Quiz No.

3 AFAR

Write your answer in a piece of paper with solution.

1. JUMBO Corp. uses the percentage-of-completion method of revenue recognition in

accounting for its long-term construction contracts. JUMBO Corp.’s progress billings
account is a
a. Revenue account
b. Non-current liability account
c. Contra current asset account
d. Contra non-current asset account
2. Franchise fees are properly recognized as revenue
a. when received in cash
b. when a contractual agreement has been signed.
c. after the franchise business has begun operations.
d. after the franchiser has substantially performed its service.
3. Holmes Corporation started operations on January 1, 2016 selling home appliances and
furniture sets both for cash and on installment basis. Data on the installment basis sales
operations of the Company gathered for the years ending December 31, 2016 and 2017
were as follows:
2016 2017

Installment sales 400,000.00 500,000.00

Cost of installment basis 240,000.00 350,000.00

Cash collected on installment sales:

2016 installment sales 210,000.00 150,000.00

2017 installment sales 300,000.00

Additional information:
On January 5, 2018, an installment sales on 2016 was defaulted and the merchandise with
an appraised value of ₱5,000 was repossessed. Related installment receivable balance on
January 5, 2018 was ₱8,000.
Recording the repossessed merchandise at its appraised value, gain or loss on the
repossession should be:
a. No gain or loss
b. ₱200 gain
c. ₱1,800 gain
d. ₱3,000 loss
4. On January 1, 2018, Augustus Company sold land that cost ₱60,000 for ₱80,000, receiving
a note bearing interest at 10%. The note will be paid in three annual installments of ₱32,170
starting on December 31, 2018. Because collection of the note is very uncertain, Colt will
 use the cost recovery method. How much revenue (profit from sale and interest) from this
sale should Colt recognize in 2018?
a. ₱0
b. ₱6,000
c. ₱8,000
d. ₱20,000
5. Zero, Inc. was involved in two default and repossession cases during the year:
I. A refrigerator was sold to Sweet Sixteen for P 18,000, including a 35% mark up on
selling price. Sweet made a down payment of 20%, four of the remaining 16 equal
payments, and then defaulted on further payments. The refrigerator was repossessed,
at which time the fair value was determined to be P 6,000.
II. An oven that cost P 12,000 was sold to Teen Eighteen for P 16,000 on the installment
basis. Teen made a down payment of P 2,400 and paid P 800 a month for six months,
after which he defaulted. The oven was repossessed and the estimated value at the time
of repossession was determined to be P 7,500.
What is the gain or loss on repossession that Zero, Inc. must report for financial reporting
purposes?
a. P1,100 loss
b. P1,020 loss
c. P 900 gain
d. P 120 loss
6. On December 31, 2017, Joseph Inc. signed an agreement authorizing Bernard company to
operate as a franchise for an initial franchisee fee of P 50,000. Of this amount, P 20,000
was received upon signing of the agreement and the balance is due in three annual
payments of P 10,000 each beginning December 2018. The agreement provides that the
down payment (representing a fair measure of the services already performed by Nike,
Inc.) is not refundable and substantial services are required of Joseph. Bernard Company’s
credit rating is such that collection of the note is reasonably assured. The present value at
December 31, 2017 of the three annual payments discounted at 14% (the implicit rate for
a loan of this type) is P 23,220.
On December 31, 2017, Bernard Company should record unearned franchise fees of:
a. 50,000
b. 30,000
c. 43,220
d. 23, 220
7. On March 1, 2016, Cameron Construction Company was contracted to construct a
townhouse for Will Company for a total contact price of P 8,400,000. The building was
completed by October 31, 2018. The annual contract costs incurred, estimated costs to
complete the contract, and billings for 2016, 2017 and 2018 are giving below:
 The entry to record the recognized profit in 2018 includes a credit to:
a. Construction revenue P 1,680,000
b. Construction in progress 230,000
c. Construction revenue 1,700,000
d. Construction in progress 1,450,000
8. Under PFRS 15, when shall the consignor recognizes the revenue from consignment sales
arrangement?
a. From the moment of the remittance of the consignee.
b. From the moment of the collection of the consignee of the sales of the products
c. From the moments the consignor delivers the goods to the consignee.
d. From the moment the consignee sells the goods to the final customer.
9. Under Installment Method of recognition of gross profit from Installment Sales, what is
the proper classification of deferred gross profit in the entity’s statement of financial
position?
a. Deferred Revenue Account
b. Deferred Cost Account
c. Unearned Revenue Account
d. Contra-Installment Receivable Account
10. What method shall be employed by a franchisor in the recognition of gross profit from
initial franchise fee when its payment is deferred but the probability of its collection is
reasonably assured?
a. Installment basis
b. Cost recovery basis
c. Accrual basis
d. Zero profit basis