CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
ADVANCED FINANCIAL ACCOUNTING
REVENUE RECOGNITION
GERMAN / LIM / VALIX / K. DELA CRUZ / MARASIGAN
SELFTEST
Numbers 1 and 2
On September 30, 2030, AAA Corp. bought a bike for P3,600,000, costing P2,400,000. A
downpayment of P1,600,000 was made with the balance due in equal monthly installment. The balance
was shouldered by a 12% interest bearing note and the equal monthly payment was P200,000.
1. What is the realized gross profit on installment sales in 2030?
a.
b.
c.
d.
533,333
800,000
733,333
666,667
2. What is the interest income in 2030?
a.
b.
c.
d.
68,000
54,000
38,000
60,000
Numbers 3 and 4
Angeli Inc. uses installment sales method of accounting. During the year, a buyer defaulted on an
installment sale leaving Angeli, Inc. no other choice but to repossess the inventory sold. As of the date
of repossession, the following data are available:




The installment receivable balance is P240,000
Gross profit rate is 30%
The fair value of the repossessed inventory is P132,000
Reconditioning costs of P12,000 was incurred to bring the repossessed inventory to saleable
condition.
3. How much is the gain (loss) on repossession?
a.
b.
c.
d.
43,200 gain
43,200 loss
36,000 loss
36,000 gain
4. How much is the new cost basis of the repossessed inventory?
a.
b.
c.
d.
132,000
110,400
144,000
122,400
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Numbers 5, 6 and 7
Bulldog Manufacturing Corp. consigned ten refrigerators to Poodle Sales Co. These refrigerators had a
cost of P180 each. Freight on the shipment was paid by Bulldog in the amount of P120.
Poodle Sales Co. submitted an account sales stating that it had sold 6 refrigerators and remitted the
P1,365 balance due to Bulldog after the following deductions from the selling price of the
refrigerators:
Commission
Marketing expenses
Delivery and installation of items sold
Cartage cost paid upon receipt by consignee of goods consigned
15% of selling price
P90
P60
P15
5. The consignee sold the 6 refrigerators for a total of
a.
b.
c.
d.
1,080
1,152
1,530
1,800
6. The commission earned on the sale of the 6 refrigerators by Poodle Sales Co. was:
a.
b.
c.
d.
162
180
250
270
7. The Consignor’s net profit from sale of the consigned goods was
a.
b.
c.
d.
219
285
600
800
Number 8
(PFRS 15)
On January 1, 2022, Houston, Inc. granted a 10 year franchise right to a franchisee for the operation of
coffee shop using Houston’s trade name for a nonrefundable initial franchise fee of P10M and
continuing franchise fee of 10% of franchisee’s annual sales. It is the obligation of Houston to
construct the coffee shop and to deliver the movables. In addition to that, Houston has the obligation to
deliver 100,000 units of raw maters to the franchisee. The stand-alone selling price of the right to use
Houston’s trade name is P4M. The stand-alone selling price of the construction of the coffee shop and
delivery of movables is P3M while the standalone selling price of the 100,000 units of raw materials is
P1M.
On July 1, 2022, Houston finished the construction of the coffee shop and delivered all the required
movables. 20,000 units of raw materials have been delivered as of December 31, 2022. The franchisee
reported sales revenue amounting to P2M for the year 2022.
What is the amount of total revenue to be reported by Houston, Inc. for the year ended December 31,
2022?
a.
100,000
b. 4,700,000
c. 8,750,000
d. 5,700,000
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Numbers 9, 10 and 11
Corci Coffee Company charges an initial franchise fee of P900,000 to Mrs. Mocha for the right to
operate as a franchisee of Corci Coffee. Of this amount, P180,000 is payable when the agreement is
signed, and the balance is payable in 4 equal annual installment payments. In return for the payment of
initial franchise fee, the franchisor will assist the franchisee to locate the site, supervise the
construction activity and provide bookkeeping services. The credit rating of the franchisee indicates
that money can be borrowed at 10%. The present value of an ordinary annuity factor is 3.16987.
9. How much is the franchise revenue if the downpayment is refundable, the collectability of the note
is reasonably assured, but substantial services remain to be performed?
a.
0
b. 149,423
c. 180,000
d. 750,577
10. How much is the franchise revenue if the downpayment is nonrefundable, the collectability of the
note is reasonably assured, and there is substantial performance of services?
a.
0
b. 149,423
c. 180,000
d. 750,577
11. How much is the franchise revenue if the downpayment already represents a fair measure of the
services already performed by the franchisor, and the collectability of the note is reasonably
assured?
a.
0
b. 149,423
c. 180,000
d. 750,577
Numbers 12, 13, 14 and 15
BP Construction Company was the lowest bidder on a specialized equipment contract. The contract bid
was P13,125,000 with an estimated cost to complete the project of P7,800,000. The company uses the
cost to cost method to estimate profits. A record of construction activities for the years 2021 to 2023
are as follows:
Cost incurred per year
Estimated cost at completion
Progress billing as of end of the year
Collections during the year
2021
2022
2023
6,562,500
10,937,500
3,000,000
5,625,000
4,406,250
12,187,500
12,000,000
3,750,000
656,250
11,625,000
13,125,000
3,750,000
Using percentage-of-completion method, compute for the following:
12. How much is the realized gross profit in 2021, 2022, and 2023?
a. 1,312,500; (468,750); 656,250
b. 1,312,500; 468,750;
656,250
c.
656,250; (468,750); 1,312,500
d.
0;
0; 1,500,000
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13. How much is the revenue earned in 2022?
a. 1,312,500
b. 3,937,500
c. 11,812,500
d. 13,125,000
14. How much is the excess CIP / (excess Billings) in 2022?
a.
0
b. (187,500)
c. 4,875,000
d. 7,875,000
15. How much is the excess CIP / (excess Billings) in 2023?
a.
0
b. (187,500)
c. 4,875,000
d. 7,875,000
Numbers 16, 17 and 18
Darwin Corporation consigned 60 units of motors to Inigo Corp. on May 1, 2030. Each motor cost
6,000 and Darwin paid 30,000 for the shipment to Inigo Corp. On May 20, 2030, 36 units were sold
and the consignee submitted an account sales, and remitted the balance due to Darwin Corp. in the
amount of 279,000 after deducting the following charges:
Commission, 15% of selling price
Selling expenses
Delivery and installation of items sold
?
18,000
9,000
16. How much is the total consignment sales?
a. 360,000
b. 40,800
c. 216,000
d. 328,235
17. How much is the cost of inventory on consignment in the hands of Inigo Corp?
a.
b.
c.
d.
174,000
144,000
216,000
156,000
18. How much is the net profit in the consignment sales?
a.
b.
c.
d.
33,000
45,000
50,000
63,000
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Numbers 19 and 20
Dela Cruz Company is a dealer of air conditioners. For the period May 1, 2030, Dela Cruz Company
sold 5 units of air conditioners at a total selling price of 90,000 and total cost of 59,800 were sold to
Mr. Rusty. Dela Cruz Company granted an allowance of 10,000 for Mr. Rusty’s used air conditioner as
trade-in, which has a current market value of 12,000. The payment terms were as follows: 20% of the
selling price after deducting the allowance; the rest payable in 10 months starting June 1, 2030.
After six months of paying, Mr. Rusty defaulted in the payment of December 1, 2030. The five units of
air conditioners were repossessed and it would require 2,000 reconditioning cost for each air
conditioner before it could be resold for 6,000 each. A 15% gross profit rate was usual from the sale of
used equipment. Operating expenses, exclusive of loss on repossession, amounted to 5,380.
19. How much is the total realized gross profit on installment sales?
a.
b.
c.
d.
23,240
23,016
19,040
22,283
20. How much is the Net income for 2030?
a.
b.
c.
d.
16,496
16,720
12,520
15,763
Suggested Answers:
1. C
6. D
11. C
16. A
2. B
7. A
12. A
17. D
3. C
8. B
13. B
18. B
4. C
9. A
14. B
19. A
5. D
10. D
15. A
20. B
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