Week 3 (installment Sales & Construction Contracts)

INTEGRATED REVIEW 2:​ Advanced Financial Accounting and Reporting (AFAR) #3 |​ ​Installment Sales & Long-term Construction Contracts

Part I: Installment Sales (1-140) 1. Under the cost recovery method, A. The initial collections on the sale are treated as recovery of the cost of the inventory sold. Thus, no gross profit or interest income is recognized until total collections from the sale equals the cost of inventory sold. B. The initial collections on the sale are treated as recovery of the cost of the inventory sold. Thus, no gross profit is recognized until total collections from the sale equals the cost of inventory sold. However, interest income may nonetheless be recognized. C. A or B. D. None of these. (Millan, 2016) 2. Under the installment sales method, an “over allowance is” A. Treated as addition to the installment sale price when computing for the gross profit rate. B. Treated as reduction to the installment sale price when computing for the gross profit rate. C. Not accounted for D. None of these (Millan, 2016) 3. The excess of trade-in value over the fair value of a traded-in merchandise in a sale accounted for under the installment sales method represents A. Over allowance B. Under allowance C. No allowance D. Small allowance (Millan, 2016) 4. Merchandise received as trade-in is recognized at A. Fair value B. Original cost C. Current cost D. Any of these (Millan, 2016)

5. For purposes of applying the installment sales method, “fair value” is A. The appraised value of the repossessed property or traded-in merchandise B. The estimated selling price of the repossessed property or traded-in merchandise less reconditioning costs and normal profit margin, at date of repossession or date of trade-in. C. A or B D. None of these (Millan, 2016) 6. Oliver Co. uses the installment sales method. When an account had a balance of P8,400, no further collections could be made and the dining room set was repossessed. At that time, it was estimated that the dining room set could be sold for P2,400 as repossessed or for P3,000 if the company spend P300 reconditioning it. The gross profit rate on this sale was 70%. The gain or loss on repossession was a A. P5,880 loss B. P6,000 loss C. P 600 gain D. P 180 gain (Dayag, 2015) 7. The Molino Furniture Company appropriately used the installment sales method in accounting for the following installment sale. During 2016, Molino sold furniture to an individual for P3,000 at a gross profit of P1,200. On June 1, 2016, this installment account receivable had a balance of P2,200 and it was determined that no further collections would be made. Molino, therefore repossessed the merchandise. When reacquired, the merchandise was appraised as being worth only P1,000. In order to improve its salability, Bengal incurred costs of P100 for reconditioning. Normal profit on resale is P200. What should be the loss on repossession attributable to this merchandise? A. P 220 B. P 620 C. P 320 D. P 880 (Dayag, 2015)

8. The Cindy, Inc. began operating at the beginning of the calendar year 2016 and, using the installment method of accounting, presented the following data for the first year: Installment sales P 400,000 Gross margin based on cost

66- ⅔%

Inventory, Dec. 31, 2016

80,000

General and administrative expenses

40,000

Accounts receivable, Dec. 31, 2016 320,000 The balance of the deferred gross profit account, end of 2016 should be: A. P192,000 B. P128,000 C. P96,000 D. P80,000 (Dayag, 2015) 9. Fryman Furniture uses the installment-sales method. No further collections could be made on an account with a balance of P18,000. It was estimated that the repossessed furniture could be sold as is for P5,400, or for P6,300 if P300 were spent reconditioning it. The gross profit rate on the original sale was 40%. The loss on repossession was: A. P4,500 B. P4,800 C. P12,000 D. P12,600 (Dayag, 2015) 10. EMC Motors, a dealer of motor vehicle, sales exclusively on installment basis. One of its customers, Mr. Ambo purchased a motorcycle for P45,375. The cost to EMC was P25,410. After making an initial payment of P6,050, Mr. Ambo defaulted on subsequent payments. EMC lost no time in repossessing the motor vehicle which, by this time, was appraised at a value of P12,650. EMC had to incur additional cost of repairs/remodelling of P1,650 before the motor vehicle was subsequently resold for P27,500 to Mr. Joey who made an initial payment of P6,875. How much profit was realized on the sale to Mr. Joey? A. P3,025 B. P3,300 C. P3,575 D. P3,850 (Dayag, 2015)

11. The following information are obtained from the books of accounts of E Inc. on June 30, 20x5: deferred gross profit balance of P202,000 and total collections on installment sales of 440,000. Gross profit rate is cost plus 25%. E uses the installment method of accounting. What is E’s total installment sales for 20x5? A. 1,450,000 B. 1,010,000 C. 1,440,000 D. 1,560,000 (CPAR, 2017) 12. The B computer store stared its operation in January 1, 20x6. During the year, it had cash sales of P6,875,000 and installment sales of P16,500,000. B imposes a mark up on cost of 25% for cash sales and 50% for installment sales. During 20x6 installment receivable balance amounted to P6,600,000. How much is the realized gross profit for 20x6? A. 2,200,000 B. 3,575,000 C. 3,300,000 D. 4,675,000 (CPAR, 2017) 13. On January 1, 1999, Tom Bravo sells 20 acres of farmland for P6,000,000 taking in exchange a 10% interest bearing note. Tom Bravo purchased the farmland in 1984 at a cost of P5,000,000. The note will be paid in three installments of P2,412,690 each December 31,1999, 2000, and 2001. How much must be deferred gross profit at the end of 1999 under the installment method of revenue recognition? A. 1,000,000 B. 697,885 C. 637,462 D. 597,885 (CPAR, 2017) 14. Revenues and gains are generally recognized when: A. cash has been received. B. cash has been received and they have been earned through substantial completion. C. they are realized or realizable and a contract has been signed. D. they are realized or realizable and have been earned through substantial completion. (CPAR, 2017)

15. In accounting for sales on consignment, sales revenue and the related cost of goods sold should be recognized by the A. consignor when the goods are shipped to the consignee. B. consignor when the consignee has sold the goods. C. consignee when the goods are shipped to the third party. D. consignee when cash is received from the customer. (CPAR, 2017) 16. When using the installment sales method, A. gross profit is deferred until all cash is received, but revenues and costs are recognized in proportion to the cash collected from the sale. B. gross profit is recognized only after the amount of cash collected exceeds the cost of the item sold. C. total revenues and costs are recognized at the point of sale, but gross profit is deferred in proportion to the cash that is uncollected from the sale. D. revenue, costs, and gross profit are recognized proportionally as the cash is received from the sale of product. (CPAR, 2017) 17. The cost recovery method is A. used only when circumstances surrounding a sale are so uncertain that earlier recognition is impossible. B. the most common method of accounting for real estate sales. C. similar to percentage-of-completion accounting. D. never acceptable under generally accepted accounting principles. (CPAR, 2017) 18. In this method, the probability of recovering product or service costs is remote. A. Cash method B. Installment method C. Profit recovery method D. Cost recovery method (CPAR, 2017) 19. In this method, each collection on a contract is regarded as representing both a return of cost and a realization of gross profit in the ratio in which these two factors are found in the original sales price. A. Cash method B. Installment method

C. Profit recovery method D. Cost recovery method (CPAR, 2017) 20. May either be cash sales and credit sales. The time of sale (or the full accrual method) of revenue recognition is applied to this particular type of sales. A. Installment sales B. Regular sales C. Time of sale D. Special sales (CPAR, 2017) 21. The installment method of recognizing profit for accounting purposes is acceptable if A. Collections in the year of sale do not exceed 30% of the total sales price B. An unrealized profit account is credited C. Collection of the sales price is not reasonably assured D. The method is consistently used for all sales of similar merchandise (Punzalan, 2016) 22. Under the cost recovery method of revenue recognition, A. Income is recognized on a proportionate basis as cash is received on the sale of the product B. Income is recognized when the cash received from the sale of the product is greater than the cost of the product C. Income is recognized immediately D. None of these (Punzalan, 2016) 23. Which of the following are recognized each period under the cost recovery method? A. Costs only B. Revenues only C. Both costs and revenues D. None of these (Punzalan, 2016)

For Items #24-25, use the following information: Presented below are the information taken from the books of Kooler Co. 2016 Sales: Regular P125,000 Installment 62,500 COGS: Regular 75,000 Installment 31,250 Operating Expenses 25,000 Collections on accounts from: Regular sales Installment sales-2016 Installment sales-2017

100,000 37,500

2017 P187,500 100,000 112.500 45,000 31,250

137,500 25,000 62,500

24. The total realized gross profit on installment sales for 2017 is A. P 46,875 B. P 93,750 C. P114,375 D. P 87,500 25. Refer to No. 24, the net income for 2017 is A. P 78,125 B. P 93,750 C. P 98,750 D. P 90,625 (PRIA Handout 2018) (Items #26-28, confusing format, not sure if items are under 2016 or 2017) For Items #26-28, use the following information: The following selected accounts appeared in the trial balance of Abenson Sales as of December 31, 2016: Installment receivable-2016 P 15,000; Installment receivable-2017 P 200,000; Beginning inventory P 70,000; Purchases P 555,000; Repossessions P 3,000; Regular sales P 385,000; Installment sales P425,000; Deferred gross profit-2016 P 54,000; Additional information: January 1,2017, Installment receivable-2016 P 120,000; Ending inventory of new and repossess merchandise P 95,000; Gross profit rate on regular sales 30%. Repossessions was made during the year. It was a 2016 sale and the corresponding uncollected account at the time of repossession was P 7,750.

26. The gross profit realized on collections for installment sales in 2016 was A. P 47,250 B. P 50,737.50 C. P 43,762.50 D. P 7,750 27. Refer to No. 26, the gross profit realized on collections for installment sales in 2017 was A. P 87,075 B. P 88,672.50 C. P 85,500 D. P 263,500 28. Refer to No. 26, The loss on repossession made on a 2016 sale was A. P 1,262.50 B. P 487.50 C. P 1,805 D. P 7,750 (PRIA Handout 2018) For Items #29-30, use the following information: These data pertain to installment sales of Mickey’s Store: ■ Downpayment, 20% ■ Installment sales: P545,000 in Year 1; P785,000 in Year 2; and P968,000 in Year 3 ■ Mark-up on cost, 35% ■ Collections after down payment: 40% in the year of sale, 35% in the year after sale, and 25% in the third year. 29. The realized gross profit in Year 1 is: A. 109,357 B. 73,474 C. 99,190 D. 114,825 30. The unrealized gross profit for installment for installment sales made during Year 2,as of the end of Year 2 is: A. 97,689 B. 131,880 C. 141,112 D. 114,063

(Punzalan, 2016) 31. Chris Co. sells equipment on installment contracts. Which of the following statements best justifies Chris’s use of the cost recovery method of revenue recognition to account for these installment sales? A. The sales contract provides that title to the equipment passes to the buyer only when all payments have been made. B. No cash payments are due until one year from the date of sale. C. Sales are subject to a high rate of return. D. There is no reasonable basis for estimating collectability (Punzalan, 2018) 32. Winner Co. is engaged in extensive exploration for water in Utah. if, upon discovery of water, Winner does not recognize any revenue from water sales until the sales exceed the costs of exploration, the basis of revenue recognition being employed is the A. Production basis B. Cash (or collection) basis C. Sales (or accrual) basis D. Cost recovery basis (Punzalan, 2018) 33. Leopard Co. uses the installment sales method to recognize revenue. Customers pay the installment notes in 24 equal monthly amounts, which include 12% interest. What is the balance of an installment note receivable 6 months after the sale? A. 75% of the original sales price. B. Less than 75% of the original sales price. C. The present value of the remaining monthly payments discounted at 12%. D. Less than the present value of remaining monthly payments discounted at 12%. (Punzalan, 2018) 34. The method most commonly used to report defaults and repossessions is A. Provide no basis for the repossessed asset thereby recognizing a loss. B. Record the repossessed merchandise at fair value, recording a gain or loss if appropriate. C. Record the repossessed merchandise at book value, recording no gain or loss. D. None of these. (Punzalan, 2018)

35. According to IAS 18, Revenue, which two of the following criteria must be satisfied before revenue from the sale of goods should be recognized in profit or loss? 1. Revenue can be measured reliably. 2. Managerial control over the goods sold has been relinquished. 3. Ownership has been transferred to the buyer. 4. The outcome of the transaction is certain. A. B. C. D.

1 and 2 1 and 3 1 and 4 3 and 4 (Punzalan, 2018)

36. On January 2, 2016, Colt Co. sold land that cost P600,000 for P800,000, receiving a note bearing interest at 10%. The note will be paid in three annual installments of P321,700 starting on December 31, 2016. Because collection of the note is very uncertain, Colt will use the cost recovery method. How much revenue from this sale should Colt recognize in 2016? A. 0 B. 6,000 C. 8,000 D. 20,000 (Punzalan, 2018) 37. On December 31, 2016, Mill Co. sold construction equipment to Drew, Inc. for P1,800,000. The equipment had a carrying amount of P1,200,000. Drew paid P300,000 cash on December 31, 2016 and signed a P1,500,000 note bearing interest at 10%, payable in five annual installments of P300,000. Mill appropriately accounts for the sale under the installment method. On December 31, 2017, Drew paid P300,000 principal and P150,000 interest. For the year ended December 31, 2017, what total amount of revenue should Mill recognize from the construction equipment sale and financing? A. 250,000 B. 150,000 C. 120,000 D. 100,000 (Punzalan, 2018) 38. On January 1, 2016, Rex Co. sold a used machine to Lake, Inc. for P525,000. On this date, the machine had a depreciated cost of P367,500. Lake paid P75,000 cash on January

1, 2016 and signed a P450,000 note bearing interest at 10%. The note was payable in three annual installments of P150,000 beginning January 1, 2017. Rex appropriately accounted for the sale under the installment method. Lake made a timely payment of first installment on January 1, 2017 of P195,000, which included interest of P45,000 to date of payment. At December 31, 2017, Rex had a deferred gross profit of A. 105,000 B. 99,000 C. 90,000 D. 76,500 (Punzalan, 2018) 39. The books of Harry Co. show the following balances on December 31, 2016: Accounts Receivable Deferred Gross Profit (before adjustment)

P313,750 38,000

Analysis of the accounts receivable reveal the following: Regular accounts 2015 installment accounts 2016 installment accounts

P207,500 16,250 90,000

Sales on an installment basis in 2015 were made at 30% above cost; in 2016, at 33 ⅓ above cost. Expenses paid was P1,500 relating to installment sales, how much is the net income on installment sales? A. P11,000 B. 11,500 C. P16,000 D. 10,250 (Dayag, 2015) 40. On September 30, 2015, Barry bought a car for P3,600,000. A downpayment of P1,600,000 was made with the balance due in 10 monthly installments, the first to be made at the end of october. Barry is to make monthly payments of P200,000 plus interest on the unpaid balance at 12%. What is the total collection on January 31, 2016? A. P200,000 B. 214,000 C. P216,000 D. 218,000

(Dayag, 2015) 41. Under the installment sales method, A. revenue, costs, and gross profit are recognized proportionate to the cash that is received from the sale of the product. B. gross profit is deferred proportionate to cash uncollected from sale of the product, but total revenues and costs are recognized at the point of sale. C. gross profit is not recognized until the amount of cash received exceeds the cost of the item sold. D. revenues and costs are recognized proportionate to the cash received from the sale of the product, but gross profit is deferred until all cash is received. (K, W & W) 42. Slick's Used Cars sells pre-owned cars on the installment basis and carries its own notes because its customers typically cannot qualify for a bank loan. Default rates tend to be high or unpredictable. However, in the event of nonpayment, Slick's can usually repossess the cars without loss. The revenue method Slick would use is the: A. Installment sales method. B. Cost recovery method. C. Point of sales method. D. Completed contract method. (S, S & T) 43. When assets that sold and accounted for by the installment method are subsequently repossessed and returned to inventory, they should be recorded on the books at A. Selling price. B. The amount of the installment receivable less associated deferred gross profit. C. Net realizable value. D. Net realizable value minus normal profit. (Gleim) 44. Pie Co. uses the installment sales method to recognize revenue. Customers pay the installment notes in 24 equal monthly amounts, which include 12% interest. What is an installment notes receivable balance six months after the sale? A. 75% of the original sales price. B. Less than 75% of the original sales price. C. The present value of the remaining monthly payments discounted at 12%. D. Less than the present value of the remaining monthly payments discounted at 12% (AICPA 1192T-9)

45. Gentry Co. uses the installment sales method. When an account had a balance of P3,500, no further collections could be made and the dining room set was repossessed. At that time, it was estimated that the dining room set could be sold for P1,000 as repossessed, or for P1,300 if the company spent P125 reconditioning it. The gross profit rate on this sale was 70%. What is the gain or loss on repossession? A. 2,450 loss B. 2,500 loss C. 300 gain D. 125 gain (Punzalan, 2018) For Items #46-47, use the following information: Baker Co. is a real estate developer that began operations on January 2, 2016. Baker appropriately uses the installment method of revenue recognition. Baker’s sales are made on the basis of a 10% Down Payment, with the balance payable over 30 years. Baker’s gross profit percentage is 40%. Relevant information for baker’s first two years of operations is as follows: Sales 2017 - P16,000,000 Sales 2016 - P14,000,000 Cash Collections 2017 - P2,020,000 Cash Collections 2016 - P1,400,000 46. At Dec. 31, 2016, Baker’s deferred gross profit was A. 5,040,000 B. 5,600,000 C. 8,400,000 D. 12,600,000 47. Baker’s realized Gross Profit for 2017 was A. 6,400,000 B. 2,020,000 C. 1,212,000 D. 808,000 (Punzalan, 2018) For Items #48-50, use the following information: QR Appliances sells home theater set both on installment and cash basis. Mr. X purchased a set from QR Appliances on March 30, 2015 for P367,500 which has a cost of P289,800. A used set is accepted as down payment, P89,600 being allowed on the trade in. The used set can be resold for P112,140 after reconditioning cost of P5,362. The company expects to make a 20% Gross Profit on the sale of the of used set. The balance of the sale is to be paid on a 10 month

installment basis starting May 1, 2015. Mr. X defaulted payment starting November 1, 2015 and the set was immediately repossessed. The repossessed merchandise was appraised at a value of P65,625 at the time of repossession. QR had to incur additional cost of repairs amounting to P6,475 before the car was subsequently resold on December 1, 2015 for P90,125 cash to Mr. Y. 48. What is the adjusted installment sales price? A. 84,350 B. 362,250 C. 367,500 D. 390,040 49. How much is the realized gross profit on the sale to Mr. X? A. 68,243 B. 45,470 C. 52,363 D. 50,218 50. Compute for the net income to be recognized for the year 2015 A. 69,293 B. 44,940 C. 51,415 D. 68,243 (CPAR 0310) 51. Asser Computer Co. began operations at the beginning of 2016. During the year, it had cash sales of P6,875,000 and sales on installment basis of P16,500,000. Asser adds a markup on cost of 25% on cash sales and 50% on installment sales. Installment receivable at the end of 2016 is P6,600,000. Total realized gross profit for 2016 is: A. P1,375,000 B. P3,300,000 C. P4,675,000 D. P3,575,000 (Dayag, 2015) 52. The Central Plains Subdivision sells residential subdivision lots on installment basis. The following information was taken from the company’s records as at December 31, 2016: Installment Accounts Receivable January 1, 2016

P755,000

December 31, 2016 Unrealized Gross Profit, January 1, 2016 Installment Sales

840,000 339,750 950,000

How much is the balance of Unrealized Gross Profit as at December 31, 2016? A. P378,000 B. P339,750 C. P427,500 D. P389,250 (Dayag, 2015) 53. Gema Inc. began operations on January 1, 2016 and appropriately uses the installment method of accounting. The following data are available for 2016: Installment Accounts Receivable, 12/31/2016 Installment sales for 2016 Gross profit on sales

P600,000 1,050,000 40%

Under the installment method, Gema’s deferred gross profit at December 31, 2016 is: A. P360,000 B. P270,000 C. P240,000 D. P180,000 (Dayag, 2015) 54. Jane Enterprises uses the installment method of accounting and it has the following data at year-end: Gross Margin on cost Unrealized Gross Profit Cash collections including down payments

66 2/3% P192,000 360,000

What was the total amount of sales on installment basis? A. P480,000 B. P552,000 C. P648,000 D. P840,000 (Dayag, 2015)

55. Spicer Co. has a normal gross profit on installment sales of 30%. A 2014 sales resulted in a default early in 2015. At the date of default, the balance of the installment receivable was P24,000, and the repossessed merchandise had a fair value of P13,500. Assuming the repossessed merchandise is to be recorded at fair value, the gain or loss on repossession should be: A. P0 B. P3,300 gain C. A P3,300 loss D. A P7,500 loss (Dayag, 2015) 56. Coaster manufactures and sells logging equipment. Due to the nature of its business, Coaster is unable to reliably predict bad debts. During 2015, Coaster sold equipment costing P2,400,000 for P3,600,000. The terms of the sale were 20%, with equal payments due quarterly over the next 3 years. All payments for 2015 were made on schedule. Round answers to two places. Assuming that Coaster uses the installment method of accounting for its installment sales, what amount of realized gross profit will Coaster report in its income statement for the year ended December 31, 2015? A. P1,680,000 B. P1,120,000 C. P560,000 D. P369,600 (Dayag, 2015) 57. Assuming the same information in the previous number, and that Coaster uses the cost-recovery method of accounting for its installment sales, what amount of realized gross profit will Coaster report in its income statement for year ended December 31, 2016? A. P0 B. P240,000 C. P316,800 D. P960,000 (Dayag, 2015) 58. On January 15, 2015, AA Co. enters into a contract to build custom equipment of BB Co.. The contract specified a delivery date of March 1. The equipment was not delivered

until March 31. The contract required full payment of P150,000 30 days after delivery. This contract should be recorded on A. January 1, 2015 B. March 1, 2015 C. March 31, 2015 D. April 30, 2015 (Dayag, 2015) 59. CC Computers manufactures and sells pagers and radio paging systems which include a 180 day warranty on product defects. It also sells an extended warranty which provides an additional two years of protection. On May 10, it sold a paging system for P4,620 and an extended warranty for another P1,440. The journal entry to record this transaction would include A. A credit to service revenue of P6,060 B. A credit to service revenue of P1,440 C. A credit to sales of P4,620 and a credit to service revenue of P1,440 D. A credit to unearned service revenue of P1,440 (Dayag, 2015) 60. On July 31, EE Co. contracted to have two products built by FF Co. for a total of P222,000. The contract specifies that payment will only occur after both products have been transferred to EE Co. EE determines that the standalone prices are P120,000 for Product 1 and P102,000 for Product 2. On August 1, when Product 1 has been transferred, the journal entry to record this event include a A. Debit to Accounts receivable for P120,000 B. Debit to Accounts receivable for P102,000 C. Debit to Contract Assets for P102,000 D. Debit to Contract Assets for P120,000 (Dayag, 2015) 61. A type of sale which provides for a series of payments over a period of time. A. Credit sale B. Auction sale C. Installment sale D. Barter sale (Guerrero, 2013)

62. In installment sale, revenue is recognized: A. At the point of sale. B. After the point of sale. C. Before the point of sale. D. All of the above. (Guerrero, 2013) 63. Under the cost recovery method, revenue is recognized until: A. Collections are equal to the amount of cost of goods sold. B. Collections are more than the cost of goods sold. C. Collections are less than the cost of goods sold. D. The selling price is collected. (Guerrero, 2013) 64. Income recognized using the installment method of accounting generally equals cash collected multiplied by the A. net operating profit percentage. B. net operating profit percentage adjusted for expected uncollectible accounts. C. gross profit percentage. D. gross profit percentage adjusted for expected uncollectible accounts. (AICPA) 65. Under this method, cash collection is regarded as a partial recovery of cost and a partial realization of profit. A. Cost recovery method B. Gross profit realization method C. Installment method D. None of the above (Guerrero, 2013) 66. Vic Corporation, which began business on January 1, 2015, appropriately uses the installment sales method of accounting. The following data are available: 12/31/2015 12/31/2016 Balance of deferred gross profit on sales account: 2015 P300,000 P120,000 2016 440,000 Gross profit rate on sales 30% 40%

The installment accounts receivable balance at December 31, 2016 is A. P1,000,000 B. 1,100,000 C. 1,400,000 D. 1,500,000 (Dayag, 2015) For Items #67-68, use the following information: Dudong Electronics makes all of its sales on credit and accounts for them using the installment sales method. For simplicity, assume that all sales occur on the first day of the year and that all cash collections are made on the last day of the year. Dudong Electronics charges 18% interest on the unpaid installment balance Data for 2015 and 2016 are as follows: 2015 2016 Sales P100,000 P120,000 Cost of goods sold 60,000 80,000 Cash collections (principal and interest) 2015 sales 40,000 50,000 2016 sales 90,000 67. The interest income recognized in 2016 amounted to: A. P14,040 B. 21,600 C. 35,640 D. 49,700 68. Compute the realized gross profit in 2016: A. P14,384 B. 22,800 C. 37,184 D. 39,600 (Dayag, 2015) 69. Carlos Labung Appliance Co. sold a stove, costing P1,000 for P1,600 on September 2012. The downpayment was P160, and the same amount was to be paid at the end of each succeeding month. Interest was charged on the unpaid balance of the contract at ½ of 1% a month, payments being considered as applying first to accrued interest and the balance to principal.

After paying a total of P640, the customer defaulted. The stove was repossessed in February 2013. It was estimated that the stove had a value of P560 on a depreciated cost basis. The realized gross profit and the gain(loss) on repossession on December 31, 2013 are: A. P232.76 and (P52.07) B. P240 and (P52.07) C. P232.76 and (P40) D. P240 and (P40) (Guerrero, 2013) 70. The Bengal Furniture Company appropriately used the installment sales method in accounting for the following installment sale. During 2013 Bengal sold furniture to an individual for P3,000 at a gross profit of P1,200. On June 1, 2013, this installment account receivable had a balance of P2,200 and it was determined that no further collections would be made. Bengal therefore repossessed the merchandise. When reacquired, the merchandise was appraised as being worth only P1,000. In order to improve its salability, Bengal incurred costs of P100 for reconditioning. What should be the loss on repossessions attributable to this merchandise? A. B. C. D.

P220 P320 P880 P1,100 (Guerrero, 2013)

(Items 71-73, not aligned with the topic assigned) 71. Which of the following is least likely an acceptable method of measuring progress in accordance with PFRS 15? A. Relationship between costs incurred to date and total expected costs. B. Surveys of work performed. C. Independent appraisal of value of work performed in relation to the contract price. D. The amount of progress billings in relation to the total contract price. (Millan, 2016) 72. At contract inception, PFRS 15 requires an entity to determine how the performance obligations identified in the contract will be satisfied. According to PFRS 15, how does an entity satisfy a performance obligation in a long-term construction contrac?

A. B. C. D.

Over time At a point in time Dismissal time Either A or B (Millan, 2016)

73. According to PFRS 15 Revenue from Contracts with Customers, how should an entity account for revenue form long-term construction contracts? A. An entity recognizes revenue from long-term construction contracts by using the percentage of completion method. B. An entity recognizes revenue from long-term construction contracts by using zero-profit method. C. A or B D. An entity recognizes revenue from long-term construction contracts either over time or at a point in time depending on how the performance obligation is satisfied. (Millan, 2016) 74. Under the installment sales method, realized gross profit is computed as A. Sale price less Cost of goods sold B. Gross profit rate divided by Collection on sale C. Gross profit rate multiplied by Collection on sale D. Excess of collection over Cost of goods sold (Millan, 2016) 75. Under the installment sales method, when merchandise previously sold is repossessed, the repossessed merchandise is recorded at A. Fair value B. Original cost C. Current cost D. Any of these (Millan, 2016) 76. MM Company began operations on January 1, 2011 and appropriately uses the installment method of accounting. The following data are available for 2011 and 2012

Installment sales

2011

2012

P1,200,000

P1,500,000

400,000

500,000

Cash collections from: 2011 sales 2012 sales

600,000

Gross profit on sales

30%

40%

The realized gross profit for 2012 is A. P240,000 B. 390,000 C. 440,000 D. 600,000 (Dayag, 2013) 77. TT Company, which began business on January 1, 2011, appropriately uses the installment sales method of accounting. The following data are available for 2011: Installment accounts receivable, 12/31/11

P200,000

Deferred gross profit, 12/31/11 (before recognition of realized gross profit)

140,000

Gross profit on sales

40%

The cash collections and the realized gross profit on installment sales for the year ended December 31, 2011 should be Cash Collections

Realized Gross Profit

A.

P100,000

P80,000

B.

100,000

60,000

C.

150,000

80,000

D.

150,000

60,000 (Dayag, 2013)

78. Lane Company, which began operations on January 1, 2011, appropriately uses the installment method of accounting. The following information pertains to Lane’s operations for the year 2011: Installment sales Regular sales Cost of installment sales Cost of regular sales General and administrative expenses Collections on installment sales

P1,000,000 600,000 500,000 300,000 100,000 200,000

The deferred gross profit account in Lane’s December 31, 2011 balance sheet should be: A. P150,000 B. 320,000 C. 400,000 D. 500,000 (Dayag, 2013) (Items 79-80, not aligned with the topic assigned) 79. Mediocre Inc. has entered into a very profitable fixed price contract for constructing a high-rise building over a period of three years. It incurs the following costs relating to the contract during the first year: ■ Cost of material = P2.5 million ■ Site labor cost = P2.0 million ■ Agreed administrative costs as per contract to be reimbursed by the customer = P1 million. ■ Depreciation of the plant used for the construction = P0.5 million ■ Marketing costs for selling apartments, when they are ready = P1.0 million ■ Total estimated cost of the project = P18 million. The percentage of completion of this contract at the year-end is: A. 33 ⅓ % B. 27% C. 25% D. 39% (Dayag, 2013) 80. Dante Construction Company uses the percentage of completion method of accounting. During 2011, Dante contacted to build an apartment house for Rizza for P10,000,000.

Dante estimated that total costs would amount to P8,000,000 over the period of construction. In connection with this contract, Dante incurred P1,000,000 of construction costs during 2011. Dante billed and collected P1,500,000 from Rizza in 2011. How much gross profit should Dante recognize in 2011? A. P300,000 B. 250,000 C. 187,500 D. 125,000 (Dayag, 2013 (CHUA, CATALINA FAYE DILODILO 81-90) (Items 91-97, not aligned with the topic assigned) 91. Statement 1: “Step 2” of the recognition principles of PFRS 15 is the allocation of the transaction price to the performance obligations in the contract. Statement 2: PFRS 15 requires that revenue from all long-term construction contracts be recognized using the percentage of completion method A. Only statement 1 is true B. Only statement 2 is true C. Both are false D. Both are true (Milan, 2016) 92. Statement 1: According to PFRS 15, a measure of progress based on the hours expended on the contract is an application of the inputs method. Statement 2: According to PFRS 15 Revenue from Contracts with Customers contracts are generally combined and accounted for as a single contract. A. Only statement 1 is true B. Only statement 2 is true C. Both are false D. Both are true (Milan, 2016) 93. Which of the following may affect the revenue recognized on a construction contract? A. Contract price B. Change orders C. Escalation clauses

D. All of these (Milan, 2016) 94. Under the zero profit method, contract revenue for the period is A. Equal to zero B. Equal to the costs of construction recognized during the period C. Equal to the contract price divided by the estimated construction period D. Equal to the costs of construction recognized during the period that are probable of recovery (Milan, 2016) 95. Under the percentage of completion method, contract revenue for the period is computed A. Relationship between costs incurred to date and total expected costs B. Surveys of work performed C. Independent appraisal of value of work performed in relation to the contract price D. The amount of progress billings in relation to the total contract price (Milan, 2016) 96. Any expected loss on a construction contract is A. Recognized as an expense immediately as an adjustment to the revenue already recognized B. Deferred and amortized over the remaining construction period C. Recognized as an expense immediately in accordance with PFRS 15. D. Recognized as a provision in accordance with PAS 37 E. Ignored (Milan, 2016) 97. Which of the following does not indicate that a promise to transfer a good or service is separately identifiable? A. The good or service is not an input to a combined output specified by the customer B. The good or service does not significantly modify another good or service promised in the contract C. The customer’s decision of not purchasing a good or service affects the other promised goods or service in the contract. (Milan, 2016) For Items #98-100, use the following information: Johnson Enterprises uses the cost recovery method for all installment sales. Complete the table:

Installment sales Cost of installment sales Gross profit percentage Cash collections: 2014 sales 2015 sales 2016 sales Realized Gross Profit on Installment Sales

2014 P80,000 P? 38%

2015 P95,00 56,050 ?

2016 P? 68,250 35%

25,600

46,400 22,800

5,600 ? 32,550

?

?

16,050

98. The installment sales in 2016 A. P92,137.5 B. 105,000 C. 112,612.5 D. 195,000 99. The cost of installment sales in 2014 is A. Zero B. P30,400 C. P47,619 D. P49,600 100.

The gross profit rate in 2015 is A. 29% B. 41% C. 59% D. Cannot be determined (Dayag, 2016)

101.

The installment method of recognizing revenue A. Should be used only in cases in which no reasonable basis exists for estimating the collectibility of receivables. B. Is not a generally accepted accounting principle under any circumstances. C. Should be used for book purposes only if it is used for tax purposes. S, S & S D. Is an acceptable alternative accounting principle for a firm that makes installment sales. (Tan, 2017)

102.

The installment method of recognizing profit for accounting purposes is acceptable if A. Collections in the year of sale do not exceed 30% of the total sales price. B. An unrealized profit account is credited. C. Collection of the sales price is not reasonably assured. D. The method is consistently used for all sales of similar merchandise.

103.

When using the installment sales method, A. Gross profit is deferred until all cash is received, but revenues and costs are recognized in proportion to the cash collected from the sale. B. Gross profit is recognized only after the amount of cash collected exceeds the cost of the item sold. C. Revenue, costs, and gross profit are recognized proportionally as the cash is received from the sale of product. D. Total revenues and costs are recognized at the point of sale, but gross profit is deferred in proportion to the cash that is uncollected from the sale.

104. Spicer Corporation has a normal gross profit on installment sales of 30%. A 2014 sale resulted in a default early in 2015. At the date of default, the balance of the installment receivable was P24,000 and the repossessed merchandise had a fair value of P13,500. Assuming the repossessed merchandise is to be recorded at fair value, the gain or loss on repossession should be: A. P0 B. P3,300 loss C. P5,000 loss D. P7,500 loss (Dayag, 2015) 105. Western Appliance Company, which began business on January 1, 2006, appropriately uses the installment sales method of accounting. The following data are available for 2006: Installment sales $350,000 Cash collections on installment sales 150,000 Gross profit on sales 40% The gross profit on installment sales for 2006 should be: A. Realized: $60,000; Deferred: $80,000 B. Realized: $80,000; Deferred: $60,000 C. Realized: $140,000; Deferred: $80,000 D. Realized: $140,000; Deferred: 60,000

(highered.mheducation.com, 2007) 106. The Pattison Company began operations on January 2, 2006, and appropriately uses the installment sales method of accounting. The following data are available for 2006 and 2007: 2006 2007 Installment sales $600,000 $750,000 Cash collections from: 2006 sales 200,000 250,000 2007 sales 300,000 Gross profit on sales 30% 40% The deferred gross profit that would appear in the 2007 balance sheet is: A. $180,000 B. $200,000 C. $285,000 D. $225,000 (highered.mheducation.com, 2007) 107. In 2013, Merchandise was sold by on installment basis by MB Company for P80,000 at a gross profit of 25% of cost. During the year, a total of P42,500 including interest of P12,500 was collected on this contract. In 2013, no collection was made on this sale, and the merchandise was repossessed. The FV of the merchandise is P34,000 after reconditioning cost of P4,000. What is the gain (loss) on repossession? A. (P10,000) B. (P14,000) C. P10,000 D. (P20,000) (Guererro, 2013) 108. BMW Corporation sells car on a three year installment sales contract. On December 31, 2013, the last day on BMW’s first year of operations, the results of operations before adjustment are summarized as follows Sales 1,000,000 Cost of Installment Sales 700,000 Operating Expenses 80,000

The total collections during the year including interest and financing charges of P100,000 is P500,000. What is the net income of BMW Corp for the year ended December 31, 2013? A. P220,000 B. P140,000 C. P150,000 D. P120,000 (Guererro, 2013) 109. The following information are obtained from the books of accounts of Robin Inc. on June 30, 2013: Deferred gross profit balance (After Adjustment) 202,000 Total Collection on Installment Sales 440,000 Gross Profit based on cost 25% Robin Inc uses the installment method of accounting. What is Robin’s total installment sales for 2013? A. P1,560,000 B. P1,440,000 C. P1,450,000 D. P1,010,000 (Guererro, 2013) 110. JJ Company sold goods on installment. For the year ended, the following were reported: Installment Sales P3,000,000 Cost of Installment Sales 2,025,000 Collections on Installment Sales 1,800,000 Repossessed Accounts 200,000 FV of repossessed merchandise 120,000 The repossession resulted to: A. Gain of P5,000 B. Loss of P80,000 C. No Gain; No Loss D. Loss of P15,000 (Guererro, 2013)

111. Pie Co. uses the installment sales method to recognize revenue. Customers pay the installment notes in 24 equal monthly amounts, which include 12% interest. What is an installment notes receivable balance six months after the sale? A. 75% of the original sales price. B. Less than 75% of the original sales price. C. The present value of the remaining monthly payments discounted at 12%. D. Less than the present value of remaining monthly payments discounted at 12%. (AICPA 1192T-9) 112.

The installment method of recognizing revenue A. should be used only in cases in which no reasonable basis exists for estimating the collectibility of receivables. B. is not a generally accepted accounting principle under any circumstances. C. should be used for book purposes only if it is used for tax purposes. D. is an acceptable alternative accounting principle for a firm that makes installment sales. (S, S & S)

113. Slick's Used Cars sells pre-owned cars on the installment basis and carries its own notes because its customers typically cannot qualify for a bank loan. Default rates tend to be high or unpredictable. However, in the event of nonpayment, Slick's can usually repossess the cars without loss. The revenue method Slick would use is the: A. Installment sales method. B. Point of sales method. C. Cost recovery D. Completed contract (S, S & S) 114.

When using the installment sales method, A. Gross profit is deferred until all cash is received, but revenues and costs are recognized in proportion to the cash collected from the sale. B. Gross profit is recognized only after the amount of cash collected exceeds the cost of the item sold. C. Revenue, costs, and gross profit are recognized proportionally as the cash is received from the sale of product. D. Total revenues and costs are recognized at the point of sale, but gross profit is deferred in proportion to the cash that is uncollected from the sale. (S, S & S)

115.

Cash collection is a critical event for income recognition in the A

B

C

D

Cost-recovery method

No

Yes

No

Yes

Installment method

No

Yes

Yes

No (AICPA 1193 T- 39)

116.

For financial statement purposes, installment method of accounting may be used if: A. Collection period extends over more than 12 months. B. Installments are due in different years. C. Ultimate amount collectible is indeterminate. D. Percentage-of-completion method is inappropriate. (AICPA 1193 T- 6)

117. Hogan Farms produced 800,000 pounds of cotton during the 2010 season. Hogan sells all of its cotton to Ott Co., which has agreed to purchase Hogan's entire production at the prevailing market price. Recent legislation assures that the market price will not fall below $.70 per pound during the next two years. Hogan's costs of selling and distributing the cotton are immaterial and can be reasonably estimated. Hogan reports its inventory at expected exit value. During 2010, Hogan sold and delivered to Ott 600,000 pounds at the market price of $.70. Hogan sold the remaining 200,000 pounds during 2011 at the market price of $.72. What amount of revenue should Hogan recognize in 2010? A. $420,000 B. $432,000 C. $560,000 D. $576,000 (Wegyandt & Warfield 13e) 118. Hartz Co., which began operations on January 1, 2010, appropriately uses the installment sales method of accounting. The following information pertains to Hartz's operations for the year 2010: Installment sales $1,200,000 Regular sales 480,000 Cost of installment sales 720,000 Cost of regular sales 288,000 General and administrative expenses 96,000 Collections on installment sales 288,000. The deferred gross profit account in Hartz's December 31, 2010 balance sheet should be A. $115,200. B. $192,000.

C. $364,800. D. $480,000. (Wegyandt & Warfield 13e) 119. On January 1, 2010, Orton Co. sold a used machine to King, Inc. for $350,000. On this date, the machine had a depreciated cost of $245,000. King paid $50,000 cash on January 1, 2010 and signed a $300,000 note bearing interest at 10%. The note was payable in three annual installments of $100,000 beginning January 1, 2011. Orton appropriately accounted for the sale under the installment method. King made a timely payment of the first installment on January 1, 2011 of $130,000, which included interest of $30,000 to date of payment. At December 31, 2011, Orton has deferred gross profit of A. $70,000. B. $66,000. C. $60,000. D. $51,000. (Wegyandt & Warfield 13e) 120. Dianne company sells gross on the installment plan uses the installment sales method. On june 1, 20x1, Dianne sold a machine which cost P75,000 to Bert corporation for P100,000. Bert corp, made two payments of P20,000 each during 19x1, before defaulting on the contract in 20x2. Dianne repossessed the machine which had a fair market value of P52,500 when Dianne reacquired it. The gain (loss) on repossession is: A. 7500 loss B. 7,500 gain C. 17,500 loss D. 17,500 gain (CPAR Handout 2016) 121. For financial statement purposes, the installment method of accounting may be use if the A. Collection period extends over more than 12 months. B. Installments are due in different years. C. Ultimate amount collectible is indeterminate. D. Percentage-of-completion method is inappropriate. (AICPA 1191 T-6) 122.

The method most commonly used to report defaults and repossessions is: A. Provide no basis for the repossessed asset thereby recognizing a loss.

B. Record the repossessed merchandise at fair value, recording a gain or loss if appropriate. C. Record the repossessed merchandise at book value, recording no gain or loss. D. None of these. (K, W & W) 123. According to the installment method of accounting, gross profit on an installment sale is recognized in income A. On the date of sale. B. On the date the final cash collection is received. C. In proportion to the cash collection. D. After cash collections equal to the cost of sales have been received. (AICPA M0595 F-27) 124. During 2014, Vaughn Corporation sold merchandise costing $2,250,000 on an installment basis for $3,000,000. The cash receipts related to these sales were collected as follows: 2014, $1,200,000; 2015, $1,050,000; 2016, $750,000. What is the rate of gross profit on the installment sales made by Vaughn Corporation during 2014? A. 75% B. 60% C. 40% D. 25% (​Bartleby Review Questions) (Items 125-133, not aligned with the topic assigned) For Items #125-130, use the following information: Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014. 1. At December 31, 2014, Seasons estimates that it is 30% complete with the construction, based on costs incurred. 125. What is the total amount of Revenue from Long-Term Contracts recognized for 2014? A. $4,960,000 B. $4,260,000 C. $4,464,000 D. $4,260,000

126. What is the balance in the Accounts Receivable account assuming Cannon Cafe has not yet made its last quarterly payment? A. $4,960,000 B. $1,240,000 C. $1,240,000 D. $4,960,000 127. At December 31, 2015, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $14,400,000 due to unanticipated price increases. What is the total amount of Construction Expenses that Seasons will recognize for the year ended December 31, 2015? A. $10,800,000 B. $6,300,000 C. $6,390,000 D. $6,540,000 128. At December 31, 2015, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $14,400,000 due to unanticipated price increases. What is reported in the balance sheet at December 31, 2015 for Seasons as the difference between the Construction in Process and the Billings on Construction in Process accounts, and is it a debit or a credit? A. $3,380,000 Credit B. $1,240,000 Debit C. $880,000 Debit D. $1,240,000 Credit 129. Seasons Construction completes the remaining 25% of the building construction on December 31, 2016, as scheduled. At that time the total costs of construction are $15,000,000. What is the total amount of Revenue from Long-Term Contracts A. $14,880,000 B. $3,720,000 C. $3,720,000 D. $3,750,000 130. Construction Expenses that Seasons will recognize for the year ended December 31, 2016? A. $15,000,000 B. $ 3,750,000 C. $ 4,200,000

D. $ 3,750,000 (Bartleby Review Questions) 131.

132.

133.

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 practices across entities and industries (Dayag, 2015) 132. The first step in the process for revenue recognition is to A. Determine the transaction price B. Identify the contract with the customer C. Allocate the transaction price to the separate performance obligations. D. Identify the separate performance obligations in the contract (Dayag, 2015) The second step in the process for revenue recognition is to A. Allocate transaction price to the separate performance of obligations B. Determine the transaction price C. Identify the contract with customers D. Identify the separate performance obligations in the contract (Dayag, 2015)

For Items #134-139, use the following information: Pampanga Industrial sells machinery on the installment plan. On September 01, 2015, Pampanga entered into an installment sale contract with GMA Productions for a six-year period. Equal annual payments under the installment sale are P187,500 and are due on August 31 of each year beginning in 2016. Additional information: ■ The cost of the machinery sold to GMA was P637,500 ■ The implicit interest rate on the installment sales is 10% ■ Pampanga industrial uses calendar year as a result of the above transaction and uses effective-interest rate method of amortizing any discount ■ The present value factors at 10% for six period are as follows:

​Year 1 2 3 4 5 6

PV of P1 .9091 .8264 .7513 .6830 .6209 .5645

PV of annuity of P1 .9091 1.7355 2.4869 3.1699 3.7908 4.3553

134. Assuming that circumstances are such that the collection of the installments due under the contract is reasonably assured, compute the realized gross profit on installment for 2015 (rounded) A. 0 B. P81,250 C. P179,119 D. 487,500 135.

Compute the total income for 2015 (rounded) A. P27,221 B. P 108,241 C. P 206,340 D. P541,721

136. Compute the total income for 2016 (rounded) ​(No Answer, Correct Answer: P 78,134) A. P71,221 B. P108,741 C. P206,340 D. P257,433 137. Assuming that circumstances are such that the collection of the installments due under the contract cannot be reasonably assured, compute the realized gross profit on installment for 2015 (rounded) A. 0 B. P81,250 C. P179,119 D. P487,500

138.

Compute the total income for 2015 (rounded) A. P27,221 B. P108,471 C. P206,340 D. P541,721

139.

Compute the total income for 2016 (rounded) A. A.P78,134 B. B.P101,418 C. C. P102,194 D. D.P119,384 (Dayag, 2015)

140. Oro Company began operations on January 1, 2015 and appropriately uses the installment sales method of accounting. The following data are available for 2015 and 2016:

Installment sales Gross profit on sale Cash collections from:2015 sales 2016 sales

2015 P1,500,000 30% 500,000 -

2016 P1,800,000 40% 600,000 700,000

The realized gross profit for 2016 is: A. 720,000 B. 520,000 C. 460,000 D. 280,000 (Guerrero, 2015)

Part II: Long-term Construction Contracts (141-280) 141. The theoretical support for using the percentage-of-completion method of accounting for long term construction projects is that it A. Is more conservative than the completed-contract method B. Reports a lower net income figure than the completed-contract method C. More closely conforms to the cost principle D. Produces a more realistic matching of expenses with revenues (Comprehensive Reviewer, Hilario Tan) 142. A company uses the percentage-of-completion method to account for a four year construction contract. Progress billings sent in the second year that were collected in the third year would A. Be included in the calculation of the income recognized in the second year B. Be included in the calculation of the income recognized in the third year C. Be included in the calculation of the income recognized in the fourth year D. Not be included in the calculation of the income recognized in any year (Comprehensive Reviewer, Hilario Tan) 143.

Cost of uncompleted contracts in excess of related billings in most cases is shown as A. Current liability B. Long term debt C. Current assets D. Investments (Comprehensive Reviewer, Hilario Tan)

144.

Billings on uncompleted contracts in excess of related costs in most cases is shown as A. Current liability B. Long term debt C. Current assets D. Investments (Comprehensive Reviewer, Hilario Tan)

145. The construction-in-progress account accumulates the following when the percentage-of-completion method is used A. Construction costs to date B. Construction costs to date less payments received C. Construction costs to date less billings to date D. Construction costs plus gross profit earned to date

(Comprehensive Reviewer, Hilario Tan) 146. The principal disadvantage of using the percentage-of-completion method of recognizing revenue from long term contracts is that it A. Is unacceptable for income tax purposes B. Gives results based upon estimates which may be subject to considerable uncertainty C. Is likely to assign a small amount of revenue to a period during which much revenue was actually earned D. None of these (Comprehensive Reviewer, Hilario Tan) 147. In accounting for long term construction 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 by the percentage of the costs incurred during the year to the A. Total cost incurred to date B. Total estimated cos​t C. Unbilled portion of the contract price D. Total contract price (Comprehensive Reviewer, Hilario Tan) 148. Bon Construction Company has consistently used the percentage-of-completion method of recognizing income. During 2015, Bon started work on a P3,000,000 construction contract which was completed in 2012. The accounting records provided the following data: ​ 2015 ​2016 Progress billings P1,100,000 P1,900,000 Costs incurred each year 900,000 1,800,000 Collections 700,000 2,300,000 Estimated cost to complete 1,800,000 How much income should Bon have recognized in 2016? A. 100,000 B. 110,000 C. 150,000 D. 200,000 (Dayag, 2016)

149. Ube Construction Company has consistently used the percentage-of-completion method. On january 10,2015, Ube began work on a P6,000,000 construction contracts. At the inception date, the estimated cost of construction was P4,500,000. The following data relate to the progress of the contract: Income recognized at 12/31/2015 Cost incurred 1/10/2015 through 12/31/2016 Estimated cost sto complete at 12/31/2016

P600,000 3,600,000 1,200,000

How much income should Ube recognized for the year ended December 31,2016? A. P300,000 B. 525,000 C. 600,000 D. 900,000 (Dayag, 2016) 150. Lovely Co. recognizes revenue and expenses using the percentage-of-completion method. During 2015, a single long-term project was begun, which continued through 2016. Information on the project follows: ​ ​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 from the long term construction contract in 2016 should be A. P 50,000 B. 108,000 C. 128,000 D. 228,000 (Dayag, 2016) 151.

Contract revenue in construction contract comprise A. The initial amount of revenue agreed in the contract only B. Variation in contract work, claims and incentive payment only C. The initial amount of revenue agreed in the contract, variation in contract work, claim and incentive payment D. The initial amount of revenue agreed in the contract and progress billings (Punzalan, 2018)

152. The percentage of completion of a construction contract is based on all of the following, except A. The proportion that contract costs incurred for work performed to date bear to the estimated total contract costs B. Survey of work performed C. Completion of a physical proportion of the contract work D. Progress payments and advances received from customers (Punzalan, 2018) 153. The calculation of the income recognized in the third year of a 5-year construction contract accounted for using the percentage of completion method includes the ratio of A. Total costs incurred to date to total estimated costs B. Total costs incurred to date to total billings to date C. Costs incurred in year 3 to total estimated costs D. Costs incurred in year 3 to total billings to date (Punzalan, 2018) 154. In accounting for a long-term construction contract using the percentage of completion method, the progress billings on contract account is A. Contra current asset account B. Contra non-current asset account C. Noncurrent liability account D. Revenue account (Punzalan, 2018) 155.

Which of the following is included in the cost of fulfilling a construction contract? A. Cost of hiring equipment used in the construction B. General administration costs for which reimbursement is not specified in the contract C. Selling costs D. Depreciation of idle plant and equipment that is not used on a particular contract (Milan, 2017)

The following data relate to a construction job started by Jay Company during 2016: Total contract price P100,000 Actual costs during 2016 20,000 Estimated remaining costs 40,000 Billed to customer during 2016 30,000 Received from customer during 2016 20,000

156. Any costs incurred are expected to be recoverable. Under the cost recovery method,construction accounting(zero-profit), what amount should Jay Company recognize as gross profit for 2016? A. 0 B. 4,000 C. 10,000 D. 12,000 (Dayag, 2015) 157. X Company uses the percentage of completion method of recognizing income. In 2015, work was started on a P18,000,000 job completed in 2017. Records in 2016 show the following: Progress billing P6,600,000 Costs incurred 5,400,000 Collections 4,200,000 Cost to complete 10,800,000 Gross profit recognized in 2016 was: A. 1,400,000 B. 1,200,000 C. 900,000 D. 600,000 (Guerrero, 2016) For Items #158-160, use the following information: In 2013, South Builders agreed to construct a commercial building at a price of P1,000,000. South Builders uses the percentage of completion method of recognizing revenue on long term construction projects. The data relating to the projects from 2014 to 2016 are as follows:

Cost incurred each year Estimated cost to complete Billings to date Collections of billings to date 158.

2014 P280,000 520,000 150,000 120,000

2015 P320,000 200,000 400,000 320,000

What is the amount of gross profit to be recognized in 2015? A. 80,000 B. 78,500

2016 P185,000 1,000,000 940,000

C. 85,000 D. 90,000 159. What is the balance of construction in progress net of contract billings account of South Builders’ on December 31, 2015? A. 350,000 B. 300,000 C. 550,000 D. 380,000 160. Assuming the company uses the zero profit of recognizing revenue from the project, what is the balance of the construction in Progress account net of contract billings as of December 31, 2015? A. 200,000 B. 250,000 C. 350,000 D. 300,000 (Guerrero, 2016) For Items #161-163, use the following information: On January 1, 2018, Hardrock Company started the construction of a building at a fixed contract price of P1,000,000. On the same date, the customer paid a mobilization fee equal to 5% of contract price that will be deductible from the first billing. The outcome of construction contract cannot be estimated reliably During 2018, the entity billed the customer equivalent to 30% of the contract price. During 2019, the entity billed again the customer amounting to 20% of the contract price. During 2020, the entity billed again the customer amounting to 40% of the contract price. The remaining billing was made at the year of completion of the project. The entity made collection from the customer at the end of 2018, 2019 and 2020, in the amount of P120,000, P450,000 and P180,000, respectively. The entity provided the following data concerning the direct costs related to the said project: 2018 Cumulative costs incurred at year-end 360,000 Remaining estimated costs to complete at year-end 840,000 161.

2019 800,000 250,000

2020 870,000 50,000

What is the realized gross profit for the year ended December 31, 2019?

A. B. C. D.

50,000 200,000 150,000 0

162. What is the excess of construction in progress over progress billings or excess of progress billings over construction in progress on December 31, 2020? A. 30,000 excess billings B. 80,000 excess billings C. 20,000 excess construction in progress D. 50,000 excess construction in progress 163.

What is the balance of accounts receivable on December 31, 2020? A. 150,000 B. 100,000 C. 120,000 D. 50,000 (CPAR Reviewer, 2017)

164. When the outcome of a construction contract can be estimated reliably, what accounting method shall be used by the long-term contractor for the recognition of construction revenue and construction cost? A. Percentage of completion method B. Cost recovery method C. Zero-profit method D. Installment method (CPAR Reviewer, 2017) 165. When it is probable that total contract costs will exceed total contract revenue, how should contractor account for the difference? A. The expected loss shall be recognized as an expense immediately. B. The expected profit shall be recognized as a profit immediately. C. The expected loss shall be recognized as an expense taking into account the percentage of completion as of the end of the period. D. The expected loss shall be recognized as a profit taking into account the percentage of completion as of the end of the period. (CPAR Reviewer, 2017)

166. If the sale transaction provides for periodic installments over an extended period of time and the collectibility of the sales price cannot be reasonably estimated, what method of revenue recognition is the most appropriate? A. Cost recovery method B. Accrual basis C. Installment method D. Cash basis (CPAR Reviewer, 2017) 167.

Under installment method of revenue recognition, which statement is true? A. Both sales revenue and cost of goods sold are recognized at the point of sale. B. The related gross profit of the installments sales is deferred to those period during which cash will be collected. C. As receivables are collected, a portion of the deferred gross profit equal to the gross profit rate times cash collected is recognized as income. D. All of these statement are true. (CPAR Reviewer, 2017)

168.

In installment sales, how should the deferred gross profit account be presented? A. Asset valuation allowance or contract-receivable account B. Unearned revenue account C. Equity account D. Income account (CPAR Reviewer, 2017)

169.

Under the gross profit realization method, first collections are regarded as A. Expenses B. Gross profit C. Cost recovery D. Return of investment (Guerrero, 2013)

170. Under the installment method, the difference between selling price and the cost of sale is recorded as: A. Deferred Gross Profit B. Income C. Asset D. Expense (Guerrero, 2013)

(Items #171-174, 178-180 not aligned with the topic) 171. Direct costs of franchise incurred by a franchisor that are within the scope of PFRS 15 are recognized as expense during the A. immediate recognition principle B. effective interest method C. concept of conservative or prudence D. matching concept (Advance Accounting and Reporting I, Millan 2016) 172. 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 pint in time B. over time C. under time D. all the time (Advance Accounting and Reporting I, Millan 2016) 173. PFRS 15 requires how many steps in recognizing revenue from contracts with customers? A. 2 B. 3 C. 4 D. 5 (Advance Accounting and Reporting I, Millan 2016) 174. Revenue from the franchise contracts shall be recognized in accordance with which of the following reporting standards? A. PAS 18, Part B B. PFRS 15 C. FAS No. 45 (US GAAP) D. All of the above (Advance Accounting and Reporting I, Millan 2016​) 175.

According to PFRS 15, a good or service is distinct if? A. the entity regularly sells the good or service separately

B.

the customer can benefit from it, either on its own or together with other resources that are readily available to the customer C. none of the above D. A and B (Advance Accounting and Reporting I, Millan 2016) 176.

Under PFRS 15 revenue is measured A. at the fair value of the consideration received or receivable in the contract B. at the amount of transaction price allocated to a performance obligation that is Satisfied C. at the stand-alone selling price of the promised good service in the contract D. any of these (Advance Accounting and Reporting I, Millan 2016)

177.

The primary issue in accounting for construction contracts is A. the allocation of contract revenue to the accounting periods in which construction work is performed B. the allocation of contract costs to the accounting periods in which construction work is performed C. the determination of the percentage of completion D. A and B (Advanced Financial Accounting Part 1 2015 By Z. Millan)

178. Raphael Company paid 20,000,000 for the net assets of Paris Corporation and Paris was then dissolved. Paris had no liabilities. The fair values of Paris’ assets was P2,500,000. Paris’ only non-current assets were land and equipment with fair values of P160,000 and P640,000. At what value will the equipment be recorded by Raphael? A. 640,000 B. 400,000 C. 240,000 D. 0 (Advanced Accounting Part 1, 2012 ed. By Baysa/Lupisan) 179. Park Company acquired a 90% interest in Southwestern Company on December 31, 2014 for P320,000. During 2015, Southwestern had net income of P22,000 and paid a cash dividend of P7,000. Applying the cost method would give a debit balance in the Investment in Stock of Southwestern Company account at the end of 2015 of: A. 335,000 B. 333,500

C. 313,700 D. 320,000 (Advanced Accounting Part 1, 2012 ed. By Baysa/Lupisan) 180. Which of the following items will not affect the acquisition year’s consolidated net income in a business combination? A. Stock issuance cost B. Direct cost of business combination C. Gain or bargain purchase D. Amortization of difference between fair value and carrying amount of net assets of acquire (CPAR Special Handouts 2017) (Items #181-190, not aligned with the topic assigned) 181.

The installment method of recognizing profit for accounting purposes is acceptable if A. Collections in the year of sale do not exceed 30% of the total sales price. B. An unrealized profit account is credited. C. Collection of the sales price is not reasonably assured. D. The method is consistently used for all sales of similar merchandise. (Punzalan 2016)

182.

Under the installment sales method, A. Revenue, costs, and gross profit are recognized proportionately to the cash that is received from the sale of the product. B. Gross profit is deferred proportionately to cash uncollected from sale of the product, but total revenue and costs are recognized at the point of sale. C. Gross profit is not recognized until the amount of cash received exceeds the cost of the item sold. D. Revenues and costs are recognized proportionately to the cash received from the sale of the product, but gross profit is deferred until all cash is received. (Punzalan 2016)

183.

Under the cost recovery method of revenue recognition, A. Income is recognized on a proportionate basis as cash is received on the product B. Income is recognized when the cash received from the sale of the product is greater than the cost of the cost C. Income is recognized immediately sale of the product. D. None of these. (Punzalan 2016)

184. Chris Co. sells equipment on installment contracts. Which of the following statements best justifies Chris, use of the cost recovery method of revenue recognition to account for these installment sales? A. The sales contract provides that title to the equipment passes to the buyer only when all payments have been made. B. No cash payments are due until one year from the date of sale. C. Sales are subject to a high rate of return. D. There is no reasonable basis for estimating collectability (Punzalan 2016) 185.

Which of the following are recognized each period under the cost recovery method? A. Costs only B. Revenues only C. Both costs and revenues D. None of these (Punzalan 2016)

186. Leopard Co. uses the installment sales method to recognize revenue. Customers pay the installment notes in 24 equal monthly amounts, which include 12% interest. What is the balance of an installment note receivable 6 months after the sale? A. 75% of the original sales price. B. Less than 75% of the original sales price C. The value of the remaining monthly payments discounted at 12% D. Less than the present value of the remaining monthly pay discounted at 12%. (Punzalan 2016) 187. On January 2, 2016, Colt Co. sold land that cost P600,000 for P800,000, receiving a note bearing interest at 10%. The note will be paid in three annual installments of P321,700 starting on December 31, 2016. Because collection of the note is very uncertain, Colt will use the cost recovery method. How much revenue from this sale should Colt recognize in 2016? A. 0 B. 6,000 C. 8,000 D. 20,000 (Punzalan 2016)

188. The following information pertains to a sale of on December 31, 2016: Carrying amount Sales price: Cash Purchase money mortgage

real estate by South Co, to Nord. Co. 4,000,000 600,000 5,400,000

The mortgage is payable in nine annual installments of P600,000 beginning December 31, 2017, plus interest of 10%. The December 31, 2017 installment was paid as scheduled, together with interest of P540,000. South uses the cost recovery method to account for the sale. What amount of income should South recognize in 2017 from the real estate sale and its financing? A. 1,140,000 B. 740,000 C. 540,000 D. 0 (Punzalan 2016) 189.

The books of Paiyakan Company show the ff. balances on December 31, 2016: Accounts receivable 313,750 Deferred gross profit (before adjustment) 38,000 Sales 2016 10,000 2017 15,000 Cost of sales 2016 8,000 2017 9,000 Cash collections: 2016 2017 On 2016 sales 7,000 3,000 On 2017 sales 12,000

If the cost recovery method is used, what amount would Pitt report as gross profit from sales to these customers for the year ended March 31, 2017? A. 2,000 B. 3,000 C. 5,000 D. 15,000 (Punzalan 2016)

190. On January 1, 2016, Rex Co. sold a used machine to Lake, Inc. for P525,000. On this date, the machine had a depreciated cost of P367,500. Lake paid P75,000 cash on January 1, 2016 and signed a P45 0,000 note bearing interest at 10%. The note was payable in three annual installments of P150,000 beginning January 1, 2017. Rex appropriately accounted for the sale under the installment method Lake made a timely payment of first installment on January 1, 2017 of P195,000, which included interest of P45,000 to date of payment. At December 31, 2017, Rex had deferred gross profit of A. 105,000 B. 90,000 C. 99,000 D. 76,500 (Punzalan 2016) 191. Builders Construction Corp. signed a contract to build a five-level apartment over a period of two years, and with this contract also signed a maintenance contract for five years. Both contracts are negotiable as a single package and are closely related to each other. The two contracts should be A. Combined and treated as a single contract B. Segmented and considered as two separate contracts C. Recognized under the completed contract method D. Treated differently. The building under the completed contract method and the maintenance contract under the percentage of completion method (Punzalan, 2016) 192. The measurement of contract revenue is affected by a variety of uncertainties that depend on the outcome of future events. Which statement is incorrect? A. Contractor and a customer may agree on variations and claims that increase or decrease contract revenue subsequently B. The amount of revenue agreed in a fixed price contract may increase as a result of cost escalation clause C. The amount of revenue may increase as a result of penalties arising from delays caused by the contractor in the completion of the contract D. When a fixed price contract involves a fixed price per unit of output, contract revenue increases as the number of units is increased. (Punzalan, 2016) 193. A company used the percentage of completion method of accounting for a 4-year construction contract. Which of the following items should be used to calculate the income recognized in the second year?

A. B. C. D.

I​ncome previously recognized Yes No Yes No

Collection on progress billings Yes Yes No No (Punzalan, 2016)

194. A company used the percentage of completion method of accounting for a 4-year construction contract. Which of the following items should be used to calculate the income recognized in the First year? Progress Billings Collection on progress billings A. Yes Yes B. Yes No C. No No D. No Yes (Punzalan 2016) 195. In accounting for a long-term construction contract using the percentage of completion method, the progress billings on contract account is A. Contra current asset account B. Contra non-current asset account C. Noncurrent liability account D. Revenue account (Punzalan 2016) 196. High Rise Corp. has entered into a very profitable fixed-price contract for constructing a condominium building over a period of three years, with total estimated cost of P18M. It incurs the following costs relating to the contract during the first year of construction: Materials Site Labor costs Agreed administration costs as per contracts to be reimbursed by the customer Depreciation of the plant used for the construction Marketing costs for selling condo units when they are ready for occupancy

P 2.5M 2.0M 1.0M

500K 1.0M

A. B. C. D.

33 ⅓% 27% 25% 39% (Punzalan 2016)

197. The following data pertains to Pell Co.’s construction Jobs, which commenced during 2016: PROJECT 1

PROJECT 2

P 420,000

P 300,000

Cost incurred during 2016

240,000

280,000

Estimated cost to complete

120,000

40,000

Billed to customers during 2016

150,000

270,000

90,000

250,000

Contract price

received from customers during 2016

If Pell used the percentage of completion method, what amount of gross profit (loss) would Pell report in it’s 2016 income statement? A. (20,000) B. 20,000 C. 22,500 D. 40,000 (Punzalan 2016) For Items #198-200, use the following information: Atlas Construction Co. Has used the cost-to-cost percentage method of recognizing revenue. The following incomplete records we’re provided for a recently completed building project

198.

How much cost was incurred in 2016? A. 18,400,000 B. 11,800,000 C. 6,600,000 D. 1,600,000

199.

What percentage (rounded) ofthe project was completed by the end of 2016? A. 55% B. 60% C. 65% D. 70%

200.

What is the estimated cost to complete the project at the end of 2016 A. 3,060,000 B. 6,800,000 C. 8,200,000 D. 9,800,000

201. Deb Co. records all sales using the installment method of accounting. Installment sales contracts call for 36 equal monthly cash payments. The amount of deferred gross profit relating to collections 12 months beyond the balance sheet date should be reported in the A. Current liability section as a deferred revenue. B. Noncurrent liability section as a deferred revenue. C. Current asset section as a contra account. D. Noncurrent asset section as a contra account. (AICPA, Adapted) 202.

The Hogbean Co. is a construction company that has the ff. costs on its contracts: 1. Project manager’s costs 2. Destruction of an existing building 3. Restoration of an old factory According to AIS 11 (Construction Contracts) which costs may be included within contract costs? A. Cost (1) and cost (2) only B. Cost (1) and cost (3) only C. Cost (2) and cost (3) only D. Cost (1), (2) and (3) (Punzalan, 2015)

203. According to AIS 11, Construction Contracts, which of the following projects undertaken by an entity should be accounted for as a construction contract? A. An item of plant and machinery being constructed to be sold as inventory. B. An office block being constructed as investment property.

C. A warehouse being constructed for the entity’s own use. D. A large boat being constructed for a third party under a specifically negotiated contract. (Punzalan, 2015) 204. In accounting for long-term construction contract suing the percentage of completion method, the progress billings on contra account is a A. contra current asset account​. B. contra non-current asset account. C. noncurrent liability account. D. revenue account. (Punzalan, 2015) 205. The calculation of the income recognized in the third year of a five-year construction contract accounted for using the percentage-of-completion method includes the ratio of A. Total costs incurred to date to total estimated costs. B. Total costs incurred to date to total billings to date. C. Costs incurred in year 3 to total estimated costs. D. Costs incurred in year 3 to total billings to date. (Punzalan, 2015) (Items #206-208, not aligned with the topic assigned) 206. Roco Corp., which began business on January 1, 2008, appropriately uses the installment sales method of accounting for income tax reporting purposes. The following data are available for 2008: Installment accounts receivable, 12/31/08 P200,000 Installment sales for 2008 P350,000 Gross profit on sales 40% Under the installment sales method, what would Roco’s deferred gross profit at December 31, 2008? A. P20,000 B. P90,000 C. P80,000 D. P60,000 (Punzalan, 2015) 207. Long Co., which began operations on January 1, 2008, appropriately uses the installment sales method of accounting. The following information pertains to Long’s operations for the year 2008:

Installment sales Regular sales Cost of installment sales Cost of regular sales General and administrative expenses Collections on installment sales What is the net income on December 31, 2008? A. P400,000 B. P200,000 C. P300,000 D. P100,000

P1,000,000 600,000 500,000 300,000 100,000 200,000

(Punzalan, 2015) 208. A refrigerator was sold to Fernanda Castro for P16, 000, which included a 40% markup on selling price. She made a down payment of 20%, payment of four of the remaining 16 equal payment and defaulted on further payments. The refrigerator was repossessed, at which time the fair value was determined to be P6,800. The repossession resulted to the following (loss) gain: A. P(1,040) B. P1,040 C. P4,056 D. P2,960 (Punzalan, 2015) 209. Hansen Construction, Inc, has consistently used the percentage-of-completion method of recognizing income. During 2008, Hansen started work on a P3,000,000 fixed-price construction contract. The accounting records disclosed the following data for the year ended December 31, 2008: Costs incurred P930,000 Estimated cost to complete 2,170,000 Progress billings 1,100,000 Collections 700,000 How much loss should Hansen have recognized in 2008? A. P230,000 B. P100,000 C. P30,000 D. P0 (Punzalan, 2015)

210. The Robert Construction Corporation uses the percentage-of-completion method of accounting. In 2008, Robert began to work on a contract it had received which provided a contract price of P8,000,000. Other details follow: Costs incurred during the year P1,200,000 Estimated cost to complete as of December 31 4,800,000 Billings during the year 1,440,000 Collections during the year 1,000,000 What should be the gross profit recognized in 2008? A. P160,000 B. P240,000 C. P400,000 D. P1,600,000 (Punzalan, 2015) 211. According to IAS 11, which of the following projects undertaken by an entity should be accounted for as a construction contract? A. An item of plant and machinery being constructed to be sold as inventory B. An office block being constructed as an investment property C. A warehouse being constructed for the entity’s own use D. A large boat being constructed for a third party under a specifically negotiated contract (Punzalan, 2016) 212. How should the balances of progress billings and construction in progress be shown at reporting dates prior to the completion of a long-term contract? A. Progress billings as deferred income, construction in progress as deferred expense B. Progress billings as income, construction in progress as inventory C. Net, as current asset if debit balance and current liability if credit balance D. Net, as income from construction if credit balance, and loss from construction is debit balance (Punzalan, 2016) 213.

The percentage of completion of a construction contract is based of the ff. except: A. The proportion that contract costs incurred for work performed to date bear to the estimated total contract costs B. Survey of work performed C. Completion of a physical proportion of the contract work D. Progress payments and advances received from customers

(Punzalan, 2016) For Items #214-217, use the following information: Sin Construction Co. has used the cost-to-cost percentage-of-completion method of recognizing revenue, Marc Sin assumed the presidency of the company after the death of his father, Vincent. In reviewing the records, Marc finds the following information regarding a recently completed building project for which the total contract was P2,000,000 2011 2012 2013 Gross profit (loss) P40,000 P140,000 P(20,000) Cost incurred each year 360,000 ? 820,000 Marc wants to know how effectively the company operated during the three (3) years on this project and, since the information is not complete, has asked for answers to the following questions: 214.

How much cost was incurred in 2012 A. P660,000 B. P600,000 C. P560,000 D. P500,000

215.

What percentage of the project was completed by the end of 2012 A. 65% B. 60% C. 55% D. 79%

216.

What was the total estimated gross profit on the project by the end of 2012 A. P300,000 B. P180,000 C. P250,000 D. P350,000

217.

What was the estimated cost to complete the project at the end of 2012? A. P660,000 B. P500,000 C. P650,000 D. P680,000 (Guerrero, 2013)

218. The Tamiya Builders was recently awarded a P2,800,000 contract to construct a shopping mall for Rustan Inc. Tamiya Builders estimates it will take 42 months to complete the contract. The company uses the cost-to-cost method to estimate profits. The following data are available for the year 2010 to 2013 Year 2010 201 2012 2013

Actual cost each year P1,300,000 660,000 480,000 340,000

Estimated cost to complete P1,360,000 780,000 380,000 -0-

How much is the realized gross profit (loss) in 2012 A. P(20,000) B. P(62,918) C. P22,918 D. P(22,918) (Guerrero, 2013) 219. The following data pertains to Havianas Builders, Inc. which uses the percentage of completion method Project A Project B Project C Project D Contract Price P2,900,000 P3,400,000 P1,700,000 P2,000,000 Cost incurred,2012 1,680,000 1,440,000 320,000 -0Estimated cost to 1,120,00 1,760,000 960,000 -0complete,2012 Cost incurred, 2013 960,000 680,000 863,000 560,000 Estimated cost to -01,360,000 117,000 1,040,000 complete,2013 How much is the net income for the year ended 2012 and 2013: A. P135,000; 309,000 B. P135,000; 489,000 C. P195,000; 429,000 D. P369,000; 135,000 (Guerrero, 2013) 220. Joys Construction Company has used the cost-cost method of computing the percentage of completion to recognize revenue. Total contract price was P10,000,000. The following data are available from 2011 to 2013:

2011

2012

2013

Realized gross profit (loss), current year

P 200,000

P 700,000

P (100,000)

Cost incurred each year

1,800,000

?

4,100,000

How much is the total estimated gross profit on the project by the end of 2012? A. P 1,750,000 B. P2,250,000 C. P1,500,000 D. P1,166,667 (Guerrero, 2013) 221. Under IAS 11, Construction Contracts, when it is probable that total contract costs on a fixed price contract will exceed total contract revenue, the expected loss should be A. Set off against profits on other contracts whereby available. B. Recognized as expense immediately, unless revenue to date exceed costs to date. C. Apportioned to the years of contract according to the stage of completion method. D. Recognized as an expense immediately. (Punzalan, 2016) 222. A building contractor has a contract to construct a large building. It is estimated that the building will take 2 years to complete. Progress billings will be sent to the customer at quarterly intervals. Which of the following describes the preferable point for revenue recognition for this contract? A. After the contract is signed. B. As progress is made toward completion of the contract. C. As cash is received. D. When the contract is completed. (Punzalan, 2016) 223.

Contract costs of a construction contract comprise all of the following, except A. Costs that directly relate to the specific contract. B. Costs that are attributable to contract activity in general and can be allocated to the contract. C. Such other costs that are specifically chargeable to the customer under the terms of the contract.

D. General administration costs for which reimbursement is not specified in the contract. (Punzalan, 2016 ) 224. The palace Co., a construction company, has December 31 year end. It is to build a factory for a client and has scheduled its work as follows: March 20, 2016

Contract to be awarded and signed.

April 25, 2016

Construction work to commence.

November 27, 2016

Principal construction work to be completed.

December 30, 2016

Final completion of contract.

In accordance with IAS 11, Construction Contracts, the maximum expected period over which the costs attributable to the contract should accumulated is A. March 20, 2016 to December 30, 2016 B. April 25, 2016 to November 27, 2016 C. April 25, 2016 to December 30, 2016 D. March 20, 2016 to November 27, 2016 (Punzalan, 2016) 225. The percentage of completion method that may be used to account for construction contracts can be justified on the basis that: A. The contractor will be continuously working and therefore earning revenue. B. In most long-term construction projects, payments are made periodically throughout the life of the contract allowing revenue to be recognized. C. It is unreasonable to expect a contractor to record revenue only when construction is completed. D. The contracting firm has a basis for measuring completion at particular interim dates. (Punzalan, 2016) 226.

The Thing Co. has just completed a 4-year contract to which the following relate: Labor and material costs 1,800,000 Machinery cost

600,000

Initial design cost

100,000

Disposal proceeds of machinery

50,000

What are the total contract costs, according to IAS 11, Construction Contracts?

A. B. C. D.

2,350,000 1,900,000 2,450,000 2,500,000 (Punzalan, 2016)

227. C & J Construction, Inc. consistently used the percentage of completion method of recognizing income. Last year C & J started work on a P4,500,000 construction contract, which was completed this year. The accounting records disclosed the following data for last year: Progress billings P1,650,000 Cost incurred

1,350,000

Collections

1,050,000

Estimated cost to complete 2,700,000 How much revenue should C & J recognize on this contract last year A. 105,000 B. 150,000 C. 300,000 D. 350,000 (Punzalan, 2016) 228. Mill Construction Co. uses the percentage of completion method of accounting. During 2016, Mill contracted to build an apartment complex for Drew for P20,000,000. Mill estimated that total costs would amount to P16,000,000 over the period of construction. In connection with this contract, Mill incurred P2,000,000 of construction cost during 2016. Mill billed and collected P3,000,000 from Drew in 2016. What amount should Mill recognize as gross profit for 2016? A. 250,000 B. 375,000 C. 500,000 D. 600,000 (Punzalan, 2016) 229. The Tiger Co. has entered into a 5-year fixed price construction contract to build a factory. The contract value is P20,000,000 and the estimated costs are P16,000,000. At the end of the first year, Tiger can estimate the outcome of the contract reliably. It has received cash payments to the value of P8,600,000 and incurred costs of P6,000,000. At

the end of the first year, what amount should be recognized as revenue in the financial statements, according to IAS 11, Construction Contracts? A. 3,200,000 B. 7,500,000 C. 6,000,000 D. 8,600,000 (Punzalan, 2016) 230. Build-It Corp. is constructing a building and has signed a fixed-price two-year contract for P21 million. It has incurred the following cost relating to the contract by the end of first year: Materials P 5.0 million Labor 2.0 million Construction overhead 2.0 million Marketing 0.5 million Depreciation of idle plant and equipment 0.5 million At the end of Year-1, it has estimated cost to complete the contract at P9 million. What profit or loss from the contract should Build-It recognize at the end of Year-1? A. 1.5 million B. 1.0 million C. 1.05 million D. 1.28 million (Punzalan, 2016) 231. POC Company accounts for a long-term construction contract using the percentage-of completion method. As of the end of the current fiscal year, the following information was available regarding a project expected to be completed in the following year: Cumulative progress billings $400,000 Cumulative costs incurred 300,000 Cumulative revenues recognized 80,000 The difference between construction in progress and progress billings should be reported in the statement of financial position for the current year as A. A current asset of $20,000. B. A current liability of $20,000. C. Unearned revenue of $100,000. D. A separate component of shareholders’ equity of $100,000

(RPCPA 2016) 232.

The rationale for adoption of the percentage-of-completion method is that: A. Results are more conservative. B. It provides a measure of periodic accomplishment. C. It is a better match with legal ownership. D. It results in a lower income tax (RPCPA 2016)

233. How should earned but unbilled revenues at the balance sheet date on a long-term construction contract be disclosed if the percentage-of-completion method of revenue recognition is used? A. In a footnote to the financial statements until the customer is formally billed for the portion of the work completed. B. As a receivable in the noncurrent asset section of the balance sheet. C. As a construction in progress in the noncurrent asset section of the balance sheet. D. As construction in progress in the current asset section of the balance sheet (RPCPA 2016) 234. 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 by the percentage of the costs incurred during the year to the A. Total costs incurred to date. B. Unbilled portion of the contract price. C. Total estimated cost D. Total contract price (RPCPA 2016) 235. If a company uses the completed-contract method of accounting for long-term construction contracts, then during the period of construction, financial information related to a long-term contract will A. Appear on both the income statement and balance sheet during the construction period

B. Appear only on the income statement during the period of construction. C. Appear only on the balance sheet during the period of construction D. Not appear on the financial statements (RPCPA 2016) 236. In accounting for a long-term construction contract for which there is a projected profit, the balance in the Construction in Progress account at the end of the first year of work using the percentage-of-completion method would be A. zero. B. The same as the completed-contract method. C. Higher than the completed-contract method D. Lower than the completed-contract method (RPCPA 2016) For Items #237-238, use the following information: Moon View Desert Homes constructed a subdivision of upscale homes north of Cave Creek, Arizona, during 2003 and 2004 under contract with Empire Development. Relevant data are summarized below: Contract Amount $2,000,000 2003 2004 Cost 800,000 600,000 Gross Profit 350,000 250,000 Contract Billings 1,000,000 1,000,000 237. Moon View uses the percentage-of-completion method to recognize revenue. What would be the journal entry made in 2003 to record revenue? A. Accounts receivable 1,000,000 Revenue from long-term contracts 1,000,000 B. Accounts receivable 1,350,000 Gross profit Revenue from long-term contracts

350,000 1,000,000

C. Construction in progress 1,150,000 Cost of construction Revenue from long-term contracts

350,000 800,000

D.

Accounts receivable 1,350,000 Billings in excess of cost Revenue from long-term contracts

350,000 1,000,000 (RPCPA 2016)

238.

In its December 31, 2003 balance sheet, Moon View would report: A. The asset, cost and profits in excess of billings of $150,000. B. The liability, billings in excess of cost of $200,000 C. The asset, contract amount in excess of billings of $1,000,000. D. The asset, deferred profit of $400,000 (RPCPA 2016)

239. Under the percentage of completion method , the net income to be recognized for the first year of a three-year construction contract is to be determined on the basis of the ratio of . A. Estimated cost to complete to total estimated costs. B. Costs incurred to date to total estimated costs C. Actual costs incurred to total estimated costs. D. Total estimated costs to estimated costs to complete (RPCPA 2016) 240. If the Construction in Progress account has a balance of P1,000,000 while the Progress Billings on Contracts account’s balance is P800,000, how should these accounts be reflected on the balance sheet? A. Construction in Progress will be shown as a current asset. B. Progress Billings on Contracts will be shown as a current liability. C. The difference between the two accounts will be reflected as a current asset. D. The difference between the two accounts will be reflected as a current liability (RPCPA 2016) 241. Under the percentage of completion method, contract revenue for the period is computed A. By multiplying the percentage-of-completion to the transaction price.

B. By dividing the contract price by the percentage-of-completion and deducting revenues already recognized in the prior periods. C. By multiplying the percentage-of-completion to the contract price and deducting revenues already recognized in the prior periods. D. By multiplying the percentage-of-completion to the contract price and adding revenues already recognized in the prior periods. (Millan, 2016) 242.

Under the zero-profit method, contract revenue for the period is A. Equal to zero B. Equal to the costs of construction recognized during the period C. Equal to the contract price divided by the estimated construction period D. Equal to the costs of construction recognized during the period that are probable of recovery (Millan, 2016)

243. A contractor enters into contact with a customer to construct a building. It is estimated that the building will take 2 years to complete. The entity assesses its performance obligation in accordance with the principles in PFRS 15 and concludes that the performance obligation is satisfied over time. Progress billings will be sent to the customer at quarterly intervals. Which of the following describes the preferable point for revenue recognition for this contract? A. After the contract is signed. B. As progress is made towards the completion of the contract. C. As cash is received. D. When the contract is completed. (Millan, 2016) 244. Which of the following does not indicate that a customer can benefit from a good or service either on its own or together with other resources that are readily available to the customer? A. The good or service could be used, consumed, sold for an amount that is greater than scrap value, or otherwise held in a way that generates economic benefits. B. The fact that the entity regularly sells a good or service separately. C. The fact that the entity has no alternative use for the good or service. D. All of these are indicators. (Millan, 2016)

245. An entity’s performance obligation under a long-term construction contract will be satisfied at a point in time. Revenue is recognized when recorded progress billings Are collected Exceed recorded costs A. Yes Yes B. No No C. No Yes D. Yes No (Millan, 2016) 246. An entity uses the inputs method based on costs incurred to measure its progress on a performance obligation that is satisfied over time. Which of the following items would affect the entity’s computation for the revenue to be recognized each year? Revenue previously recognized Progress billings to date A. B. C. D.

Yes Yes No No

Yes No Yes No (Millan, 2016)

247. An entity uses the outputs method based on surveys of work performed to measure its progress on a performance obligation that is satisfied over time. Which of the following items would affect the entity’s computation for the revenue to be recognized each year? Receivable

Collection on Progress billings

A. B. C. D.

Yes No Yes No

Yes Yes No No

(Millan, 2016) 248. DJ Builders, Inc. has consistently used the percent-of-completion method of accounting for construction-type contracts. During 2015, DJ started work on a P9,000,000 fixed price construction contract that was completed in 2016. DJ’s accounting records disclosed the following:

Cumulative contract costs incurred Estimated total costs at completion

12/31/2015 P3,900,000 7,800,000

12/31/2016 P6,300,000 8,100,000

How much income would DJ have recognized on this contract for the year ended December 31, 2016? A. P100,000 B. P300,000 C. P600,000 D. P700,000 (Dayag, 2015) 249. Uberita Corp. entered into a construction agreement in 2015 that called for a contract price of P9,600,000. At the beginning of 2016, a change order increased the initial contract price by P480,000. The company uses the percentage-of-completion basis of revenue recognition. In relation to the project, the following data are obtained:

Cost incurred to date Est’d costs to complete Billings made Collection made

2015 P4,920,000 4,920,000 5,280,000 4,380,000

2016 P8,640,000 2,160,000 8,520,000 7,500,000

What gross profit (loss) should Uberita Corp. recognize in 2016? A. P120,000 gross profit B. P240,000 gross loss C. P480,000 gross loss D. P720,000 gross loss (Dayag, 2015) 250. On September 30, 2016, Jaja Co., Inc. was awarded the contract to build a 1,000-room hotel for P120 million. Among others, the parties agreed to the following: 1. Ten percent mobilization fee (deducted from “final billing”) payable within ten days from the signing of the contract; 2. Retention of ten percent on all billings (to be paid with the final billing, upon completion and acceptance of the project); and 3. Progress billings are to be paid within 2 weeks upon acceptance. By the end of 2016, the company had presented one progress billing, corresponding to 10% completion, which was evaluated and accepted by the client on December 29, 2016 for payment in January of the next year. In 2016, assuming use of the

percentage-of-completion method of accounting, Jaja Co., Inc. received cash a total fee of: A. P1,200,000 B. P11,800,000 C. P12,000,000 D. P13,200,000 (Dayag, 2015) 251. In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be A. the terms of payment in the contract. B. the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable. C. the method commonly used by the contractor to account for other long-term construction contracts. D. the inherent nature of the contractor's technical facilities used in construction. (Comprehensive Reviewer, Hilario Tan) 252. The use of the percentage of completion method of accounting for long term construction contracts is a measurement of revenue under the A. Cost principle. B. Realization principle. C. Objectivity principle D. Monetary principle. (Comprehensive Reviewer, Hilario Tan) 253. When work to be done and costs to be incurred on a long-term contract can be estimated dependably, which of the following methods of revenue recognition is preferable? A. Installment method B. Completed-contract method C. Percentage-of-completion method D. None of these (Comprehensive Reviewer, Hilario Tan) 254. Which of the following is not an element identified by the AICPA as being necessary in order to use percentage-of-completion accounting? A. The construction period can be reasonably estimated. B. The buyer can be expected to satisfy obligations under the contract.

C. Dependable estimates can be made of the extent of progress toward completion. D. Dependable estimates can be made of contract costs. (Comprehensive Reviewer, Hilario Tan) 255. JUMBO Corp. uses the percentage-of-completion method of revenue recognition in accounting for its long-term construction contracts. JUMBO Corp.’s progress billings account is a A. Revenue account. B. Non-current liability account. C. Contra current asset account. D. Contra non-current asset account. (Comprehensive Reviewer, Hilario Tan) 256. The profession requires that the percentage-of-completion method be used when certain conditions exist. Which of the following is not one of those necessary conditions? A. Estimates of progress toward completion, revenues, and costs are reasonably dependable. B. The contractor can be expected to perform the contractual obligation. C. The buyer can be expected to satisfy some of the obligations under the contract. D. The contract clearly specifies the enforceable rights of the parties, the consideration to be exchanged, and the manner and terms of settlement. (Comprehensive Reviewer, Hilario Tan) For Items #257-269, use the following information: The following information pertain to installment sales of Uniwide Variety Store: ■ Down payment: 20% ■ Instalment sales: P545,000 in Year 1, P785,000 in Year 2, and P968,000 in Year 3 ■ Markup on cost: 35% ■ Collections after down payment: 40% during the year of sale, 35% during the year after sale, and 25% on the third year 257.

The realization gross profit for Year 1 is A. P73,474 B. P99,190 C. P109,357 D. P114,825

258. The unrealized gross profit for the installment sales made during Year 2 as at the end of Year 2 is

A. B. C. D.

P97,689 P114,063 P131,880 P141,112

259.

The installment accounts receivable at the end of Year 3 is A. P602,991 B. P621,640 C. P652,722 D. P685,358

260.

Using the same information, the unrealized gross profit at the end of Year 3 is A. P161,166 B. P198,574 C. P211,047 D. P217,574 (Lupisan, 2016)

261. It is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated in terms of their design, technology and function or their ultimate purpose or use. A. Construction contract B. Instalment contract C. Franchise contract D. Consignment contract (CPAR, handouts 2018) 262. It is a construction contract in which the contractor agrees to fixed a contract price, or a fixed rate per unit of output, which in some cases is subject to cost escalation clauses. A. Fixed price contract B. Cost plus contract C. Variable contract D. Mixed contract (​CPAR, handouts 2018) 263. It is a construction contract in which the contractor is reimbursed for allowable or otherwise defined costs, plus a percentage of these costs or a fixed fee. A. Fixed price contract B. Cost plus contract

C. Variable contract D. Mixed contract (CPAR, handouts 2018) 264. Which of the following accounting changes shall be treated retrospectively instead prospectively by long-term construction contractor? A. Change in the construction revenue B. Change in the estimated costs to complete the contract C. Change in the estimate of the outcome of the contract D. Change from percentage of completion to cost recovery method or vice versa (CPAR, handouts 2018) 265. Which of the following cost shall be excluded in the contract costs of construction contract? A. Costs relate directly to the specific contract B. Costs that are directly attributable to contract activity in general and can be allocated to the contract C. Such other costs as are specifically chargeable to the customer under the terms of the contract D. Selling costs such as advertisement expense or commissions of real agents or brokers. (CPAR, handouts 2018) For Items #266-268, use the following information: On July 1, 2020, ABC Construction Corp. Contracted to build an office building for XYZ, Inc. for a total contract price of P975, 000. 2020 2021 2022 Contract cost incurred to date 75, 000 600, 000 1, 050, 000 Estimated costs to complete the contract 675, 000 400, 000 – Billings to XYZ, Inc. 150, 000 550, 000 275, 000 266. Under the percentage of completion method, how much is the Construction-in-Progress at Dec. 31, 2021? A. 650, 000 B. 575, 000 C. 672, 000 D. 597, 000

267. Under the zero-profit method, how much is the Construction-in-Progress, net of Progress Billings at Dec. 31, 2021? A. (125, 000) B. 125, 000 C. 50, 000 D. (50, 000) 268. Under the percentage of completion method, how much is the realized gross profit/ (loss) at Dec. 31, 2022? A. (75, 000) B. (100, 000) C. (50, 000) D. (72, 500) (CPAR, handouts 2018) For Items #269-270, use the following information: On January 1, 2018, Solid Company accepted a long-term construction project for an initial contract price of P1, 000, 000 to be completed on June 30, 2020. On January 1, 2019, the contract price was increased to P1, 500, 000 by reason of change in the design of the project. The outcome of the construction contract can be estimated reliably. The project was completed on December 31, 2020 which resulted to penalty amounting P200, 000. The entity provided the following data concerning the direct costs related to the said project for 2018 and 2019.

Costs during the year Remaining estimated costs to complete at year-end

2018 440, 000 660, 000

2019 680, 000 280, 000

269.

What is the realized gross profit for the year ended December 31, 2019? A. 200, 000 B. 80, 000 C. 180, 000 D. 100, 000

270.

What is the balance of construction in progress on December 31, 2019? A. 1, 200, 000 B. 1, 020, 000 C. 1, 120, 000 D. 900, 000 (CPAR, handouts 2018)

271. Which of the following projects undertaken by an entity should be accounted for as sa a construction contract? A. A warehouse being constructed for the entity’s own use B. An office block being constructed as an investment property C. An item of plant and machinery being constructed to be sold as inventory D. A large boat being constructed for a third party under a specifically negotiated contract (​Valix 2012)​ 272.

In a construction contract, the term “claims” means A. The initial amount of revenue agreed in the contract B. An additional amount paid to the contractor if specified performance standards are met or exceeded C. An instruction by the customer for a change in the scope of work to be performed under the construction contract D. An amount that the contractor seeks to collect from the customer as reimbursement for cost not included in the construction contract (​S,E,&R 2012​)

273. It is an instruction by the customer for a change in the scope of work to be performed under a construction contract A. Claim B. Variation C. Incentive payment D. Initial amount agreed (​Valix 2012)​ 274. It is an additional amount paid to the contractor if specified performance standards are met or exceeded A. Bonus B. Clain C. Incentive payment D. Variation (​Valix 2012)​ For Items #275-277, use the following information: Signet Erectors, Inc. use the cost-to-cost basis in determining the percentage of completion for revenue recognition. The construction company’s records show the following information on a recently completed project for a contract price of P5,000,000

2012

2013

2014

Actual costs incurred to date

P900,000

P2,550,000

P?

Gross profit (loss) recognized each year

100,000

350,000

(50,000)

275. If the revenue recognized thru the end of 2013 was P3,000,000, how much was the estimated cost to complete the project at December 31,2013? A. P1,500,000 B. P1,600,000 C. P1,700,000 D. P2,000,000 276.

How much was the actual cost incurred during 2014? A. P1,750,000 B. P1,900,000 C. P2,050,000 D. P2,200,000

277. If the cost-to-cost percentage of completion was 20% thru the end of 2012, and the customer was billed corresponding to 19% of the contract price, the project will be recognized at December 31, 2012 as A. An asset of P50,000 B. An asset of P950,000 C. A liability of P50,000 D. A liability of P1,000,000 (​PRTC 1405​) For Items #278-280, use the following information: On January 1, 2015, Brave Construction Corp. began constructing a P2,100,000 contract. The following are relevant information provided by the corporation. Brave euses percentage of completion method. For the year ended December 31, 2016, Brave Construction billed its client an additional 55% of the contract price

Construction in progress

2015

2016

2017

P441,000

?

?

Estimated costs to ? complete Costs incurred 425,250 Excess of Construction in Progress over 84,000 current liability Billings

?

--

969,000

675,750

330,750 current liability

--

278.

How much is the estimated remaining cost in 2015? A. P1,599,750 B. P1,555,000 C. P1,680,000 D. P1,584,000

279.

How much is the realized gross profit (loss) in 2016? A. P(45,000) B. P15,750 C. P(60,750) D. P30,000

280.

How much is the balance of construction in progress in 2016? A. P1,680,000 B. P2,010,750 C. P1,349,250 D. P1,365,000 (​PRTC 1405​)