Solutions Manual

1.
2.
3.
4.
5.

B
A
C
B
D

6. C
7. A
8. A
9. D
10-1. C

10-2. C
11. B
12. A
13. A
14. A

15.
16.
17.
18.
19.

D
D
C
B
C

20. D
21. A
22. B
23. C
24-1. A

24-2. D
25. D
26. C
27. B
28. A

29. C
30. B
31. D
32. C
33.C

34.B
35.B
36.D
37.B
38.C

Problem 1 (Partnership Formation) Ans: B

Unadjusted Capital

CC
4,398,055

PPE (half of carrying value)

(2,352,042)

AR (uncollectible)
Goodwill of GV
Capital balances before CCs withdrawal of
cash
CCs withdrawal of cash
Adjusted Capital

(205,000)
-

GV
4,646,292
(1,389,168
)
(798,600)
(844,810)

1,841,013

1,613,714

(227,229)
1,613,714

1,613,714

39.B
40.C
41.C
42.C
43.B

Problem 2 (Partnership Liquidation)

Balances
Loss on
Realization
Payment to
outside creditors
Balances
Investment by Idol
Distribution of
remaining cash

Cash

Non-cash

Liabilities

36,000

100,000

17,000

(100,000)
(17,00
0)
19,000
48,000
67,000
(67,00
0)
-

Master
(40)
69,000

Idol (40)

Star (20)

(8,000)

58,000

(40,000)

(40,000)

(20,000)

(48,000)
48,000
-

38,000

(17,000)
-

29,000

29,000
(29,000

(38,000)

Ans: A: 48,000

Problem 3 (Partnership Operations) Ans. C

Salaries
Interest (12% of ave.
capital)
Paris 63,000*12%
France 39,375*12%
Remainder (60:40)
Total

Paris
P 16,000

7,560
12,279
36,289

France
P 10,500

4,725
8,486
23,711

Problem 4 (Partnership Liquidation) Ans. B

Hermes
Total capital
Capital balance
P 65,900
balances
Share in NI
21,600
Net Income
(72,000*30%)
Balance
87,500
Balance
Share in Gain
Total Gain
11,250
(squeeze)
(11,250/30%)
Cash paid to
Cash received
98,750
partners
Workback proceeds from sale:
Cash paid to partners
Cash paid to outside
creditors
Cash, beginning balance
Cash available for
distribution
Cash withheld - unpaid

P 392, 250
139,710
(126,700)
405,260
35,250

38,000

Total
P
26,500
7,560
4,725
21,215
60,000

Total
P 282,750
72,000
354,750
37,500
392,250

creditors
(174,960 139,710)
Proceeds from sale

P 440,510

Problem 5: Ans. D
Sales (P3,503,000 + 312,000
254,000)
Cost of goods sold:
Inventory, Beg

P 3,561,000
P
239,000
2,828,00
0

Purchases
(P2,814,000 + 212,000
198,000)
Inventory, End

(278,000
)

(2,789,000)

Expenses*
Net Income

(521,000)
P 251,000

*Expenses computation:
Payments for expenses
Prepaid expenses, beg.
Prepaid expenses, end
Accrued expenses, beg
Accrued expenses, end
Depreciation expense (76,000
53,000)
Accrual expenses

Beginning balances
Share in NI
Payment to Ann (90%)
Bonus to remaining
partners
Ending capital
balances

P
490,000
21,000
(35,000)
(76,000)
98,000
23,000
P
521,000

Eric (40)
P 277,600
100,400

Lydia (30)
P 208,200
75,300

16,200

12,150

394,200

295,650

Problem 6: Ans. C
Assets available to unsecured creditors
Add: Unsecured creditors with priority (administrative
expenses P3,500; taxes: P6,000 and wages: P2,500)
Less: Assets not pledged to any liabilities
Excess of assets pledged to Fully secured liabilities
Add: Payments to Fully secured creditors
Total assets pledged to Fully secured liabilities

Unsecured creditors (P70,000 / 35%)

Less: Accounts payable and Notes payable (liabilities
without priority)
Portion of Partially secured liabilities not covered by
assets pledged for partially secured liabilities
Add: Portion of Partially secured liabilities which is fully
paid*
Partially secured liabilities

Ann (30)
P 208,200
75,300
283,500
(255,150)
28,350

P 70,000
12,000
(10,000)
72,000
68,000
(1) P 140,000

P 200,000
100,000
100,000
100,000
(2) P
200,000

*payment to partially secured creditors: P100,000 + (P100,000*35%) = P135,000

Problem 7: Ans. A
Estimated gains on realization of assets

P
1,450,000

Less: Estimated losses on realization of

assets
Unrecorded/additional assets
Less: Unrecorded/additional liabilities
Stockholders Equity
Capital stock
P
2,220,000
Less: Deficit
1,320,000
Estimated amount to be recovered by
stockholders

2,500,000
1,300,000
520,000

900,000
P 630,000

Pro-rate payment on the peso is: (P630,000/ P900,000) = P0.70

Problem 8: Ans. A
Capital
balances..................................................................
....
Share in profit after deduction for salary^
(P195,000*P&L%)
Cash
payment .................................................................
........

Tumblr(40)

Twitter(25)

(P
180,000)

P 85,000

78,000

48,750

(102,000)

133,750

^Profit after deduction for salary: P209,500 + P10,850 P252,350 = P195,000

^Salary of Googleplus = [(P209,500 + P10,850)/1.13]*13% = P25,350
Googleplus(35)
Unsold merchandise
received..........................................
Cash payment (P315,000 P133,750 +
P102,000)
Total interest of
Googleplus.............................................

P 10,850
283,250
P 294,100

Problem 9: Ans. D
Investment of
Mdse
Sales discount
Sales returns
Bad debts
expense (w/off)
Expenses

Joint Venture
P
P
234,000
360,00
0
1,875
22,500
4,200
17,100
9,675

Sales
Unsold Mdse
Unsold Mdse

87,840
P
62,010

Investment of
Merchandise..........................................
Interest
P99,000*6%
*(3/12) ................................................
P135,000*6%
*(3/12)...............................................
Remainder (P62,010 P12,402^ P1,485
P2,025)/3
Unsold

Net Income

Jennifer

Beyonce

P 99,000

P 135,000

1,485
2,025
15,366

15,366

(22,500)

(17,100)

Merchandise...................................................
...
Cash
received..........................................................
.......

P
93,351

P 135,291

Problem 10: Ans. C, C

Q10 1 Share in net income: (P150,000 P25,000)*25% = P 31,250
Q10 2
Dividend Income (P85,000*
25%)...............
Transaction Cost (P270,000*
1%)...............
Change in fair value (P300,000^ P270,000)
Profit under Fair Value
method: ................
Less: Profit under Equity
method: .............
Difference............................................
.......

P
21,250
(2,700)
30,000
P
48,550
31,250
P
17,300

Problem 11: Ans. B

Direct
quotations:
Day
P0.08 =
1....................
1
Day
P0.0625 =
22..................
1
Foreign currency gain of X Trading: (P0.080 P0.0625)*1,200,000 = P21,000gain
*no gain/loss on the part of Y company since from his viewpoint the transaction is both
denominated and measured in his local currency, euros.

Problem 12: Ans. A

April 20, 2012
(P68.45 P67.48)*
180,000* 30%
May 5, 2012
(P68.45 P68.63)*
180,000* 70%
Net
gain/loss..............................................................
........

= P52,380
loss
= P22,680
gain
P 29,700
loss

Problem 13: Ans. A

Forward Contract Receivable (fixed): P0.55*400,400 = P220.200
Forward Contract Payable (moving): P0.50*400,400 = P200,200

Problem 14: Ans. A

Fair Value of put
option
Effective/Intrinsic
(4.965
4.934)*65,000

1/1/2012
P9,800

3/31/2012
P11,400

Changes
1,600

3,705

1,690

2,015

(4.965
4.908)*65,000
Ineffective/Time value

7,785

7,695

(90)

1/1/2012
P9,800

3/31/2012
P11,400

Changes
1,600

1,105

1,105

10,295

495

Problem 15: Ans. D

Fair Value of put
option
Effective/Intrinsic
(4.925
4.934)*65,000
(4.925
4.908)*65,000
Ineffective/Time value

9,800

Problem 16: Ans. D

Merchandise will only be presented on the financial statement upon actual purchase.

Problem 17: Ans. C

Collections:
- 2010 (P1750,000 P950,000)
- 2011 (P950,000 P360,000)
- 2012 (P360,000 P145,000)
Total collections:
Less: Cost of Instalment Sales (Sales /
1+GP rate)
Realized gross profit to date
Realized gross profit (breakdown):
- 2011
- 2012

2010
P800,000
590,000
215,000
1,605,000
P1,250,000
P355,000
140,000
P215,000
2011

Collections:
- 2011 (P2,275,000
P1,706,250)
- 2012 (P1,706,250 P287,500)
Total collections:
Less: Cost of Instalment Sales (Sales /
1+GP rate)
Realized gross profit to date
Realized gross profit (breakdown):
- 2011
- 2012

P 568,750
1,418,750
1,987,500
P1,750,000
P237,500
0
P237,500

Total RGP on 2012 (P215,000 + P237,500) = P452,500

Problem 18: Ans. B

b. Repossessed Merchandise (P99,000
P9,000)
Loss on Repossession (given)
Deferred
gross
profit
(P145,000*34%)
Instalment
accounts
receivable
(P90,000 + P5,700) / (100% 34%)

Problem 19: Ans. C

Contract price

90,000
5,700
49,300
145,000

P3,800,000

Less: Total costs incurred

(P684,000 + P1,254,000, +
P1,558,000)
Total gross profit
Less: gross profit for 2010
Add: loss for 2012
Gross profit for 2011
To get percentage of completion:
(RGP to date + Cost to date)
Contract price
(P76,000 + P266,000) +
(P684,000 + P1,254,000)
P3,800,000

3,496,000
304,000
(76,000)
38,000
P266,000
= Percentage of
Completion
= 60%

To get estimated gross profit 2011:

(RGP 2010 + RGP 2011)
= Estimated gross
profit
Percentage of Completion
(P76,000 + P266,000)
60%

Problem 20: Ans. D

Cost to date
Total estimated cost*
P3,672,500
(P3,672,500 + P1,977,500)*

= P570,000

= Percentage of Completion
= 65% (2012)

Contract price
Less: Total estimated cost
Estimated gross profit
Multiply: Percentage of completion
Realized gross profit to date
Less: Realized gross profit prior
years^
Realized gross profit (loss) current
year
^2011:
Correct cost incurred to date
(P3,040,000 P50,000)
Correct cost to complete
(P1,960,000 + P50,000)
Total estimated cost, 2011
P2,990,000
P5,000,000

P6,300,000
5,650,000
650,000
x 65%
422,500
(777,400)
P (354,900)

P2,990,000
2,010,000
5,000,000
= 59.80% (2011)

Contract price
Less: Total estimated cost
Estimated gross profit
Multiply: Percentage of completion
Realized gross profit to date^

P6,300,000
5,000,000
1,300,000
x 59.80%
P 777,400

Problem 21: Ans. A

Since the period of refund has not yet lapsed, both the downpayment and the PV of the note
are to be deferred.
Downpayment (P1,500,000 * 40%)
PV of note [(P1,500,000*60%) /3] *
2.4
Unearned franchise revenue

P600,00
0
720,000
P1,320,
000

Problem 22: Ans. B

Correct branch net income (per HO books)
Branch net income (per Branch books)
Adjustment to Allowance for Overvaluation*

P332,200
100,000
232,200*

Mark-up percentage: P232,200/ (P425,700 - P232,200) = 120% above cost (or 220% of
cost)
Amount of ending inventory (EI):
Shipments from HO EI = Cost of goods sold
X 0.25X = P425,700
X = P567,600 (Shipments from HO)
0.25X = P141,900 (Ending Inventory)
Cost of shipments from HO: (P567,600 / 220%) = P258,000

Beginning inventory
Shipments from home
office
Ending inventory
Cost of goods sold

Billed price (220%)

-

Cost (100%)
-

Mark-up (120%)
-

P567,600

P258,000

P309,600

(141,900)
P425,700

(645,000)
P193,500

(77,400)
232,200*

Problem 23: Ans. C

Gross sales*
Less: Sales discount
Net sales
Less: cost of goods sold
Gross profit
Less: Expenses:
Paid expenses
Accrued expenses^
Depreciation of
equipment
(P100,000*20%* 6/12)
Depreciation of
samples
[(P21,600
P300)/9]*6mos
Net income

P425,00
0
6,000
419,000
57,500
361,500
25,000
41,900

*computation for gross sales (x):

P270,400 + P14,200 + P10,000 + P25,000 +
P57,500 = P377,100
X P6,000 10%(X P6,000) = P377,100
X P6,000 10%X + P600 = P377,100
90%X = P382,500
X = P425,000

10,000

14,200

*computation for accrued expenses:

Accrued expenses:(P425,000 P6,000)*10% =
P41,900

P270,400

Problem 24: 24-1. Ans: A ; 24-2. Ans: D

Sales
Less: Cost of goods sold
Expenses allocated
Depreciation (P200,000/5)*6/12
Net income per branch books
Add: Adjustment to Allowance for
Overvaluation
(P100,000* 30%)
Adjusted Net income of the branch
Add: Net income of the home office
Combined net income of HO and branch
Shipments to Branch at billed
price
Purchases
Ending inventory
Cost of goods sold*

P405,000
175,000
115,000
20,000
A
P95,000
30,000
125,000
170,000
D
P295,000
P130,000
125,000
(80,000)
P175,000

Problem 25: Ans. D

Standards assets
Add: Goodwill
Add: Setters assets at fair
value
Less: Cash payment
Total combined assets
Purchase price
Non-controlling interest
(P1.6M/80%)*20%
Cost of investment
Net assets at fair value
(squeeze)
Goodwill
*Net assets of Setter @FV
Liabilities of Setter
Assets of Setter @FV

P5,000,00
0
700,000
*3,100,000
1,600,000
P7,200,00
0
P1,600,00
400,000
2,000,000
1,300,000
P700,000
P1,300,00
0
1,800,000
P3,100,00
0

Problem 26: Ans. C

Purchase price
Contingent consideration
Cost of investment
Less: Net assets of T&R Co.
Income from acquisition

P22M
1.5M
23.5M
29M
P5.5M

Cash payment for contingent

cons
Less: Contingent consideration
payable
Loss on contingent
consideration
Effect on RE
Income from acquisition
Loss on contingent
consideration
Net effect LOSS

P10M
1.5M
P8.5M

P5.5M
8.5M
P3.5M

Problem 27: Ans. B

Purchase price (45%)
Previously held securities
(P900,000/45%)*25%
Non-controlling interest
Fair value: P290,000
Proportionate share
- (Net assets*30%): P315,000
higher
Cost of investment
Less: Net assets at Fair value
- (P1,850,000 P800,000)
Goodwill

P900,000
500,000

315,000
P1,715,000
P1,050,000
P665,000

Problem 28: Ans. A

Net income of Parent

Net income of Subsidiary:
P150,000
- 70% (3 months)
- 80% (9 months)
Amortization: P19,00

C NI
Controlling
P450,000
26,250
90,000

C NI Noncontrolling
P 11,250
22,500

- 70% (3 months)
- 80% (9 months)
Intercompany dividend
(P75,000*80%)
Total

(3,325)
(11,400)

(1,425)
(2,850)

(60,000)
P491,525

P29,475

Problem 29.
Direct Cost
Set-up (25*7500)
Utilities (7.60*15000)
No. of parts (20*550)
Total Cost
Cost per Unit (387500/25000)

75000
187500
114000
11000
387500
15.50

Problem 30.
Direct materials
Direct labor
FOH
Direct materials rework
Direct labor rework
FOH rework
Total cost
Cost per unit (233150/450)

42500
65250
78300
13550
15250
18300
233150
518.11

Problem 31.
Direct materials
Direct labor
OH (5.50*120000)
Less: Disposal value
Total cost of good units

450000
520000
660000
(24000)
1606000

Problem 32.
AVERAGE
Completed and
Transf.
WIP end
Total
Cost per EUP

Units
12000

Materials
12000

Conversion
12000

7000
19000

7000
19000
2.78
(52750/19000)

4200
16200
3.71
(60025/16200)

FIFO
WIP beg.
Started and
Completed
WIP end
Total
Cost per EUP

Units
9500
2500

Materials
2500

Conversion
2850
2500

7000
19000

7000
9500
4.50
(42750/9500)

4200
9550
5.50 52525/9550
)

Materials

Conversion

Problem 33.
Units

WIP beg.
Started and
Completed
WIP end
Lost units
Total
Cost per EUP

15000
60000

60000

3000
2000
80000

3000
2000
65000
1.20
(78000/65000)

Total current cost

per EUP

4500
60000
1500
2000
68000
1.25
(85000/68000)
2.45

Problem 34.
Cost of WIP beg, May 1, 2011
Additional conversion cost (4500*1.25)
Cost of started and completed units
(60000*2.45)
Cost of lost units (2000*2.45)
Total cost of completed units
Cost per unit (202525/75000)

45000
5625
147000
4900
202525
2.70

Problem 35.
(Final selling price Selling price at split-off) Additional processing cost =
Incremental profit
(3 1.50) 2.50 = (1)

Problem 36.
Joint cost
Less: NRV of by-product (4000*4)
Joint cost to be allocated to joint
products
Product

NRV

A
B
Total

20000
30000
50000

105000
(16000)
89000

Share in the
joint cost
35600
53400
89000

Addtl
processing cost
6000
-

TOTAL
41600
-

Problem 37.
Let x = Fixed Overhead rate per machine hour
40000x = 42000x 28500
machine hour
28500 = 2000x
overhead rate per MH
x = 14.25 per machine hour

Problem 38.
Material price variance:
80000 * (5 4.75) = 20000 unfavorable

14.25/60% = 23.75 total OH rate per

23.75 * 40% = 9.50 Variable

Material quantity variance:

4.75 * (70000 52500) = 83125 unfavorable
Problem 39. B
Problem 40. C
Problem 41. C
Problem 42. C
Problem 43. B

Problem 44.
Answer letter A: 2.1 x 100,000 = P210,000;
90,000 x 2 = 180,000, therefore 210,000 180,000 = P30,000 increase

Problem 45.
Answer letter C: .93 - .90 = .03 x 100,000 = 3,000 gain

Problem 46.
Answer letter B: 3 million /2 = $1.5 million plant; .667 - .5 = .167 x 3 million = $0.5 million loss; 3
million x .667 = $2 million

Problem 47.
Answer letter B: 1.2 x 45 = 54 million

Problem 48.
Answer letter D:

Separate FS of Parent SME

Dr. Profit or loss exchange difference
Cr. Long term receivable

CU 476
CU 476

20,000/2 20,000/2.1 = CU 476

Consolidation adjustment reclassify to OCI since it forms part of net investment
in the foreign subsidiary
Dr. Other comprehensive income
CU 476
Cr. Profit or loss exchange difference
CU 476

Problem 49.
Answer letter A: The July 30 update is within the measurement period, hence goodwill is
adjusted accordingly. The CC payable at this date amounted to 170,000 compared to the final
actual consideration of P195,000.

Problem 50.

Answer letter D: Conso RE = 1,400,000 + 525,000 315,000 12,000 + .80(157,500 87,500)

= 1,654,000