Cup 3 AFAR 1

NFJPIA R11
CUP 3 – AFAR
EASY
1. In the cash distribution plan, which partner gets the first cash distribution?
a.The partner with the largest loan balance
b.The partner with the largest loss absorption potential
c. The partner with the largest capital balance
d.The partner with the largest profit or loss ratio
2. When a partner retires and receives cash less than his capital balance, how should the difference be treated?
a.The difference should be credited to all the partners in their profit or loss ratio
b.The difference should be debited to all the partners in their profit or loss ratio
c. The difference should be credited to the remaining partners in their remaining profit or loss ratio
d.The difference should be debited to the remaining partners in their remaining profit or loss ratio
3. In the installment liquidation of a partnership, the profit and loss sharing ratio is used for cash payments to partners,
in adherence to free interest principles,
a. At no time
b. Throughout the course of liquidation.
c. Once the partners’ capital account balances have been reduced to the income-sharing ratio
d. Only for asset realization that result in gain.
4. Owen, Tess and Sarah are partners. Their capital balances are as follows: Owen, P150,000; Tess P100,000 and Sarah,
P200,000 with P/L ratio of 4:3:3 respectively. Loss for the year was P330,000. What will be the ending capital balance
for Tess?
a. P1,000 credit balance
b. P10,000 debit balance
c. P99,000 debit balance
d. P10,000 credit balance
5. A business combination whereby the company taking over the properties of other companies retains its identity and
continuous as larger unit and the other companies are dissolved is known as
a. Consolidation
b. Merger
c. Acquisition method
d. None of these
6. In a job order cost system, the use of indirect materials previously purchase is recorded usually as an increase in
a. Work in process control
b. Factory overhead control
c. Factory overhead control
d. Factory overhead applied
7. Cons and Len are partners who share profits and losses in a ratio of 3:2, respectively and have the following capital
balances on Dec 31, 2015. Cons, Capital, P2,000,000 Cr. And Len,Capital, P1,500,000 Cr. Assume that the partners
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PROFESSIONAL REVIEW and TRAINING CENTER, INC.
agreed to let Nikki into the partnership by investing P1,000,000 for a one-fourth interest. Nikki’s capital balance will
be
a) P750,000
b) P875,000
c) P1,000,000
d) P1,125,000
8. White Corporation, a small-medium enterprise (SME), issued 100,000 shares of P20 par common stock of Black
Enterprises in a merger consummated on August 1, 2016. White Corporation common stock was selling at P30 per
share at the date of acquisition. Out-of-pocket costs of the business combination follows:
Finder’s fee P 50,000

Accountant’s fee (advisory) 10,000
Legal fee (advisory) 20,000
Printing cost of stock certificates 5,000
SEC registration costs and fees 12,000
Total P97,000
The acquisition cost of the combination to White Company is

a. P3,105,000 c. P3,050,000
b. P3,080,000 d. P3,000,000
9. The following were taken from the statement of affairs of HARASSED COMPANY.
Assets pledged with fully secured creditors P71,000
Assets pledged with partially secured creditors 12,500
Free assets 11,000
Preferred creditors 3,000
Fully secured creditors 69,000
Partially secured creditors 20,000
Unsecured creditors without priority 18,000
The estimated deficiency to unsecured creditors is

a. P 5,000 c. P15,500
b. P12,500 d. P14,500
10. AAA CONTRACTORS recognizes construction revenues and expenses using the percentage of completion method.
During 2018, a single long-term contract was started, which continued through the year 2019. Information the project
follows:
2018 2019
Accounts receivable on contract P100,000 P300,000
Construction expense each year 105,000 192,000
CIP, to-date 122,000 364,000
Partial billings, to-date 100,000 420,000
Profit recognized in 2018 should be

a. P 50,000 c. P 17,000
b. P 108,000 d. P 122,000
AVERAGE
1. A, B, and C are joint operators of JOINT OPERATION D (each having an equal share in interest). On January 1, 2015, A
sells equipment having a book value of P51,200 to the OPERATION for P128,000. The equipment had an estimated
useful economic life of 5 years at that date.
At what amount will A show this equipment at its balance sheet at January 1, 2015?
a. P17,067 c. P21,333
b. P42,667 d. P 0
2. On June 15, 2015, BULACAN CORP purchased merchandise worth 100,000 Swiss francs from its Swiss supplier payable
within 30 days under an open account arrangement. BULACAN issued a 30-day 6% note payable in Swiss francs. On
July 15, 2015 BULACAN paid the note in full. The following information on spot rates (P/SF) are provided:
Buying Selling
June 15, 2015 P24.03 P24.15
July 15, 2015 24.10 24.22
BULACAN’s foreign exchange gain or (loss) for the transaction is

a. (P5,040) c. P12,075
b. (P7,035) d. (P19,110)
3. XYZ Company experienced scrap, normal spoilage and abnormal spoilage in its manufacturing process. The cost of
units produced includes
a. Scrap but not spoilage
b. Normal spoilage but neither scrap nor abnormal spoilage
c. Scrap and normal spoilage but not abnormal spoilage
d. Scrap, normal spoilage and abnormal spoilage.
4. In computing the current period’s manufacturing cost per equivalent unit, the FIFO method of process costing
considers current period costs
a. Only
b. Plus cost of beginning work in process
c. Less cost of beginning work in process
d. Plus cost of ending work in process
5. BURGOS and CASIÑO are participants in a joint venture for the purchase through bidding and sales of surplus auto
spare parts from CAB. The winning bid price of P400,000 was paid equally by BURGOS and CASIÑO, constituting their
investments in the joint venture. They agreed that each record his purchases, sales, and expenses in his own books
and share profits and losses equally.
After seven (7) months, the joint venture was terminated and the following data relate to the joint venture:
Burgos Casiño
Joint venture account P155,000 Cr. P175,000 Cr.
Expenses paid from JV cash 7,500 15,000 .
Cost of auto parts taken 5,500 18,000 .
How much is the joint venture’s sales?

a. P752,500 c. P776,000
b. P330,000 d. P730,000
6. STAINLESS Works Mfg. Co. consigned 5 dozens of stainless chairs to Urban Furniture Co. on April 1, 1991. Each chair
cost P120 and the consignor paid P600 for the shipment to the consignee. On August 15, 1991, 36 chairs were
already sold and the consignee rendered an account sales, and remittance the balance due the consignor in the
amount of P5,500 after deducting the following:
Commission, at 15% of the selling price
Selling expenses P360
Delivery expense 180
How much is the cost of the ending inventory on consignment?

a. P2,880 c. P3,120
b. P3,480 d. P4,320
7. DELTA Co. sells goods to a customer in Bangkok for 500,000 bahts on May 31, 19x6 when the exchange rate was
P0.9875/Baht. The customer paid the account in full a week later when the exchange rate was P1/Baht. By reason of
the exchange rate fluctuation, DELTA Co. should recognize:
a. A loss of P6,250 if billing is in pesos.
b. A gain of P6,250 if billing is in pesos.
c. A loss of P6,250 if billing is in bahts.
d. A gain of P6,250 if billing is in bahts.
8. TRANSIT, Inc. sold to a US customer, CIF US Port, merchandise worth US$10,000. As of TRANSIT, Inc.’s balance sheet
cut-off date on June 30, the exchange rate was P26.60. On August 15, payment was received in the form of a bank
transfer whereby TRANSIT, Inc.’s account was credited the amount of P265,4,00 before any charges. At the time of
acceptance of the merchandise in San Francisco, the exchange rate was P26.75. The appropriate exchange rate for
the recognition of the sales was
a. P26.54 c. P26.63
b. P26.60 d. P26.75
9. The accounting method that recognizes revenue prior to the point of sale based on either an input or an output
measure of the earning process is known as the
a. Deposit method.
b. Cost recovery method.
c. Installment sales method.
d. Percentage-of-completion method
10. ZENITH Enterprises started operations on October 1, 19x6. The following information are summarized for the first
three months:
Installment receivable, Dec. 31 P1,500,000
Deferred gross profit, Dec. 31 (unadjusted) 1,050,000
Gross profit on sales 25%
The realized gross profit on installment sales during the 1 st three months amounted to
a. P675,000 c. P1,1250,000
b. P810,000 d. P1,350,000
DIFFICULT
1. On June 1, 2015 ANCHO ENTERPRISES sells a new car costing P1,620,000 for P2,268,000. A used car is accepted as
down payment, P432,000 being allowed on the trade in. The used car can be resold for P486,000 after
reconditioning cost of P64,800. The company expects to make a 20% gross profit on the sale of used cars. During
the period P270,000 was collected on the contract.
How much is the realized gross profit in 2015?

a. P 67,500 c. P 118,800
b. P 148,500 d. P 175,500
2. DRAGON RESTAURANT sold a fast-food restaurant franchise to TWIN CORPORATION. The sale agreement signed on
January 2, 2013 called for a P75,000 down payment plus two P25,000 annual payments representing the value of
initial franchise services rendered by DRAGON. The present value of two annual payments appropriately discounted
at 10% is P43,387.50. In addition, the agreement required the TWIN to pay 5% of its gross revenues to the franchisor;
this was deemed sufficient to cover the cost and provide a reasonable profit margin on continuing franchise services
to be performed by DRAGON. The restaurant opened early in 2013, and its sales for the year amounted to P625,000.
DRAGON RESTAURANT’S 2013 total revenues from the TWIN franchise will be:
a. P149,637.50 c. P153,976.25
b. P118,387.50 d. P185,187.50
3. Catherine College, a private not-for-profit college, received the following contributions during 2015:
I. P5,000,000 from alumni for construction of a new wing on the science building to be constructed in 2015.
II. P1,000,000 from a donor who stipulated that the contribution be invested indefinitely and that the earnings be
used for scholarships. As of December 31, 2015, earnings from investments amounted to P50,000.
For the year ended December 31, 2015, what amount of these contributions should be reported as temporarily
restricted revenues on the statement of activities?
a. P50,000 c. P5,000,000
b. P5,050,000 d. P6,050,000
4. Stain Corporation is an 80%-owned subsidiary of Paint Corporation. During 2014 Stain sold merchandise that cost
P96,000 to Paint for P128,000. Paint's ending inventory at December 31, 2014 contained unrealized profit of P6,400
from the intercompany sales. During 2015 Stain sold merchandise that cost P112,000 to Paint for P152,000. One-half
of this remained unsold by Paint at December 31, 2015 For 2015 Paint's separate income was P200,000 and Stain's
reported net income was P152,000.
The consolidated net income for 2015 will be:

a. P302,000 c. P310,720
b. P338,400 d. P274,500
5. On January 1, 2015, Paul Company purchased 90% of the common stock of Bryan Company for P64,800 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 P116,000. For the year 2015, Bryan reported net income of P264,800 and paid dividends of
P64,000. Paul reported income from its own separate operations of P527,200 and paid no dividends.
Consolidated net income for 2015 was

a. P 659,200 c. P 804,320
b. P 700,720 d. P 720,000
6. On January 1, 2015 the Blumentritt Corporation sold equipment to its wholly-owned subsidiary, Morayta Enterprises,
for P1,440,000. The equipment cost Blumentritt P1,600,000; accumulated depreciation at the time of the sale of
P400,000. Blumentritt was depreciating the equipment on the straight-line-method over twenty years with no
salvage value, a procedure that Morayta continued.
On the consolidated balance sheet at December 31, 2015 the cost and accumulated depreciation, respectively, should
be:
a. P1,200,000 and P480,000
b. P1,440,000 and P 80,000
c. P1,440,000 and P400,000
d. P1,600,000 and P480,000
7. VENUS and WILMA partnership’s balance sheet at December 31, 2014, reported the following:
Total assets P 100,000
Total liabilities 20,000
Venus, capital 40,000
Wilma, capital 40,000
On January 2, 2015, VENUS and WILMA dissolved their partnership and transferred all assets and liabilities to a newly
formed corporation. At the date of incorporation, the fair value of the net assets was P12,000 more than the carrying
amount on the partnership’s books. Of which P7,000 was assigned to tangible assets and P5,000 was assigned to
patent. VENUS and WILMA were each issued 5,000 shares of the corporation’s P1 par common stock.
Immediately following incorporation, additional paid-in capital in excess of par should be credited for
a. P68,000 c. P77,000
b. P70,000 d. P82,000
8. Selected accounts from the December 31, 19x6 trial balances of FIVE Star Co. and its branch follow:
5-Star Branch
Inventory, Jan. 1 P 46,000 P 23,100
Branch Current 116,600 -
Purchases 380,000 -
Shipments from home office - 209,000
Freight in - 10,450
Expenses 104,000 58,100
Home Office Current - (106,600)
Sales (310,000) (280,000)
Shipments to Branch (200,000) -
Branch merchandise markup (22,000) -
As of December 31, 19x6, a shipment with a billing price of P11,000 was in transit to the branch. Freight cost,
typically 5% of the billing price, is inventoriable. Merchandise on hand at year-end were: at home office, P64,000 at
cost; at branch, P33,000 at billing price.
As far as the home office is concerned, the branch’s net income for the year ended December 31, 19x6 was
a. P12,350 c. P31,350
b. P14,000 d. P33,000
9. On December 31, 19x5, SUN Corp. acquired for P2,000,000 from Shine Inc. a patent with a carrying amount of
P1,500,000 and a residual economic life of five years. SUN Corp. is a subsidiary of Shine Inc. to the extent of 85%.
SUN Corp. credits amortization of patents directly to the Patents account. Ignoring tax impact, as of December 31,
19x6, the working paper elimination entries for the consolidated statements should include a credit to Patents – Sun
Corp. amounting to
a. P400,000 c. P1,200,000
b. P500,000 d. P1,500,000
10. ZEBRA Co. manufactures products A and B from a joint process. During October, 19x5, sales values at the point of
“split-off” were P50,000 for 4,000 units of product A and P100,000 for 12,000 units of product B. Selling prices per
unit are P25.00 and P12.50, respectively, for product A and for product B.
Assume that the joint cost allocated to product A by using the market value method was P40,000. The production cost
of product B would be reported at
a. P80,000 c. P130,000
b. P90,000 d. P140,000
TIE BREAKER
1. KNOTTY, Inc. estimated the cost of a project it started in October 19x4 as follows: Direct materials, P495,000; direct
labor, 6,000 hours at P30 per hour; variable overhead, P24 per direct labor hour. By the end of the month, all the
required materials have been used at P491,900; labor was 80% complete at 4,650 hours at P30 per hour; and, the
variable overhead amounted to P113,700. The total variance for the project as at the end of the month was
a. P7,500 unfavorable c. P9,000 favorable
b. P8,400 unfavorable d. P9,000 favorable
2. FORBES Co. sells goods on the installment basis. For the yea just ended, the following were reported:
Installment sales P3,000,000
Cost of installment sales 2,025,000
Collections on installment sales 1,800,000
Defaulted accounts 200,000
Fair market value of repossessions 120,000
The repossessions resulted in
a. No gain, no loss. c. A loss of P15,000.
b. A gain of P15,000. d. A loss of P80,000
3. Which statement is correct concerning the treatment of goodwill (non SME) arising from a business combination?
a. Goodwill is carried at cost less accumulated amortization and any accumulated impairment losses.
b. Goodwill is carried at cost less any accumulated impairment losses
c. Goodwill is carried at cost without amortization and impairment
d. Goodwill is not recognized as an asset
4. EMERALD Co. bills its branch for merchandise shipments at 25% above cost. The branch, in, turn, sells these
merchandise at 33-1/3% above the billing price. On May 31, 19x6, a fire destroyed all of the merchandise stock of the
branch. The branch records show the following:
Jan. 1 inventory, at billing price P 60,000
Shipments from home office to May 31 240,000
Sales 275,000
Sales returns 25,000
Sales allowances 5,000
The branch has a P100,000 fire insurance policy on its merchandise. The estimated cost of the merchandise stock
burned was
a. P75,000 c. P90,000
b. P78,000 d. P93,000
5. AYALA Co. opened its Alabang branch on October 1. Shipments of merchandise to the branch during the month, billed
at 120% of cost, amounted to P125,000. The branch returned P15,620 of defective merchandise to the home office.
On October 31, the branch reported a net loss from its operation of P2,270 and an inventory of P84,000. The branch
net income (loss) for October to be taken up in the home office books would be
a. P(1,690) c. P(2,270)
b. P1,960 d. P4,230
6. WALING-WALING Enterprises purchased equipment for US$36,000 on May 31, 19x6 when the exchange rate was
$1.00 = $23.00. The company elected not to take forward contract on this obligation as a hedge against adverse
exchange rate fluctuations. At June 30, 19x6, the end of the company’s fiscal period, one-half of the obligation
remained unpaid and the exchange rate has dropped to $1.00 = P25.00. In the company’s June 30, 19x6 balance
sheet, the equipment should be reported at a value of
a. P828,000 c. P900,000
b. P864,000 d. P936,000
7. KUTITAP Co. is insolvent and its statement of affairs shows the following information:
Estimated gains on realization of assets P1,440,000

Estimated losses on realization of assets 2,000,000
Additional assets 1,280,000
Additional liabilities 960,000
Capital stock 2,000,000
Deficit 1,200,000
The pro-rate payment on the peso, to stockholders is

a. P0.30 c. P0.57
b. P0.43 d. P0.70
8. LIBERTAD, Inc., established its first branch on May 1, 19x7. During the first month of operation, the home office
shipped merchandise to the branch worth P138,000 which included a markup of 15% on cost. Sales for cash were
P80,000 while sales on account were P250,00. At month’s end, the branch reported operating expenses of P38,000
and a closing inventory of P23,000 at billed price. As far as the home office is concerned, the true branch net income
for May, 19x7 is
a. P82,000 c. 177,000
b. P147,000 d. P192,000
9. In developing a factory overhead application rate for use in a process costing system, which of the following could be
used as numerator and denominator?
Numerator Denominator
a. Actual factory overhead Actual machine hours
b. Actual factory overhead Estimated machine hours
c. Estimated factory overhead Actual machine hours
d. Estimated factory overhead Estimated machine hours
10. RED Co. has a 90% interest in BLUE Co., while the latter has an 80% interest in WHITE Co. For the year just ended,
the net income generated by the three companies were P500,000, P250,000, and P125,000, respectively. The
consolidated minority interest in net income amounted to
a. P25,000 c. P50,000
b. P35,000 d. P60,000
- end -
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NFJPIA R11

Finder’s fee P 50,000

The acquisition cost of the combination to White Company is

The estimated deficiency to unsecured creditors is

Profit recognized in 2018 should be

BULACAN’s foreign exchange gain or (loss) for the transaction is

How much is the joint venture’s sales?

How much is the cost of the ending inventory on consignment?

How much is the realized gross profit in 2015?

The consolidated net income for 2015 will be:

Consolidated net income for 2015 was

Estimated gains on realization of assets P1,440,000

The pro-rate payment on the peso, to stockholders is

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