Chapter 1

Question 1

. In a partnership liquidation, how is the final allocation of business assets made to the partners?
a. According to the profit and loss ratio.
b. According to the balances of the partners’ loan and capital accounts.
c. According to the initial investments made by the partners.
d. Equally.

Answer 1

b. According to the balances of the partners’ loan and capital accounts.

Question 2

Statement 1: When a new partner enters an existing partnership by purchasing a partner’s interest, the
cash paid to the selling partner for the partnership interest is always equal to the new partner’s capital
balance.
Statement 2: All partnerships have general partners.
Statement 3: Admission of a new partner by investment is a personal transaction between the selling
partner and the buying partner. Hence, any indicated gain in the transaction is not recognized in the
partnership books.
a. All statements are true. c. Only one statement is false.
b. All statements are false. d. Only one statement is true.

Answer 2

c. Only one statement is false.

Question 3

. In case of admission of a new partner by investment in the partnership, which of the following statements
is correct?
a. If there is positive asset revaluation or asset impairment, the difference between the total contributed
capital of all partners and the new agreed capitalization shall be distributed to all partners including
the new partner using the new profit or loss ratio agreement.
b. If there is negative asset revaluation (asset impairment) but without bonus, the contributed capital of
the new partner will be equal to his agreed capitalization in the new partnership.
c. If there is positive asset revaluation with bonus, the total contributed capital of all partners will be higher
than the new agreed capitalization.
d. If there is bonus but without asset revaluation, the total contributed capital of all partners will be lower
than the new agreed capitalization.

Answer 3

b. If there is negative asset revaluation (asset impairment) but without bonus, the contributed capital of
the new partner will be equal to his agreed capitalization in the new partnership.

Question 4

. If existing partners acquire the equity of a withdrawing partner, in what manner do they divide the equity?
a. In any manner they choose.
b. Equally.
c. Proportionate to their residual profit and loss ratios.
d. Existing partners are not permitted to acquire the equity of a withdrawing partner.

Answer 4

a. In any manner they choose.

Question 5

If A is the total capital of a partnership before the admission of a new partner, M is the total capital of the
partnership after the admission of the new partner, I is the amount of the new partner’s investment, and
E is the amount of capital credited to the new partner, then there is
a. Goodwill to the new partner if M > (A + I) and E < I
b. A bonus to the new partner if M = A + I and E > I
c. Neither bonus nor goodwill if M > (A + I) and E > I
d. Goodwill to the old partners if M = A + I and E > I

Answer 5

b. A bonus to the new partner if M = A + I and E > I

Question 6

Statement I: The final distribution of cash to the partners shall be made based on their profit and loss
ratio.
Statement II: The right of offset is exercised when a partner’s capital account reports a debit balance and
he has at the same time a receivable from the partnership.
a. Only Statement II is correct. c. Both statements are incorrect.
b. Only Statement I is correct. d. Both statements are correct.

Answer 6

a. Only Statement II is correct.

Question 7

. In partnership liquidation, how are partner salary allocations treated?
a. Salary allocations take precedence over the amounts due to partners with respect to their capital
interests, but not profits.
b. Salary allocations take precedence over the amounts due to partners with respect to their profits,
but not capital interests.
c. Salary allocations take precedence over creditor payments.
d. Salary allocations are disregarded.

Answer 7

c. Salary allocations take precedence over creditor payments.

Question 8

A partnership is liquidating and one of the partner’s capital accounts has a deficit balance. What should
happen?
a. The partner with the deficit should contribute enough personal assets to eliminate the deficit
balance.
b. The deficit balance should be removed from the accounting records and the remaining partners
would share in any additional profits.

Answer 8

B

Question 9

In partnership liquidations, what are safe payments?
a. The amounts of distributions that can be made to the partners with assurance that such amounts
will not have to be returned to the partnership.
b. The amounts of distributions that can be made to the partners, after all creditors have been paid
in full.
c. The amounts of distributions that can be made to the partners during the liquidation based on the
partner’s contributed capital return.
d. The amounts of distributions that can be made to the partners, after all non-cash assets have
been adjusted to fair market values.

Answer 9

a. The amounts of distributions that can be made to the partners with assurance that such amounts
will not have to be returned to the partnership.

Question 10

. In relation to partnership liquidation, which of the following statements is/are correct?
I. The cash priority program can be used to distribute noncash assets, so long as the priority is followed.
II. In an installment liquidation, the safe payment schedule will also show the most vulnerable partner
in the event of liquidation.
a. Both I and II. c. Neither I nor II.
b. I only. d. II only.

Answer 10

d. II only

Question 11

Which of the following is first-ranked of the unsecured liabilities with priority in a bankruptcy liquidation?
a. Claims of governmental entities for various taxes or duties
b. Administrative costs
c. Claims for wages, salaries, and commissions, subject to limitations of amount and time
d. None of the foregoin

Answer 11

b. Administrative costs

Question 12

The accounting statement of affairs is prepared:
a. at the end of the reorganization process.
b. at the end of the liquidation process.
c. at the beginning of the reorganization process.
d. at the beginning of the liquidation process.

Answer 12

d. at the beginning of the liquidation process.

Question 13

Total free assets in the statement of affairs can be computed as
a. the sum of (a) excess of realizable value of assets pledged to fully secured creditors over the
expected net settlement amount of the fully secured liabilities and (b) total realizable value of
assets not pledged as collateral security
b. Total assets measured at realizable value less the sum of (a) unsecured creditors with priority,
(b) fully secured creditors, and (c) realizable value of asset pledged to partially secured creditors.
c. realizable value of total assets less unsecured liabilities with priority
d. all of these

Answer 13

a. the sum of (a) excess of realizable value of assets pledged to fully secured creditors over the
expected net settlement amount of the fully secured liabilities and (b) total realizable value of
assets not pledged as collateral security

Question 14

. An arrangement is established by two parties and each party owns 50% voting rights of the arrangement
and the terms of the contract require that at minimum 51% voting rights are needed to exercise the control
over the arrangement.
a. Joint Control
b. No Joint Control
c. Business Combination
d. Statutory Consolidation

Answer 14

a. Joint Control

Question 15

For the purposes of equity accounting for an investment in an associate, it is presumed that the investor
has significant influence over the other entity where the investor holds:
a. between 1% and 5% of the voting power of the investee;
b. between 5% and 10% of the voting power of the investee.
c. 20% or more of the voting power of the investee;
d. 50% or more of the voting power of the investee;

Answer 15

c. 20% or more of the voting power of the investee;

Question 16

. When disclosing information about investments in associates, PAS 28 Investments in Associates and
Joint Ventures, requires separate disclosure of which of the following?
I Shares in associates, in the statement of financial position.
II Share of profit or loss of associates, in the statement of profit or loss and other comprehensive
income.
III Share of any discontinuing operations, in the statement of changes in equity.
IV Shares of changes recognized directly in the associate’s equity, in the statement of changes in
equity.
a. I, II, III and IV
b. I, II and IV only
c. II, II and IV only
d. I, II and III only

Answer 16

a. I, II, III and IV

Question 17

PFRS requires joint ventures to be reported as
a. equity method investments.
b. trading securities.
c. equity method or proportionately consolidated investments.
d. available-for-sale securities

Answer 17

a. equity method investments.

Question 18

Which of the following is not true about revenue recognition with respect to long-term construction
contracts?
a. Long-term construction contracts often are viewed as having a single performance obligation,
because goods and services fail the “separately identifiable” criterion.
b. Long-term construction contracts often satisfy the criteria for recognizing revenue over time.
c. Long-term construction contracts require accounting for construction in progress as well as
billings to customers.
d. Long-term construction contracts typically include multiple performance obligations because of
all the different types of goods and services included for each project.

Answer 18

d. Long-term construction contracts typically include multiple performance obligations because of
all the different types of goods and services included for each project.

Question 19

55. Which of the following is not true about accounting for long-term construction contracts?
    a. Long-term construction contracts could show a contract asset or contract liability, depending on
    the relation between construction in progress and billings.
    b. Billings on contracts in progress is a contra account to accounts receivable.
    c. Gross profit is debited to construction in progress.
    d. When a customer is billed for payment due, billings on contracts in progress is credited at the
    same time accounts receivable is debited.

Answer 19

b. Billings on contracts in progress is a contra account to accounts receivable.

Question 20

When accounting for revenue over time for a long-term contract, the percentage of completion used to
recognize revenue in the first year usually is determined by measuring:
a. Costs incurred in the first year, divided by estimated remaining costs to complete the project.
b. Costs incurred in the first year, divided by estimated total costs for the completed project.
c. Costs incurred in the first year, divided by estimated gross profit.
d. Costs incurred in the first year, divided by estimated total costs to be incurred in the remaining
years of the project.

Answer 20

b. Costs incurred in the first year, divided by estimated total costs for the completed projec

Question 21

The following are the characteristics of a partnership except one, which is it?
a. Partners are co-owners of the contributed assets to the partnership
b. Partnership has a separate juridical personality separate and distinct from that of its partners
c. Liability of partners is limited to their capital contributions
d. Any of the partners can bind the partnership

Answer 21

c. Liability of partners is limited to their capital contributions

Question 22

Which of the following is true?
a. Partnership at will will be dissolved upon arrival of the date agreed upon by the partners as its
expiration
b. Depreciable assets contributed by the partner shall be recorded in the partnership books at the
adjusted cost based on fair value less accumulated depreciation
c. Accounts receivables that are deemed worthless and can no longer be collectible should be
deducted from the total amount of accounts receivables upon recording of such contribution in
the partnership books
d. None of the above

Answer 22

d. None of the above

Question 23

This method of giving compensation to partners recognizes the differences in the capital contributions
but does not take into account the time and effort that a partner may devote in running the business.
a. Salaries to partners
b. Bonus to partners
c. Interest of capital to partners
d. Sharing of profits based on agreed profit distributio

Answer 23

c. Interest of capital to partners

Question 24

Statement 1: A partner’s contribution in the form of industry will require a debit to the account “Industry”.
Statement 2: All types of partnerships are subject to income tax.
Statement 3: A partner’s contribution in the form of non-cash asset should be recorded at its fair market
value even if there is an agreed value.
Statement 4: All partners shall be given a salary to ensure a just and equitable distribution of net income or
net loss.
a. Only one statement is true. c. All statements are false.
b. Only one statement is false. d. All statements are true.

Answer 24

c. All statements are false.

Question 25

Statement 1: Unless otherwise agreed, allowance for salaries and interest are allowed to partners
whether there is a net income or a net loss; whether the net income is sufficient or insufficient.
Statement 2: All partners, whether capitalist or industrial, are to share on whatever partnership profits or
losses.
Statement 3: All partnerships, just like corporations, are subject to 30% income tax rate.
Statement 4: Withdrawal in anticipation of his share in the net income made by a partner during the year is
treated as a permanent withdrawal.
a. Only one statement is false. c. All statements are false.
b. Only one statement is true. d. All statements are true

Answer 25

b. Only one statement is true.

Question 26

Statement 1: Each partner generally has the authority to enter into contracts which are binding upon the
partnership.
Statement 2: The property invested in a partnership by the partners becomes the property of the
partnership.
Statement 3: In the partnership books, there are as many capital and drawing accounts as there are
partners.
Statement 4: The managing partner is not the only one entitled to an interest based on his capital
contribution in the distribution of net income or net loss.
a. All statements are true.
c. Only one statement is true.
b. All statements are false.
d. Only one statement is false.

Answer 26

a. All statements are true.

Question 27

Mr. Accountant accepts the proposal of Mr. Engineer for an interest in his business to form a
partnership. The statement of financial position of Mr. Accountant on February 14, 2023 prior to the
admission of Mr. Engineer shows:

Mr. Engineer invested cash of 596,610 to give him one-third interest in the total capital of the firm. What is
(1) the capital balance of Mr. Accountant before the admission of Mr. Engineer and (2) the amount of
cash?
a. (1) 1,193,220; (2) 648,220
c. (1) 1,101,920; (2) 715,120
b. (1) 1,789,830; (2) 101,375
d. (1) 1,260,120; (2) 715,120

Answer 27

d. (1) 1,260,120; (2) 715,120

Question 28

If a dividend of 80% is allocable to Class 7 unsecured creditors based on an accounting statement of
affairs, it may correctly be concluded that
a. All unsecured claims will receive the same percentage of return
b. All unsecured claims will be paid in full
c. Class 1 through 6 unsecured claims will be paid in full
d. Stockholders will receive 20% of their equity

Answer 28

c. Class 1 through 6 unsecured claims will be paid in full

Question 29

Read Co. and Learn Co. are national distributors of textbooks. Read and Learn enters into a contract to
acquire a warehouse in a particular region. Each party will use the warehouse to store its own
inventories. The parties agree to share in the costs of acquiring and maintaining the warehouse. The
arrangement between Read and Learn is most likely a
a. joint operation
b. jointly controlled asset
c. joint venture
d. none of these

Answer 29

a. joint operation

Question 30

Which of the following statements is correct?
a. Long-term construction contracts are unique from other contracts with customers. Therefore,
PFRS 15 excludes from its scope the accounting for long-term construction contracts.
b. Long-term construction contracts are unique from other contracts with customers. Therefore,
PFRS 15 requires an entity to recognize revenue from long-term construction contracts using
either the percentage of completion method or the zero-profit method.
c. PFRS 15 does not provide a special distinction between long-term construction contracts from
other types of contracts with customers. Therefore, an entity shall apply the same principles in
accounting for long-term construction contracts as those applied to other types of contracts
with customers.
d. PFRS 15 does not exclude long-term construction contracts from its scope. However, because
of the unique nature of long-term construction contracts, PFRS 15 requires an entity to
recognize revenue from a long-term construction contract that is expected to be completed
within 3 years or more using the percentage of completion method. For those that are
expected to be completed within a shorter period, revenue shall be recognized when
construction is complete.

Answer 30

c. PFRS 15 does not provide a special distinction between long-term construction contracts from
other types of contracts with customers. Therefore, an entity shall apply the same principles in
accounting for long-term construction contracts as those applied to other types of contracts
with customers.

Question 31

Garden Co. uses the installment sales method. Garden Co. sells a good costing ₱10,000 for an
installment sale price of ₱16,000. Garden Co. accepts old merchandise as down payment and gives
the customer a trade-in value of ₱4,000 for this merchandise. The fair value of the old merchandise is
₱4,000. Subsequent cash collections during the period amount to ₱6,000. How much is the realized
gross profit recognized in the year of sale?
a. 3,750
b. 5,966
c. 6,333
d. 6,667

Answer 31

a. 3,750

Question 32

The statement of affairs of Darrell Putix Co. indicates that unsecured creditors without priority with total
claims of ₱720,000 may expect to recover only ₱288,000 after all the assets are sold. Among the
creditors of Darrell Putix Co. are the following:
 Government – taxes payable of ₱400,000, inclusive of ₱80,000 assessments and surcharges.
 XYZ bank – loan payable of ₱4,000,000 and accrued interest of ₱200,000, backed by collateral
security with realizable value of ₱4,800,000.
 Alpha Financing Co. – loan payable of ₱3,200,000 backed by collateral security with realizable
value of ₱2,000,000.
 Mr. Bombay – loan payable of ₱1,000,000 and accrued interest of ₱200,000. No collateral
security.
How much is the expected recovery of Mr. Bombay?
a. 780,000
b. 480,000
c. 288,000
d. 0

Answer 32

b. 480,000

Question 33

. Which of the following does not indicate that the nature of an entity’s promise to transfer a license is to
provide the customer the right to access the entity’s intellectual property as it exists throughout the
license period?
a. The intellectual property to which the customer has rights changes throughout the license
period.
b. The entity continues to be involved with its intellectual property
c. The contract requires, or the customer reasonably expects, that the entity will undertake
activities that significantly affect the intellectual property to which the customer has rights and
the customer is exposed to any positive or negative effects of those activities.
d. The customer can direct the use of, and obtain substantially all of the remaining benefits from,
the license at the point in time at which the license is granted.

Answer 33

d. The customer can direct the use of, and obtain substantially all of the remaining benefits from,
the license at the point in time at which the license is granted.

Question 34

Rooster Co. repossessed a property that was sold in 20x1 for ₱50,000. Total collections from this sale were
₱24,000. Rooster Co. expects to resell the property for ₱30,000 after reconditioning costs of ₱4,000. The
normal profit margin on resale of repossessed property is 30%.

46. How much is the gain or loss on repossession?
    a. 3,200 b. 3,800 c. 4,300 d.
    2,900
47. How much is the total realized gross profit in 20x2?
    a. 56,000 b. 54,800 c. 53,200 d. 51,600
    How much is the profit recognized in 20x2?
    a. 56,000 b. 54,800 c. 51,000 d. 51,600

Answer 34

46. b. 3,800 47. b. 54,800 48. c. 51,000

Question 35

Shipments received from the home office are billed at 120% above cost. During the year, the branch received
shipments billed at ₱480,000 and returned damaged goods with billed price of ₱72,000. The branch has an
ending inventory of ₱120,000, at billed price. The branch reported loss of ₱40,000 in its individual financial
statements.

49. How much is the balance of the “allowance for markup” account before year-end adjustments?
    a. 86,000 c. 68,000
    b. 72,000 d. 64,000
50. How much is the true profit of the branch to be taken up in the home office books?
    a. 8,000 c. 12,000
    b. 9,000 d. 14,000

Answer 35

49. c. 68,000
50. a. 8,000

Question 36

“Step 2” of the revenue recognition principles of PFRS 15 requires an entity to identify the performance
obligations in the contract at the inception of the contract. Which of the following statements is not
correct regarding this step?
a. An entity shall treat each promise in the contract to transfer a distinct good or service as a
separate performance obligation.
b. An entity shall treat a promise to transfer a distinct bundle of goods or services as a separate
performance obligation.
c. An entity shall treat a promise to transfer a series of distinct goods or services that are
substantially the same and have the same pattern of transfer to the customer as a separate
performance obligation.
d. An entity shall treat all promises in a single contract as a single performance obligation
regardless of the nature of those promises, if those promises are negotiated with the
customer as a single package.

Answer 36

d. An entity shall treat all promises in a single contract as a single performance obligation
regardless of the nature of those promises, if those promises are negotiated with the
customer as a single package.

Question 37

In 20x1, ABC Co. was contracted to build a railroad. The contract price is equal to the construction costs
incurred plus 20% thereof. However, if the project is completed within 4 years, ABC will receive an additional
payment of ₱200,000. Information on the project is shown below:
20x1 20x2 20x3
Costs incurred to date 2,400,000 4,575,000 6,125,000
Estimated costs to complete 3,600,000 1,525,000 125,000
In 20x1 and 20x2, it was not highly probable that the project will be completed on time. However, in 20x3, ABC
assessed that the project will be completed earlier than originally expected and thus it is now highly probable
that the incentive payment will be received

56. How much revenue is recognized on the contract in 20x3?
    a. 2,610,000
    b. 2,595,000
    c. 2,056,000
    d. 2,022,000
57. How much profit is recognized on the contract in 20x3?
    a. 506,000
    b. 595,000
    c. 603,000
    d. 634,000

Answer 37

56. c. 2,056,000
57. a. 506,000

Question 38

Use the following information for the next two questions:
A and B formed a joint operation. The following were the transactions during the year:
A B
Total purchases 400 320
Total sales 960 720
Expenses paid 800
Other income 40
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

58. How much is the profit (loss) of the joint operation?
    a. 200,000
    b. (200,000)
    c. 180,000
    d. (180,000)

Answer 38

a. 200,000

Question 39

On Nov. 1, 20x1, DRINK Co. entered into a franchise contract with TIPPLE Co. The franchise
agreement requires an initial franchise fee that is payable as follows: 20% down payment at the signing
of the contract, and the balance due in four equal annual payments starting November 1, 20x2. The
license period is 4 years. The franchise contract requires DRINK Co. to undertake pre-opening
activities necessary to setup the contract and post-opening activities that would further improve the
intellectual property to which the franchisee has rights. All the preopening activities are completed, and
TIPPLE Co. started operations, on January 31, 20x2. How should DRINK Co. recognize revenue from
the initial franchise fee?

a. The sum of the cash down payment and the present value of the deferred balance are
recognized as revenue in full on January 31, 20x1.
b. The sum of the cash down payment and the present value of the deferred balance are
recognized as revenue over the license period.
c. The cash down payment is recognized in full on January 1, 20x2 but the balance is amortized
over the license period.
d. The cash down payment is recognized in full on January 31, 20x2 but the balance is amortized
over the license period

Answer 39

b. The sum of the cash down payment and the present value of the deferred balance are
recognized as revenue over the license period.

Question 40

Which of the following statements regarding PFRS 15 is false?
a. A key feature of the revenue arrangement is that the signing of the contract by the
two parties is not recorded until one or both of the parties perform under the
contract.
b. A performance obligation is a promise in a contract to provide a product or service
to a customer.
c. To determine whether a performance obligation exists, the company must provide
a distinct product or service.
d. Services which are interdependent or interrelated may be accounted for
separately.

Answer 40

d. Services which are interdependent or interrelated may be accounted for
separately.

Question 41

PFRS 15 provides that revenue from contract with customer involving the transfer of
an asset to the customer will be recognized upon
a. Transfer of control over the asset
b. Delivery of the asset
c. Transfer of possession over the asset
d. Transfer of risk and rewards of ownership over the asset

Answer 41

a. Transfer of control over the asset

Question 42

ABC Company is a dealer of printing equipment. For the period January 1, 2023 to
August 1, 2023, ABC gives a trade discount of 15% to all its buyers. On July 1,
2023, two units of printing equipment with a total list price of 130,000 and total cost
of 75,240 were sold to Mr. X. ABC granted an allowance of 20,000 for Mr. X’s used
printing equipment as a trade-in, the current value of such equipment is 14,000. The
balance was payable as follows: 20% of the balance is paid at the time of purchase;
the rest is payable in 16 months starting August 1, 2023. After 8 months of paying,
Mr. X defaulted in the payment of April 1 of the following year. The two units of
printing equipment were repossessed and it would require 2,000 reconditioning
costs for each equipment before it could be resold for 15,500 each. A 15% gross
profit rate was usual from the sale of used equipment. Operating expense in 2023
amounted to 6,800. How much is the net income for the year 2023?
a. 6,539 c. 8,523
b. 12,340 d. 10,073

Answer 42

c. 8,523

Question 43

DEF Appliances sells home theater set both on installment and cash basis. Mr. X
purchased a set from DEF on March 30, 2023 for 367,500 which has a cost of
289,800. A used set is accepted as downpayment, 89,600 being allowed as trade-in.
The used set can be resold for 112,140 after reconditioning costs of 5,362. The
company expects to make a 20% gross profit on the sale of the used set. The
balance of the sale is to be paid on a 10-month installment basis starting May 1,
2023. Mr. X defaulted payment starting November 1, 2023 and the set was
immediately repossessed. The repossessed merchandise was appraised at a value
of 65,625 at the time of repossession. DEF had to incur additional cost of repairs
amounting to 6,475 before the set was subsequently resold on December 1, 2023
for 90,125 cash to Mr. Y. Compute for the net income to be recognized for the year
2023.
a. 69,623 c. 44,940
b. 51,415 d. 68,243

Answer 43

c. 44,940

Question 44

On July 1, 2023, MMM Motors, which maintains a perpetual inventory record sold a
new automobile to Mr. Z for 1,700,000. The car costs the seller 1,301,250. The
buyer paid 30% down and received 160,000 allowance on an old car traded, the
balance being payable in equal monthly installment payments. The monthly
amortization amounts to 60,000 inclusive of 12% interest on the unpaid amount of
the obligation. The car traded in has a wholesale value of 240,000 after expending
reconditioning costs of 45,000. After paying three installments, how much is the
realized gross profit on installment sales during the year?
a. 212,500 c. 221,250
b. 213,899 d. 205,149

Answer 44

b. 213,899

Question 45

GHI Company appropriately uses the installment sales method of recognizing
revenue. On December 31, 2023, the accounting records show unadjusted balances
of the following:
Installment accounts receivable – 2021 12,000
Installment accounts receivable – 2022 40,000
Installment accounts receivable – 2023 130,000
Deferred gross profit – 2021 10,500
Deferred gross profit – 2022 28,900
Deferred gross profit – 2023 96,000
Gross profit rate – 2021 35%
Gross profit rate – 2022 34%
Gross profit rate – 2023 32%
For the year ended December 31, 2023, compute the (1) total realized gross profit
and the (2) total cash collections in 2023.

a. 182,000 and 135,400
c. 158,000 and 368,400
b. 76,000 and 233,000
d. 106,000 and 97,600

Answer 45

b. 76,000 and 233,000

Question 46

TUV Company which began operations on January 1, 2023 appropriately uses the
installment method of accounting. The following data pertain to TUV’s operations for
the year 2023:
Installment sales (before adjustment) 450,000
Regular sales 187,500
Cost of regular sales 107,500
Cost of installment sales 315,000
Fair market value of repossessed merchandise 27,000
Actual value of traded-in merchandise 40,000
Operating expenses (before write-off and repossessions) 36,000
Cash collections on installment sales including interest of 12,000 156,000
Installment receivables written-off due to defaults 22,000
Repossessed/Defaulted accounts 50,000
Trade-in allowance 70,000
How much is the deferred gross profit at December 31, 2023?

a. 46,000 c. 41,000
b. 63,000 d. 91,500

Answer 46

c. 41,000

Question 47

Based on item 1, what is the net income for the year ended December 31, 2023?

a. 91,500 c. 65,000
b. 75,000 d. 41,000

Answer 47

b. 75,000

Question 48

On July 1, 2023, MMM Motors, which maintains a perpetual inventory record sold a
new automobile to Mr. Z for 1,700,000. The car costs the seller 1,301,250. The
buyer paid 30% down and received 160,000 allowance on an old car traded, the
balance being payable in equal monthly installment payments. The monthly
amortization amounts to 60,000 inclusive of 12% interest on the unpaid amount of
the obligation. The car traded in has a wholesale value of 240,000 after expending
reconditioning costs of 45,000. After paying three installments, how much is the
realized gross profit on installment sales during the year?

a. 221,889 c. 205,549
b. 212,559 d. 213,899

Answer 48

d. 213,899

Question 49

GHI Company appropriately uses the installment sales method of recognizing
revenue. On December 31, 2023, the accounting records show unadjusted balances
of the following:
Deferred gross profit – 2021 10,500
Deferred gross profit – 2022 28,900
Deferred gross profit – 2023 96,000
Installment accounts receivable – 2023 130,000
Installment accounts receivable – 2022 40,000
Installment accounts receivable – 2021 12,000
Gross profit rate – 2023 32%
Gross profit rate – 2022 34%
Gross profit rate – 2021 35%
For the year ended December 31, 2023, compute the (1) total realized gross profit
and the (2) total cash collections in 2023.

a. 182,000 and 135,400
c. 158,000 and 368,400
b. 76,000 and 233,000
d. 106,000 and 97,600

Answer 49

b. 76,000 and 233,000

Question 50

The following selected accounts appeared in the trial balance of ABC Company as
of December 31, 2023:
Installment receivable (2022 sales) 144,000
Installment receivable (2023 sales) 1,920,000
Inventory, December 31, 2022 672,000
Purchases 5,228,000
Freight-in 100,000
Loss on repossession 15,840
Installment sales 4,080,000
Regular sales 3,696,000
Selling expenses 1,104,000
Additional information:
1) Installment receivable (2022 sales), January 1, 2023 amounted to 1,370,400.
2) Inventory of new and repossessed merchandise as of January 1, 2024 amounted
to 912,000.
Mark up on regular sales in 2023 is 10% lower than the gross profit percentage on
installment sales in 2022. There was an installment account written off amounting to
100,000 in 2023 pertaining to 2023 sales. The write off was made during the year
and was recorded correctly. Repossession was made during the middle of the year
and was recorded correctly. It came from 2022 sales and the corresponding
unrecovered cost amounted to 44,640; related gross profit is 29,760. What is the net
income for 2023?

a. 1,170,560 c. 1,300,320
b. 1,232,560 d. 1,286,400

Answer 50

a. 1,170,560

Question 51

DEF Appliances sells home theater set both on installment and cash basis. Mr. X
purchased a set from DEF on March 30, 2023 for 367,500 which has a cost of
289,800. A used set is accepted as downpayment, 89,600 being allowed as trade-in.
The used set can be resold for 112,140 after reconditioning costs of 5,362. The
company expects to make a 20% gross profit on the sale of the used set. The
balance of the sale is to be paid on a 10-month installment basis starting May 1,
2023. Mr. X defaulted payment starting November 1, 2023 and the set was
immediately repossessed. The repossessed merchandise was appraised at a value
of 65,625 at the time of repossession. DEF had to incur additional cost of repairs
amounting to 6,475 before the set was subsequently resold on December 1, 2023
for 90,125 cash to Mr. Y. Compute for the net income to be recognized for the year
2023.

a. 69,623 c. 44,940
b. 51,415 d. 68,243

Answer 51

c. 44,940

Question 52

On January 1, 2023, DEF Company sold merchandise costing 500,000 to Mr. A,
who issued a non-interest-bearing note in the amount of 750,000, payable in 5 equal
semi-annual installments of 150,000 starting June 1, 2023. The prevailing interest
rate is 14%. Operating expenses amounted to 50,000. How much is the net income
related to the sale on installment? Present value factor for ordinary annuity = 4.10.

a. 78,613.50 c. 65,000
b. 143,613.50 d. 200,000

Answer 52

b. 143,613.50

Question 53

On June 30, 2023, GHI Corporation sold a property carried in inventory at a cost of
1,894,200 for 3,000,000. A 20% down payment was made and the balance payable
in 8 equal installments of 300,000, payable quarterly starting September 30 and
December 31, 2023. The market rate of interest is 12%. How much is the total
amount credited to Installment Sales? Present value factor for ordinary annuity =
7.02.

a. 2,706,000 c. 2,091,000
b. 3,000,000 d. 1,491,000

Based on item 8, how much is the total realized gross profit in 2023?
a. 1,105,800 c. 196,800
b. 812,000 d. 811,800

Answer 53

a. 2,706,000

d. 811,800

Question 54

On January 2, 2023, A Company sold merchandise to M Inc. for 2,500,000. The cost
of items to A was 2,000,000. M gave A 500,000 cash and 2,000,000 note payable in
4 annual installments of 500,000 plus 12% interest. M made the first principal and
interest payment on December 31, 2023. Expenses related with the installment sales is 100,000. How much is to be recognized as installment sales during the year
2023?

a. 2,500,000 c. 1,518,500
b. 2,018,500 d. 2,091,000

Answer 54

a. 2,500,000

Question 55

State the correct sequence of the following steps of revenue recognition under
PFRS 15.
I. Determine the transaction price.
II. Recognize revenue when (or as) the entity satisfies a performance obligation.
III. Identify the performance obligations in the contract.
IV. Allocate the transaction price to the performance obligations in the contract.
V. Identify the contract with the customer.

a. V, IV, II, I, III c. V, III, I, IV, II
b. V, I, IV, III, II d. V, I, III, IV, II

Answer 55

c. V, III, I, IV, II

Question 56

Which of the following correctly relates to ‘Step 2’ in the recognition of revenue
under PFRS 15?
a. The entity shall assess the customer’s ability and intention to pay the
consideration in the contract when they become due.
b. The entity shall determine the transaction price and shall consider whether the
transaction price includes, among other things, a variable consideration or
significant financing.
c. The entity shall treat each promise to transfer a distinct good or service as a
performance obligation.
d. The entity shall recognize revenue when (or as) a performance obligation is
satisfied.

Answer 56

c. The entity shall treat each promise to transfer a distinct good or service as a
performance obligation.

Question 57

MM Motors sells locally manufactured jeeps on installment basis. Data presented
below relates to the company’s operations for the last three calendar years:
2023 2022 2021
Cost of installment sales 8,765,625 7,700,000 4,950,000
Gross profit rates on sales 32% 30% 28%
Installment receivables, December 31
From 2023 sales 9,728,125
From 2022 sales 3,025,000 8,387,500
From 2021 sales 1,512,500 4,812,500
On December 31, 2023, how much is the (1) total realized gross profit and (2)
deferred gross profit?

a. 3,044,250 and 4,020,500
c. 3,733,750 and 4,020,500
b. 3,044,250 and 4,125,000
d. 6,993,250 and 4,020,500

Answer 57

a. 3,044,250 and 4,020,500

Question 58

The company uses the installment method of accounting to recognize revenues.
Pertinent data are as follows:
2021 2022 2023
Installment sales 300,000 375,000 360,000
Cost of installment sales 225,000 285,000 252,000
Deferred gross profit, December 31
2021 52,500 15,000 -
2022 - 54,000 9,000
2023 - - 72,000
The total balance of the Installment Accounts Receivable on December 31, 2023 is

a. 270,000 c. 279,000
b. 277,500 d. 300,000

Answer 58

b. 277,500

Question 59

JDT Enterprises uses the cost recovery method for all installment sales. Complete
the following table:
2021 2022 2023
Installment sales 80,000 95,000 ?
Cost of installment sales ? 56,050 68,250
Gross profit percentage 38% ? 35%
Cash collections:
2021 sales 25,600 46,400 5,600
2022 sales 22,800 ?
2023 sales 32,550
RGP on installment sales ? ? 16,050
The installment sales in 2023:

a. 92,137.50 c. 112,612.50
b. 105,000 d. 195,000

Based on item 15, the cost of installment sales in 2021:
a. Zero c. 47,619
b. 30,400 d. 49,600

Based on item 15, the gross profit rate in 2022:
a. 29% c. 59%
b. 41% d. cannot be determined

Based on item 15, the collections in 2023 for 2022 sales:
a. 10,450 c. 43,700
b. 33,250 d. 48,600

Based on item 15, the realized gross profit on installment sales in 2021:
a. Zero c. 4,800
b. 7,049 d. 9,728

Based on item 15, the realized gross profit on installment sales in 2022:
a. 22,400 c. 18,012
b. 9,348 d. 8,664

Answer 59

b. 105,000
d. 49,600
b. 41%
c. 43,700
a. Zero
a. 22,400

Question 60

ABC Corporation has a branch in Location X. On December 31, 2023, the home
office showed a 1,368,000 balance in its Investment in Branch account. The
following information has been gathered during the reconciliation process:
1) The branch erroneously sent a credit memo amounting to 48,000 to the home
office. The home office made no entry.
2) A credit memo sent by the branch to the home office amounting to 12,000 was
recorded by the home office twice.
3) A credit memo sent by the home office to the branch amounting to 24,000 was
not yet received by the branch.
4) A credit memo sent by the home office to the branch amounting to 120,000 was
recorded by the branch as 12,000.
5) A debit memo sent by the branch to the home office amounting to 200,000 was
recorded by the home office as 2,000,000.
6) A debit memo sent by the home office to the branch amounting to 40,000 was
recorded by the branch.
What was the unadjusted balance of the Home Office current account?

a. 2,976,000 c. 3,336,000
b. 3,204,000 d. 3,348,000

Answer 60

c. 3,336,000

Question 61

On June 1, 2024, the home office established an agency in Location Y, sending
samples costing 490,000 which are useful until the end of May 2025 and have a
salvage value of 10% of cost. A working fund of 398,125 is to be maintained using
the imprest basis. During 2024, the agency submitted to the home office a sales
order amounting to 4,134,375. Sales per invoice were 3,215,625 which were duly
approved by the home office. Collections during the year amounted to 1,717,021.25
net of 3% sales discount. The cost of merchandise sold during the year is equal to
75% of the gross sales. Vouchers for expenses amounted to 214,375. How much
net income would be reported by the agency in Location Y on December 31, 2024?

a. 315,927.50 c. 279,177.50
b. 508,865.00 d. (95,427.50

Answer 61

c. 279,177.50

Question 62

Home office bills its branch for merchandise shipments at 30% above cost. The
following are some of the account balances on the books of home office and its
branch as of December 31, 2023:
Home Office Branch
Inventory, January 1 35,000 101,500
Shipments from home office 263,900
Purchases 1,575,000 350,000
Shipments to branch 253,750
Branch inventory allowance 91,875
Sales 2,100,000 1,260,000
Operating expenses 507,500 192,500
Per physical count, the ending inventory of the branch is 73,500 including goods
from outside purchases of 48,475; the ending inventory of the home office is
210,000. What is the total ending inventory to be shown on the combined financial
statements?

a. 118,475 c. 328,475
b. 277,725 d. 280,000

20. Based on item 19, what is the combined net income for the year?
    a. 957,950 c. 891,975
    b. 871,850 d. 942,725

Answer 62

c. 328,475
d. 942,725

Question 63

GGG Garment Company operates a branch in G City. At the end of the year, the
Branch account in the books of the home office shows a balance of 150,000. The
following information are ascertained:
1) The home office has billed the branch the amount of 37,500 for the merchandise,
which was in transit on December 31.
2) A home office accounts receivable for 10,500 was collected by the branch. Said
collection was not reported to the home office by the branch.
3) Supplies of 4,500 was returned by the branch to the home office but the home
office has not yet reflected in its records the receipt of the supplies.
4) The branch made profit of 10,100 for the month of December but the home office
erroneously recorded it as 11,180.
5) The branch has not received the cash in the amount of 25,000 sent by home
office on December 31. This was charged to General Expense account.
All transactions are presumed to have been properly recorded. (1) What is the
balance of the Home Office account on the books of the branch as of December 31,
before adjustments? and (2) What is the adjusted balance of the reciprocal
accounts?

a. (1) 117,420; (2) 106,920
c. (1) 117,420; (2) 179,920
b. (1) 123,000; (2) 96,420
d. (1) 92,420; (2) 179,920

Answer 63

c. (1) 117,420; (2) 179,920

Question 64

Assuming a net profit of P44,000 for the year, the total profit share of Lando
was:

a. P7,800 b. P16,800 c. P19,400 d. P19,320

Answer 64

c. P19,400

Question 65

In the preceding number, how much is the share of Jose after bonus,
interest, and salaries?
a. P7,600 b. P6,800 c. P6,640 d. P3,400

Answer 65

b. P6,800

Question 66

In the preceding number, how much should be the share of Kris? a. (P1,200)
b. (P200) c. P1,000 d. P0

Answer 66

c. P1,000