GROUP 8

PROBLEM 1:
MACROSOFT Company sold a product to a customer for P100,000 on December 1, 2020. The
product was previously purchased by MACROSOFT from a wholesaler for P60,000.

1. Identify the contract with the customer.

2. Identify the separate performance obligations within the contract.

3. Determine the transaction price.

4. Allocate the transaction price to the separate performance obligations.

5. Recognize revenue when (or as) each performance obligation is satisfied.

Answer:
1.) Contract of sale
2.) Only one performance which is to deliver the product sold
3.) 100,000 because it is the price tag and 60,000 is cost of the seller
4.) No allocation since there is only 1 performance obligation
5).Recognize at a point in time

Journal Entries
Cash 100,000
Sales 100,000
Cost of goods sold 60,000
Inventory 60,000

PROBLEM 2:
FHM, Inc. (Food Hub Magazine), sells magazines on a 6-month or 12-month subscription basis.
The magazine will be delivered at the doorstep of the customer every month commencing the
month after the month of payment. On November 10, 2022, a customer paid P18,000 for a 6-month
subscription of FHM magazines.
1. Identify the contract with the customer.
2. Identify the separate performance obligations within the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the separate performance obligations.
5. Recognize revenue when (or as) each performance obligation is satisfied
Answer:
1.) Subscription contract
2.) Only one performance which is to deliver monthly issue over 6 months because it is only under 1
contract or 1 subscription. It is not separable since it is a series of goods or services, and it is not distinct.
3.) 18,000 – customer’s payment
4.) No allocation since there is only 1 performance obligation
5.) Over a period of time -because you recognize revenue over 6 months.
Monthly subscription revenue (18,000/6 months= 3,000 per month)

PROBLEM 3:
On January 1, 2021, Global Tech Co. enters into a contract with a customer to transfer a software
license, perform installation, and provide software updates and technical support for five years in
exchange for P14,400,000 cash. Global Tech has determined that each good or service is a separate
performance obligation. The software license grants the user the right to use the Global Tech
software. Global Tech sells the license, installation, updates and technical support separately at the
following selling prices:
Software license P9,000,000
Installation service 3,600,000
Software updates and technical support 5,400,000
Total 18,000,000
1. How much is the transaction price?
2. How much of the transaction is allocated to each performance obligations, respectively?
Answer:
1.) 14,400,000
2.)

Performance Stand-alone Allocated

Obligations Selling Price % Amount
Transfer Software 9,000,000 50% 7,200,000
License
Perform 3,600,000 20% *14,400,000 2,880,000
Installation
Service
Provide Software 5,400,000 30% 4,320,000
Update and
Technical Support
Total 18,000,000 100% 14,400,000
PROBLEM 4: (Determining Transaction Price)
Presented below are three revenue recognition situations.
a) Alex sells good to Luis for P1,000,000, payment due at delivery.
b) Alex sells good on account of Levi for P800,000, payment due in 30 days.
c) Alex sells goods to Chris for P1,000,000 on January 1 of the current year. Payment terms are as
follows:
• 10% down payment at date of sale.
• The remaining balance is due in two equal installments: the first installment will be due at the end
of the current
year and the second instalment will be due at the end of the subsequent year. (assume an effective
rate of
12%) (Round off present value factor to two decimal places).

Required: Indicate the transaction price for each of these transactions and when revenue will be
recognized.

Answer:
a. ) 1,000,000 at date of delivery
b. ) 800,000 at date of sale
c. )

Cash down payment 100,000

PV of the installment payments 760,500

Total 860,500

( 1,000,000*10%=100,000)
(1,000,000 - 900,000= 100,000/2*1.69= 860,500)

PROBLEM 5:
Samsing, Inc., a telecommunication company, entered into a contract with a customer on March 1,
2021. As per the contract, the customer subscribes for Samsing’s monthly plan for 12 months and
in return, the customer receives a free Samsing iPhone from Samsing. The customer will pay a
monthly fee of P10,000. The customer gets the Samsing iPhone immediately on the day of
subscription. Samsing sells the same iPhone for P36,000 and the same monthly plans for P8,000 per
month without the iPhone.
1. How many performance obligations are there in the contract?
2. How much is the transaction price?
3. How much of the transaction price was allocated to each performance obligations?

Answer:
1. ) PO1: Telecom 12 month subscription plan
PO2: Delivery of free samsing iPhone
2. ) 120,000 (10,000*12mos)
3. ) PO1: 87,276
PO2: 32,724

Stand- alone Allocated

Amount
Sellling Price %

PO1:(8,000*12) 96,000 72.73% * 120,000 87,276

PO2: 36,000 27.27% 32,724

Total 132,000 100% 120,000

PROBLEM 6:
Mist Parfum, Inc., sold 3,210 boxes of white musk ladies soap during January of 2021 at the price
of P90 per box. The company offers a full refund for any product returned within 30 days from the
date of purchase. Based on historical experience, Aria expects that 3% of sales will be returned.
How much revenue should Mist Parfum recognize in January?

Answer:
Gross Sales ( 3210 boxes * 90 per box) 288,900
Sales Return ( 288,900 * 3% ) 8,667
Net Sales 280,233

PROBLEM 7:
BIG SMOKE signs a 1-year contract with Anywhere Fitness. The terms of the contract specify that
BIG SMOKE is required to pay a non-refundable initiation fee of P14,400 and an annual
membership fee of P3,600 per month. Anywhere Fitness determines that its customers, on average,
renew their annual membership two times before terminating their membership.
Required:
1. Determine the amount of the transaction price.
2. Determine how much revenue per month shall be reported.

Answer:
1.) Initiation Fee 14,400
Membership Fee (3,600*36mos) 129,600
Transaction Price 144,000
2.) Revenue per month = 4000 ( 144,000/36mos)

PROBLEM 8:
TREASURE Construction Inc. recognizes revenue over time according to percentage of completion
for its long-term construction contracts. In 2020, TREASURE began work on a ₱10,000,000
construction contract, which was completed in 2021. The accounting records disclosed the following
data at the end of 2020:
Costs incurred ₱ 5,400,000
Estimated cost to complete ₱ 3,600,000
Progress billings ₱ 4,100,000
Cash collections ₱ 3,200,000
How much gross profit should TREASURE have recognized in 2020?
Answer:
Cost Incurred 5,400,000
Divide:
Cost Incurred 5,400,000
Estimated cost to complete 3,600,000 9,000,000
0.6
Construction Contract 10,000,000
Revenue 6,000,000
Less: Cost of Incurred in Construction (5,400,000)
Gross Profit 600,000
PROBLEM 9:
PLDC, Inc. agrees to sell to a customer voice minutes over a period of twelve months. Under the
contract, the customer shall pay P0.40 per minute for the first 10,000 minutes. If the minutes
purchased exceeded 10,000 minutes but not exceeding 15,000 minutes, then the price falls to P0.30
per minute for all minutes purchased. If the minutes purchased exceeded 15,000 minutes, then the
price falls to P0.20 per minute for all minutes purchased. In effecting the agreement, the price shall
be adjusted retrospectively.
Based on PLDC’s experience with similar contracts, it estimates the following outcome:
Less than 10,000 minutes 60%
10,000 minutes to 15,000 minutes 30%
Exceeding 15,000 minutes 10%
What is the transaction price per minute under the probability weighted expected value approach?

Answer:

<10 000 mins 0.40* 60% 0.24

10 000 - 15 000 mins 0.30* 30% 0.09

> 15 000 mins 0.20*10% 0.02

Transaction Price per minute 0.35

PROBLEM 10:
SEEDLINGS Company is presently testing a number of new agricultural seeds that it has recently
harvested. To simulate interest, it has decided to grant to five of its largest customers the
unconditional right to return to these products if not fully satisfied. The right to return extends for
4 months. SEEDLINGS sells these seeds on account for P3,000,000 (cost P1,600,000) on January 2,
2021. Customers are required to pay the full amount due by March 15, 2021.
Required:
1. Prepare the journal entry for SEEDLINGS Company at January 2, 2021, assuming SEEDLINGS
estimates returns of 20% based on prior experience.
2. Assume that one customer returns the seeds on March 1, 2021, due to unsatisfactory
performance. Prepare the journal entry to record this transaction, assuming this customer
purchased P200,000 of seeds from SEEDLINGS.
3. Briefly describe the accounting for these sales if SEEDLINGS is unable to reliably estimate
returns.
Answer:
1. January 2, 2021
Accounts Receivable.................................................... 3,000,000
Allowance for sales returns (P3,000,000 X 20%)................ 600,000
Sales Revenue ................................................................. 2,400,000

Estimated Inventory Returns ................................... 320,000

Cost of Goods Sold...................................................... 1,280,000
Inventory ........................................................................ 1,600,000
(20% X P1,600,000)

2.
March 1, 2021
Allowance for sales returns .............................................200,000
Accounts Receivable........................................................ 200,000

Inventory ............................................................... 106,667

Estimated Inventory Returns ............................................ 106,667
(P1,600,000 ÷ P3,000,000) x P200,000
3.
If SEEDLINGS is unable to estimate returns, it defers recognition of revenue until the return period
expires on May 2, 2021.