Advanced Financial Accounting and Reporting Part II

Midterms
1. On January 1, 2019, H, I, and J organized HIJ partnership wherein H contributed
P2,000,000.00 for 20% interest in the partnership. I contributed P6,000,000.00 for a capital
credit of P5,000,000.00. After closing the accounting book, I and J made drawings of
P600,000.00 and P200,000.00, respectively. Their profit/loss agreement are presented
below:
i. Quarterly salary of P40,000.00, P10,000.00 and P120,000.00, respectively
ii. The remainder will be divided in the ratio of 1:5:4
On December 31, 2019, the capital balance of C is P3,200,000.00. What is the income of
the partnership for the year ended December 31, 2019? (2 points)
What are the capital balances of H, I, and J on December 31, 2019? (3 points each)
2. On December 31, 2019, the capital balance of partners A, R, and T of ART partnership are
P2,000,000.00, P5,000,000.00, and P3,000,000.00, respectively with profit or loss
agreement ratio of 1:3:6, respectively. On January 1, 2020, S is admitted to the partnership
by acquiring 40% of T’s Capital interest and profit interest at a price of P1,500,000.00.
ARTS partnership reported P1,000,000.00 net income for year 2020.

On December 31, 2020, what are the capital balances of A, R, T, and S? (2 points each)

3. On January 1, 2020, Entity A and Entity B established a new corporation named Entity C.
the common stocks of this corporation will be owned by Entity A and Entity B equally.
This corporation will manufacture car components that can be sold to the incorporators and
third persons. The contractual arrangement between Entity A and Entity B provides that
the relevant activities of Entity C will require unanimous vote of the said parties. Entity C
is normally required to operate at breakeven. The assets and liabilities of Entity C will be
directly in the name of Entity A and Entity B. The contractual arrangement provides for
the following assets and liabilities:
 The land will be in the name of Entity A but it will answer for the mortgage payable
 The building will be owned by Entity B but it will shoulder the loans payable.
 Other assets, liabilities and elements of the financial statements will be shared on
the basis of their equity interest.
The statement of financial position of entity C as of December 31,2020 is presented below:
Current Assets P1,000,000.00 Loan Payable P2,000,000.00
Building P3,000,000.00 Mortgage Payable P3,000,000.00
Land P7,000,000.00 Ordinary Stock P1,000,000.00
Accounts Payable P4,000,000.00 Retained Earnings P1,000,000.00
 During 2020, Entity C reported total sales amounting to P5,000,000.00 inclusive of sales
to Entity A and Entity B in the amount of P1,000,000.00 and P2,000,000.00 respectively.
During 2020, Entity A was able to resell 80% of the said inventory from Entity C to third
persons while Entity B was able to resell 60% of inventory from Entity C to third persons.
What is the amount of sales revenue to be reported by Entity B Inc. in relation to his interest
to his arrangement for the year ended December 31, 2020? (3 points)
What is the amount of total asset to be reported by Entity A in relation to his interest to his
arrangement as of December 31, 2020? (2 points)
What is the amount of total liabilities Entity B in relation to his interest to his arrangement
as of December 31, 2020? (2 points)
Under IFRS 11, how should a venture account for its investment in joint venture? (1 point)
4. Presented below is the unadjusted trial balance of Sterling Products Corporation at
December 31,2010:
Debit Credit
Cash 5,000
Instalment Accounts Receivable, 2009 40,000
Instalment Accounts Receivable, 2010 140,000
Inventory, 12/31/2010 200,000
Other Assets 497,000
Accounts Payable—Trade 50,000
Unrealized Gross Profit, 2008 10,000
Unrealized Gross Profit, 2009 86,000
Unrealized Gross Profit, 2010 100,000
Capital Stock 600,000
Retained Earnings 80,000
Gain on Repossession 6,000
Operating expenses 50,000
Total 932,000 932,000

Cost of goods sold had been uniform over the years at 60% of sales.

Sterling Products Corporation adopts perpetual inventory procedures. On instalment sales,

the corporation charges instalment accounts receivable and credits inventory gross profit
accounts.

Repossessions of the merchandise have been made during 2010 due to some customers’
failure to pay maturing instalments. Analyses of these transactions were summarized as
follows:

Inventory 7,500
Unrealized Gross Profit, 2008 800
 Unrealized Gross Profit, 2009 2,400
Instalment Accounts Receivable, 2008 2,000
Instalment Accounts Receivable, 2009 6,000
Gain on Repossession 2,700

The repossessed merchandise was unsold at December 31, 2010. It was ascertained that
they were booked upon repossession at original costs. A fair valuation of these items would
be a sales price of the repossessed merchandise at P10,000.00 after incurring costs of
reconditioning of P5,000.00 and cost to dispose them in the market at P500.00.

What is the realized gross profit on 2010 sales? (5 points)

What is the gain/loss on repossession? (5 points)

5. Bonifacio Contractors had a 3-year construction contract in 2012 for P900,000.00. the
company uses the percentage-of-completion method for financial statement purposes.
Income to be recognized each year is based on the ratio of cost incurred to total estimated
cost to complete the contract. Data on this contract are as follows:
Accounts Receivable-Construction Contract Billings 30,000
Construction in Progress 93,750
Less: Amounts Billed 84,375
10% Retention 9,375
Net income recognized in 2012 (before tax) 15,000

Bonifacio Contractors maintains a separate bank account for each construction contract.
Bank deposits to this contract amounted to P50,000.00.

What is the estimated total income before tax on this contract? (5 points)
What is the net income after tax in 2012? (2 points)

6. Apo Supply Company is engaged in merchandising both at Home Office in Makati, Metro
Manila and a branch in Davao. Selected accounts in the trial balances of the Home Office
and the Branch at December 31,2010 follow:
Debits Home Office Branch
Inventory, January 1, 2010 23,000 11,550
Davao Branch 58,300
Purchases 190,000 105,000
Freight in From HO 5,500
Sundry Expenses 52,000 28,000

Credits
HO 53,300
Sales 155,000 140,000
Sales to Branch 110,000
Allowance for branch inventory, January 1, 2010 1,000
 Additional information:
a. Davao Branch receives all its merchandise from the home office. The home office bills
the goods at cost plus 10% mark-up. At December 31, 2010, a shipment with a billing
value of P5,000 was in transit to the branch. Freight on this shipment was P250 which
is to be treated as part of inventory.
b. December 31,2010 inventories excluding the shipment in transit, are:
Home Office, at cost P30,000
Davao Branch, at billed value (excluding freight of P520) P10,400

What is the net income of the HO? (5 points)

What is the net income of the branch? (5 points)
7. Klymielle Dane, a CPA, has prepared a statement of affairs. Assets which there are no
claims or liens are expected to produce P70,000, which must be allocated unsecured claims
of all classes totaling P105,000. The following are some of the claims outstanding:
a. Accounting fees for Klymielle Dane, P1,500
b. An unrecorded note for P1,000, on which P60 of interest has accrued, held by Klym.
c. A note for P3,000 secured by P4,000 receivables, estimated to be 60% collectible held
by Dobriel.
d. A P1,500 note, on which P30 of interest has accrued, held by Angel. Property with a
book value of P1,000 and a market value of P1,800 is pledged to guarantee payment of
principal and interest.
e. Unpaid income taxes of P3,500
Compute the estimated payment to partially secured creditors. (5 points)
8. In the first year of construction of a building project, the long-term construction company
recognized gross loss for the year ended under the percentage of completion method.
Which of the following statements will be certain? (1 point)
I. The ending balance of construction in progress is equal to ending balance of
progress billing.
II. The construction revenue for the year is equal to ending balance of construction in
progress.
III. The cost of sales for the year is equal to ending balance of progress billing.
IV. The ending balance of construction in progress under cost method will be the same
to the ending balance of construction in progress under percentage of completion
method.

a. II and IV
b. IV only
c. I and III
d. I, II, and IV