UNIVERSITY OF MAKATI

ADVANCE ACCOUNTING 1
FINAL EXAMINATION

Ulysses Valladolid October 7-13, 2013

Instruction: Choose the best answer. For true or false questions, shade “A” for
true and “B” for False

True or false.
1. Delayed recognition of revenue is appropriate if the sale does not represent
substantial completion of the earnings process.

2. Companies must use the percentage-of-completion method when estimates of

progress toward completion are reasonably dependable.

3. The Construction in Process account includes only construction costs under

the percentage-of-completion method.

4. Under the completed-contract method, companies recognize revenue and costs

only when the contract is completed.

5. Under the installment-sales method, companies defer revenue and income

recognition until the period of cash collection.

6. Deferred gross profit is generally treated as an unearned revenue and

classified as a current liability.

Multiple Choice

7. On January 2, 2014 ABSA company signed an agreement to operate as a

franchisee of BMA products, inc, for an initial franchise fee of P937,500 for
7 years. of this amount P175,000 was paid in the agreement was signed and the
balance payable in four annual payments beginning on December 31, 2014 ABSA
signed a non-interest bearing note for the balance. ABSA’s rating indicates
that he can borrow money at 16% for the loan for this type. assume that
substantial services amounting to P283,500 had already been rendered by BMA
products and that additional indirect franchise cost of P25,500 was also
incurred. PV factor is 2.80

If the collection of the note is not reasonably assured, the realized profit
for the year ended December 31, 2014 is?
a. P313,435 c. P168,135
b. P228,035 d. P253,535

Number 8-9
On January 1, 2012 Master CPA entered into a franchise agreement with Fanatic
to sell their products. The agreement provides for an initial franchise of
P500,000, payable as follows; P140,000 cash to be paid upon singing of the
contract, and the balance in five equal annual payments every DEC. 31,
starting DEC. 31, 2012. Master CPA signs 15% interest bearing note for the
balance. The agreement further provides that the franchise must pay a
continuing franchise fee equal to 5% of its monthly gross sale. On Oct. 29,
the franchisor completed the initial services required in the contract at a
cost of P315,000, and incurred indirect cost of P24,000. The franchisee
commenced business operations on Nov. 2, 2012. The gross sale reported to the
franchisor are Nov. sales, P60,000 and DEC. sales, P80,000. The franchisor
also incurred direct cost of P22,000 related to continuing services in
November and indirect cost of P4,000 related to continuing services at the
end of the year. The first installment payment was made in due date.
Required: compute for the following

8. Assuming the collectability of the note is certain, in its income statement

for the year ended Dec. 31, 2012, how much is the realized revenue?
a. P 173,500 c. P543,200
b. P 204,200 d. P500,000

9. Assuming the collectability of the note is not likely, in its income

statement for the year ended DEC. 31, 2012, how much is the net income?
a. P 78,440 c. P 88,440
b. P 173,500 d. P 59,440
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 ADVANCE ACCOUNTING 1 FINAL EXAM

10. On Aug. 1, 2012, Idos Inc. entered into a franchise agreement with intense
franchisee. The initial franchisee fees agreed upon is P246,900, of which
46,900 is payable upon signing and the balance to be recovered by a non-
interest bearing note payable in four equal annual installment. The down
payment is refundable within 75 days. Intense Inc. has a high credit rating,
thus, collection of the note is reasonably assured. Out-of-pocket costs of
P125,331 and P12,345 were incurred for direct expenses and indirect expenses
respectively. Prevailing market rate is 9%. PV factor is 3.2397.
On the fiscal year ended Nov. 30, 2012, how much revenue from the franchise
fee will the franchisor recognize?
A. P 0
B. P208,885
C. P246,900
D. P83,554

Number 11-12
Ajoy Contributed P100,000 and Jose contributed P150,000 to form a
partnership, and they agreed to share profits in the ratio of their original
capital contributions. The first year of operations resulted in the loss
P59,000; Ajoy made an additional investment of P24,000 while Jose made a
withdrawal of P14,000. At the start of the following year, they agreed to
admit Abby into the Partnership. He was to receive a one-third interest in
the capital and profits upon payment of P48,000 to Ajoy and Jose, whose
capital accounts were to be reduced by transfers of Abby’s capital account of
amounts sufficient to bring them back to their original capital ratio.
11. The balanced of the capital account Jose will be
A. 71,800
B. 53,600
C. P80,400
D. cannot be determined

12. The amount of cash paid by Abby to Jose is

a. 20,200
b. 14,471.64
c. 46,800
d. cannot be determined with the information provided

13. At December 31, 2013, Seasons Construction estimates that it is 75% complete
with the building; however, the estimate of total costs to be incurred has
risen to $10,800,000 due to unanticipated price increases. What is the total
amount of Construction Expenses that Seasons will recognize for the year
ended December 31, 2013?
a. $8,100,000
b. $4,725,000
c. $4,792,500
d. $4,905,000

14. At December 31, 2013, Seasons Construction estimates that it is 75% complete
with the building; however, the estimate of total costs to be incurred has
risen to $10,800,000 due to unanticipated price increases. What is reported
in the balance sheet at December 31, 2013 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. $2,535,000 Credit
b. $930,000 Debit
c. $660,000 Debit
d. $930,000 Credit

15. Rose and Raul agreed on a joint venture to purchase and sell custom-made
items. They agreed to contribute P250,000 each to be used in purchasing the
merchandise, share equally in any gain or loss, and record their venture
transactions in their individual books. Upon termination of the venture, the
following information were available:
· Joint venture account credit balances: Rose, P180,000: Raul, P202,000
· Cost of costume-made items taken: by Rose, P15,000; Raul, 29,000
· Expenses paid: by Rose, P18,500; Raul, P23,000

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 ADVANCE ACCOUNTING 1 FINAL EXAM

Compute for the joint venture sales.

A. P882,000
B. P838,000
C. P923,500
D. P879,500

16. Frustration, Depression and Tension are partners dividing profits and losses
in the ratio of 2:3:1 respectively. Their capital balance on Dec. 31, 2010,
were P214,000, P328,000 and P194,000 respectively. Tension is retiring from
the partnership as of April 30, 2011, assume net income is considered as
having been realized evenly throughout the year during the year of the
partner’s retirement. After retirement of a partner, remaining partner would
divide profits and losses in the remaining original ratio. The partnership
reported the net income of P270,000 for the year of 2011. Tension is to be
paid an amount which is 130% of his adjusted equity as of the date of his
retirement.
Which of the following statements is false?
A. Upon retirement Tension, The balance of the capital amount of
Frustration amount to P218,920
B. At the end of 2011 the balance of the capital amount of Depression is
P152,460 higher than the capital account balance of Frustration.
C. The capital account of Frustration has net increase of P76,920 from
beginning to the end of 2011.
D. Upon retirement of Tension, The capital account of Depression will have
a net increase of P7,380 as a result of the transfer of capital
account change.

17. On Dec. 1, 2012, Vien and Kokort are combining their separate business to
form a partnership. Cash and noncash assets are to be contributed. The
noncash assets to be contributed and the liabilities to be assume are as
follows:
Vien Vien Kokort Kokort
Book value Fair Value Book value Fair value
Accounts receivable P 250,000 P 262,500 P 200,000 P 195,000
Inventory 400,000 450,000 200,000 207,500
PPE 1,000,000 912,500 862,500 822,500
Accounts Payable 150,000 150,000 112,500 112,500

Vien and Kokort are to invest equal amounts of cash such that the
contribution of Vien would be 10% more than the investment of Kokort.
What is the amount of cash presented on the partnership’s statement of the
financial position on Dec. 1, 2012?
A. P5,025,000
B. P5,525,000
C. P2,512,500
D. P2,762,500

18. Cabang, Castro and Asakil formed a joint venture to sell customized bracelets
for the Jpia week-CBA week-Foundation day week. Their transactions during the
two-long-month-weekly-celebration are summarized below in the books of
Asakil, the manager of the joint venture.
July
15 investment of bracelet by Cabang 123
15 investment of bracelet by Cabang 44
15 investment of cash by Castro 37
16 investment of cash by Asakil 48
20 investment of bracelet by Castro 106
20 foreight- in (Collect) Service charge of a friend 6
named Terrado
20 cash sales 369
20 cash sales 90
29 withdrawal of bracelet by Castro 34
August
5 purchases 69
10 withdrawal of cash by Cabang 19
14 withdrawal of cash by Asakil 10
21 selling expenses 14
28 unsold bracelet charged to Cabang 7
28 unsold bracelet charge to Castro 4

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 ADVANCE ACCOUNTING 1 FINAL EXAM

The contractual arrangements include distribution of gains and losses as

follows: Cabang 80%; Castro 15%; and Asakil 5%. The venture is completed and
terminated on August 31, 2013. In the final settlement, how much would each
venturer receive?

A. Cabang; 301 Castro; 135 Asakil 48

B. Cabang; 309.8 Castro; 139.65 Asakil 48.55
C. Cabang; 309.8 Castro; 136.65 Asakil 48.55
D. Cabang; 241 Castro; 123.9 Asakil 44.3
E. Answer not in the choices above

19. Roman, Pablo, and Jose formed a joint venture during 2013 to sell
WallyJacket. Roman is assigned to manage the venture. The three of them
agreed to divide profits and losses equally. After two months, the joint
venture was terminated and there were unsold merchandise. Roman’s trial
balance contains the following:
Dr (Cr)
Joint Venture Cash P23,800
Joint Venture 10,500
Pablo, Capital 6,300
Jose, Capital (14,700)
Jose received P15,540 as settlement for her interest in the Venture while
Roman agreed nto be charge for the unsold products.
What is the cost of the unsold merchandise at the termination of the venture?
A. P7,980
B. P2,520
C. P8,400
D. P13,020

20. Roco Corp. which began business on January 1, 2011, appropriately uses the
installment sales method of accounting for income tax reporting purposes. The
following data are available for 2011:

Installment accounts receivable, P200,000

12/31/011
Installment sales for 2011 P350,000
Gross profit on sales 40%

Under the installment method, what would be Roco’s deferred gross profit at
December 31, 2011?
a. P20,000
b. P90,000
c. P80,000
d. P60,000

21. Tayag Corp., which began operations in 2011, accounts for revenues using the
installment method. Tayag’s sales and collection for the year were P60,000
and P35,000, respectively. Uncollectible accounts receivable of P5,000 were
written off during 2008. Tayag’s gross profit rate is 30%. On December 31,
2011, what amount should Tayag report as deferred revenue?
a. P10,500
b. P 9,000
c. P 7,500
d. P 6,000

22. Action Inc. sold a fitness equipment on installment basis on October 31,
2008. The unit cost to the company was P60,000 but the installment selling
price was set at P85,000. Terms of payment included the acceptance of a used
equipment with a trade in value of P30,000. Cash of P5,000 was paid in
addition to the trade in equipment with the balance to be paid in ten monthly
installment due at the end of each month commencing the month of sale.

It would require P1,250 to recondition the use equipment so that it could be

resold for P25,000. A 15% gross profit was usual from sale of used equipment.
The realized gross profit from the 2011 amounted to
a. P 4,000
b. P34,000
c. P10,000
d. P 8,000

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 ADVANCE ACCOUNTING 1 FINAL EXAM

23. The company uses the installment method of accounting to recognize income
Pertinent data are as follows:

2009 2010 2011

Installment sales P300,000.00 P375,000.00 P360,000.00
Cost of sales 225,000.00 285,000.00 252,000.00
Balance of deferred gross
profit at year ended
2009 P52,500.00 P15,000.00 P -
2010 - 54,000.00 9,000.00
2011 - - 72,000.00

The total balance of the installment Accounts Receivable on December 31, 2011
is:
a. P270,000
b. P277,500
c. P279,000
d. P300,000

24. The Bengal Furniture Company appropriately used the installment sales method
in accounting for the following installment sales. During 2011 Bengal sold
furniture to an individual for P3,000 at a gross profit of P1,200. On June 1,
2011 this installment account receivable had a balance of P2,000 and it was
determined that no further collections would be made. Bengal therefore
repossessed the merchandise. When reacquired, the merchandise was appraised
as being worth only P1,000. In order to improve its salability, Bengal
incurred costs of P100 for reconditioning. What should be the loss on
repossessions attribute to this merchandise?
a. P 300
b. P 320
c. P 900
d. P1,000

25. Carlos Labung Appliances Co., sold a stove, costing P1,000 for P1,600 on
September 2010. The down payment was P160, and the same amount was to be paid
at the end of each succeeding month. Interest was charged on the unpaid
balance of the contract at 1/2 of 1% a month, payments being considered as
applying first to accrued interest and the balance to principal.

After paying a total of P640, the costumer defaulted. The stove was
repossessed in February 2011. It was estimated that the stove had a value of
P560 on a depreciated cost basis.

The realized gross profit and the gain (loss) on repossession on December 31,
2011 are:
a. P232.76 and (52.07)
b. P240.00 and (52.07)
c. P232.76 and (40.00)
d. P240.00 and (40.00)

26. Napoles Corporation started operation on January 1, 2010, selling home

appliances and furniture set both under cash and other installment basis.
Data on the installment sales operations for two years ended December 31,
2010 and 2011 are as follows:
2010 2011
Installment sales P400,000 P500,000
Cost of installment sales 240,000 350,000
Cash collection on:
2010 installment 210,000 150,000
contracts
2011 installment - 300,000
contracts

The balance on deferred gross profit account on December 31, 2011 is:
a. P130,000
b. P160,000
c. P190,000
d. P 76,000

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 ADVANCE ACCOUNTING 1 FINAL EXAM

Number 27
Jym-P, Mejia and Eliang from a joint arrangement for the sale of merchandise.
Mejia and Eliang are to contribute the merchandise, Jym-P is to act as the
manager and is to be allowed a bonus of 25% of the profit before deduction of
the bonus as expense. Mejia and Eliang are to be allowed 6% interest a year
on their original investment. The balance of any profit on the arrangement is
to be divided equally among the three parties.

On July 1, 2012 Mejia and Eliang contributed merchandise of P66,000 and

P90,000, respectively. For the period between July 1 and October 1, Jym-P
sold arrangement merchandise on account for P240,000, of this amount P229,500
was collected. allowed sales discount of P4,050, and wrote off P6,450 as
uncollectible. Jym-P paid joint arrangement expenses of P58,650 from the
joint arrangement cash. On October 1,, the arrangement was terminated unsold
merchandise was returned at the following value : to Mejia, P15,000 and to
Eliang, P11,400. Cash settlement was completed by Jym-P on the same day.

27. The cash settlement received by Mejia and the total interest of Eliang is
Mejia Eliang
a. P62,210.00 P90,170.000
b. P62,152.66 P102,592.66
c. P77,152.66 P91,192.66
d. P73,468.00 P101,788.00

Number 28-30
Esa and Jeffren in a joint arrangement, contributed P450,000 each in order to
purchased canned goods which were sold by lots at a closing-out sale .They
agreed to divide their profit equally and each shall record his purchase,
sales and expenses in his own books. After selling almost all the canned
goods, they wind up their arrangement. Joint arrangement credit balances are
as follows: Jeffren - P360,000, Esa - P315,000. Expenses paid from joint
arrangement cash were P45,000 by Jeffren and P58,500 by Esa. Cost of unsold
canned goods which Jeffren and Esa agreed to assume were P13,500 and P21,000
respectively.

28. The total sales of the joint arrangement were

a. P1,575,000 c. P1,650,000
b. P1,609,500 d. P1,678,500

29. Using the information above, the share of Esa on the arrangement profit was
a. P337,500 c. P354,750
b. P709,500 d. P791,250

30. Using the information above, the final settlement due to Jeffren including
his investment was
a. P768,150 c. P780,000
b. P774,000 d. P791,250

Number 31-32
WHooops and Kiri join in a arrangement. WHooops invest P30,000 and Kiri
contributes P6,000; profits are to be shared equally. The arrangement failed
and upon its conclusion, only cash of P7,500 remains for distribution.

31. The arrangement profit or loss is

a. Profit of P36,000 c. Profit of P43,500
b. Loss of P28,500 d. Loss of P36,000

32. Using the information above, the one who gets the available cash is
a. Kiri c. WHooops and Kiri
b. WHooops d. Neither WHooops and Kiri

33. On April 1, 2013 Weston, Inc. entered into a franchise agreement with a local
business-man. The franchisee paid $300,000 and gave a $200,000, 8%, 3-year
note payable with interest due annually on March 31. Weston recorded the
$500,000 initial franchise fee as revenue on April 1, 2013. On December 30,
2013, the franchisee decided not to open an outlet under Weston's name.
Weston canceled the franchisee's note and refunded $160,000, less accrued
interest on the note, of the $300,000 paid on April 1. What entry should
Weston make on December 30, 2013?

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 ADVANCE ACCOUNTING 1 FINAL EXAM

a. Loss on Repossessed Franchise......................... 160,000

Cash .......................................... 160,000
b. Loss on Repossessed Franchise......................... 148,000
Cash .......................................... 148,000
c. Loss on Repossessed Franchise......................... 348,000
Cash .......................................... 148,000
Notes Receivable ................................. 200,000
d. Revenue from Franchise Fees........................... 500,000
Interest Income .................................. 12,000
Cash .......................................... 148,000
Notes Receivable ................................. 200,000
Revenue from Repossessed Franchise ............... 140,000

34. On January 1, 2013 Dairy Treats, Inc. entered into a franchise agreement with
a company allowing the company to do business under Dairy Treats's name.
Dairy Treats had performed substantially all required services by January 1,
2013, and the franchisee paid the initial franchise fee of $700,000 in full
on that date. The franchise agreement specifies that the franchisee must pay
a continuing franchise fee of $60,000 annually, of which 20% must be spent on
advertising by Dairy Treats. What entry should Dairy Treats make on January
1, 2013 to record receipt of the initial franchise fee and the continuing
franchise fee for 2013?
a. Cash .........................................760,000
Franchise Fee Revenue........................... 700,000
Revenue from Franchise Fees..................... 60,000
b. Cash .........................................760,000
Unearned Franchise Fees......................... 760,000
c. Cash .........................................760,000
Franchise Fee Revenue........................... 700,000
Revenue from Franchise Fees..................... 48,000
Unearned Franchise Fees......................... 12,000
d. Prepaid Advertising .................................. 12,000
Cash .........................................760,000
Franchise Fee Revenue........................... 700,000
Revenue from Franchise Fees..................... 60,000
Unearned Franchise Fees......................... 12,000

35. Wynne Inc. charges an initial franchise fee of $1,380,000, with $300,000 paid
when the agreement is signed and the balance in five annual payments. The
present value of the future payments, discounted at 10%, is $818,808. The
franchisee has the option to purchase $180,000 of equipment for $144,000.
Wynne has substantially provided all initial services required and
collectibility of the payments is reasonably assured. The amount of revenue
from franchise fees is
a. $ 300,000.
b. $1,082,808.
c. $1,118,808.
d. $1,380,000.

During 2012, Martin Corporation sold merchandise costing $2,800,000 on an

installment basis for $4,000,000. The cash receipts related to these sales
were collected as follows: 2012, $1,600,000; 2013, $1,400,000; 2014,
$1,000,000.

36. If expenses, other than the cost of the merchandise sold, related to the 2012
installment sales amounted to $160,000, by what amount would Martin’s net
income for 2012 increase as a result of installment sales?
a. $1,440,000
b. $ 480,000
c. $ 360,000
d. $ 320,000

37. On January 1, 2013, Shaw Co. sold land that cost $420,000 for $560,000,
receiving a note bearing interest at 10%. The note will be paid in three
annual installments of $225,190 starting on December 31, 2013. Because
collection of the note is very uncertain, Shaw will use the cost-recovery
method. How much revenue from this sale should Shaw recognize in 2013?
a. $0
b. $42,000
c. $56,000
d. $140,000
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 ADVANCE ACCOUNTING 1 FINAL EXAM

38. In 2007, Crane Corporation began construction work under a three-year

contract. The contract price is $2,400,000. Crane uses the percentage-of-
completion method for financial accounting purposes. The income to be
recognized each year is based on the proportion of costs incurred to total
estimated costs for completing the contract. The financial statement
presentations relating to this contract at December 31, 2007, follow:
Balance Sheet
Accounts receivable—construction contract billings $100,000
Construction in progress $300,000
Less contract billings 240,000
Costs and recognized profit in excess of billings 60,000
Income Statement
Income (before tax) on the contract recognized in 2007 $60,000
How much cash was collected in 2007 on this contract?
a. $100,000
b. $140,000
c. $20,000
d. $240,000

Carter Construction Company had a contract starting April 2008, to construct

a $15,000,000 building that is expected to be completed in September 2009, at
an estimated cost of $13,750,000. At the end of 2008, the costs to date were
$6,325,000 and the estimated total costs to complete had not changed. The
progress billings during 2008 were $3,000,000 and the cash collected during
2008 was $2,000,000. Carter uses the percentage-of-completion method.

39. At December 31, 2008, Carter would report Construction in Process in the
amount of
a. $6,900,000.
b. $6,325,000.
c. $5,900,000.
d. $575,000.

Melton Construction Co. began operations in 2007. Construction activity for

2007 is shown below. Melton uses the completed-contract method.
Billings Collections Estimated
Contract Through Through Costs to Costs to
Contract Price 12/31/07 12/31/07 12/31/07 Complete
1 $3,200,000 $3,150,000 $2,600,000 $2,150,000 —
2 3,600,000 1,500,000 1,000,000 820,000 $1,880,000
3 3,300,000 1,900,000 1,800,000 2,250,000 1,200,000

40. Which of the following should be shown on the balance sheet at December 31,
2007 related to Contract 2?
a. Inventory, $680,000
b. Inventory, $820,000
c. Current liability, $680,000
d. Current liability, $1,500,000

41. Flynn Construction Co. has consistently used the percentage-of-completion

method of recognizing revenue. During 2007, Flynn entered into a fixed-price
contract to construct an office building for $12,000,000. Information
relating to the contract is as follows:
At December 31
2007 2008
Percentage of completion 15% 45%
Estimated total cost at completion $9,000,000 $9,600,000
Gross profit recognized (cumulative) 600,000 1,440,000
Contract costs incurred during 2008 were
a. $2,880,000.
b. $2,970,000.
c. $3,150,000.
d. $4,320,000.

42. Noland Constructors, Inc. has consistently used the percentage-of-completion

method of recognizing income. In 2007, Noland started work on a $35,000,000
construction contract that was completed in 2008. The following information
was taken from Noland's 2007 accounting records:
Progress billings $11,000,000
Costs incurred 10,500,000
Collections 7,000,000
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 ADVANCE ACCOUNTING 1 FINAL EXAM

Estimated costs to complete 21,000,000

What amount of gross profit should Noland have recognized in 2007 on this
contract?
a. $3,500,000
b. $2,333,334
c. $1,750,000
d. $1,166,667

43. In selecting an accounting method for a newly contracted long-term

construction project, the principal factor to be considered should be
a. the terms of payment in the contract.
b. the degree to which a reliable estimate of the costs to complete and
extent of progress toward completion is practicable.
c. the method commonly used by the contractor to account for other
long-term construc-tion contracts.
d. the inherent nature of the contractor's technical facilities used in
construction.

44. The percentage-of-completion method must be used when certain conditions

exist. Which of the following is not one of those necessary conditions?
a. Estimates of progress toward completion, revenues, and costs are
reasonably dependable.
b. The contractor can be expected to perform the contractual
obligation.
c. The buyer can be expected to satisfy some of the obligations under
the contract.
d. The contract clearly specifies the enforceable rights of the
parties, the consideration to be exchanged, and the manner and terms
of settlement.

45. When work to be done and costs to be incurred on a long-term contract can be
estimated dependably, which of the following methods of revenue recognition
is preferable?
a. Installment-sales method
b. Percentage-of-completion method
c. Completed-contract method
d. None of these

46. How should the balances of progress billings and construction in process be
shown at reporting dates prior to the completion of a long-term contract?
a. Progress billings as deferred income, construction in progress as
a deferred expense.
b. Progress billings as income, construction in process as
inventory.
c. Net, as a current asset if debit balance, and current liability
if credit balance.
d. Net, as income from construction if credit balance, and loss from
construction if debit balance.

47. How should earned but unbilled revenues at the balance sheet date on a long-
term construction contract be disclosed if the percentage-of-completion
method of revenue recognition is used?
a. As construction in process in the current asset section of the
balance sheet.
b. As construction in process in the noncurrent asset section of the
balance sheet.
c. As a receivable in the noncurrent asset section of the balance
sheet.
d. In a note to the financial statements until the customer is formally
billed for the portion of work completed.

48. The method most commonly used to report defaults and repossessions is
a. provide no basis for the repossessed asset thereby recognizing a
loss.
b. record the repossessed merchandise at fair value, recording a gain
or loss if appropriate.
c. record the repossessed merchandise at book value, recording no gain
or loss.
d. none of these.

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 ADVANCE ACCOUNTING 1 FINAL EXAM

49. A seller is properly using the cost-recovery method for a sale. Interest will
be earned on the future payments. Which of the following statements is not
correct?
a. After all costs have been recovered, any additional cash collections
are included in income.
b. Interest revenue may be recognized before all costs have been
recovered.
c. The deferred gross profit is offset against the related receivable
on the balance sheet.
d. Subsequent income statements report the gross profit as a separate
item of revenue when it is recognized as earned.

50. Some of the initial franchise fee may be allocated to

a. continuing franchise fees.
b. interest revenue on the future installments.
c. options to purchase the franchisee's business.
d. All of these may reduce the amount of the initial franchise fee that
is recognized as revenue.

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 ADVANCE ACCOUNTING 1 FINAL EXAM

advac 1 finals
Answer Section

TRUE/FALSE

1. T

2. F

3. F

4. F

5. F

6. T

PROBLEM

7. b

8. D

9. c

10. b

11. c

12. D

13. d

14. b

15. c

16. d

17. a

18. C

19. d

20. C

21. D

22. D

23. B

24. a

25. A

26. D

27. b

28. D

29. c

30. D

31. b

32. B

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 ADVANCE ACCOUNTING 1 FINAL EXAM

33. d

34. c

35. b

36. d

37. a

38. b
$240,000 – $100,000 = $140,000.

39. A
($6,325,000 ÷ $13,750,000) × $1,250,000 = $575,000.
$6,325,000 + $575,000 = $6,900.000.

40. C
$1,500,000 – $820,000 = $680,000

41. CPA.
B
($9,600,000 ׃n45%) – ($9,000,000 ׃n15%) = $2,970,000.

42. CPA.
D
$10,500,000
—————— ׃n($35,000,000 – $31,500,000) = $1,166,667.
$31,500,000

43. B

44. C

45. B

46. C

47. A

48. B

49. B

50. D

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