Practical Accounting II

Easy

1. On April 30, 2014, Algee, Belger, and Ceda formed a partnership by combining their
separate business proprietorships. Algee contributed cash of P50,000, Belger
contributed property with a P36,000 carrying amount, a P40,000 original cost, and
P80,000 fair value. The partnership accepted responsibility for the P35,000 mortgage
attached to the property. Ceda contributed equipment with a P30,000 carrying
amount, a P75,000 original cost, and P55,000 fair value. The partnership agreement
specifies that profits and losses are to be shared equally but is silent regarding capital
contributions. Which partner has the largest April 30, 2014, capital account balance?
a. Algee b. Belger
c. Ceda d. All capital account balance are equal

Answer: C
Capital contribution:
Algee P50,000
Belger (80,000 35,000) 45,000
Ceda 55,000

2. Assume that C has a P50,000 equity in the partnership of A, B, and C. Partner C

arranges to sell his entire interest to D for P80,000 Cash. Partners A and B agree to
the admission of D. At what amount will the equity of the incoming partner, D, be
shown in the balance sheet?
a. At P50,000.
b. At P50,000 and the P30,000 will be divided equally among the original partners.
c. At P80,000
d. At P80,000 and the P30,000 will represent Goodwill which will be apportioned
between the existing equities of A and B.

Answer: A
The transaction is between the existing partner and the new partner only and not
between the new partner and the partnership.

3. During 2014, Young and Zinc maintained average capital balances in their partnership
of
P160,000 and P100,000 respectively. The partners receive 10% interest on average
capital balances, and residual profit or loss is divided equally. Partnership profit
before interest was
P4,000. By what amount should Zincs capital account change for the year?
a. P1,000 decrease b. P11,000 decrease
c. P2,000 increase d. P12,000 increase

Answer: A
Young Zinc Total
Average capital balances P16,000 P10,000 P26,000
Residual (4,000 26,000) (11,000) (11,000) (22,000)
Total P5,000 (P1,000) P4,000
 4. The capital account of Anne has a credit of P40,000, while her drawing account has a credit
balance of P60,000. The partners equity of Anne is
a. P20,000 credit b. P100,000 credit
c. P20,000 debit d. P40,000 credit

Answer: B
Credit balance of equity account P40,000
Credit balance of drawing account 60,000
Total partners equity of Anne P100,000

5. Diamante Motors sells locally manufactured jeeps on installments. Information presented

below relates to Diamantes operations for the last three calendar years.

2015 2014 2013

Cost of installment sales P8,765,625 P7,700,000 P4,950,000
Gross profit on installment sales 32% 30% 28%
Outstanding installment recl, Dec. 31:
From 2015 9,728, 125
From 2014 3,025, 000 8,387,500
From 2013 1,512,500 4,812,500

Diamante Motors uses the installment method of accounting.

How much is the total realized gross profit for calendar year 2015?
a. P2,185,026 b. P1,012,000
c. P6,993,250 d. P3,044,250

Answer: D
From 2015 [(8,765,625/68%)-9,728,125]*32% P1,012,000
From 2014 (8,387,500-3,025,000)*30% 1,608,750
From 2013 (1,512,500*28%) 423,500
Total P3,044,250

Average

1. The partnership of Y. Linsao and S. Mison provides for equal sharing of profits and losses.
Prior to the admission of a third partner (C. Zamora), the capital accounts are Linsao, P75,000
and Mison, P105,000. Zamora invests P90,000 for a P75,000 interest and partners agreed that
the net assets of the new partnership would be P270,000.

How much is Misons capital in the new partnership?

a. P112,500 b. P110,000
c. P105,000 d. P120,000

Answer: A
Y. Linsao S. Mison C. Total
Zamora
Capital P75,000 P105,000 P P180,000
Investment of C. Zamora 90,000 90,000
Total 75,000 105,000 90,000 270,000
Bonus to old partners(90,000- 7,500 7,500 (15,000)
 75,0000)
New capital P82,500 P112,500 P75,000 P270,000

2. R. Volante and F. Asuncion are partners having capital balances of P150,000 and
P180,000, respectively, and sharing profits and losses equally. They admit J. De Leos to a
one-third interest in partnership capital and profits for an investment of P195,000.

If the goodwill procedure is used in recording the admission of J. De Leos to the partnership
a. J. De Leos capital will be P175,000
b. Total capital will be P525,000
c. F. Asuncion capital will be P210,000
d. Goodwill will be recorded at P45,000

Answer: C
Goodwill [195,000/(1/3)]-(150,000+180,000+195,000) P60,000

R. Volante F. Asuncion J. De Leos Total

Capital P150,000 P180,000 P195,000 P525,000
Goodwill 30,000 30,000 60,000
Total P180,000 P210,000 P195,000 P585,000

3. The following amounts were taken from the statement of affairs for Bagsak Company
Unsecured liabilities without priority 90,000
Stockholders' equity 36,000
Loss on realization of assets 45,000
Estimated administrative expenses that have not been 4,500
entered in the accounting records
Unsecured liabilities with priority 10,000

The estimated payment for the unsecured liabilities without priority will be
a. P76,500 b. P81,000
c. P77,850 d. P90,000

Answer: A
Total liabilities (90,000+10,000) P100,000
Stockholders equity 36,000
Total assets 126,000
Loss on realization of assets (45,000)
Administrative expenses (4,500)
Payment to unsecured liabilities with priority (10,000)
New capital P76,500

4. Rose Company which began operations on January 2, 2015, appropriately uses the
installment sales method of accounting. The following information is available for
2015: Installment accounts receivable, December 31, P800,000; Deferred gross profit,
December 31, before recognition of realized gross profit for 2015, P560,000; gross
profit rate on cost, 40%

For the year ended December 31, 2015, cash collections and realized gross profit on
sales should be:
 a. P600,000; P240,000 b. P1,160,000;331,429
c. P600,000; P320,000 d. P1,160,000;240,000

Answer: B
Deferred gross profit P560,000
Divided by the gross profit rate 40%/140
%
Accounts receivable, beginning 1,960,000
Accounts receivable, ending 800,000
Cash collections 1,160,000
Multiply by the gross profit rate 40%/140
%
Realized gross profit P331,429

5. On June 1, 2014, Cecil Company paid P800,000 cash for all the issued and
outstanding common stock of Glen Corporation. The carrying values for the Glens
assets and liabilities on
June 1, 2014, follow:

Cash P150,000
Accounts receivable 180,000
Capitalized software costs 320,000
Goodwill (net of accumulated amortization of P80,000) 100,000
Liabilities ( 130,000)

On June 1, 2014, Glens accounts receivable had a fair value of P140,000.

Additionally, Glens in-process research and development was estimated to have a fair
value of P200,000. All other items were stated at their fair values. On Cecils June 1,
2014, consolidated balance sheet, how much is reported for goodwill?

a. P220,000 b. P120,000
c. P300,000 d. P160,000

Answer: B

Cash P150,000
Accounts Receivable 140,000
Capitalized Software Cost 320,000
In process research and development 200,000
Total Assets 810,00
0
Liabilities 130,000
Net Assets Acquired 680,000
Amount paid 800,000
Goodwill P120,000

Difficult
1. On December 31, the partnership accounts of I. Gabon, J. Hipolito and K. Imperial who share
profits and losses in the ratio of 5:3:2 follow:

I. Gabon, drawing debit P12,000

K. Imperial, drawing credit 4,800
Accounts receivable Gabon 7,200
Loans payable Hipolito 14,400
I.Gabon, capital 59,400
J.Hipolito, Capital 44,400
K. Imperial, capital 39,000

Total partnership assets on this day stands at P211,200, including cash of P64,200. The
partnership is liquidated and Imperial ultimately receives P33,000 in final liquidation.

How much is the total loss on realization of the partnership?

a. P64,200 b. P54,000
c. P31,200 d. P10,800

Answer: B
K. Imperial, Capital P39,000
K. Imperial, Drawing 4,800
Total equity 43,800
Cash settlement (33,000)
Share in loss 10,800
Divided by P/L ratio 2/10
Total loss on realization P54,000

2. Roel, Jekell and Mike, CPAs, decide to form a partnership and agree to distribute profits in
the ratio 6:3:3. It is agreed, however, that Roel and Jekell shall guarantee fees from their own
clients of P600,000 and P500,000 respectively, that any deficiency is to be charged directly
against the account of the partner failing to meet the guarantee, and that any excess is to be
credited directly to the account of the partner with fees exceeding the guarantee. Fees earned
during 2014 are classified as follows:

From clients of Roel P1,000,000

From clients of Jekell 400,000
From clients of Mike 100,000

Operating expenses for 2014 are P200,000. Determine the share of Roel on the
operating results for the year 2014.
a. P650,000 b. P500,000
c. P1,050,000 d. P900,000

Answer: D
Total revenue (600,000+500,000+100,000) P1,200,000
Expenses (200,000)
Net income 1,000,000

Share (1,000,000 x 6/12) 500,000

Excess in fees earned (1,000,000 600,000) 400,000
Share of Roel in operating income P900,000
3. Caine, Osman, and Roberts formed a partnership on January 1, 2012, agreeing to
distribute profits and losses in the ratio of original capitals. Original investments were
P625,000, P250,000 and
P125,000 respectively. Earnings of the firm and drawings by each partner for the
period 2012-2014 follows:

Drawings
Net income (loss) Caine Osman Roberts
2012 440,000 150,000 78,000 52,000
2013 185,000 150,000 78,000 52,000
2014 (105,000) 100,000 52,000 52,000

At the beginning of 2015, Caine and Osman agreed to permit Roberts to withdraw
from the firm. Since the books for the firm had never been audited, the partners
agreed to an audit in arriving at the settlement amount. In withdrawing, Roberts was
allowed to take certain furniture and was charged P15,000, although the book value
was P45,000; the balance of Roberts interest was paid in cash.

The following items were revealed in the course of the audit.

End of 2012 End of 2013 End of 2014
Understatement of accrued expenses 4,000 5,000 6,500
Understatement of accrued revenue 2,500 1,000 1,500
Overstatement of inventories 15,000 20,000 20,000
Understatement of depreciation expense
on assets still held 1,500 3,500 2,000

How much must Roberts received from the partnership?

a. P0 b. P26,250
c. P11,250 d. P15,000

Answer: C
Total income (440,000+185,000-105,000) P520,00
0
Adjustment (-6,500+1,500-20,000-1,500-3,500-2,000) (32,000)
Adjusted total net income 488,000
Multiplied by the P/L percentage 12.50%
Share in net income 61,000
Original investment 125,000
Total withdrawal (52,000 x 3) (156,000
)
Share on the impairment of the furniture (45,000-15,000) x (3,750)
12.50%
Fair value of the furniture (15,000)
Cash received by Roberts from the partnership P11,250

4. Summary adjusted trial balance for the home office and branch of TJ Corporation at
December 31, 2014 are as follows:

Home office Branch

Debits:
 Other assets P530,000 P165,000
Inventories, January 1, 2014 50,000 45,000
Branch 200,000 -
Purchases 500,000 -
Shipments from home office - 240,000
Expenses 120,000 50,000
Dividends 100,000 -
Total debits P1,500,000 P 500,000

Credits:
Other liabilities P 90,000 P 25,000
Capital stock 500,000 -
Retained earnings 100,000 -
Home office - 175,000
Unrealized profit in branch inventory /
loading 10,000 -
Sales 537,500 300,000
Shipments to branch 200,000 -
Branch profit 62,500 _______
Total credits P1,500,000 P 500,000

Additional information:
1. The home office ships merchandise to its branch at 120% of home office cost.
2. Inventories at December 31, 2014 are P70,000 for the home office and P60,000
for the branch. The branch inventory is at transfer prices.

The net income of the home office and the branch (own books and in the home
offices books)
a. P120,000;62,500;25,000 b. P137,500;62,500;62,500
c. P120,000;25,000;25,000 d. P137,500;25,000;62,500

Answer: D
Home office:
Sales P537,50
0
Cost of sales (50,000+500,000-200,000-70,000) (280,000
)
Expenses (120,000
)
Net income P137,50
0

Branch
Sales P300,00
0
Cost of sales (45,000+240,000-60,000) (225,000
)
Expenses (50,000)
Net income, per branchs books 25,000
Realized profit (225,000 x 20%/120%) 37,500
 Net income, per home offices books P62,500

5. Yanni Company recognizes construction revenue and expenses using the percentage
of completion method. During 2012, a single long-term project was begun which
continued through 2014. Information on the project was as follows:

2012 2013 2014

Accounts receivable from construction P100,000 P300,000 P320,000
contract
Construction expenses each year 105,000 192,000 ?
Construction in progress 122,000 364,000 610,000
Partial billings on contract 100,000 420,000 500,000
Gross profit recognized for the year ? ? 20,000

Compute the profit recognized from the long-term construction contract in 2012 and
2013 and construction expenses in 2014:
2012 2013 2014
a. P17,000 P50,00 P226,00
0 0
b. P22,000 P64,00 P246,00
0 0
c. P17,000 P50,00 P364,00
0 0
d. P22,000 P56,00 P610,00
0 0

Answer: A

Construction in Progress
CI 105,000
Profit 17,000
122,000
CI 192,000
Profit 50,000
364,000
CI 226,000
Profit 20,000
610,000

Clincher

1. Francisco Corporation is an 80%-owned subsidiary of Cruz Company. On January 1,

2014, Francisco sold Cruz a machine for P50,000. Francisco's cost was P60,000 and
the book value was P40,000. The machine had a 5-year remaining life at the time of
the sale. A consolidated balance sheet only is being prepared on December 31, 2014.
The retained earnings account of the controlling interest requires which of the
following adjustments?
a. P4,000 debit b. P1,600 debit
c. P2,000 debit d. P4,800 credit
 Answer: B (Easy)
(P50,000 P40,000) * 1/5 * 80%

2. The records of Good Samaritan Hospital, a nonprofit organization, had the following
book balances on June 30, 2015:

Charity care P100,000

Contractual adjustments 150,000
Patient service rendered (gross) 1,240,000
Provision for doubtful accounts 140,000

Good Samaritans net patient service revenues for the year ended June 30, 2015
amounts to:
a. P1,090,000 b. P1,000,000
c. P990,000 d. P1,080,000

Answer: C (Easy)
Patient service rendered P1,240,000
Charity care (100,000)
Contractual adjustment (150,000)
Net patient revenue P990,000

3. Sharon Company uses the installment sales method in accounting for its installment
sales. On January 1, 2014, Sharon Company had an installment account receivable
from Rowena with a balance of P18,000. During 2014, P4,000 was collected from
Rowena. When no further collection could be made, the merchandise sold to Rowena
was repossessed. The merchandise had a fair market value of P6,500 after the
company spent for P600 for reconditioning of the merchandise. The merchandise was
originally sold with a gross profit rate of 40%.

Determine the gain or loss on repossession and Cost of Repossessed Merchandise to

be presented in the Income Statement, respectively:
a. P2,500 loss; P6,500 b. P2,100 loss; P6,500
c. P2,500 gain; P5,900 d. P2,100 gain; P5,900

Answer: A (Average)
FMV after reconditioning cost P6,500
Less: Reconditioning cost 600
FMV before reconditioning cost 5,900
Less: Unrecovered cost (18,000-4,000)=14,000 x 60% 8,400
Loss (P2,500)

4. Crenshaw and Durkee formed a partnership on January 1, 2014. Crenshaw invested P

60,000, Durkee P40,000. Each withdrew P5,000 on each of the following dates during
2014: March 1, July 1, and November 1. These capital withdrawals in total were equal
to salaries for the year. Interest of 9 percent was to be paid to partners on the basis of
their average capital balances excluding net income. Additionally Crenshaw was to
get a 20 percent bonus based on partnership net income after the bonus, but before the
salaries and interest.
 Any remaining profit (or loss) was to be allocated equally among the partners.

If partnership net income was P100,000, how was it to be allocated Crenshaw?

a. P54,900 b. P53,400
c. P36,600 d. None of the above

Answer: D (Average)
C D Total
Salaries P15,000.00 P15,000.00 P30,000.00
Interest (9% x Average) 4,725.00 2,925.00 7,650.00
Bonus * 16,667.00 0.00 16,667.00
Balance (equally) 22,841.50 22,841.50 45,683.00
P59,233.50 P40,766.50 P100,000.00
Average Capital (Use Calculator)
C: 60,000 x 2 = M+
55,000 x 4 = M+
50,000 x 4 = M+
45,000 x 2 = M+ MR/12 = 52,500

D: 40,000 x 2 = M+
35,000 x 4 = M+
30,000 x 4 = M+
25,000 x 2 = M+ MR/12 = 32,500

*Bonus= .20 (NI-B)

= .20 (100,000-B)
= 20,000-.20B
B= 16,667

5. KCF Corporation is being liquidated. The trustee has determined that the unsecured
claims will receive P0.50 on the peso. Jen Corporation holds a P100,000 mortgage
note receivable from KCF that is secured by marketable securities with P 75,000 book
value and P 82,000 fair value. How much of the mortgage receivable will be
recovered by Jen?
a. P84,000 b. P91,000
c. P87,500 d. P94,500

Answer: B (Easy)
Secured portion P82,000
Unsecured portion (18,000 x 0.50) 9,000
Amount recovered P91,000