CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING AND REPORTING SELF-TEST No. 1

Number 1

Which of the following would guide you in distinguishing a main product from a by-product?
A. Number of units per processing period
B. Joint costs incurred up to the split-off point
C. Percentage of total sales value
D. Weight or volume of outputs per period

Number 2

Which of the following statements regarding Partnership Accounting is FALSE?

A. A partnership loan that was made from a partner who has a capital deficiency may be offset against
the debit balance in his capital account.
B. Gains and losses incurred at liquidation are distributed to the partners using the residual profit and
loss sharing ratios when these amounts represent profits and losses from prior periods that would
have been shared using the remainder profit and loss ratios.
C. In dividing the profit or loss to the partners, all types of withdrawals made by a partner affects the
computation of the ending capital balance used as a basis in providing an allowance as to interest.
D. When partners agree to make their capital ratio in conformity with their profit and loss ratio using the
transfer of capital method, the partner whose agreed capital is lower than his contributed capital, may
receive a payment from the partner whose agreed capital is higher than his contributed capital.

Number 3

Which of the following statements regarding Partnership Accounting is TRUE?

A. In installment liquidation, a safe payment is the amount of distribution that can be made to the
partners which will not have to be returned to the partnership.
B. When the result of partnership operation is net income then it is always assured that bonus will be
given to a partner(s).
C. Fixed assets contributed by a partner in the partnership shall be credited to his capital account at
original cost.
D. In a partnership liquidation, with more than one deficient partner, partner or partners with personal
liabilities higher than his personal assets are the first to be eliminated in the distribution of cash.

Number 4

Which of the following statements regarding Partnership Accounting is FALSE?

A. In the preparation of a schedule of safe payments to partners, cash withheld for future liquidation
expenses and unrecorded liabilities that may be discovered are treated as loss on realization.
B. In an installment liquidation, a partner whose share in the maximum possible loss is greater than his
total interest will not receive cash for that period but may receive distributions from the partnership
by the next period.
C. Admission by investment will result in a bonus to the new partner and an asset revaluation upward if
the total contributed capital of all partners is less than the total agreed capital of the new partnership
while the agreed capital of the new partner is higher than the amount he contributed.
D. If a partner who retired from the partnership receives settlement from the partnership less than his
capital balance before retirement which also resulted in a decrease in the capital balance of remaining
partners, an impairment loss is recognized before the retirement.
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Number 5
Which of the following statements regarding Accounting for Foreign Currency Transactions is
FALSE?
A. If a sale on account by an Australian Company is made with a foreign company, and the Australian
Company has no foreign currency risk, then the Australian Company has denominated the transaction
in its local currency.
B. A Japanese importer that acquired merchandise from a firm in Thailand would be exposed to a net
exchange gain on the unpaid balance if the yen strengthened relative to the baht and the foreign
currency was the denominated currency.
C. Accounts representing an accumulated depreciation are translated into U.K. pounds at current rates
regardless of the functional currency.
D. Accounting exposure is the exposure to changes in exchange rates as a result of a firm making export
sales to a foreign customer or import purchase from a foreign vendor.

Number 6
Which of the following statements regarding Derivatives and Hedging is TRUE?
A. The sole purpose for entering into derivative contracts is to manage market risks such as foreign
exchange risk and interest rate risk.
B. When a firm commitment is hedged using a derivative financial instrument, fair value hedge
accounting requires explicit recognition of the statement of financial position at fair value of both the
derivative financial instrument and the firm commitment.
C. Options are frequently used to mitigate risks associated with fluctuations in the market prices of
securities or commodities. A call option is purchased to limit the price it will have to pay for a
commodity, a put option is purchased to limit potential price declines in the value of a financial asset
or commodity.
D. All derivative instruments are presented in the Statement of Financial Position at a positive fair value.

Number 7
J and K decided to form a Partnership and provided the following transactions:
 J invested P250,000 cash and equipment with a fair value of P150,000.
 K invested P350,000 cash, merchandise with an agreed value of P550,000, and Land with an
appraised value of P500,000 subject to a mortgage payable of P250,000 which the partnership will
assume.
 The partners also agreed to an equal interest in the partnership capital.
Compute the amount reported as total capital of the partners after formation
A. 1,800,000
B. 1,550,000
C. 1,750,000
D. 1,500,000

Number 8
On January 1, 2023, Q and R were partners with capital balances of P1,500,000 and P1,150,000
respectively. The profit and loss agreement of the partners included the following:
 Monthly salaries of P30,000 and P25,000 respectively for Q and R
 6% interest based on their January 1, 2023 capital balances
 Remainder to be shared equally
At the end of 2023, the partnership generated a net income of P500,000.
Compute the share of Partner R in the net income
A. 250,000
B. 227,500
C. 209,500
D. 217,000
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Number 9

On December 31, 2023, the Statement of Financial Position of LMN Partnership provided the following
data with profit or loss ratio of 1:6:3:

Current Assets 2,500,000 Total Liabilities 1,500,000

Noncurrent Assets 5,000,000 L, Capital 2,250,000
M, Capital 2,000,000
N, Capital 1,750,000
On January 1, 2024, O was admitted to the partnership by purchasing 40% of the capital interest of M at a
price of P1,250,000.
Compute the capital balance of M after the admission of O on January 1, 2024
A. 1,350,000
B. 1,200,000
C. 1,050,000
D. 750,000

Number 10

O and P have capital balances of P1,400,000 and P1,540,000 respectively before admission of N. Their
profit and loss agreement was 35:65. On January 1, N was to be admitted for 40% interest in the
partnership and 20% in the profits and losses by contributing used equipment which had a cost of
P1,435,000 and a fair value of P1,260,000. After the admission of N, O and P agreed to share profits and
losses equally. At the end of the year the new partnership generated net income of P910,000.
Assuming there is an implied undervaluation or (overvaluation) of an asset, compute the capital
balance of P at the end of the year
A. 3,269,000
B. 539,000
C. 2,586,500
D. 1,221,500

Number 11

On December 31, 2023, the Statement of Financial Position of TUV Partnership provided the following
data with profit or loss ratio of 5:1:4:
Current Assets 3,750,000 Total Liabilities 1,250,000
Noncurrent Assets 5,000,000 T, Capital 2,750,000
U, Capital 3,000,000
V, Capital 1,750,000
On January 1, 2024, S was admitted to the partnership by investing P1,250,000 to the partnership for 10%
capital interest. The total agreed capitalization of the new partnership is P7,500,000.
Compute the capital balance of V after the admission of S to the Partnership
A. 1,450,000
B. 2,050,000
C. 1,250,000
D. 1,950,000
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Number 12
On December 31, 2023, the Statement of Financial Position of DEF Partnership with profit or loss ratio of
5:2:3 of partners D, E and F respectively revealed the following data:

Cash 2,500,000 Liabilities 5,000,000

Non Cash assets 6,250,000 D, Capital 1,750,000
E, Capital 1,250,000
F, Capital 750,000
On January 1, 2024, the partners decided to liquidate the partnership. All partners are legally declared to
be personally insolvent. The noncash assets were sold for P4,500,000. Liquidation expenses amounting to
P750,000 were incurred and paid.
Compute the amount of cash received by Partner D after liquidation
A. 1,750,000
B. 875,000
C. 1,375,000
D. 500,000

Number 13

On September 30, 2023, The R, S, and T Partnership had the following fiscal year-end Statement of
Financial Position.

Cash P 48,000 Accounts Payable P 84,000

Accounts Receivable 72,000 Loan from T 60,000
Merchandise Inventory 168,000 R, Capital (20%) 168,000
Fixed Assets, net 144,000 S, Capital (20%) 120,000
Loan to R 72,000 T, Capital (60%) 72,000
P504,000 P504,000
The partners dissolved the partnership on October 1, 2023 and began the liquidation process. During
October the following events occurred:
a. Accounts receivables of P36,000 were collected
b. All the merchandise inventory was sold for P48,000.
c. Cash withheld for anticipated expenses amount to P24,000
Compute the amount of cash S would receive in the first distribution
A. 24,000
B. 4,800
C. 14,400
D. 0
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Number 14, 15 and 16

Loco Company bought the net assets of Coco Company by issuing 100,000 shares with P20 par value.
The fair value of the shares was P4,800,000. Immediately before the acquisition, the following balances
were ascertained for Coco Company:
Book Value Fair Value
Current assets 2,000,000 2,500,000
Noncurrent assets 3,000,000 4,400,000
Liabilities 600,000 1,700,000
Ordinary shares 4,000,000
Retained earnings 400,000
Loco Company also incurred the following costs:
 Professional fees to arrange business combination P50,000.
 SEC registration of newly issued shares P20,000.
 Printing and issuing of stock certificates P10,000.

14. What amount should Loco Company report as result of the business combination?
A. 400,000 goodwill
B. (400,000) gain on bargain purchase
C. 600,000 goodwill
D. (600,000) gain on bargain purchase

15. What amount should Loco Company record as additional paid in capital after acquisition?
A. 2,780,000
B. 2,800,000
C. 2,770,000
D. 2,720,000

16. What amount should Loco Company report as net increase (decrease) in the retained earnings
after acquisition?
A. 400,000
B. 320,000
C. (50,000)
D. 350,000

Number 17

On January 1, 2024, Entity A acquired 80% of the outstanding shares of Entity B for a cash consideration
of P1,185,000. On this date, the book value of the shareholders' equity of Entity B was P1,350,000. At the
acquisition date, the inventory of Entity B was understated by P75,000 and the equipment was
understated by P150,000. The acquisition date fair value of the noncontrolling interest was P300,000.
What amount should Entity A report as result of the business combination?

A. 90,000 gain on bargain purchase

B. 90,000 goodwill
C. 75,000 gain on bargain purchase
D. 75,000 goodwill
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Numbers 18 and 19

On January 1, 2023, Pei Company acquired 75% of the outstanding shares of Dari Company that resulted
at a gain on acquisition in the amount of P75,000. On this date the Ordinary shares and Retained earnings
of Dari Company were P1,200,000 and P300,000 respectively.
All of the book values of the assets and liabilities of Dari Company equal their fair values except for the
equipment which was understated by P156,000. The equipment had a remaining life of 10 years.
For the year ended, December 31, 2023, Pei Company reported a net income of P600,000, while Dari
Company reported a net income of P360,000 and declared dividends of P240,000

18. What amount should Pei Company report as consolidated net income attributable to parent for
the year ended December 31, 2023?
A. 600,000
B. 776,700
C. 678,300
D. 753,300

19. What amount should Pei Company report as noncontrolling interest net income for the year
ended December 31, 2023?
A. 360,000
B. 90,000
C. 93,900
D. 86,100

Number 20

A parent company that uses the equity method in accounting for its investment in subsidiary has
neglected to adjust the investment balance for its share in the subsidiary’s net income or net loss. The
parent’s share in the net income of the subsidiary was P60,000 last year and P40,000 this year. If the
subsidiary did not declare any dividends during the year, which of the following statements is true?
A. The net income of the parent this year should be increased by P100,000.
B. The retained earnings of the parent should be increased by P100,000.
C. The net income of the parent this year should be increased by P40,000 and retained earnings should
be increased by P60,000.
D. Any of the choices is true, depending on the company’s accounting policy.

Number 21

On January 1, 2023, Pint Company has acquired 100% controlling interest in Sterest Company. The net
assets of Sterest Company were all fairly value except for a note payable. The face value of the note is
P1,000,000 with a stated rate of 10%, but the effective rate in the market for a similar type of note is only
8%. The principal of the note is payable in lumpsum after 2 years and interest is payable annually. Which
of the following is true?
A. The book value of the net assets of the subsidiary on date of acquisition is less than its fair value.
B. Amortization of the excess will ultimately increase the consolidated retained earnings.
C. The difference in nominal and effective rate will not affect the measurement of the net assets
acquired by the acquirer.
D. All of the choices are true
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Number 22

Statement 1: On the consolidated working papers, the net income of the parent is allocated between the
controlling and non-controlling interests.
Statement 2: On the consolidated working papers, the net income of the subsidiary is allocated between
the controlling and non-controlling interests.
A. Both statements are true
B. Both statements are false
C. Statement 1 is true; statement 2 is false
D. Statement 2 is true; statement 1 is false

Number 23

A parent company provided a P10,000 non-interest bearing loan to its wholly owned subsidiary. With a
market rate of 9%, the fair value of the loan is determined to be P7,722. Which of the following is false?
A. In the books of the parent, the journal entry at the end of the first year will include a debit to
intercompany loan receivable for P695
B. In the books of the subsidiary, the journal entry at the end of the second year will include a credit to
interest expense for P758
C. The working paper entries at the end of the second year will include a debit to intercompany loan
payable for P758
D. The working paper entries at the end of the first year will include a credit to interest income for P695.

Number 24

Parent company has an investment in a subsidiary which it accounts for using the cost method.
Accordingly, the original cost of P250,000 is its carrying value. On December 1, 2023, the parent
declared its subsidiary as property dividends to its shareholders, to be distributed on January 30, 2024.
The fair value of the subsidiary shares amounted to P280,000 on December 1, 2023, and P270,000 on
December 31, 2023. In the books of the parent, which of the following is true?
A. The entry on December 1, 2023 will include a debit to asset held for distribution at P280,000.
B. The entry on December 1, 2023 will include a credit to property dividends payable for P280,000.
C. The entry on December 31, 2023 will include a debit to property dividends payable for P270,000
D. The entry on December 31, 2023 will include a debit to equity for P10,000.

Number 25

Which of the following statements is true?

A. A statutory merger occurs when exactly 2 companies combine, while a statutory consolidation occurs
when more than 2 companies combine.
B. A statutory merger is recorded in the books of the acquirer while a statutory consolidation is recorded
in the books of the acquiree.
C. A statutory merger legally dissolves all the companies in a business combination except for one,
while a statutory consolidation legally dissolves all the companies in a business combination.
D. A statutory merger is exactly the same as a statutory consolidation.
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Numbers 26 and 27
Department of Health (DOH) received Notice of Cash Allocation (NCA) in the amount of P240,000 from
Department of Budget and Management (DBM). DOH made a total cash disbursements in the amount of
P228,000.

26. What is the journal entry to record the receipt of NCA from the DBM?
A. Cash-Modified Disbursement System (MDS), Regular 240,000
Subsidy Income National Government 240,000
B. Cash-Modified Disbursement System (MDS), Regular 240,000
Revenue 240,000
C. Cash-Modified Disbursement System (MDS), Regular 240,000
Advances from DBM 240,000
D. Cash-Modified Disbursement System (MDS), Regular 240,000
Accounts Receivable 240,000

27. What is the journal entry to recognize reversion of unused Notice of Cash Allocation?
A. Subsidy Income National Government 12,000
Cash-Modified Disbursement System (MDS), Regular 12,000
B. Retained earnings of DOH 12,000
Cash-Modified Disbursement System (MDS), Regular 12,000
C. Expenses of DOH 12,000
Cash-Modified Disbursement System (MDS), Regular 12,000
D. Investment in DOH 12,000
Cash-Modified Disbursement System (MDS), Regular 12,000

Number 28

Leyte Hospital, a nonprofit organization, reported the following information for the year ended December
31, 2023:
Gross patient service revenue 3,940,000
Bad debt expense 70,000
Contractual adjustments, VAT 267,270
Allowance for discounts to hospital employees 45,000
In Leyte Hospital’s statement of activities for the year ended December 31, 2023, what amount should be
reported as net patient service revenue?
A. 3,940,000
B. 3,627,730
C. 3,597,730
D. 3,895,000
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Numbers 29, 30 and 31

SPKH Foundation, a nonprofit organization, provided the following transactions during its first year of
operations:
 The nonprofit organization received P500,000 cash from a donor who stipulated that it shall be
used based on the discretion of the Board of Trustees of the nonprofit organization. The nonprofit
organization used P100,000 for the acquisition of souvenir items which were sold by the nonprofit
organization for P150,000. The remaining P400,000 was designated by the Board of Trustees for
future fundraising projects
 The nonprofit organization received P750,000 cash from a donor who stipulated that it shall be
used for the acquisition of service car. The nonprofit organization used P400,000 of the fund for
the acquisition of a service car with useful life of 4 years. The car was acquired at the middle of
the year.
 The nonprofit organization received P1,500,000 cash from a donor who stipulated that it shall be
invested indefinitely and the dividend from such investment shall be used for research project of
the organization. Dividend amounting to P225,000 was received during the year but only P75,000
was spent for the research project.

29. What amount should SPKH Foundation report as permanently restricted net assets at the end
of the first year?
A. 1,650,000
B. 1,950,000
C. 1,800,000
D. 1,500,000

30. What amount should SPKH Foundation report as temporarily restricted net assets at the end
of the first year?
A. 1,150,000
B. 500,000
C. 750,000
D. 975,000

31. What amount should SPKH Foundation report as unrestricted net assets at the end of the first
year?
A. 900,000
B. 500,000
C. 975,000
D. 950,000

Numbers 32 and 33

ABC Company is a manufacturer that sells its product to local retailers. Retailers sell the product to its
customers and for each product purchased by the customers, a coupon of P200 discount is given and may
be used on future purchase of the same product. Retailers are reimbursed for the discount by the
manufacturer when customers redeem their coupons. During 2023, the manufacturer sold 8,000 products
to the retailers at P1,100 each product. It is expected that 75% of the coupons will be redeemed. By
December 31, 2023, the manufacturer had paid the retailers P500,000 as reimbursement.

32. What amount should ABC record as sales revenue for 2023?
A. 7,200,000
B. 8,400,000
C. 8,800,000
D. 7,744,000

33. What amount should ABC report as rebate liability on December 31, 2023?
A. 556,000
B. 1,056,000
C. 1,200,000
D. 1,600,000
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Numbers 34 and 35

XYZ Company, a high street chain, is offering a promotion whereby a customer who purchases three
boxes of chocolates at P400 per box in a single transaction shall receive a coupon for one free box of
chocolates if the customer fills out a request form and mails it before a set expiration date. It is expected
that 75% of the coupons will be redeemed. During 2023, the entity sold 30,000 boxes of chocolates at
P400 per box. During 2024, the entity delivered 6,000 additional free boxes of chocolates.

34. What amount should XYZ report as sales revenue in 2023?

A. 4,800,000
B. 9,600,000
C. 6,000,000
D. 12,000,000

35. What amount should XYZ report as sales revenue from the delivery of free products in 2024?
A. 1,440,000
B. 960,000
C. 1,200,000
D. 1,800,000

Numbers 36 and 37

On July 1, 2023, DEF Company, a manufacturer of office furniture, supplied goods to GHI Company for
P12,000,000 on condition that this amount is paid in full on July 1, 2024.
GHI Company had earlier rejected an alternative offer from DEF Company whereby it could have bought
same goods by paying cash of P10,800,000 on July 1, 2023.

36. What amount should DEF Company recognize as sales revenue on July 1, 2023?
A. 10,000,000
B. 13,400,000
C. 12,000,000
D. 10,800,000

37. What amount should DEF Company reported as interest income for 2023?
A. 1,200,000
B. 600,000
C. 1,000,000
D. 0

Numbers 38 and 39

On July 1, 2023, KDC Company handed over to a client a new computer system. The contract price for
both the supply of the system and after-sales support for 12 months was P8,000,000.
The entity estimated the cost of the after-sales support at P1,200,000 and it marked up such cost by 50%
when tendering for support contracts.

38. What amount should KDC report as revenue from the sale of computer system for 2023?
A. 8,000,000
B. 6,800,000
C. 6,200,000
D. 9,200,000

39. What amount should KDC report as contract revenue from the after-sales support system for
2023?
A. 1,800,000
B. 900,000
C. 1,200,000
D. 600,000
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Numbers 40 and 41

On January 1, 2023, CD Company accepted a long-term construction project for a fixed contract price of
P4,000,000 to be completed on November 30, 2023. The entity provided the following data concerning
the direct costs related to the said project for 2023 and 2024:
2023 2024
Costs incurred to date 1,200,000 3,000,000
Remaining estimated costs to complete at year-end 4,800,000 750,000

40. Under IFRS 15, what amount should CD Company report as gross profit or (loss) for the year
ended December 31, 2024?
A. 200,000
B. 250,000
C. 2,200,000
D. (1,800,000)

41. Under IFRS 15, what amount should CD Company report as construction in progress balance
on December 31, 2024?
A. 3,000,000
B. 3,200,000
C. 4,400,000
D. 5,200,000

Number 42

On January 1, 2023, Entity X, a public entity, and Entity Y, a public entity, incorporated Entity Z which
has its fiscal and operational autonomy. The contractual agreement of the incorporating entities provided
that the decisions on relevant activities of Entity Z will require the unanimous consent of both entities.
Entity X and Entity Y will have rights to the net assets of Entity Z.
Entity X and Entity Y invested P4,000,000 and P6,000,000, respectively, equivalent to 40:60 capital
interest of Entity Z. The financial statements of Entity C provided the following data for its two-year
operation:
Net income / (Net loss) Dividends declared
2023 800,000 400,000
2024 (2,000,000) -
What amount should Entity X report as Investment in Entity Z on December 31, 2023?
A. 4,000,000
B. 4,320,000
C. 4,160,000
D. 4,480,000

Numbers 43 and 44

On January 1, 2023, Entity X and Entity Y, both SMEs, incorporated Entity Z, a jointly controlled entity
by investing P10,000,000 each in exchange for 100,000 ordinary shares representing 50% interest each of
Entity Z. Entity X and Entity Y each incurred P400,000 transaction costs.
The contractual agreement of the incorporating entities provided that the decisions on relevant activities
of Entity Z will require the unanimous consent of both entities. Entity X and Entity Y will have rights to
the net assets of Entity Z.
For the year ended December 31, 2023, Entity C reported net income of P2,000,000 and declared
dividends in the amount of P600,000.
On December 31, 2023, the ordinary shares of Entity C are quoted at P112.
 Page 12
43. If Entity X elected fair value model to account for its investment in Entity Z, what is the net
effect on Entity X’s profit or loss for the year ended December 31, 2023?
A. 1,100,000 net income
B. 1,200,000 net income
C. 300,000 net income
D. 800,000 net income

44. If Entity Y elected equity method to account for its investment in Entity Z, what is the carrying
amount of Entity Y’s Investment in Entity C on December 31, 2023?
A. 10,400,000
B. 10,900,000
C. 10,700,000
D. 11,100,000

Numbers 45 and 46

On January 1, 2023, Entity A and Entity B, both SMEs, incorporated Entity C, a jointly controlled entity
by investing P400,000 each in exchange for 50,000 ordinary shares each representing 50% share of Entity
C. Entity A and Entity B each incurred P20,000 transaction costs.
The contractual agreement of the incorporating entities provided that the decisions on relevant activities
of Entity C will require the unanimous consent of both entities. Entity A and Entity B will have rights to
the net assets of Entity C.
For the year ended December 31, 2023, Entity C reported net income of P100,000 and declared dividends
in the amount of P20,000.
On December 31, 2023, the investment in Entity C has a value in use of P430,000.

45. If Entity A elected cost method to account its Investment in Entity C, what is the carrying
amount of Entity A’s Investment in Entity C on December 31, 2023?
A. 420,000
B. 430,000
C. 460,000
D. 400,000

46. If Entity B elected equity method to account its Investment in Entity C, what is the net effect in
Entity B’s profit or loss for the year ended December 31, 2023?
A. 50,000 net profit
B. 10,000 net profit
C. 20,000 net profit
D. 30,000 net profit

Number 47

Under IFRS for SMEs, the income of the SME-venturer for its investment in joint venture under fair
value model consists of
A. Share in net income of joint venture
B. Dividend income
C. Gain on changes in fair value of investment
D. Dividend income and gain on changes in a fair value of investment

Number 48

Under IFRS for SMEs, the income of the SME-venturer for its investment in joint venture under cost
method consists of
A. Share in net income of joint venture
B. Dividend income
C. Gain on changes in fair value of investment
D. Both C and D
 Page 13

Numbers 49, 50 51 and 52

Silay Company is employing process costing regarding its production cycle.

Conversion costs are added uniformly during the production process while direct materials are added 20%
at the start of production process, 45% at the middle of the production process and the remainder at the
end of production process. Normal spoilage is 10% of units started during the year.

The entity is conducting inspection when the production process is at 45% of conversion cost. The entity
provided the following production data during the year:

Beginning Work in Process Inventory 20,000 units (40% incomplete as to conversion costs)
Units started during the year 80,000 units
Ending Work in Process Inventory 10,000 units (80% complete as to conversion costs)
Units completed during the period 76,000 units

49. What is the equivalent unit of production for direct material under average process costing?
A. 85,300 units
B. 82,300 units
C. 76,500 units
D. 87,500 units

50. What is the equivalent unit of production for conversion cost under average process costing?
A. 89,300 units
B. 90,300 units
C. 86,500 units
D. 92,300 units

51. What is the equivalent unit of production for direct material under FIFO costing?
A. 70,300 units
B. 74,500 units
C. 72,300 units
D. 76,900 units

52. What is the equivalent unit of production for conversion cost under FIFO costing?
A. 78,300 units
B. 82,500 units
C. 74,900 units
D. 77,300 units

Number 53

In job order costing, normal spoilage which is a characteristic of a given production cycle shall be
A. Expensed as incurred
B. Charged or capitalized to a specific job
C. Closed to factory overhead account
D. Debited to work in process account
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Number 54

On December 31, 2023, the Home Office Current account in the books of Quezon Branch had a balance
of P975,000. In analyzing the activity in each of these accounts for December, you found the following
differences:
a. A P20,000 branch remittance to the home office initiated on December 21, 2023 was recorded twice
by the home office on December 26 and 28.
b. The home office incurred P36,000 of advertising expenses and allocated 1/3 of this amount to the
branch on December 20. The branch recorded this transaction on December 22 amounting to P
1,200.
c. Inventory costing P50,300 was sent to the branch by the home office on December 15. The billing
was at cost, but the branch recorded the transaction at P53,000.
The adjusted balance of the reciprocal accounts on December 31, 2023?
A. 966,900
B. 988,500
C. 961,500
D. 983,100

Number 55

The home office in Alabang shipped merchandise costing P55,500 to the Davao branch and paid the
freight amounting to P4,200. The home office transfers merchandise to the branch at a 20% mark-up
based on cost. Davao branch was subsequently instructed to transfer the merchandise to Cebu branch
wherein the latter paid P2,800 freight. If the shipment was made directly from Alabang to Cebu, the
freight cost would have been P6,200.
Compute the amount credited to Home Office Current account in the books of Cebu branch
A. 72,800
B. 61,700
C. 70,000
D. 71,240

Number 56

Phoenix Trading Co. has a branch in Quezon City. On December 31, 2023, Investment in Quezon City
Branch account in the home office books showed a balance of P386,000. The interoffice accounts were in
agreement at the beginning of the year. For purposes of reconciling the reciprocal accounts, the
following facts were ascertained:
a. The home office erroneously recorded a remittance for P4,800 from its Bacolod branch as a
remittance from its Quezon City branch.
b. The branch failed to take up a P1,500 debit memo from the home office representing its share in
marketing expenses.
c. Home office credit memo representing a discount on merchandise for P2,100 was not recorded by
the branch.
Compute the unadjusted balance of the Home Office Current account on December 31, 2023
A. 390,800
B. 391,400
C. 390,200
D. 381,800
 Page 15
Number 57

A home office ships inventory to its branch at a mark-up of 125% based on cost. The required balance of
the unrealized intercompany account is P285,000. During the year, the home office sent merchandise to
the branch costing P1,800,000. At the start of the year, the branch's books showed P360,000 of inventory
on hand that was acquired from the home office.
Compute the realized mark-up
A. 2,450,000
B. 2,165,000
C. 237,000
D. 522,000

Number 58

During the year 2023, goods billed at P650,000 were shipped to the branch at 130% of cost. The account
Loading in Branch Inventory has a balance of P245,000 before adjustment. The beginning inventory of
the branch from the home office at cost is P475,000; the beginning inventory of the branch from outsiders
is P108,000; purchases from outsiders is P290,000.
Compute the total goods available for sale of the branch from the home office
A. 1,061,667
B. 1,267,500
C. 1,618,000
D. 1,220,000

Number 59

Roven Co. operates a branch in Pasig. At the end of the year, the home office current account in the
books of the branch shows a balance of P150,000. The following information were ascertained in
reconciling the reciprocal accounts:
a. A Home Office accounts receivable for P10,500 was collected by the branch. The home office
was not yet notified by the branch.
b. Supplies of P4,500 were returned by the branch to the home office but the home office has not yet
reflected in its records the receipt of the supplies.
c. The branch has not received the cash in the amount of P18,000 sent by the home office on
December 31.
Compute the adjusted balance of the Investment in Branch account in the books of the home office
on December 31
A. 168,000
B. 162,000
C. 174,000
D. 132,000

Number 60

The Home Office in Makati shipped merchandise costing P280,000 to the Manila branch and paid for the
freight charges of P2,100. The home office bills the branch at 125% of cost. Manila branch was
subsequently instructed to transfer one-half of the merchandise to Quezon City branch wherein Quezon
City branch paid for P700 freight. If the shipment was made directly from Makati to Quezon City, the
freight cost would have been P1,400.
By how much will the Manila Branch charge the Home Office Current account?
A. 179,550
B. 177,100
C. 176,050
D. 176,750
 Page 16

Number 61

The Home Office in Palawan shipped merchandise costing P280,000 to Mindoro branch, the freight
collect amounting to P2,100. Mindoro branch was subsequently instructed to transfer 60% of the
merchandise to Batangas branch wherein Batangas branch paid for P700 freight. Had the merchandise
been shipped directly from Palawan to Batangas, the freight cost would have been P1,400.
Compute the excess freight chargeable to Palawan
A. 560
B. 0
C. 1,400
D. 280

Number 62

The accountant of XYZ Corporation prepared a Statement of Financial Affairs. Assets in which there are
no claims or liens are expected to produce P600,000. Unsecured claims of all classes totaled to
P1,050,000. The following data are claims deemed outstanding:
● Accrued salaries, P15,000.
● A note for P10,000, on which P600 of interest has accrued, held by NOP Co.
● A note for P30,000 secured by P40,000 receivable, estimated to be 60% collectible held by JKL Co.
● A P15,000 note, on which P300 interest has accrued, held by QRS Company, property with a book
value of P10,000 and estimated realizable value of P18,000 is pledged to guarantee payment of
principal and interest.
● Unpaid income taxes of P35,000.
Compute the expected percentage settlement to JKL
A. 65%
B. 60%
C. 59%
D. 92%

Number 63

Statement 1. The required balance of the Allowance for Overvaluation account is the mark-up in the total
ending inventory of the branch.
Statement 2. The combined net income of the home office and its branches is presented in the separate
Statement of Comprehensive Income of the Home office.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true

Number 64

Statement 1. Assuming the home office ships merchandise to the branch at a mark-up based on cost, the
account Shipments from Home Office in the published income statement is reported at billed price.
Statement 2. A credit memo received by the branch may be a notification from the home office about
allocation of expenses incurred by the latter.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true
 Page 17

Number 65

Statement 1. The accounts Shipments to Branch and Shipments from Home Office are eliminated in the
working paper and closed in the separate books.
Statement 2. A branch may debit an Investment in “another” Branch account for purposes of inter branch
transactions.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true

Numbers 66 and 67

Fox, Greg, and Howe are partners with average capital balances during 2023 of P120,000, P60,000, and
P40,000, respectively. Partners receive 10% interest on their average capital balances. After deducting
salaries of P30,000 to Fox and P20,000 to Howe, the residual profit or loss is divided equally.

66. In 2023, the partnership sustained a P33,000 loss before interest and salaries to partners. By
what amount should Fox’s capital account change?
A. 7,000 increase
B. 11,000 decrease
C. 35,000 decrease
D. 42,000 increase

67. If the partnership agreement does not specify how income is to be allocated, profits and loss
should be allocated
A. Equally
B. In proportion to the weighted average of capital invested during the period
C. Equitably so that partners are compensated for the tine and effort expended on behalf of the
partnership
D. In accordance with their capital contributions.

Number 68

A and B formed a partnership. The partnership agreement stipulates the following:

 A shall contribute noncash assets with carrying amount of P60,000 and fair value of P100,000.
 B shall contribute cash of P200,000.
 A and B shall have interests of 80% and 20%, respectively, on both the initial partnership capital
and in subsequent partnership profits and losses.
 No outside cash settlements shall be made between and among the partners.
The adjusted capital account of B after the formation is
A. 100,000
B. 200,000
C. 60,000
D. None of these
 Page 18

Number 69, 70 and 71

On June 30, 2023, the condensed balance sheet for the partnership of Eddy, Fox and Grimm, together
with their respective profit and loss sharing percentages were as follows:
Assets, net of liabilities 320,000

Eddy, capital (50%) 160,000

Fox, capital (30%) 96,000
Grimm, capital (20%) 64,000
320,000

69. Eddy decided to retire from the partnership and by mutual agreement is to be paid P180,000
out of partnership funds for his interest. No goodwill is to be recorded. After Eddy’s
retirement, what is the capital balance of Fox?
A. 84,000
B. 102,000
C. 108,000
D. 120,000

70. Assume instead that Eddy remains in the partnership and that Hamm is admitted as a new
partner with a 25% interest in the capital of the new partnership for a cash payment of
P140,000. The bonus method shall be used to record the admission of Hamm. Immediately
after admission of Hamm, Eddy’s capital account balance should be
A. 280,000
B. 172,500
C. 160,000
D. 140,000

71. The admission of a new partner effected through purchase of interest in the partnership is
A. Recorded in the partnership books as a debit to cash or other asset and credit to the incoming
partner’s capital account
B. Recorded in the partnership books as a transfer within equity
C. Recorded in the partnership books as a transfer from equity to liability
D. Not recorded in its entirety

Numbers 72 and 73

Jack and Beans, who share profits and losses at a ratio of 3:7, decided to liquidate their Talk Partnership.
The partners’ capital balances are P300,000 and P190,000, respectively.

72. The partnership has total liabilities of P200,000. If all partnership assets are realized for
P500,000, how much would Jack receive from the liquidation?
A. 243,000
B. 57,000
C. 300,000
D. 133,000

73. If on final settlement of partners’ claims, Beans received P99,000, how much did Jack receive?
A. 261,000
B. 234,000
C. 89,000
D. 0
 Page 19
Number 74

Statement of Financial Position for Puro Corporation and Sato Company on December 31, 2023 are given
below:
Puro Sato
Cash and cash equivalents P70,000 P90,000
Inventory 100,000 60,000
Property and equipment 500,000 250,000
Investment in Sato Company 260,000 -
Total assets 930,000 400,000

Current liabilities 180,000 60,000

Long-term liabilities 200,000 90,000
Common stock 300,000 100,000
Retained earnings 250,000 150,000
Total liabilities and SHE 930,000 400,000
Puro Corporation purchased 80% ownership of Sato Company on December 31, 2023, for P260,000. On
that date, Sato Company’s property and equipment had a fair value of P50,000 more than the book value
shown, while its long-term liabilities had a market value of P150,000. All other book values
approximated fair values. In the consolidated statement of financial position on December 31, 2023:
What amount of goodwill will be reported?
A. 0
B. 85,000
C. 25,000
D. 60,000

Numbers 75, 76 and 77

Statement of financial position reflecting uniform accounting procedures, as well as fair values that are to
be used as basis of the combination are prepared on September 1, 2023, as follows:
A Company B Company C Company
Assets 5,250,000 6,800,000 900,000

Liabilities 3,950,000 2,650,000 530,000

Capital stock, all P10 par 1,700,000 1,200,000 275,000
APIC 500,000 140,000
Retained Earnings (deficit) (400,000) 2,450,000 (45,000)
A company (Acquirer) shares have a market value of P22 per share.
On September 1, 2023, A Company acquires all of the assets and assumes the liabilities of B Company
and C Company by issuing 200,000 shares of its stock to B Company and 29,000 of its stock to C
Company. A Company pays P10,000 share issuance costs and P20,000 for other acquisition costs of
combination.

75. What is the total goodwill to be recorded by A Company arising from the acquisition of B and
C?
A. 518,000
B. 250,000
C. 268,000
D. 500,000

76. What is the total stockholders’ equity in the combined statement of financial position after
combination?
A. 6,308,000
B. 7,148,000
C. 6,728,000
D. 1,300,000
 Page 20

77. Direct costs incurred in a business combination are

A. Capitalized
B. Expensed
C. Capitalized, except for costs of issuing equity and debt instruments
D. Expensed, except for costs of issuing equity and debt instruments

Number 78

On January 2, 2023, Peter Co. acquired 80% of Sato’s outstanding common stock for P500,000. Sato’s
book value on that date was P500,000. There were no significant differences between the market value
and book value of Sato’s net assets. Goodwill, if any, is not impaired. During 2023, Peter and Sato
reported the following:
Peter Sato
Comprehensive income, excluding dividends from Subsidiary 1,000,000 200,000
Dividends declared and paid 300,000 120,000
How much is the CNI attributable to parent?
A. 1,143,750
B. 1,160,000
C. 1,146,875
D. 1,150,000

Numbers 79, 80 and 81

Papa Corporation owns 75% of the outstanding stock of San Company, acquired at book value in 2021.
Selected information from the accounts of Papa Corporation and San Company for 2023 are as follows:
Papa San
Sales 900,000 500,000
Cost of goods sold 490,000 190,000
During 2023, Papa sold merchandise to San for P50,000 at a gross profit of P20,000. Half of this
merchandise remained in San’s inventory at December 31, 2023. San’s December 31, 2022(beginning
inventory of 2023) included unrealized profit of P4,000 on goods acquired from Papa.
In the consolidated CI for Papa Corporation and subsidiary for 2023, compute for the following:

79. Consolidated Sales

A. 1,450,000
B. 1,350,000
C. 1,250,000
D. 1,400,000

80. Consolidated Cost of Goods Sold

A. 640,000
B. 636,000
C. 634,000
D. 625,000

81. The realized gross profit of P4,000 would be:

A. Deducted from Consolidated Cost of Goods Sold
B. Added to Consolidated Cost of Goods Sold
C. Ignored in the determination of Consolidated Net Income
D. Added to Consolidated Sales
 Page 21

Numbers 82 and 83

On January 1, 2023, Pete Company sold equipment to Sison Company, its wholly-owned subsidiary, for
P400,000. The equipment had a cost of P500,000; the accumulated depreciation at the time of sale was
P250,000. Pete used a 10-year life, no salvage value, and straight-line depreciation. Sison will continue
this practice. In the consolidated statement of financial position at December 31, 2023, compute for the
following balances:

82. Cost of equipment

A. 500,000
B. 400,000
C. 300,000
D. 150,000

83. Gain (Loss) on sale of equipment

A. (100,000)
B. 150,000
C. (150,000)
D. 0

Numbers 84 and 85

On November 1, 2023, LLL Corporation imported goods from a foreign supplier for $5,900, with
payment due on March 1, 2024. To hedge against this foreign currency exposure, LLL Corporation
entered into a forward contract to purchase $5,900 on March 1, 2024. The following relevant rates were
made available:
Offer rates November 1, 2023 December 31, 2023 March 1, 2024
Spot rate P50.50 P50.95 P51.20
Forward rate P50.90 P51.05 P51.20

84. How much is the fair value of the forward contract on November 1, 2023?
A. nil
B. 295 asset
C. 885 asset
D. 885 liability

85. How much is the fair value of the forward contract on December 31, 2023?
A. nil
B. 295 asset
C. 885 asset
D. 885 liability
 Page 22

Numbers 86, 87 and 88

On November 1, 2023, LLL Corporation imported goods from a foreign supplier for $5,900, with
payment due on March 1, 2024. To hedge against this foreign currency exposure, LLL Corporation
purchased a call option contract for P555, obtaining the right to purchase $5,900 for a strike price of
P50.77, and will expire on March 1, 2024. The following relevant rates were made available:

Offer rates November 1, 2023 December 31, 2023 March 1, 2024

Spot rate P50.50 P50.95 P51.20

86. How much is the fair value of the option contract on November 1, 2023?
A. 0
B. 555
C. 1,500
D. 2,537

87. With an ineffective portion valued at P438 on December 31, 2023, how much is the fair value of
the option contract on December 31, 2023?
A. 0
B. 555
C. 1,500
D. 2,537

88. How much is the fair value of the option contract on March 1, 2024, immediately before
expiration?
A. 0
B. 555
C. 1,500
D. 2,537

END

ANSWERS

1. C 16. D 31. A 46. C 61. A 76. A

2. C 17. C 32. D 47. D 62. D 77. D
3. A 18. D 33. A 48. B 63. D 78. B
4. A 19. D 34. B 49. A 64. B 79. B
5. D 20. C 35. A 50. B 65. C 80. B
6. B 21. B 36. D 51. C 66. C 81. A
7. B 22. D 37. B 52. A 67. D 82. A
8. C 23. D 38. C 53. C 68. C 83. D
9. B 24. B 39. B 54. D 69. A 84. A
10. D 25. C 40. C 55. C 70. B 85. C
11. A 26. A 41. B 56. B 71. B 86. B
12. D 27. A 42. C 57. B 72. A 87. C
13. A 28. B 43. A 58. D 73. A 88. D
14. B 29. D 44. D 59. A 74. B
15. C 30. B 45. A 60. C 75. A