ReSA B45 AFAR First PB Exam - Questions, Answers - Solutions

ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY
CPA Review Batch 45  May 2023 CPALE  12 February 2023  03:00 PM – 06:00 PM
ADVANCED FINANCIAL ACCOUNTING and REPORTING FIRST PRE-BOARD EXAMINATION
INSTRUCTIONS: Select the correct answer for each of the questions. Mark only one answer
for each item by shading the box corresponding to the letter of your choice on the
answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use pencil no. 2 only.
1. The partnership of Dana, Elsie, Fe, and Gloria is being liquidated over the first
few months of 2023. The trial balance at January 1, 2023 is as follows:
Debits Credits
Cash P 200,000
Accounts receivable 56,000
Inventory 142,000
Equipment – net 300,000
Land 150,000
Loan to Dana 20,000
Accounts payable P 400,000
Dana, capital – 20% 170,000
Elsie, capital – 10% 80,000
Fe, capital – 50% 140,000
Gloria, capital – 20% _________ ___78,000
P 868,000 P 868,000
Additional information:
1. The partners agree to retain P20,000 cash on hand for contingencies and
distribute the rest of the available cash at the end of each month.
2. In January, half of the receivables were collected. Inventory that cost
P75,000 was liquidated for P45,000. The land was sold for P250,000.
3. The accounts payable was liquidated.
How much will each partner receive for the month of January 2023?
A. Dana, P68,000; Elsie, P39,000; Fe, P -0-; Gloria, P -0-
B. Dana, P81,000; Elsie, P45,500; Fe, P -0-; Gloria, P 9,000
C. Dana, P65,333; Elsie, P37,667; Fe, P -0-; Gloria, P -0-
D. Dana, P103,000; Elsie, P -0-; Fe, P -0-; Gloria, P -0-
2. CC admits DD as a partner in business. Accounts in the ledger for CC on November
30, 2023, just before the admission of DD, show the following balances:
Cash P 6,800
Merchandise inventory 20,000
Accounts payable 8,000
CC, capital 33,000
It is agreed that for purposes of establishing CC’s interest the following
adjustments shall be made:
(a) An allowance for doubtful accounts of 3% of accounts receivable is to be
established.
(b) The merchandise inventory is to be valued at P23,000.
(c) Prepaid salary expenses of P600 and accrued rent expense of P800 are to be
recognized.
DD is to invest sufficient cash to obtain a 1/3 interest in the partnership. Compute:
(1) CC’s adjusted capital before the admission of CC, and (2) the amount of cash
investment by DD:
A. (1) P35,347; (2) P11,971 C. (1) P35,374; (2) P17,687
B. (1) P36,374; (2) P18,487 D. (1) P28,174; (2) P14,087
3. On June 30, 2022, the balance sheet of the Oakley, Pine, and Woods partnership,
together with their respective profits and loss ratios was as follows:
Assets, at cost P180,000
Oakley, loan 9,000
Capital, Oakley (20%) 42,000
Capital, Pine (20%) 39,000
Capital, Woods (60%) 90,000
Oakley has decided to retire from the partnership. By mutual agreement, the assets
are to be adjusted to their current value of P216,000 and the partnership is to pay
Oakley P61,200 for her partnership interest, including her loan, which is to be
repaid in full.
The capital balance of Pine after the retirement of Oakley should be:
A. P36,750 C. P45,450
B. P38,250 D. P49,200
Page 1 of 23 0915-2303213  resacpareview@gmail.com
ADVANCED FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 45 – May 2023 CPALE Batch
12 February 2023  03:00 PM to 06:00 PM AFAR First Pre-Board Exam
4. On July 1, 2023, Sayonara Company has the following balance sheet:
Assets Liabilities and Capital
Cash P 20,400 Accounts Payable P 38,400
Other Assets 219,600 Due to Palmer 14,400
Other liabilities 84,000
Palmer, capital–50% 28,800
Larsen – 50% 74,400
As of July 1, 2023, the partners have personal net worth as follows:

Palmer Larsen
Assets P 62,400 P 91,200
Liabilities 56,400 122,400
The personal net worth of each partner does not include amounts due to or from the
partnership. Assume the other assets are sold for P123,600 after incurring
liquidation expenses of P4,800. How much should Larsen receive?
A. P -0- C. P 24,000
B. P 22,800 D. P 16,800
Items 5 to 7 are based on the following information:

Orville Company recently petitioned for bankruptcy and is now in the process of
preparing a statement of affairs. The carrying values and estimated fair values of the
assets of Orville Company are as follows:
Carrying Value Fair Value

Cash P 20,000 P 20,000
Accounts Receivable 45,000 30,000
Inventory 60,000 35,000
Land 75,000 70,000
Building (net) 180,000 100,000
Equipment (net) 170,000 80,000
Total P 550,000 P335,000
Debts of Orville are as follows:

Accounts payable P 60,000
Wages Payable (all have priority) 10,000
Taxes payable 10,000
Notes payable (secured by receivable and inventory 120,000
Interest on Notes Payable 6,000
Bonds Payable (secured by land and building) 150,000
Interest on bonds Payable 7,000
Total P 363,000
5. What is the total amount of unsecured claims?

A. P 93,000 C. P121,000
B. P113,000 D. P126,000
6. What estimated amount will be available for general unsecured creditors upon
liquidation?
A. P28,000 C. P113,000
B. P93,000 D. P121,000
7. What is the estimated dividend percentage?

A. 23% C. 77%
B. 93% D. 68%
8. Following is the balance sheet of the ABCD Partnership at March 31, 2023, when the
partnership is to be liquidated:
Cash P 6,000 Liabilities P 12,400

Other assets 126,000 A, loan 12,000
B, loan 14,400
D, loan 9,600
A, capital – 25% 16,200
B, capital – 25% 12,000
C, capital – 25% 37,700
D, capital – 25% 17,700

During the month of April 2023, assets having a book value of P18,000 are sold at
a loss of P2,400. Liquidation expenses of P600 are paid as well as P7,200 of the
liabilities. Of the liabilities shown in the balance sheet, P240 represents salary
payable to D and P160 represents salary payable to C.
On April 30, 2023 cash to be distributed to A, B, C, and D as follows:
A B __ C D___
A. P -0- P -0- P -0- P 9,000
B. P 1,950 P 1,950 P 1,950 P 1,950
C. P -0- P -0- P -0- P 1,950
D. P -0- P -0- P 9,000 P -0-
Items 9 through 11 are based on the following information:

From the following data from the records of ABC Partnership
Balance Sheet
December 31, 2022
Assets
Cash P 2,000
Other Noncash Assets __28,000
Total P 30,000
Liabilities and Capital
Liabilities P 5,000
A, loan 2,500
A, capital 12,500
B, capital 7,000
C, capital ___3,000
Total P 30,000
Profit and loss ratio is 3:2:1 for A, B, and C, respectively. The Other noncash assets
were realized as follows:
Date Cash Received Book Value
January 2023 P 6,000 P 9,000
February 2023 3,500 7,700
March 2023 12,500 11,300
Cash is distributed as other noncash assets realized.
9. The total loss on liquidation to A is:
A. P3,000 C. P1,000
B. P2,000 D. P 0
10. Total cash received by B is:
A. P 0 C. P2,000
B. P1,500 D. P5,000
11. Cash received by C in January is:
A. P 0 C. P 500
B. P 200 D. P1,000
12. Tillman Textile Company has a single branch in Bulacan. On March 1, 2023, the home
office accounting records included an Allowance for Overvaluation of Inventories -
Bulacan Branch ledger account with a credit balance of P32,000. During March,
merchandise costing P36,000 was shipped to the Bulacan Branch and billed at a price
representing a 40% markup on the billed price. On March 31, 2023, the branch
prepared an income statement indicating a net loss of P11,500 for March and ending
inventories at billed prices of P25,000. What is the amount of adjustment for
Allowance for Overvaluation of Inventories to reflect the true branch net income?
A. P39,257 debit C. P39,333 debit
B. P46,000 credit D. P46,000 debit
At the end of its fiscal year on June 30, 2023, the Ritz, Sally, and Tracy Partnership
had account balances as follows:
Cash P 20,000 Accounts payable P 35,000
Accounts receivable 30,000 Loan from Sally 25,000
Inventories 70,000 Ritz, capital (20%) 70,000
Plant assets, net 60,000 Sally, capital (30%) 50,000
Loan to Ritz __30,000 Tracy, capital (50%) __30,000
Total Assets P210,000 Total Liab. & Equity P210,000

The percentages shown are the residual profit sharing ratios. Tracy also gets a P12,000
annual salary allowance. The partners dissolved the partnership on July 1, 2023 and
began the liquidation process. During July the following events occurred:
• Receivables of P15,000 were collected.
• The inventory was sold for P20,000.
• All available cash was distributed on July 31, except for P10,000 of expected
expenses.
13. The book value of the partnership equity/interest (i.e., total equity/interest of
the partners) on June 30, 2023 is:
A. P210,000 C. P145,000
B. P150,000 D. P120,000
14. The cash available for distribution to partners on July 31, 2023 is:
A. P55,000 C. P20,000
B. P35,000 D. P10,000
15. Without bias on your part, assume that the cash available for distribution to
partners on July 31, 2023 is P10,000. Under this assumption Sally should receive:
A. P10,000 C. P3,000
B. P 6,000 D. Amount cannot be determined
16. A local partnership was considering the possibility of liquidation since one of
the partners (Ding) was insolvent. Capital balances at that time were as follows.
Profits and losses were divided on a 4:2:2:2 basis, respectively.
Ding, capital P 60,000
Laurel, capital P 67,000
Ezzard, capital P 17,000
Tillman, capital P 96,000
Ding's creditors filed a P25,000 claim against the partnership's assets. At that
time, the partnership held assets reported at P360,000 and liabilities of P120,000.
If the assets could be sold for P228,000, what is the minimum amount that Ding's
creditors would have received?
a. P -0- c. P36,000
b. P 2,500 d. P38,250

In 2022, DJD Builders Construction began work on a three-year construction project to
build a new performing arts complex (the PAC). The PAC contract price is P150 million.
DJD Builders recognizes revenue on this contract over time according to percentage of
completion. At the end of 2022, the following financial statement information indicates
the results to date for the PAC (missing items denoted by letter):
Income Statement/Statement of Comprehensive Income:
Revenue P (w) million
Cost of construction 35_ million
Gross profit P (x) million
Balance Sheet/Statement of Financial Position:

Accounts receivable from construction billings P 14 million
Construction in progress (CIP)---------------- P 50 million
Less: Billings on construction (PB)----------- __ (y)million
Net billings in excess of construction in
progress ---------------------------------- P (z)million
Statement of Cash Flow:

Cash collections P 46 million
Compute the following:
17. Total revenue recognized during 2022 (w):
A. P 35 million C. P100 million
B. P 50 million D. P150 million
18. Gross profit recognized during 2022 (x):
A. P 15 million C. P 46 million
B. P 35 million D. P 50 million
19. Billings on construction (y):

20. Net billings in excess of construction in progress (z):
21. Calculate the percentage of PAC that was completed during 2022:
A. Zero C. 65 %
B. 33 1/3% D. 76 1/3%
Items 22 and 23 are based on the following information:

On May 15, 2023, Atlas Sales Company received a shipment of merchandise with a selling
price of P15,000 from Philco Company. The consignment agreement provided for a sale of
merchandise with a credit with terms of 2/10 n/30. The commission of 15% was to be
based on the accounts receivable collected by the consignee. Cash discounts taken by
customers, expenses applicable to goods on consignment and any cash advanced to the
consignor were deductible from the remittance by the consignee.
Atlas Sales Company advanced P6,000 to Philco Company upon receipt of the shipment.
Expenses of P800 were paid by Atlas. By June, 2023, 70% of the shipment had been sold,
and 80% of the resulting accounts receivable had been collected, all within the discount
period. Remittance of the amount due was made on June 30, 2023.
The consigned goods cost Philco Company P10,000 and freight charges of P120 had been
paid to ship it to Atlas Sales Company.
22. The cash remitted by Atlas Sales Company
A. P172 C. P2,230
B. P340 D. P2,340
23. The cost of inventory on consignment amounted to:
A. P1,500 C. P3,036
B. P3,000 D. P3,186
24. Lipton Company had an agency in Antipolo. For the period just ended, the agency
transactions showed the following:
Receipt from sales . . . . . . . . . . . . . . . P350,000
Disbursements:
Purchases . . . . . . . . . . . . . . . . . 400,000
Salaries and commissions . . . . . . . . . . 70,000
Rent . . . . . . . . . . . . . . . . . . . . 20,000
Advertising supplies . . . . . . . . . . . . 10,000
Other expenses . . . . . . . . . . . . . . . 5,000
The agency had P 100,000 receivables and P 50,000 payables as of the end of the
period. Also, there were inventories on hand of P 90,000 and unused advertising
supplies of P 6,000. The agency was set up as an experiment for one period and
would be closed if losses were incurred. The agency should:
A. Review again because it was a break even operation.
B. Close with the period’s operational loss of P 155,000.
C. Close with the period’s operational loss of P 9,000.
D. Continue with the period’s profit of P 25,000.
On January 1, 20x5, Lesley Benjamin signed an agreement (covering 5 years) to operate
as a franchisee of Campbell Inc. for an initial franchise fee of P50,000. The amount
of P10,000 was paid when the agreement was signed, and the balance is payable in five
annual payments of P8,000 each, beginning January 1, 20x6. The agreement provides that
the down payment is non-refundable and that no future services are required of the
franchisor once the franchise commences operations on April 1, 20x5. Lesley Benjamin’s
credit rating indicates that she can borrow money at 11% for a loan of this type.
For Campbell’s 20x5-related revenue for this franchise arrangement, assuming that in
addition to the franchise rights, Campbell also provides 1 year of operational
consulting and training services, beginning on the signing date. These services have
a value of P3,600.
25. The amount of franchise revenue (not including service revenue) on April 1, 20x5:
A. Zero. C. P39,567
B. P35,967 D. P50,000
Rome Corporation has one branch office, named Timber Branch. Rome is performing the
end-of-the-period reconciliation. The following items are unsettled at the end of the
accounting period (you may assume that the item has been reflected in the accounts of
the underlined entity):
(1) Rome has agreed to remove P750 of excess freight charges charged to Timber when
Rome shipped twice as much inventory as Timber requested.
(2) Timber mailed a check for P11,000 to Rome as a payment for merchandise shipped
from Rome to Timber. Rome has not yet received the check.
(3) Timber returned defective merchandise to Rome. The merchandise was billed to
Timber at P4,000 when its actual cost was P3,000.
(4) Advertising expenses attributable to the branch office was paid for by the home
office in the amount of P5,000.
26. Which of the following statements is correct:
A. The Home Office account in Timber’s books is decreased for the P11,000 of cash
in transit and is decreased for the P750 of excess freight charges.
B. The Home Office account in Timber’s books is decreased for the P5,000 of
advertising expense and decreased for the P750 of excess freight charges.
C. The Home Office account in Timber’s books is increased for the P11,000 of cash
payment to Rome and decreased by P4,000 for the billed cost of the defective
merchandise inventory.
D. The Home Office account in Timber’s books is decreased for the P750 of excessive
freight charges and increased by the P5,000 of the advertising expenditure.
27. Which of the following statements is correct:
A. The Timber Branch account on Rome’s books is decreased for the P11,000 of cash
in transit and is decreased for the P750 of excess freight charges.
B. The Timber Branch account on Rome’s books is decreased for the P11,000 of cash
in transit and is increased for the P750 of excess freight charges.
C. The Timber Branch account on Rome’s books is decreased for the P11,000 of cash
in transit and is decreased for the P4,000 billed price of the defective
merchandise.
D. The Timber Branch account on Rome’s books is increased for the P11,000 of cash
in transit and is decreased for the P5,000 of allocated advertising costs
28. If the adjusted balances for the Timber Branch Account and the Rome Home Office
accounts is P500,000, what unadjusted balance was listed in Rome’s Timber Branch
Account?
A. P515,000 C. P514,000
B. P510,250 D. P504,000
29. Ann, Bee, and Kay are in the process of liquidating their partnership. Kay has
agreed to accept the inventories as part of her settlement. The inventories have
a fair value of P60,000 and a book value of P80,000. Account balances and profit
and loss sharing ratios are summarized as follows:
Inventories 80,000 Ann, capital (40%) 79,000
Plant assets, net 230,000 Bee, capital (40%) 140,000
_________ Kay, capital (20%) 140,000
Total Assets P 508,000 Total Liab. & Equity P 508,000
If the partners agree to distribute the available cash:
A. Kay will receive P23,000 of the cash distribution.
B. Bee will receive P40,667 of the cash distribution.
C. Immediately after the cash distribution of cash and inventory items, Kay’s
capital account balance will be P59,000.
D. Immediately after the cash distribution of cash and inventory items, Kay’s
capital account balance will be P30,000.
30. Which of the following procedures are acceptable for dealing with the negative
balance in a partner’s capital account during liquidation:
A. The partner with the negative capital balance can contribute assets to the
partnership sufficient to bring the capital account up to zero.
B. If the partner with the negative capital balance is personally insolvent; the
negative capital balance may be absorbed by those partners having a positive
capital balance according to the profit and loss sharing ratios applying to all
the partners.
C. If the partner with the negative capital balance is personally insolvent, the
negative capital balance may be absorbed by those partners having a positive
capital according to the profit and loss sharing ratios applying to those
partners having positive balances.
D. A and C are acceptable choices.
E. A, B, and C are acceptable.

31. What is the difference between the terms “the partners’ equity (or interest)
balances” and the partners’ capital account balances?”
A. There is no difference in the terms; they can be used interchangeably.
B. The term “partners’ equity (or interest)” is the sum of the individual partner’s
capital accounts.
C. The term “partners’ equity (or interest)” is the sum of the individual partner’s
capital accounts as increased by partnership loans made to the partner and
reduced by a partner’s loans to the partnership.
D. The term “partners’ equity (or interest)” is the sum of the individual partner’s
capital accounts as decreased by partnership loans made to the partner and
increased by a partner’s loans to the partnership.
32. Trial balances for the home office and the branch of the Tony Co. show the following
accounts before adjustment, on December 31, 2023. The home office policy of billing
the branch for merchandise is 20% above cost.
Home
office Branch
Unrealized intercompany inventory profit P 10,800
Shipments to branch 24,000
Purchase (outsiders) P 7,500
Shipments from home office 28,800
Merchandise inventory, December 1, 2023 45,000
What part of the branch inventory as of December 1, 2023 represent purchases from
outsiders and what part represents goods acquired from the home office?
Outsiders Home Office
A. P 12,000 P33,000
B. 16,500 28,500
C. 15,000 30,000
D. 9,000 36,000
33. Anselmo Company operates retail hobby shops from the main store and a branch store.
Merchandise is shipped from the main store and to the branch and billed to the
branch at an arbitrary 10% markup. Trial balances of the main store and branch as
of December 31, 2023 are as follows:
Main Store Branch
Debits:
Cash . . . . . . . . . . . . . . . . . . . .P . 1,500 P 1,000
Accounts receivable – net . . . . . . . . . . 200 -
Inventory, December 31, 2022 . . . . . . . . . 3,500 2,500
Building – net . . . . . . . . . . . . . . . . 60,000 18,000
Equipment – net . . . . . . . . . . . . . . . 30,000 12,000
Branch store . . . . . . . . . . . . . . . . . 32,300 -
Purchases . . . . . . . . . . . . . . . . . . 240,000 11,000
Shipments from home office . . . . . . . . . . - 99,000
Other expenses . . . . . . . . . . . . . . . . 15,000 7,000
Total debits . . . . . . . . . . . . . . . . P. 382,500 P 150,500
Credits:
Accounts payable . . . . . . . . . . . . P 15,000 P 500
Unrealized inventory profit . . . . . . . 9,200 -
Main Store . . . . . . . . . . . . . . . - 30,000
Capital stock . . . . . . . . . . . . . . 50,000 -
Retained earnings . . . . . . . . . . . . 16,000 -
Sales . . . . . . . . . . . . . . . . . . 200,000 120,000
Shipments to branch . . . . . . . . . . . 90,000 -
Profit from branch . . . . . . . . . . . ____2,300 _________
Total credits . . . . . . . . . . . . . . P 382,500 P 150,500
Inventories on hand at December 31, 2023 at the main store and branch are P3,000
and P1,800, respectively. The December 31, 2022 branch inventory includes
merchandise purchased from outsiders of P300, and the December 31, 2023 branch
inventory includes P150 of merchandise purchased from outsiders. The combined cost
of goods sold amounted to:
A. P 261,200 C. P 243,150
B. P 252,200 D. P 252,150

34. On March 1, 2022, Giordano Company enters into a contract to transfer a product to
Hotter on July 31, 2022. The contract is structured such that Warmer is required
to pay the full contract price of P57,000 on August 31, 2022. The cost of the goods
transferred is P34,200. Giordano delivers the product to Hotter on July 31, 2022.
The contract exists on:
A. March 1, 2022 C. August 31, 2022
B. July 31, 2022 D. Incomplete data
35. Meyer & Smith is a full-service technology company. They provide equipment, and
installation services as well as training. Customers can purchase any product or
service separately or as a bundled package. Container Corporation purchased
computer equipment, installation and training for a total cost of P120,000 on March
15, 2022. Estimated standalone fair values of the equipment, installation, and
training are P75,000, P50,000, and P25,000 respectively. The transaction price
allocated to equipment, installation and training:
A. P75,000, P50,000, P25,000 respectively
B. P40,000, P40,000, P40,000 respectively
C. P120,000 for the entire bundle
D. P60,000, P40,000 and P20,000 respectively
36. On July 31, Aldrin Richards Company contracted to have two products built by
Antonio “Toni” Gonzaga Manufacturing for a total of P185,000. The contract specifies
that payment will only occur after both products have been transferred to Aldrin
Richards Company. Aldrin Richards determines that the standalone prices are
P100,000 for Product 1 and P85,000 for Product 2. On August 1, when Product 1 has
been transferred, the journal entry to record this event include a:
A. debit to Accounts Receivable for P100,000
B. debit to Accounts Receivable for P85,000
C. debit to Contract Assets for P85,000
D. debit to Contract Assets for P100,000
37. On January 1, Joey enters into a contract with Althea for the sale of an excavator
with unique specifications. Joey and Althea develop the specifications and Joey
contracts with a construction equipment manufacturer to produce the equipment. The
manufacturer will deliver the equipment to Althea when it is completed Joey agrees
to pay the manufacturer P42,000,000 upon delivery of the excavator to Althea.
Anderson and Althea agree to a selling price of P46,200,000 that will be paid by
Althea to Joey. Joey’s profit is P4,200,000 Joey’s contract with Althea requires
Althea to seek remedies for defects from the manufacturer, but Joey is responsible
for any corrections due to errors in specifications. The role of Joey is a:
A. Customer C. Agent
B. Principal D. No agreement at all
38. Maybelle Paulino Computers manufactures and sells computers that include a warranty
to make good on any defect in its computers for 150 days (often referred to as an
assurance warranty). In addition, it sells separately an extended warranty, which
provides protection from defects for three years beyond the 150 days (often referred
to as a service warranty). How many performance obligations are in the contract?
A. 0 C. 2
B. 1 D. 3
Use the following information for questions 39 and 40: Variable Consideration
Billy Biotech enters into a licensing agreement with Paul Pharmaceutical for a drug
under development. Billy will receive a payment of P20,000,000 if the drug receives a
regulatory approval. Based on prior experience in the drug-approval process, Billy
determines it is 90% likely that the drug will gain approval and a 10% chance of
denial. Assuming that regulatory approval was granted on December 20, 2022, and that
Billy received the payment from Paul on January 15, 2023.
39. Determine the transaction price of the arrangement for Billy Biotech:
A. Nil C. P20,000,000
B. P18,000,000 D. No transaction at all
40. On December 20, 2022, license revenue amounted to

A. Nil C. P20,000,000
B. P18,000,000 D. No transaction at all


41. Selected balances from the Cebu Company’s Branch A and B are as follows:
Branch A Branch B
Inventory, Jan. 1, 2023 P 21,000 P 19,000
Imprest Branch Fund 2,000 1,500
Inventory, Dec. 31, 2023 19,000 12,000
A/Receivable, Jan. 1, 2023 55,000 43,500
Merchandise from Home Office… 61,000 47,000
A/Receivable, Dec. 31, 2023 70,000 53,500
Sales 100,000 80,000
Cash Expenses… 21,000 14,300
All sales, collections, and expenses are handled at the branch. All cash received
from sales and collections are sent directly to the Home Office. Expenses are paid
by the branch from the imprest fund and immediately reimbursed by the Home Office
and credited to the Home Office account. All expenses paid by the branch are
recorded in the books of the branch.
Compute the balance of the Home Office account in the books of Branch on January
1, 2023:
A B A B
A. P163,000 P67,000 C. P139,000 P111,000
B. P 64,000 P78,000 D. P 78,000 P 64,000
42. Compute the balance of the Home Office account on December 31, 2023.
A B A B
A. P110,000 P152,000 C. P64,000 P78,000
B. P 91,000 P 67,000 D. P78,000 P64,000
43. At December 31, 2023, the following information has been collected by Maxwell
Company’s office and branch for reconciling the branch and home office accounts.
1. The home office’s branch account balance at December 31, 2023 is P590,000.
The branch’s home office account balance is P506,700.
2. On December 30, 2023, the branch sent a check for P40,000 to the home
office to settle its account. The check was not delivered to the home
office until January 3, 2024.
3. On December 27, 2023, the branch returned P15,000 of seasonal merchandise
to the home office for the January clearance sale. The merchandise was not
received by the home office until January 6, 2024
4. The home office allocated general expenses of P28,000 to the branch. The
branch had not entered the allocation at the year-end.
5. Branch store insurance premiums of P900 were paid by the home office. The
branch recorded the amount at P600.
The correct balance of the reciprocal account on December 31, 2023 amounted to:
A. P575,000 C. P534,700
B. P535,000 D. P507,000

OO and PP are partners sharing profits in this proportion – 60:40. A balance sheet
prepared for the partners on April 1, 20x4 shows the following:
Accounts Receivable 92,000 OO, capital 133,000
Inventories 165,000 PP, capital 108,000
Equipment 70,000
Less: Accumulated
Depreciation 45,000 25,000 ________
Total Assets P330,000 Total Liabilities & P330,000
Capital
On this date, the partners agree to admit RR as a partner. The terms of the agreement
are summarized below.
Assets and liabilities are to be restated as follows:
• An allowance for possible uncollectible of P4,500 is to be established.
• Inventories are to be restated at their present replacement value of P170,000.
• Accrued expenses of P4,000 are to be Recognized.
OO, PP and RR will divide profits in the ratio of 5:3:2. Capital balances of the
partners after the formation of the new partnership are to be in the aforementioned

ratio, with OO and PP making cash settlement between them outside of the partnership
to adjust their capitals, and RR investing cash in the partnership for his interest.
44. The total capital of the partnership after the admission of RR is:
A. P296,875 C. P237,500
B. P301,250 D. P286,850
45. Cash settlement between OO and PP is:
A. OO will pay PP C. OO will invest P17,537.50
P17,537.50
B. PP will pay OO D. PP will withdraw P17,537.50
P17,537.50

On December 31, 2023, the Home Office of Kathy Office Supply Company recorded a shipment
of merchandise to its Davao branch as follows:
Davao Branch 39,000
Shipments to Branch 32,500
Unrealized Profit in Branch Inventory 5,200
Cash (for freight charges) 1,300
The Davao branch sells 40% of the merchandise to outside entities during the rest of
December 2023. The books of the home office and Kathy Office Supply are closed on
December 31 of each year.
On January 5, 2024, the Davao branch transfers half of the original shipment to the
Baguio branch, and the Davao branch pays P650 as the shipment.
46. What amount should the 60% of the merchandise remaining unsold be included in (1)
the inventory of the Davao branch at December 31, 2023:
A. P20,280 C. P23,400
B. P22,620 D. P23,920
47. What amount should the 60% of the merchandise remaining unsold at December 31,
2023 be included in the published balance sheet of Kathy Office Supply at December
31, 2023 shows inventory at:
A. P19,500 C. P20,800
B. P20,280 D. P23,400
48. What is the entry on the home office books in respect to January 5, 2024 transfer,
assuming that the transfer cost of the merchandise to Baguio branch would have been
P780.
A. Home Office 20,150
Cash 780
Inventory 19,500
B. Shipments 18,850
Freight-in 780
Home Office Current 19,630
C. Branch Current – Baguio 19,630

Excess Freight 520
Branch Current – Davao 20,150
D. Branch Current – Baguio 19,630

Excess Freight 780
Branch Current – Davao 20,410
49. Hotel Dian Inc. charges an initial franchise fee of P90,000 broken down as follows:
Rights to trade name, market area, and proprietary know-how P40,000
Training services 11,500
Equipment (cost of P10,800) 38,500
Total initial franchise fee P90,000
Upon signing of the agreement, a payment of P40,000 is due. Thereafter, two annual
payments of P30,000 are required. The credit rating of the franchisee is such that
it would have to pay interest of 8% to borrow money. The franchise agreement is
signed on August 1, 20x4, and the franchise commences operation on November 1, 20x4.
Assuming that no future services are required by the franchisor once the franchise
begins operations, the entry on November 1, 20x4 would include

A. a credit to Unearned Franchise Revenue for P40,000 (P41,455).
B. a debit to Service Revenue for P11,500 (P11,947).
C. a debit to Sales Revenue for P38,500.
D. a debit to Unearned Franchise Revenue for P40,000 (P41,455).
50. Assuming that the franchise agreement is signed on August 1, 20x5, and the franchise
commences operation on November 1, 20x5. Assume that the total training fees
includes training services for the period leading up to the franchise opening
(P5,500 value) and for 3 months following opening. The journal entry on August 1,
20x5 would include
A. a credit to Unearned Service Revenue for P11,500 (P11,947).
B. a credit to Unearned Service Revenue for P6,000.
C. a debit to Sales Revenue for P38,500.
D. a debit to Unearned Franchise Revenue for P40,000 (P41,455).

On August 5, 20x5, Famous Furniture shipped 20 dining sets on consignment to Furniture
Outlet, Inc. The cost of each dining set was P350. The cost of shipping the dining
sets amounted to P1,800 and was paid for by Famous Furniture. On December 30, 20x5,
the consignee reported the sale of 15 dining sets at P850 each. The consignee remitted
payment for the amount due after deducting a 6% commission, advertising expense of
P300, and installation and setup costs of P390.
51. The amount cash received by Famous Furniture is

A. P12,750 C. P11,685
B. P11,985 D. P11,295
52. The total profit on units sold for the consignor is
A. P11,295 C. P6,045
B. P 9,945 D. P4,695
53. Virtuoso has a sales agency in Cebu. Agency revenues and expenses are recorded in
separate agency accounts, with the operating results of both the agency and the
home office generated at each month-end. For the month of October 20x4, the home
office paid P10,000 for advertising costs on behalf of the agency and recorded this
as follows:
a. Cebu agency 10,000
Cash 10,000
b. Advertising expense 10,000
Cash 10,000
c. Accounts receivable – Cebu Agency 10,000
Cash 10,000
d. Advertising expense – Cebu Agency 10,000
Cash 10,000
54. Horizontal business combinations occur when one entity purchases which of the
following?
A. A supplier C. A competitor
B. A customer D. None of the above
55. Under PFRS 3, Business Combinations, which method must be used to account for
business combinations?
A. Purchase method C. Acquisition method
B. Pooling-of-interests method D. New entity method
56. Which of the following is a vertical combination?

A. A combination where the two entities are unrelated
B. A combination where the two entities are competitors in the same
industry
C. A combination where the two entities have a potential buyer/seller
relationship
D. None of the above describes a vertical combination
57. The second step in the process for revenue recognition is to

A. allocate transaction price to the separate performance obligations.
B. determine the transaction price.
C. identify the contract with customers.
D. identify the separate performance obligations in the contract.

58. Partial satisfaction of a multiple performance obligation is reported on the
statement of financial position as
A. contract liability. C. contract asset.
B. receivable. D. unearned service revenue.
59. Contract liability is a company’s obligations to transfer goods or services to a

customer for which the company has received consideration from the customer. An
example of a contract liability is
A. Prepaid subscription. C. Mortgage Payable.
B. Unearned magazine subscription. D. Service Revenue.
60. If both the home office and the branch of a business enterprise use the perpetual
inventory system, a Shipment to Branch ledger account appears in the accounting
records of:
A. The home office only
B. The branch only
C. Both the home office and the branch
D. Neither the home office nor the branch
61. In preparing the financial statements of the home office and its various branches:
A. Nonreciprocal accounts are eliminated but reciprocal accounts are
combined
B. Both reciprocal and nonreciprocal accounts are eliminated
C. Both reciprocal and nonreciprocal accounts are combined
D. Reciprocal accounts are eliminated and nonreciprocal accounts are
combined
62.In the year end general ledger closing procedures, which accounts are closed in
arriving at Cost of Sales?
Purchases Sent to Branch Purchases from Home Office
A. Yes Yes
B. No Yes
C. No No
D. Yes No
63. How are anticipated administrative expenses reported on a statement of financial

affairs?
A. As a footnote until actually incurred.
B. As a liability with priority
C. As a partially secured liability.
D. As an unsecured liability
64. The Statement of Realization and Liquidation differs from the Statement of Affairs
because
A. The Statement of Realization and Affairs reports estimated realizable
values rather than actual liquidation results
B. The Statement of Realization and Affairs is a summary of secured debt
activity only
C. The Statement of Realization and Affairs is prepared only at final
completion of the liquidation process
D. The Statement of Realization and Affairs reports actual liquidation
results rather than estimated realizable values
65. Which of the following are recognized each period under the cost-recovery (point-
in-time) method?
A. Costs only. C. Both costs and revenues.
B. Revenues only. D. None of these.
66. If the percentage-of-completion (overtime) method is used, what is the basis for
determining the gross profit to be recognized in the second year of a three-year
contract?
A. Cumulative actual costs incurred only.
B. Incremental cost for the second year only.
C. Cumulative actual costs and estimated costs to complete.
D. No gross profit would be recognized in year 2.

67. All revenue for franchise companies is derived from
A. assistance for site selection and negotiating lease.
B. bookkeeping and advisory services.
C. sale of initial franchise and continuing fees.
D. advertising and promotion.
68. Goods on consignment should be included in the inventory of:

A. the consignor but not the consignee
B. both the consignor and the consignee
C. the consignee but not the consignor
D. neither the consignor nor the consignee
69. On 25 June 20x9 Cambridge Co received an order from a new customer, Circus Co, for
products with a sales venue of P900,000. Circus Co enclosed a deposit with the
order of P90,000. On 30 June Cambridge Co had not completed credit checks on Circus
Co and had not despatched any goods. Cambridge Co is considering the following
possible entries for this transaction in its financial statements for the year
ended 30 June 20x9.
(i) Create a trade receivable for P810,000.
(ii) Include P90,000 in revenue for the year.
(iii) Recognise P90,000 as a contract liability.
(iv) Include P900,000 in revenue for the year.
(v) Do not include anything in revenue for the year.
According to PFRS 15 Revenue from Contracts with Customers, how should Cambridge Co
record this transaction in its financial statements for the year ended 30 June 20x9?
A. (i) and (iv) only C. (ii) and (v) only
B. (ii) and (iv) only D. (iii) and (v) only
70. Fonesell Co enters into a contract on September 1, 20x5 to conduct telephone

marketing activities on behalf of a customer. The contract has a price of P8,000
and requires Fonesell Co to contact 10,000 households over a period of six months
in order to enquire about buying habits and promote its customer. The customer is
invoiced equal amounts three months and six months after the commencement of the
contract. By Fonesell Co’s year-end of December 31, 20x5, it has contacted 3,500
of the 10,000 customers. What amounts does Fonesell Co recognise in its financial
statements in the year ended December 31, 20x5?
A. revenue of P4,000 and a receivable of P4,000
B. revenue of P4,000 and a contract liability of P4,000
C. revenue of P2,800, a receivable of P4,000 and a contract asset of P1,200
D. revenue of P2,800, a receivable of P4,000 and a contract liability of
P1,200
Goodluck and GOD BLESS!!!

**Don’t think that there’s so much darkness, that it’s no use to have a small
light, because even one candle can be seen a mile away when it’s dark.**
**When all else is lost, the future still remains.**
**The greatest mistake you can make is to continually fear making mistakes.**
We are never given guarantees in life. We are only given the opportunities
and it is up to us to make the BEST out of it.
The most difficult secret of a man to keep is the opinion he has of himself.
Nothing great was ever achieved without determination.
Don’t be discouraged; everyone who got where he is, started where he was.
Impossibilities vanish when a man and his GOD confront a mountain.

Suggested Answers:
1. C 11. A 21. B 31. D 41. D 51. D 61. D

2. C 12. D 22. A 32. D 42. B 52. D 62. A
3. C 13. C 23. C 33. D 43. B 53. D 63. B
4. B 14. D 24. C 34. B 44. A 54. C 64. D
5. C 15. A 25. B 35. D 45. A 55. C 65. C
6. B 16. B 26. D 36. D 46. C 56. C 66. C
7. C 17. B 27. C 37. B 47. B 57. D 67. C
8. D 18. A 28. A 38. C 48. C 58. C 68. A
9. A 19. D 29. A 39. C 49. D 59. B 69. D
10. D 20. A 30. D 40. A 50. A 60. D 70. C
1. C
Dana Elsie Fe Gloria Total

Capital balances P 170, 000 P 80, 000 P 140, 000 P 78,000 P 468, 000
Loan to Dana (20, 000) (20, 000)
Total interest P 150, 000 P 80, 000 P 140,000 P 78,000 P 448, 000
Total reduction in interest (69,000) (34,500) (172,500) (69,000) (345,000)
CAFD P 81,000 P 45,500 P (32,500) P 9, 000 *P 103, 000
Possible loss (2:1:2) (13, 000) (6, 500) 32, 500 (13, 000) -
P 68, 000 P 39, 000 P (4, 000) P 103, 000
Possible loss (2:1) (2, 667) (1, 333) 4, 000 -
Cash received/distributed P 65, 333 P 37,667 P 103, 000
Payment to partners:
Cash, beginning P 200,000
Add: Proceeds from -
Receivables (1/2 x P56, 000) 28,000
Inventory 45,000
Land 250,000
Less:
Cash withheld (20,000)
Payment of accounts payable (400,000)
Cash available for distribution (CAFD) P 103,000
2. C
Unadjusted capital of CC P 33,000
Add (deduct): adjustments-
Allowance for doubtful accounts (3% x P14,200) ( 426)
Increase in merchandise inventory (P23,000 – P20,000) 3,000
Prepaid salary 600
Accrued rent expense ( 800)
Adjusted capital balance of CC P 35,374
Divided by: Capital interest of CC 2/3
Total capital of the partnership P 53,061
Less: Adjusted capital balance of CC 35,374
Capital balance of DD P 17,687

3. C - P45,450
Amount paid P 61,200

Less: Book value of interest of Oakley (20%) * 58,200
Bonus to retiring partner P 3,000
*Total Interest of Oakley

Loans P 9,000
Capital P 42,000
Add: Share in adjustment of asset
(P216,000 – P180,000) x 20% 7,200 49,200
P58,200
Therefore, the capital balance of Pine should be:
= P39,000 + (P216,000 – P180,000) x 20% - (P3,000 x 2/8)
= P45,450
4. B
Palmer Larsen Total
Due to (from) P 14,400 P -0- P 14,400
Capital balances 28,800 74,400 103,200
Total Interests P 43,200 P 74,400 P117,600
Reduction in interests ( 50,400) ( 50,400) (100,800)
Cash available for distribution (CAFD) P( 7,200) P 24,000 P 16,800*
Additional investment (P62,400 – P56,400) 6,000 -0- 6,000
Balances P ( 1,200) P 24,000 P 22,800
Additional loss 1,200 ( 1,200) -0-
Payment P -0- P 22,800 P 22,800
Cash beginning P 20,400

Add: Proceeds 123,600
Less: Payment of liquidation expenses (4,800)
Payment of liabilities:
Accounts Payable ( 38,400)
Other liabilities ( 84,000)
Cash available for distribution (CAFD) P 16,800*
5. C – P60,000 + [(P120,000 + P6,000) – (P30,000 + P35,000) = P121,000
6. B -
P20,000 + P80,000 + [P170,000 – (P150,000 + P7,000)] = P113,000 – (P10,000 + P10,000) = P93,000
Note: The lowest priority is given to claims by General Unsecured Creditors (i.e., without priority). These creditors
are paid only after secured creditors and unsecured creditors with priority are satisfied to the extent of any legal
limits. Often the general unsecured creditors receive less than the full amount of their claim. The amounts to be
paid to these creditors are usually stated as a percentage of total claim, such as 77 cents per peso (refer to No.
7), or whatever the specific percentage is. The payment to general unsecured creditors is often termed a
“dividend”.
7. C – P93,000/P121,000 = 77% rounded. Refer to “Note” in No. 6
8. D
A B C D Total
Capital balances 16,200 12,000 37,700 17,700 83,600
Loans 12,000 14,400 9,600 36,000
Salaries ______ ______ 160 240 400
Total Interests 28,200 26,400 37,860 27,540 120,000
Reduction in interests (equally) (27,750) (27,750) (27,750) (27,750) (111,000)
Balances 450 ( 1,350) 10,110 ( 210) 9,000*
Absorption of possible insolvency ( 780) 1,350 ( 780) 210 -0-
Balances ( 330) 9,330 9,000
Absorption of possible insolvency 330 ( 330) -0-
Payment 9,000 9,000

* Payment to partners:
Proceeds (P18,000 – P2,400) 15,600
Payment of liabilities (always in full) (12,000)
Payment of liquidation expenses ( 600)
P 9,000*
9. A
Total book value of other non-cash assets realized:
(P9,000 + P7,700 + P11,300) P 28,000
Less: Total proceeds (P6,000 + P3,500 + P12,500) 22,000
Total loss on realization P 6,000
X: Share of A 3/6
Loss on liquidation to A P 3,000
10. D
B, capital P 7,000
Less: Share in total realization loss: (2/6 x P6,000) 2,000
Total cash received by B P 5,000
Or, alternatively:
Therefore, total payment to B should be:
January P 0
February (refer to No. 11 computations) 800
March 4,200
P 5,000
11. A
A B C Total
January -
Capital balances 2,500 7,000 3,000 12,500
Loans 12,500 12,500
Total Interests 15,000 7,000 3,000 25,000
Reduction in interests (3:2:1) ( 11,000) (7,333) (3,667) (22,000)
Balances 4,000 ( 333) ( 667) 3,000
Reduction in interests ( 1,000) 333 667 -0-
Payments 3,000 3,000
January:
Add: Proceeds 6,000
Less: Payments of liabilities 5,000
Payment to Partners P 3,000*
Total Interests – January 15,000 7,000 3,000 25,000
Payment to partners – January ( 3,000) ( 3,000)
Total Interest – February 12,000 7,000 3,000 22,000
Reduction in interests (3:2:1) ( 9,250) (6,167) (3,083) (18,500)
Balances** 2,750 833 ( 83) 3,500
Reduction in interests ( 50) ( 33) 83 -0-
Payments 2,700 800 3,500
February:
Cash, beginning P 0
Add: Proceeds 3,500
Less: Payments of liabilities 0
Payment to Partners P 3,500**
Total Interest –February 12,000 7,000 3,000 22,000
Payment to partners - February ( 2,700) ( 800) -0- ( 3,500)
Total Interests – March 9,300 6,200 3,000 18,500
Reduction in interests (3:2:1) ( 3,000) ( 2,000) (1,000) ( 6,000)
Balances*** 6,300 4,200 2,000 12,500
March:
Cash, beginning P 0
Add: Proceeds 12,500
Less: Payments of liabilities 0
Payment to Partners P 12,500***

12. D
100% 60% 40%
Billed Price Cost Allowance
Merchandise inventory, 1/1/2023 32,000
Shipments *60,000 36,000 *24,000
Cost of goods available for sale 56,000
Less: MI, 3/31/2023 (25,000 x 40%) 10,000
Overvaluation of CGS/RPBSales 46,000
*36,000 cost / 60% = 60,000 x 40% = 24,000. (Note: Markup is based on billed price)
13. C – P145,000 = P70,000 + P50,000 + P30,000 + P25,000 – P30,000
14. D – P10,000* = P20,000 + P15,000 + P20,000 – P35,000 – P10,000
15. A
Ritz(20%)
Sally(30%) Tracy (50%) Total
Total Interest 40,000 75,000 30,000 145,000
Reduction (27,000) (40,500) (67,500) (135,000)
Balance 13,000 34,500 (37,500) *10,000
Poss. Loss (2:3) (15,000) (22,500) 37,500 -0-
( 2,000) 12,000 -0- 10,000
Poss. loss 2,000 ( 2,000) -0-
10,000 10,000
Total interest: P145,000 = P70,000 + P50,000 + P30,000 + P25,000 – P30,000
*P10,000 = P20,000 + P15,000 + P20,000 – P35,000 – P10,000
16. B
Ding Laurel Ezzard Tillman Total
Capital before realization 60,000 67,000 17,000 96,000 240,000
Loss on sale (4:2:2:2) (52,800) ( 26,400) (26,400) (26,400) (132,000)
7,200 40,600 ( 9,400) 69,600 108,000
Possible insolvency loss (4:2:2) ( 4,700) ( 2,350) 9,400 ( 2,350) -0-
Safe payments 2,500 38,250 0 67,250 108,000
17. B
Total revenue recognized during 2022 (w): P 50 million
CIP contains cost + gross profit * = revenue, so W = P50
* Note that the Income statement is in gross profit position, therefore, entries
recorded under CIP account pertain to both actual costs incurred and the RGP
(alternatively, the amount pertains to the amount debited to AR)
18. A
Gross profit recognized during 2022 (x): P50M Revenue - P35M cost = P15M GP P 15 million
19. D
Billings on construction (y):
AR billed ending balance of P14M + AR billed collected in 2022 P46M = P 60 million
P60M Recorded AR billed for 2022
20. A
Net billings in excess of construction in progress (z): P10 million
Billings of P60M – CIP of P50M (alternatively, this pertains to the net billed AR (i.e.,
billed AR is higher than the amount of revenue recorded as unbilled AR)
21. B
Calculate the percentage of PAC that was completed during 2022:
P50M revenue recognized/P150M Contract Price = 33.33% 33.33%

22. A
Gross collection (P15,000 x 70% x 80%) P 8,400
Less: Cash discount taken by customer (P8,400 x 2%) __168
Net collection P 8,232
Less Charges:
Expenses P 800
Commission (P8,400 x 15%) _1,260 __2,060
Due to Consignor P 6,172
Less: Advances _6,000
Amount remitted P 172
23. C
Charges Related to
Total Consignment Inventory on
Charges Sales Consignment
(100%) (70%) (30%)
Consignor’s charges:
Cost P10,000 P 7,000 P 3,000
Freight 120 84 36
Consignee’s charges:
Expenses 800 800
Commission (15% x P10,500) 1,575 1,575
Cash discount (P10,500 x 80% x 2%) 168 168 ______
Total P12,663 P 9,627 P 3,036
Sales price (70% x P15,000) _10,500_
Profit on Consignment P 873
24. C
Sales (P350,000 + P100,000) P 450,000
Less: Cost of goods sold:
Purchases (P400,000 + P50,000) P 450,000
Less: Inventory, end 90,000 360,000
Gross profit P 90,000
Less: Expenses –
Salaries and commissions P 70,000
Rent 20,000
Advertising supplies (P10,000 – P6,000) 4,000
Other expenses 5,000 99,000
Net Loss P( 9,000)
25. B
January 1, 20x5:
Cash 10,000
Notes Receivable 40,000
Unearned Interest Income/Discount on Notes Receivable 10,433
Unearned Service Revenue (Training) 3,600
Unearned Franchise Revenue (P10,000 + P29,567-P3,600) 35,967*
April 1, 20x5
Unearned Franchise Revenue 35,967
Unearned Service Revenue (Training) 3,600
Franchise Revenue 35,967
Service Revenue (Training) 3,600

26. D
27. C
28. A
Investment in Branch/
Branch Current Home Office
Unadjusted 515,000 495,750
Excess freight (750)
Remittance (11,000)
Returns (4,000)
Expense allocation 5,000
Adjusted 500,000 500,000
29. A
Ann (40%) Bee (40%) Kay (20%) Total
Total Interest 79,000 140,000 140,000 359,000
Share in inventory (8,000) (8,000) (4,000) (20,000)
revaluation decrease
(P60,000-P80,000)
Distribute inventory to
Kay at fair value (60,000) (60,000)
Adjusted Equity interest 71,000 132,000 76,000 279,000
Reduction (92,000) (92,000) (46,000) (230,000)
Balance ( 21,000) 40,000 30,000 *49,000
Poss. Loss (4:2) 21,000 (14,000) (7,000) -0-
0 16,000 23,000 49,000
*P198,000 – P149,000 = P49,000
30. D
31. D
32. D
Unrealized Intercompany Inventory Profit/Allowance
for overvaluation of branch inventory before P10,800
adjustments
Less: Allowance for overvaluation of shipments
(P28,800 - P24,000) (4,800)
Allow. for overvaluation of beginning inventory P6,000
Divided by: Mark-up on cost 20%
Merchandise inventory at cost, December 1, 2023 P30,000
Add: Allowance for overvaluation of beginning branch
Inventory 6,000
Merchandise inventory at BP, December 1, 2023 P36,000
Merch. inventory, December 1, 2023 per branch books P45,000

Less: Merchandise inventory at billed price 36,000
Merchandise inventory, December 1, 2023 -- outsiders P 9,000
33. D
Combined Cost of Goods Sold:
Merchandise Inventory, 1/1/2023:
Home Office, cost P 3,500
Branch: Outsiders, P 300
From Home Office (P2,500 – P300)/110% 2,000 2,300 P 5,800
Add Purchases (P240,000 + P11,000) 251,000
COGAS P 256,800
Less: Merchandise Inventory, 12/31/2023
Home Office, cost P 3,000
Branch: Outsiders P 150
From Home Office (P1,800 – P150)/110% 1,500 1,650 4,650
Cost of Goods Sold P252,150

34. B
No entry is required on March 1, 2022, because neither party has performed on the contract. That is, neither
party has an unconditional right as of March 1, 2022. On July 31, 2022, Giordano delivers the product and
therefore should recognize revenue as it received an unconditional right to consideration on that date. In addition,
Giordano satisfies its performance obligation by delivering the product to Hotter.
No entry – neither party has performed on March 1, 2022.
The entry on July 31, 2022, to record the sale and related cost of goods sold is as follows:
Sales 57,000
Cost of sales 34,200

Inventory 34,200
The entry to record the receipt of cash on August 31, 2022 is a follows:
Cash 57,000
A key attribute of the revenue arrangement is that the signing of the contract by the two parties is not recorded
until one or both of the parties perform under the contract. Until performance occurs, no net asset or net
liability occurs.
35. D - P75,000 + P50,000 + P25,000 = P150,000

P75,000/ P150,000  P120,000 = P60,000
P50,000/ P150,000  P120,000 = P40,000
P25,000/ P150,000  P120,000 = P20,000.
36. D - Since the right to receive is conditional upon delivery of both products, the company cannot recognize
Accounts Receivable yet. Instead, a Debit to Contract Asset must be recognized upon delivery of Product 1.
37. B - Joey is acting as principal in the contract based on the following indicators:
• Joey is responsible for fulfilling the contract because it is responsible for ensuring that the excavator meets
specifications
• Joey has inventory risk because it is responsible for correcting error in specifications, even though the
manufacturer has inventory risk during production
• Joey has discretion in establishing the selling pric
• Joey’s consideration is in the form of profit, not commission
• Joey has credit risk for the P46,200,000 receivable from Tanner
38. C -
In this case, two performance obligations exist:
1. one related to the sale of the computer and the assurance warranty (it should be noted that quality-
assurance warranty is part of that performance obligation), and
2. the other to the extended warranty (service warranty).
The sale of the computer and related assurance warranty (quality-assurance) are one performance
obligation as they are interdependent and interrelated with each other.
However, the extended warranty is separately sold and is not interdependent (or not connected).
39. C - Because the arrangement only has two possible outcomes (regulatory approval is achieved or not), Bai
determines the transaction price based on the most likely approach. Thus, the best measure for the transaction
price is P20,000,000.
40. A
December 20, 2022
No entry-neither party has performed.
January 15, 2023
Cash 10,000,000
License Revenue 10,000,000

41. D
Branch A Branch B
Assets:
Inventory, January 1 P 21,000 P 19,000
Imprest branch fund 2,000 1,500
Accounts receivable, January 1 55,000 43,500
Total Assets P 78,000 P 64,000
Less: Liabilities -0- -0-
Home Office Current Account, 1/1/2023 P 78,000 P 64,000
42. B
Branch A Branch B
Assets:
Inventory, December 31 P 19,000 P 12,000
Imprest branch fund 2,000 1,500
Accounts receivable, December 31 70,000 53,500
Total Assets P 91,000 P 67,000
Less: Liabilities -0- -0-
Home Office Current Account, 12/31/2023 P 91,000 P 67,000
43. B
Home Office Books Branch Books
Branch Current (Dr.) Home Office Current (Cr.)
590,000 506,700
40,000 40,000
15,000 15,000
28,000 28,000
900 600
300
535,000 535,000
44. A
OO PP Total
(60%) (40%)
Unadjusted capital balances P133,000 P108,000 P241,000
Adjustments:
Allowance for bad debts ( 2,700) ( 1,800) ( 4,500)
Inventories 3,000 2,000 5,000
Accrued expenses ( 2,400) ( 1,600) ( 4,000)
Adjusted capital balances P130,900 P106,600 P237,500
Total capital before the formation of the new partnership (see above) P 237,500
Divide by the total percentage share of OO and PP (50% + 30%) 80%
Total capital of the partnership after the admission of RR P 296,875
Total capital of the new partnership P 296,875
Multiply by RR’s interest 20%
Cash to be invested by RR P 59,375
45. A
Agreed Capital Contributed Capital Settlement
OO P148,437.50 (50% x P296,875) P 130,900 P 17,537.50
PP 89,062.50 (30% x P296,875) 106,600 (17,537.50)
Therefore, OO will pay PP P17,537.50

46. C
Inventory of the Branch:
Shipments from home office at billed price P 37,700
x: Ending inventory % 60%
Ending inventory at billed price P22,620
Add: Freight (P1,300 x 60%) 780
P23,400
Or, P39,000 x 60% = P23,400
47. B
Inventory in the published balance sheet, at cost
Shipments at cost P 32,500
x: Ending inventory % 60%
Ending inventory at billed price P19,500
Add: Freight (P1,300 x 60%) 780
P 20,280
48. C
Home Office Books Davao Branch Baguio Branch
Davao Branch… 39,000 SFHO…………….37,700
STB, cost……. 32,500 Freight-in………. 1,300
Unrealized profit 5,200 HOC………….. 39,000
Cash (freight)…. 1,300
BC – Baguio……19,630 HOC……………….20,150 SFHO……… 18,850
Excess freight… 520 SFHO(50%)… 18,850 Freight-in.. 780
BC-Davao……. 20,150 Freight-in (50% 650 HOC…… 19,630
Cash…………… 650
49. D - the amount of P40,000 is the nearest answer (refer to entry in No. 50 )
November 1, 20x4: Date of Opening/Franchise Opens: - Rights to trade name (to record revenue
from delivery of franchise rights – point in time/right of use)
Unearned Franchise Revenue 41,555
Franchise revenue 41,555
Franchises often include a license (right of use-point in time), as well as goods and services transferred
at the start of the franchise as well as over the life (right of access-over time) of the franchise.
A license is said to transfer a right of use if the seller’s activities during the license period are not expected to
affect the intellectual property being licensed to the customer. In that case revenue is recognized at the start of
the license period, that is, when the right is transferred.
50. A – nearest amount for unearned service revenue.
August 1, 20x5: Date of Signing:
Cash 40,000
Notes receivable (P30,000 x 2) 60,000
Unearned Interest Income/Discount on Notes Receivable 6,502
Unearned franchise revenue 41,555
Unearned service revenue – training services 11,947
Unearned sales revenue – equipment 39,996
Cash/down-payment P 40,000
PV of Installment payment for two (2) periods:
P30,000 x 1.78326 (PV of an annuity of P1 for 2 periods) 53,498
Total P 93,498
Amount allocated to:
Rights to trade name: P93,498 x (40,000/90,000) P 41,555
Training services: P93,498 x (11,500/90,000) 11,947
Equipment: P93,498 x (38,500/90,000) 39,996
Total P 93,498
Recognition of Franchise Rights Revenue Over Time
Depending on the economic substance of the rights, the franchisor may be providing access to the right (over
time) rather than transferring control of the franchise rights. In this case , the franchise revenue is recognized
over time, rather than at a point in time (August 1, 20x5), therefore, the P11,947 is unearned service
revenue (note: not as unearned franchise revenue in contrast to PAS 18)

51. D - (15 x P850) − (P12,750  .06) − P300 − P390 = P11,295, or
Sales (P850 x 15)) P 12,750
Less Charges:
Commission (6% x P12,750) 765
Advertising 300
Delivery and installation 390
Remittance P 11,295
52. D
Charges Related to
Total Consignment Inventory on
Charges Sales Consignment
(20) (15) (5)
Consignor’s charges:
Cost, P350 per set P 7,000 P 5,250 P 1,750
Freight, P1,800 1,800 1,350 450
Consignee’s charges:
Commission (6% x P12,750) 765 765
Advertising 300 300
Delivery and installation 390 390 _______
Total P10,255 P 8,065 P 2,200
Sales price, P850 per set 12,750
Profit on Consignment P 4,695
53. D
In adopting the imprest system for the agency working fund, the home office writes a check to the agency for
the amount of the fund. Establishment of the fund is recorded on the home office books by a debit to the
working fund – agency account and credit to cash.
The agency will request fund replenishment whenever the fund runs low and at the end of each fiscal period.
Such a request is normally accompanied by an itemized and authenticated statement of disbursements and the
paid vouchers. Upon sending the agency a check in replenishment of the fund, the home office debits to
expense or other accounts for which disbursements from the fund were reported and credits cash.
54. C 55. C 56. C 57. D 58. C 59. B 60. D 61. D 62. A

63. B 64. D 65. C 66. C 67. C 68. A 69. D* 70. C**
*69. D – No sale has taken place as control of the goods has not been transferred, but Cambridge Co. must recognize
a contract liability to reflect the fact that it has received P90,000 prior to transferring goods to its customer.
**70. C –
Revenue should be recognized as the contract progresses using either input or output methods. Time elapsed
(as opposed to hours worked on contract) is not an appropriate method to assets progress. The number of calls
made as a proportion of all calls is an appropriate output method and therefore 35 per cent of revenue is
recognized. As the amount invoiced exceeds the performance obligation that has been satisfied, a contract liability
is also recognized.
-END-

ReSA B45 AFAR First PB Exam - Questions, Answers - Solutions

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

ADVANCED FINANCIAL ACCOUNTING and REPORTING FIRST PRE-BOARD EXAMINATION

As of July 1, 2023, the partners have personal net worth as follows:

Items 5 to 7 are based on the following information:

Carrying Value Fair Value

Debts of Orville are as follows:

5. What is the total amount of unsecured claims?

7. What is the estimated dividend percentage?

Cash P 6,000 Liabilities P 12,400

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Items 9 through 11 are based on the following information:

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Items 17 to 21 are based on the following information:

Balance Sheet/Statement of Financial Position:

Statement of Cash Flow:

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Items 22 and 23 are based on the following information:

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40. On December 20, 2022, license revenue amounted to

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Items 41 through 42 are based on the following information:

Items 44 to 45 are based on the following information:

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Items 46 through 48 are based on the following information:

C. Branch Current – Baguio 19,630

D. Branch Current – Baguio 19,630

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Items 51 and 52 are based on the following information:

51. The amount cash received by Famous Furniture is

56. Which of the following is a vertical combination?

57. The second step in the process for revenue recognition is to

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59. Contract liability is a company’s obligations to transfer goods or services to a

63. How are anticipated administrative expenses reported on a statement of financial

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68. Goods on consignment should be included in the inventory of:

70. Fonesell Co enters into a contract on September 1, 20x5 to conduct telephone

Goodluck and GOD BLESS!!!

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1. C 11. A 21. B 31. D 41. D 51. D 61. D

Dana Elsie Fe Gloria Total

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Amount paid P 61,200

*Total Interest of Oakley

Cash beginning P 20,400

5. C – P60,000 + [(P120,000 + P6,000) – (P30,000 + P35,000) = P121,000

7. C – P93,000/P121,000 = 77% rounded. Refer to “Note” in No. 6

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13. C – P145,000 = P70,000 + P50,000 + P30,000 + P25,000 – P30,000

14. D – P10,000* = P20,000 + P15,000 + P20,000 – P35,000 – P10,000

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Merch. inventory, December 1, 2023 per branch books P45,000

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Cost of sales 34,200

35. D - P75,000 + P50,000 + P25,000 = P150,000

2. the other to the extended warranty (service warranty).

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54. C 55. C 56. C 57. D 58. C 59. B 60. D 61. D 62. A