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ACCOUNTING FOR SPECIAL TRANSACTIONS

MIDTERM EXAMINATION

1. “Assets to be realized” is placed on which side of a statement of realization and liquidation?a.

debit side, measured at realizable value
b. credit side, measured at book value
c. debit side, measured at book value
d. no side

2. The statement of affairs of Darrell Putix Co. indicates that unsecured creditors without
prioritywith total claims of ₱720,000 may expect to recover only ₱288,000 after all the assets
weresold. Among the creditors of Darrell Putix Co. are the following:
∙ Government – taxes payable of ₱400,000, inclusive of ₱80,000 assessments and surcharges. ∙ XYZ
bank – loan payable of ₱4,000,000 and accrued interest of ₱200,000, backedbycollateral security
with realizable value of ₱4,800,000.
∙ Alpha Financing Co. – loan payable of ₱3,200,000 backed by collateral
securitywithrealizable value of ₱2,000,000.
∙ Mr. Bombay – loan payable of ₱1,000,000 and accrued interest of ₱200,000. Nocollateral security.

How much is the expected recovery of partially secured creditors?

a. 2,480,000
b. 2,160,000
c. 1,280,000
d. 0

Use the following information for the next two questions:

Rex Toothpix Co. is undergoing liquidation. Information on Rex Toothpix Co.’s assets
andliabilities is shown below:

ASSETS Book value Realizable value Assets pledged to fully secured creditors 360,000
480,000 Assets pledged to partially secured creditors 208,000 192,000 Free assets 600,000
576,000 1,168,000 1,248,000
LIABILITIES
Unsecured liabilities with priority 288,000 288,000 Fully secured creditors 384,000 384,000
Partially secured creditors 240,000 240,000 Unsecured creditors without priority 432,000
432,000 1,344,000 1,344,000
3. If the assets are sold at realizable values, how much cash is available to pay unsecuredcreditors
without priority?
a. 336,000
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b. 384,000
c. 624,000
d. 288,000

4. How much can the partially secured creditors expect to recover from their claims? a. 384,000
b. 234,000
c. 230,400
d. 276,000

5. The following information was taken from the statement of realization and liquidationof Juryand
John Bombastix Co. which is undergoing liquidation:
ASSETS:
Assets to be realized 8,000,000
Assets acquired 60,000
Assets realized 4,720,000
Assets not realized 880,000

LIABILITIES:
Liabilities liquidated 8,520,000
Liabilities not liquidated 4,760,000
Liabilities to be liquidated 11,480,000
Liabilities assumed 128,000

SUPPLEMENTARY ITEMS:
Supplementary expenses 100,000
Supplementary income 72,000

How much is the net gain (loss) for the period?

a. (4,132,000)
b. (28,000)
c. 4,160,000
d. (4,160,000)

Use the information below for the next four questions:

Community Co. filed a voluntary bankruptcy petition during the year. Relevant information follows:
 ASSETS Carrying amount Realizable value Assets pledged with fully secured creditors
300,000 370,000 Assets pledged with partially secured creditors 180,000 120,000 Free assets
420,000 320,000 900,000 810,000

LIABILITIES
Liabilities with priority 70,000
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Fully secured creditors 260,000 Partially secured creditors 200,000 Unsecured creditors
540,000 1,070,000

The assets are converted to cash at the estimated realizable values and the business is liquidated.

6. What amount of cash will be available to pay unsecured non-priority claims?

a. 360,000
b. 380,000
c. 430,000
d. 470,000

7. What is the estimated recovery percentage of unsecured creditors without priority? a.

52.00%
b. 54.08%
c. 56.56%
d. 58.06%

8. How much is the total amount paid to the partially secured creditors? a.
161,773
b. 163,552
c. 166,448
d. 168,992

9. How much is the total amount paid to the unsecured creditors?

a. 313,524
b. 342,349
c. 294,823
d. 285,231

Use the following information for the next two questions:

A, B and C formed a joint operation for the sale of assorted fruits during the Christmas season. Their
transactions during the two-month period are summarized below:

Joint operation
Nov. 5
Merchandise-A 8,500 Nov. 15 Cash sales-C 20,400 12
Merchandise-B 7,000 18
Cash sales-C
4,200 14 Freight-in-C 200 30 Merchandise-B 1,210
Dec. 10
Purchases-C 3,500 Dec. 25 Unsold mdse. charged to A 540 22 Selling expenses-C 550

The joint arrangement provided for the division of gains and losses among A, B and C in the ratioof
2:3:5. The joint operation is to close on December 31, 2008.

10. What is the joint operation profit?

a. (6,600)
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b. 6,600
c. 6,060
d. (6,060)

11. What is the amount of cash that A will receive on final settlement?

a. 9,280
b. 9,712
c. 8,500
d. 1,212

12. LL, MM and NN formed a joint operation to purchase a piece of lot and to erect
anapartmentbuilding for sale. LL is to manage the joint operation; hence, he will receive a bonus
of 10%ofthe joint operation’s gain before deducting the bonus as an expense. Any
remaininggainorloss is to be divided equally among the participants. The joint operation is
completedonAugust 31, 20x1. On this date, the accounts of MM and NN show the following
balances: Books of
MM NN
Account with LL 16,000 Cr. 16,000 Cr.
Account with MM 32,000 Cr.
Account with NN 18,000 Dr.

There are unused constructions supplies which LL agreed to take over at its cost of ₱42,000. Final
settlement with the joint operators will require payments as follows:
a. LL pays NN ₱11,200, and MM pays NN ₱14,000.
b. LL pays NN ₱25,600, and MM ₱14,400.
 c. LL pays MM ₱14,400, and NN pays LL ₱30,800.
d. LL pays MM ₱35,600, and NN pays LL ₱14,400.

Use the following information for the next two questions:

A, B, and C formed a joint operation. The joint operators shall make initial contributions ₱10each.
Profit and loss shall be divided equally. The following data relate to the joint operation’s
transactions:

ABC
Joint operation (before closing) 8 Cr. 10 Cr. 12 Cr.
Expenses paid from JO cash 5 2 3
Value of inventory taken 5 6 4

13. How much were the sales of the joint operation?

a. 70
b. 60
c. 40
d. 90

14. How much was A’s share in the settlement?

a. 25 receipt
b. 20 receipt
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c. 25 payment
d. 20 payment

Use the following information for the next two questions:

A and B formed a joint operation. The following were the transactions during the year: A B
Total purchases 400 320
Total sales 480 240
Expenses paid 800
Other income 40

The joint operation was completed at the end of the year. Each joint operator is
entitledtoa10%commission on its purchases and a 20% commission on its sales. Any remaining profit
or loss isdivided equally.

15. How much is the profit (loss) of the joint operation?

a. 760
 b. (760)
c. 840
d. (840)

16. On the cash settlement between the joint operators,

a. A pays B ₱368.
b. B pays A ₱368.
c. A pays B ₱428.
d. B pays A ₱428.

17. A, B, and C formed a joint operation which was completed during the year. The accounts of
thejoint operators show the following balances:
Books of A Books of B Books of C
Account with A - 10 Dr. 10 Dr.
Account with B 16 Dr. - 16 Dr.
Account with C 26 Cr. 26 Cr.

On the cash settlement between the joint operators,

a. B and C pays A ₱16 and ₱10, respectively, for a total of ₱26 payment to A.
b. A and B pays C ₱10 and ₱16, respectively, for a total of ₱26 payment to C.
c. C pays A and B ₱10 and ₱16, respectively.
d. A, B and C pays D.

18. Cloud Co. acquired an investment in Sky Co., a joint venture, for ₱100,000, incurringtransaction
costs of ₱1,000. Cloud Co. determined that it has joint control over Sky. CloudCo. uses the PFRS
for SMEs and elects the cost model for its investments in joint ventures. Theinvestment’s fair
values were ₱102,000, ₱110,000 and ₱90,000 on December 31, 20x1, 20x2and
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20x3, respectively. Costs to sell were estimated at ₱4,000 throughout. Cloud Co. recognizesinits
profit or loss which of the following amounts? gain (loss)
20x1 20x2 20x3
a. 0 0 0
b. (1,000) 8,000 (20,000)
c. (3,000) 8,000 (20,000)
d. (3,000) 3,000 (15,000)

19. According to PFRS 15, a promised good or service is distinct if

I. The customer can benefit from the good or service either on its own or together
 withotherresources that are readily available to the customer.
II. The promise to transfer the good or service is separately identifiable fromother
promisesinthe contract.
III. The promise to transfer the good or service is explicitly stated in the contract, the rightsofthe
parties and payment terms are identifiable, and the collectability of the revenuefromthe
contract is probable.
a. I and II
b. I and III
c. I, II and III
d. None of these

20. According to PFRS 15, how does an entity account for a promise in the contract to transferagood or
service that is not distinct?
a. The entity shall not recognize any revenue from the promise to transfer a non-distinct goodor
service; any consideration received therefrom is treated as a liability.
b. The entity shall recognize revenue from a promise to transfer a non-distinct goodor serviceat the
earlier of the following events: the entity has no remaining obligation in the contractand the
contract is terminated and the consideration received is non-refundable.
c. The entity shall combine the non-distinct good or service with the other promises inthecontract
and treat the combined promises as a single performance obligation.
d. The entity shall ignore the promise to transfer a non-distinct good or service andshall account
only those promises in the contract to transfer distinct goods or services.

21. Under the “cost-to-cost” method, the percentage of completion may be computed as

a. Total costs incurred to date multiplied by the Estimated total costs to complete

b. Total costs incurred to date divided by the Estimated total costs to complete

c. Total costs incurred to date multiplied by the Estimated total costs to complete

d. Total costs incurred to date divided by the sum of Total costs incurred to dateandEstimated costs to
complete

Fact pattern for the next two items:

An entity is developing a multi-unit residential complex. A customer enters into a
bindingsalescontract with the entity for a specified unit that is under construction. Each unit has a
similar floorplan and is of a similar size, but other attributes of the units are different (for example,
the locationof the unit within the complex).
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22. The customer pays a deposit upon entering into the contract and the deposit is refundableonlyif
the entity fails to complete construction of the unit in accordance with the contract. Theremainder
of the contract price is payable on completion of the contract when the customerobtains physical
possession of the unit. If the customer defaults on the contract beforecompletion of the unit, the
entity only has the right to retain the deposit. Whichof thefollowing statements is correct?
a. The entity’s performance obligation is satisfied at a point in time because the
entitydoesnothave an enforceable right to payment for performance completed to date.
b. The entity’s performance obligation is satisfied over time because the contract is a
constructioncontract.
c. The entity’s performance obligation is satisfied at a point in time because it takes a short
periodof time to construct just one unit in a multi-unit complex.
d. The entity’s performance obligation is satisfied over time because it takes a long-periodof
timeto develop all the units in the multi-unit residential complex.

23. The customer pays a non-refundable deposit upon entering into the contract andwill makeprogress
payments during construction of the unit. The contract has substantive termsthatpreclude the
entity from being able to direct the unit to another customer. In addition, thecustomer does not
have the right to terminate the contract unless the entity fails to performaspromised. If the
customer defaults on its obligations by failing to make the promisedprogresspayments as and
when they are due, the entity would have a right to all of the considerationpromised in the contract
if it completes the construction of the unit. The courts have previouslyupheld similar rights that
entitle developers to require the customer to perform, subject totheentity meeting its obligations
under the contract. Which of the following statements is correct?

a. The asset (unit) created by the entity’s performance does not have an alternative use totheentity.
b. The entity has a right to payment for performance completed to date.
c. The entity’s performance obligation is satisfied over time.
d. All of these

24. Which of the following statements is correct?

a. Long-term construction contracts are unique from other contracts with customers. Therefore,
PFRS 15 excludes from its scope the accounting for long-termconstructioncontracts.
b. Long-term construction contracts are unique from other contracts with customers. Therefore,
PFRS 15 requires an entity to recognize revenue fromlong-termconstructioncontracts using
either the percentage of completion method or the zero-profit method.
c. PFRS 15 does not provide a special distinction between long-termconstructioncontractsfrom
other types of contracts with customers. Therefore, an entity shall applythesameprinciples in
accounting for long-term construction contracts as those applied to other typesof contracts
with customers.
d. PFRS 15 does not exclude long-term construction contracts fromits scope. However, because of
 the unique nature of long-term construction contracts, PFRS 15 requiresanentity to recognize
revenue from a long-term construction contract that is expectedtobecompleted within 3 years or
more using the percentage of completion method. For those
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that are expected to be completed within a shorter period, revenue shall be recognizedwhen
construction is complete.

Use the following information for the next three questions:

In 20x1, Chili Peppers Co. started work on three contracts. Information of the contracts is
shownbelow:
Contract Transaction price Costs incurred Estimated costs to complete
Contract 1 500,000 375,000 -
Contract 2 700,000 100,000 400,000
Contract 3 250,000 100,000 100,000

25. The performance obligations of Chili Peppers Co. in all of the contracts are satisfiedover time.
Chili Peppers Co. uses the cost-to-cost method to measure its progress in the contracts. Howmuch
is the total revenue recognized from the contracts 20x1?
a. 865,000
b. 765,000
c. 385,000
d. 265,000

26. The performance obligations of Chili Peppers Co. in all of the contracts are satisfiedover time.
However, the outcome of the performance obligations in the contracts cannot be
measuredreliably but the costs incurred are recoverable. How much is the total revenue
recognizedfromthe contracts in 20x2?
a. 700,000
b. 575,000
c. 500,000
d. 0

27. The performance obligations of Chili Peppers Co. in all of the contracts are satisfiedat apointin
time (i.e., upon completion). How much is the total revenue recognized fromthe
contractsin20x2?
a. 700,000
b. 575,000
c. 500,000
 d. 0

Use the following information for the next three questions:

Information on Sunny Day Construction Firm’s three-year construction contract with a
customerisshown below:
Contract price ₱9,000,000
Estimated costs at contract inception ₱8,000,000

Information on actual costs, billings and collections during construction period: 20x1
20x2 20x3
Actual costs incurred per year 1,944,000 5,232,000 1,844,000 Estimated costs
to complete 6,156,000 2,024,000 -
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Billings 1,800,000 4,950,000 2,250,000 Collections 1,620,000 4,455,000 2,925,000

Sunny Day uses the percentage of completion (based on costs) in recognizing revenues
andprofitsfrom the contract.

28. How much net profit (loss) is recognized in 20x2?

a. 216,000
b. 200,000
c. (200,000)
d. (416,000)
(note. Duha kabuok 28 sa exam.)

29. How much is the loss provision recognized in 20x2?

a. 32,000
b. 44,000
c. 56,000
d. 68,000
(note. Ambot kay duha ang 28 hahaha.)

30. How much net profit (loss) is recognized in 20x3?

a. 180,000
b. (180,000)
c. 20,000
d. (20,000)
Use the following information for the next two questions:
In 20x1, ABC Co. was contracted to build a railroad. The contract price is equal to the
constructioncosts incurred plus ₱1,200,000. However, if the project is completed within 4 years,
ABCwill 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 andthus it isnow
highly probable that the incentive payment will be received.

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

a. 2,610,000
b. 2,595,000
c. 2,056,000
d. 2,022,000

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

a. 506,000
b. 495,000
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c. 480,000
d. 472,000

Use the following information for the next two questions:

On September 1, 20x1, ABC Co. enters into a contract with a customer to remodel a plant’s
electrical wirings and install a new generator for a total consideration of ₱12M. The remodelingand
the installation are treated as a single performance obligation satisfied over time.

The expected contract costs are as follows:

Generator 4,000,000
Other costs 5,000,000
Expected total contract costs 9,000,000

Additional information:
∙ ABC Co. uses the cost-to-cost method in measuring its progress towards the completesatisfaction
of the performance obligation.
∙ ABC Co. incurs total costs of ₱6,000,000 in 20x1, including the cost of the generator. ∙ The customer
obtains control of the generator when it is delivered to the site in December 20x1. However, the
generator will not be installed until March 20x2.
∙ ABC Co. regards the cost of the generator as significant in relation to the expected total contractcosts.
∙ Although ABC Co. acted as a principal in procuring the generator, ABC Co. is not
involvedindesigning or manufacturing the generator.

33. How much revenue is recognized in 20x1?

a. 7,200,000
b. 3,200,000
c. 4,000,000
d. 5,600,000

34. How much profit is recognized from the contract in 20x1?

a. 1,200,000
b. 1,800,000
c. 2,400,000
d. 5,600,000

35. George Co. enters into a contract to build an apartment for Jungle Co. for a fixedfeeof₱20,000,000.
At contract inception, George Co. assesses its performance obligations inthecontract and
concludes that it has a single performance obligation that is satisfiedover time. George Co.
determines that the measure of progress that best depicts its performanceinthecontract is input
method based on costs incurred. George estimates that the total contract costswould amount to
₱16,000,000 over the construction period. George incurs contract costsof₱2,000,000 during the
year. How much gross profit is recognized for the year?

a. 200,000
b. 400,000
c. 500,000
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d. 0

36. Flea Co. entered into a ₱10,000,000 contract to construct a multi-purpose recreational facility. The
estimated total costs on completion of the project were ₱8,000,000 and the contract periodwas 36
months starting January 1, 20x1. Flea Co. uses the cost-to-cost method to estimateitsprogress on
the project. On January 1, 20x2, the contract price was reduced to ₱9,500,000duetomany changes
made to the original contract. The accounting records relating to this contract forthe years 20x1 to
20x3 disclosed the following:
 Year Actual costs in current year Estd. costs to complete Progress billings 20x1 3,000,000 5,000,000
2,800,000 20x2 3,500,000 1,600,000 4,000,000 20x3 1,700,000 - 2,700,000

What amount of profit is recognized in 20x3? (Round-of percentages of completion to two decimal
places.)
a. 173,500
b. 176,500
c. 178,200
d. 180,400

37. ABC Co. started work on two separate projects during 20x1. Information on these
projectsisshown below:

Estimated costs to
Project Contract price Costs incurred
complete Progress billings
A 9,000,000 4,000,000 2,000,000 5,000,000B 8,000,000 5,000,000 - 8,000,000

What amounts are presented in ABC Co’s. statement of financial position under <List A: Traditional
accounting> and <List B: PFRS 15>?
Gross amount due from (to) cust. Contract asset(liability)
a. 1,000,000 1,000,000
b. (1,00,000) (1,000,000)
c. 4,000,000 4,000,000
d. (4,000,000) (4,000,000)

38. DELETERIOUS Construction Co. entered into a fixed price contract for the constructionof
abuilding for HARMFUL, Inc. DELETERIOUS determines the stage of completionofconstruction
contracts using the “cost-to-cost” method.

The estimated total contract costs are as follows:

Design directly related to the contract 800,000 Technical assistance not directly related to the contract
but properly allocated 200,000 Materials 22,000,000 Labor 11,200,000
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Rectification and guarantee work 1,200,000 Reimbursable administrative costs specified in contractual
agreement 520,000 Insurance costs 80,000 Other construction overheads 4,000,000 Marketing costs
400,000 Estimated total contract costs 40,400,000
DELETERIOUS incurred the following costs in the first year of the construction: Design directly
related to the contract 400,000 Technical assistance not directly related to the contract but properly
allocated 100,000 Materials 12,000,000 Labor 6,000,000 Reimbursable administrative costs specified in
contractual agreement 480,000 Administrative costs not expected to be reimbursed 120,000 Research
and development costs for which reimbursement is not specified in the contract 7,200,000 Insurance
costs 60,000 Construction overheads 960,000 Marketing costs 800,000 Total costs incurred to date
28,120,000

What is the percentage of completion of the contract as of the end of the first year? a. 42%
b. 45%
c. 50%
d. 51%

39. On Oct. 1, 20x1, ABC Co. enters into a construction contract with a customer. The
performanceobligation in the contract will be satisfied over time. ABC Co. uses the “cost-to-cost”
methodinmeasuring its progress. The estimated total contract cost is ₱10M. In 20x1, ABCCo.
incurredatotal cost of ₱6M, which includes ₱2M advance payment to a subcontractor (the
subcontractedwork is not yet started) and ₱200,000 cost of materials not yet installed. ABCCo.
doesnotregard the cost of the unused materials as significant in relation to the expected total
contractcosts. Moreover, ABC Co. retains control over the unused materials because it can use
themina contract with another customer. What is the percentage of completion in 20x1?

a. 38%
b. 40%
c. 42%
d. 56%

40. On January 1, 20x1, ABC Co. enters into a contract with a customer for the constructionof
abuilding. The contract price is ₱1,000,000. The following are the transactions in 20x1: ∙ At contract
inception, the customer makes an advance payment of ₱100,000 as facilitationfee.
∙ 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% customer-retention as specified in the contract.
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ABC uses the input method based on costs incurred to measure its progress on the contract.
Howmuch is the cost of construction that is recognized as expense in 20x1? a. 175,000
b. 375,000
c. 300,000
 d. 285,000

“In this you greatly rejoice, though now for a little while, if need be, youhavebeengrieved by various
trials, That the genuineness of your faith being much more preciousthan gold that perishes, though it
is tested by fire, may be found to praise honor, andgloryat the revelation of Jesus Christ.” (Peter 1:6-
7)

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