Multiple Choice Problems1. d – since there is parent and subsidiary relationship, any intercompany accounts are

eliminated from consolidated point of view.

2. a - [P90,000 + P36,000 + P10,000 – P45,000 = P91,000 total estimated amount available; P91,000 – (P4,500 + P10,000) = P76,500 estimated amount available for unsecured, non-priority creditors; P76,500 P90,000 = 0.85]

3. c – it is a partially secured liability

4. d – [(P1,110,000 – P780,000) + P960,000] – P210,000 = P1,080,000

5. b – P25,000 + [.30 x (P75,000 – P25,000)] = P40,000

6. d – (P555,000 – P390,000) + P480,000 = P645,000 – P105,000 = P540,000

7. b – P30,000 + [.30 x (P90,000 – P30,000)] = P48,000

8. c – [ P110,000 + (P150,000 – P110,000) x 40%] = P128,000

9. d

10. c – P60,000 + [(P120,000 + P6,000) – (P30,000 + P35,000) = P121,000

11. b - P20,000 + P80,000 + [P170,000 – (P150,000 + P7,000)] = P113,000 – (P10,000 + P10,000) = P93,000

12. c – P93,000/P121,000 = 77% rounded.

13. a Net Free Assets: (P700,000 – P300,000) + P70,000 + P230,000 = P700,000 – P140,000 = P560,000 Total Unsecured Creditors without priority: (P400,000 – P300,000) + P600,000 = P700,000

14. c - Pension P10,000 + Salaries P35,000 (= P10,600 + P10,950 + P10,950 + P2,500) + Taxes P80,000 + Liq. expenses P40,000 = P165,000.

15. c Statement of Realization and Liquidation

Assets to be Realized…………. P 1,375,000 Assets Realized…………………..P 1,200,000 Assets Acquired……………….. 750,000 Assets Not Realized…………… 1,375,000 Liabilities Liquidated…………. 1,875,000 Liabilities to be Liquidated…. 2,250,000 Liabilities Not Liquidated……. 1,700,000 Liabilities Assumed………….. 1,625,000 Supplementary charges/ Supplementary credits……… 2,800,000 debits……………………… 3,125,000

P 8,825,000 P 9,250,000

Net Gain……………………….. P 425,000

16. No requirement

17. c

Total Liabilities (refer to Liabilities not liquidated–No. 14)…………………… P1,700,000 +: Stockholders’ Equity (P1,500,000 – P500,000)………………………………… 1,000,000 Total LSHE = Total Assets…………………………………………………………… P 2,700,000 -: Noncash assets (refer to Assets not realized-No. 14)……….……………… 1,375,000 Cash balance, ending………………………………………………………………P1,325,000

18. P440,000 Total Free Assets:

Fully secured: Land and building: P650,000 – (P300,000 + P20,000) = P 330,000

Free assets:Cash 10,000 Equipment 100,000 P440,000

Or,Total estimated proceeds P910,000 Less asset proceeds claimed by secured creditors: Notes payable and interest (from proceeds of receivables and inventory) P150,000 Mortgage payable and interest (from proceeds of land and building) 320,000 470,000Total available to unsecured claimants/total free P440,000

19. P410,000Total available to unsecured claimants/total free P440,000 Less distributions to unsecured claims with priority: Wages payable P 10,000 Taxes payable 20,000 30,000 Amount available for unsecured claims/net free assets P410,000

20. P640,000 = P260,000 + [(P50,000 + P100,000) – (P500,000 + 30,000), orUnsecured portion of notes payable and interest (P500,000 + P30,000 – P150,000) P380,000Accounts payable 260,000Total claims of unsecured creditors P640,000

21. 64.1%

Dividend to unsecured creditors P410,000 ÷ P640,000 = 64.1%

22. P320,000 = P300,000 + P20,000

23. P393,580Unsecured portion of notes payable and interest P380,000 Dividend on unsecured amount x 64.1% Amount received on unsecured portion P243,580 Proceeds from receivables and inventory 150,000 Total Received P393,580

Dividend to note holders: P393,580 ÷ P530,000 = 74.3%

24. P30,00025. P166,666 = P260,000 x 64.126. P910,247 = P320,000 + P393,580 + P30,000 + P166,666 (discrepancy of P247 due to

rounding-off)27. P230,000 Net free assets (No. 19) P410,000 Less: Unsecured creditors without priority (No. 20) 640,000

P230,00028. P340,000 = P910,000 – P1,250,000

29. P340,000, same with No. 28, since there are no unrecorded expenses liabilities)

30. P60,675 – you may the same procedure in Nos. 18 to 29 to solve this problem, the following is the formal presentation of statement of affairs

Estimated Net

Realizable Value

Estimated Amt Avail for

Unsecured Creditors

Estimated Gain or (Loss)on

LiquidationBook

Value AssetsAssets pledged with fully secured creditors:

98,500 Land and Bldg 92,800 22,200 (5,700)5,800 Investment in Calandir 15,000 4,625 9,200

Total 107,800Assets pledged with partially secured creditors:

41,000 Inventory 20,000 (21,000)43,000 Equipment 8,000 (35,000)

Free Assets: 1,850 Cash 1,850 1,850 021,200 Accounts Rec 17,000 17,000 (4,200)15,000 Note Rec 15,000 15,000 0

Estimated Amount Avail for unsecured creditors with and without priority 60,675Less unsecured creditors with priority (3,775)Estimated amounts for unsecured creditors without priority (Net Free Assets): Net Realizable Amount Avail 56,900

_______ Deficiency _______ 15,725 _______226,350 169,650 72,625 (56,700)

Estimated Estimated Unsecured AmountBook Liabilities Secured With Without

Value and Owners Equity Amount Priority PriorityFully Secured Creditors:

600 Accrued Mtg Interest 60070,000 Mortgage Payable 70,000

375 Accrued N/P Interest 37510,000 Note Payable 10,000

Total 80,975Partially SecuredCreditors:

50,000 Accounts Payable 28,000 22,000Unsecured Creditors withPriority:

3,775 Accrued Payroll 3,775Unsecured creditors withoutPriority:

40,625 Accounts Payable 40,625 10,00

0 Other Accrued Liabilities _______ 10,000

185,375 Totals 108,975 3,775 72,625 40,975 Owner Equity226,350

31. P56,900 – refer to No. 30 for computation32. P72,625 – refer to No. for computation33. Dividend - P56,900/P72,625 = P.78 – refer to No. 30 for further computation34. P80,975 – refer to No. 30 for computation 35. P45,160 = P28,000 + (P22,000 x 78%)36. P3,77537. P39,487.50 = 78% x (P40,625 + P10,000)38. P169,397.50 No. 34……………..P 80.975 No. 35…………….. 45,160 No. 36…………….. 3,775 No. 37…………….. 39,487.50

P169,397.50 (discrepancy around P250 plus due to rounding-off)

39. P15,725 – refer to No. 30 or P56,700, estimated net loss – P40,975, owners’ equity40. P56,700 – refer to No. 30 or P169,650 – P226,35041. P56,700 (same with No. 40 since there are no unrecorded expenses liabilities)42. P22,475

LiabilitiesUnsecured

Assets Fully Partial With Without Owners'Cash Noncash Secured Secured Priority Priority Equity

6/1/x5 Balances:1,850 224,500 80,975 50,000 3,775 50,625 40,975

Cash Receipts:Securities Sale

16,000 (5,800) 10,200

N/R Collected 15,000 (15,000) 0Equipment Sale

7,000 (43,000) (36,000)

Inventory Sale

22,000 (41,000) (19,000)

Cash Disbursements:Bank Loan (10,375

)(10,375

)Part Pyt-A/P (29,00

0)---------- --------- (50,00

0)------- 21,000 ----------

6/30 Balance 22,475 119,700 70,600 0 3,775 71,625 (3,825)

43. P119,700 – refer to No. 4244. P70,600 – refer to No. 4245. None – refer to No. 4246. P3,775 – refer to No. 4247. P71,625 – refer to No. 4248. (P3,825) deficit – refer to No. 4249. P150,900

Book Value Assets

Estimated Net

Realizable Value

Estimated Amount

Available for

Unsecured Creditor

Estimated Gain or

(Loss) on Liquidation

Assets pledged with fully secured creditors: 57,000 Accounts receivable (net) 45,000 12,600 (12,000)174,000 Land, plant and equipment (net) 150,000 77,400 (24,000)

Total 195,000Free assets:

6,000 Notes receivable 6,000 6,000 0900 Accrued interest receivable 900 900 0

90,000 Inventories (90,000 x 60%) 54,000 54,000 (36,000)Estimated amount available for

unsecured creditors with and without priority 150,900

Less unsecured creditors with priority (26,900)Estimated amounts for unsecured

creditors without priority: Net realizable amount available 124,000 Deficiency 26,000

327,900 Totals 255,900 150,000 (72,000)

Estimated Secured Amount

Estimated Unsecured Amount

With PriorityWithout Priority

Book Value Liabilities and Owners' Equity

Fully secured creditors: 3,600 Accrued interest 3,60069,000 Note payable 69,000

2,400 Accrued interest 2,40030,000 Note payable 30,000

Total 105,000Unsecured creditors with priority:

24,900 Wages payable 24,900

0 Administration fees – accountant’s fee 2,000Unsecured creditors without priority:

0 Accrued interest 018,000 Cash overdraft 18,000

6,000 Notes payable 6,000 126,000 Accounts payable -------- -------- 126,000

279,900 Totals 105,000 26,900 150,000 48,000 Owners' equity--see Note A327,900

Note A: Includes the effect of the P2,000 professional fee.

50. P124,000 – refer to No. 4951. P150,000– 52. 82.67% = P124,000/P150,00053. P105,00054. None55. P26,90056. P124,005 = P150,000 x 82.67%57. P255,900 = P72,000 + P26,900 + P124,005 (discrepancy of P5)58. P26,000 = (P72,000 + P2,000 unrecorded ) – P48,000 or P150,000 – P124,00059. P72,000 – refer to No. 49

60. P74,000 = P72,000, loss of realization of assets + P2,000 unrecorded expenses

Multiple Choice Problems1. b –

20x4: P500,000 x 30% = P 150,00020x5: P600,000 x 40% = 240,000 P390,000

2. d

Realized Gross Profit on Installment Sales in 20x6:20x4 sales: P10,000 x 22%P 2,20020x5 sales: P50,000 x 25% 12,50020x6 sales: P45,000 x P28,200 / (P28,200+P91,800) 10,575

P 25,275

Realized Gross Profit on Sales in 20x5 P 10,500Less: Realized Gross Profit in 20x5 for 20x5 sales: (P20,000 x 25%) 5,000Realized Gross Profit in 20x5 for 20x4 sales P 5,500Divided by: Collections in 20x5 for 20x4 sales P 25,000Gross Profit % for 20x4 sales 22%

3. a

Installment Sales Method: 20x3 Sales: P240,000 x 25/125P 48,00020x4 Sales: P180,000 x 28/128 39,375Realized Gross Profit on Installment SalesP 87,375

Cost Recovery Method:20x3 Cost: P480,000 / 1.25 P384,000Less: Collections in 20x3 140,000 Collections in 20x4 240,000Unrecovered Cost, 12/31/20x4 P 4,000

Under the cost recovery method, no income is recognized on a sale until the cost of the item sold is recovered through cash receipts. All cash receipts, both interest and principal portions, are applied first to the cost of the items sold. Then, all subsequent receipts are reported as revenue. Because all costs have been recovered, the recognized revenue after the cost recovery represents income (interest and realized gross profit). This method is used only when the circumstances surrounding a sale are so uncertain that earlier recognition is impossible.

4. a P0.

5. c

6. e, 20x6 – 0; 20x7 - 0Unrecovered costs,1/1/20x4 110,000Less: Collections 1/1//20x4 0 Add: Sales on account 15,000 Total 15,000 Less: 1/1/20x5 10,500 Collections in 20x4 __4,500Unrecovered costs,1/1/20x5 105,500 1/1//20x5 10,500

Add: Sales on account 30,000 Total 40,500 Less: 1/1/20x6 25,500 Collections in 20x5 15,000Unrecovered costs,1/1/20x6 90,500 1/1//20x6 25,500 Add: Sales on account 60,000 Total 85,500 Less: 1/1/20x7 40,500 Collections in 20x6 45,000Unrecovered costs,1/1/20x7 45,500 1/1//20x7 40,500 Add: Sales on account 24,000 Total 64,500 Less: 1/1/20x8 70,000 Collections in 20x7 ____-0-Unrecovered costs,1/1/20x8 45,500

7. b 20x4: P150,000 – (P568,620 x 10%) = P93,138. 20x5: (P568,620 – P93,138) x 10% = P47,548.

8. a – refer to No. 3 for discussion.Cost, January 1, 20x4 P 60,000Less: Collections including interest – 20x4 32,170Unrecovered Cost, December 31, 20x4 P 27,830

9. c (P3,600,000 – P2,400,000) ÷ P3,600,000 = 33 1/3% (P3,600,000 .20) + [(3,600,000 .80) 4/12)] = P1,680,000 P1,680,000 33 1/3% = P560,000.

10. b [(P3,600,000 .20) + (P3,600,000 .80 x 8/12] – P2,400,000 = P240,000.

11. b – refer to No. 3 discussion.Cost, January 1, 20x4…………………………………………………………….P 500,000Less: Collections including interest – 20x4……………………….P241,269 Collections including interest – 20x5……………………… 241,269 482,538Unrecovered Cost, December 31, 20x5……………………………………….P 17,462

12. b [(P1,400,000 – P980,000) ÷ P1,400,000] x P840,000 = P252,000.

13. c P300,000 + P50,000 = P350,000 P350,000 – P245,000 = P105,000 gross profit (30% gross profit rate)

(P300,000 – P100,000) x 30% = P60,000.

14. c P1,200,000 – P720,000 = P480,000 gross profit (40% gross profit rate) P480,000 – (P288,000 ×.4) = P364,800.

15. d – [P225,000 + (P120,000/40%)]

16. b (P36,000 ÷ 24%) + (P198,000 ÷ 30%) = P810,000.

17. d Installment Accounts Receivable, December 31, 20x5: DGP, 12/31/20x5 / GP%

20x4 Sales: P120,000/ 30% P 400,00020x5 Sales: P440,000/ 40% 1,100,000

P 1,500,000

18. cSale: Installment receivables 4,500,000 Inventory 3,600,000 Deferred gross profit 900,000Payment: Cash 500,000 Installment receivables 500,000 Deferred gross profit 100,000 Realized gross profit 100,000Balance Sheet: Installment receivables (4,500,000 – 500,000) P 4,000,000 Deferred gross profit (900,000 – 100,000) 800,000 Installment receivables (net) P 3,200,000

19. b12/15/x5 Cash [(P4,500,000 – P500,000)/2 = P2,000,000] 2,000,000 Installment receivables 2,000,000 Deferred gross profit [P2,000,000 x (900/4,500)] 400,000 Realized gross profit 400,000

Balance sheet: Deferred gross profit: P800,000 400,000 = P400,000 Realized gross profit of P400,000 would be reported in the income statement.

20. No requirement

21. c - P300,000 (20x4 sales) + P500,000 (20x5 sales) = P800,000

22. a  Gross profit % = (P900,000 P450,000)/P900,000 = 50% 20x4: 50% x P300,000 = P150,000

23. c 20x4 sales: Gross profit % = (P900,000 P450,000)/P900,000 = 50% 50% x P300,000 received in 2010 = P150,000

20x5 sales: Gross profit % = (P1,500,000 P900,000)/P1,500,000 = 40% 40% x P400,000 received in 2010 = P160,000 Total: P150,000 + P160,000 = P310,000

24. c 20x4 Sales: Installment receivables = P900,000 – P300,000 (x4 collections)

- P300,000 (x5 collections) = P 300,000Deferred gross profit = P450,000 – P150,000 (x4 collections)

- P150,000 (x5 collections) = 150,000Net installment receivable for 20x4 sales = P 150,000

20x5 Sales: Installment receivables = P1,500,000 – P500,000 (x5 collections)= P1,000,000Deferred gross profit = P600,000 – P200,000 (x5 collections) = 400,000Net installment receivable for 20x5 = P 600,000

Total = P 750,000

25. a - Costs not yet recovered.26. c

Cost, 20x4 P 30,000 20x4 cost recovery (20,000) Remaining cost, 12/31/x4 P 10,000

20x5 collection 15,000 Gross profit – 20x5 P 5,000

27. d   Cost P 30,000 20x4 cost recovery ( 20,000) 20x5 cost recovery ( 10,000) Remaining cost 0 The entire P20,000 payment received in 20x6 is recognized as gross profit.

28. d Sale: Installment receivables 55,000

Inventory 30,000Deferred gross profit 25,000

Payment: Cash 20,000Installment receivables 20,000

Balance Sheet:Installment receivables P55,000 – 20,000 P 35,000Deferred gross profit ( 25,000)Installment receivables (net) P 10,000

29. a

Sale: Installment receivables 55,000Inventory 30,000Deferred gross profit 25,000

2008: Cash 20,000Installment receivables 20,000

Cash 15,000Installment receivables 15,000

2009: Deferred gross profit 5,000Realized gross profit 5,000

Balance Sheet:Installment receivables P 20,000Deferred gross profit ( 20,000)Installment receivables (net) P 0

30. c Note: Since the collectibility of the note is reasonably assured, the accrual basis should be applied. Therefore,

full gross profit is recognized in the year of sale. Gross profit on sale: Sales (P187,500 x 4.3553) P816,619 Cost of sales 637,500 Gross profit (realized) P179,119

31. c Total Income for 20x4: Gross profit (realized) – No. 51 Interest revenue—4 months: P816,619 x 10% x 4/12..

P179,119 _ 27,221

Total income for 20x4 P206,340

32. b Total Income for 20x5: Gross profit (realized) – already recognized in 20x4 P 0 Interest revenue – 8 months in Year 1 (P81,662* x 8/12) P 54,441 4 months in Year 2 (P71,078* x 4/12) 23,693 78,134

Total Income for 20x5 P 78,134

*Schedule of Discount Amortization/Interest Income computation:

(1) (2) (3) (4)Face Net Discount

Amount Unamortized Amount Amortization Year of Note 1 Discount (1) – (2) 10% (3)

1 P1,125,000 P308,3813 P 816,6192 81,6625

2 937,500 226,7194 710,781 71,078

1 P187,500 x 6 years = P1,125,000; every year P187,500 should be deducted on the previous balance. 2 The present value of sales/receivables: P187,500 x 4.3553 = P816,619 3 P1,125,000 – P816,619 4 (2) – (4) 5 Discount amortization give rise to recognition of interest revenue/income.

33. a

Note: Since the collectibility of the note cannot be reasonably assured, the installment sales method should be applied. Also, if the there is high degree of uncertainty as to collectibility, the cost recovery method may be used.

Installment sale: Gross profit (P179,119/P816,619) 22% (rounded)

Gross profit earned in 20x4 (P0* x 22%) P 0* no collections in 20x4.

34. a Total Income for 20x4: Gross profit earned in 20x4 (P0* x 22%) P 0 Interest revenue (refer to No. 52 27,221 Total income for 20x4. P 27,221

35. d Collections in 20x5 (August 31, 20x5) P 187,500 Less: Interest revenue/income from September 1, 20x4 to August 31, 20x5 (refer to schedule of amortization in No. 53) 81,662 Collection as to principal P 105,838 x: Gross Profit % (refer to No. 54) 22% Gross profit realized in 20x5 P 23,284 Add: Interest revenue/income for 20x5 (refer to No. 53) 78,134 Total Income for 20x5 P 101,418

36. d (P2,000,000 – P1,500,000) ÷ P2,000,000 = 25%

37. a (P800,000 x .25) – P90,000 = P110,000,

38. d P700,000 x .25 = P175,000; P500,000 x .25 = P125,000.

39. a (P3,000,000 – P2,100,000) ÷ P3,000,000 = 30%.

40. d (P1,200,000 .30) – P120,000 = P240,000.

41. a P1,050,000 .30 = P315,000P900,000 – [(P1,200,000 + P1,050,000) .30] = P225,000.

42. b P24,000 – P7,200 = P16,800

P16,800 – P13,500 = P3,300 loss.

43. d [P5,600 x (1 – .40)] – (P2,100 – P140) = P1,400.44. d P8,400 – P5,880 = P2,520

(P3,000 – P300) – P2,520 = P180 gain.45. d 20x4: P24,000 – P0 = P24,000 collections x 39%P

9,360

20x5: P300,000 – P60,000 – P10,000 defaults = P230,000 x 42% 96,600

20x6: P480,000 – P320,000 – P5,000 defaults = P155,000 x 40% 62,000

Realized gross profit on installment sales in 20x6 P167,960

46. b 20x5 Sales 20x6 Sales Net

Market Values P 4,500 P 3,500 Less: Unrecovered Cost:

IAR, unpaid balances P10,000 P 5,000 x: Cost Ratio 50% 5,800 60% 3,000

Gain (loss) P (1,300) P 500 P( 800) 47. a

(1) Gain or Loss on repossession:Estimated selling price P 1,700

Less: Normal profit (37% x P1,700) 629

Market value of repossessed merchandise P 1,071

Less: Unrecovered Cost:

Unpaid balance – 20x3 P 2,200

Less: DGP – x3 (P2,200 x34%) 748 1,452

Loss on repossessionP( 381)

(2) Realized gross profit on installment sales:

20x2 Sales: (P24,020 – P 0) x 35% P 8,407.0

20x3 Sales: (P344,460 – P67,440 – P2,200) x 34% 93,438.8

20x4 Sales: (P602,000 – P410,090) x 37% 71,006.7

Realized gross profit on installment sales P 172,852.5

48. c

Deferred Gross Profit, end (12/312/20x4: IAR, end of 2004 x GP %)

20x2 Sales: P 0

20x3 Sales: (P67,440 x 34%. 22,929.6

20x4 Sales: (P410,090 x 37%) 151,733.3

P174,662.9 

49. d* Resale Value P 8,500Less: Normal profit for 20x6 - year of repossession [(P3,010,000 – P1,896,300)/P3,010,000] x 8,500 3,145Market Value of Repossessed Merchandise P 5,355Less: Unrecovered Costs – 20x5 Defaulted balance* (P27,000 – P16,000) P 11,000 Less: DGP [(P2,160,000 - P1,425,600)/P2,160,000] x P11,000 ___3,740 __7,260Loss on repossession P( 1,905)

Entry made:Inventory of RM* 11,000

IAR-20x5 11,000

Correct Entry (Should be):Inventory of RM (at MV) 5,355DGP-20x5 3,740

Loss on repossession 1,905IAR-20x5 11,000

Correcting Entry:DGP-20x5 3,740Loss on repossession 1,905

Inventory of RM 5,645**

50. c Installment Sales P 3,600,000 Less: Over-allowance: Trade-in allowance P1,500,000 Less: MV of Trade-in Merchandise:

Estimated Resale Price P 1,400,000 Less: Normal profit (25% x P1,400,000) 350,000

Reconditioning costs 150,000 900,000 600,000 Adjusted Installment Sales P 3,000,000 Less: Cost of I/S 2,500,000 Gross Profit P 500,000 Gross profit rate: P500,000/ P3,000,000 16 2/3% x: Collections –Trade-in merchandise (at MV) P 900,000 RGP on I/S in 20x4 P 150,000

51. c Trade-in allowance P43,200

Less: MV of trade-in allowance: Estimated resale price after reconditioning costs P36,000 Less: Reconditioning costs 1,800

Normal profit (15% x P36,000) 5,400 28,800Over-allowance P 14,400 Installment sales P122,400Less: Over-allowance 14,400Adjusted Installment Sales P108,000Less: Cost of Installment Sales 86,400

Gross profit P 21,600Gross profit rate: P21,600/P108,000 20%

Realized gross profit:Down payment P 7,200Trade-in (at market value) 28,800Installment collections:

(P108,000 – P28,800 – P7,200) / 10 mos. X 3 mos. 21,600Total collections in 2008 P 57,600x: Gross profit rate 20%

Realized gross profit P 11,520

52. d(Note: For financial accounting purposes, the installment-sales method is not used, and the full gross profit is recognized in the year of sale, because collection of the receivable is reasonably assured.)

Finley CompanyComputation of Income Before Income Taxes

On Installment Sale ContractFor the Year Ended December 31, 20x3

Sales P4,584,000Cost of Sales 3,825,000Gross Profit 759,000Interest Revenue (Schedule I) 328,320Income before Income Taxes P1,087,320

Schedule IComputation of Interest Revenue on

Installment Sale ContractCash selling price (sales) P4,584,000Payment made on January 1, 20x3 936,000Balance outstanding at 12/31/x3 3,648,000Interest rate 9%

Interest Revenue P 328,320

Multiple Choice Problems 1. a

Costs incurred each year (2.5 M + 2.0 M + 1 M* + .5 M) P 6 MAdd: Cost incurred in prior years 0Costs incurred to date P 6 MAdd: Estimated cost to completeTotal estimated costs P 18 MPercentage of completion 6 M / 18M

Administrative cost as long as reimbursable is included in the construction costs.Marketing costs are considered as expenses.Depreciation of idle equipment is charged to expenses.

2. b P7,200,000

——————————— x (P15,000,000 – P12,000,000) = P1,800,000.P7,200,000 + $4,800,000

3. cP1,170,000—————- x (P3,300,000 – P1,950,000) = P810,000P1,950,000

(P3,300,000 – P2,010,000) – P810,000 = P480,000.

4. d

Under the percentage of completion method, the Construction-In-Progress account is used for cost incurred during the year and any realized gross profit (loss). The following T-account is prepared:

Construction-In-Progress CI in 2004 210,000 RGP in 20x4 (?) 34,000 End of 20x4 244,000 CI in 20x5 384,000 RGP in 20x5 (?) 100,000

End of 20x5 728,000

5. b P1,200,000————— x (P7,200,000 – P4,800,000) = P600,000.

P4,800,000

6. c P7,200,000 – P4,875,000 =P2,325,000.

7. a

20x4

Contract Price P4,800,000

x: Percentage-of-completion _______75%

Recognized Revenue to date P3,600,000

Less: Costs incurred to date P3,400,000

Gross Profit to date P 200,000

Less: GP in prior year _______-0-

Gross profit in current year P 200,000

8. a P3,600,000————— x (P8,400,000 – P6,000,000) = P1,440,000.P6,000,000

9. b P8,400,000 – P5,600,000 = P2,800,000.

Items 10 and 11

No number requirement identified, if percentage-of-completion then the answer would (a) a [P1,950,000 ÷ (P1,950,000 + P1,300,000)] × P2,250,000 = P1,350,000

(P5,500,000 – P3,350,000) – P1,350,000 = P800,000.

10. Cost Recovery Method - c - P5,500,000 – P3,350,000 = P2,150,000.

11. a - Gross profit is recognized in the year of sale, 20x4; therefore, in 20x6 no gross profit should be realized.

12. c P600,000—————————— x (P1,500,000 – P1,000,000) = P300,000 P600,000 + P400,000

(P1,500,000 – P1,050,000) – P300,000 = P150,000.13. a

Contract Price P6,000,000

Less: Total Estimated Costs

Costs Incurred-1/10/x4 to 12/31/x5 P3,600,000

Add: Estimated costs to complete 1,200,000 4,800,000

Less: Costs incurred to date P1,200,000

Multiplied by: % of completion ___3.6/4.8

Gross Profit to date P 900,000

Less: GP in prior year (given) ___600,000

Gross profit in current year P 300,000

14. b 20x4: Cost to date – P7,500,000 x 20% P1,500,000 20x5: Cost to date – P8,000,000 x 60% 4,800,000

Cost incurred during 20x5 P3,300,000

15. b = (P25,000,000 × .60) – (P22,500,000 × .25) = P9,375,000.

16. bCosts Incurred 50,000Contract price………………………………………. P260,000Cost incurred each year………………………….. P 50,000Add: Cost incurred in prior year…………………. -0-Costs incurred to date…………………………….. P 50,000Add: Estimated costs to complete……………… 150,000Total estimated costs………………………………. P200,000Estimated gross profit (loss)………….……………. P60,000)Multiplied by: percentage of completion……….. __50/200 15,000Construction In Progress account 65,000Less: Progress billings 30,000

Construction In Progress account (net) or Due from customers 35,000

17. d - P2,040,000 – P980,000 = P1,060,000 (revenue limited to costs incurred since cost-recovery method must be used).

18. a - P2,040,000 – (P1,000,000 + P1,000,000) = P40,000.19. c - (P1,000,000 + P1,000,000) – (P648,000 + P1,280,000) = P72,000.

20. d

21. dRecognized gross profit (loss) to date………….. P( 100,000)Less: Recognized gross profit in prior

years…….____20,000

Recognized gross profit each year…………….. P (120,000)

22. b = P5,600,000 – (P2,560,000 + P3,280,000) = –P240,000.

23. cPrior year Current year

Contract price………………………………………. P7,000,000

P7,000,000

Cost incurred each year…………………………..Add: Cost incurred in prior year………………….Costs incurred to date…………………………….. P5,000,000Add: Estimated costs to complete……………… 2,800,000Total estimated costs………………………………. P7,800,000Estimated gross profit (loss)………….…………….

(P 800,000)

Multiplied by: percentage of completion……….. _____100%Recognized gross profit (loss) to date………….. P600,000 (P 800,000)Less: Recognized gross profit in prior

years…….___600,000

Recognized gross profit each year…………….. (P1,400,000)

24. c P7,440,000 .30 = P2,232,000.

25. d (P7,200,000 .75) – (P7,100,000 .30) = P3,270,000.

26. b (P7,440,000 .75) – (P620,000 8) = P620,000 debit.

27. c P7,440,000 .25 = P1,860,000 P7,500,000 – (P7,200,000 .75) = P2,100,000.

28. b (P9,000,000 – P8,250,000) (P3,795,000 ÷ P8,250,000) = P345,000.

29. c P3,795,000 + P345,000 = P4,140,000.

30. d P3,500,000 –P1,350,000 – P1,525,000 = P625,000.

31. b P240,000 – P100,000 = P140,000.

32. d P300,000 – P60,000 = P240,000

P240,000————————— x (P2,400,000 – Total estimated cost) = P60,000Total estimated cost

Total estimated cost = P1,920,000P2,400,000 – P1,920,000 =P480,000.

33. c (P6,325,000 ÷ P13,750,000) × P1,250,000 = P575,000.

34. a (P6,325,000 ÷P13,750,000) × P1,250,000 = P575,000.P6,325,000 + P575,000 = P6,900.000.

35. d - P85M costs incurred in 2011 = revenue recognized in 2011. Under the costs recovery (zero-profit approach) of construction accounting, revenue is recognized up to the extent of costs incurred as long as it is probable will be recoverable.

36. b - 20x5: P12,000,000 > P11,870,000, No loss; 20x6: P12,000,000 – P12,400,000 = P400,000 loss.

37. a - Revenue recognized to the extent of costs incurred

38. c P3,200,000 – P2,150,000 = P1,050,000.

39. c P1,500,000 – P820,000 = P680,000.

40. a Under PFRS, the excess of Construction In Progress amounting to P2,100,000

(P2,250,000 – P150,000, loss) – P1,900,000, billings = P200,000 is classified as due from customers.

Under the US FASB, the excess of P200,00 is considered as an inventory account.

41. cCosts of construction 1,200,000Construction in progress 800,000 Revenue for long-term contracts 2,000,000Percentage complete = P1,200,000 / (P1,200,000 +P600,000) = 2/3Revenue recognized = 2/3 P3,000,000 = P2,000,000Cost recognized = P1,200,000Gross profit recognized = P2,000,000 P1,200,000 = P800,000

42. aCosts of construction P1,200,000Profit 800,000Construction In Progress P2,000,000Less: Progress billings 1,500,000Excess (Due from customers) P 500,000

43. bCosts of construction 600,000Construction in progress 400,000 Revenue for long-term contracts 1,000,000

Total revenue P3,000,000 revenue previously recognized P2,000,000 = Revenue to recognize this year P1,000,000. Cost recognized = P600,000 Gross profit recognized = P1,000,000 P600,000 = P400,000

44. dCosts of construction 1,200,000

Revenue for long-term contracts1,2000,00

0 Under cost recovery method, revenue should be recognized up to the extent of costs

incurred.

45. bCosts of construction P1,200,000Profit 0Construction In Progress P1,200,000Less: Progress billings 1,500,000Excess (Due to customers) P( 300,000)

46. dCosts of construction 600,000Construction in progress 1,200,000 Revenue for long-term contracts 1,800,000

Under the cost recovery method, record equal amounts of revenue and cost until cost recovered, and then record gross profit. In 20x4, recorded revenue and cost of P1,200,000, so record remaining cost of P600,000 and all gross profit of P1,200,000 in 20x5.

47. a20x4 20x5

Contract price P 9,600,000 P10,080,000

Costs incurred to date P 4,920,000 P 8,640,000

Add: Estimated cost to complete 4,920,000 2,160,000Total estimated costs P 9,840,000 P

10,800,000Estimated Gross Profit (loss) P(240,000

)P

(720,000)Multiply by: % of completion 100% 100%Recognized Gross Profit (Loss) to date P

(240,000)P

(720,000)Less: Gross Profit (Loss) in prior year _________ (240,000)Recognized Gross Profit (Loss) in current year P

(240,000) P

(480,000)

% of Completion / Cost Recovery Method: Construction in Progress Progress Billings

CI 4,920,000 240,000 loss 5,280,000

4,680,000 5,280,000CI 3,720,000 480,000 loss 3,420,000

7,920,000 8,700,000

due to customersP780,000

Note: If there is an anticipated loss, the Construction-in-Progress for both methods will exactly be the same in the year the loss was incurred.

48. dPercentage of Completion: Project 6 Project 7 Project 8Contract price………………………….. P500,000 P700,000 P250,000Cost incurred each year………………. P375,000 P100,000 P100,000Add: Cost incurred in prior year……… _________ ________ ________Costs incurred to date………………… P375,000 P100,000 P100,000Add: Estimated costs to compute……. ________ 400,000 100,000Total estimated costs…………………. P375,000 P500,000 P200,000Estimated gross profit………………… P125,000 P200,000 P 50,000Multiply by: percentage of completion.

100%

20% 50%

Recognized gross profit to date……… P125,000 P 40,000 P 25,000Less: Recognized gross profit in prior

years_________ _________ _________

Recognized gross profit each year…. P125,000 P 40,000 P 25,000

C ost Recovery Method of Construction Accounting: Project 6 Project 7 Project 8

Recognized Revenue………..……….. P500,000*

P100,000 P100,000

Less: Costs of long-term construction contract…………………………….. 375,00

0 100,000 100,000

Recognized gross profit each year…. P125,000 P 0 P 0 * Since the contract is completed then the full amount of P500,000 contract price should be

recognized as revenue.

Percentage of Completion Cost Recovery Method of Construction

Construction in Progress Construction in Progress

Pr. 6 - Cl. 375,000 Pr.

125,000Pr. 7 – Cl. 100,000

Pr. 40,000Pr. 8. Cl 100,000

Pr. 100,000

500,000 Pr. 6 Pr. 6 - Cl. 375,000

Pr. 125,000 Pr. 7 – CI 100,000

Pr. 8 – CI 100,000700,000

12/31 200,000

500,000 Pr. 6

500,000(d)

765,000 500,00012/31 265,000

(d)

49. a Input Measures: Efforts-Expended Method - using timbers laid

Year 2 Year 3Timers laid Each Year 300 500Add: Timbers laid in Prior Years 150 450Timbers laid to date 450 950Add: Additional support timbers to be laid 520 -0-Total Estimated Timbers 970 950Percentage-of-Completion 45/97 100%x: CONTRACT PRICE P 800,000 P 800,000Recognized Revenue to Date P 371,134 P 800,000Recognized Revenue in Prior Years 371,134Recognized Revenue in Current Yr. P

428,866

Output Measures – Number of trail feetYear 2 Year 3

Trail feet Each Year 7,500 8,000Add: Trail fees in Prior Years 3,000 10,500Trail feet to date 10,500 18,500Add: Additional trail feet to be constructed 8,200 ___-0-Total Estimated Trail feet 18,700 18,500Percentage-of-Completion 105/187 100%x: CONTRACT PRICE P 800,000 P 800,000Recognized Revenue to Date P 449,198 P 800,000Recognized Revenue in Prior Years 449,198Recognized Revenue in Current Yr. P

350,802

50. b2006 2007 2008

Contract price………………………….. P5,000,000

P5,000,000

P5,000,000

Cost incurred each year………………. P2,050,000

Add: Cost incurred in prior year……… 900,000 2,550,000Costs incurred to date………………… P

900,000P2,550,00

0P4,600,000

Add: Estimated costs to complete 1,700,000

-0-

Total estimated costs…………………. P4,250,000

P4,600,000

Estimated gross profit………………… P 750,000

P 400,000

Multiply by: percentage of completion. 60%

100%

Recognized gross profit to date……… P 100,000

P 450,000

P 400,000

Less: Recognized gross profit in prior years

-0- 100,000 450,000

Recognized gross profit each year…. P 100,000

P 350,000

P( 50,000)

51. d – refer to No. 50

52. c Contract Price……………………………………………… P60,000,000 Less: Total Estimated Costs

Cost Incurred to Date……………………………… P26,000,000 Add: Estimated Costs to Complete……………… 25,000,000 51,000,000

Estimated Gross Profit……………………………………. P 9,000,000 Multiplied by: % of completion…………………………. 30% Recognized gross profit to date……………………….. P 2,700,000 Less: RGP in prior years…………………………………… _________0 Recognized gross profit in current year……………… P 2,700,000

Construction-in-progress Account: Costs incurred to date………………………………….. P 26,000,000 GP in the current year…………………………………… 2,700,000 P 28,700,000 Less: Progress billings…………………………………….. 5,000,000 Due from customer (net)………………………………. P 23,700,000

53. c

Contract Price P100,000,000Multiplied by: Gross Profit Rate _________25%Estimated Gross Profit of the entire contract P 25,000,000Multiplied by: Percentage of Completion for first year _________50%Gross Profit realized for current year P 12,500,000

54. c Contract Price P120,000,000

x: Mobilization Fee 10%

Collection in 20x4 P 12,000,000Note: Billings for 20x4 will be collected in January 20x5.

55. aMobilization Fee: 5% x P10M P 5.0 MCollection on Billings:

Contract price P 100 Mx: Progress billings, net of 10% and 8% (50% - 10% - 8%) 32%Progress billings P 32 Mx: Collections net of contract retention of 10% 90% 28.8

MCollections in 20x4 P 33.8 M

56. b – cost recovery method is used. At the end of 20x4 the contractor must recognized only to the extent of recoverable

contract costs incurred (i.e., P5,000 contract revenue and P5,000 construction costs/expenses).