ReSA

The Review School of Accountancy

5th Flr.CMFFI Bldg. R.Papa Cor. S.H. Loyola Sts. Sampaloc, Manila
Contact Nos. 0915-2303213l; (02)87343989; (02)87359807

ADVANCED FINANCIAL ACCOUNTING & REPORTING 24 July 2021(Saturday)

First Pre-Board Examination 6:00 P.M.– 9:00 P.M.

MULTIPLE CHOICE
INSTRUCTIONS: Select the correct answer for each of the following
questions. Mark only one answer for each item by shading the box
corresponding to the letter of your choice on the sheet provided.
STRICTLY NO ERASURES ARE ALLOWED. Use pencil no. 2 only.

1. On August 5, 20x5, Famous Furniture shipped 20 dining sets on consignment to

Furniture Outlet, Inc. The cost of each dining set was P350. The cost of
shipping the dining sets amounted to P1,800 and was paid for by Famous
Furniture. On December 30, 2014, the consignee reported the sale of 15 dining
sets at P850 each. The consignee remitted payment for the amount due after
deducting a 6% commission, advertising expense of P300, and installation and
setup costs of P390. The amount cash received by Famous Furniture is
A. P12,750 C. P11,295
B. P11,985 D. P11,685
2. Happy, Inc. opens a sales agency in Davao City, and a working fund for P20,000
is established on the imprest basis. The first payment from the fund is P3,000
for rent. This transaction should be recorded by the home office as
follows:(9-F26)
A. No entry
B. Rent……………………………………………………………………………………………………………………………… 3,000
Cash……………………………………………………………………………………………………………… 3,000
C. Davao Agency………………………………………………………………………………………………………… 3,000
Cash……………………………………………………………………………………………………………… 3,000
D. Davao Agency……………………………………………………………………………………………………… 3,000
Working Fund………………………………………………………………………………………… 3,000

3. XX, YY, and ZZ, a partnership formed on January 1, 20x8 had the following
initial investment: (8-F26)
XX………………………………………………………………P 170,000
YY……………………………………………………………… 255,000
ZZ……………………………………………………………… 382,500
The partnership agreement states that the profits and losses are to be shared
equally by the partners after consideration is made for the following:
- Salaries allowed to partners: P102,000 for XX, P81,600 for YY, and
P61,200 for ZZ.
- Average partners’ capital balances during the year shall be allowed 10%.
Additional information:
- On June 30, 20x8, XX invested an additional P102,000.
- ZZ withdrew P119,000 from the partnership on September 30, 20x8.
- Share the remaining partnership profit was P8,500 for each partner.
The total partnership capital on December 31, 20x8 was:
A. P 688,500 C. P 816,000
B. 1,141,550 D. 1,143,675
4. Following is the income statement of XYZ Branch in Cebu City Company, for the
six months period ending June 30, 20x8: (23-F26)
Sales…………………………………………………………………………………………………………………P 620,000
Cost of sales:
Shipments from home office……………………P 550,000
Purchases………………………………………………………………… 50,000
Total………………………………………………………………………….P 600,000
Inventory, June 30, 20x8:
From Home Office…………… P 75,000
From purchases………………… 10,000 85,000 515,000
Gross margin………………………………………………………………………… P 105,000
Expenses…………………………………………………………………………………… 85,000
Net income for the month………………………………………… P 20,000
ReSA - The Review School of Accountancy Page 2 of 25

The Home Office ships merchandise to, and bills the Branch Office at 125% of
cost. The rent of the Branch office for six months at a monthly rate of P1,000
was paid by the home.
The Home Office net profit from its Branch Office in Cebu City for the six (6)
months ending June 30, 20x8 is:
A. P 14,000 C. P125,000
B. P109,000 D. P139,000

Items 5 to 11 are based on the following information:

On January 1, 20x5, Lesley Benjamin signed an agreement (covering 5 years) to
operate as a franchisee of Campbell Inc. for an initial franchise fee of P50,000.
The amount of P10,000 was paid when the agreement was signed, and the balance is
payable in five annual payments of P8,000 each, beginning January 1, 20x6. The
agreement provides that the down payment is non-refundable and that no future
services are required of the franchisor once the franchise commences operations
on April 1, 20x5. Lesley Benjamin’s credit rating indicates that she can borrow
money at 11% for a loan of this type.
5. The amount of franchise revenue on January 1, 20x5:
A. Zero. C. P39,567
B. P10,433 D. P50,000
6. The amount of franchise revenue on April 1, 20x5:
A. Zero. C. P39,567
B. P10,433 D. P50,000
7. For Campbell’s 20x5-related revenue for this franchise arrangement, assuming
that in addition to the franchise rights, Campbell also provides 1 year of
operational consulting and training services, beginning on the signing date.
These services have a value of P3,600. The amount of franchise and service
revenue on January 1, 20x5 amounted to
A. Zero. C. P39,567
B. P10,433 D. P50,000
8. In relation to No. 7, the amount of franchise revenue (not including service
revenue) on April 1, 20x5:
A. Zero. C. P39,567
B. P35,967 D. P50,000
9. In relation to Nos. 7 and 8 the amount of service revenue for the year 20x5:
A. Zero. C. P3,600
B. P2,700 D. P6,300
10. The amount of franchise revenue on January 1, 20x5 assuming that Campbell
must provide services to Benjamin throughout the franchise period to maintain
the franchise value.
A. Zero. C. P39,567
B. P10,433 D. P50,000
11. In relation to No. 10, the amount of franchise revenue on December 31, 20x5:
A. Zero. C. P39,567
B. P7,913 D. P50,000

12.The balance sheet of Venner and Wigstaff Partnership. Immediately before the
partnership was incorporated as Venwig Corporation follows:

Cash………………………………… P 10,500 Trade accounts payable P 16,400

Trade accounts receivable 15,900 Venner, capital 60,000
Inventories……………………… 42,000 Wigstaff, capital 52,000
Equipment (net of P18,000
Depreciation)………… 60,000 ______
Total………………………………… P128,400 Total…………………………………… P128,400
The following adjustments to the balance sheet of the partnership were
recommended by a CPA before accounting records for Venwig Corporation were to
be established:
a. An allowance for doubtful accounts was to be established in the amount
of P1,200.
b. Short-term prepayments of P800 were to be recognized.
c. The current fair value of inventories, P48,000, and the current fair
value of equipment, P72,000, were to be recognized.
d. Accrued liabilities of P750 were to be recognized
Assume that 10,000 shares of P5 par common stock were to be issued to the
partners in exchange for their equities in the partnership. Fifty thousand
ReSA - The Review School of Accountancy Page 3 of 25

shares of common stock were authorized to be issued. Determine the total

assets after adjustments were considered: (4-F26)
A. P145,250 C. P146,000
B. P129,600 D. P110,800
Items 13 through 15 are based on the following information:
On December 3, 20x8, the Home Office of Kathy Office Supply Company recorded a
shipment of merchandise to its Davao branch as follows: (5-7F26)
Davao Branch………………………………………………………………………………………… 39,000
Shipments to Branch………..………………………………………… 32,500
Unrealized Profit in Branch Inventory……… 5,200
Cash (for freight charges)…………………………………… 1,300
The Davao branch sells 40% of the merchandise to outside entities during the rest
of December 20x8. The books of the home office and Kathy Office Supply are closed
on December 31 of each year.
On January 5, 20x9, the Davao branch transfers half of the original shipment to
the Baguio branch, and the Davao branch pays P650 as the shipment.
13. What amount should the 60% of the merchandise remaining unsold be included in
the inventory of the Davao branch at December 31, 20x8,
A. P20,280 C. P23,400
B. 22,620 D. 23,920
14. What amount should the 60% of the merchandise remaining unsold at December
31, 20x8 be included in the published balance sheet of Kathy Office Supply at
December 31, 20x8 shows inventory at:
A. P19,500 C. P20,800
B. 20,280 D. 23,400
15. What is the entry on the home office books in respect to January 5, 20x9
transfer, assuming that the transfer cost of the merchandise to Baguio branch
would have been P780.
A. Home Office……………………………………………………………………………………………… 20,150
Cash………………………………………………………………………………………………… 780
Inventory…………………………………………………………………………………… 19,500
B. Shipments…………………………………………………………………………………………………… 18,850
Freight-in………………………………………………………………………………………………… 780
Home Office Current………………………………………………………… 19,630
C. Branch Current – Baguio………………………………………………………………… 19,630
Excess Freight………………………………………………………………………………………… 520
Branch Current – Davao………………………………………………… 20,150
D. Branch Current – Baguio………………………………………………………………… 19,630
Excess Freight………………………………………………………………………………………… 780
Branch Current – Davao…………………………………………………… 20,410

Use the following information for questions 16 to 18:

AL Company consigned five calculators, with cost of P800 each, to the OO Company
which was to sell these goods for the account and ink of the former for a
commission of 15% of selling price. The AL Company paid shipping costs of P200 on
the shipment. Correspondingly, OO Company paid P320 on the freight of the
shipment.
On the last day of the year, OO Company reported that it had sold three of the
calculators, two for cash at P1,500 each and one on credit at P1,800, of which
25% was collected as down payment. OO Company remitted all the cash due.
16. The amount of cash remitted by OO Company is:
A. P3,760 C. P1,350
B. P2,410 D. None of the above

17. The consignment profit (loss) is:

A. P1,368 C. P1,040
b. P1,160 D. None of the above

18. The amount of inventory on consignment of AL Company is:

A. P1,720 C. P2,712
B. P1,808 D. None of the above
ReSA - The Review School of Accountancy Page 4 of 25

19. Following is the balance sheet of the ABCD Partnership at March 31, 20x8,
when the partnership is to be liquidated: (10-F26)

Cash P 6,000 Liabilities P 12,400

Other assets 126,000 A, loan 12,000
B, loan 14,400
D, loan 9,600
A, capital – 25% 16,200
B, capital – 25% 12,000
C, capital – 25% 37,700
D, capital – 25% 17,700
During the month of April 20x8, assets having a book value of P18,000 are sold
at a loss of P2,400. Liquidation expenses of P600 are paid as well as P7,200
of the liabilities. Of the liabilities shown in the balance sheet, P240
represents salary payable to D and P160 represents salary payable to C.
On April 30, 20x8 cash to be distributed to A, B, C, and D as follows:
A B __ C D___
A. P -0- P -0- P -0- P 9,000
B. P 1,950 P 1,950 P 1,950 P 1,950
C. P -0- P -0- P -0- P 1,950
D. P -0- P -0- P 9,000 P -0-
20. Hotel Dian Inc. charges an initial franchise fee of P90,000 broken down as
follows:
Rights to trade name, market area, and proprietary know-how P40,000
Training services 11,500
Equipment (cost of P10,800) 38,500
Total initial franchise fee P90,000
Assuming that the franchise agreement is signed on August 1, 20x5, and the
franchise commences operation on November 1, 20x5. Assume that the total
training fees includes training services for the period leading up to the
franchise opening (P5,500 value) and for 3 months following opening. The
journal entry on August 1, 20x5 would include
A. a credit to Unearned Service Revenue for P11,500.
B. a credit to Unearned Service Revenue for P6,000.
C. a debit to Sales Revenue for P38,500.
D. a debit to Unearned Franchise Revenue for P40,000.
Items 21 through 23 are based on the following information:
From the following data from the records of ABC Partnership
Balance Sheet
December 31, 20x7
Assets
Cash P 2,000
Other Noncash Assets __28,000
Total P 30,000
Liabilities and Capital
Liabilities P 5,000
A, loan 2,500
A, capital 12,500
B, capital 7,000
C, capital ___3,000
Total P 30,000
Profit and loss ratio is 3:2:1 for a, B, and C, respectively. The Other noncash
assets were realized as follows: (18-20F26)
Date Cash Received Book Value
January 20x8 P 6,000 P 9,000
February 20x8 3,500 7,700
March 20x8 12,500 11,300
Cash is distributed as other noncash assets realized.
21. The total loss on liquidation to A is:
A. P3,000 C. P1,000
B. P2,000 D. P 0
22. Total cash received by B is:
A. P 0 C. P2,000
B. P1,500 D. P5,000
23. Cash received by C in January is:
A. P 0 C. P 500
B. P 200 D. P1,000
ReSA - The Review School of Accountancy Page 5 of 25

24. The after-closing trial balances of the Beams, Plank, and Timbers partnership
at December 31, 20x7 included the following accounts and balances: (26-F26)
Assets
Cash…………………………………………………………………………………………………………P 120,000
Accounts receivable-net……………………………………………………… 140,000
Loan to Timbers …………………………………………………………………… 20,000
Inventory…………………………………………………………………………………………… 200,000
Plant assets-net………………………………………………………………………… 200,000
Trademarks………………………………………………………………………………………… 20,000
Total debits………………………………………………………………...……P 700,000
Equities
Accounts payable…………………………………………………………………………P 150,000
Notes payable………………………………………………………………………………… 100,000
Loan from Plank…………………………………………………………………………… 10,000
Beams capital (50%)………………………………………………………………… 170,000
Plank capital (30%)………………………………………………………………… 170,000
Timbers capital (20%)…………………………………………………………… 100,000
Total credits…………………………………………………………………...P 700,000
The partnership is to be liquidated as soon as possible, and all available
cash except for a P10,000 contingency balance is to be distributed at the end
of each month prior to the time that all assets are converted into cash.
During January 20x8, P100,000 was collected from accounts receivable,
inventory items with a book value of P80,000 were sold for P100,000, and
available cash was distributed.
During February 20x8, Beams received plant assets with a book value of
P60,000 and a fair value of P50,000 in partial settlement of her equity in
the partnership. Also during February, the remaining inventory items were
sold for P60,000, liquidation expenses of P2,000 were paid, and a liability
of P8,000 was discovered. Cash was distributed on February 28.
During March 20x8 the plant assets were sold for P110,000, the remaining
noncash sets were written off, final liquidation expenses of P5,000 were
paid, and cash was distributed. The dissolution of the partnership was
completed on March 31, 2018.
The amount of cash to be received by Timbers for the month of March:
A. P -0- C. P 29,000
B. P 23,000 D. P 60,000
25. Tillman Textile Company has a single branch in Bulacan. On March 1, 20x8, the
home office accounting records included an Allowance for Overvaluation of
Inventories - Bulacan Branch ledger account with a credit balance of P32,000.
During March, merchandise costing P36,000 was shipped to the Bulacan Branch
and billed at a price representing a 40% markup on the billed price. On March
31, 20x8, the branch prepared an income statement indicating a net loss of
P11,500 for March and ending inventories at billed prices of P25,000. What is
the amount of adjustment for Allowance for Overvaluation of Inventories to
reflect the true branch net income?
A. P39,257 debit C. P39,333 debit
B. P46,000 credit D. P46,000 debit
26. Anselmo Company operates retail hobby shops from the main store and a branch
store. Merchandise is shipped from the main store and to the branch and
billed to the branch at an arbitrary 10% markup. Trial balances of the main
store and branch as of December 31, 20x8 are as follows:
Main Store Branch
Debits:
Cash P 1,500 P 1,000
Accounts receivable – net 200 -
Inventory, December 31, 20x7 3,500 2,500
Building – net 60,000 18,000
Equipment – net 30,000 12,000
Branch store 32,300 -
Purchases 240,000 11,000
Shipments from home office - 99,000
Other expenses 15,000 7,000
Total debits P 382,500 P 150,500
Credits:
Accounts payable P 15,000 P 500
Unrealized inventory profit 9,200 -
Main Store - 30,000
ReSA - The Review School of Accountancy Page 6 of 25

Capital stock 50,000 -

Retained earnings 16,000 -
Sales 200,000 120,000
Shipments to branch 90,000 -
Profit from branch ____2,300 _________
Total credits P 382,500 P 150,500
Inventories on hand at December 31, 20x8 at the main store and branch are
P3,000 and P1,800, respectively. The December 31, 20x7 branch inventory
includes merchandise purchased from outsiders of P300, and the December 31,
20x8 branch inventory includes P150 of merchandise purchased from outsiders.
The combined cost of goods sold amounted to:
A. P261,200 C. P243,150
B. P252,200 D. P252,150
27. Chuvalo and Predovich formed a partnership. After 1 year of operation, the
partnership had the following partial trial balance:
Debit Credit
Chuvalo, Capital P34,000
Predovich, Capital 52,000
Chuvalo, Withdrawals P20,000
Predovich, Withdrawals 18,000
Service Revenue 250,000
Salaries Expense (to Employees) 110,000
Rent Expense 36,000
Supplies Expense 28,000
Other Operating Expenses 15,000
Partners split profits as follows:
[1] A salary of P12,000 is paid to Predovich.
[2] Remaining profits (or losses) are split 50/50
The ending capital balance of Chuvalo amounted to:
A. P24,500 C. P38,500
B. P34,000 D. None of the above
28. The Manila Branch of the Great Company is billed for merchandise by the home
office at 20% above cost. The branch in turn, prices merchandise for sales
purposes at 25% above billed price. On February 29, all of the branch
merchandise is destroyed by fire. No insurance was maintained. Branch accounts
show the following information:
Merchandise inventory, January 1 (at billed price) P 26,400
Shipments from home office (January 1 – February 29) 20,000
Sales 15,000
Sales returns 2,000
Sales allowances 1,000
What was the cost of merchandise destroyed by fire?
A. P36,000 C. P36,800
B. P30,667 D. P30,000
29.The balance sheet, as of June 30, 20x8, for the partnership of DD, JJ and RR
shows the following information:
Assets P 360,000 DD, loan P 20,000
DD, capital 83,000
JJ, capital 77,000
RR, capital 180,000
Total P 360,000 Total P 360,000
It was agreed among the partners that DD retires from the partnership, and it
was also further agreed that the assets should be adjusted to their fair value
of P408,000 as of June 30, 20x8. The partnership is to pay DD P121,000 cash
for DD’s partnership interest, which would include the payment of his loan.
No goodwill is to be recorded. DD, JJ and RR share profit 25%, 25% and 50%
respectively.
After DD’s retirement, how much would RR’s capital balance be?
A. P360,000 C. P180,000
B. P200,000 D. P120,000
30.DD and EE entered into a partnership as of March 1, 20x9 by investing P125,000
and P75,000, respectively. They agreed that DD, as the managing partner, was
to receive a salary of P30,000 per year and a bonus computed at 10% of the net
profit after adjustment for the salary; the balance of the profit was to be
distributed in the ratio of their original capital balances. On December 31,
20x9, account balances were as follows:
ReSA - The Review School of Accountancy Page 7 of 25

Cash P70,000 Account payable P 60,000

Account receivable 67,000 DD, capital 125,000
Fur. And fixtures 45,000 EE, capital 75,000
Sales returns 5,000 DD, drawing (20,000)
Purchases 196,000 EE, drawing (30,000)
Operating expenses 60,000 Sales 233,000

Inventories on December 31, 20x9 were as follows: supplies, P2,500;

merchandise, P73,000. Prepaid insurance was P950 while accrued expenses were
P1,550. Depreciation rate was 20% per year.
The partner’s capital balances on December 31, 20x9, after closing the net
profit and drawing accounts, were:
DD EE
A. P135,940 P47,960
B. P139,540 P49,860
C. P139,680 P48,680
D. P142,350 P47,670
31. KCO Company had an agency in SM Cebu. For the period just ended, the agency
transactions showed the following:
Receipt from sales……………………………………………………………………………………………P 350,000
Disbursements:
Purchases…………………………………………………………………………………………………… 400,000
Salaries and commissions…………………………………………………………… 70,000
Rent………………………………………………………………………………………………………………… 20,000
Advertising supplies……………………………………………………………………… 10,000
Other expenses……………………………………………………………………………………… 5,000
The agency had P100,000 receivables and P50,000 payables as of the end of the
period. Also, there were inventories on hand of P90,000 and unused advertising
supplies of P6,000. The agency was set up as an experiment for one period and
would be closed if losses were incurred. The agency should:
A. Review again because it was a break-even operation
B. Close with period’s operational loss of P155,000.
C. Close with period’s operational loss of P9,000.
D. Continue with the period’s profit of P25,000.
32. At December 31, 20x9, the following information has been collected by Maxwell
Company’s office and branch for reconciling the branch and home office
accounts.
1. The home office’s branch account balance at December 31, 20x9 is P590,000.
The branch’s home office account balance is P506,700.
2. On December 30, 20x9, the branch sent a check for P40,000 to the home
office to settle its account. The check was not delivered to the home
office until January 3, 20y0.
3. On December 27, 20x9, the branch returned P15,000 of seasonal merchandise
to the home office for the January clearance sale. The merchandise was not
received by the home office until January 6, 20y0
4. The home office allocated general expenses of P28,000 to the branch. The
branch had not entered the allocation at the year-end.
5. Branch store insurance premiums of P900 were paid by the home office. The
branch recorded the amount at P600.
The correct balance of the reciprocal account amounted to:
A. P575,000 C. P534,700
B. P535,000 D. P507,000

33. The balance sheet of Gabriel Window Corporation at June 30, 20x8 contains the
following items:

Assets
Cash………………………………………………………………… P 40,000
Accounts Receivable –net…………… 70,000
Inventories……………………………………………… 50,000
Land………………………………………………………………… 30,000
Building-net…………………………………………… 200,000
Machinery (net)……………………………….. 60,000
Goodwill…………………………………………..... 50,000
P 500,000
ReSA - The Review School of Accountancy Page 8 of 25

Equities
Accounts payable……………………………………P 110,000
Wages payable…………………………………………… 60,000
Property taxes payable…………………… 10,000
Mortgage payable…………………………………… 150,000
Interest on Mortgage payable…… 15,000
Note payable-unsecured…………………… 50,000
Interest payable-unsecured………… 5,000
Capital stock…………………………………….. 200,000
Retained earnings (deficit)…………( 100,000)
P 500,000

The company is in financial difficulty and its stockholders and creditors have
requested a statement of affairs for planning purposes. The following
information is available:
1. The company estimates that P63,000 is the maximum amount collectible for
the accounts receivable.
2. Except for 20% of the inventory items that are damaged and worth only
P2,000 the cost of the other items is expected to be recovered in full.
3. The land and building have a combined appraisal value of P170,000 and are
subject to the P150,000 mortgage and related accrued interest.
4. The appraised value of the machinery is P20,000
5. Wages payable and property taxes payable are unsecured priority items.

Compute the estimated deficiency to unsecured creditors:

A. P70,000 C. P65,000
B. 67,000 D. 0
34. The after-closing balances of Carler Corporation’s home office and its branch
at January 1, 20x8 were as follows:

Home Office Branch

Cash…………………………………………………………………………P 7,000 P 2,000
Accounts receivable-net……………………… 10,000 3,500
Inventory…………………………………………………………… 15,000 5,500
Plant assets-net …………………………………… 45,000 20,000
Branch…………………………………………………………………… 28,000 -__
Total assets……………………………………... P 105,000 P 31,000

Accounts payable…………………………………………P 4,500 P 2,500

Other liabilities……………………………………… 3,000 500
Unrealized profit-branch inventory 500 -
Home office……………………………………………………… - 28,000
Capital stock………………………………………………… 80,000 -
Retained earnings……………………………………… 17,000 -
Total equities………………………………………………P 105,000 P 31,000

A summary of the operations of the home office and branch for 20x8 follows:
1. Home office sales: P100,000, including P33,000 to the branch. A
standard 10% markup on cost applies to all sales to the branch. Branch
sales to its customers totaled P50,000.
2. Purchases from outside entities: home office, P50,000; branch P7,000.
3. Collections from sales: home office P98,000 (including P30,000 from
branch); branch collections, P51,000.
4. Payments on account; home office, P51,500; branch P4,000.
5. Operating expenses paid: home office, P20,000; branch, P6,000
6. Depreciation on plant assets: home office, P4,000; branch P1,000.
7. Home office operating expenses allocated to the branch, P2,000.
8. At December 31, 20x8, the home office inventory is P11,000 and the
branch inventory is P6,000, of which P1,050 was acquired from outside
suppliers.
The combined net income amounted to:
A. P 0 C. P21,000
B. P4,550 D. P25,550
ReSA - The Review School of Accountancy Page 9 of 25

35. The branch account on the home office books of Block and Bell, Inc., and the
home office accounts on the branch books on January 31, 20x7, are as follows:
Beverly Hills Branch
20x7 Debit 20x7 Credit
Jan.1 Balance 50,615 Jan.20 Cash received from
Branch 14,000
16 Merchandise 22,600 Remittance received
shipments from the branch
customer in
settlement of 65
branch account
31 Expenses chargeable
to branch 215
Home Office
20x7 Debit 20x7 Credit
Jan.10 Uncollectible Jan.1 Balance 28,415
account written-off 1,200
20 Cash remittance to 21 Correction for
home office 14,000 income understatement
for December 310
31 Cost of merchandise
sold 21,400
31 Income for January 1,440
Shipments from Home Office
20x7 Debit 20x7 Credit
Jan.31 Cost of merchandise 21,400 Jan.1 Balance 22,200
sold
31 Shipments returned 16 Shipments from home
to home office 840 Office 21,200

The following additional data are available in reconciling the accounts:

a. A P1,400 shipment of goods charged by the home office to the Beverly Hills
branch was actually sent to the Brentwood branch.
b. The goods returned by the branch are in transit and do not appear on the
home office records.
c. The branch failed to recognize expenses incurred by the home office and
chargeable against income, P215, in calculating its income for January.
d. The allowance for doubtful accounts on branch receivables is maintained by
the home office.
The correct balance of the reciprocal account amounted to:
A. P59,365 C. P57,460
B. P55,525 D. None of the above

Items 36 to 38 are based on the following information:

A construction contractor has a fixed price contract for P100,000 to construct a
building (the project). The contractor’s initial estimate of total contract costs
is P60,000. It will take two years to construct the building. At the end of the
first year of the project (31 December 20x9) the contractor has incurred costs of
P20,000 on the contract, including P2,000 on cement that is held offsite. The
entity’s estimate of total contract costs has stayed the same.
The contractor determines the stage of completion of the construction contract by
reference to the proportion that costs incurred for work performed to date bear
to the estimated total costs.
36. Determine the revenue, expenses, and profit for the year 20x9:
Revenue Expenses Profit Revenue Expenses Profit
A. P30,000 P18,000 P12,000 C. P31,333 P18,000 P13,333
B. P32,000 P20,000 P12,000 D. P33,333 P20,000 P13,333
37. If the contractor determines the stage of completion of the construction
contract by reference to independent surveys of work performed. At the end of
20x9 the project was certified to be 28 percent complete. Determine the
revenue, expenses, and profit for the year 20x9:
Revenue Expenses Profit Revenue Expenses Profit
A. P28,000 P18,000 P10,000 C. P29,200 P18,000 P11,200
B. P28,000 P20,000 P 8,000 D. P31,200 P20,000 P11,200
ReSA - The Review School of Accountancy Page 10 of 25

38. If the contractor determines the stage of completion of the construction

contract by reference to independent surveys of work performed. At the end of
20x9 the project was certified to be 32 percent complete. Progress billings
of P30,000 have been made at the end of 20x9 and the customer has paid
P20,000 of these progress billings. Determine the revenue, expenses, and
profit for the year 20x9:
Revenue Expenses Profit Revenue Expenses Profit
A. P32,000 P18,000 P14,000 C. P30,800 P18,000 P12,800
B. P30,000 P20,000 P10,000 D. P32,800 P20,000 P12,800
Items 39 to 41 are based on the following information:(Q1-37)
DJD Builders constructed a new subdivision during 20x8 and 20x9 under contract
with Hotel Dian Development Co. Relevant data are summarized below:
Contract amount P3,000,000
Costs: 20x8 1,200,000
20x9 600,000
Gross profit: 20x8 800,000
20x9 400,000
Contract billings: 20x8 1,500,000
20x9 1,500,000
DJD uses the percentage-of-completion method/over time to recognize revenue.
39. What would be the journal entry made in 20x8 to record revenue?
A. Accounts receivable 1,500,000
Revenue for long-term contracts 1,500,000
B. Accounts receivable 2,300,000
Gross profit 800,000
Revenue for long-term contracts 1,500,000
C. Construction-in-progress 800,000
Costs of construction 1,200,000
Revenue for long-term contracts 2,000,000
D. Accounts receivable 1,500,000
Billings in excess of costs 300,000
Revenue for long-term contracts 1,800,000

40. In its December 31, 20x8 balance sheet, DJD would report:
A. The asset, cost and profits in excess of billings, of P500,000.
B. The liability, billings in excess of cost and profits, of P300,000.
C. The asset, contract amount in excess of billings, of P1,500,000.
D. The asset, deferred profit, of P400,000.

41. What would be the journal entry to record revenue in 20x9?

A. Accounts receivable 1,500,000
Revenue for long-term contracts 1,500,000
B. Construction-in-progress 400,000
Costs of construction 600,000
Revenue for long-term contracts 1,000,000
C. Costs of construction 2,000,000
Gross profit 1,000,000
Revenue for long-term contracts 3,000,000
D. Accounts receivable 1,500,000
Costs of construction 600,000
Gross profit 600,000
Deferred revenue 300,000

Items 42 to 44 are based on the following information:

DJ Builders constructed a new subdivision during 20x8 and 20x9 under contract
with HD Sta. Ana Resort House Development Co. Relevant data are summarized below:
Contract amount P3,000,000
Costs: 20x8 1,200,000
20x9 600,000
Gross profit: 20x8 800,000
20x9 400,000
Contract billings: 20x8 1,500,000
20x9 1,500,000

DJ uses the cost recovery method/point in time to recognize revenue.

42. What would be the journal entry made in 20x8 to record revenue?
A. Accounts receivable 1,500,000
Revenue for long-term contracts 1,500,000
B. Accounts receivable 2,300,000
Gross profit 800,000
ReSA - The Review School of Accountancy Page 11 of 25

Revenue for long-term contracts 1,500,000

C. Construction-in-progress 800,000
Costs of construction 1,200,000
Revenue for long-term contracts 2,000,000
D. Costs of construction 1,200,000
Revenue for long-term contracts 1,200,000
43. In its December 31, 20x8 balance sheet, DJ would report:
A. The asset, cost and profits in excess of billings, of P500,000.
B. The liability, billings in excess of cost, of P300,000.
C. The asset, contract amount in excess of billings, of P1,500,000.
D. The asset, deferred profit, of P400,000.

44. What would be the journal entry DJ would use to record revenue in 20x9?
A. Accounts receivable 1,500,000
Revenue for long-term contracts 1,500,000
B. Construction-in-progress 400,000
Costs of construction 600,000
Revenue for long-term contracts 1,000,000
C. Costs of construction 2,000,000
Gross profit 1,000,000
Revenue for long-term contracts 3,000,000
D. Construction-in-progress 1,200,000
Costs of construction 600,000
Revenue for long-term contracts 1,800,000
45. The ReSA Singing Group League (RSGL) licenses its trademark to ReSA Logo for
ongoing activities. Under the license arrangement, ReSA Logo pays the RSGL a
P1,000,000 initial license fee plus a bonus when annual sales of ReSA Logo
merchandise reach a threshold. The license agreement is for 4 years. How much
of the P1,000,000 initial license fee should the RSGL recognize as revenue in
the first year of the contract?
A. Zero
B. P250,000
C. P1,000,000
D. Cannot tell from information given
46. On 25 June 20x9 Cambridge Co received an order from a new customer, Circus
Co, for products with a sales venue of P900,000. Circus Co enclosed a deposit
(in advance) with the order of P90,000. On 30 June Cambridge Co had not
completed credit checks on Circus Co and had not despatched any goods.
Cambridge Co is considering the following possible entries for this
transaction in its financial statements for the year ended 30 June 20x9.
(i) Create a trade receivable for P810,000.
(ii) Include P90,000 in revenue for the year.
(iii) Recognise P90,000 as a contract liability.
(iv) Include P900,000 in revenue for the year.
(v) Do not include anything in revenue for the year.
According to PFRS 15 Revenue from Contracts with Customers, how should
Cambridge Co record this transaction in its financial statements for the year
ended 30 June 20x9?
A. (i) and (iv) only C. (ii) and (v) only
B. (ii) and (iv) only D. (iii) and (v) only
47.On January 1, 2019, the fair values of Pink Conrad’s net assets were as
follows: (1PB-18)
Current Assets…………………………………………………………………………………………………………P 100,000
Equipment……………………………………………………………………………………………………………………… 150,000
Land…………………………………………………………………………………………………………………………………… 50,000
Buildings……………………………………………………………………………………………………………………… 300,000
Liabilities………………………………………………………………………………………………………………… 80,000
On January 1, 2019, Blue George Company purchased the net assets of the Pink
Conrad Company by issuing 100,000 shares of its P1 par value stock when the
fair value of the stock was P6.20. It was further agreed that Blue George
would pay an additional amount on January 1, 2021, if the average income
during the 2-year period of 2019-2020 exceeded P80,000 per year. The expected
value of this consideration was calculated as P184,000; the measurement period
is one year.
What amount will be recorded as goodwill on January 1, 2019?
A. Zero. C. P180,000
B. P100,000 D. P284,000
ReSA - The Review School of Accountancy Page 12 of 25

48.Using the same information in No. 47, assuming that on August 1, 2019 the
contingent consideration happens to be P170,000, what amount will then be
recorded as goodwill on the said date?
A. Zero. C. P166,000
B. P86,000 D. P270,000
49.Using the same information in Nos. 47 and 48, assuming that on January 1,
2021, the date of settlement of the contingent consideration clause agreement
for P175,000, the entry should be:
A. Estimated liability for contingent consideration…………… 170,000
Loss on estimated contingent consideration…………………………… 5,000
Cash………………………………………………………………………………………………………………………… 175,000
B. Estimated liability for contingent consideration……………… 175,000
Cash………………………………………………………………………………………………………………………… 175,000
C. Estimated liability for contingent consideration……………… 184,000
Gain on estimated contingent consideration…………………… 9,000
Cash………………………………………………………………………………………………………………………… 175,000
D. No entry required.
Use the following information for 50 and 51:
Ping Company acquires all of Sun Corp. in an asset acquisition. Ping paid
P1,000,000 more than Sun's book value, and this excess was attributed entirely to
goodwill, as all of Sun's assets and liabilities were carried at amounts
equivalent to fair value. At the time of the combination, a lawsuit was pending
against Sun, which Sun had not recorded on its books. It was felt at the time
that Sun would win the lawsuit, so no provision for it was made when Ping
recorded the asset acquisition.
50. Six months after the acquisition, new information reveals that the expected
value of the lawsuit at the date of acquisition was P400,000. The appropriate
entry on Ping's books to record this new information.
A. Retained earnings. . . . . . . . . . . . . . . . . . . 400,000
.
Estimated lawsuit liability . . . . . . . . . . . . 400,000
B. Loss on lawsuit . . . . . . . . . . . . . . . . . . . .400,000
Estimated lawsuit liability . . . . . . . . . . . . 400,000
C. Goodwill. . . . . . . . . . . . . . . . . . . . . . . 400,000
Estimated lawsuit liability . . . . . . . . . 400,000
D. No entry required.
51. Assume the same information as above, except that the value change is a
result of events occurring subsequent to acquisition. The appropriate entry
on Ping's books to record the new information.
A. Retained earnings. . . . . . . . . . . . . . . . . . .400,000
Estimated lawsuit liability . . . . . . . . . . 400,000
B. Loss on lawsuit . . . . . . . . . . . . . . . . . . . 400,000
.
Estimated lawsuit liability . . . . . . . . . 400,000
C. Goodwill. . . . . . . . . . . . . . . . . . . . . 400,000
Estimated lawsuit liability . . . . . . . . . . . . 400,000
D. No entry required.

Use the following information for 52 to 55:

Bullen Inc. acquired assets and liabilities of Vicker Inc. on January 1, 20x4.
The book value and fair value of Vicker's accounts on that date (prior to
creating the combination) follow, along with the book value of Bullen's accounts:
Bullen - Vicker Vicker
Item Book Value Book Value Fair Value
Retained Earnings1/1/x4 . . . . . . . . . . P 160,000 P 240,000
Cash and receivables . . . . . . . . . . . . 170,000 70,000 P 70,000
Inventory . . . . . . . . . . . . . . . . . 230,000 170,000 210,000
Land . . . . . . . . . . . . . . . . . . . . 280,000 220,000 240,000
Buildings (net) . . . . . . . . . . . . . . 480,000 240,000 270,000
Equipment (net) . . . . . . . . . . . . . . 120,000 90,000 90,000
Liabilities . . . . . . . . . . . . . . . . 650,000 430,000 420,000
Common Stock . . . . . . . . . . . . . . . . 360,000 80,000
Additional paid-in capital . . . . . . . . . 20,000 40,000
ReSA - The Review School of Accountancy Page 13 of 25

52. Assume that Bullen issued 12,000 shares of common stock with a P5 par value
and a P47 fair value to obtain all of Vicker's outstanding stock. In this
transaction how much goodwill should be recognized?
A. P 144,000 D. P 60,000
B. P 104,000 E. P 0
C. P 64,000
53. Assume that Bullen issued 12,000 shares of common stock with a P5 par value
and a P42 fair value for all of the outstanding shares of Vicker. What will be
the Additional Paid-In Capital and Retained Earnings after the combination?
A. P20,000 and P160,000 D. P464,000 and P160,000
B. P20,000 and P260,000 E. P380,000 and P260,000
C. P380,000 and P160,000
54. Assume that Bullen issued preferred stock with a par value of P240,000 and a
fair value of P500,000 for all of the net assets of Vicker in a business
combination. What will be the balance in the Inventory and Land accounts after
the business combination?
A. P440,000 and P496,000 D. P402,000 and P520,000
B. P440,000 and P520,000 E. P427,000 and P510,000
C. P425,000 and P505,000
55. Assume that Bullen paid a total of P480,000 in cash for all of the shares of
Vicker. In addition, Bullen paid P35,000 to a group of attorneys for their
work in arranging the combination to be accounted for as an acquisition. What
will be the balance in goodwill?
A. P 0 C. P35,000
B. P20,000 D. P55,000
56. Horizontal business combinations occur when one entity purchases which of the
following?
A. A supplier C. A competitor
B. A customer D. None of the above
57. Which of the following is a vertical combination?
A. A combination where the two entities are unrelated
B. A combination where the two entities are competitors in the same
industry
C. A combination where the two entities have a potential buyer/seller
relationship
D. None of the above describes a vertical combination

58. Which of the following types of business combinations typically occurs when
management is attempting to diversify its investment?
A. Horizontal combination
B. Vertical combination
C. Conglomerate combination
D. Diversification can be the goal of any type of combination

59. Which of the following forms of business combination is not subject to laws
specific to business combinations?
A. Asset for asset acquisition
B. Statutory merger
C. Statutory consolidation
D. All three are subject to laws
60. In a business combination accounted for as an acquisition, registration costs
related to common stock issued by the parent company are
A. expensed as incurred.
B. deducted from other contributed capital.
C. included in the investment cost.
D. deducted from the investment cost.
61. On the consolidated balance sheet, consolidated stockholders' equity is
A. equal to the sum of the parent and subsidiary stockholders'
equity.
B. greater than the parent's stockholders' equity.
C. less than the parent's stockholders' equity.
D. equal to the parent's stockholders' equity.
62.If the cost recovery method is used, what is the basis for determining the
income to be recognized in the second year of a three-year contract?
A. Cumulative actual costs incurred only.
B. Incremental cost for the second year only.
C. Latest available estimated costs.
D. No income would be recognized in year 2.
ReSA - The Review School of Accountancy Page 14 of 25

63.Which of the following would be used in the calculation of the gross profit
recognized in the third and final year of a construction contract that is
accounted for using the percentage-of-completion (overtime) method?
Actual contract Price Total Costs Income Previously Recognized
A. Yes Yes No
B. Yes Yes Yes
C. Yes No Yes
D. No Yes Yesa
64.When comparing the percentage-of-completion (overtime) and cost recovery
methods of accounting for long-term construction contracts, both methods will
report
A. the same balances each period in the Progress Billings account.
B. the same expense for cost of construction each year.
C. the same amount of income in the year of completion.
D. the same inventory carrying value each year during the
construction period.
65. If both the home office and the branch of a business enterprise use the
periodic inventory system, the home office's Shipments to Branch ledger
account:
A. Is a valuation account for the home office's Investment in Branch
Account?
B. Always should have the same balance as the branch's Shipments from
Home Office account
C. Is a revenue account
D. Is a valuation account for the home office's Purchases account?
66. If both the home office and the branch of a business enterprise use the
perpetual inventory system, a Shipment to Branch ledger account appears in the
accounting records of:
A. The home office only
B. The branch only
C. Both the home office and the branch
D. Neither the home office nor the branch
67. Goods on consignment should be included in the inventory of:
A. the consignor but not the consignee
B. both the consignor and the consignee
C. the consignee but not the consignor
D. neither the consignor nor the consignee
68. The transaction price for multiple performance obligations should be
allocated
A. based on selling price from the company’s competitors.
B. based on what the company could sell the goods for on a standalone basis.
C. based on forecasted cost of satisfying performance obligation.
D. based on total transaction price less residual value.
69. To address inconsistencies and weaknesses, a comprehensive revenue
recognition model was developed entitled the
A. Revenue Recognition Principle
B. Principle-based Revenue Accounting
C. Rules-based Revenue Accounting
D. Revenue from Contracts with Customers.
70. The admission of a new partner under the bonus method will result in a bonus
to
A. the old partners only.
B. the new partner only.
C. either the new partner or the old partners, but not both.
D. none of the above.

Good luck and GOD BLESS!!!

*Attitude is more important than the past, than education, than money, than circumstances, than what
people do or say. It is more important than appearance, giftedness, or skill. *
*The only way to find the limits of the possible is by going beyond them to the impossible. *
*Nothing great will ever be achieved without great mean, and men are great only if they are determined to
be so. *
ReSA - The Review School of Accountancy Page 15 of 25

ANSWERS & SOLUTIONS

1. (C) - (15 x P850) − (P12,750 .06) − P300 − P390 = P11,295, or
Sales (P850 x 15)) P 12,750
Less Charges:
Commission (6% x P12,750) 765
Advertising 300
Delivery and installation 390
Remittance P 11,295
2. (A)
In adopting the imprest system for the agency working fund, the home office writes a check to
the agency for the amount of the fund. Establishment of the fund is recorded on the home
office books by a debit to the Agency working fund and credit cash. The agency will request
fund replenishment whenever the fund runs low and at the end of each fiscal period. Such a
request is normally accomplished by an itemized and authenticated statement of
disbursements and the paid vouchers. Upon sending the agency a check in replenishment of
the fund, the home office debits expense.
3. (D)
Capital, 1/1/2018 (P170,000 + P255,000 + P382,500)…………………………….P 807,500
Additional investment………………………………………………………………… 102,000
Capital withdrawals……………………………………………………………………( 119,000)
Net income*……………………………………………………………………………... 353,175
Capital, 12/31/2018…………………………………………………………………….P1,143,675
*
X Y Z Total
Salaries 102,000 81,600 61,200 244,800
Interest** 22,100 25,500 35,275 82,875
Balance 8,500 8,500 8,500 25,500
353,175
**X: 170,000 x 6 = 1,020,000
272,000 x 6 = 1,632,000 2,652,000/12 = 221,000 x 10% = 22,100
Y: 255,000 x 10% = 25,500
Z: 382,500 x 9 = 3,442,500
263,500 x 3 = 790,500 4,233,000/12 = 352,750 x 10% = 35,275
4. (B)
Net Income as reported by the Branch P 20,000
Less: Rental expense charged by the home office
(P1,000 x 6 months) 6,000
Adjusted NI as reported by the Branch P 14,000
Add: Overvaluation of CGS
Billed Price
MI, beginning 0
SFHO 550,000
COGAS 550,000
Less: MI, ending 75,000
CGS, at BP 475,000
X: Mark-up ratio 25/125 95,000
True/Adjusted/Real Branch Net Income P109,000
5. (A)
January 1, 20x5:
Cash…………………………………………………………………………………………… 10,000
Notes Receivable…………………………………………………………………………… 40,000
Unearned Interest Income/Discount on Notes Receivable………………… 10,433
Unearned Franchise Revenue (P10,000 + P29,567)…………………………… 39,567*
*Down payment made on 4/1/x5……………………………...P10,000.00
Present value of an ordinary annuity (P8,000 x 3.69590).. 29,567.20
Total revenue recorded by Campbell and total
acquisition cost recorded by Lesley Benjamin…………P39,567.20
6. (C)
April 1, 20x5
Unearned Franchise Revenue…………………………………………………………… 39,567
Franchise Revenue…………………………………………………………………… 39,567
ReSA - The Review School of Accountancy Page 16 of 25

7. (A) – refer to No. 6 for further computation

January 1, 20x5:
Cash……………………………………………………………………………………………10,000
Notes Receivable……………………………………………………………………………40,000
Unearned Interest Income/Discount on Notes Receivable……………… 10,433
Unearned Service Revenue (Training)………………………………………….. 3,600
Unearned Franchise Revenue (P10,000 + P29,567-P3,600)………………… 35,967*
8. (B)
April 1, 20x5
Unearned Franchise Revenue…………………………………………………………… 35,967
Unearned Service Revenue (Training) …………….…………………………………… 3,600
Franchise Revenue…………………………………………………………………….. 35,967
Service Revenue (Training)………………………………………………………… 3,600
9. (D)
December 31, 20x5:
Unearned Service Revenue (Training) …………….…………………………………… 2,700
Service Revenue (Training) – P3,600 x 9/12……………………………………… 2,700
Therefore, the service revenue for the year 20x5 amounted to:
April 1, 20x5 (No. 36)…………………………………………...P3,600
December 31, 20x5 (P3,600 x 9/12)………………………... 2,700
Total……………………………………………………………….P 6,300
10. (A) - refer to AFAR-04 on discussion of Contract Liability
January 1, 20x5:
Cash……………………………………………………………………………………………10,000
Notes Receivable……………………………………………………………………………40,000
Unearned Interest Income/Discount on Notes Receivable………………… 10,433
Contract Liability (P10,000 + P29,567)…………………………………………… 39,567*
*Down payment made on 4/1/x5…………………………….P10,000.00
Present value of an ordinary annuity (P8,000 x 3.69590).. 29,567.20
Total revenue recorded by Campbell and total
acquisition cost recorded by Lesley Benjamin…………P39,567.20
11. (B)- December 31, 20x5: (P39,567 ÷ 5) = P7,913
12. (C)
Unadjusted Total Assets………………………………………………………………P 128,400
Add (deduct): Adjustments:
a. Allowance…………………………………………………………………......( 1,200)
b. Pre-payments………………………………………………………………..... 800
c. Inventories (P48,000 – P42,000)…………………………………………...... 6,000
Equipment (P72,000 – P60,000)…………………………………………...... 12,000
Adjusted Total Assets…………………………………………………………………P 146,000
13. (C)
Inventory of the Branch:
Shipments from home office at billed price............................................P 37,700
X: Ending inventory %................................................................................. 60%
Ending inventory at billed price…………………………………………….....P22,620
Add: Freight (P1,300 x 60%)…………………………………………………...... 780
P23,400
Or, P39,000 x 60% = P23,400
14. (B)
Inventory in the published balance sheet, at cost
Shipments at cost………………………………….........................................P 32,500
X: Ending inventory %.................................................................................. 60%
Ending inventory at billed price…………………………………………….....P19,500
Add: Freight (P1,300 x 60%)…………………………………………………...... 780
P 20,280
15. (C)
Home Office Books Davao Branch Baguio Branch
Davao Branch… 39,000 SFHO…………….37,700
STB, cost……. 32,500 Freight-in………. 1,300
Unrealized profit 5,200 HOC………….. 39,000
Cash (freight)…. 1,300
BC – Baguio……19,630 HOC……………….20,150 SFHO……… 18,850
Excess freight… 520 SFHO(50%)… 18,850 Freight-in.. 780
BC-Davao……. 20,150 Freight-in (50%) 650 HOC…… 19,630
Cash…………… 650
ReSA - The Review School of Accountancy Page 17 of 25

16. (B)
Collection made:
Cash sale (P1,500 x 2) P 3,000
Credit sale (P1,800 x 25%) ___450
Total P3,450
Less: Charges
Freight P 320
Commission [(P3,000 + P1,800) x 15%] __720 __1,040
Amount remitted P 2,410
17. (A)
Charges Related to
Total Consignment Inventory on
Charges Sales Consignment
(5) (3) (2)
Consignor’s charges:
Cost P4,000 P 2,400 P 1,600
Freight 200 120 80
Consignee’s charges:
Freight 320 192 128
Commission 720 720 ______
Total P5,240 P 3,432 P1,808
Sales price 4,800
Profit on Consignment P 1,368
18. (B) – P1,808 – refer to No. 17 for computation
19. (D)
A B C D Total
Capital balances 16,200 12,000 37,700 17,700 83,600
Loans 12,000 14,400 9,600 36,000
Salaries ______ ______ 160 240 400
Total Interests 28,200 26,400 37,860 27,540 120,000
Reduction in interests (equally) (27,750) (27,750) (27,750) (27,750) (111,000)
Balances 450 ( 1,350) 10,110 ( 210) 9,000*
Absorption of possible insolvency ( 780) 1,350 ( 780) 210 -0-
Balances ( 330) 9,330 9,000
Absorption of possible insolvency 330 ( 330) -0-
Payment 9,000 9,000
* Payment to partners:
Cash, beginning……………………………………………………………….P 6,000
Proceeds (P18,000 – P2,400)………………………………………………… 15,600
Payment of liabilities (always in full)………………………………………..(12,400)
Payment of liquidation expenses…………………………………………...( 600)
P 9,000
20. (A) – nearest amount for unearned service revenue.
August 1, 20x5: Date of Signing:
Cash. ....................................................... . . . . . . . . . . . . . . . . 40,000
Notes receivable (P30,000 x 2)................................................ 60,000
Unearned Interest Income/Discount on Notes Receivable 6,502
Unearned franchise revenue............................................... 41,555
Unearned service revenue – training services..................... 11,947
Unearned sales revenue – equipment................................ 39,996
Cash/down-payment..............................................................P 40,000
PV of Installment payment for two (2) periods:
P30,000 x 1.78326 (PV of an annuity of P1 for 2 periods) 53,498
Total............................................................................................P 93,498
Amount allocated to:
Rights to trade name: P93,498 x (40,000/90,000)............P 41,555
Training services: P93,498 x (11,500/90,000).................... 11,947
Equipment: P93,498 x (38,500/90,000)............................ 39,996
Total.....................................................................................P 93,498
ReSA - The Review School of Accountancy Page 18 of 25

Recognition of Franchise Rights Revenue Over Time

Depending on the economic substance of the rights, the franchisor may be providing access to
the right (over time) rather than transferring control of the franchise rights. In this case, the
franchise revenue is recognized over time, rather than at a point in time (August 1, 20x5),
therefore, the P11,500 is unearned service revenue (note: not as a unearned franchise revenue in
contrast to superseded PAS 18)
21. (A)
Total book value of other non-cash assets realized:
(P9,000 + P7,700 + P11,300)………………………………………………………………..P 28,000
Less: Total proceeds (P6,000 + P3,500 + P12,500)………………………………………… 22,000
Total loss on realization………………………………………………………………………..P 6,000
X: Share of A…………………………………………………………………………………….. 3/6
Loss on liquidation to A………………………………………………………………………..P 3,000
22. (D)
B. capital…………………………………………………………………………………………P 7,000
Less: Share in total realization loss: 2/6 x P6,000………………………………………….. 2,000
Total cash received by B……………………………………………………………………...P 5,000
Or, alternatively:
Therefore, total payment to B should be:
January……………………………………………………………………………….............P 0
February (refer to No. 23 computations)....…………………………………................ 800
March………………………………………………………………………………................. 4,200
P 5,000
23. (A)
A B C Total
January -
Capital balances 2,500 7,000 3,000 12,500
Loans 12,500 12,500
Total Interests 15,000 7,000 3,000 25,000
Reduction in interests (3:2:1) ( 11,000) (7,333) (3,667) (22,000)
Balances 4,000 ( 333) ( 667) 3,000
Reduction in interests ( 1,000) 333 667 -0-
Payments 3,000 3,000
January:
Cash, beginning…………………………………………………………………………P 2,000
Add: Proceeds………………………………………………………………………….. 6,000
Less: Payments of liabilities……………………………………………………………. 5,000
Payment to Partners…………………………………………………………………….P 3,000*
Total Interests – January 15,000 7,000 3,000 25,000
Payment to partners – January ( 3,000) ( 3,000)
Total Interest – February 12,000 7,000 3,000 22,000
Reduction in interests (3:2:1) ( 9,250) (6,167) (3,083) (18,500)
Balances** 2,750 833 ( 83) 3,500
Reduction in interests ( 50) ( 33) 83 -0-
Payments 2,700 800 3,500
February:
Cash, beginning……………………………………………………………………………P 0
Add: Proceeds……………………………………………………………………………... 3,500
Less: Payments of liabilities………………………………………………………………. 0
Payment to Partners……………………………………………………………………….P 3,500**
Total Interest –February 12,000 7,000 3,000 22,000
Payment to partners - February ( 2,700) ( 800) -0- ( 3,500)
Total Interests - March 9.300 6,200 3,000 18,500
Reduction in interests (3:2:1) ( 3,000) ( 2,000) (1,000) ( 6,000)
Balances*** 6,300 4,200 2,000 12,500
March:
Cash, beginning………………………………………………………………………P 0
Add: Proceeds………………………………………………………………………… 12,500
Less: Payments of liabilities………………………………………………………….. 0
Payment to Partners………………………………………………………………….P 12,500***
ReSA - The Review School of Accountancy Page 19 of 25

24. (C)
January:
Cash beginning………………………………………………………………………………..P 120,000
Add: Proceeds…………………………………………………………………………………. 100,000
Less: Payment of liquidation expenses………………………………………………........ 0
Payment of liabilities in full (note): P150,000 + P100,000..…………................... 250,000
Cash withheld…………………………………………………………………………..... 10,000
Payment to Partners…………………………………………………………………………..P 60,000*
Note: To determine payment to partners, the liabilities should be deducted in full as a shortcut
approach to determine any excess, if any. If in case, there is a deficiency, it means that no
payment to partners should be made.
Beams Plank Timbers Total
Capital balances 170,000 170,000 100,000 440,000
Loans _______ 10,000 ( 20,000) ( 10,000)
Total Interests 170,000 180,000 80,000 430,000
Reduction in interests (5:3:2) (185,000) (111,000) (74,000) (370,000)
Balances ( 15,000) 69,000 6,000 *60,000
Reduction in interests (3:2) 15,000 ( 9,000) ( 6,000) -0-
Payments 0 60,000 0 60,000
February:
Cash, beginning……………………………………………………………………………P 10,000
Add: Proceeds……………………………………………………………………………… 60,000
Less: Payments of liquidation expenses………………………………………………… 2,000
Payment of unrecorded liabilities coming from previous month
cash withheld……………………………………………………………………… 8,000
Cash withheld………………………………………………………………………….. 10,000
Payment to Partners………………………………………………………………………..P 50,000*
Beams Plank Timbers Total
Total interests from previous month 170,000 180,000 80,000 430,000
Payment for January ______ ( 60,000) _ 0_ ( 60,000)
Balances 170,000 120,000 80,000 370,000
Received plant assets ( 50,000) _______ _________ ( 50,000)
Balances 120,000 120,000 80,000 320,000
Reduction in interests (5:3:2) (135,000) ( 81,000) ( 54,000) (270,000)
Balances ( 15,000) 39,000 26,000 *50,000
Reduction in interests (3:2) 15,000 ( 9,000) ( 6,000) -0-
Payments -0- 30,000 20,000 50,000

March:
Cash, beginning……………………………………………..……………………………..P 10,000
Proceeds…………………………………………………………………………………….. 110,000
Payment of liquidation expenses……………………………………………………….( 5,000)
Payment to Partners……………………………………………………………………….P 15,000*

Beams Plank Timbers Total

Total interests from previous month 120,000 120,000 80,000 320,000
Payment for February ______ ( 30,000) ( 20,000) ( 50,000)
Balances 120,000 90,000 60,000 270,000
Reduction in interests (5:3:2) ( 72,500) ( 46,500) ( 31,000) (155,000)
Payments 42,500 43,500 29,000 * P115,000

25. (D)
100% 60% 40%
Billed Price Cost Allowance
Merchandise inventory, 1/1/2018 32,000
Shipments *60,000 36,000 *24,000
Cost of goods available for sale 56,000
Less: MI, 3/31/2008 (25,000 x 40%) 10,000
Overvaluation of CGS/RPBSales 46,000
*36,000 cost / 60% = 60,000 x 40% = 24,000. (Note: Markup is based on billed price)
ReSA - The Review School of Accountancy Page 20 of 25

26. (D)
Combined Cost of Goods Sold:
Merchandise Inventory, 12/1/2017:
Home Office, cost………………………………………………… P 3,500
Branch: Outsiders, ……………………………..........................P 300
From Home Office (P2,500 – P300)/110%................ 2,000 2,300 P 5,800
Add Purchases (P240,000 + P11,000)………………………………. 251,000
COGAS…………………………………………………………………… . P 256,800
Less: Merchandise Inventory, 12/31/2018:
Home Office, cost………………………………………………… P 3,000
Branch: Outsiders………………………………………………….P 150
From Home Office (P1,800 – P150)/110%............... 1,500 1,650 4,650
Cost of Goods Sold…………………………………………………… P 252,150
27. (C)
Chuvalo Pedrovich Total
Capital, beginning 34,000 52,000 86,000
Add (deduct): Inv. (withdrawal) (20,000) (18,000) (38,000)
Net income 24,500 36,500 61,000
Ending capital 38,500
Net Income Allocation Chuvalo Pedrovich Total
Salaries 12,000 12,000
Balance (1:1) 24,500 24,500 49,000
24,500 36,500 *61,000
Service revenue P 250,000
Less: Expenses
Salaries to employees 110,000
Rent expense 36,000
Supplies expense 28,000
Other operating expenses ___15,000
Net income *P 61,000

28. (D)
Merchandise inventory, January 1 P 26,400
Shipments from home office __20,000
Cost of goods available for sale P 46,400
Less: Cost of goods sold, at BP:
Sales P 15,000
Less: Sales returns ___2,000
Net sales P 13,000
Divided by: SP based on cost __125% _10,400
Merchandise inventory, ending at BP P 36,000
Divided by: Billed price __120%
Merchandise inventory, ending at cost (lost due to fire) P 30,000
29. (B)
DD: P83,000 + P20,000 + (P408,000 – P360,000) x 25% = P115,000
JJ: P77,000 + (P408,000 – P360,000) x 25% = P89,000 – (P6,000 x 25/75) = P87,000
RR: P180,000 + (P408,000 – P360,000) x 50% = P204,000 – (P6,000 x 50/75) = P200,000

Amount paid to DD………………………………………………………….P121,000

Less: Book value of DD’s interest…………………………………………. 115,000
Bonus to retiring partner…………………………………………………….P 6,000
30. (B)
DD EE Total
Capital, March 1, 20x9 P125,000 P 75,000 P200,000
Add (deduct): Net Income 34,540 4,860 39,400
Drawings ( 2,000) ( 30,000) ( 50,000)
Capital, December 31, 20x9 P139,540 P 49,860 P189,400
Sales P233,000
Less: Sales returns ___5,000
Net Sales P228,000
Less: Cost of Goods Sold
Purchases P196,000
ReSA - The Review School of Accountancy Page 21 of 25

Less: Ending Inventory 73,000 __123,000

Gross Profit P105,000
Less: Operating expenses P 60,000
Unused supplies ( 2,500)
Prepaid insurance ( 950)
Accrued expenses 1,550
Depreciation (P45,000 x 20% x 10/12) __7,500 __65,600
Net Income P 39,400
Allocation of Net Income:
DD EE Total
Salary (P30,000 x 10/12) P 25,000 P 25,000
Bonus* 1,440 1,440
Balance (125:75) ___8,100 P 4,860 ___12,960
P 35,450 P 4,860 P 39,400
* Bonus = 10% (Net Income – Salary)
= .10 (P39,400 – P25,000)
= P1,440
31. (C)
Sales (P350,000 + P100,000)………………………………………… P 450,000
Less: Cost of goods sold:
Purchases (P400,000 + P50,000)……………………………… P 450,000
Less: Inventory, ending………………………………………… 90,000 360,000
Gross profit……….……………………………………………………… P 90,000
Less: Expenses –
Salaries and commission……………………………………… P 70,000
Rent………………………………………………………………… 20,000
Advertising supplies (P10,000 – P6,000)…………………….. 4,000
Other expenses…………………………………………………. 5,000 99,000
Net Loss………………………………………………………………….. P( 9,000)
32. (B)
Home Office Books Branch Books
Branch Current (Dr.) Home Office Current (Cr.)
590,000 506,700
40,000 40,000
15,000 15,000
28,000 28,000
900 600
300

535,000 535,000
33. (C)
Free Assets:
Fully secured assets:
Land and building (P170,000 – P165,000, mortgage payable)……………………P 5,000
Cash……………………………………………………………………………………………… 40,000
Accounts receivable…………………………………………………………………………. 63,000
Inventories [P2,000 + (P50,000 x 80%)]…………………………………………………….. 42,000
Machinery……………………………………………………………………………………… 20,000
Total free assets …………………………………………………………………………………..P 170,000
Less: Unsecured creditors with priority (P60,000 + P10,000)………………………………. 70,000
Net free assets…………………………………………………………………..………………….P 100,000
Less: Unsecured creditors without priority:
Accounts payable……………………………………………………………….P110,000
Notes payable and interest (P50,000 + P5,000)…………….……………........... 55,000 165,000
Estimated deficiency to unsecured creditors………………………………………………..P 65,000
34. (D)
Sales (P100,000 – P33,000 + P50,000)……………………………………………… P 117,000
Less: Cost of goods sold:
Inventory, beg. [P15,000 + (P5,500/110%) or (P5,500 – P500)]………… P20,000
Add: Purchases (P50,000 + P7,000)………………………………………… 57,000
COGAS………………………………………………………………………….. P77,000
Less: Inventory, end [P11,000 + P1,050 + (P6,000- P1,050)/110%]…….. 16,550 60,450
Gross profit………………………………………………………………………………. P 56,550
Less: Expenses (P20,000 + P6,000 + P5,000)……………………………………….. 31,000
Combined Net income………………………………………………………………. P 25,550
ReSA - The Review School of Accountancy Page 22 of 25

35. (C)
HO Books - Branch Books -
Branch Home Office
Account Account
Balances before adjustments P 59,365 P 57,525
Adjustments:
Corrected branch income for January (P1,440 –
P215) 1,225
Understatement of branch paid by home office for
December 310
Expenses of branch paid by home office 215
Collection by home office of branch receivable ( 65)
Correction of branch income for January ( 215)
Merchandise transferred to Brentwood branch but
incorrectly charged by Beverly Hills branch ( 1,400)
Merchandise returns to home office in transit ( 840)
Uncollectible accounts of branch ( 1,200) _______
Corrected Balances P 57,460 P 57,460
36. (A)
20x9
Contract Price 100,000
Costs incurred each year 20,000
Add: Costs incurred in prior years __-0-
Costs incurred to date 20,000
Add: Estimated costs to complete ?
Total estimated costs 60,000
Estimated gross profit (loss) 40,000
Multiplied by: Percentage of completion [(20,000 – 2,000*/60,000]
Gross profit (loss) to date 12,000
Less: Gross profit in prior year -0-
Gross profit (loss) each year 12,000
* excluding P2,000 on cement that is held offsite
20x9
Revenue 30,000
Expenses/Costs **18,000
Profit 12,000
** P20,000 – P2,000 on cement that is held offsite.
At 31 December 20x9 the contract is 30 percent complete – calculation (P20,000 costs incurred less
P2,000 costs relating to future activity) / P60,000 estimated total contract costs.
In 20x9, the contractor must recognize revenue and expenses of respectively P30,000 (i.e., 30% c
P100,000 total expected contract revenue) and P18,000 (i.e, P20,000 less P2,000). This means profit
in 20x9 is P12,000 (i.e., P30,000 contract revenue less P18,000 contract expenses).
The P2,000 of cement that is held offsite would be included in the statement of financial position as
an asset (inventories) and assuming no progress billings have been made, an amount of P30,000
would be included in “contract asset/current asset” for this contract determined as follows:
Construction in Progress:
Costs incurred in current year (excluding P2,000 cement inventory
for future activity): P20,000 – P2,000………………………………………………P 18,000
Add: Profit in current year……………………………………………………………….. 12,000
Construction in Progress………………………………………………………………….P 30,000
Less: Progress billings………………………………………………………………………. __ 0
Contract asset/current asset........………………………………………………………P 30,000
37. (A)
20x9
Contract Price 100,000
Costs incurred each year 20,000
Add: Costs incurred in prior years __-0-
Costs incurred to date 20,000
Add: Estimated costs to complete ?
Total estimated costs 60,000
Estimated gross profit (loss) 40,000
Multiplied by: Percentage of completion (given) ___28%
ReSA - The Review School of Accountancy Page 23 of 25

Note: Examinees are required to use this approach for board examination purposes to comply the
output measure (wherein the percentage of completion is already given), use the actual cost
approach by computing revenue first.
To date Prior Year Current Year
Revenue *28,000 -0- *28,000
Expenses/Costs **18,000 -0- **18,000
Profit 10,000 -0- 10,000
* P100,000 x 28%
** P20,000 – P2,000 on cement that is held offsite.
In 20x9 the contractor must recognize revenue of P28,000 (i.e., 28% x P100,000 total expected
contract revenue). One way of accounting for contract costs is to recognize them as an expense
in profit or loss in the accounting periods in which the work to which they relate is performed. Using
this method, in 20x9 the contractor would recognize contract expenses of P18,000 in profit or loss
(i.e., P20,000 less P2,000 cement inventory). This means profit in 20x9 is P10,000 (i.e., P28,000 contract
revenue less P18,000 contract expenses).
Assuming no progress billings have been made, an amount of P28,000 will be included in “contract
asset/current asset” for this contract determined as follows:
Construction in Progress:
Costs incurred in current year (excluding P2,000 cement inventory
for future activity): P20,000 – P2,000………………………………………………….P 18,000
Add: Profit in current year………………………………………………………………….… 10,000
Construction in Progress………………………………………………………………………P 28,000
Less: Progress billings……………………………………………………………………………_ _ 0
Contract Asset/current asset.....……………………………………………………………..P 28,000
38. (A)
20x9
Contract Price 100,000
Costs incurred each year 20,000
Add: Costs incurred in prior years __-0-
Costs incurred to date 20,000
Add: Estimated costs to complete ?
Total estimated costs 60,000
Estimated gross profit (loss) 40,000
Multiplied by: Percentage of completion (given) ___32%
Note: Examinees are required to use this approach for board examination purposes to comply the
output measure (wherein the percentage of completion is already given), use the actual cost
approach by computing revenue first.
To date Prior Year Current Year
Revenue *32,000 -0- *32,000
Expenses/Costs **18,000 -0- **18,000
Profit 14,000 -0- 14,000
* P100,000 x 32%
** P20,000 – P2,000 on cement that is held offsite.
In 20x9 the contractor must recognize revenue and expenses of respectively P32,000 (i.e., 32% of
P100,000 total expected contract revenue) and P18,000 (i.e., P20,000 less P2,000 cement inventory).
This means profit in 20x9 is P14,000 (i.e., P32,000 less P18,000).
In the entity’s statement of financial position an amount of P2,000 the cement that is held offsite) is
included in inventories and “contract asset/current asset” for contract work of P2,000 for this
contract is determined as follows:
Construction in Progress:
Costs incurred in current year (excluding P2,000 cement inventory
for future activity): P20,000 – P2,000……………………………………………….P 18,000
Add: Profit in current year………………………………………………………………… 14,000
Construction in Progress…………………………………………………………………...P 32,000
Less: Progress billings………………………………………………………………………… 30,000
Contract Asset/current asset........………………………………………………………..P 2,000
The P10,000 will be shown in trade receivables (a separate asset) for the progress billings not yet
settled by the customer (i.e., P30,000 progress billings less P20,000 received from the customers).
39. (C) 20x8:
Cost Inc. debited to Costs of Construction………………………P1,200,000
Gross Profit debited to CIP account………………………………… 800,000
Revenue for long-term construction contracts………………… P2,000,000
ReSA - The Review School of Accountancy Page 24 of 25

40. (A)
Construction-in-Progress Account (same with
Revenue in No. 39 above) ………………………………………………………..P2,000,000
Less: Progress Billings in 20x8………………………………………………………… 1,500,000
Contract Asset/Current Asset, net………………………………………………….P 500,000
41.(B)
20x9:
Cost Inc. debited to Costs of Construction…………………………P 600,000
Gross Profit debited to CIP account…………………………………… 400,000
Revenue for long-term construction contracts……………………P1,000,000
42. (D)
Under the Cost Recovery Method of Construction Accounting (Point in Time/Zero-Profit Approach),
revenue should be recognized up to the extent of costs incurred that it is probable will be
recoverable. Therefore, the basis for 20x9 entry for revenue, costs and profit would be:
Cost Inc. debited to Costs of Construction……………………………… P1,200,000
Zero-profit………………………………………………………………………. 0
Revenue, equivalent to the Costs Incurred……………………………….P1,200,000
43. (B)
Progress Billings in 20x8………………………………………………………… P1,500,000
Less: Construction-in-Progress Account (same with
Revenue in No. 42 above) ……………………………………………… 1,200,000
Current liability, net ………………………………………………………………………………………… P 300,000
44. (D)
Contract Price…………………………………………………………………………………P3,000,000
Less: Revenue in 20x8 equivalent to costs incurred also
in 20x8………………………………………………………………………………………..1,200,000
Revenue in 20x9 (year of completion) ………………………………………………….. P1,800,000

The entry composed of the following:

Cost Inc. debited to Costs of Construction, ……… P1,200,000
Gross Profit (balancing figure)………………………… 600,000
Revenue for long-term construction contracts P1,800,000
45. (B) - Because the RSGL’s ongoing activities affect the value of the trademark then should
recognize revenue over time. Therefore, the amount of P1,000,000 initial license fee that the
RSGL should recognize as revenue is P250,000 (computed as P1,000,000 ÷ 4 years).
46. (D) – No sale has taken place as control of the goods has not been transferred, but Cambridge
Co. must recognize a contract liability to reflect the fact that it has received P90,000 prior to
transferring goods to its customer. Refer to handouts in AFAR-06 (Problem IV page 11).
47. (D)
Consideration transferred:
Shares: (100,000 shares x P6.20)……………………… P620,000
Contingent consideration………………………………. 184,000
Total……………………………………………………. P804,000
Less: Fair value of net identifiable assets acquired:
Current assets………………………………………… P100,000
Equipment……………………………………………… 150,000
Land …………………………………………………… 50,000
Buildings ……………………….……………………… 300,000
Liabilities………………………………………………. ( 80,000) 520,000
Goodwill……………………………………………………. P284,000
The P184,000 is one classical example of contingencies when the future income of the acquirer is regarded
as uncertain; the agreement contains a clause that requires the acquirer to provide additional
consideration to the acquiree if the income of the acquirer is not equal to or exceeds a specified amount
over a specified period.

48. (D)
Goodwill, 1/1/2019……………………………………………………............ P 284,000
Less: Adjustment on contingent consideration (P184,000 – P170,000) 14,000
Goodwill, 8/1/2019……………………………………………………............. P 270,000
Changes that are the result of the acquirer obtaining additional information about facts and circumstances
that existed at the acquisition date, and that occur within the measurement period (which may be a
maximum of one year from the acquisition date) are recognized as adjustments against the original
accounting for the acquisition (and so may impact goodwill) – see Section 11.3.[PFRS 3 par. 58]

Incidentally, the entry to record the revision of goodwill should be:

Estimated liability for contingent consideration…. 14,000
Goodwill…………………………………………….. 14,000
ReSA - The Review School of Accountancy Page 25 of 25

49. (A) – refer to Nos. 47 and 48 for further discussion.

50. (C) – within the measurement period, since the term “at the date of…” is an indication that the is
an existing facts and circumstance on the acquisition date.
Goodwill 400,000
Estimated Lawsuit liability 400,000

51. (B) – not within the measurement period and it is considered as a “subsequent event”, then
changes on estimates will course through “gain or loss…”
Loss on lawsuit 400,000
Estimated Lawsuit liability 400,000

52. (B) – [(P47 x 12,000 shares) – (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 – P420,000)
= P104,000
53. (D)
APIC: P20,000 + [(P42 – P5) x12,000 = P464,000
Retained earnings: P160,000, parent only
54. (B)
Inventory: PP230,000 + P210,000 = P440,000
Land: P280,000 + P240,000 = P520,000
55. (B) – [P480,000 – (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 – P420,000)] = P20,000

56. C 61. D 66. D

57. C 62. D 67. A
58. C 63. B 68. B
59. A 64. A 69. D
60. B 65. D 70. C