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Sample/practice exam 18 April 2017, questions and answers

Accounting (Far Eastern University)

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AFAR - SET A Forward Rate

Spot Rate (for March 12,2017)
Use the following information for question 1 and 2: November 20, 2016……………… P .87 P .89
CC admits DD as a partner business. Accounts in the ledger for CC on November December 12, 2016………………. .88 .90
30,20x4, just before the admission of DD, show the following balances: December 31, 2016………………. .92 .93
It is
Cash………………………………………………………………………………… P 6,800 3. Imp entered into the first forward contract to hedge a purchase of inventory in
Accounts receivable………………………………………………………… 14,200 November 2016, payable in March 2017. At December 31, 2010, what amount of
Merchandise inventory…………………………………………………… 20,000 foreign currency transaction gain from this forward contract should Imp include in
Accounts payable……………………………………………………………. 8,000 net income?
CC, capital……………………………………………………………………….. 33,000 a. P 0 c. P 5,000
agreed that purposes of establishing CC’s interest the following adjustment shall be b. P 3,000 d. P 10,000
made:
a. An allowance for doubtful accounts of 3% of accounts receivable is to be 4. At December 31,2016, what amount of foreign currency transaction loss should
established. Imp include in income from the revaluation of the Accounts Payable of 100,000
b. The merchandise inventory is to be valued at P23,000. foreign currencies incurred as a result of the purchase of inventory at November
c. Prepaid salary expenses of P600 and accrued rent expense of P800 are to 30, 2016 payable in March 2017?
recognized. a. P 0 c. P 4,000
b. P 3,000 d. P 5,000
1. DD is to invest sufficient cash to obtain a 1/3 interest in the partnership. CC’s
adjusted capital before the admission of CC: 5. Imp entered into the second forward contract to hedge a commitment to
a. P28,174 c. P35,374 purchase equipment being manufactured to Imp’s specification. The expected
b. P35,347 d. P36,374 delivery date is March 2017 at which time settlement is due to the manufacturer.
2. The amount of cash investment by DD: The hedge qualities as a fair vale hedge. At December 31, 2016, what amount of
a. P11,971 c. P17,687 foreign currency transaction gain from this forward contract should Imp include in
b. P14,087 d. P18,487 net income?
Items 3 to 6 are based on the following information: a. P 0 c. P 5,000
On December 12, 2010, Imp Company entered into three forward exchange b. P 3,000 d. P 10,000
contract to purchase 100,000 FC (foreign currency) in 90 days. The relevant
exchange rates are as follows: 6. Imp entered into the third forward contract for speculation. At December 31,
2016, what amount of foreign currency transaction gain from this forward contract
should Imp include in net income?
a. P 0 c. P 5,000
b. P 3,000 d. P 10,000

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Use the following information for quesrtions 7 and 8: (2) Assuming the functional currency of the subsidiary is the local currency,
Cleary, Wasser and Nolan formed a partnership on January 1, 20x4, with what total should be included in Parker’s consolidated balance sheet at
investments of P100,000, P150,000 and P200,000, respectively. For division of December 31, 20x4, for the above items?
income, they agreed to (1) interest of 10% of the beginning capital balance each a. (1) P407,500; (2) P418,000 c. (1) P407,500; (2) P407,500
year, (2) annual compensation of P10,000 to Wasser and (3) sharing the remainder b. (1) P418,000; (2) P407,500 d. (1) P418,000; (2) P418,000
of the income or loss in a ration of 20% for Cleary and 40% each for Wasser and 10. A local partnership was considering the possibility of liquidation since one of
Nolan. Net income was P150,000 in 20x4 and 20x5. the partners (Ding) was insolvent. Capital balances at that time were as follows.
7. What was Wasser’s share of income for 20x4? Profits and losses were divided on a 4:2:2:2 basis, respectively.
a. P 63,000 d. P 29,000 Ding, capital…………………………………………. P 60,000
b. P 53,000 e. P 51,000 Laurel, capital………………………………………. P 67,000
c. P 58,000 Ezzard, capital……………………………………… P 17,000
Tillman, capital…………………………………….. P 96,000
8. What was Wasser’s capital balance at the end of 20x5? Ding’s creditors filed a P25,000claim against the partnership’s assets. At that time,
a. P 201,000 d. P 304,040 the partnership held assets reported at P360,000 and liabilities of P120,000. If the
b. P 263,520 e. P 313,780 assets could be sold for P228,000, what is the minimum amount that Ding’s
c. P 264,540 creditors would have received?
a. P -0- c. P 36,000
9. Certain balance sheet accounts of a foreign subsidiary of Parker Company at b. P 2,500 d. P 38,250
December 31, 20x4 have been restated into pesos as follows: 11. Finley Company sells office equipment. On January 1, 20x3, Finley entered into
Restated at an installment sale contract with Miller Company for a six-year period expiring
Current Rates Historical Rates January 1, 20x9. Equal annual payments under the installment sale are P936,000
Cash…………………………………………………… P 47,500 P 45,000 and are due on January 1. The first payment was made on January 1, 20x3.
Accounts receivable…………………………… 95,000 90,000 Additional information is as follows:
Inventory at market…………………………… 76,000 72,000  The cash selling price of the equipment, i.e., the amount that would be
Land…………………………………………………… 57,000 54,000 realized on an outright sale, is P4,584,000.
Equipment (net)…………………………………. 142,500 135,000  The cost of sales relating to the equipment is P3,825,000.
Total…………………………………………………… P418,000 P396,000  The finance charges relating to the installment period are P1,032,000 based
on a stated interest rate of 9% which is appropriate. For tax purposes, Finley
(1) Assuming the functional currency of the subsidiary is the peso, what total appropriately uses the accrual basis for recording finance charges.
should be included in Parker’s consolidated balance sheet at December  Circumstances are such that the collection of the installment sale is
31, 20z4, for the above items? reasonably assured.
 The installment sale qualified for the installment method of reporting for tax
purposes
 Assume that the income tax rate is 30%.

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What income (loss) before income taxes should Finley appropriately record as a a. P 410,000 and P270,000 c. P 140,000 and P189,000
result of this transaction for the year ended December 31, 20x3? b. P 140,000 and P270,000 d. P 410,000 and P189,000
a. P 154,979 c. P 759,000
b. P 483,299 d. P 1,087,320 14. The after-closing balances of Carter Corporation’s home office and its branch at
January 1, 20x4 were as follows:
12. Lark Corp.has a contract to construct a P5,000,000 cruise ship at an estimated Home Office Branch
cost of P4,000,000. The company will begin construction of the cruise ship in early Cash…………………………………………………………….. P 7,000 P 2,000
January 20x4 and expects to complete the project sometime in late 20x7. Lark Accounts receivable-net………………………………. 10,000 3,500
Corp. has never constructed a cruise ship before and the customer has never Inventory…………………………………………………….. 15,000 5,500
operated a cruise ship. Due to this and other circumstances, Lark Corp. believes Plant assets-net…………………………………………… 45,000 20,000
there are inherent hazards in the contract beyond the normal, recurring business Branch……………………………………………………….. 28,000 -0-
risks. Lark Corp. expects to recover all its costs under the contract. During 20x4 and Total Assets………………………………………………….. P105,000 P 31,000
20x5, the company has the following activity:
20x4 20x5 Accounts payable………………………………………… P 4,500 P 2,500
Costs to date P 980,000 P2,040,000 Other liabilities…………………………………………… 3,000 500
Estimated costs to complete 3,020,000 1,960,000 Unrealized profit-branch inventory……………. 500 -0-
Progress billings during the year 1,000,000 1,000,000 Home office………………………………………………… -0- 28,000
Cash collected during the year 648,000 1,280,000 Capital stock………………………………………………. 80,000 -0-
On its statement of financial position at December 31, 20x5, what amount will be Retaining earnings……………………………………… 17,000 -0-
reported related to the Construction in Process account? Total Assets………………………………………………… P105,000 P 31,000
a. P40,000 costs in excess of billings.
b. P1,020,000 costs in excess billings. A summary of the operations of the home office and branch for 20x4 follows:
c. P40,000 billings in excess of costs. 1. Home office sales: P100,000, including P33,000 to the branch. A standard
d. P20,000 billings in excess of costs. 10% markup on cost applies to all sales to the branch. Branch sales to its
customers totaled P50,000.
13. A partnership has the following capital balances: 2. Purchases from outside entities: home office, P50,000; branch P7,000.
Partners Capital Balance 3. Collections from sales: home office P98,000 (including P30,000 from
William (40% of gains and losses)……………………. P 220,000 branch); branch collections, P51,000.
Jennings (40%)………………………………………………… 160,000 4. Payments on account; home office, P51,500; branch; P4,000.
Bryan (20%)…………………………………………………….. 110,000 5. Operating expenses paid: home office, P20,000; branch, P6,000.
Darrow invest P270,000 in cash for a 30 percent ownership interest. The money 6. Depreciation on plant assets: home office, P4,000; branch P1,000.
goes to the original partner. Goodwill is to be recorded. How much goodwill should 7. Home office operating expenses allocated to the branch, P2,000.
be recognized, and what is Darrow’s beginning capital balance?

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8. At December 31, 20x8, the home office inventory is P11,000 and the 17. Assume at March 15, 20x4, the time of signing the contact, collectability of the
branch inventory is P6,000 of which P1,050 was acquired from outside receivable was reasonably assured and there were no significant continuing
suppliers. obligations. The journal entry at signing would include a:
The combined net income amounted to: a. Credit to franchise fee revenue for P36,000.
a. P -0- c. P21,000 b. Credit to franchise fee revenue for P9,000.
b. P 4,550 d. P25,550 c. Credit to unearned franchise fee revenue for P36,000.
d. Credit to unearned franchise fee revenue for P27,000
Use the following information for questions 15 to 17:
Flapper Jack’s Inc. sells franchises for an initial fee of P36,000 plus operating fees of Use the following information for questions 18 to 19:
P500 per month. The initial fee covers site selection, training, computer and Duck Corporation acquired a 70% interest in Whistle Corporation on January 1,
accounting software, and on0site consulting and troubleshooting, as needed, over 20x5, when Whistle’s book values were equal to their fair values. During 20x5, Duck
the first five years. On march 15 20x4, Anton signed a franchise contract, paying sold merchandise that cost P75,000 to Whistle for P110,000. On December 31,
the standard P6,000 down with the balance due over 5 years with interest. 20x5, three-fourths of the merchandise acquired from Duck remained in Whistle’s
inventory. Separate incomes (investment income not included) of Duck and Whistle
15. Assume that at the time of signing contract, collection of the receivable was are as follows:
assured and that service obligations were substantial. However, by October 20 Duck Whistle
20x4, substantially all continuing obligations had been met. The journal entry Sales Revenue………………………………….. P 150,000 P 200,000
required at October 20, 20x4 would include a: Cost of Goods Sold…………………………… 90,000 70,000
a. Credit to franchise fee receivable for P27,000. Operation Expenses…………………………. 12,000 15,000
b. Debit to unearned franchise fee revenue for P36,000. Separate incomes…………………………….. P 48,000 P 115,000
c. Credit to franchise fee revenue for P9,000.
d. Debit to unearned franchise fee revenue for P27,000. 18. The consolidated income statement for Duck Corporation and subsidiary for the
16. Assume at March 15, 20x4, the time of signing contract, collectability of the year ended December 31, 20x5 will show consolidated cost of sales of?
receivable was reasonably assured and there were no significant continuing a. P50,000 c. P133,750
obligations. The journal entry at signing would include a: b. P76,250 d. P160,000
a. Credit to franchise fee revenue for P36,000.
b. Credit to franchise fee revenue for P9,000. 19. Duck’s investment income for 20x5, assuming dividends paid by Whistle
c. Credit to unearned franchise fee revenue for P36,000. amounted to P40,000.
d. Credit to unearned franchise fee revenue for P27,000. Cost Method Equity Method
a. P 13,750 P 54,250
b. P 28,000 P 80,500
c. P 54,250 P 28,000
d. P 28,000 P 54,250

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20. The balance sheet of Venner and Wigstaff Partnership immediately before the  On December 27, 20x5, the branch returned P15,000 of seasonal
partnership was Incorporated as Venwig Corporation follows: merchandise to the home office for the January clearance sale. The
merchandise was not received by the home office until January 6, 20x6.
Cash…………………………………………………………………. P 10,500  The home office allocated general expenses ofP28,000 to the branch. The
Trade accounts payable……………………………………. 16,400 branch had not entered the allocation at the year-end.
Trade accounts receivable……………………………….. 15,900  Branch store insurance premiums of P900 were paid by the home office. The
Venner, capital…………………………………………………. 60,000 branch recorded the amount at P600.
Inventories………………………………………………………. 42,000 The correct balance of the reciprocal account amounted to:
Wigstaff, capital………………………………………………. 52,000 a. P575,000 c. P534,700
Equipment (net of P18,000 Depreciation)………… 60,000 b. P535,000 d. P507,000
Net assets………………………………………………………… P128,400 Use the following information to answer questions 22 to 24:
The following adjustments to the balance sheet of the partnership were The balance sheet of Salt Company, along with market values of its assets and
recommended by a CPA before accounting records for Venwig Corporation were to liabilities, is as follows:
be established: Salt company
 An allowance for doubtful accounts was to be established in the amount of Book value debit Market value
P1,200. (credit) debit (credit)
 Short-term prepayments of P800 were to be recognized. Current assets P 2,000,000 P 1,500,000
 The current fair value of inventories, P48,000, and the current fair value of Plant & equipment (net) 30,000,000 35,000,000
equipment, P72,000, were to be recognized. Patents 100,000 2,000,000
 Accrued liabilities of P750 were to be recognized. Completed technology 0 10,000,000
Immediately following incorporation, the additional paid-in capital in excess of par Broader customer base 0 16,000,000
should be credited for: Technically skilled workforce 3,000,000
a. P128,850 c. P78,850 Potentially profitable future contracts 2,000,000
b. P96,000 d. No additional paid-in capital
Licensing agreements 0 4,000,000
21. At December 31, 20x5, the following information has been collected by
Potential contract with new customers 1,500,000
Maxwell Company’s office and branch for reconciling the branch and home office
Advertising jingles 1,000,000
accounts.
Future cost savings 1,800,000
 The home office’s branch account balance at December 31, 20x5 is P590,000.
The branch’s home office account balance is P506,700. Goodwill 200,000 700,000
 On December 30, 20x5, the branch sent a check for P40,000 to the home Liabilities (28,000,000) (30,000,000)
office to settle its account. The check was not delivered to the home office Common stock, P10 par (1,000,000)
until January 3, 20x6. Additional paid-in capital (5,000,000)
Retained earnings 1,700,000

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22. Now assume Pail Company pays P10,000,000 in cash to acquire the assets and 26. Rizzalyn Corporation, a capital goods aufacturing business that taed on January
liabilities of Salt Company. Pail records a bargain purchase gain on acquisition of: 4, 20x3, and operates on a calendar-year basis. The following data were taken from
a. Zero c. P 17,500,000 the records of 20x3 and 20x4:
b. P 12,500,000 d. P 28,500,000 20x3 20x4
Installment Sales P 480,000 P 620,000
23. Pail paid P100,000,000 in cash for Salt. Three months later, Salt;s patents are Gross profit as a percent of costs 25% 28%
determined to have been worthless as of the date of acquisition. The entry to Cash collections on sales of 20x3 P 140,000 P 240,000
record this information includes Cash collections on sales of 20x4 P -0- P180,000
a. a debit to loss of P2,000,000. Compute the realized gross profit to be reported in the 20x4 income statement:
b. a debit to patents of P2,000,000. Installment Sales Method Cost Recovery Method
c. A debit to goodwill of P2,000,000. a. P 87,375 P -0-
d. A debit to retained earnings of P2,000,000. b. P 87,375 180,000
c. 39,375 -0-
24. Pail paid P 10,000,000 in cash for Seattle. Three months later, it is determined d. 48,000 240,000
that Seattle’s acquisition-date liabilities omitted a pending lawsuit valued at
P2,000,000. The entry to record this information includes 27. Falcon Corporation sold equipment to its 80%-owned subsidiary, Rodent Corp.,
a. a debit to bargain purchase gain on acquisition of P2,000,000. on January 1, 20x4. Falcon sold the equipment for p110,000 when its book value
b. a debit to liabilities of P2,000,000. was P85,000 and it had a 5-year remaining useful life with no expected salvage
c. A debit to goodwill of P2,000,000. value. Separate balance sheets for Falcon and Rodent included the following
d. A debit to retained earnings of P2,000,000. equipment and accumulated depreciation amounts on December 31, 20x4:

25. Equipment with a book values of P120,000 is sold in a liquidation process for Falcon Rodent
cash of P110,000. This equipment was security for a P150,000 bank loan. Any Equipment………………………………………. P750,000 P 300,000
remainder is consider unsecured. How would this transaction be reported on the Less: Accumulated depreciation……… (200,000) (50,000)
Statement of Realization and Liquidation? Equipment-net………………………………… P550,000 P 250,000
a. A reduction in non-cash assets of P120,000 Consolidated amounts for equipment and accumulated depreciation at December
b. A loss reported to owner’s equity of P10,000 31, 20x4 were respectively,
c. A disbursement of cash to the bank of P110,000, a reduction in partially a. P 1,025,000 and P245,000. c. P 1,025,000 and P245,000.
secured liability of P150,000, and an increase in unsecured without priority b. P 1,025,000 and P250,000. d. P 1,050,000 and P250,000.
liability of P 40,000
d. all of the above would occur

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28. On January 1, 20x4, RR Corporation acquire 80 percent of SS Corporation’s P10 30. A company has identified the following overhead costs and cot divers for the
par common stock for P956,000. On this date, the fair value of the non-controlling coming year:
interest was P239,000, and the carrying amount of SS’s net assets was P1,000,000. Overhead Item Cost Driver Budgeted Cost Budgeted Activity
The fair values of SS’s identifiable assets and liabilities were the same s their Level
carrying amounts except for plant assets (net) with a remaining life of 20 years, Machine Setup Number of setups P 20,000 200
which were P100,000 in excess of the carrying amount. For the year ended Inspection Number of inspections P 130,000 6,500
December 31, 20x4, SS had net income of P190,000 and paid cash dividends Material handling Number of Material P 80,000 8,000
totaling P125,000. In the December 31, 20x4, consolidated balance sheet, the moves
amount of non-controlling interest reported should be: Engineering Engineering Hours P 50,000 1000
a. P200,000 c. P251,000 P 280,000
b. P239,000 d. P252,000 The following information was allocated on three jobs that were completed during
the year:
29. Gianne Co., sold a computer on installment basis on October 1, 20x4. The unit Job 101 Job 102 Job 103
cost to the company was P86,400, but the installment selling price was set at Direct materials P 5,000 P 12,000 P 8,000
P122,400. Terms of payment included the accpetance of a used computer with a Direct labor P 2,000 P 2,000 P 4,000
trade-in allowance of P43,200. Cash of P7,200 was paid in addition to the traded-in
Units competed 100 50 200
computer with the balance to be paid in ten monthly installments due at the end of
Number of setups 1 2 4
each month commencing the month of sale.
Number of inspections 20 10 30
Number of material moves 30 10 50
It would require P1,800 to recondition the used computer si that it could be resold
for P36,000. A 15% gross profit was usual from the sale of used compter. The Engineering hours 10 50 10
realized gross profit from the 20x4 collections amounted to: Budgeted direct labor cost was P100,000 and budgeted direct material cost was
a. P5,760 c. P11,520 P280,000.
b. P14,100 d. P48,960 Compute the cost of each unit of Job 102 using Activity-Based Costing:
a. P340 c. P440
b. P392 d. P520

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31. Some units of output failed to pass final inspection at the end of the Use the following information for questions 33 and 34:
manufacturing process. The production and inspection supervisors determined Fetzler Company’s branch in Virginia began operations om January 1. 20x4.
that the incremental revenue from reworking the units exceeded the cost of During the first year of operations, the home office shipped merchandise to
rework. The rework of the defective units was authorizes, and the following costs the Virginia branch that cost P250,000 at a billed price of P300,000. One-
were incurred in reworking the units: fourth of the merchandise remained unsold at the end o 20x4. The home
Materials requisitioned from stores: office records the shipments to the branch at the P300,000 billed price at the
Direct materials………………………………………………. P 5,000 time shipments are made.
Miscellaneous supplies……………………………………. 300 33. The home office should make:
Direct labor……………………………………………………………… 14,000 a. A year-end adjusting entry or entries to establish an unrealized profit
The manufacturing overhead budget includes an allowance for rework. The (loading) account of P75,000.
predetermined manufacturing overhead rate is 150% of direct labor cost. The b. A year-end adjusting entry or entries to establish an unrealized profit
account(s) to be charged and the appropriate charges for the rework cost would (loading) account of P62,500.
be: c. A year-end adjusting entry or entries to establish an unrealized profit
a. Work-in-process inventory control for P19,300. (loading) account of P12,500.
b. Work-in-process inventory control for P5,000 and factory overhead control d. No year-end adjusting entry because the shipments to branch (home office
for P35,000. books) and shipments from home office (branch books) are reciprocal.
c. Factory overhead control for P19,300.
d. Factory overhead control for P40,300. 34. Freight-in of P2,000 on the shipments from the office was paid by the branch.
The home office should make:
32. Hartwell Company distributes the service department overhead costs to a. A year-end adjusting entry debiting the branch account for P500
producing departments and the following information for the month of January is b. A year-end adjusting entry debiting the branch account for P2,000
presented as follows: c. A year-end adjusting entry crediting the branch account for P500
Maintenance Utilities d. No year-end adjusting entry for the freight charges
Overhead costs incurred P 18,700 P 9,000
Services provided to: 35. On December 20, 2006, Leigh Museum, not-for-profit organization received a P
Maintenance department - 10% 7,000,000 donation of Day Company shares with donor-stipulated requirements as
Utilities department 20% - follows:
Producing department A 40% 30%  Shares valued at P 5,000,000 are to be sold, with the proceeds used to erect a
Producing department B 40% 60% public viewing building.
The company distributes service department costs based on the reciprocal method,  Shares valued at P 2,000,000 are to be retained with the dividends used to
what would be the formula to determine the total maintenance costs? support current operations.
a. M = P18,700 + .10U c. M = P18,700 + .30U + .40A + .40B As a consequence of the receipt of the Day shares, how much should Leigh report
b. M = P9,000 + .20U d. M = P27,700 + .40A + .40B as temporarily restricted net assets on its 2006 statement of financial position
(balance sheet) ?

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a. P 0 c. P 5,000,000 39. Pistahan Corporation is a manufacturing company engaged in the production

b. P2,000,000 d. P 7,000,000 of a single special product known as “Marvel”. Production costs are
accumulated with the use of a job-order-cost system.
Items 36 and 37 are based on the following data: The following information is available as of June 1, 2016:
A chemical company manufactures joint products Pep and Vim, and a by- Work-in process……………………………………………….. P 10,710
product. Zest. Costs are assigned to the joint products by the market value Direct materials inventory………………………………… 48,600
method, which considers further processing costs in subsequent operations. In analyzing the job-order cost sheets, the records disclosed that the
For allocating joint costs to the by-product, the market value or reversal cost compositions of the work-in process inventory on June 1, 2016 were as
method is used. follows:
The total manufacturing costs for 10,000 units were P172,000 during the Direct materials used……………………………………….. P 3,960
quarter. Production and cost data follow: Direct labor (900 hours)…………………………………… 4,500
Pep Vim Zest Factory overhead applied…………………………………. 2,250
Units produced 5,000 4,000 1,000 P10,710
Sales price per unit P50 P40 P5 The following manufacturing activity occurred during the month of June 2016:
Further processing cost per unit 10 5 - Purchased direct materials costing P 60,000
Selling and administrative expense per unit 2 Direct labor worked 9,900 hours at P 5 per hour
Operating profit per unit 1 Factory overhead of P 2.50 per direct labor hour was applied to production.
At the end of June 2016, the following information was gathered in connection
36. The value of Zest to be deducted from the joint costs is: with the inventories:
a. P5,000 c. P 2,000 Inventory of work-in-process:
b. P3,000 d. Zero Direct materials used……………………………………… P 12,960
Direct labor (1,500 hours)………………………………. 7,500
37. The gross profit for Pep amounted to: Factory overhead applied………………………………. 3,750
a. P100,000 c. P70,000 P24,210
b. P 90,000 d. Zero Inventory of direct materials…………………………………… P51,000
Compute the cost of goods manufactured:
38. The Unused National Clearing Account “Cash-Modified Disbursement System” a. P 142,560 c. P 131,850
should be credited against: b. P 118,350 d. P 108,600
a. Income and Expense Summary c. Retained Operating Surplus
b. Accumulated Surplus/Deficitd. Subsidy from National Government

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Items 40 and 41 are based on the following information: 2005 , what total amount should be reported for “net assets released from
40. The following information summarizes the standard cost for producing one restrictions?”
metal tennis racket frame. In addition, the variances for one month’s production a. P 0 c. P250,000
are given. Assume that all inventory accounts have zero balances at the beginning b. P 50,000 d. P300,000
of the month:
Standard Cost Standard Monthly Items 43 and 44 are based on the following information:
Per unit Costs Kuchen Manufacturing uses backflush costing to account for an electronic meter it
Materials P 4.00 P 8,400 makes. During August 2016, the firm produced 16,000 meters of which it sold
Direct labor 2 hrs @P2.60 5.20 10,920 15,800. The standard cost for each meter is:
Factory overhead: Direct material P 20
Variable 1.80 3,780 Conversation costs 44
Fixed 5.00 10,500 Total P 64
Variances: Assume that the company had no inventory on August 1. The following event
Material price, P244.75 unfavorable took place in August:
Materials quantity, P500.00 unfavorable 1. Purchased P320,000 of direct materials.
Labor rate, P520.00 unfavorable 2. Incurred P708,000 of conversion costs.
Labor efficiency, P2,080.00 unfavorable 3. Applied P704,000 of conversion costs to Raw and in Process Inventory.
What were the actual direct labor hours worked during the month? 4. Finished 16,000 meters.
a. 5,000 c. 4,000 5. Sold 15,800 meters for P100 each.
b. 4,800 d. 3,400
43. The amount of ending finished goods:
41. What were the actual quantities of materials used during the month? a. Nil or zero c. P 12,800
a. 2,156 c. 2,225 b. P 12,775 d. P 12,850
b. 2,100 d. 1,975
44. The amount of cost of goods sold after the adjustments of over-under applied
42. Saint Paul Hospital, a nonprofit hospital affiliated with Saint Paul University, conversion cost amounted to:
received the following cash contributions from donors during the year ended a. P 1,011,200 c. P 1,022,000
December 31, 2004: b. P 1,015,200 d. P 1,024,000
Contributions restricted by donors or research……………………….P 50,000
Contributions restricted by donor for capital acquisitions………. 250,000
Neither of the contributions was spent during 2004, however, during 2005, the
hospital spent the entire P 50,000 contribution on research and the entire
P250,000 contribution on a capital asset which was placed into service during the
year. On the hospital’s statement of operations for the year ended December 31,

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45. Three joint operators are involved in a joint operation that manufactures ships 49. If consolidated statements are presented for the first time instead of
chandlery. At the beginning of the year the joint operation held P50,000 in cash. statements of several individual companies, this change should be accounted for?
During the year the joint operation incurred the following expenses: Wages paid a. retrospectively
P20,000, Overheads accrued P10,000. Additionally, creditors amounting to P40,000 b. prospectively
were paid and the joint operators contributed P15,000 cash each to the joint c. by cumulative effect adjustment
operation. The balance of cash held by the joint operation at the end of the year is: d. by footnote disclosure only
a. P 5,000 c. P 35,000
b. P 25,000 d. P 75,000 50. An inconsistency in accounting theory can occur because
a. Internally developed goodwill is expensed, while purchased goodwill is
Items 46 and 47 are based on the following information: capitalized
The standard cost per unit of component part K-45 is p4. During the month 6,000 b. Both internally developed goodwill and purchased goodwill are expensed
units of K-45 were purchased at a total cost of P25,200. In addition, 7,100 units of c. Internally developed goodwill is capitalized, while purchased goodwill is
K-45 were used during the month; however, the standard quantity allowed for expensed
actual production is 6,900 units. d. Both internally developed goodwill and purchased goodwill are capitalized

46. The price variance, if materials are recorded at standard cost (price): 51. Which models are allowed to be used by the private operator for build-operate-
a. P1,200 unfavorable c. P1,200 unfavorable transfer (BOT) schemes under IFRIC 12?
b. P1,420 unfavorable d. P1,420 unfavorable I - Financial Asset model III - Property, Plant & Equipment model
II - Intangible Asset model
47. The price variance, if materials are recorded at actual cost (price): a. I and II
a. P1,200 unfavorable c. P1,200 unfavorable b. I and III
b. P1,420 unfavorable d. P1,420 unfavorable c. II and III
d. I, II and III
48. The modified accrual basis under the New Government Accounting System
(NGAS) prescribes that 52. The application of factory overhead costs under job order costing would be
a. Expenses are recognized as paid reflected in the general ledger as an increase in
b. Expenses are recognized as paid except when a specific law requires a. Factory overhead control
otherwise b. Cost of goods sold
c. Expenses are recognized as incurred c. Work in process
d. Expenses are recognized as incurred except when a specific law requires d. Finished goods
otherwise

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53. A Philippine importer that purchases merchandises from a foreign firm’s foreign 57. What are two major classification of government income under NGAS?
current unit (FCU) would be exposed to a net exchange gain on the unpaid balance a) National and local income
if the b) General and specific income
a. Peso weakened relative to the FCU and the FCU was the denominated c) Regular and specific income
currency d) Internal and external income
b. Peso weakened relative to the FCU and the peso was the denominated 58. Which of the following is among those listed under Pas 29 as indicators of
currency hyperinflation according to PAS 29?
c. Peso strengthened relative to the FCU and the FCU was the denominated a) People prefer to keep their wealth in monetary assets
currency b) People prefer to keep their wealth in relatively stable foreign currency
d. Peso strengthened relative to the FCU and the peso was the denominated c) Interest rates, wages and pries are not linked to a price index
currency d) The cumulative inflation rate over five years exceeds or is approaching
100%
54. For which type of hedge are changes in fair value deferred and amortized as an 59. Under PAS 11, when it is probable that total contract costs on a fixed price
equity adjustment? construction contract will exceed total contract revenue, the expected loss should
a) Cash flow hedge be
b) Operating hedge a) Set off against profit of other construction contract where available
c) Fair value hedge b) Recognized as an expense immediately, unless revenue to date exceeds
d) Notional value hedge costs to date
55. For nonprofit organization, contributions are reported in the Statement of c) Apportioned to the years of the contract according to the percentage of
Activities using all of the following categories, EXCEPT: completion method
a) Unrestricted d) Recognized as an expense immediately
b) Board-restricted 60. In partnership
c) Temporarily restricted a) Management consists of the board of directors
d) Permanently restricted b) Profits are always divided equally among partners
56. The consideration transferred in a business combination is measured as the fair c) Dissolution results when a partner leaves the partnership
value of the: d) No partner is liable for more than a proportion of the company’s debts
a) Net assets acquired 61. Under PFRS 4, it refers to a party that has a right to compensation under an
b) Cost directly attribute to the combination insurance contract if an insured event occurs.
c) Consideration given only a) Cedant
d) Consideration given plus directly attribute costs b) Insurer
c) Reinsurer
d) Policyholder

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62. Under PFRS 10, when a parent loss control o a subsidiary, it must recognize any 67. Given a hyperinflationary economy under PAS 29, which of the following
investment retained in the former subsidiary at elements of the statement of financial position is not restated using the general
a) Carrying amount price index?
b) Fair value, with any gain or loss recognized in profit or loss a) Monetary and nonmonetary assets
c) Fair value, with any gain or loss recognized in other comprehensive b) Monetary assets and liabilities
income c) Nonmonetary assets and liabilities
d) Original acquisition cost, adjusted for any dividend received from d) Nonmonetary assets and liabilities
subsidiary 68. When accounting for a business combination a contingent liability is recognized
63. Under PAS 21, gains and losses from both foreign currency transactions and if:
translation of foreign operations can be presented in the a. It is a present obligation that gas failed to meet the recognition criteria
a) Balance sheet b. Its fair value can be measure reliably
b) Income statement c. It is a possible obligation and it Is probable that it will occur
c) Statement of changes in equity d. It is probable that an outlaw of resources may occur in order to the settle
d) Statement of comprehensive income the obligation
64. In process costing, units receievd by a department from another department is 69. In standard costing, an unfavorable price variance occurs because of
treated by receiving department as a) Price increases on raw materials
a) Raw materials b) Price decreases on raw materials
b) Work in process c) Less than anticipated levels of waste in the manufacturing process
c) Finished goods d) More than anticipated levels of waste in the manufacturing process
d) Equivalent units 70. Which is NOT a major classification of government expenses?
65. A “statement of functional expenses” is required for which of the following a) Personal services c) Selling and administrative expenses
nonprofit organizations? b) Financial expenses d) Maintenance & other operating expenses
a) College
b) Hospital
c) Performing arts organizations
d) Voluntary health and welfare organization
66. What is the CORRECT accounting for Joint Arrangements?
a) All joint arrangements are accounted for under PAS 28.
b) Joint arrangements classified as joint ventures are accounted for under
PFRS 11.
c) Joint arrangements classified as joint ventures are accounted for under
PAS 28.

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AFAR (solution to Final Preboard - 31st batch) FER, 12/12/x4 P.90

FER, 12/31/x4 P.93
1. C - P35,374 - refer to No.2 AJE:
2. C - P17,687 Forward Contact receivable 3,000
Unadjusted capital of CC…………………………………………………………….. P 33,000 Foreign Exchange Gain 3,000
Add (deduct): adjustments- Revalue forward contract:
Allowance for doubtful accounts (3% x P14,200)………………… ( 426) P3,000 = 100,000 FCU x (P.93 - P.90) change in forward rates
Increase in merchandise inventory (P23,000 - P20,000)……… 3,000
Prepaid salary…………………………………………………………………….. 600 Foreign Exchange Loss 10,000
Accrued rent expense…………………………………………………………. ( 800) Account Payable 10,000
Adjusted capital balance of CC……………………………………………………. P 35,374 Revalue foreign currency payable:
Divided by: Capital interest of CC……………………………………………….. 2/3 P10,000 = 100,000 FCU x (P.98 - P.88) change in spot rates
Total capital of the partnership…………………………………………………… P 55,061
Less: Adjusted capital balance of CC……………………………………………. 35,374 4. D - (P.87 - P.92) x 100,000 = P5,000 loss
Capital balance of DD…………………………………………………………………. P 17,687 5. B
Hedge of a Firm Commitment:
3. B Value FEC based on changes in forward rate.
Manage an exposed position: AJE:
Value the forward exchange contract (FEC) at its fair value, measured by Forward Contract Receivable 3,000
changes in the forward exchange rate (FER). Note that the question asks only Foreign Exchange Gain 3,000
for the effect on income from the forward contract transaction: thus, any Revalue forward contract, using the forward rates.
effect on income from the foreign currency denominated account payable is
not included in the answer. Foreign Exchange Loss 3,000
Firm Commitment 3,000
Recognize loss on firm commitment.
Again, note that the question asks only about the effect on income from the
forward contract, not the underlying firm commitment portion of the transaction

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6. B 8. C - refer to No. 7
Speculation: 9. A
Value forward exchange contract at fair value based on changes in the (1) The peso is the functional currency, so a remeasurement (or temporal
forward rate method) is appropriate. Cash and accounts receivable are monetary assets
AJE: remeasured at current exchange rate of P47,500 and P95,000, respectively.
Forward Contract Receivable 3,000 Inventory is a nonmonetary asset (carried at market value) are remeasured
Foreign Exchange Gain 3,000 at the current exchange rate of P76,000. Land and equipment, both
7. A nonmonetary assets (carried at cost) are remeasured at the historical
C W N Total exchange rate of P54,000 and P135,000, respectively.
Capital, 1/1/x4 100,000 150,000 200,000 450,000 (2) Because the functional currency is the local currency, a translation (or
Net Income - 20x4 29,000 63,000 58,000 150,000 current rate method is required. All assets accounts are translated at current
Withdrawal - personal (12,000) (12,000) (12,000) (36,000) rates.
Capital, 12/31/x4 117,000 20,100 24,600 564,000 10. B
Ding Laurel Ezzard Tillman Total
Net Income - 20x4 C W N Total Capital before realization 60,000 67,000 17,000 96,000 240,000
10% interest on 10,000 15,000 20,000 45,000 Loss on sale (4:2:2:2) (52,300) (26,400) (26,400) (26,400) (132,000)
beginning capital 7,200 40,600 (9,400) 69,600 108,000
Salary - 10,000 - 10,000 Possible insolvency loss (4:2:2) (4,700) (2,350) (9,400) (2,350) -0-
Safe payments 2,500 38,250 0 67,250 103,000
20% : 40% : 40% 19,000 33,000 38,000 95,000
29,000 63,000 58,000 150,000
11. D
(Note: For financial accounting purposes, the installment sales method is not
Capital, 1/1/x5 117,000 201,000 246,000 564,000
used, and the full gross profit is recognized in the year of sale, because
Net Income 34,420 75,540 70,040 180,000
collection of the receivable is reasonable assured.)
Withdrawal - personal (12,000) (12,000) (12,000) (36,000) Finley Company
Capital, 12/31/x5 139,420 264,540 304,040 708,000 Computation of Income Before Income Taxes
On Installment Sale Contract
Net Income - 20x5 117,000 201,000 246,000 564,000 For the Year Ended December 31, 20x3
10% interest a beginning 34,420 75,540 70,040 180,000 Sales P 4,584,000
capital Cost of Sales 3,825,000
Salary (12,000) (12,000) (12,000) (36,000) Gross Profit 759,000
20% : 40% : 40% 139,420 264,540 304,040 708,000 Interest Revenue (Schedule I) 328,320
Income before Income Taxes P 1,087,320

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Schedule I 15. B
Computation of Interest Revenue on Unearned franchise fee 36,000
Installment Sale Contract Franchise fee revenue 36,000
Cash selling price (sales) P 4,584,000 16. A
Payment made on January 1, 20x3 936,000 Cash 6,000
Balance outstanding at 12/31/x3 3,648,000 Notes receivable 30,000
Interest rate 9% Franchise fee revenue 36,000
Interest Revenue P 328,320
17. A - same with No. 16
12. A - P2,040,000 - (P 1,000,000 + P 1,000,000) = P40,000. 18. B Combined cost of sales P 160,000
13. A - Admission by purchase, The implied value of the company is P900,000 Less: Intercompany sales revenue 110,000
(P270,000/30%). Since the money is going to the partners rather than into the Add: Unrealized profit taken out of inventory
business, the capital total is P490,000, before realigning the balances. Hence, (75%) x (35,000) = 26,250
goodwill of P410,000 must be recognized based on the implied value (P900,000 - Consolidated cost of sales P 76,250
P490,000). This goodwill is assumed to represent unrealized business gains and is
attributed to the original partners according to their profit and loss ratio. They will 19. D
then each convey 30 percent ownership of the P900,000 partnership to Darrow for Cost method: P40,000 x 70% = P28,000,dividend income
a capital balance of P270,000. Equity Method: (P115,000 x 70%) - P26,250 = P54,250, equity in subsidiary income

14. D 20. D
Sales (P100,000 - P33,000 + P50,000)……………………………………….. P117,000 If 10,000 shares were issued with a P5 par value, then the APIC would P78,850 (c)
Less: Cost of goods sold: (c)
Inventory, beg. [P15,000 + (P5,500/110%) or (P5,500 - P500)] P20,000 Unadjusted assets (P10,500 + P15,900 + P42,000 + P60,000)…….. P 128,400
Add: Purchases (P50,000 + P7,000)…………………………………… 57,000 Add (deduct): adjustments:
COGAS……………………………………………………………………………… P77,000 Allowances for doubtful accounts………………………………………. ( 1,200)
Less: Inventory, end [P11,000 + P1,050 + Short-term prepayments……………………………………………………. 800
(P6,000 - P1,050)/110%]…………………………………………. 16,550 60,450 Revaluation of inventory (P48,000 - P42,000)…………………….. 6,000
Gross profit…………………………………………………………………………….. P 56,550 Revaluation of equipment (P72,000 - P60,000)…………………… 12,000
Less: Expenses (P20,000 + P6,000 + P5,000)…………………………….. 31,000 Adjusted asset balance………………………………………………………………..P146,000
Combined Net income…………………………………………………………… .. P 25,550 Less: Liabilities (P16,400 + P750)…………………………………………………. 17,150
Adjusted net assets………………………………………………………………………P128,850
Less: Common stock, P5 par x 10,000 shares……………………………….. 50,000
Additional paid-in capital……………………………………………………………… P 78,850

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21. B 26. A
Home Office Books Branch Books Installment Sales Method:
(Branch Current- (Home Office Current- 20x3 Sales: P240,000 x 25/125 P 48,000
Dr. balance) Cr. balance) 20x4 Sales: P180,000 x 28/128 39,375
Unadjusted balance P590,000 P506,700 Realized Gross Profit on Installment Sales P 87,375
Add (deduct) adjustments: Cost Recovery Method:
Remittance (40,000) 20x3 Cost: P480,000/ 1.25 P 384,000
Returns (15,000) Less: Collections in 20x3 140,000
Error by the branch 300 Collections in 20x4 240,000
Expenses - branch 28,000 Unrecovered Cost, 12/31/20x4 P 4,000
Adjusted balance P535,000 P535,000
Under the cost recovery method, no income is recognized on a sale until the cost
22. B of the item sold is recovered through cash receipts. All cash receipts, both interest
P(12,500,000) = P10,000,000 - (P1,500,000 + P35,000,000 + P2,000,000 + and principal portions are applied first to the cost of the items sold. Then, all
P10,000,000 + P4,000,000 - P30,000,000). subsequent receipts are reported as revenue. Because all costs have been
recovered, the recognized revenue after the cost recovery represents income
23. C (interest and realized gross profit). This method is used only when the
The correcting entry, within the measurement period is: circumstances surrounding a sale are so uncertain that earlier recognition is
Goodwill 2,000,000 impossible.
Patents 2,000,000
27. a or c
24. A Combined equipment amounts P 1,050,000
The correcting entry, is: Less: Gain on sale 25,000
Gain on acquisition 2,000,000 Consolidated equipment balance P 1,025,000
Liabilities 2,000,000
Combined Accumulated Depreciation P 250,000
25. D Less: Depreciation on gain 5,000
Consolidated Accumulated Depreciation P 245,000

28. C - P251,000 = .20[(P956,000 + P239,000) + (P190,000 - P5,000 - P125,000)]

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29. C 31. D
Trade-in allowance P43,200 Materials: P 5,000 + P 300…………………………………………………. P 5,300
Less: MV of trade-in allowance: Direct labor……………………………………………………………………….. 14,000
Estimated resale price after reconditioning costs P36,000 Applied factory overhead (150% x P14,000)……………………… 21,000
Less: Reconditioning costs 1,800 P40,300
Normal profit (15% x P36,000) 5,400 28,800 Since, the allowance for rework was included in the manufacturing overhead
Over-allowance P14,400 budget, therefore, the rework cost should be charged to factory overhead
control.
Installment sales P122,400
Less: Over-allowance 14,400 32. A - the total maintenance cost is determined by adding overhead costs
Adjusted Installment Sales P108,000 incurred in the Maintenance Department plus any share in the Utilities
Less: Cost of Installment Sales 86,400 Department because of services provided to the Utilities Department. Note:
Gross profit P 21,600 Service provided to (not “by”).
Gross profit rate: P21,600/P108,000 20%
Realized gross profit: 33. C - (P300,000 x ¼ = P75,000, ending inventory x (P300,000 -
Down payment P 7,200 P250,000)/P300,000 = P12,500.
Trade-in (at market value) 28,800
Installment collections: 34. D
(P108,000 - P28,800 - P7,200) / 10mos. X 3mos. 21,600 35. C
Total collections in 2008 P 57,600 The P5,000,000 are considered temporary restricted since it has a purpose
x: Gross profit rate 20% which have not yet been fulfilled.
Realized gross profit P 11,520
30. A The P2,000,000 principal which had to be retained (meaning to be held in
Job 102: perpetuity - permanent) is classified as permanently restricted, while the
Direct materials……………………………………………….. P 12,000 dividends is classified as temporary restricted because of purpose restriction
Direct labor…………………………………………………….. 2,000 but to no avail, amount is not given.
Overhead:
Machine Setup: P20,000/200 = P100 x 2……….. P 200 36. C
Inspection: P130,000/6,500 = P20 x 10…………. 200 MV of By-product Zest……………………………………………… P 5
Material Moves: P80,000/8,000 = P10 x 10…… 100 Less: Selling and administrative expense………………….. 2
Engineering: P50,000/1,000 = P50 x 50…………. 2,500 3,000 Operating profit……………………………………………….. 1
Production/Manufacturing Costs………………………….. P 17,000 Share in Joint Cost per unit……………………………………….. P 2
Divided by: Units completed………………………………… 50 x: Units produced………………………………………………………. 1,000
Cost per unit under ABC……………………………………….. P 340 Share in joint cost……………………………………………………… P 2,000

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37. A 41. C
Hyp. MV Jt. Costs P4.00 x AQ) - (2,100 x P4.00) = P500 U
Pep: 5,000 x (P 50-P 10)= P 200,000 x 50% = P 100,000 AQ = 2,225
Vim: 4,000 x (P 40-P 5) = 140,000
P 340,000 P 170,000* 42. D
Joint Costs…………………………………………………………………. P172,000 Since both contributions can be utilized (purpose can be fulfilled) within the
Less: Joint costs allocated to By-product……………………. 2,000 current year (before the cut off date, 12/31/2005), then, both of them should
Joint costs to joint products………………………………………. P170,000 also be reclassified as Unrestricted Net Assets.
43. C
Sales of Pep: (P50 x 5,000)…………………………………………. P250,000
Less: Cost of Sales: Raw-and-In-Process Finished Goods Cost of Goods Sold
Joint costs……………………………………P 100,000 320,000 320,000 320,000 1,011,200 1,011,200
Further processing cost………………. 50,000 150,000 704,000 4,000
Gross profit………………………………………………………………… P100,000
Conversion Cost 1,024,000 1,011,200 1,015,200
38. D 708,000 704,000 12,800*
39. B *P1,024,000/16,000 = P64 x (16,000-15,800) = P12,800.
Direct materials inventory, June 1, 2016……………… P 48,600 4,000 4,000
Add: Purchases……………………… 60,000
Direct materials available for use……………… P 108,600 44. B - refer to No. 43
Less: Direct materials inventory, June 30, 2016………. 51,000 45. C - [P50,000 - (P20,000 + P40,000) + P45,000] = P35,000
Direct materials used………………….. P 57,600 46. A - MPPV: (P25,200/6,000 - P4.20-P4 = P.20 unf) x 6,000 units = P1,200
Direct labor (9,900 hours x P5/hour)……………… 49,500 unfavorable
Applied factory overhead (9,900 hours x P2.5/hour)…… 24,750 47. B - MPuV: P.20 unfavorable x 7,100 units = P 1,420 unfavorable
Manufacturing cost……………………………. P 131,850 48. D
Add: Work-in-process, June 1, 2016…………………. 10,710 49. A
Total work placed in process………………. P 142,560 50. A
Less: Work-in-process, June 30, 2016……………………… 24,210 51. A
Cost of goods manufactured……………………………. P 118,350 52. C
53. C
40. A 54. A
Number of units = P33,600/16.00 = 2,100 55. B
[AH - (2,100 x 2)] x P2.60 = P2,080 U; AH = 5,000 56. C
57. B

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58. B
59. D
60. C
61. D
62. B
63. D
64. A
65. D
66. C
67. B
68. B
69. A
70. c

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