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AFAR DE LEON/DE LEON/ALENTON

FINAL PRE-BOARD EXAMINATION APRIL 27, 2021

Multiple Choice. Select the letter that corresponds to the best answer. This examination
consists of 70 items (ignore the extra answer options in the answer sheet after number
70) and the exam is good for three (3) hours. Good luck!

1. The Home Office ledger account in the accounting records of a branch is best described
as
a. A revenue account
b. An equity account
c. A deferred revenue account
d. None of the foregoing

2. The Shipments to Branch ledger account in the accounting records of the home office
of a business enterprise:
a. Is an asset valuation account
b. Indicates thot the home office uses the periodic inventory system
c. Is adjusted at the end of the accounting period to equal the unrealized profit in the
branch's ending inventories
d. Is not displayed in the home office's separate financial statement

3. In an acquisition where there is an exchange of stock (acquirer) for assets (acquiree),

how does the value of the acquiree net assets change
a. The net assets increase
b. The net assets decrease
c. There is no change in net assets
d. The net assets may increase, decrease or remain the same

4. Which of the following is not a true statement with regard to a statutory merger?
a. One entity continues to exist
b. One entity ceases to exist
c. The name of the new entity is not the same as either of the entities
d. All of the above one true statements with regard to a statutory merger

5. When a subsidiary is acquired sometime after the first day of the fiscal year, which of
the following statements is true?
a. Income from subsidiary is not recognized until there is an entire year of
consolidated operations.
b. Income from subsidiary is recognized from date of acquisition to year-end.
c. Excess cost over acquisition value is recognized at the beginning of the fiscal year.
d. No goodwill can be recognized.

6. When preparing a consolidated balance sheet. the noncontrolling interest amount must
be presented:
a. It is not disclosed on the balance sheet
b. As a part of liabilities
c. As a part of stockholders' equity0 0
d. In the notes to financial statements
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7. Any goodwill on the subsidiary's company's books on the date of acquisition:

a. must be recorded as a loss on acquisition
b. must be revalued
c. must be eliminated
d. must be subject to on impairment
8. In the cash distribution plan, which partner gets the first cash distribution?
a. The partner with the largest loan balance
b. The partner with the largest loss absorption potential
c. The partner with the largest capital balance
d. The partner with the largest profit or loss ratio

9. A simple partnership liquidation requires

1. Periodic payments to creditors and partners determined by a safe payment
schedule
2. Periodic payments to partners as cash becomes available
3. Creditors be paid in an orderly manner
4. Partnership assets be converted into cash with full payment made to outside
creditors before remaining cash is distributed to partners in a lump sum payment.

10. In the reporting of a corporate liquidation, assets are shown at

a. Present value calculate using an appropriate discount rate
b. Net realizable value
c. Historical rate
d. Book value

11. In a statement of affairs, assets are classified

a. according to whether they are pledged with particular creditors.
b. as current or noncurrent.
c. as monetary or nonmonetary.
d. as operating or nonoperating.
12. What are free assets?
a. assets for which net realizable value is greater than historical cost.
b. assets for which no market exists.
c. assets for which replacement cost is greater than historical cost.
d. assets available to be distributed for liabilities with priority and other unsecured
obligations.
13. Which of the following is a characteristic of a joint arrangement?
a. The parties are bound by a contractual arrangement.
b. The contractual arrangement gives two or more parties joint control over the
arrangement.
c. The parties are bound by a contractual arrangement and the contractual
arrangement gives the parties joint control over the arrangement.
d. None of these.

14. A joint arrangement that is structured without a separate vehicle is a

a. Joint asset c. Joint operation
b. Joint entity d. Joint venture
15. According to PFRS 15, a good or service is distinct if
a. it is tangible.
b. the customer can benefit from it, either on its own or together with other
0 to the
resources that are readily available 0 customer.
c. the good or service is separately identifiable.
d. b and c
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16. If an entityÕs promise to grant a license is not distinct,

a. the general principles of PFRS 15 are applied to determine whether the
performance obligation is satisfied over time or at a point in time.
b. the specific principles of PFRS 15 are applied to determine whether the
performance obligation is satisfied over time or at a point in time.
c. both the general and specific principles are used to determine whether the
performance obligation is satisfied over time or at a point in time and whether the
nature of the promise to grant the license is a Ôright to accessÕ or a Ôright to use.Õ
d. US GAAP (FAS No. 45) is applied to determine whether there is substantial
performance of the initial services required in the contract.

17. In a consignment arrangement, which party bears inventory and credit risk
(respectively)?
a. Consignor Consignor
b. Consignor Consignee
c. Consignee Consignor
d. Consignee Consignee

18. Black Co., a consignee, paid the freight costs for goods shipped from White Co., a
consignor. These freight costs are to be deducted from BlackÕs payment to White when
the consignment goods are sold. Until Black sells the goods, the freight costs should
be included in BlackÕs
a. Cost of goods sold c. Selling expenses
b. Freight-out costs d. Receivable

19. In a job order costing system, indirect labor used should be debited to
a. Payroll liability
b. Work in process control
c. Finished goods control
d. Factory overhead control

Use the following information for the next four (4) questions:

Home office bills its branch for merchandise shipments at 30% above cost.
The following are some of the account balances on the books of home office and its branch
as of December 31, 2030:
Home Office Books Branch Books
Inventory, January 1 35,000 101,500
Shipments from Home Office 263,900
Purchases 1,575,000 350,000
Shipments to Branch 253,750
Branch Inventory Allowance 91,875
Sales 2,100,000 1,260,000
Operating Expenses 507,500 192,500

Per physical count, the ending inventory of the branch is P73,500 including goods from
outside purchases of P48,475; the ending inventory of the home office is P210,000.

20. What is the cost of goods available for sale of the home office?
a. P1,610,000
b. P1,863,750
c. P1,356,250 0 0
d. P1,575,000
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21. What is cost of goods available for sale of the branch?

a. P715,400
b. P781,375
c. P689,500
d. P638,750

22. What is the total ending inventory to be shown on the combined financial statements?
a. P118,475
b. P277,725
c. P328,475
d. P280,000

23. What is the combined net income for the year?

a. P957,950
b. P871,850
c. P891,975
d. P942,725

Use the following information for the next two (2) questions:

A Company issued 120,000 shares of its P25 par common stock for all the outstanding
stocks of B Corporation in a business combination completed on August 1, 2019. A
CompanyÕs stock has a FMV of P32 per share. B CorporationÕs net assets are worth P3.04
million at book value. Out of pocket costs of the combination were as follows:

Legal fees P 20,800

Contingent consideration
(reasonable & measurable) 14,400
Printing costs of stock certificates 6,400
FinderÕs fees 21,600
Professional fees paid to a CPA 16,800
Fees paid to company lawyers 8,000
Fees paid to company accountants 12,000

24. If the combination is treated as a purchase transaction, the cost of the combination
will be:
a. P 3,840,000 c. P 3,920,000
b. P 3,940,000 d. P 3,899,200
25. The goodwill from the combination is
a. P 800,000 c. P 880,000
b. P 900,000 d. P 859,200

Rambutan Company issues 400,000 shares of its own P10 par common stock for all the
net assets of Coconut. Inc. on August 4, 2018. On this date RambutanÕs stock is quoted
at P20 per share. Summary balance sheet data for the two companies at August 4, just
before the merger are as follows:
Rambutan Coconut
Current assets P18,000,000 P 1,500,000
Plant and Property 22,000,000 6,500,000
Total assets P40,000,000 P 8,000,000
Liabilities P12,000,000 P 2,000,000
Share capital, P10 par 20,000,000 3,000,000
Share premium 3,000,000 1,000,000
Retained profit
0 0
5,000,000 2,000,000
Total equities P40,000,000 P 8,000,000
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Out of pocket costs for the acquisition are as follows:

Direct acquisition costs P 120,000

Indirect acquisition costs 15,000
Stock registration and issuance costs 10,000

Assume the fair value of RambutanÕs net assets is P30,000,000 and CoconutÕs net
assets is P9,000,000.

26. The amount of retained profit shown on the balance sheet just after the business
combination will be
a. P4,855,000 c. P6,865,000
b. P5,865,000 d. P5,855,000

27. Using the same information, but assuming RambutanÕs stock is selling at P22.81 each,
calculate the goodwill from the business combination
a. P124,000 c. P214,000
b. P142,000 d. P140,200

Use the following information for the next two (2) questions:

On January 1, 2020, X Company signed an agreement with Z Corporation to form a new

corporation (XXYY) for the production of special gadgets. They contributed P1,000,000
each and will share in equity and profits equally.
During 2020 XXYY Corporation reported a net profit of P92,000 and declared dividends of
P30,000 at year-end. On the other hand, X Company reported a net profit of P1,216,000
for year 2020. At January 1, 2020, its share capital and retained earnings were P2,400,000
and P736,000, respectively.

Before adjustments for its share of XXYYÕs profit and the recognition of the dividend
receivable, the balance sheet draft of X Company shows a total assets of P5,024,000.

28. Determine the balance of the Investment in JV account to be reported by X Company

in its balance sheet at December 31, 2020.
A. P1,031,000 C. P1,046,000
B. P1,040,320 D. P1,000,000

29. Determine the amount of Retained Earnings X Company will report in its balance sheet
at December 31, 2020.
A. P 736,000 C. P4,398,000
B. P 782,000 D. P1,998,000

Use the following information for the next two (2) questions:

On January 1, 2020, SME Voltex 5 Company has a 30% equity of Takuza 4 Enterprises for
P92,800. The latter company is a joint venture undertaking. Transaction costs of 3% of
the purchase price of the shares were incurred by SME Voltex 5 Company.

On December 31, 2010, Takuza 4 declared and paid dividends of P24,000 and reported a
profit of P67,200
Published price quotations do not exist for Takuza shares but appropriate valuation
0 the investment
techniques determined the fair value of 0 at P104,000. Costs to sell are
estimated at P5,200.
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30. What is the amount of profit or (loss) to be recognized by SME Voltex 5 under the
equity model?
a. P ( 9,744 ) c. P 20,160
b. P (20,610) d. P 10,416

31. What is the amount of Investment in JV to be recognized by Voltex 5 in its 2020

balance sheet under the equity method.
a. P 108,544 c. P98,800
b. P 180,445 d. P89,800

Use the following information for the next two (2) questions:

On March 31, 2019, Emong, Bobby, and Ramil formed the POGI Partnership to operate a
CPA review center. The following is a list of their contributions at that date:

Emong Bobby Ramil

Book Fair value Book Fair value Book Fair
Value Value Value Value
Cash P132,000 P132,000 P100,000 P100,000 P120,000 P120,000
Inventory 80,000 75,000
Land 150,000 188,000
Equipment,
net ________ ________ ________ ________ 90,000 90,000
Totals P282,000 P320,000 P180,000 P175,000 P210,000 P210,000

Bobby has an accounts payable of P50,000 on the inventory and Ramil has a mortgage
payable of P60,000 on the equipment. The partners have agreed to assume only the
mortgage payable but not the accounts payable. They further agreed for the capital ratio
to be 50%, 20%, and 30% to Emong, Bobby, and Ramil, respectively.:

The partnership starts operation on April 1, 2019 and on December 31, 2019 reported a
net income of P305,400.

The following is the profit and loss agreement among the partners

¥ 10% interest to each partnerÕs beginning capital

¥ Salaries of P30,000 per quarter will be given to Emong and Ramil
¥ Bonus of 10% of net income after interest, salaries, and bonus will be given to
Emong.
¥ Residual profit/(loss) will be divided equally.

32. Share of net income of Partner Emong on December 31, 2019?

A. P149,210 C. P148,035
B. P261,715 D. P144,531

33. The capital balance of Partner Ramil on December 31, 2019

A. P344,495 C. P343,120
B. P485,983 D. P321,353

34. Alma and Bella formed a partnership in the Philippines, which uses PFRS based on
IASB accounting principles. The two partners agree on a profit and loss ratio of 60%
and 40% to Alma and Bella, respectively. At a later date, the partners agree to admit
0 0 capital and in earnings.
Clara into the partnership for a 50%interestin
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Capital accounts of the partners immediately before the admission of Clara are: Alma,
P300,000 and Bella, P300,000.

Clara invested P400,000 for the partnership interest and that this is a fair price for the
share of partnership interest to be acquired. Clara paid the money directly to Alma and
Bella for 50% each of their existing interests. The partners have decided to revalue
partnership interest to current fair value through the non-cash assets prior to ClaraÕs
admission.

How much will be the capital balances of Alma and Bella after the admission of Clara?
A. P 150,000 and P150,000
B. P 210,000 and P190,000
C. P210,000 and P210,000
D. P190,000 and P19,000

Use the following information for the next two (2) questions:

The following data were taken from the Statement of Affairs of Greenfield Corporation.

Pledged Assets : BCV ERV

Plant, property, and equipment (PPE) P72,000 P60,000
Merchandise inventory 59,200 41,600
Free assets 56,000 32,000
Total assets P187200 P133,600
Secured liabilities
Bonds payable (secured by PPE) P24,000
Notes payable (secured by merchandise 48,000
inventory)
Unsecured liabilities:
Taxes P 3,000
Salaries and wages 2,600 5,600
Accounts payable 89,600

35. What is the estimated amount the holders of the notes payable will receive in the event
of liquidation?
A. P52,700 C. P56,200
B. P45,760 D. P57,000

36. What is the estimated amount the unsecured creditors with priority will receive in the
event of liquidation?
A. P5,600 C. P7,500
B. P6,000 D. P6,200

Use the following information for the next two (2) questions:

Publisher Co. delivers 1,000 books to Bookstore Co. under a consignment arrangement.
The cost per book is ±300. Publisher Co. pays freight of ±22 per book.

Bookstore Co. is entitled to a 20% commission based on the PublisherÕs suggested retail
price. However, Bookstore Co. marks up the PublisherÕs suggested retail price for another
15%.

Six (6) months after the end of the semester, Bookstore Co. remits ±245,700 to the
0 deduction
Publisher for the sale of 700 books, after 0 of ±69,300 for the following:
¥ 2% withholding tax based on the publisherÕs suggested retail price.
¥ BookstoreÕs commission.
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37. How much profit is recognized by the Publisher?

a. 315,000
b. 225,400
c. 20,300
d. 27,300

38. How much income is recognized by the Bookstore?

a. 63,000
b. 47,350
c. 110,250
d. 110,350

39. On January 1, 20x1, ABC Co. enters into a contract with a customer to transfer a
license.

¥ The initial franchise fee is ±100,000 payable as follows: 20% cash down payment
upon signing of the contract and the balance is payable in 4 equal annual
installments starting December 31, 20x1. The appropriate discount rate is 12%.
¥ The contract also requires ABC Co. to transfer equipment to the customer. The
equipment has a cost of ±30,000 and a stand-alone selling price of ±40,000.
¥ The license has a stand-alone selling price of ±38,000.
¥ ABC Co. regularly sells the license and the equipment separately.
¥ The license provides the customer the right to use the entityÕs intellectual property
as it exists at the point in time at which the license is granted.
¥ The equipment is transferred to the customer on January 15, 20x1 while the license
is transferred to the customer on February 1, 20x1.

How much revenue is recognized on February 1, 20x1?

a. 80,747
b. 41,409
c. 39,338
d. 0

40. VALEDICTION Construction Co. entered into a P80M fixed price contract for the
construction of a private road for FAREWELL SPEECH, Inc. The performance obligation
on the contract is satisfied over time. VALEDICTION measures its progress on the
contract using the Òcost-to-costÓ method. The estimated total contract cost is P40M.
The following were the actual costs incurred by VALEDICTION during the first year of
the construction:

Costs of negotiating the contract (charged immediately

as expense) 400,000
Costs of materials used in construction 12,000,000
Costs of materials purchased but not yet used in construction 2,000,000
Site labor costs 4,000,000
Site supervision costs 800,000
Depreciation of equipment used in construction 480,000
Depreciation of idle construction equipment 240,000
Costs of moving plant, equipment and materials to and
from the contract site 160,000
Costs of hiring plant and equipment 560,000
0 0
Advance payments to subcontractors (subcontracted
work is not yet started) 80,000
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