Afar-preboard-exam - AFAR PROBLEMS WITH ANSWER PDF

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BALIUAG UNIVERSITYCPA Review Program Advanced Financial Accounting and Reporting Final Preboard ExaminationInstructions: Select the best answer for each of the following questions. Mark only one answer for each item on theanswer sheets provided. Strictly NO ERASURES ALLOWED. Comparative trial balanc...

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BALIUAG UNIVERSITY CPA Review Program Advanced Financial Accounting and Reporting Final Preboard Examination Instructions: Select the best answer for each of the following questions. Mark only one answer for each item on the answer sheets provided. Strictly NO ERASURES ALLOWED. 1. Comparative trial balance of the home office of ACE Corporation and its two branches at December 31, 2016 were as follows: Cash Accounts receivable Inventories CHI Branch MIN Branch Plant assets Purchases Shipments from home office Expenses Total

Home Office P 5,000 80,000 150,000 170,000 165,000 730,000 900,000

Accounts payable Other liabilities Loading in branch inventories Share capital, P10 par Retained earnings Home office Sales Shipment branches Totals

CHI Branch P15,000 30,000 60,000

300,000 P2,500,000 P100,000 80,000 108,000 500,000 262,000 1,000,000 450,000 P2,500,000

MIN Branch P22,000 40,000 48,000

250,000

200,000

300,000 75,000 P730,000

240,000 50,000 P600,000

P45,000 15,000

P30,000 5,000

170,000 500,000

165,000 400,000

P730,000

P600,000

Additional information: Home office and branch inventories at December 31, 2016 were: Home office P120,000 CHI Branch (at billed prices) P 72,000 MIN Branch (at billed prices) 96,000 How much net income will ACE Corporation report for year-ended 2016? A. P260,000 B. P122,000 C. P220,000 D. P595,000 2. Which of the following is not considered a legitimate expense of a partnership? A. Interest paid to partners based on the amount of invested capital. B. Depreciation on assets contributed to the partnership by partners. C. Salaries for management hired to run the partnership. D. Supplies used in the partners’ offices. 3. The estimated unit costs for Lodge Inc., when it is operating at a production and sales level of 12,000 units, are as follows: Cost Item Direct materials Direct labor Variable factory overhead Fixed factory overhead Variable marketing

Estimated Unit Cost P 32 10 15 6 3

Fixed marketing AFAR

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Final Preboard Examination

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Compute the total cost that would be incurred during a month with a production level of 11,500 units and a sales level of 9,500 units. A. P800,500

B. P813,000

C. P816,000

D. P852,000

4. If the partnership does not specify how income is to be allocated, profit and losses should be allocated A. Equally. B. In accordance with partners’ capital contribution. C. In proportion to the weighted average of capital invested during the period. D. Equitably so that partners are compensated for the time and effort expended on behalf of the partnership. 5. Riverdale Company incurred P80,000 direct labor cost in 2014 and had the following selected account balances at the beginning and end of 2017: Finished goods January 1, P56,000; Work in process January 1, P24,000; Materials January 1, P34,000; Finished goods December 31, P90,000; Work I process December 31, P28,000; Materials December 31,0P48,000. The total cost of goods sold and actual factory overhead during the year are P280,000 and P70,000 respectively. Determine the total material purchases during the year. A. P182,000 B. P162,000 C. P148,000

D. P144,000

6. When the retiring partner’s interest is greater than the settlement price, using bonus method, the difference is A. Debited to the remaining partners’ capital accounts B. Credited to the retiring partner’s capital account C. Credited to the remaining partner’s capital accounts D. Recognized in the profit or loss for the period. 7. The following data summarizes in part the results of operations for 2017 of Veronica Company. Of the total cost of goods manufactured for 2017, 38% was for materials used, 30% for direct labor, and 32% for manufacturing overhead. During 2017, the company paid for 90% of the materials purchased, leaving P293,000 of unpaid invoices for materials at year end. The company commenced 2017 operations with a materials inventory of P421,000. All materials were purchased f.o.b. company’s plant. The company disbursed P2,101,500 for direct labor during 2011. As of Dec. 31, 2017, the accrued liability for direct amounted to P144,000, which was twice as much as last year’s accrual. The inventory of finished goods on December 31, 2017, was 10% of the cost of the units fifnished during the year, and goods in process on that date were one-half the finished goods inventory. This year’s finished goods inventory was 150% of last year’s. there are no goods in process last year. The manufacturing overhead, except for depreciation of factory buildings and equipment, is detailed below: Indirect labor P 672,000 Heat, light, and power 226,200 Maintenance and repairs 488,300 Insurance – factory 18,100 Property taxes 64,400 Factory payroll taxes 97,000 Miscellaneous factory costs 276,400 P 1,842,400 How much is the cost of sales during 2017? C. P 6,670,000 D. P5,757,500 A. P 7,245,000 B. P 6,900,000 8. 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 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. C. Unrealized profit from internal transfers 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. D. 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.

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Final Preboard Examination AFAR 9. During 2018, Jughead Company purchased materials costing P152,600. Materials requisitioned for jobs cost P98,000, and indirect materials costing P42,000 were charged to Factory Overhead. Factory payrolls were P212,000 with payroll taxes deducted of P60,000. Indirect labor of P71,000 included in the payrolls was charged to factory Overhead. All other labor was direct labor charged to the jobs. Factory overhead was applied to the jobs at the rate of P8 per machine hour. During the year, the company operated at 45,000 machine hours and incurred factory overhead costs of P259,000 (in addition to the indirect materials and indirect labor previously stated). Depreciation of P47,000 was included in the P259,000 of factory overhead costs. Product costing P465,000 were completed during the year, and the cost of goods sold was P480,000. At the beginning of the year, Jughead had the following balances: Materials P27,000; Work in Process P48,000; Finished Goods P34,000 Determine the cost of work in process ending inventory for 2018. A. P134,000 B. P182,000 C. P167,000 D. P194,000 10. Allocated expenses from the home office will be recorded by the home office as debit to A. Investment in Branch C. Home Office B. Expense account D. Cash

Items 11 and 12 are based on the following: Benny, Jenny, and Kenny are partners in a trading business. They participate in the profits and losses equally. As of December 31, 2016, the partners’ capital and drawing accounts are as follows: Benny Jenny Kenny Total Capital P20,000 P16,000 P600,000 P96,000 Drawing 12,000 8,000 4,000 24,000 The partners decided to liquidate the partnership. The operating profit for the year 2016 amounted to P14,400, which was all exhausted including partnership assets. As of December 31, 2016, unpaid liabilities still amounted to P16,800. Benny is personally insolvent, but both Jenny and Kenny have substantial private resources. 11. The total loss on realization was: D. P103,200 A. P72,000 B. P88,800 C. P96,000 12. The amount received by Kenny in final cash distribution was: A. P15,600 B. P16,800 C. P21,600 D. P32,400 13. The face amount of a loans payable is greater than the net realizable value of the attached inventory lien. The inventory shall be classified under A. Partially secured creditors C. Assets pledged with partially secured creditors B. Fully secured creditors D. Assets pledged with fully secured creditors 14. It is equals to the total assets under receivership minus total liabilities to be liquidated when the latter is greater than the assets. A. Estate equity C. Capital deficiency B. Estate deficit D. Receivership net loss 15. Partners D, I, L, and G, share profits 40%, 30%, 15%, and 15%, respectively. Their partnership agreement provides that in the event of the death of a partner, the firm shall continue until the end of the fiscal period. Profits shall be considered to have been earned proportionately during this period, and the deceased partners’ capital shall be adjusted by the proper share of the profit or loss until the date of death. From that date until the date of settlement with the estate there shall be added interest at 6% computed on the adjusted capital. The remaining partners shall continue to share profits in the old ratio. Payment to the estate shall be made within one year from the date of the partner’s death. Partner G died on November 16. On December 31, the end of the sixmonth period, account balances on the partnership books before the income summary account is closed are as follows: Cash P 7,500 Notes payable P15,000 Accounts receivable 70,000 Accounts payable 70,500 Inventories 95,000 D, capital 42,000 Machinery and equipment, net 45,000 I, capital 37,500 Store furniture and fixtures, net 16,500 L, capital 24,000 G, capital 22,500 Income summary _______ (7/1-12/31) 22,500 P 234,000 P 234,000

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Final Preboard Examination AFAR The income summary account is closed on December 31. On this date, L decides to retire. D and I agree to pay the balance in L’s capital account after distributions of profit, less 20%, and issue a partnership 60-day, 6% note to L in settlement. What amount is due to G’s estate on December 31? D. P25,218.99 A. P22,500 B. P25,875 C. P25,062.50 16. Loss absorption potential of a partner computed during the preparation of cash priority program is equals to A. {Partner’s capital account plus partner’s loan (receivable)} multiplied by the respective PL ratio. B. {Partner’s capital account minus partner’s loan (receivable)} divided by the respective PL ratio. C. {Partner’s capital account plus partner’s loan (payable)} multiplied by the respective PL ratio. D. {Partner’s capital account minus partner’s loan (payable)} divided by the respective PL ratio. 17. On December 1, 2017, Coach Corp. entered into a 120-day forward contract to purchase 250,000US dollars for speculative purposes, Coach Corp. fiscal year ends on December 31. The exchange rates are as follows: Date Spot rate Forward rate (3/31/10) December 1, 2017 P45.00 P45.50 December 31, 2017 46.00 46.50 January 30, 2018 45.60 45.30 March 31, 2018 45.10 How much is the forex gain or loss to be reported from this forward contract in 2018? B. P350,000 C. P300,000 D. P225,000 A. P250,000 18. The third step in the revenue recognition model framework under IFRS 15 is A. Determine the transaction price B. Recognize revenue when (or as) the entity satisfies a performance obligation C. Allocate the transaction price to the performance obligations in the contract D. Identify the performance obligations in the contract 19. MELROSE Corporation issued a promissory note denominated in foreign currency for the purchase made from an Italian supplier. The following were the related transactions: (in Italy Lire). On December 1, MELROSE Corporation purchased merchandise from an Italian supplier for 60-day 18% promissory note for 108,000 Italy lire, at a selling rate 1FC to P74.20. On December 31, the selling spot rate is 1FC to P74.85. On January 30, the selling spot rate is 1FC to P75.75 On the settlement date, how much is the foreign exchange gain/loss? A. P98,658 loss B. P172,422 gain C. P100,116 loss

D.P172,422 loss

20. SAVEMORE Corp. entered into a forward contract to hedge a sale of inventory in October 26, 2017 to be collected on January 24, 2017. 72,000 FC (foreign currency) in 90 days. The relevant exchange rate as follows: Spot rate Forward rate (1/24/18) October 26, 2017 P52.73 P52.77 December 31, 2017 52.82 52.89 January 24, 2018 52.94 What is the net forex gain (loss) from this transaction and hedge that will be reported on SAVEMORE’s 2017 statement of income? D. (P2,160) A. P15,120 B. (P8,640) C. P6, 480 21. The Construction-in-Process account accumulates the following when the percentage-of-completion method is used A. Construction costs to date. C. Construction costs plus gross profit earned to date. B. Construction costs to date less billings to date. D. Construction costs to date less payments received

22. SBX Restaurant sold a fast food restaurant franchise to NKE Corporation. The sale agreement signed on January 2, 2016 called for a P70,000 down payment plus two P15,000 annual payments representing the value of initial franchise services rendered by SBX. The present value factor of two annual payments appropriately discounted at 10% is 1 7355. In addition, the agreement required the franchise to pay 5% of its gross revenues to the franchisor; this was deemed sufficient to cover the cost and provide a reasonable profit margin on continuing franchise services to be performed by SBX. The restaurant opened early in 2016 and its sales for the year amounted to P600,000. SBX Restaurant’s 2016 total revenue from the franchise will be: D. P 126,000 A. P 0 B. P 30,000 C. P56,033 23. Under installment sales method,

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Final Preboard Examination AFAR A. Revenue, costs and gross profit are recognized proportionately to the cash that is received from the sale of the product. B. Gross profit is not recognized until the amount of cash received exceeds the cost of the item sold. C. Gross profit is deferred proportionately to cash uncollected from sale of the product, but total revenue and costs are recognized at point of sale. D. Revenues and costs are recognized proportionately to the cash received from the sale of the product, but gross profit is deferred until all cash is received. 24. On January 1, 2015, Mrs. Fields entered into a franchise agreement with KK to market their products. The agreement provides for an initial fee of P15,500,000 payable as follows: P6,500,000 to be paid upon signing of the contract and the balances in five equal annual payments every end of the year starting December 31, 2015. Mrs. Fields signs a non-interest bearing notes for the balance. His credit rating indicates that he can borrow money at 15% interest for a loan of this type. The present value of an annuity of P1 at 15% for 5 periods is 3.352. The agreement further provides that the franchise must pay a continuing franchise fee equal to 3% of the monthly gross sales. On August 31, the franchiser completed the initial services required in the contract at a cost of P7,290,120 and incurred indirect cost of P475,000. The franchisee commenced business operations on November 30, 2015. The gross sales reported to the franchisor were P1,800,000 for December, 2015. The first installment payment was made in due date. Assume the collectability of the note is not reasonably assured the net income for the year ended, December 31, 2015 is D. P4,551,268 A. P4,121,288 B.P5,026,268 C. P5,243,480 25. According to IFRS 15, where a contract has multiple performance obligations, an entity will allocate the transaction price to the performance obligations in the contract by reference to their relative A. Net realizable values C. Fair market values D. Fair value less cost of disposal B. Stand-alone selling prices Love Corporation has been using the cash method to account for income since its first year of operations in 2016. All sales are made on credit with notes receivable given by the customers. The income statements for 2016 and 2017 included the following amounts: 2016 2017 Revenues – collection on principal P96,000 P150,000 Revenues – interest 10,800 16,500 Cost of goods purchased* 151,800 156,060 *Includes increase in inventory of goods on hand of P6,000 in 2016 and P24,000 in 2017 The balance due on the notes at the end of each year were as follows:

Notes receivable – 2016 Notes receivable – 2017 Unearned interest revenue – 2016 Unearned interest revenue – 2017

2016 P186,000 21,501

2017 P108,000 180,000 16,737 24,129

26. Under the installment method, how much is the realized gross profit in 2016? A. P48,240 B. P96,000 C. P53,667 D. P10,10632 27. Under the installment method, how much is the realized gross profit in 2017? C. P69,987 D. P64,845 A. P36,801 B. P33,186 28. An entity may use residual approach per IFRS 15 when allocating transaction price under which circumstance(s)? i. The entity sells the same good or service to different customers (at or near the same time) for a broad range of amounts ii. The entity has not yet established a price for that good or service and the good or service has previously been sold on a stand-alone basis. A. Both i and ii C. ii only B. Neither i nor ii D. i only 29. With regard to the definition of revenue given by IFRS15, which of the following statements is true? A. Revenue includes cash received from share issues B. Revenue arises from ordinary activities only C. Revenue includes cash received from borrowings D. Revenue may arise from either ordinary activities or extraordinary activities

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Final Preboard Examination

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Items 30 and 31 are based on the following: Belgium Corporation owns 80 percent of the stock of Hillinger Company. At the end of 2017, Belgium Corp. and Hillinger Company reported the following partial operating results and inventory balances: Total sales Belgium Corp. Hillinger Co. Sales to Hillinger Company P 660,000 P 510,000 Sales to Belgium Corporation 140,000 Net income 20,000 Operating income (excluding income from Hillinger Company) 70,000 Inventory on hand, December 31, 2017 purchased from Hillinger Company 48,000 purchased from Belgium Corporation 42,000 Belgium Corporation regularly prices its products at cost plus a 40 percent markup for profit. Hillinger Company prices its sales at cost plus a 20 percent markup. The total sales reported by Belgium and Hillinger include both intercompany sales and sales to nonaffiliates. 30. The consolidated cost of sales for 2017 must be: A. P596,428 B. P616,428

C. P576,428

31. The controlling interest net income for 2017 must be: A. P67,600 B. P70,000 C. P90,000

D. P536,428

D. P86,000

32. Defined by IFRS 11 as 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 operation C. Jointly controlled asset B. Jointly controlled entity D. Joint venture 33. According to IFRS 11, a party that participates in, but does not have joint control of, a joint venture shall account for the investment (assume nominal interest) using C. IFRS 9 A. IFRS 11 B. IAS 28 D. IAS 7

34. Clydes Bakery owns 60 percent of the stock of Good Shepherd Products acquired several years ago at book values. On January 1, 2017, inventory reported by Clydes Bakery included 20,000 bags of flour purchased from Good Shepherd Products at P90 per bag. By December 31, 2017, all these beginning inventory purchased from Good Shepherd Products had been baked into products and sold to customers by Clydes Bakery. There were no transactions between Clydes Bakery and Good Shepherd Products during 2017. Both Clydes Bakery and Good Shepherd Products price their sales at cost plus 50% mark-up for p...