ReSA -The Review School of Accountancy Advanced Financial Accounting

and Reporting
OCTOBER 2022 Batch
AFAR Quiz 1
COVERAGE - Week 1 to Week 7 Lecture
 AFAR-01: Partnership Formation & Operations
 AFAR-02: Partnership Dissolution & Liquidation
 AFAR-03: Corporate Liquidation
 AFAR-04: Construction Accounting
 AFAR-05: Licenses, Royalties, Upfront Fees, Franchise & Consignments
 AFAR-06: Revenue from Customer Contracts – Other Topics

Items 1 and 2 are based on the following information:

Account balances for the Ral, Tom, and Vic partnership on October 1, 2008 are as follows:
Cash P 21,000 Accounts payable P 80,000
Accounts receivable 63,000 Notes payable 50,000
Inventory 120,000 Ral, capital (30%) 43,600
Equipment 150,000 Tom, capital (50%) 150,000
Ral loan 15,000 Vic, capital (20%) 45,400
The partners have decided to liquidate the business. Activities for October and November are as follows:
October
• Ral is short of funds and the partners agree to charge her loan to her capital account.
• P40,000 is collected on the accounts receivable; P4,000 is written off as uncollectible.
• Half the inventory is sold for P50,000.
• Equipment with a book value of P55,000 is sold for P60,000.
• The P50,000 bank note plus P600 accrued interest is paid in full.
• The accounts payable are paid.
• Liquidation expenses of P2,000 are paid.
• Except for a P5,000 contingency fund, all available cash is distributed to partners at the end of October.
November
• The remaining equipment is sold for P38,000.
• Vic accepts inventory with a book value of P20,000 and a fair value of P10,000 as payment for part of
her capital balance. The rest of the inventory is written off.
• Accounts receivable of P10,000 are collected. The remaining receivables are written off.
• Liquidation expenses of P800 are paid.
• Remaining cash, including the contingency fund, is distributed to the partners.
1. How much would Tom receive for the month of October?
a. P16,700 c. P34,286
b. P33,400 d. P35,400
2. How much cash would Vic receive for the month of November?
a. P 6,886 c. P10,400
b. P9,720 d. P35,400
3. The PQR Partnership is being dissolved. All liabilities have been paid and the remaining assets are being
realized gradually. The equity of the partnership is as follows:
Loans to
Partners’ (from) Profit and
Accounts Partnership Loss Ratio
P P24,000 P 6,000 3
Q 36,000 - 3
R 60,000 (10,000) 4
The second cash payment to any Partner (s) under a program of priorities shall be made thus:
a. To R P2,000 c. To R P8,000
b. To Q P6,000 d. To Q P6,000 & R P8,000
4. The STU Partnership has the following amounts:
• Sales, P84,000
• Cost of goods sold, P48,000
• Operating expenses, P12,000
• Salary allocations to partners, P15,600
Page 1 of 12 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 44 – October 2022 Batch)
• Interest paid to banks, P2,400
• Partners’ withdrawals, P9,600

Compute the partnership net income (loss):

a. P24,000 c. P 6,000
b. 21,600 d. ( 3,600)
5. The condensed balance sheet of the partnership of China and Japan as of December 31, 2019 showed the
following:
Total assets…………………………………… P200,000
Total liabilities……………………………….. 40,000
China, capital……………………………….. 80,000
Japan, capital………………………………… 80,000
On this date, the partnership was dissolved and its net assets were transferred to a newly- formed corporation.
The fair value of the assets was P24,000 more than the carrying value on the firm’s books. Each of the partners
was issued 10,000 shares of the corporation’s P1 par common stock. Immediately after affecting the transfer
of the net assets, and the issuance of stocks, the corporation’s additional paid-in capital account would be
credited for:
a. P136,000 c. P154,000
b. 140,000 d. 164,000
6. The capital accounts of the partnership of NN, SS, and JJ on June 1, 2022 are presented along with their
respective profit and loss ratios:
NN P278,400 ½
SS 417,600 1/3
JJ 192,000 1/6

On June 1, 2022, KK was admitted to the partnership when he purchased for P264,000, a proportionate
interest from NN and SS in the net assets and profits of the partnership. As a result of this transaction, KK
acquired one-fifth (1/5) interest in the net assets and profits of the firm. Assuming that implied goodwill is
not to be recorded, what is the combined gain realized by NN and SS upon the sale of a portion of their
interests in the partnership to KK?
a. P -0- c. P124,800
b. 86,400 d. 164,000
7. XX, YY and ZZ formed a partnership on January 1, 2022. Each contributed P120,000. Salaries were to be
allocated as follows:
XX………………………………………………………………………………..P 30,000
YY……………………………………………………………………………….. 30,000
ZZ…………………………..…………………………………………………… 45,000
Drawings were equal to salaries and be taken out evenly throughout the year. With sufficient partnership net
income, XX and YY could split a bonus equal to 25% of partnership net income after salaries and bonus (in
no event could the bonus go below zero).Remaining profits were to be split as follows: 30% for XX; 30% for
YY; and 40% for ZZ. For the year, partnership net income was P120,000. Compute the ending capital for
each partner:
a. XX, P155,100; YY, P155,100; ZZ, P169,800
b. XX, P126,000; YY, P126,000; ZZ, P124,500
c. XX, P125,100; YY, P125,100; ZZ, P124,800
d. XX, P125,500; YY, P125,500; ZZ, P124,000
8. On December 31, 2022, TT and WW, who share profits and losses equally, have capital balances of P170,000
and P200,000, respectively. They agree to admit ZZ for a one-third interest in capital and profits for his
investment of P200,000. Partnership net assets are not to be revalued. Capital accounts of TT, WW, and ZZ,
respectively, immediately after ZZ’s admission to the partnership are:
a. P170,000; P200,000; and P200,000
b. P165,000; P195,000; and P200,000
c. P175,000; P205,000; and P190,000
d. P185,000; P215,000; and P200,000

Page 2 of 12 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 44 – October 2022 Batch)
9. The balance of the FF, GG, and PP partnership on December 31, 2022, together with profit sharing ratios,
revealed the following:

Cash…………………. P240,000 FF, capital (30%)……… P 200,000

Other assets…………. 360,000 GG, capital (30%)…….. 170,000
PP, capital (40%)……… 230,000
P600,000 P 600,000
GG is retiring from the partnership and the partners agreed that she should receive P200,000 cash as payment
in full for her share of partnership assets. The total partnership assets after GG’s withdrawal should be:
a. P 566,667 c. P430,000
b. 500,000 d. 400,000

Use the following information for 10 and 11:

Partners Dennis and Lilly have decided to liquidate their business. The following information is available:
Cash . . . . . . . . . . . . . P 100,000 Accounts Payable . . P 100,000
Inventory . . . . . . . . . . 200,000 Dennis, Capital . . . . 120,000
Lilly, Capital . . . . . . . . __80,000
Total . . . . . . . . . . . . . . P 300,000 Total . . . . . . . . . . . . . . . P300,000

Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of liquidation, half the inventory
is sold for P60,000, and P60,000 of the accounts payable is paid. During the second month, the rest of the
inventory is sold for P45,000, and the remaining accounts payable are paid. Cash is distributed at the end of
each month, and the liquidation is completed at the end of the second month.
10. Using a safe payments schedule, how much cash will be distributed to Dennis at the end of the first month?
a. P 64,000 c. P 24,000
b. P 60,000 d. P 36,000
11. Assume instead that the remaining inventory was sold for P10,000 in the second month. What payments will
be made to Dennis and Lilly at the end of the second month?
Dennis Lilly Dennis Lilly
a. P 0 P 0 c. P 5,000 P 5,000
b. P 10,000 P 0 d. P 6,000 P 4,000

Items 12 and 13 are based on the following information:

The following data were taken from the statement of affairs for Liquo Company:
Asset pledged for fully secured liabilities
(fair value, P75,000)…………………………………………………… P90,000
Asset pledged to partially secured liabilities
(fair value, P52,000)…………………………………………………… 74,000
Free assets (fair value, P40,000)………………………………………… 70,000
Unsecured Liabilities with priority………………………………………. 7,000
Fully secured liabilities…………………………………………………… 30,000
Partially secured liabilities……………………………………………… 60,000
Unsecured liabilities without priority…………………………………… 112,000

12. Total estimated deficiency to unsecured creditors amounted to:

a. P27,000 c. P35,000
b. P34,000 d. P42,000
13. The expected recovery per peso of unsecured claims amounted to:
a. P.35 c. P.70
b. P.65 d. P.71
14. zERO Na Corp. has been undergoing liquidation since January 1, 2022. As of March 31, 2022 its condensed
statement of realization and liquidation is presented below:
Assets:
Assets to be realized………………………………………………P 95,000
Assets acquired………………………………………………… 5,000
Assets realized…………………………………………………… 30,000
Assets not realized……………………………………………… 42,000

Page 3 of 12 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 44 – October 2022 Batch)

Liabilities:
Liabilities liquidated……………………………………………. 35,000
Liabilities not liquidated………………………………………. 31,850
Liabilities to be liquidated…………………………………….. 65,000
Liabilities assumed……………………………………………… 1,500
Revenues and Expenses:
Sales on account……………………………………………… 5,000
Purchases………………………………………………………… 1,500
Payment of expenses of trustee…………………………….. 7,500
Sales for cash…………………………………………………… 25,000
Interest on marketable securities……………………………. 150
The net gain (loss) for the three-month period ending March 31 is:
a. P 7,200 c. P 49,500
b. P(7,200) d. P(17,500)

Items 15 to 19 are based on the following information:

In 2022, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC uses the
percentage-of-completion method to account for such projects and provides you with the following
information (pesos in millions):
Accounts receivable (from construction progress billings) P 37.5
Actual construction costs incurred in 2022 P135.0
Cash collected on project during 2022 P105.0
Construction in progress P207.0
Estimated percentage of completion during 2022 60%
15. What is the amount of gross profit on the project recognized by CCC during 2022 in millions (M)?
a. P160 M c. P48 M
b. P 72 M d. Incomplete data
16. What are CCC's estimated remaining construction costs on the project at the end of 2022 in millions (M)?
a. P 90 M c. P225 M
b. P135 M d. None of the above
17. What is the fixed contract price for CCC's project in millions (M)?
a. P 25 M c. P345 M
b. P120 M d. None of the above
18. What were the construction billings by CCC during 2022 in millions (M)?
a. P142.5 M c. P37.5 M
b. P 67.5 M d. None of the above
19. How much cash remains to be collected by CCC on the project in millions (M)?
a. P 70.00 M c. P240.00 M
b. P202.50 M d. Incomplete data

Use the following information for questions 20 and 21:

Chicane Builders, Inc. employs the cost-to-cost method in determining the percentage-of-completion for revenue
recognition. The company’s records show the following information on a recently completed project for a
contract price of P5,000,000
20x4 20x5 20x6
Costs incurred to date . . . . . . . . . . . . . . . . P 900,000 P2,550,000 P ?
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . 100,000 350,000 ( 50,000)
20. The estimated costs to complete the project at December 31, 20x5:
a. P 850,000 c. P2,300,000
b. P1,700,000 d. P2,550,000
21. The actual costs incurred during the year 20x6.
a. P2,550,000 c. P2,200,000
b. P2,300,000 d. P2,050,000

Page 4 of 12 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 44 – October 2022 Batch)

Items 22 to 25 are based on the following information:

On January 1, 20x5, Lesley Benjamin signed an agreement (covering 5 years) to operate as a franchisee of
Campbell Inc. for an initial franchise fee of P50,000. The amount of P10,000 was paid when the agreement was
signed, and the balance is payable in five annual payments of P8,000 each, beginning January 1, 20x6. The
agreement provides that the down payment is non-refundable and that no future services are required of the
franchisor once the franchise commences operations on April 1, 20x5. Lesley Benjamin’s credit rating indicates
that she can borrow money at 11% for a loan of this type.
22. The amount of franchise revenue on January 1, 20x5:
a. Zero. c. P39,567
b. P10,433 d. P50,000
23. The amount of franchise revenue on April 1, 20x5:
a. Zero. c. P39,567
b. P10,433 d. P50,000
24. The amount of franchise revenue on January 1, 20x5 assuming that Campbell must provide services to
Benjamin throughout the franchise period to maintain the franchise value.
a. Zero. c. P39,567
b. P10,433 d. P50,000
25. In relation to No. 24, the amount of franchise revenue on December 31, 20x5:
a. Zero. c. P39,567
b. P7,913 d. P50,000

Items 26 to 28 are based on the following information:

AL Company consigned five calculators, with cost of P800 each, to the OO Company which was to sell these
goods for the account and ink of the former for a commission of 15% of selling price. The AL Company paid
shipping costs of P200 on the shipment. Correspondingly, OO Company paid P320 on the freight of the shipment.

On the last day of the year, OO Company reported that it had sold three of the calculators, two for cash at P1,500
each and one on credit at P1,800, of which 25% was collected as down payment. OO Company remitted all the
cash due.
26. The amount of cash remitted by OO Company is:
a. P3,760 c. P1,350
b. P2,410 d. None of the above
27. The consignment profit (loss) is:
a. P1,368 c. P1,040
b. P1,160 d. None of the above
28. The amount of inventory on consignment of AL Company is:
a. P1,720 c. P2,712
b. P1,808 d. None of the above
29. On March 1, 2022, Giordano Company enters into a contract to transfer a product to Hotter on July 31, 2022.
The contract is structured such that Warmer is required to pay the full contract price of P57,000 on August
31, 2022. The cost of the goods transferred is P34,200. Giordano delivers the product to Hotter on July 31,
2022. The contract exists on:
a. March 1, 2022 c. August 31, 2022
b. July 31, 2022 d. Incomplete data
30. Meyer & Smith is a full-service technology company. They provide equipment, and installation services as
well as training. Customers can purchase any product or service separately or as a bundled package. Container
Corporation purchased computer equipment, installation and training for a total cost of P120,000 on March
15, 2022. Estimated standalone fair values of the equipment, installation, and training are P75,000, P50,000,
and P25,000 respectively. The transaction price allocated to equipment, installation and training:
a. P75,000, P50,000, P25,000 respectively
b. P40,000, P40,000, P40,000 respectively
c. P120,000 for the entire bundle
d. P60,000, P40,000 and P20,000 respectively
31. On July 31, O’Malley Company contracted to have two products built by Taylor Manufacturing for a total
of P185,000. The contract specifies that payment will only occur after both products have been transferred
to O’Malley Company. O’Malley determines that the standalone prices are P100,000 for Product 1 and
P85,000 for Product 2. On August 1, when Product 1 has been transferred, the journal entry to record this
event include a:
Page 5 of 12 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 44 – October 2022 Batch)
a. debit to Accounts Receivable for P100,000
b. debit to Accounts Receivable for P85,000
c. debit to Contract Assets for P85,000
d. debit to Contract Assets for P100,000
32. On January 1, Joey enters into a contract with Althea for the sale of an excavator with unique specifications.
Joey and Althea develop the specifications and Joey contracts with a construction equipment manufacturer
to produce the equipment. The manufacturer will deliver the equipment to Althea when it is completed Joey
agrees to pay the manufacturer P42,000,000 upon delivery of the excavator to Althea.
Anderson and Althea agree to a selling price of P46,200,000 that will be paid by Althea to Joey. Joey’s profit
is P4,200,000 Joey’s contract with Althea requires Althea to seek remedies for defects from the manufacturer,
but Joey is responsible for any corrections due to errors in specifications. The role of Joey is a:
a. Customer c. Agent
b. Principal d. No agreement at all
33. Maybelle Paulino Computers manufactures and sells computers that include a warranty to make good on any
defect in its computers for 150 days (often referred to as an assurance warranty). In addition, it sells separately
an extended warranty, which provides protection from defects for three years beyond the 150 days (often
referred to as a service warranty). How many performance obligations are in the contract?
a. 0 c. 2
b. 1 d. 3
Use the following information for questions 34 and 35: Variable Consideration
Billy Biotech enters into a licensing agreement with Paul Pharmaceutical for a drug under development. Billy
will receive a payment of P20,000,000 if the drug receives a regulatory approval. Based on prior experience in
the drug-approval process, Billy determines it is 90% likely that the drug will gain approval and a 10% chance
of denial. Assuming that regulatory approval was granted on December 20, 2022, and that Billy received the
payment from Paul on January 15, 2023.
34. Determine the transaction price of the arrangement for Billy Biotech:
a. Nil c. P20,000,000
b. P18,000,000 d. No transaction at all
35. On December 20, 2022, license revenue amounted to
a. Nil c. P20,000,000
b. P18,000,000 d. No transaction at all
36. A partnership is formed by two individuals who were previously sole proprietors. Property other than cash
that is part of the initial investment in the partnership would be recorded for financial reporting purposes at
the:
a. Proprietor’s book values or the fair value of the property at the date of the investment,
whichever is higher.
b. Proprietor’s book values or the fair value of the property at the date of the investment,
whichever is lower.
c. Proprietor’s book values of the property at the date of the investment.
d. Fair value of the property at the date of the investment.
e. None of the above.
37. Which of the following results in dissolution of a partnership?
a. contribution of additional assets to the partnership by an existing partner
b. receipt of a draw by an existing partner
c. winding up of the partnership and the distribution of remaining assets to the partners
d. withdrawal of a partner from a partnership
38. A schedule prepared each time cash is to be distributed is called a(n)
a. advance cash distribution schedule. c. loss absorption potential schedule.
b. marshaling of assets schedule. d. safe payment schedule.
39. One of the more popular input measures used to determine the progress toward completion in the percentage-
of-completion method is
a. revenue-percentage basis. c. progress completion basis.
b. cost-percentage basis. d. cost-to-cost basis.
40. The fourth step in the process for revenue recognition is to
a. recognize revenue when each performance obligation is satisfied.
b. identify the separate performance obligations in the contract.
c. allocate transaction price to the separate performance obligations.
d. determine the transaction price.
End of Examination – Good luck and GOD BLESS!!!

Page 6 of 12 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 44 – October 2022 Batch)

Suggested Answers and Solutions

1. B
OCTOBER RAL TOM VIC TOTAL
BALANCES BEFORE REALIZATION:
LOANS (TO) FROM (15,000) (15,000)
CAPITALS 43,600 150,000 45,400 239,000
TOTAL INTEREST FOR OCTOBER 28,600 150,000 45,400 224,000
REDUCTION IN INTEREST (57,180) (95,300) (38,120) (190,400)
BALANCES ( 28,580) 54,700 7,280 *33,400
POSSIBLE LOSS DUE TO INSOLVENCY (5:2) 28,580 (20,414) (8,166) - 0-
BALANCES 34,286 (886) 33,400
POSSIBLE LOSS DUE TO INSOLVENCY __( 886) __886 -0-
BALANCES _33,400 _33,400
*OCTOBER: PAYMENT TO PARTNERS, COMPUTED AS FOLLOWS:
CASH, BEGINNING……………………………………………………………………P 21,000
PROCEED S (P40,000 + P50,000 + P60,000).…………………………….. 150,000
PAYMENT OF BANK NOTE (P50,000 + P600)…………………………………( 50,600)
PAYMENT OF LIQUIDATION EXPENSES…………………………………………… ( 2,000)
PAYMENT OF ACCOUNTS PAYABLE…………………………………………………( 80,000)
CASH WITHHELD……………………………………………………………………… ( 5,000)
PAYMENT TO PARTNERS……………………………………………………………..P 33,400

2. A
NOVEMBER RAL TOM VIC TOTAL
TOTAL INTERESTS FOR OCTOBER 28,600 150,000 45,400 224,000
LESS: PAYMENTS _______ (33,400) _______ (33,400)
TOTAL INTEREST 28,600 116,600 45,400 190,600
REDUCTION IN INTEREST (38,520) (64,200) (25,680) (128,400)
BALANCES ( 9,920) 52,400 9,720 *52,200
POSSIBLE LOSS DUE TO INSOLVENCY (5:2) 9,920 (7,086) (2,834) - 0-
BALANCES 45,314 6,886 52,200
*NOVEMBER: PAYMENT TO PARTNERS, COMPUTED AS FOLLOWS:
CASH, BEGINNING (WITHHELD OF LAST MONTH)…..……………………………P 5,000
PROCEEDS (P38,000 + P10,000)….………………………………………….. 48,000
PAYMENT OF LIQUIDATION EXPENSES…………………………………………… ( 800)
PAYMENT TO PARTNERS……………………………………………………………..P 52,200

3. D
INTERESTS PAYMENTS______
P Q R P Q R Total
Balances before realization
Loans………………….. P 6,000 P(10,000)
Capital………………... 24,000 P 36,000 60,000
Total interests………... P 30,000 P 36,000 P 50,000
Divided by: P&L ratio…… 3/10 3/10 4/10
Loss absorption abilities… P100,000 P120,000 P125,000
Priority I……………………… - - (5,000) P2,000 P2,000
P100,000 P120,000 P120,000
Priority II…………………… - (20,000) (20,000) P6,000 8,000 14,000
P100,000 P100,000 P100,000 P – P6,000 P10,000 P16,000

4. B
Sales………………………………………………………………………………………. P84,000
Less: Cost of good sold……………………………………………………………. 48,000
Operating expenses…………………………………………………………. 12,000
Interest (expense) paid to bank…………………………………………… 2,400
Net Income……………………………………………………………………………… P21,600

Page 7 of 12 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 44 – October 2022 Batch)

Salary allocations to partner’s is considered as a distribution (or allocation) of net income rather than
as a determinant of net income. In other words, salaries to partners are not treated as an expense in
computing net income.

Partner’s withdrawal affects capital balance but not net income.

5. D
Unadjusted capital (P80,000 + P80,000) or (P200,000 – P40,000)…………………..P 160,000
Add: Excess of fair value over book value…………………………………………… 24,000
Adjusted capital…………………………………………………………………………….P 184,000
Less: Shares issued at par value (10,000 x 2 x P1)…………………………..………… 20,000
Additional paid-in capital…………………………………………………….…………..P 164,000

6. B
Amount paid……………………………………………………………………….. P 264,000
Less: Book value of interest acquired (P888,000 x 1/5)…………………… 177,600
Gain realized by NN and SS…………………………………………………….. P 86,400

The interest acquired was based on the net assets or capital of the partnership not the capital balances
of NN and SS only.

7. C
XX YY ZZ Total
Capital, beginning balances P120,000 P120,000 P120,000 P360,000
Add: Net income……………... 35,100 35,100 49,800 120,000
Less: Personal withdrawals….. 30,000 30,000 45,000 105,000
Capital, ending balances… P125,100 P125,100 P124,800 P375,000
Allocation of Net Income:
XX YY ZZ Total
Salaries…………………………. P30,000 P30,000 P45,000 P360,000
Bonus…………………………… 1,500 1,500 - 3,000
Balance (30%; 30%; 40%)…… 3,600 3,600 4,800 12,000
P35,100 P35,100 P49,800 P120,000
Bonus computation:
Bonus = .25 (NI – salaries – B)
B = .25 (120,000 – 105,000 – B)
B = 3,750 - .25 B
1.25 B = 3,750
B = P3,000
8. C
Contributed Agreed
Capital Capital Bonus
TT……………………………… 170,000 175,000 5,000 1/2
WW………………………….. 200,000 205,000 5,000 1/2
370,000 380,000 10,000
ZZ…………………………… 200,000 190,000 1/3 (10,000)
570,000 570,000 - .
9. D
Amount paid………………………………………………………………………. P200,000
Less: Book value of GG’s interest………………………………………..….. 170,000
Bonus to retiring partner……………………………………………………….. P 30,000
Total assets before retirement ……………………………………………… P600,000
Less: Cash paid to retiring partner…………………………………………. 200,000
Total assets after GG’s retirement………………………………………….. P400,000
Incidentally, the entry would be:
GG, capital………………………………………………… 170,000
FF, capital (P30,000 x 3/7)………………………………. 12,857
PP, capital (P30,000 x 4/7)……………………………… 17,143
Cash……………………………………………………. 200,000

Page 8 of 12 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 44 – October 2022 Batch)

10. D
Dennis Lily Total
Capital before realization 120,000 80,000 200,000
Reduction in capital (3:2) ( 84,000) ( 56,000) (140,000)
Payment to partners 36,000 24,000 60,000*
*Payment to partners:
Cash, beginning………………………………………………………………………………P100,000
Proceeds……………………………………………………………………………………….. 60,000
Payment of liabilities – to be conservative – it should be in full…………………….. ( 100,000)
Payment to partners………………………………………………………………………….. P 60,000
11. D
Dennis Lily Total__
Capital before realization – refer to no. 32 84,000 56,000 140,000
Reduction in capital (3:2) (78,000) ( 52,000) (130,000)
Payment to partners 6,000 4,000 10,000*
*since cash was fully distributed last month, only the proceeds of P10,000 for the second remains to be
distributed.

12. D
FREE ASSETS ON ASSETS PLEDGED TO FULLY SECURED ASSETS (P75,000 – P30,000)..………… P 45,000
FREE ASSETS……………………………………………………………………………………………………… 40,000
TOTAL FREE ASSETS/TOTAL AMOUNT EXPECTED TO BE AVAILABLE FOR ALL CLAIMS……….…….. P 85,000
LESS: UNSECURED CREDITORS WITH PRIORITY…………………………………………………………… 7,000
NET FREE ASSETS/EXPECTED TO BE AVAILABLE FOR UNSECURED NONPRIORITY CLAIMS..……….. P 78,000
UNSECURED CREDITORS:
PARTIALLY SECURED CREDITORS (P 60,000 – P52,000)………………………………P 8,000
UNSECURED CREDITORS WITHOUT PRIORITY……………………………………………… 112,000 120,000
ESTIMATED DEFICIENCY TO UNSECURED CREDITORS………………………………………………………P 42,000

13. B
EXPECTED RECOVERY PER PESO OF UNSECURED CREDITORS:
NET FREE ASSETS / TOTAL UNSECURED CREDITORS:
P 78,000 / P 120,000 …………………….………………………………………… P .65

14. B
Statement of Realization and Liquidation

Assets to be Realized………..P 95,000 Assets Realized……………..P 30,000

Assets Acquired………………. 5,000 Assets Not Realized……….. 40,000
Liabilities Liquidated…………. 35,000 Liabilities to be Liquidated… 65,000
Liabilities Not Liquidated……. 31,850 Liabilities Assumed………… 1,500
Supplementary charges/debits Supplementary credits:
Purchases…………………. 1,500 Sales…………………….. 5,000
Payment of expenses……. 7,500 Cash sales……………….. 25,000
Interest on M/S…………… 150

P 175,850 P 168,650
Net Loss P 7,200
0

Use the table and T-account and workback

15. B- (P207 – P135)
16. A- (P135/.60) – (P72/.60)
17. C- (P72 / .60) + (P135/.60)
18. A- P105 + P37.50
19. C- P345 – P105

Page 9 of 12 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 44 – October 2022 Batch)

20. B
20x4 20x5 20x6
Contract price………………………….. P5,000,000 P5,000,000 P5,000,000
Cost incurred each year………………. P2,050,000
Add: Cost incurred in prior year……… __900,000 2,550,000
Costs incurred to date………………… P 900,000 P2,550,000 P4,600,000
Add: Estimated costs to complete 3,600,000 1,700,000 _______-0-
Total estimated costs…………………. 4,500,000 P4,250,000 P4,600,000
Estimated gross profit………………… P 500,000 P 750,000 P 400,000
Multiply by: percentage of completion. _____20% 60% 100%
Recognized gross profit to date……… P 100,000 P 450,000 P 400,000
Less: Recognized gross profit in prior years -0- 100,000 450,000
Recognized gross profit each year…. P 100,000 P 350,000 P( 50,000)
21. D – refer to No. 20

22. A
January 1, 20x5: (Date of Signing)
Cash…………………………………………………………………………………………… 10,000
Notes Receivable…………………………………………………………………………… 40,000
Unearned Interest Income/Discount on Notes Receivable………………… 10,433
Unearned Franchise Revenue (P10,000 + P29,567)…………………………… 39,567*
*Down payment made on 4/1/x5……………………………...P10,000.00
Present value of an ordinary annuity (P8,000 x 3.69590).. 29,567.20
Total revenue recorded by Campbell and total
acquisition cost recorded by Lesley Benjamin…………P39,567.20
23. C
April 1, 20x5 (Date of Opening)
Unearned Franchise Revenue…………………………………………………………… 39,567
Franchise Revenue…………………………………………………………………… 39,567
24. A - refer to AFAR-04 on discussion of Contract Liability
January 1, 20x5:
Cash……………………………………………………………………………………………10,000
Notes Receivable……………………………………………………………………………40,000
Unearned Interest Income/Discount on Notes Receivable………………… 10,433
Contract Liability (P10,000 + P29,567)…………………………………………… 39,567*
*Down payment made on 4/1/x5…………………………….P10,000.00
Present value of an ordinary annuity (P8,000 x 3.69590).. 29,567.20
Total revenue recorded by Campbell and total
acquisition cost recorded by Lesley Benjamin…………P39,567.20
25. B- December 31, 20x5: (P39,567 ÷ 5) = P7,913

26. B
Collection made:
Cash sale (P1,500 x 2) P 3,000
Credit sale (P1,800 x 25%) ___450
Total P3,450
Less: Charges
Freight P 320
Commission [(P3,000 + P1,800) x 15%] __720 __1,040
Amount remitted P 2,410

Page 10 of 12 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 44 – October 2022 Batch)

27. A
Charges Related to
Total Consignment Inventory on
Charges Sales Consignment
(5) (3) (2)
Consignor’s charges:
Cost P4,000 P 2,400 P 1,600
Freight 200 120 80
Consignee’s charges:
Freight 320 192 128
Commission 720 720 ______
Total P5,240 P 3,432 P1,808
Sales price 4,800
Profit on Consignment P 1,368
28. B – P1,808 – refer to No. 27 for computation

29. B
No entry is required on March 1, 2022, because neither party has performed on the contract. That is, neither party
has an unconditional right as of March 1, 2022. On July 31, 2022, Giordano delivers the product and therefore
should recognize revenue as it received an unconditional right to consideration on that date. In addition, Giordano
satisfies its performance obligation by delivering the product to Hotter.
No entry – neither party has performed on March 1, 2022.

The entry on July 31, 2022, to record the sale and related cost of goods sold is as follows:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,000
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,000

Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,200

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,200

The entry to record the receipt of cash on August 31, 2022 is a follows:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,000

A key attribute of the revenue arrangement is that the signing of the contract by the two parties is not recorded
until one or both of the parties perform under the contract. Until performance occurs, no net asset or net liability
occurs.

30. D - P75,000 + P50,000 + P25,000 = P150,000

P75,000/ P150,000  P120,000 = P60,000
P50,000/ P150,000  P120,000 = P40,000
P25,000/ P150,000  P120,000 = P20,000.

31. D

32. B - Joey is acting as principal in the contract based on the following indicators:
• Joey is responsible for fulfilling the contract because it is responsible for ensuring that the excavator
meets specifications
• Joey has inventory risk because it is responsible for correcting error in specifications, even though
the manufacturer has inventory risk during production
• Joey has discretion in establishing the selling pric
• Joey’s consideration is in the form of profit, not commission
• Joey has credit risk for the P46,200,000 receivable from Tanner

33. C -
In this case, two performance obligations exist:
1. one related to the sale of the computer and the assurance warranty (it should be noted that quality-
assurance warranty is part of performance obligation), and

2. the other to the extended warranty (service warranty).

Page 11 of 12 pages
ReSA - The Review School of Accountancy AFAR Quiz 1
Coverage: AFAR – 01 to 06 (ReSA Batch 44 – October 2022 Batch)

The sale of the computer and related assurance warranty (quality-assurance) are one performance
obligation as they are interdependent and interrelated with each other.
However, the extended warranty is separately sold and is not interdependent (or not connected).

34. C- Because the arrangement only has two possible outcomes (regulatory approval is achieved or not),
Bai determines the transaction price based on the most likely approach. Thus, the best measure for the
transaction price is P20,000,000.

35. A
December 20, 2022
No entry-neither party has performed.
January 15, 2023
Cash …........................................................................ 10,000,000
License Revenue ................................................................................ 10,000,000

36. D
37. D
38. D
39. D
40. C

Page 12 of 12 pages