PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

Job Order Costing B. P156,000 D. P254,000

1. Hadji Company manufactures leather bags and uses the job order cost system. Its work-in
process show:
Direct materials used P341,000
Direct labor incurred 324,500
Factory overhead 259,600
Transferred to finished goods 825,000
Two jobs are still in process, upon which direct materials of P70,400 have been expended.
Factory overhead is applied at a predetermined percentage of direct labor cost.
What is the (1) direct labor and (2) factory overhead component on the jobs transferred to
finished goods?
A. (1) P308,000 (2) P248,400 C. (1) P324,500 (2) P259,600
B. (1) P310,500 (2) P248,400 D. (1) P341,000 (2) P272,800

2. HANDY Crafts manufactures to customers' specifications. The company uses a job order cost
system and, for the month of May 19x5, summarized the following information:
Beginning work in process inventory (five partially completed jobs) P 300,000
Orders completed (eighteen) 2,400,000
Orders shipped out (fourteen) 2,000,000
Materials requisitioned 1,700,000
Direct labor cost 800,000
Overhead = 150% of direct labor cost.
The month-end work in process inventory was
A. P700,000 C. P1,400,000
B. P800,000 D. P1,600,000

Process Costing
3. For the month of May, 19x4, the Finishing Dept. of APEX, Inc. had in opening work in process 80%
complete units and in ending work in process 50% complete units, related data for the month follows:
Units Conversion Cost
Work in process, May 1 50,000 P 88,000
Units started, and costs incurred during May 270,000 572,000
Units completed and transferred during May 200,000
If the company uses FIFO costing, the conversion cost of the work in process at the end of
May would be
A. P132,000 C. P176,000
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PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

4. Lapid Company uses process costing. All materials are added at the beginning of the process.
The product is inspected when it is 30 percent converted, and spoilage is identified only at that 6. For the month of May, the Production Control Department of La Mesa, Inc. reported the
point. Normal spoilage is expected to be 5% of good output. following production data for Finishing Department (second department):
The following are extracted from the production records of Lapid Company for May 2003: Transferred-in from Assembly Department 75,000
Units put into process 21,000 Transferred-out to Packaging Department 59,250
Units transferred to finished goods 14,000 In-process end of May (with 1/3 labor and factory overhead) 15,750
In-process, May 31, 75% complete 6,000 All materials were put into process in Assembly Department. The Cost Accounting Department
How many are considered abnormal lost units? collected these figures for Finishing Department.
A. Zero C. 15 Unit cost for unit transferred-in from Assembly Department P 2.70
B. 300 D. 850 Labor cost in Finishing Department 41,280.00
Applied factory overhead 112,5% of labor cost
5. For the of May 19x5, the following data were summarized from the production records of How much was the cost of Finished goods transferred out to the Packaging Department?
MACKULAY Co. A. P240,555 C. P80,580
Physical Units: B. P260,580 D. P159,975
In process, May 1
Direct materials - chemicals (100% done) 4,000 gallons 7. To meet overwhelming consumer demand, Renjie Beverage Inc. now manufactures Apple
Conversion (25% done) cola. Renjie uses a process costing system to accumulate data related to production. Materials
Started in process in May 21,000 gallons (apples and cola) are added at the beginning of the production process. The following
Transferred to shipping Dept. in May 20,000 gallons information relates to cola production for March.
In process, May 31 5,000 gallons WORK IN PROCESS
Direct materials - chemicals (100% done) March 1 March 31
Direct materials - cans (7% done) Number of cases 25,000 16,000
Conversion (80% done) Percentage of completion 30% 60%
Costs for the month of May: During March, 180,000 cases of apple cola were completed and were also sold almost
In process, May 1: immediately.
Direct materials – chemicals P 456,000 Using the FIFO method, what are the equivalent units of production for March for materials and
Conversion cost 81,250 conversion costs?
Cost added in May A. B. C. D.
Direct materials — chemicals 2,419,000
Materials 171,000 180,000 171,000 196,000
Direct materials – cans 69,190
Conversion Costs 168,900 168,900 182,100 189,600
Conversion cost 275,550
Production starts with the blending of various chemicals and ends with the canning of the paint
Backflush Costing
in one- gallon cans. Direct labor and factory overhead are added evenly throughout the
8. Lara Company has a cycle time of 3 days, uses a raw and in process (RIP) account, and
process. The average cost per equivalent unit of direct material – cans is
charges all conversion cost to Cost of Goods Sold. At the end of each month, all inventories
A. P2.78 C. P3.40
are counted, their conversion cost components are estimated, and inventory account balances
B. P2.88 D. P3.45

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PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

are adjusted. Raw material cost is backflushed from RIP to Finished Goods. The following Product D P250,000 P200,000 P225,000 P187,500
information is for June.
Beginning balance of RIP account, including P3,000 of conversion cost P29,250
Beginning balance of finished goods account, including P10,000 of
conversion cost 30,000
Raw materials received on credit 562,500
Direct labor cost, P375,000 factory overhead applied, P450,000
Ending RIP inventory per physical count, including P4,500 conversion cost 32,000
Ending finished goods inventory per count, including P8,750 conversion cost 26,250
The material cost of (1) the units completed and (2) the units sold are:
A. (1) P561,250 (2) P563,750 C. (1) P588,750 (2) P581,250
B. (1) P562,500 (2) P565,000 D. (1) P563,750 (2) P561,250

Joint Cost
9. FUNDADOR, Inc. makes two products, Wet and Dry, from a joint operating process. For the
month of May, 19x5, the total joint costs of processing was P 120,000 and the costs of further
processing after the point of split-off, as well as other relevant data, are shown below:
Wet Dry
Unit after split-off 1,600 800
Sales price per unit P200 P400
Further process costs P100,000 P140,000
The company uses, the net realizable value method for allocating the joint costs of processing.
For the month of May, 19x5, the joint costs allocated to product Wet was
A. P60,000 C. P72,000
B. P66,000 D. P80,000

10. Myles, Inc. manufactures products (B, C, and D) from a joint process. The total costs for
January is P250,000. Other information for January show:
B C D
Quantity 3,000 4,000 3,000
Processing costs after split-off P50,000 P75,000 P125,000
Ultimate market value 150,000 275,000 225,000
What is the total production cost for Products B, C, and D using the market value method?
A. B. C. D.
Product B P100,000 P125,000 P137,500 P112,500
Product C P150,000 P175,000 P200,000 P200,000
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PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

Partnership Kirk is personally insolvent after paying the unpaid creditors, but Wayne has personal assets in
11. Henry desires to purchase a one-fourth capital and profit and loss interest in the partnership of excess of P900,000.
GBX. The three partners agree to sell Henry one-fourth of their respective capital and profit In the settlement of partners, how much cash should Kirk receive?
and loss interest in exchange for a total payment of P40,000. The capital accounts and the A. P63,900 C. P15,300
respective percentage interest in profits and losses immediately before the sale of Henry are: B. -0- D. P63,000
Gary, capital (60%) P80,000
Benz, capital (30%) 40,000 14. On August 16, 2003, Tyron, Dana and Ira form a partnership investing cash of P105,000,
Xavier, capital (10%) 20,000 P94,500 and P29,400 respectively. The partners share profits 3:2:2 and on October 29, 2003 ;
All other assets and liabilities are fairly valued, and implies goodwill is to be recorded prior to they have cash of P7,000 and other assets of P332,500; liabilities are P179,200, On this date
the acquisition by Henry. they decided to go out of business and sell all the assets for P210,000. Ira has personal assets
Immediately after Henry’s acquisition, what should be the capital balances of Gary, Benz, and of P10,500 that may, if necessary, be used to meet partnership obligations.
Xavier, respectively. How much should be distributed to Dana upon liquidation of the partnership?
A. P60,000, P30,000, P15,000 C. P77,000, P28,500, P19,500 A. P14,280 C. -0-
B. P69,000, P34,500, P16,500 D. P92,000, P46,000, P22,000 B. P34,020 D. P28,000

12. The following balance sheet summary, together with residual profit sharing ratios, was 15. On August 1, 2004, Meg and Ira formed a partnership. Meg is to invest certain business assets
developed on April 1, 2003, when the Dick, Frank, and Helen partnership at values which are yet to be agreed upon. She is to transfer business liabilities and is to
Cash P140,000 Liabilities P 60,000 contribute sufficient cash to bring her total capital to P210,000, which is 70% of the total capital
Accounts receivable 60,000 Loan from Frank 20,000 as had been agreed upon.
Inventories 85,000 Dick capital (20%) 75,000 Details regarding the book values of Meg’s business assets and liabilities and their
Plant assets - net 200,000 Frank capital (40%) 200,000 corresponding valuation follows:
Loan to Dick 25,000 Helen capital (40%) 155,000 Book Values Agreed Valuation
Total P 510,000 Total P 510,000 Accounts receivable P58,000 P58,000
Allowance for doubtful accounts 4,200 5,000
If available cash except for a P5,000 contingency fund is distributed immediately, Dick, Frank
Merchandise inventory 98,400 107,000
and Helen, respectively, should receive:
Store equipment 32,000 32,000
A. P0, P80, and P15,000 C. P0, P70,000 and P5,000
Accumulated depreciation-Store equipment 19,000 16,400
B. P16,000, P32,000 and P32,000 D. P0, P72,500 and P7,500
Office equipment 27,000 27,000
13. Kirk and Wayne started a partnership some years ago and managed to operate profitably for several Accumulated depreciation-Office equipment 14,200 8,600
years. Recently, however, they lost a substantial legal suit and incurred unexpected losses on accounts Accounts payable 56,000 56,000
receivable and inventories. As a result, they decided to liquidate. They sold all assets and only P162,000 Ira agrees to invest cash of 42,000 and merchandise valued at current market price.
was available to pay liabilities, which amounted to P297,000. Their capital account balances before the The value of the merchandise to be invested by Ira and the amount of cash to be invested by
liquidation and their profit sharing ratios are shown below: Meg are:
Capital Profit-sharing ratio A. P90,000 and P72,000 respectively C. P48,000 and P138,000 respectively
Kirk P207,000 60% B. P252,000 and P138,000 respectively D. P48,000 and P72,000 respectively
Wayne 121,500 40%
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PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

16. A balance sheet for the partnership of Denis, Sarah and Lyndon, who share profits in the ratio A. P2,886 C. P3,386
of 2:1:1, shows the following balances just before liquidation: B. P12,876 D. P(2,614)
Cash P72,000 Denis, capital P132,000
Other assets 357,000 Sarah, capital 93,000
Liabilities 120,000 Lyndon, capital 84,000
On the first month of liquidation, certain assets are sold for P192,000. Liquidation expenses of
P6,000 are paid and additional liquidation expenses are anticipated. Liabilities are paid
amounting to P32, 400 and sufficient cash is retained to insure the payment of creditors before
making payments to partners. On the first payment to partners, Denis receives P37,500.
The amount of cash withheld for anticipated liquidation expense.
A. P18,000 C. P87,600
B. P105,600 D. -0-

Home Office-Branch Accounting

17. The Faith Company established a branch store in Fairview Quezon City on June 1, 2004. The
Branch is to receive substantially all merchandise for resale from the Home Office, During the
remainder of 2004, shipments to the branch amounted P180,000 which included a 20% mark-
up on cost. The branch purchased P45,000 additional merchandise for cash and reported
unsold merchandise of P60,000 at year end. The branch made sales of P292,500, paid
expenses of P72,000 and remitted to Home office all sales proceeds
The branch inventory allowance account in the Home Office books showed a balance of
P7,500 after adjustment.
The branch inventory on December 31, 2004 at cost is:
A. P45,000 C. P52,500
B. P50,000 D. P37,500

18. On December 1, 2003, the Torpe Company established an agency in Las Pinas, sending its
merchandise samples costing P15,750 and a working fund of P9,000 to be maintained on the
imprest basis. During the month, of December, the agency transmitted to the home office sales
orders which were billed at P64,380 of which 20,400 was collected. A home office
disbursement chargeable to the sales agency is the acquisition of furniture and fixtures for Las
Pinas, P25,000 to be depreciated at 24% per annum The agency paid expenses of P3,815 and
received replenishment thereof from the home office. On December 31, 2003, the agency
samples were valued at P10,075. It was estimated that the gross profit on goods shipped to bill
agency sales orders average 25% of cost.
How much is the net income of the agency for the month ended December 31, 2003?

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PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

19. The interoffice account between the home office of Alabang Corporation and its branch in Libis Foreign Currency Translation & Transaction
was adjusted to P25,730 as of December 31, 2003. the transactions between the home office 21. Vinny Company entered into a forward contract for speculation. On December 7, 2003, Vinny
and the branch for 2004 were: Company entered into a forward contract to purchase 42,000 FC (foreign currency) in 90 days.
A. Remittance by branch, P48,000 (P6,400 of which was still in transit as of December 31, The relevant exchange rates are as follows:
2004). Spot rate Forward rate (03/07/04)
B. Shipment to branch, P175,000 (including goods still in transit as of December 31, 2004 of December 7, 2003 P2.71 P2.78
P19,000). December 31, 2003 2.83 2.86
C. Home office expense paid by the branch, P7,100 March 7, 2004 2.92
D. Branch receivable collected by the home office, P10,300 At December 31, 2003, what amount of foreign exchange gain (loss) should Vinny Company
What us the unadjusted balance of the Investment in Branch account as of December 31, include in the income statement from this forward contract?
2004? A. P5,040 loss C. P3,360 gain
A. P39,230 C. P232,030 B. P5,040 gain D. P3,360 loss
B. P148,830 D. P126,630
22. On August 1, 2002, Speed, Inc. a Philippine firm, signed an agreement with a foreign
20. Sulu, Inc., established a branch in Jolo to distribute part of the goods purchased by the home manufacturer to purchase motorcycles priced at 500,000 FC. The motorcycles are to be
office. The home office prices inventory shipped to the branch at 20% above cost. The delivered on February 1, 2003 and payment is to be made on April 1, 2003. The Philippine firm
following account balances were taken from the ledger maintained by the home office and the prepares financial statements on December 31 of each year.
branch: On August 1, 2002, Speed, Inc. enters into a forward contract to purchase 500,000 FC on April
Sulu, Inc Jolo, Branch 1, 2003. The forward exchange contract is a hedge of an identifiable foreign currency
Sales P600,000 P 210,000 commitment. Relevant exchange rates for the FC are as follows:
Beginning inventory 120,000 60,000 Spot Rate 8-month Forward Rate
Purchases 500,000 August 1, 2002 P0.50 P0.54
Shipment to branch 130,000 December 31, 2002 0.49
Shipment from home office 156,000 February 1, 2003 0.52
Operating expenses 72,000 36,000 April 1, 2003 0.55
Ending inventory 98,000 48,000 The amount of foreign currency exchange gain (loss) under the forward contract the Philippine
All of the branch inventory is acquired from the home office. firm would present on its 2002 and 2003 income statements, respectively, are:
On the basis of these account balances, the combined net income of the home office and the A. (P5,000) and P30,000 C. P-0- and P15,000
branch is: B. (P5,000) and P-0- D. P-0- and P30,000
A. P170,000 C. P278,000
B. P70,000 D. P132,000 23. On June 15, 2003, Aubrey Company purchased merchandise worth 100,000 Swiss Francs
from its Swiss supplier within 30 days under an open account arrangement. Aubrey issued a
30-day 6% note payable in Swiss Francs. On July 15, 2003 Aubrey paid the note in full. The
following information on spot rates (P/SF) are provided:
Buying Selling
June 15, 2003 P24.03 P24.15
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PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

July 15, 2003 24.10 24.22 A. P179,860 C. P147,500

Compute (1) Aubrey’s foreign exchange gain (loss) for the transaction and (2) the amount paid B. P172,020 D. P172,000
to the Swiss supplier on July 15, 2003
A. (1) (P5,040) (2) P2,415,015 C. (1) P12,075 (2) 2,422,050 Long-term Construction Contracts
B. (1) (P7,000) (2) P2,434,110 D. (1) (P19,110) (2) P2,427,075 26. Velocity Corporation entered into a construction agreement in 2004 that called or a contract
price of P9,600,000. At the beginning of 2005, a change order increased the initial contract
Installment Sales price by P480,000. The company uses the percentage of completion method for completing
24. Light Drops Co. Started operations on January 1, 19x3, selling home appliances on the the project.
installment basis. For 19x3 and 19x4, the following information are available: 2004 2005
19x3 19x4 Cost incurred to date P4,920,000 P8,640,000
Installment sales P1,200,000 P1,500,000 Estimated costs to complete 4,920,000 2,160,000
Cost of installment sales 720,000 1,050,000 What gross profit (loss) should Velocity Corporation recognize in 2004 and 2005?
Collections of 19x3 sales 630,000 450,000 A. B. C. D.
Collections on 19x4 sales 900,000 2004 (P240,000) (P240,000) P240,000 P240,000
On January 6, 19x5, an installment sale account balance of 10x3 was defaulted and the 2005 (P720,000) (P480,000) (P960,000) (P720,000)
merchandise, with current market value of P15,000, was repossessed. The account balance
was P24,000. The balance of the unrealized gross profit account as at the end of 19x4 was 27. The Bjorn Construction Company was the lowest bidder on a specialized equipment contract.
A. P214,800 C. P275,000 The contract bid was P35,000,000 with an estimated cost to complete the project of
B. P228,000 D. P450,000 P26,500,000. The contract period was 33 months, beginning January 1, 2004. The company
uses the cost-to-cost method to estimate profits. A record of construction activities for the
25. Following data pertains to Sharp Company which sells appliances on the installment basis years 2004-2006 follows:
2003 2004 2005 2004 2005 2006
Installment sales P390,000 P420,000 P480,000 Actual cost current year P17,500,000 P11,750,000 P1,750,000
Cost of installment sales 237,900 243,600 288,000 Estimated cost to complete 10,500,000 3,250,000 -
Progress Billings 16,000,000 12,000,000 7,000,000
From sales made in Cash receipts 15,000,000 10,000,000 10,000,000
Installment accounts receivable balances 2003 2004 2005 What is the balance of Construction in Progress, net of Contract Billings account as of
January 1, 2005 P24,000 P300,000 December 31, 2005?
December 31, 2005 75,000 P290,000 A. P3,500,000 (current liability) C. P2,375,000 (current asset)
Repossession on defaulted accounts were made during 2005 as follows: B. P3,500,000 (current asset) D. P2,375,000 (current liability)
From sales made in
2004 2005 Franchise Accounting
Account balance defaulted P12,000 P7,000 28. On June 1, 2003, Via Loca Corporation, franchisor, receives P200,000 from JJ. Fad
Net realizable value of repossession 4,300 2,800 representing down payment on the franchise agreement signed that day. JJ. Fad gave Via a
The total realized gross profit in 2005 on the collections of 2003, 2004 and 2005 sales: 12% interest-bearing promissory note for the balance of P1,000,000, payable in four equal

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PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

semi-annual installments. Franchise services was substantially completed by Via on November Carrying Amount Current Value
15 at a cost of P900,000. On December 1, 2003, the first semi-annual installment became due Assets
and was accordingly paid by JJ. Fad. Via appropriated uses the accrual method of recording Assets pledged with fully secured
franchise revenues. creditors P160,000 P190,000
In its December 31, 2003 financial statements, how much will Via report as realized franchise Assets pledged with partially secured
income for the year? creditors 90,000 60,000
A. P112,500 C. P250,000 Free assets 200,000 140,000
B. P300,000 D. P187,500 Liabilities
Liabilities with priority 20,000
Not-for-Profit Organizations Fully secured creditors 130,000
29. Selected ledger account balances (in Alphabetical order) of a not for profit private hospital for Partially secured creditors 100,000
the year ended December 31, 2003, follow: Unsecured creditors 260,000
Debit Credit Assume that the assets are converted into cash at the estimated current values and the
Administrative expense P280,000 business is liquidated.
Depreciation expense 340,000 What total amount of cash should partially secured creditors receive?
Doubtful accounts expense 80,000 A. P60,000 C. P90,000
Equipment (expended from temporarily restricted net B. P84,000 D. P100,000
assets) 140,000
Business Combination
Genera services expense 540,000 31. Jeff Inc. was merged into Sig, Inc. in a combination properly accounted for as a purchase of
Net assets released from restrictions P140,000 interest. Their condensed balance sheet before the combination show:
Nursing expense 560,000 Sig Jeff
Other operating revenue 180,000 Current assets P2,288,000 P1,627,600
Other professional service expense 400,000 Plant and equipment, net 4,654,000 1,040,000
Patient service revenue 1,560,000 Patents - 260,000
Unrestricted contributions 380,000 Total assets P6,942,000 P2,927,600
Unrestricted income (from permanently restricted resources 280,000 Liabilities P2,704,000 P171,600
The increase (decrease) in unrestricted .net assets shown in the Statement of Activities for the Capital stock (par P100) 2,600,000 1,300,000
year ended December 31, 2003 is: Additional paid-in capital 390,000 390,000
A. P 60,000 C. P200,000 Retained earnings 1,248,000 1,066,000
B. P340,000 D. P(80,000) Total liab. & stockholders’ equity P6,942,000 P2,927,000
Per independent appraiser’s report, Jeff’s assets have fair market values of P1,653,600 for
Corporate Liquidation current assets, P1,248,000 for plant and equipment and P338,000 for patents. Jeff’s liabilities
30. Harry Company filed a voluntary bankruptcy petition on July 15, 2003 and the statement affairs are properly valued. Sig purchases Jeff’s net assets for P3,068,000.
reflects the following amounts: How should the difference between the book value of Jeff’s net assets and the consideration
Book Estimated paid by Sig be considered?
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PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

A. B. C. D. 32. Company A was organized to consolidate the resources of Companies B and C in a business
Goodwill P338,000 P338,000 P0 P0 combination appropriately accounted for as a pooling of interests. Company A issued 62,000
Increase in assets P78,000 P234,000 P234,000 P312,000 shares of P10 par value common stock in exchange for the net assets of Companies B and C,
whose stockholders’ equity balances immediately before the combination are shown below:
Company B Company C Total
Common Stock P200,000 P400,000 P600,000
Additional paid-in capital 25,000 35,000 60,000
Retained earnings 120,000 210,000 330,000
Immediately after the combination, Company A’s Additional Paid-in Capital balance should be
A. P-0- C. P40,000
B. P60,000 D. P390,000

33. Ivory Corp. and Jade Co. agree to combine. Ivory purchases the net assets of Jade for
P2,650,000. Jade’s condensed balance sheet, prior to the combination, follows
Current assets P1,830,000 Current liabilities P 140,000
Plant and equipment 2,760,000 1,000,000
Goodwill 300,000 2,400,000
780,000
570,000
Total assets P4,890,000 P4,890,000
An appraisal made by independent appraisers indicates that the fair value of Jade’s assets are
P1,890,000 for current assets and P2,900,000 for plant and equipment.
How should the difference between the amount of consideration paid by IVORY Corp. and the
fair value of Jade Co.’s net assets be taken up in the books of IVORY Corp.?
A. Negative goodwill of P1,000,000
B. Reduction of plant and equipment to P1,900,000
C. Deferred credit of P1,000,000
D. Reduction of plant and equipment by P1,900,000

34. When White Company acquired Black Company's net assets by issuing its own capital stock, it
had the following expenditures:
Broker’s fee P50,000
Pre-Acquisition audit fee 40,000
Expenses for merger discussion 15,000
Audit fee for SEC registration of stocks issued 46,000
SEC registration fee for stock issued 5,000
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PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

Printing of Stock Certificates 6,000 On January 2, 2004, Aragon issued 150,000 shares with a market value of P20 per share for
Total P194,000 all of Nolasco’s share, and Nolasco was dissolved. On the same day Aragon paid P5,000 to
If the combination qualifies under purchase of interest accounting the total should be debited to register and issue the shares and P10,000 for other direct costs of combination.
the following assets: Compute the stockholders’ equity section of Aragon Corporation’s balance sheet immediately
A. B. C. D. after the business combination on January 2, 2004, assuming under:
APIC P 0 P 0 P 57,000 P 57,000 A. B. C. D.
Investment in Black 0 194,000 0 147,000 Purchase P5,300,000 P2,300,000 P2,300,000 P5,295,000
Expense 194,000 0 147,000 0 Pooling 3,785,000 3,785,000 3,800,000 3,800,000

35. Union Company and United Company agreed to enter into a business combination which has Consolidated Financial Statements
all the qualifications, and none of the disqualifications, of a pooling of interests. Their 37. Jethel Co. is contemplating the purchase of 6,790 shares of the outstanding stock of Jamil Co.
condensed balance sheets are shown below: which just prior to acquisition has the following items in the balance sheet:
Union Company Unity Company Cash P49,000 Current liabilities P173,000
Assets P6,675,000 P2,815,000 Inventory 218,000 Common stock, P12 par 116,400
Plant and equipment (net) 379,000 Additional paid-in capital 148,000
Liabilities P2,600,000 P165,000 Patent 92,000 Retained earnings 300,600
Capital stock, P100 par 2,500,000 1,250,000 Jethel Co. believes that the inventory has a market value of P201,000 and that the plant and
Additional paid-in capital 375,000 375,000 equipment is worth P405,000. Assuming the cost of investment is P419,750 and the
Retained earnings 1,200,000 1,025,000 acquisition is to be accounted for as a purchase.
Total liabilities & equity P6,675,000 P2,815,000 How much is the total goodwill to be reported in the consolidated balance sheet?
Union Company shall be the surviving entity and, in exchange for all of the net assets of Unity A. P82,350 C. P-0-
Co., which had a fair market value of P2,933,000, Union shall issue 7,500 shares of its capital B. P17,950 D. P24,250
stock. The capital stock, additional paid-in capital, and retained after combination are:
38. P Corporation acquired 70% of the voting common stock of S Co. at a time when S Co.’s book
A. B. C. D.
values and fair values were equal. Separate incomes of P Corporation and S Co. for 2002 are
Capital stock P1,500,000 P3,250,000 P3,750,000 P4,150,000
as follows:
Additional paid-in capital P 125,000 P1,250,000 P 750,000 P 350,000
Retained earnings P1,025,000 P2,225,000 P2,225,000 P2,225,00 P Corporation S Corporation
Sales P700,000 P400,000
Cost of Goods Sold 400,000 200,000
36. The stockholders’ equities of Aragon Corporation and Nolasco Corporation at January 1, 2004
Operating expenses 120,000 100,000
were as follows:
Separate income P180,000 P100,000
Aragon Nolasco
Intercompany sales from P to S for 2002 and 2003 are summarized as follows:
Capital stock, P10 par P1,500,000 P800,000
Additional paid-in capital 200,000 400,000 Selling cost Unsold at Price Year-end
Retained earnings 600,000 300,000 Intercompany sales-2002 P250,000 P390,000 40%
Stockholders equity P2,300,000 P1,500,000 Intercompany sales-2003 P175,000 P275,000 50%

April 25,2004 Page 10 of 11

PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines Final Pre-board Examination

The 2003 consolidated income statement will show (1) sales revenue and (2) cost of goods Answer Key
sold of: 1. A 11. B 21. C 31. D
A. (1) P825,000 (2) P319,000 C. (1) P750,000 (2) P350,000 2. D 12. C 22. C 32. C
B. (1) P900,000 (2) P340,000 D. (1) P625,000 (2) P400,000 3. B 13. A 23. B 33. A
4. B 14. B 24. B 34. B
39. Tyrone Corp. acquired on January 1, 2003, 65% of the outstanding common stock of Lyndon 5. C 15. D 25. B 35. B
Corp. for P327,900. On that date, Lyndon’s balance sheet showed stockholders’ equity of; 6. A 16. A 26. B 36. A
Common stock, P125 par – P312,000; Retained earnings – P158,000. 7. C 17. C 27. B 37. B
The excess of cost over book value is attributable to an asset which has an estimated 8. A 18. A 28. B 38. A
remaining useful life of five years. For the year ended December 31, 2003, Lyndon reported 9. B 19. B 29. B 39. A
net income of P107,600 and paid cash dividend of P35 per share on its common stock.
10. D 20. A 30. B 40. A
The carrying value of Tyrone’s Investment in Lyndon Co. under the equity method as of
December 31, 2003.
A. P336,576 C. P374,236
B. P341,056 D. P335,676

40. Parent Corporation acquired an 80% interest in Subsidiary Company on January 2, 2003 for
P700,000. On this date, the capital stock and retained earnings of the two companies were as
follows:
Parent Corp. Subsidiary Co.
Capital stock P1,800,000 P450,000
Retained earnings 800,000 130,000
The assets and liabilities of Subsidiary were stated at their fair values when Parent Corporation
acquired its 80% interest. Parent uses the complete equity method of accounting to account for
its investment in Subsidiary. Net income and dividends for 2003 for the affiliated companies
were:
Parent Corp. Subsidiary Co.
Net income P300,000 P85,000
Dividend declared 180,000 57,000
Dividend payable 12/31/03 90,000 25,000
Minority interest that should appear in the consolidated balance sheet on December 31, 2003
A. P121,600 C. P116,600
B. P17,000 D. P116,000

April 25,2004 Page 11 of 11