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Solutions Manual

1. B 6. C 10-2. C 15. D 20. D 24-2. D 29. C 34.B 39.B


2. A 7. A 11. B 16. D 21. A 25. D 30. B 35.B 40.C
3. C 8. A 12. A 17. C 22. B 26. C 31. D 36.D 41.C
4. B 9. D 13. A 18. B 23. C 27. B 32. C 37.B 42.C
5. D 10-1. C 14. A 19. C 24-1. A 28. A 33.C 38.C 43.B

Problem 1 (Partnership Formation) Ans: B CC GV


Unadjusted Capital 4,398,055 4,646,292
PPE (half of carrying value) (2,352,042) (1,389,168)
AR (uncollectible) (205,000) (798,600)
Goodwill of GV - (844,810)
Capital balances before CC’s withdrawal of cash 1,841,013 1,613,714
CC’s withdrawal of cash (227,229)
Adjusted Capital 1,613,714 1,613,714

Problem 2 (Partnership Liquidation)


Cash Non-cash Liabilities Master (40) Idol (40) Star (20)
Balances 36,000 100,000 17,000 69,000 (8,000) 58,000
Loss on Realization (100,000) (40,000) (40,000) (20,000)
Payment to outside
(17,000) (17,000)
creditors
Balances 19,000 - - 29,000 (48,000) 38,000
Investment by Idol 48,000 48,000
67,000 - - 29,000 - 38,000
Distribution of
(67,000) (29,000 (38,000)
remaining cash
- - - - - -

Ans: A: 48,000

Problem 3 (Partnership Operations) Ans. C

Paris France Total


Salaries P 16,000 P 10,500 P 26,500
Interest (12% of ave. capital)
Paris 63,000*12% 7,560 7,560
France 39,375*12% 4,725 4,725
Remainder (60:40) 12,279 8,486 21,215
Total 36,289 23,711 60,000

Problem 4 (Partnership Liquidation) Ans. B


Hermes Total
Capital balance P 65,900 Total capital balances P 282,750
Share in NI (72,000*30%) 21,600 Net Income 72,000
Balance 87,500 Balance 354,750
Share in Gain (squeeze) 11,250 Total Gain (11,250/30%) 37,500
Cash received 98,750 Cash paid to partners 392,250

Workback proceeds from sale:


Cash paid to partners P 392, 250
Cash paid to outside creditors 139,710
Cash, beginning balance (126,700)
Cash available for distribution 405,260
Cash withheld - unpaid creditors
35,250
(174,960 – 139,710)
Proceeds from sale P 440,510
Problem 5: Ans. D
Sales (P3,503,000 + 312,000 – 254,000) P 3,561,000
Cost of goods sold:
Inventory, Beg P 239,000
Purchases 2,828,000
(P2,814,000 + 212,000 – 198,000)
Inventory, End (278,000) (2,789,000)
Expenses* (521,000)
Net Income P 251,000

*Expenses computation:
Payments for expenses P 490,000
Prepaid expenses, beg. 21,000
Prepaid expenses, end (35,000)
Accrued expenses, beg (76,000)
Accrued expenses, end 98,000
Depreciation expense (76,000 – 53,000) 23,000
Accrual expenses P 521,000

Eric (40) Lydia (30) Ann (30)


Beginning balances P 277,600 P 208,200 P 208,200
Share in NI 100,400 75,300 75,300
283,500
Payment to Ann (90%) (255,150)
Bonus to remaining partners 16,200 12,150 28,350
Ending capital balances 394,200 295,650

Problem 6: Ans. C
Assets available to unsecured creditors P 70,000
Add: Unsecured creditors with priority (administrative expenses
12,000
P3,500; taxes: P6,000 and wages: P2,500)
Less: Assets not pledged to any liabilities (10,000)
Excess of assets pledged to Fully secured liabilities 72,000
Add: Payments to Fully secured creditors 68,000
Total assets pledged to Fully secured liabilities (1) P 140,000

Unsecured creditors (P70,000 / 35%) P 200,000


Less: Accounts payable and Notes payable (liabilities without priority) 100,000
Portion of Partially secured liabilities not covered by assets pledged for
100,000
partially secured liabilities
Add: Portion of Partially secured liabilities which is fully paid* 100,000
Partially secured liabilities (2) P 200,000

*payment to partially secured creditors: P100,000 + (P100,000*35%) = P135,000

Problem 7: Ans. A
Estimated gains on realization of assets P 1,450,000
Less: Estimated losses on realization of assets 2,500,000
Unrecorded/additional assets 1,300,000
Less: Unrecorded/additional liabilities 520,000
Stockholders’ Equity
Capital stock P 2,220,000
Less: Deficit 1,320,000 900,000
Estimated amount to be recovered by stockholders P 630,000

Pro-rate payment on the peso is: (P630,000/ P900,000) = P0.70


Problem 8: Ans. A
Tumblr(40) Twitter(25)
Capital balances...................................................................... (P 180,000) P 85,000
Share in profit after deduction for salary^ (P195,000*P&L%) 78,000 48,750
Cash payment ......................................................................... (102,000) 133,750

^Profit after deduction for salary: P209,500 + P10,850 – P252,350 = P195,000


^Salary of Googleplus = [(P209,500 + P10,850)/1.13]*13% = P25,350

Googleplus(35)
Unsold merchandise received.......................................... P 10,850
Cash payment (P315,000 – P133,750 + P102,000) 283,250
Total interest of Googleplus............................................. P 294,100

Problem 9: Ans. D
Joint Venture
Investment of Mdse P 234,000 P 360,000 Sales
Sales discount 1,875 22,500 Unsold Mdse
Sales returns 4,200 17,100 Unsold Mdse
Bad debts expense 9,675
(w/off)
Expenses 87,840
P 62,010 Net Income

Jennifer Beyonce
Investment of Merchandise.......................................... P 99,000 P 135,000
Interest
P99,000*6% *(3/12) ................................................ 1,485
P135,000*6% *(3/12)............................................... 2,025
Remainder (P62,010 – P12,402^ – P1,485 – P2,025)/3 15,366 15,366
Unsold Merchandise...................................................... (22,500) (17,100)
Cash received................................................................. P 93,351 P 135,291

Problem 10: Ans. C, C

Q10 – 1 Share in net income: (P150,000 – P25,000)*25% = P 31,250

Q10 – 2
Dividend Income (P85,000* 25%)............... P 21,250
Transaction Cost (P270,000* 1%)............... (2,700)
Change in fair value (P300,000^ - P270,000) 30,000
Profit under Fair Value method: ................ P 48,550
Less: Profit under Equity method: ............. 31,250
Difference................................................... P 17,300

Problem 11: Ans. B


Direct quotations:
Day 1.................... P0.08 = €1
Day 22.................. P0.0625 = €1

Foreign currency gain of X Trading: (P0.080 – P0.0625)*1,200,000 = P21,000gain


*no gain/loss on the part of Y company since from his viewpoint the transaction is both denominated and
measured in his local currency, euros.
Problem 12: Ans. A
April 20, 2012 (P68.45 – P67.48)* 180,000* 30% = P52,380 loss
May 5, 2012 (P68.45 – P68.63)* 180,000* 70% = P22,680 gain
Net gain/loss...................................................................... P 29,700 loss

Problem 13: Ans. A


Forward Contract Receivable (fixed): P0.55*400,400 = P220.200
Forward Contract Payable (moving): P0.50*400,400 = P200,200

Problem 14: Ans. A

1/1/2012 3/31/2012 Changes


Fair Value of put option P9,800 P11,400 1,600
Effective/Intrinsic
 (4.965 – 4.934)*65,000 2,015
 (4.965 – 4.908)*65,000 3,705 1,690
Ineffective/Time value 7,785 7,695 (90)

Problem 15: Ans. D


1/1/2012 3/31/2012 Changes
Fair Value of put option P9,800 P11,400 1,600
Effective/Intrinsic
 (4.925 – 4.934)*65,000 0
 (4.925 – 4.908)*65,000 1,105 1,105
Ineffective/Time value 9,800 10,295 495

Problem 16: Ans. D


Merchandise will only be presented on the financial statement upon actual purchase.

Problem 17: Ans. C


2010
Collections:
- 2010 (P1750,000 – P950,000) P800,000
- 2011 (P950,000 – P360,000) 590,000
- 2012 (P360,000 – P145,000) 215,000
Total collections: 1,605,000
Less: Cost of Instalment Sales (Sales / 1+GP rate) P1,250,000
Realized gross profit to date P355,000
Realized gross profit (breakdown):
140,000
- 2011
- 2012 P215,000

2011
Collections:
- 2011 (P2,275,000 – P1,706,250) P 568,750
- 2012 (P1,706,250– P287,500) 1,418,750
Total collections: 1,987,500
Less: Cost of Instalment Sales (Sales / 1+GP rate) P1,750,000
Realized gross profit to date P237,500
Realized gross profit (breakdown):
0
- 2011
- 2012 P237,500
Total RGP on 2012 (P215,000 + P237,500) = P452,500
Problem 18: Ans. B

b. Repossessed Merchandise (P99,000 – P9,000) 90,000


Loss on Repossession (given) 5,700
Deferred gross profit (P145,000*34%) 49,300
Instalment accounts receivable 145,000
(P90,000 + P5,700) / (100% - 34%)

Problem 19: Ans. C


Contract price P3,800,000
Less: Total costs incurred
3,496,000
(P684,000 + P1,254,000, + P1,558,000)
Total gross profit 304,000
Less: gross profit for 2010 (76,000)
Add: loss for 2012 38,000
Gross profit for 2011 P266,000
To get percentage of completion:
(RGP to date + Cost to date)
= Percentage of Completion
Contract price

(P76,000 + P266,000) +
(P684,000 + P1,254,000) = 60%
P3,800,000

To get estimated gross profit – 2011:


(RGP 2010 + RGP 2011)
= Estimated gross profit
Percentage of Completion

(P76,000 + P266,000)
= P570,000
60%

Problem 20: Ans. D


Cost to date
= Percentage of Completion
Total estimated cost*

P3,672,500
= 65% (2012)
(P3,672,500 + P1,977,500)*

Contract price P6,300,000


Less: Total estimated cost 5,650,000
Estimated gross profit 650,000
Multiply: Percentage of completion x 65%
Realized gross profit to date 422,500
Less: Realized gross profit – prior years^ (777,400)
Realized gross profit (loss) – current year P (354,900)

^2011:
Correct cost incurred to date
P2,990,000
(P3,040,000 – P50,000)
Correct cost to complete
2,010,000
(P1,960,000 + P50,000)
Total estimated cost, 2011 5,000,000

P2,990,000
= 59.80% (2011)
P5,000,000

Contract price P6,300,000


Less: Total estimated cost 5,000,000
Estimated gross profit 1,300,000
Multiply: Percentage of completion x 59.80%
Realized gross profit to date^ P 777,400
Problem 21: Ans. A
Since the period of refund has not yet lapsed, both the downpayment and the PV of the note are to be deferred.

Downpayment (P1,500,000 * 40%) P600,000


PV of note [(P1,500,000*60%) /3] * 2.4 720,000
Unearned franchise revenue P1,320,000

Problem 22: Ans. B

Correct branch net income (per HO books) P332,200


Branch net income (per Branch books) 100,000
Adjustment to Allowance for Overvaluation* 232,200*

 Mark-up percentage: P232,200/ (P425,700 - P232,200) = 120% above cost (or 220% of cost)
 Amount of ending inventory (EI):
Shipments from HO – EI = Cost of goods sold
X – 0.25X = P425,700
X = P567,600 (Shipments from HO)
0.25X = P141,900 (Ending Inventory)

 Cost of shipments from HO: (P567,600 / 220%) = P258,000

Billed price (220%) Cost (100%) Mark-up (120%)


Beginning inventory - - -
Shipments from home office P567,600 P258,000 P309,600
Ending inventory (141,900) (645,000) (77,400)
Cost of goods sold P425,700 P193,500 232,200*

Problem 23: Ans. C

Gross sales* P425,000 *computation for gross sales (x):


P270,400 + P14,200 + P10,000 + P25,000 + P57,500 =
Less: Sales discount 6,000
P377,100
Net sales 419,000
Less: cost of goods sold 57,500 X – P6,000 – 10%(X – P6,000) = P377,100
Gross profit 361,500 X – P6,000 – 10%X + P600 = P377,100
Less: Expenses: 25,000 90%X = P382,500
Paid expenses X = P425,000
Accrued expenses^ 41,900
Depreciation of equipment
10,000
(P100,000*20%* 6/12) *computation for accrued expenses:
Depreciation of samples Accrued expenses:(P425,000 – P6,000)*10% = P41,900
14,200
[(P21,600 – P300)/9]*6mos
Net income P270,400

Problem 24: 24-1. Ans: A ; 24-2. Ans: D


Sales P405,000
Less: Cost of goods sold 175,000
Expenses – allocated 115,000
Depreciation (P200,000/5)*6/12 20,000
Net income per branch books A P95,000
Add: Adjustment to Allowance for Overvaluation
30,000
(P100,000* 30%)
Adjusted Net income of the branch 125,000
Add: Net income of the home office 170,000
Combined net income of HO and branch D P295,000

Shipments to Branch at billed price P130,000


Purchases 125,000
Ending inventory (80,000)
Cost of goods sold* P175,000
Problem 25: Ans. D
Standard’s assets P5,000,000
Add: Goodwill 700,000
Add: Setter’s assets at fair value *3,100,000
Less: Cash payment 1,600,000
Total combined assets P7,200,000

Purchase price P1,600,00


Non-controlling interest
400,000
(P1.6M/80%)*20%
Cost of investment 2,000,000
Net assets at fair value (squeeze) 1,300,000
Goodwill P700,000

*Net assets of Setter @FV P1,300,000


Liabilities of Setter 1,800,000
Assets of Setter @FV P3,100,000

Problem 26: Ans. C


Purchase price P22M
Contingent consideration 1.5M
Cost of investment 23.5M
Less: Net assets of T&R Co. 29M
Income from acquisition P5.5M

Cash payment for contingent cons P10M


Less: Contingent consideration payable 1.5M
Loss on contingent consideration P8.5M

Effect on RE
Income from acquisition P5.5M
Loss on contingent consideration 8.5M
Net effect – LOSS P3.5M

Problem 27: Ans. B


Purchase price (45%) P900,000
Previously held securities
(P900,000/45%)*25% 500,000
Non-controlling interest
Fair value: P290,000
Proportionate share
- (Net assets*30%): P315,000 higher 315,000
Cost of investment P1,715,000
Less: Net assets at Fair value
- (P1,850,000 – P800,000) P1,050,000
Goodwill P665,000

Problem 28: Ans. A


C NI – Controlling C NI – Non-controlling
Net income of Parent P450,000 -
Net income of Subsidiary: P150,000
- 70% (3 months) 26,250 P 11,250
- 80% (9 months) 90,000 22,500
Amortization: P19,00
- 70% (3 months) (3,325) (1,425)
- 80% (9 months) (11,400) (2,850)
Intercompany dividend
(P75,000*80%) (60,000)
Total P491,525 P29,475
Problem 29.

Direct Cost 75000


Set-up (25*7500) 187500
Utilities (7.60*15000) 114000
No. of parts (20*550) 11000
Total Cost 387500
Cost per Unit (387500/25000) 15.50

Problem 30.

Direct materials 42500


Direct labor 65250
FOH 78300
Direct materials – rework 13550
Direct labor – rework 15250
FOH – rework 18300
Total cost 233150
Cost per unit (233150/450) 518.11

Problem 31.

Direct materials 450000


Direct labor 520000
OH (5.50*120000) 660000
Less: Disposal value (24000)
Total cost of good units 1606000

Problem 32.

AVERAGE Units Materials Conversion


Completed and Transf. 12000 12000 12000
WIP end 7000 7000 4200
Total 19000 19000 16200
Cost per EUP 2.78 (52750/19000) 3.71 (60025/16200)

FIFO Units Materials Conversion


WIP beg. 9500 - 2850
Started and Completed 2500 2500 2500
WIP end 7000 7000 4200
Total 19000 9500 9550
Cost per EUP 4.50 (42750/9500) 5.50 52525/9550)

Problem 33.

Units Materials Conversion


WIP beg. 15000 - 4500
Started and Completed 60000 60000 60000
WIP end 3000 3000 1500
Lost units 2000 2000 2000
Total 80000 65000 68000
Cost per EUP 1.20 (78000/65000) 1.25 (85000/68000)
Total current cost per EUP 2.45
Problem 34.

Cost of WIP beg, May 1, 2011 45000


Additional conversion cost (4500*1.25) 5625
Cost of started and completed units (60000*2.45) 147000
Cost of lost units (2000*2.45) 4900
Total cost of completed units 202525
Cost per unit (202525/75000) 2.70

Problem 35.

(Final selling price – Selling price at split-off) – Additional processing cost = Incremental profit
(3 – 1.50) – 2.50 = (1)

Problem 36.

Joint cost 105000


Less: NRV of by-product (4000*4) (16000)
Joint cost to be allocated to joint products 89000

Product NRV Share in the joint Addt’l processing TOTAL


cost cost
A 20000 35600 6000 41600
B 30000 53400 - -
Total 50000 89000 - -

Problem 37.

Let x = Fixed Overhead rate per machine hour

40000x = 42000x – 28500 14.25/60% = 23.75 total OH rate per machine hour
28500 = 2000x 23.75 * 40% = 9.50 Variable overhead rate per MH
x = 14.25 per machine hour

Problem 38.

Material price variance:


80000 * (5 – 4.75) = 20000 unfavorable

Material quantity variance:


4.75 * (70000 – 52500) = 83125 unfavorable

Problem 39. B

Problem 40. C

Problem 41. C

Problem 42. C

Problem 43. B
Problem 44.

Answer – letter A: 2.1 x 100,000 = P210,000;

90,000 x 2 = 180,000, therefore 210,000 – 180,000 = P30,000 increase

Problem 45.

Answer – letter C: .93 - .90 = .03 x 100,000 = 3,000 gain

Problem 46.

Answer – letter B: 3 million /2 = $1.5 million plant; .667 - .5 = .167 x 3 million = $0.5 million loss; 3
million x .667 = $2 million

Problem 47.

Answer – letter B: 1.2 x 45 = 54 million

Problem 48.

Answer – letter D:

Separate FS of Parent – SME


Dr. Profit or loss – exchange difference CU 476
Cr. Long term receivable CU 476

20,000/2 – 20,000/2.1 = CU 476

Consolidation adjustment – reclassify to OCI since it forms part of net investment in the foreign
subsidiary
Dr. Other comprehensive income CU 476
Cr. Profit or loss – exchange difference CU 476

Problem 49.

Answer – letter A: The July 30 update is within the measurement period, hence goodwill is
adjusted accordingly. The CC payable at this date amounted to 170,000 compared to the final
actual consideration of P195,000.

Problem 50.

Answer – letter D: Conso RE = 1,400,000 + 525,000 – 315,000 – 12,000 + .80(157,500 – 87,500)


= 1,654,000