Northern CPAR: Practical Accounting II – 2nd Pre-Board Examination

NORTHERN CPA REVIEW

Rm. 412 Pelizloy Centrum, Lower Session Road, Baguio City
Contact Numbers: 09294891758; 09272128204
E-mail: ncpar@yahoo.com
REX BANGGAWAN, CPA, MBA

INSTRUCTION: Answer E if your answer does not match with the choices given.

PROBLEMS
1. The following information were compiled by your accounting staff relative
to the share swap business combination implemented by DRIX and MET which
resulted in MET taking all the shares of DRIX after issuing 20,000 shares:

DRIX MET
Outstanding shares after share swap 12,000 30,000
Fair value of net asset before share swap P3,000,000 P2,000,000
Fair value of shares at date of share swap P350 P200

Compute the goodwill on acquisition.

a. P 0 c. P766,667
b. P1,000,000 d. P100,000

2. Baguio maintains two branches, Dagupan and Cubao. The home office billing
policy to the branches were: Dagupan – 110% of cost and Cubao – at 20%
margin.

An analysis of inventories held by all offices at the end of the year

reveals the following:

Home Office Dagupan Office Cubao Office

Purchased P 100,000 P 35,000 P 50,000
From home office - 55,000 50,000
Out on consignment 10,000
From consignment 50,000 10,000 10,000
Total inventory P 160,000 P 100,000 P 110,000

Compute the combined inventory to be shown in the statement of financial

position.
a. P300,000 c. P285,000
b. P290,000 d. P275,000

3. Gwen purchased Lyn in a purchase combination with Gwen transferring cash to

acquire a majority ownership of Lyn. At the date of combination, Lyn has
inventory with book value of P100,000 but with fair value of P120,000. At
year-end, Gwen and Lyn reported inventories of P120,000 and P200,000,
respectively. Half of Lyn’s inventory at the date of acquisition were
resold by year-end. Compute the consolidated balance of inventory to be
reported in the statement of financial position.
a. P340,000 c. P320,000
b. P330,000 d. P31,000

4. Cute owns 90% of Me. Cute reported total inventories of P100,000, exclusive
of P10,000 goods held out on consignment while Me reported P80,000
inventory. During the year, Me sold inventories to Cute and reported
P10,000 in intercompany profit. A quarter of this remains unsold by Cute.
Cute also sold inventory to Me and realized P12,000 out of the P15,000
total intercompany profit on the sale. What is the consolidated balance of
inventory?
a. P190,000 c. P184,500
b. P180,000 d. P174,500

5. Ugly purchased a 70% majority ownership of You at a bargain. At the date of

acquisition, the following assets were appraised as follows:

Book value Fair value

Land P 200,000 P250,000
Building (10 years SL method) 400,000 500,000
Equipment (5 years SL method) 300,000 250,000
Patent (5 years SL method) 100,000 80,000

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Northern CPAR: Practical Accounting II – 2nd Pre-Board Examination
After three years of operation, Ugly and You reported the following
shareholders’ equity:

Ugly You
Share capital P 1,000,000 P 1,000,000
Share premium 500,000 500,000
Accumulated profits 300,000 250,000
Total shareholder’s equity P 1,800,000 P 1,750,000

Compute the non-controlling interest.

a. P548,600 c. P552,600
b. P545,400 d. P525,000

6. Pacham operates a branch. An excerpt of the trial balance of Pacham and its
branch were as follows before consolidated financial statements were
prepared:

Pacham Branch

Sales P 700,000 P200,000

Gross profit 300,000 100,000

Inventories 80,000 40,000

Purchase 420,000 30,000

Shipments to branch 80,000

Shipments from home office 70,000

Unrealized gain on branch inventory 24,000

During the year, Pacham billed the branch P30,000 for inventories shipped
but were still in transit. Branch identified P12,000 home office shipments
out of its ending inventories.

Compute the combined inventory.

a. P90,000 c. P87,600
b. P98,400 d. P81,600

7. In the immediately preceding problem, compute the combined cost of goods

sold.
a. P496,000 c. P484,400
b. P493,600 d. P493,400

8. On July 1, 2011, Complicated Beauty entered into a forward contract to buy

$40,000 on July 1, 2012. Complicated has not designated this contract as a
hedge instrument. The following exchange rates were compiled for your
convenience.

July 1, 2011 Dec. 31, 2011 July 1, 2012

Forward rate to July 1, 2012 P 41.50 P 42.30 -
Spot rate P 41.40 P 42.20 P 42.00

What is the foreign exchange gain or loss on the contract to be reported in

the income statement for the period ending December 31, 2012.
a. P12,000 loss c. P12,000 gain
b. P8,000 loss d. P8,000 loss

9. Murriotte signed a contract to sell 2,000 kilos of apples of a designated

variety for P20/kilo. At an
settlement, the apples were
contract be recorded in the
a. None. Merely disclosed.
b. P6,000 asset
intervening balance sheet date before
selling P23/kilo. At what amount shall this
intervening balance sheet?
c. P6,000 liability
d. P6,000 gain

10. On December 1, 2011, Juice exported Arak wines for $10,000 dollars to a
foreign customer which is due for settlement on January 30, 2012.

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Northern CPAR: Practical Accounting II – 2nd Pre-Board Examination
12/1/2011 12/31/2011 1/30/2012 12/31/2012
Forward rate to December 30, 2012 P 41.50 P 42.30 P 41.00 -
Spot rate P 41.40 P 42.20 P 42.00 P 43.00

The foreign customer paid the $10,000 shipment on January 30, 2012 and was
deposited intact to Juice’s dollar deposit account until December 31, 2012.
What is the foreign exchange gain or loss for the period ended December 31,
2012?
a. P8,000 gain c. P8,000 loss
b. P2,000 gain d. P2,000 loss

11. A construction contract was begun during the year with a contract price
of P1,000,000. Cost incurred to date, inclusive of P50,000 special material
to be used in the second year of construction, totaled P500,000. Additional
P300,000 is required to complete the contract. Compute the gross profit on
construction.
a. P112,500 c. P150,000
b. P125,000 d. P625,000

12. Juan recorded the following entry in connection with the repossession of
an installment sales previously made at 40% mark-up. The repossessed
merchandise can be sold for P50,000 before reconditioning cost of P2,000.
Normal profit margin on the sale of repossessed item is 20%.

Inventory 50,000
Loss on repossession 150,000
Installment accounts receivables 210,000

The correct gain or loss on repossession is

a. P110,000 c. P112,000
b. P100,000 d. P108,000

13. On October 1, 2011, Raytubes, Inc. sold an inventory item costing

P50,600 on installment with the following terms:

Cash downpayment P 10,000

Second-hand trade-in merchandise 20,000
Balance payable 12 monthly installments starting October 31, 2011 60,000
Total contract price P 90,000

The trade-in merchandise has a fair value of P18,000. Compute the realized
gross profit for 2011.
a. P10,625 c. P12,578
b. P18,275 d. P18,824

14. Koumague, Inc. has the reported the following account balances from its
trial balance before financial statements were prepared for its first year
of operation:

Installment sales P 2,000,000

Cost of installment sales 1,500,000
Sales 1,500,000
Cost of goods sold 1,200,000
Accounts receivable 400,000
Installment accounts receivables 800,000

Koumague, Inc. sells only to qualified customers hence installment sales

are reasonably collectible. Compute the realized gross profit to be
presented in the statement of financial position.
a. P800,000 c. P300,000
b. P600,000 d. P 0

15. On November 1, 2012, Zeusana, Inc. entered into a franchising agreement

with Rema, Inc. The terms of the franchise requires Zeusana to transfer its
“Mamita” franchise by providing specified initial direct services. Rema is
to pay an upfront P4,000,000 initial franchise fee upon completion by
Zeusana of all required initial services. The same amount; however, is
subject to return when first year sales target do not exceed P10,000,000.
Zeusana substantially rendered all initial services. What is the entry to
record the receipt of the initial franchise fee?
a. Cash P10,000,000
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Northern CPAR: Practical Accounting II – 2nd Pre-Board Examination
Initial franchise fee P10,000,000
b. Cash P10,000,000
Deferred franchise fee P10,000,000
c. Cash P10,000,000
Continuing franchise fee P10,000,000
d. None of these (awan mapanunot na nga choice. He he!)

16. Kyut was admitted for a 60% in the partnership of Wafu and Pugi by
investing P40,000 and purchasing half of Wafu’s capital balance for
P40,000. Before admission, Wafu and Pugi have capital balance of P50,000
and P10,000, respectively, and share profit and loss equally. Their
agreement resulted in Kyut (select the incorrect statement)
a. paying bonus to Wafu and Pogi.
b. Wafu gaining P15,000 on the assignment of his share to Kyut.
c. being credited for P60,000 capital.
d. being credited for P10,000 bonus.

17. Raymudra and Zefa, partners sharing residual profits 40:60,

respectively, have the following account balances for the year ended
December 31, 2011:

Raymudra, drawings P 40,000 debit

Zefa, drawings P 50,000 credit
Raymudra, capital P 200,000 credit
Zefa, capital P 300,000 credit
Profit or loss summary P 80,000 credit

The drawings account of the partners were credited for their salary
provisions of P40,000 to Raymudra and P50,000 to Zefa which were all
charged to expense. The drawing accounts were debited for salary claims
made by the partners. What is the correct capital balance of Raymudra and
Zefa, respectively, at December 31, 2011?
a. P192,000; P398,000 c. P232,000; P348,000
b. P228,000; P452,000 d. P268,000; P402,000

18. Crocky and Lacoste are venturers with capital balances of P30,000 debit
and P20,000 credit, respectively, and shares profit equally. Sales for
their joint ventures totaled P300,000. Both venturers contribute P30,000
equal capital. They decided to terminate their ventures with P12,000 worth
of merchandise still unsold. The unsold merchandise will be charged to
Crocky. What is the profit of the joint venture?
a. P22,000 profit c. P32,000
b. P22,000 loss d. P42,000

19. In the immediately preceding problem, what would be the final settlement
between the venturers?
a. P31,000 payment to Crocky c. P31,000 payment by Crocky
b. P12,000 payment to Lacoste d. P12,000 payment by Lacoste

20. A summary and analysis of the intercompany transactions of Parent Papa

and its 80% Subsidiary Son shows the following:

Papa Son Total

Total external sales P4,000,000 P3,000,000 P7,000,000
Intra-group sales 1,000,000 500,000 1,500,000
Cost of sales 3,500,000 2,500,000 6,000,000
Unrealized gross profit-2010 120,000 150,000 270,000
Unrealized gross profit-2011 140,000 100,000 240,000

Compute the consolidated sales.

a. P 8,500,000 c. P5,500,000
b. P 7,000,000 d. P4,500,000

21. Compute the consolidated cost of sales

a. P6,000,000 c. P4,530,000
b. P4,470,000 d. P6,030,000

22. The consolidated income statements of Korni and its subsidiary, Swit,
shows a consolidated net income of P800,000. Korni has P600,000 pre-
consolidation income.

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Northern CPAR: Practical Accounting II – 2nd Pre-Board Examination
Adjustments were made for the following to reflect the consolidated net
income:
a) P45,000, last year’s unrealized gross profit – Korni
b) P15,000, last year’s unrealized gross profit – Swit
c) P50,000, this year’s unrealized gross profit - Swit

What is Swit’s pre-consolidation net income?

a. P155,000 c. P110,000
b. P210,000 d. P190,000

23. Parent Company sold a building to its Subsidiary for P1,000,000. The
building has carrying amount of P800,000, net of P100,000 accumulated
depreciation, and was depreciated over 10 years by the Subsidiary. The
elimination entry of this intercompany sale of fixed asset will not
involve?
a. A P10,000 credit to depreciation expense
b. A P100,000 credit to building
c. A P200,000 debit to gain on sale
d. An P80,000 credit to accumulated depreciation

24. The following data were compiled from Dying Corporation:

Book value of assets P 1,500,000

Book value of liabilities 1,200,000
Fair value of assets 1,100,000
Expected liquidation expenses 120,000

Compute the expected deficiency to unsecured creditors.

a. P220,000 c. P520,000
b. P100,000 d. P280,000

25. The trustee of D Departed Corporation, a company forced into bankruptcy

by its creditors, shows the following:

Cash P 400,000
Assets not realized 800,000
Liabilities not liquidated 1,150,000
Net assets 50,000

The sale of P500,000 non-cash asset generated P400,000 while priority

liabilities of P300,000 were settled. Income totaling P40,000 were earned
during liquidation out of which P2,000 was accrued. Liquidation expenses
totaled P50,000, excluding P10,000 accrued.

In the following statement of affairs, what is the amount of assets not

realized to be reported?
a. P300,000 c. P302,000
b. P400,000 d. P402,000

26. In the immediately preceding problem, liquidation gain or loss amounted

to
a. P120,000 loss c. P100,000 loss
b. P110,000 loss d. P90,000 loss

27. The home office made total shipments of goods costing P100,000 for
P120,000 to its branch. What is the entry to eliminate the intercompany
shipments?
a. Shipments to branch 120,000
Investment in branch 120,000

b. Shipments to branch 100,000

Branch loading 20,000
Investment in branch 120,000

c. Shipments to branch 100,000

Branch loading 20,000
Shipments from home office 120,000

d. Shipments to branch 120,000

Shipments from home office 120,000

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Northern CPAR: Practical Accounting II – 2nd Pre-Board Examination
28. The home office and the branch reported the following separate financial
statements:

Home office Branch

Sales P1,000,000 P 900,000
Cost of sales 700,000 600,000
Net income 300,000 200,000
Ending inventory 200,000 120,000

The home office bills its branch 25% above cost. The following combination
entries were prepared by the auditor to combine the financial statements of
the home office and the branch:

a) Home office - Branch 500,000

Investment in branch-HO 500,000

b) Sales - HO 400,000
Purchases - Branch 400,000

c) Retained earnings, beg - HO 40,000

Inventory - Branch 40,000

d) Inventory, end – I/S 20,000

Inventory, end – B/S 20,000

Compute the combined cost of sale.

a. P1,300,000 c. P1,200,000
b. P1,250,000 d. P1,150,000

29. In the immediately preceding problem, compute the combined net income
a. P600,000 c. P480,000
b. P520,000 d. P400,000

30. Which is not an income recognition method?

a. Deposit method
b. Installment method
c. Cost recovery method
d. Accrual method

31. The newly hired accountant of A, B and C Partnership prepared the

following journal entries to record the admission of D, a new partner, for
a 20% interest in the net asset of the partnership:

1/1/08 Cash 50,000

Goodwill 150,000
A, capital (150,000 x 0.25) 37,500
B, capital (150,000 x .75) 112,500
C, capital 50,000
To record the admission of D. Goodwill is computed as:
Implied total capital on D’s investment (P50,000/20%) P250,000
Less: net assets prior to D’s admission 100,000
Goodwill P150,000

The following entry was prepared in distributing the income for the current
year:

12/31/08 Income summary 35,000

A, capital (P35,000 x .25) 8,750
B, capital (P35,000 x .50) 17,500
C, capital (P35,000 x .25) 8,750
To divide net income for the year in the residual income-
sharing ratio of A,25%, B, 50% and D, 25%. Annual salary
of P40,000 to C is disregarded because income before salary
is P35,000.

Assume that D’s admission should have been recorded by the bonus method.
The net adjustment to C’s capital at August 31, 2005 in view of the
foregoing facts is
a. P12,000 credit c. P18,000 debit
b. P13,000 credit d. P10,000 credit

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Northern CPAR: Practical Accounting II – 2nd Pre-Board Examination
32. The following information relates to the records of Mr. Magician, the
trustee of a Liquidation, Inc. which is undergoing liquidation:

Book value Fair value

Total pledged assets P3,600,000 P3,600,000
Total unpledged assets (including cash) 400,000 300,000
Total non-priority liabilities 4,000,000 4,000,000
Total priority liabilities 200,000 200,000

What is the estate deficit before liquidation begins?

a. P100,000 c. P300,000
b. P200,000 d. P400,000

33. What is the estimated deficiency to unsecured creditors?

a. P100,000 c. P300,000
b. P200,000 d. P400,000

34. Unsecured priority claims expect a recovery ratio of 70%. Cherry is a

holder of P100,000 note which is 80% secured by the fair value of an
investment with a book value of P50,000 to the liquidating corporation.
What would Cherry expects to receive?
a. P85,000 c. P94,000
b. P90,000 d. P96,000

35. Which is not a priority claim in corporate liquidation?

a. Salaries of officers and employees
b. Dividends in arrears on preferred stocks
c. Real property taxes
d. Trust fees of the executor

--- End of Examination ---

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