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ACCOUNTING FOR SPECIAL TRANSACTIONS MIDTERM EXAMINATION 1. “Assets to be realized” is placed on which side of a statement of realization and liquidation?a. debit side, measured at realizable value b. credit side, measured at book value c. debit side, measured at book value d. no side 2. The statement of affairs of Darrell Putix Co. indicates that unsecured creditors without prioritywith total claims of ₱720,000 may expect to recover only ₱288,000 after all the assets weresold. Among the creditors of Darrell Putix Co. are the following: ∙ Government – taxes payable of ₱400,000, inclusive of ₱80,000 assessments and surcharges. ∙ XYZ bank – loan payable of ₱4,000,000 and accrued interest of ₱200,000, backedbycollateral security with realizable value of ₱4,800,000. ∙ Alpha Financing Co. – loan payable of ₱3,200,000 backed by collateral securitywithrealizable value of ₱2,000,000. ∙ Mr. Bombay – loan payable of ₱1,000,000 and accrued interest of ₱200,000. Nocollateral security. How much is the expected recovery of partially secured creditors? a. 2,480,000 b. 2,160,000 c. 1,280,000 d. 0 Use the following information for the next two questions: Rex Toothpix Co. is undergoing liquidation. Information on Rex Toothpix Co.’s assets andliabilities is shown below: ASSETS Book value Realizable value Assets pledged to fully secured creditors 360,000 480,000 Assets pledged to partially secured creditors 208,000 192,000 Free assets 600,000 576,000 1,168,000 1,248,000 LIABILITIES Unsecured liabilities with priority 288,000 288,000 Fully secured creditors 384,000 384,000 Partially secured creditors 240,000 240,000 Unsecured creditors without priority 432,000 432,000 1,344,000 1,344,000

3. If the assets are sold at realizable values, how much cash is available to pay unsecuredcreditors without priority? a. 336,000 Page|2

b. 384,000 c. 624,000 d. 288,000 4. How much can the partially secured creditors expect to recover from their claims? a. 384,000 b. 234,000 c. 230,400 d. 276,000 5. The following information was taken from the statement of realization and liquidationof Juryand John Bombastix Co. which is undergoing liquidation: ASSETS: Assets to be realized 8,000,000 Assets acquired 60,000 Assets realized 4,720,000 Assets not realized 880,000 LIABILITIES: Liabilities liquidated 8,520,000 Liabilities not liquidated 4,760,000 Liabilities to be liquidated 11,480,000 Liabilities assumed 128,000 SUPPLEMENTARY ITEMS: Supplementary expenses 100,000 Supplementary income 72,000 How much is the net gain (loss) for the period? a. (4,132,000) b. (28,000) c. 4,160,000 d. (4,160,000) Use the information below for the next four questions: Community Co. filed a voluntary bankruptcy petition during the year. Relevant information follows

ASSETS Carrying amount Realizable value Assets pledged with fully secured creditors 300,000 370,000 Assets pledged with partially secured creditors 180,000 120,000 Free assets 420,000 320,000 900,000 810,000 LIABILITIES Liabilities with priority 70,000 Page|3

Fully secured creditors 260,000 Partially secured creditors 200,000 Unsecured creditors 540,000 1,070,000 The assets are converted to cash at the estimated realizable values and the business is liquidated. 6. What amount of cash will be available to pay unsecured non-priority claims? a. 360,000 b. 380,000 c. 430,000 d. 470,000 7. What is the estimated recovery percentage of unsecured creditors without priority? a. 52.00% b. 54.08% c. 56.56% d. 58.06% 8. How much is the total amount paid to the partially secured creditors? a. 161,773 b. 163,552 c. 166,448 d. 168,992 9. How much is the total amount paid to the unsecured creditors? a. 313,524 b. 342,349 c. 294,823 d. 285,231 Use the following information for the next two questions: A, B and C formed a joint operation for the sale of assorted fruits during the Christmas season. Their

transactions during the two-month period are summarized below: Joint operation Nov. 5

Merchandise-A 8,500 14

Nov. 15

Cash sales-C 20,400

12

Merchandise-B 7,000

18

Cash sales-C

30

4,200 Freight-in-C 200 Merchandise-B 1,210 Dec. 10

Purchases-C 3,500 Dec. 25 Unsold mdse. charged to A 540 22 Selling expenses-C 550

The joint arrangement provided for the division of gains and losses among A, B and C in the ratioof 2:3:5. The joint operation is to close on December 31, 2008. 10. What is the joint operation profit? a. (6,600) Page|4

b. 6,600 c. 6,060 d. (6,060) 11. What is the amount of cash that A will receive on final settlement? a. 9,280 b. 9,712 c. 8,500 d. 1,212 12. LL, MM and NN formed a joint operation to purchase a piece of lot and to erect anapartmentbuilding for sale. LL is to manage the joint operation; hence, he will receive a bonus of 10%ofthe joint operation’s gain before deducting the bonus as an expense. Any remaininggainorloss is to be divided equally among the participants. The joint operation is completedonAugust 31, 20x1. On this date, the accounts of MM and NN show the following balances: Books of MM NN Account with LL 16,000 Cr. 16,000 Cr. Account with MM 32,000 Cr. Account with NN 18,000 Dr. There are unused constructions supplies which LL agreed to take over at its cost of ₱42,000. Final settlement with the joint operators will require payments as follows: a. LL pays NN ₱11,200, and MM pays NN ₱14,000. b. LL pays NN ₱25,600, and MM ₱14,400.

c. LL pays MM ₱14,400, and NN pays LL ₱30,800. d. LL pays MM ₱35,600, and NN pays LL ₱14,400. Use the following information for the next two questions: A, B, and C formed a joint operation. The joint operators shall make initial contributions ₱10each. Profit and loss shall be divided equally. The following data relate to the joint operation’s transactions: ABC Joint operation (before closing) 8 Cr. 10 Cr. 12 Cr. Expenses paid from JO cash 5 2 3 Value of inventory taken 5 6 4 13. How much were the sales of the joint operation? a. 70 b. 60 c. 40 d. 90 14. How much was A’s share in the settlement? a. 25 receipt b. 20 receipt Page|5

c. 25 payment d. 20 payment Use the following information for the next two questions: A and B formed a joint operation. The following were the transactions during the year: A B Total purchases 400 320 Total sales 480 240 Expenses paid 800 Other income 40 The joint operation was completed at the end of the year. Each joint operator is entitledtoa10%commission on its purchases and a 20% commission on its sales. Any remaining profit or loss isdivided equally. 15. How much is the profit (loss) of the joint operation? a. 760

b. (760) c. 840 d. (840) 16. On the cash settlement between the joint operators, a. A pays B ₱368. b. B pays A ₱368. c. A pays B ₱428. d. B pays A ₱428. 17. A, B, and C formed a joint operation which was completed during the year. The accounts of thejoint operators show the following balances: Books of A Books of B Books of C Account with A - 10 Dr. 10 Dr. Account with B 16 Dr. - 16 Dr. Account with C 26 Cr. 26 Cr. On the cash settlement between the joint operators, a. B and C pays A ₱16 and ₱10, respectively, for a total of ₱26 payment to A. b. A and B pays C ₱10 and ₱16, respectively, for a total of ₱26 payment to C. c. C pays A and B ₱10 and ₱16, respectively. d. A, B and C pays D. 18. Cloud Co. acquired an investment in Sky Co., a joint venture, for ₱100,000, incurringtransaction costs of ₱1,000. Cloud Co. determined that it has joint control over Sky. CloudCo. uses the PFRS for SMEs and elects the cost model for its investments in joint ventures. Theinvestment’s fair values were ₱102,000, ₱110,000 and ₱90,000 on December 31, 20x1, 20x2and Page|6

20x3, respectively. Costs to sell were estimated at ₱4,000 throughout. Cloud Co. recognizesinits profit or loss which of the following amounts? gain (loss) 20x1 20x2 20x3 a. 0 0 0 b. (1,000) 8,000 (20,000) c. (3,000) 8,000 (20,000) d. (3,000) 3,000 (15,000) 19. According to PFRS 15, a promised good or service is distinct if I. The customer can benefit from the good or service either on its own or together

withotherresources that are readily available to the customer. II. The promise to transfer the good or service is separately identifiable fromother promisesinthe contract. III. The promise to transfer the good or service is explicitly stated in the contract, the rightsofthe parties and payment terms are identifiable, and the collectability of the revenuefromthe contract is probable. a. I and II b. I and III c. I, II and III d. None of these 20. According to PFRS 15, how does an entity account for a promise in the contract to transferagood o service that is not distinct? a. The entity shall not recognize any revenue from the promise to transfer a non-distinct goodor service; any consideration received therefrom is treated as a liability. b. The entity shall recognize revenue from a promise to transfer a non-distinct goodor serviceat th earlier of the following events: the entity has no remaining obligation in the contractand the contract is terminated and the consideration received is non-refundable. c. The entity shall combine the non-distinct good or service with the other promises inthecontract and treat the combined promises as a single performance obligation. d. The entity shall ignore the promise to transfer a non-distinct good or service andshall account only those promises in the contract to transfer distinct goods or services. 21. Under the “cost-to-cost” method, the percentage of completion may be computed as a. Total costs incurred to date multiplied by the Estimated total costs to complete b. Total costs incurred to date divided by the Estimated total costs to complete c. Total costs incurred to date multiplied by the Estimated total costs to complete d. Total costs incurred to date divided by the sum of Total costs incurred to dateandEstimated costs to complete Fact pattern for the next two items: An entity is developing a multi-unit residential complex. A customer enters into a bindingsalescontract with the entity for a specified unit that is under construction. Each unit has a similar floorplan and is of a similar size, but other attributes of the units are different (for example, the locationof the unit within the complex). Page|7

22. The customer pays a deposit upon entering into the contract and the deposit is refundableonlyif the entity fails to complete construction of the unit in accordance with the contract. Theremainder of the contract price is payable on completion of the contract when the customerobtains physical possession of the unit. If the customer defaults on the contract beforecompletion of the unit, the entity only has the right to retain the deposit. Whichof thefollowing statements is correct? a. The entity’s performance obligation is satisfied at a point in time because the entitydoesnothave an enforceable right to payment for performance completed to date. b. The entity’s performance obligation is satisfied over time because the contract is a constructioncontract. c. The entity’s performance obligation is satisfied at a point in time because it takes a short periodof time to construct just one unit in a multi-unit complex. d. The entity’s performance obligation is satisfied over time because it takes a long-periodof timeto develop all the units in the multi-unit residential complex. 23. The customer pays a non-refundable deposit upon entering into the contract andwill makeprogre payments during construction of the unit. The contract has substantive termsthatpreclude the entity from being able to direct the unit to another customer. In addition, thecustomer does not have the right to terminate the contract unless the entity fails to performaspromised. If the customer defaults on its obligations by failing to make the promisedprogresspayments as and when they are due, the entity would have a right to all of the considerationpromised in the contra if it completes the construction of the unit. The courts have previouslyupheld similar rights that entitle developers to require the customer to perform, subject totheentity meeting its obligations under the contract. Which of the following statements is correct? a. The asset (unit) created by the entity’s performance does not have an alternative use totheentity b. The entity has a right to payment for performance completed to date. c. The entity’s performance obligation is satisfied over time. d. All of these 24. 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-termconstructioncontracts. b. Long-term construction contracts are unique from other contracts with customers. Therefore, PFRS 15 requires an entity to recognize revenue fromlong-termconstructioncontracts using either the percentage of completion method or the zero-profit method. c. PFRS 15 does not provide a special distinction between long-termconstructioncontractsfrom other types of contracts with customers. Therefore, an entity shall applythesameprinciples in accounting for long-term construction contracts as those applied to other typesof contracts with customers. d. PFRS 15 does not exclude long-term construction contracts fromits scope. However, because of

the unique nature of long-term construction contracts, PFRS 15 requiresanentity to recognize revenue from a long-term construction contract that is expectedtobecompleted within 3 years or more using the percentage of completion method. For those Page|8

that are expected to be completed within a shorter period, revenue shall be recognizedwhen construction is complete. Use the following information for the next three questions: In 20x1, Chili Peppers Co. started work on three contracts. Information of the contracts is shownbelow: Contract Transaction price Costs incurred Estimated costs to complete Contract 1 500,000 375,000 Contract 2 700,000 100,000 400,000 Contract 3 250,000 100,000 100,000 25. The performance obligations of Chili Peppers Co. in all of the contracts are satisfiedover time. Chili Peppers Co. uses the cost-to-cost method to measure its progress in the contracts. Howmuch is the total revenue recognized from the contracts 20x1? a. 865,000 b. 765,000 c. 385,000 d. 265,000 26. The performance obligations of Chili Peppers Co. in all of the contracts are satisfiedover time. However, the outcome of the performance obligations in the contracts cannot be measuredreliably but the costs incurred are recoverable. How much is the total revenue recognizedfromthe contracts in 20x2? a. 700,000 b. 575,000 c. 500,000 d. 0 27. The performance obligations of Chili Peppers Co. in all of the contracts are satisfiedat apointin time (i.e., upon completion). How much is the total revenue recognized fromthe contractsin20x2? a. 700,000 b. 575,000 c. 500,000

d. 0 Use the following information for the next three questions: Information on Sunny Day Construction Firm’s three-year construction contract with a customerisshown below: Contract price ₱9,000,000 Estimated costs at contract inception ₱8,000,000 Information on actual costs, billings and collections during construction period: 20x1 20x2 20x3 Actual costs incurred per year 1,944,000 5,232,000 1,844,000 Estimated costs to complete 6,156,000 2,024,000 Page|9

Billings 1,800,000 4,950,000 2,250,000 Collections 1,620,000 4,455,000 2,925,000 Sunny Day uses the percentage of completion (based on costs) in recognizing revenues andprofitsfrom the contract. 28. How much net profit (loss) is recognized in 20x2? a. 216,000 b. 200,000 c. (200,000) d. (416,000) (note. Duha kabuok 28 sa exam.) 29. How much is the loss provision recognized in 20x2? a. 32,000 b. 44,000 c. 56,000 d. 68,000 (note. Ambot kay duha ang 28 hahaha.) 30. How much net profit (loss) is recognized in 20x3? a. 180,000 b. (180,000) c. 20,000 d. (20,000)

Use the following information for the next two questions: In 20x1, ABC Co. was contracted to build a railroad. The contract price is equal to the constructioncosts incurred plus ₱1,200,000. However, if the project is completed within 4 years, ABCwill receive an additional payment of ₱200,000. Information on the project is shown below: 20x1 20x2 20x3 Costs incurred to date 2,400,000 4,575,000 6,125,000 Estimated costs to complete 3,600,000 1,525,000 125,000 In 20x1 and 20x2, it was not highly probable that the project will be completed on time. However, in 20x3, ABC assessed that project will be completed earlier than originally expected andthus it isnow highly probable that the incentive payment will be received. 31. How much revenue is recognized on the contract in 20x3? a. 2,610,000 b. 2,595,000 c. 2,056,000 d. 2,022,000 32. How much profit is recognized on the contract in 20x3? a. 506,000 b. 495,000 P a ge|1

c. 480,000 d. 472,000 Use the following information for the next two questions: On September 1, 20x1, ABC Co. enters into a contract with a customer to remodel a plant’s electrical wirings and install a new generator for a total consideration of ₱12M. The remodelingand the installation are treated as a single performance obligation satisfied over time. The expected contract costs are as follows: Generator 4,000,000 Other costs 5,000,000 Expected total contract costs 9,000,000 Additional information: ∙ ABC Co. uses the cost-to-cost method in measuring its progress towards the completesatisfaction of the performance obligation.

∙ ABC Co. incurs total costs of ₱6,000,000 in 20x1, including the cost of the generator. ∙ The customer obtains control of the generator when it is delivered to the site in December 20x1. However, the generator will not be installed until March 20x2. ∙ ABC Co. regards the cost of the generator as significant in relation to the expected total contractcosts ∙ Although ABC Co. acted as a principal in procuring the generator, ABC Co. is not involvedindesigning or manufacturing the generator. 33. How much revenue is recognized in 20x1? a. 7,200,000 b. 3,200,000 c. 4,000,000 d. 5,600,000 34. How much profit is recognized from the contract in 20x1? a. 1,200,000 b. 1,800,000 c. 2,400,000 d. 5,600,000 35. George Co. enters into a contract to build an apartment for Jungle Co. for a fixedfeeof₱20,000,000. At contract inception, George Co. assesses its performance obligations inthecontract and concludes that it has a single performance obligation that is satisfiedover time. George Co. determines that the measure of progress that best depicts its performanceinthecontract is input method based on costs incurred. George estimates that the total contract costswould amount to ₱16,000,000 over the construction period. George incurs contract costsof₱2,000,000 during the year. How much gross profit is recognized for the year? a. 200,000 b. 400,000 c. 500,000 P a ge|1

d. 0 36. Flea Co. entered into a ₱10,000,000 contract to construct a multi-purpose recreational facility. The estimated total costs on completion of the project were ₱8,000,000 and the contract periodwas 36 months starting January 1, 20x1. Flea Co. uses the cost-to-cost method to estimateitsprogress on the project. On January 1, 20x2, the contract price was reduced to ₱9,500,000duetomany changes made to the original contract. The accounting records relating to this contract forthe years 20x1 to 20x3 disclosed the following:

Year Actual costs in current year Estd. costs to complete Progress billings 20x1 3,000,000 5,000,000 2,800,000 20x2 3,500,000 1,600,000 4,000,000 20x3 1,700,000 - 2,700,000 What amount of profit is recognized in 20x3? (Round-of percentages of completion to two decimal places.) a. 173,500 b. 176,500 c. 178,200 d. 180,400 37. ABC Co. started work on two separate projects during 20x1. Information on these projectsisshown below: Estimated costs to Project Contract price Costs incurred complete Progress billings A 9,000,000 4,000,000 2,000,000 5,000,000B 8,000,000 5,000,000 - 8,000,000 What amounts are presented in ABC Co’s. statement of financial position under and ? Gross amount due from (to) cust. Contract asset(liability) a. 1,000,000 1,000,000 b. (1,00,000) ...