CRC-ACE REVIEW SCHOOL

The Professional CPA Review School

735-9031 / 735-8901

PRACTICAL ACCOUNTING 2
OCTOBER 2013 BATCH
2nd PRE-BOARD EXAMS AUGUST 19,
2013 (Sun) 2:00-4:30
INSTRUCTIONS: Select the correct answer for each of the following questions.
Mark only one answer for each item by writing a VERTICAL LINE corresponding to
the letter of your choice on the answer sheet provided. STRICTLY NO ERASURES
ALLOWED. Use Pencil No. 1 or No. 2 only.

Use the following information in answering questions 1 and 2

The income statement of Vita Plus Partnership for the year ended December 31,
2007 appear below:

Vita Plus Partnership

Income Statement
For the year ended December 31, 2007
Sales P300,000
Less: Cost of Goods Sold 190,000
Gross Profit P110,000
Less: Operating Expenses 30,000
Net Income P 80,000

Additional Information:
1. Melon and Dalandan began the year with capital balances of P40,800 and
P112,000, respectively.
2. On April 1, Melon invested an additional P15,000 into the partnership and on
August 1, Dalandan invested an additional P20,000 into the partnership.
3. Throughout 2007, each partner withdrew P400 per week in anticipation of
partnership net income. The partners agreed that these withdrawals are not to
be included in the computation of average capital balances for purposes of
income distribution.

Melon and Dalandan have agreed to distribute partnership net income according
to the following plan:
MELON
DALANDAN
1. Interest on average capital balances 6%
6%
2. Bonus of net income before the bonus but after interest
on average capital balances 10%
3. Salaries P25,000
P30,000
4. Residual (if positive) 70%
30%
5. Residual (if negative) 50%
50%

1. The share of Melon and Dalandan on the net income, respectively is:
a. P40,473 and P39,527 c. P40,342 and P39,658
b. P40,282 and P39,718 d. P38,935 and P41,065

2. The ending capital balance of Dalandan is:

a. P152,328 b. P150,727 c. P150,918 d. P150,858

Use the following information in answering questions 3 and 4

On January 2, 2007, P Company purchased 1,500 shares of the outstanding
common stock of S Company for P140,000 and additional payment of. P4,000
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indirect cost and P5,000 direct cost. On that date, the assets and liabilities of S
Company had fair market values as indicated below. Balance sheets of the
companies on January 2, 2007, after acquisition are as follows:

P Company S Company
Book Fair value
Value
Cash P 80,000 P 14,000 P 14,000
Accounts Receivable 56,000 28,000 28,000
Inventory 56,000 22,000 28,000
Land 28,000 54,000 60,000
Building, net 163,000 72,000 98,000
Equipment, net 224,000 56,000 39,000
Investments in S Company 149,000
P 756,000 P 246,000

Accounts Payable P 42,000 16,000 16,000

8% Bonds Payable 62,000 52,000
Common Stock P Company, 320,000
P40 par
Common Stock S Company, 50,000
P25 par
Additional Paid-In Capital P 100,000
Company
Additional Paid-In Capital S 56,000
Company
Retained Earnings P Company 294,000
Retained Earnings S Company 62,000
P 756,000 P
246,000

3. As a result of business combination, the amount of total net assets is

a. P714,250 b.P764,000 c.P718,250 d.P768,000
4. The Retained earnings balance is
a. P294,000 b.P356,000 c. P294,250 d. P290,000

5. A statement of the capital accounts of Roel and Bless follows:

ROEL BLESS
Balance, January 1 P 72,000 P 96,000
Add: Additional Investments, July 1 32,000 16,000
Net Income for the Year:
Salaries 12,000 14,400
Interest on Capital 5,280 6,240
Remainder 10,362 8,478
Totals P131,642 P141,118
Deduct Drawings:
Monthly Amounts P 9,600 P 10,800
Additional Drawings, Dec. 31 2,042 318
P 11,642 P 11,118
Balance, December 31 P120,000 P130,000

If the net income remains the same the following year, and if there is neither a
change in the partnership agreement nor any additional investments, how much
more or less will Roels total share of the net income be than it was this year?
a. More by P6.00 b. Less by P6.00 c. P27,648 d. P29,112

6. Partners Rachel, Cecil, and Arlene share profits and losses 5:3:2, respectively, and
their balance sheet on October 31, 2007 follows:
Cash P 240,000 Accounts P 600,000
Payable
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Other Assets 2,160,00 Rachel, Capital 444,000

0
Cecil, Capital 780,000
Arlene, Capital 576,000
P 2,400,000 P 2,400,000
The assets and liabilities are recorded at their current fair value. Lark is to be
admitted as a new partner with
a 1/5 interest in capital and earnings. Rachel was credited a bonus of P15,000.
How much should Lark
contribute?
a. P456,000 b. P450,000 c. P480,000 d. P487,500

Use the following information in answering questions 7 and 8

S Co. had net income of P400,000 and paid dividends of P200,000 during the year
2007. S Co.s stockholders equity on December 31, 2006 and December 31, 2007
is summarized as follows:
Dec. 31,2006 Dec.
31, 2007
10% cumulative preferred stock, P100 par P 300,000 P
300,000
Common stock, P1 par 1,000,000
1,000,000
Additional paid-in capital 2,200,000
2,200,000
Retained earnings 500,000
700,000
Stockholders Equity P4,000,000
P4,200,000
On January 2, 2007, P Co. purchased 400,000 common shares of S Co. at P4 per
share and also paid P50,000 direct cost of acquiring the investment. P uses equity
method in accounting for its investment in S.
7. P Co.s income from Shine for 2007 should be:
a. P160,000 b. P155,000 c. P148,000 d. P143,750
8. The balance of the investment in Shine account at December 31, 2007 should be:

a. P1,725,750 b. P1,730,000 c. P1,650,000 d. P1,742,750

Use the following information in answering questions 9 and 10
Parent Company sells land with a book value of P5,000 to Subsidiary Company for
P6,000 in 2004. Subsidiary Company holds the land during 2005. Subsidiary
Company sells the land for P8,000 to an outside entity in 2006.
9. In 2004 the unrealized gain:
a. To be eliminated is affected by the minority interest percentage.
b. Is initially included in the subsidiarys accounts and must be eliminated from
Parent Companys income from Subsidiary Company under the equity method.
c. Is eliminated from consolidated net income by a working paper entry that
includes a credit to the land account for P1,000
d. Is eliminated from consolidated net income by a working paper entry that
includes a credit to the land account for P6,000.

10. Which of the following statements is true?.

a. Under the equity method, Parent Companys investment in Subsidiary account
will be P1,000 less than its underlying equity in Subsidiary throughout 2005.
b. No working paper adjustments for the land are required in 2005 in Parent
Company has applied the equity method correctly
c. A working paper entry debiting gain on sale of land and crediting land will be
required each year until the land is sold outside the consolidated entity.
d. In 2006, the year of Subsidiarys sale to an outside entity, the working paper
adjustment for the land will include a debit to gain on sale of land for P2,000.

Use the following information in answering questions 11 and 12

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Perry Corporation sold machinery to its 80 percent-owned subsidiary, Samuel

Corporation, for P100,000 on December 31, 2006. The cost of the machinery to
Perry was P80,000, the book value at the time of sale was P60,000, and the
machinery had a remaining useful life of five years (Perry uses equity in
accounting for its investment in Samuel).
11. How will the intercompany sale affect Perrys income from Samuel and Perrys net
income for 2006?
Perrys Income Perrys Perrys Income Perrys
from Samuel Net Income from Samuel Net Income
a. No effect No effect c. Decreased No effect
b. Increased No effect d. Decreased Decreased
12. How will the consolidated assets & consolidated net income for 2006 be affected by
the intercompany sale?
Consolidated Consolidated Net Consolidated Net Consolidated Net
Net Assets Income Assets Income
a. No Decreased c. Increased No effect
effect
b. Decreased d. No effect No effect
Decreased

Use the following information in answering questions 13 and 14

Punk Corp. manufactures and sells heavy industrial equipment. On July 1, 2006
Punk sold equipment that it manufactured at a cost of P300,000 to its 100 percent
owned subsidiary, Sunk Company, for P400,000. Sunk is depreciating the
equipment over a five-year period using the straight-line method.
13. The equipment and accumulated depreciation that appear in the
consolidated balance sheet for Punk and subsidiary at December 31, 2006 will
include amounts related to this transaction of:
a. P300,000 and P30,000 c. P400,000 and P40,000
b. P300,000 and P60,000 d. P400,000 and P80,000
14. If Punk account for its investment in Sunk as a one-line consolidation,
working paper entries to consolidate the financial statements of Punk and Sunk
for 2006 will include which of the entries:
a. Sales P100,000 c. Sales P400,000
Cost of Sales P100,000 Cost of Sales P300,000
b. Sales P100,000 Equipment P100,000
Investment in S P100,000 d. Sales P400,000
Cost of Sales P400,000

15. The following selected accounts appeared in the trial balance of Genius Sales as
of December 31, 2007:
Installment receivable- P 6,000 Repossessions P 1,200
2006 sales
Installment receivable- 80,000 Installment sales 170,000
2007 sales
Inventory, December 31, 28,000 Regular sales 154,000
2006
Purchases 222,000 Deferred gross profit 21,600
2006
Operating Expenses 46,000

Additional information:
Installment receivable 2006 sales, December 31, 2006 P
57,100
Inventory of new and repossessed merchandise as of December 31, 2007
38,000
Gross Profit percentage on installment sales in 2006 is 10% higher than the
gross profit percentage on regular sales in 2007
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Repossession was made during the year and was recorded correctly. It was a
2006 sales and the corresponding uncollected account at the time of repossession
was P3,100.

Net Income for 2007 is

a. P54,180 b. P6,740 c. P52,940 d. P53,600

16. On January 1, 2007, M Products Corp. issues 12,000 shares of its P10 par stock to
acquire the net assets of L Steel Company. Underlying book value and fair value information for the
balance sheet of L Steel Company at the time of acquisition are as follows:
Balance sheet Items Book Fair value
value
Cash P60,00 P60,000
0
Accounts receivable 100,00 100,000
0
Inventory 60,00 115,000
0
Land 50,00 70,000
0
Building and Equipment 400,00 350,000
0
Less: Accumulated Depreciation (150,000
)
Total Assets P520,000

Accounts payable P10,000 10,000

Bonds payable 200,000 180,000
Common stock (P5 par value) 150,000
Additional paid-in capital 70,000
Retained earnings 90,000
Total Liabilities and Capital P520,000
L Steel shares were selling at P18 and M Product shares were selling at P50 just
before the merger announcement. Additional cash payments made by M
Corporation in completing the acquisition were:
Finders fee paid to firm that located L Steel P10,000
Audit fee for stock issued by M Products 3,000
Stock registration fee for new shares of M Products 5,000
Legal fees paid to assist in transfer of net assets 9,000
Cost of SEC registration of M Products shares 1,000
How much is the increase in the total assets to be recorded by M Products?
a. P809,000 b. P591,000 c. P781,000 d. P667,000
17. I Inc., K Inc., and E Inc. agreed to a business combination that meets
all the requirements for purchase of interests. Their condensed balance sheets
before combination show:
I K E
Assets P7,000,000 P875,000 P9,625,000
Liabilities P4,987,500 P306,250 P2,625,000
Capital stock, par P100 2,625,000 437,500 1,750,000
Additional paid in capital 218,750 700,000
Retained earnings (deficit) (612,500) ( 87,500) 4,550,000
P7,000,000 P875,000 P9,625,000
It was agreed that I Inc. will be the continuing entity and shall issue 4,375 shares
to K and 52,500 shares to E. To what extent will the stockholders equity of I
increase after the combination?
a. P7,568,750 b. P2,187,000 c. P5,687,500 d. P875,000
18. On July 2007, Jonathan Company sold P2,400,000 real estate that had
a cost P1,440,000, receiving P350,000 cash and mortgage note for the balance
payable in monthly installments. Installment received in 2008 reduced the
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principal of the note to a balance of P2,000,000. The buyer defaulted on the note
at the beginning of 2009, and the property was repossessed. The property had an
appraised value of P1,150,000 at the time of repossession. Compute the gain (loss)
on repossession, assuming that:
Profit is recognized when the Gross profit is recognized in
sale is made (point of sale) proportion to periodic collection
a. P(850,000) P(450,000)
b. (850,000) (50,000)
c. 850,000 (450,000)
d. (50,000) 50,000
19. Abogado Company uses the installment method of reporting for
accounting purposes. The following data were obtained.
2004 2005 2006
Installment sales P600,000 P810,000 P990,000
Cost of installment _420,000 _486,000 _643,500
sales
Gross profit P180,000 P324,000 P346,500
Installment contract receivables, December 31:
2004 2005 2006
2004 sales P360,000 P270,000 P120,000
2005 sales 600,000 390,000
2006 sales 780,000
In 2006, one of the customers defaulted in his payment and the company
repossessed the merchandise with an estimated market value of P30,000. The
sales was in 2004 and the unpaid balance on the date of repossession was
P45,000.
Compute for 2006 (1) the gain (loss) on repossession; (2) total realized gross
profit, and (3) the deferred gross profit.
(1) (2) (3)
a. P P 189,000 P
(1,500) 451,500
b. 129,000 465,000
750
c. 189,000 465,000
(1,500)
d. 73,500 273,000
1,500
20. Lea Mae Stores sell appliances for cash and also on the installment plan. Entries to
record cost of sales are made monthly. The following information appears on the trial balance of the
company as of December 31, 2007.
Cash P153,00
0
Installment Accounts Receivable, 48,000
2006
Installment Accounts Receivable, 91,000
2007
Inventory New Merchandise 123,200
Inventory Repossessed 24,000
Merchandise
Accounts Payable P98,500
Deferred Gross Profit, 2006 45,600
Capital Stock 170,000
Retained Earnings 93,900
Sales 343,000
Installment Sales 200,000
Cost of Sales 255,000
Cost of Installment Sales 128,000
Gain or Loss on Repossession 800
Selling and Administrative Expenses _128,00 _______
0
CRC-ACE/PA2_2nd Preboard October 2013 Page 7 of 12

P951,00 P951,000
0
The accounting department has prepared the following analysis of cash receipts
for the year:
Cash sales (including repossessed P424,00
merchandise) 0
Installment accounts receivable, 2006 104,000
Installment accounts receivable, 2007 109,000
Other 36,000
Total P673,00
0
Repossessions recorded during the year are summarized as follows:
2006
Uncollected balance P8,000
Loss on repossession 800
Repossessed merchandise 4,800
How much must be the total realized gross profit net of loss from repossession in
2007?
a. P161,710 b. P157,640 c. P158,440 d. P73,710
21. Lily, Susan, and Yen agreed to invite Lucy to join the partnership. Lucy
was presently working as a marketing specialist of a dynamic firm and presently
receiving a salary of P35,000 per month. In order to encourage Lucy to join the
partnership, the partners agreed to the following profit distribution:
1) 12% interest on contributed capital is to be given to each partner.
2) Salaries of P20,000, P30,000, P40,000, and P35,000 per month is to be
given to Lily, Susan, Yen, and Lucy respectively.
3) Lucy is to receive a minimum guaranteed share equal to her present salary
and interest on her capital.
4) Lily is to receive an aggregate share of P300,000 per year.
5) Balance of profits is to be distributed in the ratio of 2:2:3:3 between Lily,
Susan, Yen, and Lucy respectively.
The partners capital contributions are: Lily, P200,000; Susan, P150,000; and Yen,
P100,000. Lucy is willing to invest sufficient cash so that her capital interest in the
partnership net assets will give her a interest.
How much must the partnership earned during the year so that Lily will receive
the agreed aggregate amount and Lucy to receive at least the minimum
guaranteed share?
a. P1,752,000 b. P1,698,000 c. P1,477,000 d. P1,521,000

Use the following information in answering questions 22 and 23

On Jan. 1, 2003, PI Co. acquired 75 percent of outstanding shares of SU Co. at book value. For the
year 2005, PI Co. purchased merchandise from SU Co. while S also purchased merchandise from PI
Co. Data regarding intercompany sales, inventories and profit percentages are as follows:
PI Co. SU Co.
Intercompany sales P200,000 P75,000
Intercompany inventories:
January 1, 2005 20,000 10,000
December 31, 2005 15,000 20,000
Gross profit percentages on
intercompany
As a percentage of selling price 60% 50%
On July 1, 2005, Su Co. sold equipment to PI Co. at a gain of P20,000. This
equipment is estimated to have a useful life of five years from the date of sale.
Income statements for the two companies exclusive of the recording of Equity in Earnings
Subsidiary for year 2005 are as follows:
PI Co. SU Co.
Sales P P 400,000
1,500,000
Cost of sales 600,000 200,000
Expenses 300,00 100,000
CRC-ACE/PA2_2nd Preboard October 2013 Page 8 of 12

Gain on sale of equipment . 20,000

P 600,000 P 120,000

22. The consolidated cost of sales is:

a. P800,000 b. P528,500 c. P521,500 d. P527,000
23. The income from investment using equity method:
a. P72,375 b. P71,542 c. P72,750 d. P75,750

24. PC Corp. owns 70 percent pf SO Co.s common stock acquired January

1, 2004. Total amortization of excess from the investment is at a rate of P20,000
per year. SO regularly sells merchandise to PC at 150 percent of SOs cost. PCs
December 31, 2004 and 2005 inventories include goods purchased intercompany
of P112,500 and P33,000, respectively. The separate incomes (*do not include
investment income) of PC and SO for 2005 are summarized as follows:
PC SO
Sales P 1,200,000 P 800,000
Cost of sales (600,000) (500,000)
Other expenses (400,000) (100,000)
Separate income P 200,000 P P200,000
Total consolidated income should be allocated to Retained Earnings and
minority interest income in the amounts of:
a. P344,550 and P61,950, c. P406,500 and P61,950,
respectively respectively
b. P358,550 and P60,000, d. P338,550 and P67,950,
respectively respectively
25. Mystic, Inc. was involved in two default and repossession cases during
the year:
(i.) A refrigerator was sold to Mary More for P19,000. Including a 35%
markup on selling price. More paid a down payment of 20%, four of
the remaining 10 equal payments, and then defaulted on further
payments. The refrigerator was repossessed, at which time the fair
value was determined to be P8,000.
(ii.) An oven that cost P12,000 was sold to Panadero, Inc. for P16,000 on
the installment basis. Panadero made a downpayment of P2,400 and
paid P800 a month for 6 months,
after which it defaulted. The oven was repossessed and the estimated
value at the time of repossession was determined to be P7,500.

Determine the gain/(loss) on repossession that Mystic must report in its financial
statement.
a. P2,972 b. P4,100 c. P4,880 d. (P2,420)
26. The Felix Contracting Co. uses the percentage of completion method
of recognizing profit. Data for a recently awarded project is given below:
Contract price P80,000,000
2006 2007 2008
Estimated costs per year P20,100,0 P30,150,0 P16,750,0
00 00 00
Progress billings per year 10,000,00 25,000,00 45,000,00
0 0 0
Cash collections 8,000,000 23,000,00 49,000,00
0 0
Using the data provided above, calculate Felixs gross profit for 2007. Assume
that the estimated costs were actually incurred during the year.
a. P5,850,000 b. P3,900,000 c. P3,250,000 d. P9,750,000

27. The Marvin Co. as a receivable from a foreign customer that is

payable in the local currency of the foreign customer. The amount receivable for
900,000 local currency units (LCU) has been restated into P315,000 on Marvins
Dec. 20X5, balance sheet. On Jan. 15, 20X6, the receivable was collected in full
CRC-ACE/PA2_2nd Preboard October 2013 Page 9 of 12

and converted when the exchange rate was 3 LCU to P1. What journal entry
should Marvin make to record the collection of this receivable?
a. Cash 300,000
Accounts receivable 300,000

b. Cash 300,000
Transaction loss 15,000
Accounts receivable 315,000

c. Cash 300,000
Deferred transaction loss 15,000
Accounts receivable 315,000

d. Cash 315,000
Accounts receivable 315,000
28. On Nov. 15, 20X8, Celt, Inc. a Philippine company, ordered
merchandise FOB shipping point from a German company for 200,000 marks. The
merchandise was shipped and invoiced to Celt on Dec. 10, 20X8. Celt paid the
invoice on Jan. 10, 20X9. The spot rates for marks on the respective dates are as
follows:
Nov. 15, 20X8 P.4955
Dec. 10, 20X8 .4875
Dec. 31, 20X8 .4675
Jan. 10, 20X9 .4475
In Celts Dec. 31, 20X8 income statement, the foreign exchange gain is:
a. P9,600 b. P8,000 c. P4,000 d. P1,600

29. On April 1, 2007, Onawaki entered into franchise agreement with Lhyve to sell
their products. The agreement provides for an initial franchise fee of P4,218,750
payable as follows: P1,181,250 cash to be paid upon signing of the contract and
the balance in five equal annual payment every December 31, starting at the end
of 2007. Onawaki signs 12% interest bearing note for the balance. The
agreement further provides that the franchise must pay a continuing franchise fee
equal to 5% of its monthly gross sales. On August 30 the franchisor completed the
initial services required in the contract at a cost of P1,350,000 and incurred
indirect costs of P232,500. The franchise commenced business operations on
September 3, 2007. The gross sales reported to the franchisor are September
sales, P110,000; October sales, P125,000; November sales P138,000; and
December sales, P159,000. The first installment payment was made on due date.
Assume the collectibility of the note is reasonably assured. How much is the
income earned from the franchise agreement.
a. P2,868,750 b. P2,936,225 c. P2,895,350 d. P3,168,725

30. Shore Co. records its transactions in US Dollar. A sale of goods

resulted in a receivable denominated in Japanese yen, and a purchase of goods
resulted in a payable denominated in French francs. Shore recorded a foreign
exchange gain on collection of the receivable and an exchange loss on settlement
of the payable. The exchange rates are expressed as so many units of foreign
currency to one dollar. Did the number of foreign currency units exchangeable for
a dollar increase or decrease between the contract and settlement dates?
Yen Exchangeable for Francs exchangeable for US$1
US$1
a Increase Increase
. Decrease Decrease
b Decrease Increase
. Increase Decrease
c
.
d
.
CRC-ACE/PA2_2nd Preboard October 2013 Page 10 of 12

31. Candido Co. entered into a contract to build a small bridge for
Guagua. The contract price for the bridge was P7,500,000 and Candido estimated
a total costs of P6,900,000 in 2006. The company incurred P2,300,000 of cost
during 2006. By the end of 2007 it was apparent that Candido had underestimated
the real costs. The estimated total cost of project skyrocketed to P7,800,000.
Construction cost incurred in 2007 totaled P4,000,000. The project was completed
in 2008 at a final cost of P7,800,000. No progress billing were made under the
contract and no cash was selected by the end of 2008.
The amount of gross profit (loss) that must be recognized in 2007 must be:
a. P300,000 loss b. P200,000 profit c. P500,000 loss d. P100,000 loss

32. The following information pertains to a river-control project of Rainy

Construction Inc. in Tabuk, Kalinga which was commenced in 2006 and completed
the following the year:
Cost incurred to-date
at June 30, 2006 P9,750,000
at June 30, 2007 15,750,000
Estimated total cost at
completion
at June 30, 2006 19,500,000
at June 30, 2007 20,250,000
The project is a P22,500,000 fixed-price construction contract and Rainy uses the
percentage-of-completion method of accounting. What is the income reported by
Rainy on its Kalinga project on June 30, 2007?
a. P750,000 b. P1,500,000 c. P1,750,000 d. P250,000
REH Company
33.
Trial Balance as of January 1, 2006
DR CR
Ordinary shares 30,000 fully 30,000
shares
Retained Earnings 50,000
Equipment 42,000
Accumulated Depreciation 12,000
Inventory 20,000
Accounts Receivable 10,000
Patents 15,000
Accounts Payable 8,000
Cash 13,000
100,000 100,000

At this date REH is acquired by BNC with REH going into liquidation
Ordinary shareholders of REH Company are to receive 2 fully paid ordinary
shares in BNC for every share held or alternatively P2.50 in cash payable
half at the exchange date and half in one year thereafter.
Accounts Payable and cost of liquidation amounting to P5,000 were paid by
REH prior to turnover to BNC.
5,000 ordinary shares elect to receive cash
BNC shares are selling at P1.10
The incremental borrowing rate of BNC is 10% per annum.

What is the cost of combination?

a. P66,931 b. P67,500 c.P66,000 d.P61,931

Use the following information in answering questions 34 and 35

The following balance sheets were prepared for Avril Corp. and Blink Co. on
January 1, 2007, just before they entered into a business combination.

Avril Corp. Blink Co

Cash P 210,000 P 5,000
CRC-ACE/PA2_2nd Preboard October 2013 Page 11 of 12

Accounts Receivable 75,000 20,000

Merchandise Inventory 200,000 50,000
Building and Equipment 400,000 100,000
Accumulated Depreciation (100,000) (25,000)
Goodwill 50,000
Total Assets P 785,000 P 200,000

Accounts Payable P 125,000 P 70,000

Bonds Payable 200,000 30,000
Common Stock
P30 par value 210,000
P20 par value 50,000
Additional paid-in capital 50,000 10,000
Retained Earnings 200,000 40,000
Total Liabilities & P 785,000 P 200,000
Stockholders Equity

On that date, the fair market value of Blinks inventories and building and
equipment were P78,000 and P124,000 respectively, while bonds payable has a
fair value of P42,000. The fair values of all other asset and liabilities of Blink
(except for goodwill) were equal to their book values. Avril Corp. acquired the net
assets of Blink Co. by issuing 2,500 shares of its P30 par value common stock
(current fair value P36 per share) and purchase price in cash amounting to
P12,000. Contingent consideration that is determinable (probable and reasonably
estimated) amounted to P2,000 (discounted value). Additional cash payment made
by Avril Corp. in completing the acquisition were: Legal fee for contract of
business combination, P8,000; Accounting and legal fees for SEC registration,
P11,000; Printing costs of stock certificates, P6,000; Finders fee, P7,000; Indiret
cost, P5,000.

34. As a result of the business combination, the amount of total assets in the books
of Avril Company.
a. P1,016,000 b. P963,000 c. P967,000 d. P1,1012,000

35. As a result of the business combination, the amount of retained earnings in the
books of Avril Company.
a. P195,000 b.P193,000 c. P200,000 d.P240,000

36. On January 1, 2007, ABC Corporation purchased 75% of the common stock of
XYZ Company. Separate balance sheet data for the companies at the combination
date are given below:

ABC XYZ
Cash P 84,000 P 721,000
Trade Receivable 504,000 91,000
Merchandise Inventory 462,000 133,000
Land 273,000 112,000
Plant assets 2,450,000 1,050,000
Accumulated Depreciation (840,000) (210,000)
Investment in XYZ 1,372,000
Total Assets 4,305,000 P 1,897,000

Accounts Payable P 721,000 P 497,000

Capital Stock 2,800,000 1,050,000
Retained Earnings 784,000 350,000
Total Equities 4,305,000 P 1,897,000

On the date of combination the book values of XYZs net assets was equal to the
fair value of the net assets except for XYZs inventory which has a fair value of
P210,000.
CRC-ACE/PA2_2nd Preboard October 2013 Page 12 of 12

On the date of acquisition in the consolidated balance sheet, how much is the total
assets?
a. P3,533,250 b. P4,984,000 c. P6,543,250 d. P5,171,250

- End Examination

PRACTICAL ACCOUNTING 2

1 A 11 C 21 A 31 C
2 B 12 B 22 B 32 D
3 B 13 A 23 A 33 A
4 C 14 C 24 A 34 C
5 B 15 C 25 A 35 B
6 D 16 C 26 A 36 D
7 C 17 A 27 B
8 B 18 A 28 C
9 C 19 C 29 B
10 A 20 B 30 B
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