8916 - AFAR Revenue Recognition Self Test PDF

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CPA REVIEW SCHOOL OF THE PHILIPPINESManilaADVANCED FINANCIAL ACCOUNTING GERMAN / LIM / VALIX / K. DELA CRUZ / MARASIGAN REVENUE RECOGNITIONSELFTESTNumbers 1 and 2On September 30, 2030, AAA Corp. bought a bike for P3,600,000, costing P2,400,000. A downpayment of P1,600,000 was made with the balance d...

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CPA REVIEW SCHOOL OF THE PHILIPPINES Manila ADVANCED FINANCIAL ACCOUNTING REVENUE RECOGNITION

GERMAN / LIM / VALIX / K. DELA CRUZ / MARASIGAN

SELFTEST Numbers 1 and 2 On September 30, 2030, AAA Corp. bought a bike for P3,600,000, costing P2,400,000. A downpayment of P1,600,000 was made with the balance due in equal monthly installment. The balance was shouldered by a 12% interest bearing note and the equal monthly payment was P200,000. 1. What is the realized gross profit on installment sales in 2030? a. b. c. d.

533,333 800,000 733,333 666,667

2. What is the interest income in 2030? a. b. c. d.

68,000 54,000 38,000 60,000

Numbers 3 and 4 Angeli Inc. uses installment sales method of accounting. During the year, a buyer defaulted on an installment sale leaving Angeli, Inc. no other choice but to repossess the inventory sold. As of the date of repossession, the following data are available:    

The installment receivable balance is P240,000 Gross profit rate is 30% The fair value of the repossessed inventory is P132,000 Reconditioning costs of P12,000 was incurred to bring the repossessed inventory to saleable condition.

3. How much is the gain (loss) on repossession? a. b. c. d.

43,200 gain 43,200 loss 36,000 loss 36,000 gain

4. How much is the new cost basis of the repossessed inventory? a. b. c. d.

132,000 110,400 144,000 122,400

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Page 2 Numbers 5, 6 and 7 Bulldog Manufacturing Corp. consigned ten refrigerators to Poodle Sales Co. These refrigerators had a cost of P180 each. Freight on the shipment was paid by Bulldog in the amount of P120. Poodle Sales Co. submitted an account sales stating that it had sold 6 refrigerators and remitted the P1,365 balance due to Bulldog after the following deductions from the selling price of the refrigerators: Commission Marketing expenses Delivery and installation of items sold Cartage cost paid upon receipt by consignee of goods consigned

15% of selling price P90 P60 P15

5. The consignee sold the 6 refrigerators for a total of a. b. c. d.

1,080 1,152 1,530 1,800

6. The commission earned on the sale of the 6 refrigerators by Poodle Sales Co. was: a. b. c. d.

162 180 250 270

7. The Consignor’s net profit from sale of the consigned goods was a. b. c. d.

219 285 600 800

Number 8 (PFRS 15) On January 1, 2022, Houston, Inc. granted a 10 year franchise right to a franchisee for the operation of coffee shop using Houston’s trade name for a nonrefundable initial franchise fee of P10M and continuing franchise fee of 10% of franchisee’s annual sales. It is the obligation of Houston to construct the coffee shop and to deliver the movables. In addition to that, Houston has the obligation to deliver 100,000 units of raw maters to the franchisee. The stand-alone selling price of the right to use Houston’s trade name is P4M. The stand-alone selling price of the construction of the coffee shop and delivery of movables is P3M while the standalone selling price of the 100,000 units of raw materials is P1M. On July 1, 2022, Houston finished the construction of the coffee shop and delivered all the required movables. 20,000 units of raw materials have been delivered as of December 31, 2022. The franchisee reported sales revenue amounting to P2M for the year 2022. What is the amount of total revenue to be reported by Houston, Inc. for the year ended December 31, 2022? a. 100,000 b. 4,700,000 c. 8,750,000 d. 5,700,000

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Page 3 Numbers 9, 10 and 11 Corci Coffee Company charges an initial franchise fee of P900,000 to Mrs. Mocha for the right to operate as a franchisee of Corci Coffee. Of this amount, P180,000 is payable when the agreement is signed, and the balance is payable in 4 equal annual installment payments. In return for the payment of initial franchise fee, the franchisor will assist the franchisee to locate the site, supervise the construction activity and provide bookkeeping services. The credit rating of the franchisee indicates that money can be borrowed at 10%. The present value of an ordinary annuity factor is 3.16987. 9. How much is the franchise revenue if the downpayment is refundable, the collectability of the note is reasonably assured, but substantial services remain to be performed? a. 0 b. 149,423 c. 180,000 d. 750,577 10. How much is the franchise revenue if the downpayment is nonrefundable, the collectability of the note is reasonably assured, and there is substantial performance of services? a. 0 b. 149,423 c. 180,000 d. 750,577 11. How much is the franchise revenue if the downpayment already represents a fair measure of the services already performed by the franchisor, and the collectability of the note is reasonably assured? a. 0 b. 149,423 c. 180,000 d. 750,577

Numbers 12, 13, 14 and 15 BP Construction Company was the lowest bidder on a specialized equipment contract. The contract bid was P13,125,000 with an estimated cost to complete the project of P7,800,000. The company uses the cost to cost method to estimate profits. A record of construction activities for the years 2021 to 2023 are as follows:

Cost incurred per year Estimated cost at completion Progress billing as of end of the year Collections during the year

2021

2022

2023

6,562,500 10,937,500 3,000,000 5,625,000

4,406,250 12,187,500 12,000,000 3,750,000

656,250 11,625,000 13,125,000 3,750,000

Using percentage-of-completion method, compute for the following: 12. How much is the realized gross profit in 2021, 2022, and 2023? a. 1,312,500; (468,750); 656,250 b. 1,312,500; 468,750; 656,250 c. 656,250; (468,750); 1,312,500 d. 0; 0; 1,500,000...