CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING AND REPORTING Sunday, July 25, 2021

First Preboard Examination 12:00 pm to 3:00 pm

Numbers 1, 2 and 3

Build Company is a manufacturing company and uses job order costing system. At the beginning of
2022, there were no jobs in process, but the following costs were incurred during the year:

Job A Job B Job C

Direct materials 10,000 20,000 15,000
Direct labor 5,000 4,000 2,500

Build Company also estimated in 2022 an overhead in the amount of P300,000 and direct labor cost in
the amount of P150,000. Actual overhead incurred for the year was P24,000. It was the company's
policy to apply overhead into production based on direct labor costs. At the end of the year, only Jobs
A and C were completed.

1. What is the cost of goods manufactured at the end of the year?

A. 47,500
B. 32,500
C. 56,500
D. 48,500

2. What is the ending work-in-process?

A. 48,000
B. 24,000
C. 32,000
D. 40,000

3. What is the under / over applied overhead?

A. 9,000 under
B. 1,000 under
C. 9,000 over
D. 1,000 over

Number 4
The source document that records the amount of raw material that has been requested by production is
the
A. job-order cost sheet
B. bill of lading
C. inter-office memo
D. material requisition

Number 5
In a job-order costing system, the amount of the entry that debits Finished Goods Inventory and credits
Work in Process Inventory is the sum of the costs charged to all jobs
A. started in process during the period
B. in-process during the period
C. completed and sold during the period
D. completed during the period
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Numbers 6 and 7

NBS Company manufactures picture frames of all sizes and shapes and uses a job-order costing
system. There is always some spoilage in each production run. The following costs relate to the current
run:

Estimated overhead (exclusive of spoilage allowance) P160,000

Estimated spoilage allowance P 13,500
Estimated labor hours 100,000

The actual cost of a single spoiled picture frame is P7.00. During the year 170 frames are considered
spoiled. Each spoiled frame can be sold for P4.00.

6. Assuming the spoiled picture frames were due to internal failure, what is the journal entry to record
the spoilage?
A. Spoiled Goods Inventory 510
MOH 680
Work-in-process 1,190

B. MOH 1,190
Work-in-process 1,190

C. Spoiled Goods Inventory 680

MOH 510
Work-in-process 1,190

D. Spoiled Goods Inventory 680

Work-in-process 680

7. Assuming the spoiled picture frames were due to exacting specifications, what is the journal entry to
record the spoilage?
A. Spoiled Goods Inventory 510
MOH 680
Work-in-process 1,190

B. MOH 1,190
Work-in-process 1,190

C. Spoiled Goods Inventory 680

MOH 510
Work-in-process 1,190

D. Spoiled Goods Inventory 680

Work-in-process 680

Number 8
Approximated net realizable value at split-off for joint products is computed as
A. selling price at split-off minus further processing and disposal costs
B. final selling price minus further processing and disposal costs
C. selling price at split-off minus allocated joint processing costs
D. final selling price minus a normal profit margin
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Number 9
The material price variance is
A. The difference between the actual cost of material purchased and the standard cost of material
purchased
B. The difference between the actual cost of material purchased and the standard cost of material
used
C. Primarily the responsibility of the production manager
D. Both a and c

Number 10
A company would most likely have an unfavorable labor rate variance and a favorable labor efficiency
variance if
A. The mix of workers used in the production process was more experienced than the normal mix
B. The mix of workers used in the production process was less experienced than the normal mix
C. Workers from another part of the plant were used due to an extra heavy production schedule
D. The purchasing agent acquired very high quality material that resulted in less spoilage

Numbers 11, 12 and 13

Fast Company manufactures 3 products, A, B, and C in a joint process. For every 10 kilos of raw
materials input, the output is 5 kilos of A, 3 kilos of B and 2 kilos of C. During the year, 50,000 kilos
of raw materials costing P120,000 were processed and completed, with a joint conversion cost of
P200,000. Fast Company opted to use the net realizable value method in allocating its joint conversion
cost. In order for the 3 products to be salable, further processing was required.

The following data were available during the year:

A B C
Further processing cost P30,000 P20,000 P30,000
Final sales price P10.00 P12.00 P15.00

11. What is the unit cost of Product A?

A. 5.92
B. 3.60
C. 7.12
D. 8.59

12. What is the total cost of Product B?

A. 120,000
B. 100,000
C. 166,667
D. 99,000

13. Assuming only 8,000 kilos of Product C were sold, what is the ending inventory of Product C?
A. 14,400
B. 20,400
C. 16,400
D. 24,140
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Number 14
M3 Inc. produces 2 products, A and B. The process also yields, a by-product Z. The joint cost is
reduced by the net realizable value of by-product Z. The joint cost was P3,840,000. The following data
were also available:

Units produced Final sales price Separable cost

Product A 2,000 P3,000 P1,000,000
Product B 3,000 P2,000 P1,000,000
By-product Z 1,000 P420 P180,000

M3 Inc. opted to use the net realizable value method for allocating the joint cost.

What is the joint cost allocated to Product B?

A. 1,800,000
B. 1,920,000
C. 1,710,000
D. 1,830,000

Numbers 15 and 16
Brabus Company uses standard costing system. The following were the data for raw materials:

Standard price P1.60

Actual price P1.55
Actual quantity purchased 2,000 units
Actual quantity used 1,900 units
Standard quantity allowed for production 1,800 units

15. In recording the purchase of materials, it involves a

A. Debit to Raw Materials Inventory in the amount of P3,200
B. Credit to Accounts Payable in the amount of P3,200
C. Debit to Material Price Variance in the amount of P100
D. Credit to Raw Materials Inventory in the amount of P3,100

16. In recording the issued materials into production, it involves a

A. Credit to Material Quantity Variance in the amount of P160
B. Credit to Work-in-Process in the amount of P2,880
C. Credit to Raw Materials Inventory in the amount of P3,040
D. Debit to Work-in-Process in the amount of P3,200

Number 17
Novitec Company uses standard costing system. The following were the data for direct labor:

Actual direct labor hours 20,000

Standard direct labor hours 21,000
Direct labor rate variance (debit) P3,000
Total payroll P126,000

In recording the direct labor cost, it involves a

A. Debit to Work-in-Process in the amount of P126,000
B. Debit to Work-in-Process in the amount of P129,150
C. Debit to Labor Efficiency Variance in the amount of P6,150
D. Credit to Labor Efficiency Variance in the amount of P6,450
 Page 5

Number 18
IPE Company uses a highly efficient just-in-time manufacturing system. The company uses backflush
costing for recording its production. The following transactions occurred for the year ended December
31, 2021:

a. Purchased P200,000 worth raw materials on account.

b. Incurred direct labor costs of P100,000.
c. Actually incurred factory overhead costs amounting to P120,000.
d. Applied a total of P220,000 to the production as conversion cost
e. No materials were left in the production process.
f. All goods were completed and sold.

Assuming IPE Company's policy indicates that the point of purchase is a relevant trigger point, what is
the journal entry to record the purchase of materials?
A. Raw materials inventory 200,000
Accounts payable 200,000
B. Raw and In-process 200,000
Raw materials inventory 200,000
C. Raw and In-process 200,000
Accounts payable 200,000
D. Materials expense 200,000
Accounts payable 200,000

Numbers 19 and 20
The following selected account balances were taken from the Statement of Financial Position of TUV
Corp. as of December 31, 2021, immediately before the takeover of the trustee:

Trading Securities P300,000

Inventories P110,000
Land P150,000
Building P400,000
Additional information:
 Trading securities are estimated to be realized in the amount of P320,000. These securities
have been pledged to secure notes payable of P280,000.
 The estimated worth of inventories is P70,000. However, inventories with book value of
P50,000 have been pledged to secure notes payable of P60,000. The realizable value of the
inventories pledged is estimated to be P40,000.
 Land and building are estimated to have a total realizable value of P450,000. These properties
are pledged to secure the mortgage payable of P250,000.

19. Compute the estimated amount available for preferred claims and non-priority claims out of the
assets pledged with fully secured creditors
A. 0
B. 770,000
C. 270,000
D. 240,000

20. Compute the amount of total free assets

A. 810,000
B. 770,000
C. 270,000
D. 240,000
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Number 21
Which of the following statements regarding Corporate Liquidation is FALSE?
A. The free assets must deal with unsecured priority liabilities first.
B. Though they are not the same, Corporate Liquidation and Reorganization are remedies for
financially-distressed corporations.
C. The estimated payment to unsecured creditors without priority can never be in its full amount.
D. The Statement of Financial Affairs is prepared when there is an actual realization of assets of
an entity initiated by the appointed Trustee.

Number 22
Which of the following statements regarding Corporate Liquidation is TRUE?
A. Revenues earned and expenses incurred are found in the Statement of Financial Affairs.
B. The estimated recovery rate can be used with fully secured creditors.
C. The current and non-current classifications of asset and liability accounts no longer matter
during a state of liquidation.
D. In the statement of affairs, assets pledged with partially secured creditors form part of free
assets.

Number 23
Which of the following statements regarding accounting for home office and branch is FALSE?
A. The required balance of the Allowance for Overvaluation account is the mark-up in the ending
inventory of the branch coming from the home office.
B. The combined net income of the home office and its branches is presented in the separate
Statement of Comprehensive Income of the Home office.
C. The net income per books of the branch is debited to Investment in Branch account in the
separate books of the home office.
D. When the home office ships merchandise to the branch at a mark-up based on cost, the
retained earnings of the branch in its separate books is understated.

Number 24
Which of the following statements is FALSE regarding accounting for home office and branch?
A. Assuming the home office ships merchandise to the branch at a mark-up based on cost, the
account Shipments from Home Office in the separate income statement of the branch is
reported at cost.
B. Both Investment in Branch and Home Office Current are eliminated through the working paper.
C. The Allowance for overvaluation account must be debited in the separate books of the home
office to adjust the results of operations of the branch whether it is a net income or net loss per
branch books.
D. A debit memo received by the branch may be a notification from the home office about
allocation of expense incurred by the latter.

Number 25
Which of the following statements is TRUE regarding accounting for home office and branch?
A. The stockholders’ equity of the home office is eliminated through the working paper.
B. The accounts Shipments to Branch and Shipments from Home Office are not presented in the
combined Income Statement.
C. The account Allowance for Overvaluation in Branch Inventory account is debited in the
working paper to make the ending inventory of the branch at cost.
D. A home office may debit/credit a Home Office Current account for purposes of interbranch
transactions.
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Numbers 26 and 27
A trustee has been appointed for STU Company, which is being liquidated under the Bankruptcy Law.
The following transactions occurred in the first month of liquidation after the assets were transferred to
the trustee.

1. Credit sales by the trustee were P100,000. Cost of goods sold were P72,000, consisting of all
the inventory transferred from STU.
2. The trustee sold all P20,000 worth of marketable securities for P15,000.
3. Receivables collected by the trustee: P28,000 from the P50,000 existing at the beginning of the
month; and P65,000 from the increase during the period. Remaining receivables are to be
realized by next month.
4. Disbursements by the trustee: Old current payables: P31,000 of the P65,000 transferred;
Trustee's expenses: P6,000. Remaining liabilities are to be liquidated next month.
5. Recorded P24,000 depreciation on the plant assets of P120,000 transferred from STU.

26. Compute the net income/net loss for the period

A. 12,000
B. (7,000)
C. (12,000)
D. (31,000)

27. Compute the total amount of assets not realized at the end of the period
A. 57,000
B. 153,000
C. 118,000
D. 177,000

Numbers 28 and 29
A Statement of Realization and Liquidation has been prepared for TUV Co. The details are given
below:

Assets to be Realized 60,000 Liabilities assumed 50,000

Assets Acquired 40,000 Liabilities not liquidated 65,000
Assets Realized 55,000 Supplementary credits 110,000
Liabilities to be Liquidated 80,000

In the SORAL, the total of the debit side is greater than the total of the credit side by P12,000. The
ending balance of Capital Stock and Retained Earnings are P100,000 and (P85,000), respectively.

28. The beginning balance of cash is

A. 47,000
B. 35,000
C. 20,000
D. Not given

29. What is the amount of beginning estate equity?

A. 5,000
B. 9,000
C. 3,000
D. 27,000
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Number 30
On December 31, 2021, the Home Office Current account in the books of Quezon Branch has a
balance of P975,000. In analyzing the activity in each of these accounts for December, you found the
following differences:

a. A P20,000 branch remittance to the home office initiated on December 21, 2021 was recorded
twice by the home office on December 26 and 28.
b. The home office incurred P36,000 of advertising expenses and allocated 1/3 of this amount to the
branch on December 20. The branch recorded this transaction on December 22 amounting to P
1,200.
c. Inventory costing P50,300 was sent to the branch by the home office on December 15. The billing
was at cost, but the branch recorded the transaction at P53,000.

The adjusted balance of the reciprocal accounts on December 31, 2021?

A. 966,900
B. 988,500
C. 961,500
D. 983,100

Number 31
The home office in Alabang shipped merchandise costing P55,500 to Davao branch and paid the
freight amounting to P4,200. The home office transfers merchandise to the branch at a 20% mark-up
based on cost. Davao branch was subsequently instructed to transfer the merchandise to Cebu branch
wherein the latter paid for P2,800 freight. If the shipment was made directly from Alabang to Cebu,
the freight cost would have been P6,200.

Compute the amount credited to Home Office Current account in the books of Cebu branch?
A. 72,800
B. 61,700
C. 70,000
D. 71,240

Number 32
Phoenix Trading Co. has a branch in Quezon City. On December 31, 2021, Investment in Quezon
City Branch account in the home office books showed a balance of P386,000. The interoffice accounts
were in agreement at the beginning of the year. For purposes of reconciling the reciprocal accounts,
the following facts were ascertained:

a. The home office erroneously recorded a remittance for P4,800 from its Bacolod branch as a
remittance from its Quezon City branch.
b. The branch failed to take up a P1,500 debit memo from the home office representing its share in
marketing expense.
c. Home office credit memo representing a discount on merchandise for P2,100 was not recorded by
the branch.

Compute the unadjusted balance of the Home Office Current account on December 31, 2021?
A. 390,800
B. 391,400
C. 390,200
D. 381,800
 Page 9

Number 33
A home office ships inventory to its branch at a mark-up of 125% based on cost. The required balance
of the unrealized intracompany account is P285,000. During the year, the home office sent
merchandise to the branch costing P1,800,000. At the start of the year, the branch's books showed
P360,000 of inventory on hand that was acquired from the home office.

By what amount will the Allowance for Unrealized Gross Margin in Branch Inventory account be
debited in the books of the home office at the end of the year?
A. 2,450,000
B. 2,165,000
C. 237,000
D. 522,000

Number 34
During the year 2021, goods billed at P650,000 were shipped to the branch at 130% of cost. The
account Loading in Branch Inventory has a balance of P245,000 before adjustment. The beginning
inventory of the branch from the home office at cost is P475,000; the beginning inventory of the
branch from outsiders is P108,000; purchases from outsiders is P290,000.

Compute the total goods available for sale of the branch from the home office?
A. 1,061,667
B. 1,267,500
C. 1,618,000
D. 1,220,000

Number 35
The Home Office in Palawan shipped merchandise costing P280,000 to Mindoro branch, the freight
collect amounting to P2,100. Mindoro branch was subsequently instructed to transfer 60% of the
merchandise to Batangas branch wherein Batangas branch paid for P700 freight. Had the merchandise
been shipped directly from Palawan to Batangas, the freight cost would have been P1,400.

Compute the excess freight chargeable to Palawan?

A. 560
B. 0
C. 1,400
D. 280

Number 36
On June 1, 2021, Sta. Rosa, a home office established an agency in Tagaytay, sending samples costing
P1,960,000 which are useful until the end of May 2022 and have a salvage value of 10% of cost. A
working fund of P1,592,500 is to be maintained using the imprest basis. During 2021, the agency
submitted to the home office sales order amounting to P16,537,500. Sales per invoice were
P12,862,500 which were duly approved by the home office. Collections during the year amounted to
P6,868,085 net of 3% sales discount. The cost of merchandise sold during the year is equal to 75% of
the gross sales. Vouchers for expenses amounted to P857,500.

How much net income would be reported by the Tagaytay agency on December 31, 2021?
A. 1,263,710
B. 2,035,460
C. 1,116,710
D. (381,710)
 Page 10

Numbers 37 and 38
On June 30, 2021, Loki and Sylvie formed a partnership with each contributing the following assets:

Loki Sylvie
Book Value Fair Value Book Value Fair Value
Cash 375,000 375,000 875,000 875,000
Office Equipment 350,000 312,000 872,500 937,500
Building – net - - 3,262,500 2,812,500
Furniture and Fixtures 95,000 125,000 - -

The building is subject to a mortgage loan of 1,125,000 which is to be assumed by the partnership. The
partnership agreement provides that Loki and Sylvie share profits and losses in the ratio of 30% and
70%, respectively. Assuming that the partners agreed to bring their respective capital in proportion to
their profit and loss ratio, and using Sylvie capital as the base:

37. What is the capital account balance of Sylvie on June 30, 2021?
A. 3,500,000
B. 4,000,000
C. 3,937,500
D. 3,837,500

38. How much is the additional cash to be invested by Loki?

A. 2,687,500
B. 2,587,000
C. 688,000
D. 687,000

Numbers 39 and 40
On June 1, 2021, Mobius and Loki formed a partnership. Mobius is to invest assets at fair values. He is
to transfer his liabilities and is to contribute sufficient cash to bring his total capital to P210,000, which
is 70% of the total capital of the partnership. Details regarding the book values of Mobius’s business
assets and liabilities and their corresponding fair values are:

Book Values Fair Values

Accounts Receivable 53,800 53,000
Inventory 98,400 107,000
Equipment 25,800 34,000
Notes payable 56,000 56,000

Loki agrees to invest cash of 42,000 and merchandise valued at current market price.

39. What is the value of the merchandise to be invested by Loki?

A. 48,000
B. 84,000
C. 42,000
D. 38,000

40. What is the amount of cash to be invested by Mobius?

A. 72,000
B. 62,000
C. 26,000
D. 65,000
 Page 11

Numbers 41 and 42
Ramona and Kang are partners in a trading company. During 2021, they withdrew their salary
allowances of 200,000 and 300,000, respectively. Profits and losses are shared accordingly: Salaries of
P200,000 and P300,000 for Ramona and Kang respectively; the balance shared in the ratio of 3:2 The
income summary account before any profit allocation has a credit balance of 600,000. The partner’s
capital accounts show the following:

Ramona Kang
Beginning balances 600,000 400,000
Additional investments 100,000 200,000
Withdrawals other than salary allowances (200,000) (100,000)

41. What is the capital balance of Ramona for the year 2021, after closing the Income Summary and
Withdrawals accounts?
A. 560,000
B. 360,000
C. 460,000
D. 760,000

42. What is the net increase / (decrease) in Kang’s capital balance during the year?
A. 140,000
B. (160,000)
C. (60,000)
D. 440,000

Numbers 43 and 44

On June 30, 2021, the condensed balance sheet for the partnership of Eddy, Fox, and Grimm, together
with their respective profit and loss sharing percentages were as follows:

Assets, net of liabilities 320,000

Eddy, capital (50%) 160,000

Fox, capital (30%) 96,000
Grimm, capital (20%) 64,000
320,000

43. Eddy decided to retire from the partnership and by mutual agreement is to be paid ₱180,000 out of
partnership funds for his interest. After Eddy’s retirement, what are the capital balances of Fox
and Grimm respectively?

A. 84,000 56,000
B. 102,000 68,000
C. 108,000 72,000
D. 120,000 80,000

44. Assume instead that Eddy remains in the partnership and that Hamm is admitted as a new partner
with a 25% interest in the capital of the new partnership for an investment of ₱140,000.
Immediately after admission of Hamm, Eddy’s capital account balance should be
A. 280,000
B. 172,500
C. 160,000
D. 140,000
 Page 12

Number 45
The following condensed balance sheet is presented for the partnership of Alfa and Beda, who share
profits and losses in the ratio of 60:40, respectively:
Cash 45,000
Other assets 625,000
Beda, loan 30,000
700,000

Accounts payable 120,000

Alfa, capital 348,000
Beda, capital 232,000
700,000

The assets and liabilities are fairly valued on the balance sheet. Alfa and Beda decide to admit Capp as
a new partner with 20% interest. Using the existing partners as base, what amount should Capp
contribute in cash or other assets?
A. 110,000
B. 116,000
C. 140,000
D. 145,000

Number 46
The statement of financial position of the partnership of A, B and C shows the following information:
Cash 22,400
Other assets 212,000
Total assets 234,400

Liabilities 38,400
A, capital (50%) 76,000
B, capital (25%) 64,000
C, capital (25%) 56,000
Total liabilities and equity 234,400

The partners realized ₱56,000 from the first installment sale of non-cash assets with total carrying
amount of ₱120,000. How much did B receive from the partial liquidation?
A. 25,000
B. 24,000
C. 16,000
D. 0

Number 47
In the absence of profit or loss agreement in the articles of co-partnership, which of the following
statements is incorrect?
A. As for the profits, the industrial partner shall receive shares as may be just and equitable under
the circumstances
B. As for the profits, the share of each capitalist partner shall be in proportion to what he may
have contributed
C. If only the share of each capitalist partner in the profits has been agreed upon, the share of
each capitalist partner in the losses shall be in the same proportion
D. If only the share of each capitalist partner in the losses has been agreed upon, the share of
each capitalist partner in the profits shall be in the same proportion
 Page 13

Number 48
The statement of financial position of the partnership of A, B and C shows the following information:

Cash 40,000
Other assets 720,000
Total assets 760,000

Liabilities 300,000
B, loan 64,000
C, loan 20,000
A, capital (50%) 250,000
B, capital (30%) 86,000
C, capital (20%) 40,000
Total liabilities and equity 760,000

The non-cash assets are sold for ₱320,000. Partner C is the only solvent partner. In the settlement of
the partners’ claims, how much additional contribution is required of Partner C?
A. 50,000
B. 30,000
C. 20,000
D. 0

Number 49

Which of the following accounts is not a receivable from a partner?

A. Loans collectible from partner
B. Loan to partner
C. Loans from partner
D. Due from partner

Number 50

Which of the following is incorrect? Capital account is

A. Credited for additional investment
B. Debited for permanent drawing
C. Credited for debit balance of the drawing account at the end of the period
D. Credited for credit balance of the drawing account at the end of the period.

Number 51

If the new partner is admitted to the partnership by purchase of interest of the old partners at an amount
higher than the book value, this will result to
A. No change in old partner’s capital
B. Increase in total partnership assets
C. Decrease in the total partnership capital
D. No change in total partnership capital
 Page 14
Number 52
When Alma retired from the partnership of ABC, the final settlement of Alma’s interest exceeds
Alma’s capital balance. Under the bonus method, the excess
A. Was recorded as goodwill
B. Reduced the capital balances of the remaining partners
C. Increase the capital balance of the remaining partners
D. Had no effect on the capital balances of the remaining partners

Number 53
The contract has 2 performance obligations, and payment will not occur until both performance
obligations are satisfied. Upon completion of 1 of the performance obligations: (1) the seller will credit
sales revenue; (2) the seller will debit accounts receivable.
A. Statement 1 is true; statement 2 is false
B. Statement 1 is false; statement 2 is true
C. Both statements are true
D. Both statements are false

Number 54
The company will recognize over time if at least one of the choices is met. Choose the exception
A. the customer simultaneously receives and consumes the benefits provided by the entity’s
performance as the entity performs
B. the entity’s performance creates or enhances an asset that the customer controls as the asset is
created or enhanced
C. the entity’s performance does not create an asset with an alternative use to the entity and the
entity has an enforceable right to payment for performance completed to date
D. none of the choices are exceptions

Number 55
Which of the following is LEAST LIKELY to be a factor to be considered in determining the
transaction price?
A. Bonuses to be awarded for meeting certain criteria stipulated in the contract
B. Time value of money for payments due in less than 1 year
C. Fair value of any non-cash consideration
D. Penalties for defects and delays

Number 56
A contract liability most closely resembles
A. Sales revenue
B. Deferred revenue
C. Contract asset
D. Construction in progress

Number 57
The BEST evidence of the stand-alone selling price is
A. Cost of the goods or service plus a modest amount of profit
B. Observable price of the goods or service when sold separately
C. Adjusted market prices of similar products offered by competitors
D. The transaction price divided by the number of performance obligations
 Page 15

Numbers 58, 59 and 60

INSTL Inc. sells its goods exclusively through installment sales. The following were taken from the
company’s accounting records:

Installment accounts receivable – 2020 contracts, January 1, 2021 2,000,000

Installment accounts receivable – 2019 contracts, January 1, 2021 900,000
Deferred gross profit – 2020 contracts, January 1, 2021 300,000
Deferred gross profit – 2019 contracts, January 1, 2021 ?
Installment sales – 2021 contracts 5,000,000
Cost of installment sales – 2021 contracts 4,500,000
Installment accounts receivable written of during 2021 500,000
Repossessed accounts during 2021 600,000
Installment accounts receivable – 2021 contracts, December 31, 2021 2,100,000
Installment accounts receivable – 2020 contracts, December 31, 2021 400,000
Installment accounts receivable – 2019 contracts, December 31, 2021 0
Deferred gross profit – 2021 contracts, December 31, 2021 unadjusted ?
Deferred gross profit – 2020 contracts, December 31, 2021 unadjusted ?
Deferred gross profit – 2019 contracts, December 31, 2021 unadjusted 180,000

All of the installment accounts receivable written off during the year pertained to 2020 contracts. Half
of the repossessions during the year pertained to 2020 contracts, and the other half pertained to current
year contracts.

58. How much is the realized gross profit from 2021 sales for the year ended December 31, 2021?
A. 180,000
B. 260,000
C. 560,000
D. 0

59. How much is the realized gross profit for the year ended December 31, 2021?
A. 120,000
B. 260,000
C. 560,000
D. 900,000

60. How much was collected during 2021 pertaining to 2020 contracts?
A. 4,300,000
B. 2,600,000
C. 1,600,000
D. 800,000

Number 61

On July 19, 2021, SLRTN Inc. sold 19,000 units of its inventory to a customer for a total cash price of
P1,235,000. One unit costs the company P26. An excerpt in the contract of sale states that all goods
may be returned by the customer to the seller within 31 days from purchase should the goods be of
unsatisfactory quality. Based on past experience, 7% of the sold units are usually returned.

The company employs a perpetual inventory system. The entries on July 19, 2021 will include all of
the following, EXCEPT
A. Debit to cash, P1,235,000
B. Debit to refund liability, P34,580
C. Credit to sales revenue, P1,148,550
D. Credit to inventory, P494,000
 Page 16

Numbers 62 and 63
CSGNR Inc. purchased 100,000 units costing P1,000,000, and paid P10,000 freight for its shipment.
After a day, the company consigned these goods to OIEE Inc. stating that the consignee is entitled to
10% of the revenue from all sold units. The shipment from the consignor to the consignee amounted to
P5,000 with payment terms freight collect. With a standard retail price of P19, the consignee remitted a
total of P1,306,000. Other notable expenses paid by the consignee on the consignor’s behalf were
P12,000 advertising expense, P3,000 delivery charges to customers, P7,800 installation fee on the
customer’s premises.

62. How much was the cost of goods still out on consignment?
A. 220,000
B. 221,100
C. 222,200
D. 223,300

63. How much is the net income from sale of consigned goods?
A. 519,300
B. 514,300
C. 509,300
D. 504,300

Numbers 64 and 65
On January 1, 2021 CNSTR Inc. entered into a long-term construction contract to build a skyscraper
for a customer. The construction project is expected to be completed on the last quarter of 2025.
Relevant excerpts from the contract are extracted:

 Contract price of P15,000,000 shall be billed in 5 tranches every year end until completion of
the contract
 The contract price is subject to a bonus of P1,000,000 if the project is completed before
October 1, 2025.
 The contract price shall be reduced by a penalty of P1,500,000 if the project is completed after
December 31, 2025.
During 2021, CNSTR Inc estimates that it is 40% likely to complete the project on August 2025, and
25% likely that the project will be completed on February 2026. This estimate remained unchanged for
2022, but was readjusted to 50% chance for early completion and 20% chance for delayed completion
in the years 2023 and onwards. Other relevant information are as follows:
2021 2022 2023 2024 2025
Cost incurred to date 2,550,000 5,250,000 7,750,000 11,200,000 14,500,000
Estimated cost to complete 14,450,000 9,750,000 7,750,000 2,800,000 0

64. If the expected value approach was used as the basis for determining the transaction price, how
much is the construction revenue of CNSTR Inc for the year ended December 31, 2023?
A. 9,941,250
B. 2,341,250
C. 2,280,000
D. 2,253,750

65. If the expected value approach was used for determining the transaction price, how much is the
gross profit of CNSTR Inc for the year ended December 31, 2024?
A. 336,250
B. 660,000
C. 1,260,000
D. 1,303,750
 Page 17

Numbers 66 and 67

On January 1, 2021, FCHSR Inc. entered into a franchising agreement with a franchisee for a contract
price of P2,200,000. The payment terms of the contract stated that P550,000 must be paid within 5
days upon signing the contract and the balance to be paid in 3 equal annual installments, with the first
payment due on December 31, 2021, as evidenced by a 10% interest bearing note. Furthermore, the
franchisee must pay a fee equivalent to 1% of its sales to the franchisor.

FCHSR incurred P770,000 as part of rendering the initial services stipulated in the contract, and
allocated P50,000 general and administrative expenses to this franchise. The franchisee commenced
operations on April 1, 2021 and earned P1,800,000 revenue for the remaining three quarters in 2021.
The franchisee was able to pay all the fees that were due and demandable on time.

66. Applying IFRS 15, how much is the net income of FCHSR for the year ended December 31,
2021?
A. 1,618,000
B. 1,563,000
C. 1,335,769
D. 1,280,769

67. Applying IAS 18, and assuming that the collectability of the note is highly doubtful, how much is
the net income of FCHSR for the year ended December 31, 2021?
A. 463,000
B. 490,500
C. 848,000
D. 903,000

Number 68

FCHSR Inc. signed a contract on October 1, 2021 worth P1,600,000 with the following performance
obligations stipulated:

 Provision of right to access the intellectual property for 5 years.

 Construction and renovation of the premises of the franchisee
 Delivery of 400,000 units of products

By the end of the year, construction and renovation of the premises were 70% complete and a total of
312,000 units were already delivered.

The standalone selling prices for the rights to access the license, renovation of the premises, and
delivery of the goods are P700,000, P875,000, and P175,000 respectively.

How much is the revenue earned by FCHSR Inc from this contract for the year ended December 31,
2021?
A. 80,000
B. 716,800
C. 812,800
D. 875,000
 Page 18

Numbers 69 and 70

On July 3, 2021, Rendon Builders Corporation entered into a long-term construction contract to build a
gymnasium for a contract price of P34,000,000. Relevant information are as follows:

2021 2022 2023

Cost incurred 3,550,000 ? ?
Percentage of completion 10% 25% 40%
Realized gross profit ? 2,000,000 0

69. How much is the construction in progress as of December 31, 2023?

A. 13,600,000
B. 13,400,000
C. 13,100,000
D. 12,600,000

70. How much is the cost of construction for the year ended December 31, 2022?
A. 3,100,000
B. 4,450,000
C. 5,325,000
D. 8,000,000

END