Mindanao State University – Marawi City

College of Business Administration and Accountancy

Accountancy Department
2nd Semester, AY 2015-2016
PRELIM EXAMINATION

Subject: PRACTICAL ACCOUNTING II SET A

GENERAL INSTRUCTION: Shade the letter completely that corresponds to your answer on the answer sheet
provided with this questionnaire. GOD BLESS! 

1. An economic advantage of a business combination includes

a. Utilizing duplicative assets.
b. Creating separate management teams.
c. Coordinated marketing campaigns.
d. Horizontally combining levels within the marketing chain.

2. A controlling interest in a company implies that the parent company

a. owns all of the subsidiary's stock.
b. has influence over a majority of the subsidiary's assets.
c. has paid cash for a majority of the subsidiary's stock.
d. has transferred common stock for a majority of the subsidiary's outstanding
bonds and debentures.

3. Company B acquired the assets (net of liabilities) of Company S in exchange

for cash. The acquisition price exceeds the fair value of the net assets
acquired. How should Company B determine the amounts to be reported for the
plant and equipment, and for long-term debt of the acquired Company S?
Plant and Equipment Long-Term Debt
a. Fair value S's carrying amount
b. Fair value Fair value
c. S's carrying amount Fair value
d. S's carrying amount S's carrying amount

4. Goodwill represents the excess of cost of an acquisition over the

a. sum of the fair values assigned to intangible assets less liabilities
assumed.
b. sum of the fair values assigned to tangible and intangible assets acquired
less liabilities assumed.
c. sum of the fair values assigned to intangibles acquired less liabilities
assumed.
d. book value of an acquired company.

5. When purchasing a company occurs, FASB recommends disclosing all of the

following EXCEPT:
a. goodwill related to each reporting segment.
b. contingent payment agreements, options, or commitments included in the
purchase agreement, including accounting methods to be followed.
c. results of operations for the current period if both companies had remained
separate.
d. amount of in-process R&D purchased and written-off during the period.

6. Acme Co. is preparing a pro-forma set of financial statements after an

acquisition of Coyote Co. The purchase price is less than the fair value of
the assets acquired. However, the purchase price is greater than net book
value of the acquired company.
a. Acme's goodwill will decrease over time.
b. Acme's amortization of intangible assets will increase over time.
c. Depreciation expense will be greater than Coyote Company's expense.
d. Coyote's loss on the sale of the assets will create a net loss
carryforward.

7. Which of the following business combination expenses would NOT qualify as a

direct acquisition expense for a purchase?
a. Fees for purchase audit
b. Outside legal fees
c. Stock issuance fees
d. All are direct acquisition expenses.
8. Consolidated financial statements are designed to provide:
a. informative information to all shareholders.
b. the results of operations, cash flow, and the balance sheet in an
understandable and informative manor for creditors.
c. the results of operations, cash flow, and the balance sheet as if there was
a single entity.
d. subsidiary information for the subsidiary shareholders.

9. The goal of the consolidation process is for:

a. asset acquisitions and stock acquisitions to result in the same balance
sheet.
b. goodwill to appear on the balance sheet of the consolidated entity.
c. the assets of the noncontrolling interest to be predominately displayed on
the balance sheet.
d. the investment in the subsidiary to be properly valued on the consolidated
balance sheet.

10. A subsidiary was acquired for cash in a business combination on December

31, 20X1. The purchase price exceeded the fair value of identifiable net
assets. The acquired company owned equipment with a fair value in excess of
the book value as of the date of the combination. A consolidated balance sheet
prepared on December 31, 20X1, would
a. report the excess of the fair value over the book value of the equipment as
part of goodwill.
b. report the excess of the fair value over the book value of the equipment as
part of the plant and equipment account.
c. reduce retained earnings for the excess of the fair value of the equipment
over its book value.
d. make no adjustment for the excess of the fair value of the equipment over
book value. Instead, it is an adjustment to expense over the life of the
equipment.

11. The investment in a subsidiary recorded as a purchase by the parent should

be recorded on the parent's books at
a. underlying book value of the subsidiary's net assets.
b. the fair value of the subsidiary's net identifiable assets.
c. the fair value of the consideration given.
d. the fair value of the consideration given plus an estimated value for
goodwill

12. Which of the following costs of a business combination are included in the
value charged to paid-in-capital in excess of par?
a. direct and indirect acquisition costs
b. direct acquisition costs
c. direct acquisition costs and stock issue costs if stock is issued as
consideration
d. stock issue costs if stock is issued as consideration

13. Drawings
a. are advances to a partnership.
b. are loans to a partnership.
c. are a function of interest on partnership average capital.
d. are the same nature as withdrawals.

14. If the partnership agreement provides a formula for the computation of a

bonus to the partners, the bonus would be computed
a. next to last, because the final allocation is the distribution of the
profit residual.
b. before income tax allocations are made.
c. after the salary and interest allocations are made.
d. in any manner agreed to by the partners.

15. Langley invests his delivery van in a computer repair partnership with
McCurdy. What amount should the van be credited to Langley’s partnership
capital?
a. The tax basis.
b. The fair value at the date of contribution.
c. Langley’s original cost.
d. The assessed valuation for property tax purposes.
16. Vibe Company purchased the net assets of Atlantic Company in a business
combination accounted for as a purchase. As a result, goodwill was recorded.
For tax purposes, this combination was considered to be a tax-free merger.
Included in the assets is a building with an appraised value of P210,000 on
the date of the business combination. This asset had a net book value of
P70,000, based on the use of accelerated depreciation for accounting purposes.
The building had an adjusted tax basis to Atlantic (and to Vibe as a result of
the merger) of P120,000. Assuming a 36% income tax rate, at what amount should
Vibe record this building on its books after the purchase?
a. P120,000
b. P134,400
c. P140,000
d. P210,000

17. Balter Inc. acquired Jersey Company on January 1, 20X5. When the purchase
occurred Jersey Company had the following information related to fixed assets:
Land P 80,000
Building 200,000
Accumulated Depreciation (100,000)
Equipment 100,000
Accumulated Depreciation (50,000)

The building has a 10-year remaining useful life and the equipment has a 5-
year remaining useful life. The fair value of the assets on that date were:

Land P100,000
Building 130,000
Equipment 75,000

What is the 20X5 depreciation expense Balter will record related to purchasing
Jersey Company?
a. P8,000
b. P15,000
c. P28,000
d. P30,000

18. As of July 1, 2007, FF and GG decided to form a partnership. Their balance

sheets on this date are as follows:
FF GG
Cash
P 15,000 P37,500
Accounts receivable 540,000 225,000
Merchandise inventory -0- 202,500
Machinery and equipment 150,000 270,000
Total P 705,000 P 735,000
Accounts payable P 135,000 P 240,000
FF, capital 570,000 -0-
GG, capital -0- 495,000
Total P 705,000 P 735,000
The partners agreed that the machinery and equipment is underdepreciated by
P15,000 and that of GG by P45,000. Allowance for doubtful accounts is to be
set up amounting to P120,000 for FF and P45,000 for GG. The partnership
provides for a profit and loss ratio and to bring the partner’s capita
balances proportionate to their profit and loss ratio?
a. P 52,500
b. 102,500
c. 142,500
d. 172,500

19. The partnership of Gwen, Bill, and Sissy is liquidating and the ledger
shows the following:
Cash 80,000
Inventories 100,000
Accounts Payable 60,000
Gwen, capital (50%) 40,000
Bill, capital (25%) 45,000
Sissy, capital (25%) 35,000
If all available cash is distributed immediately:
a. Gwen, Bill, and Sissy should get P 26,667.
b. Gwen, Bill, and Sissy should get P 6,667.
c. Gwen should get P10,000 and Bill and Sassy should get P5,000 each.
d. Bill should get P15,000 and Sissy, P5,000.

20. The PQR Partnership is being dissolved. All liabilities have been paid and
the remaining assets are being realized gradually. The equity of the
partnership is as follows:

Partners’ Accounts Loans to (from) Partnership Profit and Loss Ratio

P P24,000 P6,000 3
Q 36,000 - 3
R 60,000 (10,000) 4

The second cash payment to any partner(s) under a program of priorities shall
be made thus:
a. To R P2,000
b. To Q P6,000
c. To R P8,000
d. To Q P6,000 & R P8,000

21. Mahal Ko acquired 60% of the outstanding stock of Mahal Ako’s for P156,000
cash. The book value of Mahal Ako’s net assets is P200,000. Mahal Ako’s only
over or undervalued assets was land that has a book value of P100,000 and
current value of P170,000. How much is the goodwill (income from acquisition)
to be reported in the consolidated statement of financial position?
a. P(6,000)
b. 10,000
c. P60,000
d. P(36,000)

22. Katy Perry developed an interesting idea for marketing sailboats in

Death Valley. She interested Lady Gaga in joining her in a partnership.
Following the information you have collected relative to their original
contribution.
Lady Gaga contributed P 30,000 cash, a track of land, and delivery
equipment. Katy Perry contributed P 60,000 cash. After giving special
consideration to the tax bases of the assets contributed, the relative
usefulness of the assets to the partnership versus the problems of finding
buyers for the assets and contributing cash, and other such factors, the
partners agreed that Katy Perry’s contribution was equal to 40 percent of the
partnership’s tangible assets, measured in terms of the fair value of the
assets to the partnership. However, since marketing idea originated with Katy
Perry, it was agreed that she should receive credit for 50 percent of the
recorded capital. Recent sales of land similar to that contributed by Lady
Gaga suggest a market value of P 40,000. Likewise, recent sales of delivery
equipment similar to that contributed by Lady Gaga suggest P 40,000 as the
market value of the equipment. These sales, of course, were not entirely
representative of the particular assets contributed by Lady Gaga and therefore
may be a better indicator of their relative values than their absolute values.
In reflecting on their venture, the partners agree that it is a rather risky
affair in respect to anticipated profits. Hopefully, however, they will be
able to build good customer relations over the long run and establish a
permanent business with an attractive long-run rate of return.

Under the most appropriate method, given the circumstances, the entry to
record the formation of the partnership must be:

a. Cash P 90,000
Delivery equipment 40,000
Land 40,000
Perry, capital 60,000
Gaga, capital 110,000

b. Cash P 90,000
Delivery equipment 40,000
Land 40,000
Goodwill 50,000
Perry, capital 110,000
 Gaga, capital 110,000

c. Cash P 90,000
Delivery equipment 40,000
Land 40,000
Perry, capital 85,000
Gaga, capital 85,000

d. Cash P 90,000
Delivery equipment 40,000
Land 40,000
Perry, capital 102,000
Gaga, capital 68,000

23. On January 1, 2013, Perseus acquired a 40% interest in Andromeda for 24M.
Perseus already have 25% interest which had been acquired for 8M but which was
valued at 9.6M at January 1, 2013. The fair value of the NCI at January 1,
2013 was 12M, and the fair value of the identifiable net assets of Andromeda
was 42M. How much is the goodwill to be recognized as a result of the business
combination?
a. 1,200,000
b. 0
c. 3,600,000
d. 6,300,000

24. Partners Daniel, Katerina, Nathan, and Johanna, share profits in the ratio
of 80:60:30:30, respectively. Their partnership agreement provides that in the
event of the death of a partner, the firm shall continue until the end of the
fiscal period. Profits shall continue until the end of the fiscal period.
Profits shall be considered to have been earned proportionately during this
period, and the deceased partners’ capital shall be adjusted by the proper
share of the profit or loss until the date of death. From that date until the
date of settlement with the estate there shall be added interest of 6%
computed on the adjusted capital. The remaining partners shall continue to
share profits in the old ratio. Payment to the estate shall be made within one
year from the date of the partner’s death.
Partner Johanna died on November 16. On December 31, the end of the six-
month period, account balances on the partnership books before the income
summary account is closed are as follows:

Cash P 15,000 Notes payable P 34,000

Accounts receivable 140,000 Accounts payable 141,000

Inventories 190,000 Daniel, capital 84,000

Machinery & quipment (net) 90,000 Katerina, capital 75,000

Store furniture and fixtures 33,000 Nathan, capital 48,000

(net)
Johanna, capital 45,000

Income summary (7/1 - 12/31) 45,000

P 468,000 P 468,000

The income summary account is closed on December 31. On this date, Nathan
decides to retire. Daniel and Katerina agree to pay the balance in Nathan’s
capital account after distribution of profit, less 20%, and issue a
partnership 60-day, 6% note to Nathan in settlement. What amount of note
payable must be issued to Nathan?
a. P 43,985.22
b. P 44,038.23
c. P 54,750
d. P 55,047.79
25. Harrison , Inc acquired 100% of the voting stock of Rhine Company on
January 1,2011 for 400,000 cash. A contingent payment of 16,500 will be paid
on April 15,2012 if Rhine generates cash flows from operations of 27,000 or
more in the next year . Harrison estimate that there is a 20% probability that
Rhine will generate at least 27,000 next year and uses on interest rate of 5%
to incorporate the time value of money . The fair value of 16,500 at 5% using
a probability weighted approach is 3,142.
What will Harrison record as the acquisition price on January 1, 2011?
a. 400,000
b. 403,142
c. 409,142
d. 165,500

26. On January 1, 2011, Parent Company acquired 90% of Subsidiary Company in

exchange for 5,400 shares of 10 par common stock having a market value of
120,600. Parent and subsidiary condensed balance sheets were as follows:

Parent Company and Subsidiary Company

Balance Sheet at January 1, 2011
(before combination )

Parent Co. Subsidiary Co.

Assets
Cash 30,900 37,400
Accounts receivable( net) 34,200 9,100
Inventories 22,900 16,100
Equipment net 179,000 40,000
Patent - 10,000
Total assets 267,000 112,600

Liabilities and stock holder equity

Account payable 4,000 6,600
Bonds payable 10% 100,000 -
Common stock 0 par 100,000 50,000
Additional paid in capital 15,000 15,000
Retained earnings 48,000 41,000
Total liabilities and stock holder equity 267,000 112,600

At the date of the acquisition , all assets and liabilities of Subsidiary

Company have book value approximately equal to their respective market values
excepts the following as determined by appraisal as follows:
Inventories( FIFO method) 17,100
Equipment( net – remain life – 4years ) 48,000
Patent ( remaining life 10 years) 13,000
Goodwill ( no impairment)

Compute the equity holder of parent – Retained earnings, January 1, 2011.

a. 48,000
b. 52,100
c. 84,900
d. 89,000

27. On January 1, 2011, Parent Company acquired 90% of Subsidiary Company in

exchange for 5,400 shares of 10 par common stock having a market value of
120,600. Parent and subsidiary condensed balance sheets were as follows:

Parent Company and Subsidiary Company

Balance Sheet at January 1, 2011
(before combination )

Parent Co. Subsidiary Co.

Assets
Cash 30,900 37,400
Accounts receivable( net) 34,200 9,100
Inventories 22,900 16,100
Equipment net 179,000 40,000
Patent - 10,000
Total assets 267,000 112,600
Liabilities and stock holder equity
Account payable 4,000 6,600
Bonds payable 10% 100,000 -
Common stock 0 par 100,000 50,000
Additional paid in capital 15,000 15,000
Retained earnings 48,000 41,000
Total liabilities and stock holder equity 267,000 112,600

At the date of the acquisition , all assets and liabilities of Subsidiary

Company have book value approximately equal to their respective market values
excepts the following as determined by appraisal as follows:
Inventories( FIFO method) 17,100
Equipment( net – remain life – 4years ) 48,000
Patent ( remaining life 10 years) 13,000
Goodwill ( no impairment)

Compute the non-controlling interest (in assets) on January 1, 2011.

a. 10,600
b. 11,200
c. 11,800
d. 13,090

28. On January 1, 2011 Parent Company purchased 80% of the common stock of
Subsidiary Company for 316,000. On this date , Subsidiary Company had common
stock , other paid in capital , and retained earnings of 40,000 120,000 , and
190,000 , respectively , Parent Company common stocks amounted to 500,000
and retained earnings of 200,000.
On January 1, 2011 , the only tangible assets of subsidiary that were
undervalued were inventory and building , inventory , for which FIFO is issued
was worth 5,000 more than cost .The inventory was sold in 2011 . Building
which was worth 15,000 more than book value, has a remaining life of 8years,
and straight line depreciating is used . Any remaining excess, is full
goodwill with an impairment for 2011 mounting to 3,000. Subsidiary Company
reported net income for 50,000 and paid dividend of 10,000 in 2011, while the
parent reported net income amounted to 100,000and paid dividends of 20,000.

Compute the consolidated / group retained earnings on full goodwill approach:

a. 200,000
b. 324,100
c. 304,100
d. 342,125

29. CC and DD are partners who share profits and losses in the ration of 7:3,
respectively. On October 21, 2007, their respective capital accounts were as
follows:
CC P 35,000
DD 30,000
On that date they agreed to admit EE as a partner with a 1/3 interest in the
capital and profits and losses ratio, and upon his investment of P25,000. The
new partnership will begin with a total capital of P90,000. Immediately after
EE’s admission. What are the capital balance if CC, DD, and EE?
a. P30,000; P30,000; P30,000
b. P31,667; P28,333; P30,000
c. P31,500; P28,500; P30,000
d. P35,000; P30,000; P25,000

Use the following information for questions 30, 31 and 32.

On June 30, 2006, the Warle, Xin, and Yates partnership had the following
fiscal year-end balance sheet:

Cash P 4,000 Accounts payable P 7,000

Accounts receivable 6,000 Loan from Xin 5,000
Inventory 14,000 Warle, capital(20%) 14,000
Plant assets-net 12,000 Xin, capital(30%) 10,000
Loan to Warle 6,000 Yates, capital(50%) 6,000
Total assets P 42,000 Total liab./equity P 42,000
The percentages shown are the residual profit and loss sharing ratios. The
partners dissolved the partnership on July 1, 2006,. and began the
liquidation process. During July the following events occurred:

* Receivables of P3,000 were collected.

* The inventory was sold for P4,000.
* All available cash was distributed on
July 31, except for P2,000 that was set
aside for contingent expenses.

30. The book value of the partnership equity (i.e., total equity of
the partners) on June 30, 2006 is

a. P60,000.

b. P29,000.

c. P30,000.

d. P42,000.

31. The cash available for distribution to the partners on July 31,
2006 is
a. P 2,000.
b. P 4,000.
c. P 7,000.
d. P11,000.

32. How much cash would Xin receive from the cash that is available
for distribution on July 31?
a. P 0.
b. P 600.
c. P1,000.
d. P2,000.

33. Hara, Ives, and Jack are in the process of liquidating their
partnership. Since it may take several months to convert the other assets
into cash, the partners agree to distribute all available cash immediately,
except for P10,000 that is set aside for contingent expenses. The balance
sheet and residual profit and loss sharing percentages are as follows:

Cash P 400,000 Accounts payable P 200,000

Other assets 200,000 Hara, capital (40%) 135,000
Ives, capital (30%) 216,000
Jack, capital (30%) 49,000

Total assets P 600,000 Total liab./equity P 600,000

How much cash should Ives receive in the first distribution?

a. P146,000.
b. P147,000.
c. P153,000.
d. P156,000

35. Jade, Kahl, and Lane are in the process of liquidating their
partnership. Lane has agreed to accept the inventory, which has a
fair value of P60,000, as part of her settlement. A balance sheet and
the residual profit and loss sharing percentages are as follows:

Cash P 198,000 Accounts payable P 149,000

Inventory 80,000 Jade, capital (40%) 79,000
Plant assets 230,000 Kahl, capital (40%) 140,000
Lane, capital (20%) 140,000
Total assets P 508,000 Total liab./equity P 508,000

If the partners then distribute the available cash, Lane will receive
a. P23,000.
b. P29,000
c. P30,000.
d. P34,000.