Afar Problems 2p733h

ADVANCED FINANCIAL ING AND REPORTING Problem Portion Numbers 1 and 2 (Partnership Formation) A, B and C decided to form ABC Partnership. It was agreed that A will contribute an equipment with assessed value of P100,000 with historical cost of P800,000 and accumulated depreciation of P600,000. A day after the partnership formation, the equipment was sold for P 300,000. B will contribute a land and building with carrying amount of P1,200,000 and fair value of P1,500,000. The land and building are subject to a mortgage payable amounting to P300,000 to be assumed by the partnership. The partners agreed that B will have 60% capital interest in the partnership. The partners also agreed that C will contribute sufficient cash to the partnership. 1. What is the total agreed capitalization of the ABC Partnership? A. B. C. D.

1,500,000 2,000,000 2,500,000 3,000,000

2. What is the cash to be contributed by C in the ABC Partnership? A. B. C. D.

500,000 600,000 700,000 800,000

Numbers 3 and 4

(Partnership Operation – Capital Transactions)

On January 1, 2018, A, B and C formed ABC Partnership with total agreed capitalization of P1,000,000. The capital interest ratio of the ABC Partnership is 5:1:4 while the profit or loss ratio is 3:2:5, respectively for A, B and C. During 2018, A and B made additional investments of P200,000 and P500,000, respectively. At the end of 2018, B and C made drawings of P300,000 and P100,000, respectively. On December 31, 2018, the capital balance of B is reported at P200,000. 3. What is the net income or net loss of ABC Partnership for the year ended December 31, 2018? A. 500,000 loss B. 1,000,000 loss C. 800,000 income D. 1,200,000 income 4. What is the capital balance of C on December 31, 2018? A. 150,000 B. 50,000 C. 200,000 D. 250,000

Page 2 Numbers 5, 6, and 7 (Partnership Operation – Distribution of profit or loss) On January 1, 2018, A, B and C formed ABC Partnership with original capital contribution of P300,000, P500,000 and P200,000. A is appointed as managing partner. During 2018, A, B and C made additional investments of P500,000, P200,000 and P300,000, respectively. At the end of 2018, A, B and C made drawings of P200,000, P100,000 and P400,000, respectively. At the end of 2018, the capital balance of C is reported at P320,000. The profit or loss agreement of the partners is as follows:    

10% interest on original capital contribution of the partners. Quarterly salary of P40,000 and P10,000 for A and B, respectively. Bonus to A equivalent to 20% of Net Income after interest and salary to all partners Remainder is to be distributed equally among the partners.

5. What is the partnership profit for the year ended December 31, 2018? A. 900,000 B. 1,020,000 C. 1,050,000 D. 960,000 6. What is A’s share in partnership profit for 2018? A. B. C. D.

190,000 340,000 540,000 200,000

7. What is B’s share in partnership profit for 2018? A. 200,000 B. 290,000 C. 50,000 D. 90,000

Page 3 Number 8 (ission of partner by purchase) On December 31, 2018, the Statement of Financial Position of ABC Partnership provided the following data with profit or loss ratio of 1:6:3: Current Assets Noncurrent Assets

1,000,000 2,000,000

Total Liabilities A, Capital B, Capital C, Capital

600,000 900,000 800,000 700,000

On January 1, 2019, D is itted to the partnership by purchasing 40% of the capital interest of B at a price of P500,000. What is the capital balance of B after the ission of D on January 1, 2019? A. B. C. D.

540,000 480,000 420,000 300,000

Number 9 (Retirement of partner) On December 31, 2018, ABC Partnership’s Statement of Financial Positions shows that A, B and C have capital balances of P500,000, P300,000 and P200,000 with profit or loss ratio of 1:3:6. On January 1, 2019, C retired from the partnership and received P350,000. At the time of C’s retirement, an asset of the partnership is undervalued. What is the capital balance of A after the retirement of C? A. B. C. D.

462,500 537,500 562,500 525,000

Number 10 (Retirement of partners) On December 31, 2018, ABC Partnership’s Statement of Financial Position shows that A, B and C have capital balances of P400,000, P300,000 and P100,000 with profit or loss ratio of 1:4:5. On January 1, 2019, C retired from the partnership and received P80,000. At the time of C’s retirement, the assets and liabilities of the partnership are properly valued. What is the capital balance of B after the retirement of C? A. B. C. D.

284,000 308,000 316,000 320,000

Page 4 Number 11 (Partnership Dissolution – ission of New Partner by Investment) On December 31, 2018, the Statement of Financial Position of ABC Partnership provided the following data with profit or loss ratio of 1:6:3: Current Assets Noncurrent Assets

1,300,000 2,000,000

Total Liabilities A, Capital B, Capital C, Capital

300,000 1,400,000 700,000 900,000

On January 1, 2019, D is itted to the partnership by investing P1,000,000 to the partnership for 20% capital interest. If the all the assets of the existing partnership are properly valued, what is the capital balance of C after the ission of D? A. 960,000 B. 900,000 C. 840,000 D. 1,200,000

Numbers 12 and 13 (ission of new partner by investment) On December 31, 2018, the Statement of Financial Position of ABC Partnership provided the following data with profit or loss ratio of 5:1:4: Current Assets Noncurrent Assets

1,500,000 2,000,000

Total Liabilities A, Capital B, Capital C, Capital

500,000 1,100,000 1,200,000 700,000

On January 1, 2019, D is itted to the partnership by investing P500,000 to the partnership for 10% capital interest. The total agreed capitalization of the new partnership is P3,000,000. 12. What is the capital balance of D after his ission to the partnership? A. B. C. D.

500,000 300,000 350,000 400,000

13. What is the capital balance of C after the ission of D to the partnership? A. B. C. D.

580,000 820,000 500,000 780,000

Page 5 Numbers 14 and 15 (Partnership Liquidation – Lump Sum Liquidation) On December 31, 2018, the Statement of Financial Position of ABC Partnership with profit or loss ratio of 6:1:3 of partners A, B and C respectively, revealed the following data: Cash Receivable from A Other noncash assets

1,000,000 500,000 2,000,000

Other Liabilities 2,000,000 Payable to B 1,000,000 Payable to C 100,000 A, Capital 700,000 B, Capital (650,000) C, Capital 350,000 On January 1, 2019, the partners decided to liquidate the partnership. All partners are legally declared to be personally insolvent. The other noncash assets were sold for P1,500,000. Liquidation expenses amounting to P100,000 were incurred. 14. How much cash was received by B at the end of partnership liquidation? A. B. C. D.

250,000 150,000 290,000 270,000

15. How much cash was received by C at the end of partnership liquidation? A. B. C. D.

270,000 150,000 350,000 220,000

Page 6

Numbers 16, 17 and 18 (Partnership Liquidation – Installment Liquidation) On December 31, 2018, the Statement of Financial Position of ABC Partnership with profit or loss ratio of 5:3:2 of respective partners A, B and C. showed the following information: Cash Noncash assets

1,600,000 1,400,000

Total Liabilities A, Capital B, Capital C, Capital

2,000,000 100,000 500,000 400,000

On January 1, 2019, the partners decided to liquidate the partnership in installment. All partners are legally declared to be personally insolvent. As of January 31, 2019, the following transactions occurred:     

Noncash assets with a carrying amount P1,000,000 were sold at a gain of P100,000. Liquidation expenses for the month of January amounting to P50,000 were paid. It is estimated that liquidation expenses amounting to P150,000 will be incurred for the month of February, 2019. 20% of the liabilities to third persons were settled. Available cash was distributed to the partners.

As of February 28, 2019, the following transactions occurred:    

Remaining noncash assets were sold at a loss of P100,000. The final liquidation expenses for the month of February amounted to P100,000. The remaining liabilities to third persons were settled at a compromise amount of P1,500,000. Remaining cash was finally distributed to the partners.

16. What is the amount of cash received by partner C on January 31, 2019? A. B. C. D.

260,000 240,000 300,000 350,000

17. What is the share of B in the maximum possible loss on January 31, 2019? A. B. C. D.

275,000 110,000 120,000 165,000

18. What is the amount of total cash withheld on January 31, 2019? A. 550,000 B. 1,600,000 C. 1,750,000 D. 1,700,000

Page 7

Numbers 19, 20 and 21

(Corporate Liquidation)

Cagayan Company is experiencing financial problems which resulted to ultimate bankruptcy. The statement of financial position of the entity before liquidation is presented below: Cash Inventory Land

 

100,000 300,000 200,000

Income tax payable Salaries payable Note payable Mortgage payable s payable Contributed capital Deficit

200,000 300,000 800,000 100,000 400,000 500,000 (1,700,000)

The note payable is secured by the inventory with net realizable value of P250,000. The mortgage payable is secured by the land with fair value of P120,000.

19. What is the amount received by the holder of the note payable at the end of corporate liquidation? A. B. C. D.

320,000 300,000 250,000 260,000

20. What is the amount received by the holder of the mortgage payable at the end of corporate liquidation? A. B. C. D.

120,000 200,000 150,000 100,000

21. What is the amount received by the employees at the end of corporate liquidation concerning their salaries? A. B. C. D.

100,000 120,000 72,000 300,000

Page 8

Numbers 22 and 23 (Corporate Liquidation) Surigao Company is bankrupt and has undergone corporate liquidation. Presented below is its statement of financial position before the start of liquidation: Cash Machinery Building

   

300,000 500,000 1,200,000

s Payable Salaries Payable Income tax Payable Loan Payable Mortgage payable Contributed capital Deficit

100,000 200,000 300,000 400,000 500,000 800,000 (300,000)

Liquidation expenses amounting to P600,000 were paid. The loan payable is secured by the machinery with fair value of P300,000. The mortgage payable is secured by the building. At the end of liquidation, the holder of loan payable received P340,000.

22. What is the amount received by the holder of s payable at the end of liquidation? A. B. C. D.

85,000 15,000 40,000 60,000

23. What is the amount of net free assets available at the end of liquidation? A. 80,000 B. 40,000 C. 120,000 D. 200,000

Page 9

Numbers 24, 25 and 26 (t Arrangement classified as t Operation) Entity A and Entity B incorporated Entity C to manufacture a microchip to be used by the incorporating entities as component for their final products of cellular phones and tablets. The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will require the unanimous consent of both entities. Entity A and Entity B have rights to the assets, and obligations for the liabilities, relating to the arrangement. The ordinary shares of Entity C will be owned by Entity A and Entity B in the ratio of 60:40. At the end of first operation of Entity C, the financial statements provided the following data: Inventory Land Building

1,000,000 3,000,000 5,000,000

s payable Note payable Loan payable Share capital Retained earnings Sales revenue

2,000,000 1,000,000 4,000,000 1,000,000 1,000,000 5,000,000

The contractual agreement of Entity A and Entity B also provided for the following concerning the assets and liabilities of Entity C: 

Entity A owns the land and incurs the loan payable of Entity C.



Entity B owns the building and incurs the note payable of Entity C.



The other assets and liabilities are owned or owed by Entity A and Entity B on the basis of their capital interest in Entity C.



The sales revenue of Entity C includes sales to Entity A and Entity B in the amount of P1,000,000 and P2,000,000, respectively. As of the end of the first year, Entity A and Entity B were able to resell 30% and 60% of the inventory coming from Entity C to third persons.

24. What is the amount of total assets to be reported by Entity A concerning its interest in Entity C? A. B. C. D.

5,400,000 3,000,000 3,600,000 5,000,000

25. What is the amount of total liabilities to be reported by Entity B concerning its interest in Entity C? A. B. C. D.

1,800,000 2,200,000 2,800,000 2,400,000

26. What is the amount of sales revenue to be reported by Entity A concerning its interest in Entity C? A. B. C. D.

2,300,000 2,100,000 3,000,000 2,500,000

Page

10

Numbers 27 and 28 (t Arrangement classified as t Venture Equity Method) On January 1, 2018, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C which has its fiscal and operational autonomy. The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will require the unanimous consent of both entities. Entity A and Entity B will have rights to the net assets of Entity C. Entity A and Entity B invested P1,000,000 and P1,500,000, respectively, equivalent to 40:60 capital interest of Entity C. The financial statements of Entity C provided the following data for its two-year operation: Net income (loss) 2018 2019

200,000 (2,000,000)

Dividends declared 100,000 -

27. What is the balance of Investment in Entity C to be reported by Entity A in its Statement of Financial Position on December 31, 2019? A. 1,080,000 B. 1,040,000 C. 240,000 D. 200,000 28. What is the balance of Investment in Entity C to be reported by Entity B in its Statement of Financial Position on December 31, 2019? A. 1,500,000 B. 1,620,000 C. 360,000 D. 900,000

Page 11

Numbers 29 and 30 (t venture - Intercompany Transaction) On January 1, 2018, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C by investing P3,000,000 and P2,000,000 for capital interest ratio of 60:40. The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will require the unanimous consent of both entities. Entity A and Entity B will have rights to the net assets of Entity C. The financial statements of Entity C provided the following data for 2018: 

Entity C reported net income of P1,000,000 for 2018 and paid cash dividends of P400,000 on December 31, 2018.



During 2018, Entity C sold inventory to Entity A with gross profit of P50,000. Eighty percent of those inventories were resold by Entity A to third persons during 2018 and the remainder was resold to third persons during 2019.



On July 1, 2018, Entity C sold a machinery to Entity B at a loss of P20,000. At the time of sale, the machinery has remaining useful life of 2 years.

29. What is the investment income to be reported by Entity A for the year ended December 31, 2018? A. B. C. D.

603,000 606,000 594,000 597,000

30. What is the balance of Investment in Entity C to be reported by Entity B on December 31, 2018? A. B. C. D.

2,242,000 2,241,000 2,238,000 2,248,000

Page 12

Numbers 31 and 32 t Venture – IFRS for SMEs (Fair Value Model or Equity Method) On January 1, 2018, Entity A and Entity B, both SMEs, incorporated Entity C, a tly controlled entity by investing P500,000 each in exchange for 10,000 ordinary shares each of Entity C. Entity A and Entity B each incurred P20,000 transaction costs. The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will require the unanimous consent of both entities. Entity A and Entity B will have rights to the net assets of Entity C. For the year ended December 31, 2018, Entity C reported net income of P100,000 and declared dividends in the amount of P30,000. On December 31, 2018, the ordinary shares of Entity C are quoted at P56. 31. If Entity A elected fair value model to its investment in Entity C, what is the net effect on Entity A’s profit or loss for the year ended December 31, 2018? A. B. C. D.

55,000 net profit 60,000 net profit 15,000 net profit 40,000 net profit

32. If Entity B elected equity method to its investment in Entity C, what is the carrying amount of Entity B’s Investment in Entity C on December 31, 2018? A. B. C. D.

520,000 540,000 535,000 555,000

Numbers 33 and 34 t Venture – IFRS for SMEs (Cost Method or Equity Method) On January 1, 2018, Entity A and Entity B, both SMEs, incorporated Entity C, a tly controlled entity by investing P200,000 each in exchange for 20,000 ordinary shares each of Entity C. Entity A and Entity B each incurred P10,000 transaction costs. The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will require the unanimous consent of both entities. Entity A and Entity B will have rights to the net assets of Entity C. For the year ended December 31, 2018, Entity C reported net income of P50,000 and declared dividends in the amount of P10,000. On December 31, 2018, the investment in Entity C has value in use of P215,000. 33. If Entity A elected cost method to its Investment in Entity C, what is the carrying amount of Entity A’s Investment in Entity C on December 31, 2018? A. B. C. D.

210,000 215,000 230,000 200,000

34. If Entity B elected equity method to its Investment in Entity C, what is the net effect in Entity B’s profit or loss for the year ended December 31, 2018? A. 25,000 net profit B. 5,000 net profit C. 10,000 net profit D. 15,000 net profit Page 13

Number 35 (Installment sales) Nikko Company, which began operations on January 5, 2018, appropriately uses the installment method of revenue recognition. The following information pertains to the operations for 2018 and 2019:

Sales Collections from : 2018 sales 2019 sales s written off from 2018 sales 2019 sales Gross profit rates

2018

2019

300,000

450,000

100,000

50,000

-

150,000

25,000

75,000

-

150,000

30%

40%

What amount should be reported as deferred gross profit on December 31, 2019? A. 75,000 B. 80,000 C. 112,000 D. 125,000

Numbers 36 and 37 ( Installment sales) Appliance Company reports gross profit on the installment basis. The following data are available:

Installment sales Cost of goods – installment sales Gross profit

2018

2019

2020

240,000 180,000 60,000

250,000 181,250 68,750

300,000 216,000 84,000

45,000

75,000 47,500

72,500 80,000 62,500

12,500 6,500

15,000 6,000 16,000 9,000

Collections 2018 installment contracts 2019 installment contracts 2020 installment contracts Defaults Unpaid balance of 2018 installment contracts Value assigned to repossessed merchandise Unpaid balance of 2019 installment contracts Value assigned to repossessed merchandise 36. What is the realized gross profit before loss on repossession for 2020? A. B. C. D.

49,775 57,625 48,975 56,625

1. What is the loss on repossession for 2020? A. B. C. D.

5,250 2,600 7,850 9,000

Page 14 Number 38 (Installment sales) Davao Company uses the installment method of income recognition. The entity provided the following pertinent data:

Installment sales Cost of goods sold Balance of Deferred Gross Profit at Year end 2018 2019 2020

2018

2019

2020

300,000 225,000

375,000 285,000

360,000 252,000

52,500

15,000 54,000

9,000 72,000

What is the total balance of the Installment s Receivable on December 31, 2020? A. B. C. D.

270,000 277,500 279,000 300,000

Numbers 39 and 40

(Installment Sales)

On January 1, 2018, an entity sold a car to a customer at a price of P400,000 with a production cost of P300,000. It is the entity’s policy to employ installment method to recognize gross profit from installment sales. At the time of sale, the entity received cash amounting to 25% of the selling price and old car with trade-in allowance of P50,000. The said old car has fair value of P150,000. The customer issued a 5-year note for the balance to be payable in equal annual installments every December 31 starting 2018. The note payable is interest bearing with 10% rate due on the remaining balance of the note. The customer was able to pay the first annual installment and corresponding interest due. However, after the payment of the second interest due, the customer defaulted on the second annual installment which resulted to the repossession of the car sold with appraised value of P110,000. On December 31, 2019, the repossessed car was resold for P140,000 after reconditioning cost of P10,000. 39. What is the entity’s realized gross profit for the year ended December 31, 2018? A. 50,000 B. 120,000 C. 108,000 D. 128,000 40. What is the loss on repossession for the year ended December 31, 2019? A. B. C. D.

30,000 20,000 10,000 40,000

Page 15 Numbers 41, 42 and 43 (Revenue Recognition – Franchise Fees) On January 1, 2018, an entity granted a franchise to a franchisee. The franchise agreement required the franchisee to pay a nonrefundable upfront fee in the amount of P400,000 and on-going payment of royalties equivalent to 5% of the sales of the franchisee. The franchisee paid the nonrefundable upfront fee on January 1, 2018. In relation to the nonrefundable upfront fee, the franchise agreement required the entity to render the following performance obligations: 

To construct the franchisee’s stall with stand-alone selling price of P200,000.



To deliver 10,000 units of raw materials to the franchisee with stand-alone selling price of P250,000.



To allow the franchisee to use the entity tradename for a period of 10 years starting January 1, 2018 with stand-alone selling price of P50,000.

On June 30, 2018, the entity completed the construction of the franchisee’s stall. On December 31, 2018, the entity was able to deliver 3,000 units of raw materials to the franchisee. For the year ended December 31, 2018, the franchisee reported sales revenue amounting to P100,000. The entity had determined that the performance obligations are separate and distinct from one another. 41. What is the amount of nonrefundable upfront fee to be allocated to the construction of the franchisee’s stall? A. B. C. D.

200,000 160,000 250,000 120,000

42. What is the amount of revenue to be recognized in relation to the use of delivery of raw materials for the year ended December 31, 2018? A. 100,000 B. 200,000 C. 60,000 D. 75,000 43. What is the amount of revenue to be recognized in relation to the use of entity’s tradename for the year ended December 31, 2018? A. 5,000 B. 4,000 C. 50,000 D. 10,000

Page 16 Numbers 44 and 45 (Revenue Recognition – Net Income of Franchisor) On January 1, 2018, an entity granted a franchise agreement to a franchisee. The contract provided that the franchisee shall pay an initial franchise fee of P500,000 and on-going payment of royalties equivalent to 8% of the sales of the franchisee. On January 1, 2018, the franchisee paid downpayment of P200,000 and issued a 3-year noninterest bearing note for the balance payable in three equal annual installments starting December 31, 2018. The note has present value of P240,183 with effective interest rate of 12%. On June 30, 2018, the entity completed the performance obligation of the franchise at a cost of P352,146. Aside from that, the entity incurred indirect cost of P22,009. The franchisee started operation on July 1, 2018 and reported sales revenue amounting to P50,000 for the year ended December 31, 2018. The franchisee paid the first installment on its due date. 44. If the collection of the note receivable is reasonably assured, what is the gross profit to be recognized by the entity for the year ended December 31, 2018 in relation to the initial franchise fee? A. B. C. D.

66,028 44,014 22,009 88,037

45. If the collection of the note receivable is reasonably assured, what is the net income to be reported by the entity for the year ended December 31, 2018? A. B. C. D.

98,850 94,850 70,028 92,037

Page 17 Numbers 46, 47 and 48 (Construction contract - Percentage of Completion Method) On January 1, 2018, Solid Company accepted a long-term construction project for an initial contract price of P1,000,000 to be completed on June 30, 2020. On January 1, 2019, the contract price was increased to P1,500,000 by reason of change in the design of the project. The outcome of the construction contract can be estimated reliably. The project was completed on December 31, 2020 which resulted to penalty amounting to P200,000. The entity provided the following data concerning the direct costs related to the said project for 2018 and 2019:

Costs during the year Remaining estimated costs to complete at year-end

46. What is the construction revenue for the year ended December 31, 2018? A. B. C. D.

340,000 400,000 440,000 360,000

47. What is the realized gross profit for the year ended December 31, 2019? A. 200,000 B. 80,000 C. 180,000 D. 100,000 48. What is the balance of construction in progress on December 31, 2019? A. 1,200,000 B. 1,020,000 C. 1,120,000 D. 900,000

2018

2019

440,000 660,000

680,000 280,000

Page 18 Numbers 49, 50 and 51 (Construction contract - Cost Recovery Method) On January 1, 2018, Hardrock Company started the construction of a building at a fixed contract price of P1,000,000. On the same date, the customer paid a mobilization fee equal to 5% of contract price that will be deductible from the first billing. The outcome of construction contract cannot be estimated reliably During 2018, the entity billed the customer equivalent to 30% of the contract price. During 2019, the entity billed again the customer amounting to 20% of the contract price. During 2020, the entity billed again the customer amounting to 40% of the contract price. The remaining billing was made at the year of completion of the project. The entity made collection from the customer at the end of 2018, 2019 and 2020, in the amount of P120,000, P450,000 and P180,000, respectively. The entity provided the following data concerning the direct costs related to the said project:

Cumulative costs incurred at year-end Remaining estimated costs to complete at year-end

2018

2019

2020

360,000 840,000

800,000 250,000

870,000 50,000

49. What is the realized gross profit for the year ended December 31, 2019? A. 50,000 B. 200,000 C. 150,000 D. 0 50. What is the excess of construction in progress over progress billings or excess of progress billings over construction in progress on December 31, 2020? A. B. C. D.

30,000 excess billings 80,000 excess billings 20,000 excess construction in progress 50,000 excess construction in progress

51. What is the balance of s receivable on December 31, 2020? A. 150,000 B. 100,000 C. 120,000 D. 50,000

Page 19 Numbers 52, 53 and 54

(Home Office, Branch and Agency Transactions)

Siargao Company set up a branch in a province. The entity and its branch provided the following data for the second year of branch operation:

Sales revenue to outside customer Beginning inventory Purchases from outside supplier Shipment to branch Shipment from home office Ending inventory Operating expenses

Home Office

Branch

1,000,000 50,000 400,000 200,000

500,000 30,000 100,000

80,000 150,000

250,000 50,000 40,000



The home office to branch markup based on cost is 25% this year and last year.



20% of the beginning inventory of the branch came from outside supplier.



24% of the ending inventory of the branch came from the last year’s shipment from the home office while 50% of the ending inventory of the branch came from current year’s shipment from the home office.

52. What is the net income reported by the branch in its separate income statement for the current year? A. 130,000 B. 124,000 C. 114,000 D. 95,000 53. What is the ending inventory to be reported by the entity in its combined statement of financial position? A. B. C. D.

128,000 115,000 130,000 122,600

54. What is the overstatement in the cost of goods sold reported by the branch in its separate income statement for the current year? A. B. C. D.

54,000 50,000 52,000 47,400

Page 20 Number 55 (Home office and branch) The home office in Quezon City ships and bills merchandise to its provincial branch at cost. The branch carries its own s receivable and makes its own collections. The branch also pays its expenses. The branch transactions for 2018 are reflected in the following information: Cash s receivable Home Office Shipments from Home Office Sales Expenses December 31, 2018 inventory

20,000 80,000 180,000 250,000 225,500 55,500 65,000

What is the balance of the Investment in Branch in the home office book? A. B. C. D.

180,000 195,000 165,000 175,000

Numbers 56 and 57 (Home office and branch) Coffee Company decided to open a branch in Manila. Shipments of merchandise to the branch totaled P54,000 which included a 20% markup on cost. All ing records are kept at the home office. The branch submitted the following report summarizing the operations for the year ended December 31, 2018: Sales on Sales on cash basis Collections of s receivable Expenses paid Expenses unpaid Purchase of merchandise for cash Inventory on hand, December 31; 80% from home office Remittance to home office 56. What is the branch inventory on December 31, 2018 at cost? A. B. C. D.

25,000 20,000 26,000 10,000

57. What is the branch net income for the current year? A. 1,000 B. 4,000 C. 800 D. 500

74,000 22,000 60,000 38,000 12,000 26,000 30,000 55,000

Page 21 Numbers 58, 59, 60 and 61 (Business Combination - Acquisition of Net Assets) Entity A acquired the net assets of Entity B by issuing 10,000 ordinary shares with par value of P10 and bonds payable with face amount of P500,000. The bonds are classified as financial liability at amortized cost. At the time of acquisition, the ordinary shares are publicly quoted at P20 per share. On the other hand, the bonds payable are trading at 110. Entity A paid P10,000 share issuance costs and P20,000 bond issue costs. Entity A also paid P40,000 acquisition related costs and P30,000 indirect costs of business combination. Before the date of acquisition, Entity A and Entity B reported the following data:

Current assets Noncurrent assets Current liabilities Noncurrent liabilities Ordinary shares Share Retained earnings

Entity A

Entity B

1,000,000 2,000,000 200,000 300,000 500,000 1,200,000 800,000

500,000 1,000,000 400,000 500,000 200,000 300,000 100,000

At the time of acquisition, the current assets of Entity A have fair value of P1,200,000 while the noncurrent assets of Entity B have fair value of P1,300,000. On the same date, the current liabilities of Entity B have fair value of P600,000 while the noncurrent liabilities of Entity A have fair value of P500,000. 58. What is the goodwill or gain on bargain purchase arising from business combination? A. 50,000 goodwill B. 150,000 gain on bargain purchase C. 120,000 goodwill D. 70,000 gain on bargain purchase 59. What total amount should be expensed as incurred at the time of business combination? A. B. C. D.

20,000 70,000 30,000 50,000

60. What is Entity A’s amount of total assets after the business combination? A. B. C. D.

4,520,000 4,810,000 4,750,000 4,440,000

61. What is Entity A’s amount of total liabilities after the business combination? A. B. C. D.

2,240,000 2,510,000 2,320,000 2,130,000

Page 22 Numbers 62 and 63 (Business Combination – Acquisition of majority shares) Entity A acquired 80,000 out of 100,000 outstanding ordinary shares of Entity B which enabled the former to obtain control of the latter at an acquisition price of P1,000,000. Entity A paid P100,000 acquisition related costs and P50,000 indirect costs of business combination. At the date of acquisition, the net assets of Entity B are reported at P1,600,000. An asset of Entity B is overvalued by P60,000 while one liability is undervalued by P40,000. 62. What is the initial measurement of noncontrolling interest in net assets in the consolidated statement of financial position? A. B. C. D.

320,000 300,000 250,000 316,000

63. What is the goodwill or gain on bargain purchase arising from business combination? A. 250,000 gain on bargain purchase B. 150,000 gain on bargain purchase C. 50,000 goodwill D. 200,000 gain on bargain purchase Numbers 64 and 65 (Step Acquisition) On January 1, 2018, Entity A acquired 30,000 out of 100,000 outstanding ordinary shares of Entity B for P90,000 or 30% interest. For the six months ended June 30, 2018, Entity B reported net income of P40,000. On July 1, 2018, Entity A acquired additional 60,000 ordinary shares of Entity B or 60% interest at a price of P4 per share or total cost of P240,000. Entity A paid P20,000 acquisition related costs and P10,000 indirect costs of business combination. The acquisition price per share of the additional shares clearly reflected the fair value of the existing interest of Entity A in Entity B. It is the policy of Entity A to initially measure the noncontrolling interest in net assets of the acquiree at fair value. The fair value of the noncontrolling interest in net assets of the acquiree is reliably measured at P50,000. At the acquisition date, the net assets of Entity B were reported at P400,000. An asset of Entity B was overvalued by P50,000 while one liability wass overvalued by P30,000. 64. What is the gain on remeasurement of the existing Investment in Entity B as a result of step acquisition? A. B. C. D.

18,000 30,000 24,000 12,000

65. What is the goodwill or gain on bargain purchase as a result of the business combination? A. B. C. D.

18,000 goodwill 20,000 gain on bargain purchase 24,000 goodwill 30,000 goodwill

Page 23 Numbers 66, 67 and 68 (Consolidated Financial Statements) On January 1, 2018, Entity A acquired 70% of outstanding ordinary shares of Entity B at a price of P210,000. On the same date, the net assets of Entity B were reported at P260,000. On January 1, 2018 Entity A reported retained earnings of P2,000,000 while Entity B reported retained earnings of P200,000. All the assets and liabilities of Entity B are fairly valued except machinery which is undervalued by P80,000 and inventory which is overvalued by P10,000. The said machinery has remaining useful life of four years while 40% of the said inventory remained unsold at the end of 2018. For the year ended December 31, 2018, Entity A reported net income of P1,000,000 and declared dividends of P200,000 in the separate financial statements while Entity B reported net income of P150,000 and declared dividends of P20,000 in the separate financial statements. Entity A ed the investment in Entity B using cost method in the separate financial statements. 66. What is the noncontrolling interest in net assets on December 31, 2018? A. B. C. D.

124,800 130,200 126,000 133,800

67. What is the consolidated net income attributable to parent shareholders for the year ended December 31, 2018? A. B. C. D.

1,102,200 1,162,200 1,141,200 1,095,200

68. What is the amount of consolidated retained earnings on December 31, 2018? A. B. C. D.

3,012,200 2,991,200 2,952,200 2,945,200

Page 24 Numbers 69, 70, 71 and 72 (Consolidated Financial Statements - Intercompany sales) On January 1, 2019, Entity A acquired 60% of outstanding ordinary shares of Entity B at a gain on bargain purchase of P40,000. For the year ended December 31, 2020, Entity A and Entity B reported sales revenue of P2,000,000 and P1,000,000 in their respective separate income statements. At the same year, Entity A and Entity B reported cost of goods sold of P1,200,000 and P700,000 in their respective separate income statements. During 2019, Entity A sold inventory to Entity B at a selling price of P280,000 with gross profit rate of 40% based on cost. On the other hand, Entity B sold inventory to Entity A at a selling price of P400,000 with gross profit rate of 30% based on sales during 2020. On December 31, 2019, 25% of the goods coming from Entity A remained in Entity B’s inventory but all were eventually sold to third persons during 2020. As of December 31, 2020, 40% of the goods coming from Entity B were eventually sold to third persons. For the year ended December 31, 2020, Entity A reported net income of P500,000 while Entity B reported net income of P200,000 and distributed dividends of P50,000. Entity A ed for its inventory in Entity B using cost method in its separate financial statements. 69.

What is the consolidated sales revenue for the year ended December 31, 2020? A. B. C. D.

2,600,000 2,320,000 3,000,000 2,720,000

70. What is the consolidated gross profit for the year ended December 31, 2020? A. B. C. D.

1,120,000 1,048,000 1,028,000 1,152,000

71. What is the noncontrolling interest in net income for the year ended December 31, 2020? A. 100,800 B. 59,200 C. 51,200 D. 88,000 72.

What is the consolidated net income attributable to parent’s shareholders for the year ended December 31, 2020? A. B. C. D.

766,800 596,800 606,800 626,800

Page 25 Numbers 73, 74, 75 and 76 (Consolidated Statements-Intercompany gain or loss on disposal) On January 1, 2019, Entity A acquired 80% of outstanding ordinary shares of Entity B at a gain on bargain purchase of P180,000. The following intercompany transactions occurred for between the two entities: 

On January 1, 2019, Entity B sold a land to Entity A with a cost of P1,000,000 at a selling price of P1,100,000. The land was eventually sold by Entity A to third persons during 2020.



On January 1, 2019, Entity A sold a white machinery to Entity B with a cost of P200,000 and accumulated depreciation of P40,000 at a selling price of P180,000. The machinery is already 4 years old at the date of sale. The residual value of white machinery is immaterial.



On July 1, 2020, Entity B sold a black machinery to Entity A at with a cost of P270,000 and accumulated depreciation of P180,000 at a selling price of P60,000. The machinery is already 6 years old at the date of sale. The residual value of black machinery is immaterial.

For the year ended December 31, 2020, Entity A reported net income of P800,000 while Entity B reported net income of P500,000 and distributed dividends of P150,000. Entity A ed for its inventory in Entity B using cost method in its separate financial statements. 73.

What is the consolidated depreciation expense of machinery for 2020? A. B. C. D.

40,000 55,000 61,667 42,333

74. What is the consolidated carrying amount of machinery on December 31, 2020? A. B. C. D.

225,000 215,000 200,000 210,000

75. What is the noncontrolling interest in net income for 2020? A. B. C. D. 76.

124,000 105,000 125,000 104,000

What is the consolidated net income attributable to parent shareholders for 2020? A. B. C. D.

1,538,750 1,518,750 1,398,750 1,418,750

Page 26 Separate Financial Statements - Cost Method and Fair Value Model or Equity Method Numbers 77, 78, 79 and 80 On January 1, 2020, Entity A acquired 90% of outstanding ordinary shares of Entity B at a price of P900,000. Entity A paid P20,000 costs related to acquisition of shares. At the acquisition date, the net assets of Entity B were reported at P950,000. All the assets of Entity B are properly valued except for a machinery which is undervalued by P150,000. The machinery has a remaining useful life of 5 years. For the year ended December 31, 2020, Entity B reported net income of P200,000 and declared dividends in the amount of P30,000. The fair value of Investment in Entity B on December 31, 2020 is P1,000,000 while the cost of disposal is 5%. Entity A voluntarily prepared its separate financial statements. 77.

If Entity A elects cost method to its Investment in Entity B in its separate financial statements, what is the carrying amount of the Investment in Entity B on December 31, 2020? A. 900,000 B. 920,000 C. 1,000,000 D. 950,000

78.

What is the investment income for 2020 if Entity A elects cost method to its Investment in Entity B in its separate financial statements? A. 7,000 B. 27,000 C. 180,000 D. 107,000

79.

If Entity A elects fair value model to its Investment in Entity B in its separate financial statements, what is the carrying amount of the Investment in Entity B on December 31, 2020? A. 900,000 B. 920,000 C. 1,000,000 D. 950,000

80.

What is the net effect in profit or loss for 2020 if Entity A elects fair value model to its Investment in Entity B in its separate financial statements? A. 7,000 B. 27,000 C. 180,000 D. 107,000

Page 27

Numbers 81, 82 and 83 (Nonprofit Organization – Statement of Financial Position) In the first year of operations of a nonprofit organization, the following transactions occurred: 

The nonprofit organization received P1,000,000 fund from a donor who stipulated that it shall be invested indefinitely and the dividend from such investment shall be used for research project of the organization. Dividend amounting to P150,000 was received during the year but only P50,000 was spent for the research project.



The nonprofit organization received P300,000 fund from a donor who stipulated that it shall be used for the acquisition of service car. The nonprofit organization used P100,000 of the fund for the acquisition of a service car with useful life of 5 years. The car was acquired at the middle of the year.



The nonprofit organization received P500,000 fund who stipulated that it shall be used based on the discretion of the Board of Trustees of the nonprofit organization. The nonprofit organization used P100,000 for the acquisition of souvenir items which were sold by the nonprofit organization for P150,000. The remaining P400,000 was designated by the Board of Trustees for future fundraising projects.

81. What is the amount of permanently restricted net assets at the end of the first year? A. B. C. D.

1,100,000 1,300,000 1,200,000 1,000,000

82. What is the amount of temporarily restricted net assets at the end of the year? A. B. C. D.

100,000 300,000 200,000 700,000

83. What is the amount of unrestricted net assets at the end of the year? A. B. C. D.

640,000 540,000 590,000 630,000

Page 28 Nonprofit Organization – Statement of Activities and Statement of Cash Flows Numbers 84, 85, 86 and 87 On January 1, 2020, a nonprofit organization received P1,000,000 cash donation from a donor who stipulated that the amount should be invested indefinitely in revenue producing investment. The deed of donation also provided that the dividend income shall be used for the acquisition of computers of the nonprofit organization. On December 31, 2020, the nonprofit organization received P100,000 cash as dividend income from the investment of the fund. On January 1, 2021, the nonprofit organization acquired a computer at a cost of P20,000 with a useful life of 5 years without residual value. 84.

In the statement of activities of the NPO for the year ended December 31, 2020, which of the following is the proper effect of the transactions? A. B. C. D.

85.

In the statement of activities of the NPO for the year ended December 31, 2021, which of the following is the proper effect of the transactions? A. B. C. D.

86.

Increase in temporarily restricted net assets by P100,000. Increase in unrestricted net assets by P1,000,000. Increase in unrestricted net assets by P16,000. Decrease in temporarily restricted net assets by P100,000.

How should the cash flows be reported in NPO’s Statement of Cash Flows for the year ended December 31, 2020? A. B. C. D.

87.

Increase in temporarily restricted net assets by P100,000. Increase in unrestricted net assets by P1,000,000. Increase in unrestricted net assets by P16,000. Decrease in temporarily restricted net assets by P20,000.

Cash receipts from operating activities by P100,000. Cash receipts from financing activities by P1,100,000. Cash disbursements for investing activities by P50,000. Cash disbursements for financing activities by P1,000,000

How should the cash flows be reported in NPO’s Statement of Cash Flows for the year ended December 31, 2021? A. B. C. D.

Cash receipts from operating activities by P100,000. Cash receipts from financing activities by P1,100,000. Cash disbursements for investing activities by P20,000. Cash disbursements for investing activities by P100,000.

Page 29 Number 88 Government ing Manual On December 31, 2018, the Department of Finance billed its lessee on one of its buildings in the amount of P10,000. On January 31, 2019, the Department of Finance collected all of the s receivable. On February 28, 2019, the Department of Finance remitted the entire collected amount to the Bureau of Treasury. What is the journal entry to record the remittance by the Department of Finance to the Bureau of Treasury? A. Debit – s Receivable P10,000 and Credit – Rent Income P10,000 B. Debit – s Receivable P10,000 and Credit – Retained Earnings P10,000 C. Debit – Cash Collecting Officers P10,000 and Credit – s Receivable P10,000 D. Debit – Cash – Treasury/Agency Deposit, Regular – P10,000 and Credit Cash – Collecting Officer – P10,000 Numbers 89 and 90 On January 1, 2018, the Department of Public Works and Highways (DPWH) received a P10,000,000 appropriation from the national government for the acquisition of machinery. On February 1, 2018, DPWH received the allotment from the Department of Budget and Management. On March 1, 2018, DPWH entered into a contract with CAT Inc. for the acquisition of the machinery with a price of P8,000,000. On April 1, 2018, DPWH received the Notice of Cash Allocation from Department of Budget and Management net of 1% withholding tax for income tax of supplier and 5% withholding of Final Tax on VAT of supplier. On May 1, 2018, CAT Inc. delivered the machinery to DPWH. On June 1, 2018, DPWH paid the obligation to CAT Inc. On July 1, 2018, DPWH remitted the withheld income tax and final VAT to BIR. 89. What is the journal entry on March 1, 2018? A. No entry but just posting to appropriate RAPAL B. No entry but just posting to appropriate RAPAL and to RAOD C. No entry but just posting of ORS (Obligation Request and Status) to appropriate RAOD D. Debit Machinery P8,000,000 and credit s Payable P8,000,000 90. What is the journal entry on April 1, 2018? A. Debit Cash-MDS, Regular P7,520,000 and Credit Subsidy Income from National Government P7,520,000. B. Debit Machinery P8,000,000 and Credit s Payable P8,000,000 C. Debit s Payable P8,000,000 and Credit Due to BIR P480,000 and Cash-MDS, Regular P7,520,000. D. Debit Due to BIR P480,000 and Credit Subsidy Income from National Government P480,000. Number 91 Department of Health (DOH) received Notice of Cash Allocation in the amount of P100,000 from Department of Budget and Management. DOH made a total cash disbursements in the amount of P95,000. What is the journal entry to recognize reversion of unused Notice of Cash Allocation by DOH in its books? A. Debit Subsidy Income from National Government P5,000 and credit Cash-MDS, Regular P5,000. B. Debit Retained Earnings of DFA P5,000 and credit Cash-MDS, Regular P5,000. C. Debit Expenses of DFA P5,000 and credit Cash-MDS, Regular P5,000. D. Debit Investment of DFA P5,000 and credit Cash-MDS, Regular P5,000. Number 92 The Bureau of Treasury received P20,000 cash remittance from Department of Agrarian Reform (DAR) from its miscellaneous income. What is the journal entry of the Bureau of Treasury in its ing books to record the receipt of cash remittance from the income of a national government agency? A. Debit Cash in Bank, Local Bank P20,000 and Credit Cash-Treasury/Agency Deposit, Regular P20,000. B. Debit Cash in Bank, Local Bank P20,000 and Credit Miscellaneous Income of DA P20,000. C. Debit Cash in Bank, Local Bank P20,000 and Credit Savings of DA, Regular P20,000.

D. Debit Cash in Bank, Local Bank P20,000 and Credit Cash-Collecting Officer, DA P20,000. Page 30 Number 93 (Foreign currency transaction) On September 1, 2018, Bain Company received an order for equipment from a foreign customer for 300,000 local currency units (LCU) when the US dollar equivalent was $96,000. Bain shipped the equipment on October 15, 2018, and billed the customer for 300,000 LCU when the US dollar equivalent was $100,000. Bain received the customer remittance in full on November 16, 2018, and sold the 300,000 LCU for $105,000. In the income statement for the year ended December 31, 2018, what amount should Bain report as part of net income a foreign exchange transaction gain? A. B. C. D.

$ 0 $4,000 $5,000 $9,000

Number 94 (Foreign currency transaction) On September 1, 2018, Cano Company, a US corporation, sold merchandise to a foreign firm for 250,000Botswana pula. of the sale require payment in pula on February 1, 2019.. On September 1, 2018, the spot exchange rate was $.20 per pula. At December 31, 2018, Cano’s year-end, the spot rate was $.19, but the rate increased to $.22 by February 1, 2019, when payment was received. How much should Cano report as foreign exchange transaction gain or loss as part of 2019 income? A. B. C. D.

$ 0 $2,500 loss $5,000 gain $7,500 gain

Number 95 (Foreign currency transaction) Hunt Company purchased merchandise for £300,000 from a vendor in London on November 30, 2018. Payment in British pounds was due on January 30, 2019. The exchange rates to purchase one pound were as follows:

Spot-rate 30-day rate 60-day rate

November 30, 2018

December 31, 2018

$1.65 1.64 1.63

$1.62 1.59 1.56

In the income statement, what amount should Hunt report as foreign exchange transaction gain as part of net income? A. B. C. D.

$12,000 $ 9,000 $ 6,000 $ 0

Page 31 Number 96 (Foreign currency transaction) Ball Company had the following foreign currency transactions during 2018: 

Merchandise was purchased from a foreign supplier on January 20, 2018, for the US dollar equivalent of $90,000. The invoice was paid on March20, 2018, at the US dollar equivalent of $96,000.



On July 1, 2018, Ball borrowed the US dollar equivalent of $500,000 evidenced by a note payable in the lender’s local currency on July 1, 2020. On December 31, 2018, the US dollar equivalents of the principal amount and accrued interest were $520,000 and $26,000, respectively. Interest on the note is 10% per annum.

In Ball’s 2018 income statement, what amount should be included as foreign exchange transaction loss as part of net income? A. B. C. D.

$ 0 $ 6,000 $21,000 $27,000

Number 97 (Foreign currency transaction) On November 30, 2018, Tyrola Publishing Company, located in Colorado, executed a contract with Ernest Blyton, an author from Canada, providing for payment of 10% royalties on Canadian sales of Blyton’s book. Payment is to be made in Canadian dollars each January 10 for the previous year’s sales. Canadian sales of the book for the year ended December 31, 2019, totaled $50,000 Canadian. Tyrola paid Blyton his 2019 royalties on January 10, 2020. Tyrola’s 2019 financial statements were issued on February 1, 2020. Spot rates for Canadian dollars were as follows: November 30, 2018 January 1, 2019 December 31, 2019 January 10, 2020

$.87 $.88 $.89 $.90

How much should Tyrola accrue for royalties payable at December 31, 2019? A. B. C. D.

$4,350 $4.425 $4,450 $4,500

Page 32 Numbers 98, 99, 100 and 101 (Foreign Currency Transaction) On November 1, 2020, an entity acquired on goods from a foreign supplier at a cost of $1,000. The s payable are paid on January 30, 2021. On December 1, 2020, an entity sold on the said goods to a foreign customer at a selling price of $1,500. The s receivable are collected on February 28, 2021. The entity is operating in Philippine economy wherein the functional currency is the Philippine Peso. The following direct exchange rates are provided: Buying spot rate

Selling spot rate

P40 39 45

P42 40 47

November 1, 2020 December 1, 2020 December 31, 2020 98.

What is the sales revenue for 2020? A. B. C. D.

99.

58,500 60,000 67,500 72,000

What is the carrying amount of s receivable on December 31, 2020? A. B. C. D.

58,500 60,000 67,500 72,000

100. What is the carrying amount of s payable on December 31, 2020? A. B. C. D.

40,000 42,000 45,000 47,000

101. What is the net foreign currency gain for 2020? A. B. C. D.

4,000 5,000 3,000 6,000

Page 33 Translation of Financial Statements in Functional Currency to Presentation Currency Numbers 102, 103, 104 and 105 Entity A owns majority of the outstanding ordinary shares of Entity B which is operating in United States of America wherein the functional currency is the USA $. However, the presentation currency of Entity B is the Philippine Peso because that is the presentation currency of Entity A. For the year ended December 31, 2020, Entity B presented its Statement of Financial Position in its functional currency of USA $: Current assets Noncurrent assets

$10,000 40,000

Total Assets

$50,000

Current liabilities Noncurrent liabilities Ordinary share capital Preference share capital Retained earnings Total Liabilities and shareholders

$10,000 20,000 5,000 8,000 7,000 $50,000



The ordinary shares are issued on January 1, 2019 while the preference shares are issued on July 1, 2019.



B reported $1,000 net income during 2020 and declared dividends in the amount of $200 on December 1, 2020.



The translated amount of retained earnings on December 31, 2019 is P300,000.

The following direct exchange rates are provided: January 1, 2019 July 1, 2019 December 31, 2019 December 1, 2020 December 31, 2020 Average rate 2020

P40 42 43 41 45 44

102. What is the amount of net assets in US dollars on December 31, 2019? A. B. C. D.

19,200 20,000 19,000 20,200

103. What amount of translation gain as component of other comprehensive income should be presented in the of statement of comprehensive income for the year ended December 31, 2020? A. B. C. D.

38,600 39,200 40,400 41,800

104. What is the translated retained earnings balance on December 31, 2020? A. B. C. D.

300,000 335,800 344,000 281,800

105. What is the cumulative translation credit that should to be presented in the statement of financial position on December 31, 2020? A. 25,400 B. 28,200 C. 26,800

D. 24,600 Page 34 Numbers 106 and 107 (Standard Costing – Direct material variance) Negros Company recently set-up its standard costs for its direct materials. The entity sets the benchmark at 3 units of direct materials per product at a standard price of P5 per unit of direct material. During the year, the entity acquired 400 units of direct materials at a total cost of P2,400 or P6 per unit. The entity also manufactured 100 products using 250 units of direct materials. 106. What is the direct material price variance? A. B. C. D.

250 unfavorable 300 favorable 350 favorable 400 unfavorable

107. What is the direct material usage variance? A. B. C. D.

150 unfavorable 300 unfavorable 250 favorable 350 favorable

Numbers 108 and 109 (Standard costing - Direct labor variance) Bacolod Company recently set-up its standard costs for its direct labor. The entity sets the benchmark at 2 direct labor hours per product at a standard rate of P100 per direct labor hour. During the year, the entity manufactured 10 products using 30 direct labor hours at total direct labor costs of P2,400 or P80 per direct labor hour. 108. What is the direct labor rate variance? A. B. C. D.

600 favorable 400 unfavorable 200 favorable 800 unfavorable

109. What is the direct labor efficiency variance? A. 400 favorable B. 1,000 unfavorable C. 600 unfavorable D. 200 favorable

Page 35 Number 110 (Job Order Costing) Simple Company employs actual costing for its production. The entity provided the following data concerning its production during the year: Decrease in direct materials during the year Labor cost during the year Actual factory overhead during the year Increase in work in process during the year Decrease in finished goods during the year

500,000 400,000 300,000 200,000 100,000

What is the cost of goods manufactured during the year? A. B. C. D.

1,200,000 1,000,000 1,400,000 1,100,000

Numbers 111, 112 and 113 (Job order costing) Marawi Company employs normal costing for its production. The following data are provided during the current year: Net purchases of raw materials during the year Total labor costs during the year Depreciation of factory assets during the year Utilities on the factory during the year Raw materials inventory Work in process inventory Finished goods inventory    

500,000 800,000 100,000 300,000 Beginning

Ending

200,000 500,000 600,000

300,000 200,000 300,000

The entity uses a single for its direct material and indirect materials. Indirect material used is one-fourth of the total direct material used. The indirect labor cost is 1/8 of the total labor costs. The overhead application rate is 80% of direct labor costs. Any over or under application of overhead is considered material.

111. What is the total manufacturing cost during the current year? A. B. C. D.

1,560,000 1,500,000 1,640,000 1,740,000

112.What is the cost of goods manufactured during the current year? A. B. C. D.

2,040,000 1,860,000 1,940,000 1,800,000

113. What is the over or under application of overhead? A. 60,000 over application B. 140,000 under application C. 40,000 under application D. 160,000 over application

Page 36 Numbers 114, 115 and 116 (t Product and By-Product Costing) Silay Company is conducting a t production at a total costs of P500,000. The t production results to the following inventories:

Units produced Selling price at split off

Alt

Tab

Del

20,000 units P150

10,000 units P200

5,000 units P5

Alt and Tab are considered main products while Del is considered by-product. The entity considers its by-product as material. The by-product requires additional processing cost per unit of P0.80 and its cost of disposal is P0.20 per unit. 114. What is the value to be given to product Del? A. B. C. D.

25,000 21,000 24,000 20,000

115. What is the t cost allocated to product Alt if the entity employs physical method? A. B. C. D.

333,333 316,667 317,333 320,000

116. What is the t cost allocated to product Tab if the entity employs relative sales value method? A. B. C. D.

300,000 200,000 192,000 288,000

Page 37 Number 117 (Just-in-Time Inventory and Backflush Costing) Talisay Company is employing backflush costing in connection with just-in-time production process. The entity provided the following production data for the year:     

The entity acquired direct materials during the year at a cost of P100,000 The entity reported direct labor cost of P200,000. The actual factory overhead incurred during the year amounted to P170,000. The standard factory overhead application rate is 75% of direct labor cost. The ending finished goods inventory is reported at P120,000.

What is the cost of goods sold under backflush costing? A. B. C. D.

470,000 350,000 330,000 300,000

Numbers 118, 119 and 120 (Backflush costing) Panay Company has a cycle of 3 days, uses a Raw and In Process (RIP) and charges all conversion costs to cost of goods sold. At the end of each month, all inventories are counted, conversion costs components are estimated and inventory balances are adjusted. Raw material cost is backflushed from Raw and in Process (RIP) to finished goods. The following information is provided for the month of June: Beginning Balance of RIP , including P1,000 conversion cost Beginning Balance of finished goods including P6,000 conversion cost Raw materials received on credit Direct labor cost Factory overhead applied Ending RIP inventory per physical count, including P7,000 conversion cost Ending finished goods inventory per physical count, including P4,000 conversion cost

5,000 10,000 400,000 300,000 500,000 20,000 6,000

118.What is the amount of conversion cost included cost of goods sold in June? A. B. C. D.

802,000 796,000 794,000 800,000

119.What is the amount of direct materials backflushed from RIP to finished goods? A. B. C. D.

391,000 404,000 387,000 395,000

120. What is the amount of direct materials backflushed from finished goods to cost of goods sold? A. B. C. D.

395,000 400,000 393,000 389,000

Page 38 Numbers 121 and 122 (Activity Based Costing) Romblon Company is choosing between traditional costing and activity-based costing. The following data are provided: Activity-Based Costing Activity center

Cost driver

Amount of activity

Center cost

Material handling Painting Assembly

Kilos handled Units painted Machine hours

100,000 kg. 50,000 units 10,000 hours

200,000 300,000 500,000

Labor hours

100,000 hours

1,000,000

Traditional Costing Traditional

Job 1 contains 3,000 units. It weighs 10,000 kilos and uses 300 machine hours. The direct labor hours on the job total 7,000 hours. 121. What is the applied overhead under traditional costing? A. B. C. D.

70,000 60,000 80,000 50,000

122. What is the applied overhead under Activity Based Costing? A. B. C. D.

53,000 56,000 45,000 43,000

Page 39 Numbers 123, 124, 125 and 126 (Process Costing without Spoilage) Tacloban Company is employing process costing regarding its production cycle. Conversion costs are added uniformly during the production process while direct materials are added 10% at the start of production process, 50% at the middle of the production process and the remainder at the end of production process. The production data of the entity during the year are: Beginning Work in Process Inventory Units started during the year Ending Work in Process Inventory

10,000 units (30% incomplete as to conversion costs) 30,000 units 5,000 units (75% incomplete as to conversion costs)



There is no spoilage during the period.



The costs of beginning inventory consist of P103,000 costs of direct materials and P107,500 conversion costs.



The total manufacturing costs consist of P252,000 costs of direct materials and P146,250 conversion costs.

123. What is the cost per unit of direct material under average process costing? A. 10 B. 9 C. 8 D. 7 124. What is the cost per unit of conversion cost under average process costing? A. 10 B. 9 C. 8 D. 7 125. What is the cost per unit of direct material under FIFO process costing? A. 10 B. 9 C. 8 D. 7 126. What is the cost per unit of conversion cost under FIFO process costing? A. B. C. D.

5 9 8 7

Page 40 Numbers 127, 128, 129, 130 and 131 (Process Costing with Spoilage) Samar Company is employing process costing regarding its production cycle. Conversion costs are added uniformly during the production process while direct materials are added 20% at the start of production process, 45% at the middle of the production process and the remainder at the end of production process. Normal spoilage is 10% of units started during the year. The entity is conducting inspection when the production process is at 45% of conversion cost. The entity provided the following production data during the year: Beginning Work in Process Inventory Units started during the year Ending Work in Process Inventory Units completed during the period

10,000 units (40% incomplete as to conversion costs) 40,000 units 5,000 units (80% complete as to conversion costs) 38,000 units

127. What is the abnormal spoilage in units during the year? A. B. C. D.

7,000 units 4,000 units 3,000 units 2,000 units

128. What is the equivalent unit of production for direct material under average process costing? A. B. C. D.

42,650 units 41,150 units 38,250 units 43,750 units

129. What is the equivalent unit of production for conversion cost under average process costing? A. B. C. D.

44,650 units 45,150 units 43,250 units 46,150 units

130. What is the equivalent unit of production for direct material under FIFO costing? A. B. C. D.

35,150 units 37,250 units 36,150 units 38,450 units

131. What is the equivalent unit of production for conversion cost under FIFO costing? A. B. C. D.

39,150 units 41,250 units 37,450 units 38,650 units

Page 41 Numbers 132, and 133 (Foreign currency hedge) On December 1, 2020, Entity A imported goods at a price of $1,000 payable on March 1, 2021. In order to hedge this foreign currency denominated importation, Entity A entered into a forward contract with a bank to purchase $1,000. Entity A is operating in Philippine economy where the functional currency is Philippine peso. The following direct exchange rates are given:

Buying spot Selling spot

December 1, 2020

December 31, 2020

March 1, 2021

P43 45

P40 44

P41 49

132. What is the foreign currency gain or loss on the hedged item for 2020? A. B. C. D.

2,000 loss 1,000 gain 3,000 gain 4,000 gain

133. What is the foreign currency gain or loss on the hedging instrument for 2021? A. B. C. D.

4,000 gain 2,000 loss 1,000 loss 3,000 gain

Page 42 Numbers 134 and 135 (Hedging) Kline Company purchased inventory on November 30, 2018 for $10,000 payable March 1, 2019. On December 1, 2018, the entity entered into a forward contract to purchase $10,000in 90 days to hedge the purchase of inventory on November 30, 2018. The relevant exchange rates are:

November 30, 2018 December 1, 2018 December 31, 2018

Spot rate

Forward rate

P45 46 50

P47 48 51

134. What amount of foreign currency transaction gain from the forward contract should be included in net income for 2018? A. 50,000 B. 40,000 C. 30,000 D. 0 135. What amount of foreign currency transaction loss should be included in income from the revaluation of s payable for 2018? A. 40,000 B. 50,000 C. 10,000 D. 0 Number 136 (Hedging) On December 1, 2018 Winston Company entered into a forward contract to purchase $10,000 in 90 days to hedge a commitment to purchase equipment being manufactured to the entity’s specifications. The expected delivery date is March 1, 2019, at which time settlement is due to the manufacturer. The hedge qualifies as a fair value hedge. The relevant exchange rates are:

December 1, 2018 December 31, 2018

Spot rate

Forward rate

P48 52

P49 51

What amount of foreign currency transaction gain from the forward contract should be included in net income for 2018? A. 20,000 B. 40,000 C. 10,000 D. 0

Page 43 Numbers 137 and 138 (Fair value hedge) On November 1, 2020, Entity A entered into a firm commitment for the exportation of goods at a price of $2,000. Delivery will happen on January 31, 2020. In order to hedge this foreign currency denominated firm commitment, Entity A entered into a forward contract with a bank to sell $2,000. Entity A is operating in Philippine economy where the functional currency is Philippine peso. Entity A elects to use fair value hedge to this hedge of firm commitment. The following direct exchange rates are given: November 1, 2020 Spot rate 90-day forward rate 60-day forward rate 30-day forward rate

P43 41 45 47

December 31, 2020 P40 43 42 46

January 31, 2021 P44 44 41 42

137. What is the carrying amount of firm commitment asset or liability on December 31, 2020? A. 4,000 liability B. 10,000 liability C. 2,000 liability D. 6,000 liability 138. What is the foreign currency gain or loss on hedging instrument for 2021? A. B. C. D.

4,000 gain 2,000 loss 6,000 loss 8,000 gain

Page 44 Numbers 139, 140, 141 and 142 (Cash flow hedge) On November 1, 2020, Entity A anticipated the purchase of equipment on January 31, 2021 at a price of $1,200. In order to hedge this highly probable forecasted importation, Entity A entered into a forward contract with a bank to purchase $1,200. Entity A is operating in Philippine economy where the functional currency is Philippine peso. The following direct exchange rates are made available: November 1, 2020 Spot rate 90-day forward rate 60-day forward rate 30-day forward rate

P45 42 46 48

December 31, 2020 P44 41 45 44

January 31, 2021 P43 43 40 40

139. What is the unrealized holding gain or loss to be recognized as component of other comprehensive income in the statement of comprehensive income for the year ended December 31, 2020? A. B. C. D.

2,400 gain 1,200 gain 3,600 loss 4,800 gain

140. What is the unrealized holding gain or loss to be recognized as component of other comprehensive income in the statement of comprehensive income for the year ended December 31, 2021? A. B. C. D.

4,800 loss 1,200 loss 3,600 gain 2,400 gain

141. What is the cumulative unrealized gain or loss before reclassification to be reported as component of other comprehensive income in the Statement of Changes in equity on December 31, 2021? A. 1,200 gain B. 1,800 loss C. 2,400 gain D. 0 142. What is the cost of equipment in Philippine peso on January 31, 2021? A. B. C. D.

48,000 50,400 49,200 51,600

Page 45 Numbers 143, 144 and 145 (Cash Flow Hedge using option contract) On November 1, 2020, Entity A anticipated the purchase of inventory on January 31, 2021 at a price of $1,000. In order to hedge this highly probable forecasted importation, Entity A acquired a call option from a bank giving it the right to purchase $1,000 at an option price of P40 by paying an option of P300. Entity A is operating in Philippine economy where the functional currency is Philippine peso. The following data are provided:

Spot rate Fair value of call option

November 1, 2020

December 31, 2020

January 31, 2021

P40 ?

P 44 4,500

P43 ?

Entity A imported the goods on the date anticipated. Afterwards, Entity A was able to resell 30% of the goods imported during 2021. 143. What is the unrealized holding gain or to be recognized as component of other comprehensive income in the of statement of comprehensive income for the year ended December 31, 2020? A. 4,000 B. 4,500 C. 4,300 D. 4,200 144. What is the unrealized holding gain to be recognized in the profit or loss in the statement comprehensive income for the year ended December 31, 2020? A. B. C. D.

300 200 500 100

145. What is the unrealized holding loss to be recognized as component of other comprehensive income in the statement of comprehensive income for the year ended December 31, 2021? A. B. C. D.

3,000 2,000 1,000 4,000

END