PRE-WEEK LECTURE EXERCISES – PRACTICAL ACCOUNTING PROB.

A. H, I, and J are partners with capital balances of P60,000, P80,000, and P110,000,
respectively. They share profits and losses in the ratio of 2:3:4, respectively. J is
planning to retire; all partners agree that the partnership should buy J’s interest. A
mutually agreeable deal is struck. J will receive cash of P30,000, plus a note for
P100,000 payable with interest in installments of P20,000 annually. The bonus method
is used.
1
. Determine the capital balance of I after the retirement of J.
a. P56,000
b. P68,000
c.P80,000
d. P92,000

B. On January 1, 2007, Colt Company sold land that cost P78,000 for P104,000, receiving
a note bearing interest at 10%. The note will be paid in three annual installments of
P41,821 starting on December 31, 2007. Because collection of the note is very
uncertain, Colt will use the cost recovery method.
2
. How much revenue (profit from sale and interest) from this sale should Colt
recognize in 2007?
a. P-0-
b. P7,800
c. P10,400
d. P26,000

C. Sarao Motors sells locally manufactured jeeps on installments. Information presented

below relates to Sarao’s operations for the last three calendar years.
2007 2006 2005
Cost of installment sales P8,765,625 P7,700,000 P4,950,000
Gross profit on installment sales 32% 30% 28%
Outstanding installment receivables:
From 2007 sales P9,728,125
From 2006 sales P3,025,000 P8,387,500
From 2005 sales P1,512,500 P4,812,500
Sarao uses the installment method of accounting.
3
. How much is the deferred gross profit for calendar year 2007?
a. P4,125,000
b. P4,020,500
c.P3,951,750
d. P3,113,000

D. Kathy and Eddie formed the K & E partnership several years ago. Capital account
balances on January 1, 2007 were:
Kathy P496,750
Eddie 268,250
The partnership agreement provides Kathy with an annual salary of P10,000 plus a
bonus of 5% of partnership net income for managing the business. Eddie is provided an
annual salary of P15,000 with no bonus. The remainder is shared evenly. Partnership
net income for 2007 was P30,000. Eddie and Kathy each invested an additional P5,000
during the year to finance a special purchase. Year-end drawing account balances were
P15,000 for Kathy and P10,000 for Eddie.
4
. Determine the capital balance of Eddie on December 31, 2007.
a. P275,750
b. P278,250
c.P280,000
d. P290,000

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E. The Mindanao Sales Company employs the perpetual inventory basis in the accounting
for new cars. On August 15, 2007, a new car costing P247,500 and with a price of
P330,000 was sold to Carla. The Company granted Carla an allowance of P127,500 on
the trade-in of her old car, the current value of which was estimated to be P122,550; the
balance of P202,500 was payable as follows: P52,500 cash at the time of purchase and
twenty monthly payments of P7,500 starting September 1, 2007 (use two decimal places
for percentage).
5
. The amount of realized gross profit on December 31, 2007 is:
a. P48,924.93
b. P41,766.93
c.P19,684.73
d. P56,082.93

F. Johnson Enterprises uses the cost recovery method for all installment sales. Complete
the following table to be able to answer the requirement of this question.

2005 2006 2007

Installment sales P80,000 P95,000 P (1)
Cost of Installment sales (2) 56,050 68,250
Gross profit percentage 38% (3) 35%
Cash collection:
2005 sales 25,600 46,400 15,600
2006 sales 22,800 (4)
2007 sales 32,550
Realized gross profit on installment sales (5) (6) 16,050
6
. Compute the realized gross profit in 2006 as indicated by No. 6.
a. P9,348
b. P22,400
c.P17,632
d. P26,980

G. The Manila Branch of the Great Company is billed for merchandise by the home office at
20% above cost. The branch in turn, prices merchandise for sales purposes at 25%
above billed price. On February 29, 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) P36,960

Shipments from home office (January 1 – Feb. 29) 28,000
Sales 21,000
Sales returns 2,800
Sales allowances 1,400
7
. What was the cost of merchandise destroyed by fire?
a. P42,000
b. P42,934
c. P50,400
d. P51,520

H. River Corporation is being liquidated. The trustee has determined that the unsecured
claims will receive P.50 on the peso. Denon Corporation holds a P100,000 mortgage
note receivable from River that is secured by marketable securities with a P75,000 book
value and an P82,000 fair value.
8
. How much of the mortgage receivable will be recovered by Denon?
a. P84,000
b. P87,500
c. P91,000
d. P94,500

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I. The following transactions were incurred for the year by the SFC Company:
 Transfer of P13,000 merchandise to an agency to establish working fund.
 Receipt of sales orders from the agency, P130,000.
 Collection of agency accounts by the home office, P91,000.
 Home office disbursements representing agency expenses, P11,700.
 Replenishment of the agency working fund upon receipt of expense vouchers
for P5,850.
 Cost of goods sold identified with the agency sales, P93,600.

9
. Compute the amount of net income traceable to the agency:
a. P5,850
b. P18,850
c. P36,400
d. (P72,150)

J. Espiritu Construction Co. has used the cost to cost percentage of completion method of
recognizing revenue. Tony Espiritu assumed leadership of the business after the recent
death of his father, Howard. In reviewing the records, Espiritu found the following
information regarding a recently completed building project for which the total contract
price was P2,000,000.
2005 2006 2007
Gross profit P75,000 P140,000 P(20,000)
Cost incurred 360,000 ? 820,000

Espiritu wants to know how effectively the company operated during the last 3 years on
this project and, because the information is not complete, has asked for answers to the
following questions.
10
. What was the estimated cost to complete the project at the end of 2006?
a. P656,667
b. P985,000
c. P1,641,667
d. P460,000

K. Partners Roger and Smith share profits and losses in a ratio of 4:6. Roger and Smith
receive salary allowances of P10,000 and P20,000 respectively, and both partners
receive 10% interest on the balance of their capital accounts. Partners drawings (i.e.
personal) are not used in determining the average capital balances. Total net income for
2007 is P60,000. If the net income after deducting the salary allocations is greater than
P20,000, Smith receives a bonus of 5% of the original amount of net income.

Additional information:
Roger Smith
 Capital, Jan. 1 P200,000 P300,000
 Yearly drawings (profit), P1,500
per month

18,000

18,000
 Permanent withdrawals of capital:
June 1

15,000

May 1

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 20,000
 Additional investments of capital:
July 1

25,000
October 1

30,000
11
. How much in total allocations have been made as a result of the interest, salary,
and bonus allocations, and how much in over-allocations had been made?
a. P83,000 and P23,000
b. P80,000 and P20,000
c.P60,000 and P-0-
d. P83,000 and P-0-

L. On December 31, 2007, the following information has been collected by Maxwell
Company’s office and branch for reconciling the branch and home office accounts.
(1) The home office’s branch account balances at December 31, 2007 is P590,000.
The branch’s home office balance is P506,700.
(2) On December 30, 2007, the branch sent a check for P40,000 to the home office to
settle its account. The check was not delivered to the home office until January 3,
2008.
(3) On December 27, 2007, the branch returned P15,000 of seasonal merchandise to
the home office for the January clearance sale. The merchandise was not received
by the home office until January 6.
(4) The home office allocated general expenses of P28,000 to the branch. The branch
had not learned of the allocation as of year end.
(5) Branch store insurance premiums of P900 were paid by the home office. The
branch recorded the amount of P600.
12
. Determine the reconciled amounts:
a. P507,000
b. P535,000
c. P550,000
d. P575,000

M. The following selected accounts appeared in the trial balance of United Corp. as of
December 31, 2007:

Debit Credit
Installment Receivable-2006 sales P15,000
Installment Receivable-2007 sales 200,000
Inventory, December 31, 2006 70,000
Purchases 555,000
Repossession 3,000
Installment Sales P425,000
Sales (regular) 385,000
Unrealized gross profit-2006 54,000

Additional information:

 Installment receivable-2006 sales, as of December 31, 2006, P120,000.

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  Inventory of new and repossessed merchandise as of December 31, 2006,
P95,000.
 Gross profit percentage of regular sales during the year, 30% on sales.
 Repossession was made during the year. It was a 2006 sale and the
corresponding uncollected account at the time of repossession was P7,750.
13
. The gain or (loss) on repossession in 2007 amounts to:
a. P1,262.5
b. P(1,262.5)
c.P1,805
d. P(1,805)

N. Changi Builders was tapped to build two private power plant in Iloilo and Davao. The
following information relates to those projects which were started in 2007:

Iloilo Davao
Contract price P10,500,000 P7,500,000
Cost incurred to date 6,000,000 7,000,000
Estimated costs to complete 3,000,000 1,000,000
Billings during the year 3,750,000 6,750,000
Collections during the year 2,250,000 6,250,000

General and administrative expenses for the year amounted to P100,000 and are to be
recorded as period cost.
14
. What is the net income (loss) on the project for 2007?
Percentage Cost Recovery or
of Completion Zero profit method
a. P500,000 P(500,000)
b. P400,000 P(100,000)
c.P400,000 -0-
d. P400,000 P(600,000)

O. Yanni Company recognize construction revenue and expenses using the percentage of
completion method. During 2005, a single long-term project was begun which continued
through 2007. Information on the project were as follows:

2005 2006 2007

Accounts receivable from construction contract P100,000 P300,000 P320,000
Construction expenses each year 105,000 192,000 ?
Construction in progress 122,000 364,000 610,000
Partial billings on contract 100,000 420,000 500,000
Gross profit recognized for the year ? ? 20,000
15
. Compute the (1) profit recognized from the long-term construction contract in 2005
and 2006, and (2) the construction expenses in 2007.
a. 2005, P17,000; 2006, P50,000; (2) P246,000
b. 2005, P22,000; 2006, P64,000; (2) P226,000
c.2005, P17,000; 2006, P50,000; (2) P226,000
d. 2005, P22,000; 2006, P56,000; (2) P226,000

P. Cathay Builders Construction Company entered into a construction agreement in 2006

for the construction of the Poro Point pier. The original contract price was P9,600,000
but a change order was issued in 2007 increasing the contract price by P480,000. The
following information obtained on the project were:
2006 2007
Costs incurred each year P 4,920,000 P 3,720,000
Estimated costs to complete 4,920,000 2,160,000
Billings to date 5,280,000 8,520,000
Cash collections 4,920,000 8,740,000

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 Any costs incurred are expected to be recoverable.
16
. What is the balance of the due from (current assets)/due to (liability) from customer
in 2007?
Percentage of Cost Recovery
Completion Method
a. P780,000 due from P780,000 due from
b. P 60,000 due to P 60,000 due to
c.P636,000 due to P636,000 due to
d. P780,000 due to P780,000 due to

Q. After all partnership assets were converted into cash and all available cash distributed to
creditors, the ledger of the Daniela, Erika, and Fredline partnership showed the following
balances:

Debit Credit
Accounts payable P20,000
Daniela, capital (40%) 10,000
Erika, capital (30%) 60,000
Fredline, capital (30%) P90,000
P90,000 P90,000

The percentages indicated are residual profit and loss sharing ratios. Personal assets
and liabilities of the partners are as follows:

Daniela Erika Fredline

Personal assets P50,000 P50,000 P100,000
Daniela, capital (40%) 45,000 40,000 40,000

The partnership creditors proceed against Fredline for recovery of their claims, and the
partners settle their claims against each other.
17
. How much would Erika receive?
a. P-0-
b. P45,000
c. P47,143
d. Cannot be determined

R. Isaac Corporation retails merchandise through its home office and through a branch
store in distant city. Separate ledgers are maintained by the home office and the branch.
The branch store purchases merchandise from the home office (at 120% of home office
cost), as well as from outside suppliers. Selected information from the December 31,
2003 trial balances of the home office and branch is as follows:

Home Office Branch

Sales P120,000 P60,000
Shipments to branch 16,000
Purchases 70,000 11,000
Inventory, January 1 40,000 30,000
Shipments from home office 19,200
Unrealized profit in branch inventory 7,200 26,000

Additional information:

(1) The entire difference between the shipment accounts is due to the practice of billing
the branch at cost plus 20%.
(2) December 31, 2003 inventories are P40,000 and P20,000 for the home office and
the branch, respectively. (Note: the branch purchased 16% of its ending inventory
from outside suppliers).

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 (3) Branch beginning and ending inventories include merchandise acquired from home
office as well as from outside suppliers. Merchandise acquired from the home office
is inventoried at 120% of home office cost.
18
. Determine the combined net income of the home office and the branch for the year
2003.
a. P40,800.
b. P49,000.
c. P50,200.
d. P55,800.

S. The partnership of Jason, Kelly, and Becky, who share partnership profits 50%, 30%,
and 20%, respectively, decide to liquidate their partnership. They need the cash from
the partnership as soon as possible but do not want to sell the assets at wholesale
prices, so they agree to installment liquidation. A summary balance sheet on January 1,
2007 is as follows:

Cash P 16,500 Accounts payable P 21,000

Accounts receivable 28,000 Loan from Becky 9,500
Inventory 20,500 Jason, capital 69,000
Equipment-net 101,000 Kelly, capital 47,000
Loan to Jason 14,000 Becky, capital 33,500
Total P180,000 Total P180,000

Cash is distributed to the partners at the end of each month, with 5,000 retained for
possible contingencies in the liquidation process.

During January 2007, Jason agreed to offset his capital balance with his loan from the
partnership, P25,000 was collected from the accounts receivable, and the balance is
determined to be uncollectible. Liquidation expenses of P2,000 were paid.

During February 2007, P18,000 was collected from the sale of inventories and P90,000
collected from the sale of equipment. Additional liabilities of P3,000 were discovered,
and P2,000 of liquidation expenses were paid. All cash was then distributed in a final
liquidation.
19
. How much would Becky receive for the months of:

January February
a. P12,400 P21,600
b. P12,400 P25,900
c. P3,700 P25,900
d. P2,700 P21,600

T. On December 31, 2007, the home office of Bristol Supply Company recorded a shipment
of merchandise to its South Fort branch as follows:

South Forth Branch 30,000

Shipments to South Fort branch 25,000
Unrealized profit in South Fort
branch inventory
4,000
Cash (for freight charges)
1,000

The South Fort branch sells 40% of the merchandise to outside entities during the rest of
December 31, 2007. The books of the hoe office and Bristol branches are closed on
December 31 of each year.

On January 5, 2008, the South Fort branch transfers half of the original shipments to the
Sandy branch, and the South Fort branch pays P500 freight on the shipment.

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 20
. At what amounts should the 60% of the merchandise remaining unsold at
December 31, 2007 be included in (1) the inventory of the South Fort branch at
December 31, 2007, and (2) the published balance sheet of Bristol Office Supply
Company at December 31, 2007?
a. (1) P15,000; (2) P17,400
b. (1) P7,400; (2) P15,000
c.(1) P15,600; (2) P18,000
d. (1) P18,000; (2) P15,600

- End --

ANSWER KEY – PRACTICAL ACCOUNTING PROBLEMS 2

1st PRE-BOARD EXAMINATION - RESA

1. D 11. C
2. C 12. A
3. C 13. C
4. D 14. A
5. C 15. D
6. A 16. D
7. B 17. C
8. B 18. B
9. B 19. B
0. C 20. D

KEY ANSWERS – PRACTICAL ACCOUNTING PROBLEMS 2 - RESA

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1
. B
2
. A
3
. B
4
. C
5
. A
6
. B
7
. A
8
. C
9
. B
10
. A
11
. A
12
. B
13
. B
14
. C
15
. D
16
. B
17
. B
18
. C
19
. B
20
. D