First Pre-board Examination-Prac2
PRE-WEEK LECTURE EXERCISES – PRACTICAL ACCOUNTING PROB. 2
A. On January 2, 2007 Moon Company entered into franchise
... [Show More] agreement with Light
Products, Inc. for an initial franchise fee of P2,812,500 payable as follows: P787,500
cash down payment upon signing of the contract and the balance payable in five equal
annual payments every December 31, starting on December 31, 2007. Moon signs a
15% interest bearing note for the balance. The agreement further provides that the
franchisee must pay a continuing franchise fee equal to 5% of its monthly gross sales.
On October 31, the franchisor completed the initial services at a cost of P900,000 and
incurred indirect cost of P180,000. The franchisee commenced business operations on
November 3. The gross sales reported to the franchisor by the franchisee are for
November sales, P92,250 and for December sales, P106,875. The first installment
payment was made on due date. Assume collection for the note is reasonably assured.
1
. In its income statement for the year ended December 31, 2007, how much is the
net income?
a. P2,046,206
b. P1,640,856
c.P847,406
d. P944,606
B. The Brite Sales Corporation maintains several branches throughout the Philippines. As
of December 31, 2006 a discrepancy was noted between the Paniqui branch account
balance of P93,172 in the Home office Books and that of the Home Office account
balance in the Books of Paniqui branch. A summary of the two accounts follow:
Paniqui Branch Current______________________
Dec. 1 Balance 43,617 Dec. 12 Remittance 6,300
7 Shipment to Branch 16,720 26 Remittance 11,100
10 Freight on Shipment 235
14 Shipment to Branch 27,150
28 Shipment to Branch 18,800
31 Advertising 2,100
31 Rent 1,950
Home Office Current________________________
Dec. 11 Remittance 6,300 Dec. 1 Balance 43,617
23 Remittance 11,100 10 Shipment
from HO 16,720
31 Remittance 9,600 18 Shipment
from HO 27,150
An examination of the records disclosed the following information:
(1) Merchandise has been billed to all branches at cost.
(2) The freight charged to the Paniqui Branch on December 10 was recorded in error; it
should have been charged to Baliwag Branch.
(3) Advertising and rent charged to Paniqui on December 31 represent allocated
portions of Home Office expenses chargeable to branch operations.
2
. Calculate the unadjusted balance of the Home Office account in the books of
Paniqui at December 31, 2006.
a. P60,487
b. P62,587
c. P64,387
d. P64,687
C. Marco Corporation has arranged for Polo Corporation to acquire it as a means of
obtaining a stock exchange listing. Polo issues 15 million shares to acquire the whole of
the share capital of Marco (6 million shares). The fair value of the net assets of Marco
and Polo are P30 million and P18 million, respectively. The fair value of each of the
shares of Marco is P6 and the quoted market price for Polo’s shares is P2. The share
capital of Polo is 25 million shares after the acquisition. [Show Less]