Acctg 32 - Accounting for Special Transactions

Name: ________________________
Class: ___________________ Date: __________

Revenue from Contracts With Customers

True/False
Indicate whether the statement is true or false.

____ 1. Under the new revenue standard, the liability approach is used.

____ 2. PFRS 15 is intended to replace the guidance provided by PAS 18 (Revenues) and PAS 11 (Construction
Contracts).

____ 3. Income encompasses both revenues and gains.

____ 4. LCC Ltd. sold office supplies and equipment to Albay Electronics Incorporated on January 20, 2018. The sale
was on account, and the payment terms was 5/10, 1/15, n/30. Albay Electronics paid for the purchase on
February 6, 2018. In this example, LCC Ltd. realized the sale before it was earned.

____ 5. Revenues are realized and earned at the same time.

____ 6. The counter-argument against the new standard (PFRS 15) is that the old standard (PAS 18) more
comprehensively addresses the application of accounting principles in the context of more complex industries.

____ 7. The core principle of PFRS 15 is that an entity will recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration (payment) to which the entity expects to
be entitled to in exchange.

____ 8. A quality-assurance warranty is considered a distinct and separate performance obligation.

____ 9. When recording sales with a right to return, the seller company estimates the amount of returns and increases
the gross amount of sales revenue by the estimated returns.

____ 10. A bill-and-hold arrangement happens when an entity takes partial payment from a customer and will deliver
the goods upon full settlement of the sales price.

____ 11. Upfront fees, when non-refundable, are included in the transaction price and initially recorded as deferred
revenue when received.

____ 12. An entity sells merchandise wholesale to a retailer. Because of close business relationships, the entity sold the
merchandise at a price lower than the fair value of the goods. There is no revenue to be recognized during this
sale.

____ 13. When an entity has the right, but not the obligation, to repurchase an asset previously sold, then he is
considered to be a call-option holder.

____ 14. Revenues in the sale of gift cards (such as in “Fully Booked”) is earned when the gift card is used.

____ 15. Under the new revenue standard, if collectibility of the receivable from the customer is not reasonably
expected, then the entity is permitted to defer recognition of profits until collections from the customers are
assured.

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Name: ________________________ ID: A

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 16. A contract:

I. must be in writing to be enforceable
II. is an agreement that creates enforceable rights and obligations
III. is enforceable if each party can unilaterally terminate the contract
a. Only one statement is true c. All statements are true
b. Only two statements are true d. None of the statements are true.

____ 17. Noncash consideration should be

a. recognized on the basis of Fair Value of the asset given up
b. recognized on the basis of Fair Value of what is received
c. recognized on the basis of the original cost paid by the customer
d. recognized on the basis of the basis of Fair Value if equivalent goods or services

____ 18. The stand-alone selling price is

a. the price at which the entity would sell a promised good or service in conjunction with
other good or services.
b. the observable price of a good or service when it is sold on clearance.
c. may be estimated by the entity if the price is not directly observable.
d. all of the above.

____ 19. A grocery store sells noche buena packages. This package includes:
Item Original Shelf
Price
2kg pack of spaghetti P 70
1 pack of spaghetti sauce 90
1 pack of tomato sauce 60
500g of ham 420
1 pack of cheddar cheese 40
1 ball of Quezo de Bola 220
12 packs of powdered 20
seasoning
Two 1.5 liter bottles of soda 130

The store offers this bundle at a discounted price of P900, because they are clearing their stocks of processed
meats, pasta noodles, and soda. When accounting for this particular bundle, the discount should be allocated
to:
a. cheese, sauces, and seasoning c. spaghetti, sauces, and cheese
b. spaghetti, ham, and soda d. all of the items included in the bundle

____ 20. PFRS 15 is intended to replace the following, except:

a. SIC 31 Revenue - Barter Transactions involving Advertising Services
b. PFRIC 13 Customer Loyalty Programs
c. PFRIC 15 Agreements for the Construction of Real Estate
d. PFRIC 12 Service Concession Arrangements

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Name: ________________________ ID: A

Short Answer
Applying the Five (5) Step Model of PFRS 15, answer the following questions.

The Appliance Store is an experienced home appliance dealer. Appliance Store also offers a number of
services together with the home appliances that it sells. Assume that Appliance Store sells dishwashers on a
standalone basis. Appliance Store also sells installation services and maintenance services for dishwashers.
However, Appliance Store does not offer installation or maintenance services to customers who buy
dishwashers from other vendors. Pricing for dishwashers is as follows.

Dishwasher only P 950

Dishwasher with Installation service 1,050
Dishwasher with maintenance services 1,150
Dishwasher with installation and maintenance services 1,200

In each instance in which maintenance services are provided, the maintenance service is separately priced
within the arrangement at P200. Additionally, the incremental amount charged by Appliance Store for
installation approximates the amount charged by independent third parties.

Assume that a customer purchases a dishwasher with both installation and maintenance services for P1,200.
Based on its experience, Appliance Store believes that it is probable that the installation of the equipment will
be performed satisfactorily to the customer. Assume that the maintenance services are priced separately.

21. What is the contract between The Appliance Store and the customer?

22. Identify the separate performance obligations related to the Appliance Store revenue arrangement.

23. How much is the total transaction price for the contract?

24. Indicate the portions of the transaction price that should be allocated to the separate performance obligations
identified in #22.

25. What would be the complete journal entry to record the transaction if the cash received from the customer
represents only half of the transaction price?

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 ID: A

Revenue from Contracts With Customers

Answer Section

TRUE/FALSE

1. ANS: F
asset - liability approach
2. ANS: T
3. ANS: T
4. ANS: F
5. ANS: F
6. ANS: F
7. ANS: T
8. ANS: F
9. ANS: F
10. ANS: F
11. ANS: T
12. ANS: F
13. ANS: T
14. ANS: T
15. ANS: F

MULTIPLE CHOICE

16. ANS: A
17. ANS: B
18. ANS: C
19. ANS: B
20. ANS: D

SHORT ANSWER

21. ANS:
It is a contract of sale with the added feature of installation and maintenance services.
22. ANS:
The separate performance obligations are the dishwasher, installation, and maintenance service, since
each item has standalone value to the customer.
23. ANS:
P1,200
24. ANS:

Dishwasher P 950/P1,250 X P1,200 = P 912

Installation P 100/P1,250 X P1,200 = P 96
Maintenance P 200/P1,250 X P1,200 = P 192
Total Separate Prices P1,250
25. ANS:
Cash 600
A/R 600
Sales 912
Service Revenue - installation 96
Unearned service revenue 192