Use The Following Information For The Next Two Questions

Question 1
5 / 5 pts
Use the following information for the next two questions:

The trial balances of INTERIM TEMPORARY Co.’s home office and branch are shown
below:
INTERIM TEMPORARY Co.
Trial balance
December 31, 20x1

Home
Branch
office
Dr. (Cr.) Dr. (Cr.)
Cash 4,400,000 1,668,000
Accounts receivable 720,000 400,000
Inventory, beg. 2,600,000 -
Shipments from home office - 920,000
Purchases 288,000 160,000
Freight-in 88,000 72,000
Shipments to branch (920,000)

Investment in branch 3,308,000
Equipment 2,880,000 1,600,000
Accumulated depreciation - equipment (288,000) (160,000)
Furniture 360,000 200,000
Accumulated depreciation - furniture (36,000) (20,000)
Accounts payable (288,000) (160,000)
Accrued expenses (180,000) (100,000)
Share capital (8,000,000)
Share premium (2,000,000)
Retained earnings - beg. (824,800)
Home office - (3,308,000)
Sales (3,600,000) (2,000,000)
Depreciation expense 672,000 272,000
Utilities expense 72,000 40,000
General overhead expense 28,800 16,000

Various operating expenses 720,000 400,000
Totals - -

The home office and the branch have ending inventories of ₱1,080,000 and ₱600,000,
respectively. How much is the total assets in the combined statement of financial
position?

13,404,000

13,440,000

14,800,000

14,340,000

Question 2
5 / 5 pts
How much is the total profit in the combined statement of profit or loss of INTERIM
TEMPORARY Co.?

1,720,200

1,851,200

1,960,200

1,815,200

Question 3
5 / 5 pts
AMNESTY PARDON Co. is currently preparing its combined financial statements. At
December 31, 20x1, the home office shows a ₱624,000 balance in its “Investment in
branch” account while the branch showed a ₱280,800 balance in its “Home office” The
following information has been gathered:
 The home office shipped merchandise worth ₱80,000 to the branch during
December 20x1 which the latter has received and recorded only in January
20x2.
 The home office collected ₱40,000 accounts receivable on behalf of the
branch. The branch did not yet receive the credit memo sent by the home
office.
 The branch returned damaged merchandise worth ₱120,000 to the home
office. The home office did not yet receive the debit memo sent by the branch.
 A remittance of cash collections amounting to ₱160,000 was not yet recorded
by the home office.
 The home office allocated overhead cost of ₱20,000 to the branch which the
latter has recorded twice.
Freight charge of ₱48,000 paid by the home office for shipments of merchandise to the
branch was recorded by the latter as ₱4,800.

How much is the adjusted balance of the “home office” account?

324,000

344,000

364,000

354,000

Question 4
5 / 5 pts
ABASE HUMILIATE Co. is currently preparing its combined financial statements for the
year ended December 31, 20x1. As of this date, the “Investment in branch” account has a
balance of ₱380,000 while the “Home office” account has a balance of ₱528,000. The
following information has been gathered:
 The home office allocated unpaid utilities expenses amounting to ₱40,000 to

the branch which the branch did not record in full. Instead, the branch sent a
wrong adjusting memo to the home office reducing the charge by ₱10,000
and setting up a liability for the remaining amount.
 The home office erroneously credited the branch for a return of shipment of
merchandise worth ₱100,000. The branch did not make any return of
merchandise.
 The branch mistakenly received a copy of the home office correcting entry for
item (b) above dated January 3, 20x2 and entered a credit in favor of the
home office on December 31, 20x1.
The branch mistakenly sent the home office a debit memo amounting to ₱12,000 for an
apparent remittance of collections which did not happen. The home office did not record
the debit memo.

How much is the net adjustment to the “Home office” account? increase (decrease)

(52,000)

100,000

48,000

(48,000)

Question 5
5 / 5 pts
ABOMINABLE VERY BAD Co. has several branches. On December 31, 20x1,
the “Investment in Branch One” maintained by the home office shows a balance of
₱400,000 while the “Home office” account maintained by Branch One shows a balance of
₱568,000. The following information was determined:
 Branch Two acquired equipment for ₱120,000 to be maintained in the books

of the home office. This was recorded by the home office as a transaction with
Branch One.
 Branch One acquired equipment for ₱160,000 to be maintained in its books.
This was not recorded by the home office.
 Branch Four remitted cash collections of ₱40,000 to the home office which
the latter failed to record.
 The home office erroneously charged Branch One for a debit memo of
₱48,000 received from Branch Five.
 Branch One reversed a previous debit memo from Branch Six amounting to
₱24,000. The home office decided that this charge is appropriately Branch
Seven’s cost.

How much is adjusted balance of the “Home Office” account?

658,000

628,000

588,000

568,000

Question 6
5 / 5 pts
ASTATIC UNSTABLE Co. is currently preparing its combined financial statements. At
December 31, 20x1, the home office shows a ₱728,000 balance in its “Investment in
branch” The following information has been gathered during the reconciliation process:
 A credit memo sent by the home office to the branch amounting to ₱48,000
was not recorded by the branch.
 A debit memo sent by the home office to the branch amounting to ₱36,000
was not recorded by the branch.
 A credit memo sent by the branch to the home office amounting to ₱80,000
was recorded by the home office twice.
 A debit memo sent by the branch to the home office amounting to ₱120,000
was recorded by the home office as ₱12,000.
 The branch sent by mistake a credit memo amounting to ₱28,000 to the home
office. The home office did not record it.

How much is the unadjusted balance of the “Home office” account?

540,000

620,000

450,000

580,000

Question 7
5 / 5 pts
ABET ENCOURAGE Co. has several branches. On December 31, 20x1, the “Home
office” account maintained by Alpha Branch shows a balance of ₱580,000. The following
information was determined:
 The home office charged Alpha Branch for a ₱60,000 shipment which was
actually sent to Beta Branch and retained by the latter. Alpha Branch was not
notified of the intended shipment.
 The home office charged Charlie Branch for a ₱64,000 shipment which was
actually sent to Alpha Branch. Alpha Branch retained the shipment.
 The home office erroneously recorded a remittance for ₱20,000 from its Delta
Branch as coming from Alpha Branch.
 Utilities expense of ₱16,000 that is allocable to Echo Branch was recorded by
the home office in Alpha Branch’s account. Alpha Branch has inappropriately
recorded the related debit memo from the home office.

How much is the unadjusted balance of the “Investment in Alpha Branch” account in the
home office books?

564,000

556,000

654,000

565,000

Question 8
5 / 5 pts
The following information was taken from the books of the home office and its branch.
Shipments to branch are billed at 120% above cost.
How much is the combined profit?
Home office Branch
Dr. (Cr.) Dr. (Cr.)
Cash 4,400,000 264,000
Accounts receivable 720,000 400,000
Inventory, beg. 1,200,000 -
Shipments from home office 1,824,000

Purchases 4,800,000 160,000
Freight-in 128,000 72,000
Shipments to branch (1,520,000)
Investment in branch 2,400,000
Allowance for markup (304,000)
Equipment 2,880,000 1,600,000
Accumulated depreciation - equipment (288,000) (160,000)
Accounts payable (288,000) (160,000)
Share capital (8,000,000)
Retained earnings - beg. (608,000)
Home office (2,400,000)
Sales (6,400,000) (2,000,000)
Operating expenses 880,000 400,000
Totals - -
Inventory, end.
- From outside purchases 1,840,000 40,000
- From home office 960,000

4,300,000

3,400,000

3,440,000

4,340,000

Question 9
5 / 5 pts
ABC Co. decided to open a branch in Manila. Shipments of merchandise to the branch
totaled ₱54,000 which included a 20% mark-up on cost. The branch submitted the
following report summarizing its operations for the period ended December 31, 20x1.

Sales on account 74,000
Sales on cash basis 22,000
Collection of account 60,000
Expenses paid 38,000
Expenses unpaid 12,000
Purchase of merchandise for cash 26,000
Inventory on hand, Dec. 31; 80% from home office 30,000
Remittance to home office 55,000

How much is the branch’s ending inventory at cost?

22,000

26,000

23,000

20,000

Question 10
5 / 5 pts
How much is the profit (loss) of the branch as far as the home office is concerned?

1,000

(4,000)

800

(1,000)

Question 11
5 / 5 pts
ABC Co. operates a branch in Davao. There are shipments in transit from home office to
the branch. The home office ships merchandise to the branch at 125% of cost in year
20x1. Profit and loss data for the home office and branch for 20x1 follows:
Home Branc
Office h
Sales 250,000 75,000

Purchase from outsiders 200,000 15,000
Shipments to branch/from home office:
Cost to Home Office 30,000
Billing price to branch 32,500
Expenses 40,000 10,000
Inventories, Jan. 1, 20x1:
Home Office, acquired from outsiders,

80,000
at cost
Branch: Acquired from outsiders at cost 7,500
Acquired from home office at billing price

24,000
which averaged 20% above cost
Inventories, Dec. 31, 20x1:
Home Office, acquired from outsiders

55,000
at cost
Branch: Acquired from outsiders at cost 5,500
Acquired from Home Office, in 20x1,

21,000
at billed price (physical count)

How much is the amount of merchandise in transit at billed price?

5,000

3,500

3,000

5,500

Question 12
5 / 5 pts
How much is the combined cost of goods sold?

240,000

242,400

241,200

245,200

Question 13
5 / 5 pts
Shipments received from the home office are billed at 120% above cost. During the year,
the branch received shipments billed at ₱480,000 and returned damaged goods with
billed price of ₱72,000. The branch has an ending inventory of ₱120,000, at billed price.
The branch reported loss of ₱40,000 in its individual financial statements.

How much is the balance of the “allowance for markup” account before year-end
adjustments?

86,000

68,000

72,000

64,000

Question 14
5 / 5 pts
How much is the true profit of the branch to be taken up in the home office books?

9,000

8,000

14,000

12,000

Question 15
5 / 5 pts
The home office bills shipments of merchandise to its branch at a markup of 20% based
on the billed price. At the beginning of the period, the “Allowance for markup” account
has a credit balance of ₱16,000. During the period, the home office made shipments of
goods worth ₱960,000, at cost. The branch reported an ending inventory of ₱480,000,
at billed price.

How much is the realized markup?

180,000

160,000

240,000

120,000

Question 16
5 / 5 pts
The depreciation expense on equipment carried in the books of the home office but used
by the branch is recorded in the branch’s books as

Debit to investment in branch and credit to accumulated depreciation

Debit to depreciation expense and credit to investment in branch

Debit to depreciation expense and credit to home office account

Not recorded

Question 17
5 / 5 pts
The branch records a debit memo received from the home office as

Debit to investment account

Credit to home office account

Debit to allocated expense

Debit to home office account

Incorrect Question 18
0 / 5 pts
Which of the following statements is/are true?
I: The home office and branch report individual profits of P25 and P10, respectively. If
the realized mark-up on inventory shipments to branch billed above cost is P5, the
combined profit must be P40.
II: The “Investment in branch” is an asset account in the home office’s individual financial
statements.

Both I and II

None

I only

II only

Question 19
5 / 5 pts
Which of the following statements is/are false?
I: Unlike for a “sales agency”, a “branch” does not have its own separate books of
accounts and prepares its own financial statements.
II: Transactions of a branch with external parties are recorded in the regular manner.

I only

II only

None

Both I and II

Question 20
5 / 5 pts
Which of the following statements is/are false?
I: Inter-branch transfers of assets are recorded as if the branches are transacting with
the home office rather than with each other.
II: The home office records inventory shipments to the branch by crediting the
‘shipments to branch’ account.

II only

None

Both I and II

I only

Question 21
5 / 5 pts
ABC Co. has the following information:
20x1 20x2
Installment sales ? ?
Cost of sales 600,000 660,000
Installment receivable - 20x1 600,000 400,000
Installment receivable - 20x2 720,000
Gross profit rates based on sales 40% 45%

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

296,000

268,000

189,000

326,000

Question 22
5 / 5 pts
ABC Co.’s records show the following information:
20x1 20x2
Deferred gross profit (adjusted ending balances):
from 20x1 sale 240,000 160,000
from 20x2 sale 324,000
Cash collections from:
20x1 sales 400,000 200,000
20x2 sales 480,000

How much is the total installment receivable on December 31, 20x2?

1,280,000

1,000,000

720,000

1,120,000

Question 23
5 / 5 pts
ABC Co.’s records show the following information:
20x1 20x2
Deferred gross profit (adjusted ending balances):

from 20x1 sale 240,000 160,000
from 20x2 sale 324,000
20x1 sales 400,000 200,000
20x2 sales 480,000
How much are the installment sales in 20x1 and 20x2, respectively?

a. 1,000,000 1,200,000

b. 1,000,000 1,120,000

c. 600,000 480,000

d. 900,000 720,000

Question 24
5 / 5 pts
ABC Co. uses the installment sales method. The following information was taken from
ABC’s records:

20x1 20x2

Installment sales 1,000,000 1,200,000
Cost of sales 600,000 660,000
20x1 sales 400,000 200,000
20x2 sales 480,000

How much is the total deferred gross profit on December 31, 20x2?

b. 484,000

d. 504,000

a. 324,000

c. 284,000

Question 25
5 / 5 pts
ABC Co. uses the installment sales method. ABC Co. has the following collection policy
on its installment sales:
 20% down payment

 Balance collectible as follows: 50% in the year of sale, 30% in the second year,
and 20% in the third year.
 Installment sales during 20x1, 20x2 and 20x3 were ₱1,200,000, ₱1,500,000
and ₱1,800,000, respectively.
 Gross profit rate throughout the three years was 40% based on sales.

How much are the realized gross profits in 20x1, 20x2 and 20x3, respectively?

c. 288,000 457,200 652,800

a. 288,000 475,200 652,800

d. 286,000 487,200 632,800

b. 276,000 475,200 628,600

Question 26
5 / 5 pts
Use the following information for the next three questions:
Rooster Co. uses the installment sales method. Relevant information follows:
20x1 20x2
Sales 300,000 480,000
Cost of sales 240,000 336,000

Rooster Co. repossessed a property that was sold in 20x1 for ₱50,000. Total collections
from this sale were ₱24,000. Rooster Co. expects to resell the property for ₱30,000
after reconditioning costs of ₱4,000. The normal profit margin on resale of repossessed
property is 30%.

How much is the gain or loss on repossession?

a. 3,200

b. 3,800

c. 4,300

d. 2,900

Question 27
5 / 5 pts
20x1 20x2
Sales 300,000 480,000
Cost of sales 240,000 336,000

property is 30%.
How much is the total realized gross profit in 20x2?

c. 53,200

b. 54,800

d. 51,600

a. 56,000

Question 28
5 / 5 pts
20x1 20x2
Sales 300,000 480,000
Cost of sales 240,000 336,000

property is 30%.
How much is the profit recognized in 20x2?

b. 54,800

d. 51,600

c. 51,000

a. 56,000

IncorrectQuestion 29
0 / 5 pts
Garden Co. uses the installment sales method. Garden Co. sells a good costing ₱10,000
for an installment sale price of ₱16,000. Garden Co. accepts old merchandise as down
payment and gives the customer a trade-in value of ₱4,000 for this merchandise. The
fair value of the old merchandise is ₱6,000. Subsequent cash collections during the
period amount to ₱6,000. How much is the realized gross profit recognized in the year
of sale?

a. 5,444

d. 6,667

c. 5,333

b. 5,966

0 / 5 pts
Demolish Co. uses the “cost recovery method” (traditional accounting based on old US
GAAP). The records of Demolish Co. show the following information:
20x1 20x2
Sales 10,000 15,000

Cost of sales 8,000 9,000
Cash collections:
- from 20x1 sales 7,000 3,000
- from 20x2 sales 12,000

How much is the gross profit recognized by Demolish in 20x2?

b. 5,000

c. 3,000

a. 0

d. 2,000

0 / 5 pts
In a consignment arrangement, which party bears the inventory risk and credit risk?

b. Consignor Consignee

a. Consignor Consignor

c. Consignee Consignor

d. Consignee Consignee

Question 32
5 / 5 pts
ABC Co. produces a wide variety of frozen foods. Due to the faltering economy, ABC
closed its provincial sales outlets. Instead, ABC outsourced various distributors to sell its
products. Each distributor accepting delivery shall pay ABC 10% of the factory selling
price of the goods delivered and accepted. However, if the distributor fails to sell all of
the goods accepted before their expiration dates, ABC is obligated to repurchase the
unsold goods. In June 20x1, ABC delivered goods with total factory selling price of
₱10,000,000 to its distributors. ABC received 10% of the total factory selling price of
the goods delivered. When should ABC recognize revenue from the goods delivered?

a. When the goods are shipped to the distributor.

b. When the goods are sold to the ultimate customers.

d. When ABC receives the 10% of the total factory selling price of the goods delivered.

c. When the distributor pays ABC Co.

Question 33
5 / 5 pts
Black Co., a consignee, paid the freight costs for goods shipped from White Co., a
consignor. These freight costs are to be deducted from Black’s payment to White when
the consignment goods are sold. Until Black sells the goods, the freight costs should be
included in Black’s

Receivable

Selling expenses

Cost of goods sold

Freight-out costs

Question 34
5 / 5 pts
Goods on consignment should be included in the inventory of

c. both the consignor and consignee.

d. neither the consignor nor the consignee.

a. the consignee but not the consignor.

b. the consignor but not the consignee.

0 / 5 pts
Micrium, a computer chip manufacturing company, sells its products to its distributors
for onward sales to the ultimate customers. Due to frequent fluctuations in the market
prices for these goods, Micrium has a “price protection” clause in the distributor
agreement that entitles it to raise additional billings in case of upward price movement.
Another clause in the distributor’s agreement is that Micrium can at any time reduce its
inventory by buying back goods at the cost at which it sold the goods to the distributor.
Distributors pay for the goods within 60 days from the sale of goods to them. When
should Micrium recognize revenue on sale of goods to the distributors?

c. When goods are sold to the distributor provided estimated additional revenue is also
booked under the “protection clause” based on past experience.

d. When the distributor sells goods to the ultimate customers and there is no uncertainty
with respect to the “price protection” clause or the buyback of goods.

a. When the goods are sold to the distributors.

b. When the distributors pay to Micrium the cost of the goods (i.e., after 60 days of the
sale of goods to the distributors).

0 / 5 pts
On November 30, 20x1, Northup Co. consigned 90 freezers to Watson Co. for sale at
₱1,600 each and paid ₱1,200 in transportation costs. A report of sales was received on
December 30, 20x1 from Watson reporting the sale of 20 freezers, together with a
remittance that was net of the agreed 15% commission. How much should Northup
recognize as sales revenue in the months of November and December, respectively?

c. 144,000 0

d. 142,800 0

a. 0 32,000

b. 0 27,200

Question 37
5 / 5 pts
On December 1, 20x1, Alt Department Store received 505 sweaters on consignment
from Todd. Todd’s cost for the sweaters was ₱80 each, and they were priced to sell at
₱100 each. Alt’s commission on consigned goods is 10%. At December 31, 20x1, 5
sweaters remained. In its December 31, 20x1 balance sheet, what amount should Alt
report as payable for consigned goods?

40,400

45,400

45,000

49,000

Question 38
5 / 5 pts
Aircon, Inc. consigned ten one-horsepower air conditioning units to Argy Trading and
paid ₱2,000 for the freight. The consignee is allowed a commission of 5% on sales. Argy
Trading submitted the following report at the end of the period:

Sales (6 units) 72,000
Less: Advances to Aircon, Inc. 10,000
Selling expenses 800
Installation and delivery 1,200
Commission 7,200 19,200
Net remittance 52,800

The selling expenses and the installation and delivery costs are chargeable to Aircon.
Aircon consistently marks-up its inventories at a 12.50% gross profit rate based on sales
price. This does not reflect any freight. How much was Aircon’s profit or loss on the
consignment?

a. 52,800 profit

c. 2,200 profit

d. 1,400 loss

b. 7,800 loss

0 / 5 pts
Wing Co. consigned eight printing machines to Wind Co. Each machine costs
₱1,000,000 and has a suggested retail price of ₱2,100,000. Wing paid ₱200,000 in
transporting the machines to the consignee’s place of business. At the end of the period,
Wind remitted ₱8,417,500 to Wing representing collections on sales during the period,
after deducting the following:
Commission (based on sales net of commission) 20%
Finder’s fee (based on commission) 5%
Delivery, installation and testing (on each unit sold) ₱50,000

Materials generated from the testing were sold for ₱5,000 and included in the
remittance to Wing Co. Wing Co. appropriately reported ending inventory of
₱3,075,000 for the unsold consigned machines.

How much is the commission earned by the consignee?

d. 2,450,000

a. 1,750,000

b. 2,100,000

c. 2,250,000

Question 40
5 / 5 pts
Wing Co. consigned eight printing machines to Wind Co. Each machine costs
₱1,000,000 and has a suggested retail price of ₱2,100,000. Wing paid ₱200,000 in
transporting the machines to the consignee’s place of business. At the end of the period,
Wind remitted ₱8,417,500 to Wing representing collections on sales during the period,
after deducting the following:
Commission (based on sales net of commission) 20%
Finder’s fee (based on commission) 5%
Delivery, installation and testing (on each unit sold) ₱50,000

Materials generated from the testing were sold for ₱5,000 and included in the
remittance to Wing Co. Wing Co. appropriately reported ending inventory of
₱3,075,000 for the unsold consigned machines.
How much profit is earned by the consignor from the sale?

d. 3,092,500

c. 3,195,500

b. 3,292,500

a. 3,642,500

Question 1
1 / 1 pts
State the correct sequence of the following steps of revenue recognition under PFRS 15.
I. Determine the transaction price
II. Recognize revenue when (or as) the entity satisfies a performance obligation
III. Identify the performance obligations in the contract
IV. Allocate the transaction price to the performance obligations in the contract
V. Identify the contract with the customer

d. V, I, III, IV, II

b. V, I, IV, III, II

c. V, III, I, IV, II

a. V, IV, II, I, III

Question 2
1 / 1 pts
Which of the following correctly relates to ‘Step 2’ in the recognition of revenue under
PFRS 15?

a. The entity shall assess the customer’s ability and intention to pay the consideration in
the contract when they become due.

d. The entity shall recognize revenue when (or as) a performance obligation is satisfied.

b. The entity shall determine the transaction price and shall consider whether the
transaction price includes, among other things, a variable consideration or significant
financing.

c. The entity shall treat each promise to transfer a distinct good or service as a
performance obligation.

Question 3
1 / 1 pts
According to PFRS 15, a good or service is distinct if

d. b and c

a. it is tangible.

b. the customer can benefit from it, either on its own or together with other resources
that are readily available to the customer.

c. the good or service is separately identifiable.

IncorrectQuestion 4
0 / 1 pts
If an entity’s promise to grant a license is not distinct,

d. US GAAP (FAS No. 45) is applied to determine whether there is substantial
performance of the initial services required in the contract.

c. both the general and specific principles are used to determine whether the
performance obligation is satisfied over time or at a point in time and whether the
nature of the promise to grant the license is a ‘right to access’ or a ‘right to use.’

a. the general principles of PFRS 15 are applied to determine whether the performance
obligation is satisfied over time or at a point in time.

b. the specific principles of PFRS 15 are applied to determine whether the performance
obligation is satisfied over time or at a point in time.

IncorrectQuestion 5
0 / 1 pts
An entity, a movie distribution company, licenses Movie XYZ to a customer. The
customer, an operator of cinemas, has the right to show the movie in its cinemas for six
weeks. In exchange for providing the license, the entity will receive a portion of the
operator’s ticket sales for Movie XYZ. Which of the following statements is incorrect?

c. The transaction price is a variable consideration.

a. The only performance obligation in the contract is the promise to grant the license.

b. The fact that the performance obligation in the contract is satisfied over time or at a
point in time is irrelevant when determining how revenue is recognized on the contract.

d. The entity shall estimate the variable consideration, subject the estimate to the
“constraining’ principle of PFRS 15, and recognize the resulting amount at the point in
time when the license is transferred to the customer.

IncorrectQuestion 6
0 / 1 pts
On Nov. 1, 20x1, DRINK Co. entered into a franchise contract with TIPPLE Co. The
franchise agreement requires an initial franchise fee that is payable as follows: 20%
down payment at the signing of the contract, and the balance due in four equal annual
payments starting November 1, 20x2. The license period is 4 years. The franchise
contract requires DRINK Co. to undertake pre-opening activities necessary to setup the
contract and post-opening activities that would further improve the intellectual property
to which the franchisee has rights. All the preopening activities are completed, and
TIPPLE Co. started operations, on January 31, 20x2. How should DRINK Co. recognize
revenue from the initial franchise fee?

b. The sum of the cash down payment and the present value of the deferred balance are
recognized as revenue over the license period.

c. The cash down payment is recognized in full on January 1, 20x2 but the balance is
amortized over the license period.

a. The sum of the cash down payment and the present value of the deferred balance are
recognized as revenue in full on January 31, 20x1.

d. The cash down payment is recognized in full on January 31, 20x2 but the balance is
amortized over the license period.

IncorrectQuestion 7
0 / 1 pts
On December 1, 20x1, CANOROUS Co. granted a 5-year franchise right to
MELODIOUS, Inc. for an initial franchise fee of ₱400,000 and a 10% sales-based royalty.
The initial franchise fee is non-refundable and due upon signing of the contract. At
contract inception, CANOROUS determines that the nature of its promise to grant the
license is to provide the customer with the right to access CANOROUS’s intellectual
property as it exist throughout the license period. As of December 31, 20x1,
CANOROUS has no remaining obligation or intent to refund any of the cash received, all
the initial services necessary to setup the contract have been performed, and
MELODIOUS started operating the franchised business. MELODIOUS reported sales of
₱800,000 for 20x1. How much revenue shall CANOROUS recognize in 20x1?

86,667

80,000

0

480,000

Question 8
1 / 1 pts
On January 1, 20x1, Sunbathe Co. enters into a contract with a customer to transfer a
license.
 The initial franchise fee is ₱100,000 payable as follows: 20% cash down
payment upon signing of the contract and the balance is payable in 4 equal
annual installments starting December 31, 20x1. The appropriate discount
rate is 12%.
 The contract states that the initial franchise fee consists of ₱30,000
consideration for the equipment that Sunbathe Co. will transfer to the
customer and the ₱70,000 balance for the franchise rights.
 Sunbathe regularly sells the equipment and the license separately. The stand-
alone selling prices are ₱40,000 for the equipment and ₱38,000 for the
license.
 The license provides the customer the “right to use” Sunbathe’s intellectual
property as it exists at the point in time at which the license is granted.
 The equipment is transferred to the customer on January 15, 20x1, while the
license is transferred to the customer on February 1, 20x1.
The journal entry on Jan. 1, 20x1 includes a _____ to Contract Liability for __________.
(Sunbathe Co. uses ’Unearned interest income’ account.)

dedit; 80,747

dedit; 80,000

credit; 80,000

credit; 80,747

IncorrectQuestion 9
0 / 1 pts
license.
rate is 12%.
license.
The journal entry on Jan. 15, 20x1 includes a ______ to Revenue for ______. (Sunbathe
Co. recognizes interest income only at year-end.)

Debit; 40,409

Credit; 41,409

Debit; 41,409

Credit; 40,409

0 / 1 pts
license.
rate is 12%.
license.
The journal entry on Feb. 1, 20x1 includes a ______ to Revenue for ______.

Debit; 38,338

Credit; 39,338

Debit; 39,338

Credit; 38,338

0 / 1 pts
The primary issue in the accounting for construction contracts is

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.

the allocation of contract revenue and contract costs to the accounting periods in which
construction work is performed

the allocation of costs of a long-lived asset to permit the proper matching of costs with
revenues.

the determination of the percentage of completion and revenue to be recognized during
the period.

0 / 1 pts
According to PFRS 15, each contract is accounted for separately. However, two or more
contracts entered into at or near the same time with the same customer are combined
and accounted for as a single contract if any of the following conditions are met, except

The contracts are negotiated as a package with a single commercial objective.

At contract inception, the collectability of the consideration is probable of collection.

Some or all of the goods or services promised in the contracts are a single performance
obligation.

The amount of consideration to be paid in one contract depends on the price or
performance of the other contract.

Question 13
1 / 1 pts
Which of the following does not indicate that a promise to transfer a good or service is
separately identifiable?

The good or service is not highly interrelated with other goods or services promised in
the contract.

The good or service is not an input to a combined output specified by the customer.

The customer’s decision of not purchasing a good or service affects the other promised
goods or services in the contract.

The good or service does not significantly modify another good or service promised in
the contract.

0 / 1 pts
Information on Red Hot Co.’s construction contracts with customers which commenced
during 20x1 is shown below:
Contract Contract

1 2
Contract price 420,000 300,000
Costs incurred during the year 240,000 280,000
Estimated costs to complete 120,000 40,000
Progress billings 150,000 270,000
Collections 90,000 250,000

At contract inception, Red Hot Co. assessed that its performance obligation in each of
Contract 1 and Contract 2 is satisfied over time. Red Hot Co. uses the ‘cost-to-cost’
method in measuring its progress on the contract. How much total profit (loss) is
recognized from the two contracts in 20x1?

20,000

0

(20,000)

40,000

0 / 1 pts
Contract Contract

1 2

Contract 1 and Contract 2 is satisfied over time. However, Red Hot Co. determined that
the outcome of the performance obligation in each of the contracts cannot be
reasonably measured but contract costs incurred are recoverable. How much total profit
(loss) is recognized from the two contracts in 20x1?

(20,000)

20,000

40,000

0

0 / 1 pts
Contract Contract

1 2

Contract 1 and Contract 2 is satisfied at a point in time, that is, when the construction is
completed. How much total profit (loss) is recognized from the two contracts in 20x1?

20,000

0

40,000

(20,000)

Question 17
1 / 1 pts
VALEDICTION Construction Co. entered into an ₱80M 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 ₱
VALEDICTION incurred the following costs in the first year of the construction:

Costs of negotiating the contract (charged immediately

400,000
as expense)
Costs of materials used in construction 12,000,000
Costs of materials purchased but not yet used in

2,000,000
Construction
Site labor costs 4,000,000
Site supervision costs 800,000
Depreciation of equipment used in construction 480,000
Depreciation of idle equipment not used in the 240,000

Contract
Costs of moving equipment and materials to and from

160,000
the construction site
Costs of hiring equipment 560,000
Advance payment to subcontractor (the subcontracted

80,000
work is not yet started)

How much revenue is recognized in the first year of the contract?

46 million

25 million

45 million

36 million

0 / 1 pts
On July 1, 20x1, Contractor Co. enters into a contract with a customer for the
construction of a building. At contract inception, Contractor Co. assesses the contract in
accordance with the principles of PFRS 15 and concludes that it has a single
performance obligation that is satisfied over time. Contractor Co. then determines that
the appropriate measure of its progress on the contract is input method based on costs
incurred. Information on the contract is shown below:

Contract price 600,000
Contract costs incurred during 20x1 120,000
Estimated remaining costs as of Dec. 31,

240,000
20x1
Billings to the customer during 20x1 180,000
Collections on billings during 20x1 60,000

What amount of revenue is recognized on the contract in 20x1?

240,000

200,000

180,000

220,000

0 / 1 pts
On July 1, 20x1, Contractor Co. enters into a contract with a customer for the
construction of a building. At contract inception, Contractor Co. assesses the contract in
accordance with the principles of PFRS 15 and concludes that it has a single
performance obligation that is satisfied over time. Contractor Co. then determines that
the appropriate measure of its progress on the contract is input method based on costs
incurred. Information on the contract is shown below:

Contract price 600,000
Contract costs incurred during 20x1 120,000
Estimated remaining costs as of Dec. 31,

240,000
20x1
Billings to the customer during 20x1 180,000
Collections on billings during 20x1 60,000

What amount of Contract Asset (Liability) is presented in Contractor Co’s. statement of
financial position under PFRS 15?

40,000

(40,000)

(20,000)

20,000

0 / 1 pts
In 20x1, Silverchair Co., a construction company, enters into a contract with a customer
for the construction of a building. The contract states a fixed fee of ₱8,700,000.
Silverchair’s performance obligation in the contract is satisfied over time. Silverchair uses
the ‘cost-to-cost’ method in measuring its progress in the contract. Information on the
contract follows:

20x1 20x2
Estimated total costs at completion 6,525,000 6,960,000
Percentage of completion 15% 65%


978,750

1,131,000

840,750

804,750

0 / 1 pts
In 20x1, Gorgeous Too Co. enters into a fixed-price construction contract with a
customer. At contract inception, Gorgeous Too Co. assesses its performance obligations
in the contract and concludes that it has a single performance obligation that is satisfied
over time. Gorgeous Too Co. determines that the measure of progress that best depicts
its performance on the contract is input method based on costs incurred.

Information on the contract follows:
20x1 20x2
Cumulative contract costs incurred 2,250,000 4,800,000

Cumulative profits recognized 750,000 1,200,000
Progress billings 2,400,000 3,600,000
Collections on progress billings 2,000,000 4,000,000

The contract is completed in 20x2.

What amount of revenue is recognized in 20x2?

3,000,000

2,800,000

6,000,000

4,800,000

0 / 1 pts
In 20x1, Gorgeous Too Co. enters into a fixed-price construction contract with a
customer. At contract inception, Gorgeous Too Co. assesses its performance obligations
in the contract and concludes that it has a single performance obligation that is satisfied
over time. Gorgeous Too Co. determines that the measure of progress that best depicts
its performance on the contract is input method based on costs incurred.

Information on the contract follows:
20x1 20x2
Cumulative contract costs incurred 2,250,000 4,800,000
Cumulative profits recognized 750,000 1,200,000
Progress billings 2,400,000 3,600,000
Collections on progress billings 2,000,000 4,000,000

The contract is completed in 20x2.

How much is the transaction price in the contract?

6,000,000

9,000,000

5,000,000

7,000,000

Question 23
1 / 1 pts
In 20x1, ABC Co. was contracted to build a railroad. The contract price is equal to the
construction costs incurred plus 20% thereof. However, if the project is completed
within 4 years, ABC will receive an additional payment of ₱200,000. Information on the
project is shown below:
20x1 20x2 20x3

Costs incurred to date 2,400,000 4,575,000 6,125,000
Estimated costs to complete 3,600,000 1,525,000 125,000

In 20x1 and 20x2, it was not highly probable that the project will be completed on time.
However, in 20x3, ABC assessed that project will be completed earlier than originally
expected and thus it is now highly probable that the incentive payment will be received.

How much revenue is recognized on the contract in 20x3?

2,022,000

2,056,000

2,610,000

2,595,000

0 / 1 pts
In 20x1, ABC Co. was contracted to build a railroad. The contract price is equal to the
construction costs incurred plus 20% thereof. However, if the project is completed
within 4 years, ABC will receive an additional payment of ₱200,000. Information on the
project is shown below:
20x1 20x2 20x3
Costs incurred to date 2,400,000 4,575,000 6,125,000
Estimated costs to complete 3,600,000 1,525,000 125,000

In 20x1 and 20x2, it was not highly probable that the project will be completed on time.
However, in 20x3, ABC assessed that project will be completed earlier than originally
expected and thus it is now highly probable that the incentive payment will be received.

How much profit is recognized on the contract in 20x3?

506,000

634,000

595,000

603,000

0 / 1 pts
In 20x1, Salamagi Co. entered into a contract with a customer. The contract stipulates
the following:
 Contract price of ₱20,000,000

 5% mobilization fee due upon signing of the contract, to be deducted from the
final billing
 10% customer retention on all subsequent progress billings, to be paid to
Salamagi on completion of the project

Salamagi Co. estimated a ₱5,000,000 gross profit from the project. The percentage of
completion method will be used. In 20x1, Salamagi billed the customer for 50%
completion of the project. The customer accepted all the billings, except one for 10%
which was accepted on January of the following year. All the accepted billings were
collected during the year except an 8% billing which was due January of the following
year.

What is the amount of profit recognized from the contract in 20x1?

2,650,000

2,500,000

2,900,000

2,720,000

0 / 1 pts
In 20x1, Salamagi Co. entered into a contract with a customer. The contract stipulates
the following:
 Contract price of ₱20,000,000

 5% mobilization fee due upon signing of the contract, to be deducted from the
final billing
 10% customer retention on all subsequent progress billings, to be paid to
Salamagi on completion of the project

Salamagi Co. estimated a ₱5,000,000 gross profit from the project. The percentage of
completion method will be used. In 20x1, Salamagi billed the customer for 50%
completion of the project. The customer accepted all the billings, except one for 10%
which was accepted on January of the following year. All the accepted billings were
collected during the year except an 8% billing which was due January of the following
year.

What is the total amount of collections from the billings in 20x1?

5,760,000

6,400,000

7,400,000

6,760,000

0 / 1 pts
In November 20X2, an entity contracts with a customer to refurbish a 3-storey building
and install new elevators for a total consideration of ₱5,000,000. The promised
refurbishment service, including the installation of elevators, is a single performance
obligation satisfied over time. Total expected costs are ₱4,000,000, including
₱1,500,000 for the elevators. The entity determines that it acts as a principal because it
obtains control of the elevators before they are transferred to the customer.

A summary of the transaction price and expected costs is as follows:

Transaction price ₱5,000,000
Expected costs:
Elevators ₱1,500,000
Other costs 2,500,000
Total expected costs ₱4,000,000

The entity uses an input method based on costs incurred to measure its progress
towards complete satisfaction of the performance obligation. The customer obtains
control of the elevators when they are delivered to the site in December 20X2, although
the elevators will not be installed until June 20X3. The costs to procure the elevators are
significant relative to the total expected costs to completely satisfy the performance
obligation. The entity is not involved in designing or manufacturing the elevators.

As of December 31, 20X2, the entity has incurred total costs of ₱500,000, excluding the
cost of the elevators.

How much revenue is recognized in 20X2?

2,500,000

0

1,000,000

2,200,000

0 / 1 pts
In November 20X2, an entity contracts with a customer to refurbish a 3-storey building
and install new elevators for a total consideration of ₱5,000,000. The promised
refurbishment service, including the installation of elevators, is a single performance
obligation satisfied over time. Total expected costs are ₱4,000,000, including
₱1,500,000 for the elevators. The entity determines that it acts as a principal because it
obtains control of the elevators before they are transferred to the customer.

A summary of the transaction price and expected costs is as follows:

Expected costs:
Elevators ₱1,500,000
Other costs 2,500,000
Total expected costs ₱4,000,000

The entity uses an input method based on costs incurred to measure its progress
towards complete satisfaction of the performance obligation. The customer obtains
control of the elevators when they are delivered to the site in December 20X2, although
the elevators will not be installed until June 20X3. The costs to procure the elevators are
significant relative to the total expected costs to completely satisfy the performance
obligation. The entity is not involved in designing or manufacturing the elevators.

As of December 31, 20X2, the entity has incurred total costs of ₱500,000, excluding the
cost of the elevators.

How much profit is recognized from the contract in 20X2?

200,000

0

220,000

265,000

Question 29
1 / 1 pts
An entity, a construction company, enters into a contract to construct a commercial
building for a customer on customer-owned land for a promised consideration of ₱1
million and a bonus of ₱200,000 if the building is completed within 24 months. The
entity accounts for the promised bundle of goods and services as a single performance
obligation satisfied over time because the customer controls the building during
construction. At the inception of the contract, the entity expects the following:
Expected costs 700,000
Expected profit (30%) 300,000

At contract inception, the entity does not expect to receive the bonus because it cannot
conclude that it is highly probable that a significant reversal in the amount of cumulative
revenue recognized will not occur. Completion of the building is highly susceptible to
factors outside the entity’s influence, including weather and regulatory approvals. In
addition, the entity has limited experience with similar types of contracts.

The entity determines that the input measure, on the basis of costs incurred, provides an
appropriate measure of progress towards complete satisfaction of the performance
obligation.

Information as of the end of the first year is as follows:
Costs incurred to date ₱420,000
Total expected costs ₱700,000

The entity reassesses the variable consideration and concludes that the amount is still
constrained.

In the first quarter of the second year, the parties to the contract agree to modify the
contract by changing the floor plan of the building. As a result, the fixed consideration
and expected costs increase by ₱150,000 and ₱120,000, respectively. In addition, the
allowable time for achieving the ₱200,000 bonus is extended by 6 months to 30 months
from the original contract inception date. At the date of the modification, on the basis of
its experience and the remaining work to be performed, which is primarily inside the
building and not subject to weather conditions, the entity concludes that it is highly
probable that including the bonus in the transaction price will not result in a significant
reversal in the amount of cumulative revenue recognized. In assessing the contract
modification, the entity concludes that the remaining goods and services to be provided
using the modified contract are not distinct from the goods and services transferred on
or before the date of contract modification; that is, the contract remains a single
performance obligation.

How much is the cumulative catch-up adjustment to revenue recognized on the date of
contract modification? (round-off percentage of completion to one decimal place only)

89,200

91,200

92,800

93,400

Question 30
1 / 1 pts
ABC Co. started work on a construction contract in 20x1. The contract price is ₱
However, the contractual agreement stipulates that if the cumulative inflation reaches or
exceeds 26%, the contact price shall be adjusted upwards by 10%. Additional
information on the contract is shown below:

20x1 20x2
Costs incurred to date 2,400,000 4,500,000
Estimated costs to complete 3,600,000 1,500,000
Cumulative inflation rate 18% 27%


1,890,000

2,150,000

2,060,000

1,980,000

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Question 1

INTERIM TEMPORARY Co.

December 31, 20x1

Dr. (Cr.) Dr. (Cr.)

Cash 4,400,000 1,668,000

Accounts receivable 720,000 400,000

Inventory, beg. 2,600,000 -

Shipments from home office - 920,000

Purchases 288,000 160,000

Freight-in 88,000 72,000

Shipments to branch (920,000)

Equipment 2,880,000 1,600,000

Accumulated depreciation - equipment (288,000) (160,000)

Furniture 360,000 200,000

Accumulated depreciation - furniture (36,000) (20,000)

Accounts payable (288,000) (160,000)

Accrued expenses (180,000) (100,000)

Share capital (8,000,000)

Share premium (2,000,000)

Retained earnings - beg. (824,800)

Home office - (3,308,000)

Sales (3,600,000) (2,000,000)

Depreciation expense 672,000 272,000

Utilities expense 72,000 40,000

General overhead expense 28,800 16,000

Totals - -

 The home office allocated unpaid utilities expenses amounting to ₱40,000 to

 Branch Two acquired equipment for ₱120,000 to be maintained in the books

Home office Branch

Dr. (Cr.) Dr. (Cr.)

Cash 4,400,000 264,000

Accounts receivable 720,000 400,000

Inventory, beg. 1,200,000 -

Shipments from home office 1,824,000

Freight-in 128,000 72,000

Shipments to branch (1,520,000)

Investment in branch 2,400,000

Allowance for markup (304,000)

Equipment 2,880,000 1,600,000

Accumulated depreciation - equipment (288,000) (160,000)

Accounts payable (288,000) (160,000)

Share capital (8,000,000)

Retained earnings - beg. (608,000)

Home office (2,400,000)

Sales (6,400,000) (2,000,000)

Operating expenses 880,000 400,000

- From outside purchases 1,840,000 40,000

- From home office 960,000

Sales 250,000 75,000

Shipments to branch/from home office:

Cost to Home Office 30,000

Billing price to branch 32,500

Expenses 40,000 10,000

Inventories, Jan. 1, 20x1:

Home Office, acquired from outsiders,

Branch: Acquired from outsiders at cost 7,500

Acquired from home office at billing price