Advanced Financial Accounting and Reporting - First Preboard

True/False
Indicate whether the statement is true or false.

1. Under PFRS 11 for SMEs, If the shares of the investee company has a published price quotation, the parties to the joint
arrangements may use cost model or fair value model to account for its investments.

2. Under PFRS 11 for SMEs, If the shares of the investee company has a published price quotation, the parties to the joint
arrangement which elected cost model to account for its investment must recognize an impairment loss in case the carrying of
its investment is above its recoverable amount.

3. Under PFRS 11 for SMEs, a party to a joint arrangement which uses the cost model must recognize impairment loss in its
investment in joint arrangements if the investment’s fair value less cost to sell exceeds its carrying amount or book value.

4. When a partner withdraws assets greater than his capital balance, the excess is treated as a bonus to the remaining partners.

5. In admission by investment, the bonus method is used when the total agreed capital is more than the total contributed capital.

Multiple Choice
Identify the choice that best completes the statement or answers the question.

Roland Company maintains branches that market the products it produces. Merchandise is billed to the branches at cost, with
the branches paying the freight charges from the Home Office to the branch. On May 27, Landerz-branch ships a portion of its
merchandise to Robinson-branch upon authorization by Home Office. Originally, Landerz-branch had been billed for this
merchandise at 25,000 and paid freight charges of 3,125 on the shipments from Home Office. Robinson-branch, upon receiving
the merchandise, pays freight charges of 1,875 on the shipment from Landerz-branch. If the shipment had been made from the
Home Office directly to Robinson-branch, the freight cost to Robinson-branch would have been 4,000.

6. How much is the excess freight cost to be credited in the books of the Home Office?
a. 2,750 c. 0
b. 1,000 d. 2,000

7. How much is the Robinson-branch current in the books of the Home Office?
a. 28,125 c. 25,000
b. 27,125 d. 26,875

8. Upon receipt of shipment by Robinson-branch, freight in is debited in the amount of?

a. 2,125 c. 1,000
b. 4,000 d. 1,875

9. Home Office current is debited by Landerz by how much?

a. 28,125 c. 26,875
b. 25,000 d. 27,125

On December 31, 2016, the Investment in Branch account on the home office’s books has a balance of 102,000. In analyzing
the activity of each of these accounts for December, you found the following differences:

a. A 12,000 branch remittance to the home office initiated on December 27, 2016, was recorded on the home office books on
January 3, 2017.
 b. A home office inventory shipment to the branch on December 8, 2016, was recorded by the branch on January 4, 2017. The
billing of 24,000 was at cost.

c. The home office incurred 14,400 of advertising expenses and allocated 6,000 of this amount to the branch on December 15,
2016. The branch has not recorded this transaction.

d. A branch customer erroneously remitted 3,600 to the home office. The home office recorded this cash collection on
December 23, 2016. Meanwhile, back at the branch, no entry has been made yet.

e. Inventory costing 51,600 was sent to the branch by the home office on December 10, 2016. The billing was at cost, but the
branch recorded the transaction at 40,800.

10. Compute the Unadjusted Balance at of the Home Office Account:

a. 151,200 c. 76,800
b. 52,800 d. 52,800

11. Compute for the Adjusted Balance of the Reciprocal Accounts:

a. 90,000 c. 114,000
b. 93,600 d. 139,200

The Iloilo Co. operates a branch in Davao. There are shipments in transit from home office to the branch. The home office ship
merchandise to branch at 125% of cost in 2016. Profit and loss data for the home office and branch for 2016 as follows:

Home Office Branch

Sales 250,000 75,000
Purchases from outsiders 200,000 15,000
Shipments to branch:
Cost to home office 30,000
Billing price to branch 32,500
Expenses 40,000 10,000
Inventories, Jan. 1, 2016:
HO, acquired from outsiders 80,000
Branch, from outsiders 7,500
Branch, from HO at BP which 24,000
average 20% above cost
Inventories, Dec. 31, 2016:
Home Office, acquired from 55,000
outsiders
Branch, from outsiders 5,500
Branch, from HO at BP 21,000

12. Amount of merchandise in transit:

a. 5,000 c. 3,500
b. 2,000 d. 0

13. Combined cost of goods sold:

a. 242,400 c. 245,200
b. 240,000 d. 241,200
14. Charity Inc. established its first branch on May 1, 2017. During the first month of operation, the home office shipped
merchandise to the branch worth 138,000 which included a markup of 15% on cost. Sales for cash were 80,000 while sales on
account were 250,000. At month’s end, the branch reported operating expenses of 38,000 and a closing inventory of 23,000 at
billed price. As far as the home office is concerned, the true branch net income for May 2017 is:
a. 147,000 c. 82,000
b. 177,000 d. 192,000

Espana Branch was billed by the Home Office for merchandise at 140% at cost. At the end of its first month, Espana branch
submitted among other things, the following data:

Merchandise from HO (at billed price 98,000

Merchandise purchased locally by branch 40,000
Inventory at December 31 of which 7,000 are of local purchase 28,000
Net sales for the month 180,000

15. The gross profit of the branch as far as the home office is concerned is:
a. 22,000 c. 70,000
b. 92,000 d. 90,000

16. The branch inventory at cost is as follows:

a. 21,000 c. 20,000
b. 92,000 d. 22,000

17. Transactions between branches are recorded by the transacting branches

a. a branch is not permitted to transact with c. by debiting or crediting their own investment in
another branch branch accounts
b. a and b d. as if each of them is transacting with the home
office

18. A debit memo received from the home office is recorded by the branch as
a. debit to allocated expense c. debit to home office account
b. debit to investment account d. credit to home office account

19. A cash remittance from the branch to the home office is recorded by the home office as
a. debit to investment account c. credit to cash
b. credit to investment account d. debit to home office

20. Stephen Clari Company opens an agency in Clark Oakland Pampanga. The following transactions for the month of May
occurred:

a. Home office sends a check for 55,000 to the agency as working fund, shipped to the agency samples of 200,000 and
advertising materials amounting to 20,000.

b. The home office fills up sales orders sent by the agency for 1,500,000 worth of merchandise.

c. The cost of merchandise shipped is 800,000. The agency collected 833,000, net of 2% discount.

d. The working fund is replenished for the delivery expense, maintenance and store supplies amounting to 5,500, 3,500 and
6,000, respectively.

e. The agency exhausted 50% of the samples while 60% of the advertising materials were unused.
 How much is the net income or loss of the agency for the month ended May 31, 2017?

a. 460,000 c. 570,000
b. 170,000 d. 560,000

GeeHan Partnership begins its first year of operations with capital of 160,000 and 80,000 for Gee and Han, respectively.
According to the partnership agreement, all profits will be distributed as follows:
a. Gee will be allowed a monthly salary of 10,000.
b. The partners will be allowed with interest equal to 10% of the capital balance as of the first day of
the year.
c. Gee will be allowed a bonus of 10% of the net income after salaries.
d. The remainder will be divided on the basis of 60:40 for the first year and 50:50 for the second year.

Assume further that the partnership generated net income of 320,000 for the first year and 200,000 for the second year.

21. What is the share of Han in the net income for the first year?

a. 409,600 c. 150,400
b. 70,400 d. 249,600

22. What is the share of Gee in the net income for the first year?
a. 249,600 c. 409,600
b. 70,400 d. 150,400

23. How much is the adjusted capital of Gee at the beginning of second year?
a. 150,400 c. 249,600
b. 409,600 d. 586,560

24. What is the share of Han in the net income for the second year?
a. 23,040 c. 586560
b. 176,960 d. 173,440

25. What is the share of Gee in the net income for the second year?
a. 586,560 c. 23,040
b. 176,960 d. 173,440

Batman and Superman share profits and losses equally after salary and interest allowances. Batman and Superman receive
salary allowances of 40,000 and 60,000, respectively, and both partners receive 10% interest on their average capital
balances. Average capital balances are calculated at the beginning of each month, regardless of when additional capital
contributions or permanent withdrawals are made subsequently within the month. Partners’ drawings of 3,000 per month are
not used in determining average capital balances.

Batman Superman
January 1 capital balances 200,000 240,000
Yearly drawings (3,000 per month (36,000) (36,000)
Permanent withdrawals of capital:
June 3 (24,000)
May 2 (30,000)
Additional investments of capital:
 July 3 80,000
October 2 100,000

26. What is the weighted average capital for Batman and Superman for the year?
a. 224,000 and 245,000 c. 256,000 and 220,000
b. 221,333 and 239,167 d. 203,333 and 221,167

27. If the average capital for Batman and Superman from the above information is 224,000 and 238,000, respectively, what will be
the total amount of profit allocated to salary and interest distributions?
a. 146,200 c. 93,800
b. 218,200 d. 240,000

28. If the average capital balances for Batman and Superman are 200,000 and 240,000, what will the total partnership profit
allocations be for Batman and Superman for the year?
a. 140,000 and 100,000 c. 120,000 and 120,000
b. 108,000 and 132,000 d. 100,000 and 140,000

Lucio, Henry and John are partners sharing profits and losses of 40%, 40% and 20%, respectively. The December 31, 2017
statement of financial position of the partnership before any profit allocation was summarized as follows:

Assets Liabilities and Capital

Cash 90,000 Accounts payable 7,500
Inventories 60,000 John, Loan 5,000
Equipment 75,000 Lucio, Capital 100,000
Trademark 22,500 Henry, Capital 90,000
John, Capital 45,000
Total assets 247,500 Total liabilities and capital 247,500

The income summary account has a credit balance of 25,000 for the year 2017. On January 1, 2018, a partner has decided to
retire from the partnership and by mutual agreement among the partners, the following have been arrived at:

a. Inventories amounting to 10,000 is considered obsolete and must be written off.

b. Equipment should be adjusted to their current value of 50,000.
c. Trademarks are to be written-off immediately before retirement.

It was agreed that the partnership will pay the retiring partner for his interest in the partnership inclusive of loan balance.

29. If John retired and received 45,000 as a retirement price, how much will be the bonus to or from Henry?
a. (500) c. (1,000)
b. 500 d. 1,000

30. If John retired and received 45,000 as a retirement price, how much will be the adjusted capital of Lucio under the Bonus
method?
a. 100,000 c. 86,000
b. 87,000 d. 76,000

31. If John retired and received 50,000, how much will the adjusted capital of Lucio be under revaluation of asset method?
a. 77,000 c. 87,000
 b. 93,500 d. 80,250

Partners Ail and Charish capital is 480,000 and 520,000, respectively. They share profit and loss equally in their merchandising
business. After admitting Blaire, they agreed to have a capital of 2,500,000. The new partner invested 500,000 for 30% in the
business.

32. What is the capital of Ail and Charish after admitting Blaire?
a. 500,000 and 750,000 c. 855,000 and 895,000
b. 895,000 and 855,000 d. 750,000 and 855,000

33. What is the capital of Blaire after admission?

a. 750,000 c. 855,000
b. 500,000 d. 895,000

34. How much is the amount of Bonus to or (from) Charish?

a. (125,000) c. 125,000
b. 0 d. (250,000)

35. How much is the amount of revaluation credited to Ali?

a. 0 c. 250,000
b. 500,000 d. 375,000

On June 30, 2016, the Abigail, Bobby and Charlie partnership had the following fiscal year-end balance sheet:

Cash 8,000 Accounts payable 14,000

Accounts receivable 12,000 Loan from Charlie 10,000
Inventory 28,000 Abigail, capital (20%) 28,000
Plant assets-net 24,000 Bobby, capital (20%) 20,000
Loan to Abigail 12,000 Charlie, capital (60%) 12,000
Total assets 84,000 Total liabilities and equity 84,000

The percentages shown are the residual profit and loss haring ratios. The partners dissolved the partnership On July 1, 2016
and began the liquidation process. During July, the following events occurred:

a. Receivable of 6,000 were collected.

b. All inventories were sold for 8,000.
c. All available cash was distributed on July 31, except for 4,000 that was set aside for contingent expenses.

36. The book value of the partnership equity on June 30, 2016 is
a. 84,000 c. 60,000
b. 58,000 d. 120,000

37. The cash available for distribution to the partners on July 31, 2016 is
a. 22,000 c. 14,000
b. 8,000 d. 4,000

38. How much cash would Bobby receive from the cash that is available for distribution on July 31 (Assume a safe payments
schedule is used.)
a. 0 c. 2,400
b. 800 d. 4,000
39. How much cash would Abigail receive from the cash that is available for distribution on July 31? (Assume a safe payments
schedule is used.)
a. 0 c. 4,000
b. 800 d. 2,400

Petron (SME A) and Shella (SME B) each acquired 30% of the outstanding shares of Caltext for 200,000 plus transaction cost
of 2,000. Petrona and Shella agreed a joint control over the Caltext. During the year, Caltext reported the following:

a. Profit for the year - 20,000

b. Payment of dividends - 4,000

If Petrona elected to carry the investment in Caltext using Equity Method and the Fair Value of Caltext at year end is 210,000
and cost to sell amounts to 3,000.

40. How much should be initially recognized by Petrona as investment in Caltext?

a. 207,000 c. 200,000
b. 206,800 d. 202,000

41. How much is the amount of impairment loss recognized?

a. 200 c. 4,800
b. 0 d. 7,000

42. How much is the profit or loss related to the investment?

a. 1,200 c. 6,000
b. 4,800 d. 200

43. How much is the carrying amount of investment as of year-end?

a. 202,000 c. 207,000
b. 206,800 d. 200,000

Petron (SME A) and Shella (SME B) each acquired 30% of the outstanding shares of Caltext for 200,000 plus transaction cost
of 2,000. Petrona and Shella agreed a joint control over the Caltext. During the year, Caltext reported the following:

a. Profit for the year - 20,000

b. Payment of dividends - 4,000

If Petrona elected to carry te investment in Caltext at Fair Value and the Fair Value of Caltext at year end is 196,000 and cost
to sell amounts to 1,800.

44. How much should be initially recognized by Petrona as Investment in Caltext?

a. 202,000 c. 200,000
b. 207,000 d. 206,800

45. How much is the amount of impairment loss recognized?

a. 2,000 c. 0
b. 7,800 d. 12,600

46. How much is the carrying amount of investment as of year-end?

a. 200,000 c. 194,200
b. 97,100 d. 196,000
47. How much is the profit or loss related to the investment?
a. 1,800 c. 1,200
b. 4,800 d. 4,000

48. A joint arrangement not structured through a separate vehicle is a:

a. Jointly Controlled Operation c. Either a joint operation or a joint venture,
depending on the circumstances of the case.
b. Joint Venture d. Joint Operation

49. If the parties have rights to the assets and obligations for the liabilities of the arrangement, the joint arrangement is:
a. Jointly controlled asset c. Joint venture
b. Joint operation d. Jointly controlled entity

50. Investments in jointly controlled entities must be tested for impairment if the entity uses:
a. the cost model or equity method c. the cost model or fair value model
b. the cost model, equity model or fair value d. the equity method or the fair value model
model
Advanced Financial Accounting and Reporting - First Preboard
Answer Section

TRUE/FALSE

1. F

2. F

3. F

4. F

5. F

MULTIPLE CHOICE

6. C

7. B

8. B

9. A

10. D

11. A

12. A

13. D

14. D

15. B

16. D

17. D

18. D

19. B

20. D

21. B

22. A
23. B

24. A

25. B

26. B

27. A

28. B

29. A

30. D

31. B

32. C

33. A

34. A

35. B

36. B

37. D

38. D

39. A

40. D

41. B

42. C

43. B

44. C

45. C

46. D

47. B

48. D
49. B

50. A