ARTS CPA Review

(Academic Review and Training School, Inc.)

Naga City
Tel No.: (054) 472-9104; E-mail: artscparev@yahoo.com.

QUIZ 2

ADVANCED ACCOUNTING AND REPORTING MICHAEL B. BONGALONTA,CPA,MICB,MBA

A and B formed a partnership. The following are their contributions:

A B
Cash 200,000 -
Accounts receivable 150,000 -
Inventory 100,000 -
Land 500,000
Building 620,000
Total 450,000 1,120,000

Note payable 220,000

A, capital 230,000
B, capital 1,120,000
Total 450,000 1,120,000

Additional information:
 The accounts receivable has a recoverable amount of ₱120,000.
 The inventory has an estimated selling price of ₱110,000 and estimated costs to sell of
₱20,000.
 The land has a fair value of ₱500,000 an unpaid mortgage of ₱120,000. The partners
agreed that B shall settle the mortgage using his personal funds.
 The building is overdepreciated by ₱30,000.
 The building also has an unpaid mortgage amounting to ₱550,000. The partners agreed
that the partnership shall assume repayment of the mortgage.
 The note payable has a fair value of ₱210,000.
 A and B shall share in profits and losses 40% and 60%, respectively.

1. How much are the adjusted capital balances of A and B, respectively?

A B A B
a. 200,000 600,000 c. 230,000 480,000
b. 200,000 1,030,000 d. 230,000 600,000

2. Assume that a partner’s capital shall be increased accordingly by contributing additional

cash to bring the partners’ capital balances proportionate to their profit or loss ratio. Which
partner should provide additional cash and how much is the additional cash contribution?
a. Partner A should provide additional capital of ₱150,000.
b. Partner A should provide additional capital of ₱200,000.
c. Partner B should withdraw capital of ₱300,000.
d. Partner B should provide capital of ₱300,000.
3. A and B formed a partnership. The partnership agreement stipulates the following:
 Monthly salaries of ₱6,000 for A and ₱2,000 for B.
 20% bonus to A, after deductions for salary, interest, and bonus.
 10% interest on the weighted average capital of B.
 Any remaining amount is shared equally.
 Salary, bonus and interest are considered partnership expenses.

The results of operations show the following:

Revenues 150,000
Expenses (including salary, interest, and bonus) (120,000)
Profit 30,000

The movements in B’s capital account are as follows:

B, Capital
60,000 beg.
Aug. 1 withdrawal 30,000 20,000 March 31 additional investment
40,000 Oct. 1 additional investment
 10,000 Dec. 31 additional investment
end. 100,000

How much is the share of B in the partnership profit?

a. 93,000 b. 52,250 c. 46,250 d. 45,000

4. The partnership agreement of partners A, B and C stipulates the following:

 A shall receive a salary of ₱80,000.
 Interest of 10% shall be computed on the partners’ capital contributions of ₱80,000,
₱200,000 and ₱400,000.
 Balance is divided among the partners on a 2:3:5 ratio. However, the minimum amounts
that B and C shall receive if the partnership earns profit are ₱40,000 and ₱80,000,
respectively, inclusive of interest and share in remaining profit.

How much is the level of profit necessary so that A shall receive a total of ₱120,000, inclusive
of salaries, interest and share in remaining profit, and all of the other partners shall receive
their minimum allocable amounts?
a. 308,000 b. 220,000 c. 228,000 d. 240,000

5. The following are the capital account balances and profit and loss ratios of the partners in
AB Partnership as of January 1, 20x2:
Capital accounts Profit or loss ratios
A, Capital 600,000 40%
B, Capital 1,000,000 60%
1,600,000

On January 1, 20x2, C was admitted to the partnership when he acquired 20% interest in the
net assets and profits of the firm for a ₱400,000 investment. The net assets of the firm as of
this date approximate their fair values.

For the year 20x2, the partnership earned profit of ₱4,000,000. However, it was discovered
that the following items were overstated:
20x1 20x2
Accrued income 80,000 100,000
Prepaid asset 140,000 200,000
Accrued expense 160,000 240,000
Unearned income 60,000 40,000

How much is the share of A in the 20x2 profit?

a. 1,273,600 b. 1,286,400 c. 1,592,000 d. 1,208,600

6. The partnership will be liquidated over a prolonged period of time. Distributions to owners
shall be made as cash becomes available. Information on the conversion of non-cash
assets is as follows:
 75% of the accounts receivable was collected for only ₱120,000.
 Half of the inventory was sold for ₱160,000.
 An equipment with carrying amount of ₱800,000 was sold for ₱480,000.
 ₱8,000 liquidation expenses were paid. Estimated future liquidation expenses totaled
₱4,000.
 ₱36,000 cash was retained in the business for potential unrecorded liabilities and
anticipated expenses.

How much did B receive from the partial settlement of his interest in the partnership?
a. 310,400 b. 311,600 c. 317,600 d. 324,600

On January 1, 20x1, the partners of ABC Co. decided to liquidate their partnership. The
following information was made available:
Cash 80,000
Accounts receivable 240,000
Inventory 480,000
Equipment 1,200,000
Total 2,000,000

Accounts payable 600,000

 A, Capital (20%) 200,000
B, Capital (30%) 400,000
C, Capital (50%) 800,000
Total 2,000,000

The net proceeds from the sale of non-cash assets amounted to ₱160,000. The personal
assets and personal liabilities of the partners are as follows:
A B C
Personal assets 1,200,000 1,040,000 800,000
Personal liabilities (880,000) (880,000) (1,280,000)

7. How much additional contributions shall be made by the partners in order to settle all of
the partnership liabilities?
a. 280,000 b. 360,000 c. 480,000 d. 0
8. How much did A receive from the settlement of his interest in the partnership?
a. 68,800 b. 64,400 c. 82,600 d. 0

Use the following for the next three questions:

OUTLANDISH STRANGE Co. uses the installment method. On January 1, 20x3, OUTLANDISH
Co.’s records show the following balances:
Installment receivable - 20x1 1,600,000
Installment receivable - 20x2 4,800,000
Deferred gross profit - 20x1 352,000
Deferred gross profit - 20x2 1,152,000

On December 31, 20x3, OUTLANDISH Co.’s records show the following balances before
adjustments for realized gross profit:
Installment receivable - 20x1 -
Installment receivable - 20x2 1,920,000
Installment receivable - 20x3 4,800,000
Deferred gross profit - 20x1 352,000
Deferred gross profit - 20x2 1,152,000
Deferred gross profit - 20x3 3,000,000

Installment sales in 20x3 were made at 331/3 above cost.

9. How much is the installment sale in 20x3?

a. 12,000,000 b. 14,000,000 c. 16,000,000 d. 9,000,000
10. How much is the cash collections in 20x3?
a. 11,680,000 b. 13,380,000 c. 14,680,000 c. 6,800,000
11. How much is the total realized gross profit recognized in 20x3?
a. 1,843,200 b. 2,843,200 c. 3,284,200 d. 4,840,200

Use the following information for the next two questions:

FICKLE NOT CONSTANT Co. uses the installment method. On January 1, 20x1, FICKLE Co.
sold inventory costing ₱612,244 for ₱960,000. Payable in twenty-four equal monthly
installments beginning on January 1, 20x1 and every first of the month thereafter. The
inventory has a cash price equivalent of ₱907,028. The imputed rate of interest per month is
½ of 1%. After making three timely payments, the customer defaulted. Thus, FICKLE Co.
repossessed the inventory. On date of repossession, it was estimated that the inventory has
a fair value of ₱576,664.

12. How much is the realized gross profit from the sale?
a. 36,420 b. 34,620 c. 36,240 d. 32,460
13. How much is the gain (loss) on repossession?
a. (36,600) b. (39,688) c. 42,200 d. 39,688

Use the following information for the next two questions:

The trial balances of INTERIM TEMPORARY Co.’s home office and branch are shown below:

INTERIM TEMPORARY Co.

Trial balance
December 31, 20x1
 Home office Branch
Dr. (Cr.) Dr. (Cr.)
Cash 4,400,000 1,668,000
Accounts receivable 720,000 400,000
Inventory, beg. 2,600,000 -
Shipments from home office - 920,000
Purchases 288,000 160,000
Freight-in 88,000 72,000
Shipments to branch (920,000)
Investment in branch 3,308,000
Equipment 2,880,000 1,600,000
Accumulated depreciation - equipment (288,000) (160,000)
Furniture 360,000 200,000
Accumulated depreciation - furniture (36,000) (20,000)
Accounts payable (288,000) (160,000)
Accrued expenses (180,000) (100,000)
Share capital (8,000,000)
Share premium (2,000,000)
Retained earnings - beg. (824,800)
Home office - (3,308,000)
Sales (3,600,000) (2,000,000)
Depreciation expense 672,000 272,000
Utilities expense 72,000 40,000
General overhead expense 28,800 16,000
Various operating expenses 720,000 400,000
Totals - -

The home office and the branch have ending inventories of ₱1,080,000 and ₱600,000,
respectively.

14. How much is the total assets in the combined statement of financial position?
a. 13,440,000 b. 14,800,000 c. 14,340,000 d. 13,404,000

15. How much is the total profit in the combined statement of profit or loss?
a. 1,851,200 b. 1,960,200 c. 1,815,200 d. 1,720,200

Use the following information for the next three questions:

The home office consistently bills its branch for shipments at 120% of cost. The following
selected information was taken from the records of the home office and the branch:

Home office books:

Sales 6,400,000
Inventory, beg. 200,000
Purchases 3,400,000
Freight-in 120,000
Shipments to branch (1,200,000)
Markup on shipments to branch during the period (240,000)
Inventory, end. 1,280,000
Operating expenses 480,000
Investment in branch – end.
(before year-end closing entries) 2,560,000

Branch books:
Inventory, end.
- From outside purchases 72,000
- From home office (at billed price, excluding freight-in) 480,000
Cash sales 1,200,000
Collections on receivables 800,000
Disbursements for purchases from unrelated parties 160,000
Disbursements for operating expenses 240,000
 Remittances of collections to home office 100,000

Additional information:
 Accounts receivable has a net increase of ₱320,000 while accounts payable has a net
decrease of ₱40,000.
 Accrued expenses has an ending balance of ₱20,000. Not included in this account is a
₱8,000 allocated expense from the home office. There were no accrued expenses as of
the beginning of the period.
 As at year-end, a shipment from the home office with a billed price of ₱48,000 was in
transit. Normally, the home office pays 5% freight based on the billed price of the goods
shipped to the branch.
 The realized markup is ₱164,000 while the combined profit of the home office and branch
is ₱5,766,800.

16. How much is the true profit of the branch?

a. 1,086,800 b. 1,860,800 c. 1,068,800 d. 1,608,800

17. How much is the beginning inventory of the branch from outside purchases?
a. 111,600 b. 72,000 c. 48,000 d. 120,000

18. How much is the beginning balance of “Home office” account?

a. 2,580,000 b. 1,140,000 c. 1,148,000 d. 1,212,000

Use the following information for the next two questions:

The home office instructs Branch #1 to transfer ₱40,000 cash to Branch #2. Subsequently,
Branch #2 repays ₱32,000 to Branch #1.

19. The entries to record the transfer of cash from Branch #1 to Branch #2
a. includes a debit to Cash by the home office
b. includes a credit to Investment in branch by Branch #1
c. includes a credit to home office by Branch #2
d. is not recorded by the home office

20. The entries to record the repayment of the cash transferred

a. includes a debit to Cash by Branch #1
b. includes a credit to Investment in branch by Branch #2
c. includes a credit to home office by Branch #2
d. is not recorded by the home office

21.The home office transfers inventory worth ₱600,000 to Branch #1. Freight paid by the
home office is ₱40,000. Later on, the home office instructs Branch #1 to transfer the
merchandise to Branch #2. Branch #1 pays freight of ₱12,000. If the merchandise had
been shipped directly from the home office to Branch #2, the freight cost would have been
₱44,000. The entries to record the transactions described includes
a. a debit to loss on excessive freight of ₱8,000 in the books of Branch #1.
b. a debit to loss on excessive freight of ₱8,000 in the books of Branch #2.
c. a debit to loss on excessive freight of ₱8,000 in the books of the home office.
d. none of these

22.The home office transfers inventory worth P600,000 to Branch #1. Freight paid by the
home office is ₱40,000. Later on, the home office instructs Branch #1 to transfer the
merchandise to Branch #2. Branch #1 pays freight of ₱12,000. If the merchandise had
been shipped directly from the home office to Branch #2, the freight cost would have been
₱56,000. The entries to record the transactions described includes
a. a credit to savings on freight of ₱4,000 in the books of Branch #1.
b. a credit to savings on freight of ₱4,000 in the books of Branch #2.
c. a credit to savings on freight of ₱4,000 in the books of the home office.
d. none of these

23. Agency Mel records the obligation to purchase the office equipment in

a. RAOCO c. RAOPS
b. RAOMO d. RAOFE
24. VOLUBLE TALKATIVE Co. has sold all of its shares to the public. The company was formerly
a state-owned entity. The national regulator has retained the power to appoint the board
of directors. An overseas entity acquires 55% of the voting shares, but the regulator still
retains its power to appoint the board of directors. Who has control of the entity?
a. The national regulator.
b. The overseas entity.
c. Neither the national regulator nor the overseas entity.
d. The board of directors.

25. A manufacturing group has just acquired a controlling interest in a football club that is
listed on a stock exchange. The management of the manufacturing group wishes to
exclude the football club from the consolidated financial statements on the grounds that
its activities are dissimilar. How should the football club be accounted for?
a. The entity should be consolidated as there is no exemption from consolidation on the
grounds of dissimilar activities.
b. The entity should not be consolidated using the purchase method but should be
consolidated using equity accounting.
c. The entity should not be consolidated and should appear as an investment in the group
accounts.
d. The entity should not be consolidated; details should be disclosed in the financial
statements.

26. On January 1, 20x1, TRICE Co. obtained control of INSTANT Co. Subsequently, there have
changes in the ownership interests over INSTANT; however, the TRICE’s control over
INSTANT was unaffected. Which of the following statements is incorrect?
a. Once control has been achieved, further transactions whereby the parent entity
acquires further equity interests from non-controlling interests, or disposes of equity
interests but without losing control, are accounted for as equity transactions
b. The carrying amounts of the controlling and non-controlling interests are adjusted to
reflect the changes in their relative interests in the subsidiary.
c. Any difference between the amount by which the non-controlling interests is adjusted
and the fair value of the consideration paid or received is recognized directly in equity
and attributed to the owners of the parent.
d. The carrying amount of any goodwill should be adjusted and gain or loss is recognized
in profit or loss.

27. During the year, COMITY Co. sold equipment to its subsidiary, MUTUAL COURTESY Co., at
a gain. The equipment has a remaining useful life of 5 years. Which of the following
statements is true in the preparation of the consolidated financial statements?
a. The gain is recognized immediately.
b. The gain is deferred and recognized only in the period the equipment is sold to an
unrelated party.
c. The carrying amount of the asset and the related depreciation are adjusted
downwards.
d. The carrying amount of the asset and the related depreciation are adjusted upwards.

28. During the year, BAFFLE Co. sold part of its controlling interest in TO COFUSE Co. The sale
did not affect BAFFLE’s control over TO CONFUSE. Which of the following statements is
true?
a. The equity adjustment would be larger if BAFFLE measures NCI at the NCI’s
proportionate share in the subsidiary’s net identifiable assets rather than at fair value.
b. The equity adjustment would be larger if BAFFLE measures NCI at fair value rather
than at the NCI’s proportionate share in the subsidiary’s net identifiable assets.
c. There would be no equity adjustment if the net disposal proceeds equal the original
cost of the interest sold.
d. c and d

29. Are the following statements true or false?

1. Consolidated financial statements must be prepared using uniform accounting policies.
2. The non-controlling interest in the net assets of subsidiaries may be shown by way of
note to the consolidated statement of financial position.
a. False, False b. False, True c. True, False d. True True
30. Goodwill must not be amortized under PFRS 3. The transitional rules do not require
restatement of previous balances written off. If an entity is adopting PFRS for the first
time, and it wishes to restate all prior acquisitions in accordance with PFRS 3, then it must
apply the PFRS to
a. Those acquisitions selected by the entity.
b. All acquisitions from the date of the earliest.
c. Only those acquisitions since the issue of the PFRS 3 and PAS 22, Business
Combinations, to the earlier ones.
d. Only past and present acquisitions of entities that have previously and currently
prepared their financial statements using PFRS.
==========================================END========
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“Passing the CPA Board Examination Requires Extra Ordinary Courage and Strong
Determination with Commitment to Continuous Learning”…mikecpamicbmba
 KEY TO CORRECTION

A and B formed a partnership. The following are their contributions:

A B
Cash 200,000 -
Accounts receivable 150,000 -
Inventory 100,000 -
Land 500,000
Building 620,000
Total 450,000 1,120,000

Note payable 220,000

A, capital 230,000
B, capital 1,120,000
Total 450,000 1,120,000

Additional information:
 The accounts receivable has a recoverable amount of ₱120,000.
 The inventory has an estimated selling price of ₱110,000 and estimated costs to sell of
₱20,000.
 The land has a fair value of ₱500,000 an unpaid mortgage of ₱120,000. The partners agreed
that B shall settle the mortgage using his personal funds.
 The building is overdepreciated by ₱30,000.
 The building also has an unpaid mortgage amounting to ₱550,000. The partners agreed that
the partnership shall assume repayment of the mortgage.
 The note payable has a fair value of ₱210,000.
 A and B shall share in profits and losses 40% and 60%, respectively.

1. How much are the adjusted capital balances of A and B, respectively?

A B A B
a. 200,000 600,000 c. 230,000 480,000
b. 200,000 1,030,000 d. 230,000 600,000

ANS. A
2. Assume that a partner’s capital shall be increased accordingly by contributing additional
cash to bring the partners’ capital balances proportionate to their profit or loss ratio. Which
partner should provide additional cash and how much is the additional cash contribution?
e. Partner A should provide additional capital of ₱150,000.
f. Partner A should provide additional capital of ₱200,000.
g. Partner B should withdraw capital of ₱300,000.
h. Partner B should provide capital of ₱300,000.
ANS. B

3. A and B formed a partnership. The partnership agreement stipulates the following:

 Monthly salaries of ₱6,000 for A and ₱2,000 for B.
 20% bonus to A, after deductions for salary, interest, and bonus.
 10% interest on the weighted average capital of B.
 Any remaining amount is shared equally.
 Salary, bonus and interest are considered partnership expenses.

The results of operations show the following:

Revenues 150,000
 Expenses (including salary, interest, and bonus) (120,000)
Profit 30,000

The movements in B’s capital account are as follows:

B, Capital
60,000 beg.
Aug. 1 withdrawal 30,000 20,000 March 31 additional investment
40,000 Oct. 1 additional investment
10,000 Dec. 31 additional investment
end. 100,000

How much is the share of B in the partnership profit?

a. 93,000 b. 52,250 c. 46,250 d. 45,000

ANS. C.

4. The partnership agreement of partners A, B and C stipulates the following:

 A shall receive a salary of ₱80,000.
 Interest of 10% shall be computed on the partners’ capital contributions of ₱80,000, ₱200,000
and ₱400,000.
 Balance is divided among the partners on a 2:3:5 ratio. However, the minimum amounts that
B and C shall receive if the partnership earns profit are ₱40,000 and ₱80,000, respectively,
inclusive of interest and share in remaining profit.

How much is the level of profit necessary so that A shall receive a total of ₱120,000, inclusive of
salaries, interest and share in remaining profit, and all of the other partners shall receive their
minimum allocable amounts?
a. 308,000 b. 220,000 c. 228,000 d. 240,000
ANS. A

5. The following are the capital account balances and profit and loss ratios of the partners in
AB Partnership as of January 1, 20x2:
Capital accounts Profit or loss ratios
A, Capital 600,000 40%
B, Capital 1,000,000 60%
1,600,000

On January 1, 20x2, C was admitted to the partnership when he acquired 20% interest in the net
assets and profits of the firm for a ₱400,000 investment. The net assets of the firm as of this date
approximate their fair values.

For the year 20x2, the partnership earned profit of ₱4,000,000. However, it was discovered that
the following items were overstated:
20x1 20x2
Accrued income 80,000 100,000
Prepaid asset 140,000 200,000
Accrued expense 160,000 240,000
Unearned income 60,000 40,000

How much is the share of A in the 20x2 profit?

a. 1,273,600 b. 1,286,400 c. 1,592,000 d. 1,208,600

ANS. A
 6. The partnership will be liquidated over a prolonged period of time. Distributions to owners
shall be made as cash becomes available. Information on the conversion of non-cash assets
is as follows:
 75% of the accounts receivable was collected for only ₱120,000.
 Half of the inventory was sold for ₱160,000.
 An equipment with carrying amount of ₱800,000 was sold for ₱480,000.
 ₱8,000 liquidation expenses were paid. Estimated future liquidation expenses totaled ₱4,000.
 ₱36,000 cash was retained in the business for potential unrecorded liabilities and anticipated
expenses.

How much did B receive from the partial settlement of his interest in the partnership?
a. 310,400 b. 311,600 c. 317,600 d. 324,600

ANS. C

On January 1, 20x1, the partners of ABC Co. decided to liquidate their partnership. The following
information was made available:
Cash 80,000
Accounts receivable 240,000
Inventory 480,000
Equipment 1,200,000
Total 2,000,000

Accounts payable 600,000

A, Capital (20%) 200,000
B, Capital (30%) 400,000
C, Capital (50%) 800,000
Total 2,000,000

The net proceeds from the sale of non-cash assets amounted to ₱160,000. The personal assets
and personal liabilities of the partners are as follows:
A B C
Personal assets 1,200,000 1,040,000 800,000
Personal liabilities (880,000) (880,000) (1,280,000)

7. How much additional contributions shall be made by the partners in order to settle all of
the partnership liabilities?
a. 280,000 b. 360,000 c. 480,000 d. 0
ANS. B
8. How much did A receive from the settlement of his interest in the partnership?
a. 68,800 b. 64,400 c. 82,600 d. 0

ANS. D

Use the following for the next three questions:

OUTLANDISH STRANGE Co. uses the installment method. On January 1, 20x3, OUTLANDISH Co.’s
records show the following balances:
Installment receivable - 20x1 1,600,000
Installment receivable - 20x2 4,800,000
Deferred gross profit - 20x1 352,000
 Deferred gross profit - 20x2 1,152,000

On December 31, 20x3, OUTLANDISH Co.’s records show the following balances before
adjustments for realized gross profit:
Installment receivable - 20x1 -
Installment receivable - 20x2 1,920,000
Installment receivable - 20x3 4,800,000
Deferred gross profit - 20x1 352,000
Deferred gross profit - 20x2 1,152,000
Deferred gross profit - 20x3 3,000,000

Installment sales in 20x3 were made at 331/3 above cost.

9. How much is the installment sale in 20x3?

a. 12,000,000 b. 14,000,000 c. 16,000,000 d. 9,000,000
ANS. A
10. How much is the cash collections in 20x3?
a. 11,680,000 b. 13,380,000 c. 14,680,000 c. 6,800,000
ANS.A
11. How much is the total realized gross profit recognized in 20x3?
a. 1,843,200 b. 2,843,200 c. 3,284,200 d. 4,840,200

ANS.B

Use the following information for the next two questions:

FICKLE NOT CONSTANT Co. uses the installment method. On January 1, 20x1, FICKLE Co. sold
inventory costing ₱612,244 for ₱960,000. Payable in twenty-four equal monthly installments
beginning on January 1, 20x1 and every first of the month thereafter. The inventory has a cash
price equivalent of ₱907,028. The imputed rate of interest per month is ½ of 1%. After making
three timely payments, the customer defaulted. Thus, FICKLE Co. repossessed the inventory. On
date of repossession, it was estimated that the inventory has a fair value of ₱576,664.

12. How much is the realized gross profit from the sale?
a. 36,420 b. 34,620 c. 36,240 d. 32,460
ANS. C
13. How much is the gain (loss) on repossession?
a. (36,600) b. (39,688) c. 42,200 d. 39,688
ANS. D
Use the following information for the next two questions:
The trial balances of INTERIM TEMPORARY Co.’s home office and branch are shown below:

INTERIM TEMPORARY Co.

Trial balance
December 31, 20x1

Home office Branch

Dr. (Cr.) Dr. (Cr.)
Cash 4,400,000 1,668,000
Accounts receivable 720,000 400,000
Inventory, beg. 2,600,000 -
Shipments from home office - 920,000
Purchases 288,000 160,000
Freight-in 88,000 72,000
Shipments to branch (920,000)
 Investment in branch 3,308,000
Equipment 2,880,000 1,600,000
Accumulated depreciation - equipment (288,000) (160,000)
Furniture 360,000 200,000
Accumulated depreciation - furniture (36,000) (20,000)
Accounts payable (288,000) (160,000)
Accrued expenses (180,000) (100,000)
Share capital (8,000,000)
Share premium (2,000,000)
Retained earnings - beg. (824,800)
Home office - (3,308,000)
Sales (3,600,000) (2,000,000)
Depreciation expense 672,000 272,000
Utilities expense 72,000 40,000
General overhead expense 28,800 16,000
Various operating expenses 720,000 400,000
Totals - -

The home office and the branch have ending inventories of ₱1,080,000 and ₱600,000,
respectively.

14. How much is the total assets in the combined statement of financial position?
a. 13,440,000 b. 14,800,000 c. 14,340,000 d. 13,404,000
ANS. D
15. How much is the total profit in the combined statement of profit or loss?
a. 1,851,200 b. 1,960,200 c. 1,815,200 d. 1,720,200
ANS. A
Use the following information for the next three questions:
The home office consistently bills its branch for shipments at 120% of cost. The following selected
information was taken from the records of the home office and the branch:

Home office books:

Sales 6,400,000
Inventory, beg. 200,000
Purchases 3,400,000
Freight-in 120,000
Shipments to branch (1,200,000)
Markup on shipments to branch during the period (240,000)
Inventory, end. 1,280,000
Operating expenses 480,000
Investment in branch – end.
(before year-end closing entries) 2,560,000

Branch books:
Inventory, end.
- From outside purchases 72,000
- From home office (at billed price, excluding freight-in) 480,000
Cash sales 1,200,000
Collections on receivables 800,000
Disbursements for purchases from unrelated parties 160,000
Disbursements for operating expenses 240,000
Remittances of collections to home office 100,000
Additional information:
 Accounts receivable has a net increase of ₱320,000 while accounts payable has a net decrease
of ₱40,000.
 Accrued expenses has an ending balance of ₱20,000. Not included in this account is a ₱8,000
allocated expense from the home office. There were no accrued expenses as of the beginning
of the period.
 As at year-end, a shipment from the home office with a billed price of ₱48,000 was in transit.
Normally, the home office pays 5% freight based on the billed price of the goods shipped to
the branch.
 The realized markup is ₱164,000 while the combined profit of the home office and branch is
₱5,766,800.

16. How much is the true profit of the branch?

a. 1,086,800 b. 1,860,800 c. 1,068,800 d. 1,608,800
ANS. A
17. How much is the beginning inventory of the branch from outside purchases?
a. 111,600 b. 72,000 c. 48,000 d. 120,000
ANS. C
18. How much is the beginning balance of “Home office” account?
a. 2,580,000 b. 1,140,000 c. 1,148,000 d. 1,212,000
ANS. B

Use the following information for the next two questions:

The home office instructs Branch #1 to transfer ₱40,000 cash to Branch #2. Subsequently, Branch
#2 repays ₱32,000 to Branch #1.

19. The entries to record the transfer of cash from Branch #1 to Branch #2
e. includes a debit to Cash by the home office
f. includes a credit to Investment in branch by Branch #1
g. includes a credit to home office by Branch #2
h. is not recorded by the home office
ANS. C
20. The entries to record the repayment of the cash transferred
e. includes a debit to Cash by Branch #1
f. includes a credit to Investment in branch by Branch #2
g. includes a credit to home office by Branch #2
h. is not recorded by the home office
ANS. A
Excessive freight
21. The home office transfers inventory worth ₱600,000 to Branch #1. Freight paid by the
home office is ₱40,000. Later on, the home office instructs Branch #1 to transfer the
merchandise to Branch #2. Branch #1 pays freight of ₱12,000. If the merchandise had been
shipped directly from the home office to Branch #2, the freight cost would have been
₱44,000. The entries to record the transactions described includes
e. a debit to loss on excessive freight of ₱8,000 in the books of Branch #1.
f. a debit to loss on excessive freight of ₱8,000 in the books of Branch #2.
g. a debit to loss on excessive freight of ₱8,000 in the books of the home office.
h. none of these

ANS. C

Savings on freight
 22. The home office transfers inventory worth P600,000 to Branch #1. Freight paid by the
home office is ₱40,000. Later on, the home office instructs Branch #1 to transfer the
merchandise to Branch #2. Branch #1 pays freight of ₱12,000. If the merchandise had been
shipped directly from the home office to Branch #2, the freight cost would have been
₱56,000. The entries to record the transactions described includes
e. a credit to savings on freight of ₱4,000 in the books of Branch #1.
f. a credit to savings on freight of ₱4,000 in the books of Branch #2.
g. a credit to savings on freight of ₱4,000 in the books of the home office.
h. none of these

ANS. D

23.Agency Mel records the obligation to purchase the office equipment in

a. RAOCO
b. RAOMO
c. RAOPS
d. RAOFE

Answer:

a. RAOCO

24. VOLUBLE TALKATIVE Co. has sold all of its shares to the public. The company was formerly
a state-owned entity. The national regulator has retained the power to appoint the board
of directors. An overseas entity acquires 55% of the voting shares, but the regulator still
retains its power to appoint the board of directors. Who has control of the entity?
e. The national regulator.
f. The overseas entity.
g. Neither the national regulator nor the overseas entity.
h. The board of directors.
(Adapted)
ANS. C
25. A manufacturing group has just acquired a controlling interest in a football club that is
listed on a stock exchange. The management of the manufacturing group wishes to exclude
the football club from the consolidated financial statements on the grounds that its
activities are dissimilar. How should the football club be accounted for?
e. The entity should be consolidated as there is no exemption from consolidation on the
grounds of dissimilar activities.
f. The entity should not be consolidated using the purchase method but should be
consolidated using equity accounting.
g. The entity should not be consolidated and should appear as an investment in the group
accounts.
h. The entity should not be consolidated; details should be disclosed in the financial
statements.
(Adapted)
ANS. A
26. On January 1, 20x1, TRICE Co. obtained control of INSTANT Co. Subsequently, there have
changes in the ownership interests over INSTANT; however, the TRICE’s control over
INSTANT was unaffected. Which of the following statements is incorrect?
e. Once control has been achieved, further transactions whereby the parent entity acquires
further equity interests from non-controlling interests, or disposes of equity interests but
without losing control, are accounted for as equity transactions
 f. The carrying amounts of the controlling and non-controlling interests are adjusted to
reflect the changes in their relative interests in the subsidiary.
g. Any difference between the amount by which the non-controlling interests is adjusted and
the fair value of the consideration paid or received is recognized directly in equity and
attributed to the owners of the parent.
h. The carrying amount of any goodwill should be adjusted and gain or loss is recognized in
profit or loss.
ANS. D
27. During the year, COMITY Co. sold equipment to its subsidiary, MUTUAL COURTESY Co., at
a gain. The equipment has a remaining useful life of 5 years. Which of the following
statements is true in the preparation of the consolidated financial statements?
e. The gain is recognized immediately.
f. The gain is deferred and recognized only in the period the equipment is sold to an
unrelated party.
g. The carrying amount of the asset and the related depreciation are adjusted downwards.
h. The carrying amount of the asset and the related depreciation are adjusted upwards.
ANS. C
28. During the year, BAFFLE Co. sold part of its controlling interest in TO COFUSE Co. The sale
did not affect BAFFLE’s control over TO CONFUSE. Which of the following statements is
true?
e. The equity adjustment would be larger if BAFFLE measures NCI at the NCI’s proportionate
share in the subsidiary’s net identifiable assets rather than at fair value.
f. The equity adjustment would be larger if BAFFLE measures NCI at fair value rather than at
the NCI’s proportionate share in the subsidiary’s net identifiable assets.
g. There would be no equity adjustment if the net disposal proceeds equal the original cost
of the interest sold.
h. c and d
ANS. A
29. Are the following statements true or false?
= Consolidated financial statements must be prepared using uniform accounting policies.
= The non-controlling interest in the net assets of subsidiaries may be shown by way of
note to the consolidated statement of financial position.
a. False, False b. False, True c. True, False d. True True
ANS. C
30. Goodwill must not be amortized under PFRS 3. The transitional rules do not require
restatement of previous balances written off. If an entity is adopting PFRS for the first time,
and it wishes to restate all prior acquisitions in accordance with PFRS 3, then it must apply
the PFRS to
e. Those acquisitions selected by the entity.
f. All acquisitions from the date of the earliest.
g. Only those acquisitions since the issue of the PFRS 3 and PAS 22, Business Combinations,
to the earlier ones.
h. Only past and present acquisitions of entities that have previously and currently prepared
their financial statements using PFRS.
(Adapted)

ANS. B

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“Passing the CPA Board Examination Requires Extra Ordinary Courage and Strong Determination with
Commitment to Continuous Learning”…mikecpamicbmba