Practical Accounting 2

PRACTICAL ACCOUNTING 2 1. 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 P1,000,000 From clients of Jekell 400,000 From clients of Mike 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 2. Caine, Osman, and Roberts formed a partnership on January 1, 20x4, 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 20x4-20x6 follows: Drawings . Net income (loss) Caine Osman Roberts 20x4 P440,000 P150,000 P78,000 P52,000 20x5 185,000 150,000 78,000 52,000 20x6 ( 105,000) 100,000 52,000 52,000 At the beginning of 20x7, 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 20x4 End of 20x5 End of 20x6 Understatement of accrued expenses P 4,000 P 5,000 P 6,500 Understatement of accrued revenue 2,500 1,000 1,500 Overstatement of inventories 15,000 20,000 20,000 Understatement of depreciation expense On assets still held 1,500 3,500 2,000 How much must Roberts received from the partnership? a. P511,250 b. P156,500 c. P15,250 d. P11,250 3. At the beginning of 2008, S Video established a QC Branch and a MC Branch in order to provide wider distribution of its merchandise. Merchandise is transferred to the branches at a pricd 30% above cost. All branch merchandise is acquired from the home office. At the end of 2008, the QC Branch and the MC Branch reported net income and ending inventory balances as follows: Net income Ending inventory QC Branch P45,500 P65,000 MC Branch 52,000 78,000 The year-end balances in the home office account’s allowance for unrealized gross margin in branch inventory are P 48,750 for the QC Branch and P58,500 for the MC branch. The income from Branch, home office should record is: a. P171,750 b. P97,500 c. P130,500 d. P74,250 4. On January 1, 2008, Ashley Corp. purchased 75% of the common stock of Racks Corp. Separate balance sheet data for the companies at the combination date are given below: Ashley Racks Cash P 84,000 P 721,000 Trade Receivable 504,000 91,000 Merchandise Inventory 462,000 133,000 Land 273,000 112,000 Plant Assets 2,450,000 1,050,000 Accumulated Depreciation (840,000) (210,000) Investment in Racks 1,372,000

CRC-ACE REVIEW SCHOOL (032) 7358901 / 7359031 / 0922 8610191 Page 1 of 4

Total Assets

P4,305,000

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 Racks net assets was equal to the fair value of the net assets except for Rack’s 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 Company’s construction jobs, which commenced during 2008: PROJECT 1 PROJECT 2 Contract Price P420,000 P300,000 Cost incurred during 2008 240,000 280,000 Estimated cost to complete 120,000 40,000 Billed to customers during 2008 150,000 270,000 Received from customers during 2008 90,000 250,000 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) c. P22,500 b. P20,000 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 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 trustee for John Corp. prepares a statement of affairs which shows that unsecured creditors whose claims total P 540,000 may expect to receive approximately P 405,000 if assets are sold for the benefit of creditors. a. Danielle Corp. holds a note for P22,500 on which interest of P1,350 is accrued, property with a book value of P18,000 and a realizable amount of P 27,000 is pledged on the note. b. Randolph, an employee is owed P6,750 for his salary. c. Baltimore Corp. holds a note of P54,000 on which interest of P2,700 is accrued, securities with a book value of P 58,500 and a realizable amount of P45,000 is pledged on the note. d. Nick Corp. holds a note for P9,000 on which interest of P500 is accrued, nothing has been pledged for the note. How much may each of the following creditors receive? Danielle Corp; Randolph Corp; Baltimore Corp.; Nick Corp., respectively. a. P 27,000 ; P5,063; P53,775 ; P 0 c. P27,000 ; P6,750; P56,700 ; P 0 b. P 23,850; P 6,750; P56,700; P7,125 d, P23,850; P6,750; P53,775 ; P 7,125 8. The following information was taken from H Company’s accounting records for the year December 31, 2008:

CRC-ACE REVIEW SCHOOL (032) 7358901 / 7359031 / 0922 8610191 Page 2 of 4

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. H’s 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 9. 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 C’s accounting records are as follows: Sales P1,200,000 Cost of goods sold 720,000 Inventories: Direct materials Work in process Finished goods Under C’s cost accounting system, over – or underapplied appropriate inventories and cost of goods sold based on year income statement, C should report cost of goods sold of a. P682,500 b. P684,000 c. P756,000

36,000 54,000 90,000 overhead is allocated to – end balances. In its 2008 d. P757,500

10. 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…………. 36,000 Normal spoilage incurred………………………………………………………… 3,000 Abnormal spoilage incurred……………………………………………………… 5,000 Work in process at April 30………………………………………………………. 16,000 Under Violeta’s 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 11. Agency Makabayan received Notice of Cash Allocation (NCA) – P45,000,000 for the year 2008, the entry would be: a. No entry b. Memorandum entry in Registry of Allotments c. National Clearing Account 45,000,000 Appropriation Alloted 45,000,000 d. Cash-National Treasury, MDS 45,000,000 Subsidy Income from National government 45,000,000 12. Save the Planet, a private nonprofit research organization, received a $500,000 contribution from Ms. Susan Clark. Ms. Clark stipulated that her donation be used to purchase new computer equipment for Save the Planet’s research staff. The contribution was received in August of 2001, and the computers were acquired in January of 2002. For the year ended December 31, 2001, the $500,000 contribution should be reported by Save the Planet on its a. Statement of activities as unrestricted revenue. b. Statement of activities as deferred revenue. c. Statement of activities as temporarily restricted revenue. d. Statement of financial position as deferred revenue. 13. On January 1, 20x3, 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

CRC-ACE REVIEW SCHOOL (032) 7358901 / 7359031 / 0922 8610191 Page 3 of 4

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, 20x3, 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 20x3, 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 14. P Company owns controlling interests in S and T Corporations, having acquired an 80 percent interest in S in 20x1 and a 90 percent interest in T on January 1, 20x2. P’s investments in S and T were at book value equal to fair value. Inventories of the affiliated companies at December 31, 20x2 and December 31, 20x3 were as follows: December 31, 20x2 December 31, 20x3 P inventories P60,000 P54,000 S inventories 38,750 31,250 T inventories 24,000 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. P’s beginning and ending inventories for 20x3 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, 20x3 consolidated balance sheet should amount to: a. P109,600 b. P106,000 c. P110,500 d. P121,250 15. In year 20x8, 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, 20x9, the minority interest in the subsidiary should be shown at: a. 10 percent of the subsidiary’s total equity. b. 10 percent of the subsidiary’s total equity less 10 percent of the gain on the land sale. c. 10 percent of the subsidiary’s total equity plus 10 percent of the gain on the land sale. d. 10 percent of the subsidiary’s total equity less 100 percent of the gain on the land sale. END OF EXAMINATIONS GOODLUCK!!! 

CRC-ACE REVIEW SCHOOL (032) 7358901 / 7359031 / 0922 8610191 Page 4 of 4