practical accounting 2 1. Callie is admitted to the Adams & Beal Partnership under the bonus method.

Callie contributes cash of P20,000 and non-cash assets with a market value of P30,000 and book value of P15,000 in exchange for a 20% ownership interest in the new partnership. Prior to the admission of Callie, the capital of the existing partnership was P130,000 and an appraisal showed the partnership net assets were fairly stated. Adams & Beal shared profits and losses at a ratio of 80/20, respectively. Which of the following bonus amounts would be recorded? a. P14,000 to Callie capital c. P2,800 decrease to Beal capital b. P2,800 increase to Beal capital d. P7,000 increase to Adams capital 2. Roel, Jekell and Mike, CPAs, decide to form a partnership and agree to distribute profits in the ratio 5:3:2. It is agreed, however, that Roel and Jekell shall guarantee fees from their own clients of P600,000 and P500,000 respectively, that any deficiency is to be charged directly against the account of the partner failing to meet the guarantee, and that any excess is to be credited directly to the account of the partner with fees exceeding the guarantee. Fees earned during 20x4 are classified as follows: From clients of Roel From clients of Jekell From clients of Mike P1,000,000 400,000 100,000

Operating expenses for 20x4 are P200,000. Determine the share of Roel on the operating results for the year 20x4. a. P900,000 b. P500,000 c. P200,000 d. P300,000 3. Caine, Osman, and Roberts formed a partnership on January 1, 2009, agreeing to distribute profits and losses in the ratio of original capitals. Original investments were P625,000, P250,000 and P125,000 respectively. Earnings of the firm and drawings by each partner for the period 2009-2011 follows: Drawings . Net income (loss) Caine Osman Roberts 2009 P440,000 P150,000 P78,000 P52,000 2010 185,000 150,000 78,000 52,000 2011 ( 105,000) 100,000 52,000 52,000 At the beginning of 2012, Caine and Osman agreed to permit Roberts to withdraw from the firm. Since the books for the firm had never been audited, the partners agreed to an audit in arriving at the settlement amount. In withdrawing, Roberts was allowed to take certain furniture and was charged P15,000, although the book value was P45,000; the balance of Roberts interest was paid in cash. The following items were revealed in the course of the audit. End of 2009 Understatement of accrued expenses P 4,000 Understatement of accrued revenue 2,500 Overstatement of inventories 15,000 Understatement of depreciation expense on assets still held 1,500

End of 2010 P 5,000 1,000 20,000 3,500

End of 2011 P 6,500 1,500 20,000 2,000

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practical accounting 2 How much must Roberts received from the partnership? a. P511,250 b. P156,500 c. P15,250 d. P11,250

4. On January 1, 2008, Paula Corp. purchased 75% of the common stock of Chooks Corp. Separate balance sheet data for the companies at the combination date are given below: Cash Trade Receivable Merchandise Inventory Land Plant Assets Accumulated Depreciation Investment in Racks Total Assets Paula P 84,000 504,000 462,000 273,000 2,450,000 (840,000) 1,372,000 P4,305,000 Chooks P 721,000 91,000 133,000 112,000 1,050,000 (210,000) P1,897,000

Accounts Payable P 721,000 P 497,000 Capital Stock 2,800,000 1,050,000 Retained Earnings 784,000 350,000 Total Equities P4,305,000 P 1,897,000 At the date of combination the book values of Chooks net assets was equal to the fair value of the net assets except for Chooks inventory which has a fair value of P210,000. On the date of acquisition in the consolidated balance sheet: How much is the total assets? a. P 3,533,250 b. P4,984,000 c. P 6,543,250 d. P 5,171,250

5. The following data pertained to Pogi Companys construction jobs, which commenced during 2008: PROJECT 1 PROJECT 2 Contract Price Cost incurred during 2008 Estimated cost to complete Billed to customers during 2008 Received from customers during 2008 P420,000 240,000 120,000 150,000 90,000 P300,000 280,000 40,000 270,000 250,000

If Pogi company used the percentage of completion method, what amount of profit (loss) would Pogi Company report in its 2008 income statement? a. P(20,000) b. P20,000 c. P22,500 d. P40,000 6. On April 1, 2008, Ringo Corp. entered into franchise agreement with Quart Corp. to sell their products. The agreement provides for an initial franchise fee of P4,218,750 payable as follows: P1,181,250 cash to be paid upon signing of the contract and the balance in five equal annual payment every December 31, starting at the end of 2008. Ringo signs 12% interest learning 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 August 30 the franchisor completed the initial services required n the contract at a cost of P1,350,000 and incurred indirect costs of P232,500. The franchise commenced business operations on September 3, 2008. The
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practical accounting 2 gross sales reported to the franchisor are September sales, P110,000; October sales, P125,000; November sales P138,000; and December sales, P159,000. The first installment payment was made on due date. Assume the collectivity of the note is reasonably assured. In its income statement for the year ended December 31, 2008 how much is the realized gross profit? a. P2,868,750 b. P2,936,225 c. P2,895,350 d. P3,168,725

7. The following information was taken from Paula Companys accounting records for the year December 31, 2008: Increase in raw materials inventory P 15,000 Decrease in finished goods inventory 35,000 Raw materials purchased 430,000 Direct labor cost 200,000 Factory overhead control 260,000 Freight-in 45,000 There was no work in process inventory at the beginning or end of the year. Paulas 2008 cost of goods sold is if FOH is applied at 140% of labor costs: a. P950,000 b. P965,000 c. P975,000 d. P995,000

8. C Company has underapplied factory overhead of P45,000 for the year ended December 31, 2008. Before disposition of the underapplied overhead, selected December 31, 2008, balances from Cs accounting records are as follows: Sales P1,200,000 Cost of goods sold 720,000 Inventories: Direct materials Work in process Finished goods 36,000 54,000 90,000

Under Cs cost accounting system, over or underapplied overhead is allocated to appropriate inventories and cost of goods sold based on year end balances. In its 2008 income statement, C should report cost of goods sold of a. P682,500 b. P684,000 c. P756,000 d. P757,500 9. Violeta company adds materials at the beginning of the process in Department A. Information concerning the materials used in April 2008 is as follows: Units Work in process April ............... P10,000 Started during April.. 50,000 Completed & Transferred to the next department during April. Normal spoilage incurred Abnormal spoilage incurred Work in process at April 30. 36,000 3,000 5,000 16,000

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practical accounting 2 Under Violetas accounting system, the cost of normal spoilage are treated as part of the cost of good units produced. However, the cost of abnormal spoilage is charged to factory overhead. Using weighted average method, what are the equivalent units for the materials unit cost calculation for the month of April? a. 47,000 b. 52,000 c. 55,000 d. 57,000 10. On January 1, 2013, Pike Company purchased 80% of the outstanding voting shares of Sword company for P800,000. On that date, Sword had P300,000 of capital stock and P600,000 of retained earnings. All assets and liabilities of Sword had book values approximately equal to their fair market values. Goodwill, if any, is not amortized. Pike uses the complete equity method to account for its investment in Sword. On April 1, 2013, Pike sold equipment with a book value of P40,000 to Sword for P60,000. The equipment is expected to have a useful life of five years from the date of the sale and no salvage value. Sword will use straight-line depreciation. For year 2013, Sword reported net income of P200,000 and paid dividends of P40,000. Determine the income from investment under the complete equity method. a. P143,000 b. P144,000 c. P163,000 d. P111,000

11. P Company owns controlling interests in S and T Corporations, having acquired an 80 percent interest in S in 2011 and a 90 percent interest in T on January 1, 2012. Ps investments in S and T were at book value equal to fair value. Inventories of the affiliated companies at December 31, 2012 and December 31, 2013 were as follows: P inventories S inventories T inventories December 31, 2012 P60,000 38,750 24,000 December 31, 2013 P54,000 31,250 36,000

P sells to S at a 25 percent markup based on cost, and T sells to P at a markup of 20 percent. Ps beginning and ending inventories for 2013 consisted of 40% and 50%, respectively, of goods acquired from T. All of S inventories consisted of merchandise acquired from P. The inventory that should appear in the December 31, 2013 consolidated balance sheet should amount to: a. P109,600 b. P106,000 c. P110,500 d. P121,250

12. In year 2008, a 90 percent-owned subsidiary sold land to its parent at a gain. The parent still owns the land. In the consolidated balance sheet at December 31, 2009, the minority interest in the subsidiary should be shown at: a. 10 percent of the subsidiarys total equity. b. 10 percent of the subsidiarys total equity less 10 percent of the gain on the land sale. c. 10 percent of the subsidiarys total equity plus 10 percent of the gain on the land sale. d. 10 percent of the subsidiarys total equity less 100 percent of the gain on the land sale.

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practical accounting 2 13. I and Me are partners who share profits and losses in the ratio of 60% : 40% respectively. Is salary is P60,000 and P30,000 for Me. The partners are also paid interest on their average capital balances. In 2011, I received P30,000 of interest and Me, P12,000. The profit and loss allocation is determined after deductions for the salary and interest payments. If I share in the residual income (income after deducting salaries and interest) was P60,000 in 2011, what was the total partnership income? a. P192,000 b. 345,000 c. 282,000 d. 387,000 14. Paolo is trying to decide whether to accept a salary of P40,000 or a salary of P25,000 plus a bonus of 10% of net income after salary and bonus as a means of allocating profit among the partners. Salaries traceable to the other parties are estimated to be P100,000. What amount of income would be necessary so that Paolo would consider the choices equal? a. P165,000 b. 290,000 c. 265,000 d. 305,000 15. Cable and Jones are considering forming a partnership whereby profits will be allocated through the use of salaries and bonuses. Bonuses will be 10% of net income after total salaries and total bonuses. Cable will receive a salary of $30,000 and a 10% bonus. Jones has the option of receiving a salary of $40,000 and a 10% bonus or simply receiving a salary of $52,000. What is the level of income that would be necessary so that Jones would be indifferent to the profit-sharing option selected? a. P334,000 b. 344,000 c. 234,000 d. 434,000

16. The admission of a new partner under the bonus method will result in a bonus to
a. The old partners only. b. New partner only. c. Either the new partner or the old partners, but not both. d. None of the above.

17. Kat, Ket, and Kit are partners sharing profits on a 7:2:1 ratio. On January 1, 2009, Angelo was admitted to the partnership with 15% share in profits. The old partners continue to participate in profits in their original ratios. For the year 2009, the partnership showed a profit of 15,000. However, it was discovered that the following items were omitted in the firms books: Unrecorded at year end 2008 2009 Accrued expense 1,050 Accrued income 875 Prepaid expense 1,400 Unearned income 1,225 The share of partner Ket in the 2009 net profit is a. P2,197.50 b. 2,490.50 c. 2,637.00 d. 3,149.75 18. Isra, a partner in the Isra-Villacorte partnership, has a 30% participation in partnership profits and losses. Isra capital account has a net decrease of P60,000 during the calendar year 2009. During 2009, Isra withdraw 130,000 (charged against his capital account) and contributed property valued at 25,000 to the partnership. What was the net income of the partnership for 2009? a. 150,000 b. 233,333 c. 350,000 d. 550,000

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practical accounting 2

19. The SOP Partnership is being dissolved. All liabilities have been paid and the remaining assets are being realized gradually. The equity of the partners are as follows: Partners accounts Loans to (from) partnership P/L ratio S 24,000 6,000 3 O 36,000 3 P 60,000 (10,000) 4 The second cash payment to any Partners under a program of priorities shall be made thus: a. To P 2,000 b. To O 6,000 c. To P 8,000 d. To O 6,000 and 8,000 20. The following selected accounts are taken from the trial balance on December 31, 2009 of Bugtong Itik Company. Accounts receivable charge sales 75,000 Installment receivable- 2007 15,000 Installment receivable- 2008 45,000 Installment receivable- 2009 270,000 Merchandise inventory 52,500 Purchases 390,000 Freight in 3,000 Repossessed merchandise 15,000 Repossession loss 24,000 Cash sales 90,000 Charged sales 180,000 Installment sales 446,400 Deferred gross profit- 2007 22,200 Deferred gross profit- 2008 39,360 Additional information: i. Gross profit rate on 2007 Installment sales was 30% and for 2008, the rate was 32%. ii. Installment sales prizes exceed cash sales price by 24% while charge sales prices exceed cash sales prizes by 20%. iii. The entry for repossessed goods was: Repossessed merchandise 15,000 Repossession loss 24,000 Installment receivable- 2007 18,000 Installment receivable- 2008 21,000
iv. Merchandise on hand at the end of 2009 (new and repossessed) was 70,500. If all the sales were on a cash basis, the total sales for 2009: a. 655,000 b. 600,000 c. 630,000 d. 516,328 21. Using the same information above, the cost of goods sold on installment sales for 2009 is: a. 272,160 b. 267,624 c. 234,000 d. 390,000 22. Again, the same information above, how much is the cash collection on installment sales for the year 2008? a. 168,000 b. 123,000 c. 57,000 d. 66,000
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practical accounting 2 23. A group of engineers uses the cost recovery method of construction accounting to account for a four-year construction contract which is presently in its third year. Progress Billings were recorded and collected in the third year. Based on events occurring in the third year, there is now an anticipated loss on the contract. When would the effect of each of the following be reported in the companys income statement? Third year progress billings Anticipated loss a. not third year third year b. not third year fourth year c. third year third year d. third year fourth year 24. Imo Corporation has two projects for which it reported, as of December 31, 2008, the following information: Project A Project B Contract price 4,800,000 860,000 2007 cost incurred 3,400,000 Percent completed 78% 2008 cost incurred 1,250,000 140,000 Percent completed 22% 15% Using the percentage of completion method of revenue recognition, gross profit on Project A in 2007 would be: a. 344,000 b. 300,000 c. 200,000 d. 400,000 (for items 25-26) On December 12, 2012, Bongga Company entered into two forward exchange contracts, each to purchase 100,000 Hongkong dollars in 90 days. The relevant exchange rates are as follows: Spot rate Forward rate (for March 12, 2013) December 12, 2012 P8.80 P9.00 December 31, 2012 P9.80 P9.30 25. Bongga Company entered into the first contract for speculation. At December 31, 2012, what amount of foreign exchange gain (loss) should Bongga include in the income statement from this forward contract? a. P 0 b. 30,000 c. (30,000) d. 100,000. 26. Bongga Company entered into the second contract to hedge a commitment to purchase machinery being manufactured to Bonggas specification. At December 31, 2012, what amount of foreign exchange gain (loss) should Bongga include in the income statement from this forward contract? a. P 0 b. 30,000 c. 50,000 d. 100,000 27. MYD1 Company started 150 units in process on job order # 13. The prime cost placed in process consisted of P30,000 and 18,000 for materials and direct labor, respectively, and a pre-determined rate was used to charge factory overhead to production at 133-1/3% of the direct labor set. Upon the completion of the job order, units equal to 20% of the good output were rejected for the failing to meet strict quality control requirements. The company sells rejected units as scrap at only 1/3 of production cost, and bills customers at 150% of production cost.
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``

practical accounting 2 If the rejected units were ascribed to company failure, the billing price of job order #13 would be: a. 86,400 b. 90,000 c. 102,000 d. 108,000 28. Using the same information in No. 28, and if the rejected units were ascribed to customer action, the billing price of job order #13 would be: a. 86,400 b. 90,000 c. 102,000 d. 108,000 29. A hospital has a P100,000 expected utility bill this year. The janitorial, accounting, and orderlies department are service functions to the operating, hospital rooms, and laboratories departments. Department Square footage Janitorial. 1,000 Accounting. 2,000 Orderlies 7,000 Operating.. 4,000 Hospital rooms. 30,000 Laboratories. 6,000 50,000 How much of the P100,000 will eventually become the hospital rooms department total costs, assuming a direct allocation based on square footage is used? a. 60,000 b. 72,000 c. 75,000 d. 80,000 30. You are engaged in the audit of the December 31 financial statements of Spirit Corporation, a manufacturer of digital watches. You are attempting to verify the costing of the EWIP and finished goods which recorded on Spirits books as follows: Units Cost WIP (50% complete as to labor and overhead) 300,000 660,960 Finished goods 200,000 1,000,800 Materials are added to production at the beginning of the manufacturing process, and overhead is applied to each product at the rate of 60% of direct labor costs. There was no finished goods inventory on January 1. A review of Spirits inventory cost records disclosed the following: Costs (in thousands) Units Materials Labor WIP, 1/1 (80% complete as to labor and overhead) 200 P200 P315 Units started in production 1,000 Material costs P1,300 Labor costs P1,995 Units completed 900 The equivalent units for labor: FIFO Average a. 1,050,000 890,000 b. 1,050,000 1,050,000

c. d.

FIFO 890,000 890,000

Average 1,050,000 890,000

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practical accounting 2 31. Using the same information above, what are the total costs for overhead? FIFO Average FIFO Average a. 1,197,000 1,386,000 c. 1,197,000 1,197,000 b. 1,386,000 1,197,000 d. 1,386,000 1,386,000 32. Using the same information in #30, what is the total cost per equivalent unit for labor? FIFO Average FIFO Average a. P2.20 P2.24 c. 2.20 2.20 b. 2.24 2.20 d. 2.24 2.24 33. Using the same information in #30, what is the total cost for the ending inventory of finished goods using the weighted average method? a. 869,000 b. 954,000 c. 900,000 d. 786,000 34. Using the following information Actual direct labor hours used...... Units produced................ Standard labor hours per unit produced.............. Budgeted variable overheard per standard direct labor hour. Actual variable overheard incurred.

4,700 1,500 3 2 9,500

Compute the: (1) variable overhead efficiency variance, and (2) variable overhead spending variance: a. (1) P400 fav; (2) P100 fav c. (1) P400 fav; (2) P100 unfav b. (1) P400 unfav; (2) P100 fav d. (1) P400 unfav; (2) P100 unfav 35. Pabalik Company applies overhead on the basis of direct labor hours. Manufacturing overhead is budgeted at P135,000 for the period, of which 20% of this cost is fixed. The 17,200 hours worked during the period resulted in production of 8,500 units. Variable manufacturing overhead cost was P28,000. Pabalik Company uses a four variance method for analyzing manufacturing overhead. Compute the : (1) variable overhead spending variance; (2) variable overhead efficiency variance a. (1) P5,300 unfav; (2) P1,200 fav c. (1) P5,300 unfav; (2) P1,200 unfav b. (1) P5,300 fav; (2) P1,200 fav d. (1) P5,300 fav; (2) P1,200 unfav 36. Using the same information in No. 35, compute the: (1) fixed overhead budget (spending variance); (2) fixed overhead volume variance a. (1) P1,000 unfav; P1,500 unfav c. (1) P1,000 unfav; P1,500 fav b. (1) P1,000 ufav; P1,500 fav d. (1) P1,000 ufav; P1,500 unfav (37-38) Earth Company owns 100 percent of the capital stock of both Mars Corporation and Venus Corporation. Mars purchases merchandise inventory from Venus at 125 percent of Venus's cost. During 2008, Venus sold inventory to Mars that it had purchased for P25,000. Mars sold all of this merchandise to unrelated

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practical accounting 2 customers for P56,892 during 2008. In preparing combined financial statements for 2008, Earth's bookkeeper disregarded the common ownership of Mars and Venus. 37. Based on the information given above, what amount should be eliminated from cost of goods sold in the combined income statement for 2008? a. P31,250 b. P25,000 c. P56,892 d. P6,250 38. Based on the information given above, by what amount was unadjusted revenue overstated in the combined income statement for 2008? a. P25,000 b. P56,892 c. P31,250 d. P6,250 (39-41) On January 1, 2008, Parent Company acquired 90 percent ownership of Subsidiary Corporation, at underlying book value. The fair value of the noncontrolling interest at the date of acquisition was equal to 10 percent of the book value of Subsidiary Corporation. On Mar 17, 2008, Subsidiary purchased inventory from Parent for P90,000. Subsidiary sold the entire inventory to an unaffiliated company for P120,000 on November 21, 2008. Parent had produced the inventory sold to Subsidiary for P62,000. The companies had no other transactions during 2008. 39. Based on the information given above, what amount of sales will be reported in the 2008 consolidated income statement? a. P62,000 b. P120,000 c. P90,000 d. P58,000 40. Based on the information given above, what amount of cost of goods sold will be reported in the 2008 consolidated income statement? a. P62,000 b. P120,000 c. P90,000 d. P58,000 41. Based on the information given above, what amount of consolidated net income will be assigned to the controlling shareholders for 2008? a. P58,000 b. P59,000 c. P55,000 d. P52,200 42. Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 2011, for P500,000. On that date, the stockholders' equity of Sanburn Company was P380,000. On the purchase date, inventory of Sanburn Company, which was sold during 2011, was understated by P20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows: 2011 2012 Net income........................................................ P80,000 P90,000 Dividends paid.................................................. 10,000 10,000 Using the simple equity method, which of the following amounts are correct? Investment Income (2011) Investment Account Balance (December 31, 2011) a. P80,000 P570,000 b. P70,000 P570,000 c. P70,000 P550,000
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practical accounting 2 d. P80,000 P550,000

43. Elsa, Inc. instituted a new process in October. During this month, 20,000 units were started in Department A. of the units started, 2,000 were lost in the process, 14,000 units were transferred to Department B, and 4,000 remained in work in process at October 31. The work in process at October 31 was 100% complete as to material costs and 50% complete as to conversion costs. Material costs of P54,000 and conversion costs of P80,000 was charged to Department A in October. What were the total costs transferred to Department B? a. P93,800 b. P112,000 c. P105,000 d. P114,20 44. Bootanko Company, which manufactures two products out of a joint process- Compod and Untrasene. The joint (common) costs incurred are P250,000 for a standard production run that generates 120,000 gallons of Compod and 80,000 Untrasene. Compod sells for P2.00 per gallon while Ultrasene sells for P3.25 per gallon. If there are no additional processing costs incurred after the split-off point, the amount of joint cost of each production run allocated to Compod on a physical-quantity basis is a. P100,000 b. 120,000 c. 130,000 d. 150,000 45. Using the same information in No. 44, and if there are no additional processing costs incurred after the splitoff point, the amount of joint cost of each production run allocated to Ultrasene on a realizable value (gross market value) basis is a. P100,000 b. 120,000 c. 130,000 d. 150,000 46. Using the same information in No. 44, and if additional processing costs beyond the split-off point are P.10 per gallon for Compod and P1.10 per gallon for Ultrasene, the amount of each production run allocated to Ultrasene on a physical-quantity basis is a. P100,000 b. P148,000 c. 142,500 d. 150,00 47. Katologon Corporation grants a franchise to Gabuka for an initial franchise fee of P1,000,000. The agreement provides that Katologon has the option within one year to acquire franchisees business, and it seems certain that Katologon will exercise this option. On Katologons books, how should the initial fee be recorded? a. Deferred and treated as reduction in Katologon investment when the option is exercised b. Realized revenue c. Extraordinary revenue d. Deferred revenue to be amortized 48. Piyong-piyong, Inc. charges an initial franchise fee of P115,000, with 25,000 paid when the agreement was signed and the balance in five annual payments. The present value of the future payments, discounted at 10% is P68,234. The franchisee has the option to purchase P15,000 of equipment for P12,000. Piyongpiyong has substantially provided all initial services required and collectively of the payments is reasonably assured. The amount of revenue from franchise fees a. P25,000 b. 90,234 c. 93,234 d. 115,00

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practical accounting 2 49. Tulogna and Higdana enter into a contract to speculate on the stock market, each using approximately their personal cash. The earnings are to be divided equally, and settlement is to be made at the end of the year after all securities have been sold. A summary of the monthly brokerage statements for the year follows: Tulogna Total of all purchase confirmations. P45,000 Total of all sales confirmations 48,000 Interest charged on margin accounts.. 80 Dividends credited to accounts. 40 The joint venture profit (loss) is a. P2,150 b. 2,640 Higdana P18,000 16,800 50 100

c. (3,370)

d. None

50. Using the same information in No. 49, final settlement will require payments as follows: a. Tulogna pays Higdana P2,405 b. Tulogna and Higdana receive P1,255 each c. Tulogna receives from Higdana P1,150 d. None

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