CPARME BATCH 1 Final Pre-board Examination: AFAR

INSTRUCTION: Select the correct answer for each of the following questions. Mark only one answer for
each item by shading the corresponding letter of your choice on the answer sheet provided. STRICTLY
NO ERASURES ALLOWED.

1. Musikeros Restaurant charges an initial franchise fee of P500,000 for the right to operate as a
franchisee of Musikeros. Of this amount, P100,000 is payable when the agreement is signed, and
the balance is payable in five annual payments of P80,000 each. In return for the initial franchise
fee, the franchisor will help locate the site, negotiate the lease or purchase of the site, supervise the
construction activity, and provide the bookkeeping services. The credit rating of the franchisee
indicates that money can be borrowed at 12 percent.

If the probability of refunding the initial franchise fee is extremely low, the amount of future services
to be provided to the franchisee is minimal, collectibility of the note is reasonably assured, and
substantial performance has occurred, determine the earned franchise fee.
A. P0 B. P388,382 C. P412,382 D. P500,000

2. The following summarized information relates to the installment sales activity of TJ Stores, Inc. for
the year 2015:

Installment sales during 2015 P500,000

Costs of goods sold on installment basis 330,000
Collections from customers 200,000
Unpaid balances on merchandise repossessed 24,000
Estimated value of merchandise repossessed 9,200

How much of the total gross profit that was not realized during the year?
A. P62,968 B. P68,000 C. P71,128 D. P102,000

3. The partnerships of Francis, Carlos, and Gabriel have asked you to assist it in winding up the affairs of
the business. You compile the following information.
a. The trial balance of the partnership on June 30, 2015, is:

Debit Credit
Cash P6,000
Accounts receivable (net) 22,000
Inventory 14,000
Plant and equipment (net) 99,000
Loan to Francis 12,000
Loan to Gabriel 7,500
Accounts payable P17,000
Francis, capital 67,000
Carlos, capital 45,000
Gabriel, capital 31,500
Total P160,500 P160,500

b. The partners share profits and losses as follows: Francis, 50%; Carlos, 30%, and Gabriel,
20%.
c. The partners decided to liquidate their partnership by instalments. Cash is distributed to the
partners at the end of each month. No interest on partners’ loans accrues during liquidation. A
summary of the July liquidation transactions follows:
P16,500 collected on accounts receivable; balance is uncollectible.
P10,000 received for the entire inventory.

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 CPARME BATCH 1 Final Pre-board Examination: AFAR
P1,000 liquidation expense paid.
P17,000 paid to outside creditors.
P8,000 cash retained in the business at the end of the month.

Determine the share of Carlos on the July cash distribution.

A. P0 B. P4,000 C. P6,500 D. P26,400

4. High Desert Potteryworks makes a variety of pottery products that it sells to retailers such as Home
Depot. The company uses a job-order costing system in which predetermined overhead rate in the
Molding Department is based on machine-hours, and the rate in the Painting Department is based
on direct labor cost. At the beginning of the year, the company’s management made the following
estimates:

Department
Molding Painting
Direct labor hours 12,000 60,000
Machine hours 70,000 8,000
Direct materials cost P510,000 P650,000
Direct labor cost P130,000 P420,000
Manufacturing overhead cost P602,000 P735,000

Job 205 was started on August 1 and completed on August 10. The company’s cost records show
the following information concerning the job:

Department
Molding Painting
Direct labor hours 30 85
Machine hours 110 20
Materials placed into production P470 P332
Direct labor cost P290 P680

If the job contained 50 units, what would be the unit product cost?
A. P18.92 B. P23.80 C. P42.72 D. P78.16

5. In relation to no. 16, assume that at the end of the year, the records of High Desert Pottery works
revealed the following actual cost and operating data for all jobs worked on during the year:

Department
Molding Painting
Direct labor hours 10,000 62,000
Machine hours 65,000 9,000
Direct materials cost P430,000 P680,000
Direct labor cost P108,000 P436,000
Manufacturing overhead cost P570,000 P750,000

What was the amount of under- or overapplied overhead in each department at the end of the year?

A. Molding, over of P11,000; Painting, over of P13,000

B. Molding, under of P11,000; Painting, under of P13,000.
C. Molding, over of P11,000; Painting under of P13,000.
D. Molding, under of P11,000; Painting over of P13,000.

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 CPARME BATCH 1 Final Pre-board Examination: AFAR
6. Determine the balance at June 30 in the Work in Process inventory account.
A. RUR36,300,000 B. C. RUR63,900,000 D.
RUR27,600,000 RUR38,300,000

7. Estrells Company makes super-premium cake mixes that go through two processing departments,
Blending and Packaging. The following activity was recorded in the Blending Department during
July.

Production data:
Units in process, July 1 (Materials 100% complete;
Conversion 30% complete) 10,000
Units started into production 170,000 Units completed and transferred to
Packaging ? Units in process, July 31 (Materials 100% complete;
Conversion 40% complete) 20,000

Cost data:
Work in process inventory, July 1:
Materials cost P8,500
Conversion cost 4,900 P13,400
Cost added during the month:
Materials cost P139,400
Conversion cost 244,200 P383,600
Total cost P397,000

All materials are added at the beginning of work in the Blending Department. The company uses
the FIFO method. Determine the cost of goods finished and transferred to next department. A.
P397,000 B. P368,760 C. P28,240 D. P383,600

8. Superior Brands, Inc., manufactures paint. The paint goes through three processing departments –
Cracking, Mixing, and Cooking. Activity in the Cracking Department during a recent month is
summarized in the department’s Work in Process account below:

Work in Process – Cracking Department

Inventory, April 1 (10,000 gallons, Completed and transferred to Labor and overhead 80%
complete) 39,000 ? mixing ( ? gallons) April costs added:
Materials (140,000 gallons) 259,000
Labor and overhead 312,000
Inventory, April 30 (30,000 gallons
Labor and overhead 60% complete) ?

The materials are added at the beginning of work in the Cracking Department. The company uses
the FIFO method. Determine the cost of completed and transferred to mixing department. A.
P98,700 B. P511,300 C. P472,300 D. P610,000

9. CDE Printing Company has three service departments and two operating departments. Selected
data for the five departments relating to the most recent period follow:

CPARME BATCH 1 Final Pre-board Examination: AFAR

 The company allocates service department costs in the following order and using the bases
indicated: Training (number of employees), Janitorial (space occupied), and Maintenance (hours of
press time). Contrary to best practice, the company makes no distinction between variable and
fixed service department costs in its allocations. Using the direct method in allocating service
department costs, the total cost of Lithography must be:
A. P708,000 B. P892,000 C. P684,500 D. P915,500

10. Mark, the cost accountant for Billings Plastics, Inc., has provided you with actual and standard cost
data for one of the basic product lines for the month of February.

Direct materials Direct labor

Purchased and used at actual cost, 38,000 units P104,500
Actual direct labor payroll P63,000 Standard materials units per product unit 2
Standard labor time per product unit 20 minutes Standard price per unit of
materials P2.50
Standard direct labor rate per hour P10 Labor rate variance (unfavourable)
P6,000

During February, 18,000 units of product were manufactured. Determine the entry to record direct
materials charged to production under the standard costing system.
A. Work in Process 90,000 C. Work in Process 104,500 Material Qty Variance 5,000 Material Qty
Variance 9,500 Materials 95,000 Materials 95,000 B. Work in Process 90,000 D. Work in Process
95,000 Materials 90,000 Materials 95,000

11. The following events pertain to BENCH Beach Wear, Inc. during June, 2015.
1. Raw material costing P180,000 was purchased on account.
2. Direct-labor costs of P65,000 were incurred, but not yet paid in cash. Actual manufacturing
overhead costs of P105,000 also were incurred, but not yet paid in cash.
3. Goods with raw material costs of P180,000 were finished, and conversion costs of P170,000
were applied.
4. Goods costing P348,000 were sold on account for P420,000.

Prepare the entry to record the no. 1 transaction using backflush costing.
A. Purchases 180,000
Accounts Payable 180,000
B. Materials Inventory 180,000
Accounts Payable 180,000
C. Raw and In-Process Inventory 180,000
Accounts Payable 180,000
D. Work in Process Inventory 180,000
Accounts Payable 180,000

12. Agency N have an obligation for the constructions of 10 storey building along J. P. Rizal upon
signing of contact amounting to P 100,000,000, the entry to record this transaction would be:
A. No entry C. Building (DR)
B. Building (DR) Cash-NT, MDS (CR)
Accounts Payable (CR) D. Memo entry – RAOCO

CPARME BATCH 1 Final Pre-board Examination: AFAR

13. GOOGLE manufactures three joint products A, B and C and a by product D, all in single process.
Results for the month of August were as follows:

Materials used 10,000 Kgs P24,000

 Conversion costs P28,000

No. of Kilos on Hand No. of kilos sold Product SV/Kilo

3,000 1,000 A 11
3,000 0 B 10
0 1,000 C 26
1,000 1,000 D 1

Revenue from by product is credited to sales account. Process costs are apportioned on a relative
sales value approach. What is the cost per kilo of C for the month?
A. 13.25 B. 5.61 C. 0 D. 35.58

14. Materials are added at the start of the process in Accenture blending department, the first stage of
the production cycle. The following information is available in August:

Work in process, August 31 (50% complete as to conversion cost) 175,000

Transferred to next department 275,000 Started in August 375,000 Work in process,
August 1 (60% complete as to conversion cost) 150,000 Lost in production 75,000

The costs incurred on the lost units are absorbed by the remaining good units. What are the EUP
for conversion?
FIFO AVE A. 362,500 272,500 B. 272,500 FIFO AVE C. 437,500 347,500 D. 347,500
362,500 437,500

15. SM Company uses a standard cost system and prepared the following budget at normal capacity
for March:

Direct labor hours 24,000

Variable OH 48,000
Fixed OH 108,000
Total OH per DLH P6.50

Actual data for March were as follows:

Direct labor hours worked 22,000
Total OH P147,000
Standard DLHs allowed for capacity attained 21,000

Using the two-way analysis of overhead variances, what is the controllable variance for March?
A. 3,000 Favorable B. 5,000 C. 9,000 Favorable D. 10,500
Favorable Unfavorable

16. Solar provided the following information for the transaction occurred during August. The production
plant uses the JIT costing system.
∙ Raw materials costing P 750,000 were purchased
∙ All direct materials costing P 750,000 were requisitioned for production
∙ Direct labor costs of P 500,000 were incurred

CPARME BATCH 1 Final Pre-board Examination: AFAR

∙ Actual factory overhead costs amounted to P 2,487,500
∙ Applied conversion cost totaled P 3,250,000. This includes the direct labor cost. ∙
All units are completed and immediately sold.

The total RIP used to be backflushed to FG and the adjusted COGS, respectively
A. P750,000; 3,737,500 B. P4,000,000; C. P4,000,000; 3,737,500 D. P750,000;
4,262,500 4,262,500
17. GRAND Company has the following information for July:

Units started 100,000 units

Beginning Work in Process: (35% complete) 20,000 units
Normal spoilage (discrete) 3,500 units
Abnormal spoilage 5,000 units
Ending Work in Process: (70% complete) 14,500 units
Transferred out 97,000 units
Beginning Work in Process Costs:
Material P15,000
Conversion 10,000

All materials are added at the start of the production process. Grand Company inspects goods at 75
percent completion as to conversion. What are equivalent units of production for conversion costs,
assuming FIFO?
A. 103,900 B. 106,525 C. 108,650 D. 108,900

18. On November 30, 2014, Leather Company authorized Shipped-line Corp. to operate as a franchisee
for an initial franchise fee of P 1,950,000. Of this amount, P 750,000 was received upon signing the
agreement and the balance, represented by a note, is due in four annual payments starting
November 30, 2015. Present value of P 1 at 12% for 4 periods is 0.6355. Present value of an
ordinary annuity of P 1 at 12% for 4 periods is 3.0374. The period of refund will elapsed on January
31, 2015. The franchisor has performed substantially all of the initial services but the operations of
the store have yet to start. Collectibility of the note is reasonably certain. How much is the
unearned franchisee fee?
A. P1,661,220 B. P750,000 C. P911,220 D. P0

19. Metro Stonerich Construction Company entered into two construction jobs which both commenced
in 2015 (in thousands).
Project 1 Project 2
Contract Price P52,500 P37,500
Costs incurred during 2015 30,000 35,000
Estimated Cost to Complete 15,000 8,700
General and administrative
Expenses 2,500 1,250
Billings for clients during 2015 31,500 30,000
Collections during 2015 28,000 25,000

Based on the information given, how much is the gross profit would Metro Stonerich Construction
report in its 2015 income statement?
Percentage of completion Zero profit
A. (6,200,000) (1,200,000)
B. 5,000,000 (6,200,000)
C. (1,200,000) (6,200,000)
D. 1,300,000 (1,200,000)

CPARME BATCH 1 Final Pre-board Examination: AFAR

20. JP Morgan acquires 80% of Pacific Company’s common stock for P320,000 cash. At that date, the
non controlling interest in Pacific has a fair value of P140,000. Also on that date, Pacific reports
identifiable assets with a book value of P650,000 and a fair value of P800,000, and it has liabilities
with a book value and fair value of P260,000. Gain on bargain purchase arising from acquisition if
non-controlling interest is valued on the proportionate basis:
A. P112,000 B. P80,000 C. P100,000 D. P94,000

21. On January 1, 2015, Fortune Company purchased 80% of the outstanding shares of Hope
Company at a cost of P8,800,000. On that date, Hope Company had P5,000,000 of capital stock
and P 5,000,000 of retained earnings. Fortune used the proportionate share in the identifiable net
 assets at acquisition date in valuing NCI. For 2015, Fortune Company had income of P2,800,000
from its own operations (excluding its share of income from Hope) and paid dividends of
P1,500,000. Hope Company reported net income of P650,000 and paid dividends of P300,000. All
assets and liabilities of Hope Company have book value equal to their respective market values.

On January 1, 2015, Fortune Company sold equipment to Hope Company for P1,000,000. The
book value of the equipment on that date was P1,200,000. The loss of P20,000 is reflected in the
income of Fortune Company indicated above. The equipment is expected to have a useful life of
five years from the date of the sale. In the December 31, 2015 consolidated statement of financial
position, the NCI should be presented at:
A. P2,000,000 B. P2,200,000 C. P2,070,000 D. P2,130,000

22. Lexus Corporation purchased 95 percent of the shares of Toyota Company on January 2015. On
that date, the book value of Toyota’s net assets approximated fair value. As a result of the
purchase, Lexus recognized P600,000 goodwill.

During 2015, Toyota sold inventory to Lexus. On December 31, 2015, Toyota had unrealized profits
on its books of P100,000. By December 31, 2016, the entire inventory left on Lexus’s books had
been sold to outside parties. During 2016, Lexus sold inventory to Toyota and had P150,000 of
unrealized profits left on its books at the end of 2016. For 2016, Lexus reported operating income of
P5,000,000, and Toyota reported net income of P3,600,000.

What is the consolidated income attributable to shareholders of parent for 2016? A.

8,550,000 B. 8,330,000 C. 8,330,500 D. 8,365,000

23. REH Company has a branch in Zambales. Shipments of merchandise to the branch totaled
P297,000 for the year, which included a 25% mark-up on cost.

The following data summarizing branch operations for the period ended December 31, 2015:
Sales on account P407,000
Sales on cash basis 121,000
Collections of accounts 330,000
Expenses paid 149,000
Expenses unpaid 41,000
Purchase of merchandise for cash 143,000
Inventory on hand, January 1 (60% from outside purchases) 114,000
Inventory on hand, December 31 (70% from home office) 165,000
Remittances to home office 302,500

Allowance for overvaluation of branch inventory amounted to P67,000 in the home office books. In
the home office books, the branch net income (loss) is:
A. P16,000 B. P(51,000) C. P(7,100) D. P(5,580)

CPARME BATCH 1 Final Pre-board Examination: AFAR

24. Walmart Corporation of Manila paid P960,000 for a 40% interest in Kilona Corporation of Taiwan on
January 1, 2015, when Kilona’s net asset totaled 1,500,000 NT dollars and the exchange rate for NT
Dollar was P1.60. A summary of changes in Sun’s net assets during 2014 is as follows:

NT Dollar Exchange Rates

Net assets, January 1 1,500,000 1.60
Net income for 2015 300,000 1.55
Dividends paid for 2015 100,000 1.54

Walmart Corporation anticipated a strengthening of the Philippine peso against the NT Dollar during
the last half of 2015, and it borrowed 600,000 NT Dollar from a Taiwanese bank for one year at
10% on July 1, 2015 to hedge its net investment in Kilona. The loan was made when the exchange
 rate for NT Dollar was P1.55. The loan was denominated in NT dollar and the current exchange
rate at December 31, 2015 was P1.50. The other comprehensive income – translation adjustment
in 2015 is:
A. P94,400 B. P64,400 C. P34,400 D. P0

25. Melrose Corporation, a Philippine importer, purchased merchandise from Paddocks Company of
Thailand for 300,000 baht on March 1, 2015, when the spot rate for a Baht was P1,630. The
accounts payable denominated in Baht was not due until May 30, 2015, so Melrose immediately
entered into a 90-day forward contract to hedge the transaction against exchange rate changes.
The contract was made at a forward exchange rate of P1,650. Melrose settled the forward contract
and the accounts payable on May 30, when the spot rate for Baht was P1,600. On the settlement of
the forward contract on May 30, 2015, Melrose should record a forex gain (loss) of A. P15,000 B.
P(6,00) C. P 6,000 D. P(15,000)

26. The following data are provided by the Troubled Company:

Assets of book value P150,000
Assets of net realizable value 105,000
Liabilities at book value
Fully secured mortgage 60,000
Unsecured accounts and notes payable 70,000
Unrecorded liabilities
Interest on bank notes 500
Estimated cost of administering estate 6,000

The court has appointed a trustee to liquidate the company. The journal entry made by the trustee
to record the assets and liabilities should include an estate deficit of:
A. P31,500 B. P31,000 C. P25,500 D. P25,000

27. RR and SS are asked by the ABC to handle the marketing of a benefit basketball game. Being avid
fans, they readily accepted the offer and formed a joint operation. To achieve on equitable
distribution of earnings, they agreed that the partner who finances the purchase of tickets shall be
entitled to a 20% commission, the partner who makes ticket sales shall be entitled to a 25%
commission, and any remainder was to be divided equally. After the game was over, the following
information was obtained: RR purchased tickets worth P26,125: SS, advanced P4,125 for
expenses; and, ticket sales made by RR and SS, respectively, were P22.000 and P16,500. How
much was SS’s share in the net income (loss) of the joint operations?
A. P825 B. P4,125 C. P(3,300) D. P(7,425)

28. On December 18, 201l, the statement of affairs of Downside Company, which is in bankruptcy
liquidation, included the following:
Assets pledged for fully secured liabilities P100,000
Assets pledged for partially secured liabilities 40,000

CPARME BATCH 1 Final Pre-board Examination: AFAR

Free assets 120,000
Fully secured liabilities 80,000
Partially secured liabilities 50,000
Unsecured liabilities with priority 60,000
Unsecured liabilities without priority 90,000

Compute the estimated amount to be paid to:

Fully Unsecured Partially Unsecured
Secured Liabilities Secured Liabilities
Liabilities w/ Priority Liabilities w/out Priority
A. P80,000 P60,000 P50,000 P70,000
B. P64,000 P60,000 P48,000 P88,000
C. P80,000 P48,000 P60,000 P72,000
 D. P80,000 P60,000 P48,000 P72,000

29. On January 1, 2013, Wilkins, Inc. and Xyto, Inc. (the parties) agreed to combine their businesses by
establishing a separate vehicle (Bremm, Inc.). Both parties expect the arrangement to benefit them
in different ways. Wilkins believes that the arrangement could enable it to achieve its strategic plans
to increase its size, offering on opportunity to exploit its full potential for organic growth through an
enlarged offering of products nod services. Xylo expects the arrangement to reinforce its business
opportunities by marketing more products.

As a result, Wilkins, Inc. acquired 20% of the outstanding common stock of Bremm, Inc. for
P700,000. This investment gave Wilkins the joint control over Bremm. Bremm’s assets on that date
were recorded at P3,900,000 with liabilities of P900,000. Any excess of cost over book value of the
investment was attributed to patent having a remaining useful life of l0 years.

In 2013, Bremm reported net income of P170,000. In 2014, Bremm reported net income of
P210,000. Dividends of P20,000 were paid in each of these two years. What is the equity method
balance of Wilkin’s Investment in Bremm, Inc. of December 31, 2014?
A. P728,000 B. P748,000 C. P756,000 D. P776,000

30. A balance sheet for the partnership of Adrian, Monica and Nicole, who share profits in the ratio of
2:1:1, shows the following balances just before liquidation:

Assets Liabilities and Equity

Cash 144,000 Other assets 714,000 Liabilities 240,000 Adrian, capital 264,000
Monica, capital 186,000 Nicole, capital 168,000

In the first month of liquidation, certain assets are sold for P384,000. Liquidation expenses of
P12,000 are paid, and additional expenses are anticipated. Liabilities of P64,800 are paid and
sufficient cash is retained for the anticipated liquidation expenses. In the first payment to partners,
Adrian receives P75,000.

The amount of cash withheld of the anticipated liquidation expenses is:

A. P0 B. P175,000 C. P36,000 D. P211,200

31. Rockwell makes a single product in two Departments. The production data for Dept. 2 for August
2010 follows:

Production Cost Last Month This Month

Transferred in 40,750 222,750

CPARME BATCH 1 Final Pre-board Examination: AFAR

Materials 9,500 168,750
Conversion 4,850 202,500
Quantities
In beg (40% done) 10,000
Received from Dept. 1 75,000
Completed and transferred 62,500
In Process end (60% done) 15,000

Materials are added at the start of the process, and losses normally occur during the early stages of
operation. Compute the cost the WIP end using average and COGM using FIFO method,
respectively:
A. 111,600; 535,200 B. 111,600; C. 114,000; 488,125 D. 114,000;
488,125 535,200

32. The following information is available for SMART Company for the current year:
 Beginning Work in Process Costs of Beginning Work in Process: (75% complete) 14,500 units
Material P25,100 Started 75,000 units Conversion 50,000 Ending Work in Process Current
Costs:
(60% complete) 16,000 units Material P120,000 Abnormal spoilage 2,500 units Conversion
300,000 Normal spoilage (continuous) 5,000 units
Transferred out 66,000 units

All materials are added at the start of production. Using weighted average, what are equivalent
units for material?
A. 82,000 B. 89,500 C. 84,500 D. 70,000 33. HELLIGERS Company has the following

information for July:

Units started 100,000 units

Beginning Work in Process: (35% complete) 20,000 units
Normal spoilage (discrete) 3,500 units
Abnormal spoilage 5,000 units
Ending Work in Process: (70% complete) 14,500 units
Transferred out 97,000 units
Beginning Work in Process Costs:
Material P15,000
Conversion 10,000

All materials are added at the start of the production process. Helligers Company inspects goods at
75 percent completion as to conversion. What are equivalent units of production for conversion
costs, assuming FIFO?
A. 108,900 B. 103,900 C. 108,650 D. 106,525

34. On November 1, 2014, SM Corporation’s trustee prepares a Statement of Affairs with the following
information:

⮚ P340,000 cash will be received by the unsecured creditors whose claims totaled P1,360,000.
⮚ X received a 12% note of P 124,000 from SM on March 1, 2014, secured with machinery with
a market value of P115,000.
⮚ CRC issued to Y a 12%, 1-year note of P136,000 on January 1, 2014. Nothing has been
pledged to this note.

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CPARME BATCH 1 Final Pre-board Examination: AFAR

⮚ Z holds a note of P137,500 on which interest of P7,452 is accrued, secured will equipment
with a book value of P153,000. The fair value of the equipment is determined to be P173,250. ⮚
SM stills owes W, its cashier, with her salary worth P12,220.

Which of the following statements about the creditors of SM is false?

A. The unsecured creditor without priority will receive P37,400.
B. The unsecured creditor with priority will received P3,055
C. The fully secured creditor will be paid an amount of P144,952
D. The partially secured creditor will be paid an amount of P119,730.

35. Aquino and Abunda formed a joint venture to purchase and sell a special type of merchandise. The
venturers agreed to contribute cash of P270,000 each to be used in purchasing the merchandise,
and to share profits and losses equally. They also agreed that each shall record his purchases,
sales, and expenses in their own books.

Upon termination of the joint venture, the following data are made available:
Aquino Abunda
Joint venture P234,000 Credit P170,600 Debit Inventory Taken 10,800 33,750
Expenses paid from Joint venture cash 5,400 9,900
 How much cash is to be received by Abunda in the final settlement?
A. P267,950 B. P290,225 C. P323,975 D. P280,325

36. Catalyst Paper Company owns a subsidiary in Canada whose balance sheets in Canadian Dollar
for the last two years follow (in thousands):

Dec 31, 2014 Dec 31, 2015

Assets
Cash and cash equivalent C$25,000 C$20,000
Receivables 112,500 137,500
Inventory 170,000 180,000
Property and equipment – net 250,000 225,000
Total C$557,500 C$562,500
Liabilities and Equity
Accounts payable C$65,000 C$85,000
Long-term debt 312,500 275,000
Common stock 125,000 125,000
Retained earnings 55,000 77,500
Total C$557,500 C$562,500

Catalyst Paper formed the subsidiary on January 1, 2014 when the exchange rate was 40
Canadian Dollar for 1 Philippine Peso. The exchange rate for 1 Philippine peso on December 31,
2014 had increased to 45 Canadian Dollar and to 35 Canadian Dollar on December 31, 2015.
Income earned evenly over the year, and the subsidiary declared no dividends during its first two
years of existence. How much is the cumulative translation adjustment for 2015? (Round-off to 3
decimal places)
A. P1,350,000 B. P1,912,500 C. P975,000 D. P865,000

37. Maple Leaf Foods Company, a local company, bought furniture from Ailments Corporation, a US
company, for 35,000 US Dollars in 2014. Pertinent exchange rates relating to this transaction are as
follows:

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CPARME BATCH 1 Final Pre-board Examination: AFAR

Buying Rate Selling Rate
Receipt of order P47.10 P47.20
Date of shipment 47.25 47.45
Balance sheet date 49.50 49.60
Settlement date 49.45 49.50

What is the foreign exchange gain or loss of Maple Leaf Foods Company for 2014?
A. P78,750 loss B. P75,250 loss C. P78,750 gain D. P75,250 gain

38. Lurk Company acquired 65% of the share capital of a foreign entity on August 31, 2014. The fair
value of the net assets of the foreign entity at that date was 8.24 million yen. This value was 2.64 million
higher than the carrying value of the net assets of the foreign entity. The excess was due to the increase
in value of non-depreciable land. The functional currency of the entity is Philippine peso. The financial
year-end of the company is December 31, 2014. The exchange rates at August 31, 2014 and December
31, 2014 were Yen 2 = Php 1 and Yen 1.25 = Php 1, respectively.

What figure for the fair value adjustment should be included in the group financial statements for the
year ended December 31, 2014?
A. P4,284,800 B. P2,678,000 C. P2,112,000 D. P1,320,000

39. On November 30, 2014, Metro Ink Company authorized MDS Corp. to operate as a franchisee for an
initial franchise fee of P 1,950,000. Of this amount, P 750,000 was received upon signing the
 agreement and the balance, represented by a note, is due in four annual payments starting
November 30, 2015. Present value of P 1 at 12% for 4 periods is 0.6355. Present value of an
ordinary annuity of P 1 at 12% for 4 periods is 3.0374. The period of refund will elapsed on January
31, 2015. The franchisor has performed substantially all of the initial services but the operations of
the store have yet to start. Collectibility of the note is reasonably certain. How much is the unearned
franchisee fee?
A. P1,661,220 B. P750,000 C. P911,220 D. P0

40. Petron acquires 80% of Tridel Company’s common stock for P320,000 cash. At that date, the non
controlling interest in Tridel has a fair value of P140,000. Also on that date, Tridel reports
identifiable assets with a book value of P650,000 and a fair value of P800,000, and it has liabilities
with a book value and fair value of P260,000. Gain on bargain purchase arising from acquisition if
non-controlling interest is valued on the proportionate basis:
A. P112,000 B. P80,000 C. P100,000 D. P94,000

41. On January 2, 2014 BDO Company acquired 80% interest in MBTC Company for P 4,125,000
cash. On this date, the outstanding capital stock and retained earnings of BDO Company and
MBTC Company are as follows:
BDO MBTC
Common shares P 2,250,000 P 1,312,000
Share premium 1,500,000 -
Retained earnings 5,250,000 3,187,500

There was no issuance of capital stock during the year. Non-controlling interest is initially measured
at fair value. Fair values of the following assets of MBTC exceeded their book values as follows:
Inventories, P210,000; Property and equipment (useful life, 10 years), P 127,500. All other assets
and liabilities are fairly valued. Goodwill if any is not impaired. On December 31, 2014 the two
companies reported the following operating results:
BDO MBTC
Net income P1,785,000 P975,000
Dividend paid 525,000 262,500

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CPARME BATCH 1 Final Pre-board Examination: AFAR

What is the consolidated stockholders’ equity to be reported in the consolidated statement of
financial position on December 31, 2014?
A. P10,651,800 B. P13,500,000 C. P7,035,000 D. P11,781,000

42. Skyline Corporation purchased 95 percent of the shares of Syncrude Company on January 2014.
On that date, the book value of Syncrude’s net assets approximated fair value. As a result of the
purchase, Skyline recognized P 600,000 goodwill.

During 2014, Syncrude sold inventory to Skyline. On December 31, 2014, Syncrude had unrealized
profits on its books of P 100,000. By December 31, 2015, all of the inventory left on Skyline’s books
had been sold to outside parties. During 2015, Skyline sold inventory to Syncrude and had P
150,000 of unrealized profits left on its books at the end of 2015. For 2015, Skyline reported
operating income of P 5,000,000, and Syncrude reported net income of P 3,600,000.

What is the consolidated income attributable to shareholders of parent for 2015? A.

8,330,000 B. 8,330,500 C. 8,365,000 D. 8,550,000

43. Matrox Company has a branch in Surry City. Shipments of merchandise to the branch totaled
P297,000 for the year, which included a 25% mark-up on cost. The following data summarizing
branch operations for the period ended December 31, 2012:
Sales on account P407,000
Sales on cash basis 121,000
Collections of accounts 330,000
Expenses paid 149,000
Expenses unpaid 41,000
 Purchase of merchandise for cash 143,000
Inventory on hand, January 1 (60% from outside purchases) 114,000
Inventory on hand, December 31 (70% from home office) 165,000
Remittances to home office 302,500

Allowance for overvaluation of branch inventory amounted to P 67,000 in the home office books. In
the home office books, the branch net income (loss) is:
A. P16,000 B. P(5,580) C. P(7,100) D. P(51,000)

44. On July 1, 2014, Philip Company purchased 1,000 shares of Leo Corp. common stock at a cost of
P 60 per share and classified it as an available for sale security. On October 1, Philip Company
purchased an at-the-money on Leo Corp. at a premium of P14,000 with a strike price of P100 per
share and an expiration date of April 2015.

Philip Company specifies that only the intrinsic value of the option is to be used to measure
effectiveness. The following shows the fair value of the hedged item and the hedging
instrument.

Apr 2015 Oct 1, 2014 Dec 31, 2014 Mar 3, 2015 Apr 1, 2015
Leo’s share price P100 P88 P80 P80
Intrinsic value 0 12,000 20,000 20,000
Time value 12,000 8,600 2,120 0
Fair value 14,000 20,600 22,120 20,000

What is the cumulative effect on retained earnings of the hedge and sale?
A. P6,000 B. P26,000 C. P40,000 D. P46,000

45. Walmart Corporation of Manila paid P 960,000 for a 40% interest in Kilona Corporation of Taiwan on
January 1, 2014, when Kilona’s net asset totaled 1,500,000 NT dollars and the exchange rate for NT
Dollar was P1.60. A summary of changes in Sun’s net assets during 2013 is as follows:

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CPARME BATCH 1 Final Pre-board Examination: AFAR

NT Dollar Exchange Rates
Net assets, January 1 1,500,000 1.60
Net income for 2014 300,000 1.55
Dividends paid for 2014 100,000 1.54

Walmart Corporation anticipated a strengthening of the Philippine peso against the NT Dollar during
the last half of 2014, and it borrowed 600,000 NT Dollar from a Taiwanese bank for one year at
10% on July 1, 2014 to hedge its net investment in Kilona. The loan was made when the exchange
rate for NT Dollar was P1.55. The loan was denominated in NT dollar and the current exchange
rate at December 31, 2014 was P1.50.

The other comprehensive income – translation adjustment in 2014 is:

A. P0 B. P34,400 C. P64,400 D. P94,400

46. Vista Corporation, a Philippine importer, purchased merchandise from Yogen Company of Thailand
for 300,000 baht on March 1, 2014, when the spot rate for a Baht was P1,630. The accounts
payable denominated in Baht was not due until May 30, 2014, so Vista immediately entered into a
90-day forward contract to hedge the transaction against exchange rate changes. The contract was
made at a forward exchange rate of P1,650. Vista settled the forward contract and the accounts
payable on May 30, when the spot rate for Baht was P1,600.

On the settlement of the forward contract on May 30, 2014, Vista should record a forex gain (loss)
of
A. P15,000 B. P(6,00) C. P6,000 D. P(15,000)
47. Rockford Company and Alaska Corp. were combined on September 1, 2014 in a business
combination and Alaska Corp. was dissolved and liquidated. For the year, 2014, the companies had
the following net income.

Rockford Company (January 1 – September 1) P2,400,000

Rockford Company (September 1 – December 31) 1,000,000
Alaska Corp. (January 1 – September 1) 1,600,000
Alaska Corp. (September 1 – December 31) 800,000

Rockford Company, the surviving company, will report income for 2014 of
A. P2,400,000 B. P3,400,000 C. P4,200,000 D. P5,800,000

48. The following selected accounts appeared in the trial balance of Macy Sales as of December 31,
2015.
Debit Credit
Installment Accounts Receivable – 2014 P15,000
Installment Accounts Receivable – 2015 200,000
Inventory, December 31, 2014 70,000
Purchases 555,000
Repossessions 3,000
Installment Sales P425,000
Sales 385,000
Unrealized Gross Profit – 2014 54,000

Additional information: as of December 31, 2014

Installment Accounts Receivable - 2013 as of December 31, 2014 P135,000 Inventory of
new and repossessed merchandise as of December 31, 2015 95,000 Gross profit
percentage on regular sales during the year 30%

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CPARME BATCH 1 Final Pre-board Examination: AFAR

Repossession was made during the year. It was a 2014 sale, and the corresponding uncollected
account at the time of repossession was 7,800. The total realized gross profit in 2015, net of loss on
repossession is
A. P130,380 B. P201,000 C. P244,200 D. P245,880

49. E, J, and N agree to liquidate their consulting practice as soon as possible after the close of
business on July 31, 2014. The trial balance on that date shows the following account
balances.

Cash P130,000 Accounts receivable 120,000 P600,000

Furniture and fixtures 350,000 Accounts payable P60,000 Loan to E 40,000
E, capital 200,000 J, capital 150,000 N, capital
150,000 P600,000

The partners share profits and losses 50%, 20%, and 30% to E, J, and N, respectively, after N is
allowed a monthly salary of P40,000. August transactions and events are as follows: 1. The
accounts payable are paid.
2. Accounts receivable of P80,000 are collected in full. N accepts accounts receivable with a
face value and fair value of P 30,000 in partial satisfaction of his capital balance. The
remaining accounts receivable are written off as uncollectible.
3. Furniture with a book value of P250,000 is sold for P150,000.
4. Furniture with a book value of P40,000 and an agreed upon fair value of P10,000 is taken by J
in partial settlement of his capital balance. The remaining furniture and fixtures are donated to
Goodwill Industries.
5. Liquidation expenses of P30,000 are paid.
6. Available cash is distributed to partners on August 31.
 How much of J’s equity was recovered from the partnership liquidation?
A. P25,000 B. P51,000 C. P94,000 D. none

50. The X, Y, and Z Partnership has not been successful. Hence, the partners have sadly concluded
that operations must be terminated and their partnership liquidated. Profits and losses are shared
as follows: X, 45 percent; Y, 35 percent; and Z, 20 percent. As the accountant placed in charge of
this partnership, you have responsibility for the liquidation and distribution of assets. When you
assume your responsibilities, the partnership balance sheet is as follows:

Cash P180,000 Other assets 540,000 P720,000

Liabilities P120,000 Loan from X 180,000 X,
capital 60,000 Y, capital 300,000 Z, capital
60,000 P720,000

During the first two months of your duties, the following events occur:
1. Assets having a book value of P400,000 are sold for P120,000 cash.
2. Previously unrecorded liabilities of P10,000 are recognized.
3. Before distributing available cash balances to creditors and partners, you conclude that a cash
reserve of P10,000 should be set aside for future potential expenses.
4. Remaining cash balances are distributed to creditors and partners.

How much cash X should receive?

A. P 26,250 B. P 31,875 C. P 180,000 D. P 42,000

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CPARME BATCH 1 Final Pre-board Examination: AFAR

Items 51 and 52 are based on the following:
Max and Jasper are partners with capital balances of P32,000 and P68,000, respectively, as of July 1,
2011. Max has a 30% interest in profits and losses. All assets of the partnership are at fair market value
except as follows:
Book value Market value Book value Market value
Equipment P150,000 P142,000 Inventory 43,000 Building P274,000 P250,000 Land 60,000 105,000
50,000

The partnership has decided to admit Vincent and Sam as new partners. Vincent contributes cash of
P55,000 for a 20% interest in capital and a 30% interest in profits and losses. Sam contributes cash of
P10,000 and equipment with a fair market value of P50,000 for a 25% interest in capital and a 35%
interest in profits and losses. Sam is also bringing special expertise and client contacts to the new
partnership.

51. The capital balance of Max after Vincent and Sam’s admission under the bonus method is: A.
P40,775 B. P34,775 C. P38,000 D. P70,500

52. The method (bonus or goodwill) advantageous to Vincent and Sam and the total amount of
advantage is:
A. Bonus method for an advantage of P2,055
B. Bonus method for an advantage of P4,111.
C. Bonus method for an advantage of P5,944
D. Bonus method for an advantage of P12,750

53. On January 2, 2014, B and P formed a partnership. B contributed capital of P175,000 and P,
P25,000. They agreed to share profits and losses 80% and 20%, respectively. P is the general
manager and works in the partnership in full time. P is given a salary of P5,000 a month; an interest
of 5% the starting capital and a bonus of 15% of net profit before the salary, interest and the bonus.

The condensed profit and loss statement of the partnership for the year ended December 31, 2014
is as follows:
Net Sales P875,000.00
 Cost of Sales 700,000.00
Gross profit on sales P175,000.00
Expenses (including the salary,
interest and the bonus) 143,000.00
Net Profit P32,000.00

The bonus of P in 2014 is

A. P13,304.35 B. P18,000.00 C. P15,300.00 D. P20,700.00

54. Congestions have always been a way of life most especially in Metro Manila. One way to decongest
traffic and minimize use of gasoline is to phase out the internationally known jeepneys as well as
the use of dilapidated, smoke-belching and fully depreciated buses. To partially solve the problem
as well as to motivate car owners to use public transportation, an underground monorail system
similar to that of Hongkong was the solution. The system covered the stretch of the famous Edsa,
from Roxas Boulevard to Bonifacio Monument and would go as far as the area of Malabon as well
as Navotas, a thickly populated fishermen’s village. The project covers several stages and was
awarded to different contractors here and abroad. Competitive bids were held for stage one of the
project. The bids are:
Northern City Construction P560 billion
Hongkong Systems 392 billion
JJ Ram Construction Company 400 billion

16

CPARME BATCH 1 Final Pre-board Examination: AFAR

A project that undergoes competitive bid is normally awarded to the lowest bidder. However, the
government reserves the right to reject any and all bids after a careful review of the track record of
the bidders. Even though JJ Ram Construction Company had the second lowest bid. Stage one of
the project was awarded to them. The contract price was P400 billion pesos which were covered by
a two-year construction contract. The following data were available from the records for the years
2013 and 2014:
2013 2014
(In billions of pesos)
Costs incurred P120 P216
Progress billings 100 300
Cash collections on billings 96 304
Estimated costs to complete 216

How much is the income from construction in 2014, using the cost to cost percentage of completion
method?
A. P41.143 billion B. P22.857 billion D. P161.143 billion
C. P64 billion

55. On April 1, 2014 CDE Enterprises entered into a franchise agreement with RRV Manufacturing
Company to sell their products. The agreement provides for an initial franchise fee of P4,375,000,
payable as follows: P1,225,000 cash to be paid upon signing of the contract, and the balance in five
equal payments every December 31, starting December 31, 2014. CDE signs a 10% interest
bearing note for the balance. The agreement further provides that the franchisee must pay a
continuing franchise fee equal to 5% of its monthly gross sales. On September 30, the franchisor
completed the initial services required in the contract at a cost of P2,756,250, and incurred indirect
costs of P180,000. The franchisee commenced business operations on October 2, 2014. The gross
sales reported by CDE are October sales, P370,000; November sales, P423,500; and December
sales, P516,500. The first installment payment was made on due date.

Assuming collection of the note is not reasonably assured, in its income statement for the year
ended December 31, 2014 the reported net income is:
A P808,100 B P886,850 C P988,100 D P686,350

Questions 56 and 57 are based on the following:

WALMART Grocery has three all-night Grocery stores located in South America. Each store has a
branch manager with authority to accept inventory items at home office cost plus mark-up or to purchase
from outside wholesalers, at her discretion.

Inventories at December 31, 2014 were as follows:

Home office P1,109,000 cost
Venezuela branch 264,000 transfer price
Brazil branch 297,000 transfer price
Argentina branch 462,000 transfer price

Partial trial balance information for WALMART Grocery and its branches at December 31, 2014 includes
the following accounts and amounts:

Home Venezuela Brazil Argentina

office branch branch branch
Inventories, January 1, 2014 P609,000 P374,000 P330,000 P187,000 Purchases
10,000,000
Shipments from home office 3,300,000 2,750,000 4,400,000 Unrealized profit in branch
inventories 1,031,000
Shipments to Venezuela branch 3,000,000

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CPARME BATCH 1 Final Pre-board Examination: AFAR

Shipments to Brazil branch 2,500,000
Shipments to Argentina branch 4,000,000

56. Determine the total realized profit in branch inventories for 2014.
A P938,000 B P93,000 C P1,031,000 D P838,000

57. Determine the correct value of WALMART Grocery inventory at December 31, 2014. A
P930,000 B P2,039,000 C P1,938,000 D P1,419,000

58. Coleen, a private limited company, has acquired 100% of Carlo, a private limited company, on
January 1, 2014. The fair value of the purchases consideration was 10 million ordinary shares of P1
of Coleen and the fair value of the net assets acquired was P7 million. At the time of the acquisition,
the value of the ordinary shares of Coleen and the net assets of Carlo were only provisionally
determined. The value of the shares of Coleen (P11 million) and the net assets of Carlo (P7.5
million) on January 1, 2014, were finally determined on November 30, 2014. However, the directors
of Coleen have seen the value of the company decline since January 1, 2014, and as of February
1, 2015, wish to change the value of the purchase consideration to P9 million. What value should
be placed on the purchase consideration and assets of Carlo as at the date of acquisition? A
Purchase consideration P10 million, net assets value P7 million.
B Purchase consideration P11 million, net assets value P7 million.
C Purchase consideration P 9 million, net asset value P7.5 million.
D Purchase consideration P11 million, net asset value P7.5 million.

Items 59 and 60 are based on the following information:

Robinson, Inc. acquires 100% of the voting stock of Rose Company on January 1, 2014 for P400,000
cash. A contingent payment of P16,500 will be paid on April 15, 2015 if Rose generates cash flows from
operations of P27,000 or more in the next year. Robinson estimates that there is a 20% probability that
Rose will generate at least P27,000 next year and uses an interest rate of 5% to incorporate the time
value of money. The fair value of P16,500 at 5%, using a probability weighted approach is P3,142.

59. What will Robinson record as the acquisition price on January 1, 2014?
A P400,000 B P403,142 C P409,142 D P416,500

60. Assuming Rose generates cash flow from operations of P27,200 in 2014, how will Robinson record
the P16,500 payment of cash on April 15, 2015?
 A Debit Goodwill and Credit Cash, P16,500.
B Debit Investment in Subsidiary and Credit Cash, P16,500.
C Debit Contingent performance obligation P16,500 and Credit Cash P16,500. D Debit
Contingent performance obligation P3,142, debit loss from contingent performance obligation
P13,358 and Credit Cash P16,500.

61. Rachel Company recognizes construction revenue and expenses using the percentage of
completion method. During 2014, a single long term project was begun which continued through
1308. Information on the project was as follows:
2014 2015
Accounts Receivable from construction contract P200,000 P600,000
Construction expenses 210,000 384,000
Construction in progress 244,000 728,000
Partial billings on contract 200,000 840,000

The profit recognize from the long term construction contract should amount to:
2014 2015 A P44,000 P456,000 B 2014 2015 C P34,000 P256,000 D
P44,000 P200,000 P34,000 P100,000

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CPARME BATCH 1 Final Pre-board Examination: AFAR

62. GMA Company entered into a construction agreement in 2014 that called for a contract price of
P9,600,000. At the beginning of 2015, a change order increases the initial contract price by
P480,000. In relation to the project, the following data were obtained

2014 2015
Costs incurred to date P4,920,000 P8,640,000
Estimated costs to complete P4,920,000 P2,160,000
Billings made to date P5,280,000 P8,700,000
Collections made to date P4,920,000 P8,700,000

Compute the amount of construction in progress (net) – due from customers or progress billings
(net) – due to customers for the year 2015:
Percentage of Cost of Recovery Method
Completion Method of Construction Accounting
A P780,000 – liability P780,000 – liability
B P780,000 – asset P780,000 – asset
C P60,000 – liability P60,000 – liability
D P636,000 – liability P636,000 – liability

63. From the following data from the records of DEF Partnership:
DEF Partnership
Balance Sheet
December 31, 2014
Cash P2,000
Other Non-Cash Assets 28,000
Total P30,000
Liabilities and Capital
Liabilities P5,000
D, loan 2,500
D, capital 12,500
E, capital 7,000
F, capital 3,000
Total P30,000

Profit and loss ratio is 3:2:1 for D, E and F respectively. The other non-cash assets were realized as
follows:
Date Cash Received Book Value
 January 2015 P6,000 P9,000
February 2015 3,500 7,700
March 2015 12,500 11,300

Cash is distributed as other non-cash assets realized. Total cash received by E is A P0 B

P1,500 C P2,000 D P5,000

64. Following is the income statement of ABS Branch in Davao City Company, for the six months
period ending June 30, 2015:

Sales 620,000
Cost of Sales:
Shipments from Home Office P550,000
Purchases 50,000
Total 600,000
Inventory, June 30, 2015:
From Home Office P75,000

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CPARME BATCH 1 Final Pre-board Examination: AFAR

From purchases 10,000 (85,000) (515,000)
Gross margin 105,000
Expenses (85,000)
Net income for the month 20,000

The Home Office ships merchandise to and bills the Branch Office at 125% of cost. The rent of
the Branch Office for six months at a monthly rate of P 1,000 was paid by the home. The Home
Office net profit from its Branch Office in Cebu City for the six months ending June 30, 2015 is:
A P14,000 B P109,000 C P125,000 D P139,000

65. The unsecured creditors of Grand Boulevard filed petition on July 1, 2015, to force Dawn into
bankruptcy. The court order for relief was granted on July 10 at which time an interim trustee was
appointed to supervise liquidation of the state. A listing of assets and liabilities of Dawn Corporation
as of July 10, 2015, along with estimated realizable value is as follows:
Assets Book Value Estimated Realized Value
Cash P80,000 P80,000
Accounts Receivable-net 210,000 160,000
Inventories 200,000 210,000
Equipment-net 150,000 60,000
Land and building – net 250,000 140,000
Intangible assets P900,000 P650,000
Equities
Accounts payable P400,000
Notes payable 100,000
Wages payable 24,000
Taxes payable 76,000
Mortgage payable P 200,000 plus
P 5,000 unpaid interest to July 10 205,000
Capital stock 300,000
Retained earnings deficit (205,000)
P900,000

The estimated payment to creditors:

A. P299,000 B. P465,000 C. P650,000 D. P900,000

66. Aristotle Company operates retail hobby shops from the main store and a branch store. Merchandise
is shipped from the main store and to the branch and billed to the branch at an arbitrary 10%
 markup. Trial balances of the main store and branch as of December 31, 2015 are as follows:

Debits: Main Store Branch

Cash P1,500 P1,000
Accounts Receivable – net 200 -
Inventory, December 31, 2014 3,500 2,500
Building – net 60,000 18,000
Equipment - net 30,000 12,000
Branch Store 32,300 -
Purchases 240,000 11,000
Shipments from Home Office - 99,000
Other Expenses 15,000 7,000
Total debits P382,500 P150,500
Credits:

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CPARME BATCH 1 Final Pre-board Examination: AFAR

Accounts payable P15,000 P 500
Unrealized inventory profit 9,200 -
Main store - 30,000
Capital stock 50,000 -
Retained earnings 16,000 -
Sales 200,000 120,000
Shipments to branch 90,000 -
Profit from branch 2,300 -
Total credits P382,500 P150,500

Inventories on hand at December 31, 2015 at the main store and branch are P3,000 and P1,800,
respectively. The December 31, 2014 branch inventory includes merchandise purchased from
outsiders of P300, and the December 31, 2015 branch inventory includes P150 of merchandise
purchased from outsiders. The combined cost of goods sold amounted to:
A. P243,150 B. P252,150 C. P252,200 D. P261,200

67. REH and MFT entered into a partnership as of March 1, 2015 by investing P 125,000 and P 75,000,
respectively. They agreed that REH, as the managing partner, was to receive a salary of P 30,000
per year and a bonus computed at 10% of the net profit after adjustment for the salary; the balance
of the profit was to be distributed in the ratio of their original capital balances. On December 31,
2015, account balances were as follows:

Cash P70,000 Account Receivable 67,000 Account payable P60,000 REH, capital
Fur. And fixtures 45,000 Sales returns 5,000 125,000 MFT, capital 75,000 REH, drawing
Purchases 196,000 Operating expenses (20,000) MFT, drawing (30,000) Sales
60,000 233,000

Inventories on December 31, 2015 were as follows: supplies, P2,500; merchandise, P73,000.
Prepaid insurance was P950 while accrued expenses were P1,550. Depreciation rate was 20% per
year. The partner’s capital balances on December 31, 2015, after closing the net profit and drawing
accounts were:
REH MFT A. P135,940 P47,960 B. REH MFT C. P139,680 P48,680 D.
P139,540 P49,860 P142,350 P47,670

68. The after-closing balances of Carter Corporation’s home office and its branch at January 1, 2015
were as follows:
Home Office Branch
Cash P7,000 P2,000
Accounts Receivable – net 10,000 3,500
Inventory 15,000 5,500
Plant assets – net 45,000 20,000
 Branch 28,000 -
Total assets P105,000 P31,000

Accounts payable P4,500 P2,500

Other liabilities 3,000 500
Unrealized profit-branch inventory 500 -
Home office - 28,000
Capital stock 80,000 -
Retained earnings 17,000 -
Total equities P105,000 P31,000

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CPARME BATCH 1 Final Pre-board Examination: AFAR

A summary of the operations of the home office and branch for 2010 follows:
1) Home Office Sales: P 100,000, including P 33,000 to the branch. A standard 10% markup on
cost applies to all sales to the branch. Branch sales to its customers totaled P 50,000. 2)
Purchases from outside entities: home office, P 50,000; branch P 7,000.
3) Collections from sales: home office P 98,000 (including P 30,000 from branch); branch
collections, P 51,000.
4) Payments on account; home office, P51, 500; branch P 4,000.
5) Operating expenses paid: home office, P 20,000; branch P 6,000.
6) Depreciation on plant assets: home office, P 4,000; branch P 1,000.
7) Home office operating expenses allocated to the branch, P 2,000.
8) At December 31, 2015, the home office inventory is P 11,000 and the branch inventory is P
6,000, of which P 1,050 was acquired from outside suppliers.

The combined net income amounted to:

A. P0 B. P4,550 C. P21,000 D. P25,550

69. On January 1, 2014 SME A and SME B each acquired 25% of the equity of entities, X, Y and Z for
P10,000, P15,000 and P28,000 respectively. SME A and SME B have joint control over the
strategic financial and operating decisions of entities X, Y and Z. transaction costs of 1% of the
purchase price of the shares were incurred by SME A and SME B.

On December 31, 2013 entity X declared and paid dividends of P1,000 for the year ended 2012. On
December 31, 2014 entity Y declared a dividend of P8,000 for the year ended 2014. The dividend
declared by entity Y was paid in 2015.

For the year ended December 31, 2014, entities X and Y recognized profit of P5,000 and P18,000,
respectively. However, entity Z recognized a loss of P20,000 for that year. Using appropriate
valuation techniques, the venturers determined the fair value of each of their investments in entities
X, Y and Z at December 31, 2014 as P13,000, P29,000 and P15,000 respectively. Costs to sell are
estimated at 5% of the fair value of the investments. Neither SME A nor SME B prepares
consolidated financial statements because they do not have any subsidiaries.

Which of the following statement is correct?

A. The loss to be presented by A using equity model is 7,900 in entity Y.
B. The income to be presented by entity A using fair value model is P 3,150.
C. No income to be reported if the cost model is being used by B in entity X.
D. The investment cost using equity model is P 15,150 to be presented in entity B at the end of the
year.

70. On January 2, 2013, Honda sold a car to Ciara for P1,050,000. On this date, the car cost P735,000.
Ciara paid P150,000 as a down payment and signed interest bearing note at 10%. The note was
payable in three annual installments of P300,000 beginning January 1, 2014. Ciara made a timely
payment for the first installment on January 1, 2014 of P390,000 which included interest of P90,000
to date of payment. Honda uses the installment method of accounting. In its December 31, 2014
financial statements, what amount should Honda report as realized gross profit and deferred gross
profit?
A. P135,000; P180,000 B. P90,000; P180,000 **** END OF EXAMINATION ***
C. P135,000; P153,000
D. P90,000; P153,000

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