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PRACTICAL ACCOUNTING 2
OCTOBER 2007 BATCH
1st PRE-BOARD EXAMS JULY 24,
2007 (Tuesday)
INSTRUCTIONS: Select the correct answer for each of the following questions.
Mark only one answer for each item by writing a VERTICAL LINE corresponding
to the letter of your choice on the answer sheet provided. STRICTLY NO
ERASURES ALLOWED. Use Pencil No. 1 or No. 2 only.
4. During 2006, GG had net income of P200,000 and paid dividends of P80,000.
Assume that an evaluation of goodwill at 2005 and 2006 indicated no goodwill
impairment since the date of acquisition. BB's Investment in GG account would
CEBU CPAR_PA2 - 1st PREBOARD OCT 07 Page 2 of 13
have which of
the following balances at December 31, 2006?
a. P505,000 b. P545,000 c. P550,000 d. P575,000
5. What is consolidated net income for the year ended December 31, 2007?
a. P360,000 b. P420,000 c. P344,000 d. P372,000
6. What is the minority interest net income in the Consolidated Income Statement
on December 31, 2007?
a. P 48,000 b. P 16,000 c. P 72,000 d. P 64,000
7. Based strictly on its share ownership, which of the following best represents
PJ's relationship to RL?
a. No significant influence c. Joint control
b. Significant influence d. Control
9. On March 1, 2007, PQR acquired 15% of the outstanding shares of ZZZ. Based
solely on PQR's shareholdings in ZZZ, at how much method should PQR report
its investment in ZZZ on its December 31, 2007 financial statements?
a. Acquisition Cost Dividends
b. Fair value d. Proportionate consolidation
c. Cost affected by Share in NI &
2005 2006
Cost of goods sold P 200,000 P 300,000
Amortization expense 65,000 70,000
During 2005, Slims sales included P100,000 for goods sold to Thick at a gross
profit margin of 30%. Of these goods, P20,000 remained in inventory at
December 31, 2005. Slim also sold P110,000 of goods to Thick in 2006 at a
gross profit margin of 30%, and P30,000 remained in ending inventory. Ignore
income
taxes for these companies.
10. On Thicks consolidated financial statements for the year ended December
31, 2006, cost of goods sold would be shown at which of the following
amounts?
a. P687,000 b. P690,000 c. P693,000 d. P800,000
11. When Thick acquired its 80% interest in Slim on January 1, 2000, it paid
P1,000,000 for the shares. At that time, Slims assets and liabilities had fair
value equal to book value, except for its equipment, which had fair value of
P200,000 and book value of P180,000 and a remaining useful life of 10 years.
Which of the following amounts for amortization expense would be shown on
Thicks consolidated expense for 2006?
a. P188,000 b. P188,400 c. P190,000 d. P191,600
12. The partnership agreement for the partnership of Brisbane and Ric
provided for salary allowances of P450,000 to Brisbane and P350,000 to Ric,
and the residual profit was allocated equally. During 2007, Brisbane and Ric
each withdraw cash equal to 80 percent of their salary allowances. If during
2008, the partnership had profit in excess of P1,000,000 without regard to
salary allowances and withdrawals, Brisbanes equity in the partnership would
a. Increase more than Rics c. Increase the same as Rics
b. Decrease more than Rics d. Decrease the same as Rics
14. Ric and Jason shares net income or losses 40% and 60%, respectively. On
January 2, 2007, Gen was admitted to the Ric- Gen Jason Partnership by the
investment of the net assets of her highly profitable single proprietorship. The
partners agreed to the following current fair values of the identifiable net
assets of Gens single proprietorship; Current assets P70,000, Plant assets
P230,000, Liabilities P200,000.
The balance sheet of the Ric and Jason partnership on December 31, 2006,
follows:
Gens capital account was credited for P120,000, the partners agreed further
that the carrying amounts of the net assets of the Ric and Jason partnership
were equal to their current fair values, and that the accounting records of the
old partnership should be used for the new partnership. The following income-
sharing plan was adopted for the new partnership:
1. A bonus of 10% of net income after deduction of the bonus to Gen as
managing partner.
2. Remaining net income or loss as follows: 30% to Ric; 40% to Jason
and 30% to Gen.
For the year ended December 31, 2007, the Ric-Gen Jason Partnership had net
income of P55,000 before the bonus Gen.
Compute: (1) the capital of Jason after Gens admission on January in the
partnership, and (2) share of Jason in the net income:
a. (1) P88,000; (2) P20,000 c. (1) P192,000; (2) P25,000
b. (1) P88,000; (2) P19,800 d. (1) P120,000; (2) P20,000
15. C and D wish to acquire the partnership interest of their partner E on July
10, 2007. Partnership assets are to be used to acquire Es partnership
interest, the balance sheet for the CDE Partnership on that date shows the
following:
CDE Partnership
Balance Sheet
July 10, 2007
16. Partners R, E, and H share net income and losses in a 5:3:2 ratio,
respectively. At the end of a very unprofitable year, they decided to liquidate
the partnership. The partners capital account balances on this date were as
CEBU CPAR_PA2 - 1st PREBOARD OCT 07 Page 6 of 13
17. Dennis, Brisbane and Ric form a partnership on January 1, 2007 investing
P15,000, P10,000 and P10,000 respectively; profits are to be shared in the
ratio of 2:1:1 respectively. It is agreed that 6% (1/2 of 1% per month) is to be
charged on withdrawals that decrease capitals below the original investments.
On March 1, Dennis withdraws P5,000. Business is unsatisfactory and it is
decided to dissolve the partnership. Partnership assets realize P5,000 and the
accountant distributes this cash to the proper parties on November 1, 2007.
All parties are solvent and proper settlement is made among partners the same
day.
How much will Dennis contribute to the partnership for the final settlement?
a. P2,500 b. P2,600 c. P2,700 d. . P2,800
20. A balance sheet for the partnership of J, K, and L who share profits 2:1:1
respectively, shows the
following balances just before liquidation:
Cash Other Liabilities J, Cap. K, Cap. L, Cap.
assets
P48,000 P238,000 P80,000 P88,000 P62,000 P56,000
In the first month of liquidation, P128,000 was received on the sale of certain
assets. Liquidation expenses of P4,000 were paid, and additional liquidation
expenses of P3,200 are anticipated before liquidation is completed. Creditors
were paid P22,400. Available cash distributed to the partners.
The cash to be received by each partner based on the above data:
J K L
a. P56,000 P28,300 P28,300
b. P86,000 P61,000 P55,000
c. P29,400 P32,700 P26,700
d. P88,000 P62,000 P56,000
21. Raymond, Jane, and Venus are partners and share profits and losses as
follows: Salaries of P20,000 to Raymond; P15,000 to Jane; and none to Venus.
If net income exceeds salaries, then a bonus is allocated to Raymond. The
bonus is 5 % of net income after deducting salaries and the bonus. Residual
profits or residual losses are allocated 10 % to Raymond; 20 % to Jane, and 70
% to Venus. After the allocation was recorded and the books were closed, the
partners discovered an error and that correction of the error would reduce the
net income from P70,000 to P30,000. The error involved understated
depreciation expense.
How much is the necessary adjustment to Raymonds capital?
a. Increase by b. Increase by c. Decrease by d. Decrease by
P25,000 P19,500 P5,500 P7,667
22. Gloria, Noli and Loren are partners in a business and share in its earnings
at the respective rates of 50%, 30%, and 20%. At the beginning of the new
fiscal year, they admit Fidel who is to invest in the firm sufficient cash funds to
give him a one-third interest in the capital and in the earnings. The following
closing balance is taken from the old firms books:
P800,00 P800,000
0
23. The condensed balance sheet of the partnership of TJ, RJ, and VJ with
corresponding profit and loss sharing percentages as of June 30, 2005 was as
follows:
Net assets P400,000 TJ, capital (50%) P200,000
RJ, capital (30%) 120,000
________ VJ, capital (20%) __80,000
P400,000 P400,000
As of said date, TJ retired from the partnership. By mutual agreement, he was
paid P225,000 for his interest in the partnership. The resultant goodwill was
to be recorded. After TJs retirement, the total net assets of the partnership
was
a. P225,000 b. P200,000 c. P175,000 d. P250,000
24. Las Vegas retired from the partnership of Las Vegas, New York, and New
Jersey. Las Vegass cash settlement from the partnership was based on new
goodwill determined at the date of retirement plus the carrying amount of the
other net assets. As a consequence of the settlement, the capital accounts of
New York and New Jersey were decreased. In accounting for Las Vegass
withdrawal, the partnership could have used the
Bonus Method Goodwill Method
a. No Yes
b. No No
c. Yes Yes
d. Yes No
25. Partners Lovelle and Carlo share income and loss equally after each has
been credited in all circumstances with annual salary allowances of P15,000
and P12,000, respectively. Under this arrangement, Lovelle will benefit by
P3,000 more than Carlo in which of the following circumstances?
a. Only is the partnership has earnings of P27,000 or more for the year.
b. Only if the partnership does not incur a loss for the year.
c. In all earnings or loss situations.
d. Only if the partnership has earnings of at least P3,000 for the year.
26. Metcalf, Petersen, and Rusell are partners with capital balances of P50,000,
P30,000, P20,000, respectively. The partners share income and loss equally.
For an investment of P50,000 cash, Andersen is to be admitted as a partner
with a one-fourth interest in capital and income. Based on this information, the
CEBU CPAR_PA2 - 1st PREBOARD OCT 07 Page 9 of 13
29. On April 30, 2004, Philip, Winston, and Marl form a partnership by
combining their separate business proprietorships. Philip contributed cash of
P50,000. Winston contributed property with a P36,000 carrying amount, a
P40,000 original cost, and P80,000 fair value. The partnership accepted
responsibility for the P35,000 mortgage attached to the property. Crown
contributed equipment with a P30,000 carrying amount, a P75,000 original
cost, and P55,000 fair value. The partnership agreement specifies that profits
and losses are to be shared equally but is silent regarding capital
contributions. What partner has the largest April 30, 2004, capital account
balances?
a. Philip b. Winston c. Marl d. All capital account balances
are equal
30. In the AMS-ALMS partnership, Ams and Alms had a capital ratio of 3:1 and
a profit and loss ratio of 2:1, respectively. The bonus method was used to
record Abs admittance as a new partner. What ratio should be used to
allocate, to Ams and Alms, the excess of Abs contribution over the amount
credited to Abs capital account?
a. Ams and Alms new relative capital c. Ams and Alms old capital ratio.
ratio. d. Ams and Alms old profit and loss
b. Ams and Alms new relative profit ratio.
and loss ratio.
CEBU CPAR_PA2 - 1st PREBOARD OCT 07 Page 10 of 13
31. When Nora retired from the partnership of Nora, Norman, and Norla, the
final settlement of Noras interest exceeded Noras capital balance. Under the
bonus method, the excess:
a. Was recorded as goodwill.
b. Was recorded as an expense.
c. Reduced the capital balances of Norman and Norla
d. Had no effect on the capital balances of Norman and Norla.
33. When property other than cash is invested in a partnership, at what amount
should the non-cash property be credited to the contributing partners capital
account?
a. Contributing partners tax basis.
b. Contributing partners original cost.
c. Assessed valuation for property tax purposes.
d. Fair value at the date of contribution.
34. Partners Cora and Zon share income in a 2:1 ratio, respectively. Each
partner receives an annual salary allowance of P6,000. If the salaries are
recorded in the accounts of the partnership as an expense rather than treated
as an allocation of income, the total amount allocated to each partner for
salaries and net income would be
a. Less for both Cora and Zon. b. More for Cora and less for Zon
b. Unchanged for both Cora and Zon. c. d. More for Zon and less for
Cora.
35. The partnership of Eugene, Alfred and Jericho shared profits and losses
equally. When Eugene withdrew from the partnership, the partners agreed that
there was unrecorded goodwill in the partnership. Under the bonus method,
the capital balances of Alfred and Jericho were
a. Not affected.
b. Each reduced by one-half of the total amount of the unrecorded goodwill.
c. Each reduced by one-third of the total amount of the unrecorded goodwill.
d. Each reduced by one-half of Eugenes share of the total amount of the
unrecorded goodwill.
38. Joy, Inna and Izza, sharing profits and losses 50%, 30%, and 20%,
respectively, have capital credit balances of P40,000, P30,000, and P20,000,
respectively. They decided to admit a new partner, Rita, to a 30% interest in
the partnership upon Ritas investment of an amount equal to 5/6 of her capital
credit with no assets adjustment recognized. Immediately after the admission
of Rita, the capital credit balance of Inna will be:
a. P28,200 b. P30,000 c. P31,800 d.
P33,000
Lehcar Co., acquired 70% of the outstanding capital stock of OC Co. The
separate balance sheet of Lehcar Co. immediately after the business
combination and the consolidated balance sheet are show above. P10,000 of
the excess payment of the investment in OC Co. was ascribed to
undervaluation of the plant assets, and the balance to goodwill. The current
assets of OC Co. include a P2,000 receivable from Lehcar Co. which arose
before the business combination.
39. What is the total of current assets on OC Co.s separate balance sheet at the
time Lehcar Co. acquired its 70% interest?
a. P38,000 b. P40,000 c. P42,000 d.
P104,000
CEBU CPAR_PA2 - 1st PREBOARD OCT 07 Page 12 of 13
40. Based on the same figures given above, the total stockholders equity of OC
Co.s separate balance sheet at the time Lehcar, Co. acquired its 70% interest
is
a. P 64,000 b. P121,287 c. P131,620
d. P117,000
42. To complete the eliminating entries, the other accounts affected are the
capital stock and retained earnings of Sydney Co. in these amounts.
a. b. c. d.
Capital Stock P P P P
8,265 6,470 6,470 8,000
Retained Earnings P P P P
28,558 28,558 25,880 25,880
44. On BNC Companys books, the investments carrying value at the end of the
current year would be?
a. P200,000 b. P212,800 c. P222,000
d. P230,000
Additional information:
a) The total assets and the total liabilities are at audited values, and they
have been agreed upon as the basis for the consolidation.
b) DDD Corporation will issue 10%, P100 par value, cumulative preferred
shares for the net assets contributed, and P100 par value common
stocks for earnings in excess of a 15% normal rate of return capitalized
at 20%.
c) Cash equivalents to 30% of the par values of the common stock to be
issued will be paid by the stockholders of the three companies and will
be treated as premium on common shares.
The total preferred shares to be issued and premium on common shares are:
a. 13,000 shares and P429,000
b. 12,900 shares and P377,500
c. 13,000 shares and P487,500
d. 13,700 shares and P539,000
end of examination