PHINMA Education ACC 110 / Accounting for Special Transactions

Teacher Lesson Plan BSA 3

Day/Session 25

ACC 110 - Accounting for Special Transactions

Materials:
THIRD PERIODIC EXAMINATION Student Activity Sheet; calculator; pencil with
1 Semester, 2020-2021
st
eraser, ball pen and Scan tron Answer Sheet

NAME: Date:
Professor: Section: Score:

MULTIPLE CHOICE QUESTIONS

(1 - 60 Items)

Directions: On the answer sheet, shade the box of your choice that best answers the corresponding
questions.

1. If an entity’s promise to grant a license is distinct,

a. the general principles of PFRS 15 are applied to determine whether the performance obligation is
satisfied over time or at a point in time.
b. the specific principles of PFRS 15 are applied to determine whether the performance obligation is
satisfied over time or at a point in time.
c. both the general and specific principles are used to determine whether the performance obligation is
satisfied over time or at a point in time and whether the grant of license provides the customer with a
‘right to access’ or a ‘right to use.’
d. US GAAP (FAS No. 45) is applied to determine whether there is substantial performance of the
initial services required in the contract.

2. Which of the following does not indicate that the nature of an entity’s promise to transfer a license is to
provide the customer the right to access the entity’s intellectual property as it exists throughout the
license period?
a. The intellectual property to which the customer has rights changes throughout the license period.
b. The entity continues to be involved with its intellectual property
c. The contract requires, or the customer reasonably expects, that the entity will undertake activities
that significantly affect the intellectual property to which the customer has rights and the customer is
exposed to any positive or negative effects of those activities.
d. The customer can direct the use of, and obtain substantially all of the remaining benefits from, the
license at the point in time at which the license is granted.

3. According to PFRS 15, if the nature of the entity’s promise to grant franchise rights in a franchise
agreement is to provide the franchisee the right to use the entity’s intellectual property as it exists at the
point in time at which the license is granted, the initial franchise fee is recognized as revenue
a. when there is substantial performance which is indicated by the commencement of the franchisee’s
business.
b. at the point in time when the rights are transferred to the franchisee and the franchisee obtains the
ability to use those rights.
c. over time, throughout the license period, starting from the time the rights are transferred to the
franchisee and the franchisee obtains the ability to use those rights.
d. b or c depending on the substance of the agreement

4. Which of the following statements is incorrect if an entity’s promise to grant a license is not distinct and
that the performance obligation is satisfied at a point in time?
a. Treat all promises in the contract, including the grant of license, as a single performance obligation.
b. Recognize the fixed consideration as revenue in full when the license is effectively transferred to the
customer.
c. Recognize the sales-based (or usage-based) consideration in the contract in full when the license is
effectively transferred to the customer.
d. Recognize the sales-based (or usage-based) consideration in the contract as the subsequent sales
or usages occur, notwithstanding the fact that the performance obligation is satisfied at a point in
time.
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 PHINMA Education ACC 110 / Accounting for Special Transactions
Teacher Lesson Plan BSA 3
Day/Session 25

5. If in subsequent periods the franchisee’s ability to pay significantly deteriorates and the collectability of
the consideration in the franchise agreement becomes significantly uncertain,
a. the entity discontinues recognizing further revenues from the franchise contract.
b. the entity assesses any existing receivable or contract asset from the franchise contract for
impairment.
c. the entity shall discontinue its existing accounting policy on revenue recognition and shifts to either
the installment sales method or the cost recovery method of revenue recognition.
d. a and b

6. If the promise to grant a license is distinct and that the license provides the customer the “right to use”
the entity’s intellectual property, how is revenue recognized from the initial fee in the contract?
a. in full upon the signing of the contract
b. in full when the customer obtains control of the license
c. deferred and recognized in full at the end of the license period
d. deferred and amortized over the license period

7. On January 1, 20x1, Pongcuter Co. enters into a contract with a customer to grant a software license for
₱1,000,000. The fee is payable at contract inception. The license has a term of four years, to reckon
from the date the customer can use the software. The customer can determine how and when to use the
right without further performance by Pongcuter Co. and does not expect that Pongcuter Co. will
undertake any activities that significantly affect the intellectual property to which the customer has rights.
The software is transferred to the customer on February 1, 20x1. However, the code, which is necessary
for the customer to use the software, is transferred only on April 1, 20x1. How should Pongcuter Co.
recognize revenue from the fixed consideration in the contract?
a. in full on February 1, 20x1
b. in full on April 1, 20x1
c. deferred and amortized over four years starting on February 1, 20x1
d. deferred and amortized over four years starting on April 1, 20x1

8. On Jan. 1, 20x1, Hurt Co. entered into a franchise agreement with Hero Co. The franchise contract
gives Hero Co. the right to use Hurt’s trademark and proprietary processes for a period of 4 years. The
franchise requires payment of an upfront fee of ₱1,000,000, payable at contract inception, and 5%
monthly royalty based on sales. Aside from the granting of the license, the franchise agreement also
requires Hurt Co. to undertake pre-opening activities to setup the contract and post-commencement
activities, such as research and development and marketing campaigns, to support the intellectual
property. Although the activities do not result in the direct transfer of a good or service to Hero Co. as
the activities occur, it is expected that Hero Co. will benefit from them. All the necessary preparations
were completed and Hero Co. started business operations on January 31, 20x1. Hero had total sales of
₱9,000,000 in 20x1. How much revenue would Hurt Co. recognize in 20x1?
a. 1,450,000
b. 700,000
c. 679,167
d. 489,310

9. On December 31, 20x1, Entity A enters into a contract with Customer X to transfer a license for a fixed
fee of ₱100,000 payable as follows:
 20% payable upon signing of contract.
 80% due in four equal annual installments starting December 31, 20x2. The appropriate discount
rate is 12%.

The license provides Customer X rights over Entity A’s patented processes. The agreement requires
Customer X to discontinue using its trade name and instead use Entity A’s trade name. Customer X is
bound by the terms of the contract to abide with Entity A’s policies on the use of the processes but is given
the right to any subsequent modifications to the processes. How much revenue from the franchise contract
will Entity A recognize in 20x1? The license provides the customer the right to access the entity’s
a. 80,747 intellectual property. Accordingly, the performance obligation is satisfied
b. 20,187 over time.
c. 20,000 Entity A starts recognizing revenue in 20x2 when Customer X starts
d. 0 receiving the benefits of Entity A’s performance of providing access to the
patented processes.
10. On January 1, 20x1, an entity grants a franchisee the right to operate a restaurant in a specific market
using the entity’s brand name, concept and menu for a period of ten years. The entity has granted
others similar rights to operate this restaurant concept in other markets. The entity commonly conducts

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 PHINMA Education ACC 110 / Accounting for Special Transactions
Teacher Lesson Plan BSA 3
Day/Session 25

national advertising campaigns, promoting the brand name, and restaurant concept generally. The
franchisee will also purchase kitchen equipment from the entity. The entity will receive ₱950,000 upfront
(₱50,000 for the kitchen equipment and ₱900,000 for the franchise right) plus a royalty, paid quarterly,
based on 4% of the franchisee’s sales over the life of the contract. The ₱50,000 amount reflects the
stand-alone selling price of the kitchen equipment. The entity delivers the kitchen equipment to the
customer on February 1, 20x1. The customer commences business operations on April 1, 20x1 and
reports total sales of ₱5,000,000 for the year. How much total revenue should the entity recognize from
the contract in 20x1?
a. 117,500
Franchise fee (900/10 yrs) 90000
b. 317,500 Kitchen equipment 50000
c. 340,000 Commission on sales @ 4% on 5000000 200000
d. 1,150,000 Total revenue to be recognised in 20x1 340000

11. Asset contributions by partners to a partnership business are initially measured at

a. fair amount.
b. carrying value.
c. fair value.
d. fair lady.

12. Red and White formed a partnership in 2003. The partnership agreement provides for annual salary
allowances of ₱55,000 for Red and ₱45,000 for White. The partners share profits equally and losses in
a 60/40 ratio. The partnership had earnings of ₱80,000 for 2003 before any allowance to partners. What
amount of these earnings should be credited to each partner’s capital account?
Red White
a. 40,000 40,000
b. 43,000 37,000
c. 44,000 36,000
d. 45,000 35,000

13. Partners A, B and C are capitalist partners while Partner D is an industrial partner. During the period, the
partnership incurred loss of ₱100,000. If the partnership agreement does not stipulate how profits and
losses are to be distributed, how much is the share of Partner D in the loss?
a. 25,000
b. 20,000
c. one-fourth less minimum wage
d. 0

14. A and B formed a partnership on March 1, 20x1. The partnership agreement stipulates the following:
 Annual salary allowance of ₱100,000 for A.
 Interest of 10% on the weighted average capital balance of B.
 The partners share profits and losses on a 60:40 ratio.
During the period the partnership earned profit of ₱200,000.
The movements in B’s capital account are as follows:
B, Capital
March 1 initial
160,000
investment
July 31 Sept. 30 additional
60,000 80,000
withdrawal investment
Dec. 31 additional
20,000
investment
end. 200,000

How much is the interest on B’s weighted average capital?

a. 12,833
b. 13,443
c. 11,323
d. 14,516

15. It is the change in the relation of the partners caused by any partner being disassociated from the
business.
a. Formation
b. Operations

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 PHINMA Education ACC 110 / Accounting for Special Transactions
Teacher Lesson Plan BSA 3
Day/Session 25

c. Dissolution
d. Liquidation

The next two items are based on the following information:

The following condensed balance sheet is presented for the partnership of Alfa and Beda, who share profits
and losses in the ratio of 60:40, respectively:
Cash 45,000
Other assets 625,000
Beda, loan 30,000
700,000

Accounts payable 120,000

Alfa, capital 348,000
Beda, capital 232,000
700,000

16. The assets and liabilities are fairly valued. Alfa and Beda decide to admit Capp as a new partner with
20% interest. No goodwill or bonus is to be recorded. What amount should Capp contribute in cash or
other assets?
a. 110,000
b. 116,000
c. 140,000
d. 145,000

17. Instead of admitting a new partner, Alfa and Beda decide to liquidate the partnership. If the other assets
are sold for ₱500,000, what amount of the available cash should be distributed to Alfa?
a. 255,000
b. 273,000
c. 327,000
d. 348,000

18. A and B decided to liquidate their partnership. The partnership’s records show the following information:
Cash 20,000
Non-cash assets 80,000
Total assets 100,000

Liabilities 15,000
Loan payable to Partner A 10,000
Loan payable to Partner B 17,000
A, capital (80%) 36,000
B, capital (20%) 22,000
Total liabilities and equity 100,000

All the non-cash assets were sold for ₱50,000. Selling costs of ₱5,000 were incurred on the sale. How
much did B receive in the cash distribution to the partners?
a. 18,000
b. 22,000
c. 32,000
d. 48,000

19. ABC Co. is undergoing liquidation. Information before the start of the liquidation process is as follows:
Cash 10,000 Accounts payable 80,000
Accounts receivable 80,000 Payable to B 20,000
Receivable from A 10,000 A, Capital (50%) 250,000
Inventory 180,000 B, Capital (30%) 150,000
Equipment, net 320,000 C, Capital (20%) 100,000
Total 600,000 Total Liab. & Equity 600,000

If a cash priority program is used, which of the following partners has the most priority and how much is the
total payment to that partner before everyone else share in the remaining cash based on the profit-sharing
ratio?
a. A, 26,000

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 PHINMA Education ACC 110 / Accounting for Special Transactions
Teacher Lesson Plan BSA 3
Day/Session 25

b. B, 26,000
c. B, 20,000
d. C, 6,000

20. After incurring losses resulting from very unprofitable operation, the Alphabets Partnership decided to
liquidate when the partners’ capital balances were:

A, capital (40%) 80,000

B, capital (40%) 130,000
C, capital (20%) 96,000

The non-cash assets were sold in installment. Available cash were distributed to partners in every sale of
non-cash assets. After the second sale of non-cash assets, the partners received the same amount of cash
in the distribution. And from the third sale of non-cash assets, cash available for distribution amounts to
₱28,000, and non-cash assets has a book value of ₱12,500. Using cash priority program, what amount did
C receive in the third installment of cash?
a. 11,600
b. 8,000 28,000 * 20%= 5,600
c. 5,600
d. 0

21. Which of the following is not considered an unsecured liability with priority?
a. Administrative expenses relating to liquidation
b. Unpaid employee salaries and other benefits
c. Liability with collateral security
d. Taxes and assessments

22. The primary difference between a balance sheet and an accounting statement of affairs is that
a. a balance sheet reflects book values, while a statement of affairs emphasizes realization values.
b. assets are arranged in a different sequence.
c. liabilities are arranged in a different sequence.
d. owners’ equity is not considered in the statement of affairs.

23. An arrangement of which two or more parties have joint control.

a. joint operation
b. joint venture
c. joint arrangement
d. elbow joint

24. According to PFRS 11, it is a separately identifiable financial structure, including separate legal entities
or entities recognized by statute, regardless of whether those entities have a legal personality.
a. separate vehicle
b. special purpose entity
c. special purpose vehicle
d. public utility vehicle

25. Read Co. and Learn Co. are national distributors of textbooks. Read and Learn enters into a contract to
acquire a warehouse in a particular region. Each party will use the warehouse to store its own
inventories. The parties agree to share in the costs of acquiring and maintaining the warehouse. The
arrangement between Read and Learn is most likely a
a. joint operation
b. jointly controlled asset
c. joint venture
d. none of these

26. A party to a joint venture that has joint control of that joint venture.
a. joint venturist
b. joint operationer
c. joint arrangementor
d. joint venturer

27. At contract inception, PFRS 15 requires an entity to determine how the performance obligations
identified in the contract will be satisfied. According to PFRS 15, how does an entity satisfy a
performance obligation in a long-term construction contract?

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 PHINMA Education ACC 110 / Accounting for Special Transactions
Teacher Lesson Plan BSA 3
Day/Session 25

a. over time
b. at a point in time
c. any time
d. either a or b

28. Which of the following statements is correct?

a. Long-term construction contracts are unique from other contracts with customers. Therefore, PFRS
15 excludes from its scope the accounting for long-term construction contracts.
b. Long-term construction contracts are unique from other contracts with customers. Therefore, PFRS
15 requires an entity to recognize revenue from long-term construction contracts using either the
percentage of completion method or the zero-profit method.
c. PFRS 15 does not provide a special distinction between long-term construction contracts from other
types of contracts with customers. Therefore, an entity shall apply the same principles in accounting
for long-term construction contracts as those applied to other types of contracts with customers.
d. PFRS 15 does not exclude long-term construction contracts from its scope. However, because of
the unique nature of long-term construction contracts, PFRS 15 requires an entity to recognize
revenue from a long-term construction contract that is expected to be completed within 3 years or
more using the percentage of completion method. For those that are expected to be completed
within a shorter period, revenue shall be recognized when construction is complete.

Use the following information for the next two questions:

PARAMOUR Co. was contracted by LOVER, Inc. for the construction of a flyover in 20x1. The contract
price is ₱10M. Information on costs is as follows:
20x1 20x2
Total costs incurred to date 1,600,000 6,000,000
Estimated costs to complete 6,400,000 1,500,000

29. How much revenue is recognized in 20x2?

a. 8M
b. 6M
c. 4M
d. 0

30. What is the percentage of the progress completed in 20x2?

a. 80%
b. 60%
c. 40%
d. 16%

31. VALEDICTION Construction Co. entered into a ₱80M 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 ₱40M. 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

What is the percentage of completion of the contract as of the end of the first year?
a. 42%
b. 45%
c. 46%
d. 50%

32. 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

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 PHINMA Education ACC 110 / Accounting for Special Transactions
Teacher Lesson Plan BSA 3
Day/Session 25

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.
The contract price is ₱20M. How much is the revenue recognized in 20x1?
a. 7,600,000
b. 12,000,000
c. 8,200,000
d. 11,600,000

33. On January 1, 20x1, ABC Co. enters into a contract with a customer for the construction of a building.
The contract price is ₱1,000,000. The following are the transactions during 20x1:
 At contract inception, the customer makes an advance payment of ₱100,000 as facilitation fee.
 ABC Co. incurs total contract costs of ₱300,000 during the period.
 The estimated costs to complete as of year-end amounts to ₱500,000.

 ABC Co. collects the billing, net of 10% retention by the customer to be used to rectify any
unsatisfactory work determined at the completion of the contract.

How much is the gross profit earned from the contract in 20x1?
a. 75,000
b. 82,000
c. 375,000
d. 482,000

Use the following information for the next three questions:

In 20x1, ABC Co. enters into a construction contract with a customer. The contract price is ₱10,000,000.
Information on the contract follows:
20x1 20x2 20x3
Costs incurred to date 2,400,000 4,500,000 6,000,000
Estimated costs to -
complete 3,600,000 1,500,000

34. At contract inception, ABC Co. assesses its performance obligations in the contract and concludes that
it has a single performance obligation that is satisfied over time. ABC Co. determines that the measure
of progress that best depicts its performance on the contract is “cost-to-cost” method. How much is the
revenue recognized in 20x1?
a. 4,200,000
b. 4,000,000
c. 2,800,000
d. 0

35. At contract inception, ABC Co. assesses its performance obligations in the contract and concludes that
it has a single performance obligation that is satisfied over time. However, ABC Co. determines that the
outcome of the performance obligation cannot be reasonably measured but expects to recover the
contract costs incurred. How much is the gross profit recognized in 20x3?
a. 5,500,000
b. 1,500,000
c. 4,000,000
d. 0

36. At contract inception, ABC Co. assesses its performance obligations in the contract and concludes that
it has a single performance obligation. In its determination of the satisfaction of the performance
obligation, ABC Co. identifies that, during the construction period, ABC Co. retains control over the
asset created in the contract. This precludes the customer from simultaneously receiving and
consuming the benefits provided by ABC Co.’s performance as ABC Co. performs. Moreover, the asset
created in the contract has an alternative use to ABC Co. because, in case the contract is cancelled,
ABC Co. retains ownership over any asset created and can direct that asset for another use without
significant modification or cost. Accordingly, ABC Co. concludes that the performance obligation is
satisfied at a point in time. ABC Co. determines the point in time when the performance obligation is
satisfied using the principles in PFRS 15 and concludes that the performance obligation is satisfied only

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 PHINMA Education ACC 110 / Accounting for Special Transactions
Teacher Lesson Plan BSA 3
Day/Session 25

when the construction is completed and the control over the promised good is transferred to the
customer. How much is the revenue recognized in 20x1?
a. 4,200,000
b. 4,000,000
c. 2,400,000
d. 0

37. You are an accountant. Your client, a franchisor, asked you for an advice regarding the recognition of
revenue from a franchise contract. Your advice to your client would most certainly be based on which of
the following standards?
a. FAS No. 45 (US GAAP)
b. PFRS 15
c. PAS 15
d. PFRS 18

38. If the promise to grant a license is distinct and that the license provides the customer the “right to
access” the entity’s intellectual property, how is revenue recognized from the initial fee in the contract?
a. in full upon the signing of the contract
b. in full when the customer obtains and starts using the license
c. in full when the initial services to setup the contract are substantially performed
d. deferred and amortized over the license period

Use the following information for the next two questions:

On Jan. 1, 20x1, Pane Co. entered into a franchise agreement with Hero Co. The franchise contract gives
Hero Co. the right to use Pane’s trademark and proprietary processes for a period of 4 years. The franchise
requires payment of an upfront fee of ₱1,000,000, payable at contract inception, and 5% monthly royalty
based on sales. Aside from the granting of the license, the franchise agreement also requires Pane Co. to
undertake pre-opening activities to setup the contract and post-commencement activities, such as research
and development and marketing campaigns, to support the intellectual property. Although the activities do
not result in the direct transfer of a good or service to Hero Co. as the activities occur, it is expected that
Hero Co. will benefit from them. All the necessary preparations were completed and Hero Co. started
business operations on January 31, 20x1.

39. How should Pane Co. recognize revenue from the initial franchise fee?
a. in full on January 1, 20x1
b. in full on January 31, 20x1
c. deferred and amortized over 4 years starting Jan. 1, 20x1
d. deferred and amortized over 4 years starting Jan. 31, 20x1

40. How should Pane Co. recognize revenue from the continuing franchise fee?
a. Pane Co. shall estimate the variable consideration and amortize it as revenue in full on Jan. 1, 20x1.
b. Pane Co. shall estimate the variable consideration and amortize it as revenue over the license
period.
c. Pane Co. shall estimate the variable consideration, discount it to present value, subject it to
“Constraining estimates of variable consideration,” and amortize it to revenue over the license period.
d. Pane Co. shall recognize revenue equal to 5% of the franchisee’s sales as the sales occur.

41. On December 31, 20x1, Entity A enters into a contract with Customer X to transfer a license for a fixed
fee of ₱100,000 payable as follows:
 20% payable upon signing of contract.
 80% due in four equal annual installments starting December 31, 20x2. The appropriate discount
rate is 12%.

The license provides Customer X rights over Entity A’s patented processes. Customer X continues to
operate using its trade name and has the discretion of developing a new product name for the products it
will produce using the patented processes. The license does not explicitly require Entity A to undertake
activities that will significantly affect the intellectual property to which Customer X has rights. Neither does
Customer X expect that Entity A will undertake such activities. Entity A grants the license to Customer X on
December 31, 20x1. How much revenue from the franchise contract will Entity A recognize in 20x1?
a. 80,747
Cash down payment (100,000 x 20%) 20,000
b. 21,187 PV of note receivable:
c. 20,000 [(100K x 80%) ÷ 4] x PV of ordinary annuity @12%, n=4 60,747
d. 0 Transaction price 80,747

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42. In accounting for sales on consignment, sales revenue and the related cost of goods sold should be
recognized by the
a. consignor when the goods are shipped to the consignee.
b. consignee when the goods are shipped to the third party.
c. consignor when notification is received that the consignee has sold the goods.
d. consignee when cash is received from the customer.

Use the following information for the next two questions:

Schindler Co. consigns 20 water heaters to Paralax Co. on January 1, 20x1. The unit cost per water heater
is ₱10,000. Schindler pays ₱3,000 in transporting the water heaters to Paralax. At month-end, Paralax
remits ₱232,000 for the sale of 16 water heaters, after deduction for the following:The commission expense is computed as follows:
Net remittance 232,000
Freight out 16,000
20% commission based on selling price Installation costs 8,000
Freight out ₱16,000
Total 256,000
Divide by: 80%
Installation costs ₱ 8,000 Gross selling price of goods sold 320,000
Multiply by: 20%
Commission expense 64,000
43. How much is the profit recognized by Schindler on the consignment arrangement?
Cost of goods sold is computed as follows:
a. 60,600 Unit cost 10,000
b. 66,000 Freight cost per unit (3,000 ÷ 20) = 150
Total unit cost 10,150
c. 66,900 Multiply by: Number of water heaters sold 16
Cost of goods sold 162,400
d. 69,600
Profit is computed as follows
ross selling price of goods sold 320,000
44. How much is the total cost of the unsold water heaters? Cost of goods sold (162,400)
a. 40,600 Gross profit 157,600
Freight out (16,000)
b. 44,600
Unit cost 10,000
Installation costs (8,000)
Freight cost per unit (3,000 ÷ 20) 150
Commission expense (64,000)
c. 46,400 Total unit cost 10,150
Multiply by: Unsold units (20 - 16) 4
Profit 69,600
d. 46,000 Ending inventory 40,600

Use the following information for the next two questions:

CR Manufacturing Co. consigned to CE Trading Corp. twelve (12) Sony colored TV sets which cost ₱9,000
each. Freight out was paid by the consignor in the amount of ₱600. CE Trading sold eight (8) sets, rendered
an account sales, and remitted the amount of ₱82,600 after deducting the following from the selling price of
the sets sold:

Commission on selling price 12% Net remittance 82,600

Selling expenses 1,200
Selling expenses 1,200 Cost of antennae given free 1,400
Cost of antennae given free 1,400 Delivery and installation 2,800
Delivery and installation 2,800 Net remittance before other costs but after
commission 88,000
Commission (88K / 88%) x 12% 12,000
45. The total selling price of the eight (8) sets sold by CE Trading Corp. is Sale price 100,000
a. 100,000
b. 88,000
c. 98,560
d. 78,571.43

46. The net profit of CR Manufacturing Co. on the eight (8) sets sold by CE Trading Corp. is:
a. 40 Sales 100,000
Cost of goods sold (9K x 8) + (600 x 8/12)
b. 9,332.80 (72,400)
Gross profit 27,600
c. 10,200 Commission expense (12,000)
d. 10,600 Selling expenses (1,200)
Cost of antennae given free (1,400)
Delivery and installation (2,800)
Use the following information for the next two questions: Net profit 10,200

Stainless Works Mfg. Co. consigned 5 dozens of stainless chairs to Urban Furniture Co. on April 1, 20x1.
Each chair cost ₱120 and the consignor paid ₱600 for the shipment to the consignee. On August 15, 20x1,
36 were already sold and the consignee rendered an account sales, and remitted the balance due the
consignor in the amount of ₱5,580 after deducting the following: Net remittance 5,580
Selling expenses 360
Delivery and installation 180
Commission at 15% of the selling price Net remittance before other costs but after commission
Selling expenses ₱360 6,120
Commission (6,120 / 85%) x 15% 6,120
Delivery and installation 180 Sale price 12,240

Sales 12,240
47. How much is Stainless Works Mfg. Co.’s profit on the consignment? Cost of goods sold (120 x 36) + (600 x 36/60) (4,680)

a. 660
Gross profit 7,560
Commission expense (see computation above) (6,120)
b. 900 Selling expenses (360)
Delivery and installation (180)
c. 1,000 Net profit 900

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 PHINMA Education ACC 110 / Accounting for Special Transactions
Teacher Lesson Plan BSA 3
Day/Session 25

d. 1,260

48. The cost of the inventory on consignment in the hands of Urban Furniture Co. is
a. 2,880
b. 3,120
c. 3,480 (5 dozens x 12) = 60 – 36 sold = 24 unsold x [120 + (600/60)] = 3,12

d. 4,320

Use the following for the next two questions:

On January 1, 20x1, Pete Electrical Shop received from Marion Trading 300 pieces of bread toasters. Pete
was to sell these on consignment at 50% above original cost, for a 15% commission on the selling price.
After selling 200 pieces, Pete had the remaining unsold units repaired for some electrical defects for which
he spent ₱2,000. Marion subsequently increased the selling price of the remaining units to ₱330 per unit.
On January 31, 20x1, Pete remitted ₱64,980 to Marion after deducting the 15% commission, ₱850 for
delivery expenses of sold units, and ₱2,000 for the repair of 100 units. The consigned goods cost Marion
Trading ₱200 per unit, and ₱900 had been paid to ship them to Pete Electrical Shop. All expenses in
connection with the consignment were reimbursable to the consignee. Net remittance 64,980
Delivery expense 850
Repair costs 2,000
Net remittance before other costs but after commission 67,830
49. The consignment profit on the units sold was Commission (67,830 / 85%) x 15% 11,970
Sales 79,800
a. 12,200
b. 12,880
Sales 79,800
Cost of goods sold (see computation below) (52,780)

c. 13,000
Gross profit 27,020
Commission expense (see above or 79,800 x 15%) (11,970)
d. None of these Delivery expense (850)
Repair costs (2,000)
Profit 12,200

50. The value of inventory on consignment was Sales 79,800

Sale of first 200 units at original price
a. 8,120 [200 units x (200 cost x 150%)] (60,000)
Subsequent sales at the increased price of 330 per unit 19,800
b. 8,800 Divide by: Increased sale price 330
Sales at increased price (in units) 60
c. 8,920 Unsold inventory (300 - 260) 40
Multiply by: Unit cost [200 + (900/300)] 203 Add back: Sales at original price (in units) 200
Total units sold 260
d. None of these Cost of unsold goods 8,120
Multiply by: Cost per unit [200 + (900 freight ÷ 300 units)] 203
Cost of goods sold 52,780

51. In September 20x1, DEF Co. consigned 3,200 books costing ₱60 and retailing for ₱100 each to GHI Co.,
debiting Accounts Receivable and crediting Sales for the retail sales price. Freight cost of ₱3,200 was
debited to Freight Expenses by the consignor. On September 30, 20x1, DEF Co. received from GHI Co.
the amount of ₱142,020 in full settlement of the balance due, and Accounts Receivable was credited for
this amount. The consignor deducted a commission of ₱20 for each book sold, a total of ₱180 for
delivery expenses and a total of ₱200 for advertising expense. How many books were actually sold by
GHI. Co.?
a. 1,424
Net remittance 142,020
Delivery expense 180

b. 1,780 Advertising expense 200

Net remittance before other costs but after commission 142,400
c. 2,064 Divide by: Sale price per book net of commission (100 - 20) 80
Total books sold 1,780
d. 3,200

52. Leaf Co. began operations on January 1, 20x1. Leaf uses the “installment sales method” of accounting.
Data for 20x1 are as follows:

Installment accounts receivable, Dec. 31, 20x1 500,000 Installment sales 900,000
Installment sales 900,000 Installment accounts receivable, Dec. 31, 20x1 500,000
Collections in 20x1 400,000
Cost ratio 60% Multiply by: (100% - 60%) 40%
Realized gross profit - 20x1 160,000

How much is the realized gross profit in 20x1?

a. 148,000
b. 152,000
c. 160,000
d. 162,000

53. BUCOLIC RURAL Co. uses the “installment sales method.” Information on BUCOLIC’s transactions
during 20x1 and 20x2 is shown below:
20x1 20x2
Installment sales 2,000,000 2,400,000
Cost of sales 1,200,000 1,320,000 The realized gross profit in 20x2 is computed as follows:
Gross profit 800,000 1,080,000 Collections in 20x2 from:
Cash collections from: 20x1 sales: (400,000 x 40%) 160,000
20x2 sales: (960,000 x 45%) 432,000
20x1 sales 800,000 400,000 Total realized gross profit in
20x2 sales 960,000 20x2 592,000

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 PHINMA Education ACC 110 / Accounting for Special Transactions
Teacher Lesson Plan BSA 3
Day/Session 25

How much is the total realized gross profit in 20x2?

a. 160,000
b. 432,000
c. 592,000
d. 642,000

54. Banana Co. began operations on January 2, 20x1. Banana uses the “installment sales method” of
accounting. Banana’s records on December 31, 20x1 show the following information:

Installment accounts receivable, Dec. 31, 20x1 800,000

Deferred gross profit, before year-end adjustment 560,000
Gross profit on sales 40%

How much is the realized gross profit in 20x1? Deferred gross profit, before year-end adjustment 560,000
a. 240,000 Divide by: Gross profit rate based on sales 40%
Total sales 1,400,000
b. 248,000 Installment accounts receivable, Dec. 31, 20x1 (800,000)
Collections - 20x1 600,000
c. 256,000 Multiply by: Gross profit on sales 40%
d. 260,000 Realized gross profit - 20x1 240,000

Use the following information for the next three questions:

Bell Co. uses the “installment sales method.” In 20x1, Bell Co. sells an inventory costing ₱450,000 for an
installment sale price of ₱600,000. Bell makes the following collections:
20x1 ₱400,000
20x2 ₱150,000
20x3 ₱ 50,000

55. How much are the realized gross profits in 20x1, 20x2 and 20x3, respectively?
20x1 20x2 20x3
a. 89,000 29,200 8,600 20x1 400,000 x 25% = 100,000
b. 92,000 37,500 10,500 20x2 150,000 x 25% = 37,500
20x3 50,000 x 25% = 12,500
c. 100,000 26,800 12,500
d. 100,000 37,500 12,500

56. How much are the balances of installment accounts receivable at the end of 20x1, 20x2 and 20x3,
respectively?
20x1 20x2 20x3
a. 200,000 42,000 10,000
b. 200,000 50,000 0 20x1 600K – 400K = 200,000
20x2 600K – 400K – 150K = 50,000
c. 180,000 50,000 10,000 20x3 600K – 400K – 150K – 50K = 0
d. 180,000 30,000 0

57. How much is the deferred gross profit at the end of 20x1, 20x2 and 20x3, respectively?
20x1 20x2 20x3
a. 48,000 12,500 6,000 20x1 200,000, ending A/R x 25% = 50,000
b. 50,000 10,000 0 20x2 500,000, ending A/R x 25% = 12,500
20x3 0, ending A/R x 25% = 0
c. 40,000 10,000 2,000
d. 50,000 12,500 0

58. Garden Co. uses the installment sales method. Garden Co. sells a good costing ₱10,000 for an
installment sale price of ₱16,000. Garden Co. accepts old merchandise as down payment and gives the
customer a trade-in value of ₱4,000 for this merchandise. The fair value of the old merchandise is
₱4,000. Subsequent cash collections during the period amount to ₱6,000. How much is the realized
gross profit recognized in the year of sale?
Fair value 4,000
a. 3,750 nstallment sale price 16,000 Subsequent collections 6,000
b. 5,966 (Over) Under allowance - Total collections on installment
Adjusted installment sale price 16,000 sale 10,000
c. 6,333 Cost of sale (10,000) Multiply by: Gross profit rate 37.5%
d. 6,667 Gross profit 6,000 Realized gross profit - 20x1 3,75
Gross profit rate 37.5%

59. Entity A, a Philippine company, was sub-contracted to landfill a construction site by a contractor, a
Chinese construction company. The contract states a fixed price for various landfilling activities that will
take place in different stages of the construction during the first two to three years. In measuring and
recognizing the revenue from the contract, Entity A will most likely refer to which of the following
standards?
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 PHINMA Education ACC 110 / Accounting for Special Transactions
Teacher Lesson Plan BSA 3
Day/Session 25

a. PAS 11
b. PFRS 15
c. PAS 18
d. US GAAP
e. Chinese GAAP

60. You are the accountant of Mang Jolly, a fast-growing fast-food restaurant. During the year, Mang Jolly
granted Mr. A, an unrelated party, rights to operate a Mang Jolly restaurant in a specified location. The
grant of rights includes the use of Mang Jolly’s trade mark, trade processes, menu, and concept. Mr. A
paid an upfront fee for the grant of rights and agreed to make additional payments equal to 5% of its
sales from the restaurant. To account for the arrangement, which of the following standards is most
likely to be relevant to you?
a. PAS 11
b. PFRS 11
c. PFRS 15
d. US GAAP

*** End of Examination ***

ANSWERS to 1st Periodic Exams.

1 B 11. C 21. C 31. B 41. A 51. B

2 D 12. D 22. A 32. A 42. C 52. C
3 B 13. D 23. C 33. A 43 D 53. C
4 C 14. A 24. A 34. B 44. A 54. A
5 D 15. C 25. A 35. C 45. A 55. D
6 B 16. D 26. D 36. D 46. C 56. B
7 B 17. B 27. D 37. B 47. B 57. D
8 C 18. C 28. C 38. D 48. B 58. A
9 B 19. B 29. B 39. D 49. A 59. B
10 D 20. C 30. B 40. D 50. A 60. C

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