Practical Accounting 2.1

CRC-ACE REVIEW SCHOOL The Professional CPA Review School  735-9031 / 735-8901

PRACTICAL ACCOUNTING 2 OCTOBER 2007 BATCH 2nd PRE-BOARD EXAMS 2007 (Sun) 2:00-4:30

AUGUST 19,

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for each item by writing a VERTICAL LINE corresponding to the letter of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use Pencil No. 1 or No. 2 only. Use the following information in answering questions 1 and 2 The income statement of Vita Plus Partnership for the year ended December 31, 2007 appear below: Vita Plus Partnership Income Statement For the year ended December 31, 2007 Sales P300,000 Less: Cost of Goods Sold 190,000 Gross Profit P110,000 Less: Operating Expenses 30,000 Net Income P 80,000 Additional Information: 1. Melon and Dalandan began the year with capital balances of P40,800 and P112,000, respectively. 2. On April 1, Melon invested an additional P15,000 into the partnership and on August 1, Dalandan invested an additional P20,000 into the partnership. 3. Throughout 2007, each partner withdrew P400 per week in anticipation of partnership net income. The partners agreed that these withdrawals are not to be included in the computation of average capital balances for purposes of income distribution. Melon and Dalandan have agreed to distribute partnership net income according to the following plan: MELON DALANDAN 1. Interest on average capital balances 6% 6% 2. Bonus of net income before the bonus but after interest on average capital balances 10% 3. Salaries P25,000 P30,000 4. Residual (if positive) 70% 30% 5. Residual (if negative) 50% 50% 1. The share of Melon and Dalandan on the net income, respectively is: a. P40,473 and P39,527 c. P40,342 and P39,658 b. P40,282 and P39,718 d. P38,935 and P41,065 2. The ending capital balance of Dalandan is: a. P152,328 b. P150,727 c. P150,918

d. P150,858

Use the following information in answering questions 3 and 4 On January 2, 2007, P Company purchased 1,500 shares of the outstanding common stock of S Company for P140,000 and additional payment of. P4,000

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indirect cost and P5,000 direct cost. On that date, the assets and liabilities of S Company had fair market values as indicated below. Balance sheets of the companies on January 2, 2007, after acquisition are as follows: P Company Cash Accounts Receivable Inventory Land Building, net Equipment, net Investments in S Company Accounts Payable 8% Bonds Payable Common Stock – P Company, P40 par Common Stock – S Company, P25 par Additional Paid-In Capital – P Company Additional Paid-In Capital – S Company Retained Earnings – P Company Retained Earnings – S Company

P 80,000 56,000 56,000 28,000 163,000 224,000 149,000 P 756,000 P 42,000

S Company Book Fair value Value P 14,000 P 14,000 28,000 28,000 22,000 28,000 54,000 60,000 72,000 98,000 56,000 39,000 P 246,000 16,000 62,000

16,000 52,000

320,000 50,000 100,000 56,000 294,000 P 756,000

62,000 P 246,000

3. As a result of business combination, the amount of total net assets is a. P714,250 b.P764,000 c.P718,250 d.P768,000 4. The Retained earnings balance is a. P294,000 b.P356,000 c. P294,250 d. P290,000 5. A statement of the capital accounts of Roel and Bless follows: ROEL BLESS Balance, January 1 P 72,000 P 96,000 Add: Additional Investments, July 1 32,000 16,000 Net Income for the Year: Salaries 12,000 14,400 Interest on Capital 5,280 6,240 Remainder 10,362 8,478 Totals P131,642 P141,118 Deduct Drawings: Monthly Amounts P 9,600 P 10,800 Additional Drawings, Dec. 31 2,042 318 P 11,642 P 11,118 Balance, December 31 P120,000 P130,000 If the net income remains the same the following year, and if there is neither a change in the partnership agreement nor any additional investments, how much more or less will Roel’s total share of the net income be than it was this year? a. More by P6.00 b. Less by P6.00 c. P27,648 d. P29,112 6. Partner’s Rachel, Cecil, and Arlene share profits and losses 5:3:2, respectively, and their balance sheet on October 31, 2007 follows: Cash P 240,000 Accounts P 600,000 Payable

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Other Assets

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2,160,00 0

Rachel, Capital

444,000

Cecil, Capital Arlene, Capital

780,000 576,000 P 2,400,000 P 2,400,000 The assets and liabilities are recorded at their current fair value. Lark is to be admitted as a new partner with a 1/5 interest in capital and earnings. Rachel was credited a bonus of P15,000. How much should Lark contribute? a. P456,000 b. P450,000 c. P480,000 d. P487,500 Use the following information in answering questions 7 and 8 S Co. had net income of P400,000 and paid dividends of P200,000 during the year 2007. S Co.’s stockholders’ equity on December 31, 2006 and December 31, 2007 is summarized as follows: Dec. 31,2006 Dec. 31, 2007 10% cumulative preferred stock, P100 par P 300,000 P 300,000 Common stock, P1 par 1,000,000 1,000,000 Additional paid-in capital 2,200,000 2,200,000 Retained earnings 500,000 700,000 Stockholders’ Equity P4,000,000 P4,200,000 On January 2, 2007, P Co. purchased 400,000 common shares of S Co. at P4 per share and also paid P50,000 direct cost of acquiring the investment. P uses equity method in accounting for its investment in S. 7. P Co.’s income from Shine for 2007 should be: a. P160,000 b. P155,000 c. P148,000 d. P143,750 8. The balance of the investment in Shine account at December 31, 2007 should be: a. P1,725,750 b. P1,730,000 c. P1,650,000 d. P1,742,750 Use the following information in answering questions 9 and 10 Parent Company sells land with a book value of P5,000 to Subsidiary Company for P6,000 in 2004. Subsidiary Company holds the land during 2005. Subsidiary Company sells the land for P8,000 to an outside entity in 2006. 9. In 2004 the unrealized gain: a. To be eliminated is affected by the minority interest percentage. b. Is initially included in the subsidiary’s accounts and must be eliminated from Parent Company’s income from Subsidiary Company under the equity method. c. Is eliminated from consolidated net income by a working paper entry that includes a credit to the land account for P1,000 d. Is eliminated from consolidated net income by a working paper entry that includes a credit to the land account for P6,000. 10.

Which of the following statements is true?. a. Under the equity method, Parent Company’s investment in Subsidiary account will be P1,000 less than its underlying equity in Subsidiary throughout 2005. b. No working paper adjustments for the land are required in 2005 in Parent Company has applied the equity method correctly c. A working paper entry debiting gain on sale of land and crediting land will be required each year until the land is sold outside the consolidated entity. d. In 2006, the year of Subsidiary’s sale to an outside entity, the working paper adjustment for the land will include a debit to gain on sale of land for P2,000.

Use the following information in answering questions 11 and 12

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Perry Corporation sold machinery to its 80 percent-owned subsidiary, Samuel Corporation, for P100,000 on December 31, 2006. The cost of the machinery to Perry was P80,000, the book value at the time of sale was P60,000, and the machinery had a remaining useful life of five years (Perry uses equity in accounting for its investment in Samuel). 11. How will the intercompany sale affect Perry’s income from Samuel and Perry’s net income for 2006? Perry’s Income Perry’s Perry’s Income Perry’s from Samuel Net Income from Samuel Net Income a. No effect No effect c. Decreased No effect b. Increased No effect d. Decreased Decreased 12. How will the consolidated assets & the intercompany sale? Consolidated Consolidated Net Net Assets Income a. No Decreased effect b. Decreased Decreased

consolidated net income for 2006 be affected by Consolidated Net Assets c. Increased d.

No effect

Consolidated Net Income No effect No effect

Use the following information in answering questions 13 and 14 Punk Corp. manufactures and sells heavy industrial equipment. On July 1, 2006 Punk sold equipment that it manufactured at a cost of P300,000 to its 100 percent owned subsidiary, Sunk Company, for P400,000. Sunk is depreciating the equipment over a five-year period using the straight-line method. 13. The equipment and accumulated depreciation that appear in the consolidated balance sheet for Punk and subsidiary at December 31, 2006 will include amounts related to this transaction of: a. P300,000 and P30,000 c. P400,000 and P40,000 b. P300,000 and P60,000 d. P400,000 and P80,000 14. If Punk account for its investment in Sunk as a one-line consolidation, working paper entries to consolidate the financial statements of Punk and Sunk for 2006 will include which of the entries: a. Sales P100,000 c. Sales P400,000 Cost of Sales P100,000 Cost of Sales P300,000 b. Sales P100,000 Equipment P100,000 Investment in S P100,000 d. Sales P400,000 Cost of Sales P400,000 15. The following selected accounts appeared in the trial balance of Genius Sales as of December 31, 2007: Installment receivable- P 6,000 Repossessions P 1,200 2006 sales Installment receivable80,000 Installment sales 170,000 2007 sales Inventory, December 31, 28,000 Regular sales 154,000 2006 Purchases 222,000 Deferred gross profit – 21,600 2006 Operating Expenses 46,000 Additional information: Installment receivable – 2006 sales, December 31, 2006 P 57,100 Inventory of new and repossessed merchandise as of December 31, 2007 38,000 Gross Profit percentage on installment sales in 2006 is 10% higher than the gross profit percentage on regular sales in 2007

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Repossession was made during the year and was recorded correctly. It was a 2006 sales and the corresponding uncollected account at the time of repossession was P3,100. Net Income for 2007 is a. P54,180 b. P6,740

c. P52,940

d. P53,600

16. On January 1, 2007, M Products Corp. issues 12,000 shares of its P10 par stock to acquire the net assets of L Steel Company. Underlying book value and fair value information for the balance sheet of L Steel Company at the time of acquisition are as follows: Balance sheet Items Book Fair value value Cash P60,00 P60,000 0 Accounts receivable 100,00 100,000 0 Inventory 60,00 115,000 0 Land 50,00 70,000 0 Building and Equipment 400,00 350,000 0 Less: Accumulated Depreciation (150,000 ) Total Assets P520,000 Accounts payable Bonds payable Common stock (P5 par value) Additional paid-in capital Retained earnings Total Liabilities and Capital

P10,000 200,000 150,000 70,000 90,000 P520,000

10,000 180,000

L Steel shares were selling at P18 and M Product shares were selling at P50 just before the merger announcement. Additional cash payments made by M Corporation in completing the acquisition were: Finder’s fee paid to firm that located L Steel P10,000 Audit fee for stock issued by M Products 3,000 Stock registration fee for new shares of M Products 5,000 Legal fees paid to assist in transfer of net assets 9,000 Cost of SEC registration of M Products shares 1,000 How much is the increase in the total assets to be recorded by M Products? a. P809,000 b. P591,000 c. P781,000 d. P667,000 17. I Inc., K Inc., and E Inc. agreed to a business combination that meets all the requirements for purchase of interests. Their condensed balance sheets before combination show: I K E Assets P7,000,000 P875,000 P9,625,000 Liabilities P4,987,500 P306,250 P2,625,000 Capital stock, par P100 2,625,000 437,500 1,750,000 Additional paid in capital 218,750 700,000 Retained earnings (deficit) (612,500) ( 87,500) 4,550,000 P7,000,000 P875,000 P9,625,000 It was agreed that I Inc. will be the continuing entity and shall issue 4,375 shares to K and 52,500 shares to E. To what extent will the stockholders equity of I increase after the combination? a. P7,568,750 b. P2,187,000 c. P5,687,500 d. P875,000 18. On July 2007, Jonathan Company sold P2,400,000 real estate that had a cost P1,440,000, receiving P350,000 cash and mortgage note for the balance payable in monthly installments. Installment received in 2008 reduced the

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principal of the note to a balance of P2,000,000. The buyer defaulted on the note at the beginning of 2009, and the property was repossessed. The property had an appraised value of P1,150,000 at the time of repossession. Compute the gain (loss) on repossession, assuming that: Profit is recognized when the Gross profit is recognized in sale is made (point of sale) proportion to periodic collection a. P(850,000) P(450,000) b. (850,000) (50,000) c. 850,000 (450,000) d. (50,000) 50,000 19. Abogado Company uses the installment method of reporting for accounting purposes. The following data were obtained. 2004 2005 2006 Installment sales P600,000 P810,000 P990,000 Cost of installment _420,000 _486,000 _643,500 sales Gross profit P180,000 P324,000 P346,500 Installment contract receivables, December 31: 2004 2005 2006 2004 sales P360,000 P270,000 P120,000 2005 sales 600,000 390,000 2006 sales 780,000 In 2006, one of the customers defaulted in his payment and the company repossessed the merchandise with an estimated market value of P30,000. The sales was in 2004 and the unpaid balance on the date of repossession was P45,000. Compute for 2006 (1) the gain (loss) on repossession; (2) total realized gross profit, and (3) the deferred gross profit. (1) (2) (3) a. P P 189,000 P (1,500) 451,500 b. 129,000 465,000 750 c. 189,000 465,000 (1,500) d. 73,500 273,000 1,500 20. Lea Mae Stores sell appliances for cash and also on the installment plan. Entries to record cost of sales are made monthly. The following information appears on the trial balance of the company as of December 31, 2007. Cash P153,00 0 Installment Accounts Receivable, 48,000 2006 Installment Accounts Receivable, 91,000 2007 Inventory – New Merchandise 123,200 Inventory – Repossessed 24,000 Merchandise Accounts Payable P98,500 Deferred Gross Profit, 2006 45,600 Capital Stock 170,000 Retained Earnings 93,900 Sales 343,000 Installment Sales 200,000 Cost of Sales 255,000 Cost of Installment Sales 128,000 Gain or Loss on Repossession 800 Selling and Administrative Expenses _128,00 _______ 0

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P951,00 P951,000 0 The accounting department has prepared the following analysis of cash receipts for the year: Cash sales (including repossessed P424,00 merchandise) 0 Installment accounts receivable, 2006 104,000 Installment accounts receivable, 2007 109,000 Other 36,000 Total P673,00 0 Repossessions recorded during the year are summarized as follows: 2006 Uncollected balance P8,000 Loss on repossession 800 Repossessed merchandise 4,800 How much must be the total realized gross profit net of loss from repossession in 2007? a. P161,710 b. P157,640 c. P158,440 d. P73,710

21. Lily, Susan, and Yen agreed to invite Lucy to join the partnership. Lucy was presently working as a marketing specialist of a dynamic firm and presently receiving a salary of P35,000 per month. In order to encourage Lucy to join the partnership, the partners agreed to the following profit distribution: 1) 12% interest on contributed capital is to be given to each partner. 2) Salaries of P20,000, P30,000, P40,000, and P35,000 per month is to be given to Lily, Susan, Yen, and Lucy respectively. 3) Lucy is to receive a minimum guaranteed share equal to her present salary and interest on her capital. 4) Lily is to receive an aggregate share of P300,000 per year. 5) Balance of profits is to be distributed in the ratio of 2:2:3:3 between Lily, Susan, Yen, and Lucy respectively. The partners’ capital contributions are: Lily, P200,000; Susan, P150,000; and Yen, P100,000. Lucy is willing to invest sufficient cash so that her capital interest in the partnership net assets will give her a ¼ interest. How much must the partnership earned during the year so that Lily will receive the agreed aggregate amount and Lucy to receive at least the minimum guaranteed share? a. P1,752,000 b. P1,698,000 c. P1,477,000 d. P1,521,000 Use the following information in answering questions 22 and 23 On Jan. 1, 2003, PI Co. acquired 75 percent of outstanding shares of SU Co. at book value. For the year 2005, PI Co. purchased merchandise from SU Co. while S also purchased merchandise from PI Co. Data regarding intercompany sales, inventories and profit percentages are as follows: PI Co. SU Co. Intercompany sales P200,000 P75,000 Intercompany inventories: January 1, 2005 20,000 10,000 December 31, 2005 15,000 20,000 Gross profit percentages on intercompany As a percentage of selling price 60% 50% On July 1, 2005, Su Co. sold equipment to PI Co. at a gain of P20,000. This equipment is estimated to have a useful life of five years from the date of sale. Income statements for the two companies exclusive of the recording of Equity in Earnings – Subsidiary for year 2005 are as follows: PI Co. SU Co. Sales P P 400,000 1,500,000 Cost of sales 600,000 200,000 Expenses 300,00 100,000

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Gain on sale of equipment P

. 600,000

20,000 P 120,000

22.

The consolidated cost of sales is: a. P800,000 b. P528,500 c. P521,500 d. P527,000 23. The income from investment using equity method: a. P72,375 b. P71,542 c. P72,750 d. P75,750 24. PC Corp. owns 70 percent pf SO Co.’s common stock acquired January 1, 2004. Total amortization of excess from the investment is at a rate of P20,000 per year. SO regularly sells merchandise to PC at 150 percent of SO’s cost. PC’s December 31, 2004 and 2005 inventories include goods purchased intercompany of P112,500 and P33,000, respectively. The separate incomes (*do not include investment income) of PC and SO for 2005 are summarized as follows: PC SO Sales P 1,200,000 P 800,000 Cost of sales (600,000) (500,000) Other expenses (400,000) (100,000) Separate income P 200,000 P P200,000 Total consolidated income should be allocated to Retained Earnings and minority interest income in the amounts of: a. P344,550 and P61,950, c. P406,500 and P61,950, respectively respectively b. P358,550 and P60,000, d. P338,550 and P67,950, respectively respectively 25. the year:

Mystic, Inc. was involved in two default and repossession cases during

(i.)

A refrigerator was sold to Mary More for P19,000. Including a 35% markup on selling price. More paid a down payment of 20%, four of the remaining 10 equal payments, and then defaulted on further payments. The refrigerator was repossessed, at which time the fair value was determined to be P8,000.

(ii.)

An oven that cost P12,000 was sold to Panadero, Inc. for P16,000 on the installment basis. Panadero made a downpayment of P2,400 and paid P800 a month for 6 months, after which it defaulted. The oven was repossessed and the estimated value at the time of repossession was determined to be P7,500.

Determine the gain/(loss) on repossession that Mystic must report in its financial statement. a. P2,972 b. P4,100 c. P4,880 d. (P2,420) 26. The Felix Contracting Co. uses the percentage of completion method of recognizing profit. Data for a recently awarded project is given below: Contract price P80,000,000 2006 2007 2008 Estimated costs per year P20,100,0 P30,150,0 P16,750,0 00 00 00 Progress billings per year 10,000,00 25,000,00 45,000,00 0 0 0 Cash collections 8,000,000 23,000,00 49,000,00 0 0 Using the data provided above, calculate Felix’s gross profit for 2007. Assume that the estimated costs were actually incurred during the year. a. P5,850,000 b. P3,900,000 c. P3,250,000 d. P9,750,000 27. The Marvin Co. as a receivable from a foreign customer that is payable in the local currency of the foreign customer. The amount receivable for 900,000 local currency units (LCU) has been restated into P315,000 on Marvin’s Dec. 20X5, balance sheet. On Jan. 15, 20X6, the receivable was collected in full

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and converted when the exchange rate was 3 LCU to P1. What journal entry should Marvin make to record the collection of this receivable? a. Cash 300,000 Accounts receivable 300,000 b. Cash Transaction loss Accounts receivable

300,000 15,000

c. Cash Deferred transaction loss Accounts receivable

300,000 15,000

d. Cash Accounts receivable

315,000

315,000

315,000 315,000

28. On Nov. 15, 20X8, Celt, Inc. a Philippine company, ordered merchandise FOB shipping point from a German company for 200,000 marks. The merchandise was shipped and invoiced to Celt on Dec. 10, 20X8. Celt paid the invoice on Jan. 10, 20X9. The spot rates for marks on the respective dates are as follows: Nov. 15, 20X8 P.4955 Dec. 10, 20X8 .4875 Dec. 31, 20X8 .4675 Jan. 10, 20X9 .4475 In Celt’s Dec. 31, 20X8 income statement, the foreign exchange gain is: a. P9,600 b. P8,000 c. P4,000 d. P1,600 29. On April 1, 2007, Onawaki entered into franchise agreement with Lhyve 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 2007. Onawaki signs 12% interest bearing 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 in the contract at a cost of P1,350,000 and incurred indirect costs of P232,500. The franchise commenced business operations on September 3, 2007. The 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 collectibility of the note is reasonably assured. How much is the income earned from the franchise agreement. a. P2,868,750 b. P2,936,225 c. P2,895,350 d. P3,168,725 30. Shore Co. records its transactions in US Dollar. A sale of goods resulted in a receivable denominated in Japanese yen, and a purchase of goods resulted in a payable denominated in French francs. Shore recorded a foreign exchange gain on collection of the receivable and an exchange loss on settlement of the payable. The exchange rates are expressed as so many units of foreign currency to one dollar. Did the number of foreign currency units exchangeable for a dollar increase or decrease between the contract and settlement dates? Yen Exchangeable for Francs exchangeable for US$1 US$1 a Increase Increase . Decrease Decrease b Decrease Increase . Increase Decrease c . d .

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31. Candido Co. entered into a contract to build a small bridge for Guagua. The contract price for the bridge was P7,500,000 and Candido estimated a total costs of P6,900,000 in 2006. The company incurred P2,300,000 of cost during 2006. By the end of 2007 it was apparent that Candido had underestimated the real costs. The estimated total cost of project skyrocketed to P7,800,000. Construction cost incurred in 2007 totaled P4,000,000. The project was completed in 2008 at a final cost of P7,800,000. No progress billing were made under the contract and no cash was selected by the end of 2008. The amount of gross profit (loss) that must be recognized in 2007 must be: a. P300,000 loss b. P200,000 profit c. P500,000 loss d. P100,000 loss 32. The following information pertains to a river-control project of Rainy Construction Inc. in Tabuk, Kalinga which was commenced in 2006 and completed the following the year: Cost incurred to-date at June 30, 2006 P9,750,000 at June 30, 2007 15,750,000 Estimated total cost at completion at June 30, 2006 19,500,000 at June 30, 2007 20,250,000 The project is a P22,500,000 fixed-price construction contract and Rainy uses the percentage-of-completion method of accounting. What is the income reported by Rainy on its Kalinga project on June 30, 2007? a. P750,000 b. P1,500,000 c. P1,750,000 d. P250,000 REH Company Trial Balance as of January 1, 2006

33.

DR Ordinary shares – 30,000 fully shares Retained Earnings Equipment Accumulated Depreciation Inventory Accounts Receivable Patents Accounts Payable Cash

CR 30,000 50,000

42,000 12,000 20,000 10,000 15,000 100,000

8,000 13,000 100,000

At this date REH is acquired by BNC with REH going into liquidation  Ordinary shareholders of REH Company are to receive 2 fully paid ordinary shares in BNC for every share held or alternatively P2.50 in cash payable half at the exchange date and half in one year thereafter.  Accounts Payable and cost of liquidation amounting to P5,000 were paid by REH prior to turnover to BNC.  5,000 ordinary shares elect to receive cash  BNC shares are selling at P1.10  The incremental borrowing rate of BNC is 10% per annum. What is the cost of combination? a. P66,931 b. P67,500

c.P66,000

d.P61,931

Use the following information in answering questions 34 and 35 The following balance sheets were prepared for Avril Corp. and Blink Co. on January 1, 2007, just before they entered into a business combination.

Cash

Avril Corp. P 210,000

Blink Co P 5,000

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Accounts Receivable Merchandise Inventory Building and Equipment Accumulated Depreciation Goodwill Total Assets Accounts Payable Bonds Payable Common Stock P30 par value P20 par value Additional paid-in capital Retained Earnings Total Liabilities Stockholders’ Equity

75,000 200,000 400,000 (100,000) P 785,000

20,000 50,000 100,000 (25,000) 50,000 P 200,000

P 125,000 200,000

P 70,000 30,000

210,000

&

50,000 200,000 P 785,000

50,000 10,000 40,000 P 200,000

On that date, the fair market value of Blink’s inventories and building and equipment were P78,000 and P124,000 respectively, while bonds payable has a fair value of P42,000. The fair values of all other asset and liabilities of Blink (except for goodwill) were equal to their book values. Avril Corp. acquired the net assets of Blink Co. by issuing 2,500 shares of its P30 par value common stock (current fair value P36 per share) and purchase price in cash amounting to P12,000. Contingent consideration that is determinable (probable and reasonably estimated) amounted to P2,000 (discounted value). Additional cash payment made by Avril Corp. in completing the acquisition were: Legal fee for contract of business combination, P8,000; Accounting and legal fees for SEC registration, P11,000; Printing costs of stock certificates, P6,000; Finder’s fee, P7,000; Indiret cost, P5,000. 34. As a result of the business combination, the amount of total assets in the books of Avril Company. a. P1,016,000 b. P963,000 c. P967,000 d. P1,1012,000 35. As a result of the business combination, the amount of retained earnings in the books of Avril Company. a. P195,000 b.P193,000 c. P200,000 d.P240,000 36. On January 1, 2007, ABC Corporation purchased 75% of the common stock of XYZ Company. 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 XYZ Total Assets Accounts Payable Capital Stock Retained Earnings Total Equities

ABC P 84,000 504,000 462,000 273,000 2,450,000 (840,000) 1,372,000 4,305,000

XYZ P 721,000 91,000 133,000 112,000 1,050,000 (210,000) P 1,897,000

P 721,000 2,800,000 784,000 4,305,000

P 497,000 1,050,000 350,000 P 1,897,000

On the date of combination the book values of XYZ’s net assets was equal to the fair value of the net assets except for XYZ’s inventory which has a fair value of P210,000.

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On the date of acquisition in the consolidated balance sheet, how much is the total assets? a. P3,533,250 b. P4,984,000 c. P6,543,250 d. P5,171,250

-

End Examination –

PRACTICAL ACCOUNTING 2 1 2 3 4 5 6 7 8 9 10 -

A B B C B D C B C A

11 12 13 14 15 16 17 18 19 20

C B A C C C A A C B

21 22 23 24 25 26 27 28 29 30

A B A A A A B C B B

31 32 33 34 35 36

C D A C B D