Junior Philippine Institute of Accountants Accountants College of Business Administration University of the East - Caloocan
Qualifying Exam Reviewer 2017 Advanced Financial Accounting and Reporting 1
1. The following methods may be used for accounting for instalment sales except: a. Cost recovery method b. Gross profit realization method c. Installment method d. Cost to cost method 2. Under cost recovery method for accounting of 5 year instalment sale, the realized gross profit for the second year is a. Total collections multiplied by the gross profit rate. b. Total collections multiplied by the gross profit rate less realized gross profit for the first year. c. Collections for the first year multiplied by the gross profit rate. d. Zero 3. Gain or loss or repossession is computed by: a. Fair market value of the repossessed item less instalment receivable. b. Fair market value of the repossessed item less deferred gross profit. profit. c. Fair market value of the repossessed item less unrecovered cost. d. Fair market value of the repossessed item less reconditioning cost. 4. Realized gross profit may be computed by using the following formula: i. (Deferred gross profit beginning/gross profit rate) – – instalment accounts receivable end ii. (Realized gross profit/Gross profit rate) + Installment accounts receivable receivabl e end – Installment accounts receivable beginning a. b. c. d.
Both formula may be used Both formula cannot be used Only the first formula may be used Only the second formula may be used
5. Sanghaya Company began operating on January 1, 2016 and appropriately uses the instalment method of accounting. The following data are available for 2016 and 2017:
Installment sales Cash collections from: 2016 sales 2017 sales Gross profit on sales
2016 P1,300,000
2017 P1,600,000
300,000
400,000 500,000 30%
20%
The realized gross profit for 2017 is: a. 150,000 b. 230,000
c. 80,000 d. 70,000
6. Arellano Company, which began operations on January 2016, appropriately uses instalment method of accounting. The following information pertains to Arellano operations for the year 2016: Instalment sales Regular sales Cost of instalment sales Cost of regular sales General and administrative expenses Collection on instalment sales
P500,000 300,000 250,000 150,000 50,000 100,000
In its December 31, 2016 balance sheet, what amount should Arellano report as deferred gross profit? a. 200,000 c. 75,000 b. 250,000 d. 125,000 7. Jackson Company sells appliances on the instalment basis. Below are information for the past three years: 2016 2015 2014 Installment sales P750,000 P600,000 P400,000 Cost of sales 450,000 375,000 260,000 Collections on: 2016 installment sales 2015 installment sales 2014 installment sales
275,000 180,000 175,000
240,000 120,000
150,000
The realized gross profit in 2016 on collections of 2016 installment sales was: a. 108,000 c. 221,000 b. 110,000 d. 221,500 8. Contract cost of a construction contract comprise all of the following except a. Costs that directly relate to specific contract. b. Costs that are attributable to contract activity in general and can be allocated to the contract. c. Such other cost that are specifically chargeable to customer under the terms of contract d. General administration costs for which reimbursement is not specified in the contract. 9. The percentage of completion method of inventory valuation of long term construction contract
a. b. c. d.
Recognizes income upon completion of work Recognizes income based on collection billings Recognizes income based on the progress of work Does not recognize income at the balance sheet
10. In accounting for a long term construction type contract using the percentage of completion method, the gross profit recognized during the first year would be the estimated total gross profit from the contract multiplied to ratio of the cost incurred during the year to the over the a. Total cost incurred to date b. Total estimated cost c. Unbilled portion of the contract price d. Total contract price 11. The following statements are true regarding percentage of completion except a. It is used when the outcome of the construction contract cannot be estimated reliably. That is, the estimate of cost to complete and the extent of progress toward completion of long term construction contract are reasonably dependable. b. Gross profit is recognized as construction progress. c. It is used when the outcome of the construction contract can be estimated reliably. That is, the estimate of cost to complete and the extent of progress toward completion of long term construction contract are reasonably dependable. d. Gross profit recognized for the period is computed by deducting the gross profit recognized in the preceding period. 12. Chase Company uses the percentage of completion in recognizing revenue. During 2016, information on a construction project was 2015 2016 Accounts receivable from construction contract P100,000 P300,000 Construction expenses 105,000 192,000 Construction in progress 122,000 364,000 Partial billings on contract 100,000 420,000 Profit recognized in 2016 is: a. 50,000 b. 17,000
c. 0 d. 67,000
13. On May 1, 2015, McLean Construction Company entered into a fixed price contract to construct an apartment building for P3,000,000. McLean appropriately accounts for this contract under the percentage of completion method. Information as of December 31 relating to the contract is as follows: 2015 2016 Percentage of completion 20% 60% Total estimated costs at completion P2,250,000 P2,400,000 Income recognized 150,000 360,000
What is the amount of contract costs incurred during the year 2016? a. 1,440,000 c. 1,350,000 b. 990,000 d. 1,080,000 14. The following data relate to a construction job started by Adliwa Co. during 2016: Total contract price Actual cost incurred during 2016 Estimated remaining costs Billed to customer during 2016 Received from customer during 2016
P 300,000 60,000 120,000 90,000 30,000
Under the percentage of completion method, how much should Adliwa recognize as gross profit for 2016? a. 120,000 c. 130,000 b. 40,000 d. 60,000 15. Initial franchise fee a. Represents continuous payment to the franchisor for providing specific future services. b. Are usually based on the operation of the franchises c. May be immediately in cash or for an extended period of time d. Is the payment for the continuous use of intangible rights by the franchise 16. Substantial performance by the franchisor occurs when the following conditions are met except: a. The franchisee is not obligated in any way to refund cash already received. b. The franchisor is not obligated in any way to refund cash already received. c. No other material conditions or obligations exist. d. The initial services required of the franchisor by contract or otherwise have been substantially performed. 17. Valdez Inc. grants a franchise to Hedge for an initial franchise fee of P1,000,000. The contract provides that Valdez has the option, within one year, to acquire the franchisee’s business and it seems certain that Valdez will exercise the option. How should he initial franchise fee be recorded in Valdez Inc. books? a. Realized revenue b. Extraordinary revenue c. Deferred revenue to be amortized d. Deferred and treated as reduction in Valdez Inc investment. 18. On June 1, 2016, Hiyas Co. paid P15,000 for the insurance of consigned goods, while in transit, shipped to a consignee, and P12,000 for the freight. In addition, Hiyas advanced P5,000 as part of the commission that will be due when the consignee sells the goods. The consigned goods cost Hiyas P75,000 and will be sold for a total amount of P80,000. What is the total amount of inventory that Hiyas should report for the consigned goods on June 1, 2016? a. 102,000 c. 87,000 b. 107,000 d. 92,000
19. On November 13, 2016, Adliwa Co. consigned 40 freezers to Hirayag Co. for sale at P8,000 each and paid P400 in transportation costs. On December 30, 2016, Hirayag reported the sale of 15 freezers and remitted P6,500. The remittance net of the agreed 15% commission. What amount should Adliwa recognize as consignment sales revenue for 2016? a. 113,500 c. 113,350 b. 119,850 d. 120,000 20. On August 12, 2016 Stark Company received a shipment of merchandise with a selling price of P150,000 from Tully Company. The consigned goods cost Tully P100,000 and freight charges of P1,200 had been paid to ship the goods to Stark. The consignment agreement provided for a sale of merchandise on credit with the terms of 2/10, n/30. The 15% commission is to be based on the accounts receivable collected by the consignee. Cash discounts taken by the customers, expenses applicable to goods on consignment and any cash advanced to the consignor are deductible from the remittance by the consignee. Stark Company advanced P60,000 to Tully Company upon the receipt of shipment. Expenses of P8,000 was paid by Stark. By September 2016, 70% of the shipment has been sold and 80% of the resulting accounts receivable had been collected, all within the discount period. Remittance of the amount due was made on September 30, 2016. The cash remitted by Stark Company is: a. 1,720 b. 22,300
c. 23,400 d. 61,720
21. It is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. a. Joint control b. Joint undertaking c. Joint operation d. Joint venture 22. It is an entity that participates in a join arrangement, regardless of whether that entity has a joint control of the arrangement. a. Partner b. Party to a joint arrangement c. Joint operator d. Joint venture 23. Which of the following is a characteristic of a joint arrangement? a. The parties are bound by a contractual arrangement only. b. The contractual arrangement gives two or more parties joint control over the arrangement only
c. The parties are bound by a contractual arrangement and contractual arrangement gives two or more parties joint control over the arrangement. d. A joint arrangement is neither a joint operation nor joint venture. 24. IFRS 11, Joint Arrangement, provides that the classification of the arrangements will require entities to apply judgment when assessing their rights and obligations arising from the arrangement by considering the following except a. The terms agreed by the parties in the contractual arrangements. b. The structure and legal form of the arrangement. c. When structured in a legal entity, the choice between proportionate consolidation and the equity method. d. When relevant, other facts and circumstances. 25. The Lualhati Home Company ships and bills merchandise to its provincial branch at cost. The branch carries its own accounts receivables and makes its own collections. The branch also pays its expense. Debit Cash Lualhati Home Co. Current Shipments from Lualhati Home Co. Accounts receivable Expenses Sales Total December 31 Inventory
Credit P11,900 90,000
P120,000 62,500 8,100 202,500
112,500 202,500
30,000
Compute the net profit of the branch and the Branch Current Account in the home office books. a. 22,500; 90,000 c. 14,400; 104,400 b. 21,300; 134,400 d. 14,400; 90,000 26. On December 31, 2016, the Investment in Branch on the home office’s books has a balance of P102,000. In analyzing the activity in each of these accounts for December, you find the following differences: i. A P12,000 branch remittance to the home office initiated on December, 27, 2016 was recorded on the home office books on January 3, 2017 ii. A home office inventory shipment to branch on December 28, 2016 was recorded by the branch on January 4, 2016; the billing of P24,000 was at cost. iii. The home office incurred P14,400 of advertising expenses and allocated P6,000 of this amount to the branch on December 15, 2016.the branch has not recorded this transaction. iv. A branch customer erroneously remitted P3,600 to the home office. The home office recorded this cash collection on December 23, 2016. Meanwhile, the branch has not made any entry.
v.
Inventory costing P51,600 was sent to the branch by the home office on December 10, 2016. The billing was at cost but the branch recorded this transaction at P40,800. Compute the unadjusted balance of the Home Office account and adjusted balance of the reciprocal account respectively. a. 76,800; 114,000 b. 52,800; 93,600 c. 151,200; 139,200 d. 52,800; 90,000 27. X Ambassadors Inc. has several branches. Goods costing P10,000 were transferred by the head office to Cebu Branch with the latter paying P600 for freight cost. Subsequently, the head office authorized Cebu Branch to transfer the goods to Davao Branch for which the later was billed for the P100,000 cost of the goods and freight charge of P200 for the transfer. If the head office had shipped the goods directly to Davao Branch, the freight charge would have been P700. The P100 difference in freight cost would be disposed of as follows: a. Considered as savings b. Charged to Cebu Branch c. Charged to Davao Branch d. Charged to the Head Office 28. Gotham Company opened its Starling Branch on January 1. Merchandise shipments from home office during the month, billed at 120% of cost, is P125,000. Branch returned damaged merchandise worth P15,620. On January 31, the branch reported net loss of P2,270 and an inventory on P84,000. What is the net income (loss) of the branch to be taken up in the books of the Home Office? a. (1,690) c. (2,270) b. 6,500 d. 1,960 29. The Caloocan Branch of Manila Corporation submitted the following trial balance as of June 30, 2016: Debit Credit Cash 28,600 Accounts receivable 173,800 Shipments from home office 462,000 Home office current 324,500 Sales 369,600 Expenses 29,700 Total 694,100 694,100 Caloocan reported an ending inventory of P138,600. Shipments are billed at a mark-up of 40% on cost. What is the real net income of Caloocan branch? a. 70,600 c. 100,000 b. 92,400 d. 108,900
30. An old refrigerator was accepted as a tr ade in for a new refrigerator with a sales of price of P8,000 and a cost price of P5,320. It was estimated that the old refrigerator could be sold for P4,000 after 10% commission, cost to recondition of P600 and a normal profit of 10% of the resale price. The old refrigerator was accepted in lieu of a down payment of P3,000. Additional collections in cash amounted to P1,500. Compute for the over(under) allowance in trade in. a. 400 c. 1,120 b. 720 d. 320 31. Garrison, Inc. started operation at the beginning of 2015, selling home appliances exclusively on the instalment basis. Data for 2015 and 2016 follows: 2015 2016 Instalment sales P600,000 P750,000 Cost of instalment sates 420,000 450,000 2015 instalment accounts, end 285,000 22,500 2016 instalment accounts, end 300,000 On May 31, 2016, a 2015 installment account of P37,500 was defaulted and the appliance was repossessed. After reconditioning at a cost of P750, the repossessed appliance would be priced to sell for P30,000 The gain or loss on repossession amounted to a. 3,000 b. (9,000)
c. 9,000 d. (3,750)
32. The converged standard on revenue recognition a. Reduces the number of disclosures required for revenue reporting. b. Increases the complexity of financial statement preparation c. Recognizes and measures revenue based on changes in assets and liabilities. d. Simplifies revenue recognition practice among entities and industries. 33 DDS Inc. awarded its franchise for Surigao City to Palatable Foods for a total fee of P250,000, payable P50,000 at the time the contract is signed and the balance in two equal instalments after each year following the signing date. The agreement was signed at the end of 2016 and it provided among others, that in the event the first year’s operation proved to be unprofitable, the franchise may be voided. So far, no services has yet been performed. In 2016, DDS would report franchise fee of a. 0 c. 150,000 b. 50,000 d.. 250,000 34 On September 1,2016, Moffat Company entered into franchise agreements. The agreement required an initial fee payment of P700,000 plus four P300,000 payments due every four months, the first payment due on December 31, 2016. The market interest rate ia 12%. The initial deposit is refundable until substantial performance has been completed. The following table describes the agreement:
Probability of full collection Likely
Services performed by franchisor on Dec. 31, 2016 Substantially
Total cost incurred to Dec. 31, 206 P700,000
The present and future value tables of 4% for four periods were as follows: Present value of P1 0.8548 Present value of an ordinary annuity of P1 3.6299 Future value of P1 1.1699 Future value of an ordinary annuity of P1 4.2465 What amount of net income is to be reported in 2016, assuming P1,000,000 was received from the franchisee during the year? a. 1,088,970 b. 1,788,970 c. 1,132,529 d. 1,432,379 35. ARGUS Company consigned five computer equipments, with cost of P8,000 each to the Waller Computers which was to sell these goods for the account and risk of the former for a commission of 15% of the selling price. ARGUS Company paid trucking cost of P2,000 on the shipment while Waller Computers paid P3,200 on the freight of the shipment. On the last day of the year, Waller Computers reported thatit sold three of the computers, two for cash at P15,000 each and one on credit for P18,000 of which 25% was collected as a downpayment. Waller Computers remitted all cash due. The amount remitted by Waller Computers is a. 13,500 b. 24,100 c. 34,500 d. 37,600
ANSWER KEY 1. D. Cost to cost method 2. D. Zero 3. C. Fair market value of the repossessed item less unrecovered cost. 4. B. Both formula cannot be used 5. B. 230,000 6. A. 200,000 7. B. 110,000 8. D. General administration costs for which reimbursement is not specified in the contract. 9. C, Recognizes income based on the progress of work 10. B. Total estimated cost 11. A. 12. A. 50,000 Construction in progress, 2016 Accumulated construction expenses Prior profit recognized (122,000-105,000) Profit, 2016 13. B. 990,000 Cost incurred up to 2016 (2,400,000 x .60) Cost incurred up to 2015 (2,250,00 x .20)
14. B. 40,000 Contract price Actual cost during the year Estimated remaining costs Total estimated gross profit Percentage of completion [60,000/(120,000+60,000)]
364,000 (297,000) (17,000) A. 50,000
1,440,000 (450,000) B. 990,000
300,000 (60,000) (120,000) 120,000 1/3 B. 40,000
15. C. May be immediately in cash or for an extended period of time 16. D. The initial services required of the franchisor by contract or otherwise have been substantially performed 17. D. Deferred and treated as reduction in Valdez Inc investment 18. A. 102,000 19. D. 120,000 20. A. 1,720 Gross collections (150,000 x .7 x .8) 84,000 Discount (1,680) Net collection 82,320 Expenses (8,000) Commission (84,000 x .15) (12,600) Advances (60,000) Cash remittance A. 1,720
21. A. Joint control 22. B. Party to a joint arrangement 23. C. The parties are bound by a contractual arrangement and contractual arrangement gives two or more parties joint control over the arrangement. 24. C. When structured in a legal entity, the choice between proportionate consolidation and the equity method 25. C.14,400; 104,000 Sales Cost of goods sold Shipments from home office Ending inventory Gross profit Expenses Net income
112,500 120,000 (30,000)
Unadjusted Lualhati Home Co. Current Net income of the branch Adjusted Lualhati Home Co. Current/Branch Current
(90,000) 22,500 8,100 C. 14,400 90,000 14,400 C. 104,400
26. D. 52,800; 90,000
Unadjusted balance Branch remittance not recorded by home office Shipments not recorded by the branch Unrecorded branch expenses Customer’s remittance to home not recorded by the branch Erroneous recording of branch shipments (51,600-40,800) Adjusted balances
Investment in Branch Account 102,000 (12,000)
Home Office Current D. 52,800 24,000 6,000 (3,600) 10,800
90,000
D. 90,000
27. D. Charged to the Head Office 28. D. 1,960 Net loss per branch books Overvaluation of cost of goods sold Beginning inventory Shipments Returns Cost of goods available for sale at billed price Ending inventory at billed price Cost of goods sold at billed price Multiplied by mark up Adjusted net income
(2,270) 125,000 (15,620) 109,380 (84,000) 25,380 .20/1.20
4,230 D. 1,960
29. D. 108,900 Sales Cost of goods sold Shipments from home office [462,000 x (100/140)] Ending inventory [(138,600 x (100/140)] Gross profit Expenses Real net income
369,600 330,000 (99,000)
(231,000) 138,600 (29,700) D. 108,900
30. A. 400 31. B. (9,000) Estimated selling price after reconditioning cost Reconditioning cost Normal profit (30,000 x .40*) Fair market value of repossessed machine Unrecovered cost Instalment accounts receivable – 2015, unpaid Deferred gross profit – 2015 (37,500 x .30**) Loss on repossession * Gross profit rate, 2016 [(750-450)/750] ** Gross profit rate, 2015 [(600-420)/600]
30,000 (750) (12,000) 17,250 37,500 (11,250)
(26,250) B. (9,000)
40% 30%
32. C. Recognizes and measures revenue based on changes in assets and liabilities 33. A. 0 34. C. 1,132,529 Downpayment PV of instalment (300,000 x 3.6299) Cost of franchise Gross profit Interest income (1,088,970 x .04) Net income 35. B. 24,100 Cash sales (15,000 x 2) Downpayment (18,000 x .25) Freight paid by Waller Commission [15,000 + 15,000 + 18,000) x .15 Remittance
700,000 1,088,790 (700,000) 1,088,970 43,559 C. 1,132,529
30,000 4,500 (3,200) (7,200) B. 24,100
