BAC 522 INTEGRATED ACCOUNTING 2-ADVANCED ACCOUNTING

MID-TERM EXAMINATION def

SUMMER OF 2020

Test I. MULTIPLE CHOICE-THEORIES . Write the letter of the correct answer on the answer sheet
provided.

1. In installment liquidation of a partnership, each installment of cash is distributed:

a. In the partners’ profit and loss ratio
b. As agreed to by the partners
c. In the ratio of partner’s capital accounts
d. As if no cash would be forthcoming

2. Salaries to partners of a partnership typically should be accounted for as:

a. A device for sharing net income.
b. An operating expense of the partnership.
c. Drawings by the partners from the partnership.
d. Reductions of the partner’s capital account balances.

3. In the liquidation of a partnership when there is no capital deficiency, it is necessary to (1) pay
liabilities, (2) allocate any gain or loss on realization to the partners, (3) distribute cash to
partners and (4) sell noncash assets. These steps should be performed in the following order:
a. (1), (2), (3), (4) c. (2), (3), (1), (4)
b. (4), (2), (3), (1) d. (4), (2), (1), (3)

4. Which of the following statements about partnership liquidation is CORRECT?

a. Theoretical losses include the liquidation expenses incurred by the partnership.
b. Total interest of a partner divided by respective PnL ratio will give the maximum amount of
loss on realization that the partnership must incur in order for that partner to break-even.
c. Partner with highest loss absorption capacity is normally entitled to receive the first peso
available for payment to partners in the cash distribution plan.
d. All of the statements are correct.
e. All of the statements are incorrect.

5. Under what circumstances can the closing of Income Summary account results in a debit to one partner’s
capital account and credits to the other partners’ capital accounts?
a. The results of operations are divided in a profit and loss ratio and the partnership sustained a loss
for the period.
b. The partnership agreement provided for interest on capital and salary allowances and net income
is less than the sum of the interest and salary allowances.
c. The results of operations are allocated in a profit and loss ratio and the partnership’s net income
was very low.
d. The results of operations are divided in the average capital ratio and one partner had a low capital
balance.

6. When admitting a new partner into an existing partnership, any revaluation of assets to the old partners is
based on:
a. an equal distribution among the partners.
b. the profit and loss ratio.
c. the relative capital balances of the partners.
d. the fair values of the assets each partner has contributed to the partnership.

7. In the preparation of schedule of safe payments to partners, cash withheld for future liquidation expenses
and unrecorded liabilities that may be discovered is treated as:
a. Possible Loss c. Loss on realization
b. Liabilities d. Operating Expenses

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8. The working paper elimination entry for the combined statements for the home office and the branch
includes
a. a debit to Investment in Branch c. a credit to Shipments to Branch
b. a debit to Home Office d. a credit to Allowance for Overvaluation
9. Which of the following accounts will not appear in the combined financial statements of the home office
and the branch?
a. Shipments from Home Office c. Home Office
b. Investment in Branch d. A, B and C

10. In a statement of affairs, The excess of assets pledged with fully secured creditors are
a. Included under unsecured liabilities
b. Offset against partially secured creditors
c. Included under free assets
d. not included

Test II. MULTIPLE CHOICE-PROBLEMS. Write the letter of the best answer and show computations on a
separate sheet of paper.

Partners Francia, Glenda and Harold share profits and losses at 5:3:2, respectively, and their balance sheet on
October 31, 2020 follows:
Cash P 160,000 Accounts payable P 400,000
Other assets 1,440,000 Francia, Capital 296,000
Glenda, Capital 520,000
Harold, Capital 384,000
P1,600,000 P1,600,000

The assets and liabilities are recorded at their current fair value. Ivan is to be admitted as a new partner with a
25% interest in capital and earnings. Harold was credited a bonus of P9,000.
11. How much cash should Ivan contribute?
a. P415,000 b. P380,000 c. P370,000 d. P460,000
Elsa and Lutgarda are partners who agreed to share profits and losses in the following manner:

Elsa Lutgarda
Annual salaries P120,000 P96,000
Interest on average capital 5% 10%
Bonus (based on net income after 10%
salaries & interest
Remainder 50% 50%

During the current year, the partnership’s operating income was P575,000. Consider a tax rate of 30%. Elsa and
Lutgarda’s average capital balances for the year are P600,000 and P300,000, respectively.
12. How much is the share of Elsa in the net Income?
a. P182,925 b. P219,575 c. P288,200 d. P189,250

The partnership of Lyra & Marvin was formed on Jan 1, 2020. On this date, Lyra invested P150,000 cash and office
equipment with a fair at P30,000. Marvin invested P170,000 cash, merchandise valued at P100,000, and
furniture valued at P100,000 subject to a notes payable of P50,000, which the partnership assumes. The
partnership provides that Lyra and Marvin share profits and losses75:25, respectively. The agreement further
provides that the partners should have capital balances equal to the profit and loss ratio.
13. How much is the capital credited to Lyka & Marvin upon formation?
Lyra Marvin Lyra Marvin
a. P412,400 P137,500 c. P180,000 P320,000
b. P300,000 P100,000 d. P375,000 P125,000

Black, Brown, and Green are partners in a business and share in its earnings at the respective rates of
50%, 30%, and 20%. At the beginning of the new fiscal year, they admit White, who is to invest in the
firm sufficient cash funds to give him a one-third interest in the capital and in the earnings. The following
closing trial balance is taken from the old firm’s books:
Cash P1,000,000 Accounts payable P 500,000
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 Marketable securities 750,000 Bank loan 300,000
Accounts receivable 2,250,000 Black, Capital 1,750,000
Brown, Capital 1,000,000
Green, Capital 450,000
P4,000,000 P4,000,000
The securities have a market value of P500,000, and an allowance of P250,000 is required to cover bad debts. No
other adjustment of net assets is necessary, but the three old partners must among themselves bring the balances
in their capital accounts into agreement with their interests in the earnings.

14. How much is the total capital of the partnership after the admission of White?
a. P2,700,000 b. P3,700,000 c. P4,050,000 d. P3,200,000
15. What should be the balance of Brown’s capital after White’s admission?
a. P1,350,000 b. P850,000 c. P1,500,000 d. P810,000

The following balance sheet accounts were taken from the partnership of MDL Co. on March 31, 2020:
Cash-P500,000; Other Assets- P3,600,000; Liabilities-P1,040,000; Mara, Capital (40%)-P800,000; Desi,
Capital (40%)-P1,300,000 and Lia, Capital (20%)-P960,000. The partnership was liquidated by
installment. The proceeds from the first sale of non-cash assets with a book value of P1,800,000
amounted to P1,100,000. In the first month, P640,000 of the liabilities were paid. The partners also set
aside P100,000 for future expenses.
16. How much was received by partner Desi in the first distribution of cash?
a. P100,000 b. P310,000 c. P460,000 d. P360,000
17. How much is the total restricted interest during the first month of liquidation?
a. P1,800,000 b. P1,900,000 c. P100,000 d. P-0-

On January 1, 2020, Alvin and Quennie agreed to form a partnership. The following are their assets and liabilities.
Accounts Alvin Quennie
Cash P136,000 P76,000
Accounts Receivable 88,000 48,000
Inventories 304,000 364,000
Machinery 480,000 440,000
Accounts Payable 216,000 144,000
Notes Payable 140,000 60,000

Alvin decided to pay-off his notes payable from his personal assets. It was also agreed that Quennie’s
inventories were overstated by P24,000 and Alvin machinery was over-depreciated P20,000. Quennie is
to invest/withdraw cash in order to receive a capital credit that is 20% more than Alvin’s total net
investment in the partnership.

18. Immediately after the formation, how much cash will be presented in the partnership’ Statement
of Financial Position?
a. P274,400 b. P486,400 c. P450,000 d. P410,400
19. How much is the total capital of the partnership?
a. P1,786,400 b. P1,512,000 c. 1,736,000 d. P2,279,200

A Statement of Financial Position for the partnership of John, Lloyd and Cruz, who share profits in the
ratio of 2:1:1, shows the following balances just before liquidation:
Assets Liabilities and Equity
Cash P 144,000 Liabilities P 240,000
Other assets 714,000 John, Capital 264,000
Lloyd, Capital 186,000
Cruz, 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, John receives
P50,000.
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20. The amount of cash withheld for the anticipated liquidation expenses is:
a. P150,800 b. P48,000 c. P86,000 d. P36,000
21. How much did Cruz receive?
a. P25,000 b. P79,000 c. P61,000 d. P-0-

The balance sheet accounts of partners Carla, Alma and Vilma before liquidation are the following:
Cash, P360,000; Non-Cash Assets, P1,790,000; Liabilities, P1,000,000; Carla, Capital (50%), P460,000;
Alma, Capital (30%), P370,000 and Vima, Capital (20%), P320,000. On the first month of liquidation,
assets with a book value of P1,400,000 are sold for P1,060,000. Liquidation expenses of P40,000 are
paid and additional expenses are anticipated. Liabilities are paid amounting to P362,000, and sufficient
cash is retained to insure the payment to creditors before making payment to partners. In the first
payment of cash to partners, Alma received P115,000.
22. The cash withheld for future liquidation expenses amounted to:
a. P80,000 b. P35,000 c. P5,000 d. P70,000
23. How much was distributed to Vilma?
a. P60,000 b. P86,667 c. P160,000 d. P150,000

Marvin, Jerwin and Grace, formed a partnership on April 1, 2020 with the following investments:
Marvin P200,000
Jerwin 300,000
Grace 450,000

The partnership agreement stated that profits and losses are to be shared equally by the partners after
consideration for the following:
a) Annual salaries to partners: P60,000 for Marvin, P48,000 for Jerwin and P36,000 for Grace.
b) 10% interest on average capital
c) 10% net profit after salaries and interest as bonus to Marvin as the managing partner.

Additional information:
a) On October 1, 2020, Marvin made additional investment of P60,000 but withdrew P10,000 on Dec. 1,
2020.
b) Grace invested P30,000 on September 1, 2020 and made withdrawal on Nov. 1, 2020 of P10,000
c) Jerwin withdrew P20,000 on July 1, 2020 and another withdrawal on Oct 1, 2020 of P20,000

24. What is the annual average capital of Marvin, Jerwin, & Grace?
Marvin Jerwin Grace
a. P164,167 P210,000 P345,833
b. P160,000 P200,000 P345,833
c. P164,000 P210,000 P329,500
d. P164,167 P233,333 L322,500

25. If each partner received P30,000 (ignore income tax) on the residual profit after salaries, interest and
bonus, how much is the net income reported by the partnership during the 1 st few months of operation?
a. P748,000 b. P280,000 c. P303,750 d. P306,000

A statement of realization and liquidation has been prepared for the RESTLESS Corporation. The
following information is available:
Assets to be realized P100,000 Liabilities assumed P 50,000
Assets acquired 40,000 Liabilities not liquidated 65,000
Assets realized 55,000 Liabilities to be Liquidated 80,000
Assets not realized 50,000 Liabilities liquidated 50,000
Supplementary credits 110,000 Supplementary Charges 97,000
26. How much is the net increase (decrease) in retained earnings?
a. P7,000 b. (P12,000) c. P12,000 d. ( P7,000)
27. How much is the total assets at the end of the period assuming cash balance, ending amounted
to P50,000?
a. P50,000 b. P100,000 c. P55,000 d. 107,000
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The following were taken from the statement of affairs of Payless Company.
Assets pledged with fully secured creditors P712,000
Assets pledged with partially secured creditors 125,000
Free assets 110,000
Preferred creditors 30,000
Fully secured creditors 690,000
Partially secured creditors 200,000
Unsecured creditors without priority 180,000
28. The estimated amount available to unsecured creditors is (net free assets)
a. P132,000 b. P102,000 c. P815,000 d. P276,000
29. The estimated amount payable to partially secured creditors is
a. P155,000 b. P80,000 c. P108,000 d. P72,000

The following data were taken from the Statement of Affairs of Ken Lee Company:
Shareholders’ equity P441,000
Bonds Payable without security 735,000
Salaries Payable 50,000
Loss on realization of assets 551,250
Accounts payable without security 367,500
Taxes 72,500
Estimated Liquidation expenses 55,125

30. The free assets available to unsecured creditors group amounted to:
a. P1,114,750 b. P937,125 c. P992,250 d. 953,575

Link, Inc. is undergoing liquidation since January 1, 2020. Its condensed statement of realization and
liquidation as of March 31, 2020 showed:
Assets to be realized P1,375,000 Liabilities not liquidated P1,700,000
Assets acquired 750,000 Liabilities to be liquidated 2,250,000
Assets realized 1,200,000 Liabilities assumed 1,625,000
Assets not realized 1,375,000 Supplementary charges 3,125,000
Liabilities liquidated 1,875,000 Supplementary credits 2,6,25,000

31. The net income (loss) for the three month-month period ending March 31, 2020 was:
a. P(325,000) b. P750,000 c. P425,000 d. P250,000

The following information was taken from the Statement of Affairs of ABC Co.
Assets pledged to Fully Secured Liabilities (FV P750,000) P 900,000
Assets pledged to Partially Secured Liabilities (FV P520,000) 740,000
Free Assets (FV P400,000) 700,000
Fully Secured Liabilities 300,000
Partially Secured Liabilities 600,000
Unsecured Liabilities with Priority 70,000
Unsecured Liabilities without Priority 1,120,00

32. The estimated amount payable to Secured creditors are:

Partially Secured Unsecured Partially Secured Unsecured
a. P780,000 P728,000 c. 572,000 P728,000
b. 390,000 780,000 d. 600,000 780,000

Red Ink Company signed a note payable to its bank for P10,000. Accrued interest on the note on February 28
amounts to P250. The note is secured by inventory with a book value of P12,000. The inventory is sold for
P8,000 and unsecured creditors received 30 percent of their claims.

33. Determine the amount that will be received by the bank In settlement of the note and interest.
a. P10,250 b. P10,000 c. P8,675 d. P3,075

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The following data were taken from the Statement of Affairs of ABC Company:
Assets pledged to fully secured liabilities P218,750
Assets pledged to partially secured liabilities 157,500
Free Assets 152,250
Fully secured liabilities 175,000
Partially secured liabilities 192,500
Unsecured liabilities with priority 22,750
Unsecured liability without priority 157,500

34. Which of the following is correct?

a. Partially secured liabilities; estimated amount to be received is P189,000
b. Unsecured liabilities with priority; estimated amount to be received is P20,475
c. The estimated amount to be received by unsecured without priority is P157,500
d. The estimated amount to be received by the fully secured liabilities is P157,500

Lonely Company is being liquidated. The trustee has determined that the non-priority unsecured claims
will receive P0.40 on the peso. Stubborn Company holds a P2,000,000 mortgage note receivable from
Lonely Company that is secured by specialized equipment with P1,500,000 carrying value having a
market value of P1,600,000.
35. How much will Stubborn Company expects to recover from Lonely?
a. P1,700,000 b. P1,860,000 c. P1,650,000 d. P1,760,000

Refer to the following data of Ga-Graduate Na Ako Company

Assets to be realized 1,375,000 Liabilities liquidated 1,875,000
Assets acquired 825,000 Liabilities not liquidated 1,700,000
Assets realized 1,200,000 Liabilities to be liquidated 2,250,000
Assets not realized 1,375,000 Supplementary charges 3,125,000
Liabilities assumed 1,625,000 Supplementary credits 2,800,000

36. Compute the beginning cash balance assuming that the ending balance of ordinary share and retained earnings
are P1,200,000 and (400,000),respectively.
a. P1,325,000 b. P1,450,000 c. P1,475,000 d. P2,075,000

The following information were taken from the Statement of Affairs or Orbit Company:
Assets pledged to fully secured liabilities, FV P375,000 P450,000
Assets pledged to partially liabilities, FV P260,000 370,000
Free Assets (current fair value of P200,000) 350,000
Fully secured liabilities 150,000
Partially secured liabilities 300,000
Unsecured liabilities with priority 35,000
Unsecured liabilities without priority 560,000

37. The expected amount to be received by partially secured creditors amounted to:
a. P285,000 b. P286,000 c. P281,000 d. P263,500
38. How much is the estimated deficiency to unsecured creditors?
a. P390,000 b. P600,000 c. P210,000 d. P175,000

Precious Flakes Corporation is being liquidated. All assets have been converted into cash and P1,872,500 cash is
available to pay the following claims:

a) Liquidation expenses P62,500

b) Unsecured merchandise creditors 495,000
c) Local government for taxes 20,000
d) Unsecured loan , including accrued interest of P22,500. 172,500
e) BIR – Witholding tax 15,000
f) Wages Payable to officers before filing bankruptcy 240,000
g) Payment by customers for merchandise not delivered 7,500

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h) Holders of the First Mortgage on the company’s real estate P1,142,500
that was sold for P1,200,000 (Principal P1,100,000 and accrued
interest of P42,500)

39. How are the claims mentioned above classifed in the Statement of Affairs?
Preferred Fully Secured Partially Secured Unsecured
a. P97,500 P1,100,000 Zero P915,000
b. P337,500 P1,142,500 P7,500 P667,500
c. P337,500 P1,142,500 Zero P675,000
d. P345,000 P1,100,000 Zero P667,500

40. What amount is expected to be received by unsecured creditors without priority?

a. P337,500 b. P287,842.50 c. P392,500 d. P292,203.50

Shipments received from home office are billed at 120% of cost. During the year, the branch received
shipments billed at P360,000, and returned damaged goods with billed price of P24,000. The branch has
an ending inventory of P72,000. The branch reported a loss of P10,000.

41. How much is the true branch income?

a. P56,000 b. P34,000 c. P54,000 d. P44,000
Emerald Corporation maintains a branch in Makati and makes inventory shipment to its branch at 20%
above cost. Selected balances taken from the books of Emerald Corporation and its Makati branch as of
December 31, 2020 are as follows:

Home office Branch

Merchandise inventory, January 1 P 780,000 P 520,000
Purchases 2,145,000
18,525,000
Shipments from home office 5,694,000
Shipments to branch 4,875,000
Branch inventory allowance 1,023,750
Merchandise inventory, December 31 676,000 353,275

The branch’s ending inventory amounting to P158,275 came from outside suppliers.

42. The portion of branch inventory on January 1 that came from outside suppliers is:
a. P292,500 b. P243,750 c. P227,500 d. P276,250
43. The total inventory to appear in the combined balance sheet is
a. P996,775 b. P1,185,275 c. P1,029,275 d. P1,126,775

Trial Balance of the Home Office and Branch of Trust Company show the following accounts before
adjustments on December 31, 2020. The home office policy of billing the branch for merchandise is 20%
above cost.
Home Office Branch
Allowance for overvaluation 60,000
Shipment to branch 240,000
Purchases (outsider) 75,000
Shipment from home office 270,000
Merchandise Inv. 12/01/2020 100,000

The branch merchandise inventory on December 31, 2020 of P50,000 includes purchases from outsider
of P20,000.

44. The entry on the books of the home office to recognize realized mark-up includes a credit to
a. Allowance for overvaluation, P55,000 c. Branch Income, P50,000
b. Branch Income, P55,000 d. Branch Income, P52,000

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45. The beginning inventory of the branch as far as the home office is concerned is:
a. P88,000 b. P60,000 c. P72,000 d. P83,333

The Dame Company operates a branch in Cebu City. Operating data for the home office and branch for 2020
follows:
Home Office Branch

Sales P300,000 P78,500

Purchases from outsiders 210,000 20,000
Shipments to branch 30,000 40,000
Expenses 60,000 12,500
Inventory, January 1, 2020:
Acquired from outsiders 80,000 7,500
From home office 24,500

Inventory, December 31, 2020:

Acquired from outsiders 55,000 5,500
From home office 26,000

46. The adjustment to the allowance for overvaluation account is:

a. P9,625 b. P7,700 c. P16,125 d. P10,000
47. The consolidated inventory at the end of the year is :
a. P63,500 b. P25,000 c. P86,500 d. P80,000
48. How much is the adjusted net income of the banch?
a. P5,500 b. P15,125 c. P12,000 d. P16,125

UVW Corporation and its branch in Manila maintain their respective books of accounts. At close of books on
December 31, 2020, Manila branch account in the home office books showed a balance of P142,500. The
interoffice accounts were in agreement at the beginning of the year. For purposes of reconciling the interoffice
accounts, the following were ascertained:
a. Merchandise billed at P50,000 was shipped by the home office to the branch on December 27.
The goods were in transit as of the end of the year and the branch did not recognize the transfer
in its books.
b. The branch collected a home office account receivable of P35,000 but such transaction is not
known to the home office.
c. The home office recorded in error the branch net income at P119,000. It should have been
P191,000.
d. The home office is charged P83,000 by the branch due to returned merchandise to home office on
December 28 which was in transit as of December 31.
e. Home office credit memo for P5,400 is recorded twice by the branch.

49. Determine the balance in the home office books of the branch account before adjustments as of
December 31, 2020.
a. P166,500 b. P111,100 c. P221,900 d. P142,500

Before adjustments, certain accounts for home office and branch show the following as of December 31,
2020. Differences in shipments account balances result from the home office policy of billing the branch
for merchandise 25% above cost.

HO books Branch books

Allowance for overvaluation of branch
Inventory P 300,000
Shipments to branch 1,000,000
Purchases from outsiders P 937,500
Shipments from home office 1,250,000
Merchandise inventory, December 1 875,000

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50. The branch inventory as of December 1 as far as the home office is concerned is
a. P650,000 b. P775,000 c. P600,000 d. P825,000

*****end of examination***