ADVANCED FINANCIAL ACCOUNTING AND REPORTING

EASY

1. The Revised Uniform Partnership Act defines a partnership as

a. Any association of two or more persons or entities.
b. An association of two or more persons to carry on as co-owners a business for profit.
c. A separate legal entity for most legal purposes.
d. An entity created by following statutory requirements.
2. When property other than cash is invested in a partnership, at what amount should the noncash
property be credited to the contributing partner’s capital account?
a. Fair value at the date of contribution.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis
3. During 2004, Young and Zinc maintained average capital balances in their partnership of P160,000
and P100,000 respectively. The partners receive 10% interest on average capital balances, and
residual profit or loss is divided equally. Partnership profit before interest was P4,000. By what
amount should Zinc’s capital account change for the year?
a. P1,000 decrease.
b. P11,000 decrease.
c. P2,000 increase.
d. P12,000 increase.
4. A, B, and C have capital balances of P90,000, P60,000, and P30,000, respectively. Profits are allocated
35% to A, 35% to B and 30% to C. The partners have decided to dissolve and liquidate the
partnership. After paying all creditors the amount available for distribution is P60,000. A, B, and C
are all personally solvent. Under the circumstances, C will
a. receive P18,000.
b. receive P30,000.
c. personally have to contribute an additional P6,000.
d. personally have to contribute an additional P36,000.
5. During the liquidation of the partnership of Karr, Rice, and Long. Karr accepts, in partial settlement of
his interest, a machine with a cost to the partnership of P150,000, accumulated depreciation of
P70,000, and a current fair value of P110,000. The partners share net income and loss equally. The
net debit to Karr's account (including any gain or loss on disposal of the machine) is
a. P90,000.
b. P100,000.
c. P110,000.
d. P150,000.
6. The installment method of recognizing revenue
a. should be used only in cases in which no reasonable basis exists for estimating the
collectability of receivables.
b. Is not a generally accepted accounting principle under any circumstances.
c. Should be used for book purposes only if it is used for tax purposes.
d. Is an acceptable alternative accounting principle for a firm that makes installment sales.
7. When the implied value exceeds the aggregate fair values of identifiable net assets, the residual
difference is accounted for as
a. excess of implied over fair value.
b. a deferred credit.
c. difference between implied and fair value.
d. goodwill.
8. Dividends declared by a subsidiary are eliminated against dividend income recorded by the parent
under the
a. partial equity method.
b. equity method.
c. cost method.
d. equity and partial equity methods
9. On January 1, 2010, Lester Company purchased 70% of Stork Corporation's P5 par common stock for
P600,000. The book value of Stork net assets was P640,000 at that time. The fair value of Stork's
identifiable net assets were the same as their book value except for equipment that was P40,000 in
excess of the book value. In the January 1, 2010, consolidated balance sheet, goodwill would be
reported at
a. P152,000.
b. P177,143.
c. P80,000.
d. P0.
10. When the value implied by the purchase price of a subsidiary is in excess of the fair value of
identifiable net assets, the work paper entry to allocate the difference between implied and book
value includes a
1. debit to Difference Between Implied and Book Value.
2. credit to Excess of Implied over Fair Value.
3. credit to Difference Between Implied and Book Value.
a. 1
b. 2
c. 3
d. Both 1 and 2

MEDIUM

1. In a business combination accounted for as an acquisition, how should the excess of fair value of
identifiable net assets acquired over implied value be treated?
a. Amortized as a credit to income over a period not to exceed forty years.
b. Amortized as a charge to expense over a period not to exceed forty years.
c. Amortized directly to retained earnings over a period not to exceed forty years.
d. Recognized as an ordinary gain in the year of acquisition.
2. Under the Uniform Partnership Act
a. partnership creditors have first claim (Rank I) against the assets of an insolvent
partnership.
b. personal creditors of an individual partner have first claim (Rank I) against the personal
assets of all partners.
 c. partners with credit capital balances share (Rank I) the personal assets of an insolvent
partner that has a debit capital balance with personal creditors of that partner.
d. personal creditors of the partners of an insolvent partnership share partnership assets on
a pro rata basis (Rank I) with partnership creditors.
3. On November 30, 2010, Pulse Incorporated purchased for cash of P25 per share all 400,000 shares of
the outstanding common stock of Surge Company. Surge 's balance sheet at November 30, 2010,
showed a book value of P8,000,000. Additionally, the fair value of Surge's property, plant, and
equipment on November 30, 2010, was P1,200,000 in excess of its book value. What amount, if any,
will be shown in the balance sheet caption "Goodwill" in the November 30, 2010, consolidated
balance sheet of Pulse Incorporated, and its wholly owned subsidiary, Surge Company?
a. P0.
b. P800,000.
c. P1,200,000.
d. P2,000,000.

Statement 1: The method whereby the financial statements are translated from the functional
currency into the presentation currency is known as the current/closing rate method.
Statement 2: Current/closing rate method applies to a foreign operation that records its books in
its functional currency and translates its financial statements into the parent’s reporting currency
for the purpose of consolidation.

a. True, True
b. True, False
c. False, False
d. False, True
4. A 90% owned subsidiary sold merchandise at a profit to its parent company near the end of 2010.
Under the partial equity method, the work paper entry in 2011 to recognize the intercompany profit
in beginning inventory realized during 2011 includes a debit to
a. Retained Earnings - P.
b. Noncontrolling interest.
c. Cost of Sales.
d. both Retained Earnings - P and Noncontrolling Interest.
5. Revenues and expenses of hospitals are recorded in the accounts of the
a. Endowment Fund.
b. General Fund.
c. Plant Replacement Fund.
d. Specific Purpose Fund.

6. The following data pertained to Pogi Company’s construction jobs, which commenced during 2018:

PROJECT 1 PROJECT 2
Contract Price P420,000 P300,000
Cost incurred during 2018 240,000 280,000
Estimated cost to complete 120,000 40,000
Billed to customers during 2018 150,000 270,000
Received from customers during 2018 90,000 250,000

If Pogi company used the percentage of completion method, what amount of profit (loss) would Pogi
Company report in its 2018 income statement?
a. P0
 b. (P20,000)
c. P40,000
d. P20,000
7. Tuition waivers for which there is no intention of collection from the student should be classified by
a college as:
Revenue Expenditures
a. No No
b. No Yes
c. Yes Yes
d. Yes No
8. A forward exchange contract is transacted at a discount if the current forward rate is:
a. less than the expected spot rate.
b. more than the expected spot rate.
c. less than the current spot rate.
d. more than the current spot rate.

9. At the beginning of 2018, S Video established a QC Branch and a MC Branch in order to provide
wider distribution of its merchandise. Merchandise is transferred to the branches at a priced 30%
above cost. All branch merchandise is acquired from the home office. At the end of 2018, the QC
Branch and the MC Branch reported net income and ending inventory balances as follows:

Net income Ending inventory

QC Branch P45,500 P65,000
MC Branch 52,000 78,000

The year-end balances in the home office account’s allowance for unrealized gross margin in
branch inventory are P 48,750 for the QC Branch and P58,500 for the MC branch.
The income from Branch, home office should record is:
a. P204,750
b. P97,500
c. P171,750
d. P204,250
10. In an advance plan for installment distributions of cash to partners of a liquidating partnership, each
partner's loss absorption potential is computed by
a. dividing each partner's capital account balance by the percentage of that partner's capital
account balance to total partners' capital.
b. multiplying each partner's capital account balance by the percentage of that partner's
capital account balance to total partners' capital.
c. dividing the total of each partner's capital account less receivables from the partner plus
payables to the partner by the partner's profit and loss percentage.
d. some other method.

DIFFICULT

1. The noncontrolling interest’s share of the selling affiliate’s profit on intercompany sales is considered
to be realized under
a. partial elimination.
b. total elimination.
 c. 100% elimination.
d. both total and 100% elimination.
2. Pratt Company owns 80% of Storey Company’s common stock. During 2011, Storey sold P400,000 of
merchandise to Pratt. At December 31, 2011, one-fourth of the merchandise remained in Pratt’s
inventory. In 2011, gross profit percentages were 25% for Pratt and 30% for Storey. The amount of
unrealized intercompany profit that should be eliminated in the consolidated statements is
a. P80,000.
b. P24,000.
c. P30,000.
d. P25,000.
3. A discount or premium on a forward contract is deferred and included in the measurement of the
related foreign currency transaction if the contract is classified as a:
a. hedge of a net investment in a foreign entity.
b. hedge of an exposed asset or liability position.
c. hedge of an identifiable foreign currency commitment.
d. contract acquired to speculate in the movement of exchange rates.
4. The partnership of Joe, Al, and Mike shares profits and losses 60%, 30%, and 10%, respectively. On
January 1, 2011, the partners voted to dissolve the partnership, at which time the assets, liabilities,
and capital balances were as follows:
Assets Liabilities and Capital
Cash P 400,000 Accounts Payable P 580,000
Other Assets 1,200,000 Joe, Capital 440,000
Al, Capital 380,000
Mike, Capital 200,000
Total assets P 1,600,000 Total liabilities and capital P 1,600,000

All of the partners are personally insolvent.

Assume that all noncash assets are sold for P840,000 and all available cash is distributed in final
liquidation of the partnership. Cash should be distributed to the partners as follows
a. Joe, P744,000; Al, P372,000; Mike, P124,000.
b. Joe, P440,000; Al, P380,000; Mike, P200,000.
c. Joe, P224,000; Al, P272,000; Mike, P164,000.
d. Joe, P396,000; Al, P198,000; Mike, P66,000.
5. Perez Company acquired an 80% interest in Seaman Company in 2010. In 2011 and 2012, Sutton
reported net income of P400,000 and P480,000, respectively. During 2011, Seaman sold P80,000 of
merchandise to Perez for a P20,000 profit. Perez sold the merchandise to outsiders during 2012 for
P140,000. For consolidation purposes, what is the noncontrolling interest’s share of Seaman's 2011
and 2012 net income?
a. P90,000 and P96,000.
b. P100,000 and P76,000.
c. P84,000 and P92,000.
d. P76,000 and P100,000.
6. A transaction gain is recorded when there is an:
a. importing transaction and the exchange rate increases.
b. exporting transaction and the exchange rate increases.
 c. exporting transaction and the exchange rate decreases.
d. none of these.
7. Any gain or loss resulting from intragroup transfer of equipment is

a. Considered to be realized over the remaining useful life of the equipment as an adjustment
to depreciation in consolidated statements
b. Considered to be unrealized in the consolidated statements until the equipment is sold to an
outsider
c. Recognized in the consolidated statements in the year of sale.
d. Not recognized in the book of selling company

8. On April 1, 2018, Ringo Corp. entered into franchise agreement with Quart Corp. to sell their
products. The agreement provides for an initial franchise fee of P4,218,750 payable as follows:
P1,181,250 cash to be paid upon signing of the contract and the balance in five equal annual
payment every December 31, starting at the end of 2018. Ringo signs 12% interest learning note for
the balance. The agreement further provides that the franchise must pay a continuing franchise fee
equal to 5% of its monthly gross sales. On August 30 the franchisor completed the initial services
required in the contract at a cost of P1,350,000 and incurred indirect costs of P232,500. The franchise
commenced business operations on September 3, 2018. The gross sales reported to the franchisor
are September sales, P110,000; October sales, P125,000; November sales P138,000; and December
sales, P159,000. The first installment payment was made on due date.

Assume the collectivity of the note is reasonably assured. In its income statement for the year ended
December 31, 2018 how much is the realized gross profit?
a. 2,775,350
b. 2,895,350
c. 2,700,250
d. 2,774,250
9. Identify the incorrect statement: If a parent loses control of a subsidiary, it shall:

a. Derecognize the assets (including any goodwill) and liabilities of the subsidiary at their carrying
amounts at the date when control is lost
b. Derecognize the carrying amount of any non-controlling interests in the former subsidiary at the
date when control is lost
c. Recognize the fair value of the consideration received, if any, from the transaction, event or
circumstances that resulted in the loss of control
d. Recognize any resulting difference as a gain or loss in other comprehensive income
attributable to the parent
10. On December 31, 2017, the Statement of Financial Position of Jay Partnership with profit or loss ratio
of 4:1:5 is presented below:

Cash P4,000,000 Liability to third person P8,000,000

Noncash asset 16,000,000 J, capital 7,000,000
A, capital 3,000,000
Y, capital 2,000,000

On January 1, 2018, Jay Partnership has been subjected to installment liquidation. As of

December 31, 2017, the following data concerning liquidation are provided:
 Noncash asset with book value of P12,000,000 has been sold at a loss of
P4,000,000
  Liquidation expense amounting to P800,000 has been incurred for the month of
January
 P1,200,000 cash has been withheld for future liquidation expense
 P6,000,000 liability has been paid.

What is Y’s share in the maximum possible loss on January 31, 2018?
a. P2,000,000
b. P2,250,000
c. P2,600,000
d. P2,800,000