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A business owned by C was short of cash and C decided to form a partnership with D and E, D
was able to contribute cash thrice the interest of C in the partnership while E was able to
contribute cash twice the interest of D in the partnership. The assets contributed by C were as
follows: Cash P18,000; Accounts Receivable P378,000 with Allowance for Doubtful Accounts of
P12,000; Inventory P840,000 and Store Equipment of P300,000 with Accumulated Depreciation
of P30,000 but with current worth of P250,000 and agreed value of P200,000.

C,D and E agreed that the allowance for doubtful accounts was inadequate and should be
P20,000.They also agreed that the fair value of the inventory is P920,000. The total assets of the
partnership are:

a.P7,880,000 b.P7,092,000 c.P14,960,000 d.P15,460,000

2. The capital accounts of the partnership of Newton, Sharman, and Jackson on June 1, 20x4 are
presented, along with their respective profit and loss ratios:
Newton (1/2) P139,000
Sharman (1/3) 208,800
Jackson (1/6) 96,000
On June 1, 20x4, Sidney was admitted to the partnership when he purchased for P132,000 a
proportionate interest from Newton and Sharman in the net assets and profits of the
partnership. As a result of this transaction, Sidney acquired a one-fifth interest in the net assets
and profits of the firm. Assuming that implied goodwill is not to be recorded, what is the
combined gain realized by Newton and Sharman upon the sale of a portion of their interest in
the partnership to Sidney?

a. P-0- b. P43,200 c. P62,400 d. P82,000

3. Dobby Corp was forced into bankruptcy and in the process of liquidating assets and paying
claims. Unsecured claims will be paid at the rate of thirty cents on the peso. Carson holds a note
receivable from Dobby for P75,000 collateralized by an asset with a book value of P50,000 and a
liquidation value of P25,000. The amount to be realized by Carson on this note is:

Ans: P40,000

4. The following items were displayed in the statement of affairs for Lubbock Company:
Unsecured liabilities without priority P90,000
Stockholders’ equity 36,000
Loss on realization of assets 45,000
Estimated administrative costs that have not been entered in the acctng records 4,500
Unsecured liabilities without priority 10,000
Based on the foregoing information, what percentage of their claims should unsecured, non priority
creditors expect to receive on the liquidation of Lubbock Company:

Ans: 85%

5. Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3
of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each
year for the next two years. Because Lake has little information about collectability of these
receivables, they use the installment method for revenue recognition. In 20x4 Lake began
operations and sold jet skis with a total price of P900,000 that cost Lake P450,000. Lake
collected P300,000 in 20x4, P300,000 in 20x5, and P300,000 in 20x6 associated with those sales.
In 20x5, Lake sold jet skis with a total price of P1,500,000 that cost lake P900,000. Lake collected
P500,000 in 20x5, P400,000 in 20x6 and P400,000 in 20x7 associated with those sales. In 20x7,
Lake also repossessed P200,000 of jet skis that were sold in 20x5. Those jet skis had a fair value
of P75,000 at the time they were repossessed. Total cash collections on installment sales during
20x5 would be:

Ans: P800,000

6. Seasons Construction is constructing on office building under contract for Cannon Café. The
contract calls for progress billings and payments of P620,000 each quarter. The total contract
price is P7,440,000 and Seasons estimates total costs of P7,100,000. Seasons estimates that the
building will take 3 years to complete and commences construction on January 2, 20x4. At
December 31, 20x5, Seasons Construction estimates that it is 75% complete with the building;
however, the estimate total costs to be incurred has risen to P7,200,000 due to unanticipated
price increases. What is reported in the balance sheet at December 31,20x5 for Seasons as the
difference between the Construction in Process and the Billings on Construction in Process
accounts, and is it a debit or a credit?
Difference between the accounts Debit/Credit
a. P1,690,000 Credit
b. P620,000 Debit
c. P440,000 Debit
d. P620,000 Credit

7. Flapper Jack’s Inc. sells franchises for an initial fee of P36,000 plus operating fees of P500 per
month. The initial fee covers site selection, training, computer and accounting software, and on
site consulting and troubleshooting, as needed, over the first five years. On March 15, 20x4,
Anton signed a franchise contract, paying the standard P6,000 down with the balance due over
5 years with interest. Assuming that the initial services to be performed by Flapper Jack’s
subsequent to the signing are substantial and that the collection of the receivable is reasonably
assured, the journal entry required at signing would include a credit to:
a. Unearned franchise fee revenue for P36,000 c. Franchise fee revenue for P36,000
b. Unearned franchise fee revenue for P30,000 d. Franchise fee revenue for P6,000

8. Max. Co. is in bankruptcy and is being liquidated. The trustee has converted all assets into
P120,000 cash and has prepared the following list of approved claims.

Customer deposits(P1,000 from each of the two customers

that ordered products that were delivered) P2000
Property taxes payable 4,000
Accounts payable, unsecured 30,000
Trustee’s fees and other costs of liquidation 16,000
Mortgage Payable, secured by property that was sold for P80,000 60,000
Notes payable to bank, secured by all accounts receivable (P40,000) of
Which P30,000 were collected and P10,000 were written off as uncollectible 40,000

How much will the bank receive on the note payable?

a.P30,000 b.P32,500 c.P32,000 d.P40,000

9. On May 1, 2014, the capital accounts of S,T and C are P1,260,000; P787,000 and P472,500,
respectively. At this time, I is admitted to the firm, he purchased a 1/6 interest in the firm for
P288,750. The old partners equalized their capital investments. Afterwards, all the partners
agree to divide profits and losses equally. The new partnership[ closes its books on June 30,2014
reporting profit of P44,100 for two months. Each partner made the following withdrawals: S and
C P2,625 per month while T and I, P3,500 per month. On June 30,2014, I invest enough cash to
increase his capital to a 1/3 interest in the partnership.
How much cash is to be invested by I?
A. P211,165.50 C. P632, 642.50
B. P70,000 D. P633,762.50

10. RAGE AGAINST THE MACHINE charges an initial franchise fee of P75,000 for the right to operate
franchise of Speed Racer. Of this amount, P25,000 is collected immediately. The remainder is
collected in four equal annual installment payments of P12,500 each. These installments have a
present value of P39,623. There is reasonable expectation that the down payment maybe
refunded and substantial future services are yet to be performed by RAGE AGAINST THE
The journal entry to record the franchise fee would be:
A. Cash 25,000
Notes Receivable 50,000
Unearned interest income 10,377
Franchise Revenue 64,623

B. Cash 25,000
Notes Receivable 50,000
Unearned interest income 10,377
Unearned Franchise Revenue 64,623

C. Cash 25,000
Notes Receivable 50,000
Unearned interest income 10,377
Franchise Revenue 39,623
Unearned Franchise Revenue 39,623

D. Cash 25,000
Notes Receivable 50,000
Unearned interest income 10,377
Franchise Revenue 39,623
Unearned Franchise Revenue 25,000

11. On January 1, 2013 Federrer Inc. signed an agreement authorizing Sculptured Body works to
operate as a franchise over ten years period for initial franchise fee of P100,000 plus P20,000
interest income received annually when the agreement was signed. Sculptured body works
commenced operations on August 1, 2013, at which date all the initial services required for
Federrer had been performed. The agreement also provides that Sculptured Body works must
pay annually to Federrer a continuing franchise fee equal to five percent of the revenue from
the franchise. Sculptured Body works sales revenue for 2013 was P800,000.
For the year ended December 31,2013, how much should Federrer record as revenue
from franchise fees?
A. P100,000 C. P140,000
B. P160,000 C. P500,000
12. Sugarfree has two construction jobs, which commenced during 2014:

Project 101 Project 202

Contract Price P2,100,000 P750,000
Cost Incurred during 2014 600,000 700,000
Estimated cost to complete 300,000 175,000
Contract billings during 2014 625,000 725,000
Collections 600,000 700,000
Expenses 50,000 25,000

Compute the net income(loss) that SugarFree would report in its 2014 Statement of Comprehensive

Zero-Profit Percentage of Completion

A. P(150,000) P750,000
B. P(150,000) P600,000
C. P(100,000) P675,000
D. P(200,000) P600,000

13. Jumbo Corp uses the percentage-of- completion method of revenue recognition in accounting
for its long-term construction contracts. Jumbo Corp’s progress billings account is a
a. Revenue account c .Non-current liability
b. Contra current asset account c . Contra non-current asset account

14. Psalms sold fast food restaurant to Peter. The sale agreement, signed on January 1, 2013 called
for a P30,000 down payment plus non-interest bearing note for the balance which is P20,000
payable in two equal annual payments, representing the value of initial franchise services
rendered by Psalms. In addition, the agreement required the franchise to pay five percent of its
gross revenues to the franchisor, this was deemed sufficient to cover the cost to provide a
reasonable profit margin on continuing franchise services to be performed by Psalms. Psalms
incurred direct cost of P20,000 in providing the initial services. The restaurant opened on the
first month of the second quarter of 2013, and its sales amounted to P500,000 each year of the
first two years.
Assuming a 10% interest rate is appropriate and the collectability of the note is not reasonably
assured. (the PV of annuity of P1 at 10% for 2 periods is 1.7355). Use two decimal places.
The total revenue in 2014 is:
A. P74,090 C. P31,510
B. P31,161 C. P35,000
15. Hot Pot Inc. grants a franchise to Ken Sy for an initial franchise fee of P1,000,000. The contract
provides that Hot Pot Inc. has the option, within one year, to acquire the franchisee’s business
and it seems certain that Hot Pot Inc. will exercise this option. How should the initial franchise
fee be recorded in Hot Pot Inc’s books?
a. Realized revenue c. Deferred revenue to be amortized
b. Extraordinary revenue d. Deferred and treated as reduction in Hot Pot’s Investment