NEGROS ORIENTAL STATE UNIVERSITY M.

NAPAROTA, CPA
College of Business Administration
Accountancy Department

MIDTERM EXAMINATION
ACCY 303: Accounting for Special Transactions

Name: ___________________________________ Section: ____________ Score: ___________

Instruction: Encircle the corresponding letter of the correct answer.

1. Not so Going Concern Corporation provided the following balances on March 1, 20x1:

Cash P 161,500 Accounts payable P 80,000

Accounts receivable 30,000 Wages payable 25,000
Inventories 85,000 Tax payable 15,000
Notes receivable 60,000 Note payable 80,000
Equipment 42,000 Mortgage payable 150,000
Furniture 26,000 Share capital 150,000
Machinery 40,000 Deficit (55,500)
Total P444,500 Total P444,500

In the statement of realization and liquidation the following data are ascertained for the month of
March:

• Interests not accrued for the month were for the notes receivable P4,000, for the notes payable
P8,000 and for the mortgage payable P15,000.
• The mortgage payable together with its respective interests was paid.
• 1/3 of the existing accounts receivable at the beginning of the month was collected at P8,000
and the balance to be collected next month.
• P40,000 of the total inventories were sold for P60,000 cash.
• Only P36,000 was collected out of total amount of the notes receivable recorded as of March
1, included in the amount collected was the related interest on the notes.
• Furniture were sold for P17,000.
• Administrative expenses of P18,000 was paid.
• Wages payable was paid.
• Additional credit sales (to be collected next month) amounting to P54,000 were made for the
remaining inventories
• All non-cash assets not mentioned above will be sold or collected next month.

What is the estate equity at the end of March?

a. P47,000
b. P102,500
c. P47,500
d. P103,000

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 NEGROS ORIENTAL STATE UNIVERSITY M. NAPAROTA, CPA
College of Business Administration
Accountancy Department

2. The Quitting Corporation is undergoing liquidation and has the following condensed Statement of
Financial Position as of December 1, 20x1:

Assets Liabilities and Equity

Cash P 1,998,500 Salaries Payable P 875,000
Receivables 5,964,000 Accounts Payable 1,898,750
Merchandise 1,400,000 Bonds Payable 7,000,000
Prepaid Expenses 43,750 Bank Loan Payable 3,850,000
Building (net) 6,037,500 Note Payable 1,400,000
Goodwill 962,500 Ordinary shares 2,100,000
Deficit -
Total Assets P 16,406,250 Total Liabilities and Equity P 17,123,750

• The bonds payable is secured by the building having a realizable value of P6,300,000.
• Of the accounts payable, P1,050,000 is secured by 1/4 of the receivable which is estimated to
be 20% uncollectible. The remainder in the book value of the receivables which has a realizable
value of P4,112,500 is used to secure the bank loan payable.
• The merchandise has a realizable value of P927,500.
• In addition to the recorded liabilities are accrued interest on bonds payable amounting to
P70,000 and trustees’ expenses amounting to P43,750 and taxes P52,500.

Compute for the settlement to fully secured creditors, partially secured creditors and unsecured
creditors without priority.

Fully Secured Partially Secured Without Priority

a. P 4,900,000 P 5,527,320 P 2,360,070
b. P 4,900,000 P 6,901,990 P 1,758,070
c. P 5,042,800 P 6,901,990 P 2,360,070
d. P 5,042,800 P 5,527,320 P 1,758,070

3. Bank Rupt Inc. is under court-supervised liquidation due to its insolvency. The court appointed
liquidator has provided the following data after conducting an inventory of Bank Rupt’s assets and
liabilities:
• The total assets which are not used as security for any liability amounted to P5M while the total
unsecured liabilities amounted to P20M.
• The total assets which are used as collateral or security for corporate obligations amounted to
P10M. ¾ of these assets secure a mortgage payable with book value of P2M including interest
while the remainder secure a note payable with book value of P3.5M including interest.
• Salaries payable amounted to P2M while taxes due government amounted to P1M.

What is the amount received by partially secured creditors?

a. P2,750,000
b. P2,875,000
c. P2,916,700
d. P3,025,000

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 NEGROS ORIENTAL STATE UNIVERSITY M. NAPAROTA, CPA
College of Business Administration
Accountancy Department

4. Partner’s C, P and A formed a partnership in February 20x0. The objective of the business is to teach
reviewees how to be industrious and how to minimize distractions during review. During the year 20x1,
the partnership had success in their business and is to distribute its profit. As agreed by the partners, net
income should be distributed in the following order of priority:

(1) C, who manages the partnership, is to receive a salary of P16,500 monthly.

(2) Each partner is to be allowed interest at 15% on ending capital.
(3) Balance is to be divided 25:30:45.

During 20x1, C invested an additional P96,000 in the partnership. P made an additional investment of
P60,000 and withdrew P90,000, and A withdrew P70,000. No other investments or withdrawals were
made during 20x1. On January 1, 20x1, the capital balances were C, P280,000; P, P300,000; and A,
P170,000. Total capital at year-end was P975,000.

Compute the share of C, P and A, respectively, in the net income at year-end:

a. P 36,175; P214,230; P21,405

b. P15,625; P209,220; P4,155
c. P36,175; P214,230; (P21,405)
d. P36,175; P54,230; P148,595

5. Paul, Anton and DJ are partners with account balances and profit and loss ratio of the partners as
follows:

Account Payable 6,000

Anton, capital (25%) 15,000
DJ, capital (40%) 30,000
Due from DJ 2,000
Due to Paul 3,000
Loan from Anton 5,000
Paul, capital (35%) 25,000

The partners decided to liquidate the partnership. After the realization of assets, the entity has cash on
hand of P18,700. The entity paid liquidation expenses amounting P10,000.

The total loss on realization of non-cash assets amounts to:

a. P57,300
b. P63,300
c. P73,300
d. P47,300

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 NEGROS ORIENTAL STATE UNIVERSITY M. NAPAROTA, CPA
College of Business Administration
Accountancy Department

For items 6 to 9:

A partnership had the following condensed financial position on December 31, 2030:

Cash 100,000 Accounts payable 50,000

Non-cash Assets 250,000 B, loan 8,000
A, loan 3,000 A, capital (30%) 75,000
B, capital (45%) 125,000
C, capital (25%) 95,000
Total 353,000 Total 353,000
On March 1, 2031, D was admitted into the partnership as a new partner for 30% interest in capital and
20% interest in profit and loss. The net income prior to admission of D was P80,000. Partner B receive
monthly salary allowance of P5,000. D invested P100,000 cash and pays P20,000 Partner C for its ¼
capital interest. The total agreed capitalization of the partnership after admission of new Partner D is
P500,000.

6. What is the total agreed capital of C after admission of D?

a. P102,968.75
b. P102,500
c. P91,250
d. P89,812.50

7. Using the same information in no. 6, what is the total amount of bonus given by A?

a. P6,187.50
b. P13,687.50
c. P6,000
d. P9,000

8. Using the same information in no. 6, the total capital contribution of D?

a. P105,000
b. P120,000
c. P104,375
d. P100,000

9. Using the same information in no. 6, what is the new profit or loss ratio after admission of Partner D?

A B C D
a. 30% 45% 25% 30%
b. 24% 36% 20% 20%
c. 21% 31.50% 17.50% 30%
d. 30% 45% 25% 20%

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 NEGROS ORIENTAL STATE UNIVERSITY M. NAPAROTA, CPA
College of Business Administration
Accountancy Department

For items 10 to 12:

A partnership had the following condensed financial position on December 31, 2030:

Cash 120,000 Accounts payable 100,000

Non-cash Assets 300,000 B, loan 12,000
A, loan 20,000 A, capital (25%) 86,000
C, loan 6,000 B, capital (35%) 120,000
C, capital (40%) 128,000
Total 446,000 Total 446,000

Partner C retires from the partnership on May 1, 2030. The net income of the partnership for year 2030
was P120,000. Partner A receive bonus of 25% of net income after bonus. The partnership revalued the
assets and paid Partner C for his total interest amounting to P118,000. Partners A and B continue to use
their profit and loss agreement after retirement of C.

10. What is the total interest of Partner A after retirement of C on May 1, 2030?

a. P91,500
b. P87,500
c. P107,500
d. P71,500

11. What is the capital of Partner B on December 31, 2030?

a. P153,833
b. P163,167
c. P128,500
d. P116,500

12. What is the total assets on December 31, 2030?

a. P380,000
b. P400,000
c. P406,000
d. P490,000

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 NEGROS ORIENTAL STATE UNIVERSITY M. NAPAROTA, CPA
College of Business Administration
Accountancy Department

13. On January 1, 2026, L9M entered into a franchise agreement with 6DP which required the latter to
pay a non-refundable upfront fee of P1,600,000 at the signing of the contract and on-going payment
of royalty equal to 5% of the sales of the franchisee. On the date of the signing of the contract, the
franchisee paid the non-refundable upfront fee. As part of the franchise agreement, the franchisor
shall render the following performance obligations which are considered separate and distinct from
one another.

Performance Obligation Stand-Alone Selling Price

Training ten personnel of the franchisee P200,000

Construction of the franchisee’s building and landscape 800,000
Delivery of one thousand units of raw materials to the franchisee 600,000
Allowing the franchisee to use the franchisor’s trademark
and tradename for a term of 10 years starting Jan. 1, 2026 400,000

At the end of 2026, the accounting department of L9M found out that they were able to train 7 out of
10 personnel of 6DP. In addition, the percentage of completion of the construction of the franchisee’s
building and landscape was estimated by the engineer and architect at 90% although the building
was fully completed because the landscape was not started. Delivery of 600 units of raw materials
were also accomplished by L9M. For the year ended, December 31, 2026, L9M reported sales revenue
amounting to 200,000 because it already started operations upon the construction of the building on
October 1, 2026.

What is the total franchise fee revenue to be reported by L9M for the year ended December 31, 2026?

a. 1,018,000
b. 1,270,000
c. 976,000
d. 1,064,00

14. On January 1, 2035, CCC, DDD, and EEE Inc. entered into a franchise agreement with 888K
Company to market their products. The agreement provides for an initial fee of P25,000,000 payable
as follows: P7,000,000 to be paid upon signing of the contract and the balance in five equal annual
payments every end of the year starting December 31, 2035. CCC, DDD, and EEE Inc. signs a non-
interest-bearing note for the balance. His credit rating indicates that he can borrow at 15% interest for
this type of loan. The present value of an annuity of P1 at 15% for 5 periods is 3.352. The agreement
further provided that the franchisee must pay a continuing franchise fee equal to 3% of the monthly
gross sales. On August 31, CCC, DDD, and EEE Inc. had completed the initial services required in the
contract at a cost of P8,580,240 and incurred an indirect cost of P350,000. 888K commenced business
operations on November 30, 2035. The gross sales reported to CCC, DDD, and EEE Inc. were P3,600,000
for December, 2035. The first installment payment was made on the due date.

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 NEGROS ORIENTAL STATE UNIVERSITY M. NAPAROTA, CPA
College of Business Administration
Accountancy Department

Assume that the collectibility of the note is not reasonably assured, how much is the net income for the
year ended, December 31, 2035?

a. 6,252,536
b. 6,402,536
c. 6,402,563
d. 6,144,536

For items 15 to 17:

On March 1, 2022, ABC Co. was contracted to construct a building for a customer at a total contract
price of P16,500,000. The building was estimated to be completed in 2024. The following data were
made available:

2022 2023 2024

Contract costs incurred P6,400,000 P5,200,000 P2,900,000
Estimated costs to complete 6,400,000 2,900,000 -
Progress billings each year 6,400,000 7,000,000 3,100,000

15. How much is the realized gross profit for 2023?

a. P250,000
b. P1,850,000
c. (P250,000)
d. P400,000

16. How much is the contract asset (liability) as of December 31, 2023 using View 1 of the PIC Q&A?

a. P1,850,000
b. P200,000
c. (P200,000)
d. P0

17. How much is the realized gross profit for 2024?

a. P250,000
b. P1,850,000
c. (P250,000)
d. P400,000

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 NEGROS ORIENTAL STATE UNIVERSITY M. NAPAROTA, CPA
College of Business Administration
Accountancy Department

For items 18 to 21:

ABC Company filed for a voluntary bankruptcy which was granted after having submitted all the
required papers and documents. You are provided the following information as of June 30, 2022:

Assets Net Book Value Liquidation Value

Cash P 4,997
Investments in equity securities 25,000 P40,000 plus uncollected dividends of P5,000
Accounts receivable, net 54,000 P28,000 expected collection
Inventory 75,000 P100,000 after further processing of P10,000
Prepaid expense 8,000 P2,000 is refundable
Land 140,000 150% of net book value
Building, net 200,000 90% of net book value
Equipment 80,000 30% of net book value
Goodwill 10,000

Liabilities and Equity Carrying Value Other Information

Notes payable P120,000 Secured by inventory
Trade and other payables 100,000
Loans payable 350,000 Secured by land and building
Share capital 300,000
Retained Earnings (Deficit) (273,000)

Additional information:

• ABC Company failed to accrue its interest on the loans payable. Based on the loan agreement,
interest of 10% is payable annually every December 31.
• Trade and other payables included the following: salaries payable, P20,000; taxes payable,
P5,000.
• Administrative costs for liquidation are expected to be P10,000.

Use XX.XX% in the estimated recovery percentage.

18. How much is the net free assets?

a. P89,947
b. P91,947
c. P86,947
d. P84,947

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 NEGROS ORIENTAL STATE UNIVERSITY M. NAPAROTA, CPA
College of Business Administration
Accountancy Department

19. How much is the estimated estate equity (deficit)?

a. (P15,503)
b. (P13,503)
c. P15,503
d. P13,503

20. How much is the expected payment as settlement of the notes payable?

a. P115,571
b. P116,142
c. P90,000
d. P104,568

21. How much is the expected payment as settlement of the loans payable?

a. P295,740
b. P320,240
c. P313,240
d. P367,500

22. ABC Corp. works on a 140 million contract in 2021 to construct a building for Bacolod Company.
During 2021, ABC Corp. uses the percentage of completion method to recognized revenue over time.
At December 31, 2021, the following account balances are recorded in the books of the company.
Accounts receivable 4,800,000
Contract Billing 24,000,000
Construction in Progress 49,100,000
Estimated cost to complete 63,700,000

What is total actual cost incurred in year 2021?

a. 98 million
b. 34.3 million
c. 49 million
d. 15 million

23. A, B and C are partners with capital balance of P 350,000, P 250,000 and P 350,000 and sharing
profits 30%, 20% and 50% respectively. Partners agree to dissolve the business and upon liquidation, all
of the partnership assets are sold and sufficient cash is realized to pay all the claims except for P50,000.
C is personally insolvent, but the other two partners are able to meet any indebtedness to the firm. On
the remaining claim against the partnership, A is to absorb.
a. P 40,000
b. P 15,000
c. P 30,000
d. P 25,000

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 NEGROS ORIENTAL STATE UNIVERSITY M. NAPAROTA, CPA
College of Business Administration
Accountancy Department

For items 24 to 26:

On January 1, 2022, an entity granted franchise to a franchisee. The franchise agreement required
the franchise to pay a nonrefundable upfront fee in the amount of P800,000 and on-going payment
of royalties equivalent to a 5% of the sales of the franchisee. The franchise paid the nonrefundable
upfront fee on January 1, 2022.

In relation to the nonrefundable upfront fee, the franchise agreement required the entity to render
the following performance obligations:

• To construct the franchisee’s stall with stand- alone selling price of P400,000.
• To deliver 20,000 units of raw materials to the franchisee with stand- alone selling price of
P500,000.
• To allow the franchisee to use the entity trade name for a period of 10 years starting January 1,
2022 with stand- alone selling price of P100,000

On June 30, 2022, the entity completed the construction of the franchisee’s stall. On December 31,
2022, the entity was able to deliver 6,000 units of raw materials to the franchisee. For the year ended
December 31, 2022, the franchisee reported sale revenue amounting to P200,000. The entity had
determined that the performance obligations are separate and distinct from one another.

24. What is the amount of nonrefundable upfront fee to be allocated to the construction f the
franchisee’s stall?

a. P400,000
b. P320,000
c. P500,000
d. P240,000

25. What is the amount of revenue to be recognized in relation to the use of delivery of raw materials
for the year ended December 31, 2019?

a. P200,000
b. P400,000
c. P120,000
d. P150,000

26. What is the amount revenue to be recognized in relation to the use of entity’s trade name for the
year ended December 31, 2019?

a. P10,000
b. P8,000
c. P100,000
d. P20,000

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 NEGROS ORIENTAL STATE UNIVERSITY M. NAPAROTA, CPA
College of Business Administration
Accountancy Department

For items 27 to 29:

On January 1, 2021, Snake Company accepted a long- term construction project for an initial contract
price of P2,000,000 fixed amount with a P1,000,000 variable consideration in the form of an incentive
to be completed on June 30, 2023. It was determined it was not highly probable that Snake Company
will be entitled to the variable consideration on 2021. On January 1, 2022, due to change in
circumstances, it was determined that it is highly probable that the entity will be entitled to the variable
consideration. The outcome of the construction contract can be estimated reliability. The entity
provided for the following data concerning the direct costs related to the said project
for 2021 and 2022:

2021 2022
Cost during the year P880,000 P1,360,000
Remaining estimated cost to complete at year-end 1,320,000 560,000

27. What is the construction revenue for the year ended December 31, 2021?

a. P680,000
b. P800,000
c. P880,000
d. P720,000

28. What is the realized profit for the year ended December 31, 2022?

a. P400,000
b. P160,000
c. P360,000
d. P200,000

29. What is the balance construction in progress on December 31, 2022?

a. P2,400,000
b. P2,040,000
c. P2,240,000
d. P1,800,000

30. Max decided to withdraw from his partnership with Fried and Chic. Before his withdrawal, Max’
capital balance was P58,000, while Fried’s was P64,000 and Chic’s was P77,000. Also, the partnership’s
total assets amounted to P450,000, but the partners agreed that a fixed asset was under depreciated
by P15,000. Max, Fried and Chic share profits and losses in the ration of 2:4:4, respectively. If Max was
paid P53,200 upon his retirement, how much is the remaining partnership net assets after Max’
withdrawal?

a. P182,800 c. P130,800
b. P197,800 d. P160,800

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 NEGROS ORIENTAL STATE UNIVERSITY M. NAPAROTA, CPA
College of Business Administration
Accountancy Department

For items 31 to 34:

On January 1, 2021, an entity accepted a long-term construction project for an initial contract price
of P1,000,000 to be completed on June 30, 2023. On January 1, 2022, the contract price was increased
to P1,500,000 by reason of change in the design of the project. The project was completed on
December 31, 2023 which resulted to penalty amounting to P200,000. The entity provided the following
data concerning the direct costs related to the said project:

Year 2021 Year 2022 Year 2023

Costs during the year P440,000 P680,000 P130,000
Remaining estimated costs to complete at
the end of the year P660,000 P280,000 -

The outcome of the construction contract can be estimated reliably.

31. What is the construction revenue to be recognized by the entity for the year ended December 31,
2021?
a. P340,000 c. P440,000
b. P400,000 d. P360,000

32. What is the realized gross profit (gross loss) to be recognized by the entity for the year ended
December 31, 2022?

a. P200,000 c. P180,000
b. P80,000 d. (P20,000)

33. What is the balance of construction in progress on December 31, 2022?

a. P1,200,000 c. P1,120,000
b. P900,000 d. P1,020,000

34. What is the realized gross profit (gross loss) to be recognized by the entity for the year ended
December 31, 2023?
a. P50,000 c. P170,000
b. (P30,000) d. (P120,000)

35. A partnership agreement calls for allocation of profits and losses by salary allocation; a bonus
allocation; interest on capital contribution; and any remainder to be allocated by the preset ratios. If
a partnership has a loss to allocate, generally which of the following procedures would be applied?

a. The loss should be allocated using the profit and loss ratio only.
b. Any salary allocation criteria would not be used.
c. Any loss would be allocated equally to all partners.
d. The bonus criteria would not be used.

– END OF EXAMINATION –

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