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GENERAL REVIEWPARTNERSHIP ACCOUNTING (8 items) Which of the following is not a characteristic of most partnerships? a. Limited liability c. Limited life b. Mutual agency d. Ease of formation Which of the following is not a characteristic of the proprietary theory that influences accounting for partn...

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UNIVERSITY OF MINDANAO

COLLEGE OF ACCOUNTING EDUCATION GENERAL REVIEW

PARTNERSHIP ACCOUNTING (8 items) 1. Which of the following is not a characteristic of most partnerships? c. Limited life a. Limited liability b. Mutual agency d. Ease of formation 2. Which of the following is not a characteristic of the proprietary theory that influences accounting for partnerships? a. Partners’ salaries are viewed as a distribution of income rather than a component of net income b. A partnership is not viewed as a separate entity, distinct, taxable entity c. A partnership is characterized by limited liability d. Changes in the ownership structure of the partnership result in the dissolution of the partnership 3. 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 for all partners 4. Mary admits Jane as a partner in the business. Balance sheet accounts of Mary just before the admission of Jane show: Cash, P 26,000, Accounts receivable, P 120,000, Merchandise inventory, P 180,000, and Accounts payable, P 62,000. It was agreed that for purposes of establishing Mary’s interest, the following adjustments be made: 1. An allowance for doubtful accounts of 3% of accounts receivable is to be established; 2. Merchandise inventory is to be adjusted upward by P 25,000; and 3. Prepaid expenses of P 3,600 and accrued liabilities of P 4,000 are to be recognized. If Jane is to invest sufficient cash to obtain 2/5 interest in the partnership, how much would Jane contribute to the new partnership? a. P 95,000 b. P 113,980 c. P 176,000 d. P 190,000 5. If a partnership has net income of P 44,000 and Partner X is to be allocated bonus of 10% of income after the bonus. What is the amount of bonus Partner X will receive? d. P 4,400 a. P 3,000 b. P 3,300 c. P 4,000 6. During 2016, Young and Zinc maintained average capital balances in their partnership of P 160,000 and P 100,000, respectively. The partners receive 10% interest on average capital

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balances, and residual profit or loss is divided equally. Partnership profit before interest was P 4,000. By what amount should Zinc’s capital account change for the year? a. P 1,000 decrease c. P 2,000 increase b. P 11,000 decrease d. P 12,000 increase 7. Partnership A has an existing capital of P 70,000. Two partners currently own the partnership and split profits 50/50. A new partner is to be admitted and will contribute net assets with a fair value of P 90,000. For no goodwill or bonus to be recognized, what is the interest in the partnership granted the new partner? a. 33.33% b. 50.00% c. 56.25% d. 75.00% 8. Ranken purchases 50% of Lark’s capital interest in the K and L partnership for P 22,000. If the capital balances of Kim and Lark are P 40,000 and P 30,000, respectively, Ranken’s capital balance following the purchase is b. P 20,000 c. P 22,000 d. P 35,000 a. P 15,000 Sammy and Michael are partners of SM Partnership sharing profits and losses equally. They decided to terminate the partnership when their capital balances are: Sammy, P 750,000; Michael, P 500,000. At this time, the partnership owes Michael P 200,000, as evidenced by a promissory note. Upon liquidation, cash of P 300,000 becomes available for distribution to the partners. In the final cash distribution, what would be the respective share of the partners? 9. Sammy a. P 150,000

b. P 175,000

c. P 200,000

d. P 275,000

10. Michael a. P 25,000

b. P 100,000

c. P 125,000

d. P 150,000

11. An advantage of the partnership as a form of business organization would be a. Partners do not pay income taxes on their share in partnership income b. A partnership is bound by the act of the partners c. A partnership is created by mere agreements of the partners d. A partnership may be terminated by the death or withdrawal of a partner 12. 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

CEDRIC IAN CARLO E. PETALCORIN, CPA, MBA

1

UNIVERSITY OF MINDANAO

COLLEGE OF ACCOUNTING EDUCATION

13. Partnership capital and drawings accounts are similar to the corporate a. Paid-in capital, retained earnings, and dividend accounts b. Retained earnings account c. Paid-in capital and retained earnings accounts d. Preferred and common stock accounts 14. On May 1, 2016, Cobb and Mott formed a partnership and agreed to share profits and losses in the ratio of 3:7, respectively. Cobb contributed a parcel of land that cost him P 10,000. Mott contributed P 40,000 cash. The land was sold for P 18,000 on May 1, 2016, immediately after formation of the partnership. What amount should be recorded in Cobb’s capital account on formation of the partnership? a. P 10,000 b. P 15,000 c. P 17,400 d. P 18,000 15. Partners AA and BB have profit and loss agreement with the following provisions: salaries of P 30,000 and P 45,000 for AA and BB respectively; a bonus to AA of 10% of net income after salaries and bonus; and interest of 10% on average capital balances of P 20,000 and P 35,000 for AA and BB, respectively. One-third of any remaining profits will be allocated to AA and the balance to BB. If the partnership had net income of P 102,500, how much should be allocated to Partner AA? b. P 41,167 c. P 44,250 d. P 47,500 a. P 41,000 16. Red and White formed a partnership in 2016. The partnership agreement provides for annual salary allowances of P 55,000 for Red and P 45,000 for White. The partners share profits equally and losses in a 60/40 ratio. The partnership had earnings of P 80,000 for 2016 before any allowance to partners. What amount of these earnings should be credited to White’s capital account? d. P 40,000 a. P 35,000 b. P 36,000 c. P 37,000

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19. A On July 1, 2011, Alviar, Brosas and Camus formed a joint venture for the sale of merchandise. Alviar was designated as the managing participant. Profits or losses are to be divided as follows: Alviar, 50%; Brosas, 25%; and Camus, 25%. On October 1, 2011, though the joint venture is still uncompleted, the participants agreed to recognize profit or loss on the venture to date. The cost of inventory on hand is determined at P 25,000. The Joint Venture account has a debit balance of P 15,000 before distribution of profit and loss. No separate set of books is maintained for the joint venture and the participants record in their individual books all venture transactions. The joint venture profit (loss) on October 1, 2011 is: b. P 25,000 c. P (15,000) d. None a. P 10,000 20. Ranto and Santo formed a joint venture to acquire and sell a special type of merchandise Ranto is to manage the venture and to furnish the capital. The participants are to share equally any gain or loss on the joint venture. On April 1, 2011, Santo sent Ranto P 10,000 cash, which was all used to purchase merchandise. Ranto paid freight of P 240 on the merchandise purchased. On April 27, one half of the merchandise was sold for P 7,200 cash. Ranto paid the cost of delivering merchandise to customers which amounted to P 260. No further transactions occurred until the end of the month. The profit (loss) of the venture for the month of April, 2011 is: b. P 1,950 c. P (1,700) d. None a. P 1,820 21. It is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. a. Joint control c. Joint undertaking b. Joint operation d. Joint venture 22. It is a party to a joint operation that has joint control of that joint operation a. Joint controller c. Joint undertaker d. Joint venturer b. Joint operator

JOINT ARRANGEMENT (4 items) 17. It is an arrangement of which two or more parties have joint control c. Joint operation a. Joint arrangement b. Joint undertaking d. Joint venture 18. It is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control c. Joint operation a. Joint control b. Joint undertaking d. Joint venture

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23. On January 2, GOKU Company purchased a 30 percent interest in GOHAN Company for P 250,000 such interest gives GOKU Company the joint control over GOHAN Company. On this date, the book value of GOHAN’s stockholders’ equity was P 500,000. The carrying amounts of GOHAN’s identifiable net assets approximated fair values, except for land, whose fair value exceeded its carrying amount by P 200,000. GOHAN’s reported net income of P 100,000 and paid no dividends. GOKU accounts for this investment using the equity method. In its December 31 balance sheet, what amount should GOKU report for this investment? a. P 210,000 b. P 220,000 c. P 270,000 d. P 280,000

CEDRIC IAN CARLO E. PETALCORIN, CPA, MBA

2

UNIVERSITY OF MINDANAO

COLLEGE OF ACCOUNTING EDUCATION

24. VEGETA Company purchases 40% of BULMA Company on January 1 for P 500,000 that carry voting rights at a general meeting of shareholders of BULMA Company. VEGETA Company and TRUNKS Company immediately agreed to share control (wherein unanimous consent is needed to all the parties involved) over BULMA Company. BULMA reports assets on that date of P 1,400,000 with liabilities of P 500,000. One building with a seven-year life is undervalued on BULMA’s books by P 140,000. Also BULMA’s book value for its trademark (10-year life) is undervalued by P 210,000. During the year, Basket reports net income of P 90,000, while paying dividends of P 30,000. What is the Investment in BULMA Company balance (equity method) in VEGETA’s financial records as of December 31? c. P 513,900 d. P 516,000 a. P 504,000 b. P 507,600 HOME OFFICE, BRANCH, AGENCY ACCOUNTING (4 items) 25. The home office bills its branch for merchandise transfers at a price in excess of cost. In the home office separate financial statements, the allowance for unrealized profit in branch inventory account would appear in the financial statements of the home office as a. An operating expense of the current period b. Deduction from the cost of goods sold c. Addition to the cost of goods sold d. Deduction from the investment in branch account 26. Early last year, a Manila-based company established a branch in Iloilo City. It shipped merchandise and billed the branch for P 300,000 prior to opening. For the year, it made additional shipments at billed price of P 120,000. Within the year, the branch shipped back P 7,500 inventory and got credit memo for the said return. On the last working day of the year, an inventory count was made. Ending inventory of P 185,000 was established consisting of purchases from outsiders at P 20,000, with the balance coming from the home office shipments at billed price of 20% above cost. The total purchases of the branch from outsiders amounted to P 72,500. What is the total goods available for sale by the branch at cost? c. P 435,250 d. P 485,000 a. P 416,250 b. P 422,500 27. The Neneng Corp. established its San Pedro branch in March 2016. During the first year of operations, the home office shipped to the branch merchandise which had cost of P 120,000. Three-fourths of these merchandise was sold by the branch for P 141,000. Operating expenses of the branch amounted to P 27,000. How much net income will the branch report if merchandise is billed by the home office to the branch at 25% above cost? d. P 8,000 a. P 800 b. P 1,200 c. P 1,500

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20% above cost. The inventories of supplies at the branch were as follows: January 1 – P 90,000; December 31 – P 108,000. On December 31, 2016, the home office holds inventories of P 160,500, which includes P 10,500 held on consignment. Both locations use the periodic inventory method. How much inventories should be reported in the combined balance sheet as of December 31, 2016? c. P 270,000 d. P 300,000 a. P 210,000 b. P 240,000 29. The combined statements may be used to present the results of operations of Entities under Commonly controlled entities common management a. NO YES b. YES NO c. NO NO d. YES YES At the end of 2016, the branch reported an inventory of P 15,625. The home office bills this branch at 125% of cost. During 2017, goods costing P 300,000 were shipped to the branch. The account “allowance for overvaluation of branch inventory” after adjustment, shows a balance of P 16,250 at the end of the year. 30. What was the amount of inventory at January 1, 2017 at cost? b. P 15,625 c. P 19,531 d. P 28,125 a. P 12,500 31. What was the amount of ending inventory at billed price? a. P 65,000 b. P 81,250 c. P 247,500 d. P 309,375 32. What was the amount of allowance for overvaluation before adjustment? a. P 20,000 b. P 20,312 c. P 61,875 d. P 78,125 BUSINESS COMBINATIONS AND CONSOLIDATED FINANCIAL STATEMENTS (12 items) 33. A business combination may be legally structured as a merger, a consolidation, an investment in stock, or a direct acquisition of assets. Which of the following describes a business combination that is legally structured as a merger? a. The surviving company is one of the two combining companies b. The surviving company is neither of the two combining companies c. An investor-investee relationship is established d. A parent-subsidiary relationship is established

28. The Chivas Regal owns the Royal Crown in Quezon City and a branch in Davao City. During 2016, the home office shipped to the branch supplies costing P 120,000 at a billed price of

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CEDRIC IAN CARLO E. PETALCORIN, CPA, MBA

3

UNIVERSITY OF MINDANAO

COLLEGE OF ACCOUNTING EDUCATION

34. Pilipinas Co. acquired all of the assets and liabilities of Saba Co. for cash in a legal merger. Which one of the following would not be recognized by Pilipinas on its books in recording the business combination? a. Accounts receivable c. Intangible asset – Patent d. Accounts payable b. Investment in Saba Co. 35. A “group” for consolidation purposes is a. A parent and all its subsidiaries b. An entity that has one or more subsidiaries c. An entity, including an unincorporated entity such as partnership that is controlled by another entity d. An entity that obtains control over entities or businesses 36. It is that portion of the profit or loss and net assets of a subsidiary attributable to equity interest that are not owned directly or indirectly through subsidiaries by the parent c. Residual interest a. Non-controlling interest b. Controlling interest d. Subsidiary interest 37. On August 31, 2016, Wood Corp. issued 100,000 shares of its P 20 par value common stock for the net assets of Pine, Inc., in a business combination accounted for by the acquisition method. the market value of Wood’s common stock on August 31 was P 36 per share. Wood paid a fee of P 160,000 to the consultant who arranged this acquisition. Cost of registering and issuing the equity securities amounted to P 80,000. No goodwill was involved in the purchase. What amount should Wood capitalize as the cost of acquiring Pine’s net assets? a. P 3,600,000 c. P 3,680,000 b. P 3,760,000 d. P 3,840,000 38. 100% of the equity share capital of the Roman Co. was acquired by the Sweet Co. on July 30, 2016. Sweet Co. issued 500,000 new P 1 ordinary shares which had a fair value of P 8 each at the acquisition date. In addition, the acquisition resulted in Sweet incurring fees payable to external advisers of P 200,000 and share issue costs of P 180,000. In accordance with IFRS 3, Business Combinations, goodwill at the acquisition date is measured by subtracting the identifiable assets acquired and the liabilities assumed from a. P 4,000,000 c. P 4,180,000 b. P 4,200,000 d. P 4,380,000 39. The Lamp Co. acquired a 70% interest in the Ohau Co. for P 1,960,000 when the fair value of Ohau’s identifiable assets and liabilities was P 700,000 and elected to measure the noncontrolling interest at its share of the identifiable net assets. Annual impairment reviews of goodwill have not resulted in any impairment losses being recognized. Oahu’s current

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statement of financial position shows share capital of P 100,000, a revaluation reserve of P 300,000, and retained earnings of P 1,400,000. Under IFRS 3, Business Combinations, what figure in respect of goodwill should now be carried in Lamp’s consolidated statement of financial position? c. P 160,000 a. P 1,470,000 b. P 1,260,000 d. P 700,000 40. On July 1, 2016, the Magna Co. acquired 100% of the Natural Co. for a consideration transferred of P 160,000,000. At the acquisition date, the carrying amount of Natural’s net assets was P 100,000,000. At the acquisition date, a provisional fair value of P 120,000,000 was attributed to the net assets. An additional valuation received on May 31, 2017 increased this provisional fair value to P 135,000,000 and on July 30, 2017, this fair value was finalized at P 140,000,000. What amount should Magna present for goodwill in its statement of financial position at December 31, 2017, according to IFRS 3, Business Combination? a. P 25,000,000 c. P 40,000,000 b. P 20,000,000 d. P 60,000,000 41. The Gem Corp. acquired 100% of the Koala Co. for a consideration transferred of P 112,000,000. At the acquisition date, the carrying amount of Koala’s net assets was P 100,000,000 and their fair value was P 120,000,000. How should the difference between the consideration transferred and the net assets acquired be presented in Gem’s financial statements, according to IFRS 3, Business Combination? a. Gain on bargain purchase of P 8,000,000 recognized b. Gain on bargain purchase of P 8,000,000 deducted from other intangible assets c. Gain on bargain purchase of P 8,000,000 recognized in profit or loss d. Goodwill of P 12,000,000 as an intangible asset 42. During 2016, Pard Corp. sold goods to its 80%-owned subsidiary, Seed Corp. At December 31, 2016, one-half of these goods were included in Seed’s ending inventory. Reported 2016 selling expenses were P 1,100,000 and P 400,000 for Pard and Seed, respectively. Pard’s selling expenses included P 50,000 in freight-out cost for goods sold to Seed. What amount of selling expenses should be reported in Pard’s 2016 consolidated income statement? a. P 1,500,000 c. P 1,480,000 b. P 1,475,000 d. P 1,450,000 43. Porch Co. owns a 90% interest in the Screen Co. Porch sold Screen a milling machine on January 1, 2016 for P 50,000 when the book value of the machine on Porch’s books was P 40,000. Porch financed the sale with Screen signing a 3-year, 8% interest, level payment, monthly payment loan for the entire P 50,000. The machine will be sued for 10 years and

CEDRIC IAN CARLO E. PETALCORIN, CPA, MBA

4

UNIVERSITY OF MINDANAO

COLLEGE OF ACCOUNTING EDUCATION

depreciated using the straight-line method. The gain on the machine sale will appear in the consolidated income statement a. Never c. In the year of sale b. Spread over 3 years d. Spread over 10 years 44. Enron Co. owns a 100% interest in the common stock of the Diets Co. On January 1, 2016, Enron sold Diets a fixed asset that Diets will use over a 5-year period. The asset was sold at P 5,000 profit. In the consolidated statements, this profit will a. Not be recorded b. Be recognized over 5 years c. Be recognized when the asset is resold to outsider ...