I.

Northern Airline purchased airline gate rights at Newark International Airport for P 2,000,000 with a legal life of five
years. However, Northern has the ability and right to extend the rights every ten years for an indefinite period of time.
Over what period of time should Northern amortize the gate rights?
No Amortization

II. Mark Co. bought a franchise from Fred CO. on January 1, 2017 for P 204,000. An independent consultant retained by
Mark estimated that the remaining useful life of the franchise was 50 years. Its unamortized cost on Fred’s books at
January 1, 2017 was P 68,000. Mark has decided to use the franchise indefinitely. What amount should be amortized for
the year ended December 31, 2017?
0

III. Fish Ball Co. charges P 90,000 for a franchise, with P 18,000 paid when the agreement is signed and the balance in
four annual payments. The present value of the annual payments, discounted at 9% is P 58,315. The franchise has the
right to purchase P 20,000 of equipment for P 16,000. If collectability of the payments is reasonably assured and
substantial performance by Fish Ball has occurred, what is the amount of revenue from franchise fee that should be
recognize?
72315

IV. Philcor, Inc. consigned twelve refrigerators to Ocampo’s Emporium. The refrigerators cost P 6,000 each and the
consignor paid P720 for freight out. The consignee subsequently rendered an account sales for five units sold at P 7,700
each, and deducted the following items from the selling price:
Commission (based on sales net of commission) 10%
Marketing expense (based on commission) 10%
Delivery and installation (on each unit sold) P30
8. How much was the net profit of the consignor on the five refrigerators sold?
9. How much was the net remittance of the consignee on the five refrigerators sold?
4200 – 34500

V. Stainless Works Mfg. Co., consigned 5 dozens of stainless chairs to Urban Furniture Co. on April 1, 2017. Each chair
cost P120 and the consignor paid P600 for the shipment to the consignee. On August 15, 2017, 36 chairs were already
sold and the consignee rendered an account sales, and remitted the balance due the consignor in the amount of P 5,580
after deducting the following:
Commission at 15% of the selling price
Selling expenses P 360
Delivery and installation 180
10. How much is the profit on consignment?
11. The cost of the inventory on consignment in the hands of Urban Furniture Co. is?
900 – 3120

VI. CK Manufacturing Co. consigned to CE Trading Corp. twelve Sony colored TV sets which cost P 9,000 each. Freight out
was paid by the consignor in the amount of P600. CE Trading sold eight sets, rendered an account sales, and remitted the
amount of P 82,600 after deducting the following from the selling price of the sets sold:
Commission on selling price 12%
Selling expenses P 1,200
Cost of antennae given free 1,400
Delivery and installation 2,800
12. The total selling price of the eight sets sold by CE Trading Corp. is?
13. The net profit of CK Manufacturing Co. on the eight sets sold by CE Trading Corp. is?
100000 - 10200

V. VALEDICTION Construction Co. entered into a P80M 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 P40M. The following were
the actual costs incurred by VALEDICTION during the first year of the construction:
Costs of negotiating the contract (charged immediately
as expense) 400,000
Costs of materials used in construction 12,000,000
 Costs of materials purchased but not yet used in construction 2,000,000
Site labor costs 4,000,000
Site supervision costs 800,000
Depreciation of equipment used in construction 480,000
Depreciation of idle construction equipment 240,000
Costs of moving plant, equipment and materials to and
from the contract site 160,000
Costs of hiring plant and equipment 560,000
Advance payments to subcontractors (subcontracted
work is not yet started) 80,000
How much revenue is recognized as of the end of the first year?

Solution:
The total costs incurred to date are computed as follows:
Costs of materials used in construction 12,000,000
Site labor costs 4,000,000
Site supervision costs 800,000
Depreciation of equipment used in construction 480,000
Costs of moving plant, equipment and materials to and
from the contract site 160,000
Costs of hiring plant and equipment 560,000
Total costs incurred to date 18,000,000

The percentage of completion as of the end of the first year is computed as follows:
Total costs incurred to date
Percentage of completion =
Estimated total contract costs
Percentage of completion = 18,000,000 ÷ 40,000,000
Percentage of completion = 45%

90M x 45% = 36M

VI. On Oct. 1, 20x1, ABC Co. enters into a construction contract with a customer. The performance obligation in the
contract will be satisfied over time. ABC Co. uses the “cost-to-cost” method in measuring its progress. The estimated total
contract cost is ₱10M. In 20x1, ABC Co. incurred a total cost of ₱6M, which includes ₱2M advance payment to a
subcontractor (the subcontracted work is not yet started) and ₱200,000 cost of materials not yet installed. ABC Co. does
not regard the cost of the unused materials as significant in relation to the expected total contract costs. Moreover, ABC
Co. retains control over the unused materials because it can use them in a contract with another customer. What is the
percentage of completion in 20x1?

Percentage of completion = (6M – 2M – 200K) ÷ 10M

Percentage of completion =(3.8M ÷ 10M) = 38%

VII. ABC Co. started work on two separate projects during 20x1. Information on these projects is shown below:
Estimated costs to
Project Contract price Costs incurred complete Progress billings
A 9,000,000 4,000,000 2,000,000 5,000,000
B 8,000,000 5,000,000 - 8,000,000
How much is the total balance of the “construction in progress” accounts as of December 31, 20x1 under zero-profit
method?
Project A – CIP = 4,000,000 costs incurred

Since Project B is 100% complete, it is assumed that the completed project was turned over to the customer.

VIII. HEARTY WARM & SINCERE Co. uses the “installment sales method.” Information on HEARTY’s transactions
during 20x1 and 20x2 is shown below:
   20x1 20x2
Installment sales 4,000,000 4,800,000
Cost of sales 2,400,000 2,640,000
Gross profit 1,600,000 2,160,000
Cash collections from:
20x1 sales 1,600,000 800,000
20x2 sales 1,920,000
How much is the realized gross profit in 20x2?

20x1: 800,000 x (1.6M / 4M) = 320,000

20x2: 1,920,000 x (2.16M / 4.8M) = 864,000
320,000 + 864,000 = 1,184,000

IX. RIBALD OFFENSIVE Co. uses the installment method. On December 31, 20x3, RIBALD Co.’s records show the
following balances:
Deferred gross profit (before year-end adjustments) 2,252,000
Installment receivable - 20x2 960,000
Installment receivable - 20x3 2,400,000
Gross profit rate in 20x2 is 24% based on sales while gross profit rate in 20x3 is 33 1/3% based on cost.
How much is the realized gross profit in 20x3?

Solution:
DGP (before year-end adjustments) 2,252,000
Less: Adjusted balance of deferred gross profit:
Installment receivable,20x2 x GPR
(960K x 24%) 230,400
Installment receivable,20x3 x GPR
(2.4M x 331/3%/1331/3%) 600,000 830,400
Decrease in DGP - Realized gross profit 1,421,600

X. DECORTICATE PEEL Co. uses the installment method. The following information was taken from DECORTICATE’s
records:
  20x1 20x2
Deferred gross profit (adjusted ending balances):
from 20x1 sale 480,000 320,000
from 20x2 sale 648,000
Gross profit rates based on sales 40% 45%
Cash collections from:
20x1 sales 800,000 400,000
20x2 sales 960,000
1. How much are the balances of installment receivables on December 31, 20x2?
2. Compute for the installment sales in 20x1 and 20x2.

Deferred gross profit - 20x1 sale, Dec. 31, 20x2 320,000

Divide by: Gross profit rate 40%

Installment receivable - 20x1, Dec. 31, 20x2 (a) 800,000

Add back: Collections from 20x1 sales (800K + 400K) 1,200,000

Installment sale - 20x1 (b) 2,000,000

Deferred gross profit - 20x2 sale 648,000

Divide by: Gross profit rate 45%

Installment receivable - 20x2, Dec. 31, 20x2 (a) 1,440,000

Add back: Collections from 20x2 sales 960,000

Installment sale - 20x2 (b) 2,400,000