ACCOUNTING FOR SPECIAL TRANSACTIONS Final Exam

MALINAO, CHATTY
BSA 3 – 2A
ACCOUNTING FOR SPECIAL TRANSACTIONS
PRE-FINAL EXAMINATION
1. Gray Co., which began operations on January 1, 2017, appropriately uses the installment
method of accounting. The following information pertains to Gray operations for the 2017:
Installment sales P500,000
Regular sales 300,000
Cost of installment sales 250,000
Cost of regular sales 150,000
General and administrative expenses 50,000
Collections on installment sales 100,000
In its December 31, 2017 statement of financial position, what amount should Gray report
as deferred gross profit?
a. P250,000 b. P200,000 c. P160,000 d. P75,000
2. The Brownout Inc. began operating at the start of the calendar year 2017 uses the
installment method of accounting:
Installment sales P400,000
Gross margin based on cost 66 2/3%
Inventory, December 31, 2017 80,000
Accounts receivable, December 31, 2017 320,000
The balance of the deferred gross profit account at December 31, 2017 should be
a. P192,000 b. P96,000 c. P128,000 d. P80,000
3. The company uses the installment method of accounting to recognize income. Pertinent
data are as follows:
2015 2016 2017
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 end

2015 P52,500.00 P15,000.00 P-
2016 - 54,000.00 9,000.00
2017 - - 72,000.00
The total balance of the Installment Accounts Receivable on December 31, 2017 is:
a. P270,000 b. P277,500 c. P279,000 d. P300,000
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4. Quincy Enterprises uses the installment method of accounting and has the following data at
year-end:
Gross margin on cost 66 2/3%
Unrealized gross profit P192,000
Cash collections including down payments 360,000

What was the total amount of sale on installment basis?
a. P480,000 b. P648,000 c. P552,000 d. P840,000
5. Polo Company appropriately uses the installment sales method of recognizing revenue. On
December 31, 2017, the accounting records show unadjusted balances of the following:
Installment accounts receivable – 2015 P12,000
Installment accounts receivable – 2016 40,000
Installment accounts receivable – 2017 130,000
Deferred gross profit – 2015 10,500
Gross profit rates:
2015 35%
2016 34%
2017 32%
For the year ended December 31, 2017, compute (1) total realized gross profit and (2) the
total cash collections in 2017:
a. (1) P182,000; and (2) P135,400 c. (1) P158,000; and (2) P368,400
b. (1) P76,000; and (2) P233,000 d. (1) P106,000; and (2) P97,600
6. Bally Company, which began operations on January 2, 2017 appropriately, uses the
installment method of revenue recognition. The following data pertains to the company’s
for the 2017:
Installment sales P1,000,000
Installment accounts receivable written of 50,000
What is the balance of Deferred Gross Profit Account - 2017 on December 31, 2017?
a. P500,000 b. P150,000 c. P400,000 d. P320,000
7. Long Co., which began operations on January 1, 2017, appropriately uses the installment
method of accounting. The following information pertains to Long’s operations for the year
2017:
Installment sales P1,000,000
Regular sales 600,000
Cost of regular sales 300,000
What is the total comprehensive income on December 31, 2017?

a. P400,000 b. P200,000 c. P300,000 d. P100,000
8. In its first year of operations, Guijo Company’s sales were as follows:

Sales Basis Mark – up on Cost Sales
Cash 25% P250,000
Charge 33-1/3% 400,000
Installment 50% 600,000
The cost of goods sold for the year was P900,000.
If collections on installment sales during the year amounted to P240,000, how much was the
total gross profit realized at the end of the year?
a. P50,000 b. P60,000 c. P80,000 d. P230,000
9. The following data pertained to Sta. Clara Co., construction jobs, which commenced during
2015.
Project 1 Project 2
Contract price P420,000 P300,000
Cost incurred during 2015 240,000 280,000
Estimated costs to complete 120,000 40,000
Billed to customers during 2015 150,000 270,000
Received from customers during 90,000 250,000
2015
If Sta. Clara Company used the percentage-of-completion method, what amount of gross
profit (loss) would Sta. Clara Company report in 2015?
a (P20,000) b. P20,000 c. P22,500 d. P40,000
.
10. Ernel Construction has consistently used the percentage-of-completion method. On

January 10, 2014, Ernel began working on P3,000,000 construction contract. At the inception
date, the estimated cost of construction was P2,250,000. The following data relate to the
progress of the contract:
Income recognized at December 31, 2014 P300,000
Costs incurred January 10, 2014 through December 31, 1,800,000
2015
Estimated cost to complete, December 31, 2015 600,000
In its income statement for the year ended December 31, 2015, what amount of gross profit
should Ernel report?
a P450,000 b. P300,000 c. P262,500 d. P150,000
.
11. The following information pertain to the building contract of Orlando Construction
Company, wherein the fixed contract price is P80 million.
2012 2013 2014
Estimated costs P20.1 million P30.15 million P16.75 million
Progress billings 10 million 25 million 45 million
Cash collection 8 million 23 million 49 million
Assume that all costs are incurred, all billings to customers are made, and all collections from
customers are received within 30 days of billings, as planned. Under the percentage of
completion method of revenue recognition, how much is the income from construction for
the year 2014?
a P3,900,000 b. P3,250,000 c. P9,750,000 d. P5,850,000
.
12. JC Construction, Inc. has consistently used the percentage of completion method of
recognizing income. During 2014, JC started working on a P3,000,000 fixed-price construction
contract. The accounting records disclosed the following data for the year ended December
31, 2014:
Cost incurred P930,000
Estimated cost to complete 2,170,000
Progress billings 1,100,000
Collections 700,000
How much loss should JC have recognized in 2014?

a P230,000 b. P100,000 c. P30,000 d. P0
.
13. CAT Corporation was tapped to build two private power plants in Kamanga and Lake
Sebu. The following information relates to these projects, which were started in 2014:
Kamanga Lake Sebu
Contract price P10,500,000 P7,500,000
Costs incurred to date 6,000,000 7,000,000
Estimated costs to complete 3,000,000 1,000,000
Billings during the year 3,750,000 6,750,000
Collections during the year 2,250,000 6,250,000
What is the gross profit (loss) of CAT for 2014 if the percentage of completion method is
used?
a P(500,000) b. P562,500 c. P1,000,000 d. P500,000
.
14. Diaz Company entered into a construction agreement in 2013 for the rip-rapping of Pier
4. The original contract price was P9,600,000 but a change order was issued in 2014
increasing the contract price by P480,000. Diaz uses the percentage of completion method of
revenue recognition on long-term construction contracts. The following information are
obtained on the project of 2013 and 2014
2013 2014
Cost incurred to date P4,920,000 P8,640,000
Estimated costs to complete 4,920,000 2,160,000
Billings made 5,280,000 8,520,000
Cash collections 4,380,000 7,500,000
What is the gross profit (loss) of Diaz on the project for 2014?
a P(960,000) b. P(480,000) c. P(1,080,000) d. P(840,000)
.
15. Philip Construction Company started a project with a contract price of P80 million. The
cost incurred to date is P12 million and the estimated cost to complete is still P48 million.
Under the cost to cost basis, how much is the income from construction?
a P4 million b. P8 million c. P20 million d. P32 million
.
16. Makati Company bills its Valenzuela Branch for merchandise at 140% of cost. At the end of
January 2015, the branch reported the following information:
Merchandise from Home
Office
(At Billed Price)
Inventory, January 1 P7,560
Shipments received 28,280
Inventory, January 31 8,400
What should be the balance of the allowance account for overvaluation of the branch
inventory at January 31, before adjustment?
a P2,400 b. P2,160 c. P9,080 d. P10,240
.
17. Charito Corporation retails merchandise through its home office store and through a branch
store in a distant city. The home office and the branch maintain separate ledgers. The
branch store purchases merchandise from the home office (at 120% of home office cost), as
well as from outside suppliers. Selected information from the December 31, 2014 trial
balances of the home office and branch is as follows:
Home Office Branch
Sales P120,000 P60,000
Shipments to branch 16,000
Purchases 70,000 11,000
Inventory, January 1, 2014 40,000 30,000
Shipments from home office 19,200
Expenses 28,000 12,000
Unrealized profit in branch inventory 7,200
Additional information:
a. The entire diference between the shipment account is due to the practice of
billing the branch at cost plus 20%.
b. The December 31, 2014 inventories are P40,000 and P20,000 for the home office
and the branch, respectively. (The branch purchased 16% of its ending inventory
from outside suppliers.)
c. Branch beginning and ending inventories include merchandise acquired from the
home office as well as from outside suppliers. Merchandise acquired from home
office is inventoried at 120% of home office cost.
Compute for the overvaluation of Cost of Goods Sold and Adjusted Branch Net Income
a. P4,400 and P50,200 respectively
b. P2,800 and P10,600 respectively
c. P7,200 and P15,000 respectively
d. P4,400 and P12,200 respectively
18. Following is the income statement of XYZ Branch in Cebu City Company, for the six months
period ending June 30, 2015:
Sales P620,000
Cost of sales:
Inventory, January 1 P 0
Shipments from Home Office 550,000
Purchases __50,000
Total available for sale P600,000
Inventory, December 31
From home office 75,000
From outsiders 10,000 515,000
Gross margin P105,000
Operating expenses 85,000
Net income P 20,000
The Home Office ships merchandise to and bills the Branch Office at 125% of cost.
The rent of the branch Office for six months at a monthly rate of P1,000 was paid by the
home. The Home Office net profit from its Branch Office in Cebu City for the six (6) months
ending June 30, 2015 is:
a P0 b. P124,000 c. P125,000 d. P109,000
.
19. Trial balances for the home office and the branch of the Helen Company show the following
accounts on December 31, 2015. The home office policy of billing the branch for
merchandise is 20% above cost.
Home Office Branch
Allowance for overvaluation of branch merchandise P10,800
Shipments to branch 24,000
Purchases (outsiders) P7,500
Shipments from home office 28,800
Merchandise inventory, January 1, 2015 45,000
What part of the branch inventory as of January 1, 2015 represents purchases from
outsiders and what part represents goods acquired from the home office?
Outsiders Home Office
a. P12,000 P33,000
b. P16,500 P28,500
c. P15,000 P30,000
d. P9,000 P36,000
20. The Cindy Company established a branch store in Makati on June 1, 2018. The Branch is to
receive substantially all merchandise for resale from the Home Office. During the
remainder of 2018, shipments to the branch amounted to 180,000 which included a 20%
markup on cost. The branch purchased 45,000 additional merchandise for cash and
reported unsold merchandise of 60,000 at year-end. The Branch made sales of 292,500,
paid expenses of 72,000 and remitted to the Home Office all sales proceeds.
The Allowance of Overvaluation of Branch Inventory account on the Home Office books
showed a balance of 7,500 after adjustment. What was the branch inventory on December
31, 2018 at cost?
a P54,000 b. P50,000 c. P5,000 d. P52,500
.
21. Using the information in no. 20, how much of the branch-ending inventory represented
purchases from outsiders?
a P15,000 b. P22,500 c. P30,000 d. P45,000
.
22. Using the information in no. 20, the branch profit per Home Office reckoning is:
a P55,500 b. P78,000 c. P79,500 d. P63,000
.
23. The Manila Branch of the Great Company is billed for merchandise by the home office at
20% above cost. The branch in turn, prices merchandise for sales purposes at 25% above
billed price. On February 29, all of the branch merchandise is destroyed by fire. No
insurance was maintained. Branch accounts show the following information:
Merchandise inventory, January 1 (at billed price) P34,400
Shipments from home office (January 1 – February 29) 10,000
Sales 16,000
Sales returns 2,500
Sales allowances 1,000
What was the cost of merchandise destroyed by fire?
a P28,000 b P30,667 c. P36,800 d. P30,000
. .
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MALINAO, CHATTY

ACCOUNTING FOR SPECIAL TRANSACTIONS

Balance of Deferred Gross Profit at Year end

Cash collections including down payments 360,000

What is the total comprehensive income on December 31, 2017?

8. In its first year of operations, Guijo Company’s sales were as follows:

10. Ernel Construction has consistently used the percentage-of-completion method. On

How much loss should JC have recognized in 2014?

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