NOTRE DAME EDUCATIONAL ASSOCIATION

Purok San Jose, Brgy. New Isabela, Tacurong City

MOCK BOARD EXAMINATION

Advanced Financial Accounting and Reporting
S.Y. 2016-2017

INSTRUCTIONS: This examination is good for three (3) hours. Select the best answer for each
item. Mark only ONE answer for each item by shading the letter of your choice on the ANSWER
SHEET. STRICTLY NO ERASURES. Use Mongol Pencil No. 2 Only.

1. Merry is a single proprietor of a dressmaking business and agrees to make a partnership

business with Jessa who is to contribute cash to give her a 1/3 interest in the business. On
November 30, 2015, right before the partnership formation, Merry has a total business assets
of P41,000 and a liability of P8,000. The two agreed that in order to establish Merry’s interest
in her business, an allowance for doubtful accounts of P426 and an increase in the inventory
value of P3,000, be considered.

How much cash should Jessa invest in the partnership business?

A. P 14,787 C. P 17,787
B. P 15,213 D. P 18,213

2. A partner assigned his partnership interest to a third party. Which statement BEST describes
the legal ramifications to the assignee?
A. The assignment of the partnership interest does not entitle the assignee to partnership
assets upon a liquidation.
B. The assignment dissolves the partnership.
C. The assignee has the right to share in the management of the partnership.
D. The assignee does not become a partner but has the right to share in future partnership
profits and to receive the proper share of partnership assets upon liquidation

Use this Situation to answer items 3-4: Fred and Gary share profits and losses in a ratio of 2:3,
respectively, after salary allowances, interest allowances and bonus allocations. Fred and Gary
receive salary allowances of P30,000 and P60,000, respectively, and both partners receive 10%
interest based upon the balance in their capital accounts on January 1. Partners' drawings are not
used in determining the average capital balances. Total net income for 2015 is P180,000. If net
income after deducting the interest and salary allocations is more than P60,000, Gary receives a
bonus of 5% of the original amount of net income.
Fred Gary
January 1 capital balances P 600,000 P 900,000
Yearly drawings (P3,000 a month) 36,000 36,000

3. What is the total amount for the allocation of interest, salary, and bonus, and how much over-
allocation is present?
A. P180,000 and P0
B. P240,000 and P60,000
C. P249,000 and P0
D. P249,000 and P69,000

4. If the partnership experiences a net loss of P60,000 for the year, what will be the final net
amount of profit or (loss) closed to each partner's capital account?
A. (P90,000) to Fred and P30,000 to Gary
B. (P30,000) to Fred and (P30,000) to Gary
C. (P24,000) to Fred and (P36,000) to Gary
D. (P30,000 to Fred and (P90,000) to Gary

Mock Board Examination for Accountancy – Advanced Financial Accounting and Reporting Page 1
5. On January 2, 2016, Ana, Bud, Carl and Dan formed ABCD partnership. Their contributions
were as follows: Ana P500,000, Bud P250,000, Carl P250,000 and Dan P200,000. The partners
agreed that each partner will receive a 5% interest on capital contribution. Partners Ana and
Bud will receive salaries of P50,000 and P30,000, respectively. Further, they agreed that
partners Carl and Dan shall receive a minimum of P25,000 and P50,000 per year, inclusive of
interest and share in the remaining profits. The remaining profits will be distributed on the
ratio 3:3:2:2.
Which partnership net income will be favorable to Bud if he wants to receive at least P102,500
as his total share?
A. P320,000 C. P330,167
B. P360,667 D. P340,000

6. A partnership began its first year of operations with the following capital balances: Y, Capital:
P143,000 E, Capital: P104,000 T, Capital: P143,000. The Articles of Partnership stipulated that
profits and losses be assigned in the following manner: Y was to be awarded an annual salary
of P26,000 with P13,000 salary assigned to T. Each partner was to be attributed with interest
equal to 10% of the capital balance as of the first day of the year. The remainder was to be
assigned on a 5:2:3 basis, respectively. Each partner was allowed to withdraw up to P13,000
per year.
Assume that the net loss for the first year of operations was P26,000 with net income of
P52,000 in the second year.
Assume further that each partner withdrew the maximum amount from the business each
year.
What was the balance in T’s Capital account at the end of the second year?
A. P 133, 380 C. P 105,690
B. P 84,760 D. P 132, 860

7. A summary Statement of Financial Position for the Mon, Manu, and Nobe partnership appears
below. Mon, Manu, and Nobe share profits and losses in a ratio of 2:3:5, respectively.
Assets Equities
Cash P 100,000 Mon, capital P 425,000
Marketable 200,000 Manu, capital 400,000
securities
Inventory 125,000 Nobe, capital 200,000
Land 100,000
Building-net 500,000
Total assets P1,025,000 Total equities P1,025,000
The partners agree to admit Owen for a one-fifth interest. The fair market value of partnership
land is appraised at P230,000 and the fair market value of inventory is P75,000. The assets are
to be revalued prior to the admission of Owen.
What will the profit and loss sharing ratios be after Owen's investment?
A. 1:2:4:2 C. 3:4:6:2
B. 2:3:5:2 D. 4:6:10:5

8. Which of the following procedures is acceptable when accounting for a deficit balance in a
partner's capital account during partnership liquidation, if the partner with a negative capital
balance is personally insolvent?
A. The partner with a negative capital balance must contribute personal assets to the
partnership that are sufficient to bring the capital account to zero.
B. The negative capital balance may be absorbed by those partners having a positive capital
balance according to the residual profit and loss sharing ratios that apply to all the
partners
C. The negative capital balance may be absorbed by those partners having a positive capital

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 balance according to the residual profit and loss sharing ratios that apply to those partners
having positive balances.
D. The partner with a negative capital balance must contribute personal assets to the
partnership that are sufficient to bring the capital account to the same level of the other
partners' capital accounts.
9. The year-end balance sheet and residual profit and loss sharing percentages for the Glenn,
Harry, and Ian partnership on December 31, 2015, are as follows:
Cash P 60,000 Accounts payable P 150,000
Loan to Glenn 50,000 Loan from Harry 50,000
Other assets 360,000 Glenn, capital (25%) 70,000
Harry, capital (25%) 80,000
Ian, capital 120,000
Total assets P 470,000 Total liab./equity P 470,000
The partners agree to liquidate the business and distribute cash when it becomes available. A
cash distribution plan is developed with vulnerability rankings for the Glenn, Harry and Ian
partnership. After outside creditors are paid, the cash available will initially go to
A. Glenn in the amount of P20,000. C. Harry in the amount of P70,000
B. Harry in the amount of P50,000 D. Ian in the amount of P40,000

10. Oh, Pe, and Sy are in the process of liquidating their partnership. Sy has agreed to accept the
inventory, which has a fair value of P60,000, as part of her settlement. A balance sheet and the
residual profit and loss sharing percentages are as follows:
Cash P 248,000 Accounts payable P 180,000
Inventory 100,000 Oh, capital (40%) 98,000
Plant assets 280,000 Pe, capital (40%) 175,000
Sy, capital (20%) 175,000
Total assets P 628,000 Total liab./equity P 628,000
If the partners then distribute the available cash using a safe payments schedule, Sy will receive
A. P 41,000 cash C. P 27,000 cash
B. P 51,000 cash D. P 248,000 cash

11. The primary difference between a balance sheet and an accounting statement of affairs is that
A. a balance sheet reflects book values, while statement of affairs emphasizes realization
values.
B. assets are arranged in a different sequence.
C. liabilities are arranged in a different sequence.
D. owner’s equity is not considered in the statement of affairs.

12. The following data were taken from the statement of affairs for Got7 Corporation:
Assets pledged for fully secured liabilities (fair value, P150,000)…………. P180,000
Assets pledged for partially secured liabilities (fair value, P104,000)…… 48,000
Free assets (fair value, P80,000)…………………………………………………………. 140,000
Fully secured liabilities………………………………………………………………………. 14,000
Partially secured liabilities …………………………………………………………………. 60,000
Unsecured liabilities without priority …………………………………………………. 120,000
The total estimated deficiency to unsecured creditors and the expected recovery per peso of
unsecured claims is
A. P 76,000 and P 0.69 C. P 90,000 and P 0.63
B. P 90,000 and P 0.65 D. P 74,000 and P 0.68

13. A review of the assets and liabilities of G Company in bankruptcy on June 30, 2015, discloses
the following:
 A mortgage payable of P118,000, is secured by building valued at P39,000 less than its
book value of P172,000.

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  Notes payable of P57,000 is secured by furniture and equipment with a book value of
P76,000 that is 3/5 realizable.
 Assets other than those referred to have an estimated value of P44,000, an amount that
is 75% of its book value
 Liabilities other than those referred to total P91,000, which included claims with
priority of P23,000.
How much was paid to the partially secured creditors?
A. P 52,340 C. P 49,380
B. P 48,260 D. P 50,769
14. In a liquidation proceeding, if the proceeds on the realization of an asset exceed the lien
against that asset, the excess is assigned to
A. the holder of the lien.
B. other lien holders whose assets will not realize a sufficient amount to cover their lien.
C. meet the claims of the unsecured creditors.
D. the stockholders of the corporation.

Use the following information in answering items 15 and 16: On January 1, 2015, entities A and B
each acquired 30% of the ordinary shares that carry voting rights at a general meeting of
shareholders of entity X for P300,000. Entities A and B immediately agreed to share control over
entity X. For the year ended December 31, 2015, entity X recognized a profit of P400,000.

On December 30, 2015, entity X declared and paid a dividend of P150,000 for the year ended 2015.
At December 31, 2015, the fair value of each venturer’s investment in entity X is P425,000. Entities
A and B uses the cost model to account for its investment in jointly controlled entities. However,
there is no published price quotation for entity X.

15. At December 30, 2015, the ventures must report their investment in entity X at
A. P 300,000 C. P 255,000
B. P 345,000 D. P 420,000

16. Assuming in January 2, 2015, entity X also declared a dividend of P100,000 for the year 2015
and at December 31, 2015, the fair value of each venturer’s investment in entity X is P400,000.

How much dividend income each venture should recognize on December 31, 2015?
A. P 45,000 C. P 75,000
B. P 30,000 D. P 15,000

17. Mic and Jelly, in a joint venture, contributed P150,000 each in order to purchase canned goods
which are sold by lots at a “closing-out” sale. They agreed to divide their profits equally and
each shall record his purchases, sales and expenses in his own books. After selling almost all of
the canned goods, they wind up their venture. The following data relate to the venture
transactions:
• Joint venture credit balance of Mic was P120,000, and Jelly was P105,000.
• Expenses paid from the joint venture was cash P15,000 by Mic and P19,500 by Jelly.
• Cost of unsold canned goods, which Mic and Jelly agreed to assume were P4,500 and
P7,000, respectively.

What was the joint venture gain or loss?

A. P 202,000 C. P 224,000
B. P 213,500 D. P 236,500

18. Under proportionate consolidation, the minority interest in the venture is

A. shown as deduction from the net assets.
B. shown in the equity of the venture.
C. shown as part of long-term liabilities of the venture.

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 D. not included in the financial statement of the venture.

19. Under the instalment sales method,

A. revenue, costs and gross profit are recognized proportionately to the cash that is received
from the sale of the product.
B. gross profit is deferred proportionately to cash uncollected from sale of the product, but
total revenue and costs are recognized at the point of sale.
C. gross profit is not recognized until the amount of cash received exceeds the cost of the item
sold.
D. revenues and costs are recognized proportionately to the cash received from the sale of the
product, but gross profit is deferred until all cash is received.

20. According to IAS 11 - 'Construction Contracts', which of the following projects undertaken by
an enterprise should be accounted for as a construction contract?
A. An office block being constructed as an investment property
B. A warehouse being constructed for the enterprise's own use
C. A bridge constructed for a third party under a specifically negotiated contract
D. An item of plant and machinery being constructed to be sold as inventory

Use the following information to answer questions 21 and 22: On January 3, 2015, Kuraptors Inc.
enters into a contract to construct a dam for P8,000,000. Kuraptors uses the cost-to-cost method to
determine the percentage completed. During the construction period, the original contract was
modified that eventually changed the provision of the contract. The following schedule
summarized these changes in 2015.

Cost Incurred Estimated Cost Contract

2015) to Complete Price
Original Contract P1,600,000 P5,005,000 P8,000,000
Change order No. 1 10,000 10,000 25,000
Change order No. 2 - 10,000 -
Change order No. 3 60,000 60,000 Negotiable
(at least cost)
Change order No. 4 25,000 - 20,000

21. What is the percentage of completion for this project in 2015?

A. 25% C. 30%
B. 23% D. 21%

22. What is the amount of estimated gross profit that will be recognized in 2015?
A. P 1,450,000 C. P 3,050,000
B. P 1,890,250 D. P 3,462,500

23. MC Corp began business on January 1, 2015 appropriately uses the instalment sales method of
accounting. The following data are available
12/31/14 12/31/15
Balance of Deferred Gross Profit
2014 300,000 120,000
2015 440,000
Gross Profit Rate 30% 40%

The instalment A/R balance on December 31, 2015 is

A. P 1,100,000 C. P 1,400,000
B. P 1,500,000 D. P 400,000

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24. On November 1, 2015, a franchisee bought from Max Turkey for a sales price of P5,000,000 to
sell Max Turkey’s products for a period of 20 years. Their agreement provides that P500,000
will be paid in advance and the balance in 5 equal annual instalments, evidenced by a 9%
promissory note; and Max Turkey will be responsible in making the feasibility study of the
project and six months training of the franchisee’s staff and employees. The present value
factors for the 9% rate follow:

PV of P1 for 5 periods 0.650

PV of an annuity of P1 for 5 periods 3.890
PV of an annuity of P1 for 5 periods (in advance) 4.240

Assuming collection of the note is reasonably assured, what is the amount of franchise
revenue should Max Turkey recognize for the year ended December 31, 2015?
A. 0 C. 4,001,000
B. 1,085,000 D. 4,316,000

25. On July 1, 2015, Hart Corp. signed an agreement to operate as a franchisee of Ace Printers for
an initial franchise fee of P120,000. On the same date, Hart paid P40,000 and agreed to pay the
balance in four equal instalments of P20,000, beginning July 1, 2016.

The down payment is not refundable and no future services are required of the franchisor.
Hart can borrow at 14% for a loan of this type. Present and future value factors are as follows:

PV of P1 at 14% for 4 periods 0.59

PV of an annuity of P1 14% for 4 periods 2.91
Future amount of P1 f14% for 4 periods 1.69

At what amount should Hart record the franchise at the date of acquisition?
A. P 51,800 C. P 98,200
B. P 73,800 D. P 120,000

26. Wetson Co. sold some machinery to the Finney Co. on January 2, 2015. The cash selling price
would have been P473,850. Finney entered into an instalment sales contract which required
annual payments of P125,000, including interest at 10% over five years. The first payment
was due on December 31, 2015. What amount of interest income should be included in
Wetson’s income statement (the second year of the contract)?
A. 12,500 C. 25,000
B. 39,624 D. 34,885

27. Etlas Construction Co. has used the cost-to-cost percentage method of recognizing revenue.
The following incomplete records were provided for a recently completed building project.

2013 2014 2015

Contract Price P20,000,000
Gross Profit(loss) 400,000 P1,400,000 P (200,000)
Cost incurred 3,600,000 ? 8,200,000

How much cost was incurred in 2014?

A. 18,400,000 C. 6,600,000
B. 11,800,000 D. 1,600,000

28. On December 31, 2015, Mole Co. sold construction equipment to Draw Inc. for P180,000. The
equipment had a carrying amount of P120,000. Draw paid P30,000 cash on December 31,

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 2015 and signed a P150,000 note bearing interest at 10% payable in five annual instalments of
P30,000. Mole appropriately accounts for the sale under instalment method. On December 31,
2016, Draw paid P30,000 principal and P15,000 interest. For the year ended December 31,
2015, what total amount of revenue should Mole recognize from the construction equipment
sale and financing?
A. 25,000 C. 12,000
B. 15,000 D. 10,000

29. An enterprise uses a branch accounting system in which it establishes separate formal
accounting systems for its home office operations and its branch office operations. Which of
the following statements about this arrangement is FALSE?
A. The home office account on the books of a branch office represents the equity interest of
the home office in the net assets of the branch.
B. The branch office account on the books of the home office represents the equity interest of
the branch office in the assets of the home office.
C. The home office and branch office accounts are reciprocal accounts that must be
eliminated in the preparation of the enterprise’s financial statements that are presented in
accordance with GAAP.
D. Unrealized profit from internal transfers between the home office and a branch must be
eliminated in the preparation of the enterprise’s financial statements that are presented in
accordance with GAAP.

30. The JJ Company, Inc. opened an agency in Makati in 2015. The following is a summary of the
transactions of the agency:
Sales orders sent to home office……………………………………………… P 66,000.00
Sales orders filled by home office in 2015…………................................ 55,000.00
Freight on shipment to agency…………………...…...……………………… 1,320.00
Collections, net of 2% discount……………………...……………………….. 47,628.00
Selling expense paid from the agency working fund………………… 3,384.00
Administrative expenses charged to agency…………………………….. 5% of gross sales
Sample shipped to agency:
Cost ………………………………………………… ………………………………. P 3,620.00
Inventory, December 31, 2015………..……......................................... 1,320.00
The company maintains its gross margin on agency gross sales at 30% excluding the freight
cost on shipments to agency
The agency’s cost of sales including freight and agency’s net income would amount to
Cost of Sales Net Income
A. P 39,000.00 P 5,994.00
B. P 47,520.00 P 7,668.00
C. P 40,380.00 P 5,994.00
D. P 40,380.00 P 7,320.00

31. Lobster Trading bills its Iloilo City branch for shipments of goods at 25% above cost. At the
close of business on October 31, 2015, a fire gutted the branch warehouse and destroyed 60%
of the merchandise stock therein. Thereafter, the following data were gathered:
January 1 inventory, at billed price …………………… P 50,000.00
Shipments from home office to Oct. 31………………. 130,000.00
Not sales to October 31……………………………………… 225,000.00
If undamaged merchandise recovered are marked to sell for P30,000.00, the estimated cost of
the merchandise destroyed by the fire was
A. P 14,000.00 C. P 24,000.00
B. P 21,600.00 D. P 27,500.00

32. Swift Corporation operates a number of branches in Metro Manila. On June 30, 2015, its Sn.
Lorenzo branch showed a Home Office Account balance of P27,350.00 and the Home Office

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 books showed a Sn. Lorenzo branch account balance of P25,550.00. The following information
may help in reconciling both accounts:
1. A P 12,000.00 shipment, charged by Home Office to Sn. Lorenzo branch, was actually
sent to and retained by the latter.
2. A P15,000.00 shipment, intended and charged to Sn Jose branch was shipped to Sn
Lorenzo branch and retained by the latter.
3. A P2,000.00 emergency cash transfer from Sto. Tomas branch was not taken up in the
Home Office books.
4. Home office collects a Sn. Lorenzo branch accounts receivable of P3,600.00 and fails to
notify the branch.
5. Home Office was charged for P1,200.00 for merchandise returned by Sn. Lorenzo
branch on June 28. The merchandise is in transit.
Home Office erroneously recorded Sn. Lorenzo’s net income for May, 2015 at P16,275.00. The
branch reported a net income of P12,675.00. What is the reconciled amount of the Home Office
and Sn. Lorenzo branch reciprocal accounts?
A. P 21,750.00 C. P 27,350.00
B. P 23,750.00 D. P 20,150.00

33. In a business combination, an acquirer’s interest in the fair value of the net assets acquired
exceeds the consideration transferred in the combination. Under IFRS 3, Business Combination,
the acquirer should
A. recognize the excess immediately in profit of loss.
B. recognize the excess immediately in other comprehensive income.
C. reassess the recognition and measurement of the net assets acquired and the consideration
transferred, then recognize any excess immediately in profit or loss.
D. reassess the recognition and measurement of the net assets acquired and the consideration
transferred, and then recognize any excess immediately in other comprehensive income.

Use the following information in answering items 34 and 35: Manet Corporation exchanges
150,000 shares of newly issued P1 par value common stock with a fair market value of P25 per
share for all of the outstanding P5 par value common stock of Gardner Inc and Gardner is then
dissolved. Manet paid the following costs and expenses related to the business combination:

Costs of special shareholders’ meeting to vote on the merger P 13,000

Registering and issuing securities 14,000
Accounting and legal fees 9,000
Salaries of Manet’s employees assigned to the implementation of the merger 15,000
Cost of closing duplicate facilities 11,000

34. In the business combination of Manet and Gardner

A. the costs of registering and issuing the securities are included as part of the purchase price
for Gardner.
B. the salaries of Manet's employees assigned to the merger are treated as expenses.
C. all of the costs except those of registering and issuing the securities are included in the
purchase price of Gardner.
D. only the accounting and legal fees are included in the purchase price of Gardner.

35. In the business combination of Manet and Gardner, (list refers to those in the main item of #34
& 35)
A. all of the items listed are treated as expenses.
B. all of the items stated except the cost of registering and issuing the securities are expensed.
C. the costs of registering and issuing the securities are deducted from the fair market value
of the common stock used to acquire Gardner.
D. only the costs of closing duplicate facilities, the salaries of Manet's employees assigned to
the merger, and the costs of the shareholders' meeting would be treated as expenses.

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36. Polk issues common stock to acquire all the assets of the Sam Company on January 1, 2015.
There is a contingent share agreement, which states that if the income of the Sam Division
exceeds a certain level during 2015 and 2016, additional shares will be issued on January 1,
2017. The impact of issuing the additional shares is to
A. increase the price assigned to fixed assets.
B. have no effect on asset values, but to reassign the amounts assigned to equity accounts.
C. reduce retained earnings.
D. record additional goodwill.

37. Kestral Inc. owns 10% of Mouse Company. In the most recent year, Mouse had net earnings of
P60,000 and paid dividends of P8,000. Kestral’s accountant mistakenly assumed considerable
influence and used the equity method instead of the cost method. What is the impact on the
investment account and net earnings, respectively?
A. By using the equity method, the accountant has understated the investment account and
overstated the net earnings.
B. By using the equity method, the accountant has overstated the investment account and
understated the net earnings.
C. By using the equity method, the accountant has understated the investment account and
understated the net earnings.
D. By using the equity method, the accountant has overstated the investment account and
overstated the net earnings.

38. Robin Corporation purchased 150,000 previously unissued shares of Nest Company’s P10 par
value common stock directly from Nest for P3,400,000. Nest’s stockholder’s equity
immediately before the investment by Robin consisted of P3,000,000 of capital stock and
P2,600,000 in retained earnings. What is the book value of Robin’s investment in Nest?
A. P 1,500,000 C. P 2,800,000
B. P 1,680,000 D. P 3,000,000

39. On January 1, 2014, Yang Corporation acquired 25 percent of the outstanding shares of Spiel
Corporation for P100,000 cash. Spiel Company reported net income of P75,000 and paid
dividends of P30,000 for both 2014 and 2015. The fair value of shares held by Yang was
P110,000 and P105,000 on December 31, 2014 and 2015 respectively.

Based on the preceding information, what amount will be reported by Yang as income from its
investment in Spiel for 2015, if it used the equity method of accounting?
A. P 7,500 C. P 18,750
B. P 11,250 D. P 26,250

40. On January 1, 2015, Gulfstream Corporation acquired 40 percent of the voting shares of
Hunter Company for P65,000. Hunter reported net income of P45,000 and paid dividends of
P10,000 in 2015. Gulfstream reported operating income of P50,000 for the year. There is 80
percent exemption of intercompany dividends and the effective tax rate is 35 percent. Assume
that the equity method is being used.

Based on the preceding information, what would Gulfstream report as income tax expense for
the year?
A. P 17,500 C. P 23,800
B. P 18,760 D. P 22,540

41. Which of the following observations is consistent with the equity method of accounting?
A. Dividends declared by the investee are treated as income by the investor.
B. It is used when the investor lacks the ability to exercise significant influence over the
investee.

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 C. It may be used in place of consolidation.
D. Its primary use is in reporting non-subsidiary investments.

42. In situations where there are routine inventory sales between parent companies and
subsidiaries, when preparing the consolidation statements, which of the following line items is
indifferent to the sales being either upstream or downstream?
A. Consolidated retained earnings C. Non-controlling interest expense
B. Consolidated gross profit D. Consolidated net income

43. Falcon Corporation sold equipment to its 80%-owned subsidiary, Rodent Corp., on January 1,
2015. Falcon sold the equipment for P110,000 when its book value was P85,000 and it had a
5-year remaining useful life with no expected salvage value. Separate balance sheets for Falcon
and Rodent included the following equipment and accumulated depreciation amounts on
December 31, 2015:
Falcon Rodent
Equipment P 750,000 P 300,000
Less: Accumulated depreciation ( 200,000) ( 50,000)
Equipment-net P 550,000 P 250,000

What were the consolidated amounts for equipment and accumulated depreciation at
December 31, 2015 respectively?
A. P 1,025,000 and P 245,000 C. P 1,050,000 and P 245,000
B. P 1,025,000 and P 250,000 D. P 1,050,000 and P 250,000

44. On January 1, 2014, Darter Industries acquired an 80% interest in Thermal Company to insure
a steady supply of Thermal’s inventory that Darter uses in its own manufacturing businesses.
Thermal sold 100% of its output to Darter during 2014 and 2015 at a markup of 120% of
Thermal’s cost. Darter had P9,600 of these items remaining in its January 1, 2015 inventory
and no items on December 31, 2015. If Darter neglected to eliminate unrealized profits from
all intercompany sales from Thermal, consolidated net income for 2015 was
A. overstated by P 1,600
B. understated by P 1,280
C. overstated by P2,400
D. unaffected because Darter buys 100% of Thermal’s output

45. Silver Corporation is a 90% owned subsidiary of Proto Corporation acquired several years ago
at book value equal to fair value. For the years 2014 and 2015, Proto and Silver report the
following:
2014 2015
Proto’s separate income P 300,000 P 400,000
Silver’s net income 80,000 60,000

The only intercompany transaction between during 2014 and 2015 was the January 1, 2014
sale of land. The land had a book value of P20,000 was sold intercompany for P30,000, its
appraised value at the time of sale.

If the land was sold by Proto to Silver (downstream) and that Silver still owns the land at
December 31, 2015, compute the consolidated net income for 2014 and 2015.
2014 2015
A. P 363,000 P 454,000
B. P 362,000 P 460,000
C. P 372,000 P 460,000
D. P 362,000 P 454,000

46. Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 2014, for
P500,000. On that date, the stockholders' equity of Sanburn Company was P380,000. On the

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 purchase date, inventory of Sanburn Company, which was sold during 2014, was understated
by P20,000. Any remaining excess of cost over book value is attributable to patent with a 20-
year life. The reported income and dividends paid by Sanburn Company were as follows:
2014 2015
Net income.......................... P80,000 P90,000
Dividends paid................... 10,000 10,000

Using the cost method, which of the following amounts are CORRECT?
Investment Income Investment Account Balance
2014 December 31, 2014
A. P 10, 000 P 500,000
B. P 10, 000 P 570,000
C. P 0 P 570,000
D. P 80,000 P 500,000

47. On October 1, 2015, Bestos, Inc., a calendar-year-end firm, invested in a derivative designed to
hedge the risk of changes in fair value of certain assets, currently valued at P1.5M. The
derivative is structured to result in an effective hedge. However, some ineffectiveness may
result. On December 31, 2015, the fair value of the hedged assets has decreased by P350,000;
the fair value of the derivative has increased by P325,000. Bestos should recognize a net effect
on 2015 earnings of
A. P 0 C. P 325,000
B. P 25,000 D. P 350,000

48. A US importer that purchased merchandise from a South Korean firm would be exposed to a
net exchange gain on the unpaid balance if the dollar
A. weakened relative to the Korean won and the won was the denominated currency
B. weakened relative to the Korean won and the dollar was the denominated currency
C. strengthened relative to the Korean won and the won was the denominated currency
D. strengthened relative to the Korean won and the dollar was the denominated currency

49. Which of the following is NOT a characteristic of a derivative?

A. It has one or more underlying’s and one or more notational amounts.
B. It requires no initial net investment or an initial investment that is smaller than would be
required for contracts expected to have a similar response to the market.
C. It requires no net settlement.
D. It will be represented as an asset or liability on the financial statements.

50. On December 4, 2015, Phil Corporation, ordered FOB Shipping point from a Switzerland
Company for 75,000 Swiss francs. The equipment was shipped and invoiced to Armani
Company on December 12, 2015. Armani paid the invoice on January 21, 2016.

Relevant spot rates for Swiss francs on the respective dates are as follows:
Buying Selling
Spot Rate Spot Rate
December 4, 2015 P32.45 P32.60
December 12, 2015 32.58 32.84
December 31, 2015 32.72 32.96
January 21, 2016 32.68 32.89

On December 31, 2015, balance sheet of Phil Corporation, what will be the balance of the
equipment?
A. P 2,463,000 C. P 2,433,750
B. P 2,443,500 D. P 2,445,000

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51. Assuming that a foreign entity is deemed to be operating in an environment dominated by the
local currency, the entity's assets are translated using
A. the current rate C. a weighted average rate
B. a simple average rate D. a historical rate

52. Which of the following suggests that the foreign entity's functional currency is the parent's
currency?
A. Intercompany transaction volume is low.
B. Debt is serviced through local operations.
C. There is an active and primarily local market.
D. Sale prices are influenced by international factors.

53. The following assets of Oriole Corporation’s Romanian subsidiary have been converted into
Philippine Peso at the following exchange rates:
Current Historical
Rates Rates
Accounts receivable P 850,000 P 875,000
Trademark 600,000 575,000
Property plant and equipment 1,200,000 900,000
Totals P 2,650,000 P 2,350,000

If the functional currency of the subsidiary is the Philippine Peso, the assets should be
reported in the consolidated financial statements of Oriole Corporation and Subsidiary in the
total amount of
A. P 2,325,000 C. P 2,375,000
B. P 2,350,000 D. P 2,650,000

54. A US parent makes a 1,000,000 krona loan worth P108,250 to its Swedish subsidiary in the
current year. The loan is denominated in US dollars and the functional currency of the
subsidiary is the krona. This intercompany transaction is a foreign currency transaction of
A. neither the subsidiary nor the parent, as it is eliminated as part of the consolidation
procedure.
B. the subsidiary but not the parent.
C. both the subsidiary and the parent.
D. the parent but not the subsidiary.

55. A voluntary welfare organization is permitted to use building facilities rent free. This should
be recorded as
A. a footnote in the financial statements disclosing the rent-free arrangement.
B. a contribution.
C. rent expense at the fair market value.
D. both B and C are correct.

56. Atlee makes a cash gift to a not-for-profit local ballet company which is designated by the
donor to buy costumes for a new ballet staging. Which should be accounted for with the
following journal entry?
A. Cash……………………………………………….XXX
Revenue-Unrestricted Contribution……..…………….XXX
B. Cash ………………………………………………XXX
Revenue-Temporarily Restricted Contribution…. XXX
C. Cash ………………………………………………XXX
Revenue-Endowment Fund……………………………… XXX
D. Cash ………………………………………………XXX

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 Revenue-Permanently Restricted ……………………….XXX
57. Once a government agency receives Notice of Cash Allocation (NCA), it shall debit “ Cash-
National Treasury, Modified Disbursement System” and credit
A. NCA- Local Government C. NCA- National Government
B. Subsidy Income- Local Government D. Subsidy Income- National Government
58. Agency X had the following account balances for the year 2015:
Current Assets 1,000,000
Investments and Fixed Assets 9,000,000
Other Assets 500,000
Liabilities 1,800,000
Contingent Liabilities 500,000
Contingent Assets 300,000
Determine the Government Equity for 2015.
A. P 10,500,000 C. P 8,700,000
B. P 8,500,000 D. P 8,200,000
59. Which of the following accounting practices has been outlawed by PFRS No. 4?
A. Shadow accounting
B. Catastrophe Accounting
C. A test for the adequacy of recognized insurance liabilities
D. An impairment test for reinsurance assets
60. Which of the following types of insurance contract would probably NOT be covered by PFRS 4?
A. Motor insurance C. Medical Insurance
B. Life insurance D. Pension Plan

61. Bee Corporation has two production Departments: P1 and P2 and two service departments: S1
and S2. Direct costs for each department and the proportion of service costs used by the
various departments for the month of July are as follows
Proportion of Services Used by:
Department Direct Costs S1 S2 P1 P2
S1 P60,000 .70 .10 .20
S2 P100,000 .20 .30 .50
P1 P160,000
P2 P140,000
Under the direct-method of cost allocation, the amount of S1 costs allocated to the S2 would be
A. P42,000 C. P 0
B. P20,000 D. P 6,000

62. The five steps of the process costing procedure are scrambled below
1. Assign total costs to units completed and to units in ending WIP Inventory.
2. Summarize total costs to account for.
3. Compute the cost per equivalent unit.
4. Summarize the flow of physical units.
5. Compute output in terms of equivalent units.

The CORRECT order for these steps is

A. 3, 1, 4, 2, 5 C. 2, 4, 5, 1, 3
B. 5, 3, 1, 4, 2 D. 4, 5, 2, 3, 1

63. At Sunny Corporation, direct materials are added at the beginning of the process and
conversions costs are uniformly applied. Other details include
WIP beginning (50% for conversion) 19,200 units
Units started 120,500 units
Units completed and transferred out 116,700 units

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 WIP ending (60% for conversion) 23,000 units
Beginning WIP direct materials P35,000
Beginning WIP conversion costs P22,500
Costs of materials added P384,100
Costs of conversion added P271,125

What is the cost per equivalent unit for direct materials?

A. P 2.75 C. P 3.21
B. P 3.00 D. P 3.08

64. H-Connection Company uses a back flush-costing system to account for bicycles. Bicycles are
scheduled for production only after orders are received and products are shipped to
customers immediately upon completion. No Finished Goods Inventory is maintained and
product costs are applied directly to Cost of Goods Sold. The standard cost for materials is
P1,500 per bicycle. The standard cost for conversion costs is P750 per bicycle.

During the current month, H-Connection Company purchased P60,000 of direct materials and
incurred P30,000 in conversion costs to produce 40 bicycles. When production is complete,
the journal entry has a Debit to
A. finished Goods Inventory for P90,000
B. conversion Costs for P90,000
C. cost of Goods Sold for P90,000
D. no entry is needed

65. Coop Bags Company manufactures cloth grocery bags to be sold to grocery stores and other
retailers. The Company sells the bags in cases of 1,000 bags. The bags come in three sizes:
Large, Medium, and Small. Currently, Coop Bags Company uses a single plantwide overhead
rate to allocate its P8,088,000 of annual manufacturing overhead. Of this amount, P2,210,000
is associated with the Large Bag line, P3,418,800 is associated with the Medium Bag line, and
P2,459,000 is associated with the Small Bag line. Coop Bags Company is currently running a
total of 40,000 machine hours: 13,000 in the Large Bag line, 15,400 in the Medium Bag line,
and 11,600 in the Small Bag line. The Company uses machine hours as the cost driver for
manufacturing overhead costs.

Which product line(s) have been overcosted or undercosted by using the plantwide
manufacturing overhead rate?
A. Large Bags has been undercosted; Medium and Small have been overcosted.
B. Large, Medium, and Small Bags have all been overcosted.
C. Large, Medium, and Small Bags have all been undercosted.
D. Large Bags has been overcosted; Medium and Small have been undercosted.

66. Santa Company processes copper ore into two products, C and U. The ore costs P5 per pound
and conversion costs are P15 per pound. Santa Company plans to produce 40,000 pounds of
Product C and 20,000 pounds of Product U from 60,000 pounds of ore. Product C sells for P30
per pound and Product U sells for P40 per pound. Assume the company uses the relative-sales-
value method of allocating joint costs. What amount of joint costs is allocated to Product U?
A. P 0 C. P 480,000
B. P 400,000 D. P 685,714

67. Sweet Temptation produces various types of candies. Several candies could be sold at the
split-off point or processed further and sold in a different form after further processing. The
candies are produced in a joint processing operation with P500,000 of joint processing costs
monthly, which are allocated based on pounds produced. Information concerning this process
for a recent month appears below:
Candy Type No. of Pounds Price per pound Further Price after

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 at Split off processing processing
costs further
Sweet Meats 50,000 P8 P75,000 P10.00
Chocolate Delight 100,000 P10 P30,000 P10.50
Minty Wonders 25,000 P5 P20,000 P5.50

The joint processing costs in this operation

A. should be allocated to products to determine whether they are sold at split-off or
processed further
B. should be ignored in determining whether to sell at split-off or process further
C. should be ignored in making all product decisions
D. are never included in product cost, as they are misleading to all management decisions

68. MB Fabrics budgeted to manufacture 1,400 curtain valance for a month. Actual output for
March was 1,575 curtain valances with total direct materials cost of P3,400 and total direct
labor cost of P5,250. The direct labor standard is 20 minutes per curtain at a direct labor rate
of P17.50 per hour. The direct material standard is 0.75 yards of direct materials per curtain
valance at a cost of P13 per yard. Actual direct labor hours were 275.

Evaluate the correctness of each of the following and determine which is CORRECT
A. Labor efficiency variance of P4,375 unfavorable
B. Labor rate variance of P437.50 unfavorable
C. Total labor variance of P4,812.50 favorable
D. Total labor variance of P3,937.50 unfavorable

69. Wax Industries' actual direct labor cost was P67,000 during the current period. Wax reported
an unfavorable direct labor rate variance of P1,800 and a favorable direct labor efficiency
variance of P2,900. What was the standard direct labor cost for actual output during the
period?
A. P 65,900 C. P 69,900
B. P 68,100 D. P 68,800

70. The Holiday Gifts Company, a maker of holiday novelties, needs your help immediately. The
company's accountant resigned without leaving adequate records or explanations for what
she did. In reviewing the records, you find the following information for May:
Materials purchased 20,000 units
Materials used 15,000 units

You find a copy of the budget which shows that materials were budgeted at P0.60/unit. You
know that the materials price variance is recorded at the time of purchase and you find some
handwritten notes among the accountant's work papers, which indicate the following

Materials price variance P200F

Materials efficiency (quantity) variance P600F

What was the total standard cost of direct materials allowed during May?
A. P 8,260 C. P 9,440
B. P 8,400 D. P 9,600

END OF EXAMINATION 

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