PRACTICAL ACCOUNTING 2 FINAL EXAMINATION

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1. Lawrence Company ordered parts costing FC 100,000 from a foreign supplier

on May 12 when the spot rate was P.20 per FC. A one-month forward contract
was signed on that date to purchase FC 100,000 at a forward rate P0.21. The
forward contract is properly designated as a fair value hedge of the FC
100,000 firm commitment. On June 12, when the company receives the parts,
the spot rate is P0.23. at what amount should Lawrence Company carry the
parts inventory on its books assuming that the firm commitment account be
considered as an adjustment to net income account (or profit or loss
account)?
A. P20,000 C. P22,000
B. P21,000 D. P23,000

2. The capital balances for Messalina is P210,000 and for Romulus is P140,000.
These two partners share profits and losses 60 percent (Messalina) and 40
percent (Romulus). Claudius invests P100,000 in cash in the partnership for
a 20 percent ownership. The bonus method will be used. What are the capital
balances for Messalina, Romulus, and Claudius after this investment is
recorded?
A. P216,000, P144,000, P90,000 C. P222,000, P148,000, P80,000
B. P218,000, P142,000, P88,000 D. P240,000, P160,000, P100,000

3. A hospital has the following account balances:

Revenue from newsstand P 50,000
Amount charged to patients 800,000
Interest income 30,000
Salary expense – nurses 100,000
Bad debts 10,000
Undesignated gifts 80,000
Contractual adjustments 110,000

What is the hospital’s net patient service revenue?

A. P880,000 C. P690,000
B. P800,000 D. P680,000

4. Property was purchased on December 31, 2007 for 20 million baht. The
general price index in the country was 60.1 on that date. On December 31,
2010, the general price index had risen to 240.4. If the entity operates in
a hyperinflationary economy, what would be the carrying amount in the
financial statements of the property after restatement?
A. 20 million baht C. 80 million baht
B. 1,200.2 million baht D. 4.808 million baht

5. In 2010, Santo Tomas University Hospital received an unrestricted bequest

of common stock with a fair value of P50,000. The testator paid P20,000 for
the stock in 2002. Santo Tomas University Hospital should record the
bequest to:
A. Increase temporary restricted net assets by P50,000.
B. Increase temporary restricted net assets by P20,000.
C. Increase unrestricted net assets by P50,000.
D. Increase unrestricted net assets by P20,000.

6. An organization of high school seniors performs a volunteer services for

patients at a nearby nursing home. The nursing home would not otherwise
provide these services, such as wheeling patients in the park and reading
to them. At the minimum wage rate, these services would amount to P21,320,
but their actual value is estimated to be P27,400. In the nursing home’s
statement of revenues and expenses, what amount should be reported in
public support?
A. P27,400 C. P 6,080
B. P21,320 D. P 0

7. A partnership has gone through liquidation and now reports the following
account balances:

Cash P 16,000
Loan from Jones 3,000
Wayman, capital ( 2,000) deficit

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Jones, capital ( 5,000) deficit

Fuller, capital 13,000
Rogers, capital 7,000

Profits and losses are allocated on the following basis: Wayman, 30

percent; Jones, 20 percent; Fuller, 30 percent; and Rogers, 20 percent.
Which of the following events should occur now?
A. Jones should receive P3,000 cash because of the loan balance.
B. Fuller should receive P11,800 and Rogers, P4,200.
C. Fuller should receive P10,600, and Rogers, P5,400.
D. Jones should receive P3,000, Fuller, P8,800, and Rogers, P4,200.

8. On June 1, 2011, Cline Company paid P800,000 cash for all of the issued and
outstanding common stock Renn Corp. The carrying values for Renn’s assets
and liabilities on June 1, 2011 follow:

Cash…………………………………………………………………………………………………… P150,000
Accounts receivable…………………………………………………………… 180,000
Capitalized software costs………………………………………… 320,000
Goodwill………………………………………………………………………………………… 100,000
Liabilities…………………………………………………………………………………( 130,000)
Net assets……………………………………………………………………………………P 620,000

On June 1, 2011, Renn’s accounts receivable had a fair value of P140,000.

Additionally, Renn’s in-process and development costs was estimated to
have a fair value of P200,000. All other items were stated at their fair
values. On Cline’s June 1 balance sheet. How much is reported for
goodwill?
A. P320,000 C. P 80,000
B. P120,000 D. P 20,000

9. Prior to being united in a business combination, Atkins, Inc. and Waterson

Corporation had the following stockholders’ equity figures:
Atkins Waterson
Common stock, P1 par value P180,000 P 45,000
Additional paid-in capital 90,000 20,000
Retained earnings 300,000 110,000

Atkins issues 51,000 new shares of its common stock valued at P3 per
share for all of the outstanding stock of Waterson. Assume that Atkins
acquires Waterson. Immediately afterward, what are consolidated
Additional Paid-In Capital and Retained Earnings, respectively?
A. P104,000 and P300,000 C. P192,000 and P300,000
B. P110,000 and P410,000 D. P212,000 and P410,000

10. Baning, Inc. buys 60% of the outstanding stock of Gra, Inc. in an
acquisition that resulted in the acquisition of goodwill. Gra owns a
piece of land that cost P200,000 but was worth P500,000 at the
acquisition date. What value should be attributed to this land in a
consolidated balance sheet at the date of takeover?
A. P120,000 C. P380,000
B. P300,000 D. P500,000
11. Post, Inc. had a receivable from a foreign customer that is payable in the
customer’s local currency. On December 31, 2010, Post correctly included
this receivable for 200,000 local currency units (LCU) in its balance sheet
at P110,000. When Post collected the receivable on February 15, 2011, the
Philippine peso equivalent was P95,000. In Post’s 2011 consolidated income
statement, how much should it report as a foreign exchange loss?
A. P -0- C. P15,000
B. P10,000 D. P25,000

12. Grete had the following foreign currency transactions during 2010:

 Purchased merchandise from a foreign supplier on January 20, 2010, for

the Philippine peso equivalent of P60,000 and paid the invoice on April
20, 2010, at the Philippine peso equivalent of P68,000.
 On September 1, 2010, borrowed the Philippine peso equivalent of
P300,000 evidenced by a note that is payable in the lender’s local

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currency on September 1, 2011. On December 31, 2010, the Philippine peso

equivalent of the principal amount was P320,000.

In Grete’s 2010 income statement, what amount should be included as a

foreign exchange loss?
A. P 4,000 C. P22,000
B. P20,000 D. P28,000

13. On December 1, 2010, Barnum company (a Philippine-based company) entered

into a three month forward contract to purchase 1,000,000 foreign
currencies on March 1, 2011. The following Philippines peso per foreign
currency exchange rates apply:

Forward Rate
Date Spot Rate (to March 1, 2011)
December 1, 2010 P0.044 P0.042
December 31, 2010 P0.040 P0.037
March 1, 2011 P0.038 N/A

Barnum’s incremental borrowing rate is 12 percent. The present value for

two months at annual rate of interest of 12 percent (1 percent per month)
is 0.9803.

Which of the following correctly describes the manner in which Barnum

Company will report the forward contract on its December 31, 2010, balance
sheet?
A. As an asset in the amount of P1,960.60.
B. As an asset in the amount of P3,921.20.
C. As a liability in the amount of P6,862.10.
D. As a liability in the amount of P4,901.50.

Items 14 to 16 are based on the following information:

14. On March 1, 2011, Westfields Corp. received an order for parts from a
foreign customer at a price of 500,000 foreign currencies with a delivery
date of April 30, 2011. On March 1, whe the peso-foreign currency spot rate
is P0.115, Westfields Corp. entered into a two-month forward contract to
sell 500,000 foreign currencies at a forward rate of P0.12 per foreign
currency. It designates the forward contract as a fair value hedge of the
firm commitment to receive foreign currencies, and the fair value of the
firm commitment is measured by referrring to changes in the peso forward
rate. Westfields delivers the parts and receives payment on April 30, 2011,
when the foreign currency rate is P0.118. On March 31, 2011, the foreign
currency spot rate is P0.123, and the forward contract has a fair value of
P1,250.

What is the net impact on Westfields net income for the quarter ended March
31, 2011, as a result of the forward contract hedge of a firm commitment?
A. P -0- C. P1,500 decrease in net income
B. P1,250 increase in net income D. P1,500 increase in net income

15. What is the net impact on Westfields net income for the quarter ended June
30, 2011, as a result of the forward contract hedge of a firm commitment?
A. P -0- C. P60,000 increase in net income
B. P59,000 increase in net income D. P61,500 increase in net income

16. What is the net increase or decrease in cash flow from having entered into
this forward contract hedge?
A. P -0- c. P1,500 decrease in cash flow
B. P1,000 increase in cash flow D. P2,500 increase in cash flow

17. Certain balance sheet accounts of a foreign subsidiary of Rose Company

have been stated in Philippine pesos as follows:

Stated
Current Rates Historical Rates
Accounts receivable, current P 200,000 P 220,000
Accounts receivable, long-term 110,000 110,000
Prepaid insurance 50,000 55,000

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Goodwill 80,000 85,000

P 430,000 P 470,000

The subsidiary’s functional currency is a foreign currency which is not the

currency of a hyperinflationary economy. What amount should Rose’s balance
sheet include for the preceding items?
A. P430,000 C. P440,000
B. P435,000 D. P450,000

18. A partnership begins its first year with the following capital balances:

Arthur, capital P 60,000

Baxter, capital 80,000
Cartwright, capital 100,000

The articles of partnership stipulate that profits and losses be assigned

in the following manner:
 Each partner is allocated interest equal to 10 percent of the
beginning capital balance.
 Baxter is allocated compensation of P20,000 per year.
 Any remaining profits and losses are allocated on a 3:3:4 basis,
respectively.
 Each partner is allowed to withdraw up to P5,000 cash per year.

Assuming that the net income is P50,000 and that each partner withdraws
the maximum amount allowed, what is the balance in Cartwright’s capital
account at the end of that year?
A. P105,800 C. P106,900
B. P106,200 D. P107,400

19. A partnership has the following capital balances:

Allen, capital P60,000
Burns, capital 30,000
Costello, capital 90,000

Profits and losses are split as follows: Allen (20%), Burns (30%), and
Costello (50%). Costello wants to leave the partnership and is paid
P100,000 from the business based on provisions in the articles of
partnership. If the partnership uses the bonus method, what is the
balance of Burns’s capital account after Costello withdraws?
A. P24,000 C. P33,000
B. P27,000 D. P36,000

20. At year-end, the Cisco partnership has the following capital balances:
Montana, capital P130,000
Rice, capital 110,000
Craig, capital 80,000
Taylor, capital 70,000

Profits and losses are split on a 3:3:2:2 basis, respectively. Craig

decides to leave the partnership and is paid P90,000 from the business
based on the original contractual agreement. If the goodwill method is to
be applied, what is the balance of Montana’s capital account after Craig
withdraws?
A. P133,000 C. P140,000
B. P137,500 D. P145,000

21. A local partnership is liquidating and is currently reporting the

following capital balances:

Angela, capital (50% share of

all profits and losses) P 19,000
Woodrow, capital (30%) 18,000
Cassidy, capital (20%) (12,000)

Cassidy has indicated that a forthcoming contribution will cover the

P12,000 deficit. However, the two remaining partners have asked to

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receive the P25,000 in cash that is presently available. How much of this
money should each of the partners be given?
A. Angela, P13,000; Woodrow, P12,000
B. Angela, P11,500; Woodrow, P13,500
C. Angela, P12,000; Woodrow, P13,000
D. Angela, P12,500; Woodrow, P12,500

22. A partnership has the following balance sheet just before the final
liquidation is to begin:

Cash P26,000 Liabilities P 50,000

Inventory 31,000 Art, capital (40% of P&L) 18,000
Other assets 62,000 Raymond, capital (30%) 25,000
________ Darby, capital (30%0 26,000
Total P119,000 Total P119,000

Liquidation expenses are estimated to be P12,000. The other assets are sold
for P40,000. What distribution can be made to the partners?
A. P-0- to Art, P1,500 to Raymond, P2,500 to Darby.
B. P1,333 to Art, P1,333 to Raymond, P1,334 to Darby.
C. P-0- to Art, P1,200 to Raymond, P2,800 to Darby.
D. P600 to Art, P1,200 to Raymond, P2,200 to Darby.

23. The partnership has the following capital balances: A (20% of profit and
losses = P100,000; B (30% of profits and losses) = P120,000; C (50% of profits
and losses) = P180,000. 23. If the partnership is to be liquidated and P30,000
becomes immediately available, How much will A receive?

A. P6,000 to A, P9,000 to B, P15,000 to C.

B. P22,000 to A, P3,000 to B, P5,000 to C.
C. P22,000 to A, P8,000 to B, P-0- to C.
D. P24,000

24. On January 1, 2011, Brendan, Inc. reports net assets of P760,000 although
(equipment with a four-year life) having a book value of P440,000 is worth
P500,000 and unrecorded patent is valued at P45,000. Brandon Corporation
pays P692,000 on that date for an 80 percent ownership in Brendan. If the
patent is to be written-off over a 10-year period, at what amount should it
be reported on consolidated statements at December 31, 2012?
A. P28,000 C. P36,000
B. P32,400 D. P40,500

25. On January 1, 2011, Harry, Inc. reports net assets of P880,000 although a
patent (with a 10-year life) having a book value of P330,000 is now worth
P400,000. Newt Corporation pays P840,000 on that date for an 80 percent
ownership in Newt. On December 31, 2012, Harry reports total expenses of
P621,000 while Newt reports expenses of P714,000. What is the consolidated
total expense balance on December 31, 2012?
A. P1,197,800 C. P1,342,000
B. P1,335,000 D. P1,349,000
26. On January 1, 2011, Wilt Corporation pays P388,000 for a 60 percent
ownership in Chamberlain. Annual excess fair value amortization of
P15,000 results from the acquisition. On December 31, 2012, Chamberlain
reports revenues of P400,000 and expenses of P300,000 and Wilt reports
revenues of P700,000 and expenses of P400,000. The parent figures contain
no income from the subsidiary. What is the consolidated net income
attributable to the controlling interest / profit attributable to equity
holders of parent?
A. P231,000 C. P366,000
B. P351,000 D. P400,000

27. King Corporation owns 80 percent of Lee Corporation’s common stock. During
October l, Lee sold merchandise to King for P100,000. At December 31, 50
percent of this merchandise remains in King’s inventory. Gross profit
percentages were 30 percent for King and 40 percent for Lee. The amount
of unrealized inter-company profit in ending inventory at December 31
that should be eliminated In the consolidation process is:
A. P40,000 C. P16,000

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B. P20,000 D. P15,000

28. Top Company holds 90 percent of Bottom Company’s common stock. In the
current year, Top report sales of P800,000 and cost of goods sold of
P600,000. For the same period, Bottom has sales of P300,000 and costs of
goods sold of P600,000. For this same period, Bottom has sales of
P300,000 and cost of goods sold of P180,000. During the current year, Top
sold merchandise to Bottom for P100,000. The subsidiary still possesses
40 percent of this inventory at the current year-end. Top had established
the transfer price based on its normal markup. What are the consolidated
sales and cost of goods sold?
A. P1,000,000 and P690,000 C. P1,000,000 and P740,000
B. P1,000,000 and P705,000 D. P970,000 and P696,000

29. Using the same information in No. 28, except that the transfers were from
Bottom Company to Top Company. What are the consolidated sales and cost
of goods sold?
A. P1,000,000 and P720,000 C. P1,000,000 and P696,000
B. P1,000,000 and P755,000 D. P970,000 and P712,000

30. Hardwood, Inc. holds a 90 percent interest in Pittstoni Company. During

2010, Pittstoni sold inventory costing P77,000 to Hardwood for P110,000.
Of this inventory, P40,000 worth was not sold to outsiders until 2010.
During 2010, Pittstoni sold inventory costing P72,000 to Hardwood for
P120,000. A total of P50,000 of this inventory was not sold to outsiders
until 2012. In 2011, Hardwood reported net income of P150,000 while
Pittstoni reported P90,000. What is the non-controlling interest in the
2011 income of the subsidiary?
A. P8,000 C. P9,000
B. P8,200 D. P9,800

31. Dunn Corporation owns 100 percent of Greyy Corporation’s common stock. On
January 2, 2010, Dunn sold to Grey for P40,000 machinery with a carrying
amount of P30,000. Grey is depreciating the acquired machinery over a
five-year life by the straight-line method. The net adjustments to 2010
and 2011 consolidated net income would be an increase (decrease) of:
2010 2011
A. P( 8,000) P 2,000
B. P( 8,000) -0-
C. P(10,000) P 2,000
D. P(10,000) -0-

32. For the period just ended, Lambda Company budgeted its variable overhead
at P40 per direct labor hour and fixed overhead at P480,000. Budgeted
production volume was 8,000 units and the production time, which was the
basis for allocation of variable and fixed overhead, was budgeted at .80
hour per unit. The actual results for the period were: fixed overhead,
P552,000; variable overhead, P283,480; units produced,7,460; direct labor
hours used, 5,595. What was the budgeted variable overhead for the actual
volume attained?
A. P223,800 C. P238,720
B. P226,784 D. P283,480
33. Bagley Company has two service departments and two producing departments.
Square footage of space occupied by each department follows:

Custodial Services 1,000 ft.

General Administration 3,000 ft.
Producing Department A 8,000 ft.
Producing Department B 8,000 ft.
Total 20,000 ft.

The department costs of Custodial Services are allocated on a basis of

square footage of space. If these costs are budgeted at P38,000 during a
given period, the amount of cost allocated to General Administration under
the direct method would be
A. P15,200. C. P6,000
B. P 7,125. D. P 0

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34. Pista Hut granted a franchise to Eat-N-Run for the Rainbowbelt area. Eat-
N-Run was to pay a franchise fee of P100,000 payable in five equal
installments starting with the payment upon signing of the agreement. The
franchisee was to pay monthly 1% of gross sales of the preceding month.
Should the operation of the outlet prove to be unprofitable, the franchise
may be cancelled with whatever obligation owing to Pista Hut, in connection
with the P100,000 franchise fee, waived.

The first year’s operation generated a gross sales of P500,000. For the
first year, Pista Hut earned franchise fee of:

A. P 5,000 C. P 25,000
B. P20,000 D. P105,000

35. In 2010, Kalye Construction Company was contracted to build the private
road network of Alaya Subdivision for P100 million. The project was
expected to be finished in 2 years , and the contract provided for:

- A five percent mobilization fee (to be deducted from the last

billing), payable within 15 days from the contract signing.
- A retention provision of ten percent on all billings, payable with
the final bill after the completed project is accepted.
- Payment of progress billings within 7 days from acceptance.

Kalye, which uses the percentage-of-completion method of accounting for

income, estimated a 25% gross margin on the project. By the end of the
year, Kalye had presented progress billings to Alaya corresponding to 50%
completion. Alaya accepted all the bills presented, except one for 10%
which was accepted on January 5 of next year. With the exception of the
second to the last billing for 8% which was due January 3 of next year, all
accepted billings were settled.

In 2010, Kalye Construction Company realized gross profit from the project
the amount of:
A. P 7,500,000 C. P12,500,000
B. P10,000,000 D. P25,000,000

36. Reyes, Silva, and Tan formed a joint venture. Reyes was designated as the
manager and was to record the joint venture’s transactions in his own
books. As a manager, Reyes was to be allowed a salary of P12,000; the
remaining profit or loss was to be divided equally.

The following balances appeared at the end of 2008, before adjustment for venture inventory and
profit:
Debit Credit
Joint venture cash P 48,000 P -
Joint venture - 15,000
Silva, capital 1,000
Tan, capital 27,000

The venture was terminated on December 31, 2008, and unsold merchandise
costing P10,500 were taken over by Tan. Reyes made cash settlement with
Silva and Tan.

In the final settlement, how much did Tan receive?

A. P31,500 C. P21,000
B. 27,000 D. 10,500

37. Yellow Industries decides to price delivery service according to the results of a recent activity-based
costing (ABC) study. The study indicates Yellow should charge P8 per order, 2% of the order's value for
general delivery costs, P1.25 per item, and P30 for delivery.

A year later, Yellow collected the following information for two of its best-customers:

Cost Driver Customer C Customer D

Number of orders 18 8
Number of deliveries 10 10
Number of items 2,000 4,000

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Order value P120,000 P80,00

What are the total delivery costs charged to Customer D during the year?
A. P5,344 C. P6,900
B. P5,364 D. P6,964

38. On October 31, 2009, Mr. Cruz bought property from D’Vision Heights which
had earlier cost the latter P250,000. The company received a down payment
of P100,000 and a P400,000 mortgage note payable in twenty equal semiannual
installments plus 16% interest per annum on unpaid principal. Assuming the
gross profit is recognized in the period of sale, the amount of gross
profit to be recognized by D’Vision Heights in 2010 would be:
A. P 0 C. P100,000
B. P 50,000 D. P250,000

39. Virtuoso has a sales agency in Cebu. Agency revenues and expenses are
recorded in separate agency accounts, with the operating results of both
the agency and the home office generated at each month-end. For the month
of October 2010, the home office paid P10,000 for advertising costs on
behalf of the agency and recorded this as follows:
A. Cash agency 10,000
Cash 10,000

B. Advertising expense 10,000

Cash 10,000

C. Accounts receivable – Cebu Agency 10,000

Cash 10,000

D. Advertising expense – Cebu Agency 10,000

Cash 10,000

40. Premier Sales, Inc. has a branch in Cubao, Quezon City. The branch buys
merchandise from outside parties and also receives merchandise from the
home office for which it billed at 20% above cost. Below are excerpts from
the trial balances and other data of the home office and the Cubao branch
for the month just ended:

Home Office:
Cr.: Allowance for overvaluation of branch
Merchandise P 370,000
Cr.: Shipments to branch 850,000

Cubao Branch:
Dr.: Beginning inventory P1,440,000
Dr.: Shipments from home office 1,020,000
Dr.: Purchases 410,000

Month-end branch inventory:

From home office, at billed price P1,170,000
From outside parties, at cost 290,000

The amount of allowance for overvaluation that was realized because of

branch sales for the month just ended was:
A. P175,000 C. P200,000
B. P195,000 D. P370,000

41. Partners Rob and Roy, who share equally in profits and losses, have the
following balance sheet as of December 31, 2010:

Cash P120,000 Accounts payable P172,000

Accounts receivable 100,000 Accumulated dep’n 8,000
Merchandise inventory 140,000 Rob, capital 140,000
Equipment 80,000 Roy, capital 120,000
Total P440,000 Total P440,000

The agreed to incorporate their partnership, with the new corporation

absorbing the net assets after the following adjustments: provision of

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allowance for bad debts of P10,000; statement of the inventory at its

current fair value of P160,000; and recognition of further depreciation on
the equipment of P3,000. The corporation’s capital stock is to have a par
value of P100, and the partners are to be issued corresponding total shares
equivalent to their adjusted capital balances.

The total par value of the shares of capital stock that were issued to Rob
and Roy was:
A. P260,000 C. P273,000
B. P267,000 D. P280,000

42. Forbes Company sells goods on the installment basis. For the year just
ended, the following were reported:

Installment sales P3,000,000

Cost of installment sales 2,025,000
Collection on installment sales 1,800,000
Defaulted accounts 200,000
Fair market value of repossessions 120,000

The repossessions resulted in:

A. No gain, no loss C. A loss of P15,000
B. A gain of P15,000 D. A loss of P80,000

43. 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 defective
merchandise were shipped back by the branch and was given credit for P7,500
on the return. The branch also made purchases 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 C. P412,500
B. P343,750 D. P416,250

Items 44 and 45 are based on the following information:

The following selected data were taken from the books of the Bixby Box
Company. The company uses job costing to account for manufacturing costs. The
data relate to June operations.

(A) Materials and supplies were requisitioned from the stores clerk as
follows:

Job 405, material X, P7,000.

Job 406, material X, P3,000; material Y, P6,000.
Job 407, material X, P7,000; material Y, P3,200.
For general factory use: materials A, B, and C, P2,300.

(B) Time tickets for the month were chargeable as follows:

Requisition No. Amount
Job No. 405 P11,000 3,000 hours
Job No. 406 P14,000 3,600 hours
Job No. 407 P 8,000 1,900 hours
Indirect labor P 3,700

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(C) Other information:

Factory paychecks for P35,200 were issued during the month.
Various factory overhead charges of P19,400 were incurred on account.
Depreciation of factory equipment for the month was P5,400.
Factory overhead was applied to jobs at the rate of P3.50 per direct
labor hour.
Job orders completed during the month: Job 405 and Job 406.
Selling and administrative costs were P2,100.

44. If Job 406 were sold on account for P41,500 how much gross profit would be
recognized?
A. P 3,800 C. P18,500
B. P 5,900 D. P35,600

45. The balance in the factory overhead account would represent the fact that
overhead was
A. P1,050 underapplied C. P3,150 overapplied
B. P1,250 underapplied D. P4,350 overapplied

46. Peacock Company started operation at the beginning of 2009, selling home
appliances on the installment basis. Data for the first two years follow:
2009 2010
Installments sales P 400,000 P 500,000
Cost of installment sales 240,000 350,000
Collections on 2007 accounts 210,000 150,000
Collections on 2008 accounts 300,000
On October 1, 2010, an installment account of 2009 in the amount of
P15,000 was defaulted. The appliance, which the company believed should
resell for P10,000 after reconditioning cost of P300, was correspondingly
repossessed.

After appropriate adjustment, the deferred gross profit control account

balance at the end of 2010 would amount to:
A. P60,000 C. P70,000
B. P67,500 D. P76,000

47. Gloria Corporation started operations on January 1, 2009 selling home

appliances and furniture sets both for cash and on installment basis. Data
on the installment sales operations of the company gathered for the years
ending December 31, 2009 and 2010 were as follows:
2009 2010
Installment sales P 400,000 P 500,000
Cost of installment sales 240,000 350,000
Cash collected on installment sales:
2009 Installment Contracts 210,000 150,000
2010 Installment Contracts - 300,000

Additional information:
On January 5, 2011, and installment sale in 2009 was defaulted and
the merchandise with an appraised value of P5,000 was repossessed.
Related installment receivable balance on January 5, 2011 was P8,000.

The balance of Deferred Gross Profit on December 31, 2010 amounted to:
A. P130,000 C. P16,000
B. 76,000 D. 60,000

48. Kuchen Manufacturing uses backflush costing to account for an electronic

meter it makes. During August 2008, the firm produced 16,000 meters of
which it sold 15,800. The standard cost for each meter is:
Direct material P 20
Conversion costs 44
Total P 64

Assume that the company had no inventory on August 1. The following event
took place in August:
1. Purchased P320,000 of direct materials.

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2. Incurred P708,000 of conversion costs.

3. Applied P704,000 of conversion costs to Raw and In Process Inventory.
4. Finished 16,000 meters.
5. Sold 15,800 meters for P100 each.

Compute the Finished Goods, ending and the amount of Cost of Goods Sold
after the adjustment of over-under applied conversion cost:
Finished Goods, ending Cost of Goods Sold as adjusted
A. P -0- P 1,015,200
B. 12,800 1,011,200
C. -0- 1,024,000
D. 12,800 1,015,200

49. Clark Textiles Company manufactures various wood products that yield
sawdust as a by-product. The only costs associated with the sawdust are
selling costs of P6 per ton sold. The company accounts for sales of
sawdust by deducting sawdust’s net realizable value from the major
product’s cost of goods sold. Sawdust sales in 2008 were 12,000 tons at
P40 each. If Clark Textiles changes its method of accounting for sawdust
sales to show the net realizable value as other revenue (presented at the
bottom of the income statement), how would its gross margin and net
income be affected?
Gross Profit Net Income
A. None None
B. P408,000 decrease P408,000 decrease
C. P408,000 increase None
D. P408,000 decrease None

50. Agency 007 received a request for replenishment of petty cash fund for the
following expenses:

Office supplies P 500

Transportation fares 100
Repair of aircon 200
JRS mail 160

The entry for this transaction would be:

A. No entry

B. Memorandum entry to the RAOMO

C. Office supplies expense……………………………………………………… 500

Travelling expense…………………………………………………………………… 100
Repairs and maintenance……………………………………………………… 200
Other maintenance and operating expenses………… 160
Cash – National Treasury, MDS…………………………… 960

D. Office supplies expense……………………………………………………… 500

Travelling expense…………………………………………………………………… 100
Repairs and maintenance……………………………………………………… 200
Other maintenance and operating expenses………… 160
Petty Cash Fund………………………………………………………………… 960

51. Castle Company has two service departments and two user departments. The
number of employees in each department is

Personnel 10
Cafeteria 25
Producing Department A 265
Producing Department B 250
Total 550

The fixed costs of the Personnel Department are allocated on a basis of the
number of employees. If these costs are budgeted at P37,125 during a given
period, the amount of cost allocated to the Cafeteria under the step method
would be

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A. P0. C. P1,718.75
B. P1,687.50. D. P1,802.18

52. For Job Order No. 369, Escalera Company incurred the following costs for
the manufacture of 200 units of a novelty gadget:

Original cost accumulation:

Direct materials…………………………………………………………………………P 13,200
Direct labor…………………………………………………………………………………… 16,000
Factory overhead (150% of direct labor)…………… 24,000
Total………………………………………………………………………………………………………P 53,200

Direct costs of ten reworked units:

Direct materials……………………………………………………………………….P 2,000
Direct labor…………………………………………………………………………………. 3,200
Total…………………………………………………………………………………………………….P 5,200

The rework cost was attributable to exacting specifications required by

the job and was charged to the specific order. The units cost of Job
Order No. 369 is:
A. P266 C. P292
B. P280 D. P316

Items 53 and 54 are based on the following information:

The income statement submitted by the Tarlac Branch to the Home Office for the
month of December 31, 2008 follows:
Sales……………………………………………………………………………………………………………………P 600,000
Cost of sales:
Inventory, December 1, 2008………………………P 80,000
Shipments from home office………………………… 350,000
Purchases locally by branch……………………… 30,000
Total…………………………………………………………………………………P 460,000
Inventory, December 31, 2008…………………… 100,000 360,000
Gross margin…………………………………………………………………………………………………P 240,000
Operating expenses………………………………………………………………………………… 180,000
Net income for the month…………………………………………………………………P 60,000

The branch inventories consisted of:

12/1/2008 12/31/2008
Merchandise from home office P 70,000 P 84,000
Local purchases 10,000 16,000
Total P 80,000 P100,000

After effecting the necessary adjustments, the Home Office ascertained the
true net income of the Branch to be P156,000.

53. At what percentage of cost did the Home Office bill the branch for
merchandise shipped to it?
A. 100% C. 140%
B. 120% D. 150%

54. What is the balance of the Allowance for Overvaluation in the Branch
inventory at December 31, 2006?
A. P 10,000 C. P 24,000
B. 16,000 D. 34,000
55. Agency MMM paid the bill for the construction of the building as follows:
Accounts payble P5,950,000
Less: 10% retention (7,000,000 x 10%) 700,000
Withholding tax (7,000,000 10%) 700,000
Net amount P4,550,000
The entry to record this transaction would be:
A. Accounts payable………………………………………………………………… 5,950,000
Due to National Gov’t. Agency……………… 1,400,000
Cash – National Treasury, MDS……………… 4,550,000
B. Accounts payable………………………………………………………………… 4,550,000
Cash – National Treasury, MDS……………… 4,550,000
C. Accounts payable………………………………………………………………… 5,950,000

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Other payables……………………………………………………… 700,000

Withholding tax payable……………………………… 700,000
Cash – Disbursing officer………………………… 4,550,000
D. Accounts payable………………………………………………………………… 5,950,000
Other payables……………………………………………………… 700,000
Withholding tax payable……………………………… 700,000
Cash – National Treasury, MDS……………… 4,550,000
56. Read, Inc. instituted a new process in October 2008. During October,
10,000 units were started in Department A. Of the units started, 8,000
were transferred to Department B, and 2,000 remained in Work-in-Process
at October 31, 2008. The Work-in-Process at October 31, 2008, was 100%
complete as to material costs and 50% complete as to conversion costs.
Material costs of P27,000 and conversion costs of P36,000 were charged to
Department A in October. What were the total costs transferred to
Department B assuming Department A uses weighted average costing?
A. P46,900 C. P56,000
B. P53,600 D. P57,120

57. The debits to Work-in-Process for Department #2 for the month of April of
the current year, together with information concerning production, are
presented below. All direct materials come from Department #1. The units
completed include the 1,200 in process at the beginning of the period.
Department #2 uses FIFO costing. (“$” sign in the table should be in
pesos)

Determine the equivalent units of production for conversion costs.

A. 500 C. 5,900
B. 5,500 D. 6,400

58. Using the same information in No. 57, the cost of goods transferred to
finished goods is:
A. P17,660 C. P13,000
B. P16,000 D. P12,800

59. Using the same information in No. 57, the cost of the ending Work-in-
Process Inventory is:
A. P2,600 C. P1,000
B. P1,600 D. P 600

60. Tyro Construction Company has two projects, for which it reported, as of
December 31, 2010, the following information:
In thousand pesos: Project A Project B
Contract price P4,800 P 860
2009: Costs incurred P3,400
Percent completed 75%
2010: Costs incurred P1,250 P 140
Percent completed 25% 15%
Using the percentage-of-completion method of revenue recognition, gross
profit on Project A to be recognized in 2009 would be:
A. P200,000 C. P400,000
B. P300,000 D. P900,000

61. Ube Construction Company has consistently used the percentage-of-

completion method. On January 10, 2009, Ube began work on a P6,000,000
construction contract. At the inception date, the estimated cost of
construction was P4,500,000. The following data relate to the progress of
the contract:
Income recognized at 12/31/2009 P 600,000
Cost incurred 1/10/2009 through 12/31/2010 3,600,000
Estimated cost to complete at 12/31/2010 1,200,000

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How much income should Ube recognize for the year ended December 31, 2010?
A. P 300,000 C. P 600,000
B. 525,000 D. 900,000

62. Before prorating the manufacturing overhead costs at the end of 2008, the
Cost of Goods Sold and Finished Goods Inventory had applied overhead costs
of P57,500 and P20,000 in them, respectively. There was no work in process
at the beginning or end of 2008. During the year, manufacturing overhead
costs of P74,000 were actually incurred. The balance in the Applied
Manufacturing Overhead was P77,500 at the end of 2008. If the under- or
overapplied overhead is prorated between Cost of Goods Sold and the
inventory accounts, how much will be the Cost of Goods Sold after the
proration?
A. P54,903 C. P58,403
B. P56,597 D. P60,197

63. The Work-in-Process Inventory account of a manufacturing firm has a

balance of P2,400 at the end of an accounting period. The job cost sheets
of two uncompleted jobs show charges of P400 and P200 for materials used,
and charges of P300 and P500 for direct labor used. From this information,
it appears that the company is using a predetermined rate, as a percentage
of direct labor costs, of:
A. 41.7% C. 125.0%
B. 80.0%. D. 240.0%

64. The general journal entry to record the issuance of the materials represented by the following
materials requisitions for the month includes:
Description Requisition No. Amount
372 Job No. 179 P5,250
373 Job No. 184 P3,700
374 Job No. 180 P4,525
375 General factory use P 725
376 Job No. 182 P2,470

A. A debit to Materials Inventory, P15,945.

B. A debit to Materials Inventory, P16,670.
C. A debit to Work in Process Inventory, P15,945.
D. A credit to Work in Process Inventory, P15,945.

65. On December 30, 2008, Leigh Museum, a not-for-profit organization received

a P7,000,000 donation of Day Company shares with donor-stipulated
requirements as follows:
 Shares valued at P5,000,000 are to be sold, with the proceeds used to
erect a public viewing building.
 Shares valued at P2,000,000 are to be retained (invested
indefinitely), with the dividends used to support current operations.
As a consequence of the receipt of the Day shares, how much should Leigh
report as temporarily restricted net assets on its 2008 statement of
financial position (balance sheet)?
A. P 0 C. P5,000,000
B. 2,000,000 D. P7,000,000

66. On January 1, 2010, Kiner Company formed a foreign branch. The branch
purchased merchandise at a cost of 720,000 local currency units (LCU) on
February 15, 2010. The purchase price was equivalent to P180,000 on this
date. The branch’s inventory at December 31, 2010 consisted solely of
merchandise purchased on February 15, 2010, and amounted to 240,000 LCU.
The exchange rate was 6 LCU to P1 on December 31, 2010, and the average
rate of exchange was 5 LCU to P1 for 2010. In Kiner’s December 31, 2010
balance sheet, the branch inventory balance of 240,000 LCU should be
translated into Philippine pesos at (using closing rate method).
A. P 40,000 C. P 60,000
B. 48,000 D. 84,000
67. X and Y
Inc. owes the Xylo Corporation P60,000 on account, which is secured by
account receivable with a book value of P50,000. The unsecured portion is
considered a claim under the bankruptcy law, X and Y has filed for

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bankruptcy. Its statement of affairs lists the accounts receivable securing

the Xylo account with an estimated realizable value of P45,000. If the
dividend to general unsecured creditors is 80% how much can Xylo expect to
received?
A. P60,000 C. P57,000
B. P58,000 D. P48,000

68. A chemical company manufactures joint products Pep and Vim, and a by-
product. Zest. Costs are assigned to the joint products by the market value
method, which considers further processing costs in subsequent operations.
For allocating joint costs to the by-product, the market value or reversal
cost method is used. The total manufacturing costs for 10,000 units were
P172,000 during the quarter. Production and cost data follow:

Pep Vim Zest

Units produced 5,000 4,000 1,000
Sales price per unit P50 P40 P 5
Further processing cost per unit 10 5 -
Selling and administrative expense per unit 2
Operating profit per unit 1

The value of Zest to be deducted from the joint costs is:

A. P5,000 C. P2,000
B. P3,000 D. Zero

69. Using the same information in No. 68, compute the gross profit for Pep:
A. P 0 C. P 80,000
B. P70,000 D. P100,000

70. Bonifacio contractors had a 3-year construction contract in 2010 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 P 30,000

Construction in progress………………………………………………………… P 93,750
Less: Amounts billed…………………………………………………………… … 84,375
10% retention………………………………………………………………………. 9,375

Net income recognized in 2010 (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 C. P135,000
B. P94,000 D. P144,000

71. Hartwell Company distributes the service department overhead costs to

producing departments and the following information for the month of
January is presented as follows:

Maintenance Utilities
Overhead costs incurred P18,700 P 9,000
Services provided to:
Maintenance department - 10%
Utilities department 20% -
Producing department A 40% 30%
Producing department B 40% 60%
The company distributes service department costs based on the reciprocal
method, what would be the formula to determine the total maintenance costs?
A. M = P18,700 + .10U C. M = P18,700 + .30U + .40A + .40B
B. M = P9,000 + .20U D. M = P27,700 + .40A + .40B
72. On December 31, 2008, 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 payments of P10,000 each beginning December 31,

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2009. 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, 2008 of three annual payments
discounted at 14% (the implicit rate for a loan of this type) is P23,220.
On December 31, 2008, PP, Inc. should record unearned franchise fee of:
A. P 0 C. P30,000
B. P23,220 D. P43,220
73. The following information summarizes the standard cost for producing one
metal tennis racket frame. In addition, the variances for one month's
production are given. Assume that all inventory accounts have zero
balances at the beginning of the month:
Standard Cost Standard Monthly
Per Unit Costs
Materials P 4.00 P 8,400
Direct labor 2 hrs @P2.60 5.20 10,920
Factory overhead:
Variable 1.80 3,780
Fixed 5.00 10,500
Variances:
Materials price, P244.75 unfavorable
Materials quantity, P500.00 unfavorable
Labor rate, P520.00 unfavorable
Labor efficiency, P2,080.00 unfavorable
What were the actual direct labor hours worked during the month?
A. 5,000 C. 4,000
B. 4,800 D. 3,400
74. Using the same information in No. 73, what were the actual quantities of
materials used during the month?
A. 2,156 C. 2,225
B. 2,100 D. 1,975
75. Redd Co. uses a standard cost system for its production process and
applies overhead based on direct labor hours. The following information
is available for August when Redd made 4,500 units:
Standard:
DLH per unit 2.50
Variable overhead per DLH P1.75
Fixed overhead per DLH P3.10
Budgeted variable overhead P21,875
Budgeted fixed overhead P38,750
Actual:
Direct labor hours 10,000
Variable overhead P26,250
Fixed overhead P38,000
Using the two-variance approach, what is the controllable variance?
A. P5,812.50 U C. P4,375.00 U
B. P5,812.50 F D. P4,375.00 F
-end of examination -

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