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Ramon Magsaysay Memorial Colleges

Bachelor of Science in Accountancy Program


Pioneer Ave., General Santos City
Tel. No. 552-3348

Name: ______________________________ Date: ___________ Score: _____________


Subject : ACCTG34 PRELIM EXAMINATION
Instructor: Mrs. Marivic B. Peñaflor, CPA,MBA AY: 2020-20211st Semester

General Instruction: Write your final answer on the answer sheet.

1. PRETTY CO. and KO CO. formed PRETTY KO Company on January 1, 20x4. PRETTY Co. invested equipment with a carrying
amount of P 120,000 and a fair value of P 450,000 for a 40% interest in PRETTY KO Company, while KO CO. contributed
equipment, which was similar to the equipment contributed by PRETTY., with a total fair value of P 630,000, for a 60% interest
in PRETTY KO company. The equipment has an estimated useful life of 10 years. On December 31, 20x4, PRETTY KO
company reported a net income of P 140,000. Assume that the transaction does not have commercial substance in this situation
because PRETTY co. owned a similar portion of the same type of equipment both before and after the contribution to the joint
venture.
Required:
1. Determine the unrealized gain on transfer to PRETTY KO Company ( the separate vehicle) on January 1, 20x4.
2. Prepare entries in the books of joint venturer in 20x4 in relation to its investment in PRETTY KO company.
3. Determine the realized gain through depreciation on transfer of equipment to PRETTY Company on December 31, 20x4.
4. Determine the gain on transfer of equipment to be presented in the 20x4 income statement.

2. Refer to number 1, except that KO co. Contributes technology (rather than equipment) with a fair value of P640,000. Assume that
the transaction does have commercial substance in this situation because PRETTY Co. owned equipment before its contribution
to the joint venture but indirectly owned a portion of
equipment and technology after the contribution.
required:
1. Determine the unrealized gain and realized gain on transfer to PRETTY KO Company (the
separate vehicle) on January 1,20x4.
2. Prepare entries in the books of the joint venturer in 20x4 in relation to its investment in PRETTY KO
Company.
3. Determine the realized gain in income statement on transfer of equipment to PRETTY KO
Company on December 31.20x4.

3. On January 1, 2011 entities A and B each acquired 30 per cent of the ordinary shares that carry voting rights at a general meeting
of shareholders of entity Z for P300, 000. Entities A and B immediately agreed to share control over entity Z. Also on January 1,
2011 each venturer’s share of the fair values of the net identifiable assets of entity Z is P290, 000 and the value of one of entity
Z’s assets (a machine) exceeded its carrying amount (in entity Z’s statement of financial position) by P50, 000. That machine is
depreciated on the straight-line method to a nil residual value over its remaining five-year useful life.

Entity Z incurred a loss of p100, 000 for the year ended December 31, 2011 and it did not declare a dividend. Furthermore,
on December 31, 2011 the recoverable amount of each venture’s investment in entity Z is P310, 000 (calculation: P325, 000
fair value less P15, 000 estimated costs to sell). There is no published price quotation for entity Z.

. Using equity method, at December 31, 2011 entities A and B each report their investment in entity Z (a jointly controlled
entity) amounted to:

4. Using Fair value method, at December 31, 2011 entities A and B each report their investment in entity Z (a jointly controlled
entity) amounted to:
5. Using cost method, at December 31, 2011 entities A and B each report their investment in entity Z (a jointly controlled entity)
amounted to:
6. Using cost method, entities A and B should report income in the statement of comprehensive income for the year ended
December 31, 2011 amounted to ?
7. Using equity method, entities A and B should report income in the statement of comprehensive income for the year ended
December 31, 2011 amounted to ?
8. Using fair value method, entities A and B should report income in the statement of comprehensive income for the year ended
December 31, 2011 amounted to ?

9. On January 1, 2011 entities A and B each acquired 30 per cent of the ordinary shares that carry voting rights at a general meeting
of shareholders of entity Z for P3,200, 000.Entities A and B immediately agreed to share control over entity Z. For the year ended
December 31, 2011 entity Z recognized a profit of P1, 400, 000.
Also on January 1, 2011, the fair values of the net identifiable assets of entity Z is P 12,000,000 and the book value of one of
entity Z’s assets (a machine) exceeded its fair value (in entity Z’s statement of financial position) by P50, 000. That machine
is depreciated on the straight-line method to a nil residual value over its remaining five-year useful life.

Entities A and B estimated the useful life of the implicit goodwill as five years.

On December 30, 2011 entity Z declared and paid a dividend of P150, 000 for the year 2011. Furthermore, on December 31,
2011 the recoverable amount of each venture’s investment in entity Z is P 5,000, 000 (calculation: P5,100,000 fair value less
P100, 000 estimated costs to sell). There is no published price quotation for entity Z.

Using equity method, at December 31, 2011 entities A and B each report their investment in entity Z (a jointly controlled
entity) amounted to:

10. Using Fair value method, at December 31, 2011 entities A and B each report their investment in entity Z (a jointly controlled
entity) amounted to:
11. Using cost method, at December 31, 2011 entities A and B each report their investment in entity Z (a jointly controlled entity)
amounted to:
12. Using cost method, entities A and B should report income in the statement of comprehensive income for the year ended
December 31, 2011 amounted to ?
13. Using equity method, entities A and B should report income in the statement of comprehensive income for the year ended
December 31, 2011 amounted to ?
14. Using fair value method, entities A and B should report income in the statement of comprehensive income for the year ended
December 31, 2011 amounted to ?
15. Anson and Baylon formed a joint arrangements. Their capital contributions, and profit and loss ratio are presented below:

Contributions Profit and

Cash Merchandise Loss Ratio

Anson ………………………………………… P5,000 P8,000 50%

Baylon ……………………………………….. - 6,000 50%

A summary of the joint operations activities is presented below:

Purchases of merchandise by Anson ……………………………………………………..….. P4500


Expenses paid by Anson:
Mayor’s permit ……………………………………………………………………..………. 400
Freight on merchandise contributed by Anson …………………………..…. 350
Delivery expense of merchandise sold …………………………………………… 260
Sales (all of the merchandise contributed and purchased by Anson and three-fourth
of those contributed by Baylon) …………………………………………………………………. 18,000
The balance of the joint operations account before the profit or loss distribution is:
16. Using the same information in No. 22, the profit (loss) of the joint operations is:
17. Alas and Bernal are joint operators in a joint arrangements for the acquisition of construction supplies at an auction. The two joint
operators agreed to contribute cash of P20, 000 each. Half of the amount contributed by operators is to be used in purchasing the
supplies, and to share profits and losses equally. They also agreed that each shall record his purchases, sales and expenses in his
own books.

Several months later, the two joint operators terminated the arrangement.

The following data relate to the venture activities:

Alas Bernal

Joint operation ……………………………………….. P18,000 Cr. P20,000 CR

Value of inventory taken ………………………… 850 2,450

Expenses paid from JV cash ……………………. 830 1,900

The amount of joint operations sales is:

18. Regent Company entered into a contract with Star Hotel for constructing
and installing a standard designed gym for a fixed price of P400,000.
Nonrefundable progress payments are made on a monthly basis for work
completed during the month. Legal title to the gym passes to Star upon
completion of the building process. If Star cancels the contract before the
gym construction is completed, Regent removes all the installed equipment
and Star must compensate Regent for any loss of profit on sale of the gym
to another customer. When should Regent recognize revenue?
a.No transaction
b. No revenue
c. Point in Time
d. Over Time
19. Assume DJD International Tower (Phase II) is developing luxury residential
real estate and begins to market individual apartments during their
construction. The Tower entered into a contract with Edwards for the sale
of a specific apartment. Edwards pays a deposit that is refundable only if
the Tower fails to deliver the completed apartment in accordance with
the contract. The remainder of the purchase price is paid on completion
of the contract when Edwards obtains possession of the apartment. When
should revenue be recognized?
a. No transaction
b. No revenue
c. Point in Time
d. Over Time
20. On July 1, 20x6, Apache Company, a real estate developer, sold a parcel
of land to a construction company for P3,000,000. The book value of the
land on Apache's books was P1,200,000. Terms of the sale required a down
payment of P150,000 and 19 annual payments of P150,000 plus interest at
an appropriate interest rate due on each July 1 beginning in 20x7. How
much revenue will Apache recognize for the sale (ignoring interest),
assuming that it recognizes revenue at the point in time at which it transfers
the land to the construction company?
a. P 150,000
b. P1,200,000
c. P3,000,000
d. P4,200,000
21. On January 1, the Cost Driver Company, a consulting firm, entered into a
three month contract with Coco Seafood Restaurant to analyze its cost
structure in order to find a way to reduce operating costs and increase
profits. Cost Driver promises to share findings with the restaurant every
two weeks and to provide the restaurant with a final analytical report at
the end of the contract. This service is customized to Coco, and Cost
Driver would need to start from scratch if it provided a similar service to
another client. Coco promises to pay P5,000 per month. If Coco chooses
to terminate the contract, it is entitled to receive a report detailing analyses
to that stage. When should revenue be recognized?
a. No transaction
b. No revenue
c. Point in Time
a. Over Time

22. Squeaky Shine provides car washing services in Sampaloc, Manila.A three-
month pass for automatic car wash sells for P60, which entitles the customer
for an unlimited number of car washes during the contract period. Squeaky
Shine estimates that pass holders wash their cars equally throughout the
three-month period. On December 1st, customers purchased P1,260 of the
three-month passes, with purchases of the passes occurring evenly
throughout December. The amount of sales revenue on December 1?
a. Zero
b. P 60
c. P 210
d.P1,260
23. Using the same information in No.5,the sales revenue on December 31
amounted to:
a. Zero C.P 210
b. P 60 d. P1,260
24. Assume that a customer enrolls in AAA's Premier Membership, which
provides 12 months of roadside assistance for P120. On August Í, 20x6, a
customer purchases a, contract that runs from that date through July 31,
20x7.Given that roadside assistance requests occur equally throughout
the contract period. AAA uses “proportion of time" as its measure of
progress toward completion. The amount of sales revenue on August 1
a. Zero c. P 120
b. P 10 d.P1,440
25. Using the same information in No. 7, the sales revenue on December 31
amounted to:
a. Zero c. P 60
b. P 50 d. P120
26. On February 1st H&B Bank originated a loan for P50,000 at an interest rate
of 7.2%. On March 15h, an interest payment of P300 was received. Which
of the following best describes when interest revenue should be recognized?
a. At a point in time (February 1#)
b. At a point in time (March 15th
C. At a point in time (March 31")
d. Over time
Items 10 to 12 are based on the following Information:
Lux Hotels, Inc. has signed a service outsourcing contract with Deluxe Rooms,
Inc..for P3 million, which was received in cash af contract inception. Under the
agreement, Deluxe Rooms is obligated to clean and prepare over 5,000 hotels
rooms managed by Lux Hotel on a daily basis from August 1,20x6 to July 31,
20x7.
27. When should Lux Hotels recognize revenue?

a. No transaction c. Point in Time


b. No revenue d.Over Time 
28. The amount of sales revenue on August 1,20x6
a. Zero C. P1,500,000
b. P1,250,000 d. P3,000,000
29. The sales revenue on December 31,20x6 amounted to:
a. Zero C.P1,500,000
b. P1,250,000 d. P3,000,000

Items 30 and 31 are based on the following Information:

Poseidon Coporation,based in Greece.,speciolizes in pointing cargo ships.on


December 1. 20x6 Poseidon received P300,000 in advance rom Worldwice
Shipping.Inc. to paint a 40,000-ton cargo vessel. The pdinting process
cheduled to begin on December 1, 20x6, and the ship is te be returned t
rtdwide in four months. Worldwide retains legal title to the shio during the
contract period,and can sell the ship to another shipper during the controct
eriod if it so chooses.Assuming Poseidon uses "proportion of time" os its
measure of progress toward completion,

30. At inception of the contract, December 1,20x6, the amount of revenue to


be recognized?
a. Zero C.P 2,500,000
b. P1,250,000 d. P10,000,000

31. At the end of 20x6 to recognize all revenue associated with this contract
that should be recognized in 20x6 amounted to (Ignore any costs associated
with providing the painting service.)
a. Zero C. P 2,500,000
b. P1,250,000 d. P10,000,000
32. Assume that GM signs a contract to deliver 10 buses to the Ambo
Consolidated Area Transit (ACAT), which provides transit service throughout
Cagayan Valley, for P4 million. Under the contract, ACAT makes a cash
payment of P4 million to GM,and the 10 buses are shipped immediately
from GM's existing inventory. At the same time, GM obtains the right to
advertise its products on all of ACAT buses for six months, and makes a
cash payment of P20,000 to GM for the advertising service. The fair value
of the advertising service is P18,000. GM should record to account for the
sale of the buses and the purchase of the advertisements. The amount of
revenue GM should recognize for its sale of buses to ACAT.
a. Zero C.P4,000,000
b. P3,998,000 d. P4,020,000
33. On November 1, 20x6, Taylor signed a one-year contract to provide
handyman services on an as-needed basis to King Associates, with the
contract to start immediately. King agreed to pay Taylor P4,800 for the
one-year period. Taylor is confident that King will pay that amount, but  payment is not scheduled to occur until 20x7. Taylor
should recognize
revenue in 20x6 in the amount of:
a. PO C. P2.400
b. P800 d. P4,800
34. Mary signed up and paid P1200 for a 6 month ceramics course on June 1#
with Choplet Ceramics. As of August 1", Choplet's accounting records
would indicate:
a. P400 of revenue,P800 of accounts receivable
b. P400 of revenue, P800 of deferred revenue
C. P1,200 of revenue, P1,200 of cash
d. P800 of revenue,P400 of accounts receivable
35. On February 1ST H&B Bank originated a loan for P50,000 at an interest rate
of 7.2%. On March 15'h, an interest payment of P300 was received. Which
of the following best describes when interest revenue should be recognized?
a. At a point in time (February 1")
b. At a point in time (March 15th
C. At a point in time (March 31#)
d. Over time

ltems 36 and 37 are based on the following Information:


Aqua Planet, operates a downhill water slide. An all-day adult lift ticket can be
purchased for P850. Adult customers also can purchase a season pass that
entitles the pass holder to downhill water slide any day during the season.
which typically runs from December 1 through April 30. Aqua Planet expects its
season pass holders to use their passes equally throughout the season. The
company's fiscal year ends on December 31. On November 6, 20x6,Kim Drei
purchased a season pass for P4,500.

36. When should Aqua Planet recognize revenue from the sale of its season
passes?
a. No transaction C. Point in Time
b. No revenue d. Over Time

37. The sales revenue for the year 20x6 amounted to:
a. None C.P4,500
b. P900 d.P5,400