RAMON MAGSAYSAY MEMORIAL COLLEGES-MARBEL, INC

Office of the College of Business Education and Accountancy

Purok Waling-waling, Arellano Street, Barangay Zone II, City of Koronadal
Tel No. (083)228-2880
Document Type: Document No.: PM-DAP-03-08-005
Test Construction and Development Issue No.: 01 Revision No: 00
Document Title: Effective Date: April 08, 2022
Final Exams – ACCTG25 (Accounting for Special Transactions) Page: 1 of 6

Student’s Name: Date: Score:

Course& Year: Room & Time: Permit No.:

MULTIPLE CHOICE. Choose the letter that best represents the answer. Write the capital letter of the corresponding correct answer
on the answer sheet provided.
1.

1. The percentage-of-completion method of inventory valuation of long-term construction contract

a. recognizes income upon completion of work
b. recognizes income based on collection billings
c. recognizes income based on the progress of work
d. does not recognize income at the balance sheet date
2. In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross profit
recognized during the first year would be the estimated total gross profit from the contract multiplied by the percentage of the
cost incurred during the year to the
a. total cost incurred to date
b. total estimated cost
c. unbilled portion of the contract price
d. total contract price
3. The theoretical support for using the percentage-of-completion method of accounting for long-term construction projects is
that it
a. is conservative
b. reports a lower net income
c. closely conforms to the cost principle
d. produces a realistic matching of expenses with revenues
4. If a company uses the percentage-of-completion method of accounting for long-term construction contracts, then during the
period of construction, financial information related to a long-term contract will
a. appear on both the income statement and statement of financial position during the construction period
b. appear only on the income statement during the period of construction
c. appear only on the statement of financial position during the period of construction
d. not appear on the financial statements
5. What is the basis for determining the gross profit to be recognized in the second year of a three-year contract under the
percentage-of-completion method?
a. cumulative actual costs incurred only
b. incremental costs for the second year only
c. cumulative actual costs and estimated costs to complete
d. no gross profit would be recognized in year 2
6. When the percentage-of-completion method of accounting for long-term construction projects is used, why is the balance of
the Construction in Progress amount increased by the annual recognized gross profit on long-term construction contracts?
a. The cost of the contract has increased
b. The project’s value has increased above cost
c. The economy experiences inflation over the construction period
d. Construction in Progress is not increased by the annual recognized profit
7. A company uses the percentage-of-completion method to account for a four-year construction contract. Progress billings sent
in the second year that were collected in the third year would
a. be included in the calculation of the income recognized in the second year
b. be included in the calculation of the income recognized in the third year
c. be included in the calculation of the income recognized in the fourth year
d. not be included in the calculation of the income recognized in any year
8. In accounting for a long-term construction contract for which there is a projected profit, the balance in the Construction in
Progress asset account at the end of the first year of work using the percentage-of-completion method would be
a. zero
b. equal to the actual cost incurred during the year
c. the same as the balance of Progress Billings on Construction Contracts
d. equal to the sum of the actual cost incurred and the recognized gross profit during the year
9. How should the balances of Progress Billings and Construction in Progress be shown at reporting dates prior to the
completion of a long-term contract?
a. Progress Billings as income, Construction in Progress as inventory
b. Net, as income from construction if credit balance, and loss from construction if debit balance
 c. Progress Billings as deferred income, Construction in Progress as a current asset
d. Net, as a current asset if debit balance and current liability if credit balance
10. A construction company uses the percentage-of-completion method of recognizing revenue from construction contracts.
Then, revenues that are earned but unbilled at the reporting date should be disclosed
a. as a long-term receivable in the non-current assets section of the statement Accounting
of financialforposition
Special Transactions | 1
b. only as a footnote disclosure until the customer is billed for the percentage of work completed
c. as a construction in progress in the current assets section of the statement of financial position
d. as construction in progress in the non-current assets section of the statement of financial position
11. AAB Construction Company uses the percentage-of-completion method of accounting. In 2021, AAB began work under
contract #1348, which provided for a contract price of 20,000,000. Other details follow:

2021 2022
Costs incurred during the year 3,000,000 15,750,000
Estimated costs to complete, Dec. 31 12,000,000 -0-
Billing during the year 3,600,000 15,400,000
Collections during the year 2,500,000 15,500,000
The portion of the total contract price to be recognized as revenue in 2021 is
a. 2,500,000
b. 3,200,000
c. 3,600,000
d. 4,000,000
12. BBC Construction Company uses the percentage-of-completion method of accounting for a long-term construction contracts.
In 2021, BBC started to construct a building for 10,500,000. The construction project was completed in 2022. The following
pertinent information were extracted from its accounting records:

2021 2022
Progress billings during the year 3,850,000 6,650,000
Costs incurred during the year 3,150,000 6,300,000
Collected on billings during the year 2,450,000 8,050,000
Estimated costs to complete 6,300,000 -0-
How much income should BBC have recognized on this contract for the year ended 2021?
a. 350,000
b. 385,000
c. 525,000
d. 700,000
13. CCD Construction, Inc. has consistently used the percentage-of-completion method of recognizing income. Last year, CCD
started work on a 9,000,000 construction contract, which was completed this year. The accounting records disclosed the
following data for last year:

Progress Billings 3,300,000

Costs Incurred 2,700,000
Collections 2,100,000
Estimated Costs to Complete 5,400,000
How much income/profit should CCD have recognized on this contract last year?
a. 210,000
b. 300,000
c. 600,000
d. 700,000
14. DDE Construction, Inc. has consistently used the percentage-of-completion method of recognizing income. During 2022,
DDE started work on a 15,000,000 fixed-price construction contract. The accounting records disclosed the following data for
the year ended December 31, 2022: cost incurred – 4,650,000; estimated cost to complete – 10,850,000; progress billings –
5,500,000; collections – 3,500,000. How much loss should DDE have recognized in 2022?
a. 150,000
b. 350,000
c. 500,000
d. 1,150,000
15. EEF Construction uses the percentage-of-completion method for long-term construction contracts. A specific job was begun
in 2020 and completed in 2022. The contract price was 14,000,000 and cost information as of each year-end is given as
follows:

2020 2021 2022

Estimated costs to complete 4,000,000 2,000,000 -0-
Annual cost incurred 4,000,000 4,000,000 1,200,000
Assuming EEF correctly recorded gross profit in 2020, how much gross profit should the company record in 2021?
a. 0
b. 200,000
c. 3,000,000
d. 3,200,000
16. The following data relate to a construction job started by FFG Construction Company during 2021:
 Total contract price 3,000,000
Actual costs incurred during 2021 600,000
Estimated remaining costs 1,200,000
Billed to customer during 2021 900,000
Received from customer during 2022 300,000

Under the percentage-of-completion method, how much should FFG recognize as gross profit during 2021?
a. -0-
b. 100,000 Accounting for Special Transactions | 2
c. 400,000
d. 800,000
17. A building project was awarded to Ready Construction Co. in 2021 based on a fixed price of 12,000,000. It was completed in
2022. Pertinent records show the following:

2021 2022
Progress billings during the year 4,400,000 7,600,000
Costs incurred during the year 3,600,000 7,200,000
Collections on billings during the year 2,800,000 9,200,000
Estimated costs to complete 7,200,000 -0-
The gross profit percentage for the project was
a. 10%
b. 12%
c. 40%
d. 87%
18. HHI Builders is in business of contracting the construction of apartment buildings. Two buildings were in progress at the
beginning of 2022. The status of these buildings at the beginning of the year follows:

Cost Incurred to Estimated Costs to

Contract Contract Price
01/01/2022 Complete 01/01/2022
Apartment – Cubao 16,200,000 6,000,000 8,400,000
Apartment – 25,200,000 15,600,000 6,900,000
Marikina
During 2022, the following costs were incurred:
 Apartment – Cubao 6,000,000 (estimated cost to complete as of 12/31/2022, P2,400,000)
 Apartment – Marikina 7,500,000 (Job completed)
How much is the gross profit in 2022 if HHI uses the percentage-of-completion method?
a. 978,000
b. 2,100,000
c. 2,620,000
d. 3,600,000
19. The JJK Construction Corporation uses the percentage-of-completion method of recognizing income from long-term
construction contracts. In 2020, JJK entered into a fixed-price contract to construct a bridge for 30,000,000. Estimated costs
to complete the construction and contract cost incurred up to 2022 were follows:
Cumulative Contract Estimated Cost to
Costs Incurred Complete
As of December 31, 2020 2,000,000 16,000,000
As of December 31, 2021 11,000,000 11,000,000
As of December 31, 2022 20,000,000 4,000,000
What is the estimated percentage of completion as of December 31, 2022?
a. 25.00%
b. 33.33%
c. 50.00%
d. 83.33%
20. Using the same information in No. 19, how much income should JJK Construction Corporation recognize on the above
contract for the year ended December 31, 2022?
a. 1,000,000
b. 1,666,667
c. 2,700,000
d. 5,000,000
21. You were engaged to audit the books of accounts of MMN Contractors which had a three-year construction contract in 2022
for 9,000,000. MMN uses the percentage-of-completion method for financial statement purposes. Income to be recognized
each year is based on the ratio of cost incurred to total estimated cost to complete the contract. Data on this contract follows:
Accounts Receivable – construction contract billings 300,000
Construction in Progress 937,500
Less: Accounts Billed 843,750
10% retention 193,750
Profit recognized in 2022 (before tax) 150,000
 MMN Contractors maintains a separate bank account for each construction contract. Bank deposits to this contract amounted
to 500,000. How much cash collected on the contract was not yet deposited at December 31, 2022?
a. 43,750
b. 193,750
c. 287,500
d. 1,137,500

22. Using the same information in No. 21, what was the estimated total profit before tax on this contract?
a. 287,000
b. 450,000 Accounting for Special Transactions | 3
c. 840,000
d. 1,440,000
23. The Kirby Construction Company has consistently used the cost-recovery method – construction accounting method of
recognizing income (zero-profit approach). In 2021, it began a construction project to erect a building for 3,000,000. The
project was completed during 2022. Under this method, the accounting records disclosed the following: (any costs incurred
are expected to be recoverable)

2021 2022
Progress billings during the year 1,100,000 1,900,000
Costs incurred during the year 900,000 1,800,000
Collections on billings during the year 900,000 2,100,000
Estimated costs to complete 1,800,000 -0-
The company should recognize revenue for the year amounting to:
a. 2021-0; 2022-3,000,000
b. 2021-900,000; 2022-2,100,000
c. 2021-0; 2022-0
d. 2021-1,000,000; 2022-2,000,000
24. During 2021, Rizza started work on a 3,000,000 fixed-price construction contract. Any costs incurred are expected to be
recoverable. The accounting records disclosed the following data for the year ended December 31, 2021:
Cost incurred 1,930,000
Estimated cost to complete 2,170,000
Progress billings 1,100,000
Collections xx
How much loss should Rizza have recognized in 2021 using the percentage of completion method?
a. 100,000
b. -0-
c. 30,000
d. 50,000
25. Using the same information in No. 24, how much loss should Rizza have recognized in 2021 using the cost recovery method
of construction accounting?

a. 100,000 c. 30,000
b. -0- d. 50,000

26. Jollibee Inc. enters into an agreement with Mac Donald, giving the latter full authority to operate as its franchisee over a 10-
year period. An initial franchise fee of 2,750,000 was stipulated in the contract and was promptly paid by Donald during the
year. Assuming Jollibee was able to perform the initial services during the year, what is the franchise revenue to be
recognized by Jollibee in its year-end income statement?
a. 0
b. 137,500
c. 275,000
d. 2,750,000
27. On January 1, 2022, RRS Nuts Corporation received from Rio Legaspi the sum of 5,500,000 representing franchise fee.
Franchise services were immediately rendered by RRS and was completed on March 31, 2022 at a cost of 3,300,000. The
franchise fee revenue to be reported by RRS in its March 31, 2022 income statement is?
a. 0
b. 1,375,000
c. 2,200,000
d. 5,500,000
28. SST’s Lechon Inc., franchisor entered into a franchise agreement with Kris Sison, franchisee, on September 30, 2022. The
total franchise fee is 500,000 of which 100,000 is payable upon signing and the balance in four equal annual installments.
The downpayment is refundable in the event franchisor fails to render services and none thus far had been rendered. When
SST prepares its financial statements on September 30, 2022, the franchise revenue to be reported is:
a. 0
b. 100,000
c. 400,000
d. 500,000
29. UUV Crabs, Inc. franchisor, entered into a franchise agreement with Liwayway Ligaya, franchisee, on July 1, 2022. The total
franchise fees agreed upon is 1,100,000 of which 100,000 is payable upon signing and the balance payable in four equal
annual installments. It was agreed that the down-payment is non-refundable, not withstanding lack of substantial performance
of services by franchisor. When UUV prepares its financial statements on July 31, 2022, the unearned franchise fees to be
reported is
a. 0
b. 100,000
c. 1,000,000
d. 1,100,000
30. On June 1, 2022, VVW Eggs Corporation, franchisor, received 200,000 from Danny Domingo representing down payment
on the franchise agreement signed that day. Domingo gave VVW a non-interest bearing promissory note for the balance of
1,000,000 payable in four equal semi-annual installments. Franchise services was substantially completed by VVW on
November 15 at a cost of 900,000. On December 1, 2022, the first semi-annual installment became due and was accordingly
paid by Domingo. VVW appropriately uses the accrual method in recording franchise Accounting forInSpecial
revenues. Transactions
its December 31, 2022| 4
financial statements, how much will VVW report as realized gross profit for the year?
a. 112,500
b. 187,500
c. 250,000
d. 300,000
31. On January 5, WWX awarded its first outside Metro Manila franchise of Japanese noodle shop to Linlin’s of Cebu. The
franchise agreement required a 200,000 franchise fee payable 50,000 upon signing of the franchise and the balance in three
annual installments starting the end of the current year. The present value using 12% as discount rate of the three installments
would be approximately 82,160. The fees once paid are not refundable. The franchise may be cancelled subject to the
provisions of the agreement. Should there be unpaid franchise fee attributed to the balance of main fee (200,000), same need
not be paid. Further, the franchisor is entitled to 3% fee on gross sales payable monthly within the first ten days of the
following month. The first year of operations yielded gross sales of 1,000,000. WWX earned franchise fees and interest
revenue in the first year of the Linlin’s operation of
a. 30,000
b. 100,000
c. 130,000
d. 230,000
32. XXY Pizza Shack granted a franchise to Eat N Eat for the Ortigas area. Eat N Eat was to pay franchise fee of 1,000,000
payable in five equal annual installments starting with the payment upon signing of the agreement. The franchise was to pay
monthly 1% of gross sales of the preceding month. Should the operations be unfavorable, the contract may be cancelled with
whatever obligations owing XXY Pizza Shack in connection with the 1,000,000 franchise fee waived. The first year
generated a gross sales of 5,000,000. XXY Pizza Shack earned franchise fee for the first year amounted to
a. 50,000
b. 200,000
c. 250,000
d. 1,050,000
33. On January 3, 2022, YYZ Services Inc. signed an agreement authorizing BBA Company to operate as a franchisee over a 20-
year period for an initial franchise fee of 1,000,000 received when the agreement was signed. BBA commenced operations on
July 1, 2022, at which date all of the initial services required of YYZ had been performed. The agreement also provides that
BBA must pay a continuing franchise fee equal to 5% of the revenue from the franchise annually to YYZ. BBA’s franchise
revenue for 2022 was 8,000,000. For the year ended December 31, 2022, how much should YYZ record as revenue from the
franchise fees in respect of the BBA franchise?

a. 425,000 c. 900,000
b. 450,000 d. 1,400,000

34. On December 31, 2021, RR, Inc. authorized GG to operate as a franchisee for an initial franchise fee of 150,000. Of this
amount, 60,000 was received upon signing the agreement and the balance, represented by a note, is due in three annual
payments of 30,000 each beginning December 31, 2022. The present value on December 31, 2021, of the three annual
payments appropriately discounted is 72,000. According to the agreement, the nonrefundable down payment represents a fair
measure of the services already performed by RR, however, substantial future services are required of RR. Collectability of
the note is reasonably certain. In RR’s December 31, 2021 balance sheet, unearned franchise fees from GG’s franchise
should be reported as

a. 90,000 c. 150,000
b. 132,000 d. 72,000

35. On January 2, 2022, RR Enterprises Inc. authorized XX Company to operate as a franchisee over a twenty-year period for an
initial franchise fee of 60,000 received on signing the agreement. XX started operations on June 30, 2022 by which date RR
had performed all of the required initial services. In its income statement for the six months ended June 30, 2022, what
amount should RR report as revenue from franchise fees in connection with XX franchise?

a. 0 c. 30,000
b. 1,500 d. 60,000

36. If the partnership agreement does not specify how income is to be allocated, profits and loss should be allocated
 a. equally.
b. in proportion to the weighted average of capital invested during the period.
c. equitably so that partners are compensated for the time and effort expended on behalf of the partnership.
d. in accordance with their capital contributions.
37. Which of the following is not a component of the formula used to distribute income?
a. Salary allocation to those partners working.
b. After all other allocation, the remainder divided according to the profit and loss sharing ratio.
c. Interest on the average capital investments.
d. Interest on notes to partners.
38. Which of the following is not considered a legitimate expense of a partnership?
a. Interest paid to partners based on the amount of invested capital.
b. Depreciation on assets contributed to the partnership by partners.
c. Salaries for management hired to run the business.
d. Supplies used in the partners’ offices.
39. Solo Company is a dealer of air conditioners. For the period July 1, 2022 to July 31, 2022, Solo Company gives a trade
discount of 20% to all its buyers. On May 1, 2022, five units of air conditioners with a total list price of 115,000.00 and total
cost of 76,500.00 were sold to Mr. Ramos. Solo Company granted an allowance of 10,000.00 for Mr. Ramos’ used air
Accounting
conditioners as trade-in although the current fair value is 8,000.00. The balance was payable asfor Special
follows: Transactions
20% |5
of the balance
paid at the time of purchase; the rest is payable in 10 months starting August 1, 2022. A 15% gross profit is usual from the
sale of second hand air conditioners (trade-in).

After six months of paying, Mr. Ramos defaulted in the payment of February 1, 2023. The five units were repossessed and it
would require 2,000.00 reconditioning cost for each unit before it could be resold for 6,000.00 each. How much is the loss on
repossession to be recognized?
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
a. 3,360
b. 3,584
c. 2,080
d. 2,304
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40. Using the same information in No. 39, what is the total realized gross profit under the installment method to be adjusted on
December 31, 2022?
a. 8,580
b. 9,920
c. 8,496
d. 9,564
41. On July 10, 2022, Mitsubishi Motors sold a new car to Mr. See for 850,000.00. The car costs Mitsubishi 652,500.00. Mr. See
paid 25% cash down-payment and traded his old car. Mitsubishi granted an allowance of 80,000.00 on the old car traded, the
balance payable in equal monthly installment payments. The monthly installment amounts to 30,000.00 inclusive of 6%
interest on the unpaid balance of the principal amount of obligation. The old car traded in has a selling price of 120,000.00
after expending recondition costs of 20,000.00.

After paying four installments, Mr. See suffered major financial setback incapacitating him to continue paying. The car was
subsequently repossessed. When reacquired, the car was appraised to have a fair value of 300,000.00. What is the loss on
repossession?
24.
25.
a. 28,378.81
b. 38,442.87
c. 38,224.87
d. 20,873.18
42. Using the same information in No. 41, how much is the net profit to be recognized at the end of the year under the installment
method assuming expenses of 10,000?
a. 86,003
b. 86,250
c. 85,000
d. 89,213
43. Hardware Inc. sells computer parts on the installment basis. For the year ended December 31, 2022, the following were
reported:
Cost of installment sales 630,000
Loss on repossessions 113,500
Fair value of repossessed merchandise 112,500
Account defaulted 180,000
Deferred gross profit, December 31 108,000
How much was collected during the year?
26.
27.
a. 210,000
b. 264,000
c. 390,000
d. 540,000
44. In consignment sales, the consignee
a. records the merchandise as an asset on its books
b. records a liability for the merchandise held on consignment
c. recognizes revenue when it ships merchandise to the consignor
d. prepares an “account report” for the consignor which shows sales, expenses, and cash receipts
45. A creditor will record assets transferred in full settlement of a note receivable at the
 a. lower of cost or market value of the note receivable
b. book value of the transferred assets
c. fair market value of the note receivable
d. fair market value of the transferred assets

Prepared by: Reviewed by: Noted by:

Carlo Magno P. Fajartin, CPA Rose Ann T. Lopez, CPA, MBA Jerry C. Baguio, CPA, MBA
Instructor Co-Instructor Program Director

Accounting for Special Transactions | 6