PREFINALS EXAM

Review in Practical Accounting 2

Problem 1:

1. What is the book value of the investment in joint venture to be presented by Reyes Corporation
in its December 31, 20X6 statement of financial position?
a. PHP11,575,000
b. PHP11,500,000
c. PHP11,495,000
d. PHP11,615,000
2. What is the book value of the investment in joint venture to be presented by JoyCorporation in
its December 31, 20X6 statement of financial position?
a. PHP16,340,000
b. PHP16,420,000
c. PHP16,495,000
d. PHP16,625,000

Problem 2 (SMEs):

1. If FFF Company uses the cost model in measuring its investment, at what amounts should the
investment in A, B, and C, respectively, be reported in its December 31, 20X8 statement of
financial position?
a. PHP100,000; PHP150,000; PHP280,000
b. PHP101,000; PHP151,500; PHP282,800
c. PHP101,000; PHP151,500; PHP142,500
d. PHP123,500; PHP275,500; PHP142,500
 2. Assume FFF Company uses fair value model to measure its investment, at what amounts should
the investment in A, B, and C, respectively, be reported in its December 31, 20X8 statement of
financial position?
a. PHP100,000; PHP150,000; PHP280,000
b. PHP101,000; PHP151,500; PHP282,800
c. PHP123,500; PHP275,500; PHP142,500
d. PHP130,000; PHP290,000; PHP150,000
3. Assume FFF Company uses the equity method in measuring its investment, at what amounts
should the investment in A, B, and C, respectively, be reported in its December 31, 20X8
statement of financial position?
a. PHP100,000; PHP150,000; PHP280,000
b. PHP101,000; PHP151,500; PHP282,800
c. PHP111,000; PHP176,500; PHP142,500
d. PHP111,000; PHP290,000; PHP232,800

Problem 3:

On June 30, 2013, Mr. Tuason entered into a franchise agreement with TM Company to sell their
products. The agreement provides for an initial franchise fee of PHP1,250,000, payable as follows:
PHP350,000 cash to be paid upon signing of the contract, and the balance in five equal annual payments
every December 31, starting December 31, 2013. Mr. Tuason signs 15% interest bearing note for the
balance. The agreement further provides that the franchise must pay a continuing franchise fee equal to
5% of its monthly gross sales. On October 30, the franchisor completed the initial services required in
the contract at a cost of PHP787,500 and incurred direct costs of PHP42,900. The franchisee commenced
business operations on November 2, 2013. The gross sales reported to the franchisor are: November
sales, PHP121,000 and December sales, PHP147,500. The first installment payment was made in due
date.

Assuming the collectability of the note is not reasonable assured, in the statement of comprehensive
income for the year ended December 31, how much is the net income of TM Company?

a. PHP234,125
b. PHP301,625
c. PHP220,700
d. PHP200,825

Problem 4:

On March 1, 2013, Mr. Solis signed a franchise agreement with CG Inc. CG charged an initial franchise fee
of PHP255,000 from Mr. Solis paid PHP95,000 and signed a non-interest bearing note for the balance.
The note is to be paid in four annual installment each beginning March 1, 2014. Mr. Solis normal
borrowing rate is 12%. The downpayment is nonrefundable. Collection of the note is reasonably assured
and the franchisor has performed substantially all of the services required. Present and future value
factors are as follows:

Present value of P1 at 12% for 4 periods 0.6355

 Future value of P1 at 12% for 4 periods 4.7793

Present value of an ordinary annuity of P1

at 12% for 4 periods 3.0374

How much revenue from the initial franchise fee will be reported by CG, inc. on its December 31, 2013
statement of comprehensive income?

a. PHP255,000
b. PHP121,496
c. PHP216,496
d. PHP196,680