MID- TERM EXAMINATION Accounting for Special Transactions

1. PFRS 11 prescribes the principles for financial reporting by

a. all parties to a joint arrangement
b. parties to a joint venture only
c. parties to a joint operation only
d. parties which obtained joint control only

2. The existence of contractual agreement for sharing of joint control over an investee
a. is necessary before an asset is classified as an investment
b. is not necessary before an asset is classified as an investment
c. distinguishes interests in joint ventures from interests in joint operation
d. distinguishes interests in joint arrangements from other investments

3. A joint arrangement is
a. similar to a joint operation
b. similar to a jointly controlled asset
c. similar to a jointly controlled entity
d. either a joint operation or a joint venture

4. Which of the following is not one of the characteristics of a joint control?

a. It is obtained by an investor through contractual agreement with fellow investors. b.
Financial and operating decisions relating to the investee’s activities require each of the
investors’ consent.
c. No sole investor obtains leverage over another investor in respect of voting rights over
financial and operating decisions.
d. One of the investors has the power to govern the financial and operating policies of the
investee so as to obtain benefits from it.

5. Parties that have joint control of a joint arrangement are referred to as

a. joint operators b. joint venturers c. joint arrangers d. either a or b

6. A, B, and C establish an arrangement whereby A has 50% of the voting rights in the arrangement,
B has 30% and C has 20%. The contractual arrangement between A, B and C specifies that at
least 75% of the voting rights are required to make decisions about the relevant activities of the
arrangement. Which of the following statements is correct?
a. A and B have joint control of the arrangement
b. A, B and C have joint control of the arrangement
c. None of the parties have joint control of the arrangement
d. Insufficient information

7. A and B enter into an arrangement whereby each have 35% of the voting rights in the arrangement
with the remaining 30% being widely dispersed. Decisions about the relevant activities require
approval by a majority of the voting rights. Which of the following statements is correct? a. A and B
have joint control of the arrangement
b. Only A has joint control of the arrangement
c. None of the parties have joint control of the arrangement
d. A and B have joint control of the arrangement only if the contractual arrangement specifies
that decisions about the relevant activities of the arrangement require both A and B
agreeing.
8. When the parties to a joint arrangement have rights to the net assets of the arrangement, the
arrangement is classified as
MID- TERM EXAMINATION Accounting for Special Transactions

a. Joint operation c. Jointly controlled assets

b. Joint venture d. Joint arrangement

9. Parties to a joint venture are referred to as

a. Joint operators b. Joint venturers c. Jeepney operators d. a or b

10. A party to a joint operation shall assess its rights and obligations by considering which of the
following?
a. structure and legal form of the arrangement
b. terms of the contractual agreement
c. other facts and circumstances
d. all of these

11. A joint arrangement in which the assets and liabilities relating to the arrangement are held in a
separate vehicle
a. is a joint operation c. can be either a or b
b. is a joint venture d. riding arrangement

12. A, B, and C, each engaged in the extraction of oil, agreed to acquire and jointly operate an oil
pipeline. Each party will use the pipeline to transport its own product in return for which it bears an
agreed proportion of the expenses of operating the pipeline. A, B, and C agreed to share equally
on the cost of acquiring the pipeline and the expenses of operating it. Which of the following
statements is correct?
a. The joint arrangement is classified as a joint operation because the joint arrangement
confers to the parties rights to the assets and obligations for the liabilities of the joint
arrangement.
b. The joint arrangement is classified as a joint operation because the joint arrangement
confers to the parties rights to the net assets of the joint arrangement.
c. The joint arrangement is classified as a joint venture because the joint arrangement confers
to the parties rights to the assets and obligations for the liabilities of the joint arrangement. d.
The joint arrangement is classified as a joint venture because the joint arrangement confers to
the parties rights to the net assets of the joint arrangement.

13. A joint operator shall account for its interest in a joint operation
a. by recognizing its own assets, liabilities, income and expenses plus its share in the assets,
liabilities, income and expenses of the joint operation. All of these items shall be accounted for
in accordance with the other applicable PFRSs.
b. by recognizing its own assets, liabilities, income and expenses plus its share in the assets,
liabilities, income and expenses of the joint operation. All of these items shall be accounted for
in accordance with PFRS 11.
c. by recognizing its interest as an investment and account for that investment using the equity
method in accordance with PAS 28.
d. by recognizing its interest as an investment and account for that investment using the equity
method in accordance with PFRS 11.
14. A joint venturer shall account for its interest in a joint venture
a. as an investment accounted for under the equity method
b. at cost or in accordance with PFRS 9
c. as an investment accounted for under the equity method, except in its separate financial
statements whereby the investment accounted for either at cost or in accordance with PFRS 9
MID- TERM EXAMINATION Accounting for Special Transactions

d. as an investment accounted for under the equity method or the procedures described in PFRS
11, except in its separate financial statements whereby the investment accounted for either at
cost or in accordance with PFRS 9

15. ENMITY HATRED Co. has entered into a joint venture with an affiliate to secure access to
additional inventory. Under the joint venture agreement, ENMITY will purchase some of the output
of the venture at prices negotiated on an arms-length basis. Which of the following is (are)
required to be disclosed about the related party transaction?
I. The amount due to the affiliate at the balance sheet date.
II. The dollar amount of the purchases during the year.
a. I only b. II only c. Both I and II d. Neither I nor II.

Use the following information for the next two questions:

The following are the transactions of a joint operation formed by A, B and C during a year:
∙ A contributed cash of ₱400 and merchandise costing ₱800.
∙ B contributed merchandise costing ₱1,600. Freight-in paid by B is ₱80.
∙ C made purchases amounting to ₱400 using the cash contributed by A.
∙ C paid expenses of ₱800 using its own cash.
∙ C made total sales of ₱3,200. All the merchandise was sold except one-half of those contributed
by B.
∙ C is appointed as the manager of the joint operation. As compensation, C is entitled to a ₱120
salary plus bonus of 25% on profit after salary and bonus.
∙ Interest of 10% per annum is allowed to A and B’s capital contributions.
∙ C is charged for the cost of any unsold inventory. Profit or loss after necessary adjustments shall
be divided equally.

16. How much is the profit or loss after salaries but before bonus of the joint
operation? a. 192 b. 240 c. 360 d. 420

17. On the cash settlement between the joint operators,

a. A pays ₱1,288 c. C receives ₱96
b. B pays ₱1,816 d. All of these

18. A, B, and C formed a joint operation which was completed during the year. A is the appointed
manager who will be entitled to a 10% bonus of profit before bonus. Profit or loss after bonus to A is
divided equally among the joint operators. The accounts of B and C show the following balances:
Books of B Books of C
Account with A 16 Cr. 16 Cr.
Account with B 48 Cr.
Account with C 56 Dr.

Unsold merchandise was charged to A at a cost of ₱88. On the cash settlement between the joint
 operators,
a. A receives ₱72; C pays ₱32 c. B receives ₱72; C pays ₱32 b. B pays ₱72;
A pays ₱40 d. None of these

19. A, B, and C formed a joint operation. Profit or loss shall be divided equally. The following were
taken from the joint operation’s books:
Debit Credit
JO – Cash 80
MID- TERM EXAMINATION Accounting for Special Transactions

Joint operation 20
B, Capital 60
C, Capital 40

A’s share in the joint operation’s profit is ₱16. A agreed to be charged for the unsold merchandise
as of year-end. How much is the cost of unsold merchandise charged to A?
a. 56 b. 62 c. 68 d. 72

20. A, B, and C formed a joint operation. The following were taken from the joint operation’s
books: Debit Credit
JO – Cash 80
B, Capital 60
C, Capital 88

The cost of unsold inventory is ₱72. The joint operation’s profit is ₱44. How much is the balance of
the joint operation account before distribution of profit?
a. 28 b. 116 c. 56 d. 0

21. A, B, and C formed a joint operation. The joint operators shall make initial contributions ₱40 each.
Profit and loss shall be divided equally. The following data relate to the joint operation’s
transactions:

ABC
Joint operation 32 Cr. 40 Cr. 48 Cr. Expenses paid from JO cash 20 8 12 Value of
inventory taken 20 24 16

How much is the joint operation’s sales?

a. 280 b. 40 c. 80 d. 76

22. On January 1, 2019, PATRIMONY Co. entered into a joint agreement classified as a joint venture.
For an investment of ₱2,000,000, PATRIMONY Co. obtained 30% interest in HERITAGE Joint
Venture, Inc. During the year, HERITAGE Joint Ventures, Inc. reported profit of ₱4,000,000 and
other comprehensive income of ₱800,000, for a total comprehensive income of ₱4,800,000.
HERITAGE Joint Venture, Inc. declared dividends of ₱2,400,000 during the year. How much is the
carrying amount of the investment in joint venture on December 31, 2019?
a. 2,720,000 b. 2,000,000 b. 2,480,000 d. 4,160,000

23. ABHOR Co. owns 20% in HATE Joint Venture, Inc. and uses the equity method to account for its
interest in the joint venture. ABHOR has joint control over HATE Joint Venture, Inc. In 2019,
ABHOR sold inventory to HATE Joint Venture for ₱400,000 with a 60% gross profit on the
 transaction. The inventory remains unsold during 2019 and was sold by HATE Joint Venture to
external parties only in 2020. ABHOR’s income tax rate is 30%.

How much is adjusted share in the profit of the joint venture in 2019 if the joint venture reports
profits of ₱4,000,000?
a. 362,000 b. 560,000 c. 632,000 d. 752,000

Use the information below to answer the next two questions:

ANOMALOUS Co. owns 20% interest in IRREGULAR Joint Venture, Inc. and uses the equity method
to account for its interest in the joint venture. ANOMALOUS has joint control over IRREGULAR Joint
MID- TERM EXAMINATION Accounting for Special Transactions

Venture, Inc. On January 1, 2019, ANOMALOUS sold an equipment with a carrying amount of
₱400,000 and a remaining useful life of 10 years to IRREGULAR Joint Venture for ₱480,000. Gain of
₱80,000 was recorded by ANOMALOUS. Both ANOMALOUS and IRREGULAR Joint Venture use the
straight line method of depreciation.

24. How much is adjusted share in the profit of the joint venture in 2019 if the joint venture reports
profits of ₱4,000,000?
a. 728,000 b. 752,000 c. 784,000 d. 733,000

25. How much is adjusted share in the profit of the joint venture in 2020 if the joint venture reports
profits of ₱4,800,000?
a. 976,400 b. 993,600 c. 968,000 d. 1,040,000

26. It is the termination of business operations or the winding up of affairs. It is a process by which the
assets of the business are converted into cash, the liabilities of the business are settled, and any
remaining amount is distributed to the owners.
a. Liquidation
b. Dissolution
c. Operation
d. Formation

27. Statement 1. Entities undergoing liquidation measure their assets and liabilities in the statement of
affairs at fair market value.
Statement 2. Liquidating entities usually prepare Statement of Affairs and Statement of realization
and liquidation.
a. Statement 1, False; Statement 2, True
b. Statement 1, False; Statement 2, False
c. Statement 1, True; Statement 2, True
d. Statement 1, True; Statement 2, False

28. Assets in the statement of affairs are classified into the following, except
a. Assets pledged to fully secured creditors
b. Asset pledged to partially secured creditors
c. Free assets
d. Depreciable Assets
29. Liabilities in the statement of affairs are classified into the following,
except a. Unsecured liabilities with priority
b. Fully secured creditors
c. Partially secured creditors
d. Free liabilities

30. These are assets with realizable values less than the realizable values of the related liabilities for
which these assets have been pledged as security.
a. Assets pledged to fully secured creditors
b. Asset pledged to partially secured creditors
MID- TERM EXAMINATION Accounting for Special Transactions

c. Free assets
d. Depreciable Assets

31. These are assets that have not been pledged as security of liabilities. These also include the
excess of realizable values of assets pledged to fully secured creditors over the realizable values
of related liabilities for which these assets have been pledged.
a. Assets pledged to fully secured creditors
b. Asset pledged to partially secured creditors
c. Free assets
d. Depreciable Assets

32. These are liabilities secured by assets with realizable values equal to or greater than the realizable
values of such liabilities.
a. Unsecured liabilities with priority
b. Fully secured creditors
c. Partially secured creditors
d. Unsecured liabilities without priority

33. It is a periodic report, normally prepared by a receiver, which shows information on the progress of
the liquidation process.
a. Statement of liquidation
b. Statement of dissolution
c. Statement of affairs
d. Statement of reorganization

34. It is the implementation of a business plan to restructure or rehabilitate a corporation with the
hopes of increasing company value.
a. Reorganization
b. Dissolution
c. Liquidation
d. Affairs
35. The following are types of corporate reorganization, except
a. Business Combination
b. Recapitalization
c. Corporate rehabilitation
d. Troubled debt restructuring

36. Isabela Bank holds a P500,000 note secured by a building owned by Echague Software, which
has filed for bankruptcy. If the property has a book value of P600,000 and a fair market value
P450,000, what is the best way to describe the notes held by Isabela Bank? The bank has a. A
secured claim of P500,000
b. An unsecured chain of P500,000
c. A Secured claim of P450,000 and an unsecured claim of P50,000
MID- TERM EXAMINATION Accounting for Special Transactions d. A secured claim of P50,000

and an unsecured claim of P50,000.

37. X and Y Inc. owes the Xylo Corporation P60,000 on account, which is secured by accounts
receivable with a book of P50,000. The unsecured portion is considered a claim under the
bankruptcy law, X and Y has filed for bankruptcy. Its statement of affairs lists the accounts
receivable securing the Xylo account with an estimated realizable value of P45,000. If the dividend
to general unsecured creditors in 80%, how much can Xylo expect to receive?
a. P60,000
b. P58,000
c. P57,000
d. P48,000

38. P Corporation is a parent, having purchased 60% of the ordinary share at par value for P600,000.
S Company in in financial difficulty. The parent granted an unsecured loan of P200,000 to the
subsidiary. An accounting statement of affairs for S Company shows a dividend of 30%. P
Corporation can expect to reserve on the loan of appropriately.
a. P120,000
b. P60,000
c. P36,000
d. 0

39. Kent, Inc. has forced into bankruptcy and has begun to liquidate. Unsecured claims will be paid at
the rate of 40 cents on the peso. Apex Co. holds a non- interest bearing note receivable from Kent
in the amount of P100,000 collateralized by machinery with a liquidation value of P25,000. The
total amount to be realized by Apex on this note receivable is:
a. P25,000
b. P40,000
c. P55,000
d. P65,000
40. Seco Corp. was forced into bankruptcy and is in the process of liquidating assets and paying
claims. Unsecured claims will be paid at the rate of forty cents on the peso. Hale holds a P30,000
non interest bearing note receivable from Seco collateralized by an asset with a book value of
P35,000 and a liquidation value of P5,000. The amount to be realized by Hale on this note is a.
P5,000
b. P12,000
c. P15,000
d. P17,000

41. Blueprint, Inc signed a note payable to its bank for P10,000. Accrued interest on the note on
February 25, 2019 amounts to P250. The note is secured by inventory with a book value of
P12,000. The inventory is sold for P8,000 and unsecured creditors receive 30 percent of their
claims. The bank should receive the following amount in settlement of the note and interest:
a. P10,250
MID- TERM EXAMINATION Accounting for Special Transactions

b. P10,000
c. P8,675
d. P8,000

42. The trust for Ardolio, Inc. prepares a statement of affaire which shows that unsecured creditors
whose claim total P60,000 may expect to receive approximately P36,000 if assets are sold for the
benefit of creditors.
∙ Michael is an employee who is owed P750.
∙ Meldean holds a note for P1,000 on which interest of P50 is accrued: nothing has been pledged
on the note.
∙ Compboy holds a note of P6,000 on which interest of P300 is accrued: securities with a book
value of P6,500 and a present market value of P5,000 are pledged on the note. ∙ Serpor holds a
note for P2,500 on which interest of P150 is accrued property with book value of P2,000 and a
present market value of P3,000 pledged on the note.

How much may each of the following creditors hope to receive?

Michael Meldcan Compboy Serpor

a. P0 P 0 P 0 P0
b. 90 P 0 6,300 2,390
c. 350 1,050 5,780 P 0
d. 750 630 5,780 2,650

43. Erap Co filed a voluntary bankruptcy petition on August 15, 2018, and the statement of affairs
reflect the following amounts

Book value Estimated current value

 Assets:
Assets pledged with fully secured creditors P 300,000 P 370,000 Assets pledged with
partially secured creditors 180,000 120,000 Free assets 420,000 320,000 P 900,000 P
810,000

Liabilities:
Liabilities with priority P 70,000
Fully secured creditors 260,000
Partially secured creditors 200,000
Unsecured creditors 540,000
P1,070,000

Assume that the assets are converted to cash at the estimated current values and the
business liquidated. What amount of cash will be available to pay unsecured nonpriority
claims? a. P240,000
MID- TERM EXAMINATION Accounting for Special Transactions

b. P280,000
c. P320,000
d. P360,000

44. Zamora and Co., Inc purchased a Cadillac automobile with little cash down and signed a note,
secured by the Cadillac, for 48 easy monthly payments. When the company filed for bankruptcy,
the balance due on the Cadillac amount to P6,000,000. The car has a book value of P8,000,000
and a net realizable value of P4,000,000. The unsecured creditors of Zamora and Co. can expect
to receive 50 percent of their claims. In the liquidation, the bank that holds the note on the Cadillac
should receive:
a. P6,000,000
b. P4,000,000
c. P5,000,000
d. P3,000,000

45. The following data are provided by the Troubled Company:

Assets at book value P 150,000
Assets at net realizable value 105,000
Liabilities at book value:
Fully secured mortgage 60,000
Unsecured accounts and notes payable 70,000
Unrecorded liabilities:
Interest on bank notes 500
Estimated cost of administering estate 6,000

The court has appointed a trustee to liquidate the company. The Journal entry made by the trustee
to record the assets and liabilities should include an estate deficit of:
 a. P31,500
b. P31,000
c. P25,500
d. P25,000

46. Using the same information in Number 45, the statement of affairs prepared by the trustee at this
time should include an estimated deficiency to unsecured creditors of:
a. P45,000
b. P39,000
c. P31,500
d. P25,000

47. Nah Lugi Corporation in in bankruptcy and being liquidated by a court appointed trustee. The
financial report that follow was prepared by the trustee just before the final cash distribution:

Assets:
MID- TERM EXAMINATION Accounting for Special Transactions

Cash P 100,000
Approved Claims:
Mortgage payable (secured by property
that was sold for P50,000) P 80,000
Accounts payable, unsecured 50,000
Administrative expenses payable, unsecured 8,000
Salaries payable, unsecured 2,000
P 140,000

The administrative expenses are for trustees and other onta of ministering the debtor corporation's
estate. How should the P100,000 be distributed to the following creditors?

Unsecured Creditors Partially Secured Unsecured Creditors

with Priority Creditors without Priority
a. P 0 P 80,000 P 20,000
b. P10,000 P 80,000 P 10,000
c. P5,000 P 65,000 P 25,000
d. P10,000 P 65,000 P 25,000

48. On December 18, 2018, the statement of affairs of Downside Company which is in bankruptcy
liquidation, included the following:

Assets pledged for fully secured liabilities P100,000

Assets pledged for partially secured liabilities 40,000
Free assets 120,000
Fully secured liabilities 80,000
Partially secured liabilities 50,000
 Unsecured liabilities with priority 60,000
Unsecured liabilities without priority 90,000

Compute the estimated amount to be paid to:

Fully Secured Unsecured Liabilities Partially Secured Unsecured Liabilities Liabilities

with Priority Creditors without Priority a. P80,000 P 60,000 P 50,000 P 70,000 b. P64,000
P 60,000 P 48,000 P 88,000 c. P80,000 P 48,000 P 60,000 P 72,000 d. P80,000 P 60,000
P 48,000 P 72,000

49. Amounts related to the statement of affairs of Windup Company, in bankruptcy liquidation as April
1, 2018, were as follows:

Assets pledged for fully secured liabilities P800,000

Assets pledged for partially secured liabilities 50,000
MID- TERM EXAMINATION Accounting for Special Transactions

Free assets 272,000

Fully secured liabilities 60,000
Partially secured liabilities 80,000
Unsecured liabilities with priority 40,000
Unsecured liabilities without priority 330,000

Compute the: (1) total estimated deficiency to unsecured creditors, and (2) the cost per peso that
unsecured creditors may expect to arrive from Windup Company.

a. 1) P78,000; (2) P0.76

b. 1) P108,000; (2) P0.70
c. 1) P108,000; (2) P0.81
d. 1) P108,000; (2) P0.61

50. Catherine, a CPA, has prepared a statement of affairs. Assets which there are no claims or liens
expected to produce P70,000, which must be allocated to unsecured claims of all classes totaling
P105,000. The following are some of the claims outstanding:
a. Accounting fees for Catherine, P1,500.
b. An unrecorded note for P1,000, on which P60 of interest has accrued, held by Angie. c. A
note for P3,000 secured by P4,000 receivables, estimated to be 60% collectible held by Joy.
d. A P5,000 note, on which P30 of interest has accrued, held by Joyo. Property with a book
value of P1,000 and market value of P1,800 is pledged to guarantee payment of principal
and interest.
e. Unpaid income taxes of P3,500.

Compute the estimated payment to partially secured creditors:

a. P1,060
b. P1,950
c. P2,490
d. P2,790