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2017 – 2018)

NAME:______________________________________________________ DATE:__________________
1. Breakeven Corp. was contracted to construct a warehouse for a price of P34,000,000.
Information below were provided by Breakeven:

2013 2014 2015

Cost incurred to date P14,625,000 P25,687,500 P33,750,000
Estimated cost at completion 32,500,000 34,250,000

How much is the realized gross profit/loss during 2014?

a. (P925,000) b. P250,000 c. (P250,000) d. P925,000

2. On August 28, 2015, Mabeth Inc. entered into a franchise agreement with HP Inc.,
franchisee. The initial franchise fee agreed upon is P1,750,000, of which, P850,000 is
payable upon signing the contract and the balance to be covered by a 12% interest
bearing note payable in five equal annual installments starting December 31, 2015.
Initial services by Mabeth amounted to P912,100 direct costs and P50,000 indirect
costs. The collectability of the note is not reasonably assured. A 5% continuing
franchise fee is to be paid monthly by HP based on its monthly gross sales. The
franchisee’s operations commenced on September 28, 2015 and gross sales for the first
months amounted to P575,000.

How much is the net income for the year ended December 1, 2015?
a. P498,914 b. P412,730 c. P507,914 d. P462,730

3. On December 31, 2015, Dewyze Inc. authorized Cook to operate as a franchise for an
initial franchise fee of P3,400,000. P900,000 was received upon signing the contract
and the balance is to be paid by a non-interest bearing note, due in five equal annual
installments beginning December 31, 2016. Prevailing market rate is 12%. PV factor is
3.60478. The down payment is nonrefundable and it represents a fair measure of the
services already performed by Dewyze, however, with regards to the balance,
substantial future services are still required. How much is the deferred revenue to be
recognized as of December 31, 2015?
a. P1,802,390 b. P1,518,677 c. P2,500,000 d. P2,702,390

4. Prof Co. operates a branch in Manila. The following are selected accounts taken from
December 31, 2015 financial statements of Prof and its branch:


Sales P7,500,000 P3,750,000
Shipments to branch 1,250,000
Shipments from home office 1,562,500
Inventory, Jan. 1, 2015 750,000 375,000
Inventory, Dec. 31, 2015 630,000 270,000
Purchases 6,200,000 950,000
Allowance for overvaluation before adjustment 337,500
Operating expenses 300,000 270,000

The ending inventory of the branch includes P120,000 purchased from outside suppliers.
What is the combined cost of ending inventory?
a. P942,500 b. P900,000 c. P868,110 d. P870,000

5. Using the information in Number 4, what is the combined net income?

a. P3,300,000 b. P2,962,500 c. P2,992,500 d. P3,305,000

6. Video and Company has several branches located in the cities in the south namely,
Dipolog, Dumaguete, Cebu, Bacolod, and Cagayan de Oro. It authorizes transfers of cash
and inventories among branches. The head office ships goods P100,000 cost to Dipolog
branch paying freight charges for P6,000. The home office authorizes the transfer of
goods from Dipolog Branch to Cebu Branch where the latter is charged for the cost of
the goods, P100,000 and freight charges of P2,000 for the transfer. If the shipment
had been made by the head office to the Cebu Branch, the freight charges would have
been P9,000. The transfers resulted to difference in freight charge which should be
disposed of as follows:

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a. P1,000 charge to Cebu branch by Dipolog branch

b. P1,000 charge to Cebu branch by Head Office
c. P1,000 to be equally charge among Head Office, Dipolog branch, and Cebu branch
d. P1,000 savings

7. Pasig Garment Company operates a branch in Cabanatuan City. At the end of the year,
the Branch account in the books of the home office at Manila shows a balance of
P150,000. The following information are ascertained:

 The home office has billed the branch the amount of P37,500 for the merchandise,
which was in transit on December 31.
 A home office accounts receivable for P10,500 was collected by the branch. Said
collection was not reported to the home office by the branch.
 Supplies of P4,500 was returned by the branch to the home office but the home
office has not yet reflected in its records the receipt of the suppliers.
 The branch made profit of P10,100 for the month of December but the home office
erroneously recorded it as P11,180.
 The branch has not received the cash in the amount of P25,000 sent by the home
office on December 31. This was charged to General Expense account.

All transactions are presumed to have been properly recorded.

What is the balance of the Home Office account on the books of the branch as of
December 31, before adjustments?
a. P121,920 b. P123,000 c. P117,420 d. P106,920

8. Using the same information in No. 7, what is the adjusted balance of the reciprocal
a. P96,420 b. P106,920 c. P117,420 d. P179,920

9. Bonifacio contractors had a 3-year construction contract in 2012 for P900,000. The
company uses the percentage-of-completion method for financial statement purposes.
Income to be recognized each year is based on the ratio of cost incurred to total
estimated cost to complete the contract. Data on this contract follows:

Accounts receivable – construction contract billings P30,000

Construction in progress P93,750
Less: Amounts billed 84,375
10% retention 9,375

Net income recognized in 2012 (before tax) 15,000

Bonifacio Contractors maintains a separate bank account for each construction

contract. Bank deposits to this contract amounted to P50,000.

What was the estimated total income before tax on this contract?
a. P45,000 b. P94,000 c. P135,000 d. P144,000

10. Gianne Co., sold a computer on installment basis on October 1, 2008. The unit cost to
the company was P86,400, but the installment selling price was set at P122,400. Terms
of payment included the acceptance of a used computer with a trade-in allowance of
P43,200. Cash of P7,200 was paid in addition to the traded-in computer with the
balance to be paid in ten monthly installments due at the end of each month
commencing the month of sale.

It would require P1,800 to recondition the used computer so that it could be resold
for P36,000. A 15% gross profit was usual from the sale of used computer. The
realized gross profit from the 2008 collections amounted to:
a. P5,760 b. P14,100 c. P11,520 d. P48,960

11. On December 31, 2014, PP Inc. signed an agreement authorizing ZZ Company to operate
as a franchisee for an initial franchise fee of P50,000. Of this amount, P20,000 was
received upon signing of the agreement and the balance is due in three annual
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payments of P10,000 each beginning December 31, 2015. The agreement provides that the
down payment is not refundable and no substantial future services are required to be
performed. ZZ Company’s credit rating is such that the collection of the note is
reasonably assured. The present value at December 31, 2014 of three annual payments
discounted at 14% (the implicit rate for a loan of this type) is P23,220. On December
31, 2014, PP Inc. should record unearned franchise fee of:
a. P 0 b. P23,220 c. P30,000 d. P43,220

12. Manila Sales Company established a branch in Baguio City early last year to which it
shipped merchandise before the branch opening with a billing price of P300,000.
During the year, the home office billed the branch a total of P120,000 for additional
shipments of merchandise. Some defectives merchandise were shipped back by the branch
and was given credit for P7,500 on the return. The branch also made purchase of
merchandise totaling P72,500 from outside suppliers. At the end of the year, a
physical count disclosed a branch ending inventory of P185,000 which included P20,000
of merchandise acquired from outside suppliers. If merchandise shipments from the
home office were billed at 20% above cost, what was the total cost of merchandise
available for sale, net of returns, at the branch during the year?
a. P300,000 b. P343,750 c. P412,500 d. P416,250

13. In a construction contract, the term “variation” means

a. the initial amount of revenue agreed in the contract.
b. an additional amount paid to the contractor if specified performance standards are
met or exceeded.
c. an instruction by the customer for a change in the scope of work to be performed
under the construction contract.
d. an amount that the contractor seeks to collect from the customer as reimbursement
for cost not included in the construction contract.

14. Which of the following statements is false?

a. The procedures in reconciling the home office and branch accounts are essentially
the same as that of the bank reconciliation statement.
b. While the branch financial statements may be prepared for internal reporting
purposes, external accounting reports reflect the activities and practices of the
company as a whole.
c. The preparation of combined statements necessitates the elimination of reciprocal
d. The recording of reported branch net income on the home office books represents a
home office closing entry.

Numbers 15 to 17 using the following information:

Reality Inc., works on a contract in March 2016 to construct a commercial building.
During 2016, Reality uses the cost to cost method. At December 31, 2016, the balances of
certain accounts were: Excess of Construction in Progress over billings – P140,000 due
from customer; and Progress Billings P560,000 which is 1/5 of the contract price. At
December 31, 2016, the estimated future costs to complete the project total P1,350,000.
Of the amount billed 70% were paid in 2016 subject to retention provision of 15% payable
with the final bill after the acceptance of entire completed project. A mobilization fee
of 5% of the contract price (deductible from the final bill) is payable in 10 days after
the contract signing.

15. What is the cost incurred to date in 2016?

a. P1,800,000 b. P1,350,000 c. P450,000 d. P700,000

16. What portion of the contract price is recognized as income in 2016?

a. P700,000 b. P250,000 c. P191,200 d. P526,800

17. What is the total collection in 2016?

a. P333,200 b. P392,000 c. P532,000 d. P473,200

18. On July 1, 2016, PM Motors, which maintains a perpetual inventory records sold a new
automobile to ANX for P1,700,000. The car the seller P1,301,250.

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The following were the payment scheme in order:

 30% down payment
 P160,000 allowance on an old car traded
 the balance being payable in equal monthly installments

The monthly amortization amounts to P60,000 inclusive of 12% interest on the unpaid
amount of the obligation. The car trade in has a wholesale value of P240,000 after
expending recondition cost of P45,000. After paying three installments, the buyer
suffered major financial setback incapacitating him to continue paying so the car was
subsequently repossessed. When acquired, the car was appraised to have a fair value
of P600,000.

What is the realized gross profit on installment sales during the year?
a. P212,500 b. P213,899 c. P221,250 d. P205,149

19. On December 31, 2016, ABC Corporation combined net income together with its Bacolod
branch amounted to P350,000. On June 30, 2016, the home office purchased and recorded
fixed asset for the use of the branch amounting to P200,000. Useful life is 5 years.

The following were ascertained in the Bacolod branch’s books: During the year,
shipments of merchandise at cost to the branch amounted to P135,000. Remittance of
P70,000 was made during the year to the home office. Purchases of merchandise from
outside suppliers amounted to P125,000. Ending inventories amounted to P80,000. Sales
for the year was reported at P400,000. The branch paid selling and administrative
expenses amounting to P75,000.

What is the separate income of the home office?

a. P105,000 b. P225,000 c. P245,000 d. P125,000

20. On November 1, 2016, LG Inc. authorized Warren Buffet to operate as a franchisee for
an initial franchise fee of P1,500,000. Of this amount, 40% was received upon
contract signing and the balance, represented by a note, is due in three annual
installments starting December 31, 2016. A 65-day period of refund was granted.
According to the agreement, the down payment represent a fair measure of the services
initially performed. The collectability of the note is reasonably certain. (PV factor
of 2.4)

What is the unearned franchise fee at December 31, 2016?

a. P1,320,000 b. P720,000 c. P600,000 d. P 0

Numbers 21 to 24 using the following information:

Eagle Corporation has three highly active branches, Cebu, CDO and Butuan, to which
merchandise is billed at 20% markup. Partial trial balance accounts of the three entities
at December 31, 2016 are summarized as follows:


Inventory P800,000 P180,000 P240,000 P120,000
Cebu branch 450,000
CDO branch 420,000
Butuan branch 350,000
Shipments from home office 600,000 360,000 250,000
Purchases 1,600,000
Expenses 900,000 250,000 200,000 180,000
Home office 450,000 300,000 290,000
Loading – Cebu branch 125,000
Loading – CDO branch 90,000
Loading – Butuan branch 60,000
Sales 1,950,000 900,000 750,000 550,000

Additional information:

Physical inventories on hand at December 31, 2016 were as follows:

Home office P700,000 at cost
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Cebu brach 210,000 at billed prices

CDO branch 150,000 at billed prices
Butuan branch 80,000 at billed prices

21. What is the ending inventory of Eagle Corporation?
a. P1,184,000 b. P1,389,000 c. P1,738,0000 d. P1,038,700

22. The combined net income of home office and branches for 2016 must be:
a. P1,302,000 b. P972,000 c. P827,000 d. P1,230,000

23. The correct profit of Cebu branch is:

a. P190,000 b. P194,000 c. P640,000 d. P230,000

24. The correct profit of Butuan branch is:

a. P138,000 b. P152,000 c. P21l,000 d. P201,000

Numbers 25 to 28 using the following information:

Investment in Branch – Olanggapo

Beg. Balance, 1/1/13 P459,258 P33,300 Collection of AR, 9/12/13

Shipments to branch, 4/1/13 P212,400
Cash forwarded, 6/1/13 P 15,000
Operating expenses charged
to the branch, 12/31/13 P 2,880

The following transactions were entered in the branch current account of Marikina Head
Office for the year 2013:

 Shipments to the branch during the year were made at 20% above cost.
 The balance of the Allowance for Overvaluation of Branch Inventory account was
P21,300 at the beginning, and the allowance was written down to P14,700 at year-
 On December 10, 2013, the home office purchased a piece of equipment amounting to
P36,000 for its branch in Olanggapo. The said equipment has a useful life of five
year and will be carried in the books of the branch, but the home office recorded
the purchase by debiting Equipment.
 The branch recorded the depreciation of the equipment by debiting the Home Office
Current account and crediting Accumulated Depreciation.
 Debit memo regarding the allocation of operating expenses to the Olanggapo branch was
received by the branch on January 2, 2014.
 The Olanggapo branch reported net income of P197,730.
 It also remitted cash to the home office on December 31, 2013 amounting to P33,000,
which the home office received and recorded on January 1, 2014.
 The interoffice accounts were in agreement at the beginning of the year.


25. How much is the adjusted balance of the Branch Current account on December 31, 2013
before the necessary closing entries were made?
a. P539,890 b. P520,020 c. P624,390 d. P659,238

26. What is the amount of adjustment in the Allowance for Overvaluation of Branch
Inventory account?
a. P24,000 b. P42,000 c. P52,000 d. P25,000

27. How much is the net income of Olanggapo branch that will be reported in the combined
income statement of the Marikina Company?
a. P236,250 b. P250,236 c. P260,340 d. P234,600

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28. What is the amount of the Home Office Current account that will be reported in the
books of Olanggapo branch after closing entries are made?
a. P853,488 b. P488,853 c. P854,483 d. P483,854

29. The Cagayan Branch of Metro Manila Enterprises buys merchandise from third parties
and receives merchandise from the home office for which it is billed at 20% above
cost. Below are excerpts from the trial balances and data on the home office and the
branch office for the month just ended.

Home Office Books

Cr. Allowance for overvaluation of branch P740,000
Cr. Shipment to branch 1,700,000
Branch Books
Dr. Beginning inventory P2,880,000
Dr. Shipment from home office 2,040,000
Dr. Purchases from third parties 820,000
Additional information at the month end
Ending inventory of branch P2,900,000
From the home office 2,340,000
From third parties 580,000

Compute the total cost of goods sold by Cagayan branch at cost (net of mark-up) for
the month.
a. P2,407,000 b. P2,700,000 c. P2,704,000 d. P2,470,000

Numbers 30 and 31 using the following information:

Selected accounts from the trial balance of Pay Later Sales, Inc. as of December 31, 2014

Installment receivable – 2013 sales P22,500 Repossessions P4,500

Installment receivable – 2014 sales 300,000 Installment sales 637,500
Inventory 105,000 Regular sales 577,500
Purchases 832,500
Deferred gross profit – 2013 58,800

Additional information:
Installment receivable – 2013, January 1, 2014 P180,000
Inventory of new and repossessed merchandise, December 31, 2014 142,500
Gross profit rates based on sales: Regular sales, 30%; Installment sales – 2013, 35%; and
Installment sales – 2014, 38%
Repossession recorded during the year was from a 2013 installment sales with an
uncollected balance at the time of repossession of P12,000.

30. Compute the total realized gross profit for 2014

a. P325,245 b. P352,245 c. P325,425 d. P352,425

31. Compute for the total deferred gross profit at December 31, 2014
a. P121,587 b. P121,875 c. P112,785 d. P121,785

32. The income statement submitted by the Calamba City Branch to the City of Manila Head
Office for the month of March 2015 follows:

Sales P750,000
Less Cost of sales
Inventory, March 1, 2015 P100,000
Shipment from Home Office 437,500
Purchases from other vendors 37,500
Inventory, March 31, 2015 (125,000) 450,000
Gross profit P300,000
Operating expenses 225,000
Net income P 75,000

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An analysis of the beginning inventories provided the following:

 Of the total beginning inventory, 12.50% come from other vendors.
 Of the total ending inventory, 84% come from the head office.
 The head office consistently bills the branch for merchandise shipments at 140%
of cost.

Compute the net income of the branch from the standpoint of combined operations:
a. P195,000 b. P100,950 c. P109,500 d. P190,500

33. The Kester Store operates a branch in Cebu. Operating data for the home office and
the branch for 2011 are as follows:

Home Office Branch

Sales P365,000 P174,500
Shipment to branch 90,000
Purchases from outsiders 220,000 35,000
Advertising expenses 13,700 2,500
Salaries and commission expense 35,000 9,500
Rent expense 10,000 2,000
Miscellaneous expense 3,300 500
Shipment from home office 112,500
Inventories, Jan. 1:
Home office 85,000
Acquired from outsiders 9,500
Acquired from home office at billed price
which is 20% above cost 42,000
Inventories, Dec. 31:
Home office 65,000
Acquired from outsider 6,500
Acquired from home office at
2011 billed price 30,000

Compute the combined net income of Kester Store:

a. P111,000 b. P63,000 c. P250,500 d. P174,000

34. Lakers Trading Co. operates a branch in Dagupan City. At close of business on
December 31, 2011, Dagupan branch account in the home office books showed a debit
balance of 225,770, the inter office account were in agreement at the beginning of
the year. For purposes of reconciling the interoffice accounts, the following fact
were as curtained:

 An office equipment costing the home office 3,500 was picked up by the branch
as 350.
 Insurance premium of 675, charged by the home office was taken up twice by the
 Freight charged on merchandise made by the home office for 1,125 was recorded
in the branch books as 1,215.
 Home office credit memo representing a discount on merchandised for 800 was not
recorded by the branch.
 The branch failed to take up a 700 debit memo from the home office representing
the share of the branch in advertising.
 The home office inadvertently recorded a remittance for 3,000 from its Cebu
branch as a remittance from its Dagupan branch.

Compute the balance as of December 31, 2011.

Unadjusted balance of the Adjusted balance of the
Home office accounts reciprocal accounts
a. 226,485 225,770
b. 228,485 228,770
c. 225,770 226,485

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d. 226,485 228,770

35. Betzeir Company branch in Malate began operation on January 1, 2011. During the first
year of operations, the home office shipped merchandised to Malate branch that cost
250,000 at billed price of 300,000. One fourth of the merchandise remained unsold at
the end of 2011. The home office records the shipment to the branch at the 300,000
billed price at the time shipment are made.

Freight in of 2,000 of the shipment from the home office was paid by the branch. The
home office should make an adjusting entry for freight in as follows:
a. A year-end adjusting entry debiting the branch account for 500.
b. A year-end adjusting entry debiting account for 2,000.
c. A year-end adjusting entry crediting the branch account for 500.
d. No year-end adjusting entry for the freight charge.

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