School of Business Administration and Accountancy

General Luna corner Assumption Roads, Baguio City 2600

Telephone Numbers: (074) 442-4915, 442-4730, 442-3036 local 240/209
Mobile Phone Number: +639209245627
Fax Number: (074) 442-3071
Email Address: [email protected]

Practical Accounting 2
First Pre-board

Multiple Choice: Select the best answer for the following questions.
Shade the box corresponding to your answer on the answer sheet

1. A and B formed a joint operation. The following were the

transactions during the year:
A B
Total purchases 100 80
Total sales 240 180
Expenses paid 200
Other income 10

The joint operation was completed at the end of the year. Each joint
operator is entitled to a 10% commission on its purchases and a 20%
commission on its sales. Any remaining profit or loss is divided
equally.

In the cash settlement between the joint operators, which of the

following is true?
a. In the settlement, A will pay B cash of P92.
b. In the settlement, A will receive cash of P30.
c. In the settlement, B will pay A cash of P92.
d. In the settlement, B will receive cash of P30.

2. A, B, and C formed a joint operation. The joint operators shall make

initial contributions P10 each. Profit and loss shall be divided
equally. The following data relate to the joint operation’s
transactions:
A B C
Joint operation 8 Cr. 10 Cr. 12 Cr.
Expenses paid from JO cash 5 2 3
Value of inventory taken 5 6 4

In the cash settlement between the joint operators, which of the

following is true?
a. In the settlement, A will pay B cash of P18.
b. In the settlement, A will receive cash of P28.
c. In the settlement, C will receive cash of P21.
d. In the settlement, B will receive cash of P19 from A.
3. A, B, and C formed a joint operation. The following were taken from
the joint operation’s books:
Debit Credit
JO - Cash 20
B, Capital 15
C, Capital 22

The cost of unsold inventory is P18. The joint operation’s profit is

P11.

The balance of the joint operation account before distribution of

profit is
a. 7 credit balance
b. 27 credit balance
c. 20 debit balance
d. 7 debit balance

4. A, B, and C formed a joint operation which was completed during the

year. The accounts of the joint operators show the following
balances:
Books of A Books of B Books of C
Account with A - 2.5 Dr. 2.5 Dr.
Account with B 4 Dr. - 4 Dr.
Account with C 6.5 Cr. 6.5 Cr.

On final cash settlement, which of the following entries is made in

the books of C?
a. Cash 6.5
Receivable from A 2.5
Receivable from B 4
b. Payable to B 6.5
Receivable from A 2.5
Cash 4
c. Payable to A 6.5
Receivable from B 4
Cash 2.5
d. Cash 6.5
Receivable from A 4
Receivable from B 2.5

5. ABC Co. owns 20% interest in Joint Venture, Inc. and uses the equity
method to account for its interest in the joint venture. ABC has
joint control over Joint Venture, Inc. On January 1, 20x1, ABC
purchases an equipment with a carrying amount of P100,000 and a
remaining useful life of 10 years from Joint Venture for P120,000.
Both ABC and Joint Venture use the straight line method of
depreciation.

Joint Venture reports profit of P1,000,000 on December 31, 20x1. The

share in the profit of the joint venture is
a. P182,000
b. P196,400
c. P200,000
d. P197,480
6. On September 30, 2010, Roxas, Silverio and Tan agreed on a joint
operation to sell their ordinary shares of the Golden Copper Mines.
Gains and losses are to be shares in proportion to the contributed
shares.

Roxas contributes 6,000 shares, which had cost him P42 a share
Silverio gave 10,000 shares which cost P58 each and Tan 4,000 shares
which had cost P62 per share.

The par value of the shares was P50 and when the operation began
market value was P40 per share. Tan was to manage the operation for a
flat fee of P3,000 plus expenses.

On October 20, he sold 4,500 share for P44 a share. On November 1,

Golden Copper distributed stock dividend of 20%. Tan sold 5,000
shares, ex-stock dividend, on November 5 for P25 a share. On November
12, Golden Copper paid a cash dividend of P1 per share. On November
22, he sold 6,000 shares for P28. On December 20, the remainder of the
shares were sold for P35 a share. Tan’s expenses were P4,700.

If a distribution of proceeds is made on December 31, the share of

Silverio would amount to _____.
a. 374,650
b. 378,500
c. 381,450
d. 385,300

7. Soriente, Santos and Salazar formed a joint operation. Soriente has

been designated as manager of the operation, for which he is to
receive a bonus of 15% of the profit after deduction of the bonus as
an expense. The net profit, after bonus, has been agreed to be
divided as follows: Soriente, 25%; Santos, 40%; and Salazar, 35%.

After five months, the joint operation is terminated as of May 31,

2012. On this date, the trial balance kept by Soriente contains the
following balances:
Debit Credit
Joint operation P9,000
Santos P500
Salazar 2,000

The operation has still some undisposed merchandise, which

Soriente agreed to purchase at its cost of P2,500. The bonus of
Soriente has not yet been taken up.

The net profit of the joint operation, after bonus of Soriente is

a. 1,500
b. 9,000
c. 10,000
d. 11,500
8. Bar and Car join in a operation for the sale of football souvenirs
at the Rose Bowl game. Partners agree to the following: (1) Bar
shall be allowed a commission of 20% on net purchases made by him,
(2) each member shall be allowed a commission of 25% on his own
sales,(3) any remaining profit shall be shared equally. Operation
transactions follow:
Bar Car
Cash purchases P950
Expenses paid P150
Sales (each keeps his receipts) 800 600

In the final settlement, the amount due to (from) participants

a. Bar, P415; Car, P(415)
b. Bar, P420; Car, P(420)
c. Bar, P645; Car, P 645
d. Bar, P645; Car, P(415)

9. Partners EIJEAN, MARKUS, and PHILLIP have capital balances of

P40,000, 90,000 and P30,000, respectively, immediately prior to
liquidation. Total remaining assets have a book value of P160,000,
the liabilities having been paid. Among these remaining assets is a
machine with a fair value of P35,000.

The partners split profits and losses equally. MARKUS covets the
machine and is willing to accept it for P35,000 in lieu of cash. The
other partners have no desires on specific assets, only cash in
liquidation. How much cash, in addition to the machine, would be first
distributed to MARKUS, before any of the other partners received
anything?
a. P50,000
b. P166,667
c. P15,000
d. P300,000

10. A partnership begins its first year of operations with the

following capital balances:

Will, capital P110,000

Dill, capital 80,000
Sill, capital 110,000

According to articles of partnership, all profits will be

assigned as follows;
 Will will be awarded an annual salary of P20,000 with
P10,000 assigned to Sill.
 The partners will be attributed with interest equal to 10%
of the capital balance as of the first day of the year.
 The remainder will be assigned on a 5:2:3 basis
respectively.
 Each partner is allowed to withdraw up to P10,000 per year.

Assume that the net loss for the first year of operations is
P20,000 with net income of P40,000 in the subsequent year.
Assume further that each partner withdraws the maximum amount
from the business each period. What is the balance in Will’s
capital account at the end of the second year?
a. P102,600
b. P104,400
c. P108,600
d. P109,200
11. Jinx and Lucky are partners sharing profits 60% and 40%
respectively. The average profits for the past two years are to
be capitalized at 20% per year (for purposes of admitting a new
partner) in determining the aggregate capital of Jinx and Lucky,
after adjusting the profits for the following items omitted as
follows:

Omissions at Year-End: 2016 2017

Prepaid expense P1,600
Accrued expense 1,200
Deferred income P1,400
Accrued income 1,000

Other pertinent information are as follows:

2016 2017
Net income of partnership P14,400 P13,600
Capital accounts, end of the year:
Jinx 45,400 54,000
Lucky 45,000 55,000

The aggregate capital of Jinx and Lucky after capitalizing the

average profits at 20% per annum is:
a. P67,765
b. P72,105
c. P69,000
d. P71,000

12. Rogers and Smith share profits and losses in a ratio of 4:6.
Rogers and Smith receive salary allowances of P10,000 and P20,000
respectively, and both partners receive 10% interest on the
balance of their capital accounts on January 1. Partners’
drawings are not used in determining the average capital
balances. Total net income for 2017 is P60,000. If net income
after deducting the salary allocations is greater than P20,000,
Smith receives a bonus of 5% of the original amount of net
income.
Rogers Smith
January 1 capital balances P200,000 P300,000
Yearly drawings (P1,500 a month) 18,000 18,000
Permanent withdrawals:
June 1 15,000
May 1 20,000
Additional investments:
July 1 25,000
October 1 30,000

How much in total allocations have been made as a result of the

interest, salary, and bonus allocations, and how much in over
allocations have been made?
a. P80,000 and P20,000
b. P83,000 and P23,000
c. P60,000 and P0
d. P83,000 and P0
13. On February 1, 2016, Polo and Loco decides to combine their
businesses and form a partnership. Their balance sheets on
February 1, before adjustments, showed the following:
Polo Loco
Cash P 63,000 P 26,250
Accounts receivable 129,500 94,500
Inventories 210,000 136,500
Machinery (net) 210,000 63,000
Office equipment (net) 80,500 19,250
Prepaid expenses 44,625 21,000

Accounts payable P 320,250 P126,000

Capital 417,375 234,500

They agreed to have the following items recorded in their books:

 Provide 6% allowance for doubtful accounts.
 Polo’s machinery should be P218,000, while Loco’s office
equipment is underdepreciated by P1,750.
 Rent expense incurred previously by Polo was not yet
recorded amounting to P9,000, while salary expense incurred
by Loco was not also recorded amounting to P6,000
 The fair market value of inventory amounted to:
For Polo P206,500
For Loco 147,000

Compute the adjusted capital of Polo and Loco:

a. P405,105 P231,580
b. P389,105 P231,580
c. P405,105 P210,580
d. P389,105 P210,580

14. Alex, Bob, and Caroline are forming partnership. The market
values of the assets being contributed by Alex, Bob and Caroline
are P63,000, P58,000 and P92,000, respectively. The partners
agree that Alex’s experience warrants a higher initial capital
account value than would results from recognizing only the market
value of the assets contributed. Bob and Caroline agree that
Alex should receive a bonus of P30,000 and that Bob and Caroline
should contribute the bonus in a 1/3 and 2/3 ratio. What is the
peso amount of each partner’s capital account at the date the
partnership is formed?
a. Alex: P93,000; Bob: P48,000; Caroline: P72,000
b. Alex: P93,000; Bob: P43,000; Caroline: P77,000
c. Alex: P63,000; Bob: P58,000; Caroline: P92,000
d. Alex: P93,000; Bob: P58,000; Caroline: P92,000

15. HUGH, and URIEL share partnership profits and losses in a

7:3 ratio and their October 31, 2016 post-closing trial balance
shows:

Cash P 30,000.00
Accounts receivable 380,000.00
Inventory 260,000.00
Furniture 120,000.00
Accounts payable (165,000.00)
HUGH, capital (350,000.00)
URIEL, capital (275,000.00)

ASHTON offered to buy for P760,000.00 the partnership’s net

assets, except cash, after the assets are restated to their
 current fair values as follows: accounts receivable, P350,000.00;
inventory, P250,000.00; and, furniture, P135,000.00. How much
will HUGH and URIEL receive as final settlement of their
partnership interest?
a. P570,000.00
b. P760,000.00
c. P625,000.00
d. P790,000.00

16. On December 31, 2011, Rice Inc. authorized Corn, Inc. to

operate as a franchisee for an initial franchise fee of P150,000.
Of this amount, P60,000 was received upon signing the agreement
each beginning December 31, 2012. The present value on December
31, 2011 of the three annual payments appropriately discounted is
P72,000. According to the agreement, the non-refundable down
payment represents a fair measure of the services already
performed by Rice; however, substantial future services are
required of Rice. Collectibility of the note is reasonably
certain.

In Rice’s December 31, 2011, balance sheet, unearned franchise

fees from corn franchise should be reported as
a. P132,000 b. P100,000 c. P90,000 d. P72,000

17. At the beginning of the year, Reds got the franchise of

Credo’s, a known steak house of upscale patronage. The franchise
agreement required a P500,000 franchise fee payable P100,000 upon
signing of the franchise and the balance in four annual
installments starting the end of the current year. At present
value using 12% as discount rate, the four installments would
approximate P199,650. The fees once paid are not refundable. The
franchise may be cancelled subject to the provisions of the
agreement. Should there be unpaid franchise fee attributed to the
balance of main fee (P500,000), same would become due and
demandable upon cancellation. Further, the franchisor is entitled
to a 5% fee on gross sales payable monthly within the first ten
days of the following month. The Credit Investigation Bureau
rated Reds as AAA credit rating. The balance of the franchise fee
was guaranteed by a commercial bank.

The first year of operations yielded gross sales of P9 million,

Credo’s realized franchise fees for the first year is
a. P550,000 b. P650,000 c. P749,650 d. P950,000

18. Robins Inc. sells franchises for Ice Cream outlets in Metro
Manila. One contract has been signed on January 15, 2014. The
agreement calls for an initial franchise fee of P6 million by the
franchisee at the signing of the contract. The franchisor’s
initial cost of services is P2,250,000 , to be incurred uniformly
over the six-month period prior to the scheduled opening date of
July 15, 2014. No future payments are to be made by the
franchisee, although there will be continuing cost of P180,000
per year for services rendered during the ten year term of the
contract. The normal return the franchisor on continuing
operation involving franchise outlets is 10%.

How much net income would be recognized by the franchisor on July

15, 2014?
a. P3,750,000 c. P6,000,000
b. P5,750,000 d. P1,750,000
6m – 1.8m / 90% - 2.25m
19. Mr. Villa is about to purchase a franchise from Pizza,
Inc. The standard contract provides for a 10-year term and an
 initial franchise fee of P450,000, payable as follows: P150,000
at the date of signing. The expected date of signing is January
1, 2014. A continuing fee of 2% of gross sales is also to be paid
to the franchisor. Monthly gross sales are expected to be
P200,000 for the first four years and P375,000 for the remainder
of the contract. An additional P50,000 for initial services are
incurred on January 17, 2014. There are no associated continuing
costs.

The net income to be recognized by Pizza Inc. for the fiscal year
ending December 31, 2014 is:
a. P444,000 b. P140,400 c. P240,400 d. P440,800
200,000 x 11 mo x 0.02 +450,000 – 50,000

20. On January 1, 2014, Joyce Co. sold a franchise to Mr. Ames

for P10 million for the right to operate as a franchise of Mac
Co. Terms of the franchise contract are:
 The initial franchise fee of P1 million is payable
in cash, when the contract is signed and the balance in five
equal installments every December 31, evidenced by a 12%
promissory note.
 The franchisor will assist in locating the site,
supervise construction activity and training of management and
employees.

On December 31, 2014 direct cost of services rendered to the

franchisee amounted to P2 million.

Assuming that there is substantial performance of services

required in the contract and the collectibility of the note is not
reasonably assured, how much net income is to be recognized on
December 31, 2014?
a. P1 million b. P1,880,000 c. P800,000 d. P2,800,000
1m x 80%gpr + 9m x 12%

21. Each of Apple Pie Co.’s twenty one (21) new franchisees
contracted to pay an initial franchise fee of P30,000. By
December 31, 2011, 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, 2012, and December 31,
2013. Experience indicates that one franchise will default on the
additional payments. Services for the initial fee will be
performed in 2012.

What amount of net unearned franchise fees would Apple Pie report at
December 31, 2011?
a. P400,000 b. 600,000 c. P610,000 d. 630,000

22. On December 31, 2011, Delco Inc. signed an agreement

authorizing MN Co. to operate as a franchisee for an initial
franchise fee of P50,000. Of this amount, P20,000 was received
upon signing of the agreement and the balance is due in three
annual payments of P10,000 each beginning December 31, 2012. The
agreement provides that the down payment (representing a fair
measure of the services already performed by Delco) is not
refundable and no substantial future services are required to be
performed. MN Co.’s credit rating is such that collection of the
note is reasonably assured. The present value at December 31,
2011 of the three annual payments discounted at 14% (the implicit
rate for a loan of this type) is P23,220.

On December 31, 2011, Delco should record unearned franchise fees

of
 a. P23,220 b. P30,000 c. P42,220 d. zero

23. Macro Burgers, Inc. sells franchise to independent operators

in Metro Manila. The franchise contract includes the following
provisions:
i. The initial franchise fee is P25 million. Of this amount, P5
million is payable when the agreement is signed and a P4 million
non-interest bearing note is payable at the end of each of the
five subsequent years.
ii. All of the initial franchise fee collected by Macro, Inc. is to
be refunded and remaining obligation cancelled if for any reason,
the franchisee fails to open the franchise.
iii. In addition to the initial franchise fee, the franchisee is
required to pay Macro, Inc. a monthly fee of 2% of sales.

Macro estimates that the value of the services rendered to the

franchisee after the contract is signed amounts to P5 million. All
franchisees to date have opened their locations at the scheduled time
and none had defaulted on any of the notes receivable. The credit
rating of all franchisees would entitle them to borrow at the current
rate of 10%. The present value of an ordinary annuity of five annual
receipts of P4 million each, discounted at 10% is P15,163,000.

The earned and unearned franchise fees to be recognized when the

agreement was signed are:
Earned Unearned
a. P0 P20,163,000
b. P5 million P20,163,000
c. P5 million P15,163,000
d. P20,163,000 P0

24. On January 1, 2014, Mac Company signed an agreement to

operate as a franchisee of Pizza, Inc. for an initial franchise
fee of P1,600,000 for a period of 10 years. Of this amount
P600,000 (not refundable) was paid when the agreement was signed
and the balance payable to five annual payments of P200,000
beginning December 31, 2014. Mac signed a non-interest bearing
note for the balance. Mac’s credit rating indicates that it can
borrow money at 20% for a loan of this type.

Information on present value factors is as follows:

Present value of P1 at 20% for 5 periods 0.402
Present value of an annuity of P1 at 20% for 5 periods 2.9906
Future amount of P1 at 20% for 5 periods 2.488

In return for the initial franchise fee, the franchisor will help
in locating the site, negotiate the lease or purchase the site,
supervise the construction activity and provide training to employees.
On December 31, 2014, the initial services required of the franchisor
are substantially performed.

Assuming that the collectibility of the note is reasonably

certain, the revenue from franchise fee to be reported on December 31,
2014 is:
a. P1,198,120 c. P600,000
b. P1,600,000 d. P1,500,000
25. The following relates to the quantity schedule of Crocodile
Corporation:
Beginning units (75% complete) 300,000
Started units 1,600,000
Addition in volume 400,000
Ending units (40% complete) 200,000

The formulation of Crocodile’s only product in its only processing

plant requires an addition of water to increase volume at 20% stage
of processing while a 50% normal shrinkage in volume occurs between
50% and 70% stage of processing.

Using the first-in, first-out method, what is the materials

equivalent unit of production of the units transferred out?
a. 1,000,000 b, 800,000 c. 600,000 d. 500,000

26. Lacoste Corporation inspects materials before placing them

into process. Final inspection at the end of the process is
conducted to isolate defective products. The following data
relates to May production:

Beginning units (60%) 40,000

Transferred out units 160,000
Ending units (80%) 20,000
Defective materials 2,000
Defective units 8,000

For costing purposes, what is the EUP of materials cost using the
first-in, first out method?
a. 140,000 b. 120,000 c. 148,000 d. 128,000

27. Batches of separate raw materials are pre-processed at two

separate initial departments (Commination Department and Grinding
Department) and converge to the Assembly department of Lizard
Corporation’s Electra Plant.

The materials pre-processed by the Commination Department represent

only 20% of the total material requirements of the Assembly
Department. These were added at the end of processing in the
Assembly Department.

80% of the material requirements in the Assembly come from the

Grinding Department and were introduced at the start of the process.

The following depicts the quantity schedule of each department:

Commination Grinding Assembly

Beginning 200,000 250,000 100,000
Placed into process 900,000 1,150,000 1,200,000
Ending units 100,000 200,000 300,000

The beginning and ending units of Assembly Department were 40% and
80% processed, respectively.

Assuming that the per unit material pre-processing costs in both

prior departments were the same, what is the equivalent unit of
production of the materials (i.e. “Prior Department Costs”) for
purposes of costing in the Assembly Department using the weighted
average method?
a. 1,300,000 b. 1,240,000 c. 1,200,000 d. 1,140,000
28. Department A had no Work-in-Process at the beginning of the
period, 1,000 units were completed during the period, 200 units
were 50% completed at the end of the period, and the following
manufacturing costs were debited to the departmental Work-in-
Process account during the period

Direct materials (1,200 at P10) P12,000

Direct labor 5,500
Factory overhead 4,400

Assuming that all direct materials are placed in process at the

beginning of production and Department A uses weighted-average
process costing, what is the total cost of the departmental Work-in-
Process Inventory at the end of the period?
A. P3,650
B. P2,900
C. P2,000
D. P1,825

29. Read, Inc. instituted a new process in October 2008. During

October, 10,000 units were started in Department A. Of the units
started, 8,000 were transferred to Department B, and 2,000
remained in Work-in-Process at October 31, 2008. The Work-in-
Process at October 31, 2008, was 100% complete as to material
costs and 50% complete as to conversion costs. Material costs of
P27,000 and conversion costs of P36,000 were charged to
Department A in October. What were the total costs transferred to
Department B assuming Department A uses weighted-average process
costing?
A. P46,900
B. P53,600
C. P56,000
D. P57,120

30. A government agency summarized the following income and

expenses at year-end.

Notice of cash allocation P 20,000,000

Unused Notice of cash allocation 1,000,000
Income not authorized to use 4,000,000
Income authorized to use 1,200,000
Salaries and wages 8,000,000
Property acquisitions 6,000,000
Maintenance and other operating expenses 4,000,000
Financial expenses 1,000,000

Determine the excess of income over expenses.

a. P 7,200,000
b. P 6,000,000
c. P 1,200,000
d. P 0

31. Which will be presented as an investing receipt in the cash

flow statement of a non-profit entity?
a. Receipt of investment in stocks from a donor without restriction
b. Receipt of dividend income from a pure endowment grant
c. Purchase of equipment from a time restricted grant
d. All of these
 32. What is the entry to record the receipt of notice of cash
allocation in the national government books?
a. Cash-national treasury-MDS XXX
Subsidy income from national government XXX
b. Cash-collecting officer XXX
Subsidy income from national government XXX
c. Cash-national treasury-MDS XXX
Subsidy income from central office XXX
d. No entry.

33. The receipt of income which a government agency is

authorized to use with limit is
a. initially recorded in the national government books then
transferred to the regular agency books.
b. initially recorded in the regular agency books then transferred
to the national government books.
c. taken as a memo entry in the national government books.
d. not recorded in the national agency books.

34. The entry to record the payment of a prior period salary

expense in the current year shall be
a. Salary expense XXX
Due to officers and employees XXX
b. Due to officers and employees XXX
Cash-National Treasury-MDS XXX
c. Retained operating surplus XXX
Due to officers and employees XXX
d. Retained operating surplus XXX
Cash-National Treasury-MDS XXX

35. Which of the following is considered temporarily restricted

grant?
a. Receipt of a pure endowment grant
b. Receipt of cash donation to be used next year
c. Receipt of land for a building site
d. receipt of dividend income

36. “Imagine Yolanda”, a non-profit charitable institution,

received P8,000,000 donations from various donors in 2013. 40% of
the donations were restricted to be used for street children
feeding program and 60% of which were expended in 2013. 50% of
the donations were restricted to be used for building
acquisition. The building was completed in 2013. The rest of the
donations were without restriction but was set aside by the Board
of Trustees to fund scholarship program in 2014.

The total increase in unrestricted net assets is

a. P8,000,000 b. P6,720,000 c. P4,800,000 d. P4,000,000

37. Clara Hospital, a private not-for-profit hospital, earned

P250,000 of gift shop revenues and spent P50,000 on research during
the year ended December 31, 2013. The P50,000 spent on research was
part of a P75,000 contribution received during December of 2012 from
a donor who stipulated that the donation be used for medical
research. Assume none of the gift shop revenues were spent in 2013.
For the year ended December 31, 2013, what was the increase in
unrestricted net assets from the events occurring during 2013?
a. P300,000 b. P200,000 c. P250,000 d. P275,000
38. Catherine College, a private not-for-profit college, received the
following contributions during 2013:
I. P5,000,000 from alumni for construction of a new wing on the
science building to be constructed in 2013.
II. P1,000,000 from a donor who stipulated that the contribution be
invested indefinitely and that the earnings be used for scholarships.
As of December 31, 2013, earnings from investments amounted to
P50,000.

For the year ended December 31, 2013, what amount of these
contributions should be reported as temporarily restricted revenues on
the statement of activities?
a. P 50,000
b. P5,050,000
c. P5,000,000
d. P6,050,000

39. On December 31, 2013, Hope Haven, a private not-forprofit

voluntary health and welfare organization, received a pledge from a
donor who stipulated that P1,000 would be given to the organization
each year for the next five years, starting on December 31, 2014.
Present value factors at 6% for five periods are presented below.

Present value of an ordinary annuity for 5 periods at 6% 4.21236

Present value of an annuity due for 5 periods at 6% 4.46511

For the year ended December 31, 2013, Hope Haven should report, on its
statement of activities,
a. Unrestricted revenues of P5,000.
b. Temporarily restricted revenues of P4,465.
c. Unrestricted revenues of P4,465.
d. Temporarily restricted revenues of P4,212.

40. The Jackson Foundation, a private not-for-profit organization,

had the following cash contributions and expenditures in 2013:
Unrestricted cash contributions of P500,000.
Cash contributions of P200,000 restricted by the donor to the
acquisition of property.
Cash expenditures of P200,000 to acquire property with the donation in
the above item.

Jackson’s statement of cash flows should include which of the

following amounts in the respective activities?
Operating Investing Financing
a. P700,000 P(200,000) P0
b. P500,000 P0 P0
c. P500,000 P(200,000) P200,000
d. P0 P500,000 P200,000

41. On December 30, 2013, Leigh Museum, a not-for-profit

organization, received a P7,000,000 donation of Day Co. shares with
donor-stipulated requirements as follows:

Shares valued at P5,000,000 are to be sold, with the proceeds

used to erect a public viewing building.
Shares valued at P2,000,000 are to be retained, with the dividends
used to support current operations.

As a consequence of the receipt of the Day shares, how much

should Leigh report as temporarily restricted net assets on its 2013
statement of financial position (balance sheet)?
a. P0 b. P2,000,000 c. P5,000,000 d. P7,000,000
42. During the year ended December 31, 2013, a not-forprofit
performing arts entity received the following donor restricted
contribution and investment income:
I. Cash contribution of P100,000 to be permanently invested.
II. Cash dividends and interest of P6,000 to be used for the
acquisition of theater equipment.
As a result of these cash receipts, the statement of cash flows for
the year ended December 31, 2013, would report an increase of
a. P106,000 from operating activities.
b. P106,000 from financing activities.
c. P6,000 from operating activities and an increase of P100,000 from
financing activities.
d. P100,000 from operating activities and an increase of P6,000 from
financing activities
43. QUAD, Inc. started operation at the beginning of 2017, selling
home appliances exclusively on the installment basis. Data for 2017
and 2018 follows:
2017 2018
Installment sales …………... P600,000.00 P750,000.00
Cost of installments sales….. 420,000.00 450,000.00
2017 inst. Accounts, end. ….. 285,000.00 22,000.00
2018 inst. Accounts, end. ….. -- 300,000.00

On May 31, 2018, a 2018 installment account of P37,500 was

defaulted and the appliance was repossessed. After reconditioning at a
cost of P750 the repossessed appliance would be priced to sell for
P30,000.
At the end of 2018, the total unrealized gross profit was:
(A) P120,000 (B) P126,600 (C) P138,000 (D) P146,000 E
44. APEX Motor Co. sells both new and used cars. On October 1, 2017,
a new car, which cost P240,000 was sold for P330,000. A used car was
accepted as down payment for a trade-in allowance of P120,000, the
balance payable in fifteen equal monthly installments starting
November 1, 2017. The company anticipated a resale price of P140,000
on the used car after reconditioning costs of P15,000 (used car
sales are set to yield a gross profit of 25%). During 2017, all
installments were collected.
Assuming revenue is recognized by the installment method of
accounting, the total gross profit realized in 2017 is:
(A) P20,000 (B) P23,600 (C) P43,450 (D) P59,333
45. ZENITH Enterprises started operations on October 1, 2017. The
following information are summarized for the first three months:
Installments receivable, Dec. 31 ……….. P1,500,000.00
Deferred gross profit, Dec. 31 (unadjusted) 1,050,000.00
Gross profit on sales ……………………. 25%
The realized gross profit on installment sales during the last
three months amounted to:
(A) P675,000 (B) P810,000 C) P1,125,000 (D) P1,350,000
46. KING’s Towers sells a condominium unit to Ken See for
P7,000,000.00 on October 01, 2016. Ken See pays P2,000,000.00 in
cash and agrees to pay the balance in ten equal semi-annual
installments commencing 6 months later. The unit had at 10% per
annum on unpaid principal. Ken See dutifully paid the installments
due in 2017 and 2018, but he defaulted in 2019. Thereupon, the unit
was repossessed and appraised at P1,200,000.00. Gross profit is
recognized by KIN’s Towers at the point of sale.
The resulting loss on the repossession is:
(A) P1,300,000 (B) P1,700,000 (C) P1,800,000 (D) P3,000,000
47. NAWASAKI Motors, a dealer of motorcycles, sells exclusively on
installment basis. One of its customers, Mr. Sikad, purchased a
motorcycle for P45,375. The cost to NAWASAKI was P25,410. After
making in initial payment of P6,050., Mr. Sikad defaulted on
subsequent payments. NAWASAKI lost no time in repossessing the
motorcycle which, by this time, was appraised at a value of P12,650.
NAWASAKI had to incur additional cost of repairs/ remodeling of
P1,650. before the motorcycle was subsequently resold for P27,500 to
Mr. Padyak who made an initial payment of P6,875.

How much gross profit was realized on the sale to Mr. Padyak?
(A)P3,025 (B) P3,300 (C) P3,575 (D) P3,850

48. Mr. Santos, a customer of SOLAR Corp., had an installment account

balance of P82,500.00 when the generator he purchased from the
latter entity was repossessed. The generator was previously sold to
Mr. Santos for P137,500 on the installment basis at a gross profit
of 40%.

Assuming that the repossessed generator had an appraised value of

P44,550.00, what gain (loss) should SOLAR Corp. recognize as a result
of the repossession?
(A)P (4,950.00) (B) P11,550 (C) P(22,770) (D)P(37,950)

49. IBEX Computer Co. began operation at the beginning of 2017.

During the year, it had cash sales of P6,875,000.00 and sales on
installment basis of P16,500,000.00. IBEX adds a markup on cost of
25% on cash sales and 50% on installment sales. Installments
receivable of P6,600,000 are collected in 2017. Total realized gross
profit for 2017 is:
(A) P2,200,000 (B) P3,300,000 (C) P3,575,000 (D) P5,018,750

50. BUSTER Video Corp. sells video and VHS equipment on the
installment basis, and data relating to its operations from 2015 to
2017 follow:
2015 2016 2017
Installment sales P1,100,000.00 P1,650,000.00 P2,062,500.00
Cost of ins-
tallment sales 715,000.00 1,031,250.00 1,237,500.00
Collections
2015 accounts 412,500.00 330,000.00 343,750.00
2016 accounts 660,000.00 495,000.00
2017 accounts 756,250.00

The total gross profit realized in 2017 is:

(A) P558, 250.00 (C) P608, 438.00
(B) P598, 125.00 (D) P638, 000.00

End of examination!