AFAR Test Bank

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ADVANCED FINANCIAL ACCOUNTING AND REPORTING

TEST BANK
Bachelor of Science in Accountancy (Polytechnic University of the Philippines)
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AFAR Test Bank
1. Which of the following procedures is not a necessary step affecting a dissolution of

partnership?
a. Revaluing partnership assets

b. Recognizing undistributed profit or loss share of partner at dissolution date
c. Closing of partnership books
d. Revising partners’ equity
2. A, B, C are partners with average capital balances during 2017 of P472,500; P238,650
and P162,350; respectively. The partners receive 10% interest on their average capital
balances; after deducting salaries of P122,325 to A and P82,625 to C, the residual
profit or loss is divided equally. In 2017, the partnership had net loss of P125,624
before interest and salaries to partner.
What amount should a and C capital change respectively?
a. 40,844 decrease and P31,237 decrease

b. 30,267 increase and 40,448 decrease
c. 29,476 increase and 17,536 increase
d. 28,358 increase and 3,458 increase
3. In case of general partnership liquidation, which of the following credits shall be

settled first by the liquidating partner?
a. Those owing for partner’s capital contribution

b. Those owing to third persons
c. Those owing for the share in partnership profits
d. Those owing to partners for their advances to partnership
4. Which of the following transactions will not affect the total equity of a partnership?
a. Recognition of impairment loss in case of admission of a new partner by

investment
b. Withdrawal by a partner
c. Admission of a new partner by purchase of existing partner’s interest below its
book value
d. Retirement of an existing partner with payment of above the book value of
such interest
5. A partner was admitted in an existing partnership through investment of cash

equivalent to ¼ of the new Capitalization. If the capital balance of the old partners
increases, what is the most valid reason Philippine GAAP?

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a. Asset revaluation of existing partnership’s assets

b. Impairment loss of existing partnership assets
c. recognition of goodwill of existing partnership
d. Receipt of bonus from the new partner
6. Juanita Company Uses installment method of accounting and has the following data at
year end:
Gross margin on cost 66 2/3 %
Unrealized gross profit P192,000
Cash collection including down payments 360,000
What was the amount of sale on installment basis?
a. 648,000
b. 840,000
c. 480,000
d. 552,000
For questions 7-8
In 2016, ETC Builders agreed to construct a commercial building at a price of P7,500,000.

ETC uses the
percentage of completion method. The information relating to the costs and billings for the
contract were as
Follows:
2016 2017
2018
Cost incurred to date 2,100,000 4,500,000
5,887,500
Estimated cost to complete 3,900,000 1,500,000
0
Progress billings to date 1,125,000 3,000,000
7,500,000
Collections to date 900,000 2,400,000
7,050,000
7. How much is the construction in progress net of progress billings as of December 31,
2017?
a. 1,500,000
b. 2,625,000
c. 4,125,000
d. 5,887,500

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8. Using the same given, but assuming there is no dependable estimate available for the
future cost, how much is the construction in progress, net of progress billings as of
December 31, 2017?
a. 1,500,000
b. 2,625,000
c. 4,125,000
d. 5,887,500
9. The following transactions were incurred for the year by the RCF Company:
 Transfer of P13,000 merchandise to an agency to establish a working fund.
 Receipt of sales orders from the agency, P130,000.
 Collection of agency accounts by the home office, P91,000.
 Home office disbursements representing agency expenses, P11,700.
 Replenishment of the agency working fund upon receipt of expense vouchers for
P5,850.
 Cost of goods sold identified with the agency sales, P93,600
How much is the net income traceable to the agency?
a. 5,850
b. 18,850
c. 36,400
d. (72,150)
10. Which of the following transactions will increase the normal balance of home office
account in the separate statement of the financial position of the branch?
a. Collection by the home office of branch’s receivable

b. Debit memo received from the home office
c. Credit memo issued by the home office
d. Payment by the branch of home office’s loans payable
For questions 11-12
PDF Company owns an 80% interest in SMB Corporation. PDF’s investment in SMB
Corporation is carried on cost basis was equal to book value of SMB’s stockholder’s equity.
During 2017, SMB Corp. sold merchandise to PDF Co. for P500,000 at a gross profit of
P100,000. At December 31, 2017, half of this merchandise is included in PDF’s inventory.
Meanwhile, included in SMB’S beginning inventory was P200,000 merchandise from inter-
company sales which was made at 20% profit. PDF and SMB declared dividends P300,000
and P250,000 respectively and paid 90% of the declared amount in 2017.

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Separate income statements for PDF and SMB for the year ended, 2017 are summarized as
follows:
PDF Co. SMB CORP.

Sales P1,500,000 P2,000,000
Cost of Sales (800,000) (1,200,000)
Operating Expenses (300,000 (420,000)
Dividend Revenue 200,000 140,000
Net Income P 600,000 P 520,000
11. What is the gross profit on the 2017 consolidated statement of comprehensive
income?
a. P1,100,000
b. P1,490,000
c. P1,590,000
d. P1,210,000
12. What is the net income attributable to the controlling interest?
a. P916,000
b. P810,000
c. P910,000
d. P816,000
For questions 13-14
PSY Corporation owns 90% of the outstanding common shares of SVG company. On
January 2, 2016, office equipment that had a carrying value to SVG Company P480,000 and
had a remaining life of 10 years was sold to PSY Corporation for P400,000. On the other
hand, last August 31, 2017, PSY Corporation sold a second hand delivery van to SVG
Company at a gain of P30,000 (remaining life- 5 years).
Included in the January 1, 2017 inventory of PSY Company was merchandise inventory
worth P65,000 while SVG Company had P80,000 on its December 31, 2017. These
inventories came from inter-company sales and purchases. PSY Corporation included a mark-
up of 25% on cost while SVG Company charged a 30% mark-up on sales.
Each of the two companies has net incomes in 2016 and 2017 as follows:
2016 2017
PSY Corporation P1,200,000 P1,500,000
SVG Company 900,000 1,000,000

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13. What is the amount of the consolidated net income attributable to controlling interest
in 2016?
a. P2,073,900
b. P2,061,300
c. P2,041,350
d. P2,057,250
14. What is the amount of the consolidated net income attributable to controlling interest
in 2017?
a. P2,366,350
b. P2,369,500
c. P2,398,350
d. P2,377,600
15. In translating the financial statements of an entity from its functional currency to its
different presentation currency, which of the following statements is incorrect?
a. Income and expense accounts shall be translated at exchange rates at the dates
of the transactions.
b. Resulting exchange gain or loss arising from translation shall be recognized in
profit or loss.
c. Equity accounts other than retained earnings shall be translated using
exchange rates at the dates of the transactions.
d. Assets and liabilities, whether monetary or nonmonetary, shall be translated at
the closing rate of the statement of financial position.
16. When the results and financial position of an entity whose functional currency is the
currency of a hyperinflationary economy, what is the rate to be used when translating
income and expense accounts into a different currency?
a. At the closing rate at the date of the most recent statement of financial position
b. At the exchange rates at the dates of the transactions
c. At the average rate during the year
d. At the exchange rate at the beginning of the year
17. In June 2017, Ralph hospital purchased medicines from winner Pharmaceutical Co. at
a cost of P5000. Winner notified Ralph that the invoice was being cancelled, and the
medicines were being donated to Ralph. Ralph should record this donation of
medicines as
a. A memorandum entry only

b. Other operating revenue of P5,000

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c. A P5,000 credit to operating expenses

d. A P5,000 credit to non-operating expenses
18. Which of the following shall be properly classified as unrestricted net asset in the
statement of financial position of the non-profit educational institution?
a. Fund whose principal is require to be invested indefinitely

b. Fund designated by the board for construction of building
c. Fund which is restricted by the donor to be non-expendable for until 2020
d. Fund which is held in trust by the institution for the benefit of the different
school organization
19. SUPLEX Inc. enters into an arrangement under which it will build and operate a toll
bridge. Company B is entitled to charge users for driving over the toll bridge for the
period from the completion of construction until 1 million cars have driven across the
bridge, at which point the concession arrangement will end. SUPLEX Inc. incurred a
total cost of P1B for the construction of the toll bridge. How shall SUPLEX Inc.
account for its infrastructure asset?
a. It shall be classified and treated as financial asset

b. It shall be bifurcated into intangible asset and financial asset
c. It shall be classified and treated as intangible asset to be amortized using
straight line method of presumed life of 10 years.
d. It shall be classified and treated as intangible asset to be amortized on the basis
of usage or unit method of 1 million cars.
20. Yaro Company owns 30% of the common stock of Dew Co. and uses the equity
method to account for the investment. During 2018, Drew reported income of
P250,000 and paid dividends of P80,000. There is no amortization associated with the
investment. During 2018, how much income should Yaro recognize related to this
investment?
a. P24,000
b. P75,000
c. P99,000
d. P51,000
21. Under PAS 39, all of the following are characteristics of a derivative except
a. Its value changes in response to the change in a specified underlying (e.g.,

interest rate, financial instrument price, commodity price, foreign exchange
rate, etc.).

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b. It requires no initial investment or an initial net investment that is smaller than

would be required for other types of contracts that would be expected to have a
similar response to changes in market factors.
c. It is settled at a future date.
d. It is required or incurred by the entity for the purpose of generating a profit
from short-term fluctuations in market factors.
22. Which statement is correct regarding forward contracts?
a. The party that sells the underlying asset in the contracts is said to have a long
position.
b. The party that buys the underlying asset in the contract pays the seller a fee to
compensate the seller for the risk of payments.
c. These contracts are generic exchange-traded
d. Settlement is at maturity by actual delivery of the item specified in the
contract, or by a net cash settlement
23. On January 1, 2021, Angel, Bea and Coleen formed a partnership with original capital
contribution ratio of 4:5:1 for a total agreed capitalization of P5,000,000. The profit or
loss ratio agreement provides that profits shall be distributed in the ratio of 3:2:5
while losses shall be distributed in the ratio of 6:1:3.
During 2021, the partnership reported net income of P2,000,000 with Angel and Bea
withdrawing P500,000 and P300,000, respectively. During 2022, the partnership
reported net loss of P1,000,000 with Bea and Colleen withdrawing P200,000 and
P400,000 respectively.
What is the capital balance of Bea on December 31, 2022?
a. 2,600,000
b. 2,300,000
c. 2,500,000
d. 2,400,000
24. Under IFRS a parent may exclude a subsidiary from consolidation only if all of the
following conditions exist, except
a. Its parent prepares consolidated financial statements that comply with IFRS
b. It has one class of stock
c. It does not have any debt or equity instruments publicly traded
d. It is wholly owned as its owners do not object to non-consolidation
25. A not-for profit entity has all of the following characteristics except that it will
a. Have positive fund balance

b. Not possess ownership interests like a corporation

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c. Operate for purposes other than to provide goods or services

d. Receive significant contributions from providers who do not expect returns
For numbers 26-27

A, B and C decided to form ABC Partnership. It was agreed that A will contribute an
equipment with assessed value of P100,000 with historical cost of P800,000 and
accumulated depreciation of P600,000. A day after the partnership formation, the
equipment was sold for P 300,000.
B will contribute a land and building with carrying amount of P1,200,000 and fair value
of P1,500,000. The land and building are subject to a mortgage payable amounting to
P300,000 to be assumed by the partnership. The partners agreed that B will have 60%
capital interest in the partnership. The partners also agreed that C will contribute
sufficient cash to the partnership.
26. What is the total agreed capitalization of the ABC Partnership?
a. 1,500,000
b. 2,000,000
c. 2,500,000
d. 3,000,000
27. What is the cash to be contributed by C in the ABC Partnership?
a. 500,000
b. 600,000
c. 700,000
d. 800,000
For numbers 28-29

On January 1, 2018, A, B and C formed ABC Partnership with total agreed capitalization
of P1,000,000. The capital interest ratio of the ABC Partnership is 5:1:4 while the profit
or loss ratio is 3:2:5, respectively for A, B and C.
During 2018, A and B made additional investments of P200,000 and P500,000,

respectively. At the end of 2018, B and C made drawings of P300,000 and P100,000,
respectively. On December 31, 2018, the capital balance of B is reported at P200,000.
28. What is the net income or net loss of ABC Partnership for the year ended December
31, 2018?

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a. 500,000 loss
b. 1,000,000 loss
c. 800,000 income
d. 1,200,000 income
29. What is the capital balance of C on December 31, 2018?
a. 150,000
b. 50,000
c. 200,000
d. 250,000
For numbers 30-32
On January 1, 2018, A, B and C formed ABC Partnership with original capital

contribution of P300,000, P500,000 and P200,000. A is appointed as managing partner.
During 2018, A, B and C made additional investments of P500,000, P200,000 and

P300,000, respectively. At the end of 2018, A, B and C made drawings of P200,000,
P100,000 and P400,000, respectively. At the end of 2018, the capital balance of C is
reported at P320,000. The profit or loss agreement of the partners is as follows:
• 10% interest on original capital contribution of the partners.

• Quarterly salary of P40,000 and P10,000 for A and B, respectively.
• Bonus to A equivalent to 20% of Net Income after interest and salary to all partners
• Remainder is to be distributed equally among the partners.
30. What is the partnership profit for the year ended December 31, 2018?
a. 900,000
b. 1,020,000
c. 1,050,000
d. 960,000
31. What is A’s share in partnership profit for 2018?
a. 190,000
b. 340,000
c. 540,000
d. 200,000
32. What is B’s share in partnership profit for 2018?
a. 200,000

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b. 290,000
c. 50,000
d. 90,000
On December 31, 2018, the Statement of Financial Position of ABC Partnership

provided the following data with profit or loss ratio of 1:6:3:
Current Assets 1,000,000 Total Liabilities 600,000
Noncurrent Assets 2,000,000 A, Capital 900,000
B, Capital 800,000
C, Capital 700,000
On January 1, 2019, D is admitted to the partnership by purchasing 40% of the capital
interest of B at a price of P500,000.
33. What is the capital balance of B after the admission of D on January 1, 2019?
a. 540,000
b. 480,000
c. 420,000
d. 300,000
On December 31, 2018, ABC Partnership’s Statement of Financial Positions shows

that A, B and C have capital balances of P500,000, P300,000 and P200,000 with
profit or loss ratio of 1:3:6. On January 1, 2019, C retired from the partnership and
received P350,000. At the time of C’s retirement, an asset of the partnership is
undervalued.
34. What is the capital balance of A after the retirement of C?
a. 462,500
b. 537,500
c. 562,500
d. 525,000
On December 31, 2018, ABC Partnership’s Statement of Financial Position shows

that A, B and C have capital balances of P400,000, P300,000 and P100,000 with
profit or loss ratio of 1:4:5. On January 1, 2019, C retired from the partnership and
received P80,000. At the time of C’s retirement, the assets and liabilities of the
partnership are properly valued.
35. What is the capital balance of B after the retirement of C?
a. 284,000
b. 308,000

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c. 316,000
d. 320,000


Noncurrent Assets 2,000,000 A, Capital 1,400,000
B, Capital 700,000
C, Capital 900,000
On January 1, 2019, D is admitted to the partnership by investing P1,000,000 to the
partnership for 20% capital interest.
36. If the all the assets of the existing partnership are properly valued, what is the capital
balance of C after the admission of D?
a. 960,000
b. 900,000
c. 840,000
d. 1,200,000
For numbers 37-38


Noncurrent Assets 2,000,000 A, Capital 1,100,000
B, Capital 1,200,000
C, Capital 700,000
On January 1, 2019, D is admitted to the partnership by investing P500,000 to the

partnership for 10% capital interest. The total agreed capitalization of the new
partnership is P3,000,000.
37. What is the capital balance of D after his admission to the partnership?
a. 500,000
b. 300,000
c. 350,000
d. 400,000

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38. What is the capital balance of C after the admission of D to the partnership?
a. 580,000
b. 820,000
c. 500,000
d. 780,000
For numbers 39-40

On December 31, 2018, the Statement of Financial Position of ABC Partnership with profit
or loss ratio of 6:1:3 of partners A, B and C respectively, revealed the following data:
Cash 1,000,000 Other Liabilities 2,000,000

Receivable from A 500,000 Payable to B 1,000,000
Other noncash assets 2,000,000 Payable to C 100,000
A, Capital 700,000
B, Capital (650,000)
C, Capital 350,000
On January 1, 2019, the partners decided to liquidate the partnership. All partners are
legally declared to be personally insolvent. The other noncash assets were sold for
P1,500,000. Liquidation expenses amounting to P100,000 were incurred.
39. How much cash was received by B at the end of partnership liquidation?
a. 250,000
b. 150,000
c. 290,000
d. 270,000
40. How much cash was received by C at the end of partnership liquidation?
a. 270,000
b. 150,000
c. 350,000
d. 220,000
For numbers 41-43

On December 31, 2018, the Statement of Financial Position of ABC Partnership with
profit or loss ratio of 5:3:2 of respective partners A, B and C. showed the following
information:

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Cash 1,600,000 Total Liabilities 2,000,000

Noncash assets 1,400,000 A, Capital 100,000
B, Capital 500,000
C, Capital 400,000
On January 1, 2019, the partners decided to liquidate the partnership in installment. All
partners are legally declared to be personally insolvent.
As of January 31, 2019, the following transactions occurred:

• Noncash assets with a carrying amount P1,000,000 were sold at a gain of P100,000.
• Liquidation expenses for the month of January amounting to P50,000 were paid.
• It is estimated that liquidation expenses amounting to P150,000 will be incurred for
the month of February, 2019.
• 20% of the liabilities to third persons were settled.
• Available cash was distributed to the partners.
As of February 28, 2019, the following transactions occurred:

• Remaining noncash assets were sold at a loss of P100,000.
• The final liquidation expenses for the month of February amounted to P100,000.
• The remaining liabilities to third persons were settled at a compromise amount of
P1,500,000.
• Remaining cash was finally distributed to the partners.
41. What is the amount of cash received by partner C on January 31, 2019?
a. 260,000
b. 240,000
c. 300,000
d. 350,000
42. What is the share of B in the maximum possible loss on January 31, 2019?
a. 275,000
b. 110,000
c. 120,000
d. 165,000
43. What is the amount of total cash withheld on January 31, 2019?
a. 550,000
b. 1,600,000
c. 1,750,000
d. 1,700,000

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For numbers 44-46

Cagayan Company is experiencing financial problems which resulted to ultimate
bankruptcy. The statement of financial position of the entity before liquidation is
presented below:
Cash 100,000 Income tax payable 200,000

Inventory 300,000 Salaries payable 300,000
Land 200,000 Note payable 800,000
Mortgage payable 100,000
Accounts payable 400,000
Contributed capital 500,000
Deficit (1,700,000)
• The note payable is secured by the inventory with net realizable value of P250,000.
• The mortgage payable is secured by the land with fair value of P120,000.
44. What is the amount received by the holder of the note payable at the end of corporate
liquidation?
a. 320,000
b. 300,000
c. 250,000
d. 260,000
45. What is the amount received by the holder of the mortgage payable at the end of
corporate liquidation?
a. 120,000
b. 200,000
c. 150,000
d. 100,000
46. What is the amount received by the employees at the end of corporate liquidation
concerning their salaries?
a. 100,000
b. 120,000
c. 72,000
d. 300,000
For numbers 47-48

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Surigao Company is bankrupt and has undergone corporate liquidation. Presented

below is its statement of financial position before the start of liquidation:
Cash 300,000 Accounts Payable 100,000

Machinery 500,000 Salaries Payable 200,000
Building 1,200,000 Income tax Payable 300,000
Loan Payable 400,000
Mortgage payable 500,000
Contributed capital 800,000
Deficit (300,000)
• Liquidation expenses amounting to P600,000 were paid.
• The loan payable is secured by the machinery with fair value of P300,000.
• The mortgage payable is secured by the building.
• At the end of liquidation, the holder of loan payable received P340,000.
47. What is the amount received by the holder of accounts payable at the end of
liquidation?
a. 85,000
b. 15,000
c. 40,000
d. 60,000
48. What is the amount of net free assets available at the end of liquidation?
a. 80,000
b. 40,000
c. 120,000
d. 200,000
For numbers 49-51

Entity A and Entity B incorporated Entity C to manufacture a microchip to be used by
the incorporating entities as component for their final products of cellular phones and
tablets.
The contractual agreement of the incorporating entities provided that the decisions on
relevant activities of Entity C will require the unanimous consent of both entities.
Entity A and Entity B have rights to the assets, and obligations for the liabilities,
relating to the arrangement. The ordinary shares of Entity C will be owned by Entity
A and Entity B in the ratio of 60:40. At the end of first operation of Entity C, the
financial statements provided the following data:

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Inventory 1,000,000 Accounts payable 2,000,000

Land 3,000,000 Note payable 1,000,000
Building 5,000,000 Loan payable 4,000,000
Share capital 1,000,000
Retained earnings 1,000,000
Sales revenue 5,000,000
The contractual agreement of Entity A and Entity B also provided for the following
concerning the assets and liabilities of Entity C:
• Entity A owns the land and incurs the loan payable of Entity C.
• Entity B owns the building and incurs the note payable of Entity C.
• The other assets and liabilities are owned or owed by Entity A and Entity B on
the basis of their capital interest in Entity C.
• The sales revenue of Entity C includes sales to Entity A and Entity B in the
amount of P1,000,000 and P2,000,000, respectively. As of the end of the first year,
Entity A and Entity B were able to resell 30% and 60% of the inventory coming from
Entity C to third persons.
49. What is the amount of total assets to be reported by Entity A concerning its interest in
Entity C?
a. 5,400,000
b. 3,000,000
c. 3,600,000
d. 5,000,000
50. What is the amount of total liabilities to be reported by Entity B concerning its
interest in Entity C?
a. 1,800,000
b. 2,200,000
c. 2,800,000
d. 2,400,000
51. What is the amount of sales revenue to be reported by Entity A concerning its interest
in Entity C?
a. 2,300,000
b. 2,100,000
c. 3,000,000
d. 2,500,000

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52. A not-for-profit entity has all of the following characteristics except that it will
a. Have positive fund balance

b. Not possess ownership interests like a corporation
c. Operate for purposes other than to provide goods or service
d. Receive significant contributions from providers who do not expect returns
53. Under IFRS a parent may exclude a subsidiary from consolidation only if all of the
following conditions exist, except
a. Its parent prepares consolidated financial statements that comply with IFRS
b. It has one class of stock
c. It does not have any debt or equity instruments publicly traded
d. It is wholly owned as its owners do not object to no consolidation
54. JUMBO Corp. uses the percentage-of-completion method of revenue recognition in

accounting for its long-term construction contracts. JUMBO Corp.’s progress billings
account is a
a. Revenue account
b. Non-current liability account
c. Contra current asset account
d. Contra non-current asset account
55. It is generally presumed that an entity is a variable interest entity subject to

consolidation if its equity is
a. Less than 10% of total liabilities

b. Less than 50% of total assets
c. Less than 10% of total liabilities
d. Less than 25% of total assets
56. Sagip Kapatid Charities, a not-for-profit agency, receives free electricity on a

continuous basis from a local utility company. The utility company’s contribution is
made subject to cancellation by the donor. Sagip Kapatid Charities should account
for this contribution as a(n)
a. Restricted revenue only.

b. Restricted revenue and an expense.
c. Unrestricted revenue only.
d. Unrestricted revenue and an expense.
57. A partnership in liquidation has converted all assets into cash and paid all liabilities.
The order of payment

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a. Will have amounts owed by partners other than for capital and profits take
precedence over amounts due to partners with respect to their capital
accounts.
b. Will be by any manner that is both reasonable and rational for the
partnership.
c. will be according to the partners’ residual profit and loss sharing ratios.
d. Will have amounts due to partners with respect to their capital accounts
take precedence over amounts owed by partners other than for capital and
profits.
58. When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of
Mill’s interest exceeded Mill’s capital balance. Under the bonus method, the excess
a. Was recorded as goodwill.

b. Was recorded as an expense.
c. Reduced the capital balances of Yale and Lear.
d. Had no effect on the capital balances of Yale and Lear.
59. The year-end balance sheet and residual profit and loss sharing percentages for the
Ara, Belle, and Grace partnership on December 31, 2005, are as follows:
Cash P 30,000
Accounts payable P 200,000
Loan to Ara 40,000
Loan from Belle 50,000
Other assets 480,000
Ara, capital (25%) 70,000
Belle, capital (25%) 80,000
Grace, capital (50%) 150,000
The partners agree to liquidate the business and distribute cash when it becomes
available. A cash distribution plan for the Ara, Belle, and Grace partnership will show
that cash available, after outside creditors are paid, will initially go to
a. Ara in the amount of P20,000.

b. Belle in the amount of P45,000.
c. Belle in the amount of P55,000.
d. Grace in the amount of P90,000.
60. Franchise fees are properly recognized as revenue
a. when received in cash.

b. when a contractual agreement has been signed.
c. after the franchise business has begun operations.
d. after the franchiser has substantially performed its service.
61. A silent partner in a general partnership

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a. Helps manage the partnership without letting those outside the partnership
know this.
b. Retains unlimited liability for the debts of the partnership.
c. Both of the above is correct.
d. None of the above is correct.
62. Property was purchased on December 31, 2018 for 20 million baht. The general price
index in the country was 60.1 on that date. On December 31, 2020, the general price
index had risen to 240.4. If the entity operates in a hyperinflationary economy, what
would be the carrying amount in the financial statements of the property after
restatement?
a. 20 million baht
b. 1.2 million baht
c. 80 million baht
d. 4.808 million baht
63. Certain balance sheet accounts in foreign subsidiary of Cherry Company at December
31, 2018, have been stated into Philippine pesos as follows:
Stated at
Current rates Historical rates
Accounts receivable, short ₱200,000 ₱220,000
term
Accounts receivable, long 100,000 110,000
term
Prepaid insurance 50,000 55,000
Goodwill 80,000 85,000
₱430,000 ₱470,000
This subsidiary’s functional currency is a foreign currency. What total amount of the
preceding items should be included in Cherry’s balance sheet?
a. ₱430,000
b. ₱435,000
c. ₱440,000
d. ₱450,000
64. Holmes Corporation started operations on January 1, 2016 selling home appliances
and furniture sets both for cash and on installment basis. Data on the installment basis
sales operations of the Company gathered for the years ending December 31, 2016
and 2017 were as follows:
2016 2017
Installment sales ₱400,000 ₱500,000
Cost of installment basis 240,000 350,000
Cash collected on installment
sales: 210,000 150,000

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2014 installment sales 300,000

2015 installment sales
Additional information:
On January 5, 2018, an installment sales on 2016 was defaulted and the merchandise
with an appraised value of ₱5,000 was repossessed. Related installment receivable
balance on
January 5, 2018 was ₱8,000.
Recording the repossessed merchandise at its appraised value, gain or loss on the
repossession should be:
a. No gain or loss
b. ₱200 gain
c. ₱1,800 gain
d. ₱3,000 loss
65. Langdon Inc. manufactures a product that gives rise to a by-product called “Cerca.”
The only costs associated with Cerca are additional processing costs of ₱1.00 for each
unit. Langdon accounts for Cerca sales first by deducting its separable costs from such
sales and then by deducting this net amount from the cost of sales of the major
product. For the past year, 2,000 units of Cerca were produced which were sold for
₱3.00 each.
Sales revenue and cost of goods sold from the main product were ₱500,000 and
₱400,000 respectively. Compute the gross margin after considering the by-product
sales and costs.
a. ₱96,000
b. ₱100,000
c. ₱104,000
d. ₱106,000
66. On January 1, 2018, Augustus Company sold land that cost ₱60,000 for ₱80,000,
receiving a note bearing interest at 10%. The note will be paid in three annual
installments of ₱32,170 starting on December 31, 2018. Because collection of the
note is very uncertain, Colt will use the cost recovery method. How much revenue
(profit from sale and interest) from this sale should Colt recognize in 2018?
a. ₱0
b. ₱6,000
c. ₱8,000
d. ₱20,000
67. Watson Corp. (a Philippine-based company) sold parts to a foreign customer on

December 1, 2017, with payment of 10 million foreign currencies to be received on
March 31, 2018. The following exchange rates apply:

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Forward rate
Dates Spot Rate (for 3/31/2018)
December 1, ₱0.0035 ₱0.0034 (4 months)
2017
December 31, 0.0033 0.0032 (3 month)
2017
March 31, 2018 0.0038 N/A
Watson’s incremental borrowing rate is 12%. The present value factor for three
months at an annual rate of interest of 12% (1% per month) is 0.9706. Assuming that
Watson entered into no forward contract, how much foreign exchange gain or loss
should it report on its 2017 income statement with regard to this transaction?
a. ₱5,000 gain
b. ₱3,000 gain
c. ₱2,000 loss
d. ₱1,000 loss
68. The Milky Way Company owns 75% of The Andromeda Company. On December 31,
2018, the last day of the accounting period, Andromeda sold to Milky Way a
noncurrent asset for ₱200,000. The asset’s original cost was ₱500,000 and on
December 31, 2018 its carrying amount in Andromeda’s books was ₱160,000. The
group’s consolidated statement of financial position has been drafted without any
adjustments in relation to this noncurrent asset.
Under PAS 27 Consolidated and separate financial statements, what adjustments

should be made to the consolidated statement of financial statement figures for
retained earnings and
non-controlling interest?
Retained earnings Non-controlling interest

a. Increase by ₱225,000 Increase by ₱75,000
b. Increase by ₱300,000 No change
c. Reduce by ₱30,000 Reduce by ₱10,000
d. Reduce by ₱40,000 No change
69. If the Alaska Museum, a not-for-profit organization, received a contribution of

historical artifacts, it need not recognize the contribution if the artifacts are to be sold
and the proceeds used to
a. Support general museum activities.

b. Acquire other items for collections.
c. Repair existing collections.
d. Purchase buildings to house collections.

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70. A hedge of the exposure to changes in the fair value of a recognized asset or liability,
or an unrecognized firm commitment, is classified as a
a. Fair value hedge.

b. Cash flow hedge.
c. Foreign currency hedge.
d. Underlying.
71. Planet Company acquired a 70% interest in the Star Company in year 1. For the year
ended December 31, year 2, Star reported net income of ₱80,000. During year 2,
Planet sold merchandise to Star for ₱10,000 at a profit of ₱2,000. The merchandise
remained in Star’s inventory at the end of year 2. For consolidation purposes what is
the non-controlling interest’s share of Star’s net income for year 2?
a. ₱23,400
b. ₱24,000
c. ₱24,600
d. ₱26,000
72. In general, an acquirer measures and accounts for assets acquired and liabilities
assumed or incurred in a business combination after the business combination has
been completed in accordance with other applicable IFRSs. However, which of the
following that the International Financial Reporting Standards 3 Business
Combinations (IFRS 3) specifically provides accounting requirements?
a. reacquired rights
b. contingent liabilities
c. contingent consideration
d. insurance contracts.
73. The governing board of Hirap Hospital, a nonprofit hospital affiliated with a religious
organization, acquired 100 BaMI Company bonds for P103,000 on June 30, 2016.
The bonds pay interest on June 30 and December 30. On December 31, 2016, interest
of P3,000 was received from BaMI, and the fair value of the BaMI bonds was
P105,000. The governing board acquired the BaMI bonds with cash which was
unrestricted, and it classified the bonds as trading securities at December 31, 2016,
since it intends to sell all of the bonds in January 2017. As a result of the investment
in BaMI bonds, what amount should be included in revenue, gains, and other support
on the statement of operations for the year ended December 31, 2016?
a. P0
b. P3,000
c. P2,000
d. P5,000

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74. To determine whether it controls an investee an investor shall assess whether it has all
the following, except:
a. the purpose and design of the investor

b. exposure, or rights, to variable returns from its involvement with the
investee
c. the ability to use its power over the investee to affect the amount of the
investor's returns
d. power over the investee.
75. On January 1, 2016, Kaloka Corp. purchased all of Taranta Corp.’s common stock for
P1,200,000. On that date, the fair values of Taranta’s assets and liabilities equaled
their carrying amounts of P1,320,000 and P320,000, respectively. During 2016,
Taranta paid cash dividends of P20,000. Selected information from the separate
balance sheets and income statements of Kaloka and Taranta as of December 31,
2016, and for the year then ended follows:
Kaloka `Taranta
Balance sheet accounts
Investment in subsidiary P1,320,000 --
Retained earnings 1,240,000 560,000
Total stockholders’ equity 2,620,000 1,120,000
Income statement accounts
Operating income 420,000 200,000
Equity in earnings of Sharp 140,000 --
Net income 400,000 140,000
In Kaloka’s December 31, 2016 consolidated balance sheet, what amount should be
reported as total retained earnings?
a. P1,240,000
b. P1,360,000
c. P1,380,000
d. P1,800,000
76. Which of the following is true?
a. In a joint arrangement, a single party controls the arrangement on its own.

b. An arrangement can be a joint arrangement when all of its parties have
joint control of the arrangement.
c. An entity that is a party to an arrangement shall assess whether the
contractual arrangement gives all the parties, or a group of the parties,
control of the arrangement individually.
d. A party with joint control of an arrangement can prevent any of the other
parties, or a group of the parties, from controlling the arrangement.

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77. The following condensed balance sheet is presented for the partnership of Erwin and
Levi, who share profits and losses in the ratio of 60:40, respectively:
Other Assets 450000

Erwin, Loan 20000
470000
Accounts
Payable 120000
Erwin, Capital 195000
Levi, Capital 155000
470000
The partners have decided to liquidate the partnership. If the other assets are sold for
P385,000, what amount of the available cash should be distributed to Erwin?
a. P136,000
b. P156,000
c. P159,000
d. P195,000
78. IFRS 4 Insurance Contracts applies to the following except:
a. Insurance contracts
b. Product warranties issued directly by a manufacturer, dealer or retailer
c. Financial instruments that it issues with a discretionary participation
feature
d. Reinsurance contracts.
HARLEY QUINN Hospital, a nonprofit affiliated with a religious group, reported the
following information for the year ended December 31, 2011:
● Gross patient service revenue at the hospital’s full established rates 980,000
● Bad debts expense 10,000
● Contractual adjustment with the third-party payors 115,000
● Allowance for discounts to hospital employees 15,000
79. On the hospital’s statement of operations for the year ended December 31, 2011, what
amount should be reported as net patient service revenue?
a. P840,000
b. P865,000
c. P850,000
d. P955,000

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80. Matatalo Tayo Ventures operates a branch in Cebu City. Selected accounts taken from
the May 31, 2016 statements of Matalo Tayo and its branch follow:
Home Office Branch
Sales P380,000 P353,000
Shipments to branch 150,000 -
Shipments to branch-loading 39,500 -
Inventory, June 1, 2015 24,000 16,000
Purchases 300,000 60,000
Shipments from home office - 187,500

Inventory, May 31, 2016 28,000 20,700
The branch ending inventory included items costing P8,700 that were acquired from
outside suppliers. What is the realized markup on branch merchandise that would be
recognized by the home office?
a. P39,500
b. P37,500
c. P37,100
d. P39,100
81. Zero, Inc. was involved in two default and repossession cases during the year:
I. A refrigerator was sold to Sweet Sixteen for P 18,000, including a 35% mark up
on selling price. Sweet made a down payment of 20%, four of the remaining 16
equal payments, and then defaulted on further payments. The refrigerator was
repossessed, at which time the fair value was determined to be P 6,000.
II. An oven that cost P 12,000 was sold to Teen Eighteen for P 16,000 on the
installment basis. Teen made a down payment of P 2,400 and paid P 800 a month
for six months, after which he defaulted. The oven was repossessed and the
estimated value at the time of repossession was determined to be P 7,500.
What is the gain or loss on repossession that Zero, Inc. must report for financial
reporting purposes?
a. P1,100 loss
b. P1,020 loss
c. P 900 gain
d. P 120 loss
For number 82-83
On January 1, 2018, Entity A, a public entity, and Entity B, a public entity,

incorporated Entity C which has its fiscal and operational autonomy. The contractual
agreement of the incorporating entities provided that the decisions on relevant activities
of Entity C will require the unanimous consent of both entities. Entity A and Entity B
will have rights to the net assets of Entity C.

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Entity A and Entity B invested P1,000,000 and P1,500,000, respectively, equivalent to

40:60 capital interest of Entity C. The financial statements of Entity C provided the
following data for its two-year operation:
Net income (loss) Dividends

declared
2018 200,000 100,000

2019 (2,000,000) -
82. What is the balance of Investment in Entity C to be reported by Entity A in its

Statement of Financial Position on December 31, 2019?
a. 1,080,000
b. 1,040,000
c. 240,000
d. 200,000
83. What is the balance of Investment in Entity C to be reported by Entity B in its

Statement of Financial Position on December 31, 2019?
a. 1,500,000
b. 1,620,000
c. 360,000
d. 900,000
For number 84-85
On January 1, 2018, Entity A, a public entity, and Entity B, a public entity,

incorporated Entity C by investing P3,000,000 and P2,000,000 for capital interest ratio
of 60:40. The contractual agreement of the incorporating entities provided that the
decisions on relevant activities of Entity C will require the unanimous consent of both
entities. Entity A and Entity B will have rights to the net assets of Entity C.
The financial statements of Entity C provided the following data for 2018:
● Entity C reported net income of P1,000,000 for 2018 and paid cash dividends of
P400,000 on December 31, 2018.
● During 2018, Entity C sold inventory to Entity A with gross profit of P50,000. Eighty
percent of those inventories were resold by Entity A to third persons during 2018 and
the remainder was resold to third persons during 2019.
● On July 1, 2018, Entity C sold a machinery to Entity B at a loss of P20,000. At the time
of sale, the machinery has a remaining useful life of 2 years.

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84. What is the investment income to be reported by Entity A for the year ended
December 31, 2018?
a. 603,000
b. 606,000
c. 594,000
d. 597,000
85. What is the balance of Investment in Entity C to be reported by Entity B on December

31, 2018?
a. 2,242,000
b. 2,241,000
c. 2,238,000
d. 2,248,000
For number 86-87
On January 1, 2018, Entity A and Entity B, both SMEs, incorporated Entity C, a

jointly controlled entity by investing P500,000 each in exchange for 10,000 ordinary
shares each of Entity C. Entity A and Entity B each incurred P20,000 transaction
costs.
Entity A and Entity B will have rights to the net assets of Entity C.
For the year ended December 31, 2018, Entity C reported net income of P100,000 and
declared dividends in the amount of P30,000.
On December 31, 2018, the ordinary shares of Entity C are quoted at P56.
86. If Entity A elected fair value model to account its investment in Entity C, what is the
net effect on Entity A’s profit or loss for the year ended December 31, 2018?
a. 55,000 net profit

b. 60,000 net profit
c. 15,000 net profit
d. 40,000 net profit
87. If Entity B elected equity method to account its investment in Entity C, what is the
carrying amount of Entity B’s Investment in Entity C on December 31, 2018?
a. 520,000
b. 540,000
c. 535,000
d. 555,000
For number 88-89

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On January 1, 2018, Entity A and Entity B, both SMEs, incorporated Entity C, a

jointly controlled entity by investing P200,000 each in exchange for 20,000 ordinary
shares each of Entity C. Entity A and Entity B each incurred P10,000 transaction
costs.
Entity A 7and Entity B will have rights to the net assets of Entity C.
For the year ended December 31, 2018, Entity C reported net income of P50,000 and
declared dividends in the amount of P10,000.
On December 31, 2018, the investment in Entity C has value in use of P215,000.
88. If Entity A elected cost method to account its Investment in Entity C, what is the
carrying amount of Entity A’s Investment in Entity C on December 31, 2018?
a. 210,000
b. 215,000
c. 230,000
d. 200,000
89. If Entity B elected equity method to account its Investment in Entity C, what is the net
effect in Entity B’s profit or loss for the year ended December 31, 2018?
a. 25,000 net profit

b. 5,000 net profit
c. 10,000 net profit
d. 15,000 net profit
Nikko Company, which began operations on January 5, 2018, appropriately uses the
installment method of revenue recognition. The following information pertains to the
operations for 2018 and 2019:
2018 2019
Sales 300,000 450,000

Collections from:
2018 sales 100,000 50,000
2019 sales 150,000
-
Accounts written off
from
2018 sales 25,000 75,000
2019 sales 150,000
-
Gross profit rates 30% 40%

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90. What amount should be reported as deferred gross profit on December 31, 2019?
a. 75,000
b. 80,000
c. 112,000
d. 125,000
Entity A acquired 80,000 out of 100,000 outstanding ordinary shares of Entity B

which enabled the former to obtain control of the latter at an acquisition price of
P1,000,000. Entity A paid P100,000 acquisition related costs and P50,000 indirect
costs of business combination.
At the date of acquisition, the net assets of Entity B are reported at P1,600,000. An
asset of Entity B is overvalued by P60,000 while one liability is undervalued by
P40,000.
91. What is the initial measurement of noncontrolling interest in net assets in the
consolidated statement of financial position?
a. 320,000
b. 300,000
c. 250,000
d. 316,000
92. FASB favors consolidation of two entities when
a. One acquires less than 20% equity ownership of the other.

b. One company’s ownership interest in another gives it control of the acquired
company, yet the acquiring company does not have a majority ownership in
the acquired. Typically, this is in the 20%-50% interest range.
c. One acquires two thirds equity ownership in the other.
d. One gains control over the entity, irrespective of the equity percentage owned.
93. Michangelo Co. paid $100,000 in fees to its accountants and lawyers in acquiring
Florence Company. Michangelo will treat the $100,000 as
a. An expense for the current year.

b. A prior period adjustment to retained earnings.
c. Additional cost to investment of Florence on the consolidated balance sheet.
d. A reduction in paid-in capital.
94. Picasso Co. issued 10,000 shares of its $1 par common stock, valued at $400,000, to
acquire shares of Bull Company in an all-stock transaction. Picasso paid the
investment bankers $35,000. Picasso will treat the investment banker fee as:
a. An expense for the current year.

b. A prior period adjustment to retained earnings.
c. Additional goodwill the consolidated balance sheet.

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d. A reduction in paid-in capital.
95. Durer Inc acquired Sea Corporation in a business combination and Sea Corp went out
of existence. Sea Corp developed a patent listed as an asset on Sea Corp’s books at
the patent office filing cost. In recording the combination:
a. Fair value is not assigned to the patent because the research and development
costs have been expensed by Sea Corp.
b. Sea Corp’s prior expenses to develop the patent are recorded as an asset by
Durrer at purchase.
c. The patent is recorded as an asset at fair market value.
d. The patent’s market value increases goodwill.
96. According to FASB Statement 141, which one of the following items may not be
accounted for as an intangible asset apart from goodwill?
a. A production backlogs.
b. A talented employee workforce.
c. Non-contractual customer relationships.
d. Employment contracts.
97. Under the Uniform Partnership Act, loans made by a partner to the partnership are
treated as
a. Advances to the partnership for which interest shall be paid from the date of
the advance.
b. Advances to the partnership that are carried in the partner’s capital accounts.
c. Accounts payable of the partnership for which interest is paid.
d. Advances to the partnership for which interest does not have to be paid.
98. A partner assigned his partnership interest to a third party. Which statement best
describes the legal ramifications to the assignee?
a. The assignment of the partnership interest does not entitle the assignee to
partnership assets upon a liquidation.
b. The assignment dissolves the partnership.
c. The assignee has the right to share in the management of the partnership.
d. The assignee does not become a partner but has the right to share in future
partnership profits and to receive the proper share of partnership assets upon
liquidation.
99. In the Uniform Partnership Act, partners have

I. mutual agency.
II. unlimited liability.
a. I only.
b. II only.
c. I and II.

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d. Neither I nor II.
100. Partnerships
a. are required to prepare annual reports.

b. are required to file income tax returns but do not pay Federal taxes.
c. are required to file income tax returns and pay Federal income taxes.
d. are not required to file income tax returns or pay Federal income taxes.
101. 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.
102. A not-for-profit entity has all of the following characteristics except that it will
a. operate for purposes other than to provide goods or service at a profit.

b. have a positive fund balance.
c. not possess ownership interests like a corporation.
d. receive significant contributions from providers who do not expect returns.
103. A governmental not-for-profit entity has which of the following characteristics?
a. It must have a positive fund balance.

b. It must only operate on US soil.
c. A government can void tax regulations for the entity.
d. A government can unilaterally dissolve the entity.
104. In accounting for private, not-for-profit organizations, revenues and expenses are
reported at _________ amounts and most gains and losses are reported at ___________
amounts.
a. net, gross
b. gross, net
c. gross, gross
d. net, net
105. When the temporary-use restriction on a charitable donation is satisfied, which of the
following is not reported?
a. Net assets released from restrictions in changes in temporarily restricted net

assets.
b. Net assets released from restrictions on the statement of cash flows.
c. Expenses as changes in unrestricted net assets.
d. Net assets released from restrictions in changes in unrestricted net assets.

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106. Under FASB not-for-profit accounting guidance, an unconditional transfer of cash or

other assets to an entity, or a settlement or cancellation of its liabilities in a voluntary,
non-reciprocal transfer, is called a(n)
a. unconditional promise to give.

b. Contribution.
c. conditional promise to give.
d. residual equity transfer.
107. Partners Joy and Rachel have a profit and loss agreement with the following
provisions: Salaries of P 30,000 and P 45,000 for Joy and Rachel respectively; a bonus
to Joy of 10% of net income after salaries and bonus; and interest of 10% on average
capital balances of P 20,000 and P 35,000 for Joy and Rachel, respectively. One-third
of any remaining profits are allocated to Joy and the balance to Rachel.
If the partnership had net Income of P 102,500, how much should be allocated to
Partner Joy?
a. P 44,250
b. P 47,500
c. P 41,000
d. P 41,167
108. On December 31, 2017, Joseph Inc. signed an agreement authorizing Bernard
company to operate as a franchise for an initial franchisee fee of P 50,000. Of this
amount, P 20,000 was received upon signing of the agreement and the balance is
due in three annual payments of P 10,000 each beginning December 2018. The
agreement provides that the down payment (representing a fair measure of the services
already performed by Nike, Inc.) is not refundable and substantial services are required
of Joseph. Bernard Company’s credit rating is such that collection of the note is
reasonably assured. The present value at December 31, 2017 of the three annual
payments discounted at 14% (the implicit rate for a loan of this type) is P 23,220.
On December 31, 2017, Bernard Company should record unearned franchise fees of:
a. P 50,000
b. P 30,000
c. P 43,220
d. P 23, 220
109. CRC-ACE Corporation transfers merchandise inventory from its home office to its
branch at an amount above cost. The average gross margin on the transfers is 40
percent. At the beginning of the year, the branch held merchandise purchased from the
home office in the amount of P 35,000. During the year, the home office made three
shipments of inventory to the branch at transfer prices of P 30,000, P 64,000, and P

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50,000. At the end of the year, the branch had on hand inventory purchased from the
home office at an amount of P 40,000.
What entry should the home office make to record intracompany profit realized
during the year?
a. Unrealized Intracompany Profit 41,600

Branch Income Summary 41,600
b. Unrealized Intracompany Profit 55,600

c. Branch Income Summary 55,600
Unrealized Intracompany Profit 55,600
d. Investment in Branch 55,600
110. On December 1, Philip Company opened a branch in Cebu to which merchandise

billed at P 30,000 was shipped. During the month, additional shipments were made at
billed prices of P 12,000. During December, Cebu branch returned merchandise that
was defective and received credits of P 750 on the returns. At the end of the month, the
branch records its inventory at P 18,500, which is from the following sources:
Merchandise acquired from home office at billed price P 16,500

Merchandise acquired from outsiders 2,000
Total inventory P 18,500
A branch loss for December is calculated at P 2,600. The home office has followed the
practice of billing the branch at 20% above merchandise cost.
Compute: 1) the balance of the allowance for overvaluation of branch inventory at

December 31, before adjustments, and 2) the net income (loss) of the branch in so far as
the home office is concerned:
a. (1) P 4,125; (2) P (2,600)

b. (1) P 6,875; (2) P 1,525
c. (1) P 7,000; (2) P 1,525
d. (1) P 6,875; (2) P (2,600)
111. On March 1, 2016, Cameron Construction Company was contracted to construct a

townhouse for Will Company for a total contact price of P 8,400,000. The building was
completed by October 31, 2018. The annual contract costs incurred, estimated costs to
complete the contract, and billings for 2016, 2017 and 2018 are giving below:
2016 2017 2018

Contract cost incurred during the year 3,200,000 2,600,000 1,450,000
Estimated cost at completion 6,400,000 7,250,000 7,250,000
Billings during the year 3,200,000 3,500,000 1, 700,000

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The entry to record the recognized profit in 2018 includes a credit to:
a. Construction revenue P 1,680,000

b. Construction in progress 230,000
c. Construction revenue 1,700,000
d. Construction in progress 1,450,000
112. Hilda, Irma, and Julie were partners with capital balances on January 2, 2018 of
P560,000, P 672,000, and P 496,000, respectively. Their profit and loss ratio are 3:5:2.
On August 1, 2018, Hilda retires from the partnership. On the date of retirement, the
partnership net loss from January 2 is P 384,000; and the partners agreed to revalue
inventories to P 296,000 (from the carrying amount of P 272,000). The payment to
Hilda in settlement of her interest to be P 454,800.
Upon the retirement of Hilda, which of the following will result?
a. Bonus to Irma of P 2,000

b. Bonus to Julie of P 800
c. Goodwill to Julie of P 2,800
d. Irma’s capital is P 66,800 more than Julie’s
113. On September 2, 2018, Nino, Olan, and Pete formed a partnership investing cash of
P945,000, P 850,500, and P 264,600., respectively. The partners share profits and
losses in the ratio of 3:2:2 and on October 31, 2018 the firm has cash of P 63,000, other
assets of P 2,992,500, and liabilities of P 1,612,800. On this date they decided to go out
of business and sell all the assets for P 1,890,000. Pete has personal assets of P 94,500
that may, if necessary, be used to meet partnership obligations. Loss from operations
was P 617,400.
How much should be distributed to Olan upon liquidation of the partnership?
a. P 128,520
b. P 306,180
c. P0
d. P 268,380
114. Edward and Ferdinand are partners sharing profits at 60% and 40%, respectively. On
January 1, Edward and Ferdinand decided to admit Gerald as a new partner upon the
investment of P 8,000. On this date, their interests in the firm are as follows: Edward,
P11,500 and Ferdinand, P 9,300. Assuming the new partner is given a ⅓ interest in the
firm with bonus allowed to the new partner the new capital balances of Edward,
Ferdinand and Gerald would be:
Edward Ferdinand Gerald

a. P 11,500 P 9,300 P 8,000

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b. P 12,480 P 8,320 P 8,000

c. P 11,520 P 7,680 P 9,600
d. P 10,540 P 8,660 P 9,600
115. On July 1, 2017, BMW Motors sold a new car to WIR Enterprises for P 850,000. The
car costs BMW P 650,625. WIR paid 25% cash down payment and received an
P80,000 trade-in allowance on an old car. The price balance will be paid in equal
monthly installments. The monthly amortization amounts to P 30,000 inclusive of 12%
interest on the unpaid amount of the obligation. The car traded in has a wholesale value
of P 120,000 after reconditioning and repainting cost of P 22,500. After paying three
installments, the buyer was unable to continue paying so the car was subsequently
repossessed. When reacquired, the car appraised to have a fair value of P 300,000.
How much is the realized gross profit on installment sales during the year?
a. P 96,003
b. P 91,623
c. P 20,180,000
d. P 71,627
116. On January 1, 2018, Tom Bravo sells 20 acres of farmland for P 6,000,000 taking in
exchange a 10% interest-bearing note. Tom Bravo purchased the farmland in 1984 at a
cost of P 5,000,000. They will be paid in three installments of P 2,412,690 each
December 31, 2018, 2012, and 2013. How much must be the deferred gross profit at the
end of 2018 under the installment method of revenue recognition?
a. P 1,000,000
b. P 697,885
c. P 637,462
d. P 597,885
For numbers 117-118

A construction contractor has a fixed price contract for P 10,000,000 to construct a
building project.
The contractors initial estimate of total contract costs is P 6,000,000. It will take two
years to construct the building. At the end of the first year of the project (December
31, 2018) the contractor incurred costs of P 2,000,000 on the contract, including P
2,000 on cement that is held offsite. The entity’s estimate of total contract costs has
stayed the same.
The contractor determines the stage of completion of the construction contract by

reference to the proportion that costs incurred for work performed to date to the
estimated total costs.
117. Determine the revenue, expenses and profit for the year 2018.
Revenue Expenses Profit
a. P 3,000,000 P 1,800,000 P 1,200,000
b. P 3,200,000 P 2,000,000 P 1,200,000

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c. P 3,133,333 P 1,800,000 P 1,333,333

d. P 3,333,333 P 2,000,000 P 1,333,333
118. If the contractor determines the stage of completion of the construction contract by
reference to independent surveys of work performed. At the end of 2018 the project
was certified to be 28% complete:
Revenue Expenses Profit

a. P 2,800,000 P 1,800,000 P 1,000,000
b. P 2,800,000 P 2,000,000 P 800,000
c. P 2,900,000 P 1,800,000 P 1,120,000
d. P 3,120,000 P 2,000,000 P 1,120,000
119. Nancy Franchisor entered into a franchise agreement with kule, Franchisee on July 1,
2018. The total franchise fee agreed upon if P 550,000, of which P 50,000 is payable
upon signing and the balance is covered by a non-interest-bearing note payable in four
equals annual installments. It was agreed that the down payment is not refundable,
notwithstanding lack of substantial performance by the franchisor. The direct franchise
cost incurred was P 325,000. Indirect franchise expense of P 31, 250 was also incurred.
The management of Kyle has estimated that they can borrow a loan of this type at the
rate of 12%. The franchise commenced operations on July 31, 2018.
How much is the net income (loss) to be reported? (use a PV factor of 3.04)
a. P 73,750
b. P 77,750
c. P 119,750
d. P (15,240)
120. Which of the following statements is false?
a. The preparation of combined statements necessitates the elimination of

reciprocal accounts
b. The recording of reported branch net income on the home office books
represents a home office closing entry.
c. The procedures in recording the home office and branch income accounts are
essentially the same as that of the bank reconciliation statement
d. While the branch financial statements may be prepared for internal reporting
purposes, external accounting reports reflects the activities and practices of the
company as a whole.
121. REH Textile Company has a single branch in Zambales. On March 1, 2018 the home
office accounting records included an Allowance for Overvaluation on Inventories
Zambales Branch Ledger account with a credit balance of P 32,000. During March,
merchandise costing P 36,000 was shipped to the Zambales Branch and billed at a price
representing a 40% mark up on the billed price.

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On March 31, 2018, the branch prepared an income statement indicating a net loss of P
11,500 for March and ending inventories at billed prices of 25,000.
What is the amount of adjustment for Allowance for Overvaluation on Inventories to

reflect the true branch net income?
a. P 39,257 debit
b. P 46,000 credit
c. P 39,333 debit
d. P 46,000 debit
122. On January 2, 2018, Mama signed an agreement to operate as a franchise of Papa for
an initial franchise fee of P 2,500,000 for 5 years. Of this amount, P 500,000 was paid
when the agreement was signed and the balance payable in four equal annual payments
beginning on December 30, 2018. Mama signed an interest-bearing note for the
balance. Mama’s rating indicated that it can borrow money at 24% for a loan this type.
Present value of an annuity of 1 for 4 periods is 2.4. Assume that substantial services
amounting to p 225,000 had already been rendered by Papa and that additional indirect
franchise cost of P68,00 was also incurred.
If the collection of the note is not reasonably assured, what is the realized gross profit
for the year ended December 31, 2018?
a. P 898,000
b. P 605,200
c. P 2,245,000
d. P 1,445,000
123. The following selected accounts appeared in the trial balance of Meirose Sales as of
December 31, 2018.
Debit Credit
Installment accounts Receivable - 2017 P 15,000
Installment Accounts Receivable - 2018 200,000
Inventory, December 31, 2017 70,000
Purchases 555,000
Repossessions 3,000
Installment Sales P 425,000
Sales 385,000
Unrealized Gross Profit - 2017 54,000
Additional information: as of December 31, 2017

Installment Accounts Receivable - 2016 as of December 31, 2017 P 135,000
Inventory of new and repossessed merchandise as of December 31, 2018 95,000
Gross profit percentage on regular sales during the year 30%
Repossession was made during the year. It was a 2017 sale, and the corresponding
uncollected account at the time of repossession was 7,800
The total realized gross profit in 2018, net loss on repossession is

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a. P 130,380
b. P 201,000
c. P 244,200
d. P 245,880
124. The following balance sheet was prepared for the X, Y and Z partnership on March
31, 2018:
Assets Liabilities and Capital

Cash P 25,000 Liabilities P 52,000
Other Assets 180,000 X, capital (40%) 40,000
Y, capital (40%) 65,000
Total Assets P 205,000 Total liabilities and Capital P 205,000
The Partnership is being liquidated by the sale of assets in installments. The first sale
of non-cash assets having a book value of P 90,000 realizes P 50,000.
Assume that each partner properly received some cash after the second sale of assets.
The cash to be distributed amount to P 14,000 from the third sale of assets, and unsold
assets with a P 6,000 book value remain. How should the P 14,000 be distributed to X,
Y and Z respectively.
a. P 5,600; P 6,500; P 2,800

b. P 5,000; P 5,000; P 4,000
c. P0 ; P 11,200; P 2,800
d. P 5,600; P 5,600; P 2,800
For numbers 125-126
Marcus and Wellington are partners with capital balances of P 32,000 and P 68,000,
respectively, as of July 1, 2018. Marcus has a 30% interest in profits and losses. All
assets of the partnership are at fair market value except as follows:
Book value Market value
Equipment P 150,000 P 142,000
Inventory 43,000 50,000
Building 274,000 250,000
Land 60,000 105,000
The partnership has decided to admit Kelly and Springer as new partners. Kelly
contributes cash of P 55,000 for a 20% interest in capital and a 30% interest in profits
and losses. Springer contributes cash of P 10,000 and equipment with a fair market
value of P 50,000 for a 25% interest in capital and a 35% interest in profits and losses.
Springer is also bringing special expertise and client contacts to the new partnership.
125. The capital balance of Marcus after Kelly and Spinger’s admission under bonus
method is:
a. P 40,775

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b. P 34,775
c. P 38,000
d. P 70,500
126. The method (bonus or goodwill) advantageous to Kelly and Springer and the total
amount of advantage is:
a. Bonus method for an advantage of P 2,055

b. Bonus method for an advantage of P 5,944
c. Bonus method for an advantage of P 12,750
d. Bonus method for an advantage of P 4,111
127. Building Corporation was corporated by Mr. E to construct 35 condominium units.

The estimated total cost of construction was P 49 million. Building bills its client at
120% of total costs estimated to complete a project. Details regarding the contract are
given below:
Units Finished Costs incurred to date Estimated cost at completion

2015 10 P 14,271,875 P 58,887,500
2016 18 P 36,286,250 P 55,825,000
2017 7 P 55,125,000 ?
What is the realized gross profit during 2016 using the output measures?
a. P 2,975,000
b. P 2,380,000
c. P 2,467,500
d. P 1,933,750
128. Tweety sold a restaurant franchise to Silvester. The sale agreement signed on January
2, 2017 called for a P 30,000 down payment plus an interest-bearing note of P 20,000
payable in two annual payments representing the value of initial franchise services
rendered by Tweety. In addition, the agreement required the franchisee to pay 5% of its
gross revenues to the franchisor; this was deemed sufficient to cover the cost and
provide a reasonable profit margin on continuing franchisee services to be performed
by franchisee. The restaurant opened early in 2017, and its sales for the year amounted
to P 500,000. The management of Silvester has estimated that they can borrow a loan
of this type at the rate of 10%.
The present value factor of an ordinary annuity at 10% for 2 periods is 1.7335.
Tweety should recognize total revenue from the franchise amounting to:
a. P 77,000
b. P 74.069
c. P 75,000
d. P 72,335

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For numbers 129-130
Partial list of accounts from trial balances of the ALIBABA Corporation, Branch A
and Branch B at December 31,2018 are as follows:
Home Office Branch A Branch B

Inventory, Jan 2018 P 34,000 P 5,500 8,800
Branch A 100,000 - -
Branch B 81,000 - -
Purchases 500,000 - -
Expenses 120,000 35,000 38,000
Shipments from home office - 68,200 41,800
Home office - 94,000 75,000

Sales 500,000 150,000 120,000
Shipments to Branch A 73,700
Shipments to Branch B 46,200
Loadings in Branch Inventory - Jan 1 1,300
Additional information:
Shipments to the branches are made at billed prices. Inventory on hand on December
31, 2018 - Home office - P 31,000; branch A - P 7,260; Branch B - P 8,250
129. Combined cost of goods sold
a. P 601,900
b. P 503,000
c. P 482,000
d. P 383,100
130. The merchandise inventory on the combined balance sheet as of December 31, 2018.
a. P 68,400
b. P 65,000
c. P 46,500
d. P 45,100
131. E, J and N agree to liquidate their consulting practice as soon as possible after the
close of business on July 31, 2018. The trial balance on that date shows the following
account balances.
Cash P 130,000 Accounts payable P 60,000

Accounts receivable 120,000 Loan to E 40,000
Furniture and Fixtures 350,000 E, capital 200,000
J, capital 150,000
________ N, capital 150,000
P 6000,000 P 600,000

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The partners share profits and losses 50%, 20%, and 30% to E, J, and N, respectively,
after N is allowed a monthly salary of P 40,000.
August transactions and events are as follows:

1. The accounts payable are paid.
2. Accounts receivable of P 80,000 are collected in full. N accepts accounts receivable
with a face value and fair value of P 30,000 in partial satisfaction of his capital balance.
The remaining accounts receivable are written off as uncollectible.
3. Furniture with a book value of P 250,000 is sold for P 150,000.
4. Furniture with a book value of P 40,000 and an agreed upon fair value of P 10,000 is
taken by J in Goodwill Industries.
5. Liquidation expenses of P 30,000 are paid.
6. Available cash is distributed to partners on August 31.
How much of J’s equity was recovered from the partnership liquidation?
a. P 25,000
b. P 51,000
c. P 94,000
d. None
132. At the time of liquidation of general partnership, which of the ff credits should be
settled first by the liquidating partner?
a. Liabilities of the partnership to the co-partners.

b. Liabilities of the partnership to the third person.
c. Liabilities of the partnership to the partnership.
d. Liabilities of the partnership to the family.
133. Under PFRS 15, when shall the consignor recognizes the revenue from consignment
sales arrangement?
a. From the moment of the remittance of the consignee.

b. From the moment of the collection of the consignee of the sales of the products
c. From the moments the consignor delivers the goods to the consignee.
d. From the moment the consignee sells the goods to the final customer.
134. Under PFRS 15, what is the criteria before entity may recognize the incremental costs
of obtaining the contract?
a. If the entity expects to recover those costs.

b. If the entity receives the costs from the customer.
c. If the customer signs the contract with the entity.
d. If the customer violates the contract with the entity.

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135. Under PFRS 15, what is the proper measurement of revenue from contract with
customers if the entity received a non-cash consideration?
a. Book value of the consideration received.

b. Historical cost of the consideration received
c. Fair value of the consideration received
d. Stand-alone selling price
136. What is the reason for the understatement of the net income reported by the branch in
its separate income statement?
A. Overstatement of cost of goods sold reported by the branch due to goods acquired
from the home office.
B. Overstatement of cost of goods sold reported by the branch due to goods acquired
from the branch.
C. Overstatement of ending inventory reported by the branch due to goods acquired
from the home office.
D. Overstatement of purchases reported by the branch due to goods acquired from the
home office.
137. Which of the following will increase the COGS for the year ended?
a. Increase in Raw Materials inventory during the year

b. Increase in WIP inventory during the year
c. Decrease in Raw Materials inventory during the year
d. Decrease in WIP inventory during the year
138. What is the accounting treatment of material over application or under application of
factory overhead in normal costing?
a. It shall be closed to COGS only

b. It shall be closed to expenses
c. It shall be expense when incurred.
d. It shall be closed proportionately to work in process ending inventory, finished
goods inventory and COGS.
139. A credit balance in the materials price variance indicates
a. Actual price exceeds standard price.

b. Standard price exceeds the actual price
c. Actual quantity exceeds the standard quantity.
d. Standard quantity exceeds the actual quantity

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140. Which of the following method should be used if the company ends all processing at
the split off point and wants to use joint allocation method that considers the revenue-
producing-ability of each product?
a. Replacement cost method

b. Approximated NRV method
c. Relative sales value method
d. Physical units method
141. What is the difference between the Weighted Average EUP and First in-First out
EUP?
a. Completed proportion of WIP Beginning

b. Completed portion of WIP beginning
c. Uncompleted portion of WIP Beginning
d. Uncompleted portion of WIP ending
For numbers 142-146
WWW Corp. had the following data ascertained before liquidation. Total book value of
the assets was P250,000. The book value of the inventories, P80,000 had an excess in
the amount of P26,000 over its estimated fair value. The equipment’s estimated had an
excess amount of P2,500 over its book value of P120,000. Included in the book value
of the assets was prepaid expense of P18,000 which was considered worthless. Other
assets not mentioned above have an estimated fair value which was P15,000 less than
its book value. Total liabilities were P200,000. The accounts payable in the amount of
P70,000 was secured by the investors while the notes payable in the amount of P95,000
was secured by the equipment. Other liabilities not mentioned includes salaries and
taxes in the amount of P12,500.
142. What is the amount of net free assets?
a. 44,500
b. 32,000
c. 93,000
d. 50,000
143. What is the estimated loss on asset realization?
a. 41,000
b. 38,500
c. 59,000
d. 56,500

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144. What is the estimated recovery for the partially secured creditors?
a. 67,299
b. 67,506
c. 67,128
d. 66,962
145. What is the estimated recovery percentage of notes payable?
a. 96.14%
b. 96.43%
c. 95.90%
d. 100%
For numbers 146-148
On December 1, 2020, EA consigned ten units of laptop to CB with total production

cost of P500,000. Ten units of laptop are delivered by a common carrier with via
freight collect at a cost of P100,000. CB is entitled to 10% commission for selling the
laptop to final consumers. As of Dec. 31, 2020, CB was able to sell 7 units of laptop
to final consumers for P80,000 per unit on cash basis and made remittance to EA.
146. What is the book value of ending inventory to be reported by EA regarding the
consigned laptops on Dec 31, 2020?
a. 150,000
b. 135,000
c. 180,000
d. 162,000
147. What is the net income to be reported by EA regarding to this consignment contract
for the year ended Dec 31, 2020?
a. 126,000
b. 140,000
c. 98,000
d. 84,000
148. What is the net remittance by CB to EA on Dec 31, 2020?
a. 560,000
b. 404,000
c. 434,000
d. 460,000

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For numbers 149-151
On Jan 1 2020, entity A entered into a long-term construction contract for the
development of a condominium project at a fixed contract price of P10,000,000. The
ff data are provided by the accountant concerning the costs of the said project.
2020 2021 2022
Cost during the year 1,000,000 2,600,000 4,500,000
Cumulative % of completion 12.5% 60% 90%
The outcome of construction contract can be estimated reliably. Entity A employs cost
to cost method.
149. What is the balance of construction in progress to be reported by Entity A on Dec 31,
2021?
a. 1,250,000
b. 6,000,000
c. 9,000,000
d. 3,600,000
150. What is the gross profit (loss) to be reported by Entity A for the year ended Dec 31,
2022?
a. 900,000
b. 1,200,000
c. (1,500,000)
d. (2,400,000)
151. What is the cost of construction to be reported by Entity A for the year ended Dec. 31,
2022?
a. 4,500,000
b. 4,400,000
c. 4,200,000
d. 4,000,000
152. Which of the ff costs will be properly classified as prime costs?
a. Factory overhead costs and direct material costs

b. Factory overhead costs and direct labor costs
c. Direct material and direct labor costs
d. Indirect labor costs and indirect material costs

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153. Which of the ff transactions will result to credit in home office account in the book of
Pasig Branch?
a. Reported net loss of the Pasig branch

b. Payment by Pasig branch of home office’s liability
c. Return by Pasig branch to home office of merchandise
d. Collection by Pasig branch of Pasay branch receivable.
154. What is the accounting treatment of material net realizable value of by-product?
a. Deduction from cost of sales of main products

b. Addition to sales revenue of main products
c. Presented as other income
d. Deduction form total joint cost
For numbers 149-151
A, B, C are partners. On Jan 2, 2020, their capital balances and profit and loss ratio
are:
Capital P/L Ratio
A P625,000 60%
B 1,250,000 25%
C 1,500,000 15%
C withdrew 250,000 during the year, Net loss on Dec 31 is P500,000. Hence the
partners decided to liquidate the partnership. It is uncertain how much the assets will
ultimately yield but favorable realization is expected. It is therefore agreed to
distribute cash as it become available. There are unpaid liabilities of P125,000 and
cash P17,500
155. What is the book value of the total non-cash assets before liquidation?
a. 2,625,000
b. 2,607,500
c. 2,750,000
d. 2,732,500
156. What is the amount to be realized by the partnership on the sale of its non-cash assets
so that A will receive a total of P475,000 in the final settlement of his interest?
a. 2,582,500
b. 2,982,500
c. 232,500
d. 150,000

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157. Which of the following is a reason why a company would expand through a
combination, rather than by building new facilities?
a. A combination might provide cost advantages.

b. A combination might provide fewer operating delays
c. A combination might provide easier access to intangible assets.
d. All of the above are possible reasons that a company might choose a combination
158. A business combination in which a new corporation is created and two or more
existing corporations are combined into the newly created corporation is called a
a. Merger
b. Purchase transaction
c. Pooling-of-interest
d. Consolidation
159. A business combination occurs when a company acquires an equity interest in another
entity and has
a. at least 20% ownership in the entity

b. more than 50% ownership in the entity.
c. 100% ownership in the entity
d. control over the entity, irrespective of the percentage owned
160. In a merger, which of the following will occur?
a. A merger occurs when one corporation takes over the operations of another
business entity, and the acquired entity is dissolved
b. None of the business entities will be dissolved.
c. The acquired assets will be recorded at book value by the acquiring entity
d. None of the above is correct
161. Which of the following conditions would not indicate that two business segments
should be classified as a single operating segment?
a. They have similar amounts of intersegment revenues or expenses.

b. They have a similar distribution of products.
c. They have similar production processes
d. They have similar products or services
162. An enterprise uses a branch accounting system in which it establishes separate formal
accounting systems for its home office operations and its branch office operations.
Which of the following statements about this arrangement is false?

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a. The home office account on the books of a branch office represents the equity
interest of the home office in the net assets of the branch.
b. The branch office account on the books of the home office represents the equity
interest of the branch office in the net assets of the home office.
c. The home office and branch office accounts are reciprocal accounts that must be
eliminated in the preparation of the enterprise’s financial statements that are
presented in accordance with GAAP.
d. Unrealized profit from internal transfers between the home office and a branch
must be eliminated in the preparation of the enterprise’s financial statements that
are presented in accordance with GAAP.
163. VERDI, Inc. has several branches. Goods costing P10,000 were transferred by the
head office to Cebu Branch with the latter paying P600 for freight cost. Subsequently,
the head office authorized Cebu Branch to transfer the goods to Davao Branch for
which the latter was billed for the P10,000 cost of the goods and freight charge of P200
for the transfer. If the head office had shipped the goods directly to Davao Branch, the
freight charge would have been P700. The P100 difference in freight cost would be
disposed of as follows:
a. Considered as savings.
b. Charged to Davao Branch.
c. Charged to Cebu Branch.
d. Charged to the Head Office.
164. The partnership agreement is an express contract among the partners (the owners of
the business). Such an agreement generally does not include
a. A limitation on a partner’s liability to creditors.

b. The rights and duties of the partners.
c. The allocation of income between the partners.
d. The rights and duties of the partners in the event of partnership dissolution.
165. A partnership records a partner’s investment of assets in the business at
a. The market value of the assets invested.

b. A special value set by the partners.
c. The partner’s book value of the assets invested.
d. Any of the above, depending upon the partnership agreement
166. When property other than cash is invested in a partnership, at what amount should the
noncash property be credited to the contributing partner’s capital account?
a. Fair value at the date of recognition.

b. Contributing partner’s original cost.

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c. Assessed valuation for property tax purposes.

d. Contributing partner’s tax basis
167. When property other than cash is invested in a partnership, at what amount should the
noncash property be credited to the contributing partner’s capital account?
a. Fair value at the date of contribution.

b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.
168. Four individuals who were previously sole proprietors form a partnership. Each
partner contributes inventory and equipment for use by the partnership. What basis
should the partnership use to record the contributed assets?
a. Inventory at the lower of FIFO cost or market.

b. Inventory at the lower of weighted-average cost or market.
c. Equipment at each proprietor’s carrying amount.
d. Equipment at fair value.
169. The goodwill and bonus methods are two means of adjusting for differences between
the net book value and the fair value of partnerships when new partners are admitted.
Which of the following statement about these methods is correct?
a. The bonus method does not revalue assets to market values.

b. The bonus method revalues assets to market values.
c. Both methods result in the same balances in partner capital accounts.
d. Both methods result in the same total value of partner capital accounts, but the
individual capital accounts vary.
170. In the Adel-Brick partnership, Adel and Brick had a capital ratio of 3:1 and a profit
and loss ratio of 2:1, respectively. The bonus method was used to record Colter’s
admittance as a new partner. What ratio would be used to allocate, to Adel and Brick,
the excess of Colter’s contribution over the amount credited to Colter’s capital account?
a. Adel and Brick’s new relative capital ratio.

b. Adel and Brick’s new relative profit and loss ratio.
c. Adel and Brick’s old capital ratio.
d. Adel and Brick’s old profit and loss ratio.
171. If the partnership agreement does not specify how income is to be allocated, profits
should be allocated
a. Equally.
b. In proportion to the weighted-average of capital invested during the period.

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c. Equitably so that partners are compensated for the time and effort expended on
behalf of the partnership
d. In accordance with an established ratio
172. The result of acquiring control of one or more enterprises by another enterprise or the
uniting of interest of two or more enterprises.
a. Business combinations.
b. Merger.
c. Business consolidation.
d. Pooling of interests.
173. Financial reporting by nonbusiness organizations should provide information useful in
a. Making resource allocation decisions.

b. Assessing services and the ability to continue to provide services.
c. Assessing management stewardship and performance.
d. All of the answers are correct.
174. Stockholders of one company give up their stock in exchange for the stock of the
other company, they continue to be stockholders, but now in the expanded entity.
a. None of these.
b. Leverage of trading on equity.
c. Acquisition method of recording a combination.
d. Pooling of interests.
175. A business combination accounted for by the pooling of interest method
a. Records direct acquisition costs as part of the cost of investment.

b. Reports results of operations only for the period in which the combination
occurs.
c. After the combination, carries the balance sheet amounts at fair market value.
d. Reports results of operations for the period in which the combination occurs as
though the enterprises had been combined at the beginning of the period
176. For the past several years, Mozza Co. has invested in the common stock of Chedd Co.
Mozza currently owns approximately 13% of the total of Chedd’s outstanding voting
common stock. Recently, managements of the two companies have discussed a possible
combination of the two entities. If they do decide to combine, the resulting combination
should be accounted for as a
a. Pooling of interests.
b. Part purchase, part pooling.

lOMoARcPSD|8108153
c. Purchase.
d. Joint venture.
177. PDC Corp. acquired 100% of the outstanding common stock of Sea Corp. in a
purchase transaction. The cost of the acquisition exceeded the fair value of the
identifiable assets and assumed liabilities. The general guidelines for assigning amounts
to the inventories acquired provide for
a. Raw materials to be valued at original cost.

b. Work in process to be valued at the estimated selling prices of finished goods,
less both costs to complete and costs to disposal.
c. Finished goods to be valued at replacement cost.
d. Finished goods to be valued at estimated selling prices, less both costs of
disposal and a reasonable profit allowance.
178. Which of the following most accurately describes the position taken by current
generally accepted accounting principles?
a. Both pooling of interests and the purchase method are still permitted under
certain circumstances.
b. The purchase method results in the assets of the acquired company being
recognized on the acquiring company's balance sheet at their fair value at the
date of acquisition.
c. Goodwill may arise as a result of a business acquisition accounted for as a
pooling of interests. S, S & S
d. The purchase method requires a business acquisition transaction to be structured
to meet twelve very specific criteria required by generally accepted accounting
principles
179. On January 1, 2019, Prim, Inc. acquired all the outstanding common shares of Scarp,
Inc. for cash equal to the book value of the stock. The carrying amounts of Scarp’s
assets and liabilities approximated their fair values, except that the carrying amount of
its building was more than fair value. In preparing Prim’s 2019 consolidated income
statement, which of the following adjustments would be made?
a. Depreciation expense would be decreased and goodwill amortization would be

recognized.
b. Depreciation expense would be increased and goodwill amortization would be
recognized.
c. Depreciation expense would be decreased and no goodwill amortization would
be recognized.
d. Depreciation expense would be increased and no goodwill amortization would
be recognized.

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180. Goodwill arising from a business combination should
a. Be expensed in the year of acquisition.

b. Not be amortized as it is an asset.
c. Be amortized over its economic life.
d. Be written off after 40 years.
181. On January 1 of this year, Ent Co. acquired Idiary Co. in a business combination
accounted for as a purchase. Idiary sponsors a single-employer defined benefit pension
plan. At the date of the combination, the following data were available:
Projected benefit obligation P5,000,000

Fair value of plan assets 4,000,000
Accumulated benefit obligation 4,500,000
Unrecognized net transition obligation 600,0000
Unrecognized prior service cost 200,000
Prepaid pension cost 100,000
The allocation of the purchase price should be based on which of the following?
a. The only allocation related to the pension plan will be P100,000 for prepaid
pension cost.
b. An allocation must be made to liabilities for the transition net obligation, prior
service cost, and net loss.
c. A liability must be recognized for the excess of the projected benefit obligation
over plan assets.
d. A liability must be recognized for the excess of the accumulated benefit
obligation over plan assets.
182. Under PFRS 15, what account will be presented by the entity in its statement of
financial position where a customer has paid an amount of consideration prior to the
entity performing by transferring the related good or service to the customer?
a. Contract asset
b. Contract receivable
c. Contract liability
d. Contract revenue
183. PFRS 15 provides that where a contract with a customer has multiple performance
obligations, an entity will allocate the transaction price to the performance obligations
in the contract by reference to their relative standalone selling prices. However, if a
standalone selling price is not directly observable, the entity will need to estimate it.
PFRS 15 suggests the following various methods to estimate the standalone selling
price of each performance obligation, except

lOMoARcPSD|8108153
a. Net Realizable Value Approach

b. Adjusted Market Assessment Approach
c. Expected Cost Plus A Margin Approach
d. Residual Approach
184. Under Installment Method of recognition of gross profit from Installment Sales, what
is the proper classification of deferred gross profit in the entity’s statement of financial
position?
a. Deferred Revenue Account

b. Deferred Cost Account
c. Unearned Revenue Account
d. Contra-Installment Receivable Account
185. What method shall be employed by a franchisor in the recognition of gross profit from
initial franchise fee when its payment is deferred but the probability of its collection is
reasonably assured?
a. Installment basis
b. Cost recovery basis
c. Accrual basis
d. Zero profit basis
186. Which of the following will decrease the cost of goods sold during the period?
a. Increase in finished goods inventory during the period

b. Decrease in work-in-process during the period
c. Increase in total manufacturing cost during the period
d. Decrease in raw materials inventory during the period
187. In a statement of affairs, assets pledged for partially secured creditors are
a. Included with assets pledged for fully secured creditors

b. Offset against partially secured creditors
c. Included with free assets
d. Disregarded
188. On a statement of financial affairs, a company’s assets should be valued at
a. Historical cost
b. Net realizable value, if lower than historical cost
c. Net realizable value, I higher than historical cost
d. Net realizable value, whether higher or lower than historical cost

lOMoARcPSD|8108153
189. In a statement of financial affairs, assets are classified
a. According to whether they are pledged with particular creditors

b. As current or noncurrent
c. As monetary or nonmonetary
d. As operating or nonoperating
For numbers 190-192
Seventeen Corporation maintains a merchandise outlet in Santiago City aside from the
main store. All purchases are made by the main store and some are shipped to the
branch at cost plus 10%. On January 1, 2017, the main store and branch store
inventories were P17,000 and P4,950, respectively. During 2017, the main store
purchased merchandise costing P50,000 and shipped 40% of it to the branch. At
December 31, 2017 the branch made the following closing entry:
Sales 40,000
Inventory 6,050
Shipments from main store 22,000
Expenses 13,100
Inventory 4,950
Main store 6,000
190. What was the actual branch income for 2017 on a cost basis assuming generally
accepted accounting principles?
a. P6,000
b. P7,900
c. P8,100
d. P8,550
191. If the main store inventory at December 31,2017 is P14,000, the combined main store
and branch store inventory that should appear in Seventeen Company’s balance sheet is
a. P18,950
b. P19,500
c. P20,050
d. P21,000
192. If the main store inventory at December 31,2017 is P14,000, the combined cost of
goods sold that should appear in Seventeen’s income statement is
a. P74,000
b. P54,000
c. P52,000
d. P33,000

lOMoARcPSD|8108153
193. It is a joint arrangement whereby the parties that have joint control of the arrangement
have rights to the assets and obligations for the liabilities relating to the arrangement
a. Joint asset
b. Joint entity
c. Joint operation
d. Joint venture
194. It is the joint arrangement that involves the establishment of a corporation in which
each party has an equity interest in the net assets of the corporation
a. Joint venture
b. Joint operation
c. Either joint venture or joint operation
d. Neither joint venture or joint operation
195. The installment method of recognizing profit for accounting purposes is acceptable if
a. Collections in the year of sale do not exceed 30% of the total sales price
b. An unrealized profit account is credited
c. Collection of the sales price is not reasonably assured
d. The method is consistently used for all sales of similar merchandise
196. Under the cost-recovery method, no revenue is recognized until
a. Collections are equal to the amount of cost of goods sold

b. Collections are less than the cost of goods sold
c. The selling price is collected
d. All of the above
For numbers 190-192
RM Construction Company began operations in 2017. Construction activity for the

first year is shown below. All contracts are with different customers and any work
remaining at December 31, 2017 is expected to be completed in 2018.
Project Contract Billings Collections Actual Additional

Price Costs Cost to
Complete
1 P5,600,000 P3,600,000 P3,400,000 P4,500,000 P1,125,000
2 2,200,000 2,200,000 2,100,000 1,260,000 5,040,000
3 5,200,000 5,200,000 4,935,125 3,800,000
P17,500,000 P11,000,000 P10,435,125 P9,560,000 P6,165,000
RM uses the percentage of completion method in accounting or its projects.

lOMoARcPSD|8108153
197. The amount of construction cost recognized for Project 1 at the 2017 year-end is
a. P4,500,000
b. P4,525,000
c. P4,550,000
d. P4,505,000
198. The amount of accounts receivable reported by RM in the year-end balance sheet is
a. P546,875
b. P564,875
c. P456,875
d. P564,785
199. The amount of inventory reported for the projects in the year-end balance sheet is
a. P875,000
b. P 15,000
c. P860,000
d. P 0
200. The amount of current liability reported for the projects in the year-end balance sheet
is
a. P875,000
b. P 15,000
c. P860,000
d. P 0

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lOMoARcPSD|8108153

ADVANCED FINANCIAL ACCOUNTING AND REPORTING

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AFAR Test Bank

1. Which of the following procedures is not a necessary step affecting a dissolution of

a. Revaluing partnership assets

a. 40,844 decrease and P31,237 decrease

3. In case of general partnership liquidation, which of the following credits shall be

a. Those owing for partner’s capital contribution

a. Recognition of impairment loss in case of admission of a new partner by

5. A partner was admitted in an existing partnership through investment of cash

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a. Asset revaluation of existing partnership’s assets

For questions 7-8

In 2016, ETC Builders agreed to construct a commercial building at a price of P7,500,000.

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a. Collection by the home office of branch’s receivable

For questions 11-12

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PDF Co. SMB CORP.

12. What is the net income attributable to the controlling interest?

For questions 13-14

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a. A memorandum entry only

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c. A P5,000 credit to operating expenses

a. Fund whose principal is require to be invested indefinitely

a. It shall be classified and treated as financial asset

a. Its value changes in response to the change in a specified underlying (e.g.,

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b. It requires no initial investment or an initial net investment that is smaller than

22. Which statement is correct regarding forward contracts?

a. Have positive fund balance

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c. Operate for purposes other than to provide goods or services

For numbers 26-27

26. What is the total agreed capitalization of the ABC Partnership?

27. What is the cash to be contributed by C in the ABC Partnership?

For numbers 28-29

During 2018, A and B made additional investments of P200,000 and P500,000,

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29. What is the capital balance of C on December 31, 2018?

For numbers 30-32

On January 1, 2018, A, B and C formed ABC Partnership with original capital

During 2018, A, B and C made additional investments of P500,000, P200,000 and

• 10% interest on original capital contribution of the partners.

31. What is A’s share in partnership profit for 2018?

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On December 31, 2018, the Statement of Financial Position of ABC Partnership

On December 31, 2018, ABC Partnership’s Statement of Financial Positions shows

34. What is the capital balance of A after the retirement of C?

On December 31, 2018, ABC Partnership’s Statement of Financial Position shows

35. What is the capital balance of B after the retirement of C?

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On December 31, 2018, the Statement of Financial Position of ABC Partnership

Current Assets 1,300,000 Total Liabilities 300,000

For numbers 37-38

Current Assets 1,500,000 Total Liabilities 500,000

On January 1, 2019, D is admitted to the partnership by investing P500,000 to the

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For numbers 39-40

Cash 1,000,000 Other Liabilities 2,000,000

For numbers 41-43