 P3,000
b. P -0- P7,500 P7,500 d. P5,000 P 5,000 P5,000
6. Use the following Information for questions 6 and 7
Heart, John, Bea, and Lloyd 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 as follows:
Partnership Personal Assets (exclusive Personal Liabilities (exclusive
Capital Balance of Partnership Interest) of Partnership Interest)
Heart P 30,000 P 200,000 P 80,000
John 20,000 60,000 120,000
Bea ( 40,000) 160,000 10,000
Lloyd ( 60,000) 2,000 56,000
The partnership creditors may obtain recovery of their claims:
a. in the amount of P12,500 from each partner.
b. from the personal assets of either Heart or John.
c. from the personal assets of either Bea or Llyod.
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d. from the personal assets of either Heart or Bea for some or all of their claims.
7. If Heart pays the full amount owed to partnership creditors from her personal assets, then:
a. Heart’s partnership loss will be increased by P50,000.
b. Heart’s partnership loss will be increased by P25,000
c. Heart will have a P 80,000 total partnership loss.
d. Heart’s partnership loss will be the same as if Bea had paid the partnership creditors from
her personal assets
8. Items 8 and 9 are based on the following data
On December 31, 2008, the accounting records of the PPM Partnership included the following ledger
account balances:
Debit (Credit)
Pls, drawing P (24,000)
Mi, Drawing ( 9,000)
Pas, loan 30,000
Pls, capital 123,000
Pas, capital 100,500
Mi, capital 108,000
Total assets of the partnership amounted to P478,500, including P52,500 cash. The partnership was
liquidated on December 31, 2008 and Mi received P 83,250 cash pursuant to the liquidation. Pls, Pas and
Mi shared income and losses in a 5:3:2 ratio, respectively:
How much is the loss on realization of assets?
a. P 23,750 c. P 123,750
b. P 78,750 d. P 178,750
9. How much cash is received by Pls?
a. P 13,125 c. P 37,125
b. P 35,625 d. P 59,625
10. Mr. Ang Daly is trying to decide whether to accept a salary of P40,000 or a salary of P25,000 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 P100,000. What amount of income would be
necessary so that Mr. Ang Daly would consider the choices to be equal?
a. P 165,000 c. P 290,000
b. P 265,000 d. P 305,000
11. On January 2, 2007, Maitim Co. sold a used machine to Maputi, Inc for P900,000 resulting in a gain of
P270,000. On that date, Maputi paid P150,000 cash and signed a P750,000 note bearing interest at 10%.
The note was payable in three annual installments of P250,000 beginning January 2, 2008. Maitim
appropriately accounted for the sale under the installment method. Maputi made a timely payment of the
first installment on January 2, 2008, of P325,000, which included accrued interest of P75,000. What
amount of deferred gross profit should Maitim report at December 31, 2008?
a. P 150,000 c. P 180,000
b. P 172,500 d. P 225,000
12. Use the following information for questions 12 and 13
Easy Electronics makes all of its sales on credit and accounts for them using the installment sales method.
For simplicity, assume that all sales occur on the first day of the year and that all cash collections are
made on the last day of the year. Easy Electronics charges 18% interest on the unpaid installment
balance. Data for 2007 and 2008 are as follows: 2007 2008_______
Sales................................................................... P 100,000 P 120,000
Cost of goods sold............................................... 60,000 80,000
Cash collections (principal and interest)
2007 sales............................................ 40,000 50,000
2008 sales............................................ 90,000
The interest income recognized in 2008 amounted to:
a. P 14,040 c. P 35,640
b. P 21,600 d. P 39,600

13. Using the same information in No. 12 , Compute the realized gross profit in 2008
a. P 14,384 c. P 37,184
b. P 22,800 d. P 39,600
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14. Use the following information for questions 14 to 16
The trial balance of Madalilang Appliance Corporation as of the end of the fiscal year on September 30,
2008 is:
Debit Credit
Accounts receivable P 100,000
Accounts payable..................................................... P 100,000
Allowance for depreciation....................................... 33,750
Capital Stock........................................................... 125,000
Cash....................................................................... 46,250
Deferred gross profit - 2007..................................... 50,000
Equipment............................................................... 112,500
Installment contract receivable - 2007....................... 12,500
Installment contract receivable - 2008....................... 150,000
Installment sales...................................................... 375,000
Inventory, Sept 30, 2007........................................... 62,500
Loss on repossessions.............................................. 3,750
Prepaid expenses.................................................... 3,750
Purchases.............................................................. 435,000
Repossessions........................................................ 2,500
Retained earnings................................................... 30,000
Sales..................................................................... 312,500
Selling and administrative expenses......................... 97,500
Total..................................................................... P 1,026,250 P 1,026,250
======== ========
The post-closing trial balance on Sept. 30, 2007 shows the following balances of certain accounts:
Installment contract receivable - 2007..............................................P 100,000
Deferred gross profit - 2007............................................................ 50,000
The gross profit percentage on regular sales during the year was 30%.
The accountant made the following entry for a repossession on a sale of 2007 towards the end of fiscal
year:
Repossessions........................................................P 2,500
Loss on repossessions............................................. 3,750
Installment contract receivable - 2007............. P 6,250
The inventory of new and repossessed merchandise on Sept. 30, 2008 amounted to P 75,000.

The total realized gross profit for the fiscal year September 30, 2008 is:
a. P 93,750 c. P 141,875
b. P 101,250 d. P 235,625
15. Using the same information in number 14, the correcting entry for repossession made on a sale of 2007 is:
a. no entry
b. Deferred gross profit - 2007...........................3,125
Loss on repossession........................... 3,125
c. Deferred gross profit - 2007...........................3,750
Loss on repossession........................... 3,750
d. Loss on repossession....................................3,125
Installment contract receivable............. 3,125
16. Using the same information in number 14, compute the net income for the fiscal year September 30,
2008:
a. P 137,500 c. P 235,000
b. P 138,125 d. P 235,625
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17. Items 17 and 18 are based on the following data
The following selected accounts are taken from the trial balance on December 31, 2008 of
Cagayan Company:
Accounts receivable - charge sales P 75,000
Installment receivables - 2006 15,000
Installment receivables - 2007 45,000
Installment receivables - 2008 270,000
Merchandise inventory 52,500
Purchases 390,000
Freight-In 3,000
Repossessed merchandise 15,000
Repossession loss 24,000
Cash sales P 90,000
Charge sales 180,000
Installment sales 446,400
Deferred gross profit - 2006 22,200
Deferred gross profit - 2007 39,360

Additional information:
a. Gross profit rate on 2006 installment sales was 30% and for 2007, the rate was 32%.
b. Installment sales prices exceed cash sales prices by 24% while charge sales prices
exceed cash sales prices by 20%.
c. The entry for repossessed goods was:
Repossessed merchandise............................P 15,000
Repossession loss........................................ 24,000
Installment receivables - 2006................ P 18,000
Installment receivables - 2007................ 21,000
d. Merchandise on hand at th end of 2008 (new and repossessed was P 70,500.

(1) If all sales were on cash basis, the total sales for 2008, and (2) The cost of goods sold
on installment sales for 2008:
a. (1) P600,000; (2) P272,160 c. (1) P516,328; (2) P390,000
b. (1) P600,000; (2) P 234,000 d. (1) P800,000; (2) P267,624
18. Using the same information in Number 17, the cash collections on Installment sale for

2006 2007 2008

a. P 89,000 P 168,000 P 176,400

b. P 74,000 P 123,000 P 176,400
c. P 41,000 P 57,000 P 176,400
d. P 33,000 P 66,000 P 176,400
19. Items 19 and 20 are based on the following data
The following data were taken fromt he records of Isabela Company, before the accounts are closed for
the year 2008. The company sells exclusively on the installment basis and uses the installment method of
recognizing profit.
2006 2007 2008
Installment sales P400,000 P440,000 P420,000
Cost of installment sales 240,000 272,800 256,200
Operating expenses 100,000 94,000 104,000
Balances as of December 31:
Installment Contracts Rec’ble 2006 220,000 110,000 28,000
Installment Contracts Rec’ble 2007 250,000 92,000
Installment Contracts Rec’ble 2008 238,000
Deferred gross profit 2006 44,000 44,000
Deferred gross profit 2007 95,000 95,000
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During 2008, because the customers can no longer be located, the company wrote off P9,000 of the 2006
accounts and P2,800 of the 2007 accounts as uncollectible, and the entry made was:

Operating expenses ................................... 11,800

Installment contracts receivable 2006 ... 9,000
Installment contracts receivable 2007 ... 2,800

Also during 2008 a customer defaulted and the company repossessed merchandise appraised at P4,000
after costs of reconditioning estimated at P400. The merchandise had been purchased in 2006 by a
customer who still owed P5,000 at the date of repossession. The entry made was:

Inventory of repossessed merchandise....... 5,000

Installment contracts receivable 2006 .. 5,000

Compute the (1) total realized gross profit on installment sales for the years 2008, and (2) The gain (loss)
on repossession:
a. (1) P157,156; (2) (P 960) c. (1) P 86,176; (2) (P 960)
b. (1) P 70,986; (2) P 600 d. (1) P157,156; (2) P 600
20. Using the same information in Number 19, the correcting entry for write-offs:

a. Deferred gross profit - 2006 3,600

Deferred gross profit - 2007 1,064
Operating Expenses 4,664
b. Deferred gross profit 4,664
Operating Expenses 4,664
c. Realized gross profit 4,664
Operating Expenses 4,664
d. Operating Expenses 4,664
Deferred gross profit - 2006 3,600
Deferred gross profit - 2007 1,064
21. Items 21 and 22 are based on the following information:
Angelo Corporation’s home office ships merchandise to its Ilagan branch at a billing price of 125% of
cost. During 2008, the home office makes the following entry:

Ilagan Branch 75,000

Shipments to Ilagan Branch 75,000

At year-end 2008, P12,000 of the merchandise remains at Ilagan branch inventory.

The entry to adjust the branch inventory in the books of the home office will include

a. Debit to Allowance for overvaluation of branch inventory, P12,600

b. Credit to Ilagan branch account, P2,400
c. Debit to Shipments to Ilagan branch, P2,400
d. Credit to Ilagan branch inventory, P12,600
22. The entry to adjust the branch income in the books of the home office will include
a. Debit to Allowance for overvaluation of branch inventory, P12,600
b. Credit to Ilagan branch account, P2,400
c. Debit to Shipment to Ilagan branch, P12,600
d. Credit to Ilagan branch inventory, P2,400
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23. Items 23 to 28 are based on the following information:

Summary trial balance for the home office and branch of Elena Corporation December 31, 2008 are as
follows:
Home Office Branch
Debits:
Other Assets P 630,000 P 165,000
Inventory, January 1, 2008 50,000 45,000
Branch 200,000
Purchases 500,000
Shipments from home office 240,000
Expenses 100,000 50,000
Total Debits P1,500,000 P 500,000
Credits:
Other Liabilities P 90,000 P 25,000
Capital Stock 500,000
Retained earnings 200,000
Home office 175,000
Unrealized profit in branch inventory 10,000
Branch profit 62,500
Shipments to branch 200,000
Sales 537,500 300,000
Total Credits P1,500,000 P 500,000
Inventories at December 31, 2008 are P70,000 for the home office and P60,000 for the branch. The
branch inventory is at transfer price.
The P25,000 difference in the Branch account and home office account represents
a. Shipments from Home office in transit
b. Branch cash remittance in transit
c. Allowance for evaluation of branch inventory
d. Branch reported net income
24. The home office transfer price of merchandise shipments to branch is
a. 130% of cost c. 120% of cost
b. 125% of cost d. 115% of cost
25. The unrealized profit on branch inventory before adjustment in Home Office books is
a. P 47,500 c. P 37,500
b. P 40,000 d. P 10,000
26. The cost of sales in the combined financial statements of Elena Corporation for the year 2008 is
a. P507,500 c. P467,500
b. P667,500 d. P550,000
27. The ending inventory in the combined financial statements of Elena Corporationfor the year 2008 is
a. P130,000 c. P120,000
b. P 95,000 d. P 87,500
28. The balance of home office account in the combined financial statements of Elena Corporation for the
year 2008 is
a. P000,000 c. P200,000
b. P175,000 d. P150,000
29. Items 29 and 30 are based on the following information:
On December 31, 2008, the home office account on the branch books shows a balance of P9,375. The
following reconciling data are determined in accounting for the difference.
a. Merchandise billed at P615 shipped by the home office to the branch on December 28 is still in
transit.
b. The branch collected a home office accounts receivable of P2,500, but failed to notify the home
office of this collection.
c. The home office recorded the branch net income for November at P1,125. This was in error, as the
branch reported net income of P1,215.
d. The home office was charged P640 when the branch returned merchandise to the home office on
December 31. The merchandise is in transit.
The unadjusted balance of Branch account is
a. P 9,735 c. P10,900
b. P10,350 d. P 8,400
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30. The adjusted balance of Home Office account is
a. P 9,375 c. P10,990
b. P10,350 d. P 8,400
31. Jose, Dodo and Winston formed a joint venture for the sale of assorted fruits during the Christmas season.
Their transactions during the two month period are summarized below.
Joint Venture__________________________________
2008 2008
Nov. 6 Merchandise - Jose......P 8,500 Nov. 10 Cash sales Winston...P20,400
8 Merchandise Dodo...... 7,000 12 Cash Sales-Winston... 4,200
10 Freight In -Winston....... 200 28 Merchandise - Dodo... 1,210
Dec. 8 Purchases - Winston..... 3,500 Dec. 30 Unsold merchandise
14 Selling Expenses-Winston 550 charged to Jose......... 540
The venture agreement provided for the division of gains and losses among Jose, Dodo in the ratio of
2:3:5. The venture is to close on December 31, 2008.
The joint venture profit(loss) is:
a. P 6,600 c. P 6,060
b. P (6,600) d. P 6,060
32. Using the same information in no. 31, how much would Jose receive cash in final settlement?
a. P 1,212 c. P 9,280
b. P 8,500 d. P 9,712
33. On July 1, 2008, Alviar, Brosas and Camus formed a joint venture for the sale of merchandise. Alviar
was designated as the managing participant. Profits or losses are to be divided as follows: Alviar, 50%;
Brosas; 25%; and Camus, 25%. On October 1, 2008, though the joint venture is still uncompleted, the
participants agreed to recognize profit or loss on the venture to date. The cost of inventory on hand is
determined at P25,000. The Joint Venture account has a debit balance of P15,000 before the distribution
of profit and loss. no separate set of books is maintained for the joint venture and the participants record
in their individual books all venture transactions.
The joint venture profit(loss) on October 1, 2008 is:
a. P ( 15,000) c. P 10,000
b. none d. P 25,000
34. Using the same information in No. 33 and the joint venture account has a credit balance of P30,000, the
joint venture profit (loss) is:
a. P (5,000) c. P 5,000
b. P (55,000) d. P55,000
35. Use the following information for questions 35 and 36
EmEm and ArAr agreed on a joint venture to purchase and sell car accessories. They agreed to
contributed P 25,000 each to be used in purchasing the merchandise, share equally in any gain or loss, and
record their venture transactions in their individual books. After one year, they decided to terminate the
venture, and data from their records were:
Joint Venture account credit balances: in books of EmEm, P18,000; in books of ArAr, P20,200, Cost of
car accessories taken: by EmEm, P1,000; by ArAr, P1,800, Expenses paid by EmEm P1,850; by ArAr,
P2,600.
How much was the joint venture’s sales?
a. P 83,750 c. P 91,000
b. P 86,550 d. P 92,650
36. Using the same information above, compute the joint venture gain?
a. P 38,200 c. P 42,750
b. P 41,000 d. P 45,550
37. The joint venture accounts in the books of the venturer, Ok ,Ka and Lang, show the balances below, upon
termination of the joint venture and distribution of the profits:
Ok Ka Lang
Accounts with Dr (Cr) Dr (Cr) Dr (Cr)
Ok - P 2,500 P 2,500
Ka P 4,000 - 4,000
Lang ( 6,500) ( 6,500) -
Final settlement of the joint venture will require payments as follows:
a. No payments to be made
b. Lang pays P2,500 to Ok, and P4,000 to Ka
c. Ok pays P 2,500 to Lang, and Ka pays P 4,000 to Lang
d. Ka pays P 6,500 to Ok, and Lang pays P 2,500 to Ka
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38. Mataas Builders Inc. has consistently used the percentage-of completion method of accounting for
construction-type contracts. During 2007 Mataas started work on a P9,000 fixed-price construction
contract that was completed in 2009. Mataas’s accounting records disclosed the following
December 31
2007 2008
Cumulative contract costs incurred.....................P 3,900,000 P6,300,000
Estimated total cost at completion....................... 7,800,000 8,100,000
How much income would Mataas have recognizes on this contract for the year ended December 2008?
a. P 100,000 c. P 600,000
b. P 300,000 d. P 700,000
39. Mabilis Co. recognizes construction revenue and expenses using the percentage-of-completion method.
During 2007 a single long term project was begun, which continued through 2008. Information on the
project follows: 2007 2008
Accounts receivable from construction contract P 100,000 P 300,000
Construction expenses 105,000 192,000
Construction in progress 122,000 364,000
Partial billings on contract 100,000 420,000
Profit recognizes from the long-term construction contract in 2005 should be
a. P 50,000 c. P128,000
b. P108,000 d. P228,000
40. Mabagal Construction Company has consistently used the percentage-of-completion method of
recognizing income. During 2007 Mabagal entered into a fixed-price contract to construct an office
building for P10,000,000. Information relating to the contract is as follows:
At December 31
2007 2008
Percentage of completion 20% 60%
Estimated total cost at completion P7,500,000 P8,000,000
Income recognized (cumulative) 500,000 1,200,000
Contract costs incurred during 2008 were:
a. P3,200,000 b. P3,300,000 c. P3,500,000 d. P4,800,000
41. Maayos Construction Company has consistently used the percentage-of completion method. On January
10, 2007, Maayos began work on a P6,000,000 construction contract. At the inception date, the estimated
cost of construction was P 4,500,000. The following data relate to the progress of the contract.
Income recognized at 12/31/07.........................................P 600,000
Cost incurred 1/10/07 through 12/31/08............................. 3,600,000
Estimated cost to complete at 12/31/08............................. 1,200,000
How much income should Maayos recognize for the year ended December 31, 2008?
a. P 300,000 b. P525,000 c. P600,000 d. P900,000
42. Papasa Construction, Inc uses the percentage of completion method in recognizing income. In 2005
Papasa Construction, Inc. was engaged by Valley Mall on a fixed price contract to build a 4 storey
shopping mall.
On January 1, 2007, a fire damaged the accounting records of Papasa Construction, Inc. The president of
the company has contracted you to reconstruct the contract information. The following data were taken
from the salvaged files: December 31
2005 2006
Architect’s estimated cost of completion P 7,500,000 P8,000,000
Cost incurred 3,000,000
Percentage of completion 60%
Income recognized to date 500,000 1,200,000
Compute for the percentage completed in 2005 on Valley Mall.
a. 20% b. 25% c. 30% d. 40%
43. C. Gurado Construction Company began operation on January 2, 2005. During the year, the company
entered into a contract with D. Tiyak Company to constrcut a manufacturing facility. At that time, My
Pagasa Company estimated that it would take five years to complete the facility at a total cost of
P1,800,000. The total contract price for construction of the facility is P2,500,000. During the year, the
company incurred P440,000 in construction costs related to the construction project. The estimated cost
to complete the contract is P1,560,000. D. Tiyak was billed and paid 30% of the contract price subject to a
10% retention.
Using the percentage of completion method, how much is the excess of Construction in Progress over
Contract Billings or Contract Billings over Construction in Progress?
a. P 125,000 current assets c. P 200,000 current asset
b. P125,000 current liability d. P 200,000 current liability
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44. Mega Construction Company was awarded a contract to construct a new sewage system for MWSS for a
price of P3,250,000. The original estimate of the cost to complete the project was P 3,000,000. The
contract provides for periodic progress billings. A final billing equal to 25% of the contract price is to be
made upon final inspection and acceptance of the MWSS.
The construction record for the system was as follows:
Date Cost to incurred to date Estimated cost to complete
December 31, 2003 P 1,075,000 P 1,612,500
December 31, 2004 2,625,000 750,000
August 15, 2005 3,425,000
The construction was inspected on August 15, 2003, January 15, 2004 and October 1, 2004, and progress
billings equal to 25% of the contract price were made on each of these dates. The system was completed,
and final inspection and acceptance took place on August 21, 2005.
How much is the construction in progress, net of billings in the 2004 balance sheet?
a. P 62,500 currect assets c. P 875,000 current liability
b. P287,500 current liability d. P2,463,600 current asset
45. On January 2, 2008, Madali Enterprises, Inc. authorized Mahirap Company to operate as a franchisee
over a twenty-year period for an initial franchise fee of P 60,000 received on signing the agreement.
Mahirap started operations on June 30, 2008, by which date Madali had performed all of the required
initial services. In its income statement for the six months ended June 30, 2008, what amount should
Madali report as revenue from franchise fees in connection with Mahirap franchise?
a. P -0- b. P 1,500 c. P 30,000 d. P 60,000
46. On January 3, 2008. Pangaasim Services, Inc. signed an agreement authorizing Cgemetten Company to
operate as a franchisee over a 20-year period for an initial franchise fee of P50,000 received when the
agreement was signed. Cgemetten commenced operations on July 1, 2008, at which date all of the initial
services required of Pangaasim had been performed. The agreement also provides that Cgemetten must
pay annually to Pangaasim a continuing franchise fee equal to 5% of the revenue from the franchise.
Cgemetten franchise revenue for 2008 was P400,000. For the year ended December 31, 2008, how much
should Pangaasim record as revenue from franchise fees in respect of the Cgemetten’s franchise?
a. P 22,500 b. P 45,000 c. P 50,000 d. P 70,000
47. On December 31, 2008, Panaginip, Inc. authorized Dream to operate as a franchisee for an initial
franchise fee of P75,000. Of this amount, P30,000 was received upon signing the agreement, and the
balance, represented by a note, is due in three annual payments of P15,000 each, beginning December 31,
2009. The present value on December 31, 2008 of the three annual payments appropriately discounted is
P36,000. According to the agreement, the nonrefundable down payment represents a fair measure of the
services already performed by Panaginip, however, substantial future services are rrequired of Panaginip.
Collectibility of the note is reasonably certain. On December 31, 2008. Panaginip should record
unearned franchise fees in respect of the Dream Franchise of
a. P -0- b. P 36,000 c. P 45,000 d. P 75,000
48. Questions 48 to 50 are based on the following information:
The following information are taken from the books of Pasado Company and its branch. The balances are
at December 31, 2008, the second year of their operations.
Home office books Branch books
Shipment from home office................................................................P 888,000
Sales..................................................................P 1,200,000
Expenses............................................................ 400,000
All for overvaluation of branch inventory.............. 173,000
The branch acquires all of its merchandise from home office. The inventories of the branch at billed
prices are as follows:
January 1, 2008 P150,000
December 31, 2008 168,000
The home office shipments of merchandise to branch are billed at what percent of cost?
a. 20% b. 25% c. 120% d. 125%
49. The balance of shipments to branch account before the books are closed is
a. P 400,000 b. P 600,000 c. P 720,000 d. P 740,000
50. The adjusted/correct/true profit of the branch is:
a. P 75,000 b. P 98,000 c. P 119,000 d. P 145,000

GOD BLESS YOU ALL!

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advance 1 - dept exams
Answer Section
MULTIPLE CHOICE

1. ANS: B
Particulars Por Payb Siks
Total
Capital b4 admission P140,000 P100,000 P240,000
Contribution of new partner P100,000 100,000
Goodwill to new partner _______ _______ __20,000 20,000 B
Capital balance P140,000 P100,000 P120,000 P360,000
======= ======= ======= =======
2. ANS: B
Particulars Por Payb Siks Total
Capital b4 admission P 140,000 P100,000 P240,000
Contribution of new partner P100,000 100,000
Bonus to new partner (6,666.67) (6,666.67) 13,333.33 --
Capital balance B P133,333.34 P 93,333.34 P113,333.33 P340,000
========= ========= ========= =======
3. ANS: B
Cash Priority Program
Partners Interest Payments
Particulars Sharon Hilda Angel Sharon(30%) Hilda(50% Angel(20%)
Capital balance P90,000 P60,000 P 30,000
Loan Balance ______ (10,000) 20000
Partners Interest P90,000 P50,000 P 50,000
P & L Rate 30% 50% 20%
Loss capacity of partners P300,000 P100,000 P250,000
1st priority to Sharon (50,000) _______ ______ P15,000
P250,000 P100,000 P250,000
2nd priority to Sharon & Angel (150,000) ______ (150,000) 45,000 P30,000
P100,000 P100,000 P100,000
Subsequent payment at P&L rates 30% 50% 20%
4. ANS: D
Particulars Creditors Sharon Hilda Angel Total
Available cash P130,000
Payment to outside creditors P100,000 ( 100,000)
1st priority to Sharon P15,000 ( 15,000)
2nd priority to Sharon & Angel _______ 9,000 _____ P 6,000 ( 15,000)
Payment to partners P100,000 P 24,000 P -0- P 6,000 P -0- D
======= ======= ======= ====== ==========
5. ANS: A
see cash priority in number 3 above
6. ANS: D
Particulars Heart John Bea Lloyd Total
Capital balance P 30,000 P 20,000 (P 40,000) (P60,000) (P 50,000)
Absorption of Lloyd deficit (20,000) ( 20,000) ( 20,000) 60,000 -0-
Balance P 10,000 P -0- (P 60,000) P -0- (P 50,000)
======= ======== ======== ====== ========
Note: Heart & Bea have sufficient personal assets
7. ANS: D
8. ANS: B
Mi, capital P 108,000 loss on realization (15,750 / 20%)
Mi, drawing ( 9,000) P 78,750 B
Total interest 99,000 =======
cash received 83,250
loss share (20%) P 15,750
=======
9. ANS: D
Pls Capital P 123,000
Pls, drawing ( 24,000)
Total interest 99,000
Loss share (P 78,750 x 50%) ( 39,375)
Cash received by Pls P 59,625 D
 11
========
10. ANS: C
Bonus required ( P40,000 - P 25,000) P 15,000
Divided by 10%
Net profit after bonus and salaries 150,000
Add back: Salaries (P25,000 + P100,000) P125,000
Bonus 15,000 140,000
Net profit before bonus and salaries P290,000 C
=======
11. ANS: A
Deferred gross profit (gain) P 270,000
Realized Gross profit:
Downpayment P 150,000
Installment collections excluding
interest:(P325,000 - P 75,000) 250,000
Total collections 400,000
Gross profit rate (P270,000/900,000) 30% 120,000
Deferred gross profit, 12/31/08 P 150,000
========
12. ANS: C
2007 Sales: {P100,000 - [P40,000 - (18% x P100,000)]}x 18%............... P 14,040
2008 sales: P120,000 x 18%................................................................. 21,600
P 35,640 (c)
========
13. ANS: C
2007 Sales: [P50,000 - 14,040 (refer to #12)] x (P100,000-P60,000)/P100,000............P14,384
2008 Sales: [P90,000 - (P120,000 x 18%)] x (P120,000-P80,000)/P120,000................ 22,800
Realized Gross profit on installment sales in 2008................................................P 37,184(c)
=======
14. ANS: D
2007 sales 2008 sales Total
Installment contract receivable,
9/30/2007 (Installment sales)..................... P 100,000 P 375,000
Less: Installment contract receivable
9/30/2008................................................. 12,500 150,000
Decrease in installment contract receivable..... P 87,500 P 225,000
Less: Defaults, unpaid balance....................... 6,250 -0-
Collections in 2008........................................ P 81,250 P 225,000
Multiplied by: Gross profit rate...................... 50% 45%
Realized gross profit on installment sales....... P 40,625 P 101,250 P 141,875
======= ========
Add: Gross profit on cash sales - 2008 (P312,500 x 30%) 93,750
Realized gross profit in 2008....................................................................... P 235,625 (d)
========
*Gross profit rates:
2007 Sales (prior year sales): Deferred gross profit - 2007 sales, 9/30/2007
Installment Contract Receivable -
2007, 9/30/2007
: P 50,000 = 50%
P100,000 ====
2008 Sales:
Inventory, Sept. 30, 2007................................................................ P 62,500
Add: Purchases............................................................................ 435,000
Repossessions...................................................................... 2,500
Cost of goods available for sale....................................................... P 500,000
Less: Inventory of new and repossessed merchandise,at 9/30/2008... 75,000
Cost of goods sold - 2008............................................................... P 425,000
Less: Cost of the regular sales - 2008 (P312,500 x 70%)................. 218,750
Cost of Installment sales - 2008...................................................... P 206,250
========
Installment sales - 2008................................................................... P 375,000
Less: Cost of installment sales......................................................... 206,250
Gross profit.................................................................................... P 168,750
 12
========
Gross profit rate (P168,750 / P375,000)........................................... 45%
=========
15. ANS: B
Value of repossessed merchandise.................................................................. P 2,500
Less: Unrecovered cost:
Installment contract receivable - 2007, unpaid balance.......P 6,250
Less: Deferred gross profit - 2007 (P6,250 x 50%)............ 3,125 3,125
Loss on repossession....................................................................................... P( 625)
=======
Correcting Entry: (b)
Deferred gross profit - 2007 3,125
Loss on repossession (P3,750 - P625) 3,125
Entry Made:
Repossessions................................................................ 2,500
Loss on repossessions..................................................... 3,750
Installment contract receivable - 2007.................... 6,250
Should be/Correct entry:
Repossessions................................................................ 2,500
Deferred gross profit - 2007........................................... 3,125
Loss on repossessions.................................................... 625
Installment contract receivable - 2007................... 6,250
16. ANS: A
Realized gross profit in 2008 ( refer to # 14)..................................... P 235,625
Less: Loss on repossession (refer to # 15)........................................ 625
Selling and administrative expenses......................................... 97,500
Net Income.................................................................................. P 137,500 (a)
========
17. ANS: B
(1) Total sales for 2008:
Cash sales (equivalent to 100%).........................................P 90,000
Installment sales (P446,400 / 124% = equivalent to 100%)... 360,000
Charge sales )P180,000 / 120% = equivalent to 100%)........ 150,000
P600,000 (b)
========
(2) Cost of Installment sales for 2008:
Merchandise Inventory, 12/31/07......................................P 52,500
Add: Purchases............................................................... 390,000
Freight-In............................................................... 3,000
Repossessed merchandise........................................ 15,000
Cost of goods available for sales....................................... P460,500
Less: Merchandise Inventory, 12/31/08
(new & repossessed).............................................. 70,500
Cost of goods sold.......................................................... P390,000
Multiplied by: Based on sales amount (equivalent to cash
sales price which is 100%)..................................... 360 / 600
Cost of installment sales................................................. P234,000 (b)

18. ANS: C
2006 sales 2007 sales 2008 sales
Installment Accts Rec’ble, 01/01
2008 (Installment sales) P446,400
2007: P39,360 32% P123,000
2006: P22,200 30% P 74,000
Less: Installment AR, 12/31/2008 15,000 45,000 270,000
Decrease in Installment AR P 59,000 P 78,000 P176,400
Less: Defaults, unpaid balance 18,000 21,000 0
Collections in 2008 P 41,000 P 57,000 P176,400 (c)
19. ANS: D
(1)
2006 sales 2007 sales 2008 sales Total
Realized gross profit in 2008:
 13
Installment AR, 01/01/08
(Installment Sales) P110,000 P250,000 P420,000
Less: Installment AR, 12/31/08 28,000 92,000 238,000
Decrease in Installment AR P 82,000 P158,000 P182,000
Less: Defaults, unpaid balance 5,000
Write-off 9,000 2,800 0
Collections in 2008 P 68,000 P155,200 P182,000
Multiplied by: gross profit rate 40% * 38% * 39% *
Realized gross profit in 2008 P 27,200 P 58,976 P 70,980 P157,156 (d)

* Gross profit rates:

2006 2007 2008
Installment sales P400,000 P440,000 P420,000
Less: Cost of Installment Sales 240,000 272,800 256,200
Gross Profit P160,000 P167,200 P163,800
Gross Profit Rate 40% 38% 39%

(2) Gain (loss) on repossession:

Appraised value after reconditioning costs .........................................P4,000
Less: Reconditioning costs................................................................ 400
Appraised value before reconditioning costs.......................................P3,600
Less: Unrecovered Costs:
Installment accounts receivable - 2006, unpaid balance..P5,000
Less: Deferred gross profit - 2006 (P5,000 x 40%)........ 2,000 3,000
Gain on repossession...................................................................... P 600 (d)

Ordinarily, however, conservatism would suggest that no more than the unrecovered cost, the
difference between the receivable balance and the deferred gross profit balance, be assigned to the
repossessed goods. No gain, then, would be reported at the time of the repossession; recognition of
any gain would await the sale of the repossessed goods.
20. ANS: A
(a)
Correcting entry for write-offs:
Deferred gross profit - 2006 3,600
Deferred gross profit - 2007 1,064
Operating Expenses 4,664
Entry made:
Operating Expenses 11,800
Installment Contract Rec’ble - 2006 9,000
Installment Contract Rec’ble - 2007 2,800

Should be / Correct Entry:

Operating Expenses (doubtful accounts) 7,136
Deferred gross profit - 2006 (P9,000 x 40%) 3,600
Deferred gross profit - 2007 (P2,800 x 38%) 1,064
Installment accounts rec’ble - 2006 9,000
Installment accounts rec’ble - 2007 2,800

21. ANS: C
(c) Shipments to Ilagan branch 2,400
Allowance for overvaluation of branch inventory 2,400
22. ANS: C
(c) Shipments to Ilagan branch 12,600
Branch income 12,600
23. ANS: D
Sales P 300,000
Cost of Sales:
Beginning Inventory P 45,000
Shipments from Home Office 240,000
Goods available for sale P 285,000
Ending Inventory 60,000 225,000
 14
Gross Profit P 75,000
Expenses 50,000
Net Income P 25,000 (d)
24. ANS: C
Shipments from Home Office P240,000 120% (c)
Shipments to Branch 200,000 100%
Overvaluation of branch shipments P 40,000 20%
25. ANS: A
Goods Available for Sale at billed price P285,000
Goods Available for Sale at cost (P285,000 120%) 237,500
Unrealized profit on branch inventory P 47,500 (a)
26. ANS: C
Cost of Sales Home Office Branch @ cost Combined
Beginning Inventory P 50,000 P 37,500 P 87,500
Purchases 500,000 500,000
Shipments from Home Office 200,000*
Goods Available for Sale P550,000 P237,500 P587,500
Shipments to Branch (200,000)*
Ending Inventory ( 70,000) ( 50,000) (120,000)
Cost of Sales P 280,000 P 187,500 P 467,500 (c)
* Eliminated in CFS
27. ANS: C
(see computation in item # 26)
28. ANS: A
Home office account is eliminated in the combined financial statements.
29. ANS: D
Particulars Branch Account Home Office
Account
Unadjusted balance P 8,400 P 9,375
a. Merchandise shipment in transit 615
b. Home Office receivable collected by branch 2,500
c. Erroneous entry of branch net income ( 90)
d. Merchandise returns in transit ( 640)
Adjusted Balance P 10,350 P 10,350
30. ANS: B
(see computation in item # 29)
31. ANS: A
Joint Venture Jose Capital
11/6 P 8,500 P20,400 11/10 12/30 P 540 P8,500 11/6
11/8 7,000 4,200 11/12 1,320 profit (2/10)
11/10 200 1,210 11/28 P 540 P9,820
12/8 3,500 540 12/30 P9,280 to Jose (c) 32
12/14 550 =====
19,750 26,350
6,600 JV profit (a) 31
32. ANS: C
refer to number 31 for computations
33. ANS: C
Joint Venture
before P/L P15,000 P25,000 unsold merchandise
P10,000 JV Profit (c)
34. ANS: D
Joint Venture
P 30,000 before P/L
25,000 unsold merchandise
P 55,000 JV profit ( d)
======
35. ANS: D
Joint Venture
Purchases P25,000 P92,650 (?) Sales (d)
25,000
 15
Expenses 1,850
2,650
P 54,450 P 92,650
P 38,200 ( 18,000 + 20,200) unsold merch
2,800 (P 1,000 + P 1,800)
P 41,000 JV gain (b)
======
36. ANS: B
refer to number 35 computation
37. ANS: C
Joint Venture Ok, Capital Joint Venture Ka, Capital
(1) P4,000 P6,500 (2) (2) P6,500 P 4,000 (1) (3) P2,500 P6,500 (4) (4) P6,500 P2,500 (3)
P2,500 P2,500 P4,000 P4,000
====== ====== ====== ======

Joint Venture Lang, Capital

(5) P 2,500 P 2,500 (5)
(6) 4,000 4,000 (6)
P 6,500 P6,500
======= =======
Incidentally, the entry would be:
Lang, Capital................................................................................................... 6,500
Ka Capital............................................................................................. 4,000
Cash...................................................................................................... 2,500

Therefore,as a result of the cash settlement Ok pays P2,500 to Lang, while Ka pays Lang P4,000 (c)
38. ANS: A
see midtems # 41
39. ANS: A
see computations on midterms # 42
40. ANS: B
see midterm exams # 43
41. ANS: A
see computation midterm examination # 44
42. ANS: A
see computation on midterm exams # 48
43. ANS: C
Progress billings (P2,500,000 x 30%)........................................................P 750,000
Less: Construction in progress
Costs incurred to date...................................................P 440,000
Gross profit recognized:
Contract price.................................P 2,500,000
Total costs (P1,560,000+ 440,000).... 2,000,000
Gross profit.................................... 500,000
% of completion(440,000/2,000,000) 22% 110,000 550,000
Current asset..........................................................................................P 200,000
=======
44. ANS: A
Construction in progress:
Cost incurred to date, 2004 P 2,625,000
Gross profit (loss) earned to date, 2004
(P3,375,000- P3,250,000) 125,000
Balance as of December 31, 2004 P 2,500,000
Less: Contract billings, 2004 (3,250 x 75%) 2,437,500
Current asset P 62,500
========
45. ANS: D
46. ANS: D
Initial franchise fee..............................................................P 50,000
Continuing franchise fee (55 x P400,000).............................. 20,000
Revenue from franchise......................................................P 70,000 (d)
======
47. ANS: B
 16
The P30,000 down payment received by Panaginip, Inc. represents the earned franchise fee revenue in
2004 since the problem already stated that the nonrefundable downpayment represents a fair measure of
the service already performed by Panaginip, Inc. the franchisor. However, since substantial future
services are still to be performed by Panaginip, Inc. the present value of the three annual payments to be
received in the future, of P 36,000, should be reported as of December 31, 2006 as unearned franchise
fees.
Incidentally, the entry would be:
Cash............................................................................. 30,000
Notes receivable............................................................ 45,000
Unearned Interest Income.......................................................9,000
Franchise revenue.................................................................30,000
Unearned Franchise revenue..................................................36,000 (b)
48. ANS: C
Goods available for sale (billed price):
Beginning inventory............................P 150,000
Shipments from home office................ 888,000 P 1,038,000
Allowance for overvaluation of branch inventory........................... 173,000
Goods available for sale (cost).....................................................P 865,000
=========
Billing on cost (P 1,038,000)......................................................... 120%
=========
49. ANS: D
Shipments from home office...................................P 888,000
Divide: billing on cost............................................. 120%
Shipment to branch...............................................P 740,000 (d)
========
50. ANS: A
Sales............................................................................................P 1,200,000
Cost of Sales:
Inventory, 1/1/2003.......P 150,000 P 125,000
Shipments from HO...... 888,000 740,000
GAS...........................P1,038,000 P 865,000
Inventory, 12/31/2003 (168,000) (140,000) 725,000
Gross profit...................................................................................P 475,000
Expenses....................................................................................... 400,000
Net Income...................................................................................P 75,000 (a)
========