Maryhill College, Inc.

Lucena City, Quezon 4301

Higher Education Department
COLLEGE OF ACCOUNTANCY
Midterm Examinations
A.Y. 2019-2020, 2nd Semester
ADVANCED FINANCIAL ACCOUNTING & REPORTING 1

GENERAL INSTRUCTIONS: Choose the best answer for each of the following questions by shading the appropriate boxes which
corresponds to your answers on the answer sheet provided. Use Pencil No. 2 only. NO ERASURES AND SUPERIMPOSITIONS. Each
questions are compulsory and must be attempted Good Luck!
1) Vee and Eyy are partners having capital balanes of P150,000 and P180,000, respectively, and sharing profits and losses equally.
They admit Elle for a 1/3 interest in the partnership capital and profits for an investment of P195,000. If the asset revaluation
method is used in recording the admission of Elle, which of the following statements is true?
a) Elle's capital will be P175,000.
b) Total partnership capital will be P525,000.
c) Eyy's capital will be P210,000.
d) Asset revaluation will be at P45,000.
2) Partners Ey, Vee and Cee have capital balances of P120,000, P70,000 and P80,000, respectively on December 31 of the prior
year. The partners shares profits and losses in the ratio of 3:2:5, respectively. During the current year, the partnership suffered
net loss of P32,000, and each partner withdraw P24,000 in cash from the partnership. Vee is unhappy with the operations of
the partnership and has decided to withdraw from the partnership as of the end of the current year. Vee will accept P30,000 for
his interest in the partnership and assume that the reason for the withdrawal of Vee is that the inventory of the partnership is
overvalued. Which of the following statements is true?
a) The total overvaluation of inventory is P9,600.
b) Ey's capital will be reduced by P24,000 because of the overvaluation.
c) The total share of Cee in the overvaluation of inventory is P14,400.
d) The total interest of Vee before withdrawal in the partnership is P39,600.
3) The partnership of X and Y provides for equal sharing of profits and losses. Prior to the admission of Z, a new partner, the
capital account of X and Y were P75,000 and P105,000, respectively. Z is to invest P90,000 for a P75,000 interest and the
partners agreed that the net assets of the partnership would be P270,000. Which of the following statements is true?
a) Asset revaluation to old partners of P15,000.
b) Bonus to new partner of P15,000.
c) Bonus to old partner of P15,000.
d) Asset revaluation to new partner of P15,000.
Items 4 and 5 are based on the following:
Tiyago and Marcial are partners with capital balances of P32,000 and P68,000, respectively, as of July 1 of the current year. Tiyago has
a 30% interest in profits and losses. All assets of the partnership are stated at fair market values except to the following:
Book Value Market Value Book Value Market Value
Equipment 150,000 142,000 Building 274,000 250,000
Inventory 43,000 50,000 Land 60,000 105,000
The partnership has decided to admit Corazon and Amanda as new partners. Corazon contributes cash of P55,000 for a 20% interest in
capital and 30% interest in profits and losses. Amanda contributes cash of P10,000 and equipment with fair market value of P50,000
for a 25% interest in capital and a 35% interest in profits and losses. Amanda is also bringing special expertise and client contacts to the
new partnership.
4) The capital balances of Tiyago after admission of Corazon and Amanda under the bonus method is
a) P40,775
b) P34,775
c) P38,000
d) P70,500
5) The method (bonus or goodwill) advantageous to Corazon and Amanda, and the total amount of advantage is:
a) Bonus method for an advantage of P2,055.
b) Bonus method for an advantage of P5,944.
c) Bonus method for an advantage of P12,750.
d) Bonus method for an advantage of P4,111.
Refer to the following data for the next two questions
Alpha, Beta and Gamma formed the ABG Partnership on August 1 of the current year, with the following assets measured at
FMVs contributed by each partner:
Particulars ALPHA BETA GAMMA
Cash Php 324,000 Php 108,000 Php 129,600
Accounts Receivable 73,080 -0- 91,800
Property, Plant and Equipment (PPE) 1,620,000 340,200 -0-
A part of Alpha's cash contribution, Php 216,000, comes from personal borrowings. Also, the PPE of Alpha and Beta are
mortgaged with the bank for Php 972,000 and Php 72,000, respectively. The partnership is to assume responsibility for these PPE
mortgages. The partners have agreed to share profits and losses on a 5:2:3 ratio, to Alpha, Beta and Gamma, respectively.
6) What is the capital balance for each partner at the opening of business on August 1 of the current year?
a) ALPHA, Php 1,045,080; BETA, Php 376,200; and GAMMA, Php 221,400.
b) ALPHA, Php 1,161,200; BETA, Php 418,000; and GAMMA, Php 246,000.
c) ALPHA, Php 1,987,500; BETA, Php 189,000; and GAMMA, Php 217,500.
d) ALPHA, Php 1,095,120; BETA, Php 547,560; and GAMMA, Php 182,520.
 7) What is the capital balance for each partner at August 1 of the current year, instead, if the interest ratio is given at 5:3:2 to
Alpha, Beta and Gamma, respectively?
a) ALPHA, Php 730,080; BETA, Php 730,080; and GAMMA, Php 365,040.
b) ALPHA, Php 985,608; BETA, Php 492,804; and GAMMA, Php 164,268.
c) ALPHA, Php 1,987,500; BETA, Php 189,000; and GAMMA, Php 217,500.
d) ALPHA, Php 821,340; BETA, Php 492,804; and GAMMA, Php 328,536.
8) The after-closing trial balance of the Beams, Plank, and Timbers partnership at December 31 of the prior year included the
following accounts and balances:
ASSETS:
Cash 120,000
Accounts receivable - net 140,000
Loans to Timbers 20,000
Inventory 200,000
Plant assets - net 200,000
Trademarks 20,000
Total Debits 700,000
EQUITIES:
Accounts payable 150,000
Notes payable 100,000
Loans from Plank 10,000
Beams, Capital (50%) 170,000
Plank, Capital (30%) 170,000
Timbers, Capital (20%) 100,000
Total Credits 700,000
The partnership is to be liquidated as soon as possible, and all available cash except for 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 of the current year, 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 of the current year, Beams received plant assets with a book value of P60,000 amd 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 of the current year, the plant assets were sold for P110,000, the remaining noncash assets were written off, final
liquidation expenses of P5,000 were paid and cash was distributed. The liquidation of the partnership was completed on March
31 of the current year.
The amount of cash to be receive by Timbers for the month of March is:
a) P -0-
b) P23,000
c) P29,000
d) P60,000
9) Susanna and Suzzy formed a partnership in the current year to operate a bookstore. Susanna contributed the initial capital while
Suzzy managed the business. With the assistance of their accountant, they wrote an Articles of Partnership agreement that
contains the following provisions:
i. Each partner is allowed to withdraw Php 1,000 in cash from the business every month. Any withdrawal in excess of that
figure will be accounted for as a direct reduction to the partners' capital balance.
ii. Partnership profits and losses will be allocated each year according to the following plan:
iii. Interest of 15 per cent will be accrued by each partner based on the monthly average capital balance for the year, computed
disregarding normal drawings or current income.
iv. As the managing partner, Suzzy is to receive credit for a bonus equal to 20 per cent of the year's net income.
v. Any remaining profits or losses will be divided equally between the two partners.
Susanna and Suzzy begin the first year of operations with capital balances of Php 150,000 and Php 30,000, respectively. On
April 1 of that year, Susanna invests additional Php 8,000 cash in the business, while on July 1, Suzzy withdraws Php 6,000 in
excess of the specified drawing allowance. The partnership reported net income of Php 30,000 for the first year of operations.
The capital balances of the partners as of the end of the current reporting period are: (Adapted)
a) SUSANNA, Php 167,675; SUZZY, Php 20,325
b) SUSANNA, Php 155,675; SUZZY, Php 26,325
c) SUSANNA, Php 158,000; SUZZY, Php 14,000
d) SUSANNA, Php 159,675; SUZZY, Php 22,325
Use the following information for the next five questions (Adapted)
On May 1 of the current year, the business accounts of Cordova and Constancio appear below:
ASSETS Cordova Constancio
Cash Php 11,000 Php 22,354
Accounts receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Buildings 428,267
Furniture and fixtures 50,345 34,789
Other Assets 2,000 3,600
TOTAL ASSETS Php 1,020,916 Php 1,317,002
EQUITIES
Accounts payable Php 178,940 Php 243,650
 Notes payable 200,000 345,000
Capital Accounts 641,976 728,352
TOTAL EQUITIES Php 1,020,916 Php 1,317,002
Cordova and Constancio agrees to form a partnership contributing their respective assets and equities subject to the following
adjustments:
 Accounts receivable of Php 20,000 in Cordova's books and Php 35,000 in constancio's books are uncollectible.
 Inventories of Php 5,500 and Php 6,700 are worthless in Cordova's and Constancio's respective books.
 Other assets of Php 2,000 and Php 3,600 in Cordova's and Constancio's respective books are to be written off.
10) The capital accounts of the partners after adjustments will be:
a) Cordova, Php 614,476; Constancio, Php 683,052
b) Cordova, Php 615,942; Constancio, Php 717,894
c) Cordova, Php 640,876; Constancio, Php 712,345
d) Cordova, Php 613,576; Constancio, Php 683,350
11) How much is the total assets of the newly formed partnership?
a) Php 2,237,918
b) Php 2,265,118
c) Php 2,337,918
d) Php 2,365,218
12) Assuming Cuyugan offered to join for a 20 per cent interest in the firm, how much cash should he contribute?
a) Php 324,382
b) Php 330,870
c) Php 337,487
d) Php 344,237
13) Assuming after Cuyugan's admission, the profit and loss sharing ratio was agreed to be 4:4:2 based on capital credits, how
much should the cash settlement be between Cordova and Constancio?
a) Php 32, 272
b) Php 32,930
c) Php 33,602
d) Php 34,288
14) Assuming that during the first year of operations, the partnership earned an income of Php 325,000 and that this was distributed
in the agreed manner. Assuming further that drawings were made in these amounts: Cordova, Php 50,000; Constancio, Php
65,000; and Cuyugan, Php 28,000, how much were the capital balances of the partners after the first year?
a) Cordova, Php 750,627; Constancio, Php 735,177; Cuyugan, Php 372,223
b) Cordova, Php 728,764; Constancio, Php 713,764; Cuyugan, Php 361,382
c) Cordova, Php 757,915; Constancio, Php 742,315; Cuyugan, Php 375,837
d) Cordova, Php 743,121; Constancio, Php 727,827; Cuyugan, Php 368,501
Gonzalvo and Bryte decided to combine their businesses and form a partnership. Below are their statements of financial position
before the formation:
Account Title GONZALVO BRYTE
Cash Php 2,048,400.00 Php 1,098,360.00
Accounts Receivables 1,031,960.00 2,498,716.00
Inventories 528,160.00 1,144,448.00
Property, plant and equipment 613,380.00 852,224.00
Other assets 8,800.00 15,840.00
TOTAL ASSETS Php 4,230,700.00 Php 5,609,588.00
Accounts Payable Php 787,336.00 Php 1,072,060.00
Notes Payable 1,000,000.00 -0-
Mortgage Payable -0- 1,440,000
Gonzalvo, Capital 2,443,364.00
Bryte, Capital 3,097,528.00
TOTAL LIABILITIES AND EQUITY Php 4,230,700.00 Php 5,609,588.00
The partners agreed that the property and equipment of Gonzalvo is under depreciated by Php 80,000 and that of Bryte is over-
depreciated by Php 200,000. Accounts receivable of P108,000 in Gonzalvo's book and Php 140,000 in Bryte's book are uncollectible.
The partnership agreed to assume the mortgage liability of Bryte. The partnership's agreement provides for a profit and loss ratio and
capital interest of 60% to Gonzalvo and 40% to Bryte. Bryte is willing to invest or withdraw cash from the partnership to comply with
the agreement.
15) What are the capital balances of Gonzalvo and Bryte after the formation?
a) Php 2,255,364 and Php 1,503,576, respectively.
b) Php 2,255,364 and Php 3,157,528, respectively.
c) Php 6,896,292 and Php 4,597,528, respectively.
d) Php 6,896,292 and Php 3,157,528, respectively.
16) Claudine, Ella and Joy decided to liquidate their partnership on July 31 of the current year. Their capital balances were P224,000,
P288,000 and P128,000, and P/L ratios of 25%, 30% and 45%, respectively. The net loss from January 1 to July 31 of the
current year is P48,000. Also, on this date, cash and liabilities were P136,000 and P232,000, respectively. Which of the
following statements is inconsistent with the result of liquidation if Ella received P247,200 in full settlement of her interest in
the firm?
a) Total cash paid to partners were P736,000.
b) Non cash assets were sold for P600,000.
c) Joy received P66,800.
d) Claudine's share in loss is P22,000.
17) A third person is admitted as a partner in an existing partnership through investment of a specific land. The amount credited to
the capital account of the newly admitted partner is equal to the fair market value of the land. However, capital balances of the
existing partners decreased after the admission of the new partner. Which of the following is the valid reason under Philippine
Financial Reporting Standards?
a) Negative goodwill is recognized at the time of admission of the new partner.
b) Impairment loss of existing intangible assets of the partnership is recognized at the time of admission of the new partner.
c) Capital bonus to newly admitted partner has been given by the old partners.
d) Revaluation surplus of an existing property, plant and equipment of the partnership is recognized at the time of admission
of the new partner.
18) If a partnership has only non-cash assets, all liabilities have been properly disbursed, and no additional liquidation expenses
are expected, the maximum potential loss to the partnership in the liquidation process is: (RESA Preboards)
a) the fair market value of non-cash assets.
b) the book value of the non-cash assets.
c) the estimated proceeds from the sale of the assets less the book value of the assets.
d) none of the above
19) At the time of his retirement, the retiring partner received an amount more than his capitap balance existing prior to his
retirement. If the capital balances of the remaining partners also increase after such retirement of a partner, what is the valid
reason under Philippine Financial Reporting Standards?
a) Capital bonus has been given by the remaining partners to the retiring partner.
b) Impairment loss of existing intangible assets of the partnership has been recognized prior to the retirement of a partner.
c) Goodwill arising from retirement of a partner has been recognized prior to the retirement of a partner.
d) Revaluation surplus of existing property, plant amd equipment of the partnership has been recognized prior to the
retirement of a partner.
20) 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
partnership capital.
b) multiplying each partner's capital account balance by the percentage of that partner's capital account balance to total
partnership 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.
21) When a secured claim is not fully settled by selling of the underlying collateral, the remaining portion:
a) of the claim cannot be collected by the creditor.
b) remains as a secured claim.
c) is classified as an unsecured priority claim.
d) is classified as an unsecured nonpriority claim.
22) Statement of affairs is a report designed to show
a) an estimated amount that would be received by each class of creditor's claims in the event of liquidation.
b) a balance sheet prepared on the going-concern assumption.
c) assets and liabilities classified as current and noncurrent.
d) assets and liabilities reported at their current book values.
23) At the time of corporate liquidation, the redeemable preferred stockholders received only the partial amount of the redemption
value of their shares of stocks. Which of the creditors of this dissolved and liquidated corporation received the full amount of
their claims?
a) Fully secured creditors only
b) Fully secured creditors and unsecured creditors with priority only
c) Partially secured creditors and unsecured creditors withour priority only
d) All the creditors of the corporation
24) The estimated amount available for free assets on a statement of affairs for a company undergoing liquidation is equal to the
assets:
a) Carrying amounts less current fair values
b) Carrying amounts plus gain or less loss on realization
c) Carrying amounts plus loss or less gain on realization
d) Current fair values less carrying amounts
25) Insolvency in corporate liquidation means
a) book value of assets is greater than liabilities
b) fair value of assets is less than liabilities
c) inability to meet financial obligations as they become due
d) liabilities are greater than book value of assets
26) The RR Company owes P15,000,000 on the mortgage obis building to City Bank. The building has a net book value of
P20,000,000 and a fair value of P18,000,000. When RR Company file for liquidation, it owed interest of P90,000; when the
building is sold for P18,000,000, the interest due on the mortgage is P200,000. What amount will the bank receive if the
unsecured creditors receive 80% of their claims?
a) P15,000,000
b) P15,160,000
c) P15,178,000
d) P15,200,000
27) The statement of affairs of Victor Company shows that approximately P0.78 on the peso probably will be paid to unsecured
creditors without priority. The corporation owes Wood Company P23,000 on a promisory note, plus accrued interest of P940.
Inventories with net realizable value of P19,200 collateralize the note. Compute for the amount that Wood Company should
 receive from Victor Company assuming that the actual payments to unsecured creditors without priority consist of 78% of the
total claims.
a) P19,200
b) P22,897
c) P33,987
d) P52,200
Use the following information for the next three (3) questions (CPAR Preboards)
Velocity Company located at the center of the business district where repid technological changes occur, experienced financial
difficulties due to economic downturns and litigation losses resulting to its insolvency. Because of inability to meet obligations as they
become due, the court accepted the petition and granted an order for relief. The company comes under the authority of the bankruptcy
court so that any distributions will be made in a fair manner. An interim trustee was appointed by the court regarding the administration
of the estate of Velocity and is to prepare a preliminary report. Presented below is its Statement of Financial Position before the start of
liquidation:
Cash 4,050,000 Notes Payable 750,000
Machinery and Equipment 3,750,000 Wages Payable 2,250,000
Building 7,200,000 Income Tax Payable 1,500,000
Loan Payable 3,000,000
Mortgage Payable 3,750,000
Contributed Capital 6,000,000
Deficit (2,250,000)
It is expected that administrative expenses amounting to P400,000 will be paid. The loans payable is secured by the Machinery and
Equipment which is estimated to be sold at P2,250,000. The motgage payable is fully secured by the estimated realizable value of the
building. At the end of the liquidation, the estimated percentage settlement to partially secured creditor is 92%.
28) What is the amount of total free assets?
a) P1,020,000
b) P5,170,000
c) P4,050,000
d) P7,500,000
29) What is the estimated gain/(loss) on realization of the building?
a) P1,120,000
b) -0-
c) P(2,330,000)
d) P(6,080,000)
30) What is the estimated payment to all liabilities?
a) P11,170,000
b) P7,420,000
c) P15,000,000
d) P8,920,000
31) When Laguna Company filed for liquidation with the Securities and Exchange Commission, it prepared the following balance
sheet: (PRTC Handout)
Current assets, NRV, P110,000 80,000 Accounts Payable 160,000
Land and buildings, FMV, P180,000 200,000 Mortgage Note, secured by land and buildings 200,000
Goodwill, FMV, P-0- 40,000 Common Stocks 100,000
Retained earnings (deficit) (140,000)
Total Assets 320,000 Total Equities 320,000
How much would the holders of the mortgage payable likely to get?
a) P60,000
b) P360,667
c) P192,222
d) P241,000
Use the following information for the next two (2) questions (CPAR Preboards)
Spectrum Corporation is experiencing severe financial difficulties and is considering filing a bankruptcy petition. At this time, it has the
following information:
 Notes payable amounting to P92,000 is secured by Furnitures and Fixtures estimated to be sold at P102,500, which is 2/3 of
its recorded amount.
 Of the P244,500 loans payable, P68,750 is secured by a machinery with a carrying amount of P96,000 expected to make
proceeds equal to 70% of its book value.
 Equipment with a carrying amount of P161,250 has an estimated realizable value of P123,750.
 Other unrecorded liabilities are accrued interest on notes of P3,875; salaries payable of P21,750; taxes payable of P14,500 and
trustee's fees of P10,625.
 Cash available prior to liquidation amounts to P14,875.
 Total assets of Spectrum Corporation presented in the Statement of Financial Position prior to liquidation amounts to P600,000
including prepaid expenses and goodwill amounting to P9,500 and P27,500, respectively, which have no estimated realizable
values. Remaining assets other than those whose estimated realizable values were mentioned above has a realizable values of
60% of the recorded amounts.
 Total liabilities of Spectrum Corporation presented in the statement of financial position prior to liquidation amounts to
P475,000.
32) What are the amount of net free assets?
a) P189,575
b) P202,850
c) P180,650
 d) P236,450
33) What is the estimated payment to partially secured creditor?
a) P68,087
b) P68,130
c) P68,160
d) P68,750
Use the following information to the next five (5) questions: (Adapted)
Rocky Manufacturing is considering seeking relief under Insolvency Law. However, the company would prefer to engage an out-of-
court activities that would allow for a restructuring of debts in an orderly manner. Before approching its creditors, the company is
attempting to estimate the amount of consideration that would be received by various classes of creditors if the company did liquidate.
The company's assets and liabilities are as follows:
Assets Book Values Realizable Values
Cash in Bank 60,000 60,000
Trade and Other Receivables 420,000 360,000
Inventories 400,000 350,000
Equipment 380,000 360,000
Land 200,000 260,000
Other Assets 60,000 45,000
Total Assets 1,520,000 1,435,000
Liabilities
Accounts Payable 280,000
Notes Payable - A 600,000
Notes Payable - B 500,000
Mortgage Payable 180,000
Accrued Interest 12,000
Other Liabilities 24,000
Total Liabilities 1,596,000
Of the accounts payable, P130,000 is secured by inventory which has a net realizable value of P150,000. Note A is secured by the
balance of inventory and trade and other receivables. Note B is secured by equipment with a net realizable value of P300,000, and the
mortgage payable and accrued interest are secured by the land. All of the other liabilities are unsecured, although P10,000 is unsecured
with priority over the balance.
34) How much is to be paid to fully secured creditors?
a) P322,000
b) P310,000
c) P130,000
d) P232,000
35) How much is to be paid to partially secured creditors?
a) P860,000
b) P560,000
c) P300,000
d) P660,000
36) How much is to be paid to unsecured creditors with priority?
a) P10,000
b) P14,000
c) P24,000
d) none
37) How much is to be paid to unsecured creditors without priority?
a) P243,000
b) P223,000
c) P183,000
d) P193,000
38) How much is the total consideration to be received in satisfaction of Note Payable - B?
a) P300,000
b) P120,300
c) P420,000
d) P420,300
39) The relevant data from the records of the Twilight Company are as follows:
 Equipment has an original cost of P750,000; recorded value of P550,000 and estimated realizable value of P410,000.
 Notes payable has a principal of P400,000 and accrued interest of P12,000. This note is collateralized by the equipment
abovementioned.
On the statement of affairs, the equipment should be shown as:
a) an asset pledged to fully secured creditors, leaving P50,000 for unsecured creditors.
b) an asset pledged to fully secured creditors, leaving P138,000 for unsecured creditors.
c) an asset pledged to fully secured creditors, leaving P10,000 for unsecured creditors.
d) an asset pledged to partially secured creditors, with an unsecured liability of P2,000 be disclosed.
Use the following information for the next four (4) questions: (NFJPIA Mockboards)
Because of inability to pay its debts, the Mahogany Manufacturing Company has been forced into bankruptcy as of April 30, 2020. The
statement of financial position on that date shows the following data:
Assets Liabilities and Equity
Cash in Bank P2,700 Accounts Payable P52,500
 Accounts Receivable 39,350 Notes Payable - PNB 15,000
Notes Receivable 18,500 Notes Payable - Suppliers 51,250
Inventories 87,850 Accrued Wages 1,850
Prepaid Expenses 950 Accrued Taxes 4,650
Land and Buildings 61,250 Mortgage Bonds Payable 90,000
Equipments 48,800 Common Stock, P100 par 75,000
Retained Earnings (Deficit) (30,850)
Totals P259,400 Totals P259,400
Supplemental Information:
 Accounts receivable of P16,110 and notes receivable of P12,500 are expected to be collectible. The good notes are pledged to
Philippine National Bank.
 Inventories are expected to bring in P45,100 when sold under bankruptcy conditions.
 Land and buildings have an appraised value of P95,000. They serve as security on the mortgage bonds.
 The current value of the equipment, net of disposal cost is P9,000.
40) The estimated loss on asset disposition?
a) P82,550
b) P29,240
c) P111,790
d) P112,740
41) What is the estimated gain on asset disposition?
a) P45,100
b) P33,750
c) P34,700
d) P -0-
42) The expected recovery percentage (rounded off) is
a) 47%
b) 50%
c) 48%
d) 67%
43) What is the estimated payment to creditors?
a) P102,500
b) P215,250
c) P118,750
d) P180,188
44) Palpak Company had a severe financial difficulties and is considering the possibility of liquidation. At this time, the company
has the following assets (stated at net realizable values) and liabilities:
 Assets, pledged against debts of P70,000, amounts to P116,000.
 Assets, pledged against debts of P130,000, amounts to P50,000.
 Other assets amounts to P80,000.
 Liabilities with priority amounted to P42,000.
 Unsecured creditors amounted to P200,000.
In the event of liquidation at this point, how much is the estimated amount recoverable by partially-secured creditors?
(NFJPIA Mockboards)
a) P130,000
b) P74,000
c) P50,000
d) P200,000
45) Metrobank loaned P40,000 to Ilocos Company. The loan is secured by inventory with a book and fair value of P50,000 and
P30,000, respectively. What amount will the bank receive if net free assets of the Ilocos Company amounted to P22,500 and
the total unsecured claims amounted to P90,000?
a) P22,500
b) P32,500
c) P30,000
d) P12,500
46) Which of the following statements is false?
a) Only the home office can debit or credit the Branch current account in its books.
b) When a transaction affects a reciprocal account, entries are required on both the home office and branch books.
c) The scope of activity of an agency is essentially the same as that of the branch.
d) The transactions of the agency may be merged with the transactions of the home office or they may be accounted for
separately.
47) An enterprise uses a branch accounting system in which it establishes separate formal accounting systems for its home office
operations and its branch office operations. Which of the following statements about this arrangement is false? (RESA
Preboards)
a) The home office account on the books of the branch office represents the equity interest of the home office in the net assets
of the branch.
b) The branch office account on the books of the home office represents the equity interest of the branch office in the net
assets of the home office.
c) The home office and branch office accounts are reciprocal accounts that must be eliminated in the preparation of the
enterprise's financial statements.
d) Unrealized profit from internal transfers between the home office and the branch office must be eliminated in the
preparation of the enterprise's financial statements.
 48) Plethora-Large Corporation operates a number of branches in the provinces. On December 31, 2020, its Davao Branch showed
a Home Office Account balance of P164,100, and the home office books showed an Investment in Davao Branch Account
balance of P153,300. The following information may help in reconciling both accounts:
 A P72,000 shipment, charged by the home office to Davao Branch, was actually sent to and retained by Cebu Branch.
 A P90,000 shipment, intended and charged to Aklan Branch, was shipped to Davao Branch and retained by the latter.
 A P12,000 emergency cash transfer from Cebu Branch was not taken up in the home office books.
 Home office collects a Davao Branch accounts receivable of P21,600 and fails to notify the branch.
 Home office was charged for P7,200 for merchandise returned by Davao Branch on December 30. The merchandise is in
transit.
 Home office erroneously recordes Davao Branch's net income for 2020 as P97,650. The branch reported a net income of
P76,050.
What is the adjusted balances of the Home Office and Davao Branch reciprocal accounts on December 31, 2020?
a) P120,900
b) P164,100
c) P142,500
d) P130,500
49) A reconciliation of the Desire Branch account of Aspiration Company and the Home Office account carried in the branch's
books shows the following discrepancies at December 31, 2020:
1. A credit memo from the home office for P900 was taken up by the branch as P1,080.
2. A charge by the branch of P1,650 for an advance taken by the president when he visited the branch has not yet been
recorded by the home office.
3. The branch has not taken up P2,700 covered by a debit memo from the home office as share in advertising expenses.
The investment in Desire Branch account in the home office books had a debit balance of P129,000 at December 31. The
reciprocal accounts were in agreement at the beginning of the year. What is the unadjusted balance of the home office
account in the books of the branch?
a) P130,500
b) P128,850
c) P125,970
d) P124,470
50) The following were found in your examination of the interplant accounts between the Bulacan Home Office and its Laguna
Branch:
 Transfer of fixed assets from Home Office amounting to P67,450 was not booked by the Branch.
 P12,500 covering marketing expense of another branch was charged by Home Office to Laguna.
 Laguna Branch recorded a debit note on inventory transfers from Home Office of P93,750 twice.
 Home office recorded cash transfer of P82,125 from Laguna Branch as coming from Tagum City Branch.
 Laguna Branch reversed a previous debit memo from Cagayan De Oro City Branch amounting to P13,125. Home office
decided that this charge is appropriately Tagum City Branch's cost.
 Laguna Branch recorded a debit memo from Home Office of P5,812.50 as P5,700.
The net adjustments in the Home Office books related to the Laguna Branch's current account is:
a) P94,625
b) P82,125
c) P107,750
d) P118,525
51) A reconciliation of the Investment in Branch account in the head office of JJ Company and the Home Office account carried
on the books of its CDO Branch showed the following discrepancies at the end of the year:
 Collection of branch account receivable by the home office amounted to P800. The branch was not notified.
 Shipment in transit to branch as of the end of the year amounted to P3,200.
 Acquisition of furniture by the branch, P1,200. The furniture account is to be maintained on the home office's books. The
home office had not been notified of the said acquisition.
 Return of excess merchandise by the branch but not yet received by the home office, P1,500.
 Cash remittance by the branch at year-end amounted to P500. This was still in transit.
The home office account on the branch's books has a credit balance of P44,000 before adjustments. Compute for (1) the
unadjusted balance of the Investment in Branch account on the Home Office's books and (2) the adjusted reciprocal
accounts at year-end.
a) (1) P49,600; (2) P47,200
b) (1) P49,600; (2) P46,400
c) (1) P47,409; (2) P40,000
d) (1) P50,100; (2) P46,000
52) The branch account on the home office books of Block and Bell, Inc. and the home office accounts on the branch's books on
January 31 of the current year are as follows:
Investment in Beverly Hill Branch
Jan 2020 Debit Jan 2020 Credit
01 Balance forwarded 50,615 20 Cash received from branch 14,000
16 Merchandise Shipments 22,600 Remittance received from the 65
31 Expenses chargeable to branch 215 branch customer in settlement
of branch account.
Home Office Equity
Jan. 2020 Debit Jan. 2020 Credit
10 Uncollectible account written off 1,200 01 Balance forwarded 28,415
20 Remittance to Home Office 14,000 21 Prior period adjustment 310
 31 Cost of merchandise sold 21,400
Income for January 1,440
Shipments from Home Office
Jan 2020 Debit Jan 2020 Credit
31 Cost of merchandise sold 21,400 01 Balance forwarded 22,200
Shipments returned to HO 840 16 Shipments from HO 21,200
The following additional data are available in reconciling the accounts:
 A P1,400 shipment of goods charged by the home office to the Beverly Hills branch was actually sent to the Brentwood
branch.
 The goods returned by the branch are still in transit and do not appear on the home office records.
 The branch failed to recognize expenses incurred by the home office costing P215 and chargeable against income in
calculating its income for January.
 The allowance for doubtful accounts on branch receivables is maintained by the home office.
The correct balance of the reciprocal accounts amounted to:
a) P59,365
b) P55,525
c) P57,460
d) None of the above
53) After examining on a comparative basis the inter-office account of Majestic Company with its suburban branch and the similar
account carried on the latter's books, the following discrepancies at the close of the business on June 30 of the current reporting
period:
 A charge for labor by the home office, P500, was recorded twice by the branch.
 A charge of P895 was made by the home office for freight on merchandise but the amount was recorded by the branch as
P89.50.
 A charge of P980 (furniture and fixture) on the home office books was taken up by the branch as P890.
 A credit by the home office for P350 as merchandise allowances was taken up by the branch as P400.
 The home office charged the branch P425 for interest on open account which the branch failed to take up in full; instead,
the branch sent to the home office a wrong adjusting memo, reducing the charge by P100 and set up a liability for the net
amount.
 The home office received P5,000 from the sale of a truck which it erroneously credited to the branch. The branch did not
charge the home office therewith.
 The branch by mistake sent the home office a debit note for P370 representing its portion of a bill for repairs of truck. The
home office did not record it.
 The branch inadvertently received a copy of the home office entry correcting bullet 6 and entered a credit in favor of the
home office.
At the end of the year, the unadjusted balance of the investment in branch account on the home office books reflected
P175,520. At the beginning of the year, the reciprocal accounts were in balance. What is the (1) unadjusted balance of the
home office account on the branch books, and (2) the adjusted balance of the reciprocal accounts?
a) (1) P184,279.50 and (2) P160,725.50
b) (1) P184,279.50 and (2) P180,520.00
c) (1) P160,725.50 and (2) P184,278.50
d) (1) P180,529.00 and (2) P184,279.50
Use the following information for the next three (3) items. (CPAR Preboards)
Trisha Bark Company operates a branch in Zamboanga City. There are shipments in transit frim home office to branch. The home office
shipped merchandise to the branch at 125% of cost in the current year. Operating data for the home office and branch is as follows:
Home Office books Branch's books
Sales (open account and cash) 250,000 75,000
Purchases from outside suppliers 200,000 15,000
Shipments to branch:
(a) Cost to home 30,000
(b) Billing price to branch 32,500
Operating expenses 40,000 10,000
Inventories, January 1
(a) Home Office, acquired from outsiders, at cost 80,000
(b) Branch:
* acquired from oustiders, at cost 7,500
* acquired from home office, at billed price (20% above cost) 24,000
Inventories, December 31
(a) Home Office, acquired from outsiders, at cost 55,000
(b) Branch:
* acquired from outsiders, at cost 5,500
* acquired from home office, at billed price (per physical count) 21,000

54) What is the combined ending inventory to appear in the combined financial statements?
a) P81,300
b) P81,500
c) P77,300
d) P78,000
55) How much is the amount of shipments from home office that's still in transit to be reflected in the combined financial statements?
a) P5,000
b) P4,000
 c) P4,200
d) none
56) What is the combined cost of goods sold?
a) P241,200
b) P241,500
c) P249,500
d) P240,200
57) What is the combined nett profit?
a) P77,500
b) P33,800
c) P27,500
d) P83,800
58) The San Miguel Branch of Filipinas Corporation buys merchandise from outsiders and receive merchandise from from the
home office for which it is billed at 20% above cost. Below are excerpts from the trial balances and data on the home office
and San Miguel branch for the month of April:
HOME OFFICE:
Cr. Allowance for overvaluation of branch merchandise 462,500
Cr. Shipments to Branch 1,062,500
BRANCH:
Dr. Beginning Inventory 1,800,000
Dr. Shipments from Home Office 1,275,000
Dr. Purchases 512,500
Month-end additional data:
Ending inventory of the branch:
- from home office shipments, at billed prices 1,462,500
- from outside suppliers, at cost 362,500
The total cost of goods sold of the San Miguel Branch at cost (net of overvaluations) for the month just ended is
a) P1,762,500
b) P1,731,250
c) P1,543,750
d) P2,312,500
59) The Solitary Branch of Multiplex Company, at the end of its first quarter operations, submitted the following income statement:
Sales 240,000
Cost of Sales:
Shipments from home office 224,000
Local purchases 24,000
Total Goods available for sale 248,000
Inventory, ending (40,000) (208,000)
Gross Margin on Sales 32,000
Operating Expenses (28,000)
Net Income 4,000
Shipments to the branch were bulled at 140% of cost. The branch inventory as at September 30 amounted P40,000 of which
P5,280 was locally purchased. Markup on local purchases is 20% over cost. Branch expenses incurred by home office
amounting to P2,000 were inadvertently omitted from the branch's income statement?
On September 30, the branch inventory at cost and net income realized by the home office from the branch operations,
respectively are:
a) P30,080 and P58,080
b) P25,280 and P4,000
c) P40,000 and P44,000
d) P30,080 and P56,080
Use the following information for the next two items.
Kaliraya Company is engaged in merchandising both at its Head Office in Makati and a Branch in Cebu. Selected accounts in the trial
balances of the Kaliraya Company and the Cebu Branch at December 31, 2020 were as follows:
Debit Home Office Books Branch's Books
Inventory, January 1 P18,400 P9,240
Investment in Branch 46,640
Purchases 152,000
Shipments from Home Office 84,000
Freight In from Home Office 4,000
Sundry Expenses 40,000 20,000
Credit
Home Office 42,640
Sales 124,000 112,000
Shipments to Branch 80,000
Allowance for Overvaluation of Inventory – December 31 8,800
Additional Information:
 Cebu Branch receives all merchandise from the head office. The head office bills the goods at cost plus 10% mark-up. At
December 31, 2020, a shipment with billing price of P4,000 was in transit to the Branch. Freight on this shipment was P200
which is to be recorded as part of inventory.
  The year-end inventories, as per physical count, were as follows: P24,000 at cost for Home Office and P8,320 at billed price
excluding freight of P416 for the Branch.
60) How much is the net income of the home office for the year?
a) P17,600
b) P16,000
c) P12,000
d) P8,000
61) How much is the true branch net income for the year?
a) P10,776
b) P9,976
c) P9,176
d) P8,376
62) Presented below are the items taken from the unadjusted trial balances of Villego Company and its Manila Branch on December
31, 2020:
Home Office Books Branch's Books
Shipments to Branch P2,250,000
Allowance for Overvaluation of Inventory 749,250
Shipments from Head Office P2,925,000
Purchases from outside suppliers 1,084,500
Merchandise Inventory, Jan. 1 921,375
Merchandise Inventory, Dec. 31 365,625
Sales 4,800,000
Expenses 382,500
Assuming the the branch ending inventory acquired from outside suppliers is P73,125, how much is the net income (loss) of
the branch insofar as the home office is concerned?
a) P534,000
b) P681,750
c) P315,000
d) P(147,750)
63) The Legit Company established a branch in Makati on June 1, 2020. The branch is to receive substantially all merchandise
from the home office. During the remainder of 2020, shipments to branch amounted to P144,000 which is inclusive of 20%
mark-up on cost. The Branch purchased P36,000 additional merchandise for cash and reported unsold merchandise of P48,000
at year-end. The branch made sales of P234,000, paid expenses of P57,600 and remitted to the home office all sales proceeds.
The allowance for overvaluation of branch inventory account in the Home Office books showed a balance of P6,000 after
adjustments. Compute for the (1) Branch Inventory on December 31, 2020 at cost and (2) the Branch net income as far as the
home office is concerned.
a) (1) P36,000; (2) P62,400
b) (1) P42,000; (2) P62,400
c) (1) P41,600; (2) P44,400
d) (1) P50,000; (2) P79,500
64) During the year 2020, the Lucena Corporation bills its Lucban Branch at 140% of cost. Goods billed at P346,500 were shipped
to branch. The allowance for overvaluation of inventory account has a balance of P122,400 before adjustments. The beginning
inventory of the branch from the home office at cost is P93,600; the beginning inventory of the branch from outsiders is P15,200.
Purchases from outside suppliers were worth P130,500. The cost of goods available for sale of the Lucban Branch in 2020 is:
a) P486,800
b) P623,240
c) P609,200
d) P463,500
65) On July 31 of 2020, the home office in Lucena establishes a sales agency in Tayabas. The following assets were sent to the
agency: Cash (as working fund to be operated under imprest system), P22,000 and Samples of merchandise worth P36,000.
During the month of August, the following transactions occurred:
 The sales agency submits sales order of P272,000; sales per invoice was billed at P268,000. Cost of sales to customers
is P124,000.
 Collections made during the month amounted to P58,200, net of 3% discount.
 Home office disbursements chargeable to the agency are as follows: Furniture, P40,000; Salaries for the month,
P21,600; and annual rent of office space, P36,000.
 On August 31, the sales agency working fundis replenished. Paid vouchers submitted by the sales agency amounted
to P17,925. Samples are useful until December 31, 2020, which at this time, are believed to have a salvage value of
15% of cost. Furniture is depreciated at 18% per annum.
What is the total comprehensive income of the sales agency for the month of August?
a) P91,425
b) P93,225
c) P92,955
d) P58,425
66) Pitogo Branch of Lucena Home Office, at the end of its first quarter of operations, submitted the following statement of
comprehensive income:
Sales P300,000
Cost of Sales:
Shipments from Home Offics P280,000
Local purchases 30,000
 Inventory, Ending (50,000) (260,000)
Gross Margin on Sales P40,000
Expenses 35,000
Comprehensive Income P5,000
Shipments to the branch were billed at 140% of cost. The branch inventory as at September 30 amounted to P50,000, of which
P6,600 was locally purchased. Markup on local purchases is 20% over cost. Branch expenses incurred by the home office
amounted to P1,500. On September 30, the branch inventory at cost and the net income realized by the home office in its Pitogo
Branch, respectively, is:
a) P37,600 and P72,600
b) P50,000 and P55,000
c) P37,600 and P71,100
d) P37,600 and P70,100
67) On September 1, the Starla Company opened a branch in Lucena City, shipping to it merchandise billed at P60,000. During
the month, additional shipments were made at a billed price of P24,000. Returns by the branch of bad-order goods were credited
for P1,680. At the end of the month, the branch reported its inventory of P33,600 and its net loss for the month at P5,200.
Shipments to and from the branch were consistently billed at 120% of cost. On September 30, the branch inventory at cost and
the branch net income (loss) as far as the home office is concerned, respectively, are:
a) P28,000 and P2,920
b) P28,000 and P(5,200)
c) P33,600 and P2,920
d) P33,600 and P5,200
68) Profits and losses data of Quezon Sales Company and its Lucena Branch for 2020 is as follows:
HOME OFFICE BOOKS BRANCH'S BOOKS
Sales P1,060,000 P315,000
Inventory, Jan. 1 (at cost) 115,000
Inventory, Jan. 1:
Acquired from Home Office at billed price - 50,000
Acquired from outsiders at cost - 35,000
Purchases 820,000 120,000
Shipments to Branch (at Cost) 110,000
Shipments from Home Office (at billed prices) 132,000
Inventory, December 31 (at cost) 142,000
Inventory, December 31:
Acquired from Home Office at billed price 66,000
Acquired from outsiders at cost 70,000
Operating Expenses 200,000 100,000
Records show that the Lucena Branch was billed for merchandise shipments at cost plus 25% for 2019 and at cost plus 20%
for 2020. The combined net income of the home office and the branch for the year ended December 31, 2020 is:
a) P212,000
b) P225,000
c) P247,000
d) P269,000
69) GHI Company bills its Tayabas Branch for merchandise shipments at 125% above cost. As of cut-off date, December 31, 2020,
the following data were available:
Shipments from HO (at billed prices) Local Purchases (at cost) TOTALS
Merchandise, December 1 P300,000 P120,000 P420,000
Additions to stock during December 450,000 360,000 810,000
Merchandise, December 31 420,000 150,000 570,000
The branch returned P15,000 worth of merchandise to the home office acquired at billed price. The amount of the allowance
for overvaluation account that was realized as income in view of branch sales for the month of December was?
a) P63,000
b) P66,000
c) P87,500
d) P84,000
70) The Quezon Corp. operates a branch in Tagkawayan. The home office ships merchandise to the branch at 125% of its cost.
Selected information from the December 31, 2020 trial balance are as follows:
HOME OFFICE BOOKS BRANCH BOOKS
Sales P600,000 P300,000
Shipments to branch 200,000
Purchases 350,000
Shipments from Home Office 250,000
Inventory, January 1 100,000 40,000
Allowance for overvaluatuin of inventory 58,000
Expenses 120,000 50,000
Inventory on hand at December 31, 2020 were P60,000 for the branch and P30,000 for the home office.
The combined net income of the home office and the branch after adjustment is:
a) P326,000
b) P496,000
c) P500,000
 d) P280,000
- END OF EXAMINATION -

Question References:
CPAR Preboards (2018-2019), CRC-ACE Preboards (2018-209), RESA Preboards (2018-2019), PRTC Hand Outs (2019), and From Various Testbanks.
Compiled by: bkd.cpa/2020