BM2012

NAME: SECTION: SCORE:

TASK PERFORMANCE

PROBLEM-SOLVING (15 items x 5 points)

Write your answers in the space provided. Show your computations.

CASE 1 (4 items)
Moreno Company operates a branch in Rizal. There are shipments in transit from the home office to the branch. The
home office ships merchandise to the branch at 125% of the cost in 20x1. Profit and loss data for the home office and the
branch for 20x1 follows:
Home Office Branch
Sales P500,000 P150,000
Purchases from outsiders 400,000 30,000
Shipment to branch (at cost) 60,000
Billing price to branch 65,000
Expenses 80,000 20,000
Inventories, January 1, 20x1
Home office: Acquired from outsiders, at cost 160,000
Branch: Acquired from outsiders, at cost 15,000
Acquired from the home office at a billed
price (20% above cost) 48,000
Inventories, December 31, 20x1
Home office: Acquired from outsiders, at cost 110,000
Branch: Acquired from outsiders, at cost 11,000
Acquired from the home office at a billed
price in 20x1 (physical count) 42,000

REQUIRED:
1. Merchandise in transit
2. Combined cost of goods sold
3. Realized markup
4. True branch net income

CASE 2 (3 items)
Selected accounts from the December 31, 20x2 trial balances of Patrick Star, Inc. and its branch follow:

Debit (credit) Home Office Branch

Inventory, Jan. 1 P92,000 P46,200
Investment in branch 233,200
Purchases 760,000
Shipments from home office 418,000
Freight in 20,900
Expenses 208,000 116,200
Home office (213,200)
Sales (620,000) (560,000)
Shipment to branch (400,000)
Branch merhandise markup (44,000)

As of December 31, 20x1, a shipment with a billed price of P22,000 was in transit to the branch. Freight cost, typically
5% of the billed price, is inventoriable. Merchandise on hand at year-end was:

12 Task *Property of
STI
 BM2012

Home office, at cost P128,000

Branch, at billed price 66,000

REQUIRED:
5. Branch net income
6. True net income of the branch
7. Combined net income

CASE 3 (8 items)
Micah Co., a private contractor, entered into a service concession arrangement with the government. The terms of the
arrangement require the operator to:
 Construct a road – completing construction within two (2) years;
 Maintain and operate the road for three (3) years (Years 3-5);
 Resurface the road at the end of Year 4.

The government pays the operator P100,000,000 per year in Years 3 to 5 for making the road available to the public. The
road is turned over to the government at the end of year 5. The operator makes the following estimates:

Stand-alone selling
Year Contract costs
price
Construction services 1 P50,000,000 Forecast cost + 20%
2 50,000,000 Forecast cost + 20%
Operation services 3 to 5 20,000,000 Forecast cost + 40%
Road resurfacing 4 10,000,000 Forecast cost + 10%

The operator determines that the implied interest rate is 24.42%.

The operator finances the arrangement entirely with debt. The debt proceeds are taken as contract costs are paid. The
debt is payable as follows: P100,000 each in years 3 and 4, and P30,000,000 in year 5. The effective interest rate is
25.77%.

REQUIRED:
8. Total transaction price
9. Interest income over the term of the contract
10. How much profit is recognized in Year 2?
11. How much profit is recognized in Year 3?
12. Carrying amount of the asset recognized on the contract at the end of year 3
13. Carrying value of the liability recognized in the contract at the end of year 4
14. Total revenue recognized in year 4
15. How much profit is recognized in year 5?

Rubric for scoring:

Performance Indicators Points
Correct accounts and amounts used 3
Computed final amounts are correct/balanced 2
Total 5

12 Task *Property of
STI