Ateneo de Zamboanga University

School of Management and Accountancy

Accountancy Department
1st Semester, SY 2013-2014

Accounting 630
Practical Accounting 2

INTEGRATIVE COURSE
MIDTERM ASSESSMENT
(ICMA)

Name:
______________________________________
____
ID No.: _______________
Date: _________________
Section: _____

Score: _______________ Rating:

 GENERAL INSTRUCTIONS

1. The answer sheet comes in a BUBBLE

ANSWER SHEET form. Use BALLPOINT PEN
(black or blue ink only) in shading the letter
of your answer and in filling out boxes.
Shade ONLY ONE (1) CIRCLE for every
number. Strictly NO ERASURES or ANY
FORM OF ALTERATIONS ALLOWED.

2. Write your ID NUMBER on the space

provided in the answer sheet. Then shade
the corresponding circle below the ID
Number. Shade ONLY ONE (1) CIRCLE for
every digit in your ID Number. Failure to do
this will cause your exam to be VOID.

3. Scratch papers are provided. You are NOT

ALLOWED to use any other sheets of paper
except those provided together with your
questionnaire. Should you need additional
sheets, you may approach your proctor and
ask for additional scratch papers.

4. Only your calculator, ballpen and

examination slips must be on your desk. All
other things must be placed in front.

Gold medals aren't really made of gold. They're

made of sweat, determination, and a hard-to-find
alloy called guts.
-Dan Gable
For items no. 1 and 2, please refer to the following
problem:
The partnership of Jasper and Clariz began business on
January 1, 2013. The following assets were contributed by
each partner (the non-cash assets are stated at their fair
market values on this date).
Jasper Clariz
Cash P30,000 P20,000
Inventories 50,000 -
Land - 200,000
Equipment 100,000 -

The land was subject to a P65,000 mortgage, which the

partnership assumed on the same date. The equipment
was subject to an installment note payable that had an
unpaid principal amount of P35,000 on January 1, 2013.
The partnership also assumed this note payable.
According to the partnership agreement, each partner was
to have a 50 percent capital interest on January 1, 2013,
with total partnership capital being P300,000. Jasper and
Clariz agreed to share partnership income and losses in the
following manner:
Jasper Clariz
Interest on beginning balances 4% 4%
Salaries P15,000 P10,000
Remainder 60% 40%

During 2013, the following events occurred:

Inventory was acquired at a cost of P30,000. At
December 31, 2013, the partnership owed P6,000 to
its suppliers.
Principal of P10,000 was paid on the mortgage.
Interest expense incurred on the mortgage was
P4,000, all of which was paid by December 31, 2013.
Principal of P7,500 was paid on the installment note.
Interest expense incurred on the installment note was
P2,500, all of which was paid by December 31, 2013.

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 Sale on account amounted to P115,000. At December
31, 2013, customers owed the partnership P10,000.
The partnership inventory at December 31, 2013, was
P20,000.
Selling and general expenses, excluding depreciation,
amounted to P21,000. At December 31, 2013, the
partnership owed P3,000 of accrued expenses.
Depreciation expense was P5,000.
Each partner withdrew P225 each week in anticipation
of partnership profits.
The partners allocated the net income for 2013 and
closed the accounts.
Additional information:
On January 1, 2014, the partnership decided to admit
Marc Kenneth to the partnership. On that date, Marc
Kenneth invested P100,900 of cash into the
partnership for a 20% capital interest.

1. The capital credit to Marc Kenneth upon his admission

should be:
A. P80,000
B. P88,000
C. P90,000
D. P100,900

2. The capital balance of Jasper, after Marc Kenneths

admission should be
A. P181,340
B. P175,040
C. P167,300
D. P163,140

3. (ICPA 4, sy14-15) On October 1, 2013, Abdel Company

sold Item One costing P270,000 for P400,000. Item
Two, a used item was accepted as down payment and
the balance on monthly installments for two years
that include both principal and interest at 15% per
year, starting October 31, 2013. P120,000 was
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 allowed on the article traded-in. The company
estimated reconditioning cost of P8,000 on this article
and a sales price of P110,000 after such
reconditioning. The company normally expects 20%
gross profit on sale of used articles. How much is the
realized gross profit in 2013? (Round off present value
factors to three decimal places)
A.P37,003
B. P28,750
C. P28,486
D. P27,652
For items no. 4 and 5, please refer to the following
problem:
Marc Elmerson is currently preparing its combined financial
statements. On December 31, 2013, the home office
account showed a balance of P452,300. The branch sent a
check for P12,000 on December 31, 2013. The home office
did not receive the check until January 4, 2014.
Furthermore, Marc Elmerson shipped merchandise costing
P20,000 to the branch on December 28, 2013 at a transfer
price of P25,000. The merchandise was not received by
the branch until January 8, 2014. Lastly, advertising
expenses of P8,500 were allocated by Marc Elmerson to
the branch. This was recorded as P5,800 by the branch.

4. How much is the adjusted balance of the reciprocal

accounts?
A.P477,399
B. P480,000
C. P492,000
D. P500,000

5. How much is the unadjusted balance of the branch

current account?
A.P477,399
B. P480,000
C. P492,000
D. P500,000

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6. The accounts of the partnership of Arsann, Freddie
and Arnie at the end of its fiscal year on September
30, 2013 are as follows:
Cash P15,000 Loan from Arnie P10,000
Other assets130,000 Arsann, Capital (30%)45,000
Loan to Freddie5,000 Freddie, Capital (50%)30,000
Liabilities 50,000 Arnie, Capital (20%) 15,000

If Arnie received P9,000 on the first distribution of

cash, the cash realized from the initial sale of assets
was
A.P15,000
B. P65,000
C. P80,000
D. P95,000

7. On January 31, 2013, Kathleen Company purchased

80% of the outstanding shares of Cristal Company at a
cost of P2,880,000. On that date, Cristal Company
had P1,800,000 of capital stock and P1,800,000 of
retained earnings.

For 2013, Kathleen Company had income of

P1,008,000 from its own operations (excluding its
share of income from Cristal) and paid dividends of
P540,000. For 2013, Cristal Company reported
income of P234,000 and paid dividends of P108,000.
All the assets and liabilities of Cristal Company have
book value equal to their respective market values.

On January 1, 2013, Kathleen Company sold

equipment to Cristal Company for P360,000. The
book value of the equipment on that date was
P432,000. The loss of P72,000 is reflected in the
income of Kathleen Company indicated above. The
equipment is expected to have a useful life of five
years from the date of sale.

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 In the December 31, 2013 consolidated statement of
financial position, the NCI should be presented at:
A.P621,000
B. P720,000
C. P745,200
D.
E.P766,800

8. Shipments received from the home office are billed at

120% above cost. During the year, the branch
received shipments billed at P360,000 and returned
damaged goods with billed price of P24,000. The
branch has an ending inventory of P72,000 at billed
price. The branch reported loss of P10,000. How
much is the balance of the allowance for markup
account before year-end adjustments?
A.P183,272
B. P80,000
C. P56,000
D. P44,000

For items no. 9 and 10, please refer to the following

problem:
The SUZETTE Company will issue shares of P10 par value
common stock for all the assets and liabilities of the
SHERMADEE Company. SUZETTE Companys common
stock has a current market value of P40 per share. The
SHERMADEE Companys Statement of Financial Position
prior to the acquisition is shown below:

SHERMADEE Company
Statement of Financial Position
January 1, 2011

Assets
Current assets P320,000
Property, plant and equipment (net) 880,000

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 Total assets P1,200,000

Liabilities and Equity

Liabilities P400,000
Common stock, P4 par 80,000
Additional paid-in capital 320,000
Retained earnings 400,000
Total liabilities and equity P1,200,000

The fair market value of the current assets is P400,000

while that of the property, plant and equipment is
P1,600,000. All the liabilities are correctly stated.
SUZETTE Company issued sufficient shares of stock so that
the fair market value of the stock issued is equal the fair
market value of SHERMADEE Companys net assets.

9. To have a gain from bargain purchase of P100,000,

the number of shares to be issued by SUZETTE
Company should be:
A.37,500
B. 37,000
C. 42,500
D. 42,000

10.To have a goodwill of P200,000, the number of shares

to be issued by SUZETTE Company is:
A.40,000
B. 44,500
C. 36,000
D. 45,000

11.On January 2, 2013, Cyndie Ice Cream signed an

agreement authorizing Datu to operate as franchisee
for an initial franchise fee P500,000 received upon
signing of the agreement. Datu commenced
operations on August 1, 2013, at which date all of the
initial services required of Cyndie Ice Cream had been

6
 performed at a cost of P120,000. The franchise
agreement further provides that Datu must pay a 10%
monthly continuing franchise fee. Sales reported from
August 1 to December 31, 2013 amounts to P400,000.
What is the net income related with franchise fee to
be reported by Cyndie Ice Cream in 2013?
A.P540,000
B. P500,000
C. P420,000
D. P380,000

12.On January 2, 2010, Jojo sold a car to Charmae for

P1,050,000. On this date, the car costs P735,000.
Charmae paid P150,000 as a down payment and
signed interest bearing note at 10%. The note was
payable in three annual installments of P300,000
beginning January 1, 2011. Charmae made a timely
payment for the first installment on January 1, 2011 of
P390,000 which included interest of P90,000 to date
of payment. Jojo uses the installment method of
accounting. In its December 31, 2011 financial
statements, what amount should Jojo report as
realized gross profit and deferred gross profit,
respectively?
A.P135,000 ; P180,000
B. P90,000 ; P180,000
C. P135,000; P153,000
D. P90,000 ; P153,000
13.Myrtle admits Julie Anne as a partner in business. Just
before the partnerships formation, Myrtles books
showed the following:
Cash P2,600
Accounts receivable 12,000
Merchandise inventory 18,000
Accounts payable 6,200
Myrtle, Capital 26,400

7
 It was agreed that for establishing Myrtles investment
in the firm, the following adjustments shall be
reflected:
Allowance for bad debts of 2% should be set up.
Merchandise inventory should be valued at
P20,200.
Prepaid expense of P350 and accrued expense of
P400 should be recognized.

How much cash should Julie Anne invest to secure a

one-third interest in the partnership?
A.P9,437
B. P14,155
C. P14,205
D. P17,600

For items no. 14 and 15, please refer to the following

problem:
Diana Corporation has two branches to which merchandise
is transferred at cost plus 20%, plus freight charges. On
November 30, 2013, Diana shipped merchandise that cost
P5,500 to its Cebu branch, and the P200 shipping charge
was paid by Diana. On December 15, 2013, the Ilocos
branch encountered an inventory shortage, and the Cebu
branch shipped the merchandise to the Ilocos branch at a
freight cost of P160 paid by the Cebu branch. Shipping
charges from the home office to the Ilocos branch would
have been P175.

14.If the merchandise is unsold at year end, the Ilocos

branch will inventory the merchandise at what
amount?
A.P6,575
B. P6,775
C. P6,930
D. P6,950

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15.If the merchandise is unsold at year end, how much
would Diana include as inventory in its report to
stockholders?
A.P5,475
B. P5,500
C. P5,675
D. P5,850

16.On January 1, 2012, Tugal Corporation purchased 70%

of the common stock of Pajes Company for
P1,650,000. At that date, Pajes had P1,725,000 of
common stock outstanding and retained earnings of
P555,000. Equipment with a remaining life of 5 years
had a book value of P850,000 and a fair value of
P900,000. Pajes remaining assets had book values
equal to their fair values. All intangibles except
goodwill are expected to have remaining lives of 10
years. The income and dividend figures for both Tugal
and Pajes are as follows:
Income Dividends
Tugal : 2012 P550,000 P150,000
2013 650,000 200,000
Pajes : 2012 100,000 30,000
: 2013 250,000 45,000

Tugals income as shown does not include any

dividend income from Pajes. Tugals retained earnings
balance at the date of acquisition was P2,000,000. On
December 31, 2013, the consolidated net income and
consolidated retained earnings are:
A.P858,500 and P3,028,500 respectively
B. P900,000 and P3,095,000 respectively
C. P850,000 and P3,431,000 respectively
D. P890,000 and P3,081,000 respectively

9
17.(ICPA 4 SY14-15) Alcala Construction Company began
construction work under a three-year contract. The
contract price is P600,000. Alcala uses the
percentage-of-completion method for financial
accounting purposes. The income to be recognized
each year is based on the proportion of costs incurred
to total estimated costs for completing the contract.
The financial statement presentation, related to this
contract at December 31, 2013, follow:
Statement of Financial Position

Accounts receivables
construction contract billings P50,000
Construction in progress 150,000
Less: Contract billings 90,000
Costs of uncompleted contract in
excess of billings 60,000

Income Statement

Gross profit (before tax) recognized in 2013P35,000

What is the estimated cost to complete on December

31, 2013?
A.P215,000
B. P270,000
C. P345,000
D. P385,000

18.Margeliza Company uses installment method of

accounting and has the following data at year end:
Gross margin on cost 66 2/3%
Unrealized gross profit P192,000
Cash collections including down payments360,000

What was the amount of sale on installment basis?

10
 A.P480,000
B. P552,000
C. P648,000
D. P840,000

19.On June 30, 2012, Reshiel, Inc. purchased 70 percent

of the common stock of Geo Company for P700,000.
At that date, Geo had P650,000 of common stock
outstanding and retained earnings of P250,000. All of
the purchase difference was related to a building with
a book value of P175,000 and a remaining life of 10
years. Reshiels retained earnings balance at
December 31, 2012 was P755,000. The income and
dividend figures for both Reshiel and Geo for 2012 are
as follows:
Income Dividends
Reshiel (own operations)P275,000 P70,000

Geo : Jan 1 to June 30 80,000 30,000

: July 1 to Dec 31 100,000 0

On December 31, 2012, the consolidated retained

earnings is:
A.P821,500
B. P856,500
C. P1,026,500
D. P1,021,500

20.On July 1, 2013, Vallyn Company signed an agreement

to operate as a franchisee of Connie Company for a
franchise fee of P800,000. Of this amount, P300,000
was paid upon signing of the agreement and the
balance is payable in five semi-annual payments of
P100,000 each beginning December 31, 2013. The
notes are non-interest bearing but the market rate of
interest is 12%. The agreement provides that the
down payment is not refundable and no future
services are required of the franchisor as of December

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 31, 2013. On December 31, 2013, Connie Company
should record franchise revenue of: (Use two decimal
places for present value factors)
A. P300,000
B. P660,000
C. P721,000
D. P800,000

21.(ICPA 4 SY1415) Hanna Vanessa Construction

Company has used the cost-to-cost percentage of
completion method of recognizing revenue. Total
contract price was P10,000,000.
2011 2012 2013
Realized gross profit (loss)P200,000P700,000
P(100,000)
Cost incurred each year 1,800,000 ? 4,100,000

How much is the total estimated cost to complete by

the end of 2012?
A.P2,800,000
B. P3,000,000
C. P3,400,000
D. P3,500,000

22.Angelo P. contributed P50,000 and Angelo E.

contributed P75,000 to form a partnership, and they
agreed to share profits in the ratio of their original
capital contributions. The first year resulted in a loss
P29,500; Angelo P. made an additional investment of
P12,000 while Angelo E. made a withdrawal of P7,000.
At the start of the following year, they agreed to admit
Jessa into the partnership. She was to receive a one-
third interest in the capital and profits upon payment
of P24,000 to Angelo P. and Angelo E., whose capital
accounts were to be reduced by transfers of Jessas
capital account of amounts sufficient to bring them
back to their original capital ratio. Upon admission of

12
 Jessa, which of the following statements is
INCORRECT?
A.The amount of cash paid by Jessa to Angelo E.
is P10,100.
B. The capital account of Jessa will be credited in the
amount of P33,500.
C. The capital account of Angelo P. will be debited in
the amount of P23,400.
D. The balance of the capital account of Angelo E. will
be P40,200.

23.(ICPA 4 SY14-15) The following selected accounts

appeared in the trial balance of Glenn Carl Sales
Company as of December 31, 2013:
Installment receivable 2012 sales P15,000
Installment receivable 2013 sales 200,000
Inventory, December 31, 2012 70,000
Purchases 555,000
Repossessions 3,000
Installment sales 425,000
Regular sales 385,000
Deferred gross profit 2012 50,760

Additional information:
Installment receivable 2012 sales, 12/31/12
P120,000
Inventory of new and repossessed merchandise
as of December 31, 2013 95,000
Gross profit percentage on regular sales
during the year 30% on sales

Repossessions were made during the year. It was a

2012 sale and the corresponding uncollected account
at the time of repossession was P7,200. What is the
total realized gross profit?
A.P244,510

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 B. P245,010
C. P245,610
D. P246,010

24.Korina, Sarah and Heslie share profits on a 5:3:2 ratio.

On January 1, 2012. Kent is admitted into the
partnership with a 10% share in profits. The old
partners continue to participate in profits in their
original ratio. For the year 2012, the net income of
the partnership was reported at P250,000. However,
it was discovered that the following items were
omitted in the firms books:
Unrecorded at year-end 2011 2012
Prepaid expense P16,000 ---
Accrued expense --- P12,000
Unearned income 14,000 ---
Accrued income --- 10,000

What is the share of Partner Heslie in the 2012 net

income?
A.P44,280
B. P44,640
C. P45,720
D. P49,200

25.Beverly Inc. sells goods on an installment basis. For

the year ended December 31, 2012, the first year of
operations, the following were reported:

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 Cost of installment sales P1,000,000
Loss on repossession 35,000
Fair value of repossessed merchandise 265,000
Related receivable of repossession 400,000
Deferred gross profit 200,000

Determine the total amount collected during the year.

A.P133,333
B. P516,841
C. P533,333
D. P1,000,000

26. Benedict Construction, Inc. has consistently

used the percentage-of-completion method of
recognizing income. During 2013, Benedict started
work on a P6,000,000 fixed-price construction
contract. The accounting records disclosed the
following data for the year ended December 31, 2013:
Costs incurred P1,860,000
Estimated cost to complete 4,340,000
Progress billings 2,200,000
Collections 1,400,000
How much gain/loss should Benedict have recognized
in 2013?
A.P340,000 gain
B. P460,000 loss
C. P800,000 loss
D. P200,000 loss

27. On July 1, 2012, Kelvin Company purchased 80%

of the outstanding shares of Claudine Company for
P4,000,000. On that date, Claudine had P2,500,000
of capital stock and P3,500,000 of retained earnings.
For 2012, Kelvin had income of P1,400,000 from its
separate operations and paid dividends of P750,000.

15
 For the year ended December 31, 2012, Claudine
reported income of P325,000 and paid dividends of
P150,000. All the assets and liabilities of Claudine
have book values equal to their respective fair market
values. NCI is valued at the proportionate basis.
Assume income was earned evenly throughout the
year except for the intercompany transaction on
October 1. On October 1, 2012, Kelvin purchased a
machinery from Claudine for P500,000. The book
value of the machinery on that date was P600,000.
The loss of P100,000 is reflected in the income of
Claudine indicated above. The machinery is expected
to have a useful life of 5 years from the date of sale.
In the December 31, 2012 consolidated financial
statements, how much is the consolidated net income
attributable to the parent company?
A.P1,606,000
B. P2,326,000
C. P2,366,000
D. P2,406,000
28.Kristin and Kevin share profits after the provision of
annual salary allowances of P7,200 and P6,600,
respectively in the ratio 6:4. However, if partnerships
net income is insufficient to provide for said
allowances in the full amount, the net income shall be
divided equally between the partners. In 2013, the
following errors were discovered: Depreciation is
understated by P1,050 and the inventory on
December 31, 2013 is overstated by P5,700. The
partnership net income for 2013 was reported to be
P9,750. Capital of Kevin should be decreased by:
A.P2,925
B. P3,375
C. P3,675
D. P4,875

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29.Taken For Granted Partnership engaged in heart of
steel manufacturing business had the following
condensed financial position prior to liquidation:
Assets Liabilities and
Capital
Cash P147,00 Liabilities
0 P82,000
Noncash 720,000 Loan payable
assets to Neglected 45,000
Total P867,00 Neglected
0 (25%) 194,000
Rejected
(40%) 330,000
Ignored (35%) 216,000
Total P867,00
0

Assuming noncash assets with a book value of

P340,000 were sold for P415,000 and that all available
cash was distributed, which of the following
statements is FALSE for Partner Neglected to receive a
total of P176,000 cash after liquidation?
A. The proceeds from the sale of the remaining
noncash assets amounts to P53,000.
B. The loss on realization on the sale of the
remaining noncash assets amount to
P177,000.
C. Partner Rejected will receive the amount of
P208,000 on the first distribution of cash.
D. Partner Ignored will receive a total of P127,800
cash after liquidation.
30.On December 31, 2012, the following figures were
taken from the trial balances of Chrisnelle Company
and Aeanne Company:
Chrisnelle Aeanne
Cash P160,000 P40,000
Receivables 120,000 120,000
Inventory 200,000 140,000
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 Property and equipment net400,000 200,000
Goodwill ---
60,000
Current liabilities 40,000 20,000
Long-term liabilities 140,000 100,000
Common stock 220,000 200,000
Additional paid-in capital 40,000 ---
Retained earnings 440,000 240,000

On December 31, 2012, Chrisnelle issues 10,000

shares of its P10 par value stock for the net assets of
Aeanne. Chrisnelles stock had a P34 per share fair
market value. Chrisnelle would also issue bond
debentures with face value of P200,000 maturing 3
years from date of issue. Discount related to the
bonds issued amounted to P40,000. Chrisnelle also
paid the following: P50,000 for brokers fee, P40,000
for pre-acquisition audit fee, P43,000 for legal fees,
P36,000 for audit fee for SEC registration of stock
issue and P11,000 for printing of stock certificates.
Aeanne holds an equipment that is worth P80,000
more than its current book value. The retained
earnings of Aeanne on January 1, 2012 amounted to
P140,000.

How much is the total assets after the merger?

A.P1,240,000
B. P1,280,000
C. P1,320,000
D. P1,500,000

31.Donna, Leizel and Jomar are partners with average

capital balances during 2011 of P120,000, P60,000

18
 and P40,000, respectively. Partners will receive 10%
interest on their average capital balances. After
deducting salaries of P30,000 to Donna and P20,000
to Jomar, the residual profit or loss is divided equally.
In 2011, the partnership sustained a P33,000 loss
before interest and salaries to partners. By what
amount should Donnas capital account change?
A.P42,000 increase
B. P35,000 decrease
C. P11,000 decrease
D. P7,000 increase

For items no. 32 and 33, please refer to the following

problem:
(ICPA 4 SY14 -15) On December 31, 2013, Almira Company
authorized Adrianne to operate as a franchisee for an initial
franchise fee of P3,000,000. Of this amount, P1,200,000
was received upon signing of contract and the balance
payable by a non-interest bearing note, due in three annual
payments of P600,000 beginning December 31, 2014. The
collectability of the note is not reasonable assured. The
market rate of interest is 18%. (Use two decimal places for
present value factor)

32.On December 31, 2013, Almira Company should

recognize revenue from franchise of
A.P3,000,000
B. P4,302,000
C. P498,000
D. P0

33.How much is the unearned interest on December 31,

2014?
A.P0
B. P498,000
C. P234,360
D. P263,640

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34. On January 1, 2011, Fritz Company purchased
80% of the stocks of Alexa Corporation at book value
which is the same as its fair value at the date of
acquisition. The stockholders equity of Alexa
Corporation on this date showed: Common stock
P1,140,000 and Retained earnings P980,000.
On April 30, 2012, Alexa Corporation acquired a
used machinery for P168,000 from Fritz Company
that was being carried in the latters books at
P210,000. The asset still has a remaining useful
life of 5 years.
On the other hand, on August 31, 2011, Fritz
Company purchased land from Alexa for
P690,000. The original cost of this land was
P550,000.
Furthermore, there was an upstream sales of
P112,000 in 2011 and P168,000 in 2012. The
buying affiliate reported inventory on December
31, 2011 amounting to P70,000 of which 20%
comes from the selling affiliate and inventory on
December 31, 2012 amounting to P84,000 of
which 30% comes from the selling affiliate. Fritz
Co. uses 30% mark-up on cost and Alexa Corp.
uses 25% mark-up on cost for their selling prices.
Net income of Fritz Co. and Alexa Corp. for 2012
amounted to P720,000 and P310,000.
Dividends paid totaled to P230,000 and P105,000
for Fritz Co. and Alexa Corp., respectively.

How much is the non-controlling interest in net assets

at December 31, 2012?
A.P435,992
B. P436,552
C. P463,992
D. P464,552

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35. Alayka Corporation acquired the net assets of
Adriel Company on July 1, 2012 and made the
following entry to record the acquisition:
Current assets P600,000
Equipment 900,000
Land 300,000
Building 1,800,000
Goodwill 600,000
Liabilities 480,000
Common stock, P1 par 600,000
Additional paid-in capital 3,120,000

The agreement further provides that additional cash

consideration would be paid on June 30, 2013, equal
to twice the amount by which net earnings of Adriel
Company exceed P300,000 with the first 12 months of
acquisition. Net income was P260,000 in 2012
(earned evenly) and P160,000 for the first six months
of 2013. The estimated useful life of goodwill cannot
be reliably estimated by the acquirer. Included in the
goodwill computation is the fair value of contingent
consideration liability which was estimated to be
P100,000 as of July 1, 2012, although it was assessed
as not probable at this date. What should be the
amount of goodwill on December 31, 2013?
A.P425,000
B. P500,000
C. P525,000
D. P600,000

21
36.(ICPA 4 SY14-15) On January 1, 2013, Aime, Inc.
signed an agreement authorizing Mr. Midel to operate
as a franchisee for an initial franchise fee of
P5,000,000. Of this amount, P2,000,000 was received
upon signing of the agreement and the balance
evidenced by a 16% promissory note which is due in
three annual installments of P1,000,000 each
beginning December 31, 2013. Mr. Midel started
franchise operations on September 1, 2013 after Aime
rendered initial services required at a total cost of
P1,500,000. The first installment was collected on
due date. The collectability of the note is not
reasonably assured. How much net income is to be
recognized on December 31, 2013?
A.P2,580,000
B. P2,100,000
C. P1,080,000
D. P600,000

37. On July 10, 2012, Thea, Inc. sold a new car to

Ms. Julie Kris for P850,000. The car costs Thea
P650,625. Ms. Julie Kris paid 25% cash down payment
and traded her old car. Thea granted an allowance of
P80,000 on the old car traded, the balance payable in
equal monthly installment payments. The monthly
installment amounts to P30,000 inclusive of 12%
interest on the unpaid balance of the principal amount
of obligation. The old car traded in has a selling price
of P120,000 after expending reconditioning cost of
P22,500. After paying three installments, Ms. Julie

22
 Kris suffered major financial setbacks incapacitating
her to continue paying. The car was subsequently
repossessed. When reacquired, the car was appraised
to have a fair value of P300,000. What is the gain or
loss on repossession?
A.P62,716.50
B. P(62,716.50)
C. P62,617.50
D. P(62,617.50)

38.Nneka Corporation acquired an 80% interest in Imar

Company on January 1, 2012 for P1,225,000. On this
date, the capital stock and retained earnings of the
two companies were as follows:
Nneka Imar
Capital stock P3,150,000 P875,000
Retained earnings 1,400,000 175,000

The assets and liabilities of Imar were stated at their

fair values when Nneka acquired its 80% interest and
the proportionate share in net identifiable assets was
used to initially measure the non-controlling interest.
Nneka uses the cost method to account for its
investment in Imar.

Net income and dividends for 2012 for the affiliated

companies were:
Nneka Imar
Net income P525,000 P157,500
Dividends declared 315,000 87,500
Dividends payable, 12/31/12157,500 43,750

End of year evaluation indicates P12,000 impairment

in goodwill. The consolidated dividends payable at
December 31, 2012:

23
 A.P210,250
B. P166,250
C. P157,500
D. P0

39.Mojica Constructions began construction work under a

three-year contract. The contract price was P700,000.
Mojica uses the percentage of completion method for
financial accounting purposes. The financial
statement presentation relating to this contract at
December 31, 2010 is presented below:

Balance Sheet
Accounts Receivable construction billings 26,250
Construction in progress 87,500
Less: Contract billings 82,250 5,250

Income Statement
Income (before tax) on the contract
recognized in 2010 17,500

The total estimated cost is:

A.P140,000
B. P560,000
C. P656,250
D. P700,000

40.On June 1, 2013, Airrish Corporation, franchisor,

receives P400,000 from Mark Lorenz representing

24
 down payment on the franchise agreement signed
that day. Mark Lorenz gave Airrish a 12% interest
bearing promissory note for the balance of P2,000,000
payable in four semi-annual installments. Franchise
services substantially completed by Airrish on
November 15 at a cost of P1,800,000. On December
1, 2013, the first semi-annual installment became due
and was accordingly paid by Mark Lorenz. Airrish
appropriately uses the accrual method of recording
franchise revenues. In its December 31, 2013
financial statements, how much will Airrish report as
realized franchise income of the year?
A.Zero
B. P400,000
C. P600,000
D. P900,000
41. On July 1, 2012, Eushima, Inc. acquired most of
the outstanding common stock of Crystal Company for
cash. The incomplete working paper elimination
entries on that date for the consolidated statement of
financial position of Eushima, Inc. and its subsidiary
are shown below:
(1) Stockholders equity Eushima2,437,500
Investment in Crystal 1,584,375
Non-controlling interest 853,125
(2) Inventories 62,500
Equipment 312,500
Patent 61,250
Goodwill ?
Investment in Crystal 468,750
Non-controlling interest ?

Included in the purchase price is a control premium of

P68,750. The amount of goodwill to be reported in
the consolidated statement of financial position on
July 1, 2012:
A.P179,135
B. P185,188

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 C. P247,885
D. P284,904

42.Bernie Berba Builders, Inc. successfully bid in a

contract for factory building at a price of P13,000,000.
Bernie Berba Builders, Inc. uses the percentage-of-
completion method and the following data were
summarized for this project:
12/31/12 12/31/13
Estimated total cost at completionP9,750,000
P10,400,000
Income recognized to date 650,000 1,560,000

What is the contract cost incurred in 2013, assuming

costs incurred to measure the extent of progress
toward project completion?
A.P4,290,000
B. P4,160,000
C. P4,740,000
D. P4,550,000
43.Frustration, Depression and Tension are partners
dividing profits and losses in the ratio of 2:3:1
respectively. Their capital balances on December 31,
2010 were P214,000, P328,000 and P194,000,
respectively. Tension is retiring from the partnership
as of April 30, 2011. Assume net income is
considered as having been realized evenly throughout
the year during the year of a partners retirement.
After retirement of a partner, remaining partners
would divide profits and losses in the remaining
original ratio. The partnership reported net income of
P270,000 for the year 2011. Tension is to be paid an
amount which is 130 percent of his adjusted equity as
of the date of his retirement. Which of the following
statements is FALSE?
A. Upon retirement of Tension, the balance of the
capital account of Frustration amount to P218,920.

26
 B. At the end of 2011, the balance of the capital
account of Depression is P152,460 higher than the
capital account balance of Frustration.
C. The capital account of Frustration has a net
increase of P76,920 from beginning to end of 2011.
D. Upon retirement of Tension, the capital
account of Depression will have a net
increase of P7,380 as a result of the transfer
of capital.

44. On January 2, 2012, Sherwie Company acquired

80% interest in Haibe Company for P4,125,000 cash.
On this date, the outstanding capital stock and
retained earnings of Sherwie Company and Haibe
Company are as follows:
Sherwie Haibe
Common shares P2,250,000 P1,312,000
Share premium 1,500,000 ---
Retained earnings 5,250,000 3,187,500

There was no issuance of capital stock during the

year. Non-controlling interest is initially measured at
fair value. Fair values of the following assets of Haibe
exceeded their book values as follows: Inventories,
P210,000; Property and equipment (useful life, 10
years), P127,500. All other assets and liabilities are
fairly valued. Goodwill, if any, is not impaired. On
December 31, 2012, the two companies reported the
following operating results:
Sherwie Haibe
Net income P1,785,000 P975,000
Dividends paid 525,000 262,500

What is the consolidated stockholders equity to be

reported in the consolidated statement of financial
position on December 31, 2012?
A.P7,035,000
B. P10,651,800

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 C. P11,781,000
D. P13,500,000

45.A balance sheet for the partnership of Kriscelle, Arnan

and Christine, who share profits in the ratio of 2:1:1,
shows the following balances just before liquidation:
Assets Liabilities and
Capital
Cash P144,00 Liabilities P240,00
0 0
Other assets 714,000 Kriscelle,
Capital 264,000
Arnan, Capital 186,000
Christine,
Capital 168,000

In the first month of liquidation, certain assets are

sold for P384,000. Liquidation expenses of P12,000
are paid and additional expenses are anticipated.
Liabilities of P64,800 are paid and sufficient cash is
retained for the anticipated liquidation expenses. In
the first payment to partners, Kriscelle receives
P75,000. The amount of cash withheld for the
anticipated liquidation expenses is:
A.P211,200
B. P175,000
C. P36,000
D. P0

46.On December 31, 2012, the Investment in Davao

Branch account on the home offices books has a
balance of P150,000. Upon further inspection of the
related documents and entries for December, you
noted the following discrepancies:

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 a.A P15,000 branch remittance to the home office on
December 27, 2012 was only recorded on the
home office books on January 4, 2013.
b.A home office inventory shipment worth P25,000 to
the branch on December 29, 2012 was recorded by
the branch on January 3, 2013.
c. The home office incurred P15,000 of advertising
expense. It was determined that 20% of this
amount should be allocated to the branch. As of
December 31, 2012, the branch has not yet
recorded this transaction.
d.A customer of the Davao branch erroneously
remitted P5,000 to the home office. The home
office recorded this cash collection on December
31, 2012. Upon notification on December 28,
2012, the branch appropriately recorded the
transaction in their books.
e.Inventory costing P45,000 was sent to the branch
on December 10, 2012 but was recorded by the
branch at P40,000 only.

Assuming that the home office bills its branch for

merchandise shipments at cost, compute the
unadjusted balance of the home office current
account as of December 31, 2012:
A.P97,000
B. P102,000
C. P107,000
D. P135,000

47.KJ Partnership begins its first year of operations with

the following capital balances: Karlmay, Capital
P250,000; Janet, Capital P150,000. According to the
partnership agreement, profits will be distributed on
the basis of the beginning capital for the first year and
equally on the second year after allowing for a
P275,000 and P135,000 salary to Karlmay and Janet,
respectively, a 10% interest on the beginning capital

29
 balance for the year and a 10% bonus to Janet. The
bonus shall be based on the net income after
deducting all necessary expenses. It was also stated
in the partnership agreement that each partner can
only withdraw up to P15,000 per year. Net income for
the first year was P25,000 while net income for the
second year was P90,000. Assuming that each
partner withdraws the maximum amount from the
business each period, what is the ending balance of
Janets capital account at the end of the second year?
A.P84,091
B. P127,045
C. P267,955
D. P370,909

48.Diao Construction Company entered into a contract

with Faija Company to manufacture a building for
P4,000,000. Initial estimate of Diaos engineers
revealed that the project would take approximately 8
years to complete at a total cost of P2,500,000.
During the year, Diao incurred P300,000. The
engineers estimated that the company would need to
spend an additional P2,300,000 to complete the
contract. Faija Company received a 15% billing
subject to a 10% retention. Assume that Diao uses
the percentage of completion method, how much is
the excess of Construction in Progress over Billings or
Billings over Construction in Progress?
A.P78,462 due to
B. P78,462 due from
C. P138,462 due to
D. P138,462 due from

30
49.CC, PP and AA, accountants, agree to form a
partnership and to share profits in the ratio of 5:3:2.
They also agreed that AA is to be allowed a salary of
P14,000 and that PP is to be guaranteed P10,500 as
his share of the profits. During the first year of
operations, income from fees are P90,000, while
expenses total P48,000. What amount of net income
should be credited to CCs capital account?
A.P12,500
B. P12,688
C. P14,000
D. P15,050

50.On January 2, 2013, Aiza Company established a sales

agency in Las Pinas City. During the year, the
following transactions occurred:
Transfer of P10,000 worth of merchandise to Las
Pinas Agency to establish a working fund.
Receipts of sales orders from the agency,
P100,000.
Collection of agency accounts by the home office,
P70,000.
Home office disbursements representing agency
expenses, P9,000.
Replenishment of the agency working fund upon
receipt of expense vouchers for P4,500.
Cost of goods sold identified with the agency
sales, P72,000.
What is the net income (loss) of the agency for the
year 2013?
A.P9,000
B. P14,500
C. P19,000
D. P28,000

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