These data pertain to installment sales of HASTUR’s store

Down payment: 20%

Installment Sales: P 545,000 in Year 1; P 785,000
in Year 2; and P 968,000 in Year 3
Mark-up on cost: 35%
Collections after down payment: 40% in the year of sale; 35%
in the year after, and 25% in the third
year

Gross Profit Rate (35/135) 25.9259%

1. The realized gross profit for Year 1 is

a. P 109,357
b. P 73,474
c. P 99,190
d. P 114,825

Downpayment P 545,000 x 20% 109,000

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Collections after DP P 545,000 x 80% x 40% 174,400

er as
283,400

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Realized Gross Profit (283,400 x 25.9259%) 73,474

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2. The unrealized gross profit for installment sales made during Year 2, as at the
ou urc
end of Year 2 is:
a. P 97,689
b. P 131,880
o

c. P 141,112
aC s

d. P 114,063
v i y re

Year 2 Sales 785,000

Less: Downpayment (785,000 x 20%) (157,000)
ed d

Less: Collections (785,000 x 80% x 40%) (251,200)

Year 2 Sales Receivables 376,800
ar stu

Unrealized Gross Profit (376,800 x 25.9259%) 97,689

3. The Installment Accounts Receivable account balance, as at the end of Year 3 is:
sh is

a. P 652,722
b. P 621,640
Th

c. P 602,991
d. P 685,359

Year 1 Sales -
Year 2 Sales (785,000 x 80% x 25%) 157,000
Year 3 Sales (968,000 x 80% x 60%) 464,640
Total Installment Accounts Receivable 621,640

4. The total unrealized gross profit, as at the end of Year 3, is

a. P 211,047
b. P 161,166
c. P 198,574
d. P 217,574
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 Unrealized Gross Profit (621,640 x 25.9259%) 161,166

The MINESKI Construction Company was the lowest bidder on a specialized

equipment contract. The contract bid was P 13,125,000 with an estimated cost to
complete the project of P 7,800,000. The

contract period was 35 months beginning January 1, 2014. The company uses cost
to cost method to estimate profits. A record of construction activities for the years
2014 to 2016 follows:
2014 2015 2016
Actual cost incurred to date 6,562,500 10,968,750 11,625,000
Estimated cost to complete 4,375,000 1,218,750 -
Progress billings 3,000,000 12,000,000 13,125,000
Cash receipts during the year 5,625,000 3,750,000 3,750,000

Using zero-profit method (cost recovery), compute for the following:

5. How much is the realized gross profit in 2014, 2015, and 2016?

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a. P 1,312,500; P (468,750); P 656,250

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b. P 1,312,500; P 468,750; P 656,250

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c. P 656,250; P (468,760); P 1,312,500

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d. P 0; P 0; P 1,500,000

o.
2014
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No profit
2015 No profit
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2016 (13,125,000 – 11,625,000) 1,500,000

6. How much is the revenue earned in 2015?

o

a. P 6,656,250
aC s

b. P 4,406,250
v i y re

c. P 2,156,250
d. P 1,312,500
ed d

Revenue earned in 2015 (10,968,750 – 6,562,500) 4,406,250

ar stu

7. How much is the construction in progress, net in 2015?

a. P 0
b. P 3,562,500
sh is

c. P (1,031,250)
d. P (468,750)
Th

Construction in progress 10,968,750

Progress billings 12,000,000
Construction in progress, net (1,031,250)

8. How much is the construction in progress, net in 2016?

a. P 0
b. P 3,562,500
c. P (1,031,250)
d. P (468,750)

Construction in progress 13,125,000

Progress billings 13,125,000
Construction in progress, net -
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 On January 1, 2016, MARK entered into a franchise agreement with MARIAN, Inc. to
sell M&M’s products. The agreement provides of an initial franchise fee of P
30,000,000, payable as follows: P 18,000,000 cash to be paid upon signing of the
contract, and the balance in five equal annual payments every December 31 starting
2016. MARK signs 12% interest bearing note for the balance. The agreement further
provides that the franchisor will assist the franchisee in locating the business site,
designing and supervising the construction of the building, and training of
management and employees. The agreement also provides that the franchisee must
pay a continuing franchise fees equal to 10% of its monthly gross sales.

On June 30, 2016, the franchisor completed the initial services required by the
contract at a cost of P 8,000,000, of which 25% was indirect. The franchisee
commenced business operations on July 5, 2014. The gross sales reported by the
franchisee to the franchisor are: July sales P 150,000; August sales P 180,000;
September sales P 270,000; October sales P 200,000; November sales P 580,000;
and December sales P 720,000.

9. Compute for the net income earned during the year 2016, assuming the

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collectability of the note is reasonably assured

er as
a. P 14,530,000

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b. P 15,970,000

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c. P 23,650,000
d. P 24,210,000

o.
rs e
Initial franchise fee 30,000,000
ou urc
Direct cost of franchise (8,000,000 x 75%) 6,000,000
Gross profit
24,000,000
o

Interest income (12,000,000 x 12%) 1,440,000

aC s

Continuing franchise fee

v i y re

(150,000 + 180,000 + 270,000 + 200,000

+ 580,000 + 720,000) x 10% 210,000
Indirect cost of franchise (8,000,000 x 25%) (2,000,000)
ed d

Net income earned

23,650,000
ar stu

10. Compute for the net income earned during the year 2016, assuming the
collectability of the note is not reasonably assured
sh is

a. P 14,530,000
b. P 15,970,000
Th

c. P 23,650,000
d. P 24,210,000

Gross profit rate (24,000,000/30,000,000) 80%

Collections
Downpayment
18,000,000
Installment payment 2,400,000
Total collections 20,400,000
Realized gross profit (20,400,000 x 80%) 16,320,000
Interest income (12,000,000 x 12%) 1,440,000
Continuing franchise fee 210,000
Indirect cost of franchise (2,000,000)
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 Net income earned
15,970,000

EG Co. shipped inventory on consignment to Secret Co. that cost P 20,000. Secret
paid P 500 for advertising that was reimbursable from EG. At the end of the year,
70% of the inventory was sold for P 30,000. The agreement states that a commission
of 20% will be provided to Secret for all sales

11. What amount of net inventory on consignment remains on the balance sheet for
the first year for EG Co.?
a. P 0
b. P 6,000
c. P 6,500
d. P 20,000

Inventory on consignment (20,000 x 30%) 6,000

On October 20, 2016, MICHAEL Company assigned 40 freezers to URIEL Company

costing P 14,000 each for sale at P 20,000 each and paid P 16,000 in transportation

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costs. On December 30, 2016, URIEL reported the sale of 10 freezers and remitted

er as
P 170,000. The remittance was net of the agreed 15% commission.

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12. What amount should be reported as consignment sales revenue for 2016?
a. P 150,000

o.
b. P 175,000
rs e
c. P 200,000
ou urc
d. P 400,000

Consignment sales revenue (20,000 x 10 freezers) 200,000

o
aC s

On January 1, 2018, PLDC enters into a wireless contract in which customer MBP is
v i y re

provided with handset and a voice and data plan for P 3,500 per month. PLDC
identified the handset and wireless plan as separate performance obligations.
ed d

The handset can be separately sold by PLDC for a price of 20,000 which provides
observable evidence of stand-alone selling price. PLDC offers a 12-month service
ar stu

plan without a phone that includes the same level of services for a price of P 2,500
per month.
sh is

13. How much is the total transaction price to be allocated to the separate
performance obligation?
Th

a. P 20,000
b. P 30,000
c. P 42,000
d. P 50,000

Transaction price (P 3,500 x 12) 42,000

Value of wireless plan (2,500 x 12) 30,000

Value of handset 20,000
Total value of performance obligation 50,000

14. How much of the transaction price is to be allocated to the wireless plan?
a. P 16,800
b. P 22,000
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 c. P 25,200
d. P 30,000

Allocated to wireless plan (42,000 x 30,000/50,000) 25,200

15. How much of the transaction price is to be allocated to the handset?

a. P 16,800
b. P 20,000
c. P 22,000
d. P 25,200

Allocated to handset (42,000 x 20,000/50,000) 16,800

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v i y re
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