DMC COLLEGE FOUNDATION

BACHELOR OF SCIENCE IN ACCOUNTANCY

ADVANCED FINANCIAL ACCOUNTING AND REPORTING
MOCKBOARD EXAMINATIONS
SY: 2016-2017
SET B

NAME:______________________________________________ DATE:___________

MULTIPLE CHOICE (1 point each)

INSTRUCTION: Shade the letter of your best choice in the answer sheet
provided. Strictly no erasures. Use pencil only (preferably Mongol No
2) in shading.

1. In partnership liquidation on the realization, losses result in a

debit balance in one partner’s capital account. If this partner
fails to contribute personal assets to makeup this deficit, how
should the debit be handled by the partners?
a. It should be written off against partnership profits like any
other bad debts.
b. It should be allocated to all partners in their profit and
loss ratio.
c. It should be allocated to the remaining partners in their
remaining profit or loss ratio.
d. It should be set up a receivable and turned over to a
collection agency.

2. If a partnership is liquidated, how is the final allocation of

business assets made to the partners?
a. equally
b. according to the profit or loss ratio
c. according to the final capital account balances
d. according to the initial investment made by each of the
partners

3. Tommy Corporation holds 70% of Black Company’s voting common

stock but accounts for the investment in its books as Investment
in Dark Brown Company. On January 1, 2011, Black paid P500,000 to
acquire a building with a 10-year expected economic life and uses
straight-line depreciation for all depreciable assets. On
December 31, 2016, Tommy purchased the building from Black for
P180,000. Tommy reported income, excluding investment income from
Black, of P140,000 and P162,000 for 2016 and 2017, respectively.
Black reported net income of P30,000 and P45,000 for 2016 and
2017, respectively. The amount to be reported as consolidated net
income for 2016 will be
a. 150,000 c. 170,000
b. 175,000 d. 190,000

4. Based on the preceding information, the amount of income assigned

to the controlling shareholders in the consolidated income
statement for 2016 will be
a. 150,000 c. 170,000

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 b. 175,000 d. 190,000

5. Based on the preceding information, the amount to be reported as

consolidated net income for 2017 will be
a. 190,000 c. 207,000
b. 202,000 d. 212,000

6. Based on the preceding information, the amount of income assigned

to the controlling shareholders in the consolidated income
statement for 2017 will be
a. 190,000 c. 207,000
b. 202,000 d. 212,000

7. A balance arising from the translation of a subsidiary’s foreign

currency financial statements is reported in the consolidated
financial statement if the parent’s functional currency is the
Foreign currency Local currency
a. No No
b. No Yes
c. Yes No
d. Yes Yes

8. An entity will primarily generate and expend cash in one primary

economic environment. According to PAS 21 The effects of changes
in foreign exchange rates, the correct term for the currency of
this primary economic environment is the
a. presentation currency.
b. reporting currency.
c. functional currency.
d. foreign currency.

9. Kerry College, a private not-for-profit college, received P25,000

form Ms. Mary Smith on April 30, 2016. Ms. Smith stipulated that
her contribution be used to support faculty research during the
fiscal year beginning on July 1, 2016. On July 15, 2016,
administrators of Kerry awarded research grants totaling P25,000
to several faculty in accordance with the wishes of Ms. Smith.
For the year ended June 30, 2016, Kerry College should report the
P25,000 contribution as
a. temporarily restricted revenues on the statement of
activities.
b. unrestricted revenue on the statement of activities.
c. temporarily restricted deferred revenue on the statement of
activities.
d. an increase in fund balance on the statement of financial
position.

10. Which of the following is not a characteristic of the

proprietary theory that influence accounting for partnerships?
a. Partner’s salaries are viewed as a distribution of income
rather than a component of net income.
b. A partnership is not viewed as separate entity, distinct,
taxable, entity.
c. A partnership is characterized by limited liability.

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 d. Changes in the ownership structure of a partnership result in
the dissolution of the partnership.

11. By next May, he _________________ us for 25 years.

a. will be serving c. is serving
b. will have served d. will be having to serve

12. I am now a ___________ CPA.

a. full-fledged c. fully-flejed
b. full-pledged d. full-fled

13. Presented below are the information taken from the books of
Four Sisters Company:

2010 2011
Sales:
Regular 125,000 187,500
Installment 62,500 100,000
Cost of Goods Sold:
Regular 75,000 112,500
Installment 31,250 45,000
Operating Expenses 25,000 31,250
Collections on accounts from:
Regular sales 100,000 137,500
Installment sales – 2010 37,500 25,000
Installment sales – 2011 - 62,500
What is the net income for the year ended December 31, 2011?
a. 78,125 c. 98,750
b. 93,750 d. 90, 625

14. The computation of the income recognized in the second year

of a four-year construction contract which is accounted for using
the percentage of completion method is based on the
a. cumulative actual costs incurred only.
b. incremental cost for the second year only.
c. latest available estimated cost.
d. estimated costs at the inception of the contract.

15. One of our instructors _____ absent yesterday.

a. is c. were
b. was d. are

16. The excess of the Construction in Progress account over the

Contract Billings is treated as
a. current liability. c. other asset.
b. current asset. d. noncurrent asset.

17. Diaz Construction Inc. has consistently used the

percentage-of-completion of recognizing income. In 2011, Diaz
started work on a P3,000,000 fixed-price construction contract.
The accounting disclosed the following data for the year ended
December 31, 2011:
Cost incurred P930,000
Est. cost to complete 2,170,000

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 Progress Billings 1,100,000
Collections 700,000

How much loss should Diaz have recognized in 2011?

a. 230,000 b. 100,000 c. 30,000 d. 0

18. What determines substantial performance for purposes of

recognizing the initial franchise fee?
a. when the franchisee actually commences operation
b. when the franchisee actually pays the initial franchise fee in
full
c. when the franchisee pays a cash down payment
d. when the franchisee signs the franchise contract

19. In accounting for branch operations, it is improper for the

home office to
a. credit cash received from a branch to the Investment in
Branch ledger account.
b. maintain Common Stock and Retained Earning ledger accounts for
only the home office.
c. debit Shipments of merchandise to the branch from the home
office to the Investment in Branch ledger account.
d. credit shipments of merchandise to the branch to the Sales
ledger account.

20. The conflict between the two political groups that arose
during the meeting was not ____; these groups have often ____
each other on key issues.
a. surprising; supported
b. unusual; copied
c. explicit; evaluated
d. unique; opposed

21. Pizza Inc. grants a franchisee to Mr. Manuel for an initial

franchise fee of P1,000,000. The agreement provides that Pizza
Inc. has the option within one year to acquire franchisee’s
business and it seems certain that Pizza Inc. will exercise this
option. On Pizza Inc. books, how should the initial franchise fee
be recognized?
a. deferred revenue to be amortized
b. realized revenue
c. extraordinary revenue
d. deferred revenue and as reduction from Pizza’s investment when
the option is exercised

22. Which of the following is not a characteristic of most

partnership?
a. limited liability c. mutual agency
b. limited life d. ease of formation

23. Selected accounts from the December 31, 2011 trial balances
of Betty Star Company and its branch follow:
Star Branch
Inventory, Jan. 1 P46,000 P23,100
Branch Current 116,600 -

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 Purchases 380,000 -
Shipment from HO - 209,000
Freight In - 10,450
Expenses 104,000 58,100
Home Office Current - (106,600)
Sales (310,000)
Shipment to Branch (200,000)
Branch merchandise
mark up (22,000)

As of December 31, 2011, a shipment with a billing price of

P11,000 was in transit to the branch. Freight cost, typically 5% of
the billing price, is inventories. Merchandise on hand at year end
was: at home office, P64,000 at cost; at branch, P33,000 at billing
price.
Compute the (1) branch net income in so far as home office is
concerned and (2) the combined net income for 2011.
a. 40,900; 84,900
b. 32,100; 76,100
c. 32,000; 76,000
d. 33,000; 77,000

24. 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?
a. The home office account on the books of a 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 that are presented in
accordance with GAAP.
d. Unrealized profit from internal transfer between the home
office and a branch must be eliminated in the preparation of the
enterprise’s financial statements that are presented in
accordance with GAAP.

25. Cherry Inc. charges on initial franchise fee of P115,000

with P25,000 paid when the agreement as signed and the balance in
five annual payments. The present value of the future payments,
discounted at 10% is P68,234. The franchise has the options to
purchase 15,000 of equipment for P12,000. Cherry has
substantially provided all initial services required and
collectability of the payments is reasonably assured. The amount
of revenue from franchise fee is:
a. 25,000 c. 93,234
b. 90,234 d. 115,000

26. What conditions are to be met to determine franchisor’s

services as substantially performed?

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 a. The franchisor is not obligated in any way to refund cash
already received or forgive unpaid debt.
b. The initial services required of the franchisor by contract or
otherwise have been substantially performed.
c. No other material conditions or obligations exist.
d. all of the above

27. Luz, Vi and Minda are partners when the partnership earned
a profit of P30,000. Their agreement provides the following
regarding the allocation of profits and losses:
I. 8% interest on partner’s ending capital in excess of P75,000.
II. Salaries of P20,000 for Luz and P30,000 for Vi.
III. Any balance is to be distributed 2:1:1 for Luz, Vi and
Minda, respectively.
Assume ending capital balances of P60,000, P80,000, and P100,000
for partners Luz, Vi and Minda, respectively. What is the amount
of profit allocated for Minda, if each provision of the profit
and loss agreement is satisfied to whatever extent possible using
the priority order shown above?
a. (3,600) c. (2,000)
b. 3,000 d. 2,000

28. A limited partnership consist of the following features

except
a. must be at least one general partner.
b. limited partners may invest cash or other assets.
c. limited partners are responsible for unpaid liabilities.
d. surname of a limited partner may not appear in name of
partnership.

29. When is a partnership legally insolvent?

a. When the partnership assets are insufficient to meet
partnership liabilities.
b. When the partnership assets are insufficient to meet
partnership liabilities and at least one partner is personally
insolvent.
c. When all the partners are personally insolvent.
d. When the assets of the partnership plus the assets of all
partners are insufficient to meet partnership liabilities plus
the individual partners’ liabilities.

30. On July 10, 2011, Toyota Motors, Inc. sold a new car to Mr.
Sy for P850,000. The car costs Toyota P650,625. Mr. Sy paid 25%
cash down payment and traded in his old car. Toyota granted an
allowance of P80,000 on the old car traded, the balance payable
in equal monthly installment payments. The monthly installment
amounts to P30,000 inclusive of 12% interest on the unpaid
balance of the principal amount of obligation. The old car traded
in has a selling price of P120,000 after expending reconditioning
cost of P22,500.
After paying three installments, Mr. Sy suffered major financial
setback incapacitating him to continue paying. The car was
subsequently repossessed. When acquired, the car was appraised to
have a fair value of P300,000. What is the gain (loss) on
repossession?

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 a. (62,617.50) c. (62,716.50)
b. 62,617.50 d. 62,716.50

31. Using the same information above, under the installment

method, how much is the realized gross profit to be recognized at
the end of the year?
a. 96,003 c. 100,000
b. 75,625 d. 90,073

32. A construction company signed a contract to build a theater

over a period of two years, and with this contract also signed a
maintenance contract for five years. Both the contracts are
negotiated as a single package and are closely interrelated to
each other. The two contracts should be
a. combined and treated as a single contract.
b. segmented and considered two separate contracts.
c. recognized under the completed contract method.
d. treated differently, the building contract under the completed
contract and maintenance contract under the percentage of
completion method.

33. On January 2, 2011, a fire gutted the office building of BM

Construction Company and destroyed all the files in the
accountant’s desk. The president of the company has contacted you
to help reconstruct the information. The following data were
taken from the salvaged files:
December 31
2009 2010
Architect’s est. cost to complete 12,450,000 8,000,000
Cost incurred 3,700,000
Percentage of completion 60%
Income recognized to date 500,000 1,200,000

What is the percentage of completion in 2009 of this

construction contract?
a. 40% c. 25%
b. 20% d. 30%

34. When the initial franchise fee is not paid in full and he
collectability of the note for the balance is not reasonably
assured, the method to be used by franchisor to recognize revenue
from the initial fee is
a. installment method. c. accrual basis.
b. gross profit method. d. cost method.

35. Are the following statements about an acquisition true or

false, according to IFRS3 Business Combinations?
(1) The acquirer should recognize the acquiree’s contingent
liabilities if certain conditions are met.
(2) The acquirer should recognize the acquiree’s contingent
assets if certain conditions are met.
Statement 1 Statement 2
a. False False
b. False True
c. True False

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 d. True True

36. On October 1, 2016, Da’shon Company paid P800,000 cash for

the assets and liabilities of Sharnold Corp. The carrying values
for Sharnold assets and liabilities on October 1, 2016 follow:

Cash P150,000
Accounts Receivable 180,000
Capitalized software 320,000
Goodwill 100,000
Liabilities (130,000)
Net assets 620,000

On October 1, 2016, Sharnold’s accounts receivable had fair

value of P140,000. Additionally, Sharnold’s in – process and
development cost was estimated to have a fair value of P200,000.
All of the items were stated at their fair values. On Da’shon’s
October 1 Statement of Financial Position, how much is reported
for goodwill?
a. 320,000 c. 80,000
b. 120,000 d. 20,000

37. Exchange differences arising from translation of financial

statements of a foreign entity should be accounted for as
a. accumulated translation adjustment as a component of
stockholder’s equity.
b. accumulated translation adjustment as a component of net
income.
c. loss on foreign exchange as a component of net income.
d. retained earnings.

38. According to PAS 21 The effects of changes in foreign

exchange rates, at which rate should an entity’s non-current
assets be translated when its functional currency figures are
being translated into a different presentation currency?
a. the historical exchange rate
b. the average rate
c. the closing rate
d. the spot exchange rate

39. The Jenai Company acquired all the net assets of the Joy
Company by issuing its own share of P25 par value, and an
agreement for additional payment of 300,000 in the event that the
profit generated by Joy reaches 50% of Jenai Company’s profit.
Jenai’s common stock has current market value of P40 per share.
Joy’s balance sheet accounts are: Current assets, P320,000;
property and equipment, P880,000; Liabilites, P400,000; Common
Stock, P4 par, P80,000; APIC, P320,000; and Retained earnings,
P400,000.
The fair value of current assets is P400,000 while that of
property and equipment is P1,600,000. All the liabilities are
correctly stated. Jenai issued sufficient shares so that the fair
market value of the stock equals the fair market value of Joy’s
net assets. How many shares must Jenai Co. issue?
a. 40,000 c. 64,000

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 b. 76,000 d. 160,000

40. Winston has the following account balances as of February

1, 2017:
Inventory 600,000 Common Stock (P10 par value) 800,000
Land 500,000 RE, Jan. 1, 2017 1,100,000
Building – net Revenues 600,000
(FV is 1M) 900,000
Expenses 500,000

Arlington, the brand of socks used and endorsed by the

boxing champ Manny Pacquiao, pays P1.4 million cash and issues
10,000 shares of its P30 par value common stock (valued at P80
per share) for all of Winston’s outstanding stock and Winston is
dissolved. Stock issuance costs amount to P30,000. Prior to
recording these newly issued shares, Arlington reports a Common
Stock account of P900,000 and APIC of P500,000. Determine the
goodwill that would be included in February 1, 2017, financial
statement of Arlington.
a. 100,000 c. 200,000
b. 130,000 d. 230,000

41. Using the same information above, assume that Arlington

pays cash of P2 million. No stock is issued. An additional 40,000
direct combination costs is paid, determine the effect in RE.
a. 60,000 c. 200,000
b. 100,000 d. 260,000

42. Noel Company acquired 80% capital interest of Eros Company.

Noel paid P1,240,000 for the 80% interest and paid P88,000 for
legal assistance (related to the acquisition). Eros net assets
valued at P1,200,000 composed of capital stock, P600,000; APIC,
P180,000; and RE, P420,000. At the time of acquisition, Eros
building is undervalued by P100,000 and has still remaining life
of 30 years. Any other excess is allocated to goodwill with an
amortization period of 30 years. Eros Company reported net income
of P140,000 and paid dividends of P20,000 during the year. How
much is the income from investment to be reported by Noel in its
separate FS?
a. 16,000 c. 100,533
b. 99,733 d. 112,000

43. Using the same information above, if Noel accounts for its
investment in Eros under the equity method, how much is included
in its separate Statement of Profit or Loss as investment income
from Eros?
a. 16,000 c. 109,333
b. 99,733 d. 112,000

44. A subsidiary company sells equipment with a four-year

remaining useful life to its parent at P12,000 gain on December
31, 2011. The effect of this intercompany transaction on the
parent’s retained earnings for 2011 will be
a. a decrease of P3,600 if the subsidiary is 60% owned.
b. a decrease of P12,000 if the subsidiary is 100% owned.

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 c. an increase of P9,000 if the subsidiary is 100% owned.
d. a decrease of P9,000 if the subsidiary is 100% owned.

45. 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

46. Which of the following statements is correct with respect

to a limited partnership?
a. A limited partner may not be an unsecured creditor of the
limited partnership.
b. A general partner may not also be limited partner at the same
time.
c. A general partner may be a secured creditor of the limited
partnership.
d. A limited partnership can be formed with limited liability fro
all partners.

47. Herbert Inc. buys all the outstanding stock of Rambis

Company on January 1, 2010. Annual excess amortization of P12,000
results from this purchase transaction. On the date of the
takeover, Herbert reported retained earnings of P400,000 while
Rambis reported a P200,000 balance. Herbert reported income of
P40,000 in 2010 and P50,000 in 2011 and paid P10,000 in dividends
each year. Rambis reported net income of P20,000 in 2010 and
P30,000 in 2011 and paid P5,000 in dividends each year. Assume
that Herbert’s reported income does include income derived from
the subsidiary. If the parent uses the cost method of accounting
investment in subsidiary, what are the consolidated retained
earnings on December 31, 2011?
a. 446,000 c. 486,000
b. 470,000 d. 510,000

48. On October 2, 2017, Ace Company acquires 60% ownership in

Jen Company for P7,500,000 which translates to a purchase price
of P10 per share. Jen Company’s shares were trading at about 8
per share as of the acquisition date. The fair value of the net
identifiable assets, with a carrying value of 6,000,000 is
8,000,000. The amount of non-controlling interest arising in the
consolidation is
a. 5,000,000 c. 3,200,000
b. 4,000,000 d. 2,000,000

49. On July 1, 2011, Husband Ltd. Acquired all the issued share
capital of Wife Unlimited giving in exchange P500,000 cash. At
acquisition date, the financial position of Husband Ltd and Wife
Unlimited and their fair values are as follow:
HUSBAND LTD WIFE UNLIMITED
EQUITY AND LIAB Carrying Amount CA FV
Share Capital (50k shares) 550,000 300,000
Retained Earnings 350,000 140,000

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Total Equity 900,000 440,000
Liabilities:
Provision 30,000 60,000 60,000
Payable 27,000 34,000 34,000
Tax Liability 10,000 6,000 6,000
Total Liability 67,000 100,000
Total Equity and Liab 967,000 540,000

ASSETS
Land 120,000 150,000 170,000
Equipment 620,000 480,000 330,000
Acc. Dep’n (180,000) (170,000)
Investment in Wife Unltd 500,000
Inventory 92,000 75,000 80,000
Cash 15,000 5,000 5,000
Total Assets 967,000 540,000

At acquisition date, Wife Unlimited has an unrecorded patent with a

fair value of 20,000 and a contingent liability with a fair value of
15,000. The fair value per share of Husband Ltd. and Wife Unltd. on
July 2, 2011 were P5 and P37, respectively. The amount of goodwill
acquired on July 1, 2011 is
a. 25,000 c. 10,000
b. 15,000 d. zero

50. Using the same information above, assuming the acquisition

was effected by transferring 100,000 shares, how much will be the
goodwill to be reported in the consolidated Statement of
Financial Position as of acquisition date?
a. 525,000 c. 510,000
b. 515,000 d. zero

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