36. (A) Refer to no. 35 for further discussion.

37. ( C)

Deficiency: (P16- P10)x100,000 shares issued to acquire P 600,000

Divided by: Fair Value of share P 10
Added number of share to issue 60,000
38. (B)- (P520,000-P60,000= P460,000), Refer to No. 37 for further discussion if market price falls below
a specified amount.

Changes resulting from events after (post-combination changes) the acquisition date (e.g. meeting an
earnings target, reaching a specified chare or reaching a milestone on research and development
project) are not measurement period adjustments. Such changes are therefore accounted for separately
from the business combination. The acquirer account for changes in the fair value of contingent
consideration that are not measurement period adjustment as follows:

1. Contingent consideration classified as equity is not measured and its subsequent settlement is
accounted for within equity; and
2. Contingent consideration classified as an asset or liability.

39. (D)
CC AC
OO 60,000
TT 70,000
80,000
GG 15,000 19,000*
Total 95,000 95,000

*P95,000 X 20%. Note that under bonus method total agreed capital is the same with total
contributed capital.

40. (C)

Sales (P350,000 + P100,000) P450,000

Less: Cost of good sold:
Purchases (P400,000 + P50,000) P 450,000
Less: Inventory, ending 90,000 360,000
Gross Profit P90,000
Less: Expenses
Salaries and commission 70,000
Rent 20,000
Advertising Supplies ( P10,000 P6,000) 4,000
Other Expenses 5,000 99,000
Net Loss P ( 9,000)
41. (A.)

Instalment Sales methos:

2007 Sales: P240,000X 25/125 P48,000
2008 Sales: P180,000X 28/128 39375
Realized Gross Profit on installment sales P87,375
Cost Recovery Method:
2007 cost: P480,000/1.25 P384,000
Less: collection in 2007 140,000
Collection in 2008 240,000
Unrecovered Cost, 12/31/2008 P4,000
42. (C)

Installment sales P3,600,000

Less: Overallowance
Trade in allowance P1,500,000
Less: MV of trade-in merchandise:
Estimated resale price P1,400,000
Less:Normal profit (25% x 350,000
P1.4M)
Reconditioning cost 150,000 900,00 600,000
Adjusted installment sales P3,000,000
Less:Cost of I/S 2,500,000
Gross profit 500,000
Gross profit rate: P500,000/ P3,000,000 16.23%
X: Collection trade in merchandise (at MV) P900,000
RGP on I/S in 2008 P150,000
43. (B)

DD:P83,000 +P20,000+ (P408,000- P360,000)x25% = P115,000

JJ: P77,000 + (P408,000 P360,000)x 25%=P89,000-(P6,000x 25/75)= P87,000

RR: P180,000 + (P408,000-360,000) x 50%= P204,000 (P6,000 x 50/75)= P200,000

Amount paid to DD.P121,000

Less: Book Value of DDs Interest. 151,000

Bonus to retiring partner..P 6,000

44. (B)

DD EE Total
Capital, March 1, 2008 P125,000 P 75,000 P 200,000
Add (deduct): Net income 34,540 4,860 39,400
Drawings (2,000) (30,000) (50,000)
Capital, December 31, 2008 P139,540 P 49,860 P 189,400
Sales P233,000
Less: Sales returns 5,000
Net Sales P220,000
Less: Cost of goods sold
Purchase P196,000
Less: Ending Inventory 73,000 123,000
Gross Profit P105,000
Less: Operating expenses P62,000
Unused supplies (2,500)
Prepaid insurance (950)
Accrued expenses 1,550
Depreciation 7,500 65,600
Net income P39,400
Allocation of net income:

DD EE Total
Salary (P30,000x 10/12) P25,000 P25,000
Bonus* 1,440 1,440
Balance 8,100 P4,860 12,960
P35,450 P4,860 P39,400
*Bonus= 10% (Net Income- Salary)
=.10(P39,400-25,000)
= P1,440
 Republic of the Philippines
Professional Regulation Commission
Manila
Board of Certified Public Accountant
CERTIFIED PUBLIC ACCOUNTANT Licensure Examination
Practical Accounting II
Instruction: Select the correct answer for each of the following
questions. Mark only one answer for each item to the box corresponding
to your choice on the answer sheet provided. Strictly no erasure are
allowed. Use pencil no. 2. Computation are not necessary.
1. Zyxel corporation acquired all the assets and liabilities of globe
tattoo corporation by issuing shares of its common stock on January 1,
2011. Partial Balance sheet data for the companies prior to the
business combination and immediately following the combination is
provided:
Zyxel Globe
Tattoo
Book Book value Combination
Value
Cash P 65,000 25,000 P 90,000
Accounts Receivable 72,000 20,000 94,000
Inventory 33,000 45,000 88,000
Building and Equipment (net) 400,000 150,000 650,000
Goodwill ?
Total Assets P570,000 P240,000 P
?

Accounts payable P 50,000 P25,000 P 75,000

Bonds payable 250,000 100,000 350,000
Common stock, P2 par 100,000 25,000 160,000
Additional paid-in capital 65,000 20,000 245,000
Retained earnings 105,000 70,000 ?
Total Liabilities and P570,000 P240,000 P
Equities ?

What number of shares old Zyxel issue for this acquisition?

A. 80,000 C. 30,000
B. 50,000 D. 17,500
2. At what price was Zyxel stock trading when stock was issued for
this acquisition?
A. P2.00 C. P6.00
B. P5.63 D. P8.00
3. What was the fair value of the net assets held by Globe Tattoo at
the date of the combination?
A. P115,000 C. P270,000
B. P227,000 D. P497,000

4. What amount of goodwill will be reported by the combined entity

immediately following the combination?
A. P 13,000 C. P173,000
B. P 125,000 D. P113,000

5. What balance in retained earnings will the combined entity report

immediately following the combination?
A. P35,000 C. P105,000
B. P 70,000 D. P175,000
6. The following selected accounts appeared in the trial balance of
United sales as of December 31, 2013
Debit Credit
Installment Receivable-2012 sales P 15,000
Installment Receivable-2013 sales 200,000
Inventory, December 31, 2012 70,000
Purchases 555,000
Repossession 3,000
Installment Sales P 425,000
Sale (regular) 385,000
Unrealized Gross Profit 2012 54,000
Additional information:

Installment receivable 2012 sales, as of December 31,2012,

P120,000
Inventory if new and repossessed merchandise as of December 31,
2012 P95,000
Gross profit percentage of regular sales during the year, 30% on
sales.
Repossession was made during the year. It was a 2012 sale and the
corresponding uncollected account at the time of repossession was
P7,750.
The gain (loss) on repossession in 2013:
A .P 1,262.50 C.P 1,805
B. P (1,262.50) D.P (1,805)

7. Johnson Enterprise uses the cost recovery method for all

installment sales, complete the following table.
2011 2012 2013
 Installment Sales P 80,000 P 95,000 P (1)
Cost of installment sales (2) 56,050 68,250
Gross profit percentage 38% (3) 35%
Cash Collection:
2011 sales 25,600 46,400 15,600
2012 sales 22,800 (4)
2013 sales 32,550
Realized gross profit on (5) (6) 16,050
installment sales
Compute the realized gross profit in 2012 as indicated by no.
(6)?
A. P 9,348 C. P22,400
B. P17,632 D. P26,980
8. Corin, a private limited company, has acquired 100% of coal, a
private limited company, on January 1, 2012. The fair value of the
purchases consideration was 10 million ordinary shares of P1 of Corin,
and the fair value of net asset acquired was 7 million. At the time of
acquisition, the values of the ordinary shares of Corin and the net
assets of Coal were only provisionally determined. The value of the
shares of Corin ( P11 million) and the net assets of Coal (P7.5
million) on January 1, 2012, were finally determined on November
30,2012. However, the directors of Corin have seen the value of the
company decline since January 1,2012 and as of February 1, 2013, wish
to change the value of the purchase consideration to P9 million. What
value should be placed on the purchase consideration and assets of
Coal as at the date of acquisition?
A. Purchase Consideration P10 million, net asset value P7 million
B. Purchase Consideration P11 million, net asset value P7.5 million
C. Purchase Consideration P9 million, net asset value P7.5 million
D. Purchase Consideration P11 million, net asset value P7 million
Harrison, Inc. acquires 100% of the voting stock of Rhine company on
January 1, 2012 for P400,000 cash. A contingent payment of P16,500
will be paid on April 15, 2013 if Rhine generates cash flow from
operation of P27,000 or more in the next year. Harrison estimates that
there is a 20% probability that Rhine will generate at least P27,000
next year and uses an interest rate of 5% to incorporate the time
value of money. The fair value of P16,500 at 5%, using a probability
weighted approach is P3,142.

9. What will Harrison record as the acquisition price on January 1,

2012?
A. P400,000 C. P403,142
B. P403,142 D. P416,500
10. Assuming Rhine generates cash flow from operations of P27, 200 in
2012, how will Harrison record the P16, 500 payment of cash on April
15, 2013?
A. Debit Contingent performance obligation P16, 500 and credit Cash
P16, 500.
 B. Debit Contingent performance obligation P3, 142, debit Loss from
contingent performance obligation P13, 358 and credit Cash P16,
500
C. Debit Investment in subsidiary and Credit Cash P16, 500.
D. Debit Goodwill and credit Cash, P16, 500.
Items 11 through 13 are based on the following information:
On December 3, 2012, the Home office of Kathy office Supply company
recorded a shipment of merchandise to its Davao branch as follows:
Davao Branch39,000
Shipments to Branch32,500
Unrealized Profit in Branch Inventory 5,200
Cash (for freight charges).. 1,300
The Davao branch sells 40% of the merchandise to outside entities
during the rest of December 2012. The books of the home office and
Kathy Office Supply are closed on December 31 of each year.
On January 5, 2013, the Davao branch transfers half of the original
shipment to Baguio branch, and the Davao branch pays P650 as the
shipment.

11. What amount should the 60% of the merchandise remaining unsold be
included in (1) the inventory of the Davao branch at December 31,
2013:
A. P20,280 C. P23,400
B. P22,620 D. P23,920
12. What amount should the 60% of the merchandise remaining unsold t
December 31, 2013 be included in the published balance sheet of Kathy
office supply at December 31, 2013 shows inventory at:
A. P19,500 C. P20,800
B. P20,280 D. P23, 400
13. What is the entry on the home office books in respect to January
5, 2013 transfer, assuming that the transfer cost of the merchandise
to Baguio branch would have been P780.
A. Home office20,150
Cash.. 780
Inventory.. 19,500
B. Shipments18,850
Freight-in. 700
Home office current. 19,630
C. Branch current-Baguio19,630
Excess freight. 520
Branch current- Davao. 20,150
D. Branch current-Baguio19,630
Excess Freight 780
Branch current- Davao
20,410
14. XX, YY, and ZZ, a partnership formed on January 1, 2013 had the
following initial investment:
XXP 170,000
 YY 255,000
ZZ 382,500
The partnership agreement states that the profits and losses are to be
shared equally by the partners after consideration is made for the
following:
- Salaries allowed to partners: P102,000 for XX, P81,600 for YY,
and P61,200 for ZZ.
- Average partners capital balances during the year shall be
allowed 10%.
Additional information:
- On June 30, 2013, XX invested an additional P102,000
- ZZ withdrew P119,000 from the partnership on September 30, 2013.
- Share the remaining partnership profit was P8, 500 for each
partner.
The total partnership capital on December 31, 2013 was:
A. P688,500 C. P 816,000
B. P1,141,550 D. P1,143,675
15. Happy, Inc. opens a sales agency in Davao City, and working fund
for P20,000 is established on the imprest basis. The first payment
from the fund is P3, 000 for rent. This transaction should be recorded
by the home office as follows:
A. No entry
B. Rent . 3, 000
Cash.. 3,000
C. Davao agency 3, 000
Cash..... 3,000
D. Davao Agency 3,000
Working fund. 3,000
16. Following is the balance sheet of the ABCD Partnership at March
31, 2013, when the partnership is to be liquidated:
Cash P 6,000 Liabilities P 12,
400
Other Asset 126,000 A, Loan
12,000
B, Loan 14,400
D, Loan 9,600
A, Capital 25% 16,200
B, Capital 25% 12,000
C, Capital 25% 37,700
D, Capital 25% 17,700
During the month of April 2013, assets having a book value of P18,
000 are sold at a loss of P2,400. Liquidation expenses of P600 are as
well as P7, 200 of the liabilities. Of the liabilities shown in the
balance sheet, P240 represents salary payable to D and P460 represent
salary payable to C.
On April 30, 2013 cash to be distributed to A, B, C and D as follows:
A B C D
A. P -0- P -0- P -0- P9,000
 B. P1,950 P1,950 P1,950 P1,950
C. P -0- P -0- P -0- P1,950
D. P -0- P -0- P9,000 P -0-
17. Shake, Inc. granted a franchise to drake for the greenbelt area.
Drake was to pay a franchise fee of P100, 000 payable in five equal
annual installment starting with the payment upon signing of the
agreement. The franchise was to pay monthly 1% of gross sales of the
preceding month. Should the operation of the outlet prove to be
unprofitable is the first year of operations the franchise fee may be
cancelled with whatever obligation owing shake, Inc. in connection
with the P106, 000 franchise fee, waived.
On the same year of granting the initial franchise fee, the first year
operation generated gross sales of P500, 000 which is consisted to be
profitable operation. For the first year, Shake, Inc. earned franchise
fee of:
A. P 5, 000 C. P 25,000
B. 20, 000 D. 105,000
18. On January 1, 2013, 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,
2013. 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 2013?
A. P -0- C. P8, 000
B. P6, 000 D. P20, 000
19. AJD Company recognizes construction revenue and expenses using the
percentage of completion method. During 2012, a single long-term
project was begun which continued through 130H. Information on the
project was as follows:
2012 2013
Accounts Receivable from P 200,000 P800,000
construction contract
Construction expenses 210,000 384,000
Construction in progress 244,000 728,000
Partial billings on contract 200,000 840,000
The profit recognize from the long-term construction contract should
amount to:
2012 2013 2012 2013
A. P44, 000 P456, 000 C. P34,000 P256,000
B. P44, 000 P200, 000 D. P34,000 P100,000
20. GR&R Enterprise entered into a construction agreement in 2012 that
called for a contract price of P9, 600, 000. At the beginning of 2013,
a change order increase the initial contract price by P480, 000. In
relation to the project, the following data were obtained:
2012 2013
Cost Incurred to date P4, 920, 000 P8, 640, 000
Estimated cost to complete 4, 920, 000 2, 160, 000
Billings made to date 5, 280, 000 8, 700, 000
Collections made to date 4, 920, 000 8, 700, 000
Compute the amount of construction in progress (net) due from
customers or progress billings (net) due to customers for the year
2013:
Percentage-of-completion Method Cost recovery method
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
21. from the following data from the records of ABC partnership:
ABC Partnership
Balance Sheet
December 31, 2012
Assets
Cash P2, 000
Other Noncash assets 28,000
Total P30,000
Liabilities and Capital
Liabilities P5, 000
A, loan 2, 500
A, capital 12, 500
B, capital 7, 000
C, capital 3, 000
Total P30, 000
Profit and loss ratio is 3:2:1 for A, B, and C, respectively. The
other noncash assets were realized as follows:
Date Cash Received Book Value
January 2013 6, 000 P9, 000
February 2013 3, 500 7, 700
March 2013 12, 500 11, 300
Cash is distributed as other noncash assets realized.
Total cash received by B is:
A. P -0- C. P2, 000
B. P1, 500 D. P 5, 000
Items 22 and 23 are based on the following information:
The income statement submitted by the Tarlac branch to the Home office
for the month of December 31, 2013 follows:
Sales P600, 000
Cost of sales:
Inventory, December 1, P80,000
2013
Shipments from home 350,000
office
Purchase locally by 30, 000
branch
Total 460,000
Inventory, December 31, 100,000 360,000
2013
Gross margin 240,000
Operating expenses 180,000
 Net income for the month 60,000
The branch inventories consisted of:
12/1/2013 12/31/2013
Merchandise from home office P70, 000 P84, 000
Local purchase 10, 000 16, 000
Total P80, 000 P100, 000
After effecting necessary adjustments, the Home Office ascertained the
true net income of the branch to be P156, 000.
22. At what percentage of cost did the home office bill the branch for
merchandise shipped to it?
A. 100% C. 140%
B. 120% D. 150%
23. What is the balance of the allowance for overvaluation in the
branch inventory at December 31, 2013?
A. P10,000 C. P24,000
B. P16, 000 D. P34,000
24. Following is the income statement at XYZ Branch in Cebu City
Company, for the six months period ending June 30, 2013:
Sales P620, 000
Cost of sales:
Shipments from home P550, 000
office
Purchases 50, 000
Total 600, 000
Inventory, June 30,
2013:
From Home office P75, 000
From purchases 10, 000 85, 000 515, 000
Gross margin P105, 000
Operating expenses 85, 000
Net income for the month 60,000
The home office ships merchandise to and bills the Branch office at
125% of cost.
The rent of the Branch office for six months at a monthly rate of
P1,000 was paid by the home.
The Home office net profit from its branch office in Cebu city for the
six (6) months ending June 30, 2013 is:
A. P14,000 C. P125,000
B. P109, 000 D. P139,000
25. DJ Builders Enterprises, a franchisor, charges franchisees a
franchise fee of P500, 000. Of this amount, a nonrefundable P200,
000 is paid upon the signing of the contract with the balance payable
in three equal installments after each year thereafter. DJ builders
will assist in locating a suitable business site, conduct a market
study, averse the construction of facilities, and provide initial
training for employees.
On December 1, 2013, DJ Builders signed a franchising agreement for
the u-belt area. By the end of 2013, it was determined that the
substantial performance of the initial services had cost DJ Builders
a total of P150, 000 and that collection of the balance of the
franchise fee has been reasonably assured. In its 2013 income
statement, DJ Builders should report franchise revenue and net
income:
Franchise revenue Net income
A. P 500, 000 P350, 000
B. P 500, 000 P500, 000
C. 0 0
D. P350, 000 P350, 000
Items 26 and 27 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 companys
records show the following information on a recently completed project
for a contract price of P5, 000, 000.
2011 2012 2013
Cost incurred to date P 900, 000 P2, 550, 000 P
?
Gross profit (loss) 100, 000 350, 000 ( 50,
000)
26. The estimated costs to complete the project at December 31, 2012:
A. P850,000 C. P2, 300,000
B. P1, 700, 000 D. P2, 550,000
27. The actual cost incurred during the year 2013.
A. P2, 550,000 C. P2, 200,000
B. P2, 300, 000 D. P2, 050,000
28. The after-closing trial balances of the Beams, Plank, and Timbers
partnership at December 31, 2013 included the following accounts and
balances:
Assets
Cash.P 120, 000
Accounts receivable-net 140, 000
Loan to Timbers.. 20, 000
Inventory. 200, 000
Plant assets-net.. 200, 000
Trademarks... 20, 000
Total Debits.P700, 000
The partnership is to be liquidated as soon as possible and all
available cash except for a P10, 000 contingency balance is to be
distributed at the end of each month prior to the time that all assets
are converted into cash.
During January 2013, P100, 000 was collected from accounts receivable.
Inventory items with a book value of P80, 000 were sold for P100, 000,
and available cash was distributed.
During February 2013, Beams received plant assets with a book value of
P60, 000 and a fair value of P50, 000 in partial settlement of her
equity in the partnership. Also during February, the remaining
inventory items were sold for P60, 000, liquidation expenses of P2,
000 were paid, and a liability of P8, 000 was discovered. Cash was
distributed on February 28.
During March 2013, the plant assets were sold for P110, 000, the
remaining noncash sets were written off, final liquidation expenses of
P5, 000 were paid, and cash was distributed. The dissolution of the
partnership was completed on March 31, 2013
The amount of cash to be received by Timbers for the month of March:
A. P -0- C. P29,000
B. P23, 000 D. P60,000
29. The unsecured creditors of Sealtiel Corporation filed a petition
on July 1, 2013 to force Dawn into Bankruptcy. The court order for
relief was granted on July 10 at which time an interim trustee was
appointed to supervise liquidation of the state. A listing of assets
and liabilities of Dawn Corporation as of July 10, 2013, along with
estimated realizable value, is as follows:
Assets Book Value Estimated
Realizable
Value
Cash P80, 000 P80, 000
Accounts receivable- net 210, 000 160, 000
Inventories 200, 000 210, 000
Equipment 150, 000 60, 000
Land and Building- net 250, 000 140, 000
Intangible assets P 900, 000 P 650, 000
Equities
Accounts payable P 400, 000
Notes payable 100, 000
Wages payable 24, 000
Taxes payable 76, 000
Mortgage payable P200, 000 205, 000
plus P5, 000 unpaid
interest to July 10.
Capital Stock 300, 000
Retained earnings deficit (205, 000)
P900, 000
The estimated payment to Creditors:
A. P299,000 C. P650,000
B. P465, 000 D. P900,000
30. Tillman Textile Company has a single branch in Bulacan. On March
1, 2013, the home office accounting records included an allowance for
overvaluation of inventories- Bulacan Branch ledger account with a
credit balance of P32, 000. During March, merchandise costing P36, 000
was shipped to the Bulacan Branch and billed at a price representing a
40% mark-up on the billed price. On March 31, 2013, the branch
prepared an income statement indication a net loss of P11, 500 for
March and ending inventories at billed prices of P25, 000. What is the
amount of adjustment for allowance for overvaluation of inventories to
reflect the true branch net income?
A. P39, 257 debit C. P39, 333 debit
B. P46, 000 credit D. P46,000 debit
31. 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 2013 were:
Jan. 1, 2013 Dec. 31,
2013
Installment Contracts Receivable- P24, 020 P -0-
2011
Installment Contracts Receivable- 344, 460 67, 440
2012
Installment Contracts Receivable- -0- 410, 090
2013
During 2013, the company repossessed a refrigerator which had been
sold in 2012 for P5, 400 and P3,200 had been collected prior to
default. The company sales and cost of sales figures are summarized as
follows:
2011 2012 2013
Net sales P380, 000 P432, 000 P602, 000
Cost of sales 247, 000 285, 120 379, 260
Compute the deferred gross profit on December 31, 2013:
A. P151, 733.33 C. P174, 662.90
B. P173, 914.90 D. P339, 856.40
32. Anselno Company Operates retail hobby shops from the main store
and a branch store. Merchandise is shipped from the main office 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, 2013 are as
follows:
Main store Branch
Debits:
Cash P 1, 500 P 1, 000
Accounts Receivable-net 200 -
Inventory, December 31, 2012 3, 500 2, 500
Building net 60, 000 18, 000
Equipment net 30, 000 12, 000
Branch store 32, 300 -
Purchases 240, 000 11, 000
Shipments from home office - 99, 000
Other expenses 15, 000 7, 000
Total debits 382, 500 150, 500
Main store Branch
Credits:
Accounts payable P 15, 000 P 500
Unrealized inventory profit 9, 200 -
 Main store - 30, 000
Capital stock 50, 000 -
Retained earnings 16, 000 -
Sales 200, 000 120, 000
Shipments to branch 90, 000 -
Profits from branch 2, 300
Total Credits P382, 500 P150, 500

Inventories on hand at December 31, 2013 at the main store and branch
is P3, 000 and P1, 800, respectively. The December 31, 2012 branch
inventories includes merchandise purchased from outsiders of P300, and
The December 31, 2013 branch inventories includes P150 of merchandise
purchased from outsiders. The combined cost of goods sold amounted to:
A. P261,200 C. P243, 150
B. P252, 200 D. P252, 150

33. The Partnership has the following accounting amounts:

(1) Sales, P70,000
(2) Cost of goods sold, P40,000
(3) Operating expenses, P10,000
(4) Salary allocations to partners, P13,000
(5) Interest paid to banks, P2,000
(6) Partners withdrawals, P8,000

The partnership net income (loss) is:

A. P20,000 C. P5,000
B. 18,000 D. (3,000)
34. On January 1, 2011, the fair values of Pink Conrads net asset
were as follows:
Current Assets________________________________P100,000
Equipment_____________________________________P150,000
Land__________________________________________P 50,000
Buildings_____________________________________P300,000
Liabilities___________________________________P80,000
On January 1, 2011, Blue George Company purchase the net assets of the
Pink Conrad Company by issuing 100, 000 shares of its P1 par value
stock when the fair value of the stock was P6.20. It was further
agreed that Blue George would pay an additional amount on January 1,
**** average income during the 2-year period of 2011-2012 exceeded
****** per year. The expected value of this consideration was
calculated as P164,000; the measurement period is one year.

What amount will be recorded as goodwill on January 1, 2011?

 A. Zero C. P 180,000
B. P 100,000. D. P 284,000

35. Using the same information in No.34, assuming that on August *****
the contingent consideration happens to be P170,000, what amount will
then be recorded as goodwill on the said date?
A. Zero C. P 166,000
B. P 86,000 D. P 270,000

36. Using the same information in Nos.34 and 35, assuming that on
January 1, 2013, the date of the settlement of the contingent
consideration ***** agreement for P175, 000, the entry should be:
A. Estimated liability for contingent consideration__170,000
Loss on estimated contingent consideration__________5,000
Cash______________________________________175, 000

B. Estimated liability for contingent consideration__175,000

Cash______________________________________175,000

C. Estimated liability for contingent consideration__184,000

Gain on estimated contingent consideration___9,000
Cash______________________________________175,000
D. No entry required.

37. The Boy George company acquired the net assets of the Girl ****
Company on January 1, 2011 and made the following entry to recent
purchases:
Current Assets______________________________100,000
Equipment___________________________________150,000
Land________________________________________ 50,000
Buildings___________________________________300,000
Goodwill____________________________________100,000
Liabilities_________________________________ 80,000
Common stock, P1 par________________________100,000
Paid-in capital in excess of par____________520,000
Assuming that additional shares would be issued on January 1, 2013 to
compensate for any fall in the value of Boy George common stock below
P16 per share. The settlement would be to cure the deficiency by
issuing added shares base on their fair value on January 1, 2013. The
fair price of the shares on January 1, 2013 was P10.

What is additional number of shares issued on January 1, 2013 to

compensate for any fall in the value of the stock?
A. 160,000 C. 60,000
B. 100,000 D. 10,000
38. What is the amount of the paid-in capital in excess of par on
January 1, 2013 immediately after the additional shares were
issued?

A. P520,000 C.420,000
B. P460,000 D. No effect.

39. OO and TT are partners with capital balances of P60,000 and

P20,000, respectively. Profits and losses are divided in the ratio of
6:4. OO and TT decided to form a new partnership with GG, who invested
land valued at P15,000 for a 20% capital interest in the new
partnership. GGs cost of the land was P12,000. The partnership
elected to use the bonus method to record the admission of GG into the
partnership. GGs capital account should be credited for:
A. P 12,000 C. P16,000
B. P 15,000 D. 19,000

40. KCO Company had an agency in SM Cebu. For the period just ended,
the agency transactions showed the following:

Receipt from sales_____________________________P 350,0000

Disburesements:
Purchases___________________________________400,000
Salaries and Commissions____________________ 70,000
Rent________________________________________ 20,000
Advertising supplies________________________ 10,000
Other expenses______________________________ 5,000

The agency had P100,000 receivables and P50,000 payables as of the

end of the period. Also, there were inventories on hand of P90,000
and unused advertising supplies of P6,000. The agency was set up as
an experiment for one period and would be closed if the losses were
incurred. The agency should:
A. Review again because it was a break-even operation.
B. Close with periods operational loss of P155,000.
C. Close with periods operational loss of P9,000.
D. Continue with the periods profit of P25,000.

41. Rizzalyn Corporation, a capital goods manufacturing business that

started in January 4, 2012, and operates in a calendar-year basis. The
following date were taken from the records of 2012 and 2013:

2012 2013
Installment Sales P 400,000 P 620,000
Gross profit as a percent of costs 25% 28%
Cash collections on sales of 2012 P 140,000 P 240,000
Cash collections on sales of 2013 P -0- P 180,000
Compute the realized gross profit to be reported in the 2013 income
statement:
Installment Sales Method Cost Recovery Method
A. 87, 375 P -0-
B. 87, 375 180,000
C. 39, 375 -0-
D. 48, 000 240,000

42. The Tigers sells new automobiles. A new automobile costing

P2,500,000 was sold at the end of 2013 for 3,600,000; 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 sales are expected to produce a 25% gross profit.
Determine the realized gross profit on the installment sales:
A. P275,000 C. P 150,000
B. 250,000 D. None

43. The balance sheet, as of June 30, 2013, for the partnership of DD,
JJ, and RR shown the following information:

Assets P360,000 DD, loan P 20,000

DD, capital P 83,000
JJ, capital P 77,000
RR, capital P 180,000
Total P360,000 Total P 360,000

It was agreed among the partners that DD retires from the partnership,
and it was also further agreed that the assets should be adjusted to
their fair value of P408,000 as of June 30, 2013. The partnership is
to pay DD P121,000 cash for DDs partnership interest, which would
include the payment of his loan. No goodwill is to be recorded. DD,
JJ, and RR share profit 25%, 25% and 50% respectively.

After DDs retirement, how much would RRs capital balance be?
A. P360,000 C. P180,000
B. 200,000 D. 120,000

44. DD and FE entered into a partnership as of March 1, 2013 by

investing P125,000 and P75,000, respectively. They agreed that DD, as
the managing partner, was to receive a salary of P30,000 per year and
a bonus computed at 10% of the net profit after adjustment for the
salary; the balance of the profit was to be distributed in the ratio
of their original capital balances. On December 31, 2013, account
balances were as follows:
Cash P 70,000 Accounts payable P 60,000
Accounts receivables 67,000 DD, capital 125,000
Fur. And fixtures 45,000 EE, capital 75,000
Sales returns 5,000 DD, drawing (20,000)
Purchases 196,000 EE, drawing (30,000)
Operating expenses 60,000 Sales 233,000

inventories on December 31, 2013 were as follows: supplies, P2,500,

merchandise, P73,000. Prepaid insurance was P950 while accrued
expenses were P1,550. Depreciation rate was 20% per year.
The partners capital balances on December 31, 2013, after closing the
net profit and drawing accounts, were:
DD EE
A. P115,940 P47,960
B. P139,540 P49,860
C. P139,680 P48,680
D. P142,350 P47,670
45. The balance sheet of Gabriel Window Corporation at June 30, 2013
contains the following items:
Assets
Cash P 40,000
Accounts Receivable-net 70,000
Inventories 50,000
Land 30,000
Building-net 200,000
Machinery (net) 60,000
Goodwill 50,000
P500,000
Equities
Accounts payableP 110,000
Wages payable 60,000
Property taxes payable 10,000
Mortgage payable 150,000
Interest on Mortgage payable 15,000
Note payable-unsecured 50,000
Interest payable-secured 5,000
Capital stock 200,000
Retained earnings (deficit)(100,000)
P 500, 000

The company is in financial difficulty and its stockholders and

creditors have requested a statement of affairs for planning purposes.
The following information is available:

1. The company estimates that P63,000 is the maximum amount

collectible for the accounts receivable.
 2. Except for 20% of the inventory items that are damaged and worth
only P2,000 the cost of the other items is expected to be
recovered in full.
3. The land and building have a combined appraisal value of P170,000
and are subject to the P150,000 mortgage and related accrued
interest.
4. The appraised value of the machinery is P20,000
5. Wages payable and property taxes payable are unsecured priority
items.

Compute the estimated deficiency to unsecured priority items.

A. P70,000 C. P65,000
B. 67,000 D. 0

46. The after-closing balance of Catler Corporations home office and

its branch at January 1, 2013 were as follows:
Home Office Branch
Cash P 7,000 P 2,000
Accounts receivable-net 10,000 3,500
Inventory 15,000 5,500
Plant assets-net 45,000 20,000
Branch 28,000 -
Total assets P 105,000 P 31,000

Accounts payable P 4,500 P 2,500

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

A summary of the operations of the home office and branch for 2008
follows:
1. Home office sales: P100,000, including P33,000 to the branch. A
standard 15% markup on cost applies to all sales to the branch.
Branch sales to its customers totaled P50,000.
2. Purchases from outside entities: home office P50,000; branch
P7,000
3. Collections from sales: home office, P98,000 (including P30,000
from branch); branch collections, P51,000
4. Payments on account; home office, P51,500; branch P4,000.
5. Operating expenses paid: home office, P20,000; branch P6,000.
6. Depreciation on plant assets: home office, P4,000; branch P1,000
7. Home office operating expenses allocated to the branch, P2,000.
 8. At December 31, 2013, the home office inventory is P11,000 and
the branch inventory is P6,000, of which P1,050 was acquired from
outside suppliers.
The combined net income amounted to:
A. P 0 C. P21,000
B. P 4,550 D. P25,550

1. (C)
Common stock- combinedP 160,000
Common- Acquirer Zyxel. 100,000
Common stock issuedP 60,000
Divided by: Par value of common stockP 2
Number of Zyxel shares to acquire Globe Tattoo..P 30,000
2. (D)
Paid-in capital books of Zyxel (P100,000+ P65,000).P 165,000
Paid-in capital in the combined balance sheet
(P160,000 + P245,000)P 405,000
Paid-in capital from the shares issued to acquire Globe Tattoo..P 240,000
Divided by: No.of shares issued (No.31). 30,000
Fair Value per share when stock was issued..P 8
Or,
Par value of common stock of Zyxel...P 2
Add: Share Premium/APIC per share from the additional
issuance of shares (245,000 P65,000)/30,000. 6
Fair value per share when stock was issued.... 8
3. (B)
Net identifiable assets of Zyxel before acquisition:
(P65,000 + P72,000 + P33,000 + 400,000 P50,000
- 250,000)..P 270,000
Net identifiable assets in the combined balance sheet:
 (P90,000 + 94,000 + 88,000 + P650,000 P75,000- P350,000)... 497,000
Fair value of the net identifiable assets held by Globe Tattoo
at the date of acquisition... 227,000
4. (A)
Consideration transferred (P30,000 shares x P8)......P240,000
Less: Fair value of net identifiable assets acquired (No.33). 227,000
Goodwill......P 13,000
5. (C)
Retained earnings:
Acquirer Zyxel (at book value)..P105,000
Acquiree Globe Tattoo (not acquired).... 0
105,000
It should be noted that, there was no bargain purchase gain and acquisition-related costs which may affect
retained earnings on the acquisition date.
6. (B)
Market value of repossessed merchandise.P 3,000.00
Less: Unrecovered cost
IAR 2006, unpaid balance.P7,750.00
Less: DGP-2006 (54/120 x P7,750) 3,487.50 4,262.50
Loss on repossession...P(1,262.50)
7. (C)
2011 Sales:
Cost of sales for 2011: P80,000 x (100% - 38%) P 49,600
Less: Collections pertaining to 2011 sales in
2011.P 25,600
2012.P 46,400 72,000
Realized gross profit in 2012 for 2011 sales.P 22,400
2012 Sales:
Cost of sales for 2012.P 56,050
Less: Collections pertaining to 2012 sales in
2012. 22,800
Unrecovered cost for 2012 sales.P 33,250
Realized gross profit in 2012 for 2012 sales...... 0
Realized gross profit on installment sales in 2012. P 22,400
8. (B)
One of the problems that may arise in measuring the asset and liabilities of the acquire is that the initial
accounting for the business combination may be incomplete by the end of the reporting period.
For example, the acquisition date may be August 16 and the end of the reporting period may be August
31. In this situation, in accordance with par.45, the acquirer must report provisional amounts in its
financial statements. The provisional amounts will be best estimates and will need to be adjusted to
their fair values when those amounts can be determined after the end of the reporting period. The
measurement period in which the adjustments can be made cannot exceed one year after the
acquisition date.
9. (B)
Under the acquisition method, contingent consideration obligations are recognized as part of the initial
value assigned in a business combination, consistent with fair value concept. Therefore, the acquiring
firm must estimate the fair value of the contingent portion of the total business fair value. The
contingencys fair value is recognized as part of the acquisition regardless of whether it is based on
future performance of the target firm or the future stock prices of the acquirer.

Fair value consideration transferred:

Cash paid.P 400,000
Add: Contingent consideration, present value. 3, 142
Consideration transferred/ acquisition price 403, 142
10. (B)
The loss from contingent performance obligation is reported in Harrison Inc.s consolidated Income
statement as a component of ordinary income. Refer to No.2 for further discussion.

11. (C)
Inventory of the Branch:
Shipments from home office at billed price..P 37,700
X: Ending Inventory %.......................................................... 60%
Ending Inventory at billed price.. 22,620
Add: Freight (P1,300x60%). 780
P 23, 400
Or, P39,000x 60%= P23, 400
12. (B)
Inventory in the published balance sheet, at cost
Shipments at cost P 32,500
X: Ending Inventory %...................................................... 60%
Ending Inventory at billed price. 19, 500
Add: Freight (P1,300 x 60%).. 780
P 20, 280
13. (C)
Home Office Books Davao Branch Baguio Branch
Davao Branch39,000 SFHO.37, 700
STB, cost. 32,000 Freight-in 1,300
Unrealized profit 5,200 HOC 39,000
Cash (freight).. 1,300
BC- Baguio.. 19, 630 HOC.20,150 SFHO18,850
Excess freight. 520 SFHO(50%) 10,850 Freight-in.. 780
BC Davao.. 20, 150 Freight-in (50%) 650 HOC.. 19,630
Cash.. 650

14. (D)
Capital, 1/1/2008 (P170,000+ P255,000 + 382,500). P 807,500
Additional investment. 102,000
 Capital withdrawals ( 119,000)
Net Income* 353, 175
Capital, 12/31/2008 P1,143,675

X Y Z Total
Salaries 102,000 81,600 61,200 244,800
Interest** 22,100 25,500 35,275 82,875
Balance 9,500 8,500 8,500 25,500
353,175
**X: 170,000 x 6= 1,020,000
272,000 x 6= 1,632,000 2,652,000/12 = 221,000x 10% =22,100
Y: 255,000 x10%= 25,500
Z: 382,500 x 9= 3,442,500
263,500 x 3= 790,500 4,232,000/12 = 352,750x10%=35,275

15. (A)
In adopting the imprest system for the agency working fund, the home office writes a check to the
agency for the amount of the fund. Establishment of the fund is recorded on the home office books
by a debit to the Agency working fund and credit cash. The agency will request fund replenishment
whenever the fund runs low and at the end of each fiscal period. Such a request is normally
accomplished by an itemized and authenticated statement of disbursements and the paid vouchers.
Upon sending the agency a check in replenishment of the fund, the home office debits expense.
16. (D)
A B C D Total
Capital balances 16,200 12,000 37,700 17,700 83,600
Loans 12,000 14,400 9,600 36,000
Salaries 0 160 240 400
Total Interests 28,200 25,400 37,860 27,540 120,000
Reduction in interests (equally) (27,750) (27,750) (27,750) (27,750) (111,000)
Balances 450 ( 1,350) 10,110 ( 210) 9,000*
Absorption of possible insolvency ( 780) 1,350 ( 780) 210 -0-
Balances ( 330) 9,330 9,000
Absorption of possible insolvency 330 ( 330) -0-
Payment 9,000 9,000
* Payment to partners:
Cash, beginningP 6, 000
Proceeds (P18, 000-2,400) . 15, 600
Payment of liabilities (always in full). (12, 400)
Payment of liquidation expenses. ( 600)
P 9, 000
17. (D)
In this problem, full accrual method is used to recognized the initial franchise fee of P100,000
analyze as follows:
Revenue Analysis for IFF
Cash N/R
 Services Yes Yes
Period of refund (note) Yes Yes
Collectability Reas. Assured
20,000 80,000
Status Revenue Revenue
Note: Period of refunding the initial franchise fee was presumed to have been expired since the
business operates profitably in its first year of operation.
Continuing Franchise Fee: Considered revenue the moment continuing services had been
rendered amounted to P5, 000 (1% x P500, 000).
18. (A)
Cost, January 1, 2008..P 60, 000
Less: Collections including interest- 2008. 32, 170
Unrecovered cost, December 31, 2008..P 27,830

Under the cost recovery method, no income is recognized on a sale until the cost of the item sold
is recovered through cash receipts. All cash receipts, both interest and principal portions are
applied first to the cost of the items sold. Then, all subsequent 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 is used only when the circumstances
surrounding a sale are so uncertain that earlier recognition is impossible.
19. (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 (loss). The following T-account is
prepared:

Construction-In-Progress
CI in 2007 210, 000
RGP in 2007 (7) 34, 000
End of 2007 244, 000
CI in 2008 (7) 384, 000
RGP in 2008 100, 000

End of 2008 728, 000

20. (A)
2012 2013
Contract price P 9,600,000 P 10,080,000
Costs incurred to date P 4,920,000 P 8,640,000
Add: Estimated cost to complete P 4,020,000 P 2,160,000
Total estimated costs P 9,840,000 P 10,800,000
Estimated Gross Profit (Loss) to date P ( 240,000) P ( 720,000)
Less: Gross Profit (Loss) in prior year 100% 100%
Recognized Gross Profit (Loss) in current year P ( 240,000) P ( 720,000)
Less: Gross Profit (Loss) in prior year ( 240,000)
Recognized Gross Profit (loss) in current year P ( 240,000) P( 490,000)
% of completion/ Cost Recovery Method:
Construction-In-Progress Progress Billings
CI 4,920,000 240,000 loss 5,280,000

CI 4,680,000 5,200,000
3,720,000 480,000 loss 3,420,000

7,920,000 8, 700, 000

due to customers
P780, 000

Note: If there is an anticipated loss, the Construction-In-Progress for both methods will exactly be the
same in the year the loss was incurred.
21. (D)
A B C Total
January- Capital balances 2,500 7,000 3,000 12,500
Loans 12,500 12,500
Total Interests 15,000 7,000 3,000 25,000
Reduction In Interests (3:2:1) (11,000) (7,333) (3,667) (22,000)
Balances 4,000 ( 333) ( 667) 3,000
Reduction in Interests (1,000) 333 667 -0-
Payments 3,000 3,000
January:
Cash, beginningP 2,000
Less: Payments of liabilities. 5, 000
Payment to Partners.P 3,000*

Total Interests- January 15,000 7,000 3,000 25,000

Payment to partners-January (3,000) ( 3,000)
Total Interest- February 12,000 7,000 3,000 22,000
Reduction In Interests (3:2:1) (9,250) (6,167) (3,083) (18,500)
Balances** 2, 750 833 ( 83) 3,500
Reduction In Interests ( 50) ( 33) 83 -0-
Payments 2, 700 800 3,500
February:
Cash, beginningP 0
Add: Proceeds 3, 500
Less: Payments of liabilities. 0
Payment to partners.P 3,500**

Total Interest- February 12,000 7,000 3,000 22,000

Payments to partners- February ( 2,700) ( 800) -0- (3, 500)
Total Interests- March 9,300 6,200 3,000 18,500
Reduction In Interests (3:2:1) ( 3,000) (2,000) (1,000) ( 6,000)
Balances*** 6,300 4,200 2,000 12,500
March:
Cash, beginning.P 0
Add: Proceeds. 12,500
Less: Payments of liabilities 0
Payment to Partners12,500***

Total payment to Partner B:

B. capitalP 7,000
Less: Share in total realization loss: 2/6 x 6,000......... 2,000
Total cash received by ?...........................................................................P 5,000

Therefore, total payment to B should be:

January.P 0
February.. 800
March 4,200
P 5,000
22. (C)
True Branch Net Income P 156,000
Less: branch Net Income as reported by the branch 60,000
Overvaluation of CGS 96,000
Less: Cost of goods sold from home office at BP
Inventory, December 1 P 70,000
Shipment from HO 350,000
COGAS P 420,000
Less: Inventory, December 31 84,000 336,000
CGS from home office, at cost 240,000
Billing Price: P336, 000/ P240, 000= 140%

23. (C) - Allowance for overvaluation after adjustment/ for December 31 inventory: (refer to No.16 for
further computation): P84, 000 x 40/140= P24, 000.

24. (B)
Net Income as reported by the Branch P 20, 000
Less: Rental expense charged by the home office
(P1,000 x 6 months) 6, 000
Adjusted NI as reported by the Branch P 14, 000
Add: Overvaluation of CGS
BP
MI, beginning 550,000
SFHO 550,000
COGAS 75,000
Less: MI, ending 475,000
CGS, at BP 475,000
X: Mark-up ratio 25/125 95,000
True/Adjusted/Real Branch Net Income P 109,000
25. (A)
All conditions that initial franchise fee be recognized as revenue had been met as follows:
Revenue Analysis for IFF
Cash N/R
Services Yes Yes
Period of Refund (note) Yes Yes
Collectability Reas. Assured
200,000 300,000
Status Revenue Revenue
The Net Income then would be as follows:
Franchise Revenue.P 500, 000
Less: Cost of Franchise. 150, 000
Net Income..P 350, 000
26. (B)
2011 2012 2013
Contract price P 5,000,000 P5,000,000 P5,000,000
Cost incurred each year. P2,050,000
Add: Cost incurred in prior year.. 900,000 2,550,000
Costs incurred to date. P 900,000 2,550,000 4,600,000
Add: Estimated costs to complete. 1,700,000 -0-
Total estimated costs.. P4,250,000 P4,600,000
Estimated gross profit. P 750,000 P 400,000
Multiply by: percentage of completion. 60% 100%
Recognized gross profit to date P 100,000 P 450,000 P 400,000
Less: Recognized gross profit in prior years -0- 100,000 450,000
Recognized gross profit each year 100,000 350,000 ( 50,000)

27. ???
28.???
January:
Cash beginning..P120, 000
Add: Proceeds. 100, 000
Less: Payment of liquidation expenses. 0
Payment of liabilities in full (note ?): P150,000 + 100,000. 2 50, 000
Cash withheld. 10, 000
Payment to partnersP 60, 000*
Note: To determine payment to partners, the liabilities should be deducted in full as a shortcut approach
to determine any excess. if any, if in case, there is a deficiency, it means that no payment to partners
should be made.
Beams Plank Timbers Total
Capital balances 170,000 170,000 100,000 440,000
Loans 10,000 (20,000) ( 10,000)
Total Interests 170,000 180,000 80, 000 430, 000
Reduction in Interests (5:3:2) (185, 000) (111, 000) (74, 000) (370, 000)
Balances (15, 000) 69, 000 6, 000 * 60, 000
Reduction in Interests (3:2) 15, 000 ( 9,000) ( 6, 000) -0-
Payments 0 60, 000 0 60, 000
February:
Cash, beginningP 10, 000
Add: Proceeds:. 60, 000
Less: Payments of liquidation expenses. 2, 000
Payments of unrecorded liabilities coming from previous month
cash withheld 8, 000
Cash withheld... 10, 000
Payment to Partners......................................................................... P 50,
000*

Beams Plank Timbers Total

Total interests from previous month 170,000 180,000 80,000 430,000
Payment for January (60,000) 0 ( 60,000)
Balances 170,000 120, 000 80, 000 370,000
Received plant assets ( 50, 000) ( 50,000)
Balances 120, 000 120, 000 80, 000 *320, 000
Reduction in Interests (5:3:2) (135,000) (81, 000) (54, 000) (270, 000)
Balances ( 15, 000) 39, 000 26, 000 50, 000
Reduction in interests (3:2) 15, 000 (9, 000) ( 6, 000) -0-
Payments -0- 30, 000 20, 000 50, 000
March:
Cash, beginningP 10, 000
Proceeds 110,000
Payment of liquidation expenses (5,000)
Payment to Partners. P 115, 000*
Beams Plank Timbers Total
Total interests from previous month 120,000 120,000 80,000 320,000
Payment for February (30,000) ( 20,000) (50,000)
Balances 120,000 90, 000 60, 000 270, 000
Reduction in interests (5:3:2) (72, 500) (46, 500) (31, 000) (155, 000)
Payments 42, 500 43, 500 29, 000 *115, 000
29. (C)
Estimated payment to creditors should always equal to the asset at estimated realizable values,
i.e. P650,000
30. (D)

100% 60% 40%

Billed Price Cost Allowance
Merchandise inventory, 1/1/05 32, 000
Shipments *60, 0000 35, 000 *24, 000
Cost of goods available for sale 56, 000
Less: MI 3/31/05 (25,000 x 40%) 10, 000
Overvaluation of CGS/RPS Sales 46,000
*36,000 cost/60%= 60,000 x 40%= 24,000 (Note: Markup is based on billed price).

31. (C)
Gross Profit Rates:
2011: P247, 000/P380,000= 65% cost rate, GP rate would be 100%- 65%= 35%
2012: P285, 120/P432,000= 66% cost rate, GP rate would be 100%- 66%= 34%
2013: P379, 260/P602,000= 63% cost rate, GP rate would be 100%- 63%-= 37%

Deferred Gross Profit, 12/31/2008= IAR, end of 12/31/2008 x GP %

2011: P-0- x 35%.................................................................................... P 0.00
2012: P67,440 x 34%...................................................................................... 22,929.60
2013: P410,090 x 37%..................................................................................... 151, 733.30
P174, 662.90
32. (D)
Combined Cost of Goods Sold:
Merchandise Inventory, 12/31/2012:
Home office, cost.. P3,500
Branch: Outsiders,.P 300
From Home Office (P2,500-P300)/110%........2,000 2,300 P 5, 800
Add: Purchases (P240,000 + P11,000) .. 251,000
COGAS.. 256, 800
Less: Merchandise Inventory, 12/31/2013
Home Office, cost. P3,000
Branch: Outsiders. P 150
From Home Office (P1,800- P150)/110%........................... 1, 500 1, 650 4, 650
Cost og Goosd Sold.. P252,
150

33. (B)
Sales..........................................................................................................................P 70,000
Less: Cost of goods sold........................................................................................ 40,000
Operating expenses...................................................................................... 10,000
Interest paid to banks................................................................................... 2,000
Net Income................................................................................................................P 18, 000
Salary allocation to partners are considered as allocation of net income rather than expenses.

34. (D)
Consideration transferred:
Shares: (100, 000 shares x P6.20).. P620, 000
Contingent consideration. 184, 000
Total. 804, 000
Less: Fair value of net identifiable assets acquired:
Current assets. P 100, 000
Equipment. P 150, 000
 Land... 50, 000
Buildings. 300, 000
Liabilities. ( 80, 000) 520, 000
Goodwill. P 284,000

According to Par. 39 of PFRS 3 (2008), consistent with other measurements in transferred consideration,
the acquirer shall recognize the acquisition date fair values of contingent consideration as part of the
consideration transferred.

The consideration the acquirer transfer in exchange for the acquire includes any asset or liability
resulting from a contingent consideration arrangement.

Appendix A of PFRS 3 (2008) provides the following definition of contingent consideration. Usually, an
obligation of the acquirer to transfer additional assets or equity interests to the former owners of an
acquiree as part of the exchange for control of the acquiree if specified future events occur or conditions
are met. However, contingent consideration also may give the acquirer the right to the return of
previously transferred consideration if specified conditions are met.

The P164, 000 is one classical example of contingencies is where the future income of the acquirer is
regarded as uncertain, the agreement contains a clause that requires the acquirer to provide additional
consideration to the acquiree if the income of the acquirer is not equal to or exceeds to specified amount
over some specified period.

35. (D)
Goodwill, 1/1/2011.P 284, 000
Less: Adjustment on contingent consideration (184, 000- P170, 000) 14, 000
Goodwill, 8/1/2011.. 270, 000
Changes that are the result of the acquirer obtaining additional information about facts and
circumstances that existed at the acquisition date, and that occur within the measurement period (which
may be a maximum of one year from the acquisition date) are recognized as adjustments against the
original accounting for the acquisition (and so may impact goodwill)- see Section 11.3 [PFRS 3 (2008)
par.53]

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

Estimated liability for contingent consideration.14, 000
Goodwill.14, 000

36. (A) refer to No.35 for further discussion.

37. (C)
Deficiency: (P16 - P10) x 100, 000 shares issued to acquire.P600, 000
Divided by: Fair value of share..P 10
Added number of shares to issue 60, 000
In relation to No.34 on Contingencies, another example of contingencies is where the acquirer issues to
the acquiree and the acquiree is concerned that the issue of these shares may make the market price of
the acquirers shares decline over time. Therefore, the acquirer may offer additional cash or shares if the
market price falls below a specified amount over specific period of time.

38. (B)- (P520, 000- P60, 000= P460, 000), refer to No.37 for further discussion if market price falls below
a specified amount.

Changes resulting from events after (post-combination changes) the acquisition date (e.g. meeting an
earnings target, reaching a specified chare or reaching a milestone on research and development
project) are not measurement period adjustments. Such changes are therefore accounted for separately
from the business combination. The acquirer accounts for changes in the fair value of contingent
consideration that are measurement period adjustments as follows:
1. Contingent consideration classified as equity is not remeasured and its subsequent
settlement is accounted for within equity; and
2. Contingent consideration classified as an asset or liability.

The problem on hand falls under No.1, so no adjustment would be required to goodwill out accounted for
within the equity section.

Incidentally, the entry would be:

Paid-in capital in excess of par60, 000
Common stock, P1 par.60, 000

39. (D)
CC AC
OO 60, 000
TT 20, 000
80, 000
GG 15, 000 19, 000*
Total 95, 000 95, 000

*95, 000x 20%. Note that under bonus method total agreed capital is the same with contributed capital.

40. (C)
Sales (P350, 000 + P100, 000) P 450, 000
Less: Cost of goods sold:
Purchases (P400, 000 + P50, 000) P 450, 000
Less: Inventory, ending. 90, 000 360, 000
Gross profit.. P 90, 000
Less: Expenses-
Salaries and commissionP 70, 000
Rent. 20,000
Advertising supplies (P10, 000- P6, 000) 4, 000
Other expenses 5, 000 99,000
Net Loss. P (9, 000)
41. (A)
Installment Sales Method:
2007 Sales: P240, 000 x 25/125 P 48, 000
2008 Sales: P180, 000 x 28/128... 39,
375
Realized Gross Profit on Installment Sales 87,
375
Cost Recovery Method:
2007 Cost: P480, 000/ 1.25. P384,
000
Less: Collections in 2007... 140, 000
Collection in 2008.. 240, 000
Unrecovered Cost, 12/31/2008 P4, 000

Under the cost recovery method, no income is recognized on a sale until the cost of the items sold is
recovered through cash receipts. All cash receipts, both interest and principal portions are applied first to
the cost of the items sold. Then, all subsequent 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 is used only when the circumstances surrounding a sale are so uncertain that
earlier recognition is impossible.
42. (C)
Installment Sales. P3, 600,000
Less: Over allowance:
Trade-in-alloawace.P1, 500, 000
Less: MV of Trade-in Merchandise:
Estimated Resale Price P1,400, 000
Less: Normal profit (25%x P1, 400, 000) 350, 000
Reconditioning costs 150, 000 900,000 600,000
Adjusted Installment Sales..........................P 3,000,000
Less: Cost of I/S..P 2,500,
000
Gross Profit 500,000

Gross profit rate: P500, 000/ P3, 000, 000..

16.23%
X: CollectionsTrade-in merchandise (at MV) .. P 900, 000
RGP on I/S in 2008 P 150, 000
43. (B)
DD: P83,000 + P20, 000 + (408,000-P360,000) x 25%= P115, 000
JJ: P77,000 + (P408, 000- P360, 000) x 25%= P89,000- (6,000 x 25/75)= P87, 000
RR: P 77,000 + (408, 000- P360, 000) x 50% = P204, 000- (6,000 x 50/75)= P200, 000

Amount paid to DD P 121, 000

 Less: ook value of DDs interest 115, 000
Bonus to retiring partner 6, 000
44. (B)
DD EE Total
Capital, March 1, 2008 P125, 000 P75, 000 P200,0000
Add (deduct): Net Income 34, 540 4, 860 39, 400
Drawings (2, 000) (30, 000) (50, 000)
Capital, December 31, 2008 P139, 540 P 49, 860 P 189, 400

Sales P233, 000

Less: Sales returns 5, 000
Net Sales 228, 000
Less: Cost of Goods Sold
Purchases P 196, 000
Less: Ending Inventory 73, 000 123, 000
Gross Profit P 105, 000
Less: Operating expenses P 62, 000
Unused supplies ( 2, 500)
Prepaid insurance ( 950)
Accrued expenses 1, 550
Depreciation (P45, 000 x 20% x 10/12) 7, 500 65, 600
Net Income P 39, 400

Allocation of Net Income:

DD EE Total
Salary (30,000 x 10/12) P 25, 000 P 25,000
Bonus* 1, 440 1,440
Balance (125:75) 8, 100 P 4, 860 12, 960
P 35, 450 P 4, 880 P 39, 400
*Bonus = 10% (Net Income- Salary)
=.10 (P39, 400- P25,000)
=P 1,440

45. (C)
Free Assets:
Fully secured assets:
Land and Building (P170,000- P165, 000, mortgage payable) ..P 5, 000
Cash 40,000
Accounts receivable 63, 000
Inventories [P2, 000 + (P50,000 x 80%)] .. 42, 000
Machinery 20, 000
Total free assets. P170,000
Less: Unsecured creditors with priority (P60,000 + P10,000). 70,000
Net free assetsP100,000
Less: Unsecured creditors without priority:
 Accounts payableP 110,000
Notes payable and interest (P50,000 + P5,000). 55,000
165,000
Estimated deficiency to unsecured creditors.P
65,000

46. (D)
Sales (P100,000 P33,000 + P50,000)...P 117,000
Less: Cost of goods sold:
Inventory, beg. [P15,000 + (5,500/110%) or (5,500-P500)]P20, 000
Add: Purchases (P50,000 + 7,000)... 57, 000
COGAS..P77, 000
Less: Inventory, end [P11,000 + 1,050 + (6,000-P1,050)/110%].. 16,550 60, 450
Gross profit. P 56, 550
Less: Expenses (P20,000 + P6,000 + P5,000).. 31, 000
Combined Net Income P25, 550

There is no great and no small

To the Soul that makes it all
And where it comes, all things are equal
And it comes everywhere