School: COC

PEN Code: ACC 009

PEN Subject Title: Advanced Financial Accounting and Reporting, Part 1

Directions: Please type your questions, choices and comments in the corresponding boxes.
Kindly follow the example below.

Example:

Item Questions and Answers Comments

Please type your question in the upper box followed by the choices Please type your
in the lower box. Do not forget to highlight the answer. comments here.
1. “Begin with the end in mind.” What is the implication of this
statement to the work of a teacher?
a. Come to class prepared for all eventualities.
b. Master the subject matter.
c. Understand the nature of each learner.
d. Define the lesson objective clearly.

Comments
Item Questions and Answers from UPANG
and UI
1. Characteristic of a partnership where specific assets contributed by a
partner lose their identity as to source and become shared property of
the partnership is:
a. a fiduciary relationship
b. tenancy in partnership
c. mutual agency
d. the proprietary theory
2. The characteristic of a partnership where a partner is an agent for other
partners and the partnership when transacting partnership business is:

a. a fiduciary relationship
b. tenancy in partnership
c. mutual agency
d. the proprietary theory
3. Which of the following statements is true when comparing corporations and
partnerships?

a. Partnership entities provide for taxes at the same rates used by

corporations.
b. In theory, partnerships are more able to attract capital.
c. Like corporations, partnerships have an infinite life.
d. Unlike shareholders, general partners may have liability
beyond their capital balances.
4. A partnership that consists of two classes of partners, one that participates
in management of the company and have unlimited liability, and another
that does not participate in management and whose liability is limited to a
stated amount is a:
a. limited partnership
b. general partnership
c. limited liability partnership
d. mutual agency
5. Taylor and Tanner formed a partnership. Taylor contributed P50,000 in
cash. Tanner contributed land and buildings he purchased for P50,000
some time ago. His tax basis in the property is now P30,000, although it
was recently appraised for P70,000. There is a P15,000 mortgage attached
to the building that the partnership will assume. What is the amount of
Tanner’s capital account after his contribution?
a. P50,000
b. P30,000
c. P35,000
d. P55,000
6. On May 1, 2010, Cobb and Mott formed a partnership and agreed to
share profits and losses in the ratio of 3:7, respectively. Cobb
contributed a parcel of land that cost him P10,000. Mott contributed
P40,000 cash. The land was sold for P18,000 on May 1, 2010,
immediately after formation of the partnership. What amount should
be recorded in Cobb’s capita; account on formation of the
Partnership?
a. P18,000
b. P17,400
c. P15,000
d. P10,000
7. On April 30, 2010, Al, Ben and Ces formed a partnership by
combining their separate business proprietorships. Al contributed
cash of P50,000. Ben contributed property with a P36,000 carrying
amount, a P40,000 original cost, and P80,000 fair value. The
partnership accepted responsibility for the P35,000 mortgage attached
to the property. Ces contributed equipment with a P30,000 carrying
amount, a P75,000 original cost, and P55,000 fair value. The
partnership agreement specifies that profits and losses are to be share
equally but is silent regarding capital contributions.

Which partner has the largest capital balance at April 30, 2010?
a. Al
b. Ben
c. Ces
d. All balances are equal
8. On January 1, 2013, Lhuma and Lhagare agreed to form a partnership
contributing their respective assets adn equities subject to
adjustments. On that date, the following were provided:

Lhuma Lhagare
Cash P 28,000 P 62,000
Accounts receivable 200,000 600,000
Inventories 120,000 200,000
Land 600,000
Building 500,000
Furniture and fixtures 50,000 35,000
Intangible assets 2,000 3,000
 Accounts payable 180,000 250,000
Other liabilities 200,000 350,000
Capital 620,000 800,000

The following adjustments were agreed upon:

a. Accounts receivable of P20,000 and P40,000 are uncollectible in
A’s and B’s respective books.
b. Inventories of P6,000 and P7,000 are worthless in A’s and B’s
respective books.
c. Intangible assets are to be written off in both books.

Lhuma Lhagare
a. 592,000 750,000
b. 600,000 700,000
c. 592,000 756,300
d. 600,000 750,000
9. Partner Alta had a capital balance on January 1, 2008 of P45,000 and made
additional capital contributions during 2008 totaling P50,000. During the
year 2008, Alta withdrew P8,000 per month. Alta's post-closing capital
balance on December 31, 2008 is P30,000. Alta's share of 2008 partnership
income is ____.
a. P96,000
b. P50,000
c. P31,000
d. P8,000
10.A partnership has the following accounting amounts:

(1) Sales P70,000

(2) Cost of Goods Sold = P40,000
(3) Operating Expenses = P10,000
(4) Salary allocations to partners = P13,000
(5) Interest paid to banks = P2,000
(6) Partners' withdrawals = P8,000

Partnership net income (loss) is ____.

a. P20,000
b. P18,000
c. P5,000
d. P(3,000)
11. Partner A began the year with P20,000 in capital. On June 1, 2008, the
partner contributed another P20,000. On September 1, 2008, the
partner withdrew P15,000 from the partnership. Withdrawals in
excess of P5,000 are charged to the partner's capital account. The
partnership's fiscal year end is December 31. The annual weighted-
average capital balance is ____.

a. P25,000
b. P26,667
c. P28,334
d. P30,000
12. Partner A began the year with P20,000 in capital. On June 1, 2008, #11 and 12
 the partner contributed another P20,000. On September 1, 2008, the have the same
partner withdrew P15,000 from the partnership. Withdrawals in Problems/Quest
excess of P5,000 are charged to the partner's capital account. The ion
partnership's fiscal year end is December 31. The annual weighted-
average capital balance is ____.

a. P25,000
b. P26,667
c. P28,334
d. P30,000
13. Changes in partnership ownership are presumed to be arm's length
transactions that may require which of the following actions?

a. recognitions of goodwill to existing partners

b. revaluation of existing partnership assets
c. recognition of goodwill or other intangible assets attributable to the
incoming partner
d. all of the above are possible
14. If an existing partner withdraws from a partnership,

a. his or her interest may be sold to the partnership or an individual

partner.
b. the consideration received for that partner's interest may suggest the
existence of undervalued existing assets and/or goodwill.
c. either the bonus or the goodwill method may be used to record the
transaction if the partnership acquires the withdrawing partner's
interest.
d. all of the above.
15. When a new partner buys an ownership interest in a partnership directly
from an existing partner for more than the balance in that partner’s
capital account, under the more common method of accounting for
those transactions,

a. the partnership recognizes a gain.

b. the partner who sold his or her interest makes exit payments to the
other partners.
c. the transaction is comparable to the sale of corporate shares of
stock in the secondary market.
d. the new partner must pay the remaining previous partners a
“premium” to be admitted.
16. Assume that the capital of an existing partnership is P130,000 and that
existing assets are overvalued by P10,000. If an incoming partner
acquires a 25% interest in the partnership for P37,000, goodwill
traceable to the incoming partner is ____.

a. P2,250
b. P9,667
c. P3,000
d. P5,000
17. Assume that the capital of an existing partnership is P90,000 and all
existing assets reflect fair market values. If an incoming partner
acquires a 40% interest in the partnership for P55,000, the goodwill
traceable to the incoming partner is
 a. P15,000
b. P5,000
c. P3,000
d. P2,000
18. Callie is admitted to the Adams & Beal Partnership under the goodwill
method. Callie contributes cash of P20,000 and non-cash assets with
a market value of P30,000 and book value of P15,000 in exchange for
a 20% ownership interest in the new partnership. Prior to the
admission of Callie, the capital of the existing partnership was
P130,000 and an appraisal showed the partnership net assets were
fairly stated. Adams & Beal shared profits and losses at a ratio of
80/20, respectively.

Which of the following goodwill amounts would be recorded?

a. P25,000 to Callie capital

b. P70,000 to Callie capital
c. P14,000 decrease to Beal capital
d. P56,000 increase to Adams capital
19. Callie is admitted to the Adams & Beal Partnership under the goodwill
method. Callie contributes cash of P20,000 and non-cash assets with
a market value of P30,000 and book value of P15,000 in exchange for
a 20% ownership interest in the new partnership. Prior to the
admission of Callie, the capital of the existing partnership was
P130,000 and an appraisal showed the partnership net assets were
fairly stated. What will be Callie's initial capital balance?

a. P36,000
b. P50,000
c. P35,000
d. P45,000
20. Verst, Brown and Sullivan have a partnership. Pertinent information
is as follows:
Verst Brown Sullivan
Capital balance 50,000 120,000 30,000
Profit and loss 25% 50% 25%
percentage

Sullivan sells his partnership interest to Verst for P35,000. What is

the balance in Verst’s capital account after the sale?

a. 80,000
b. 58,750
c. 85,000
d. 65,000
21. Verst, Brown and Sullivan have a partnership. Pertinent information
is as follows:
Verst Brown Sullivan
Capital balance 50,000 120,000 30,000
Profit and loss 25% 50% 25%
 percentage

Sullivan retires and the partnership pays him P35,000. What is the
balance in Verst’s capital account after the sale assuming this
transaction was accounted for using the bonus method?

a. 50,000
b. 51,667
c. 45,000
d. 48,333
22. On June 30, 2012, the balance sheet for the partnership of Coll,
Maduro, and Prieto, together with their respective profit and loss
ratios, were as follows:

Assets, at cost 180,000

Coll, loan 9,000

Coll, capital (20%) 42,000
Maduro, capital (20%) 39,000
Prieto, capital (60%) 90,000

Coll decided to retire from the partnership. By mutual agreement, the

assets are to be adjusted to their fair value of P216,000 at June 30,
2012. It was agreed that the partnership would pay Coll P61,200 cash
for Coll’s partnership interest, including Coll’s loan which is to be
repiad in full. No goodwill is to be recorded. After Coll’s retirement,
what is the balance of Maduro’s capital account?
a. 36,450
b. 39,000
c. 45,450
d. 46,200
23. On October 31, 2010, Morris retired from the partnership Morris,
Philip and Marl. Morris received P55,000 representing final
settlement of his interest in the amount of P50,000. Under the bonus
method.
a. P5,000 was recorded as goodwill.
b. P5,000 was recorded as expense.
c. Charged P5,000 against the capital balances of Philip and
Marl
d. P55,000 was recorded as bonus.
24. The contents of balanced sheet of Kent & Gray, a partnership, at
December 31, 2010, follows:

Current assets P250,000

Equipment (net) 30,000
Liabilities 20,000
Kent, capital 160,000
Gray, capital 100,000

On December 31, 2010, the fair values of the asets and liabilities
were appraised at P240,000 and P20,000, respectively, by an
independent appraiser. On January 2, 2011, the partnership was
incorporated and 1,000 shares of P5 par value common stock were
issued. Immediately after the incorporation, what amount should the
new corporation report as additional paid in capital?
 a. 275,000
b. 260,000
c. 215,000
d. 0
25. Hetzer and Whalen partnership is insolvent and has liabilities of
P5,000. Other information follows:
Hetzer Whalen
Personal assets P20,000 P 8,000
Personal liabilities 8,000 10,000
Partnership capital 10,000 (5,000)
balance

What is Hetzer’s required contribution if the partnership creditors

move against him first.

a. P4,800
b. P12,000
c. P5,000
d. P0
26. Assume that a partnership had assets with a book value of P240,000
and a market value of P195,000, outside liabilities of P70,000, loans
payable to partner Able of P20,000, and capital balances for partners
Able, Baker, and Chapman of P70,000, P30,000, and P50,000. How
much would Able receive upon liquidation of the partnership
assuming profits and losses are allocated equally?

a. P70,000
b. P90,000
c. P75,000
d. P55,000
27. Assume that a partnership had assets with a book value of P240,000 and a
market value of P195,000, outside liabilities of P70,000, loans payable to
partner Able of P20,000, and capital balances for partners Able, Baker, and
Chapman of P70,000, P30,000, and P50,000. If all outside creditors and
loans to partners had been paid, how would the balance of the assets be
distributed assuming that Chapman had already received assets with a value
of P30,000 assuming profits and losses are allocated equally?
a. Each of the partners would receive P25,000.
b. Each of the partners would receive P40,000.
c. Able: P70,000, Baker: P30,000, Chapman: P20,000
d. Able: P55,000, Baker: P15,000, Chapman: P5,000
28. Below are steps in which partnership distribution takes place:

1. Profits and losses are allocated to partner accounts.

2. Distributions are made to partners.
3. Assets must be used to discharge creditor obligations.
4. Partners with deficit balances should make up the balance or
other partners make it up.

In what order should these occur?

 a. 3,1,2,4
b. 1,3,4,2
c. 1,3,2,4
d. 3,1,4,2
29. Which of the following statements is correct regarding a partner's debit
capital balances in a liquidation?

a. The partner should make contributions to reduce the debit balance

to whatever extent possible.
b. If contributions are not possible, the other partners with credit
capital balances will be allocated a portion of the debit balance
based on their proportionate profit-and-loss-sharing percentages.
c. Partners who absorb another's debit capital balance have a legal
claim against the deficient partner.
d. All of these statements are correct.
30. Which of the following is not an assumption that is made when determining
safe payments during a partnership liquidation?

a. Liquidation expenses may be incurred.

b. Partners with deficit balances will not be able to make them up.
c. The partner with the highest capital balance will be the first to
receive a safe payment.
d. Unsold noncash assets are assumed to be worthless.
31. Partners Dalton, Edwards, and Finley have capital balances of
P40,000,90,000 and P30,000, respectively, immediately prior
to liquidation. Total remaining assets have a book value of
P160,000, the liabilities having been paid. Among these
remaining assets is a machine with a fair value of P35,000.
The partners split profits and losses equally. Edwards covets
the machine and is willing to accept it for P35,000 in lieu of
cash. The other partners have no designs on specific assets,
only cash in liquidation. How much cash, in addition to the
machine, would be first distributed to Edwards, before any of
the other partners received anything?

a. P15,000
b. P50,000
c. P166,667
d. P300,000
32. A partner's maximum loss absorbable is calculated by

a. dividing the partner's capital balance by his or her profit-and-

loss-sharing percentage.
b. multiplying the partner's capital balance by his or her profit-and-
loss-sharing percentage.
c. multiplying distributable assets by the partner's profit-sharing
percentage.
d. dividing the partner's capital balance by his or her percentage
interest in capital.
33. Partners Thomas, Adams and Jones have capital balances of P24,000,
P45,000, and P90,000 respectively. They split profits in the ratio of 3:3:4,
respectively. Under a predistribution plan, one of the partners will get the
following total amount in liquidation before any other partners get anything:
a. P22,500
b. P30,000
c. P40,000
d. P75,000
34. Assume that a partnership had assets with a book value of P240,000 and a
market value of P195,000, outside liabilities of P70,000, loans payable to
partner Able of P20,000, and capital balances for partners Able, Baker, and
Chapman of P70,000, P30,000, and P50,000. How would the first P100,000
of available assets be distributed assuming profits and losses are allocated
equally?
a. P70,000 to outside liabilities, P20,000 to Able, and the balance
equally among the partners
b. P70,000 to outside liabilities and P30,000 to Able
c. P70,000 to outside liabilities, P25,000 to Able, and P5,000 to
Chapman
d. P40,000 to Able, P20,000 to Chapman, and the balance equally
among the partners
35. Partners Abaka, Bayani and Kulay have capital balances of P20,000,
P50,000, and P90,000, respectively. They split profits in the ratio of
2:4:4, respectively. Under a safe cash distribution plan, one of the
partners will get the following total amount in liquidation before any
other partners get anything?
a. 0
b. 15,000
c. 40,000
d. 180,000
36. The following are those identified by PAS 31 as broad types of Joint
Ventures, except:

a. Jointly controlled operations

b. Jointly controlled assets
c. Jointly controlled entities
d. Jointly controlled equities
37. Whatever its form, the contractual arrangement is usually in writing
and deals with such matters as the following, except:

a. The activity, duration and reporting obligations of the joint

venture;
b. The personality of the venturers and its tendency to be in
a nonchalant recipient of contractual arrangements;
c. The appointment of the board of directors or equivalent
governing body of the joint venture and the voting rights of the
venturers;
d. Capital contributions by the venturers;
e. The sharing of the venturers of the output, income, expenses
or results of the joint venture.
38. A venture with an interest in a jointly controlled entity need not
account for its interest using proportionate consolidation or equity
accounting, if:
 a. The interest is classified as held for sale in accordance with Based on the
PFRS 5, in which case it is accounted for under that standard; TOS, the types
b. The venture is a parent (i.e. an entity with one or more of the items are
subsidiaries) exempt from preparing consolidated financial APPLICATIO
statements under PAS 27; N and
c. An investor in an associate that is not a parent exempted from ANALYSIS for
equity accounting for its investment under PAS 28. # 37-44.
d. All of the above Correct me if
e. None of the above i’m wrong, I
think what we
should give are
problems to be
solved
(Problem
Solving)
39. A and B enter into a contractual arrangement to buy a building that
has 12 floors, which they will lease to other parties. A and B are
responsible for leasing five floors each, and each can make all
decisions related to their respective floors and keep all of the income
with respect to their floors. The remaining two floors will be jointly
managed – all decisions with respect to those two floors must be
unanimously agreed between A and B, and they will share all profits
equally.

In the given situation above, how many arrangements are involved.

a. Only one arrangement accounted for under IAS 40 –

Investment Property.
b. Only one arrangement accounted for under IFRS 11 – Joint
Arrangement
c. Two arrangements i.e. five floors that A controls accounted
under other IFRS and five floors that B controls accounted
under other IFRS.
d. Three arrangements i.e. five floors that A controls
accounted under other IFRS; five floors that B controls
accounted under other IFRS and two floors that A and B
controls – a joint arrangement under IFRS 11.

40. Question: Is the joint arrangement structured through a separate vehicle?

Answer: No.

With the question and answer posed above, what will be the arrangement’s
classification?

a. It is a Joint venture because the arrangement is structured

through a separate vehicle.
b. It is a Joint venture because the arrangement is not structured
through a separate vehicle.
c. It is a Joint Operation because it is structured through a
separate vehicle.
d. It is a Joint Operation because it is not structured through
a separate vehicle.

41. In respect of its interest in a jointly controlled operation, PAS 31

requires a venture to recognize in its financial statements:
 i. The assets that it controls and the liabilities that it
incurs;
ii. The expenses that it incurs and its share of the income
that it earns from the sale of goods or services by the joint venture.

a. Both I and II
b. I only
c. II only
d. None of the above
42. A jointly controlled operation is

a. One which involves the use of assets and other resources

of the venturers, rather than the establishment of a corporation,
partnership or other entity, or a financial structure, separate
from the venturers themselves.
b. One which involves joint control and ownership by the Group
and other venturers of assets contributed to or acquired for the
purpose of the joint venture, without the formation of a corporation,
partnership or other entity. The Group accounts for its share of the
jointly controlled assets, any liabilities it has incurred, its share of any
liabilities jointly incurred with other ventures, income from the sale
or use of its share of the joint venture’s output, together with its share
of the expenses incurred by the joint venture, and any expenses it
incurs in relation to its interest in the joint venture.
c. One that involves the establishment of a corporation,
partnership or other entity in which each venturer has an interest. The
entity operates in the same way as any other entity, except that a
contractual arrangement between the venturers establishes joint
control over the economic activity of the entity.
d. All of the above.
e. None of the above.
43. The document used to estimate amounts available to each class of
claims is called a(n)

a. Statement of Assets and Liabilities.

b. Legal Statement of Affairs.
c. Accounting Statement of Affairs.
d. Statement of Realization and Liquidation.
44. A corporation's accounting statement of affairs shows a dividend of
115%. The dividend means that

a. secured creditors will receive an amount in excess of the book value

of their claims.
b. unsecured creditors will receive an amount in excess of the book
value of their claims.
c. stockholders may expect some return on their interests.
d. an error was made in the preparation of the statement.
45. A corporation's accounting statement of affairs shows a dividend of
40%. The dividend means that

a. all creditors and stockholders will receive approximately 40% of

 the book value of their respective interests.
b. all creditors will receive an amount approximately equal to 40% of
the book value of their claims, but stockholders will receive
nothing.
c. Unsecured claims with priority will receive 40% of the book value
of their respective claims.
d. Unsecured claims without priority will receive 40% of the book
value of their respective claims.
46. Assets pledge for fully secured liabilities
(current fair value, P75,000) P90,000
Assets pledged for partially secured liabilities
(current fair value, P52,000) 74,000
Free assets (current fair value, P40,000) 70,000
Unsecured liabilities with priority 7,000
Fully secured liabilities 30,000
Partially secured liabilities 60,000
Unsecured liabilities without priority 112,000

The amount that will be paid to creditors with priority is-

a. P7,000
b. P6,000
c. P7,500
d. P6,200
47. The amount to be paid to fully secured creditors is

a. P30,000
b. P32,000
c. P20,000
d. P35,000
48. A trustee has been appointed by SEc for ABU, Inc., which is being
liquidated. The following transactions occurred after the assets were
transferred to the traustee:

- Sales on account by the trustee were P75,000. Cost of goods sold

were P60,000, consisting of all the inventory transferred from ABU.
- The trustee sold at P12,000 worth of marketable securities for
P10,500.
- receivables collected by the trustee:
Old: P21,000 of the P38,000 transferred
New: P47,000
- Recorded P16,000 depreciation on the plant assets of P96,000
transferred from ABU.
- Disbursements by the trustee:
Old current payables: P22,000 of the P48,000 transferred
Trustee’s expenses: P4,300
In a statement of realization and liquidation of ABU Inc.:
How much are the total assets to be realized?
a. P206,000
b. P168,000
c. P140,000
d. P218,000
49. Using the data in item 48, how muc is the net gain (loss)?

a. P(6,800)
b. P8,600
c. P11,100
d. P2,500
50. Lakeside Bank holds a P100,000 note secured by a building owned by Fly-
By-Night Manufacturing, which has filed for bankruptcy. If the property
has a book value of P120,000 and a fair market value of P90,000, what is
the best way to describe the note held by Second City Bank? The bank has
a(n)
a. secured claim of P100,000.
b. unsecured claim of P100,000.
c. secured claim of P90,000 and an unsecured claim of P10,000.
d. secured claim of P100,000 and an unsecured claim of P20,000.
51. Equipment with a book values of P120,000 is sold in a liquidation
process for cash of P110,000. This equipment was security for a
P150,000 bank loan. Any remainder is consider unsecured without
priority. How would this transaction be reported on the Statement of
Realization and Liquidation?

a. A reduction in noncash assets of P120,000

b. A loss reported to owner's equity of P10,000
c. A disbursement of cash to the bank of P110,000, a reduction in
partially secured liability of P150,000, and an increase in unsecured
without priority liability of P40,000
d. all of the above would occur
52. Which of the following best describes the condition(s) that must be present
for the recognition of revenue?

a. The revenue must be earned, measurable, and collected.

b. The revenue must be earned and collectible.
c. The revenue must be earned, measurable, and collectible.
d. The revenue must be measurable and collectible.
53.Sam u

Samuels Company began operations on January 1, 2014, and uses the

installment sales method of accounting. The company has the above
information available for 2014 and 2015.

The realized gross profit for 2015 would be:

a. P1,680,000
b. P2,760,000
c. P3,120,000
d. P4,320,000
54. Carson Distributing, which began operating on January 1,
 appropriately uses the installment method of accounting. The
following information pertains to Carson's operations for the first
year:

Installment sales - P1,000,000; Cost of installment sales - P600,000;

General administrative expenses - P 100,000; Collections on
Installment sales - P200,000.

The balance in the deferred gross profit account at December 31

should be
a. P400,000
b. P320,000
c. P240,000
d. P200,000
55. Assume the Abokair Corporation sold P30,000 worth of merchandise on the
installment basis. The cost of the merchandise was P24,000, and
collectibility of the receivable is uncertain. Collection in the current year on
the account is P8,000. How much gross profit should be reported as
realized?
a. P1,600
b. P2,000
c. P6,000
d. P8,000
56. Tussle Company began operations on January 1, 2014, and
appropriately uses the installment method of accounting. The
following data are available for 2014 and 2015:

Installment sales (Year 2014) P1,200,000; (Year 2015) 1,500,000

Cash collections:
2014 sales (Year 2014) P400,000; (Year 2015) P500,000
2015 sales (Year 2014) ----------; (Year 2015) P600,000
Gross Profit (Year 2014 - 30%); (Year 2015- 40%)

Thea realized gross profit for

a. P440,000.
b. P240,000
c. P390,000
d. P600,000
57. Hussong, Inc., appropriately uses the installment sales method of
revenue recognition. The company sold P1,500,000 on installment
accounts during 2014. The cost of items sold was P900,000. At
December 31, 2014, Hussong reported a balance of P100,000 in the
Deferred Gross Profit account. How much cash did Hussong collect
on installment contracts during 2014?

a. P600,000
b. P500,000
c. P250,000
d. P1,250,000
58. Under which of the following circumstances is the installment sales
method appropriate for the recognition of revenue in the income
statement?

a. For any sales where collection is spread over a reasonable long

period of time.
b. In any situation where management wishes to delay the recognition
 of revenue in order to smooth its income.
c. For sales where collection is spread over a reasonable long
period of time and significant doubt exists about the ultimate
collection of the receivables.
d. For sales where collection is spread over a reasonable long period
of time and no significant doubt exists concerning ultimate
collection of the receivables.
59. Cantor Company sold P400,000 to customers on account during 2014,
and collected P200,000 during the year. The company properly uses
the installment sales method of revenue recognition due to the
uncertainty of collection of these installment receivables. The
company has determined that cost of sales for the P400,000 of sales
was P340,000.

What is the correct balance of the company’s Deferred Gross Profit

account at the end of 2014, after the recognition of revenue for that
year?

a. P0
b. P30,000
c. P60,000
d. P140,000
60. Gentry Co. uses the installment sales method. When an account had a
balance of P3,500, no further collections could be made and the
dining room set was repossessed. At that time, it was estimated that
the dining room set could be sold for P1,000 as repossessed, or for
P1,300if the company spent P125 reconditioning it. The gross profit
rate on this sale was 70%. What is the gain or loss on repossession?
a. 2,450 loss
b. 2,500 loss
c. 300 gain
d. 125 gain
61. Word Corp. has a normal gross profit on installment sales of 30%. A
2007 sale resulted in a default early in 2009. At the date of default,
the balance of the installment receivable was P8,000, and the
repossessed merchandise had a fair value of P4,500. Assuming the
repossessed merchandise is to be recorded at fair value, the gain or
loss on repossession should be
a. 0
b. 1,100 loss
c. 1,100 gain
d. 2,500 loss
62. Sony Music Corp. sells musical instruments on installment. On
October 1, 2008, Sony sold a Karaoke costing P15,000 for P24,000.
It has been the policy to require its customers a down payment of
P2,400 for this kind of instrument and the balance to be paid on
installment with an annual interest of 12% starting October 31, 2008.
Periodic payments are equal in amount and represent interest on the
balance of the principal owed between installment periods, the
remainder a reduction in the principal balance.

The karaoke was repossessed in February 2009, when the customer

defaulted after paying a total of P9,600. It was estimated that the
karaoke had a depreciated cost of P8,400 when repossessed. The
Sony Music Corp. uses perpetual inventory and enters the total
deferred gross profit at the time of sale. How much is the total
 realized gross profit from this sale (rounded to the nearest peso).
a. 2,411
b. 3,312
c. 4,356
d. 4,500
63. Lang Co. uses the installment method of revenue recognition. The
following data pertain to Lang’s installment sales for the year ende
December 31, 2008 and 2009:

2008 2009
Installment receivables at year end on 2008 sales 60,000 30,000
Installment receivables at year end on 2009 sales 69,000
Installment sales 80,000 90,000
Cost of sales 40,000 60,000

What amount should Lang report as deferred gross profit in its

December 31, 2009 balance sheet?
a. 23,000
b. 33,000
c. 38,000
d. 43,000
64. On October 1, 2010, Surplus Co. sold equipment on installment basis.
The equipment costs the company an amount of P600,000, but the
installment selling price was set at P850,000. The terms of payment
included the acceptance of a used equipment with the balance to be
paid in ten (10) monthly installment due at the end of each month
commencing the month of sale. It would require P12,500 to
recondition the used equipment so that it could be sold for P250,000.
A 15% gross profit was usual from sale of used equipment.

What is the realized gross profit from the 2010 collections?

a. 70,588
b. 80,000
c. 100,000
d. 340,000
65. How should the balances of progress billings and construction in
progress be shown at reporting dates prior to the completion of a
long-term contract?

a. Progress billings as deferred income, construction in progress

as a deferred expense.
b. Progress billings as income, construction in progress in
inventory.
c. Net, as current asset if debit balance and current liability
if credit balance.
d. Net, as income from construction if credit balance, and loss
from construction is debit balance.
66. The calculation of the income recognized in the third year of a 5-year
construction contract accounted for using the percentage of
completion method includes the ratio of

a. Total costs incurred to date to total estimated costs.

b. Total costs incurred to date to total billings to date.
c. Costs incurred in year 3 to total estimated costs.
d. Costs incurred in year 3 to total billings to date.
67. Sonnet Construction Company uses the completed-contract method
for long-term construction contracts. The information for a specific
contract as of January 1, 2014, is shown below.

P600,000 of cost was incurred during 2014 and on December 31,

2014, the estimated remaining cost to complete was still P800,000.
The correct balance for the Construction in Progress at December 31,
2014 is
a. P600,000
b. P700,000
c. P1,200,000
d. P1,300,000
68. The Tiger Co. has entered into a 5-year fixed price construction
contract to build a factory. The contract value is P20,000,000 and the
estimated costs are P16,000,000. At the end of the first year, Tiger
can estimate the outcome of the contract reliably. It has received cash
payments to the value of P8,600,000 and incurred costs of
P6,000,000. At the end of the first year, what amount should be
recognized as revenue in the financial statements, according to the
standards on Construction Contracts?
a. 3,200,000
b. 7,500,000
c. 6,000,000
d. 8,600,000
69. DATING Co. has just completed a 4-year contract to which the
following relate:

Labor materials costs – P1,800,000; Machinery cost – P600,000;

Initial design cost – P100,000; Disposal proceeds of machinery –
P50,000.

What are the total contract costs, according to standards Construction

Contract?
a. 2,350,000
b. 1,900,000
c. 2,450,000
d. 2,500,000
70. Cordova Builders, Inc. has consistently used the percentage of
completion method of accounting for construction type contracts.
During 2008, Cordova started work on a P9,000,000 fixed price
construction contract that was completed in 2010. Cordova’s
accounting records disclosed the following:

December 31
2008 2009
Cumulative contract costs incurred P3,900,000 P6,300,000
Estimated total cost at completion 7,800,000 8,100,000

How much income would Cordova have recognized on this contract

for the year ended December 31, 2009?
 a. 100,000
b. 300,000
c. 600,000
d. 700,000
71. Mill Construction Co. uses the percentage of completion method of
accounting. During 2009, Mill contracted to build an apartment
complex for Drew for P20,000,000. Mill estimated that total costs
would amount to P16,000,000 over the period of construction. In
connection with this contract, Mill incurred P2,000,000 of
construction cost during 2009. Mill billed and collected P3,000,000
from Drew in 2009. What amount should Mill recognize as gross
profit for 2009?
a. 250,000
b. 375,000
c. 500,000
d. 600,000
72. The following data relate to a construction job started by Wokitoki
Co. during 2009:

Total contract price P 300,000

Actual costs incurred during 2009 60,000
Estimated remaining costs 120,000
Billed to customer during 2009 90,000
Received from customer during 2009 30,000

Under the percentage of completion method, how much should

Wokitoki Co. recognize as gross profit for 2009?
a. 0
b. 40,000
c. 80,000
d. 100,000
73. C & J Construction, Inc. consistently used the percentage of
completion method of recognizing income. Last year C &J started
work on a P4,500,000 construction contract, which was completed
this year. The accounting records disclosed the following data for last
year:

Progress billings P1,650,000

Cost incurred 1,350,000
Collections 1,050,000
Estimated cost to complete 2,700,000

How much revenue should C &J recognize on this contract last year?
a. 105,000
b. 150,000
c. 300,000
d. 350,000
74. Occasionally a franchise agreement grants the franchisee the right to make future
bargain purchases of equipment or supplies. When recording the initial franchise
fee, the franchisor should

a. increase revenue recognized from the initial franchise fee by the amount
of the expected future purchases.
b. record a portion of the initial franchise fee as unearned revenue which
will increase the selling price when the franchisee subsequently makes
the bargain purchases.
 c. defer recognition of any revenue from the initial franchise fee until the
bargain purchases are made.
d. None of these.
75. On January 3, 2014, Continental Services, Inc., signed an agreement
authorizing Peen Company to operate as a franchisee over a 20-year
period for an initial franchise fee of P200,000 received when the
agreement was signed. Peen commenced operations on July 1, 2014,
at which date all of the initial services required of Continental had
been performed. The agreement also provides that Peen must pay a
continuing franchise fee equal to 6% of the revenue from the
franchise annually to Continental. Peen's franchise revenue for 2014
was P900,000. For the year ended December 31, 2014, how much
should Continental record as revenue from franchise fees from the
Peen franchise?

a. P100,000
b. P106,000
c. P254,000
d. P266,000
76. Which of the following should be expensed as incurred by the
franchisee for a franchise with an estimated useful life of 10 years?

a. Amount paid to the franchisor for the franchise.

b. Periodic payments to a company, other than the franchisor, for
that company’s franchise.
c. Legal fees paid to the franchisee’s lawyers to obtain the
franchise.
d. Periodic payments to the franchisor based on the
franchisee’s revenues.
77. Cebu Pacific Airline purchased airline gate rights at Laguindingan
International Airport for P2,000,000 with a legal life of five years.
However, Cebu Pacific Airline has the ability and right to extend the
rights every ten years for an indefinite period of time. Over what
period of time should Cebu Pacific amortize the gate rights?
a. 5 years
b. 15 years
c. 40 years
d. No amortization
78. If a franchise becomes worthless prior to the end of its estimated
useful life, the unamortized balance in the franchise account should
be written off as a(an):

a. Prior period adjustment

b. Impairment loss
c. Expense in the current period
d. Change in estimate
79. Mark Co. bought a franchise from Fred Co. on January 1, 2009 for
P204,000. An independent consultant retained by Mark estimated that
the remaining useful life of the franchise was 50 years. Its
unamortized cost on Fred’s books at January 1, 2009 was P68,000.
Mark has decided to use the franchise indefinitely. What amount
should be amortized for the year ended December 31, 2009?
 a. 5,100
b. 4,080
c. 4,000
d. 0
80. On January 2, 2009, Rafa Co. purchased a franchise with a useful life
of ten years or P50,000. An additional franchise fee of 3% of
franchise operation revenues must be paid each year to the franchisor.
Revenues from franchise operations amounted to P40,000 during
2009. In its 31, 2009 balance sheet, what amount should Rafa report
as an intangible asset – franchise?
a. 33,000
b. 43,800
c. 45,000
d. 50,000

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