BFJPIA

CUP 3 – PRACTICAL ACCOUNTING 2

EASY
1. The Racquet Store (RS) sells franchise agreements in which they charge an up-front fee of P50,000 for assistance in
setting up a store, and then a monthly fee of P1,000 for national advertising and administrative assistance. Steffi
Hingis signs a franchise agreement with RS.

Assume that Steffi paid the P50,000 in cash when she signed the agreement. RS can recognize revenue associated
with the P50,000:
a. When Steffi signs the agreement and pays the cash.
b. As soon as they have assisted Steffi in setting up the store.
c. Gradually as they provide advertising and administration services.
d. None of the above.

2. In a job-costing system, issuing indirect materials to production increases which account?

a. Materials control.
b. Work in process control. •
c. Manufacturing overhead control.
d. Manufacturing overhead allocated.

3. The cost recovery method of accounting for long-term contracts is sometimes referred to as the:
a. "sales-neutral approach"
b. "completed contract method"
c. "multi-step approach"
d. "zero profit method"

4. A statement of functional expenses is required for which one of the following private nonprofit organizations?
a. Colleges.
b. Hospitals.
c. Voluntary health and welfare organizations.
d. Performing arts organizations.

5. The statement of financial position (balance sheet) for Founders Library, a private nonprofit organization, should
report separate peso amounts for the library’s net assets according to which of the following classifications?
a. Unrestricted and permanently restricted.
b. Temporarily restricted and permanently restricted.
c. Unrestricted and temporarily restricted.
d. Unrestricted, temporarily restricted, and permanently restricted.

6. Which of the following types of insurance contacts would probably not be covered by IFRS 4?
a. Motor insurance. c. Medical insurance.
b. Life insurance. d. Pension plan.

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

7. The condensed balance sheet of June Corporation as of December 31, 2009 is shown below:
Book Values Fair Values
Current assets P200,000 P225,000
Plant assets 300,000 400,000
Total assets P500,000

Liabilities P150,000
Capital stock, P10 par 50,000
Additional paid-in capital 100,000
Retained earnings 200,000
Total equities P500,000

On January 1, 2010, Emong Company issues 10,000 shares of its P10 par value stock with a market value of P50 per
share for the net assets of June Corporation.

How much is the increase in the stockholders' equity of Emong Company due to the business combination?
a. P 100,000 c. P 350,000
b. P 150,000 d. P 500,000

8. On December 15, 2011, Rigsby Sales Co. sold a tract of land that cost P3,600,000 for P4,500,000. Rigsby
appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment
of P500,000 with the balance in two equal annual installments payable on December 15, 2012, and December 15,
2013. Ignore interest charges. Rigsby has a December 31 year-end.

In 2011, Rigsby would recognize realized gross profit of:

a. P100,000 c. P900,000
b. P500,000 d. P0

9. KATIE, LENIE, and MINNIE decided to liquidate their partnership on July 31, 2013. Their capital balances and profit and loss
ratios on this date, before liquidation, are:
Capital P&L Ratio
KATIE P224,000 25%
LENIE 288,000 30%
MINNIE 128,000 45%

The net loss from January 1 to July 31, 2013 is P48,000. Also, on this date, cash and liabilities are P136,000 and P232,000,
respectively.

Which of the following is inconsistent with the result of liquidation if LENIE received P247,200 in full settlement of her
interest in the firm?
a. Total cash paid to partners, P736,000
b. Non-cash assets were sold for P600,000
c. Minnie received P66,800
d. Katie’s share in loss, P22,000

10. On July 1, 2012 Pyramid Company paid P755,000 cash for the net assets of Stir Company. The recorded assets and
liabilities of Stir are: Cash, P74,000; Inventory, P215,000; Land, P200,000; Building (net), P208,000; and liabilities
of P220,000. At the same date Stir’s inventories had a fair value of P184,000; the land, P271,500; and the building
(net) , P187,500.

Determine the amount of goodwill resulting from the business combination.

a. P285,000 c. P258,000
b. P280,500 d. P250,800

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

AVERAGE

1. The following amounts were taken from the statement of affairs for Bagsak Company

Unsecured liabilities without priority P90,000

Stockholders' equity 36,000
Loss on realization of assets 45,000
Estimated administrative expenses that have not been entered in the accounting records 4,500
Unsecured liabilities with priority 10,000

The estimated payment for the unsecured liabilities without priority will be
a. P76,500 c. P81,000
b. P77,850 d. P90,000

2. On July 1 of the current year, Angat Company sold goods to Moshi Sushi Company for ¥47,850,000 to be paid on
September 30. The current exchange rate on July 1 was ¥110=P1, so the total payment at the current exchange
rate would be equal to P435,000. Angat entered into a forward contract with a universal bank to guarantee the
number of pesos to be received. According to the terms of the contract, if ¥47,850,000 is worth less than P435,000,
the bank will pay Angat the difference in cash. Likewise, if ¥47,850,000 is worth more than P435,000, Angat must
pay the bank the difference in cash.

Assuming the exchange rate on September 30 is ¥105=P1, what amount will Angat pay to, or receive from, the bank
(rounded to the nearest peso)?
a. P87,000 payment c. P20,714 payment
b. P87,000 receipt d. P20,714 receipt

3. On January 1, 2011, Job Corporation enters into a forward contract to purchase on January 1, 2013, a specified
number of barrels of oil at a fixed price. Entity A is speculating that the price of oil will increase and plans to net
settle the contract if the price increases. Job Corporation does not pay anything to enter into the forward contract on
January 1, 2011. Job Corporation does not designate the forward contract as a hedging instrument. At the end of
2011, the fair value of the forward contract has increased to P400,000. At the end of 2012, the fair value of the
forward contract has declined to P350,000. How much should be recognized in 2012 profit or loss related to this
forward contract?
a. P400,000 c. P50,000
b. P350,000 d. P 0

4. On December 12, 2012, Slow Corp. entered into a forward exchange contract to purchase 100,000 euros in
ninety days. The relevant exchange rates are as follows:
Forward Rates for
Date Spot Rates March 12, 2013
11/30/12 P87 P89
12/12/12 88 90
12/31/12 92 93

Slow entered into the contract for speculation. At December 31, 2012, what amount of foreign currency transaction
gain from this forward contract should Slow include in net income?
a. P1,000,000 c. P300,000
b. P 500,000 d. P 0

5. In a cash flow hedge, the gain on the hedging instrument in the first period after designation is P900,000 and the
loss on the hedged item is P1,000,000. How much will be recognized in profit or loss?
a. P1,000,000 c. P100,000
b. P 900,000 d. P 0

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6. On August 1, 2012, when Second Company’s total stockholders’ equity was P245,000, First Company purchased
7,000 shares of Second’s ordinary shares at P20 per share. Second Company had 10,000 ordinary shares outstanding
both before and after the purchase by First, and the book value of Second’s net assets was equal to fair values at
the date of acquisition.

Determine the amount of income from acquisition to be recognized at August 1, 2012.

a. P45000 c. P0
b. P35,000 d. P31,500

7. M is the cashier of DILT a national government. During the month, she received total collections from earnings
amounting to P250,000 of which P150,000 was income that should be deposited to the National Government and the
P100,000 was income received from its own agency operation. The P 150,000 was deposited to the National Treasury
and the remaining balance was deposited to the agency’s bank account. What should be the entry to record the
deposit of the collections received by the collecting officer?
a. Cash National Treasury 108 150,000
Cash in Bank Current Account 111 100,000
Cash Collecting Officer 102 250,000
b. Due to National Treasury 108 150,000
Cash in Bank Current Account 111 100,000
Cash Collecting Officer 102 250,000
c. Due to National Treasury 108 150,000
Cash In Bank Current Account 111 100,000
Income 250,000
d. Cash National Treasury 108 150,000
Cash In Bank Current Account 111 100,000
Income 250,000

8. Assume that a partnership had assets with a book value of P240,000 and a market value of P195,000, outside
liabilities of P70,000, loans payable to partner Able of P20,000, and capital balances for partners Able, Baker, and
Chapman of P70,000, P30,000, and P50,000. How would the first P100,000 of available assets be distributed
assuming profits and losses are allocated equally?
a. P70,000 to outside liabilities, P20,000 to Able, and the balance equally among the partners
b. P70,000 to outside liabilities and P30,000 to Able
c. P70,000 to outside liabilities, P25,000 to Able, and P5,000 to Chapman
d. P40,000 to Able, P20,000 to Chapman, and the balance equally among the partners

9. Deso Company has an investment in an equity instrument classified as an available for sale investment. The cost of
the investment on July 1, 2013 was P2,500,000. On September 1, 2013, the company entered into a derivative
forward contract to hedge the fair value of the investment. All the conditions for hedge accounting are met, and the
hedge qualifies as a fair value hedge because it is a hedge of an exposure to changes in the fair value of a recognized
asset. On December 31, 2013, the fair value of the investment was P2,300,000. The fair value of the derivative at
that date was P180,000. The net effect of the hedge in 2013 profit or loss is
a. P200,000 c. P20,000
b. P180,000 d. P 0

10. On December 31, 2011, JKL, a franchisor, entered into a franchising agreement with GMD charging GMD a franchise
fee of P400,000. Upon signing of the contract, a down payment of P100,000 is paid with the balance payable in four
equal annual installments starting 2012. JKL had already performed 99.9% of the services as of February 1, 2012 at
a total cost of P140,000. JKL was able to collect the first installment payment in 2012 but the collectibility of the
remaining balance is still doubtful.

Calculate the profit to be recognized by JKL in its 2012 income statement.

a. P260,000 c. P 65,000
b. P 48,750 d. P113,750

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

DIFFICULT

1. FIVE Inc. borrows P10 million from Bank A at a fixed rate of 7%, payable quarterly in arrears. The prime rate is
4.5% when the loan is taken out. FIVE’s management believes that interest rates will decline in the near future.
Accordingly, it enters into a swap agreement with Bank B. Under the agreement, FIVE is committed to pay to Bank B
a sum equal to prime plus 2.5% on a notional principal of P10 million and Bank B is committed to pay to FIVE a sum
equal to 7% on a notional principal of P10 million, with the amounts settled on a net basis at the end of each quarter.
If the prime rate drops to 4%, what are FIVE’s cash flows for the next quarter?
a. P162,500 inflow from Bank A
b. P162,500 outflow to Bank B
c. P175,000 outflow to Bank A and P12,500 inflow from Bank B
d. P175,000 outflow to Bank A and P12,500 outflow to Bank B

2. Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a
jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because
Lake has little information about collectibility of these receivables, they use the installment method for revenue
recognition. In 2010 Lake began operations and sold jet skis with a total price of P900,000 that cost Lake P450,000.
Lake collected P300,000 in 2010, P300,000 in 2011, and P300,000 in 2012 associated with those sales. In 2011
Lake sold jet skis with a total price of P1,500,000 that cost Lake P900,000. Lake collected P500,000 in 2011,
P400,000 in 2012, and P400,000 in 2013 associated with those sales. In 2013 Lake also repossessed P200,000 of jet
skis that were sold in 2011. Those jet skis had a fair value of P75,000 at the time they were repossessed.

In 2012, Lake would recognize realized gross profit of:

a. P0 c. P310,000
b. P450,000 d. P700,000

3. Indiana Co. began a construction project in 2011 that will provide it P150 million when it is completed in 2013.
During 2011, Indiana incurred P36 million of costs and estimates an additional P84 million of costs to complete the
project.

Using the percentage-of-completion method, Indiana:

a. Recognized no gross profit or loss on the project in 2011.
b. Recognized P6 million loss on the project in 2011.
c. Recognized P9 gross profit on the project in 2011.
d. Recognized P36 million loss on the project in 2011.

4. Blue Manufacturing Company has a process cost system using the FIFO cost flow method. All materials are
introduced at the beginning of the process in Department A. The following information is available for the month of
April, 2011.
Units
Work in process, 4/1/11 (40% complete as to conversion cost) 500
Started in April 2,000
Transferred to Department B during April 2,100
Work in process 4/30/11 (25% complete as to conversion costs 400

What are the equivalent units of production (EUP) for the month of April, 2011?
a. Materials, 2,500; Conversion, 2,200
b. Materials, 2,500; Conversion, 1,900
c. Materials, 2,000; Conversion, 2,200
d. Materials, 2,000; Conversion, 2,000

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

5. The following were found in your examination of the interoffice accounts between the Home Office and its Legazpi
Branch for the year ended December 31, 2011:
a. The branch did not record transfer of fixed assets from the home office amounting to P53,860.
b. The home office charged P10,000 covering marketing expense of another branch to Legazpi.
c. Legazpi recorded a debit note on the inventory transfers from home office of P75,000 twice.
d. Home office recorded cash transfer of P65,700 from Legazpi branch as coming from the Naga branch.
e. Legazpi reversed a previous debit memo from Ilocos branch amounting to P10,500. Home office decided that
this charge is appropriately Legazpi branch cost.
f. Legazpi recorded a debit memo from the home office of P4,650 as P4,560.

Before the above discrepancies were given effect, the balance in the home office books of its Legazpi branch account
was a debit balance of P165,920.

What is the adjusted balance of the reciprocal accounts at December 31, 2011?
a. P92,200 c. P92,002
b. P90,220 d. P90,202

6. The following information was available from St. Louis Hospital’s financial records on donor contributions for various
hospital expenses. The donations were received during the year-ended December 31, 2012. The hospital is a private
non-profit organization.

Not under the authority of NPO’s Board of Trustees:

Expended P100,000
Not expended 300,000
Under the authority of NPO’s Board of Trustees:
Expended P 600,000
Not expended 75,000

How much total unrestricted revenues were recognized in the statement of activities of St. Louis in 2012?
a. P600,000 c. P 700,000
b. P775,000 d. P 675,000

7. Agency LLL, a national government agency, incurs an obligation on April 20 2012 for the purchase of IT Software for
P120,000 for delivery on April 24, 2012 and to be paid on May 25, 2012.

The entry to be recorded by LLL for the incurred obligation would correctly include a
a. Debit to Equipment and Software
b. Credit to Accounts Payable
c. Credit to Cash-NT-MDS
d. Memo entry in RAOCO

8. MV Crafts manufactures to customer order using the job order cost system. For the month just ended, it registered
the following data:
Beginning work in process (5 P 300,000
partially completed jobs)
Orders completed (18) 2,400,000
Orders shipped (14) 2,000,000
Materials requisitioned for the month 1,700,000
Direct labor cost 800,000
Factory overhead rate 150% of direct
labor cost

The ending work in process inventory was

a. P 1,400,000 c. P 1,600,000
b. P 500,000 d. P 700,000

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9. Avengers Company uses a job-order cost system with machine hours as an overhead base. The following information
relates to Avengers Company for last year:

Estimated machine hours for the year 42,000

Actual machine hours for the year 40,800
Predetermined overhead rate P 1.50 per MH
Under-applied factory overhead P 2,600

What is the peso amount of the following items?

Estimated OH Applied OH Actual OH
a. P 61,200 P 63,000 P 60,400
b. P 61,200 63,000 65,600
c. P 63,000 61,200 58,600
d. P 63,000 61,200 63,800

10. Paiyakan Corporation, which began operations on January 1, 2011, appropriately uses the installment method of
accounting for revenues. The following information is available for the years ended December 31, 2011 and 2012.
2011 2012
Cost of installment sale P 600,000 P 1,200,000
Gross profit realized on sales made in:
2011 90,000 54,000
2012 - 120,000
Gross profit rate, cost based 30% 40%

Calculate the ending balance of installments accounts receivable on December 31, 2012
a. P1,416,000 c. P1,020,000
b. P1,065,000 d. P 735,000

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TIE BREAKER

1. On January 2, 2013, VENUS and WILMA dissolved their partnership and transferred all assets and liabilities to a
newly formed corporation. At the date of incorporation, the fair value of the net assets was P12,000 more than the
carrying amount on the partnership’s books. Of which P7,000 was assigned to tangible assets and P5,000 was
assigned to patent. VENUS and WILMA were each issued 5,000 shares of the corporation’s P1 par common stock.

Immediately following incorporation, additional paid-in capital in excess of par should be credited for
a. P68,000 c. P77,000
b. P70,000 d. P82,000

2. On January 1, 2013, HHH, III, and JJJ (all are corporations) establish a joint undertaking to manufacture a product
they agree to share equally. Each will contribute P200,000 into the operation; HHH and III are to contribute cash
while JJJ is to contribute equipment with a cost of P185,000. The equipment has a remaining life of 10 years when
contributed.

Determine the amount JJJ will show the Equipment in JO account in its balance sheet at January 1, 2013.
a. P61,667 c. P66,667
b. P50,000 d. P65,000

3. The following were taken from the statement of affairs of No Way Company.

Assets pledged with fully secured creditors P56,800

Assets pledged with partially secured creditors 10,000
Free assets 8,960
Preferred creditors 2,400
Fully secured creditors 55,200
Partially secured creditors 16,000
Unsecured creditors without priority 14,400

The estimated amount recoverable by Partially-secured creditors is

a. P11,160 c. P12,400
b. P12,240 d. P11,600

4. Hulugan Company began operations on January 1, 2013 and appropriately uses the installment method of
accounting. The following information pertains to the operations of the company for 2013.

Cost of installment sales, P656,250; Gross profit rate based on cost, 25%; Collections on installment sales (including
interest of P13,750), P371,875.

Determine the realized gross profit for 2013.

a. P 46,875 c. P 44,687.50
b. P 47,437.50 d. P 71,625

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5. During the month, the sales agency submits sales on account of P1,500,000 which was duly approved by the home
office. Cost of merchandise shipped to fill the orders from customers obtained by the sales agency is P800,000. Home
office disbursements chargeable to the agency are as follows: Furniture and fixtures, P150,000; manager’s and
salesmen’s salaries, P88,000;and rent, P35,000. On May 31, the sales agency working fund is replenished: paid
vouchers submitted by the sales agency amounted to P42,000. Sales agency samples are useful until December 31,
2013, which at that time, are believed to have a salvage value of 15% of cost. Furniture are depreciated at 30% per
annum.

What is the net profit of the sales agency for the month of May?
a. P327,250 c. P463,750
b. P315,250 d. P505,750

6. On November 1, 2013, Magpie Corporation sold merchandise to William Tell Corporation, a Swiss firm. Magpie
measured and recorded the account receivable from the sale at P78,000. William Tell paid for this account on
November 30, 2013. Spot rates for Swiss francs on November 1 and November 30, respectively, were P0.80 and
P0.78.

If the sale of the merchandise was denominated in francs, the November 30 entry to record the receipt of payment
from William Tell included a
a. credit to Accounts Receivable for P76,050
b. credit to Exchange Gain for P1,950
c. debit to Cash for P78,000
d. debit to Exchange Loss for P1,950

7. On November 2, 2013, Switik Corporation entered into a 90-day contract to sell 220,000 kiwis in a transaction
accounted for as speculation. The spot rate for kiwis on November 2 was P0.74 and the current quotation for 90-day
forwards was P0.68. On December 31, 2013, the spot rate was P0.78 and the quotation for 30-day forwards was
P0.65,

Switik’s entry to record the transaction on November 2, 2013 included a

a. debit to Contract Receivable denominated in kiwis for P149,600
b. credit to Contract Payable denominated in kiwis for P149,600
c. debit to Contract Receivable denominated in kiwis for P162,800
d. credit to Contract Payable denominated in kiwis for P154,000.

8. During March, Hardest Manufacturing Company incurred the following costs on Job 007 for the manufacture of 200
motors.
Original cost accumulation:
Direct materials P 660,000
Direct labor 800,000
Factory overhead (150% of 1,200,000
direct labor cost)
Direct cost of reworking 10 units
Direct materials 100,000
Direct labor 160,000
Total 260,000

The rework costs were attributable to the exacting specifications of Job 007.

What is the cost per finished unit of Job 007?

a. P15,800 c. P14,000
b. P14,600 d. P13,300

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9. On August 1, 2013, Blite Company paid P850,000 for all the net assets of Ong Enterprises in a transaction properly recorded as a
purchase. The recorded assets and liabilities of Ong Enterprises on August 1, 2013, follow:
Cash P 80,000
Inventory 240,000
Property and equipment, net 480,000
Liabilities (180,000)
On August 1, 2013 it was determined that the inventory of Ong had a fair market value of P190,000, and the property and
equipment (net) had a fair market value of P560,000.

What is the amount of goodwill resulting from the business combination?

a. P 0 c. P200,000
b. P 20,000 d. P230,000

10. Jolly Corporation exchanged its common stock, worth P 280,000 for all of the net assets of Bee Company in a business combination
treated as a purchase. At the date of combination, Jolly’s net assets had a book value of P480,000 and a fair value of P680,000.
Bee’s net assets had a book value of P260,000 and a fair value of P272,000.

Immediately following the combination, the net assets of the combined company should have been reported at what amount?
a. P 740,000 c. P760,000
b. P 752,000 d. P952,000

- end -

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