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ADVANCED FINANCIAL ACCOUNTING AND REPORTING

JOINT ARRANGEMENTS, CONSTRUCTION CONTRACTS, ACCOUNTING
FOR FRANCHISE OPERATIONS, CONSIGNMENT SALES, INSTALLMENT
SALES

1. Which of the following is a peculiar characteristic of a joint arrangement?

a. significant influence c. joint control
b. control d. joint venture

2. Read Co. and Learn Co. are national distributors of textbooks. Read and Write enters into a
contract to acquire a warehouse in a particular region. Each party will use the warehouse to store
its own inventories. The parties agree to share in the costs of acquiring and maintaining the
warehouse. The arrangement between Read and Learn is most likely a
a. joint operation c. joint venture
b. jointly controlled asset d. none of these

3. Read Co. and Learn Co. are publishers of textbooks. Read and Learn enters into a contract to put
up a bookstore which shall be named Knowledge Bookstore. Knowledge will have its own assets,
incur its own liabilities, and earn and incur its own revenues and expenses. Read and Learn will
each have a 50% interest in the net assets and profits of Knowledge. The arrangement between
Read and Learn is most likely a
a. joint operation c. joint venture
b. jointly controlled net assets d. none of these

4. Tech Co. and Robotics Co. are joint operators in the development of Super OS, a mobile phone
operating system. Each joint operator retains control over the assets contributed to the joint
operation and share equally in the profits and losses of the joint operation. During the year, Tech
Co. earns revenue of ₱1,000,000 from its own operations. Sales of Super OS amount to ₱400,000.
How much total revenue shall be reported in Tech Co.’s statement of profit or loss for the year?
a. ₱1,000,000 c. ₱1,400,000
b. ₱1,200,000 d. Either a or b

5. Tech Co. and Robotics Co. are joint venturers of Mecha Co., a producer of high tech machinery.
Tech and Robotics, each have a 50% interest in the net assets of Mecha Co. During the year, Tech
Co. earns revenue of ₱1,000,000 from its own operations while Mecha Co. reports revenue of
₱400,000. How much total revenue shall be reported in Tech Co.’s statement of profit or loss for
the year?
a. ₱1,000,000 c. ₱1,400,000
b. ₱1,200,000 d. Either a or b
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6. If an entity’s statement of financial position shows an “investment” account for its interest in a
joint arrangement, a user of the entity’s financial statement would most like find out in the notes
that the nature of the joint arrangement is a(an)
a. joint operation c. investment in associate
b. joint venture d. either of these

7. In its financial statements that are not considered separate financial statements, how should a joint
venturer account for its interest in a joint arrangement?
a. The joint venturer recognizes its share in the assets, liabilities, income and expenses in the joint
venture by adding those shares, line by line, to similar accounts.
b. The venturer uses the equity method to recognize its share in the profit or loss of the joint
venture by recognizing its share in the revenues and expenses of the joint venture.
c. The venturer uses the equity method to recognize its share in the changes in the net assets of
the joint venture through one-line consolidation.
d. The venturer accounts for the investment at cost, at fair value or using the equity method.

Use the following information for the next two questions:

The following are the transactions of a joint operation formed by A, B and C during a year:
a. A contributed cash of ₱100 and merchandise costing ₱200.
b. B contributed merchandise costing ₱400. Freight-in paid by B is ₱20.
c. C made purchases amounting to ₱100 using the cash contributed by A.
d. C paid expenses of ₱200 using its own cash.
e. C made total sales of ₱800. All the merchandise was sold except one-half of those contributed by
B.
f. C is appointed as the manager of the joint operation. As compensation, C is entitled to a ₱30 salary
plus bonus of 25% on profit after salary and bonus.
g. Interest of 10% per annum is allowed to A and B’s capital contributions.
h. C is charged for the cost of any unsold inventory. Profit or loss after necessary adjustments shall
be divided equally.

8. How much is the profit or loss after salaries and bonus of the joint operation?
a. 90
b. 60
c. 48
d. 26

9. How much is A’s cash settlement?

a. 22 receipt
b. 322 receipt
c. 322 payment
d. 454 receipt

10. A and B formed a joint operation. The following were the transactions during the year:

A B
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Total purchases 100 80

Total sales 240 180
Expenses paid 200
Other income 10

The joint operation was completed at the end of the year. Each joint operator is entitled to a 10%
commission on its purchases and a 20% commission on its sales. Any remaining profit or loss is
divided equally.

How much is B’s cash settlement?

a. 92 payment
b. 92 receipt
c. 18 receipt
d. 0

11. A and B formed a joint operation. The following were the transactions during the year:

A B
Total purchases 100 80
Total sales 120 60
Expenses paid 200
Other income 10

The joint operation was completed at the end of the year. Each joint operator is entitled to a 10%
commission on its purchases and a 20% commission on its sales. Any remaining profit or loss is
divided equally.

How much is A’s cash settlement?

a. 92 payment
b. 92 receipt
c. 190 receipt
d. 88 payment

12. A, B, and C formed a joint operation which was completed during the year. A is the appointed
manager who is entitled to a 10% bonus of profit before bonus. Profit after bonus to A is divided
equally among the joint operators. The accounts of B and C show the following balances:
Books of B Books of C
Account with A 4 Cr. 4 Cr.
Account with B 12 Cr.
Account with C 14 Dr.

Unsold merchandise was charged to A at a cost of ₱22.

How much is C’s cash settlement?

a. 18 payment
b. 10 receipt
c. 8 payment
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d. 8 receipt

13. A, B, and C formed a joint operation which was completed during the year. The accounts of the
joint operators show the following balances:

Books of A Books of B Books of C

Account with A - 2.5 Dr. 2.5 Dr.
Account with B 4 Dr. - 4 Dr.
Account with C 6.5 Cr. 6.5 Cr.

How much is B’s cash settlement?

a. 0
b. 2.5 payment
c. 4 payment
d. 4 receipt

14. A, B, and C formed a joint operation. Profit or loss shall be divided equally. The following were
taken from the joint operation’s books:

Debit Credit
JO – Cash 20
Joint operation 5
B, Capital 15
C, Capital 10

A’s share in the joint operation’s profit is ₱4. A agreed to be charged for the unsold merchandise as of
year-end.

How much is the cost of unsold merchandise charged to A?

a. 12
b. 17
c. 19
d. 25

15. A, B, and C formed a joint operation. The following were taken from the joint operation’s books:

Debit Credit
JO – Cash 20
B, Capital 15
C, Capital 22

The cost of unsold inventory is ₱18. The joint operation’s profit is ₱11.

How much is the balance of the joint operation account before distribution of profit?
a. 11
b. 29
c. 7
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d. 18

Use the following information for the next two questions:

A, B, and C formed a joint operation. The joint operators shall make initial contributions ₱10 each.
Profit and loss shall be divided equally. The following data relate to the joint operation’s transactions:

A B C
Joint operation 8 Cr. 10 Cr. 12 Cr.
Expenses paid from JO cash 5 2 3
Value of inventory taken 5 6 4

16. How much is the joint operation’s sales?

a. 70
b. 10
c. 90
d. 30

17. How much is the cash settlement to A?

a. 45 receipt
b. 45 payment
c. 20 receipt
d. 20 payment

18. On January 1, 20x1, PATRIMONY Co. entered into a joint agreement classified as a joint venture.
For an investment of ₱2,000,000, PATRIMONY Co. obtained 30% interest in HERITAGE Joint
Venture, Inc. During the year, HERITAGE Joint Ventures, Inc. reported profit of ₱4,000,000 and
other comprehensive income of ₱800,000, for a total comprehensive income of ₱4,800,000.
HERITAGE Joint Venture, Inc. declared dividends of ₱2,400,000 during the year. How much is the
carrying amount of the investment in joint venture on December 31, 20x1?
a. 2,720,000 b. 2,000,000 b. 2,480,000 d. 4,160,000

19. VALEDICTION Construction Co. entered into a P80M fixed price contract for the construction of
a private road for FAREWELL SPEECH, Inc. The performance obligation on the contract is
satisfied over time. VALEDICTION measures its progress on the contract using the “cost-to-cost”
method. The estimated total contract cost is P40M. The following were the actual costs incurred
by VALEDICTION during the first year of the construction:

Costs of negotiating the contract (charged immediately

as expense) 400,000
Costs of materials used in construction 12,000,000
Costs of materials purchased but not yet used in construction 2,000,000
Site labor costs 4,000,000
Site supervision costs 800,000
Depreciation of equipment used in construction 480,000
Depreciation of idle construction equipment 240,000
Costs of moving plant, equipment and materials to and 160,000
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from the contract site

Costs of hiring plant and equipment 560,000
Advance payments to subcontractors (subcontracted
work is not yet started) 80,000

How much revenue is recognized as of the end of the first year?

a. 25M
b. 36M
c. 45M
d. 46M

20. DELETERIOUS Construction Co. entered into a fixed price contract for the construction of a
building for HARMFUL, Inc. DELETERIOUS determines the stage of completion of construction
contracts using the “cost-to-cost” method.

The estimated total costs of the contract are as follows:

Estimated costs of design and technical assistance that
are directly related to the contract 800,000
Estimated costs of design and technical assistance that
are not directly related to a specific contract (properly
allocated) 200,000
Estimated costs of materials to be used in the
construction 22,000,000
Estimated costs of construction labor 11,200,000
Estimated costs of rectification and guarantee work,
including expected warranty costs 1,200,000
Estimated administrative costs expected to be reimbursed
in accordance with contractual agreement 520,000
Estimated insurance costs during construction 80,000
Estimated construction overheads 4,000,000
Estimated marketing costs for selling condominium units 400,000
Estimated total contract costs 40,400,000

The following were the actual costs incurred by DELETERIOUS during the first year of the
construction:
Costs of design and technical assistance that are
directly related to the contract 400,000
Costs of design and technical assistance that are not
directly related to a specific contract (properly
allocated) 100,000
Costs of materials used in the construction 12,000,000
Costs of construction labor 6,000,000
Administrative costs expected to be reimbursed in
accordance with contractual agreement. 480,000
Administrative costs not expected to be reimbursed 120,000
Research and development costs for which 7,200,000
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reimbursement is not specified in the contract

Insurance costs during construction 60,000
Construction overheads 960,000
Marketing costs 800,000
Total costs incurred to date 28,120,000

What is the percentage of completion of the contract as of the end of the first year?
a. 42% b. 45% c. 50% d. 51%

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 remodeling and 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 complete satisfaction
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 contract
costs (i.e., 4M ÷ 9M = 44.44%).
• Although ABC Co. acted as a principal in procuring the generator, ABC Co. is not involved in
designing or manufacturing the generator.

21. How much revenue is recognized in 20x1?

a. 7,200,000
b. 3,200,000
c. 4,000,000
d. 5,600,000

22. 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

23. On Oct. 1, 20x1, ABC Co. enters into a construction contract with a customer. The performance
obligation in the contract will be satisfied over time. ABC Co. uses the “cost-to-cost” method in
measuring its progress. The estimated total contract cost is ₱10M. In 20x1, ABC Co. incurred a
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total cost of ₱6M, which includes ₱2M advance payment to a subcontractor (the subcontracted
work is not yet started) and ₱200,000 cost of materials not yet installed. ABC Co. does not regard
the cost of the unused materials as significant in relation to the expected total contract costs.
Moreover, ABC Co. retains control over the unused materials because it can use them in a contract
with another customer. What is the percentage of completion in 20x1?
a. 38%
b. 40%
c. 42%
d. 56%

24. On January 1, 20x1, ABC Co. enters into a contract with a customer for the construction of a
building. The contract price is ₱1,000,000. The following are the transactions during 20x1:
• At contract inception, the customer makes an advance payment of ₱100,000 as facilitation fee.
• ABC Co. incurs total contract costs of ₱300,000 during the period.
• The estimated costs to complete as of year-end amounts to ₱500,000.
• ABC Co. collects the billing, net of 10% retention by the customer to be used to rectify any
unsatisfactory work determined at the completion of the contract.

How much is the cost of construction that is recognized as expense in 20x1?

a. 175,000
b. 375,000
c. 300,000
d. 285,000

25. ABC Co. started work on two separate projects during 20x1. Information on these projects is
shown below:

Estimated costs to
Project Contract price Costs incurred complete Progress billings
A 9,000,000 4,000,000 2,000,000 5,000,000
B 8,000,000 5,000,000 - 8,000,000

How much is the total balance of the “construction in progress” accounts as of December 31, 20x1
under zero-profit method?
a. 4,000,000
b. 6,000,000
c. 14,000,000
d. 0

26. PFRS 15 requires how many steps in recognizing revenue from contracts with customers?
a. 2 c. 5
b. 3 d. 7

27. If the promise to transfer a license is distinct,

a. the entity treats all the promises in the contract as a single performance obligation.
b. the entity applies the general principles of PFRS 15 to determine whether the performance
obligation is satisfied over time or at a point in time.
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c. the entity applies the specific principles of PFRS 15 to determine the nature of the entity’s
promise to transfer the license as either a “right to access” or a “right to use” the entity’s
intellectual property.
d. b and c

28. According to PFRS 15, if the nature of the entity’s promise to grant franchise rights in a franchise
agreement is to provide the franchisee the right to use the entity’s intellectual property as it exists
at the point in time at which the license is granted, the initial franchise fee is recognized as revenue
a. when there is substantial performance which is indicated by the commencement of the
franchisee’s business
b. at a point in time when the franchise rights are transferred to the franchisee and the franchisee
obtains the ability to use those rights
c. over time, throughout the license period, starting from the time the franchise rights are
transferred to the franchisee and the franchisee obtains the ability to use those rights
d. b or c depending on the substance of the agreement

29. If a franchise contract requires the franchisor to undertake activities that would affect the
franchisor’s intellectual property to which the franchisee has rights, the performance obligation is
satisfied
a. at a point in time c. under time
b. over time d. anytime

30. Which of the following does not indicate that the nature of an entity’s promise to transfer a license
is to provide the customer the right to access the entity’s intellectual property as it exists
throughout the license period?
a. The intellectual property to which the customer has rights changes throughout the license
period.
b. The entity continues to be involved with its intellectual property
c. The contract requires, or the customer reasonably expects, that the entity will undertake
activities that significantly affect the intellectual property to which the customer has rights
and the customer is exposed to any positive or negative effects of those activities.
d. The customer can direct the use of, and obtain substantially all of the remaining benefits from,
the license at the point in time at which the license is granted.

31. Entity A enters into a franchise contract with Customer X. The agreement provides Customer X
the right to use Entity A’s intellectual property. How should Entity A recognize revenue from the
franchise agreement?
a. over time, as the customer receives and consumes the benefit from Entity A’s performance of
providing access to its intellectual property to Customer X.
b. at a point in time when Entity A transfers control over the promised license to Customer X.
c. a or b as a matter of an accounting policy choice
d. when there is “substantial performance” by Entity A in accordance with US GAAP.

32. On January 1, 20x1, ABC Co. enters into a contract with a customer to transfer a license.
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• The initial franchise fee is ₱100,000 payable as follows: 20% cash down payment upon signing
of the contract and the balance is payable in 4 equal annual installments starting December 31,
20x1. The appropriate discount rate is 12%.
• The contract also requires ABC Co. to transfer equipment to the customer. The equipment has
a cost of ₱30,000 and a stand-alone selling price of ₱40,000.
• The license has a stand-alone selling price of ₱38,000.
• ABC Co. regularly sells the license and the equipment separately.
• The license provides the customer the right to use the entity’s intellectual property as it exists
at the point in time at which the license is granted.
• The equipment is transferred to the customer on January 15, 20x1 while the license is
transferred to the customer on February 1, 20x1.

How much revenue is recognized on February 1, 20x1?

a. 80,747
b. 41,409
c. 39,338
d. 0

Use the following information for the next five questions:

On December 1, 20x1, CANOROUS Co. granted a 5-year franchise right to MELODIOUS, Inc. for an
initial franchise fee of ₱400,000. The non-refundable initial franchise fee was collected in full upon
signing of the contract. As of December 31, 20x1, CANOROUS has no remaining obligation or intent
to refund any of the cash received, all of the services pertaining to pre-opening activities to set-up the
contract have been performed and there are no other material conditions or obligations required of
CANOROUS under the franchise agreement.

33. If the promise to grant the franchise right is not distinct, how should CANOROUS account for the
transaction?
a. CANOROUS should use only the general principles of PFRS 15 to determine whether the
performance obligation is satisfied over time or at a point in time.
b. CANOROUS should use the general principles of PFRS 15 first then the specific principles to
determine whether the grant of license provides the customer the right to access or the right
to use the intellectual property granted.
c. CANOROUS should use only the specific principles of PFRS 15
d. CANOROUS should use the old GAAP (FAS No. 45), i.e., “substantial performance.”

34. If the promise to grant the franchise right is not distinct and that the performance obligation is
satisfied at a point in time, how much revenue shall CANOROUS recognize in December 20x1?
a. 400,000 c. 0
b. 80,000 d. None of these

35. If the promise to grant the franchise right is distinct, how should CANOROUS account for the
transaction?
a. CANOROUS should use only the general principles of PFRS 15 to determine whether the
performance obligation is satisfied over time or at a point in time.
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b. CANOROUS should use the general principles of PFRS 15 first then the specific principles to
determine whether the grant of license provides the customer the right to access or the right
to use the intellectual property granted.
c. CANOROUS should use only the specific principles of PFRS 15
d. CANOROUS should use the old GAAP (FAS No. 45), i.e., “substantial performance.”

36. If the promise to grant the franchise right is distinct and that the grant of franchise provides the
customer the right to use the entity’s intellectual property, how much revenue shall CANOROUS
recognize in December 20x1?
a. 400,000 c. 0
b. 80,000 d. 6,667.67

37. If the promise to grant the franchise right is distinct and that the grant of franchise provides the
customer the right to access the entity’s intellectual property, how much revenue shall
CANOROUS recognize in December 20x1?
a. 400,000 c. 0
b. 80,000 d. 6,667.67

Use the following information for the next three questions:

Publisher Co. delivers 1,000 books to Bookstore Co. under a consignment arrangement. The cost per
book is ₱300. Publisher Co. pays freight of ₱22 per book.

Bookstore Co. is entitled to a 20% commission based on the Publisher’s suggested retail price.
However, Bookstore Co. marks up the Publisher’s suggested retail price for another 15%.

Six (6) months after the end of the semester, Bookstore Co. remits ₱245,700 to the Publisher for the sale
of 700 books, after deduction of ₱69,300 for the following:
• 2% withholding tax based on the publisher’s suggested retail price.
• Bookstore’s commission.

38. How much profit is recognized by the Publisher?

a. 315,000
b. 225,400
c. 20,300
d. 27,300

39. How much income is recognized by the Bookstore?

a. 63,000
b. 47,350
c. 110,250
d. 110,350

40. How much is the cost of the unsold books?

a. 90,000
b. 96,600
c. 102,600
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d. 98,200

Use the following information for the next two questions:

Wing Co. consigned eight printing machines to Wind Co. Each machine costs ₱1,000,000 and has a
suggested retail price of ₱2,100,000. Wing paid ₱200,000 in transporting the machines to the
consignee’s place of business. At the end of the period, Wind remitted ₱8,417,500 to Wing representing
collections on sales during the period, after deducting the following:
Commission (based on sales net of commission) 20%
Finder’s fee (based on commission) 5%
Delivery, installation and testing (on each unit sold) ₱50,000

Materials generated from the testing were sold for ₱5,000 and included in the remittance to Wing Co.
Wing Co. appropriately reported ending inventory of ₱3,075,000 for the unsold consigned machines.

41. How much is the commission earned by the consignee?

a. 1,750,000 c. 2,250,000
b. 2,100,000 c. 2,450,000

42. How much profit is earned by the consignor from the sale?
a. 3,642,500 c. 3,195,500
b. 3,292,500 d. 3,092,500

43. On November 30, 20x1, Northup Co. consigned 90 freezers to Watson Co. for sale at ₱1,600 each
and paid ₱1,200 in transportation costs. A report of sales was received on December 30, 20x1 from
Watson reporting the sale of 20 freezers, together with a remittance that was net of the agreed 15%
commission. How much, and what month, should Northup recognize as sales revenue?
November December
a. 0 32,000
b. 0 27,200
c. 144,000 0
d. 142,800 0

44. On December 1, 20x1, Alt Department Store received 505 sweaters on consignment from Todd.
Todd’s cost for the sweaters was ₱80 each, and they were priced to sell at ₱100. Alt’s commission
on consigned goods is 10%. At December 31, 20x1, 5 sweaters remained. In its December 31, 20x1
balance sheet, what amount should Alt report as payable for consigned goods?
a. 49,000 b. 45,400 c. 45,000 d. 40,400

45. On October 20, 20x1, Grimm Co. consigned 40 freezers to Holden Co. for sale at ₱1,000 each and
paid ₱800 in transportation costs. On December 30, 20x1, Holden reported the sale of 10 freezers
and remitted ₱8,500. The remittance was net of the agreed 15% commission. What amount should
Grimm recognize as sales revenue for 20x1?
a. 7,700 b. 8,500 c. 9,800 d. 10,000

46. On January 1, 20x1, DEF Co. paid ₱5,000 for the insurance of consigned goods, while in transit,
shipped to a consignee, and ₱7,000 for the freight. In addition, DEF Co. advanced ₱5,000 as part
of the commission that will be due when the consignee sells the goods. The consigned goods costs
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DEF ₱50,000 and will be sold for a total amount of ₱80,000. What is the total amount of inventory
should DEF report for the consigned goods?
a. 50,000 b. 62,000 c. 67,000 d. 97,000

47. Stone Co. had the following consignment transactions during December 20x1:
Inventory shipped on consignment to Beta Co. 18,000
Freight paid by Stone 900
Inventory received on consignment from Alpha Co. 12,000
Freight paid by Alpha 500

No sales of consigned goods were made through December 31, 20x1. Stone’s December 31, 20x1
balance sheet should include consigned inventory at
a. 12,000 b. 12,500 c. 18,000 d. 18,900

48. The following items were included in Opal Co.’s inventory account at December 31, 20x1:
Merchandise out on consignment, at sales price,
including 40% markup on selling price 40,000
Goods purchased, in transit, shipped FOB shipping
point 36,000
Goods held on consignment by Opal 27,000
By what amount should Opal’s inventory account at December 31, 20x1 be reduced?
a. 103,000 b. 67,000 c. 51,000 d. 43,000

Use the following information for the next two questions:

ABC Co., consigned twelve refrigerators to XYZ, Inc. The refrigerators cost ₱6,000 each and the
consignor paid ₱720 for freight out. The consignee subsequently rendered account sales for five units
sold at ₱7,700 each, and deducted the following items from the selling price:
Commission (based on sales net of commission) 10%
Marketing expense (based on commission) 10%
Delivery and installation (on each unit sold) ₱30

49. How much was the net profit of the consignor on the five refrigerators sold?
a. 3,815 b. 37,780 c. 4,200 d. 3,395

50. How much was the net remittance of the consignee on the five refrigerators sold?
a. 34,500 b. 33,780 c. 4,500 d. 4,200

51. Who created the concept of present value?

a. Jose Rizal and friends
b. Rodrigo Duterte
c. Manny Pacquiao
d. None of these

52. HEARTY WARM & SINCERE Co. uses the “installment sales method.” Information on HEARTY’s
transactions during 20x1 and 20x2 is shown below:
20x1 20x2
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Installment sales 4,000,000 4,800,000

Cost of sales 2,400,000 2,640,000
Gross profit 1,600,000 2,160,000
Cash collections from:
20x1 sales 1,600,000 800,000
20x2 sales 1,920,000

How much is the realized gross profit in 20x2?

a. 1,484,000
b. 1,284,000
c. 1,184,000
d. 984,000

53. RIBALD OFFENSIVE Co. uses the installment method. On December 31, 20x3, RIBALD Co.’s
records show the following balances:
Deferred gross profit (before year-end adjustments) 2,252,000
Installment receivable - 20x2 960,000
Installment receivable - 20x3 2,400,000

Gross profit rate in 20x2 is 24% based on sales while gross profit rate in 20x3 is 331/3% based on cost.

How much is the realized gross profit in 20x3?

a. 982,600
b. 1,014,200
c. 1,291,600
d. 1,421,600

54. VISAGE APPEARANCE Co. uses the installment method. The following information was taken
from VISAGE’s records:
20x1 20x2
Installment sales ? ?
Cost of sales 1,200,000 1,320,000
Installment receivable - 20x1 1,200,000 800,000
Installment receivable - 20x2 1,440,000
Gross profit rates based on sales 40% 45%

How much is the total realized gross profit in 20x2?

a. 492,000
b. 506,000
c. 582,000
d. 592,000

Use the following information for the next two questions:

DECORTICATE PEEL Co. uses the installment method. The following information was taken from
DECORTICATE’s records:
20x1 20x2
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Deferred gross profit (adjusted ending balances):

from 20x1 sale 480,000 320,000
from 20x2 sale 648,000
Gross profit rates based on sales 40% 45%
Cash collections from:
20x1 sales 800,000 400,000
20x2 sales 960,000

55. How much are the balances of installment receivables on December 31, 20x2?
From 20x1 From 20x2
a. 800,000 1,440,000
b. 2,000,000 2,400,000
c. 1,440,000 800,000
d. 2,400,000 2,000,000

56. Compute for the installment sales in 20x1 and 20x2.

20x1 20x2
a. 800,000 1,440,000
b. 2,000,000 2,400,000
c. 1,440,000 800,000
d. 2,400,000 2,000,000

57. PERAMBULATE STROLL Co. uses the installment method. The following information was taken
from PERAMBULATE’s records:

20x1 20x2
Installment sales 2,000,000 2,400,000
Cost of sales 1,200,000 1,320,000
Cash collections from:
20x1 sales 800,000 400,000
20x2 sales 960,000

How much is the total deferred gross profit on December 31, 20x2?
a. 320,000
b. 1,440,000
c. 648,000
d. 968,000

58. PHILANDERING FLIRTING Co. uses the installment method. PHILANDERING Co. has the
following collection policy on its installment sales:
• 20% down payment
• Balance collectible as follows: 50% in the year of sale, 30% in the second year, and 20% in the third
year.
• Installment sales during 20x1, 20x2 and 20x3 were ₱2,400,000, ₱3,000,000 and ₱3,600,000,
respectively.
• Gross profit rate throughout the three years was 40% based on sales.
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How much is the total realized gross profit in 20x3?

a. 1,440,000
b. 3,264,000
c. 1,305,000
d. 950,400