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Since 1977

PRACTICAL ACCOUNTING 2
FINALS

DE LEON/DE LEON
MAY 2015

The Home Office bills merchandise to branches at 25%


above cost. Information taken from the accounting records
of the branch follows:
Beginning inventories (at billed prices)
17,000
Shipments from Home Office (at billed prices)
42,500
Ending inventories (at billed prices)
20,000
Net Loss for accounting period
1,500
1. The adjusted net income or loss for the branch is:
a. P7,900 net income
c. P6,400 net income
b. P8,400 net loss
d. P7,000 net income
Selected balances from the Amorsolo Companys Branches
A and B are as follows:
BRANCH
BRANCH
A
B
Inventory, January 1, 2015
21,000
19,000
Imprest Branch Fund
2,000
1,500
Inventory, December 31, 2015
19,000
12,000
Accts. Receivable, January 1,
55,000
43,500
2015
Accts. Receivable, December 31,
70,000
53,500
2015
Merchandise from Home Office
61,000
47,000
Cash Collections
85,000
70,000
Sales
100,000
80,000
Cash Expenses
21,000
14,300
All sales, collections, and expenses are handled at the
branch. All cash received from sales and collections are
sent directly to the Home Office. Expenses are paid by the
branch from the imprest fund and immediately reimbursed
by the Home Office and credited to the Home Office
account. All expenses paid by the branch are recorded in
the branch books.
2. The net profit of Branch A is:
a. P16,000
c. P15,000
b. P21,000
d. P18,000
3.

The balance of the Home Office account of Branch A on


January 1, 2015 is:
a. P80,000
c. P78,000
b. P64,000
d. P75,000

4.

The balance of the Home Office account of Branch B on


January 1, 2015 is:
a. P80,000
c. P78,000
b. P64,000
d. P95,000

During July, the sales agency submits sales on account of


P176,000 duly approved by the home office. Cost of
merchandise shipped to fill the orders from customers
obtained by the sales agency is P105,000. Samples
shipped to the agency amounted to P50,000 Home Office
disbursements chargeable to the sales agency are as
follows:
Managers and salesmens salaries
17,500
Rent
8,000
On July 31, the sales agency working fund is replenished;
paid expense vouchers submitted by the sales agency
amounting to P9,250. Sales agency samples received
worth P50,000, are useful until December 31 which, at this
time, are believed to have a salvage value of 40% of cost.
5. The profit of the sales agency is:
a. P19,550
c. P31,250
b. P24,550
d. P26,750

Page 1 of 4

The Home Office in Manila shipped merchandising costing


P10,000 to Baguio Branch and paid for the freight charges
of P650. Baguio Branch was subsequently instructed to
transfer the merchandise to Laoag Branch wherein Baguio
Branch paid for P200 freight. If the shipment were made
directly from Manila to Laoag, the freight cost would have
amounted to P700.
6. The amount of freight chargeable to Laoag is:
a. P650
c. P700
b. P850
d. P100
The Petite Branch of Dainty Co. submitted the following
trial balance as of December 31, 2015 after its first year of
operations:
Cash
Accounts Receivable
Shipments from Home Office
Expenses
Sales
Home Office Current

DEBIT
10,400
63,200
168,000
10,800

CREDIT

P134,400
118,000

Merchandise Inventory, December 31- P50,000


Shipments to the branch are billed at 140% of cost
7.

The adjustment to the cost of goods sold of the Branch


amounts to:
a. P 0
c. P33,600
b. P14,400
d. P39,600

8.

The true net income of the Branch during 2009 was:


a. P 6,000
c. P39,600
b. P33,600
d. P54,000

Parasol Corporation paid P1,000,000 cash for the net


assets of Shadow Company which consisted of the
following:
Book Value Market Value
Current assets
20,000
280,000
Plant assets (net)
800,000
1,300,000
Liabilities
200,000
180,000
9. The amount at which
Parasol Corporation should
record the plant assets acquired
a. P 900,000
c. P1,100,000
b. P1,300,000
d. P1,000,000
April 1, 2015, the Rado Company paid P600,000 for the
net assets of Citizen Company in a transaction properly
accounted for as a purchase. On this date, the assets and
liabilities of Citizen Company were
Cash
60,000
Merchandise inventory
180,000
Plant assets (net)
360,000
Liabilities
135,000
Furthermore, it was determined that the merchandise
inventory of Citizen Company had a fair market value of
P142,500 and the plant assets of P420,000.
10. What should be the amount recorded as goodwill by
Rado Company as a result of the business
combination?
a. P
0
c. P 37,500
b. P112,500
d. P 25,000

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P2.Finals

EXCEL PROFESSIONAL SERVICES, INC.


Patter Corporation issues 500,000 shares of its own P10
par common stock for the net assets of Simpson
Corporation in a merger consummated on July 1, 2015. On
this date, Patter stock is quoted at P20 per share.
Summary balance sheet data for the two companies at July
1, 2015, just before combination, are shown below
Patter
Simpson
Current assets
P 18,000,000
P1,500,000
Plant assets
22,000,000
6,500,000
Total assets
40,000,000
8,000,000
Liabilities
12,000,000
2,000,000
Common stock- P10
20,000,000
3,000,000
par
Additional
paid-in
3,000,000
1,000,000
capital
Retained earnings
5,000,000
2,000,000
Total equities
P 40,000,000
P8,000,000
11. If the business combination is treated as purchase, the
retained earnings immediately after the combination
will be:
a. P5,000,000
c. P7,000,000
b. P6,000,000
d. P8,000,000
The accounts for the partnership of Janice and Ellery at
October 31, 2015 are as follows:
Janice, Capital
P160,000
Ellery, Capital
80,000
The partners share profits and losses in the ratio of 6:4
respectively. The partnership is to admit Blanche as a
partner with a 1/3 interest in the capital and P/L upon her
investment of P60,000.
12. Immediately after Blanches admission what are the
capital balances of Janice, Ellery and Blanche
respectively assuming goodwill is not to be recognized.
a. P100,000; P100,000; P100,000
b. P120,000; P 80,000; P 60,000
c. P160,000; P 80,000; P120,000
d. P136,000; P 64,000; P100,000
The balance sheet of the partnership L, M, and N at April
30, 2015 follows: The partners share profits and losses in
the ratio of 2:2:6 respectively.
Assets
Liabilities & Capital
Other assets

P100,000

L, Loan

P 9,000

L, Capital

15,000

M, Capital

31,000

N, Capital

45,000

P100,000
P100,000
L is retiring from the partnership. By mutual agreement,
the assets are to be adjusted to their fair value of
P130,000. M and N agree that the partnership will pay L
P37,000 cash for his partnership interest, exclusive of his
loan which is to be paid in full separately.
13. If no goodwill is to be recorded, what is the balance of
Ns capital account after Ls retirement?
a. P51,000
c. P53,400
b. P50,000
d. P63,000
Sabrina is admitted into the firm of Nina, Owen and
Prudence. The latter agreed to sell to Sabrina one-fourth of
their respective equities and profit shares. Sabrina paid a
total price of P1,000,000. Before Sabrinas admission,
Nina, Owen and Prudence have capital balances of
P2,000,000, P1,000,000 and P500,000 and they share
profits at the ratio of 6:3:1. Partnership assets are fairly
stated and no implied goodwill is to be recognized prior to
Sabrinas admission.
14. The new capital of the partnership is
a. P3,500,000
c. P5,000,000
b. P4,000,000
d. P4,500,000

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Scott Company filed a voluntary bankruptcy petition on


June 25, 2015, and the statement of affairs reflects the
following amounts:
Book
Estimated
Carrying
Current
Amount
Value
Assets:
Assets pledged with fully
P150,000
P185,000
secured creditors
Assets pledged with
90,000
60,000
partially secured creditors
Free assets
210,000
160,000
Liabilities:
Liabilities with priority
35,000
Fully secured creditors
130,000
Partially secured creditors
100,000
Unsecured creditors
270,000
Assume that the assets are converted into cash at the
estimated current values, and the business is liquidated.
15. How much cash will be available to pay unsecured nonpriority claims?
a. P240,000
c. P180,000
b. P160,000
d. P125,000
Platt Company has been forced into bankruptcy and
liquidity. Unsecured claims will be paid at the rate of P0.50
on the peso. Maga Company holds a noninterest-bearing
not receivable from Platt in the amount of P50,000,
collateralized by machinery with a liquidation value of
P10,000.
16. The total amount to be realized by Maga on this note
receivable is:
a. P35,000
c. P30,000
b. P25,000
d. P10,000
Drake Company filed a voluntary bankruptcy petition on
July 15, 2009 and the statement of affairs reflects the
following amounts:
Book
Est. Current
Value
Value
Assets
Assets pledged with fully
secured creditors
P 160,000
P 190,000
Assets pledged with
partially secured creditors
90,000
60,000
Free assets
200,000
140,000
Liabilities
Liabilities with priority
20,000
Fully secured creditors
130,000
Partially secured creditors
100,000
Unsecured creditors
260,000
Assume that the assets are converted into cash at the
estimated current values.
17. What amount of cash should the partially secured
creditors receive?
a. P 60,000
c. P 90,000
b. P 84,000
d. P 100,000
Link Inc. is undergoing liquidation since January 1, 2015.
Its condensed statement of realization and liquidation as of
June 30, 2015 show:
Assets to be realized
P1,375,000
Assets acquired
750,000
Assets realized
1,200,000
Assets not realized
1,375,000
Liabilities liquidated
1,875,000
Liabilities not liquidated
1,700,000
Liabilities to be liquidated
2,250,000
Liabilities assumed
1,625,000
Supplementary charges
3,125,000
Supplementary credits
2,800,000

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P2.Finals

EXCEL PROFESSIONAL SERVICES, INC.


18. The net income (loss) for the four month period ending
April 30, 2009 is:
a. (P325,000)
c. P425,000
b. P750,000
d. P250,000

24. The net gain (loss) on repossession on defaulted sales


of 2014 and 2015 was:
a. P 500
c. P (800)
b. P 800
d. P(1,300)

Mercer Inc. is insolvent and its statement of affairs show:


Estimated gain on realization of assets, P2,000,000;
Additional assets, P1,280,000;Estimated loss on realization
of assets, P2,880,000 Additional liabilities, P960,000;
Capital Stock, P12,000,000; Deficit, P11,200,000.
19. The pro-rata payment to stockholders on the peso is:
a. P0.70
c. P0.30
b. P0.43
d. P0.57

On July 1, 2014, Heart Company signed an agreement to


operate as a franchisee of Lung Corporation for an initial
franchise fee of P120,000. The same date, Heart paid
P40,000 and agreed to pay the balance in four equal
annual payments of P20,000 beginning July 1, 2015. The
collectibility of the balance is not reasonably assured and
no future services are required of the franchisor. Heart can
borrow at 14% for a loan of this type.
Present and future value factors are as
follows:
Present value of 1 at 14% for 4 periods
0.59
Future amount of 1 at 14% for 4
1.69
periods
PV of an ordinary annuity of 1 at 14%
2.91
for 4 periods

Following data were taken from the books of Pleasing


Company
2013
Installment Sales
Cost of Installment Sales
Collections:
2013 Installment
Receivable
2014 Installment
Receivable
Defaults and repossessions:
Unpaid balance of prior years
installment
receivable
defaulted
Value assigned to repossessed
merchandise

2014

P800,000
480,000

P900,000
600,000

250,000

300,000
360,000

12,000

15,000

7,000

8,000

20. The realized gross profit on 2014 installment during


2014
a. P120,000
c. P180,000
b. P144,000
d. P220,000
21. The gain/loss on repossession on the defaulted 2013
contract
a. P1,000 gain
c. P1,000 loss
b. P3,000 loss
d. No gain or loss
22. The Unrealized Gross Profit on the 2013 Installment
Sales as of December 31, 2014 was
a. P160,000
c. P 94,000
b. P120,000
d. P 64,000
Following data pertain to Maganda Company which sells
appliances on the installment basis.
2013
2014
2015
Installment Sales
P390,000 P420,000 P480,000
Cost of Installment
237,90
243,60
288,000
Sales
0
0

2013
Installment
Accts.
Recble bal.
January 1, 2015
Dec. 31, 2015

From sales made in


2014
2015

P24,000
-

P300,000
60,000

320,000

Repossessions on defaulted accounts were made during


2015, as follows:
From sales made in
2014
2015
Account balance
P10,000
P5,000
Net resale value of repossessed
4,500
3,500
merchandise
23. The total realized gross profit in 2015 on the
collections of 2013, 2014 and 2015 sales was:
a. P 9,360
c. P 62,000
b. P 96,600
d. P167,960

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25. The earned revenue from franchise fee to be recorded


by Lung Corporation on December 31, 2014 is
a. P135,200
c. P 98,200
b. P 58,200
d. P 40,000
On December 31, 2014, Marco Company signed an
agreement to operate as franchisee of Wendys for a
franchise fee of P80,000. Of this amount, P30,000 was
paid upon signing of the agreement and the balance is
payable in five annual payments of P10,000 each
beginning December 31, 2015. The present value of the
five payments at an appropriate rate of interest, is
P36,000 at December 31, 2014. The agreement provides
that the down payment is not refundable and it represents
a fair measure of services rendered and no future services
are required of the franchisor.
26. On December 31, 20014, Wendys should records
franchise revenue of
a. P80,000
c. P30,000
b. P66,000
d. P36,000
On January 2, 2014, Rex Enterprises, Inc. authorized
Adam Company to operate as a franchisee over a twentyyear period for an initial franchise fee of P60,000 received
on signing the agreement. Adam started operations on
June 30, 2014, by which date Rex had performed all of the
required initial services.
27. In its income statement for the six-months ended June
30, 2014 what amount should Rex report as revenue
from franchise fees in connection with Adams
franchise?
a. P80,000
c. P30,000
b. P66,000
d. P36,000
Adams Construction Company uses the percentage of
completion method of accounting. During the year 2014,
Adams was contracted to build an apartment house for
Roper for P10,000,000. Adams estimated that total costs
would amount to P8,000,000 over the period of
construction. In connection with this contract, Adams
incurred P1,000,000 of construction costs during the year
2014. Adams billed collected P1,500,000 from Roper in the
year 2014.
28. How much gross profit should Adams recognize in the
year 2014?
a. P 300,000
c. P 250,000
b. P 187,500
d. P 125,000
Pine Construction, Inc. has consistently used the
percentage-of-completion method of recognizing income.
In the year 2014, Pine started work on a P9,000,000
construction contract which was completed in the year

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P2.Finals

EXCEL PROFESSIONAL SERVICES, INC.


2015. The accounting records
for the year 2014.
Progress billings
Costs incurred
Collections
Estimated cost to complete
29. How much income should
year 2014?
a. P 300,000
b. P 600,000

disclosed the following data


P 3,300,000
2,700,000
2,100,000
5,400,000
Pine have recognized in the
c. P 450,000
d. P 700,000

Justine Construction Company has consistently used the


percentage-of-completion method. On January 4, 2014,
Justine began work on a P6,000,000 construction contract.
At the inception date, the estimated cost of construction
was P4,500,000. The following data relate to the progress
of the contract:
Income recognized at 12/31/2014
P 600,000
Cost
incurred
1/10/05
to
3,600,000
12/31/2015
Estimated cost to complete at
1,200,000
12/31/2015
30. How much income should Justine recognize for the
year ended December 31, 2010?
a. P 900,000
c. P 600,000
b. P 300,000
d. P 700,000
Parker Corporation sells equipment with a book value of
P80,000 to Sheaffer Enterprises, its 75% owned
subsidiary, for P100,000 on January 1, 2014. Sheaffer
determines that the remaining useful life of the equipment
is four years and that straight-line depreciation is
appropriate. The December 31, 2014 separate company
financial statements of Parker and Sheaffer show
equipment-net of P500,000 and P300,000 respectively.
31. The consolidated equipment-net will be:
a. P800,000
c. P780,000
b. P785,000
d. P650,000

Balance sheet data for P Corporation and S Company


on December 31, 2014, are given below:
P Corporation
Cash
Merchandise inventory
Property
and
equipment, net
Investment
in
S
Company
Total assets
Current liabilities
Long-term liabilities
Common stock
Retained earnings
Total liabilities and
equity

P 70,000
100,000
500,000

S Company
P90,000
60,000
250,000

260,000
P930,000

P400,000

P180,000
200,000
300,000
250,000
P930,000

P60,000
90,000
100,000
150,000
P400,000

book value shown above. All other book values


approximated fair value in the consolidated balance sheet
on December 31, 2014.
31. The amount of total stockholders equity to be reported
will be:
a. P550,000
c. P750,000
b. P610,000
d. P800,000
32. The amount of non controlling interest will be
a. P50,000
c. P110,000
b. P60,000
d. P160,000
On January 1, 2014, Pedro Company purchased 90% of
the common stock of Bryan Company for P81,000 over the
book value of the shares acquired. All of the differential
was related to land held by Bryan. On May 1, 2015, Bryan
sold the land at a gain of P145,000. For the year 2015,
Bryan reported net income of P331,000 and paid dividends
of P80,000. Pedro reported income from its own separate
operations of P659,000 and paid no dividends.
33. Consolidated net income for 2015 was
a. P 824,000
c. P1,005,400
b. P 875,900
d. P 900,000
P Corporation acquired 70% of the voting common stock of
S Company at a time when S Companys book values and
fair values were equal. Separate incomes of P Corporation
and S Company for 2014 are as follows:
P Corporation
S Company
Sales
792,000
438,000
Cost of goods sold
480,000
240,000
Operating expenses
144,000
120,000
Separate income from own
168,000
78,000
operations
Intercompany sales from P and S for 2013 and 2014 are
summarized as follows:
Cost
Selling
Unsold
price
at yearend
Intercompany sales300,000
468,000
30%
2013
Intercompany sales210,000
330,000
40%
2014
34. The 2013 consolidated income statement will show
cost of goods sold of
a. P387,600
c. P480,000
b. P720,000
d. P240,000
Page Company acquired all of the outstanding common
stocks of S Company at a total cost of P100,000. S
Companys net assets have a book value of P60,000 and
current value of P90,000.
35. In the parents general ledger, the amount shown in
the goodwill account is
a. P
0
c. P 30,000
b. P 10,000
d. P 40,000

P Corporation purchased 80% interest in S Company on


December 31, 2014 for P260,000. S Companys property
and equipment had a fair value of P50,000 more than the

Page 4 of 4

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P2.Finals

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