SAN SEBASTIAN COLLEGE RECOLETOS DE CAVITE, INC

Mid-Term Examination for AFAR Review

Instructions: Choose the best answer from the given choices. Write the letter of your
final answers on the first part of your worksheet.

On June 1, 2008, Peanut a Filipino Co bought goods costing $10,000 from Pandesal, an
American Co. On July 1, 2008, Balut an American Co bought goods costing $15,000
from Peanut Co. Peanut Co. closes its books on December 31, 2008. Pandesal Co. was
paid January 5, 2009. Balut Co. paid March 15, 2009

Spot Rates: June 1 July 1 December 31 January 5 March 15

Buying P50 P47 P 48 P46 P 51

Selling $.0190 $.0185 $.0195 $.02 $.0180

1. What is the effect of the foreign exchange gain or (loss) on the net income of
Peanut Co on December 31, 2008?
a. P30,500 b. P29,000 c. (P29,495) d. (P28,495)
2. What is the effect of the foreign exchange gain or (loss) on the net income of
Peanut Co on December 31, 2009?
a. P58,000 b. P49,500 c. P32,000 d. P75,500

On June 1, 2008, JPIA Corporation, Japanese company bought goods from NHK Co, a
Filipino Co. costing Y1,000,000 payable in five equal monthly installments starting July
1, 2008
Spot rates June 1 July 1 August1 Sept 1 Oct 31 Nov.1
BuyingP1= Y0.25 Y0.27 Y0.30 Y0.26 Y0.31 Y0.28
Selling P1= Y0.27 Y0.29 Y0.32 Y0.28 Y0.33 Y0.30

If JPIA Corporation closes it books on October 31, 2008

3. What is the foreign exchange gain or loss to be recognized by JPIA Corporation

for the fiscal year ended October 31, 2008?
a. (P2,000) b. (P6,000) c. P 0 d. (P3,000)

Hizon Holdings, Inc. is a parent company of a group of companies, but also does its own
trading. It brought a fixed assets for $6,000 on November 1, 2008 when the spot was
P52=$1.00 selling, P51=$1.00 buying. At December 31, 2008, the company’s year end,
the suppliers was not paid and the exchange rate was P53=$1.00 buying, P54=$1.00
selling. The company has not taken out a forward exchange contract to hedge against the
adverse exchange rate movements.

4. On its balance sheet, what will be the cost of the fixed assets?
a. P312,000 b. P306,000 c. P318,000 d. P324,000
5. On its balance sheet, what will be the cost of the unpaid liability?
a. P312,000 b. P306,000 c. P318,000 d. P324,000

Piolo Co. of Italy sold goods to Simpson of the United States for 5 million liras when the
exchange rate was $.0015 buying rate and $.00175 selling rate. The sales took place on
April 1, term 90 days. The spot rates on May 31, end of its fiscal period was $.0016
buying and $.0018 selling and on June 30, $.00172 selling.and $.00185 buying

6. How much would be the purchases reported by Simpson on May 31?

a. $7,500 b. $8,700 c. $8,000 d. $9,000
7. How much would Simpson report as foreign exchange gain or (loss) on May 31?
a. ($1,250) b. ($500) c. ($250) d. ($1,000)
8. How much would Simpson report as foreign exchange gain or (loss) on June 30?
a. $1,250 b. $500 c. $250 d. $1,000
The trial balances prepared for Attic Cat Co. and its branch as of December 31, 2004 are
shown below:
HOME OFFICE BRANCH OFFICE
DEBIT CREDIT DEBIT CREDIT
Cash P 33,200 p 22,700
Accounts receivable 29,400 21,000
Merchandise inventory January 1 22,000 25,000
Furniture & fixtures 17,200 10,500
Accum. Depr. - Fur. & Fix. P 4,900 p 2,300
Store supplies 2,200 900
Branch 151,000
Shipments to branch 200,000
Branch inventory allow 52,000
Account Payable 47,500 6,500
Home office 118,500
Capital stock 100,000
Retained earnings 24,100
Sales 220,000 239,000
Purchases 350,700 25,200
Shipments from home office 230,000
Operating expenses 42,800   31,000  
P 648,500 P 648,500 P 366,300 P 366,300

Additional information.
1. The mark-up on shipments has been constant at 25% above cost.
2. All cash collections made by the branch are deposited in a local bank to the
account of the home office. Deposits of this nature included the following:

Date deposited by Branch Date recorded by HO Amount

December 26, 2004 December 31, 2004 P 3,000
December 30, 2004 January 6, 2005 10,000
January 2, 2005 January 6, 2005 5,000

3. Expenses of P2,500 charged by the home office to the branch have not yet been
taken up by the branch.
4. The inventories as of December 31, 2004 were:
Home Office P 15,000
Branch (excluding in transit) from Home Office 6,000
From the suppliers 2,100
9. What is the combined net income (net loss) of the Home Office & Branch for
2004?
a. P(66,600) b. P19,500 c. P46,800 d. (P300)

10. What is the correct balance of the Home Office Equity account as of December
31, 2004?
a. P141,000 b. P118,500 c. P121,000 d. P138,500

11. What is the combined total asset of the branch as of December 31, 2004?
a. P171,300 b. P177,800 c. P181,900 d. P186,900

The pre-closing general ledger trial balances at December 31, 2004 for Green Rose
Company and its branch are shown below:
Green Rose Company
Trial Balances
December 31, 2004
Debits
Cash 25,000.00 8,000.00
Accounts Receivable (net) 35,000.00 12,000.00
Inventories Jan 1 70,000.00 20,000.00
Equipment (net) 90,000.00
Branch 20,000.00
Purchases 290,000.00 24,000.00
Shipments from Home Office 45,000.00
Operating Expenses 44,000.00 11,000.00
Credits
Accounts Payable 36,000.00 13,500.00
Accrued Expenses 14,000.00 2,500.00
Home Office 9,000.00
Capital Stock, P10 par 50,000.00
Retained Earnings 42,500.00
Sales 381,000.00 95,000.00
Shipment to Branch 40,000.00
Allowance for overvaluation of branch inventory 10,500.00

Your audit disclosed the following information:

a. On December 23, 2004, the branch manager purchased P4,000 of equipment but
failed to notify the home office. The branch accountant, knowing that equipment
is carried in the home office accounts, recorded the proper journal entry in the
branch accounting records. It is the company’s policy not to take any depreciation
on equipment acquired in the last half of the year.
b. On December 27, 2004, Jerome, a branch customer, erroneously paid his account
of P2,000 to the home office account but did not notify the branch.
c. On December 13, 2004 the branch remitted cash of P5,000 which was received by
the home office in January 3, 2005.
d. On December 31, 2004, the branch erroneously recorded the December allocated
expenses from the home office as P500 instead of P1,500.
e. On December 28, 2004, the home office shipped merchandise billed at P3,000 to
the branch, which was received in January 6, 2004.
f. Home office 2004 shipments to the branch purchased by the home office in 2004.
The physical inventories at December 31, 2004, excluding the shipment in transit,
are home office P55,000 (at cost); branch P20,000 which includes P2,000
acquired from outside vendors. Both the home office and the branch use the
periodic inventory system.
g. The home office consistently bills shipments to the branch at 20% above cost.

12. What is the combined ending inventory as of December 31, 2004?

a. P75,000 b. P74,500 c. P72,000 d. P72,500
13. What is adjusted balance of the home office & branch account?
a. P13,000 b. P16,000 c. P11,000 d. P10,000
14. What is the true net income of the branch for 2004?
a. P21,000 b. P22,000 c. P20,500 d. 21,500
15. What portion of the beginning inventory was from the home office?
a. P12,500 b. P 0 c. P15,000 d. P20,000

Oh Feel Young company is engaged in merchandising both at its Home Office in Makati
and at its Branch in Korea. Selected accounts taken from the trial balances of the home
office and the branch as of December 31, 2004 follow:
Makati Korea
Debits
Inventory Beg 23,000.00 11,550.00
Branch 58,300.00
Purchases 190,000.00 105,000.00
Freight In from Home Office 5,500.00
Operating Expenses 52,000.00 28,000.00
Credits
Home Office 53,300.00
Sales 155,000.00 140,000.00
Shipment to Branch 110,000.00
Allowance for Overvaluation at 1/1/2004 1,000.00
Additional information:
a. The Korea branch gets all of its merchandise from the home office. The home
office bills the goods at cost plus a 10% mark-up. At December 31, 2004, a
shipment with a billed value of P5,000 was still in transit. Freight on this
shipment was P250 and is to be treated as part of the inventory.
b. Inventories on December 31, 2004, excluding the shipment in transit, follow:
Home office at cost P30,000
Branch at billed price(excluding freight of P520) 10,400

16. What is the net income of the home office from its own operation for 2004?
 a. P10,000 b. P15,000 c. P20,000 d. P25,000
17. What is the net income of the Korea Branch for 2004?
a. P10,470 b. P11,470 c. P11,720 d. P12,720
18. What is the balance of allowance for overvaluation at December 31, 2004?
a. P1,400 b. P1,000 c. P600 d. P400

The branch manager of Baste Company submitted a report on December 31, 2004 which
contained among others the following information:
Petty Cash Fund P1,500
Accounts Receivable 12/31/2003 43,800
Accounts Receivable 12/31/2004 49,140
Merchandise Inventory 12/31/2003 37,170
Sales 198,720
Allowance for Doubtful Account 3,600
Accounts Written off 5,520
Cost of Sales 131,800
Shipments from HO 136,000
Cash Expenses 54,330
Depreciation Expense (charged) 3,600

19. The investment in branch account as of December 31, 2004 is?

a. P88,680 b. P95,400 c. P92,010 d. P93,510
20. Assuming that all cash collected by the branch are remitted to the home office, the
total remittance for 2004 would be?
a. P189,780 b. P187,860 c. P195,120 d. P193,380
21. The net income (loss) of the branch for 2004 would be?
a. P(130) b. P3,390 c. P3,470 d. P5,390

The JPIA company of Cavite City opened a branch in Tanza on January 3, 2004 to
expend the market of its product. Merchandise shipped during 2004 to Tanza branch
totaled P104,000 which included a profit of 20% based on billed price. At year end, the
inventory at billed price was P12,500. Other transactions affecting the branch are as
follows: Sales on account, P117,000, cash collections, P84,000 after allowing cash
discounts of P1,480; Expenses P20,000 including unpaid of P1,300, cash remittance to
home office, P65,000.
22. The true net income of the branch after adjustment made by the H.O. was?
a. P24,300 b. P22,320 c. P21,020 d. P24,320

On December 31, 2004, the Branch account in the books of the Home Office is P100,000
which does not tally with the Home office equity account in the books of the branch. An
examination of the records reveled the following:
a. Merchandise billed at P25,000 is in transit on December 31 from the home office
to the branch. Gross profit ratio of the home office on all shipments is 20%.
b. The branch collected a home office receivable for P7,000 but failed to notify the
home office.
c. On December 31, the home office sent P15,000 cash to the branch but this was
erroneously charged to general expense. The branch has not received this as of
December 31.
d. The branch has not received the memo issued by the home office charging it for
allocated expenses of P2,200.
e. December Branch profit was reported at P8,800 and recorded by the home office
before the P6,500 adjustment for realized profit on merchandise shipments.

23. What was the unadjusted balance of the Home Office Equity account?
a. P82,000 b. P79,800 c. P77,600 d. P86,300
24. What was the adjusted balance of the Investment in Branch account?
a. P119,800 b. P126,300 c. P122,000 d. P128,500

Mary Palmer Corporation maintains two branches, Manila Branch & Cebu Branch, that
markets the products it produces. Merchandise is shipped at cost with the branch paying
freight charges. On November 15, Manila branch was instructed to transfer to Cebu
branch 1/3 of the stock that was originally charged by the home office for P15,000
excluding freight charges of P450. Upon receiving the merchandise, Cebu branch paid
additional freight of P250. Freight charge from Home Office to Cebu is P300.
25. How much will the Home Office debit Cebu branch for the transfer made?
a. P5,050 b. P5,300 c. P5,400 d. P5,000
26. How much is the loss on excess freight?
a. P400 b. P150 c. P50 d. P100

Louie Corporation operates branches in Cavite & Laguna. The following are some of the
intercompany transactions for the month of August.
a. Cavite made a fund transfer to Laguna per Home Office instruction P10,000
b. Cavite collected Laguna branch receivables of P8,500 less a 2% discount.
c. Laguna shipped merchandise costing P15,000 to Cavite.
d. Home Office shipped merchandise costing P20,000 to Laguna and paid freight of
P300. Laguna paid additional freight of P300.
e. Laguna reshipped one-half of the goods received in letter d to Cavite. Cavite paid
for freight cost of P200. Normal freight from Home Office is only P400.
f. Home office transferred machinery costing P3,000, to be depreciated at 10%. It is
home office policy that fixed assets be carried only in the home office books. The
transfer was acknowledged by Laguna.
g. The machinery is to be depreciated at the end of the month.
h. Cavite reported a net loss in the amount of P9,500 while Laguna reported a net
income of P32,750.

27. What is the balance of the Home Office Equity account in Cavite books?
a. P14,200 b. P14,230 c. P14,030 d. P17,400
28. What is the balance of the Home Office Equity account in Laguna books?
a. P29,550 b. P29,445 c. P30,020 d. P29,100

29. It is the rate in which the transaction that take place was recorded
a. Historical Rate
b. Forward Rate
c. Spot Rate
d. Closing Rate
30. It is the exchange rate used by the exporters
a. Selling rate
b. Buying rate
c. Historical
d. Forward rate