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NORTHERN CPA REVIEW4 th Floor Pelizloy Centrum, Lower Session Road, Baguio City, Philippines Mobile Numbers: SMART 09294891758 & GLOBE 09272128204 E-mail: ncpar@yahooREX B. BANGGAWAN, CPA, CPAPRACTICAL ACCOUNTING IIFINAL PRE-BOARD EXAMINATIONINSTRUCTION: Shade the letter corresponding to the...

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Northern CPAR: Practical Accounting II – FINAL PRE-BOARD EXAMINATION

NORTHERN CPA REVIEW 4th Floor Pelizloy Centrum, Lower Session Road, Baguio City, Philippines Mobile Numbers: SMART 09294891758 & GLOBE 09272128204 E-mail: [email protected]

REX B. BANGGAWAN, CPA, CPA PRACTICAL ACCOUNTING II FINAL PRE-BOARD EXAMINATION INSTRUCTION: Shade the letter corresponding to the answer of your choice in the answer sheet provided for. Erasure is not allowed. 1. The partnership of Henedina and Helena reported the following results of operation for the year 2008: Sales Cost of goods sold Gross profit Administrative expenses, inclusive of salaries and bonuses Net income

P P

5,000,0002,000,000) 3,000,000-

P

1,400,000) 1,600,000-

( (

Bonus is computed as 20% of net income before salaries of P40,000 to Henedina and P60,000 to Helena, but after the bonus. Compute the amount of bonus. a. P400,000 c. P340,000 b. P425,000 d. P500,000 2. PP contributed a P24,000 and CC contributed P48,000 to a form partnership, and they agreed to share profits in the ratio of their original capital contributions. During the first year of operations, they made a profit of P16,290; PP withdrew P5,050 and CC P8,000. At the start of the following year, they agreed to admit GG into the partnership. He was to receive a one-fourth interest in the capital and profits upon payment of P30,000 to PP and CC, whose capital accounts were to be reduced by transfers to GG’s capital account of amounts sufficient to bring them back to their original capital ratio. How should the P30,000 paid by GG be divided between PP and CC? a. PP, P9,825; CC, P20,175. c. PP, P10,000; CC, P20,000 b. PP, P15,000; CC, P15,000. d. PP, P9,300; CC, P20,700 3. The estate administrator of D Corporation, which is undergoing liquidation, reported the following: Total free assets P 100,000 Total assets pledged to fully secured debt 80,000 Total assets pledged to partially secured debt 40,000 Priority liabilities 30,000 Fully secured debt 60,000 Partially secured debt 50,000 Unsecured debt without priority 110,000 If the assets were sold at net realizable values, how much shall partially secured creditors receive? a. P37,500 c. P32,500 b. P47,500 d. P42,500 4. The administrator of Sunji, Inc. which was forced into a bankruptcy proceeding, reported the following after 6 months of liquidation: Assets to be realized Assets acquired Assets realized Assets not realized Liabilities to be liquidated Liabilities assumed

P 1,000,000 200,000 400,000 700,000 1,100,000 150,000

NCPAR…driven for real excellence!

P2 by Rex B. Banggawan, CPA, MBA

1 P2 – 5th Batch – PB03

Northern CPAR: Practical Accounting II – FINAL PRE-BOARD EXAMINATION Liabilities liquidated Liabilities not liquidated Supplementary debits Supplementary credits

450,000 800,000 200,000 300,000

At the start of liquidation, Sunji, Inc. has P50,000 capital deficiency. What is the ending balance of cash? a. P40,000 c. P60,000 b. P50,000 d. P70,000 5. Agency J of the Government has the following data during the year: Allotments and NCAs received Total cash expenses Depreciation expenses Capital expenditures (purchases of fixed assets)

P 4,000,000 3,000,000 200,000 800,000

Agency J should report net operating surplus of a. P 200,000 c. P 600,000 b. P 400,000 d. P 800,000 6. An option has a fair value of P100,000 in an organized option market on December 31, 2010. The put option was for 100 kilos of gold for P40,000 a kilo. As of that date, gold sells P39,800 a kilo. The intrinsic value of the option as of December 31, 2010 is a. P 0. c. P80,000. b. P 20,000. d. P99,800. 7. Environ is a non-profit charitable institution. During 2010, it recorded the following transactions:  Receipt of P1,000,000 donation from a donor who specified that the sum shall be used for building acquisition  Receipt of specialized equipment from a donor worth P400,000 restricted for research  Receipt of P300,000 from another non-profit institution which stipulates that the donation shall not be used until 2012  Receipt of P200,000 from a donor who stipulated that it is to be used for interest payment on Environs unpaid plant loan  Receipt of P1,000,000 unrestricted grants from various donors which the Board of Trustees restricted for operational expenses  Total expenses, P800,000 broken down as: P600,000 program expenses and P200,000 support expenses which is includes P20,000 interest expense paid from the P200,000 grant.  Equipments with book value of P300,000 were sold for P350,000 The net change in unrestricted net asset during 2010 is a. P270,000 increase c. P250,000 increase b. P220,000 increase d. P780,000 decrease 8. The net cash provided by financing activities is a. P1,500,000 inflow c. P1,900,000 inflow b. P1,850,000 inflow d. P2,250,000 inflow The following problem applies for Number 9 through 11: 9. Bright hedges a forecasted purchase transaction using a call option acquired at P200,000 on November 1, 2009. The option gives Bright the right to purchase 1,000 kilos of gold for P40,000/kilo. The option expires January 30, 2010. Bright designated the intrinsic value of the option as hedge of the forecasted purchase transaction. The gold and the option and were quoted in their respective markets as follows:

November 1, 2009 December 31, 2009 January 30, 2010

Gold P P P

price/kilo 40,000 40,500 40,800

Option P 200,000 P 600,000 P 800,000

NCPAR…driven for real excellence!

P2 by Rex B. Banggawan, CPA, MBA

2 P2 – 5th Batch – PB03

Northern CPAR: Practical Accounting II – FINAL PRE-BOARD EXAMINATION Bright purchased 1,100 kilos of gold on January 30, 2010 and resold 660 kilos for P42,000/kilo in 2010. The mount of gain or loss related to the option to be presented in the statement of other comprehensive income for 2010 is a. P 400,000 c. P 200,000 b. P 300,000 d. P 800,000 10. What is the income effect of the option in the 2010 profit or loss? a. P380,000 increase c. P480,000 increase b. P280,000 increase d. P100,000 decrease 11. What is the adjusted cost of goods sold in 2010? a. P26,928,000 c. P26,548,000 b. P26,448,000 d. P27,408,000 12. Petroenergy forecasted to purchase 1,000,000 barrels of oil on January 1, 2010. On January 1, 2008, Petroenery entered into a futures contract to purchase 1,000,000 barrels of oil for P6,000 per barrel on January 1, 2011. On December 31, 2008 and December 31, 2009, the price of a barrel of oil is P6,100 and P6,150, respectively. Assume that the relevant discount rate is 10%. Compute the value of the futures contract on December 31, 2008. a. P0 c. P82,644,628 b. P100,000,000 d. P90,909,091 13. Compute the gain/loss on futures contract in equity on December 31, 2009. a. P0 c. P136,363,636 b. P50,000,000 d. P150,000,000 14. On December 1, 2010, Pines sold various merchandise to a foreign customer on account for $100,000 n/60. The following were the relevant exchange rates to the dollar: December 1, 2010 December 31, 2010 January 31, 2011 Which statement a. Pines should b. Pines should c. Pines should d. Pines should

P 50 P 48 P 52

is incorrect? report P200,000 forex loss as of December 31, 2010 report P400,000 forex gain as of December 31, 2011 report P4,800,000 receivables as of December 31, 2010 receive P5,000,000 on settlement

15. AA operates a wholly owned subsidiary in a foreign country whose functional currency is Yen. At the end of 2010, the subsidiary reports Y10,000,000 in assets, P4,500,000 in liabilities and P3,000,000 in issued equity. Accumulated profits increased by Y1,500,000 with a profit of Y2,000,000 and dividends of Y500,000 made at the middle of the year. The following may be relevant in translating the financial statements of the foreign subsidiary: Historical rates January 1, 2010 2010 average December 31, 2010

P1:Y2.3 P1:Y2.2 P1:Y2.1 P1:Y2.0

Compute the translated shareholder’s equity of the foreign subsidiary as of December 31, 2010. a. P2,750,000 c. P7,500,000 b. P5,500,000 d. P11,000,000

NCPAR…driven for real excellence!

P2 by Rex B. Banggawan, CPA, MBA

3 P2 – 5th Batch – PB03

Northern CPAR: Practical Accounting II – FINAL PRE-BOARD EXAMINATION 16. Hyper Corporation which operates in a hyperinflationary environment has the following accounts: Land Mortgage receivable Financial asset at fair value through profit or loss

CU 2,000,000 2,000,000 3,000,000

The land was acquired on January 1, 2008 and the mortgage was initially recognized in the balance sheet on January 1, 2009. The financial asset at fair value through profit or loss was acquired on the mid-half of 2009. Index Exchange rates January 1, 2008 100 CU 1,000/P1 January 1, 2009 240 CU 2,000/P1 2009 average 400 CU 2,400/P1 December 31, 2009 500 CU 2,500/P1 Compute the total amount to be reported for the above accounts in the restated balance sheet as of December 31, 2009. a. P15,333,333 c. P6,133,333 b. P15,000,000 d. P15,750,000 17. The translated total amount of the above accounts in the translated balance sheet as of December 31, 2009 is a. P6,133.333 c. CU15,750,000 b. P6,000.000 d. CU15,333,333 18. The comparative equity section of the balance sheet of Ruselle Company, a foreign subsidiary, is shown below:

Ordinary shares Share premium Accumulated profit

12/31/2009 (unstranslated) $ 1,000,000 400,000 200,000 $ 1,600,000

12/31/2009 (Translated) P 50,000,000 17,200,000 10,200,000 P 77,400,000

12/31/2010 (unstranslated) $ 1,000,000 400,000 300,000 $ 1,700,000

During 2010, Russelle reported P400,000 profit. Dividends were declared on December 15, 2009. The following exchange rates between the dollar ($) and Peso, the reporting currency, were compiled: December 31, 2010 December 15, 2010 2010 average

P 48.00 48.50 49.00

Compute the 12/31/2010 balance of Translation adjustment gain or loss. a. P1,550,000 gain c. P850,000 loss b. P1,050,000 loss d. P850,000 gain 19. First Rate, Inc. acquired Excellence, Inc. through equity swap resulting in First Rate acquiring whole of the 1,000,000 ordinary shares of Excellence by issuing 800,000 of its previously unissued ordinary shares. The equity of First Rate and Excellence show the following before combination: First Rate Excellence Ordinary shares, P10 par P 4,000,000 P10,000,000 Share premium 3,000,000 4,000,000 Accumulated profit 2,000,000 2,000,000 The net assets of both First Rate, Inc. and Excellence approximate fair values and their shares were both trading at P20 per share at the date of acquisition. What amount of goodwill should be reported on the consolidated balance sheet at the date of acquisition? a. P 0 c. P1,000,000 b. P 500,000 d. P1,200,000

NCPAR…driven for real excellence!

P2 by Rex B. Banggawan, CPA, MBA

4 P2 – 5th Batch – PB03

Northern CPAR: Practical Accounting II – FINAL PRE-BOARD EXAMINATION 20. On January 1, 2008, Hexagon acquired 80% of Octagon in a purchase business combination. Hexagon paid P2,400,000 in the purchase of 80% interest. Octagon’s book value of net assets were P2,500,000. The excess of cost over book value acquired is attributed to undervalued equipment with a 5 year remaining useful life. Octagon reported P400,000 and P200,000 profits in 2008 and 2009, respectively. Octagon also declared P300,000 dividends during 2008 and 2009. What amount should be reported as non-controlling interest in net assets as of December 31, 2009? a. P2,160,000 c. P2,360,000 b. P2,320,000 d. P2,450,000 21. On May 1, 2008, Investor acquired 8,000 of the 10,000 outstanding shares of Investee for a total price of P960,000. During 2008, Investor received the following dividends: Date declared April 15, 2008 October 15, 2008

Date paid May 15, 2008 November 15, 2008

Dividends per share P4 per share P8 per share

Investee reported P50,000 net income for the year ended December 31, 2008. P20,000 of these were earned in the first quarter of 2088. How much dividend income should Investor present in its 2008 separate financial statements? a. P 0 c. P 64,000 b. P 40,000 d. P 96,000 22. Pater holds 40% interest in Lad, a jointly controlled entity. The income statement of Pater and Lad is presented below: Sales Cost of sales Administrative expenses Selling expenses Profit

Pater P 1,500,000 700,000 200,000 200,000 400,000

Lad P1,000,000 600,000 100,000 200,000 100,000

Lad sold Pater goods costing P200,000 for P250,000. 2/5 of these remained unsold by Pater as of December 31, 2009. What should Pater and Lad reports as consolidated cost of sales using proportional consolidation? a. P832,000 c. P848,000 b. P846,000 d. P860,000 The following applies for Numbers 21 and 22: 23. On January 1, 2008, Pyrite acquired 60% of the net assets of Copper. The acquisition cost of Pyrite included a P240,000 premium which is allocated as follows:  Inventory P 60,000  Building (10-year rem. life) 120,000  Land 60,000 On July 1, 2008, Pyrite sold an item of equipment to Copper at a gain of P100,000. This equipment is depreciated by Copper over a 4 year useful life. Copper also sold Pyrite various goods costing P200,000 at a gross profit of 20%. 40% of these remained in the inventory of Pyrite as of December 31, 2009. Pyrite and Copper reported profits of P400,000 and P300,000, respectively. Both Pyrite and Copper uses FIFO method for inventories and straight line method for fixed asset depreciation. Compute the 2009 consolidated net income. a. P 580,500 c. P 689,000 b. P 668,000 d. P 693,000 24. Compute the 2009 non-controlling interest in net income. a. P 83,200 c. P 107,200 b. P105,600 d. P 112,000

NCPAR…driven for real excellence!

P2 by Rex B. Banggawan, CPA, MBA

5 P2 – 5th Batch – PB03

Northern CPAR: Practical Accounting II – FINAL PRE-BOARD EXAMINATION 25. The records of Titanium Home office and its Baguio Branch for 2009 is shown below: Home Baguio Office Branch Beginning inventory P 60,000 P 25,000 Purchases 250,000 60,000 Shipments to branch 80,000 Mark-up on branch inventory 22,000 Shipments from home office 80,000 Ending inventory 40,000 20,000 Effective January 1, 2009, Titanium home office began billing its Baguio branch 25% above cost. The ending inventory of the home office and the branch did not include P12,000 and P8,000 merchandise, respectively, which were held out by consignees. P5,000 of the branch beginning inventory were purchased externally. Half of the branch ending inventory per count plus those held by consignees are purchased externally. What is the billing rate on cost of the home office on 2008 shipments to the branch? a. 10.00% d. 12.50% b. 11.11% d. 12.00% 26. What is the combined cost of goods sold for 2009? a. P315,000 c. P299,000 b. P342,000 d. P325,000 27. Hallway, a customer of Corridor Trading, had an account balance of P82,500 when the generator he purchased from the latter was repossessed. The generator was previously sold to him by Corridor for P137,500 on installment at a gross profit of 40%. Assuming the repossessed generator had an appraised value of P44,550, what will be the gain (loss) to be recognized by Corridor upon repossession? a. (P22,770) c. (P4,950) b. P11,550 d. (P37,950) 28. On January 3, 2009, Goldi licensed Fishy to operate its franchise for P5,000,000. Fishy made a 20% downpayment and submitted a P4,000,000 9%note payable in four annual installments of P1,000,000, inclusive of interest, every December 31. It was further agreed that Goldi charges additional 5% franchise fee on Fishy’s monthly sales. Fishy reported P1,000,000 and P1,500,000 sales in November and December, respectively. What should Goldi report as total franchise revenue during 2009? a. P5,125,000 c. P5,485,000 b. P4,364,720 d. P4,656,295 29. Pioneer Construction accepted a contract with a cost escalation clause. Construction data were as follows: Contract price Cost incurred Estimated cost to complete

P

2009 900,000 200,000 400,000

2010 P 1,080,000 600,000 100,000

Using percentage of completion cost to cost-input measure, the gross profit in 2010 is a. P160,000 c. P74,429 b. P 60,000 d. P225,714 30. On July 1, 2009, Heart Company signed an agreement to operate as a franchisee of the Lung Corporation for an initial franchise fee of P120,000. The same date, Heart paid P40,000 and agreed to pay the balance in four equal annual payments of P20,000 beginning July 1, 2010. The collectability of the balance is reasonably assured and no future services are required of the franchisor. Heart can borrow at 14% for a loan of this type....