Afar Mock Cpa Board - Set A.docx

DMC College Foundation, Inc. Bachelor of Science in Accountancy Pre-Mock CPALE ADVANCED FINANCIAL ACCOUNTING AND REPORTING SET A NAME:_____________________________________

DATE:____________________

INSTRUCTION: Read the questions carefully. Shade your best choice in the separate answer sheet that is provided. Use pencil only in shading. 1. Which of the following is not a characteristic of most partnership? a. limited liability c. mutual agency b. limited life d. ease of formation 2. Which of the following is not a characteristic of the proprietary theory that influences accounting for partnerships? a. Partner’s salaries are viewed as a distribution of income rather than a component of net income. b. A partnership is not viewed as separate entity, distinct, taxable entity. c. A partnership is characterized by limited liability. d. Changes in the ownership structure of a partnership result in the dissolution of the partnership. 3. Which of the following statements is correct with respect to a limited partnership? a. A limited partner may not be an unsecured creditor of the limited partnership. b. A general partner may not also be limited partner at the same time. c. A general partner may be a secured creditor of the limited partnership. d. A limited partnership can be formed with limited liability for all partneres. 4. When property other than cash is invested in a partnership, at what amount should the noncash property be credited to the contributing partner’s capital account? a. fair value at the date of contribution b. contributing partner’s original cost c. assessed valuation for property tax purposes d. contributing partner’s tax basis 5. A limited partnership consist of the following features except a. must be at least one general partner. b. limited partners may invest cash or other assets. c. limited partners are responsible for unpaid liabilities. d. surname of a limited partner may not appear in name of partnership. 6. On March 1, 2016, Eva and Helen decide to combine their business and form a partnership. Statement of financial position on March 1, before adjustments, showed the following: Eva Helen Cash P9,000 P3,750 Accounts Receivable 18,500 13,500 Inventories 30,000 19,500 Furniture & Fixtures (net) 30,000 9,000 Office Equipment (net) 11,500 2,750 Prepaid Expenses 6,375 3,000 Total P105,375 P51,500 Accounts Payable 45,750 18,000 Capital 59,625 33,500 They agreed to provide 3% for doubtful accounts receivable, and also agree that Helen’s furniture and fixtures are underdepreciated by P900. If each partner’s share in equity is to be equal to the net assets invested, the capital accounts of Eva and Helen would be: Page 1

a. b. c. d.

104,820 and 50,195, respectively 59,070 and 32,195, respectively 58,320 and 32,945, respectively 58,170 and 33,095, respectively

7. Aldo, Bert, and Chris formed a partnership on April 30, with the following asset, measured at their fair values, contributed by each partner. Aldo Bert Chris Cash 10,000 12,000 30,000 Delivery Trucks 150,000 28,000 Computers 8,500 5,100 Office Furniture 3,500 2,500 Totals 168,500 48,600 32,500 Although Chris contributed the most cash to the partnership, he did not have the full amount of P30,000 available and was forced to borrow P20,000. The delivery truck contributed by Aldo has a mortgage of P90,000 and the partnership is to assume responsibility for the loan. The partners agreed to equalize their interests. Cash settlement among the partner is to be made outside the partnership. Using the bonus method: a. Bert and Chris should pay Aldo, P4,600 and P20,700 respectively. b. Aldo should pay Bert and Chris, P25,300. c. Bert should pay Aldo, P25,300 and Chris, P20,700. d. Chris should pay Aldo, P25,300 and Bert, P4,600. 8. On March 1, 2018, Jose and Kiko decides to combine their business to form a partnership. Statement of financial position on March 1 before the formation, showed the following: Jose Kiko Cash P9,000 P3,750 Accounts Receivable 18,500 13,500 Inventories 30,000 19,500 Furniture & Fixtures 30,000 9,000 Office Equipment (net) 11,500 2,750 Prepaid Expenses 6,375 3,000 Total P105,375 P51,500 Accounts Payable 45,750 18,000 Capital 59,625 33,500 They agreed to the following adjustments before the formation: A. Provide 2% allowance for doubtful accounts. B. Jose’s furniture should be valued at P31,000, while Kiko’s office equipment is under-depreciated by P250. C. Rent expense incurred previously by Jose was not yet recorded amounting to P1,000, while salary expense incurred by Kiko was not also recorded amounting to P800. D. The fair value of inventories amounted to P29,500 for Jose and P21,000 for Kiko. The net (debit) credit adjustment to partner’s capital accounts are: Jose Kiko a. (2,870) (2,820) b. 1,870 2,820 c. 870 (180) d. (870) 180 9. If the partnership agreement does not specify how income is to be allocated, profits and loss should be allocated a. equally. b. in proportion to the weighted average of capital invested during the period. c. equitably so that the partners are compensated for the time and effort expenses on behalf of the partnership. d. in accordance with their capital contribution. 10. Which of the following is not considered a legitimate expense of partnership? a. interest paid to partners based on the amount of invested capital. b. depreciation on assets contributed to the partnership by partners. c. salaries for management hired to run the business. d. supplies used in the partners’ offices.

a

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11. If a new partner acquires a partnership interest directly from the partners rather than from the partnership itself, a. no entry is required. b. the partnership assets should be revalued. c. the existing partner’s capital accounts should be reduced and the new partner’s account increased. d. the partnership has undergone a quasi-reorganization. 12. Luz, Vi, and Minda are partners when the partnership earned a profit of P30,000. Their agreement provides the following regarding the allocation of profits and losses: I. 8% interest on partner’s ending capital in excess of P75,000. II. Salaries of P20,000 for Luz and P30,000 for Vi. III. Any balance is to be distributed 2:1:1 for Luz, Vi, and Minda, respectively. Assume ending capital balances of P60,000, P80,000, and P100,000 for partners Luz, Vi, and Minda, respectively. What is the amount of profit allocated for Minda, if each provision of the profit and loss agreement is satisfied to whatever extent possible using the priory under shown above? a. (3,600) c. (2,000) b. 3,000 d. 2,000 13. Mr. Zoom and his very friend Mr. Boom formed a partnership on January 1, 2018 with Zoom contributing P16,000 cash and Boom contributing equipment with a book value of P6,400 and a fair value of P8,000. During 2018, Boom made additional investments of P1,600 on April 1 and P1,600 on June 1, and on September 1, he withdrew P4,000. Zoom had neither additional investments nor withdrawals during the year. The average capital balance at the end of 2018 for Mr. Boom is: a. 9,600 c. 8,800 b. 8,000 d. 7,200 14. Roy and Sam was organized and began operations on March 1, 2018. On that date, Roy invested P150,000 and Sam invested computer equipment with current fair value of P180,000. Because of shortage of cash, on November 1, 2018, Sam invested additional cash of P60,000 in the partnership. The partnership contract includes the following remuneration plan: Roy Sam Monthly salary (recognized as expense) P10,000 P20,000 Annual interests on beginning capital 12% 12% Bonus on the net profit before salaries and interest but after bonus 20% Balance equally The salary was to be withdrawn by each partner in monthly instalments. The partnership net profit for 2018 is P120,000. What are the capital balances of the partners on December 31, 2018? Roy Sam Roy Sam a. P243,500 P266,500 c. P86,000 P154,000 b. 136,000 350,000 d. 87,000 155,000 15. On June 1, 2018, May and Nora formed a partnership. May is to invest assets at fair value which are yet to be agreed upon. She is to transfer her liabilities and is to contribute sufficient cash to bring her total capital to P210,000 which is 70% of the total capital of the partnership. Data regarding the book values of May’s business and liabilities and their corresponding valuations are: Book Values Agreed Valuations Accounts Receivable P58,000 P58,000 Allow. for doubtful accts 4,200 5,000 Merchandise Inventory 98,400 107,000 Store Equipment 32,000 32,000 Acc. Dep’n – Store Equip. 19,000 16,400 Office Equipment 27,000 27,000 Acc. Dep’n – Office Equip. 14,200 8,600 Accounts Payable 56,000 56,000 Nora agrees to invest cash of P42,000 and merchandise valued at current market price. The value of the merchandise to be invested by Nora and the cash to be invested by May are: Page 3

a. b. c. d.

P90,000 and P62,000 respectively. P252,000 and P138,000 respectively. P48,000 and P138,000 respectively. P48,000 and P72,000 respectively.

16. In the liquidation of a partnership, it is necessary to: I. distribute cash to partners; II. sell non-cash assets; III. allocate any gain or loss on realization to the partners; and IV. pay liabilities. These steps should be performed in the following order: a. II, III, IV, I c. III, II, I, IV b. II, III, I, IV d. III, II, IV, I 17. When is a partnership legally insolvent? a. When the partnership assets are insufficient to meet partnership liabilities. b. When the partnership assets are insufficient to meet partnership liabilities and at least one partner is personally insolvent. c. When all the partners are personally insolvent. d. When the assets of the partnership plus the assets of all the partners are insufficient to meet partnership liabilities plus the individual partners’ liabilities. 18. In partnership liquidation, the realization losses result in a debit balance in one partner’s capital account. If this partner fails to contribute personal assets to makeup this deficit, how should the debit handled by the partners? a. It should be written off against partnership profits like any other bad debts. b. It should be allocated to all the partners in their profit and loss ratio. c. It should be allocated to the remaining partners in their remaining profit or loss ratio. d. It should be set up a receivable and turned over to a collection agency. 19. If a partnership is liquidated, how is the final allocation of business assets made to the partners? a. equally b. according to the profit or loss ratio c. according to the final capital account balances d. according to the initial investment made by each of the partners 20. During liquidation, a partner’s capital account balance drops below zero. What should happen? a. The other partners should file a legal suit against the partner with deficit balance. b. The partner with positive capital balances shall share in the deficit according to their remaining loss sharing ratio. c. The partner with a deficit should contribute enough assets to offset the deficit balance. d. The deficit balance should be removed from the accounting records with only the remaining partners sharing in future gains and losses. 21. If cash payments to partners of a partnership in liquidation are delayed until all noncash assets have been realized, any cash remaining after all partnership creditors have been paid is distributed a. according to the liquidator’s best judgment. b. in the ratio of sharing net income and losses. c. in an amount equal to partner’s loan and capital account balances. d. in some other manner. 22. Cohen, Butler, and Davis are partners in a partnership and share profits and losses 50%, 30% and 20%, respectively. The partners have agreed to liquidate the partnership and anticipate that liquidation expenses will total P14,000. Prior to the liquidation, the partnership balance sheet reflects the following book values: Page 4

Cash 21,000 Noncash assets 248,000 Notes payable to Davis 32,000 Other liabilities 154,000 Cohen, capital 60,000 Butler, capital (10,000) Davis, capital 33,000 Assuming that the actual liquidation expenses are P14,000 and assets are sold for P218,000, how would the assets be distributed to Butler has net personal assets of P8,500? Cohen Butler Davis Cohen Butler a. 15,500 c. 30,650 b. 21,429 49,571 d. 27,500 -

the noncash partners if Davis 53,260 52,000

23. The Partners Aiko, Bren, Cinia and Dior who share profits and losses at 30%, 30%, 20%, 20% respectively decided to liquidate. All partnership assets are to be converted into cash. Prior to the liquidation, the condensed statements of financial position is as follows: Cash P100,000 Liabilities P750,000 Other assets 1,800,000 Bren, Loan 60,000 Dior, Loan 50,000 Aiko, Capital 420,000 Bren, Capital 315,000 Cinia, Capital 205,000 Dior, Capital 100,000 Total 1,900,000 Total 1,900,000 The noncash assets realized P800,000, resulting to a loss of P1,000,000. All the partners are solvent, and can contribute any additional cash to cover any deficiency. In the process of liquidation, deficiency will occur and will require additional investment as follows: a. Cinia at P7,500. b. Dior and Cinia for P50,000 and P7,500 respectively. c. Dior at P50,000. d. none 24. Roy and Gil are partners sharing profits and losses in the ratio of 1:2 respectively. On July 1, 2018, they decided to form the R&G Corporation by transferring the assets and liabilities of the partnership to the corporation in exchange for the latter’s stock. The following is the postclosing trial balance of the partnership. Debit Credit Cash P45,000 Accounts Receivable (net) 60,000 Inventory 90,000 Fixed Assets (net) 174,000 Liabilities P60,000 Roy, Capital 94,800 Gil, Capital 214,200 369,000 369,000 It was agreed that adjustments be made to the following assets to be transferred to the corporation: Accounts Receivable 40,000 Inventory 68,000 Fixed Assets 180,600 The R&G Corporation was authorized to issue P100 par preferred stock and P10 par common stock. Roy and Gil agreed to receive for their equity in the partnership 720 shares of the common stock each, plus even multiples of 10 shares of preferred stock for their remaining interests The total number of shares of preferred and common stocks issued by the corporation in exchange for the assets and liabilities of the partnership are: Preferred Common Preferred Common a. 2,540 shares 1,500 shares c. 2,642 shares 1,440 shares b. 2,592 shares 1,440 shares d. 2,642 shares 1,550 shares c. 25. A category of assets that typically has zero in the “Free Assets” column of statement of affairs is a. factory supplies inventory. c. short-term prepayments. b. tools. d. none of the above Page 5

26. In a statement of affairs, assets pledged for partially secured creditors are a. included with assets pledged for fully secured creditors. b. offset against partially secured creditors. c. included with free assets. d. disregarded. 27. Which of the following is not a liability that has priority in liquidation? a. administrative expenses incurred in the liquidation b. salary payable owed to executive officers. c. payroll taxes due to the government. d. fees payable to liquidating officer. 28. On a statement of affairs, how are liabilities classified? a. current and non-current c. monetary and non-monetary b. secured and unsecured d. historic and futuristic 29. Insolvency in corporate liquidation means a. book value of assets is greater than liabilities. b. fair value of assets is less than liabilities. c. inability to meet financial obligations as they come due. d. liabilities are greater than book value of assets. 30. The following data were presented in the statement of affairs for BW Company: Unsecured liabilities without priority P900,000 Stockholder’s equity 360,000 Loss on realization of assets 450,000 Est. administrative expenses unrecorded 45,000 Unsecured liabilities with priority 100,000 Based on the foregoing data, what percentage of their claims should unsecured, without priority creditors expect to receive on the liquidation of BW Company? a. 85% b. 90% c. 86.5 % d. 100% 31. The following are the data presented by Ilocos Company: Assets at book value P1,000,000 Assets at net realizable value 750,000 Liabilities at book value: Fully secured mortgage 400,000 Unsecured accounts and notes pay.450,000 Unrecorded liabilities: Interest on bank notes 2,500 Est. administrative expenses 40,000 The Statement of Affairs at this time should include an estimated deficiency to unsecured creditors of: a. P350,000 b. P310,000 c. P142,500 d. P100,000 32. The following data were taken from the statement of realization and liquidation of Bagsak Corporation for the three months period ended December 31, 2018: Assets to be realized P55,000 Assets acquired 60,000 Assets realized 70,000 Assets not realized 25,000 Liabilities to be liquidated 90,000 Liabilities assumed 30,000 Liabilities liquidated 60,000 Liabilities not liquidated 75,000 Supplementary credits 85,000 Supplementary charges 78,000 What is the net income (loss) for the period? a. P28,900 b. (P28,000) c. (P35,000) d. P7,000 33. A statement of realization and therefrom are as follows: Assets to be realized Assets acquired

liquidation

has

been

prepared.

Totals

P80,000 40,000 Page 6

Assets realized 30,000 Assets not realized 90,000 Liabilities to be liquidated 80,000 Liabilities assumed 50,000 Liabilities liquidated 100,000 Liabilities not liquidated 30,000 Supplementary credits 110,000 Supplementary charges 98,000 The ending balances of capital stock and retained earnings are P100,000 and P18,000 respectively. How much was the ending balance of cash? a. P35,000 b. P45,000 c. P58,000 d. P59,000 34. The accountant of Holy Company under liquidation provided the following data: Assets at book value P100,000 Assets at net realizable value 75,000 Liabilities at book value: Fully secured mortgage 40,000 Unsecured accounts and notes pay.45,000 Unrecorded liabilities: Interest on bank notes 250 Est. administrative expenses 4,000 A trustee is appointed to liquidate the company. The entry made by the trustee to record the assets and liabilities should include estate equity of: a. P14,250 b. P14,000 c. P10,250 d. P10,520 35. In instalment sale, revenue is recognized a. at the point of sale. c. before the point of sale. b. after the point of sale. d. all of the above 36. At the time of repossession, repossessed merchandise is debited at its a. original cost. c. fair value after reconditioning cost. b. unrecovered cost. d. fair value before reconditioning costs. 37. Instalment accounts receivable account is classified in the balance sheet under a. current asset. c. other asset. b. fixed asset. d. non-current asset. 38. The Labrador Sales Co. which began the appliance business on January 1, 2015 reports gross profit on the instalment basis. The following information relative to the instalment sales are available: 2015 2016 2017 2018 Installment Sales P360,000 P375,000 P450,000 *P500,000 Cost of instalment sales 270,000 271,875 324,000 250,000 Gross Profit 90,000 103,125 126,000 250,000 Collections: 2015 instalment contracts 67,500 112,500 108,750 2016 instalment contracts 71,250 120,000 2017 instalment contracts 93,750 Defaults: Unpaid balance of 2015 I/C 18,750 22,500 Value assigned to repo merchandise 9,750 9,000 Unpaid balance of 2016 I/C 24,000 Value assigned to repo merchandise 13,500 *The sale is based on the forecast of the management taking into consideration the trend of increase in instalment sales. How much is the realized gross profit from the collections during 2017? a. P80,625 b. P86,437.50 c. P88,687.50 d. P90,300 39. In the preceding problem, the loss on repossession during the year 2017 amounted to a. P11,775 b. P12,225 c. P34,275 d. P46,500

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40. A partnership agreement calls for allocation of profits and losses by salary allocations, a bonus allocation, interest on capital, with any remainder to be which of the following procedures would be applied? a. Any loss would be allocated equally to all partners. b. Any salary allocation criteria would not be used. c. The bonus criteria would not be used. d. The loss would be allocated using the profit and loss ratios, only. 41. Under the bonus method, when a new partner is admitted to the partnership, the total capital of the new partnership is equal to a. the book value of the previous partnership plus the fair market value of the consideration paid to the existing partnership by the incoming partner. b. the book value of the previous partnership plus any necessary asset write ups from the book value to market value plus the fair market value of the consideration paid to the existing partnership by the incoming partner. c. the book value of the previous partnership minus any asset write downs from book to market value plus the fair market value of the consideration paid to the existing partnership by the incoming partner. d. the fair market value of the new partnership as implied by the value of the incoming partner’s consideration in exchange for an ownership percentage in the new partnership. 42. If a partnership has only non-cash assets, all liabilities have been properly disbursed, and no additional liquidation expenses are expected, the maximum potential loss to the partnership in the liquidation process is a. the fair market value of the non-cash assets. b. the book value of the non-cash assets. c. the estimated proceeds from the sale of the assets less the book value of the non-cash assets. d. none of the above 43. On July 1, 2016, PM Motors, which maintains a perpetual inventory records sold a new automobile to ANX for P1,700,000. The car costs the seller, P1,301,250. The following were the payment scheme in order: 1) 30% down payment 2) P160,000 allowance on an old car traded 3) the balance being payable in equal monthly instalments The monthly amortization amounts to P60,000 inclusive of 12% interest on the unpaid amount of the obligation. The car traded in has a wholesale value of P240,000 after expending reconditioning costs of P45,000. After paying three instalments, the buyer suffered major financial setback incapacitating him to continue paying so the car was subsequently repossessed. When reacquired, the car was appraised to have a fair value of P600,000. What is the realized gross profit on instalment sales during the year? a. 212,500 b. 213,899 c. 221,250 d. 205,149 44. Cellphone, Inc. sells cellphones on an instalment basis. For the year ended December 31, 2016, the following were reported: Cost of instalment sales P1,050,000 Loss on repossessions 27,000 Fair value of repossessed merchandise 225,000 Account defaulted 360,000 Deferred gross profit, 12/31 adjusted 216,000 What is the collections during the year? a. 780,000 b.420,000 c. 720,000 d. 1,429,091 45. Nikita, Inc. sells automatic weapons costing P700,000 at a price of P1,200,000. Division Corp. buys a dozen of automatic weapons on instalment and trade in six of its old weapons at a trade-in value of P300,000 each. Nikita spends P25,000 to recondition the old guns and sells them for

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P315,000. Nikita expects a 10% gross profit from the sale of used guns. What is the over-allowance granted by Nikita on the trade-in transaction? a. 99,000 b. 234,000 c. 41,500 d. 249,000 46. Hosea Corporation is undergoing liquidation. On January 1, 2016 its Statement of Financial Position showed the following accounts: ASSETS Cash A/R (net) Inventory Prepaid Expense Building Goodwill

P150,000 290,600 50,000 10,400 380,000 80,000

TOTAL

P961,000

LIABILITIES AND EQUITY Salaries Payable Accounts Payable Mortagages Payable Loan Payable Notes Payable Ordinary Shares Deficit TOTAL

P85,000 120,700 428,000 130,000 84,300 170,000 (57,000) P961,000

The mortgage payable is secured by the Building having a realizable value of P400,000. Accounts Payable amounting to P75,000 is secured by receivables amounting to P90,600 (P9,900 of which is uncollectible). The balance of receivables which has a realizable value of P187,500 is used to secure the loan payable. Inventory has realizable value of P41,200. In addition to recorded liabilities are: accrued interest on mortgage payable amounting to P4,280, liquidation expenses amounting P11,300 and taxes amounting to P5,600. (NOTE: Use 2 decimal places for estimated recovery percentage ex. 88.89%) What are the net free assets? a. 152,500 b. 237,500 c. 254,400 d. 163,800 47. Using the same information in the preceding number, what is the estimated payment to unsecured creditors without priority? a. 206,486 b. 124,852 c. 122,161 d. 202,036 48. Using the same information, what is the estimated payment to partially secured creditors? a. 390,334 b. 430,360 c. 430,334 d. 420,334 49. What is the estimated deficiency percentage to fully secured creditors? a. 93.97% b. 95.50% c. 90.35% d. 100% 50. On July 10,2018, Toyota Motors, Inc. sold a new car to Mr. Sy for P850,000. The car costs Toyota P650,625. Mr. Sy paid 25% cash downpayment and traded his old car. Toyota granted an allowance of P80,000 on the old car traded, the balance payable in equal monthly instalment payments. The monthly instalment amount to P30,000 inclusive of 12% interest on the unpaid balance of the principal amount of obligation. The old car traded in has a selling price of P120,000 after expending reconditioning cost of P22,500. After paying three instalment, Mr. Sy suffered major financial setback incapacitating him to continue paying. The car was subsequently repossessed. When reacquired, the car was appraised to have a fair value of P300,000. What is the gain (loss) on repossession? a. (62,617.50) b. 62,617.50 c. (62,716.50) d. 61,716.50 51. Using the same information in the preceding number, under the instalment method, how much is the realized gross profit to be recognized at the end of the year? a. 96,003 b. 75,625 c. 100,000 d. 90,073 52. The following information pertains Corporation on December 31, 2010: Cash down payment

to

sale

of

real

estate

by

Fistate

P600,000 Page 9

Mortgage Payable Cost

5,400,000 4,000,000

The mortgage payable is to be paid in nine annual instalments of P600,000 beginning December 31, 2011 plus interest of 10 percent. The December 31, 2011 installment was paid as scheduled, together with interest of P540,000. Fistate Corporation uses the cost recovery method of revenue recognition. What amount of income should Filstate Corporation recognize in 2011 from the sale of real estate? a. 540,000 b. none c. 1,040,000 d. 740,000 53. The following information are obtained from the books of accounts of Robin, Inc. on June 31, 2011: Deferred gross profit balance (After adjustment) Total collections on instalment sales Gross profit rate based on cost

P202,000 440,000 25%

Robin, Inc uses the instalment method of accounting. What is Robin’s total instalment sales for 2011? a. 1,560,000 b. 1,440,000 c. 1,450,000 d. 1,010,000 54. Casablanca, Inc which began operations on January 2, 2011, appropriately uses the instalment method of accounting. The following information pertains to Casablanca’s operations for the 2011: Instalment sales Regular sales Cost of instalment sales Cost of regular sales Operating expenses Collections on instalment sales

P1,000,000 600,000 500,000 300,000 100,000 200,000

In its December 31, 2011, what amount should Casablanca, Inc report as deferred gross profit? a. 500,000 b. 400,000 c. 320,000 d. 150,000 55. On December 31, 2010, Jacinto Steel Inc sold construction equipment to Anthony Company for P3,600,000. The equipment had cost of P2,400,000. Anthony Company paid P600,000 cash on December 31, 2010 and signed a P3,000,000 note bearing interest at 10 percent payable in five annual instalments of P600,000. Jacinto Steel Inc. appropriately accounted for the sale under the instalment method. On December 31, 2011, Anthony Company paid P900,000 including interest of P300,000. For the year ended December 31, 2011, what total amount of revenues should Jacinto Steel, Inc recognized from the construction equipment sale and financing? a. 300,000 b. 200,000 c. 500,000 d. 240,000 56. The instalment method of recognizing profit for accounting purposes is acceptable if a. collections in the year of sale do not exceed 30% of the total sales price. b. an unrealized profit account is credited. c. collection of the sales price is not reasonably assured. d. the method is consistently used for all sales of similar merchandise. 57. Under the cost recovery method of revenue recognition, a. income is recognized on a proportionate basis as cash is received on the sale of the product. b. income is recognized when cash received from the sale of the product is greater than the cost of the product. c. income is recognized immediately. d. none of these 58. Chris Co. sells equipment on instalment contracts. Which of the following statements best justifies Chris’ use of the cost recovery method of revenue recognition to account for these instalment sales?

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a. The sales contract provides that title to the equipment passes to the buyer only when all payments have been made. b. No cash payments are due until one year from the date of sale. c. Sales are subject to a high rate of return. d. There is no reasonable basis for estimating collectability. 59. Leopard Co. uses the instalment sales method to recognize revenue. Customers pay the instalment notes in 24 monthly amounts, which include 12% interest. What is the balance of an instalment note receivable 6 months after the sale? a. 75% of the original sales price. b. Less than 75% of the original sales price. c. The present value of the remaining monthly payments discounted at 12%. d. Less than the present value of the remaining monthly payments discounted at 12%. 60. If the value of the pledged property is lesser than the obligation, what is the treatment of the liability? a. partially secured c. collateralized b. fully secured d. unsecured 61. The primary difference between a balance sheet and an accounting statement of affairs is that a. a balance sheet reflects book values, while a statement of affairs emphasizes realization values. b. assets are arranged in a different sequence. c. liabilities are arranged in a different sequence. d. owner’s equity is not considered in the statement of affairs. 62. An accounting statement of affairs indicates that unsecured creditors one of the following assets is percentage of its book value? a. accounts receivable c. b. inventories d.

of a corporation in financial difficulty would receive P0.40 on the peso. Which most likely to realize the smallest plant and equipment goodwill

63. If a dividend of 80% is allocable to Class 7 unsecured creditors based on an accounting statement of affairs, it correctly may 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. 64. An arrangement for creditors to accept an amount less than the amount owed to them is referred to as a a. charge and discharge agreement. b. composition agreement. c. bankruptcy agreement. d. chandler agreement. 65. Partnership capital and drawings accounts are similar to the corporate a. Paid in capital, retained earnings, and dividends accounts. b. retained earnings account. c. paid in capital and retained earnings accounts. d. preferred and common stock accounts. 66. An advantage of the partnership as a form of business organization would be a. partners do not pay income taxes on their share in partnership income. b. a partnership is bound by the act of the partners. c. a partnership is created by mere agreements of the partners. d. a partnership may be terminated by the death or withdrawal of a partner. 67. Which of the following is not a component of the formula used to distribute income? a. salary allocation to those partners working b. after all other allocation, the remainder divided according to the profit or loss sharing ratio Page 11

c. interest on the average capital investments d. interest on notes to partners 68. Which of the following is not a legitimate expense of a partnership? a. interest paid to partners based on the amount of invested capital b. depreciation on assets contributed to the partnership by partners c. salaries for management hired to run the business d. supplies used in the partners’ offices 69. The ABC Partnership reports net income of P60,000. If partners A, B, and C have income ratio of 50%, 30%, and 20% respectively, what is the share of C from the net income of the partnership, if he was given a capital ratio of 25%? a. 30,000 b. 12,000 c. 18,000 d. 15,000 70. The fact that salaries paid to partners are not component of partnership income is indicative of a. a departure from the GAAP. b. being characteristic of entity theory. c. being characteristic of the proprietary theory. d. why partnerships are characterized by unlimited liability. xxx nothing follows xxx

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