1. Joohyuk Co.

is executing a gigantic project of constructing the tallest

boarding house in the country. The project is expected to take three years
to complete.
The company has signed a fixed price contract of P12,000,000 for the
construction of this prestigious boarding house.
The details of the costs incurred to date in the first year are:
Site labor costs 1,000,000
Costs of construction material 3,000,000
Depreciation of special plant and equipment used in
constructing to build the boarding house 500,000
Marketing and selling costs to get the boarding house in
the country the right exposure 1,000,000
Total contract cost estimated to complete 5,500,000
Calculate the profit (loss) to be recognized:
(900,000) 1,500,000 (100,000) 900,000

Contract price 12,000,000

Less: Total estimated costs:
Costs incurred to date 4,500,000
Add estimated costs to complete 5,500,000
Total estimated Costs 10,000,000
Estimated gross profit 2,000,000
% of completion (4,500,000/10,000,000) 45
Recognized gross profit in 2016 900,000
Recognized revenue in 2016 (12,000,000 x 45%) 5,400,000
Costs recognized in 2016 (10,000,000 x 45%) 4,500,000
SOLUTION:
Ans: 900,000

2. Fita Builders, Inc. has consistently used the percentage of completion

method of accounting for construction type contracts. During 2015, Fita
started work on a 9,000,000 fixed price construction contract that was
completed in 2016. Fitas accounting records disclosed the following:
12/31/2015 12/31/2016
Cumulative contract 3,900,000 6,300,000
cost incurred
Estimated total costs at 7,800,000 8,100,000
completion
 How much income would JR have recognized on this contract for the year
ended December 31, 2016?
700,000 300,000 600,000 100,000
SOLUTION:
2015 2016
Contract price 9,000,000 9,000,000
Less: Total estimated costs 7,800,000 8,100,000
Estimated gross profit 1,200,000 900,000
Multiplied by: percentage of 39/78 63/81
completion
Recognized gross profit to date 600,000 700,000
Less: Recognized gross profit in prior - 600,000
year
Recognized gross profit in each year 600,000 100,000

Ans: 100,000

3. On October 1, 2016, Price Corp., a real estate developer, sold land to

Greene Co. for P5,000,000. Greene paid P600,000 cash and signed a 10-
year P4,400,000 note bearing interest at 12%. The carrying amount of the
land was P4,000,000 on date of sale. The note was payable in forty
quarterly principal installments of P110,000 beginning January 2, 2017.
Price appropriately accounts for the sale under the cost recovery
method. On January 2, 2017, Greene paid the first principal installment of
P110,000 and interest of P132,000. For the year ended December 31, 2016,
what total amount of income should Price recognize from the land sale
and financing?
132,000 252,000 0 120,000
SOLUTION:
Under the cost recovery method no profit of any type is recognized until the
cumulative receipts exceed the cost of the asset sold. This means that the entire
gross profit (P5,000,000 - P4,000,000 = P1,000,000) and the 2016 interest revenue
(P132,000) will be deferred until cash collections exceed P4,000,000. Therefore,
no income is recognized in 2016.
Ans: 0
 4. The Jaynniesis started business on January 1, 2016. Separate accounts
were established for installment and cash sales.
On installment sales, the contract price is 106% of the cash sale price. A
standard installment contract is used whereby a down payment of 1/4 of
the installment price is required, with the balance payable in 15 equal
monthly installments. The interest charged per month is 1% of the unpaid
cash sales price equivalent. It is recognized in the period earned.
Installments receivable and installment sakes are recorded at the
contract price. When contracts are defaulted, the unpaid balances are
charged to Bad Debt Expense. Sales of defaulted merchandise are
credited to Bad Debt Expense.
The following data show the results of transactions in 2016:
Sales
Cash sales 126,000
Installment sales 265,000
Repossessed sales 230
Merchandise inventory, January 1, 2016 58,060
Purchases 209,300
Merchandise inventory December 31,
2016:
New merchandise 33,300
Repossessed inventory 180
Cash collections installment contracts:
Down payments 66,250
Subsequent installments including interest
of 9,252.84 (average of six monthly
installments on all contracts, except on 79,341
defaulted contracts)
Five contracts totaling 1,060 were defaulted after 3 monthly installment
payments.
Compute the net gain or (loss) on defaulted contracts during 2016
58.57 (38.57) 38.57 (58.57)
SOLUTION:
(1) Net gain or loss an defaulted cost nets:
(4)
(1) (2) (3) (4)-(3) (5)
1% x(4) (1)-(3) Unpaid (5)-(1)
Bal. Unpaid
Cash Interest Principal equivalent Bal.
Installment Collections Income Collection cash sales Contract
price Sales
Price
(1st - 1,000.00 1,060.00
mo.)Time (c)
of Sale
(1st 265.00 (a) - 265.00 735.00 795.00
mo.)Time
of Sale
(2nd 53.00 (b) 7.35 45.65 689.35 742.00
mo.) 1
(3rd 53.00 6.89 46.11 643.24 689.00
mo.) 2
(4th 53.00 6.43 46.57 596.67 636.00
mo.) 3
(a) 1,060 x 25% = 265.00 (b) (1,060-265)/15 months = 53/month (c) 1,060 / 1,000
Market value of Repossessed Merchandise:
Repossessed inventory
Add back: Repossessed sales
Less: Unrecovered cost:
Unpaid balance
Less: Deferred Gross profit (596.67 x 37.75%)
Net gain on defaulted contract
(2) Realized Gross profit for 2016 on:
Regular - Cash Sales:126,000 x 37.75%
Installment Sales:
Down payments (265,000 x 25%)
Installment Collections as to Principal:
Cash Collections on defaulted and live
contracts 79,341.00
Less: Interest on defaulted Contracts
included in the 159 collections (53 x 3
months) 20.67
Interest on live contracts 9,252.84
Collections or installments sales
Multiplied by: gross profit percentage
Total realized gross profit for 2016
As indicated per problem the amount of 9,252.84 arises from interest from
interest on live contracts amounting to 249,000, computed as follows:
Installment sales
Less: Five contracts defaulted totaling
Live Contracts at contract sales price
Divided by: Cash sales price equivalent
Live contracts at cash sales price equivalent
Divided by: Five Contracts at cash sales price equivalent (1,060/1.06)
Number of Live contracts with Five Contracts each
Ans: 38.57

5. In relation to the concept of recognition of an item in the financial statements:

a. Items of equity must satisfy both the probability and measurement criteria before
they can be recognised.
b. Expenses are recognised when a decrease in a future economic benefit related
to an increase in an asset or a decrease in a liability has arisen that can be
measured reliably.
c. For items to qualify for recognition in the financial statements as liabilities or
income they must first satisfy the definition of an element, and then meet both
the probability and measurement requirements in relation to recognition.
d. Assets can only be recognised where there is a high probability of future
economic benefits flowing to the entity.
Ans: C

6. The international financial reporting standards (IFRS) are

a. Focused on quantitative rules
b. Rules based rather than principles based
c. Based on regulations not concepts
d. Principles based rather than rules based

Ans: D

7. Selected information from the accounting records of the JenVon Company is as

follows
Net Accounts Receivable at December 31, 2019------------------------------ 900,000
Net Accounts receivable at December 31, 2020-------------------------------
1,000,000
Accounts receivable turnover--------------------------------- 5 to 1
Inventories at December 31, 2019--------------------------1,100,000
 Inventories at December 31, 2020--------------------------1,200,000
Inventory Turnover------------------------------------------4 to 1

What was JenVons gross margin for 2020?

Ans: 150,000

8. Under PFRS, which of the following would not be considered a provision?

I. Taxes Payable
II. Notes Payable
III. Bad debts
IV. Warranty Liabilities

Ans: II only

9. On June 30, 2011, Juliemar Co. had outstanding 8% , 3,000,000 face amount, 15-
year bonds maturing on June 30, 2021. Interest is payable on June 30 and
December 31. The unamortized balances in the bond discount and deferred
bond issue costs accounts on June 30, 2011 were 105,000 and 30,000
respectively. On June 30, 2011, William acquired all of these bonds at 94 and
retired them. What net carrying amount should be used in computing gain or loss
on this early extinguishment of debt.
Ans: 2, 865, 000

10. Salas Ltd. acquired 100% of the shares in Padilla Ltd. on a cum div basis for
200,000. At acquisition date, the subsidiary had declared a dividend of 10,000.
The pre- acquisition entry must include the following line:
A. Debit : Shares in subsidiary 190,000
B. Credit: Shares in Subsidiary: 200,000
C. Credit: Shares in Subsidiary: 10,000
D. Credit: Shares in Subsidiary: 190,000