ADVANCED FINANCIAL ACCOUNTING AND REPORTING

Problem Portion

Numbers 1 and 2 (Partnership Formation)

A, B and C decided to form ABC Partnership. It was agreed that A will contribute an equipment with assessed value of
P100,000 with historical cost of P800,000 and accumulated depreciation of P600,000. A day after the partnership
formation, the equipment was sold for P 300,000.

B will contribute a land and building with carrying amount of P1,200,000 and fair value of P1,500,000. The land and
building are subject to a mortgage payable amounting to P300,000 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.

1. What is the total agreed capitalization of the ABC Partnership?

A. 1,500,000
B. 2,000,000
C. 2,500,000
D. 3,000,000
2. What is the cash to be contributed by C in the ABC Partnership?
A. 500,000
B. 600,000
C. 700,000
D. 800,000

Numbers 3 and 4 (Partnership Operation – Capital Account Transactions)

On January 1, 2018, A, B and C formed ABC Partnership with total agreed capitalization of P1,000,000. The capital
interest ratio of the ABC Partnership is 5:1:4 while the profit or loss ratio is 3:2:5, respectively for A, B and C.

During 2018, A and B made additional investments of P200,000 and P500,000, respectively. At the end of 2018, B and C
made drawings of P300,000 and P100,000, respectively. On December 31, 2018, the capital balance of B is reported at
P200,000.

3. What is the net income or net loss of ABC Partnership for the year ended December 31, 2018?
A. 500,000 loss
B. 1,000,000 loss
C. 800,000 income
D. 1,200,000 income
4. What is the capital balance of C on December 31, 2018?
A. 150,000
B. 50,000
C. 200,000
D. 250,000

Numbers 5, 6, and 7 (Partnership Operation – Distribution of profit or loss)

On January 1, 2018, A, B and C formed ABC Partnership with original capital contribution of P300,000, P500,000 and
P200,000. A is appointed as managing partner.

During 2018, A, B and C made additional investments of P500,000, P200,000 and P300,000, respectively. At the end of
2018, A, B and C made drawings of P200,000, P100,000 and P400,000, respectively. At the end of 2018, the capital
balance of C is reported at P320,000. The profit or loss agreement of the partners is as follows:
 10% interest on original capital contribution of the partners.
 Quarterly salary of P40,000 and P10,000 for A and B, respectively.
 Bonus to A equivalent to 20% of Net Income after interest and salary to all partners
 Remainder is to be distributed equally among the partners.

5. What is the partnership profit for the year ended December 31, 2018?
A. 900,000
B. 1,020,000
C. 1,050,000
D. 960,000
6. What is A’s share in partnership profit for 2018?
A. 190,000
B. 340,000
C. 540,000
D. 200,000
7. What is B’s share in partnership profit for 2018?
A. 200,000
B. 290,000
C. 50,000
D. 90,000

Number 8 (Admission of partner by purchase)

On December 31, 2018, the Statement of Financial Position of ABC Partnership provided the following data with profit or
loss ratio of 1:6:3:

Current Assets 1,000,000 Total Liabilities 600,000

Noncurrent Assets 2,000,000 A, Capital 900,000
B, Capital 800,000
C, Capital 700,000

On January 1, 2019, D is admitted to the partnership by purchasing 40% of the capital interest of B at a price of P500,000.

What is the capital balance of B after the admission of D on January 1, 2019?

A. 540,000
B. 480,000
C. 420,000
D. 300,000

Number 9 (Retirement of partner)

On December 31, 2018, ABC Partnership’s Statement of Financial Positions shows that A, B and C have capital balances
of P500,000, P300,000 and P200,000 with profit or loss ratio of 1:3:6. On January 1, 2019, C retired from the partnership
and received P350,000. At the time of C’s retirement, an asset of the partnership is undervalued.

What is the capital balance of A after the retirement of C?

A. 462,500
B. 537,500
C. 562,500
D. 525,000

Number 10 (Retirement of partners)

On December 31, 2018, ABC Partnership’s Statement of Financial Position shows that A, B and C have capital balances
of P400,000, P300,000 and P100,000 with profit or loss ratio of 1:4:5. On January 1, 2019, C retired from the partnership
and received P80,000. At the time of C’s retirement, the assets and liabilities of the partnership are properly valued.

What is the capital balance of B after the retirement of C?

A. 284,000
B. 308,000
C. 316,000
D. 320,000

Number 11 (Partnership Dissolution – Admission of New Partner by Investment)

On December 31, 2018, the Statement of Financial Position of ABC Partnership provided the following data with profit or
loss ratio of 1:6:3:

Current Assets 1,300,000 Total Liabilities 300,000

Noncurrent Assets 2,000,000 A, Capital 1,400,000
B, Capital 700,000
C, Capital 900,000

On January 1, 2019, D is admitted to the partnership by investing P1,000,000 to the partnership for 20% capital interest.
If the all the assets of the existing partnership are properly valued, what is the capital balance of C after the admission of
D?
A. 960,000
B. 900,000
C. 840,000
D. 1,200,000

Numbers 12 and 13 (Admission of new partner by investment)

On December 31, 2018, the Statement of Financial Position of ABC Partnership provided the following data with profit or
loss ratio of 5:1:4:

Current Assets 1,500,000 Total Liabilities 500,000

Noncurrent Assets 2,000,000 A, Capital 1,100,000
B, Capital 1,200,000
C, Capital 700,000

On January 1, 2019, D is admitted to the partnership by investing P500,000 to the partnership for 10% capital interest.
The total agreed capitalization of the new partnership is P3,000,000.

12. What is the capital balance of D after his admission to the partnership?
A. 500,000
B. 300,000
C. 350,000
D. 400,000
13. What is the capital balance of C after the admission of D to the partnership?
A. 580,000
B. 820,000
C. 500,000
D. 780,000

Numbers 14 and 15 (Partnership Liquidation – Lump Sum Liquidation)

On December 31, 2018, the Statement of Financial Position of ABC Partnership with profit or loss ratio of 6:1:3 of
partners A, B and C respectively, revealed the following data:

Cash 1,000,000 Other Liabilities 2,000,000

Receivable from A 500,000 Payable to B 1,000,000
Other noncash assets 2,000,000 Payable to C 100,000
A, Capital 700,000
B, Capital (650,000)
C, Capital 350,000
On January 1, 2019, the partners decided to liquidate the partnership. All partners are legally declared to be personally
insolvent. The other noncash assets were sold for P1,500,000. Liquidation expenses amounting to P100,000 were
incurred.

14. How much cash was received by B at the end of partnership liquidation?
A. 250,000
B. 150,000
C. 290,000
D. 270,000
15. How much cash was received by C at the end of partnership liquidation?
A. 270,000
B. 150,000
C. 350,000
D. 220,000

Numbers 16, 17 and 18 (Partnership Liquidation – Installment Liquidation)

On December 31, 2018, the Statement of Financial Position of ABC Partnership with profit or loss ratio of 5:3:2 of
respective partners A, B and C. showed the following information:

Cash 1,600,000 Total Liabilities 2,000,000

Noncash assets 1,400,000 A, Capital 100,000
B, Capital 500,000
C, Capital 400,000
On January 1, 2019, the partners decided to liquidate the partnership in installment. All partners are legally declared to be
personally insolvent.

As of January 31, 2019, the following transactions occurred:

 Noncash assets with a carrying amount P1,000,000 were sold at a gain of P100,000.
 Liquidation expenses for the month of January amounting to P50,000 were paid.
 It is estimated that liquidation expenses amounting to P150,000 will be incurred for the month of February, 2019.
 20% of the liabilities to third persons were settled.
 Available cash was distributed to the partners.

As of February 28, 2019, the following transactions occurred:

 Remaining noncash assets were sold at a loss of P100,000.
 The final liquidation expenses for the month of February amounted to P100,000.
 The remaining liabilities to third persons were settled at a compromise amount of P1,500,000.
 Remaining cash was finally distributed to the partners.

16. What is the amount of cash received by partner C on January 31, 2019?
A. 260,000
B. 240,000
C. 300,000
D. 350,000
17. What is the share of B in the maximum possible loss on January 31, 2019?
A. 275,000
B. 110,000
C. 120,000
D. 165,000
18. What is the amount of total cash withheld on January 31, 2019?
A. 550,000
B. 1,600,000
C. 1,750,000
D. 1,700,000

Numbers 19, 20 and 21 (Corporate Liquidation)

Cagayan Company is experiencing financial problems which resulted to ultimate bankruptcy. The statement of financial
position of the entity before liquidation is presented below:

Cash 100,000 Income tax payable 200,000

Inventory 300,000 Salaries payable 300,000
Land 200,000 Note payable 800,000
Mortgage payable 100,000
Accounts payable 400,000
Contributed capital 500,000
Deficit (1,700,000)

 The note payable is secured by the inventory with net realizable value of P250,000.
 The mortgage payable is secured by the land with fair value of P120,000.

19. What is the amount received by the holder of the note payable at the end of corporate liquidation?
A. 320,000
B. 300,000
C. 250,000
D. 260,000
20. What is the amount received by the holder of the mortgage payable at the end of corporate liquidation?
A. 120,000
B. 200,000
C. 150,000
D. 100,000
21. What is the amount received by the employees at the end of corporate liquidation concerning their salaries?
A. 100,000
B. 120,000
C. 72,000
D. 300,000
Numbers 22 and 23 (Corporate Liquidation)

Surigao Company is bankrupt and has undergone corporate liquidation. Presented below is its statement of financial
position before the start of liquidation:

Cash 300,000 Accounts Payable 100,000

Machinery 500,000 Salaries Payable 200,000
Building 1,200,000 Income tax Payable 300,000
Loan Payable 400,000
Mortgage payable 500,000
Contributed capital 800,000
Deficit (300,000)

 Liquidation expenses amounting to P600,000 were paid.

 The loan payable is secured by the machinery with fair value of P300,000.
 The mortgage payable is secured by the building.
 At the end of liquidation, the holder of loan payable received P340,000.

22. What is the amount received by the holder of accounts payable at the end of liquidation?
A. 85,000
B. 15,000
C. 40,000
D. 60,000
23. What is the amount of net free assets available at the end of liquidation?
A. 80,000
B. 40,000
C. 120,000
D. 200,000

Numbers 24, 25 and 26 (Joint Arrangement classified as Joint Operation)

Entity A and Entity B incorporated Entity C to manufacture a microchip to be used by the incorporating entities as
component for their final products of cellular phones and tablets.

The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will
require the unanimous consent of both entities.

Entity A and Entity B have rights to the assets, and obligations for the liabilities, relating to the arrangement. The ordinary
shares of Entity C will be owned by Entity A and Entity B in the ratio of 60:40. At the end of first operation of Entity C,
the financial statements provided the following data:

Inventory 1,000,000 Accounts payable 2,000,000

Land 3,000,000 Note payable 1,000,000
Building 5,000,000 Loan payable 4,000,000
Share capital 1,000,000
Retained earnings 1,000,000
Sales revenue 5,000,000

The contractual agreement of Entity A and Entity B also provided for the following concerning the assets and liabilities of
Entity C:
 Entity A owns the land and incurs the loan payable of Entity C.
 Entity B owns the building and incurs the note payable of Entity C.
 The other assets and liabilities are owned or owed by Entity A and Entity B on the basis of their capital interest in
Entity C.
 The sales revenue of Entity C includes sales to Entity A and Entity B in the amount of P1,000,000 and P2,000,000,
respectively. As of the end of the first year, Entity A and Entity B were able to resell 30% and 60% of the inventory
coming from Entity C to third persons.

24. What is the amount of total assets to be reported by Entity A concerning its interest in Entity C?
A. 5,400,000
B. 3,000,000
C. 3,600,000
D. 5,000,000
25. What is the amount of total liabilities to be reported by Entity B concerning its interest in Entity C?
A. 1,800,000
B. 2,200,000
C. 2,800,000
D. 2,400,000
26. What is the amount of sales revenue to be reported by Entity A concerning its interest in Entity C?
A. 2,300,000
B. 2,100,000
C. 3,000,000
D. 2,500,000

Numbers 27 and 28 (Joint Arrangement classified as Joint Venture Equity Method)

On January 1, 2018, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C which has its fiscal and
operational autonomy. The contractual agreement of the incorporating entities provided that the decisions on relevant
activities of Entity C will require the unanimous consent of both entities. Entity A and Entity B will have rights to the net
assets of Entity C.

Entity A and Entity B invested P1,000,000 and P1,500,000, respectively, equivalent to 40:60 capital interest of Entity C.
The financial statements of Entity C provided the following data for its two-year operation:

Net income (loss) Dividends declared

2018 200,000 100,000

2019 (2,000,000) -

27. What is the balance of Investment in Entity C to be reported by Entity A in its Statement of Financial Position on
December 31, 2019?
A. 1,080,000
B. 1,040,000
C. 240,000
D. 200,000
28. What is the balance of Investment in Entity C to be reported by Entity B in its Statement of Financial Position on
December 31, 2019?
A. 1,500,000
B. 1,620,000
C. 360,000
D. 900,000

Numbers 29 and 30 (Joint venture - Intercompany Transaction)

On January 1, 2018, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C by investing P3,000,000
and P2,000,000 for capital interest ratio of 60:40. The contractual agreement of the incorporating entities provided that
the decisions on relevant activities of Entity C will require the unanimous consent of both entities. Entity A and Entity B
will have rights to the net assets of Entity C.

The financial statements of Entity C provided the following data for 2018:
 Entity C reported net income of P1,000,000 for 2018 and paid cash dividends of P400,000 on December 31, 2018.
 During 2018, Entity C sold inventory to Entity A with gross profit of P50,000. Eighty percent of those inventories
were resold by Entity A to third persons during 2018 and the remainder was resold to third persons during 2019.
 On July 1, 2018, Entity C sold a machinery to Entity B at a loss of P20,000. At the time of sale, the machinery has
remaining useful life of 2 years.

29. What is the investment income to be reported by Entity A for the year ended December 31, 2018?
A. 603,000
B. 606,000
C. 594,000
D. 597,000
30. What is the balance of Investment in Entity C to be reported by Entity B on December 31, 2018?
A. 2,242,000
B. 2,241,000
C. 2,238,000
D. 2,248,000
Numbers 31 and 32 Joint Venture – IFRS for SMEs (Fair Value Model or Equity Method)

On January 1, 2018, Entity A and Entity B, both SMEs, incorporated Entity C, a jointly controlled entity by investing
P500,000 each in exchange for 10,000 ordinary shares each of Entity C. Entity A and Entity B each incurred P20,000
transaction costs.

The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will
require the unanimous consent of both entities. Entity A and Entity B will have rights to the net assets of Entity C.

For the year ended December 31, 2018, Entity C reported net income of P100,000 and declared dividends in the amount
of P30,000.

On December 31, 2018, the ordinary shares of Entity C are quoted at P56.

31. If Entity A elected fair value model to account its investment in Entity C, what is the net effect on Entity A’s profit or
loss for the year ended December 31, 2018?
A. 55,000 net profit
B. 60,000 net profit
C. 15,000 net profit
D. 40,000 net profit
32. If Entity B elected equity method to account its investment in Entity C, what is the carrying amount of Entity B’s
Investment in Entity C on December 31, 2018?
A. 520,000
B. 540,000
C. 535,000
D. 555,000
Numbers 33 and 34 Joint Venture – IFRS for SMEs (Cost Method or Equity Method)

On January 1, 2018, Entity A and Entity B, both SMEs, incorporated Entity C, a jointly controlled entity by investing
P200,000 each in exchange for 20,000 ordinary shares each of Entity C. Entity A and Entity B each incurred P10,000
transaction costs.

The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will
require the unanimous consent of both entities. Entity A and Entity B will have rights to the net assets of Entity C.

For the year ended December 31, 2018, Entity C reported net income of P50,000 and declared dividends in the amount of
P10,000.

On December 31, 2018, the investment in Entity C has value in use of P215,000.

33. If Entity A elected cost method to account its Investment in Entity C, what is the carrying amount of Entity A’s
Investment in Entity C on December 31, 2018?
A. 210,000
B. 215,000
C. 230,000
D. 200,000

34. If Entity B elected equity method to account its Investment in Entity C, what is the net effect in Entity B’s profit or
loss for the year ended December 31, 2018?
A. 25,000 net profit
B. 5,000 net profit
C. 10,000 net profit
D. 15,000 net profit

Number 35 (Installment sales)

Nikko Company, which began operations on January 5, 2018, appropriately uses the installment method of revenue
recognition. The following information pertains to the operations for 2018 and 2019:
2018 2019

Sales 300,000 450,000

Collections from :
2018 sales 100,000 50,000

2019 sales - 150,000

Accounts written off from

 2018 sales 25,000 75,000

2019 sales - 150,000

Gross profit rates 30% 40%

What amount should be reported as deferred gross profit on December 31, 2019?
A. 75,000
B. 80,000
C. 112,000
D. 125,000

Numbers 36 and 37 ( Installment sales)

Appliance Company reports gross profit on the installment basis. The following data are available:

2018 2019 2020

Installment sales 240,000 250,000 300,000

Cost of goods – installment sales 180,000 181,250 216,000
Gross profit 60,000 68,750 84,000

Collections

2018 installment contracts 45,000 75,000 72,500

2019 installment contracts 47,500 80,000
2020 installment contracts 62,500

Defaults
Unpaid balance of 2018 installment contracts 12,500 15,000
Value assigned to repossessed merchandise 6,500 6,000
Unpaid balance of 2019 installment contracts 16,000
Value assigned to repossessed merchandise 9,000

36. What is the realized gross profit before loss on repossession for 2020?
A. 49,775
B. 57,625
C. 48,975
D. 56,625

37. What is the loss on repossession for 2020?

A. 5,250
B. 2,600
C. 7,850
D. 9,000

Number 38 (Installment sales)

Davao Company uses the installment method of income recognition. The entity provided the following pertinent data:

2018 2019 2020

Installment sales 300,000 375,000 360,000

Cost of goods sold 225,000 285,000 252,000

Balance of Deferred Gross Profit at Year end

2018 52,500 15,000 -
2019 54,000 9,000
2020 72,000

What is the total balance of the Installment Accounts Receivable on December 31, 2020?
A. 270,000
B. 277,500
C. 279,000
D. 300,000

Numbers 39 and 40 (Installment Sales)

On January 1, 2018, an entity sold a car to a customer at a price of P400,000 with a production cost of P300,000. It is the
entity’s policy to employ installment method to recognize gross profit from installment sales.

At the time of sale, the entity received cash amounting to 25% of the selling price and old car with trade-in allowance of
P50,000. The said old car has fair value of P150,000. The customer issued a 5-year note for the balance to be payable in
equal annual installments every December 31 starting 2018. The note payable is interest bearing with 10% rate due on the
remaining balance of the note.

The customer was able to pay the first annual installment and corresponding interest due. However, after the payment of
the second interest due, the customer defaulted on the second annual installment which resulted to the repossession of the
car sold with appraised value of P110,000. On December 31, 2019, the repossessed car was resold for P140,000 after
reconditioning cost of P10,000.

39. What is the entity’s realized gross profit for the year ended December 31, 2018?
A. 50,000
B. 120,000
C. 108,000
D. 128,000

40. What is the loss on repossession for the year ended December 31, 2019?
A. 30,000
B. 20,000
C. 10,000
D. 40,000

Numbers 41, 42 and 43 (Revenue Recognition – Franchise Fees)

On January 1, 2018, an entity granted a franchise to a franchisee. The franchise agreement required the franchisee to pay a
nonrefundable upfront fee in the amount of P400,000 and on-going payment of royalties equivalent to 5% of the sales of
the franchisee. The franchisee 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 P200,000.

 To deliver 10,000 units of raw materials to the franchisee with stand-alone selling price of P250,000.
 To allow the franchisee to use the entity tradename for a period of 10 years starting January 1, 2018 with stand-alone
selling price of P50,000.

On June 30, 2018, the entity completed the construction of the franchisee’s stall. On December 31, 2018, the entity was
able to deliver 3,000 units of raw materials to the franchisee. For the year ended December 31, 2018, the franchisee
reported sales revenue amounting to P100,000.

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

41. What is the amount of nonrefundable upfront fee to be allocated to the construction of the franchisee’s stall?
A. 200,000
B. 160,000
C. 250,000
D. 120,000
42. What is the amount of revenue to be recognized in relation to the use of delivery of raw materials for the year ended
December 31, 2018?
A. 100,000
B. 200,000
C. 60,000
D. 75,000
43. What is the amount of revenue to be recognized in relation to the use of entity’s tradename for the year ended
December 31, 2018?
A. 5,000
B. 4,000
C. 50,000
D. 10,000

Numbers 44 and 45 (Revenue Recognition – Net Income of Franchisor)

On January 1, 2018, an entity granted a franchise agreement to a franchisee. The contract provided that the franchisee
shall pay an initial franchise fee of P500,000 and on-going payment of royalties equivalent to 8% of the sales of the
franchisee.
On January 1, 2018, the franchisee paid downpayment of P200,000 and issued a 3-year noninterest bearing note for the
balance payable in three equal annual installments starting December 31, 2018. The note has present value of P240,183
with effective interest rate of 12%.

On June 30, 2018, the entity completed the performance obligation of the franchise at a cost of P352,146. Aside from that,
the entity incurred indirect cost of P22,009.

The franchisee started operation on July 1, 2018 and reported sales revenue amounting to P50,000 for the year ended
December 31, 2018. The franchisee paid the first installment on its due date.

44. If the collection of the note receivable is reasonably assured, what is the gross profit to be recognized by the entity for
the year ended December 31, 2018 in relation to the initial franchise fee?
A. 66,028
B. 44,014
C. 22,009
D. 88,037

45. If the collection of the note receivable is reasonably assured, what is the net income to be reported by the entity for the
year ended December 31, 2018?
A. 98,850
B. 94,850
C. 70,028
D. 92,037
Numbers 46, 47 and 48 (Construction contract - Percentage of Completion Method)

On January 1, 2018, Solid Company accepted a long-term construction project for an initial contract price of P1,000,000
to be completed on June 30, 2020. On January 1, 2019, the contract price was increased to P1,500,000 by reason of
change in the design of the project. The outcome of the construction contract can be estimated reliably. The project was
completed on December 31, 2020 which resulted to penalty amounting to P200,000. The entity provided the following
data concerning the direct costs related to the said project for 2018 and 2019:
2018 2019

Costs during the year 440,000 680,000

Remaining estimated costs to complete at year-end 660,000 280,000

46. What is the construction revenue for the year ended December 31, 2018?
A. 340,000
B. 400,000
C. 440,000
D. 360,000
47. What is the realized gross profit for the year ended December 31, 2019?
A. 200,000
B. 80,000
C. 180,000
D. 100,000
48. What is the balance of construction in progress on December 31, 2019?
A. 1,200,000
B. 1,020,000
C. 1,120,000
D. 900,000

Numbers 49, 50 and 51 (Construction contract - Cost Recovery Method)

On January 1, 2018, Hardrock Company started the construction of a building at a fixed contract price of P1,000,000. On
the same date, the customer paid a mobilization fee equal to 5% of contract price that will be deductible from the first
billing. The outcome of construction contract cannot be estimated reliably
During 2018, the entity billed the customer equivalent to 30% of the contract price. During 2019, the entity billed again
the customer amounting to 20% of the contract price. During 2020, the entity billed again the customer amounting to 40%
of the contract price. The remaining billing was made at the year of completion of the project.

The entity made collection from the customer at the end of 2018, 2019 and 2020, in the amount of P120,000, P450,000
and P180,000, respectively. The entity provided the following data concerning the direct costs related to the said
project:
2018 2019 2020

Cumulative costs incurred at year-end 360,000 800,000 870,000

Remaining estimated costs to complete at year-end 840,000 250,000 50,000
49. What is the realized gross profit for the year ended December 31, 2019?
A. 50,000
B. 200,000
C. 150,000
D. 0
50. What is the excess of construction in progress over progress billings or excess of progress billings over construction in
progress on December 31, 2020?
A. 30,000 excess billings
B. 80,000 excess billings
C. 20,000 excess construction in progress
D. 50,000 excess construction in progress
51. What is the balance of accounts receivable on December 31, 2020?
A. 150,000
B. 100,000
C. 120,000
D. 50,000

Numbers 52, 53 and 54(Home Office, Branch and Agency Transactions)

Siargao Company set up a branch in a province. The entity and its branch provided the following data for the second year
of branch operation:

Home Office Branch

Sales revenue to outside customer 1,000,000 500,000

Beginning inventory 50,000 30,000
Purchases from outside supplier 400,000 100,000
Shipment to branch 200,000
Shipment from home office 250,000
Ending inventory 80,000 50,000
Operating expenses 150,000 40,000

 The home office to branch markup based on cost is 25% this year and last year.
 20% of the beginning inventory of the branch came from outside supplier.
 24% of the ending inventory of the branch came from the last year’s shipment from the home office while 50% of the
ending inventory of the branch came from current year’s shipment from the home office.

52. What is the net income reported by the branch in its separate income statement for the current year?
A. 130,000
B. 124,000
C. 114,000
D. 95,000
53. What is the ending inventory to be reported by the entity in its combined statement of financial position?
A. 128,000
B. 115,000
C. 130,000
D. 122,600
54. What is the overstatement in the cost of goods sold reported by the branch in its separate income statement for the
current year?
A. 54,000
B. 50,000
C. 52,000
D. 47,400

Number 55 (Home office and branch)

The home office in Quezon City ships and bills merchandise to its provincial branch at cost. The branch carries its own
accounts receivable and makes its own collections. The branch also pays its expenses. The branch transactions for 2018
are reflected in the following information:
Cash 20,000
Accounts receivable 80,000
Home Office 180,000
Shipments from Home Office 250,000
Sales 225,500
Expenses 55,500
December 31, 2018 inventory 65,000

What is the balance of the Investment in Branch account in the home office book?
A. 180,000
B. 195,000
C. 165,000
D. 175,000

Numbers 56 and 57 (Home office and branch)

Coffee Company decided to open a branch in Manila. Shipments of merchandise to the branch totaled P54,000 which
included a 20% markup on cost. All accounting records are kept at the home office. The branch submitted the following
report summarizing the operations for the year ended December 31, 2018:

Sales on account 74,000

Sales on cash basis 22,000
Collections of accounts receivable 60,000
Expenses paid 38,000
Expenses unpaid 12,000
Purchase of merchandise for cash 26,000
Inventory on hand, December 31; 80% from home office 30,000
Remittance to home office 55,000

56. What is the branch inventory on December 31, 2018 at cost?

A. 25,000
B. 20,000
C. 26,000
D. 10,000
57. What is the branch net income for the current year?
A. 1,000
B. 4,000
C. 800
D. 500

Numbers 58, 59, 60 and 61 (Business Combination - Acquisition of Net Assets)

Entity A acquired the net assets of Entity B by issuing 10,000 ordinary shares with par value of P10 and bonds payable
with face amount of P500,000. The bonds are classified as financial liability at amortized cost.

At the time of acquisition, the ordinary shares are publicly quoted at P20 per share. On the other hand, the bonds payable
are trading at 110.

Entity A paid P10,000 share issuance costs and P20,000 bond issue costs. Entity A also paid P40,000 acquisition related
costs and P30,000 indirect costs of business combination.

Before the date of acquisition, Entity A and Entity B reported the following data:

Entity A Entity B

Current assets 1,000,000 500,000

Noncurrent assets 2,000,000 1,000,000
Current liabilities 200,000 400,000
Noncurrent liabilities 300,000 500,000
Ordinary shares 500,000 200,000
Share premium 1,200,000 300,000
Retained earnings 800,000 100,000

At the time of acquisition, the current assets of Entity A have fair value of P1,200,000 while the noncurrent assets of
Entity B have fair value of P1,300,000. On the same date, the current liabilities of Entity B have fair value of P600,000
while the noncurrent liabilities of Entity A have fair value of P500,000.

58. What is the goodwill or gain on bargain purchase arising from business combination?
A. 50,000 goodwill
B. 150,000 gain on bargain purchase
C. 120,000 goodwill
D. 70,000 gain on bargain purchase
59. What total amount should be expensed as incurred at the time of business combination?
A. 20,000
B. 70,000
C. 30,000
D. 50,000
60. What is Entity A’s amount of total assets after the business combination?
A. 4,520,000
B. 4,810,000
C. 4,750,000
D. 4,440,000
61. What is Entity A’s amount of total liabilities after the business combination?
A. 2,240,000
B. 2,510,000
C. 2,320,000
D. 2,130,000

Numbers 62 and 63 (Business Combination – Acquisition of majority shares)

Entity A acquired 80,000 out of 100,000 outstanding ordinary shares of Entity B which enabled the former to obtain
control of the latter at an acquisition price of P1,000,000. Entity A paid P100,000 acquisition related costs and P50,000
indirect costs of business combination.

At the date of acquisition, the net assets of Entity B are reported at P1,600,000. An asset of Entity B is overvalued by
P60,000 while one liability is undervalued by P40,000.

62. What is the initial measurement of noncontrolling interest in net assets in the consolidated statement of financial
position?
A. 320,000
B. 300,000
C. 250,000
D. 316,000
63. What is the goodwill or gain on bargain purchase arising from business combination?
A. 250,000 gain on bargain purchase
B. 150,000 gain on bargain purchase
C. 50,000 goodwill
D. 200,000 gain on bargain purchase

Numbers 64 and 65 (Step Acquisition)

On January 1, 2018, Entity A acquired 30,000 out of 100,000 outstanding ordinary shares of Entity B for P90,000 or 30%
interest. For the six months ended June 30, 2018, Entity B reported net income of P40,000.

On July 1, 2018, Entity A acquired additional 60,000 ordinary shares of Entity B or 60% interest at a price of P4 per share
or total cost of P240,000. Entity A paid P20,000 acquisition related costs and P10,000 indirect costs of business
combination.

The acquisition price per share of the additional shares clearly reflected the fair value of the existing interest of Entity A
in Entity B. It is the policy of Entity A to initially measure the noncontrolling interest in net assets of the acquiree at fair
value. The fair value of the noncontrolling interest in net assets of the acquiree is reliably measured at P50,000.
At the acquisition date, the net assets of Entity B were reported at P400,000. An asset of Entity B was overvalued by
P50,000 while one liability wass overvalued by P30,000.

64. What is the gain on remeasurement of the existing Investment in Entity B as a result of step acquisition?
A. 18,000
B. 30,000
C. 24,000
D. 12,000
65. What is the goodwill or gain on bargain purchase as a result of the business combination?
A. 18,000 goodwill
B. 20,000 gain on bargain purchase
C. 24,000 goodwill
D. 30,000 goodwill

Numbers 66, 67 and 68 (Consolidated Financial Statements)

On January 1, 2018, Entity A acquired 70% of outstanding ordinary shares of Entity B at a price of P210,000. On the
same date, the net assets of Entity B were reported at P260,000. On January 1, 2018 Entity A reported retained earnings of
P2,000,000 while Entity B reported retained earnings of P200,000.

All the assets and liabilities of Entity B are fairly valued except machinery which is undervalued by P80,000 and
inventory which is overvalued by P10,000. The said machinery has remaining useful life of four years while 40% of the
said inventory remained unsold at the end of 2018.
For the year ended December 31, 2018, Entity A reported net income of P1,000,000 and declared dividends of P200,000
in the separate financial statements while Entity B reported net income of P150,000 and declared dividends of P20,000 in
the separate financial statements.

Entity A accounted the investment in Entity B using cost method in the separate financial statements.
66. What is the noncontrolling interest in net assets on December 31, 2018?
A. 124,800
B. 130,200
C. 126,000
D. 133,800
67. What is the consolidated net income attributable to parent shareholders for the year ended December 31, 2018?
A. 1,102,200
B. 1,162,200
C. 1,141,200
D. 1,095,200
68. What is the amount of consolidated retained earnings on December 31, 2018?
A. 3,012,200
B. 2,991,200
C. 2,952,200
D. 2,945,200

Numbers 69, 70, 71 and 72 (Consolidated Financial Statements - Intercompany sales)

On January 1, 2019, Entity A acquired 60% of outstanding ordinary shares of Entity B at a gain on bargain purchase of
P40,000. For the year ended December 31, 2020, Entity A and Entity B reported sales revenue of P2,000,000 and
P1,000,000 in their respective separate income statements. At the same year, Entity A and Entity B reported cost of goods
sold of P1,200,000 and P700,000 in their respective separate income statements.

During 2019, Entity A sold inventory to Entity B at a selling price of P280,000 with gross profit rate of 40% based on
cost. On the other hand, Entity B sold inventory to Entity A at a selling price of P400,000 with gross profit rate of 30%
based on sales during 2020.

On December 31, 2019, 25% of the goods coming from Entity A remained in Entity B’s inventory but all were eventually
sold to third persons during 2020. As of December 31, 2020, 40% of the goods coming from Entity B were eventually
sold to third persons.

For the year ended December 31, 2020, Entity A reported net income of P500,000 while Entity B reported net income of
P200,000 and distributed dividends of P50,000. Entity A accounted for its inventory in Entity B using cost method in its
separate financial statements.

69. What is the consolidated sales revenue for the year ended December 31, 2020?
A. 2,600,000
B. 2,320,000
C. 3,000,000
D. 2,720,000

70. What is the consolidated gross profit for the year ended December 31, 2020?
A. 1,120,000
B. 1,048,000
C. 1,028,000
D. 1,152,000
71. What is the noncontrolling interest in net income for the year ended December 31, 2020?
A. 100,800
B. 59,200
C. 51,200
D. 88,000
72. What is the consolidated net income attributable to parent’s shareholders for the year ended December 31, 2020?
A. 766,800
B. 596,800
C. 606,800
D. 626,800

Numbers 73, 74, 75 and 76 (Consolidated Statements-Intercompany gain or loss on disposal)

On January 1, 2019, Entity A acquired 80% of outstanding ordinary shares of Entity B at a gain on bargain purchase of
P180,000. The following intercompany transactions occurred for between the two entities:
 On January 1, 2019, Entity B sold a land to Entity A with a cost of P1,000,000 at a selling price of P1,100,000. The
land was eventually sold by Entity A to third persons during 2020.
 On January 1, 2019, Entity A sold a white machinery to Entity B with a cost of P200,000 and accumulated
depreciation of P40,000 at a selling price of P180,000. The machinery is already 4 years old at the date of sale. The
residual value of white machinery is immaterial.
 On July 1, 2020, Entity B sold a black machinery to Entity A at with a cost of P270,000 and accumulated depreciation
of P180,000 at a selling price of P60,000. The machinery is already 6 years old at the date of sale. The residual value
of black machinery is immaterial.

For the year ended December 31, 2020, Entity A reported net income of P800,000 while Entity B reported net income of
P500,000 and distributed dividends of P150,000. Entity A accounted for its inventory in Entity B using cost method in its
separate financial statements.

73. What is the consolidated depreciation expense of machinery for 2020?

A. 40,000
B. 55,000
C. 61,667
D. 42,333
74. What is the consolidated carrying amount of machinery on December 31, 2020?
A. 225,000
B. 215,000
C. 200,000
D. 210,000
75. What is the noncontrolling interest in net income for 2020?
A. 124,000
B. 105,000
C. 125,000
D. 104,000
76. What is the consolidated net income attributable to parent shareholders for 2020?
A. 1,538,750
B. 1,518,750
C. 1,398,750
D. 1,418,750

Separate Financial Statements - Cost Method and Fair Value Model or Equity Method

Numbers 77, 78, 79 and 80

On January 1, 2020, Entity A acquired 90% of outstanding ordinary shares of Entity B at a price of P900,000. Entity A
paid P20,000 costs related to acquisition of shares.

At the acquisition date, the net assets of Entity B were reported at P950,000. All the assets of Entity B are properly valued
except for a machinery which is undervalued by P150,000. The machinery has a remaining useful life of 5 years.

For the year ended December 31, 2020, Entity B reported net income of P200,000 and declared dividends in the amount
of P30,000.

The fair value of Investment in Entity B on December 31, 2020 is P1,000,000 while the cost of disposal is 5%.

Entity A voluntarily prepared its separate financial statements.

77. If Entity A elects cost method to account its Investment in Entity B in its separate financial statements, what is the
carrying amount of the Investment in Entity B on December 31, 2020?
A. 900,000
B. 920,000
C. 1,000,000
D. 950,000

78. What is the investment income for 2020 if Entity A elects cost method to account its Investment in Entity B in its
separate financial statements?
A. 7,000
B. 27,000
C. 180,000
D. 107,000
79. If Entity A elects fair value model to account its Investment in Entity B in its separate financial statements, what is
the carrying amount of the Investment in Entity B on December 31, 2020?
A. 900,000
B. 920,000
 C. 1,000,000
D. 950,000

80. What is the net effect in profit or loss for 2020 if Entity A elects fair value model to account its Investment in Entity
B in its separate financial statements?
A. 7,000
B. 27,000
C. 180,000
D. 107,000

Numbers 81, 82 and 83 (Nonprofit Organization – Statement of Financial Position)

In the first year of operations of a nonprofit organization, the following transactions occurred:

 The nonprofit organization received P1,000,000 fund from a donor who stipulated that it shall be invested indefinitely
and the dividend from such investment shall be used for research project of the organization. Dividend amounting to
P150,000 was received during the year but only P50,000 was spent for the research project.
 The nonprofit organization received P300,000 fund from a donor who stipulated that it shall be used for the
acquisition of service car. The nonprofit organization used P100,000 of the fund for the acquisition of a service car
with useful life of 5 years. The car was acquired at the middle of the year.
 The nonprofit organization received P500,000 fund who stipulated that it shall be used based on the discretion of the
Board of Trustees of the nonprofit organization. The nonprofit organization used P100,000 for the acquisition of
souvenir items which were sold by the nonprofit organization for P150,000. The remaining P400,000 was designated
by the Board of Trustees for future fundraising projects.

81. What is the amount of permanently restricted net assets at the end of the first year?
A. 1,100,000
B. 1,300,000
C. 1,200,000
D. 1,000,000
82. What is the amount of temporarily restricted net assets at the end of the year?
A. 100,000
B. 300,000
C. 200,000
D. 700,000
83. What is the amount of unrestricted net assets at the end of the year?
A. 640,000
B. 540,000
C. 590,000
D. 630,000

Nonprofit Organization – Statement of Activities and Statement of Cash Flows

Numbers 84, 85, 86 and 87

On January 1, 2020, a nonprofit organization received P1,000,000 cash donation from a donor who stipulated that the
amount should be invested indefinitely in revenue producing investment. The deed of donation also provided that the
dividend income shall be used for the acquisition of computers of the nonprofit organization.

On December 31, 2020, the nonprofit organization received P100,000 cash as dividend income from the investment of the
fund.

On January 1, 2021, the nonprofit organization acquired a computer at a cost of P20,000 with a useful life of 5 years
without residual value.

84. In the statement of activities of the NPO for the year ended December 31, 2020, which of the following is the proper
effect of the transactions?
A. Increase in temporarily restricted net assets by P100,000.
B. Increase in unrestricted net assets by P1,000,000.
C. Increase in unrestricted net assets by P16,000.
D. Decrease in temporarily restricted net assets by P20,000.

85. In the statement of activities of the NPO for the year ended December 31, 2021, which of the following is the proper
effect of the transactions?
A. Increase in temporarily restricted net assets by P100,000.
B. Increase in unrestricted net assets by P1,000,000.
C. Increase in unrestricted net assets by P16,000.
 D. Decrease in temporarily restricted net assets by P100,000.

86. How should the cash flows be reported in NPO’s Statement of Cash Flows for the year ended December 31, 2020?
A. Cash receipts from operating activities by P100,000.
B. Cash receipts from financing activities by P1,100,000.
C. Cash disbursements for investing activities by P50,000.
D. Cash disbursements for financing activities by P1,000,000
87. How should the cash flows be reported in NPO’s Statement of Cash Flows for the year ended December 31, 2021?
A. Cash receipts from operating activities by P100,000.
B. Cash receipts from financing activities by P1,100,000.
C. Cash disbursements for investing activities by P20,000.
D. Cash disbursements for investing activities by P100,000.

Number 88

Government Accounting Manual

On December 31, 2018, the Department of Finance billed its lessee on one of its buildings in the amount of P10,000. On
January 31, 2019, the Department of Finance collected all of the accounts receivable. On February 28, 2019, the
Department of Finance remitted the entire collected amount to the Bureau of Treasury. What is the journal entry to record
the remittance by the Department of Finance to the Bureau of Treasury?
A. Debit – Accounts Receivable P10,000 and Credit – Rent Income P10,000
B. Debit – Accounts Receivable P10,000 and Credit – Retained Earnings P10,000
C. Debit – Cash Collecting Officers P10,000 and Credit – Accounts Receivable P10,000
D. Debit – Cash – Treasury/Agency Deposit, Regular – P10,000 and
Credit Cash – Collecting Officer – P10,000

Numbers 89 and 90

On January 1, 2018, the Department of Public Works and Highways (DPWH) received a P10,000,000 appropriations from
the national government for the acquisition of machinery. On February 1, 2018, DPWH received the allotment from the
Department of Budget and Management. On March 1, 2018, DPWH entered into a contract with CAT Inc. for the
acquisition of the machinery with a price of P8,000,000. On April 1, 2018, DPWH received the Notice of Cash Allocation
from Department of Budget and Management net of 1% withholding tax for income tax of supplier and 5% withholding of
Final Tax on VAT of supplier. On May 1, 2018, CAT Inc. delivered the machinery to DPWH. On June 1, 2018, DPWH
paid the obligation to CAT Inc. On July 1, 2018, DPWH remitted the withheld income tax and final VAT to BIR.

89. What is the journal entry on March 1, 2018?

A. No entry but just posting to appropriate RAPAL
B. No entry but just posting to appropriate RAPAL and to RAOD
C. No entry but just posting of ORS (Obligation Request and Status) to appropriate RAOD
D. Debit Machinery P8,000,000 and credit Accounts Payable P8,000,000

90. What is the journal entry on April 1, 2018?

A. Debit Cash-MDS, Regular P7,520,000 and Credit Subsidy Income from National Government P7,520,000.
B. Debit Machinery P8,000,000 and Credit Accounts Payable P8,000,000
C. Debit Accounts Payable P8,000,000 and Credit Due to BIR P480,000 and Cash-MDS, Regular P7,520,000.
D. Debit Due to BIR P480,000 and Credit Subsidy Income from National Government P480,000.

Number 91

Department of Health (DOH) received Notice of Cash Allocation in the amount of P100,000 from Department of Budget
and Management. DOH made a total cash disbursement in the amount of P95,000. What is the journal entry to recognize
reversion of unused Notice of Cash Allocation by DOH in its books?
A. Debit Subsidy Income from National Government P5,000 and credit Cash-MDS, Regular P5,000.
B. Debit Retained Earnings of DFA P5,000 and credit Cash-MDS, Regular P5,000.
C. Debit Expenses of DFA P5,000 and credit Cash-MDS, Regular P5,000.
D. Debit Investment of DFA P5,000 and credit Cash-MDS, Regular P5,000.

Number 92

The Bureau of Treasury received P20,000 cash remittance from Department of Agrarian Reform (DAR) from its
miscellaneous income. What is the journal entry of the Bureau of Treasury in its accounting books to record the receipt of
cash remittance from the income of a national government agency?
A. Debit Cash in Bank, Local Bank P20,000 and Credit Cash-Treasury/Agency Deposit, Regular P20,000.
B. Debit Cash in Bank, Local Bank P20,000 and Credit Miscellaneous Income of DA P20,000.
C. Debit Cash in Bank, Local Bank P20,000 and Credit Savings of DA, Regular P20,000.
D. Debit Cash in Bank, Local Bank P20,000 and Credit Cash-Collecting Officer, DA P20,000.
Page 30
Number 93 (Foreign currency transaction)

On September 1, 2018, Bain Company received an order for equipment from a foreign customer for 300,000 local
currency units (LCU) when the US dollar equivalent was $96,000. Bain shipped the equipment on October 15, 2018, and
billed the customer for 300,000 LCU when the US dollar equivalent was $100,000. Bain received the customer remittance
in full on November 16, 2018, and sold the 300,000 LCU for $105,000. In the income statement for the year ended
December 31, 2018, what amount should Bain report as part of net income a foreign exchange transaction gain?

A. $ 0
B. $4,000
C. $5,000
D. $9,000

Number 94 (Foreign currency transaction)

On September 1, 2018, Cano Company, a US corporation, sold merchandise to a foreign firm for 250,000Botswana pula.
Terms of the sale require payment in pula on February 1, 2019.. On September 1, 2018, the spot exchange rate was $.20
per pula. At December 31, 2018, Cano’s year-end, the spot rate was $.19, but the rate increased to $.22 by February 1,
2019, when payment was received. How much should Cano report as foreign exchange transaction gain or loss as part of
2019 income?

A. $ 0
B. $2,500 loss
C. $5,000 gain
D. $7,500 gain

Number 95 (Foreign currency transaction)

Hunt Company purchased merchandise for £300,000 from a vendor in London on November 30, 2018. Payment in British
pounds was due on January 30, 2019. The exchange rates to purchase one pound were as follows:

November 30, 2018 December 31, 2018

Spot-rate $1.65 $1.62

30-day rate 1.64 1.59
60-day rate 1.63 1.56

In the income statement, what amount should Hunt report as foreign exchange transaction gain as part of net income?
A. $12,000
B. $ 9,000
C. $ 6,000
D. $ 0

Number 96 (Foreign currency transaction)

Ball Company had the following foreign currency transactions during 2018:

 Merchandise was purchased from a foreign supplier on January 20, 2018, for the US dollar equivalent of $90,000. The
invoice was paid on March20, 2018, at the US dollar equivalent of $96,000.

 On July 1, 2018, Ball borrowed the US dollar equivalent of $500,000 evidenced by a note payable in the lender’s
local currency on July 1, 2020. On December 31, 2018, the US dollar equivalents of the principal amount and accrued
interest were $520,000 and $26,000, respectively. Interest on the note is 10% per annum.

In Ball’s 2018 income statement, what amount should be included as foreign exchange transaction loss as part of net
income?
A. $ 0
B. $ 6,000
C. $21,000
D. $27,000

Number 97 (Foreign currency transaction)

On November 30, 2018, Tyrola Publishing Company, located in Colorado, executed a contract with Ernest Blyton, an
author from Canada, providing for payment of 10% royalties on Canadian sales of Blyton’s book. Payment is to be made
in Canadian dollars each January 10 for the previous year’s sales. Canadian sales of the book for the year ended December
31, 2019, totaled $50,000 Canadian. Tyrola paid Blyton his 2019 royalties on January 10, 2020. Tyrola’s 2019 financial
statements were issued on February 1, 2020. Spot rates for Canadian dollars were as follows:

November 30, 2018 $.87

January 1, 2019 $.88
December 31, 2019 $.89
January 10, 2020 $.90

How much should Tyrola accrue for royalties payable at December 31, 2019?
A. $4,350
B. $4.425
C. $4,450
D. $4,500

Numbers 98, 99, 100 and 101 (Foreign Currency Transaction)

On November 1, 2020, an entity acquired on account goods from a foreign supplier at a cost of $1,000. The accounts
payable is paid on January 30, 2021.

On December 1, 2020, an entity sold on account the said goods to a foreign customer at a selling price of $1,500. The
accounts receivable is collected on February 28, 2021.

The entity is operating in Philippine economy wherein the functional currency is the Philippine Peso.

The following direct exchange rates are provided:

Buying spot rate Selling spot rate

November 1, 2020 P40 P42

December 1, 2020 39 40
December 31, 2020 45 47

98. What is the sales revenue for 2020?

A. 58,500
B. 60,000
C. 67,500
D. 72,000
99. What is the carrying amount of accounts receivable on December 31, 2020?
A. 58,500
B. 60,000
C. 67,500
D. 72,000
100. What is the carrying amount of accounts payable on December 31, 2020?
A. 40,000
B. 42,000
C. 45,000
D. 47,000
101. What is the net foreign currency gain for 2020?
A. 4,000
B. 5,000
C. 3,000
D. 6,000
Translation of Financial Statements in Functional Currency to Presentation Currency

Numbers 102, 103, 104 and 105

Entity A owns majority of the outstanding ordinary shares of Entity B which is operating in United States of America
wherein the functional currency is the USA $. However, the presentation currency of Entity B is the Philippine Peso
because that is the presentation currency of Entity A. For the year ended December 31, 2020, Entity B presented its
Statement of Financial Position in its functional currency of USA $:

Current assets $10,000Current liabilities $10,000

Noncurrent assets 40,000Noncurrent liabilities 20,000
Ordinary share capital 5,000
Preference share capital 8,000
 Retained earnings 7,000
Total Assets $50,000Total Liabilities and shareholders $50,000

 The ordinary shares are issued on January 1, 2019 while the preference shares are issued on July 1, 2019.
 B reported $1,000 net income during 2020 and declared dividends in the amount of $200 on December 1, 2020.
 The translated amount of retained earnings on December 31, 2019 is P300,000

The following direct exchange rates are provided:

January 1, 2019 P40
July 1, 2019 42
December 31, 2019 43
December 1, 2020 41
December 31, 2020 45
Average rate 2020 44

102. What is the amount of net assets in US dollars on December 31, 2019?
A. 19,200
B. 20,000
C. 19,000
D. 20,200
103. What amount of translation gain as component of other comprehensive income should be presented in the of
statement of comprehensive income for the year ended December 31, 2020?
A. 38,600
B. 39,200
C. 40,400
D. 41,800
104. What is the translated retained earnings balance on December 31, 2020?
A. 300,000
B. 335,800
C. 344,000
D. 281,800

105. What is the cumulative translation credit that should to be presented in the statement of financial position on
December 31, 2020?
A. 25,400
B. 28,200
C. 26,800
D. 24,600

Numbers 106 and 107 (Standard Costing – Direct material variance)

Negros Company recently set-up its standard costs for its direct materials. The entity sets the benchmark at 3 units of
direct materials per product at a standard price of P5 per unit of direct material.

During the year, the entity acquired 400 units of direct materials at a total cost of P2,400 or P6 per unit. The entity also
manufactured 100 products using 250 units of direct materials.

106. What is the direct material price variance?

A. 250 unfavorable
B. 300 favorable
C. 350 favorable
D. 400 unfavorable
107. What is the direct material usage variance?
A. 150 unfavorable
B. 300 unfavorable
C. 250 favorable
D. 350 favorable

Numbers 108 and 109 (Standard costing - Direct labor variance)

Bacolod Company recently set-up its standard costs for its direct labor. The entity sets the benchmark at 2 direct labor
hours per product at a standard rate of P100 per direct labor hour.

During the year, the entity manufactured 10 products using 30 direct labor hours at total direct labor costs of P2,400 or
P80 per direct labor hour.

108. What is the direct labor rate variance?

A. 600 favorable
 B. 400 unfavorable
C. 200 favorable
D. 800 unfavorable
109. What is the direct labor efficiency variance?
A. 400 favorable
B. 1,000 unfavorable
C. 600 unfavorable
D. 200 favorable

Number 110 (Job Order Costing)

Simple Company employs actual costing for its production. The entity provided the following data concerning its
production during the year:

Decrease in direct materials during the year 500,000

Labor cost during the year 400,000
Actual factory overhead during the year 300,000
Increase in work in process during the year 200,000
Decrease in finished goods during the year 100,000

What is the cost of goods manufactured during the year?

A. 1,200,000
B. 1,000,000
C. 1,400,000
D. 1,100,000

Numbers 111, 112 and 113 (Job order costing)

Marawi Company employs normal costing for its production. The following data are provided during the current year:

Net purchases of raw materials during the year 500,000

Total labor costs during the year 800,000
Depreciation of factory assets during the year 100,000
Utilities on the factory during the year 300,000

Beginning Ending

Raw materials inventory 200,000 300,000

Work in process inventory 500,000 200,000
Finished goods inventory 600,000 300,000

 The entity uses a single account for its direct material and indirect materials. Indirect material used is one-fourth of
the total direct material used.
 The indirect labor cost is 1/8 of the total labor costs.
 The overhead application rate is 80% of direct labor costs.
 Any over or under application of overhead is considered material.

111. What is the total manufacturing cost during the current year?
A. 1,560,000
B. 1,500,000
C. 1,640,000
D. 1,740,000
112. What is the cost of goods manufactured during the current year?
A. 2,040,000
B. 1,860,000
C. 1,940,000
D. 1,800,000
113. What is the over or under application of overhead?
A. 60,000 over application
B. 140,000 under application
C. 40,000 under application
D. 160,000 over application
Numbers 114, 115 and 116 (Joint Product and By-Product Costing)

Silay Company is conducting a joint production at a total costs of P500,000. The joint production results to the following
inventories:

Alt Tab Del

Units produced 20,000 units 10,000 units 5,000 units

Selling price at split off P150 P200 P5

Alt and Tab are considered main products while Del is considered by-product. The entity considers its by-product as
material. The by-product requires additional processing cost per unit of P0.80 and its cost of disposal is P0.20 per unit.

114. What is the value to be given to product Del?

A. 25,000
B. 21,000
C. 24,000
D. 20,000
115. What is the joint cost allocated to product Alt if the entity employs physical method?
A. 333,333
B. 316,667
C. 317,333
D. 320,000
116. What is the joint cost allocated to product Tab if the entity employs relative sales value method?
A. 300,000
B. 200,000
C. 192,000
D. 288,000

Number 117 (Just-in-Time Inventory and Backflush Costing)

Talisay Company is employing backflush costing in connection with just-in-time production process. The entity provided
the following production data for the year:
 The entity acquired direct materials during the year at a cost of P100,000
 The entity reported direct labor cost of P200,000.
 The actual factory overhead incurred during the year amounted to P170,000.
 The standard factory overhead application rate is 75% of direct labor cost.
 The ending finished goods inventory is reported at P120,000.

What is the cost of goods sold under backflush costing?

A. 470,000
B. 350,000
C. 330,000
D. 300,000
Numbers 118, 119 and 120 (Backflush costing)

Panay Company has a cycle of 3 days, uses a Raw and In Process Account (RIP) and charges all conversion costs to cost
of goods sold. At the end of each month, all inventories are counted, conversion costs components are estimated and
inventory account balances are adjusted. Raw material cost is backflushed from Raw and in Process (RIP) Account to
finished goods. The following information is provided for the month of June:

Beginning Balance of RIP account, including P1,000 conversion cost 5,000

Beginning Balance of finished goods account including P6,000 conversion cost 10,000
Raw materials received on credit 400,000
Direct labor cost 300,000
Factory overhead applied 500,000
Ending RIP inventory per physical count, including P7,000 conversion cost 20,000
Ending finished goods inventory per physical count, including P4,000 conversion cost 6,000

118. What is the amount of conversion cost included cost of goods sold in June?
A. 802,000
B. 796,000
C. 794,000
D. 800,000
119. What is the amount of direct materials backflushed from RIP to finished goods?
A. 391,000
B. 404,000
C. 387,000
D. 395,000

120. What is the amount of direct materials backflushed from finished goods to cost of goods sold?
A. 395,000
B. 400,000
C. 393,000
D. 389,000

Numbers 121 and 122 (Activity Based Costing)

Romblon Company is choosing between traditional costing and activity-based costing. The following data are provided:

Activity-Based Costing

Activity center Cost driver Amount of activity Center cost

Material handling Kilos handled 100,000 kg. 200,000

Painting Units painted 50,000 units 300,000
Assembly Machine hours 10,000 hours 500,000

Traditional Costing

Traditional Labor hours 100,000 hours 1,000,000

Job 1 contains 3,000 units. It weighs 10,000 kilos and uses 300 machine hours. The direct labor hours on the job total
7,000 hours.

121. What is the applied overhead under traditional costing?

A. 70,000
B. 60,000
C. 80,000
D. 50,000
122. What is the applied overhead under Activity Based Costing?
A. 53,000
B. 56,000
C. 45,000
D. 43,000

Numbers 123, 124, 125 and 126 (Process Costing without Spoilage)

Tacloban Company is employing process costing regarding its production cycle.

Conversion costs are added uniformly during the production process while direct materials are added 10% at the start of
production process, 50% at the middle of the production process and the remainder at the end of production process.

The production data of the entity during the year are:

Beginning Work in Process Inventory 10,000 units (30% incomplete as to conversion costs)
Units started during the year 30,000 units
Ending Work in Process Inventory 5,000 units (75% incomplete as to conversion costs)

 There is no spoilage during the period.

 The costs of beginning inventory consist of P103,000 costs of direct materials and P107,500 conversion costs.
 The total manufacturing costs consist of P252,000 costs of direct materials and P146,250 conversion costs.

123. What is the cost per unit of direct material under average process costing?
A. 10
B. 9
C. 8
D. 7
124. What is the cost per unit of conversion cost under average process costing?
A. 10
B. 9
C. 8
 D. 7

125. What is the cost per unit of direct material under FIFO process costing?
A. 10
B. 9
C. 8
D. 7
126. What is the cost per unit of conversion cost under FIFO process costing?
A. 5
B. 9
C. 8
D. 7

Numbers 127, 128, 129, 130 and 131 (Process Costing with Spoilage)

Samar Company is employing process costing regarding its production cycle.

Conversion costs are added uniformly during the production process while direct materials are added 20% at the start of
production process, 45% at the middle of the production process and the remainder at the end of production process.
Normal spoilage is 10% of units started during the year.

The entity is conducting inspection when the production process is at 45% of conversion cost. The entity provided the
following production data during the year:
Beginning Work in Process Inventory 10,000 units (40% incomplete as to conversion costs)
Units started during the year 40,000 units
Ending Work in Process Inventory 5,000 units (80% complete as to conversion costs)
Units completed during the period 38,000 units

127. What is the abnormal spoilage in units during the year?

A. 7,000 units
B. 4,000 units
C. 3,000 units
D. 2,000 units
128. What is the equivalent unit of production for direct material under average process costing?
A. 42,650 units
B. 41,150 units
C. 38,250 units
D. 43,750 units
129. What is the equivalent unit of production for conversion cost under average process costing?
A. 44,650 units
B. 45,150 units
C. 43,250 units
D. 46,150 units
130. What is the equivalent unit of production for direct material under FIFO costing?
A. 35,150 units
B. 37,250 units
C. 36,150 units
D. 38,450 units
131. What is the equivalent unit of production for conversion cost under FIFO costing?
A. 39,150 units
B. 41,250 units
C. 37,450 units
D. 38,650 units

Numbers 132, and 133 (Foreign currency hedge)

On December 1, 2020, Entity A imported good at a price of $1,000 payable on March 1, 2021. In order to hedge this
foreign currency denominated importation, Entity A entered into a forward contract with a bank to purchase $1,000.
Entity A is operating in Philippine economy where the functional currency is Philippine peso. The following direct
exchange rates are given:
December 1, 2020 December 31, 2020 March 1, 2021

Buying spot P43 P40 P41

Selling spot 45 44 49

132. What is the foreign currency gain or loss on the hedged item for 2020?
A. 2,000 loss
B. 1,000 gain
 C. 3,000 gain
D. 4,000 gain
133. What is the foreign currency gain or loss on the hedging instrument for 2021?

A. 4,000 gain
B. 2,000 loss
C. 1,000 loss
D. 3,000 gain

Numbers 134 and 135 (Hedging)

Kline Company purchased inventory on November 30, 2018 for $10,000 payable March 1, 2019. On December 1, 2018,
the entity entered into a forward contract to purchase $10,000in 90 days to hedge the purchase of inventory on
November 30, 2018. The relevant exchange rates are:
Spot rate Forward rate

November 30, 2018 P45 P47

December 1, 2018 46 48
December 31, 2018 50 51

134. What amount of foreign currency transaction gain from the forward contract should be included in net income for
2018?
A. 50,000
B. 40,000
C. 30,000
D. 0
135. What amount of foreign currency transaction loss should be included in income from the revaluation of accounts
payable for 2018?
A. 40,000
B. 50,000
C. 10,000
D. 0

Number 136 (Hedging)

On December 1, 2018 Winston Company entered into a forward contract to purchase $10,000 in 90 days to hedge a
commitment to purchase equipment being manufactured to the entity’s specifications. The expected delivery date is
March 1, 2019, at which time settlement is due to the manufacturer. The hedge qualifies as a fair value hedge. The
relevant exchange rates are:
Spot rate Forward rate

December 1, 2018 P48 P49

December 31, 2018 52 51

What amount of foreign currency transaction gain from the forward contract should be included in net income for 2018?
A. 20,000
B. 40,000
C. 10,000
D. 0
Numbers 137 and 138 (Fair value hedge)
On November 1, 2020, Entity A entered into a firm commitment for the exportation of goods at a price of $2,000.
Delivery will happen on January 31, 2020. In order to hedge this foreign currency denominated firm commitment, Entity
A entered into a forward contract with a bank to sell $2,000. Entity A is operating in Philippine economy where the
functional currency is Philippine peso. Entity A elects to use fair value hedge to account this hedge of firm commitment.
The following direct exchange rates are given:
November 1, 2020 December 31, 2020 January 31, 2021

Spot rate P43 P40 P44

90-day forward rate 41 43 44
60-day forward rate 45 42 41
30-day forward rate 47 46 42

137. What is the carrying amount of firm commitment asset or liability on December 31, 2020?
A. 4,000 liability
B. 10,000 liability
C. 2,000 liability
D. 6,000 liability
138. What is the foreign currency gain or loss on hedging instrument for 2021?
A. 4,000 gain
 B. 2,000 loss
C. 6,000 loss
D. 8,000 gain

Numbers 139, 140, 141 and 142 (Cash flow hedge)

On November 1, 2020, Entity A anticipated the purchase of equipment on January 31, 2021 at a price of $1,200. In order
to hedge this highly probable forecasted importation, Entity A entered into a forward contract with a bank to purchase
$1,200. Entity A is operating in Philippine economy where the functional currency is Philippine peso. The following
direct exchange rates are made available:
November 1, 2020 December 31, 2020 January 31, 2021

Spot rate P45 P44 P43

90-day forward rate 42 41 43
60-day forward rate 46 45 40
30-day forward rate 48 44 40

139. What is the unrealized holding gain or loss to be recognized as component of other comprehensive income in the
statement of comprehensive income for the year ended December 31, 2020?
A. 2,400 gain
B. 1,200 gain
C. 3,600 loss
D. 4,800 gain
140. What is the unrealized holding gain or loss to be recognized as component of other comprehensive income in the
statement of comprehensive income for the year ended December 31, 2021?
A. 4,800 loss
B. 1,200 loss
C. 3,600 gain
D. 2,400 gain
141. What is the cumulative unrealized gain or loss before reclassification to be reported as component of other
comprehensive income in the Statement of Changes in equity on December 31, 2021?
A. 1,200 gain
B. 1,800 loss
C. 2,400 gain
D. 0
142. What is the cost of equipment in Philippine peso on January 31, 2021?
A. 48,000
B. 50,400
C. 49,200
D. 51,600
Numbers 143, 144 and 145 (Cash Flow Hedge using option contract)
On November 1, 2020, Entity A anticipated the purchase of inventory on January 31, 2021 at a price of $1,000. In order
to hedge this highly probable forecasted importation, Entity A acquired a call option from a bank giving it the right to
purchase $1,000 at an option price of P40 by paying an option premium of P300. Entity A is operating in Philippine
economy where the functional currency is Philippine peso. The following data are provided:
November 1, 2020 December 31, 2020 January 31, 2021

Spot rate P40 P 44 P43

Fair value of call option ? 4,500 ?
Entity A imported the goods on the date anticipated. Afterwards, Entity A was able to resell 30% of the goods imported
during 2021.

143. What is the unrealized holding gain or to be recognized as component of other comprehensive income in the of
statement of comprehensive income for the year ended December 31, 2020?
A. 4,000
B. 4,500
C. 4,300
D. 4,200
144. What is the unrealized holding gain to be recognized in the profit or loss in the statement comprehensive income for
the year ended December 31, 2020?
A. 300
B. 200
C. 500
D. 100
145. What is the unrealized holding loss to be recognized as component of other comprehensive income in the statement
of comprehensive income for the year ended December 31, 2021?
A. 3,000
B. 2,000
C. 1,000
D. 4,000