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November 10, 2019


NOTE: Final answers must be indicated on the separate answer sheet provided. Intermediary work on
questionnaire and scratch paper will merit no points.

1. Which cost accumulation procedure is most applicable in continuous mass production

manufacturing environments?
A. standard C. process
B. actual D. job order

2. The installment method of recognizing profit for accounting purposes is acceptable if

A. collection in the year of sale do not exceed 30% of the total sales price
B. an unrealized profits account is credited
C. collection of the sales price is not reasonably assured
D. the method is consistently used for all sales of similar merchandise

1. If a company reports a receivable denominates in Euros (€) and the Philippine peso weakens vis-à-
vis the Euro:
A. The company will not report the change in the relative value of the receivable until the
receivable is collected.
B. The company will accrue the gain in its financial statements as of the statement date, even
before the receivable is collected.
C. The company will accrue the loss in its financial statements as of the statement date, even
before the receivable is collected.
D. The company will recognize the increase in the Philippine peso value of the receivable on its
balance shees as of the statement date, but the unrealized gain will not be recognized in its
income statement until the receivable is collected.

4. The term “control” means ownership, directly or indirectly through subsidiaries of

A. more than one-half of the outstanding voting stock of another company.
B. at least 20% of the voting stock of another company.
C. at least 50% of the voting stock of another company.
D. at least 10% of the voting stock of another company.

5. Under the cost recovery method of revenue recognition,

A. income is recognized on a proportionate basis as cash is received on the sale of the product.
B. income is recognized when the cash received from the sale of the product is greater than
the cost of the product.
C. income is recognized immediately.
D. none of these.
6. An example of a notional amount is
A. number of barrels of oil.
B. interest rates.
C. currency swaps.
D. stock prices.

7. A December 15, 2019 purchase of goods was denominated in a currency other than the entity’s
functional currency. The transaction resulted in a payable that was fixed in terms of the amount of
foreign currency, and was paid on the settlement date, January 20, 2020. The exchange rates
between the functional currency and the currency in which the transaction was denominated
changed between the transaction date and December 31, 2019, and again between December 31,
2019, and January 20, 2020. Both exchange rate changes resulted in gains. The amount of the gain
that should be included in the 2020 financial statements would be
A. the gain from December 31, 2019, to January 20, 2020
B. the gain from December 15, 2019, to January 20, 2020
C. the gain from December 15, 2019, to December 31, 2019
D. zero.

8. In a production cost report using process costing, transferred-in costs are similar to
A. direct materials added at a point during the process
B. conversion costs added during the process
C. costs transferred to the next process
D. costs included in beginning inventory

9. Partnership capital and drawings accounts are similar to the corporate

A. paid in capital, retained earnings, and dividends accounts.
B. retained earnings account.
C. paid in capital and retained earnings accounts.
D. preferred and common stock accounts.

10. If a new partner acquires a partnership interest directly from the partners rather than from the
partnership itself,
A. no entry is required.
B. the partnership assets should be revalued.
C. the existing partners’ capital accounts should be reduced, and the new partner’s account
D. the partnership has undergone a quasi-reorganization.

Advanced Financial Accounting and Reporting Page 2 of 8

11. The following data pertains to Pelicans Co.’s construction jobs, which commenced during 2019:

Project 1 Project 2
Contract price P420,000 P300,000
Cost incurred during 2019 240,000 280,000
Estimated cost to complete 120,000 40,000
Billed to customers during 2019 150,000 270,000
Received from customers during 2019 90,000 250,000

If Pelicans used the percentage of completion method, what amount of gross profit (loss) would
Pelicans report in its 2019 income statement?
A. (20,000) C. 22,500
B. 20,000 D. 40,000

12. On January 1, 2019, SMV Corp. issued 200,000 additional shares of P10 par value common stock in
exchange for all of QM Corp’s common stock. Immediately before this business combination, SMV’s
stockholder’s equity was P8,000,000 and QM’s stockholder’s equity was P4,000,000. On January 1,
2019, fair market value of SMV’s common stock was P20 per share, and fair market value of QM’s
net assets was P4,000,000. SMV’s net income for the year ended December 31, 2019, exclusive of
any consideration of QM, was P1,250,000. QM’s net income for the year ended December 31, 2019,
was P300,000. During 2019, SMV paid dividends of P450,000. SMV had no business transactions
with QM in 2019. Assuming that purchase method was used in this business combination, how
much is the consolidated stockholder’s equity at December 31, 2019?
A. 8,800,000 C. 13,100,000
B. 9,100,000 D. 13,350,000

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For numbers 13 and 14:
On January 1, 2020, Owen Corp. purchased all of Sharp Corp.’s common stock for P1,200,000. On
that date, the fair values of Sharp’s assets and liabilities equaled their carrying amounts of
P1,320,000 and P320,000, respectively. During 2020, Sharp paid cash dividends of P20,000. Selected
information for the separate balance sheets and income statements of Owen and Sharp as of
December 31, 2020, and for the year ended follows:

Owen Sharp
Balance Sheet Accounts:
Investment in subsidiary 1,300,000
Retained earnings 1,240,000 560,000
Total stockholders’ equity 2,620,000 1,120,000

Income Statement Accounts:

Operating income 420,000 200,000
Equity in earnings of Sharp 120,000
Net income 400,000 140,000

13. In Owen’s 2020 consolidated income statement, what amount should be reported for amortization
of goodwill?
A. 0 C. 18,000
B. 12,000 D. 20,000

14. In Owen’s December 31, 2020 consolidated balance sheet, what amount should be reported as total
retained earnings?
A. 1,240,000 C. 1,380,000
B. 1,360,000 D. 1,800,000

15. The following information pertains to shipments of merchandise from Home Office to Branch
during 2020:

Home office’s cost of merchandise P160,000

Intracompany billings 200,000
Sales by branch 250,000
Unsold merchandise at branch, 12/31/20 20,000

In the combined income statement of Home Office and Branch for the year ended December 31,
2020, what amount of the above transactions should be included in sales?
A. 250,000 C. 200,000
B. 230,000 D. 180,000

Advanced Financial Accounting and Reporting Page 4 of 8

16. On September 1, 2020, Bain Corp. received an order for equipment from a foreign customer for
300,000 local currency units (LCU) when the peso equivalent was P96,000. Bain shipped the
equipment on October 15, 2020 and billed the customer for 300,000 LCU when the peso equivalent
was P100,000. Bain received the customer’s remittance in full on November 16, 2020 and sold the
300,000 LCU for P105,000. In its income statement for the year ended December 31, 2020, Bain
should report a foreign exchange transaction gain of:
A. 0 C. 5,000
B. 4,000 D. 9,000

For numbers 17 and 18:

The following condensed balance sheet is presented for the partnership of Alfa and Beda, who share
profits and losses in the ratio of 60:40, respectively:

Cash 45,000
Other assets 625,000
Beda, loan 30,000

Accounts payable, 120,000

Alfa, capital 348,000
Beda, capital 232,000

17. The assets and liabilities are fairly valued on the balance sheet. Alfa and Beda decide to admit Capp
as a new partner with a 20% interest. No goodwill or bonus is to be recorded. What amount should
Capp contribute in cash or other assets?
A. 110,000 C. 140,000
B. 116,000 D. 145,000

18. Instead of admitting a new partner, Alfa and Beda decide to liquidate the partnership. If the other
assets are sold for P500,000, what amount of the available cash should be distributed to Alfa?
A. 255,000 C. 327,000
B. 273,000 D. 348,000

19. The flexible budget for the month of May was for 9,000 units with direct materials at P15 per unit.
Direct labor was budgeted at 45 minutes per unit for a total of P81,000. Actual output for the month
was 8,500 units with P127,500 in direct materials and P77,775 in direct labor expense. The direct
labor standard of 45 minutes was maintained throughout the month. Variance analysis of the
performance for the month of May would show a (an)
A. 7,500 favorable materials usage variance.
B. 1,275 favorable direct labor efficiency variance.
C. 1,275 unfavorable direct labor efficiency variance.
D. 1,275 unfavorable direct labor price variance.

Advanced Financial Accounting and Reporting Page 5 of 8

20. The manufacturing firm planned to manufacture and sell 100,000 units of product during the year
at a variable cost per unit of P4.00 and a fixed cost per unit of P2.00. the firm fell short of its goal
and only manufactured 80,000 units at a total incurred cost of P515,000. The firm’s manufacturing
cost variance was
A. 85,000 favorable C. 5,000 favorable
B. 35,000 unfavorable D. 5,000 unfavorable

21. For the first semester of 2020, Public University assessed its students P4,000,000 (net of refunds),
covering tuition and fees for educational and general purposes. However, only P3,700,000 was
expected to be realized because tuition remissions of P80,000 were allowed to faculty members’
children attending Public University, and scholarship totaling P220,000 were granted to students.
What amount should Public University include in education and general current funds revenues
from student tuition and fees?
A. 4,000,000 C. 3,780,000
B. 3,920,000 D. 3,700,000

22. In April 2020, Alice Reed donated P100,000 cash to her church, with the stipulation that the income
generated from the gift is to be paid to Alice during her lifetime. The conditions of this donation are
that, after Alice dies, the principal can be used by the church for any purpose voted on by the church
elders. The church received interest of P8,000 on the P100,000 for the year ended March 31, 2021
and the interest was remitted to Alice. In the church’s March 31, 2021 financial statements
A. P8,000 should be reported under support and revenue in the activity statement.
B. P92,000 should be reported under support and revenue in the activity statement.
C. P100,000 should be reported as deferred support in the balance sheet.
D. The gift and its terms should be disclosed only in notes to the financial statements.

23. Queen Co. is a print shop, which produces jobs to customer specifications. During January, Job #123
was worked on and the following information is available:

Direct materials used P2,500

Direct labor hours worked 15
Machine time used 16
Direct labor rate per hour P7.00
Overhead application rate per machine hour P18.00

What was the total cost of Job #123 for January?

A. 3,025 C. 2,770
B. 2,812 D. 2,713

24. The Lotus Co. manufactures a specialty line of product using a job order costing system. During
May, the following costs were incurred in completing Job #03: direct materials, P13,700; direct labor,
P4,800; administrative, P1,400; and selling , P5,600. Factory overhead was applied at the rate of P25
per machine hour. Job #03 requires 800 machine hours. If Job #03 resulted in 7,000 good units,
what is the cost of goods sold per unit?
A. 6.50 C. 5.70
B. 6.30 D. 5.50

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25. The following information relates to Job No. 2468, which being carried out by Flexy Feet to meet a
customer’s order:

Dept. A Dept. B v
Direct materials consumed P5,000 P3,000
Direct labor rate per hour 4 5
Production overhead per direct labor hour 4 4
Direct labor hours employed 400 200
Administrative and other overhead cost 20% of full production cost
Profit markup 25% of selling price

What is the selling price to the customer of Job No. 2468?

A. 16,250 C. 19,800
B. 17,333 D. 20,800

26. The Backflushers Manufacturing Corp. uses a Raw and In Process inventory account and expenses
all conversion costs to the cost of goods sold account. At the end of each month, all inventories are
counted, their conversion cost components are estimated, and inventory account balances are
adjusted accordingly. Raw material cost is backflushed from RIP to finished goods. The following
information is for the month of May:

Raw and In Process inventory account, May 1, P5,000

including P500 of conversion cost
Raw materials received during May 100,000
(50% down, balance in four installments)
Raw and In Process inventory account, May 31, 5,250
including P650 of estimated conversion cost

What is the amount to be backflushed from RIP to finished goods?

A. 90,900 C. 104,500
B. 99,900 D. 109,100

27. Seco Corp. was forced into bankruptcy and is in the process of liquidating assets and paying claims.
Unsecured claims will be paid at the rate of P0.40 on the peso. Hale holds a P30,000 noninterest
bearing note receivable from Seco collateralized by an asset with a book value of P35,000 and a
liquidation value of P5,000.

The amount to be realized by Hale on this note is

A. 5,000 C. 15,000
B. 12,000 D. 17,000

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For numbers 28 and 29:
The following selected account balances were taken from the balance sheet of Quitting Corp. as of
December 31, 2020, immediately before the take-over of the trustee:

Marketable securities P300,000

Inventories 110,000
Land 150,000
Building 400,000

Additional information:
● Marketable securities have present market value of P320,000. These securities have been
pledged to secure notes payable of P280,000.
● The estimated worth of inventories is P70,000. However, inventories with book value of
P50,000 have been pledged to secure notes payable for P60,000. The realizable value of the
inventories pledged is estimated to be P40,000.
● Land and building are estimated to have a total realizable value of P450,000. This property
is pledged to secure the mortgage payable of P250,000.

28. What is the estimated amount available for preferred claims and unsecured creditors out of assets
pledged with fully secured creditors?
A. 840,000 C. 770,000
B. 810,000 D. 240,000

29. What is the total amount of net free assets?

A. 810,000 C. 270,000
B. 770,000 D. 240,000

30. Krebs Crabs, Inc. franchisor, entered into a franchise agreement with Liwayway Ligaya, franchisee,
on July 1, 2020. The total franchise fees agreed upon is P1,100,000, of which P100,000 is payable
upon signing and the balance payable in four equal annual installments. It was agreed that the down
payment is not refundable, notwithstanding lack of substantial performance of services by
franchisor. When Krebs prepares its financial statements on July 31, 2020, the unearned franchise
fees to be reported is:
A. 0 C. 1,000,000
B. 100,000 D. 1,100,000

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