CRC-ACE REVIEW SCHOOL

The Professional CPA Review School

 735-9031 / 735-8901

PRACTICAL ACCOUNTING 2 OCTOBER 2007 BATCH

2nd PRE-BOARD EXAMS AUGUST 19, 2007 (Sun) 2:00-
4:30
INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for
each item by writing a VERTICAL LINE corresponding to the letter of your choice on the answer sheet
provided. STRICTLY NO ERASURES ALLOWED. Use Pencil No. 1 or No. 2 only.

Use the following information in answering questions 1 and 2

The income statement of Vita Plus Partnership for the year ended December 31, 2007 appear below:

Vita Plus Partnership

Income Statement
For the year ended December 31, 2007
Sales P300,000
Less: Cost of Goods Sold 190,000
Gross Profit P110,000
Less: Operating Expenses 30,000
Net Income P 80,000

Additional Information:
1. Melon and Dalandan began the year with capital balances of P40,800 and P112,000, respectively.
2. On April 1, Melon invested an additional P15,000 into the partnership and on August 1, Dalandan
invested an additional P20,000 into the partnership.
3. Throughout 2007, each partner withdrew P400 per week in anticipation of partnership net income.
The partners agreed that these withdrawals are not to be included in the computation of average capital
balances for purposes of income distribution.

Melon and Dalandan have agreed to distribute partnership net income according to the following plan:
MELON DALANDAN
1. Interest on average capital balances 6% 6%
2. Bonus of net income before the bonus but after interest
on average capital balances 10%
3. Salaries P25,000
P30,000
4. Residual (if positive) 70% 30%
5. Residual (if negative) 50% 50%

1. The share of Melon and Dalandan on the net income, respectively is:
a. P40,473 and P39,527 c. P40,342 and P39,658
b. P40,282 and P39,718 d. P38,935 and P41,065

2. The ending capital balance of Dalandan is:

a. P152,328 b. P150,727 c. P150,918 d. P150,858

Use the following information in answering questions 3 and 4

On January 2, 2007, P Company purchased 1,500 shares of the outstanding common stock of S Company
for P140,000 and additional payment of. P4,000 indirect cost and P5,000 direct cost. On that date, the
assets and liabilities of S Company had fair market values as indicated below. Balance sheets of the
companies on January 2, 2007, after acquisition are as follows:

P Company S Company
Book Value Fair value
Cash P 80,000 P 14,000 P 14,000
Accounts Receivable 56,000 28,000 28,000
Inventory 56,000 22,000 28,000
Land 28,000 54,000 60,000
Building, net 163,000 72,000 98,000
CRC-ACE/PA2_2nd Preboard October 2007 Page 2 of 10

Equipment, net 224,000 56,000 39,000

Investments in S Company 149,000
P 756,000 P 246,000

Accounts Payable P 42,000 16,000 16,000

8% Bonds Payable 62,000 52,000
Common Stock – P Company, P40 par 320,000
Common Stock – S Company, P25 par 50,000
Additional Paid-In Capital – P Company 100,000
Additional Paid-In Capital – S Company 56,000
Retained Earnings – P Company 294,000
Retained Earnings – S Company 62,000
P 756,000 P 246,000

3. As a result of business combination, the amount of total net assets is

a. P714,250 b.P764,000 c.P718,250 d.P768,000
4. The Retained earnings balance is
a. P294,000 b.P356,000 c. P294,250 d. P290,000

5. A statement of the capital accounts of Roel and Bless follows:

ROEL BLESS
Balance, January 1 P 72,000 P 96,000
Add: Additional Investments, July 1 32,000 16,000
Net Income for the Year:
Salaries 12,000 14,400
Interest on Capital 5,280 6,240
Remainder 10,362 8,478
Totals P131,642 P141,118
Deduct Drawings:
Monthly Amounts P 9,600 P 10,800
Additional Drawings, Dec. 31 2,042 318
P 11,642 P 11,118
Balance, December 31 P120,000 P130,000

If the net income remains the same the following year, and if there is neither a change in the partnership
agreement nor any additional investments, how much more or less will Roel’s total share of the net
income be than it was this year?
a. More by P6.00 b. Less by P6.00 c. P27,648 d. P29,112

6. Partner’s Rachel, Cecil, and Arlene share profits and losses 5:3:2, respectively, and their balance sheet
on October 31, 2007 follows:
Cash P 240,000 Accounts Payable P 600,000
Other Assets 2,160,000 Rachel, Capital 444,000
Cecil, Capital 780,000
Arlene, Capital 576,000
P 2,400,000 P 2,400,000
The assets and liabilities are recorded at their current fair value. Lark is to be admitted as a new partner
with
a 1/5 interest in capital and earnings. Rachel was credited a bonus of P15,000. How much should Lark
contribute?
a. P456,000 b. P450,000 c. P480,000 d. P487,500

Use the following information in answering questions 7 and 8

S Co. had net income of P400,000 and paid dividends of P200,000 during the year 2007. S Co.’s
stockholders’ equity on December 31, 2006 and December 31, 2007 is summarized as follows:
Dec. 31,2006 Dec. 31, 2007
10% cumulative preferred stock, P100 par P 300,000 P 300,000
Common stock, P1 par 1,000,000 1,000,000
Additional paid-in capital 2,200,000 2,200,000
Retained earnings 500,000 700,000
Stockholders’ Equity P4,000,000 P4,200,000
CRC-ACE/PA2_2nd Preboard October 2007 Page 3 of 10

On January 2, 2007, P Co. purchased 400,000 common shares of S Co. at P4 per share and also paid
P50,000 direct cost of acquiring the investment. P uses equity method in accounting for its investment in
S.
7. P Co.’s income from Shine for 2007 should be:
a. P160,000 b. P155,000 c. P148,000 d. P143,750
8. The balance of the investment in Shine account at December 31, 2007 should be:
a. P1,725,750 b. P1,730,000 c. P1,650,000 d. P1,742,750
Use the following information in answering questions 9 and 10
Parent Company sells land with a book value of P5,000 to Subsidiary Company for P6,000 in 2004.
Subsidiary Company holds the land during 2005. Subsidiary Company sells the land for P8,000 to an
outside entity in 2006.
9. In 2004 the unrealized gain:
a. To be eliminated is affected by the minority interest percentage.
b. Is initially included in the subsidiary’s accounts and must be eliminated from Parent Company’s
income from Subsidiary Company under the equity method.
c. Is eliminated from consolidated net income by a working paper entry that includes a credit to the land
account for P1,000
d. Is eliminated from consolidated net income by a working paper entry that includes a credit to the land
account for P6,000.

10. Which of the following statements is true?.

a. Under the equity method, Parent Company’s investment in Subsidiary account will be P1,000 less
than its underlying equity in Subsidiary throughout 2005.
b. No working paper adjustments for the land are required in 2005 in Parent Company has applied the
equity method correctly
c. A working paper entry debiting gain on sale of land and crediting land will be required each year
until the land is sold outside the consolidated entity.
d. In 2006, the year of Subsidiary’s sale to an outside entity, the working paper adjustment for the land
will include a debit to gain on sale of land for P2,000.

Use the following information in answering questions 11 and 12

Perry Corporation sold machinery to its 80 percent-owned subsidiary, Samuel Corporation, for P100,000
on December 31, 2006. The cost of the machinery to Perry was P80,000, the book value at the time of
sale was P60,000, and the machinery had a remaining useful life of five years (Perry uses equity in
accounting for its investment in Samuel).
11. How will the intercompany sale affect Perry’s income from Samuel and Perry’s net income for
2006?
Perry’s Income Perry’s Perry’s Income Perry’s
from Samuel Net Income from Samuel Net Income
a. No effect No effect c. Decreased No effect
b. Increased No effect d. Decreased Decreased
12. How will the consolidated assets & consolidated net income for 2006 be affected by the
intercompany sale?
Consolidated Consolidated Net Consolidated Net Consolidated Net
Net Assets Income Assets Income
a. No effect Decreased c. Increased No effect
b. Decreased Decreased d. No effect No effect

Use the following information in answering questions 13 and 14

Punk Corp. manufactures and sells heavy industrial equipment. On July 1, 2006 Punk sold equipment
that it manufactured at a cost of P300,000 to its 100 percent owned subsidiary, Sunk Company, for
P400,000. Sunk is depreciating the equipment over a five-year period using the straight-line method.
13. The equipment and accumulated depreciation that appear in the consolidated balance sheet for Punk and
subsidiary at December 31, 2006 will include amounts related to this transaction of:
a. P300,000 and P30,000 c. P400,000 and P40,000
b. P300,000 and P60,000 d. P400,000 and P80,000
14. If Punk account for its investment in Sunk as a one-line consolidation, working paper entries to
consolidate the financial statements of Punk and Sunk for 2006 will include which of the entries:

a. Sales P100,000 c. Sales P400,000

CRC-ACE/PA2_2nd Preboard October 2007 Page 4 of 10

Cost of Sales P100,000 Cost of Sales P300,000

b. Sales P100,000 Equipment P100,000
Investment in S P100,000 d. Sales P400,000
Cost of Sales P400,000

15. The following selected accounts appeared in the trial balance of Genius Sales as of December 31, 2007:
Installment receivable-2006 sales P 6,000 Repossessions P 1,200
Installment receivable-2007 sales 80,000 Installment sales 170,000
Inventory, December 31, 2006 28,000 Regular sales 154,000
Purchases 222,000 Deferred gross profit – 2006 21,600
Operating Expenses 46,000

Additional information:
Installment receivable – 2006 sales, December 31, 2006 P 57,100
Inventory of new and repossessed merchandise as of December 31, 2007 38,000
Gross Profit percentage on installment sales in 2006 is 10% higher than the gross profit percentage on
regular sales in 2007
Repossession was made during the year and was recorded correctly. It was a 2006 sales and the
corresponding uncollected account at the time of repossession was P3,100.

Net Income for 2007 is

a. P54,180 b. P6,740 c. P52,940 d. P53,600

16. On January 1, 2007, M Products Corp. issues 12,000 shares of its P10 par stock to acquire the net
assets of L Steel Company. Underlying book value and fair value information for the balance sheet
of L Steel Company at the time of acquisition are as follows:
Balance sheet Items Book value Fair value
Cash P60,000 P60,000
Accounts receivable 100,000 100,000
Inventory 60,000 115,000
Land 50,000 70,000
Building and Equipment 400,000 350,000
Less: Accumulated Depreciation (150,000)
Total Assets P520,000

Accounts payable P10,000 10,000

Bonds payable 200,000 180,000
Common stock (P5 par value) 150,000
Additional paid-in capital 70,000
Retained earnings 90,000
Total Liabilities and Capital P520,000
L Steel shares were selling at P18 and M Product shares were selling at P50 just before the merger
announcement. Additional cash payments made by M Corporation in completing the acquisition were:
Finder’s fee paid to firm that located L Steel P10,000
Audit fee for stock issued by M Products 3,000
Stock registration fee for new shares of M Products 5,000
Legal fees paid to assist in transfer of net assets 9,000
Cost of SEC registration of M Products shares 1,000
How much is the increase in the total assets to be recorded by M Products?
a. P809,000 b. P591,000 c. P781,000 d. P667,000
17. I Inc., K Inc., and E Inc. agreed to a business combination that meets all the requirements for purchase of
interests. Their condensed balance sheets before combination show:
I K E
Assets P7,000,000 P875,000 P9,625,000
Liabilities P4,987,500 P306,250 P2,625,000
Capital stock, par P100 2,625,000 437,500 1,750,000
Additional paid in capital 218,750 700,000
Retained earnings (deficit) (612,500) ( 87,500) 4,550,000
P7,000,000 P875,000 P9,625,000
CRC-ACE/PA2_2nd Preboard October 2007 Page 5 of 10

It was agreed that I Inc. will be the continuing entity and shall issue 4,375 shares to K and 52,500 shares
to E. To what extent will the stockholders equity of I increase after the combination?
a. P7,568,750 b. P2,187,000 c. P5,687,500 d. P875,000
18. On July 2007, Jonathan Company sold P2,400,000 real estate that had a cost P1,440,000, receiving
P350,000 cash and mortgage note for the balance payable in monthly installments. Installment received
in 2008 reduced the principal of the note to a balance of P2,000,000. The buyer defaulted on the note at
the beginning of 2009, and the property was repossessed. The property had an appraised value of
P1,150,000 at the time of repossession. Compute the gain (loss) on repossession, assuming that:
Profit is recognized when the sale is made Gross profit is recognized in proportion to
(point of sale) periodic collection
a. P(850,000) P(450,000)
b. (850,000) (50,000)
c. 850,000 (450,000)
d. (50,000) 50,000
19. Abogado Company uses the installment method of reporting for accounting purposes. The following data
were obtained.
2004 2005 2006
Installment sales P600,000 P810,000 P990,000
Cost of installment sales _420,000 _486,000 _643,500
Gross profit P180,000 P324,000 P346,500
Installment contract receivables, December 31:
2004 2005 2006
2004 sales P360,000 P270,000 P120,000
2005 sales 600,000 390,000
2006 sales 780,000
In 2006, one of the customers defaulted in his payment and the company repossessed the merchandise
with an estimated market value of P30,000. The sales was in 2004 and the unpaid balance on the date
of repossession was P45,000.
Compute for 2006 (1) the gain (loss) on repossession; (2) total realized gross profit, and (3) the
deferred gross profit.
(1) (2) (3)
a. P P 189,000 P 451,500
(1,500)
b. 750 129,000 465,000
c. (1,500) 189,000 465,000
d. 1,500 73,500 273,000
20. Lea Mae Stores sell appliances for cash and also on the installment plan. Entries to record cost of
sales are made monthly. The following information appears on the trial balance of the company as of
December 31, 2007.
Cash P153,000
Installment Accounts Receivable, 2006 48,000
Installment Accounts Receivable, 2007 91,000
Inventory – New Merchandise 123,200
Inventory – Repossessed Merchandise 24,000
Accounts Payable P98,500
Deferred Gross Profit, 2006 45,600
Capital Stock 170,000
Retained Earnings 93,900
Sales 343,000
Installment Sales 200,000
Cost of Sales 255,000
Cost of Installment Sales 128,000
Gain or Loss on Repossession 800
Selling and Administrative Expenses _128,000 _______
P951,000 P951,000
The accounting department has prepared the following analysis of cash receipts for the year:
Cash sales (including repossessed merchandise) P424,000
Installment accounts receivable, 2006 104,000
Installment accounts receivable, 2007 109,000
Other 36,000
CRC-ACE/PA2_2nd Preboard October 2007 Page 6 of 10

Total P673,000
Repossessions recorded during the year are summarized as follows:
2006
Uncollected balance P8,000
Loss on repossession 800
Repossessed merchandise 4,800
How much must be the total realized gross profit net of loss from repossession in 2007?
a. P161,710 b. P157,640 c. P158,440 d. P73,710
21. Lily, Susan, and Yen agreed to invite Lucy to join the partnership. Lucy was presently working as a
marketing specialist of a dynamic firm and presently receiving a salary of P35,000 per month. In order to
encourage Lucy to join the partnership, the partners agreed to the following profit distribution:
1) 12% interest on contributed capital is to be given to each partner.
2) Salaries of P20,000, P30,000, P40,000, and P35,000 per month is to be given to Lily, Susan, Yen,
and Lucy respectively.
3) Lucy is to receive a minimum guaranteed share equal to her present salary and interest on her
capital.
4) Lily is to receive an aggregate share of P300,000 per year.
5) Balance of profits is to be distributed in the ratio of 2:2:3:3 between Lily, Susan, Yen, and Lucy
respectively.
The partners’ capital contributions are: Lily, P200,000; Susan, P150,000; and Yen, P100,000. Lucy is
willing to invest sufficient cash so that her capital interest in the partnership net assets will give her a ¼
interest.
How much must the partnership earned during the year so that Lily will receive the agreed aggregate
amount and Lucy to receive at least the minimum guaranteed share?
a. P1,752,000 b. P1,698,000 c. P1,477,000 d. P1,521,000

Use the following information in answering questions 22 and 23

On Jan. 1, 2003, PI Co. acquired 75 percent of outstanding shares of SU Co. at book value. For the
year 2005, PI Co. purchased merchandise from SU Co. while S also purchased merchandise from PI
Co. Data regarding intercompany sales, inventories and profit percentages are as follows:
PI Co. SU Co.
Intercompany sales P200,000 P75,000
Intercompany inventories:
January 1, 2005 20,000 10,000
December 31, 2005 15,000 20,000
Gross profit percentages on intercompany
As a percentage of selling price 60% 50%
On July 1, 2005, Su Co. sold equipment to PI Co. at a gain of P20,000. This equipment is estimated to
have a useful life of five years from the date of sale.
Income statements for the two companies exclusive of the recording of Equity in Earnings –
Subsidiary for year 2005 are as follows:
PI Co. SU Co.
Sales P 1,500,000 P 400,000
Cost of sales 600,000 200,000
Expenses 300,00 100,000
Gain on sale of equipment . 20,000
P 600,000 P 120,000

22. The consolidated cost of sales is:

a. P800,000 b. P528,500 c. P521,500 d. P527,000
23. The income from investment using equity method:
a. P72,375 b. P71,542 c. P72,750 d. P75,750

24. PC Corp. owns 70 percent pf SO Co.’s common stock acquired January 1, 2004. Total amortization of
excess from the investment is at a rate of P20,000 per year. SO regularly sells merchandise to PC at 150
percent of SO’s cost. PC’s December 31, 2004 and 2005 inventories include goods purchased
intercompany of P112,500 and P33,000, respectively. The separate incomes (*do not include investment
income) of PC and SO for 2005 are summarized as follows:
PC SO
Sales P 1,200,000 P 800,000
CRC-ACE/PA2_2nd Preboard October 2007 Page 7 of 10

Cost of sales (600,000) (500,000)

Other expenses (400,000) (100,000)
Separate income P 200,000 P P200,000
Total consolidated income should be allocated to Retained Earnings and minority interest income in
the amounts of:
a. P344,550 and P61,950, respectively c. P406,500 and P61,950, respectively
b. P358,550 and P60,000, respectively d. P338,550 and P67,950, respectively
25. Mystic, Inc. was involved in two default and repossession cases during the year:
(i.) A refrigerator was sold to Mary More for P19,000. Including a 35% markup on selling
price. More paid a down payment of 20%, four of the remaining 10 equal payments, and
then defaulted on further payments. The refrigerator was repossessed, at which time the
fair value was determined to be P8,000.
(ii.) An oven that cost P12,000 was sold to Panadero, Inc. for P16,000 on the installment
basis. Panadero made a downpayment of P2,400 and paid P800 a month for 6 months,
after which it defaulted. The oven was repossessed and the estimated value at the time of
repossession was determined to be P7,500.

Determine the gain/(loss) on repossession that Mystic must report in its financial statement.
a. P2,972 b. P4,100 c. P4,880 d. (P2,420)
26. The Felix Contracting Co. uses the percentage of completion method of recognizing profit. Data for a
recently awarded project is given below:
Contract price P80,000,000
2006 2007 2008
Estimated costs per year P20,100,000 P30,150,000 P16,750,000
Progress billings per year 10,000,000 25,000,000 45,000,000
Cash collections 8,000,000 23,000,000 49,000,000
Using the data provided above, calculate Felix’s gross profit for 2007. Assume that the estimated
costs were actually incurred during the year.
a. P5,850,000 b. P3,900,000 c. P3,250,000 d. P9,750,000

27. The Marvin Co. as a receivable from a foreign customer that is payable in the local currency of the
foreign customer. The amount receivable for 900,000 local currency units (LCU) has been restated into
P315,000 on Marvin’s Dec. 20X5, balance sheet. On Jan. 15, 20X6, the receivable was collected in full
and converted when the exchange rate was 3 LCU to P1. What journal entry should Marvin make to
record the collection of this receivable?
a. Cash 300,000
Accounts receivable 300,000

b. Cash 300,000
Transaction loss 15,000
Accounts receivable 315,000

c. Cash 300,000
Deferred transaction loss 15,000
Accounts receivable 315,000

d. Cash 315,000
Accounts receivable 315,000
28. On Nov. 15, 20X8, Celt, Inc. a Philippine company, ordered merchandise FOB shipping point from a
German company for 200,000 marks. The merchandise was shipped and invoiced to Celt on Dec. 10,
20X8. Celt paid the invoice on Jan. 10, 20X9. The spot rates for marks on the respective dates are as
follows:
Nov. 15, 20X8 P.4955
Dec. 10, 20X8 .4875
Dec. 31, 20X8 .4675
Jan. 10, 20X9 .4475
In Celt’s Dec. 31, 20X8 income statement, the foreign exchange gain is:
a. P9,600 b. P8,000 c. P4,000 d. P1,600
CRC-ACE/PA2_2nd Preboard October 2007 Page 8 of 10

29. On April 1, 2007, Onawaki entered into franchise agreement with Lhyve 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 2007. Onawaki signs 12% interest bearing 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 in the contract at a cost of
P1,350,000 and incurred indirect costs of P232,500. The franchise commenced business operations on
September 3, 2007. 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 collectibility of the note is reasonably assured. How much is the income earned from the
franchise agreement.
a. P2,868,750 b. P2,936,225 c. P2,895,350 d. P3,168,725

30. Shore Co. records its transactions in US Dollar. A sale of goods resulted in a receivable denominated in
Japanese yen, and a purchase of goods resulted in a payable denominated in French francs. Shore
recorded a foreign exchange gain on collection of the receivable and an exchange loss on settlement of
the payable. The exchange rates are expressed as so many units of foreign currency to one dollar. Did the
number of foreign currency units exchangeable for a dollar increase or decrease between the contract and
settlement dates?
Yen Exchangeable for US$1 Francs exchangeable for US$1
a. Increase Increase
b. Decrease Decrease
c. Decrease Increase
d. Increase Decrease
31. Candido Co. entered into a contract to build a small bridge for Guagua. The contract price for the bridge
was P7,500,000 and Candido estimated a total costs of P6,900,000 in 2006. The company incurred
P2,300,000 of cost during 2006. By the end of 2007 it was apparent that Candido had underestimated the
real costs. The estimated total cost of project skyrocketed to P7,800,000. Construction cost incurred in
2007 totaled P4,000,000. The project was completed in 2008 at a final cost of P7,800,000. No progress
billing were made under the contract and no cash was selected by the end of 2008.
The amount of gross profit (loss) that must be recognized in 2007 must be:
a. P300,000 loss b. P200,000 profit c. P500,000 loss d. P100,000 loss

32. The following information pertains to a river-control project of Rainy Construction Inc. in Tabuk,
Kalinga which was commenced in 2006 and completed the following the year:
Cost incurred to-date
at June 30, 2006 P9,750,000
at June 30, 2007 15,750,000
Estimated total cost at completion
at June 30, 2006 19,500,000
at June 30, 2007 20,250,000
The project is a P22,500,000 fixed-price construction contract and Rainy uses the percentage-of-
completion method of accounting. What is the income reported by Rainy on its Kalinga project on June
30, 2007?
a. P750,000 b. P1,500,000 c. P1,750,000 d. P250,000

33. REH Company

Trial Balance as of January 1, 2006
DR CR
Ordinary shares – 30,000 fully shares 30,000
Retained Earnings 50,000
Equipment 42,000
Accumulated Depreciation 12,000
Inventory 20,000
Accounts Receivable 10,000
Patents 15,000
Accounts Payable 8,000
Cash 13,000
100,000 100,000
CRC-ACE/PA2_2nd Preboard October 2007 Page 9 of 10

At this date REH is acquired by BNC with REH going into liquidation
 Ordinary shareholders of REH Company are to receive 2 fully paid ordinary shares in BNC for
every share held or alternatively P2.50 in cash payable half at the exchange date and half in one
year thereafter.
 Accounts Payable and cost of liquidation amounting to P5,000 were paid by REH prior to
turnover to BNC.
 5,000 ordinary shares elect to receive cash
 BNC shares are selling at P1.10
 The incremental borrowing rate of BNC is 10% per annum.

What is the cost of combination?

a. P66,931 b. P67,500 c.P66,000 d.P61,931

Use the following information in answering questions 34 and 35

The following balance sheets were prepared for Avril Corp. and Blink Co. on January 1, 2007, just
before they entered into a business combination.

Avril Corp. Blink Co

Cash P 210,000 P 5,000
Accounts Receivable 75,000 20,000
Merchandise Inventory 200,000 50,000
Building and Equipment 400,000 100,000
Accumulated Depreciation (100,000) (25,000)
Goodwill 50,000
Total Assets P 785,000 P 200,000

Accounts Payable P 125,000 P 70,000

Bonds Payable 200,000 30,000
Common Stock
P30 par value 210,000
P20 par value 50,000
Additional paid-in capital 50,000 10,000
Retained Earnings 200,000 40,000
Total Liabilities & Stockholders’ P 785,000 P 200,000
Equity

On that date, the fair market value of Blink’s inventories and building and equipment were P78,000 and
P124,000 respectively, while bonds payable has a fair value of P42,000. The fair values of all other asset
and liabilities of Blink (except for goodwill) were equal to their book values. Avril Corp. acquired the
net assets of Blink Co. by issuing 2,500 shares of its P30 par value common stock (current fair value P36
per share) and purchase price in cash amounting to P12,000. Contingent consideration that is
determinable (probable and reasonably estimated) amounted to P2,000 (discounted value). Additional
cash payment made by Avril Corp. in completing the acquisition were: Legal fee for contract of business
combination, P8,000; Accounting and legal fees for SEC registration, P11,000; Printing costs of stock
certificates, P6,000; Finder’s fee, P7,000; Indiret cost, P5,000.

34. As a result of the business combination, the amount of total assets in the books of Avril Company.
a. P1,016,000 b. P963,000 c. P967,000 d. P1,1012,000

35. As a result of the business combination, the amount of retained earnings in the books of Avril Company.
a. P195,000 b.P193,000 c. P200,000 d.P240,000

36. On January 1, 2007, ABC Corporation purchased 75% of the common stock of XYZ Company. Separate
balance sheet data for the companies at the combination date are given below:

ABC XYZ
Cash P 84,000 P 721,000
Trade Receivable 504,000 91,000
Merchandise Inventory 462,000 133,000
Land 273,000 112,000
CRC-ACE/PA2_2nd Preboard October 2007 Page 10 of 10

Plant assets 2,450,000 1,050,000

Accumulated Depreciation (840,000) (210,000)
Investment in XYZ 1,372,000
Total Assets 4,305,000 P 1,897,000

Accounts Payable P 721,000 P 497,000

Capital Stock 2,800,000 1,050,000
Retained Earnings 784,000 350,000
Total Equities 4,305,000 P 1,897,000

On the date of combination the book values of XYZ’s net assets was equal to the fair value of the net
assets except for XYZ’s 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. P3,533,250 b. P4,984,000 c. P6,543,250 d. P5,171,250

- End Examination –

PRACTICAL ACCOUNTING 2

1 A 11 C 21 A 31 C
2 B 12 B 22 B 32 D
3 B 13 A 23 A 33 A
4 C 14 C 24 A 34 C
5 B 15 C 25 A 35 B
6 D 16 C 26 A 36 D
7 C 17 A 27 B
8 B 18 A 28 C
9 C 19 C 29 B
10 A 20 B 30 B
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