9/10/2020

DISCUSSION OF
SUMMARY QUIZZER

Prof. Roel E. Hermosilla

PROBLEM 1

 Imperial Inc. awarded its franchise to Asahi Co. in Tagum for

a total fee of P1,000,000. Of said amount, P500,000 was
payable upon the signing of the franchise agreement and the
balance, payable in two annual payments of P250,000 each.
Imperial had been very successful in Metro Davao with 100
franchisees but Tagum was the first outside Metro Davao.
Imperial agreement with Asahi provided that in the event the
first year of operations would result to an operating loss, the
franchising agreement may be cancelled without need of
returning any portion of paid franchise fee and there would
be no need to pay any balance of the unpaid franchise fee.

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PROBLEM 1

The entry to record the granting of the franchise to Asahi was

a) Cash P 500,000
Notes Receivable 500,000
Unearned franchise fee P 1,000,000
b) Cash 500,000
Notes receivable 500,000
Revenue from franchise fee 500,000
Unearned franchise fee 500,000
c) No entry
d) Cash 500,000
Notes receivable 500,000
Revenue from franchise fee 1,000,000

PROBLEM 2

 At the beginning of the year, Frenz Haus got the franchise of

KFCC, a known steak house of upscale patronage. The franchise
agreement required a P5,000,000 franchise fee payable
P1,000,000 upon signing of the franchise and the balance in four
annual installments starting the end of the current year. At present
value using 12% as discount rate, the four installments would
approximate P3,037,350.The fees once paid are not refundable.

The franchise may be canceled subject to the provisions of the

agreement. Should there be unpaid franchise fee attributed to the
balance of main fee (P5,000,000), the same would become due
and demandable upon cancellation.

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PROBLEM 2
Further, the franchiser is entitled to a 5% fee on gross sales
payable monthly within the first ten days of the following month.
The Credit Investigation Bureau rated Frenz as 1 + credit rating.
The balance of the franchise fee was guaranteed by a commercial
bank. The first year of operations yielded gross sales of P90
million.

KFCC’s earned franchise fees from Frenz for the first year of
operation, amounted:
a) P9,500,000
b) P8,537,350
c) P5,000,000
d) P4,037,350

PROBLEM 2 - SOLUTION
 Franchise fees earned during the year:
Initial franchise fee earned:
Down payment P 1,000,000
Installments 3,037,350
Continuing franchise fee
(5% x 90 million) 4,500,000 P 8,537,350 B)

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PROBLEM 3

 The following information came from the books and records of

Victory Corporation and its branch. The balances are as of
December 31, 2019.
Home Office Branch
Dr. (Cr.) Dr. (Cr.)
Sales P(5,000,000)
Expenses 1,500,000
Shipments to branch P (2,400,000)
Unrealized profit in
branch inventory ( 740,000)

PROBLEM 3

The branch purchases all of its merchandise from the home

office. The home office ships this merchandise at 125
percent of its cost. The ending inventory of the branch is
P600,000 at the billed price. There are no shipments in
transit between the home office and the branch.
A) The beginning inventory of the branch per GAAP must
be:
a) P640,000
b) P700,000
c) P600,000
d) P560,000

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PROBLEM 3

B) The correct net income of the branch must be:

a) P 400,000
b) P1,020,000
c) P 500,000
d) P 620,000

PROBLEM 4
 Given:
Home Office Control (Branch Books)
Jan. 1, 2019 Balance 600,000
Jan. 3, 2019 Cash remitted to home office 800,000
Jan. 5, 2019 Shipments from home office 1,200,000
Jan. 28, 2019 Expenses from home office 452,000
Jan. 28, 2019 Cash remitted to home office 300,000
Jan. 28, 2019 Merchandise returned to home office 120,000
 Branch Control (Home Office Books)
Jan. 1, 2019 Balance 600,000
Jan. 3, 2019 Cash received from branch 800,000

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PROBLEM 4
Jan. 4, 2019 Shipments to branch 1,200,000
Jan. 28, 2019 Expense allocation 524,000
Jan. 28, 2019 Shipments to branch 240,000
Jan. 28, 2019 Collection from branch
customer 180,000
Jan. 28, 2019 Supplies purchased for branch and
shipped directly to branch 80,000

Except for the error by the branch in recording its share of

allocated expenses, all differences are timing differences.
The adjusted balance of reciprocal accounts is:
a) P1,032,000
b) P1,664,000
c) P1,172,000
d) P1,244,000

PROBLEM 4 - SOLUTION
 Home Office Control (Branch Books)
Jan. 1, 2019 Balance 600,000
Jan. 3, 2022 Cash remitted to home office ( 800,000)
Jan. 5, 2019 Shipments from home office 1,200,000
Jan. 28, 2019 Expenses from home office 452,000
Jan. 28, 2019 Cash remitted to home office ( 300,000)
Jan. 28, 2019 Merchandise returned to home office ( 120,000)
Unadjusted balance P1,032,000
Branch Control (Home Office Books)
Jan. 1, 2019 Balance 600,000
Jan. 3, 2019 Cash received from branch ( 800,000)
Jan. 4, 2019 Shipments to branch 1,200,000
Jan. 28, 2019 Expense allocation 524,000
Jan. 28, 2019 Shipments to branch 240,000
Jan. 28, 2019 Collection from branch customer ( 180,000)
Jan. 28, 2019 Supplies purchased for branch
and shipped directly to branch 80,000
Unadjusted balance P 1,664,000

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PROBLEM 4 - SOLUTION

Branch Control Home Office Control

Home Office Books Branch Books

Unadjusted balance P 1,664,000 P 1,032,000

Error committed by the branch
in recording Its share of expenses
(524,000 – 452,000) 72,000
Shipments in transit to branch 24,000
Remittance in transit from the branch ( 300,000)
Collection of branch receivable ( 180,000)
Merchandise returned in transit ( 120,000)
Supplies in transit from the home office _ 80,000
Reconciled or adjusted balance P 1,244,000 P 1,244,000 D

PROBLEM 5

 The preclosing general ledger trial balances at December 31,

2019, for the ACCENTURE Company and its Davao City branch
office are shown below:
Trial Balance
Home Office Branch Office
Dr. (Cr.) Dr. (Cr.)
Cash P 3,600,000 P 800,000
Accounts receivable 3,500,000 1,200,000
Inventory 7,000,000 1,500,000
Plant assets - net 9,000,000
Branch office 2,000,000
Accounts payable (3,600,000) (1,350,000)
Accrued expenses (1,400,000) ( 250,000)
Home office ( 900,000)
Capital stock (5,000,000)

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PROBLEM 5
Retained earnings (4,500,000)
Sales ( 44,000,000) (9,500,000)
Purchases 29,000,000 2,400,000
Purchases from Home office 4,500,000
Expenses 4,400,000 1,600,000

Your audit disclosed the following data:

1. On December 23 the branch office manager purchased P400,000 of
furniture and fixtures but failed to notify the home office. The
bookkeeper, knowing that all fixed assets are carried on the home office
recorded the proper entry on the branch office records. It is the
company’s policy not to take any depreciation on assets acquired in the
last half of a year.
2. On December 27 a branch office customer erroneously paid his account
of P200,000 to the home office. The bookkeeper made the correct entry
on the home office books but did not notify the branch office.
3. On December 30 the branch office remitted cash of P500,000, which
was received by the home office in January, 2020.

PROBLEM 5

4. On December 31 the branch office erroneously recorded the

December allocated expenses from the home office as
P50,000 instead of P150,000..
5. On December 31 the home office shipped merchandise billed
at P300,000 to the branch office, which was received in
January, 2019.
6. The entire opening inventory of the branch office had been
purchased from the home office. Home office 2019
shipments to the branch office were purchased by the home
office in 2019. The physical inventories at December 31,
2019, excluding the shipment in transit, are:
Home office - P5,500,000 (at cost)
Branch office - P2,000,000 (comprised of
P1,800,000 from home office and P200,000 from
outside vendors.)

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PROBLEM 5
7. The home office consistently bills shipments to the
branch office at 20% above cost. The sales account is
credited for the invoice price.
A) How much is the correct ending inventory of ACCENTURE
Company?
a) P7,500,000 c) P7,450,000
b) P7,200,000 d) P7,380,000
B) How much is the adjusted balance of reciprocal account
before net income of branch?
a) P1,100,000 c) P 800,000
b) P1,900,000 d) P1,300,000

PROBLEM 5

C) How much is the correct net income of the branch?

a) P2,200,000 c) P2,340,000
b) P2,100,000 d) P2,240,000

D) How much is the correct cost of sales of the ACCENTURE

Company?
a) P36,650,000 c) P32,900,000
b) P35,950,000 d) P32,200,000

E) How much is the correct sales of ACCENTURE Company?

a) P53,500,000 c) P48,700,000
b) P49,000,000 d) P49,750,000

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PROBLEM 5 - SOLUTION

A) Total ending inventories of ACCENTURE Company.

Home office P 5,500,000
Branch office:
From home office P 1,800,000
Shipments in transit (No. 5) 300,000
Total P 2,100,000
Less: Mark up (1/6 of 210) ( 350,000)
P 1,750,000
From outsiders 200,000 1,950,000 P 7,450,000
C)

PROBLEM 5 - SOLUTION
B) Branch account Home office account
Unadjusted balance P 2,000,000 P 900,000
1) Furniture purchased by the
branch ( 400,000)
2) Collection of branch accounts ( 200,000)
3) Remittance in transit ( 500,000)
4) Error on allocated expenses 100,000
5) Shipment in transit __ 300,000
Adjusted balance P 1,100,000 P 1,100,000
A)

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PROBLEM 5 - SOLUTION

C) Correct sales P 9,500,000

Correct cost of sales:
Beginning inventory (1,500,000 x 5/6) P 1,250,000
Add: Purchases from outsiders 2,400,000
Add: Shipments from home office at cost
(4,500,000 + 300,000 x 5/6) 4,000,000
Less: Ending inventory (refer to no. 2) ( 1,950,000) ( 5,700,000)
Gross profit P3,800,000
Less: Correct expenses (1,600,000 + 100,000) ( 1,700,000)
Correct net income of the branch P 2,100,000
B)

PROBLEM 5 - SOLUTION
D) Beginning inventory:
Home office P 7,000,000
Branch (refer to Letter C) 1,250,000 P 8,250,000
Add: Purchases:
Home office P 29,000,000
Branch 2,400,000 31,400,000
Available for sale P 39,650,000
Less Ending inventory (refer to iem A) ( 7,450,000)
Cost of sales of ACCENTURE Company P 32,200,000
D)

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PROBLEM 5 - SOLUTION
E) Sales of the home office reported P 44,000,000
Less: Sales to branch (4,500,000 + 300,000) ( 4,800,000)
Correct sales of the home office P 39,200,000
Correct sales of the branch 9,500,000
Total correct sales of the company P 48,700,000 C)

PROBLEM 6

 HP Corporation operates a branch in a nearby city. The home

office ships merchandise to the branch at 125 percent of its
cost. Selected information from the December 31, 2019,
trial balances is as follows:
Home Office Branch
Dr. (Cr.) Dr. (Cr.)
Sales P(2,000,000) P(1,600,000)
Shipments to branch (960,000)
Purchases 1,400,000
Shipments from home office 1,200,000
Inventory, January 1, 2019 320,000 120,000
Unrealized profit in branch
inventory (264,000)
Expenses 640,000 240,000

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PROBLEM 6
 Closing inventories at December 31, 2019, are:
Home office, P240,000 Branch, P200,000
A) Determine the adjustment to net income of the branch.
a) P240,000
b) P464,000
c) P224,000
d) P 40,000
B) Determine the combined net income of the home office and
branch.
a) P1,304,000
b) P 840,000
c) P 464,000
d) P1,080,000

PROBLEM 7
 The following information came from the books and records of
IBM Corporation and its branch. The balances are as of December
31, 2019, the second year of the corporation’s existence.
Home office Branch
Dr. (Cr.) Dr. (Cr.)
Sales P(800,000)
Expenses 275,000
Shipments to branch P(300,000)
Unrealized profit in branch
inventory ( 65,000)

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PROBLEM 7
 The branch purchases all of its merchandise from the home
office. The home office ships this merchandise at 120 percent of
its cost. The ending inventory of the branch is P60,000 at the
billed price.

There are no shipments in transit between the home office and

the branch.

The effect of the above information will be:

a) The total realized profit in branch inventory will be
P65,00.
b) The net income reported by the branch is understated
by P55,000.
c) The correct beginning inventory of the branch is
P30,000.
d) The correct net income of the branch is P195,000.

PROBLEM 7 - SOLUTION
 Realized profit equal to understatement of branch net income:
Unrealized profit before adjustment P65,000
Unrealized profit after adjustment (60,000 x 1/6) ( 10,000)
Realized profit P55,000
B)

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PROBLEM 8

 The following information is available for Mark & Spencer

Company for the current year:

Beginning Work in Process: Costs of Beginning Work Process:

(75% complete) 29,000 units Material P 50,200
Started 150,000 units Conversion 100,000

Ending work in Process Current Costs:

(60% complete) 32,000 units Material P 240,000
Abnormal spoilage 5,000 units Conversion 600,000

Normal spoilage continuous 10,000 units

Transferred out 132,0000

PROBLEM 8

 All materials are added at the start of production.

Using weighted average, what are equivalent units for
material?
a) 164,000
b) 179,000
c) 169,000
d) 140,000

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PROBLEM 9

 MANGO Company has the following information for July:

Units started 200,000 units

Beginning Work in Process: (35% complete) 40,000 units
Normal spoilage (discrete) 7,000 units
Abnormal spoilage 10,000 units
Ending Work in Process (70% complete) 29,000 units
Transferred out 194,000 units

Beginning Work in Process Costs:

Material P 30,000
Conversion 20,000

PROBLEM 9

 All materials are added at the start of the production process.

MANGO Company inspects goods at 75 percent completion as to
conversion.

What are equivalent units of production for conversion costs,

assuming FIFO?
a) 217,800
b) 207,800
c) 217,300
d) 213,050

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PROBLEM 9 - SOLUTION

Conversion: FIFO
BeginningWork in Process 40,000 65% 26,000
+ Units Started and Completed 154,000 100% 154,000
+ Normal Spoilage – Discrete 7,000 75% 5,250
+ Abnormal Spoilage 10,000 75% 7,500
+ EndingWork in Process 29,000 70% 20,300
Equivalent Units of Production D) 213,050

PROBLEM 10

 Marco Polo Company’s cost of goods sold for March 2019 was
P345,000. March 31 work in process inventory was 90 percent of
March 1 work in process inventory. Manufacturing overhead
applied was 50 percent of direct-labor cost. Other information
pertaining to the company’s inventories and production for the
month of March is as follows:
Beginning inventories, March 1:
Raw material P 17,000
Work in process 40,000
Finished goods 102,000

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PROBLEM 10

Purchases of raw material during March 113,000

Ending inventories, March 31:
Raw material 26,000
Work in process ?
Finished goods 105,000
How much is direct labor cost?
a) P160,000
b) P80,000
c) P344,000
d) P240,000

PROBLEM 10 - SOLUTION
Cost of goods sold P 345,000
Add: Finished goods, March 31 105,000
Less: Finished goods, March 1 ( 102,000)
Cost of goods manufactured P348,000
Add: Work in process, March 31 (90% x 40,000) 36,000
Less: Work in process, March 1 ( 40,000)
Manufacturing costs P 344,000
Less: Direct materials used:
Raw material, March 1 P 17,000
Add: Purchases 113,000
Less: Raw materials, March 31 ( 26,000) 104,000
Conversion cost during March P 240,000
Direct labor (240,000/150%) = P160,000 A)

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PROBLEM 11

 The estimated unit costs for COLT Corp., when it is operating at

a production and sales level of 12,000 units, are as follows:
Estimated
Cost Item Unit Cost
Direct materials P 32
Direct labor 10
Variable factory overhead 15
Fixed factory overhead 6
Variable marketing 3
Fixed marketing 5

PROBLEM 11

 Compute the total cost that would be incurred during a

month with a production level of 11,500 units and a sales
level of 9,500 units.
a) P800,500
b) P813,000
c) P816,000
d) P852,000

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PROBLEM 11 - SOLUTION

 Production cost:
Direct materials (32 x 11,500 units) P368,000
Direct labor (10 x 11,500 units) 115,000
Variable factory overhead (15 x 11,500 units) 172,500
Fixed factory overhead (6 x 12,000 units) 72,000
Selling expenses:
Variable marketing (3 x 9,500 units) 28,500
Fixed marketing (5 x 12,000 units) 60,000
Total cost P816,000 C)

PROBLEM 12

 Waltermart Company incurred P80,000 direct labor cost in 2019

and had the following selected account balances at the beginning
and end of 2019: Finished goods January 1, P56,000; Work in
process January 1, P24,000; Materials January 1, P34,000;
Finished goods December 31, P90,000; Work in process
December 31, P28,000; Materials December 31, P48,000.

The total cost of goods sold and actual factory overhead during
the year are P280,000 and P70,000, respectively.

Determine the total material purchases during the year.

a) P182,000
b) P162,000
c) P148,000
d) P144,000

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PROBLEM 12 - SOLUTION

 Cost of goods sold P280,000

Add: Finished goods, December 31 90,000
Less: Finished goods, January 1 ( 56,000)
Cost of goods manufactured P 314,000
Add: Work in process, December 31 28,000
Less: Work in process, January 1 ( 24,000)
Manufacturing costs P318,000
Less: Direct labor ( 80,000)
Factory overhead ( 70,000)
Direct materials used P168,000
Add: Materials, December 31 48,000
Less: Materials, January 1 ( 34,000)
Materials purchases P182,000 A

PROBLEM 13

 The Brazil Corp. provides the following data for 2019:

Dec. 31, 2018 Dec. 31, 2019
Inventories:
Raw materials * P 12,000 P 13,500
Work in process 15,100 17,600
Finished goods 19,500 21,200
Operating data:
Cost of goods manufactured 151,700
Direct labor cost 50,000
Factory overhead cost (utilities only) 62,500
Indirect materials cost 5,000

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PROBLEM 13

* Consisting of both direct and indirect materials.

The cost of materials purchases for 2019:
a) P43,200
b) P38,200
c) P36,700
d) P33,200

PROBLEM 13 - SOLUTION

Cost of goods manufactured P151,700

Add: Work in process, December 31, 2019 17,600
Less: Work in process, December 31, 2018 ( 15,100)
Manufacturing cost P154,200
Less: Direct labor cost ( 50,000)
Applied factory overhead (62,500 + 5,000) ( 67,500)
Direct materials used P 36,700
Add: Raw materials, December 31, 2019 13,500
Indirect materials used 5,000
Less: Raw materials, December 31, 2018 ( 12,000)
Raw materials purchases P 43,200 A

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PROBLEM 14

 NAMI Company applies overhead using direct labor cost. The

following T-accounts pertain to 2019 operations:
Work in Process Factory Overhead
(a) 1,000 7,000 6,000
(b) 5,000 12,000
(c) 2,000
(d) ?
(e) ?
a. Beginning balance
b. Direct materials

PROBLEM 14

c. Direct labor;
d. Factory overhead;
e. Ending balance
Compute the overhead rate that was used for 2019.
a) 33-1/3%
b) 133-1/3%
c) 300%
d) 3%

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PROBLEM 14 - SOLUTION

Credit to factory overhead account = Applied factory overhead P6,000

Debit to work in process account letter c = Direct labor costs P2,000
Overhead rate (6,000/2,000) = 300% C

PROBLEM 15

 Sugar Ray Company’s cost of goods sold for March 2019 was
P34,500. March 31 work in process inventory was 90
percent of March 1 work in process inventory.
Manufacturing overhead applied was 50 percent of direct-
labor cost. Other information pertaining to the company’s
inventories and production for the month of March is as
follows:
Beginning inventories, March 1:
Raw material P 1,700
Work in process 4,000
Finished goods 10,200

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PROBLEM 15

Purchases of raw material during March 11,300

Ending inventories, March 31:
Raw material 2,600
Work in process ?
Finished goods 10,500
How much is direct labor cost?
a) P16,000
b) P 8,000
c) P34,400
d) P24,000

PROBLEM 15 - SOLUTION
Cost of goods sold P34,500
Add: Finished goods, March 31 10,500
Less: Finished goods, March 1 ( 10,200)
Cost of goods manufactured P34,800
Add: Work in process, March 31 (90% x 4,000) 3,600
Less: Work in process, March 1 ( 4,000)
Manufacturing costs P34,400
Less: Direct materials used:
Raw material, March 1 P 1,700
Add: Purchases 11,300
Less: Raw materials, March 31 ( 2,600) 10,400
Conversion cost during March P24,000
Direct labor (24,000/150%) = P16,000 A

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PROBLEM 16
 AGODA knows the following about the production process in her
plant:
Department 1: Prime costs are 40 percent of total
manufacturing costs.
Direct labor is 25 percent of factory overhead
costs.
Factory overhead is P600,000.

Department 2: Direct product costs are materials and direct

labor.
Conversion costs are 300 percent of materials.
Indirect product costs are 50 percent of
conversion costs.
Total manufacturing costs are P600,000.

PROBLEM 16

Department 3: Conversion costs are P100,000.

Prime costs are P100,000.
Materials purchases are P70,000.
Increase in materials inventory is P10,000.
Decrease in work in process inventory is
P20,000.

A) Find the total direct material costs for Department 1.

a) P 400,000
b) P 250,000
c) P 150,000
d) P1,000,000

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PROBLEM 16

B) Find the direct labor costs for Department 2.

a) P225,000
b) P150,000
c) P450,000
d) P300,000

C) Find the cost of goods manufactured for Department 3.

a) P160,000
b) P180,000
c) P140,000
d) P200,000

PROBLEM 16 - SOLUTION

A) Factory overhead P 600,000

Factory overhead rate to manufacturing cost
(100% -40%) ÷ 60%
Total manufacturing cost P 1,000,000
Direct material costs
(1,000,000 x 40%) – (600,000 x 25%) = P 250,000 B)

B) Total manufacturing cost P 600,000

Direct materials (600,000/400%) P 150,000
Direct labor costs (600,000 – 150,000)
x 50% P 225,000 A)

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PROBLEM 16 - SOLUTION

C) Materials purchases P 70,000

Less: Increase in materials inventory ( 10,000)
Materials used P 60,000
Conversion costs 100,000
Manufacturing cost P160,000
Add: Decrease in work in process inventory 20,000
Cost of goods manufactured P180,000
B)

PROBLEM 17

 The following data are available about the B Company:

2018 2019 2020

Balances Balances Balances
Beginning materials inventory P 100,000 ? P 120,000
Ending materials inventory 150,000 ? 110,000
Beginning work in process inventory 300,000 ? 180,000
Ending work in process inventory 200,000 ? 210,000
Direct labor P 200,000
Manufacturing overhead 400,000
Materials purchase 300,000

Find the cost of goods manufactured in 2019?

a) P 900,000 b) P930,000 c) P990,000 d) P980,000

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PROBLEM 17 - SOLUTION

Materials purchases P300,000

Add: Ending materials inventory 2018 150,000
Less: Beginning materials inventory 2020( 120,000)
Direct materials used P330,000
Direct labor 200,000
Applied factory overhead 400,000
Manufacturing costs P930,000
Add: Ending work in process inventory 2018 240,000
Less: Beginning work in process inventory 2020 ( 180,000)
Cost of goods manufactured P990,000
C)

PROBLEM 18
On January 1, 2019, BMW Corporation issued 6,000 shares of its
P10 par value common stock to acquire the assets and liabilities of
Ford Company. BMW Corporation shares were selling at P90 on
that date. Historical cost and fair value balance sheet data for Ford
Company at the time of acquisition were as follows:
Balance Sheet Item Historical Cost Fair Value
Cash and Receivables P 50,000 P 50,000
Inventory 120,000 200,000
Building and Equipment 400,000 300,000
Less: Accumulated Depreciation ( 150,000) __ ____
Total Assets P420,000 P550,000
Accounts Payable P 50,000 P 50,000
Common Stock (P20 par value) 200,000
Retained Earnings 170,000
Total Liabilities and Equities P420,000

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PROBLEM 18

 BMW Corporation incurred but not paid listing fees of

P10,000 and audit fees of P5,000 in issuing its new shares
and paid a finder’s fee of P25,000 in locating the merger
candidate.
Under the purchase of interest combination, how much
goodwill must be recognized in the books?
A. P40,000
B. P55,000
C. P65,000
D. P80,000

PROBLEM 19
 On January 1, 2019, Pasaway Products Corp. issues 12,000 shares of its P10 par
value stock to acquire the net assets of SUSUNOD Steel Company. Underlying
book value and fair value information for the balance sheet items of SUSUNOD
Steel Company at the time of acquisition are as follows:
Balance Sheet Item Book value Fair value
Cash P 60,000 P 60,000
Accounts Receivable 100,000 100,000
Inventory 60,000 115,000
Land 50,000 70,000
Buildings and Equipment 400,000 350,000
Less: Accumulated Depreciation ( 150,000) __ _____
Total assets P520,000 P695,000
Accounts Payable P 10,000 P 10,000
Bonds Payable 200,000 180,000
Common Stock (P5 par value) 150,000
Additional Paid-in Capital 70,000
Retained Earnings 90,000
Total Liabilities and Equities P520,000

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PROBLEM 19

SUSUNOD Steel shares were selling at P18 and Pasaway Products

shares were selling at P50 just before the merger announcement.
Additional cash payments made by Pasaway Corporation in completing
the acquisition were:

Finder’s fee paid to firm that located SUSUNOD Steel P 10,000

Audit fee for stock issued by Pasaway Products 3,000
Stock registration fee for new shares of Pasaway Products 5,000
Legal fees paid to assist in transfer of net assets 9,000
Cost of SEC registration of Pasaway Products shares 1,000

PROBLEM 19
How much is the increase in the total net assets recorded by
Pasaway Products?
a) P 310,000
b) P 572,000
c) P 591,000
d) P 487,000

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PROBLEM 19 - SOLUTION

Fair value of shares issued (12,000 x 50) 600,000

OPC (28,000)
Change in equity 572,000 B)

PROBLEM 20
 Pepper Company acquired the assets (except for cash) and assumed
the liabilities of Samlin Company on January 2, 2019 and Samlin
Company is dissolved. As compensation, Pepper Company gave
24,000 shares of its common stock, 12,000 shares of its 8%
preferred stock, and cash of P240,000 to the stockholders of Samlin
Company. On the date of acquisition, Pepper Company had the
following characteristics:
Common , par value P5; fair value, P20 Preferred, par value P100; fair value,
P 100.
Immediately prior to acquisition, Samlin Company’s balance sheet was as
follows:
Cash P 132,000 Current liabilities P 228,000
Accounts receivable
(net of P4,000 allowance) 200,000 Bonds payable, 10% 400,000

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PROBLEM 20

Inventory – LIFO cost 200,000 Common stock, P5 par value 600,000

Land 384,000 Retained earnings 310,000
Buildings and equipment Additional paid-in capital 380,000
(net) 1,032,000 Retained earnings 310,000
P1,918,000 P1,918,000

An appraisal of Samlin Company showed that the fair values of its

assets and liabilities were equal to their book values except for the
following, which had fair values as indicated:
Accounts receivable P 158,000 Land P 540,000
Inventory 412,000 Bonds payable 448,000

PROBLEM 20

How much must be the goodwill recognized as a result of

this business combination?
a) P322,000
b) P454,000
c) P94,000
d) P0

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PROBLEM 20 - SOLUTION
 Cost of investment:
Common shares (24,000 x 20) P 480,000
Preferred shares (12,000 x 100) 1,200,000
Cash 240,000 P1,920,000

Fair value of identifiable net assets acquired:

Accounts receivable P 158,000
Inventory 412,000
Land 540,000
Buildings and equipment 1,032,000
Current liabilities ( 228,000)
Bonds payable ( 448,000) 1,466,000
Goodwill from business combination P 454,000 B)

PROBLEM 21

 In accounting for corporate liquidation, which of the following

statements is incorrect?
a) Fully secured creditors no longer share in the remaining free
assets after payment of an secured liabilities without priority.
b) Assets used as security for partially secured liabilities are
offsetted to their secured debts and can no longer be used to
pay unsecured liabilities.
c) Unsecured credits with priority such as liabilities to
employees and taxes due to government can always be fully
recovered by the said creditors in every corporate
liquidation
d) The unsecured portion of the liabilities to partially secured
creditors are added to unsecured credits without priority in
the computation of recovery percentage of the unsecured
creditors without priority.

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PROBLEM 22

 Chicago Museum, a private not-for profit organization, has

both regular and term endowments. On the museum’s
statement of financial position (balance sheet), how should
the net assets of each type of endowment be reported?
Term endowments Regular endowments
a) Temporarily restricted Permanently restricted
b) Permanently restricted Permanently restricted
c) Unrestricted Temporarily restricted
d) Temporarily restricted Temporarily restricted

PROBLEM 23

 BAMBOO Furniture’s Company, a local company, bought

furniture from Ailments Corporation, a US company, for 35,000
US Dollars in 2017. Pertinent exchange rates relating to this
transaction are as follows:
Buying Rate Selling Rate
Receipt of order P 47.10 P 47.20
Date of shipment 47.25 47.45
Balance sheet date 49.50 49.60
Settlement date 49.45 49.50

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PROBLEM 23

What is the foreign exchange gain or loss of BAMBOO Furniture’s

Company for 2017?
a) P 78,750 loss
b) P 78,750 gain
c) P 75,250 loss
d) P 75,250 gain
solution
49.60 – 47.45 = 2.15 x 35,000 = 75,250 loss

PROBLEM 24
 ACE Company acquired the net assets of CRC Corporation on
January 1, 2017. Since the parties cannot agree on the definite
value of the company in terms of potential future earnings, they
agreed to include in the purchase agreement a provision for
contingent consideration.
Whereby the acquirer will pay an additional cash payments on
January 1, 2019 equal to twice the amount by which average
earnings of CRC exceed P 250,000 per year, prior to January 1,
2019. Net income was P 500,000 in 2017 and P 600,000 in 2018.

Assume that the liabilities recorded on January 1, 2017, include an

estimated contingent liability amounting to P 400,000.

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PROBLEM 24

What was the entry made by ACE on January 1, 2019?

a) Liability from contingent consideration 400,000
Cash 400,000
b) Goodwill 200,000
Liability from contingent consideration 400,000
Cash 600,000
c) Liability from contingent consideration 400,000
Loss on contingent consideration 200,000
Cash 600,000
d) Goodwill 600,000
Cash 600,000

PROBLEM 25
 On January 1, 2019, Golden Products Corp. (SME) issues 12,000
shares of its P10 par value stock to acquire the net assets of TAN
Steel Company (SME). Underlying book value and fair value
information for the balance sheet items of TAN Steel Company at
the time of acquisition are as follows:

Balance Sheet Item Book value Fair value

Cash P 60,000 P 60,000
Accounts Receivable 100,000 100,000
Inventory 60,000 115,000
Land 50,000 70,000
Buildings and Equipment 400,000 350,000
Less: Accumulated Depreciation ( 150,000) _____
Total assets P520,000 P695,000

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PROBLEM 25

Balance Sheet Item Book value Fair value

Accounts Payable P 10,000 P 10,000
Bonds Payable 200,000 180,000
Common Stock (P5 par value) 150,000
Additional Paid-in Capital 70,000
Retained Earnings 90,000
Total Liabilities and Equities P520,000

TAN Steel shares were selling at P18 and Golden Products shares
were selling at P50 just before the merger announcement.

PROBLEM 25
Additional cash payments made by Golden Corporation in completing the
acquisition were:
Finder’s fee paid to firm that located TAN Steel P 10,000
Audit fee for stock issued by Golden Products 3,000
Stock registration fee for new shares of
Golden Products 5,000
Legal fees paid to assist in transfer of net assets 9,000
Cost of SEC registration of Golden Products shares 1,000

How much is the increase in the total net assets recorded by Golden
Products?
a) P 310,000
b) P 572,000
c) P 591,000
d) P 487,000

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PROBLEM 25 - SOLUTION

Fair value of shares issued (12,000 x 50) 600,000

OPC (9,000)
Change in equity 591,000

END OF QUIZZER

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