ADVANCED FINANCIAL ACCOUNTING AND REPORTING (Quiz 5)
1. Types of franchising arrangements include all of the following except
a. service sponsor-retailer c. manufacturer-wholesaler
b. wholesaler-service sponsor d. wholesaler-retailer
2. Some of the initial franchise fee may be allocated to
a. continuing franchise fees
b. interest revenue on the future instalments
c. options to purchase the franchisee's business
d. All of these may reduce the amount of the initial franchise fee that is recognized as
revenue
3. Continuing franchise fees should be recorded by the franchisor
a. as revenue when earned and receivable from the franchisee
b. as revenue when received
c. in accordance with the accounting procedures specified in the franchise agreement
d. as revenue only after the balance of the initial franchise fee has been collected
4. Occasionally a franchise agreement grants the franchisee the right to make future bargain
purchases of equipment or supplies. When recording the initial franchise fee, the franchisor
should
a. increase revenue recognized from the initial franchise fee by the amount of the expected future
purchases
b. record a portion of the initial franchise fee as unearned revenue which will increase the selling price
when the franchisee subsequently makes the bargain purchases
c. defer recognition of any revenue from the initial franchise fee until the bargain purchases
are made d. None of these
5. A franchise agreement grants the franchisor an option to purchase the franchisee's business. It is
probable that the option will be exercised. When recording the initial franchise fee, the franchisor
should
a. record the entire initial franchise fee as a deferred credit which will reduce the franchisor's
investment in the purchased outlet when the option is exercised
b. record the entire initial franchise fee as unearned revenue which will reduce the amount of cash paid
when the option is exercised
c. record the portion of the initial franchise fee which is attributable to the bargain purchase option as a
reduction of the future amounts receivable from the franchisee
d. None of these
6. Jolly Inc. enters into an agreement with Donald, giving the latter full authority to operate as its
franchisee over 10-year period. An initial franchise fee of P2,750,000 was stipulated in the contract
and was promptly paid by Donald during the year.
Assuming Jolly was able to perform the initial services during the year, what is the franchise
revenue to be recognized by Jolly in its year-end income statement?
a. P 0 b. P137,500 c. P275,000 d. P2,750,000
7. Wynne Inc. charges an initial franchise fee of $1,380,000, with $300,000 paid when the agreement is
signed and the balance in five annual payments. The present value of the future payments, discounted
at 10%, is $818,808. The franchisee has the option to purchase $180,000 of equipment for $144,000.
Wynne has substantially provided all initial services required and collectibility of the payments is
reasonably assured. The amount of revenue from franchise fees is
a. $ 300,000 b. $1,082,808 c. $1,118,808 d. $1,380,000
8. Revenue is recognized by the consignor when the
a. goods are shipped to the consignee
b. consignee receives the goods
c. consignor receives an advance from the consignee
d. consignor receives an account sales from the consignee
9. Goods on consignment should be included in the inventory of
a. the consignor but not the consignee
b. both the consignor and the consignee
c. the consignee but not the consignor
d. neither the consignor nor the consignee
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In 2012, Free Shop Wholesalers transferred goods to a retailer on consignment. The goods costs P450,000 and
normally are sold at a 50% markup. Freeshop paid P5,000 for the cost of shipment while the retailer paid
P3,800 for the advertising and P2,800 for the cost of freight out. The parties agreed that Free Shop
Wholesalers would reimburse the cost of advertising and freight paid by the retailer. In 2006, the retailer at the
normal markup sold 60% of the merchandise , and the balance of the merchandise was returned to Free Shop.
The retailer withheld a 15% commission from payment plus the amount reimburseable by the consignor
10. The amount remitted by the retailer to the consignor is
a. P340,450 b. P344,250 c. P405,000 d. P337,650
11. The cost of inventory returned to Free Shop
a. P183,680 b. P180,000 c. P182,000 d. Answer not given
12. The net income earned by the consignor on the above shipment is
a. P64,650 b. P62,650 c. P405,000 d. P61,530
On May 15, 20x4 AA Sales Company received a shipment of merchandise with a selling price of P15,000 from
PC Company. The consigned goods cost PC Company P10,000 and freight charges of P120 had been paid to
ship the goods to AA Sales Company.
The consignment arrangement provided for a sale of merchandise on credit with terms of 2/10, n/30. The 15%
commission is to be based on accounts receivable collected by the consignee. Cash discounts taken by the
customers, expenses applicable to goods on consignment and any cash advanced to the company are
deductible from the remittance by the consignee.
AA Sale Company advanced P6,000 to PC Company upon receipt of the shipment. An expense of P800 was paid
by AA. By June 20x4, 70% of the shipment had 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 June 30, 20x4
13. The cash remitted by AA Sales Company
a. P172 b. P800 c. P972 d. P2,340
14. The profit on consignment is
a. P750 b. P873 c. P1,188 d. P1,428
15. The cost if unpaid units in the hands of AA is
a. P3,186 b. P3,036 c. P1,500 d. None of the above
16. The first step in the process for revenue recognition is to (PFRS 15)
a. determine the transaction price
b. identify the contract with the customer
c. allocate the transaction price to the separate performance obligation
d. identify the separate performance obligations in the contract
17. The transaction price
a. excludes discounts, volume rebates, coupons and free products or services
b. is the amount of consideration that a company expects to receive from a customer
c. excludes time value of money if the contract involves a significant financing component
d. does not consider non-cash consideration such as donations, gifts, equipment or labor
18. The transaction price for multiple performance obligations should be allocated
a. based on selling price from the company’s competitors
b. based on what the company could sell the goods for on a standalone basis
c. based on forecasted cost of satisfying performance obligation
d. based on total transaction price less residual value
A local newspaper called “Manila Today” charges an annual subscription fee of P1,350. Customer prepay their
subscriptions and receive 260 issues over a year. To attract more subscribers, the company offered new
subscribers the ability to pay P1,300 for an annual subscription that also would include a coupon to receive a
40% discount on a one hour ride through Rizal Park in a carabao-drawn carriage. The list price of a carriage
ride is P1,250 per hour. The company estimates that approximately 30% of the coupons will be redeemed.
19. How much revenue should BSA recognize upon receipt of P1,300 subscription price?
a. P 0 b. P 10,800 c. P12,500 d. P13,000
20. Based on #19, how many performance obligations exist in this contract?
a. 0 b. 1 c. 2 d. 3
21. The journal entry to recognize sale of 10 new subscriptions, clearly identifying the revenue or deferred
revenue associated with each performance obligation
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a. Cash P13,000 c. Cash P13,000 Deferred revenue - subscription P11,700 Deferred revenue –
coupon P13,000 Deferred revenue – coupon 1,300 d. Cash P13,000
b. Cash P13,000 Deferred revenue – subscription P11,700 Deferred revenue – subscription P13,000
Deferred revenue – coupon 1,300
22. Meyer and Smith is a full-service technology company. They provide equipment, and installation
service as well as training. Customer can purchase any product or service separately or as a bundled
package. Container Corporation purchased computer equipment, installation and training for a total cost of
P120,000 on March 15, 20x5. Estimated standalone fair values of the equipment, installation and training
are P75,000, P50,000 and P25,000, respectively. The transaction price allocated to equipment, installation
and training is
a. P75,000, P50,000 and P25,000 respectively
c. P120,000 for the entire bundle
b. P40,000, P40,000 and P40,000 respectively
d. P60,000, P40,000 and P20,000 respectively
23. Bella Pool Company sells prefabricated pools that cost P100,000 to customers for P180,000. The sales
price includes an installation fee, which is valued at P25,000. The fair value of the pool is P160,000. The
installation is considered a separate performance obligation and is expected to take 3 months to complete.
The transaction price allocated to the pool and the installation is:
a. P155,676 and P24,324 respectively
c. P180,000 and P25,000 respectively
b. P160,000 and P25,000 respectively
d. P138,378 and P21,622 respectively
24. On November 1, 20x7, Green Valley Farm entered into a contract to buy a P75,000 harvester from
John Dear. The contract required Green Valley to pay P75,000 in advance on November 1, 20x7. The
harvester (cost of P55,000) was delivered on November 30, 20x7. The journal entry for John Dear to
record the delivery of the equipment includes a
a. debit to Unearned Sales Revenue for P75,000
b. credit to Unearned Sales Revenue for P75,000
c. credit to Cost of Goods Sold for P55,000
d. debit to Inventory for P55,000
25. Marle Construction enters into a contract with a customer to build a warehouse for P850,000 on March
30, 20x5 with a performance bonus of P50,000 if the building is completed by July 31, 20x5. The bonus
is reduced by P10,000 each week that completion is delayed. Marle commonly includes these
completion bonuses in its contracts and based on prior experience, estimates the following completion
outcomes:
Complete by Probability Complete by Probability July 31, 20x5 65% August 14, 20x5 5%
August 7, 20x5 25% August 21, 20x5 5% The transaction price for this transaction is
a. P895,000 b. P850,000 c. P552,500 d. P585,000
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