Sy The Review School of Accountancy Se ‘Tel. No. 735-9807 & 734-3989 PRACTICAL ACCOUNTING 2 February 9, 2014 (Sunday) First Pre-Board Examination 1:00 P.M. — 3:00 P.M. Seta as MULTIPLE CHOICE a INSTRUCTIONS: Select the correct anawer 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 ERASURBS ARF ALLOWED. Use pencil no. 2 only. 1, McBee Enterprise, a franchisor, charges franchisees a “franchise fee” of P 500,000. Of this amount, a nonrefundable P 200,000 is paid upon the signing of the contract with the balance payable in three equal installments after each year thereafter starting 2015. McBee will assist in locating a suitable business site, conduct a market study, oversee the construction of facilities, and provide initial training for employees. On October 1, 2014, McBee entered into a franchising agreement to cover an entirely new and untested area. By December 31, 2014, McBee had substantially completed and rendered appropriate services at a total cost of P 150,000 but, somehow, have raised some doubts on the collectibility of the balance of ‘the franchise fee. In its 2014 income statement, McBee Enterprises should recognize profit of: A. P 50,000 <& _ B 200,000 B. 140,000 e 350,000 Items 2 through 4 are based on the following information: On December 3, 2014, the Home Office of Kathy Office Supply Company recorded a “shipment of merchandise to its Davao branch as follows: Davac Branch ee eng ec 39,000 Shipments to Branches sm 32, 500 Unrealized Profit in Branch Inventory... 5,200 Cash (for freight charges)... 1,300 ‘The Davao branch sells 40% of the merchandise to outelde entities during the rest of December 2014, The books of the home office and Kathy Office Supply are closed on December 31 of each year. on January 5, 2015, the Daveo branch transfers half of the original shipment to the Baguio branch, and the Davao branch pays P650 as the shipment. 2. What amount should the 60% of the merchandise remaining unsold be included in (1) the inventory of the Davao branch at December 31, 2014? A. P20, 280 c. P23,400 B. 22,620 D. 23,920 3. What amount should the 60% of the merchandise remaining unsold at December 31, 2014 be’included in the published balance sheet of Kathy Office Supply at December 31, 2014 shows inventory at: A. P19, 500 cc. 20,800 B. 20,280 Ds 23,400 4 What is the entry on the home office books in respect to January 5, 2015 transfer, assuming that the transfer cost of the merchandise to Baguio branch would have been P780. A. Home Office. sommnine 205150 780 19,500 B, Shipments... 18,850 Freight-in... 780 Home Office Curremtecn. 19, 630D fost cotteee wes eevunuantcy Page 2 of 12 + Branch Current - Baguio, S— Excess Freigh Branch Current — Davao, “D, Branch Current - Baguio. Exeess Freight... Braneh Current ~ Davao. 13,630 520 20,150 19, 630 ~ "180 ~ 20,410 (27% He and 22, a partnership formed on January 1, ; 2014 had the followi Y initial investment aay XX renee P 170,000 Yon 255,000, an, = 382,500 The Partnership agreement states that the profits and losses are to be qhered equally by the partners after consideraticn’ i made for the following: per sees ettiowed to partners: 102,000 for xx, 61,600 for yy, P61, 200 for Zz. ~ Average partners’ and capital balances during the year shall be allowed iot, Additional information: [OR June 30, 2014, Xx invested an additional 102,000. 7 2? withdrew P119,000 from the partnership on Septenber 30, 2014. ~ Share the remaining partnership profit was P8,500 for each partaer The total partnership capital on December 31, 2014 wast A. P 688,500 c. PB 816,000 B. 1,141,550 D. 1,143,675 J Happy, Ine. opens a sales agency in pavae City, and a working fund for £20,000 is established on the imprest basis. The first payne? fron tho sone 8, P3,000 for rent. this transaction should be recorded by the hone office as follows: A. No entry B. Rent... Cash. nan: C. Davae AqencYnennn- Cash... o Be Davao AGONC Yee nminannmenee Working Fundam. 7; Fellowing is the balance sheet of the ABCD Partnezship at March 31, 2014, 7 when the partnership is to be liguidated. cash P 6,000 Liabilities P 12,400 -4eo » fk, Other assets 126,000 A, loan 12,000 B, loan 14,400 Dy Loan 9,600 A, capital ~ 25% 16,2004), 8, capital - 25% 12,000 + Cc, capital - 25% 37,700 ¢ feo D, capital - 25% 17,700 472494 Fe uring the month of April 2014, assets having a book value of P18,000 are sold atu doss of £2,400. Liquidation enpeniou of YODU acm paid ao weiy Oe aOR te 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, 2014 cash to be distributed to A, B, C, and D as follows: B G D = =0- 00 a a O= P36 P 9,0 B. P 1,950 FP 12,950 P 1,950 P 1,950 £.P -0- PB -0- Po -0- P 1,950 fo} eB -0- PB -0- P 9,000 BP -0- A ise © for the greenbelt area. Drake was 8. Shake, Inc, granted a franchise to Drak E arua Deena: vl J to pay a franchise fee of P 160,000 payable in five equal ual PRACTICAL ACCOUNTING 2 ~' FIRST PRE-BOARD EXAMINATION (BATCH 27)$ Ke A: The Review School of Accountancy Page 3 of 12 installments starting with the payment upon signing of the agreement. The franchise was to pay monthly 18 of gross sales of the preceding month. Should the operation of the outlet prove to be unprofitable in the first year of operations the franchise fee may be cancelled with whatever gbligation ‘owing Shake, Inc. in connection with the P 100,000 franchise ee, waived. On the same year of granting the initial franchise fee, the first year operation generated a gross sales of P 500,000 which is considered to be a Profitable operations. For the first year, Shake, Inc. earned franchise fee of: A. P 5,000 ST> P 25,000 B. 20,000 Be 105, 000 2+ On January 1, 2014, Colt Company sold land that cost P60,000 for P80,000, receiving a note bearing interest at 10%. The note will be paid in three annual installments of P32,170 starting on December 31, 2014. Because collection of the note is very uncertain. Colt will use the cost recovery method. How much revenue (profit from sale and interest) from this sale should Colt recognize. in 7014? = r (oP -0- c. P 8,000 B. 6,000 D. 20,000 19. AUD Company recognizes construction revenue and expenses using the Percentage of completion method. During 2014, a single long-term project was begun which continued through 2015. Information on the project was as follow: Zoid 2015 Accounts Receivable from construction contract F_200,000| » 600,000 ction expenses z10,000] 384,000 struction in progress 244,000] 728, 000 Partial billings on contract “B40, 006 whe profit recognize from the long-term construction gontract should amount tor 2014 2015 2014 2015 A. P 44,000 P456,000 + P 34,600 256,000 44,000 200,000 + 34,000 100,900 11. GR&R Enterprise entered into a construction agreement in 2014 that called for a contract price of P9,600,000. At the beginning of 2015, a change order increase the initial contract price by P480,000. In relation to the project, the following data were obtained: Bon Zois cf Pa, 920, 000 | PB, 640,000 Estimated costs to complete [4,920,000 | 2, 160, 000 | [Biliings made to date [5,280,000] 8, 700, 000 Collections made to date _ 4,920,000] 8, 700,000 Costs incurred to date Compute the amount of construction in progress (net) - due from customers or progress billings (net) - due to customers for the year 2015: Percentage~of-completion Cost Recovery Method Mothod of Construction Accounting A. P780,000 - liability P780,000 - liability B. 780,000 ~ asset 780,000 - asset C, 60,000 - liability 60,000 - liability D. 636,000 ~ liability 636,000 - liability Items 12 through 14 are based on the following information: From the’ following data from the records of ABC Partnership, answer questions No. 12 through 14: ABC Partnership Balance Sheet December 31, 2014 Assets Cash PB 2,000 Other Noncash Assets 28,000 Total P_30,.000 PRACTICAL ACCOUNTING 2 ~ FIRST PRE-BOARD EXAMINATION (BATCH 27) ©Idabilities and Capital Liabilities ® 5,0 Ay loan 2,300 % capital 125500 By capital Beat Cr capital 3,000 Total Frofit and loss ratio is 3:2:1 for a, B, and C, respectively. The other foncash assets were realized as follows: Date Gash Received Book Value January 2015 PG, 000 P 3,000 February 2015 3,500 7,700 March 2015 12,500 11, 300 Cash is distributed as other noncash assets realized. J- The total loss on liquidation to A is: A. 3,000 c. Pl, 000 B. 2/000 D. ° : D 13. Total cash received by B ist ALP 0 ©. P2, 000 B. 1,500 ©. 5,000 fk 14, cash received by © in January is: 7 APO c. & S00 8. 200 D. 1,000 38. Ruby Fruits Corporation enters into a franchise agrecmeat with Rodel on 7 June 1, 2014. As per agreement, Rodel is to pay Ruby an up-front franchise fee of P 1,000,000 and subsequent annual franchise fees of © 50,000 over the next four years. Cost of initial franchise services rendered by Ruby during the year is P 250,000 and estimates the cost of subsequent annual “© services to. be: P100,000...Ruby expects a profit. of 208 on subsequent services. Rodel paid the annual fee for 2015 and Ruby rendered arnual services for that year. In its December 31, 2015, income statement, the realized franchise revenue to be reported by Ruby ist A. P 20,000 = c. P2145, 000 B. 50,000 D. 245,000 Items 16 and 17 are based on the following information: The income statement submitted by the Tarlac Branch to the Home Office for the month of December 31, 2014 follows: SAL. ronn een Cost of sales: Inventory, December 1, 2014. Shipments from home Off4CC ssn P 600,000 P 80,000 vee 350,000 Purchases Locally by BEANCH even ____ 30,090 Total. = PB 460,000 Inventory, December 31, 2014 100,000 360,000 Gross MATIN oun - P 240,000 Operating expenses. 180,000 Net income for the mont! 0,000 The'branch inventories consisted of: 12/1/2014 [12/31/2014 | Merchandise from hone office P 70,000] > 84, 000 ‘Local purchases 20, 000 16, 000 Total F 80,000 [ Pi00, 000 After effecting the necessary adjustments, the Home Office ascertained the true net income of the Branch to be P156,000. C/ 16, at what percentage of cost did the Home Office bill the branch for 7 merchandise shipped to it? A. 1008 cc. Loe 3. 1208 D. 1508 a ce tat PRACTICAL ACCOUNTING. 2 ~ FIRST PRE-BOARD EXAMINATION (BATCH 27) 8Ce 17. wnat is tne balance of the Allowance for Overvaluation in the Branch * inventory at December 31, 20147. Re? 10,000 Ee 24,000 B. 16,000 2” 3aro00 P if Following is the income statement of XYZ Branch in Cebu City Company, for the six months period ending June 30, 2014: SALES evemninnnn . mine _ wueP 620,000 Cost of sales Shipments from home office. Purchases...... an Tobe lasreancni sian Inventory, June 30, 2014 From Home Office...P 75,000 I From purchases. 10,000 ___ 85,000 "_515, 900 Gross margin - 3 B 105,000 Expenses. orem ss 85,000 Net income for the monte. B_20,.900 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 fron ‘ia Mranch Office in Cebu City for the six, (6) months ending June 30, 2014 is: A. P 14,000 Cc. P125,000 (B- 109,000 D. 139,000 . 9. DJ Builders’ Enterprises, a franchisor, charges franchisees a “franchise “fee” of P 500,000. of this amount, a nonrefundable P 200,000 is paid upon the signing of the contract with the balance payable in three equal installments after each year thereafter. DJ Builder’s will assist in locating a suitable business site, conduct a market study, oversee the construction of facilities, and provide initial training for employees. On December 1, 2014, DJ Builder's signed a franchising agreement for the U- belt area. By the end of 2014, it was determined that the substantial performance of the initial services had cost DJ Builder's a total of P 150,000 and that collection of the balance of the franchise fee has been reasonably assured. In its 2014 income statement, DJ Builder's should report franchise revenue and net income: Net_Income A P 500,000 P 350,000 SB. 500,000 500,000 Ge ° 0 D. 350,000 350, 000 Items 20 and 21 are based on the following information: Chicane Builders, Inc. employs the cost-to-cost method in determining the percentage-of-completion for revenue recognition. The company’s records show the following information on a recently completed project for a contract price of P5,000, 000. : 2014 2015 2016 Costs incurred to date... P 900,000 2,550,000 Pp’ ? Gross profit (loss) a + 100,000 350,000 { 50,000) 29. The estimated costs to complete the project at December 31, 2016: A. PB 850,000 c. P2,300,000 1,700,000 D. 2,550,000 2}. The actual costs incurred during the year 2016. A. P2,550,000 ‘Ce P2, 200,000 B. 2,300,000 48) 2,050,000 Fa i PRACTICAL ACCOUNTING 2 - FIRST PRE-BOARD EXAMINATION (BATCH 27) &C/ 3} The unsecured creditors of Sealtiel cor kage uur (22! the after-closing trial balances of the Beams, Plank, and Timbers | partnership at December 31, 2014 included the following accounee rey balan: Assets a nora P 120,000 Accounts receivable-net. 140,000 Loan to Timbers 20,000 Inventory. 200,000 Plant assets-net.. 200,000 PEAMEMALKS enone 20,000 Total debits. 7 tiutttea E.200,.909 “Accounts payable. mnP 150,000 Notes payablenun 100,000 Loan from Plank... 10,000 Beams capital (508) 170,000 Plank capital (308) 170,000 ‘Timbers capital (20%) wen 100,000 Total credits... P 700,000 The partnership is to be Liguidated as soon as possible, cash except for a P10,000 contingency balance is to be dist of each month prior to the time that all assets are converte and all available ributed at the end d into cash. During January 2014, 100,000 was collected from accounts inventory items with a book val available cash was distributed, receivable, ue of P80,000 were sold for P100,000, and During February 2014, Beams received plant assets with a book value of F60,000 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 Viability of P@,000 was discovered. Cash was distributed on February 20. During March 2014 the plant assets were sold for P110,000, noncash sets were written off, final paid, and cash was distributed. completed on March 31, 2014. the remaining liquidation expenses of PS,000 were The dissolution of the partnership was The amount of cash to be received by Timbers for the month of Marci ALP -0- c. P 29,000 B. 23,000 D. 69,000 Poration filed a petition on July 1, 2014 to force Dawn into bankruptcy. The court order for relief was granted on July 10, at which time en interim trustee was appointed to Supervise liquidation of the state. A listing of assets and liabilitios of Dawn Corporation as of July 10, 2014, along with estimated realizable value, is as follow: Estimated Book Value Realizable Value Assets Cathetcociecnrmccinienminenl B04 (00 P 80,000 Accounts receivable-netim, 210,000 160,000 Inventories. 200,000 210,000 Equipment -net, s=vmmnne 150,000 Land and building-netwn. 250,000 Intangible aSSet S:mmuna-n-B_900,009 Equities Accounts payable. =P 400,000 Notes payable. 100,000 Wages payabl ern 24,000 Taxes payable, ~ 76,000 Mortgage payable 200,000 plus P5,000 unpaid Interest to July ee. 205,000 Capital StOCKnramrnnmnn 300,000 Retained earnings deficit..{ 0: 2.290,.000 PRACTICAL ACCOUNTING 2 ~ FIRST PRE-BOARD EXAMINATION (BATCH 27) &ReSA: The Review School of Accountancy Page 7 of 12 The estimated payment to credit ee aoe CED r020,000 Bae 206.000 D 24. Tillman Textile Company has a single branch in Bulacan. On March 1, 2014, the home office accounting records included an Allowance for overvaiuccaaa Qf Inventories - Bulacan Branch ledger account with a credit bavance or £32,000. During March, merchandise costing P36,000 was shipped to’ the Bulacan Branch and billed ata price representing a” 40% mackop on the billed price. On march 31, 2014, ‘the branch prepared an incone statenent indicating 2 net lose of Pi1,500 for March and ending inventories at bilid prices of 25,000. What is’ the amount of adjustment for Allowance for Qvervaluation of Inventories to reflect the true branch net income? fs P39, 257 debit 239,333 debit B. F46,000 cresit 0! 46,000 debit C/ % Marissa Sales Corp. accounts for sales on the installment basis. the balances of the control accounts for Installment Contracts Receivable at the beginning and of end of 2014 wore: J 2014, +1, 2014 Dec. 31, 34, A296 e 344,490 67,449 =0- 410,090 During 2014, the company repossessed a refrigerator which had been sold in 2013 for P5,400 and P3,200 had been collected prior to default. The company sales and cost of sales figures are summarized as follows: Installment Contracts Receivable Installment Contracts Rece Installment Contract Rece iva 2012 20122013 2018 Net $105.0 cin P 380,000 P 432,000 P 602,000 Cost of sales : 247, 900 w12o | 319,260 Compute the deferred gross protit on Decenber 31, 2014 A. 151,733.33 (174, 662.90 “Bl 173; 914130 D. 339,856.40 J) (26. anseino company. operates “retail noboy shops from the main atore 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, 2014 are as follows: ““[Main Store | — Branch P1500 eT, 800 “Recounts secelvabla = nat 200 2 inventory, December 31, 2013 3,500, 2,500 | [Bultding — net 60, 000 18, 000 jaipment — net 30,000 12, 000 pees 33 300 < Purchases - “240, 000 ii, 000 Shipments from home office = 33, 000 Other expenses 75, 000, 7, 000 Total debits Eiaz.soo |B is0-s00 | Cred = ‘Recounts payable ; E18, 000 500 Unrealized inventory profit 3, 200 = Main Store = 30,060. Capital stock 50,000 | = Retained earnings 16, 000 = Sales 200, 000 120, 060 Shipments te branch 90,000 E Profit from branch 2, 300 [Total credits ™ P3a, 500 | P 350, 600 Inventories on hand at December 31, 2014 al the main store and branch are P3,009 and PI,800, respectively. The December 32, 2013 branch inventory includes merchandise purchased from outsiders of 300, and the December 31, 2014 branch inventory includes P150 of merchandise purchased from outsiders. The combined cost of goods sold amounted to: A. P261,200 C. P243,150 B. 252,200 DB. 252,150By. te Bastneranip has the & sewer or mecoumaTicy Page 8 of 12 ‘ollowing accounting amounts: (1) Sales, P79,000 {2) Cost of goods sold, P40, 000 {3) Operating expenses, P10, 000 (8) Salary allocations’ to partners, P13,000 (5) Interest paid to banks, P2,000 (6) Partners withdrawals, B8,000 The partnership net income (loss) ie: A. P20, 000 c. P 5,000 <8) 18,000 D. (3,000) Items 28 throu, gh 30 are based on the following information: 29. Selected b. a malances from the Cebu Company's Branch A and B are as follow ¥ Branch 8 3, 000 Inventory, Jan, 1, 2014 Imprest Branch Fund . 2,500 Inventory, Dec. 31, 2014 12,000 AfReceivable, Jan. 1, 2014 43,500 Merchandise from Home Of fice. 61,000 47,000 A/Receivable, Dec, 31, 2014 79,000 53,500 Sales 100, 090 80,000 Cash Expenses 21,000 14,300 All sales, collections, and expenses are handled at the branch. All cash received from sales and collections are sent directly to the Hone Offier Expenses are paid by the branch fron the imprest fuad and. imedictsiy zeimbursed by the Hone Office and credited to the Home Office acccene att expenses paid by the branch are recorded in the books of the bran Compute the balance of the Hone Office account in the books of Branch on January 1, 20147 a B a a A. P163,000 P67, 000 €. P239,000 p11, 000 8, 64,000 78,000 B. 78,000 64,000 29. Compute the balance of the Home Office account on December 31, 2014. a A B a. z A. P110,000 P1582, 000 c. P64, 600 P78,000 (8, 91,000 67,000 D. 78,000 64,000 30. The entry in Branch B’s records in order to update the reciprocal Hone Office Account on December 31, 2014 assuming net income of the branch is being reported to the home offic: (A. Dr. - Home Office Current / Cr. ~ Profit and Loss “BL Dr. - Profit and Loss / Cr. = Branch Current C. Dr. = Branch Current / Cr. ~ Profit and Loss D. Dr. = Profit and Loss / Gr. = Home Office 31, RR and XX formed a partnership and agreed to divide initial capital equally, even though RR contributed P25,000 and XX contributed 21,000 in identifiable assets. Under the bonus approach to adjust the capital accounts. xX's unidentifiable assets should be debited for: A. P11,500 C..P 2,000 B. 4,000 Ww 0 0 and TT are partners with capital balances of P60,000 and P20,000, Fespectively. Profits and losses ace divided in the retio of Gr4. 00. and TT decided to form a new partnership with GG, who invested land valued at P18,000 for a 20% cepitel interest in the new partnership. GG's cost of the land was P12,000, The partnership elected to use the bonus method to record the admission of GG into the partnership. GG’s capital account should be credited for: A. P12,000. £. P16,000 B, 15,000 C2 19,000 PRACTICAL ACCOUNTING 2 - FIRST PRE-BOARD EXAMINATION (BATCH 27) EEReSA: The Review School of Accountancy C4 AGS wo company’ had on pesca a Cova, agency trorelot ions ahrke th doit Receipt from sales, Page 9 of 12 For the period just ended, the ne - vmP 350,000 Disbursements: PULCAS CS er ernnsm 400,000 Salaries and commissions, 70,000, Rent. pant 20,000 Advertising supplies... 10,000 Other expenses... opin 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 9,000. D. Continue with the period’s profit of P25,000. 1 | inatalinent Sales © as a percen [Gash collections on salns or 307 Compute the realized gross statement: Installment Sales Method profit to be reported in the 2015 income Cost Recovery Method ok) P 87,375 P -0- ¥B. 87,375 180,000 c 39,375 -0- De 48,000 240,000 (35: The Tigers sel1s new automobiles. A new automobile costing P2, 500,000 was “sold at the end of 20 for P3,600,000; an old automobile was accepted as down payment and an allowance of P1,500,000 was allowed on the trade-in. The company anticipates reconditioning costs of P150,000 on this automobile and a resale price of P1,400,000. Its used car seles are expected to produce a 25% gross profit. Determine the realized groas profit. on this installment sale: A. P275,000 {© 150,000 B. 250,000 5. None B oP. The balance sheet, as of June 30, 2014, for the partnership of DD, JJ and AR shows the following information! ‘Assets P 360,000 [DD, Ioan EF __20,000 bb, capital 83,000. JJ,_capital 77,000, RR, capital 180, 000, Total £360,000 | Totar “£360,000 | Tt 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, 2014. The partnership is to pay DD P121,000 cash for Db’s partnership interest, which would include he payment ef his loan. No goodwill is to be recorded. DD, JJ and RR share profit 258, 25% and 50% respectively. After DD's retirement, how much would RR’s capital balance be? A, P360,000 c. P1820, 000 B. 200,000 D. 120,000ReSA: The Review School of Accountancy Page 10 of 12 on 35, and BB entered into a partnership as of March 1, 2014 by dnvesting pacencc® and P75, 000, respectively. They agrecd that ‘DD, as the managing partner, was to receive a salary of 30,000 per year and a bonus comsated ak 108 of the net profit after adjustment for the salary; the balance ot Bho Profit was to be distributed in the ratio of their originel capital balances. On December 31, 2014, account balances weré as follow Tash P70, 000 [Account payable E85, 000 [Account receivable 67,000 | DD, capital 125; 000 Fur. And fixtures 45,000 | EE, capitai 75,000, Sales returns {5,000 Tb, “drawing 120, 006) Purchases 736,000 Fe, drawing (30,000) Operating expenses 60,000 | Sates 235, 000 Inventories on December 31, 2014 were as follows: supplies, P2,500; Rerchandise, P73,000. Prepaid insurance was P950 while accrued expences were P1,550. Depreciation rate was 20% per year. The partner’s capital balances on December 31, 2014 after closing. the net Profit and drawing accounts, were? 5D Ea AL PL35,940 P47, 960 B. 139,540 49,860 €. P1359, 680 P48, 680 D. 142,350 47,670 D 38. te home ottice of Glendale Company, which uses the perpetual inventory 7 system, bills shipments of merchandise to the Montrose Branch at a markup ef 25% on the billed price. On August 31, 2014, the credit balance of the home office's Allowance for Overvaluation of Inventories ~ Montrose Branch ledger account was ?60,000. On September 17, 2014, the home office shipped merchandise to the branch at a billed price of 400,000. The bronch reported an ending inventory, at billed. price, of P160,000 on September 30, 2014. Compute the realized gross profit? A. P 20,000 cc. P108,000 B. 28,000 ‘ 3) 120,000 method. Compute the gain (loss) on repossession. A. P17,000 €. PC 17,000) B. 60,000 7B) ( 60,000) [2% 4% After examining on a comparative basis the interoffice account of the 7 Bglacan Company with its suburban branch and the similar account carried on the latter's books, the following discrepancies at the close of the business on June 30, 2014 were seen: a. A charge for labor by the Home Office, P500 was recorded twice by the Branch. b. A charge for PB95 was made by the Home Office for freight on merchandise but the amount was recorded by the Branch as P89,50. €. A charge for P980 (furniture and fixture] on the Home Office books was taken up by the Branch as P890. d. A credit by the Home Office. for F350 (merchandise allowances) was taken up by the Branch as P400. @. The Home Office charged the Branch P425 for interest on open account which the Branch failed to take up in full. f, The Home Office received P5,000, from the sale of a truck which it erroneously credited to the Branch; the Branch did not charge the Home Office therewith. PRACTICAL ACCOUNTING 2 ~ FIRST PRE-BOARD EXAMINATION (BATCH 27) SSKedA: The Review School of Accountancy Page 11 of 12 The Branch by mistake sent the Home Office a debit note for P370 representing its proportion of a bill for repairs of truck; the Home Office did not record it. ‘The Branch inadvertently received @ copy of ‘the Home Office entry dated July 19, 2014, correcting item (f) and entered a credit in favor of the Home Office as of June 30, 2014. At June 30, 2014, the unadjusted balance of the Branch current account on the Home Office books showed P175,520. At the beginning of the fiscal year, the interoffice accounts were in balance amounted t P180, 020.00 c. P184,279.50 180, 520.00 D. 186,000.00 C 4. The batance sheet of Gabriel Window Corporation at June 30, 2014 contains the following items: Assets 88 Reem venient B 40,000 Accounts Receivable net, 70,000 Inventories. 50,000 - LER inte 30,000 BuLlding=net on 200, 000 Machinery (net) oo ne 60,096 Goodwi IIa... onmmes 50 99 300,000 P 110,000 Wages: payable n.mmm 60,000 « Property taxes payable... 10,000 Mortgage payable . 150, 000 Interest on Mortgage payable. 15,000, Note payab)e-unsecured > 50,000 interest payable-unsecured. 5,000 Capltal SOCK enmnenennn <<» 200,000 Retained earnings (deficit) mm.( 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 763,000 is the maximum anount collectible for the accounts receivable. 2. xcept for 20% of the inventory items that are damaged and worth only P2,000 the cost of the other itens is expected to be recovered in full. 3. The land and building have a combined appraisal value of ®170,000 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. 270,000 2 P65, 000 B. 67,000 Be 0 Cash. cacanoa 7 000 Accounts receivable-net. 10,000 LEVEE SEY cnacneninnemi 15,000 Plant assets-net wwe 45,000 Branct zs 28,000 Total assets. -E_105,000 Accounts payable. PB 4,500 P 2,500 Other liabilities. mmmte 3,000 500 Unrealized profit-branch inventory | 00 . Home office, - 28,000 Capital stOCKemmunemnn 80,000 - Retained earnings.. Total equities. PSO PRACTICAL ACCOUNTING 2 ~ FIRST PRE-BOARD EXAMINATION (BATCH 27) &ReSA: The Review Schoo! of Accountancy Page 12 of 12 A summary of the operations of the home office and branch for 2014 follows: 1. Home office sales: P100,000, including P43,000 to the branch. A standard 106 markup on cost applies to all sales to the branch. Branch sales to its customers totaled P40, 000. 2. Purchases from outside entities: home office, P50,000; branch 7,000. 3+ Collections from saies: home office P98,000 (including P30,000 from branch); branch collections, 51,000. 4. Payments on account? hone office, PS1,500; branch P4, 000. 5. Operating expenses paid: hone office, P20,0007 branch, 6,000 5. Depreciation on plant assets; home office, 4,000; branch P1,000. 7. Home office operating expenses allocated to the branch, P2,000, 8B. At December 31, 2014, the home office inventory is P11,600 and the branch inventory is P6,000, of which P1,050 was acquired from outside suppliers, The combined net income amounted to: ALP ° c. P21, 000 8 4,590 Dd. 25,550 Good luck and GoD BLESS!!! *No one knows what he can do until he tries* *Not knowing when the dawn will come, I open every door* ‘The great thing in the world is not so much where you are but in what direction you are geing* here are only two things in the world to worry over? the things you can the f matter how small is ever waste ‘a majority.The Review School of Accountancy R. Papa Cor. §. H. Loyola Sts, Sampaloc, Manila @ Tel Nos. 734-39-89 & 735-98-U7 PRACTICAL ACCOUNTING PROBLEMS il Solution to 1* Preboard - 27th Batch antonio jaramillo dayag 1. @) ‘In this problem, since there is doubtful of collection, itis safely assumed to used installment method. ‘Therefore, the realized gross profit would be: Collections in 2014... X: Gross profit rate [100% - (F150,000/P500,000)} Realized gross profit in 20.4. 200,000 Revenue Analysis: ‘Services Period of Refund 20) Inventory uf the Branch: ‘Shizments from home office at billed price. X: Ending inventory %.. Ending inventory at bitad orice. ‘Add: Freight (P1,300 x 60%) (Or, P39,000 x 60% = P23,400 3.(B) Inventory 1n the published balance sheet, at cost Shipments at cost. P 32,500 X: Ending inventory __ 60% Ending inventory at bilied price. ‘Add: Freight (P1,300 x 60%) SFHO( Freight-in (50%) _ ash. Capital, 2/1/2014 (170,000 + Additional investment. Capita! withdrawals.. 255,000 + P382,500). ‘Net income... Capital, 12/31/201 _ x ¥ 7____| 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] 25,500 353,125 | 7X; 170,000 x 6 = 1,020,000 272,000 x 6 = 1,632,000 2,652,000/12 Y: 255,000 x 10% = 25,500 2; 362,500 x9 = 3,442,500 263,500 x 3 = 790,500 4,233,000/12 = 352,750 x 10% = 35,275 221,000 x 10% = 22,100NeSA: The Review School of Accountancy Page 2 0f9 6 (A) Jn adopting the imprest system for the fund, the home office writes a check to the ‘gen forthe amount ofthe tind. Esteblehinent of fe fr retorted on the hore ofce books 27 2 debit to the Agency working furd and credit cosh. The agency wil reauest fund replenishment Whenever the fund runs low anc! at the end of each fiscal period. Such a request is normally Zeamplished by an Itemized and authenticated statement of disbursements and tne paid vouchers. pon sending the agency a check in replenishment ofthe fund, the home office debits expense Bf S 2 Tota 12,000 | 37,700 | 17.700 | 63,600 | 14,400 | 9,600 | 36,000 j—nnenm |__| __2a0 | 400 | 9 | __26,490 | 37,860 | 27,540 | 120,000 | $27,750)" (27,750) | (27,750) ((1.350)| 19,3110 7 “20)) 3,000] j—--u50| (zen ] aio To} 5330 9,000) 330) =. —2,000. 2000} | asn, beginning... 6,001 Proceeds (P18,000 ~ 2,400}. 15.600 Payinent of liabilities (always in full. -( 12,400) Payment of liquidation expenses... 600) 8. (0) TranesProblem, full accrual method Is used to recognized the /nitia franchise fee of P100,000 analyze as follows: Revenue Analysis for IFF I ~ _— Ssh Services Yes Yee aa ‘Status i Revenue Revenue Note: Period of refunding the initial franchise fee wes presumed to have bean expired since the business operates profitably in its first year of operation. Continuing Franchise Fee: Considered revenue. thi rendered amounted to P5,000 (1% x P500,000). 9. (A) oe Cost, January 1, 2014...... see Less: Collections including interest - 2014 Unrecovered Cost, December 31, 201 Under the cost recovery method, no income is recogulzed on a sale until the cost of the item sold ‘5 recovered through cash recetots. All cash receipts, both interest and princloal portions are applied first to the cost of the items sold. Then, all subsequent receipts are regorted as revenue, Because ail costs have been recovered, the recognized revenue after the cost recovery represents income (loterest and realized gross profit), This method is used only when the circumstances surrounding & sale are so uncertain that earlier recognition is impossi 10. (D) : Under the percentage of completion method, the Construction-In-Progress account is used for cost incurred during the year and any realized gross profit (oss). The following T-account is prepared: 1 moment continuing services had been Clin 2014 210,000 RGP in 2014(2) _34,000| _ + End of 014 244,000 in 2015 384,000 RGP in 2015 (7) 190,000, End of 2015 728,000 . DRactieal accnimitrne 9 ait ane aAraTvage30r9 2015 8,640,000 24160,000 | yy: as - 720,000) | Recognized gross profit to dat | Less: Recuonized gross profit (loss) in prior years [Recognized gross profit (loss) each Fe due to customers 780,000 Note: If there is an anticipated loss, the Constructioneln-Progress for both methods will exactly be ‘the same in the period of incurrence . 12. (A) “Total book value of other non cash assets realized: (P9,000 + P7,700 + P11,300}, Lese: Total proceeds (P6,000 + 73,500 Total foss cn realization. X: Share of A... Loss on liquidation to 13.(D) B. capital Less: Share in total realization loss: 2/6 x P6,000. Total cash received by B... Or, alternatively: (refer tw No. 14 for further computations) ‘Therefore, total payment to B should 14. (AL — A B < Jotal_| January - Capital bata 2,500 | 7,000 | 3,000 | 12,500 Loans 12.500 12,500 | “Total Interests 415,000 |~7,000 “| 3,006- [25,000 (22,000) 3,000 20-_| 3,000 _| P 2,000 6,000 Less: Payrnents of fiabil Payment to Partners.. Bavasad) Gaaaina ® _ eM BBE_BAABA EAN TFIANSReSA: The Review School of Accountancy . Page 4 of 9 “Total Tnierests — January 75,000 [700 _| 3,000 [25,000 Payment to partners — January 73.000) £3,000), | “Total Interest ~ February 72,000 | 7,000 | 3,000 | 22,000 : [Total Interest February Payment to partners - Fel Total Interests - Mar Balances**# <= March: Cash, beginning, ‘Add: Proceeds. Less: Payments of liabilities. Payment to Partners. 15. (B) ~ P50,000, since the cost of continuing franchise were already rendered. 16. (C) True Branch Net Income. ~~ P156,000 branch Net Income’ as reported by the branch 60,000 ‘Dvervaluation of CGS "96,000 Less: Cost of goods sofd from home office at BP : Inventory, December 1 P_70,000 ‘Shipment from HO 350,000 =COGAS — 420,000, : Less: Inventory, December 31 84,000 5,000, ‘CGS from home office, at cost _* ai Billing Price: P336,000 / P240,000 = 140%. * 17. (C) ~ Allowance for overvaiuation after adjustment / for'December 31 inventory: (refer to No, 16 for further computation): P&4,000 x 40/140 = P24,000. 18. (B)— P209,000 Net Income as reported by the Branch 20,000 . Less: Rentai expense charged by the home office (P1,000 x 6 months) _ 6,000 ‘Adjusted NI as reported by the Branch 14,000 ‘Add: Overvaluation of CGS { Mi, beginning ‘SFHO. ‘COGAS x { Less: MI, ending _ CGS, at BP. %: Mark-up ratio |___95,000 [True/Adjusted/Real Branch Net Income Piu9,000 19, (A) ‘All conditions that initial frar.chise fee be recognized as “evenue had been met as follows: . Revenue Analysis for IFF _ fe ‘Sesh We Services Yes Yes. Period of Refund (note) Yes Yes___} Collectibility Reds, Assured. 200,090 300,000 Status. Revenue Revenue em PRACTICAL ACCOUNTING 2 - 1* PRE-BOARD SOLUTIONS (BATCh 27) &ReSA: The Review School of Aczountancy Pages of 9 ‘The Net income ihien would be es foliows: noe 2015 2016. 2,000,000 | 5,000,000 | 5,600,900. | P2,050,000 | “| S00, 000- | 2,550,000 | 900,000 | 2,550,000 [*~ 4,600,000 i 4.200.000 — a | - | 4,600, ‘750,000 | P_400,000 | [60% [100% | 100,000 |'P 450,000 |~“P 400,000 Less: Recognized gross profit in prior years _ 100,000 “450,000 Recognized gross profit each year. . 109,000 | “P.350,000 | FY _50,000. | 21. (D) ~ refer to No. 20. 22. (C) January: Gash beginning.. ‘Add: Proceeds... Payment of abilities in full (not: >100,0 .. 259,000 , Cash withhel Payment te Partners. Note: To determine payment to partners, the labitées should be deducted in full as a shortcut <2ppr0ach to determine any excess, any. In case, there is a deficiency, it means thet no payment (0 partners should be made, Beams | Plank [Timbers [Total] . Capital balances _ 170,000 | 170,000 | 100,000 | 440,000 [Loans 10,000 | "{-20,000)1 10,000) Total ntesests ——[78;000-|i0,706 1 60,000 | 430,000 Reduction in interests (5: —[f8s,000)] {74,0003| 270,000] | | Balances __, | (15,000)[ 69,060; 6,000 | *60,0n0| Reduction in interests (3:2) "15,000 |" (_9,000)|"(6,000)| __-0- Payments * _ 9 |" 60,000 [9 [60,009 iui pen ” Paytnent of unrecorded liabilities ‘coming from fh pre month se 8,000 Plonk [Ti Total_] 1 Total intezests from previous month 180,009 | 80,000 | 430,000 | Payment for January. (60,000) __0.| { 60,000) Balances 120.000 80,000 | 370,000 Received plant assets 50,000) | Balances Hants ra "130,900 ~60,000| 320,000 Reduction in inverests (5:3:2) 000) (54,000) (2: + Balances 29,000, 26,000, *50,001 | Reduction in interests (3:2) 15, 9,000)!" ( 6,000) -0- ' Payments, ~ 9: | 3u,000 | 20,000 [50,000]ReSA: The Review School of Accountancy March: . i) Cash, begin | Proceeds { Payment of liquidation, expenses. Payment to Partners - ‘Beams Ts {Total interests from previous month 120,000 | 120, Book | anes ‘80,000 | 320,060 | Payment for February 10 (50,000) Balances 120,000 [90,000 | 60,2100 | 270,000 Reduction in interests (5:3:2) (22,500 | J-45,500)! (C3: Faynents ~= 22.800" 42,50 | 23.(Q) fen ee creditors shoul alvays equal tothe asset at estimated realizable values, 12. 24. (0) 100% 60% Bled Price | Cost Merchandise inventory, 1/1/2014 ‘Shipments 60,000 | 36,000 Cost of goods available for sale Less: MI, 3/31/2014 (25,000 x 40%), ‘ ‘Overvaluation of CGS/RPASales 46,000] "36,000 cost / 6096 = 60,000 x 4036 = 24,000, (Note: Marbup i based on bile price) 25. (C) Gross Profit Rates: 2012: P247,000/P380,000 = 65% cost rate, GP rate would be 100% = 65% = 35% 2013; P285,120/P432,000 = 66% cost rate, GP rate would be 100% - 66% = 34% . 2014: P379,260/P602,000 = 63% cost rate, GP rate would be 100% - 63% = 37% TAR, end of 12/31/2098 x GP %. P67,A40x 34%. 2014: P410,090 x 37%. 26 (D) ‘Combined Cost of Goods Sold: Merchandise Inventory, 1/1/2014: Home Office, cost. Branch: Outsiders, From Home Office (P2,500 ~ P300)/1%0%, 2,000 2,300 P_ 5,800 ‘Add Purchases (P240,000 + P11,000)..4.... 251,000 256,800 COGAS. Less: Merchandise Inventory, 12/31/2014 Salary allocation to partners are considered as allocation of net income rather than as expenses.f 28. (D) repesury Assets: |.—Inventory, January 1 [pubes branch fund £21,000) Fis o0| ‘ Accounts receivable 7 5 Total Assets oe amuary SS 35,000 |~ 23.(8) Inventory, December 31 P1001 TImprest branch fund =. 20a pee ‘Accounts receivable, December 31 7o.n00| 3509 [Total Assets = 81,000 | —Per.o00. Less: Lisbities 2 Home Offce Curent Accant Fate ana 20, 'D) ~ incidental, the entry in the books of the branch would be as follows: Profit and loss summary .. "00 | box 34, (D) ~ under bonus method, no goodwil (unidentifiable asset) is recognized. 32. (0) AC | 0,000. SG 25,£00 | 19,000* | Total 35,000 [95.000] * 95,000 x 20%, Note that under bonus method total agreed capital is the same with total contributed capital. y 33.(0) Soies (P350,000 + P100,000). se 450,000 Rent - 20,000 | Advertising supplies (P30 060 ~ 66,000), 4,000 | Other expenses... —.000.___99,000 Net LOSS... PC 9.000) . 34. (A) Installment Sales Method: 2014 Sales: P240,000«: 25/125.. 2015 Sales: P180,000 x 25/122. 38.375 Realized Gross Profit on Installment Sales.. se BESTS san P384,000 Less: Collections in 2014. Coilections in 2015. Unrecovered Cost, 12/31/2015. method, no iacome is recognized on a sale unl the cast of the item pacer peeical trent arate All cash receipis, both interest and principal portions are applied frst to the cost of the ites sold. Then, al subsoquent receipts are reported as revenue. Because all costs have been recovered, the recognized revenue after the cost recovery represents income {interest and realized gross profit). This method 1s used only when the circumstances : ‘surrounding a sale are so uncertain that earler recognition &s impossible. 140,000 PRACTICAL ACCOUNTING 2 ~ 1 °RE-BCARD SOLUTIONS (BATCH 27)fF ReSA: The Review School of Accountancy Page 8 of 9 35. (C) Installment Sales. é 3,600,000 Less: Overallowance: ‘Trade-in allowance. Less: MV of Trade-in Merchandise: en 3,000,000 —2.500,000 P__$00,000 Gross profit rate: P500,000/ P3,600,000.... 16 2/3% x: Collections ~Trade-in merchandise (at MV)... P_ 900,000 GP on I/S in 2098. P150,000 36. (B) DD: PB3,000 + P20,000 + (P403,000 ~ P360,000) x 25% = P115,000 W: P77,000 +- (P 408,000 ~ P360,000) x 25 fo = P89,000 ~ (6,000 x 25/75) = P87,000 RR: P180,000 + (P408,000 ~ P360,000) x 50% = P204,000 ~ {P6,000 x 50/75) = #200,000 ‘Amount paid to DD. Less: Book value of DO's interest... Bonus to retiring partner... .P 121,000 115,000 37. 8). i = DD EE | Total | Capital, Marcn 1, 2014 25,000 | P 75,000 | £200,000 [Add (deduct): Net income 34,520 | __4,860|_39,400 {(30,0c0) |"(50,000) P 49,550 723,000. 3000 | ~P2z8,000- Purchases _ 196,000 | __ 7 Less: Ending Inventony Zao | 193.900 | Gross Profit _ 105,050 | Less: Operating expenses 60,000 ‘Unused supplies 42,500) Prepaid insurance (950) ‘Accrued expenses. wm: 1,550. Depreciation (P45,000 x 20% x 10/12) a L300 | ___65,600 | Het Income . I 239,400 | location of tet Income: DD EE Total ‘Salary (P30,G00 x 20/12) P_ 25,000 P 25,000 Bonus 1,440 1,440. P.35,450 | * Bonus = 10% (Net Income ~ Salary) 10 (P39,400 ~ P25,000) 1,440 100%, 75% senenesananasanannnnanarenenanannase*"{ Billed brce |, Cost Merchandise inventory, 8/1/14 ‘Shipments (400,000 x 3596) 400,000 | Cost of goods available for sale [ Less: M3, 6/31/14 (160,000 x 25%} 169,000 ‘Overvaluation of CGS/RPBSales PRACTICAL ACCOUNTING 2 ~ 1* PRE-BOARD SOLUTIONS (BATCH 27)RgSA: The Review School of Acccuntancy Page g of 9 HO Books Branch Books ‘ranch Current (Or) Home Office Current (Cr.) 275,520 384,229.50 500: > 500 500 500 a5 +. > 895 305.50 930 _ > 890 20 350+ 00 50 4s * 425 —— 370| «370 5,000 <—___——_ 5,000 0« 5,000 5,000 . 180,520.00 «—————. Adjusted Balance —————» 180,520.00 ‘Accounts receivable. Inventories [P2,000 + (P50,000 x 8 Machinery. Total free assets Less: Unsecured creditors with priority (P50,(00 + P10,000) Net free assets.. Less: Unsecured crectors without priarity: ‘Accounts payabl ‘Notes payable and interest (P50,0G0 + P5,000) “"_'58,000 165,000 Estimated deficiency to unsecured creditors. 42.(D) Sales (P1C0,000 - P33,000 + P50,000)... Less: Cost of goods sold: Inventory, beg. [P15,000 + (PS,500/110%) or (P5,500 ~ P500)). ‘Add: Purchases (P50,000 + P7,00 COGAS. Less: Inventory, end [P11,000 + P1,050 + (P6,009- P1,050)/110%] 16,550 _ 60,450. 56,550 There no great and no small To the Sovl that make y it oll And where it comes, all thingy are equal; Andie. nwnere.