PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

Cost of Goods Manufactured & Sold At the end of the year, Marvin uses the more accurate method of allocating underapplied
1
. The accounting records for 2004 of EGGS Manufacturing Company showed the following overhead (i.e. allocated to three accounts). How much should be credited to cost of goods sold
information: under this method?
Decrease in raw materials inventory P45,000 A. P1,440 C. P2,400
Decrease in Finished goods inventory 150,000 B. P2,304 D. P2,880
Increase in Work-in-Process inventory 60,000
Raw materials purchased 1,290,000 Job Order Costing
4
Direct labor payroll 600,000 . Work in process of Alonzo Corporation on July 1, 2004 (per general ledger) is P22,800.
Factory overhead 900,000 Per cost sheets:
Freight out 135,000 Job 101 Job 102
The cost of raw materials used for the period amounted to Direct material P6,000 P8,000
A. P1,245,000 C. P1,335,000 Direct labors 3,000 2,500
B. P1,290,000 D. P1,380,000 Amount charged to Work in process for July, 2004
Job 101 Job 102 Job 103 Job 104
Over (Under) Applied Overhead
2 Direct material P3,000 P2,000 P6,000 P4,500
. Justine Company budgeted total variable overhead costs at P180,000 for the current period. In
Direct labors 1,000 1,500 2,600 2,000
addition, they budgeted costs for factory rent at P215,000, costs for depreciation on office
The cost of goods manufactured for the month of July is
equipment at P12,000, costs for office rent at P92,000, and costs for depreciation of factory
A. P21,600 C. P25,560
equipment at P38,000. All these costs were based upon estimated machine hours of P80,000.
B. P15,400 D. P31,800
At the end of the period, the Factory Overhead Control account had a balance of P387,875.
Actual machine hours were 70,000
Process Costing
What was the over or underapplied factory overhead for the period? 5
. The following data were taken from the records of Michelle Company for the month of June:
A. P9,000 overapplied C. P82,000 overapplied
Work in process, June 1 10,000 units
B. P9,000 underapplied D. P82,000 underapplied
Started during June 40,000 units
3 Completed and transferred to next department 33,000 units
. The following information relates to Marvin Company for last year. Marvin uses machine hours
Abnormal spoilage incurred 2,000 units
as an overhead base.
Work in process, June 30 15,000 units
Estimated machine hours 20,000 machine hours
Materials are added after quality control inspection at the end of the process. As to conversion
Actual machine hours 24,000 machine hours
cost, the beginning work in process was 70% completed while ending work in process is 40%
Actual manufacturing overhead cost P67,200
completed.
Overapplied manufacturing overhead P3,600
Using the weighted average method, the equivalent units of production for June, with respect
Direct materials inventory, 12/31 P15,000
to materials, were
Work in process inventory, 12/31 P25,000
A. 50,000 C. 33,000
Finished goods inventory P65,000
B. 35,000 D. 41,000
Cost of goods P160,000
Cost of goods manufactured P175,000

September 15, 2004 Page 1 of 17

PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

6
. Alessandra Mfg. Co. operates two consecutive departments, X & Y and uses FIFO costing. B. P15,000 D. P18,600
The August, 2004 production data for Department Y are as follows:
In process, August 1 12,000 units, 1/3 incomplete
Received from Dept. X 60,000 units
In process, August 30 10,000 units, 2/5 completed
Abnormal loss 5,000 units
What should be the equivalent production assuming that the abnormal loss occurred at the
beginning? At the end? When the units were 1/5 completed?
A. B. C. D.
At the beginning 53,000 53,000 57,000 61,000
At the end 62,000 58,000 58,000 66,000
One-fifth completed 58,000 54,000 57,000 82,000

Activity-based Costing
7
. A company has identified the following overhead costs and cost drivers for the coming year
Overhead item Cost driver Budgeted Budgeted
Activity overhead
Machine set-up Number of set-up 200 P20,000
Inspection Number of inspection 6,500 130,000
Material handling Number of material moves 8,000 80,000
Engineering Number of engineering hours 1,000 50,000
Total P280,000
The following information was collected on three jobs that were completed during the year
Job 101 Job 102 Job 103
Direct materials P5,000 P12,000 P8,000
Direct labors 2,000 2,000 4,000
Units completed 100 50 200
Number of set-ups 1 2 4
Number of inspection 20 10 30
Number of materials moves 30 10 50
Number of engineering hours 10 50 10
Budgeted direct labor costs was P100,000 and budgeted material costs was P280,000.
If the company uses activity-based costing, how much total manufacturing cost should be
assigned to Job 102?
A. P3,000 C. P17,000

September 15, 2004 Page 2 of 17

PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

Joint Costing All other assets and liabilities are fairly valued, and implied goodwill is to be recorded prior to
8
. Marvin Company produces Products A and B from a process that also yields a by-product Y. the acquisition by Eric.
The by-product requires additional processing before it can sold. The cost assigned to the by- Immediately after Eric’s acquisition, what should be the capital balances of Frank, Gorio, and
product is its market value minus additional costs incurred after split-off information concerning Hector, respectively.
a batch produced in May at a joint cost of P40,000 is as follows: A. P60,000, P30,000, P15,000 C. P77,000, P38,500, P19,500
Product Units Produced Market Value Costs after Split-off B. P69,000, P34,500, P16,500 D. P92,000, P46,000, P22,000
A 800 P44,000 P4,500
11
B 700 32,000 3,500 . Partners Almac, Booba and Conrad share profits and losses 5:3:2, respectively. The balance
C 300 4,000 1,000 sheet at April 30, 2004 follows:
How much of joint cost should be allocated to the joint products. Cash P40,000 Accounts payable P100,000
A. P35,000 C. P37,000 Noncash assets 360,000 Almac, capital 74,000
B. P36,000 D. P39,000 Booba, capital 130,000
Conrad, capital 96,000
9
. Hamilton Company produces three products jointly. During May, joint costs totaled P200,000. Total assets P400,000 Total equities P400,000
The following individual product information is available: The assets and liabilities are recorded and presented at their respective fair values. Ging is to
Product C Product L Product T be admitted as a new partner with a 20% capital interest and a 20% share of profits and losses
Production 15,000 10,000 20,000 in exchange for a cash contribution.
Sales units 13,000 9,000 16,000 If no bonus nor goodwill is to be recorded, how much cash must Ging contribute?
Sales price P20.00 P15.00 P9.50 A. P60,000 C. P75,000
Separable processing cost P75,000 P25,000 P40,000 B. P72,000 D. P80,000
Compute the May gross profit, if processed further, for each products, using the market value 12
method of allocating joint costs: . At the end of its fiscal year on June 30, 2004, the Benjie, Jack, and Manny partnership had
A. B. C. D. account balances as follows:
Product C P117,000 P165,000 P117,000 P93,750 Cash P20,000 Accounts payable P35,000
Product L 67,500 75,000 72,000 46,875 Accounts receivable 30,000 Loan from Jack 25,000
Product T 72,000 100,000 67,500 59,375 Inventories 70,000 Benjie, capital (20%) 70,000
Plant assets-net 60,000 Jack, capital (30%) 50,000
Partnership Loan to Benjie 30,000 Manny, capital (50%) 30,000
10
. Eric desires to purchase a one-fourth capital and profit and loss interest in the partnership of P210,000 P210,000
FGH. The three partners agree to sell Eric one-fourth of their respective capital and profit and The percentages shown are the residual profit sharing ratios. Manny also gets a P12,000
loss interests in exchange for a total payment of P40,000. The capital accounts and the annual salary allowance. The partners dissolved the partnership on July 1, 2004 and began
respective percentage interests in profits and losses immediately before the sale to Eric are: the liquidation process. During July the following events occurred:
Frank, capital (60%) P80,000  Receivable of P15,000 were collected
Gorio, capital (30%) 40,000  The inventory was sold for P20,000
Hector, capital (10%) 20,000  All available cash was distributed on July 31, except for P10,000 of expected expenses

September 15, 2004 Page 3 of 17

PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

The (1) book value of the partnership equity (i.e. total equity of the partners) on June 30, 2004 15 at a cost of P900,000. On December 1, 2004, the first semi-annual installment became due
and the amount of cash Jack should receive on July 31, 2004 are: and was accordingly paid by Domingo. Meg appropriately uses the accrual method of
A. (1) P145,000 and (2) P10,000 C. (1) P145,000 and (2) P3,000 recording franchise revenues.
B. (1) P210,000 and (2) P6,000 D. (1) P120,000 and (2) P9,000 In its December 31, 2004 financial statements, how much will Meg report as franchise income
for the year?
Installment Sales A. P112,500 C. P250,000
13
. Padyak, Inc. a dealer of Harley motorcycles, sells on installment basis. One of its customers, a B. P300,000 D. P187,500
Mr. Go, bought a motorcycled for P45,375. The cost to Padyak is P25,410. After making an
initial payment of P6,050, Mr. Go stopped paying and defaulted on all subsequent payments.
Padyak lost no time in repossessing the motorcycle. By then it had an appraised value of
P12,650 and Padyak had to incur additional expenses of P1,650 on repairs and remodeling.
Padyak was able to sell motorcycle to Mr. Stop on installment for P27,500 and initial
downpayment of P6,875.
How much is the realized gross profit on the sale to Mr. Stop?
A. P3,850 C. P3,300
B. P3,575 D. P3,025

Long-term Construction Contract

14
. State Co. recognizes construction revenue and expenses using the percentage of completion
method. During 2003, a single long-term contract was begun, which continued through the
year 2004. Information on the project follows:
2003 2004
Accounts receivable on contract P100,000 P300,000
Construction expense 122,000 192,000
Construction in progress 172,000 381,000
Partial billings on contract 100,000 420,000
Profit recognized in (1) 2003 and (2) 2004 should be
A. B. C. D.
2003 P50,000 P17,000 P108,000 P122,000
2004 17,000 50,000 122,000 108,000

Franchise Accounting
15
. On June 1, 2004 Meg Eggs Corporation, franchisor, receives P200,000 from Danny Domingo
representing downpayment on the franchise agreement signed that day. Domingo gave Meg a
12% interest bearing promissory note for the balance of P1,000,000, payable in four equal
semi-annual installment. Franchise services was substantially completed by Meg on November
September 15, 2004 Page 4 of 17
PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

Home Office-Branch Accounting Shipments from home office - 187,500

16
. Fortune Marketing Co. opened a branch in Dagupan City at the beginning of 2004. The branch Inventory, May 31, 2004 28,000 20,700
extends credit, makes collections, pays expenses from cash receipts and acquires goods The branch ending inventory included items costing P8,700 that were acquired from outside
exclusively from the home office. During 2004 goods shipped by the home office to the branch, suppliers.
at a billing price of 125% of cost, amounted to P104,000 of which P12,500 remained in the The realized markup on branch merchandise that would be recognized by the home office is:
branch’s year-end inventory. Other branch transactions in 2004 were as follows: sales, all on A. P36,000 C. P37,100
credit, P117,430, expenses of which P1,500 are unpaid at year end, P20,000; collections on B. P36,700 D. P37,500
account, after deducting discounts of P1,480, P84,000; and, total remittances to the home
office, P62,500. Corporate Liquidation
The adjusted net income/loss of the branch in 2004 is: 19
. Drake Company filed a voluntary bankruptcy petition on July 15, 2004 and the statement of
A. P4,450 net income C. P18,300 net income affairs reflects the following amounts:
B. P9,550 net loss D. P22,750 net income Book Carrying Estimated
amount Current Value
17
. Abegail Trading Co. operates a branch in Ilocos. At close of business on December 31, 2004, Assets
Ilocos branch account in the home office books showed a debit balance of P148,200. The Assets pledged with fully secured creditors P160,000 P190,000
interoffice accounts were in agreement at the beginning of the year. For purposes of Assets pledged with partially secured creditors 90,000 60,000
reconciling the interoffice accounts, the following facts were ascertained: Free assets 200,000 140,000
A. The branch writes off uncollectible accounts of P5,200. The allowance for doubtful Liabilities
accounts is maintained on the books of the home office. The home office is not yet notified Liabilities with priority 20,000
about the write-off Fully Secured creditors 130,000
B. Home office credit memo for P17,150 was not recorded by the branch Partially secured creditors 100,000
C. Ilocos recorded a debit memo form home office of P28,360 to P23,860 Unsecured creditors 260,000
D. The home office inadvertently recorded a remittance for P19,000 form its Iloilo branch as a Assume that the assets are converted into cash at the estimated current values and the
remittance from its Ilocos branch. business in liquidated.
How much is the adjusted balance of the Home Office Current account? What total amount of cash should the partially secured creditors receive?
A. P162,000 C. P124,000 A. P60,000 C. P90,000
B. P174,650 D. P136,650 B. P84,000 D. P100,000
18
. Victory Ventures operates a branch in Cebu City. Selected accounts taken from May 31, 2004 Foreign Currency Transaction & Translation
statements of Victory and its branch follow: 20
. The Jeremiah C. uses the current rate method in translating foreign subsidiary’s financial
Home Office Branch statements. At December 31, 2004, Jeremiah has a foreign subsidiary with 1,500,000 local
Sales P380,000 P353,000 currency units (LCU) in long-term receivables and 2,400,000 LCU in long-term debt. The rate
Shipments to branch 150,000 - of exchange in effect when the specific transactions occurred involving those foreign currency
Branch merchandise markup 39,500 amounts was 2 LCU to P1. The rate exchange in effect at December 31, 2004 was 1.5 LCU to
Inventory, June 1, 2003 24,000 16,000 P1.
Purchases 300,000 60,000

September 15, 2004 Page 5 of 17

PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

How much were the translated amounts into Philippine peso of the long term receivables and
long-term debt at December 31, 2004?
A. P2,250,000and P3,600,000
B. P1,000,000 and P1,600,000
21
. A Philippine company’s foreign subsidiary had the following amounts in foreign currency units
(FCU) in 2004. Cost of goods sold, 10,000,000 FCU; Ending inventory, 500,000 FCU;
C. P1,500,000 and P2,400,000 Beginning inventory, 200,000 FCU. The average exchange rate during 2004 was P0.80 = 1
D. not given FCU. The beginning inventory was acquired when the exchange rate was P1.00 = 1 FCU.
Ending inventory was acquired when the exchange rate was P0.75 = 1 FCU. The exchange
rate at December 31, 2004 was P0.70 = 1 FCU.
Assuming that the operation of the subsidiary is integral to the operation of the parent, at what
amount should the foreign subsidiary’s cost of goods sold be reflected in the Philippine peso
income statement?
A. P7,815,000 C. P8,065,000
B. P8,040,000 D. P8,090,000

22
. On September 1, 2004, Cano and Co., a Philippine corporation sold merchandise to a foreign
firm for 25,000 foreign currency units (FCU). Terms of the sale require payment in FCU on
February 1, 2005. On September 1, 2004, the spot exchange rate was P9.00 per FCU. At
December 31, 2004, Cano’s year-end, the spot exchange rate was P8.55, but the rate
increased to P9.90 by February 1, 2005, when payment was received.
How much should Cano report as foreign exchange gain for the year ended December 31,
2004 and 2005?
A. B. C. D.
2004 P0 P11,250 gain P33,750 gain P11,250 loss
2005 P0 P33,750 loss P11,250 loss P33,750 gain

23
. On June 30, 2004, Sweedie Company purchased inventory items from a foreign supplier for
50,000 foreign currency, payable in 60 days. On June 30, 1 foreign currency (FC) is worth
P25.20; by August 30, the day of settlement, 1 FC is worth P25.80. The 60-day forward rate on
June 30 is 1 FC = P26.20.
How much is the cost of the inventory items?
A. P1,260,000 C. P1,310,000
B. P1,290,000 D. P50,000

24
. On June 15, 2004, Boni Company purchased merchandise worth 100,000 Swiss francs from
its Swiss supplier payable within 30 days under an open account arrangement. Boni issued a
30-day 6% note payable in Swiss francs. On July 15, 2004 Boni paid the note in full. The
following information on spot rates (P/SF) are provided:
Buying Selling
September 15, 2004 Page 6 of 17
PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

June 15, 2004 P24.03 P24.15 The amount of additional paid-in capital to be shown in the balance sheet of Cleo after the
July 15,2004 24.10 24.22 combination is:
Compute (1) Boni’s foreign exchange gain (loss) for the transaction and (2) the amount paid to A. P630,000 C. P1,680,000
the Swiss supplier on July 15, 2004 B. P1,470,000 D. P840,000
A. B. C. D. 27
Foreign exchange gain (loss) (P5,040) (P7,035) P12,075 (P19,110) . Company N was organized to consolidate the resources of Companies O and P in a business
Amount paid to the supplier P2,415,015 P2,434,110 P2,422,050 P2,427,075 combination appropriately accounted for as a pooling of interests. Companies N issued 62,000
shares of P10 par value common stock in exchange for the net assets of Companies O and P,
25 whose stockholders’ equity balances immediately before the combination are shown below:
. On August 1, 2003, Motorcycles, Inc. a Philippine firm, signed an agreement with a foreign
manufacturer to purchase motorcycles priced at 50,000 FC. The motorcycles are to be Company O Company P Total
delivered on February 1, 2004 and payment is to be made on April 1, 2004. The Philippine firm Common stock P200,000 P400,000 P600,000
prepares financial statements on December 31 of each year. Additional paid-in capital 25,000 35,000 60,000
On August 1, 2003, Motorcycles, Inc. enters into a forward contract to purchase 500,000 FC on 120,000 210,000 330,000
April 1, 2004. The forward exchange contract is a hedge of an identifiable foreign currency Immediately after the combination, Company N’s Add’l Paid-in Capital balance should be
commitment. Relevant exchange rates for the FC are as follows: A. P0 C. P40,000
Spot Rate 8 months Forward Rate B. P60,000 D. P390,000
August 1, 2003 P0.50 P0.54 28
December 3, 2003 0.49 . Quad Corporation purchases all of the net assets of Chrome, Inc. for P400,000, immediately
February 1, 2004 0.52 prior to the combination. Chrome’s net assets were carried on the books at P225,000, and
April 1, 2004 0.55 Chrome had retained earnings of P30,000. The fair value of Chrome’s net assets at the date of
combination is P310,000. Quad Corporation had retained earnings of P50,000 and no goodwill
The amount of foreign currency exchange gain (loss) under the forward contract the Philippine
prior to the combination.
firm would present on its 2003 and 2004 income statements, respectively, are:
Immediately after the combination, the combined company reports goodwill and retained
A. (P5,000) and P30,000 C. P0 and P15,000
earnings of:
B. (P5,000) and P0 D. P0 and P30,000
A. B. C. D.
Business Combination Goodwill P0 P0 P90,000 P90,000
26
. Julius Inc., Mark Inc. and Anthony Inc. agree to enter into a business combination which meets Retained Earnings P50,000 P80,000 P50,000 P80,000
the requirements of a pooling of interest. A new corporation, Cleo Corp. shall issue 16,800
29
shares of its capital stock with a par value of P100. The stockholders’ equities of Julius, Mark . Kay, Ell, Emm and Enn are companies to be combined. Just prior to the combination, their
and Anthony immediately before the consolidation show: individual stockholder’s equity consists of the following balances:
Julius Mark Anthony Kay Ell Emm Enn
Capital stock P840,000 P1,260,000 P420,000 Common stock P600,000 P300,000 P450,000 P350,000
Additional paid-in capital 210,000 420,000 210,000 APIC - 150,000 60,000 45,000
Retained earnings 168,000 336,000 126,000 Retained earnings 180,000 90,000 270,000 45,000
Stockholders’ equity P780,000 P540,000 P780,000 P440,000

September 15, 2004 Page 7 of 17

PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

If Enn Company is the surviving business entity with a stated capital of P1,950,000 and the SEC registration costs and fees 12,000
plan is a pooling of interest, the amount of retained earnings after the combination is Total P97,000
determined to be at: If the business combination is treated as a purchase, the acquisition cost of the combination
A. P90,000 C. P390,000 will be
B. P585,000 D. P445,000 A. P3,097,000 C. P3,017,000
B. P3,080,000 D. P2,080,000
30
. Johann Inc. was merged into Strauss, Inc. in a combination properly accounted for as
purchase of interest. Their condensed balance sheet before the combination show:
Strauss Johann
Current assets P2,288,000 P1,627,600
Plant and equipment, net 4,654,000 1,040,000
Patents . 260,000
Total assets P6,942,000 P2,927,600
Liabilities P2,704,000 P171,600
Capital stock (par P100) 2,600,000 1,300,000
Additional paid-in capital 390,000 390,000
Retained earnings 1,248,000 1,066,000
Total liab. & stockholders’ equity P6,942,000 P2,927,600
Per independent appraiser’s report, Johann’s assets have fair market value of P1,653,600 for
current assets, P1,248,000 for plant and equipment and P338,000 for patents. Johann’s
liabilities are properly valued. Strauss purchases Johann’s net assets for P3,068,000.
How should the difference between the book value of Johann’s net assets and the
consideration paid by Strauss be considered?
A. Goodwill; P338,000, Increase in assets; P78,000
B. Goodwill; P338,000, Increase in assets; P234,000
C. Goodwill; P0, Increase in assets; P234,000
D. Goodwill; P0, Increase in assets; P312,000

31
. FEU Corporation issued 100,000 shares of P20 par common stock for all the outstanding stock
of UE Enterprises in a business combination consummated on July 1, 2004. FEU Corporation
common stock was selling at P30 per share at the time the business combination was
consummated. Out-of-pocket costs of the business combination were as follows:
Finder’s fee P50,000
Accountant’s fee (advisory) 10,000
Legal fees (advisory) 20,000
Printing costs 5,000
September 15, 2004 Page 8 of 17
PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

Consolidation of Financial Statements

32
. Companies A and B decided to consolidate. Assets and estimated annual earnings
contribution are as follows:
Company A Company B Total
Net asset contribution P300,000 P400,000 P700,000
Est. annual earnings contribution 500,000 80,000 130,000
Stockholders of the two companies agree that a single class of stock be issued, that their
contributions be measured by net assets plus allowances for goodwill, and that 10% be
considered as a normal rate of return. Earnings in excess of the rate of return shall be
capitalized at 20% in calculating goodwill. It was agreed that the authorized capital stock of the
new corporation shall be 20,000 shares with a par value of P100 a share.
The goodwill credited to Co. A amounts to
A. P200,000 C. P100,000
B. P150,000 D. P50,000

33
. The balance sheets of P and S Corporation at year end 2003 are summarized as follows:
P Corporation S Corporation
Assets P5,000,000 P2,000,000
Liabilities 1,500,000 500,000
Capital stock 2,500,000 1,000,000
Retained earnings 1,000,000 500,000
On January 1, 2004, P Corporation purchased 90% of S Corporation outstanding shares for
P2,000,000 when the fair value of S Corporation’s assets was P2,200,000.
If a consolidated balance sheet is prepared immediately after the business combination, the
consolidated stockholders’ equity, excluding the minority interest will be
A. P7,000,000 C. P5,000,000
B. P5,200,000 D. P3,500,000

34
. P Corporation acquired 70% of the voting common stock of S co at a time when S Co’s book
values and fair values were equal. Separate incomes of P Corporation and S Co. for 2004 are
as follows:
P Corporation S Corporation
Sales P700,000 P400,000
Costs of Goods Sold 400,000 200,000
Operating expenses 120,000 100,000
Separate income P180,000 P100,000
September 15, 2004 Page 9 of 17
PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

Intercompany sales from P to S for 2003 and 2004 are summarized as follows: Downstream sale P1,840,000 P1,740,000 P1,740,000 P1,740,000
Cost Selling price Unsold at Year-end Upstream sale P1,900,000 P1,760,000 P1,790,000 P1,740,000
Intercompany sales – 2003 P250,000 P390,000 40%
Intercompany sales – 2004 P175,000 P275,000 50%
The 2004 consolidated income statement will show (1) sales revenue and (2) cost of goods
sold of:
A. B. C. D.
Sales revenue P825,000 P900,000 P750,000 P625,000
Cost of goods sold P319,000 P340,000 P350,000 P400,000

35
. Petite Corporation paid P200,000 for a 60% interest in Salem Corporation on January 1, 2004,
when Salem had capital stock of P200,000 and retained earnings of P100,000. During 2004,
Salem had income of P30,000 and paid P10,000 of dividends. When Petite acquired its
investment in Salem it debited the investment in Salem account for P200,000, and when it
received P6,000 of cash dividend income from Salem it credited Dividend income.
On December 31, 2004 consolidated balance sheet of Petite and Salem:
A. The investment in Salem account will be understated by P12,000
B. The investment in Salem account will be understated by P11,500
C. Unamortized goodwill will be P19,000
D. None of the above

36
. P Corporation owns 80% of S Corporation’s common stock which was purchased at its
underlying book value. The two companies report the following information for 2003 and 2004.
During 2003, one company sold inventory to the other company for P100,000 which cost the
transferor P80,000. As of the end of 2003, 30% of the inventory was unsold in 2004, the
remaining inventory was resold outside the consolidated entity.
2003 selected data 2004 selected data
P Corp. S Corp. P Corp. S Corp.
Sales revenue P1,200,000 P640,000 P1,160,000 P890,000
Cost of goods sold 640,000 310,000 600,000 360,000
Other Expenses 200,000 178,000 260,000 342,000
Dividends 38,000 0 32,000 10,000
The reported amount of total sales revenue in the 2003 consolidated income statement if the
sale referred to above was a (1) downstream sale (2) upstream sale, would be
A. B. C. D.

September 15, 2004 Page 10 of 17

PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

37
. Pearl Corporation purchased 75% of the outstanding voting stock of Slime Corporation for
39
P2,500,000 on January 1, 2004. Slime’s stockholders’ equity on this date consisted of the . Potrero Company acquired a 70% interest in the Samson Company in 2002. For the years
following: Common Stock, P10 par P1,000,000, Additional Paid-in Capital, P600,000 and ended December 31, 2003 and 2004. Samson reported net income of P80,000 and P90,000,
Retained Earnings, P800,000. The excess of investment cost over book value was allocated respectively. During 2003, Samson sold merchandise to Potrero for P10,000 at a profit of
10% to undervalued inventory (sold in 2004), 40% to plant assets with a remaining life of 8 P2,000. The merchandise was later resold by Potrero to outsiders for P15,000 during 2004.
years, and 50% to unidentifiable intangible assets with a ten year write-off period. For consolidation purposes what is the minority interest’s share of Samson’s net income for
Comparative trial balances of Pearl and Slime on December 31, 2008 follows: 2003 and 2004, and respectively?
Pearl Slime A. P23,400 and P27,600 C. P24,600 and P26,400
Other assets-net P3,850,000 P2,600,000 B. P24,000 and P27,000 D. P26,000 and P25,000
Investment in Slime – 75% 2,080,000
40
Expenses (including cost of sales) 3,180,000 600,000 . On December 31, 2003, Pat Corp. purchased 80% of the outstanding shares of Saturn Co. at a
Dividends 500,000 200,000 cost of P1,600,000. On that date, Saturn had P600,000 of capital stock and P1,000,000 of
P9,610,000 P3,400,000 retained earnings. Goodwill shall be amortized over 20 years. For 2004, the operating results
Capital Stock, P10 par P3,000,000 P1,000,000 of Pat and Saturn are: Net income from own operations P800,000 and P400,000, respectively.
Additional Paid-in Capital 850,000 600,000 Dividends paid, P200,000 and P80,000, respectively. All the assets and liabilities of Saturn Co.
Retained earnings 1,530,000 800,000 have book values approximately equal to their respective market values. During 2004, Pat
Sales 4,000,000 1,000,000 Corp. sold merchandise to Saturn at 125% of its cost, the same as that used in 2003 sales.
Income from Slime 230,000 The inventory of Saturn on January 1, 2004 included P19, 200 of merchandise purchased from
P9,610,000 P3,400,000 Pat Corp. on December 31, 2003, while its December 31, 2004 inventory included P36,000 of
How much is the consolidated net income for the year 2008? merchandise purchased from Pat Corp. Pat Corp. Uses the equity method to account for its
A. P1050,000 C. P0 investment in Saturn Co.
B. P820,000 D. P230,000 The amount that Pat Corp. should record as equity in subsidiary income for 2004 is:
A. P310,460 C. P307,640
38
. Faura acquired all of the outstanding common stock of Padre Company on April 1, 2004, at a B. P324,640 D. P300,640
total cost of P540,000. Padre’s capital accounts at the acquisition date were: Common Stock,
P90,000 and Retained Earnings, P310,000. The only assets of Padre that were over valued or Answer Key
under valued at the acquisition date were as follows: Patent – overvalued by P40,000 (10 year 1. C 11. C 21. C 31. A
life); Land - under valued by P120,000. For 2004, Padre had the following earnings and 2. B 12. A 22. D 32. C
dividends: 3. B 13. C 23. A 33. D
First Qrt Rem. of year Total 4. C 14. A 24. B 34. A
Net income P30,000 P70,000 P100,000 5. C 15. B 25. C 35. C
Dividends 20,000 60,000 80,000 6. B 16. D 26. C 36. D
Faura has chosen to use the equity method of accounting and a five year life for goodwill. 7. C 17. A 27. C 37. A
How much is the investment balance on December 31, 2004? 8. C 18. C 28. C 38. C
A. P540,000 C. P544,000 9. A 19. B 29. B 39. A
B. P560,000 D. P554,000 10. B 20. B 30. D 40. D
September 15, 2004 Page 11 of 17
PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

Solutions

September 15, 2004 Page 12 of 17

1
. C Raw materials purchased P1,290,000
Add: Decrease in RM inventory 45,000
Raw materials used P1,335,000

2
. B Actual overhead P387,875
Less: Applied overhead: [(180,000 + 253,000) + 80,000) x 70,000] 378,875
Under applied overhead P9,000

3
. B Actual overhead P 67,200
Applied overhead (67,200 + 3,600) (70,800)
Over applied overhead P(3,600)

Share of COGS = 3,600 x 100,000/250,000 = P2,304

4
. C (Jobs 101 & 103 were completed)
Predetermined OVH rate: (22,800 - 19,500) / 5,500 = P60% of DLC
Costs of completing:
Job.# 101: (9,000 + 4,000 + 2,400) = P 15,400
Job #103: (6,000 + 2,600 + 1,560) = 10,160
Total cost completed in July = P25,560

5
. C C&T 33,000
P, end 15,000
Abnormal loss 2,000
Total 50,000

Materials
W.D EUP
100% 33,000
- -
- -
33,000

6
. B C&T:/P beg.12,000
Received 45,000
P end 10,000
Lost U - abnormal 5,000
Total 72,000

W.D. EUP
1/3 4,000
100% 45,000
2/5 4,000
See below See below

(1) Discovered beg: 53,000 + 0 = P53,000

(2) Discovered end: 53,000 + 5,000 = 58,000
 (3) Discovered 1/5 compl. 53,000 + 1,000 = 54,000

7
. C
Direct materialsP 12,000Direct labor2,000Fo applied:M. set-up (2/20 x 20,000)P 200Inspection (10/6,500x130,000)
=200M/handling (10/8,000 x 80,000) =100Engineering (50/1,000 x 50,000) =2,5003,000Total costP17,000
8
C Total Joint Cost P40,000
Less: Share of by-product; (P4,000 – P1,000) 3,000
Joint cost assigned to main products P37,000

9
. A
Units PTotal SPSPCNRVInt. Est.Unit
costC15,000300,00075,000225,00090,000P11.00L10,000150,00025,000125,00050,0007.50T20,000190,00040,000150
,00060,0005.0045,000640,000140,000500,000200,000Units SoldGP/UnitTotal GPC13,000(20-11) =9PI
17,000L9,000(15 – 7.50) =7.5067,500T16,000(9.50 – 5.00) =4.5072,000P256,500
10
. B
FGHETotalBalances80,00040,00020,000-140,000Goodwill12,000 6,000 2,000
-20,000Balances92,00046,00022,000-160,000X by3/43/43/4-Balances69,000,34,50016,50040,000160,000
11
. C Contributions /capital of old Ps P300,000
Divide by interest share /old Ps 80%
Total contribution/agreed capital P375,000
Multiply by new Ps share of capital 20%
Ging's Contr. & capt Credit P75,000

12
. A (1)
Benjie: 70,000 - 30,000 P 40,000
Jack: 50,000 + 25,000 75,000
Monry 30,000
Total interest, June 30 P145,000

Benjie (20%)Jack (30%)Monry (50%)Total interest40,00075,00030,000Salary allowance(2,400)(3,600) 6,000Adjusted

balances37,60071,40036,000TPL(P135,000)(27,000)(40,500)(67,500)Balances10,60030,900(31,500)APL(12,600)
(18,900)31,500Balances(2,000)12,0000APL2,000(2,000)Free Interest010,000
13
. C Inst. Sales to MV. Go P 27,500
Less; Cost of sales (12,650 + 1,650) 14,300
Gross profit P13,200
GPW = P13,2O0^P27,500 = 48%
REP = 6,875 x48% P3,300

14
. A
C/P 12/31/03 P172,000
Less: Construction cost in 2003 122,000
Construction profit in 2003 P50,000
C/P 12/31/04 P381,000
Less; Cont Costs in 2003 & 2004 314,000
Cost profit-to-date P 67,000
Less: Cont profit in 2003 50,000
Cost of profit in 2004 P17,000

15
. B Franchise revenue (200,000 + 1,000,000) P1,200,000
Less: Franchise cost 900,000
 Franchise income P 300,000

16
. D
BM = 117,430 – 20,000 – 1,480 – 10,400 +12,500P 4,450Adjustment for realized allowanceAll on C/shipment: (104,000 /
125%) x 25% =P20,800Less: required all: in BET. (12,500 / 125%) x 25% =2,50018,300Adjusted BNIP22,750
17
. A
HO books Branch A/CBranch Books Ho A/CUnadjusted balances148,200Adjustments: (a)(5,200) (b)(17,150) (c)4,500
(d)19,000_______Adjusted balances162,000

18
. C BM mark-up before Adj. P39,500
Less: Required allowance on BES (12,000 / 125% x 25%) 2,400
Realized mark-up P37,100

19
. B
Total RV of all assetsP 390,000Less: Prioritized payments.FSCP 130,000Less: w/priority20,000PSC (seemed portion)
60,000 210,000Est. Net AA to unsecured creditorsP180,000Divide by (40,000 + 260,000) 300,000Estimated recovery
rate60%Estimated RV of collateralP 60,000Add: (40,000 x 60%) Unsecured portion24,000Total estimated
paymentP84,000
20
. B LTR: 1,500,000 + 1.5 = P1 ,000,000
LTD: 2,400,000+1.5 P1,600,000

21
. C
TCXCRPHBeg. Invty.200,0001.00P 200,000Pmchases10,300,000.80P8,240,000Total10,500,000P8,440,000Ending
Invty.500,000.75( 375,000)P10,000P8,065,000
22
. D 2004 (9.00 - 8.55) x 25 ( 11,250)
2005 (9.90 - 8.55 ) x 25 33,750

23
. A The final cost of the
inventory under the 2 transaction concept is the peso equivalent of the FCT at the term suction date, hence:
50,000 fc 25.20 = P1,260,000

24
. B (1) FA & Int. (100,000 -f 500) x (24.22 - 24.15) P 7,035
(2) FA & Interest: 100,500 x 24.22 P 2,434,110

25
. C In this type of hedge, no
indicated gain/loss in forex is recognized in the income statement during the commitment period. It is deferred and
recorded as an adjustment to the cost of motorcycles acquired Therefore:
In 2003: Zero
2004: (0.55-0.52)x 500,000 = 15,000 gain

26
. C NPV(16,800 kls. X P100) P1,680,000
OPV (840,000 + 1,260,000 + 420,000) 2,250,000
Add'l APIC to be recorded P 840,000
Add: AP1C of acquired COS 840,000
Total APIC after the BC P1,680,000

27
. C NPV (62,000 shares x P10) P 620,000
OPV (200,000 + 400,000) 600,000
Reduction in APIC of acquired Cos. P 20,000
 APIC of acquired Companies 60,000
APIC recorded by N co. P40,000

28
. C Cost P400,000
Less: MV of net assets 310,000
Goodwill P90,000
RE (RE of Quad Corp.) P50,000

29
. B NPV (P1,950,000 – 350,000) P1,600,000
OPV (P600,000 + P300,000 + P450,000) 1,350,000
Reduction in APIC of acquired COS P 250,000
APIC of acquired companies 210,000
Reduction in APIC of acquiring Co P 40,000
APIC of acquiring Company 45,000
APIC balance of acquiring Co P 5,000

Therefore, RE (180,000 + 90,000 + 270,000 + 45,000) P585,000

No portion of RE has been used as per value of the new shares noticed.

30
. D
(1) Cost of investmentP3,068,000Less: FMV of net assets:C/AP 1,653,600Plant &
Eqpt1,248,000Patents338,000Liabilities( 171,600)3,068,000GoodwillP 0(2) FMV of assetsP3,239,600Less. BV of
assets2,927,600Increase in asset valueP312,000
31
. A Purchase price (100,000 xP30) P3,000,000
Add: Direct acquisition cost 97,000
Total cost P3,097,000

32
. C Annual earnings of co. A P 50,000
Less: Normal earnings (300,000 x 10%) 30,000
Excess earnings P 20,000
Divide by 20%
Goodwill P100,000

33
. D The consolidated SHE in
purchase combination is the parent's SHE at the same date as follows:
Capital stock P2,500,000
Retained earnings 1,000,000
Total P3,500,000

34
. A Sales: 700,000 + 400,000 - 275,000 = P825,000
COS: 400,000 + 200,000 - 56,000 + 50,000 – 275,000 319,000
Where WPEE are:
(a) for RGP or BI:Investment in sales56,000Cost of sales56,000(b) for UGP or El:Cost of sales50,000MI50,000(c) for current
intercompany sales:Sales275,000Cost of sales275,000
35
. C Cost P 200,000
Less: BV = MV acquired SHE (30,000 x 60%) 180,000
Goodwill P20,000
Goodwill, end of first year in consolidated B/S P19,000
36
. D Sales – P1,200,000 + P640,000 – P100,000 P1,740,000
WPEE is the same for downstream and upstream intercompany sale in current period.
Sales100,000Cost of sales100,000
37
. A
Cost P2,500,000Less: BV acquired (2,400,000 x 75%)1,800,000Excess of cost over BVP 700,000Inventory
(10%)P( 70,000)Plant assets (40%)(280,000)( 350,000)Goodwill (50%)P350,000Amortization in 2008:InventoryP
noneP/A (280,000 / 8)35,000Goodwill (350,000 / 10)-35,000TotalP70,000
SNI (P1,000,000 - P600,000) P 400,000
X by C 1% 75%
ESI P300,000
Less: Amortization of excess 70,000
ESI P230,000
Add; PNI (over operations) 820,000
CNI P1,050,000

38
. C
CostP540,000Less: BV acquired: SHE (90,000 + 310,000) 1400,000ExcessP140,000I Revaluation increments:PatentP
40,000Land(120,000)(80,000)GoodwillP60,000BCV of investment:CostP540,000Net income70,000Amortization of
excessPatent (40,000 / 10) x 9/123,000GW (60,000 / 5) x 9/12( 9,000)Dividends received(60,000)BCV,
12/31/04P544,000
39
. A
20032004SNI80,00090,000Upstream Adj:RGP on BI2,000UGP on El(2,000)______Adjusted SNI78,00092,000Multiply by MI
%30%30%MINI23,40027,600
40
. D SNI P400,000
X by C 1% 80%
ESI P320,000
Downstream Adjustments:
RGP on BI: (19,200 + 125%) x 25% 3,840
UGP on El: (36,000 + 125%) x 255 (7,200)
ESI P316,640

Amortization of excess (Goodwill):CostP1,600,000Less: BV = MV (1,600,000 x 80%)1,280,000GrossP 320,000Divide

by20yrs.(16,000)ESIP 316,640