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AFAR Test Bank1. Which of the following procedures is not a necessary step affecting a dissolution of partnership?a. Revaluing partnership assets b. Recognizing undistributed profit or loss share of partner at dissolution date c. Closing of partnership books d. Revising partners’ equity2. A, B, C ar...

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AFAR Test Bank 1. Which of the following procedures is not a necessary step affecting a dissolution of partnership? a. b. c. d.

Revaluing partnership assets Recognizing undistributed profit or loss share of partner at dissolution date Closing of partnership books Revising partners’ equity

2. A, B, C are partners with average capital balances during 2017 of P472,500; P238,650 and P162,350; respectively. The partners receive 10% interest on their average capital balances; after deducting salaries of P122,325 to A and P82,625 to C, the residual profit or loss is divided equally. In 2017, the partnership had net loss of P125,624 before interest and salaries to partner. What amount should a and C capital change respectively? a. b. c. d.

40,844 decrease and P31,237 decrease 30,267 increase and 40,448 decrease 29,476 increase and 17,536 increase 28,358 increase and 3,458 increase

3. In case of general partnership liquidation, which of the following credits shall be settled first by the liquidating partner? a. b. c. d.

Those owing for partner’s capital contribution Those owing to third persons Those owing for the share in partnership profits Those owing to partners for their advances to partnership

4. Which of the following transactions will not affect the total equity of a partnership? a. Recognition of impairment loss in case of admission of a new partner by investment b. Withdrawal by a partner c. Admission of a new partner by purchase of existing partner’s interest below its book value d. Retirement of an existing partner with payment of above the book value of such interest 5. A partner was admitted in an existing partnership through investment of cash equivalent to ¼ of the new Capitalization. If the capital balance of the old partners increases, what is the most valid reason Philippine GAAP?

a. b. c. d.

Asset revaluation of existing partnership’s assets Impairment loss of existing partnership assets recognition of goodwill of existing partnership Receipt of bonus from the new partner

6. Juanita Company Uses installment method of accounting and has the following data at year end: Gross margin on cost 66 2/3 % Unrealized gross profit P192,000 Cash collection including down payments 360,000 What was the amount of sale on installment basis? a. b. c. d.

648,000 840,000 480,000 552,000

For questions 7-8 In 2016, ETC Builders agreed to construct a commercial building at a price of P7,500,000. ETC uses the percentage of completion method. The information relating to the costs and billings for the contract were as Follows: 2016 2017 2018 Cost incurred to date 2,100,000 4,500,000 5,887,500 Estimated cost to complete 3,900,000 1,500,000 0 Progress billings to date 1,125,000 3,000,000 7,500,000 Collections to date 900,000 2,400,000 7,050,000 7. How much is the construction in progress net of progress billings as of December 31, 2017? a. b. c. d.

1,500,000 2,625,000 4,125,000 5,887,500

8. Using the same given, but assuming there is no dependable estimate available for the future cost, how much is the construction in progress, net of progress billings as of December 31, 2017? a. b. c. d.

1,500,000 2,625,000 4,125,000 5,887,500

9. The following transactions were incurred for the year by the RCF Company:  Transfer of P13,000 merchandise to an agency to establish a working fund.  Receipt of sales orders from the agency, P130,000.  Collection of agency accounts by the home office, P91,000.  Home office disbursements representing agency expenses, P11,700.  Replenishment of the agency working fund upon receipt of expense vouchers for P5,850.  Cost of goods sold identified with the agency sales, P93,600 How much is the net income traceable to the agency? a. b. c. d.

5,850 18,850 36,400 (72,150)

10. Which of the following transactions will increase the normal balance of home office account in the separate statement of the financial position of the branch? a. b. c. d.

Collection by the home office of branch’s receivable Debit memo received from the home office Credit memo issued by the home office Payment by the branch of home office’s loans payable

For questions 11-12 PDF Company owns an 80% interest in SMB Corporation. PDF’s investment in SMB Corporation is carried on cost basis was equal to book value of SMB’s stockholder’s equity. During 2017, SMB Corp. sold merchandise to PDF Co. for P500,000 at a gross profit of P100,000. At December 31, 2017, half of this merchandise is included in PDF’s inventory. Meanwhile, included in SMB’S beginning inventory was P200,000 merchandise from intercompany sales which was made at 20% profit. PDF and SMB declared dividends P300,000 and P250,000 respectively and paid 90% of the declared amount in 2017.

Separate income statements for PDF and SMB for the year ended, 2017 are summarized as follows:

Sales Cost of Sales Operating Expenses Dividend Revenue Net Income

PDF Co. P1,500,000 (800,000) (300,000 200,000 P 600,000

SMB CORP. P2,000,000 (1,200,000) (420,000) 140,000 P 520,000

11. What is the gross profit on the 2017 consolidated statement of comprehensive income? a. b. c. d.

P1,100,000 P1,490,000 P1,590,000 P1,210,000

12. What is the net income attributable to the controlling interest? a. b. c. d.

P916,000 P810,000 P910,000 P816,000

For questions 13-14 PSY Corporation owns 90% of the outstanding common shares of SVG company. On January 2, 2016, office equipment that had a carrying value to SVG Company P480,000 and had a remaining life of 10 years was sold to PSY Corporation for P400,000. On the other hand, last August 31, 2017, PSY Corporation sold a second hand delivery van to SVG Company at a gain of P30,000 (remaining life- 5 years). Included in the January 1, 2017 inventory of PSY Company was merchandise inventory worth P65,000 while SVG Company had P80,000 on its December 31, 2017. These inventories came from inter-company sales and purchases. PSY Corporation included a markup of 25% on cost while SVG Company charged a 30% mark-up on sales. Each of the two companies has net incomes in 2016 and 2017 as follows:

PSY Corporation SVG Company

2016 P1,200,000 900,000

2017 P1,500,000 1,000,000

13. What is the amount of the consolidated net income attributable to controlling interest in 2016? a. b. c. d.

P2,073,900 P2,061,300 P2,041,350 P2,057,250

14. What is the amount of the consolidated net income attributable to controlling interest in 2017? a. b. c. d.

P2,366,350 P2,369,500 P2,398,350 P2,377,600

15. In translating the financial statements of an entity from its functional currency to its different presentation currency, which of the following statements is incorrect? a. Income and expense accounts shall be translated at exchange rates at the dates of the transactions. b. Resulting exchange gain or loss arising from translation shall be recognized in profit or loss. c. Equity accounts other than retained earnings shall be translated using exchange rates at the dates of the transactions. d. Assets and liabilities, whether monetary or nonmonetary, shall be translated at the closing rate of the statement of financial position. 16. When the results and financial position of an entity whose functional currency is the currency of a hyperinflationary economy, what is the rate to be used when translating income and expense accounts into a different currency? a. b. c. d.

At the closing rate at the date of the most recent statement of financial position At the exchange rates at the dates of the transactions At the average rate during the year At the exchange rate at the beginning of the year

17. In June 2017, Ralph hospital purchased medicines from winner Pharmaceutical Co. at a cost of P5000. Winner notified Ralph that the invoice was being cancelled, and the medicines were being donated to Ralph. Ralph should record this donation of medicines as a. A memorandum entry only b. Other operating revenue of P5,000

c. A P5,000 credit to operating expenses d. A P5,000 credit to non-operating expenses 18. Which of the following shall be properly classified as unrestricted net asset in the statement of financial position of the non-profit educational institution? a. b. c. d.

Fund whose principal is require to be invested indefinitely Fund designated by the board for construction of building Fund which is restricted by the donor to be non-expendable for until 2020 Fund which is held in trust by the institution for the benefit of the different school organization

19. SUPLEX Inc. enters into an arrangement under which it will build and operate a toll bridge. Company B is entitled to charge users for driving over the toll bridge for the period from the completion of construction until 1 million cars have driven across the bridge, at which point the concession arrangement will end. SUPLEX Inc. incurred a total cost of P1B for the construction of the toll bridge. How shall SUPLEX Inc. account for its infrastructure asset? a. It shall be classified and treated as financial asset b. It shall be bifurcated into intangible asset and financial asset c. It shall be classified and treated as intangible asset to be amortized using straight line method of presumed life of 10 years. d. It shall be classified and treated as intangible asset to be amortized on the basis of usage or unit method of 1 million cars. 20. Yaro Company owns 30% of the common stock of Dew Co. and uses the equity method to account for the investment. During 2018, Drew reported income of P250,000 and paid dividends of P80,000. There is no amortization associated with the investment. During 2018, how much income should Yaro recognize related to this investment? a. b. c. d.

P24,000 P75,000 P99,000 P51,000

21. Under PAS 39, all of the following are characteristics of a derivative except a. Its value changes in response to the change in a specified underlying (e.g., interest rate, financial instrument price, commodity price, foreign exchange rate, etc.).

b. It requires no initial investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. c. It is settled at a future date. d. It is required or incurred by the entity for the purpose of generating a profit from short-term fluctuations in market factors. 22. Which statement is correct regarding forward contracts? a. The party that sells the underlying asset in the contracts is said to have a long position. b. The party that buys the underlying asset in the contract pays the seller a fee to compensate the seller for the risk of payments. c. These contracts are generic exchange-traded d. Settlement is at maturity by actual delivery of the item specified in the contract, or by a net cash settlement 23. On January 1, 2021, Angel, Bea and Coleen formed a partnership with original capital contribution ratio of 4:5:1 for a total agreed capitalization of P5,000,000. The profit or loss ratio agreement provides that profits shall be distributed in the ratio of 3:2:5 while losses shall be distributed in the ratio of 6:1:3. During 2021, the partnership reported net income of P2,000,000 with Angel and Bea withdrawing P500,000 and P300,000, respectively. During 2022, the partnership reported net loss of P1,000,000 with Bea and Colleen withdrawing P200,000 and P400,000 respectively. What is the capital balance of Bea on December 31, 2022? a. b. c. d.

2,600,000 2,300,000 2,500,000 2,400,000

24. Under IFRS a parent may exclude a subsidiary from consolidation only if all of the following conditions exist, except a. b. c. d.

Its parent prepares consolidated financial statements that comply with IFRS It has one class of stock It does not have any debt or equity instruments publicly traded It is wholly owned as its owners do not object to non-consolidation

25. A not-for profit entity has all of the following characteristics except that it will a. Have positive fund balance b. Not possess ownership interests like a corporation

c. Operate for purposes other than to provide goods or services d. Receive significant contributions from providers who do not expect returns For numbers 26-27 A, B and C decided to form ABC Partnership. It was agreed that A will contribute an equipment with assessed value of P100,000 with historical cost of P800,000 and accumulated depreciation of P600,000. A day after the partnership formation, the equipment was sold for P 300,000. B will contribute a land and building with carrying amount of P1,200,000 and fair value of P1,500,000. The land and building are subject to a mortgage payable amounting to P300,000 to be assumed by the partnership. The partners agreed that B will have 60% capital interest in the partnership. The partners also agreed that C will contribute sufficient cash to the partnership.

26. What is the total agreed capitalization of the ABC Partnership? a. b. c. d.

1,500,000 2,000,000 2,500,000 3,000,000

27. What is the cash to be contributed by C in the ABC Partnership? a. b. c. d.

500,000 600,000 700,000 800,000

For numbers 28-29 On January 1, 2018, A, B and C formed ABC Partnership with total agreed capitalization of P1,000,000. The capital interest ratio of the ABC Partnership is 5:1:4 while the profit or loss ratio is 3:2:5, respectively for A, B and C. During 2018, A and B made additional investments of P200,000 and P500,000, respectively. At the end of 2018, B and C made drawings of P300,000 and P100,000, respectively. On December 31, 2018, the capital balance of B is reported at P200,000.

28. What is the net income or net loss of ABC Partnership for the year ended December 31, 2018?

a. b. c. d.

500,000 loss 1,000,000 loss 800,000 income 1,200,000 income

29. What is the capital balance of C on December 31, 2018? a. b. c. d.

150,000 50,000 200,000 250,000

For numbers 30-32 On January 1, 2018, A, B and C formed ABC Partnership with original capital contribution of P300,000, P500,000 and P200,000. A is appointed as managing partner. During 2018, A, B and C made additional investments of P500,000, P200,000 and P300,000, respectively. At the end of 2018, A, B and C made drawings of P200,000, P100,000 and P400,000, respectively. At the end of 2018, the capital balance of C is reported at P320,000. The profit or loss agreement of the partners is as follows: • • • •

10% interest on original capital contribution of the partners. Quarterly salary of P40,000 and P10,000 for A and B, respectively. Bonus to A equivalent to 20% of Net Income after interest and salary to all partners Remainder is to be distributed equally among the partners.

30. What is the partnership profit for the year ended December 31, 2018? a. b. c. d.

900,000 1,020,000 1,050,000 960,000

31. What is A’s share in partnership profit for 2018? a. 190,000 b. 340,000 c. 540,000 d. 200,000 32. What is B’s share in partnership profit for 2018? a. 200,000

b. 290,000 c. 50,000 d. 90,000

On December 31, 2018, the Statement of Financial Position of ABC Partnership provided the following data with profit or loss ratio of 1:6:3: Current Assets 1,000,000 Total Liabilities 600,000 Noncurrent Assets 2,000,000 A, Capital 900,000 B, Capital 800,000 C, Capital 700,000 On January 1, 2019, D is admitted to the partnership by purchasing 40% of the capital interest of B at a price of P500,000. 33. What is the capital balance of B after the admission of D on January 1, 2019? a. b. c. d.

540,000 480,000 420,000 300,000

On December 31, 2018, ABC Partnership’s Statement of Financial Positions shows that A, B and C have capital balances of P500,000, P300,000 and P200,000 with profit or loss ratio of 1:3:6. On January 1, 2019, C retired from the partnership and received P350,000. At the time of C’s retirement, an asset of the partnership is undervalued. 34. What is the capital balance of A after the retirement of C? a. b. c. d.

462,500 537,500 562,500 525,000

On December 31, 2018, ABC Partnership’s Statement of Financial Position shows that A, B and C have capital balances of P400,000, P300,000 and P100,000 with profit or loss ratio of 1:4:5. On January 1, 2019, C retired from the partnership and received P80,000. At the time of C’s retirement, the assets and liabilities of the partnership are properly valued. 35. What is the capital balance of B after the retirement of C? a. 284,000 b. 308,000 c. 316,000

d. 320,000

On December 31, 2018, the Statement of Financial Position of ABC Partnership provided the following data with profit or loss ratio of 1:6:3: Current Assets Noncurrent Assets

1,300,000 2,000,000

Total Liabilities 300,000 A, Capital 1,400,000 B, Capital 700,000 C, Capital 900,000 On January 1, 2019, D is admitted to the partnership by investing P1,000,000 to the partnership for 20% capital interest. 36. If the all the assets of the existing partnership are properly valued, what is the capital balance of C after the admission of D? a. b. c. d.

960,000 900,000 840,000 1,200,000

For numbers 37-38 On December 31, 2018, the Statement of Financial Position of ABC Partnership provided the following data with profit or loss ratio of 5:1:4: Current Assets Noncurrent Assets

1,500,000 2,000,000

Total Liabilities A, Capital B, Capital C, Capital

500,000 1,100,000 1,200,000 700,000

On January 1, 2019, D is admitted to the partnership by investing P500,000 to the partnership for 10% capital interest. The total agreed capitalization of the new partnership is P3,000,000. 37. What is the capital balance of D after his admission to the partnership? a. b. c. d.

500,000 300,000 350,000 400,000

38. What is the capital balance of C after the admission of D to the partnership?

a. b. c. d.

580,000 820,000 500,000 780,000

For numbers 39-40 On December 31, 2018, the Statement of Financial Position of ABC Partnership with profit or loss ratio of 6:1:3 of partners A, B and C respectively, revealed the following data: Cash 1,000,000 Receivable from A 500,000 Other noncash assets 2,000,000

Other Liabilities Payable to B Payable to C A, Capital B, Capital C, Capital

2,000,000 1,000,000 100,000 700,000 (650,000) 350,000

On January 1, 2019, the partners decided to liquidate the partnership. All partners are legally declared to be personally insolvent. The other noncash assets were sold for P1,500,000. Liquidation expenses amounting to P100,000 were incurred.

39. How much cash was received by B at the end of partnership liquidation? a. b. c. d.

250,000 150,000 290,000 270,000

40. How much cash was received by C at the end of partnership liquidation? a. b. c. d.

270,000 150,000 350,000 220,000

For numbers 41-43 On December 31, 2018, the Statement of Financial Position of ABC Partnership with profit or loss ratio of 5:3:2 of respective partners A, B and C. showed the following information:

Cash

1,600,000

Total Liabilities

2,000,000

Noncash assets

1,400,000

A, Capital B, Capital C, Capital

100,000 500,000 400,000

On January 1, 2019, the partners decided to liquidate the partnership in installment. All partners are legally declared to be personally insolvent. As of January 31, 2019, the following transactions occurred: • Noncash assets with a carrying amount P1,000,000 were sold at a gain of P100,000. • Liquidation exp...