Advanced Financial Accounting and Reporting

Solution in Problem Solving

Number 1 Answer B

Fair Market Value of Land and Building contributed by B 1,500,000

Less: Mortgage Payable to be assumed by ABC Partnership ( 300,000)
Capital Credit of B in ABC Partnership 1,200,000
Divided by B’s Capital Interest Ratio /60%
Total Agreed Capitalization of ABC Partnership 2,000,000

Fair Market Value of Land and Building contributed by B 1,500,000

Less: Mortgage Payable to be assumed by ABC Partnership ( 300,000)
Capital Credit of B in ABC Partnership 1,200,000

Capital Credit of A in ABC Partnership (Proceeds from sale of equipment) 300,000

Number 2 Answer A

Total Agreed Capitalization of ABC Partnership 2,000,000

Less: Total Capital Credit of A and B (P300,000 + P1,200,000) 1,500,000
Cash to be contributed by C in ABC Partnership 500,000

Number 3 Answer A

January 1, 2018 B’s Capital Balance (P1,000,000 x 10%) 100,000

Add: B’s additional investment during 2018 500,000
Less: B’s drawings at the end of 2018 (300,000)
Less: B’s capital balance on December 31, 2018 (200,000)
B’s Share in Net Loss for the year ended December 31, 2018 (100,000)
Divided by B’s interest in profit or loss /20%
Net loss of ABC Partnership for the year ended December 31, 2018 (500,000)

Number 4 Answer B

January 1, 2018 C’s Capital Balance (P1,000,000 x 40%) 400,000

Less: C’s Share in Net Loss during 2018 (P500,000 x 50%) (250,000)
Less: C’s drawings at the end of 2018 (100,000)
December 31, 2018 Capital Balance of C 50,000

Number 5 Answer C

December 31, 2018 C’s Capital Balance 320,000

Add: C’s drawings at the end of 2018 400,000
Less: C’s additional investment during 2018 (300,000)
Less: C’s capital balance on January 1, 2018 (200,000)
C’s share in partnership profit for the year ended December 31, 2018 220,000

C’s share in profit for the year 2018 220,000

Less: Interest on original capital contribution of C (200,000 x 10%) ( 20,000)
C’s share in the remaining profit after interest, salary and bonus 200,000
Multiply by number of partners x 3
Remaining profit after interest, salary and bonus 600,000
Divided by 80% / 80%
Net profit after salary and interest but before bonus to managing partner 750,000
Add: Total interest and salary (100,000 + 200,000) 300,000
Partnership profit for the year ended December 31, 2018 1,050,000
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Number 6 Answer C

Interest on capital (10% x 300,000) 30,000

Salary (40,000 x 4) 160,000
Bonus to A 150,000
Equal share in remaining profit (600,000 / 3) 200,000
Total share of A in partnership profit 540,000

Partnership profit for the year ended December 31, 2018 1,050,000
Less: Total interest and salary (100,000 + 200,000) (300,000)
Net profit after salary and interest but before bonus to managing partner 750,000
Multiply by Bonus percentage x 20%
Bonus to A as managing partner 150,000

Number 7 Answer B

Interest on capital (10% x 500,000) 50,000

Salary (10,000 x 4) 40,000
Equal share in remaining profit 200,000
Total share of B in partnership profit 290,000

Number 8 Answer B

Capital Balance of B before the admission of D 800,000

Less: Capital to be transferred to D (P800,000 x 40%) ( 320,000)
Capital Balance of B after the admission of D 480,000

Number 9 Answer D

Capital Balance of A before the retirement of C 500,000

Add: Share of A in asset revaluation (250,000 x 10%) 25,000
Capital Balance of A after the retirement of C 525,000

Cash received by C upon retirement 300,000

Capital of C before retirement 200,000
Share of C asset revaluation 150,000

Total asset revaluation (150,000 / 60%) 250,000

Number 10 Answer C

Capital Balance of B before the retirement of C 300,000

Add: Share of B from Bonus given by C (P20,000 x 4/5) 16,000
Capital Balance of B after the retirement of C 316,000

Capital balance of C before retirement 100,000

Cash received by C upon retirement 80,000
Bonus given by C 20,000
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Number 11 Answer A

Capital Balance of C before the admission of D 900,000

Add: Share of C in bonus given by D (P200,000 x 30%) 60,000
Capital Balance of C after the admission of D (16) (A) 960,000

Capital of A 1,400,000
Capital of B 700,000
Capital of C 900,000
Capital of D 1,000,000
Total capital 4,000,000

Contribution of D 1,000,0000
Interest of D (20% x 4,000,000) 800,000
Bonus given by D 200,000

Number 12 Answer B

Capital credit of D to the new partnership (P3,000,000 x 10%) 300,000

Number 13 Answer A

Capital Balance of C before the admission of D 700,000

Less: C’s share in asset impairment (P500,000 x 40%) (200,000)
Add: C’s share in bonus given by D (P200,000 x 40%) 80,000
Capital Balance of C after the admission of D 580,000

Contributed capital by D to the new partnership 500,000

Less: Capital credit to D in the new partnership (P3,000,000 x 10%) 300,000
Bonus given by D to the existing partners 200,000

Total contributed capital of all partners (P3,000,000 + P500,000) 3,500,000

Less: Total agreed capitalization of new partnership 3,000,000
Asset impairment to be shared by old partners only 500,000

Number 14 Answer A

Capital Balance of B before liquidation ( 650,000)

Add: Payable to B 1,000,000
Capital Balance of B after the right of offset 350,000
Less: Share of B in Total Loss on Liquidation (600,000 x 10%) 60,000
Capital Balance of B after loss on liquidation but before absorption of A’s insolvency 290,000
Less: Share of B in A’s debit capital balance (P160,000 x 1/4) (40,000)
Cash received by B at the end of partnership liquidation 250,000

Noncash assets 2,000,000

Sale price 1,500,000
Loss on sale 500,000
Liquidation expenses 100,000
Total loss on liquidation 600,000

Capital of A 700,000
Receivable from A (500,000)
Net capital of A 200,000
Share in total loss (60% x 600,000) (360,000)
Debit balance in capital of A (160,000)
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Number 15 Answer B

Capital Balance of C before liquidation 350,000

Add: Payable to C 100,000
Capital Balance of C after the right of offset 450,000
Less: Share of C in Total Loss on Liquidation (600,000 x 30%) 180,000
Capital Balance of C after loss on liquidation but before absorption of A’s insolvency 270,000
Less: Share of C in A’s debit capital balance (P160,000 x 3/4) (120,000)
Cash received by C at the end of partnership liquidation 150,000

Number 16 Answer B

Capital Balance of C before liquidation 400,000

Less: Share of C in Total Loss in Liquidation during January (P500,000* x 20%) (100,000)
Capital Balance of C after loss on liquidation but before absorption of A’s insolvency 300,000
Less: Share of C in A’s debit balance (P150,000 x 2/5) ( 60,000)
Cash received by C at the end of partnership liquidation 240,000

Cash balance before start of liquidation 1,600,000

Add: Net proceeds from sale of noncash asset during January (1,000,000 + 100,000) 1,100,000
Less: Cash paid for liquidation expenses during January (50,000)
Less: Cash paid for liabilities to third person during January (P2,000,000 x 20%) (400,000)
Less: Cash withheld for unpaid liabilities to third persons (P2,000,000 x 80%) (1,600,000)
Less: Cash withheld for estimated future liquidating expenses (150,000)
Cash available for distribution to partners 500,000
Less: Total capital of all partners (100,000+500,000+400,000) (1,000,000)
Total loss on liquidation for the first month of installment 500,000*

Capital of A before liquidation 100,000

Share in loss on liquidation (50% x 500,000) (250,000)
Debit balance in capital of A (150,000)

Number 17 Answer D

Estimated future liquidating expenses on January 31, 2019 150,000

Add: carrying amount of remaining noncash assets on January 31, 2019
(1,400,000 – 1,000,000) 400,000
Maximum possible loss on January 31, 2019 550,000
B’s share in maximum possible loss (P550,000 x 30%) 165,000

Number 18 Answer C

Cash withheld for future liquidating expenses 150,000

Add: Cash withheld for remaining unpaid liabilities to third persons (P2,000,000 x 80%) 1,600,000
Total cash withheld on January 31, 2019 1,750,000

Number 19 Answer C

Amount received by holder of note payable (NRV of Inventory) 250,000

Note: Only the net realizable value of collateral inventory will be received since there is
no available net free asset.
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Number 20 Answer D

Amount received by holder of mortgage payable (Fair value of Land) 100,000

Note: The mortgage payable will be fully collected because it is fully secured credit.

Number 21 Answer B

Cash 100,000
Add: Free assets from fully secured mortgage payable (P120,000 – P100,000) 20,000
Total Free assets for unsecured credits with priority 120,000
Amount received by employees for their salary 120,000
Note: Since only P120,000 free assets are available, it must all be given to employees
who are preferred over the government.

Number 22 Answer C

Amount received by partially secured loan payable 340,000

Less: Fair value of collateral – machinery (300,000)
Recovered amount from the unsecured portion of partially secured loans payable 40,000
Divided by unsecured portion of partially secured loan payable (400,000 – 300,000) /100,000
Recovery percentage on unsecured credits 40%

Amount received by holder of accounts payable (P100,000 x 40%) 40,000

Number 23 Answer A

Accounts payable 100,000

Add: Unsecured portion of partially secured loan payable (400,000 –P300,000) 100,000
Total unsecured credits including unsecured portion of partially secured loans payable 200,000
Multiply by recovery percentage of unsecured credits x 40%
Net free assets 80,000

Number 24 Answer C
Land owned by Entity A 3,000,000
Add: Interest of Entity A on co-owned inventory (P1,000,000 x 60%) 600,000
Total assets to be reported by Entity A concerning its interest in Entity C 3,600,000

Number 25 Answer A

Notes payable owed by Entity B 1,000,000

Add: Interest of Entity B on co-owed accounts payable (P2,000,000 x 40%) 800,000
Total liabilities to be reported by Entity B concerning its interest in Entity C 1,800,000

Number 26 Answer B

Sales revenue reported by Entity C 5,000,000

Less: Unsold inventory of Entity A coming from Entity C (P1,000,000 x 70%) (700,000)
Less: Unsold inventory of Entity B coming from Entity C (P2,000,000 x 40%) (800,000)
Sales revenue to third persons 3,500,000
Sales revenue to be reported by Entity A (P3,500,000 x 60%) 2,100,000
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Number 27 Answer C

Entity A’s investment in Entity C – 1/1/2018 1,000,000

Share in 2018 net income of Entity C (2,000,000 x 40%) 80,000
Share in 2018 cash dividend of Entity C (100,000 x 40%) ( 40,000)
Share in 2019 net loss of Entity C (2,000,000 x 40%) ( 800,000)
Carrying amount – December 31, 2019 240,000

Number 28 Answer C

Entity B’s investment in Entity C 1,500,000

Share in 2018 net income of Entity C (200,000 x 60%) 120,000
Share in 2018 cash dividend of Entity C (100,000 x 60%) ( 60,000)
Share in 2018 net loss of Entity C (2,000,000 x 60%) (1,200,000)
Carrying amount – December 31, 2019 360,000

Number 29 Answer C

Unadjusted investment income of Entity A for 2018 (P1,000,000 x 60%) 600,000

Less: Unrealized gross profit in ending inventory of Entity A (P50,000 x 20% x 60%) ( 6,000)
Adjusted investment income of Entity A for 2018 594,000

Number 30 Answer A

Initial measurement of Investment in Entity C (Entity B’s Book) 2,000,000

Add: Unadjusted investment income of Entity B for 2018 (P1,000,000 x 40%) 400,000
Add: Unrealized loss on sale of machinery (P20,000 x 40%) 8,000
Less: Realized loss on sale of machinery (P20,000/2 x 6/12 x 40%) ( 6,000)
Less: 2018 dividend received from Entity C (P400,000 x 40%) ( 160,000)
December 31, 2018 Investment in Entity C (B’s Book ) 2,242,000

Number 31 Answer A

Transaction costs – Expense as incurred under Fair Value Model ( 20,000)

Unrealized holding gain on change in fair value 60,000
Dividend income (P30,000 x 50%) 15,000
Effect on net profit under Fair Value Model 55,000

Fair value (10,000 x 56) 560,000

Acquisition cost 500,000
Unrealized gain 60,000

Number 32 Answer D

Initial measurement of Investment under Equity Method (P500,000 + P20,000) 520,000

Add: Share in net income of Joint Venture (P100,000 x 50%) 50,000
Less: Dividend received from Joint Venture (P30,000 x 50%) ( 15,000)
Investment on December 31, 2018 under equity method 555,000
Note: There is no impairment loss because fair value less cost to sell of P560,000 is
higher than carrying amount.

Number 33 Answer A

Carrying amount of Investment under Cost Method (P200,000 + P10,000) 210,000

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Number 34 Answer C

Share in net income of joint venture (P50,000 x 50%) 25,000

Impairment loss of Investment under equity method (15,000)
Effect on net profit under Equity Method 10,000

Investment in Entity C (200,000 + 10,000) 210,000

Share in 2018 net income of Entity C (50,000 x 50%) 25,000
Share in cash dividend (50% x 10,000) ( 5,000)
Carrying amount – 12/31/2018 230,000
Recoverable amount – value in use 215,000
Impairment loss 15,000

Number 35 Answer A
2018 2019
Sales 300,000 450,000
Collections ( 150,000) ( 150,000)
Accounts written off ( 100,000) ( 150,000)

Installment accounts receivable, 12/31/2019 50,000 150,000

Gross profit rates 30% 40%

Deferred gross profit, 12/31/2019 15,000 60,000

Total (P75,000)

Number 36 Answer B
2018 2019 2020 Total
Collections 72,500 80,000 62,500
Gross profit rate:
2018: 60,000/240,000 25%
2019: 68,750/250,000 27.5%
2020: 84,000/300,000 _______ _______ 28%

Realized gross profit 18,125 22,000 17,500 57,625

Number 37 Answer C
2018 sale 2019 sale
Unrecovered cost:
Unpaid balance 15,000 16,000
Less: Deferred gross profit
2018: 15,000 x 25% 3,750
2019: 16,000 x 27.5% _______ 4,400
Unrecovered cost 11,250 11,600
Value of repossess merchandise 6,000 9,000
Loss on repossession ( 5,250) ( 2,600) (7,850)

Number 38 Answer B
2019 Sales 2020 Sales
Deferred gross profit – December 31, 2020 9,000 72,000
Divide by GPR (GP/IS) 24% 30%
Installment accounts receivable, December 31, 2020 37,500 240,000

Total balance of receivable on December 31, 2020 is (37,500 + 240,000) 277,500

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Number 39 Answer B

Unadjusted installment sales 400,000

Add: Undervaluation of traded car (P150,000 – P50,000) 100,000
Adjusted installment sales 500,000
Less: Cost of production of car ( 300,000)
Adjusted gross profit 200,000
Divided by Adjusted installment sales /500,000
Adjusted gross profit rate based on sales 40%

Installment receivable 400,000

Down payment 25% x 400,000) (100,000)
Trade in allowance ( 50,000)
Installment receivable balance 250,000

Annual installment (250,000/5) 50,000

Down payment 100,000

Fair value of trade in 150,000
Annual payment – first year 50,000
Total collections 2018 300,000

Realized gross profit 2018 (40% x 300,000) 120,000

Number 40 Answer C

Fair value of repossessed inventory 110,000

Less: Unrecovered cost of defaulted installment receivable (P200,000 x 60%) (120,000)
Loss on Repossession ( 10,000)

Number 41 Answer B

Allocated revenue to construction of stall (P400,000 x 20/50) 160,000

Stand-alone selling price Fraction

Construction of stall 200,000 20/50
Purchase of raw materials 250,000 25/50
Tradename 50,000 5/50
500,000

Number 42 Answer C

Revenue from delivery of raw materials (P400,000 x 25/50) x 3,000/10,000 60,000

Number 43 Answer B

Revenue from use of entity’s trade name (P400,000 x 5/50)/10years 4,000

Number 44 Answer D

Cash downpayment 200,000

Present value of note receivable 240,183
Initial franchise fee revenue 440,183
Less: Direct cost of initial franchise fee 352,146
Gross profit under accrual basis 88,037
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Number 45 Answer A

Gross profit under accrual basis 88,037

Add: Interest Income for year 2018 (P240,183 x 12%) 28,822
Add: Contingent franchise fee revenue (P50,000 x 8%) 4,000
Less: Indirect cost – Expense as incurred (22,009)
Net income under accrual basis 98,850

Number 46 Answer B

Costs incurred to date as of December 31, 2018 440,000

Divided by total cost as of 2018 (440,000+P660,000) /1,100,000
Percentage of completion for 2018 40%

Construction revenue for year 2018 (1,000,000 x 40%) 400,000

Number 47 Answer C

Costs incurred to date as of December 31, 2019 (440,000+680,000) 1,120,000

Divided by total cost as of 2019 (440,000+680,000+280,000) / 1,400,000
Percentage of completion for 2019 80%

Contract price 1,500,000

Total cost 2019 1,400,000
Gross profit 100,000
Multiply by ____80%
Cumulative realized gross profit 2019 80,000
Add : Realized loss 2018 100,000
Realized gross profit 2019 180,000

Contract price 2018 1,000,000

Total cost 2018 1,100,00
Realized loss for 2018 ( 100,000)

Number 48 Answer A

Contract price as of December 31, 2019 1,500,000

Multiply by percentage of completion as of December 31, 2019 x 80%
Construction in Progress on December 31, 2019 1,200,000

Number 49 Answer C

Contract price as of 2019 1,000,000

Less: Total costs as of 2019 (800,000+250,000) (1,050,000)
Cumulative gross loss for 2019 ( 50,000)
Realized gross loss for 2018 ( 200,000)
Realized gross profit for 2019 150,000

Contract price 1,000,000

Total cost 2018 (360,000 + 840,000) 1,200,000
Realized loss 2018 ( 200,000)

Number 50 Answer A

Progress Billings as of December 31, 2020 (P1,000,000) x (30%+20%+40%) 900,000

Less: Construction in Progress as of December 31, 2020 (Costs incurred to date) 870,000
Excess of Progress Billings over Construction in Progress on 12/31/2020 ( 30,000)
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Number 51 Answer B

Cumulative billings as of December 31, 2020 (P1,000,000) x (30%+20%+40%) 900,000

Mobilization fee deductible from first billing (P1,000,000 x 5%) ( 50,000)
Total of receivables as of December 31, 2020 (120,000+450,000+180,000) (750,000)
Balance of Accounts Receivable on December 31, 2020 100,000

Number 52 Answer A

Sales revenue of the branch 500,000

Cost of goods sold of the branch (30,000+100,000+250,000-50,000) (330,000)
Operating expenses of the branch ( 40,000)
Net income reported by the branch in its separate income statement 130,000

Number 53 Answer D

Ending inventory of the home office at cost 80,000

Ending inventory of the branch from outsider at cost (50,000 x 26%) 13,000
Ending inventory of the branch from home office last year at cost (50,000 x 24%) / 1.25) 9,600
Ending inventory of the branch from home office this year at cost (50,000 x 50%) / 1.25) 20,000
Ending inventory of the entity combined statement of financial position 122,600

Number 54 Answer D

Overstatement of beginning inventory from home office 4,800

Overstatement of shipment during the year (250,000 – 200,000) 50,000
Unadjusted overvaluation of inventory from home office 54,800
Overstatement of ending inventory from home office ( 7,400)
Overstatement of cost of goods sold 47,400

Beginning inventory from home office (80% x 30,000) 24,000

Cost (24,000 / 125%) 19,200
Overstatement of beginning inventory from home office 4,800

Ending inventory from home office (74% x 50,000) 37,000

Cost (37,000 / 125%) 29,600
Overstatement of ending inventory from home office 7,400

Number 55 Answer C

Home Office account before branch profit 180,000

Branch loss
Sales 225,500
Cost of goods sold:
Shipments from home office 250,000
Inventory, 12/31 65,000 185,000
Gross profit 40,500
Expenses 55,500 ( 15,000)
Home Office account balance, 12/31 165,000

Number 56 Answer C

Acquired from Home Office (80% x P30,000)/120% 20,000

Acquired from outsiders (20% x P30,000) 6,000
Branch inventory at cost, 12/31 26,000
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Number 57 Answer A

Sales (74,000+22,000) 96,000

Cost of goods sold:
Shipment from Home Office at cost (54,000/120%) 45,000
Purchases 26,000
Cost of goods available for sale 71,000
Inventory, at cost, 12/31 26,000 45,000
Gross profit 51,000
Expenses (38,000 + 12,000) 50,000
Branch net income insofar as Home Office is concerned 1,000

Number 58 Answer A

Entity B (acquiree)

Current assets 500,000

Noncurrent assets at fair value 1,300,000
Current liabilities at fair value ( 600,000)
Noncurrent liabilities ( 500,000)
Net assets of acquiree at fair value 700,000

Shares issued at fair value (10,000 x 20) 200,000

Bonds payable issued at fair (500,000 x 110%) 150,000
Total consideration 750,000
Net assets of acquiree at fair value 700,000
Goodwill 50,000

Number 59 Answer B

Direct cost of business combination 40,000

Indirect cost of business combination 30,000
Total amount to be expensed as incurred 70,000

Number 60 Answer C

Total assets of A at carrying amount:

Current assets 1,000,000
Noncurrent assets 2,000,000
Total assets of B at fair value:
Current assets 500,000
Noncurrent assets 1,300,000
Goodwill 50,000
Total consolidated assets 4,850,000
Payment for:
Share issuance cost ( 10,000)
Bond issue cost ( 20,000)
Acquisition related cost ( 40,000)
Indirect cost of combination ( 30,000)
Total assets after business combination 4,750,000
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Number 61 Answer D

Total liabilities of A at carrying amount:

Current liabilities 200,000
Noncurrent liabilities 300,000
Total liabilities of B at fair value:
Current liabilities 600,000
Noncurrent liabilities 500,000
Fair value of bonds payable issued (500,000 x 110%) 550,000
Bond issue cost ( 20,000)
Total liabilities after combination 2,130,000

Number 62 Answer B

Controlling interest (80,000/100,000) 80%

Noncontrolling interest 20%

Net assets of acquiree 1,600,000

Overvaluation of asset ( 60,000)
Undervaluation of liability ( 40,000)
Fair value of net assets of acquiree 1,500,000
Multiply by 20%
Noncontrolling interest 300,000

Number 63 Answer D

Net assets of acquiree at carrying amount 1,600,000

Overvaluation of asset ( 60,000)
Undervaluation of liability ( 40,000)
Net assets of acquiree at fair value 1,500,000

Acquisition price 1,000,000

Net assets acquired (80% x 1,500,000) 1,200,000
Gain on bargain purchase 200,000

Number 64 Answer A

Existing interest (30,000 / 100,000) 30%

Existing interest on 1/1/2018 90,000

Share in net income of associate for six months (30% x 40,000) 12,000
Carrying amount 102,000
Fair value of existing interest (30,000 x 4) 120,000
Gain on remeasurement 18,000

Number 65 Answer D

Fair value of existing interest 120,000

Cost of additional interest 240,000
Fair value of noncontrolling interest 50,000
Total consideration 410,000
Fair value of net assets acquired ( 380,000)
Goodwill 30,000

Net assets of acquiree at carrying amount 400,000

Overvaluation of asset ( 50,000)
Overvaluation of liability 30,000
Fair value of net assets of acquiree 380,000
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Number 66 Answer D

Initial measurement of noncontrolling interest in net assets (P330,000 x 30%) 99,000

Noncontrolling interest in net income 40,800
Dividends declared by Entity B for NCI owners (20,000 x 30%) ( 6,000)
Noncontrolling interests in net assets on December 31, 2018 133,800

Net income reported by Entity B in its separate income statement 150,000

Amortization of undervaluation of machinery (80,000/4 years) ( 20,000)
Amortization of overvaluation of inventory (10,000 x 60%) 6,000
Adjusted net income of Entity B 136,000
Multiply by noncontrolling interest percentage of ownership x 30%
Noncontrolling interest in net income for 2018 40,800

Net assets of Entity B – 1/1/2018 260,000

Undervaluation of machinery 80,000
Overvaluation of inventory ( 10,000)
Net assets of Entity B at fair value 330,000

Number 67 Answer A

Net income reported by Entity A in its separate income statement 1,000,000

Gain on bargain purchase 21,000
Dividend income from Entity B (20,000 x 70%) ( 14,000)
Share in adjusted net income of Entity B (136,000 x 70%) 95,200
Consolidated net income attributable to parent shareholders 1,102,200

Acquisition cost 210,000

Fair value of noncontrolling interest 99,000
Total 309,000
Net assets of Equity B at fair value 330,000
Gain on bargain purchase 21,000

Reported net income of Entity B 150,000

Depreciation of undervalued machinery (80,000/4 years) ( 20,000)
Overvalued inventory sold (60% x 10,000) 6,000
Adjusted net income of Entity B 136,000
Multiply by controlling interest __70%
Share in net income of Equity B 95,200

Number 68 Answer C

Retained earnings of Entity A on January 1, 2018 2,000,000

Consolidated net income attributable to parent shareholders 1,102,200
Dividends declared by Entity B during 2018 ( 150,000)
Consolidated retained earnings on December 31, 2018 2,952,200

Number 69 Answer A

Sales revenue reported by Entity A for year 2020 2,000,000

Sales revenue reported by Entity B for year 2020 1,000,000
Intercompany sales during 2020 ( 400,000)
Consolidated sales revenue for year 2020 2,600,000
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Number 70 Answer B

Gross profit of Entity A for year 2020 (2,000,000 – 1,200,000) 800,000

Gross profit of Entity B for year 2020 (1,000,000 – 700,000) 300,000
Realized Gross Profit on January 1, 2020 inventory of Entity B 20,000
Unrealized Gross Profit December 31, 2020 of Entity A ( 72,000)
Consolidated gross profit for 2020 1,048,000

January 1, 2020 inventory of Entity B 280,000

Cost (280,000 / 140%) 200,000
Unrealized profit – 1/1/2020 80,000

Realized profit in 2020 – sold portion in 2020 (25% x 80,000) 20,000

December 31, 2020 inventory of Entity A 400,000

Gross profit (30% x 400,000) 120,000

Realized gross profit – sold portion in 2020 (40% x 120,000) ( 48,000)
Unrealized gross profit – December 31, 2020 72,000

Number 71 Answer C

Net income reported by Entity B in its separate income statement 200,000

Unrealized gross profit on upstream sale to Entity A ( 72,000)
Adjusted net income of Entity B 128,000
Multiple by noncontrolling interest x 40%
Noncontrolling interest in net income 51,200

Number 72 Answer D

Net income reported by Entity A in its separate income statement 500,000

Dividend income from Entity B (50,000 x 60%) 30,000
Realized gross profit on downstream sale to Entity B 20,000
Share in adjusted net income of Entity B (128,000 x 60%) 76,800
Consolidated net income attributable to parent’s shareholders 626,800

Number 73 Answer A

Depreciation of White Machinery ( 40,000 / 4 years) 10,000

Depreciation of Black Machinery (180,000 / 6 years) 30,000
Consolidated depreciation expense for 2020 40,000

Number 74 Answer B

White machinery 200,000

Accumulated depreciation ( 40,000)
Carrying amount – January 1, 2019 160,000
Depreciation – 2019 ( 10,000)
Depreciation – 2020 ( 10,000)
Carrying amount – December 31, 2020 140,000

Black machinery 270,000

Accumulated depreciation 180,000
Carrying amount – July 1, 2020 90,000
Depreciation for six months (30,000 x 6/12) ( 15,000)
Carrying amount – December 31, 2020 75,000

Total carrying amount (140,000 + 75,000) 215,000

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Number 75 Answer C

Net income reported by Entity B in its separate income statement 500,000

Realized gain on upstream sale of land 100,000
Unrealized loss on upstream sale of black machinery 30,000
Realized loss on upstream sale ( 5,000)
Adjusted net income of Entity B for 2020 625,000
Multiply by noncontrolling interest x 20%
Noncontrolling interest in net income for 2020 125,000

Sale price of land to Entity A 1,100,000

Cost of land 1,000,000
Realized gain on sale of land – sold in 2020 100,000

Sale price of black machinery to Entity A 60,000

Carrying amount (270,000 – 180,000) 90,000
Unrealized loss – July 1, 2020 30,000

Realized position of loss (30,000 / 3 years remaining x 6/12) 5,000

Cost of black machinery 270,000

Divide by annual depreciation (180,000 / 6 years expired) 30,000
Total life 9 years
Years expired 6
Remaining useful life 3 years

Number 76 Answer D

Net income reported by Entity A in its separate income statement 800,000

Dividend income from Entity B (150,000 x 80%) 120,000
Realized gain on downstream sale of white machinery ( 1,250)
Share in adjusted net income of Entity B (625,000 x 80%) 500,000
Consolidated net income attributable to parent shareholders 1,418,750

Cost of white machinery 200,000

Divide by annual depreciation (40,000 / 4 years) 10,000
Total life 20 years
Years expired 4
Remaining useful life 16 years

Sale price of white machinery to Entity B 180,000

Carrying amount (200,000 – 40,000) 160,000
Unrealized gain on sale – January 1, 2019 20,000

Realized gain on sale (20,000 / 16 years) 1,250

Number 77 Answer B

Acquisition price 900,000

Transaction cost _20,000
Carrying amount – December 31, 2020 920,000

Number 78 Answer B

Dividend income (90% x 30,000) 27,000

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Number 79 Answer C

Fair value on December 31, 2020 1,000,000

The cost of disposal is ignored.

Number 80 Answer D

Transaction cost which is expensed as incurred 20,000

Dividend income from subsidiary 27,000
Unrealized holding gain on change in fair value 100,000
Net effect on profit or loss under fair value model 107,000

Fair value of investment 1,000,000

Acquisition cost _900,000
Unrealized gain on change in fair value 100,000

Number 81 Answer D

Permanently restricted net asset 1,000,000

Only the fund which is to be invested indefinitely is considered permanent or regular

endowment fund.

Number 82 Answer B

Unspent dividend received for research 100,000

Unused fund for acquisition of service car (300,000 – 100,000) 200,000
Temporarily restricted net assets 300,000

Dividend received 150,000

Spent for research project ( 50,000)
Unspent dividend received 100,000

Fund for acquisition of service car 300,000

Fund used for acquisition (100,000)
Unused fund for acquisition of service car 200,000

Number 83 Answer A

Reclassification from temporarily restricted dividend received 50,000

Reclassification from temporarily restricted service car fund 100,000
Fund subject to discretion of board of trustees 500,000
Gain on sale of souvenir items (150,000 – 100,000) 50,000
Research expense (50,000)
Depreciation expense of service car (100,000/5 x 6/12) (10,000)
Unrestricted net assets 640,000

Sale price of souvenir items 150,000

Cost of souvenir items 100,000
Gain on sale 50,000
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Number 84 Answer A

Increase in temporarily restricted net assets during 2020 100,000

The receipt of the dividend income is classified as increase in temporarily restricted net
assets because it is restricted for acquisition of computer but none has been spent during
2020.

Number 85 Answer C

Reclassification from temporarily restricted net assets to unrestricted net assets during 2021 20,000
Depreciation expense of computer during 2021 (20,000/5 years) ( 4,000)
Increase in unrestricted net asset during 2021 16,000

Number 86 Answer B

All cash receipts with donor stipulation shall be classified in the Statement of Cash Flows
as financing activities

Cash donation to be invested indefinitely 1,000,000

Dividend received from investment for acquisition of computers _100,000
Cash receipts from financing activities 1,100,000

Number 87 Answer C

Cash disbursements for investing activities 20,000

All cash disbursement for acquisition of noncurrent asset shall be classified in the Statement
of Cash Flows as investing activities.

Cash paid for computer 20,000

88. D

89. C

90. A

91. A

92. A

Number 93 Answer C

1. To record the sale on October 15, 2018 in US dollar:

Accounts receivable 100,000
Sales 100,000

2. To record the remittance on November 16, 2018:

Cash 105,000
Accounts receivable 100,000
Foreign exchange gain 5,000
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Number 94 Answer D

September 1, 2018 (250,000 x $.20) 50,000

December 31, 2018 (250,000 x $.19) 47,500
Foreign exchange loss 2018 ( 2,500)

December 31, 31, 2018 47,500

February 1, 2019 (250,000 x $.22) 55,000
Foreign exchange gain 2019 7,500

Number 95 Answer B

Foreign currency payable – November 30, 2018 is (300,000 x $1.65) 495,000

Foreign currency payable – December 31, 2018 (300,000 x $1.62) 486,000
Foreign currency gain __9,000

Number 96 Answer D

Foreign currency payable – January 20, 2018 90,000

Foreign currency payment – March 20, 2018 96,000
Foreign currency loss 6,000

Foreign currency note payable 500,000

Dollar equivalent on December 31, 2018 520,000
Foreign currency loss 20,000

Foreign currency interest payable December 31, 2018 (500,000 x 10% x 6/12) 25,000
Dollar equivalent on December 31, 2018 26,000
Foreign currency loss 1,000

Total foreign currency loss for 2018 (6,000 + 20,000 +1,000) 27,000

Number 97 Answer C

Royalties for 2019 in Canadian dollars (10% x 50,000) 5,000

Multiply by spot rate – December 31, 2019 __.89
Royalties payable – December 31, 2019 4,450

Number 98 Answer A

Sales revenue at transaction rate on December 1, 2020 ($1,500 x P39) 58,500

Nonmonetary item such as sales shall be translated at transaction rate.

Number 99 Answer C

Carrying amount of accounts receivable at closing rate on December 1, 2020

($1,500 x P45) 67,500

Monetary item such as accounts receivable shall be translated at closing rate.

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Number 100 Answer D

Carrying amount of accounts payable at closing rate on December 31, 2020

($1,000 x P47) 47,000

Monetary item such as accounts payable shall be translated at closing rate.

Number 101 Answer A

Accounts receivable – December 1, 2020 ($1,500 x 39) 58,500

Accounts receivable – December 31, 2020 ($1,500,000 x 45) 67,500
Foreign currency gain 9,000

Accounts payable – November 1, 2020 ($1,000 x 42) 42,000

Accounts payable – December 31, 2020 ($1,000 x 47) 47,000
Foreign currency loss ( 5,000)

Net foreign currency gain (9,000 – 5,000) 4,000

Number 102 Answer A

Ordinary share capital 5,000

Preference share capital 8,000
Retained earnings _7,000
Net assets in US dollar – December 31, 2020 20,000
Net income for 2020 ( 1,000)
Dividends declared on December 1, 2020 __200
Net assets – December 31, 2019 19,200

Number 103 Answer A

Net assets at December 31, 2019 rate ($19,200 x P43) 825,600

Net income during 2020 at average rate ($1,000 x P44) 44,000
Dividends declared during 2020 at transaction rate on December 1, 2020 ($200 x P41) ( 8,200)
Net assets at December 31, 2020 at rolled amount 861,400
Net assets at December 31, 2020 at December 31,2020 rate ($20,000 x 45) (900,000)
Translation gain during 2020 in OCI 38,600

Number 104 Answer B

Retained earnings on December 31, 2019 at translated amount 300,000

Net income during 2020 at average rate ($1,000 x P44) 44,000
Dividends declared on December 1, 2020 at transaction rate ($200 x P41) ( 8,200)
Retained earnings on December 31, 2020 at translated amount 335,800

Number 105 Answer B

Total assets at closing rate on December 31, 2020 ($50,000 x P45) 2,250,000

Total liabilities at closing rate on December 31, 2020 ($30,000 x P45) 1,350,000
Ordinary shares at transaction rate on January 1, 2019 ($5,000 x P40) 200,000
Preference shares at transaction rate on July 1, 2019 ($8,000 x P42) 336,000
Retained earnings on December 31, 2020 at translated amount 335,800
Cumulative translation credit on December 31, 2020 (SQUEEZE) 28,200
Total liabilities and shareholders’ equity on December 31, 2020 2,250,000
 Page 20

Number 106 Answer D

Actual cost per unit 6.00

Standard cost per unit 5.00
Direct material variance 1.00
Multiply by units acquired 400
Unvaporable variance 400

Number 107 Answer C

Standard units (100 x 3) 300

Direct materials used 250
Direct material usage variance 50
Multiply by standard cost 5
Favorable variance 250

Number 108 Answer A

Actual direct labor cost per hour 80

Standard direct labor cost 100
Direct labor rate variance 20
Multiply by hours used _30
Favorable variance 600

Number 109 Answer B

Actual direct labor hours 30

Standard direct labor hours (10 x 2) __20
Direct labor efficiency variance 10
Multiply by standard direct labor cost 100
Unfavorable variance 1,000

Number 110 Answer B

Decrease in direct materials during the year 500,000

Labor cost during the year 400,000
Actual factory overhead during the year 300,000
Total manufacturing costs during the year 1,200,000
Increase in work in process during the year ( 200,000)
Cost of goods manufactured during the year 1,000,000

Number 111 Answer A

Raw materials inventory beginning 200,000

Net purchases of raw materials 500,000
Raw materials inventory ending ( 300,000)
Raw materials used 400,000
Indirect materials used (400,000 x ¼) ( 100,000)
Direct materials used 300,000
Direct labor costs (800,000 x 7/8) 700,000
Applied Factory Overhead (700,000 x 80%) 560,000
Total manufacturing costs 1,560,000
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Number 112 Answer B

Total manufacturing costs 1,560,000

Work in process inventory beginning 500,000
Work in process inventory ending ( 200,000)
Total costs of goods manufactured 1,860,000

Number 113 Answer C

Indirect materials used (400,000 x ¼) 100,000

Indirect labor costs (800,000 x 1/8) 100,000
Depreciation of factory assets 100,000
Utilities on the factory during the year 300,000
Actual factory overhead during the year 600,000
Applied factory overhead (700,000 x 80%) (560,000)
Under application of factory overhead 40,000

Number 114 Answer D

Sale price at split off - Del 5.00

Processing cost ( 0.80)
Cost of disposal ( 0.20)
Net realizable value per unit 4.00
Multiply by number of units 5.00
Value of product Del 20.000

Number 115 Answer D

Units Fraction Cost

Product Alt 20,000 2/3 320,000
Product Tab 10,000 1/3 160,000
30,000 480,000

Total cost 500,000

Allocated to by-product Del ( 20,000)
Joint cost 480,000

Number 116 Answer C

Sale price at split off Fraction Cost

Alt (20,000 x 150) 3,000,000 3/5 288,000
Tab (10,000 x 200) 2,000,000 2/5 192,000
5,000,000 480,000

Number 117 Answer C

Direct materials purchased/used during the year 100,000

Direct labor costs during the year 200,000
Standard factory overhead (200,000 x 75%) 150,000
Finished goods inventory ending (120,000)
Cost of goods sold under backflush costing 330,000
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Number 118 Answer B

Conversion cost in Beginning Raw and in Process account 1,000

Conversion cost in Beginning Finished goods account 6,000
Conversion cost during the year (300,000 labor and 500,000 overhead) 800,000
Conversion cost in Ending Raw and In Process Account ( 7,000)
Conversion cost in Ending Finished Goods account ( 4,000)
Conversion cost included in cost of goods sold 796,000

Number 119 Answer A

Raw materials in Beginning Raw and in Process Account (5,000 – 1,000) 4,000
Raw materials in received 400,000
Raw materials in Raw and in Process Ending Inventory (13,000)
Raw materials backflushed to finished goods 391,000

Ending RIP, including conversion cost 20,000

Conversion cost ( 7,000)
Raw materials in RIP ending inventory 13,000

Number 120 Answer C

Raw Materials in Beginning Finished goods account 4,000

Raw Materials backflushed to finished goods 391,000
Raw Materials in Ending Finished Goods account ( 2,000)
Raw materials backflushed to cost of goods sold 393,000

Beginning finished goods including conversion cost 10,000

Conversion cost (6,000)
Raw materials in beginning finished goods 4,000

Ending finished goods including conversion cost 6,000

Conversion cost (4,000)
Raw materials in ending finished goods 2,000

Number 121 Answer A

Direct labor rate (1,000,000 / 100,000 bonus) 10

Multiply by direct labor hours used 7,000
Applied overhead 70,000

Number 122 Answer A

Materials handling per kg. (200,000 / 100,000) 2.00

Painting per unit (300,000 / 50,000) 6.00
Assembly per hour (500,000 / 10,000) 50.00

Material handling (10,000 kilos x 2.00) 20,000

Painting (3,000 units x 6.00) 18,000
Assembly (300 hours x 50,000) 15,000
Applied overhead 53,000
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Number 123 Answer A

Number 124 Answer D

Number 125 Answer C

Number 126 Answer A

Beginning Work in Process Inventory in units 10,000 units

Add: Units started during the period 30,000 units
Less: Ending Work in Process Inventory in units (5,000 units)
Units completed during the period 35,000 units

Direct materials Conversion cost

Units completed 35,000 35,000 35,000
Ending Inventory 5,000 (5,000 x 10%) 500 (5,000 x 25%) 1,250
EUP under average costing 35,500 36,250
Total costs for average costing P103,000+P252,000 P107,500+P146,250
Divide by EUP under average costing 35,500 units 36,250 units
Cost per unit under average costing P10/unit (123) (A) P7/unit (124) (D)

Direct materials Conversion cost

Beginning inventory 10,000 (10,000 x 60%) 6,000 (10,000 x 30%) 3,000
Started and Completed 25,000 25,000 25,000
Ending Inventory 5,000 (5,000 x 10%) 500 (5,000 x 25%) 1,250
EUP under FIFO costing 31,500 29,250
Total costs for FIFO costing P252,000 P146,250
Divide by EUP under FIFO costing 31,500 units 29,250 units
Cost per unit under FIFO costing P8/unit (125) (C) P5/unit (126) (A)

Number 127 Answer C

Beginning Work in process Inventory in units 10,000 units

Units started during the period 40,000 units
Units completed during the year (38,000 units)
Ending Work in Process Inventory in units (5,000 units)
Total spoilage in units 7,000 units
Normal spoilage during the year (40,000 units x 10%) (4,000 units)
Abnormal spoilage in units 3,000 units

Number 128 Answer A

Number 129 Answer B

Direct materials Conversion cost

Units completed 38,000 38,000 38,000
Ending Inventory 5,000 (5,000 x 65%) 3,250 (5,000 x 80%) 4,000
Normal loss 4,000 (4,000 x 20%) 800 (4,000 x 45%) 1,800
Abnormal loss 3,000 (3,000 x 20%) 600 (3,000 x 45%) 1,350
EUP under average costing 42,650 45,150
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Number 130 Answer C

Number 131 Answer A

Direct materials Conversion cost

Beginning inventory 10,000 (10,000 x 40%) 4,000 (10,000 x 35%) 3,500
US and Completed 28,000 28,000 28,000
Ending Inventory 5,000 (5,000 x 65%) 3,250 (5,000 x 80%) 4,000
Normal loss 4,000 (4,000 x 20%) 800 (4,000 x 45%) 1,800
Abnormal loss 3,000 (3,000 x 20%) 600 (3,000 x 45%) 1,350
EUP under FIFO costing 36,650 39,150

Number 132 Answer B

Accounts payable – December 1, 2020 ($1,000 x 45) 45,000

Accounts payable – December 31, 2020 ($1,000 x 44) 44,000
Foreign currency gain 1,000

Number 133 Answer A

Forward contract receivable – December 1, 2020 ($1,000 x 45) 45,000

Forward contract contract receivable – March 1, 2021 ( $1,000 x 49) 49,000
Foreign carrying gain 4,000

Number 134 Answer C

Forward contract receivable – 12/1/2018 ($10,000 x P48 forward rate) 480,000

Forward contract receivable – 12/31/2018 ($10,000 x P51 forward rate) 510,000
Forward contract gain 30,000

Number 135 Answer B

Accounts payable – November 30, 2018 ($10,000 x P45 spot rate) 450,000
Accounts payable – December 31, 2018 ($10,000 x P50 spot rate) 500,000
Foreign currency loss ( 50,000)

Number 136 Answer A

Forward contract receivable – 12/1/2018 ($10,000 x P49 forward rate) 490,000

Forward contract receivable – 12/31/2018 ($10,000 x P51 forward rate 510,000
Forward contract gain 20,000
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Number 137 Answer B

November 1, 2020 90-day forward rate ($2,000 x 41) 82,000

December 31, 2020 30-day forward rate ($2,000 x 46) 92,000
Commitment liability 10,000

Number 138 Answer A

Forward contract payable – December 31, 2020 ($2,000 x 30-day forward rate 46) 92,000
Forward contract payable – January 31, 2021 (2,000 x 44 spot rate January 31, 2021 80,000
Foreign currency gain 2021 4,000

Number 139 Answer A

Forward contract receivable – November 1, 2020 ($1,200 x 42 90-day forward rate) 50,400
Forward contract receivable – December 31, 2020 ($1,200 x 44 30-day forward rate) 52,800
Unrealized gain in OCI 2020 2,400

Number 140 Answer B

Forward contract receivable – December 31, 2020 ($1,200 x 44 30-day forward rate) 52,800
Forward contract receivable – January 31, 2021 ($1,200 x 43 spot rate January 31, 2021 51,600
Unrealized loss in OCI 2021 1,200

Number 141 Answer A

Unrealized gain – 2020 2,400

Unrealized loss – 2021 (1,200)
Cumulative unrealized gain – December 31, 2021 1,200

Number 142 Answer D

Purchase price $1,200

Multiply by spot rate January 31, 2021 43
Cost of equipment 51,600

Number 143 Answer A

Option price 40
Market price November 1, 2020 (40)
Change in price 0
Multiply by $1,000
Intrinsic value of call option November 1, 2020 0

Option price 40
Market price December 31, 2020 ___44
Change in price 4
Multiply by $1,000
Intrinsic value of call option December 31, 2020 4,000
Intrinsic value of call option November 1, 2020 ___0
Unrealized gain in OCI 2020 4,000
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Number 144 Answer B

Fair value of call option – November 1, 2020 300

Intrinsic value – November 1, 2020 __0
Time value of call option November 1, 2020 300

Fair value of call option – December 31, 2020 4,500

Intrinsic value of call option – December 31, 2020 4,000
Time value of call option – December 31, 2020 500
Time value of call option – November 1, 2020 _300
Unrealized gain in profit or loss 2020 200

Number 145 Answer C

Option price 40
Market price January 31, 2021 ___43
Change in price 3
Multiply by $1,000
Intrinsic value of call option January 31, 2021 3,000
Intrinsic value of call option – December 31, 2020 _4,000
Unrealized loss in OCI 2021 1,000

END