DE LA SALLE ARANETA UNIVERSITY

QUIZ 1 - ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)

The following balance sheet was prepared for the X, Y, and Z Partnership on March 31, 2018:
Assets Liabilities and Capital
Cash P 25,000 Liabilities P 52,000
Other assets 180,000 X, Capital (40%) 40,000
Y, Capital (40%) 65,000
Z, Capital (20%) 48,000
Total P205,000 Total P205,000

The partnership is being liquidated by the sale of assets in the installments. The first sale of non-cash
assets having a book value of P 90,000 realizes P 50,000.

Assume that each partner properly received some cash after the second sale of assets. The cash to be
distributed amount to P 14,000 from the third sale of assets, and unsold assets with a P6,000 book value
remain.

1. How should the P 14,000 be distributed to X, Y, and Z respectively?

A. P5,600; P6,500; P2,800
B. P5,000; P5,000; P4,000
C. P0; P11,200; P2,800
D. P5,600; P5,600; P2,800

Partners Joy and Rachel have a profit and loss agreement with the following provisions: Salaries of
P30,000 and P 45,000 for Joy and Rachel respectively; a bonus to Joy of 10% of net income after salaries
and bonus; and interest of 10% on average capital balances of P 20,000 and P 35,000 for Joy and Rachel,
respectively. One-third of any remaining profits are allocated to Joy and the balance to Rachel

2. If the partnership had net income of P 102,500, how much should be allocated to Partner Joy?
A. P44,250
B. P47,500
C. P41,000
D. P41,167

On March 1, 2016, Cameron Construction Company was contracted to construct a townhouse for Will
Company for a total contract price of P 8,400,000. The building was completed by October 31, 2018. The
annual contract costs incurred, estimated costs to complete the contract, and billings for 2016, 2017 and
2018 are giving below:
2016 2017 2018
Contract cost incurred during the year P3,200,000 P2,600,000 P1,450,000
Estimated cost at completion 6,400,000 7,250,000 7,250,000
Billings during the year 3,200,000 3,500,000 1,700,000

3. How much is the realized gross profit for 2018?

 A. P230,000
B. P1,000,000
C. P80,000
D. P150,000

Hilda, Irma, and Julie were partners with capital balances on January 2, 2018 of P 560,000, P 672,000 and
P 496,000, respectively. Their profit and loss ratio is 3:5:2. On August 1, 2018, Hilda retires from the
partnership. On the date of retirement, the partnership net loss from January 2 is P 384,000; and the
partners agreed to revalue inventories to P 296,000( from the carrying amount of P 272,000). The
payment to Hilda in settlement of her interest is to be P 454,800.

4. Upon the retirement of Hilda, which of the following will result?

A. Bonus to Irma of P 2,000
B. Bonus to Julie of P 8,000
C. Goodwill to Julie of P 2,800
D. Irma’s capital is P 66,800 more than Julie’s

On September 2, 2018, Nino, Olan, and Pete formed a partnership investing cash of P 945,000, P
850,500, and P 264,600., respectively. The partners share profits and losses in the ratio of 3:2:2 and on
October 31, 2018 the firm has a cash of P 63,000, other assets of P 2,992,500, and liabilities of P
1,612,800. On the date they decided to go out of business and sell all the assets for P 1,890,000. Pete has
personal assets of P 94,500 that may, if necessary, be used to meet partnership obligations. Loss from
operations was P 617,400.

5. How much should be distributed to Olan upon liquidation of the partnership?

A. P128,520
B. P306,180
C. P0
D. P268,380

Building Corporation was contracted by Mr. E to construct 35 condominium units. The estimated total
cost of construction was P49 million. Building bills its client at 120% of total costs estimated to complete
a project. Details regarding the contract are given below:
Units Finished Costs Incurred to Date Estimated Cost at Completion
2015 10 P14,721,875 P58,887,500
2016 18 36,286,500 55,825,000
2017 17 55,125,000 ?

6. What is the realized gross profit during 2016 using the output measures?
A. P2,975,000
B. P2,380,000
C. P2,467,500
D. P1,933,750

Use the following information for the next two items.

Partners A. B, C and D have been operating ABCD Partnership for ten years. Due to a significant
reduction in the demand for their product over recent years, the partners have agreed to liquidate the
partnership. At the time of liquidation, balance sheet accounts consisted of cash, P103,500; noncash
assets, P300,000; liabilities to outsiders, P60,000; capital credit balances for partners A, B and C,
P90,000, P150,000, and P120,000, respectively; and a debit capital balance for partner D of P16,500.
Partners share equally in income and loss. It is estimated that the administrative cost of liquidation will
total P4,500. While preparing for liquidation, an unrecorded liability of P7,500 was discovered.

7. Assuming the available cash of P103,500 was distributed, how much must be the share of partner
B?
A. P31,500
B. P30,750
C. P65,167
D. P0

8. For how much must the noncash assets be sold for partner D to received at least P5,000?
A. P429,500
B. P501,500
C. P398,000
D. P386,000

Use the following information for the next three items.

A, B and C have capital balances of P112,000, P130,000 and P58,000, respectively, and share profits in
the ratio 3:2:1. D invests cash in the partnership for a one-fourth interest.

9. Assume D receives a one-fourth interest in the assets of the partnership, which included credit for
P25,000 of goodwill that is recognized upon submission. How much cash did D invest?
A. P100,000
B. P75,000
C. P125,000
D. P50,000

10. Assume D receives a one-fourth interest in the assets of the partnership and D is credited with
P20,000 of the bonus from the old partners that is recognized upon D’s admission. How much
cash did D invest?
A. P73,333
B. P100,000
C. P93,333
D. P80,000

11. Assume D receives a one-fourth interest in the assets of the partnership and B is credited wit
P15,000 of the bonus from D, how much cash did D invest?
A. P115,000
B. P105,000
 C. P160,000
D. P120,000

A construction contract has a fixed price contract for P 100,00 to construct a building of a design that
has never before been constructed and using materials that have never before been used in the
construction of building (the project).

The contractor began construction of the building in 2018 and expects that constructions will take at
least five years. In 2018 the contractor incurred P 5,000 contract costs on the project.

At the end of 2018 the contractor cannot estimate the outcome of the contract with sufficient reliability
to estimate the project’s percentage of completion (i.e. because of the uncertainties arising from the new
design and new materials the entity cannot estimate total expected contracts costs with sufficient
reliability). It is highly likely that the contract price will be receive from the customer.

12. At the end of 2018 the contract must recognize the profit of:
A. P0
B. P5,000
C. P100,000
D. Incomplete date

The following data are provided by Lotto Corporation which is undergoing liquidation. Total liabilities
amount to P865,000 35% is fully secured by assets amounting to P337,500 with a FMV P 312,500, 40%
is partially secured by assets amounting to P375,000 with a FMV of P,250, and the remaining balances is
unsecured. Total assets amounts to P 1,225,000 with a total fair market value of P 918,750. Unpaid
income taxes amounts to P 53,750. Additional salaries payable and administrative expenses in liquidation
totaled P 37,500. Deficits amounts to P 106,250

13. Compute for the estimated recovery percentage of unsecured creditors .

A. 86.65%
B. 94.53%
C. 83.19%
D. 78.64%

Use the following information for the next two items.

A, B and C decided to form ABC Partnership. It was agreed that A will contribute an equipment with
assessed value of P200,000 with historical cost of P1,600,000 and accumulated depreciation of
P1,200,000. A day after the partnership formation, the equipment was sold for P600,000.

B will contribute a land and building with carrying amount of P2,400,000 and fair value of P3,000,000.
The land and building are subject to a mortgage payable amounting to P600,000 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.
 14. What is the total agreed capitalization of the ABC Partnership?
A. P3,000,000
B. P4,000,000
C. P5,000,000
D. P6,000,000

15. What is the cash to be contributed by C in the ABC Partnership?

A. P1,000,000
B. P1,200,000
C. P1,400,000
D. P1,600,000

Use the following information for the next three items.

On January 1, 2018, an entity granted franchise to a franchisee. The franchise agreement required the
franchise to pay a nonrefundable upfront fee in the amount of P 800,000 and on- going payment of
royalties equivalent to a 5% of the sales of the franchisee. The franchise 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 P 400,000.
 To deliver 20,000 units of raw materials to the franchisee with stand- alone selling price of P
500,000.
 To allow the franchisee to use the entity trade name for a period of 10 years starting January 1,
2018 with stand- alone selling price of P 100,000

On June 30, 2018, the entity completed the construction of the franchisee’s stall. On December 31, 2018,
the entity was able to deliver 6,000 units of raw materials to the franchisee. For the year ended December
31, 2018, the franchisee reported sale revenue amounting to P 200,000.

The entity had determined that the performance obligations are separate and distinct from one
another.

16. What is the amount of nonrefundable upfront fee to be allocated to the construction f the
franchisee’s stall?
A. P400,000
B. P320,000
C. P500,000
D. P240,000

17. What is the amount of revenue to be recognised in relation to the use of delivery of raw materials
for the year ended December 31, 2018?
A. P200,000
B. P400,000
 C. P120,000
D. P150,000

18. What is the amount revenue to be recognised in relation to the use of entity’s trade name for the
year ended December 31, 2018?
A. P10,000
B. P8,000
C. P100,000
D. P20,000

Use the following information for the next two items.

Bacolod Company is experiencing financial problems which resulted to ultimate bankruptcy. The
statement of financial position of the entity before liquidation is presented below:
Cash P200,000 Income tax payable P 400,000
Inventory 600,000 Salaries payable 600,000
Land 400,000 Note payable 1,600,000
Mortgage payable 200,000
Accounts payable 800,000
Contributed capital 1,000,000
Deficit (3,400,000)

Additional information:
i. The note payable is secured by the inventory with net realizable value of P500,000.
ii. The mortgage payable is secured by the land with fair value of P240,000.

19. What is the amount received by the holder of the note payable at the end of corporate liquidation?
A. P640,000
B. P600,000
C. P500,000
D. P520,000

20. What is the amount received by the holder of the mortgage payable at the end of corporate
liquidation?
A. P240,000
B. P400,000
C. P300,000
D. P200,000