Problem 1.

The balance sheet of PX and SV Corporations at year end 2007 are

summarized as follows:

PX Corporation SV Corporation
Assets P8,750,000 P3,500,000
Liabilities 2,625,000 875,000
Capital Stock 4,375,000 1,750,000
Retained Earnings 1,750,000 875,000

On January 1, 2008, PX corporation purchased 90% of SV Corporation outstanding

shares for P3,500,000 when the fair value of S Corporation’s assets was P3,850,000. If
a consolidated balance sheet is prepared immediately after the business combination,
the consolidated stockholders equity, will be
A. P6,125,000 C. P6,510,000
B. P6,422,500 D. P6,387,500

WP entry:
Identifiable Assets-Subs 3,850,000
Goodwill 822,500
Liabilities-Subs 875,000
Inv't in Subsidiaries 3,500,000
Minority Interest 10% 297,500
Income from acquisition x
#

Consolidated SHE= Parent's Book Value + WP Entries

4,375,000
1,750,000
297,500
6,422,500 Answer B

Problem 2. GHI Company is contemplating the purchase of 6,305 shares of the

outstanding stock of DEF Company which just prior to acquisition has the following
items in the balance sheet:

Cash 49,000 Current liabilities 173,000

Inventory 218,000 Common stock, P12 par 116,400
Plant & equipment (net) 379,000 Additional paid-in capital 148,000
Patent 92,000 Retained Earnings 300,600

GHI Company believes that the inventory has a market value of P197,000 and that the
plant and equipment is worth P391,000. Assuming the cost of investment is P359,750
and the acquisition is to be accounted for as a purchase. How much is the total
goodwill (income from acquisition) to be reported in the consolidated balance sheet?
A. P(196,250) C. P196,250
B. P1,650 D. P(1,650)
 C/S 116,400 12 9,700 issued & O/S shares
6,305 purchased
65% parent's interest
WP entry:
Identifiable Assets-Subs 729,000
Goodwill x
Liabilities-Subs 173,000
Inv't in Subsidiaries 359,750
Minority Interest 35% 194,600
Income from acquisition 1,650 answer D
#

Problem 3.
PJ CORPORATION AND SQ COMPANY
Balance Sheets
December 31, 2007

Assets PJ SQ COMPANY
CORPORATION
Cash P1,312,500 P43,750
Inventories 875,000 87,500
Plant Assets (net) 2,187,500 306,250*
Total Assets P4,375,000 P437,500

Liabilities and Stockholders’ Equity

Current Liabilities P 262,500 P 43,750
Common Stock, P100 par 437,500 43,750
APIC 1,312,500 87,500
Retained Earnings 2,362,500 262,500
Total Liabilities and Stockholders’ Equity P4,375,000 P437,500
* The Current fair market value on December 31, 2007 is P656,250.

Assuming PJ Corporation acquired all the outstanding common stock of SS Company

for P700,000 cash, the amount of plant assets that should appear in the consolidated
balance sheet is.
A. P2,843,750 C. P2,493,750
B. P2,187,500 D. P 656,250

Consolidated Plant = Parent's Book Value + WP Entries

2,187,500
656,250 in the WP entries the identifiable assets will include Plant Assets at FV
2,843,750 answer A

Problem 4. The Rockwell Company of Makati opened a branch at Cebu on January 1,

2008 to expand the market of its product. Merchandise shipped during 2008 to the
Cebu branch totaled P59,000, and this included a profit of 25% based on cost. At the
end of the year, the inventory was P6,000 at billed price. Sales on account, P72,500;
expenses, P16,500, of which P1,200 were unpaid on December 31, 2008; cash
received from customers on account, P40,000, after allowing cash discounts of P1,470;
cash remitted to the home office during the year, P33,000. What is the income or loss
of the branch during 2008 insofar as the home office is concerned?
A. P13,600 C. P1,530
B. P 3,000 D. P12,130
 BP cost markup
Amt % Amt % Amt %
Beg Inv
Shipments 59,000 125% 100% 25%
CGAS 59,000 - - unrealized before adjustm
End Inv 6,000 required end bal. of unre
COS 53,000 - 10,600 adjustment/Realized

Gross Sales 72,500

Sales Discount 1,470
Net Sales 71,030
COS 53,000
GP 18,030
OPEX 16,500
Branch Income 1,530
Realized GP 10,600
True Branch Inc 12,130 answer D

Problem 5. AX Company sold goods on installment. For the year just ended, the
following were reported:
Installment sales P600,000 Account defaulted P53,600
Cost of installment sales 405,000 Fair value of repossessed
Reconditioning cost 4,400 merchandise 30,400

What is the amount of loss on repossession?

A. P 5,870 C. P5,780
B. P10,180 D. P9,820

Inventory Repossesed 30,400 Sale 600,000

Deferred Gross Profit 17,420 COS 405,000
Loss on Repossesion 5,780 asnwer C GP 195,000 33%
Accounts Receivable-Installment 53,600
#

Problem 6. On January 2, 2008, RST Company signed an agreement to operate as a

franchisee of UVW Products, inc., for an initial franchise fee of P2,500,000 for 10 years.
Of this amount, P500,000 was paid when the agreement was signed and the balance
payable in four annual payments beginning on December 30, 2008. RST signed a non-
interest bearing note for the balance. RST’s rating indicates that he can borrow money
at 24% for the loan of this type. Present value of an annuity of 1 for 4 periods at 24% is
2.40. Assume that substantial services amounting to P255,000 had already been
rendered by UVW Products and that additional indirect franchise cost of P68,000 was
also incurred. If the collection of the note is not reasonably assured, the realized gross
profit for the year ended December 31, 2007 is
A. P605,200 C. P537,200
B. P1,445,000 D. P1,377,000
 1/2/2008 12/30/2008 interest
Collection, excluding interest 712 500 500 288
GPR 85%
RGP 605.200 Asnwer A

Cash Sales 500 installment PV factor

Credit Sales 1,200 500 2.4
Total Sale 1,700
COS 255
GP 1,445
85%

BV of Receivable 1,200
Effective Interest Rate 24%
interest income 288

Problem 7. X is trying to decide whether to accept a salary of P140,000 or a salary of

P87,500 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 P350,000. What amount of income would be necessary so that X
would consider the choices to be equal?
A. P1,067,500 C. P577,500
B. P1,015,000 D. P927,500

option a 140,000
option b 87,500+B
option a = option b
140,000 = 87,500+B
B = 140,000-87,500
B=52500
B=10%(NI-B-437500)
52500=10%NI-5250-43750
10%NI=52500+5250+43750
10%NI=101500
NI=101500/10%
NI=1,015,000 answer B

Problem 8. Y and Z are CPA’s who have been operating their own separate practices
as sole proprietors. They decided to combine the two firms as a partnership on January
3, 2008. The following assets were contributed by each:
Y Z
Cash P 700,000 P 700,000
Trade receivables 1,575,000 1,330,000
Equipment 245,000 266,000
Fixtures 322,000

The partners agreed to split profits on the basis of gross cash collections from billing
generated from clients. During 2008, Y’s clients paid the firm a total of P10,500,000
and Z’s clients paid P11,375,000. Expenses for the year were P7,560,000 of which
P3,360,000 were attributable to Y and the balance to Z. During 2008 Z withdrew
P5,250,000 cash for personal needs and contributed an additional computer valued at
P154,000. What is the capital balance of Z at December 31, 2008?
A. P6,225,800 C. P4,032,000
B. P5,875,800 D. P4,965,800
 Z Capital
Sales, Y 10,500,000 Beg 2,618,000
Sales, Z 11,375,000 share in NI 7,443,800
Total 21,875,000 drawings (5,250,000)
Expenses 7,560,000 addtl invt 154,000
NI 14,315,000 end 4,965,800 answer D

Profit Sharing
Y Z Total
Remainder 6,871,200 7,443,800 14,315,000

Problem 9. The home office bills NOP branch at a mark-up above cost. During the
year 2008 goods costing P825,000 were shipped to the branch. The account Allowance
for Overvaluation has a balance of P330,000 before adjustment. The net income of the
branch is understated by P82,000. How much is the ending inventory in the books of
the branch?
A. P205,000 C. P868,000
B. P620,000 D. P287,000

BP cost markup
Amt % Amt % Amt %
Beg Inv
Shipments 825,000
CGAS 825,000 330,000 40% unrealized before adjustment
End Inv 868,000 140% 100% 248,000 40% required end bal. of unrealize
COS answer C 82,000 adjustment/Realized

Problem 10. AB partnership begins its first year of operations with the following capital
balances:
A, Capital P80,000
B, Capital 40,000
According to the partnership agreement, all profits will be distributed as follows:
(a) A will be allowed a monthly salary of P8,000 with P4,000 assigned to B.
(b) The partners will be allowed with interest equal to 10% of the capital balance as
of the first day of the year.
(c) A will be allowed a bonus of 10% of the net income after bonus.
(d) The remainder will be divided on the basis of the beginning capital for the first
year and equally for the second year.
(e) Each partner is allowed to withdraw up to P4,000 a year.

Assume that the net loss for the first year of operations is P6,000 with net income of
P22,000 in the following year. Assume further that each partner withdraws the
maximum amount from the business each period. What is the balance of A’s capital
account at the end of the second year?
A. P105,900 C. P113,900
B. P73,900 D. P72,000
 A B Total A B Total
Salaries 96,000 48,000 144,000 Salaries 96,000 48,000 144,000
Int 10% 8,000 4,000 12,000 Int 10% 7,200 3,400 10,600
Bonus - - - Bonus 2,000 - 2,000
Remainder (108,000) (54,000) (162,000) Remainder (67,300) (67,300) (134,600)
Total (4,000) (2,000) (6,000) Total 37,900 (15,900) 22,000

A B Total B=10%(22,000-B)
Beg 80,000 40,000 120,000 B=2,200-10%B
Share in NI (4,000) (2,000) (6,000) 1.1B=2,200
Drawings (4,000) (4,000) (8,000) B=2,000
End 72,000 34,000 106,000
Share in NI 37,900 (15,900) 22,000
Drawings (4,000) (4,000) (8,000)
End 105,900 14,100 120,000
answer A

Problem 11. A home office transfers inventory to its branch at a 40% markup. During
2008, shipments to branch account is P1,312,500. At year-end, the home office adjusted
its Allowance for Overvaluation account downward by P325,000. The branch's balance
sheet at the beginning of the year shows P428,750 of inventory acquired from the home
office. How much is the ending inventory per branch books?
A. P806,250 C. P2,266,250
B. P1,137,500 D. P1,128,750

BP cost markup
Amt % Amt % Amt %
Beg Inv 428,750
Shipments 1,837,500 140% 1,312,500 100% 40%
CGAS 2,266,250 unrealized before adjustme
End Inv (1,128,750) answer D required end bal. of unreali
COS 1,137,500 140% 325,000 40% adjustment/Realized

Problem 12. A, B and C formed a partnership on August 1, 2008 with the following
assets contributed by each partner, measured at their fair values.

A B C
Cash P37,500 P45,000 P112,500
Merchandise inventory - 13,125 9,375
Machinery and equipment 562,500 105,000 -
Furniture and fixtures 31,875 19,125 -____
Totals P631,875 P182,250 P121,875

Although C has contributed the largest amount of cash to the partnership, he did not
have the full amount of P112,500 available and was forced to borrow P75,000. The
Machinery and equipment contributed by A has a mortgage of P337,500 and the
partnership is to assume responsibility for the loan. The partners agree to equalize their
interest. Cash settlement among the partners are to be made outside the partnership.
Using the bonus method:
A. B should pay A, P94,875 and C, P77,625.
B. C should pay A, P94,875 and B, P17,250.
C. B and C should pay A, P17,250 and P77,625 respectively.
D. A should pay B and C, P94,875.
 CC Bonus AC
33.33% A 294,375 (94,875) 199,500 Answer C, since A gave bonus to B and
33.33% B 182,250 17,250 199,500 C, the latter will both pay A outside the
33.33% C 121,875 77,625 199,500 partnership.
598,500 - 598,500

Problem 13. D, E and F are partners sharing earnings in the ratio of 5:3:2 respectively.
As of December 31, 2007, their capital balance showed P237,500 for D, P200,000 for E
and P150,000 for F. On January 1, 2008 the partnership admitted G as a new partner
and according to the partnership agreement, G will contribute P200,000 in cash to the
partnership and will also pay P25,000 for 15% of E’s share. G will share 20% in the
earnings while the ratio of the original partners will remain proportionately the same as
before the admission of G. After G’s admission, the total capital of the partnership will
be P825,000 while G’s capital account will be P175,000. The balance of E’s capital
account after the admission of G would be:
A. P181,500 C. P186,500
B. P197,750 D. P202,750

CC CC Bonus Goodwill AC
50% D 237,500 237,500
old 79% 30% E 200,000 170,000 16,500 11,250 197,750 answer B
20% F 150,000 150,000
new 21% G 200,000 230,000 (55,000) 175,000
787,500 787,500 (38,500) 37,500 825,000

Problem 14. On October 31, 2008, QRS Co. sold for P468,750 property that had a
cost of P375,000. QRS received a P125,000 down, the balance is payable in monthly
installments, with the first payment due at the end of November. QRS decides to report
the profit on the sale on the installment basis. Assume the monthly payments are sums
consisting of P3,750 to apply against the principal plus interest on the unpaid balance of
12% . How much is the realized gross profit for 2008?
A. P125,000 C. P132,500
B. P26,500 D. P25,126

Sales 468,750 RGP = Collection x GPR

COS 375,000 25,000 = 125,000 x 20%
GP 93,750 20% 750 = 3,750 x 20%
750 = 3,750 x 20%
26,500 answer B

Problem 15. H, I and J are partners with present capital balances of P225,000,
P270,000 and P 90,000, respectively. The partners share profits and losses according
to the following percentages; 60% for H, 20% for I and 20% for J, K is to join the
partnership upon contributing P90,000 cash, plus an equipment with a fair market value
of P180,000 to the partnership in exchange for a 25% interest in the capital and a 20%
interest in the profits and losses. The existing assets of the original partnership are
undervalued by P55,000. The original partners will share the balance of profits and
losses in their original ratios. Calculate the capital balances of each partner in the new
partnership using goodwill method.
H I J K
A. P303,300 P296,100 P116,100 P238,500
B. 225,000 270,000 90,000 270,000
C. 360,000 315,000 135,000 270,000
D. 360,000 315,000 90,000 90,000
 CC Bonus Goodwill AC
60% H 225,000 33,000 258,000 102,000 360,000
old 75% 20% I 270,000 11,000 281,000 34,000 315,000 answer C
20% J 90,000 11,000 101,000 34,000 135,000
new 25% K 270,000 270,000
585,000 55,000 910,000 - 170,000 1,080,000

Problem 16. The following amounts were taken from the statement of affairs for ABC
Company:
Unsecured liabilities with priority P 70,000
Stockholders’ equity 252,000
Estimated liquidation expenses that have not been entered
in the accounting records 31,500
Unsecured liabilities without priority 630,000
Loss on realization of assets 315,000

How much is the total free assets?

A. P605,500 C. P544,900
B. P567,000 D. P535,500

SHE 252,000 unsecured CR w/ Priority 605,500 answer A

inc in liab (31,500) Available Assets (70,000)
dec in assets (315,000) unsecured CR (630,000)
Deficiency (94,500) Deficiency (94,500)

Problem 17. The home office of XYZ Company which uses perpetual inventory
system, bills shipments of merchandise to the QRS branch at a mark-up of 25% on the
billed price. On August 31, 2008, the credit balance in the Home Office’s Branch
Inventory Allowance account was P420,000. In September, the home office shipped
merchandise to the branch at a cost of P2,100,000. The branch reported an ending
inventory at billed price of P1,120,000 on September 30,2008. How much is the
realized inter-office inventory profit during September?
A. P1,680,000 C. P700,000
B. P721,000 D. P840,000

BP cost markup
Amt % Amt % Amt %
Beg Inv 420,000
Shipments 2,100,000 75% 700,000 25%
CGAS 1,120,000 unrealized before adjustment
End Inv 1,120,000 100% 280,000 25% required end bal. of unrealized/adjusted
COS 840,000 adjustment/Realized
answer D

Problem 18. Partners OO and PP share profits 3:1 after annual salary allowances of
P36,000 and P54,000, respectively; however, if profits are not adequate to meet the
salary allowances, the entire profit is to be divided in the salary ratio. Profits of P81,000
were reported for the year 2007. In 2008 it was ascertained that in calculating net
income for the year ended December 31, 2007, depreciation was overstated by
P39,600. How much is the amount of the net adjustments in the books of OO and PP?
A. OO, P(26,640); PP, P(13,050)
B. OO, P26,550 ; PP, P13,050
C. OO, P58,950 ; PP, P61,650
D. OO, P16,560 ; PP, P24,840
 Correct Allocation
O P Total
Salaries 36,000 54,000 90,000 Adjustments
3:1 Remainder 22,950 7,650 30,600 O P Total
Total 58,950 61,650 120,600 26,550 13,050 39,600
answer B
O P Total
Salaries - - -
36:54 Remainder 32,400 48,600 81,000
Total 32,400 48,600 81,000

Problem 19. KLM Construction Company recognized gross profit of P126,000 on its
long-term project which has accumulated costs of P245,000. To finish the project, the
company estimates that it has to incur additional cost of P490,000. The contract price
is:
A. P742,000 C. P980,000
B. P1,113,000 D. P1,400,000

RGP = %Completion x ( Contract Price - Estimated Total Cost)

Completion = Cost Incurred to Date/Estimated Total Cost

126,000 = 245,000 x ( CP - 735,000 )

735,000

CP = 1,113,000 answer B

Problem 20. NOP Corporation recently paid P3,925,000 for the net assets of TUV
Company which have a total book value of P3,800,000. Book values of assets and
liabilities approximate their fair values, except as noted below:
Book Value Fair Value
Inventory P 400,000 P 436,000
Land 300,000 395,000
Buildings and Equipment 1,400,000 1,510,000
Patents 150,000 108,000
Long-term debt (550,000) (420,000)

How much is the goodwill (income from acquisition) as a result of the business
combination?
A. P(1,896,000) C. P1,896,000
B. P204,000 D. P(204,000)

Net Identifiable Assets-Acquired 4,129,000

Goodwill x
Cash 3,925,000
Income 204,000 answer D
#

Book Value of Net Identifible Assets Acquired 3,800,000

Net Adjustment (FV-BV) 329,000
FV of Net Identifiable Assets Acquired 4,129,000

Problem 21. The condensed balance sheets of the companies joining in a stock
acquisition are as follows:
 In thousand pesos XX YY ZZ
Assets P9,600 P13,200 P1,200

Liabilities P6,840 P 3,600 P 420

Common stock, P10 par 3,600 2,400 600

Additional paid-in capital -0- 960 300
Retained earnings (840) 6,240 (120)
Total equities P9,600 P13,200 P1,200

XX's shares are quoted at P12 while those of YY and ZZ being held closely, have no
known market value. XX acquired all of the stocks outstanding of YY and ZZ in
exchange for 720,000 and 60,000 shares respectively of its common stock.
Immediately after the stock acquisition, the consolidated retained earnings (deficit)
would amount to:
A. P180,000 C. -0-
B. P(840,000) D. P5,280,000

Assets-y 13,200 Assets-y 1,200

Goodwill x Goodwill x
Lib-Y 3,600 Lib-Y 420
Inv't in Y 8,640 Inv't in Y 720
MI 0% - MI 0% -
Income 960 Income 60
# #

Conso R/E = Parent's BV + WP Entries

answer A 180 = (840) + 1,020

Problem 22. PM Corporation acquired an 80% interest in SD Company on January 2,

2008 for P700,000. On this date, the capital stock and retained earnings of the two
companies were as follows:
PM Corp. SD Co.
Capital stock P1,800,000 P 500,000
Retained earnings 800,000 100,000

The assets and liabilities of SD were stated at their fair values when PM Corporation
acquired its 80% interest. PM uses the cost method of accounting to account for its
Investment in SD. Net Income and dividends for 2008 for the affiliated companies
were:
PM Corp. SD Co.
Net income P300,000 P90,000
Dividend declared 180,000 50,000
Dividend payable 12/31/2006 90,000 25,000

Compute the following amounts: (1) retained earnings, and (2) minority interests that
should appear in the consolidated balance sheet on December 31, 2008:
A. (1) P1,100,000; (2) P138,000
B. (1) P 952,000 ; (2) P128,000
C. (1) P 640,000 ; (2) P120,000
D. (1) P 92,000 ; (2) P128.000
 Assets-subsidiary 600,000 NI 300,000 90,000
GW 220,000 Subs Div to P (40,000) n/a
Liab-Subs - Adj NI 260,000 90,000
Inv't in S 700,000 P% in Subs NI 72,000 (72,000)
MI 20% 120,000 332,000 18,000
Income from Acq. x CONI MINI

R/E MI
P'sBV + WP entries 800,000 120,000
CONI 332,000 n/a
P's Dividend 100% (180,000) n/a
MINI n/a 18,000
Subs Div to MI n/a (10,000)
Conso Balances 952,000 128,000 answer B

Problem 23. PR Corporation paid P900,000 for a 60% interest in SK Corporation on

January 1, 2008 at a price P30,000 in excess of underlying book value. The excess
was allocated P12,000 to undervalued equipment with a five-year remaining useful life
and P18,000 to goodwill. The income statements of PR and SK for 2008 are given
below:
PR SK
Sales P 2,000,000 P 800,000
Cost of sales (1,000,000) (400,000)
Depreciation expense (200,000) (120,000)
Other expense (400,000) (180,000)
Net income P 400,000 P 100,000

Determine the consolidated net income attributable to parent’s shareholders’ equity for
2008?
A. P488,200 C. P457,600
B. P490,000 D. P484,200

P S
NI 400,000 100,000
Amt'zn of FV-BV n/a (4,000) 20,000 5
Adj NI 400,000 96,000
P% in Subs NI 57,600 (57,600)
457,600 38,400
CONI MINI
answer C

Problem 24. EFG Inc., franchiser, entered into franchise agreement with HIJ Inc.,
franchise on July 1, 2008. The total franchisee fees agreed upon is P550,000, of which
P50,000 is payable upon signing and the balance to be covered by a non-interest
bearing note payable in four equal annual installments. It was agreed that the down
payment is not refundable, notwithstanding lack of substantial performance of services
by franchiser. The direct franchise cost incurred was P325,000. Indirect franchise
expense of P31,250 was also incurred. The management of HIJ has estimated that
they can borrow loan at the rate of 12%. The franchisee commenced its operations on
July 31, 2008. When EFG prepares its financial statements on July 31, 2008, how
much is the net income to be reported? PV factor is 3.04
A. P77,550 C. P73,750
B. P119,350 D. P108,800
 Income Statement Cash Sales Credit Sales installment PV Factor
Sales 430,000 50,000 380,000 125,000 3.04
COS 325,000
GP 105,000
Int. Inc. 3,800
OpeX 31,250
NI 77,550 answer A

Problem 25. LMN’s partnership provided for the following distribution of profits and
losses; (1) L is to receive 10% of the net income up to P1,750,000 and 20% on the
amount of excess thereof; (2) M and N each, are to receive 5% of the remaining
income in excess of P2,625,000 after L’s share as per above and the balance to be
divided equally among the partners. For the year just ended, the partnership realized a
net income of P4,375,000 before distribution to partners. The share of L is:
A. P2,275,000 C. P1,750,000
B. P1,925,000 D. P1,890,000

L M N Total
Salaries 700,000 52,500 52,500 805,000
remainder 1,190,000 1,190,000 1,190,000 3,570,000
1,890,000 1,242,500 1,242,500 4,375,000
answer D

Problem 26. Q, R and S are partners sharing profit on a 7:2:1 ratio. On January 1,
2008, T was admitted into the partnership with 15% share in profits. The old partners
continue to participate in profits in their original ratios. For the year 2008, the
partnership showed a profit of P120,000. However, it was discovered that the following
items were omitted in the firm’s book:

Unrecorded at year end 2007 2008

Accrued income P7,000
Unearned income P 9,800
Accrued expense 8,400
Prepaid expense 11,200

The share of partner R in the 2008 net income is:

A. P25,198 C. P17,580
B. P19,924 D. P23,440

85% 15% 100%

70% 20% 10%
Q R S T Total
remainder 19,924 117,200
answer B
Unadj NI 120,000
Accrued Inc 7,000
Accrued Exp (8,400)
Unearned Inc 9,800
Prepaid Exp (11,200)
117,200

Problem 27. On December 31, 2007, ABC Co. sold construction to XYZ, Inc. for
P6,750,000. The equipment had a carrying amount of P4,387,500. ABC Co.paid
P1,125,000 cash on December 31, 2007 and signed a P5,625,000 note bearing interest
at 10% payable in five annual installments of P1,125,000. ABC Co. appropriately
accounts for the sale under the installment method. On December 31, 2008, XYZ paid
P1,125,000 principal and P562,500 interest. For the year ended December 31, 2008,
 what total amount of revenue should ABC recognize from the construction equipment
sale and financing?
A. P787,500 C. P956,250
B. P393,750 D. P1,350,000

SP 6,750,000 RGP= Collection x GPR

BV 4,387,500 RGP= 1,125,000 x 35%
GP 2,362,500 35% RGP= 393,750

RGP 393,750
Int Inc. 562,500
Revenue 956,250 answer C

Problem 28. A home office ships inventory to its branch at 125% of cost. The required
balance of the Unrealized intercompany profit account is P236,250. During the year, the
home office sent merchandise to the branch costing P2,352,000. At the start of the year,
the branch's balance sheet shows P945,000 of inventory on hand that was acquired from
the home office. By what amount is the cost of goods sold overstated?
A. P236,250 C. P777,000
B. P540,750 D. P189,000

BP cost markup
Amt % Amt % Amt %
Beg Inv 945,000 189,000
Shipments 125% 2,352,000 100% 588,000 25%
CGAS 777,000 unrealized before adjustment
End Inv 236,250 required end bal. of unrealized/adjuste
COS 540,750 adjustment/Realized
answer B

Problem 29. The Eastwood head office opened its Magallanes branch on August 1.
Merchandise shipments to the branch during the month, billed at 125% of cost, is
P1,680,000. Branch returned damaged merchandise worth P189,000. On August 30,
the branch reported a net loss of P120,855 and an inventory of P336,000. How much is
the true income (loss) of the branch?
A. P231,000 C. P110,145
B. P351,855 D. P147,945

BP cost markup
Amt % Amt % Amt %
Beg Inv
Shipments 1,491,000 125% 100% 298,200 25%
CGAS 298,200 unrealized before adjustment
End Inv 336,000 67,200 required end bal. of unrealized/adjuste
COS 231,000 adjustment/Realized
(120,855)
110,145 answer C

Problem 30. MNO Company filed a voluntary bankruptcy petition on July 30, 2008 and
the statement affairs reflects the following amounts:
Book Estimated
Carrying Amount Current Value
Assets
Assets pledged with fully
secured creditors P 520,000 P 617,500
Assets pledged with partially
secured creditors 292,500 195,000
Free assets 650,000 455,000
Liabilities
 Liabilities with priority 65,000
Fully secured creditors 422,500
Partially secured creditors 325,000
Unsecured creditors 845,000

Assume that the assets are converted into cash at the estimated current values and
the business is liquidated. What total amount of cash should partially secured
creditors receive?
A. P 273,000 C. P 195,000
B. P 292,500 D. P 325,000

Free Assets Unsecured Priority Deficiency

APPSC 195,000 PSC 130,000
Unpledged Assets 455,000 Priority 65,000
Unsecured 845,000
Total 650,000 Total 975,000 65,000 (390,000)

Recovery Rate = Available Assets / Unsecured Creditors

Recovery Rate = 585,000 / 975,000
Recovery Rate = 0.60

Partially Secured Creditors = Portion Secured + (Unsecured Portion x Recovery Rate)

PSC = 195,000 + 78,000
PSC = 273,000 answer A

Problem 31. Partners A, B and C share profits and losses in the ratio of 5:3:2. At the
end of a very unprofitable year, they decided to liquidate the firm. The partner's capital
account balances at this time are as follows:
A P616,000
B 697,200
C 420,000

The liabilities accumulate to P840,000, including a loan of P280,000 from A. The cash
balance is P168,000. All the partners are personally solvent. The partners plan to sell
the assets in installment. If B received P100,800 from the first distribution of cash, how
much did C receive at that time?
A. P56,000 C. P22,400
B. P33,600 D. P61,600

5 3 2
Cash Non-Cash = Liabilities A B C
Balances 168,000 2,405,200 560,000 896,000 697,200 420,000
Sale of Assets (596,400) (397,600)
Balances 100,800 22,400
answer C

Problem 32. The following transactions pertain to a branch’s first month’s operations:
a. The home office sent P11,000 cash to the branch.
b. The home office shipped inventory costing P36,000 to the branch; the mark-up
on cost is 25%.
c. Branch inventory purchases from outside vendors totaled P14,000.
d. Branch sales on account were P73,000. Cash sales amounted to P9,000.
e. The home office allocated P5,000 in advertising expense to the branch.
f. The home office received defective merchandise costing P7,000 from the branch.
g. Branch collections on accounts receivable were P32,000.
h. The home office collected P2,000 from a customer of the branch.
 i. Branch operating expenses of P10,500 were incurred, none of which were paid
at month-end.
j. The branch remitted P13,000 to the home office.
k. The branch’s ending inventory (as reported in its balance sheet) is composed of:
Acquired from outside vendors P 9,000
Acquired from home office (at billing price) 12,000

What is the adjusted balance of the Home Office Current account in the books of the
branch based from all transactions above?
A. P67,250 C. P79,500
B. P37,250 D. P74,500

Branch Income Statement

Branch Books Sales 82,000
HO Accts Beg Inv -
- 11,000 a Net Purch 50,250
- 45,000 b End InV 21,000
- - c COS 29,250
- - d GP 52,750
- 5,000 e OPEX 15,500
8,750 - f NI 37,250
- - g
2,000 - h
- - i
13,000 - j
- - k
The NI should not be adjusted by the Realized GP because the
- 37,250 l Branch does not know it.
74,500 answer D

Problem 33. The Tommy Store began operations by selling wholesale merchandise on
an installment basis and uses the installment method of accounting. Terms include
downpayment of 20% and balance payable in three years; 50% in the year of sale; 30%
in the year after; and 20% in the third year. Tommy includes a 25% mark-up on cost for
its selling price. Installment sales reported by Tommy are P550,000 in 2007, P770,000
in 2008, and P908,000 in 2009. How much is the installment accounts receivable at the
end of 2009 and unrealized gross profit at the end of 2009?
A. 486,400 / 97,280 C. 486,400 / 121,600
B. 574,400 / 121600 D. 574,400 / 97,280

A/R
GPR= 25% = 20% 550,000 80% 0% = -
125% 770,000 80% 20% = 123,200
908,000 80% 50% = 363,200
GPR=DGP / AR 486,400 answer A
20%= DGP /AR
DGP = 20%*A/R
DGP= 97,280 answer A

Problem 34. Colt Construction Company entered into two construction jobs which both
commenced in 2008.
Project 1 Project 2
Contract Price P525,000 P375,000
Costs incurred during 2008 300,000 350,000
Estimated Cost to Complete 150,000 87,000
General and administrative
Expenses 25,000 12,500
 Billings for clients during 2008 315,000 300,000
Collections during 2008 280,000 250,000

Based on the information given, how much is the gross profit would Colt report in its
2008 income statement?
Percentage of completion Zero profit
A. (62,000) (12,000)
B. 50,000 (62,000)
C. (12,000) (62,000)
D. 13,000 (12,000)

Percentage of Completion
Project 1 Project 2 Total
CP 525,000 375,000
ETC 450,000 437,000
CP>ETC CP<ETC
RGP =%comp(CP-ETC) =CP-ETC
RGP 50,000 (62,000) (12,000) answer C

Zero Profit
Project 1 Project 2 Total
CP 525,000 375,000
ETC 450,000 437,000
CP>ETC CP<ETC
RGP Zero Profit =CP-ETC
RGP - (62,000) (62,000) answer C

Problem 35. Examination of the reciprocal accounts between Manila Home office and
Cebu Branch shows the following:
a. P10,000 advertising expense of another branch was erroneously charged
by the Home Office to Cebu Branch.
b. Cebu recorded shipments of merchandise from Home Office amounting to
P75,000 twice.
c. Home Office recorded cash transfer of P65,700 from Cebu Branch as
coming from Davao Branch.
d. Transfer of equipment from Home Office amounting to P53,000 was not
recorded by the branch.
e. Cebu recorded a debit memo from Home Office of P5,540 as P5,450.

How much is the net adjustments to Cebu Branch Current Account and to the Home
Office Current Account?
Cebu Branch Home Office Account
Current Account
A. (75,700) 21,910
B. (75,700) (21,910)
C. 75,700 (21,910)
D. (65,700) 22,000

HO Books Branch Books

Branch Accts HO Accts
10,000 a
b 75,000
65,700 c
d 53,000
e 90
75,700 answer B 21,910
decrease decrease
-End of Examination-