ACTG-INT02.A.

2020 Page 1 of 19
 ICCT Colleges Foundation Inc.
V.V Soliven Ave. II, Cainta, Rizal

College of Business and Accountancy

ACCOUNTING INTEGRATION RBR BACAY, CPA, MBA,FRIAcc,CB

I. PARTNERSHIP FORMATION
1. A and B formed a partnership. The following are their contributions:

  A B

Cash 200,000 -

Accounts receivable 100,000 -

Inventory 160,000 -

Land 100,000

Building 240,000

Total 460,000 340,000

Note payable 120,000

A, capital 340,000

B, capital 340,000

Total 460,000 340,000

Additional information:
 Included in accounts receivable is an account amounting to ₱40,000 which is deemed uncollectible.
 The inventory has an estimated selling price of ₱200,000 and estimated costs to sell of ₱20,000.
 An unpaid mortgage of ₱20,000 on the land is assumed by the partnership.
 The building is under-depreciated by ₱50,000.
 The building also has an unpaid mortgage amounting to ₱30,000, but the mortgage is not assumed by
the partnership. B agreed to settle the mortgage using his personal funds.
 The note payable is stated at face amount. A proper valuation requires the recognition of a ₱30,000
discount on note payable.
 A and B shall share in profits and losses 60% and 40%, respectively.

Requirements:
a. Compute for the adjusted balances in the partners’ capital accounts.
b. Assume that a partner’s capital shall be increased accordingly by contributing additional cash to bring
the partners’ capital balances proportionate to their profit or loss ratio. Which partner should provide
additional cash and how much is the additional cash contribution?

2. A and B agreed to form a partnership. A shall contribute ₱80,000 cash while B shall contribute ₱200,000
cash. However due to the expertise that A will be bringing to the partnership, the partners agreed that
they should initially have an equal interest in the partnership capital.

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Requirement: Using the bonus method, provide the journal entry to record the initial investments of the
partners.

3. A, B and C formed a partnership. Their contributions are as follows:

A B C

Cash 80,000 20,000 200,000

Equipment
160,000
Totals 80,000 200,000
180,000

Additional information:
 Although C has contributed the most cash to the partnership, he did not have the full amount of
₱200,000 available and was forced to borrow ₱80,000.
 The equipment contributed by B has an unpaid mortgage of ₱40,000, the repayment of which, is
assumed by the partnership.
 The partners agreed to equalize their interest. Cash settlements among the partners are to be made
outside the partnership.

Requirements:
a. Which partner(s) shall receive cash payment from the other partner(s)?
b. Provide the entry to record the contributions of the partners.

4. A and B agreed to form a partnership. The partnership agreement stipulates the following:
 Initial capital of ₱280,000.
 A 60:40 interest in the equity of the partnership.

A contributed ₱200,000 cash while B contributed ₱80,000 cash.

Requirement: Which partner should provide additional investment (or withdraw part of his investment) in
order to bring the partners’ capital credits equal to their respective interests in the equity of the partnership?

II. PARTNERSHIP OPERATION

5. AAA, BBB and CCC are partners with average capital balances during 2008 of P120,000,
P60,000 and P40,000, respectively. Partners receive 10% interest on their average capital
balances. After deducting salaries or P30,000 to AAA and P20,000 to CCC, the residual profit
or loss is divided equally. In 2009 the partnership sustained a P33,000 loss before interest and
salaries to partners. By what amount should AAA’s account change?
a. P7,000 increase c. P35,000 decrease
b. P11,000 decrease d. P42,000 increase

6. The partnership agreement of AAA, BBB and CCC provides for the year-end allocation of net
income in the following order:
 First, AAA is to receive 10% of net income up to P100,000 and 20% over P100,000
 Second, BBB and CCC each are to receive 5% of the remaining income over P150,000
 The balance of income is to be allocated equally among the three partners

The partnership’s 2009 net income was P250,000 before any allocations to partners. What
amount should be allocated to AAA?

ACTG-INT02.A.2020 Page 3 of 19
 a. P101,000 c. P108,000
b. P103,000 d. P110,000

7. The Articles of Partnership of Adam and Eve the following provisions were stipulated:
 Annual salary of P60,000 each
 Bonus to Adam of 20% of the net income after partner’s salaries and bonus, the bonus being
treated as an expense.
 Balance to be divided equally.

The partnership reported a net income of P360,000 after partners’ salaries but before bonus. How
much is the share of Eve in the profit?
a. P 60,000
b. 90,000
c. 150,000
d. 210,000

8. Maxwell is trying to decide whether to accept a salary of P40,000 or salary of P25,000 plus a
bonus of 10% of net income. After salaries and bonus as a means of allocating profit among
partners. Salaries traceable to the other partners estimated to be P100,000. What amount of
income would be necessary so that Maxwell would consider choices to be equal?
a. P165,000
b. 290,000
c. 265,000
d. 305,000

9. Partner A first contributed P50,000 of capital into existing partnership on March 1, 2002. On
June 1, 2002, said partner contributed another P20,000. On September 1, 2002, he withdrew
P15,000 from the partnership. Withdrawal in excess of P10,000 are charged to the partner’s
capital accounts. What is the annual weighted average capital balance of Partner A?
a. P 32,500
b. 51,667
c. 60,000
d. 48,333

10. Garcia and Henson formed a partnership on January 2, 2005 and agreed to share profits 90%
and 10%, respectively. Garcia contributed capital of P 25,000. Henson contributed no capital
but has a specialized expertise and manages the firm full time. There were no withdrawals
during the year. The partnership agreement provides for the following:

Capital accounts are to be credited annually with interest at 5% of beginning capital.

Henson is to be paid a salary of P1,000 a month.
Henson is to receive a bonus of 20% of income calculated before deducting his salary and interest
on both capital accounts.
Bonus, interest, and Henson’s salary are to be considered partnership expenses.
The partnership 2005 income statement as follows:

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 Revenues P 96,450
Expenses (including salary, interest, and bonus) 49,700
Net income P 46,750

What is Henson’s 2005 bonus?

a. P 11,688
b. P 12,000
c. P 15,000
d. P 15,738

11. A, a partner in the ABC Partnership, has a 30% participation in partnership profits and losses.
A’s capital account has a net decrease of P 60,000 during the calendar year 20x1. During 20x1,
A withdrew P130,000 (charged against his capital account) and contributed property valued at
P 25,000 to the partnership. What was the net income of the ABC Partnership for 20x1?
a. P 150,000
b. P 233,333
c. P 350,000
d. P 550,000

12. Abe, Bert, and Carl are partners sharing profit on a 7:2:1 ratio. On January 1, 2005, Dave was
admitted into the partnership with 15% share in profits. The old partners continue to participate
in profits in their original ratios.

For the year 2005, the partnership showed a profits of P 15,000. However, it was discovered that
the following items were omitted in the firm’s book:
2004 2005
Accrued expense P 1,050
Accrued income 875
Prepaid expenses P 1,400
Unearned income P 1,225

The share of partner Bert in the 2005 net profit is?

a. P 2,197.50
b. P 2,490.50
c. P 2,637.00
d. P 3,149.75

13. FF, GG and HH form a partnership and agree to maintain average investments of P2,500,000,
P1,250,000, and P1,250,000, respectively. Interest on the excess or deficiency in a capital
contribution is to be computed at 6% per annum. After the interest allowances, FF,GG, and HH
are to share any balance in the ratio of 5:3:2. Average amounts invested during the first six
months were as follows: FF, P3,000,000. GG, P1,375,000; and HH, P1,000,000. A loss from
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 operations of P62,500 was incurred for the first six months. How is this loss distributed among
the partners?

FF GG HH
a. P 21,875 P 18,375 P22,250
b. 12,500 10,000 49,500
c. 31,250 18,750 12,500
d. 18,375 21,875 22,250

14. Roy and Sam were organized and began operations on March 1, 20x1. On that date, Roy
invested P 150,000 and Sam invested computer equipment with current fair value of P180,000.
Because of shortage of cash on November 1, 20x1 Sam invested additional cash of P60,000 in
the partnership. The partnership contract includes the following remuneration plan:

Roy Sam
Monthly salary (recognized as expense) P10,000 P20,000
Annual interest on beginning capital 12% 12%
Bonus on the net profit before salaries and
interest but after bonus 20% -
Balance equally

The salary was to be withdrawn by each partner in monthly installments. The partnership’s net
profit for 2005 is P120,000.

What are the capital balances of the partners on December 31, 20x1?

Roy Sam
a. P243,500 P266,500
b. P243,500 P266,500
c. P243,500 P266,500
d. P243,500 P266,500

III. PARTNERSHIP DISSOLUTION

15. The following is the condensed balance sheet of the partnership Jo, Li and Bi who share profits
and losses in the ratio of 4:3:3.

Cash P 180,000 Accounts, payable P 420,000

Other assets 1,660,000 Bi, Loan 60,000
Jo, receivable 40,000 Jo, Capital 620,000

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 Li, Capital 400,000
__ Bi, Capital 380,000
Total P 1,880,000 Total P1,880,000

Assume that the assets and liabilities are fairly valued on the balance Sheet and the partnership
decides to admit Mac as a new partner, with a 20% interest. No goodwill or bonus is to be
recorded. How much Mac should contribute in cash or other assets?
a. P 350,000
b. P 280,000
c. P 355,000
d. P 284,000

16. Fernando and Jose are partners with capital balances of P30,000 and P70,000, respectively.
Fernando has a 30% interest in profits and losses. All assets of the partnership are at fair
market value except equipment with book value of P300,000 and fair market value of P320,000.

At this time, the partnership has decided to admit Rosa and Linda as new partners. Rosa
contributes cash of P55,000 for a 20% interest in capital and a 30% interest in profits and losses.
Linda contributes cash of P10,000 and an equipment with a fair market value of P50,000 for a 25%
interest in capital and a 35% interest in profits and losses. Linda is also bringing special expertise
and clients contact into the new partnership. Using the bonus method, what is the amount of
bonus?
a. P24,750
b. 18,250
c. 14,000
d. 7,500

17. The capital accounts of the partnership of Nakpil, Ortiz, and Perez on June 1, 2005 are
presented below with their respective profit and loss ratios:

Nakpil P 139,200 1/2

Ortiz 208,800 1/3
Perez 96,000 1/6
P 444,000

On June 1, 2005, Quizon is admitted to the partnership when he purchased, for P 132,000, a
proportionate interest from Nakpil and Ortiz in the net assets and profits of the partnership. As a
result of a transaction, Quizon 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 Nakpil
and Ortiz upon the sale of a portion of their interest in the partnership to Quizon?
a. P 0
b. P 43,200
c. P 62,400

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d. P 82,000

18. In the AAA-BBB partnership, AAA and BBB had a capital ratio of 3:1 and a profit and loss ratio
of 2:1, respectively. The bonus method was used to record CCC’s admittance as a new
partner. What ratio would be used to allocate, to AAA and BBB, the excess of Colter’s
contribution over the amount credited to Colter’s capital account?
a. AAA and BBB’s new relative capital ratio
b. AAA and BBB’s new relative capital profit and loss ratio
c. AAA and BBB’s old capital ratio
d. AAA and BBB’s old profit and loss ratio

19. When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill's
interest exceeded Mill's capital balance. Under the bonus method, the excess
a. Was recorded as goodwill.
b. Was recorded as an expense.
c. Reduced the capital balances of Yale and Lear.
d. Had no effect on the capital balances of Yale and Lear.

20. C, D and E are partners with capital balances on December 31, 20x1 of P300,000 and
P200,000 respectively. Profit are shared equally. E wishes to withdraw and it is agreed that she
is to take certain furniture and fixtures with second hand value of P50,000 and note for the
balance of her interest. The furniture and fixtures are carried in the books at P65,000. Brand
new, the furniture and fixtures may cost P80,000. E’s acquisition of the second-hand furniture
will result to:
a. Reduction in capital of P15,000 each for C and D.
b. Reduction in capital of P10,000 for E.
c. Reduction in capital of P5,000 each for C and D and E.
d. Reduction in capital of P7,500 each for C and D.

21. In May 1998, Imelda, a partner of an accounting firm decided to withdraw when the partners’
capital balances were: Mikee, P600,000; Raul, P600,000; Imelda, P400,000. It was agreed that
Imelda is to take the partnership’s fully depreciated computer with a second hand value of
P24,000 that cost the partnership P36,000.

If profits and losses are shared equally, what would be the capital balances of the remaining
partners after the retirement of Imelda?
Mikee Raul__
a. P600,000 P600,000
b. 592,000 592,000
c. 608,000 608,000
d. 612,000 612,000

22. On June 30, 1998, the balance sheet for the partnership of Coll, Maduro, and Prieto, together
with their respective profit and loss ratios, was as follows:

Assets, at cost P 180,000

Coll, loan P 9,000

Coll, capital (20%) 42,000
Maduro, capital (20%) 39,000

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 Prieto, capital (60%) 90,000
Total P 180,000

Coll decided to retire from the partnership. By mutual agreement, the assets are to be adjusted to
their fair value of P 216,000 at June 30, 1998. It was agreed that the partnership would pay Coll P
61,200 cash for Coll’s partnership interest, including Coll’s loan which is to be repaid in full. No
goodwill is to be recorded. After Coll’s retirement, what is the balance of Maduro’s capital account?
a. P 36,450
b. 39,000
c. 45,450
d. 46,200

23. On June 30, 2009, the balance sheets of the partnership of AAA, BBB and CCC, together with
their respective profit and loss ratios, were as follows:

Assets, at cost P 180,000

AAA, loan P 9,000

AAA, capital (20%) 42,000
BBB. Capital (20%) 39,000
CCC , capital (60%) 90,000
Total P 180,000

AAA has decided to retire from the partnership. By mutual agreement, the assets are to be
adjusted to their fair value of P216,000 at June 30, 2009. It was agreed that the partnership
would pay AAA P61,200 cash for AAA’s partnership interest, including AAA’s loan which is to
be repaid in full. No goodwill is to be recorded. After AAA’s retirement, what is the balance of
BBB’s capital account?
a. P36,450 c. P45,450
b. P39,000 d. P46,200

24. On June 30, the balance sheet for the partnership of Williams, Brown and Lowe together with
their respective profit and loss ratios was as follows:

Assets, at cost P300,000

Williams, loan P 15,000

Williams, capital (20%) 70,000
Brown, capital (20%) 65,000
Lowe, capital (60%) 150,000
Total P300,000

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Williams has decided to retire from the partnership and by mutual agreement the assets are to be
adjusted to their fair value of P360,000 at June 30. It was agreed that the partnership would pay
Williams P102,000 cash for his partnership interest exclusive of his loan which is to be repaid in
full. No goodwill is to be recorded in this transaction. After William's retirement what are the capital
account balances of Brown and Lowe, respectively?
a. P65,000 and P150,000.
b. P72,000 and P171,000.
c. P73,000 and P174,000.
d. P77,000 and P186,000.

IV. PARTNERSHIP LIQUIDATION

25. On January 1, 20X2, the partners of Allen, Brown, and Cox, who share profits and losses in the
ratio of 5:3:2, respectively, decide to liquidate their partnership. The partnership trial balance at
this date is as follows:
Debit Credit
Cash P 18,000
Accounts receivable 66,000
Inventory 52,000
Machinery and equipment, net 189,000
Allen, loan 30,000
Accounts payable P 53,000
Brown, loan 20,000
Allen, capital 118,000
Brown, capital 90,000
Cox, capital _______ 74,000
P355,000 P355,000

The partners plan a program of piecemeal conversion of assets in order to minimize liquidation
losses. All available cash, less an amount retained to provide for future expenses, is to be
distributed to the partners at the end of each month. A summary of the liquidation transactions is as
follows:

January 20X2:
a. P51,000 was collected on accounts receivable; the balance is uncollectible.
b. P38,000 was received for the entire inventory.
c. P2,000 liquidation expenses were paid.
d. P50,000 was paid to outside creditors, after offset of a P3,000 credit memorandum received on
January 11, 20X2.
e. P10,000 cash was retained in the business at the end of the month for potential unrecorded
liabilities and anticipated expenses.

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All partners are insolvent.

Required:
Compute for the safe installment to the partners as of January 31, 20x2. Show supporting
computations in good form.

26. The partnership of Jenson, Smith, and Hart share profits and losses in the ratio of 5:3:2,
respectively. The partners voted to dissolve the partnership when its assets, liabilities, and
capital were as follows:
Assets
Cash P 40,000
Other assets 210,000
P250,000
Liabilities and Capital
Liabilities P 60,000
Jenson, Capital 48,000
Smith, Capital 72,000
Hart, Capital 70,000
P250,000

The partnership will be liquidated over a prolonged period of time. As cash is available it will be
distributed to the partners. The first sale of noncash assets having a book value of P120,000
realized P90,000. How much cash should be distributed to each partner after this sale?
a. Jenson P0; Smith P28,800; Hart P41,200.
b. Jenson P0; Smith P30,000; Hart P40,000.
c. Jenson P35,000; Smith P21,000; Hart P14,000.
d. Jenson P45,000; Smith P27,000; Hart P18,000.

27. A and B formed a partnership on July 1, 2004 to operate two stores to be managed by each of
them. They invested P30,000 and P20,000 and agreed to share earnings 60% and 40%,
respectively. All their transactions were of cash, and all their subsequent transactions were
handled through their respective bank accounts as summarized below:

A B
Cash receipts………………………………………………P79,100 P65,245
Cash disbursements…………………….………………… 62,275 70,695

On December 31, 20x1, all remaining non-cash assets in the two stores were sold for cash of
P60,000. The partnership was dissolved, and cash settlement was effected. In the distribution of
the P60, 000 cash, A received:

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 a. P24, 000 c. P34, 000
b. 26, 000 d. 36, 000

28. A balance sheet for the partnership of KK, LL and MM, who share profits 2:1:1 respectively,
shows the following balances just before liquidation:

Cash Other assets Liab. KK, Cap. LL. Cap. MM, Cap.
P48,000 P238,000 P80,000 P88,000 P62,000 P56,000

In the first month of liquidation, P128,000 was received on the sale of certain assets, Liquidation
expenses of P4,000 were paid, and additional liquidation expenses of P3,200 are anticipated
before liquidation is completed. Creditors were paid P22,400. Available cash was distributed to the
partners.

The cash to be received by each partner based on the above data:

KK LL MM KK LL MM
a. P56,600 P28,300 P28,300 c. P29,400 P32,700 P26,700
b. 86,000 61,000 55,000 d. 88,000 62,000 56,000

29. On January 1, 2009, partners AAA, BBB and CCC, who share profits and losses in the ratio of
5:3:2, respectively, decided to liquidate their partnership. On this date, the partnership’s
condensed balance sheet was as follows:
Cash P 50,000
Other assets 250,000
P 300,000

Liabilities P 60,000
AAA, capital 80,000
CCC, capital 90,000
BBB, capital 70,000
Total P 300,000

On June 15, 2009, the first cash sale of other assets with a carrying amount of P150,000
realized P120,000. Safe installment payments to the partners were made the same date. How
much cash should be distributed to each partner?
AAA BBB CCC

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 a. P 15,000 P 51,000 P 44,000
b. 40,000 45,000 35,000
c. 55,000 33,000 22,000
d. 60,000 36,000 24,000

30. A, B, C, and D are partners, sharing earnings in the ratio of 3/21, 4/21, 6/21 and 8/21,
respectively. The balances of their capital accounts on December 31, 2004 are as follows:

A………………………………………………………………………. P 1,000
B…………………………………………………………………….. 25, 000
C………………………………………………………………………. 25, 000
D……………………………………………………………………… 9, 000
P 60,000

The partners decide to liquidate, and they accordingly convert the non-cash assets into P23,200 of
cash. After paying the liabilities amounting to P3,000, they have P22,000 to divide. Assume that a
debit balance of any partner’s capital is uncollectible.

After the P22, 000 was divided, the capital balance of B was:

a. P3, 200 c. P4, 500

b. 13,800 d. 17, 800

V. CONSTRUCTION CONTRACTS

31. The primary issue in accounting for construction contracts is

a. The determination of percentage of completion and proper determination of revenue to be
recognized during the period.
b. the allocation of contract revenue and contract costs to the accounting periods in which construction
work is performed.
c. the determination of the rate at which physical performance has been made during the reporting
period and the future performance on which future revenues will be allocated.
d. the allocation of costs of a long-lived asset to permit the proper matching of costs with revenues.

32. A construction contract may be

a. fixed price contract c. a combination of a and b
b. cost plus contract. d. any of these

33. VALEDICTION Construction Co. entered into a P80M fixed price contract for the construction of a
private road for FAREWELL SPEECH, Inc. The performance obligation on the contract is satisfied over
time. VALEDICTION measures its progress on the contract using the “cost-to-cost” method. The
estimated total contract cost is P40M. The following were the actual costs incurred by VALEDICTION
during the first year of the construction:

Costs of negotiating the contract (charged immediately 400,000

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 as expense)
Costs of materials used in construction 12,000,000
Costs of materials purchased but not yet used in construction 2,000,000
Site labor costs 4,000,000
Site supervision costs 800,000
Depreciation of equipment used in construction 480,000
Depreciation of idle construction equipment 240,000
Costs of moving plant, equipment and materials to and
from the contract site 160,000
Costs of hiring plant and equipment 560,000
Advance payments to subcontractors (subcontracted
work is not yet started) 80,000

What is the percentage of completion of the contract as of the end of the first year?
a. 42% b. 45% c. 50% d. 46%

34. On Oct. 1, 20x1, ABC Co. enters into a construction contract with a customer. The performance
obligation in the contract will be satisfied over time. ABC Co. uses the “cost-to-cost” method in
measuring its progress. The estimated total contract cost is ₱10M. In 20x1, ABC Co. incurred a total
cost of ₱6M, which includes ₱2M advance payment to a subcontractor (the subcontracted work is not
yet started) and ₱200,000 cost of materials not yet installed. ABC Co. does not regard the cost of the
unused materials as significant in relation to the expected total contract costs. Moreover, ABC Co.
retains control over the unused materials because it can use them in a contract with another customer.
The contract price is ₱20M. How much is the revenue recognized in 20x1?
a. 7,600,000
b. 12,000,000
c. 8,200,000
d. 11,600,000

35. On January 1, 20x1, ABC Co. enters into a contract with a customer for the construction of a building.
The contract price is ₱1,000,000. The following are the transactions during 20x1:
 At contract inception, the customer makes an advance payment of ₱100,000 as facilitation fee.
 ABC Co. incurs total contract costs of ₱300,000 during the period.
 The estimated costs to complete as of year-end amounts to ₱500,000.
 ABC Co. collects the billing, net of 10% retention by the customer to be used to rectify any
unsatisfactory work determined at the completion of the contract.

How much is the gross profit earned from the contract in 20x1?

a. 75,000
b. 82,000
c. 375,000
d. 482,000

Use the following information for the next three cases (three questions per case):
In 20x1, ABC Co. enters into a construction contract with a customer. The contract price is ₱10,000,000.
Information on the contract follows:
  20x1 20x2 20x3

Costs incurred to date 2,400,000 4,500,000 6,000,000

Estimated costs to complete 3,600,000 1,500,000 -

Case #1:

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At contract inception, ABC Co. assesses its performance obligations in the contract and concludes that it
has a single performance obligation that is satisfied over time. ABC Co. determines that the measure of
progress that best depicts its performance on the contract is “cost-to-cost” method.

36. How much is the revenue recognized in 20x1?

a. 4,200,000
b. 4,000,000
c. 2,800,000
d. 3,500,000

37. How much is the cost of construction recognized as expense in 20x2?

a. 2,100,000
b. 2,400,000
c. 3,800,000
d. 1,500,000

38. How much is the gross profit recognized in 20x3?

a. 1,000,000
b. 1,500,000
c. 2,100,000
d. 2,800,000

Case #2:
At contract inception, ABC Co. assesses its performance obligations in the contract and concludes that it
has a single performance obligation that is satisfied over time. However, ABC Co. determines that the
outcome of the performance obligation cannot be reasonably measured but expects to recover the contract
costs incurred.

39. How much is the revenue recognized in 20x1?

a. 4,200,000
b. 4,000,000
c. 2,400,000
d. 0

40. How much is the cost of construction recognized as expense in 20x2?

a. 2,100,000
b. 2,400,000
c. 3,800,000
d. 0

41. How much is the gross profit recognized in 20x3?

a. 5,500,000
b. 1,500,000
c. 4,000,000
d. 2,100,000

Case #3:
At contract inception, ABC Co. assesses its performance obligations in the contract and concludes that it
has a single performance obligation.

In its determination of the satisfaction of the performance obligation, ABC Co. identifies that, during the
construction period, ABC Co. retains control over the asset created in the contract. This precludes the
customer from simultaneously receiving and consuming the benefits provided by ABC Co.’s performance as
ABC Co. performs. Moreover, the asset created in the contract has an alternative use to ABC Co. because,
in case the contract is cancelled, ABC Co. retains ownership over any asset created and can direct that

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asset for another use without significant modification or cost. Accordingly, ABC Co. concludes that the
performance obligation is satisfied at a point in time.

ABC Co. determines the point in time when the performance obligation is satisfied using the principles in
PFRS 15 and concludes that the performance obligation is satisfied only when the construction is completed
and the control over the promised good is transferred to the customer.

42. How much is the revenue recognized in 20x1?

a. 4,200,000
b. 4,000,000
c. 2,400,000
d. 0

43. How much is the cost of construction recognized as expense in 20x2?

a. 2,100,000
b. 2,400,000
c. 3,800,000
d. 0

44. How much is the gross profit recognized in 20x3?

a. 5,500,000
b. 1,500,000
c. 4,000,000
d. 2,100,000

45. ABC Co. started work on two separate projects during 20x1. Information on these projects is shown
below:

Estimated costs to
Project Contract price Costs incurred complete Progress billings

A 9,000,000 4,000,000 2,000,000 5,000,000

B 8,000,000 5,000,000 - 8,000,000

How much is the total balance of the “construction in progress” accounts as of December 31, 20x1 under
percentage of completion method?

a. 4,000,000
b. 6,000,000
c. 14,000,000
d. 0

VI. INSTALLMENT SALES METHOD

46. When the consideration receivable from an installment sale is discounted, the gross profit rate is
computed
a. based on the present value of the consideration receivable.
b. based on the undiscounted installment sale price
c. a or b
d. none of these

47. When the consideration receivable from an installment sale is discounted, realized gross profit is
computed
a. based on collections pertaining to the principal
b. based on the total collection during the period
c. a or b
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 d. none of these

48. Under the installment sales method, when merchandise previously sold is repossessed, the
repossessed merchandise is recorded at
a. fair value c. current cost
b. original cost d. any of these

49. For purposes of applying the installment sales method, “fair value” is
a. the appraised value of the repossessed property or traded-in merchandise
b. the estimated selling price of the repossessed property or traded-in merchandise less reconditioning
costs and normal profit margin, at date of repossession or date of trade-in.
c. a or b
d. none of these

50. Gain or loss on repossession is computed as

a. the fair value of the repossessed property less the sum of the balance in deferred gross profit and
the balance in the defaulted installment account receivable
b. the sum of the fair value of the repossessed property and the balance in the defaulted installment
account receivable less the balance in deferred gross profit
c. the difference between the fair value of the repossessed property and the balance in deferred gross
profit
d. the sum of the fair value of the repossessed property and balance in deferred gross profit less the
balance in the defaulted installment account receivable

51. Merchandise received as trade-in is recognized at

a. fair value c. current cost
b. original cost d. any of these

52. Under an installment sale where merchandise is received as “trade-in,”

a. the fair value of merchandise traded-in is considered as part of collections when determining the
realized gross profit in the year of sale.
b. the trade-in value of merchandise traded-in is considered as part of collections when determining the
realized gross profit in the year of sale.
c. neither the fair value nor the trade in value affects the computation of realized gross profit.
d. none of these

53. The excess of the trade-in value over the fair value of a traded-in merchandise in a sale accounted for
under the installment sales method represents
a. over allowance c. no allowance
b. under allowance d. small allowance

54. Under the installment sales method, an “over allowance” is

a. treated as addition to the installment sale price when computing for the gross profit rate.
b. treated as reduction to the installment sale price when computing for the gross profit rate.
c. not accounted for
d. none of these

55. Under the cost recovery method,

a. the initial collections on the sale are treated as recovery of the cost of the inventory sold. Thus, no
gross profit or interest income is recognized until total collections from the sale equals the cost of
inventory sold.
b. the initial collections on the sale are treated as recovery of the cost of the inventory sold. Thus, no
gross profit is recognized until total collections from the sale equals the cost of inventory sold.
However, interest income may nonetheless be recognized.
c. a or b
d. none of these

56. BUCOLIC RURAL Co. uses the installment method. Information on BUCOLIC’s transactions during 20x1 and 20x2 is
shown below:
  20x1 20x2
Installment sales 2,000,000 2,400,000
Cost of sales 1,200,000 1,320,000
Gross profit 800,000 1,080,000

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Cash collections from:
20x1 sales 800,000 400,000
20x2 sales 960,000

How much is the total realized gross profit in 20x2?

a. 160,000
b. 432,000
c. 592,000
d. 642,000

Use the following information for the next three questions:

INNOCUOUS HARMLESS Co. uses the installment method. On January 1, 20x3, INNOCUOUS Co.’s
records show the following balances:

Installment receivable - 20x1 800,000

Installment receivable - 20x2 2,400,000
Deferred gross profit - 20x1 176,000
Deferred gross profit - 20x2 576,000

On December 31, 20x3, INNOCUOUS Co.’s records show the following balances before adjustments for realized gross
profit:

Installment receivable - 20x1 -

Installment receivable - 20x2 960,000
Installment receivable - 20x3 2,400,000
Deferred gross profit - 20x1 176,000
Deferred gross profit - 20x2 576,000
Deferred gross profit - 20x3 1,500,000

Installment sales in 20x3 were made at 331/3 above cost.

57. How much is the installment sale in 20x3?

a. 4,836,000
b. 5,800,000
c. 6,000,000
d. 7,200,000

58. How much is the total cash collections in 20x3?

a. 5,840,000
b. 1,440,000
c. 3,600,000
d. 5,640,000

59. How much is the total realized gross profit in 20x3?

a. 984,600
b. 1,241,200
c. 1,520,000
d. 1,421,600

60. DEMOTIC POPULAR Co. uses the installment method. The following information was taken from the incomplete
records of DEMOTIC Co.:
  20x1 20x2 20x3
Installment sales 4,000,000 4,800,000 ?

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Cost of sales ? ? ?
Gross profit ? ? ?
Gross profit rates ? ? 25%
Collections:
from 20x1 sales 2,000,000 1,200,000 800,000
from 20x2 sales 2,400,000 1,440,000
from 20x3 sales 3,600,000
Realized gross profit 440,000 ? 1,421,600

How much is the cost of sales in 20x2?

a. 2,840,000
b. 3,248,000
c. 3,648,000
d. 3,946,000

Use the following information for the next three questions:

THRALL SLAVE Co. uses the installment method. Information on installment sales in 20x1 and 20x2 is shown below:

  20x1 20x2
Sales 400,000 640,000
Cost of sales 320,000 448,000
Gross profit rate 20% 30%
Installment receivable - 20x1 180,000 60,000
Installment receivable - 20x2 288,000

During 20x2, THRALL Co. repossessed a property which was sold in 20x1 for ₱40,000. Prior to
repossession, ₱10,000 were collected from the buyer. The estimated resale price of the repossessed
property was ₱34,000 after reconditioning costs of ₱6,000.

61. How much is the gain or loss on repossession?

a. 17,800
b. 6,200
c. 12,800
d. 5,400

62. How much is the total realized gross profit in 20x2?

a. 123,600
b. 352,000
c. 117,400
d. 90,000

63. How much is the profit recognized in 20x2?

a. 123,600
b. 352,000
c. 117,400
d. 90,000

Use the following information for the next three questions:

Songing Co. sells household furniture both on cash and on installment basis. For each installment sale, a
contract is entered into whereby the following terms are stated:
a. A down payment of 25% of the installment selling price is required and the balance is payable in 15
equal monthly installments.
b. Interest of 1% per month is charged on the unpaid cash sales price equivalent at each installment.

ACTG-INT02.A.2020 Page 19 of 19
 c. The price on installment sale is equal to 110% of the cash sales price.

For accounting purposes, installment sales are recorded at contract price. Any unpaid balances on
defaulted contracts are charged ton uncollectible accounts expense. Sales of defaulted merchandise are
credited to uncollectible accounts expense. Interests are recorded in the period earned. For its first year of
operation ending December 31, 20x1, the books of the company showed the following:

Cash sales ₱378,000

Installment sales 794,970
Merchandise inventory, Jan. 1 174,180
Cash collections on installment contracts:
Down payment, including defaulted contract 198,750
Installment payments, including interest
of ₱27,758.52 (average of six
monthly installments on all
contracts, except on defaulted
contracts) 238,023

A contract amounting to ₱3,300 was defaulted after the payment of 3 installments.

64. The gross profit rate based on total sales at cash sales price equivalent is:
a. 33.75% c. 37.00%
b. 36.34% d. 40.88%

65. The total interest earned for the first four months on the defaulted contract is:
a. 60.94 c. 72.07
b. 69.30 d. 80.85

66. The realized gross profit for the year 20x1 is:
a. 151,335.35 c. 249,674.52
b. 161,789.16 d. 291,355.96

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