Problem 1-20 (AICPA Adapted)

Dunne Company sells equipment service contracts that a two-year period. The sale price
of each contract is P600

The past experience is that, of the total pesos spent to repairs on service contracts. 40% is
incurred evenly dun the first contract year and 60% evenly during the second contract
year.
The entity sold 1,000 contracts evenly throughout 2020.

1. What is the contract revenue for 2020

a. 120,000 b. 240,000 c. 300,000 d. 150,000

2. What amount should be reported as deferred service revenue on December 31, 2020?
a. 540,000 b. 480,000 c. 360,000 d. 300,000

3. What is the contract revenue for 2021?

a. 180,000 b. 360,000 c. 300,000 d. 120,000

4. What is the contract revenue for 2022?

a. 240,000 b. 360,000 c. 180,000 d. 0

Problem 1-21 (AICPA Adapted)

Cobra Company sells appliance service contracts ageeing to repair appliances for two-
year period.
The past experience is that, of the total amount spent for repairs on service contracts, 40%
is incurred evenly during the first contract year and 60% is incurred evenly during the
second contract year.

Receipts from service contract sales are P500,000 for 2020 and P600,000 for 2021.

Receipts from contracts are credited to unearned service revenue. All sales are made
evenly during the year.

1. What is the contract revenue for 2020?

a. 100,000 b. 200,000 c. 250,000 d. 500,000

2. What is the unearned revenue on December 31, 2020?

a. 300,000 b. 400,000 c. 200,000 d. 150,000

3. What is the contract revenue for 2021?

a. 240,000 b. 360,000 c. 370,000 d. 250,000

4. What is unearned revenue on December 31, 2021?

a. 360,000 b. 470,000 c. 480,000 d. 630,000