CRC-ACE REVIEW SCHOOL
INTEGRATED REVIEW FEB 18, 2016; 2:15-5:15PM
MIDTERM EXAMINATIONS ADVANCED FINANCIAL ACCTG & REPORTING
INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for
each item by SHADING corresponding to the letter of your choice on the answer sheet provided.
STRICTLY NO ERASURES ALLOWED. Use Pencil No. 1 or No. 2 only.
ADVANCED FINANCIAL ACCOUNTING
& REPORTING (1-40)
1. Kyrie, a sole proprietor, agreed to form a partnership with James in a business. Accounts in the ledger
for Kyrie on November 30, 20x10, just before the formation show the following balances:
Cash P 26,000 Accounts payable P 62,000
Accounts receivable 120,000 Kyrie, Capital 264,000
Merchandise inventory 180,000
It is agreed that for purposes of establishing Kyrie’s interest, the following adjustments
should be made:
1. An allowance for doubtful accounts of 2% of accounts receivable is to be established.
2. The merchandise inventory is to be valued at P202,000.
3. Prepaid expenses of P6,500 and accrued liabilities of P4,000 are to be established.
James is to invest sufficient funds in order to receive a 1/3 interest in the partnership. How much must
James contribute?
a. P 132,000 c. P 95,360
b. P 143,050 d. P 88,000
2. Bully Lit partnership begins its first year of operations with the following capital balances,
Bully, P80,000; Lit, P40,000.
According to the partnership agreement, all profits will be distributed as follows:
A. Bully will be allowed a monthly salary of P8,000 with P4,000 assigned to Lit.
B. The partners will be allowed interest equal to 10% of the capital balance as of the first day of
the year.
C. Bully 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 income summary for the first year of operations has a debit balance of P6,000 and a
credit balance of P22,000 in the following year and assuming further that each partner withdraws the
maximum amount from the business each period, what is the balance of Bully’s capital account at the
end of the second year?
a. P105,900 c. P113,900
b. P 73,900 d. P 72,000
3. Kimmy is trying to decide whether to accept a bonus of 25% of net income after salaries and
bonus or a salary of P97,500 plus a bonus of 10% of net income after salaries and bonus as a
means of allocating profit among partners. Salaries traceable to the other partners are
estimated to be P450,000.
What amount of income would be necessary so that Kimmy would consider the choices equal?
a. P1,100,000 c. P1,262,500
b. P 650,000 d. P1,197,500
MIDTERM EXAMINATIONS: ADVANCED FINANCIAL ACCTG & REPORTING P2
4. Batman and Robin agrees to form a partnership. Batman is to contribute 135,600 cash and an
equipment that has a carrying value of 135,000 and a fair value of 115,000. The equipment
however, has a mortgage attached to it and it is agreed by the partners that they will assume
it. Robin, on the other hand contributed 240,000 cash. They share profits and losses in the
ratio of 4:5. Furthermore, part of their agreement is top bring their initial capital in
conformity with their profit and loss ratio.
How much is the mortgage of the equipment?
a. 58,600 c. 10,600
b. 78,600 d. 34,600
5. Partners King and Queen have capital balances of 358,500 and 300,000 respectively before
admitting Jack. King and Queen share profits and losses in the ratio of 6:4. Jack paid 225,000
in exchange for 30% interest in the partnership as well as the profits and losses.
How much is debited from the capital of partner Queen upon Jack’s admission?
a. 120,000 c. 79,020
b. 90,000 d. 105,360
6. Assume that an equipment is undervalued, how much is the undervaluation of the equipment and the
capital balance of partner Queen after admission of Jack respectively?
a. 85,000 and 336,600 c. 91,500 and 336,600
b. 100,980 and 235,620 d. 91,500 and 235,620
7. Due to financial difficulty partners G, H and I decided to liquidate. The following balances
are before liquidation: Capital balances of G, H and I are 10,000, 25,000 and 20,000
respectively; Loan from G is 25,000; Cash, 25,000; Profit and loss ratio [Link] respectively.
Partner H received 10,650 upon liquidation and the share of the liquidation expense of
partner G is 1,800. Meanwhile the cash after realizing the non-cash asset and paying the
liquidation expenses is 69,000.
How much is the book value of the non-cash asset sold?
a. 85,000 c. 86,000
b. 80,000 d. 85,500
8. Capital balances of partners Q, R and S are the following before liquidation: 87,000, 95,500
and 106,250 each respectively. The partnership has a loan from partner Q in the amount of
8,000; loan to partner R in the amount of 4,500, advances to partner S in the amount of 6,500.
The partners’ profit and loss ratio is [Link] each respectively.
In the first installment sale, the total cash paid to partners is 57,000, how much did partner S receive?
a. 0 c. 13,854
b. 19,396 d. 20,125
9. If partner Q received 20,000 in the first installment and partner S received 12,396 in the second
installment, how much is received by partner Q as of the second installment and how much is the total
cash paid to the partners in the second installment?
a. 12,604 and 25,000 c. 23,750 and 30,000
b. 8,854 and 30,000 d. 32,604 and 25,000
10. Uniss Corporation sells on installment basis and accounts for it using the installment method. Some
information related to its operations are summarized as follows:
20x9 20x10 20x11
Cost of Sales P370,500 P855,360 P568,890
SET A
MIDTERM EXAMINATIONS: ADVANCED FINANCIAL ACCTG & REPORTING P3
Gross profit on sales 35% 34% 37%
Beginning and Ending balance of receivables 1/1/x11 12/31/x11
Installment Receivable-x9 72,060
Installment Receivable-x10 1,033,380 208,320
Installment Receivable-x11 327,270
During 20x11, the company repossessed an inventory which had been sold in 20x10 for
P16,200 and P9,600 had been collected prior to default. Uniss values the repossessed goods at
market value. The resale price of the repossessed merchandise amounted to P5,100 after
incurring reconditioning cost of P1,000.
Compute for the total realized profit for the year 20x11.
a. P511,010 b. P516,518 c. P518,762 d. P513,254
11. The following data pertain to installment sales of Kath’s store: Down payment is 30%; Cost of
installment sales: 20x9, P2,725,000; 20x10, P3,925,000; 20x11, P4,843,000. Mark-up on cost is
40%. Collections after downpayment are: 45% during the year of sale; 35% during the year
after sale; 20% on the third year.
What is the amount of gross profit at December 31, 20x10 to be presented in the statement of financial
position?
a. P757,050 b. P659,400 c. P431,750 d. P604,450
12. Mabagal Builders entered into two construction jobs which both commenced in 20x14.
Project 1 Project 2
Construction revenue P10,500 P7,140
Construction costs incurred 6,000 7,000
Estimated future cost 3,000 1,560
Gen and admin expenses 500 250
Billings to clients 6,300 6,000
Collections 5,600 5,000
Based on the information given, how much gross profit/(loss) would Mabagal Builders report in its
20x14 income statement under the percentage of completion method and the cost recovery method?
a. (P420,000); (P1,420,000) c. (P420,000); P1,000,000
b. P1,000,000; (P1,420,000) d. (P1,420,000); (P420,000)
13. Flow Corp enters into a contract with Queue Co to construct a 12-storey building for
P3,600,000. The following data were taken from the corp’s files. Cost incurred in 20x12,
P1,435,000; percentage of completion in 20x12, 75%; estimated cost to complete in 20x11,
P2,040,000 while in 20x12, P840,000; income recognized to date in 20x11, P175,000 while in
20x12, P180,000.
What is the percentage of completion in 20x11 of this construction contract?
a. 20% b. 35% c. 40% d. 25%
14. DC Builders, Inc. has consistently used the percentage-of-completion method of
accounting for construction-type contracts. During 2011, DC started work on a
P18,000,000 fixed-price construction contract that was completed in 2012. DC's accounting
records disclosed the following:
12/31/2011 12/31/2012
Cumulative contract costs incurred P 7,800,000 P 12,600,000
Estimated total costs at completion 15,600,000 16,200,000
SET A
MIDTERM EXAMINATIONS: ADVANCED FINANCIAL ACCTG & REPORTING P4
How much income would DC have recognized on this contract for the year ended
December 31, 2012?
a. P1,400,000 c. P600,000
b. 1 , 2 0 0 , 0 0 0 d. 200,000
15. Bang Construction Company has consistently used the percentage-of- completion
method of recognizing income. During 2011, Bang started work on a P6,000,000
construction contract which was completed in 2012. The accounting records provided the
following data:
2011 2012
Progress billings ................................. P2,200,000 P3,800,000
Costs incurred each year................. 1,800,000 3,600,000
Collections.......................................... 1,400,000 4,600,000
Estimated cost to complete ........... 3,600,000
How much income should Bang have recognized in 2012?
a. P 400,000 a. c. P220,000
b. 300,000 b. d. 200,000
16. United Construction Company has consistently used the percentage-of-completion method. On
January 10, 2011, United began work on a P12,000,000 construction contract. At the inception
date, the estimated cost of construction was P9,000,000. The following data relate to the
progress of the contract:
Income recognized at 12/31/2011 .................................... P 1,200,000
Cost incurred 1/10/2011 through 12/31/2012 7,200,000
Estimated cost to complete at 12/31/2012 2,400,000
How much income should United recognize for the year ended December 31, 2012?
a. P600,000 c. P1,200,000
b. 1,050,000 d. 1,800,000
17. Top Builders is in the business of constructing apartment buildings. Two buildings were in
progress at the beginning of 2011. The status of these buildings at the beginning of the
year were as follows:
Contract Contract Costs incurred Estimated costs to
price to 1/1/2011 complete 1/1/2011
Apartment - Cubao P 1,620,000 P 600,000 P840,000
Apartment – Marikina 2,520,000 1,560,000 690,000
During 2011, the following costs were incurred:
Apartment – Cubao …. P600,000 (estimated cost to complete as of 12/31/2011, P240,000)
Apartment - Marikina P750,000 (job completed)
How much is the gross profit in 2011 if Top uses the percentage-of- completion method?
A. P 360,000 C. 210,000
B. 262,200 D. 97,800
18. Home office bills its branch fro merchandise shipments at 30% above cost. The following are some of
the account balances on the books of home office and its branch as of December 31, 20x14.
Home Office Books Branch Books
Inventory, January 1 P 5,000 P 14,500
Shipments from Home Office 37,700
Purchases 225,000 50,000
Shipments to branch 36,250
Branch inventory allowance 13,125
Sales 300,000 180,000
Operating expenses 72,500 27,500
SET A
MIDTERM EXAMINATIONS: ADVANCED FINANCIAL ACCTG & REPORTING P5
Per physical count, the ending inventory of the branch is P10,500 including goods from
outside purchases of P6,925; the ending inventory of the home office is P30,000.
What is the amount of the unrealized profit in the separate books of the home office on January 1,
20x14?
a. P3,050 c. P2,250
b. P3,000 d. P2,150
19. What is the amount of the beginning inventory in 20x14 that came from outside purchases?
a. P4,750 c. P4,350
b. P6,925 d. P6,225
20. What is the amount of the cost of goods available for sale of the branch?
a. P100,200 c. P110,625
b. P111,625 d. P102,200
21. What is the total ending inventory to be shown on the combined financial statements?
a. P39,675 c. P46,925
b. P19,838 d. P23,463
22. What is the combined net income for the year?
a. P136,850 c. P67,338
b. P134,675 d. P136,350
23. Queen Squid, Inc. Franchisor, entered into a franchise agreement with King, Franchise, on
July 1,2015. The total franchise fees agreed upon is P1,100,000, of which P100,000 is payable
upon signing and the balance payable in four equal annual installments. It was agreed that
the down payment is not refundable, notwithstanding lack of substantial performance of
services by franchisor.
When Queen Squid prepares its financial statements on July 31, 2015, the unearned franchise
fees to be reported is:
A. 0 C. 1,000,000
B. 100,000 D. 1,100,000
24. The following transactions were entered in the branch current account of Confused Co for the year
20x11.
Branch Current - Baguio
Beg. Balance 1/1/11 P765,430 Collection of AR, 9/12/11 P55,500
Shipments to branch 354,000
Cash forwarded, 6/1/11 25,000
Operating expenses charged
To branch 12/31/11 4,800
Shipments to the branch during the year were made at 20% above cost. The balance of the
Allowance for Overvaluation of Branch Inventory account was P35,500 at the beginning,
and the allowance was written down to P24,500 at year-end. On December 10, 20x11, the
home office purchased a piece of equipment amounting to P60,000 for its branch in Baguio.
The said equipment has a useful life of five years and will be carried in the books of the
branch, but the home office recorded the purchase by debiting Equipment. The branch
recorded the depreciation of the equipment by debiting the Home Office Current account
and crediting Accumulated Depreciation. Debit memo regarding the allocation of operating
expenses to the Baguio branch was received by the branch on January 2, 20x12.
The Baguio branch reported net income of P329,550. It also remitted cash to the home office
on December 31, 20x11 amounting to P55,000 which the home office received and recorded
on January 1, 20x12. The interoffice accounts were in agreement at the beginning of the
year.
SET A
MIDTERM EXAMINATIONS: ADVANCED FINANCIAL ACCTG & REPORTING P6
How much is the adjusted balance of the branch current account on December 31, 20x11 before the
necessary closing entries were made?
a. P1,169,530 b. P1,038,730 c. P1,098,730 d. P1,109,530
25. What is the amount of adjustment in the allowance for overvaluation of branch inventory account?
a. P70,000 b. P81,800 c. P94,500 d. P24,500
26. How much is the net income of Baguio branch that will be reported in the combined income statement
of Confused Co?
a. P398,550 b. P348,250 c. P324,250 d. P393,750
27. What is the amount of the Home Office Current account that will be reported in the books of Baguio
after closing entries are made?
a. P1,427,280 b. P1,422,480 c. P1,492,480 d. P1,427,780
28. Mystery Trading Co operates a branch in Laoag City. On December 31, 20x11, the Home
Office Current account in the branch books showed a credit balance of P522,912. The
interoffice accounts were in agreement at the beginning of the year. For purposes of
reconciling the interoffice accounts, the following facts were determined:
A. The branch recorded a piece of equipment costing P21,232 which it purchased for its own use
on December 31, 20x11. The equipment will be recorded in the books of the home office. The
home office recorded the memo received from the branch by debiting Branch Current and
crediting Payable to Branch in the amount of P21,322.
B. Total general expenses were P86,550. The HO allocated 2/5 of the expenses to Laoag branch.
The branch inadvertently debited 2/5 of the allocated amount to the HO account twice.
C. Laoag branch paid P32,500 representing accommodation expenses of the executive vice
president of the company, when the vice president attended a seminar. Of the amount paid,
40% was charged to the HO, 20% to Laoag and 40% to Mystery’s other branch. Laoag
recorded a receivable from the home office at the said amount and credited cash. The HO was
not yet notified of the said event.
D. The HO transferred inventory costing P45,000 to Laoag and the branch paid the corresponding
freight of P2,500. Laoag was instructed by the HO to transfer ¾ of the said inventories to the
other branch and to shoulder the freight costing P3,500. Laoag made the transfer on its books
but it recorded the transfer at ¼ of the original inventories and erroneously credited the
payment for freight at P350.
What is the unadjusted balance of the Investment of Branch account on December 31, 20x11?
a. P566,262 b. P587,034 c. P600,882 d. P580,534
29. Lenie, Mec, and Nancy from a partnership on Jan. 1, 2015, each partner investing P25,000. On
August 1, 2015, Lenie was advanced P10,000 by the firm. On Sept. 1, 2015, Mec made a loans
by to the firm of P20,000. Interest is to be charged on advances to partners and credited on
loans by partners at the rate of 6%. Business is unsatisfactory and the partners decide to
liquidate. Nancy is allowed special compensation of P2,500 for managing the sale of assets
and settlement with creditors. On December 31, 2015 all assets were sold, outside creditors
were paid, and cash of P35,000 is distributed to the partners. All partners are personally
solvent.
The total loss distributed to the partners is
A. P40,000 B. P60,000 C. P50,000 D. P52,650
30. On July 1, 2013, Pinoy Company signed an agreement to operate as franchisee of
International Company for a franchise fee of P800,000. Of this amount, P300,000 was paid
upon signing of the agreement and the balance is payable in five semi-annual payments of
P100,000 each beginning December 31, 2013. The notes are non-interest bearing but the
market rate of interest is 12%. The agreement provides that the down payment is non-
SET A
MIDTERM EXAMINATIONS: ADVANCED FINANCIAL ACCTG & REPORTING P7
refundable and no future services are required of the franchisor as of December 31, 2013. (Use
2 decimal places for present value factor).
On December 31, 2013, International Company should record total income related with
franchise of :
a. P 446,260 b. P 721,000 c. P800,000 d. P 746,260
31. On October 1, 2012, Devon Company entered into franchise agreement with Mr. Gonzales.
The agreement required an initial fee payment of P200,000 plus four P100,000 payments due
every three months, the first payment due December 31, 2012. The interest rate implicit is
12%. The initial deposit is refundable until substantial performance has been completed. On
December 31, 2012, all services required have been substantially completed with a total cost
of P250,000.
How much is the net income related with the franchise, on December 31, 2012?
(Round – off PV factor into three decimal places)
a. P 132,851 b. P321,700 c. P332,851 d. P377,520
32. Partners R, E, and H share net income and losses in a [Link] ratio, respectively. At the end of a
very unprofitable year, they decided to liquidate the partnership. The partners’ capital
account balances on this date were as follows: R P22,000; E P24,900 and H P15,000. The
liabilities in the balance sheet amounted to P30,000, including a loan of P10,000 form R. The
cash balance was P6,000.
The partners plan to sell the noncash assets on a piece meal basis and to distribute cash as
rapidly as it becomes available. All three partners are personally solvent.
If R received a total of P20,000 as a result of the liquidation, what was the total amount
realized by the partnership on the sale of the non cash assets?
A. P 61,900 B. P 85,900 C. P 73,900 D. P 24,000
33. On December 31, 2017, the following figures were taken from the trial balance of Papa
Company and Mama Company:
Papa Mama
Cash 400,000 100,000
Receivables 300,000 300,000
Inventory 500,000 350,000
Property and Equipment 1,000,000 500,000
Goodwill - 150,000
Current Liabilities 100,000 50,000
Long-term Liabilities 350,000 250,000
Common Stock 550,000 500,000
APIC 100,000 -
Retained Earnings 1,100,000 600,000
On December 31, 2017, Papa issues 25,000 shares of its P10 par value stock for the net assets of
Mama. Papa’s stock had a 34/share market value. Papa would also issue bond debentures
with face value of 500,000 maturing 3 years from the date of issue. Discount related to the
bonds issued amounted to 100,000. Patriot also paid the following: 125,000 for broker’s fee;
100,000 for pre-acquisition audit fee; 107,500 for legal fees; 90,000 for audit fee for SEC
registration of stock issue and 27,500 for printing of stock certificates. Mama holds an
equipment that is worth 200,000 more than its current book value. The retained earnings of
Mama on January 1, 2017 amounted to 350,000.
How much is the total assets after the merger?
SET A
MIDTERM EXAMINATIONS: ADVANCED FINANCIAL ACCTG & REPORTING P8
a. 3,750,000 c. 3,200,000
b. 3,100,000 d. 3,300,000
34. Condensed Statement of Financial Position for Play and Station Corporation at December 31,
2016 are as follows:
Play Station
Current Assets 585,000 270,000
Noncurrent Assets 2,565,000 1,980,000
Total Assets 3,150,000 2,250,000
Current Liabilities 225,000 270,000
Ordinary share, 30 2,250,000 900,000
Share Premium 225,000 630,000
Retained Earnings 450,000 450,000
Total Equities 3,150,000 2,250,000
On January 2, 2017, Play issues 120,000 shares of its stock with a market value of 30/share for
the net assets of Station Corporation. Because of the acquisition, Station Company was
dissolved. The book values reflect fair values except a noncurrent asset of Play, which has a
fair value of 1,800,000, and the current assets of Station, which have a net realizable value of
450,000. Play pays 67,500 for costs of registering and issuing securities issued and 112,500 for
other acquisition costs related to combination. Contract for contingent consideration to be
paid to Station is 337,500. This is determined on the date of acquisition.
What is the total assets of Play Corporation after the acquisition?
a. 5,580,000 c. 5,400,000
b. 7,357,500 d. 7,177,500
35. Shaky Inc acquires 100% of the voting stock of Moving Co on January 1, 2017 for 400,000 cash.
A contingent payment of 16,500 will be paid on April 1, 2018 if Moving generates cash flows
from operations of 27,000 or more in the next year. Shaky estimates that there is a 20%
probability that Moving will generate at least 27,000 or more in the next year and uses an
interest rate of 5% to incorporate the time value of money. The fair value of 16,500 at 5%,
using a probability-weighted approach is 3,142.
What will Shaky record as investment in subsidiary on January 1, 2016?
a. 416,500 c. 400,000
b. 427,000 d. 403,142
36. Pastor Company acquired 80% of the outstanding shares of Sierra Company common stock
for 350,000 cash. At that date, the non-controlling in Sierra has a fair value of 150,000.
Identifiable assets were carried at 600,000 in the books of Sierra but had a fair value of
800,000. Liabilities had a book value of 250,000 which was equal to the fair value on the same
date.
If fair value of the net identifiable assets is to be valued on the proportionate basis, how much should
be recognized as a gain on bargain purchase?
a. 90,000 c. 50,000
b. 40,000 d. 0
37. On June 30, 2017, Parent, Inc. purchased 70 percent of the common stock of Subsidiary
Company for 1,750,000. At that date, Subsidiary had 1,625,000 of common stock outstanding
and retained earnings of 625,000. All of the purchase difference was related to a building
with a book value of 437500 and a remaining life of 10 years. Parent’s retained earnings
SET A
MIDTERM EXAMINATIONS: ADVANCED FINANCIAL ACCTG & REPORTING P9
balance at December 31, 2016 was 1,887,500. The income and dividend figures for both
Parent and Subsidiary for 2017 are as follows:
Income Dividends
Parent (own Operations) 687,500 175,000
Subsidiary: Jan 1 to June 30 200,000 75,000
: July 1 to Dec 31 250,000 0
How much is the consolidated retained earnings on December 31, 2017?
a. 2,053,750 c. 2,566,250
b. 2,141,250 d. 2,553,750
38. On January 2, 2016, P Corporation purchased 70% of the common stock of S Company for
1,650,000. At that date, S had 1,725,000 of common stock outstanding and retained earnings
of 555,000. Equipment with a remaining life of 5 years had a book value of 850,000 and fair
value of 900,000. S’ remaining assets had book values equal to their fair values. All
intangibles except goodwill are expected to have remaining lives of 10 years. The income and
dividend figures for both P and S follows:
Income Dividends
P 2016 550,000 150,000
2017 650,000 200,000
S 2016 100,000 30,000
2017 250,000 45,000
P’s income as shown does not include any dividend income from S. P’s retained earnings
balance at the date of acquisition was 2,000,000.
On December 31, 2017, how much is consolidated net income?
a. 858,500 c. 850,000
b. 900,000 d. 890,000
39. On December 31, 2017, how much is the consolidated retained earnings?
a. 3,028,500 c. 3,431,000
b. 3,095,000 d. 3,081,000
40. On January 1, 2017, Bright Company acquired 80% of Animo Company’s common stock for
280,000 cash. At that date, Animo reported common stock outstanding of 200,000 and
retained earnings of 100,000 and the fair Animo’s assets and liabilities were equal, except for
other intangible assets which has a fair value 50,000 greater than book value and an 8-year
remaining life. Animo reported the following data for 2017 and 2018.
Year Net Income Comprehensive Dividends Paid
Income
2017 25,000 30,000 5,000
2018 35,000 45,000 10,000
Bright reported separate net income from own operations of 100,000 and paid dividends of
30,000 for both years.
Based on the preceding information, what is the amount of consolidated comprehensive income
reported for 2016?
a. 125,000 c. 118,750
b. 123,750 d. 130,000
End of Exams
SET A
