Accounting MidTerm.docx

7/22/2019 Accounting MidTerm.docx

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Ramon Magsaysay Technological University

College of Accountancy and Business Administration

Iba, Zambales

Midterm Examination

Name: Date:

Encircle the correct answer.

1.Espana Branch was billed by Home Office for merchandise at 140% of cost, at the end of its first month,

Espana branch submitted among other things, the following data:

Merchandise from Home Office (at billed price) P98,000

Merchandise purchased locally by Branch P40,000

Inventory, December 31 of which P7,000 are of

local purchase

28,000

Net sales for month 180,000

The branch inventory at cost and the gross profit of the branch as far the home office is concerned are:

Gross Profit Ending Inventory of Branch at Cost

a. P22,000 P92,000b. 92,000 22,000c. 70,000 22,000d. 90,000 20,000

2. The Manila branch of the Great Company is billed for merchandise by the home office at 20% above cost.

The branch in turn prices for sales purposes at 25% above billed price. On February 16 all of the branch

merchandise is destroyed by fire. No insurance was maintained. Branch accounts show the following

information:

Merchandise inventory, January 1 (at billed price) P26,400

Shipments from home office (Jan.1Feb.16) 20,000

Sales 15,000

Sales returns 2,000

Sales allowances 1,000

What was the cost of the merchandise destroyed by fire?

a. P36,000b. 30,667c. 36,800d. 30,000

3. The home office bills its Aklan branch at 125% of cost. During the year 2011, goods costing P30,000 were

shipped to the branch. The account allowance for overvaluation of branch inventory ,after adjustment,

shows a balance of P14,000 at the end of the year.

Compute the amount of ending inventory at:

Cost Billed Price

a. P56,000 P56,000b. 3000,000 375,000c. 56,000 70,000d. 70,000 56,000

4.Lacoste Philippines has two merchandise outlets, its main store in manila and its Cebu City branch. For

control purposes, all purchase are made by the main store, and shipments to the Cebu City branch are at the

cost plus 10% On January 1, 2011, the inventories of the main store and the Cebu City branch were P13,600

and P3,960, respectively. During 2011, the main store purchased merchandise costing P40,000 and shipped

40% of these to the Cebu City branch.


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At December 31,2011, the following journal entry was made to prepare the Cebu Cty branch books for the

next accounting period:

Sales 32,000

Inventory 4,840

Inventory 3,960

Shipments from main store 17,600

Expenses 10,480Main Store 4,800

(1) What was the actual branch income of 2011 on a cost basis, assuming the use of the provisions of thePAS, and (2) If the main store has P11,200 worth of inventory on hand at the end of 2011, the total

inventory that should appear on the combined balance sheet at December 31, 2011.

a. (1) P4,800 ; (2) P15,600b. (1) P6,320 ; (2) P15,160c. (1) P6,320 ; (2) P15,600d. (1) P6,480 ; (2) P16,040

5. The best Co. bills merchandise shipments in its Cavite City branch at 125% of cost. The branch, in turn, sellsthe merchandise it receives from the home office at 25% above the billing price. On August 1, 2011, all of the

branchs merchandise stock was destroyed by fire. The branch records that were recovered showed the

following:

Inventory, January 1, 2011 (at billed price) P 165,000

Shipments received from home office, January to

July (at billed price)

P110,000

Purchases, at cost from outside sources, all re-sold

at a 20% mark-up

P7,500

Sales P169,000

Sales returns and allowances P3,750

The best Co. will file an insurance claim. How much is the estimated cost of the merchandise destroyed by

the fire?

a. P120,000b. P130,000c. P140,000d. P150,000

6. On August 31,2012, a fire destroyed totally the rented bodega or stockroom of Isabela Company. The

following are some of the data of the company:

Merchandise Inventory, Dec.31,2011 for the

period Jan.1Aug. 31,2012

P110,000

Purchases P560,500

Freight in P5,600

Purchase returns P10,200

Sales P695,000

Sales returns and allowances P7,500

Using a 20% gross profit rate, the cost of the merchandise lost in the fire was:

a. P90,700b. P115,900c. P88,400d. P63,200

7. Lobster Trading bills its Iloilo City branch for shipments of goods at 25% above cost. At the close of

business on October 31,2011, a fire gutted at the branch warehouse and destroyed 60%of the merchandise

stock stored therein. Thereafter, the following data were gathered:


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January 1 inventory, at billed price P50,000

Shipments from home office to Oct.31 P130,000

Not sales to October 31 P225,000

If undamaged merchandise recovered are marked to sell for P30,000, the estimated cost of the merchandise

destroyed by the fire was:

a. P14,400b. P21,600c. P24,000d. 27,500

8. Trial balances for the home office and the branch of the Tony Co. show the following accounts before

adjustments. On December 31, 2011. The home office policy of billing the branch for merchandise is 20%

above cost.

Home Office Branch

Unrealized intercompany

inventory profit

P10,800

Shipments to branch P24,000

Purchase (Outsiders) P7,500

Shipments from home office P28,800

Merchandise inventory,

December 1, 2011

P45,000

What part of the branch inventory ass of December 1, 2011 represent purchases from outsiders and what

part represents goods acquired from the home office?

Outsiders Home Office

a. P12,000 P33,000b. P16,500 P28,500c. P15,000 P30,000d. 9,000 P36,000

9. Masaya Commercial Corp. maintains a branch in Iloilo City. Selected account balances taken from the

books of Masaya and its Iloilo branch as of December 31, 2011 are as follows:

Home Office Branch

Merchandise Inventory, Jan. 1,

2011

P12,000 P8,000

Purchases P150,000 P30,000

Shipments from Home Office P93,750


Branch Inventory Allowance P19,750

Sales P115,000 P176,500

Merchandise Inventory Dec. 31,

2011

P14,000 P10,350

10. Selected balances from the Legaspi Companys Branch A and Branch B are as follows:

Branch A Branch BInventory, Jan. 1, 2011 P21,000 P19,000

Imprest Branch Fund P2,000 P1,500

Inventory Dec.31, 2011 P19,000 P12,000

A/ Receivable, Jan. 1, 2011 P55,000 P43,500

Merchandise from Home Office P61,000 P47,000

A/Receivable, Dec. 31, 2011 P70,000 P53,500

Cash Collections P85,000 P70,000

Sales P100,000 P80,000

Cash Expenses P21,000 P14,300


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All sales, collections, anf expenses are handled at the branch. All cash received from sales and collections are

sent directly to the Home Office. Expenses are paid by the branch from the imprest funf immediately

reimbursed by the Home Office and credited to the Home Office account. All expenses paid by the branch are

recorded in the books of the branch.

Compute the balance of the Home Office account on January 1, 2011.

Branch A Books Branch B Books

a. P78,000 P67,000b. 75,000 P64,000c. P64,000 P78,000d. 78,000 P64,000

11. The Dumaguete City branch Silliman Enterprises, Negros, was billed for merchandise shipments from

home office at cost plus 25% in 2011 and cost plus 20% in 2012. Other pertinent data for 2012 show:

Dumaguete Branch Home Office

Sales P63,000 P212,000

Inventory, beginning

At cost

At billed price P8,900

P23,000

Purchases P164,000

Inventory transfers

To Dumaguete, at cost

From Negros, at billed price P50,400

P42,000

Inventory, end

At cost


P28,500

Expenses P20,300 P76,400

Compute the (1) net income (loss) of Dumaguete City per branch books and (2) The combined net income

(loss) of Siliman Enterprises.

a. (1) P(4,900); (2) P18,740b. (1) P(4,900); (2) P22,430c. (1) P3,330; (2)P22,430d. (1)P8,230; (2)P25,270

12. The Quezon City branch of Assers Enterprises, Manila, was billed for merchandise shipments from home

office at cost plus 25% in 2011 and cost plus 20% in 2012. Other pertinent data for 2012 show:

Quezon City Branch Home Office

Sales P63,000 P212,000

Inventory, beginning

At cost


P23,000

Purchases P164,000

Inventory transfers

To Quezon City, at cost

From Manila, at billed price P50,400

P42,000

Inventory, endAt cost


P28,500


Compute the (1) realized inventory profit from branch sales(or overvaluation of cost of goods sold, and (2)

The ending inventory that should be presented in the combined income statement.

a. (1) P8,230; (2) P40,200b. (1) P8,230; (2) P38,250


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c. (1)P7,933; (2) P38,250d. (1)P9,520; (2) P 37,860

13. Selected accounts from the December 31, 2011 trial balances of Betty Star Co. and its branch follow:

5 - Star Branch

Inventory, Jan.1 P46,000 P23,100

Branch Current P116,600 -

Purchases P380,000 -

Shipments from home office - P209,000

Freight in - P10,450


Home Office Current - (P106,600)

Sales (P310,000) (280,000)

Shipments to branch (P200,000) -

Branch merchandise markup (P22,000) -

As of December 31, 2011, a shipment with a billing price P11,000 was in transit to the branch. Freight cost,

typically 5% of the billing price, is inventoriable. Merchandise on hand at year-end were: at home office,P64,000 at cost; at branch. P33,000 at billing price.

Compute the (1) branch net income in so far as home office is concerned, and (2) the combined for 2011:

a. (1) P40,900; (2) P84,900b. (1) P32,100; (2) P76,100c. (1) P32,000; (2) P76,000d. (1) P33,000; (2) P77,000

14. The Kester Store operates a branch in Cebu. Operating data for the home office and the branch for 2011

are as follows:

Home Office Branch

Sales P365,000 P174,500


Purchases from outsiders P220,000 P35,000

Advertising expenses P13,700 P2,500

Salaries & commission expense P35,000 P9,500

Rent Expense P10,000 P2,000

Miscellaneous expense P3,3000 P500

Shipment from home office P112,500

Inventories, Jan.:

Home OfficeBranch:

Acquired from outsiders

Acquired from office at

billed price which is 20% above

cost

P85,000

P9,500

P42,000

Inventories, Dec.31:

Home Office

Branch:

Acquired from outsider

Acquired from home office

at 2011 billed price

P65,000

P6,500

P30,000

Compute the combined net income of Kester Store:

a. P111,000b. P63,000c. P250,500d. P174,000


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15. The Iloilo Co. operates a branch in Davao. There are shipments in transit from home office to the branch.

The home office ship merchandise to branch at 125% of cost in year 2011. Profit and loss data for the home

office and branch for 2011 follows:

Home Office Branch

Sales P250,000 P75,000

Purchases from outsiders 200,000 15,000

Shipments to branch:Cost to Home Office 30,000

Billing price to branch 32,500

Expenses 40,000 10,000

Inventories, Jan. 1, 2011

Home Office, acquired from

outsiders, at cost

Branch: acquired from

outsiders, at cost

Acquired from Home Office

at billing price, which averaged

205 above cost

80,000

7,500

24,000

Inventories, Dec. 31, 2011

Home Office, acquired from

outsiders cost

Branch: Acquired from Home

Office, at 2011 billed price

(physical count)

55,000

5,500

21,000

Compute the (1) amount of merchandise in transit, and (2) combined cost of goods sold.

a. (1) P5,000; (2) P241,200b.

(1) 5,000; (2) 240,000c. (1) P3,500; (2) P242,400

d. (1) 3,500; (2) 245,20016. Betzier Company branch in Malate began operations on January 01,2011. During the first year of

operations,the home office shipped merchandise to the Malate branch that cost P250,000 at a billed price of

P300,000. One-fourth of the merchandise remained unsold at the end of 2011. The home office records the

shipments to the branch at the P300,000 billed price at the time shipments are made.

Freight-inof P2,000 on the shipments from the home office was paid by the branch. The home office should

make an adjusting entry for freight-in as follows:

a. A year-end adjusting entry debiting the branch account for P2,500b. A year-end adjusting entry debiting the branch account for P2,000c. A year-end adjusting crediting the branch account for P500d. No year-end adjusting entry for the freight charge

17.Tagum Supply Company is engaged in merchandising both at its Home Office in manila and at its Branch in

Davao City. Selected accounts taken from the trial balances of the Home office and the branch as of

December 31, 2011 follow:

Debits Manila Davao branch

Inventory, January 1, 2011 P23,000 P11,550

Davao branch P58,000 -

Purchases P190,000 P105,000Freight in from Home Office P5,500

Sundry Expenses P52,000 P28,000

Credits

Home Office P - P53,300

Sales P155,000 P140,000

Sales to branch P110,000 -

Allowance for Overvaluation of

branch inventory at Jan. 1, 2011 P1,000

-


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Additional Information:

- The davao City branch gets all of its merchandise from the home office. The home office bills thegoods at cost plus a 10% mark up. At December 31, 2011 a shipment with a billed value of P5,000

was still in transit. Freight on its shipment was P250 and is to be treated as part of the inventory.

- Inventories on December 31, 2011, excluding the shipment in transit, follow:Home office, at costP30,000

Branch, at billed price (excluding freight of P520) P10,400

Compute the (1) net income of the home office from own operations, and (2) the net income of the branch in

so far as home office is concerned.

a. (1) P30,470;(2) P 870b. (1) 20,000;(2) 10, 470c. (1) P20, 000;(2) P870d. (1) 30,470; (2) 10,470

18. The Brazil Corporation operates a branch in Mactan, Cebu.Trial balance of the Home Office and Mactan

Branch at December 31, 2011 is reproduced below;

Brazil Corporation

Home Office and Branch

Trial Balance

December 31, 2011

Home Office Mactan Branch

Dr. Cr. Dr. Cr

Cash P 12,000 P 3,400

Accounts receivable 28,000 7,000Branch current 16,000 5,000

Allowance for over-valuation

In branch merchandise.

8,000

Fixed assets (net) 89,800 P 2,800

Accounts payable 2,0000

Home Office, Current P1,400

Capital stock 100,000 8,000

Retained earnings 5,000

Sales 110,000 37,400

Purchases 80,000

Shipments from Home OfficeShipments to branch 24,000

Operating expences 10,000

P243,800 P243,800 P46,800 P46,800

Home Office inventory at December 31, 2011 was P20,000: while the composition of the Branch inventory

was:

From Home Office Outside Purchased Total

January 1, 2011 P4,400 P600 P5,000

December 31, 2011 3,960 540 4,500

Shipments to branch are billed at 10% mark-up.The combined net income of the Home Office and branch for the year ended December 31,2011:

a. P55,940b. 53,500c. 53,140d. 48,000

19. Swift Corporation, operates a number of branches in Metro Manila. On june 30, 2011, its Sn. Lorenzo

branch showed a Home Office Account balance of P27,350 and the home office books showed a Sn. Lorenzo

branch account balance of P25,550. The following information may help in reconciling both accounts:


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1. A P12,000 shipment, charged by Home Office to Sn. Lorenzo branch, was actually sent to and retained by

Sto. Tomas branch

2. A P15,000 shipment, intended and charged to Sn. Jose branch was shipped to Sn. Lorenzo branch and

trained by the latter.

3. A P2,000 emergency cash transfer from Sto. Tomas branch was not taken up in the Home Office books.

4. Home office collect a Sn Lorenzo branch accounts receivable of P3,600 and fails notify the branch.

5. Home office was charged for P1,200 for merchandise returned by Sn. Lorenzo branch on June 28.The

merchandise is in transit.

Home office erroneously recorded Sn. Lorenzos net income for May ,2011 at P16,275. The Branch reported a

net income of P12,675.

What is the reconciled amount of the Home Office and Sn. Lorenzo branch reciprocal accounts?

a. P21,750b. 23,750c. 27,350d. 20,150

20.On December 31, 2011, the Investment in Branch account on the home offices books has a balance of

P102,00. In analyzing the activity in each of these accounts for December, you find the following differences:

1. A P12,000 branch remittance to the home office initiated on December 27, 2011, wasrecorded on the home office books on January 3, 2012.

2. A home office inventory shipment to the branch on December 28, 2011, was recorded by thebranch on January 4,2012;the billing of P24,000 was at cost.

The home office incurred P14,400 of advertisement expenses and allocated P6,000 of this amount to

the branch on December 15,2011.The branch has not recorded this transaction.

3. A branch customer erroneously remitted P3,600 to the home office. The home officerecorded this cash collection on December 23,2011. Meanwhile, back at the branch, no entry

has been made yet.

4. Inventory costing P51,600 was sent to the branch by the home office on December 10, 2011.The billing was at cost, but the branch recorded the transaction at P40,800.

Compute the balances as of December 31,2011:

Unadjusted Balance

Of the Home Office Account

Adjusted

Balance of the Reciprocal Account

a. P 76,800 P 114,00b. 52,800 93,600c. 151,200 139,200d. 52,800 90,000

21. Lakers Trading Co. operates a branch in Dagupan City. At close of business on December 31, 2011,Dagupan Branch account in the home office books showed a debit balance of P225,770. The interoffice

accounts were in agreement at the beginning of the year. For purposes of reconciling the interoffice

accounts, the following facts were ascertained:

1. An office equipment costing the home office P3,500 was picked up by the branch as P350.2. Insurance premium of P675 charged by the home office was taken up twice by the branch.3. Freight charge on merchandise made by the home office for P1,125 was recorded in the branch

books as P1,215.

4. Home office credit memo representing a discount on merchandise for P800 was not recorded by thebranch.

5. The branch failed to take up a P700 debit memo from the home office representing the share of thebranch in advertising.

6. The home office inadvertently recorded a remittance for P3,000 from its Cebu branch as aremittance from its Dagupan branch.

Compute he balance as of December 31,2011.

Unadjusted Balance

Of the Home Office Account

Adjusted Balance

Of the reciprocal account

a. P226,485 P225,770b. 228,485 228,770


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22. Company Z acquires 80% of Company Y for P10,000,000., carrying value of Company Y net assets at time

of acquisition being P6,000,000 and fair value of these net identifiable assets being P8,000,000.

Goodwill arising on consolidation is to be valued on the proportionate basis or Partial Goodwill:

a. P1,600,000b. P2,000,000c. P3,600,000d. P4,500,000

23. Using the same information in No.1, the amount of non-controlling interest arising on consolidation is to

be valued on the proportionate basis or Partial Goodwill:

a. P1,200,000b. P1,600,000c. P2,500,000d. P3,000,000

24. Using the same information in No. 1, the amount of goodwill arising on consolidation is to be valued on

the full (fair value) basis or Full/Gross-up Goodwill:

a. P1,600,000b. P2,000,000c. P3,600,000d. P4,500,000

25.Using the same information in No.1, the amount of non-controlling interest arising on consolidation is to

be valued on the full (fair value) basis or Full/Gross-up Goodwill:

a. P1,200,000b. P1,600,000c. P2,500,000d. P3,000,000

26.Entity Subsidiary has 40% of its share publicly traded on an exchange. Entity Parent purchases the 60%

non publicly traded shares in one transactions paying P6,300,000. Based on the trading price of the shares of

Entity Subsidiary at the date of gaining control a value of P4,000,000 assigned to the 40% non-controlling

interest (or fair value of non-controlling interest), indicating that Entity Subsidiaryhas paid as control

premium of P300,000. The fair value of P5,000,000.

Goodwill arising on consolidation is to be valued on the proportionate basis or Partial Goodwill:

a. P2,000,000b. P2,800,000c. P4,000,000d. P4,120,000

27. Using the same information in No.5, the amount of goodwill arising on consolidation is to be valued on

the full (fair value) basis or Full/Gross-up Goodwill:

a. P1,200,000b. 2,100,000c. P3,300,000d. P4,120,000

28. Using the same information in No.5, the amount of non-controlling interest arising on consolidation is to

be valued on the full (fair value) basis or Full/Gross-up Goodwill:

a. P2,000,000b. P2,800,000c. P4,000,000d. P4,120,000

c. 225,770 226,485d. 226,485 228,770


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29. On September 1, 2011, Company P acquires 75% (750,000 ordinary shares) of Company S for P7,500,000

(P10 per share). In yhe period around the acquisition date,Company Ss shares are trading at about P8 per

share. Company P pays a premium over market because of the synergies it believes it will get. Its it therefore

reasonable to conclude that the fair value of Company Ss as a whole may not be P10,000. In fact, an

independent valuation shows that the value of Company S is P9,700 (fair value of Company S). Assuming that

the fair value of the net identifiable assets is P8,000,000 (carrying value is P6,000,000)

Goodwill arising on consolidation is to be valued on the proportionate basis or Partial Goodwill;

a. P200,000b. P1,500,000c. P1,700,000d. P2,000,000

30. Using the same information in No. 33, the amount of non-controlling interest arising on consolidation is

to be valued on the proportionate basis or Partial Goodwill

a. P1,500,000b. P1,875,000c. P2,000,000d. P2,200,000

31. Using the same information in No. 33, the amount of goodwill arising on consolidation is to be valued on

the full (fair value) basis or Full/Gross-Up Goodwill;

a. P200,000b. P1,500,000c. P1,7000,000d. P2,000,000

32. using the same information in No. 33, the amount f non-controlling interest arising on consolidation is to

be valued on the full(fair value) basis or Full Gross-Up Goodwill

a. P1,500,000b. P1,875,000c. P2,000,000d. P2,200,000

33. All the issued and outstanding common stock of Manila Company were bought by Makati Company on

October 01,2011 for P700,000.The assets and liabilities of Manila Company are;

Cash P50,000

Accts. Receivable (net of P25,000 allowance for

doubtful accounts)

250,000

Inventory 150,000

Property and Equipment (net of P100,000

allowance for depreciation)

300,000

Accounts/Notes Payable 130,000

On October 01,2011 the fair value of the following assets were as follows:

Accts. Receivable (net) P235,000

Inventory 130,000

Property And equipment (net) 400,000

There is an unrecorded warranty liability on prior-product sales estimated P20,000 discounted cash flow

based on estimated future cash flows:

The amount of goodwill as a result of the business combination should be:

a. P -0-b. 35,000c. 65,000d. 100,000


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34. Using the same information in No. 37, the amont of goodwill recorded in the books of Makati Co. as a

result in the business combination should be:

a. P 0b. 35,000c. 65,000d. 100,000

35. On January 01,2011, Gold Rush Company acquires 80% ownership in California Corporation for P200,000.

The fair value of non-controlling interest at that time is determined to be P50,000. It reports net assets with a

bookvalue of P200,000 and fair value of P230,000. Gold Rush Company reports net assets with a book value

of P600,000 and a fair value of P650,000 at that time, excluding its investment in California. What will be the

amount of goodwill that would be reported immediately after the combination under current accounting

practice if the option of full-goodwill method is used?

a. P50,000b. P40,000c. P30,000d. P20,000

36. The Lampara Company acquired a 70% interestin The Oak Company for P1,960,000 when the fair value

of Oaks identifiable assets and liabilities was P700,000 and elected to measure the non-controlling interest

at its share of the identifiable net assets. Annual impairment reviews of goodwill have not resulted in any

impairment losses being recognized. Oaks current statement of financial position shows share capital of

P100,000, a revaluation reserve of P300,000 and retained earnings of P1,400,000

Under PFRS 3 Business combinations, what figure in respect of goodwill should now be carried in Lamparas

consolidated statement of financial position?

a. P1,470,000b. 1,260,000c. 700,000d. 160,000

37. The Natural Company acquired 80% of The Loco Company for a consideration transferred of P100million.

The consideration was estimated to include a control premium of P24million. Locos net assets were P85

million at the acquisition date. Are the following statements true or false,according to PFRS 3 Business

combinations?

(1) Goodwill should be measured at P32million if the non-controlling interest is measured at its share of

Locals net assets.

(2) Goodwill should be measured at P34million if the non-controlling interest is measured at fair value.

Statement (1) Statement (2) Statement (1) Statement (2)

a. false False c. True Falseb. false True d. True true

38. The Moon Company acquired a 70% interest in The Swan Company for P1,420,000 when the fair value of

Swans identifiable assets and liabilities was P1,200,000. Moon acquired a 65% interest in The Homer

Company for P300,000 when the fair value of Homers identifiable assets and liabilities was P640,000. Moon

measures non-controlling interests at the relevant share of the identifiable net assets at the acquisitiondate.Neither Swan nor Homer had any contingent liabilities at the acquisition date and the above fair values

were the same as the carrying amounts in their financial statements. Annual impairment reviews have not

resulted in any impairment losses being recognized.

Under PFRS 3 Business combinations, what figures in respect of goodwill and of gains on bargain purchases

should be included n Moons consolidated statement in financial position?

a. Goodwill: P580,000; Gains on the bargain purchases: P116,000b. Goodwill: Nil or zero; Gains on the bargain purchases: P116,000


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c. Goodwill: Nil or zero; Gains on the bargain purchases: Nil or zerod. Goodwill: P580,000; Gains on the bargain purchases: Nil or zero

39. On October 01,212 The Ting Company acquired 100% of The Green Company when the fair value of

Greens net assets was P116million & their carrying amount was P120million. The consideration transferred

comprised P200million in cash transferred at the acquisition date, plus another P60million in cash to be

transferred 11 months after the acquisition date there was only a low probability of the profit target beingmet, so the fair value of the additional consideration liability was P10million. In the event, the profit target

was met & the P60million cash was transferred.

a. P80 millionb. P84 millionc. P94 milliond. P144 million

40. 100% of the equity share capital of the Rau Company was acquired by The Swift Company on June

30,2012. Swift issued 500,000 new P1 ordinary shares which had a fair value of P8 each at the acquisition

date. In addition, the acquisition resulted in Swift incurring fees payable to external advisers of P200,000 &

share issue costs of P180,000.

In accordance with PFRS 3 Business combinations, goodwill at the acquisition date is measured by subtracting

the identifiable assets acquired and the liabilities assumed from:

a. P40 millionb. P4.18 millionc. P4.20 milliond. P4.39 million


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1. Janes Corporation issues 45,000 shares of previously unissued of P10 per value common stock with a fair

market value of P32 per share for net assets of DunnCorporation. Janes pays the following costs and

expenses related to the business combination:

Registering and issuing securities P15,000

Accountants and legal fees 8,000

Salaries of Joness employees assigned to the

implementation of the merger

16,000

Cost of closing duplicate facilities 12,000

Cost of closing shareholders meeting to vote on

the merger

5,000

The expenses amounted to :

a. P21,000b. 33,000c. 41,000d. 56,000

2. Parent Corporation issued 100,000 shares of P20 for common stock for all the outstanding stock of

Subsidiary Corporation in a business combination was consummated. Out-of-pocket costs of the businesscombination were as follows:

Finders Fee P50,000

Accountants fee (advisory) 10,000

Legal fees (advisory) 20,000

Printing cost 5,000

SEC registration costs and fees 12,000

P79,000

The fair value of the consideration transferred accounting will be:

a. P3,097,000b. 3,080,000c. 3,017,000d. 3,000,000

3. Padyak Companys owns 80,000 shares of Sirkulo Corporations 100,000 outstanding common shares,

acquired at book value. The December 31,2011, consolidated balance sheet represented by Padyak and

Sirkulo included net assets of Sirkulo in the amount of P600,000. On January 01,2012, Sirkulo issues 25,000

additional shares of common stock to unrelated parties for P175,000.

The amount to be credited to additional paid-in capital/share premium account:

a. Zerob. P16,000c. 55,000d. 104,000

4.Baning Inc. buys 60% of the outstanding stock of Gra Inc. in an acquisition that resulted in the acquisition of

goodwill. Gra owns a piece of land that cost P200,000 but wwas worth P500,000 at the acquisition date.

What value should be attributed to this land in a consolidated balance sheet at the date of takeover?

a. P120,000b. 300,000c. 380,000d. 500,000

5. Paro Company purchased 80% of the voting common stock of Sabon Company for P900,000. There are no

liabilities. The following book and fair are available for Sabon:

Book Value Fair Value

Current Assets P150,000 P300,000

Land & Building 280,000 280,000

Machinery 400,000 700,000

Bonds Payable (300,000) (250,000)

Goodwill 150,000 ?


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The bonds payable will appear on the consolidated balance sheet:

a. At P300,000 (with no premium or discount shown)b. At P300,000 less a discount of $50,000c. At P0; assets are recorded net of iabilitiesd. At P300,000 less a discount of P40,000

6. Chapel Hill Company had common stock of P350,000 and retained earnings of P490,000. Blue Town Inc.

had common stock of P700,000 and retained earnings of P980,000. On January 01,2011, Blue Town issued

34,000 shares ofcommon stock with a P12 per value and a P35 fair value for all of Chapel Hill Companys

outstanding common stock. This combination was accounted for as an acquisition. Immediately after the

combination, what was the consolidated net asset?

a. P2,870,000b. 2,520,000c. 1,680,000d. 1,190,000

7. Pangasinan Branch of Malate Company, at the end of its first quarter of operations, submitted the

following income statement:

Sales P300,000

Cost of Sales

Shipments from Home Offices P280,000

Local Purchase P 30,000

Total P310,000

Inventory at the end P 50,000 P260,000

Gross profit on sales P40,000

Expenses P35,000Net Income P5,000

Shipments to the branch were billed at 140% of cost. The branch inventory at September 30 amounted to

P50,000 of which P6,600 was locally purchased. Markup on local purchases, 20% over cost. Branch expenses

incurred by Head Office amounted to P2,500 not yet recorded by the branch.

Compute the (1) branch ending inventory that should be presented in the combined income statement, and

(2) true branch net income.

a. (1) P37,600 ; (2) P70,100b.

(1) P37,600 ; (2) P2,500c. (1) P50,000 ; (2) P70,100

d. (1) P50,000 ; (2) P2,5008. The income statement submitted by the Pampanga Branch to the Home Office for the month of

December, 2011 is shown below. After effecting the necessary adjustments the true net income of the

Branch was ascertained to be P156,000.

Sales P600,000

Cost of sales

Inventory, December 1 P80,000

Shipments from Home Office P350,000

Local purchases P 30,000Total available for sale P460,000

Inventory, December 31 P100,000 P360,000

Gross margin P240,000

Operating Expenses P180,000

Net income for December, 2011 P60,000


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The Branch inventories were:

12/01/2011 12/31/2011

Merchandise from home offices P70,000 P84,000

Local purchases P10,000 P16,000

Total P80,000 P100,000

(1) The billing price based on cost imposed by the home office to the branch, and (2) The balanceallowance for overvaluation of branch December 31, 2011 after adjustment.

a. (1) 140% ; (2) P10,000b. (1) 140% ; (2) P24,000c. (1) 40% ; (2) P24,000d. (1) 40% ; (2)P16,000

9. The following information are extracted from the books and records of Rona Company and it branch. Te

balances are at December 31, 2011 of the companys operations.

Home Office Branch

Sales P260,000Shipments to branch P78,000

Shipments from home office P104,000

Purchases P39,000

Expenses P78,000

Inventory, January 1, 2011 P26,000

Allowance for overvaluation of

branch inventory

P31,200

However, no shipments in transit between the home office and the branch were made. Both shipments

accounts are properly recorded. He ending inventory includes merchandise acquired from the home office in

the amount of P26,000 and P7,800 acquired from outsiders for a total of P33,800.

Compute the (1) realized inventory profit of home sales made by the branch, and (2) the amount of branch

merchandise beginning inventory that was acquired from the home office?

a. (1) P24,700 ; (2) P15,600b. (1) P31,200 ; (2) P20,800c. (1)P22,533 ; (2)P15,600d. (1)P24,700 ; (2)P20,800

10. Best Buy Ventures operates a branch in Cebu City. Selected accounts taken from the May 31, 2012

statements of Best Buy and its branch follows:

H/Office Branch

Sales P380,000 P353,000


Shipments to branchloading P39,500

Inventory, June 1, 2011 P24,000 P16,000

Purchases P300,000 P60,000

Shipments from Home office P187,000

Inventory, May 31, 2012 P28,000 P20,700

The branch ending inventory included items costing P8,700 that were acquired from outside suppliers. The

realized markup on branch merchandise that would be recognized by the home office is:

a. P36,000b. P36,700c. P37,100d. P37,500


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11. The Bicol Corporation operates a branch in Naga City. The information from the December 31, 2011 trial

balance are as follows:

Home Office Naga Branch

Sales P840,000 P420,000


Purchases P490,000

Shipments from Home office P350,000Inventory, January 1, 2011 P140,000 P56,000

Inventory at December 31, Home Office P42,000; Branch P84,000

Compute the realized inventory profit of home office from sales made by the branch (the overvaluation of

cost of goods sold?

a. P56,000b. P120,000c. P64,400d. P80,000

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