ACCOUNTING 101

Financial Accounting & Reporting

FINAL COMPREHENSIVE EXAMINATION

1. 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.

2. A and B formed a partnership. A contributed cash of ₱500,000 while B contributed land with carrying
amount of ₱400,000 and fair value of ₱800,000. The land has an unpaid mortgage of ₱200,000 which is
assumed by the partnership. How much is the correct valuation of B’s capital immediately after the
partnership formation?
a. 400,000 c. 600,000
b. 500,000 d. 800,000

3. Mr. A and Ms. B formed a partnership and agreed to divide the initial capital equally even though Mr. A
contributed ₱100,000 and Ms. B contributed ₱84,000 in identifiable assets. The partners agree that the
difference in the amount of contribution and the amount of credit to the partner’s capital shall be treated as
compensation for the expertise that the partner will be bringing to the partnership. How much is the correct
valuation of A’s capital immediately after the partnership formation?
a. 84,000 c. 100,000
b. 92,000 d. 108,000

4. A and B formed a partnership. The following are their contributions:

  A B
Cash 500,000 -
Accounts receivable 100,000 -
Building 700,000
Total 600,000 700,000

A, capital 600,000
B, capital 700,000
Total 600,000 700,000

Additional information:
 The accounts receivable includes a ₱20,000 account that is deemed uncollectible.
 The building is under-depreciated by ₱50,000.
 The building has an unpaid mortgage ₱100,000, but this is not assumed by the partnership. Partner B
promised to pay for the mortgage himself.

How much is the correct valuation of A’s capital immediately after the partnership formation?
a. 460,000 c. 650,000
b. 580,000 d. 720,000

5. Mr. A and Ms. B formed a partnership and agreed to divide the initial capital equally even though Mr. A
contributed ₱100,000 and Ms. B contributed ₱84,000 in identifiable assets. The partners agree that the
difference in the amount of contribution and the amount of credit to the partner’s capital shall be treated as

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 cash settlement between the partners. The compound entry to record the partners’ contributions includes a
credit to B’s capital account in the amount of
a. 84,000 c. 100,000
b. 92,000 d. 108,000

6. 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 partners are compensated for the time and effort expended on behalf of the
partnership.
d. In accordance with their capital contributions.

7. A and B share in partnership profits and losses on a 40:60 ratio. During the year, A’s capital account has a
net increase of ₱50,000. Partner A made contributions of ₱10,000 and capital withdrawals of ₱60,000 during
the year. How much was the share of B in the partnership profit for the year?
a. 100,000 c. 200,000
b. 150,000 d. 180,000

8. The partnership agreement of A, B and C stipulates the following:

 Partners A and C shall receive annual salaries of ₱12,000 and ₱8,000, respectively.
 A bonus of 10% of profit after salaries but before deduction of bonus shall be given to Partner A, the
managing partner.
 Each partner shall receive 10% interest on average capital investments.
 Any remaining profit or loss shall be shared as follows: 40% to A and 30% each to B and C.

The average capital investments of partners during the year are as follows:
A ₱100,000
B 60,000
C 120,000

The partnership earns profit of ₱100,000.

How much is the share of Partner C in the partnership profit?

a. 47,600 c. 19,200
b. 32,200 d. 33,200

9. The partnership agreement of A and B provides that interest at 10% per year is to be credited to each partner
on the basis of weighted-average capital balances. A summary of B’s capital account for the year ended
December 31, 20x1 is as follows:

Balance, Jan. 1, 20x1 252,000

Additional investment, July
1 72,000
Withdrawal, August 1 (27,000)
Balance, Dec. 31, 20x1 297,000

How much is the interest on B’s weighted average capital?

a. 27,675 c. 37,214
b. 33,633 d. 23,322

10. Red and White formed a partnership in 2003. The partnership agreement provides for annual salary
allowances of ₱55,000 for Red and ₱45,000 for White. The partners share profits equally and losses in a 60/40

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 ratio. The partnership had earnings of ₱80,000 for 2003 before any allowance to partners. What amount of
these earnings should be credited to each partner’s capital account?
Red White
a. 40,000 40,000
b. 43,000 37,000
c. 44,000 36,000
d. 45,000 35,000

11. Fox, Greg, and Howe are partners with average capital balances during 2002 of ₱120,000, ₱60,000, and
₱40,000, respectively. Partners receive 10% interest on their average capital balances. After deducting
salaries of ₱30,000 to Fox and ₱20,000 to Howe, the residual profit or loss is divided equally. In 2003 the
partnership sustained a ₱33,000 loss before interest and salaries to partners. By what amount should Fox’s
capital account change?
a. 7,000 increase. c. 35,000 decrease.
b. 11,000 decrease. d. 42,000 increase.

12. The partnership agreement of Axel, Berg & Cobb provides for the year-end allocation of net income in the
following order:
 First, Axel is to receive 10% of net income up to ₱100,000 and 20% over ₱100,000.
 Second, Berg and Cobb each are to receive 5% of the remaining income over ₱150,000.
 The balance of income is to be allocated equally among the three partners.

The partnership’s 2003 net income was ₱250,000 before any allocations to partners. What amount should be
allocated to Axel?
a. 101,000 c. 108,000
b. 103,000 d. 110,000

13. The partnership agreement of Reid and Simm provides that interest at 10% per year is to be credited to each
partner on the basis of weighted-average capital balances. A summary of Simm’s capital account for the year
ended December 31, 2003, is as follows:

Balance, January 1 140,000

Additional investment, July
1 40,000
Withdrawal, August 1 (15,000)
Balance, December 31 165,000

What amount of interest should be credited to Simm’s capital account for 2003?
a. 15,250 c. 16,500
b. 15,375 d. 17,250

14. Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May 1, 2003,
their respective capital accounts were as follows:
Blau 60,000
Rubi 50,000

On that date, Lind was admitted as a partner with a one-third interest in capital and profits for an investment of
₱40,000. The new partnership began with total capital of ₱150,000. Immediately after Lind’s admission, Blau’s
capital should be
a. 50,000 c. 56,667
b. 54,000 d. 60,000

15. Kern and Pate are partners with capital balances of ₱60,000 and ₱20,000, respectively. Profits and losses are
divided in the ratio of 60:40. Kern and Pate decided to form a new partnership with Grant, who invested
land valued at ₱15,000 for a 20% capital interest in the new partnership. Grant’s cost of the land was ₱12,000.

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 The partnership elected to use the bonus method to record the admission of Grant into the partnership.
Grant’s capital account should be credited for
a. 12,000 c. 16,000
b. 15,000 d. 19,000

Use the following information for the next two questions:

On June 30, 2003, the condensed balance sheet for the partnership of Eddy, Fox, and Grimm, together with their
respective profit and loss sharing percentages were as follows:

320,00
Assets, net of liabilities
0

Eddy, capital (50%) 160,000

Fox, capital (30%) 96,000
Grimm, capital (20%) 64,000
320,00
0

16. Eddy decided to retire from the partnership and by mutual agreement is to be paid ₱180,000 out of
partnership funds for his interest. No goodwill is to be recorded. After Eddy’s retirement, what are the
capital balances of the other partners?
Fox Grimm
a. 84,000 56,000
b. 102,000 68,000
c. 108,000 72,000
d. 120,000 80,000

17. Assume instead that Eddy remains in the partnership and that Hamm is admitted as a new partner with a
25% interest in the capital of the new partnership for a cash payment of ₱140,000. The bonus method shall be
used to record the admission of Hamm. Immediately after admission of Hamm, Eddy’s capital account
balance should be
a. 280,000
b. 172,500
c. 160,000
d. 140,000
The next two items are based on the following information:
The following condensed balance sheet is presented for the partnership of Alfa and Beda, who share profits and
losses in the ratio of 60:40, respectively:
Cash 45,000
Other assets 625,000
Beda, loan 30,000
700,000

Accounts payable 120,000

Alfa, capital 348,000
Beda, capital 232,000
700,000
18. The assets and liabilities are fairly valued on the balance sheet. Alfa and Beda decide to admit Capp as a new
partner with 20% interest. No goodwill or bonus is to be recorded. What amount should Capp contribute in
cash or other assets?
a. 110,000 c. 140,000
b. 116,000 d. 145,000

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19. Instead of admitting a new partner, Alfa and Beda decide to liquidate the partnership. If the other assets are
sold for ₱500,000, what amount of the available cash should be distributed to Alfa?
a. 255,000 c. 327,000
b. 273,000 d. 348,000

20. The statement of financial position of the partnership of A, B and C shows the following information:

Cash 22,400
Other assets 212,000
Total assets 234,400

Liabilities 38,400
A, capital (50%) 76,000
B, capital (25%) 64,000
C, capital (25%) 56,000
Total liabilities and
equity 234,400

The partners realized ₱56,000 from the first installment sale of non-cash assets with total carrying amount of
₱120,000. How much did B receive from the partial liquidation?
a. 25,000 c. 16,000
b. 24,000 d. 0
21. The statement of financial position of the partnership of A, B and C shows the following information:
Cash 40,000
Other assets 720,000
Total assets 760,000

Liabilities 300,000
B, loan 64,000
C, loan 20,000
A, capital (50%) 250,000
B, capital (30%) 86,000
C, capital (20%) 40,000
Total liabilities and
equity 760,000

The non-cash assets are sold for ₱320,000. Partner C is the only solvent partner. In the settlement of the partners’
claims, how much additional contribution is required of Partner C?
a. 50,000 c. 20,000
b. 30,000 d. None

22. A, B and C are partners. Their respective personal assets, personal liabilities and partnership capital balances
are as follows:

  A B C
Personal assets 90,000 240,000 180,000
Personal
liabilities 75,000 150,000 216,000
Capital balances 150,000 (96,000) 210,000

Which of the partners is personally insolvent?

a. A c. C
b. B d. B & C

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23. The equity section of the statement of financial position of the partnership of A, B and C shows the following
information:
A, capital (40%) 64,000
B, capital (40%) 104,000
C, capital (20%) 76,800
Total liabilities and equity 244,800

Non-cash assets are sold in installment. Cash distributions are made to the partners as cash becomes available.
In the second sale of non-cash assets, the partners received the same amount of cash in the distribution. In the
third sale of non-cash assets, the amount of cash available for distribution is ₱100,000. The carrying amount of
the remaining non-cash assets is ₱260,000. Under the cash priority program, how much cash is distributed to B
in the third installment payment?
a. 40,000 c. 28,200
b. 38,400 d. 0

24. Legal capital is the portion of contributed capital that cannot be distributed to the owners during the lifetime
of the corporation unless the corporation is dissolved and all of its liabilities are settled first. For no-par
value shares, legal capital is
a. the aggregate par value of shares issued and subscribed.
b. the total consideration received or receivable from shares issued or subscribed.
c. the aggregate stated value of shares issued and subscribed.
d. the aggregate market value of shares issued and subscribed.

25. Which of the following is not one of the basic shareholders rights?
a. The right to participate in earnings.
b. The right to maintain one's proportional interest in the corporation.
c. The right to participate in the proceeds of the sale of corporate assets upon liquidation of the
corporation.
d. The right to inspect the accounting records of the corporation.

26. On February 1, authorized ordinary share was sold on a subscription basis at a price in excess of par value,
and 20 percent of the subscription price was collected. On May 1, the remaining 80 percent of the
subscription price was collected. Share premium would increase on
February 1 May 1
a. No Yes
b. No No
c. Yes No
d. Yes Yes

27. The entry to record the issuance of ordinary shares for fully paid share subscriptions is
a. a memorandum entry.
b. Dr. Common Stock Subscribed; Cr. Common Stock; Cr. Additional Paid-In Capital
c. Dr. Subscribed Share Capital; Cr. Subscriptions Receivable
d. Dr. Subscribed Share Capital; Cr. Share Capital

28. The issuance of shares of preferred stock to shareholders

a. increases preferred stock outstanding.
b. has no effect on preferred stock outstanding.
c. increases preferred stock authorized.
d. decreases preferred stock authorized.

29. Which of the following is an appropriate presentation of treasury stock?

a. As a marketable security

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 b. As a deduction at cost from total stockholders' equity
c. As a deduction at cost from total contingent liabilities
d. As a deduction at par from total stockholders' equity

30. Gains and losses on the purchase and resale of treasury stock may be reflected only in
a. share premium account.
b. share premium and retained earnings accounts.
c. income, paid-in capital, and retaining earnings accounts.
d. income and paid-in capital accounts.

31. The stockholders' equity section of Peter Corporation's balance sheet at December 31, 20X2, was as follows:
Ordinary shares (₱10 par value, authorized 1,000,000
shares, issued and outstanding 900,000 shares) ₱ 9,000,000
Share premium 2,700,000
Retained earnings 1,300,000

On January 2, 20X3, Peter purchased and retired 100,000 shares of its stock for ₱1,800,000. Immediately after
retirement of these 100,000 shares, the balances in the share premium and retained earnings accounts should be

Share premium Retained earnings

a. ₱ 900,000 ₱1,300,000
b. ₱1,400,000 ₱ 800,000
c. ₱1,900,000 ₱1,300,000
d. ₱2,400,000 ₱ 800,000

32. Asp Co. was organized on January 2, 20x1, with 30,000 authorized shares of ₱10 par ordinary shares. During
20x1 the corporation had the following capital transactions:

Jan. 5 Issued 20,000 shares at ₱15 per share.

July 14 Purchased 5,000 shares at ₱17 per share.
Dec. 27 Reissued the 5,000 shares held in treasury at ₱20 per share.

Asp used the cost method to record the purchase and reissuance of the treasury shares. In its December 31, 20x1,
balance sheet, what amount should Asp report as share premium in excess of par?
a. 100,000 c. 140,000
b. 125,000 d.115,000

33. In 20x0, Newt Corp. acquired 6,000 shares of its own ₱1 par value ordinary share at ₱18 per share. In 20x1,
Newt issued 3,000 of these shares at ₱25 per share. Newt uses the cost method to account for its treasury
stock transactions. What accounts and amounts should Newt credit in 20x1 to record the issuance of the
3,000 shares?
Treasury sh. Sh. premium Retained earnings Ordinary sh.
a. ₱54,000 ₱21,000
b. ₱54,000 ₱21,000
c. ₱72,000 ₱3,000
d. ₱51,000 ₱21,000 ₱3,000

34. On December 1, 20x1, Line Corp. received a donation of 2,000 shares of its ₱5 par value ordinary shares from
a shareholder. On that date, the stock’s market value was ₱35 per share. The stock was originally issued for
₱25 per share. By what amount would this donation cause total stockholders’ equity to decrease?
a. 70,000 c. 20,000
b. 50,000 d. 0

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35. Nest Co. issued 100,000 shares of common stock (i.e., ordinary shares). Of these, 5,000 were held as treasury
stock at December 31, 20x1. During 20x2, transactions involving Nest's common stock were as follows:
 May 3 - 1,000 shares of treasury stock were sold.
 August 6 - 10,000 shares of previously unissued stock were sold.
 November 18 - a 2-for-1 stock split took effect.

Laws in Nest's state of incorporation protect treasury stock from dilution. At December 31, 20x2, how many
shares of Nest's common stock were issued and outstanding?
Shares Issued Outstanding
a. 220,000 212,000
b. 220,000 216,000
c. 222,000 214,000
d. 222,000 218,000

36. At December 31, 20x0 and 20x1, Carr Corp. had outstanding 4,000 shares of ₱100 par value 6% cumulative
preferred stock and 20,000 shares of ₱10 par value common stock (i.e., ordinary shares). At December 31,
20x0, dividends in arrears on the preferred stock were ₱12,000. Cash dividends declared in 20x1 totaled
₱44,000. Of the ₱44,000, what amounts were payable on each class of stock?

Preference shares Ordinary shares

a. ₱44,000 ₱ 0
b. ₱36,000 ₱ 8,000
c. ₱32,000 ₱12,000
d. ₱24,000 ₱20,000

37. Arp Corp.’s outstanding capital stock at December 15, 20x1, consisted of the following:
 30,000, 5% cumulative preference shares, par value ₱10 per share, fully participating as to dividends. No
dividends were in arrears.
 200,000 ordinary shares, par value ₱1 per share.

On December 15, 20x1, Arp declared dividends of ₱100,000. What was the amount of dividends payable to Arp’s
ordinary stockholders?
a. 10,000 c. 40,000
b. 34,000 d. 47,500

38. The following stock dividends were declared and distributed by Sol Corp.:
Percentage of ordinary shares
outstanding at declaration date Fair value Par value
10 ₱15,000 ₱10,000
28 40,000 30,800

What aggregate amount should be debited to retained earnings for these stock dividends?
a. 40,800 c. 50,000
b. 45,800 d. 55,000

39. Ray Corp. declared a 5% stock dividend on its 10,000 issued and outstanding shares of ₱2 par value common
stock, which had a fair value of ₱5 per share before the stock dividend was declared. This stock dividend
was distributed 60 days after the declaration date. By what amount did Ray’s current liabilities increase as a
result of the stock dividend declaration?
a. 0 c. 1,000
b. 500 d. 2,500

40. The main purpose of accounting is

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 a. to account for money so it will not be lost.
b. to provide information that is useful in making economic decisions.
c. to safeguard the assets of a company.
d. to provide a clear view of the state of the industry’s economy.

41. Under the accrual basis of accounting,

a. income is recorded only when cash is received and expenses are recorded only when cash is paid.
b. liabilities, owner's capital, and drawings all have normal credit balances.
c. all real accounts have normal debit balances.
d. income is recorded in the period it is earned and expense is recorded in the period it is incurred,
irrespective of when cash is received or paid.

42. The branch of accounting that deals with providing financial information to external decision makers is
a. Public accounting. d. Managerial accounting.
b. Government accounting.
c. Financial accounting.

43. Financial accounting applies to which of the following:

a. Businesses c. Governments
b. Non-profit organizations d. All of the above

44. Under this concept, some costs are initially recognized as assets and recognized only as expenses when the
related revenue is recognized.
a. Separate entity concept c. Going concern
b. Historical cost concept d. Matching principle

45. It is the official accounting standard setting body in the Philippines.

a. Philippine Institute of Certified Public Accountants
b. Financial Reporting Standards Council
c. Accounting Standards Council
d. American Accounting Association

46. Businesses are required by to law to file tax returns with this government agency.
a. Security and Exchange Commission c. Cooperative Development Authority
b. Bureau of Internal Revenue d. Bangko Sentral ng Pilipinas

47. Under this concept, assets are initially recorded at their acquisition cost.
a. Single entity concept c. Going concern concept
b. Historical cost concept d. Matching principle

48. Under this concept, the business is assumed to continue to exist for an indefinite period of time.
a. Separate entity concept c. Going concern
b. Historical cost concept d. Matching principle

49. Which of the following is not a correct expanded accounting equation?

a. Assets = Liabilities + Equity + Income - Expenses
b. Assets + Expenses = Liabilities + Equity + Income
c. Assets – Liabilities = Equity + Income - Expenses
d. Assets = Liabilities + Equity + Income + Expenses

50. The start-up capital of a business consisted of ₱1,000,000 cash provided by the business owner and an
additional ₱250,000 from a bank loan. The total start-up assets of the business therefore is
a. ₱1,250,000 c. ₱750,000
b. ₱1,000,000 d. ₱250,000

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51. It is the aggregate of estimated losses from uncollectible accounts receivable.
a. Bad debts expense c. Accounts receivable
b. Allowance for bad debts d. Notes receivable

52. If the ending balance of accounts receivable is ₱100,000 and the total debits and credits to that account
during period were ₱60,000 and ₱40,000, respectively, the beginning balance must be
a. 0 c. 80,000
b. 20,000 d. 120,000

53. The equipment of ABC Co. has a historical cost of ₱500,000 and an accumulated depreciation of ₱120,000.
How much is the carrying amount of the equipment?
a. 620,000 c. 480,000
b. 500,000 d. 380,000

54. Which of the following is not an example of a source document?

a. Delivery receipt c. Special journal
b. Sales invoice d. Bank statement

55. It is a report that a business sends to its customer listing the transactions with the customer during a period,
the payments made by the customer and any remaining balance due from the customer. It also serves as a
notice of billing.
a. Check c. Delivery receipt
b. Bank statement d. Statement of account

56. Which of the following is not an external event?

a. Rendering services to clients c. Purchase of raw materials for processing
b. Production of goods for sale d. Payment of notes payable

57. Journal entries are recorded in the journal

a. chromatically. c. pharmaceutically.
b. chronologically. d. cutely.

58. Which of the following is not one of the important parts of a journal entry?
a. Date
b. Account titles and amounts to be debited and credited
c. A detailed narrative of the reason why management entered into the transaction
d. Short description of the transaction
e. All of these

59. The primary purpose of posting is to

a. record transactions. c. summarize transactions in a report form.
b. classify transactions. d. all of these

60. The balance of an accounts receivable from a certain customer at any given point of time can be determined
by referring to the
a. general journal. c. subsidiary ledger.
b. general ledger. d. financial statements.

61. The heading of a trial balance does not include which of the following?
a. Name of the business
b. Title of the report
c. Type of activity that the business is engaged with
d. Date of the report

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62. Which of the following adjustments cannot be reversed in the next accounting period?
a. Accruals for income or expense
b. Prepayments initially recorded using the expense method
c. Advanced collections initially recorded using the income method
d. Prepayments initially recorded using the asset method

63. Which of the following adjustments can be reversed in the next accounting period?
a. Adjusting entry to take up depreciation expense
b. Adjusting entry to record bad debts expense
c. Adjusting entry to record accrued interest income
d. All of these
64. If debits do not equal credits, the first step to find the error is to
a. call your manager and ask for advice.
b. add the debit and credit columns again.
c. review the journal entries for errors.
d. make correcting entries rather than adjusting entries.

65. Entity A has a beginning inventory of ₱280,000. During the period Entity A purchased inventories costing
₱890,000. Freight paid on the purchase totaled ₱30,000. If the ending inventory is ₱220,000, how much is the
cost of goods sold?
a. 1,360,000 c. 950,000
b. 980,000 d. 920,000

66. Entity A has gross purchases of ₱360,000. Freight paid on the purchases amounted to ₱50,000. Purchase
discounts totaled ₱20,000 while purchase returns totaled ₱15,000. How much is the net purchases?
a. 375,000 c. 410,000
b. 390,000 d. 445,000

67. Entity A has a beginning inventory of ₱340,000. During the period Entity A purchased inventories costing
₱990,000. Freight paid on the purchase totaled ₱40,000. The ending inventory was ₱360,000. If the net sales
were ₱1,200,000, how much is the gross profit?
a. 1,010,000 c. 190,000
b. 1,200,000 d. 260,000

68. Entity A has a beginning inventory of ₱140,000. During the period Entity A purchased inventories costing
₱790,000. Freight paid on the purchase totaled ₱10,000. The ending inventory was ₱60,000. Gross sales were
₱1,800,000 while sales returns and discounts totaled ₱220,000. How much is the gross profit?
a. 680,000 c. 780,000
b. 700,000 d. 880,000

69. Accounts are listed in the trial balance in this sequence.

a. Asset, Liabilities, Equity, Expense, and Income
b. Asset, Equity, Liabilities, Expense, and Income
c. Asset, Liabilities, Equity, Income, and Expense
d. Asset, Expense, Liabilities, Equity, and Income

70. Who was the first Filipino Certified Public Accountant?

a. Lapu-lapu
b. Andres Bonifacio
c. Spongebob Squarepants
d. Don Vincente Fabella

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