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FINAL EXAMINATION
ADVANCED FINANCIAL ACCOUNTING AND REPORTING PART 1

PREPARED BY: KHIM L. AÑONUEVO, CPA

PARTNERSHIP ACCOUNTING
Questions 1 through 3 are based on the following:
Natasha and Bernadette established a partnership on December 1, 2013. They agreed that Natasha will
contribute cash of P20,000; Land of P15,000 and Building of P50,000. Natasha’s accounts payable of
P10,000 is to be assumed by the partnership. Bernadette will contribute cash of P30,000 and furniture and fixtures
of P25,000.

1. Assume that each partner is to be credited for the full amount of net assets invested, how much are the
capital balances of each partner?
a. P 85,000 for Natasha and P 55,000 for Bernadette
b. P 65,000 for Natasha and P 65,000 for Bernadette.
c. P 75,000 for Natasha and P 55,000 for Bernadette
d. P 75,000 for Natasha and P 75,000 for Bernadette.

2. Assume that each partner initially should have an equal interest in partnership capital with no contribution
of intangible asset (bonus method). How much are the capital balances of each partner?
a. P 85,000 for Natasha and P 55,000 for Bernadette
b. P 65,000 for Natasha and P 65,000 for Bernadette.
c. P 75,000 for Natasha and P 55,000 for Bernadette
d. P 75,000 for Natasha and P 75,000 for Bernadette.

3. Assume that each partner initially should have an equal interest in partnership capital, and any contributed
goodwill should be recognized (goodwill method). How much are the capital balances of each partner?
a. P 85,000 for Natasha and P 55,000 for Bernadette
b. P 65,000 for Natasha and P 65,000 for Bernadette.
c. P 75,000 for Natasha and P 55,000 for Bernadette
d. P 75,000 for Natasha and P 75,000 for Bernadette.

Questions 4 and 5 are based on the following:

Several years ago Joseph and Mar formed Loren Partnership. The partnership agreement states that each
partner is to receive a salary of P10,000 per month and 5% interest on beginning-of-the-year capital
balances; any remainder would be divided between Joseph and Mar in the ratio 2:3, respectively. The
unadjusted trial balance of Loren Partnership as of December 31, 2011, appears as follows:
Debits Credits
Cash P 500,000 Accounts payable P 350,000
Accounts receivable 300,000 Notes payable 200,000
Inventory, January 1, 2011 400,000 Joseph, capital 750,000
Furniture & fixtures, net 150,000 Mar, capital 620,000
Building, net 300,000 Sales 800,000
Joseph, drawing 100,000
Mar, drawing 120,000
Purchases 600,000
Operating expenses 250,000
Total P2,720,000 Total P2,720,000

Additional information:
1. December 31, 2011, inventory was P550,000. 2011 purchases of P600,000 were recorded using
the periodic inventory method.
2. Depreciation for 2011 on furniture and fixtures and building is determined to be 10% and 20%
respectively, of net valuation.
3. On July 1, 2011, the partnership recorded a P100,000 additional capital contribution by Mar.
Joseph made no additional capital contributions during the year.
4. Determine the share of partner Joseph on the net income of 2011.
a. P46,100 b. (P21,100) c. (P19,100) d. P44,100

5. Determine the ending capital balance of partner Mar on December 31, 2011.
a. P480,100 b. P521,100 c. P478,900 d. P694,100
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6. Manny and Gilbert are partners. Their capital accounts during 2011 were as follows:
Manny, Capital: Debit Credit Gilbert, Capital: Debit Credit
January 1 40,000 January 1 60,000
April 3 8,000 March 5 9,000
August 28 6,000 July 6 7,000
October 31 3,000 October 7 5,000
Net income of the partnership is P40,000 for the year. The partnership agreement provides for the division
of income as follows:
a. Each partner is to be credited 10 percent interest on his average capital.
b. Any remaining income or loss is to be divided based on the beginning capital ratio.

Determine the share of Gilbert on the net income of 2011. (Assume that changes in the capital accounts
made at the first half of the month are considered changes at the beginning of the month and changes at
the last half of the month are considered changes at the beginning of the following month).
a. P19,000 b. P21,000 c. P15,900 d. P24,100

Questions 7 and 8 are based on the following:

The balance sheet of the Eddie and Richard Partnership at December 31, 2010, appears below:
Assets: Liabilities and Capital:
Cash P 15,000 Accounts Payable P 35,000
Accounts Receivable (net) 45,000 Notes Payable 25,000
Inventories 75,000 Accrued Liabilities 40,000
Property, Plant, and Mortgage Payable 110,000
Equipment, (net) 225,000 Eddie, Capital 60,000
Richard, Capital 90,000
P360,000 P360,000
Determine the capital balances of partners immediately after the admission of Jamby under the following
independent situations:

7. Jamby acquired a 25 percent interest in partnership capital directly from Eddie and Richard for P50,000.
Jamby paid P18,750 directly to Eddie and P31,250 directly to Richard. Total assets of the partnership after
the admission of Jamby were P360,000. How much must be the capital credit to Jamby?
a. P45,000 b. P67,500 c. P37,500 d. P60,000

8. Jamby acquired a 25 percent interest in capital by investing P50,000 of cash into the partnership. Total
capital of the Eddie-Richard-Jamby Partnership on January 1, 2011, amounted to P240,000. Determine
the capital balance of Jamby immediately after his admission.
a. P60,000 b. P90,000 c. P50,000 d. P37,500

Questions 9 through 11 are based on the following:

A, B and C have capital balances of P112,000, P130,000 and P58,000, respectively, and share profits in
the ratio 3:2:1. D invest cash in the partnership for a one-fourth interest.

9. Assume D receives a one-fourth interest in the assets of the partnership, which includes credit for
25,000 of goodwill that is recognized upon admission. How much cash D invest?
a. P100,000 b. P75,000 c. P125,000 d. P50,000

10. Assume D receives a one-fourth interest in the assets of the partnership and D is credited with P20,000
of the bonus from the old partners that is recognized upon D’s admission. How much cash D invest?
a. P73,333 b. P100,000 c. P93,333 d. P80,000

11. Assume D receives a one-fourth interest in the assets of the partnership and B is credited with P15,000
of the bonus from D, how much cash D invest?
a. P115,000 b. P105,000 c. P160,000 d. P120,000

12. Bong and Jinggoy are partners who share profits and losses in a 2:3 ratio. The partnership will be
liquidated in instalments. Some noncash assets have been sold, but other assets with a book value of
P63,000 remain. Liabilities are now P8,000, and liquidation expenses are expected to be P3,600. The
capital balances are P46,000 for Bong and P34,000 for Jinggoy.

Assuming the available cash is distributed, how much is the share of Bong?
a. P21,400 b. P13,400 c. P16,000 d. P4,000

Questions 13 and 14 are based on the following:

Partners A, B, C, and D have been operating ABCD Partnership for ten years. Due to a significant reduction
in the demand for their product over recent years, the partners have agreed to liquidate the partnership.
At the time of liquidation, balance sheet accounts consisted of cash, P103,500; noncash assets, P300,000;
“ Never Let the Odds Keep You from Pursuing What You Know in Your Heart You Were Meant to
Do” – Leroy Satchel Paige
 Page 3 of 5
liabilities to outsiders, P60,000; capital credit balances for partners A, B, and C, P90,000, P150,000, and
P120,000, respectively; and a debit capital balance for partner D of P16,500.

Partners share equally in income and loss. It is estimated that the administrative cost of liquidation will
total P4,500. While preparing for liquidation, an unrecorded liability of P7,500 was discovered.
13. Assuming the available cash of P103,500 was distributed, how much must be the share of partner B?
a. P31,500 b. P30,750 c. P65,167 d. none
14. For how much must the noncash assets be sold for partner D to received at least P5,000?
a. P429,500 b. P501,500 c. P398,000 d. P386,000

Questions 15 and 16 are based on the following:

The Angelina, Julie, and Arche Partnership is being liquidated. All liabilities have been paid. The balance
of assets on hand is being realized gradually. The following are details of partners’ accounts:
Capital Account Drawing Account Loans to P/L
Balances Balances Partnership Ratio
Angelina P200,000 P15,000 Cr. P150,000 5
Julie 250,000 20,000 Dr. - 2
Arche 100,000 30,000 Cr. 50,000 3

15. If you are to rank the partners from the most vulnerable to the least vulnerable, the ranking will be as
follows:
a. Angelina, Julie, and Arche, respectively. c. Arche, Julie and Angelina, respectively
b. Julie, Angelina, and Arche, respectively. d. Arche, Angelina and Julie, respectively.

16. If partner Angelina receives P150,000, how much partner Julie receives?
a. P144,000 b. P51,000 c. P86,000 d. PP129,000

17. The following balance sheet is for a local partnership in which the partners have become very unhappy
with each other. To avoid further conflict, they have decided to cease operations and sell all assets.
Cash P 40,000 Liabilities P 30,000
Land 130,000 Michael, capital 80,000
Building 120,000 Fernando, capital 30,000
Alvin, capital 60,000
JL, capital 90,000
P290,000 P290,000
Assume that profits and losses are allocated on a 1:3:4:2 basis, respectively. How much money must be
received from selling the land and building to assure that all partners receives cash?
a. More than P50,000 c. More than P100,000
b. More than P150,000 d. More than P250,000

18. A, B, C, and D are partners, sharing profits and losses 30%; 30%; 20%; 20%, respectively. After sale of
firm assets and payment of the available cash to the partnership creditors, a partnership trial balance
and the personal status of each partner are as follows:
Personal Status
Trial Balance Exclusive of Partnership Interest
Debit Credit Partner Asset Liabilities
Creditors P 20,000
A, capital 5,000 A P150,000 P100,000
B, capital 75,000 B 80,000 200,000
C, capital P 60,000 C 150,000 40,000
D, capital 40,000 D 60,000 80,000
P100,000 P100,000
Assuming that A pays the partnership creditors, how much B can still recover from the partnership?
a. P75,000 b. P54,000 c. P60,000 d. P0

Questions 19 and 20 are based on the following:

The partnership of Rent-A-Pet find it financially infeasible to continue operations and have agreed to
liquidate the partnership. The balance sheet just prior to the start of liquidation appears as follows.
Partners Bryan, Donelle, and Christopher share income and loss in the ratio 5:3:2, respectively.

Assets Liabilities and Capital

Cash P 200,000 Accounts payable P 300,000
Noncash assets 1,300,000 Loan from Bryan 50,000
Bryan, capital 350,000
Donelle, capital 600,000
Christopher, capital 200,000
P1,500,000 P 1,500,000

“ Never Let the Odds Keep You from Pursuing What You Know in Your Heart You Were Meant to
Do” – Leroy Satchel Paige
 Page 4 of 5
19. If the first sale of noncash assets having a book value of P750,000 realizes P500,000 and all available
cash is distributed, determine the amount of cash distributed to Bryan.
a. P50,000 b. P360,000 c. P40,000 d. P0

20. If each partner properly received some cash in the distribution after the second sale, the cash to be
distributed amounts to P120,000 from the third sale, and unsold assets with an P80,000 book value
remain (ignore question 42), the share of Donelle must be:
a. P36,000 b. P60,000 c. P24,000 d. cannot be determined

INSTALLMENT ACCOUNTING
Questions 21 and 22 are based on the following:
Octopus Retail Company sells goods for cash, on normal credit (2/10, n/30). However, on July 1, 2010,
the company sold a used computer for P22,000; the inventory carrying value was P4,400. The company
collected P2,000 cash and agreed to let the customer make payments on the P20,000 whenever possible
during the next 12 months. The company management stated that it had no reliable basis for estimating
the probability of default. The following additional data are available: (a) collections on the instalment
receivable during 2010 were P3,000 and during 2011 were P2,000, and (b) on December 1, 2011, Octopus
Retail repossessed the computer (estimated net realizable value, P7,000).

21. Determine the realized gross profit on instalment sales for the year 2010.
a. P1,600 b. P4,000 c. P2,400 d. P5,600

22. Determine the gain or loss on repossession recognized in 2011.

a. P3,000 loss b. P3,000 gain c. P4,000 loss d. P4,000 gain

23. Octagon Enterprises uses the installment method of accounting and has the following data at year-end
Gross margin on cost 40%
Unrealized gross profit P192,000
Cash collections including down payments 360,000
What was the total amount of sale on installment basis?
a. P840,000 b. P1,380,000 c. P772,800 d. P1,032,000

24. On January 1, 2009, DrNC sells 20 acres of farmland for P12,000,000 taking in exchange a 12% interest-
bearing note. DrNC purchased the farmland in 1984 at a cost of P8,000,000. The note will be paid in three
(3) equal annual payments inclusive of 12% interest each December 31, 2009, 2010 and 2011. How much
must be the realized gross profit for the year 2009 under the instalment method of recognizing revenue?
a. P3,556,253 b. P1,185,418 c. P1,333,333 d. P2,814,582

25. BNC sells a new car for P560,000. Cash down payment of P100,000 was received together with an old car
with a trade-in value of P80,000. Cost of the new car sold is P322,800. It is estimated that the
reconditioning of the old car will cost P40,000 and may be sold at P140,000 which includes a 30% gross
profit. BNC was able to collect 50% of the balance and the customer defaulted. The car was repossessed
and can still be sold at 90% of the uncollected balance after reconditioning cost of 20%. How much is the
gain or loss from repossession?
a. P22,800 gain b. P27,280 gain c. P31,015 gain d. P28,860 gain

LONGTERM CONSTRUCTION
26. Andrew Corporation contracted to build a building for Errol Company. The contract price was P5,000,000
and Andrew estimated that construction costs would total P4,200,000. The construction period lasted until
September 1, 2011. Costs during each period, estimated total cost of the product at the end of the year,
billings and cash collected during the year were as follows:
2009 2010 2011
Costs during period P1,050,000 P1,950,000 P1,250,000
Estimated or Actual Total Costs 4,200,000 4,250,000 4,250,000
Billings during the period 1,000,000 1,500,000 2,500,000
Cash collected during period 800,000 1,400,000 2,600,000
The amount of gross profit recognized in 2010 using the percentage of completion method must be:
a. P800,000 b. P200,000 c. P365,000
d. P329,412

27. The following information pertain to the building contract of Metropolis Construction Company, wherein
the fixed contract price is P80 million.
2009 2010 2011
“ Never Let the Odds Keep You from Pursuing What You Know in Your Heart You Were Meant to
Do” – Leroy Satchel Paige
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Estimated costs P20.1 million P30.15 million P16.75 million
Progress billings 10 million 25 million 45 million
Cash collection 8 million 23 million 49 million
Assume that all costs are incurred, all billings to customers are made, and all collections from customers
are received within 30 days of billing, as planned. Under the percentage-of- completion method of revenue
recognition is used, how much is the income from construction for the year 2011?
a. P3,900,0000 b. P3,250,000 c. P9,750,000 d. P5,850,000

28. V Construction Company has used the cost-to-cost percentage of completion method of recognizing profits.
Michael V assumed leadership of the business after the recent death of his father, Rudy V. In reviewing
the records, Michael V finds the following information regarding a recently completed building project for
which the total contract price was P5,000,000.

Construction in progress account balance 2009 P1,000,000

Construction cost incurred during 2011 2,050,000
Gross profit (loss) recognized in 2009 100,000
Gross profit (loss) recognized in 2010 350,000
Gross profit (loss) recognized in 2011 ( 50,000)
How much cost was incurred in 2010?
a. P1,650,000 b. P2,550,000 c. P900,000 d. P4,600,000

Franchise Accounting
29. Alvin Kakanin Inc. charges an initial franchise fee of P500,000 for the right to operate as a franchisee of
Jo Kakanin. Of this amount, P100,000 is payable when the agreement is signed, and the balance is payable
in five annual payments of P80,000 each. In return for the initial franchise fee, the franchisor will help
locate the site, negotiate the lease or purchase of the site, supervise the construction activity, and provide
the bookkeeping services. The credit rating of the franchisee indicates that money can be borrowed at 12
percent.

If the probability of refunding the initial franchise fee is extremely low, the amount of future services to
be provided to the franchisee is minimal, collectibility of the note is reasonably assured, and substantial
performance has occurred, determine the total franchise fee earned.
a. P388,382 * b. P500,000 c. P412,382 d. P0

30. Ricbenson Company sells franchise that requires an initial franchise fee of P7,000,000. A down payment
of P2,000,000 cash is required with the balance covered by the issuance of a P5,000,000, non-interest
bearing note, payable by the franchisee in 5 equal annual installments. The market rate for this type of
note is 10%. How much must be the franchise revenue earned if all material services have been
substantially performed by the franchisor, the refund period has expired, and the collectibility of the note
is reasonably assured.
a. P7,000,000 b. P3,790,786 c. P2,000,000 d. P5,790,786 *

31. Pinkwich Pizza charges initial franchise fee of P500,000 for the right to operate as a franchisee of Pinkwich
Pizza. Of this amount, P100,000 is payable when the arrangement is signed and the balance is payable in
five annual payments of P80,000 each. In return for the initial franchise fee, the franchisor will help locate
the site, negotiate the lease or purchase of the site, supervise the construction activity, and provide the
bookkeeping services. The credit rating of the franchisee indicates that money can be borrowed at 8%.
The present value of an ordinary annuity of five annual receipts of P80,000 each discounted at 8% is
P310,941.68. Assuming that there is reasonable expectation that the down payment may be refunded and
substantial future services remain to be performed, how much is the unearned franchise revenue?
a. P0 b. P500,000 c. P310,941.68 d. P410,941.68

32. Macho Company sells a franchise with initial franchise fee of P70,000. A down payment of P20,000 cash
is required, with the balance payable in five equal annual installments. The implicit rate of interest for such
kind of borrowing is 10%.

If none of the material services have been substantially performed but collectibility of note is reasonably
assured, how much is the amount of earned franchise revenue?
a. P0 b. P52,300 c. P20,000 d. P57,900

“ Never Let the Odds Keep You from Pursuing What You Know in Your Heart You Were Meant to
Do” – Leroy Satchel Paige