PRAC 2 - prac 2 PDF

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Use the following information for the first three itemsThe partnership of Maring and Habagat began business on January 1, 2013. The following assets were contributed by each partner (the non-cash assets are stated at their fair values on January 1, 2013):Maring Habagat Cash P 30,000 P 20, Inventorie...

Description

Use the following information for the first three items 1. The partnership of Maring and Habagat began business on January 1, 2013. The following assets were contributed by each partner (the non-cash assets are stated at their fair values on January 1, 2013): 2. Cash Inventories Land Equipment

P

Maring 30,000 50,000 100,000

P

Habagat 20,000 200,000 -

3.

4. The land was subject to a P65,000 mortgage, which the partnership assumed on January 1, 2013. The equipment was subject to an installment note payable that had an unpaid principal amount of P35,000 on January 1, 2013. The partnership also assumed this note payable. According to the partnership agreement, each partner was to have a 50% capital interest on January 1, 2013, with total partnership capital being P300,000. Maring and Habagat agreed to share partnership income and losses in the following manner:

Interest on beginning capital Salaries Remainder

P

Maring 4% 15,000 60%

P

 Inventory was acquired at a cost of P30,000. At December 31, 2013, the partnership owed P6,000 to its suppliers. The partnership inventory at December 31, 2013 was P20,000.  Principal of P10,000 was paid on the mortgage. Interest expense incurred on the mortgage was P4,000, all of which was paid by December 31, 2013.  Principal of P7,500 was paid on the installment note. Interest expense incurred on the installment note was P2,500, all of which was paid by December 31, 2013.  Sales on account amounted to P115,000. At December 31, 2013, customers owed the partnership P10,000.  Selling and general expenses, excluding depreciation, amounted to P21,000. At December 31, 2013, the partnership owed P3,000 of accrued expenses. Depreciation expense was P5,000.  Each partner withdrew P225 each week in anticipation of partnership profits.  The partners allocated the net income for 2013 and closed the accounts. Additional information: On January 1, 2014, the partnership decided to admit Nando to the partnership. On that date, Nando invested P100,900 of cash into the partnership for a 20% capital interest.

D. P1,000

The capital balance of Maring at the end of 2013: A. P138,000 B. P139,800

C. P148,800

D. P150,600

The capital balance of Habagat after Nando’s admission must be: A. P150,140 B. P151,100 C. P155,900

D. P156,860

Janine and Nicole formed a general professional partnership (practicing law) in the Philippines on January 1, 2014. Their capital contributions were credited to their respective capital accounts as follows: Janine, Capital – P600,000 Nicole, Capital – P1,000,000. During the year, the partnership earned profit before tax of P4,000,000. The income tax rate was 30%.

Habagat 4% 10,000 40%

During 2013, the following events occurred:

The share of Habagat on the net income of 2013 must be: A. P10,200 B. P9,000 C. P3,000

How much is the share of Nicole in the partnership profit? a. P1,750,000 b. P2,500,000 c. P1,500,000

5.

d. P2,000,000

Manolo, Jane, Joshua and Loisa own a publishing company that they operate as a partnership. Their agreement includes the following: a. b. c. d. e.

Manolo will receive a salary of P20,000 and a bonus of 3% of income after all the bonuses Jane will receive a salary of P10,000 and a bonus of 2% of income after all the bonuses All partners are to receive the following: Manolo – P5,000; Jane – P4,500; Joshua – P2,000; and Loisa – P4,700, representing 10% interest on their average capital balances. Any remaining profits are to be divided equally among partners Partnership reports a profit of P40,000.

How much is Jane’s share in the profit if the profit is distributed in the following order of priority: interest on invested capital, then bonuses, then salary, and then according to profit and loss percentage? A. P12,443 B. P12,560 C. P12,830.75 D. P13,235.75 Use the following information for the next two items On June 1, 2012, L and M formed a partnership with cash investments of P330,000 and P420,000, respectively. Upon formation, the partners agreed to bring their capital ratio in proportion with their profit or loss ratio which is L-30% and M-70% and M is the partner who has to invest or withdraw

sufficient amount of cash to conform with the agreement. Profit allocation were as follows: monthly salaries, L-P36,000 and M-P30,000. The partners will be allowed with interest of 12% on their capital balances at the end of the year before closing the income summary account and any distribution against net income. M receives a bonus of 20% of net income after deducting the bonus and his salary.

In 2012, the partnership reported net income of P450,000 before any deductions and each partner has drawings of P150,000 distributed at year-end against share in net income.

10. Rushnell, Adrianne and Christine were partners with capital balances on January 2, 2014 of P350,000, P525,000 and P700,000. Their profit ratio is 5:3:2 while the original interest ratio is 4:4:2. On July 1, 2014, Jensie was admitted by the partnership for 20% interest in capital and 25% in profits by contributing P87,500 cash. The partnership had a net income of P210,000 before admission of Jensie. Prior to the admission of Jensie, the partners agree to revalue its overvalued equipment by P35,000. The capital balance of Rushnell after admission of Jensie is: A. P297,500 B. P354,200 C. P470,400 D. P588,000

On January 1, 2013, N was admitted as a partner by purchasing 1/3 interest of M, paying the selling partner the amount of P276,000. N also invested P230,000 cash for a total interest of 20% in capital of the partnership.

11. Partners A, B, C and D, who share profits 5:3:1:1 respectively, decide to dissolve. Capital balances at this time are P60,000, P40,000, P30,000 and P10,000 respectively. Before selling the firm’s assets, the partners agree to the following:

On August 1, 2012, L invested additional P80,000 and withdrew P30,000 on October 1, 2012. On September 1, 2012, M invested additional P48,000 cash and withdrew P18,000 on December 1,2012.

6.

7.

8.

9.

admission of Max, the partners agree to revalue its overvalued equipment by P35,000. Capital balance of Adrian increased by P10,500 as a result of the admission of Max while the capital balance of Nicole at the start of the year is P700,000. The capital balance of Monica at the start of the year is: A. P350,000 B. P354,000 C. P441,000 D. P577,500

Determine the capital balances of L, after admission of N. A. P498,294 B. P541,340 C. P512,290

D. P529,798

Determine the capital balances of M, after admission of N. A. P718,202 B. P724,306 C. P702,220

D. P698,440

D, E and F attorneys, decide to form a partnership and agree to distribute profits in the ratio of 5:3:2. It is agreed, however, that D and E shall guarantee fees from their own clients of P60,000 and P50,000 respectively, that any deficiency is to be charged directly against the account of the partner with fees exceeding the guarantee. Fees earned during 2009 are classified as follows: From clients of D P100,000 From clients of E 40,000 From clients of F 10,000 Operating expenses for 2009 are P20,000. From the above data, compute the net effect on partners’ capital increase or (decrease) by: D E F A. P100,000 P26,000 P24,000 B. P 40,000 P(20,000) --C. P 90,000 P(20,000) P20,000 D. P 50,000 P 30,000 P20,000 Monica, Adrian and Nicole were partners in The Legal Wife Partnership. Their profit ratio is 5:3:2 while the original interest ratio is 4:4:2. On July 1, 2014, Max was admitted by the partnership for 20% interest in capital and 25% in profits by contributing P87,500 cash, and the old partners agree to bring their interest to their original capital ratio. Max is the recipient of the transfer of capital of P280,000 from the existing partners. The partnership had a net income of P210,000 before admission of Max. Prior to the

1. Partnership furniture and fixtures, with the book value of P12,000, is to be taken over by partner A at a price of P15,000. 2. Partnership claims of P20,000 are to be paid off and the balance of cash on hand, P30,000, is to be divided in a manner that will avoid the need for any possible of cash from a partner. How much the P30,000 cash be distributed to the partners? A A. B. C. D.

P0 P(2,500) P0 P0

B P 0 P 11,500 P 20,000 P 20,000

C P 30,000 P 20,500 P 10,000 P 20,000

D P 0 P 500 P 0 P 0

12. The following selected accounts appeared in the trial balance of Aiza Corp as of December 31, 2013: Installment receivable-2012 sales Installment receivable-2013 sales Inventory, December 31, 2012 Purchases

P 6,000 80,000 28,000 222,000

Repossessions Installment sales Regular sales Deferred gross profit – 2012 Operating Expenses

P 1,200 170,000 154,000 21,600 46,000

Additional information: Installment receivable – 2012 sales, December 31, 2012 P 57,100 Inventory of new and repossessed merchandise as of December 31, 2013 38,000 Gross Profit percentage on installment sales in 2012 is 10% higher than the gross profit percentage on regular sales in 2013

Repossession was made during the year and was recorded correctly. It was a 2012 sales and the corresponding uncollected account at the time of repossession was P3,100. Net Income for 2013 is A. P 54,180

B. P 6,740

C. P 52,940

D. P 53,600

13. Siwag Company uses the installment method of reporting for accounting purposes. The following data were obtained. 2011 2012 2013 Installment sales P600,000 P810,000 P990,000 Cost of installment sales 420,000 486,000 643,500 Gross profit P180,000 P324,000 P346,500 Installment contract receivables, December 31: 2011 2012 2013 2011 sales P 360,000 P 270,000 P 120,000 2012 sales 600,000 390,000 2013 sales 780,000 In 2013, one of the customers defaulted in his payment and the company repossessed the merchandise with an estimated market value of P30,000. The sales was in 2011 and the unpaid balance on the date of repossession was P 45,000.

Costs of contracted research and development activities Depreciation of idle equipment that is not used on a particular contract Selling costs 45,000 General & administration costs expenses specifically included under the terms of the contract 30,000 Borrowing cost incurred during the construction period Costs of labor for site supervision

105,000 60,000

Advances made to subcontractors * expensed in prior year although the contract was obtained in 2013

100,000

50,000

Using cost-to-cost method in determining the stage of completion, what is the realized gross profit for the period 2013? (Round-off stage of completion to 2 decimal percentage) a. P 111,055 b. P 125,195 c. P 134,610 d. P 141,330 15. ABC Construction Corporation contracted with the province of Pampanga to construct a bridge at a contract price of P16,000,000. ABC Corporation expects to earn P1,520,000 on the contract. The percentage of completion method is to used and the completion stage is to be determined by estimates made by the engineer. The following schedule summarizes the activities of the contract for years 20112013.

Compute for 2013 (1) the gain (loss) on repossession; (2) total realized gross profit, and (3) the deferred gross profit. (1) A. B. C. D.

P (1,500) 750 (1,500) 1,500

(2) P 189,000 129,000 189,000 73,500

Year 2011 2012 2013

(3) P 451,500 465,000 465,000 273,000

Cost Incurred P4,600,000 4,500,000 5,250,000

Estimate Cost to Complete P 9,640,000 5,100,000 -0-

Engineer’s Estimate of Completion 31% 58% 100%

Billings On Contract P 5,000,000 6,000,000 5,000,000

Collection On Billings P4,500,000* 5,400,000* 6,100,000

*A 10% retainer accounts for the difference between billings and collections.

14. On July 1, 2013, BINAY Construction Corp. contracted to build an parking office building for JOJO Inc. for a total contract price of P2,950,000. Estimated total contract costs is P2,600,000. Costs incurred to date are as follows related to the project were as follows: Cost of direct materials used Cost direct labor (includes labor cost of site supervision) Cost of indirect materials used Cost incurred in securing the contract* Annual depreciation of plant and equipment used on the contract Payroll of design and technical department allocated to the contract Insurance costs (2/3 for other contracts)

130,000

P200,000 150,000 55,000 70,000 240,000 80,000 180,000

Under the percentage of completion method, using the engineer’s estimate as the measure of completion to be applied to revenue and costs, how much is the gross profit earned each year? 2011 2012 2013 2011 2012 2013 A. P545,600; P 498,400; P 606,000 C. P1,760,000; P6,400,000; P1,650 B. P545,600; P1,044,000; P 1,044,000 D. P1,760,000; P1,800,000; P1,650 16. Daryl Company has started construction work on a project with a fixed contract price of P4,500,000. Daryl expects to incur total costs of P3,375,000 on this project. During the first year of the project, the following transactions occurred:  Incurred cost of materials, labor and overhead used in the work, P2,700,000.

on a piece of land it has acquired and, when construction is complete, to deliver the property to the customer. The following information pertains to the contract: Total cost of land – P2M; estimated total cost of construction – P10M; estimated total cost of contract – P12M; agreed purchase price is P15M. In 2014, the total of construction cost incurred and fair value of land is P6M. By that time, the company estimates a reasonable profit of P1M in the sale of its land. Records also disclose a Progress Billing in the amount of P2.2M. The contract is considered a multiple element contract.

 Paid costs of materials purchased but set aside for use in a future date for this project, P225,000. These materials do not have any alternative use and cannot be sold to other parties.  Paid and incurred rectification work not expected to be recovered, P292,500.  Incurred general and administrative costs that are not reimbursable, P112,500.  Incurred selling costs, P67,500.  Incidental income from the sale of certain materials, P45,000. These specific materials were sold since it was considered surplus from the early phase of the construction.  The engineers determined that the original estimate of costs did not include any expected warranty costs of P225,000.

19. How much is the gross profit recognize by Lyca on its 2014 Financial Statements? a. P2,000,000 b. P600,000 c. P1,500,000

Applying principles of PAS 11 – Construction Contracts, determine the profit for the first year. a. P 170,000 b. P 220,000 c. P 247,500 d. P 720,000

20. Using information in #19 alone, calculate the value of current asset in Lyca’s 2014 Financial Statements. a. P3,400,000 b. P5,600,000 c. P 1,400,000 d. P4,400,000

Use the following information for the next two items

21. On June 1, 2013, FNBC Corporation, franchisor, receives P200,000 from PP Fad representing down payment on the franchise agreement signed that PP Fad gave FNBC a 12% interest bearing note for the balance of P1,000,000, payable in four semi-annual installments. Franchise services was substantially completed by FNBC on November 15 at a cost of P900,000. On December 31, 2013, the first semiannual installment became due was accordingly paid by PP Fad. FNBC appropriately uses the accrual method of recording franchise revenues. In its December 31, 2013 financial statements, how much will FNBC report as realized franchise income for the year? A. P 112,500 B. P 300,000 C. P 250,000 D. P 187,000

On July 1, 2012, Kim Corp. obtained a contract to construct a building. The building was estimated to be built at a total of P5,250,000 and is scheduled for completion on October 2014. The contract contains a penalty clause to the effect that the other party was to deduct P17,500 from the contract price each week of delay. Completion was delayed for three weeks. Below are the data pertaining to the construction period. In 2013, there was an increase in the contract price in the amount of P200,000 per cost escalation clause. Kim Corp. uses percentage of completion method. 2012 2013 2014 Costs incurred P 525,000 P 1,932,000 P 325,500 Estimated costs to complete 2,100,000 273,000 Billings to customers 420,000 4,567,500 1,260,000 17. How much is the excess of construction in progress over progress billings or progress billings over construction in progress in 2012? (current asset or current liability) a. P 840,000 current asset c. P 800,000 current asset b. P 840,000 current liability

d. P 630,000 current asset

18. How much is the excess of construction in progress over progress billings or progress billings over construction in progress in 2013? (current asset or current liability) a. P 682,500 current asset c. P 262,500 current liability b. P 635,250 current asset d. P 635,250 current liability Use the following information for the next two items On January 1, 2014, Lyca Company, a real estate company entered into a contract to construct a building

d. 900,000

22. On January 1, 2012, Mr. DJ entered into a franchise agreement with GB to market their products. The agreement provides for an initial fee of P12.5m payable as follows: P3,500,000 to be paid upon signing of the contract and the balance in five equal annual payments every end of the year starting December 31, 2012. Mr. DJ signs a non-interest-bearing note 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 franchisee must pay a continuing franchise fee equal to 3% of the monthly gross sales. On August 31, the franchisor completed the initial services required in the contract at a cost of P4,290,120 and incurred indirect costs of P175,000. The franchise outlet commenced business operations on November 30, 2012. The gross sales reported to the franchisor were P1,800,000 for December, 2012. The first installment payment was made in due date, but further collection of the balance was not reasonably assured. Calculate the net income for 2012 that the franchisor will report in its income statement. a. P 3,201,268 b. P 2,417,268 c. P 3,072,268 d. P 3,126,268 23. Each of Jury Co.’s 21 new franchisees contracted to pay an initial franchise fee of P30,000. By December 31, 2013, each franchisee had paid a non-refundable P10,000 fee and signed a note to pay P10,000 principal plus the market rate of interest on December 31, 2014, and December 31, 2015. Experience indicates that one franchisee will default on the additional payments. Services for the initial fee will be performed in 2014. What amount of net unearned franchise fees would Jury report at December 31, 2013?

(under US GAAP) a. P400,000

b. P600,000

c. P610,000

Net income of the agency for the two months ended November 30, 2013 is a. P 17,431 b. P 28,366 c. P 29,875

d. P630,000

24. On December 31, 2013, Julrecha Inc. signed an agreement authorizing Ruel Company to operate as a franchisee for an initial franchisee fee of P 50,000. Of this amount, P 20,000 was received upon signing of the agreement and the balance is due in three annual payments of P 10,000 each beginning December 2014. The agreement provides that the down payment (representing a fair measure of the services already performed) is not refundable and substantial se...