Final Grading Exam Key Answers PDF
Final Grading Exam Key Answers PDF
Final Grading Exam Key Answers PDF
NAME: Date:
Professor: Section: Score:
A B
Cash 600,000
Inventory 20,000
Land 400,000
Equipment 50,000
Additional information:
Half of the inventory is unpaid. The partnership agreed to assume the related
accounts payable.
The land has a fair value of ₱700,000 and is subject to a mortgage of ₱100,000.
However, B agreed to settle the mortgage personally.
Solution:
A B
Cash 600,000
Inventory 20,000
Land 700,000
Equipment 50,000
Accounts payable (20,000 x ½) (10,000)
Adjusted capital balances 660,000 700,000
A B
Cash 400,000 -
700,00
Equipment 0
700,00
Total 500,000 0
Page |2
A, capital 500,000
700,00
B, capital 0
700,00
Total 500,000 0
Additional information:
The accounts receivable includes a ₱30,000 account that is deemed uncollectible.
The equipment is over-depreciated by ₱50,000. The equipment was obtained by B
through financing. The related loan payable has an unpaid balance of ₱250,000
which the partnership assumes on repaying.
Which partner has the higher capital credit, and how much?
a. A, ₱470,000 c. A, ₱500,000
b. B, ₱500,000 d. B, ₱400,000
Solution:
Partners
A B hip
Cash 400,000 - 400,000
Accounts
receivable
(100K – 30K) 70,000 - 70,000
Equipment
(700K+ 50K) 750,000 750,000
Loan payable (250,000) (250,000)
Net
contributions 470,000 500,000 970,000
3. Under the bonus method, the asset contribution of the partner receiving a bonus is
debited
a. at fair value.
b. at an increased amount with a corresponding decrease to the other partners’
asset contributions.
c. at a decreased amount with a corresponding increase to the other partners’
asset contributions.
d. b or c, depending on which partner is receiving the bonus.
Solution:
A B Total
Amount being allocated 100,000
Allocation:
1. Salaries 80,000 40,000 120,000
2. Allocation of remaining loss
(100K profit – 120K salaries) = -20K
(-20 x 50%); (-20K x 50%) (10,000) (10,000) (20,000)
As allocated 70,000 30,000 100,000
During the period the partnership incurred a loss of ₱20,000 before deduction for
salaries. By what amount did B’s capital account change?
a. Increased by ₱12,000 c. Increased by ₱32,000
b. Decreased by ₱12,000 d. Decreased by ₱32,000
Solution:
A B Total
Amount being allocated (20,000)
Allocation:
1. Salaries 10,000 40,000 50,000
2. Bonus - - -
3. Allocation of remaining loss
(– 20K – 50K) = -70K
(-70K x 60%); (-70K x 40%) (42,000) (28,000) (70,000)
(32,000
As allocated ) 12,000 (20,000)
During the period the partnership earned profit of ₱200,000 before deduction for
salaries. B’s beginning capital balance was ₱60,000. How much is the share of A in the
profit?
a. 101,680 c. 110,820
b. 98,320 d. 96,720
A B Total
Amount being allocated 200,000
Allocation:
1. Salaries 10,000 40,000 50,000
2. Bonus (200K – 50K) x 10% 15,000 - 15,000
Page |4
Solution:
A B Total
Amount being allocated 500,000
Allocation:
1. Bonus to A
First 200K: (200K x 2%) 4,000 4,000
Over 200K: [(500K - 200K) x 5%] 15,000 15,000
2. Bonus to B
(500K - 4K - 15K – 200K) x 1% 2,810 2,810
3. Allocation of remaining profit
(500K - 4K - 15K - 2.810K) ÷ 2 239,095 239,095 478,190
As allocated 258,095 241,905 500,000
The partnership earned profit of ₱500,000. C’s capital account had a beginning
balance of ₱300,000. The difference between the amounts received by A and B is
a. 160,000. c. 80,000.
b. 240,000. d. 60,000.
Solution:
B(40 C(20
A (40%) %) %) Total
Amount being allocated 500,000
Allocation:
1. Salaries 100,000 20,000 120,000
30,00
2. Interest on capital (300K x 10%) 0 30,000
3. Allocation of remaining loss
70,00
(500K – 120K – 30K) = 350K 140,000 140,000 0 350,000
Page |5
160,00 100,0
As allocated 240,000 0 00 200,000
The partnership earned profit of ₱100,000 after salaries. How much is the share of B?
a. 70,000 c. 130,000
b. 30,000 d. 90,000
Solution:
Profit before salaries = 100,000 + 80,000 + 40,000 = 220,000
A B Total
Amount being allocated 220,000
Allocation:
1. Salaries 80,000 40,000 120,000
2. Allocation of remaining profit
(220K profit – 120K salaries) = 100K
(100K x 50%); (100K x 50%) 50,000 50,000 100,000
As allocated 130,000 90,000 220,000
Solution:
Annual salaries:
A: (10,000 x 12 months) = 120,000
B: (4,000 x 12 months) = 48,000
A B Total
Amount being allocated 528,000
Allocation:
1. Salaries 120,000 48,000 168,000
2. Allocation of remaining profit
(528K profit – 168K salaries) = 360K
(360K x 50%); (360K x 50%) 180,000 180,000 360,000
As allocated 300,000 228,000 528,000
Page |6
11. A and B share equally in partnership profits and losses. During the year, A’s
capital account has a net increase of ₱50,000. Partner A made contributions of
₱10,000 and capital withdrawals of ₱60,000 during the year. How much was the
partnership profit for the year?
a. 180,000 c. 210,000
b. 200,000 d. 480,000
Solution:
Step 1:
A, Capital
- beg.
Withdrawa 60,00 10,00
ls 0 0 Additional investment
? Share in profit
50,00
end. 0
Step 2:
A, Capital
- beg.
Withdrawa 60,00 10,00
ls 0 0 Additional investment
100,0 Share in profit
00 (squeeze)
50,00
end. 0
The share of A in the partnership profit during the period was ₱595,000, including a
bonus of ₱90,000. How much was the share of B?
a. 386,000 c. 405,000
b. 398,000 d. 504,000
Solution:
Step 1:
A B Total
Amount being allocated ?
Allocation:
1. Salary of A 100,000 100,000
Page |7
? ? ?
As allocated 595,000 ? ?
Step 2:
A B Total
Amount being allocated ?
Allocation:
1. Salary of A 100,000 100,000
2. Bonus 90,000 90,000
3. Allocation of remaining profit
405,000(a) ? ?
As allocated 595,000 ? ?
(a)
595,000 – 100,000 – 90,000 = 405,000
Step 3:
A B Total
Amount being allocated ?
Allocation:
1. Salary of A 100,000 100,000
2. Bonus 90,000 90,000
3. Allocation of remaining profit
(b)
405,000 ÷ 50% = 810,000
(c)
810,000 x 50% = 405,000
(d)
equal to (c)
200,00
A, Capital 0 60%
120,00
B, Capital 0 40%
320,000
13. C purchases 20% interest in the partnership from A for ₱120,000. How much is
the capital balance of A after the admission of C?
a. 133,333 c. 96,000
b. 24,000 d. 148,000
Page |8
14. C purchases 20% interest in the partnership proportionately from A and B for
₱120,000. How much is the gain or loss recorded in the partnership books?
a. 48,000 c. 60,000
b. 56,000 d. 0
15. Using the case in #14 above, how much is the total equity of the partnership
after the admission of C?
a. 320,000 c. 240,000
b. 440,000 d. 200,000
18. Before the admission of C, B decides to retire. A acquires B’s interest for
₱180,000. How much is the capital balance of A after the retirement of B?
a. 200,000 c. 280,000
b. 264,000 d. 320,000
19. Before the admission of C, B decides to retire. The partnership pays B ₱180,000
in settlement of his partnership interest. How much is the capital balance of A after
the retirement of B?
a. 200,000 c. 260,000
b. 140,000 d. 320,000
Solution:
Date B, Capital 120,000
A, Capital 60,000
Cash 180,000
to record the withdrawal of B from the partnership
20. Using the case in #18 above, how much is the total equity of the partnership
after the retirement of B?
a. 320,000 c. 240,000
b. 440,000 d. 500,000
Solution:
Date B, Capital 120,000*
A, Capital 120,000*
to record the withdrawal of B from the partnership
Page |9
The partners were able to convert all assets into ₱90,000 cash. How much did B
receive from the final settlement of his interest?
a. 30,000 c. 28,000
b. 35,000 d. 36,667
Solution:
Step 1: Compute for the gain or loss
Net cash proceeds 90,000
Less: Carrying amount of all assets (100,000)
Total loss (10,000)
Step 2: Allocate the gain or loss to the partners’ capital balances (include their right
of offset)
The partners were able to convert all assets into ₱180,000 cash. How much did A and
B receive from the final settlement of their interests, respectively?
a. 50,000; 50,000 c. 70,000; 30,000
b. 60,000; 40,000 d. 56,667; 43,333
Solution:
Step 1: Compute for the gain or loss
Net cash proceeds 180,000
Less: Carrying amount of all assets (200,000)
Total loss (20,000)
Step 2: Allocate the gain or loss to the partners’ capital balances (include their right
of offset)
A (50%) B (50%) Totals
Capital balances 70,000 50,000 120,000
Allocation of loss
[20K x (50%& 50%)] (10,000) (10,000) (20,000)
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Cash 50,000
Noncash assets 1,200,000
Total 1,250,000
Three-fourths (3/4) of the noncash assets were sold for ₱920,000. The partnership paid
₱5,000 transaction costs on the sale. How much cash did C receive from the settlement
of the partners’ interests?
a. 163,000 c. 193,000
b. 186,000 d. 206,000
Solution:
Half of the noncash assets were sold for ₱370,000. The partnership paid ₱2,000
liquidation expenses. How much cash did B receive from the settlement of the
partners’ interests?
a. 163,400 c. 139,600
P a g e | 11
b. 168,000 d. 136,400
Solution:
All the noncash assets were sold for ₱870,000. The partnership paid ₱12,000
liquidation expenses.
Solution:
Assets Liabilities Equity
Cash Noncash A (20%) B (30%) C (50%)
160,000 980,000* 90,000 200,000 370,000 480,000
26. How much is the loss on the sale of noncash assets, including the effect of
liquidation expenses?
a. 98,000 c. 120,000
b. 112,000 d. 122,000
Solution:
Net cash proceeds (870,000 – 12,000) 858,000
Less: Carrying amount of non-cash assets (980,000)
Total loss on sale (122,000)
27. How much cash did A receive from the settlement of the partners’ interests?
a. 175,600 c. 149,600
b. 183,400 d. 128,400
Solution:
P a g e | 12
One-third of the noncash assets were sold for ₱70,000. The partnership paid ₱8,000
liquidation expenses. Partner C is insolvent. How much cash did A receive from the
settlement of the partners’ interests?
a. 12,400 c. 13,600
b. 16,800 d. 12,800
Solution:
Cash 50,000
Noncash assets 1,200,000
Total 1,250,000
29. If a cash priority program is prepared, which partner is paid first and how much
is the total payments to that partner before all partners will share on the available
cash based on their profit or loss ratios?
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a. A, ₱20,000 c. B, ₱96,000
b. B, ₱90,000 d. B, ₱60,000
Solution:
30. Three-fourths (3/4) of the noncash assets were sold for ₱920,000. The
partnership paid ₱5,000 transaction costs on the sale. How much cash did A receive
from the settlement of the partners’ interests under the cash priority program?
a. 447,500 c. 493,500
b. 386,500 d. 306,500
Solution:
LIABILITIES
Accounts payable 700,000 700,000
Salaries payable 800,000 800,000
Notes payable 500,000 500,000
Loan payable 750,000 750,000
Total liabilities 2,750,000 2,750,000
EQUITY
Share capital 1,000,000
Deficit (1,450,000)
Capital deficiency (450,000)
Additional information:
Administrative expenses expected to be incurred during the liquidation process is
₱180,000.
The equipment is pledged as collateral security for the notes payable.
The land is pledged as collateral security for the loan payable.
Assuming all the assets were sold, and all the liabilities were settled, equal to their
realizable values, how much would Mr. A, an unsecured non-priority creditor, would
expect to receive from his ₱500,000 claim from Bye-bye Corporation?
a. 98,312.24
b. 104,761.90
c. 130,912.34
d. 214,711,24
Free assets:
Excess of land over loan payable 550,000
Cash 200,000
Accounts receivable 450,000
Total free assets 1,200,000
Unsecured liabilities with priority:
Administrative expenses (180,000)
Salaries payable (800,000)
Net free assets 220,000
A
Solution:
The joint operation’s sales are computed as follows:
Joint operation
Initial contributions
(10 x 3) 120
D
Solution:
The joint operation’s profit is computed as follows:
Joint operation
Joint operation – B
Joint operation
Nov. 5 Merchandise-A 8,500 Nov. 15 Cash sales-C 20,400
12 Merchandise-B 7,000 18 Cash sales-C 4,200
14 Freight-in-C 200 30 Merchandise-B 1,210
Dec. 10 Purchases-C 3,500 Dec. 25 Unsold mdse. 540
charged to A
22 Selling expenses- 550
C
The joint arrangement provided for the division of gains and losses among A, B and C
in the ratio of 2:3:5. The joint operation is to close on December 31, 2008.
35. What is the amount of cash that A will receive on final settlement?
P a g e | 18
A
Solution:
Joint operation – A
Merchandise - A 8,500
1,320 540 Unsold mdse. charged to A
9,280 Receipt - excess debit
A B
Joint operation 18,000 Cr. 20,200 Cr.
Expenses paid from JO cash 1,850 2,600
Value of inventory taken 1,000 1,800
36. How much is the joint operation sales?
a. 84,670 b. 88,450 c. 92,650 d. 93,350
C
Solution:
Joint operation
Merchandise-A 25,000
Merchandise-B 25,000
Expenses (1,850 +
4,450 92,650 Sales (squeeze)
2,600)
38,200 Credit balances (18K + 20.2K)
C
Solution:
Joint operation
Merchandise-A 25,000
Merchandise-B 25,000 92,650 Sales
Expenses 4,450 2,800 Inventory taken
41,000 Profit - excess credit
38. LL, MM and NN formed a joint operation to purchase a piece of lot and to erect
an apartment building for sale. LL is to manage the joint operation; hence, he will
receive a bonus of 10% of the joint operation’s gain before deducting the bonus as
an expense. Any remaining gain or loss is to be divided equally among the
participants. The joint operation is completed on August 31, 20x1. On this date, the
accounts of MM and NN show the following balances:
Books of
MM NN
Account with LL 16,000 Cr. 16,000 Cr.
Account with MM 32,000 Cr.
P a g e | 19
There are unused constructions supplies which LL agreed to take over at its cost of
₱42,000.Final settlement with the joint operators will require payments as follows:
a. LL pays NN ₱11, 200, and MM pays NN ₱14, 000.
b. LL pays NN ₱25, 600, and MM ₱14, 400.
c. LL pays MM ₱14, 400, and NN pays LL ₱30,800.
d. LL pays MM ₱35,600, and NN pays LL ₱14,400.
D
Solution:
The joint operation profit is computed as follows:
Joint operation
Account with LL 16,000 18,000 Account with NN
Account with MM 32,000 42,000 Unused supplies
12,000 Profit - excess credit
Joint operation – MM
Balance 32,000
Sh. In profit 3,600 - Inventory taken
Receipt - excess debit 35,600
Joint operation – NN
18,000 Balance
Sh. In profit 3,600 - Inventory taken
14,400 Payment - excess credit
Since LL is the designated manager, he holds the joint operation’s cash. Therefore, LL is the one who will
distribute the final cash settlement. The final settlement is as follows:
LL shall pay MM his net receipt of 35,600. In turn, LL shall receive NN’s net payment of 14,400.
39. The following are the transactions of a joint operation formed by A, B and C
during a year:
a. A contributed cash of ₱100 and merchandise costing ₱200.
P a g e | 20
Solution:
Profit or loss is computed as follows:
Joint operation
Merchandise – A 200 800 Sales – C
Purchases - A's cash 100
Merchandise – B 400 210 Unsold inventory charged to C*
Freight - in – B 20
Expenses – C 200
Profit before salary and bonus -
90 Credit balance
Salaries expense - C 30
Profit after salary but before bonus
60 - Credit balance
Bonus expense** 12
48 Profit after salary and bonus
*Unsold inventory: (₱400 plus ₱20 freight-in) multiplied by one-half.
**Bonus is computed as follows:
P
B = P -
1 + Br
B = 60 – (60 ÷ 1.25%) = 12
B Solution:
6M / (6M + 1.5M) = 80% x 10M = 8M revenue to date;
P a g e | 22
The franchise contract requires Franchisor Co. to undertake activities that would
further improve its brand and its products, to which Franchisee Co. has rights, by
continuously undertaking research and development projects and marketing and
promotional activities. Although those activities do not result in the transfer of a good
or a service to Franchisee Co. as those activities occur, it is expected that Franchisee
Co. will benefit from those activities.
All of the necessary preparations were completed, and TIPPLE Co. started operations,
on January 31, 20x1.
45. How should Franchisor Co. recognize revenue from the ₱1,000,000 initial
franchise fee?
a. Recognize the ₱1,000,000 initial franchise fee as revenue in full on January 1,
20x1.
b. Recognize the ₱1,000,000 initial franchise fee as revenue in full on January 31,
20x1.
c. Recognize the ₱1,000,000 initial franchise fee as revenue throughout the license
period.
d. Any of the above, as a matter of accounting policy choice.
46. How should Franchisor Co. recognize revenue from the 5% of sales continuing
franchise fee?
P a g e | 23
49. Consignor Co. paid the in-transit insurance premium for consignment goods
shipped to Consignee Co. In addition, Consignor advanced part of the commission
that will be due when Consignee sells the goods. Should Consignor include the in-
transit insurance premium and the advanced commissions in inventory costs?
Insurance premium Advanced commission
a. Yes Yes
b. No No
c. Yes No
d. No Yes
50. Black Co., a consignee, paid the freight costs for goods shipped from White Co.,
a consignor. These freight costs are to be deducted from Black’s payment to White
when the consignment goods are sold. Until Black sells the goods, the freight costs
should be included in Black’s
a. Cost of goods sold c. Selling expenses
b. Freight-out costs d. Receivable
Materials generated from the testing were sold for ₱5,000 and included in the
remittance to Trumpet Co.
52. How much profit is earned by the consignor from the sale?
a. 3,292,500
b. 5,375,000
c. 1,025,000
d. 3,412,500
(a)
Cost of goods sold is computed as follows:
Unit cost 1,000,000
Freight per machine (200,000 ÷ 8) 25,000
Total unit cost 1,025,000
Multiply by: No. of machines sold 5
Cost of goods sold 5,125,000
(b)
The commission is computed as follows:
We will use the following formula for bonus after bonus:
B = P – [P ÷ (1 + Br)]
C
20x1: 800,000 x (1.6M / 4M) = 320,000
20x2: 1,920,000 x (2.16M / 4.8M) = 864,000
320,000 + 864,000 = 1,184,000
56. RIBALD OFFENSIVE Co. uses the installment method. On December 31, 20x3,
RIBALD Co.’s records show the following balances:
Deferred gross profit (before year-end adjustments) 2,252,000
Installment receivable - 20x2 960,000
Installment receivable - 20x3 2,400,000
P a g e | 26
Gross profit rate in 20x2 is 24% based on sales while gross profit rate in 20x3 is
331/3% based on cost.
D Solution:
DGP (before year-end adjustments) 2,252,000
Less: Adjusted balance of deferred gross profit:
Installment receivable,20x2 x GPR
(960K x 24%) 230,400
Installment receivable,20x3 x GPR
(2.4M x 331/3%/1331/3%) 600,000 830,400
Decrease in DGP - Realized gross profit 1,421,600
57. VISAGE APPEARANCE Co. uses the installment method. The following
information was taken from VISAGE’s records:
20x1 20x2
Installment sales ? ?
Cost of sales 1,200,000 1,320,000
Installment receivable - 20x1 1,200,000 800,000
Installment receivable - 20x2 1,440,000
Gross profit rates based on sales 40% 45%
D Solution:
Installment receivable - 20x1, Jan. 1, 20x2 1,200,000
Installment receivable - 20x1, Dec. 31, 20x2 (800,000)
Decrease representing collections during the year 400,000
Multiply by: Gross profit rate 40%
Realized gross profit in 20x2 from 20x1 sale 160,000
DECORTICATE PEEL Co. uses the installment method. The following information was
taken from DECORTICATE’s records:
20x1 20x2
Deferred gross profit (adjusted ending balances):
from 20x1 sale 480,000 320,000
from 20x2 sale 648,000
Gross profit rates based on sales 40% 45%
Cash collections from:
20x1 sales 800,000 400,000
20x2 sales 960,000
58. How much are the balances of installment receivables on December 31, 20x2?
From 20x1 From 20x2
a. 800,000 1,440,000
b. 2,000,000 2,400,000
c. 1,440,000 800,000
d. 2,400,000 2,000,000
60. PERAMBULATE STROLL Co. uses the installment method. The following
information was taken from PERAMBULATE’s records:
20x1 20x2
Installment sales 2,000,000 2,400,000
Cost of sales 1,200,000 1,320,000
Cash collections from:
20x1 sales 800,000 400,000
P a g e | 28
How much is the total deferred gross profit on December 31, 20x2?
a. 320,000
b. 1,440,000
c. 648,000
d. 968,000
Solution:
Gross profit rate - 20x1: [(2M-1.2M)/2M] 40%
Gross profit rate - 20x2: [(2.4M-1.32M)/2.4M] 45%
Total deferred gross profit - Dec. 31, 20x2 (320K + 648K) 968,000
Solution:
20x1 20x2 20x3
Installment sales 2,400,000 3,000,000 3,600,000
Down payment (20%) 480,000 600,000 720,000
Collection of balance:
- from 20x1 sales:
1st yr. [(2.4M x 80%*) x 50%]; 2nd yr. [(2.4M
x 80%) x 30%]; 3rd yr. [(2.4M x 80%) x 20%] 960,000 576,000 384,000
1,200,000 720,000
P a g e | 29
62. ABASE HUMILIATE Co. is currently preparing its combined financial statements
for the year ended December 31, 20x1. As of this date, the “Investment in branch”
account has a balance of ₱380,000 while the “Home office” account has a balance
of ₱528,000. The following information has been gathered:
a. The home office allocated unpaid utilities expenses amounting to ₱40,000 to the
branch which the branch did not record in full. Instead, the branch sent a wrong
adjusting memo to the home office reducing the charge by ₱10,000 and setting up a
liability for the remaining amount.
b. The home office erroneously credited the branch for a return of shipment of
merchandise worth ₱100,000. The branch did not make any return of merchandise.
c. The branch mistakenly received a copy of the home office correcting entry for item
(b) above dated January 3, 20x2 and entered a credit in favor of the home office on
December 31, 20x1.
d. The branch mistakenly sent the home office a debit memo amounting to ₱12,000 for
an apparent remittance of collections which did not happen. The home office did
not record the debit memo.
How much is the net adjustment to the “Investment in branch” account? increase
(decrease)
a. 100,000
b. 48,000
c. (48,000)
d. (52,000)
A
Solution:
The following information was taken from the records of the home office:
Branch current account 2,600,000
Shipments to branch 2,000,000
Allowance for markup - Unadjusted 500,000
D
Solution:
Billing rate based Billings to branch by home office
on cost = Shipments to branch
= 2,500,000 ÷ 2,000,000 = 125%
B
Solution:
Markup percentage Allowance for markup
based on cost = Shipments to branch
= 500,000 ÷ 2,000,000 = 25%
65. How much is the sales of branch to be included in the combined financial
statements?
a. 2,800,000 b. 2,240,000 c. 2,333,333 d. 0
A
Solution:
Total unrealized markup
(or unadjusted balance of allowance account)
(or 2,500,000 x 25%/125%) 500,000
Less: Unrealized markup in ending inventory
(250K x 25%/125%) (200,000)
Realized markup 300,000
67. How much is the cost of goods sold of the branch to be included in the combined
financial statements?
P a g e | 31
C
Solution:
Inventory, beg. (at cost) -
Shipments from home office (at cost) (2.5M ÷ 125%) 2,000,000
Total goods available for sale 2,000,000
Inventory, end (at cost) (1M ÷ 125%) (800,000)
Cost of goods sold (at cost) 1,200,000
68. How much is the ending inventory of the branch to be included in the combined
financial statements?
a. 1,000,000 b. 8333,333 c. 1,250,000 d. 800,000
70. How much is the ending balance of the “allowance for markup” account before
combining the financial statements?
a. 200,000 b. 166,667 c. 230,000 d. 266,667
A
Solution:
Allowance for markup – unadjusted 500,000
Realized markup (300,000)
Allowance for markup - end. 200,000
B
Solution:
Sales 2,800,000
Cost of sales:
Inventory, beg. -
Shipments from home office 2,500,000
Total goods available for sale 2,500,000
Inventory, end. (1,000,000) (1,500,000)
Individual gross profit of branch 1,300,000
Operating expenses (400,000)
Individual profit of branch 900,000
A
Solution:
Sales 2,800,000
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Cost of sales:
Inventory, beg. -
Shipments from home office - at cost
2,000,000
(625K ÷ 125%)
Total goods available for sale 2,000,000
Inventory, end. - at cost
(800,000) (1,200,000)
(250K ÷ 125%)
True gross profit of branch 1,600,000
Operating expenses (400,000)
True profit of branch 1,200,000
73. How much is the adjusted balance of the branch current account immediately
prior to combining the financial statements?
a. 3,200,000 b. 3,400,000 c. 3,500,000 d. 3,666,667
C
Solution:
Branch current (or Investment in branch) – unadjusted 2,600,000
Individual profit of branch 900,000
Branch current – adjusted 3,500,000
74. The home office transfers inventory worth P600,000 to Branch #1. Freight paid
by the home office is ₱40,000. Later on, the home office instructs Branch #1 to
transfer the merchandise to Branch #2. Branch #1 pays freight of ₱12,000. If the
merchandise had been shipped directly from the home office to Branch #2, the
freight cost would have been ₱56,000. The entries to record the transactions
described includes
a. a credit to savings on freight of ₱4,000 in the books of Branch #1.
b. a credit to savings on freight of ₱4,000 in the books of Branch #2.
c. a credit to savings on freight of ₱4,000 in the books of the home office.
d. none of these
77. How should Entity C account for the insurance contract with Entity B?
a. using the general model or the premium allocation approach
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b. using the modified version of the general model applicable for reinsurance
contracts held
c. using the modified version of the general model applicable for onerous
insurance contracts
d. a or b, as an accounting policy choice
78. PFRS 17 requires an entity to combine its insurance contracts into portfolios
and further subdivide the insurance contracts comprising each portfolio into
groups. Which of the following is not one of the groups of insurance contracts
within a portfolio?
a. those that are onerous at initial recognition
b. those that, at initial recognition, have no significant possibility of becoming
onerous in subsequent periods
c. those that are neither onerous at initial recognition nor expected to become
onerous in subsequent periods
d. those that pay premiums at initial recognition which are to be measured using
the simplified approach
79. The significant risk that is transferred from the policyholder to the issuer of an
insurance contract is
a. lapse or persistency risk. c. expense risk.
b. financial risk. d. insurance risk.
81. Which of the following is not one of the characteristics of an insurance contract?
a. transfer of significant insurance risk from the policyholder to the issuer
b. policyholder pays the issuer for the transfer of risk
c. issuer indemnifies the policyholder for losses when the insured event occurs
d. transfer of significant insurance risk from the issuer to the policyholder
82. Under the general model of PFRS 17, a group of insurance contracts is initially
measured at
a. the fulfillment cash flows.
b. the contractual service margin.
c. a or b, as an accounting policy choice
d. sum of a and b
84. How should Entity B account for the insurance contract with Entity C?
a. using the general model
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b. using the modified version of the general model applicable for reinsurance
contracts held
c. using the modified version of the general model applicable for onerous
insurance contracts
d. using the model applicable for onerous insurance contracts
e. any of these as a matter of accounting policy choice
87. Which of the following contracts is within the scope of IFRIC 12 Service
Concession Arrangements?
a. ABC Co., a private entity, wins a government bid to provide computer equipment
to be used in the upcoming elections.
b. DEF Co., a private entity, wins a government bid to operate a canteen in a
government agency office.
c. XYZ, Inc., a private entity, wins a government bid to provide internet access to
all government offices and cellular phones and plans to all government
employees.
d. GHI Co., a private entity, wins a government bid to construct, operate and
maintain for 25 years an expressway. At the end of the contract, GHI Co. shall
handover the express way to the government.
88. How should the operator in a BOT contract subsequently measure the
consideration from the contract that is in the form of a financial asset?
a. at amortized cost
b. at fair value through other comprehensive income
c. at fair value through profit or loss
d. any of these
STANDARDS
90. You are an accountant. Your client, a franchisor, asked you for an advice
regarding the accounting for revenues from a franchise contract. Your advice to
your client would most certainly be based on which of the following standards?
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“You will eat the fruit of your labor; blessings and prosperity will be yours.”
(Psalm 128:2)
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