PRACTICAL ACCOUNTING 2

1. Roel, Jekell and Mike, CPAs, decide to form a partnership and agree to distribute profits in
the ratio 5:3:2. It is agreed, however, that Roel and Jekell shall guarantee fees from their own
clients of P600,000 and P500,000 respectively, that any deficiency is to be charged directly
against the account of the partner failing to meet the guarantee, and that any excess is to
be credited directly to the account of the partner with fees exceeding the guarantee. Fees
earned during 20x4 are classified as follows:
From clients of Roel P1,000,000
From clients of Jekell 400,000
From clients of Mike 100,000
Operating expenses for 20x4 are P200,000. Determine the share of Roel on the operating
results for the year 20x4.
a. P900,000 b. P500,000 c. P200,000 d. P300,000

2. Caine, Osman, and Roberts formed a partnership on January 1, 20x4, agreeing to distribute
profits and losses in the ratio of original capitals. Original investments were P625,000, P250,000
and P125,000 respectively. Earnings of the firm and drawings by each partner for the period
20x4-20x6 follows:
Drawings .
Net income (loss) Caine Osman Roberts
20x4 P440,000 P150,000 P78,000 P52,000
20x5 185,000 150,000 78,000 52,000
20x6 ( 105,000) 100,000 52,000 52,000
At the beginning of 20x7, Caine and Osman agreed to permit Roberts to withdraw from
the firm. Since the books for the firm had never been audited, the partners agreed to an
audit in arriving at the settlement amount. In withdrawing, Roberts was allowed to take
certain furniture and was charged P15,000, although the book value was P45,000; the
balance of Roberts interest was paid in cash.
The following items were revealed in the course of the audit.
End of 20x4 End of 20x5 End of 20x6
Understatement of accrued expenses P 4,000 P 5,000 P 6,500
Understatement of accrued revenue 2,500 1,000 1,500
Overstatement of inventories 15,000 20,000 20,000
Understatement of depreciation expense
On assets still held 1,500 3,500 2,000
How much must Roberts received from the partnership?
a. P511,250 b. P156,500 c. P15,250 d. P11,250

3. At the beginning of 2008, S Video established a QC Branch and a MC Branch in order to

provide wider distribution of its merchandise. Merchandise is transferred to the branches at
a pricd 30% above cost. All branch merchandise is acquired from the home office. At the
end of 2008, the QC Branch and the MC Branch reported net income and ending inventory
balances as follows:
Net income Ending inventory
QC Branch P45,500 P65,000
MC Branch 52,000 78,000
The year-end balances in the home office accounts allowance for unrealized gross
margin in branch inventory are P 48,750 for the QC Branch and P58,500 for the MC
branch.
The income from Branch, home office should record is:
a. P171,750 b. P97,500 c. P130,500 d. P74,250

4. On January 1, 2008, Ashley Corp. purchased 75% of the common stock of Racks Corp.
Separate balance sheet data for the companies at the combination date are given below:
Ashley Racks
Cash P 84,000 P 721,000
Trade Receivable 504,000 91,000
Merchandise Inventory 462,000 133,000
Land 273,000 112,000
Plant Assets 2,450,000 1,050,000
Accumulated Depreciation (840,000) (210,000)
Investment in Racks 1,372,000

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 Total Assets P4,305,000 P1,897,000

Accounts Payable P 721,000 P 497,000

Capital Stock 2,800,000 1,050,000
Retained Earnings 784,000 350,000
Total Equities P4,305,000 P 1,897,000
At the date of combination the book values of Racks net assets was equal to the fair
value of the net assets except for Racks inventory which has a fair value of P210,000.

On the date of acquisition in the consolidated balance sheet:

How much is the total assets?
a. P 3,533,250 b. P4,984,000 c. P 6,543,250 d. P 5,171,250

5. The following data pertained to Pogi Companys construction jobs, which commenced
during 2008:
PROJECT 1 PROJECT 2
Contract Price P420,000 P300,000
Cost incurred during 2008 240,000 280,000
Estimated cost to complete 120,000 40,000
Billed to customers during 2008 150,000 270,000
Received from customers during 2008 90,000 250,000
If Pogi company used the percentage of completion method, what amount of profit (loss)
would Pogi Company report in its 2008 income statement?
a. P(20,000) c. P22,500
b. P20,000 d. P40,000

6. On April 1, 2008, Ringo Corp. entered into franchise agreement with Quart Corp. to sell their
products. The agreement provides for an initial franchise fee of P4,218,750 payable as
follows: P1,181,250 cash to be paid upon signing of the contract and the balance in five
equal annual payment every December 31, starting at the end of 2008. Ringo signs 12%
interest learning note for the balance. The agreement further provides that the franchise
must pay a continuing franchise fee equal to 5% of its monthly gross sales. On August 30 the
franchisor completed the initial services required n the contract at a cost of P1,350,000 and
incurred indirect costs of P232,500. The franchise commenced business operations on
September 3, 2008. The gross sales reported to the franchisor are September sales, P110,000;
October sales, P125,000; November sales P138,000; and December sales, P159,000. The first
installment payment was made on due date.

Assume the collectivity of the note is reasonably assured. In its income statement for the year
ended December 31, 2008 how much is the realized gross profit?
a. P2,868,750 b. P2,936,225 c. P2,895,350 d. P3,168,725

7. The trustee for John Corp. prepares a statement of affairs which shows that unsecured
creditors whose claims total P 540,000 may expect to receive approximately P 405,000 if
assets are sold for the benefit of creditors.
a. Danielle Corp. holds a note for P22,500 on which interest of P1,350 is accrued,
property with a book value of P18,000 and a realizable amount of P 27,000 is
pledged on the note.
b. Randolph, an employee is owed P6,750 for his salary.
c. Baltimore Corp. holds a note of P54,000 on which interest of P2,700 is accrued,
securities with a book value of P 58,500 and a realizable amount of P45,000 is
pledged on the note.
d. Nick Corp. holds a note for P9,000 on which interest of P500 is accrued, nothing
has been pledged for the note.
How much may each of the following creditors receive? Danielle Corp; Randolph Corp;
Baltimore Corp.; Nick Corp., respectively.
a. P 27,000 ; P5,063; P53,775 ; P 0 c. P27,000 ; P6,750; P56,700 ; P 0
b. P 23,850; P 6,750; P56,700; P7,125 d, P23,850; P6,750; P53,775 ; P 7,125

8. The following information was taken from H Companys accounting records for the year
December 31, 2008:

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 Increase in raw materials inventory P 15,000
Decrease in finished goods inventory 35,000
Raw materials purchased 430,000
Direct labor cost 200,000
Factory overhead control 260,000
Freight-in 45,000
There was no work in process inventory at the beginning or end of the year. Hs 2008 cost of
goods sold is if FOH is applied at 140% of labor costs:
a. P950,000 b. P965,000 c. P975,000 d. P995,000

9. C Company has underapplied factory overhead of P45,000 for the year ended December
31, 2008. Before disposition of the underapplied overhead, selected December 31, 2008,
balances from Cs accounting records are as follows:
Sales P1,200,000
Cost of goods sold 720,000

Inventories:
Direct materials 36,000
Work in process 54,000
Finished goods 90,000
Under Cs cost accounting system, over or underapplied overhead is allocated to
appropriate inventories and cost of goods sold based on year end balances. In its 2008
income statement, C should report cost of goods sold of
a. P682,500 b. P684,000 c. P756,000 d. P757,500

10. Violeta company adds materials at the beginning of the process in Department A.
Information concerning the materials used in April 2008 is as follows:
Units
Work in process April ............... P10,000
Started during April.. 50,000
Completed & Transferred to the next department during April. 36,000
Normal spoilage incurred 3,000
Abnormal spoilage incurred 5,000
Work in process at April 30. 16,000
Under Violetas accounting system, the cost of normal spoilage are treated as part of the
cost of good units produced. However, the cost of abnormal spoilage is charged to factory
overhead. Using weighted average method, what are the equivalent units for the materials
unit cost calculation for the month of April?
a. 47,000 b. 52,000 c. 55,000 d. 57,000

11. Agency Makabayan received Notice of Cash Allocation (NCA) P45,000,000 for the year
2008, the entry would be:
a. No entry
b. Memorandum entry in Registry of Allotments
c. National Clearing Account 45,000,000
Appropriation Alloted 45,000,000
d. Cash-National Treasury, MDS 45,000,000
Subsidy Income from National government 45,000,000

12. Save the Planet, a private nonprofit research organization, received a $500,000 contribution
from Ms. Susan Clark. Ms. Clark stipulated that her donation be used to purchase new
computer equipment for Save the Planets research staff. The contribution was received in
August of 2001, and the computers were acquired in January of 2002. For the year ended
December 31, 2001, the $500,000 contribution should be reported by Save the Planet on its
a. Statement of activities as unrestricted revenue.
b. Statement of activities as deferred revenue.
c. Statement of activities as temporarily restricted revenue.
d. Statement of financial position as deferred revenue.

13. On January 1, 20x3, Pike Company purchased 80% of the outstanding voting shares of Sword
company for P800,000. On that date, Sword had P300,000 of capital stock and P600,000 of
retained earnings. All assets and liabilities of Sword had book values approximately equal to

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 their fair market values. Goodwill, if any, is not amortized. Pike uses the complete equity
method to account for its investment in Sword.
On April 1, 20x3, Pike sold equipment with a book value of P40,000 to Sword for P60,000. The
equipment is expected to have a useful life of five years from the date of the sale and no
salvage value. Sword will use straight-line depreciation. For year 20x3, Sword reported net
income of P200,000 and paid dividends of P40,000.
Determine the income from investment under the complete equity method.
a. P143,000 b. P144,000 c. P163,000 d. P111,000

14. P Company owns controlling interests in S and T Corporations, having acquired an 80

percent interest in S in 20x1 and a 90 percent interest in T on January 1, 20x2. Ps investments
in S and T were at book value equal to fair value.
Inventories of the affiliated companies at December 31, 20x2 and December 31, 20x3
were as follows:
December 31, 20x2 December 31, 20x3
P inventories P60,000 P54,000
S inventories 38,750 31,250
T inventories 24,000 36,000
P sells to S at a 25 percent markup based on cost, and T sells to P at a markup of 20 percent.
Ps beginning and ending inventories for 20x3 consisted of 40% and 50%, respectively, of
goods acquired from T. All of S inventories consisted of merchandise acquired from P.
The inventory that should appear in the December 31, 20x3 consolidated balance sheet
should amount to:
a. P109,600 b. P106,000 c. P110,500 d. P121,250

15. In year 20x8, a 90 percent-owned subsidiary sold land to its parent at a gain. The parent still
owns the land. In the consolidated balance sheet at December 31, 20x9, the minority interest
in the subsidiary should be shown at:
a. 10 percent of the subsidiarys total equity.
b. 10 percent of the subsidiarys total equity less 10 percent of the gain on the land sale.
c. 10 percent of the subsidiarys total equity plus 10 percent of the gain on the land sale.
d. 10 percent of the subsidiarys total equity less 100 percent of the gain on the land sale.
END OF EXAMINATIONS
GOODLUCK!!!

1. Jinky is trying to decide whether to accept a bonus of 25% of net income after salaries and bonus or a
salary of P97,500 plus a bonus of 10% of net income after salaries and bonus as a means of allocating
profit among the partners. Salaries traceable to the other partners are estimated to be P450,000. What
amount of income would be necessary so that Jinky would consider the choices to be equal?
a. P1,100,000 b. P1,197,500 c. P650,00 d. P1,262,500

2. Jamby and Minam just formed a partnership. Jamby contributed cash of P2,205,000 and office
equipment that cost P945,000. The equipment had been used in her sole proprietorship and had been
70% depreciated, the appraised value of the equipment is P630,000. Jamby also contributed a note
payable of P210,000 to be assumed by the partnership. Jamby is to have 60% interest in the partnership.
Miriam contributed only P1,575,000 merchandise inventory at fair market value. Assume the use of
bonus method, the partners capital must be in conformity with their profit and loss ratio upon
formation.

In the formation of a partnership, which of the following is true?

a. The agreed capital of Jamby upon formation is P2,625,000
b. The total agreed capital of the partnership is P4,375,000
c. The capital of Miriam will increase by P105,000 as a result of the transfer of capital
d. There is either an investment or withdrawal of asset under the bonus method

3. Batanes Construction Company recognized gross loss of P42,000 on its long-term project which has
accumulated costs of P490,000. To finish the project, the company estimates that it has to incur
additional cost of P735,000. The contract price is:
a. P798,000 b. P1,330,000 c. P1,225,000 d. P1,183,000

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