AFAR Final Preboard 2018 PDF

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CPARME BATCH 1 Final Pre-board Examination: AFARINSTRUCTION: Select the correct answer for each of the following questions. Mark only one answer for each item by shading the corresponding letter of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Musikeros Restaurant charges a...

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CPARME BATCH 1 Final Pre-board Examination: AFAR INSTRUCTION: Select the correct answer for each of the following questions. Mark only one answer for each item by shading the corresponding letter of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. 1. Musikeros Restaurant charges an initial franchise fee of P500,000 for the right to operate as a franchisee of Musikeros. 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 earned franchise fee. A. P0 B. P388,382 C. P412,382 D. P500,000 2. The following summarized information relates to the installment sales activity of TJ Stores, Inc. for the year 2015: Installment sales during 2015 P500,000 Costs of goods sold on installment basis 330,000 Collections from customers 200,000 Unpaid balances on merchandise repossessed 24,000 Estimated value of merchandise repossessed 9,200 How much of the total gross profit that was not realized during the year? A. P62,968 B. P68,000 C. P71,128 D. P102,000 3. The partnerships of Francis, Carlos, and Gabriel have asked you to assist it in winding up the affairs of the business. You compile the following information. a. The trial balance of the partnership on June 30, 2015, is: Debit Credit Cash P6,000 Accounts receivable (net) 22,000 Inventory 14,000 Plant and equipment (net) 99,000 Loan to Francis 12,000 Loan to Gabriel 7,500 Accounts payable P17,000 Francis, capital 67,000 Carlos, capital 45,000 Gabriel, capital 31,500 Total P160,500 P160,500 b. The partners share profits and losses as follows: Francis, 50%; Carlos, 30%, and Gabriel, 20%. c. The partners decided to liquidate their partnership by instalments. Cash is distributed to the partners at the end of each month. No interest on partners’ loans accrues during liquidation. A summary of the July liquidation transactions follows: P16,500 collected on accounts receivable; balance is uncollectible. P10,000 received for the entire inventory. 1

CPARME BATCH 1 Final Pre-board Examination: AFAR P1,000 liquidation expense paid. P17,000 paid to outside creditors. P8,000 cash retained in the business at the end of the month. Determine the share of Carlos on the July cash distribution. A. P0 B. P4,000 C. P6,500 D. P26,400 4. High Desert Potteryworks makes a variety of pottery products that it sells to retailers such as Home Depot. The company uses a job-order costing system in which predetermined overhead rate in the Molding Department is based on machine-hours, and the rate in the Painting Department is based on direct labor cost. At the beginning of the year, the company’s management made the following estimates: Department Molding Painting Direct labor hours 12,000 60,000 Machine hours 70,000 8,000 Direct materials cost P510,000 P650,000 Direct labor cost P130,000 P420,000 Manufacturing overhead cost P602,000 P735,000 Job 205 was started on August 1 and completed on August 10. The company’s cost records show the following information concerning the job: Department Molding Painting Direct labor hours 30 85 Machine hours 110 20 Materials placed into production P470 P332 Direct labor cost P290 P680 If the job contained 50 units, what would be the unit product cost? A. P18.92 B. P23.80 C. P42.72 D. P78.16 5. In relation to no. 16, assume that at the end of the year, the records of High Desert Pottery works revealed the following actual cost and operating data for all jobs worked on during the year: Department Molding Painting Direct labor hours 10,000 62,000 Machine hours 65,000 9,000 Direct materials cost P430,000 P680,000 Direct labor cost P108,000 P436,000 Manufacturing overhead cost P570,000 P750,000 What was the amount of under- or overapplied overhead in each department at the end of the year? A. Molding, over of P11,000; Painting, over of P13,000 B. Molding, under of P11,000; Painting, under of P13,000. C. Molding, over of P11,000; Painting under of P13,000. D. Molding, under of P11,000; Painting over of P13,000. 2

CPARME BATCH 1 Final Pre-board Examination: AFAR 6. Determine the balance at June 30 in the Work in Process inventory account. A. RUR36,300,000 B. C. RUR63,900,000 D. RUR27,600,000 RUR38,300,000 7. Estrells Company makes super-premium cake mixes that go through two processing departments, Blending and Packaging. The following activity was recorded in the Blending Department during July. Production data: Units in process, July 1 (Materials 100% complete; Conversion 30% complete) 10,000 Units started into production 170,000 Units completed and transferred to Packaging ? Units in process, July 31 (Materials 100% complete; Conversion 40% complete) 20,000 Cost data: Work in process inventory, July 1: Materials cost P8,500 Conversion cost 4,900 P13,400 Cost added during the month: Materials cost P139,400 Conversion cost 244,200 P383,600 Total cost P397,000 All materials are added at the beginning of work in the Blending Department. The company uses the FIFO method. Determine the cost of goods finished and transferred to next department. A. P397,000 B. P368,760 C. P28,240 D. P383,600 8. Superior Brands, Inc., manufactures paint. The paint goes through three processing departments – Cracking, Mixing, and Cooking. Activity in the Cracking Department during a recent month is summarized in the department’s Work in Process account below: Work in Process – Cracking Department Inventory, April 1 (10,000 gallons, Completed and transferred to Labor and overhead 80% complete) 39,000 ? mixing ( ? gallons) April costs added: Materials (140,000 gallons) 259,000 Labor and overhead 312,000 Inventory, April 30 (30,000 gallons Labor and overhead 60% complete) ? The materials are added at the beginning of work in the Cracking Department. The company uses the FIFO method. Determine the cost of completed and transferred to mixing department. A. P98,700 B. P511,300 C. P472,300 D. P610,000 9. CDE Printing Company has three service departments and two operating departments. Selected data for the five departments relating to the most recent period follow:

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CPARME BATCH 1 Final Pre-board Examination: AFAR

The company allocates service department costs in the following order and using the bases indicated: Training (number of employees), Janitorial (space occupied), and Maintenance (hours of press time). Contrary to best practice, the company makes no distinction between variable and fixed service department costs in its allocations. Using the direct method in allocating service department costs, the total cost of Lithography must be: A. P708,000 B. P892,000 C. P684,500 D. P915,500 10. Mark, the cost accountant for Billings Plastics, Inc., has provided you with actual and standard cost data for one of the basic product lines for the month of February. Direct materials Direct labor Purchased and used at actual cost, 38,000 units P104,500 Actual direct labor payroll P63,000 Standard materials units per product unit 2 Standard labor time per product unit 20 minutes Standard price per unit of materials P2.50 Standard direct labor rate per hour P10 Labor rate variance (unfavourable) P6,000 During February, 18,000 units of product were manufactured. Determine the entry to record direct materials charged to production under the standard costing system. A. Work in Process 90,000 C. Work in Process 104,500 Material Qty Variance 5,000 Material Qty Variance 9,500 Materials 95,000 Materials 95,000 B. Work in Process 90,000 D. Work in Process 95,000 Materials 90,000 Materials 95,000 11. The following events pertain to BENCH Beach Wear, Inc. during June, 2015. 1. Raw material costing P180,000 was purchased on account. 2. Direct-labor costs of P65,000 were incurred, but not yet paid in cash. Actual manufacturing overhead costs of P105,000 also were incurred, but not yet paid in cash. 3. Goods with raw material costs of P180,000 were finished, and conversion costs of P170,000 were applied. 4. Goods costing P348,000 were sold on account for P420,000. Prepare the entry to record the no. 1 transaction using backflush costing. A. Purchases 180,000 Accounts Payable 180,000 B. Materials Inventory 180,000 Accounts Payable 180,000 C. Raw and In-Process Inventory 180,000 Accounts Payable 180,000 D. Work in Process Inventory 180,000 Accounts Payable 180,000 12. Agency N have an obligation for the constructions of 10 storey building along J. P. Rizal upon signing of contact amounting to P 100,000,000, the entry to record this transaction would be: A. No entry C. Building (DR) B. Building (DR) Cash-NT, MDS (CR) Accounts Payable (CR) D. Memo entry – RAOCO

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CPARME BATCH 1 Final Pre-board Examination: AFAR 13. GOOGLE manufactures three joint products A, B and C and a by product D, all in single process. Results for the month of August were as follows: Materials used 10,000 Kgs P24,000

Conversion costs P28,000 No. of Kilos on Hand No. of kilos sold Product SV/Kilo 3,000 1,000 A 11 3,000 0 B 10 0 1,000 C 26 1,000 1,000 D 1 Revenue from by product is credited to sales account. Process costs are apportioned on a relative sales value approach. What is the cost per kilo of C for the month? A. 13.25 B. 5.61 C. 0 D. 35.58 14. Materials are added at the start of the process in Accenture blending department, the first stage of the production cycle. The following information is available in August: Work in process, August 31 (50% complete as to conversion cost) 175,000 Transferred to next department 275,000 Started in August 375,000 Work in process, August 1 (60% complete as to conversion cost) 150,000 Lost in production 75,000 The costs incurred on the lost units are absorbed by the remaining good units. What are the EUP for conversion? FIFO AVE A. 362,500 272,500 B. 272,500 FIFO AVE C. 437,500 347,500 D. 347,500 362,500 437,500 15. SM Company uses a standard cost system and prepared the following budget at normal capacity for March: Direct labor hours 24,000 Variable OH 48,000 Fixed OH 108,000 Total OH per DLH P6.50 Actual data for March were as follows: Direct labor hours worked 22,000 Total OH P147,000 Standard DLHs allowed for capacity attained 21,000 Using the two-way analysis of overhead variances, what is the controllable variance for March? A. 3,000 Favorable B. 5,000 C. 9,000 Favorable D. 10,500 Favorable Unfavorable 16. Solar provided the following information for the transaction occurred during August. The production plant uses the JIT costing system. ∙ Raw materials costing P 750,000 were purchased ∙ All direct materials costing P 750,000 were requisitioned for production ∙ Direct labor costs of P 500,000 were incurred 5

CPARME BATCH 1 Final Pre-board Examination: AFAR ∙ Actual factory overhead costs amounted to P 2,487,500 ∙ Applied conversion cost totaled P 3,250,000. This includes the direct labor cost. ∙ All units are completed and immediately sold. The total RIP used to be backflushed to FG and the adjusted COGS, respectively A. P750,000; 3,737,500 B. P4,000,000; C. P4,000,000; 3,737,500 D. P750,000; 4,262,500 4,262,500

17. GRAND Company has the following information for July: Units started 100,000 units Beginning Work in Process: (35% complete) 20,000 units Normal spoilage (discrete) 3,500 units Abnormal spoilage 5,000 units Ending Work in Process: (70% complete) 14,500 units Transferred out 97,000 units Beginning Work in Process Costs: Material P15,000 Conversion 10,000 All materials are added at the start of the production process. Grand Company inspects goods at 75 percent completion as to conversion. What are equivalent units of production for conversion costs, assuming FIFO? A. 103,900 B. 106,525 C. 108,650 D. 108,900 18. On November 30, 2014, Leather Company authorized Shipped-line Corp. to operate as a franchisee for an initial franchise fee of P 1,950,000. Of this amount, P 750,000 was received upon signing the agreement and the balance, represented by a note, is due in four annual payments starting November 30, 2015. Present value of P 1 at 12% for 4 periods is 0.6355. Present value of an ordinary annuity of P 1 at 12% for 4 periods is 3.0374. The period of refund will elapsed on January 31, 2015. The franchisor has performed substantially all of the initial services but the operations of the store have yet to start. Collectibility of the note is reasonably certain. How much is the unearned franchisee fee? A. P1,661,220 B. P750,000 C. P911,220 D. P0 19. Metro Stonerich Construction Company entered into two construction jobs which both commenced in 2015 (in thousands). Project 1 Project 2 Contract Price P52,500 P37,500 Costs incurred during 2015 30,000 35,000 Estimated Cost to Complete 15,000 8,700 General and administrative Expenses 2,500 1,250 Billings for clients during 2015 31,500 30,000 Collections during 2015 28,000 25,000 Based on the information given, how much is the gross profit would Metro Stonerich Construction report in its 2015 income statement? Percentage of completion Zero profit A. (6,200,000) (1,200,000) B. 5,000,000 (6,200,000) C. (1,200,000) (6,200,000) D. 1,300,000 (1,200,000) 6

CPARME BATCH 1 Final Pre-board Examination: AFAR 20. JP Morgan acquires 80% of Pacific Company’s common stock for P320,000 cash. At that date, the non controlling interest in Pacific has a fair value of P140,000. Also on that date, Pacific reports identifiable assets with a book value of P650,000 and a fair value of P800,000, and it has liabilities with a book value and fair value of P260,000. Gain on bargain purchase arising from acquisition if non-controlling interest is valued on the proportionate basis: A. P112,000 B. P80,000 C. P100,000 D. P94,000 21. On January 1, 2015, Fortune Company purchased 80% of the outstanding shares of Hope Company at a cost of P8,800,000. On that date, Hope Company had P5,000,000 of capital stock and P 5,000,000 of retained earnings. Fortune used the proportionate share in the identifiable net

assets at acquisition date in valuing NCI. For 2015, Fortune Company had income of P2,800,000 from its own operations (excluding its share of income from Hope) and paid dividends of P1,500,000. Hope Company reported net income of P650,000 and paid dividends of P300,000. All assets and liabilities of Hope Company have book value equal to their respective market values. On January 1, 2015, Fortune Company sold equipment to Hope Company for P1,000,000. The book value of the equipment on that date was P1,200,000. The loss of P20,000 is reflected in the income of Fortune Company indicated above. The equipment is expected to have a useful life of five years from the date of the sale. In the December 31, 2015 consolidated statement of financial position, the NCI should be presented at: A. P2,000,000 B. P2,200,000 C. P2,070,000 D. P2,130,000 22. Lexus Corporation purchased 95 percent of the shares of Toyota Company on January 2015. On that date, the book value of Toyota’s net assets approximated fair value. As a result of the purchase, Lexus recognized P600,000 goodwill. During 2015, Toyota sold inventory to Lexus. On December 31, 2015, Toyota had unrealized profits on its books of P100,000. By December 31, 2016, the entire inventory left on Lexus’s books had been sold to outside parties. During 2016, Lexus sold inventory to Toyota and had P150,000 of unrealized profits left on its books at the end of 2016. For 2016, Lexus reported operating income of P5,000,000, and Toyota reported net income of P3,600,000. What is the consolidated income attributable to shareholders of parent for 2016? A. 8,550,000 B. 8,330,000 C. 8,330,500 D. 8,365,000 23. REH Company has a branch in Zambales. Shipments of merchandise to the branch totaled P297,000 for the year, which included a 25% mark-up on cost. The following data summarizing branch operations for the period ended December 31, 2015: Sales on account P407,000 Sales on cash basis 121,000 Collections of accounts 330,000 Expenses paid 149,000 Expenses unpaid 41,000 Purchase of merchandise for cash 143,000 Inventory on hand, January 1 (60% from outside purchases) 114,000 Inventory on hand, December 31 (70% from home office) 165,000 Remittances to home office 302,500 Allowance for overvaluation of branch inventory amounted to P67,000 in the home office books. In the home office books, the branch net income (loss) is: A. P16,000 B. P(51,000) C. P(7,100) D. P(5,580)

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CPARME BATCH 1 Final Pre-board Examination: AFAR 24. Walmart Corporation of Manila paid P960,000 for a 40% interest in Kilona Corporation of Taiwan on January 1, 2015, when Kilona’s net asset totaled 1,500,000 NT dollars and the exchange rate for NT Dollar was P1.60. A summary of changes in Sun’s net assets during 2014 is as follows: NT Dollar Exchange Rates Net assets, January 1 1,500,000 1.60 Net income for 2015 300,000 1.55 Dividends paid for 2015 100,000 1.54 Walmart Corporation anticipated a strengthening of the Philippine peso against the NT Dollar during the last half of 2015, and it borrowed 600,000 NT Dollar from a Taiwanese bank for one year at 10% on July 1, 2015 to hedge its net investment in Kilona. The loan was made when the exchange

rate for NT Dollar was P1.55. The loan was denominated in NT dollar and the current exchange rate at December 31, 2015 was P1.50. The other comprehensive income – translation adjustment in 2015 is: A. P94,400 B. P64,400 C. P34,400 D. P0 25. Melrose Corporation, a Philippine importer, purchased merchandise from Paddocks Company of Thailand for 300,000 baht on March 1, 2015, when the spot rate for a Baht was P1,630. The accounts payable denominated in Baht was not due until May 30, 2015, so Melrose immediately entered into a 90-day forward contract to hedge the transaction against exchange rate changes. The contract was made at a forward exchange rate of P1,650. Melrose settled the forward contract and the accounts payable on May 30, when the spot rate for Baht was P1,600. On the settlement of the forward contract on May 30, 2015, Melrose should record a forex gain (loss) of A. P15,000 B. P(6,00) C. P 6,000 D. P(15,000) 26. The following data are provided by the Troubled Company: Assets of book value P150,000 Assets of net realizable value 105,000 Liabilities at book value Fully secured mortgage 60,000 Unsecured accounts and notes payable 70,000 Unrecorded liabilities Interest on bank notes 500 Estimated cost of administering estate 6,000 The court has appointed a trustee to liquidate the company. The journal entry made by the trustee to record the assets and liabilities should include an estate deficit of: A. P31,500 B. P31,000 C. P25,500 D. P25,000 27. RR and SS are asked by the ABC to handle the marketing of a benefit basketball game. Being avid fans, they readily accepted the offer and formed a joint operation. To achieve on equitable distribution of earnings, they agreed that the partner who finances the purchase of tickets shall be entitled to a 20% commission, the partner who makes ticket sales shall be entitled to a 25% commission, and any remainder was to be divided equally. After the game was over, the following information was obtained: RR purchased tickets worth P26,125: SS, advanced P4,125 for expenses; and, ticket sales made by RR and SS, respectively, were P22.000 and P16,500. How much was SS’s share in the net income (loss) of the joint operations? A. P825 B. P4,125 C. P(3,300) D. P(7,425) 28. On December 18, 201l, the statement of affairs of Downside Company, which is in bankruptcy liquidation, included the following: Assets pledged for fully secured liabilities P100,000 Assets pledged for partially secured liabilities 40,000 8

CPARME BATCH 1 Final Pre-board Examination: AFAR Free assets 120,000 Fully secured liabilities 80,000 Partially secured liabilities 50,000 Unsecured lia...