Junior Philippine Institute of Accountants
Accountants
College of Business Administration
University of the East - Caloocan
Qualifying Exam Reviewer 2017
Advanced Financial Accounting and Reporting 1
1. The following methods may be used for accounting for instalment sales except:
a. Cost recovery method
b. Gross profit realization method
c. Installment method
d. Cost to cost method
2. Under cost recovery method for accounting of 5 year instalment sale, the realized gross
profit for the second year is
a. Total collections multiplied by the gross profit rate.
b. Total collections multiplied by the gross profit rate less realized gross profit for
the first year.
c. Collections for the first year multiplied by the gross profit rate.
d. Zero
3. Gain or loss or repossession is computed by:
a. Fair market value of the repossessed item less instalment receivable.
b. Fair market value of the repossessed item less deferred gross profit.
profit.
c. Fair market value of the repossessed item less unrecovered cost.
d. Fair market value of the repossessed item less reconditioning cost.
4. Realized gross profit may be computed by using the following formula:
i.
(Deferred gross profit beginning/gross profit rate) – instalment accounts
receivable end
ii.
(Realized gross profit/Gross profit rate) + Installment accounts receivable
receivabl e end –
Installment accounts receivable beginning
a.
b.
c.
d.
Both formula may be used
Both formula cannot be used
Only the first formula may be used
Only the second formula may be used
5. Sanghaya Company began operating on January 1, 2016 and appropriately uses the
instalment method of accounting. The following data are available for 2016 and 2017:
Installment sales
Cash collections from:
2016 sales
2017 sales
Gross profit on sales
2016
P1,300,000
2017
P1,600,000
300,000
400,000
500,000
30%
20%
The realized gross profit for 2017 is:
a. 150,000
b. 230,000
c. 80,000
d. 70,000
6. Arellano Company, which began operations on January 2016, appropriately uses
instalment method of accounting. The following information pertains to Arellano
operations for the year 2016:
Instalment sales
Regular sales
Cost of instalment sales
Cost of regular sales
General and administrative expenses
Collection on instalment sales
P500,000
300,000
250,000
150,000
50,000
100,000
In its December 31, 2016 balance sheet, what amount should Arellano report as
deferred gross profit?
a. 200,000
c. 75,000
b. 250,000
d. 125,000
7. Jackson Company sells appliances on the instalment basis. Below are information for
the past three years:
2016
2015
2014
Installment sales
P750,000
P600,000
P400,000
Cost of sales
450,000
375,000
260,000
Collections on:
2016 installment sales
2015 installment sales
2014 installment sales
275,000
180,000
175,000
240,000
120,000
150,000
The realized gross profit in 2016 on collections of 2016 installment sales was:
a. 108,000
c. 221,000
b. 110,000
d. 221,500
8. Contract cost of a construction contract comprise all of the following except
a. Costs that directly relate to specific contract.
b. Costs that are attributable to contract activity in general and can be allocated to
the contract.
c. Such other cost that are specifically chargeable to customer under the terms of
contract
d. General administration costs for which reimbursement is not specified in the
contract.
9. The percentage of completion method of inventory valuation of long term construction
contract
a.
b.
c.
d.
Recognizes income upon completion of work
Recognizes income based on collection billings
Recognizes income based on the progress of work
Does not recognize income at the balance sheet
10. 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 to ratio of the cost incurred during
the year to the over the
a. Total cost incurred to date
b. Total estimated cost
c. Unbilled portion of the contract price
d. Total contract price
11. The following statements are true regarding percentage of completion except
a. It is used when the outcome of the construction contract cannot be estimated
reliably. That is, the estimate of cost to complete and the extent of progress
toward completion of long term construction contract are reasonably dependable.
b. Gross profit is recognized as construction progress.
c. It is used when the outcome of the construction contract can be estimated
reliably. That is, the estimate of cost to complete and the extent of progress
toward completion of long term construction contract are reasonably dependable.
d. Gross profit recognized for the period is computed by deducting the gross profit
recognized in the preceding period.
12. Chase Company uses the percentage of completion in recognizing revenue. During
2016, information on a construction project was
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 in 2016 is:
a. 50,000
b. 17,000
c. 0
d. 67,000
13. On May 1, 2015, McLean Construction Company entered into a fixed price contract to
construct an apartment building for P3,000,000. McLean appropriately accounts for this
contract under the percentage of completion method. Information as of December 31
relating to the contract is as follows:
2015
2016
Percentage of completion
20%
60%
Total estimated costs at completion
P2,250,000
P2,400,000
Income recognized
150,000
360,000
What is the amount of contract costs incurred during the year 2016?
a. 1,440,000
c. 1,350,000
b. 990,000
d. 1,080,000
14. The following data relate to a construction job started by Adliwa Co. during 2016:
Total contract price
Actual cost incurred during 2016
Estimated remaining costs
Billed to customer during 2016
Received from customer during 2016
P 300,000
60,000
120,000
90,000
30,000
Under the percentage of completion method, how much should Adliwa recognize as
gross profit for 2016?
a. 120,000
c. 130,000
b. 40,000
d. 60,000
15. Initial franchise fee
a. Represents continuous payment to the franchisor for providing specific future
services.
b. Are usually based on the operation of the franchises
c. May be immediately in cash or for an extended period of time
d. Is the payment for the continuous use of intangible rights by the franchise
16. Substantial performance by the franchisor occurs when the following conditions are met
except:
a. The franchisee is not obligated in any way to refund cash already received.
b. The franchisor is not obligated in any way to refund cash already received.
c. No other material conditions or obligations exist.
d. The initial services required of the franchisor by contract or otherwise have been
substantially performed.
17. Valdez Inc. grants a franchise to Hedge for an initial franchise fee of P1,000,000. The
contract provides that Valdez has the option, within one year, to acquire the franchisee’s
business and it seems certain that Valdez will exercise the option. How should he initial
franchise fee be recorded in Valdez Inc. books?
a. Realized revenue
b. Extraordinary revenue
c. Deferred revenue to be amortized
d. Deferred and treated as reduction in Valdez Inc investment.
18. On June 1, 2016, Hiyas Co. paid P15,000 for the insurance of consigned goods, while in
transit, shipped to a consignee, and P12,000 for the freight. In addition, Hiyas advanced
P5,000 as part of the commission that will be due when the consignee sells the goods.
The consigned goods cost Hiyas P75,000 and will be sold for a total amount of P80,000.
What is the total amount of inventory that Hiyas should report for the consigned goods
on June 1, 2016?
a. 102,000
c. 87,000
b. 107,000
d. 92,000
19. On November 13, 2016, Adliwa Co. consigned 40 freezers to Hirayag Co. for sale at
P8,000 each and paid P400 in transportation costs. On December 30, 2016, Hirayag
reported the sale of 15 freezers and remitted P6,500. The remittance net of the agreed
15% commission. What amount should Adliwa recognize as consignment sales revenue
for 2016?
a. 113,500
c. 113,350
b. 119,850
d. 120,000
20. On August 12, 2016 Stark Company received a shipment of merchandise with a selling
price of P150,000 from Tully Company. The consigned goods cost Tully P100,000 and
freight charges of P1,200 had been paid to ship the goods to Stark.
The consignment agreement provided for a sale of merchandise on credit with the terms
of 2/10, n/30. The 15% commission is to be based on the accounts receivable collected
by the consignee. Cash discounts taken by the customers, expenses applicable to
goods on consignment and any cash advanced to the consignor are deductible from the
remittance by the consignee.
Stark Company advanced P60,000 to Tully Company upon the receipt of shipment.
Expenses of P8,000 was paid by Stark. By September 2016, 70% of the shipment has
been sold and 80% of the resulting accounts receivable had been collected, all within the
discount period. Remittance of the amount due was made on September 30, 2016.
The cash remitted by Stark Company is:
a. 1,720
b. 22,300
c. 23,400
d. 61,720
21. It is the contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require the unanimous consent of the
parties sharing control.
a. Joint control
b. Joint undertaking
c. Joint operation
d. Joint venture
22. It is an entity that participates in a join arrangement, regardless of whether that entity
has a joint control of the arrangement.
a. Partner
b. Party to a joint arrangement
c. Joint operator
d. Joint venture
23. Which of the following is a characteristic of a joint arrangement?
a. The parties are bound by a contractual arrangement only.
b. The contractual arrangement gives two or more parties joint control over the
arrangement only
c. The parties are bound by a contractual arrangement and contractual
arrangement gives two or more parties joint control over the arrangement.
d. A joint arrangement is neither a joint operation nor joint venture.
24. IFRS 11, Joint Arrangement, provides that the classification of the arrangements will
require entities to apply judgment when assessing their rights and obligations arising
from the arrangement by considering the following except
a. The terms agreed by the parties in the contractual arrangements.
b. The structure and legal form of the arrangement.
c. When structured in a legal entity, the choice between proportionate consolidation
and the equity method.
d. When relevant, other facts and circumstances.
25. The Lualhati Home Company ships and bills merchandise to its provincial branch at
cost. The branch carries its own accounts receivables and makes its own collections.
The branch also pays its expense.
Debit
Cash
Lualhati Home Co. Current
Shipments from Lualhati Home Co.
Accounts receivable
Expenses
Sales
Total
December 31 Inventory
Credit
P11,900
90,000
P120,000
62,500
8,100
202,500
112,500
202,500
30,000
Compute the net profit of the branch and the Branch Current Account in the home office
books.
a. 22,500; 90,000
c. 14,400; 104,400
b. 21,300; 134,400
d. 14,400; 90,000
26. On December 31, 2016, the Investment in Branch on the home office’s books has a
balance of P102,000. In analyzing the activity in each of these accounts for December,
you find the following differences:
i.
A P12,000 branch remittance to the home office initiated on December, 27, 2016
was recorded on the home office books on January 3, 2017
ii.
A home office inventory shipment to branch on December 28, 2016 was recorded
by the branch on January 4, 2016; the billing of P24,000 was at cost.
iii.
The home office incurred P14,400 of advertising expenses and allocated P6,000
of this amount to the branch on December 15, 2016.the branch has not recorded
this transaction.
iv.
A branch customer erroneously remitted P3,600 to the home office. The home
office recorded this cash collection on December 23, 2016. Meanwhile, the
branch has not made any entry.
v.
Inventory costing P51,600 was sent to the branch by the home office on
December 10, 2016. The billing was at cost but the branch recorded this
transaction at P40,800.
Compute the unadjusted balance of the Home Office account and adjusted balance of
the reciprocal account respectively.
a. 76,800; 114,000
b. 52,800; 93,600
c. 151,200; 139,200
d. 52,800; 90,000
27. X Ambassadors Inc. has several branches. Goods costing P10,000 were transferred by
the head office to Cebu Branch with the latter paying P600 for freight cost.
Subsequently, the head office authorized Cebu Branch to transfer the goods to Davao
Branch for which the later was billed for the P100,000 cost of the goods and freight
charge of P200 for the transfer. If the head office had shipped the goods directly to
Davao Branch, the freight charge would have been P700. The P100 difference in freight
cost would be disposed of as follows:
a. Considered as savings
b. Charged to Cebu Branch
c. Charged to Davao Branch
d. Charged to the Head Office
28. Gotham Company opened its Starling Branch on January 1. Merchandise shipments
from home office during the month, billed at 120% of cost, is P125,000. Branch returned
damaged merchandise worth P15,620. On January 31, the branch reported net loss of
P2,270 and an inventory on P84,000. What is the net income (loss) of the branch to be
taken up in the books of the Home Office?
a. (1,690)
c. (2,270)
b. 6,500
d. 1,960
29. The Caloocan Branch of Manila Corporation submitted the following trial balance as of
June 30, 2016:
Debit
Credit
Cash
28,600
Accounts receivable
173,800
Shipments from home office
462,000
Home office current
324,500
Sales
369,600
Expenses
29,700
Total
694,100
694,100
Caloocan reported an ending inventory of P138,600. Shipments are billed at a mark-up
of 40% on cost. What is the real net income of Caloocan branch?
a. 70,600
c. 100,000
b. 92,400
d. 108,900
30. An old refrigerator was accepted as a tr ade in for a new refrigerator with a sales of price
of P8,000 and a cost price of P5,320. It was estimated that the old refrigerator could be
sold for P4,000 after 10% commission, cost to recondition of P600 and a normal profit of
10% of the resale price. The old refrigerator was accepted in lieu of a down payment of
P3,000. Additional collections in cash amounted to P1,500. Compute for the over(under)
allowance in trade in.
a. 400
c. 1,120
b. 720
d. 320
31. Garrison, Inc. started operation at the beginning of 2015, selling home appliances
exclusively on the instalment basis. Data for 2015 and 2016 follows:
2015
2016
Instalment sales
P600,000
P750,000
Cost of instalment sates
420,000
450,000
2015 instalment accounts, end
285,000
22,500
2016 instalment accounts, end
300,000
On May 31, 2016, a 2015 installment account of P37,500 was defaulted and the
appliance was repossessed. After reconditioning at a cost of P750, the repossessed
appliance would be priced to sell for P30,000
The gain or loss on repossession amounted to
a. 3,000
b. (9,000)
c. 9,000
d. (3,750)
32. 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 practice among entities and industries.
33 DDS Inc. awarded its franchise for Surigao City to Palatable Foods for a total fee of
P250,000, payable P50,000 at the time the contract is signed and the balance in two
equal instalments after each year following the signing date. The agreement was signed
at the end of 2016 and it provided among others, that in the event the first year’s
operation proved to be unprofitable, the franchise may be voided. So far, no services
has yet been performed. In 2016, DDS would report franchise fee of
a. 0
c. 150,000
b. 50,000
d.. 250,000
34 On September 1,2016, Moffat Company entered into franchise agreements. The
agreement required an initial fee payment of P700,000 plus four P300,000 payments
due every four months, the first payment due on December 31, 2016. The market
interest rate ia 12%. The initial deposit is refundable until substantial performance has
been completed. The following table describes the agreement:
Probability of full collection
Likely
Services performed by
franchisor on Dec. 31,
2016
Substantially
Total cost incurred to Dec.
31, 206
P700,000
The present and future value tables of 4% for four periods were as follows:
Present value of P1
0.8548
Present value of an ordinary annuity of P1
3.6299
Future value of P1
1.1699
Future value of an ordinary annuity of P1
4.2465
What amount of net income is to be reported in 2016, assuming P1,000,000 was
received from the franchisee during the year?
a. 1,088,970
b. 1,788,970
c. 1,132,529
d. 1,432,379
35. ARGUS Company consigned five computer equipments, with cost of P8,000 each to the
Waller Computers which was to sell these goods for the account and risk of the former
for a commission of 15% of the selling price. ARGUS Company paid trucking cost of
P2,000 on the shipment while Waller Computers paid P3,200 on the freight of the
shipment.
On the last day of the year, Waller Computers reported thatit sold three of the
computers, two for cash at P15,000 each and one on credit for P18,000 of which 25%
was collected as a downpayment. Waller Computers remitted all cash due.
The amount remitted by Waller Computers is
a. 13,500
b. 24,100
c. 34,500
d. 37,600
ANSWER KEY
1. D. Cost to cost method
2. D. Zero
3. C. Fair market value of the repossessed item less unrecovered cost.
4. B. Both formula cannot be used
5. B. 230,000
6. A. 200,000
7. B. 110,000
8. D. General administration costs for which reimbursement is not specified in the contract.
9. C, Recognizes income based on the progress of work
10. B. Total estimated cost
11. A.
12. A. 50,000
Construction in progress, 2016
Accumulated construction expenses
Prior profit recognized (122,000-105,000)
Profit, 2016
13. B. 990,000
Cost incurred up to 2016 (2,400,000 x .60)
Cost incurred up to 2015 (2,250,00 x .20)
14. B. 40,000
Contract price
Actual cost during the year
Estimated remaining costs
Total estimated gross profit
Percentage of completion [60,000/(120,000+60,000)]
364,000
(297,000)
(17,000)
A. 50,000
1,440,000
(450,000)
B. 990,000
300,000
(60,000)
(120,000)
120,000
1/3
B. 40,000
15. C. May be immediately in cash or for an extended period of time
16. D. The initial services required of the franchisor by contract or otherwise have been
substantially performed
17. D. Deferred and treated as reduction in Valdez Inc investment
18. A. 102,000
19. D. 120,000
20. A. 1,720
Gross collections (150,000 x .7 x .8)
84,000
Discount
(1,680)
Net collection
82,320
Expenses
(8,000)
Commission (84,000 x .15)
(12,600)
Advances
(60,000)
Cash remittance
A. 1,720
21. A. Joint control
22. B. Party to a joint arrangement
23. C. The parties are bound by a contractual arrangement and contractual arrangement
gives two or more parties joint control over the arrangement.
24. C. When structured in a legal entity, the choice between proportionate consolidation and
the equity method
25. C.14,400; 104,000
Sales
Cost of goods sold
Shipments from home office
Ending inventory
Gross profit
Expenses
Net income
112,500
120,000
(30,000)
Unadjusted Lualhati Home Co. Current
Net income of the branch
Adjusted Lualhati Home Co. Current/Branch Current
(90,000)
22,500
8,100
C. 14,400
90,000
14,400
C. 104,400
26. D. 52,800; 90,000
Unadjusted balance
Branch remittance not recorded by home office
Shipments not recorded by the branch
Unrecorded branch expenses
Customer’s remittance to home not recorded by
the branch
Erroneous recording of branch shipments
(51,600-40,800)
Adjusted balances
Investment in
Branch Account
102,000
(12,000)
Home Office
Current
D. 52,800
24,000
6,000
(3,600)
10,800
90,000
D. 90,000
27. D. Charged to the Head Office
28. D. 1,960
Net loss per branch books
Overvaluation of cost of goods sold
Beginning inventory
Shipments
Returns
Cost of goods available for sale at billed price
Ending inventory at billed price
Cost of goods sold at billed price
Multiplied by mark up
Adjusted net income
(2,270)
125,000
(15,620)
109,380
(84,000)
25,380
.20/1.20
4,230
D. 1,960
29. D. 108,900
Sales
Cost of goods sold
Shipments from home office [462,000 x (100/140)]
Ending inventory [(138,600 x (100/140)]
Gross profit
Expenses
Real net income
369,600
330,000
(99,000)
(231,000)
138,600
(29,700)
D. 108,900
30. A. 400
31. B. (9,000)
Estimated selling price after reconditioning cost
Reconditioning cost
Normal profit (30,000 x .40*)
Fair market value of repossessed machine
Unrecovered cost
Instalment accounts receivable – 2015, unpaid
Deferred gross profit – 2015 (37,500 x .30**)
Loss on repossession
* Gross profit rate, 2016 [(750-450)/750]
** Gross profit rate, 2015 [(600-420)/600]
30,000
(750)
(12,000)
17,250
37,500
(11,250)
(26,250)
B. (9,000)
40%
30%
32. C. Recognizes and measures revenue based on changes in assets and liabilities
33. A. 0
34. C. 1,132,529
Downpayment
PV of instalment (300,000 x 3.6299)
Cost of franchise
Gross profit
Interest income (1,088,970 x .04)
Net income
35. B. 24,100
Cash sales (15,000 x 2)
Downpayment (18,000 x .25)
Freight paid by Waller
Commission [15,000 + 15,000 + 18,000) x .15
Remittance
700,000
1,088,790
(700,000)
1,088,970
43,559
C. 1,132,529
30,000
4,500
(3,200)
(7,200)
B. 24,100